-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SfIctVEiGOxG3HoOmnzP2nerFzM9wZ9GyHI/v+x345UAlRAIPkFP9gGtTZqh1w/8 n0yy1bvU5iaOY2WJEyrJng== 0000950135-97-001297.txt : 19970325 0000950135-97-001297.hdr.sgml : 19970325 ACCESSION NUMBER: 0000950135-97-001297 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970324 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COGNEX CORP CENTRAL INDEX KEY: 0000851205 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 042713778 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17869 FILM NUMBER: 97561673 BUSINESS ADDRESS: STREET 1: ONE VISION DR CITY: NATICK STATE: MA ZIP: 01760 BUSINESS PHONE: 5086503000 MAIL ADDRESS: STREET 1: ONE VISION DRIVE CITY: NATICK STATE: MA ZIP: 01760 10-K 1 COGNEX CORPORATION FORM 10-K 1 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. 2 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
3 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.
1 4 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 2 5 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, 3 6 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. 4 7 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 5 8 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. 6 9 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 7 10 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. 8 11 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. 9 12 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 EX-3.B 2 RESTATED ARTICLES OF ORGANIZATION 1 The Commonwealth of Massachusetts - ---------- FEDERAL IDENTIFICATION Examiner MICHAEL JOSEPH CONNOLLY Secretary of State ONE ASHBURTON PLACE, BOSTON, MASS: 02108 No. 04-2713778 ---------- RESTATED ARTICLES OF ORGANIZATION GENERAL LAWS, CHAPTER 156B, SECTION 74 This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the restated articles of organization. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts. ---------- We, Robert J. Shillman , President/, and Anthony J. Medaglia, Jr. , Clerk/ of COGNEX CORPORATION --------------------------------------------------------------------------- (Name of Corporation) located at 15 Crawford Street, Needham, Massachusetts 02194 ---------------------------------------------------------------- do hereby certify that the following restatement of the articles of organization of the corporation was duly adopted at a meeting held on June 27 , 1989, by vote of 3,699,107 shares of Class A Common out of 4,785,114 shares outstanding, --------- -------------------- --------- (Class of Stock) 21,802 shares of Series A Preferred out of 21,802 shares outstanding, and --------- -------------------- --------- (Class of Stock) 10,000 shares of Series B Preferred out of 10,000 shares outstanding,* --------- -------------------- --------- (Class of Stock)
being at least two-thirds of each class of stock outstanding and entitled to vote and of each class or series of stock adversely affected thereby: 1. The name by which the corporation shall be known is: COGNEX CORPORATION 2. The purposes for which the corporation is formed are as follows: C | | See Page A-1 attached hereto. P | | M | | RA | | *and 78,504 shares of Series C Preferred out of 78,504 shares outstanding, and 466,668 shares of Series D Preferred out of 500,002 shares outstanding, - ---------- P.C. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article requiring each such addition is clearly indicated. 2 3. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized to issue is as follows:
WITHOUT PAR VALUE WITH PAR VALUE ----------------- -------------- CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE - -------------- ---------------- ---------------- --------- Preferred - 400,000 $ .01 Common - 10,000,000 $.002
*4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established: See Pages B-1 thru B-5 attached hereto. *5. The restrictions, if any, imposed by the articles of organization upon the transfer of shares of stock of any class are as follows: None. *6. Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: See Pages C-1 thru C-12 attached hereto. * If there are no such provisions, state "None". 3 2. The purpose for which the corporation is formed is as follows: To manufacture, invent, design, develop and to engage in research and consulting work in connection with the production of products for data processors for offices and other markets; to invent, design, discover, or acquire formulae, processes, improvements, inventions, designs, patents, licenses, copyrights, trademarks, trade names and trade secrets applicable to the foregoing and to hold, use, sell, license and otherwise deal in or dispose of the same; to acquire by purchase, deed, mortgage, lease or by any other method and to hold, maintain, operate, improve, develop, sell, exchange, lease, mortgage, pledge, hypothecate, loan money upon and otherwise deal in real and personal property of every kind, character and description and wheresoever situated, including without limitation the stock and securities of the corporation or of any other corporation; to lend money upon, credit or security to, to guarantee or assume obligations of, and to aid in any other manner other concerns wherever and however organized, any obligations of which or any interest in which shall be held by the corporation or in the affairs or prosperity of which the corporation has a lawful interest and to do all acts and things designed to protect, improve and enhance the value of such obligations and interests; and to carry on any business permitted and enjoy all rights and powers granted by the Commonwealth of Massachusetts to a corporation organized under Chapter 156B of the General Laws, as amended. - A-1 - 4 4. DESCRIPTION OF CAPITAL STOCK ---------------------------- A. AUTHORIZED SHARES. The aggregate number of shares which this Corporation shall have authority to issue is: 10,000,000 shares of common stock having a par value of $.002 per share (the "Common Stock") and 400,000 shares of preferred stock having a par value of $.01 per share (the "Series Preferred Stock"). B. SERIES PREFERRED STOCK. Shares of Series Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors, each of said series to be distinctly designated. All shares of any one series of the Series Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers, if any, and the designations, preferences and relative, participating, optional or other special rights or privileges of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph D hereof, there is hereby expressly vested in the Board of Directors of the Corporation the authority to issue one or more series of the Series Preferred Stock and to fix in the resolution or resolutions providing for the issue of such stock adopted by the Board of Directors of the Corporation the voting powers, if any, and the designations, preferences and relative, participating, optional or other special rights or privileges, and the qualifications, limitations or restrictions of such series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of the series Preferred Stock which shall constitute such series. The designation of a series of preferred stock need not include the words "preferred" or "preference" and may be designated "special" or other distinctive term. Unless otherwise provided in the resolution issuing such series, the number of shares of any series of the Series Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the Board of Directors in the manner prescribed by law; (2) The rate and times at which, and the terms and, conditions upon which, dividends, if any, on the Series Preferred Stock of such series shall be paid, - B-1 - 5 the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other classes of stock and whether such dividends shall be cumulative or non-cumulative and, if cumulative, the date from which such dividends shall be cumulative; (3) Whether the series shall be convertible into, or exchangeable for, at the option of the holders of the Series Preferred Stock of such series or the Corporation or upon the happening of a specified event, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, and the terms and conditions of such conversion or exchange, including provisions for the adjustment of any such conversion rate in such events as the Board of Directors shall determine; (4) Whether or not the Series Preferred Stock of such series shall be subject to redemption at the option of the Corporation or the holders of such series or upon the happening of a specified event, and the redemption price or prices and the time or times at which, and the terms and conditions upon which, the Series Preferred Stock of such series may be redeemed; (5) The rights, if any, of the holders of the Series Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation; (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Series Preferred Stock of such series; and (7) Subject to subparagraph 5 of Paragraph D hereof, whether such series of the Series Preferred Stock shall have full, limited or no voting powers including, without limiting the generality-of the foregoing, whether such series shall have the right, voting as a series by itself or together with other series of the Series Preferred Stock or all series of the Series Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment - B-2 - 6 of dividends on any one or more series of the Series Preferred Stock or under such other circumstances and on such conditions as the Board of Directors may determine. C. COMMON STOCK. (1) After the Corporation has complied with the requirements, if any, fixed in accordance with the provisions of Paragraph B hereof with respect to (a) dividends on series of the Series Preferred Stock (in accordance with the relative preferences among such series) and (b) the setting aside of sums as sinking funds or redemption or purchase accounts for series of the Series Preferred Stock (in accordance with the relative preferences among such series), and subject further to any other conditions which may be fixed in accordance with the provisions of Paragraph B hereof, then, and not otherwise, the holders of Common Stock shall be entitled to receive such dividends (either in cash, stock or otherwise) as may be declared from time to time by the Board of Directors out of assets of the Corporation legally available therefor and the holders of the Series Preferred Stock shall not be entitled to participate in any such dividends. (2) After distribution in full of the preferential amount, if any, to be distributed to the holders of series of the Series Preferred Stock (in accordance with the relative preferences among such series) in the event of voluntary or involuntary liquidation, distribution, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to shareholders, ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may otherwise be required by law, each holder of Common Stock shall have one vote in respect of each share of Common Stock held by him on all matters voted upon by the shareholders. D. OTHER PROVISIONS. (1) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of - B-3 - 7 other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations (including such holders or others) and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion. (2) The relative powers, preferences and rights of each series of the Series Preferred Stock in relation to the powers, preferences and rights of each other series of the Series Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in Paragraph B hereof. The consent, by class or series vote or otherwise, of the holders of such of the series of the Series Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of the Series Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of the Series Preferred Stock adopted pursuant to Paragraph B hereof, the conditions if any, under which the consent of the holders of a majority (or such greater proportion as shall be fixed therein) of the outstanding shares of such series shall be required for the issuance of any or all other series of the Series Preferred Stock. (3) Subject to the provisions of subparagraph 2 of this Paragraph D, shares of any series of the Series Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. (4) Shares of authorized Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors. - B-4 - 8 (5) The number of authorized shares of Common Stock and of the Series Preferred Stock, without a class or series vote, may be increased or decreased from time to time (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon. - B-5 - 9 6. Other lawful provisions for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution or for limiting, defining or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: No Director or officer shall be disqualified by his office from dealing or contracting as vendor, purchaser or otherwise, whether in his individual capacity or through any other corporation, trust, association or firm in which he is interested as stockholder, director, trustee, partner or otherwise, with the corporation or any corporation, trust, association or firm in which the corporation shall be a stockholder or otherwise interested or which shall hold stock or be otherwise interested in the corporation, nor shall any such dealing or contract be avoided, nor shall any Director or officer so dealing or contracting be liable to account for any profit or benefit realized through any such dealing or contract to the corporation or to any stockholder or creditor thereof solely because of the fiduciary relationship established by reason of his holding such Directorship or office. Any such interest of a Director shall not disqualify him from being counted in determining the existence of a quorum at any meeting nor shall any such interest disqualify him from voting or consenting as a Director or having his vote or consent counted in connection with any such dealing or contract. No stockholder shall be disqualified from dealing or contracting as vendor, purchaser or otherwise, either in his individual capacity or through any other corporation, trust, association or firm in which he is interested as stockholder, director, trustee, partner or otherwise, with the corporation or any corporation, trust, association or firm in which the corporation shall be a stockholder or otherwise interested or which shall hold stock or be otherwise interested in the corporation, nor shall any such dealing or contract be avoided, nor shall any stockholder so dealing or contracting be liable to account for any profit or benefit realized through any such contract or dealing to the corporation or to any stockholder or creditor thereof by reason of such stockholder holding stock in the corporation to any amount, nor shall any fiduciary relationship be deemed to be established by such stockholding. Meetings of the stockholders of the corporation may be held at any place within the United States. The corporation may be a partner in any business enterprise it would have power to conduct by itself. - C-1 - 10 The directors may make, amend or repeal the by-laws in