##### 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 28, 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)
  Yes þ
    
    No o
  Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting

company o  Yes o
    
    No þ




---



##### 



INDEX
 
 PART I
    
    FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Financial Statements
    
    
    1Consolidated Statements of Operations for the three-month and nine-month periods ended September 28, 2008 and

September 30, 2007
    
    
    1Consolidated Balance Sheets at September 28, 2008 and December 31, 2007
    
    
    2Consolidated Statement of Shareholders Equity for the nine-month period ended September 28, 2008
    
    
    3Consolidated Condensed Statements of Cash Flows for the nine-month periods ended September 28, 2008 and

September 30, 2007
    
    
    4Notes to Consolidated Financial Statements (interim periods unaudited)
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    23PART II
    
    OTHER INFORMATION
    
    
    24Item 1.
    
    Legal Proceedings
    
    
    24Item 1A.
    
    Risk Factors
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    26Signatures
    
    
    27EX-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
    
    
    Nine Months EndedSeptember 28,
    
    
    September 30,
    
    
    September 28,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(unaudited)
    
    
    (unaudited)RevenueProduct
    
    $
    58,300
    
    
    $
    49,194
    
    
    $
    175,699
    
    
    $
    142,830Service
    
    
    4,956
    
    
    
    5,549
    
    
    
    15,159
    
    
    
    17,58263,256
    
    
    
    54,743
    
    
    
    190,858
    
    
    
    160,412Cost of revenueProduct
    
    
    14,327
    
    
    
    11,245
    
    
    
    44,401
    
    
    
    35,990Service
    
    
    3,081
    
    
    
    3,340
    
    
    
    9,087
    
    
    
    10,93317,408
    
    
    
    14,585
    
    
    
    53,488
    
    
    
    46,923Gross marginProduct
    
    
    43,973
    
    
    
    37,949
    
    
    
    131,298
    
    
    
    106,840Service
    
    
    1,875
    
    
    
    2,209
    
    
    
    6,072
    
    
    
    6,64945,848
    
    
    
    40,158
    
    
    
    137,370
    
    
    
    113,489Research, development, and engineering expenses
    
    
    9,073
    
    
    
    8,371
    
    
    
    27,292
    
    
    
    24,122Selling, general, and administrative expenses
    
    
    28,788
    
    
    
    24,302
    
    
    
    83,362
    
    
    
    72,865Operating income
    
    
    7,987
    
    
    
    7,485
    
    
    
    26,716
    
    
    
    16,502Foreign currency gain (loss)
    
    
    327
    
    
    
    353
    
    
    
    798
    
    
    
    (88
    )Investment income
    
    
    1,875
    
    
    
    1,863
    
    
    
    5,609
    
    
    
    5,868Other income (expense)
    
    
    (45
    )
    
    
    18
    
    
    
    339
    
    
    
    (271
    )Income from continuing operations before income tax expense
    
    
    10,144
    
    
    
    9,719
    
    
    
    33,462
    
    
    
    22,011Income tax expense (benefit) on continuing operations
    
    
    (1,189
    )
    
    
    2,148
    
    
    
    4,777
    
    
    
    5,812Income from continuing operations
    
    
    11,333
    
    
    
    7,571
    
    
    
    28,685
    
    
    
    16,199Loss from
operations of discontinued business, net of tax (Note 14)
    
    
    
    
    
    
    (228
    )
    
    
    (3,224
    )
    
    
    (394
    )Net income
    
    $
    11,333
    
    
    $
    7,343
    
    
    $
    25,461
    
    
    $
    15,805Basic earnings per weighted-average common and common-equivalent
share:Income from continuing operations
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    0.68
    
    
    $
    0.37Loss from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (0.07
    )
    
    $
    (0.01
    )Net income
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    0.61
    
    
    $
    0.36Diluted earnings per weighted-average common and common-equivalent
share:Income from continuing operations
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    0.68
    
