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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950135-01-000909.txt : 20010327
<SEC-HEADER>0000950135-01-000909.hdr.sgml : 20010327
ACCESSION NUMBER: 0000950135-01-000909
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010326
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:
SEC FILE NUMBER: 000-17869
FILM NUMBER: 1579123
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
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
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<FILENAME>b38122cce10-k.txt
<DESCRIPTION>COGNEX CORPORATION
<TEXT>
<PAGE> 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, 2000 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 25, 2001: $983,555,000
$.002 par value common stock outstanding as of February 25, 2001:
43,472,063 shares
Documents incorporated by reference:
Specifically identified information in the Annual Report to Stockholders for the
year ended December 31, 2000, 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 2000 Annual Meeting of Stockholders to be held on
April 26, 2001, is incorporated by reference into Part III hereof.
A list of Exhibits to this Annual Report on Form 10-K is located on page 19
<PAGE> 2
COGNEX CORPORATION ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000
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 OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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
<PAGE> 3
PART I
The Company's results are subject to certain risks and uncertainties. This
Annual Report on Form 10-K contains certain forward-looking statements within
the meaning of the Federal Securities Laws. The Company's future results may
differ materially from current results and actual results may differ materially
from those projected in the forward-looking statements as a result of certain
risk factors. Readers should pay particular attention to considerations
described in the section captioned "Forward-Looking Statements" in Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing on page 32 of the Annual Report to Stockholders for the year ended
December 31, 2000, which is Exhibit 13 hereto, and is incorporated herein by
reference, as well as considerations included in other documents filed with the
Securities and Exchange Commission.
ITEM 1. BUSINESS
CORPORATE PROFILE
Cognex(R) Corporation ("Cognex" or the "Company," each of which term
includes, unless the context indicates otherwise, Cognex Corporation and its
subsidiaries) was incorporated in Massachusetts in 1981. Its principal executive
offices are located at One Vision Drive, Natick, Massachusetts 01760 and its
telephone number is (508) 650-3000.
The Company designs, develops, manufactures, and markets machine vision
systems that are used to automate a wide range of manufacturing processes where
vision is required. Cognex machine vision systems consist of two primary
elements: a computer, which serves as a "machine vision engine," and software
that processes and analyzes images. When connected to a video camera, the
machine vision system captures images and extracts information, which determines
appropriate action for other equipment in the manufacturing process.
Machine vision systems are used in a variety of industries including the
semiconductor, electronics, automotive, consumer products, metals, plastics, and
paper industries. Machine vision is important for applications in which human
vision is inadequate due to fatigue, visual acuity, or speed, or in instances
where substantial cost savings are obtained through the reduction of direct
labor or 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 size of items being
manufactured.
WHAT IS MACHINE VISION?
In a typical machine vision application, a video camera positioned on the
production line captures an image of the part to be inspected. The machine
vision computer then uses sophisticated image analysis software to extract
information from the image and provide an answer to a question. Cognex machine
vision systems can answer four types of questions:
<TABLE>
<CAPTION>
QUESTION DESCRIPTION EXAMPLE
-------- ----------- -------
<S> <C> <C>
GUIDANCE
Where is it? Determining the exact physical Determining the position of a printed circuit
location of an object. board so that a robot can automatically be
guided to insert electronic components.
</TABLE>
1
<PAGE> 4
<TABLE>
<S> <C> <C>
IDENTIFICATION
What is it? Identifying an object by analyzing Identifying the serial number on an automotive
its shape or by reading a serial airbag so that it can be tracked and processed
number. correctly through manufacturing.
INSPECTION
How good is it? Inspecting an object for flaws or Inspecting the quality of printing on
defects. pharmaceutical labels and packaging.
GAUGING
What size is it? Determining the dimensions of an Determining the diameter of a bearing prior
object. to final assembly.
</TABLE>
Once the machine vision system has processed the image and performed any
necessary analysis, the result is then communicated to other equipment on the
factory floor, such as an industrial controller, a robotic arm, a deflector that
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 during the manufacturing process as product moves into
position in front of the camera. Machine vision systems can perform inspections
quickly enough to keep pace with machines that process thousands of items or
material feet per minute, thus increasing both quality and productivity.
THE MACHINE VISION MARKET
The machine vision market consists of two customer types: Original
Equipment Manufacturers (OEMs) and end users. OEMs are companies that build
standard products sold as capital equipment for end users on 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.
End users are companies that manufacture products, such as spark plugs,
cellular telephones, surgical staples, metals, and paper. While they may
purchase capital equipment containing machine vision or hire a system integrator
to build an inspection system, many end users choose to purchase machine vision
directly for specific applications on their production lines. Unlike OEMs and
system integrators, these customers typically have little or no computer
programming or machine vision experience.
System integrators are companies that create complete, automated inspection
solutions for end users on the factory floor. 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 general-purpose systems to application-specific systems
tailored to solve particular manufacturing tasks. The Company includes system
integrators in its definition of end users.
BUSINESS STRATEGY
The Company's goal is to expand its position as a leading worldwide
supplier of machine vision systems for factory automation. Currently, the
Company's products are designed for factory automation because the Company
believes that this market offers the greatest opportunity for selling high
value-added, standard products in high volume. Within the factory automation
market, the Company has historically focused primarily on those customers who
must have machine vision because of the increasing complexity of their products
or manufacturing methods.
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<PAGE> 5
Emphasizing high value-added products and applications is important to the
Company's strategy because not every segment of the machine vision market offers
opportunity for sustained profitability. High value-added is realized in the
Company's products in several ways. The primary value-added is derived from
offering unique vision software algorithms that 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
offerings to match the characteristics of its two customer types: OEMs and end
users. Historically, OEMs have been the source of the majority of the Company's
revenue. However, the Company believes that end users have the potential in the
long term to generate more revenue than OEMs. Consequently, the Company has
invested in developing and acquiring products that meet the needs of end users
and in developing a strong worldwide direct sales and support infrastructure.
The Company will continue to invest in both customer types, defending its strong
position in the OEM market while expanding in the end-user market.
The Company has historically pursued a global business strategy, investing
in building a strong direct presence in North America, Japan, Europe, and
Southeast Asia. In all of these regions, the Company is acknowledged to be a
leading machine vision supplier. The Company intends to continue to invest in
the expansion of direct sales and support in these regions. In 2000,
approximately 69% of the Company's revenue came from customers based outside of
the United States.
The factory automation market for machine vision is comprised of many
market niches defined by differing application requirements, industries, and
cost/performance criteria. The Company's business strategy includes selective
expansion into other industrial machine vision applications through the internal
development of new products, as well as the acquisition of companies and
technologies. In 2000, the Company completed three acquisitions, all targeted at
expanding the Company's presence in the worldwide end-user marketplace. In
March, the Company acquired selected assets of the machine vision business of
Komatsu Ltd., a division of Komatsu based in Japan that developed
application-specific machine vision systems for end users. In April, the Company
acquired all of the outstanding shares of Image Industries Ltd., a
privately-held, United Kingdom-based developer of low-cost vision sensors for
end users. In September, the Company acquired selected assets of the web
inspection business of Honeywell International's Roibox subsidiary, a
Finland-based developer of machine vision systems for inspecting paper.
PRODUCTS
The Company designs, develops, manufactures, and markets a wide range of
machine vision products. These products include modular vision systems that are
used to control the manufacturing of discrete items, such as semiconductor
chips, cellular phones, and automobile wheels, by locating, identifying,
inspecting, and measuring them during the manufacturing process. The Company's
product offerings also include surface inspection vision systems that are used
to inspect surfaces of materials that are processed in a continuous fashion,
such as plastics, metals, and paper, to ensure that there are no flaws or
defects on the surfaces.
Machine vision systems sold by the Company are defined as either
general-purpose or application-specific products. General-purpose systems enable
customers to solve a wide range of problems by selecting the tools necessary to
solve their vision problem from the Company's vision software library, and then
configuring their solution by utilizing a programmable language or
point-and-click interface. Application-specific systems are "packaged"
combinations of software and hardware that are designed to solve targeted
problems.
3
<PAGE> 6
GENERAL-PURPOSE SYSTEMS
Vision Software Library
The Company offers an extensive library of vision software that includes
both low-level image processing software and high-level image analysis tools.
The image processing software prepares the image for accurate analysis and the
image analysis tools extract information about the image to locate, measure, and
inspect objects and identify characters and codes. The library includes
PatMax(R), a pattern location tool that can locate with very high accuracy
objects that vary in size and orientation or whose appearance is degraded. The
library also includes PatInspect(R), a vision software tool that combines
high-accuracy part location and defect detection capabilities in a single vision
operation and detects flaws along the edges or boundary regions of objects. In
early 2000, the Company introduced a new tool called PatFind(TM) for the
In-Sight(TM) product line. PatFind is a part location tool based on the
Company's industry-leading Search and PatMax software technologies.
MVS-8000 Product Family
The MVS-8000(TM) product family of programmable machine vision systems
combines Cognex's unique algorithms with Intel's MMX instruction set. The
MVS-8100 Series features PCI bus-mastering frame grabbers for high-speed image
transfer from the video camera to the host PC for processing and display. The
MVS-8200 Series of embedded CPU machine vision systems enable all vision
processing to occur on-board, freeing the PC to perform other tasks.
The MVS-8000 product family is sold primarily to OEMs located in North
America, Japan, Europe, and Southeast Asia who integrate the machine vision
systems into manufacturing equipment for the semiconductor and electronics
industries. These machine vision systems are also sold to system integrators
located principally in North America, Japan, Europe, and Southeast Asia who
integrate the vision systems into manufacturing equipment for the factory floor
in industries ranging from automotive to consumer products.
Checkpoint Product Family
Checkpoint(R) is a family of PC-based machine vision systems for complex
precision guidance, gauging, and defect inspection applications. Checkpoint
features a graphical user interface, and requires some knowledge of programming
and machine vision to configure a vision application. Deployment of Checkpoint
on the factory floor requires the services of trained system integrators to
mechanically and electrically integrate Checkpoint into manufacturing lines.
In mid 2000, the Company introduced Checkpoint II, the next-generation
version of Checkpoint designed for high-performance, multi-camera guidance,
gauging, and defect inspection applications. Checkpoint II features faster
vision processing and expanded camera support.
Checkpoint is sold primarily to end users located in North America, Japan,
Europe, and Southeast Asia in a wide range of general manufacturing industries,
such as manufacturers of medical devices, automotive parts, disposable consumer
goods, and electronic components.
In-Sight Product Family
In early 2000, the Company entered the fast-growing market for low-cost
vision sensors with its new In-Sight(TM) product line, providing Cognex's
industry-leading vision technology in an affordable, stand-alone package that
does not require programming skills or a PC to deploy. The first product, the
In-Sight 2000, is a general-purpose vision sensor designed for part location,
measurement, identification, and assembly verification tasks.
