What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-16 compared with 2022-02-17 · 228 added, 226 removed, 985 unchanged (32% of the section changed)

2 unchanged sentences

Consolidated Financial Statements:

Report of Independent Registered Public Accounting Fir m (PCAOB ID N um ber 248 )

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )

Consolidated Statements of Operations for the Years Ended December 31, 2022, 2021, and 2020

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Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Cognex Corporation (a Massachusetts corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule included under Item 15(2) (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of Cognex Corporation (a Massachusetts corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition – Application-Specific Customer Solutions

As described further in Notes 1 and 14 to the financial statements, the Company recognizes revenue from application-specific customer solutions.

As described further in Notes 1 and 14 to the consolidated financial statements, the Company recognizes revenue from application-specific customer solutions.

For these transactions, revenue is recognized at the point in time when the solution is validated, which is when the Company can objectively determine that the agreed-upon specifications in the contract have been met and the customer will accept the performance obligation in the contract.

We identified revenue recognition related to application-specific customer solutions as a critical audit matter.

The principal considerations for our determination that application-specific customer solutions revenue is a critical audit matter are that determining the timing of validation and that the agreed-upon specifications in the contract have been met relies on the use of management estimates and requires a higher degree of auditor subjectivity and judgement in designing and executing audit procedures.

Accounting for application-specific customer solutions requires the Company to monitor and evaluate customer contracts on an ongoing basis to determine the point in time at which the agreed-upon specifications in the contract have been met.

Our audit procedures related to the revenue recognition of application-specific customer solutions included the following, among others.

The principal considerations for our determination that revenue recognition related to application-specific customer solutions is a critical audit matter are that evaluating the performance obligations and determining the timing of validation and that the agreed-upon specifications in the contract have been met relies on the use of management judgments and requires a higher degree of auditor judgment in designing, executing and evaluating the results of audit procedures.

Accounting for application-specific customer solutions requires the Company to monitor and

Table of Content

• We tested the design and operating effectiveness of internal controls related to the monitoring of application-specific customer solutions and the determination of the timing of revenue recognition.

• We evaluated management’s significant accounting policies related to these customer contracts for appropriate revenue recognition based on key terms and provisions.

• For a sample of transactions, we inspected source documents, including the customer contract or purchase order, third-party shipping information, invoice, and evidence of acceptance.

evaluate customer contracts on an ongoing basis to determine the point in time at which the solution is validated, the agreed-upon specifications in the contract have been met and revenue can be recognized.

Our audit procedures related to the revenue recognition of application-specific customer solutions included the following, among others.

• We tested the design and operating effectiveness of internal controls related to the monitoring of application-specific customer solutions contracts, determination of validation and the timing of revenue recognition.

• We evaluated management’s significant accounting policies related to these customer contracts, including the determination of the performance obligation, for appropriate revenue recognition based on key terms and provisions.

• For a sample of contracts, we inspected source documents, including the customer contract or purchase order, third-party shipping information, invoice, and evidence of validation or acceptance to evaluate the identification of performance obligations and timing of revenue recognition.

/s/ GRANT THORNTON LLP

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Selling, general, and administrative expenses 312,107 309,354 267,593

Loss from fire (Note 22) 20,779 — —

Restructuring charges (Note 23) 1,657 — 15,924

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Other income (expense) ( 412 ) ( 591 ) ( 309 )

Income before income tax expense (benefit) 318,900 186,911 162,994

Income tax expense (benefit) 39,019 10,725 ( 40,871 )

Income before income tax expense 250,695 318,900 186,911

Income tax expense 35,170 39,019 10,725

Net income $ 215,525 $ 279,881 $ 176,186

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Foreign currency translation adjustments:

Foreign currency translation adjustments ( 6,753 ) 1,115 ( 541 )

Foreign currency translation gain (loss) ( 4,385 ) ( 6,753 ) 1,115

Net change related to foreign currency translation adjustments ( 4,385 ) ( 6,753 ) 1,115

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Intangible asset impairment charges — — 19,571

Non-cash impact of charges related to fire (Note 22) 46,372 — —

Excess and obsolete inventory charges 3,084 2,573 9,908

1 unchanged sentence

Amortization of discounts or premiums on investments 4,968 4,887 1,274

Realized gain on sale of investments ( 236 ) ( 4,119 ) ( 1,452 )

Realized (gain) loss on sale of investments 182 ( 236 ) ( 4,119 )

Revaluation of contingent consideration — — ( 114 )

15 unchanged sentences

Purchases of property, plant, and equipment ( 19,667 ) ( 15,455 ) ( 13,303 )

Business acquisitions — 1,004 ( 166,911 )

Net payments related to business acquisitions ( 5,050 ) — 1,004

Net cash provided by (used in) investing activities ( 4,454 ) ( 252,539 ) 169,439

Cash flows from financing activities:

Net proceeds from issuance of common stock under stock plans 63,292 125,715 64,581

Net payments from issuance of common stock under stock plans 9,861 63,292 125,715

Repurchase of common stock ( 204,314 ) ( 161,652 ) ( 51,036 )

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Nature of Operations

Cognex Corporation is a leading provider of machine vision products that capture and analyze visual information in order to automate manufacturing and distribution tasks where vision is required.

Cognex Corporation ("the Company" or "Cognex") is a leading global provider of machine vision products and solutions that improve efficiency and quality and address some of the most critical manufacturing and distribution challenges.

Use of Estimates in the Preparation of Financial Statements

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Actual results could differ from those estimates.

Significant estimates and judgments include those related to revenue recognition, investments, inventories, intangible assets, stock-based compensation, income taxes, business acquisitions, and restructuring charges.

Significant estimates and judgments include those related to revenue recognition, investments, stock-based compensation, and income taxes.

Basis of Consolidation

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Credit losses continue to be remeasured in subsequent reporting periods.

Credit losses and recoveries related to debt securities are included in “Other income (expense)” on the Consolidated Statements of

Credit losses and

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

recoveries related to debt securities are included in “Other income (expense)” on the Consolidated Statements of Operations.

When developing an estimate of expected credit losses, management considers all relevant information including historical experience, current conditions, and reasonable forecasts of expected future cash flows.

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The Company’s inventory is subject to technological change or obsolescence.

The Company reviews inventory quantities on hand and estimates excess and obsolescence exposures based on assumptions about future demand, product transitions, and general economic and industry conditions, and records reserves to reduce the carrying value of inventories to their net realizable value.

The Company reviews inventory quantities on hand and estimates excess and obsolescence exposures based on assumptions about future demand, product transitions, general economic and industry conditions, and other circumstances, and records reserves to reduce the carrying value of inventories to their net realizable value.

If actual future demand is less than estimated, additional inventory write-downs would be required.

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In the determination of the lease term, the Company considers the existence of extension or termination options and the probability of those options being exercised.

Lease contracts may include lease components and non-lease components, such as common area maintenance and utilities for property leases.

Lease contracts may include fixed lease components and non-lease components, such as common area maintenance and utilities for property leases.

As a practical expedient, the Company accounts for the non-lease components together with the lease components as a single lease component for all of its leases.

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The lease liability equals the present value of the future cash payments discounted using the Company's incremental borrowing rate.

The Company’s incremental borrowing rate is the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments over a similar term, which is the three-month London Interbank Offered Rate (LIBOR) plus a 2% credit risk spread.

The Company’s incremental borrowing rate is the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments over a similar term, which, through year ended December 31, 2022, was estimated using the three-month London Interbank Offered Rate (LIBOR) plus a 2% credit risk spread.

Operating lease expense equals the total cash payments recognized on a straight-line basis over the lease term.

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The Company updates its estimate of variable consideration at the end of each reporting period to reflect changes in facts and circumstances.

The Company does not grant customers the explicit right to return product.

