What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2020-10-28 · 97 added, 132 removed, 47 unchanged (83% of the section changed)

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Readers can identify these forward-looking statements by our use of the words “expects,” “anticipates,” “estimates,” “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” and similar words and other statements of a similar sense.

These statements are based upon our current estimates and expectations as to prospective events and circumstances, which may or may not be in our control and as to which there can be no firm assurances given.

These forward-looking statements, which include statements regarding business and market trends, future financial performance, 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.

These statements are based on 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 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, new product offerings, capital expenditures, investments, acquisitions, liquidity, dividends and stock repurchases, 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:

(1) the impact, duration, and severity of the COVID-19 pandemic;

(2) current and future conditions in the global economy, including the impact of the COVID-19 pandemic and the imposition of tariffs or export controls;

(3) the loss of, or curtailment of purchases by, a large customer;

(4) the reliance on revenue from the consumer electronics or automotive industries;

(5) the inability to penetrate the logistics industry and other new markets;

(6) the inability to achieve significant international revenue;

(7) fluctuations in foreign currency exchange rates and the use of derivative instruments;

(8) information security breaches or business system disruptions;

(9) the inability to attract and retain skilled employees;

(10) the failure to effectively manage our growth;

(11) the reliance upon key suppliers to manufacture and deliver critical components for our products;

(2) potential disruptions to our business due to restructuring activities;

(3) the loss of, or curtailment of purchases by, large customers in the consumer electronics and logistics industries;

(4) the reliance on revenue from the automotive industry;

(5) the reliance on key suppliers to manufacture and deliver critical components for our products and potential disruptions to the supply chain;

(6) the failure to effectively manage product transitions or accurately forecast customer demand;

(7) the inability to design and manufacture high-quality products;

(8) the inability to attract and retain skilled employees and maintain our unique corporate culture;

(9) the failure to effectively manage our growth;

(10) the inability to achieve growth in revenue and profits from the logistics industry;

(11) the technological obsolescence of current products and the inability to develop new products;

(12) the failure to properly manage the distribution of products and services;

(16) the inability to protect our proprietary technology and intellectual property;

(17) our involvement in time-consuming and costly litigation;

(13) the impact of competitive pressures;

(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;

(14) the challenges in integrating and achieving expected results from acquired businesses;

(15) potential disruptions in our business systems;

(16) information security breaches;

(17) the inability to protect our proprietary technology and intellectual property;

(18) potential impairment charges with respect to our investments or acquired intangible assets;

(19) exposure to additional tax liabilities;

and (22) potential disruptions to our business due to restructuring activities and the failure of such activities to generate the anticipated cost savings.

(20) fluctuations in foreign currency exchange rates and the use of derivative instruments;

(21) our involvement in time-consuming and costly litigation;

(22) unfavorable global economic conditions;

and (23) economic, political, and other risks associated with international sales and operations.

The foregoing list should not be construed as exhaustive and we encourage readers to refer to the detailed discussion of risk factors included in Part I - Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as updated by Part II - Item 1A of this Quarterly Report on Form 10-Q.

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Cognex machine vision is used to automate manufacturing and distribution processes in a variety of industries, where the technology is widely recognized as an important component of automated production and quality assurance.

Virtually every manufacturer can achieve better quality and manufacturing efficiency by using machine vision, and therefore, Cognex products are used by a broad base of customers across a variety of industries, including consumer electronics, automotive, consumer products, food and beverage, pharmaceuticals, and medical devices.

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 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.

Revenue for the first quarter of 2021 totaled $239,027,000, an increase of 43% from the first quarter of 2020.

The increase was driven by significantly higher revenue from the ecommerce sector of the logistics industry, in addition to growth in a variety of other industries, most notably automotive, medical-related, semiconductor, and consumer electronics.

Gross margin as a percentage of revenue improved to 77% for the first quarter of 2021 from 75% for the first quarter of 2020.

The increase was due primarily to cost efficiencies related to higher sales volume, favorable product mix, and the impact of foreign currency exchange rate changes, partially offset by a greater percentage of total revenue coming from the logistics industry, which has relatively lower gross margins.

Operating expenses increased slightly over the same quarter in 2020, as higher incentive compensation costs and the impact of foreign currency exchange rate changes were largely offset by savings from cost-cutting measures implemented in 2020.

Operating income expanded to 33% of revenue for the first quarter of 2021 compared to 13% of revenue for the first quarter of 2020, as a result of the revenue growth in the first quarter of 2021.

