PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

COGNEX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)


													Quarter Ended
	Three Months Ended						Nine Months Ended						April 5,			March 30,
	September 28,			September 30,			September 28,			September 30,			2009			2008
	2008			2007			2008			2007			(unaudited)
	(unaudited)						(unaudited)
Revenue
Product	$	58,300		$	49,194		$	175,699		$	142,830		$	38,128		$	54,943
Service		4,956			5,549			15,159			17,582			4,159			5,570

		63,256			54,743			190,858			160,412			42,287			60,513

Cost of revenue
Product		14,327			11,245			44,401			35,990			10,386			13,992
Service		3,081			3,340			9,087			10,933			3,078			3,063

														13,464			17,055
		17,408			14,585			53,488			46,923
Gross margin
Product		43,973			37,949			131,298			106,840			27,742			40,951
Service		1,875			2,209			6,072			6,649			1,081			2,507

		45,848			40,158			137,370			113,489			28,823			43,458

Research, development, and engineering expenses		9,073			8,371			27,292			24,122			8,835			8,929
Selling, general, and administrative expenses		28,788			24,302			83,362			72,865			26,141			26,526
Restructuring charge (Note 14)														297			—


Operating income		7,987			7,485			26,716			16,502
Operating income (loss)														(6,450	)		8,003

Foreign currency gain (loss)		327			353			798			(88	)		(392	)		1,118
Investment income		1,875			1,863			5,609			5,868			884			1,977
Other income (expense)		(45	)		18			339			(271	)
Other income														1,800			355


Income from continuing operations before income tax expense		10,144			9,719			33,462			22,011
Income (loss) from continuing operations before income tax expense														(4,158	)		11,453
Income tax expense (benefit) on continuing operations		(1,189	)		2,148			4,777			5,812			(748	)		2,863

Income from continuing operations		11,333			7,571			28,685			16,199
Loss from operations of discontinued business, net of tax (Note 14)		—			(228	)		(3,224	)		(394	)
Income (loss) from continuing operations														(3,410	)		8,590
Loss from operations of discontinued business, net of tax (Note 17)														—			(115	)

Net income	$	11,333		$	7,343		$	25,461		$	15,805
Net income (loss)													$	(3,410	)	$	8,475


Basic earnings per weighted-average common and common-equivalent share:
Income from continuing operations	$	0.27		$	0.17		$	0.68		$	0.37
Basic earnings (loss) per weighted-average common and common-equivalent share:
Income (loss) from continuing operations													$	(0.09	)	$	0.20
Loss from discontinued operations	$	—		$	—		$	(0.07	)	$	(0.01	)	$	0.00		$	0.00

Net income	$	0.27		$	0.17		$	0.61		$	0.36
Net income (loss)													$	(0.09	)	$	0.20


Diluted earnings per weighted-average common and common-equivalent share:
Income from continuing operations	$	0.27		$	0.17		$	0.68		$	0.37
Diluted earnings (loss) per weighted-average common and common-equivalent share:
Income (loss) from continuing operations													$	(0.09	)	$	0.20
Loss from discontinued operations	$	—		$	—		$	(0.08	)	$	(0.01	)	$	0.00		$	0.00

Net income	$	0.27		$	0.17		$	0.60		$	0.36
Net income (loss)													$	(0.09	)	$	0.20


Weighted-average common and common-equivalent shares outstanding:
Basic		41,347			43,286			42,054			43,859			39,655			42,978

Diluted		41,462			43,506			42,298			44,257			39,655			43,116


Cash dividends per common share	$	0.150		$	0.085		$	0.320		$	0.255		$	0.150		$	0.085

COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)


	September 28,			December 31,			April 5,			December 31,
	2008			2007			2009			2008
	(unaudited)						(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	125,094		$	104,144		$	123,020		$	127,138
Short-term investments		64,091			113,179			52,494			52,559
Accounts receivable, less reserves of $1,387 and $1,317 in 2008 and 2007, respectively		44,201			38,900
Inventories, net		26,563			27,394
Accounts receivable, less reserves of $1,624 and $1,290 in 2009 and 2008, respectively								21,895			30,510
Inventories								24,395			25,063
Deferred income taxes		7,424			7,504			11,256			10,231
Prepaid expenses and other current assets		17,293			16,361			15,220			18,923
Held-for-sale assets (Note 14)		—			5,919


Total current assets		284,666			313,401			248,280			264,424

Long-term investments		47,080			50,565			31,334			41,389
Property, plant, and equipment, net		27,334			26,636			28,011			27,764
Deferred income taxes		18,123			19,750			18,906			17,673
Intangible assets, net		33,752			39,475			28,779			31,278
Goodwill		81,041			81,032			80,453			80,765
Other assets		9,533			8,687			9,932			10,754


	$	501,529		$	539,546		$	445,695		$	474,047


LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	5,348		$	7,245		$	4,915		$	6,780
Accrued expenses		22,979			20,098			17,150			21,855
Accrued income taxes		5,188			3,242			1,861			2,986
Deferred revenue and customer deposits		17,931			13,288			15,392			19,429


Total current liabilities		51,446			43,873			39,318			51,050

Reserve for income taxes		9,656			19,308			10,063			9,922

Commitments and contingencies (Notes 5, 6, 7, and 8)
Commitments and contingencies (Note 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			87
Common stock, $.002 par value —
Authorized: 140,000 shares, issued: 39,655 shares in 2009 and 2008								79			79
Additional paid-in capital		93,905			140,943			75,048			73,280
Retained earnings		349,350			337,231			335,867			345,225
Accumulated other comprehensive loss		(2,910	)		(1,896	)		(14,680	)		(5,509	)


Total shareholders’ equity		440,427			476,365			396,314			413,075


	$	501,529		$	539,546		$	445,695		$	474,047

COGNEX CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(In thousands)

Accumulated
Additional Other Total
Common Stock Paid-in Retained Comprehensive Comprehensive Shareholders’
Shares Par Value Capital Earnings Gain (Loss) Income Equity

Balance at December 31, 2007 43,347 $ 87 $ 140,943 $ 337,231 $ (1,896 ) $ 476,365

Issuance of common stock under stock option and stock purchase plans 824 2 14,242 14,244
Stock-based compensation expense 7,312 7,312

Excess tax benefit from stock option exercises 1,681 1,681

Recognized tax benefit from stock option exercises from previous year 307 307
Reduction 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 25,461
Net 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 $ 24,447

Balance at September 28, 2008 (unaudited) 40,819 $ 82 $ 93,905 $ 349,350 $ (2,910 ) $ 440,427


											Accumulated
					Additional						Other						Total
	Common Stock				Paid-in			Retained			Comprehensive			Comprehensive			Shareholders’
	Shares		Par Value		Capital			Earnings			Loss			Loss			Equity
Balance as of December 31, 2008		39,655	$	79	$	73,280		$	345,225		$	(5,509	)				$	413,075

Stock-based compensation expense		—		—		1,855			—			—			—			1,855
Excess tax benefit from stock option exercises		—		—		(87	)		—			—			—			(87	)
Payment of dividends		—		—		—			(5,948	)		—			—			(5,948	)
Comprehensive loss:
Net loss		—		—		—			(3,410	)		—		$	(3,410	)		(3,410	)
Net unrealized loss on available-for-sale investments, net of tax of $95		—		—		—			—			(162	)		(162	)		(162	)
Foreign currency translation adjustment, net of tax benefit of $287		—		—		—			—			(9,009	)		(9,009	)		(9,009	)

Comprehensive loss														$	(12,581	)

Balance as of April 5, 2009 (unaudited)		39,655	$	79	$	75,048		$	335,867		$	(14,680	)				$	396,314

The accompanying notes are an integral part of these consolidated ~~condensed~~ financial statements.

COGNEX CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)


	Nine Months Ended						Quarter Ended
	September 28,			September 30,			April 5,			March 30,
	2008			2007			2009			2008
	(unaudited)						(unaudited)
Cash flows from operating activities:
Net income	$	25,461		$	15,805
Adjustments 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			—
Net income (loss)							$	(3,410	)	$	8,475
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation expense		7,312			8,245			1,855			1,873
Depreciation and amortization		8,784			8,494			2,931			2,876
Provisions for excess and obsolete inventory		1,772			2,627
Excess 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	)		12,931
Intangible asset impairment charge (Note 6)								1,000			—
Provision for excess and obsolete inventory								1,057			223
Tax effect of stock option exercises								87			(462	)
Deferred income tax								(2,046	)		(905	)
Change in operating assets and liabilities.								(956	)		1,610


Net cash provided by operating activities		38,743			35,997			518			13,690

Cash flows from investing activities:
Purchase of investments		(88,141	)		(220,467	)		(1,677	)		(16,822	)
Maturity and sale of investments		139,535			240,571			11,170			65,254
Purchase of property, plant, and equipment		(4,244	)		(3,307	)		(1,741	)		(1,709	)
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			16,295			7,752			46,723

Cash flows from financing activities:
Issuance of common stock under stock option and stock purchase plans		14,244			6,454
Issuance of common stock under stock option plans								—			2,901
Repurchase of common stock		(68,418	)		(32,663	)		—			(32,688	)
Payment of dividends		(13,342	)		(11,215	)		(5,948	)		(3,658	)
Excess tax benefit from stock option exercises		1,681			203
Tax effect of stock option exercises								(87	)		462


Net cash used in financing activities		(65,835	)		(37,221	)		(6,035	)		(32,983	)

Effect of foreign exchange rate changes on cash		(905	)		4,911			(6,353	)		7,890


Net increase in cash and cash equivalents		20,950			19,982
Net increase (decrease) in cash and cash equivalents								(4,118	)		35,320
Cash and cash equivalents at beginning of period		104,144			87,361			127,138			104,144

Cash and cash equivalents at end of period	$	125,094		$	107,343		$	123,020		$	139,464

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1: Summary of Significant Accounting Policies

As permitted by the rules of the Securities and Exchange Commission applicable to Quarterly Reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by generally accepted accounting principles. Reference should be made to the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2007.~~2008.

In the opinion of the management of Cognex Corporation (the “Company”), the accompanying consolidated unaudited financial statements contain all adjustments, consisting of only normal, recurring adjustments, necessary to present fairly the Company’s financial position ~~at September 28, 2008,~~as of April 5, 2009, and the results of its operations for the ~~three-month~~quarters ended April 5, 2009 and ~~nine-month periods ended September 28,~~March 30, 2008, ~~and September 30, 2007,~~ and changes in shareholders’ equity and cash flows for the periods presented.

The results disclosed in the Consolidated Statements of Operations for the ~~three-month and nine-month periods~~quarter ended ~~September 28, 2008~~April 5, 2009 are not necessarily indicative of the results to be expected for the full year. ~~Certain amounts presented in~~Results for the ~~prior periods~~quarter ended March 30, 2008 have been ~~adjusted~~restated to ~~reflect~~present discontinued ~~operations to be consistent with the current period presentation.~~operations.

NOTE 2: New Pronouncements

FASB Staff Position: Statement of Financial Accounting Standards No. ~~141R, “Business Combinations”~~157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”

In ~~December 2007,~~April 2009, the Financial Accounting Standards Board ~~(FASB)~~ issued Staff Position (FSP) Statement of Financial Accounting Standards (SFAS) No. ~~141R, “Business Combinations,~~157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” which ~~establishes principles~~provides guidance on determining when there has been a significant decrease in the volume and level of activity for ~~how~~ an ~~acquirer recognizes and measures in its financial statements the identifiable assets acquired and liabilities assumed in~~asset or liability, when a business combination, recognizes and measures the goodwill acquired in a business combination, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a business combination. The Company is required to apply this Statement prospectively to business combinations for which the acquisition date is on or after January 1, 2009. Earlier applicationtransaction is not ~~permitted.~~

~~FASB Statement No. 157, “Fair Value Measurements”~~

~~In September 2006, the FASB issued~~orderly, and how that information must be incorporated into a fair value measurement. FSP SFAS No. ~~157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value,~~157-4 also requires expanded disclosures on valuation techniques and ~~expands disclosures about fair value measurements. In February 2008,~~inputs and specifies the ~~FASB issued Staff Position (FSP) No. 157-2, “Effective Date~~level of ~~FASB Statement No. 157,” which delayed the effective date of SFAS No. 157~~aggregation required for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 was adopted by the Company on January 1, 2008 for financial assets and liabilities that are remeasured and reported at fair value each reporting period. In accordance with thequantitative disclosures. The provisions of FSP ~~No. 157-2, the Company will adopt~~ SFAS No. ~~157 for its non-financial assets and liabilities on January 1, 2009. The Company is evaluating the impact, if any, this standard will have on its non-financial assets and liabilities.~~

~~FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”~~

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,” which requires enhanced disclosures about the objectives of derivative instruments, the method of accounting for such instruments under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and its related interpretations, and how derivative instruments affect an entity’s financial position, results of operations, and cash flows. SFAS No. 161 does not change the accounting treatment for derivative instruments. The provisions of SFAS No. 161157-4 are effective for the Company’s ~~fiscal year~~quarter ending July 5, 2009. The Company does not expect this FSP to have a material impact on its financial condition or results of operations.