The Company typically does not grant customers the explicit right to return product.

However, from time to time, the Company may allow a customer to return a product.

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Revenue for services, which are not material, is typically recognized over the time the service is provided.

Revenue for application-specific customer solutions is recognized at the point in time when the solution is validated, which is the point in time when the Company can objectively determine that the agreed-upon specifications in the contract have been met and the customer will accept the performance obligations in the arrangement.

Although the customer may have taken legal title and physical possession of the goods when they arrived at the customer’s

Revenue for application-specific customer solutions is recognized at the point in time when the solution is validated, which is the point in time when the Company can objectively determine that the agreed-upon specifications in the contract have been met and the customer should reasonably accept the performance obligations in the arrangement.

Although the customer may have taken legal title and physical possession of the goods when they arrived at the customer’s designated site, the significant risks and rewards of ownership transfer to the customer

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

designated site, the significant risks and rewards of ownership transfer to the customer only upon validation.

only upon validation.

Revenue for on-site support services related to these solutions is recognized over the time the service is provided.

In certain instances, an arrangement may include customer-specified acceptance provisions or performance guarantees that allow the customer to accept or reject delivered products that do not meet the customer’s specifications.

If the Company can objectively determine that control of a good or service has been transferred to the customer in accordance with the agreed-upon specifications in the contract, then customer acceptance is a formality.

If the Company can objectively determine that control of a good or service has been transferred to the customer in accordance with the agreed-upon requirements in the contract, then customer acceptance is a formality.

If acceptance provisions are presumed to be substantive, then revenue is deferred until customer acceptance.

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Research and Development

Research and development costs primarily include personnel-related costs, prototyping materials, and outside services.

Research and development costs primarily include costs related to personnel, prototyping materials and equipment, and outside services.

Research and development costs are expensed when incurred until technological feasibility has been established for the product.

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Stock-Based Compensation

The Company’s stock-based awards that result in compensation expense consist of stock options and restricted stock units (RSUs).

The Company’s stock-based awards that result in compensation expense consist of stock options and restricted stock units ("RSUs"), including performance restricted stock units ("PRSUs").

The Company has reserved a specific number of shares of its authorized but unissued shares for issuance upon the exercise of stock options or the settlement of RSUs.

When a stock option is exercised or an RSU is settled, the Company issues new shares from this pool.

The fair values of stock options are estimated on the grant date using a binomial lattice model.

Management is responsible for determining the appropriate valuation model and estimating these fair values, and in doing so, considers a number of factors, including information provided by an outside valuation advisor and the observable market price of the Company's common stock on the grant date.

Management is responsible for determining the appropriate valuation model and estimating the fair value of stock-based awards, and in doing so, considers a number of factors, including information provided by an outside valuation advisor and the observable market price of the Company's common stock on the grant date.

The fair value of RSUs is determined based on the observable market price of the Company's common stock on the grant date less the present value of expected future dividends.

The fair value of PRSUs where the performance goal includes service and market conditions is calculated using a Monte Carlo simulation model to estimate the probability of satisfying the service and market conditions stipulated in the award grant.

When determining the grant-date fair value of stock-based awards, management further considers whether an adjustment is required to the observable market price or volatility of the Company's common stock that is used in the valuation as a result of material non-public information, if that information is expected to result in a material increase in share price.

The Company recognizes compensation expense related to stock-based awards using the graded attribution method, in which expense is recognized on a straight-line basis over the service period for each separately vesting

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

portion of the stock option or RSU as if the award was, in substance, multiple awards.

The amount of compensation expense recognized at the end of the vesting period is based on the number of awards for which the requisite service has been completed.

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Accumulated other comprehensive loss, net of tax, consists of foreign currency translation adjustment losses of $ 48,050,000 and $ 43,665,000 , as of December 31, 2022 and December 31, 2021, respectively;

net unrealized losses on available-for-sale investments of $ 3,006,000 as of December 31, 2021, and net unrealized gains on available-for-sale investments of $ 4,382,000 as of December 31, 2020;

and losses on currency swaps, net of gains on long-term intercompany loans of $ 1,271,000 at each year end.

net unrealized losses on available-for-sale investments of $ 19,976,000 and $ 3,006,000 as of December 31, 2022 and December 31, 2021, respectively;

and losses on currency swaps, net of gains on long-term intercompany loans of $ 1,271,000

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts reclassified from accumulated other comprehensive loss, net of tax, to investment income on the Consolidated Statements of Operations were net realized gains of $ 236,000 , $ 4,119,000 , and $ 1,452,000 for 2021, 2020, and 2019, respectively.

at each year end.

Amounts reclassified from accumulated other comprehensive loss, net of tax, to investment income on the Consolidated Statements of Operations were net realized gains (losses) of $( 182,000 ), $ 236,000 , and $ 4,119,000 for 2022, 2021, and 2020, respectively.

Concentrations of Risk

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The Company has historically not experienced any significant realized losses on its debt securities.

A single customer accounted for 17% of total revenue in 2021 and 15% of total accounts receivable as of December 31, 2021.

Accounts receivable from a second customer accounted for 11% of total accounts receivable as of December 31, 2021.

The Company has two large customers that each represented 11% of total revenue in 2022.

These two customers combined represented 17% of total accounts receivable as of December 31, 2022.

The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses.

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Our contract manufacturer's challenges in obtaining components and maintaining production have resulted in delays, and may continue to result in delays, in meeting our delivery schedules that, as a result, delay deliveries to our customers past their requested delivery date.

On June 7, 2022, this contract manufacturer suffered a fire at its Indonesian plant destroying a large portion of the Company's component inventories.

In 2022, the Company recorded a net loss related to the fire of $20,779,000, consisting primarily of losses from inventories and other assets of $48,339,000, offset by insurance recoveries of $27,560,000.

Refer to Note 22 for further information on this event and the charges recorded in "Loss from Fire" Consolidated Statements of Operations.

Certain key electronic and mechanical components, such as integrated circuit chips, are fundamental to the design of Cognex products.

Due to the impact of the COVID-19 pandemic or other factors, we have experienced, and may continue to experience, disruptions to the supply of components for our products that have resulted, and may continue to result, in higher purchase costs, delivery costs, and manufacturing delays.

Due to the impact of global supply chain challenges or other factors, we have experienced, and may continue to experience, disruptions to the supply of components for our products that have resulted, and may continue to result, in higher purchase costs, delivery costs, and manufacturing delays.

The Company sources components from preferred vendors that are selected based on price and performance considerations.

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Key assumptions used in these estimates include probability assessments with respect to the likelihood of achieving certain milestones and discount rates consistent with the level of risk of achievement.

The fair values of these contingent consideration liabilities are remeasured each reporting period with changes in fair value included in "Other income (expense)" on the Consolidated Statements of Operations.

The fair values of these contingent consideration liabilities are remeasured

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

each reporting period with changes in fair value included in "Other income (expense)" on the Consolidated Statements of Operations.

Goodwill is recognized as of the acquisition date as the excess of the consideration transferred over the net amount of assets acquired and liabilities assumed.

Transaction costs are expensed as incurred.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring Charges

One-time employee termination benefits as part of a restructuring activity exist at the date the plan of termination has been communicated to employees (the “communication date”) and meets all of the following criteria:

One-time employee termination benefits associated with restructuring activities exist at the date the plan of termination has been communicated to employees (the “communication date”) and all of the following criteria are met:

(1) management, having the authority to approve the action, has committed to the plan of termination, (2) the plan identifies the number of employees to be terminated, their job classifications or functions and their locations, and the expected completion date, (3) the plan establishes the terms of the benefit arrangement in sufficient detail, and (4) actions required to complete the plan indicate it is unlikely that significant changes to the plan will be made.

