##### 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 September 30, 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 Statements Consolidated Statements of Operations for the three-month and
nine-month periods ended September 30, 2007 and October 1, 2006Consolidated Balance Sheets at September 30, 2007 and December 31,
2006Consolidated Statement of Shareholders Equity for the nine-month
period ended September 30, 2007Consolidated Condensed Statements of Cash Flows for the nine-month
periods ended September 30, 2007 and October 1, 2006Notes to Consolidated Financial Statements (interim periods unaudited)Item 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-10.1 Amendment to Cognex Corporation 1998 Stock Incentive PlanEx-10.2 Amendment to Cognex Corporation 1998 Non-Employee Director Stock  Option PlanEx-10.3 Amendment to Cognex Corporation 2001 General Stock Option PlanEx-31.1 Section 302 Certification of the C.E.O.Ex-31.2 Section 302 Certification of the C.F.O.Ex-32.1 Section 906 Certification of the C.E.O.Ex-32.2 Section 906 Certification of the C.F.O.




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##### Table of Contents



PART I: FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
 COGNEX CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,2007
    
    
    2006
    
    
    2007
    
    
    2006(unaudited)
    
    
    (unaudited)RevenueProduct
    
    $
    49,196
    
    
    $
    52,249
    
    
    $
    142,834
    
    
    $
    163,250Service
    
    
    5,549
    
    
    
    5,756
    
    
    
    17,582
    
    
    
    16,86954,745
    
    
    
    58,005
    
    
    
    160,416
    
    
    
    180,119Cost of revenueProduct (1)
    
    
    11,278
    
    
    
    12,031
    
    
    
    36,087
    
    
    
    38,055Service (1)
    
    
    3,340
    
    
    
    3,416
    
    
    
    10,933
    
    
    
    10,69514,618
    
    
    
    15,447
    
    
    
    47,020
    
    
    
    48,750Gross marginProduct
    
    
    37,918
    
    
    
    40,218
    
    
    
    106,747
    
    
    
    125,195Service
    
    
    2,209
    
    
    
    2,340
    
    
    
    6,649
    
    
    
    6,17440,127
    
    
    
    42,558
    
    
    
    113,396
    
    
    
    131,369Research, development, and engineering expenses (1)
    
    
    8,704
    
    
    
    7,997
    
    
    
    24,654
    
    
    
    24,496Selling, general, and administrative expenses (1)
    
    
    24,303
    
    
    
    23,414
    
    
    
    72,870
    
    
    
    72,470Operating income
    
    
    7,120
    
    
    
    11,147
    
    
    
    15,872
    
    
    
    34,403Foreign currency gain (loss)
    
    
    353
    
    
    
    (282
    )
    
    
    (88
    )
    
    
    (707
    )Investment and other income
    
    
    1,881
    
    
    
    1,518
    
    
    
    5,597
    
    
    
    4,856Income before income tax expense
    
    
    9,354
    
    
    
    12,383
    
    
    
    21,381
    
    
    
    38,552Income tax expense
    
    
    2,011
    
    
    
    2,267
    
    
    
    5,576
    
    
    
    8,202Net income
    
    $
    7,343
    
    
    $
    10,116
    
    
    $
    15,805
    
    
    $
    30,350Net income per common and common-equivalent share:Basic
    
    $
    0.17
    
    
    $
    0.23
    
    
    $
    0.36
    
    
    $
    0.66Diluted
    
    $
    0.17
    
    
    $
    0.22
    
    
    $
    0.36
    
    
    $
    0.64Weighted-average common and common-equivalent
shares outstanding:Basic
    
    
    43,286
    
    
    
    44,825
    
    
    
    43,859
    
    
    
    45,905Diluted
    
    
    43,506
    
    
    
    45,682
    
    
    
    44,257
    
    
    
    47,086Cash dividends per common share
    
    $
    0.085
    
    
    $
    0.085
    
    
    $
    0.255
    
    
    $
    0.245(1) Amounts include stock-based compensation
expense, as follows:Product cost of revenue
    
    $
    138
    
    
    $
    191
    
    
    $
    450
    
    
    $
    544Service cost of revenue
    
    
    140
    
    
    
    222
    
    
    
    417
    
    
    
    650Research, development, and engineering
    
    
    723
    
    
    