FASB Staff Position: Statement of Financial Accounting Standards No. 115-2 and ~~interim periods beginning January 1,~~No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”

In April 2009, ~~although earlier adoption is permitted. Management is currently evaluating~~ the ~~impact~~Financial Accounting Standards Board issued Staff Position (FSP) Statement of Financial Accounting Standards (SFAS) No. 115-2 and No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” which makes the ~~disclosure requirements~~guidance on other-than-temporary impairments of debt securities more operational and requires additional disclosures when a company records an other-than-temporary impairment. The provisions of FSP SFAS No. ~~161.~~

115-2 and No. 124-2 are effective for the Company’s quarter ending July 5,

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3: Fair Value Measurements (continued)

The Company applies the ~~Company’s municipal bond investments.~~

~~SFAS No. 157 establishes a~~ three-level valuation hierarchy for ~~disclosure of~~ fair value ~~measurements.~~measurements as prescribed by SFAS No. 157. The categorization of ~~financial~~ assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. Level 1 inputs to the valuation methodology utilize unadjusted quoted market prices in active markets for identical assets and liabilities. Level 2 inputs to the valuation methodology are other observable inputs, including quoted market prices for similar assets and liabilities, quoted prices for identical and similar assets orand liabilities in the markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of the inputs that market participants would use in pricing the asset or liability at the measurement date, including assumptions about risk.

NOTE 4: Cash, Cash Equivalents, and Investments

Cash, cash equivalents, and investments consisted of the following (in thousands):


	April 5,		December 31,
	2009		2008

Cash	$	119,971	$	124,339
Cash equivalents		3,049		2,799

Cash and cash equivalents	$	123,020	$	127,138


Municipal bonds		52,494		52,559

Short-term investments	$	52,494	$	52,559


Municipal bonds		23,866		33,921
Limited partnership interest (accounted for using cost method)		7,468		7,468

Long-term investments	$	31,334	$	41,389


	$	206,848	$	221,086

The following table presents the Company’s fair value hierarchy for its municipal bond investments as of ~~September 28, 2008~~April 5, 2009 (in thousands):

Significant
Other Significant
Observable Unobservable
Inputs (Level 2) Inputs (Level 3) Total
Municipal bond investments $ 101,703 $ 2,000 $ 103,703


	Significant Other		Significant
	Observable		Unobservable
	Inputs (Level 2)		Inputs (Level 3)		Total

Municipal bond investments	$	74,760	$	1,600	$	76,360

With the exception of auction rate securities, the Company’s municipal bond investments are reported at fair value based upon model-driven valuations in which all significant inputs are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset, and are therefore classified as Level 2 investments. The Level 3 investments are student loan auction rate securities that had a failed auction on May 20, 2008 for which the Company was unable to corroborate the fair value with observable market data. ~~The Company has recorded these investments~~These auction rate securities are reported at ~~their principal~~fair value ~~as this is management’s best estimate of fair value.~~based on a discounted cash flow analysis, which uses significant unobservable inputs. An auction failure means that the parties wishing to sell their securities could not do so as a result of a lack of buying demand. It is important to note that an auction failure does not denote a default in the security, but is merely indicative of a liquidity issue. Because of this development, the Company classified these securities as long-term investments on the Consolidated Balance Sheet ~~at September 28, 2008.~~as of April 5, 2009. Ultimately, the Company believes that the full principal value of these securities will be recovered. To date, the Company has collected all

~~COGNEX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~emerges.

~~NOTE 3: Cash, Cash Equivalents, and Investments and Fair Value (continued)~~

~~There has not been a change to the carrying amount of these auction rate securities~~The changes in the ~~three-month or nine-month~~Level 3 municipal bond investments were as follows (in thousands):


Balance as of December 31, 2008	$	2,000
Unrealized loss during the period		(400	)

Balance as of April 5, 2009	$	1,600

The unrealized loss during the period ~~ended September 28, 2008.~~is included in “Accumulated other comprehensive loss” on the Consolidated Balance Sheets and relates to assets that were held by the Company as of April 5, 2009.

The Company’s limited partnership interest is accounted for using the cost method. Management monitors the carrying value of this investment compared to its fair value to determine if an other-than-temporary impairment has incurred. If a decline in fair value is considered to be other-than-temporary, an impairment charge would be recorded to reduce the carrying value of the asset to its fair value, and therefore, these assets are measured at fair value on a nonrecurring basis. The fair value of this investment is based upon valuations of the partnership’s investments as determined by the General Partner. Management understands that the portfolio consists of securities of public and private companies, and therefore, inputs used in the fair value calculation are classified as Level 3. There has not been a change to the carrying amount of this asset in the ~~three-month or nine-month period~~quarter ended ~~September 28, 2008.~~April 5, 2009.

NOTE 4:5: Inventories

Inventories ~~net of reserves, consist~~consisted of the following (in thousands):


	September 28,		December 31,		April 5,		December 31,
	2008		2007		2009		2008

Raw materials	$	14,731	$	13,005	$	11,455	$	14,722
Work-in-process		1,584		1,336		2,085		976
Finished goods		10,248		13,053		10,855		9,365


	$	26,563	$	27,394	$	24,395	$	25,063

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 6: Intangible Assets and Goodwill (continued)

Company estimated the fair value of the Siemens Customer Relationships using the income approach on a discounted cash flow basis. The fair value test indicated the Siemens Customer Relationships had a fair value of $300,000 as of April 5, 2009 compared to a carrying value of $1,300,000 resulting in an impairment charge of $1,000,000, which is included in “Selling, general, and administrative expenses” on the Consolidated Statements of Operations. The Company plans to amortize the remaining $300,000 asset over its estimated remaining life of two years on a straight-line basis.

The following table presents the Company’s fair value hierarchy for the Siemens Customer Relationships as of April 5, 2009 (in thousands):


	Significant
	Unobservable
	Inputs (Level 3)		Total		Total Loss

Siemens Customer Relationships	$	300	$	300	$	(1,000	)

The significant inputs in the discounted cash flow analysis include an estimate of revenue streams from the customers obtained in the acquisition and estimates of expenses attributable to the revenue stream. The estimate of revenue streams from the customers obtained in the acquisition was based upon actual revenue streams from these customers in the first quarter of 2009, as well as input from the Company’s sales and marketing personnel who interact with these customers. Estimates of expenses attributable to the revenue stream were based upon the Company’s historical expense levels. The discount factor used in the discounted cash flow analysis was not a significant input to the analysis due to the short time frame of the revenue stream.

The Company evaluates the possible impairment of goodwill and other intangible assets whenever events or circumstances indicate the carrying value of these assets may not be recoverable. An analysis prepared by the Company in the first quarter of 2009 indicated that no impairment of goodwill or other intangible assets, except the $1,000,000 impairment of Siemens Customer Relationships, was necessary as of April 5, 2009. However, the Company continues to monitor market conditions, and changes in market conditions could result in an impairment of goodwill or other intangible assets in a future period.

NOTE 5:7: Warranty Obligations

The Company warrants its hardware products to be free from defects in material and workmanship for periods primarily ranging from six months to two years from the time of sale based upon the product being purchased and the terms of the customer arrangement. Warranty obligations are evaluated and recorded at the time of sale since it is probable that customers will make claims under warranties related to products that have been sold and the amount of these claims can be reasonably estimated based upon historical costs to fulfill claims. Obligations may also be recorded subsequent to the time of sale whenever specific events or circumstances impacting product quality become known that would not have been taken into account using historical data. Warranty obligations are included in “Accrued expenses” on the Consolidated Balance Sheets.

~~The changes in the warranty obligation are as follows (in thousands):~~

Balance at December 31, 2007 $ 1,462
Provisions for warranties issued during the period 1,266
Fulfillment of warranty obligations (1,109 )
Foreign exchange rate changes —

Balance at September 28, 2008 $ 1,619

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE ~~6: Contingencies~~7: Warranty Obligations (continued)

~~In March 2006, the Company filed a Declaratory Judgment action~~The changes in the United States District Court for Minnesota seeking that certain patents being asserted by Acacia Research Corporation and Veritec, Inc., and their respective subsidiaries, be ruled invalid, unenforceable, and/or not infringed by the Company. The Company amended its claim to include state law claims of defamation and violation of the Minnesota Unfair Trade Practices Act. Certain defendants in this action asserted a counterclaim against the Company alleging infringement of the patent-in-suit, seeking unspecified damages. In May 2008, the United States District Court for Minnesota ruled in favor of the Company, granting the Company’s motions for summary judgment by finding that the patent-at-issue was both invalid and unenforceable. The defendant’s counterclaim of infringement was ruled moot by the finding of invalidity. Unless the defendants appeal and obtain a reversal of the court’s rulings on appeal, there will be no damage award against the Company. The Company believes the likelihood is remote that any such appeal would be successful and that any resulting loss to the Company on the counterclaim would be material. The court denied Defendant Acacia’s motion for summary judgment with respect to the Company’s defamation claim, and the Company is proceeding with that claim against Defendant Acacia. A trial date of December 8, 2008 has been set with respect to this surviving claim against Defendant Acacia.warranty obligation were as follows (in thousands):

In April 2007, certain of the defendants in the matter referenced above filed an action against the Company in the United States District Court for the Eastern District of Texas asserting a claim of patent infringement of U.S. Patent No. 5.331.176. Pursuant to a joint stipulation filed with the court in May 2008, the parties agreed to voluntarily jointly dismiss this matter without prejudice. The agreement of dismissal places restrictions on when, where, and under what circumstances the claim could be refiled. The Company believes the likelihood is remote that the plaintiffs would refile the claim and that, if refiled, the patent in question would be found to be valid and infringed.


Balance as of December 31, 2008	$	1,657
Provisions for warranties issued during the period		418
Fulfillment of warranty obligations		(419	)
Foreign exchange rate changes		(49	)


Balance as of April 5, 2009	$	1,607

NOTE 8: Contingencies

In May 2008, the Company filed a complaint against MvTec Software GmbH, MvTec LLC, and Fuji America Corporation in the United States District Court for the District of Massachusetts alleging infringement of certain patents owned by the Company. This matter is in its early stages. 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 ~~September~~May 2008, Microscan Systems, Inc. filed a complaint against the Company in the United States District Court for the Western District of Washington alleging infringement of U.S. Patent No. 6.105.869 owned by Microscan Systems, Inc. The complaint alleges that certain of the Company’s DataMan 100 and 700 series products infringe ~~upon~~ the patent in question. In November 2008, the Company filed an answer and counterclaim alleging that the Microscan patent was invalid and not infringed, and asserting a claim for infringement of U.S. Patent No. 6.636.298. This matter is in its early stages. 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.

Various other claims and legal proceedings generally incidental to the normal course of business are pending or threatened on behalf of or against Cognex. While we cannot predict the outcome of these matters, we believe that any liability arising from them will not have a material adverse effect on our financial position, liquidity, or results of operations.

NOTE 7:9: Indemnification Provisions

Except as limited by Massachusetts law, the by-laws of the Company require it to indemnify certain current or former directors, officers, and employees of the Company against expenses incurred by them in connection with each proceeding in which he or she is involved as a result of serving or having served in certain capacities. Indemnification is not available with respect to a proceeding as to which it has been adjudicated that the person did not act in good faith in the reasonable belief that the action was in the best interests of the Company. The maximum potential amount of future payments the Company could be required to make under these provisions is unlimited. The Company has never incurred significant costs related to these indemnification provisions. As a result, the Company believes the estimated fair value of these provisions is minimal.

~~The~~In the ordinary course of business, the Company ~~accepts~~may accept standard limited indemnification provisions in connection with the ~~ordinary course~~sale of ~~business,~~its products, whereby it indemnifies its customers for certain direct damages incurred in connection with third-party patent or other intellectual property infringement claims with respect to the use of the Company’s products. The term of these indemnification provisions generally coincides with the customer’s use of the Company’s products. The maximum potential amount of future payments the Company could be required to make under these provisions is generally subject to fixed monetary

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7:9: Indemnification Provisions (continued)

~~these provisions is generally subject to fixed monetary~~ limits. The Company has never incurred significant costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the Company believes the estimated fair value of these provisions is minimal.

