ITEM 1. BUSINESS
GENERAL DESCRIPTION OF PARTNERSHIP
Swift Energy Income Partners 1987-B, Ltd., a Texas limited partnership (the "Partnership" or the "Registrant"), is a partnership formed under a public serial limited partnership offering denominated Swift Energy Income Partners III (Registration Statement No. 33-11773 on Form S-1, originally declared effective March 19, 1987, and amended effective March 28, 1988, May 4, 1989 and May 1, 1990 [the "Registration Statement"]). The Partnership was formed effective July 23, 1987 under a Limited Partnership Agreement dated July 21, 1987. The initial 3,177 limited partners made capital contributions of $26,025,525.
The Partnership is principally engaged in the business of acquiring, developing and, when appropriate, disposing of working interests in proven oil and gas properties within the continental United States. The Partnership does not engage in exploratory drilling. Each working interest held by the Partnership entitles the Partnership to receive, in kind or in value, a share of the production of oil and gas from the producing property, and obligates the Partnership to participate in the operation of the property and to bear its proportionate share of all operating costs associated therewith. The Partnership typically holds less than the entire working interest in its producing properties.
At December 31, 1995, the Partnership had expended or committed to expend 100% of the limited partners' net commitments (I.E., limited partners' commitments available to the Partnership for property acquisitions after payment of organization fees and expenses) in the acquisition and development of producing properties, which properties are described under Item 2, "Properties," below. The Partnership's revenues and profits are derived almost entirely from the sale of oil and gas produced from its properties and from the sale of acquired oil and gas properties, when the sale of such properties is economically preferable to continued operation.
The Partnership's business and affairs are conducted by its Managing General Partner, Swift Energy Company, a Texas corporation ("Swift"). The Partnership's Special General Partner, VJM Corporation, a California corporation ("VJM"), consults with and advises Swift as to certain financial matters. Swift is the designated operator of many of the properties in which the Partnership owns interests. The remaining properties are operated by industry operators designated by the owners of a majority of the working interest in each property.
The general manner in which the Partnership acquires producing properties and otherwise conducts its business is described in detail in the Registration Statement under "Proposed Activities," which is incorporated herein by reference.
COMPETITION, MARKETS AND REGULATIONS
COMPETITION
The oil and gas industry is highly competitive in all its phases. The Partnership encounters strong competition from many other oil and gas producers, many of which possess substantial financial resources, in acquiring economically desirable Producing Properties.
MARKETS
The amounts of and price obtainable for oil and gas production from Partnership Properties will be affected by market factors beyond the control of the Partnership. Such factors include the extent of domestic production, the level of imports of foreign oil and gas, the general level of market demand on a regional, national and worldwide basis, domestic and foreign economic conditions that determine levels of industrial production, political events in foreign oil-producing regions, and variations in governmental regulations and tax laws and the imposition of new governmental requirements upon the oil and gas industry. There can be no assurance that oil and gas prices will not decrease in the future, thereby decreasing net Revenues from Partnership Properties.
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SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
From time to time, there may exist a surplus of natural gas or oil supplies, the effect of which may be to reduce the amount of hydrocarbons that the Partnerships may produce and sell while such oversupply exists. In recent years, initial steps have been taken to provide additional gas transportation lines from Canada to the United States. If additional Canadian gas is brought to the United States market, it could create downward pressure on United States gas prices.
REGULATIONS
ENVIRONMENTAL REGULATION
The federal government and various state and local governments have adopted laws and regulations regarding the control of contamination of the environment. These laws and regulations may require the acquisition of a permit by Operators before drilling commences, prohibit drilling activities on certain lands lying within wilderness areas or where pollution arises and impose substantial liabilities for pollution resulting from operations, particularly operations near or in onshore and offshore waters or on submerged lands. These laws and regulations may also increase the costs of routine drilling and operation of wells. Because these laws and regulations change frequently, the costs to the Partnership of compliance with existing and future environmental regulations cannot be predicted. However, the Managing Partner does not believe that the Partnership is affected in a significantly different manner by these regulations than are its competitors in the oil and gas industry.
FEDERAL REGULATION OF NATURAL GAS
The transportation and sale of natural gas in interstate commerce is heavily regulated by agencies of the federal government. The following discussion is intended only as a summary of the principal statutes, regulations and orders that may affect the production and sale of natural gas from Partnership Properties. This summary should not be relied upon as a complete review of applicable natural gas regulatory provisions.
PRICE CONTROLS - Prior to January 1, 1993, the sale of natural gas production was subject to regulation under the Natural Gas Act and the Natural Gas Policy Act of 1978 ("NGPA"). Under the Natural Gas Wellhead Decontrol Act of 1989, however, all price regulation under the NGPA and Natural Gas Act rate, certificate and abandonment requirements were phased out effective as of January 1, 1993.
FERC ORDERS
Several major regulatory changes have been implemented by the Federal Energy Regulatory Commission ("FERC") from 1985 to the present that affect the economics of natural gas production, transportation and sales. In addition, the FERC continues to promulgate revisions to various aspects of the rules and regulations affecting those segments of the natural gas industry that remain subject to the FERC's jurisdiction. In April 1992, the FERC issued Order No. 636 pertaining to pipeline restructuring. This rule requires interstate pipelines to unbundle transportation and sales services by separately stating the price of each service and by providing customers only the particular service desired, without regard to the source for purchase of the gas. The rule also requires pipelines to (i) provide nondiscriminatory "no-notice" service allowing firm commitment shippers to receive delivery of gas on demand up to certain limits without penalties, (ii) establish a basis for release and reallocation of firm upstream pipeline capacity, and (iii) provide non-discriminatory access to capacity by firm transportation shippers on a downstream pipeline. The rule requires interstate pipelines to use a straight fixed variable rate design. The rule imposes these same requirements upon storage facilities.
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SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
FERC Order No. 500 affects the transportation and marketability of natural gas. Traditionally, natural gas had been sold by producers to pipeline companies, which then resold the gas to end-users. FERC Order No. 500 altered this market structure by requiring interstate pipelines that transport gas for others to provide transportation service to producers, distributors and all other shippers of natural gas on a nondiscriminatory, "first-come, first-served" basis (open access transportation"), so that producers and other shippers can sell natural gas directly to end-users. FERC Order No. 500 contains additional provisions intended to promote greater competition in natural gas markets.
It is not anticipated that the marketability of and price obtainable for natural gas production from Partnership Properties will be significantly affected by FERC Order No. 500. Gas produced from Partnership Properties normally will be sold to intermediaries who have entered into transportation arrangements with pipeline companies. These intermediaries will accumulate gas purchased from a number of producers and sell the gas to end-users through open access pipeline transportation.
STATE REGULATIONS
Production of any oil and gas from Partnership Properties will be affected to some degree by state regulations. Many states in which the Partnership will operate have statutory provisions regulating the production and sale of oil and gas, including provisions regarding deliverability. Such statutes, and the regulations promulgated in connection therewith, are generally intended to prevent waste of oil and gas and to protect correlative rights to produce oil and gas between owners of a common reservoir. Certain state regulatory authorities also regulate the amount of oil and gas produced by assigning allowable rates of production to each well or proration unit.
FEDERAL LEASES
Some of the Partnership's properties are located on federal oil and gas leases administered by various federal agencies, including the Bureau of Land Management. Various regulations and orders affect the terms of leases, exploration and development plans, methods of operation and related matters.
EMPLOYEES
The Partnership has no employees. Swift, however, has a staff of geologists, geophysicists, petroleum engineers, landmen, and accounting personnel who administer the operations of Swift and the Partnership. As of December 31, 1995, Swift had 176 employees. Swift's administrative and overhead expenses attributable to the Partnership's operations are borne by the Partnership.
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SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
ITEM 2.

