What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-28 compared with 2020-07-29 · 95 added, 95 removed, 84 unchanged (69% of the section changed)

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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, the expected impact of the COVID-19 pandemic on our business and results of operations, customer order rates and timing of related revenue, future product mix, restructuring and other cost savings initiatives, research and development activities, investments, liquidity, strategic plans, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected.

These forward-looking statements, which include statements regarding business and market trends, future financial performance, the expected impact of the COVID-19 pandemic on our assets, business and results of operations, customer order rates and timing of related revenue, future product mix, restructuring and other cost-savings initiatives, research and development activities, capital projects, investments, liquidity, strategic plans, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected.

Such risks and uncertainties include:

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(18) the impact of competitive pressures;

(19) the challenges in integrating and achieving expected results from acquired businesses, including the recent acquisition of Sualab;

(19) the challenges in integrating and achieving expected results from acquired businesses, including the acquisition of Sualab;

(20) potential impairment charges with respect to our investments or for acquired intangible assets or goodwill;

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Cognex products are also used to automate distribution processes in the logistics industry, including for applications in retail distribution and ecommerce to scan, track, and sort goods through distribution centers.

Revenue for the second quarter of 2020 totaled $169,097,000, representing a decrease of 15% from the second quarter of 2019.

Our business has been adversely and materially impacted by deteriorating global economic conditions resulting from the COVID-19 pandemic.

This impact was most notable in the automotive industry, our largest market, for which revenue continued to decline from the first quarter of 2020 and was significantly lower than

the second quarter of 2019.

Gross margin was 70% for the second quarter of 2020 compared to 74% for the second quarter of 2019 due to higher provisions for excess and obsolete inventories as a result of the deteriorating business conditions.

Operating expenses increased by 30% from the second quarter of 2019.

In order to more closely align our cost structure to the lower level of business, we implemented a variety of cost-cutting measures in the second quarter, including a workforce reduction and office closures, and recorded restructuring charges of $14,798,000 from these actions.

The significant decline in business levels also triggered a review of long-lived assets that resulted in intangible asset impairment charges of $19,571,000.

Excluding these charges, operating expenses decreased by 6% from the second quarter of 2019 due primarily to lower travel expenses resulting from COVID-19 restrictions.

As a result of the lower revenue level and charges related to excess inventories, restructuring actions, and intangible asset impairments, we reported an operating loss of 4% of revenue in the second quarter of 2020 compared to an operating profit of 26% of revenue in the second quarter of 2019.

We reported a net loss of 1% of revenue in the second quarter of 2020, or $0.01 per share, compared to a net profit of 24% of revenue in the second quarter of 2019, or $0.28 per share.

Revenue for the third quarter of 2020 totaled $251,073,000, representing an increase of 37% from the third quarter of 2019.

This increase was driven largely by higher revenue from certain customers in the electronics industry and ecommerce customers in the logistics industry.

Both of these industries have benefited recently from higher consumer demand during the COVID-19 pandemic.

These increases were partially offset by lower revenue from

customers in the automotive industry, which represented our largest industry in terms of revenue for fiscal year 2019, and continues to be negatively impacted by global economic conditions resulting from the COVID-19 pandemic.

Gross margin was 76% for the third quarter of 2020 compared to 74% for the third quarter of 2019.

Margin expansion was due to the favorable impact of the higher revenue on fixed manufacturing costs, as well as favorable product mix toward relatively higher-margin electronics revenue.

Operating expenses increased by 2% from the third quarter of 2019, as incentive compensation accruals were partially offset by lower travel expenses resulting from COVID-19 restrictions.

We reported operating income of 38% of revenue in the third quarter of 2020 compared to 24% of revenue in the third quarter of 2019, demonstrating the substantial operating leverage from the incremental revenue.

We reported net income of 35% of revenue in the third quarter of 2020, or $0.49 per share, compared to 23% of revenue in the third quarter of 2019, or $0.24 per share.

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.

