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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended October 2, 2022 or |
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☐ | 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
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(Exact name of registrant as specified in its charter) |
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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
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(Address, including zip code, and telephone number, including area code, of principal executive offices) |
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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):
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Large accelerated filer | ☒ | | | | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | | | | Smaller reporting company | ☐ |
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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).
As of October 2, 2022, there were 172,930,176 shares of Common Stock, $.002 par value per share, of the registrant outstanding.
INDEX
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PART I | FINANCIAL INFORMATION | |
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
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| Three-months Ended | | Nine-months Ended | |
| October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | |
| (unaudited) | | (unaudited) | |
Revenue | $ | 209,622 | | | $ | 284,848 | | | $ | 766,657 | | | $ | 793,033 | | |
Cost of revenue | 57,383 | | | 85,712 | | | 214,316 | | | 208,189 | | |
Gross margin | 152,239 | | | 199,136 | | | 552,341 | | | 584,844 | | |
Research, development, and engineering expenses | 33,954 | | | 34,476 | | | 103,999 | | | 99,883 | | |
Selling, general, and administrative expenses | 75,371 | | | 77,113 | | | 236,156 | | | 226,380 | | |
Loss from fire (Note 17) | 2,891 | | | — | | | 20,294 | | | — | | |
Operating income | 40,023 | | | 87,547 | | | 191,892 | | | 258,581 | | |
Foreign currency gain (loss) | (1,880) | | | (586) | | | (4,367) | | | (2,233) | | |
Investment income | 1,416 | | | 1,748 | | | 4,389 | | | 5,025 | | |
Other income (expense) | (214) | | | (125) | | | (450) | | | (420) | | |
Income before income tax expense | 39,345 | | | 88,584 | | | 191,464 | | | 260,953 | | |
Income tax expense | 5,365 | | | 9,684 | | | 31,250 | | | 34,607 | | |
Net income | $ | 33,980 | | | $ | 78,900 | | | $ | 160,214 | | | $ | 226,346 | | |
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Net income per weighted-average common and common-equivalent share: | |
Basic | $ | 0.20 | | | $ | 0.45 | | | $ | 0.92 | | | $ | 1.28 | | |
Diluted | $ | 0.19 | | | $ | 0.44 | | | $ | 0.91 | | | $ | 1.26 | | |
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Weighted-average common and common-equivalent shares outstanding: | |
Basic | 173,256 | | | 176,812 | | | 173,640 | | | 176,572 | | |
Diluted | 174,327 | | | 180,342 | | | 175,233 | | | 180,109 | | |
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Cash dividends per common share | $ | 0.065 | | | $ | 0.060 | | | $ | 0.195 | | | $ | 0.180 | | |
The accompanying notes are an integral part of these consolidated financial statements.
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
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| Three-months Ended | | Nine-months Ended |
| October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 |
| (unaudited) | | (unaudited) |
Net income | $ | 33,980 | | | $ | 78,900 | | | $ | 160,214 | | | $ | 226,346 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
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Available-for-sale investments: | | | | | | | |
Net unrealized gain (loss), net of tax of $(1,564) and $(162) in the three-month periods, and net of tax of $(6,298) and $(808) in the nine-month periods, respectively | (5,315) | | | (521) | | | (21,185) | | | (2,617) | |
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Reclassification of net realized (gain) loss on the sale of available-for-sale investments into current operations | 79 | | | (19) | | | 103 | | | (87) | |
Net change related to available-for-sale investments | (5,236) | | | (540) | | | (21,082) | | | (2,704) | |
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Foreign currency translation adjustments: | | | | | | | |
Foreign currency translation adjustments | (7,352) | | | (2,136) | | | (13,425) | | | (5,243) | |
Net change related to foreign currency translation adjustments | (7,352) | | | (2,136) | | | (13,425) | | | (5,243) | |
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Other comprehensive income (loss), net of tax | (12,588) | | | (2,676) | | | (34,507) | | | (7,947) | |
Total comprehensive income | $ | 21,392 | | | $ | 76,224 | | | $ | 125,707 | | | $ | 218,399 | |
The accompanying notes are an integral part of these consolidated financial statements.
COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
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| October 2, 2022 | | December 31, 2021 |
| (unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 266,004 | | | $ | 186,161 | |
Current investments, amortized cost of $213,044 and $137,124 in 2022 and 2021, respectively, allowance for credit losses of $0 in 2022 and 2021 | 208,430 | | | 137,455 | |
Accounts receivable, allowance for credit losses of $741 and $776 in 2022 and 2021, respectively | 96,292 | | | 130,348 | |
Unbilled revenue | 2,142 | | | 3,990 | |
Inventories | 108,553 | | | 113,102 | |
Prepaid expenses and other current assets | 106,046 | | | 68,742 | |
Total current assets | 787,467 | | | 639,798 | |
Non-current investments, amortized cost of $369,868 and $587,981 in 2022 and 2021, respectively, allowance for credit losses of $0 in 2022 and 2021 | 343,198 | | | 583,748 | |
Property, plant, and equipment, net | 79,425 | | | 77,546 | |
Operating lease assets | 31,514 | | | 23,157 | |
Goodwill | 237,509 | | | 241,713 | |
Intangible assets, net | 9,420 | | | 11,888 | |
Deferred income taxes | 405,136 | | | 418,570 | |
Other assets | 6,567 | | | 7,242 | |
Total assets | $ | 1,900,236 | | | $ | 2,003,662 | |
| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 22,220 | | | $ | 44,051 | |
Accrued expenses | 64,115 | | | 92,432 | |
Accrued income taxes | 12,055 | | | 8,577 | |
Deferred revenue and customer deposits | 54,777 | | | 35,743 | |
Operating lease liabilities | 8,111 | | | 7,786 | |
Total current liabilities | 161,278 | | | 188,589 | |
Non-current operating lease liabilities | 25,260 | | | 17,795 | |
Deferred income taxes | 259,950 | | | 293,769 | |
Reserve for income taxes | 12,204 | | | 14,780 | |
Non-current accrued income taxes | 33,008 | | | 43,160 | |
Other liabilities | 19,316 | | | 15,476 | |
Total liabilities | 511,016 | | | 573,569 | |
| | | |
Commitments and contingencies (Note 10) | | | |
Shareholders’ equity: | | | |
Preferred stock, $.01 par value – Authorized: 400 shares in 2022 and 2021, respectively; no shares issued and outstanding | — | | | — | |
Common stock, $.002 par value – Authorized: 300,000 shares in 2022 and 2021, respectively; issued and outstanding: 172,930 and 175,481 shares in 2022 and 2021, respectively | 346 | | | 351 | |
Additional paid-in capital | 960,446 | | | 914,802 | |
Retained earnings | 510,877 | | | 562,882 | |
Accumulated other comprehensive loss, net of tax | (82,449) | | | (47,942) | |
Total shareholders’ equity | 1,389,220 | | | 1,430,093 | |
Total liabilities and shareholders' equity | $ | 1,900,236 | | | $ | 2,003,662 | |
The accompanying notes are an integral part of these consolidated financial statements.
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | |
| Nine-months Ended |
| October 2, 2022 | | October 3, 2021 |
| (unaudited) |
Cash flows from operating activities: | | | |
Net income | $ | 160,214 | | | $ | 226,346 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Stock-based compensation expense | 41,419 | | | 33,353 | |
Depreciation of property, plant, and equipment | 12,176 | | | 12,641 | |
Loss on disposal of property, plant, and equipment | 12 | | | 4 | |
Amortization of intangible assets | 2,468 | | | 2,773 | |
Excess and obsolete inventory charges | 2,728 | | | 2,120 | |
Non-cash impact of write-offs related to fire (Note 17) | 45,827 | | | — | |
Amortization of discounts or premiums on investments | 3,976 | | | 3,316 | |
Realized loss (gain) on sale of investments | 103 | | | (87) | |
| | | |
| | | |
Change in deferred income taxes | (14,799) | | | 1,411 | |
Change in operating assets and liabilities: | | | |
Accounts receivable | 31,018 | | | (4,295) | |
Unbilled revenue | 1,760 | | | (1,689) | |
Inventories | (35,815) | | | (22,534) | |
| | | |
Prepaid expenses and other current assets | (46,817) | | | (24,607) | |
Accounts payable | (21,577) | | | 10,576 | |
Accrued expenses | (23,813) | | | 4,416 | |
Accrued income taxes | (6,644) | | | (4,936) | |
Deferred revenue and customer deposits | 20,882 | | | 16,751 | |
Other | 4,031 | | | 3,297 | |
Net cash provided by operating activities | 177,149 | | | 258,856 | |
Cash flows from investing activities: | | | |
Purchases of investments | (77,760) | | | (607,458) | |
Maturities and sales of investments | 215,876 | | | 317,174 | |
Purchases of property, plant, and equipment | (15,605) | | | (10,689) | |
| | | |
| | | |
| | | |
Net cash provided by (used in) investing activities | 122,511 | | | (300,973) | |
Cash flows from financing activities: | | | |
Net payments from issuance of common stock under stock plans | 4,225 | | | 59,101 | |
Repurchase of common stock | (178,387) | | | (48,294) | |
Payment of dividends | (33,837) | | | (31,800) | |
| | | |
Net cash provided by (used in) financing activities | (207,999) | | | (20,993) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (11,818) | | | (2,484) | |
Net change in cash and cash equivalents | 79,843 | | | (65,594) | |
Cash and cash equivalents at beginning of period | 186,161 | | | 269,073 | |
Cash and cash equivalents at end of period | $ | 266,004 | | | $ | 203,479 | |
The accompanying notes are an integral part of these consolidated financial statements.
