##### 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 2, 2006 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
  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 2, 2006 and July 3, 2005Consolidated Balance Sheets at July 2, 2006 and December 31, 2005Consolidated Statement of Shareholders' Equity for the six-month period ended July 2, 2006Consolidated Condensed Statements of Cash Flows for the six-month periods ended July 2, 2006 and July 3, 2005Notes 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-10.3 Second Amendment to the Cognex Corporation 1998 Stock Incentive PlanEX-31.1 Section 302 Certification of C.E.O.EX-31.2 Section 302 Certification of C.F.O.EX-32.1 Section 906 Certification of C.E.O.EX-32.2 Section 906 Certification of 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
    
    
    Six Months EndedJuly 2,
    
    
    July 3,
    
    
    July 2,
    
    
    July 3,2006
    
    
    2005
    
    
    2006
    
    
    2005(unaudited)
    
    
    (unaudited)RevenueProduct
    
    $
    57,352
    
    
    $
    48,877
    
    
    $
    111,001
    
    
    $
    86,054Service
    
    
    5,722
    
    
    
    5,726
    
    
    
    11,113
    
    
    
    11,74763,074
    
    
    
    54,603
    
    
    
    122,114
    
    
    
    97,801Cost of revenueProduct (1)
    
    
    12,978
    
    
    
    12,529
    
    
    
    26,024
    
    
    
    22,886Service (1)
    
    
    3,615
    
    
    
    3,536
    
    
    
    7,279
    
    
    
    6,96916,593
    
    
    
    16,065
    
    
    
    33,303
    
    
    
    29,855Gross marginProduct
    
    
    44,374
    
    
    
    36,348
    
    
    
    84,977
    
    
    
    63,168Service
    
    
    2,107
    
    
    
    2,190
    
    
    
    3,834
    
    
    
    4,77846,481
    
    
    
    38,538
    
    
    
    88,811
    
    
    
    67,946Research, development, and engineering expenses (1)
    
    
    8,582
    
    
    
    7,185
    
    
    
    16,499
    
    
    
    13,500Selling, general, and administrative expenses (1)
    
    
    25,277
    
    
    
    21,494
    
    
    
    49,056
    
    
    
    39,002Operating income
    
    
    12,622
    
    
    
    9,859
    
    
    
    23,256
    
    
    
    15,444Foreign currency loss
    
    
    (280
    )
    
    
    (291
    )
    
    
    (425
    )
    
    
    (192
    )Investment and other income
    
    
    1,772
    
    
    
    973
    
    
    
    3,338
    
    
    
    2,443Income before provision for income taxes
    
    
    14,114
    
    
    
    10,541
    
    
    
    26,169
    
    
    
    17,695Income tax provision
    
    
    2,680
    
    
    
    2,741
    
    
    
    5,935
    
    
    
    4,601Net income
    
    $
    11,434
    
    
    $
    7,800
    
    
    $
    20,234
    
    
    $
    13,094Net income per common and common-equivalent share:Basic
    
    $
    0.25
    
    
    $
    0.17
    
    
    $
    0.44
    
    
    $
    0.28Diluted
    
    $
    0.24
    
    
    $
    0.17
    
    
    $
    0.42
    
    
    $
    0.28Weighted-average common and common-equivalent
shares outstanding:Basic
    
    
    46,331
    
    
    
    46,286
    
    
    
    46,443
    
    
    
    46,290Diluted
    
    
    47,517
    
    
    
    47,141
    
    
    
    47,756
    
    
    
    47,269Cash dividends per common share
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.16(1) Amounts include stock-based compensation
expense, as follows:Product cost of revenue
    
    $
    197
    
    
    $
    
    
    
    $
    353
    
    
    $
    Service cost of revenue
    
    
    229
    
    
    
    
    
    
    
    428
    
    
    
    Research, development, and engineering
    
    
    948
    
    
    
    
    
    
    
    1,730
    
    
    
    Selling, general, and administrative
    
    
    2,131
    
    
    
    
    
    
    
    3,950
    
    
    
    Total stock-based compensation expense
    
    $
    3,505
    
    
    $
    
    
    
    $
    6,461
    
    
    $
    
  1




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##### Table of Contents



COGNEX CORPORATION
 CONSOLIDATED BALANCE SHEETS
 July 2,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    79,050
    
    
    $
    72,856Short-term investments
    
    
    134,781
    
    
    
    169,156Accounts receivable, less reserves of
$2,673 and $2,370 in 2006 and 2005,
respectively
    
    
    44,639
    
    
    
