##### 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 July 1, 2007 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
  þ o o
  o þ




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##### 



INDEX
 PART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Statements of Operations for the three-month and
six-month periods ended July 1, 2007 and July 2, 2006Consolidated Balance Sheets at July 1, 2007 and December 31, 2006Consolidated Statement of Shareholders Equity for the six-month
period ended July 1, 2007Consolidated Condensed Statements of Cash Flows for the
six-month periods ended July 1, 2007 and July 2, 2006Notes to Consolidated Financial StatementsItem 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of OperationsItem 3.
    
    Quantitative and Qualitative Disclosures About Market RiskItem 4.
    
    Controls and ProceduresPART II
    
    OTHER INFORMATIONItem 1.
    
    Legal ProceedingsItem 1A.
    
    Risk FactorsItem 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsItem 3.
    
    Defaults Upon Senior SecuritiesItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other InformationItem 6.
    
    ExhibitsSignaturesEx-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 Ended
    
    
    Six Months EndedJuly 1,
    
    
    July 2,
    
    
    July 1,
    
    
    July 2,2007
    
    
    2006
    
    
    2007
    
    
    2006(unaudited)
    
    
    (unaudited)RevenueProduct
    
    $
    48,725
    
    
    $
    57,352
    
    
    $
    93,638
    
    
    $
    111,001Service
    
    
    6,017
    
    
    
    5,722
    
    
    
    12,033
    
    
    
    11,11354,742
    
    
    
    63,074
    
    
    
    105,671
    
    
    
    122,114Cost of revenueProduct (1)
    
    
    13,999
    
    
    
    12,978
    
    
    
    24,809
    
    
    
    26,024Service (1)
    
    
    3,982
    
    
    
    3,615
    
    
    
    7,593
    
    
    
    7,27917,981
    
    
    
    16,593
    
    
    
    32,402
    
    
    
    33,303Gross marginProduct
    
    
    34,726
    
    
    
    44,374
    
    
    
    68,829
    
    
    
    84,977Service
    
    
    2,035
    
    
    
    2,107
    
    
    
    4,440
    
    
    
    3,83436,761
    
    
    
    46,481
    
    
    
    73,269
    
    
    
    88,811Research, development, and engineering expenses (1)
    
    
    8,019
    
    
    
    8,582
    
    
    
    15,950
    
    
    
    16,499Selling, general, and administrative expenses (1)
    
    
    24,594
    
    
    
    25,277
    
    
    
    48,567
    
    
    
    49,056Operating income
    
    
    4,148
    
    
    
    12,622
    
    
    
    8,752
    
    
    
    23,256Foreign currency loss
    
    
    (323
    )
    
    
    (280
    )
    
    
    (441
    )
    
    
    (425
    )Investment and other income
    
    
    1,938
    
    
    
    1,772
    
    
    
    3,716
    
    
    
    3,338Income before income tax expense
    
    
    5,763
    
    
    
    14,114
    
    
    
    12,027
    
    
    
    26,169Income tax expense
    
    
    1,936
    
    
    
    2,680
    
    
    
    3,565
    
    
    
    5,935Net income
    
    $
    3,827
    
    
    $
    11,434
    
    
    $
    8,462
    
    
    $
    20,234Net income per common and common-equivalent share:Basic
    
    $
    0.09
    
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.44Diluted
    
    $
    0.09
    
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.42Weighted-average common and common-equivalent
shares outstanding:Basic
    
    
    43,857
    
    
    
    46,331
    
    
    
    44,146
    
    
    
    46,443Diluted
    
    
    44,281
    
    
    
    47,517
    
    
    
    44,665
    
    
    
    47,756Cash dividends per common share
    
    $
    0.085
    
    
    $
    0.080
    
    
    $
    0.170
    
    
    $
    0.160(1) Amounts include stock-based compensation expense,
as follows:Product cost of revenue
    