The Company introduced the In-Sight 3000 in late 2000 and the In-Sight 1000
in early 2001. Both products are general-purpose vision sensors with built-in
Ethernet networking capability for remotely managing, monitoring, and
controlling vision activity. The In-Sight 1000 combines a vision camera,
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<PAGE> 7
software, and processing in a single, compact unit. The In-Sight 3000 is
designed for more demanding applications and features a rugged vision processing
unit and separate vision camera.
In-Sight vision sensors are so affordable, they can be deployed in multiple
points throughout the manufacturing process where value is being added. In-Sight
vision sensors include a comprehensive library of Cognex vision software tools,
including the PatFind part location tool and an easy-to-use vision spreadsheet
environment enabling anyone with basic spreadsheet skills to configure a vision
application.
In-Sight is sold primarily to end users located in North America, Japan,
Europe, and Southeast Asia in similar industries to the Checkpoint product
family.
Other General-Purpose Systems
The Company continues to offer programmable machine vision systems that run
on its own proprietary hardware including the Cognex 4000 Series which plugs
directly into a VME backplane, as well as the Cognex 5000 Series which plugs
into a PC.
APPLICATION-SPECIFIC SYSTEMS
The Company also offers a variety of application-specific systems that
combine Cognex hardware and software to create a solution that is tailored to
the particular requirements of certain vision applications. These products are
sold to OEMs and end users worldwide. A partial list of application-specific
systems is as follows:
In-Sight 1010(TM), introduced in late 2000, is a compact, standalone,
Ethernet-ready vision sensor designed specifically for reading 2D matrix and
linear bar codes on parts.
In-Sight 1700(TM), introduced in early 2001, is a compact vision sensor for
identifying and tracking semiconductor wafers through the manufacturing process
by reading 2D matrix, alphanumeric, and bar codes on wafers.
SMD 4(TM), introduced in mid 2000, is Cognex's next-generation machine
vision system for guiding the placement of surface mount devices onto printed
circuit boards and other assemblies.
BGA II(TM) inspects ball grid array devices for missing, misplaced, or
improperly formed solder balls.
Fiducial Finder II(TM) locates fiducial or alignment marks on printed
circuit boards for automatic printed circuit board alignment.
DisplayInspect(TM) software inspects the small, high-resolution displays
commonly found on cellular phones, pagers, medical test instruments, and other
electronic devices.
iS(TM) High Performance Inspection Systems detect and classify defects in
the most challenging surface inspection applications. iS systems are built from
a family of hardware and software components which include proprietary line-scan
cameras with motorized camera mounts, specialized lighting systems, ultra-high
performance image processing boards, Unix workstations, and intelligent defect
detection and classification software algorithms. iS systems can contain from
one to sixty cameras and can be used to inspect webs up to 25 feet wide at
speeds of up to 5,000 feet per minute. iS systems are primarily sold to
producers of metals, specialized coated paper, and high-value non-woven
materials.
SmartView(TM) Imaging Camera Network (ICN), introduced in early 2000,
detects, identifies, and presents an image of defects on products made in
continuous processes. SmartView ICN provides greyscale imaging capability to
visualize the defects as well as a visual quality snapshot of the inspected web
or surface. SmartView ICN is a modular and scalable system on an open Microsoft
NT platform that enables the Company to expand into more complex vision
applications in paper, nonwovens, and metals previously only achievable with iS
systems.
5
<PAGE> 8
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. 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 Company considers its on-going efforts in R, D & E to be a key component of
its strategy.
At December 31, 2000, the Company employed 195 professionals in R, D & E,
most of whom are software developers. The Company's R, D & E expenses totaled
$33,341,000, $27,536,000, and $24,535,000, or 13%, 18%, and 20% of revenue, in
2000, 1999, and 1998, respectively.
MANUFACTURING
The majority of the Company's machine vision systems are manufactured at
its Natick, Massachusetts headquarters. The Company's Natick manufacturing
organization utilizes a turnkey manufacturing operation whereby the majority of
component procurement, subassembly, final assembly, and initial testing are
performed under agreement by third-party contractors. After the completion of
initial testing, the third-party contractors deliver the products to the Company
to perform final testing and assembly. The products provided by the third-party
contractors are manufactured using specified components and assembly and test
documentation created and controlled by the Company. Certain components
purchased by the third-party contractors are presently available from a single
source.
The Company's SmartView ICN and iS Inspection systems are manufactured at
its Alameda, California facility. The manufacturing processes at the Alameda
facility consists of systems design, configuration management and control,
component procurement, subassembly, system integration, final test, quality
control, and shipment. System installation and commissioning are performed by
either the Company or its customers. Certain products are manufactured by
third-party contractors using documentation created and controlled by the
Company. Certain components are presently available from a single source.
SALES AND SUPPORT
The Company primarily markets its products through a direct sales force in
North America, Japan, Europe, and Southeast Asia. At December 31, 2000, the
Company's direct sales and service force consisted of 225 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 that uses the Company's
products. The Company sells to OEMs, many of whom have entered or are expected
to enter into volume discount contracts with the Company. These contracts are
typically for one year and have associated delivery schedules.
Sales to international customers represented approximately 69% of revenue
in 2000 and 1999 and 63% of revenue in 1998. One customer based in Japan, Fuji
America Corporation, accounted for approximately 10%, 13%, and 14% of revenue in
2000, 1999, and 1998, respectively. Information about operating segments and
geographic areas, as well as foreign currency and related risk may be found in
the Notes to the Consolidated Financial Statements, appearing on pages 53
through 54 and pages 40 through 44 of the Annual Report to Stockholders for the
year ended December 31, 2000, which is Exhibit 13 hereto, and is incorporated
herein by reference. Although international sales may from time to time be
subject
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<PAGE> 9
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's support offerings include vision solutions consulting
services, technical support, educational services, and product services. The
Company's vision solutions consulting group provides, for a fee, services that
range from a specific piece of programmed functionality to a completely
integrated machine vision application. The technical support group consists of a
team of vision experts ready to respond to questions that may arise while
customers are developing or deploying a Cognex machine vision application. The
educational services group offers a variety of product courses that are held at
its Customer Education Center in Natick, Massachusetts, and at certain of its
worldwide offices, as well as at customer facilities when required. The product
services group offers a variety of software and hardware maintenance programs
that provide updates on the latest software releases and new software vision
tools.
INTELLECTUAL PROPERTY
Since the Company relies on the technical expertise, creativity, and
knowledge of its personnel, it utilizes patent, trademark, copyright, and trade
secret protection to safeguard its competitive position. At December 31, 2000,
the Company had obtained 99 patents on various innovations in the field of
machine vision technology and had over 140 pending patent applications. 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. There can be no
assurance however, that any of the above measures will be adequate to protect
the proprietary technology of the Company. Effective patent, trademark,
copyright, and trade secret protection may be unavailable in certain foreign
countries.
The Company's trademark and servicemark portfolio includes various
registered marks, including but not limited to Cognex(R), Checkpoint(R),
PatMax(R), and PasteInspect(R), as well as many common-law marks, including but
not limited to, acuReader(TM), DisplayInspect(TM), PatFind(TM), and
SmartView(TM). In addition, the Company has sought and obtained a number of
trademark registrations outside of the United States. All third-party brand
names, service marks, and trademarks referenced in this document are the
property of their respective owners.
The Company's software products are protected by various security schemes
and are primarily licensed to customers pursuant to a license agreement that
restricts the use of the products to the customer's purposes, as well as imposes
strict limitations on the customer's use of the Company's trade secret,
proprietary, and other confidential business information to which the customer
may have access. 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.
Numerous users of the Company's products have received notice of patent
infringement from the Lemelson Medical, Educational, & Research Foundation,
Limited Partnership ("Partnership") alleging that their use of the Company's
products infringes certain patents transferred to the Partnership by the late
Jerome H. 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 the Partnership's patents, they may seek indemnification from
the Company for damages or expenses resulting from this matter. Cognex disclaims
liability with respect to such indemnification requests.
In July 1998, the Partnership filed a lawsuit against 26 semiconductor
device manufacturers asserting infringement upon numerous Lemelson patents
including certain machine vision patents. Several of the defendants are users of
the Company's products that were purchased primarily from the Company's OEM
customers whose equipment incorporates such products. As a result of this action
and the continuing assertions against other current and potential Cognex
customers, the Company decided
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<PAGE> 10
to initiate action against the Partnership in order to preserve its right to
sell machine vision products without the threat of legal action against the
Company or its customers. Accordingly, on September 23, 1998, the Company filed
a complaint against the Partnership seeking a declaration that Lemelson's
machine vision patents are invalid, unenforceable, and not infringed by either
Cognex or by any users of Cognex products. The complaint was served on the
Partnership on October 14, 1998. The Company refiled the lawsuit in Reno, Nevada
on September 27, 1999 after the Judge in Massachusetts ruled that Massachusetts
was not the proper jurisdiction. The Company refiled in Nevada where several
other Lemelson lawsuits are in progress and where no jurisdiction controversy
exists. It will likely be at least two years from the date of this filing before
a decision is rendered by the Court. The Company does not believe its products
infringe any valid and enforceable claims of Lemelson's patents. Furthermore,
the Partnership has stated that it is not the Company's products that infringe
Lemelson's patents, but rather the use of those products by the Company's
customers.
On May 2, 2000, Cognex filed a complaint in the Federal District Court in
Wilmington, Delaware against National Instruments Corporation. The lawsuit
includes claims of infringement of certain Cognex patents, copyrights, and
trademarks, as well as a claim of unfair competition. Based on the current Court
ordered schedule, trial is expected to begin in approximately one year from the
date of this filing.
On February 14, 2001, Cognex filed a complaint in the Federal District
Court in Boston, Massachusetts against Electro Scientific Industries, Inc
("ESI"). The lawsuit claims that ESI infringes certain Cognex patent rights. At
the date of this filing, a scheduling order has not been issued by the Court,
and therefore, the trial date cannot be reasonably predicted.
The Company cannot predict the outcome of the Lemelson, National
Instruments, ESI, or any similar litigation that may arise in the future, or the
effect of such litigation on the financial results of the Company.
COMPETITION
The Company competes with other vendors of machine vision systems, the
internal engineering efforts of the Company's current or prospective customers,
and the manufacturers of image processing systems. Any of these competitors may
have greater financial and other resources than the Company. Although the
Company considers itself to be one of the leading machine vision companies in
the world, reliable estimates of the machine vision market and the number of
competitors are almost non-existent, primarily because of definitional confusion
and a tendency toward double-counting of sales. The primary competitive factors
affecting the choice of a machine vision system include product functionality
and performance (e.g. speed, accuracy, and reliability) under real-world
operating conditions, flexibility, programmability, and the availability of
application support from the vendor. More recently, ease-of-use has become a
competitive factor and product price has become a more significant factor with
respect to simpler guidance and gauging applications. The Company competes with
the low-cost smart camera and vision sensor solutions being introduced by
various competitors on the basis of superior performance and price, rather than
on price alone, through its In-Sight products.
BACKLOG
At December 31, 2000, the Company's backlog totaled $41,797,000 compared to
$36,788,000 at December 31, 1999. Backlog reflects purchase orders for products
scheduled for shipment within three months. The level of backlog at any
particular date is not necessarily indicative of future revenue of the Company.