    42,051Inventories, net
    
    
    26,039
    
    
    
    18,819Deferred income taxes
    
    
    7,741
    
    
    
    7,667Prepaid expenses and other current assets
    
    
    12,973
    
    
    
    16,104Total current assets
    
    
    305,223
    
    
    
    326,653Long-term investments
    
    
    60,276
    
    
    
    70,246Property, plant, and equipment, net
    
    
    24,220
    
    
    
    24,175Deferred income taxes
    
    
    14,305
    
    
    
    10,227Intangible assets, net
    
    
    47,822
    
    
    
    50,049Goodwill
    
    
    83,060
    
    
    
    79,807Other assets
    
    
    3,443
    
    
    
    3,405$
    538,349
    
    
    $
    564,562LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    7,276
    
    
    $
    7,118Accrued expenses
    
    
    48,798
    
    
    
    43,476Customer deposits
    
    
    1,663
    
    
    
    2,142Deferred revenue
    
    
    6,718
    
    
    
    5,305Total current liabilities
    
    
    64,455
    
    
    
    58,041Commitments (Notes 3, 7, 8, 9, and 13)Shareholders equity:Common stock, $.002 par value 
Authorized: 140,000 shares, issued: 45,257
and 47,171 shares in 2006 and 2005,
respectively
    
    
    91
    
    
    
    94Additional paid-in capital
    
    
    168,972
    
    
    
    216,031Retained earnings
    
    
    317,227
    
    
    
    304,454Accumulated other comprehensive loss
    
    
    (12,396
    )
    
    
    (14,058
    )Total shareholders equity
    
    
    473,894
    
    
    
    506,521$
    538,349
    
    
    $
    564,562
  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, 2005
    
    
    47,171
    
    
    $
    94
    
    
    $
    216,031
    
    
    $
    304,454
    
    
    $
    (14,058
    )
    
    
    
    
    
    $
    506,521Issuance of stock under stock option, stock
purchase, and other plans
    
    
    347
    
    
    
    2
    
    
    
    7,343
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,345Stock-based compensation expenses
    
    
    
    
    
    
    
    
    
    
    6,461
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,461Excess tax benefit from stock option
exercises
    
    
    
    
    
    
    
    
    
    
    1,015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,015Payment of dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,461
    )
    
    
    
    
    
    
    
    
    
    
    (7,461
    )Repurchase of Common Stock
    
    
    (2,261
    )
    
    
    (5
    )
    
    
    (61,878
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61,883
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,234
    
    
    
    
    
    
    $
    20,234
    
    
    
    20,234Gains on long-term intercompany loans,
net of losses on currency swaps, net of
tax of $3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5
    
    
    
    5Net unrealized gain on available-for-sale
investments, net of tax of $52
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88
    
    
    
    88
    
    
    
    88Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,569
    
    
    
    1,569
    
    
    
    1,569Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    21,896Balance at July 2, 2006 (unaudited)
    
    
    45,257
    
    
    $
    91
    
    
    $
    168,972
    
    
    $
    317,227
    
    
    $
    (12,396
    )
    
    
    
    
    
    $
    473,894
 
 3




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##### Table of Contents



COGNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 Six Months EndedJuly 2,
    
    
    July 3,2006
    
    
    2005(unaudited)Cash flows from operating activities:Net income
    
    $
    20,234
    
    
    $
    13,094Adjustments to reconcile net income to net cash
provided by operating activities:Stock-based compensation expense
    
    
    6,461
    
    
    
    Depreciation and amortization
    
    
    5,736
    
    
    
    5,407Excess tax benefit from stock option exercises
    
    
    815
    
    
    
    503Deferred income tax expense (benefit)
    
    
    (4,136
    )
    
    
    353Change in current assets and current liabilities
    
    
    (2,577
    )
    
    
    (4,627
    )Other
    
    
    50
    
    
    
    270Net cash provided by operating activities
    
    
    26,583
    
    
    
    15,000Cash flows from investing activities:Purchase of investments
    
    
    (287,552
    )
    
    
    (321,766
    )Maturity and sale of investments
    
    
    331,379
    
    
    
    435,984Purchase of property, plant, and equipment
    
    
    (2,023
    )
    
    
    (1,814
    )Cash paid for business acquisition, net of cash acquired
    
    
    (2,998
    )
    
    
    (111,427
    )Net cash provided by investing activities
    
    
    38,806
    
    
    
    977Cash flows from financing activities:Payment of dividends
    
    
    (7,461
    )
    
