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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, 2005
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 One Vision Drive
Natick, Massachusetts 01760-2059
(508) 650-3000
 
 (Address, including zip code, and telephone number,
 including area code, of principal executive offices)
    þ o
  o þ
  þ o
 o
  þ o o
  o þ
 $1,106,581,000  46,806,184 shares




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##### 



COGNEX CORPORATION ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2005
 INDEX
  
 PART IITEM 1. BUSINESSITEM 1A. RISK FACTORSITEM 1B. UNRESOLVED STAFF COMMENTSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 4A. EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF THE REGISTRANTPART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. EXECUTIVE COMPENSATIONITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESEX-10(r) Description of Annual Bonus ProgramEX-13 Annual Report to Shareholders for the year ended December 31, 2005EX-21 Subsidiaries of the registrantEX-23.1 Consent of Ernst & Young LLPEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO




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PART I
  
 ITEM 1. BUSINESS
 Corporate Profile
 ®
   What is Machine Vision?
  1




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Question
    
    Description
    
    ExampleGUIDANCEWhere 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.IDENTIFICATIONWhat 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.INSPECTIONHow good is it?
    
    Inspecting an object for flaws or
defects.
    
    Inspecting the paper that US currency is printed
on.GAUGINGWhat size is it?
    
    Determining the dimensions of an
object.
    
    Determining the diameter of a bearing prior to
final assembly.
 Machine Vision Market
     2




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Business Strategy
   ® ® ®
  Products
  Vision Sensors
   3




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Expert Sensors
    ID Products
  ®
  ®
 
 PC-Based Vision Systems
  4




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® ®
  VisionPro Product Family
 ® ®
 MVS-8000 Product Family
  Application Specific PC-based Vision Systems
  ProofRead OCVMax IDMax
 DisplayInspect ®
 SMD 4 ® BGA II ® PMI
 TIS-8000 Tire Identification System and WIS-8000 Wheel Identification System
  5




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Surface Inspection Systems
 ®
  Research, Development, and Engineering
   Manufacturing
   Sales and Service
  6




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Intellectual Property
  ® ® ® ® ® ® ® TM TM TM
   7




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Compliance with Environmental Provisions
  Competition
   Backlog
  Employees
  8




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Available Information
 www.cognex.com www.sec.gov
 
 ITEM 1A. RISK FACTORS
   Unfavorable changes in economic conditions and capital spending may negatively impact our operating
results.
 
 Downturns in the semiconductor and electronics industries may adversely affect our business.
  Economic, political, and other risks associated with international sales and operations could
adversely affect our business and operating results.
  9




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
    
    various regulatory requirements,
    
    transportation delays,
    
    difficulties in staffing and managing foreign sales operations, and
    
    potentially adverse tax consequences.
  Fluctuations in foreign exchange rates could materially affect our reported results.
  The loss of a large customer could have an adverse effect on our operating results.
  The failure of a key supplier to deliver quality product in a timely manner or our inability to
obtain components for our products could adversely affect our operating results.
  Our business could suffer if we lose the services of, or fail to attract, key personnel.
  10




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Our products may contain design or manufacturing defects, which could result in reduced demand,
significant delays, or substantial costs.
  
    
    substantial delays in shipment,
    
    significant repair or replacement costs, or
    
    potential damage to our reputation,
  Our failure to accurately forecast customer demand could result in inventory obsolescence and
resulting charges.
  Our failure to develop new products and to respond to technological changes could result in the
loss of our market share and a decrease in our revenues.
  If we fail to successfully defend our intellectual property, our competitive position and operating
results could suffer.
  
    
    protect our proprietary technology,
    
    protect our patents from challenge, invalidation, or circumvention, or
    
    ensure that our intellectual property will provide us with competitive advantages.
  11




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Our company may be subject to costly litigation.
  Increased competition may result in decreased demand or prices for our products and services.
  Implementation of our acquisition strategy may not be successful, which could affect our ability to
increase our revenue or profitability.
  
    
    the diversification of managements attention from other operational matters,
    
    the inability to realized expected synergies resulting from the acquisition,
    
    the failure to retain key customers or employees, and
    
    the impairment of acquired intangible assets resulting from technological obsolescence
or lower-than-expected cash flows from the acquired assets.
  Attractive acquisition opportunities may not be available to us.
  The trading price of our common stock may be volatile.
  
    
    fluctuations in our revenue and earnings,
    
    changes in the markets expectations for our growth,
    
    overall equity market conditions,
    
    conditions relating to the market for technology stocks,
    
    general economic conditions, and
    
    other factors unrelated to our operations.
 12




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ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2: PROPERTIES
    
 ITEM 3: LEGAL PROCEEDINGS
  
 ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  13




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ITEM 4A: EXECUTIVE OFFICERS AND OTHER MEMBERS OF THE MANAGEMENT TEAM OF THE REGISTRANT
  Name
    
    Age
    
    TitleRobert J. Shillman
    
    
    59
    
    
    Chief Executive Officer and Chairman of the Board of DirectorsJames F. Hoffmaster
    
    
    54
    
    
    President and Chief Operating OfficerRichard A. Morin
    
    
    56
    
    
    Senior Vice President of Finance and Administration, Chief Financial
Officer, and Treasurer
     Name
    
    Age
    
    TitlePatrick Alias
    
    
    60
    
    
    Senior Vice PresidentEric Ceyrolle
    
    
    52
    
    
    President, International OperationsMarkku Jaaskelainen
    
    
    51
    
    
    Senior Vice President and General Manager, SISDMarilyn Matz
    
    
    52
    
    
    Senior Vice President, PC VisionE. John McGarry
    
    
    49
    
    
    Senior Vice President, Research and DevelopmentAkira Nakamura
    
    
    61
    
    
    President, Cognex K.K.Kris Nelson
    
    
    58
    
    
    Senior Vice President, Vision SensorsWilliam Silver
    
    
    52
    
    
    Senior Vice President and Senior FellowJustin Testa
    
    
    53
    
    
    Senior Vice President, ID Products
 14




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PART II
 
 ITEM 5: MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES
OF EQUITY SECURITIES
   Total Number of Shares
    
    
    Approximate Dollar ValueTotal Number
    
    
    
    
    
    
    Purchased as Part of
    
    of Shares that May Yet beof Shares
    
    
    Average Price
    
    
    Publicly Announced
    
    
    Purchased under thePeriod of Repurchase
    
    Purchased
    
    
    Paid Per Share
    
    
    Plans or Programs (1)
    
    
    Plans or ProgramsOctober 3 - October 30, 2005
    
    
    
    
    
    
    
    
    
    
    October 31 - November 27, 2005
    
    
    233,501
    
    
    $
    30.45
    
    
    
    233,501November 28 - December 31, 2005
    
    
    150,407
    
    
    
    30.35
    
    
    
    150,407383,908
    
    
    $
    30.44
    
    
    
    383,908
    
    
    $
    61,885,000
 
 (1)
    
    On December 12, 2000, the Companys Board of Directors authorized the repurchase of up to
$100,000,000 of the Companys common stock. 
 ITEM 6: SELECTED FINANCIAL DATA
  
 ITEM 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  15




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ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A: CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
  Registered Public Accounting Firms Report on Internal Control Over Financial Reporting
  Changes in Internal Control Over Financial Reporting
  16




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PART III
 
 ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  www.cognex.com
 
 ITEM 11: EXECUTIVE COMPENSATION
  
 ITEM 12: SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
   Number of securitiesremaining available for futureNumber of securities to be
    
    
    
    
    
    
    issuance under equityissued upon exercise of
    
    
    Weighted-average exercise
    
    
    compensation plansoutstanding options, warrants,
    
    
    price of outstanding options,
    
    
    (excluding securities reflectedPlan Category
    
    and rights
    
    
    warrants, and rights
    
    
    in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
shareholders
    
    
    10,387,955
    (1)
    
    $
    25.48
    
    
    
    2,648,993
    (2)Equity compensation
plans not approved
by shareholders
    
    
    286,840
    (3)
    
    
    21.20
    
    
    
    7,500,000
    (4)10,674,795
    
    
    $
    25.36
    
    
    
    10,148,993
 
 (1)
    
    Includes shares to be issued upon exercise of outstanding options under the Companys
1991 Isys Controls, Inc. Long-Term Equity Incentive Plan, 1993 Stock Option Plan, 1993
Stock Option Plan for Non-Employee Directors, 1998 Stock Incentive Plan, and 1998
Non-Employee Director Stock Option Plan. Does not include purchase rights accruing under
the Employee Stock Purchase Plan (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 shares remaining available for future issuance under the Companys 1998 Stock
Incentive Plan and 1998 Non-Employee Director Stock Option Plan. Includes 228,279 shares
available for future issuance under the ESPP.(3)
    
    Includes shares to be issued upon the exercise of outstanding options under the
Companys 2001 Interim General Stock Incentive Plan.(4)
    
    Includes shares remaining available for future issuance under the Companys 2001
General Stock Option Plan.  17




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ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
  18




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PART IV
 
 ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (1)
    
    Financial StatementsThe following consolidated financial statements of Cognex Corporation and the reports of
independent public accounting firms relating thereto are included in the Companys Annual
Report to Shareholders for the year ended December 31, 2005, which is attached as Exhibit 13
hereto, and are incorporated herein by reference:Consolidated Statements of Operations for the years ended December 31, 2005, 2004, and
2003Consolidated Balance Sheets at December 31, 2005 and 2004Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004, and
2003Consolidated Statements of Shareholders Equity for the years ended December 31, 2005,
2004, and 2003Notes to Consolidated Financial StatementsReports of Independent Public Accounting Firms(2)
    
    Financial Statement ScheduleIncluded at the end of this report are the following:Report of Independent Registered Public Accounting Firm on the Financial Statement
ScheduleSchedule II  Valuation and Qualifying AccountsOther 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)
    
    ExhibitsThe Exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit
Index, immediately preceding such Exhibits.
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SIGNATURES
  COGNEX CORPORATIONBy:
    
    /s/ Robert J. ShillmanRobert J. Shillman
Chief Executive Officer and Chairman of the Board of Directors
  Signature
    
    Title
    
    Date/s/ Robert J. Shillman

Robert J. Shillman
    
    Chief Executive Officer and
Chairman of the Board of Directors
(principal executive officer)
    
    March 1, 2006/s/ Richard Morin

Richard A. Morin
    
    Senior Vice President of Finance and
Administration, Chief Financial Officer,
and Treasurer
(principal financial and accounting officer)
    
    March 1, 2006/s/ Patrick Alias
Patrick Alias
    
    Director
    
    March 1, 2006/s/ Jerald Fishman
Jerald Fishman
    
    Director
    
    March 1, 2006/s/ William Krivsky
William Krivsky
    
    Director
    
    March 1, 2006/s/ Anthony Sun
Anthony Sun
    
    Director
    
    March 1, 2006/s/ Reuben Wasserman
Reuben Wasserman
    
    Director
    
    March 1, 2006
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COGNEX CORPORATION  SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 AdditionsBalance at
    
    Charged to
    
    Charged
    
    
    
    
    
    
    
    
    
    Balance atBeginning
    
    Costs and
    
    to Other
    
    
    
    
    
    
    
    
    
    End ofDescription
    
    of Period
    
    Expenses
    
    Accounts
    
    Deductions
    
    Other
    
    Period(Dollars in thousands)Reserve for
Uncollectible
Accounts:2005
    
    $
    2,596
    
    
    $
    
    
    
    $
    
    
    
    $
    (81
    )(a)
    
    $
    (145
    )(b)
    
    $
    2,3702004
    
    
    2,613
    
    
    
    
    
    
    
    
    
    
    
    (167
    )(a)
    
    
    150
    (b)
    
    
    2,5962003
    
    
    2,207
    
    
    
    459
    
    
    
    
    
    
    
    (283
    )(a)
    
    
    230
    (b)
    
    
    2,613Reserve for
Inventory
Obsolescence:2005
    
    $
    14,772
    
    
    $
    1,334
    
    
    $
    
    
    
    $
    (1,577
    )(c)
    
    $
    (759
    )(d)
    
    $
    13,7702004
    
    
    17,408
    
    
    
    375
    
    
    
    
    
    
    
    (2,206
    )(c)
    
    
    (805
    )(d)
    
    
    14,7722003
    
    
    20,478
    
    
    
    914
    
    
    
    
    
    
    
    (2,694
    )(c)
    
    
    (1,290
    )(d)
    
    
    17,408
 
 (a)
    
    Specific write-offs(b)
    
    Foreign exchange rate changes(c)
    
    Specific dispositions(d)
    
    Sale of previously reserved inventory 21




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EXHIBIT INDEX
 EXHIBIT NUMBER2A
    
    Agreement and Plan of Merger, dated May 9, 2005, by and among Cognex, Tango
Acquisition Corp. and DVT Corporation (excluding schedules and exhibits which
the registrant agrees to furnish supplementally to the Commission upon request)
(incorporated by reference to Exhibit 2.1 of Cognexs Current Report on Form
8-K filed on May 11, 2005 [File No. 0-17869])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])10A
    
    Cognex Corporation 1993 Stock Option Plan for Non-Employee Directors
(incorporated by reference to 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
    
    First Amendment to 2000 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.2 of Cognexs Quarterly Report on Form 10-Q for the quarter ended
July 3, 2005 [File No. 0-17869])10K
    
    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])10L
    
    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])




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EXHIBIT NUMBER10M
    
    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])10N
    
    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])10O
    
    Form of Stock Option Agreement (Non-Qualified) under 1998 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 of Cognexs Quarterly Report on Form
10-Q for the quarter ended October 3, 2004 [File No. 0-17869])10P
    
    Form of Stock Option Agreement (Non-Qualified) under 1998 Non-Employee Director
Stock Plan (incorporated by reference to Exhibit 10.2 of Cognexs Quarterly
Report on Form 10-Q for the quarter ended October 3, 2004 [File No. 0-17869])10Q
    
    Supplemental Retirement and Deferred Compensation Plan effective April 1, 1995
(incorporated by reference to Exhibit 10P of Cognexs Annual Report on Form
10-K for the year ended December 31, 2004 [File No. 0-17869])10R
    
    Description of Annual Bonus Program *13
    
    Annual Report to Shareholders for the year ended December 31, 2005 (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 as amended March 12, 2004 (incorporated by
reference to Exhibit 14 of Cognexs Annual Report on Form 10-K for the year
ended December 31, 2004 [File No. 0-17869])21
    
    Subsidiaries of the registrant *23.1
    
    Consent of Ernst & Young 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**
    
    Furnished herewith