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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 (Fee Required) for the fiscal year ended December 31,
1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) 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 February 25, 1996: $773,120,191
$.002 par value common stock outstanding as of February 25, 1996:
38,965,807 shares
Documents incorporated by reference:
Specifically identified information in the Annual Report to Stockholders for the
year ended December 31, 1995, 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 1996 Annual Meeting of Stockholders to be held on
April 23, 1996, is incorporated by reference into Part III hereof.
A list of Exhibits to this Annual Report on Form 10-K is located on page 19.
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COGNEX CORPORATION ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995
INDEX
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 4A. EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF THE
REGISTRANT
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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PART I
ITEM 1. BUSINESS
GENERAL
Cognex 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, manufactures, and markets a family of machine
vision systems - or computers that can "see." Cognex machine vision systems,
which consist of software and hardware designed specifically for industrial
machine vision, are used to replace human vision in a wide range of
manufacturing processes. When connected to a video camera, a Cognex machine
vision system captures an image of each object in the manufacturing process and
uses sophisticated image analysis software to extract information from that
image. For example, a machine vision system can locate an object, read
alphanumeric characters, measure dimensions, or detect flaws. Cognex machine
vision systems are used in a variety of industries including the electronics,
semiconductor, consumer products, automotive, pharmaceutical, and general
manufacturing industries 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.
The Company's business strategy is to develop and sell standard products -
proprietary vision software together with vision hardware (vision engines) -
which require minimal customization and support by the Company. The Company
primarily markets to sophisticated customers such as original equipment
manufacturers (OEMs) and system integrators who have the ability to configure
their own vision solutions using the software tools and hardware platforms
provided by the Company. The Company also markets "easy-to-use" machine vision
systems to system integrators and end users (the "factory floor") which
represents an expansion beyond its traditional OEM customer base. These machine
vision systems designed for the factory floor marketplace provide an
"easy-to-use" interface that allows system integrators and end users in a wide
range of industries to implement vision solutions for the factory floor. This
strategy has permitted the Company to focus its engineering resources on
expanding its own product line and developing proprietary vision technology.
The strategy of selling standard products in high volume without extensive
support by the Company requires a close match between the product's usability
and functionality and the customer's capabilities and needs. The Company's
traditional products are "building blocks," both software and hardware, from
which its customers can construct a vision solution. Although the Company's
traditional products require that the customer have detailed expertise in
computer porgramming, the customer need not have in-depth knowledge of image
processing or image analysis since the Company's vision software products
provide that expert knowledge in the form of subroutines. In addition, the
Company believes that its "easy-to-use" products allow system integratores and
end users without detailed experience in computer programming or knowledge of
image processing or image analysis to construct a vision solution.
The Company's primary customers, OEMs in the electronics and semiconductor
industries, are principally located in Japan and North America. Sales to
international customers represented approximately 59%, 62%, and 60% of revenue
in 1995, 1994, and 1993, respectively. The Company sells through a direct sales
force, consisting of approximately 30 people at December 31, 1995, and through
distributors to service its OEM and factory floor customers. In addition to its
headquarters in Natick, Massachusetts, the Company has sales offices in the
United States, Europe, and the Far East.
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RECENT DEVELOPMENTS
In February 1996, the Company acquired Isys Controls, Inc., an Alameda,
California-based developer of ultra-high performance vision systems that
automatically detect and classify surface flaws and defects on a variety of high
value-added materials. In July 1995, the Company acquired Acumen, Inc., a
Portland, Oregon-based developer of machine vision systems for semiconductor
wafer identification. Information with respect to the acquisitions of Isys
Controls Inc. and Acumen, Inc. may be found in the Notes to Consolidated
Financial Statements, appearing on pages 31 and 32 of the Annual Report to
Stockholders for the year ended December 31, 1995, which is Exhibit 13 hereto,
and is incorporated herein by reference.
These acquisitions provide the company with an expansion beyond its
traditional base of general-purpose machine vision systems. The potential market
for machine vision is comprised of a number of market niches defined by
application requirements, industry, and cost/performance. The Company's business
strategy includes selective expansion into other industrial machine vision
applications. The recent acquisitions of Isys Controls, Inc. and Acumen, Inc.
gives Cognex an immediate and strong presence in the niche markets for surface
inspection and semiconductor wafer identification.
INDUSTRY BACKGROUND
A machine vision system is a computer-based image analysis machine which
replaces human vision for tasks 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.