In the ordinary course of business, the Company also accepts limited indemnification provisions from time to time, whereby it indemnifies customers for certain direct damages incurred in connection with bodily injury and property damage arising from the installation of the Company’s products. The term of these indemnification provisions generally coincides with the period of installation. The maximum potential amount of future payments the Company could be required to make under these provisions is generally limited and is likely recoverable under the Company’s insurance policies. As a result of this coverage, and the fact that the Company has never incurred significant costs to defend lawsuits or settle claims related to these indemnification provisions, the Company believes the estimated fair value of these provisions is minimal.

NOTE ~~8: Income Taxes~~10: Derivative Instruments

~~On January 1, 2007,~~In March 2008, the ~~Company adopted~~ Financial Accounting Standards Board ~~Interpretation~~(FASB) issued Statement of Financial Accounting Standards (SFAS) No. ~~48,~~161, “Disclosures about Derivative Instruments and Hedging Activities, an amedment of FASB Statement No. 133,” which requires enhanced disclosures about the objectives of derivative instruments, the method of accounting for such instruments under SFAS No. 133, “Accounting for ~~Uncertainty in Income Taxes” (FIN 48). Under FIN 48, a tax~~Derivative Hedging Activities” and its related interpretations, and how derivative instruments affect an entity’s financial position, results of operations, and cash flows. The Company adopted this standard effective January 1, 2009.

The Company is ~~recognized in the financial statements when an entity concludes that the tax position, based solely on~~exposed to certain risks relating to its ~~technical merits, is more likely than~~ongoing business operations including foreign currency exchange rate risk and interest rate risk. The Company currently mitigates certain foreign currency exchange rate risks with derivative instruments. The Company does not ~~(i.e. a likelihood of occurrence greater than fifty percent)~~currently manage its interest rate risk with derivative instruments.

The Company faces exposure to ~~be sustained upon examination by the relevant taxing authority.~~

~~During the nine-month period ended September 28, 2008, the Company recorded a $3,991,000 decrease in liabilities, net of deferred tax benefit, for uncertain tax positions that was recorded~~exchange rate fluctuations, as a ~~reduction~~significant portion of ~~income tax expense, of which a decrease of $4,346,000 was recorded~~its revenues, expenses, assets, and liabilities are denominated in currencies other than the three-month period ended September 28, 2008. The reduction in uncertain tax positions in the quarter resulted principally from the expiration of statute of limitations and reversals of uncertain tax positions that settled. Estimated interest and penalties included in these amounts totaled $787,000 for the nine-month period ended September 28, 2008, of which $1,003,000 was included in the three-month period ended September 28, 2008.

The Company’s reserve for uncertain tax positions, including gross interest and penalties, was $9,656,000 at September 28, 2008, of which $1,000,000 would reduce goodwill, and the remainder would reduce income tax expense, net of any deferred tax benefit, if the Company’s tax positions were sustained. During the three-month and nine-month period ended September 28, 2008, the Company reduced its reserve for uncertain tax positions by $10,080,000 and $10,449,000, respectively. The Company reduced its reserves for uncertain tax positions from a prior fiscal year by $1,510,000 and $1,879,000 in the three-month and nine-month periods ended September 28, 2008. The Company reduced its reserves for uncertain tax positions due to the statute of limitations expiring by $3,589,000 in both the three-month and nine-month periods ended September 28, 2008, respectively. The Company further reduced its reserves for uncertain tax positions from a settlement with tax authorities by $4,981,000 in both the three-month and nine-months period ended September 28, 2008. Allfunctional currencies of the Company’s ~~liabilities for uncertain tax positions are classified as non-current liabilities at September 28, 2008.~~subsidiaries or the reporting currency of the Company, which is the U.S. Dollar. The Company ~~continues to maintain its accounting policy~~faces two types of ~~recording all interest, net of Federal benefit, and penalties as tax expense.~~foreign currency exchange rate exposures:

	•		transactional currency/functional currency exchange rate exposures from transactions that are denominated in currencies other than the functional currency of the subsidiary (for example, a Japanese Yen receivable on the Company’s Irish subsidiary’s books for which the functional currency is the Euro), and

	•		functional currency/reporting currency exchange rate exposures from transactions that are denominated in currencies other than the U.S. Dollar, which is the reporting currency of the Company.

The ~~Internal Revenue Service has concluded~~Company currently uses derivative instruments to provide an economic hedge against its ~~audit~~transactional currency/functional currency exchange rate exposures. Forward contracts on currencies are entered into to manage the transactional currency/functional currency exposure of tax years 2003 through 2006. The final settlement with the Internal Revenue Service was concluded in the three-month period ended September 28, 2008 and required a tax payment, including interest, of $3,447,000. The Company is currently under audit in Japan. The Tokyo Regional Taxation Bureau is auditing tax years 2002 through 2005 and has recently issued a permanent establishment finding claiming that the Company’s Irish ~~subsidiary should be subject~~subsidiary’s accounts receivable denominated in U.S. dollars and Japanese Yen, as well as the Irish subsidiary’s tax prepayment denominated in Japanese Yen. These forward contracts are used to ~~taxation in Japan. The Company believes it has a substantive defense against this finding and has formally requested Competent Authority intervention in accordance with~~minimize foreign currency gains or losses, as the ~~Japan/Ireland tax treaty. It is not expected that this audit will be concluded within~~gains or losses on these contracts are intended to offset the next twelve months. To avoid further interest and penalties, the Company has prepaid tax, interest, and penalties through the date of assessment of 766,257,300 Yen (or approximately $7,222,000 based upon the September 28, 2008 exchange rate) to the Japanese tax authorities. This amount is included in “Other assets”losses or gains on the ~~Consolidated Balance Sheets.~~underlying exposures.

910

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 10: Derivative Instruments (continued)

In accordance with FAS No. 133, these forward contracts do not qualify for hedge accounting. Both the underlying exposures and the forward contracts are recorded at fair value on the Consolidated Balance Sheets and changes in fair value are reported as “Foreign currency gain (loss)” on the Consolidated Statements of Operations.

As of April 5, 2009, the Company had the following outstanding forward contracts that were entered into to mitigate foreign currency exchange rate risk:


Currency		Amount

Japanese Yen/Euro		1,016,000,000 Japanese Yen
U.S. Dollar/Euro		2,152,500 U.S. Dollars

Information regarding the fair value of the forward contracts outstanding as of April 5, 2009 and December 31, 2008 was as follows (in thousands):


	Asset Derivatives								Liability Derivatives

	Balance		Fair Value						Balance		Fair Value
	Sheet		April 5,			December 31,			Sheet		April 5,			December 31,
	Location		2009			2008			Location		2009			2008
Currency forward contracts		Prepaid expenses and other current assets		$	356		$	207		Accrued expenses		$	8		$	255

Information regarding the effect of the forward contracts, net of the underlying exposures, on the Consolidated Statements of Operations for the quarters ended April 5, 2009 and March 30, 2008 was as follows (in thousands):


	Location of	Amount of Gain (Loss)
	Gain (Loss)	Recognized in Income
	Recognized in	on Derivative
	Income on	April 5,	March 30,
	Derivative	2009	2008

Currency forward contracts	Foreign currency gain (loss)	$ (176)	$	267

The following table presents the Company’s fair value hierarchy for its forward contracts as of April 5, 2009 (in thousands):


	Quoted Prices in
	Active Markets for
	Identical Assets
	(Level 1)		Total

Currency forward contracts	$	348	$	348

The Company’s forward contracts are reported at fair value based upon quoted U.S. Dollar foreign currency exchange rates, and are therefore classified as Level 1.

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9:11: Stock-Based Compensation Expense

The Company’s share-based payments that result in compensation expense consist solely of stock option grants. ~~During the nine-month period ended September 28, 2008,~~As of April 5, 2009, the Company ~~granted~~had 8,921,210 shares available for grant under two stock ~~options under~~option plans: the ~~1998~~2001 General Stock ~~Incentive~~Option Plan ~~which expired on February 27, 2008,~~(7,110,000) and the 2007 Stock Option and Incentive Plan ~~(the “2007 Plan”)~~(1,811,210). ~~At September 28, 2008, the Company had 8,923,960 shares available for grant: 7,110,000 shares under the 2001 General Stock Option Plan and 1,813,960 under the 2007 Plan.~~ Each of these plans expires ten years from the date the plan was approved. The Company has not granted any stock options from the 2001 General Stock Option Plan. ~~The 2007 Plan permits awards of stock options (both incentive and non-qualified options), stock appreciation rights, and restricted stock.~~

Stock options are generally granted with an exercise price equal to the market value of the Company’s common stock at the grant date, generally vest over four years based ~~upon~~on continuous service, and generally expire ten years from the grant date. Historically, the majority of the Company’s stock options have been granted during the first quarter of each year to reward existing employees for their performance. In addition, the Company grants stock options throughout the year for new employees and promotions.

The following table summarizes the Company’s stock option ~~activity:~~activity for the quarter ended April 5, 2009:

Weighted-
Weighted- Average
Average Remaining
Exercise Contractual Aggregate
Shares Price Term Intrinsic Value
(in thousands) (in years) (in thousands)

Outstanding at December 31, 2007 10,940 $ 25.50
Granted 2,414 20.11
Exercised (820 ) 17.26
Forfeited or Expired (373 ) 26.38

Outstanding at September 28, 2008 12,161 $ 24.96 6.3 $ 9,112

Exercisable at September 28, 2008 7,678 $ 26.53 4.8 $ 4,000


						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
	Shares			Exercise		Contractual		Intrinsic Value
	(in thousands)			Price		Term (in years)		(in thousands)

Outstanding as of December 31, 2008		11,406		$	25.10
Forfeited or Expired		(320	)		24.70

Outstanding as of April 5, 2009		11,086		$	25.11		5.9	$	588

Exercisable as of April 5, 2009		7,975		$	26.45		4.9	$	588

The fair values of stock options granted after January 1, 2006 were estimated on the grant date using a binomial lattice model. The fair values of options granted prior to January 1, 2006 were estimated using the Black-Scholes option pricing ~~model for footnote disclosure under SFAS No. 123, “Accounting for Stock-Based Compensation.”~~model. The Company believes that a binomial lattice model results in a better estimate of fair value because it identifies patterns of exercises based on triggering events, tying the results to possible future events instead of a single path of actual historical events. Management is responsible for determining the appropriate valuation model and estimating these fair values, and in doing so, considered a number of factors, including information provided by an outside valuation advisor.

The Company did not grant any stock options in the quarter ended April 5, 2009. The fair values of stock options granted in ~~each period presented~~the quarter ended March 30, 2008 were estimated using the following weighted-average assumptions:

Three Months Ended Nine Months Ended
September 28, September 30, September 28, September 30,
2008 2007 2008 2007

Risk-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

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 11: Stock-Based Compensation Expense (continued)

Expected volatility

The expected volatility was based upon a combination of historical volatility of the Company’s common stock over the contractual term of the option and implied volatility for traded options of the Company’s stock.

Expected term

The expected term was derived from the binomial lattice model from the impact of events that trigger exercises over time.

The weighted-average grant-date fair value of stock options granted ~~during~~in the ~~three-month periods~~quarter ended ~~September 28,~~March 30, 2008 ~~and September 30, 2007~~ was $7.07 and $7.03, respectively. The weighted-average grant-date fair value of stock options granted during the nine-month periods ended September 28, 2008 and September 30, 2007 was $7.77 and $6.83, respectively.$7.22. The Company recognizes compensation expense using the graded attribution method, in which expense is recognized on a straight-line basis over the service period for each separately vesting portion of the stock option as if the option was, in substance, multiple awards.

The amount of compensation expense recognized at the end of the vesting period is based upon the number of stock options for which the requisite service has been completed. No compensation expense is recognized for options that are forfeited for which the employee does not render the requisite service. The term “forfeitures” is distinct from “expirations” and represents only the unvested portion of the surrendered option. The Company ~~currently expects~~applies estimated forfeiture rates to its unvested options to arrive at the amount of compensation expense that ~~approximately 66% of its stock options will actually vest, and therefore, has applied a weighted-average annual forfeiture rate of 10% to all unvested options. This rate was~~should be recognized over the requisite service period. These rates are revised ~~during the first quarter of 2008, and will be revised, if necessary,~~ in subsequent periods if actual forfeitures differ from ~~this estimate.~~these estimates. Ultimately, compensation expense will only be recognized over the vesting period for those options that actually vest.