    
    (7,405
    )Repurchase of common stock
    
    
    (61,883
    )
    
    
    Issuance of stock under stock option plans
    
    
    7,345
    
    
    
    4,219Excess tax benefit from stock option exercises
    
    
    100
    
    
    
    Net cash used in financing activities
    
    
    (61,899
    )
    
    
    (3,186
    )Effect of foreign exchange rate changes on cash
    
    
    2,704
    
    
    
    (2,302
    )Net increase in cash and cash equivalents
    
    
    6,194
    
    
    
    10,489Cash and cash equivalents at beginning of period
    
    
    72,856
    
    
    
    54,270Cash and cash equivalents at end of period
    
    $
    79,050
    
    
    $
    64,759
  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
  NOTE 3: Cash, Cash Equivalents, and Investments
  July 2,
    
    
    December 31,2006
    
    
    2005Cash
    
    $
    74,550
    
    
    $
    72,856Cash equivalents
    
    
    4,500
    
    
    
    Total cash and cash equivalents
    
    
    79,050
    
    
    
    72,856Municipal bonds
    
    
    115,346
    
    
    
    140,718Commercial paper
    
    
    12,953
    
    
    
    24,584Corporate bonds
    
    
    2,500
    
    
    
    2,500Treasury bills
    
    
    3,982
    
    
    
    1,354Total short-term investments
    
    
    134,781
    
    
    
    169,156Municipal bonds
    
    
    49,893
    
    
    
    59,863Limited partnership interest
    
    
    10,383
    
    
    
    10,383Total long-term investments
    
    
    60,276
    
    
    
    70,246$
    274,107
    
    
    $
    312,258
 5




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3: Cash, Cash Equivalents, and Investments (continued)
   NOTE 4: Inventories
  July 2,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    13,105
    
    
    $
    8,958Work-in-process
    
    
    1,764
    
    
    
    3,406Finished goods
    
    
    11,170
    
    
    
    6,455$
    26,039
    
    
    $
    18,819
   Statement ofBalance Sheet
    
    
    OperationsInventories
    
    
    Accrued Expenses
    
    
    BenefitsReserve balance at December 31, 2005
    
    $
    5,884
    
    
    $
    1,400Benefits to cost of product revenue
recorded in the six-month period
ended July 3, 2005
    
    
    
    
    
    
    
    
    
    $
    287Inventory sold to customers
    
    
    (604
    )
    
    
    
    
    
    $
    604Inventory sold to brokers
    
    
    (309
    )
    
    
    
    
    
    
    Write-off and scrap of inventory
    
    
    (94
    )
    
    
    
    
    
    
    Reserve balance at July 2, 2006
    
    $
    4,877
    
    
    $
    1,400Benefits to cost of product revenue
recorded in the six-month period
ended July 2, 2006
    
    
    
    
    
    
    
    
    
    $
    604
 6




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4: Inventories (continued)
  NOTE 5: Intangible Assets
  Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingJuly 2, 2006
    
    Amount
    
    
    Amortization
    
    
    AmountDistribution networks
    
    $
    38,060
    
    
    $
    3,834
    
    
    $
    34,226Customer contracts and relationships
    
    
    12,784
    
    
    
    3,341
    
    
    
    9,443Completed technologies
    
    
    4,471
    
    
    
    1,267
    
    
    
    3,204Other
    
    
    1,365
    
    
    
    416
    
    
    
    949$
    56,680
    
    
    $
    8,858
    
    
    $
    47,822
 Gross
    
    
    
    
    
    
    NetCarrying
    
    
    Accumulated
    
    
    CarryingDecember 31, 2005
    
    Amount
    
    
    Amortization
    
    
    AmountDistribution networks
    
    $
    38,060
    
    
    $
    2,191
    
    
    $
    35,869Customer contracts and relationships
    
    
    12,186
    
    
    
    2,520
    
    
    
    9,666Completed technologies
    
    
    9,028
    
    
    
    5,491
    
    
    
    3,537Other
    
    
    1,264
    
    
    
    287
    
    
    
    977$
    60,538
    
    
    $
    10,489
    
    
    $
    50,049
   Year
    
    Amount2006
    
    2,9902007
    
    5,5962008
    
    5,5962009
    
    5,4072010
    
    5,278Thereafter
    
    22,955Total
    
    $47,822
 7




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6: Goodwill
   MVSD
    
    
    SISD
    
    
    ConsolidatedBalance at December 31, 2005
    
    $
    77,266
    
    
    $
    2,541
    
    
    $
    79,807Assistware business acquisition (Note 13)
    