    
    $
    0.37Loss from discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    (0.08
    )
    
    $
    (0.01
    )Net income
    
    $
    0.27
    
    
    $
    0.17
    
    
    $
    0.60
    
    
    $
    0.36Weighted-average common and common-equivalent shares outstanding:Basic
    
    
    41,347
    
    
    
    43,286
    
    
    
    42,054
    
    
    
    43,859Diluted
    
    
    41,462
    
    
    
    43,506
    
    
    
    42,298
    
    
    
    44,257Cash dividends per common share
    
    $
    0.150
    
    
    $
    0.085
    
    
    $
    0.320
    
    
    $
    0.255
  1




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##### Table of Contents



COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
 September 28,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    125,094
    
    
    $
    104,144Short-term investments
    
    
    64,091
    
    
    
    113,179Accounts receivable, less reserves of
$1,387 and $1,317 in 2008 and 2007,
respectively
    
    
    44,201
    
    
    
    38,900Inventories, net
    
    
    26,563
    
    
    
    27,394Deferred income taxes
    
    
    7,424
    
    
    
    7,504Prepaid expenses and other current assets
    
    
    17,293
    
    
    
    16,361Held-for-sale assets (Note 14)
    
    
    
    
    
    
    5,919Total current assets
    
    
    284,666
    
    
    
    313,401Long-term investments
    
    
    47,080
    
    
    
    50,565Property, plant, and equipment, net
    
    
    27,334
    
    
    
    26,636Deferred income taxes
    
    
    18,123
    
    
    
    19,750Intangible assets, net
    
    
    33,752
    
    
    
    39,475Goodwill
    
    
    81,041
    
    
    
    81,032Other assets
    
    
    9,533
    
    
    
    8,687$
    501,529
    
    
    $
    539,546LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,348
    
    
    $
    7,245Accrued expenses
    
    
    22,979
    
    
    
    20,098Accrued income taxes
    
    
    5,188
    
    
    
    3,242Deferred revenue and customer deposits
    
    
    17,931
    
    
    
    13,288Total current liabilities
    
    
    51,446
    
    
    
    43,873Reserve for income taxes
    
    
    9,656
    
    
    
    19,308Commitments and contingencies (Notes 5, 6, 7, and 8)Shareholders equity:Common stock, $.002 par value 
Authorized: 140,000 shares, issued: 40,819
and 43,347 shares in 2008 and 2007,
respectively
    
    
    82
    
    
    
    87Additional paid-in capital
    
    
    93,905
    
    
    
    140,943Retained earnings
    
    
    349,350
    
    
    
    337,231Accumulated other comprehensive loss
    
    
    (2,910
    )
    
    
    (1,896
    )Total shareholders equity
    
    
    440,427
    
    
    
    476,365$
    501,529
    
    
    $
    539,546
  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
    
    
    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
and stock purchase plans
    
    
    824
    
    
    
    2
    
    
    
    14,242
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,244Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    7,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,312Excess tax benefit from stock option exercises
    
    
    
    
    
    
    
    
    
    
    1,681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,681Recognized tax benefit from stock option
exercises from previous year
    
    
    
    
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    307Reduction of tax benefit for research and
development credits as a result of stock
option accounting
    
    
    
    
    
    
    
    
    
    
    (2,169
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,169
    )Repurchase of common stock
    
    
    (3,352
    )
    
    
    (7
    )
    
    
    (68,411
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68,418
    )Payment of dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,342
    )
    
    
    
    
    
    
    
    
    
    
    (13,342
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,461
    
    
    
    
    
    
    $
    25,461
    
    
    
    25,461Net unrealized loss on available-for-sale
investments, net of tax of $63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107
    )
    
    
    (107
    )
    
    
    (107
    )Foreign currency translation adjustment,
net of tax expense of $998
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (907
    )
    
    
    (907
    )
    