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New Pronouncements

Accounting Standards Update (ASU) 2019-12, "Simplifying the Accounting for Income Taxes"

The amendments in this ASU eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences.

They also clarify and simplify other aspects of the accounting for income taxes.

The Company adopted ASU 2019-12 on January 1, 2021.

Upon adoption, ASU 2019-12 did not have a material impact on the Company's consolidated financial statements and disclosures.

Accounting Standards Update (ASU) 2020-08, "Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs"

The amendments in this ASU clarify that for each reporting period, for callable debt with multiple call dates and call prices that may change at each call date, to the extent that the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess is amortized to the next call date.

The Company adopted ASU 2020-08 on January 1, 2021.

Upon adoption, ASU 2020-08 did not have a material impact on the Company's consolidated financial statements and disclosures.

Accounting Standards Update (ASU) 2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and (ASU) 2021-01, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting", (ASU) 2021-01, "Reference Rate Reform (Topic 848):

Scope", and Accounting Standards Update (ASU) 2022-06, "Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848"

The amendments in these ASUs apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

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The amendments in these ASUs are effective for all entities as of March 12, 2020 through December 31, 2024.

Management does not expect ASU 2020-04 or ASU 2021-01 to have a material impact on the Company's consolidated financial statements and disclosures.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management adopted Topic 848 on January 1, 2023, and now uses the Secured Overnight Financing Rate (SOFR).

The adoption did not have a material impact on the Company's financial statements and disclosures.

Accounting Standards Update (ASU) 2021-08, "Business Combinations (Topic 805):

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The amendments in the ASU should be applied prospectively to business combinations occurring on or after the effective date of the amendments.

The expected financial statement impact of this new accounting standard cannot be reasonably estimated at this time, as the impact in future periods will depend on the contract assets and contract liabilities acquired in future business combinations.

Management does not expect this ASU to have a material impact on the Company's disclosures.

Management adopted this ASU on December 1, 2022 and the adoption did not have a material impact on the Company's financial statements and disclosures.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements

11 unchanged sentences

Agency bonds — 15,858 —

Municipal bonds — 5,639

Sovereign bonds — 1,924 —

Municipal bonds — 624 —

Economic hedge forward contracts — 27 —

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The Company's contingent consideration liabilities are reported at fair value based on probability-adjusted present values of the consideration expected to be paid using significant inputs that are not observable in the market, and are therefore classified as Level 3.

Key assumptions used in these estimates include probability assessments with respect to the likelihood of achieving certain revenue milestones.

The fair values of these contingent consideration liabilities were calculated using discount rates consistent with the level of risk of achievement, and are remeasured each reporting period.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the activity for the Company's liabilities measured at fair value using Level 3 inputs (in thousands):

Balance as of December 31, 2019 $ 1,153

Fair value adjustment to Chiaro contingent consideration ( 114 )

Payment of Chiaro contingent consideration ( 1,039 )

Balance as of December 31, 2020 —

Balance as of December 31, 2021 $ —

The fair value of the contingent consideration liability related to the Company's acquisition of GVi Ventures, Inc.

in 2017 was written down to zero in 2019 resulting from a lower level of revenue in the Americas' automotive industry, and the balance remains at zero as of December 31, 2021.

The undiscounted potential outcomes related to future contingent consideration range from $ 0 to $ 2,500,000 based on certain revenue levels through April of 2022.

in 2017 was written down to zero in 2019 resulting from a lower level of revenue in the Americas' automotive industry.

The balance remained at zero through the remainder of the five-year assessment period which concluded during the second quarter of 2022.

Non-financial Assets that are Measured at Fair Value on a Non-recurring Basis

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The Company did not record impairment charges related to non-financial assets in 2022 or 2021.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash, Cash Equivalents, and Investments

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Asset-backed securities 26,890 37,655

Agency bonds 15,858 2,802

Treasury bills 11,332 18,912

Municipal bonds 624 4,998

Agency bonds 2,802 —

Sovereign bonds — 8,660

Current investments 218,759 137,455

Corporate bonds 374,440 481,218

Asset-backed securities 43,940 67,058

Treasury bills 44,214 39,753

Agency bonds 16,077 19,006

Asset-backed securities 33,539 43,940

Sovereign bonds 1,924 2,119

Agency bonds — 16,077

Municipal bonds — 641

2 unchanged sentences

The Company’s cash balance included foreign bank balances totaling $ 160,611,000 and $ 142,009,000 as of December 31, 2022 and 2021, respectively.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Corporate bonds consist of debt securities issued by both domestic and foreign companies;

asset-backed securities consist of debt securities collateralized by pools of receivables or loans with credit enhancement;

agency bonds consist of domestic or foreign obligations of government agencies and government-sponsored enterprises that have government backing;

treasury bills consist of debt securities issued by the U.S.

municipal bonds consist of debt securities issued by state and local government entities;

agency bonds consist of domestic or foreign obligations of government agencies and government-sponsored enterprises that have government backing;

and sovereign bonds consist of direct debt issued by foreign governments.

1 unchanged sentence

Accrued interest receivable is included in "Prepaid expenses and other current assets" on the Consolidated Balance Sheets and amounted to $ 3,620,000 and $ 3,037,000 as of December 31, 2022 and 2021, respectively.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the Company’s available-for-sale investments as of December 31, 2022 (in thousands):

2 unchanged sentences

Asset-backed securities 27,607 — ( 717 ) 26,890

Agency bonds 16,143 — ( 285 ) 15,858

Treasury bills 11,602 — ( 270 ) 11,332

Municipal bonds 635 — ( 11 ) 624

Agency bonds 2,800 2 — 2,802

Corporate bonds 394,576 561 ( 20,697 ) 374,440

Asset-backed securities 44,197 45 ( 302 ) 43,940

Treasury bills 44,333 79 ( 198 ) 44,214

Agency bonds 16,128 — ( 51 ) 16,077

Asset-backed securities 35,144 103 ( 1,708 ) 33,539

Sovereign bonds 2,095 — ( 171 ) 1,924

Municipal bonds 635 6 — 641

$ 699,693 $ 743 $ ( 27,560 ) $ 672,876

12 unchanged sentences

Agency Bonds 15,858 ( 285 ) — — 15,858 ( 285 )

Municipal bonds — — 3,892 ( 32 ) 3,892 ( 32 )

Sovereign bonds 967 ( 67 ) 957 ( 104 ) 1,924 ( 171 )

Municipal bonds 624 ( 11 ) — — 624 ( 11 )

$ 382,732 $ ( 12,718 ) $ 190,707 $ ( 14,842 ) $ 573,439 $ ( 27,560 )

1 unchanged sentence

Based on this evaluation, no allowance for credit losses on debt securities was recorded as of December 31, 2021.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes changes in the allowance for credit losses (in thousands):

Balance as of December 31, 2019 $ —

Increases to the allowance for credit losses 160

Decreases to the allowance for credit losses ( 160 )

Balance as of December 31, 2020 —

Balance as of December 31, 2021 $ —

Based on this evaluation, no allowance for credit losses on debt securities was recorded as of December 31, 2022, 2021 or 2020.

Management currently intends to hold these securities to full value recovery at maturity.

The Company recorded gross realized gains on the sale of debt securities totaling $ 133,000 in 2022, $ 246,000 in 2021, and $ 4,283,000 in 2020, and gross realized losses on the sale of debt securities totaling $ 315,000 in 2022, $ 10,000 in 2021, and $ 164,000 in 2020.

Realized gains and losses are included in "Investment income" on the Consolidated Statements of Operations.