A machine vision system consists of pattern recognition software and
high-speed computer hardware which is specially designed to run the software in
real-time. In most machine vision applications, a camera captures an image of
the object to be inspected and sends that image to the machine vision computer.
The machine vision system then uses the sophisticated software and
special-purpose hardware to analyze the image of the object and derive some
answer. Once the machine vision system has determined the answer, it can output
these results to a monitor for review by the operator or it can use these
results to control other equipment. Machine vision systems can provide four
types of answers:
QUESTION DESCRIPTION EXAMPLE
- - -------- ----------- -------
GUIDANCE
Where is it? Determining the exact physical Determining the position of a printed
location of an object. circuit board so that a robot can
automatically be guided to insert
electrical components.
IDENTIFICATION
What is it? Identifying an object by analyzing Identifying the serial number on an
its shape or by reading a serial automotive airbag so that it can
number on it. be tracked and processed
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 Determining the diameter of a
of an object. bearing prior to final assembly.
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MARKETS, CUSTOMERS, AND APPLICATIONS
The Company's current products are designed for factory automation because
the Company believes that this market currently offers the greatest opportunity
for selling standard products in high volume. Within the factory automation
marketplace, 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.
The Company currently markets primarily to OEMs principally located in Japan
and North America who supply automation equipment to the electronics and
semiconductor industries. The value of automation is high in these industries
because the products produced, such as semiconductor chips, hybrid circuits, and
printed circuit boards, have high unit costs and are manufactured at speeds too
fast for effective human intervention. In addition, the trend in these
industries toward smaller devices with higher circuit densities and finer
circuit paths require manufacturing and testing equipment capable of extremely
accurate alignment and motion control which can only be achieved by using
machine vision. Customers in these industries, moreover, employ knowledgeable
engineers who are competent to work with computer-related equipment.
The Company's business strategy is to develop and sell standard
products - proprietary vision software together with vision hardware (vision
engines) - which require minimal customization and support by the Company. The
Company primarily markets to sophisticated customers such as OEMs and system
integrators who have the ability to configure their own vision solutions using
the software tools and hardware platforms provided by the Company. The Company
also markets "easy-to-use" machine vision systems to system integrators and end
users which represents an expansion beyond its traditional OEM customer base.
These machine vision systems designed for the factory floor marketplace provide
an "easy-to-use" interface that allows system integrators and end users in a
wide range of industries to implement vision solutions for the factory floor.
This strategy has permitted the Company to focus its engineering resources on
expanding its own product line and developing proprietary vision technology.
In addition to selling traditional machine vision systems to OEMs, the
Company's products are also sold to system integrators and end users serving the
consumer products, automotive, pharmaceutical, and general manufacturing
industries. Current users of the Company's traditional products typically have
extensive programming experience, therefore, programmable Cognex products are
able to effectively meet their needs and requirements.
The strategy of selling standard products in high volume without extensive
support by the Company requires a close match between the product's usability
and functionality and the customer's capabilities and needs. The Company's
traditional products are "building blocks," both software and hardware, from
which its customers can construct a vision solution. Although the Company's
traditional products require that the customer have detailed expertise in
computer programming, the customer need not have in-depth knowledge of image
processing or image analysis since the Company's vision software products
provide that expert knowledge in the form of subroutines. In addition, the
Company believes that its "easy-to-use" products allow system integrators and
end users without detailed experience in computer programming or knowledge of
image processing or image analysis to construct a vision solution.
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TRADITIONAL MACHINE VISION PRODUCTS
Cognex machine vision systems are comprised of both machine vision software
and machine vision hardware. The Company's products are "building blocks" of
software and hardware that have been designed to give customers the flexibility
to easily configure complete vision solutions without requiring extensive
in-house expertise in image processing or image analysis. The Company offers a
library of vision software tools, as well as a family of board-level vision
hardware that ranges in performance and platform. The customer first chooses the
most appropriate software tools from the vision software library and then
selects the best vision hardware on which to run the software. All Cognex vision
hardware is functionally and software compatible across product lines. Because
of the Company's product strategy, its 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.
When purchasing products from the Company, the customer pays for each vision
engine as well as a license fee per engine for each software tool used in the
vision solution. Because the Company's products are modular, the customer
licenses only the software tools required and chooses the vision hardware with
the price and performance that best meets the application's needs. The typical
Cognex machine vision system, including software and hardware, ranges from
$7,500 to $20,000 and the Company estimates that an aggregate of approximately
38,000 Cognex machine vision systems had been sold as of December 31, 1995.