ITEM 2. PROPERTIES
As of December 31, 1995, the Partnership has acquired interests in producing oil and gas properties which are generally described below.
PRINCIPAL OIL AND GAS PRODUCING PROPERTIES
The most valuable fields in the Partnership, based upon year-end engineering estimates of discounted future net revenues using constant pricing and costs, are described below.
1. Approximately 18% of the Partnership's value is from the Giddings Field in Fayette and Burleson Counties, Texas (NRG acquisition). The wells produce from the Austin Chalk and Edwards zones.
2. Approximately 18% of the Partnership's value is from the AWP Field in McMullen County, Texas (Bracken acquisition). The wells produce from the Olmos formation.
The remaining value in the Partnership is attributable to numerous properties none of which equals or exceeds 15 percent of the total Partnership value.
TITLE TO PROPERTIES
Title to substantially all significant producing properties of the Partnership has been examined. The properties are subject to royalty, overriding royalty and other interests customary in the industry. The Managing General Partner does not believe any of these burdens materially detract from the value of the properties or will materially detract from the value of the properties or materially interfere with their use in the operation of the business of the Partnership.
PRODUCTION AND SALES PRICE
The following table summarizes the sales volumes of the Partnership's net oil and gas production expressed in MCFs of oil. Equivalent MCFs are obtained by converting oil to gas on the basis of their relative energy content; one barrel equals 6,000 cubic feet of gas.
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SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
NET PROVED OIL AND GAS RESERVES
Presented below are the estimates of the Partnership's proved reserves as of December 31, 1995, 1994 and 1993. All of the Partnership's proved reserves are located in the United States.
Revisions of previous quantity estimates are related to upward or downward variations based on current engineering information for production rates, volumetrics and reservoir pressure. Additionally, changes in quantity estimates are the result of the increase or decrease in crude oil and natural gas prices at each year end which have the effect of adding or reducing proved reserves on marginal properties due to economic limitations.
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SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
The following table summarizes by acquisition the Registrant's reserves and gross and net interests in producing oil and gas wells as of December 31, 1995:
There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production, timing and plan of development. Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way, and estimates of other engineers might differ from those above, audited by H. J. Gruy and Associates, Inc., an independent petroleum consulting firm. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate, and, as a general rule, reserve estimates based upon volumetric analysis are inherently less reliable than those based on lengthy production history. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
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SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
In estimating the oil and natural gas reserves, the Registrant, in accordance with criteria prescribed by the Securities and Exchange Commission, has used prices received as of December 31, 1995 without escalation, except in those instances where fixed and determinable gas price escalations are covered by contracts, limited to the price the Partnership reasonably expects to receive. The Registrant does not believe that any favorable or adverse event causing a significant change in the estimated quantity of proved reserves has occurred between December 31, 1995 and the date of this report.
Future prices received for the sale of the Partnership's products may be higher or lower than the prices used in the evaluation described above; the operating costs relating to such production may also increase or decrease from existing levels. The estimates presented above are in accordance with rules adopted by the Securities and Exchange Commission.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Partnership is not aware of any material pending legal proceedings to which it is a party or of which any of its property is the subject.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of limited partners during the fourth quarter of the fiscal year covered by this report.
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SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
PART II
ITEM 5.