    941
    
    
    
    2,268
    
    
    
    2,671Selling, general, and administrative
    
    
    1,723
    
    
    
    2,121
    
    
    
    5,110
    
    
    
    6,071Total stock-based compensation expense
    
    $
    2,724
    
    
    $
    3,475
    
    
    $
    8,245
    
    
    $
    9,936
  1




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COGNEX CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2007
    
    
    2006(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    107,343
    
    
    $
    87,361Short-term investments
    
    
    87,824
    
    
    
    128,319Accounts receivable, less reserves of
$1,280 and $1,662 in 2007 and 2006,
respectively
    
    
    39,687
    
    
    
    40,055Inventories, net
    
    
    30,048
    
    
    
    30,583Deferred income taxes
    
    
    8,446
    
    
    
    8,636Prepaid expenses and other current assets
    
    
    16,069
    
    
    
    18,127Total current assets
    
    
    289,417
    
    
    
    313,081Long-term investments
    
    
    70,200
    
    
    
    50,540Property, plant, and equipment, net
    
    
    26,327
    
    
    
    26,028Deferred income taxes
    
    
    18,959
    
    
    
    9,002Intangible assets, net
    
    
    41,023
    
    
    
    44,988Goodwill
    
    
    84,621
    
    
    
    83,318Other assets
    
    
    8,384
    
    
    
    1,694$
    538,931
    
    
    $
    528,651LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,551
    
    
    $
    6,463Accrued expenses
    
    
    34,548
    
    
    
    31,064Accrued income taxes
    
    
    5,030
    
    
    
    1,181Deferred revenue and customer deposits
    
    
    15,184
    
    
    
    7,726Total current liabilities
    
    
    59,313
    
    
    
    46,434Reserve for income taxes
    
    
    17,913
    
    
    
    8,367Commitments (Notes 3, 7, 8, 9, and 13)Shareholders equity:Common stock, $.002 par value 
Authorized: 140,000 shares,
issued: 43,322 and 44,403 shares in 2007 and
2006, respectively
    
    
    87
    
    
    
    89Additional paid-in capital
    
    
    137,377
    
    
    
    155,136Retained earnings
    
    
    329,820
    
    
    
    329,251Accumulated other comprehensive loss
    
    
    (5,579
    )
    
    
    (10,626
    )Total shareholders equity
    
    
    461,705
    
    
    
    473,850$
    538,931
    
    
    $
    528,651
  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
    
    
    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
    
    
    349
    
    
    
    1
    
    
    
    6,453
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,454Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    8,245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,245Excess tax benefit from stock option
exercises
    
    
    
    
    
    
    
    
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203Repurchase of common stock
    
    
    (1,430
    )
    
    
    (3
    )
    
    
    (32,660
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,663
    )Payment of dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,215
    )
    
    
    
    
    
    
    
    
    
    
    (11,215
    )Reduction in retained earnings related to the
adoption of FIN 48 (Note 9)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,021
    )
    
    
    
    
    
    
    
    
    
    
    (4,021
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,805
    
    
    
    
    
    
    $
    15,805
    
    
    
    15,805Losses on currency swaps, net of gains
on long-term intercompany loans, net of
tax of $220
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (375
    )
    
    
    (375
    )
    
    
    (375
    )Net unrealized gain on available-for-sale
investments, net of tax of $128
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    218
    
    
    
    218Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,204
    
    
    
    5,204
    
    
    
    5,204Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,852Balance at September 30, 2007 (unaudited)
    
    
    43,322
    
    
    $
    87
    
    
    $
    137,377
    
    
    $
    329,820
    
    
    $
    (5,579
    )
    
    
    
    
    
    $
    461,705
  3




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COGNEX CORPORATION
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 Nine Months EndedSeptember 30,
    
    
    October 1,2007
    
    
    2006(unaudited)Cash flows from operating activities:Net income
    
    $
    15,805
    
    
    $
    30,350Adjustments to reconcile net income to net cash provided
by operating activities:Stock-based compensation expense
    
    
    8,245
    
    
    
    9,936Depreciation and amortization
    
    
    8,494
    
    
    
    8,702Provision for excess and obsolete inventory
    
    
    2,627
    
    
    