whole or in part, except with respect to any provision thereof which by law, these Restated Articles of organization or the by-laws requires action by the stockholders. No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any statutory provision or other law imposing such liability, except for liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section sixty-one or sixty-two of Chapter 156B of the Massachusetts General Laws, or (iv) for any transaction from which the director derived an improper personal benefit. - C-2 - 11 Classified Board of Directors (1) The Directors of the corporation shall be divided into three classes: Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the whole number of the Board of Directors. If the number of Directors is not evenly divisible by three, the Board of Directors shall determine the number of Directors to be elected initially into each class. In the election of Directors at the Special Meeting of Stockholders in Lieu of the 1989 Annual Meeting, the Class I Directors shall be elected to hold office for a term to expire at the first annual meeting of the stockholders thereafter; the Class II Directors shall be elected to hold office for a term to expire at the second annual meeting of the stockholders thereafter; and the Class III Directors shall be elected to hold office for a term to expire at the third annual meeting of the stockholders thereafter, and in the case of each class, until their respective successors are duly elected and qualified. At each annual election held after the Special Meeting of Stockholders in Lieu of the 1989 Annual Meeting, the Directors elected to succeed those whose terms expire shall be identified as being of the same class as the Directors they succeed and shall be elected to hold office for a term to expire at the third annual meeting of the stockholders after their election, and until their respective successors are duly elected and qualified: if the number of Directors changes, any increase or decrease in Directors shall be apportioned among the classes so as to maintain all classes as equal in number as possible, and any additional Director elected to any class shall hold office for a term which shall coincide with the terms of the other Directors in such class and until his successor is duly elected and qualified. (2) Notwithstanding any other provisions of these Articles of Organization or the by-laws of the corporation or the fact that a lesser percentage may be specified by law, these Articles of Organization or the by-laws of the corporation, the affirmative vote of the holders of at least eighty (80%) percent of the combined voting power of the outstanding stock of the corporation entitled to vote generally in the election of directors ("Voting Stock"), voting together as a single class, shall be required to amend, alter, adopt any provision inconsistent with or to repeal this provision; provided however that if any such proposal receives the affirmative vote of each holder of at least 15% of the outstanding Voting Stock who also held at least 15% of the outstanding Voting Stock of the corporation on May 15, 1989, then such proposal shall require only the affirmative vote of the holders of at least a majority of the outstanding Voting Stock of the corporation. - C-3 - 12 Vote Required for Certain Business Combinations (A) In addition to any affirmative vote required by law or these Articles of Organization, and except as otherwise expressly provided in Paragraph (B) of this Provision: 1. any merger or consolidation of the corporation or any Subsidiary (as hereinafter defined) with (a) an Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as such term is hereinafter defined) of an Interested Stockholder; or 2. any sale, lease, exchange, mortgage, pledge, grant of a security interest, transfer or other disposition (in one transaction or a series of transactions) to or with (a) an Interested Stockholder or (b) or any other person (whether or not itself an Interested Stockholder) which is, or after such sale, lease, exchange, mortgage, pledge, grant of security interest, transfer or other disposition would be, an Affiliate of an Interested Stockholder, directly or indirectly, of substantially all of the assets of the corporation (including, without limitation, any voting securities of a Subsidiary) or any Subsidiary; or 3. the issuance or transfer by the corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the corporation or any Subsidiary, or both, to (a) an Interested Stockholder or (b) any other person (whether or not itself an Interested Stockholder) which is, or after such issuance or transfer would be, an Affiliate of an Interested Stockholder in exchange for cash, securities or other property (or a combination thereof); or 4. the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of an Interested Stockholder; or 5. any reclassification of securities (including any reverse stock split), or recapitalization of the corporation, or any merger or consolidation of the corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the corporation or any Subsidiary directly or indirectly beneficially owned by (a) an Interested Stockholder or (b) any other person - C-4 - 13 (whether or not itself an Interested Stockholder) which is, or after such reclassification, recapitalization, merger or consolidation or other transaction would be, an Affiliate of an Interested Stockholder; shall not be consummated unless such consummation shall have been approved by the affirmative vote of the holders of at least eighty (80%) percent of the combined voting power of the then outstanding shares of Voting Stock (as hereinafter defined), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law, in these Articles of Organization or in any agreement with any national securities exchange or otherwise. (B) The provisions of Paragraph (A) of this Provision shall not be applicable to any particular Business Combination (as hereinafter defined) and such Business Combination shall require only such affirmative vote as is required by law and any other provision of these Articles of Organization, if the Business Combination shall have been approved by a majority of the Continuing Directors (as hereinafter defined) or all of the following conditions shall have been met. 1. The transaction constituting the Business Combination shall provide for a consideration to be received by all holders of Common Stock in exchange for all their shares of Common Stock, and the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following: (a) (if applicable) the highest per-share price (including any brokerage commissions, transfer taxes and soliciting dealers, fees) paid in order to acquire any shares of Common Stock Beneficially owned by an Interested Stockholder M within the two-year period immediately prior to the Announcement Date (as hereinafter defined), (ii) within the two-year period immediately prior to the Determination Date (as hereinafter defined) or (iii) in the transaction in which it became an Interested Stockholder, whichever is highest; or (b) the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher; - C-5 - 14 2. If the transaction constituting the Business Combination shall provide for a consideration to be received by holders of any class or series of outstanding Voting Stock other than Common Stock, the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of such class or series of Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this subparagraph 2 shall be required to be met with respect to every class or series of outstanding Voting Stock, whether or not an Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class or series of Voting Stock beneficially owned by an Interested Stockholder (i) within the two-year period immediately prior to the Announcement Date, (ii) within the two-year period immediately prior to the Determination Date, or (iii) in the transaction in which it became an Interested Stockholder, whichever is highest; or (b) the Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or the Determination Date, whichever is higher; or (c) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation; 3. The consideration to be received by holders of a particular class or series of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as was previously paid in order to acquire shares of such class or series of Voting Stock which are beneficially owned by an Interested Stockholder and, if an Interested Stockholder beneficially owns shares of any class or series of Voting Stock which were acquired with varying forms of consideration, the form of consideration for such class or series of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class or series of voting Stock beneficially owned by it. The price determination in accordance with subparagraphs 1 and 2 of this Paragraph (B) shall be subject to appropriate adjustment in the event of any recapitalization, stock dividend, stock split, combination of shares or similar event; - C-6 - 15 4. After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (a) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor the full amount of any dividends (whether or not cumulative) payable on any outstanding preferred stock; (b) there shall have been (i) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock) other than as approved by a majority of the Continuing Directors and (ii) an increase in such annual rate of dividends as necessary to prevent any such reduction in the event of any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; (c) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Voting Stock at a price lower than that paid in the transaction in which it became an Interested Stockholder. 5. After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided the corporation, whether in anticipation of or in connection with such Business Combination or otherwise; and 6. A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (or any subsequent provisions replacing such act, rules or regulations) shall be mailed to the stockholders of the corporation, no later than the earlier of (a) thirty (30) days prior to any vote on the proposed Business Combination or (b) if no vote on such Business Combination is required, sixty (60) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). Such proxy statement shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination which the Continuing Directors, or any of - C-7 - 16 them, may have furnished in writing and, if deemed advisable by a majority of the Continuing Directors, an opinion of a reputable investment banking firm as to the fairness (or lack of fairness) of the terms of such Business Combination, from the point of view of the holder of Voting Stock other than an Interested Stockholder (such investment banking firm to be selected by a majority of the Continuing Directors, to be furnished with all information it reasonably requests and to be paid a reasonable fee for its services upon receipt by the corporation of such opinion) (C) For the purposes of this Provision: 1. "Business Combination" shall mean any transaction which is referred to in any one or more of subparagraphs 1 through 5 of Paragraph (A) of this Provision. 2. "Voting Stock" shall mean stock of all classes and series of the corporation entitled to vote generally in the election of directors. 3. "Person" shall mean any individual, firm, trust, partnership, association, corporation or other entity. 4. "Interested Stockholder" shall mean any person (other than the corporation or any Subsidiary or any person who was a stockholder of the corporation on January 8, 1981) who or which: (a) is the beneficial owner, directly or indirectly, of more than ten (10%) percent of the combined voting power of the then outstanding Voting Stock; or (b) is an Affiliate of the corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of more than ten (10%) percent of the combined voting power of the then outstanding Voting Stock; or (c) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by an Interested Stockholder, unless such assignment or succession shall have occurred pursuant to a - C-8 - 17 Public Transaction (as hereinafter defined) or any series of transactions involving a Public Transaction. For the purposes of determining whether a person is an Interested Stockholder, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of subparagraph 6 below but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or option, or otherwise. 5. "Public Transaction" shall mean any (a) purchase of shares offered pursuant to an effective registration statement under the Securities Act of 1933 or (b) open-market purchase of shares on a national securities exchange if, in either such case, the price and other terms of sale are not negotiated by the purchaser and the seller of the beneficial interest in the shares. 6. A person shall be a "beneficial owner" of any Voting Stock: (a) which such person or any of its Affiliates beneficially owns, directly or indirectly; or (b) which such person or any of its Affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise or (ii) the right to vote or to direct the voting thereof pursuant to any agreement, arrangement or understanding; or (c) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. 7. "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 27, 1989. 8. "Subsidiary" shall mean any corporation of which a majority of any class of equity security (as defined in Rule3all.1 of the General Rules and Regulations under the - C-9 - 18 Securities Exchange Act of 1934, as in effect on June 27, 1989) is owned, directly or indirectly, by the corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in subparagraph 4, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the corporation. 9. "Continuing Director" shall mean any member of the Board of Directors of the corporation who is unaffiliated with, and not a nominee of, an Interested Stockholder and was a member of the Board prior to the time that such Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is unaffiliated with, and not a nominee of, an Interested Stockholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board. 10. "Announcement Date" shall mean the date of the first public announcement of the proposed Business Combination. 11. "Determination Date" shall mean the date on which an Interested Stockholder became an Interested Stockholder. 