Delivery schedules may be extended and orders may be canceled at any time
subject to certain cancellation penalties.
8
<PAGE> 11
EMPLOYEES
At December 31, 2000, the Company employed 781 persons, including 375 in
sales, marketing, and support activities; 195 in research, development, and
engineering; 70 in manufacturing and quality assurance; and 141 in information
technology, finance, and administration. Of the Company's 781 employees, 275 are
located outside of the United States. 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 that serves as it's corporate headquarters. In
1997, the Company completed construction of a 50,000 square-foot addition to
this building.
In 1995, the Company purchased an 83,000 square-foot office building
adjacent to its corporate headquarters. The building is currently largely
occupied with tenants who have lease agreements that expire at various dates
through 2002, at which point, the Company may take occupancy of the building.
The Company uses a small portion of the space for storage of inventory.
In 1997, the Company purchased a three and one-half acre parcel of land
situated on Vision Drive, adjacent to the Company's corporate headquarters. This
land is anticipated to be used for future expansion.
ITEM 3: LEGAL PROCEEDINGS
To the Company's knowledge, there are no pending legal proceedings, other
than as described in "Business - Patents and Licenses," which are material to
the Company to which it is a party or to which any of its property is subject.
From time to time, however, the Company may be subject to various claims and
lawsuits by customers and competitors arising in the normal course of business,
including suits charging patent infringement.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the year ended
December 31, 2000 to a vote of security holders through solicitation of proxies
or otherwise.
9
<PAGE> 12
ITEM 4A: EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF THE
REGISTRANT
The following table sets forth the names, ages, and titles of the Company's
executive officers at December 31, 2000:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Robert J. Shillman 54 President, Chief Executive Officer, and Chairman of the
Board of Directors
Patrick Alias 55 Executive Vice President, Worldwide Sales and Marketing
</TABLE>
Messrs. Shillman and Alias 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.
OTHER MEMBERS OF THE MANAGEMENT TEAM
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Markku Jaaskelainen 46 Corporate Vice President and General Manager, SISD
Marilyn Matz 47 Senior Vice President - Software Development
E. John McGarry 44 Senior Vice President
Richard Morin 51 Vice President of Finance, Chief Financial Officer,
and Treasurer
William Silver 47 Senior Vice President and Chief Technology Officer
Justin Testa 48 Senior Vice President - Marketing
</TABLE>
Messrs. Silver, McGarry, and Testa and Ms. Matz have been employed by the
Company in their present or other capacities for no less than the past five
years.
Mr. Jaaskelainen joined the Company in 1999. Prior to joining the Company, Mr.
Jaaskelainen served as Vice President of Systems Strategy for Honeywell-Measurex
Corporation, where he was responsible for overseeing and coordinating all new
product development.
Mr. Morin joined the Company in 1999 after ten years as Chief Financial Officer
for C&K Components, Inc., an international manufacturer of electronic components
and security systems. Mr. Morin also served as Corporate Controller and Vice
President of Finance for the Jamesbury Corporation. Mr. Morin is a Certified
Public Accountant.
10
<PAGE> 13
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Certain information with respect to this item may be found in the section
captioned "Selected Quarterly Financial Data," appearing on page 60, and the
section captioned "Company Information," appearing on page 61 of the Annual
Report to Stockholders for the year ended December 31, 2000 which is Exhibit 13
hereto, and is incorporated herein by reference.
On April 20, 2000, the Company acquired all of the outstanding shares of
Image Industries, Ltd., a privately-held manufacturer of low-cost machine vision
systems located in the United Kingdom. The purchase price of $2,706,000 included
$876,000 in cash at closing, $878,000 in cash to be paid through 2002, and
17,619 shares of Cognex common stock, issued from treasury, with a fair value of
$952,000. The shares were issued to three persons in reliance upon the exemption
afforded by Section 4(2) of the Securities Act of 1933 for transactions not
involving a public offering.
The Company has never declared or paid cash dividends on shares of its
common stock. The Company currently intends to retain all of its earnings to
finance the development and expansion of its business and therefore does not
intend to declare or pay cash dividends on its common stock in the foreseeable
future. Any future declaration and payment of dividends will be subject to the
discretion of the Company's Board of Directors, will be subject to applicable
law, and will depend upon the Company's results of operations, earnings,
financial condition, contractual limitations, cash requirements, future
prospects, and other factors deemed relevant by the Company's Board of
Directors.
ITEM 6: SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section captioned
"Five-Year Summary of Selected Financial Data," appearing on page 59 of the
Annual Report to Stockholders for the year ended December 31, 2000, 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 26 through 32 of the Annual Report to
Stockholders for the year ended December 31, 2000, which is Exhibit 13 hereto,
and is incorporated herein by reference.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company maintains investment portfolio holdings of various issuers,
types, and maturities. The Company's cash and investments include cash
equivalents, which the Company considers to be 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. Given the
short maturities and investment grade quality of the portfolio holdings at
December 31, 2000, a sharp rise in interest rates should not have a material
adverse impact on the fair value of the Company's investment portfolio. As a
result, the Company does not currently hedge these interest rate exposures.
11
<PAGE> 14
The Company faces exposure to financial market risks, including adverse
movements in foreign currency exchange rates. These exposures may change over
time as business practices evolve and could have a material adverse impact on
the Company's financial results. The Company's primary exposure has been related
to local currency revenue and operating expenses in Japan, Europe, and Southeast
Asia. Historically, the Company has hedged currency exposures associated with
certain intercompany payables denominated in local currencies and certain
foreign currency revenue transactions. The goal of the Company's hedging
activity is to offset the impact of currency fluctuations on certain local
currency intercompany payables and foreign currency revenue transactions. The
success of this activity depends upon forecasts of transaction activity
denominated in various currencies. To the extent that these forecasts are
overstated or understated during periods of currency volatility, the Company
could experience unanticipated currency gains or losses.
Outstanding forward foreign exchange contracts in Japanese yen at December
31, 2000 mature within 6 months. Indicators as of March 5, 2001, show that the
dollar is expected to strengthen against the yen by June 30, 2001, to
approximately 120 yen/USD. The hypothetical gain in cash flows of these yen
forward contracts is estimated to be $481,287 using these assumptions.
Outstanding forward foreign exchange contracts in the Euro dollar at
December 31, 2000 mature within approximately 2 years. Indicators as of March 5,
2001, show that the dollar is expected to strengthen against the Euro dollar by
September 30, 2002, to approximately .8500 Euro/USD. The hypothetical gain in
cash flows of these Euro forward contracts is estimated to be $74,844 using
these assumptions.
The following table (dollars in thousands) presents hypothetical changes in
fair value in the Company's financial instruments at December 31, 2000 that are
sensitive to changes in interest rates. The modeling technique measures the
change in fair value arising from selected potential changes in interest rates.
Movements in interest rates of plus or minus 50 basis points ("BP") and 100 BP
reflect immediate hypothetical shifts in the fair value of these investments.
Fair value represents the market value of the principal plus accrued interest
and dividends of certain interest-rate-sensitive securities at December 31,
2000.
<TABLE>
<CAPTION>
Valuation of securities given an No change in Valuation of securities given an
Type of security interest rate decrease interest rates interest rate increase
- ---------------------------------------------------------------------------------------------------------------------
(100 BP) (50 BP) 50 BP 100 BP
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Municipal obligations with
contractual maturities no
greater than 3 years $253,417,528 $252,252,551 $251,002,367 $249,843,477 $248,689,454
</TABLE>
A 50 BP move in the Federal Funds Rate has occurred in 8 of the last 40
quarters. There has not been a 100 BP movement in the Federal Funds Rate in any
of the last 40 quarters.
The Company has equity securities purchased in the Japanese market with a
fair value of approximately $5,571,000 and an unrealized loss of $1,891,000 at
December 31, 2000. The unrealized gain (loss) recorded as other comprehensive
income (loss) is made up of two components - the yen strengthening (weakening)
against the dollar and the appreciation (depreciation) of the stock price.
Indicators as of March 5, 2001, show that the dollar is expected to strengthen
against the yen by December 31, 2001, to approximately 128 yen/USD. Based on
these indicators, a hypothetical change in the fair value due to a weakening
yen would be a $594,000 unrealized gain. The potential change in the fair value
due to a hypothetical 10% increase or decrease in the stock price would be a
$557,000 change in the unrealized gain (loss).
12
<PAGE> 15
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 33 through 60 of the Annual Report to
Stockholders for the year ended December 31, 2000, 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 2000 or 1999.
13
<PAGE> 16
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 2001 Annual Meeting of
Stockholders to be held on April 26, 2001. 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 2001 Annual Meeting of Stockholders to be held on
April 26, 2001. 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 2001 Annual Meeting of Stockholders to be held on
April 26, 2001. Such information is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item may be found in the section captioned
"Compensation Committee Interlocks and Insider Participation," appearing in the
definitive Proxy Statement for the Special Meeting in Lieu of the 2001 Annual
Meeting of Stockholders to be held on April 26, 2001. Such information is
incorporated herein by reference.
14
<PAGE> 17
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, 2000, 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, 2000, 1999, and 1998
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999, and 1998
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
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 18, 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, 2000.