Effective January 1, 2009, the Company revised its estimated forfeiture rates and the cumulative effect of this change resulted in a reduction in compensation expense of approximately $480,000 in the quarter ended April 5, 2009. The Company stratifies its employee population into two groups: one consisting of senior management and another consisting of all other employees. The Company currently expects that approximately 71% of its stock options granted to senior management and 65% of its options granted to all other employees will actually vest. Therefore, the Company currently applies an estimated forfeiture rate of 10% to all unvested options for senior management and a rate of 14% for all other employees.

The total stock-based compensation expense and the related income tax benefit recognized was $1,855,000 and $609,000, respectively, for the ~~three-month period~~quarter ended ~~September 28, 2008 was $2,916,000~~April 5, 2009, and ~~$965,000,~~$1,873,000 and $596,000, respectively, ~~and~~ for the ~~three-month period~~quarter ended ~~September~~March 30, 2007 was $2,724,000 and $896,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the nine-month period ended September 28, 2008 was $7,312,000 and $2,379,000, respectively, and for the nine-month period ended September 30, 2007 was $8,245,000 and $2,702,000, respectively.2008. No compensation expense was capitalized ~~at September 28, 2008~~as of April 5, 2009 or December 31, ~~2007.~~

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~At September 28, 2008,~~NOTE 11: Stock-Based Compensation Expense (continued)

As of April 5, 2009, total unrecognized compensation expense related to non-vested stock options was ~~$15,429,000,~~$9,166,000, which is expected to be recognized over a weighted-average period of 1.8 years.

~~Note 10:~~NOTE 12: Stock Repurchase Program

In July 2006, the Company’s Board of Directors authorized the repurchase of up to $100,000,000 of the Company’s common stock. As of September 28, 2008, the Company had repurchased 4,480,589 shares at a cost of $100,000,000 under this program. This repurchase program was completed during the second quarter of 2008.

In March 2008, the Company’s Board of Directors authorized the repurchase of up to an additional $30,000,000 (plus transaction costs) of the Company’s common stock under a Rule 10b5-1 Plan. As of September 28, 2008, the Company had repurchased 282,242 shares at a cost of $5,495,000 under this program. Repurchases under this new authorization are subject to the parameters of the Rule 10b5-1 Plan, which provides for repurchases during Cognex self-imposed trading blackout periods related to the announcement of quarterly results. The Rule 10b5-1 Plan expires on February 17, 2009 or, if earlier, upon the repurchase of $30,000,000 of Cognex common stock under the plan. The plan does not require Cognex to acquire any specific number of shares and it may be suspended or discontinued at any time.

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. As of ~~September 28, 2008,~~April 5, 2009, the Company had repurchased 1,038,797 shares at a cost of $20,000,000 ~~have been repurchased~~ under this program. The Company did not purchase any shares under this program during the quarter ended April 5, 2009. The Company may repurchase shares under this program in future periods depending upon a variety of factors, including the stock price levels and share availability.

A reconciliation of the ~~date~~United States federal statutory corporate tax rate to the Company’s effective tax rate was as follows:


	Quarter Ended
	April 5,			March 30,
	2009			2008

Income tax at federal statutory rate		(35	%)		35	%
State income taxes, net of federal benefit		(1	)		3
Tax-exempt investment income		(5	)		(4	)
Foreign tax rate differential		21			(11	)
Discrete tax events		—			1
Other		2			1


Income tax provision (benefit)		(18	%)		25	%

The Company’s effective tax rate on continuing operations for the quarter ended April 5, 2009 was a benefit of ~~this filing,~~18% compared to a provision of 25% for the quarter ended March 30, 2008. The effective tax rate for the quarter ended March 30, 2008 included the impact of the following discrete tax events: an increase in tax expense of $136,000 for a capital loss reserve and a decrease in tax expense of $48,000 to decrease a FIN 48 reserve for the true-up of a prior year estimate. These discrete tax events increased the effective tax rate for the quarter ended March 30, 2008 by one hundred basis points from 24% to 25%. The effective tax rate excluding discrete tax events decreased from a provision of 24% to a benefit of 18% due to a higher proportion of current-year projected losses being incurred in low tax jurisdictions compared to high tax jurisdictions.

During the quarter ended April 5, 2009, the Company ~~repurchased an additional 1,266,298 shares~~recorded a $126,000 increase in liabilities, net of deferred tax benefit, for ~~$24,551,000~~uncertain tax positions that were recorded as income tax expense. Estimated interest and penalties included in ~~the fourth quarter~~these amounts totaled $40,000. Interest, net of ~~2008 under the March 2008 Rule 10b5-1 Plan. No further purchases may be made pursuant to the March 2008 Rule 10b5-1 Plan.~~federal benefit, and penalties are recorded as tax expense.

~~NOTE 11: Dividends~~

~~On July 25, 2008,~~The Company’s reserve for income taxes, including gross interest and penalties of $1,801,000, was $10,063,000 as of April 5, 2009 and would reduce income tax expense in a future period, if the Company’s ~~Board~~tax positions were sustained. All of ~~Directors declared a cash dividend of $0.15 per share. The dividend was paid on September 12, 2008 to all shareholders of record at the close of business on August 29, 2008.~~

~~On October 15, 2008,~~ the Company’s ~~Board~~liabilities for uncertain tax positions are classified as non-current liabilities as of ~~Directors declared~~April 5, 2009. As a ~~cash dividend~~result of ~~$0.15 per share. The dividend~~statute of limitations expirations, there is ~~payable on December 12, 2008 to all shareholders of record at the close of business on November 28, 2008. Future dividends will be declared at the discretion~~a potential that a portion of the ~~Board of Directors and will depend upon such factors~~reserves could be released, which would decrease income tax expense by as much as $3,000,000 within the ~~Board of Directors deems relevant.~~next twelve months.

1214

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 13: Taxes (continued)

The Company has defined its major tax jurisdictions as the United States, Ireland and Japan, and within the United States, Massachusetts and California. The tax years 1999 through 2008 remain open to examination by various taxing authorities in the jurisdictions in which the Company operates. Open tax years from 1999 to 2004 relate to tax matters arising from the acquisition of DVT Corporation. The Company is currently under audit in Japan. The Tokyo Regional Taxation Bureau is auditing tax years 2002 through 2005 and has issued a permanent establishment finding claiming that the Company’s Irish subsidiary should be subject to taxation in Japan. The Company believes it has a substantive defense against this finding and has been granted Competent Authority intervention in accordance with the Japan/Ireland tax treaty. It is not expected that this audit will be concluded within the next twelve months. To avoid further interest and penalties, the Company has prepaid tax, interest, and penalties through the date of assessment of 766,257,300 Yen (or approximately $7,766,000 based upon the April 5, 2009 exchange rate) to the Japanese tax authorities. This amount is included in “Other assets” on the Consolidated Balance Sheets.

The Company recorded $2,003,000 and $425,000 of other income in the quarters ended April 5, 2009 and March 30, 2008, respectively, upon the expiration of the applicable statute of limitations relating to a tax holiday, during which time the Company collected value-added taxes from customers that were not required to be remitted to the government authority. These amounts are included in “Other income” on the Consolidated Statements of Operations.

NOTE 14: Restructuring Charge

The Company estimates the total restructuring charge to be approximately $1,250,000, of which $555,000 has been recorded to date and included in “Restructuring charge” on the Consolidated Statements of Operations in the MVSD reporting segment. The majority of the remaining cost will be recognized during the second quarter of 2009. The following table summarizes the restructuring plan (in thousands):


					Cumulative Amount
	Total Amount		Incurred in the		Incurred through
	Expected to be		Quarter Ended		Quarter Ended
	Incurred		April 5, 2009		April 5, 2009

One-time termination benefits	$	577	$	210	$	464
Contract termination costs		307		—		—
Other associated costs		366		87		91

	$	1,250	$	297	$	555

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 14: Restructuring Charge (continued)

to Natick, Massachusetts, for which the Company will not receive an economic benefit. These contract termination costs will be recognized when the Company ceases to use the Duluth, Georgia facility. Other associated costs include travel and transportation expenses between Georgia and Massachusetts related to closure of the Georgia facility and relocation costs related to employees transferred to other locations, as well as outplacement services for the terminated employees. These costs will be recognized when the services are performed.

The following table summarizes the activity in the Company’s restructuring reserve, which is included in “Accrued expenses” on the Consolidated Balance Sheets (in thousands):


Balance as of December 31, 2008	$	207
Restructuring charges		354
Cash payments		(152	)
Restructuring adjustments		(57	)

Balance as of April 5, 2009	$	352

Restructuring adjustments are primarily due to the forfeiture of one-time termination benefits, including severance and retention bonuses by certain employees who voluntarily terminated their employment prior to the end of the communicated service period. The impact of revisions to the service period for certain employees entitled to severance and retention bonuses is also included in the restructuring adjustment.

NOTE ~~12:~~15: Weighted-Average Shares

Weighted-average shares iswere calculated as follows (in thousands):


									Quarter Ended
	Three Months Ended				Nine Months Ended				April 5,		March 30,
	September 28, 2008		September 30, 2007		September 28, 2008		September 30, 2007		2008		2008

Basic weighted-average common shares outstanding		41,347		43,286		42,054		43,859		39,655		42,978
Effect of dilutive stock options		115		220		244		398		—		138

Diluted weighted-average common and common-equivalent shares outstanding		41,462		43,506		42,298		44,257
Weighted-average common and common-equivalent shares outstanding										39,655		43,116

~~COGNEX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~NOTE 13: Segment Information (continued)~~


							Reconciling
	MVSD			SISD			Items			Consolidated
Quarter Ended April 5, 2009
Product revenue	$	33,757		$	4,371			—		$	38,128
Service revenue		1,520			2,639			—			4,159
Operating loss		(1,346	)		(474	)	$	(4,630	)		(6,450	)

Quarter Ended March 30, 2008
Product revenue	$	51,190		$	3,753			—		$	54,943
Service revenue		3,054			2,516			—			5,570
Operating income (loss)		13,399			(34	)	$	(5,362	)		8,003

Reconciling items consist of stock-based compensation expense and unallocated corporate expenses, which primarily include corporate headquarters costs, professional fees, and patent infringement litigation. ~~For the three-month period ended September 28, 2008, reconciling items also included an intangible asset impairment charge.~~ Additional asset information by segment is not produced internally for use by the chief operating decision maker, and therefore, is not presented. Additional asset information is not provided because cash and investments are commingled and the ~~Divisions~~divisions share assets and resources in a number of locations around the world.

~~Note 14: Sale~~NOTE 17: Loss from Operations of ~~Lane Departure Warning~~a Discontinued Business

~~On July 1, 2008,~~In May 2006, the Company ~~sold~~acquired all of the ~~assets of its lane departure warning business to Takata Holdings Inc. for $3,208,000 in cash. The Company entered the lane departure warning business in May 2006 with the acquisition~~outstanding shares of AssistWare Technology, Inc., a ~~small company~~privately-held developer of Lane Departure Warning Systems, for $2,998,000 in cash paid at closing, with additional cash payments of $502,000 in the second quarter of 2007, $500,000 in the fourth quarter of 2007, and $1,000,000 in the second quarter of 2008 that were dependent upon the achievement of certain performance criteria that the Company determined had ~~developed a vision system that could provide a warning~~been met and were allocated to ~~drivers when their vehicle was about to inadvertently cross a lane. Over the past~~goodwill.

For two years after the acquisition date, the Company invested additional funds to commercialize AssistWare’s product and to establish a business developing and selling lane departure warning products for driver assistance. This business was ~~reported under~~included in the ~~Company’s~~ MVSD segment, but was never integrated with the other Cognex businesses. During the second quarter of 2008, ~~the Company~~management determined that this business did not fit the Company’s business model, primarily because car and truck manufacturers ~~want~~prefer to work exclusively with their existing Tier One suppliers and, although these suppliers have expressed interest in the Company’s vision technology, they would require access to and control of the Company’s proprietary software. Accordingly, in July 2008, the Company ~~accepted an offer from one~~sold all of ~~these suppliers to acquire~~ the assets of its lane departure ~~warning business.~~business to Takata Holdings, Inc. for $3,208,000 in cash (less $38,000 of costs to sell), of which $250,000 was received in the second quarter of 2008, $2,585,000 was received in the third quarter of 2008, and the remaining $373,000 (representing an amount held in escrow) is expected to be received before the end of 2009.