SOFTWARE PRODUCTS
The complete software package which is required to solve a customer's vision
problem is built from three different levels of software provided by the
Company: system software, image processing software, and image analysis
software. A description of the three different levels of software is as follows:
System Software. The system software level provides the utilities needed to
program and operate the machine vision system. The system software includes
software for acquiring, storing, and displaying images, as well as Cognex's
proprietary incremental C compiler with a C run-time library, interface software
for communicating with other devices, and software for controlling high-speed
transmission of data into and out of the machine vision system.
Image Processing Software. The image processing level contains software
which manipulates images (usually before they are analyzed by subsequent image
analysis routines). These tools can be used to simplify raw video images or
alter images to increase processing speed and image storage capacity. Image
processing can correct rotation, scale, and aspect ratio of an image in order to
compensate for non-uniform optics, uncertainty in part positioning, or
mechanical constraints that require awkward viewing angles. In addition, the
image processing functions provide several methods for reducing the effects of
video noise, such as averaging images together or spatially filtering a single
image.
Image Analysis Software. The image analysis level embodies the Company's
most important and valuable technology. These software tools extract information
from either raw or processed images and make decisions regarding items in those
images. By providing this high level of software, the Company has made vision
solutions available to a broader range of customers. Examples of image analysis
software tools include Search for locating patterns, Golden Template Comparison
(GTC) for locating defects, and Optical Character Recognition (OCR) for reading
characters.
By writing simple C routines which interconnect various Cognex software
modules from each of these three levels, the Company's customers "build" their
own unique software solutions to address their particular vision problems. The
Company also offers application-specific software products which are "packaged"
software products designed to solve targeted problems without any customization
by the Company or its customers. These software tools combine a series of system
software, image processing software, and image analysis software tools to solve
specific problems. For example, the Fiducial Finder tool locates fiducial, or
alignment, marks on printed circuit boards and the PQI tool quickly and
accurately inspects print produced by laser, pad, or offset printing equipment.
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HARDWARE PRODUCTS
The Company supplies a family of vision hardware with a wide range of price
and performance levels. Customers select the Cognex vision hardware which best
matches the requirements of each application. A description of the family of
vision hardware products is as follows:
Standard Machine Vision Platforms. The Company offers a variety of standard,
programmable machine vision platforms on which to run the Cognex software tools.
The Cognex 3000 Series, consisting of the 3100 and 3400, are proprietary,
single-board machine vision systems that provide a range of performance levels
for solving complex gauging, guidance, inspection, and identification tasks. The
Cognex 4000 Series are a group of VMEbus-based, board-level machine vision
systems that plug directly into a VME backplane. This family includes the
low-end Cognex 4100 and 4200, as well as the high-end Cognex 4400. The Cognex
5000 Series are the first complete machine vision systems designed to plug into
any ISA/ATbus personal computer. All of these machine vision systems are
software compatible, allowing customers to readily upgrade to higher performance
systems or to change platforms as application needs change.
Application-Specific Hardware Products. The Company also offers a family of
application-specific hardware products that are designed to solve specific
tasks. The Cognex 1500 Simple Alignment System is an easy-to-use, low-cost
machine vision system suitable for such tasks as aligning printed circuit boards
prior to screen printing, drilling, or epoxy dispensing. The Cognex
acuReader/OCR is a machine vision system designed to read even the most degraded
serial numbers from semiconductor wafers with near 100% accuracy. Both of these
machine vision systems offer simple menu interfaces that allow customers to
quickly and accurately configure the systems to solve tasks without the need for
C programming.
Custom Vision Chips. To boost the processing power of its boards, the
Company has developed the VC-2 and VC-3 custom vision chips. These chips, which
can be purchased with most of Cognex's standard machine vision platforms,
provide the processing power of multiple boards or chip sets. The chips enhance
the price/performance of Cognex's products and currently provide a significant
competitive advantage to the Company. The VC-2 chip performs image processing
functions that are optimized for machine vision tasks which enables the
Company's machine vision systems to address a new class of flaw and defect
detection applications. The VC-3 chip is an application-specific integrated
circuit designed to run image processing and image analysis algorithms at high
speeds. In addition, the Company's Acumen division has developed a set of vision
chips used for pattern recognition in the acuReader/OCR.