15
<PAGE> 18
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 26, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert J. Shillman President, Chief Executive Officer, March 26, 2001
- -------------------------- and Chairman of the Board of Directors
Robert J. Shillman (principal executive officer)
/s/ Richard Morin Vice President of Finance, Chief Financial March 26, 2001
- -------------------------- Officer, and Treasurer
Richard Morin (principal financial and accounting officer)
/s/ Jerald Fishman Director March 26, 2001
- --------------------------
Jerald Fishman
/s/ William Krivsky Director March 26, 2001
- --------------------------
William Krivsky
/s/ Anthony Sun Director March 26, 2001
- --------------------------
Anthony Sun
/s/ Reuben Wasserman Director March 26, 2001
- --------------------------
Reuben Wasserman
</TABLE>
16
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Cognex Corporation:
Our audits of the consolidated financial statements referred to in our
report dated January 22, 2001 appearing in the 2000 Annual Report to
Stockholders of Cognex Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item 14
(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
Boston, Massachusetts /s/ PricewaterhouseCoopers LLP
January 22, 2001
17
<PAGE> 20
SCHEDULE II
COGNEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONS
----------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OTHER PERIOD
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts
- ----------------------
2000 $2,836 $ 275 - $ (624)(a) $(337)(c) $2,150
1999 2,583 1,050 - (797)(a) $2,836
1998 1,940 1,245 - (602)(a) 2,583
Reserve for Inventory
Obsolescence
- ----------------------
2000 $3,955 $ 785 - $(1,031)(b) $3,709
1999 2,860 $1,545 - (450)(b) $3,955
1998 1,873 992 - (5)(b) 2,860
</TABLE>
(a) Specific write-offs
(b) Specific dispositions
(c) Reversal of specific write-offs due to collection
18
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
- --------------
<S> <C>
3A Articles of Organization of the Company effective January 8,
1981, as amended June 8, 1982, August 19, 1983, May 15, 1984,
April 17, 1985, November 4, 1986, and January 21, 1987
(incorporated by reference to Exhibit 3A to the Registration
Statement Form S-1 [Registration No. 33-29020])
3B Restated Articles of Organization of the Company effective
June 27, 1989, as amended April 30, 1991, April 21, 1992,
April 25, 1995, and April 23, 1996 (filed as Exhibit 3B to the
Company's Annual Report of Form 10-K for the year ended
December 31, 1996)
3C By-laws of the Company as amended February 9, 1990 (filed as
Exhibit 3C to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990)
4 Specimen Certificate for Shares of Common Stock (incorporated
by reference to Exhibit 4 to the Registration Statement Form
S-1 [Registration No. 33-29020])
10A Cognex Corporation Employee Stock Purchase Plan (incorporated
by reference to Exhibit 4A to Amendment No. 1 to the
Registration Statement Form S-8 [Registration No. 33-32815])
10B Cognex Corporation 1992 Director Stock Option Plan (filed as
Exhibit 10I to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992) Cognex Corporation 1993
Director Stock Option Plan (filed as Exhibit 10J to the
Company's Annual Report on Form
10C 10-K for the year ended December 31, 1993)
10D Cognex Corporation 1993 Employee Stock Option Plan, as amended
May 28, 1996 (incorporated by reference to Exhibit 4A to the
Registration Form S-8 [Registration No. 333-4621])
10E Cognex Corporation 1996 Long-Term Incentive Plan (incorporated
by reference to Exhibit 4A to the Registration Statement Form
S-8 [Registration No. 333-2151])
10F Amendment to the Cognex Corporation 1993 Director Stock Option
Plan (filed as Exhibit 10G to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
10G Amendment to the Cognex Corporation 1993 Employee Stock Option
Plan (filed as Exhibit 10H to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
10H Cognex Corporation 1998 Non-Employee Director Stock Option
Plan (incorporated by reference to Exhibit 4.1 to the
Registration Form S-8 [Registration No. 333-60807])
10I Cognex Corporation 1998 Stock Incentive Plan (incorporated by
reference to Exhibit 4.2 to the Registration Form S-8
[Registration No. 333-60807])
13 Annual Report to Stockholders for the year ended December 31,
2000 (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 PricewaterhouseCoopers LLP *
</TABLE>
* Filed herewith
19
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>2
<FILENAME>b38122ccex13.txt
<DESCRIPTION>ANNUAL REPORT TO STOCKHOLDERS FOR Y/E 12/31/00
<TEXT>
<PAGE> 1
26
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SUMMARY
Revenue for the year ended December 31, 2000 increased 65% from the prior year
due to growth in sales to original equipment manufacturer (OEM) customers, most
of whom make capital equipment used in the semiconductor and electronics
industries, as well as an increase in sales to end-user customers. Sales to OEM
customers increased 68% from 1999, and sales to end-user customers increased 59%
from the same period.
During the year, the Company continued to invest in new product development and
end-user market penetration. This spending was outpaced, however, by the growth
in revenue, resulting in a 152% increase in operating income from 1999. Net
income increased 124% from the prior year and represented 27% of revenue in
2000.
The Company's financial position remained strong at December 31, 2000, with $436
million in total assets and $384 million in stockholders' equity. Working
capital was $168 million at December 31, 2000, representing an increase of 33%
from the prior year.
The following table sets forth certain consolidated financial data as a
percentage of revenue:
<TABLE>
<CAPTION>
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue 100% 100% 100%
Cost of revenue 25 30 31
- --------------------------------------------------------------------------------
Gross profit 75 70 69
Research, development,
and engineering expenses 13 18 20
Selling, general, and
administrative expenses 25 29 31
Amortization of goodwill 1
Charge for acquired
in-process technology 2
- --------------------------------------------------------------------------------
Operating income 36 23 16
Investment and other income 4 5 6
- --------------------------------------------------------------------------------
Income before provision
for income taxes 40 28 22
Provision for income taxes 13 8 5
- --------------------------------------------------------------------------------
Net income 27% 20% 17%
- --------------------------------------------------------------------------------
</TABLE>
Cognex Corporation 2000 Annual Report
<PAGE> 2
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenue for the year ended December 31, 2000 increased 65% to $250,726,000 from
$152,125,000 for the year ended December 31, 1999. The increase in revenue was
due to higher demand from both the Company's OEM and end-user customers. Sales
to OEM customers increased $63,699,000, or 68%, from the prior year due to a
higher volume of machine vision systems sold to the Company's core OEM customers
who make capital equipment for the semiconductor and electronics industries.
Sales to OEM customers represented 63% of total revenue in 2000 compared to 61%
of total revenue in 1999. Sales to end-user customers increased $34,902,000, or
59%, from the prior year due largely to the introduction of the In-Sight and
SmartView ICN products early in 2000, which are both targeted toward the
end-user market.
Geographically, revenue increased in all of the Company's regions from 1999.
Sales to customers in Japan and North America increased $49,697,000, or 74%, and
$30,463,000, or 64%, respectively, primarily due to the increase in sales to the
Company's OEM customers, most of whom are located in these regions. Sales to
customers in Europe increased $15,836,000, or 48%, due largely to higher demand
from European manufacturers of cellular telephones.
During the fourth quarter of 2000, the Company's order rate slowed from the
record pace experienced in the third quarter due to delays and cutbacks in
capital equipment spending by manufacturers in the semiconductor and electronics
industries. Over the past several weeks, the order rate from customers in these
industries has continued to decline. In addition, the Company recently began to
experience slow order trends from customers in other industries whose businesses
are being impacted by the slowing economy. As a result, the Company anticipates
that its revenue for the first quarter of 2001 will be approximately 35% lower
than that reported in the fourth quarter of 2000. At this time, the Company has
limited visibility to customer demand beyond the first quarter of 2001 due to
shortened order lead times. Due to this lack of visibility, as well as the high
level of uncertainty regarding the timing of a business recovery, the Company is
implementing a conservative spending plan for 2001.
Gross profit as a percentage of revenue for 2000 was 75% compared to 70% for
1999. The increase in the gross margin was due primarily to manufacturing
efficiencies that resulted from increased product sales without a significant
increase in manufacturing overhead, as well as improved gross margins on the
Company's surface inspection products, including SmartView ICN.
Cognex Corporation 2000 Annual Report
<PAGE> 3
28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
(CONTINUED)
Research, development, and engineering expenses for the year ended December 31,
2000 increased 21% to $33,341,000 from $27,536,000 for the year ended December
31, 1999. The increase in aggregate expenses was due primarily to higher
personnel-related costs to support the Company's continued investment in the
research and development of new and existing products. Included in the higher
personnel-related costs are the expenses associated with the additional
employees from the three acquisitions completed during the year. Expenses as a
percentage of revenue decreased from 18% in 1999 to 13% in 2000 as a result of
revenue increasing at a faster rate than spending. Due to the conservative
spending plan implemented for 2001, the Company anticipates that aggregate
expenses will decrease from the level experienced in the fourth quarter of 2000.
Selling, general, and administrative expenses for the year ended December 31,
2000 increased 42% to $61,915,000 from $43,523,000 for the year ended December
31, 1999. The increase in aggregate expenses was due primarily to higher
personnel-related costs to support the Company's expanding worldwide operations
and to grow the Company's end-user business, as well as increased marketing
costs associated with the introduction of the In-Sight and SmartView ICN
products. Included in the higher personnel-related costs are the expenses
associated with the additional employees from the three acquisitions completed
during the year. Expenses as a percentage of revenue declined from 29% in 1999
to 25% in 2000 as a result of revenue increasing at a faster rate than spending.
Due to the conservative spending plan implemented for 2001, the Company
anticipates that aggregate expenses will decrease from the level experienced in
the fourth quarter of 2000.
Amortization of goodwill for the year ended December 31, 2000 totaled $1,964,000
compared to $265,000 for the year ended December 31, 1999. The increase in
amortization expense was due to goodwill associated with the three acquisitions
completed during the year.
Investment income for the year ended December 31, 2000 increased 44% to
$9,494,000 from $6,572,000 for the year ended December 31, 1999. The increase in
investment income was due primarily to higher average interest rates on the
Company's portfolio of investments, which consists principally of debt
securities, as well as a higher average invested balance in 2000.
Other income for the year ended December 31, 2000 totaled $1,038,000 compared to
$728,000 for the year ended December 31, 1999. Other income consists primarily
of
Cognex Corporation 2000 Annual Report
<PAGE> 4
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
(CONTINUED)
rental income, net of related expenses, from leasing the building adjacent to
the Company's corporate headquarters.
The Company's effective tax rate for 2000 was 32% compared to 29% for 1999. The
increase in the effective tax rate was due primarily to the higher operating
income in 2000, increased investments in the Company's foreign operations, and
the diminishing effect of tax-free investments.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenue for the year ended December 31, 1999 increased 25% to $152,125,000 from
$121,844,000 for the year ended December 31, 1998. During 1999, the Company
experienced an increase in demand as its customers recovered from the 1998
slowdown in capital spending by manufacturers in the semiconductor and
electronics industries. The increase in revenue of $30,281,000, or 25%, from
1998 was due primarily to a higher volume of machine vision systems sold to the
Company's core OEM customers who serve these industries. Sales to OEM customers
increased $23,575,000, or 34%, from the prior year and represented 61% of total
revenue in 1999 compared to 57% of total revenue in 1998. Sales to end-user
customers increased $6,706,000, or 13%, from the prior year as a result of
increased volume from customers in general manufacturing industries, such as
automotive and consumer products.
While revenue increased in all of the Company's worldwide regions from 1998, the
most significant increase was in Japan, where most of the Company's core OEM
customers are located. Sales to customers located in Japan increased
$18,615,000, or 38%, from the prior year. Sales to customers located in Europe
increased $7,816,000, or 31%, from 1998 due primarily to a large general
manufacturing customer base in this region. Sales to customers located in the
United States increased $1,857,000, or 4%, from the prior year.
Gross profit as a percentage of revenue for 1999 was 70% compared to 69% for
1998. The increase in the gross margin was due primarily to manufacturing
efficiencies that resulted from increased product sales without a significant
increase in manufacturing overhead, as well as a lower percentage of service
revenue which carries a lower gross margin than product revenue.
Research, development, and engineering expenses for the year ended December 31,
1999 increased 12% to $27,536,000 from $24,535,000 for the year ended December
31, 1998.
Cognex Corporation 2000 Annual Report
<PAGE> 5
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
(CONTINUED)
The increase in aggregate expenses was due primarily to higher personnel-related
costs to support the Company's continued investment in the research and
development of new and existing products. Expenses as a percentage of revenue
declined from 20% in 1998 to 18% in 1999 as a result of revenue increasing at a
faster rate than spending.