Prior to the sale of these securities, unrealized gains and losses for these debt securities, net of tax, were recorded in shareholders’ equity as accumulated other comprehensive loss.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the effective maturity dates of the Company’s available-for-sale investments as of December 31, 2022 (in thousands):

<1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years Total

<1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5-7 Years Total

Corporate bonds $ 164,055 $ 167,661 $ 94,417 $ 63,101 $ 48,796 $ 465 $ 538,495

2 unchanged sentences

Agency bonds 15,858 — — — — — 15,858

Municipal bonds 4,998 641 — — — 5,639

Sovereign bonds — 967 957 — — — 1,924

Municipal bonds 624 — — — — — 624

$ 218,759 $ 183,812 $ 114,345 $ 89,056 $ 66,439 $ 465 $ 672,876

5 unchanged sentences

The Company recorded provisions for excess and obsolete inventories of $ 3,084,000 and $ 2,573,000 in 2022 and 2021, respectively, which reduced the carrying value of the inventories to their net realizable value.

The higher provisions in 2020 took into account the global economic conditions resulting from the COVID-19 pandemic.

Refer to Note 22 for information regarding losses incurred from the fire at the Company's primary contract manufacturer's plant in Indonesia on June 7, 2022, including the impact on inventories and incremental provisions for excess and obsolete inventories recorded as a result of this fire.

Property, Plant, and Equipment

10 unchanged sentences

$ 79,714 $ 77,546

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company disposed of property, plant, and equipment with a cost basis of $ 17,358,000 and accumulated depreciation of $ 16,604,000 in 2022, resulting in a loss of $ 754,000 .

Of this loss, $ 735,000 relates to production equipment destroyed as a result of the fire at the Company's primary contract manufacturer's plant in Indonesia on June 7, 2022 (refer to Note 22) and is included in "Non-cash impact of charges related to fire (Note 22)" on the Consolidated Statements of Cash Flows.

The Company disposed of property, plant, and equipment with a cost basis of $ 20,647,000 and accumulated depreciation of $ 20,614,000 in 2021, resulting in a loss of $ 33,000 .

Disposals in 2020 included leasehold improvements and other assets associated with office closures as a part of the Company's 2020 restructuring plan (refer to Note 22).

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company's leases are primarily leased properties across different worldwide locations where the Company conducts its operations.

1 unchanged sentence

Certain leases may contain options to extend or terminate the lease at the Company's sole discretion.

As of December 31, 2021, there were no options to terminate that were accounted for in the determination of the lease term for outstanding leases, and one option to extend that was accounted for in the determination of the lease term for one of the Company's outstanding leases.

As of December 31, 2020, there was one option to terminate that was accounted for in the determination of the lease term for one of the Company's outstanding leases, and no options to extend that were accounted for in the determination of the lease term for outstanding leases.

As of December 31, 2022 , there were two options to terminate and fifteen options to extend that were accounted for in the determination of the lease term for the Company's outstanding leases.

Certain leases contain leasehold improvement incentives, retirement obligations, escalating clauses, rent holidays, and variable payments tied to a consumer price index.

There were no restrictions or covenants for the outstanding leases as of December 31, 2021 or 2020.

The total operating lease expense was $ 8,180,000 in both 2021 and 2020, and $ 6,893,000 in 2019.

There were no restrictions or covenants for the outstanding leases as of December 31, 2022.

The Company did not have any leases that had not yet commenced but that created significant rights and/or obligations as of December 31, 2022.

The total operating lease expense was $ 8,939,000 in 2022, and $ 8,180,000 in both 2021 and 2020.

The total operating lease cash payments were $ 8,548,000 , $ 8,225,000 , and $ 8,009,000 in 2022, 2021, and 2020, respectively.

5 unchanged sentences

In December 2021, the Company entered into a lease for a 65,000 square-foot building in Southborough, Massachusetts for a term of ten years to serve as a new distribution center for customers in the Americas.

The transition of the current distribution center to the new Southborough facility is expected to take place during the first half of 2022.

The Company will have the right and option to extend the term of this lease for an additional period of five years, commencing upon the expiration of the original ten-year term.

As of December 31, 2021, this lease had not yet commenced, and therefore was not yet recorded on the Consolidated Balance Sheets, nor did it create any significant rights and obligations.

Future payment obligations associated with this lease, which are not included in the future operating lease cash payments table above, total $ 10,239,000 , of which $ 670,000 is payable in 2022.

The Company did not have any leases that had not yet commenced but that created significant rights and obligations as of December 31, 2020.

The Company has the right and option to extend the term of this lease for an additional period of five years , commencing upon the expiration of the original ten-year term.

This lease commenced during the first quarter of 2022, and therefore the Company recorded approximately $ 9,271,000 within "Operating lease assets" and "Operating lease liabilities" on the Consolidated Balance Sheets on the commencement date.

The weighted-average discount rate was 3.3 % and 3.4 % for the leases outstanding as of December 31, 2022 and December 31, 2021, respectively.

The weighted-average remaining lease term was 5.1 years for the leases outstanding as of both December 31, 2021 and 2020, respectively.

The weighted-average remaining lease term was 7.8 years and 5.1 years for the leases outstanding as of December 31, 2022 and 2021, respectively.

Management closed eleven leased offices in 2020, prior to the end of their lease terms, as a part of a restructuring plan (refer to Note 23).

The carrying value of the lease assets associated with these offices was reduced to zero , resulting in operating lease asset impairment charges of $ 3,427,000 in 2020 that are included in "Restructuring

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

charges" on the Consolidated Statements of Operations.

Remaining lease liability obligations associated with the early contract terminations totaled $ 765,000 and $ 1,717,000 as of December 31, 2022 and 2021, respectively, and are included in "Operating lease liabilities" on the Consolidated Balance Sheets.

The Company did not record impairment charges related to operating lease assets in 2022 or 2021.

The Company owns a building adjacent to its corporate headquarters that was partially occupied by a tenant during a portion of 2020, and for the entirety of 2019.

The Company owns a building adjacent to its corporate headquarters that was partially occupied by a tenant during a portion of 2020.

This lease terminated prior to the end of its lease term during the second quarter of 2020, and the Company is now fully occupying this building for its operations.

Annual rental income totaled $ 77,000 in 2020 and $ 311,000 in 2019.

Annual rental income related to this lease totaled $ 77,000 in 2020.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The changes in the carrying value of goodwill were as follows (in thousands):

Balance as of December 31, 2020 $ 244,078

Sualab Co., Ltd.

purchase price adjustment (refer to Note 21) ( 1,004 )

Foreign exchange rate changes ( 2,365 )

Balance as of December 31, 2021 241,713

Acquisition of SAC Sirius Advanced Cybernetics GmbH (refer to Note 21) 2,359

Foreign exchange rate changes ( 1,442 )

7 unchanged sentences

Amortization Net

Distribution networks $ 38,060 $ 38,060 $ —

Completed technologies $ 28,017 $ ( 17,744 ) $ 10,273

1 unchanged sentence

Non-compete agreements 340 ( 177 ) 163

Trademarks 110 110 —

Balance as of December 31, 2022 $ 34,195 $ ( 21,781 ) $ 12,414

1 unchanged sentence

Amortization Net

Distribution networks $ 38,060 $ 38,060 $ —

Completed technologies $ 24,217 $ ( 15,234 ) $ 8,983

1 unchanged sentence

Non-compete agreements 710 ( 492 ) 218

Distribution networks 38,060 ( 38,060 ) —

Trademarks 110 ( 110 ) —

Balance as of December 31, 2021 $ 73,675 $ ( 61,787 ) $ 11,888

In connection with the acquisition of SAC Sirius Advanced Cybernetics GmbH ("SAC") in the fourth quarter of 2022 (refer to Note 21), the Company acquired completed technologies valued at $ 3,800,000 with an estimated useful life of 7 years.

In 2022, the Company retired approximately $ 43,280,000 of intangible assets primarily related to distribution networks and customer relationships that were fully amortized and had a net carrying value of zero on the Consolidated Balance Sheets.

