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

FORM 10-Q

(Mark One)
			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 29, 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

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

     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                       No 

     As of October 27, 2002, there were 42,555,541 shares of Common Stock, $.002 par value, of the registrant outstanding.

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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)

[Additional columns below]

[Continued from above table, first column(s) repeated]

								Accumulated
								Other								Total
				Retained				Comprehensive				Comprehensive				Stockholders'
				Earnings				Loss				Loss				Equity
Balance at December 31, 2001				$	254,037			$	(6,342	)						$	378,044
	Issuance of common stock under stock option and stock purchase plans																8,005
	Tax benefit from exercise of stock options																1,686
	Repurchase of common stock																(26,425	)
	Common stock received for payment of stock option exercises																(2,467	)
	Comprehensive loss:
		Net loss			(6,451	)						$	(6,451	)			(6,451	)
		Recognition of accumulated losses on equity securities, net of tax of $2,506, in current operations							4,269				4,269				4,269
		Foreign currency translation adjustment							(2,071	)			(2,071	)			(2,071	)
		Comprehensive loss										$	(4,253	)
Balance at September 29, 2002 (unaudited)				$	247,586			$	(4,144	)						$	354,590

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 September 29, 2002, and the results of its operations for the three-month and nine-month periods ended September 29, 2002 and September 30, 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 nine-month periods ended September 29, 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)

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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2002, the Company sold equity securities with a cost basis of $12,461,000 and recorded realized losses of $6,184,000 on these transactions. The Company no longer holds any equity investments.

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 September 29, 2002. During 2002, the Company recorded losses of $329,000 on this investment, representing realized investment losses and expenses that have not been recovered by realized investment gains. A member of the Board of Directors of the Company is a Managing General Partner of Venrock Associates.

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. A total of $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 third quarter of 2002, the Company sold $262,000 of this previously reserved inventory, bringing the year-to-date amount to $1,262,000. Accordingly, a benefit was recorded 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. During the third quarter of 2002, the Company recorded a benefit to “Cost of product revenue” from the favorable resolution of $894,000 of these inventory purchase commitments. 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 remaining $1,400,000 accrued at September 29, 2002.

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 nine-month periods ended September 29, 2002 was $138,000 and $415,000, 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 nine-month period ended September 29, 2002 are as follows (in thousands):

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.

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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reported net income and net income per basic and diluted share adjusted to exclude amortization of goodwill for the three-month and nine-month periods ended September 30, 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)

Stock options to purchase 7,775,576 and 4,925,196 shares of common stock were outstanding for the three-month and nine-month periods ended September 29, 2002, respectively, and 2,977,656 and 2,643,806 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 985,100 were not included in the calculation of diluted net loss per share for the nine-month period ended

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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 29, 2002 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):