Selling, general, and administrative expenses for the year ended December 31,
1999 increased 15% to $43,523,000 from $37,973,000 for the year ended December
31, 1998. The increase in aggregate expenses was due primarily to higher
personnel-related costs to support the Company's expanding worldwide operations,
including employee bonuses which were reinstated in 1999. Expenses as a
percentage of revenue declined from 31% in 1998 to 29% in 1999 as a result of
revenue increasing at a faster rate than spending.
Investment income for the year ended December 31, 1999 decreased 3% to
$6,572,000 from $6,756,000 for the year ended December 31, 1998. The decrease in
investment income was due primarily to lower average interest rates on the
Company's portfolio of investments, which consists principally of debt
securities.
Other income for the year ended December 31, 1999 remained relatively consistent
at $728,000 compared to $733,000 for the year ended December 31, 1998. Other
income consists primarily of rental income, net of related expenses, from
leasing the building adjacent to the Company's corporate headquarters.
The Company's effective tax rate for 1999 was 29% compared to 26% for 1998. The
increase in the effective tax rate was due primarily to the higher operating
income in 1999 and the diminishing effect of tax-free investments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the year ended December 31, 2000 were met
through cash generated from operations. Cash and investments increased
$57,219,000 from December 31, 1999 as a result of cash generated from operations
and the proceeds from the issuance of common stock under stock option and stock
purchase plans, partially offset by cash paid for business and technology
acquisitions and capital expenditures. Cash generated from operations consists
of net income, adjusted for non-cash charges and changes in current assets and
current liabilities, most notably an increase in accounts receivable and
inventories associated with the growth in revenue in
Cognex Corporation 2000 Annual Report
<PAGE> 6
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
2000. Capital expenditures for the year ended December 31, 2000 totaled
$7,755,000 and consisted primarily of expenditures for computer hardware and
software.
On March 31, 2000, the Company acquired selected assets of the machine vision
business of Komatsu Ltd. for $11,200,000 in cash, with the potential for
additional cash payments in 2002 of up to $8,000,000 depending upon certain
performance criteria.
On April 20, 2000, the Company acquired all of the outstanding shares of Image
Industries, Ltd. for $2,706,000. The purchase price included $1,754,000 in cash
payments, $751,000 of which, at December 31, 2000, remained to be paid through
2002.
On September 30, 2000, the Company acquired selected assets of the web
inspection business of Honeywell International Inc. for $8,400,000 in cash. The
Company paid an additional $1,600,000 at the closing that is contingent upon the
achievement of certain performance criteria in 2002. There is the potential for
an additional cash payment of up to $1,600,000 in 2002, also depending upon
certain performance criteria.
On December 12, 2000, the Company's Board of Directors authorized the repurchase
of up to $100,000,000 of the Company's common stock. As of December 31, 2000,
the Company had not repurchased any shares under this program.
The Company believes that its existing cash and investments balance, together
with cash generated from operations, will be sufficient to meet the Company's
planned working capital, investing, and financing activities through 2001,
including the Company's stock repurchase program and potential business
acquisitions.
NEW PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 138, "Accounting for Certain Derivative
Instruments" - An Amendment of SFAS 133 "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 138 will be effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. The Company does not enter
into significant derivative financial instruments, and therefore, does not
expect SFAS No. 138 to have a material impact on its financial position and
results of operations.
During 2000, the Company adopted Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 did not have a
material impact on the Company's financial position and results of operations.
Cognex Corporation 2000 Annual Report
<PAGE> 7
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
FORWARD-LOOKING STATEMENTS
Certain statements made in this report, as well as oral statements made by the
Company from time to time, which are prefaced with words such as "expects,"
"anticipates," "believes," "projects," "intends," "plans," and similar words and
other statements of similar sense, are forward-looking statements. These
statements are based on the Company's current expectations and estimates as to
prospective events and circumstances, which may or may not be in the Company's
control and as to which there can be no firm assurances given. These
forward-looking statements, like any other forward-looking statements, involve
risks and uncertainties that could cause actual results to differ materially
from those projected or anticipated. Such risks and uncertainties include: (1)
the loss of, or a significant curtailment of purchases by, any one or more
principal customers; (2) the cyclicality of the semiconductor and electronics
industries; (3) the Company's continued ability to achieve significant
international revenue; (4) the capital spending trends of manufacturing
companies; (5) the inability to protect the Company's proprietary technology and
intellectual property; (6) the inability to attract or retain skilled employees;
(7) the technological obsolescence of current products and the inability to
develop new products; (8) the inability to respond to competitive technology and
pricing pressures; and (9) the reliance upon certain sole source suppliers to
manufacture or deliver critical components of the Company's products. The
foregoing list should not be construed as exhaustive and the Company disclaims
any obligation subsequently to revise forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events. Further discussions of risk
factors are also available in the Company's registration statements and other
filings 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.
Cognex Corporation 2000 Annual Report
<PAGE> 8
33
COGNEX CORPORATION -
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Revenue $250,726 $152,125 $121,844
Cost of revenue 63,820 45,221 37,296
- -----------------------------------------------------------------------------------------
Gross profit 186,906 106,904 84,548
Research, development,
and engineering expenses 33,341 27,536 24,535
Selling, general, and
administrative expenses 61,915 43,523 37,973
Amortization of goodwill 1,964 265 127
Charge for acquired
in-process technology 2,100
- -----------------------------------------------------------------------------------------
Operating income 89,686 35,580 19,813
Investment income 9,494 6,572 6,756
Other income 1,038 728 733
- -----------------------------------------------------------------------------------------
Income before provision
for income taxes 100,218 42,880 27,302
Provision for income taxes 32,070 12,435 7,099
- -----------------------------------------------------------------------------------------
Net income $ 68,148 $ 30,445 $ 20,203
- -----------------------------------------------------------------------------------------
Net income per common and
common equivalent share:
Basic $ 1.58 $ .74 $ .49
=========================================================================================
Diluted $ 1.49 $ .69 $ .47
=========================================================================================
Weighted-average common
and common equivalent
shares outstanding:
Basic 43,043 40,932 40,978
=========================================================================================
Diluted 45,698 43,986 43,203
=========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Cognex Corporation 2000 Annual Report
<PAGE> 9
34
COGNEX CORPORATION -
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 42,925 $ 48,665
Short-term investments 85,429 62,890
Accounts receivable, less reserves of $2,150
and $2,836 in 2000 and 1999, respectively 47,031 28,742
Inventories 27,664 10,872
Deferred income taxes 7,741 6,445
Prepaid expenses and other current assets 8,950 6,149
- ----------------------------------------------------------------------------------
Total current assets 219,740 163,763
Long-term investments 149,386 108,966
Property, plant, and equipment, net 34,012 31,857
Deferred income taxes 6,903 6,688
Other assets 26,100 3,548
==================================================================================
$436,141 $314,822
==================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Cognex Corporation 2000 Annual Report
<PAGE> 10
35
COGNEX CORPORATION -
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
December 31,
2000 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,127 $ 4,237
Accrued expenses 22,953 18,536
Accrued income taxes 9,202 7,470
Customer deposits 3,074 2,714
Deferred revenue 6,471 4,508
- --------------------------------------------------------------------------------------
Total current liabilities 51,827 37,465
Other liabilities 365 733
Stockholders' equity:
Common stock, $.002 par value -
Authorized: 140,000,000 shares, issued:
45,787,568 and 44,220,434 shares in 2000
and 1999, respectively 92 88
Additional paid-in capital 163,815 122,522
Treasury stock, at cost, 2,365,332 and
2,381,032 shares in 2000 and 1999,
respectively (42,675) (43,550)
Retained earnings 265,164 197,016
Accumulated other comprehensive income (loss) (2,447) 548
- --------------------------------------------------------------------------------------
Total stockholders' equity 383,949 276,624
======================================================================================
$ 436,141 $ 314,822
======================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Cognex Corporation 2000 Annual Report
<PAGE> 11
36
COGNEX CORPORATION -
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
---------------------------- Paid-in
(Dollars in thousands) Shares Par Value Capital
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1997 41,859,395 $ 84 $ 91,082
Issuance of common stock under stock
option, stock purchase, and bonus plans 594,585 1 4,385
Tax benefit from exercise of stock options 2,064
Common stock received for payment of
stock option exercises
Repurchase of common stock
Comprehensive income:
Net income
Foreign currency translation adjustment
Comprehensive income
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 42,453,980 85 97,531
=========================================================================================================
Issuance of common stock under stock
option, stock purchase, and bonus plans 1,766,454 3 16,125
Tax benefit from exercise of stock options 8,866
Common stock received for payment of
stock option exercises
Comprehensive income:
Net income
Unrealized gain on investments,
net of tax of $279
Foreign currency translation adjustment
Comprehensive income
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 44,220,434 88 122,522
=========================================================================================================
Issuance of common stock under stock
option and stock purchase plans 1,567,134 4 17,993
Tax benefit from exercise of stock options 23,300
Common stock received for payment of
stock option exercises
Acquisition of Image Industries, Ltd.
Comprehensive income:
Net income
Unrealized loss on investments,
net of tax of $978
Foreign currency translation adjustment,
net of tax of $53
Comprehensive income
- ---------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 45,787,568 $ 92 $ 163,815
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Cognex Corporation 2000 Annual Report
<PAGE> 12
37
<TABLE>
<CAPTION>
Accumulated
Treasury Stock Other Total
------------------------------- Retained Comprehensive Comprehensive Stockholders'
Shares Cost Earnings Income (Loss) Income Equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
103,139 $ (1,436) $ 146,368 $ 44 $ 236,142
4,386
2,064
2,001 (50) (50)
2,202,000 (39,867) (39,867)
20,203 $ 20,203 20,203
(3) (3) (3)
-----------
20,200
- ----------------------------------------------------------------------------------------===========---------------------------
2,307,140 (41,353) 166,571 41 222,875
======================================================================================== ===========================
16,128
8,866
73,892 (2,197) (2,197)
30,445 30,445 30,445
471 471 471
36 36 36
-----------
30,952
- ----------------------------------------------------------------------------------------===========---------------------------
2,381,032 (43,550) 197,016 548 276,624
======================================================================================== ===========================
17,997
23,300
1,919 (77) (77)
(17,619) 952 952
68,148 68,148 68,148
(1,664) (1,664) (1,664)
(1,331) (1,331) (1,331)
-----------
$ 65,153
- ----------------------------------------------------------------------------------------===========---------------------------
2,365,332 $ (42,675) $ 265,164 $ (2,447) $ 383,949
======================================================================================== ===========================
</TABLE>
Cognex Corporation 2000 Annual Report
<PAGE> 13
38
COGNEX CORPORATION -
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Cash flows from operating activities:
Net income $ 68,148 $ 30,445 $ 20,203
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of property, plant,
and equipment 6,991 6,360 6,393
Amortization of intangible assets 2,883 1,179 796
Amortization of investments 2,119 1,752 1,525
Tax benefit from exercise of stock options 23,300 8,866 2,064
Charge for acquired in-process technology 2,100
Deferred income tax provision (533) (6,960) (1,343)
Changes in current assets and
current liabilities:
Accounts receivable (18,811) (6,997) 5,052
Inventories (17,902) (419) (3,627)
Accounts payable 5,850 1,723 (902)
Accrued expenses 3,416 7,394 (1,454)
Accrued income taxes 1,623 5,117 (687)
Other current assets and
current liabilities (305) 6,303 (271)
Other operating activities (355) 623 (179)
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 76,424 55,386 29,670
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Cognex Corporation 2000 Annual Report
<PAGE> 14
39
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands)
Cash flows from investing activities:
Purchase of investments (134,838) (97,773) (81,616)
Maturity of investments 67,119 55,566 89,256
Purchase of property, plant, and equipment (7,755) (3,443) (7,239)
Long-term deposit (1,700)
Cash paid for business and technology
acquisitions, net of cash acquired (22,240) (1,723) (3,954)
- --------------------------------------------------------------------------------------------------------
Net cash used in investing activities (99,414) (47,373) (3,553)
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock under
stock option, stock purchase,
and bonus plans 17,920 13,931 4,336
Repurchase of common stock (39,867)
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 17,920 13,931 (35,531)
- --------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (670) (1,086) (977)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (5,740) 20,858 (10,391)
Cash and cash equivalents at
beginning of year 48,665 27,807 38,198
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 42,925 $ 48,665 $ 27,807
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Cognex Corporation 2000 Annual Report
<PAGE> 15
40
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 below.
