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 April ~~5, 2015~~3, 2016 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 001-34218

COGNEX CORPORATION

(Exact name of registrant as specified in its charter)



Massachusetts		04-2713778
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Vision Drive

Natick, Massachusetts 01760-2059

(508) 650-3000

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

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

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):



Large accelerated filer	X	Accelerated filer
Non-accelerated filer		Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

As of April ~~5, 2015,~~3, 2016, there were ~~87,128,037~~85,052,353 shares of Common Stock, $.002 par value per share, of the registrant outstanding.

INDEX



PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (interim periods unaudited)	3
	Consolidated Statements of Operations for the three-month periods ended April 3, 2016 and April 5, 2015 ~~and March 30, 2014~~	3
	Consolidated Statements of Comprehensive Income for the three-month periods ended April 3, 2016 and April 5, 2015 ~~and March 30, 2014~~	4
	Consolidated Balance Sheets as of April ~~5, 2015~~3, 2016 and December 31, ~~2014~~2015	5
	Consolidated Statements of Cash Flows for the three-month periods ended April 3, 2016 and April 5, 2015 ~~and March 30, 2014~~	6
	Consolidated Statement of Shareholders’ Equity for the three-month period ended April ~~5, 2015~~3, 2016	7
	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2725

Item 4.	Controls and Procedures	2725

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	2827

Item 1A.	Risk Factors	2827

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2927

Item 3.	Defaults Upon Senior Securities	2927

Item 4.	Mine Safety Disclosures	2927

Item 5.	Other Information	2927

Item 6.	Exhibits	3028

	Signatures	3129

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COGNEX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


	Three-months Ended						Three-months Ended
	April 5, 2015			March 30, 2014			April 3, 2016			April 5, 2015
	(unaudited)						(unaudited)
Revenue							$	96,205		$	101,373
Product	$	105,775		$	83,569
Service	7,659			7,360
	113,434			90,929
Cost of revenue							20,968			22,344
Product	23,634			17,286
Service	4,320			3,798
	27,954			21,084
Gross margin							75,237			79,029
Product	82,141			66,283
Service	3,339			3,562
	85,480			69,845
Research, development, and engineering expenses	18,076			12,502			20,555			16,986
Selling, general, and administrative expenses	43,487			34,900			38,338			39,933
Operating income	23,917			22,443			16,344			22,110
Foreign currency gain (loss)	405			(110		)	(100		)	659
Investment income	850			787			1,137			850
Other expense	(310		)	(273		)
Income before income tax expense	24,862			22,847
Income tax expense	4,360			4,341
Other income (expense)							207			(310		)
Income from continuing operations before income tax expense							17,588			23,309
Income tax expense on continuing operations							2,703			3,837
Net income from continuing operations							14,885			19,472
Net income from discontinued operations (Note 14)							—			1,030
Net income	$	20,502		$	18,506		$	14,885		$	20,502

Earnings per weighted-average common and common-equivalent share:
Basic	$	0.24		$	0.21
Diluted	$	0.23		$	0.21
Basic earnings per weighted-average common and common-equivalent share:							Basic earnings per weighted-average common and common-equivalent share:
Net income from continuing operations							$	0.18		$	0.22
Net income from discontinued operations							$	—		$	0.02
Net income							$	0.18		$	0.24

Diluted earnings per weighted-average common and common-equivalent share:							Diluted earnings per weighted-average common and common-equivalent share:
Net income from continuing operations							$	0.17		$	0.22
Net income from discontinued operations							$	—		$	0.01
Net income							$	0.17		$	0.23

Weighted-average common and common-equivalent shares outstanding:							Weighted-average common and common-equivalent shares outstanding:
Basic	86,764			86,879			84,943			86,764
Diluted	88,749			89,259			86,541			88,749

Cash dividends per common share							$	0.07		$	—

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

~~Table of Contents~~

COGNEX CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)


	Three-months Ended						Three-months Ended
	April 5, 2015			March 30, 2014			April 3, 2016			April 5, 2015
	(unaudited)						(unaudited)
Net income	$	20,502		$	18,506		$	14,885		$	20,502
Other comprehensive income (loss), net of tax:
Cash flow hedges:
Net unrealized gain (loss), net of tax of ($73) and ($16) in 2015 and 2014, respectively	(520		)	(199		)
Net unrealized gain (loss), net of tax of ($82) and ($73) in 2016 and 2015, respectively							(585		)	(520		)
Reclassification of net realized (gain) loss into current operations	110			33			4			110
Net change related to cash flow hedges	(410		)	(166		)	(581		)	(410		)

Available-for-sale investments:
Net unrealized gain (loss), net of tax of $134 and $113 in 2015 and 2014, respectively	899			1,019
Net unrealized gain (loss), net of tax of $267 and $134 in 2016 and 2015, respectively							1,281			899
Reclassification of net realized (gain) loss into current operations	(29		)	(501		)	13			(29		)
Net change related to available-for-sale investments	870			518			1,294			870

Foreign currency translation adjustments:
Foreign currency translation adjustments, net of tax of ($636) and $7 in 2015 and 2014, respectively	(10,690		)	445
Foreign currency translation adjustments, net of tax of $329 and ($636) in 2016 and 2015, respectively							5,160			(10,690		)
Net change related to foreign currency translation adjustments	(10,690		)	445			5,160			(10,690		)

Other comprehensive income (loss), net of tax	(10,230		)	797			5,873			(10,230		)
Total comprehensive income	$	10,272		$	19,303		$	20,758		$	10,272

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

~~Table of Contents~~

COGNEX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)


	April 5, 2015			December 31, 2014			April 3, 2016			December 31, 2015
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	36,047		$	55,694		$	79,914		$	51,975
Short-term investments	142,343			90,456			319,789			296,468
Accounts receivable, less reserves of $1,024 and $1,095 in 2015 and 2014, respectively	56,264			50,938
Accounts receivable, less reserves of $746 and $736 in 2016 and 2015, respectively							45,095			42,846
Inventories	48,458			35,536			35,620			37,334
Deferred income taxes	8,990			8,985
Prepaid expenses and other current assets	17,857			22,997			12,512			15,871
Total current assets	309,959			264,606			492,930			444,494
Long-term investments	370,433			400,845			249,760			273,088
Property, plant, and equipment, net	48,692			47,907			53,413			53,285
Goodwill							81,448			81,448
Intangible assets, net							5,270			6,315
Deferred income taxes	16,349			14,452			28,201			26,517
Intangible assets, net	9,606			10,699
Goodwill	81,689			81,689
Other assets	1,617			1,536			2,615			2,609
Total assets							$	913,637		$	887,756
	$	838,345		$	821,734
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,295		$	19,114		$	10,296		$	7,860
Accrued expenses	32,240			39,949			30,653			33,272
Accrued income taxes	928			1,048			1,494			985
Deferred revenue	20,447			20,563
Deferred revenue and customer deposits							11,862			11,571
Total current liabilities	66,910			80,674			54,305			53,688
Deferred income taxes							334			319
Reserve for income taxes	4,372			4,623			5,233			4,830
Commitments and contingencies (Note 7)
Other non-current liabilities							3,046			3,252
Total liabilities							62,918			62,089

Shareholders’ equity:
Common stock, $.002 par value – Authorized: 140,000 shares, issued and outstanding: 87,128 and 86,542 shares in 2015 and 2014, respectively	174			173
Common stock, $.002 par value – Authorized: 140,000 shares, issued and outstanding: 85,052 and 84,856 shares in 2016 and 2015, respectively							170			170
Additional paid-in capital	272,070			251,717			321,252			311,008
Retained earnings	544,448			523,946			575,548			566,613
Accumulated other comprehensive loss, net of tax	(49,629		)	(39,399		)	(46,251		)	(52,124		)
Total shareholders’ equity	767,063			736,437			850,719			825,667
	$	838,345		$	821,734		$	913,637		$	887,756

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

~~Table of Contents~~

COGNEX CORPORATION

CONSOLIDATED ~~CONDENSED~~ STATEMENTS OF CASH FLOWS

(In thousands)


	Three-months Ended						Three-months Ended
	April 5, 2015			March 30, 2014			April 3, 2016			April 5, 2015
	(unaudited)						(unaudited)
Cash flows from operating activities:
Net income	$	20,502		$	18,506		$	14,885		$	20,502
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	6,946			4,004			6,804			6,946
Depreciation of property, plant, and equipment	2,346			1,990			2,757			2,346
Amortization of intangible assets	1,093			916			1,045			1,093
Amortization of discounts or premiums on investments	203			896			125			203
Realized gain on sale of investments	(29		)	(501		)
Tax effect of stock option exercises	(3,694		)	(2,165		)
Realized (gain) loss on sale of investments							13			(29		)
Revaluation of contingent consideration							(263		)	—
Change in deferred income taxes	(1,251		)	127			(2,064		)	(1,251		)
Change in operating assets and liabilities	(26,380		)	(6,312		)
Net cash provided by (used in) operating activities	(264		)	17,461
Change in operating assets and liabilities:
Accounts receivable							(1,025		)	(8,005		)
Inventories							2,646			(15,046		)
Accounts payable							2,216			(5,013		)
Accrued expenses							(3,353		)	(7,210		)
Accrued income taxes							467			3,580
Other							3,327			5,314
Net cash provided by operating activities							27,580			3,430
Cash flows from investing activities:
Purchases of investments	(157,083		)	(124,734		)	(219,616		)	(157,083		)
Maturities and sales of investments	130,476			117,753			223,334			130,476
Purchases of property, plant, and equipment	(4,264		)	(2,685		)	(2,237		)	(4,264		)
Net cash used in investing activities	(30,871		)	(9,666		)
Net cash provided by (used in) investing activities							1,481			(30,871		)
Cash flows from financing activities:
Issuance of common stock under stock option plans	9,666			5,951
Repurchase of common stock	—			(14,287		)
Tax effect of stock option exercises	3,694			2,165
Net cash provided by (used in) financing activities	13,360			(6,171		)
Issuance of common stock under stock plans							3,440			9,666
Payment of dividends							(5,950		)	—
Net cash provided by (used in) used in financing activities							(2,510		)	9,666
Effect of foreign exchange rate changes on cash and cash equivalents	(1,872		)	195			1,388			(1,872		)
Net change in cash and cash equivalents	(19,647		)	1,819			27,939			(19,647		)
Cash and cash equivalents at beginning of period	55,694			40,644			51,975			55,694
Cash and cash equivalents at end of period	$	36,047		$	42,463		$	79,914		$	36,047
Non-cash items related to discontinued operations:
Capital expenditures							$	—		$	311
Stock-based compensation expense							—			283
Depreciation and amortization expense							—			281

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

~~Table of Contents~~

COGNEX CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In thousands)

Common Stock
Additional
Paid-in
Retained
Accumulated
Other
Comprehensive

Total
Shareholders’
Shares Par Value Capital Earnings Loss Equity
Balance as of December 31, 2014 86,542
$ 173
$ 251,717
$ 523,946
$ (39,399 ) $ 736,437
Issuance of common stock under stock plans 586
1
9,665

9,666
Stock-based compensation expense

6,946

6,946
Excess tax benefit from stock option exercises

3,694

3,694
Tax benefit for research and development credits as a result of stock options 48
48
Net income

20,502

20,502
Net unrealized loss on cash flow hedges, net of tax of $73

(520 ) (520 )
Reclassification of net realized loss on cash flow hedges

110
110
Net unrealized gain on available-for-sale investments, net of tax of $134

899
899
Reclassification of net realized gain on the sale of available-for-sale investments

(29 ) (29 )
Foreign currency translation adjustment, net of tax of $636

(10,690 ) (10,690 )
Balance as of April 5, 2015 (unaudited) 87,128
$ 174
$ 272,070
$ 544,448
$ (49,629 ) $ 767,063



	Common Stock			Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
	Shares	Par Value		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance as of December 31, 2015	84,856	$	170	$	311,008	$	566,613		$	(52,124	)	$	825,667
Issuance of common stock under stock plans	196	—		3,440		—			—			3,440
Stock-based compensation expense	—	—		6,804		—			—			6,804
Payment of dividends	—	—		—		(5,950		)	—			(5,950		)
Net income	—	—		—		14,885			—			14,885
Net unrealized gain (loss) on cash flow hedges, net of tax of $82	—	—		—		—			(585		)	(585		)
Reclassification of net realized (gain) loss on cash flow hedges	—	—		—		—			4			4
Net unrealized gain (loss) on available-for-sale investments, net of tax of $267	—	—		—		—			1,281			1,281
Reclassification of net realized (gain) loss on the sale of available-for-sale investments	—	—		—		—			13			13
Foreign currency translation adjustment, net of tax of $329	—	—		—		—			5,160			5,160
Balance as of April 3, 2016 (unaudited)	85,052	$	170	$	321,252	$	575,548		$	(46,251	)	$	850,719

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

~~Table of Contents~~

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 (GAAP). 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, ~~2014.~~2015.