12. "Fair Market Value" shall mean: (a) in the case of stock, the highest closing sale price during the thirty (30)-day period immediately preceding the date in question of a share of such stock on the National Market System of the National Association of Securities Dealers Automated Quotation System or any system then in use on any national securities exchange or automated quotation system, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith; and (b) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Continuing Directors in good faith. (D) A majority of the Continuing Directors shall have the power and duty to determine for the purposes of this Provision, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Provision, including, without limitation, (1) whether a person is an Interested Stockholder, (2) the number of shares of Voting Stock beneficially owned by any person, (3) whether a person is an Affiliate of another, (4) whether the requirements of Paragraph (B) of this Provision have been met and (5) such other matters with respect to which a determination is required under this Provision. The good faith determination of - C-10 - 19 a majority of the Continuing Directors on such matters shall be conclusive and binding for all purposes of this Provision. (E) Nothing contained in this Provision shall be construed to relieve an Interested Stockholder of any fiduciary obligation imposed by law. (F) Notwithstanding any other provisions of these Articles of Organization or the By-laws of the corporation or the fact that a lesser percentage may be specified by law, these Articles of Organization or the By-laws of the corporation, the affirmative vote of the holders of at least eighty (80%) percent of the combined voting power of the then outstanding Voting Stock, voting together as a single class, shall be required to amend, alter, adopt any provision inconsistent with or repeal this Provision; provided however that if any such proposal receives the affirmative vote of each holder of at least 15% of the outstanding Voting Stock who also held at least 15% of the outstanding Voting Stock of the corporation on May 15, 1989, then such proposal shall require only the affirmative vote of the holders of at least a majority of the outstanding Voting Stock of the corporation. Redemption of Shares In accordance with Section 6 of Chapter 110D of the General Laws of the Commonwealth of Massachusetts the corporation by action of its Board of Directors is authorized, at the option of the corporation by such Board action but without requiring the agreement of the person who has made a control share acquisition (as defined in said Chapter 110D), to redeem all but not less than all shares acquired in such a control share acquisition in accordance with and subject to the limitations contained in said Chapter 110D including Section 6 thereof. Supramajority Vote In addition to any affirmative vote required by law or these Articles of Organization, with respect to certain Business Combinations, until December 31, 1994: 1. any merger or consolidation of the corporation or any Subsidiary with any other corporation, person, business or entity ("Subsidiary" is defined as any corporation of which a majority of any class of equity security (as defined in Rule3all.1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 27, 1989) is owned, directly or indirectly, by the corporation); or - C-11 - 20 2. any sale, lease, exchange, transfer or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the corporation, but specifically excluding any granting of a security interest associated with a debt transaction approved by the Board of Directors; or 3. the adoption of any plan or proposal for the liquidation or dissolution of the corporation; or 4. any amendment to or rescission of this subsection of Article 6 entitled "Supramajority Vote"; shall not be consummated unless such consummation shall have been approved by the affirmative vote of the holders of at least eighty (80%) percent of the combined voting power of the then outstanding shares of voting stock of the corporation entitled to vote thereon ("Voting Stock"), voting together as a single class; provided, however that if any such action receives the affirmative vote of each holder of at least 15% of the outstanding Voting Stock of the corporation who also held at least 15% of the outstanding Voting Stock of the corporation on May 15, 1989, then such proposal shall require only the affirmative vote of the holders of that number of the outstanding Voting Stock of the corporation as is required by applicable law, these Articles of Organization or the by-laws. - C-12 - 21 Exhibit A --------- COGNEX CORPORATION PLAN OF RECAPITALIZATION June 27, 1989 1. COMMON STOCK. As of the Effective Date (as defined below), Cognex Corporation (the "Company") will complete a one-for-two reverse stock split pursuant to which (A) each holder of two (2) shares of the currently issued and outstanding Class A Common Stock, with $.001 par value per share ("Old Class A Stock") of the Company will be entitled to receive, in exchange therefor, one (1) share of the newly authorized but unissued Class A Common Stock, with $.002 par value per share ("New Class A Stock") of the Company and (B) each holder of two (2) shares of the currently issued and outstanding Class B Common Stock with $.001 par value per share ("Old Class B Stock") will be entitled to receive, in exchange therefor, one (1) share of the newly authorized but unissued Class B Common Stock of the Company with $.002 par value per share ("New Class B Stock"). Fractional shares will not be issued by the Company and, in lieu thereof, holders will receive cash in an amount equal to the fair value of that fractional share as of the Effective Date as determined by the Board of Directors of the Company. Stockholders must return for exchange all certificates representing shares of Old Class A Stock and Old Class B Stock in order to receive cash or certificates representing New Class A Stock or New Class B Stock. Accompanying the Notice of the Special Meeting is a Letter of Transmittal for each holder to complete, date, execute and return to the Company together with all certificates representing Old Class A Stock and Old Class B Stock. The Transmittal Letter and the certificates will be held by the Company until the Plan of Recapitalization is approved. Certificates representing the New Class A Stock and New Class B Stock need not be issued in the event that the Company completes the total conversion of all of its capital stock to a single series and class of Common Stock. In such event, certificates representing such single class of Common Stock will be issued. If the Plan is not approved, the certificates and the Transmittal Letter will be returned to the holder. 2. PREFERRED STOCK. As a result of the reverse stock split approved in paragraph 1 above, the conversion rates for the Company's currently authorized Preferred Stock shall be adjusted (and Article 4 of the Articles of Organization of the Company shall be amended) as follows: (A) the applicable Conversion Rate for the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, upon the consummation of the reverse stock split, shall be five (5) such that each share of Series A, B and C Preferred Stock converts into five (5) shares of New Class A Stock and (B) the applicable Conversion Rate for the Series D Preferred Stock, upon the consummation of 22 the reverse stock split, shall be one-half (1/2) such that each share of Series D Preferred Stock shall convert into one-half (1/2) share of New Class A Stock. 3. AMENDMENTS TO ARTICLES OF ORGANIZATION. As a result of the reverse stock split approved in paragraph 1 above, by adoption of this Plan of Recapitalization, the Articles of Organization of the Company are amended such that the total number of shares and the par value, if any, of the Common Stock that the Company is authorized to issue shall be changed from 10,000,000 shares of Class A Common Stock with $.001 par value per share and 2,500,000 shares of Class B Common Stock with $.001 par value per share to 5,000,000 shares of Class A Common Stock with $.002 par value per share and 1,250,000 shares of Class B Common Stock with $.002 par value per share. In addition, by adoption of this Plan of Recapitalization, the Articles of Organization are hereby further amended to increase the number of shares of Class A Common Stock that the Corporation is authorized to issue from 5,000,000 shares with $.002 par value per share to 10,000,000 shares with $.002 par value per share (such new shares to be known as "Common Stock"). The Company need not file two separate Articles of Amendment to reflect these amendments and may make one filing with the Secretary of the Commonwealth of Massachusetts showing the ultimate effect to the Articles of Organization of this Plan of Recapitalization. 4. EFFECTIVE DATE. As used herein, the term "Effective Date" shall mean June 28, 1989. 23 *We further certify that the foregoing restated articles of organization effect no amendments to the articles of organization of the corporation as heretofore amended, except amendments to the following articles Article 3, Article 4 and Article 6 - -------------------------------------------------------------------------------- (*If there are no such amendments, state "None".) Briefly describe amendments in space below: To Article 3 - ------------ 1. Adopted the Cognex Corporation Plan of Recapitalization on June 27, 1989 (see Exhibit A hereto), following which the only shares of capital stock which the Corporation shall have authority to issue shall be 10,000,000 shares of a single class of Common Stock having a par value of $.002 per share and 400,000 shares of Preferred Stock par value $.01 per share, all the previously issued Class A and Class B Common Stock and the Series A, B, C and D Preferred Stock having been converted into shares of a single class of Common Stock. To Article 4 - ------------ 1. Amended description of each of the different classes of stock. To Article 6 - ------------ 1. Creation of a classified Board of Directors. 2. Adoption of a Fair Price Amendment. 3. Adoption of provision regarding the redemption by the Corporation of shares acquired in a control share acquisition; and 4. Adoption of provision regarding supramajority voting to approve certain transactions. IN WITNESS WHEREOF AND UNDER PENALTIES OF PERJURY, we have hereto signed our names this 27th day of June in the year 1989. /s/ Robert J. Shillman President/ - --------------------------------------------------------------------- /s/ Anthony J. Medaglia, Jr. Clerk/ - --------------------------------------------------------------------- 24 THE COMMONWEALTH OF MASSACHUSETTS RESTATED ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B, SECTION 74) I hereby approve the within restated articles of organization and, the filing fee in the amount of $ having been paid, said articles are deemed to have been filed with me this day of , 1989. /s/ Michael Joseph Connolly ------------------------------- MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT TO: Anthony J. Medaglia, Jr. ---------------------------------------------------------- Hutchins & Wheeler ---------------------------------------------------------- 101 Federal Street, Boston, MA 02110 ---------------------------------------------------------- Telephone (617) 951-6600 -------------------------------------------- Copy Mailed 25 The Commonwealth of Massachusetts __________ OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE EXAMINER MICHAEL J. CONNOLLY, Secretary ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION NO. 04-2713778 -------------- GENERAL LAWS, CHAPTER 156B, SECTION 72 We, Robert J. Shillman , President/, and Anthony J. Medaglia, Jr. , Clerk/ of COGNEX CORPORATION --------------------------------------------------------------------------- (EXACT Name of Corporation) located at 15 Crawford Street, Needham, Massachusetts 02194 --------------------------------------------------------------- do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED: 3 --------------------------------------------------------------------------- (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby) of the Articles of Organization were duly adopted at a meeting held on April 30, 1991, by vote of : - ------- Name Approved 2,547,604 shares of Common Stock out of 4,087,176 shares outstanding, --------- -------------------------------- --------- type, class and series, (if any) -0- shares of Preferred Stock out of -0- shares outstanding, and --------- -------------------------------- --------- type, class and series, (if any) shares of out of shares outstanding, --------- -------------------------------- --------- type, class and series, (if any)
CROSS OUT being at least a majority of each type, class or series INAPPLICABLE outstanding and entitled to vote thereon: (1) CLAUSE C | | P | | M | | (1) For amendments adopted pursuant to Chapter 156B, Section 70. RA | | (2) For amendments adopted pursuant to Chapter 156B, Section 71. - ------ P.C. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article requiring each such addition is clearly indicated. 26 To CHANGE the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------- ---------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------- ---------------------------------------- COMMON: N/A COMMON: 10,000,000 $.002 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- PREFERRED: N/A PREFERRED: 400,000 $0.01 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- CHANGE the total authorized to: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------- ---------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------- ---------------------------------------- COMMON: N/A COMMON: 15,000,000 $.002 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- PREFERRED: N/A PREFERRED: 400,000 $0.01 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- 27 The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. EFFECTIVE DATE: Date of Filing ----------------------------------------------------------- IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed our names this Thirtieth day of April, in the year 1991. /s/ Robert J. Shillman _________________________________________________________President/ /s/ Anthony J. Medaglia, Jr. ____________________________________________________________Clerk/ 28 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT GENERAL LAWS, CHAPTER 156B, SECTION 72 ================================================ I hereby approve the within articles of amendment and, the filing fee in the amount of $5,000.00 having been paid, said articles are deemed to have been filed with me this 9th day of May, 1991. /s/ Michael J. Connolly ------------------------------- MICHAEL J. CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO: ANTHONY J. MEDAGLIA, JR. ----------------------------------------------------------------- HUTCHINS & WHEELER ----------------------------------------------------------------- 101 FEDERAL STREET, BOSTON, MA 02110 ----------------------------------------------------------------- TELEPHONE: (617) 951-6600 ----------------------------------------------------- 29 The Commonwealth of Massachusetts __________ OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE EXAMINER MICHAEL J. CONNOLLY, Secretary ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION NO. 04-2713778 ------------------- GENERAL LAWS, CHAPTER 156B, SECTION 72 We, Robert J. Shillman , President/, and Anthony J. Medaglia, Jr. , Clerk/ of COGNEX CORPORATION --------------------------------------------------------------------------- (EXACT Name of Corporation) located at 15 Crawford Street, Needham, Massachusetts 02194 --------------------------------------------------------------- do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED: 3 --------------------------------------------------------------------------- (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby) of the Articles of Organization were duly adopted at a meeting held on April 21, 1992, by vote of : - ------- Name Approved 5,387,004 shares of Common Stock out of 8,450,806 shares outstanding, --------- -------------------------------- --------- type, class and series, (if any) -0- shares of Preferred Stock out of -0- shares outstanding, and --------- -------------------------------- --------- type, class and series, (if any) shares of out of shares outstanding, --------- -------------------------------- --------- type, class and series, (if any)