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 July 3, 2022 | 173,397 | | | $ | 347 | | | $ | 947,269 | | | $ | 512,230 | | | $ | (69,861) | | | $ | 1,389,985 | |
Net issuance of common stock under stock plans | 73 | | | — | | | (189) | | | — | | | — | | | (189) | |
Repurchase of common stock | (540) | | | (1) | | | — | | | (24,069) | | | — | | | (24,070) | |
Stock-based compensation expense | — | | | — | | | 13,366 | | | — | | | — | | | 13,366 | |
Payment of dividends ($0.065 per common share) | — | | | — | | | — | | | (11,264) | | | — | | | (11,264) | |
Net income | — | | | — | | | — | | | 33,980 | | | — | | | 33,980 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net unrealized gain (loss) on available-for-sale investments, net of tax of $(1,564) | — | | | — | | | — | | | — | | | (5,315) | | | (5,315) | |
| | | | | | | | | | | |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — | | | — | | | — | | | — | | | 79 | | | 79 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (7,352) | | | (7,352) | |
Balance as of October 2, 2022 (unaudited) | 172,930 | | | $ | 346 | | | $ | 960,446 | | | $ | 510,877 | | | $ | (82,449) | | | $ | 1,389,220 | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Equity |
| Shares | | Par Value | | | | |
Balance as of July 4, 2021 | 176,707 | | | $ | 353 | | | $ | 874,883 | | | $ | 593,290 | | | $ | (39,072) | | | $ | 1,429,454 | |
Net issuance of common stock under stock plans | 415 | | | 1 | | | 14,693 | | | — | | | — | | | 14,694 | |
Repurchase of common stock | (323) | | | — | | | — | | | (27,417) | | | — | | | (27,417) | |
Stock-based compensation expense | — | | | — | | | 10,614 | | | — | | | — | | | 10,614 | |
Payment of dividends ($0.060 per common share) | — | | | — | | | — | | | (10,608) | | | — | | | (10,608) | |
Net income | — | | | — | | | — | | | 78,900 | | | — | | | 78,900 | |
Net unrealized gain (loss) on available-for-sale investments, net of tax of $(162) | — | | | — | | | — | | | — | | | (521) | | | (521) | |
| | | | | | | | | | | |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — | | | — | | | — | | | — | | | (19) | | | (19) | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (2,136) | | | (2,136) | |
Balance as of October 3, 2021 (unaudited) | 176,799 | | | $ | 354 | | | $ | 900,190 | | | $ | 634,165 | | | $ | (41,748) | | | $ | 1,492,961 | |
| | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
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, 2021 | 175,481 | | | $ | 351 | | | $ | 914,802 | | | $ | 562,882 | | | $ | (47,942) | | | $ | 1,430,093 | |
Net issuance of common stock under stock plans | 256 | | | — | | | 4,225 | | | — | | | — | | | 4,225 | |
Repurchase of common stock | (2,807) | | | (5) | | | — | | | (178,382) | | | — | | | (178,387) | |
Stock-based compensation expense | — | | | — | | | 41,419 | | | — | | | — | | | 41,419 | |
Payment of dividends ($0.195 per common share) | — | | | — | | | — | | | (33,837) | | | — | | | (33,837) | |
Net income | — | | | — | | | — | | | 160,214 | | | — | | | 160,214 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net unrealized gain (loss) on available-for-sale investments, net of tax of $(6,298) | — | | | — | | | — | | | — | | | (21,185) | | | (21,185) | |
| | | | | | | | | | | |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — | | | — | | | — | | | — | | | 103 | | | 103 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (13,425) | | | (13,425) | |
Balance as of October 2, 2022 (unaudited) | 172,930 | | | $ | 346 | | | $ | 960,446 | | | $ | 510,877 | | | $ | (82,449) | | | $ | 1,389,220 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Equity |
| Shares | | Par Value | | | | |
Balance as of December 31, 2020 | 175,790 | | | $ | 352 | | | $ | 807,739 | | | $ | 487,912 | | | $ | (33,801) | | | $ | 1,262,202 | |
Net issuance of common stock under stock plans | 1,590 | | | 3 | | | 59,098 | | | — | | | — | | | 59,101 | |
Repurchase of common stock | (581) | | | (1) | | | — | | | (48,293) | | | — | | | (48,294) | |
Stock-based compensation expense | — | | | — | | | 33,353 | | | — | | | — | | | 33,353 | |