    
    2,972
    
    
    
    
    
    
    
    2,972Siemens contingent payment (Note 13)
    
    
    190
    
    
    
    
    
    
    
    190DVT purchase price adjustment (Note 13)
    
    
    (298
    )
    
    
    
    
    
    
    (298
    )Foreign exchange rate changes
    
    
    185
    
    
    
    204
    
    
    
    389Balance at July 2, 2006
    
    $
    80,315
    
    
    $
    2,745
    
    
    $
    83,060
  NOTE 7: Warranty Obligations
   Balance at December 31, 2005
    
    $
    1,447Provisions for warranties issued during the period
    
    
    395Fulfillment of warranty obligations
    
    
    (510
    )Foreign exchange rate changes
    
    
    71Balance at July 2, 2006
    
    $
    1,403
 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 and Standby Letters of Credit
   NOTE 10: Stock-Based Compensation Expense
   9




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10: Stock-Based Compensation Expense (continued)
   st st
   Weighted-Weighted-
    
    
    AverageAverage
    
    
    RemainingExercise
    
    
    Contractual
    
    
    AggregateShares
    
    
    Price
    
    
    Term
    
    
    Intrinsic ValueOutstanding at December 31, 2005
    
    
    10,675
    
    
    $
    25.36Granted
    
    
    1,503
    
    
    
    29.28Exercised
    
    
    (342
    )
    
    
    21.01Forfeited or Expired
    
    
    (248
    )
    
    
    25.99Outstanding at July 2, 2006
    
    
    11,588
    
    
    $
    25.99
    
    
    
    7.0
    
    
    $
    27,587Exercisable at July 2, 2006
    
    
    7,004
    
    
    $
    25.48
    
    
    
    5.8
    
    
    $
    22,897
   10




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10: Stock-Based Compensation Expense (continued)
  Three Months Ended
    
    Six Months EndedJuly 2,
    
    July 3,
    
    July 2,
    
    July 3,2006
    
    2005
    
    2006
    
    2005Risk-free rate
    
    
    4.5
    %
    
    
    3.6
    %
    
    
    4.5
    %
    
    
    3.4
    %Expected dividend yield
    
    
    1.10
    %
    
    
    1.22
    %
    
    
    1.10
    %
    
    
    1.27
    %Expected volatility
    
    
    45
    %
    
    
    35
    %
    
    
    45
    %
    
    
    35
    %Expected term (in years)
    
    
    4.0
    
    
    
    2.8
    
    
    
    4.0
    
    
    
    2.8
 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)
    Three Months
    
    
    Six MonthsEnded
    
    
    EndedJuly 3,
    
    
    July 3,2005
    
    
    2005Net income, as reported
    
    $
    7,800
    
    
    $
    13,094Less: Total stock-based compensation
expense determined under fair value based
method, net of tax
    
    
    (2,368
    )
    
    
    (4,678
    )Net income, pro forma
    
    
    5,432
    
    
    
    8,416Basic net income per share, as reported
    
    $
    0.17
    
    
    $
    0.28Basic net income per share, pro forma
    
    $
    0.12
    
    
    $
    0.18Diluted net income per share, as reported
    
    $
    0.17
    
    
    $
    0.28Diluted net income per share, pro forma
    
    $
    0.12
    
    
    $
    0.18
 12




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11: Net Income Per Share
  Three Months Ended
    
    
    Six Months EndedJuly 2, 2006
    
    
    July 3, 2005
    
    
    July 2, 2006
    
    
    July 3, 2005Net income
    
    $
    11,434
    
    
    $
    7,800
    
    
    $
    20,234
    
    
    $
    13,094Basic:Weighted-average common shares
outstanding
    
    
    46,331
    
    
    
    46,286
    
    
    
    46,443
    
    
    
    46,290Net income per common share
    
    $
    0.25
    
    
    $
    0.17
    
    
    $
    0.44
    
    
    $
    0.28Diluted:Weighted-average common shares
outstanding
    
    
    46,331
    
    
    
    46,286
    
    
    
    46,443
    
    
    
    46,290Effect of dilutive stock options
    
    
    1,186
    
    
    
    855
    
    
    
    1,313
    
    
    
    979Weighted-average common and
common-equivalent shares
outstanding
    
    
    47,517
    
    
    
    47,141
    
    
    
    47,756
    
    
    
    47,269Net income per common and
common-equivalent share
    
    $
    0.24
    
    
    $
    0.17
    
    
    $
    0.42
    
    
    $
    0.28
  NOTE 12: Segment Information
  13




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 12: Segment Information (continued)
  ReconcilingMVSD
    