CROSS OUT being at least a majority of each type, class or series INAPPLICABLE outstanding and entitled to vote thereon: (1) CLAUSE C | | P | | M | | (1) For amendments adopted pursuant to Chapter 156B, Section 70. RA | | (2) For amendments adopted pursuant to Chapter 156B, Section 71. - ------ P.C. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article requiring each such addition is clearly indicated. 30 To CHANGE the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------- ---------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------- ---------------------------------------- COMMON: N/A COMMON: 15,000,000 $.002 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- PREFERRED: N/A PREFERRED: 400,000 $0.01 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- CHANGE the total authorized to: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------- ---------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------- ---------------------------------------- COMMON: N/A COMMON: 25,000,000 $.002 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- PREFERRED: N/A PREFERRED: 400,000 $0.01 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- 31 The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. EFFECTIVE DATE: Date of Filing ----------------------------------------------------------- IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed our names this 21st day of April, in the year 1992. /s/ Robert J. Shillman _________________________________________________________President/ /s/ Anthony J. Medaglia, Jr. ____________________________________________________________Clerk/ 32 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT GENERAL LAWS, CHAPTER 156B, SECTION 72 ================================================ I hereby approve the within articles of amendment and, the filing fee in the amount of $10,000.00 having been paid, said articles are deemed to have been filed with me this 3rd day of August, 1992. /s/ Michael J. Connolly ------------------------------- MICHAEL J. CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO: ANTHONY J. MEDAGLIA, JR. ----------------------------------------------------------------- HUTCHINS & WHEELER ----------------------------------------------------------------- 101 FEDERAL STREET, BOSTON, MA 02110 ----------------------------------------------------------------- TELEPHONE: (617) 951-6600 ----------------------------------------------------- 33 The Commonwealth of Massachusetts __________ OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE EXAMINER MICHAEL J. CONNOLLY, Secretary ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108 ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION NO. 04-2713778 ------------------- GENERAL LAWS, CHAPTER 156B, SECTION 72 We, Robert J. Shillman , President/ , and Anthony J. Medaglia, Jr. , Clerk/ of COGNEX CORPORATION --------------------------------------------------------------------------- (EXACT Name of Corporation) located at 15 Crawford Street, Needham, Massachusetts 02194 --------------------------------------------------------------- do hereby certify that these ARTICLES OF AMENDMENT affecting Articles NUMBERED: 3 --------------------------------------------------------------------------- (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby) of the Articles of Organization were duly adopted at a meeting held on April 25, 1995, by vote of : - ------- Name Approved 13,514,984 shares of Common Stock out of 18,840,535 shares outstanding, ---------- -------------------------------- ---------- type, class and series, (if any) shares of out of shares outstanding, and ---------- -------------------------------- ---------- type, class and series, (if any) shares of out of shares outstanding, ---------- -------------------------------- ---------- type, class and series, (if any)
CROSS OUT being at least a majority of each type, class or series INAPPLICABLE outstanding and entitled to vote thereon: (1) CLAUSE C [ ] P [ ] M [ ] (1) For amendments adopted pursuant to Chapter 156B, Section 70. RA [ ] (2) For amendments adopted pursuant to Chapter 156B, Section 71. - ------ P.C. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one article may be continued on a single sheet so long as each article requiring each such addition is clearly indicated. 34 To CHANGE the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------- ---------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------- ---------------------------------------- COMMON: N/A COMMON: 25,000,000 $.002 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- PREFERRED: N/A PREFERRED: 400,000 $0.01 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- CHANGE the total authorized to: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------- ---------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------- ---------------------------------------- COMMON: N/A COMMON: 60,000,000 $.002 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- PREFERRED: N/A PREFERRED: 400,000 $0.01 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- 35 The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. EFFECTIVE DATE: Date of Filing ----------------------------------------------------------- IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed our names this 25th day of April, in the year 1995. /s/ Robert J. Shillman _________________________________________________________President/ /s/ Anthony J. Medaglia, Jr. ____________________________________________________________Clerk/ 36 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT GENERAL LAWS, CHAPTER 156B, SECTION 72 ================================================ I hereby approve the within articles of amendment and, the filing fee in the amount of $35,000.00 having been paid, said articles are deemed to have been filed with me this 18th day of May, 1995. /s/ William Francis Galvin ------------------------------- WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO: SHANNON D. WHISENART ----------------------------------------------------------------- HUTCHINS, WHEELER & DITTMAR ----------------------------------------------------------------- 101 FEDERAL STREET, BOSTON, MA 02110 ----------------------------------------------------------------- TELEPHONE: (617) 951-6600 ----------------------------------------------------- 37 FEDERAL IDENTIFICATION NO. 04-2713778 ------------------ ________ The Commonwealth of Massachusetts Examiner William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 ________ ARTICLES OF AMENDMENT Name (General Laws, Chapter 156B, Section 72) Approved We, Robert Shillman , *President/ --------------------------------- and Anthony J. Medaglia, Jr. *Clerk/ --------------------------------- of COGNEX CORPORATION (Exact name of corporation) located at One Vision Drive, Natick, MA 01760 ----------------------------------------------------------- (Street address of corporation in Massachusetts) certify that these Articles of Amendment affecting articles numbered: 3 --------------------------------------------------------------------- (Number those articles 1, 2, 3, 4, 5 and/or 6 being amended) of the Articles of Organization were duly adopted at a meeting held on April 23, 1996, by vote of: 31,729,416 shares of Common Stock of 39,116,359 shares outstanding -------------- ------------------------------ ------------- (type, class & series, if any) shares of of shares outstanding, and -------------- ------------------------------ ------------- (type, class & series, if any) shares of of shares outstanding, and -------------- ------------------------------ ------------- (type, class & series, if any)
C [ ] P [ ] M [ ] (1)**being at least a majority of each type, class or series outstanding and entitled to vote thereon:/or (2)**being at least R.A. [ ] two-thirds of each type, class or series outstanding and entitled to vote thereon and of each type, class or series outstanding and entitled to vote thereon and of each type, class or series of stock whose rights are adversely affected thereby: *Delete the inapplicable words. **Delete the inapplicable clause. (1) For amendments adopted pursuant to Chapter 156B, Section 70. (2) For amendments adopted pursuant to Chapter 156B, Section 71. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. ________ P.C. 38 To CHANGE the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following: The total presently authorized is: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------- ---------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------- ---------------------------------------- COMMON: COMMON: 60,000,000 $.002 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- PREFERRED: PREFERRED: 400,000 $0.01 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- CHANGE the total authorized to: WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS - -------------------------------- ---------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------- ---------------------------------------- COMMON: COMMON: 120,000,000 $.002 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- PREFERRED: PREFERRED: 400,000 $0.01 - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- - -------------------------------- ---------------------------------------- 39 The foregoing amendment will become effective when these articles of amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date. Later effective date: --------------------------------------------------------- SIGNED UNDER THE PENALTIES OF PERJURY, this 23rd day of April, in the year 1996. /s/ Robert J. Shillman President/ - ---------------------------------------------------------------------- Robert J. Shillman /s/ Anthony J. Medaglia, Jr. Clerk/ - ----------------------------------------------------------------------- Anthony J. Medaglia, Jr. *Delete the inapplicable words. 40 THE COMMONWEALTH OF MASSACHUSETTS ARTICLES OF AMENDMENT GENERAL LAWS, CHAPTER 156B, SECTION 72 ================================================ I hereby approve the within articles of amendment and, the filing fee in the amount of $60,000.00 having been paid, said articles are deemed to have been filed with me this 10th day of May, 1996. Effective date: _______________________________ /s/ William Francis Galvin ------------------------------------ WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT TO: PATRICIA ROBICHAUD ----------------------------------------------------------------- HUTCHINS, WHEELER & DITTMAR ----------------------------------------------------------------- 101 FEDERAL STREET, BOSTON, MA 02110 ----------------------------------------------------------------- TELEPHONE: (617) 951-6600 ----------------------------------------------------- EX-11 3 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 COGNEX CORPORATION COMPUTATION OF PER SHARE EARNINGS Weighted average common and common share equivalents were computed as follows (a):
DECEMBER 31, 1996 1995 1994 ---- ---- ---- Weighted average common shares outstanding 40,594,050 38,175,461 34,559,556 Weighted average options outstanding ...... 7,125,649 7,448,296 7,621,584 Shares assumed to be purchased ............ (3,905,842) (3,672,012) (5,031,566) ---------- ---------- ---------- Primary weighted average common and common equivalent shares outstanding .......... 43,813,857 41,951,745 37,149,574 Dilutive effect of weighted average options 656,725 774,920 ---------- ---------- ---------- Fully diluted weighted average common and common equivalent shares outstanding ...... 43,813,857 42,608,470 37,924,494 ========== ========== ==========
(a) Adjusted for the two-for-one stock split effective December 18, 1995. EX-13 4 ANNUAL REPORT TO STOCKHOLDERS 1 EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SUMMARY Despite a challenging business environment marked by a slowdown in the semiconductor and electronics industries, revenue for the year ended December 31, 1996 increased 18% over the prior year. The increase in revenue is due primarily to increased volume from factory floor customers. Sales to factory floor customers increased 71% over 1995 and grew to 35% of revenue in 1996 from 24% of revenue in 1995. Although sales to Original Equipment Manufacturer (OEM) customers increased 40% during the first half of 1996, OEM sales decreased 28% during the second half of 1996, resulting in a 1% increase year-on-year. In the first quarter of 1996, the Company acquired Isys Controls, Inc. ("Isys"), a developer of machine vision systems for high-speed surface inspection. Sales of Isys products, which are included in the factory floor business, represented 11% of revenue in 1996. The Company's financial position remained strong at December 31, 1996, with over $200 million in total assets and over $180 million in stockholders' equity. Working capital increased 28% from the prior year and represented 76% of total assets. Cash and investments increased 48% from the prior year primarily as a result of over $50 million of cash generated from operations. The following table sets forth certain consolidated financial data as a percentage of revenue for the years ended December 31, 1996, 1995, and 1994:
YEAR ENDED DECEMBER 31, 1996 1995 1994 ---- ---- ---- Revenue 100% 100% 100% Cost of revenue 32 22 22 --- --- --- Gross margin 68 78 78 Research, development and engineering expenses 16 13 16 Selling, general and administrative expenses 21 23 27 Charge for acquired in-process technology (1) 9 --- --- --- Income from operations 31 33 35 Other income 5 3 2 --- --- --- Income before provision for income taxes 36 36 37 Provision for income taxes 11 14 11 --- --- --- Net income 25% 22% 26% === === ===