    301Excess tax benefit from stock option exercises
    
    
    (203
    )
    
    
    (1,201
    )Deferred income tax benefit
    
    
    (5,566
    )
    
    
    (5,822
    )Deposit related to Japan tax audit (Note 9)
    
    
    (6,336
    )
    
    
    Change in operating assets and liabilities
    
    
    12,931
    
    
    
    (831
    )Net cash provided by operating activities
    
    
    35,997
    
    
    
    41,435Cash flows from investing activities:Purchase of investments
    
    
    (220,467
    )
    
    
    (351,528
    )Maturity and sale of investments
    
    
    240,571
    
    
    
    413,210Purchase of property, plant, and equipment
    
    
    (3,307
    )
    
    
    (3,231
    )Cash paid for business acquisitions, net of cash acquired
    
    
    (502
    )
    
    
    (3,188
    )Net cash provided by investing activities
    
    
    16,295
    
    
    
    55,263Cash flows from financing activities:Issuance of common stock under stock option and
stock purchase plans
    
    
    6,454
    
    
    
    9,198Repurchase of common stock
    
    
    (32,663
    )
    
    
    (81,296
    )Payment of dividends
    
    
    (11,215
    )
    
    
    (11,267
    )Excess tax benefit from stock option exercises
    
    
    203
    
    
    
    1,201Net cash used in financing activities
    
    
    (37,221
    )
    
    
    (82,164
    )Effect of foreign exchange rate changes on cash
    
    
    4,911
    
    
    
    2,160Net increase in cash and cash equivalents
    
    
    19,982
    
    
    
    16,694Cash and cash equivalents at beginning of period
    
    
    87,361
    
    
    
    72,856Cash and cash equivalents at end of period
    
    $
    107,343
    
    
    $
    89,550
  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. 159, The Fair Value Option for Financial Assets and Financial
Liabilities
  NOTE 3: Cash, Cash Equivalents, and Investments
  September 30,
    
    
    December 31,2007
    
    
    2006Cash
    
    $
    107,343
    
    
    $
    84,361Cash equivalents
    
    
    
    
    
    
    3,000Cash and cash
equivalents
    
    
    107,343
    
    
    
    87,361Municipal
bonds
    
    
    87,824
    
    
    
    108,332Commercial
paper
    
    
    
    
    
    
    15,988Agency
notes
    
    
    
    
    
    
    3,999Short-term investments
    
    
    87,824
    
    
    
    128,319Municipal
bonds
    
    
    60,777
    
    
    
    39,594Limited partnership interest
(accounted for using cost
method)
    
    
    9,423
    
    
    
    10,946Long-term
investments
    
    
    70,200
    
    
    
    50,540$
    265,367
    
    
    $
    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
  September 30,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    15,998
    
    
    $
    16,746Work-in-process
    
    
    1,362
    
    
    
    1,630Finished goods
    
    
    12,688
    
    
    
    12,207$
    30,048
    
    
    $
    30,583
   6




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4: Inventories (continued)
  Balance at December 31, 2006
    
    $
    10,822Provisions for excess and obsolete inventory
    
    
    2,714Inventory sold to customers
    
    
    (382
    )Inventory sold to brokers
    
    
    (2,573
    )Scrap of reserved inventory
    
    
    (3,059
    )Foreign exchange rate changes
    
    
    659Balance at September 30, 2007
    
    $
    8,181
  NOTE 5: Intangible Assets
  Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingSeptember 30, 2007
    
    Amount
    
    
    Amortization
    
    
    AmountDistribution networks
    
    $
    38,060
    
    
    $
    7,941
    
    
    $
    30,119Customer contracts and relationships
    
    
    13,491
    
    
    
    5,392
    
    
    
    8,099Completed technologies
    
    
    6,742
    
    
    
    4,463
    
    
    
    2,279Other
    
    
    1,434
    
    
    
    908
    
    
    
    526$
    59,727
    
    
    $
    18,704
    
    
    $
    41,023
 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
  7




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5: Intangible Assets (continued)
  Year
    
    Amount2007
    
    
    1,4572008
    
    
    5,6822009
    
    
    5,4932010
    
    
    5,3642011
    
    
    4,434Thereafter
    
    
    18,593Total
    
    $
    41,023
 NOTE 6: Goodwill
   MVSD
    
    
    SISD
    
    
    ConsolidatedBalance at December 31, 2006
    
    $
    80,485
    
    
    $
    2,833
    
    
    $
    83,318AssistWare contingent payment (Note 13)
    
