Company Quick10K Filing
Cognex
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 176 $8,102
10-Q 2019-10-28 Quarter: 2019-09-29
10-Q 2019-07-29 Quarter: 2019-06-30
10-Q 2019-04-29 Quarter: 2019-03-31
10-K 2019-02-14 Annual: 2018-12-31
10-Q 2018-10-29 Quarter: 2018-09-30
10-Q 2018-07-30 Quarter: 2018-07-01
10-Q 2018-04-30 Quarter: 2018-04-01
10-K 2018-02-15 Annual: 2017-12-31
10-Q 2017-10-30 Quarter: 2017-10-01
10-Q 2017-07-31 Quarter: 2017-07-02
10-Q 2017-05-01 Quarter: 2017-04-02
10-K 2017-02-16 Annual: 2016-12-31
10-Q 2016-10-31 Quarter: 2016-10-02
10-Q 2016-08-01 Quarter: 2016-07-03
10-Q 2016-05-02 Quarter: 2016-04-03
10-K 2016-02-10 Annual: 2015-12-31
10-Q 2015-11-02 Quarter: 2015-10-04
10-Q 2015-08-03 Quarter: 2015-07-05
10-Q 2015-05-04 Quarter: 2015-04-05
10-K 2015-02-12 Annual: 2014-12-31
10-Q 2014-10-27 Quarter: 2014-09-28
10-Q 2014-07-28 Quarter: 2014-06-29
10-Q 2014-04-30 Quarter: 2014-03-30
10-K 2014-02-13 Annual: 2013-12-31
10-Q 2013-10-28 Quarter: 2013-09-29
10-Q 2013-07-29 Quarter: 2013-06-30
10-Q 2013-04-29 Quarter: 2013-03-31
10-K 2013-02-11 Annual: 2012-12-31
10-Q 2012-10-29 Quarter: 2012-09-30
10-Q 2012-07-30 Quarter: 2012-07-01
10-Q 2012-04-30 Quarter: 2012-04-01
10-K 2012-02-09 Annual: 2011-12-31
10-Q 2011-11-01 Quarter: 2011-10-02
10-Q 2011-08-01 Quarter: 2011-07-03
10-Q 2011-05-02 Quarter: 2011-04-03
10-K 2011-02-10 Annual: 2010-12-31
10-Q 2010-11-01 Quarter: 2010-10-03
10-Q 2010-08-02 Quarter: 2010-07-04
10-Q 2010-05-03 Quarter: 2010-04-04
10-K 2010-02-11 Annual: 2009-12-31
8-K 2019-10-28 Earnings, Other Events, Exhibits
8-K 2019-10-16 Regulation FD, Other Events, Exhibits
8-K 2019-07-29 Earnings, Other Events, Exhibits
8-K 2019-04-25 Earnings, Officers, Other Events, Exhibits
8-K 2019-04-25 Shareholder Vote
8-K 2019-04-01 Officers
8-K 2019-02-14 Earnings, Other Events, Exhibits
8-K 2018-10-29 Earnings
8-K 2018-07-30 Earnings, Other Events, Exhibits
8-K 2018-04-30 Earnings, Other Events, Exhibits
8-K 2018-04-25 Officers, Shareholder Vote
8-K 2018-02-15 Earnings, Other Events, Exhibits
8-K 2018-02-15 Officers
CGNX 2019-09-29
Part I: Financial Information
Item 1: Financial Statements
Note 1: Summary of Significant Accounting Policies
Note 2: New Pronouncements
Note 3: Fair Value Measurements
Note 4: Cash, Cash Equivalents, and Investments
Note 5: Inventories
Note 6: Leases
Note 7: Intangible Assets
Note 8: Warranty Obligations
Note 9: Derivative Instruments
Note 10: Revenue Recognition
Note 11: Stock-Based Compensation Expense
Note 12: Stock Repurchase Program
Note 13: Taxes
Note 14: Weighted-Average Shares
Note 15: Subsequent Events
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk
Item 4: Controls and Procedures
Part Ii: Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 a9292019-10qxexhibit311.htm
EX-31.2 a9292019-10qxexhibit312.htm
EX-32.1 a9292019-10qxexhibit321.htm
EX-32.2 a9292019-10qxexhibit322.htm