In the opinion of the management of Cognex Corporation (the “Company”), the accompanying consolidated unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments and financial statement reclassifications, including those related to the disposition of a business (more fully described in Note 14), necessary to present fairly the Company’s financial position as of April ~~5, 2015,~~3, 2016, and the results of its operations for the three-month periods ended April 3, 2016 and April 5, 2015, ~~and March 30, 2014,~~ and changes in shareholders’ equity, comprehensive income, and cash flows for the periods presented.

The results disclosed in the Consolidated Statements of Operations for the three-month ~~periods~~period ended April ~~5, 2015~~3, 2016 are not necessarily indicative of the results to be expected for the full year.

On July 6, 2015, the Company completed the sale of its Surface Inspection Systems Division (SISD). The financial results of SISD are reported as a discontinued operation for the three-month period ended April 5, 2015.

NOTE 2: New Pronouncements

Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers”

The amendments in ASU 2014-09 will supersede and replace all currently existing U.S. GAAP, including industry-specific revenue recognition guidance, with a single, principle-based revenue recognition framework. The concept guiding this new model is that revenue recognition will depict transfer of control to the customer in an amount that reflects consideration to which an entity expects to be entitled. The core principles supporting this framework include (1) identifying the contract with a customer, (2) identifying separate performance obligations within the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing revenue. This new framework will require entities to apply significantly more judgment. This increase in management judgment will require expanded disclosure on estimation methods, inputs, and assumptions for revenue recognition. ~~The~~

In March 2016, ASU 2016-08, "Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," was issued and in April 2016, ASU 2016-10, "Identifying Performance Obligations and Licensing," was issued. These Updates do not change the core principle of the guidance inunder ASU 2014-09, isbut rather provide implementation guidance. ASU 2015-14, "Deferral of the effective date," amended the effective date of ASU 2014-09 for public companies ~~for~~to annual reporting periods beginning after December 15, ~~2016 and currently early~~2017. Early adoption is ~~not permitted. However, the~~permitted, but only beginning after December 15, 2016. The Financial Accounting Standards Board ~~is considering delaying the effective date of this standard by one year and also allowing early adoption.~~may release additional implementation guidance in future periods. Management will continue to evaluate the impact of this standard as it evolves.

Accounting Standards Update (ASU) ~~2015-05, "Intangibles—Goodwill and Other—Internal-Use Software"~~2015-11, "Inventory - Simplifying the Measurement of Inventory"

ASU ~~2015-05 provides~~2015-11 requires companies to measure most inventory at the lower of cost and net realizable value, thereby simplifying the current guidance under which a company must measure inventory at the lower of cost or market. This ASU eliminates the need to ~~customers about~~determine replacement cost and evaluate whether said cost is within a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, then the customer should account for the arrangement as a service contract.quantitative range. This ASU also further aligns U.S. GAAP and international accounting standards. For public companies, the guidance in ASU ~~2015-05~~2015-11 is effective for annual periods beginning after December 15, ~~2015,~~2016, and interim periods ~~thereafter.~~within those annual periods. Early adoption is permitted. Management does not expect ASU ~~2015-05~~2015-11 to have a material impact on the Company's financial statements and disclosures.

Accounting Standards Update (ASU) 2016-01, "Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities"

the accompanying notes to the financial statements. For public companies, the guidance in ASU 2016-01 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is not permitted except for certain amendments in this Update. Management does not expect ASU 2016-01 to have a material impact on the Company's financial statements and disclosures.

8Accounting Standards Update (ASU) 2016-02, "Leases"

ASU 2016-02 creates Topic 842, Leases. The objective of this Update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet, and disclosing key information about leasing arrangements. This ASU applies to any entity that enters into a lease, although lessees will see the most significant changes. The main difference between current U.S. GAAP and Topic 842 is the recognition of lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current U.S. GAAP. Topic 842 distinguishes between finance leases and operating leases, which are substantially similar to the classification criteria for distinguishing between capital leases and operating leases under current U.S. GAAP. For public companies, the guidance in ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. This ASU should be applied using a modified retrospective approach. Management is in the process of evaluating the impact of this Update.

Accounting Standards Update (ASU) 2016-05, "Derivatives and Hedging - Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships"

ASU 2016-05 applies to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as the hedging instrument. The amendments in this Update clarify that a change in the counterparty does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public companies, the guidance in ASU 2016-05 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. This ASU should be applied on either a prospective basis or a modified retrospective basis. Management does not expect ASU 2016-05 to have a material impact on the Company's financial statements and disclosures.

~~Table of Contents~~

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

NOTE 3: Fair Value Measurements

Financial Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The following table summarizes the financial assets and liabilities required to be measured at fair value on a recurring basis as of April ~~5, 2015~~3, 2016 (in thousands):


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:
Money market instruments	$	1,240	$	—	$	31,311	$	—	$	—
Corporate bonds	—		241,634		—		233,848		—
Treasury bills	—		96,168		—		149,540		—
Asset-backed securities	—		77,840		—		91,593		—
Euro liquidity fund	—		62,045		—		50,094		—
Sovereign bonds					—		29,489		—
Agency bonds	—		12,887		—		9,175		—
Sovereign bonds	—		11,645
Municipal bonds	—		6,699		—		4,868		—
Supranational bonds	—		1,902
Cash flow hedge forward contracts	—		327		—		16		—
Economic hedge forward contracts	—		7
Liabilities:
Cash flow hedge forward contracts	—		762		—		460		—
Economic hedge forward contracts	—		17		—		40		—
Contingent consideration liability					—		—		2,737

The Company’s money market instruments are reported at fair value based upon the daily market price for identical assets in active markets, and are therefore classified as Level 1.

The Company’s debt securities and forward contracts 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 or liability, and are therefore classified as Level 2. Management is responsible for estimating the fair value of these financial assets and liabilities, and in doing so, considers valuations provided by

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

a large, third-party pricing service. For debt securities, this service maintains regular contact with market makers, brokers, dealers, and analysts to gather information on market movement, direction, trends, and other specific data. They use this information to structure yield curves for various types of debt securities and arrive at the daily valuations. The Company's forward contracts are typically traded or executed in over-the-counter markets with a high degree of pricing transparency. The market participants are generally large commercial banks.

The Company did not record an other-than-temporary impairment of these financial assets ~~or liabilities~~ during the three-month period ended April ~~5, 2015.~~3, 2016.

The Company's contingent consideration liability, related to the acquisition of Manatee Works, Inc. in 2015, is reported at fair value based upon probability-adjusted present values of the consideration expected to be transferred using significant inputs that are not observable in the market, and is therefore classified as Level 3. Key assumptions used in these estimates include probability assessments with respect to the likelihood of achieving the revenue milestones and discount rates consistent with the level of risk of achievement. The contingent consideration is remeasured each reporting period with changes in fair value recorded in "Other income (expense)" on the Consolidated Statements of Operations.

The following table summarizes the activity for the Company's liability measured at fair value using Level 3 inputs for the three-month period ended April 3, 2016 (in thousands):



Balance as of December 31, 2015	$	3,000
Fair value adjustment to the contingent consideration	(263		)
Balance as of April 3, 2016	$	2,737

Financial Assets that are Measured at Fair Value on a Non-recurring Basis

The Company has an interest in a limited partnership, which is accounted for using the cost method and is required to be measured at fair value on a non-recurring basis. Management is responsible for estimating the fair value of this investment, and in doing so, considers valuations of the partnership’s investments as determined by the General Partner. Publicly-traded investments in active markets are reported at the market closing price less a discount, as appropriate, to reflect restricted marketability. Fair value for private investments for which observable market prices in active markets do not exist is based upon the best information available including the value of a recent financing, reference to observable valuation measures for comparable companies (such as revenue multiples), public or private transactions (such as the sale of a comparable company), and valuations for publicly-traded comparable companies. The valuations also incorporate the General Partner’s own judgment and close familiarity with the business activities of each portfolio company. Significant increases or decreases in any of these inputs in isolation may result in a significantly lower or higher fair value measurement. The portfolio consists of securities of public and private companies, and consequently, inputs used in the fair value calculation are classified as Level 3. The Company did not record an other-than-temporary impairment of this ~~asset~~investment during the three-month period ended April ~~5, 2015.~~3, 2016.

~~Table of Contents~~

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Non-financial Assets that are Measured at Fair Value on a Non-recurring Basis

Non-financial assets such as ~~goodwill, intangible assets, and~~ property, plant and equipment, goodwill, and intangible assets are required to be measured at fair value only when an impairment loss is recognized. The Company did not record an impairment charge related to these assets during the three-month period ended April ~~5, 2015~~.3, 2016.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4: Cash, Cash Equivalents, and Investments

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


	April 5, 2015		December 31, 2014		April 3, 2016		December 31, 2015
Cash	$	34,807	$	54,917	$	48,603	$	45,951
Money market instruments	1,240		777		31,311		6,024
Cash and cash equivalents	36,047		55,694		79,914		51,975
Treasury bills					106,602		109,360
Corporate bonds					74,627		54,376
Asset-backed securities					64,478		61,994
Euro liquidity fund	62,045		48,235		50,094		47,730
Sovereign bonds					22,684		21,440
Agency bonds					980		978
Municipal bonds					324		590
Short-term investments					319,789		296,468
Corporate bonds	37,413		30,889		159,221		176,575
Treasury bills	31,644		—		42,938		44,437
Sovereign bonds	5,605		—
Supranational bonds	1,902		1,901
Municipal bonds	1,819		1,237
Agency bonds	1,523		6,883
Asset-backed securities	392		1,311		27,115		24,582
Short-term investments	142,343		90,456
Corporate bonds	204,221		216,294
Asset-backed securities	77,448		62,556
Treasury bills	64,524		90,412
Agency bonds	11,364		9,566		8,195		8,180
Sovereign bonds	6,040		13,461		6,805		13,503
Municipal bonds	4,880		6,600		4,544		4,869
Limited partnership interest	1,956		1,956
Limited partnership interest (accounted for using cost method)					942		942
Long-term investments	370,433		400,845		249,760		273,088
	$	548,823	$	546,995	$	649,463	$	621,531

~~The Euro liquidity fund invests in a portfolio~~Treasury bills consist of ~~investment-grade bonds;~~debt securities issued by both the U.S. and foreign governments; corporate bonds consist of debt securities issued by both domestic and foreign companies; ~~treasury bills~~asset-backed securities consist of debt securities ~~issued~~collateralized by ~~both~~pools of receivables or loans with credit enhancement; the ~~U.S. and foreign governments;~~Euro liquidity fund invests in a portfolio of investment-grade bonds; sovereign bonds consist of direct debt issued by foreign governments; ~~supranational bonds consist of direct debt issued by two or more foreign central governments; municipal bonds consist of debt securities issued by state and local government entities;~~ agency bonds consist of domestic or foreign obligations of government agencies and government sponsored enterprises that have government backing; and ~~asset-backed securities~~municipal bonds consist of debt securities ~~collateralized~~issued by ~~pools of receivables or loans with credit enhancement.~~state and local government entities. The Euro liquidity fund is denominated in Euros, and the remaining securities are denominated in U.S. Dollars.