ITEM 5. MARKET PRICE OF AND DISTRIBUTIONS ON THE REGISTRANT'S UNITS AND RELATED LIMITED PARTNER MATTERS
MARKET INFORMATION
Units in the Partnership were initially sold at a price of $100 per Unit. Units are not traded on any exchange and there is no established public trading market for the Units. Swift is aware of negotiated transfers of Units between unrelated parties; however, these transfers have been limited and sporadic. Due to the nature of these transactions, Swift has no verifiable information regarding prices at which Units have been transferred.
HOLDERS
As of December 31, 1995, there were 3,177 Limited Partners holding Units in the Partnership.
DISTRIBUTIONS
The Partnership generally makes distributions to Limited Partners on a quarterly basis, subject to the restrictions set forth in the Limited Partnership Agreement. In the fiscal years ending December 31, 1994 and 1995, the Partnership distributed a total of $845,800 and $487,900, respectively, to holders of its Units. Cash distributions constitute net proceeds from sale of oil and gas production after payment of lease operating expenses and other partnership expenses. Some or all of such amounts or any proceeds the from sale of partnership properties could be deemed to constitute a return of investors' capital.
Oil and gas investments involve a high risk of loss, and no assurance can be given that any particular level of distributions to holders of Units can be achieved or maintained. Although it is anticipated that quarterly distributions will continue to be made through 1996, the Partnership's ability to make distributions could be diminished by any event adversely affecting the oil and gas properties in which the Partnership owns interests or the amount of revenues received by the Partnership therefrom.
The Partnership's Limited Partnership Agreement contains various provisions which might serve to delay, defer or prevent a change in control of the Partnership, such as the requirement of a vote of Limited Partners in order to sell all or substantially all of the Partnership's properties or the requirement of consent by the Managing General Partner to transfers of limited partnership interests.
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SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data, prepared in accordance with generally accepted accounting principles as of December 31, 1995, 1994, 1993, 1992 and 1991, should be read in conjunction with the financial statements included in Item 8:
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has expended all of the partners' net commitments available for property acquisitions ("net commitments") and development by acquiring producing oil and gas properties. The partnership invests primarily in proved producing properties with nominal levels of future costs of development for proven but undeveloped reserves. Significant purchases of additional reserves or extensive drilling activity are not anticipated. Oil and gas reserves are depleting assets and therefore often experience significant production declines each year from the date of acquisition through the end of the life of the property. The primary source of liquidity to the Partnership comes almost entirely from the income generated from the sale of oil and gas produced from ownership interests in oil and gas properties. This source of liquidity and the related results of operations will decline in future periods as the oil and gas produced from these properties also declines.
Subject to 1996 market conditions remaining comparable with 1995, the Managing General Partner ("MGP") anticipates an increase in liquidity provided that certain development work scheduled in 1996 is completed successfully. The Partnership plans to spend in the next two years an estimated $495,000 for capital expenditures needed for this development work and the enhancement of proved oil and gas reserves. The MGP anticipates that the Partnership will have adequate liquidity from income from continuing operations to satisfy any future capital expenditure requirements. Funds generated from bank borrowings and proceeds from the sale of oil and gas properties will be used to supplement this effort if deemed necessary.
RESULTS OF OPERATIONS
Oil and gas sales decreased 28 percent in 1995 vs. 1994. Production volumes decreased 21 percent due to a 21 percent gas production decrease and a 21 percent oil production decline. Since the Partnership's reserves are 75 percent gas, the decrease in gas production, due to accelerated production declines on mature wells, had a major impact on partnership performance. A decline in the 1995 gas prices of 18 percent or $.35/MCF further contributed to the Partnership's decreased revenues. The average sales price per equivalent MCF decreased 9 percent in 1995.
Production cost per equivalent MCF increased 24 percent in 1995 compared to 1994; however, total production costs decreased 3 percent in 1995.
Associated depreciation expense decreased 20 percent in 1995 when compared to 1994. II-2
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
Oil and gas sales decreased 13 percent in 1994 vs. 1993. Production volumes decreased 11 percent due to a 15 percent gas production decrease. Since the partnership's reserves are 69 percent gas, the decrease in gas production, due to accelerated production declines on mature wells and production curtailments due to declining prices, had a significant impact on partnership performance. Declines in both 1994 gas and oil prices further contributed to the decreased revenues. The Partnership experienced a decline in gas prices of 3 percent or $.06/MCF and a decline in oil prices of 8 percent or $1.24/BBL. The average sales price per equivalent MCF decreased 3 percent in 1994.
Production cost per equivalent MCF decreased 9 percent in 1994 compared to 1993 and total production costs decreased 18 percent in 1994.
Associated depreciation expense decreased 10 percent in 1994 when compared to 1993.
The Partnership recorded an additional provision in depreciation, depletion and amortization in 1995 when the present value, discounted at ten percent, of estimated future net revenues from oil and gas properties, using the guidelines of the Securities and Exchange Commission, was below the fair market value paid for oil and gas properties resulting in a full cost ceiling impairment.
During 1996, Partnership revenues and costs will be shared between the limited and general partners in a 90:10 ratio, based on the annualized rate of cash distributions by the Partnership during a certain period prior to December 31, 1995. Based on current oil and gas prices, current levels of oil and gas production and expected cash distributions during 1996, the MGP anticipates that the Partnership sharing ratio will continue to be 90:10.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14(a) for index to financial statements.
ITEM 9.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None. II-3
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As a limited partnership, the Registrant has no directors or executive officers. The business and affairs of the Registrant are managed by Swift as Managing General Partner. Set forth below is certain information as of March 15, 1996 regarding the directors and executive officers of Swift.
POSITION(S) WITH NAME AGE SWIFT AND OTHER COMPANIES ---- --- -------------------------
DIRECTORS --------- A. Earl Swift 62 President, Chief Executive Officer and Chairman of the Board
Virgil N. Swift 67 Executive Vice President - Business Development, Vice Chairman of the Board
G. Robert Evans 64 Director of Swift; Chairman of the Board, Material Sciences Corporation; Director, Consolidated Freightways, Inc., Fibreboard Corporation, Elco Industries, and Old Second Bancorp
Raymond O. Loen 71 Director of Swift; President, R. O. Loen Company
Henry C. Montgomery 60 Director of Swift; Chairman of the Board, Montgomery Financial Services Corporation; Director, Southwall Technology Corporation
Clyde W. Smith, Jr. 47 Director of Swift; President, Somerset Properties, Inc.
Harold J. Withrow 68 Director of Swift
EXECUTIVE OFFICERS ------------------ Terry E. Swift 40 Executive Vice President, Chief Operating Officer
John R. Alden 50 Senior Vice President - Finance, Chief Financial Officer and Secretary
Bruce H. Vincent 48 Senior Vice President - Funds Management
James M. Kitterman 51 Senior Vice President - Operations
Alton D. Heckaman, Jr. 38 Vice President - Finance and Controller
III-1
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
From time to time, Swift as Managing General Partner of the Partnership purchases Units in the Partnership from investors who offer the Units pursuant to their right of presentment, which purchases are made pursuant to terms set out in the Partnership's original Limited Partnership Agreement. Due to the frequency and large number of these transactions, Swift reports these transactions under Section 16 of the Securities Exchange Act of 1934 on an annual rather than a monthly basis. In some cases such annual reporting may constitute a late filing of the required Section 16 reports under the applicable Section 16 rules.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
As noted in Item 10, "Directors and Executive Officers of the Registrant," above, the Partnership has no executive officers. The executive officers of Swift and VJM are not compensated by the Partnership.
Certain fees and allowances contemplated by the Limited Partnership Agreement have been paid by the Partnership to Swift and VJM. See Note (4) in Notes To Financial Statements (Related-Party Transactions) for further discussion.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No single limited partner is known to the Partnership to be the beneficial owner of more than five percent of the Partnership's Units.
Swift and VJM are not aware of any arrangement, the operation of which may at a subsequent date result in a change in control of the Partnership.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As noted in Item 10, "Directors and Executive Officers of the Registrant," above, the Partnership has no executive officers or directors, and thus has not engaged in any transactions in which any such person had an interest. The Partnership is permitted to engage in certain transactions with Swift as Managing General Partner and VJM as Special General Partner, subject to extensive guidelines and restrictions described in the "Conflicts of Interest" section of the Amended Prospectus contained in the Registration Statement, which is incorporated herein by reference.
Summarized below are the principal transactions that have occurred between the Partnership and Swift, VJM and their affiliates.
1. The oil and gas properties acquired by the Partnership, as described in Item 2, "Properties" above, were typically acquired initially by Swift from the seller thereof and subsequently transferred to the Partnership. Such transfers were made by Swift at its Property Acquisition Costs (as defined in the Limited Partnership Agreement), less any amounts received from sale of production between the time of acquisition by Swift and the time of sale to the Partnership.
2. Swift acts as operator for many of the wells in which the Partnership has acquired interests and has received compensation for such activities in accordance with standard industry operating agreements.
3. The Partnership paid to Swift and VJM certain fees as contemplated by the Limited Partnership Agreement. See Note (4) in Notes To Financial Statements (Related-Party Transactions) for further discussion.
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SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a(1) FINANCIAL STATEMENTS PAGE NO. -------------------- -------- Report of independent Public Accountants IV-2
Balance Sheets as of December 31, 1995 and 1994 IV-3
Statements of Operations for the years ended December 31, 1995, 1994 and 1993 IV-4
Statements of Partners' Capital for the years ended December 31, 1995, 1994 and 1993 IV-5
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 IV-6
Notes to Financial Statements IV-7
a(2) FINANCIAL STATEMENT SCHEDULES ----------------------------- All schedules required by the SEC are either inapplicable or the required information is included in the Financial Statements, the Notes thereto, or in other information included elsewhere in this report.
a(3) EXHIBITS -------- 3.1 Certificate of Limited Partnership of Swift Energy Income Partners 1987-B, Ltd. (including Limited Partnership Agreement of Swift Energy Income Partners 1987-B, Ltd., dated July 21, 1987), as filed July 23, 1987, with the Texas Secretary of State (excluding list of limited partners filed as part of Certificate.) (Form 10-K for year ended December 31, 1988, Exhibit 3.1).
99.1 A copy of the following section of the Prospectus dated
March 19, 1987, contained in Pre-Effective Amendment No. 1 to Registration Statement No. 33-11773 on Form S-1 for Swift Energy Income Partners III, as filed on March 19, 1987, which have been incorporated herein by reference: "Proposed Activities" (pp 30 - 36) and "Conflicts of Interest" (pp. 70 - 78). (Form 10-K for year ended December 31, 1989, Exhibit 28.1).
b(1) REPORTS ON FORM 8-K ------------------- No reports on Form 8-K have been filed during the quarter ended December 31, 1995.
IV-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Swift Energy Income Partners 1987-B, Ltd.:
We have audited the accompanying balance sheets of Swift Energy Income Partners 1987-B, Ltd., (a Texas limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, partners' capital and cash flows for the years ended December 31, 1995, 1994 and 1993. These financial statements are the responsibility of the general partner's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Swift Energy Income Partners 1987-B, Ltd., as of December 31, 1995 and 1994, and the results of its operations and its cash flows for the years ended December 31, 1995, 1994 and 1993, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas February 19, 1996
IV-2
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD. BALANCE SHEETS DECEMBER 31, 1995 AND 1994
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-3
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-4
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD. STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-5
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
IV-6
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD. NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND TERMS OF PARTNERSHIP AGREEMENT -
Swift Energy Income Partners 1987-B, Ltd., a Texas limited partnership (the Partnership), was formed on July 23, 1987, for the purpose of purchasing and operating producing oil and gas properties within the continental United States. Swift Energy Company ("Swift"), a Texas corporation, and VJM Corporation ("VJM"), a California corporation, serve as Managing General Partner and Special General Partner of the Partnership, respectively. The general partners are required to contribute up to 1/99th of limited partner net contributions. The 3,177 limited partners made total capital contributions of $26,025,525.
Property acquisition costs and the management fee are borne 99 percent by the limited partners and one percent by the general partners. Organization and syndication costs were borne solely by the limited partners.
Initially, all continuing costs (including development costs, operating costs, general and administrative reimbursements and direct expenses) and revenues are allocated 90 percent to the limited partners and ten percent to the general partners. If prior to partnership payout, as defined, however, the cash distribution rate for a certain period equals or exceeds 17.5 percent, then for the following calendar year, these continuing costs and revenues will be allocated 85 percent to the limited partners and 15 percent to the general partners. After partnership payout, continuing costs and revenues will be shared 85 percent by the limited partners, and 15 percent by the general partners, even if the cash distribution rate is less than 17.5 percent. Payout had not occurred as of December 31, 1995.
(2) SIGNIFICANT ACCOUNTING POLICIES -
USE OF ESTIMATES --
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 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.
OIL AND GAS PROPERTIES --
For financial reporting purposes, the Partnership follows the "full-cost" method of accounting for oil and gas property costs. Under this method of accounting, all productive and nonproductive costs incurred in the acquisition and development of oil and gas reserves are capitalized. Such costs include lease acquisitions, geological and geophysical services, drilling, completion, equipment and certain general and administrative costs directly associated with acquisition and development activities. General and administrative costs related to production and general overhead are expensed as incurred. No general and administrative costs were capitalized during the years ended December 31, 1995, 1994 and 1993.
Future development, site restoration, dismantlement and abandonment costs, net of salvage values, are estimated on a property-by-property basis based on current economic conditions and are amortized to expense as the Partnership's capitalized oil and gas property costs are amortized.
The unamortized cost of oil and gas properties is limited to the "ceiling limitation", (calculated separately for the Partnership, limited partners, and general partners). The "ceiling limitation" is calculated on a quarterly basis and represents the estimated future net revenues from proved properties using current prices, discounted at ten percent, and the lower of cost or fair value of unproved properties. Proceeds from the sale or disposition of oil and gas properties are treated as a reduction of oil and gas property costs with no gains or losses being recognized except in significant transactions.
IV-7
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Partnership computes the provision for depreciation, depletion and amortization of oil and gas properties on the units-of-production method. Under this method, the provision is calculated by multiplying the total unamortized cost of oil and gas properties, including future development, site restoration, dismantlement and abandonment costs, by an overall amortization rate that is determined by dividing the physical units of oil and gas produced during the period by the total estimated units of proved oil and gas reserves at the beginning of the period.
The calculation of the "ceiling limitation" and the provision for depreciation, depletion, and amortization is based on estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production, timing and plan of development. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify revision of such estimate. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
STATEMENTS OF CASH FLOWS --
Highly liquid debt instruments with an initial maturity of three months or less are considered to be cash equivalents.
(3) OIL AND GAS CAPITALIZED COSTS -
The following table sets forth capital expenditures related to the Partnership's oil and gas operations:
All oil and gas property acquisitions are made by Swift on behalf of the Partnership. The costs of the properties include the purchase price plus any costs incurred by Swift in the evaluation and acquisition of properties.
Interest expense, presented in the accompanying statements of operations, includes amortization of the discount recorded on gas imbalance liabilities assumed in property acquisitions ($30,391 in 1995, $28,053 in 1994 and $28,053 in 1993).
During 1995, the Partnership's unamortized oil and gas property costs exceeded the quarterly calculations of the "ceiling limitation" resulting in an additional provision for depreciation, depletion and amortization of $773,758. In computing the Partnership's third quarter 1994 "ceiling limitation", the Partnership utilized the product prices in effect at the date of the filing of the Partnership's report on Form 10-Q. Utilizing these subsequent prices, no write down was required by the Partnership. The write down would have been $298,948 using product prices in effect at September 30, 1994.
IV-8
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In addition, the limited partners' share of unamortized oil and gas property costs exceeded their "ceiling limitation" in 1995 , resulting in a valuation allowance of $646,310. This amount is included in the income (loss) attributable to the limited partners shown in the statement of partners' capital together with a "combining adjustment" for the difference between the limited partners' valuation allowance and the Partnership's valuation allowance. The "combining adjustment" changes quarterly as the Partnership's total depreciation, depletion and amortization provision is more or less than the combined depreciation, depletion and amortization provision attributable to general and limited partners.
(4) RELATED-PARTY TRANSACTIONS -
An affiliate of the Special General Partner, as Dealer Manager, received $650,638 for managing and overseeing the offering of limited partnership units.
A one-time management fee of $650,638 was paid Swift in 1987 for services performed for the Partnership. During 1995, 1994 and 1993, the Partnership paid Swift $143,378, $207,186 and $243,681, respectively, as general and administrative overhead allowances.
(5) NOTE PAYABLE TO A BANK -
Note payable to a bank at December 31, 1995 and 1994 follows:
As provided by the Partnership Agreement, the note payable was obtained to fund development wells.
(6) FEDERAL INCOME TAXES -
The Partnership is not a tax-paying entity. No provision is made in the accounts of the Partnership for federal or state income taxes, since such taxes are liabilities of the individual partners, and the amounts thereof depend upon their respective tax situations.
IV-9
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD. NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax returns and the amount of distributable Partnership income are subject to examination by the federal and state taxing authorities. If the Partnership's ordinary income for federal income tax purposes is ultimately changed by the taxing authorities, the tax liability of the limited partners could be changed accordingly. Ordinary income reported on the Partnership's federal return of income for the years ended December 31, 1995, 1994 and 1993 was $677,386, $1,076,658 and $1,165,078, respectively. The difference between ordinary income for federal income tax purposes reported by the Partnership and net income or loss reported herein primarily results from the exclusion of depletion (as described below) from ordinary income reported in the Partnership's federal return of income.
For federal income tax purposes, depletion with respect to production of oil and gas is computed separately by the partners and not by the Partnership. Since the amount of depletion on the production of oil and gas is not computed at the Partnership level, depletion is not included in the Partnership's income for federal income tax purposes but is charged directly to the partners' capital accounts to the extent of the cost of the leasehold interests, and thus is treated as a separate item on the partners' Schedule K-1. Depletion for federal income tax purposes may vary from that computed for financial reporting purposes in cases where a ceiling adjustment is recorded, as such amount is not recognized for tax purposes.
(7) GAS IMBALANCES -
The gas imbalance receivable and deferred revenues represent imbalances assumed as part of property acquisitions. The imbalances are accounted for on the entitlements method, whereby the Partnership records its share of revenue, based on its entitled amount. Any amounts over or under the entitled amount are recorded as an increase or decrease to the gas imbalance receivable or deferred revenues as applicable.
(8) VULNERABILITY DUE TO CERTAIN CONCENTRATIONS -
The Partnership's revenues are primarily the result of sales of its oil and natural gas production. Market prices of oil and natural gas may fluctuate and adversely affect operating results.
The Partnership extends credit to various companies in the oil and gas industry which results in a concentration of credit risk. This concentration of credit risk may be affected by changes in economic or other conditions and may accordingly impact the Partnership's overall credit risk. However, the Managing General Partner believes that the risk is mitigated by the size, reputation, and nature of the companies to which the Partnership extends credit. In addition, the Partnership generally does not require collateral or other security to support customer receivables.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS -
The Partnership's financial instruments consist of cash and cash equivalents and short-term receivables and payables. The carrying amounts approximate fair value due to the highly liquid nature of the short-term instruments.
IV-10
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
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.
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD. (Registrant)
By: SWIFT ENERGY COMPANY General Partner
Date: March 15, 1996 By: s/b A. Earl Swift ----------------------- ---------------------------------- A. Earl Swift President
Date: March 15, 1996 By: s/b John R. Alden ----------------------- ---------------------------------- John R. Alden Principal Financial Officer
Date: March 15, 1996 By: s/b Alton D. Heckaman, Jr. ----------------------- ---------------------------------- Alton D. Heckaman, Jr. Principal Accounting Officer
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.
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD. (Registrant)
By: SWIFT ENERGY COMPANY General Partner
Date: March 15, 1996 By: s/b A. Earl Swift ----------------------- ---------------------------------- A. Earl Swift Director and Principal Executive Officer
Date: March 15, 1996 By: s/b Virgil N. Swift ----------------------- ---------------------------------- Virgil N. Swift Director and Executive Vice President - Business Development
IV-11
SWIFT ENERGY INCOME PARTNERS 1987-B, LTD.
Date: March 15, 1996 By: s/b G. Robert Evans ----------------------- ---------------------------------- G. Robert Evans Director
Date: March 15, 1996 By: s/b Raymond O. Loen ----------------------- ---------------------------------- Raymond O. Loen Director
Date: March 15, 1996 By: s/b Henry C. Montgomery ----------------------- ---------------------------------- Henry C. Montgomery Director
Date: March 15, 1996 By: s/b Clyde W. Smith, Jr. ----------------------- ---------------------------------- Clyde W. Smith, Jr. Director
Date: March 15, 1996 By: s/b Harold J. Withrow ----------------------- ---------------------------------- Harold J. Withrow Director
IV-12