Revenue decreased by $29,950,000, or 15%, for the three-month period and decreased by $36,199,000, or 10%, for the six-month period.

Changes in foreign currency exchange rates did not have a material impact on revenue.

Deteriorating global economic conditions resulting from the COVID-19 pandemic, which had a modest impact on our business in the first quarter of 2020, had a more significant impact in the second quarter, as we noted lower demand for our products in certain industries, additional disruptions to our supply chain, longer customer delivery times, and further shutdowns of customer facilities.

This impact was most notable in the automotive industry, for which revenue declined from the first quarter of 2020 and was significantly lower than the prior year for both the three-month and six-month periods.

Revenue in the logistics industry increased from the first quarter of 2020 and was higher than the prior year for both the three-month and six-month periods driven by higher demand from ecommerce customers.

This was partially offset, however, by lower demand from retail distribution customers and delays in revenue recognition related to customer facility access for on-site installations caused by COVID-19 conditions.

The timing of revenue recognition also impacted revenue in the electronics industry, which was lower than the prior year for the three-month period and relatively flat for the six-month period.

From a geographic perspective, revenue from customers based in the Americas decreased by 11% for the three-month period and 9% for the six-month period with the most significant decrease coming from the automotive industry.

Revenue from customers based in Europe decreased by 40% for the three-month period and 29% for the six-month period also due to lower sales in the automotive industry, as well as in the electronics industry.

Revenue from customers based in Greater China decreased by 11% for the three-month period due to lower sales from the automotive industry and were relatively flat for the six-month period, as lower revenue in the automotive industry was offset by higher revenue in the electronics industry.

Revenue from other countries in Asia increased by 23% for the three-month period and 22% for the six-month period due to higher sales from the electronics industry.

As of the date of this report, we expect revenue for the third quarter of 2020 to be higher than both the second quarter of 2020 and the third quarter of 2019 due to anticipated higher revenue in the electronics industry.

We expect COVID-19 to continue to adversely impact our revenue in the third quarter of 2020 as compared to the prior year outside of electronics, logistics ecommerce, and a few smaller industries, with the most notable adverse impact expected in the automotive industry.

It is difficult for us to quantify this impact due to many factors beyond our control and knowledge, including changing governmental regulations and the scope and duration of social distancing and commerce restrictions, including access to customer facilities for on-site installations.

Gross margin as a percentage of revenue was 70% and 73% for the three-month and six-month periods in 2020, respectively, compared to 74% for both periods in 2019.

The decrease in the gross margin percentage was due to higher provisions for excess and obsolete inventories, which totaled $7,718,000 and $8,783,000 for the three-month and six-month periods ended June 28, 2020, respectively, compared to $933,000 and $1,713,000 for the same periods in 2019.

The higher level of provisions recorded in the three-month period ended June 28, 2020 was due to lower projected sales of excess inventories as a result of the deteriorating global economic conditions from the COVID-19 pandemic.

Gross margin as a percentage of revenue would be relatively consistent for all periods presented excluding the provisions for excess and obsolete inventories.

As of the date of this report, we expect gross margin as a percentage of revenue for the third quarter of 2020 to be similar to the percentage reported in the first half of 2019.

Although we expect provisions for excess and obsolete inventory to be lower than the second quarter of 2020, we expect a greater percentage of revenue from application-specific customer solutions, which have relatively lower margins.

Revenue increased by $67,748,000, or 37%, for the three-month period and $31,549,000, or 6%, for the nine-month period.

The increase was due largely to higher revenue from large customer deployments in the electronics industry and ecommerce customers in the logistics industry, which have experienced a significant increase in demand during the COVID-19 pandemic.

In contrast, other industries we serve have experienced significantly lower demand, including the automotive industry, which was our largest industry in terms of revenue for fiscal year 2019.

Accordingly, significant portions of our business have been adversely and materially impacted by deteriorating economic conditions resulting from the COVID-19 pandemic.

