What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 99 added, 84 removed, 85 unchanged (68% of the section changed)

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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, 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.

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 demand and order rates and timing of related revenue, managing supply shortages, future product mix, restructuring and other cost-savings initiatives, research and development activities, sales and marketing activities, new product offerings, capital expenditures, investments, liquidity, dividends and stock repurchases, strategic and growth 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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(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, which could impact timely delivery of customer orders;

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

(6) disruptions in the supply chain, which could impact timely delivery of customer orders, cause customer orders to decrease, or increase costs to fulfill orders, including costs for components or freight;

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

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(16) potential disruptions in our business systems;

(16) information security breaches;

(17) information security breaches and cyber-attacks;

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

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

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

(20) exposure to additional tax liabilities;

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

The second quarter of 2020 was marked by a disruption to our business precipitated by the COVID-19 pandemic.

In response, the Company's Board of Directors approved a restructuring plan intended to reduce the Company's operating costs and optimize its business model.

As a result of this plan, Cognex recorded restructuring, intangible asset impairment, and excess and obsolete inventory charges totaling over $42 million in the second quarter of 2020.

Unless indicated otherwise, these charges are reflected in applicable year-on-year comparisons.

Additional detail on these charges can be found by referring to the Notes to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Revenue for the second quarter of 2021 totaled $269,158,000, an increase of 59% from the second quarter of 2020, which was adversely impacted by global economic conditions related to the COVID-19 pandemic.

The increase came from a broad base of industries, and most notably from the logistics, automotive, and consumer electronics industries.

Gross margin as a percentage of revenue improved to 75% for the second quarter of 2021 from 70% for the second quarter of 2020, primarily due to lower provisions for excess and obsolete inventories.

Operating expenses decreased by $16,774,000, or 13%, for the second quarter of 2021 compared to the same quarter in 2020, as restructuring and intangible asset impairment charges of $34,369,000 recorded in the second quarter of 2020 did not repeat.

Excluding these charges, operating expenses increased by $17,595,000, or 19%, primarily due to higher incentive compensation costs and the impact of foreign currency exchange rate changes, partially offset by savings from cost-cutting measures implemented in 2020.

Operating income expanded to 34% of revenue for the second quarter of 2021 compared to an operating loss of 4% of revenue for the second quarter of 2020.

Net income was 29% of revenue for the second quarter of 2021, or $0.43 per diluted share, compared to net loss of 1% of revenue for the second quarter of 2020, or $0.01 per diluted share.

Revenue for the third quarter of 2021 totaled $284,848,000, an increase of 13% from the third quarter of 2020.

increase was due to significantly higher revenue from the logistics industry, which was our largest and fastest-growing market in the third quarter of 2021, partially offset by lower consumer electronics revenue that was primarily driven by the timing of large customer deployments.

Gross margin as a percentage of revenue was 70% for the third quarter of 2021 compared to 76% for the third quarter of 2020, primarily due to an unfavorable revenue mix, as well as higher prices paid to purchase inventories in the third quarter of 2021.

Operating expenses increased by $16,892,000, or 18%, for the third quarter of 2021 compared to the same quarter in 2020, which had relatively low operating expenses due to our restructuring actions in the second quarter of 2020.

The increase was due, in part, to higher personnel-related costs, which included the impact of headcount additions to support our future growth plans, as well as higher incentive compensation costs and the impact of foreign currency exchange rate changes.

As a result of the lower gross margin percentage and higher operating expenses, operating income decreased to 31% of revenue for the third quarter of 2021 from 38% of revenue for the third quarter of 2020.

Net income was 28% of revenue for the third quarter of 2021, or $0.44 per diluted share, compared to 35% of revenue for the third quarter of 2020, or $0.49 per diluted share.

Results of Operations

Revenue increased by $100,061,000, or 59%, for the three-month period and increased by $171,853,000, or 51%, for the six-month period.

This increase reflected a broad-based recovery from the COVID-19 pandemic, which most significantly impacted our business in the second quarter of 2020.

Although revenue increased from the prior year in all major industries we serve, the most significant dollar increases came from our three largest markets of logistics, automotive, and consumer electronics.

Included in our logistics growth is higher revenue from e-commerce customers that we believe may be benefiting from an online ordering trend that has grown since the COVID-19 pandemic.