ITEM 1. BUSINESS
GENERAL
Cognex Corporation ("Cognex" or the "Company," each of which term includes, unless the context indicates otherwise, Cognex Corporation and its subsidiaries) was incorporated in Massachusetts in 1981. Its principal executive offices are located at One Vision Drive, Natick, Massachusetts 01760 and its telephone number is (508) 650-3000.
The Company designs, develops, manufactures, and markets a family of machine vision systems - or computers that can "see." Cognex machine vision systems, which consist of software and hardware designed specifically for industrial machine vision, are used to replace human vision in a wide range of manufacturing processes. When connected to a video camera, a Cognex machine vision system captures an image of each object in the manufacturing process and uses sophisticated image analysis software to extract information from that image. For example, a machine vision system can locate an object, read alphanumeric characters, measure dimensions, or detect flaws. Cognex machine vision systems are used in a variety of industries including the electronics, semiconductor, consumer products, automotive, pharmaceutical, and general manufacturing industries for applications in which human vision is inadequate due to fatigue, visual acuity or speed, or in instances where substantial cost savings are obtained through the reduction of direct labor and improved product quality.
The Company's business strategy is to develop and sell standard products - proprietary vision software together with vision hardware (vision engines) - which require minimal customization and support by the Company. The Company primarily markets to sophisticated customers such as original equipment manufacturers (OEMs) and system integrators who have the ability to configure their own vision solutions using the software tools and hardware platforms provided by the Company. The Company also markets "easy-to-use" machine vision systems to system integrators and end users (the "factory floor") which represents an expansion beyond its traditional OEM customer base. These machine vision systems designed for the factory floor marketplace provide an "easy-to-use" interface that allows system integrators and end users in a wide range of industries to implement vision solutions for the factory floor. This strategy has permitted the Company to focus its engineering resources on expanding its own product line and developing proprietary vision technology.
The strategy of selling standard products in high volume without extensive support by the Company requires a close match between the product's usability and functionality and the customer's capabilities and needs. The Company's traditional products are "building blocks," both software and hardware, from which its customers can construct a vision solution. Although the Company's traditional products require that the customer have detailed expertise in computer porgramming, the customer need not have in-depth knowledge of image processing or image analysis since the Company's vision software products provide that expert knowledge in the form of subroutines. In addition, the Company believes that its "easy-to-use" products allow system integratores and end users without detailed experience in computer programming or knowledge of image processing or image analysis to construct a vision solution.
The Company's primary customers, OEMs in the electronics and semiconductor industries, are principally located in Japan and North America. Sales to international customers represented approximately 59%, 62%, and 60% of revenue in 1995, 1994, and 1993, respectively. The Company sells through a direct sales force, consisting of approximately 30 people at December 31, 1995, and through distributors to service its OEM and factory floor customers. In addition to its headquarters in Natick, Massachusetts, the Company has sales offices in the United States, Europe, and the Far East.
RECENT DEVELOPMENTS
In February 1996, the Company acquired Isys Controls, Inc., an Alameda, California-based developer of ultra-high performance vision systems that automatically detect and classify surface flaws and defects on a variety of high value-added materials. In July 1995, the Company acquired Acumen, Inc., a Portland, Oregon-based developer of machine vision systems for semiconductor wafer identification. Information with respect to the acquisitions of Isys Controls Inc. and Acumen, Inc. may be found in the Notes to Consolidated Financial Statements, appearing on pages 31 and 32 of the Annual Report to Stockholders for the year ended December 31, 1995, which is Exhibit 13 hereto, and is incorporated herein by reference.
These acquisitions provide the company with an expansion beyond its traditional base of general-purpose machine vision systems. The potential market for machine vision is comprised of a number of market niches defined by application requirements, industry, and cost/performance. The Company's business strategy includes selective expansion into other industrial machine vision applications. The recent acquisitions of Isys Controls, Inc. and Acumen, Inc. gives Cognex an immediate and strong presence in the niche markets for surface inspection and semiconductor wafer identification.
INDUSTRY BACKGROUND
A machine vision system is a computer-based image analysis machine which replaces human vision for tasks in which human vision is inadequate due to fatigue, visual acuity or speed, or in instances where substantial cost savings are obtained through the reduction of direct labor and improved product quality. Today, many types of manufacturing equipment require machine vision because of the increasing demands for speed and accuracy in manufacturing processes.
A machine vision system consists of pattern recognition software and high-speed computer hardware which is specially designed to run the software in real-time. In most machine vision applications, a camera captures an image of the object to be inspected and sends that image to the machine vision computer. The machine vision system then uses the sophisticated software and special-purpose hardware to analyze the image of the object and derive some answer. Once the machine vision system has determined the answer, it can output these results to a monitor for review by the operator or it can use these results to control other equipment. Machine vision systems can provide four types of answers:
MARKETS, CUSTOMERS, AND APPLICATIONS
The Company's current products are designed for factory automation because the Company believes that this market currently offers the greatest opportunity for selling standard products in high volume. Within the factory automation marketplace, the Company has historically focused primarily on those customers who must have machine vision because of the increasing complexity of their products or manufacturing methods.
The Company currently markets primarily to OEMs principally located in Japan and North America who supply automation equipment to the electronics and semiconductor industries. The value of automation is high in these industries because the products produced, such as semiconductor chips, hybrid circuits, and printed circuit boards, have high unit costs and are manufactured at speeds too fast for effective human intervention. In addition, the trend in these industries toward smaller devices with higher circuit densities and finer circuit paths require manufacturing and testing equipment capable of extremely accurate alignment and motion control which can only be achieved by using machine vision. Customers in these industries, moreover, employ knowledgeable engineers who are competent to work with computer-related equipment.
The Company's business strategy is to develop and sell standard products - proprietary vision software together with vision hardware (vision engines) - which require minimal customization and support by the Company. The Company primarily markets to sophisticated customers such as OEMs and system integrators who have the ability to configure their own vision solutions using the software tools and hardware platforms provided by the Company. The Company also markets "easy-to-use" machine vision systems to system integrators and end users which represents an expansion beyond its traditional OEM customer base. These machine vision systems designed for the factory floor marketplace provide an "easy-to-use" interface that allows system integrators and end users in a wide range of industries to implement vision solutions for the factory floor. This strategy has permitted the Company to focus its engineering resources on expanding its own product line and developing proprietary vision technology.
In addition to selling traditional machine vision systems to OEMs, the Company's products are also sold to system integrators and end users serving the consumer products, automotive, pharmaceutical, and general manufacturing industries. Current users of the Company's traditional products typically have extensive programming experience, therefore, programmable Cognex products are able to effectively meet their needs and requirements.
The strategy of selling standard products in high volume without extensive support by the Company requires a close match between the product's usability and functionality and the customer's capabilities and needs. The Company's traditional products are "building blocks," both software and hardware, from which its customers can construct a vision solution. Although the Company's traditional products require that the customer have detailed expertise in computer programming, the customer need not have in-depth knowledge of image processing or image analysis since the Company's vision software products provide that expert knowledge in the form of subroutines. In addition, the Company believes that its "easy-to-use" products allow system integrators and end users without detailed experience in computer programming or knowledge of image processing or image analysis to construct a vision solution.
TRADITIONAL MACHINE VISION PRODUCTS
Cognex machine vision systems are comprised of both machine vision software and machine vision hardware. The Company's products are "building blocks" of software and hardware that have been designed to give customers the flexibility to easily configure complete vision solutions without requiring extensive in-house expertise in image processing or image analysis. The Company offers a library of vision software tools, as well as a family of board-level vision hardware that ranges in performance and platform. The customer first chooses the most appropriate software tools from the vision software library and then selects the best vision hardware on which to run the software. All Cognex vision hardware is functionally and software compatible across product lines. Because of the Company's product strategy, its customers are given the flexibility to configure their own vision solutions to a broad range of complex vision problems without detailed support from the Company.
When purchasing products from the Company, the customer pays for each vision engine as well as a license fee per engine for each software tool used in the vision solution. Because the Company's products are modular, the customer licenses only the software tools required and chooses the vision hardware with the price and performance that best meets the application's needs. The typical Cognex machine vision system, including software and hardware, ranges from $7,500 to $20,000 and the Company estimates that an aggregate of approximately 38,000 Cognex machine vision systems had been sold as of December 31, 1995.
SOFTWARE PRODUCTS
The complete software package which is required to solve a customer's vision problem is built from three different levels of software provided by the Company: system software, image processing software, and image analysis software. A description of the three different levels of software is as follows:
System Software. The system software level provides the utilities needed to program and operate the machine vision system. The system software includes software for acquiring, storing, and displaying images, as well as Cognex's proprietary incremental C compiler with a C run-time library, interface software for communicating with other devices, and software for controlling high-speed transmission of data into and out of the machine vision system.
Image Processing Software. The image processing level contains software which manipulates images (usually before they are analyzed by subsequent image analysis routines). These tools can be used to simplify raw video images or alter images to increase processing speed and image storage capacity. Image processing can correct rotation, scale, and aspect ratio of an image in order to compensate for non-uniform optics, uncertainty in part positioning, or mechanical constraints that require awkward viewing angles. In addition, the image processing functions provide several methods for reducing the effects of video noise, such as averaging images together or spatially filtering a single image.
Image Analysis Software. The image analysis level embodies the Company's most important and valuable technology. These software tools extract information from either raw or processed images and make decisions regarding items in those images. By providing this high level of software, the Company has made vision solutions available to a broader range of customers. Examples of image analysis software tools include Search for locating patterns, Golden Template Comparison (GTC) for locating defects, and Optical Character Recognition (OCR) for reading characters.
By writing simple C routines which interconnect various Cognex software modules from each of these three levels, the Company's customers "build" their own unique software solutions to address their particular vision problems. The Company also offers application-specific software products which are "packaged" software products designed to solve targeted problems without any customization by the Company or its customers. These software tools combine a series of system software, image processing software, and image analysis software tools to solve specific problems. For example, the Fiducial Finder tool locates fiducial, or alignment, marks on printed circuit boards and the PQI tool quickly and accurately inspects print produced by laser, pad, or offset printing equipment.
HARDWARE PRODUCTS
The Company supplies a family of vision hardware with a wide range of price and performance levels. Customers select the Cognex vision hardware which best matches the requirements of each application. A description of the family of vision hardware products is as follows:
Standard Machine Vision Platforms. The Company offers a variety of standard, programmable machine vision platforms on which to run the Cognex software tools. The Cognex 3000 Series, consisting of the 3100 and 3400, are proprietary, single-board machine vision systems that provide a range of performance levels for solving complex gauging, guidance, inspection, and identification tasks. The Cognex 4000 Series are a group of VMEbus-based, board-level machine vision systems that plug directly into a VME backplane. This family includes the low-end Cognex 4100 and 4200, as well as the high-end Cognex 4400. The Cognex 5000 Series are the first complete machine vision systems designed to plug into any ISA/ATbus personal computer. All of these machine vision systems are software compatible, allowing customers to readily upgrade to higher performance systems or to change platforms as application needs change.
Application-Specific Hardware Products. The Company also offers a family of application-specific hardware products that are designed to solve specific tasks. The Cognex 1500 Simple Alignment System is an easy-to-use, low-cost machine vision system suitable for such tasks as aligning printed circuit boards prior to screen printing, drilling, or epoxy dispensing. The Cognex acuReader/OCR is a machine vision system designed to read even the most degraded serial numbers from semiconductor wafers with near 100% accuracy. Both of these machine vision systems offer simple menu interfaces that allow customers to quickly and accurately configure the systems to solve tasks without the need for C programming.
