##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|           |  | For the fiscal year ended December 31,
    2003                                             
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
    from           to                                             

Commission File Number 0-17869

COGNEX CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Massachusetts                                                      |  | 04-2713778                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

One Vision Drive

Natick, Massachusetts 01760-2059


(508) 650-3000


(Address, including zip code, and telephone
number,


including area code, of principal executive
offices)


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, par value $.002 per
share


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.     þ

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes þ          No o

Aggregate market value of voting stock held by
non-affiliates of the registrant as of June 29, 2003:
$838,045,000

$.002 par value common stock outstanding as of
February 29, 2004: 44,645,606 shares

Documents incorporated by reference:

The registrant intends to file a Definitive Proxy
Statement pursuant to Regulation 14A within 120 days
of the end of the fiscal year ended December 31, 2003.
Portions of such Proxy Statement are incorporated by reference
in Part III of this report. Portions of the
registrants Annual Report to Stockholders for the year
ended December 31, 2003 are incorporated by reference in
Part I and Part II of this report.



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COGNEX CORPORATION ANNUAL REPORT ON

FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2003

INDEX

|                                              |  |                                                                                                        |  |  |    | 
|--------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  |  | -- | 
|PART I                                       
|Item 1.                                       |  | Business                                                                                               |  |  | 2  | 
|Item 2.                                       |  | Properties                                                                                             |  |  | 13 | 
|Item 3.                                       |  | Legal Proceedings                                                                                      |  |  | 14 | 
|Item 4.                                       |  | Submission of Matters to a
    Vote of Security Holders                                                |  |  | 14 | 
|Item 4A.                                      |  | Executive Officers and Other
    Members of the Management Team of the Registrant                      |  |  | 14 | 
|PART II                                      
|Item 5.                                       |  | Market for the
    Registrants Common Equity and Related Stockholder
    Matters                      |  |  | 15 | 
|Item 6.                                       |  | Selected Consolidated
    Financial Data                                                               |  |  | 16 | 
|Item 7.                                       |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations              |  |  | 16 | 
|Item 7A.                                      |  | Quantitative and Qualitative
    Disclosures About Market Risk                                         |  |  | 16 | 
|Item 8.                                       |  | Financial Statements and
    Supplementary Data                                                        |  |  | 16 | 
|Item 9.                                       |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |  |  | 16 | 
|Item 9A.                                      |  | Controls and Procedures                                                                                |  |  | 16 | 
|PART III                                     
|Item 10.                                      |  | Directors and Executive
    Officers of the Registrant                                                 |  |  | 17 | 
|Item 11.                                      |  | Executive Compensation                                                                                 |  |  | 17 | 
|Item 12.                                      |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |  |  | 17 | 
|Item 13.                                      |  | Certain Relationships and
    Related Transactions                                                     |  |  | 17 | 
|Item 14.                                      |  | Principal Accountant Fees
    and Services                                                             |  |  | 17 | 
|PART IV                                      
|Item 15.                                      |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                   |  |  | 17 | 
|EX-13 ANNUAL REPORT DATED 12-31-2003         
|EX-14 CODE OF BUSINESS CONDUCT AND ETHICS    
|EX-21 SUBSIDIARIES OF THE REGISTRANT         
|EX-23.1 CONSENT OF ERNST & YOUNG LLP         
|EX-23.2 CONSENT OF PRIECWATERHOUSECOOPERS LLP
|EX-31.1 CERTIFICATION OF CEO                 
|EX-31.2 CERTIFICATION OF CFO                 
|EX-32.1 SECTION 906 CERTIFICATION OF CEO     
|EX-32.2 SECTION 906 CERTIFICATION OF CFO     



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PART I

This Annual Report on Form 10-K contains
forward-looking statements within the meaning of the Federal
Securities Laws. Readers can identify these forward-looking
statements by the Companys use of the words
expects, anticipates,
estimates, believes,
projects, intends, plans,
will, may, shall, and
similar words and other statements of a similar sense. The
Companys future results may differ materially from current
results and from those projected in the forward-looking
statements as a result of known and unknown risks and
uncertainties. Readers should pay particular attention to
considerations described in the section captioned Risk
Factors, appearing in Part I  Item I of
this Annual Report on Form 10-K.






|        |         
|------- | --------
|Item 1. | Business

Corporate Profile

Cognex® Corporation (Cognex or
the Company, each of which includes, unless the
context indicates otherwise, Cognex Corporation and its
subsidiaries) was incorporated in Massachusetts in 1981. Its
corporate headquarters are located at One Vision Drive,
Natick, Massachusetts 01760 and its telephone number is
(508) 650-3000.

The Company designs, develops, manufactures, and
markets machine vision systems, or computers that can
see, which are used to automate a wide range of
manufacturing processes where vision is required. Machine vision
is important for applications in which human vision is
inadequate to meet requirements for feature size, accuracy, or
speed, or in instances where substantial cost savings are
obtained through the reduction of direct labor or improved
product quality. Today, many types of manufacturing equipment
require machine vision because of the increasing demands for
speed and accuracy in manufacturing processes, as well as the
decreasing feature size of items being manufactured.

The Company has two operating divisions: the
Modular Vision Systems Division (MVSD), based in Natick,
Massachusetts, and the Surface Inspection Systems
Division (SISD), based in Alameda, California. MVSD
designs, develops, manufactures, and markets modular vision
systems that are used to automate the manufacture of discrete
items, such as semiconductor chips, cellular phones, and light
bulbs, by locating, identifying, inspecting, and measuring them
during the manufacturing process. SISD designs, develops,
manufactures, and markets surface inspection vision systems that
are used to inspect the surfaces of materials processed in a
continuous fashion, such as paper, metals, plastics, and
non-wovens, to ensure there are no flaws or defects on the
surfaces. Historically, MVSD has been the source of the majority
of the Companys revenue, representing 81% of total revenue
in 2003.

What is Machine Vision?

Since the beginning of the Industrial Revolution,
human vision has played an indispensable role in the process of
manufacturing products. Human eyes did what no machines could do
themselves: locating and positioning work, tracking the flow of
parts, and inspecting output for quality and consistency. Today,
however, the requirements of many manufacturing processes have
surpassed the limits of human eyesight. Manufactured items often
are produced too quickly or with tolerances too small to be
analyzed by the human eye.

In response to manufacturers needs,
machine vision technology emerged, providing
manufacturing equipment with the gift of sight. In a typical
machine vision application, a video camera positioned on the
production line captures an image of the part to be inspected
and sends the image to the machine vision

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computer. The computer then uses sophisticated
image analysis software to extract information from the image
and generate a decision about the image, such as:


|                 |  |                                                                                 |  |                                                                                                                                         
|---------------- |  | ------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Question         |  | Description                                                                     |  | Example                                                                                                                                 
|                 |  |                                                                                 |  |                                                                                                                                         
|GUIDANCE         |  |                                                                                 |  |                                                                                                                                         
|Where is it?     |  | Determining the exact physical location and
    orientation of an object.       |  | Determining the position of a printed circuit
    board so that a robot can automatically be guided to insert
    electronic components.
|                
|IDENTIFICATION   |  |                                                                                 |  |                                                                                                                                         
|What is it?      |  | Identifying an object by analyzing its shape or
    by reading a serial number. |  | Identifying the serial number on an automotive
    airbag so that it can be tracked and processed correctly through
    manufacturing.  
|                
|INSPECTION       |  |                                                                                 |  |                                                                                                                                         
|How good is it?  |  | Inspecting an object for flaws or defects.                                      |  | Inspecting the paper that US currency is printed
    on.                                                                                
|                
|GAUGING          |  |                                                                                 |  |                                                                                                                                         
|What size is it? |  | Determining the dimensions of an object.                                        |  | Determining the diameter of a bearing prior to
    final assembly.                                                                      

Once the machine vision system has processed the
image and performed any necessary analysis, the result can then
be communicated to other equipment on the factory floor, such as
a robotic arm that will remove a bad part from the line. This
process is repeated for each part on the production line, or
continuously for process material, as it moves into position in
front of the video camera.

The Machine Vision Market

The machine vision market consists of two
customer types: original equipment manufacturers (OEMs) and end
users. OEM customers purchase Cognex machine vision systems and
integrate them into the capital equipment that they manufacture
and then sell to their customers, primarily companies in the
semiconductor and electronics industries that either make
computer chips or make printed circuit boards containing
computer chips. These customers have the technical expertise to
integrate Cognexs programmable machine vision systems
directly into their products, which are then sold to end users.