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COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the Company’s available-for-sale investments as of April ~~5, 2015~~3, 2016 (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term:
Treasury bills										$	106,592	$	20	$	(10	)	$	106,602
Corporate bonds										74,589		73		(35		)	74,627
Asset-backed securities										64,508		10		(40		)	64,478
Euro liquidity fund	$	61,866	$	179	$	—		$	62,045	49,951		143		—			50,094
Sovereign bonds										22,693		1		(10		)	22,684
Agency bonds										980		—		—			980
Municipal bonds										322		2		—			324
Long-term:
Corporate bonds	37,356		58		(1		)	37,413		159,520		392		(691		)	159,221
Treasury bills	31,652		—		(8		)	31,644		42,868		78		(8		)	42,938
Sovereign bonds	5,594		11		—			5,605
Supranational bonds	1,900		2		—			1,902
Municipal bonds	1,814		5		—			1,819
Agency bonds	1,521		2		—			1,523
Asset-backed securities	392		—		—			392		27,150		16		(51		)	27,115
Long-term:
Corporate bonds	203,712		618		(109		)	204,221
Asset-backed securities	77,417		43		(12		)	77,448
Treasury bills	64,468		57		(1		)	64,524
Agency bonds	11,344		20		—			11,364		8,199		—		(4		)	8,195
Sovereign bonds	6,033		7		—			6,040		6,806		3		(4		)	6,805
Municipal bonds	4,855		25		—			4,880		4,525		19		—			4,544
	$	509,924	$	1,027	$	(131	)	$	510,820	$	568,703	$	757	$	(853	)	$	568,607

The following table summarizes the Company’s gross unrealized losses and fair values for available-for-sale investments in an unrealized loss position as of April ~~5, 2015~~3, 2016 (in thousands):


	Unrealized Loss Position For:															Unrealized Loss Position For:
	Less than 12 Months					12 Months or Greater					Total					Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Corporate bonds	$	48,070	$	(109	)	$	399	$	(1	)	$	48,469	$	(110	)	$	85,206	$	(545	)	$	24,501	$	(181	)	$	109,707	$	(726	)
Treasury bills	33,143		(9		)	—		—			33,143		(9		)	89,283		(18		)	—		—			89,283		(18		)
Asset-backed securities	16,974		(7		)	2,597		(5		)	19,571		(12		)	48,642		(82		)	5,085		(9		)	53,727		(91		)
Sovereign bonds																22,108		(14		)	—		—			22,108		(14		)
Agency bonds																8,195		(4		)	—		—			8,195		(4		)
	$	98,187	$	(125	)	$	2,996	$	(6	)	$	101,183	$	(131	)	$	253,434	$	(663	)	$	29,586	$	(190	)	$	283,020	$	(853	)

As of April ~~5, 2015,~~3, 2016, the Company did not recognize anany other-than-temporary impairment of these investments. In its evaluation, management considered the type of security, the credit rating of the security, the length of time the security has been in a loss position, the size of the loss position, our intent and ability to hold the security to expected recovery of value, and other meaningful information. The Company does not intend to sell, and is unlikely to be required to sell, any of these available-for-sale investments before its effective maturity or market price recovery.

The Company recorded gross realized gains and gross realized losses on the sale of debt securities totaling ~~$197,000~~$84,000 and ~~$168,000~~,$97,000, respectively, during the three-month period ended April ~~5, 2015~~3, 2016 and ~~$512,000~~$197,000 and ~~$11,000~~,$168,000, respectively, during the three-month period ended ~~March 30, 2014~~.April 5, 2015. These gains and losses are included in "Investment income" on the Consolidated Statement of Operations. Prior to the sale of these securities, unrealized gains and losses for these debt securities, net of tax, are recorded in shareholders’ equity as other comprehensive income (loss).

1112

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COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the effective maturity dates of the Company’s available-for-sale investments as of April ~~5, 2015~~3, 2016 (in thousands):


	1 Year or Less		1-2 Years		2-3 Years		3-4 Years		4-5 Years		5-8 Years		Total		<1 year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		5-7 Years		Total
Corporate bonds	$	37,413	$	101,597	$	74,312	$	22,542	$	5,770	$	—	$	241,634	$	74,627	$	77,318	$	73,926	$	4,563	$	3,414	$	—	$	233,848
Treasury bills	31,644		64,524		—		—		—		—		96,168		106,602		33,935		9,003		—		—		—		149,540
Asset-backed securities	392		8,564		38,917		16,673		8,982		4,312		77,840		64,478		12,311		8,608		3,286		2,594		316		91,593
Euro liquidity fund	62,045		—		—		—		—		—		62,045		50,094		—		—		—		—		—		50,094
Sovereign bonds															22,684		6,805		—		—		—		—		29,489
Agency bonds	1,523		6,360		5,004		—		—		—		12,887		980		8,195		—		—		—		—		9,175
Sovereign bonds	5,605		6,040		—		—		—		—		11,645
Municipal bonds	1,819		334		3,546		—		—		1,000		6,699		324		4,544		—		—		—		—		4,868
Supranational bonds	1,902		—		—		—		—		—		1,902
	$	142,343	$	187,419	$	121,779	$	39,215	$	14,752	$	5,312	$	510,820	$	319,789	$	143,108	$	91,537	$	7,849	$	6,008	$	316	$	568,607

The Company is a Limited Partner in Venrock Associates III, L.P. (Venrock), a venture capital fund. The Company has committed to a total investment in the limited partnership of up to ~~$20,500,000~~,$20,500,000, with an expiration date of December 31, ~~2015~~.2017. The Company does not have the right to withdraw from the partnership prior to this date. As of April ~~5, 2015~~,3, 2016, the Company contributed ~~$19,886,000~~$19,886,000 to the partnership. The remaining commitment of ~~$614,000~~$614,000 can be called by Venrock at any time before December 31, ~~2015. Distributions~~2017. Contributions and ~~contributions~~distributions are at the discretion of Venrock’s management. No contributions were made and no distributions were received during the ~~three-month~~three-month period ended April ~~5, 2015~~.3, 2016.

NOTE 5: Inventories

Inventories consisted of the following (in thousands):


	April 5, 2015		December 31, 2014		April 3, 2016		December 31, 2015
Raw materials	$	29,621	$	23,498	$	24,140	$	27,301
Work-in-process	10,885		5,753		3,696		3,136
Finished goods	7,952		6,285		7,784		6,897
	$	48,458	$	35,536	$	35,620	$	37,334

NOTE 6: Warranty Obligations

The Company records the estimated cost of fulfilling product warranties at the time of sale 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. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers and third-party contract manufacturers, the Company’s warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. An adverse change in any of these factors may result in the need for additional warranty provisions. Warranty obligations are included in “Accrued expenses” on the Consolidated Balance Sheets.

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


Balance as of December 31, 2014	$	4,494
Balance as of December 31, 2015				$	4,174
Provisions for warranties issued during the period	734			481
Fulfillment of warranty obligations	(608		)	(731		)
Foreign exchange rate changes	(412		)	191
Balance as of April 5, 2015	$	4,208
Balance as of April 3, 2016				$	4,115

NOTE 7: Contingencies

~~Table of Contents~~

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

found that Microscan willfully infringed the ‘487 patent and awarded Cognex $2,600,000 in damages. Following the verdict, Microscan filed motions requesting judgment as a matter of law on the issues of infringement, invalidity and willfulness, as well as a motion to dismiss for lack of standing. The Company filed motions seeking treble damages (based on the finding of willfulness), attorneys’ fees as an exceptional case, and a permanent injunction against future infringement of the ‘487 patent and the import, manufacture and/or sale of Microscan’s Mobile Hawk product within the U.S. In June 2014, the court issued an order denying all of Microscan’s motions and the Company’s motion for treble damages, while granting the Company’s motion for permanent injunction (limited to enjoining future infringement of the ‘487 patent and the import, manufacture and/or sale of infringing versions of Microscan’s Mobile Hawk product within the U.S.) and the Company’s motion for attorneys’ fees, in part, pending a determination thereof following submission of supplemental briefs by both parties. In July 2014, Microscan filed a Notice of Appeal with the Federal Circuit appealing all orders, findings, and/or conclusions of the District Court that were adverse to Microscan. In August 2014, the Company filed a Notice of Appeal with the Federal Circuit appealing the order granting summary judgment that claims 23, 28, and 29 of the ’487 patent are invalid. Also in August 2014, the Federal Circuit consolidated Microscan’s appeal and the Company’s appeal. In November 2014, the Company filed an unopposed motion to dismiss the Company's appeal, and in December 2014, the Court of Appeals granted the Company's motion to dismiss the Company's appeal. In January 2015, Microscan submitted their appeal brief asserting that the damage award should be vacated, the infringement judgment should be reversed, and that the remaining '487 claims are invalid. The Company filed its response to Microscan’s appeal brief, contesting all assertions therein, on March 16, 2015.

~~In August 2014, Microscan filed a lawsuit against the Company in the United States District Court for the Southern~~

~~District of New York alleging that the Company’s DataMan® 8500 handheld imager infringes U.S. Patent 6,352,204~~

(the “'204 patent”). The lawsuit sought to prohibit the Company from manufacturing, selling, and distributing the DataMan® 8500 product. Microscan also sought monetary damages resulting from the alleged infringement. In September 2014, the Company filed an Answer to the Complaint denying all allegations and asserting in a counterclaim that the ’204 patent is invalid. In October 2014, the Company filed an Amended Answer further explaining its counterclaim of invalidity. Also in October 2014, Microscan filed an Amended Complaint alleging that the Company’s DataMan® 7500 and DataMan® 8600 also infringe the ’204 patent. The Company subsequently responded in October 2014 with its Answer to the Amended Complaint. In December 2014, a Markman hearing regarding the legal construction of the relevant patent claim terms was held. In January 2015, the Court issued an order construing such patent claim terms. In early February 2015, the Company submitted summary judgment motions. On April 6, 2015 the Court issued its rulings on the summary judgment motions. The Court partially granted the Company’s summary judgment motion of non-infringement, dismissing Microscan’s contention that the accused products literally infringe, but denying summary judgment to the Company with respect to Microscan’s claim of infringement under other doctrines. The Court granted the Company’s motion for summary judgment dismissing Microscan’s contention that any infringement was willful. The Court denied the Company’s motion for summary judgment with respect to the invalidity of one claim and denied the Company’s motion on the claim of laches. The Court granted Microscan’s motion for summary judgment holding that the Company infringed a single claim. The trial took place from April 21, 2015 to April 29, 2015 in the Southern District of New York. On April 30, 2015, the jury reached a verdict awarding Microscan royalties of $4,411,000 related to sales of the Company’s products during the applicable period. Cognex intends to file an appeal, subject to the Court’s final assessment and decisions regarding the jury’s verdict.

