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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to _____________
COMMISSION FILE NUMBER 0-17869
COGNEX CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2713778
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE VISION DRIVE
NATICK, MASSACHUSETTS 01760-2059
(508) 650-3000
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates
as of March 1, 1998: $822,115,693
$.002 par value common stock outstanding as of March 1, 1998: 41,829,639 shares
Documents incorporated by reference:
Specifically identified information in the Annual Report to Stockholders for the
year ended December 31, 1997, is incorporated by reference into Parts I and II
hereof.
Specifically identified information in the definitive Proxy Statement for the
Special Meeting in Lieu of the 1998 Annual Meeting of Stockholders to be held on
April 21, 1998, is incorporated by reference into Part III hereof.
A list of Exhibits to this Annual Report on Form 10-K is located on pages 18 and
19.
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PART I
The Company's results are subject to certain risks and uncertainties. This
annual report on Form 10-K contains certain forward-looking statements within
the meaning of the Federal Securities Laws. The Company's future results may
differ materially from current results and actual results may differ
materially from those projected in the forward-looking statements as a result
of certain risk factors. Readers should pay particular attention to
considerations described in the sections captioned "Liquidity and Capital
Resources" and "Forward-Looking Statements" in Management's Discussion and
Analysis of Financial Condition and Results of Operations appearing on pages
15 through 17 of the Annual Report to Stockholders for the year ended
December 31, 1997, which is Exhibit 13 hereto, and is incorporated herein by
reference, as well as considerations included in other documents filed with
the Securities and Exchange Commission.
ITEM 1. BUSINESS
CORPORATE PROFILE
Cognex(R) Corporation ("Cognex" or the "Company," each of which term
includes, unless the context indicates otherwise, Cognex Corporation and its
subsidiaries) was incorporated in Massachusetts in 1981. Its principal
executive offices are located at One Vision Drive, Natick, Massachusetts
01760 and its telephone number is (508) 650-3000.
The Company designs, develops, and markets a family of machine vision
systems that are used to replace human vision in a wide range of
manufacturing processes. These high-level systems consist of sophisticated
image analysis software and high-speed, special-purpose computers (vision
engines) which, when connected to a video camera, interpret and generate
information about video images. For example, a Cognex machine vision system
can locate an object, read alphanumeric characters, detect flaws, or measure
dimensions.
Machine vision systems are used in a variety of industries including the
semiconductor, electronics, automotive, consumer products, packaging,
pharmaceutical, metals, plastics, and paper industries. Machine vision is
important for applications in which human vision is inadequate due to
fatigue, visual acuity, or speed, or in instances where substantial cost
savings are obtained through the reduction of direct labor and improved
product quality. Today, many types of manufacturing equipment require machine
vision because of the increasing demands for speed and accuracy in
manufacturing processes, as well as the decreasing geometries of items being
manufactured.
WHAT IS MACHINE VISION?
In a typical machine vision application, a video camera positioned on
the production line captures an image of the part to be inspected. The
machine vision computer then uses sophisticated image analysis software to
extract information from the image and provide an answer to a question.
Cognex machine vision systems can answer four types of questions:
<TABLE>
<CAPTION>
QUESTION DESCRIPTION EXAMPLE
-------- ----------- -------
GUIDANCE
--------
<S> <C> <C>
Where is it? Determining the exact physical Determining the position of a printed circuit board
location of an object. so that a robot can automatically be guided to
insert electrical components.
</TABLE>
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<TABLE>
<S> <C> <C>
IDENTIFICATION
--------------
What is it? Identifying an object by analyzing Identifying the serial number on an automotive
its shape or by reading a serial airbag so that it can be tracked and processed
number on it. correctly through manufacturing.
INSPECTION
----------
How good is it? Inspecting an object for flaws or Inspecting the quality of printing on
defects. pharmaceutical labels and packaging.
GAUGING
-------
What size is it? Determining the dimensions of an Determining the diameter of a bearing prior to
object. final assembly.
</TABLE>
Once the machine vision system has processed the image and performed any
necessary analysis, the result is then communicated to other equipment on the
factory floor, such as an industrial controller, a robotic arm, a deflector
which removes the part from the line, a positioning table which moves the
part, or alternatively, to a computer file for analysis or subsequent process
control. This process is repeated during the manufacturing process as product
moves into position in front of the camera. Machine vision systems can
perform inspections quickly enough to keep pace with machines that process
thousands of items or material feet per minute, thus increasing both quality
and productivity.
THE MACHINE VISION MARKET
The machine vision market can be segmented into two categories: original
equipment manufacturers (OEMs) and the factory floor. The factory floor can
be further subdivided between system integrators and end users. OEMs are
companies that build standard products sold as capital equipment for the
factory floor. These customers, most of which are in the semiconductor and
electronics industries, have the technical expertise to build Cognex's
programmable, board-level machine vision systems directly into their products
which are then sold to end users.
System integrators are companies that create complete, automated
inspection solutions for end users on the factory floor in a variety of
industries. For example, they combine lighting, conveyors, robotics, machine
vision, and other components to produce custom inspection systems for various
applications. Because system integrators encounter a broad range of
automation problems, they purchase a variety of Cognex products, from
programmable systems to application-specific solutions tailored to solve
particular manufacturing tasks.
End users are companies that manufacture products, such as radios,
telephones, ball-point pens, metals, and paper on the factory floor. While
they may purchase capital equipment containing machine vision or hire a
system integrator to build an inspection system, many end users choose to
purchase machine vision directly to solve specific applications on their
production lines. Unlike OEMs and system integrators, these customers
typically have little or no computer programming or machine vision
experience.
BUSINESS STRATEGY
The Company's goal is to expand its position as a leading worldwide
supplier of machine vision systems for factory automation. Currently, the
Company's products are designed for factory automation because the Company
believes that this market offers the greatest opportunity for selling high
value-added, standard products in high volume. Within the factory automation
market, the Company has historically focused primarily on those customers who
must have machine vision because of the increasing complexity of their
products or manufacturing methods.
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Emphasizing high value-added products and applications is important to
the Company's strategy because not every segment of the machine vision market
offers opportunity for sustained profitability. High value-added is realized
in the Company's products in several ways. The primary value-added is derived
from offering unique vision software algorithms which solve challenging
problems better than competing products. The other major mode of realizing
high value-added is by offering products which are complete solutions to
known problems, incorporating all of the necessary vision software,
applications software, hardware, and electro-optics. Both modes of realizing
high value-added require the Company to maintain an industry-leading level of
investment in research, development and engineering.
Within the factory automation market, the Company has tailored its
product and support offerings to match the characteristics of its two major
segments: OEMs and the factory floor. Historically, the OEM segment has been
the source of the majority of the Company's sales. However, the Company
believes that the factory floor segment has the potential in the long term to
be larger than the OEM segment. Consequently, the Company has invested in
developing and acquiring products which meet the needs of the factory floor
market and in developing a strong worldwide direct sales and support
infrastructure. The Company will continue to invest in both segments of the
market, defending its strong position in the OEM segment while expanding in
the factory floor segment.
The Company has historically pursued a global business strategy,
investing in building a strong direct presence in North America, Japan,
Europe, and Southeast Asia. In 1997, approximately 62% of the Company's
revenue came from markets outside of the United States. In all of these
regions, the Company is acknowledged to be a leading machine vision supplier.
The Company intends to continue to invest in the expansion of direct sales,
support, local marketing, and local engineering in these regions.
The factory automation market for machine vision is comprised of many
market niches defined by differing application requirements, industries, and
cost/performance criteria. The Company's business strategy includes selective
expansion into other industrial machine vision applications which will be
driven both by the internal development of new products and the acquisition
of companies and technologies. In July 1995, the Company acquired Acumen,
Inc., a developer of machine vision systems for semiconductor wafer
identification. In February 1996, the Company acquired Isys Controls, Inc., a
developer of high-performance machine vision systems for high-speed surface
inspection. In July 1997, the Company acquired Mayan Automation, Inc., a
developer of intelligent camera-based machine vision systems for surface
inspection. These acquisitions gave Cognex an immediate and strong presence
in the growing niche markets for semiconductor wafer identification and
surface inspection.
PRODUCTS
The Company develops and sells a wide range of machine vision products.
These products fall into two lines: the Modular Vision System (MVS) Product
Line and the Surface Inspection System (SIS) Product Line. The Company
estimates that it had sold approximately 70,000 machine vision systems as of
December 31, 1997.
The MVS Product Line consists of an integrated family of proprietary
vision software components together with vision hardware components (embedded
vision engines and frame grabbers) which require minimal customization and
support by the Company. Modular Vision Systems sold by the Company are
defined as either general-purpose or application-specific products.
General-purpose machine vision products enable customers to solve a wide
range of problems by selecting the tools necessary to solve their vision
problem from the Company's vision software library and then configuring their
solution by utilizing a programmable language or a "point-and-click"
interface. Application-specific machine vision products are "packaged"
combinations of software and hardware that are designed to solve targeted
problems without any customization by the Company or its customers. A typical
Cognex Modular Vision System, including software and hardware, ranges in
price from $7,500 to $20,000.
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The SIS Product Line consists of a family of intelligent line-scan
cameras, high-performance image processing hardware, special-purpose
illumination systems, and proprietary defect detection and classification
software. These elements are combined into complete systems which range in
price from $25,000 to $2,500,000, depending upon the number of cameras and
the processing speed. The Company's Surface Inspection Systems are
application-specific products intended to solve surface inspection problems
within a targeted set of industries and applications without any
customization by the Company or its customers.
MODULAR VISION SYSTEM PRODUCT LINE
Programmable Vision Systems
Cognex Programmable Vision Systems (PVSs) are board-level vision systems
programmable in C-language. PVSs are comprised of software and hardware
"building blocks" that enable customers to construct solutions tailored to
their application needs. The Company offers a library of vision software
tools that locate patterns, inspect for defects, measure geometric
properties, and identify parts. The hardware is a family of embedded vision
engines and frame grabbers.
Embedded vision engines are vision computers which plug into the
backplane of a standard personal computer (PC) or VME bus architecture. Each
embedded vision engine contains an on-board central processing unit (CPU),
image capture mechanism, memory, and input/output connector, enabling the
host computer to off-load all vision tasks to the vision processor. Frame
grabbers are single-board image capture devices which capture images from
video cameras and input the images directly into the host CPU over a standard
bus, such as a PCI. In this case, the Cognex vision software tools run
directly on the PC's CPU.
Customers first choose the most appropriate software tools from the
vision software library and then select the hardware platform that satisfies
their speed and price requirements. To create a vision solution, users write
a C-language program that connects the software blocks appropriate for their
vision tasks and then run the application on the selected hardware platform.
Customers are given the flexibility to configure their own vision solutions
to a broad range of complex vision problems without detailed support from the
Company. Cognex vision hardware is functionally and software compatible
across product lines, allowing customers to readily upgrade to higher
performance systems or to change platforms as their application needs change.
In 1997, the Company introduced the Cognex MVS 8000 Series which
includes both embedded vision engines and frame grabbers, as well as new
vision software tools which offer improvements in accuracy and robustness.
The 8000 Series is designed to exploit the power of Intel MMX-based
processors, Microsoft Windows/NT operating systems, and high-speed PCI
bus-based PCs. The Company also offers the Cognex 4000 Series which plugs
directly into a VME backplane, as well as the Cognex 5000 and 6000 Series
which run on PCs.
PVSs are sold primarily to OEMs located in North America and Japan who
integrate the vision systems into manufacturing equipment for the
semiconductor and electronics industries. PVSs are also sold to system
integrators located principally in North America, Japan, Europe, and
Southeast Asia who integrate the vision systems into manufacturing equipment
for the factory floor in industries ranging from automotive to
pharmaceutical.
"Point-and-Click" Programmable Systems
The Checkpoint(R) family of vision systems (the Checkpoint 900 which
runs on a PC and the Checkpoint 800 which plugs directly into a VME
backplane) is designed for manufacturing engineers who do not program in
C-language and are looking for a rapid application development environment.
Checkpoint combines the Company's existing vision software and standard
vision hardware platforms with a unique Microsoft Windows-based graphical
user interface (GUI). Manufacturing engineers utilize pull-down menus and
dialog boxes in the GUI to create customized vision applications. This
"point-and-click" programming environment enables the developer to focus on
tasks associated with solving the overall vision application, freeing the
developer from the detail and complexity of programming in C-
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language. The library of vision tools currently available with Checkpoint
enables users to solve a wide range of inspection, gauging, assembly
verification, and defect detection problems.
The Company introduced Checkpoint in 1994 for the factory floor market.
Checkpoint is sold primarily to end users and system integrators located in
North America, Japan, Europe, and Southeast Asia in a wide range of general
manufacturing industries, such as manufacturers of medical devices,
batteries, power tools, disposable consumer goods, and electronic components.
Although the application environment is designed for engineers with little
programming or machine vision experience, deployment of Checkpoint on the
factory floor requires the services of trained system integrators to
mechanically and electrically integrate Checkpoint into manufacturing lines.