Although revenue from customers in the automotive industry was lower than the prior year for both the three-month and nine-month periods, revenue from customers in this industry increased sequentially from the second quarter of 2020.

In addition, revenue from customers in certain industries in which we have a smaller presence, including medical devices, pharmaceuticals, and life sciences, also increased sequentially from the prior quarter.

Although we continue to experience certain disruptions to our business from COVID-19 and the situation is continuously changing, these conditions have improved in the third quarter.

From a geographic perspective, revenue from customers based in the Americas increased by 33% for the three-month period and 4% for the nine-month period due primarily to higher revenue in the logistics industry, partially offset by lower revenue in the automotive industry, for which the decrease was more significant in the nine-month period.

Revenue from customers based in Europe was relatively flat for the three-month period and decreased by 20% for the nine-month period due primarily to lower sales in the automotive and electronics industries.

Revenue from customers based in Greater China increased by 152% for the three-month period and 52% for the nine-month period due primarily to higher revenue in the electronics industry, partially offset by lower revenue in the automotive industry, for which the decrease was more significant in the nine-month period.

In recent years, there has been a shift in procurement for certain electronics orders for Cognex products used on assembly lines in China.

This procurement shift has resulted in an increase in revenue reported in Greater China that was previously reported in Europe.

Revenue from other countries in Asia was relatively flat for the three-month period and increased by 15% for the nine-month period due primarily to higher revenue in the electronics industry.

As of the date of this report, we expect revenue for the fourth quarter of 2020 to be lower than the third quarter of 2020 but higher than the fourth quarter of 2019.

The decrease from the third quarter of 2020 is expected to result from lower revenue in the electronics industry.

The Company's revenue in this industry has an annual cycle based on large customer deployments, with higher revenue quarters typically in the second or third quarters or a combination of both.

This year's revenue was primarily concentrated in the third quarter.

Although we expect revenue in the electronics industry to be sequentially lower in the fourth quarter of 2020, we anticipate that it will be higher than the fourth quarter of 2019, as we expect to continue to benefit from higher consumer demand for electronics products during the COVID-19 pandemic.

We also expect revenue in the logistics industry in the fourth quarter of 2020 to be higher than the same quarter in 2019 due to continued strength in the ecommerce sector.

Anticipated growth in electronics and logistics is expected to be partially offset by lower revenue in the automotive industry and certain other industries that have been adversely impacted by the COVID-19 pandemic.

It is difficult for us to quantify the future impact of COVID-19 due to many factors beyond our control and knowledge, including changing governmental regulations and the scope and duration of social distancing and commerce restrictions, including access to customer facilities for on-site installations.

Gross margin as a percentage of revenue was 76% and 74% for the three-month and nine-month periods in 2020, respectively, compared to 74% for both periods in 2019.

The increase in the gross margin percentage was primarily due to the favorable impact of the higher revenue on fixed manufacturing costs, as well as favorable product mix toward relatively higher-margin electronics revenue.

This impact was partially offset by higher provisions for excess and obsolete inventories for the nine-month period, which totaled $9,386,000 and $4,121,000 for the nine-month periods in 2020 and 2019, respectively.

The higher level of provisions recorded in the nine-month period in 2020 was due to lower projected sales of excess inventories as a result of the deteriorating global economic conditions from the COVID-19 pandemic.

As of the date of this report, we expect gross margin as a percentage of revenue for the fourth quarter of 2020 to be in the mid-70s range, but lower than the percentage reported in the third quarter of 2020 due to the anticipated lower revenue level and less favorable product mix.

Operating Expenses

Research, development, and engineering (RD&E) expenses increased by $2,318,000, or 8%, for the three-month period and $8,022,000, or 14%, for the six-month period as detailed in the table below (in thousands).

Three-month period Six-month period

Research, development, and engineering (RD&E) expenses increased by $2,125,000, or 8%, for the three-month period and increased by $10,147,000, or 12%, for the nine-month period as detailed in the table below (in thousands).