(1) Charge from the write-off of acquired in-process technology in connection with the acquisition of Acumen, Inc. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995: The acquisition of Isys in the first quarter of 1996 was accounted for as a pooling of interests. The results of operations of Isys for the full year ended December 31, 1996 are included in the Company's results. The results of operations of Isys for the years ended December 31, 1995 and 1994 were not material to the Company's previously reported results, and therefore, these prior years have not been restated. Revenue for the year ended December 31, 1996 increased 18% to $122,843,000 from $104,543,000 for the year ended December 31, 1995. Sales to customers based in the United States, which grew to 45% of revenue in 1996 compared to 41% of revenue in 1995, increased $12,597,000, or 30%, over 1995. Sales to customers based in Japan increased $739,000, or 2%, over 1995, and sales to customers based in Europe increased $3,715,000, or 30%, over 1995. 8 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The increase in worldwide revenue for the year ended December 31, 1996 over the prior year is due primarily to increased volume from factory floor customers. Sales to factory floor customers increased $17,737,000, or 71%, over 1995, and grew to 35% of revenue in 1996 from 24% of revenue in 1995. The increased volume from factory floor customers includes sales of Isys products totaling $13,183,000, or 11% of revenue, for the year ended December 31, 1996. During the first half of 1996, sales to OEM customers increased $13,505,000, or 40%, over the comparable period in 1995, whereas during the second half of 1996, sales to OEM customers decreased $12,942,000, or 28%, over the comparable period in 1995, resulting in increased OEM sales of $563,000, or 1%, year-on-year. The trend in OEM sales experienced in the second half of 1996 over the prior year is expected to continue over the next few quarters due to the slowdown in the semiconductor and electronics industries, from which the Company either directly or indirectly derives a significant amount of its revenue. Gross margin for the year ended December 31, 1996 was 68% and included a $4,231,000 inventory charge to "Cost of revenue," which reduced the margin by approximately four percentage points. The charge reflects costs associated with excess inventories resulting from product transition plans over the next year, as well as reduced production plans caused by the slowdown in the semiconductor and electronics industries. Excluding the inventory charge, gross margin for the year ended December 31, 1996 was 72% compared to 78% for the year ended December 31, 1995. The decrease in gross margin excluding the inventory charge is due primarily to a shift in product mix to lower margin products including Isys products, price discounts to some of the Company's larger customers for attaining certain volume thresholds, and underabsorbed manufacturing costs resulting from reduced production plans. These influences may continue throughout 1997, which would result in gross margins for 1997 that approximate the level experienced for the full year 1996, excluding the inventory charge. Research, development and engineering expenses for the year ended December 31, 1996 increased 47% to $19,434,000 from $13,190,000 for the year ended December 31, 1995. Expenses as a percentage of revenue were 16% in 1996 compared to 13% in 1995. The increase in aggregate expenses is due primarily to higher personnel-related costs to support the Company's continued investment in the research and development of new and existing products. These higher costs reflect the hiring of additional personnel at the Company's corporate headquarters, and Japanese and Acumen subsidiaries, as well as the addition of Isys engineers to the Company's talent pool. The increase in expenses as a percentage of revenue is due primarily to the investment in research and development outpacing the growth in revenue. Selling, general and administrative expenses for the year ended December 31, 1996 increased 10% to $26,261,000 from $23,973,000 for the year ended December 31, 1995. Expenses as a percentage of revenue were 21% in 1996 compared to 23% in 1995. The increase in aggregate expenses is due primarily to higher personnel-related costs, both domestically and internationally, to support the Company's worldwide operations and further penetrate the factory floor market. These higher costs reflect the hiring of additional personnel at the Company's corporate headquarters, and Japanese and European subsidiaries, as well as the addition of Isys employees resulting from the acquisition. The decrease in expenses as a percentage of revenue is due primarily to the Company's efforts to control costs during the second half of 1996, which included the elimination of substantially all company bonuses. Investment income for the year ended December 31, 1996 increased 50% to $4,726,000 from $3,147,000 for the year ended December 31, 1995. The increase in investment income is due primarily to an increased investment base, as well as higher returns on invested balances. Other income for the year ended December 31, 1996 totaled $678,000, compared to other expense of $182,000 for the year ended December 31, 1995. Other income (expense) consists primarily of rental income and related expenses from leasing the building adjacent to the Company's corporate headquarters, which was purchased in June 1995. The increase in other income is due primarily to the collection of rental income for a full year in 1996, compared to only a half year in 1995. 9 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company's effective tax rate was 30.5% for each of the years ended December 31, 1996 and 1995, excluding the impact of a $10,189,000 charge for acquired in-process technology in the third quarter of 1995, which had no associated tax benefit. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994: Revenue for the year ended December 31, 1995 increased 67% to $104,543,000 from $62,484,000 for the year ended December 31, 1994. Contributing to the revenue increase, each of the Company's major geographic areas, the United States, Japan, and Europe, grew in excess of 55% from the prior year. Revenue from international customers amounted to $61,924,000 in 1995, compared to $38,451,000 in 1994, an increase of 61%. Revenue from domestic customers increased 77% over the prior year. The increase in worldwide revenue is due primarily to increased volume generated from OEM customers. Sales to OEM customers increased $29,792,000, or 60%, from the prior year and over 50 new OEM customers were added worldwide in 1995. OEM relationships typically take two to five years to reach significant sales and volume levels. In addition, sales to factory floor customers increased $12,267,000, or 96%, from the prior year and grew to 24% of revenue in 1995 from 20% of revenue in 1994. Over 140 new factory floor customers were added worldwide in 1995. Gross margin as a percentage of revenue was consistent for the year ended December 31, 1995 compared to the year ended December 31, 1994, representing 78% of revenue in both years. Research, development and engineering expenses increased to $13,190,000 for the year ended December 31, 1995 from $9,933,000 for the year ended December 31, 1994. Expenses as a percentage of revenue were 13% in 1995 compared to 16% in 1994. The increase in aggregate costs is due primarily to higher personnel-related costs to support the Company's investment in the research and development of new and existing products. In 1995, the number of employees engaged in research, development and engineering activities increased by 39% over the prior year. The decrease in expenses as a percentage of revenue is due to revenue growth outpacing the investment in research and development. Selling, general and administrative expenses increased to $23,973,000 for the year ended December 31, 1995 from $16,847,000 for the year ended December 31, 1994. Expenses as a percentage of revenue were 23% in 1995 compared to 27% in 1994. The increase in aggregate costs is due primarily to higher personnel-related costs, both domestically and internationally, to support the Company's worldwide sales effort, in addition to costs related to fluctuations in foreign currency exchange rates. In 1995, the number of employees engaged in sales, marketing, and support activities increased by 36% over the prior year. As discussed in the Notes to the Consolidated Financial Statements, on July 21, 1995, the Company acquired Acumen, Inc. ("Acumen") for approximately $14,000,000. Of the purchase price, $10,189,000 was allocated to in-process technology which was charged to expense in the third quarter of 1995. This charge was not deductible for tax purposes. The Company invested considerable additional development efforts related to the in-process technology to add functionality, increase hardware performance, and conform and integrate the technology to the Company's product standards. Investment income increased to $3,147,000 for the year ended December 31, 1995 from $1,462,000 for the year ended December 31, 1994. The increase in investment income is due primarily to an increased investment base. Other expense for the year ended December 31, 1995 was $182,000. Other expense consists primarily of operating expenses, net of rental income, from leasing the building adjacent to the Company's corporate headquarters, which was purchased in June 1995. Operating expenses in 1995 included certain non-recurring costs related to the initial leasing of the building. 10 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company's effective tax rate for the year ended December 31, 1995 was 39%, compared to 31% for the year ended December 31, 1994. The increase in the effective tax rate is due primarily to the impact of a $10,189,000 charge for acquired in-process technology which had no associated tax benefit. LIQUIDITY AND CAPITAL RESOURCES The Company's cash requirements during the year ended December 31, 1996 were met through cash generated from operations. Cash and investments increased $43,360,000 from December 31, 1995 primarily as a result of $51,109,000 of cash generated from operations, offset by $10,154,000 of capital expenditures. Cash generated from operations consists of net income, adjusted primarily for the effects of depreciation and amortization and changes in current assets and current liabilities, most notably decreases in accounts receivable and inventories. As discussed in the Notes to Consolidated Financial Statements, the Company has substantially completed its transition to a turnkey manufacturing operation. At December 31, 1996, the Company had unconditional obligations to purchase $3,812,000 of inventory from a third-party contractor within 60 days. Capital expenditures for the year ended December 31, 1996 totaled $10,154,000 and consisted primarily of expenditures for computer hardware and software, and expenditures related to a 50,000 square-foot expansion of the Company's corporate headquarters. Future cash requirements related to the expansion approximate $800,000, the majority of which is expected be paid out through the first quarter of 1997 with anticipated funding from cash generated from operations. 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. In 1997, the Company will implement a new business system to replace many of its existing systems. Future cash requirements related to the new business system approximate $2,250,000, the majority of which is expected to be paid out through 1997 with anticipated funding from cash generated from operations. The new business system is not expected to be fully implemented until late 1997 or early 1998. In July 1995, the Company acquired Acumen for approximately $14,000,000. The purchase price included $8,452,000 in cash, $755,000 of which, at December 31, 1996, remained to be paid out through the year 2000. The Company believes that the existing cash and investments balance, together with cash generated from operations, will be sufficient to meet the Company's planned working capital and capital expenditure requirements through 1997, including potential business acquisitions. FORWARD-LOOKING STATEMENTS Certain matters discussed in this annual report are "forward-looking statements," which are based on expectations of the Company. Actual results could differ materially from the expectations made in the forward-looking statements as a result of a number of factors, including (1) capital spending trends by manufacturing companies; (2) the cyclicality of the semiconductor industry; (3) the Company's continued ability to achieve significant international revenue; (4) the loss of, or a significant curtailment of purchases by, any one or more principal customers; (5) inability to protect the Company's proprietary technology and intellectual property; (6) inability to attract or retain skilled employees; (7) technological obsolescence of current products and the inability to develop new products; (8) inability to respond to competitive technology and pricing pressures; and (9) reliance upon certain sole source suppliers to manufacture or deliver critical components of the Company's products. 11 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The foregoing list should not be construed as exhaustive and the Company disclaims any obligation subsequently to revise forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Further discussions of risk factors are also available in the Company's registration statements filed with the Securities and Exchange Commission. The Company wishes to caution readers not to place undue reliance upon any such forward- looking statements, which speak only as of the date made. 12 6 COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1996 1995 1994 ---- ---- ---- (Dollars in thousands, except per share amounts) Revenue ......................................................... $122,843 $ 104,543 $62,484 Cost of revenue ................................................. 38,855 22,543 13,884 -------- --------- ------- Gross margin .................................................... 83,988 82,000 48,600 Research, development and engineering expenses .................. 19,434 13,190 9,933 Selling, general and administrative expenses .................... 26,261 23,973 16,847 Charge for acquired in-process technology ....................... 10,189 -------- --------- ------- Income from operations .......................................... 38,293 34,648 21,820 Investment income ............................................... 4,726 3,147 1,462 Other income (expense) .......................................... 678 (182) -------- --------- ------- Income before provision for income taxes ........................ 43,697 37,613 23,282 Provision for income taxes ...................................... 13,328 14,579 7,210 -------- --------- ------- Net income ...................................................... $ 30,369 $ 23,034 $16,072 ======== ========= ======= Net income per common and common equivalent share: Primary .................................................... $ .69 $ .55 $ .43 ======== ========= ======= Fully diluted .............................................. $ .69 $ .54 $ .42 ======== ========= ======= Weighted average common and common equivalent shares outstanding: Primary .................................................... 43,814 41,952 37,150 ======== ========= ======= Fully diluted .............................................. 43,814 42,608 37,924 ======== ========= =======