The adverse impact of the COVID-19 pandemic on our business in 2020 triggered a review of long-lived assets, including intangible assets, for potential impairment during the second quarter of 2020.

13 unchanged sentences

Accrued expenses consisted of the following (in thousands):

Deferred payments related to Sualab Co., Ltd.

acquisition (1)

Incentive compensation 18,554 37,917

1 unchanged sentence

Foreign retirement obligations 7,191 7,572

Warranty obligations 5,427 5,406

Vacation 5,847 4,686

Warranty obligations 4,375 5,427

Other 29,865 28,311

$ 93,235 $ 92,432

(1) The total consideration for the Company's 2019 acquisition of Sualab Co., Ltd.

included deferred payments of $ 24,040,000 that may become payable in October 2023, contingent upon the continued employment of key talent.

The deferred payments are being recorded as compensation expense over the four-year period, and the accrued balance was reclassified from "Other Liabilities" to "Accrued expenses" on the Consolidated Balance Sheets in the fourth quarter of 2022 when the liability became current.

The changes in the warranty obligation were as follows (in thousands):

6 unchanged sentences

Balance as of December 31, 2022 $ 4,375

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

3 unchanged sentences

A significant portion of the Company's outstanding inventory purchase orders as of December 31, 2022, as well as additional preauthorized commitments to procure strategic components based on the Company's expected customer demand, are placed with the Company's primary contract manufacturer for the Company's assembled products.

The Company has the obligation to purchase any non-cancelable and non-returnable components that have been purchased by this contract manufacturer with the Company's preauthorization, when these components

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

have not been consumed within the period defined in the terms of the Company's agreement with this contract manufacturer.

As a result of the terms of this agreement, the Company has purchased $ 19,448,000 , $ 4,291,000 , and $ 3,700,000 of inventory in 2021, 2020, and 2019, respectively, prior to the components being consumed by the contract manufacturer to produce the Company's assembled products.

The Company purchased $ 5,269,000 , $ 547,000 , and $ 1,311,000 in 2022, 2021, and 2020, respectively, of inventories as a result of the Company's obligation to purchase any non-cancelable and non-returnable components that have been purchased by the contract manufacturer with the Company's preauthorization, when these components have not been consumed within the period defined in the terms of the Company's agreement with this contract manufacturer.

While the Company typically expects such purchased components to be used in future production of Cognex finished goods, these components are considered in the Company's reserve estimate for excess and obsolete inventory.

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In the ordinary course of business, the Company may accept standard limited indemnification provisions in connection with the sale of its products, whereby it indemnifies its customers for certain direct damages incurred in connection with third-party patent or other intellectual property infringement claims with respect to the use of the Company’s products.

The maximum potential amount of future payments the Company could be required to make under these provisions is generally subject to fixed monetary limits.

The maximum potential amount of future payments the Company could be required to make under these provisions is, in many, but not all instances, subject to fixed monetary limits.

The Company has never incurred significant costs to defend lawsuits or settle claims related to these indemnification provisions.

1 unchanged sentence

In the ordinary course of business, the Company also accepts limited indemnification provisions from time to time, whereby it indemnifies customers for certain direct damages incurred in connection with bodily injury and property damage arising from the use of the Company’s products.

The maximum potential amount of future payments the Company could be required to make under these provisions is generally limited and is likely recoverable under the Company’s insurance policies.

Future payments the Company could be required to make under these provisions is generally recoverable under the Company’s insurance policies.

As a result of this coverage, and the fact that the Company has never incurred significant costs to defend lawsuits or settle claims related to these indemnification provisions, the Company believes the estimated fair value of these provisions is not material.

1 unchanged sentence

The Company’s foreign currency risk management strategy is principally designed to mitigate the potential financial impact of changes in the value of transactions and balances denominated in foreign currencies resulting from changes in foreign currency exchange rates.

The Company enters into economic hedges utilizing foreign currency forward contracts with maturities of up to 95 days to manage the exposure to fluctuations in foreign currency exchange rates arising primarily from foreign-denominated receivables and payables.

The gains and losses on these derivatives are intended to be offset by the changes in the fair value of the assets and liabilities being hedged.

These economic hedges are not designated as hedging instruments for hedge accounting treatment.

The Company enters into economic hedges utilizing foreign currency forward contracts with maturities that do not exceed approximately three months to manage the exposure to fluctuations in foreign currency exchange rates arising primarily from foreign-denominated receivables and payables.

The gains and losses on these derivatives are intended to be offset by the changes in the fair value of the

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

assets and liabilities being hedged.

These economic hedges are not designated as hedging instruments for hedge accounting treatment.

The Company had the following outstanding forward contracts (in thousands):

3 unchanged sentences

Euro 60,000 $ 64,174 65,000 $ 73,748

Chinese Renminbi 54,374 8,500 — —

Mexican Peso 185,000 9,480 140,000 6,842

Chinese Renminbi 55,000 7,619 54,374 8,500

Japanese Yen 700,000 5,281 600,000 5,213

British Pound 3,370 4,552 1,675 2,287

Hungarian Forint 1,590,000 4,238 1,355,000 4,155

British Pound 3,445 4,161 3,370 4,552

Canadian Dollar 1,730 1,278 1,480 1,167

Korean Won — — 6,925,000 6,377

Taiwanese Dollar — — 38,035 1,362

Singapore Dollar — — 1,465 1,110

Swiss Franc 1,120 1,218 — —

Information regarding the fair value of the outstanding forward contracts was as follows (in thousands):

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The Company maintains an allowance against its accounts receivable for credit losses.

Contract assets consist of unbilled revenue which arises when revenue is recognized in advance of billing for certain application-specific customer solutions contracts.

Contract assets consist of unbilled revenue which arises when revenue is recognized in advance of billing for primarily certain application-specific customer solutions contracts.

Contract liabilities consist of deferred revenue and customer deposits which arise when amounts are billed to or collected from customers in advance of revenue recognition.

9 unchanged sentences

Balance as of December 31, 2022 $ 730

The Company's higher estimate of expected credit losses in 2020 took into account the global economic conditions resulting from the COVID-19 pandemic.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10 unchanged sentences

As a practical expedient, the Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations, as our contracts have an original expected duration of less than one year.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Shareholders’ Equity

7 unchanged sentences

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

Under this October 2018 program, the Company repurchased 1,398,000 shares at a cost of $ 61,690,000 in 2019, 1,215,000 shares at a cost of $ 51,036,000 in 2020, and 957,000 shares at a cost of $ 78,652,000 in 2021, which completed purchases under this program.

Under this October 2018 program, in addition to repurchases made in prior years, the Company repurchased 1,215,000 shares at a cost of $ 51,036,000 in 2020, and 957,000 shares at a cost of $ 78,652,000 in 2021, which completed purchases under the 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.

Under this March 2020 program, the Company repurchased 1,060,000 shares, including 5,000 shares that had not yet settled as of December 31, 2021, at a cost of $ 83,000,000 in 2021, leaving a remaining balance of $ 117,000,000 .

Under this March 2020 program, the Company repurchased 1,060,000 shares, including 5,000 shares that were repurchased in 2021 and settled in 2022, at a cost of $ 83,000,000 in 2021, and 1,677,000 shares at a cost of $ 117,000,000 in 2022, which completed purchases under the March 2020 program.

On March 3, 2022, the Company's Board of Directors authorized the repurchase of an additional $ 500,000,000 of the Company's common stock.

Under this March 2022 program, the Company repurchased 1,682,000 shares at a total cost of $ 87,314,000 in 2022, leaving a remaining balance of $ 412,686,000 .

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.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company’s Board of Directors declared and paid cash dividends of $ 0.055 per share in the first, second, and third quarters of 2020, $ 0.060 per share in the fourth quarter of 2020 and in the first, second, and third quarters of 2021, and $ 0.065 per share in the fourth quarter of 2021 and in the first, second, and third quarters of 2022.

1 unchanged sentence

Also, in the fourth quarter of 2020, an additional special cash dividend of $ 2.00 per share was declared and paid.

Total dividends paid were $ 43,263,000 in 2021, $ 390,508,000 in 2020, which included $ 351,428,000 paid for the special cash dividend, and $ 35,124,000 in 2019.

Total dividends paid were $ 45,921,000 in 2022, $ 43,263,000 in 2021, and $ 390,508,000 in 2020, which included $ 351,428,000 paid for the special cash dividend.

Future dividends will be declared at the discretion of the Company's Board of Directors and will depend on such factors as the Board deems relevant, including, among other things, the Company's ability to generate positive cash flow from operations.

Stock-Based Compensation

The Company’s stock-based awards that result in compensation expense consist of stock options and restricted stock units (RSUs).

The Company’s stock-based awards that result in compensation expense consist of stock options, restricted stock units ("RSUs"), and performance restricted stock units ("PRSUs").

As of December 31, 2022, the Company had 13,746,000 shares available for grant under its stock plans.

Stock options are granted with an exercise price equal to the market value of the Company’s common stock at the grant date and generally vest over four or five years based on continuous employment and expire ten years from the grant date.

RSUs generally vest upon three years of continuous employment or incrementally over such three-year period.

Participants are not entitled to dividends on RSUs.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

RSUs generally vest upon three or four years of continuous employment or incrementally over such three or four year periods.

PRSUs generally vest upon three years of continuous employment and achievement of performance criteria established by the Compensation Committee of our Board of Directors on or prior to the grant date.

Participants are not entitled to dividends on stock options, RSUs, or PRSUs.

Stock Options

22 unchanged sentences

Expected term (in years) 5.5 6.0 6.0

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Risk-free rate

9 unchanged sentences

The total fair value of stock options vested was $ 41,497,000 in 2022, $ 45,328,000 in 2021, and $ 45,998,000 in 2020.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units (RSUs)

The following tables summarizes the Company's RSU activity:

The following table summarizes the Company's RSUs activity:

(in thousands) Weighted-Average

6 unchanged sentences

The fair value of RSUs is determined based on the observable market price of the Company's stock on the grant date less the present value of expected future dividends.

The weighted-average grant-date fair value of RSUs granted in 2020 and 2019 was $ 52.09 and $ 48.61 , respectively.

There were 16,000 RSUs that vested in 2021, and no RSUs that vested in 2020 and 2019.

The weighted-average grant-date fair value of RSUs granted was $ 58.06 in 2022, $ 87.03 in 2021, and $ 52.09 in 2020.

There were 192,000 RSUs that vested in 2022, 16,000 RSUs that vested in 2021, and no RSUs that vested in 2020.

Performance Restricted Stock Units (PRSUs)

The following table summarizes the Company's PRSUs activity:

(in thousands) Weighted-Average

Grant Date Fair Value

Nonvested as of December 31, 2021 — $ —

Granted 33 62.49

Forfeited or expired — —

Nonvested as of December 31, 2022 33 $ 62.49

No PRSUs were granted or vested during the years ended December 31, 2021 and December 31, 2020.

The fair value of PRSUs is calculated using a Monte Carlo simulation model to estimate the probability of satisfying the service and market conditions stipulated in the award grant.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation Expense

1 unchanged sentence

one consisting of senior management and another consisting of all other employees.

The Company currently applies an estimated forfeiture rate of 8 % to all unvested options for senior management and a rate of 12 % for all other employees.

Each year during the first quarter, the Company revises its forfeiture rate.

This resulted in a decrease to compensation expense of $ 255,000 in 2021, an increase to compensation expense of $ 1,787,000 in 2020, and a decrease to compensation expense of $ 499,000 in 2019.

As of December 31, 2021, total unrecognized compensation expense related to non-vested stock-based awards, including stock options and RSUs, was $ 47,690,000 , which is expected to be recognized over a weighted-average period of 1.4 years.

The Company currently applies an estimated annual forfeiture rate of 7 % to stock-based awards for senior management and a rate of 12 % for all other employees.

Each year during the first quarter, the Company revises its forfeiture rate based on updated estimates of employee turnover.

This resulted in an increase to compensation expense of $ 1,536,000 in 2022, a decrease to compensation expense of $ 255,000 in 2021, and an increase to compensation expense of $ 1,787,000 in 2020.

As of December 31, 2022, total unrecognized compensation expense, net of estimated forfeitures, related to non-vested stock-based awards, including stock options, RSUs, and PRSUs, was $ 56,694,000 , which is expected to be recognized over a weighted-average period of 1.51 years.

The total stock-based compensation expense and the related income tax benefit recognized was $ 54,505,000 and $ 9,540,000 , respectively, in 2022, $ 43,774,000 and $ 6,764,000 , respectively, in 2021, and $ 42,661,000 and $ 6,569,000 , respectively, in 2020.

15 unchanged sentences

Cognex stock is not an investment alternative and Company contributions are not made in the form of Cognex stock.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Domestic income before taxes was $ 48,546,000 in 2022, $ 121,729,000 in 2021, and $ 39,425,000 in 2020.

Foreign income before taxes was $ 202,149,000 in 2022, $ 197,171,000 in 2021, and $ 147,486,000 in 2020.

Income tax expense (benefit) consisted of the following (in thousands):

Income tax expense consisted of the following (in thousands):

Year Ended December 31,

9 unchanged sentences

$ 35,170 $ 39,019 $ 10,725

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the U.S.

federal statutory corporate tax rate to the Company’s income tax expense (benefit), or effective tax rate, was as follows:

federal statutory corporate tax rate to the Company’s income tax expense, or effective tax rate, was as follows:

Year Ended December 31,

6 unchanged sentences

Discrete tax benefit related to employee stock options — ( 3 ) ( 7 )

Discrete tax benefit related to tax return filings ( 1 ) ( 5 ) —

Discrete tax expense related to German withholding

Discrete tax expense related to migration of acquired IP — — 18

Discrete tax benefit related to change in tax structure — — ( 268 )

Discrete tax expense related to GILTI impact of change in tax structure — — 214

Other discrete tax events — — ( 1 )

Income tax expense (benefit) 12 % 6 % ( 25 ) %

Change in Accounting Policy

In 2019, the Company elected to change its method of accounting for the United States Global Intangible Low-Taxed Income (GILTI) tax from recording the tax impact in the period it is incurred to recognizing deferred taxes for temporary tax basis differences expected to reverse as GILTI tax in future years.

The change is considered preferable, as it appropriately matches the Company's current and deferred income tax implications related to the change in international tax structure noted above.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The change in this accounting policy impacted the Company's 2019 reported results as follows (in thousands):

Statement of Operations

Year Ended December 31, 2019

As reported under the new accounting policy As computed under the previous accounting policy Effect of change

Income before income tax expense $ 162,994 $ 162,994 $ —

Income tax expense (benefit) ( 40,871 ) ( 393,317 ) 352,446

Net income $ 203,865 $ 556,311 $ ( 352,446 )

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

Basic $ 1.19 $ 3.25 $ ( 2.06 )

Diluted $ 1.16 $ 3.17 $ ( 2.01 )

Balance Sheet

December 31, 2019

As reported under the new accounting policy As computed under the previous accounting policy

Effect of change

Deferred tax assets $ 449,519 $ 469,621 $ ( 20,102 )

Deferred tax liabilities $ 332,344 $ — $ 332,344

Statement of Shareholders' Equity

Year Ended December 31, 2019

As reported under the new accounting policy As computed under the previous accounting policy

Effect of change

Retained earnings $ 753,268 $ 1,105,714 $ ( 352,446 )

Discrete Tax Items

Income tax expense included a decrease of $ 11,036,000 in 2021, $ 12,788,000 in 2020, and $ 6,472,000 in 2019 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 predict the level of stock option exercises by employees in future periods.

Income tax expense in 2021 and 2020 also included discrete tax items related to the final true-up of the prior year's tax accrual upon filing the related tax return.

In 2020, this included a tax benefit of $ 13,984,000 primarily to recognize a foreign tax benefit on certain gains taxed outside of the United States based on clarifications to rules relating to the use of foreign tax credits.

This benefit was partially offset by tax expense for a transfer price adjustment in China of $ 3,267,000 and smaller tax expense adjustments related to foreign tax filings of $ 843,000 .

In 2020, interpretations of a German law relating to withholding taxes on intellectual property rights emerged.

The Company conducted a careful review of the interpretation, submitted required tax filings, and believes it has adequate reserves for this German tax exposure.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In 2019, the Company made changes to its international tax structure as a result of legislation by the European Union regarding low tax structures that resulted in an intercompany sale of intellectual property.

The Company recorded an associated deferred tax asset and income tax benefit of $ 437,500,000 in Ireland based on the fair value of the intellectual property, that is being realized over 15 years as future tax deductions.

From a United States perspective, the sale was disregarded, and any future deductions claimed in Ireland were added back to taxable income as part of GILTI minimum tax.

The Company recorded an associated deferred tax liability and income tax expense of $ 350,000,000 , representing the GILTI minimum tax related to the fair value of the intellectual property.

The result of these transactions was a net discrete tax benefit of $ 87,500,000 .

Management expects an immaterial impact on its current effective tax rate excluding discrete items in future years as a result of this change.

In 2019, in connection with the acquisition of Sualab, Co.

Ltd., the Company migrated acquired intellectual property to certain subsidiaries to align with its corporate tax structure.

As a result of this transaction, the Company recorded a discrete tax expense of $ 28,528,000 , which included a reserve of $ 3,700,000 for certain related tax uncertainties.

Discrete tax expense related to tax return filings 2 ( 1 ) ( 5 )

Discrete tax benefit related to a rate revaluation on state tax assets ( 2 ) — —

Discrete tax benefit related to GILTI adjustments

Discrete tax expense related to international tax reserves

Discrete tax benefit for audit settlements ( 1 ) — —

Discrete tax benefit for release of valuation allowance ( 1 ) — —

Limitation on executive compensation 1 — 1

Income tax expense 14 % 12 % 6 %

The changes in the reserve for income taxes, excluding gross interest and penalties, were as follows (in thousands):

Balance of reserve for income taxes as of December 31, 2020 $ 13,952

Gross amounts of decreases in unrecognized tax benefits as a result of tax positions taken in prior periods ( 280 )

Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in prior periods 100

5 unchanged sentences

Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period 505

Gross amounts of decreases in unrecognized tax benefits relating to settlements with taxing authorities ( 2,329 )

Gross amounts of decreases in unrecognized tax benefits as a result of the expiration of the applicable statutes of limitations ( 1,072 )

Balance of reserve for income taxes as of December 31, 2022 $ 13,647

The Company’s reserve for income taxes, including gross interest and penalties, was $ 15,808,000 as of December 31, 2021, which included $ 14,780,000 classified as a non-current liability and $ 1,028,000 recorded as a reduction to non-current deferred tax assets.

The Company's reserve for income taxes, including gross interest and penalties, was $ 15,285,000 as of December 31, 2020, which included $ 14,257,000 classified as a non-current liability and $ 1,028,000 recorded as a reduction to non-current deferred tax assets.

The Company’s reserve for income taxes, including gross interest and penalties, was $ 15,866,000 and as of December 31, 2022, which is classified as a non-current liability.

The Company's reserve for income taxes, including interest and penalties, was $ 15,808,000 as of December 31, 2021, which included $ 14,780,000 classified as a non-current liability and $ 1,028,000 recorded as a reduction to non-current deferred tax assets.

The amount of gross interest and penalties included in these balances was $ 2,219,000 and $ 1,996,000 as of December 31, 2022 and 2021, respectively.

1 unchanged sentence

As a result of the expiration of certain statutes of limitations, there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately $ 1,000,000 to $ 1,500,000 over the next twelve months.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has defined its major tax jurisdictions as the United States, Ireland, China, and Korea and within the United States, Massachusetts.

5 unchanged sentences

The tax years 2017 through 2021 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates.

The Company is under audit by the IRS for the tax years 2017 and 2018.

Additionally, the Company is under audit by the Commonwealth of Massachusetts for tax years 2017 and 2018.

Management believes the Company is adequately reserved for these

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2022 the Company settled IRS audits for the tax years 2017 and 2018 which resulted in a net discrete tax benefit.

Additionally, the Company is under audit by the Commonwealth of Massachusetts for the amended returns filed for tax years 2017 and 2018.

Management believes the Company is adequately reserved for these audits.

The final determination of tax audits could result in favorable or unfavorable changes in our estimates.

3 unchanged sentences

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities, presented on a gross basis by jurisdiction, consisted of the following (in thousands):

Gross deferred tax assets:

The tax effects of temporary differences and attributes that give rise to deferred income tax assets and liabilities as of December 31, 2022 and December 31, 2021 were as follows (in thousands):

Deferred tax assets:

Intangible asset in connection with change in tax structure 386,221 $ 404,526

5 unchanged sentences

Foreign net operating losses 53 751

Capitalization of R&D expenses 16,889 —

Other 15,102 9,023

Gross deferred tax assets 460,714 467,684

Total deferred tax assets 463,863 460,714

Valuation allowance ( 7,661 ) ( 8,188 )

$ 456,202 $ 452,526

Gross deferred tax liabilities:

Deferred tax liabilities:

GILTI tax basis differences in connection with change in tax structure $ ( 298,922 ) $ ( 327,725 )

Net deferred taxes $ 157,280 $ 124,801

As of December 31, 2021, the Company had a deferred tax asset for foreign tax credit carryforwards of $ 1,730,000 .

These credits are considered to be realizable and will be utilized in a future period.

As of December 31, 2021, the Company had a valuation allowance for state research and development tax credits of $ 11,750,000 that was not considered to be realizable.

Change in Tax Structure and Global Intangible Low-Taxed Income Tax

In 2019, the Company made changes to its international tax structure due to legislation by the European Union regarding low tax structures that resulted in an intercompany sale of intellectual property.

As a result, the Company recorded an associated deferred tax asset of $ 437,500,000 in Ireland based on the fair value of the intellectual property that is being realized over 15 years as future tax deductions.

From a United States perspective, the sale was disregarded, and any future deductions claimed in Ireland are added back to taxable income as part of Global Intangible Low-Taxed Income ("GILTI") minimum tax.

The Company recorded an associated deferred tax liability of $ 350,000,000 , representing the GILTI minimum tax related to the fair value of the intellectual property.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expects an immaterial impact on its current effective tax rate excluding discrete items in future years as a result of this change.

Other Deferred Tax Assets and Liabilities

At December 31, 2022, the Company recorded a deferred tax asset resulting from the capitalization of research and development expenditures.

Beginning in 2022, the Tax Cuts and Jobs Act eliminates the option to currently deduct research and development expenditures in the period incurred and requires taxpayers to capitalize and amortize such expenditures over five or fifteen years, as applicable, pursuant to Section 174 of the Internal Revenue Code.

At December 31, 2022, the Company had foreign net operating loss carryforwards of $ 180,000 , state tax credit carryforwards of $ 6,050,000 , and foreign tax credit carryforwards of $ 2,234,000 .

At December 31, 2022, the Company had a valuation allowance for state research and development tax credits of $ 6,869,000 that was not considered to be realizable.