    
    502
    
    
    
    
    
    
    
    502IRS settlement relating to DVT acquisition (Note 9)
    
    
    179
    
    
    
    
    
    
    
    179Foreign exchange rate changes
    
    
    424
    
    
    
    198
    
    
    
    622Balance at September 30, 2007
    
    $
    81,590
    
    
    $
    3,031
    
    
    $
    84,621
 NOTE 7: Warranty Obligations
   Balance at December 31, 2006
    
    $
    1,387Provisions for warranties issued during the period
    
    
    1,585Fulfillment of warranty obligations
    
    
    (1,620
    )Foreign exchange rate changes
    
    
    57Balance at September 30, 2007
    
    $
    1,409
 8




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




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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
    
    
    1,089Gross-up of FIN 48 liabilities
    
    
    4,436Balance at September 30, 2007
    
    $
    17,913
   10




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9:  Income Taxes (continued)
  NOTE 10: Stock-Based Compensation Expense
  st st
    Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term (in years)
    
    
    ValueOutstanding at December 31, 2006
    
    
    11,324
    
    
    $
    25.90Granted
    
    
    1,425
    
    
    
    21.65Exercised
    
    
    (346
    )
    
    
    18.36Forfeited or Expired
    
    
    (1,392
    )
    
    
    26.50Outstanding at September 30,
2007
    
    
    11,011
    
    
    $
    25.51
    
    
    
    6.2
    
    
    $
    3,982Exercisable at September 30,
2007
    
    
    7,399
    
    
    $
    25.56
    
    
    
    5.1
    
    
    $
    3,982
  11




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10: Stock-Based Compensation Expense (continued)
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    October 1,
    
    September 30,
    
    October 1,2007
    
    2006
    
    2007
    
    2006Risk-free rate
    
    
    4.6
    %
    
    
    4.9
    %
    
    
    4.9
    %
    
    
    4.6
    %Expected dividend yield
    
    
    1.80
    %
    
    
    1.25
    %
    
    
    1.51
    %
    
    
    1.11
    %Expected volatility
    
    
    35
    %
    
    
    46
    %
    
    
    35
    %
    
    
    45
    %Expected term (in years)
    
    
    4.3
    
    
    
    5.0
    
    
    
    4.3
    
    
    
    4.1
 Risk-free rate
  Expected dividend yield
  Expected volatility
  Expected term
     12




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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
    
    
    Nine Months EndedSeptember 30,
    
    
    October 1,
    
    
    September 30,
    
    
    October 1,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    7,343
    
    
    $
    10,116
    
    
    $
    15,805
    
    
    $
    30,350Basic:Weighted-average common shares
outstanding
    
    
    43,286
    
    
    
    44,825
    
    
    
    43,859
    
    
    
    45,905Net income per common share
    
    $
    0.17
    
    
    $
    0.23
    
    
    $
    0.36
    
    
    $
    0.66Diluted:Weighted-average common shares
outstanding
    
    
    43,286
    
    
    
    44,825
    
    
    
    43,859
    
    
    
    45,905Effect of dilutive stock options
    
    
    220
    
    
    
    857
    
    
    
    398
    
    
    
    1,181Weighted-average common and common-equivalent shares
outstanding
    
    
    43,506
    
    
    
    45,682
    
    
    
    44,257
    
    
    
    47,086Net income per common and
common-equivalent share
    
    $
    0.17
    
    
    $
    0.22
    
    
    $
    0.36
    
    
    $
    0.64
  NOTE 12: Segment Information
  13




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 12: Segment Information (continued)
  Three Months Ended
    
    
    
    
    
    
    
    
    
    ReconcilingSeptember 30, 2007
    
    MVSD
    
    SISD
    
    Items
    
    ConsolidatedProduct revenue
    
    $
    46,463
    
    
    $
    2,733
    
    
    $
    
    
    
    $
    49,196Service revenue
    
    
    3,206
    
    
    
    2,343
    
    
    
    
    
    
    
    5,549Operating income
    
    
    12,768
    
    
    
    (559
    )
    
    
    (5,089
    )
    
    
    7,120Nine Months EndedSeptember 30, 2007Product revenue
    
    $
    132,973
    
    
    $
    9,861
    
    
    $
    
    
    
    $
    142,834Service revenue
    
    
    9,841
    
    
    
    7,741
    
    
    
    
    
    
    
    17,582Operating income
    
    
    32,631
    
    
    
    (1,250
    )
    
    
    (15,509
    )
    
    
    15,872Three Months Ended
    
    
    
    
    
    
    
    
    
    ReconcilingOctober 1, 2006
    
    MVSD
    
    SISD
    
    Items
    
    ConsolidatedProduct revenue
    
    $
    48,216
    
    
    $
    4,033
    
    
    $
    
    
    
    $
    52,249Service revenue
    
    
    3,087
    
    
    
    2,669
    
    
    
    
    
    
    
    5,756Operating income
    
    
    16,151
    
    
    
    720
    
    
    
    (5,724
    )
    
    
    11,147Nine Months EndedOctober 1, 2006Product revenue
    
    $
    148,564
    
    
    $
    14,686
    
    
    $
    
    
    
    $
    163,250Service revenue
    
    
    9,300
    
    
    
    7,569
    
    
    
    
    
    
    
    16,869Operating income
    
    
    50,043
    
    
    
    2,531
    
    
    
    (18,171
    )
    
    
    34,403
 th
 NOTE 13: Acquisitions
 AssistWare Technology, Inc.
  14




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 14: Dividends
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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  Company Overview
   
    
    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
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
    
    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
     17




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Results of Operations
 Correction of Prior-Period Misstatements Related to Unsubstantiated Orders in Japan
  Revenue
     18




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Gross Margin
    19




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Operating Expenses
    th
 Nonoperating Income
  20




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Income Taxes
      21




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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 during the period
    
    
    1,089Gross-up of FIN 48 liabilities
    
    
    4,436Balance at September 30, 2007
    
    $
    17,913
   Liquidity and Capital Resources
  22




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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4: CONTROLS AND PROCEDURES
  23




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PART II: OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 On April 16, 2007, VCode Holdings, Inc. et. al. filed a complaint against the
Company in the Eastern District of the State of Texas asserting a claim of patent
infringement of U.S. Patent No. 5.331.176. This matter is in its early stages and
discovery has commenced. The Company cannot predict the outcome of this matter, and
an adverse resolution of this lawsuit could have a material adverse effect on the
Companys financial position, liquidity, results of operations, and/or
indemnification obligations.In addition, refer to Item 3 of the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2006 for a summary of the Companys legal proceedings
as of that date. With respect to the declaratory judgment action in the United
States District Court for Minnesota filed by the Company against Acacia Research
Corporation et al. referenced in that report, discovery has concluded and the
parties anticipate trial to occur sometime in the first quarter of 2008.The Company is subject to a variety of other claims and suits that arise from time
to time in the ordinary course of business. Although management currently believes
that resolving claims against the Company, individually or in the aggregate, will
not have a material adverse impact on the Companys financial position, results of
operations, or cash flows, these matters are subject to inherent uncertainties and
managements view of these matters may change in the future.
 
 ITEM 1A. RISK FACTORS
 For factors that could affect the Companys business, results of operations, and
financial condition, see the risk factors discussion provided in Item 1A of the
Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 The following table sets forth information with respect to purchases by the Company
of shares of its Common Stock during the periods indicated.
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Total
    
    ApproximateNumber of
    
    Dollar ValueShares
    
    of SharesPurchased
    
    that May Yetas Part of
    
    BeTotal
    
    Average
    
    Publicly
    
    PurchasedNumber of
    
    Price
    
    Announced
    
    Under theShares
    
    Paid per
    
    Plans or
    
    Plans orPeriod
    
    Purchased
    
    Share
    
    Programs
    
    ProgramsJuly 2  31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,924,000August 1  31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,924,000September 1  30,
2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,924,000Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    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
 None
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 None
 
 ITEM 5. OTHER INFORMATION
 None
 
 ITEM 6. EXHIBITS
        
 *
    
    Filed herewith**
    
    Furnished herewith 25




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SIGNATURES
  DATE:  November 1, 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) 26