Three-month period Nine-month period

RD&E expenses in 2019 $ 28,115 $ 86,436

Personnel-related costs 1,405 3,033

Acquisition deferred compensation 1,310 2,620

Incentive compensation 2,311 4,860

Travel expense (671) (771)

Stock expense (1,130) (172)

Acquisition deferred compensation 1,310 3,930

Personnel-related costs (711) 2,322

Travel expenses (581) (1,352)

Stock expenses (870) (1,042)

Other 666 1,429

RD&E expenses in 2020 $ 30,240 $ 96,583

RD&E expenses increased due to higher personnel-related costs primarily from headcount additions related to a team of deep learning engineers from the Company's acquisition of Sualab in the fourth quarter of 2019.

The consideration for this acquisition included deferred payments that are being recorded as compensation expense over four years from the closing date, which accounted for an additional increase in RD&E expense of $1,310,000 for the three-month period and $2,620,000 for the six-month period.

In addition, the Company recorded higher incentive compensation accruals for annual plans with relevant performance goals for 2020.

We will continue to monitor the achievement of these performance goals for the remainder of the year due to the impact of COVID-19 on our business, among other factors, which may result in adjustments to our incentive compensation accruals in future quarters.

The Company recorded higher incentive compensation accruals for annual plans with relevant performance goals for 2020.

RD&E expenses also increased due to higher compensation costs from the Company's acquisition of Sualab in the fourth quarter of 2019.

The consideration for this acquisition included deferred payments that are being recorded as compensation expense over four years from the closing date, which accounted for an increase in RD&E expense of $1,310,000 for the three-month period and $3,930,000 for the nine-month period.

Although this acquisition also resulted in higher personnel-related costs from headcount additions related to a team of deep learning engineers, the impact of this incremental headcount was offset by a workforce reduction in the second quarter of 2020.

These increases were partially offset by lower travel expenses resulting from COVID-19 restrictions.

We expect these restrictions to continue in the third quarter of 2020.

We expect these restrictions to continue in the fourth quarter of 2020.

The Company also recorded lower stock expense as a result of a lower total value of awards granted in 2020 as compared to 2019, as well as the impact on the timing of stock expense recognition from a shift in our compensation practices toward the granting of restricted stock units with cliff vesting.

In addition, credits were recorded to stock expense in the second quarter of 2020 for awards cancelled as a result of a workforce reduction.

RD&E expenses as a percentage of revenue were 18% and 20% for the three-month and six-month periods in 2020, respectively, compared to 14% and 16% for the same periods in 2019.

RD&E expenses as a percentage of revenue were 12% and 16% for the three-month and nine-month periods in 2020, respectively, compared to 15% and 16% for the same periods in 2019.

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, 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 currently intend to continue our product development plans during periods of lower revenue levels.

We currently expect to continue to make significant RD&E investments to support our product development plans during the COVID-19 pandemic and other business disruptions generally.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses decreased by $8,092,000, or 12%, for the three-month period and $5,765,000, or 4%, for the six-month period as detailed in the table below (in thousands).

Three-month period Six-month period

Selling, general, and administrative (SG&A) expenses were relatively flat for the three-month period and decreased by $6,045,000, or 3%, for the nine-month period as detailed in the table below (in thousands).

Three-month period Nine-month period

SG&A expenses in 2019 $ 64,486 $ 199,542

Travel expense (4,843) (6,588)

Travel expenses (3,659) (10,247)

Contract labor (797) (1,923)

Foreign currency exchange rate changes 270 (1,587)

Marketing programs (125) (1,356)

Contract labor (636) (1,126)

Stock expense (1,810) (25)

Incentive compensation 5,863 9,646

Personnel-related costs (1,195) 1,412

Other (637) (1,990)

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SG&A expenses decreased due to lower travel expenses resulting from COVID-19 restrictions.

We expect these restrictions to continue in the third quarter of 2020.