Cognex Earnings 2019-09-29

CGNX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
SNA 9,188 5,545 2,237 3,970 0 714 1,059 9,971 0% 9.4 13%
NDSN 8,489 3,492 1,945 2,178 1,181 321 540 9,713 54% 18.0 9%
CGNX 8,102 1,350 158 798 589 208 246 8,013 74% 32.6 15%
NSYS 7,976 65 46 114 12 -2 1 7,979 10% 6,896.7 -3%
ST 7,948 6,852 4,235 3,476 1,218 562 753 10,453 35% 13.9 8%
MIDD 7,407 4,887 3,088 2,918 1,086 329 619 9,321 37% 15.0 7%
WWD 7,266 4,016 2,311 2,883 542 267 562 8,216 19% 14.6 7%
GDI 7,082 4,594 2,809 2,651 996 259 418 8,396 38% 20.1 6%
PNR 6,254 4,170 2,363 2,940 1,034 369 485 7,400 35% 15.3 9%
OC 6,254 10,183 5,778 7,127 1,624 515 1,275 9,564 23% 7.5 5%

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
FORM 10-Q 
(Mark One)
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 29, 2019 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)

Securities registered pursuant to the Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $.002 per share
CGNX
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
 
 
Yes
 
  
 
 
No
 
  
 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
 
 
Yes
 
  
 
 
No
 
  
 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
  
 
 
 
Accelerated filer
Non-accelerated filer
  
 
 
 
Smaller reporting company
 
 
 
 
 
 
Emerging growth company
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
 
 
Yes
 
  
 
 
No
 
  
 
As of September 29, 2019, there were 170,897,294 shares of Common Stock, $.002 par value per share, of the registrant outstanding.
 



INDEX
 
PART I
FINANCIAL INFORMATION
 
 
 
Financial Statements (interim periods unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2



PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS

COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
 
 
Three-months Ended
 
Nine-months Ended
 
September 29, 2019
 
September 30, 2018
 
September 29, 2019
 
September 30, 2018
 
(unaudited)
 
(unaudited)
Revenue
$
183,325

 
$
232,221

 
$
555,856

 
$
613,052

Cost of revenue
47,632

 
58,860

 
144,883

 
153,227

Gross margin
135,693

 
173,361

 
410,973

 
459,825

Research, development, and engineering expenses
28,115

 
29,700

 
86,436

 
87,664

Selling, general, and administrative expenses
64,486

 
65,817

 
199,542

 
196,266

Operating income
43,092

 
77,844

 
124,995

 
175,895

Foreign currency gain (loss)
(1,295
)
 
(379
)
 
(1,403
)
 
(708
)
Investment income
5,114

 
3,937

 
15,242

 
10,736

Other income (expense)
456

 
(129
)
 
1,239

 
(98
)
Income before income tax expense
47,367

 
81,273

 
140,073

 
185,825

Income tax expense
5,682

 
837

 
16,535

 
11,976

Net income
$
41,685

 
$
80,436

 
$
123,538

 
$
173,849

 
 
 
 
 
 
 
 
Net income per weighted-average common and common-equivalent share:

Basic
$
0.24

 
$
0.47

 
$
0.72

 
$
1.01

Diluted
$
0.24

 
$
0.45

 
$
0.71

 
$
0.98

 
 
 
 
 
 
 
 
Weighted-average common and common-equivalent shares outstanding:
Basic
170,744

 
172,189

 
171,053

 
172,613

Diluted
174,449

 
177,245

 
175,164

 
178,021

 
 
 
 
 
 
 
 
Cash dividends per common share
$
0.050

 
$
0.045

 
$
0.150

 
$
0.135
















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

3



COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
 
Three-months Ended
 
Nine-months Ended
 
September 29, 2019
 
September 30, 2018
 
September 29, 2019
 
September 30, 2018
 
(unaudited)
 
(unaudited)
Net income
$
41,685

 
$
80,436

 
$
123,538

 
$
173,849

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
 
 
Net unrealized gain (loss), net of tax of ($5) and $24 in the three-month periods and net of tax of $502 and ($82) in the nine-month periods, respectively
265

 
522

 
4,827

 
(180
)
Reclassification of net realized (gain) loss into current operations
(294
)
 