The accompanying notes are an integral part of these consolidated financial statements. 13 7 COGNEX CORPORATION - CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 1995 ---- ---- ASSETS (Dollars in thousands) Current assets: Cash and investments ........................................... $134,000 $ 90,640 Accounts receivable, less reserves of $968 and $709 in 1996 and 1995, respectively .......................................... 18,809 24,312 Revenue in excess of billings .................................. 3,379 Inventories .................................................... 7,013 12,567 Deferred income taxes .......................................... 2,642 1,811 Prepaid expenses and other ..................................... 3,545 6,463 -------- -------- Total current assets ....................................... 169,388 135,793 -------- -------- Property, plant and equipment, net................................... 28,331 22,133 Other assets ........................................................ 3,534 4,169 Deferred income taxes ............................................... 77 -------- -------- $201,253 $162,172 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................... $ 3,652 $ 2,775 Accrued expenses ............................................... 7,007 9,333 Accrued income taxes ........................................... 2,029 3,111 Customer deposits .............................................. 2,596 867 Deferred revenue ............................................... 1,287 305 -------- -------- Total current liabilities .................................. 16,571 16,391 -------- -------- Other liabilities ................................................... 1,600 1,865 Deferred income taxes ............................................... 393 Commitments (see Notes to Consolidated Financial Statements) Stockholders' equity: Common stock, $.002 par value - Authorized: 120,000,000 shares, issued: 40,914,166 and 39,039,675 shares in 1996 and 1995, respectively ............ 82 78 Additional paid-in capital ..................................... 77,569 71,171 Cumulative translation adjustment .............................. 95 40 Retained earnings .............................................. 105,832 73,516 Treasury stock, at cost, 80,918 shares in 1996 and 1995......... (889) (889) -------- -------- Total stockholders' equity ................................. 182,689 143,916 -------- -------- $201,253 $162,172 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 14 8 COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL CUMULATIVE TOTAL COMMON STOCK PAID-IN TRANSLATION RETAINED TREASURY STOCK STOCKHOLDERS' (Dollars In Thousands) SHARES PAR VALUE CAPITAL ADJUSTMENT EARNINGS SHARES COST EQUITY - ---------------------- ------ --------- ------- ---------- -------- ------ ---- ------ Balance at December 31, 1993 .............. 17,012,705 $ 34 $20,887 $ 30 $ 34,410 20,946 $(300) $ 55,061 Secondary public offering of common stock, net of offering costs of $299 ............................ 1,429,608 3 29,834 29,837 Issuance of stock under stock option and stock purchase plans ............... 309,622 1 1,720 1,721 Tax benefit from exercise of stock options ............................ 1,192 1,192 Common stock received for payment of stock option exercises ............. 9,932 (192) (192) Translation adjustment .................. (83) (83) Net income .............................. 16,072 16,072 ---------- ------ ------- ---- -------- ------ ----- -------- Balance at December 31, 1994 .............. 18,751,935 38 53,633 (53) 50,482 30,878 (492) 103,608 ---------- ------ ------- ---- -------- ------ ----- -------- Common stock issued to acquire Acumen, Inc. ....................... 96,140 4,170 4,170 Issuance of stock under stock option and stock purchase plans ............... 683,079 1 4,826 4,827 Tax benefit from exercise of stock options............................. 8,581 8,581 Common stock received for payment of stock option exercises ............. 9,581 (397) (397) Stock issued to effect stock split ...... 19,508,521 39 (39) 40,459 Translation adjustment .................. 93 93 Net income .............................. 23,034 23,034 ---------- ------ ------- ---- -------- ------ ----- -------- Balance at December 31, 1995 .............. 39,039,675 78 71,171 40 73,516 80,918 (889) 143,916 ---------- ------ ------- ---- -------- ------ ----- -------- Common stock issued to acquire Isys Controls, Inc. ..................... 1,331,927 3 2,469 1,947 4,419 Issuance of stock under stock option, stock purchase, and bonus plans .... 542,564 1 2,495 2,496 Tax benefit from exercise of stock options ............................ 134 1,434 Translation adjustment .................. 55 55 Net income .............................. 30,369 30,369 ---------- ------ ------- ---- -------- ------ ----- -------- Balance at December 31, 1996 .............. 40,914,166 $ 82 $77,569 $ 95 $105,832 80,918 $(889) $182,689 ========== ====== ======= ==== ======== ====== ===== ========
The accompanying notes are an integral part of these consolidated financial statements. 15 9 COGNEX CORPORATION - CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1996 1995 1994 ---- ---- ---- (Dollars in thousands) Cash flows from operating activities: Net income .......................................................... $ 30,369 $ 23,034 $ 16,072 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment ................. 4,352 2,845 1,754 Amortization of intangible assets ............................. 735 355 Loss on disposition of property, plant and equipment .......... 99 56 Charge for acquired in-process technology ..................... 10,189 Tax benefit from exercise of stock options .................... 1,434 8,581 1,192 Inventory provision ........................................... 4,231 Deferred income tax provision ................................. (385) (1,326) (444) Changes in other current assets and current liabilities: Accounts receivable ............................................... 6,276 (14,705) (1,986) Inventories ....................................................... 2,523 (7,678) (1,458) Accounts payable .................................................. 519 1,361 833 Other ............................................................. 956 (877) 3,016 --------- -------- -------- Net cash provided by operating activities ........................... 51,109 21,835 18,979 --------- -------- -------- Cash flows from investing activities: Investments ......................................................... (18,848) (41,560) (2,406) Purchase of property, plant and equipment ........................... (10,154) (10,503) (13,119) Cash payments related to acquisition of Acumen, Inc., net of $200 cash assumed in 1995 ................................. (1,277) (6,454) Cash assumed in acquisition of Isys Controls, Inc. .................. 918 Other ............................................................... (71) (294) (199) --------- -------- -------- Net cash used in investing activities ............................... (29,432) (58,811) (15,724) --------- -------- -------- Cash flows from financing activities: Net proceeds from secondary public offering of common stock ......... 29,837 Proceeds from issuance of stock under stock option, stock purchase, and bonus plans ........................................ 2,496 4,430 1,529 --------- -------- -------- Net cash provided by financing activities ........................... 2,496 4,430 31,366 --------- -------- -------- Effect of exchange rate changes on cash ................................ 339 131 (128) --------- -------- -------- Net increase (decrease) in cash and cash equivalents ................... 24,512 (32,415) 34,493 Cash and cash equivalents at beginning of year ......................... 23,911 56,326 21,833 --------- -------- -------- Cash and cash equivalents at end of year ............................... 48,423 23,911 56,326 Investments ............................................................ 85,577 66,729 25,169 --------- -------- -------- Cash and investments ................................................... $ 134,000 $ 90,640 $ 81,495 ========= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 16 10 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements reflect the application of certain accounting policies described in this and other notes to the consolidated financial statements. Nature of Operations Cognex Corporation (the "Company") designs, develops, and markets machine vision systems, or computers that can "see." The Company's products are used to automate a wide range of manufacturing processes where vision is required. The Company's primary customers, Original Equipment Manufacturers (OEMs) in the semiconductor and electronics industries, are principally located in Japan and the United States. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Basis of Consolidation The consolidated financial statements include the accounts of Cognex Corporation and its subsidiaries, all of which are wholly-owned. All intercompany accounts and transactions have been eliminated. Certain amounts reported in prior years have been reclassified to be consistent with the current year's presentation. Foreign Currency The financial statements of the Company's foreign subsidiaries, where the local currency is the functional currency, are translated using exchange rates in effect at the end of the year for assets and liabilities and average exchange rates during the year for results of operations. The resulting foreign currency translation adjustments are reported as a separate component of stockholders' equity. The Company enters into transactions denominated in foreign currencies and includes the exchange rate gain or loss arising from such transactions in current operations. The Company recorded exchange rate losses of $1,027,000 and $573,000 in 1996 and 1995, respectively, and an exchange rate gain of $230,000 in 1994. Cash and Investments Cash and investments include cash equivalents, which the Company considers to be all investments purchased with original maturities of three months or less. Investments having original maturities in excess of three months are stated at amortized cost, which approximates fair value, and are classified as available-for-sale. The Company considers all of its investments to be available for current operations and maintains its investments in securities which are highly liquid and would not result in significant losses if sold prior to maturity. Inventories Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis. 17 11 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property, Plant and Equipment Property, plant and equipment are stated at cost and depreciated using the straight-line method over the assets' estimated useful lives. Buildings' useful lives are 39 years, building improvements' useful lives are ten years, and the useful lives of computer hardware, computer software, and furniture and fixtures range from two to five years. Leasehold improvements are depreciated over the shorter of the estimated useful lives or the remaining terms of the leases. Maintenance and repairs are expensed when incurred; additions and improvements are capitalized. Upon retirement or disposition, the cost and related accumulated depreciation of the assets disposed of are removed from the accounts, with any resulting gain or loss included in current operations. Intangible Assets Intangible assets are stated at cost and amortized using the straight-line method over the assets' estimated useful lives, which range from five to eight years. The Company evaluates the possible impairment of long-lived assets, including intangible assets, whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. Warranty Obligations The Company provides its factory floor products with a one-year warranty from the date of shipment and all other products with a 90-day warranty from the date of shipment. Estimated warranty obligations are evaluated and recorded at the time of sale. Revenue Recognition Revenue from product sales and software licenses is recognized upon shipment. Revenue from construction-type projects, which include research and development contracts, is recognized using the percentage-of-completion method. Losses on projects, if any, are recognized when identified. Service and maintenance revenue is recognized as earned. Research and Development Research and development costs for internally-developed products are expensed when incurred until technological feasibility has been established for the product. Thereafter, all software costs are capitalized until the product is available for general release to customers. The cost of acquired software is capitalized for products determined to have reached technological feasibility, otherwise the cost is expensed. Capitalized software costs are amortized using the straight-line method over the economic life of the product, typically three to five years, or based upon the anticipated revenues of the product. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the liability method prescribed by SFAS No. 109, a deferred tax asset or liability is determined based on the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Tax credits are recorded as a reduction in income taxes. 18 12 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net Income per Share Primary and fully diluted net income per share are calculated based on the weighted average number of common and dilutive common equivalent shares outstanding during the year. Dilutive common equivalent shares consist of stock options, calculated using the treasury stock method. FINANCIAL INSTRUMENTS Fair Value The Company's financial instruments consist primarily of cash and cash equivalents, investments, trade receivables, trade payables, and forward exchange contracts. The carrying amounts of cash and cash equivalents, investments, trade receivables, and trade payables approximates fair value due to the short maturity of these instruments. Based on year-end exchange rates and the various maturity dates of the forward exchange contracts, the Company estimates the aggregate contract value to be representative of the fair values of these instruments. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, and trade receivables. The Company invests in debt instruments of U.S. and state government entities. The Company has established guidelines relative to credit ratings, diversification, and maturities that maintain safety and liquidity. The Company has not experienced any significant losses on its cash equivalents and investments. A significant portion of the Company's sales and receivables are from customers in the semiconductor and electronics industries. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. The Company has not experienced any significant losses related to the collection of its accounts receivable. Off-Balance Sheet Risk In certain instances, the Company enters into forward exchange contracts to hedge specific commitments against foreign currency fluctuations. The forward exchange contracts are for periods consistent with its committed exposure and require the Company to exchange foreign currencies for U.S. dollars at maturity, at rates agreed to at the inception of the contracts. The Company had no foreign exchange contracts outstanding at December 31, 1996. The Company had $1,079,000 of foreign exchange contracts outstanding, all of which were in Japanese yen, at December 31, 1995. 19 13 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CASH AND INVESTMENTS Cash and investments consist of the following:
DECEMBER 31, 1996 1995 ---- ---- (In thousands) Cash ............................................... $ 25,905 $14,257 Municipal obligations with contractual maturities: Less than three months .......................... 22,518 9,654 -------- ------- Total cash and cash equivalents............... 48,423 23,911 Greater than three months and less than one year. 30,025 34,635 Greater than one year ........................... 55,552 32,094 -------- ------- $134,000 $90,640 ======== =======
INVENTORIES Inventories consist of the following:
DECEMBER 31, 1996 1995 (In thousands) Raw materials .............. $ 3,861 $ 6,340 Work-in-process ............ 1,710 4,468 Finished goods ............. 1,442 1,759 ------- ------- $ 7,013 $12,567 ======= =======
In the third quarter of 1996, the Company recorded a $4,231,000 inventory charge to "Cost of revenue." The charge reflects costs associated with excess inventories resulting from product transition plans over the next year, as well as reduced production plans caused by the slowdown in the semiconductor and electronics industries. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
DECEMBER 31, 1996 1995 ---- ---- (In thousands) Land ......................... $ 1,150 $ 1,150 Buildings .................... 12,963 12,963 Building improvements ........ 1,883 1,842 Construction-in-process ...... 5,943 183 Computer hardware and software 13,921 9,556 Furniture and fixtures ....... 1,713 1,544 Leasehold improvements ....... 477 250 -------- -------- 38,050 27,488 Less: accumulated depreciation (9,719) (5,355) -------- -------- $ 28,331 $ 22,133 ======== ========
20 14 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACCRUED EXPENSES Accrued expenses consist of the following:
DECEMBER 31, 1996 1995 ---- ---- (In thousands) Payroll and related costs .......... $2,066 $1,932 Warranty ........................... 1,284 1,311 Professional fees .................. 938 868 Bonus .............................. 559 2,477 Accrued acquisition costs .......... 337 1,260 Other .............................. 1,823 1,485 ------ ------ $7,007 $9,333 ====== ======
INCOME TAXES The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31, 1996 1995 1994 (In thousands) Current: Federal .............................. $13,169 $14,083 $6,960 State................................. 128 1,572 452 Foreign............................... 392 249 243 ------- ------- ------ 13,689 15,904 7,655 Deferred: Federal............................... (902) (28) (365) State................................. 541 (1,297) (80) ------- ------- ------ $13,328 $14,579 $7,210 ======= ======= ======
A reconciliation of the provision for income taxes at the federal statutory rate is as follows:
YEAR ENDED DECEMBER 31, 1996 1995 1994 Provision for income taxes at federal statutory rate ............. 35% 35% 35% Non-deductible charge for acquired in-process technology.......... 9 State income taxes, net of federal benefit 2.5 2 2 Foreign Sales Corporation benefit................................. (3) (4) (3) Tax-exempt investment income...................................... (3) (2) (2) Tax credit utilization............................................ (1) (1) (1) ---- -- -- Provision for income taxes........................................ 30.5% 39% 31% ==== == ==
21 15 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INCOME TAXES (CONTINUED) Deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. The tax effects of the principal items making up deferred income taxes are as follows:
DECEMBER 31, 1996 1995 ---- ---- (In thousands) Current deferred tax assets: Vacation, bad debt and other............................ $ 936 $ 797 Inventory, warranty and other........................... 1,461 795 Other................................................... 245 219 ------ ------ Total net current deferred tax asset........................ $2,642 $1,811 ====== ====== Noncurrent deferred tax assets (liabilities): State net operating loss and credit carryforwards $ 574 $1,292 Acquired complete technology............................ (630) (900) Depreciation............................................ (337) (315) ------ ------ Total net noncurrent deferred tax asset(liability).......... $ (393) $ 77 ====== ======
The Company believes that it is more likely than not that the deferred tax assets will be recognized; therefore, no valuation allowance is considered necessary at December 31, 1996 and 1995. The Company's credit carryforwards of $574,000 will expire in the year 2011. LEASES The Company conducts some of its operations in leased facilities. These lease agreements expire at various dates through the year 2002 and are accounted for as operating leases. Annual rent expense totaled $1,324,000 in 1996, $996,000 in 1995, and $1,378,000 in 1994. Future minimum rental payments under these agreements are as follows at December 31, 1996 (in thousands):
YEAR Amount ---- ------ 1997 $1,361 1998 845 1999 537 2000 553 2001 135 Thereafter 103 ------ $3,534 ======
22 16 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LEASES (CONTINUED) In June 1995, the Company purchased an 83,000 square-foot office building adjacent to its corporate headquarters. The building is currently occupied with tenants who have lease agreements that expire at various dates through the year 2000. Annual rental income totaled $1,326,000 in 1996 and $536,000 in 1995. Rental income and related expenses are presented on the Consolidated Statement of Income as "Other income (expense)." Future minimum rental receipts under noncancelable lease agreements are as follows at December 31, 1996 (in thousands):
YEAR Amount ---- ------ 1997 $1,218 1998 811 1999 783 2000 134 ------ $2,946 ======
COMMITMENTS At December 31, 1996, the Company had 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 contractor. After the completion of initial testing, the third-party contractor delivers the products to the Company to perform final testing and assembly. At December 31, 1996, the Company had unconditional obligations to purchase $3,812,000 of inventory from the third-party contractor within 60 days. These purchase commitments relate to expected sales in 1997. STOCKHOLDERS' EQUITY Common and Preferred Stock In December 1994, the Company completed a secondary public offering for the sale of 2,859,216 shares of common stock. On November 14, 1995, the Company announced a two-for-one stock split, effected in the form of a stock dividend, payable December 18, 1995 to stockholders of record at the close of business December 1, 1995. Accordingly, $39,000 representing the par value of the additional shares issued was transferred from additional paid-in capital to common stock. These consolidated financial statements and related notes have been retroactively adjusted, as appropriate, to reflect this two-for-one stock split. In April 1996, an amendment to the Company's Articles of Organization was adopted to increase the number of authorized shares of common stock from 60,000,000 shares to 120,000,000 shares. The Company has 400,000 shares of authorized but unissued $.01 par value preferred stock. Stock-Based Compensation Plans The Company has adopted the disclosure requirements of Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation." The Company continues to recognize compensation costs using the intrinsic value based method described in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation costs were recognized in 1996, 1995, and 1994. 23 17 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STOCKHOLDERS' EQUITY (CONTINUED) Stock-Based Compensation Plans (Continued) Net income and net income per share as reported in these consolidated financial statements and on a pro forma basis, as if the fair value based method described in SFAS No. 123 had been adopted, are as follows (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, 1996 1995 ---- ---- Net income As reported $30,369 $23,034 Pro forma 25,204 21,652 Primary net income per share As reported .69 .55 Pro forma .59 .52 Fully diluted net income per share As reported .69 .54 Pro forma .59 .51
The effects of applying SFAS No. 123 for the purpose of providing pro forma disclosures may not be indicative of the effects on reported net income and net income per share for future years, as the pro forma disclosures include the effects of only those awards granted after January 1, 1995. Stock Option Plans At December 31, 1996, the Company had 8,672,000 shares approved by the Board of Directors and stockholders for grant under the following stock option plans: the 1992 Director plan, 352,000; the 1993 Director plan, 320,000; and the 1993 Employee plan, 8,000,000. In April 1996, an amendment was adopted to increase the number of shares of common stock reserved for issuance under the 1993 Employee plan from 5,000,000 shares to 8,000,000 shares. In connection with the acquisition of Isys Controls, Inc. in February 1996, the Company adopted the 1996 Long-Term Incentive Plan. This plan provided for the grant of 321,589 shares of either restricted common stock or options to purchase restricted stock. Other than restrictions that limit the sale and transfer of the restricted stock within twenty years from the date of grant, participants are entitled to all of the rights of a stockholder. Options vest over various periods, not exceeding eight years, and expire no later than twenty years from the date of grant. On July 30, 1996, the Company granted 1,177,830 options at the current fair market value with similar terms and conditions to previously issued but unexercised grants. In exchange for the new grants, employees agreed to forfeit their prior options. 24 18 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STOCKHOLDERS' EQUITY (CONTINUED) Stock Option Plans (Continued) The following table summarizes the status of the Company's stock option plans at December 31, 1996, 1995, and 1994, and changes during the years then ended:
1996 1995 1994 ----------------------- ------------------------ ----------------------- WEIGHTED- Weighted- Weighted- AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding at beginning of year $ 7,699,826 $ 9.10 $ 7,882,832 $ 5.69 $7,817,632 $5.12 Granted at fair market value 933,915 16.80 1,397,874 21.74 788,100 9.17 Granted above fair market value 1,807,583 16.18 71,000 26.39 Exercised (518,925) 3.18 (1,312,392) 3.36 (587,100) 2.61 Forfeited (1,908,013) 24.39 (339,488) 7.73 (135,800) 6.40 ----------- ----------- ---------- Outstanding at end of year 8,014,386 8.34 7,699,826 9.10 7,882,832 5.69 =========== =========== ========== Options exercisable at year-end $ 2,128,058 $ 4.40 $ 1,389,164 3.17 $1,785,204 2.66 Weighted-average grant-date fair value of options granted during the year at fair market value $11.78 $11.19 Weighted-average grant-date fair value of options granted during the year above fair market value $ 4.46 $10.17
The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable ---------------------------------------------------------- ------------------------------------ Weighted-Average Remaining Weighted- Weighted- Range of Number Contractual Life Average Number Average Exercise Prices Outstanding (In years) Exercise Price Exercisable Exercise Price --------------- ----------- ----------------- -------------- ----------- -------------- $ .50 - 5.78 1,780,693 6.0 $ 2.53 1,464,618 $ 2.37 6.00 - 7.48 697,790 6.8 6.27 314,462 6.25 7.50 - 7.50 3,034,000 11.8 7.50 62,000 7.50 7.94 - 14.19 871,260 7.9 11.62 212,918 11.09 14.50 - 14.50 1,302,433 9.4 14.50 66,024 14.50 14.56 - 26.50 328,210 9.6 18.85 8,036 16.42 --------- --------- .50 - 26.50 8,014,386 9.1 8.34 2,128,058 4.40 ========= =========
For the purpose of providing pro forma disclosures, the fair values of options granted were estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: a risk-free interest rate of 6.3% and 5.9%, an expected life of 4.4 and 4.5 years, expected volatility of 50%, and no expected dividends. 25 19 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STOCKHOLDERS' EQUITY (CONTINUED) Employee Stock Purchase Plan Under the Company's Employee Stock Purchase Plan (ESPP), employees who have completed six months of continuous employment with the Company may purchase common stock semi-annually at the lower of 85% of the fair market value of the stock at the beginning or end of the six-month payment period, through accumulation of payroll deductions. Employees are required to hold stock purchased under the ESPP for a period of one year from the date of purchase. Common stock reserved for future sales totaled 485,970 shares at December 31, 1996. Shares purchased under the ESPP totaled 27,215 in 1996, 16,133 in 1995, and 15,840 in 1994. The weighted-average grant-date fair value of shares purchased under the ESPP was $6.82 in 1996 and $3.74 in 1995. For the purpose of providing pro forma disclosures, the fair values of shares purchased were estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for purchases in 1996 and 1995, respectively: a risk-free interest rate of 5.3% and 6.1%, an expected life of 6 months, expected volatility of 50%, and no expected dividends. EMPLOYEE SAVINGS PLAN Under the Company's Employee Savings Plan, a defined contribution plan, employees who have attained age 21 may contribute 1% to 15% of their salary on a pre-tax basis. Employer contributions are made at the discretion of management and vest after five years of continuous employment with the Company. Employer contributions approximated $300,000 in 1996, $200,000 in 1995, and $150,000 in 1994. SEGMENT INFORMATION During the years ended December 31, 1996, 1995, and 1994, one customer accounted for $13,765,000, $17,237,000, and $12,655,000, or 11%, 16%, and 20%, respectively, of revenue. The following table summarizes domestic and foreign sales:
YEAR ENDED DECEMBER 31, 1996 1995 1994 ---- ---- ---- (In thousands) United States ...................... $ 55,216 $ 42,619 $24,033 Export: Japan............................ 33,988 48,466 30,919 Europe........................... 15,958 12,243 7,011 Rest of world.................... 2,464 1,215 521 Japan............................... 15,217 -------- -------- ------- $122,843 $104,543 $62,484 ======== ======== =======
26 20 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEGMENT INFORMATION (CONTINUED) The following table summarizes information about the Company's 1996 operations in significant geographic areas. Operations in geographic areas other than the United States were not material in prior years.
