##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the quarterly period ended March 30, 2008 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)
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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##### 



INDEX
 PART I
    
    FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Financial Statements
    
    
    1Consolidated Statements of Operations for the three-month periods
ended March 30, 2008 and April 1, 2007
    
    
    1Consolidated Balance Sheets at March 30, 2008 and December 31, 2007
    
    
    2Consolidated Statement of Shareholders Equity for the three-month
period ended March 30, 2008
    
    
    3Consolidated Condensed Statements of Cash Flows for the three-month
periods ended March 30, 2008 and April 1, 2007
    
    
    4Notes to Consolidated Financial Statements (interim periods unaudited)
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4.
    
    Controls and Procedures
    
    
    17PART II
    
    OTHER INFORMATION
    
    
    1818Item 1.
    
    Legal Proceedings
    
    
    18Item 1A.
    
    Risk Factors
    
    
    18Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3.
    
    Defaults Upon Senior Securities
    
    
    18Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    18Item 5.
    
    Other Information
    
    
    18Item 6.
    
    Exhibits
    
    
    19Signatures
    
    
    20EX-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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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
 
 COGNEX CORPORATION
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedMarch 30,
    
    
    April 1,2008
    
    
    2007(unaudited)RevenueProduct
    
    $
    54,947
    
    
    $
    44,913Service
    
    
    5,570
    
    
    
    6,01660,517
    
    
    
    50,929Cost of revenueProduct (1)
    
    
    14,011
    
    
    
    10,810Service (1)
    
    
    3,063
    
    
    
    3,61117,074
    
    
    
    14,421Gross marginProduct
    
    
    40,936
    
    
    
    34,103Service
    
    
    2,507
    
    
    
    2,40543,443
    
    
    
    36,508Research, development, and engineering expenses
(1)
    
    
    9,097
    
    
    
    7,931Selling, general, and administrative expenses (1)
    
    
    26,528
    
    
    
    23,973Operating income
    
    
    7,818
    
    
    
    4,604Foreign currency gain (loss)
    
    
    1,118
    
    
    
    (118
    )Investment income
    
    
    1,977
    
    
    
    1,965Other income (loss)
    
    
    355
    
    
    
    (187
    )Income before income tax expense
    
    
    11,268
    
    
    
    6,264Income tax expense
    
    
    2,793
    
    
    
    1,629Net income
    
    $
    8,475
    
    
    $
    4,635Net income per common and common-equivalent share:Basic
    
    $
    0.20
    
    
    $
    0.10Diluted
    
    $
    0.20
    
    
    $
    0.10Weighted-average common and common-equivalent
shares outstanding:Basic
    
    
    42,978
    
    
    
    44,434Diluted
    
    
    43,116
    
    
    
    44,905Cash dividends per common share
    
    $
    0.085
    
    
    $
    0.085(1) Amounts include stock-based compensation
expense, as follows:Product cost of revenue
    
    $
    170
    
    
    $
    163Service cost of revenue
    
    
    188
    
    
    
    129Research, development, and engineering
    
    
    865
    
    
    
    822Selling, general, and administrative
    
    
    650
    
    
    
    1,878Total stock-based compensation expense
    
    $
    1,873
    
    
    $
    2,992
  1




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COGNEX CORPORATION
 CONSOLIDATED BALANCE SHEETS
 March 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    139,464
    
    
    $
    104,144Short-term investments
    
    
    73,469
    
    
    
    113,179Accounts receivable, less reserves of
$1,384 and $1,317 in 2008 and 2007,
respectively
    
    
    44,009
    
    
    
    38,923Inventories, net
    
    
    28,128
    
    
    
    27,459Deferred income taxes
    
    
    7,325
    
    
    
    7,504Prepaid expenses and other current assets
    
    
    15,147
    
    
    
    16,470Total current assets
    
    
    307,542
    
    
    
    307,679Long-term investments
    
    
    41,931
    
    
    
    50,565Property, plant, and equipment, net
    
    
    27,525
    
    
    
    26,680Deferred income taxes
    
    
    19,481
    
    
    
    19,750Intangible assets, net
    
    
    38,593
    
    
    
    39,724Goodwill
    
    
    87,358
    
    
    
    86,461Other assets
    
    
    9,733
    
    
    