End-user customers purchase Cognex machine vision
systems and install them directly on their production lines to
automate the manufacture of a wide range of items in a variety
of industries. Unlike OEMs and system integrators, these
customers typically have limited computer programming or machine
vision experience. The Company sells its products to end users
through its own direct sales force, as well as through
distributors and system integrators. System integrators are
companies that create complete, automated inspection solutions
for end users. For example, they combine lighting, conveyors,
robotics, machine vision, and other components to produce custom
inspection systems for various applications.

Business Strategy

The Companys goal is to expand its position
as a leading worldwide supplier of machine vision systems for
factory automation. Within the factory automation market, the
Company has historically focused primarily on those industries
where machine vision has become essential, either from a
regulatory, economic, or manufacturing complexity standpoint,
for controlling the manufacturing process to ensure high quality
and/or reduce manufacturing costs.

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Emphasizing high value-added products and
applications is important to the Companys strategy because
not every segment of the machine vision market offers the
opportunity for sustained profitability. The Company believes
high value-added is realized in the Companys products in
several ways. The primary value-added is derived from offering
unique vision software algorithms that solve challenging
problems better than competing products. The other major mode of
realizing high value-added is by offering products that are
complete solutions to known problems, incorporating all of the
necessary vision software, applications software, hardware,
video cameras, and electro-optics. Both modes of realizing high
value-added require the Company to maintain an industry-leading
level of investment in research, development, and engineering.

Within the factory automation market, the Company
has tailored its product offerings to match the characteristics
of its two customer types: OEMs and end users. While the Company
has traditionally served the OEM market, the end-user business
represents a potentially much larger market for machine vision
and the Company believes that the end-user business will account
for the majority of its total revenue in the future.
Consequently, the Company has invested in developing and
acquiring easy-to-use products that meet the needs of end users
and in developing a strong worldwide sales and support
infrastructure. The Company will continue to invest in both
customer types, defending its strong position in the OEM market
while expanding in the end-user market. In 2003, approximately
62% of the Companys revenue came from end-user customers.

The Company has historically pursued a global
business strategy, investing in building a strong presence in
North America, Japan, Europe, and Southeast Asia. In all of
these regions, the Company is acknowledged to be a leading
machine vision supplier. The Company intends to continue to
invest in the expansion of sales and support in these regions.
In 2003, approximately 66% of the Companys revenue came
from customers based outside of the United States.

The Companys business strategy includes
selective expansion into other machine vision applications
through the internal development of new products, as well as the
acquisition of businesses and technologies. Since 1995, the
Company has completed nine business and technology acquisitions,
most of which were targeted at expanding the Companys
presence in the worldwide end-user marketplace. The Company
plans to continue to seek opportunities to expand its product
line, customer base, and technical talent through acquisitions
in the machine vision industry.

Products



| |                        
| | -----------------------
| | In-Sight Vision Sensors

The Company is firmly positioned in the
fast-growing market for vision sensors with its
In-SightTM product line. Vision sensors are machine
vision systems that combine a video camera, software, vision
processor, and input/output capability in a low-cost, compact,
easy-to-use package. They are designed for a number of
general-purpose vision tasks including part location,
identification, measurement, and assembly verification. The
In-Sight product line provides Cognexs industry-leading
machine vision technology in a choice of affordable platforms
that do not require programming skills to deploy.

In late 2003, the Company introduced the In-Sight
3400. This new high-performance model extends the line of
standalone Cognex vision sensors that provide complete vision
application development and deployment without requiring a PC.
The 3400 features a rugged, die-cast aluminum vision processing
unit and a compact, high-speed digital camera. As with most
other In-Sight vision sensors, the 3400 is Ethernet-enabled and
equipped with a full library of Cognex vision software tools.

The In-Sight 4000 Series consists of three
models: the In-Sight 4000, which provides fast frame rates and
accelerated vision tool performance, the In-Sight 4001, a high
resolution version of the 4000, and the In-Sight 4100, a
compact, remote head camera version of the 4000.

The In-Sight 1000 is the Companys
entry-level In-Sight product. The In-Sight 1000 combines a
video camera, software, and processing in a single, compact
unit. The In-Sight 1000C includes the same features as the
In-Sight 1000, with the added ability to inspect and sort
parts based on their color.

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The first In-Sight products, the
In-Sight 2000 and In-Sight 3000, are general-purpose
vision sensors featuring a vision processing unit and separate
video camera.

In-Sight is sold primarily to end users located
in North America, Japan, Europe, and Southeast Asia in a wide
range of general manufacturing industries, such as medical
devices, automotive parts, disposable consumer goods, and
electronic components. During the third quarter of 2003, the
Company began selling its In-Sight product line to select
distributors located in the United States for resale to end
users.



| |                        
| | -----------------------
| | PC-based Vision Systems

The Company sells a full range of PC-based vision
systems that offer high-speed image acquisition, system
flexibility, and the Companys most extensive library of
vision software tools. The software library features
PatMax®, high-accuracy pattern location software that can
locate objects that vary in size and orientation or whose
appearance is degraded.

In 2003, the Company introduced PatFlex, a new
software tool in the PatMax family of pattern location
technologies. PatFlex enables a vision system to locate an
object, feature, or pattern whose perspective has changed or
whose surface is curved, warped, wrinkled, or stretched.



| |                        
| | -----------------------
| | MVS-8000 Product Family

The MVS-8000TM family of programmable
machine vision systems combines Cognexs unique algorithms
with Intels MMX instruction set. The MVS-8100 Series
features PCI bus-mastering frame grabbers for high-speed image
transfer from the video camera to the host PC for processing and
display. The MVS-8200 Series of embedded CPU machine vision
systems enables all vision processing to occur on-board, freeing
the PC to perform other tasks.

In 2003, the Company introduced the MVS-8500
Series of frame grabbers. These new frame grabbers are designed
to support next generation, high-speed analog cameras that use
the latest progressive scan CCD sensor technology. The Cognex
MVS-8504 offers four completely independent channels supporting
up to four cameras and is designed to handle asynchronous,
synchronous, and dual tap image acquisition. The MVS-8501
provides the high-speed acquisition capability of the MVS-8504,
in a cost-effective, single-channel architecture that supports
up to four multiplexed cameras.

The MVS-8000 product family is sold primarily to
OEMs located in North America, Japan, Europe, and Southeast Asia
who integrate the machine vision systems into capital equipment
for the semiconductor and electronics industries. These vision
systems are also sold to system integrators located in North
America, Japan, Europe, and Southeast Asia who integrate them
into capital equipment for end users in a broad range of
industries.



| |                         
| | ------------------------
| | VisionPro Product Family

VisionPro®, is an Active X-based vision
system that combines Cognex machine vision technology with quick
and powerful application development. These PC-based systems
offer the flexibility of an advanced programming language with
the simplicity of graphical prototyping, speeding time-to-market
for OEMs, system integrators, and advanced manufacturing
engineers. VisionPros powerful software, combined with
Cognex MVS-8100 and 8500 Series frame grabbers, provide a
complete vision system to solve demanding applications.

In 2003, the Company expanded the functionality
of the VisionPro systems with the addition of new
high-performance software tools. The new tools reduce setup
time, improve process yield, and provide new options for pattern
training in a broad range of semiconductor and other
manufacturing applications that require general-purpose machine
vision for inspection, measurement, identification, and guidance.

The VisionPro product family is sold to OEMs,
system integrators, and end users located in North America,
Japan, Europe, and Southeast Asia in a wide range of industries.

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| |                                                 
| | ------------------------------------------------
| | Application Specific PC-based Vision
    Systems

The Company offers a variety of
application-specific systems that combine Cognex PC-based
hardware and software to create a solution that is tailored to
the particular requirements of certain vision applications. A
partial list of application-specific systems is as follows:

SMD
4TMguides the placement of surface mount devices onto printed
circuit boards and other assemblies.

BGA
IITMinspects ball grid array devices for missing, misplaced, or
improperly formed solder balls.

Fiducial Finder
IITMlocates fiducial or alignment marks on printed circuit boards
for automatic printed circuit board alignment.

DisplayInspect®inspects the small, high-resolution displays commonly found on
cellular phones, pagers, medical test instruments, and other
electronic devices.

FiberInspectTMis a machine vision system specifically designed to
automatically detect and measure scratches, cracks, and spots
that form during the fiber end polishing process.