(266
)
 
(716
)
 
(535
)
Net change related to available-for-sale investments
(29
)
 
256

 
4,111

 
(715
)
 
 
 
 
 
 
 
 
Foreign currency translation adjustments:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(1,099
)
 
(1,881
)
 
(1,544
)
 
(5,078
)
Net change related to foreign currency translation adjustments
(1,099
)
 
(1,881
)
 
(1,544
)
 
(5,078
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax
(1,128
)
 
(1,625
)
 
2,567

 
(5,793
)
Total comprehensive income
$
40,557

 
$
78,811

 
$
126,105

 
$
168,056
















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

4



COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
 
September 29, 2019
 
December 31, 2018
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
121,701

 
$
108,212

Current investments
292,072

 
427,348

Accounts receivable, less reserves of $1,874 and $1,646 in 2019 and 2018, respectively
107,407

 
119,172

Unbilled revenue
11,210

 
8,312

Inventories
65,264

 
83,282

Prepaid expenses and other current assets
28,127

 
34,000

Total current assets
625,781

 
780,326

Non-current investments
504,641

 
262,039

Property, plant, and equipment, net
88,429

 
91,396

Operating lease assets
15,806

 

Goodwill
113,208

 
113,208

Intangible assets, net
7,994

 
10,113

Deferred income taxes
29,273

 
28,660

Other assets
5,320

 
3,925

Total assets
$
1,390,452

 
$
1,289,667

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
12,766

 
$
16,230

Accrued expenses
48,561

 
60,220

Accrued income taxes
4,012

 
5,062

Deferred revenue and customer deposits
10,431

 
9,845

Operating lease liabilities
5,445

 

Total current liabilities
81,215

 
91,357

Non-current operating lease liabilities
10,722

 

Deferred income taxes
289

 
962

Reserve for income taxes
7,151

 
7,106

Non-current accrued income taxes
51,113

 
51,113

Other liabilities
744

 
3,866

Total liabilities
151,234

 
154,404

 
 
 
 
Shareholders’ equity:
 
 
 
Preferred stock, $.01 par value – Authorized: 400 shares in 2019 and 2018, respectively, no shares issued and outstanding

 

Common stock, $.002 par value – Authorized: 300,000 shares in 2019 and 2018, respectively, issued and outstanding: 170,897 and 170,820 shares in 2019 and 2018, respectively
342

 
342

Additional paid-in capital
594,427

 
529,208

Retained earnings
682,383

 
646,214

Accumulated other comprehensive loss, net of tax
(37,934
)
 
(40,501
)
Total shareholders’ equity
1,239,218

 
1,135,263

Total liabilities and shareholders' equity
$
1,390,452

 
$
1,289,667




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

5



COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Nine-months Ended
 
September 29, 2019
 
September 30, 2018
 
(unaudited)
Cash flows from operating activities:
 
 
 
Net income
$
123,538

 
$
173,849

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Stock-based compensation expense
33,442

 
31,339

Depreciation of property, plant, and equipment
15,800

 
13,474

Amortization of intangible assets
2,119

 
2,307

Amortization of discounts or premiums on investments
(563
)
 
123

Realized (gain) loss on sale of investments
(716
)
 
(535
)
Revaluation of contingent consideration
(1,401
)
 
(50
)
Change in deferred income taxes
(1,805
)
 
175

Change in operating assets and liabilities:
 
 
 
Accounts receivable
11,387

 
(18,136
)
Unbilled revenue
(2,900
)
 
(6,542
)
Inventories
18,019

 
(27,699
)
Prepaid expenses and other current assets
5,827

 
(3,437
)
Accounts payable
(3,398
)
 
(1,182
)
Accrued expenses
(11,827
)
 
2,266

Accrued income taxes
(1,043
)
 
(17,497
)
Deferred revenue and customer deposits
698

 
4,841

Other
(1,863
)
 
(1,604
)
Net cash provided by operating activities
185,314

 
151,692

Cash flows from investing activities:
 
 
 
Purchases of investments
(883,363
)
 
(616,047
)
Maturities and sales of investments
781,929

 
635,119

Purchases of property, plant, and equipment
(13,518
)
 
(27,356
)
Net cash provided by (used in) investing activities
(114,952
)
 