    
    (907
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    24,447Balance at September 28, 2008 (unaudited)
    
    
    40,819
    
    
    $
    82
    
    
    $
    93,905
    
    
    $
    349,350
    
    
    $
    (2,910
    )
    
    
    
    
    
    $
    440,427
  3




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##### Table of Contents



COGNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 Nine Months EndedSeptember 28,
    
    
    September 30,2008
    
    
    2007(unaudited)Cash flows from operating activities:Net income
    
    $
    25,461
    
    
    $
    15,805Adjustments to reconcile net income to net cash provided by operations:Impairment loss related to discontinued business (Note 14)
    
    
    2,987
    
    
    
    Intangible asset impairment charge (Note 15)
    
    
    1,500
    
    
    
    Stock-based compensation expense
    
    
    7,312
    
    
    
    8,245Depreciation and amortization
    
    
    8,784
    
    
    
    8,494Provisions for excess and obsolete inventory
    
    
    1,772
    
    
    
    2,627Excess tax benefit from stock option exercises
    
    
    (1,681
    )
    
    
    (203
    )Deferred income tax expense (benefit)
    
    
    844
    
    
    
    (5,566
    )Deposit related to Japan tax audit (Note 8)
    
    
    
    
    
    
    (6,336
    )Change in operating assets and liabilities
    
    
    (8,236
    )
    
    
    12,931Net cash provided by operating activities
    
    
    38,743
    
    
    
    35,997Cash flows from investing activities:Purchase of investments
    
    
    (88,141
    )
    
    
    (220,467
    )Maturity and sale of investments
    
    
    139,535
    
    
    
    240,571Purchase of property, plant, and equipment
    
    
    (4,244
    )
    
    
    (3,307
    )Cash paid for business acquisition
    
    
    (1,000
    )
    
    
    (502
    )Cash received related to discontinued business (Note 14)
    
    
    2,797
    
    
    
    Net cash provided by investing activities
    
    
    48,947
    
    
    
    16,295Cash flows from financing activities:Issuance of common stock under stock option and stock purchase plans
    
    
    14,244
    
    
    
    6,454Repurchase of common stock
    
    
    (68,418
    )
    
    
    (32,663
    )Payment of dividends
    
    
    (13,342
    )
    
    
    (11,215
    )Excess tax benefit from stock option exercises
    
    
    1,681
    
    
    
    203Net cash used in financing activities
    
    
    (65,835
    )
    
    
    (37,221
    )Effect of foreign exchange rate changes on cash
    
    
    (905
    )
    
    
    4,911Net increase in cash and cash equivalents
    
    
    20,950
    
    
    
    19,982Cash and cash equivalents at beginning of period
    
    
    104,144
    
    
    
    87,361Cash and cash equivalents at end of period
    
    $
    125,094
    
    
    $
    107,343
  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
  FASB Statement No. 157, Fair Value Measurements
  FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133
  5




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3: Cash, Cash Equivalents, and Investments and Fair Value
  September 28,
    
    
    December 31,2008
    
    
    2007Cash
    
    $
    122,498
    
    
    $
    104,144Cash equivalents
    
    
    2,596
    
    
    
    Cash and cash equivalents
    
    $
    125,094
    
    
    $
    104,144Municipal bonds
    
    
    64,091
    
    
    
    113,179Short-term investments
    
    $
    64,091
    
    
    $
    113,179Municipal bonds
    
    
    39,612
    
    
    
    43,097Limited partnership interest (accounted for using cost method)
    
    
    7,468
    
    
    
    7,468Long-term investments
    
    $
    47,080
    
    
    $
    50,565$
    236,265
    
    
    $
    267,888
    SignificantOther
    
    
    SignificantObservable
    
    
    UnobservableInputs (Level 2)
    
    
    Inputs (Level 3)
    