Growth in other industries also contributed to the increase, including higher revenue from customers in

the semiconductor and medical-related industries.

Compared to the first quarter of 2021, revenue increased by $30,131,000, or 13%, due largely to the timing of revenue in the consumer electronics industry.

Revenue for the second quarter of 2021 was modestly impacted by delays of customer deliveries for certain products due to global supply shortages.

From a geographic perspective, revenue from customers based in the Americas increased by 57% for the three-month period and 67% for the six-month period driven by higher revenue in the logistics industry, and to a lesser extent, from applications in medical-related and automotive industries.

Revenue from customers based in Europe increased by 67% for the three-month period and 38% for the six-month period as a result of higher revenue from customers in a variety of industries, most notably automotive and logistics.

Changes in foreign currency exchange rates accounted for approximately 10% of the revenue increase in both periods, and related to the translation of Euro denominated revenue to U.S.

Revenue from customers based in Greater China increased by 87% for the three-month period and 68% for the six-month period due largely to higher revenue in the consumer electronics and automotive industries.

A portion of the increase was driven by the timing of revenue in the consumer electronics industry, as there was a higher concentration of this revenue in the second quarter of 2021 compared to the second quarter of 2020.

Changes in foreign currency exchange rates accounted for a relatively small percentage of the revenue increase in both periods, and related to the translation of Chinese Yuan denominated revenue to U.S.

Revenue from other countries in Asia increased by 27% for the three-month period and 20% for the six-month period due primarily to higher revenue in the semiconductor and automotive industries.

As of the date of this report, we expect revenue for the third quarter of 2021 to be higher than the second quarter of 2021, due primarily to higher revenue from customers in the consumer electronics and logistics industries.

Although we expect a sequential increase in revenue from the consumer electronics industry, we expect revenue from this industry to be lower than the prior year.

Our estimates for the third quarter of 2021 assume continued delays of customer deliveries for certain products due to global supply shortages.

Gross margin as a percentage of revenue was 75% and 76% for the three-month and six-month periods in 2021, respectively, compared to 70% and 73% for the same periods in 2020.

The increase in the gross margin percentage was primarily due to lower provisions for excess and obsolete inventories as compared to the prior year.

The higher provisions in 2020 took into account the global economic conditions resulting 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 manufacturing efficiencies related to the higher revenue level were partially offset by a greater percentage of total revenue coming from the logistics industry, which has relatively lower gross margins.

In addition, we paid higher prices to purchase inventories in the second quarter of 2021 due to global supply shortages that we expect to continue for the remainder of the year.

As of the date of this report, we expect gross margin as a percentage of revenue for the third quarter of 2021 to be in the low-to-mid 70% range, but likely lower than the 75% reported for the second quarter of 2021.

We expect a sequential decrease due to lower margins from strategic logistics projects, as well continued higher inventory purchase prices.

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 increased by $33,775,000, or 13%, for the three-month period and increased by $205,628,000, or 35%, for the nine-month period.

The most significant increase came from customers in the logistics industry, particularly in the e-commerce and omni-channel retail sectors.

Growth in the automotive, semiconductor, medical-related, and consumer products industries also contributed to the increase.

The increases in these industries were partially offset by a decrease in revenue from the consumer electronics industry.

A higher concentration of consumer electronics revenue from large customer deployments in the third quarter of 2020 resulted in a more significant decrease in revenue in this industry for the three-month period in 2021.

We believe the increases in revenue for the three-month and nine-month periods would have been moderately higher were it not for global supply shortages that continued to delay customer deliveries of certain products and worsened throughout the quarter.

Based in part on product availability, the Company was able to fulfill customer orders in the logistics industry in the third quarter of 2021 that were originally expected to be fulfilled in the fourth quarter of 2021, which lessened the impact of delays of other customer deliveries during the third quarter.

From a geographic perspective, revenue from customers based in the Americas increased by 32% for the three-month period and 53% for the nine-month period driven primarily by higher revenue in the logistics industry.

Revenue from customers in medical-related industries was also notably higher for nine-month period.

Revenue from customers based in Europe increased by 8% for the three-month period and 26% for the nine-month period.

Changes in foreign currency exchange rates resulted in a higher level of reported revenue in 2021, as sales denominated in Euros were translated into U.S.

Dollars at a higher rate.

Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Europe increased by 7% for the three-month period and 20% for the nine-month period.