Net income was 29% of revenue compared to 12% of revenue for the first quarters of 2021 and 2020, respectively, and $0.39 per diluted share compared to $0.12 per diluted share for these same periods.

Results of Operations

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.

Revenue for the first quarter of 2021 totaled $239,027,000, representing an increase of $71,792,000, or 43%, over the first quarter of 2020.

The biggest driver of the increase was higher revenue from the ecommerce sector of the logistics industry, which was our largest and fastest-growing market in the first quarter of 2021.

Growth in other industries also contributed to the increase in revenue over the prior year, including higher revenue from customers in the automotive, medical-related, semiconductor, and consumer electronics industries.

The increase in medical-related revenue was due in part to COVID-19-related applications for Cognex products.

The COVID-19 outbreak had a modest adverse impact on our business in the first quarter of 2020, primarily near the end of that quarter.

From a geographic perspective, revenue from customers based in the Americas increased by 79% from the prior year driven by higher revenue in the logistics industry, and to a lesser extent, from applications in medical-related industries.

A significant portion of our logistics business currently comes from customers based in the Americas.

Revenue from customers based in Europe increased by 17% from the prior year.

Approximately half of this increase resulted from a favorable currency impact, as sales denominated in Euros were translated to U.S.

Dollars at a higher rate in the first quarter of 2021 as compared to a year ago.

The remaining increase was due to higher revenue from customers in a variety of industries, most notably logistics and automotive.

Revenue from customers based in Greater China increased by 45% from the prior year due largely to higher revenue in the consumer electronics and automotive industries, while revenue from other countries in Asia increased by 12% from the prior year due primarily to higher revenue in the semiconductor and automotive industries.

As of the date of this report, we expect revenue for the second quarter of 2021 to be higher than the second quarter of 2020, which was negatively impacted by COVID-19, as well as higher than the first quarter of 2021.

The anticipated higher revenue in the second quarter of 2021 over the same quarter in the prior year is expected to be broad-based across our regions and major industries.

Gross margin as a percentage of revenue was 77% for the first quarter of 2021 compared to 75% for the first quarter of 2020.

The increase in the gross margin percentage was primarily due to manufacturing efficiencies related to the higher revenue level, as well as favorable product mix.

The favorable impact of foreign currency exchange rates on revenue noted above also contributed to the higher gross margin percentage, as the majority of our cost of revenue is denominated in U.S.

These increases were partially offset by a greater percentage of total revenue coming from the logistics industry, which has relatively lower gross margins.

As of the date of this report, we expect gross margin as a percentage of revenue for the second quarter of 2021 to be in the mid-70% range, but lower than the 77% reported for the first quarter of 2021.

Operating Expenses

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

Research, development, and engineering (RD&E) expenses decreased by $1,841,000, or 5%, from the prior year as detailed in the table below (in thousands).

Three-month period

RD&E expenses in 2020 $ 35,946

Incentive compensation 2,311 4,860

Acquisition deferred compensation 1,310 3,930

Stock-based compensation expense (1,568)

Personnel-related costs (1,287)

Travel expenses (581) (1,352)

Stock expenses (870) (1,042)

Other 666 1,429

Foreign currency exchange rate changes 1,350

RD&E expenses in 2021 $ 34,105

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 the fourth quarter.

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 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 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.

Stock-based compensation expense decreased from the prior year due to changes in equity awards over time ( e.g.

, increased number of restricted stock units, varied vesting schedules, etc.), as well as the cancellation of awards resulting from a workforce reduction in the second quarter of 2020.

Personnel-related costs were also lower due to the workforce reduction, partially offset by annual salary increases and higher fringe benefits provided to employees.

These decreases were partially offset by the impact of foreign currency exchange rate changes that resulted in a higher level of RD&E expenses as compared to the prior year, as costs denominated in foreign currencies were translated to U.S.

Dollars at a higher rate.

RD&E expenses as a percentage of revenue were 14% for the first quarter of 2021 compared to 21% for the first quarter of 2020.

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.

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.

In addition, we consider our ability to accelerate the time to market for new products to be critical to our revenue growth.

This quarterly percentage is impacted by revenue levels and investing cycles.

Selling, General, and Administrative Expenses

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

Selling, general, and administrative (SG&A) expenses increased by $3,286,000, or 5%, from the prior year as detailed in the table below (in thousands).