    $
    149
    
    
    $
    197
    
    
    $
    312
    
    
    $
    353Service cost of revenue
    
    
    148
    
    
    
    229
    
    
    
    277
    
    
    
    428Research, development, and engineering
    
    
    723
    
    
    
    948
    
    
    
    1,545
    
    
    
    1,730Selling, general, and administrative
    
    
    1,509
    
    
    
    2,131
    
    
    
    3,387
    
    
    
    3,950Total stock-based compensation expense
    
    $
    2,529
    
    
    $
    3,505
    
    
    $
    5,521
    
    
    $
    6,461
 
 1




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##### Table of Contents



COGNEX
CORPORATION  CONSOLIDATED BALANCE SHEETS
  July 1,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    78,765
    
    
    $
    87,361Short-term investments
    
    
    81,857
    
    
    
    128,319Accounts receivable, less reserves of
$1,511 and $1,662 in 2007 and 2006,
respectively
    
    
    35,520
    
    
    
    40,055Inventories, net
    
    
    32,658
    
    
    
    30,583Deferred income taxes
    
    
    8,607
    
    
    
    8,636Prepaid expenses and other current assets
    
    
    15,407
    
    
    
    18,127Total current assets
    
    
    252,814
    
    
    
    313,081Long-term investments
    
    
    85,444
    
    
    
    50,540Property, plant, and equipment, net
    
    
    26,525
    
    
    
    26,028Deferred income taxes
    
    
    13,373
    
    
    
    9,002Intangible assets, net
    
    
    42,249
    
    
    
    44,988Goodwill
    
    
    83,975
    
    
    
    83,318Other assets
    
    
    7,922
    
    
    
    1,694$
    512,302
    
    
    $
    528,651LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,735
    
    
    $
    6,463Accrued expenses
    
    
    30,417
    
    
    
    31,064Accrued income taxes
    
    
    3,095
    
    
    
    1,181Customer deposits
    
    
    1,673
    
    
    
    842Deferred revenue
    
    
    10,319
    
    
    
    6,884Total current liabilities
    
    
    50,239
    
    
    
    46,434Reserve for income taxes
    
    
    13,098
    
    
    
    8,367Commitments (Notes 3, 7, 8, 9, and 13)Shareholders equity:Common stock, $.002 par value Authorized:
140,000 shares, issued: 43,224 and 44,403 shares in 2007
and 2006, respectively
    
    
    86
    
    
    
    89Additional paid-in capital
    
    
    132,818
    
    
    
    155,136Retained earnings
    
    
    326,158
    
    
    
    329,251Accumulated other comprehensive loss
    
    
    (10,097
    )
    
    
    (10,626
    )Total shareholders equity
    
    
    448,965
    
    
    
    473,850$
    512,302
    
    
    $
    528,651
  2




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##### Table of Contents



COGNEX CORPORATION
 
 CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Comprehensive
    
    
    ShareholdersShares
    
    
    Par Value
    
    
    Capital
    
    
    Earnings
    
    
    Loss
    
    
    Income
    
    
    EquityBalance at December 31, 2006
    
    
    44,403
    
    
    $
    89
    
    
    $
    155,136
    
    
    $
    329,251
    
    
    $
    (10,626
    )
    
    
    
    
    
    $
    473,850Issuance of common stock under stock option
and stock purchase plans
    
    
    251
    
    
    
    
    
    
    
    4,640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,640Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    5,521
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,521Excess tax benefit from stock option
exercises
    
    
    
    
    
    
    
    
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181Repurchase of common stock
    
    
    (1,430
    )
    
    
    (3
    )
    
    
    (32,660
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,663
    )Payment of dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,534
    )
    
    
    
    
    
    
    
    
    
    
    (7,534
    )Reduction in retained earnings related to the
adoption of FIN 48 (Note 9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,021
    )
    
    
    
    
    
    
    
    
    
    
    (4,021
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,462
    
    
    
    
    
    
    $
    8,462
    
    
    