    
    TotalMunicipal
bond investments
    
    $
    101,703
    
    
    $
    2,000
    
    
    $
    103,703
  6




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3: Cash, Cash Equivalents, and Investments and Fair Value (continued)
   NOTE 4: Inventories
  September 28,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    14,731
    
    
    $
    13,005Work-in-process
    
    
    1,584
    
    
    
    1,336Finished goods
    
    
    10,248
    
    
    
    13,053$
    26,563
    
    
    $
    27,394
 NOTE 5: Warranty Obligations
   Balance at December 31, 2007
    
    $
    1,462Provisions for warranties issued during the period
    
    
    1,266Fulfillment of warranty obligations
    
    
    (1,109
    )Foreign exchange rate changes
    
    
    Balance at September 28, 2008
    
    $
    1,619
 7




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6: Contingencies
     NOTE 7: Indemnification Provisions
   8




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7: Indemnification Provisions (continued)
   NOTE 8: Income Taxes
     9




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9: Stock-Based Compensation Expense
    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
    
    
    2,414
    
    
    
    20.11Exercised
    
    
    (820
    )
    
    
    17.26Forfeited or Expired
    
    
    (373
    )
    
    
    26.38Outstanding at September 28, 2008
    
    
    12,161
    
    
    $
    24.96
    
    
    
    6.3
    
    
    $
    9,112Exercisable at September 28, 2008
    
    
    7,678
    
    
    $
    26.53
    
    
    
    4.8
    
    
    $
    4,000
   Three Months Ended
    
    Nine Months EndedSeptember 28,
    
    September 30,
    
    September 28,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Risk-free rate
    
    
    3.8
    %
    
    
    4.6
    %
    
    
    3.9
    %
    
    
    4.9
    %Expected dividend yield
    
    
    1.3
    %
    
    
    1.8
    %
    
    
    1.7
    %
    
    
    1.5
    %Expected volatility
    
    
    42
    %
    
    
    35
    %
    
    
    42
    %
    
    
    35
    %Expected term (in years)
    
    
    6.4
    
    
    
    4.3
    
    
    
    6.0
    
    
    
    4.3
 10




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##### Table of Contents



COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9: Stock-Based Compensation Expense (continued)
 Risk-free rate
 Expected dividend yield
 Expected volatility
 Expected term
    11




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9: Stock-Based Compensation Expense (continued)
  Three Months Ended
    
    
    Nine Months EndedSeptember 28, 2008
    
    
    September 30, 2007
    
    
    September 28, 2008
    
    
    September 30, 2007Product cost of revenue
    
    $
    133
    
    
    $
    138
    
    
    $
    448
    
    
    $
    450Service cost of revenue
    
    
    120
    
    
    
    140
    
    
    
    435
    
    
    
    417Research, development,
and engineering
    
    
    732
    
    
    
    723
    
    
    
    2,325
    
    
    
    2,268Selling, general, and
administrative
    
    
    1,931
    
    
    
    1,723
    
    
    
    4,104
    
    
    
    5,110$
    2,916
    
    
    $
    2,724
    
    
    $
    7,312
    
    
    $
    8,245
  Note 10: Stock Repurchase Program
     NOTE 11: Dividends
   12




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 12: Weighted-Average Shares
  Three Months Ended
    
    Nine Months EndedSeptember 28, 2008
    
    September 30, 2007
    
    September 28, 2008
    
    September 30, 2007Basic weighted-average common
shares outstanding
    
    
    41,347
    
    
    
    43,286
    
    
    
    42,054
    
    
    
    43,859Effect of dilutive stock options
    
    
    115
    
    
    
    220
    
    
    
    244
    
    
    
    398Diluted weighted-average common and
common-equivalent shares
outstanding
    
    
    41,462
    
    
    
    43,506
    
    
    
    42,298
    
    
    
    44,257
  NOTE 13: Segment Information
   ReconcilingMVSD
    
    SISD
    
    Items
    
    ConsolidatedThree Months Ended
September 28, 2008Product revenue
    
    $
    50,143
    
    
    $
    8,157
    
    
    $
    
    
    