    8,687$
    532,163
    
    
    $
    539,546LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,501
    
    
    $
    7,245Accrued expenses
    
    
    22,779
    
    
    
    20,098Accrued income taxes
    
    
    3,180
    
    
    
    3,242Deferred revenue and customer deposits
    
    
    14,549
    
    
    
    13,288Total current liabilities
    
    
    47,009
    
    
    
    43,873Reserve for income taxes
    
    
    19,512
    
    
    
    19,308Commitments and contingencies (Notes 5, 6, and 7)Shareholders equity:Common stock, $.002 par value Authorized: 140,000 shares, issued: 41,897
and 43,347 shares in 2008 and 2007,
respectively
    
    
    84
    
    
    
    87Additional paid-in capital
    
    
    113,494
    
    
    
    140,943Retained earnings
    
    
    342,048
    
    
    
    337,231Accumulated other comprehensive gain (loss)
    
    
    10,016
    
    
    
    (1,896
    )Total shareholders equity
    
    
    465,642
    
    
    
    476,365$
    532,163
    
    
    $
    539,546
  2




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COGNEX CORPORATION
 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Par Value
    
    
    Capital
    
    
    Earnings
    
    
    Gain (Loss)
    
    
    Income
    
    
    EquityBalance at December 31, 2007
    
    
    43,347
    
    
    $
    87
    
    
    $
    140,943
    
    
    $
    337,231
    
    
    $
    (1,896
    )
    
    
    
    
    
    $
    476,365Issuance of common stock under stock option
plans
    
    
    217
    
    
    
    
    
    
    
    2,901
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,901Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    1,873
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,873Excess tax benefit from stock option
exercises
    
    
    
    
    
    
    
    
    
    
    462
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    462Repurchase of common stock
    
    
    (1,667
    )
    
    
    (3
    )
    
    
    (32,685
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,688
    )Payment of dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,658
    )
    
    
    
    
    
    
    
    
    
    
    (3,658
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,475
    
    
    
    
    
    
    $
    8,475
    
    
    
    8,475Net unrealized gain on available-for-sale
investments, net of tax of $158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269
    
    
    
    269
    
    
    
    269Foreign currency translation adjustment,
net of tax of $1,424
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,643
    
    
    
    11,643
    
    
    
    11,643Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,387Balance at March 30, 2008 (unaudited)
    
    
    41,897
    
    
    $
    84
    
    
    $
    113,494
    
    
    $
    342,048
    
    
    $
    10,016
    
    
    
    
    
    
    $
    465,642
  3




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COGNEX CORPORATION
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 Three Months EndedMarch 30,
    
    
    April 1,2008
    
    
    2007(unaudited)Cash flows from operating activities:Net income
    
    $
    8,475
    
    
    $
    4,635Adjustments to reconcile net income to net cash
provided by operating activities:Stock-based compensation expense
    
    
    1,873
    
    
    
    2,992Depreciation and amortization
    
    
    2,876
    
    
    
    2,812Provisions for excess and obsolete inventory
    
    
    223
    
    
    
    579Excess tax benefit from stock option exercises
    
    
    (462
    )
    
    
    (125
    )Deferred income tax benefit
    
    
    (905
    )
    
    
    (1,443
    )Change in operating assets and liabilities
    
    
    1,610
    
    
    
    (2,962
    )Net cash provided by operating activities
    
    
    13,690
    
    
    
    6,488Cash flows from investing activities:Purchase of investments
    
    
    (16,822
    )
    
    
    (109,555
    )Maturity and sale of investments
    
    
    65,254
    
    
    
    113,278Purchase of property, plant, and equipment
    
    
    (1,709
    )
    
    
    (1,487
    )Net cash provided by investing activities
    
    
    46,723
    
    
    
    2,236Cash flows from financing activities:Issuance of common stock under stock option plans
    
    
    2,901
    
    
    
    1,101Repurchase of common stock
    
    
    (32,688
    )
    
    
    (2,670
    )Payment of dividends
    
    
    (3,658
    )
    
    
    (3,778
    )Excess tax benefit from stock option exercises
    
    
    462
    
    
    
    125Net cash used in financing activities
    
    
    (32,983
    )
    
    
    (5,222
    )Effect of foreign exchange rate changes on cash
    
    
    7,890
    
    
    
    803Net increase in cash and cash equivalents
    
    
    35,320
    
    
    