    8,462Losses on currency swaps, net of gains
on long-term intercompany loans, net of
tax of $120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (204
    )
    
    
    (204
    )
    
    
    (204
    )Net unrealized gain on available-for-sale
investments, net of tax of $12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21
    
    
    
    21Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    712
    
    
    
    712
    
    
    
    712Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,991Balance at July 1, 2007 (unaudited)
    
    
    43,224
    
    
    $
    86
    
    
    $
    132,818
    
    
    $
    326,158
    
    
    $
    (10,097
    )
    
    
    
    
    
    $
    448,965
  3




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##### Table of Contents



COGNEX CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 Six Months EndedJuly 1,
    
    
    July 2,2007
    
    
    2006(unaudited)Cash flows from operating activities:Net income
    
    $
    8,462
    
    
    $
    20,234Adjustments to reconcile net income to net cash
provided by operations:Stock-based compensation expense
    
    
    5,521
    
    
    
    6,461Depreciation and amortization
    
    
    5,650
    
    
    
    5,736Excess tax benefit from stock option exercises
    
    
    (181
    )
    
    
    (1,015
    )Deferred income tax benefit
    
    
    (4,384
    )
    
    
    (4,136
    )Deposit related to Japan tax audit (Note 9)
    
    
    (6,336
    )
    
    
    Change in operating assets and liabilities
    
    
    9,257
    
    
    
    (1,612
    )Net cash provided by operating activities
    
    
    17,989
    
    
    
    25,668Cash flows from investing activities:Purchase of investments
    
    
    (172,022
    )
    
    
    (287,552
    )Maturity and sale of investments
    
    
    182,870
    
    
    
    331,379Purchase of property, plant, and equipment
    
    
    (2,561
    )
    
    
    (2,023
    )Cash paid for business acquisition, net of cash acquired
    
    
    (502
    )
    
    
    (2,998
    )Net cash provided by investing activities
    
    
    7,785
    
    
    
    38,806Cash flows from financing activities:Issuance of common stock under stock option
and stock purchase plans
    
    
    4,640
    
    
    
    7,345Repurchase of common stock
    
    
    (32,663
    )
    
    
    (61,883
    )Payment of dividends
    
    
    (7,534
    )
    
    
    (7,461
    )Excess tax benefit from stock option exercises
    
    
    181
    
    
    
    1,015Net cash used in financing activities
    
    
    (35,376
    )
    
    
    (60,984
    )Effect of foreign exchange rate changes on cash
    
    
    1,006
    
    
    
    2,704Net increase (decrease) in cash and cash equivalents
    
    
    (8,596
    )
    
    
    6,194Cash and cash equivalents at beginning of period
    
    
    87,361
    
    
    
    72,856Cash and cash equivalents at end of period
    
    $
    78,765
    
    
    $
    79,050
  4




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1: Summary of Significant Accounting Policies
    NOTE 2: New Pronouncements
 FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities
  NOTE 3: Cash, Cash Equivalents, and Investments
  July 1,
    
    
    December 31,2007
    
    
    2006Cash
    
    $
    78,765
    
    
    $
    84,361Cash equivalents
    
    
    
    
    
    
    3,000Cash and cash equivalents
    
    
    78,765
    
    
    
    87,361Municipal bonds
    
    
    81,857
    
    
    
    108,332Commercial paper
    
    
    
    
    
    
    15,988Agency notes
    
    
    
    
    
    
    3,999Short-term investments
    
    
    81,857
    
    
    
    128,319Municipal bonds
    
    
    76,021
    
    
    
    39,594Limited partnership interest
    
    
    9,423
    
    
    
    10,946Long-term investments
    
    
    85,444
    
    
    
    50,540$
    246,066
    
    
    $
    266,220
  5




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3: Cash, Cash Equivalents, and Investments (continued)
  NOTE 4: Inventories
  July 1,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    15,363
    