Management concluded that the assets of the lane departure warning business met all of the criteria to be classified as “held-for-sale” as of June 29, 2008. Accordingly, the Company recorded a $2,987,000 loss in the second quarter of 2008 to reduce the carrying amount of these assets down to their fair value less costs to sell. ~~The carrying amounts of the major classes of assets included as part of the disposal group were as follows at June 29, 2008 (in thousands):~~

Inventories $ 85
Prepaid expenses and other current assets 45
Property, plant, and equipment, net 49
Intangible assets 222
Goodwill 5,756
Valuation allowance (2,987 )

$ 3,170

Management also concluded that the disposal group met the criteria of a discontinued operation, and has presented the loss from operations of this discontinued business separate from

~~COGNEX CORPORATION~~
~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~NOTE 18: Dividends

On February 17, 2009, the Company’s Board of Directors declared a cash dividend of $0.150 per share. The dividend was paid on March 20, 2009 to all shareholders of record at the close of business on March 6, 2009.

On May 4, 2009, the Company’s Board of Directors declared a cash dividend of $0.050 per share. The dividend is payable on June 19, 2009 to all shareholders of record at the close of business on June 5, 2009.

~~Note 15: Intangible Asset Impairment Charge~~NOTE 19: Subsequent Event

In ~~May 2005,~~April 2009, the Company ~~acquired all~~announced a variety of cost-cutting measures, including a work force reduction and office closures, intended to more closely align the outstanding shares of DVT Corporation, a provider of low-cost, easy-to-use vision sensors. The acquisition was accounted for under the purchase method of accounting and a portion of the purchase price was allocated to an intangible asset for relationships with a group of original equipment manufacturers (OEM Customer Relationships) reported under the MVSD segment. In the third quarter of 2008, the Company was notified by a significant OEM customer of its plans to discontinue its relationshipCompany’s cost structure with the ~~Company. In accordance with Financial Accounting Standard (SFAS) No. 144, “Accounting for the Impairment or Disposal~~current lower levels of ~~Long-Lived Assets,” the Company determined the loss of this customer was a “triggering event” that required the Company to perform an impairment test of the OEM Customer Relationships.~~business resulting from worldwide economic conditions.

The Company ~~estimated~~estimates the fair value of the OEM Customer Relationships using the income approach on a discounted cash flow basis. The fair value test indicated the OEM Customer Relationships had a fair value of $1,900,000 as of September 28, 2008 comparedtotal restructuring charge from these actions to ~~a carrying value of $3,400,000 resulting~~be approximately $4,000,000, which will be recorded in ~~an impairment charge of $1,500,000, which is included in “Selling, general, and administrative expenses”~~“Restructuring charge” on the Consolidated Statements of ~~Operations.~~Operations in the MVSD reporting segment. The ~~Company plans to amortize~~majority of these costs will be recognized during the ~~remaining $1,900,000 asset over its estimated remaining life~~second quarter of ~~5 years~~2009.

The restructuring plan includes approximately $3,200,000 in ~~relation to the relative cash flows anticipated from the OEM Customer Relationships. Due to a~~one-time termination benefits and $800,000 in contract termination ~~payment anticipated from an OEM customer included in~~costs. One-time termination benefits include severance for approximately 80 employees who either were terminated or were notified they will be terminated at a future date. Severance for these employees will be recognized over the ~~discounted cash flow analysis used to estimate~~service period. Contract termination costs include lease termination payments or rental payments for the ~~fair value of~~closed facilities incurred after the ~~OEM Customer Relationships,~~company ceases using these facilities and for which the Company ~~anticipates approximately half the amortization~~will not receive an economic benefit. These contract termination costs will be ~~recorded in~~recognized when the ~~fourth quarter of 2008.~~Company ceases to use these facilities.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements made in this report, as well as oral statements made by the Company from time to time, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can identify these forward-looking statements by the Company’s use of the words “expects,” “anticipates,” “estimates,” “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” and similar words and other statements of a similar sense. These statements are based upon the Company’s current estimates and expectations as to prospective events and circumstances, which may or may not be in the Company’s control and as to which there can be no firm assurances given. These forward-looking statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include: (1) current and future conditions in the global ~~economic conditions that impact the capital spending trends of manufacturers in a variety of industries;~~economy; (2) the cyclicality of the semiconductor and electronics industries; (3) the inability to achieve significant international revenue; (4) fluctuations in foreign currency exchange rates; (5) the loss of or a ~~significant curtailment of purchases by, any one or more principal customers;~~large customer; (6) the reliance upon ~~certain sole-source~~key suppliers to manufacture and deliver critical components for ~~the Company’s~~our products; (7) the inability to attract and retain skilled employees; (8) the inability to design and manufacture high-quality products; (9) the technological obsolescence of current products and the inability to develop new products; (10) the failure to effectively manage product transitions or accurately forecast customer demand; (11) the failure to properly manage the distribution of ~~products;~~products and services; (12) the inability to protect ~~the Company’s~~our proprietary technology and intellectual property; (13) our involvement in time-consuming and costly litigation; (14) the impact of competitive pressures; (15) the challenges in integrating and achieving expected results in acquired businesses; (16) potential impairment charges with respect to our investments or for acquired intangible assets or goodwill; (17) potential disruption to the ~~inability to achieve expected results~~Company’s business from ~~acquisitions;~~its restructuring programs; and ~~(17)~~(18) exposure to additional tax liabilities. The foregoing list should not be construed as exhaustive and ~~the Company encourages~~we encourage readers to refer to the detailed discussion of risk factors included in Part I —- Item 1A of the Company’s Annual Report on Form ~~10-K.~~10-K, as updated in Part II — Item 1A of this report. The Company cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation to subsequently revise forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date such statements are made.

Executive Overview

Cognex Corporation ~~(the “Company”)~~ is a leading worldwide provider of machine vision products that capture and analyze visual information in order to automate tasks, primarily in manufacturing processes, where vision is required. Our Modular Vision Systems Division (MVSD) specializes in machine vision systems that are used to automate the manufacturing of discrete items, while our Surface Inspection Systems Division (SISD) specializes in machine vision systems that are used to inspect the surfaces of materials processed in a continuous fashion.

In addition to product revenue derived from the sale of machine vision systems, the Company also generates revenue by providing maintenance and support, training, consulting, and installation services to its

	•		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 ishas historically been highly cyclical, with periods of investment followed by ~~temporary downturns.~~downturn. This market has been in a prolonged downturn since early 2006. Sales to semiconductor and electronics capital equipment manufacturers represented approximately ~~18%~~6% 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~~first quarter 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 2008.2009.

	•		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%~~17% of total revenue ~~for~~in the ~~nine-month period in 2008.~~first quarter of 2009.

Revenue ~~amounted to $63,256,000~~ for the ~~third~~first quarter of ~~2008,~~2009 totaled $42,287,000, representing a ~~16% increase over~~30% decrease from the ~~same period in 2007.~~prior year. This ~~increase~~decrease was due to ~~higher~~lower sales to customers in the semiconductor and electronics capital equipment and discrete factory automation ~~and surface inspection customers. Despite~~markets, which have been impacted by the ~~higher~~current worldwide economic slowdown. This lower revenue on a relatively flat operating expense base resulted in an operating loss of 15% of revenue in the first quarter of 2009 as compared to operating income ~~decreased to~~of 13% of revenue in the ~~third quarter of 2008 from 14% of revenue in the third quarter of 2007, principally due to~~prior year, and a ~~$1,500,000 intangible asset impairment charge recorded in the third quarter of 2008. Income~~loss per share from continuing operations ~~increased to $0.27 per diluted share~~of $0.09 in the ~~third~~first quarter of ~~2008~~2009 compared to income per share from ~~$0.17 per diluted share~~continuing operations of $0.20 in the ~~same period~~first quarter of 2008.

The Company’s revenue and profitability have been and will continue to be impacted by worldwide economic conditions, including the slowing global economies, the credit market crisis, and declining business confidence. These factors have contributed to delayed, reduced, or canceled capital spending by many companies, including many of the Company’s current and potential customers. While we cannot predict how long the current worldwide economic slowdown will last or how severely it will impact each of the Company’s three markets, we do not anticipate a significant recovery of business in ~~2007 as~~2009. As a result, ~~of the higher revenue and the impact of favorable discrete tax events recorded in the current quarter.~~

~~On July 1, 2008,~~ the Company sold all of the assets of its lane departure warning business for $3,208,000 in cash. Management classified the assets of this business as “held-for-sale” as of June 29, 2008 and recorded a $2,987,000 impairment lossis taking actions in the second quarter of ~~2008 relating~~2009, including a work force reduction, office closures, and mandatory shutdown days, as well as decreases in other discretionary spending, in order to better align its expenses to the ~~sale of this business. Loss from discontinued operations amounted~~lower revenue expectations for 2009. We believe, however, that unless the business climate improves significantly, these actions are unlikely to ~~$0.08 per diluted share in the second quarter of 2008.~~

~~While~~be sufficient for the Company cannot predict the impact that current worldwide economic conditions will have on its results of operations, it is possible that certain of the Company’s customers will delay or cancel capital equipment spending and this could haveto generate a ~~material adverse impact on the Company’s future revenues and profitability.~~profit in 2009.

Results of Operations

Revenue

Revenue ~~increased~~for the first quarter of 2009 decreased by ~~$8,513,000,~~$18,226,000, or ~~16%~~30%, from the ~~three-month period~~first quarter of 2008 due to lower sales to customers in ~~2007~~the semiconductor and ~~increased~~electronics capital equipment and discrete factory automation markets.

Sales to manufacturing customers in the discrete factory automation area, which are included in the Company’s MVSD segment, represented 77% of total revenue in the first quarter of 2009 compared to 68% in the first quarter of 2008. Sales to these customers decreased by ~~$30,446,000,~~$9,283,000, or ~~19%~~22%, from the ~~nine-month period in 2007 due to higher sales to discrete~~prior year. Demand from the Company’s factory automation customers continues to be impacted by the worldwide economic slowdown, which first began to impact the Company’s orders from these customers in the third quarter of 2008. Revenue in the first quarter of 2009 includes $4,400,000 related to an arrangement with a single customer for which product was shipped over the last two years, but revenue was deferred until the final unit was delivered in the first quarter of 2009. Excluding the recognition of this deferred revenue, all of the Company’s product lines and ~~surface inspection customers.~~regions experienced a decline in revenue. While we cannot predict how long the current worldwide economic slowdown will last or how severely it will continue to impact the factory automation market, we anticipate revenue for this market will be down for the second quarter of 2009 compared to the first quarter of 2009, which included the $4,400,000 of revenue from a single arrangement, described above, that will not recur.

Sales to customers who make automation equipment for the semiconductor and electronics industries, which are included in the Company’s MVSD segment, represented ~~16% and 18%~~6% of total revenue in the ~~three-month and nine-month periods in 2008,~~first quarter

~~18%, from the nine-month period in 2007~~prior year due to industry ~~cyclicality. Revenue~~cyclicality as well as competitive market pressures. In recent years, the competitive landscape in this market has changed, and price and flexibility of purchasing hardware from other vendors have become more important factors in our customers’ purchasing decisions. The Company has addressed this ~~sector has been gradually declining since early 2006. We~~market change by introducing software-only products; however, the average selling price of these offerings is significantly lower than for a complete vision system, and therefore, we expect this trend to have a negative impact on our revenue in this market. As a result of the continued impact of a prolonged industry downturn and pricing pressure, together with current worldwide economic conditions, we do not expect a significant change in this business in the ~~near term.~~

~~Sales to manufacturing customers in the discrete factory automation area, which are included in the Company’s MVSD segment, represented 67% and 68%~~second quarter of total revenue in the three-month and nine-month periods in 2008, compared to 65% and 63% in the same periods in 2007. Sales to these customers increased by $6,857,000, or 19%, from the three-month period in 2007 and increased by $28,835,000, or 29%, from the nine-month period in 2007. A weaker U.S. Dollar compared to the prior year contributed to the higher revenue, as sales denominated in foreign currencies were translated to U.S. Dollars. Excluding the impact of foreign exchange rate changes on revenue, sales to factory automation customers increased by $4,525,000, or 13%, for the three-month period and increased by $20,735,000, or 21%, for the nine-month period. Sales of the Company’s In-Sight, Dataman, and Checker vision products, which are sold to customers in a variety of industries around the world, all increased from the same period in the prior year. We are investing in new product offerings and have also increased sales personnel, particularly in Eastern Europe and China, for the factory automation market with the goal of growing this business.2009.