(8,284
)
Cash flows from financing activities:
 
 
 
Issuance of common stock under stock plans
31,780

 
25,882

Repurchase of common stock
(61,690
)
 
(142,262
)
Payment of dividends
(25,682
)
 
(23,283
)
Payment of contingent consideration

 
(1,000
)
Net cash provided by (used in) financing activities
(55,592
)
 
(140,663
)
Effect of foreign exchange rate changes on cash and cash equivalents
(1,281
)
 
(1,956
)
Net change in cash and cash equivalents
13,489

 
789

Cash and cash equivalents at beginning of period
108,212

 
106,582

Cash and cash equivalents at end of period
$
121,701

 
$
107,371









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

6



COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
 
Common Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Shares
 
Par Value
 
 
 
 
Balance as of June 30, 2019
170,661

 
$
341

 
$
578,871

 
$
649,234

 
$
(36,806
)
 
$
1,191,640

Issuance of common stock under stock plans
236

 
1

 
5,362

 

 

 
5,363

Stock-based compensation expense

 

 
10,194

 

 

 
10,194

Payment of dividends

 

 

 
(8,536
)
 

 
(8,536
)
Net income

 

 

 
41,685

 

 
41,685

Net unrealized gain (loss) on available-for-sale investments, net of tax of ($5)

 

 

 

 
265

 
265

Reclassification of net realized (gain) loss on the sale of available-for-sale investments

 

 

 

 
(294
)
 
(294
)
Foreign currency translation adjustment

 

 

 

 
(1,099
)
 
(1,099
)
Balance as of September 29, 2019 (unaudited)
170,897

 
$
342

 
$
594,427

 
$
682,383

 
$
(37,934
)
 
$
1,239,218

 
 
Common Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Shares
 
Par Value
 
 
 
 
Balance as of July 1, 2018
172,032

 
$
344

 
$
498,343

 
$
619,212

 
$
(38,767
)
 
$
1,079,132

Issuance of common stock under stock plans
553

 
1

 
11,070

 

 

 
11,071

Repurchase of common stock
(394
)
 

 

 
(20,954
)
 

 
(20,954
)
Stock-based compensation expense

 

 
9,143

 

 

 
9,143

Payment of dividends

 

 

 
(7,759
)
 

 
(7,759
)
Net income

 

 

 
80,436

 

 
80,436

Net unrealized gain (loss) on available-for-sale investments, net of tax of $24

 

 

 

 
522

 
522

Reclassification of net realized (gain) loss on the sale of available-for-sale investments

 

 

 

 
(266
)
 
(266
)
Foreign currency translation adjustment

 

 

 

 
(1,881
)
 
(1,881
)
Balance as of September 30, 2018 (unaudited)
172,191

 
$
345

 
$
518,556

 
$
670,935

 
$
(40,392
)
 
$
1,149,444










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

7



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

 
Common Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Shares
 
Par Value
 
 
 
 
Balance as of December 31, 2018
170,820

 
$
342

 
$
529,208

 
$
646,214

 
$
(40,501
)
 
$
1,135,263

Issuance of common stock under stock plans
1,475

 
3

 
31,777

 

 

 
31,780

Repurchase of common stock
(1,398
)
 
(3
)
 

 
(61,687
)
 

 
(61,690
)
Stock-based compensation expense

 

 
33,442

 

 

 
33,442

Payment of dividends

 

 

 
(25,682
)
 

 
(25,682
)
Net income

 

 

 
123,538

 

 
123,538

Net unrealized gain (loss) on available-for-sale investments, net of tax of $502

 

 

 

 
4,827

 
4,827

Reclassification of net realized (gain) loss on the sale of available-for-sale investments

 

 

 

 
(716
)
 
(716
)
Foreign currency translation adjustment

 

 

 

 
(1,544
)
 
(1,544
)
Balance as of September 29, 2019 (unaudited)
170,897

 
$
342

 
$
594,427

 
$
682,383

 
$
(37,934
)
 
$
1,239,218

 
 
Common Stock
 
Additional
Paid-in Capital
 
Retained Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Shareholders’
Equity
 
Shares
 
Par Value
 
 
 
 
Balance as of December 31, 2017
173,507

 
$
347

 
$
461,338

 
$
668,587

 
$
(34,599
)
 