Should these credits be utilized in a future period, the reserve associated with these credits would be reversed in the period when it is determined that the credits can be utilized to offset future state income tax liabilities.

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Should the Company fail to generate sufficient pre-tax profits in future periods, we may be required to establish valuation allowances against these deferred tax assets, resulting in a charge to current operations in the period of determination.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Weighted Average Shares

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Restricted stock units totaling 26,079 , 605 , and 3,826 shares of common stock, on a weighted-average basis, were outstanding in 2022, 2021, and 2020, respectively, but were not included in the calculation of dilutive net income per share because they were anti-dilutive.

No PRSUs were excluded in the calculation of dilutive net income per share in 2022, 2021, and 2020 as PRSUs were not anti-dilutive on a weighted-average basis.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Segment and Geographic Information

The Company operates in one segment, machine vision technology.

The Company’s chief operating decision maker is the chief executive officer, who makes decisions to allocate resources and assesses performance at the corporate level.

The Company has a single, company-wide management team that administers operations as a whole rather than as discrete operating segments.

The Company’s chief operating decision maker is the chief executive officer, who makes decisions to allocate resources and assesses performance at the corporate level, without regard to geography, legal entity, or end market.

The Company offers a variety of machine vision products that have similar economic characteristics, have the same production processes, and are distributed by the same sales channels to the same types of customers.

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Revenue from a single customer accounted for 11 %, 17 %, and 14 % of total revenue in 2022, 2021, and 2020, respectively.

Accounts receivable from this same customer accounted for 15 % of total accounts receivable as of December 31, 2021.

Accounts receivable from this customer was not greater than 10% of total accounts receivable as of December 31, 2022.

Revenue from a second customer accounted for 11 % and 13 % of total revenue in 2022 and 2020.

Revenue from this customer was not greater than 10% of total revenue in 2021.

Accounts receivable from this same customer accounted for 15 % and 19 % of total accounts receivable as of December 31, 2021 and 2020, respectively.

Revenue from a second customer accounted for 13 % of total revenue in 2020.

Revenue from this customer was not greater than 10% of total revenue in 2021 or 2019.

Accounts receivable from this same customer accounted for 11 % and 20 % of total accounts receivable as of December 31, 2021 and 2020, respectively.

Accounts receivable from this same customer accounted for 11 % of total accounts receivable as of December 31, 2021.

Accounts receivable from this customer was not greater than 10% of total accounts receivable as of December 31, 2022.

Business Acquisitions

SAC Sirius Advanced Cybernetics GmbH

On December 7, 2022, the Company acquired all of the outstanding shares of SAC Sirius Advanced Cybernetics GmbH ("SAC"), a leader in computational lighting technology based in Germany.

The acquisition of SAC and its technology is expected to expand the Company’s capabilities in defect detection, and accelerate its growth trajectory with electric vehicle battery manufacturers.

The purchase price of the acquisition was not material to the Company's consolidated financial statements.

Sualab Co., Ltd.

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Completed technologies, in-process technologies, and customer relationships acquired from Sualab were impaired in the amounts of $ 10,070,000 , $ 5,900,000 , and $ 3,382,000 , respectively.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loss from Fire

On June 7, 2022, the Company’s primary contract manufacturer experienced a fire at its plant in Indonesia.

The fire destroyed a significant amount of Cognex-owned consigned inventories, as well as component inventories owned by the contract manufacturer that were designated for Cognex products.

There was no significant damage to the Company's production equipment.

Since the date of the fire, the Company has worked with the contract manufacturer to assess the damage, resume production, maintain standards of product quality, and replenish inventories destroyed by the fire.

The Company has also been working to ramp up an additional contract manufacturer to further mitigate risk, diversify supply chain, and expand production capacity.

As a result of the fire, the Company recorded $ 48,339,000 in gross losses in 2022, related to $ 37,663,000 of primarily Cognex-owned inventory that was destroyed or deemed to have a net realizable value of zero, $ 8,709,000 of primarily prepayments related to Cognex-designated components that were owned by the contract manufacturer and other assets, and $ 1,967,000 related to deleveraging of costs related to our distribution centers.

Gross losses have been reduced by insurance proceeds received from the Company’s insurance carrier of $ 27,560,000 in the fourth quarter of 2022.

Gross losses net of insurance recovery of $ 20,779,000 are presented in the caption “Loss from fire” on the Consolidated Statements of Operations.

As of December 31, 2022 and through the date of financial statement issuance, management cannot yet estimate additional recoveries that could be available from the contract manufacturer.

Any future, additional recoveries in excess of recognized losses will be treated as gain contingencies and will be recognized when the gain is realized or realizable.

There can be no assurance, however, that additional insurance coverage and/or recoveries from the contract manufacturer will be available to cover the net loss from the fire.

After considering all the relevant events and circumstances resulting from the fire, management does not believe that the carrying value of the Company exceeds its fair value, or that the carrying amount of the Company’s intangible assets may not be recoverable.

As such, no goodwill or intangible asset impairment charges were recorded during 2022 as a result of the fire.

Restructuring Charges

December 2022 Restructuring

In December 2022, following its acquisition of SAC (refer to Note 21), the Company performed restructuring activities to align the cost and operating structure of the acquired business with the Company's business strategy.

The restructuring activities included a workforce reduction of 18 employees and the termination of certain operating lease contracts, and resulted in charges of $ 1,657,000 in 2022.

These charges are included in “Restructuring charges” on the Consolidated Statements of Operations.

As of December 31, 2022, the majority of these restructuring actions were completed and no additional charges are expected to be incurred in future periods in relation to this restructuring plan.

The following table summarizes the restructuring charges for the year ended December 31, 2022 (in thousands):

One-time termination benefits $ 1,584

Contract termination costs 73

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the activity in the Company’s restructuring reserve related to the December 2022 Restructuring, which is included in “Accrued expenses” on the Consolidated Balance Sheets (in thousands):

One-time Termination Benefits Contract Termination Costs Total

Balance as of December 31, 2021 $ — $ — $ —

Restructuring charges 1,584 73 1,657

Cash payments ( 646 ) — ( 646 )

Foreign exchange rate changes 26 2 28

Balance as of December 31, 2022 $ 964 $ 75 $ 1,039

May 2020 Restructuring

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.

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As of December 31, 2020, the majority of these actions were completed and no additional charges are expected to be incurred in future periods in relation to this restructuring plan.

There were no restructuring charges recognized in 2021.

There were no restructuring charges recognized in 2022 or 2021 related to this restructuring plan.

The following table summarizes the restructuring charges for the year ended December 31, 2020 (in thousands):

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Other associated costs primarily included legal fees related to the employee termination actions, which were recognized when the services were performed.

The following table summarizes the activity in the Company’s restructuring reserve, which is included in “Accrued expenses” on the Consolidated Balance Sheets (in thousands):

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the activity in the Company’s restructuring reserve related to the May 2020 Restructuring, which is included in “Accrued expenses” on the Consolidated Balance Sheets (in thousands):

One-time Termination Benefits Contract Termination Costs Other Associated Costs Total

Balance as of December 31, 2020 $ 1,624 $ 750 $ 15 $ 2,389

Restructuring charges 11,329 5,220 636 17,185

Cash payments ( 1,142 ) ( 227 ) ( 15 ) ( 1,384 )

Non-cash restructuring charges — ( 4,163 ) — ( 4,163 )

Restructuring adjustments ( 1,170 ) ( 13 ) ( 78 ) ( 1,261 )

Foreign exchange rate changes — ( 7 ) — ( 7 )

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Balance as of December 31, 2022 $ — $ 245 $ — $ 245

Restructuring adjustments related to one-time termination benefits consisted primarily of the favorable true-up of severance estimates based on final agreements and health insurance estimates based on employee elections.

Subsequent Events

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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-K

Item 8. Financial Statements and Supplementary Data