TIS-8000TMTire Identification System and WIS-8000TM Wheel
Identification System are high-performance identification
systems for automatically identifying tires and wheels by their
unique characteristics. The systems ensure the presence of
correct tires or wheels at any point in the manufacturing or
assembly process.

Application-specific systems are targeted to
OEMs, system integrators, and end users located in North
America, Japan, Europe, and Southeast Asia in a wide range of
industries, depending upon the application.

Digital Cameras
for PC-based Products

Cognex designs, develops, manufactures, and
markets the CDC Series of digital Complementary Metal-Oxide
Semiconductor (CMOS) cameras designed specifically for
machine vision applications. The CDC-200, introduced in 2003,
includes global shutter capability and faster frame rates and
brings high-resolution image acquisition to high-speed moving
applications without sacrificing image quality or performance.
The CDC-50 is a standard format digital camera. All CDC cameras
are designed for use with the MVS-8100D digital frame grabber.
These products, in combination with Cognexs vision
software, provide a complete, tightly-integrated solution to the
Companys PC-based vision customers.



| |                      
| | ---------------------
| | Industrial ID Systems

The Company continues to serve the Industrial ID
market with systems designed to quickly and reliably read codes
(e.g. serial numbers, bar codes, or two-dimensional codes) that
have been stamped, scribed, etched, printed, or otherwise formed
directly on the surfaces of manufactured goods ranging from
pharmaceutical items to aircraft components to semiconductor
wafers. The Company currently markets two Industrial ID systems,
and plans to introduce several new fixed-mount and hand-held
readers in 2004.

In-Sight
1010TMis a compact, fixed-mount, ethernet-ready ID reader designed
specifically for reading 2D matrix and linear bar codes marked
directly on parts. In 2003, the Company added the ability to
read Composite Symbology (CS) in addition to Reduced Space
Symbology (RSS) codes on pharmaceutical packages for the
purpose of product identification and traceability.

In-Sight
1700TMis a compact reader for identifying and tracking semiconductor
wafers through the manufacturing process by reading 2D matrix,
alphanumeric, and bar codes on wafers. The In-Sight 1701 model
is an enhanced version of the In-Sight 1700 wafer reader,
offering advanced optics technology for reading identification
scribes on wafers.

Industrial ID systems are sold to OEMs, system
integrators, and end users located in North America, Japan,
Europe, and Southeast Asia in a wide range of industries.

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| |               
| | --------------
| | Expert Sensors

In 2003, Cognex entered the market for ultra-low
cost vision sensors that are designed to solve specific
automation problems. The Companys first product in this
line of expert sensors is the Cognex CPS-1000. The CPS-1000 is a
vision sensor designed for door security; it detects and counts
people as they pass through an access-controlled doorway. The
CPS-1000 utilizes Cognexs existing vision software, as
well as patented 2D and 3D vision technology that Cognex has
recently developed specifically for people sensing
applications.

The Company is currently developing a new
generation of expert sensors that are expected to compete in the
worldwide market for presence sensing technology.

Expert sensors are currently sold to OEM
customers located in North America.

Surface Inspection Systems

The SmartView® surface/web inspection
system provides reliable detection, identification, and
visualization of defects on products which are manufactured in a
continuous process. The SmartView system provides greyscale
imaging capability to visualize the defects, as well as a
high-quality snapshot of the inspected surface or web. Most
advanced open data access capabilities embedded into the
SmartView system ensure real-time inspection control and data
access between the SmartView system and other business,
production, and quality systems in the mill. The SmartView
system is a modular and scalable system on a Microsoft
Windows-based platform that enables the Company to expand into
more complex vision applications in the paper, metals, plastics,
and nonwovens industries.

In 2003, the Company expanded the detection and
identification capabilities of the SmartView system. By
leveraging these enhanced capabilities, the SmartView system
gives users greater inspection capabilities and enables them to
meet increasing quality requirements. SmartView is sold
primarily to end users located in North America, Japan, Europe,
and Southeast Asia in the paper, metals, plastics, and nonwovens
industries. In 2003, sales to customers in the paper industry
grew 39%, and represented 45% of surface inspections systems
revenue.

Research, Development, and
Engineering

The Company engages in research, development, and
engineering (R, D & E) to enhance its existing
products and to develop new products and functionality to meet
market opportunities. In addition to internal research and
development efforts, the Company intends to continue its
strategy of gaining access to new technology through strategic
relationships and acquisitions where appropriate. The Company
considers its on-going efforts in R, D & E to
be a key component of its strategy.

At December 31, 2003, the Company employed
170 professionals in R, D & E, most of whom are
software developers. The Companys R,
D & E expenses totaled $24,719,000, $25,630,000,
and $30,094,000, or 16%, 22%, and 21% of revenue, in 2003, 2002,
and 2001, respectively.

Manufacturing

The Companys MVSD manufacturing
organization utilizes a turnkey operation whereby the majority
of component procurement, subassembly, final assembly, and
initial testing are performed under agreement by third-party
contract manufacturers. After the completion of initial testing,
the contract manufacturers deliver the products to the
Companys Natick, Massachusetts facility for final testing,
quality control, and shipment to the customer. The contract
manufacturers use specified components and assembly and test
documentation created and controlled by the Company. From time
to time, the Company will procure large quantities of
end-of-life components for strategic purposes that will not be
consumed within one year. Certain components are presently
available only from a single source.

The Companys SISD products are manufactured
at its Alameda, California facility, with the exception of the
frames on which the cameras are mounted. The manufacturing
process at the Alameda facility consists of system design,
configuration management and control, component procurement, and
subassembly. After

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the completion of subassembly at the Alameda
facility, some of the systems are delivered to the
Companys Kuopio, Finland facility where the frames are
manufactured. The manufacturing process at the Kuopio facility
consists of system integration with the frames, final testing,
quality control, and shipment to the customer. Certain products
are manufactured by third-party contract manufacturers using
documentation created and controlled by the Company. Certain
components are presently available only from a single source.


Sales and Service

The Company sells its MVSD and SISD products
primarily through a direct sales force in North America, Japan,
Europe, and Southeast Asia. At December 31, 2003, the
Companys direct sales force consisted of 172
professionals, including sales and application engineers. The
majority of the Companys sales force holds engineering or
science degrees. Sales engineers call directly on targeted
accounts and coordinate the activity of the application
engineers. In addition, the Company sells its MVSD products to
end users through system integrators, and sells its MVSD
In-Sight product line through distributors in select locations
in the United States.

Sales to customers based outside of the United
States represented approximately 66% of revenue in 2003,
compared to 60% in 2002 and 63% in 2001. No customer accounted
for greater than 10% of revenue in 2003, 2002, or 2001. Although
international sales may from time to time be subject to federal
technology export regulations, to date the Company has not
suffered significant delays or prohibitions in sales to any of
its foreign customers. Financial information about segments and
geographic areas may be found in the Notes to the Consolidated
Financial Statements, appearing on pages 31 and 32 of the
Annual Report to Stockholders for the year ended
December 31, 2003, which is Exhibit 13 hereto, and is
incorporated herein by reference.

The Companys MVSD service offerings include
maintenance and support, education, and consulting services.
Maintenance and support programs include hardware support
programs that entitle customers to have failed product repaired,
as well as software support programs that provide customers with
application support and software updates on the latest software
releases. Education services include a variety of product
courses that are available at the Companys offices
worldwide, at customer facilities, and on computer-based
tutorials, video, and the Internet. The Company provides
consulting services that range from a specific area of
functionality to a completely integrated machine vision
application.

The Companys SISD service offerings include
maintenance and support and education services similar to those
provided by MVSD, as well as installation services. The
installation services group supervises the physical installation
of the hardware at the customer location, configures the
software application to detect the customers defects,
validates that the entire integrated system with the peripheral
components is functioning according to the specifications, and
performs operator training.

Intellectual Property

Because the Company relies on the technical
expertise, creativity, and knowledge of its personnel, it
utilizes patent, trademark, copyright, and trade secret
protection to safeguard its competitive position. At
December 31, 2003, the Company had obtained 146 patents on
various innovations in the field of machine vision technology
and had more than 120 patent applications pending. In addition,
the Company makes use of non-disclosure agreements with
customers, suppliers, employees, and consultants. The Company
attempts to protect its intellectual property by restricting
access to its proprietary information by a combination of
technical and internal security measures. There can be no
assurance, however, that any of the above measures will be
adequate to protect the proprietary technology of the Company.
Effective patent, trademark, copyright, and trade secret
protection may be unavailable in certain foreign countries.