United States Japan Eliminations Consolidated ------ ----- ------------ ------------ (In thousands) Revenue Unaffiliated customers....................... $107,626 $15,217 $122,843 Intercompany transfers....................... 73,525 638 $(74,163) -------- ------- -------- -------- Total revenue ................................... 181,151 15,855 (74,163) 122,843 Income (loss) from operations ................... 65,049 (869) (25,887) 38,293 Identifiable assets ............................. 388,946 6,801 (194,494) 201,253
Inventories are transferred to the Company's Japanese subsidiary at previously established transfer prices. Intercompany transfers are eliminated in consolidation. ACQUISITION OF ISYS CONTROLS, INC. On February 29, 1996, the Company acquired Isys Controls, Inc. ("Isys"), a developer of machine vision systems for high-speed surface inspection. Under the terms of the acquisition, accounted for as a pooling of interests, an aggregate of 1,078,380 shares of Cognex common stock were exchanged for Isys common shares, and 253,547 shares of Cognex common stock were exchanged for Isys restricted common shares, with similar restrictions. An additional 68,042 shares of Cognex common stock were reserved for issuance upon exercise of Isys stock options which, as a result of the merger, became options for the purchase of Cognex common stock. The exchange ratio was 0.1470 of a share of Cognex common stock for each share of Isys common stock. The results of operations of Isys for the full year are included in the consolidated financial statements of the Company for the year ended December 31, 1996. For all prior years presented, the financial position and results of operations of Isys were not material to the previously reported financial position and results of operations of the Company, and therefore, prior years have not been restated. ACQUISITION OF ACUMEN, INC. On July 21, 1995, the Company acquired all of the outstanding shares of Acumen, Inc. ("Acumen"), a developer of machine vision systems for semiconductor wafer identification. The purchase price of $13,950,000 included $8,452,000 in cash, 96,140 shares of Cognex common stock with a fair value of $4,170,000, and Cognex stock options valued at $1,328,000. At December 31, 1996 and 1995, $1,935,000 and $3,125,000, respectively, of the purchase price remained to be paid out in cash and stock options through the year 2001. The acquisition was accounted for under the purchase method of accounting. Accordingly, Acumen's results of operations have been included in the Company's consolidated results of operations since the date of acquisition. 27 21 COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACQUISITION OF ACUMEN, INC. (CONTINUED) The purchase price was allocated among the identifiable assets of Acumen. After allocating the purchase price to the net tangible assets and to deferred compensation costs, which are amortized over eight years, acquired technology was valued using a risk-adjusted cash flow model, under which future cash flows were discounted taking into account risks related to existing markets, the technology's life expectancy, future target markets and potential changes thereto, and the competitive outlook for the technology. This analysis resulted in an allocation of $2,369,000 to complete technology, to be amortized over five years, and $10,189,000 to in-process technology which had not reached technological feasibility and had no alternative future use, and accordingly, was expensed immediately. Goodwill associated with the purchase is being amortized over five years. At December 31, 1996 and 1995, unamortized costs associated with the complete technology amounted to $1,659,000 and $2,132,000, respectively. The following summarized, pro forma results of operations assume the acquisition took place at the beginning of the respective years and exclude the $10,189,000 charge for acquired in-process technology (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, 1995 1994 ---- ---- Revenue............................ $107,572 $65,125 Net income......................... 33,694 15,846 Net income per share............... .80 .42
SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE Cash paid for income taxes totaled $11,218,000 in 1996, $7,982,000 in 1995, and $5,844,000 in 1994. Common stock received as payment for stock option exercises totaled $397,000 in 1995 and $192,000 in 1994. In 1995 and 1994, the Company retired certain fully-depreciated property, plant and equipment amounting to $3,049,000 and $211,000, respectively. In 1996, the Company exchanged 1,078,380 shares of Cognex common stock for Isys common shares, and 253,547 shares of Cognex common stock for Isys restricted common shares, with similar restrictions, in connection with the acquisition of Isys. In 1995, the Company paid $6,454,000 in cash, net of cash acquired, as part of the cost to acquire Acumen as follows (in thousands):
Fair value of tangible assets acquired ........ $ 1,026 Liabilities assumed ........................... (1,122) Acquired technology ........................... 12,558 Goodwill and other intangible assets .......... 1,288 Issuance of stock and stock options ........... (5,498) Other liabilities ............................. (1,798) ------- Cash paid to acquire Acumen ................... $ 6,454 =======
28 22 COGNEX CORPORATION - REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF COGNEX CORPORATION: We have audited the accompanying consolidated balance sheets of Cognex Corporation as of December 31, 1996 and 1995 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cognex Corporation at December 31, 1996 and 1995 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. Boston, Massachusetts January 28, 1997 29 23 COGNEX CORPORATION - FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Year Ended December 31, 1996 (1) (2) 1995 1994 1993 1992 (3) ------------ ---- ---- ---- -------- (Dollars in thousands, except per share amounts) Statement of Income Data: Revenue $122,843 $ 104,543 $62,484 $43,371 $28,642 Cost of revenue 38,855 22,543 13,884 10,280 6,488 -------- --------- ------- ------- ------- Gross margin 83,988 82,000 48,600 33,091 22,154 Research, development and engineering expenses 19,434 13,190 9,933 6,205 5,622 Selling, general and administrative expenses 26,261 23,973 16,847 12,183 9,565 Charge for acquired in-process technology 10,189 -------- --------- ------- ------- ------- Income from operations 38,293 34,648 21,820 14,703 6,967 Investment income 4,726 3,147 1,462 1,316 1,437 Other income (expense) 678 (182) -------- --------- ------- ------- ------- Income before provision for income taxes 43,697 37,613 23,282 16,019 8,404 Provision for income taxes 13,328 14,579 7,210 4,871 2,311 -------- --------- ------- ------- ------- Net income $ 30,369 $ 23,034 $16,072 $11,148 $ 6,093 ======== ========= ======= ======= ======= Net income per share (4) $ .69 $ .55 $ .43 $ .31 $ .18 ======== ========= ======= ======= ======= Weighted average common shares outstanding (4) 43,814 41,952 37,150 35,668 34,812 ======== ========= ======= ======= =======
DECEMBER 31, 1996 (1) 1995 1994 1993 1992 -------- ---- ---- ---- ---- (Dollars in thousands) Balance Sheet Data: Working capital $152,817 $119,402 $ 88,619 $51,605 $38,123 Total assets 201,253 162,172 112,946 60,810 47,987 Long-term debt -- -- -- -- -- Stockholders' equity 182,689 143,916 103,608 55,061 41,110
(1) 1996 results include the full year results of Isys Controls, Inc. ("Isys"), a developer of machine vision systems for high-speed surface inspection acquired in February 1996. The Isys acquisition was accounted for as a pooling of interests; however, because the results of Isys for prior years were not material to the Company's previously reported results, prior years have not been restated. (2) Cost of revenue includes a $4,231,000 inventory charge for costs associated with excess inventories resulting from product transition plans over the next year, as well as reduced production plans. (3) Cost of revenue includes $719,000 of estimated costs in excess of revenue on certain research and development contracts, and selling, general and administrative expenses include $344,000 of lease termination costs. (4) Adjusted for the 2-for-1 stock splits effective December 18, 1995, September 30, 1993, and February 14, 1992. 30 24 COGNEX CORPORATION - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED ---------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 29, DECEMBER 1996 (1) 1996 (1) 1996 (1) (2) 1996 (1) -------- -------- ------------ -------- (Dollars in thousands, except per share amounts) Revenue 34,887 34,949 26,540 26,467 Gross margin 25,681 25,358 14,243 18,706 Income from operations 14,570 13,690 2,913 7,120 Net income 10,829 10,134 3,244 6,162 Net income per share (3) .25 .23 .08 .14 Common stock prices: (3) High 35.000 29.000 17.250 21.250 Low 18.000 15.750 11.750 12.250
QUARTER ENDED ----------------------------------------------------------- APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31, 1995 1995 1995 1995 ---- ---- ---- ---- (Dollars in thousands, except per share amounts) Revenue $19,437 $23,722 $29,784 $31,600 Gross margin 15,485 18,486 23,249 24,780 Charge for acquired in-process technology 10,189 Income from operations 7,698 9,603 3,230 14,117 Net income 5,873 7,241 (633) 10,553 Net income per share (3) .14 .18 (.02) .25 Common stock prices: (3) High 14.750 20.250 27.625 38.500 Low 10.500 13.250 18.250 19.250
(1) 1996 results include the full year results of Isys Controls, Inc. ("Isys"), a developer of machine vision systems for high-speed surface inspection acquired in February 1996. The Isys acquisition was accounted for as a pooling of interests; however, because the results of Isys for prior years were not material to the Company's previously reported results, prior years have not been restated. (2) Cost of revenue includes a $4,231,000 inventory charge for costs associated with excess inventories resulting from product transition plans over the next year, as well as reduced production plans. (3) Adjusted for the 2-for-1 stock split effective December 18, 1995. 31 25 COGNEX CORPORATION - COMPANY INFORMATION FORM 10-K A copy of the annual report filed with the Securities and Exchange Commission on Form 10-K is available to stockholders, without charge, upon request to: Department of Investor Relations Cognex Corporation One Vision Drive Natick, MA 01760 Additional copies of this annual report are also available, without charge, upon request to the above address. The Company's common stock is traded on The NASDAQ Stock Market, under the symbol CGNX. As of February 11, 1997, there were approximately 25,000 registered and non-registered holders of the Company's common stock. No dividends on the Company's common stock were paid during 1996 and 1995. 32 EX-21 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 COGNEX CORPORATION SUBSIDIARIES OF THE REGISTRANT At December 31, 1996, the registrant had the following subsidiaries, the financial statements of which are all included in the consolidated financial statements of the registrant:
NAME OF STATE/COUNTRY OF PERCENT SUBSIDIARY INCORPORATION OWNERSHIP ---------- ------------- --------- Cognex Technology and Investment Corporation California 100% Cognex Foreign Sales Corporation U.S. Virgin Islands 100% Cognex K.K. Japan 100% Cognex International, Inc. Delaware 100% Cognex Germany, Inc. Massachusetts 100% Cognex Singapore, Inc. Delaware 100% Cognex Korea, Inc. Delaware 100% Vision Drive, Inc. Delaware 100% Isys Controls, Inc. California 100%
EX-23 6 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Cognex Corporation on Form S-8 (File Nos. 33-31657, 33-32815, 33-36262, 33-36263, 33-72636, 33-72638, 33-81150, 33-81152, 333-2151, and 333-4621) of our reports dated January 28, 1997 on our audits of the consolidated financial statements and financial statement schedule of Cognex Corporation as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which reports are incorporated by reference or included in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. Boston, Massachusetts March 24, 1997 EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED FINANCIAL STATEMENTS OF COGNEX CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) CONSOLIDATED FINANCIAL STATEMENTS. 1 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 48,423,000 85,577,000 19,777,000 968,000 7,013,000 169,388,000 38,050,000 9,719,000 201,253,000 16,571,000 0 0 0 82,000 182,607,000 201,253,000 122,843,000 122,843,000 38,855,000 38,855,000 0 0 0 43,697,000 13,328,000 30,369,000 0 0 0 30,369,000 .69 .69
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