    
    $
    16,746Work-in-process
    
    
    1,382
    
    
    
    1,630Finished goods
    
    
    15,913
    
    
    
    12,207$
    32,658
    
    
    $
    30,583
    Balance at December 31, 2006
    
    $
    10,822Provisions for excess and obsolete inventory
    
    
    2,429Inventory sold to customers
    
    
    (272
    )Inventory sold to brokers
    
    
    (468
    )Write-off and scrap of inventory
    
    
    (702
    )Foreign exchange rate changes
    
    
    125Balance at July 1, 2007
    
    $
    11,934
  6




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5: Intangible Assets
  Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingJuly 1, 2007
    
    Amount
    
    
    Amortization
    
    
    AmountDistribution networks
    
    $
    38,060
    
    
    $
    7,120
    
    
    $
    30,940Customer contracts and relationships
    
    
    13,134
    
    
    
    4,864
    
    
    
    8,270Completed technologies
    
    
    6,700
    
    
    
    4,267
    
    
    
    2,433Other
    
    
    1,425
    
    
    
    819
    
    
    
    606$
    59,319
    
    
    $
    17,070
    
    
    $
    42,249
 Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingDecember 31, 2006
    
    Amount
    
    
    Amortization
    
    
    AmountDistribution networks
    
    $
    38,060
    
    
    $
    5,477
    
    
    $
    32,583Customer contracts and relationships
    
    
    13,002
    
    
    
    4,110
    
    
    
    8,892Completed technologies
    
    
    6,834
    
    
    
    4,086
    
    
    
    2,748Other
    
    
    1,422
    
    
    
    657
    
    
    
    765$
    59,318
    
    
    $
    14,330
    
    
    $
    44,988
   Year
    
    Amount2007
    
    $
    2,8252008
    
    
    5,6382009
    
    
    5,4502010
    
    
    5,3202011
    
    
    4,410Thereafter
    
    
    18,606Total
    
    $
    42,249
 7




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6: Goodwill
   MVSD
    
    
    SISD
    
    
    ConsolidatedBalance at December 31, 2006
    
    $
    80,485
    
    
    $
    2,833
    
    
    $
    83,318AssistWare contingent payment (Note 13)
    
    
    502
    
    
    
    
    
    
    
    502Foreign exchange rate changes
    
    
    102
    
    
    
    53
    
    
    
    155Balance at July 1, 2007
    
    $
    81,089
    
    
    $
    2,886
    
    
    $
    83,975
 NOTE 7: Warranty Obligations
   Balance at December 31, 2006
    
    $
    1,387Provisions for warranties issued during the period
    
    
    981Fulfillment of warranty obligations
    
    
    (1,065
    )Foreign exchange rate changes
    
    
    16Balance at July 1, 2007
    
    $
    1,319
 NOTE 8: Indemnification Provisions
   8




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8: Indemnification Provisions (continued)
  NOTE 9: Income Taxes
      9




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9: Income Taxes (continued)
   Balance at December 31, 2006
    
    $
    8,367Cumulative effect upon adoption of FIN 48
    
    
    4,021Balance at January 1, 2007
    
    
    12,388Provisions during the period
    
    
    710Balance at July 1, 2007
    
    $
    13,098
  NOTE 10: Stock-Based Compensation Expense
  st st
   10




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10: Stock-Based Compensation Expense (continued)
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term (in years)
    
    
    ValueOutstanding at December 31, 2006
    
    
    11,324
    
    
    $
    25.90Granted
    
    
    1,389
    
    
    
    21.72Exercised
    
    
    (248
    )
    
    
    18.32Forfeited or Expired
    
    
    (821
    )
    
    
    26.29Outstanding at July 1, 2007
    
    
    11,644
    
    
    $
    25.54
    
    
    
    6.4
    
    
    $
    12,547Exercisable at July 1, 2007
    
    
    7,809
    
    
    $
    25.55
    
    
    