The Company cannot predict the outcome of the above-referenced pending 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 addition, various otherVarious claims and legal proceedings generally incidental to the normal course of business are pending or threatened on behalf of or against the ~~Company.~~Company, including some pertaining to the Company’s recently divested surface inspection business, which arose prior to the transaction closing date and for which the Company retains liability pursuant to the agreement governing such divestiture. While we cannot predict the outcome of these ~~incidental~~ 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 8: Guarantees~~

In the ordinary course of business, the Company enters into guarantee contracts with certain customers, generally in the Company’s Surface Inspection Systems Division (SISD) business. These guarantees represent standby letters of credit (LOC) which can be grouped into three categories: (1) bank guarantees which may require the Company to return a customer’s initial payment if the Company cannot deliver the order; (2) warranty bonds which may require the Company to resolve warranty issues within a specified time period; and (3) performance bonds which include a combination of the above two options. The type of LOC is generally determined based upon customer request and the guarantee amount represents the maximum potential amount of future payments. All of the Company’s LOCs are with the same counterparty and they do not contain any recourse provisions or collateral obligations.

~~Table of Contents~~

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~The following table details the letters of credit outstanding as of April 5, 2015:~~

Type
Guarantee
Amount
(in thousands)
Guarantee Due Date
Bank guarantees $ 1,241
Various from May 2015 to January 2017
Warranty bonds 594
Various from May 2015 to December 2016
Performance bonds 568
Various from June 2015 to December 2017
$ 2,403

The Company evaluates losses for guarantees under accounting for contingencies. The Company considers such factors as the degree of probability that the Company would be required to satisfy the guarantee and the ability to make a reasonable estimate of the loss. To date, the Company has not incurred any losses as a result of these obligations, and therefore, has not recorded any liability related to such obligation in its financial statements. The fair value of the Company’s outstanding guarantees is immaterial for all periods presented.

NOTE 9:8: 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.~~not material.

In the ordinary course of business, the Company may accept standard limited indemnification provisions in connection with the sale of 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 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.~~not material.

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.~~not material.

Under the terms of the Company’s sale of its Surface Inspection Systems Division to AMETEK, Inc., the Company has agreed to retain certain liabilities in connection with its business dealings occurring prior to the transaction closing date of July 6, 2015, and to indemnify AMETEK, Inc. in connection with these retained liabilities and for any breach of the representations and warranties made by the Company to AMETEK, Inc. in connection with the sales agreement itself, as is usual and customary in such transactions. As of the date of this report, the Company believes the estimated fair value of these provisions is not material.

NOTE ~~10:~~9: Derivative Instruments

The Company’s foreign currency risk management strategy is principally designed to mitigate the potential financial impact of changes in the value of transactions and balances denominated in foreign currencies resulting from changes in foreign currency exchange rates. Currently, the Company enters into two types of hedges to manage this risk. The first are economic hedges which utilize foreign currency forward contracts with maturities of up to 45 days to manage the exposure to fluctuations in foreign currency exchange rates arising primarily from foreign-denominated receivables and payables. The gains and losses on these derivatives are intended to be offset by the changes in the fair value of the assets and liabilities being hedged. These economic hedges are not designated as hedging instruments for hedge accounting treatment. The second are cash flow hedges which utilize foreign currency forward contracts with maturities of up to 18 months to hedge specific forecasted transactions of the Company's foreign subsidiaries with the goal of protecting our budgeted revenues and expenses against foreign currency exchange rate changes compared to our budgeted rates. These cash flow hedges are designated as hedging instruments for hedge accounting treatment.

~~Table of Contents~~

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company had the following outstanding forward contracts (in thousands):


	As of April 5, 2015			As of December 31, 2014			April 3, 2016			December 31, 2015
Currency	Notional Value	USD Equivalent		Notional Value	USD Equivalent		Notional Value	USD Equivalent		Notional Value	USD Equivalent
Derivatives Designated as Hedging Instruments:
United States Dollar							18,430	$	18,430	16,720	$	16,720
Japanese Yen	1,266,500	$	9,836	1,225,000	$	10,211	932,500	8,068		942,500	7,605
Hungarian Forint	818,000	2,864		803,000	3,099		364,000	1,317		547,000	1,893
Singapore Dollar	3,274	2,214		3,515	2,564		1,356	981		2,063	1,425
Canadian Dollar	487	440		758	688		—	—		41	37
British Pound	304	408		491	732		—	—		25	34
Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:						Derivatives Not Designated as Hedging Instruments:
Japanese Yen	785,000	$	6,542	535,000	$	4,464	550,000	$	4,889	700,000	$	5,800
British Pound	1,650	2,432		1,400	2,183		1,700	2,418		1,650	2,441
Korean Won							1,500,000	1,304		1,400,000	1,187
Hungarian Forint							265,000	962		250,000	857
Singapore Dollar							1,300	962		1,525	1,074
Taiwanese Dollar	34,500	1,109		28,000	883		23,900	742		26,425	800
Korean Won	1,100,000	1,003		940,000	858
Singapore Dollar	1,250	918		1,225	922
Hungarian Forint	234,000	850		410,000	1,569

Information regarding the fair value of the outstanding forward contracts was as follows (in thousands):


	Asset Derivatives					Liability Derivatives					Asset Derivatives					Liability Derivatives
	Balance	Fair Value				Balance	Fair Value				Balance	Fair Value				Balance	Fair Value
	Sheet Location	April 5, 2015		December 31, 2014		Sheet Location	April 5, 2015		December 31, 2014		Sheet Location	April 3, 2016		December 31, 2015		Sheet Location	April 3, 2016		December 31, 2015
Derivatives Designated as Hedging Instruments:	Derivatives Designated as Hedging Instruments:										Derivatives Designated as Hedging Instruments:
Cash flow hedge forward contracts	Prepaid expenses and other current assets	$	327	$	108	Accrued expenses	$	762	$	84	Prepaid expenses and other current assets	$	16	$	441	Accrued expenses	$	460	$	201
Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:										Derivatives Not Designated as Hedging Instruments:
Economic hedge forward contracts	Prepaid expenses and other current assets	$	7	$	6	Accrued expenses	$	17	$	13	Prepaid expenses and other current assets	$	—	$	9	Accrued expenses	$	40	$	43

The following table ~~below details~~presents the gross activity for all derivative assets and liabilities which were presented on a net basis on the Consolidated Balance Sheets due to the right of offset with each counterparty (in thousands):


Asset Derivatives	Asset Derivatives							Liability Derivatives							Asset Derivatives							Liability Derivatives
		April 5, 2015			December 31, 2014				April 5, 2015			December 31, 2014				April 3, 2016			December 31, 2015				April 3, 2016			December 31, 2015
Gross amounts of recognized assets		$	335		$	188		Gross amounts of recognized liabilities	$	819		$	149			$	33		$	479		Gross amounts of recognized liabilities	$	502		$	279
Gross amounts offset		(1		)	(74		)	Gross amounts offset	(40		)	(52		)		(17		)	(29		)	Gross amounts offset	(2		)	(35		)
Net amount of assets presented		$	334		$	114		Net amount of liabilities presented	$	779		$	97			$	16		$	450		Net amount of liabilities presented	$	500		$	244

~~Table of Contents~~

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Information regarding the effect of derivative instruments, net of the underlying exposure, on the consolidated financial statements was as follows (in thousands):


	Location in Financial Statements	Three-months Ended						Location in Financial Statements	Three-months Ended
	Location in Financial Statements	April 5, 2015			March 30, 2014			Location in Financial Statements	April 3, 2016			April 5, 2015
Derivatives Designated as Hedging Instruments:
Gains (losses) recorded in shareholders' equity (effective portion)	Accumulated other comprehensive income (loss), net of tax	$	(378	)	$	(62	)	Accumulated other comprehensive income (loss), net of tax	$	(375	)	$	(378	)
Gains (losses) reclassified from accumulated other comprehensive income (loss) into current operations (effective portion)	Product revenue	$	(152	)	$	13		Revenue	$	3		$	(152	)
	Research, development, and engineering expenses	1			(30		)	Research, development, and engineering expenses	(2		)	1
	Selling, general, and administrative expenses	41			(16		)	Selling, general, and administrative expenses	(5		)	41
	Total gains (losses) reclassified from accumulated other comprehensive income (loss) into current operations	$	(110	)	$	(33	)	Total gains (losses) reclassified from accumulated other comprehensive income (loss) into current operations	$	(4	)	$	(110	)
Gains (losses) recognized in current operations (ineffective portion and discontinued derivatives)	Foreign currency gain (loss)	$	—		$	—		Foreign currency gain (loss)	$	—		$	—
Derivatives Not Designated as Hedging Instruments:
Gains (losses) recognized in current operations	Foreign currency gain (loss)	$	78		$	(152	)	Foreign currency gain (loss)	$	(360	)	$	78

The following table provides the changes in accumulated other comprehensive income (loss), net of tax, related to derivative instruments (in thousands):


Balance as of December 31, 2014	$	32
Balance as of December 31, 2015				$	206
Reclassification of net realized loss on cash flow hedges into current operations	110			4
Net unrealized loss on cash flow hedges	(520		)	(585		)
Balance as of April 5, 2014	$	(378	)
Balance as of April 3, 2016				$	(375	)

Net losses expected to be reclassified from accumulated other comprehensive income (loss), net of tax, into current operations within the next twelve months are ~~$401,000.~~$375,000.

NOTE ~~11:~~10: Stock-Based Compensation Expense

The Company’s share-based payments that result in compensation expense consist of stock option grants and restricted stock awards. As of April ~~5, 2015,~~3, 2016, the Company had ~~7,823,929~~8,224,951 shares available for grant. ~~On April 17, 2015, the 2007~~ Stock Option and Incentive Plan received shareholder approval for an amendment and restatement of the plan, reserving an additional 2,000,000 shares of common stock, par value $0.002 per share, for issuance. Generally, stock options are granted with an exercise price equal to the market value of the Company’s common stock at the grant date and generally vest over four years based upon continuous service and expire ten years from the grant date. Restricted stock awards are granted with an exercise price equal to the market value of the Company's common stock at the time of grant. Conditions of the award may be based on continuing employment ~~and~~ and/or achievement of pre-established performance goals and objectives. Vesting for performance-based restricted stock awards and time-based restricted stock awards must be greater than one year and three years, respectively.

~~Table of Contents~~

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the Company’s stock option activity for the three-month period ended April ~~5, 2015:~~3, 2016:

Shares
(in thousands)

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Term (in years)

Aggregate
Intrinsic
Value
(in thousands)
Outstanding as of December 31, 2014 6,812
$ 23.26

Granted 1,399
41.26

Exercised (586 ) 16.49

Forfeited or expired (24 ) 9.20

Outstanding as of April 5, 2015 7,601
$ 27.07
7.6 $ 178,001
Exercisable as of April 5, 2015 3,137
$ 16.59
5.8 $ 106,335
Options vested or expected to vest as of
April 5, 2015 (1) 6,732
$ 25.79
7.4 $ 166,252



	Shares (in thousands)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2015	6,644		$	28.27
Granted	1,662		33.45
Exercised	(196	)	17.53
Forfeited or expired	(43	)	37.56
Outstanding as of April 3, 2016	8,067		$	29.55	7.51	$	81,838
Exercisable as of April 3, 2016	3,645		$	21.69	5.83	$	64,616
Options vested or expected to vest as of April 3, 2016 (1)	7,248		$	28.75	7.33	$	79,128

(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.

The fair values of stock options granted in each period presented were estimated using the following weighted-average assumptions:


	Three-months Ended				Three-months Ended
	April 5, 2015		March 30, 2014		April 3, 2016		April 5, 2015
Risk-free rate	2.1	%	2.7	%	1.7	%	2.1	%
Expected dividend yield	1.25	%	—	%	0.84	%	1.25	%
Expected volatility	40	%	41	%	41	%	40	%
Expected term (in years)	5.4		5.4		5.5		5.4

Risk-free rate

The risk-free rate was based upon a treasury instrument whose term was consistent with the contractual term of the option.