NATURE OF OPERATIONS
Cognex Corporation (the Company) designs, develops, manufactures, 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.
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 revenue 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 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 adjustment is recorded as other comprehensive income (loss).
CASH, CASH EQUIVALENTS, AND INVESTMENTS
Debt securities purchased with original maturities of three months or less are
classified as cash equivalents. Debt securities with original maturities greater
than three months and remaining maturities of one year or less are classified as
short-term investments. Debt securities with remaining maturities greater than
one year, as well as equity securities and an investment in a limited
partnership, are classified as long-term investments.
Cognex Corporation 2000 Annual Report
<PAGE> 16
41
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH, CASH EQUIVALENTS, AND INVESTMENTS (CONTINUED)
Debt securities with original maturities greater than three months are stated at
amortized cost, which approximates fair value, and are categorized as
available-for-sale. Equity securities are stated at fair value and are also
categorized as available-for-sale. Changes in unrealized gains or losses on
equity securities, net of tax, are recorded as other comprehensive income
(loss). The Company's investment in a limited partnership is accounted for using
the cost method because the Company has virtually no influence over the
partnership's operating and financial policies.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
standard costs, which approximate the first in, first out (FIFO) method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and depreciated using the
straight-line method over the assets' estimated useful lives. Buildings' useful
lives are 39 years, building improvements' useful lives are 10 years, and the
useful lives of computer hardware, computer software, and furniture and fixtures
range from two to 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 two to ten
years. The Company evaluates the possible impairment of long-lived assets,
including intangible assets, whenever events or circumstances indicate the
carrying value of the assets may not be recoverable.
WARRANTY OBLIGATIONS
The Company warrants hardware products of its manufacture to be free from
defects in material and workmanship for periods ranging from six months to two
years from the time of sale based upon the product being purchased and the terms
of the customer's contract. Estimated warranty obligations are evaluated and
recorded at the time of sale.
Cognex Corporation 2000 Annual Report
<PAGE> 17
42
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company's revenue is derived primarily from two sources: (1) product sales
to both original equipment manufacturer (OEM) customers, who incorporate the
Company's product into their product for resale, and end-user customers, and (2)
service revenue derived principally from providing maintenance and support,
education, consulting, and installation services to OEM and end-user customers.
The Company recognizes revenue from product sales upon shipment if a signed
customer purchase order exists, the fee is fixed or determinable, and collection
of the resulting receivable is probable. The Company recognizes revenue from
maintenance and support programs ratably over the program period. Revenue from
education, consulting, and installation services is recognized as the related
services are performed. Revenue from construction-type projects is recognized
using the percentage-of-completion method. Losses on projects, if any, are
recognized when identified.
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, which is
typically three to five years.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, a deferred tax asset or liability is determined based on the differences
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates that will be in effect when these differences
reverse. Tax credits are recorded as a reduction in income taxes. Valuation
allowances are provided if, based upon the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized.
NET INCOME PER SHARE
Basic net income per share excludes dilution and is computed by dividing net
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted net income per share reflects the
potential dilution
Cognex Corporation 2000 Annual Report
<PAGE> 18
43
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE (CONTINUED)
that could occur if securities or other contracts to issue common stock were
issued, exercised, or converted into common stock. Dilutive common equivalent
shares consist of stock options, calculated using the treasury stock method.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as the change in equity of a company
during a period from transactions and other events and circumstances, excluding
transactions resulting from investments by owners and distributions to owners.
Other comprehensive income consists of unrealized gains and losses on
investments and foreign currency translation adjustments.
FINANCIAL INSTRUMENTS
FAIR VALUE
The Company's financial instruments consist primarily of cash and cash
equivalents, investments, trade receivables, trade payables, and forward
exchange contracts. The carrying amounts of cash and cash equivalents,
investments, trade receivables, and trade payables approximate fair value due to
the short maturity of these instruments. Based on year-end exchange rates, the
Company estimates the aggregate contract value of the forward exchange contracts
to be representative of the fair values of these instruments.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, investments, and
trade receivables.
The Company primarily invests in municipal obligations of federal 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
who are either in or who serve 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.
Cognex Corporation 2000 Annual Report
<PAGE> 19
44
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FINANCIAL INSTRUMENTS (CONTINUED)
OFF-BALANCE SHEET RISK
In certain instances, the Company enters into forward exchange contracts to
hedge against foreign currency fluctuations. These contracts are used to reduce
the Company's risk associated with exchange rate movements, as the gains or
losses on these contracts are intended to offset the exchange rate losses or
gains on the underlying exposures. The Company does not engage in foreign
currency speculation. The Company had $16,445,000 and $16,138,000 of foreign
exchange contracts outstanding at December 31, 2000 and 1999, respectively. The
foreign exchange contracts were in Japanese Yen and Euro Dollar in 2000 and in
Japanese Yen in 1999.
FOREIGN CURRENCY RISK
The Company enters into transactions denominated in foreign currencies and
includes the exchange rate gains or losses arising from such transactions in
current operations. The Company recorded net exchange rate gains of $99,000 in
2000, $955,000 in 1999, and $127,000 in 1998.
CASH, CASH EQUIVALENTS, AND INVESTMENTS
Cash, cash equivalents, and investments consist of the following:
<TABLE>
<CAPTION>
December 31, 2000 1999
- ---------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Cash $ 19,204 $ 19,545
Municipal obligations 23,721 29,120
- ---------------------------------------------------------------------
Total cash and cash equivalents 42,925 48,665
- ---------------------------------------------------------------------
Municipal obligations 85,429 62,890
- ---------------------------------------------------------------------
Total short-term investments 85,429 62,890
- ---------------------------------------------------------------------
Municipal obligations 139,440 105,392
Equity securities 5,571 3,574
Investment in limited partnership 4,375
- ---------------------------------------------------------------------
Total long-term investments 149,386 108,966
- ---------------------------------------------------------------------
$277,740 $220,521
- ---------------------------------------------------------------------
</TABLE>
Equity securities had a cost basis of $7,462,000 and an unrealized loss of
$1,891,000 at December 31, 2000, and a cost basis of $2,824,000 and an
unrealized gain of $750,000 at December 31, 1999.
Cognex Corporation 2000 Annual Report
<PAGE> 20
45
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH, CASH EQUIVALENTS, AND INVESTMENTS (CONTINUED)
On June 30, 2000, Cognex Corporation became a Limited Partner in Venrock
Associates III, L.P., a venture capital fund. The Company has invested
$4,375,000 in the partnership as of December 31, 2000 and has committed to a
total investment of up to $25,000,000 over a ten-year period. A director of the
Company is affiliated with Venrock Associates III, L.P.
The Company has not experienced any significant realized gains or losses on the
sale of its investments in 2000, 1999, and 1998.
INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 2000 1999
- -------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Raw materials $14,263 $ 5,451
Work-in-process 5,789 1,987
Finished goods 7,612 3,434
- -------------------------------------------------------------------
$27,664 $10,872
===================================================================
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, 2000 1999
- -------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Land $ 3,051 $ 3,051
Buildings 17,571 17,571
Building improvements 3,997 3,236
Computer hardware and software 31,061 28,230
Furniture and fixtures 3,354 3,446
Leasehold improvements 2,049 1,638
- -------------------------------------------------------------------
61,083 57,172
Less: accumulated depreciation (27,071) (25,315)
- -------------------------------------------------------------------
$ 34,012 $ 31,857
===================================================================
</TABLE>
Buildings include property held for lease with a cost basis of $4,950,000 and
accumulated depreciation of $698,000 at December 31, 2000.
Cognex Corporation 2000 Annual Report
<PAGE> 21
46
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31, 2000 1999
- -----------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Goodwill $ 20,317 $ 1,464
Acquired complete technology, workforce,
non-compete agreements, and other
intangible assets 7,358 4,233
- -----------------------------------------------------------------------------
27,675 5,697
Less: accumulated amortization (7,037) (3,930)
- -----------------------------------------------------------------------------
20,638 1,767
Deposits and other 5,462 1,781
- -----------------------------------------------------------------------------
$ 26,100 $ 3,548
=============================================================================
</TABLE>
ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, 2000 1999
- -----------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Bonus $ 5,964 $ 4,560
Warranty 3,127 3,820
Salaries, commissions, and payroll taxes 3,010 2,737
Professional fees 2,099 1,963
Vacation 2,020 1,753
Other 6,733 3,703
- -----------------------------------------------------------------------------
$ 22,953 $ 18,536
=============================================================================
</TABLE>
Cognex Corporation 2000 Annual Report
<PAGE> 22
47
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LEASES
The Company conducts certain of its operations in leased facilities. These lease
agreements expire at various dates through 2014 and are accounted for as
operating leases. Annual rent expense totaled $3,717,000 in 2000, $2,620,000 in
1999, and $2,366,000 in 1998. Future minimum rental payments under these
agreements are as follows at December 31, 2000 (in thousands):
<TABLE>
<CAPTION>
Year Amount
- ----------------------------------------------------------
<S> <C>
2001 $ 3,944
2002 2,109
2003 1,169
2004 1,118
2005 1,046
Thereafter 676
- ----------------------------------------------------------
$10,062
==========================================================
</TABLE>
The Company owns 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 2002. Annual rental income
totaled $1,755,000 in 2000, $1,581,000 in 1999, and $1,499,000 in 1998. Rental
income and related expenses are included in "Other income" on the Consolidated
Statements of Income. Future minimum rental receipts under non-cancelable lease
agreements are $1,382,000 in 2001 and $1,199,000 in 2002.
STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has 400,000 shares of authorized but unissued $.01 par value
preferred stock.
STOCK REPURCHASE PROGRAMS
On December 12, 2000, the Company's Board of Directors authorized the repurchase
of up to $100,000,000 of the Company's common stock. As of December 31, 2000,
the Company had not repurchased any shares under this program.