The increase came from customers in a variety of industries, most notably logistics, automotive, and consumer products, partially offset by lower revenue in the consumer electronics industry.

The decline in revenue from consumer electronics was partially a result of procurement changes made by certain customers, shifting their purchases to China from Europe.

Revenue from customers based in Greater China decreased by 15% for the three-month period and increased by 21% for the nine-month period.

Changes in foreign currency exchange rates resulted in a higher level of reported revenue in 2021, as sales denominated in Chinese Renminbi were translated into U.S.

Dollars at a higher rate.

Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Greater China

decreased by 22% for the three-month period and increased by 13% for the nine-month period.

Although revenue increased in a variety of industries over the prior year, most notably automotive and semiconductor, this increase was offset by a decrease in consumer electronics revenue for the three-month period, as there was a higher concentration of this revenue from large customer deployments in the third quarter of 2020 as compared to the third quarter of 2021.

Revenue from other countries in Asia increased by 48% for the three-month period and 28% for the nine-month period due to higher revenue in a range of industries, including automotive and semiconductor.

As of the date of this report, we expect revenue for the fourth quarter of 2021 to be lower than the third quarter of 2021 and relatively flat with the fourth quarter of 2020.

The decrease from the third quarter of 2021 is expected to result from lower revenue in the consumer electronics and logistics industries, due particularly to the timing of large customer deployments in these industries, as well as the earlier fulfillment of customer orders in the logistics industry in the third quarter of 2021.

Revenue in the fourth quarter of 2020 benefited from higher consumer demand for electronic products that we believe related to the COVID-19 pandemic.

Our current expectations regarding revenue for the fourth quarter of 2021 assume continued delays of customer deliveries for certain products due to global supply shortages that we believe will continue throughout the quarter, while similar challenges did not exist in the prior year.

Gross margin as a percentage of revenue was 70% and 74% for the three-month and nine-month periods in 2021, respectively, compared to 76% and 74% for the same periods in 2020.

The decrease for the three-month period was primarily due to an unfavorable revenue mix.

This decrease was a result of delays of higher-margin product sales due to global supply shortages, as well as a greater percentage of total revenue coming from the logistics industry, which has relatively lower gross margins.

Logistics revenue for the third quarter of 2021 included some comparatively lower margins from strategic logistics projects.

The decrease for the three-month period was also due to higher prices paid to purchase inventories in 2021 due primarily to global supply chain constraints, including higher costs for components and freight, that we expect to continue for several quarters.

For the nine-month period, the unfavorable impact of a higher percentage of logistics revenue and higher inventory purchases prices was offset by lower provisions for excess and obsolete inventories as compared to the prior year and manufacturing efficiencies related to the higher revenue level.

The higher provisions for excess and obsolete inventories in 2020 took into account the global economic conditions resulting 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 2021 to be in the low-70% range.

We expect to have a more favorable revenue mix in the fourth quarter of 2021 as compared to the third quarter of 2021.

We also expect higher inventory purchase prices in the fourth quarter of 2021 as compared to the third quarter of 2021.

Operating Expenses

Research, Development, and Engineering Expenses

Research, development, and engineering (RD&E) expenses increased by $905,000, or 3%, for the three-month period and decreased by $936,000, or 1%, 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 $4,236,000, or 14%, for the three-month period and $3,300,000, or 3%, for the nine-month period as detailed in the table below (in thousands).

Three-month period Nine-month period

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

Personnel-related costs (1,350) (2,637)

Stock-based compensation expense 554 (1,014)

Foreign currency exchange rate changes 492 3,057

Incentive compensation 377 1,928

Outsourced engineering services 1,171 950

Personnel-related costs 1,506 (1,131)

Other 690 (1,504)

RD&E expenses in 2021 $ 34,476 $ 99,883

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 decreased for the six-month period 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 the workforce reduction.

This decrease was partially offset by credits related to the workforce reduction that were recorded in the second quarter of 2020 and did not repeat, the impact of which resulted in an increase in stock-based compensation expense for the three-month period.

Foreign currency exchange rate changes 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.

RD&E expenses increased due to foreign currency exchange rate changes, as costs denominated in foreign currencies were translated into U.S.

Dollars at a higher rate.

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.

RD&E expenses as a percentage of revenue were 12% and 13% for the three-month period and six-month period, respectively, compared to 18% and 20% for the same periods in 2020.

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

Higher spending on outsourced engineering services due to the timing of product development activities,

including engineering prototypes for large sales opportunities, also contributed to the increase.

These increases were partially offset by lower personnel-related costs for the nine-month period due to a workforce reduction in the second quarter of 2020.

Higher costs from annual salary increases and fringe benefits provided to employees, as well as headcount additions to support new product initiatives, partially offset the lower costs from the workforce reduction in the nine-month period and resulted in an increase in costs for the three-month period.

RD&E expenses as a percentage of revenue were 12% and 13% for the three-month period and nine-month period, respectively, compared to 12% and 16% for the same periods in 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.

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Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses increased by $16,690,000, or 28%, for the three-month period and $19,976,000, or 15%, 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 increased by $12,907,000, or 20%, for the three-month period and $32,883,000, or 17%, for the nine-month period as detailed in the table below (in thousands).

Three-month period Nine-month period

SG&A expenses in 2020 $ 64,206 $ 193,497

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Foreign currency exchange rate changes 1,207 7,029

Personnel-related costs 4,313 3,292

Business system investments 624 1,931

Marketing programs 702 971

Stock-based compensation expense 1,037 1,486

Personnel-related costs 603 (1,021)

Marketing programs 455 1,426

Recruiting costs 524 1,187

Travel expenses 949 754

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SG&A expenses in 2021 $ 77,113 $ 226,380

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

SG&A expenses increased 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.

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.

Personnel-related costs increased due to higher costs from annual salary increases and fringe benefits provided to employees, as well as sales headcount additions in strategic growth areas of the business.

The increase was more significant in the three-month period than in the nine-month period due to the impact of the workforce reduction that took place in the second quarter of 2020.

In addition to salaries and fringe benefits, these personnel-related costs included sales commissions and travel expenses related to the additional headcount.

The headcount additions also drove higher recruiting costs.

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 into U.S.

Dollars at a higher rate.

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A portion of these costs is expensed as incurred, while the majority of these investments will be accounted for as a capital asset that is expected to be placed into service in the first quarter of 2022.

The Company also increased spending on marketing programs in an effort to generate future sales opportunities, particularly related to new product introductions.

Finally, stock-based compensation expense increased due primarily to credits related to the workforce reduction that were recorded in the second quarter of 2020 and did not repeat, partially offset by decreases due to the impact of forfeiture rates revised in the first quarter of 2021 and changes in equity awards over time.

These increases were partially offset by lower personnel-related costs for the six-month period due to the workforce reduction, net of higher costs from annual salary increases and higher fringe benefits provided to employees.

For the three-month period, there was a lesser impact due to the timing of the workforce reduction that took place on May 26, 2020.

In addition, during the second quarter of 2021, the Company increased its sales headcount in strategic growth areas of the business.

Travel expenses were slightly lower for the six-month period, but were higher for the three-month period, as restrictions related to COVID-19 that were still in place in the first quarter of 2021 were eased in certain regions in the second quarter of 2021.

In addition, stock-based compensation increased as a result of changes in equity awards over time (e.g., increased number of restricted stock units, varied vesting schedules, timing of awards, etc.), partially offset by decreases due to the impact of forfeiture rates revised in the first quarter of 2021.

Stock-based compensation expense for the nine-month period also increased due to credits related to the workforce reduction that were recorded in the second quarter of 2020 and did not repeat.

The Company also increased spending on marketing programs in an effort to generate future sales opportunities, particularly related to new product introductions, and incurred higher travel expenses as restrictions related to COVID-19 continued to ease in certain regions.

Restructuring and Intangible Asset Impairment Charges

In the second quarter of 2020, the Company recorded restructuring charges totaling $14,798,000 as a result of actions related to the Company’s restructuring plan, which included a global workforce reduction of approximately 8% and office closures.

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 Company recorded restructuring charges of $251,000 and $15,049,000 for the three-month and nine-month periods in 2020, respectively, as a result of actions related to the restructuring plan, which included a global workforce reduction of approximately 8% and office closures.

In addition, the adverse impact of the COVID-19 pandemic triggered a review of long-lived assets for potential impairment in the second quarter of 2020.

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Non-operating Income (Expense)

The Company recorded foreign currency losses of $639,000 and $1,647,000 for the three-month and six-month periods in 2021, respectively, compared to foreign currency gains of $336,000 and foreign currency losses of $2,667,000 for the same periods in 2020.

The Company recorded foreign currency losses of $586,000 and $2,233,000 for the three-month and nine-month periods in 2021, respectively, compared to foreign currency gains of $2,357,000 and foreign currency losses of $310,000 for the same periods in 2020.

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 $1,568,000, or 48%, for the three-month period and $5,243,0000, or 62%, for the six-month period.

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

The Company recorded other expense of $127,000 and $295,000 for the three-month and six-month periods in 2021, respectively, compared to other income of $203,000 and $20,000 for the same periods in 2020.

Investment income decreased by $742,000, or 30%, for the three-month period and $5,985,0000, or 54%, for the nine-month period.

The decrease was due primarily to lower yields on the Company's portfolio of debt securities, partially offset by higher invested balances.

The Company recorded other expense of $125,000 and $420,000 for the three-month and nine-month periods in 2021, respectively, compared to other expense of $173,000 and $153,000 for the same periods in 2020.

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

Income Tax Expense (Benefit)

The Company’s effective tax rate was 17% and 14% of pre-tax income for the three-month and six-month periods in 2021, respectively, compared to a benefit of 51% of pre-tax loss and an expense of 7% of pre-tax income for the same periods in 2020.

The effective tax rate included a decrease in tax expense of $1,431,000 and $6,638,000 for the three-month and six-month periods in 2021, respectively, and $4,413,000 and $6,093,000 for the same periods in 2020, 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’s effective tax rate was 11% and 13% of pre-tax income for the three-month and nine-month periods in 2021, respectively, compared to 14% and 12% for the same periods in 2020.

The effective tax rate included a decrease in tax expense of $3,250,000 and $9,888,000 for the three-month and nine-month periods in 2021, respectively, and $4,354,000 and $10,447,000 for the same periods in 2020, 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 $535,000 for both the three-month and six-month periods in 2021, and an increase in tax expense of $3,267,000 and $3,509,000 for the three-month and six-month periods in 2020, respectively, 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 an expense of 18% of pre-tax income for both the three-month and six-month periods in 2021, compared to a benefit of 1% of pre-tax loss and an expense of 19% of pre-tax income for the same periods in 2020.

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

There was an adjustment in the three-month period in 2020 to bring the year-to-date effective tax rate to 19%.

Other discrete tax items included a decrease in tax expense of $3,012,000 and $2,477,000 for the three-month and nine-month periods in 2021, respectively, and an increase in tax expense of $129,000 and $3,638,000 for the same periods in 2020, respectively, 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 three-month and nine-month periods in both 2021 and 2020.

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 $951,749,000 as of July 4, 2021.

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 July, 4, 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 flows from operating activities included increases in accounts receivable and inventories related to higher business levels.

The Company expects inventory levels to continue to increase for the remainder of the year as we receive inventory that we purchased in response to global supply chain challenges.

Capital expenditures for the six-month period ended July 4, 2021 totaled $6,550,000 and consisted primarily of computer hardware and software, as well as manufacturing test equipment related to new product introductions.

The Company’s cash requirements for the nine-month period ended October 3, 2021 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.

Cash flows from operating activities included an increase in inventories to support higher business levels and to secure key strategic components.

The Company expects inventory levels to continue to increase for the remainder of the year as we receive inventory that we are purchasing in response to global supply chain challenges.

Capital expenditures for the nine-month period ended October 3, 2021 totaled $10,689,000 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.

In 2021, the Company is making investments in business systems related to its sales process, the majority of which will be accounted for as a capital asset that is 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 July 4, 2021, the Company repurchased 3,075,000 shares at a cost of $142,225,000 under this program, including 258,000 shares at a cost of $20,877,000 during the six-month period ended July 4, 2021, leaving a remaining balance of $57,775,000.

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

common stock.

As of October 3, 2021, the Company repurchased 3,398,000 shares at a cost of $169,643,000 under this program, including 581,000 shares at a cost of $48,294,000 during the nine-month period ended October 3, 2021, leaving a remaining balance of $30,357,000.

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.

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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 $0.060 per share in the first and second quarters of 2021, totaling $21,192,000.

The Company’s Board of Directors declared and paid cash dividends of $0.060 per share in the first, second, and third quarters of 2021, totaling $31,800,000.

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.

7 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