The Companys trademark and servicemark
portfolio includes various registered marks, including but not
limited to, Cognex®, PatMax®, VisionPro®,
DisplayInspect®, and SmartView®, as well as many
common-law marks, including but not limited to,
In-SightTM and MVS-8000TM. In addition,
the Company has sought and obtained a number of trademark
registrations outside of the United States. All third-party
brand names, servicemarks, and trademarks referenced in this
document are the property of their respective owners.

8



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The Companys software products are
protected by various security schemes and are primarily licensed
to customers pursuant to a license agreement that restricts the
use of the products to the customers purposes, as well as
imposes strict limitations on the customers use of the
Companys trade secret, proprietary, and other confidential
business information to which the customer may have access. The
Company has made portions of the source code available to
certain customers under very limited circumstances and for
restricted uses. If the source code is released to a customer,
the customer is required by contract to maintain its
confidentiality and, in general, to use the source code solely
for internal purposes or for maintenance.

Numerous users of the Companys products
have received notice of patent infringement from the Lemelson
Medical, Educational, & Research Foundation, Limited
Partnership (the Partnership) alleging that their
use of the Companys products infringes certain patents
transferred to the Partnership by the late Jerome H.
Lemelson. Certain of these users have notified the Company that,
in the event it is subsequently determined that their use of the
Companys products infringes any of the Partnerships
patents, they may seek indemnification from the Company for
damages or expenses resulting from this matter. Cognex disclaims
liability with respect to such indemnification requests. The
Company does not believe its products infringe any valid and
enforceable claims of the Partnerships patents.

Since July, 1998, the Partnership has filed
numerous lawsuits against hundreds of companies within many
industry sectors asserting infringement upon numerous Lemelson
patents including certain machine vision patents. Some of the
defendants are users of the Companys products that were
purchased primarily from the Companys OEM customers whose
equipment incorporates such products. As a result of this action
and the continuing assertions against other current and
potential Cognex customers, the Company decided to initiate
action against the Partnership in order to preserve its right to
sell machine vision products without the threat of legal action
against the Company or its customers. Accordingly, on
September 23, 1998, the Company filed a complaint against
the Partnership seeking a declaration that Lemelsons
machine vision patents are invalid, unenforceable, and not
infringed by either Cognex or by any users of Cognex products.
After the judge in Massachusetts ruled that Massachusetts was
not the proper jurisdiction, the Company refiled in Reno, Nevada
on September 27, 1999 in the United States District Court,
District of Nevada.

The bench trial against the Partnership began on
November 18, 2002 in Las Vegas, Nevada, and ended on
January 17, 2003. On January 23, 2004, Chief Judge Pro
issued his court order ruling in favor of Cognex and finding
that all of the Lemelson patents in suit are unenforceable,
invalid, and not infringed by Cognex. The Partnership has
indicated their intention to appeal the ruling. Cognex cannot
predict the outcome of any such appeal.

Compliance with Environmental
Provisions

The Companys capital expenditures,
earnings, and competitive position are not materially affected
by compliance with federal, state, and local environmental
provisions which have been enacted or adopted to regulate the
distribution of materials into the environment.

Competition

The Company competes with other vendors of
machine vision systems, the internal engineering efforts of the
Companys current or prospective customers, and the
manufacturers of image processing systems. Any of these
competitors may have greater financial and other resources than
the Company. Although the Company considers itself to be one of
the leading machine vision companies in the world, reliable
estimates of the machine vision market and the number of
competitors are not available.

The primary competitive factors affecting the
choice of a machine vision system include vendor reputation,
product functionality and performance (e.g. speed, accuracy, and
reliability) under real-world operating conditions, ease-of-use,
and the availability of application support from the vendor.
More recently, product price has become a more significant
factor. The Company competes with low-cost smart camera and
vision sensor solutions being introduced by various competitors
on the basis of superior performance and price, rather than on
price alone, through its In-Sight product line.

9



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Backlog

At December 31, 2003, the Companys
backlog totaled $25,930,000, compared to $25,992,000 at
December 31, 2002. Backlog reflects purchase orders for
products scheduled for shipment primarily within three months.
The level of backlog at any particular date is not necessarily
indicative of future revenue of the Company. Certain of the
Companys end-user products, primarily the In-Sight product
line, typically ship within one week of when the order is
booked. In addition, delivery schedules may be extended and
orders may be canceled at any time subject to certain
cancellation penalties.

Employees

At December 31, 2003, the Company employed
634 persons, including 289 in sales, marketing, and service
activities; 170 in research, development, and engineering;
67 in manufacturing and quality assurance; and 108 in
information technology, finance, and administration. Of the
Companys 634 employees, 218 are based outside of the
United States. None of the Companys employees are
represented by a labor union and the Company has experienced no
work stoppages. The Company believes that its employee relations
are good.

Risk Factors



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Unfavorable changes in economic conditions
    and capital spending may negatively impact the Companys
    operating results.

The Companys revenue is dependent upon the
capital spending trends of manufacturers in a number of
industries and regions. These spending levels are, in turn,
impacted by global economic conditions. In the past, the
Companys operating results have been materially adversely
affected as a result of unfavorable economic conditions and
reduced capital spending by manufacturers worldwide.



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Downturns in the semiconductor and
    electronics industries may adversely affect the Companys
    business.

In 2003, approximately 48% of the Companys
revenue was derived from customers directly or indirectly
related to the semiconductor and electronics industries. This
concentration has been as high as 78% in the past five years
depending upon business trends in these industries. The
semiconductor and electronics industries are highly cyclical and
have historically experienced periodic downturns, which have
often had a severe effect on demand for production equipment
that incorporates the Companys products. While the Company
has been successful in recent years in diversifying its business
beyond OEM customers who serve the semiconductor and electronics
industries, the Company is still largely dependent upon the
capital expenditures in these industries, which, in turn, are
dependent upon the market demand for products containing
computer chips. As a result, the Companys operating
results in the foreseeable future could be significantly and
adversely affected by a slowdown in either of these industries.



| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Economic, political, and other risks
    associated with international sales and operations could
    adversely affect the Companys business and operating
    results.

In 2003, approximately 66% of the Companys
revenue was derived from customers located outside of the United
States. The Company anticipates that international sales will
continue to account for a significant portion of its revenue.
The Company intends to continue to expand its operations outside
of the United States and to enter additional international
markets, which will require significant management attention and
financial resources. The Companys operations are subject
to the risks inherent in international sales, including, but not
limited to, various regulatory requirements, transportation
delays, difficulties in staffing and managing foreign sales
operations, and potentially adverse tax consequences. In
addition, fluctuations in foreign currency exchange rates may
render the Companys products less competitive relative to
local product offerings, or could result in significant foreign
currency losses if not properly hedged. The Company is also
subject to the political risks inherent in international
operations and their impact on the global economy, including
economic disruption from acts of war or terrorism, particularly
in the aftermath of the terrorist attacks of September 11,
2001. Any of these factors could have a material adverse effect
on the Companys operating results.

10



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| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Fluctuations in foreign exchange rates
    could materially affect the Companys reported
    results.

The Company faces exposure to adverse movements
in foreign currency exchange rates as a significant portion of
its revenue, expenses, assets, and liabilities are denominated
in currencies other than the functional currencies of the
Company or its subsidiaries. In certain instances, the Company
utilizes derivative instruments to hedge against certain foreign
currency fluctuations. These contracts are used to reduce the
Companys risk associated with foreign currency exchange
rate changes, as the gains or losses on the derivative are
intended to offset the losses or gains on the underlying
exposure. The Company does not engage in foreign currency
speculation. The success of the Companys foreign currency
risk management program depends upon forecasts of transaction
activity denominated in various currencies. To the extent that
these forecasts are overstated or understated during periods of
currency volatility, the Company could experience unanticipated
foreign currency gains or losses that could have a material
impact on the Companys results of operations. In addition,
the failure to identify new exposures and hedge them in a timely
manner may result in material foreign currency gains or losses.



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | The loss of a large customer could have an
    adverse effect on the Companys operating
    results.

In 2003, the Companys top five customers
accounted for 15% of total revenue. In recent years, the
Companys expansion into the end-user marketplace has
reduced its reliance upon the revenue from any one of its larger
OEM customers. For example, the top five customers in 2003
included one SISD customer. Nevertheless, the loss of, or
significant curtailment of purchases by, any one or more of the
Companys larger customers could have a material adverse
effect on the Companys operating results.



| |                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The failure of a key supplier to deliver
    quality product in a timely manner or the Companys
    inability to obtain components for its products could adversely
    affect the Companys operating results.

A significant portion of the Companys MVSD
inventory is manufactured by a third-party contractor. The
Company is dependent upon this contractor to provide quality
product and meet delivery schedules. The Company engages in
extensive product quality programs and processes, including
actively monitoring the performance of its third-party
manufacturers. In addition, a variety of components used in the
Companys products are only available from a single source.
The announcement by a single-source supplier of a last-time
component buy could result in a significant amount of inventory
purchases, that in turn, could lead to an increased risk of
inventory obsolescence. An interruption in, termination of, or
material change in the purchase terms of any single-source
components could have a material adverse effect on the
Companys operating results.



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | The Companys business could suffer if
    it loses the services of, or fails to attract, key
    personnel.

The Company is highly dependent upon the
management and leadership of Robert J. Shillman, President,
Chief Executive Officer, and Chairman of the Board of Directors
of the Company, as well as other members of the Companys
senior management team, many of whom would be difficult to
replace. Although the Company has retained other experienced and
qualified senior managers, the loss of certain key personnel
could have a material adverse effect on the Company. The
Companys continued growth and success also depends upon
its ability to attract and retain skilled employees and on the
ability of its officers and key employees to effectively manage
the growth of the Company through the implementation of
appropriate management information systems and internal controls.



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Products that the Company manufactures may
    contain design or manufacturing defects, which could result in
    reduced demand, significant delays, or substantial
    costs.

If flaws in either the design or manufacture of
the Companys products were to occur, the Company could
experience a rate of failure in its products that could result
in significant delays in shipment and material repair or
replacement costs. While the Company engages in extensive
product quality programs and processes, including actively
monitoring and evaluating the quality of its component suppliers
and contract manufacturers, there can be no assurance that these
actions will be sufficient to avoid a product failure rate that
results in

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substantial delays in shipment, significant
repair or replacement costs, or potential damage to the
Companys reputation, any of which could have a material
adverse effect on the Companys operating results.




| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | The Companys failure to accurately
    forecast customer demand could result in inventory obsolescence
    and resulting charges.

In recent years, the Company has expanded its
presence in the end-user marketplace, which accounted for
approximately 62% of the Companys revenue in 2003,
compared to only 37% in 2000. The Companys end-user
business typically operates with a relatively short backlog and
production plans are based on internal forecasts of customer
demand. Due to these factors, the Company has in the past, and
may again in the future, fail to accurately forecast demand, in
terms of both volume and configuration for either its legacy or
next-generation products. This has led to, and may again in the
future lead to, an increased risk of inventory obsolescence and
resulting charges.



| |                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to develop new products and to
    respond to technological changes could result in the loss of
    market share and a decrease in the Companys
    revenues.

The market for the Companys products is
characterized by rapidly changing technology. Accordingly, the
Company believes that its future success will depend upon its
ability to develop or acquire new products with improved
price/performance and introduce them to the marketplace in a
timely manner. There can be no assurance that the Company will
be able to introduce and market new products successfully and
respond effectively to technological changes or new product
introductions by competitors. The inability to keep pace with
the rapid rate of technological change in the high-technology
marketplace could have a material adverse effect on the
Companys operating results.



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | If the Company fails to successfully defend
    its intellectual property, its competitive position and
    operating results could suffer.

The Company relies heavily on its proprietary
software technology and hardware designs, as well as the
technical expertise, creativity, and knowledge of its personnel.
Although the Company uses a variety of methods to protect its
intellectual property, it relies most heavily on patent,
trademark, copyright, and trade secret protection, as well as
non-disclosure agreements with customers, suppliers, employees,
and consultants. The Company attempts to protect its
intellectual property by restricting access to its proprietary
information by a combination of technical and internal security
measures. There can be no assurance, however, that any of these
measures will be adequate to protect the proprietary technology
of the Company, that any patents issued to the Company will not
be challenged, invalidated, or circumvented, or that the rights
granted thereunder will provide competitive advantages to the
Company. Any such adverse circumstances could have a material
effect on the Companys operating results. Readers should
refer to the section captioned Intellectual
Property, appearing in Part I  Item I of
this Annual Report on Form 10-K.



| |                                                     
| | ----------------------------------------------------
| | The Company may be subject to costly
    litigation.

From time to time, the Company may be subject to
various claims and lawsuits by competitors, customers, or other
parties arising in the ordinary course of business, including
lawsuits charging patent infringement. Such matters can be
time-consuming, divert managements attention and
resources, and cause the Company to incur significant expenses.
Furthermore, there can be no assurance that the results of any
of these actions will not have a material adverse effect on the
Companys operating results.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Increased competition may result in
    decreased demand or prices for the Companys products and
    services.

The Company competes with other vendors of
machine vision systems, the internal engineering efforts of the
Companys current or prospective customers, and the
manufacturers of image processing systems. Any of these
competitors may have greater financial and other resources than
the Company. In recent years, ease-of-use and product price have
become significant competitive factors in the end-user
marketplace. The Company competes with low-cost smart camera and
vision sensor solutions being introduced by various competitors
on

12



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##### Table of Contents



the basis of superior performance and price,
rather than on price alone, through its In-Sight product line.
There can be no assurance that the Company will be able to
compete successfully in the future or that the Companys
investments in research and development, sales and marketing,
and service activities will prove sufficient to enable the
Company to maintain its competitive advantage. In addition,
competitive pressures could lead to price erosion that could
materially and adversely affect the Companys operating
results. Readers should refer to the section captioned
Competition, appearing in Part I 
Item 1 of this Annual Report on Form 10-K.




| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Implementation of the Companys
    acquisition strategy may not be successful, which could affect
    the Companys ability to increase its revenue or
    profitability.

The Companys business strategy includes
selective expansion into other machine vision applications
through the acquisition of businesses and technologies. Since
1995, the Company has completed nine business and technology
acquisitions. The Company plans to continue to seek
opportunities to expand its product line, customer base, and
technical talent through acquisitions in the machine vision
industry. Acquisitions involve numerous risks, including, but
not limited to, diversion of managements attention from
other operational matters, the inability to realize expected
synergies resulting from the acquisition, failure to
commercialize purchased technology, and the impairment of
acquired intangible assets resulting from technological
obsolescence or lower-than-expected cash flows from the acquired
assets. Acquisitions are inherently risky and the inability to
effectively manage these risks could have a material adverse
effect on the Companys operating results.



| |                                                                     
| | --------------------------------------------------------------------
| | The trading price of the Companys
    common stock may be volatile.

The price of the Companys common stock has
historically experienced significant volatility due to
fluctuations in the Companys revenue and earnings, changes
in the markets expectations for the Companys growth,
overall equity market conditions, conditions relating to the
market for technology stocks, general economic conditions, and
other factors unrelated to the Companys operations. The
stock markets have experienced extreme price volatility in
recent years. This volatility has had a substantial effect on
the market prices of securities issued by many technology
companies, often for reasons unrelated to the operating results
of the specific company.

Available Information

The Company maintains a website on the World Wide
Web at www.cognex.com. The Company makes available, free
of charge, on its website in the section captioned
Investors  Annual Reports its Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, as
soon as reasonably practicable after such reports are
electronically filed with, or furnished to, the SEC. The
Companys reports filed with, or furnished to, the SEC are
also available at the SECs website at www.sec.gov.
Information contained on the Companys website is not a
part of, or incorporated by reference into, this Annual Report
on Form 10-K.




Item
2:     Properties

In 1994, the Company purchased and renovated a
100,000 square-foot building located in Natick, Massachusetts
that serves as its corporate headquarters. In 1997, the Company
completed construction of a 50,000 square-foot addition to this
building.

In 1995, the Company purchased an 83,000
square-foot office building adjacent to its corporate
headquarters. The building is currently largely occupied with
tenants who have lease agreements that expire at various dates
through 2004. The Company uses a portion of the space for
storage of its inventory.

In 1997, the Company purchased a three and
one-half acre parcel of land situated on Vision Drive, adjacent
to the Companys corporate headquarters. This land is being
held for future expansion.

13



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##### Table of Contents






Item 3:     Legal
Proceedings

To the Companys knowledge, there are no
pending legal proceedings, other than as described in the
section captioned Intellectual Property, appearing
in Part I  Item I of this Annual Report on
Form 10-K, which are material to the Company. From time to
time, however, the Company may be subject to various claims and
lawsuits by competitors, customers, or other parties arising in
the ordinary course of business, including lawsuits charging
patent infringement. There can be no assurance as to the outcome
of any of this litigation.




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, 2003 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, 2003:

|                   |  |     |    |       |  |                                                                                                
|------------------ |  | --- | -- | ----- |  | -----------------------------------------------------------------------------------------------
|Name               |  | Age |    | Title
|                   |  |     |    |      
|Robert J. Shillman |  |     | 57 |       |  | President, Chief Executive Officer, and Chairman
    of the Board of Directors                 
|Patrick Alias      |  |     | 58 |       |  | Executive Vice President and Director                                                          
|James Hoffmaster   |  |     | 52 |       |  | Chief Operating Officer and President, MVSD                                                    
|Richard Morin      |  |     | 54 |       |  | Senior Vice President of Finance and
    Administration, Chief Financial Officer, and Treasurer

Messrs. Shillman, Alias, and Morin have been
employed by the Company in their present or other capacities for
no less than the past five years.

Mr. Hoffmaster joined the Company in 2001.
Prior to joining the Company, Mr. Hoffmaster was the Chief
Executive Officer of Fibersense, a Massachusetts-based company
specializing in the application of fiber optic technology to
gyroscopes and other sensors. Prior to that, Mr. Hoffmaster
served as President of Fisher-Rosemount Systems, a division of
Emerson Electric. He holds a Masters of Computer and Information
Science degree and a Bachelor of Arts degree in Economics from
Cleveland State University.

Mr. Morin joined the Company in 1999 after
ten years as Chief Financial Officer for C&K Components,
Inc., an international manufacturer of electronic components and
security systems. Mr. Morin also served as Corporate
Controller and Vice President of Finance for the Jamesbury
Corporation. He holds a Bachelor of Arts degree in Economics and
Accounting from The College of the Holy Cross and is a Certified
Public Accountant.

Executive officers are elected annually by the
Board of Directors. There are no family relationships among the
directors and executive officers of the Company.

Other members of the senior management team
include the following individuals:

|                    |  |     |    |       |  |                                                                    
|------------------- |  | --- | -- | ----- |  | -------------------------------------------------------------------
|Name                |  | Age |    | Title
|                    |  |     |    |      
|Eric Ceyrolle       |  |     | 50 |       |  | President, Cognex International                                    
|Markku Jaaskelainen |  |     | 49 |       |  | Senior Vice President and General Manager, SISD                    
|Marilyn Matz        |  |     | 50 |       |  | Senior Vice President of Engineering, MVSD                         
|E. John McGarry     |  |     | 47 |       |  | Senior Vice President and General Manager,
    Portland Operations 
|Akira Nakamura      |  |     | 59 |       |  | President, Cognex K.K.                                             
|Kris Nelson         |  |     | 56 |       |  | Senior Vice President of Sales, North America                      
|William Silver      |  |     | 50 |       |  | Senior Vice President of R&D and Chief
    Technology Officer, MVSD
|Justin Testa        |  |     | 51 |       |  | Senior Vice President of Marketing, MVSD                           

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Messrs. Ceyrolle, Jaaskelainen, McGarry,
Nelson, Silver, and Testa and Ms. Matz have been employed
by the Company in their present or other capacities for no less
than the past five years.

Mr. Jaaskelainen joined the Company in 1999.
Prior to joining the Company, Mr. Jaaskelainen served as
Vice President of Systems Strategy for Honeywell-Measurex
Corporation, where he was responsible for overseeing and
coordinating all new product development. He holds a
Masters degree and Ph.D. in Physics from the University of
Jyvaskyla, Finland.

Mr. Nakamura joined the Company in 2000
after having served as President of Intergraph Japan, K.K., a
worldwide provider of CAD/CAM technology. Prior to that,
Mr. Nakamura spent 20 years in sales and sales
management at senior levels for IBM Japan. Mr. Nakamura
holds a Bachelor of Science degree in Electronic Communication
from Tohoku University.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5: | Market for Registrants Common Equity
    and Related Stockholder Matters

Information with respect to this item may be
found in the sections captioned Selected Quarterly
Financial Data (Unaudited) and Company
Information, appearing on pages 36 and 37 of the
Annual Report to Stockholders for the year ended
December 31, 2003, which is Exhibit 13 hereto, and is
incorporated herein by reference.

The following table provides information as of
December 31, 2003 regarding shares of common stock that may
be issued under the Companys existing equity compensation
plans, including the 1998 Director Plan, the 1998 Stock
Incentive Plan, the 2001 General Stock Option Plan, and the 2001
Interim General Stock Incentive Plan. The Company also has an
Employee Stock Purchase Plan (ESPP).

|                                                           |  |                                      |            |                           |  |                              |       |  |  |  |           |    
|---------------------------------------------------------- |  | ------------------------------------ | ---------- | ------------------------- |  | ---------------------------- | ----- |  |  |  | --------- | ---
|                                                           |  |                                      |            |                          
|                                                           |  | Equity Compensation Plan Information |            | Number of Securities     
|                                                           |  |                                      |            | Remaining Available for  
|                                                           |  | Number of Securities to be           |            | Weighted-Average Exercise |  | Future Issuance under Equity
|                                                           |  | Issued Upon Exercise of              |            | Price of Outstanding      |  | Compensation Plans          
|                                                           |  | Outstanding Options,                 |            | Options, Warrants, and    |  | (Excluding Securities       
|Plan Category                                              |  | Warrants, and Rights                 |            | Rights                    |  | Reflected in Column (a))    
|                                                           |  |                                      |            |                           |  |                             
|                                                           |  | (a)                                  |            | (b)                       |  | (c)                         
|Equity compensation plans approved by stockholders         |  |                                      | 10,593,589 | (1)                       |  | $                            | 22.92 |  |  |  | 1,716,978 | (2)
|Equity compensation plans not approved by
    stockholders |  |                                      | 392,781    |                           |  |                              | 21.20 |  |  |  | 7,500,000 |    
|                                                           |  |                                      |            |                           |  |                              |       |  |  |  |           |    
|                                                           |  |                                      | 10,986,370 |                           |  | $                            | 22.85 |  |  |  | 9,216,978 |    
|                                                           |  |                                      |            |                           |  |                              |       |  |  |  |           |    



---



|    |                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include purchase rights accruing under
    the ESPP because the purchase price (and therefore the number of
    shares to be purchased) will not be determined until the end of
    the purchase period.
|   
|(2) | Includes 218,333 shares available for future
    issuance under the ESPP.                                                                                                                                        

The 2001 General Stock Option Plan was adopted by
the Board of Directors on December 11, 2001 without
stockholder approval. This plan provides for the granting of
nonqualified stock options to any employee who is actively
employed by the Company and is not an officer or director of the
Company. The maximum number of shares of common stock available
for grant under the plan is 7,500,000 shares. All option grants
must have an exercise price per share that is no less than the
fair market value per share of the Companys common stock
on the grant date and must have a term that is no longer than
fifteen years from the grant date. No stock options have been
granted under the 2001 General Stock Option Plan.

The 2001 Interim General Stock Incentive Plan was
adopted by the Board of Directors on July 17, 2001 without
stockholder approval. This plan provides for the granting of
nonqualified stock options to any employee who is actively
employed by the Company and is not an officer or director of the
Company. The

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##### Table of Contents



maximum number of shares of common stock
available for grant under the plan is 400,000 shares. All option
grants have an exercise price per share that is no less than the
fair market value per share of the Companys common stock
on the grant date and must have a term that is no longer than
fifteen years from the grant date. All 400,000 stock options
have been granted under the 2001 Interim General Stock Incentive
Plan.







|        |                        
|------- | -----------------------
|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 35 of the
Annual Report to Stockholders for the year ended
December 31, 2003, which is Exhibit 13 hereto, and is
incorporated herein by reference.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7: | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Information with respect to this item may be
found in the section captioned Managements
Discussion and Analysis of Financial Condition and Results of
Operations, appearing on pages 9 through 16 of the
Annual Report to Stockholders for the year ended
December 31, 2003, which is Exhibit 13 hereto, and is
incorporated herein by reference.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A: | Quantitative and Qualitative Disclosures
    About Market Risk

Information with respect to this item may be
found in the section captioned Quantitative and
Qualitative Disclosures About Market Risk, appearing on
pages 15 and 16 of the Annual Report to Stockholders for
the year ended December 31, 2003, which is Exhibit 13
hereto, and is incorporated herein by reference.






|        |                                                
|------- | -----------------------------------------------
|Item 8: | Financial Statements and Supplementary
    Data

Information with respect to this item, which
includes the consolidated financial statements and notes
thereto, reports of independent auditors, and supplementary
data, may be found on pages 17 through 36 of the Annual
Report to Stockholders for the year ended December 31,
2003, which is Exhibit 13 hereto, and is incorporated
herein by reference.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9: | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

On June 10, 2003, the Company filed a
Current Report, dated June 5, 2003, on Form 8-K
regarding the dismissal of PricewaterhouseCoopers LLP and the
engagement of Ernst & Young LLP as their principal
independent accountants.

There were no disagreements with accountants on
accounting or financial disclosure during 2003 or 2002.






|         |                        
|-------- | -----------------------
|Item 9A: | Controls and Procedures

As required by Rules 13a-15 and 15d-15 of
the Securities Exchange Act of 1934, the Company has evaluated
with the participation of management, including the Chief
Executive Officer and the Chief Financial Officer, as of the end
of the period covered by this report, the effectiveness of the
design and operation of its disclosure controls and procedures.
Based on such evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that such disclosure controls
and procedures are effective in ensuring that material
information relating to the Company, including its consolidated
subsidiaries, is made known to the certifying officers by others
within the Company and its consolidated subsidiaries during the
period covered by this report. From time to time, the Company
reviews the disclosure controls and procedures, and may from
time to time make changes aimed at enhancing their effectiveness
and to ensure that the Companys systems evolve with its
business. There was no change in the Companys internal
control over financial reporting that occurred during the
quarter ended December 31, 2003 that has materially
affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting.

16



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##### Table of Contents






PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10: | Directors and Executive Officers of the
    Registrant

Information with respect to Directors and
Executive Officers of the Company required by Item 10 shall
be included in the Companys definitive Proxy Statement for
the Special Meeting in Lieu of the 2004 Annual Meeting of
Stockholders to be held on April 22, 2004 and is
incorporated herein by reference. In addition, certain
information with respect to Executive Officers of the Company
may be found in the section captioned Executive Officers
and Other Members of the Management Team of the
Registrant, appearing in Part I  Item 4A
of this Annual Report on Form 10-K.

The Company has adopted a Code of Business
Conduct and Ethics covering all employees, which is available,
free of charge, on the Companys website, www.cognex.com,
and is included in this Annual Report on Form 10-K as
Exhibit 14. The Company intends to disclose any amendments
to or waivers of the Code of Business Conduct and Ethics on
behalf of the Companys Chief Executive Officer, Chief
Financial Officer, Controller, and persons performing similar
functions on the Companys website.






|         |                       
|-------- | ----------------------
|Item 11: | Executive Compensation

Information with respect to executive
compensation required by Item 11 shall be included in the
Companys definitive Proxy Statement for the Special
Meeting in Lieu of the 2004 Annual Meeting of Stockholders to be
held on April 22, 2004 and is incorporated herein by
reference.






|         |                                                                                                        
|-------- | -------------------------------------------------------------------------------------------------------
|Item 12: | Security Ownership and Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

Information with respect to security ownership
and the other matters required by Item 12 shall be included
in the Companys definitive Proxy Statement for the Special
Meeting in Lieu of the 2004 Annual Meeting of Stockholders to be
held on April 22, 2004 and is incorporated herein by
reference. Information regarding equity compensation plans may
be found in Part I  Item 5 of this Annual
Report on Form 10-K.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13: | Certain Relationships and Related
    Transactions

Information with respect to certain relationships
and related transactions required by Item 13 shall be
included in the Companys definitive Proxy Statement for
the Special Meeting in Lieu of the 2004 Annual Meeting of
Stockholders to be held on April 22, 2004 and is
incorporated herein by reference.






|         |                                           
|-------- | ------------------------------------------
|Item 14: | Principal Accountant Fees and
    Services

Information with respect to principal accountant
fees and services required by Item 14 shall be included in
the Companys definitive Proxy Statement for the Special
Meeting in Lieu of the 2004 Annual Meeting of Stockholders to be
held on April 22, 2004 and is incorporated herein by
reference.




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15: | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K



|         |                     
|-------- | --------------------
|(a)  (1) | Financial Statements

The following consolidated financial statements
of Cognex Corporation and the reports of independent auditors
relating thereto are included in the Companys Annual
Report to Stockholders for the year ended December 31,
2003, which is Exhibit 13 hereto, and are incorporated
herein by reference:

Consolidated
Statements of Operations for the years ended December 31,
2003, 2002, and 2001

Consolidated
Balance Sheets at December 31, 2003 and 2002

Consolidated
Statements of Cash Flows for the years ended December 31,
2003, 2002 and 2001

17



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##### Table of Contents



Consolidated
Statements of Stockholders Equity for the years ended
December 31, 2003, 2002,      and
2001

Notes to
Consolidated Financial Statements

Reports of
Independent Auditors



|    |                             
|--- | ----------------------------
|(2) | Financial Statement Schedule

Included at the end of this report are the
following:

Report of Independent Auditors 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,
immediately preceding such Exhibits.



|    |                    
|--- | -------------------
|(b) | Reports on Form 8-K

On October 14, 2003, the Company furnished a
Current Report, dated the same date, on Form 8-K regarding
its earnings press release for the fiscal quarter ended
September 28, 2003.

18



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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                                            
| | -------------------------------------------
| | COGNEX CORPORATION                         
|
| | /s/ ROBERT J. SHILLMAN                     
| |                                            
| | Robert J. Shillman                         
| | (President, Chief Executive Officer,       
| | and Chairman of the Board of
    Directors)

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                         |  |                                                                                                                               |  |               
|---------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                |  | Title                                                                                                                         |  | Date          
|                                         |  |                                                                                                                               |  |               
|                                        
|/s/ ROBERT J. SHILLMANRobert J. Shillman |  | President, Chief Executive Officer, and Chairman
    of the Board of Directors
    (principal executive officer)              |  | March 12, 2004
|                                        
|/s/ RICHARD MORINRichard Morin           |  | Senior Vice President of Finance, Chief Financial
    Officer, and Treasurer
    (principal financial and accounting officer) |  | March 12, 2004
|                                        
|/s/ PATRICK ALIASPatrick Alias           |  | Executive Vice President and Director                                                                                         |  | March 12, 2004
|                                        
|/s/ JERALD FISHMANJerald Fishman         |  | Director                                                                                                                      |  | March 12, 2004
|                                        
|/s/ WILLIAM KRIVSKYWilliam Krivsky       |  | Director                                                                                                                      |  | March 12, 2004
|                                        
|/s/ ANTHONY SUNAnthony Sun               |  | Director                                                                                                                      |  | March 12, 2004
|                                        
|/s/ REUBEN WASSERMANReuben Wasserman     |  | Director                                                                                                                      |  | March 12, 2004

19



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##### Table of Contents



COGNEX CORPORATION

REPORT OF INDEPENDENT AUDITORS ON FINANCIAL
STATEMENT SCHEDULE

To the Board of Directors and Stockholders of
Cognex Corporation:

We have audited the consolidated financial
statements of Cognex Corporation as of December 31, 2003
and for the year then ended, and have issued our report thereon
dated January 24, 2004 (incorporated by reference in this
Annual Report (Form 10-K)). Our audit also included the
financial statement schedule listed in Item 15(a)(2) of
this Annual Report (Form 10-K). This schedule is the
responsibility of the Companys management. Our
responsibility is to express an opinion based on our audit.

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 set forth therein.

/s/     ERNST &
YOUNG LLP

Boston, Massachusetts

January 23, 2004


20



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##### Table of Contents



COGNEX CORPORATION

REPORT OF INDEPENDENT AUDITORS ON FINANCIAL
STATEMENT SCHEDULE

To the Board of Directors and Stockholders of
Cognex Corporation:

Our audits of the consolidated financial
statements referred to in our report dated January 24, 2003
appearing in the 2003 Annual Report to Stockholders of Cognex
Corporation (which reports and consolidated financial statements
are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the financial
statement schedule for the years ended December 31, 2002
and 2001, listed in Item 15(a)(2) of this Form 10-K.
In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements.

/s/     PRICEWATERHOUSECOOPERS
LLP

Boston, Massachusetts

January 24, 2003


21



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##### Table of Contents



COGNEX CORPORATION

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS


|                                    |      |                        |   |            |  |          |   |            |  |       |   |            |     |  |   |        |      |  |  |        |      |  |   |        | 
|----------------------------------- | ---- | ---------------------- | - | ---------- |  | -------- | - | ---------- |  | ----- | - | ---------- | --- |  | - | ------ | ---- |  |  | ------ | ---- |  | - | ------ | 
|                                    |      |                        |   |            |  |          |   |            |  |      
|                                    |      |                        |   | Additions  |  |          |   |            |  |      
|                                    |      |                        |   |            |  |          |   |            |  |      
|                                    |      | Balance at             |   | Charged to |  | Charged  |   |            |  |       |   | Balance at
|                                    |      | Beginning              |   | Costs and  |  | to Other |   |            |  |       |   | End of    
|Description                         |      | of Period              |   | Expenses   |  | Accounts |   | Deductions |  | Other |   | Period    
|                                    |      |                        |   |            |  |          |   |            |  |       |   |           
|                                    |      |                       
|                                    |      | (Dollars in thousands)
|Reserve for Uncollectible Accounts: |      |                        |   |            |  |          |   |            |  |       |   |            |     |  |   |        |      |  |  |        |      |  |   |       
|                                    | 2003 |                        | $ | 2,207      |  |          | $ | 689        |  |       |   |           |     |  | $ | (283   | )(b) |  |  |       |      |  | $ | 2,613  | 
|                                    | 2002 |                        |   | 2,080      |  |          |   | 340        |  |       |   |           |     |  |   | (213   | )(b) |  |  |       |      |  |   | 2,207  | 
|                                    | 2001 |                        |   | 2,150      |  |          |   | 190        |  |       |   |           |     |  |   | (260   | )(b) |  |  |       |      |  |   | 2,080  | 
|                                   
|Reserve for Inventory Obsolescence: |      |                        |   |            |  |          |   |            |  |       |   |            |     |  |   |        |      |  |  |        |      |  |   |       
|                                    | 2003 |                        | $ | 20,478     |  |          | $ | 914        |  |       | $ |           |     |  | $ | (2,694 | )(c) |  |  | (1,290 | )(d) |  | $ | 17,408 | 
|                                    | 2002 |                        |   | 19,563     |  |          |   | 1,695      |  |       |   | 1,506      | (a) |  |   | (496   | )(c) |  |  | (1,790 | )(d) |  |   | 20,478 | 
|                                    | 2001 |                        |   | 3,709      |  |          |   | 16,289     |  |       |   |           |     |  |   | (435   | )(c) |  |  |       |      |  |   | 19,563 | 



---



|    |                                             
|--- | --------------------------------------------
|(a) | Settlement of inventory purchase commitments
|   
|(b) | Specific write-offs                         
|   
|(c) | Specific dispositions                       
|   
|(d) | Sale of inventory previously reserved       

22



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##### Table of Contents



EXHIBIT INDEX

|        |      |  |  |                                                                                                                                                                                                                                                                                                                                             
|------- | ---- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      | 
|Number  |      | 
|        |      | 
|        | 3A   |  |  | Restated Articles of Organization of Cognex
    Corporation effective June 27, 1989, as amended
    April 30, 1991, April 21, 1992, April 25, 1995,
    April 23, 1996, and May 8, 2000 (incorporated by
    reference to Exhibit 3A of Cognexs Annual Report on
    Form 10-K for the year ended December 31, 2002 [File
    No. 0-17869])
|        | 3B   |  |  | By-laws of the Company, as amended March 16,
    1998 (incorporated by reference to Exhibit 3B of
    Cognexs Annual Report on Form 10-K for the year ended
    December 31, 2002 [File No. 0-17869])                                                                                                                                      
|        | 4    |  |  | Specimen Certificate for Shares of Common Stock
    (incorporated by reference to Exhibit 4 to the Registration
    Statement on Form S-1 [Registration No. 33-29020])
    Cognex Corporation 1993 Stock Option Plan for Non-Employee
    Directors (incorporated by reference to                                                           
|        | 10A  |  |  | Exhibit 4A to the Registration Statement on
    Form S-8 [Registration No. 33-81150])                                                                                                                                                                                                                                                       
|        | 10B  |  |  | Cognex Corporation 1993 Stock Option Plan, as
    amended November 14, 1995 and February 25, 1996
    (incorporated by reference to Exhibit 4A to the
    Registration Statement on Form S-8 [Registration
    No. 333-04621])                                                                                                              
|        | 10C  |  |  | 1991 Isys Controls, Inc. Long-Term Equity
    Incentive Plan (incorporated by reference to Exhibit 4A to
    the Registration Statement on Form S-8 [Registration
    No. 333-02151])                                                                                                                                                       
|        | 10D  |  |  | Amendment to the Cognex Corporation 1993 Stock
    Option Plan for Non-Employee Directors (incorporated by
    reference to Exhibit 10E of Cognexs Annual Report on
    Form 10-K for the year ended December 31, 2002 [File
    No. 0-17869])                                                                                             
|        | 10E  |  |  | Amendment to the Cognex Corporation 1993 Stock
    Option Plan (incorporated by reference to Exhibit 10F of
    Cognexs Annual Report on Form 10-K for the year ended
    December 31, 2002 [File No. 0-17869])                                                                                                                            
|        | 10F  |  |  | Cognex Corporation 1998 Non-Employee Director
    Stock Option Plan (incorporated by reference to Exhibit 4.1
    to the Registration Statement on Form S-8 [Registration
    No. 333-60807])                                                                                                                                               
|        | 10G  |  |  | Cognex Corporation 1998 Stock Incentive Plan
    (incorporated by reference to Exhibit 4.2 to the
    Registration Statement on Form S-8 [Registration
    No. 333-60807])                                                                                                                                                                  
|        | 10H  |  |  | First Amendment to the Cognex Corporation 1998
    Stock Incentive Plan (incorporated by reference to
    Exhibit 4.3 to the Registration Statement on Form S-8
    [Registration No. 333-60807])                                                                                                                                           
|        | 10I  |  |  | Cognex Corporation 2000 Employee Stock Purchase
    Plan (incorporated by reference to Exhibit 4 to the
    Registration Statement on Form S-8 [Registration
    No. 333-44824])                                                                                                                                                            
|        | 10J  |  |  | Cognex Corporation 2001 Interim General Stock
    Incentive Plan (incorporated by reference to Exhibit 4.1 to
    the Registration Statement on Form S-8 [Registration
    No. 333-68158])                                                                                                                                                  
|        | 10K  |  |  | Cognex Corporation 2001 General Stock Option Plan
    (incorporated by reference to Exhibit 4.1 to the
    Registration Statement on Form S-8 [Registration
    No. 333-100709])                                                                                                                                                            
|        | 10L  |  |  | Transition Loan Agreement between James F.
    Hoffmaster and Cognex Corporation, dated May 24, 2001
    (incorporated by reference to Exhibit 10M of Cognexs
    Annual Report on Form 10-K for the year ended
    December 31, 2002 [File No. 0-17869])                                                                                  
|        | 10M  |  |  | Termination Agreement between James F. Hoffmaster
    and Cognex Corporation dated June 4, 2001 (incorporated by
    reference to Exhibit 10N of Cognexs Annual Report on
    Form 10-K for the year ended December 31, 2002 [File
    No. 0-17869])                                                                                       
|        | 13   |  |  | Annual Report to Stockholders for the year ended
    December 31, 2003 (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)*                                                                                               
|        | 14   |  |  | Code of Business Conduct and Ethics*                                                                                                                                                                                                                                                                                                        
|        | 21   |  |  | Subsidiaries of the registrant*                                                                                                                                                                                                                                                                                                             
|        | 23.1 |  |  | Consent of Ernst & Young LLP*                                                                                                                                                                                                                                                                                                               

23



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##### Table of Contents



|        |      |  |  |                                                                                   
|------- | ---- |  |  | ----------------------------------------------------------------------------------
|Exhibit |      | 
|Number  |      | 
|        |      | 
|        | 23.2 |  |  | Consent of PricewaterhouseCoopers LLP*                                            
|        | 31.1 |  |  | Certification of Chief Executive Officer*                                         
|        | 31.2 |  |  | Certification of Chief Financial Officer*                                         
|        | 32.1 |  |  | Certification pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002 (CEO)*
|        | 32.2 |  |  | Certification pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002 (CFO)*



---

|  |               
|- | --------------
|* | Filed herewith

24