$
1,095,673

Issuance of common stock under stock plans
1,434

 
3

 
25,879

 

 

 
25,882

Repurchase of common stock
(2,750
)
 
(5
)
 

 
(142,257
)
 

 
(142,262
)
Stock-based compensation expense

 

 
31,339

 

 

 
31,339

Payment of dividends

 

 

 
(23,283
)
 

 
(23,283
)
Adjustment as a result of the adoption of ASU 2016-06 "Income Taxes - Intra-Entity Transfers Other than Inventory"

 

 

 
(5,961
)
 

 
(5,961
)
Net income

 

 

 
173,849

 

 
173,849

Net unrealized gain (loss) on available-for-sale investments, net of tax of ($82)

 

 

 

 
(180
)
 
(180
)
Reclassification of net realized (gain) loss on the sale of available-for-sale investments

 

 

 

 
(535
)
 
(535
)
Foreign currency translation adjustment

 

 

 

 
(5,078
)
 
(5,078
)
Balance as of September 30, 2018 (unaudited)
172,191

 
$
345

 
$
518,556

 
$
670,935

 
$
(40,392
)
 
$
1,149,444



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

8



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). As a result of the adoption of ASC 842 "Leases," Cognex Corporation (the "Company") has provided new disclosures related to leases in this Quarterly Report on Form 10-Q. 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, 2018 for a full description of other significant accounting policies.
In the opinion of the management of the Company, the accompanying consolidated unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, and financial statement reclassifications necessary to present fairly the Company’s financial position as of September 29, 2019, and the results of its operations for the three-month and nine-month periods ended September 29, 2019 and September 30, 2018, 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 and nine-month periods ended September 29, 2019 are not necessarily indicative of the results to be expected for the full year.
Leases
The Company accounts for leases in accordance with Accounting Standard Codification (ASC) 842, "Leases." The core principle of ASC 842 is that a lessee should recognize on the balance sheet the assets and liabilities that arise from leases.
At inception of a contract, the Company determines whether that contract is or contains a lease. The Company determines whether a contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. The Company has control of the asset if it has the right to direct the use of the asset and obtains substantially all of the economic benefits from the use of the asset throughout the period of use.
As a practical expedient, the Company does not recognize a lease asset or lease liability for leases with a lease term of 12 months or less. In the determination of the lease term, the Company considers the existence of extension or termination options and the probability of those options being exercised.
Lease contracts may include lease components and non-lease components, such as common area maintenance and utilities for property leases. As a practical expedient, the Company accounts for the non-lease components together with the lease components as a single lease component for all of its leases.

The Company classifies a lease as a finance lease when it meets any of the following criteria at the lease commencement date: a) the lease transfers ownership of the underlying asset to the Company by the end of the lease term; b) the lease grants the Company an option to purchase the underlying asset that the Company is reasonably certain to exercise; c) the lease term is for the major part of the remaining economic life of the underlying asset (the Company considers a major part to be 75% or more of the remaining economic life of the underlying asset); d) the present value of the sum of the lease payments and any residual value guaranteed by the Company equals or exceeds substantially all of the fair value of the underlying asset (the Company considers substantially all the fair value to be 90% or more of the fair value of the underlying asset amount); or e) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. When none of the criteria above are met, the Company classifies the lease as an operating lease.
On the lease commencement date, the Company records a lease asset and lease liability on the balance sheet. The lease asset consists of: 1) the amount of the initial lease liability; 2) any lease payments made to the lessor at or before the lease commencement date, minus any lease incentives received; and 3) any initial direct cost incurred by the Company. Initial direct costs are incremental costs of a lease that would not have been incurred if the lease had not been obtained and are capitalized as part of the lease asset.
The lease liability equals the present value of the future cash payments discounted using the Company's incremental borrowing rate. The Company’s incremental borrowing rate is the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments over a similar term, which is the three-month London Interbank Offered Rate (LIBOR) plus a 2.5% credit risk spread.