    5.2
    
    
    $
    11,459
   Three Months Ended
    
    Six Months EndedJuly 1,
    
    July 2,
    
    July 1,
    
    July 2,2007
    
    2006
    
    2007
    
    2006Risk-free rate
    
    
    4.9
    %
    
    
    4.5
    %
    
    
    4.9
    %
    
    
    4.5
    %Expected dividend yield
    
    
    1.5
    %
    
    
    1.10
    %
    
    
    1.5
    %
    
    
    1.10
    %Expected volatility
    
    
    35
    %
    
    
    45
    %
    
    
    35
    %
    
    
    45
    %Expected term (in years)
    
    
    4.3
    
    
    
    4.0
    
    
    
    4.3
    
    
    
    4.0
 Risk-free rate
  Expected dividend yield
  Expected volatility
  Expected term
   11




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10: Stock-Based Compensation Expense (continued)
     NOTE 11: Net Income Per Share
  Three Months Ended
    
    
    Six Months EndedJuly 1, 2007
    
    
    July 2, 2006
    
    
    July 1, 2007
    
    
    July 2, 2006Net income
    
    $
    3,827
    
    
    $
    11,434
    
    
    $
    8,462
    
    
    $
    20,234Basic:Weighted-average common shares
outstanding
    
    
    43,857
    
    
    
    46,331
    
    
    
    44,146
    
    
    
    46,443Net income per common share
    
    $
    0.09
    
    
    $
    0.25
    
    
    $
    0.19
    
    
    $
    0.44Diluted:Weighted-average common shares
outstanding
    
    
    43,857
    
    
    
    46,331
    
    
    
    44,146
    
    
    
    46,443Effect of dilutive stock options
    
    
    424
    
    
    
    1,186
    
    
    
    519
    
    
    
    1,313Weighted-average common and
common-equivalent shares outstanding
    
    
    44,281
    
    
    
    47,517
    
    
    
    44,665
    
    
    
    47,756Net income per common and
common-equivalent share
    
    $
    0.09
    
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    0.42
  12




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 12: Segment Information
   ReconcilingMVSD
    
    SISD
    
    Items
    
    ConsolidatedThree Months Ended
July 1, 2007Product revenue
    
    $
    44,577
    
    
    $
    4,148
    
    
    $
    
    
    
    $
    48,725Service revenue
    
    
    3,436
    
    
    
    2,581
    
    
    
    
    
    
    
    6,017Operating income
    
    
    8,929
    
    
    
    (66
    )
    
    
    (4,715
    )
    
    
    4,148Six Months Ended
July 1, 2007Product revenue
    
    $
    86,510
    
    
    $
    7,128
    
    
    $
    
    
    
    $
    93,638Service revenue
    
    
    6,635
    
    
    
    5,398
    
    
    
    
    
    
    
    12,033Operating income
    
    
    19,863
    
    
    
    (691
    )
    
    
    (10,420
    )
    
    
    8,752ReconcilingMVSD
    
    SISD
    
    Items
    
    ConsolidatedThree Months Ended
July 2, 2006Product revenue
    
    $
    51,051
    
    
    $
    6,301
    
    
    $
    
    
    
    $
    57,352Service revenue
    
    
    3,117
    
    
    
    2,605
    
    
    
    
    
    
    
    5,722Operating income
    
    
    16,994
    
    
    
    1,580
    
    
    
    (5,952
    )
    
    
    12,622Six Months Ended
July 2, 2006Product revenue
    
    $
    100,348
    
    
    $
    10,653
    
    
    $
    
    
    
    $
    111,001Service revenue
    
    
    6,213
    
    
    
    4,900
    
    
    
    
    
    
    
    11,113Operating income
    
    
    33,892
    
    
    
    1,811
    
    
    
    (12,447
    )
    
    
    23,256
 th
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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 13: Acquisitions
 AssistWare Technology, Inc.
  NOTE 14: Dividends
   NOTE 15: Subsequent Event
  14