Payment of dividends ($0.180 per common share) | — | | | — | | | — | | | (31,800) | | | — | | | (31,800) | |
Net income | — | | | — | | | — | | | 226,346 | | | — | | | 226,346 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net unrealized gain (loss) on available-for-sale investments, net of tax of $(808) | — | | | — | | | — | | | — | | | (2,617) | | | (2,617) | |
| | | | | | | | | | | |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — | | | — | | | — | | | — | | | (87) | | | (87) | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (5,243) | | | (5,243) | |
Balance as of October 3, 2021 (unaudited) | 176,799 | | | $ | 354 | | | $ | 900,190 | | | $ | 634,165 | | | $ | (41,748) | | | $ | 1,492,961 | |
The accompanying notes are an integral part of these consolidated financial statements.
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, 2021 for a full description of other significant accounting policies.
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, adjustments related to the loss from fire (Note 17), and financial statement reclassifications necessary to present fairly the Company’s financial position as of October 2, 2022, and the results of its operations for the three-month and nine-month periods ended October 2, 2022 and October 3, 2021, 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 October 2, 2022 are not necessarily indicative of the results to be expected for the full year.
NOTE 2: New Pronouncements
Accounting Standards Update (ASU) 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and (ASU) 2021-01, "Reference Rate Reform (Topic 848): Scope"
The amendments in these ASUs apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Together, the ASUs provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in these ASUs are effective for all entities as of March 12, 2020 through December 31, 2022. Management does not expect ASU 2020-04 or ASU 2021-01 to have a material impact on the Company's consolidated financial statements and disclosures.
Accounting Standards Update (ASU) 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers"
The amendments in this ASU primarily address the accounting for contract assets and contract liabilities related to revenue contracts with customers in a business combination. The ASU clarifies that an acquirer should account for the related revenue contracts in accordance with Accounting Standards Codification 606 as if the acquirer had originated the contracts. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, although early adoption is permitted. The amendments in the ASU should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The expected financial statement impact of this new accounting standard cannot be reasonably estimated at this time, as the impact in future periods will depend on the contract assets and contract liabilities acquired in future business combinations. Management does not expect this ASU to have a material impact on the Company's disclosures.
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 October 2, 2022 (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 | $ | 504 | | | $ | — | | | $ | — | |
Corporate bonds | — | | | 455,220 | | | — | |
Asset-backed securities | — | | | 56,508 | | | — | |
Treasury bills | — | | | 21,591 | | | — | |
| | | | | |
Agency bonds | — | | | 15,759 | | | — | |
Sovereign bonds | — | | | 1,930 | | | — | |
Municipal bonds | — | | | 620 | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Economic hedge forward contracts | — | | | 835 | | | — | |
Liabilities: | | | | | |
| | | | | |
Economic hedge forward contracts | — | | | 442 | | | — | |
| | | | | |
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 on 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 fair value of the contingent consideration liability related to the Company's acquisition of GVi Ventures, Inc. in 2017 was written down to zero in 2019 resulting from a lower level of revenue in the Americas' automotive industry. The balance remained at zero through the remainder of the five-year assessment period which concluded during the second quarter of 2022.