CHECKPOINT
In 1994, the Company introduced a new machine vision system known as
Checkpoint. The Company markets Checkpoint to system integrators and end users
which represents an expansion beyond its traditional OEM customer base.
Checkpoint is designed for the factory floor marketplace and combines the
Company's proven vision technology with a new and unique graphical user
interface. The Company believes that Checkpoint allows system integrators and
end users in a wide range of industries to design vision solutions for the
factory floor, even if such engineers have little programming or machine vision
experience. However, the deployment of Checkpoint on the factory floor requires
the services of trained system integrators to mechanically and electrically
integrate Checkpoint into manufacturing lines.
A Checkpoint system includes pre-packaged existing software (system
software, image processing software, and image analysis software), standard
hardware (Checkpoint Model 400 and 800 vision processors), and Microsoft
Windows-based application development software. Engineers using Checkpoint
create a vision program based upon a personal computer (PC) running Checkpoint's
Windows-based application builder. The PC communicates with the Checkpoint
system over a serial line at development time. Then, at run-time, the system is
deployed as a stand-alone unit on the factory floor utilizing a custom graphic
operator interface created by the developer with Checkpoint.
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The library of vision tools available with Checkpoint enables users to solve
a wide range of inspection, gauging, and assembly verification problems.
Checkpoint's gray-scale vision tools provide advanced object location and
inspection technology and are accessed at development time via PC menus in a
Microsoft Windows environment or vision system icons. Checkpoint's vision tools
are supported by the Company's most powerful vision hardware platforms including
Cognex's proprietary vision coprocessors.
Manufacturing engineers utilize pull-down menus and dialog boxes in
Checkpoint's Windows graphic user interface to create customized vision
applications. This "point and click" programming environment directs engineers
to construct vision routines in a new way. A developer combines Checkpoint's
high-level vision, I/O, and operator interface tools with conventional
programming elements such as English-language variables, expressions, and
statements. This enables the developer to focus on tasks associated with solving
the overall vision application, freeing the developer from the memorized detail
and mechanical complexity of traditional machine vision system programming.
SALES AND SERVICE
The Company's business strategy is to develop and sell standard products -
proprietary vision software together with vision hardware (vision engines) -
which require minimal customization and support by the Company. The Company
primarily markets to sophisticated customers such as OEMs and system integrators
who have the ability to use the Company's traditional products to configure
their own vision solutions using the software tools and hardware platforms
provided by the Company. The strategy of selling standard products in high
volume without extensive support by the Company requires a close match between
the product's usability and functionality and the customer's capabilities and
needs.
The Company employs direct sales personnel for all accounts in North America
and Japan, and sells through a direct sales force and through distributors in
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 markets its products in North America through a direct sales
force operating out of its Natick, Massachusetts headquarters, its Regional
Technology Center in Mountain View, California, and its sales offices in
Illinois, Minnesota, New Jersey, and Florida. The Company markets its products
in Japan through a direct sales force operating out of its wholly-owned
subsidiary, Cognex K.K. The Company also has sales offices in France, Germany,
England, Italy, Singapore, and Korea where the Company sells through a direct
sales force and through distributors. At December 31, 1995, the Company's direct
sales and service force consisted of 80 professionals, including sales and
application engineers. A significant portion 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 potential volume purchases and
long-term relationships. Opportunities that represent single unit sales or
turnkey system requirements are qualified by the sales engineer and turned over
to an independent system integrator or OEM that uses the Company's products.
Sales to international customers represented approximately 59%, 62%, and 60%
of revenue in 1995, 1994, and 1993, respectively. One international customer
based in Japan, Fuji America Corporation, accounted for approximately 16%, 20%,
and 24% of revenue in 1995, 1994, and 1993, respectively. Information with
respect to significant customers and export sales may be found in the Notes to
the Consolidated Financial Statements, appearing on page 30 of the Annual Report
to Stockholders for the year ended December 31, 1995, 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.
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The Company sells its 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. No
orders are booked for delivery beyond six months.
The Company provides software update services and hardware maintenance on
both a contract and a time and material basis. Software updates are provided via
floppy disks and hardware maintenance is provided by 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. Training courses are provided by the Company in
Natick, Massachusetts; Mountain View, California; and Tokyo, Japan, 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.