Foreign currency exchange rate changes also resulted in a lower level of SG&A expenses in 2020, as costs denominated in foreign currencies were translated to U.S.

We expect these restrictions to continue in the fourth quarter of 2020.

In addition, the Company reduced spending on contract labor and marketing programs as part of actions taken to reduce operating costs during the global pandemic.

Foreign currency exchange rate changes also resulted in a lower level of SG&A expenses for the nine-month period, as costs denominated in foreign currencies were translated to U.S.

Dollars at a lower rate due to a relatively stronger U.S.

In addition, the Company reduced spending on marketing programs and contract labor in response to the lower business levels.

In addition, credits were recorded to stock expense in the second quarter of 2020 for awards cancelled as a result of a workforce reduction.

These decreases were partially offset by higher incentive compensation accruals for annual plans with relevant performance goals for 2020.

Personnel-related costs were lower for the three-month period due to the impact of a workforce reduction in the second quarter of 2020.

Restructuring Charges

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The restructuring plan included a global workforce reduction of approximately 8% and office closures.

The Company estimates the total restructuring charges from these actions to be approximately $16,445,000, of which $14,798,000 has been recorded in the second quarter.

The remaining charges of approximately $1,647,000 are expected to be recognized during the second half of 2020, primarily in the third quarter.

The Company estimates the total restructuring charges from these actions to be approximately $15,388,000, of which $14,798,000 was recorded in the second quarter and $251,000 was recorded in the third quarter of 2020.

The second quarter charge of $251,000 included a net favorable adjustment of $663,000 resulting from actual costs coming in lower than original estimates.

The remaining charge of approximately $339,000 is expected to be recorded in the fourth quarter of 2020.

The actions described above, together with actions already taken to reduce the Company's overall costs, were designed to generate an aggregate annualized cost savings of approximately $25,000,000 versus the Company's original planned cost structure.

Management does not believe these cost-saving measures will impair the Company's ability to conduct its key business functions.

Actual savings anticipated from these actions have been achieved as expected in the third quarter of 2020 as described in personnel-related costs savings in RD&E expenses and SG&A expenses.

Intangible Asset Impairment Charges

The significant decline in business levels triggered a review of long-lived assets for potential impairment in the second quarter of 2020.

This review resulted in intangible asset impairment charges totaling $19,571,000 recorded in the second quarter, primarily related to lower projected cash flows from the technologies and customer relationships acquired from Sualab as a result of the deteriorating global economic conditions from the COVID-19 pandemic.

Deteriorating global economic conditions from the COVID-19 pandemic triggered a review of long-lived assets for potential impairment in the second quarter of 2020.

This review resulted in intangible asset impairment charges totaling $19,571,000 recorded in the second quarter of 2020, primarily related to lower projected cash flows from the technologies and customer relationships acquired from Sualab.

Non-operating Income (Expense)

The Company recorded foreign currency gains of $336,000 and foreign currency losses of $2,667,000 for the three-month and six-month periods in 2020, respectively, compared to foreign currency gains of $140,000 and foreign currency losses of $108,000 for the same periods in 2019.

The Company recorded foreign currency gains of $2,357,000 and foreign currency losses of $310,000 for the three-month and nine-month periods in 2020, respectively, compared to foreign currency losses of $1,295,000 and $1,403,000 for the same periods in 2019.

Foreign currency gains and losses result 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 higher level of foreign currency losses for the six-month period in 2020 was primarily related to the revaluation of an intercompany balance that was created by the migration of acquired intellectual property from one subsidiary to another in the fourth quarter of 2019.

This intercompany balance is expected to be settled in the third quarter of 2020.

Investment income decreased by $1,932,000, or 37%, for the three-month period and $1,608,000, or 16%, for the six-month period.

The decrease was due to lower yields on the Company's portfolio of debt securities and a lower average invested balance.

The Company recorded other income of $203,000 and $20,000 for the three-month and six-month periods in 2020, respectively, compared to other expense of $144,000 and other income of $783,000 for the same periods in 2019.