    $
    58,300Service revenue
    
    
    2,167
    
    
    
    2,789
    
    
    
    
    
    
    
    4,956Operating income
    
    
    12,519
    
    
    
    1,883
    
    
    
    (6,415
    )
    
    
    7,987Nine Months Ended
September 28, 2008Product revenue
    
    $
    156,789
    
    
    $
    18,910
    
    
    $
    
    
    
    $
    175,699Service revenue
    
    
    7,443
    
    
    
    7,716
    
    
    
    
    
    
    
    15,159Operating income
    
    
    40,552
    
    
    
    3,205
    
    
    
    (17,041
    )
    
    
    26,716ReconcilingMVSD
    
    SISD
    
    Items
    
    ConsolidatedThree Months Ended
September 30, 2007Product revenue
    
    $
    46,461
    
    
    $
    2,733
    
    
    $
    
    
    
    $
    49,194Service revenue
    
    
    3,206
    
    
    
    2,343
    
    
    
    
    
    
    
    5,549Operating income
    
    
    13,133
    
    
    
    (559
    )
    
    
    (5,089
    )
    
    
    7,485Nine Months Ended
September 30, 2007Product revenue
    
    $
    132,969
    
    
    $
    9,861
    
    
    $
    
    
    
    $
    142,830Service revenue
    
    
    9,841
    
    
    
    7,741
    
    
    
    
    
    
    
    17,582Operating income
    
    
    33,261
    
    
    
    (1,250
    )
    
    
    (15,509
    )
    
    
    16,502
 13




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 13: Segment Information (continued)
  Note 14: Sale of Lane Departure Warning Business
   Inventories
    
    $
    85Prepaid expenses and other current assets
    
    
    45Property, plant, and equipment, net
    
    
    49Intangible assets
    
    
    222Goodwill
    
    
    5,756Valuation allowance
    
    
    (2,987
    )$
    3,170
  14




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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 15: Intangible Asset Impairment Charge
   15




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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
  Executive Overview
   16




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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 the Company 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 18% of total revenue for the nine-month period in
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 for the nine-month
period in 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 on the surfaces of those
materials as they are being processed at high speeds. Surface inspection sales represented
approximately 14% of total revenue for the nine-month period in 2008.
    Results of Operations
 Revenue
   17




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Gross Margin
   18




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Operating Expenses
       19




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##### Table of Contents



Nonoperating Income (Expense)
    Income Tax Expense (Benefit) on Continuing Operations
    20




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Discontinued Operations
   Liquidity and Capital Resources
      21




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New Pronouncements
 FASB Statement No. 141R, Business Combinations
  FASB Statement No. 157, Fair Value Measurements
  22




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FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133
  
 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
    24




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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
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Shares Purchased
    
    Paid per Share
    
    Programs (1)
    
    Plans or ProgramsJune 30  July 31, 2008
    
    
    142,161
    
    
    $
    18.32
    
    
    
    142,161
    
    
    $
    74,906,000August 1  31, 2008
    
    
    967,797
    
    
    $
    19.30
    
    
    
    967,797
    
    
    $
    56,030,000September 1  28, 2008
    
    
    76,238
    
    
    $
    19.92
    
    
    
    76,238
    
    
    $
    54,513,000Total
    
    
    1,186,196
    
    
    $
    19.22
    
    
    
    1,186,196
    
    
    $
    54,513,000
 
 (1)
    
    In March 2008, the Companys Board of Directors authorized the
repurchase of up to an additonal $30,000,000 of the Companys common stock under
a Rule 10b5-1 Plan. In April 2008, the Companys Board of Directors authorized
the repurchase of up to an additional $50,000,000 of the Companys common stock.  25




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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 26




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SIGNATURES
  DATE:  October 30, 2008
    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) 27