9



Operating lease expense equals the total cash payments recognized on a straight-line basis over the lease term. The amortization of the lease asset is calculated as the straight-line lease expense less the accretion of the interest on the lease liability each period. The lease liability is reduced by the cash payment less the interest each period.
NOTE 2: New Pronouncements
Accounting Standards Update (ASU) 2016-13, "Financial Instruments - Measurement of Credit Losses"
ASU 2016-13 applies to all reporting entities holding financial assets that are not accounted for at fair value through net income (debt securities).  The amendments in this ASU eliminate the probable initial recognition threshold to recognize a credit loss under current U.S. GAAP and, instead, reflect an entity’s current estimate of all expected credit losses. In addition, this ASU broadens the information an entity must consider in developing the credit loss estimate, including the use of reasonable and supportable forecasted information.  The amendments in this ASU require that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down and an entity will be able to record reversals of credit losses in current period net income. For public companies, the guidance in ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods.  This ASU should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. As of the date of this report, management is in the process of completing the implementation of this ASU, including finalizing the internal credit losses policy and the related processes, internal control, and disclosures. Management does not expect ASU 2016-13 to have a material impact on the Company's financial statements and disclosures.
Accounting Standards Update (ASU) 2017-08, "Receivables - Nonrefundable Fees and Other Costs - Premium Amortization on Purchased Callable Debt Securities"
ASU 2017-08 applies to all reporting entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Under current GAAP, premiums and discounts on callable debt securities generally are amortized to the maturity date. If that callable debt security is subsequently called, the entity records a loss equal to the unamortized premium. The amendments in this ASU more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. For public companies, the amendments in ASU 2017-08 are effective for annual periods beginning after December 15, 2019 and interim reporting periods within annual years beginning after December 15, 2020. This ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption, and, in the period of adoption, the entity is required to provide disclosures about the change in accounting principle. Early adoption is permitted, including adoption in an interim period. Management does not expect ASU 2017-08 to have a material impact on the Company's financial statements and disclosures.
Accounting Standards Update (ASU) 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software"
ASU 2018-15 applies to entities that are a customer in a hosting arrangement that is a service contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Accordingly, the amendments in this ASU require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. Further, it requires the entity to expense the capitalized implementation costs over the term of the hosting arrangement. In addition, it requires the presentation of the expenses related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element of the arrangement and the classification of the payments for the capitalized implementation costs in the statement of cash flows in the same manner as the payments made for the fees associated with the hosting element. The amendments in this ASU are effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. Management does not expect ASU 2018-15 to have a material impact on the Company's financial statements and disclosures.

10

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 September 29, 2019 (in thousands):
 
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
 
Significant  Other
Observable
Inputs (Level 2)
 

Unobservable
Inputs (Level 3)
Assets:
 
 
 
 
 
Money market instruments
$
16,081

 
$

 
$

Treasury bills

 
362,069

 

Corporate bonds

 
255,207

 

Asset-backed securities

 
146,392

 

Sovereign bonds

 
22,300

 

Agency bonds

 
5,905

 

Municipal bonds

 
4,840

 

Economic hedge forward contracts

 
19

 

Liabilities:
 
 
 
 
 
Economic hedge forward contracts

 
70

 

Contingent consideration liabilities

 

 
1,153


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 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 during the three-month or nine-month periods ended September 29, 2019 and September 30, 2018.
The Company's contingent consideration liabilities are reported at fair value based upon probability-adjusted present values of the consideration expected to be paid using significant inputs that are not observable in the market and are therefore classified as Level 3. Key assumptions used in these estimates include probability assessments with respect to the likelihood of achieving certain revenue milestones. The fair values of these contingent consideration liabilities were calculated using discount rates consistent with the level of risk of achievement, and are 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 nine-month period ended September 29, 2019 (in thousands):
Balance as of December 31, 2018
$
2,554

Fair value adjustment to GVi contingent consideration
(1,646
)
Fair value adjustment to Chiaro contingent consideration
245

Balance as of September 29, 2019
$
1,153


Non-financial Assets that are Measured at Fair Value on a Non-recurring Basis
Non-financial assets such as 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 or nine-month periods ended September 29, 2019 and September 30, 2018.