Non-financial Assets that are Measured at Fair Value on a Non-recurring Basis
Non-financial assets, such as property, plant and equipment, operating lease assets, goodwill, and intangible assets, are required to be measured at fair value only when an impairment loss is recognized. The Company did not record impairment charges related to non-financial assets during the three-month or nine-month periods ended October 2, 2022 or October 3, 2021.
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):
| | | | | | | | | | | |
| October 2, 2022 | | December 31, 2021 |
Cash | $ | 265,500 | | | $ | 185,624 | |
| | | |
Money market instruments | 504 | | | 537 | |
| | | |
| | | |
Cash and cash equivalents | 266,004 | | | 186,161 | |
Corporate bonds | 151,014 | | | 73,088 | |
Asset-backed securities | 28,119 | | | 37,655 | |
Agency bonds | 15,759 | | | 2,802 | |
Treasury bills | 12,918 | | | 18,912 | |
Municipal bonds | 620 | | | 4,998 | |
| | | |
| | | |
| | | |
| | | |
Current investments | 208,430 | | | 137,455 | |
Corporate bonds | 304,206 | | | 481,218 | |
Asset-backed securities | 28,389 | | | 43,940 | |
Treasury bills | 8,673 | | | 39,753 | |
Sovereign bonds | 1,930 | | | 2,119 | |
Agency bonds | — | | | 16,077 | |
Municipal bonds | — | | | 641 | |
| | | |
| | | |
Non-current investments | 343,198 | | | 583,748 | |
| $ | 817,632 | | | $ | 907,364 | |
Corporate bonds consist of debt securities issued by both domestic and foreign companies; asset-backed securities consist of debt securities collateralized by pools of receivables or loans with credit enhancement; agency bonds consist of domestic or foreign obligations of government agencies and government-sponsored enterprises that have government backing; treasury bills consist of debt securities issued by the U.S. government; municipal bonds consist of debt securities issued by state and local government entities; and sovereign bonds consist of direct debt issued by foreign governments. All of the Company's securities as of October 2, 2022 and December 31, 2021 were denominated in U.S. Dollars.
Accrued interest receivable is recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet and amounted to $3,011,000 and $3,037,000 as of October 2, 2022 and December 31, 2021, respectively.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the Company’s available-for-sale investments as of October 2, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Current: | | | | | | | |
Corporate bonds | $ | 154,399 | | | $ | — | | | $ | (3,385) | | | $ | 151,014 | |
Asset-backed securities | 28,764 | | | — | | | (645) | | | 28,119 | |
| | | | | | | |
| | | | | | | |
Agency bonds | 16,140 | | | — | | | (381) | | | 15,759 | |
Treasury bills | 13,106 | | | 1 | | | (189) | | | 12,918 | |
Municipal bonds | 635 | | | — | | | (15) | | | 620 | |
| | | | | | | |
Non-current: | | | | | | | |
Corporate bonds | 328,548 | | | — | | | (24,342) | | | 304,206 | |
Asset-backed securities | 30,227 | | | — | | | (1,838) | | | 28,389 | |
| | | | | | | |
Treasury bills | 8,987 | | | — | | | (314) | | | 8,673 | |
Sovereign bonds | 2,106 | | | — | | | (176) | | | 1,930 | |
| | | | | | | |
| $ | 582,912 | | | $ | 1 | | | $ | (31,285) | | | $ | 551,628 | |
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 October 2, 2022 (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 |
Corporate bonds | $ | 390,656 | | | $ | (23,263) | | | $ | 64,564 | | | $ | (4,464) | | | $ | 455,220 | | | $ | (27,727) | |
| | | | | | | | | | | |
Asset-backed securities | 56,125 | | | (2,455) | | | 383 | | | (28) | | | 56,508 | | | (2,483) | |
Treasury bills | 19,427 | | | (499) | | | 101 | | | (4) | | | 19,528 | | | (503) | |
Agency bonds | 15,759 | | | (381) | | | — | | | — | | | 15,759 | | | (381) | |
Sovereign bonds | 1,930 | | | (176) | | | — | | | — | | | 1,930 | | | (176) | |
Municipal bonds | 620 | | | (15) | | | — | | | — | | | 620 | | | (15) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| $ | 484,517 | | | $ | (26,789) | | | $ | 65,048 | | | $ | (4,496) | | | $ | 549,565 | | | $ | (31,285) | |
Management monitors debt securities that are in an unrealized loss position to determine whether a loss exists related to the credit quality of the issuer. When developing an estimate of expected credit losses, management considers all relevant information including historical experience, current conditions, and reasonable forecasts of expected future cash flows. Based on this evaluation, no allowance for credit losses on debt securities was recorded as of October 2, 2022 or December 31, 2021. There was no activity recorded in the allowance for credit losses during the three-month or nine-month periods ended October 2, 2022 or October 3, 2021.
The Company recorded no gross realized gains on the sale of debt securities for the three-month period ended October 2, 2022 and gross realized gains on the sale of debt securities totaling $133,000 for the nine-month period ended October 2, 2022, and gross realized losses on the sale of debt securities totaling $79,000 and $236,000 for the three-month and nine-month periods ended October 2, 2022, respectively. The Company recorded gross realized gains on the sale of debt securities totaling $19,000 and $87,000 for the three-month and nine-month periods ended October 3, 2021, respectively, and no gross realized losses on the sale of debt securities for the three-month and nine-month periods ended October 3, 2021. Realized 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, were recorded in shareholders’ equity as accumulated other comprehensive loss.
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 October 2, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| <1 year | | 1-2 Years | | 2-3 Years | | 3-4 Years | | 4-5 Years | | | | Total |
Corporate bonds | $ | 151,014 | | | $ | 157,264 | | | $ | 104,838 | | | $ | 42,104 | | | $ | — | | | | | $ | 455,220 | |
Asset-backed securities | 28,119 | | | 16,384 | | | 3,202 | | | 8,803 | | | — | | | | | 56,508 | |
Treasury bills | 12,918 | | | 6,265 | | | 2,408 | | | — | | | — | | | | | 21,591 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Agency bonds | 15,759 | | | — | | | — | | | — | | | — | | | | | 15,759 | |
Sovereign bonds | — | | | 970 | | | — | | | 960 | | | — | | | | | 1,930 | |
Municipal bonds | 620 | | | — | | | — | | | — | | | — | | | | | 620 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| $ | 208,430 | | | $ | 180,883 | | | $ | 110,448 | | | $ | 51,867 | | | $ | — | | | | | $ | 551,628 | |
NOTE 5: Inventories
Inventories consisted of the following (in thousands):
| | | | | | | | | | | |
| October 2, 2022 | | December 31, 2021 |
Raw materials | $ | 55,801 | | | $ | 50,452 | |
Work-in-process | 1,182 | | | 5,293 | |
Finished goods | 51,570 | | | 57,357 | |
| $ | 108,553 | | | $ | 113,102 | |
Refer to Note 17 for information regarding losses incurred from the fire at the Company's primary contract manufacturer's plant in Indonesia during the second quarter of 2022, including the impact on inventories.
NOTE 6: Leases
The Company's leases are primarily leased properties across different worldwide locations where the Company conducts its operations. All of these leases are classified as operating leases. Certain leases may contain options to extend or terminate the lease at the Company's sole discretion.
As of October 2, 2022, there were two options to terminate and six options to extend that were accounted for in the determination of the lease term for outstanding leases. Certain leases contain leasehold improvement incentives, retirement obligations, escalating clauses, rent holidays, and variable payments tied to a consumer price index. There were no restrictions or covenants for outstanding leases as of October 2, 2022.
The total operating lease expense for the three-month and nine-month periods ended October 2, 2022 were $2,255,000 and $6,699,000, respectively. The total operating lease cash payments for the three-month and nine-month periods ended October 2, 2022 were $2,161,000 and $6,467,000, respectively. The total lease expense for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability for the three-month and nine-month periods ended October 2, 2022 was $35,000 and $110,000, respectively.
The total operating lease expense for the three-month and nine-month periods ended October 3, 2021 were $2,068,000 and $6,091,000, respectively. The total operating lease cash payments for the three-month and nine-month periods ended October 3, 2021 were $2,079,000 and $6,154,000, respectively. The total lease expense for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability for the three-month and nine-month periods ended October 3, 2021 was $36,000 and $114,000, respectively.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Future operating lease cash payments are as follows (in thousands):
| | | | | | | | |
Year Ended December 31, | | Amount |
Remainder of fiscal 2022 | | $ | 2,245 | |
2023 | | 8,511 | |
2024 | | 5,794 | |
2025 | | 3,837 | |
2026 | | 2,656 | |
2027 | | 2,590 | |
Thereafter | | 10,808 | |
| | $ | 36,441 | |