Custom Vision Chips. To boost the processing power of its boards, the Company has developed the VC-2 and VC-3 custom vision chips. These chips, which can be purchased with most of Cognex's standard machine vision platforms, provide the processing power of multiple boards or chip sets. The chips enhance the price/performance of Cognex's products and currently provide a significant competitive advantage to the Company. The VC-2 chip performs image processing functions that are optimized for machine vision tasks which enables the Company's machine vision systems to address a new class of flaw and defect detection applications. The VC-3 chip is an application-specific integrated circuit designed to run image processing and image analysis algorithms at high speeds. In addition, the Company's Acumen division has developed a set of vision chips used for pattern recognition in the acuReader/OCR.
CHECKPOINT
In 1994, the Company introduced a new machine vision system known as Checkpoint. The Company markets Checkpoint to system integrators and end users which represents an expansion beyond its traditional OEM customer base. Checkpoint is designed for the factory floor marketplace and combines the Company's proven vision technology with a new and unique graphical user interface. The Company believes that Checkpoint allows system integrators and end users in a wide range of industries to design vision solutions for the factory floor, even if such engineers have little programming or machine vision experience. However, the deployment of Checkpoint on the factory floor requires the services of trained system integrators to mechanically and electrically integrate Checkpoint into manufacturing lines.
A Checkpoint system includes pre-packaged existing software (system software, image processing software, and image analysis software), standard hardware (Checkpoint Model 400 and 800 vision processors), and Microsoft Windows-based application development software. Engineers using Checkpoint create a vision program based upon a personal computer (PC) running Checkpoint's Windows-based application builder. The PC communicates with the Checkpoint system over a serial line at development time. Then, at run-time, the system is deployed as a stand-alone unit on the factory floor utilizing a custom graphic operator interface created by the developer with Checkpoint.
The library of vision tools available with Checkpoint enables users to solve a wide range of inspection, gauging, and assembly verification problems. Checkpoint's gray-scale vision tools provide advanced object location and inspection technology and are accessed at development time via PC menus in a Microsoft Windows environment or vision system icons. Checkpoint's vision tools are supported by the Company's most powerful vision hardware platforms including Cognex's proprietary vision coprocessors.
Manufacturing engineers utilize pull-down menus and dialog boxes in Checkpoint's Windows graphic user interface to create customized vision applications. This "point and click" programming environment directs engineers to construct vision routines in a new way. A developer combines Checkpoint's high-level vision, I/O, and operator interface tools with conventional programming elements such as English-language variables, expressions, and statements. This enables the developer to focus on tasks associated with solving the overall vision application, freeing the developer from the memorized detail and mechanical complexity of traditional machine vision system programming.
SALES AND SERVICE
The Company's business strategy is to develop and sell standard products - proprietary vision software together with vision hardware (vision engines) - which require minimal customization and support by the Company. The Company primarily markets to sophisticated customers such as OEMs and system integrators who have the ability to use the Company's traditional products to configure their own vision solutions using the software tools and hardware platforms provided by the Company. The strategy of selling standard products in high volume without extensive support by the Company requires a close match between the product's usability and functionality and the customer's capabilities and needs.
The Company employs direct sales personnel for all accounts in North America and Japan, and sells through a direct sales force and through distributors in Europe and Southeast Asia. The Company's distributors do not have any rights of return and payment for products is due upon delivery. Distributors generally have non-exclusive distribution rights and there may be more than one distributor per territory.
The Company markets its products in North America through a direct sales force operating out of its Natick, Massachusetts headquarters, its Regional Technology Center in Mountain View, California, and its sales offices in Illinois, Minnesota, New Jersey, and Florida. The Company markets its products in Japan through a direct sales force operating out of its wholly-owned subsidiary, Cognex K.K. The Company also has sales offices in France, Germany, England, Italy, Singapore, and Korea where the Company sells through a direct sales force and through distributors. At December 31, 1995, the Company's direct sales and service force consisted of 80 professionals, including sales and application engineers. A significant portion of the Company's sales and service personnel have engineering or science degrees. Sales engineers call directly on targeted accounts and coordinate the activity of the application engineers. They focus on potential customers that represent potential volume purchases and long-term relationships. Opportunities that represent single unit sales or turnkey system requirements are qualified by the sales engineer and turned over to an independent system integrator or OEM that uses the Company's products.
Sales to international customers represented approximately 59%, 62%, and 60% of revenue in 1995, 1994, and 1993, respectively. One international customer based in Japan, Fuji America Corporation, accounted for approximately 16%, 20%, and 24% of revenue in 1995, 1994, and 1993, respectively. Information with respect to significant customers and export sales may be found in the Notes to the Consolidated Financial Statements, appearing on page 30 of the Annual Report to Stockholders for the year ended December 31, 1995, which is Exhibit 13 hereto, and is incorporated herein by reference. Although international sales may from time to time be subject to federal technology export regulations, the Company to date has not suffered delays or prohibitions in sales to any of its foreign customers.
The Company sells its products to customers that have entered or are expected to enter into volume discount contracts with the Company. These contracts are typically for one year and have associated delivery schedules. No orders are booked for delivery beyond six months.
The Company provides software update services and hardware maintenance on both a contract and a time and material basis. Software updates are provided via floppy disks and hardware maintenance is provided by exchanging printed circuit boards. Programming application services for projects can be contracted with the Company on a time and material basis only when doing so enhances the sale of the Company's standard products. Training courses are provided by the Company in Natick, Massachusetts; Mountain View, California; and Tokyo, Japan, as well as at the customer site when required. These courses provide the user with both lecture and laboratory sessions covering the use of Cognex products.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company engages in research, development and engineering ("R, D & E") to enhance its existing products and to develop new products and functionality to meet market opportunities. The R, D & E organization consists of software engineering, research and development, hardware engineering, advanced products development, and custom products development. Software engineering is responsible for the development of image processing and image analysis tools, as well as the maintenance, quality assurance, and documentation of vision software products. The advanced end-user vision systems group, within the software group, develops Checkpoint. The research and development group focuses its energies on enhanced vision technology capabilities. Hardware engineering is responsible for the development of hardware products, primarily vision engines and vision chips. The advanced products development group is engaged in the development of the Placement Guidance Products and the VisionPro product line. The custom products development group is responsible for the development of application products used in wire bonders and other custom applications. The Company's Acumen division is responsible for the development of application-specific products for the semiconductor industry.
At December 31, 1995, the Company employed 104 professionals in R, D & E, most of whom are software developers. The Company's R, D & E expenses were approximately $13,190,000, $9,933,000, and $6,205,000 in 1995, 1994, and 1993, respectively.
MANUFACTURING
The Company's current manufacturing process consists of final assembly, burn-in, final test, quality control, and shipment of systems and board-level products. Major components such as semiconductors, raw boards, and passive components are purchased by the Company and shipped to third parties for assembly and initial testing. Certain subassemblies are assembled in-house. Materials such as electronic components and sheet metal parts are purchased and stocked by the Company utilizing its own personnel. Some of the electronic components are tested and burned in before assembly. The Company puts together kits of components and supplies them to the third-party contractor for assembly. In some cases, components are stored and kitted by the supplier and sent directly to the third-party contractor. The third-party contractor assembles and performs initial testing of the product, using fixtures and programs owned by the Company, and returns the product to the Company for final assembly and test. The Company packages and ships its products to customers from its Natick, Massachusetts headquarters. Certain components purchased by the Company are presently available from a single source.
In 1995, the Company began the transition to a turnkey manufacturing operation whereby the majority of component purchasing, subassembly, final assembly, and testing is performed under agreement by a third-party contractor. The Company expects that the contractor will become the sole manufacturer of substantially all of the Company's products when the transition is complete in early 1997.
COMPETITION
The Company competes with other vendors of machine vision systems, the internal engineering efforts of the Company's current or prospective customers, and the manufacturers of image processing systems. Some or all of these competitors may have greater financial and other resources than the Company. In addition, certain application-specific machine vision products are being introduced as low-cost, software-only solutions by various companies and the Company does not currently have a significant product offering that effectively competes with respect to price against these new software-only systems. The Company considers itself to be one of the leading machine vision companies in the world. However, reliable estimates of the machine vision market and the number of competitors are almost nonexistent, primarily because of definitional confusion and a tendency toward double-counting of sales. The principal competitive factors affecting the choice of a machine vision system include product functionality and performance (e.g. speed, accuracy, and reliability) under "real-world" operating conditions, flexibility, programmability, and the availability of application support from the supplier. More recently, ease-of-use has become a competitive factor and product price has become a more significant factor with respect to the simpler guidance and gauging applications.
BACKLOG
At December 31, 1995 the Company's backlog was approximately $27,655,000, compared to $16,827,000 at December 31, 1994. Backlog reflects purchase orders for products scheduled for shipment within six months. The level of backlog at any particular date is not necessarily indicative of the future operating performance of the Company. Delivery schedules may be extended and orders may be canceled at any time subject to certain cancellation penalties.
PATENTS AND LICENSES
Since the Company relies on the technical expertise, creativity, and know-how of its personnel, it utilizes patent, copyright, and trade secret protection to safeguard its competitive position. In addition, the Company makes use of non-disclosure agreements with customers, consultants, suppliers, and employees. The Company attempts to protect its intellectual property by restricting access to its proprietary information by a combination of technical and internal security measures. However, there can be no assurance that any of the above measures will be adequate to protect the proprietary technology of the Company.
The Company's software products are generally licensed to customers pursuant to a license agreement that restricts the use of the products to the customer's purposes on a designated Cognex machine vision engine. The Company has made portions of the source code available to certain customers and OEMs under very limited circumstances and for restricted uses. If source code is released to a customer or re-licenser, the customer or re-licenser is required by contract to maintain its confidentiality and, in general, to use the source code solely for internal purposes or for maintenance. Effective patent, copyright, and trade secret protection may be unavailable in certain foreign countries.
Some users of the Company's products have received notice of patent infringement from Technivision Corporation and Jerome H. Lemelson alleging that their use of the Company's products infringe certain patents issued to Mr. Lemelson. Certain of these users have notified the Company that, in the event it is subsequently determined that their use of the Company's products infringes any of Mr. Lemelson's patents, they may seek indemnification from the Company for damages or expenses resulting from this matter. Certain of the users of the Company's products currently are engaged in litigation with Mr. Lemelson/Technivision involving certain of these patents and the validity of these patents has been placed in issue. Although the Company has not been named in this litigation, it has entered into a joint defense agreement with a named party therein, which has recently entered into a settlement agreement with Mr. Lemelson for reasons unknown to the Company. The Company is not a party to that settlement and has no indemnification claims, nor obligations for such, with respect to the settlement. Certain products sold by the Company, as well as products of others, were identified in connection with this litigation as part of an allegedly infringing use.
Litigation with respect to the Company's products at issue has been stayed for purposes of case management. Accordingly, any decision on the merits of this case regarding the Company's products is expected to be delayed at least until the litigation with respect to the products of others is settled or adjudicated. As a result, the Company's participation in this litigation may be required in the future. The Company may incur significant costs with respect to such participation or if it is required to indemnify any purchasers or users of the Company's products for damages or expenses resulting from the litigation.
In June 1995, a Magistrate Judge filed a recommendation that summary judgment be entered in favor of one of the Company's users engaged in litigation with Mr. Lemelson/Technivision. If this recommendation is accepted by the applicable District Court, the summary judgment would entirely dispose of all the actions in favor of the user. Until further notice by the Court, action regarding this litigation is stayed. The Company cannot predict the outcome of this or any similar litigation which may arise in the future, or the effect of such litigation on the operating results of the Company. The Company does not believe its products infringe any valid and enforceable claims of Mr. Lemelson's patents.
EMPLOYEES
At December 31, 1995, the Company employed 307 persons, including 119 in sales, marketing and support activities; 104 in research, development and engineering; 36 in manufacturing and quality assurance; and 48 in management, administration and finance. None of the Company's employees are represented by a labor union and the Company has experienced no work stoppages. The Company believes that its employee relations are good.
ITEM 2:

ITEM 2: PROPERTIES
In 1994, the Company purchased and renovated a 100,000 square foot building located in Natick, Massachusetts. The Company's corporate headquarters, principal administrative, sales and marketing, research, development and engineering, manufacturing and quality assurance, and support personnel are located in this facility. In addition, the Company leases sales offices in the United States in California, Illinois, and Oregon, as well as in Japan, France, Germany, England, Italy, Singapore, and Korea.
In June 1995, the Company purchased an 83,000 square-foot office building adjacent to its corporate headquarters. The building is currently occupied with tenants who have lease commitments that expire at various dates through the year 2000. The Company will oversee these lease commitments until it is ready to take occupancy.
ITEM 3:

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:

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the year ended December 31, 1995 to a vote of security holders through solicitation of proxies or otherwise.
ITEM 4A: EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF THE REGISTRANT
The following table sets forth the names, ages, and titles of the Company's executive officers at December 31, 1995:
Mr. Shillman, founder of the Company, has served as its President, Chief Executive Officer, and Chairman since its organization in 1981.
Mr. Alias joined the Company in 1991 as Executive Vice President of Sales and Marketing. From 1990 to 1991, he served as President of Gimeor SA, a manufacturer of CAD/CAM software.
Mr. Rogers joined the Company in 1991 as Director of Finance and Administration and was appointed Vice President of Finance and Administration and Treasurer in 1993, Chief Financial Officer in 1994, and Executive Vice President of Finance and Administration in 1995. From 1989 to 1991, he served as Senior Manager of Financial Control and Analysis for the Waters Division of Millipore Corporation, a manufacturer of liquid chromatography equipment. Mr. Rogers is a certified public accountant.
Mr. Snyder joined the Company in 1991 as Executive Vice President of Operations. From 1981 to 1991, he held various positions within Prime Computer, including President and General Manager, Computer Systems Business Unit, Vice President Engineering, Vice President Systems Marketing and Development, and Vice President Software Development. The Computer Systems Business Unit of Prime Computer manufactures minicomputers and CAD/CAM systems.
Executive officers are elected annually by the Board of Directors. There are no family relationships among the directors and the executive officers of the Company.
OTHER MEMBERS OF THE MANAGEMENT TEAM
Ms. Matz and Messrs Nelson, Schatz, and Silver have been employed by the Company in their present or other capacities for no less than the past five years.
Mr. McGarry joined the Company in 1995 when the company he founded in 1991, Acumen, Inc., was acquired by Cognex. From 1991 to 1995, he served as President of Acumen, Inc., a developer of machine vision systems for semiconductor wafer identification.
Mr. Ohgusu joined the Company in 1992 as President of Cognex K.K., the Company's Japanese subsidiary. From 1989 to 1992, he served as President and CEO of Lonrho International Networks, Ltd., a manufacturer of computer diagnostic software.
Mr. Schalke joined the Company in 1991 as Vice President of Engineering. From 1988 to 1990, he served as Vice President and General Manager for the Small Systems product line of Concurrent Computer Corporation, a manufacturer of real-time computer systems.
PART II
ITEM 5:

ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Certain information with respect to this item may be found in the section captioned "Selected Quarterly Financial Data," appearing on page 35, and the section captioned "Company Information," appearing on page 36 of the Annual Report to Stockholders for the year ended December 31, 1995, which is Exhibit 13 hereto, and is incorporated herein by reference.
The Company has never declared or paid cash dividends on shares of common stock. The Company currently intends to retain all of its earnings to finance the development and expansion of its business and therefore does not intend to declare or pay cash dividends on its common stock in the foreseeable future. Any future declaration and payment of dividends will be subject to the discretion of the Board of Directors of the Company, will be subject to applicable law, and will depend upon the Company's results of operations, earnings, financial condition, contractual limitations, cash requirements, future prospects, and other factors deemed relevant by the Company's Board of Directors.
ITEM 6:

ITEM 6: SELECTED FINANCIAL DATA
Information with respect to this item may be found in the section captioned "Five-Year Summary of Selected Financial Data," appearing on page 34 of the Annual Report to Stockholders for the year ended December 31, 1995, which is Exhibit 13 hereto, and is incorporated herein by reference.
ITEM 7:

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information with respect to this item may be found in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing on pages 12 through 16 of the Annual Report to Stockholders for the year ended December 31, 1995, which is Exhibit 13 hereto, and is incorporated herein by reference.
ITEM 8:

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this item, which includes the consolidated financial statements and notes thereto, report of independent accountants, and supplementary data, may be found on pages 17 through 35 of the Annual Report to Stockholders for the year ended December 31, 1995, which is Exhibit 13 hereto, and is incorporated herein by reference.
ITEM 9:

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting or financial disclosure during 1995 or 1994.
PART III
ITEM 10:

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company may be found in the section captioned "Election of Directors," appearing in the definitive Proxy Statement for the Special Meeting in Lieu of the 1996 Annual Meeting of Stockholders to be held on April 23, 1996. Such information is incorporated herein by reference. Information with respect to Executive Officers of the Company may be found in the section captioned "Executive Officers and Other Members of the Management Team of the Registrant" in Part I of this Annual Report on Form 10-K.
ITEM 11:

ITEM 11: EXECUTIVE COMPENSATION
Information with respect to this item may be found in the sections captioned "Information Concerning the Board of Directors," "Compensation/Stock Option Committee Report on Executive Compensation," "Comparison of Five Year Cumulative Total Returns Performance Graph for Cognex Corporation," and "Executive Compensation," appearing in the definitive Proxy Statement for the Special Meeting in Lieu of the 1996 Annual Meeting of Stockholders to be held on April 23, 1996. Such information is incorporated herein by reference.
ITEM 12:

ITEM 12: SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item may be found in the sections captioned "Principal Holders of Voting Securities" and "Security Ownership of Directors and Officers," appearing in the definitive Proxy Statement for the Special Meeting in Lieu of the 1996 Annual Meeting of Stockholders to be held on April 23, 1996. Such information is incorporated herein by reference.
ITEM 13:

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14:

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of Cognex Corporation and the report of independent accountants relating thereto are included in the Company's Annual Report to Stockholders for the year ended December 31, 1995, which is Exhibit 13 hereto, and is incorporated herein by reference:
Report of Independent Accountants for the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
Included at the end of this report are the following:
Report of Independent Accountants on the Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto.
(3) Exhibits
The Exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index on page 19, immediately preceding such Exhibits.
(b) Reports on Form 8-K
On October 4, 1995, the Company filed a Current Report on Form 8-K for the acquisition of Acumen, Inc. as follows:
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Report of Independent Accountants
Statements of Income for the three months ended June 30, 1995 (unaudited) and the twelve months ended March 25,
Balance Sheets as of June 30, 1995 (unaudited) and March 25, 1995
Statements of Stockholders' Equity for the three months ended June 30, 1995 (unaudited) and the twelve months ended March 25, 1995
Statements of Cash Flows for the three months ended June 30, 1995 (unaudited) and the twelve months ended March 25, 1995
Notes to Financial Statements
(b) Pro Forma Financial Information
Introductory Information
Unaudited Pro Forma Statement of Income for the six months ended July 2, 1995
Unaudited Pro Forma Statement of Income for the twelve months ended December 31, 1994
Unaudited Pro Forma Balance Sheet as of July 2, 1995
Notes to Unaudited Pro Forma Financial Information
(c) Exhibits
Exhibit 2 - Stock Purchase Agreement dated as of July 21, 1995 among Acumen, Inc., the Shareholders of Acumen Inc., and Cognex Corporation
Exhibit 27 - Financial Data Schedules (electronic filing only)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cognex Corporation
/s/ Robert J. Shillman ----------------------------- Robert J. Shillman, President March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
REPORT OF INDEPENDENT ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Cognex Corporation:
Our report on the consolidated financial statements of Cognex Corporation has been incorporated by reference in this Form 10-K from page 33 of the 1995 Annual Report to Stockholders of Cognex Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedule for each of the three years in the period ended December 31, 1995 listed in Item 14(a) of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts January 26, 1996
SCHEDULE II
COGNEX CORPORATION VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)
(A) Specific write-offs (B) Specific dispositions
EXHIBIT INDEX
EXHIBIT NUMBER - - --------------
2A Stock Purchase Agreement dated as of July 21, 1995 among Acumen, Inc., the Shareholders of Acumen, Inc., and Cognex Corporation (incorporated by reference to Exhibit 2 to the Current Report on Form 8-K filed on October 4, 1995)
2B Agreement and Plan of Merger dated as of February 29, 1996 among Cognex Corporation, Cognex Software Development, Inc., Isys Controls, Inc., and Richard Rombach (incorporated by reference to Exhibit 2 to the Current Report on Form 8-K filed on March 15, 1996)
3A Articles of Organization of the Company effective January 8, 1981, as amended June 8, 1982, August 19, 1983, May 15, 1984, April 17, 1985, November 4, 1986, and January 21, 1987 (incorporated by reference to Exhibit 3A to the Registration Statement Form S-1 [Registration No. 33-29020]).
3B Restated Articles of Organization of the Company effective June 28, 1989 (incorporated by reference to Exhibit 3C to the Registration Statement Form S-1 [Registration No. 33-29020]).
3C By-laws of the Company as amended February 9, 1990 (filed as Exhibit 3C to the Company's Annual Report on Form 10-K for the year ended December 31, 1990).
4 Specimen Certificate for Shares of Common Stock (incorporated by reference to Exhibit 4 to the Registration Statement Form S-1 [Registration No. 33-29020]).
10A Cognex Corporation Employee Stock Purchase Plan (incorporated by reference to Exhibit 4A to Amendment No. 1 to the Registration Statement Form S-8 [Registration No. 33-32815]).
10B Cognex Corporation 1984 Stock Option Plan, as amended (incorporated by reference to Exhibit 4B to Amendment No. 2 to the Registration Statement Form S-8 [Registration No. 33-31657]).
10C Cognex Corporation 1992 Stock Option Plan (filed as Exhibit 10I to the Company's Annual Report on Form 10-K for the year ended December 31, 1992).
10D Cognex Corporation 1993 Director's Stock Option Plan (filed as Exhibit 10J to the Company's Annual Report on Form 10-K for the year ended December 31, 1993).
10E Cognex Corporation 1993 Employee Stock Option Plan (filed as Exhibit 10K to the Company's Annual Report on Form 10-K for the year ended December 31, 1993).
10F Purchase and Sale Agreement with respect to the Natick Executive Park facility dated as of October 20, 1993 (filed as Exhibit 10L to the Company's Annual Report on Form 10-K for the year ended December 31, 1993).
10G Purchase and Sale Agreement with respect to the Natick Executive Park facility dated as of June 30, 1995 *
11 Statement re computation of per share earnings *
13 Annual Report to Stockholders for the year ended December 31, 1995 (which is not deemed to be "filed" except to the extent that portions thereof are expressly incorporated by reference in this Annual Report on Form 10-K) *
21 Subsidiaries of the registrant *
23 Consent of Coopers & Lybrand L.L.P. *
27 Financial Data Schedule *
* Filed herewith