Three-month period

SG&A expenses in 2020 $ 69,138

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

Contract labor (797) (1,923)

Foreign currency exchange rate changes 270 (1,587)

Marketing programs (125) (1,356)

Incentive compensation 5,147

Foreign currency exchange rate changes 2,867

Travel expenses (1,944)

Personnel-related costs (1,624)

Other (637) (1,990)

Stock-based compensation expense (1,514)

SG&A expenses in 2021 $ 72,424

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

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.

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

On May 26, 2020, the Company's Board of Directors approved a restructuring plan intended to reduce the Company's operating costs, optimize its business model, and address the impact of the COVID-19 pandemic.

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 $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.

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

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.

The increase from the prior year was due to higher expenses related to annual incentive compensation plans, which include incentive bonuses and sales commissions.

Incentive bonus accruals were higher than the prior year based on management's assessment of the Company's expected performance against relevant full-year goals.

Likewise, sales commissions increased due to the higher business levels.

In addition, foreign currency exchange rate changes resulted in a higher level of SG&A expenses as compared to the prior year, as costs denominated in foreign currencies were translated to U.S.

Dollars at a higher rate.

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

The majority of these savings came from sales activities, which continue to be redirected to online efforts due to customer facility restrictions in certain regions.

We expect restrictions to continue for at least the first half of 2021.

In addition, personnel-related costs were lower due to a workforce reduction in the second quarter of 2020, partially offset by annual salary increases and higher fringe benefits provided to employees.

Stock-based compensation expense also decreased due primarily to the impact of revised forfeiture rates.

Non-operating Income (Expense)

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.

The Company recorded foreign currency losses of $1,008,000 and $3,003,000 for the first quarters of 2021 and 2020, respectively.

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.

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.

The loss in the first quarter of 2020 was largely due to the revaluation of an intercompany balance that was created by the migration of acquired intellectual property from one subsidiary to another, which was settled in 2020.

Investment income decreased by $3,675,000, or 70%, from the prior year.

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

The Company recorded other expense of $168,000 and $183,000 for the first quarters of 2021 and 2020, respectively.

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

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 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 $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.

The Company’s effective tax rate was 11% of pre-tax income for both the first quarters of 2021 and 2020.

The effective tax rate included a decrease in tax expense of $5,207,000 and $1,680,000 for the first quarters of 2021 and 2020, respectively, related to stock options, 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 accurately predict the level of stock option exercises by employees in future periods.

Other discrete tax items included an increase in tax expense of $242,000 for the first quarter of 2020 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 18% of pre-tax income for the first quarter of 2021 compared to 17% for the first quarter of 2020.

The increase in the effective tax rate, excluding the impact of discrete items, was due to a higher percentage of the Company's pre-tax income being earned and taxed in higher tax jurisdictions.

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 approximately $1 billion as of September 27, 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 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 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.

The Company’s cash requirements for the first quarter of 2021 were primarily met with positive cash flows from operations and the proceeds from stock option exercises.

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

Cash outlays in the first quarter of 2021 included incentive compensation payments that were earned and accrued in 2020.

Capital expenditures for the first quarter of 2021 totaled $2,436,000 and consisted primarily of computer hardware and software, as well as manufacturing test equipment related to new product introductions.

In 2021, the Company is making investments in business systems related to its sales process, including systems to help our sales team more efficiently manage customer relationships and sales opportunities, which are expected to be placed into service in the first quarter of 2022.

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

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.

As of April 4, 2021, the Company repurchased 2,897,000 shares at a cost of $127,827,000 under this program, including 80,000 shares at a cost of $6,479,000 during the three-month period ended April 4, 2021, leaving a remaining balance of $72,173,000.

During the three-month period ended March 29, 2020, 1,215,000 shares were repurchased at a cost of $51,036,000 under this October 2018 program.

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.

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.

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

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

The Company is authorized to make repurchases of its common stock through open market purchases, pursuant to Rule 10b5-1 trading plans, or in privately negotiated transactions.

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, 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’s Board of Directors declared and paid cash dividends of $0.060 per share in the first quarter of 2021, totaling $10,595,000.

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

As of April 4, 2021, the Company had $876,284,000 in cash and investments.

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

We believe that our strong cash position has put us in a relatively good position to maintain our liquidity during downturns in our business related to COVID-19 and with respect to our longer-term liquidity needs.

We believe that our strong cash position has put us in a relatively good position with respect to our longer-term liquidity needs.

New Pronouncements

3 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