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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  Company Overview
  15




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
    
    Semiconductor and Electronics Capital Equipment Market: These manufacturers purchase
Cognex machine vision systems and integrate them into the capital equipment that they
manufacture and then sell to their customers in the semiconductor and electronics
industries that either make computer chips or make printed circuit boards containing
computer chips. Although the Company sells to original equipment manufacturers (OEMs) in a
number of industries, these semiconductor and electronics OEMs have historically been large
consumers of the Companys products. Demand from these capital equipment manufacturers is
highly cyclical, with periods of investment followed by temporary downturns.
    
    Discrete Factory Automation Market: This market includes a wide array of manufacturers
who use machine vision for applications in a variety of industries, including the
automotive, consumer
electronics, food and beverage, healthcare pharmaceutical, and aerospace industries. These
customers purchase Cognex machine vision systems either directly from the Company or through
a reseller and install them on their production lines.
    
    Surface Inspection Market: These customers are manufacturers of materials processed in
a continuous fashion, such as paper and metals. 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.
    
    Commercial Markets: The Companys commercial products currently serve the building
automation and security market for vision-based people sensing and counting, as well as
the automotive and truck market for vehicle-based driver-assist vision sensors that
enhance vehicle safety and driver convenience. Although sales to commercial customers were
not material in 2006 and are not expected to be material in 2007, the Company believes that
entering these new commercial markets for machine vision systems is an important strategic
move to diversify into areas beyond industrial manufacturing.
 Stock-Based Compensation Expense
     16




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Results of Operations
 Correction
of Prior-Period Misstatements Related to Unsubstantiated Orders in
Japan
  Revenue
     17




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®
   Gross Margin
    Operating Expenses
  18




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®
   th
 Nonoperating Income
   Income Taxes
  19




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20




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Balance at December 31, 2006
    
    $
    8,367Cumulative effect upon adoption of FIN 48
    
    
    4,021Balance at January 1, 2007
    
    
    12,388Provisions for the six-month period ended July 1, 2007
    
    
    710Balance at July 1, 2007
    
    $
    13,098
  Liquidity and Capital Resources
       21




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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4: CONTROLS AND PROCEDURES
    22




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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
  23




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TotalNumber of
    
    ApproximateShares
    
    Dollar ValuePurchased
    
    of Sharesas Part of
    
    that May YetPublicly
    
    BeTotal
    
    Average
    
    Announced
    
    PurchasedNumber of
    
    Price
    
    Plans or
    
    Under theShares
    
    Paid per
    
    Programs
    
    Plans orPeriod
    
    Purchased
    
    Share
    
    (1)
    
    ProgramsApril 2  30, 2007
    
    
    71,236
    
    
    $
    21.53
    
    
    
    71,236
    
    
    $
    71,384,000May 1  31, 2007
    
    
    803,706
    
    
    $
    22.97
    
    
    
    803,706
    
    
    $
    52,923,000June 1  July 1,
2007
    
    
    430,650
    
    
    $
    23.22
    
    
    
    430,650
    
    
    $
    42,924,000Total
    
    
    1,305,592
    
    
    $
    22.97
    
    
    
    1,305,592
    
    
    $
    42,924,000
 
 (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. The Company may
repurchase additional shares under this program in future periods depending upon
a variety of factors, including the market value of the Companys Common Stock
and the average return on the Companys invested balances. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
       
 *
    
    Filed herewith**
    
    Furnished herewith 24




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SIGNATURES
  DATE:  August 15, 2007
    COGNEX CORPORATION/s/ Robert J. ShillmanRobert J. ShillmanChief Executive Officer, President, and Chairman of the
Board of Directors

(duly authorized officer, principal executive officer)/s/ Richard A. MorinRichard A. MorinSenior Vice President of Finance and Administration, Chief
Financial Officer, and Treasurer (duly authorized officer, principal financial
and accounting officer) 25