Application-Specific Modular Vision Systems
Application-specific products are "packaged" combinations of software
and hardware that are designed to solve targeted problems without any
customization by the Company or its customers. The Company's
application-specific products are designed to address particular requirements
of certain vision applications and are sold to OEMs, system integrators, and
end users worldwide. A partial list of application-specific products is as
follows:
Surface Mount Device Placement Guidance Package (SMD/PGP), when
coupled with a Cognex 4000, 5000, or 8000 Series machine vision engine,
quickly and accurately locates fiducial marks on printed circuit boards
for alignment, inspects the quality of surface mount devices, and then
guides the placement of those devices onto printed circuit boards. For
high-performance lead inspection in time-critical applications, the
SMD/PGP tools have real-time image acquisition capability, eliminating
the need to stop the motion of the placement machine in order to capture
an image of a moving part.
Cognex acuReader/Optical Character Recognition (OCR) reads even the
most degraded serial numbers from semiconductor wafers with near 100%
accuracy.
Cognex acuReader/2D reads automatic identification manufacturers
(AIM) standard data matrix symbologies. The two-dimensional codes are
used as alternative marks for identifying wafers, integrated circuit
packages, liquid crystal display (LCD) panels, pharmaceutical packages,
and for small parts tracking applications.
Cognex acuReader/Optical Character Verification (OCV) verifies the
print produced by laser, pad, or offset printing equipment.
Cognex acuFinder(R) locates parts, regardless of rotation and
scale, and guides robots in the assembly, sorting, and packaging of
appliance, automotive, consumer, and electronics products.
Ball Grid Array (BGA) Inspection Package inspects BGA devices for
missing, misplaced, or improperly formed solder balls.
Cognex Fiducial Finder, when coupled with a Cognex 4000, 5000, or
8000 Series machine vision engine, locates fiducial or alignment marks on
printed circuit boards.
Cognex Print Quality Inspection (PQI), when coupled with a Cognex
4000 or 5000 Series machine vision engine, quickly and accurately
inspects print produced by laser, pad, or offset printing equipment.
SURFACE INSPECTION SYSTEM PRODUCT LINE
Fine-Line Intelligent Camera Systems
Fine-Line Intelligent Camera Systems are complete surface inspection
devices packaged in a compact and rugged enclosure. Each camera contains a
line-scan charge-coupled device (CCD) sensor, image digitizer, digital signal
processor (DSP), custom hardware for pixel processing, surface inspection
algorithms in firmware, and a CPU for control and communications. In addition
to the
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camera, the Company provides a PC-based operator interface, specialized
lighting components, and power supply/control boxes to provide customers with
a complete solution to their surface inspection applications. Fine-Line
systems can be used in a single-camera, "stand-alone" fashion for simple,
narrow web applications, or they can be installed in multi-camera
configurations to view wider webs. Fine-Line systems, which range in price
from $25,000 to $150,000, depending upon the number of cameras, are targeted
primarily at the plastics, non-wovens, and converting markets.
iS High Performance Inspection Systems
iS High Performance Inspection Systems are designed for the most
demanding surface inspection applications. iS systems are built from a family
of hardware and software components which include proprietary line-scan
cameras with motorized camera mounts, specialized lighting systems,
ultra-high performance image processing boards, Unix workstations, and
intelligent defect detection and classification software algorithms. iS
systems can contain from one to sixty cameras and can be used to inspect webs
up to 25 feet wide at speeds of up to 5,000 feet per minute. iS systems,
which range in price from $300,000 to $2,500,000, depending upon the number
of cameras and the processing speed, are targeted primarily at metals,
specialized coated paper, and high-value non-woven materials producers.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company engages in research, development and engineering (R,D & E)
to enhance its existing products and to develop new products and
functionality to meet market opportunities. The Company considers its
on-going efforts in R,D & E to be a key component of its strategy.
The MVS engineering group released the first product of the new 8000
Series during 1997, with additional products of this series planned for
release during 1998. The software for this series and the family of
compatible hardware, from frame grabbers to fully embedded board-level
vision systems, utilize the processing capabilities of Intel MMX
architecture. During 1998, the MVS engineering group will be further
leveraging the technical power of PatMax, a major advance in high-accuracy
rotation and scale invariant pattern recognition, introduced by the Company
in 1997. Both PatMax and PatMax/Inspect, an innovative companion defect
inspection technology, will substantially increase the performance and range
of the Company's application-specific products, such as surface mount device
and wirebonder inspection, as well as increase the capabilities of the
Company's "point-and-click" vision development systems, including Checkpoint.
During 1998, the MVS engineering group also plans to release new versions of
PatMax and PatMax/Inspect.
The SIS engineering group introduced several new products during 1997,
including products for improved illumination of large web applications,
high-performance line-scan cameras and controllers, and an advanced
intelligent classifier. These additional capabilities will improve both the
performance and range of applications serving the metals industry, as well as
broaden the number of applications and industries served to include plastics
and non-wovens. The SIS Product Line was further expanded through the
acquisition of Mayan Automation, Inc., a developer of intelligent
camera-based machine vision systems for surface inspection, in the third
quarter of 1997. The combination of intelligent camera systems for smaller
applications and large, integrated systems technology provides the Company
with the unique ability to match a wide range of user requirements. During
1998, the SIS engineering group will further expand the capabilities of its
newly-acquired intelligent camera technology to cost-effectively match higher
performance requirements within the industries that it serves, while it also
plans development activities in its integrated systems business to further
improve performance. With the advent of as many as ten new intelligent
classification systems (iLearn) coming on-line, the Company seeks to attain
broad industry acceptance, as its customers find it easier to apply and
benefit from surface inspection technology. iLearn automatically generates
rules for classifying surface defects into user-defined categories, thereby
dramatically reducing the start-up time and effort required to tune the
inspection system to meet the needs of each individual production line and
product type.
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In addition to internal research and development efforts, the Company
intends to continue its strategy of gaining access to new technology through
strategic relationships and acquisitions where appropriate.
At December 31, 1997, the Company employed 152 professionals in R,D &
E, most of whom are software developers. The Company's R,D & E expenses
totaled $22,481,000, $19,434,000, and $13,190,000, or 14%, 16%, and 13% of
revenue, in 1997, 1996, and 1995, respectively.
MANUFACTURING
The Company's MVS Product Line is manufactured at its Natick,
Massachusetts headquarters. The Company's Natick manufacturing organization
has completed its transition to a turnkey manufacturing operation whereby the
majority of component procurement, subassembly, final assembly, and initial
testing are performed under agreement by third-party contractors. After the
completion of initial testing, the third-party contractors deliver the
products to the Company to perform final testing and assembly. The products
provided by the third-party contractors are manufactured using specified
components and assembly and test documentation created and controlled by the
Company. Certain components purchased by the third-party contractors are
presently available from a single source.
The Company's iS products are manufactured at its Alameda, California
facility and its Fine-Line products are manufactured at its Montreal, Canada
facility. The manufacturing processes at the Alameda and Montreal facilities
consist of systems design, configuration management and control, component
procurement, subassembly, integration and final test, quality control,
shipment, and installation. Certain products are manufactured by third-party
contractors using assembly and test documentation created and controlled by
the Company. Certain components purchased by the third-party contractors are
presently available from a single source.
SALES AND SERVICE
The Company markets its products through a direct sales force in North
America, and through a direct sales force and distributors in Japan, Europe,
and Southeast Asia. The Company's distributors do not have any rights of
return, and payment for products is due upon delivery. Distributors generally
have non-exclusive distribution rights and there may be more than one
distributor per territory.
The Company's direct sales force operates in the United States out of
its Natick, Massachusetts headquarters, its Regional Technology Centers in
Mountain View, California and Naperville, Illinois, and its sales offices
throughout the United States; in Canada out of its Montreal, Quebec and
Scarborough, Ontario offices; in Japan out of its Tokyo, Osaka, Nagoya, and
Fukuoka offices; in Europe out of its France, Germany, England, Italy,
Sweden, and Scotland offices; and in Southeast Asia out of its Singapore,
Korea, and Taiwan offices.
At December 31, 1997, the Company's direct sales and service force
consisted of 134 professionals, including sales and application engineers.
The majority of the Company's sales and service personnel have engineering or
science degrees. Sales engineers call directly on targeted accounts and
coordinate the activity of the application engineers. They focus on potential
customers that represent possible volume purchases and long-term
relationships. Opportunities that represent single-unit sales or turnkey
system requirements are identified by the sales engineer and turned over to
an independent system integrator or OEM that uses the Company's products. The
Company sells its MVS products to customers that have entered or are expected
to enter into volume discount contracts with the Company. These contracts are
typically for one year and have associated delivery schedules.
Sales to international customers represented approximately 62%, 55%, and
59% of revenue in 1997, 1996, and 1995, respectively. One international
customer based in Japan, Fuji America Corporation, accounted for
approximately 18%, 11%, and 16% of revenue in 1997, 1996, and 1995,
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respectively. Information about foreign and domestic operations, export
sales, and significant geographic areas, as well as foreign currency and
related risk may be found in the Notes to the Consolidated Financial
Statements, appearing on pages 23 through 25 and 35 through 36 of the Annual
Report to Stockholders for the year ended December 31, 1997, which is Exhibit
13 hereto, and is incorporated herein by reference. Although international
sales may from time to time be subject to federal technology export
regulations, the Company to date has not suffered delays or prohibitions in
sales to any of its foreign customers.
The Company provides software update services and hardware maintenance
on a contract basis. Software updates are provided via floppy disks and
hardware maintenance is provided by repairing or exchanging printed circuit
boards. Programming application services for projects can be contracted with
the Company on a time-and-material basis only when doing so enhances the sale
of the Company's standard products. Product courses are provided by the
Company at its headquarters in Natick, Massachusetts, at its offices in
Japan, France, Germany, and England, as well as at the customer site when
required. These courses provide the user with both lecture and laboratory
sessions covering the use of Cognex products.
PATENTS AND LICENSES
Since the Company relies on the technical expertise, creativity, and
knowledge of its personnel, it utilizes patent, copyright, and trade secret
protection to safeguard its competitive position. In addition, the Company
makes use of non-disclosure agreements with customers, suppliers, employees,
and consultants. The Company attempts to protect its intellectual property by
restricting access to its proprietary information by a combination of
technical and internal security measures. However, there can be no assurance
that any of the above measures will be adequate to protect the proprietary
technology of the Company. Effective patent, copyright, and trade secret
protection may be unavailable in certain foreign countries.
Cognex, Checkpoint, and acuFinder are registered trademarks of Cognex
Corporation. Patmax, Fine-Line, iS, and iLearn are trademarks of Cognex
Corporation. All other brand names, service marks and trademarks, whether or
not registered, are the property of their respective owners.
The Company's software products are generally licensed to customers
pursuant to a license agreement that restricts the use of the products to the
customer's purposes on a designated Cognex machine vision engine. The Company
has made portions of the source code available to certain customers under
very limited circumstances and for restricted uses. If source code is
released to a customer, the customer is required by contract to maintain its
confidentiality and, in general, to use the source code solely for internal
purposes or for maintenance.
Several users of the Company's products have received notice of patent
infringement from Technivision Corporation and Jerome H. Lemelson alleging
that their use of the Company's products infringes certain patents issued to
Mr. Lemelson. Certain of these users have notified the Company that, in the
event it is subsequently determined that their use of the Company's products
infringes any of Mr. Lemelson's patents, they may seek indemnification from
the Company for damages or expenses resulting from this matter.
Two users of the Company's products were engaged in litigation with Mr.
Lemelson/Technivision involving certain of these patents and the validity of
these patents was placed in issue. One user entered into a settlement
agreement with Mr. Lemelson. The Company is not a party to that settlement
and has no indemnification claims, or related obligations, with respect to
that settlement. Certain products sold by the Company, as well as the
products of others, were identified in connection with this litigation, which
claimed an allegedly infringing use.
With respect to the second user, in April 1996 the U.S. District Court
of Nevada ruled in favor of summary judgment for the user, thus disposing of
all actions in favor of such user. In April 1997, the same U.S. District
Court of Nevada reversed its decision with respect to the April 1996 summary
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judgment ruling. Subject to appeal of the reversal by the user, the case will
proceed to trial. On October 1, 1997 Mr. Lemelson died; however the
litigation will continue under his estate. The Company cannot predict the
outcome of this litigation or any similar litigation which may arise in the
future, or the effect of such litigation on the operating results of the
Company. The Company does not believe its products infringe any valid and
enforceable claims of Mr. Lemelson's patents.
COMPETITION
The Company competes with other vendors of machine vision systems, the
internal engineering efforts of the Company's current or prospective
customers, and the manufacturers of image processing systems. Any of these
competitors may have greater financial and other resources than the Company.
Although the Company considers itself to be one of the leading machine vision
companies in the world, reliable estimates of the machine vision market and
the number of competitors are almost non-existent, primarily because of
definitional confusion and a tendency toward double-counting of sales. The
primary competitive factors affecting the choice of a machine vision system
include product functionality and performance (e.g. speed, accuracy, and
reliability) under real-world operating conditions, flexibility,
programmability, and the availability of application support from the vendor.
More recently, ease-of-use has become a competitive factor and product price
has become a more significant factor with respect to simpler guidance and
gauging applications. The Company competes with the lower-cost, software-only
solutions being introduced by various competitors on the basis of superior
performance and price, rather than on price alone, through its 8000 Series.
In the paper industry market for high-performance surface inspection systems,
the Company has faced increased competition as a result of a merger between
Honeywell, a former distributor of the Company's iS products, and Measurex, a
supplier of competing surface inspection systems.
BACKLOG
At December 31, 1997, the Company's backlog totaled $32,618,000,
compared to $25,347,000 at December 31, 1996. Backlog reflects purchase
orders for products scheduled for shipment within six months. The level of
backlog at any particular date is not necessarily indicative of future
revenue of the Company. Delivery schedules may be extended and orders may be
canceled at any time subject to certain cancellation penalties.
EMPLOYEES
At December 31, 1997, the Company employed 529 persons, including 206 in
sales, marketing and support activities; 152 in research, development and
engineering; 76 in manufacturing and quality assurance; and 95 in information
technology, management, administration and finance. Of the Company's 529
employees, 61 are located in Japan. None of the Company's employees are
represented by a labor union and the Company has experienced no work
stoppages. The Company believes that its employee relations are good.
9
<PAGE> 11
ITEM 2: PROPERTIES
In 1994, the Company purchased and renovated a 100,000 square-foot
building located in Natick, Massachusetts. In 1997, the Company completed
construction of a 50,000 square-foot addition to this building. The Company's
corporate headquarters, principal administrative, sales and marketing,
research, development and engineering, manufacturing and quality assurance,
and support personnel are located in this facility. In addition, the Company
leases facilities in the United States in California, Illinois, and Oregon,
as well as in Canada, Japan, France, Germany, England, Italy, Sweden,
Scotland, Singapore, Korea, and Taiwan.
In 1995, the Company purchased an 83,000 square-foot office building
adjacent to its corporate headquarters. The building is currently occupied
with tenants who have lease agreements that expire at various dates through
the year 2000, at which point, the Company plans to take occupancy of the
building.
In 1997, the Company purchased a three and one-half acre parcel of land
situated on Vision Drive, adjacent to the Company's corporate headquarters in
Natick, Massachusetts. This land is anticipated to be used for future
expansion.
ITEM 3: LEGAL PROCEEDINGS
To the Company's knowledge, there are no pending legal proceedings,
other than as described in "Business - Patents and Licenses," which are
material to the Company to which it is a party or to which any of its
property is subject. From time to time, however, the Company may be subject
to various claims and lawsuits by customers and competitors arising in the
normal course of business, including suits charging patent infringement.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the year
ended December 31, 1997 to a vote of security holders through solicitation of
proxies or otherwise.
10
<PAGE> 12
ITEM 4A: EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF THE
REGISTRANT
The following table sets forth the names, ages, and titles of the
Company's executive officers at December 31, 1997:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Robert J. Shillman 51 President, Chief Executive Officer, and Chairman of the Board
of Directors
Patrick A. Alias 52 Executive Vice President, Sales and Marketing
John J. Rogers, Jr. 39 Executive Vice President, Chief Financial Officer, and Treasurer
Glenn Wienkoop 50 Executive Vice President, Subsidiary Operations
</TABLE>
Messrs. Shillman, Alias, and Rogers have been employed by the Company in
their present or other capacities for no less than the past five years.
Mr. Wienkoop joined the Company in 1997 as Executive Vice President of
Subsidiary Operations. From 1975 to 1997, he served in a number of
capacities, most recently as Executive Vice President and Division President,
at Measurex Corporation, a supplier of computer-integrated measurement,
control, and information systems for continuous manufacturing processes.
Executive officers are elected annually by the Board of Directors. There are
no family relationships among the directors and the executive officers of the
Company.
OTHER MEMBERS OF THE MANAGEMENT TEAM
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
E. John McGarry 41 Vice President, Development: Application-Specific
Accelerated Products
William Silver 43 Chief Technology Officer
</TABLE>
Mr. Silver has been employed by the Company in his present or other
capacities for no less than the past five years.
Mr. McGarry joined the Company in 1995 when the company he founded in 1991,
Acumen, Inc., was acquired by Cognex. From 1991 to 1995, he served as
President of Acumen, Inc., a developer of machine vision systems for
semiconductor wafer identification.
11
<PAGE> 13
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Certain information with respect to this item may be found in the
section captioned "Selected Quarterly Financial Data," appearing on page 42,
and the section captioned "Company Information," appearing on page 43 of the
Annual Report to Stockholders for the year ended December 31, 1997, which is
Exhibit 13 hereto, and is incorporated herein by reference.
The Company has never declared or paid cash dividends on shares of its
common stock. The Company currently intends to retain all of its earnings to
finance the development and expansion of its business and therefore does not
intend to declare or pay cash dividends on its common stock in the
foreseeable future. Any future declaration and payment of dividends will be
subject to the discretion of the Company's Board of Directors, will be
subject to applicable law, and will depend upon the Company's results of
operations, earnings, financial condition, contractual limitations, cash
requirements, future prospects, and other factors deemed relevant by the
Company's Board of Directors.
ITEM 6: SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section
captioned "Five-Year Summary of Selected Financial Data," appearing on page
41 of the Annual Report to Stockholders for the year ended December 31, 1997,
which is Exhibit 13 hereto, and is incorporated herein by reference.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information with respect to this item may be found in the section
captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations," appearing on pages 12 through 17 of the Annual Report
to Stockholders for the year ended December 31, 1997, which is Exhibit 13
hereto, and is incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item, which includes the consolidated
financial statements and notes thereto, report of independent accountants,
and supplementary data, may be found on pages 18 through 42 of the Annual
Report to Stockholders for the year ended December 31, 1997, which is Exhibit
13 hereto, and is incorporated herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting
or financial disclosure during 1997 or 1996.
12
<PAGE> 14
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company may be found in the
section captioned "Election of Directors," appearing in the definitive Proxy
Statement for the Special Meeting in Lieu of the 1998 Annual Meeting of
Stockholders to be held on April 21, 1998. Such information is incorporated
herein by reference. Information with respect to Executive Officers of the
Company may be found in the section captioned "Executive Officers and Other
Members of the Management Team of the Registrant," appearing in Part I of
this Annual Report on Form 10-K.
ITEM 11: EXECUTIVE COMPENSATION
Information with respect to this item may be found in the sections
captioned "Information Concerning the Board of Directors,"
"Compensation/Stock Option Committee Report on Executive Compensation,"
"Comparison of Five Year Cumulative Total Returns Performance Graph for
Cognex Corporation," and "Executive Compensation," appearing in the
definitive Proxy Statement for the Special Meeting in Lieu of the 1998 Annual
Meeting of Stockholders to be held on April 21, 1998. Such information is
incorporated herein by reference.
ITEM 12: SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item may be found in the sections
captioned "Principal Holders of Voting Securities" and "Security Ownership of
Directors and Officers," appearing in the definitive Proxy Statement for the
Special Meeting in Lieu of the 1998 Annual Meeting of Stockholders to be held
on April 21, 1998. Such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
13
<PAGE> 15
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of Cognex
Corporation and the report of independent accountants relating
thereto are included in the Company's Annual Report to
Stockholders for the year ended December 31, 1997, which is
Exhibit 13 hereto, and is incorporated herein by reference:
Report of Independent Accountants
Consolidated Statements of Income for the years ended
December 31, 1997, 1996, and 1995
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
Included at the end of this report are the following:
Report of Independent Accountants on the Financial Statement
Schedule
Schedule II - Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of conditions
under which they are required or because the required
information is given in the consolidated financial statements or
notes thereto.
(3) Exhibits
The Exhibits filed as part of this Annual Report on Form 10-K
are listed in the Exhibit Index appearing on pages 18 and 19,
immediately preceding such Exhibits.
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed during the fourth
quarter of the year ended December 31, 1997.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
COGNEX CORPORATION
/s/ Robert J. Shillman
----------------------
Robert J. Shillman
(President, Chief Executive Officer, and Chairman of
the Board of Directors)
March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert J. Shillman President, Chief Executive Officer, March 27, 1998
------------------------------- and Chairman of the Board of Directors
Robert J. Shillman (principal executive officer)
/s/ John J. Rogers, Jr. Executive Vice President, Chief Financial March 27, 1998
------------------------------- Officer, and Treasurer
John J. Rogers, Jr. (principal financial and accounting officer)
/s/ William Krivsky Director March 27, 1998
-------------------------------
William Krivsky
/s/ Anthony Sun Director March 27, 1998
-------------------------------
Anthony Sun
/s/ Rueben Wasserman Director March 27, 1998
-------------------------------
Rueben Wasserman
</TABLE>
15
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Cognex Corporation:
Our report on the consolidated financial statements of Cognex
Corporation has been incorporated by reference in this Form 10-K from page 40 of
the 1997 Annual Report to Stockholders of Cognex Corporation. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule for each of the three years in the period ended
December 31, 1997 listed in Item 14(a) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Boston, Massachusetts /s/ COOPERS & LYBRAND L.L.P.
January 23, 1998
16
<PAGE> 18
SCHEDULE II
COGNEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONS
----------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- --------- -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts
1997 $ 968 $ 1,268 -- $ (296) (a) $ 1,940
1996 709 542 -- (283) (a) 968
1995 684 25 -- -- 709
Reserve for Inventory Obsolescence
1997 $ 2,273 $ 278 -- $ (678) (b) $ 1,873
1996 541 4,361 -- (2,629) (b) 2,273
1995 599 -- -- (58) (b) 541
</TABLE>
(a) Specific write-offs
(b) Specific dispositions
17
<PAGE> 19
EXHIBIT INDEX
EXHIBIT NUMBER
2A Stock Purchase Agreement dated as of July 21, 1995 among
Acumen, Inc., the Shareholders of Acumen, Inc., and
Cognex Corporation (incorporated by reference to Exhibit
2 to the Report on Form 8-K filed on October 4, 1995)
2B Agreement and Plan of Merger dated as of February 29,
1996 among Cognex Corporation, Cognex Software
Development, Inc., Isys Controls, Inc., and Richard
Rombach (incorporated by reference to Exhibit 2 to the
Report on Form 8-K filed on March 15, 1996)
3A Articles of Organization of the Company effective January
8, 1981, as amended June 8, 1982, August 19, 1983, May
15, 1984, April 17, 1985, November 4, 1986, and January
21, 1987 (incorporated by reference to Exhibit 3A to the
Registration Statement Form S-1 [Registration No.
33-29020])
3B Restated Articles of Organization of the Company
effective June 27, 1989, as amended April 30, 1991, April
21, 1992, April 25, 1995, and April 23, 1996 (filed as
Exhibit 3B to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
3C By-laws of the Company as amended February 9, 1990 (filed
as Exhibit 3C to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990)
4 Specimen Certificate for Shares of Common Stock
(incorporated by reference to Exhibit 4 to the
Registration Statement Form S-1 [Registration No. 33-
29020])
10A Cognex Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4A to Amendment
No. 1 to the Registration Statement Form S-8
[Registration No. 33-32815])
10B Cognex Corporation 1992 Director's Stock Option Plan
(filed as Exhibit 10I to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992)
10C Cognex Corporation 1993 Director's Stock Option Plan
(filed as Exhibit 10J to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993)
10D Cognex Corporation 1993 Employee Stock Option Plan, as
amended May 28, 1996 (incorporated by reference to
Exhibit 4A to the Registration Form S-8 [Registration No.
333-4621])
10E Cognex Corporation 1996 Long-Term Incentive Plan
(incorporated by reference to Exhibit 4A to the
Registration Statement Form S-8 [Registration No. 333-
2151])
10F Purchase and Sale Agreement with respect to the Natick
Executive Park facility dated as of June 30, 1995 (filed
as Exhibit 10G to the Company's Annual Report on Form
10-K for the year ended December 31, 1995)
10G Amendment to the Cognex Corporation 1993 Director's Stock
Option Plan *
10H Amendment to the Cognex Corporation 1993 Employee Stock
Option Plan *
13 Annual Report to Stockholders for the year ended December
31, 1997 (which is not deemed to be "filed" except to the
extent that portions thereof are expressly incorporated
by reference in this Annual Report on Form 10-K) *
21 Subsidiaries of the registrant *
23 Consent of Coopers & Lybrand L.L.P. *
18
<PAGE> 20
27.A Financial Data Schedule for the year ended December 31,
1997 (electronic filing only) *
27.B Restated Financial Data Schedule for the quarter ended
March 30, 1997 (electronic filing only)*
27.C Restated Financial Data Schedule for the quarter ended
June 29, 1997 (electronic filing only)*
27.D Restated Financial Data Schedule for the quarter ended
September 28, 1997 (electronic filing only)*
27.E Restated Financial Data Schedule for the quarter ended
March 31, 1996 (electronic filing only)*
27.F Restated Financial Data Schedule for the quarter ended
June 30, 1996 (electronic filing only)*
27.G Restated Financial Data Schedule for the quarter ended
September 29, 1996 (electronic filing only)*
27.H Restated Financial Data Schedule for the year ended
December 31, 1996 (electronic filing only)*
27.I Restated Financial Data Schedule for the year ended
December 31, 1995 (electronic filing only)*
27.J Restated Financial Data Schedule for the year ended
December 31, 1994 (electronic filing only)*
* Filed herewith
19
<PAGE> 1
EXHIBIT 10G
COGNEX CORPORATION
Amendment to 1993 Stock Option Plan for Non-Employee Directors
The Cognex Corporation 1993 Stock Option Plan for Non-Employee
Directors (the "Plan") is hereby amended as follows:
1. Section 8 of the Plan is hereby deleted in its entirety and
the following is substituted therefor:
"8. TRANSFERABILITY OF OPTIONS
Any Option granted pursuant to this Plan shall not be
assignable or transferable other than by will or the laws of
descent and distribution, except that an optionee may transfer
Options granted under this Plan to the optionee's spouse or
children or to a trust for the benefit of the optionee or the
optionee's spouse or children."
2. Except as modified hereby, the Plan is hereby ratified and
confirmed in all respects.
COGNEX CORPORATION
By: \s\ Anthony J. Medaglia, Jr.
-------------------------------
Clerk
Adopted by the Board of Directors:
December 16, 1997
<PAGE> 1
EXHIBIT 10H
COGNEX CORPORATION
Amendment to 1993 Stock Option Plan
The Cognex Corporation 1993 Stock Option Plan (the "Plan") is hereby
amended as follows:
1. Section 11 of the Plan is amended by adding the following
after the last sentence of the paragraph:
"11. TRANSFERABILITY OF OPTIONS
Notwithstanding the foregoing, an optionee may transfer
non-qualified Options granted under this Plan to the
optionee's spouse or children or to a trust for the benefit of
the optionee or the optionee's spouse or children.
2. Except as modified hereby, the Plan is hereby ratified and
confirmed in all respects.
COGNEX CORPORATION
By: \s\ Anthony J. Medaglia, Jr.
---------------------------------
Clerk
Adopted by the Board of Directors:
December 16, 1997
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
Revenue for the year ended December 31, 1997 increased 26% over 1996 and net
income increased 33% over the prior year as the Company benefited from a
recovery in the semiconductor and electronics industries. These markets
experienced a cyclical slowdown that impacted the Company's business during
1996. The increase in revenue is due primarily to increased volume of modular
vision systems sold to Original Equipment Manufacturer (OEM) customers serving
these two industries. Sales to OEM customers increased 33% over 1996 and grew to
68% of revenue in 1997 from 65% of revenue in 1996. Additionally, sales to
factory floor customers increased 15% over the prior year. The increase in sales
to factory floor customers is primarily a result of additional sales and
marketing resources dedicated to this market in 1997, as well as the third
quarter acquisition of Mayan Automation, Inc. (Mayan), whose Fine-Line products
are sold to factory floor customers.
The Company's financial position remained strong at December 31, 1997, with $262
million in total assets and $236 million in stockholders' equity. Working
capital was $200 million at December 31, 1997, representing an increase of 31%
over the prior year. Cash and investments increased 33% from the prior year
primarily as a result of $52 million of cash generated from operations.
The following table sets forth certain consolidated financial data as a
percentage of revenue:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue 100% 100% 100%
Cost of revenue 27 32 22
--------------------------
Gross margin 73 68 78
Research, development and engineering expenses 14 16 13
Selling, general and administrative expenses 23 21 23
Charge for acquired in-process technology (1) 2 9
--------------------------
Income from operations 34 31 33
Investment and other income 4 5 3
--------------------------
Income before provision for income taxes 38 36 36
Provision for income taxes 12 11 14
--------------------------
Net income 26% 25% 22%
==========================
</TABLE>
(1) Charge from the write-off of acquired in-process technology in connection
with the acquisitions of Mayan Automation, Inc. in 1997 and Acumen, Inc. in
1995.
12
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO
YEAR ENDED DECEMBER 31, 1996:
The acquisition of Mayan, a developer of low-cost machine vision systems used
for surface inspection, on July 31, 1997 was accounted for under the purchase
method of accounting. The results of operations of Mayan since the acquisition
date are included in the Company's results.
Revenue for the year ended December 31, 1997 increased 26% to $155,340,000 from
$122,843,000 for the year ended December 31, 1996. This increase in revenue over
the prior year represents a recovery from the slowdown in the semiconductor and
electronics industries which had previously impacted the Company's business. The
increase is due primarily to increased volume from OEM customers serving these
two industries. Sales to OEM customers increased $26,221,000, or 33%, over 1996,
and grew to 68% of revenue in 1997 from 65% of revenue in 1996. Additionally,
sales to factory floor customers increased $6,276,000, or 15%, over 1996 due
primarily to increased volume resulting from additional sales and marketing
resources serving customers in this market, as well as the addition of Fine-Line
products from the acquisition of Mayan in the third quarter of 1997.
For the year ended December 31, 1997, approximately one half of the Company's
revenue was derived from customers based in Asia, primarily in Japan. During
1997, 3% of the Company's revenue was derived from Southeast Asia, with 1%
representing business in Korea. The Company believes the currency and credit
situation currently affecting Asia will have a limited impact on its business
since a majority of its sales to customers in Asia are denominated in U.S.
dollars and the Company has tightened its credit policy to customers based in
Southeast Asia. However, the Company believes its growth would be hampered for a
period of time if a worldwide slowdown in capital spending develops as a result
of the current financial situation in Asia.
Gross margin as a percentage of revenue for the year ended December 31, 1997 was
73% compared to 68% for 1996. Gross margin for 1996 included a $4,231,000
inventory charge to "Cost of revenue," which reduced the margin by approximately
four percentage points. The charge reflected costs associated with excess
inventories resulting from product transition plans, as well as reduced
production plans caused by the slowdown in the semiconductor and electronics
industries. Excluding the 1996 inventory charge, the slight improvement in gross
margin as a percentage of revenue is due primarily to the Company's ability to
significantly increase the number of machine vision systems manufactured with
only small increases in manufacturing overhead expenses, thereby improving the
absorption rate of overhead expenses. Gross margin as a percentage of revenue
for 1998 is expected to remain consistent with the results experienced for the
year ended December 31, 1997.
Research, development and engineering expenses for the year ended December 31,
1997 increased 16% to $22,481,000 from $19,434,000 for the year ended December
31, 1996. The increase in aggregate expenses is due primarily to higher
personnel-related costs to support the Company's continued investment in the
research and development of new and existing products. Expenses as a percentage
of revenue were 14% in 1997 compared to 16% in 1996. The decrease in expenses as
a percentage of revenue results from demand from OEM customers increasing
revenue at a rate that outpaced the increase in expenses associated with the
addition of new engineers. The Company intends to maintain its product
development schedule in 1998, irrespective of revenue trends, and therefore, the
level of research, development and engineering expenses as a percentage of
revenue may increase during the next few quarters.
Selling, general and administrative expenses for the year ended December 31,
1997 increased 36% to $35,810,000 from $26,261,000 for the year ended December
31, 1996. The increase in aggregate expenses is due primarily to higher
personnel-related costs, both domestically and internationally, to support the
Company's worldwide operations, as
13
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
well as the reinstatement of company bonuses, which were eliminated as part of
an effort to control costs during 1996 in light of the temporary downturn in the
semiconductor and electronics industries. Expenses as a percentage of revenue
were 23% in 1997 compared to 21% in 1996. Selling, general and administrative
expenses are expected to continue to increase as additional resources are
committed to further penetrate the factory floor market, and therefore, expenses
as a percentage of revenue may increase during the next few quarters.
Investment income for the year ended December 31, 1997 increased 26% to
$5,947,000 from $4,726,000 for the year ended December 31, 1996. The increase in
investment income is due primarily to an increase in the Company's invested cash
balance during 1997.
Other income for the year ended December 31, 1997 totaled $718,000 and remained
fairly consistent with other income of $678,000 in 1996. Other income consists
primarily of rental income, net of related expenses, from leasing the building
adjacent to the Company's corporate headquarters.
The Company's effective tax rate was 30.5% for each of the years ended December
31, 1997 and 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO
YEAR ENDED DECEMBER 31, 1995:
The acquisition of Isys Controls, Inc. (Isys) in the first quarter of 1996 was
accounted for as a pooling of interests. The results of operations of Isys for
the full year ended December 31, 1996 are included in the Company's results. The
results of operations of Isys for the year ended December 31, 1995 were not
material to the Company's previously reported results, and therefore, that year
has not been restated.
Revenue for the year ended December 31, 1996 increased 18% to $122,843,000 from
$104,543,000 for the year ended December 31, 1995. Sales to customers based in
the United States, which grew to 45% of revenue in 1996 compared to 41% of
revenue in 1995, increased $12,597,000, or 30%, over 1995. Sales to customers
based in Japan increased $739,000, or 2%, over 1995, and sales to customers
based in Europe increased $3,715,000, or 30%, over 1995.
The increase in worldwide revenue for the year ended December 31, 1996 over the
prior year is due primarily to increased volume from factory floor customers.
Sales to factory floor customers increased $17,737,000, or 71%, over 1995, and
grew to 35% of revenue in 1996 from 24% of revenue in 1995. The increased volume
from factory floor customers includes sales of Isys products totaling
$13,183,000, or 11% of revenue, for the year ended December 31, 1996. During the
first half of 1996, sales to OEM customers increased $13,505,000, or 40%, over
the comparable period in 1995, whereas during the second half of 1996, sales to
OEM customers decreased $12,942,000, or 28%, over the comparable period in 1995,
resulting in increased OEM sales of $563,000, or 1%, year-on-year.
Gross margin for the year ended December 31, 1996 was 68% and included a
$4,231,000 inventory charge to "Cost of revenue," which reduced the margin by
approximately four percentage points. The charge reflected costs associated with
excess inventories resulting from product transition plans, as well as reduced
production plans caused by the slowdown in the semiconductor and electronics
industries.
Excluding the inventory charge, gross margin for the year ended December 31,
1996 was 72% compared to 78% for the year ended December 31, 1995. The decrease
in gross margin excluding the inventory charge is due primarily to a shift in
product mix to lower margin products including Isys products, price discounts to
some of the Company's larger customers for attaining certain volume thresholds,
and underabsorbed manufacturing costs resulting from reduced production plans.
Research, development and engineering expenses for the year ended December 31,
1996 increased 47% to $19,434,000 from $13,190,000 for the year ended December
31, 1995. Expenses as a percentage of revenue were 16% in 1996 compared to 13%
in 1995. The increase in aggregate expenses is due primarily to higher
personnel-related
14
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
costs to support the Company's continued investment in the research and
development of new and existing products. These higher costs reflect the hiring
of additional personnel at the Company's corporate headquarters, and Japanese
and Acumen subsidiaries, as well as the addition of Isys engineers to the
Company's talent pool. The increase in expenses as a percentage of revenue is
due primarily to the investment in research and development outpacing the growth
in revenue.
Selling, general and administrative expenses for the year ended December 31,
1996 increased 10% to $26,261,000 from $23,973,000 for the year ended December
31, 1995. Expenses as a percentage of revenue were 21% in 1996 compared to 23%
in 1995. The increase in aggregate expenses is due primarily to higher
personnel-related costs, both domestically and internationally, to support the
Company's worldwide operations and further penetrate the factory floor market.
These higher costs reflect the hiring of additional personnel at the Company's
corporate headquarters, and Japanese and European subsidiaries, as well as the
addition of Isys employees resulting from the acquisition. The decrease in
expenses as a percentage of revenue is due primarily to the Company's efforts to
control costs during the second half of 1996, which included the elimination of
substantially all company bonuses.
Investment income for the year ended December 31, 1996 increased 50% to
$4,726,000 from $3,147,000 for the year ended December 31, 1995. The increase in
investment income is due primarily to an increased investment base, as well as
higher returns on invested balances.
Other income for the year ended December 31, 1996 totaled $678,000, compared to
other expense of $182,000 for the year ended December 31, 1995. Other income
(expense) consists primarily of rental income and related expenses from leasing
the building adjacent to the Company's corporate headquarters, which was
purchased in June 1995. The increase in other income is due primarily to the
collection of rental income for a full year in 1996, compared to only a half
year in 1995.
The Company's effective tax rate was 30.5% for each of the years ended December
31, 1996 and 1995, excluding the impact of a $10,189,000 charge for acquired
in-process technology in the third quarter of 1995, which had no associated tax
benefit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the year ended December 31, 1997 were met
through cash generated from operations. Cash and investments increased
$44,014,000 from December 31, 1996 primarily as a result of $52,493,000 of cash
generated from operations, offset by $10,852,000 of capital expenditures. Cash
generated from operations consists of net income, adjusted for non-cash charges
and changes in current assets and current liabilities, most notably a decrease
in accounts receivable resulting from the timing of cash receipts at year end.
15
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
As discussed in the Notes to Consolidated Financial Statements, at December 31,
1997, the Company had unconditional obligations to purchase $5,570,000 of
inventory from third-party contractors within 60 days.
Capital expenditures for the year ended December 31, 1997 totaled $10,852,000
and consisted primarily of expenditures related to the implementation of new
computer information systems and expenditures for computer hardware, as well as
the cash purchase of land adjacent to the Company's corporate headquarters which
is anticipated to be used for future expansion.
On July 31, 1997, the Company acquired selected assets and assumed selected
liabilities of Mayan Automation, Inc. for $4,800,000 in cash, $1,800,000 of
which, at December 31, 1997, remained to be paid through the year 1999. Of the
$1,800,000 of future cash payments, $900,000 represents payments contingent upon
the attainment of certain performance milestones.
In July 1995, the Company acquired Acumen, Inc. for approximately $14,000,000.
The purchase price included $8,452,000 in cash, $566,000 of which, at December
31, 1997, remained to be paid through the year 2000.
Based on a recent assessment, the Company has determined that its internal
computer systems are capable of processing transactions relating to the year
2000 and beyond, and, to the best of its knowledge, the Company does not have
any material exposure to contingencies related to year 2000 issues for its
products. Additionally, the Company has initiated formal communications with its
significant suppliers and customers to determine the extent to which the Company
is vulnerable to those third parties' failures to remediate their own year 2000
issues. Although the Company is only in the preliminary stages of assessing the
impact of year 2000 issues and no assurances can be given, the Company does not
believe that year 2000 expenses will have a material impact on its business.
The Company believes that the existing cash and investments balance, together
with cash generated from operations, will be sufficient to meet the Company's
planned working capital and capital expenditure requirements through 1998,
including potential business acquisitions.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997. SFAS
No.130 requires that changes in comprehensive income be shown in a financial
statement that is displayed with the same prominence as other financial
statements. The Company will adopt the provisions of this statement, which
include the reclassification of prior periods presented for comparative
purposes, in 1998. The Company is currently evaluating the impact that this
statement will have on its financial statements; however, because the statement
requires only additional disclosure, the Company does not expect the statement
to have a material impact on its financial position or results of operations.
The additional disclosure will include comprehensive income, which will differ
from historical net income by the amount of the translation adjustments and
unrealized gain (loss) on investments included as separate components of
stockholders' equity.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which is
effective for fiscal years beginning after December 15, 1997. This statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise." SFAS No. 131 requires companies to report selected segment
information quarterly and entity-wide disclosures about products and services,
major customers, and the material countries in which the entity holds assets and
reports revenue. In 1998, the Company will adopt the provisions of this
statement, which include the reclassification of prior periods presented, unless
impracticable, for comparative purposes. The Company is currently evaluating the
impact that this statement will have on its financial statements; however,
because the statement requires only
16
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
additional disclosure, the Company does not expect the statement to have a
material impact on its financial position or results of operations.
FORWARD-LOOKING STATEMENTS
Certain statements made in this report, as well as oral statements made by the
Company from time to time, which are prefaced with words such as "expects,"
"anticipates," "believes," and similar words and other statements of similar
sense, are forward-looking statements. These statements are based on the
Company's current expectations and estimates as to prospective events and
circumstances, which may or may not be in the Company's control and as to which
there can be no firm assurances given. These forward-looking statements, like
any other forward-looking statements, involve risks and uncertainties that could
cause actual results to differ materially from those projected or anticipated.
Such risks and uncertainties include: (1) capital spending trends by
manufacturing companies; (2) the cyclicality of the semiconductor industry; (3)
the Company's continued ability to achieve significant international revenue;
(4) the loss of, or a significant curtailment of purchases by, any one or more
principal customers; (5) inability to protect the Company's proprietary
technology and intellectual property; (6) inability to attract or retain skilled
employees; (7) technological obsolescence of current products and the inability
to develop new products; (8) inability to respond to competitive technology and
pricing pressures; and (9) reliance upon certain sole source suppliers to
manufacture or deliver critical components of the Company's products. The
foregoing list should not be construed as exhaustive and the Company disclaims
any obligation subsequently to revise forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events. Further discussions of risk
factors are also available in the Company's registration statements filed with
the Securities and Exchange Commission. The Company wishes to caution readers
not to place undue reliance upon any such forward-looking statements, which
speak only as of the date made.
17
<PAGE> 7
COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 155,340 $ 122,843 $ 104,543
Cost of revenue 42,273 38,855 22,543
-----------------------------------------------
Gross margin 113,067 83,988 82,000
Research, development and engineering expenses 22,481 19,434 13,190
Selling, general and administrative expenses 35,810 26,261 23,973
Charge for acquired in-process technology 3,115 10,189
-----------------------------------------------
Income from operations 51,661 38,293 34,648
Investment income 5,947 4,726 3,147
Other income (expense) 718 678 (182)
-----------------------------------------------
Income before provision for income taxes 58,326 43,697 37,613
Provision for income taxes 17,790 13,328 14,579
-----------------------------------------------
Net income $ 40,536 $ 30,369 $ 23,034
===============================================
Net income per common and common equivalent share:
Basic $ .98 $ .75 $ .60
===============================================
Diluted $ .91 $ .69 $ .55
===============================================
Weighted-average common and common
equivalent shares outstanding:
Basic 41,322 40,594 38,175
===============================================
Diluted 44,702 43,814 41,952
===============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 8
COGNEX CORPORATION - CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and investments $ 178,014 $ 134,000
Accounts receivable, less reserves of $1,940 and $968 in 1997
and 1996, respectively 25,095 18,809
Revenue in excess of billings 3,723 3,379
Inventories 7,784 7,013
Deferred income taxes 3,453 2,642
Prepaid expenses and other 5,937 3,545
---------------------------
Total current assets 224,006 169,388
---------------------------
Property, plant and equipment, net 32,995 28,331
Other assets 3,462 3,534
Deferred income taxes 1,377
---------------------------
$ 261,840 $ 201,253
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,332 $ 3,652
Accrued expenses 13,712 7,007
Accrued income taxes 2,684 2,029
Customer deposits 3,112 2,596
Deferred revenue 1,596 1,287
---------------------------
Total current liabilities 24,436 16,571
---------------------------
Other liabilities 1,262 1,600
Deferred income taxes 393
Commitments (see Notes to Consolidated Financial Statements)
Stockholders' equity:
Common stock, $.002 par value
Authorized: 120,000,000 shares, issued: 41,859,395 and
40,914,166 shares in 1997 and 1996, respectively 84 82
Additional paid-in capital 91,082 77,569
Cumulative translation adjustment 44 95
Retained earnings 146,368 105,832
Treasury stock, at cost, 103,139 and 80,918 shares in 1997
and 1996, respectively (1,436) (889)
---------------------------
Total stockholders' equity 236,142 182,689
---------------------------
$ 261,840 $ 201,253
===========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 9
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE TREASURY STOCK TOTAL
--------------------- ADDITIONAL TRANSLATION RETAINED ------------------ STOCKHOLDERS'
(Dollars in thousands) SHARES PAR VALUE PAID-IN CAPITAL ADJUSTMENT EARNINGS SHARES COST EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 18,751,935 $ 38 $ 53,633 $ (53) $ 50,482 30,878 $ (492) $103,608
Common stock issued to
acquire Acumen, Inc. 96,140 4,170 4,170
Issuance of stock under
stock option and stock
purchase plans 683,079 1 4,826 4,827
Tax benefit from exercise
of stock options 8,581 8,581
Common stock received for
payment of stock option
exercises 9,581 (397) (397)
Stock issued to effect
stock split 9,508,521 39 (39) 40,459
Translation adjustment 93 93
Net income 23,034 23,034
-----------------------------------------------------------------------------------------------------
Balance at December 31, 1995 39,039,675 78 71,171 40 73,516 80,918 (889) 143,916
-----------------------------------------------------------------------------------------------------
Common stock issued to
acquire Isys Controls,
Inc. 1,331,927 3 2,469 1,947 4,419
Issuance of stock under
stock option, stock
purchase, and bonus
plans 542,564 1 2,495 2,496
Tax benefit from exercise
of stock options 1,434 1,434
Translation adjustment 55 55
Net income 30,369 30,369
-----------------------------------------------------------------------------------------------------
Balance at December 31, 1996 40,914,166 82 77,569 95 105,832 80,918 (889) 182,689
-----------------------------------------------------------------------------------------------------
Issuance of stock under
stock option, stock
purchase, and bonus
plans 945,229 2 5,504 5,506
Tax benefit from exercise
of stock options 8,009 8,009
Common stock received for
payment of stock option
exercises 22,221 (547) (547)
Translation adjustment (51) (51)
Net income 40,536 40,536
-----------------------------------------------------------------------------------------------------
Balance at December 31, 1997 41,859,395 $ 84 $ 91,082 $ 44 $ 146,368 103,139 $(1,436) $ 236,142
-----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 10
COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 40,536 $ 30,369 $ 23,034
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property, plant and equipment 4,870 4,352 2,845
Amortization of intangible assets 938 735 355
Loss on disposition of property, plant and equipment 470 99 56
Charge for acquired in-process technology 3,115 10,189
Tax benefit from exercise of stock options 8,009 1,434 8,581
Inventory provision 4,231
Deferred income tax provision (2,581) (385) (1,326)
Changes in other current assets and current liabilities:
Accounts receivable (6,603) 6,276 (14,705)
Inventories (920) 2,523 (7,678)
Accounts payable (421) 519 1,361
Accrued expenses 6,403 (1,768) 2,867
Other (1,323) 2,724 (3,744)
-----------------------------------------------
Net cash provided by operating activities 52,493 51,109 21,835
-----------------------------------------------
Cash flows from investing activities:
Purchase of investments (94,707) (63,067) (75,758)
Maturities of investments 40,468 44,219 34,198
Purchase of property, plant and equipment (10,852) (10,154) (10,503)
Cash paid related to acquisition of Mayan Automation, Inc.,
net of $51 cash assumed (2,862)
Cash paid related to acquisition of Acumen, Inc.,
net of $200 cash assumed in 1995 (137) (1,277) (6,454)
Cash assumed in acquisition of Isys Controls, Inc. 918
Other (156) (71) (294)
-----------------------------------------------
Net cash used in investing activities (68,246) (29,432) (58,811)
-----------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of stock under stock option,
stock purchase, and bonus plans 4,959 2,496 4,430
-----------------------------------------------
Net cash provided by financing activities 4,959 2,496 4,430
-----------------------------------------------
Effect of exchange rate changes on cash 569 339 131
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents (10,225) 24,512 (32,415)
Cash and cash equivalents at beginning of year 48,423 23,911 56,326
-----------------------------------------------
Cash and cash equivalents at end of year 38,198 48,423 23,911
Investments 139,816 85,577 66,729
-----------------------------------------------
Cash and investments $ 178,014 $ 134,000 $ 90,640
===============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 11
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application of
certain accounting policies described in this and other notes to the
consolidated financial statements.
NATURE OF OPERATIONS
Cognex Corporation (the Company) designs, develops, and markets machine vision
systems, or computers that can "see." The Company's products are used to
automate a wide range of manufacturing processes where vision is required. The
Company's primary customers, Original Equipment Manufacturers (OEMs) in the
semiconductor and electronics industries, are principally located in Japan and
the United States.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the balance sheet date
and the reported amounts of revenues and expenses during the year. Actual
results could differ from those estimates.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Cognex Corporation
and its subsidiaries, all of which are wholly-owned. All intercompany accounts
and transactions have been eliminated. Certain amounts reported in prior years
have been reclassified to be consistent with the current year's presentation.
FOREIGN CURRENCY
The financial statements of the Company's foreign subsidiaries, where the local
currency is the functional currency, are translated using exchange rates in
effect at the end of the year for assets and liabilities and average exchange
rates during the year for results of operations. The resulting foreign currency
translation adjustments are reported as a separate component of stockholders'
equity.
CASH AND INVESTMENTS
Cash and investments include cash equivalents, which the Company considers to be
all investments purchased with original maturities of three months or less.
Investments having original maturities in excess of three months are stated at
amortized cost, which approximates fair value, and are classified as
available-for-sale. The Company considers all of its investments to be available
for current operations and maintains its investments in securities which are
highly liquid and would not result in significant losses if sold prior to
maturity.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over the assets' estimated useful lives. Buildings' useful
lives are 39 years, building improvements' useful lives are 10 years, and the
useful lives of computer hardware, computer software, and furniture and fixtures
range from two to seven years. Leasehold improvements are depreciated over the
shorter of the estimated useful lives or the remaining terms of the leases.
Maintenance and repairs
22
<PAGE> 12
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
are expensed when incurred; additions and improvements are capitalized. Upon
retirement or disposition, the cost and related accumulated depreciation of the
assets disposed of are removed from the accounts, with any resulting gain or
loss included in current operations.
INTANGIBLE ASSETS
Intangible assets are stated at cost and amortized using the straight-line
method over the assets' estimated useful lives, which range from five to eight
years. The Company evaluates the possible impairment of long-lived assets,
including intangible assets, whenever events or circumstances indicate that the
carrying value of the assets may not be recoverable.
WARRANTY OBLIGATIONS
The Company provides warranties for its products for periods ranging from six
months to one year from the date of shipment, based upon the product being
purchased and the terms of the customer's contract. Estimated warranty
obligations are evaluated and recorded at the time of sale.
REVENUE RECOGNITION
Revenue from product sales and software licenses is recognized upon shipment.
Revenue from construction-type projects, which include research and development
contracts, is recognized using the percentage-of-completion method. Losses on
projects, if any, are recognized when identified. Service and maintenance
revenue is recognized as earned.
RESEARCH AND DEVELOPMENT
Research and development costs for internally-developed products are expensed
when incurred until technological feasibility has been established for the
product. Thereafter, all software costs are capitalized until the product is
available for general release to customers. The cost of acquired software is
capitalized for products determined to have reached technological feasibility;
otherwise, the cost is expensed. Capitalized software costs are amortized using
the straight-line method over the economic life of the product, typically three
to five years, or based upon the anticipated revenues of the product.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the
liability method prescribed by SFAS No. 109, a deferred tax asset or liability
is determined based on the differences between the financial statement and tax
basis of assets and liabilities as measured by the enacted tax rates which will
be in effect when these differences reverse. Tax credits are recorded as a
reduction in income taxes. Valuation allowances are provided if, based upon the
weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
NET INCOME PER SHARE
The Company has adopted SFAS No. 128, "Earnings per Share," for the year ended
December 31, 1997, which included retroactively restating all prior periods for
which earnings per share (EPS) data is presented. SFAS No. 128 requires the
presentation of basic and diluted EPS. Basic EPS, which replaces primary EPS,
excludes dilution and is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exer-
23
<PAGE> 13
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE (CONTINUED)
cised or converted into common stock or resulted in the issuance of common stock
that then participates in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS under the previous rules. Dilutive common
equivalent shares consist of stock options, calculated using the treasury stock
method.
FINANCIAL INSTRUMENTS
FAIR VALUE
The Company's financial instruments consist primarily of cash and cash
equivalents, investments, trade receivables, trade payables, and forward
exchange contracts. The carrying amounts of cash and cash equivalents,
investments, trade receivables, and trade payables approximate fair value due to
the short maturity of these instruments. Based on year-end exchange rates and
the various maturity dates of the forward exchange contracts, the Company
estimates the aggregate contract value to be representative of the fair values
of these instruments.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, investments, and
trade receivables.
The Company invests in debt instruments of U.S. and state government entities.
The Company has established guidelines relative to credit ratings,
diversification, and maturities that maintain safety and liquidity. The Company
has not experienced any significant losses on its cash equivalents and
investments.
A significant portion of the Company's sales and receivables are from customers
in the semiconductor and electronics industries. The Company performs ongoing
credit evaluations of its customers and maintains allowances for potential
credit losses. The Company has not experienced any significant losses related to
the collection of its accounts receivable.
OFF-BALANCE SHEET RISK
In certain instances, the Company enters into forward exchange contracts to
hedge specific commitments against foreign currency fluctuations. The forward
exchange contracts are for periods consistent with its committed exposure and
require the Company to exchange foreign currencies for U.S. dollars at maturity,
at rates agreed upon at the inception of the contracts. For contracts that are
designated and effective as hedges, the gain or loss on the forward exchange
contract is deferred and included in the measurement of the related foreign
currency transaction. The Company had $7,900,000 of foreign exchange contracts
outstanding, all of which were in Japanese yen, at December 31, 1997. The
Company had no foreign exchange contracts outstanding at December 31, 1996.
FOREIGN CURRENCY RISK
The Company enters into transactions denominated in foreign currencies and
includes the exchange rate gain or loss arising from such transactions in
current operations. The Company recorded exchange rate losses of $155,000 in
1997, $1,027,000 in 1996, and $573,000 in 1995.
24
<PAGE> 14
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH AND INVESTMENTS
Cash and investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash $ 19,868 $ 25,905
Municipal obligations with contractual maturities:
Less than three months 18,330 22,518
------------------------------
Total cash and cash equivalents 38,198 48,423
Greater than three months and less than one year 49,216 30,025
Greater than one year 90,600 55,552
------------------------------
$ 178,014 $ 134,000
==============================
</TABLE>
INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 4,425 $ 5,058
Work-in-process 1,355 513
Finished goods 2,004 1,442
--------------------------
$ 7,784 $ 7,013
==========================
</TABLE>
In the third quarter of 1996, the Company recorded a $4,231,000 inventory charge
to "Cost of revenue." The charge reflected costs associated with excess
inventories resulting from product transition plans, as well as reduced
production plans caused by the slowdown in the semiconductor and electronics
industries.
25
<PAGE> 15
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(In thousands) 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,051 $ 1,150
Buildings 17,563 12,963
Building improvements 2,725 1,883
Construction-in-process 5,943
Computer hardware and software 19,553 13,921
Furniture and fixtures 2,429 1,713
Leasehold improvements 661 477
--------------------------------
45,982 38,050
Less: accumulated depreciation (12,987) (9,719)
--------------------------------
$ 32,995 $ 28,331
================================
</TABLE>
In December 1997, approximately $8,100,000 of expenditures related to new
computer information systems and a building addition, that had previously been
recorded in construction-in-process, were transferred to buildings, building
improvements, and computer hardware and software when they were placed in
service.
ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Bonus $ 3,055 $ 559
Payroll and related costs 3,020 2,066
Warranty 2,407 1,284
Accrued acquisition costs 1,237 337
Professional fees 1,027 938
Other 2,966 1,823
----------------------------------
$ 13,712 $ 7,007
==================================
</TABLE>
26
<PAGE> 16
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 17,048 $ 13,169 $ 14,083
State 2,850 128 1,572
Foreign 473 392 249
--------------------------------------------
20,371 13,689 15,904
Deferred:
Federal (1,552) (902) (28)
State (1,029) 541 (1,297)
--------------------------------------------
$ 17,790 $ 13,328 $ 14,579
============================================
</TABLE>
A reconciliation of the provision for income taxes at the federal statutory rate
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes at federal statutory rate 35% 35% 35%
Non-deductible charge for acquired in-process technology 9
State income taxes, net of federal benefit 2 2.5 2
Foreign Sales Corporation benefit (3) (3) (4)
Tax-exempt investment income (3) (3) (2)
Tax credit utilization (1) (1) (1)
Other 0.5
---------------------------
Provision for income taxes 30.5% 30.5% 39%
===========================
</TABLE>
27
<PAGE> 17
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES (CONTINUED)
Deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The tax effects of the
principal items making up deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current deferred tax assets:
Vacation, bad debt and other $ 1,296 $ 936
Inventory, warranty and other 1,833 1,461
Other 324 245
-----------------------
Total net current deferred tax asset $ 3,453 $ 2,642
=======================
Noncurrent deferred tax assets (liabilities):
State net operating loss and credit carryforwards $ 888 $ 574
Acquired complete technology (376) (630)
Acquired incomplete technology 1,099
Depreciation (234) (337)
-----------------------
Total net noncurrent deferred tax asset (liability) $ 1,377 $ (393)
=======================
</TABLE>
The Company's state credit carryforwards, net of federal tax impact, are
approximately $888,000, a portion of which will begin to expire in the year
2010.
LEASES
The Company conducts certain of its operations in leased facilities. These lease
agreements expire at various dates through the year 2002 and are accounted for
as operating leases. Annual rent expense totaled $1,637,000 in 1997, $1,324,000
in 1996, and $996,000 in 1995. Future minimum rental payments under these
agreements are as follows at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
----------------------
<S> <C>
1998 $ 985
1999 815
2000 712
2001 210
2002 152
--------
$ 2,874
========
</TABLE>
28
<PAGE> 18
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEASES (CONTINUED)
In June 1995, the Company purchased an 83,000 square-foot office building
adjacent to its corporate headquarters. The building is currently occupied with
tenants who have lease agreements that expire at various dates through the year
2000. Annual rental income totaled $1,428,000 in 1997, $1,326,000 in 1996, and
$536,000 in 1995. Rental income and related expenses are presented on the
Consolidated Statements of Income as "Other income (expense)." Future minimum
rental receipts under non-cancelable lease agreements are as follows at December
31, 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---------------------------
<S> <C>
1998 $ 1,343
1999 1,181
2000 994
---------
$ 3,518
=========
</TABLE>
COMMITMENTS
The Company has agreements with third-party contractors to perform the majority
of component procurement, subassembly, final assembly, and initial testing for
the hardware portion of its vision systems. After the completion of initial
testing, the third-party contractors deliver the products to the Company to
perform final testing and assembly. At December 31, 1997, the Company had
unconditional obligations to purchase $5,570,000 of inventory from third-party
contractors within 60 days. These purchase commitments relate to expected sales
in 1998.
STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
On November 14, 1995, the Company announced a two-for-one stock split, effected
in the form of a stock dividend, payable December 18, 1995 to stockholders of
record at the close of business December 1, 1995. Accordingly, $39,000
representing the par value of the additional shares issued was transferred from
additional paid-in capital to common stock. These consolidated financial
statements and related notes have been retroactively adjusted, as appropriate,
to reflect this two-for-one stock split.
In April 1996, an amendment to the Company's Articles of Organization was
adopted to increase the number of authorized shares of common stock from
60,000,000 shares to 120,000,000 shares.
The Company has 400,000 shares of authorized but unissued $.01 par value
preferred stock.
STOCK-BASED COMPENSATION PLANS
The Company has adopted the disclosure requirements of SFAS No. 123, "Accounting
for Stock-Based Compensation." The Company continues to recognize compensation
costs using the intrinsic value based method described in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." No
compensation costs were recognized in 1997, 1996, and 1995.
29
<PAGE> 19
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY (CONTINUED)
STOCK-BASED COMPENSATION PLANS (CONTINUED)
Net income and net income per share as reported in these consolidated financial
statements and on a pro forma basis, as if the fair value based method described
in SFAS No. 123 had been adopted, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $ 40,536 $ 30,369 $ 23,034
Pro forma 34,380 25,204 21,652
Basic net income per share As reported .98 .75 .60
Pro forma .83 .62 .57
Diluted net income per share As reported .91 .69 .55
Pro forma .74 .59 .52
</TABLE>
The effects of applying SFAS No. 123 for the purpose of providing pro forma
disclosures may not be indicative of the effects on reported net income and net
income per share for future years, as the pro forma disclosures include the
effects of only those awards granted after January 1, 1995.
STOCK OPTION PLANS
At December 31, 1997, the Company had 8,672,000 shares approved by the Board of
Directors and stockholders for grant under the following stock option plans: the
1992 Director plan, 352,000; the 1993 Director plan, 320,000; and the 1993
Employee plan, 8,000,000. In April 1996, an amendment was adopted to increase
the number of shares of common stock reserved for issuance under the 1993
Employee plan from 5,000,000 shares to 8,000,000 shares.
In connection with the acquisition of Isys Controls, Inc. in February 1996, the
Company adopted the 1996 Long-Term Incentive Plan. This plan provided for the
grant of 321,589 shares of either restricted common stock or options to purchase
restricted stock. Other than restrictions that limit the sale and transfer of
the restricted stock within 20 years from the date of grant, participants are
entitled to all of the rights of a stockholder.
Options vest over various periods, not exceeding 10 years, and expire no later
than 20 years from the date of grant.
On July 30, 1996, the Company granted 1,177,830 options at the current fair
market value with similar terms and conditions to previously issued but
unexercised grants. In exchange for the new grants, employees agreed to forfeit
their prior options.
30
<PAGE> 20
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
The following table summarizes the status of the Company's stock option plans at
December 31, 1997, 1996, and 1995, and changes during the years then ended:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ -------------------------- ---------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 8,014,386 $ 8.34 7,699,826 $ 9.10 7,882,832 $ 5.69
Granted at fair market value 1,450,521 24.55 933,915 16.80 1,397,874 21.74
Granted above fair market value 91,500 26.41 1,807,583 16.18 71,000 26.39
Exercised (996,965) 4.87 (518,925) 3.18 (1,312,392) 3.36
Forfeited (794,535) 10.05 (1,908,013) 24.39 (339,488) 7.73
---------- ---------- ----------
Outstanding at end of year 7,764,907 11.85 8,014,386 8.34 7,699,826 9.10
========== ========== ==========
Options exercisable at year-end 2,140,956 6.14 2,128,058 4.40 1,389,164 3.17
Weighted-average grant-date fair
value of options granted during
the year at fair market value $ 12.48 $ 11.78 $ 11.19
Weighted-average grant-date fair
value of options granted during
the year above fair market value $ 11.50 $ 4.46 $ 10.17
</TABLE>
31
<PAGE> 21
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ----------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .50 - 6.00 1,445,405 5.3 $ 3.28 1,251,686 $ 3.08
6.06 - 7.00 169,913 7.0 6.82 100,455 6.85
7.12 - 7.50 2,516,800 10.7 7.50 289,800 7.49
7.94 - 14.19 727,790 6.9 11.57 302,938 11.25
14.50 - 14.50 1,105,863 8.4 14.50 151,150 14.50
14.56 - 23.44 1,091,570 9.5 19.80 34,142 16.84
24.00 - 36.31 707,566 9.6 29.91 10,785 22.89
--------- ---------
.50 - 36.31 7,764,907 8.7 11.85 2,140,956 6.14
========= =========
</TABLE>
For the purpose of providing pro forma disclosures, the fair values of options
granted were estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997, 1996, and 1995,
respectively: a risk-free interest rate of 6.3%, 6.3%, and 5.9%; an expected
life of 5.1, 4.4, and 4.5 years; expected volatility of 50%; and no expected
dividends.
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's Employee Stock Purchase Plan (ESPP), employees who have
completed six months of continuous employment with the Company may purchase
common stock semi-annually at the lower of 85% of the fair market value of the
stock at the beginning or end of the six-month payment period, through
accumulation of payroll deductions. Employees are required to hold stock
purchased under the ESPP for a period of one year from the date of purchase.
Common stock reserved for future sales totaled 463,534 shares at December 31,
1997. Shares purchased under the ESPP totaled 22,436 in 1997, 27,215 in 1996,
and 16,133 in 1995. The weighted-average fair value of shares purchased under
the ESPP was $5.08 in 1997, $6.82 in 1996, and $3.74 in 1995.
For the purpose of providing pro forma disclosures, the fair values of shares
purchased were estimated using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for purchases in 1997, 1996, and
1995: a risk-free interest rate of 5.3%, 5.3%, and 6.1%, respectively; an
expected life of six months; expected volatility of 50%; and no expected
dividends.
EMPLOYEE SAVINGS PLAN
Under the Company's Employee Savings Plan, a defined contribution plan,
employees who have attained age 21 may contribute 1% to 15% of their salary on a
pre-tax basis. Employer contributions are made at the discretion of management
and vest after five years of continuous employment with the Company. Employer
contributions approximated $400,000 in 1997, $300,000 in 1996, and $200,000 in
1995.
32
<PAGE> 22
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NET INCOME PER SHARE
Net income per share is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 40,536 $ 30,369 $ 23,034
======== ======== ========
Basic:
Weighted-average common shares outstanding 41,322 40,594 38,175
======== ======== ========
Net income per common share $ .98 $ .75 $ .60
======== ======== ========
Diluted:
Weighted-average common shares outstanding 41,322 40,594 38,175
Effect of dilutive securities:
Stock options 3,380 3,220 3,777
-------- -------- --------
Weighted-average common and common
equivalent shares outstanding 44,702 43,814 41,952
======== ======== ========
Net income per common and common
equivalent share $ .91 $ .69 $ .55
======== ======== ========
</TABLE>
Stock options to purchase 545,386 and 66,500 shares of common stock were
outstanding during the years ended December 31, 1997 and 1996, respectively, but
were not included in the calculations of diluted EPS because the option's
exercise price was greater than the average market price of the Company's common
shares during those years. Although these options were antidilutive in 1997 and
1996, because they were still outstanding at December 31, 1997, they may be
dilutive in future years' calculations. There were no options that were
antidilutive in the 1995 calculation of diluted EPS that were still outstanding
at December 31, 1997. The 545,386 options consisted of the following grants:
2,000 at $26.50 granted March 1996; 60,000 at $26.50 granted July 1996; 50,000
at $30.00, 56,370 at $32.63, and 180,936 at $32.81 granted July 1997; 45,820 at
$36.31 granted August 1997; 20,500 at $35.25 granted September 1997; 55,400 at
$32.00 granted October 1997; 53,360 at $28.56 granted November 1997; and 21,000
at $27.00 granted December 1997. The 66,500 options outstanding at December 31,
1996 consisted of the following grants: 2,000 at $26.50 granted March 1996;
4,500 at $24.00 granted June 1996; and 60,000 at $26.50 granted July 1996. All
of the options listed above expire 10 years from the date of grant.
33
<PAGE> 23
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT INFORMATION
During the years ended December 31, 1997, 1996, and 1995, one customer accounted
for $27,292,000, $13,765,000, and $17,237,000, or 18%, 11%, and 16%,
respectively, of revenue. The following table summarizes domestic and foreign
sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic:
United States $ 59,723 $ 55,216 $ 42,619
Export
Japan 51,453 33,988 48,466
Europe 22,177 15,958 12,243
Rest of world 4,534 2,464 1,215
Foreign:
Japan 17,453 15,217
-------- -------- --------
$155,340 $122,843 $104,543
======== ======== ========
</TABLE>
34
<PAGE> 24
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEGMENT INFORMATION (CONTINUED)
The following table summarizes information about the Company's 1997 and 1996
operations in significant geographic areas (in thousands). Operations in
geographic areas other than the United States were not material prior to 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 UNITED STATES JAPAN ELIMINATIONS CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Unaffiliated customers $ 137,887 $ 17,453 $ 155,340
Intercompany 10,336 $(10,336)
--------- -------- -------- ---------
Total revenue 148,223 17,453 (10,336) 155,340
Income (loss) from operations 51,682 (21) 51,661
Identifiable assets 259,608 10,562 (8,330) 261,840
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 UNITED STATES JAPAN ELIMINATIONS CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Unaffiliated customers $ 107,626 $ 15,217 $ 122,843
Intercompany 9,755 $ (9,755)
--------- -------- -------- ---------
Total revenue 117,381 15,217 (9,755) 122,843
Income (loss) from operations 39,162 (869) 38,293
Identifiable assets 200,425 6,801 (5,973) 201,253
</TABLE>
Inventories are transferred to the Company's Japanese subsidiary at previously
established transfer prices, resulting in intercompany revenue, as well as
intercompany receivables for the United States operation. All intercompany
transactions are eliminated in consolidation.
35
<PAGE> 25
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACQUISITION OF MAYAN AUTOMATION, INC.
On July 31, 1997, the Company acquired selected assets and assumed selected
liabilities of Mayan Automation, Inc. (Mayan), a developer of low-cost machine
vision systems used for surface inspection, for $4,800,000 in cash, of which
$1,800,000 will be paid through the year 1999. Of the $1,800,000 of future cash
payments, $900,000 represents payments contingent upon the attainment of certain
performance milestones. The acquisition was accounted for under the purchase
method of accounting. Accordingly, Mayan's results of operations have been
included in the Company's consolidated results of operations since the date of
acquisition. Mayan's historical results of operations were not material compared
to the Company's consolidated results of operations, and therefore, pro forma
results are not presented.
The purchase price was allocated among the identifiable assets of Mayan. After
allocating the purchase price to the net tangible assets, acquired technology
was valued using a risk-adjusted cash flow model, under which future cash flows
were discounted taking into account risks related to existing markets, the
technology's life expectancy, future target markets and potential changes
thereto, and the competitive outlook for the technology. This analysis resulted
in an allocation of $400,000 to complete technology, to be amortized over five
years, and $3,115,000 to in-process technology which had not reached
technological feasibility and had no alternative future use, and accordingly,
was expensed immediately. Up to an additional $900,000 of contingent
consideration will be recorded as purchase price when paid and will be allocated
to goodwill to be amortized over the remaining period of expected benefit.
36
<PAGE> 26
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACQUISITION OF ISYS CONTROLS, INC.
On February 29, 1996, the Company acquired Isys Controls, Inc. (Isys), a
developer of machine vision systems for high-speed surface inspection. The
acquisition was accounted for as a pooling of interests, and therefore, the
results of operations of Isys for the full year are included in the consolidated
financial statements of the Company for the year ended December 31, 1996. For
years presented prior to the acquisition, the financial position and results of
operations of Isys were not material to the previously reported financial
position and results of operations of the Company, and therefore, these years
have not been restated.
ACQUISITION OF ACUMEN, INC.
On July 21, 1995, the Company acquired all of the outstanding shares of Acumen,
Inc. (Acumen), a developer of machine vision systems for semiconductor wafer
identification. The purchase price of $13,950,000 included $8,452,000 in cash,
96,140 shares of Cognex common stock with a fair value of $4,170,000, and Cognex
stock options valued at $1,328,000. At December 31, 1997, 1996, and 1995,
$1,598,000, $1,935,000, and $3,125,000, respectively, of the purchase price
remained to be paid in cash and stock options through the year 2001. The
acquisition was accounted for under the purchase method of accounting.
Accordingly, Acumen's results of operations have been included in the Company's
consolidated results of operations since the date of acquisition.
37
<PAGE> 27
COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE
Cash paid for income taxes totaled $12,564,000 in 1997, $11,218,000 in 1996, and
$7,982,000 in 1995.
Common stock received as payment for stock option exercises totaled $547,000 in
1997 and $397,000 in 1995.
The Company retired certain fully-depreciated property, plant and equipment
totaling $1,056,000 in 1997 and $3,049,000 in 1995.
In 1996, the Company exchanged 1,078,380 shares of Cognex common stock for Isys
common shares, and 253,547 shares of Cognex common stock for Isys restricted
common shares, with similar restrictions, in connection with the acquisition of
Isys.
38
<PAGE> 28
COGNEX CORPORATION - REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF COGNEX CORPORATION:
We have audited the accompanying consolidated balance sheets of Cognex
Corporation as of December 31, 1997 and 1996 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cognex Corporation
at December 31, 1997 and 1996 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Boston, Massachusetts /s/ COOPERS & LYBRAND L.L.P.
January 23, 1998
39
<PAGE> 29
COGNEX CORPORATION
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousands, except per share amounts) 1997 1996(1)(2) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenue $ 155,340 $ 122,843 $ 104,543 $ 62,484 $ 43,371
Cost of revenue 42,273 38,855 22,543 13,884 10,280
-------------------------------------------------------------------
Gross margin 113,067 83,988 82,000 48,600 33,091
Research, development and engineering expenses 22,481 19,434 13,190 9,933 6,205
Selling, general and administrative expenses 35,810 26,261 23,973 16,847 12,183
Charge for acquired in-process technology 3,115 10,189
-------------------------------------------------------------------
Income from operations 51,661 38,293 34,648 21,820 14,703
Investment and other income 6,665 5,404 2,965 1,462 1,316
-------------------------------------------------------------------
Income before provision for income taxes 58,326 43,697 37,613 23,282 16,019
Provision for income taxes 17,790 13,328 14,579 7,210 4,871
-------------------------------------------------------------------
Net income $ 40,536 $ 30,369 $ 23,034 $ 16,072 $ 11,148
===================================================================
Basic net income per share (3) $ .98 $ .75 $ .60 $ .47 $ .33
===================================================================
Diluted net income per share (3) $ .91 $ .69 $ .55 $ .43 $ .31
===================================================================
Basic weighted-average common shares
outstanding (3) 41,322 40,594 38,175 34,560 33,632
===================================================================
Diluted weighted-average common shares
outstanding (3) 44,702 43,814 41,952 37,150 35,668
===================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(In thousands) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 199,570 $ 152,817 $ 119,402 $ 88,619 $ 51,605
Total assets 261,840 201,253 162,172 112,946 60,810
Long-term debt -- -- -- -- --
Stockholders' equity 236,142 182,689 143,916 103,608 55,061
</TABLE>
(1) 1996 results include the full year results of Isys Controls, Inc. (Isys), a
developer of machine vision systems for high-speed surface inspection
acquired in February 1996. The Isys acquisition was accounted for as a
pooling of interests; however, because the results of Isys for prior years
were not material to the Company's previously reported results, prior years
have not been restated.
(2) Cost of revenue includes a $4,231,000 inventory charge for costs associated
with excess inventories resulting from product transition plans, as well as
reduced production plans.
(3) Adjusted for the 2-for-1 stock splits effective December 18, 1995 and
September 30, 1993.
40
<PAGE> 30
COGNEX CORPORATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
MARCH 30, JUNE 29, SEPTEMBER 28, DECEMBER 31,
(In thousands, except per share amounts) 1997 1997 1997 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 28,143 $ 36,271 $ 43,936 $ 46,990
Gross margin 20,448 26,331 32,476 33,812
Charge for acquired in-process technology 3,115
Income from operations 7,850 12,069 13,976 17,766
Net income 6,491 9,372 10,941 13,732
Basic net income per share .16 .23 .26 .33
Diluted net income per share .15 .21 .24 .31
Common stock prices:
High 21.750 27.500 38.500 34.375
Low 17.500 19.000 26.375 22.250
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 29, DECEMBER 31,
(In thousands, except per share amounts) 1996 1996 1996(1) 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 34,887 $ 34,949 $ 26,540 $ 26,467
Gross margin 25,681 25,358 14,243 18,706
Income from operations 14,570 13,690 2,913 7,120
Net income 10,829 10,134 3,244 6,162
Basic net income per share .27 .25 .08 .15
Diluted net income per share .25 .23 .08 .14
Common stock prices:
High 35.000 29.000 17.250 21.250
Low 18.000 15.750 11.750 12.250
</TABLE>
(1)Cost of revenue includes a $4,231,000 inventory charge for costs associated
with excess inventories resulting from product transition plans, as well as
reduced production plans.
41
<PAGE> 31
COGNEX CORPORATION - COMPANY INFORMATION
TRANSFER AGENT
BankBoston, N.A. c/o Boston EquiServe, L.P.
P.O. Box 8040
Boston, Massachusetts 02266-8040
Telephone (781) 575-3100
GENERAL COUNSEL
Hutchins, Wheeler & Dittmar - Boston, Massachusetts
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P. - Boston, Massachusetts
FORM 10-K
A copy of the annual report filed with the Securities and Exchange Commission on
Form 10-K is available to stockholders, without charge, upon request to:
Department of Investor Relations
Cognex Corporation
One Vision Drive
Natick, MA 01760
Additional copies of this annual report are also available, without charge, upon
request to the above address.
The Company's common stock is traded on The NASDAQ Stock Market, under the
symbol CGNX. As of February 12, 1998, there were approximately 17,000 registered
and non-registered holders of the Company's common stock.
No dividends on the Company's common stock were paid during 1997 and 1996.
42
<PAGE> 1
EXHIBIT 21
COGNEX CORPORATION
SUBSIDIARIES OF THE REGISTRANT
At December 31, 1997, the registrant had the following subsidiaries, the
financial statements of which are all included in the consolidated financial
statements of the registrant:
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE/COUNTRY OF INCORPORATION PERCENT OWNERSHIP
------------------ ------------------------------ -----------------
<S> <C> <C>
Cognex Technology and Investment
Corporation California 100%
Cognex Canada Technology, Inc. California 100%
Vision Drive, Inc. Delaware 100%
Isys Controls, Inc. California 100%
Cognex Foreign Sales Corporation Barbados 100%
Cognex K.K. Japan 100%
Cognex International, Inc. Delaware 100%
Cognex Germany, Inc. Massachusetts 100%
Cognex Singapore, Inc. Delaware 100%
Cognex Korea, Inc. Delaware 100%
Cognex Taiwan, Inc. Delaware 100%
Cognex Canada, Inc. Delaware 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Cognex Corporation on Form S-8 (File Nos. 33-31657, 33-32815,
33-36262, 33-36263, 33-72636, 33-72638, 33-81150, 33-81152, 333-2151, and
333-4621) of our reports dated January 23, 1998 on our audits of the
consolidated financial statements and financial statement schedule of Cognex
Corporation as of December 31, 1997 and 1996, and for each of the three years in
the period ended December 31, 1997, which reports are incorporated by reference
or included in this Annual Report on Form 10-K.
Boston, Massachusetts /s/ COOPERS & LYBRAND L.L.P.
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 38,198,000
<SECURITIES> 139,816,000
<RECEIVABLES> 27,035,000
<ALLOWANCES> 1,940,000
<INVENTORY> 7,784,000
<CURRENT-ASSETS> 224,006,000
<PP&E> 45,982,000
<DEPRECIATION> 12,987,000
<TOTAL-ASSETS> 261,840,000
<CURRENT-LIABILITIES> 24,436,000
<BONDS> 0
0
0
<COMMON> 84,000
<OTHER-SE> 236,058,000
<TOTAL-LIABILITY-AND-EQUITY> 261,840,000
<SALES> 155,340,000
<TOTAL-REVENUES> 155,340,000
<CGS> 42,273,000
<TOTAL-COSTS> 42,273,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 58,326,000
<INCOME-TAX> 17,790,000
<INCOME-CONTINUING> 40,536,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,536,000
<EPS-PRIMARY> .98
<EPS-DILUTED> .91
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE QUARTER ENDED
MARCH 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-30-1997
<EXCHANGE-RATE> 1
<CASH> 55,814,000
<SECURITIES> 86,020,000
<RECEIVABLES> 18,892,000
<ALLOWANCES> 989,000
<INVENTORY> 7,968,000
<CURRENT-ASSETS> 179,061,000
<PP&E> 39,715,000
<DEPRECIATION> 10,791,000
<TOTAL-ASSETS> 211,293,000
<CURRENT-LIABILITIES> 18,653,000
<BONDS> 0
0
0
<COMMON> 82,000
<OTHER-SE> 190,619,000
<TOTAL-LIABILITY-AND-EQUITY> 211,293,000
<SALES> 28,143,000
<TOTAL-REVENUES> 28,143,000
<CGS> 7,695,000
<TOTAL-COSTS> 7,695,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,340,000
<INCOME-TAX> 2,849,000
<INCOME-CONTINUING> 6,491,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,491,000
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE QUARTER ENDED
JUNE 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAR-31-1997
<PERIOD-END> JUN-29-1997
<EXCHANGE-RATE> 1
<CASH> 44,803,000
<SECURITIES> 96,695,000
<RECEIVABLES> 27,318,000
<ALLOWANCES> 1,296,000
<INVENTORY> 6,645,000
<CURRENT-ASSETS> 188,848,000
<PP&E> 42,979,000
<DEPRECIATION> 12,047,000
<TOTAL-ASSETS> 222,992,000
<CURRENT-LIABILITIES> 18,889,000
<BONDS> 0
0
0
<COMMON> 83,000
<OTHER-SE> 202,241,000
<TOTAL-LIABILITY-AND-EQUITY> 222,992,000
<SALES> 36,271,000
<TOTAL-REVENUES> 36,271,000
<CGS> 9,940,000
<TOTAL-COSTS> 9,940,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,485,000
<INCOME-TAX> 4,113,000
<INCOME-CONTINUING> 9,372,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,372,000
<EPS-PRIMARY> .23
<EPS-DILUTED> .21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE QUARTER ENDED SEPTEMBER 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-30-1997
<PERIOD-END> SEP-28-1997
<EXCHANGE-RATE> 1
<CASH> 38,600,000
<SECURITIES> 115,443,000
<RECEIVABLES> 33,180,000
<ALLOWANCES> 1,618,000
<INVENTORY> 8,158,000
<CURRENT-ASSETS> 207,808,000
<PP&E> 43,708,000
<DEPRECIATION> 11,861,000
<TOTAL-ASSETS> 243,322,000
<CURRENT-LIABILITIES> 22,232,000
<BONDS> 0
0
0
<COMMON> 83,000
<OTHER-SE> 219,611,000
<TOTAL-LIABILITY-AND-EQUITY> 243,322,000
<SALES> 43,936,000
<TOTAL-REVENUES> 43,936,000
<CGS> 11,460,000
<TOTAL-COSTS> 11,460,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,744,000
<INCOME-TAX> 4,803,000
<INCOME-CONTINUING> 10,941,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,941,000
<EPS-PRIMARY> .26
<EPS-DILUTED> .24
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE QUARTER ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 40,989,000
<SECURITIES> 68,264,000
<RECEIVABLES> 22,628,000
<ALLOWANCES> 553,000
<INVENTORY> 12,610,000
<CURRENT-ASSETS> 154,574,000
<PP&E> 30,471,000
<DEPRECIATION> 6,653,000
<TOTAL-ASSETS> 182,368,000
<CURRENT-LIABILITIES> 20,332,000
<BONDS> 0
0
0
<COMMON> 81,000
<OTHER-SE> 160,008,000
<TOTAL-LIABILITY-AND-EQUITY> 182,368,000
<SALES> 34,887,000
<TOTAL-REVENUES> 34,887,000
<CGS> 9,206,000
<TOTAL-COSTS> 9,206,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,581,000
<INCOME-TAX> 4,752,000
<INCOME-CONTINUING> 10,829,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .27
<EPS-DILUTED> .25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE QUARTER ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 37,193,000
<SECURITIES> 76,818,000
<RECEIVABLES> 22,537,000
<ALLOWANCES> 583,000
<INVENTORY> 12,800,000
<CURRENT-ASSETS> 161,188,000
<PP&E> 32,270,000
<DEPRECIATION> 7,565,000
<TOTAL-ASSETS> 189,846,000
<CURRENT-LIABILITIES> 15,036,000
<BONDS> 0
0
0
<COMMON> 81,000
<OTHER-SE> 172,812,000
<TOTAL-LIABILITY-AND-EQUITY> 189,846,000
<SALES> 34,949,000
<TOTAL-REVENUES> 34,949,000
<CGS> 9,591,000
<TOTAL-COSTS> 9,591,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,022,000
<INCOME-TAX> 4,888,000
<INCOME-CONTINUING> 10,134,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .25
<EPS-DILUTED> .23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE QUARTER ENDED
SEPTEMBER 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-29-1996
<EXCHANGE-RATE> 1
<CASH> 44,420,000
<SECURITIES> 81,395,000
<RECEIVABLES> 17,836,000
<ALLOWANCES> 928,000
<INVENTORY> 8,251,000
<CURRENT-ASSETS> 162,873,000
<PP&E> 34,889,000
<DEPRECIATION> 8,629,000
<TOTAL-ASSETS> 192,936,000
<CURRENT-LIABILITIES> 15,240,000
<BONDS> 0
0
0
<COMMON> 82,000
<OTHER-SE> 175,968,000
<TOTAL-LIABILITY-AND-EQUITY> 192,936,000
<SALES> 26,540,000
<TOTAL-REVENUES> 26,540,000
<CGS> 12,297,000
<TOTAL-COSTS> 12,297,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,227,000
<INCOME-TAX> 983,000
<INCOME-CONTINUING> 3,244,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,244,000
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 48,423,000
<SECURITIES> 85,577,000
<RECEIVABLES> 19,777,000
<ALLOWANCES> 968,000
<INVENTORY> 7,013,000
<CURRENT-ASSETS> 169,388,000
<PP&E> 38,050,000
<DEPRECIATION> 9,719,000
<TOTAL-ASSETS> 201,253,000
<CURRENT-LIABILITIES> 16,571,000
<BONDS> 0
0
0
<COMMON> 82,000
<OTHER-SE> 182,607,000
<TOTAL-LIABILITY-AND-EQUITY> 201,253,000
<SALES> 122,843,000
<TOTAL-REVENUES> 122,843,000
<CGS> 38,855,000
<TOTAL-COSTS> 38,855,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 43,697,000
<INCOME-TAX> 13,328,000
<INCOME-CONTINUING> 30,369,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .75
<EPS-DILUTED> .69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 23,911,000
<SECURITIES> 66,729,000
<RECEIVABLES> 25,021,000
<ALLOWANCES> 709,000
<INVENTORY> 12,567,000
<CURRENT-ASSETS> 135,793,000
<PP&E> 27,488,000
<DEPRECIATION> 5,355,000
<TOTAL-ASSETS> 162,712,000
<CURRENT-LIABILITIES> 16,391,000
<BONDS> 0
0
0
<COMMON> 78,000
<OTHER-SE> 143,838,000
<TOTAL-LIABILITY-AND-EQUITY> 162,712,000
<SALES> 104,543,000
<TOTAL-REVENUES> 104,543,000
<CGS> 22,543,000
<TOTAL-COSTS> 22,543,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 37,613,000
<INCOME-TAX> 14,579,000
<INCOME-CONTINUING> 23,034,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> .60
<EPS-DILUTED> .55
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 56,326,000
<SECURITIES> 25,169,000
<RECEIVABLES> 9,835,000
<ALLOWANCES> 684,000
<INVENTORY> 4,439,000
<CURRENT-ASSETS> 97,743,000
<PP&E> 20,063,000
<DEPRECIATION> 5,560,000
<TOTAL-ASSETS> 112,839,000
<CURRENT-LIABILITIES> 9,231,000
<BONDS> 0
0
0
<COMMON> 38,000
<OTHER-SE> 103,570,000
<TOTAL-LIABILITY-AND-EQUITY> 112,839,000
<SALES> 62,484,000
<TOTAL-REVENUES> 62,484,000
<CGS> 13,884,000
<TOTAL-COSTS> 13,884,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 23,282,000
<INCOME-TAX> 7,210,000
<INCOME-CONTINUING> 16,072,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,072,000
<EPS-PRIMARY> .47
<EPS-DILUTED> .43
</TABLE>