    4,305Cash and cash equivalents at beginning of period
    
    
    104,144
    
    
    
    87,361Cash and cash equivalents at end of period
    
    $
    139,464
    
    
    $
    91,666
  4




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1: Summary of Significant Accounting Policies
    NOTE 2: New Pronouncements
 FASB Statement No. 141R, Business Combinations
  NOTE 3: Cash, Cash Equivalents, and Investments
  March 30, 2008
    
    
    December 31, 2007Cash
    
    $
    127,976
    
    
    $
    104,144Cash equivalents
    
    
    11,488
    
    
    
    Cash and cash equivalents
    
    $
    139,464
    
    
    $
    104,144Municipal bonds
    
    
    73,469
    
    
    
    113,179Short-term investments
    
    $
    73,469
    
    
    $
    113,179Municipal bonds
    
    
    34,463
    
    
    
    43,097Limited partnership interest (accounted for using cost method)
    
    
    7,468
    
    
    
    7,468Long-term investments
    
    $
    41,931
    
    
    $
    50,565$
    254,864
    
    
    $
    267,888
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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3: Cash, Cash Equivalents, and Investments (continued)
  NOTE 4: Inventories
  March 30,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    14,198
    
    
    $
    13,070Work-in-process
    
    
    1,268
    
    
    
    1,336Finished goods
    
    
    12,662
    
    
    
    13,053$
    28,128
    
    
    $
    27,459
 NOTE 5: Warranty Obligations
   Balance at December 31, 2007
    
    $
    1,462Provisions for warranties issued during the period
    
    
    374Fulfillment of warranty obligations
    
    
    (393
    )Foreign exchange rate changes
    
    
    76Balance at March 30, 2008
    
    $
    1,519
 NOTE 6: Indemnification Provisions
  6




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6: Indemnification Provisions (continued)
   NOTE 7: Income Taxes
     NOTE 8: Stock-Based Compensation Expense
  7




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8: Stock-Based Compensation Expense (continued)
     Weighted-Weighted-
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateShares
    
    
    Price
    
    
    Term
    
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    
    (in years)
    
    
    (in thousands)Outstanding at December 31, 2007
    
    
    10,940
    
    
    $
    25.50Granted
    
    
    1,928
    
    
    
    18.70Exercised
    
    
    (217
    )
    
    
    13.37Forfeited or Expired
    
    
    (126
    )
    
    
    24.72Outstanding at March 30, 2008
    
    
    12,525
    
    
    $
    24.67
    
    
    
    6.4
    
    
    $
    10,757Exercisable at March 30, 2008
    
    
    8,318
    
    
    $
    26.06
    
    
    
    5.1
    
    
    $
    5,747
   Three Months EndedMarch 30, 2008
    
    April 1, 2007Risk-free rate
    
    
    3.9
    %
    
    
    4.9
    %Expected dividend yield
    
    
    1.8
    %
    
    
    1.5
    %Expected volatility
    
    
    42
    %
    
    
    35
    %Expected term (in years)
    
    
    5.9
    
    
    
    4.3
 8




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8: Stock-Based Compensation Expense (continued)
 Risk-free rate
  Expected dividend yield
  Expected volatility
  Expected term
      Note 9: Stock Repurchase Program
  9




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 9: Stock Repurchase Program (continued)
    NOTE 10: Dividends
   NOTE 11: Net Income Per Share
  Three Months EndedMarch 30, 2008
    
    
    April 1, 2007Net income
    
    $
    8,475
    
    
    $
    4,635Basic:Weighted-average common shares outstanding
    
    
    42,978
    
    
    
    44,434Net income per common share
    
    $
    0.20
    
    
    $
    0.10Diluted:Weighted-average common shares outstanding
    
    
    42,978
    
    
    
    44,434Effect of dilutive stock options
    
    
    138
    
    
    
    471Weighted-average common and common-equivalent
shares outstanding
    
    
    43,116
    
    
    
    44,905Net income per common and common-equivalent share
    
    $
    0.20
    
    
    $
    0.10
  10




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 12: Segment Information
   Three Months Ended
    
    
    
    
    
    
    
    
    
    ReconcilingMarch 30, 2008
    
    MVSD
    
    SISD
    
    Items
    
    ConsolidatedProduct revenue
    
    $
    51,194
    
    
    $
    3,753
    
    
    