On April 21, 1998, the Company's Board of Directors authorized the repurchase of
up to $20,000,000 of the Company's common stock. A total of 882,000 shares were
repurchased through May 27, 1998 amounting to $19,937,000, which completed the
Company's stock repurchases under this program. On June 3, 1998, the Board
authorized the repurchase of up to an additional 1,500,000 shares of the
Company's common stock. A total of 1,320,000 shares were repurchased through
November 6, 1998 amounting to $19,930,000, which completed the Company's stock
repurchases under this second program.
Cognex Corporation 2000 Annual Report
<PAGE> 23
48
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCKHOLDERS' EQUITY (CONTINUED)
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 2000, 1999, and 1998.
Net income and net income per share as reported in these consolidated financial
statements and on a pro forma basis, as if the fair value based method described
in SFAS No. 123 had been adopted, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net income As reported $ 68,148 $ 30,445 $ 20,203
Pro forma 58,591 20,203 13,500
Basic net income per share As reported 1.58 .74 .49
Pro forma 1.36 .49 .33
Diluted net income per share As reported 1.49 .69 .47
Pro forma 1.34 .48 .33
</TABLE>
STOCK OPTION PLANS
At December 31, 2000, the Company had 10,907,351 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; the 1993 Employee
Plan, 8,000,000; the 1998 Director Plan, 250,000; and the 1998 Stock Incentive
Plan, 1,985,351.
On April 21, 1998, the stockholders approved the 1998 Stock Incentive Plan,
under which the Company may initially grant stock options and stock awards to
purchase up to 1,700,000 shares of common stock. Effective January 1, 1999 and
each January 1st thereafter during the term of the 1998 Stock Incentive Plan,
the number of shares of common stock available for grants of stock options and
stock awards shall be increased automatically to an amount equal to 4.5% of the
total number of issued shares of common stock, including shares held in
treasury, as of the close of business on December 31st of the preceding year.
Cognex Corporation 2000 Annual Report
<PAGE> 24
49
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
On November 27, 2000, 652,280 options were forfeited by employees. The Company
has committed to grant those employees the same number of options approximately
seven months later at the then fair market value with similar terms and
conditions.
On December 15, 1998, the Company granted 1,320,100 stock 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 stock options.
Stock options generally vest over four years and generally expire no later than
ten years from the date of grant.
The following table summarizes the status of the Company's stock option plans at
December 31, 2000, 1999, and 1998, and changes during the years then ended:
<TABLE>
<CAPTION>
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 8,046,840 $ 16.09 8,322,335 $ 11.65 7,764,907 $ 11.85
Granted at fair market value 2,984,890 35.65 2,058,463 28.50 3,587,535 16.63
Granted above fair
market value 60,000 59.10
Exercised (1,621,649) 10.78 (1,764,353) 9.00 (604,714) 6.50
Forfeited (1,455,592) 36.58 (569,605) 18.02 (2,425,393) 20.96
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 8,014,489 21.04 8,046,840 16.09 8,322,335 11.65
- ---------------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 1,912,997 13.05 2,091,171 9.47 2,502,865 7.45
Weighted-average grant-date fair
value of options granted during
the year at fair market value $ 15.60 $ 14.06 $ 5.65
Weighted-average grant-date
fair value of options granted
during the year above fair
market value $ 20.39
</TABLE>
Cognex Corporation 2000 Annual Report
<PAGE> 25
50
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about stock options outstanding at
December 31, 2000:
<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .50 - 7.50 1,498,772 7.2 $ 6.87 761,798 $ 6.52
8.06 - 15.72 1,389,972 6.5 14.80 545,607 14.04
15.88 - 18.13 2,165,244 9.4 17.15 353,894 16.24
18.19 - 30.38 1,470,753 8.9 26.92 217,323 25.09
30.66 - 59.69 1,489,748 11.7 40.98 34,375 33.06
- --------------------------------------------------------------------------------------------------------
8,014,489 8.8 21.04 1,912,997 13.05
- --------------------------------------------------------------------------------------------------------
</TABLE>
For the purpose of providing pro forma disclosures, the fair values of stock
options granted were estimated using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 2000, 1999, and
1998, respectively: a risk-free interest rate of 6.1%, 5.6%, and 5.1% ; an
expected life of 3.1, 4.5, and 4.1 years; an expected volatility of 60%, 54%,
and 50%; and no expected dividends.
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's Employee Stock Purchase Plan (ESPP), employees who have
completed six months of continuous employment with the Company may purchase
common stock semi-annually at the lower of 85% of the fair market value of the
stock at the beginning or end of the six-month payment period, through
accumulation of payroll deductions. Employees are required to hold common stock
purchased under the ESPP for a period of one year from the date of purchase.
Common stock reserved for future sales totaled 386,108 shares at December 31,
2000. Shares purchased under the ESPP totaled 22,638 in 2000, 24,118 in 1999,
and 30,670 in 1998. The weighted-average fair value of shares purchased under
the ESPP was $17.22 in 2000, $17.59 in 1999, and $7.52 in 1998.
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 2000, 1999, and
1998, respectively: a weighted-average risk-free interest rate of 5.9%, 5.3%,
and 5.3%; an expected life of six months; an expected volatility of 60%, 54%,
and 50%; and no expected dividends.
Cognex Corporation 2000 Annual Report
<PAGE> 26
51
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 subject to the annual dollar limitations established by the
Internal Revenue Service. The Company contributes fifty cents for each dollar an
employee contributes, with a maximum contribution of 3% of an employee's pre-tax
salary. Company contributions vest after five years of continuous employment
with the Company. Prior to January 1, 2000, company contributions were made at
the discretion of management. Company contributions approximated $844,000 in
2000, $490,000 in 1999, and $230,000 in 1998.
INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31, 2000 1999 1998
- ------------------------------------------------------------------------------
(In thousands)
Current:
<S> <C> <C> <C>
Federal $ 29,335 $ 12,838 $ 5,468
State 1,467 2,390 1,617
Foreign 3,793 1,154 1,357
- ------------------------------------------------------------------------------
34,595 16,382 8,442
Deferred:
Federal (2,301) (2,167) (1,582)
State 1,279 (1,515) 239
Foreign (1,503) (265)
- ------------------------------------------------------------------------------
(2,525) (3,947) (1,343)
- ------------------------------------------------------------------------------
$ 32,070 $ 12,435 $ 7,099
- ------------------------------------------------------------------------------
</TABLE>
A reconciliation of the provision for income taxes to the federal statutory rate
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes
at federal statutory rate 35% 35% 35%
State income taxes, net of federal benefit 2 2 1
Foreign Sales Corporation benefit (4) (3) (3)
Tax-exempt investment income (3) (5) (8)
Foreign operations 2 1
- --------------------------------------------------------------------------------------
Provision for income taxes 32% 29% 26%
- --------------------------------------------------------------------------------------
</TABLE>
Cognex Corporation 2000 Annual Report
<PAGE> 27
52
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES (CONTINUED)
Deferred income taxes reflect the tax impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The tax effects of the
principal items making up deferred income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 2000 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
(In thousands)
Current deferred tax assets:
Inventory and revenue-related $ 4,948 $ 4,830
Bonus, commission, and other compensation 793 271
Other 2,000 1,344
- ---------------------------------------------------------------------------------------------
Total net current deferred tax asset $ 7,741 $ 6,445
- ---------------------------------------------------------------------------------------------
Noncurrent deferred tax assets (liabilities):
Federal and state credit carryforwards $ 3,262 $ 4,918
Foreign net operating loss carryforwards 648
Acquired complete technology and other intangible assets 1,783 209
Acquired in-process technology 1,395 1,501
Depreciation 707 337
Unrealized investment gains/losses (654) (277)
Other (238)
- ---------------------------------------------------------------------------------------------
Total net noncurrent deferred tax asset $ 6,903 $ 6,688
- ---------------------------------------------------------------------------------------------
</TABLE>
The Company's federal credit carryforwards are approximately $1,697,000 and have
an unlimited life. The state credit carryforwards, net of federal tax impact,
are approximately $1,565,000, a portion of which will begin to expire in 2010.
The foreign net operating loss carryforwards have an unlimited life.
Approximately $2,660,000 of the Company's credit carryforwards relate to
deductions for stock option exercises and, as a result, will be recorded as a
benefit to additional paid-in capital when realized.
Cognex Corporation 2000 Annual Report
<PAGE> 28
53
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET INCOME PER SHARE
Net income per share is calculated as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 2000 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Net income $68,148 $30,445 $20,203
- -----------------------------------------------------------------------------------------------
Basic:
Weighted-average common shares outstanding 43,043 40,932 40,978
- -----------------------------------------------------------------------------------------------
Net income per common share $ 1.58 $ .74 $ .49
- -----------------------------------------------------------------------------------------------
Diluted:
Weighted-average common shares outstanding 43,043 40,932 40,978
Effect of dilutive securities:
Stock options 2,655 3,054 2,225
- -----------------------------------------------------------------------------------------------
Weighted-average common and common
equivalent shares outstanding 45,698 43,986 43,203
- -----------------------------------------------------------------------------------------------
Net income per common and common
equivalent share $ 1.49 $ .69 $ .47
- -----------------------------------------------------------------------------------------------
</TABLE>
Stock options to purchase 877,342, 97,672, and 151,550 shares of common stock
were outstanding during the years ended December 31, 2000, 1999, and 1998,
respectively, but were not included in the calculation of diluted net income per
share because the options' exercise prices were greater than the average market
price of the Company's common stock during those years. Although these stock
options were antidilutive in 2000, 1999, and 1998, they may be dilutive in
future years' calculations.
SEGMENT INFORMATION
The Company has one reportable segment that designs, develops, manufactures, and
markets machine vision systems. Operating segments are determined based on the
way that management organizes its business for making operating decisions and
assessing performance.
Cognex Corporation 2000 Annual Report
<PAGE> 29
54
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEGMENT INFORMATION (CONTINUED)
During the years ended December 31, 2000, 1999, and 1998, one customer accounted
for $25,805,000, $19,611,000, and $17,083,000, or 10%, 13%, and 14%,
respectively, of revenue.
The following table summarizes information about geographic areas (in
thousands):
<TABLE>
<CAPTION>
United States Japan Other Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2000
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Unaffiliated customers $208,265 $ 42,461 $250,726
Intercompany 13,522 $(13,522)
Long-lived assets 41,701 2,875 $ 15,537 60,112
Year Ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
Revenue:
Unaffiliated customers $130,618 $ 21,507 $152,125
Intercompany 10,162 $(10,162)
Long-lived assets 30,614 2,089 $ 2,702 35,405
Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
Revenue:
Unaffiliated customers $104,321 $ 17,523 $121,844
Intercompany 5,493 $ (5,493)
Long-lived assets 33,807 2,035 $ 2,570 38,412
</TABLE>
Revenue is presented geographically based on the country in which the sale is
recorded. Inventories are transferred to the Company's Japanese subsidiary at
previously established transfer prices, resulting in intercompany revenue and
receivables for the United States operation.