Expected dividend yield

Generally, the current dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors and dividing that result by the closing stock price on the grant date. However, in the fourth quarter of 2012, the Company paid the full annual dividends for 2013 and 2014 in advance, and therefore, the dividend yield for those years has been adjusted to zero. A dividend yield of 1.25% was estimated for future periods from 2015 through the expected life of the option.

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 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 ~~74%~~77% of its stock options granted to senior management and ~~73%~~72% of its options granted to all other employees will actually vest. Therefore, the Company currently applies an estimated annual forfeiture rate of ~~10%~~9% to all unvested options for senior management and a rate of 11% for all other employees. The Company revised its estimated forfeiture rates in the first quarters of ~~2015~~2016 and ~~2014,~~2015, resulting in an increase to compensation expense of $334,000 and $461,000, ~~and $288,000,~~ respectively.

The weighted-average grant-date fair values of stock options granted during the three-month periods ended April 3, 2016 and April 5, 2015 were $12.25 and ~~March 30, 2014 were~~ $14.34, ~~and $15.34,~~ respectively.

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COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The total intrinsic values of stock options exercised for the three-month periods ended April 3, 2016 and April 5, 2015 were $3,724,000 and ~~March 30, 2014 were~~ $16,740,000, ~~and $8,933,000,~~ respectively. The total fair values of stock options vested for the three-month periods ended April 3, 2016 and April 5, 2015 were $15,337,000 and ~~March 30, 2014 were~~ $13,523,000, ~~and $8,361,000,~~ respectively.

As of April ~~5, 2015,~~3, 2016, total unrecognized compensation expense related to non-vested stock options was ~~$30,963,000,~~$30,326,000, which is expected to be recognized over a weighted-average period of ~~2.10~~2.09 years.

The following table summarizes the Company's restricted stock ~~award activity:~~activity for the three-month period ended April 3, 2016:


	Shares (in thousands)	Weighted-Average Exercise Price		Aggregate Intrinsic Value (in thousands)		Shares (in thousands)	Weighted-Average Grant Fair Value		Aggregate Intrinsic Value (in thousands)(1)
Nonvested as of December 31, 2014	20	$	34.05
Nonvested as of December 31, 2015						20	$	34.05
Granted	—	—				—	—
Vested	—	—				—	—
Forfeited or expired	—	—				—	—
Nonvested as of April 5, 2015	20	$	34.05	$	329
Nonvested as of April 3, 2016						20	$	34.05	$	783

(1) Fair market value as of April 3, 2016.

The fair values of restricted stock awards granted were determined based upon the market value of the Company's common stock at the time of grant. The initial cost is then amortized over the period of vesting until the restrictions lapse. These restricted shares will be fully vested in 2018. Participants are entitled to dividends on restricted stock awards, but only receive those amounts if the shares vest. The sale or transfer of these shares is restricted during the vesting period.

The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended April ~~5, 2015~~3, 2016 were~~$6,946,000~~ $6,804,000 and ~~$2,337,000~~,$2,228,000, respectively, and for the three-month period ended ~~March 30, 2014~~April 5, 2015 were ~~$4,004,000~~$6,946,000 and ~~$1,306,000,~~$2,337,000, respectively. No compensation expense was capitalized as of April ~~5, 2015~~3, 2016 or December 31, ~~2014.~~2015.

The following table ~~details~~presents the stock-based compensation expense by caption for each period presented on the Consolidated Statements of Operations (in thousands):


	Three-months Ended				Three-months Ended
	April 5, 2015		March 30, 2014		April 3, 2016		April 5, 2015
Product cost of revenue	$	420	$	285
Service cost of revenue	73		63
Cost of revenue					$	293	$	467
Research, development, and engineering	1,848		1,056		2,179		1,814
Selling, general, and administrative	4,605		2,600		4,332		4,382
Discontinued operations					—		283
	$	6,946	$	4,004	$	6,804	$	6,946

NOTE ~~12:~~11: Stock Repurchase Program

In ~~November 2011,~~August 2015, the ~~Company’s~~Company's Board of Directors authorized the repurchase of ~~up to $80,000,000~~$100,000,000 of the ~~Company’s~~Company's common stock. ~~Purchases~~As of April 3, 2016, the Company repurchased 2,311,000 shares at a cost of $83,936,000 under this ~~2011 program~~program; however, no shares were ~~completed in 2014.~~repurchased during the three-month period ended April 3, 2016. In ~~April 2014,~~November 2015, the Company's Board of Directors authorized the repurchase of an additional ~~$50,000,000~~$100,000,000 of the Company's common stock. Purchases under this ~~2014~~November 2015 program ~~began in 2014~~will commence upon completion of the ~~2011~~August 2015 program. ~~The Company did not repurchase any shares in the three-month period ended April 5, 2015.~~ The Company may repurchase shares under ~~this program~~these programs in future periods depending upon a variety of factors, including, among other things, the impact of dilution from employee stock options, stock price, share availability, and cash requirements.

~~Table of Contents~~

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE ~~13:~~12: Taxes

A reconciliation of the United States federal statutory corporate tax rate to the Company’s income tax expense on continuing operations, or effective tax rate, ~~or income tax provision,~~ was as follows:


	Three-months Ended				Three-months Ended
	April 5, 2015		March 30, 2014		April 3, 2016		April 5, 2015
Income tax provision at federal statutory rate	35	%	35	%
Income tax provision at federal statutory corporate tax rate					35	%	35	%
State income taxes, net of federal benefit	1	%	1	%	1	%	1	%
Foreign tax rate differential	(17	)%	(17	)%	(17	)%	(19	)%
Tax credit					(1	)%	—	%
Discrete tax events	(1	)%	—	%	(3	)%	(2	)%
Income tax provision	18	%	19	%
Other					—	%	1	%
Income tax provision on continuing operations					15	%	16	%

The effective tax rate for the three-month period ended April 3, 2016 included the impact of one discrete tax event, whereby the Company recorded a decrease in tax expense of $463,000 from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises.

In the three-month period ended April 3, 2016, the Company adopted Accounting Standards Update (ASU) 2016-09, "Improvements to Employee Share-Based Payment Accounting," which was issued by the Financial Accounting Standards Board in March 2016. This Update requires excess tax benefits to be recognized as an income tax benefit in the income statement. Previous guidance required excess tax benefits to be recognized as additional paid-in-capital in shareholders' equity on the balance sheet. This provision is required to be applied prospectively and therefore, prior periods were not restated. Additionally, this ASU also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows. In order to improve comparability, the Company applied this provision of the amendment retrospectively. For the three-month period ended April 5, 2015, the Company reclassified a tax benefit of $3,694,000 from cash flows provided by financing activities to cash flows provided by operating activities on the consolidated statement of cash flows.

The effective tax rate for the three-month period ended April 5, 2015 included the impact of one discrete tax event, whereby the Company recorded a decrease in tax expense of $364,000 from the expiration of the statutes of limitations for certain reserves for income tax uncertainties. ~~This discrete event decreased the effective tax rate from a provision of 19% to a provision of 18% for~~

In the three-month period ended April ~~5, 2015.~~3, 2016, the Company adopted Accounting Standards Update (ASU) 2015-17, "Income Taxes - Balance Sheet Classification of Deferred Taxes." This ASU requires that deferred tax assets and liabilities be classified as non-current in a classified balance sheet. In order to improve comparability, the Company applied the amendments in this Update retrospectively to all periods presented. As of December 31, 2015, the Company reclassified current deferred income tax assets and liabilities of $7,104,000 and $319,000, respectively, to non-current on the consolidated balance sheet.

During the three-month period ended April ~~5, 2015,~~3, 2016, the Company recorded a ~~$211,000 decrease~~$375,000 increase in reserves for income taxes, net of deferred tax ~~benefit, including a reduction to additional paid in capital of $48,000 and a reduction in income tax expense of $163,000. Included in this net decrease is the discrete event noted above.~~benefit. Estimated interest and penalties included in these amounts totaled ~~$15,000~~$51,000 for the three-month period ended April ~~5, 2015.~~

In the first quarter of 2014, management adopted Accounting Standards Update (ASU) 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." This ASU requires companies to present an unrecognized tax benefit, or a portion thereof, as a reduction to a deferred tax asset for a net operating loss (NOL) carryforward or a similar tax loss or tax credit carryforward. In the first quarter of 2014, the Company reclassified a reserve for income taxes of $1,028,000 as a reduction to noncurrent deferred tax assets in compliance with this new guidance. Retroactive application was not required under this ASU, and therefore, prior periods were not restated.3, 2016.

The Company’s reserve for income taxes, including gross interest and penalties, was ~~$5,400,000~~$6,260,000 as of April ~~5, 2015,~~3, 2016, which included ~~$4,372,000~~$5,233,000 classified as a ~~noncurrent~~non-current liability and ~~$1,028,000~~$1,027,000 recorded as a reduction to ~~noncurrent~~non-current deferred tax assets. The amount of gross interest and penalties included in these balances was ~~$494,000.~~$631,000. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period, less ~~$616,000~~$700,000 that would be recorded through additional paid-in capital. As a result of the expiration of certain statutes of limitations, ~~and the conclusion of the IRS examination,~~ there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately ~~$550,000~~$750,000 to ~~$650,000~~$850,000 over the next twelve months.

The Company has defined its major tax jurisdictions as the United States, Ireland, China, and Japan, and within the United States, Massachusetts and California. Within the United States, the tax years 2012 through ~~2014~~2015 remain open to examination by the Internal Revenue Service ~~while the~~and various state tax authorities. The tax years 2011 through ~~2014 remain open to various state taxing authorities, and the tax years 2010 through 2014~~2015 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE ~~14:~~13: Weighted-Average Shares

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


	Three-months Ended		Three-months Ended
	April 5, 2015	March 30, 2014	April 3, 2016	April 5, 2015
Basic weighted-average common shares outstanding	86,764	86,879	84,943	86,764
Effect of dilutive stock options	1,985	2,380	1,598	1,985
Weighted-average common and common-equivalent shares outstanding	88,749	89,259	86,541	88,749

Stock options to purchase ~~2,263,787~~4,248,000 and ~~585,208~~2,263,787 shares of common stock, on a weighted-average basis, were outstanding during the three-month periods ended April 3, 2016 and April 5, 2015, ~~and March 30, 2014,~~ respectively, but were not included in the calculation of dilutive net income per share because they were anti-dilutive.

~~Table of Contents~~

~~COGNEX CORPORATION~~NOTE 14: Discontinued Operations

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~NOTE 15: Segment Information~~

~~The~~On July 6, 2015, the Company ~~has two reportable segments:~~completed the ~~Modular Vision Systems Division (MVSD) and the~~sale of its Surface Inspection Systems Division (SISD). ~~MVSD develops, manufactures, and markets modular vision systems that~~The financial results of SISD are ~~used to control~~reported as a discontinued operation for the manufacture of discrete items by locating, identifying, inspecting, and measuring them during the manufacturing process. SISD develops, manufactures, and markets surface inspection vision systems that are used to inspect surfaces of materials processed in a continuous fashion, such as metals, paper, nonwoven, plastics, and glass, to ensure there are no flaws or defects on 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 stock-based compensation expense.three-month period ended April 5, 2015.