Sales to surface inspection customers, which comprise the Company’s SISD segment, represented 17% ~~and 14%~~ of total revenue in the ~~three-month and nine-month periods in 2008,~~first quarter of 2009 compared to ~~9% and 11%~~10% in the ~~same periods in 2007.~~first quarter of 2008. Revenue from these customers increased by ~~$5,870,000,~~$741,000, or ~~116%~~12%, from the ~~three-month period in 2007 and increased by $9,024,000, or 51%, from the nine-month period in 2007. Although some of this~~prior year due to higher SmartView system sales. The increase in revenue from the prior year is primarily due to the timing of customer orders, system deliveries, and installations, as well as the impact of revenue ~~deferrals, we have also gained~~deferrals. While revenue to date from the Company’s surface inspection customers has not been significantly impacted by current worldwide economic conditions, long lead times are typical in this business, and therefore, the impact on this market share within the past six to twelve months, particularly in the metals industry. In addition, the Company has seen growth in revenues from emerging markets such as China, Eastern Europe, and Latin America.may be delayed.

Product revenue ~~increased~~for the first quarter of 2009 decreased by ~~$9,106,000,~~$16,815,000, or ~~19%~~31%, from the ~~three-month period in 2007 and increased by $32,869,000, or 23%, from the nine-month period in 2007. This increase was~~first quarter of 2008 primarily due to a ~~higher~~lower volume of vision systems sold to customers in the semiconductor and electronics capital equipment and discrete factory automation ~~and surface inspection customers. Within~~markets. Product revenue in the ~~discrete factory automation market,~~first quarter of 2009 includes $4,400,000 related to an arrangement with a single customer for which product was shipped over the ~~majority~~last two years, but revenue was deferred until the final unit was delivered in the first quarter of 2009. Excluding the recognition of this ~~higher volume came from easier-to-use~~deferred revenue, all of the Company’s product lines and ~~lower-priced vision products.~~regions experienced a decline in product revenue.

Service revenue, which is derived from the sale of maintenance and support, education, consulting, and installation services, for the first quarter of 2009 decreased by ~~$593,000,~~$1,411,000, or ~~11%~~25%, from the ~~three-month period in 2007 and decreased by $2,423,000, or 14%, from the nine-month period in 2007. This decrease was~~first quarter of 2008 due to lower maintenance and support ~~revenue, as well as lower consulting~~ revenue. ~~We expect the declining trend in maintenance~~Maintenance and support revenue has declined due to ~~continue in~~ the ~~near term as we introduce~~introduction of new products and functionality that make vision easier to use and require less maintenance and support. Service revenue ~~decreased~~increased as a percentage of total revenue to ~~8% in both the three-month and nine-month periods in 2008 from~~ 10% ~~and 11%~~ in the ~~same periods~~first quarter of 2009 from 9% in ~~2007.~~the first quarter of 2008.

Gross Margin

Gross margin as a percentage of revenue was 68% for the first quarter of 2009 compared to 72% for ~~both~~ the ~~three-month and nine-month periods in 2008, compared~~first quarter of 2008. This decrease was primarily due to ~~73% and 71% for the same periods in 2007. Although both MVSD and SISD gross margins as~~ a ~~percentage of revenue were either flat with or~~ higher ~~than the prior year, a greater~~ percentage of total revenue ~~came~~ from the sale of surface inspection ~~sales that~~systems, which have lower margins than the sale of modular vision systems.

MVSD gross margin as a percentage of revenue was ~~77% and 76%~~74% for the ~~three-month and nine-month periods in 2008,~~first quarter of 2009 compared to ~~77% and~~ 75% for the ~~same periods~~first quarter of 2008. The decrease in ~~2007.~~MVSD margin was primarily due to a lower service margin resulting from declining maintenance and support revenue without a corresponding decrease in service costs. The ~~increase in the nine-month period was due to~~MVSD product margin remained relatively flat despite lower product revenue, as the impact of higher ~~product revenue and lower~~ provisions for excess and obsolete ~~inventory. Although new product introduction expenses were incurred to support~~inventory was offset by a higher-than-average margin achieved on the ~~release of several new products~~$4,400,000 revenue arrangement recognized in ~~2008,~~ the ~~impact of the increase in product revenue more than offset these cost increases. In the second~~first quarter of ~~2007,~~2009. This arrangement included the ~~Company recorded provisions for excess~~transfer of source code, as well as the delivery of product, which resulted in a higher selling price and ~~obsolete MVSD inventory totaling $2,126,000 resulting from lower actual demand than was previously estimated as part of~~a higher-than-average margin on the Company’s material requirements forecasts, together with lower estimates of future demand from both semiconductor and electronics capital equipment and discrete factory automation customers. Similar provisions were lower in 2008 due to improvements made to the Company’s product life cycle planning process.overall arrangement.

Service gross margin as a percentage of revenue was ~~38% and 40%~~26% for the ~~three-month and nine-month periods in 2008,~~first quarter of 2009 compared to ~~40% and 38%~~45% for the ~~same periods in 2007.~~first quarter of 2008. Although ~~service revenue was lower than~~support costs declined from the prior year ~~support costs also declined~~ due to improvements in product ease of ~~use. In addition, reserves against MVSD~~use, service ~~inventory were lower in the nine-month period.~~revenue declined at a greater rate.

Operating Expenses

~~Research,~~MVSD research, development, and engineering ~~(R,D~~(RD&E) expenses ~~increased~~for the first quarter of 2009 decreased by ~~$702,000,~~$94,000, or 8%1%, from the ~~three-month period in 2007 and increased by $3,170,000, or 13%, from the nine-month period in 2007. MVSD R,D~~first quarter of 2008, while SISD RD&E expenses ~~increased by $613,000, or 8%, for the three-month period and increased by $2,971,000, or 14%, for the nine-month period, while SISD R,D~~remained flat.

MVSD RD&E expenses ~~increased by $89,000, or 12%, for~~were relatively flat with the ~~three-month period and increased by $199,000, or 8%, for the nine-month period.~~

The increase in MVSD R,D&E expenses was due primarily to higher personnel-related costs (such as salaries, fringe benefits, and travel) to support new product initiatives ($715,000 increase for the three-month period and $1,675,000 increase for the nine-month period). Higherfirst quarter of 2008 because lower company bonus accruals ($296,000) and stock-based compensation expense ($275,000) were partially offset by an increase in personnel-related costs such as salaries and fringe benefits ($383,000). The decrease in stock-based compensation expense was due to a higher ~~operating income margin on which~~forfeiture rate and a decline in the ~~Company’s bonus plan is based, also contributed~~number and value of shares granted. Although headcount was flat between the two periods, salaries and fringe benefits increased due to the ~~increase~~impact of 2008 wage increases. In April 2009, the Company announced a number of cost-cutting measures intended to reduce MVSD RD&E expenses for the ~~nine-month period ($775,000).~~remainder of 2009 in response to lower revenue expectations for 2009.

The increase in SISD R,D&E expenses was principally due to higher personnel-related costs ($61,000 increase for the three-month period and $49,000 increase for the nine-month period). Higher company bonus accruals also contributed to the increase for the nine-month period ($87,000).

~~R,D~~RD&E expenses as a percentage of revenue ~~was 14%~~were 21% in ~~both~~ the ~~three-month period~~first quarter of 2009 and ~~nine-month periods in 2008, compared to~~ 15% in ~~both periods in 2007.~~the first quarter of 2008. We believe that a continued commitment to ~~R,D~~RD&E activities is essential in order to maintain or achieve product leadership with our existing products and to provide innovative new product offerings, and therefore, we expect to continue to make ~~significant R,D~~RD&E investments in the ~~future.~~future in strategic areas, such as the ID Products business and the development of a “Vision System on a Chip.” In addition, we consider our ability to accelerate time to market for new products critical to our ~~revenue growth.~~ability to maintain and gain market share. Although we target our ~~R,D~~RD&E spending to be between 10% and 15% of revenue, this percentage is impacted by revenue ~~cyclicality. At any point in time, we have numerous research~~levels and ~~development projects underway, and we believe that none~~the Company anticipates RD&E spending as a percentage of revenue will be higher than these ~~projects is material on an individual basis.~~targets during 2009 despite the actions taken by the Company to reduce RD&E expenses for the remainder of the year.

Selling, general, and administrative ~~(S,G~~(SG&A) expenses ~~increased~~for the first quarter of 2009 decreased by ~~$4,486,000,~~$385,000, or ~~18%~~1%, from the ~~three-month period in 2007 and increased by $10,497,000,~~first quarter of 2008. MVSD SG&A expenses decreased $113,000, or ~~14%~~1%, from the ~~nine-month period in 2007. MVSD S,G~~prior year, while SISD SG&A expenses increased ~~by $3,770,000,~~$453,000, or ~~20%~~19%, ~~for~~from the three-month period and increased by $8,146,000, or 14%, for the nine-month period, while SISD S,G&A expenses increased by $755,000, or 34%, for the three-month period and increased by $1,435,000, or 21%, for the nine-month period.prior year. Corporate expenses that are not allocated to either division were ~~consistent~~$725,000, or 20%, lower than the first quarter of 2008.

MVSD SG&A expenses were relatively flat with the ~~three-month period~~first quarter of 2008 because decreases in discretionary spending and ~~increased~~the favorable impact of changes in foreign currency exchange rates were offset by ~~$916,000, or 10%, for the nine-month period.~~

~~The increase in MVSD S,G&A expenses was due primarily to~~ an intangible asset impairment charge incurred in the ~~third~~first quarter of ~~2008~~2009 ($~~1,500,000~~1,000,000 — refer to Note ~~15)~~6 to the Consolidated Financial Statements), as well as higher personnel-related costs ~~(such as salaries, fringe benefits, commissions,~~($477,000), stock-based compensation expense ($364,000), and ~~travel) resulting from~~bad debt provisions ($326,000). Decreases in discretionary spending included costs related to the ~~hiring~~Company’s annual sales kick-off meetings ($609,000), marketing and promotional expenses ($362,000), sales demonstration equipment ($267,000), Company bonuses ($233,000), and travel and entertainment expenses ($171,000). The U.S. Dollar was stronger relative to the Euro in the first quarter of additional sales personnel intended to grow factory automation revenue ($1,583,000 increase for the three-month period and $3,945,000 increase for the nine-month period). In addition, a weaker U.S. Dollar2009 compared to the ~~prior year resulted~~first quarter of 2008, resulting in ~~higher S,G~~lower SG&A costs when expenses of the Company’s ~~foreign~~European operations were translated to U.S. Dollars ($~~1,183,000 increase for~~528,000). Although ending headcount was flat between the ~~three-month period~~two periods, personnel-related costs increased due to a higher average headcount and ~~$4,029,000 for~~ the ~~nine-month period). For the nine-month period, these~~impact of 2008 wage increases. These increases were partially offset by lower ~~stock-based~~commission expenses related to the lower revenue achieved in the first quarter of 2009. Stock-based compensation expense ~~($950,000)~~was higher in the first quarter of 2009 due to the vesting of options granted in the first quarter of 2008, as well as a lower credit recorded in the first quarter of ~~2008 for~~2009 related to forfeited stock options. In April 2009, the Company announced a number of cost-cutting measures intended to reduce MVSD SG&A expenses for the remainder of 2009 in response to lower revenue expectations for 2009.

1922

The increase in SISD ~~S,G~~SG&A ~~expenses~~ was ~~principally~~primarily due to ~~higher-personnel related~~higher personnel-related costs, ~~(such~~such as salaries and fringe benefits, commissions, and ~~travel) resulting from~~travel. Salaries and fringe benefits ($121,000) were higher due to the impact of 2008 wage increases and additional sales personnel ~~($646,000 increase for~~intended to grow the ~~three-month period and $1,054,000 increase for the nine-month period).~~

SISD business in emerging markets within Asia. The increase in commissions ($81,000) was due to timing, while travel expenses ($48,000) were higher due to a worldwide sales kick-off meeting held in the first quarter of 2009. In addition, marketing expenses ($98,000) were higher due to the timing of promotional activities.

The decrease in corporate expenses ~~for the nine-month period~~ was due ~~primarily~~ to ~~higher legal fees for patent-infringement actions initiated by the Company ($384,000 — refer to Note 6), higher~~lower tax service fees related to a Japanese tax audit ($~~338,000 — refer to Note 8),~~224,000) and ~~higher company~~lower Company bonus accruals ($~~398,000)~~187,000). In addition, fewer employees were dedicated to corporate activities in the first quarter of 2009 ($248,000).

Restructuring Charge

In November 2008, the Company announced the closure of its facility in Duluth, Georgia scheduled for mid-2009, which the Company anticipates will result in long-term cost savings. This facility included a distribution center for MVSD customers located in the Americas, an engineering group dedicated to supporting the Company’s MVSD Vision Systems products, and a sales training and support group, as well as a team of finance support staff. The distribution center will be consolidated into the Company’s headquarters in Natick, Massachusetts resulting in a single distribution center for MVSD customers located in the Americas. Although a portion of the engineering and sales training and support positions will be transferred to other locations, the majority of these positions, and all of the finance positions, will be eliminated. The Company anticipates that the restructuring costs will offset the expense savings in 2009; however, beginning in 2010, the Company expects to achieve expense savings of approximately $2,500,000 per year. These savings will be realized in “Cost of revenue,” “Research, development, and engineering expenses,” and “Selling, general, and administrative expenses” on the Consolidated Statements of Operations.