Investment income decreased by $2,624,000, or 51%, for the three-month period and $4,232,000, or 28%, for the nine-month period.

The decrease was due to lower yields on the Company's portfolio of debt securities.

The Company recorded other expense of $173,000 and $153,000 for the three-month and nine-month periods in 2020, respectively, compared to other income of $456,000 and $1,239,000 for the same periods in 2019.

Other income (expense) includes fair value adjustments of contingent consideration liabilities arising from business acquisitions.

The Company recorded a $1,060,000 decrease in the fair value of its GVi contingent consideration liability in the first quarter of 2019, resulting from a lower level of revenue in the Americas’ automotive industry.

The Company recorded favorable fair value adjustments to its GVi contingent consideration liability in 2019, resulting from a lower level of revenue in the Americas’ automotive industry.

Income Tax Expense

The Company’s effective tax rate was a benefit of 51% of pre-tax loss and an expense of 7% of pre-tax income for the three-month and six-month periods in 2020, respectively, compared to an expense of 14% and 12% of pre-tax income for the same periods in 2019.

The effective tax rate included a decrease in tax expense of $4,413,000 and $6,093,000 for the three-month and six-month periods in 2020, respectively, and $1,248,000 and $3,978,000 for the same periods in 2019, primarily 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 exercises.

The Company’s effective tax rate was 14% and 12% of pre-tax income for the three-month and nine-month periods in 2020, respectively, compared to 12% of pre-tax income for both periods in 2019.

The effective tax rate included a decrease in tax expense of $4,354,000 and $10,447,000 for the three-month and nine-month periods in 2020, respectively, and $569,000 and $4,547,000 for the same periods in 2019, primarily 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.

The Company cannot predict the level of stock option exercises by employees in future periods.

Other discrete tax items included an increase in tax expense of $3,267,000 and $3,509,000 for the three-month and six-month periods in 2020, respectively, primarily from the final true-up of the prior year's tax accrual upon filing the related tax return.

Excluding the impact of these discrete items, the Company’s effective tax rate was a benefit of 1% of pre-tax loss and an expense of 19% of pre-tax income for the three-month and six-month periods in 2020, respectively, compared to an expense of 17% and 16% of pre-tax income for the same periods in 2019.

The increase in the effective tax rate, excluding the impact of discrete items, for the six-month period from 16% in 2019 to 19% in 2020 was due to more of the Company's profits being earned and taxed in higher tax jurisdictions.

This adjustment to the effective tax rate resulted in an 18 percentage-point impact on the effective tax rate for the three-month period ended June 28, 2020.

Other discrete tax items included an increase in tax expense of $129,000 and $3,638,000 for the three-month and nine-month periods in 2020, respectively, primarily from the final true-up of the prior year's tax accrual upon filing the related tax return, and a decrease in tax expense of $1,327,000 and $1,330,000 for the same periods in 2019, consisting primarily of the expiration of the statutes of limitations for certain reserves for income tax uncertainties.

Excluding the impact of these discrete items, the Company’s effective tax rate was 18% of pre-tax income for the three-month and nine-month periods in 2020, respectively, compared to 16% for the same periods in 2019.

The increase in the effective tax rate, excluding the impact of discrete items, was due to more of the Company's profits being earned and taxed in higher tax jurisdictions.

The Company has filed its U.S.

federal tax return in the fourth quarter of 2020 for tax year 2019, and as a result, is expected to record a discrete tax benefit in excess of $12,000,000 in the fourth quarter.

This benefit was the result of new regulations issued by the IRS relating to the use of foreign tax credits as allowable to reduce the tax associated with foreign operations under Global Intangible Low-Taxed Income (“GILTI”).

These credits were generated from taxes paid relating to the acquisition of Sualab in October 2019.

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 and investment balance of $896,192,000 as of June 28, 2020.

The Company has established guidelines relative to credit ratings, diversification, and maturities of its investments that maintain liquidity.