    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
 ReconcilingMVSD
    
    SISD
    
    Items
    
    ConsolidatedThree Months Ended
July 3, 2005Product revenue
    
    $
    41,908
    
    
    $
    6,969
    
    
    $
    
    
    
    $
    48,877Service revenue
    
    
    3,386
    
    
    
    2,340
    
    
    
    
    
    
    
    5,726Operating income
    
    
    10,402
    
    
    
    1,579
    
    
    
    (2,122
    )
    
    
    9,859Six Months Ended
July 3, 2005Product revenue
    
    $
    74,593
    
    
    $
    11,461
    
    
    $
    
    
    
    $
    86,054Service revenue
    
    
    7,030
    
    
    
    4,717
    
    
    
    
    
    
    
    11,747Operating income
    
    
    17,441
    
    
    
    2,113
    
    
    
    (4,110
    )
    
    
    15,444
 th
 NOTE 13: Acquisitions
 Assistware Technology
  14




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 13: Acquisitions (continued)
   Weighted-AverageEstimated Fair
    
    
    Amortization PeriodValue
    
    
    (in years)Accounts receivable
    
    $
    25Inventories
    
    
    29Prepaid expenses and other current assets
    
    
    320Property, plant, and equipment
    
    
    32Intangible assetsCustomer contract
    
    
    140
    
    
    
    3.5Customer relationships
    
    
    100
    
    
    
    9Completed technologies
    
    
    100
    
    
    
    5Goodwill
    
    
    2,972Total assets acquired
    
    
    3,718Accounts payable
    
    
    280Accrued expenses
    
    
    440Total liabilities assumed
    
    
    720Total purchase price
    
    $
    2,998
  DVT Corporation
  15




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 13: Acquisitions (continued)
  Weighted-AverageEstimated Fair
    
    
    Amortization PeriodValue
    
    
    (in years)Accounts receivable
    
    $
    5,785Inventories
    
    
    1,995Prepaid expenses and other current assets
    
    
    5,531Property, plant, and equipment
    
    
    766Other assets
    
    
    66Intangible assetsDistribution networks
    
    
    38,060
    
    
    
    11.6Customer relationships
    
    
    4,740
    
    
    
    12Completed technologies
    
    
    3,680
    
    
    
    6Trade names, trademarks, and
non-competition agreement
    
    
    1,110
    
    
    
    4Goodwill
    
    
    73,180Total assets acquired
    
    
    134,913Accounts payable
    
    
    1,388Accrued expenses
    
    
    6,102Net deferred tax liabilities
    
    
    15,816Total liabilities assumed
    
    
    23,306Total purchase price
    
    $
    111,607
 Siemens Dematic AG Wafer Identification Business
  NOTE 14: Dividends
  NOTE 15: Subsequent Events
  16




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17




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##### Table of Contents



ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  Executive Overview
   18




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Stock-Based Compensation Expense
     19




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##### Table of Contents



Results of Operations
 Revenue
    Gross Margin
  20




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##### Table of Contents



Operating Expenses
 â
   21




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##### Table of Contents



th
 Nonoperating Income
   Income Taxes
  Liquidity and Capital Resources
   22




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New Pronouncements
  
 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
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Programs
    
    
    ProgramsApril 3
 May 2, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 3 
June 2, 2006
    
    
    1,112,568
    
    
    $
    26.96
    
    
    
    1,112,568
    
    
    
    June 3  July 2,
2006
    
    
    269,696
    
    
    $
    25.53
    
    
    
    269,696
    
    
    
    Total
    
    
    1,382,264
    
    
    $
    26.68
    
    
    
    1,382,264
    
    
    
    
 
 (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.
During the quarter ended July 2, 2006, this repurchase program was completed.
On July 27, 2006, the Companys Board of Directors authorized a new program for
the repurchase of up to $100,000,000 of the Companys Common Stock. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  25




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ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 10.1
    
    
    
    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])10.2
    
    
    
    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])10.3
    
    
    
    Second Amendment to the Cognex Corporation 1998 Stock Incentive
Plan*31.1
    
    
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934*31.2
    
    
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934*32.1
    
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**32.2
    
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
 
 *
    
    Filed herewith**
    
    Furnished herewith 26




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SIGNATURES
  DATE:  August 11, 2006
    COGNEX CORPORATION/s/ Robert J. ShillmanRobert J. ShillmanChairman of the Board of Directors and Chief Executive Officer
(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) 27