The Company estimates the total restructuring charge to be approximately $1,250,000, of which $555,000 has been recorded to date and included in “Restructuring charge” on the Consolidated Statements of Operations in the MVSD reporting segment. The remainder of the cost will be recognized during the second quarter of 2009. The following table summarizes the restructuring plan (in thousands):


					Cumulative Amount
	Total Amount		Incurred in the		Incurred through
	Expected to be		Quarter Ended		Quarter Ended
	Incurred		April 5, 2009		April 5, 2009
One-time termination benefits	$	577	$	210	$	464
Contract termination costs		307		—		—
Other associated costs		366		87		91

	$	1,250	$	297	$	555

One-time termination benefits include severance and retention bonuses for 33 employees who were either terminated or notified that they will be terminated at a future date. Severance and retention bonuses for these employees will be recognized over the service period. Contract termination costs include rental payments for the Duluth, Georgia facility that will be incurred after the distribution activities are transferred to Natick, Massachusetts, for which the Company will not receive an economic benefit. These contract termination costs will be recognized when the Company ceases to use the Duluth, Georgia facility. Other associated costs include travel and transportation expenses between Georgia and Massachusetts related to closure of the Georgia facility and relocation costs related to employees transferred to other locations, as well as outplacement services for the terminated employees. These costs will be recognized when the services are performed.

The following table summarizes the activity in the Company’s restructuring reserve, which is included in “Accrued expenses” on the Consolidated Balance Sheets (in thousands):


Balance as of December 31, 2008	$	207
Restructuring charges		354
Cash payments		(152	)
Restructuring adjustments		(57	)

Balance as of April 5, 2009	$	352

In April 2009, the Company announced a variety of additional cost-cutting measures, including a further work force reduction and office closures, intended to more closely align the Company’s cost structure with the current lower levels of business resulting from worldwide economic conditions. The Company estimates the total restructuring charge from these actions to be approximately $4,000,000, which will be recorded in “Restructuring charge” on the Consolidated Statements of Operations in the MVSD reporting segment. The majority of these costs will be recognized during the second quarter of 2009.

The restructuring plan from these additional actions includes approximately $3,200,000 in one-time termination benefits and $800,000 in contract termination costs. One-time termination benefits include severance for approximately 80 employees who either were terminated or were notified they will be terminated at a future date. Severance for these employees will be recognized over the service period. Contract termination costs include lease termination payments or rental payments for the closed facilities incurred after the Company ceases using these facilities and for which the Company will not receive an economic benefit. These contract termination costs will be recognized when the Company ceases to use these facilities.

Nonoperating Income ~~(Expense)~~

The Company recorded foreign currency gains of $327,000 for the three-month period in 2008 and $798,000 for the nine-month period in 2008, compared to a foreign currency gain of $353,000 for the three-month period in 2007 and a foreign currency loss of ~~$88,000~~$392,000 in the first quarter of 2009 compared to a gain of $1,118,000 for the ~~nine-month period in 2007.~~first quarter of 2008. The foreign currency gains and losses in each period resulted primarily from the revaluation and settlement of accounts receivable balances that are reported in one currency and collected in another. ~~The gain for~~Although the ~~nine-month period~~foreign currency exposure of these accounts receivable is largely mitigated through the use of forward contracts, this program depends upon forecasts of sales and collections, and therefore, gains or losses on the underlying receivables may not perfectly offset losses or gains on the contracts.

In the first quarter of 2009, the U.S. Dollar strengthened versus the Euro resulting in ~~2007 was~~foreign currency gains on the Company’s Irish subsidiary’s books when U.S. Dollar accounts receivable were revalued and collected. Losses on forward contracts intended to offset ~~by losses~~these exposures exceeded gains on the underlying receivables.

In the first quarter of 2008, the Japanese Yen strengthened versus the U.S. Dollar and the Euro, resulting in foreign currency gains on the Company’s Irish and U.S. subsidiary’s books when Japanese Yen accounts receivable were revalued and collected. Gains from the revaluation and settlement of intercompany balances that are reported in one currency and collected or paid in ~~another.~~another also contributed to the foreign currency gain in the first quarter of 2008.

Investment income ~~was consistent with~~for the ~~three-month period in 2007 and~~first quarter of 2009 decreased ~~by $259,000,~~$1,092,000, or 4%55%, from the ~~nine-month period in 2007. This~~first quarter of 2008. The decrease was due to both a decrease in the average invested balance resulting from cash outlays related primarily to the Company’s stock repurchase program and dividend payments and declining yields on the Company’s portfolio of debt ~~securities, partially offset by more of the Company’s excess cash invested in interest-bearing accounts.~~securities.

The Company recorded other ~~expense of $45,000 for the three-month period in 2008 and other~~ income of ~~$339,000 for nine-month period~~$1,800,000 in ~~2008,~~the first quarter of 2009 compared to ~~other income of $18,000 for~~$355,000 in the three-month period in 2007 and other expense of $271,000 for the nine-month period in 2007. Other income (expense) includes rental income, net of associated expenses, from leasing buildings adjacent to the Company’s corporate headquarters. Net rental income increased for the nine-month period due to the purchase of additional property adjacent to the Company’s headquarters during the secondfirst quarter of ~~2007 that is generating rental income for the Company. In addition, the~~2008. The Company recorded $2,003,000 and $425,000 of other income in the first quarter of 2009 and 2008, respectively, upon the expiration of the applicable statute of limitations relating to a tax holiday, during which time the Company collected value-added taxes from customers that were not required to be remitted to the government authority. Other income (expense) also includes rental income, net of associated expenses, from leasing buildings adjacent to the Company’s corporate headquarters.

Income Tax Expense ~~(Benefit)~~ on Continuing Operations

The Company’s effective tax rate on continuing operations for the first quarter of 2009 was a benefit of ~~12%~~18% compared to a provision of 25% for the ~~three-month period in 2008 and an expense~~first quarter of ~~14% for the nine-month period in 2008, compared to an expense of 22% and 26% for the same periods in 2007.~~

2008. The effective tax rate for the first quarter of 2008 included the impact of the following discrete tax events: an increase in tax expense of $136,000 ~~to increase a reserve against~~for a capital loss ~~carryforward deferred tax asset due to expire in 2007~~reserve and a decrease in tax expense of $48,000 to decrease a FIN 48 reserve for the true-up of a prior year estimate. The effective tax rate for the third quarter of 2008 included a decrease in tax expense of $4,390,000 upon the expiration of the statute of limitations and final settlements with the Internal Revenue Service for an audit of tax years 2003 through 2006, an increase in tax expense of $317,000 from the final true-up of the prior year’s tax accrual upon filing the actual tax returns, and an increase in tax expense of $17,000 resulting from a reduction of certain deferred state tax assets reflecting a recent tax rate change in Massachusetts. These discrete tax events ~~decreased the effective tax rate from an expense of 28% to a benefit of 12% for the three-month period in 2008 and decreased the effective tax rate from 26% to 14% for the nine-month period in 2008.~~

The effective tax rate for the second quarter of 2007 included an increase in tax expense of $438,000 to finalize the competent authority settlement between the Company’s U.S. subsidiary and Japan taxing authorities. The effective tax rate for the third quarter of 2007 included a decrease in tax expense of $444,000 from the final true-up of the prior year’s tax accrual upon filing the actual tax returns and a decrease in tax expense of $51,000 upon the favorable settlement of an Internal Revenue Service audit relating to the acquisition of DVT Corporation in 2005 and upon the expiration of the statute of limitations for certain tax issues, partially offset by an increase in tax expense of $74,000 for certain state tax issues. These discrete events decreased the effective tax rate from 26% to 22% for the three-month period in 2007 and had no net impact onincreased the effective tax rate for the ~~nine-month period in 2007.~~

first quarter of 2008 by one hundred basis points from 24% to 25%. The effective tax rate excluding discrete tax events ~~was flat at 26% for the nine-month period and increased~~decreased from ~~26%~~a provision of 24% to ~~28% for the three-month period~~a benefit of 18% due to a ~~true-up~~higher proportion of ~~the rate from 25%~~current-year projected losses being incurred in low tax jurisdictions compared to ~~26% in the third quarter of 2008 as a result of more of the Company’s profits being earned in higher~~high tax jurisdictions.

~~Discontinued Operations~~

On July 1, 2008, the Company sold all of the assets of its lane departure warning business to Takata Holdings Inc. for $3,208,000 in cash. The Company entered the lane departure warning business in May 2006 with the acquisition of AssistWare Technology, Inc., a small company that had developed a vision system that could provide a warning to drivers when their vehicle was about to inadvertently cross a lane. Over the past two years, the Company invested additional funds to commercialize AssistWare’s product and to establish a business developing and selling lane departure warning products for driver assistance. This business was reported under the Company’s MVSD segment, but was never integrated with other Cognex businesses. During the second quarter of 2008, the Company determined that this business did not fit the Company’s business model, primarily because car and truck manufacturers want to work exclusively with their existing Tier One suppliers and, although these suppliers have expressed interest in the Company’s vision technology, they would require access to and control of the Company’s proprietary software. Accordingly, the Company accepted an offer from one of these suppliers to acquire the lane departure warning business.

Management concluded that the assets of the lane departure warning business met all of the criteria to be classified as “held-for-sale” as of June 29, 2008. Accordingly, the Company recorded a $2,987,000 loss in the second quarter of 2008 to reduce the carrying amount of these assets down to their fair value less costs to sell. Management also concluded that the disposal group met the criteria of a discontinued operation, and has presented the loss from operations of this discontinued business separate from continuing operations on the Consolidated Statements of Operations.

Liquidity and Capital Resources

The Company has historically been able to generate positive cash flow from operations, which has funded its operating activities and other cash requirements and has resulted in an accumulated cash, cash equivalent, and investment balance of ~~$236,265,000~~$206,848,000 at ~~September 28, 2008,~~April 5, 2009, representing ~~54%~~52% of shareholders’ equity. The Company has established guidelines relative to credit ratings, diversification, and maturities of its investments that maintain liquidity.

The Company’s cash requirements during the ~~nine-month period ended September 28, 2008~~first quarter of 2009 were met with its existing cash balances and ~~investments balances, as well as~~cash from investment maturities. In addition, the Company was able to generate positive cash flow from ~~operations.~~operations despite a decline in revenue. Cash requirements primarily consisted of operating activities, capital expenditures, ~~the repurchase of common stock,~~ and the payment of dividends. Capital expenditures for the ~~nine-month period ended September 28, 2008~~first quarter of 2009 totaled ~~$4,244,000~~$1,741,000 and consisted primarily of costs to fit up a distribution center in Natick, Massachusetts, as well as expenditures for computer hardware and software and manufacturing test equipment for new product ~~introductions, costs to fit up a new manufacturing and distribution center in Ireland, and capital improvements to rental properties.~~introductions.

In June 2000, ~~the Company~~Cognex Corporation became a Limited Partner in Venrock Associates III, L.P. (Venrock), a venture capital fund. A Director of the Company is a ~~Managing~~ General Partner of Venrock Associates. The Company has committed to a total investment in the limited partnership of up to $20,500,000, with the commitment period expiring on December 31, 2010. The Company does not have the right to withdraw from the partnership prior to December 31, 2010. As of ~~September 28, 2008,~~April 5, 2009, the Company had contributed $19,488,000 to the partnership. No contributions were made and no distributions were received during the ~~nine-month period ended September 28, 2008.~~first quarter of 2009. The remaining commitment of $1,012,000 can be called by Venrock in any period through 2010.

program. Repurchases under this new authorization are subject to the parameters of the Rule 10b5-1 Plan, which provides for repurchases during Cognex self-imposed trading blackout periods related to the announcement of quarterly results. The Rule 10b5-1 Plan expires on February 17, 2009 or, if earlier, upon the repurchase of $30,000,000 of Cognex common stock under the plan. The plan does not require Cognex to acquire any specific number of shares and it may be suspended or discontinued at any time.

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. As of ~~September 28, 2008,~~April 5, 2009, the Company had repurchased 1,038,797 shares at a cost of $20,000,000 ~~have been repurchased~~ under this program. The Company did not purchase any shares under this program during the first quarter of 2009. The Company may repurchase shares under this program in future periods depending upon a variety of factors, including, among other things, the stock price ~~levels~~level, share availability, and ~~share availability.~~

The Company repurchased a total of 3,352,295 shares at a cost of $68,418,000 during the nine-month period ended September 28, 2008, of which 2,031,256 shares at a cost of $42,923,000 were repurchased under the July 2006 program, with the remaining shares purchased under the March 2008 and April 2008 programs. As of the date of this filing, the Company repurchased an additional 1,266,298 shares for $24,551,000 in the fourth quarter of 2008 under the March 2008 Rule 10b5-1 Plan. No further purchases may be made pursuant to the March 2008 Rule 10b5-1 Plan.cash reserve requirements.

Beginning in the third quarter of 2003, the Company’s Board of Directors has declared and paid a cash dividend in each quarter, including a dividend of ~~$0.085~~$0.15 per share that amounted to $5,948,000 in the first ~~and second quarters~~quarter of ~~2008 and $0.15~~2009. On May 4, 2009, the Company’s Board of Directors declared a cash dividend of $0.050 per share payable in the ~~third~~second quarter of ~~2008 that amounted to $13,342,000 for the nine-month period ended September 28, 2008.~~2009. Future dividends will be declared at the discretion of the Company’s Board of Directors and will depend upon such factors as the Board deems ~~relevant.~~relevant including, among other things, the Company’s ability to generate positive cash flows from operations.

~~On July 1, 2008, the Company sold all of the assets of its lane departure warning~~The Company’s business to Takata Holdings Inc. for $3,208,000 in cash, of which $250,000 was received during the second quarter of 2008 as a deposit, $2,585,000 was received in July 2008, $58,000 (representing a closing working capital adjustment) is expected to be received before the end of the fourth quarter of 2008, and the remaining $315,000 (representing an amount held in escrow) is expected to be received before the end of 2009. The Company entered the lane departure warning business in May 2006 withstrategy includes selective expansion into new machine vision applications through the acquisition of ~~AssistWare Technology, Inc. During the second quarter of 2008, the Company made the final contingent payment related to this acquisition~~businesses and technologies, which may result in significant cash outlays in the ~~amount of $1,000,000.~~future.

The Company believes that its existing cash, cash equivalent, and investment ~~balance,~~balances, together with ~~continued positive~~ cash flow from operations, will be sufficient to meet its operating, investing, and financing activities for the next twelve months. As of April 5, 2009, the Company had approximately $197,780,000 in either cash or investments that could be converted into cash. In addition, Cognex has no long-term debt and we do not anticipate needing debt financing in the ~~remainder of 2008 and~~near future. We believe that our strong cash position, together with the ~~foreseeable future.~~cost-cutting measures we implemented in April 2009, put us in a relatively good postion with respect to our longer term liquidity needs.

New Pronouncements

~~FASB Statement No. 157, “Fair Value Measurements”~~

~~The Company is evaluating the impact, if any, this standard will have on its non-financial assets and liabilities.~~

~~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

There have been no material changes to the Company’s exposures to market risk since December 31, ~~2007.~~2008.

ITEM 4: CONTROLS AND PROCEDURES

As required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, the Company has evaluated, with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the effectiveness of its disclosure controls and procedures (as defined in such rules) as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and procedures were effective as of that date. From time to time, the Company reviews its disclosure controls and procedures, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business. There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended ~~September 28, 2008~~April 5, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

2326

PART II: OTHER INFORMATION

~~ITEM 1. LEGAL PROCEEDINGS~~


ITEM 1.		LEGAL PROCEEDINGS

In March 2006, the Company filed a Declaratory Judgment action in the United States District Court for Minnesota seeking that certain patents being asserted by Acacia Research Corporation and Veritec, Inc., and their respective subsidiaries, be ruled invalid, unenforceable, and/or not infringed by the Company. The Company amended its claim to include state law claims of defamation and violation of the Minnesota Unfair Trade Practices Act. Certain defendants in this action asserted a counterclaim against the Company alleging infringement of the patent-in-suit, seeking unspecified damages. In May 2008, the United States District Court for Minnesota ruled in favor of the Company, granting the Company’s motions for summary judgment by finding that the patent-at-issue was both invalid and unenforceable. The defendant’s counterclaim of infringement was ruled moot by the finding of invalidity. Unless the defendants appeal and obtain on appeal a reversal of the court’s rulings, there will be no damage award against the Company. The Company believes the likelihood is remote that any such appeal would be successful and that any resulting loss to the Company on the counterclaim would be material. The court denied Defendant Acacia’s motion for summary judgment with respect to the Company’s defamation claim, and the Company is proceeding with that claim against Defendant Acacia. A trial date of December 8, 2008 has been set with respect to this surviving claim against Defendant Acacia.

~~In May 2008, the Company filed a complaint against MvTec Software GmbH, MvTec LLC, and Fuji America Corporation in the United States District Court for the District of~~

Massachusetts alleging infringement of certain patents owned by the Company. This matter is in its early stages. The Company cannot predict the outcome of this matter, and an adverse resolution of this lawsuit may have a material adverse effect on the Company’s financial position, liquidity, results of operations, and/or indemnification obligations.

In September 2008, Microscan Systems, Inc. filed a complaint against the Company in the United States District Court for the Western District of Washington alleging infringement of U.S. Patent No. 6.105.869 owned by Microscan Systems, Inc. The complaint alleges that certain of the Company’s DataMan 100 and 700 series products infringe upon the patent in question. This matter is in its early stages. The Company cannot predict the outcome of this matter, and an adverse resolution of this lawsuit may have a material adverse effect on the Company’s financial position, liquidity, results of operations, and/or indemnification obligations.

There have been no material changes to the Company’s exposures to legal proceedings since December 31, 2008 as discussed in Part I — Item III of the Company’s Annual Report on Form 10-K for the year then ended.

~~ITEM 1A. RISK FACTORS~~


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 Part I — Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

			The Company’s restructuring programs may result in disruption to our business and may negatively impact our operating results.

			In November 2008 and again in April 2009, the Company announced various restructuring actions which we anticipate will result in long-term cost savings. These actions, which include work force reductions, office closures, mandatory shutdown days, and decreases in discretionary spending, are intended to more closely align our cost structure with the current lower levels of business resulting from worldwide economic conditions. We believe, however, that unless the business climate improves significantly, these actions are unlikely to be sufficient for the Company to generate a profit in 2009. Although we expect to continue to make investments in strategic areas throughout this downturn, these restructuring actions may nevertheless negatively impact programs we believe are crucial to the long-term success of the Company, such as the ability to accelerate time to market for new products. In addition, our ability to provide a high level of service to our customers may be negatively impacted by these actions, particularly in regions where we have significantly downsized our operations.

			For a complete list of factors that could affect the Company’s business, results of operations, and financial condition, see the risk factors discussion provided in Part I — Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

~~ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~


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~~

The following tables set forth information with respect to purchases by the Company of shares of its Common Stock during the periods indicated.

Total Number of Approximate Dollar
Shares Purchased as Value of Shares
Part of Publicly that May Yet Be
Total Number of Average Price Announced Plans or Purchased Under the
Period Shares Purchased Paid per Share Programs (1) Plans or Programs
June 30 — July 31, 2008 142,161 $ 18.32 142,161 $ 74,906,000
August 1 — 31, 2008 967,797 $ 19.30 967,797 $ 56,030,000
September 1 — 28, 2008 76,238 $ 19.92 76,238 $ 54,513,000
Total 1,186,196 $ 19.22 1,186,196 $ 54,513,000


					Total Number		Approximate
					of Shares		Dollar Value of
					Purchased as Part		Shares that May
	Total				of Publicly		Yet Be
	Number of		Average		Announced		Purchased Under
	Shares		Price Paid		Plans or		the Plans or
	Purchased		per Share		Programs (1)		Programs
January 1 - February 1, 2009		—		—		—	$	30,000,000
February 2 - March 1, 2009		—		—		—		30,000,000
March 2 - April 5, 2009		—		—		—		30,000,000
Total		—		—		—	$	30,000,000


(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.

The Company has been advised that Richard A. Morin, Senior Vice President and Chief Financial Officer, entered into a trading plan in the third quarter of 2008 in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and the Company’s policy governing transactions in its securities. The shares to be sold under this plan would be issued pursuant to the exercise of existing stock options, and will be disclosed publicly

2527

through Form 4 and Form 144 filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise the foregoing information, including for revision or termination of the trading plan.


ITEM 3.		DEFAULTS UPON SENIOR SECURITIES

None

~~ITEM 3. DEFAULTS UPON SENIOR SECURITIES~~


ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

~~ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~


ITEM 5.		OTHER INFORMATION

None

~~ITEM 5. OTHER INFORMATION~~


ITEM 6.		EXHIBITS

~~None~~

~~ITEM 6. EXHIBITS~~

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 —~~


10.1	—	Memorandum to Eric Ceyrolle regarding separation, dated April 24, 2009*

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

2628


Massachusetts		04-2713778

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


PART I	FINANCIAL INFORMATION	1

Item 1.	~~PART I~~Financial Statements	~~FINANCIAL INFORMATION~~			1

~~Item 1.~~	~~Financial Statements~~		1
	Consolidated Statements of Operations for the ~~three-month~~quarter ended April 5, 2009 and ~~nine-month periods ended September 28,~~March 30, 2008 ~~and September 30, 2007~~		1
	Consolidated Balance Sheets ~~at September 28, 2008~~as of April 5, 2009 and December 31, ~~2007~~2008		2
	Consolidated Statement of Shareholders’ Equity for the ~~nine-month period~~quarter ended ~~September 28, 2008~~April 5, 2009		3
	Consolidated Condensed Statements of Cash Flows for the ~~nine-month periods~~quarter ended ~~September 28,~~April 5, 2009 and March 30, 2008 ~~and September 30, 2007~~		4
	Notes to Consolidated Financial Statements (interim periods unaudited)		5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23	26

Item 4.
~~Item 4.~~Controls and Procedures	~~Controls and Procedures~~		23	26

PART II	OTHER INFORMATION	~~OTHER INFORMATION~~			24	27

Item 1.
~~Item 1.~~Legal Proceedings	~~Legal Proceedings~~		24	27

Item 1A.
~~Item 1A.~~Risk Factors	~~Risk Factors~~		25	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25	27

Item 3.	Defaults Upon Senior Securities		26	28

Item 4.	Submission of Matters to a Vote of Security Holders		26	28

Item 5.
~~Item 5.~~Other Information	~~Other Information~~		26	28

Item 6.
~~Item 6.~~Exhibits	~~Exhibits~~		26	28

	Signatures	29
27							EX-10.1 MEMORANDUM TO ERIC CEYROLLE REGARDING SEPARATION, DATED APRIL 24, 2009
EX-31.1 ~~Section~~SECTION 302 ~~Certification of~~CERTIFCATION OF CEO
EX-31.2 ~~Section~~SECTION 302 ~~Certification of~~CERT OF CFO
EX-32.1 ~~Section~~SECTION 906 ~~Certification of~~CERT OF CEO
EX-32.2 ~~Section~~SECTION 906 ~~Certification of~~CERT OF CFO


DATE: ~~October 30, 2008~~May 6, 2009	COGNEX CORPORATION
	By:	/s/ Robert J. Shillman
		Robert J. Shillman
		Chief Executive Officer, President, and Chairman of the Board of Directors (duly authorized officer, principal executive officer)


	By:	/s/ Richard A. Morin
		Richard A. Morin
	~~Senior~~	Executive Vice President of Finance, ~~and~~ ~~Administration,~~ Chief Financial Officer, and Treasurer (duly authorized officer, principal financial and accounting officer)


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


~~Yes~~ þ		Yesþ Noo Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes oNo o


Balance at December 31, 2007	$	1,462
Provisions for warranties issued during the period		1,266
Fulfillment of warranty obligations		(1,109	)
Foreign exchange rate changes		—


Balance at September 28, 2008	$	1,619


Risk-free rate	3.9	%
Expected dividend yield	1.8	%
Expected volatility	42	%
Expected term (in years)	5.9


					Total Number of		Approximate Dollar
					Shares Purchased as		Value of Shares
					Part of Publicly		that May Yet Be
	Total Number of		Average Price		Announced Plans or		Purchased Under the
Period	Shares Purchased		Paid per Share		Programs (1)		Plans or Programs
June 30 — July 31, 2008		142,161	$	18.32		142,161	$	74,906,000
August 1 — 31, 2008		967,797	$	19.30		967,797	$	56,030,000
September 1 — 28, 2008		76,238	$	19.92		76,238	$	54,513,000
Total		1,186,196	$	19.22		1,186,196	$	54,513,000


~~Yes~~ o		YesoNoþ