    
    
    
    $
    54,947Service revenue
    
    
    3,054
    
    
    
    2,516
    
    
    
    
    
    
    
    5,570Operating income (loss)
    
    
    13,214
    
    
    
    (34
    )
    
    $
    (5,362
    )
    
    
    7,818Three Months Ended
April 1, 2007Product revenue
    
    $
    41,933
    
    
    $
    2,980
    
    
    
    
    
    
    $
    44,913Service revenue
    
    
    3,199
    
    
    
    2,817
    
    
    
    
    
    
    
    6,016Operating income (loss)
    
    
    11,130
    
    
    
    (625
    )
    
    $
    (5,901
    )
    
    
    4,604
  11




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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
  Executive Overview
  12




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
    
    Semiconductor and electronics capital equipment manufacturers purchase Cognex vision
products and integrate them into the automation equipment that they manufacture and then
sell to their customers to either make semiconductor chips or assemble printed circuit
boards. Although Cognex sells to original equipment manufacturers (OEMs) in a number of
industries, these semiconductor and electronics OEMs have historically been large consumers
of our products. Over the past several years, however, we have diversified our customer
base beyond the semiconductor and electronics capital equipment sector. Demand from these capital equipment
manufacturers is highly cyclical, with periods of investment followed by temporary
downturns. Sales to semiconductor and electronics capital equipment manufacturers
represented approximately 22% of total revenue in the first quarter of 2008.
    
    Discrete manufacturers in the automotive, consumer electronics, food, beverage,
healthcare, pharmaceutical, aerospace, and other industries use machine vision for a wide
variety of applications in factory automation. These manufacturers purchase Cognex vision
products and install them on their production lines or automation cells. We believe that
long-term, sustained revenue growth will come from a broad base of factory automation
customers. Accordingly, we have invested in developing new products and functionality that
make vision easier to use and in building a worldwide sales and support infrastructure in
order to access more of the potential market for machine vision. Sales to discrete factory
automation customers represented approximately 68% of total revenue in the first quarter of
2008.
    
    Surface inspection customers are manufacturers of materials processed in a continuous
fashion, such as metals, paper, non-wovens, plastics, and glass. These customers need
sophisticated machine vision to detect and classify defects in the surfaces of those
materials as they are being processed at high speeds. Surface inspection sales represented
approximately 10% of total revenue in the first quarter of 2008.
  Results of Operations
 Revenue
    13




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Gross Margin
    Operating Expenses
   14




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Nonoperating Income
    Income Taxes
  Liquidity and Capital Resources
  15




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16




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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4: CONTROLS AND PROCEDURES
  17




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PART II: OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    Approximate DollarShares Purchased as
    
    Value of SharesPart of Publicly
    
    that May Yet BeTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    per Share
    
    Programs (1)
    
    Plans or ProgramsJanuary 1  31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,924,000February 1  28, 2008
    
    
    433,941
    
    
    $
    19.31
    
    
    
    433,941
    
    
    $
    34,547,000March 1  30, 2008
    
    
    1,232,959
    
    
    $
    19.72
    
    
    
    1,232,959
    
    
    $
    40,236,000Total
    
    
    1,666,900
    
    
    $
    19.61
    
    
    
    1,666,900
    
    
    $
    40,236,000
 
 (1)
    
    In July 2006, the Companys Board of Directors authorized the
repurchase of up to $100,000,000 of the Companys Common Stock. In March 2008,
the Companys Board of Directors authorized the repurchase of up to an
additional $30,000,000 of Cognex common stock under a Rule 10b5-1
Plan. Not included in this table is an authorization by the
Companys Board of Directors in April 2008 to repurchase up to
an additional $50,000,000 of the Companys common stock. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  18




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ITEM 6. EXHIBITS
        
 *
    
    Filed herewith**
    
    Furnished herewith 19




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SIGNATURES
  DATE: April 28, 2008
    COGNEX CORPORATIONBy:
    /s/ Robert J. ShillmanRobert J. ShillmanChief Executive Officer, President, and Chairman of
the Board of Directors
(duly authorized officer, principal executive officer)By:
    /s/ Richard A. MorinRichard A. MorinSenior Vice President of Finance, Chief
Financial Officer, and Treasurer(duly authorized officer, principal financial
and accounting officer) 20