11

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):
 
September 29, 2019
 
December 31, 2018
Cash
$
105,620

 
$
104,655

Money market instruments
16,081

 
3,557

Cash and cash equivalents
121,701

 
108,212

Treasury bills
105,454

 
198,477

Asset-backed securities
89,576

 
78,407

Corporate bonds
87,209

 
137,871

Sovereign bonds
6,300

 
8,101

Municipal bonds
3,533

 
4,492

Current investments
292,072

 
427,348

Treasury bills
256,615

 
32,760

Corporate bonds
167,998

 
162,566

Asset-backed securities
56,816

 
53,631

Sovereign bonds
16,000

 
6,316

Agency bonds
5,905

 
5,921

Municipal bonds
1,307

 
845

Non-current investments
504,641

 
262,039

 
$
918,414

 
$
797,599



Treasury bills consist of debt securities issued by the U.S. government; asset-backed securities consist of debt securities collateralized by pools of receivables or loans with credit enhancement; corporate bonds consist of debt securities issued by both domestic and foreign companies; sovereign bonds consist of direct debt issued by foreign 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. All securities are denominated in U.S. Dollars.
The following table summarizes the Company’s available-for-sale investments as of September 29, 2019 (in thousands):
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
Current:
 
 
 
 
 
 

Treasury bills
$
105,254

 
$
212

 
$
(12
)
 
$
105,454

Asset-backed securities
89,226

 
359

 
(9
)
 
89,576

Corporate bonds
86,990

 
222

 
(3
)
 
87,209

Sovereign bonds
6,286

 
14

 

 
6,300

Municipal bonds
3,535

 

 
(2
)
 
3,533

Non-current:
 
 
 
 
 
 

Treasury bills
255,441

 
1,253

 
(79
)
 
256,615

Corporate bonds
167,464

 
584

 
(50
)
 
167,998

Asset-backed securities
56,636

 
195

 
(15
)
 
56,816

Sovereign bonds
15,969

 
43

 
(12
)
 
16,000

Agency bonds
5,930

 

 
(25
)
 
5,905

Municipal bonds
1,300

 
7

 

 
1,307

 
$
794,031

 
$
2,889

 
$
(207
)
 
$
796,713



12

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 September 29, 2019 (in thousands):
 
Unrealized Loss Position For:
 
 
 
Less than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
 
Fair Value
 
Unrealized
Losses
Treasury bills
$
108,863

 
$
(91
)
 
$

 
$

 
$
108,863

 
$
(91
)
Corporate bonds
23,263

 
(17
)
 
20,713

 
(36
)
 
43,976

 
(53
)
Asset-backed securities
11,149

 
(15
)
 
8,093

 
(9
)
 
19,242

 
(24
)
Sovereign bonds
11,558

 
(12
)
 

 

 
11,558

 
(12
)
Agency bonds
5,905

 
(25
)
 

 

 
5,905

 
(25
)
Municipal bonds

 

 
343

 
(2
)
 
343

 
(2
)
 
$
160,738


$
(160
)

$
29,149


$
(47
)

$
189,887


$
(207
)

As of September 29, 2019, the Company did not recognize any 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, the Company's 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 their effective maturity or market price recovery.
The Company recorded gross realized gains and gross realized losses on the sale of debt securities totaling $361,000 and $67,000, respectively, during the three-month period ended September 29, 2019 and $283,000 and $17,000, respectively, during the three-month period ended September 30, 2018. The Company recorded gross realized gains and gross realized losses on the sale of debt securities totaling $818,000 and $103,000, respectively, during the nine-month period ended September 29, 2019 and $646,000 and $111,000, respectively, during the nine-month period ended September 30, 2018. These gains and losses are included in "Investment income" on the Consolidated Statements 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 accumulated other comprehensive loss.
The following table presents the effective maturity dates of the Company’s available-for-sale investments as of September 29, 2019 (in thousands):
 
<1 year
 
1-2 Years
 
2-3 Years
 
3-4 Years
 
4-5 Years
 
Total
Treasury bills
$
105,454

 
$
188,398

 
$
68,217

 
$

 
$

 
$
362,069

Corporate bonds
87,209

 
115,941

 
47,842

 
1,348

 
2,867

 
255,207

Asset-backed securities
89,576

 
21,425

 
26,142

 
7,633

 
1,616

 
146,392

Sovereign bonds
6,300

 
16,000

 

 

 

 
22,300

Agency bonds

 

 
5,905

 

 

 
5,905

Municipal bonds
3,533