The ~~following table summarizes information about the segments~~major classes of revenue and expense included in discontinued operations were as follows (in thousands):

Three-months Ended April 5, 2015 MVSD SISD Reconciling Items Consolidated
Product revenue $ 97,494
$ 8,281
$ —
$ 105,775
Service revenue 3,879
3,780
—
7,659
Operating income 33,307
1,896
(11,286 ) 23,917



	Three-months Ended
	April 3, 2016		April 5, 2015
Revenue	$	—	$	12,061
Cost of revenue	—		(5,610		)
Research, development, and engineering expenses	—		(1,090		)
Selling, general, and administrative expenses	—		(3,554		)
Foreign currency gain (loss)	—		(254		)
Pretax income from discontinued operations	—		1,553
Income tax expense	—		523
Discontinued operations, net of tax	$	—	$	1,030

Significant non-cash items related to the discontinued business were as follows (in thousands):

Three-months Ended March 30, 2014 MVSD SISD Reconciling Items Consolidated
Product revenue $ 77,618
$ 5,951
$ —
$ 83,569
Service revenue 3,698
3,662
—
7,360
Operating income 28,292
1,013
(6,862 ) 22,443



	Three-months Ended
	April 3, 2016		April 5, 2015
Capital expenditures	$	—	$	311
Stock-based compensation expense	—		283
Depreciation expense	—		198
Amortization expense	—		83

Reconciling items consist of stock-based compensation expense and unallocated corporate expenses, which primarily include corporate headquarters costs, professional fees, and patent infringement litigation. 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 segments share assets and resources in a number of locations around the world.

NOTE ~~16:~~15: Subsequent Events

On April 17, 2015, the 2007 Stock Option and Incentive Plan received shareholder approval for an amendment and restatement of the plan, reserving an additional 2,000,000 shares of common stock, par value $0.002 per share, for issuance.

~~In addition, on~~ May ~~4, 2015,~~2, 2016, the Company’s Board of Directors declared a cash dividend of ~~$0.07~~$0.075 per share. The dividend is payable on June ~~19, 2015~~17, 2016 to all shareholders of record as of the close of business on June ~~5, 2015.~~3, 2016.

~~Finally, on~~On April ~~30, 2015,~~28, 2016, the ~~jury reached a verdict awarding Microscan royalties of $4,411,000 related to sales of the Company’s products during the applicable period. Cognex intends to file~~Company's shareholders approved an ~~appeal, subject~~amendment to the ~~Court’s final assessment and decisions regarding~~Company's Articles of Organization to increase the ~~jury’s verdict~~. ~~Additional information regarding this litigation is included in Note 7~~authorized number of shares of common stock from 140,000,000 to ~~the Consolidated Financial Statements.~~200,000,000.

~~Table of Contents~~

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 our use of the words “expects,” “anticipates,” “estimates,” “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” and similar words and other statements of a similar sense. These statements are based upon our current estimates and expectations as to prospective events and circumstances, which may or may not be in our control and as to which there can be no firm assurances given. These forward-looking statements, which include statements regarding business and market trends, future financial performance, customer order rates, expected areas of growth, ~~emerging markets, future product mix,~~ research and development activities, investments, and strategic plans, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include: (1) the loss of a large customer; (2) current and future conditions in the global economy; (3) the reliance on revenue from the consumer electronics or automotive industries; (4) the inability to penetrate new markets; (5) the ~~cyclicality of the semiconductor and electronics industries; (6) the~~ inability to achieve significant international revenue; ~~(7)~~(6) fluctuations in foreign currency exchange rates and the use of derivative instruments; (7) information security breaches or business system disruptions; (8) the inability to attract and retain skilled employees; (9) the reliance upon key suppliers to manufacture and deliver critical components for our products; (10) the failure to effectively manage product transitions or accurately forecast customer demand; (11) the inability to design and manufacture high-quality products; (12) the technological obsolescence of current products and the inability to develop new products; (13) the failure to properly manage the distribution of products and services; (14) the inability to protect our proprietary technology and intellectual property; (15) our involvement in time-consuming and costly litigation; (16) the impact of competitive pressures; (17) the challenges in integrating and achieving expected results from acquired businesses; (18) potential impairment charges with respect to our investments or for acquired intangible assets or goodwill; and (19) exposure to additional tax ~~liabilities; and (20) information security breaches or business system disruptions.~~liabilities. The foregoing list should not be construed as exhaustive and we encourage readers to refer to the detailed discussion of risk factors included in Part ~~I-Item~~I - Item 1A of the ~~Company’s~~Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2014.~~2015. 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 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 and ID products that are used to automate~~On July 6, 2015, the ~~manufacture and tracking~~Company completed the sale of ~~discrete items, while our~~its Surface Inspection Systems Division (SISD) that specializes in machine vision ~~systems~~products that ~~are used to~~ inspect the surfaces of materials processed in a continuous fashion.

The financial results of SISD are reported as a discontinued operation for the quarter ended April 5, 2015.

In addition to product revenue derived from the sale of machine vision ~~systems,~~products, the Company also generates revenue by providing maintenance and support, ~~training,~~ consulting, and ~~installation~~training services to its ~~customers. Our~~customers; however, service revenue accounted for less than 10% of total revenue for all periods presented.

The Company’s customers ~~can be classified into three primary markets:~~are predominantly in the factory automation ~~semiconductor and electronics capital equipment, and surface vision.~~

market. Factory automation customers ~~who are included in the Company’s MVSD segment,~~ purchase Cognex ~~vision~~ products and incorporate them into their manufacturing processes. Virtually every manufacturer can achieve better quality and manufacturing efficiency by using machine vision, and therefore, this market includes a broad base of customers across a variety of industries, including consumer electronics, automotive, consumer products, food and beverage, medical devices, and pharmaceuticals. ~~The factory~~Factory automation ~~market~~customers also ~~includes customers who~~ purchase Cognex ~~vision~~ products for use outside of the ~~assembly~~manufacturing process, such as using ID products in logistics automation for package sorting and distribution. Sales to factory automation customers represented ~~84%~~94% of total revenue for all periods presented.

A small percentage of the Company’s customers are in the ~~first quarter of 2015.~~

~~Semiconductor~~semiconductor and electronics capital equipment ~~manufacturers, who are included in the Company’s MVSD segment,~~market. These customers 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

~~Table of Contents~~

circuit boards. Demand from these ~~capital equipment manufacturers~~customers has ~~historically~~ been ~~highly cyclical, with periods of investment followed by downturn.~~relatively flat on an annual basis for the past several years. Sales to semiconductor and electronics capital equipment manufacturers represented only 6% of total revenue ~~in the first quarter of 2015.~~for all periods presented.

Surface vision customers, who comprise the Company’s SISD segment, are manufacturers of materials processed in a continuous fashion, such as metals, paper, nonwoven, plastics, and glass. These customers need sophisticated machine vision to detect, classify, and analyze defects on the surfaces of those materials as they are being processed at high speeds. Surface inspection sales represented 10% of total revenue in the first quarter of 2015.

Revenue for the first quarter of ~~2015~~2016 totaled ~~$113,434,000,~~$96,205,000, representing ~~an increase~~a decrease of ~~$22,505,000,~~$5,168,000, or ~~25%~~5%, from the first quarter of ~~2014 driven by higher sales~~2015 due primarily to ~~factory automation customers.~~lower revenue from large orders in the consumer electronics industry. Gross margin was ~~75%~~78% of revenue in both the first quarter of 2016 and 2015. Operating expenses increased by $1,974,000, or 3%, from the prior year due primarily to higher personnel-related costs and outsourced engineering costs. The majority of these expense increases were RD&E investments that are anticipated to generate future revenue. These increases were partially offset by lower legal fees associated with patent litigation actions that were active in the first quarter of 2015 but were settled in the second quarter of 2015. Operating income was $16,344,000, or 17% of revenue, in the first quarter of ~~2015~~2016 compared to ~~77%~~$22,110,000, or 22% of revenue, in the first quarter of ~~2014 due to volume pricing discounts on certain large orders and a shift in mix to relatively lower margin maintenance and support services. Operating expenses increased by $14,161,000,~~2015; net income from continuing operations was $14,885,000, or 30%, from the first quarter of 2014 due primarily to higher personnel-related costs resulting from additional headcount. Management believes these personnel investments are important to the Company's efforts to maintain the record levels of business achieved by the Company in the prior year and generate further growth. Operating income increased by $1,474,000, or 7%, over the first quarter of 2014. Operating income was $23,917,000, or 21%15% of revenue, in the first quarter of ~~2015~~2016 compared to ~~$22,443,000,~~$19,472,000, or ~~25%~~19% of revenue, in the first quarter of ~~2014;~~2015; and net income from continuing operations per diluted share was ~~$20,502,000, or 18% of revenue,~~$0.17 in the first quarter of ~~2015~~2016 compared to ~~$18,506,000, or 20% of revenue,~~$0.22 in the first quarter of ~~2014; and net income per diluted share was $0.23 in the first quarter of 2015 compared to $0.21 in the first quarter of 2014.~~

2015.

Results of Operations

As foreign currency exchange rates are a factor in understanding period-to-period comparisons, we believe the presentation of results on a constant-currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. We also use results on a constant-currency basis as one measure to evaluate our performance. Constant-currency information compares results between periods as if exchange rates had remained constant period-over-period. We generally refer to such amounts calculated on a constant-currency basis as excluding the impact of foreign currency exchange rate changes. Results on a constant-currency basis are not in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and should be considered in addition to, and not as a substitute for, results prepared in accordance with U.S. GAAP.

Revenue

Revenue for the first quarter of ~~2015 increased~~2016 decreased by ~~$22,505,000,~~$5,168,000, or ~~25%~~5%, from the first quarter of ~~2014. Although the Company recorded higher sales in all three markets it serves, this increase was primarily attributable to the factory automation market.~~

~~Factory Automation Market~~

Sales to customers in the factory automation market represented 84% of total revenue in the first quarter of 2015, compared to 83% in the first quarter of 2014. Sales to these customers increased by $19,743,000, or 26%, from the first quarter of 2014.2015. Excluding the impact of foreign currency exchange rate changes, on revenue ~~sales to factory automation customers increased~~decreased by ~~$25,709,000,~~$3,868,000, or ~~34%~~4%, ~~compared to the first quarter of 2014,~~ as sales denominated in foreign currencies, primarily the Euro, were translated tointo U.S. Dollars at a lower rate. ~~This relatively high~~Revenue from factory automation ~~growth rate was driven~~customers decreased by $3,236,000, or 3%, on a constant-currency basis due primarily to lower revenue from large orders in the consumer electronics ~~industry recognized in the first quarter of 2015.~~

~~Sales to factory automation customers increased by $1,557,000, or 2%,~~industry. Revenue from the fourth quarter of 2014. Excluding the impact of foreign currency exchange rates on revenue, sales to factory automation customers increased by $4,661,000, or 5%, compared to the fourth quarter of 2014. Management expects factory automation revenue to continue to grow in the second quarter as compared to the first quarter.

~~Table of Contents~~

~~Semiconductor and Electronics Capital Equipment Market~~

Sales to customers who make automation equipment for the semiconductor and electronics industries represented 6% and 7% of total revenue in the first quarters of 2015 and 2014, respectively. Sales to these customers increased by $315,000, or 5%, from the first quarter of 2014 and increased by $1,315,000, or 26%, from the fourth quarter of 2014. The impact of foreign currency exchange rate changes on revenue was not significant in either period. Despite the positive sequential momentum, the semiconductor and electronics capital equipment ~~market has historically been highly cyclical and management has limited visibility regarding future order levels from these customers.~~

~~Surface Inspection Market~~

~~Sales to customers in the surface inspection market represented~~manufacturers decreased by $632,000, or 10% ~~of total revenue in both the first quarters of 2015 and 2014. Revenue from these customers increased by $2,448,000, or 25%~~, on a constant-currency basis from the first quarter of 2014, as the first quarter of 2014 was adversely impacted by delays in revenue recognition related to a new software release. Sequentially, surface inspection revenue decreased by $6,621,000, or 35%, from the fourth quarter of 2014, which was a record revenue quarter for the Company in this market. The impact of foreign currency exchange rate changes on revenue was not significant in either period. Surface inspection revenue reported each quarter can vary significantly depending upon the timing of customer orders, system deliveries, and installations, as well as the impact of revenue deferrals.

