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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]		Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2002 or
[  ]		Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from           to

Commission File Number 0-17869

COGNEX CORPORATION

(Exact name of registrant as specified in its charter)

One Vision Drive
Natick, Massachusetts 01760-2059
(508) 650-3000

(Address, including zip code, and telephone
number, including area code, of principal
executive offices)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X                 No
                  ——                     ——

     As of July 28, 2002, there were 44,217,447 shares of Common Stock, $.002 par value, of the registrant outstanding.

Total number of pages: 16
Exhibit index is located on page 15

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INDEX

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PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

COGNEX CORPORATION

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

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

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COGNEX CORPORATION

CONSOLIDATED BALANCE SHEETS
(In thousands)

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

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COGNEX CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)

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

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COGNEX CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)

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

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COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Basis of Presentation

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, 2001.

In the opinion of the management of Cognex Corporation, the accompanying consolidated unaudited financial statements contain all adjustments necessary to present fairly the Company’s financial position at June 30, 2002, and the results of its operations for the three-month and six-month periods ended June 30, 2002 and July 1, 2001, and changes in stockholders’ equity and cash flows for the periods presented.

The results disclosed in the Consolidated Statements of Operations for the three-month and six-month periods ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. Certain amounts reported in prior periods have been reclassified to be consistent with the current period presentation.

New Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. This standard addresses financial accounting and reporting for costs associated with exit or disposal activities and replaces EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 also requires that liabilities recorded in connection with exit plans be initially measured at fair value. The Company does not expect the adoption of SFAS No. 146 will have a material impact on its financial position or results of operations.

Cash, Cash Equivalents, and Investments

Cash, cash equivalents, and investments consist of the following:
(In thousands)

During the second quarter of 2002, the Company sold certain equity securities with a cost basis of $4,638,000 and recorded a realized loss of $2,867,000 on this transaction. At June 30, 2002, the remaining equity securities had a cost basis of $7,823,000 and an unrealized loss, which was determined to be other-than-temporary, resulting in a recognized investment loss of $3,317,000 in the second quarter of 2002. Subsequent to June 30, 2002, the Company sold these remaining equity securities, and therefore, no longer holds any equity investments. The market value of these securities at the date of sale did not fluctuate significantly from June 30, 2002, and therefore, the realized loss on these sales will not be material to the results of operations for the third quarter of 2002.

On June 30, 2000, Cognex Corporation became a Limited Partner in Venrock Associates III, L.P., a venture capital fund. The Company has committed to a total investment of up to $25,000,000 over a ten-year period, of which $9,875,000 had been invested as of June 30, 2002. During the second quarter

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COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of 2002, the Company recorded a $156,000 loss on this investment, bringing the year-to-date loss to $329,000. The realized losses represent investment losses and expenses that have not been recovered by investment gains.

Inventories

Inventories consist of the following:
(In thousands)

In the fourth quarter of 2001, the Company recorded a $16,300,000 charge in “Cost of product revenue” on the Consolidated Statements of Operations for excess inventories and purchase commitments resulting from an extended slowdown in the semiconductor and electronics industries, as well as the expected transition to newer Cognex hardware platforms by the Company’s OEM customers. $12,500,000 of this charge represented reserves against existing inventories and was accordingly included in “Inventories” on the Consolidated Balance Sheets at December 31, 2001. During the second quarter of 2002, the Company sold $1,000,000 of this previously reserved inventory, and accordingly, recorded a benefit to “Cost of product revenue” for the sale of this inventory which had a zero cost basis. The remaining $3,800,000 of the charge recorded in the fourth quarter of 2001 represented commitments to purchase excess components and systems from various suppliers and accordingly was included in “Accrued Expenses” on the Consolidated Balance Sheets at December 31, 2001. During the second quarter of 2002, the Company took ownership of $1,506,000 of this inventory. The Company is in the process of negotiating with vendors for the settlement of the remaining commitments, which may result in a recovery of a portion of the accrued amount at June 30, 2002 of $2,294,000.

Intangible Assets

The Company adopted Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002. In accordance with this statement, the Company reassessed the classification of its goodwill and other intangible assets. This analysis, which was completed during the first quarter of 2002, resulted in the reclassification of $133,000 of workforce to goodwill. Also in accordance with this statement, the Company reassessed the useful lives of its amortized intangible assets and determined the lives were appropriate.

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COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortized intangible assets consist of the following (in thousands):

Aggregate amortization expense for the three-month and six-month periods ended June 30, 2002 was $138,000 and $277,000, respectively. Estimated amortization expense for each of the five succeeding fiscal years is as follows (in thousands):

Goodwill

In accordance with the adoption of SFAS No. 142 on January 1, 2002, the Company has identified two reporting units with goodwill, the Modular Vision Systems Division (MVSD) and the Surface Inspection Systems Division (SISD), which are also reportable segments.

The changes in the carrying amount of goodwill during the six-month period ended June 30, 2002 are as follows (in thousands):

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COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of January 1, 2002, the Company ceased the amortization of goodwill and performed the transitional goodwill impairment test for each reporting unit. This analysis, which was completed during the first quarter of 2002, resulted in a fair value of each reporting unit that exceeded its carrying amount, and therefore, the goodwill in each reporting unit was determined not to be impaired.

Reported net income and net income per basic and diluted share adjusted to exclude amortization of goodwill for the three-month and six-month periods ended July 1, 2001 is as follows (in thousands, except per share amounts):

Net Income (Loss) Per Share

Net income (loss) per share is calculated as follows:
  (In thousands, except per share amounts)

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COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock options to purchase 4,011,987 and 3,221,247 shares of common stock were outstanding for the three-month and six-month periods ended June 30, 2002, respectively, and 2,539,017 and 2,718,861 for the same periods in 2001, but were not included in the calculation of diluted net income (loss) per share because the options’ exercise prices were greater than the average market price of the Company’s common stock during those periods. Additionally, potential common stock equivalents of 1,391,124 and 1,452,142 were not included in the calculation of diluted net loss per share for the three-month and six-month periods ended June 30, 2002, respectively, because they were antidilutive. Although these stock options and potential common stock equivalents were antidilutive for the periods presented, they may be dilutive in future periods’ calculations.

Segment Information

The Company has two reportable segments: the Modular Vision Systems Division (MVSD) and the Surface Inspections Systems Division (SISD). MVSD designs, develops, manufactures, and markets modular vision systems that are used to control the manufacturing of discrete items by locating, identifying, inspecting, and measuring them during the manufacturing process. SISD designs, develops, manufactures, and markets surface inspection vision systems that are used to inspect surfaces of materials that are processed in a continuous fashion to ensure there are no flaws or defects in the surfaces. Segments are determined based upon the way that management organizes its business for making operating decisions and assessing performance. The Company evaluates segment performance based upon income or loss from operations, excluding unusual items.

     The following table summarizes information about the Company’s segments (in thousands):