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 R, D & E organization consists of software
engineering, research and development, hardware engineering, advanced products
development, and custom products development. Software engineering is
responsible for the development of image processing and image analysis tools, as
well as the maintenance, quality assurance, and documentation of vision software
products. The advanced end-user vision systems group, within the software group,
develops Checkpoint. The research and development group focuses its energies on
enhanced vision technology capabilities. Hardware engineering is responsible for
the development of hardware products, primarily vision engines and vision chips.
The advanced products development group is engaged in the development of the
Placement Guidance Products and the VisionPro product line. The custom products
development group is responsible for the development of application products
used in wire bonders and other custom applications. The Company's Acumen
division is responsible for the development of application-specific products for
the semiconductor industry.
At December 31, 1995, the Company employed 104 professionals in R, D & E,
most of whom are software developers. The Company's R, D & E expenses were
approximately $13,190,000, $9,933,000, and $6,205,000 in 1995, 1994, and 1993,
respectively.
MANUFACTURING
The Company's current manufacturing process consists of final assembly,
burn-in, final test, quality control, and shipment of systems and board-level
products. Major components such as semiconductors, raw boards, and passive
components are purchased by the Company and shipped to third parties for
assembly and initial testing. Certain subassemblies are assembled in-house.
Materials such as electronic components and sheet metal parts are purchased and
stocked by the Company utilizing its own personnel. Some of the electronic
components are tested and burned in before assembly. The Company puts together
kits of components and supplies them to the third-party contractor for assembly.
In some cases, components are stored and kitted by the supplier and sent
directly to the third-party contractor. The third-party contractor assembles and
performs initial testing of the product, using fixtures and programs owned by
the Company, and returns the product to the Company for final assembly and test.
The Company packages and ships its products to customers from its Natick,
Massachusetts headquarters. Certain components purchased by the Company are
presently available from a single source.
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In 1995, the Company began the transition to a turnkey manufacturing
operation whereby the majority of component purchasing, subassembly, final
assembly, and testing is performed under agreement by a third-party contractor.
The Company expects that the contractor will become the sole manufacturer of
substantially all of the Company's products when the transition is complete in
early 1997.
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. Some or all of these
competitors may have greater financial and other resources than the Company. In
addition, certain application-specific machine vision products are being
introduced as low-cost, software-only solutions by various companies and the
Company does not currently have a significant product offering that effectively
competes with respect to price against these new software-only systems. The
Company considers itself to be one of the leading machine vision companies in
the world. However, reliable estimates of the machine vision market and the
number of competitors are almost nonexistent, primarily because of definitional
confusion and a tendency toward double-counting of sales. The principal
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 supplier. More recently,
ease-of-use has become a competitive factor and product price has become a more
significant factor with respect to the simpler guidance and gauging
applications.
BACKLOG
At December 31, 1995 the Company's backlog was approximately $27,655,000,
compared to $16,827,000 at December 31, 1994. 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 the future operating
performance of the Company. Delivery schedules may be extended and orders may be
canceled at any time subject to certain cancellation penalties.
PATENTS AND LICENSES
Since the Company relies on the technical expertise, creativity, and
know-how 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, consultants, suppliers, and
employees. 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.
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 and OEMs under very
limited circumstances and for restricted uses. If source code is released to a
customer or re-licenser, the customer or re-licenser is required by contract to
maintain its confidentiality and, in general, to use the source code solely for
internal purposes or for maintenance. Effective patent, copyright, and trade
secret protection may be unavailable in certain foreign countries.
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Some 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 infringe 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. Certain of the
users of the Company's products currently are engaged in litigation with Mr.
Lemelson/Technivision involving certain of these patents and the validity of
these patents has been placed in issue. Although the Company has not been named
in this litigation, it has entered into a joint defense agreement with a named
party therein, which has recently entered into a settlement agreement with Mr.
Lemelson for reasons unknown to the Company. The Company is not a party to that
settlement and has no indemnification claims, nor obligations for such, with
respect to the settlement. Certain products sold by the Company, as well as
products of others, were identified in connection with this litigation as part
of an allegedly infringing use.
Litigation with respect to the Company's products at issue has been stayed
for purposes of case management. Accordingly, any decision on the merits of this
case regarding the Company's products is expected to be delayed at least until
the litigation with respect to the products of others is settled or adjudicated.
As a result, the Company's participation in this litigation may be required in
the future. The Company may incur significant costs with respect to such
participation or if it is required to indemnify any purchasers or users of the
Company's products for damages or expenses resulting from the litigation.
In June 1995, a Magistrate Judge filed a recommendation that summary
judgment be entered in favor of one of the Company's users engaged in litigation
with Mr. Lemelson/Technivision. If this recommendation is accepted by the
applicable District Court, the summary judgment would entirely dispose of all
the actions in favor of the user. Until further notice by the Court, action
regarding this litigation is stayed. The Company cannot predict the outcome of
this 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.
EMPLOYEES
At December 31, 1995, the Company employed 307 persons, including 119 in
sales, marketing and support activities; 104 in research, development and
engineering; 36 in manufacturing and quality assurance; and 48 in management,
administration and finance. 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.
ITEM 2: PROPERTIES
In 1994, the Company purchased and renovated a 100,000 square foot building
located in Natick, Massachusetts. 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 sales offices in the
United States in California, Illinois, and Oregon, as well as in Japan, France,
Germany, England, Italy, Singapore, and Korea.
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 commitments that expire at various dates through the year
2000. The Company will oversee these lease commitments until it is ready to take
occupancy.
9
12
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, 1995 to a vote of security holders through solicitation of proxies
or otherwise.
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, 1995:
NAME AGE TITLE
- - ---- --- -----
Robert J. Shillman 49 President, Chief Executive Officer, and Chairman of
the Board of Directors
Patrick A. Alias 50 Executive Vice President of Sales and Marketing
John J. Rogers, Jr. 37 Executive Vice President, Chief Financial Officer, and
Treasurer
Richard B. Snyder 52 Executive Vice President of Operations
Mr. Shillman, founder of the Company, has served as its President, Chief
Executive Officer, and Chairman since its organization in 1981.
Mr. Alias joined the Company in 1991 as Executive Vice President of Sales
and Marketing. From 1990 to 1991, he served as President of Gimeor SA, a
manufacturer of CAD/CAM software.
Mr. Rogers joined the Company in 1991 as Director of Finance and
Administration and was appointed Vice President of Finance and Administration
and Treasurer in 1993, Chief Financial Officer in 1994, and Executive Vice
President of Finance and Administration in 1995. From 1989 to 1991, he served as
Senior Manager of Financial Control and Analysis for the Waters Division of
Millipore Corporation, a manufacturer of liquid chromatography equipment. Mr.
Rogers is a certified public accountant.
Mr. Snyder joined the Company in 1991 as Executive Vice President of
Operations. From 1981 to 1991, he held various positions within Prime Computer,
including President and General Manager, Computer Systems Business Unit, Vice
President Engineering, Vice President Systems Marketing and Development, and
Vice President Software Development. The Computer Systems Business Unit of Prime
Computer manufactures minicomputers and CAD/CAM systems.
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.
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13
OTHER MEMBERS OF THE MANAGEMENT TEAM
NAME AGE TITLE
- - ---- --- -----
Marilyn Matz 42 Vice President of Software Engineering
E. John McGarry 39 Vice President of Development: Application Specific
Accelerated Products, President and Chief Technical
Officer of Acumen
Kris Nelson 48 Vice President of North American Sales
Hironobu Ohgusu 56 President of Cognex K.K.
Henk Schalke 50 Vice President of Engineering
David Schatz 38 Vice President of Corporate Development
William Silver 41 Vice President of Research and Development
Ms. Matz and Messrs Nelson, Schatz, and Silver have been employed by the
Company in their 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.
Mr. Ohgusu joined the Company in 1992 as President of Cognex K.K., the
Company's Japanese subsidiary. From 1989 to 1992, he served as President and CEO
of Lonrho International Networks, Ltd., a manufacturer of computer diagnostic
software.
Mr. Schalke joined the Company in 1991 as Vice President of Engineering.
From 1988 to 1990, he served as Vice President and General Manager for the Small
Systems product line of Concurrent Computer Corporation, a manufacturer of
real-time computer systems.
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14
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Certain information with respect to this item may be found in the section
captioned "Selected Quarterly Financial Data," appearing on page 35, and the
section captioned "Company Information," appearing on page 36 of the Annual
Report to Stockholders for the year ended December 31, 1995, which is Exhibit 13
hereto, and is incorporated herein by reference.
The Company has never declared or paid cash dividends on shares of 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 Board of Directors of the Company, 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 34 of the
Annual Report to Stockholders for the year ended December 31, 1995, 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 16 of the Annual Report to
Stockholders for the year ended December 31, 1995, 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 17 through 35 of the Annual Report to
Stockholders for the year ended December 31, 1995, 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 1995 or 1994.