The Company’s cash requirements for the six-month period ended June 28, 2020 were primarily met with positive cash flows from operations.

The Company’s cash requirements for the nine-month period ended September 27, 2020 were primarily met with positive cash flows from operations and the proceeds from stock option exercises.

Cash requirements consisted of operating activities, the repurchase of common stock, the payment of dividends, and capital expenditures.

Capital expenditures for the six-month period ended June 28, 2020 totaled $6,985,000 and consisted primarily of computer hardware and software, manufacturing test equipment related to new product introductions, and improvements made to the Company's headquarters building in Natick, Massachusetts and various leased facilities.

The Company intends to continue to invest in capital projects in the second half of 2020 despite the current lower business levels, particularly related to its management information systems, which we believe are important to support our longer-term growth objectives.

Our business has been adversely and materially impacted by deteriorating global economic conditions resulting from the COVID-19 pandemic.

In order to more closely align our cost structure to the lower level of business, we implemented a variety of cost-cutting measures in the second quarter of 2020, including a workforce reduction and

office closures.

The Company estimates the total restructuring charges from these actions to be approximately $16,445,000, of which $3,145,000 represents non-cash charges, $4,689,000 was paid in the second quarter of 2020, and the remainder is expected to be paid out in the second half of 2020, primarily in the third quarter.

Capital expenditures for the nine-month period ended September 27, 2020 totaled $9,829,000 and consisted primarily of computer hardware and software, manufacturing test equipment related to new product introductions, and improvements made to the Company's headquarters building in Natick, Massachusetts and various leased facilities.

The Company currently intends to continue to invest in capital projects, particularly related to its management information systems, that we believe are important to support our longer-term growth objectives.

The Company implemented a variety of cost-cutting measures in the second quarter of 2020 to address the impact of the COVID-19 pandemic, including a workforce reduction and office closures.

The Company estimates the total restructuring charges from these actions to be approximately $15,388,000, of which $2,957,000 represents non-cash charges and adjustments, $8,775,000 was paid in the second and third quarters of 2020, and the remainder is expected to be paid out in the fourth quarter of 2020.

In October 2018, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock.

As of June 28, 2020, the Company repurchased 2,816,000 shares at a cost of $121,348,000 under this program, including 1,215,000 shares at a cost of $51,036,000 in the first quarter of 2020, leaving a remaining balance of $78,652,000.

No shares were repurchased during the second quarter of 2020.

As of September 27, 2020, the Company repurchased 2,816,000 shares at a cost of $121,348,000 under this program, including 1,215,000 shares at a cost of $51,036,000 in the first quarter of 2020, leaving a remaining balance of $78,652,000.

No shares were repurchased during the second or third quarters of 2020.

On March 12, 2020 the Company's Board of Directors authorized the repurchase of an additional $200,000,000 of the Company's common stock.

Purchases under this March 2020 program will commence upon completion of the October 2018 program.

Purchases under this March 2020 program will commence upon completion of the

October 2018 program.

The Company may repurchase shares under these programs in future periods depending on a variety of factors, including, among other things, the impact of dilution from employee equity awards, stock price, share availability, and cash requirements.

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The Company’s Board of Directors declared and paid cash dividends of $0.050 per share in the first, second, and third quarters of 2019.

The dividend was increased to $0.055 per share in the fourth quarter of 2019, the first quarter of 2020, and the second quarter of 2020.

Total dividends paid amounted to $18,972,000 for the six-month period ended June 28, 2020.

The dividend was increased to $0.055 per share in the fourth quarter of 2019, as well as the first, second, and third quarters of 2020.

Total dividends paid amounted to $28,554,000 for the nine-month period ended September 27, 2020.

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.

The Company believes that its existing cash 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 June 28, 2020, the Company had $896,192,000 in cash and investments.

As of September 27, 2020, the Company had approximately $1 billion in cash and investments.

In addition, the Company has no long-term debt and does not anticipate needing debt financing in the near future.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis