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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, 1996
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 February 23, 1997: $634,649,794
$.002 par value common stock outstanding as of February 23, 1997: 40,969,863
shares
Documents incorporated by reference:
Specifically identified information in the Annual Report to Stockholders for the
year ended December 31, 1996, 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 1997 Annual Meeting of Stockholders to be held on
April 22, 1997, is incorporated by reference into Part III hereof.
A list of Exhibits to this Annual Report on Form 10-K is located on page 17.
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COGNEX CORPORATION ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
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
CORPORATE PROFILE
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, 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, healthcare, metals, and paper 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. 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:
QUESTION DESCRIPTION EXAMPLE
-------- ----------- -------
GUIDANCE
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.
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 pharmaceutical
defects. labels and packaging.
GAUGING
What size is it? Determining the dimensions of an Determining the diameter of a bearing prior to final
object. assembly.
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Once the machine vision system has processed the image and made 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 that moves the
part, or alternatively, to a computer file for analysis or subsequent process
control. This process is repeated for each part on the line, or continuously
for process material, as it 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
progammable systems to application-specific solutions tailored to solve
particular manufacturing tasks.
End users are companies that manufacture products, such as radios, phones,
and ball-point pens, on the factory floor. While they may purchase capital
equipment containing machine vision or contract 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. The Company's
current products are designed for factory automation because the Company
believes that this market currently 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.
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 comes 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 many times
larger than
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the OEM segment. Consequently, the Company has invested heavily 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. Approximately 55% of the Company's revenue comes
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
expects to continue to invest in the expansion of direct sales, support,
local marketing, and local engineering in all of these regions.
The factory automation market for machine vision is comprised of many
market niches defined by differing applications requirements, industry, and
cost/performance. The Company's business strategy includes selective
expansion into other industrial machine vision applications. This expansion
is driven both by the internal development of new products and the
acquisition of companies and technologies. In July 1995, the Company acquired
Acumen, Inc. ("Acumen"), a developer of machine vision systems for
semiconductor wafer identification, and in February 1996, the Company
acquired Isys Controls, Inc. ("Isys"), a developer of machine vision systems
for high-speed surface inspection. These acquisitions gave Cognex an
immediate and strong presence in the growing niche markets for semiconductor
wafer identification and high-speed surface inspection.
PRODUCTS
The Company develops and sells a wide range of standard machine vision
products - proprietary vision software together with vision hardware (vision
engines) - which require minimal customization and support by the Company.
The machine 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. Customers select
the tools necessary to solve their vision problem from the Company's vision
software library and configure their solution by either writing a C-language
program or utilizing a graphical user interface (GUI). 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. All of the Company's current products are on-line
systems that run at production speeds and locate images in a two-dimensional
scene. A typical Cognex machine vision system, including software and
hardware, ranges from $7,500 to $20,000; however, the Company's Web
Inspection Systems range from $250,000 to $2,000,000. The Company estimates
that it had sold an aggregate of approximately 52,000 machine vision systems
as of December 31, 1996.
GENERAL-PURPOSE MACHINE VISION SYSTEMS
Programmable Vision Engines
Cognex Programmable Vision Engines (PVEs) are board-level vision systems
programmable in C-language. PVEs 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 vision computers,
each of which contains an on-board central processing unit (CPU) and
co-processor, image capture mechanism, memory, and input/output connector,
enabling the host computer to off-load all vision tasks to the vision
processor. 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
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,
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allowing customers to readily upgrade to higher performance systems or to
change platforms as application needs change.
The Company currently offers the Cognex 4000 Series, which plugs directly
into a VME backplane, and the Cognex 5000 Series, which is for personal
computers (PCs). PVEs are sold primarily to OEMs located in the United States
and Japan who integrate the vision engines into manufacturing equipment for
the semiconductor and electronics industries. PVEs are also sold to system
integrators located principally in North America, Japan, Europe, and
Southeast Asia, who integrate the vision engines into manufacturing equipment
for the factory floor in industries ranging from automotive to
pharmaceutical.
During 1996, the Company offered the VisionPro product line to satisfy
an increasing demand for lower-cost, software-only solutions. The Company has
added increased functionality to the product and has recently focused its
selling and marketing efforts toward OEMs and system integrators who require
lower-cost machine vision systems to run simpler applications.
"Point and Click" Programmable Systems
The Checkpoint family of vision systems (the Checkpoint 600 for the 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 who 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 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-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 MACHINE 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 list of application-specific products is as follows:
Web Inspection Systems perform high-speed surface inspection on a variety
of materials manufactured on continuous sheets or "webs." These systems are
more hardware intensive than other Cognex products and include lighting,
custom line-scan cameras, and a multi-board vision processing system along
with the operator workstation. Each system is individually configured by the
Company's Isys subsidiary to satisfy the customer's specific requirements.
Surface Mount Device Placement Guidance Package (SMD/PGP), when coupled
with a Cognex 4000 or 5000 Series machine vision engine, quickly and
accurately locates fiducial marks on printed circuit boards for alignment,
inspects the quality of SMD devices, and then guides 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.
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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 (IC) 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 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 or 5000 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.
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. Three new
technologies currently being developed by the Company include: (1) PatMax, a
new method for high accuracy, rotation and scale invariant pattern
recognition and defect detection, which is anticipated to be introduced in
the second half of 1997, (2) a digital 3D sensor, which is anticipated to be
ready for market in 1998, and (3) the Cognex 8000 Series, the next-generation
vision engine, which is anticipated to be introduced in the second half of
1997. The Company has begun to file patents on new technologies it has
developed for PatMax and the digital 3D sensor. 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.
The R, D & E organization consists of software engineering, hardware
engineering, and research and development. Software engineering is
responsible for the development of the Company's core image processing and
image analysis tools, as well as the maintenance, quality assurance, and
documentation of software products. Dedicated teams within the software group
are responsible for the development of the VisionPro and Checkpoint product
lines, and the SMD/PGP tools, along with the development of application
products used in wire bonders and other custom applications. Hardware
engineering is responsible for the development of hardware products,
primarily vision engines and vision chips. The research and development group
focuses its energies on enhanced vision technology capabilities. The
Company's Acumen development center is responsible for the development of
application-specific products for the semiconductor industry, while the
development of Web Inspection Systems is performed by the Isys engineering
organization.
At December 31, 1996, the Company employed 132 professionals in R, D & E,
most of whom are software developers. The Company's R, D & E expenses totaled
$19,434,000, $13,190,000, and $9,933,000 in 1996, 1995, and 1994,
respectively.
MANUFACTURING
With the exception of its Web Inspection Systems, the Company's
manufacturing organization is located at its Natick, Massachusetts
headquarters. During 1996, the Company substantially 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 a single third-party
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contractor. After the completion of initial testing, the third party
contractor delivers the products to the Company to perform final testing and
assembly. The products provided by the third party contractor are
manufactured using specified components and assembly and test documentation
created and controlled by the Company. Certain components purchased by the
third party contractor are presently available from a single source.
The Company's Web Inspection Systems are manufactured in Alameda,
California. The manufacturing process consists 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, Japan, and Europe, and through a direct sales force and distributors
in 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 North America 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 Japan out of its Tokyo and Osaka offices; in
Europe out of its offices in France, Germany, England, and Italy; and
in Southeast Asia out of its Singapore and Korea offices.
At December 31, 1996, the Company's direct sales and service force
consisted of 91 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.
Sales to international customers represented approximately 55%, 59%, and
62% of revenue in 1996, 1995, and 1994, respectively. One international
customer based in Japan, Fuji America Corporation, accounted for
approximately 11%, 16%, and 20% of revenue in 1996, 1995, and 1994,
respectively. Segment information, including information about foreign and
domestic operations, export sales, and significant geographic areas, may
be found in the Notes to the Consolidated Financial Statements, appearing on
pages 26 and 27 of the Annual Report to Stockholders for the year ended
December 31, 1996, 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 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.
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.
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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.
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. Effective patent, copyright, and trade secret
protection may be unavailable in certain foreign countries.
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, while the second user had the allegations
dismissed by the court. Although the Company was not named in this
litigation, it entered into a joint defense agreement with one party named
therein, who subsequently 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, 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.
In June 1995, a Magistrate Judge filed a recommendation that summary
judgment be entered in favor of the Company's other user that was engaged in
the aforementioned litigation with Mr. Lemelson/Technivision. This
recommendation, which was accepted by the U.S. District Court of Nevada in
April 1996, disposed of all the actions in favor of the user in this case.
The Company, however, cannot predict the outcome of 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
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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 VisionPro product line.
BACKLOG
At December 31, 1996, the Company's backlog totaled $26,835,000, compared
to $27,655,000 at December 31, 1995. 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.
EMPLOYEES
At December 31, 1996, the Company employed 404 persons, including 148 in
sales, marketing and support activities; 132 in research, development and
engineering; 54 in manufacturing and quality assurance; and 70 in management,
administration and finance. Of the Company's 404 employees, 43 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.
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
facilities in the United States in California, Illinois, and Oregon, as well
as in Japan, France, Germany, England, Italy, Singapore, and Korea.
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 1995, the Company began work on a 50,000 square-foot expansion of its
corporate headquarters, which was completed during the first quarter of 1997.
However, since the Company's planned hiring over the next several quarters is
substantially less than anticipated when construction commenced, occupancy of
this additional space, along with the related operating costs, will be
delayed until the additional space is needed, which is anticipated to be late
1997 or early 1998.
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.
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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, 1996 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, 1996:
NAME AGE TITLE
---- --- -----
Robert J. Shillman 50 President, Chief Executive Officer, and Chairman of the Board
of Directors
Patrick A. Alias 51 Executive Vice President of Sales and Marketing
John J. Rogers, Jr. 38 Executive Vice President, Chief Financial Officer, and Treasurer
Richard B. Snyder 53 Executive Vice President of Engineering
Messrs. Shillman, Alias, Rogers, and Snyder have been employed by the
Company in their present or other capacities for no less than the past five
years.
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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OTHER MEMBERS OF THE MANAGEMENT TEAM
NAME AGE TITLE
---- --- -----
Eric Ceyrolle 43 Vice President of European Operations
Marilyn Matz 43 Vice President of Software Engineering
E. John McGarry 40 Vice President of Development: Application Specific
Accelerated Products, President and Chief Technical
Officer of Acumen
Kris Nelson 49 Vice President of North American Sales
Hironobu Ohgusu 57 President of Cognex K.K.
Richard Rombach 40 President of Isys Controls, Inc.
Henk Schalke 51 Vice President of Engineering
David Schatz 39 Vice President of Corporate Development
William Silver 42 Vice President of Research and Development
Justin Testa 44 Vice President of Marketing
Ms. Matz and Messrs. Nelson, Schalke, Schatz, Silver, and Testa have been
employed by the Company in their present or other capacities for no less than
the past five years.
Mr. Ceyrolle joined the Company in 1992 as General Manager of European
Operations and was promoted to his current position in 1996. From 1988 to
1992, he served as General Manager of Southern European Operations for
Modcomp Corp, a real-time system supplier.
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 Network Ltd., a manufacturer of computer
diagnostic software.
Mr. Rombach joined the Company in 1996 when the company he founded in
1989, Isys Controls, Inc., was acquired by Cognex. From 1989 to 1996, he
served as President of Isys Controls, Inc., a developer of machine vision
systems for high-speed surface inspection.
10
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 31, and the
section captioned "Company Information," appearing on page 32 of the Annual
Report to Stockholders for the year ended December 31, 1996, 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 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
30 of the Annual Report to Stockholders for the year ended December 31, 1996,
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 8 through 12 of the Annual Report
to Stockholders for the year ended December 31, 1996, 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 13 through 31 of the Annual
Report to Stockholders for the year ended December 31, 1996, 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 1996 or 1995.
11
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 1997 Annual Meeting of
Stockholders to be held on April 22, 1997. 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 1997 Annual
Meeting of Stockholders to be held on April 22, 1997. 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 1997 Annual Meeting of Stockholders to be held
on April 22, 1997. Such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
12
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, 1996, 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, 1996, 1995 and 1994
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
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 page 17,
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, 1996.
13
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 24, 1997
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 24, 1997
------------------------------- and Chairman of the Board of Directors
Robert J. Shillman (principal executive officer)
/s/ John J. Rogers, Jr. Executive Vice President, Chief Financial March 24, 1997
------------------------------- Officer, and Treasurer
John J. Rogers, Jr. (principal financial and accounting officer)
/s/ William Krivsky Director March 24, 1997
-------------------------------
William Krivsky
/s/ Anthony Sun Director March 24, 1997
-------------------------------
Anthony Sun
/s/ Rueben Wasserman Director March 24, 1997
-------------------------------
Rueben Wasserman
14
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 29 of the 1996
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,
1996 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.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 28, 1997
15
18
SCHEDULE II
COGNEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
DESCRIPTION of Period Expenses Accounts Deductions Period
----------- --------- -------- -------- ---------- ------
Allowance for Doubtful Accounts
1996 $709 $ 542 - $ (283) (a) $ 968
1995 684 25 - - 709
1994 597 159 - (72) (a) 684
Reserve for Inventory Obsolescence
1996 $541 $4,361 - $(2,629) (b) $2,273
1995 599 - - (58) (b) 541
1994 251 360 - (12) (b) 599
(a) Specific write-offs
(b) Specific dispositions
16
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
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 27, 1989, as amended April 30, 1991, April 21, 1992,
April 25, 1995, and April 23, 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 Statement on 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)
11 Statement re computation of per share earnings *
13 Annual Report to Stockholders for the year ended December
31, 1996 (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 (electronic filing only) *
* Filed herewith
17