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15
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 1996 Annual Meeting of
Stockholders to be held on April 23, 1996. 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" 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 1996 Annual Meeting of Stockholders to be held on April
23, 1996. 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 1996 Annual Meeting of Stockholders to be held on April
23, 1996. Such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
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16
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, 1995, which is
Exhibit 13 hereto, and is incorporated herein by reference:
Report of Independent Accountants for the years ended December
31, 1995, 1994 and 1993
Consolidated Statements of Income for the years ended December
31, 1995, 1994 and 1993
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
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 on page 19, immediately preceding
such Exhibits.
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(b) Reports on Form 8-K
On October 4, 1995, the Company filed a Current Report on Form 8-K for
the acquisition of Acumen, Inc. as follows:
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Report of Independent Accountants
Statements of Income for the three months ended June 30,
1995 (unaudited) and the twelve months ended March 25,
1995
Balance Sheets as of June 30, 1995 (unaudited) and March
25, 1995
Statements of Stockholders' Equity for the three months
ended June 30, 1995 (unaudited) and the twelve months
ended March 25, 1995
Statements of Cash Flows for the three months ended June
30, 1995 (unaudited) and the twelve months ended March
25, 1995
Notes to Financial Statements
(b) Pro Forma Financial Information
Introductory Information
Unaudited Pro Forma Statement of Income for the six months
ended July 2, 1995
Unaudited Pro Forma Statement of Income for the twelve
months ended December 31, 1994
Unaudited Pro Forma Balance Sheet as of July 2, 1995
Notes to Unaudited Pro Forma Financial Information
(c) Exhibits
Exhibit 2 - Stock Purchase Agreement dated as of
July 21, 1995 among Acumen, Inc., the
Shareholders of Acumen Inc., and Cognex
Corporation
Exhibit 27 - Financial Data Schedules (electronic
filing only)
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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
March 28, 1996
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.
Signature Title Date
- - --------- ----- ----
/s/ Robert J. Shillman President, Chief Executive Officer, March 28, 1996
- - ----------------------- and Chairman of the Board of Directors
Robert J. Shillman (principal executive officer)
/s/ John J. Rogers, Jr. Executive Vice President, Chief Financial March 28, 1996
- - ----------------------- Officer, and Treasurer
John J. Rogers, Jr. (principal financial and accounting officer)
/s/ William Krivsky Director March 28, 1996
- - -----------------------
William Krivsky
/s/ Patrick Sansonetti Director March 28, 1996
- - -----------------------
Patrick Sansonetti
/s/ Anthony Sun Director March 28, 1996
- - -----------------------
Anthony Sun
/s/ Rueben Wasserman Director March 28, 1996
- - -----------------------
Rueben Wasserman
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19
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 33 of the 1995
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,
1995 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,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 26, 1996
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20
SCHEDULE II
COGNEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- - ---------------------------------- ------------ ---------- ---------- ---------- ----------
Allowance for Doubtful Accounts
1995 $684 $ 25 -- -- $709
1994 597 159 -- $ (72) (A) 684
1993 322 435 -- (160) (A) 597
Reserve for Inventory Obsolescence
1995 $599 -- -- $ (58) (B) $541
1994 251 $360 -- (12) (B) 599
1993 151 128 -- (28) (B) 251
(A) Specific write-offs
(B) Specific dispositions
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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
Current 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 Current 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 28, 1989 (incorporated by reference to Exhibit 3C to the
Registration Statement Form S-1 [Registration No. 33-29020]).
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 1984 Stock Option Plan, as amended
(incorporated by reference to Exhibit 4B to Amendment No. 2
to the Registration Statement Form S-8 [Registration No.
33-31657]).
10C Cognex Corporation 1992 Stock Option Plan (filed as Exhibit
10I to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992).
10D 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).
10E Cognex Corporation 1993 Employee Stock Option Plan (filed as
Exhibit 10K to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
10F Purchase and Sale Agreement with respect to the Natick
Executive Park facility dated as of October 20, 1993 (filed
as Exhibit 10L to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).
10G Purchase and Sale Agreement with respect to the Natick
Executive Park facility dated as of June 30, 1995 *
11 Statement re computation of per share earnings *
13 Annual Report to Stockholders for the year ended December 31,
1995 (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. *
27 Financial Data Schedule *
* Filed herewith
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