~~Product Revenue~~

Product revenue increased by $22,206,000, or 27%, from the first quarter of 2014. A higher volume of systems sold to MVSD customers accounted for $19,876,000 of the increase. The remaining increase of $2,330,000 came from higher SISD product revenue.

~~Service Revenue~~

Service revenue, which is derived from the sale of maintenance and support, training, consulting, and installation services, increased by $299,000, or 4%, from the first quarter of 2014. Higher MVSD maintenance and support revenue was partially offset by lower revenue from MVSD consulting services. Service revenue as a percentage of total revenue was 7% in the first quarter of 2015 compared to 8% in the first quarter of 2014.

prior year.

Gross Margin

Gross margin as a percentage of revenue was ~~75%~~78% in both the first quarter of ~~2015 compared to 77%~~2016 and 2015. Changes in ~~the first quarter of 2014. This decrease was due to lower MVSD margins as described below.~~

~~MVSD Margin~~

~~MVSD~~foreign currency exchange rates had a slightly negative impact on gross margin, as a ~~percentage~~significant amount of revenue ~~was 78%~~is denominated in ~~the first quarter of 2015 compared to 80%~~Euros while inventories are predominantly purchased in the first quarter of 2014 due to lower product and service margins. The lower product margin was due to volume pricing discounts on certain large orders, as well as higher new product introduction costs. These product margin decreases were partially offset by the favorable impact of material cost reductions and volume purchasing, as well as manufacturing efficiencies achieved from higher revenue levels as fixed manufacturing costs were spread over a larger revenue base. The lower service margin was due to a shift in mix to relatively lower-margin maintenance and support services.U.S. Dollars.

~~SISD Margin~~

SISD gross margin as a percentage of revenue was 53% in the first quarter of 2015 compared to 52% in the first quarter of 2014. The increase was due to a higher product margin and a greater percentage of SISD revenue from the sale of products, which have higher margins than the sale of services, partially offset by lower service margins. The product margin increase was due to manufacturing efficiencies achieved from higher revenue levels, while the lower service margin was due to a shift in mix to relatively lower-margin installation services.

~~Product Margin~~

Product gross margin as a percentage of revenue was 78% in the first quarter of 2015 compared to 79% in the first quarter of 2014. This decrease was due to lower MVSD product margins as described above.

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~~Service Margin~~

Service gross margin as a percentage of revenue was 44% in the first quarter of 2015 compared to 48% in the first quarter of 2014. This decrease was due to lower MVSD service margins as described above.

Operating Expenses

Research, Development, and Engineering Expenses

Research, development, and engineering (RD&E) expenses ~~for the first quarter of 2015~~ increased by ~~$5,574,000,~~$3,569,000, or ~~45%~~21%, ~~compared to~~from the ~~same period~~prior year as detailed in ~~2014. MVSD~~ the table below (in thousands).



RD&E expenses in the first quarter of 2015	$	16,986
Outsourced engineering costs	1,744
Personnel-related costs	1,390
Foreign currency exchange rate changes	(210		)
Other	645
RD&E expenses in the first quarter of 2016	$	20,555

RD&E expenses increased ~~by $5,418,000, or 47%, and SISD RD&E expenses increased by $156,000, or 15%.~~

~~The table below details the $5,418,000 net increase in MVSD RD&E in 2015 (in thousands):~~

MVSD RD&E expenses in 2014 $ 11,479
Personnel-related costs 2,056
Outsourced engineering costs 1,323
Stock-based compensation expense 848
Engineering prototypes 659
Company bonus accruals 257
Foreign currency exchange rate changes (619 )
Other 894
MVSD RD&E expenses in 2015 $ 16,897

~~The increase in MVSD RD&E expenses was~~ due to higher personnel-related costs ~~such as salaries and fringe benefits,~~ resulting from headcount ~~additions and modest salary increases granted early in 2015. Headcount was added to support the significantly higher level of business in 2014 and these investments are expected to continue in 2015.~~additions. The Company also incurred higher spending on outsourced engineering costs, and engineering prototypes. In addition, stock-based compensation expense increased due to a higher stock price valuation for options granted in the previous four years and company bonus expense increased dueprimarily related to the ~~additional headcount.~~development of engineering prototypes for anticipated customer orders. Offsetting these increases was the favorable impact on expenses of ~~a weaker Euro, as~~changes in foreign currency exchange rates, which resulted in lower U.S. Dollar expenses when expenses denominated in ~~Euros~~foreign currencies, primarily the Euro, were translated tointo U.S. ~~Dollars at a lower rate.~~

~~The increase in SISD RD&E expenses was due to higher spending on engineering prototypes ($118,000).~~

Dollars.

RD&E expenses as a percentage of revenue ~~was 16%~~were 21% in ~~the first quarter of 2015~~2016 compared to ~~14%~~17% in ~~the first quarter of 2014.~~2015. We believe that a continued commitment to RD&E activities is essential in order to maintain or achieve product leadership with our existing products

and to provide innovative new product ~~offerings.~~offerings, as well as to provide engineering support for large customers. In addition, we consider our ability to accelerate time to market for new products to be critical to our revenue growth. Therefore, we expect to continue to make significant RD&E investments in the ~~future, and~~future. Although we target our RD&E spending to be between 10% and 15% of ~~revenue. This~~revenue, this percentage is impacted by revenue ~~levels.~~

levels and investment cycles. RD&E spending for the first quarter in each year included investments to support anticipated customer orders in later quarters.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses ~~for~~decreased by $1,595,000, or 4%, from the ~~first quarter of 2015 increased by $8,587,000, or 25%, compared to~~prior year as detailed in the same period in 2014. MVSD SG&A expenses increased by $5,611,000, or 20%, while SISD SG&A expenses increased by $305,000, or 9%. Corporate expenses that are not allocated to either division increased by $2,671,000, or 66%.

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~~The~~ table below ~~details the $5,611,000 net increase in MVSD SG&A in 2015~~ (in thousands):.

MVSD SG&A expenses in 2014 $ 27,571
Personnel-related costs 4,770
Stock-based compensation expense 987
Travel expenses 550
Outsourced professional services 439
Company bonus accruals 278
Foreign currency exchange rate changes (2,378 )
Other 965
MVSD SG&A expenses in 2015 $ 33,182



SG&A expenses in the first quarter of 2015	$	39,933
Personnel-related costs	1,323
Microscan legal fees	(1,553		)
Foreign currency exchange rate changes	(730		)
Other	(635		)
SG&A expenses in the first quarter of 2016	$	38,338

~~The increase in MVSD~~ SG&A expenses ~~was~~decreased due to ~~headcount additions, resulting~~lower legal fees related to patent litigation actions with Microscan Systems, Inc., which were settled in the second quarter of 2015. In addition, changes in foreign currency exchange rates resulted in lower U.S. Dollar expenses when expenses denominated in foreign currencies, primarily the Euro, were translated into U.S. Dollars. Offsetting these decreases was higher personnel-related costs resulting from headcount additions, such as salaries, fringe benefits, sales commissions, and travel expenses, as well as modest salary increases granted early in 2015. Headcount was added to support the significantly higher level of business in 2014 and these investments are expected to continue in 2015. Stock-based compensation expense increased due to a higher stock price valuation for options granted in the previous four years and company bonus expense increased due to the additional headcount. Excluding the impact of increased headcount, travel expenses were also higher to support the higher levels of business. In addition, the Company incurred higher spending on outsourced professional services, primarily related to human resources and information systems. Offsetting these increases was the favorable impact of a weaker Euro and to a lesser extent a weaker Japanese Yen, as expenses denominated in these currencies were translated to U.S. Dollars at lower rates.expenses.

The increase in SISD SG&A expenses was primarily due to higher sales commissions ($194,000), personnel-related costs ($137,000), and travel costs ($100,000). Offsetting these increases was the favorable impact of foreign currency exchange rates, namely a weaker Japanese Yen and Euro, as expenses denominated in these currencies were translated to U.S. Dollars at lower rates ($215,000).

The increase in corporate expenses was due principally to higher stock-based compensation expense ($1,189,000) and higher legal fees related to the Company's patent-infringement actions against Microscan Systems, Inc., as described in the Notes to Consolidated Financial Statements ($1,167,000).

~~Nonoperating~~Non-operating Income (Expense)

The Company recorded foreign currency ~~gains~~losses of ~~$405,000~~$100,000 in the first quarter of ~~2015~~2016 compared to ~~foreign currency losses~~gains of ~~$110,000~~$659,000 in the first quarter of ~~2014.~~2015. The foreign currency gains and losses in each period resulted primarily from the revaluation and settlement of accounts receivable, accounts payable, and intercompany balances that are reported in one currency and collected in another.

The U.S. Dollar strengthened approximately 10% versus the Euro during the first quarter of 2015, and as a result, the Company recorded foreign currency gains on the revaluation and settlement of U.S. Dollar denominated accounts receivable on the books of its Irish subsidiary, where the functional currency is the Euro. Changes in this exchange rate were not as significant in the first quarter of 2016.

Investment income increased by ~~$63,000,~~$287,000, or 8%34%, from the ~~first quarter of 2014~~prior year due primarily to increased funds available for ~~investment, partially offset by declining yields, on average, on the Company's portfolio of debt securities.~~

investment.

The Company recorded other income of $207,000 in the first quarter of 2016 compared to other expense of $310,000 ~~and $273,000~~ in the first ~~quarters~~quarter of ~~2015 and 2014, respectively.~~2015. Other income in the first quarter of 2016 included a $263,000 benefit resulting from a decrease in the fair value of the contingent consideration liability that arose from a business acquisition completed in the third quarter of 2015. Other income (expense) also includes rental income, net of associated expenses, from leasing space in buildings adjacent to the Company’s corporate headquarters.

Income Tax Expense

The Company’s effective tax rate was ~~18% and 19%~~15% of the Company’s pre-tax income in the first quarter of 2016 compared to 16% in the first quarter of 2015.

The effective tax rate for the first ~~quarters~~quarter of ~~2015~~2016 included a decrease in tax expense of $463,000 from the excess tax benefit arising from the difference between the deduction for tax purposes and ~~2014, respectively.~~ the compensation cost recognized for financial reporting purposes from stock option exercises. In the first quarter of 2016, the Company adopted Accounting Standards Update 2016-09, "Improvements to Employee Share-Based Payment Accounting," which was issued by the Financial Accounting Standards Board in March 2016. This Update requires excess tax benefits to be recognized as an income tax benefit in the income statement. Previous guidance required excess tax benefits to be recognized as additional paid-in-capital in shareholders' equity on the balance sheet.

The effective tax rate for the first quarter of 2015 included ~~the impact of one discrete tax event, whereby the Company recorded~~ a decrease in tax expense of $364,000 ~~related to~~from the expiration of the statutes of limitations for certain reserves for income tax uncertainties. ~~No discrete tax events were recorded in the first quarter of 2014.~~

Excluding the impact of ~~this~~these discrete ~~event,~~tax events, the Company’s effective tax rate was ~~19% in~~18% for both ~~periods presented.~~the first quarter of 2016 and the first quarter of 2015.

Discontinued Operations

On July 6, 2015, the Company completed the sale of its Surface Inspection Systems Division (SISD) that specializes in machine vision products that inspect the surfaces of materials processed in a continuous fashion. Net income from discontinued operations was $1,030,000 for the first quarter of 2015.

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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 ~~$548,823,000~~$649,463,000 as of April ~~5, 2015.~~3, 2016. 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 ~~three months ended April 5, 2015~~first quarter of 2016 were met with ~~its existing~~positive cash ~~balances, cash~~flows from operations, investment maturities, and the proceeds from stock option exercises. Cash ~~flows from~~requirements consisted of operating activities, which included large cash outlays primarily related to the purchase of inventory, the payout of the annual Company bonus, the final payment related to the 2014 acquisition of a building in Cork, Ireland, andinvestment purchases, the payment of ~~income taxes to various jurisdictions, were relatively flat in the first quarter of 2015. In addition to operating activities, cash requirements consisted of purchases of investments~~dividends, and capital expenditures. Capital expenditures for the ~~three months ended April 5, 2015~~first quarter of 2016 totaled ~~$4,264,000~~$2,237,000 and consisted primarily of ~~expenditures for building improvements at the Company's headquarters and adjacent buildings in Natick, Massachusetts, as well as~~ computer hardware, computer software, and manufacturing test equipment related to new product introductions.

The Company is a Limited Partner in Venrock Associates III, L.P. (Venrock), a venture capital fund. 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, 2015. The Company does not have the right to withdraw from the partnership prior to this date. As of April 5, 2015, the Company had contributed $19,886,000 to the partnership. The remaining commitment of $614,000 can be called by Venrock in any period through December 31, 2015. Distributions and contributions are at the discretion of Venrock’s management. No contributions were made and no distributions were received during the three months ended April 5, 2015.

~~On May 4, 2015, the~~ Company’s Board of Directors declared and paid a cash dividend of $0.07 per share ~~payable~~ in the second, third, and fourth quarters of 2015, as well as in the first quarter of 2016. The dividend in the first quarter of 2016 amounted to $5,950,000. The dividend in the second quarter of 2015 was the first dividend declared and paid since the fourth quarter of 2012 when the Company's Board of Directors accelerated dividends in advance of an increase in the federal tax on dividends paid after December 31, 2012. Due to these accelerated payments, no dividends were declared or paid in 2013, 2014, or the first quarter of 2015. 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 including, among other things, the Company’s ability to generate positive cash flows from operations.

In ~~November 2011,~~August 2015, the ~~Company’s~~Company's Board of Directors authorized the repurchase of ~~up to $80,000,000~~$100,000,000 of the ~~Company’s~~Company's common stock. ~~Purchases~~As of April 3, 2016, the Company repurchased 2,311,000 shares at a cost of $83,936,000 under this ~~2011 program~~program; however, no shares were ~~completed in 2014.~~repurchased during the first quarter of 2016. In ~~April 2014,~~November 2015, the Company's Board of Directors authorized the repurchase of an additional ~~$50,000,000~~$100,000,000 of the Company's common stock. Purchases under this ~~2014~~November 2015 program ~~began in 2014~~will commence upon completion of the ~~2011~~August 2015 program. ~~The Company did not repurchase any shares during the three-months ended April 5, 2015.~~ The Company may repurchase shares under ~~this program~~these programs in future periods depending upon a variety of factors, including, among other things, the impact of dilution from employee stock options, stock price, share availability, and cash requirements.

The Company believes that its existing cash, cash equivalent, and investment balances, together with cash flow from operations, will be sufficient to meet its operating, investing, and financing activities for the next twelve months. As of April ~~5, 2015,~~3, 2016, the Company had approximately ~~$546,867,000~~$649 million in cash, cash equivalents, and debt securities that could be converted into cash. In addition, the Company has no debt and does not anticipate needing debt financing in the near future. We believe that our strong cash position has put us in a relatively good position with respect to our longer-term liquidity needs.

New Pronouncements

Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers”

beginning after December 15, 2016. The Financial Accounting Standards Board is

~~Table of Contents~~

~~considering delaying the effective date of this standard by one year and also allowing early adoption.~~may release additional implementation guidance in future periods. Management will continue to evaluate the impact of this standard as it evolves.

Accounting Standards Update (ASU) ~~2015-05, "Intangibles—Goodwill and Other—Internal-Use Software"~~2015-11, "Inventory - Simplifying the Measurement of Inventory"

Accounting Standards Update (ASU) 2016-01, "Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities"

ASU 2016-01 provides guidance related to certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this Update affect all entities that hold financial assets or owe financial liabilities. This ASU requires equity investments (except those accounted under the equity method) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment. This ASU also eliminates the requirement for public companies to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet, and it requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. For public companies, the guidance in ASU 2016-01 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is not permitted except for certain amendments in this Update. Management does not expect ASU 2016-01 to have a material impact on the Company's financial statements and disclosures.

Accounting Standards Update (ASU) 2016-02, "Leases"

Accounting Standards Update (ASU) 2016-05, "Derivatives and Hedging - Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships"

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, ~~2014.~~2015.

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 April ~~5, 2015~~3, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In March 2013, the Company filed a lawsuit against Microscan Systems, Inc. (“Microscan”) and Code Corporation in the United States District Court for the Southern District of New York alleging that Microscan’s Mobile Hawk handheld imager infringes U.S. Patent 7,874,487 owned by the Company (the “'487 patent”). The lawsuit sought to prohibit Code Corporation from manufacturing the product, and Microscan from selling and distributing the product. The Company also sought monetary damages resulting from the alleged infringement. Late in the day on April 30, 2014, the jury found that Microscan willfully infringed the ‘487 patent and awarded Cognex $2.6M in damages. Following the verdict, Microscan filed motions requesting judgment as a matter of law on the issues of infringement, invalidity and willfulness, as well as a motion to dismiss for lack of standing. The Company filed motions seeking treble damages (based on the finding of willfulness), attorneys’ fees as an exceptional case, and a permanent injunction against future infringement of the ‘487 patent and the import, manufacture and/or sale of Microscan’s Mobile Hawk product within the U.S. In June 2014, the court issued an order denying all of Microscan’s motions and the Company’s motion for treble damages, while granting the Company’s motion for permanent injunction (limited to enjoining future infringement of the ‘487 patent and the import, manufacture and/or sale of infringing versions of Microscan’s Mobile Hawk product within the U.S.) and the Company’s motion for attorneys’ fees, in part, pending a determination thereof following submission of supplemental briefs by both parties. In July 2014, Microscan filed a Notice of Appeal with the Federal Circuit appealing all orders, findings, and/or conclusions of the District Court that were adverse to Microscan. In August 2014, the Company filed a Notice of Appeal with the Federal Circuit appealing the order granting summary judgment that claims 23, 28, and 29 of the ’487 patent are invalid. Also in August 2014, the Federal Circuit consolidated Microscan’s appeal and the Company’s appeal. In November 2014, the Company filed an unopposed motion to dismiss the Company's appeal, and in December 2014, the Court of Appeals granted the Company's motion to dismiss the Company's appeal. In January 2015, Microscan submitted their appeal brief asserting that the damage award should be vacated, the infringement judgment should be reversed, and that the remaining '487 claims are invalid. The Company filed its response to Microscan’s appeal brief, contesting all assertions therein, on March 16, 2015.

~~In August 2014, Microscan filed a lawsuit against the Company in the United States District Court for the Southern~~

~~District of New York alleging that the Company’s DataMan® 8500 handheld imager infringes U.S. Patent 6,352,204~~

ITEM 1A. RISK FACTORS

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 fiscal year ended December 31, ~~2014.~~2015.

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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~~common stock during the ~~periods indicated.~~three-month period ended April 3, 2016:

Total
Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (1)

Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs
January 1—February 1, 2015 —
—
—
$ 42,422,000
February 2 —March 1, 2015 —
—
—
$ 42,422,000
March 2—April 5, 2015 —
—
—
$ 42,422,000
Total —
—
—
$ 42,422,000



	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - January 31, 2016	—	—	—	$	116,064,000
February 1 - February 28, 2016	—	—	—	116,064,000
February 29 - April 3, 2016	—	—	—	116,064,000
Total	—	—	—	$	116,064,000

(1) In ~~April 2014,~~August 2015, the Company's Board of Directors authorized the repurchase of ~~$50,000,000~~$100,000,000 of the Company's common stock. Purchases under this program commenced in the third quarter of 2015. In November 2015, the Company's Board of Directors authorized the repurchase of an additional $100,000,000 of the Company's common stock. Purchases under this program will commence once the August 2015 program is complete.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS



Exhibit Number
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**
101			xBRL (Extensible Business Reporting Language)
			The following materials from Cognex Corporation’s Quarterly Report on Form 10-Q for the period ended April ~~5, 2015,~~3, 2016, formatted in xBRL: (i) Consolidated Statements of Operations for the three-month periods ended April 3, 2016 and April 5, ~~2015 and March 30, 2014;~~2015; (ii) Consolidated Statements of Comprehensive Income for the three-month periods ended April 3, 2016 and April 5, ~~2015 and March 30, 2014;~~2015; (iii) Consolidated Balance Sheets as of April ~~5, 2015~~3, 2016 and December 31, ~~2014;~~2015; (iv) Consolidated Statements of Cash Flows for the three-month periods ended April 3, 2016 and April 5, ~~2015 and March 30, 2014;~~2015; (v) Consolidated Statement of Shareholders’ Equity for the three-month period ended April ~~5, 2015;~~3, 2016; and (vi) Notes to Consolidated Financial Statements.
*			Filed herewith
**			Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date:	May ~~4, 2015~~2, 2016	COGNEX CORPORATION

		By:	/s/ Robert J. Willett
			Robert J. Willett
			President and Chief Executive Officer
			(principal executive officer)

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

3129



	Common Stock			Additional Paid-in		Retained		Accumulated Other Comprehensive			Total Shareholders’
	Shares	Par Value		Capital		Earnings		Loss			Equity
Balance as of December 31, 2014	86,542	$	173	$	251,717	$	523,946	$	(39,399	)	$	736,437
Issuance of common stock under stock plans	586	1		9,665							9,666
Stock-based compensation expense				6,946							6,946
Excess tax benefit from stock option exercises				3,694							3,694
Tax benefit for research and development credits as a result of stock options				48							48
Net income						20,502					20,502
Net unrealized loss on cash flow hedges, net of tax of $73								(520		)	(520		)
Reclassification of net realized loss on cash flow hedges								110			110
Net unrealized gain on available-for-sale investments, net of tax of $134								899			899
Reclassification of net realized gain on the sale of available-for-sale investments								(29		)	(29		)
Foreign currency translation adjustment, net of tax of $636								(10,690		)	(10,690		)
Balance as of April 5, 2015 (unaudited)	87,128	$	174	$	272,070	$	544,448	$	(49,629	)	$	767,063



Type	Guarantee Amount (in thousands)		Guarantee Due Date
Bank guarantees	$	1,241	Various from May 2015 to January 2017
Warranty bonds	594		Various from May 2015 to December 2016
Performance bonds	568		Various from June 2015 to December 2017
	$	2,403



Three-months Ended April 5, 2015	MVSD		SISD		Reconciling Items			Consolidated
Product revenue	$	97,494	$	8,281	$	—		$	105,775
Service revenue	3,879		3,780		—			7,659
Operating income	33,307		1,896		(11,286		)	23,917



Three-months Ended March 30, 2014	MVSD		SISD		Reconciling Items			Consolidated
Product revenue	$	77,618	$	5,951	$	—		$	83,569
Service revenue	3,698		3,662		—			7,360
Operating income	28,292		1,013		(6,862		)	22,443



MVSD RD&E expenses in 2014	$	11,479
Personnel-related costs	2,056
Outsourced engineering costs	1,323
Stock-based compensation expense	848
Engineering prototypes	659
Company bonus accruals	257
Foreign currency exchange rate changes	(619		)
Other	894
MVSD RD&E expenses in 2015	$	16,897



MVSD SG&A expenses in 2014	$	27,571
Personnel-related costs	4,770
Stock-based compensation expense	987
Travel expenses	550
Outsourced professional services	439
Company bonus accruals	278
Foreign currency exchange rate changes	(2,378		)
Other	965
MVSD SG&A expenses in 2015	$	33,182