The Other column represents all long-lived assets in other countries, none of
which were significant, and certain deposits that are included in "Other assets"
on the Consolidated Balance Sheets.
Deferred tax assets recorded in foreign jurisdictions are not material compared
to the Company's consolidated financial position, and therefore, are not
presented.
Cognex Corporation 2000 Annual Report
<PAGE> 30
55
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUISITION OF KOMATSU LTD. MACHINE VISION BUSINESS
On March 31, 2000, the Company acquired selected assets of the machine vision
business of Komatsu Ltd. for $11,200,000 in cash, with the potential for
additional cash payments in 2002 of up to $8,000,000 depending upon certain
performance criteria. The purchase price was allocated as follows: $297,000 to
tangible equipment, to be depreciated in accordance with the Company's
depreciation policy; $400,000 to workforce, to be amortized over two years;
$2,462,000 to complete technology, to be amortized over five years; and
$8,041,000 to goodwill, also to be amortized over five years. The contingent
consideration will be recorded as purchase price when paid and will be allocated
to goodwill to be amortized over the remaining period of expected benefit.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the results of operations of the acquired business have been
included in the Company's consolidated results of operations since the date of
the acquisition. The financial position and results of operations of the
acquired business were not material compared to the Company's consolidated
financial position and results of operations, and therefore, pro forma results
are not presented.
ACQUISITION OF IMAGE INDUSTRIES, LTD.
On April 20, 2000, the Company acquired all of the outstanding shares of Image
Industries, Ltd., a privately-held manufacturer of low-cost machine vision
systems located in the United Kingdom. The purchase price of $2,706,000 included
$876,000 in cash at closing, $878,000 in cash to be paid through 2002, and
17,619 shares of Cognex common stock, issued from treasury, with a fair value of
$952,000. At December 31, 2000, $751,000 of the purchase price remained to be
paid through 2002. The purchase price was allocated as follows: $671,000 to
tangible net assets; $200,000 to workforce, to be amortized over five years; and
$1,835,000 to goodwill, also to be amortized over five years.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the results of operations of the acquired company have been
included in the Company's consolidated results of operations since the date of
the acquisition. The financial position and results of operations of the
acquired company were not material compared to the Company's consolidated
financial position and results of operations, and therefore, pro forma results
are not presented.
Cognex Corporation 2000 Annual Report
<PAGE> 31
56
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUISITION OF HONEYWELL INTERNATIONAL INC.
WEB INSPECTION BUSINESS
On September 30, 2000, the Company acquired selected assets of the web
inspection business of Honeywell International Inc. ("Honeywell") for $8,400,000
in cash. The Company paid an additional $1,600,000 at the closing that is
contingent upon the achievement of certain performance criteria in 2002. There
is the potential for an additional payment of up to $1,600,000 in 2002, also
depending upon the achievement of certain performance criteria. As part of the
agreement, the Company and Honeywell also formed an alliance in which the
Company will provide its web inspection systems to Honeywell's customers in the
pulp and paper industry worldwide. The purchase price was recorded as goodwill
to be amortized over ten years. The contingent consideration will be recorded as
additional goodwill in the period that the performance criteria are met and will
be amortized over the remaining period of the expected benefit.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the results of operations of the acquired business have been
included in the Company's consolidated results of operations since the date of
the acquisition. The financial position and results of operations of the
acquired business were not material compared to the Company's consolidated
financial position and results of operations, and therefore, pro forma results
are not presented.
ACQUISITION OF ALLEN-BRADLEY TECHNOLOGY
In July 1998, the Company acquired certain technology of Rockwell Automation's
Allen-Bradley machine vision business. The acquired technology related to
certain products under development. The 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 $2,100,000 to in-process technology which had not reached technological
feasibility and had no alternative future use, and accordingly, was expensed
immediately.
SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE
Cash paid for income taxes totaled $8,386,000 in 2000, $2,347,000 in 1999, and
$10,710,000 in 1998.
Common stock received as payment for stock option exercises totaled $77,000 in
2000, $2,197,000 in 1999, and $50,000 in 1998.
Cognex Corporation 2000 Annual Report
<PAGE> 32
57
COGNEX CORPORATION -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE (CONTINUED)
In 2000, the Company issued 17,619 shares of Cognex treasury stock, with a fair
value of $952,000, in connection with the acquisition of Image Industries, Ltd.
In 2000, the Company retired certain fully-depreciated property, plant, and
equipment totaling $4,664,000.
NEW PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 138, "Accounting for Certain Derivative
Instruments" - An Amendment of SFAS 133 "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 138 shall be effective for all fiscal quarters
of all fiscal years beginning June 15, 2000. The Company does not enter into
significant derivative financial instruments, and therefore, does not expect
SFAS No. 138 to have a material impact on its financial position and results of
operations.
Cognex Corporation 2000 Annual Report
<PAGE> 33
58
COGNEX CORPORATION -
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF COGNEX CORPORATION:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Cognex
Corporation and its subsidiaries at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. 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 of these statements in accordance with auditing standards
generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 22, 2001
Cognex Corporation 2000 Annual Report
<PAGE> 34
59
COGNEX CORPORATION -
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Income Statement Data:
Revenue $250,726 $152,125 $121,844 $155,340 $122,843
Cost of revenue 63,820 45,221 37,296 42,273 38,855
- ----------------------------------------------------------------------------------------------------------------------------------
Gross profit 186,906 106,904 84,548 113,067 83,988
Research, development
and engineering expenses 33,341 27,536 24,535 22,311 19,294
Selling, general, and
administrative expenses 61,915 43,523 37,973 35,810 26,261
Amortization of goodwill 1,964 265 127 170 140
Charge for acquired
in-process technology 2,100 3,115
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 89,686 35,580 19,813 51,661 38,293
Investment and other income 10,532 7,300 7,489 6,665 5,404
- ----------------------------------------------------------------------------------------------------------------------------------
Income before provision
for income taxes 100,218 42,880 27,302 58,326 43,697
Provision for income taxes 32,070 12,435 7,099 17,790 13,328
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 68,148 $ 30,445 $ 20,203 $ 40,536 $ 30,369
- ----------------------------------------------------------------------------------------------------------------------------------
Basic net income per share $ 1.58 $ .74 $ .49 $ .98 $ .75
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted net income per share $ 1.49 $ .69 $ .47 $ .91 $ .69
- ----------------------------------------------------------------------------------------------------------------------------------
Basic weighted-average
common shares outstanding 43,043 40,932 40,978 41,322 40,594
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted weighted-average
common shares outstanding 45,698 43,986 43,203 44,702 43,814
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31,
(In thousands) 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $167,913 $126,298 $101,971 $108,970 $ 97,265
Total assets 436,141 314,822 247,928 261,840 201,253
Long-term debt -- -- -- -- --
Stockholders' equity 383,949 276,624 222,875 236,142 182,689
</TABLE>
Cognex Corporation 2000 Annual Report
<PAGE> 35
60
COGNEX CORPORATION -
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31,
2000 2000 2000 2000
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue $ 54,495 $ 62,187 $ 67,960 $ 66,084
Gross profit 40,577 46,027 50,558 49,744
Operating income 20,626 22,798 25,595 20,667
Net income 15,412 17,358 19,391 15,987
Basic net income per share .36 .40 .45 .37
Diluted net income per share .34 .38 .42 .36
Common stock prices:
High 73.1250 67.5000 56.1875 40.0000
Low 34.6875 46.7500 33.0000 16.1250
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31,
1999 1999 1999 1999
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Revenue $ 27,485 $ 35,271 $ 41,046 $ 48,323
Gross profit 18,757 24,329 29,097 34,721
Operating income 2,455 7,024 10,579 15,522
Net income 3,104 6,189 8,966 12,186
Basic net income per share .08 .15 .22 .29
Diluted net income per share .07 .14 .20 .27
Common stock prices:
High 28.3750 33.5000 35.8750 39.0625
Low 19.0000 23.6250 28.5000 26.1250
</TABLE>
Cognex Corporation 2000 Annual Report
<PAGE> 36
61
COGNEX CORPORATION -
COMPANY INFORMATION
TRANSFER AGENT
Fleet National Bank c/o Boston EquiServe, L.P.
P.O. Box 8040
Boston, Massachusetts 02266-8040
Telephone (781) 575-3100
GENERAL COUNSEL
Hutchins, Wheeler & Dittmar - Boston, Massachusetts
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP - Boston, Massachusetts
FORM 10-K
A copy of the annual report filed with the Securities and Exchange Commission on
Form 10-K is available to stockholders, without charge, upon request to:
Department of Investor Relations
Cognex Corporation
One Vision Drive
Natick, MA 01760
Additional copies of this annual report are also available, without charge, upon
request to the above address.
The Company's common stock is traded on The NASDAQ Stock Market, under the
symbol CGNX. As of February 12, 2001, there were approximately 15,000 registered
and non-registered holders of the Company's common stock.
No dividends on the Company's common stock were paid during 2000 and 1999.
Cognex Corporation 2000 Annual Report
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>3
<FILENAME>b38122ccex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>
<PAGE> 1
EXHIBIT 21
COGNEX CORPORATION
SUBSIDIARIES OF THE REGISTRANT
At December 31, 2000, the registrant had the following subsidiaries, the
financial statements of which are all included in the consolidated financial
statements of the registrant:
<TABLE>
<CAPTION>
NAME OF STATE/COUNTRY OF PERCENT
SUBSIDIARY INCORPORATION OWNERSHIP
- -------------------------------- ---------------- ---------
<S> <C> <C>
Cognex Technology and Investment
Corporation California 100%
Cognex Canada Technology, Inc. California 100%
Cognex Foreign Sales Corporation Barbados 100%
Vision Drive, Inc. Delaware 100%
Cognex K.K. Japan 100%
Cognex Europe, b.v. Netherlands 100%
Cognex Europe, Inc. Delaware 100%
Cognex International, Inc. Delaware 100%
Cognex Germany, Inc. Massachusetts 100%
Cognex Singapore, Inc. Delaware 100%
Cognex Korea, Inc. Delaware 100%
Cognex Taiwan, Inc. Delaware 100%
Cognex Canada, Inc. Delaware 100%
Cognex, Ltd. Ireland 100%
Cognex Finland Oy Finland 100%
Cognex UK Ltd. United Kingdom 100%
Cognex China, Inc. Delaware 100%
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>b38122ccex23.txt
<DESCRIPTION>CONSENT OF PRICEWATERHOUSECOOPERS
<TEXT>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements on Form S-8 (File Nos. 33-31657, 33-32815, 33-36263, 33-72634,
33-72636, 33-72638, 33-81150, 33-81152, 333-2151, 333-4621, 333-60807, and
333-44824) of Cognex Corporation of our report dated January 22, 2001 relating
to financial statements, which appears in the Annual Report to Shareholders,
which is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated January 22, 2001 relating to the
financial statement schedule, which appears in this form 10-K
Boston, Massachusetts /s/ PricewaterhouseCoopers LLP
March 26, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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