What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-15 compared with 2023-02-16 · 294 added, 245 removed, 968 unchanged (36% of the section changed)

39 unchanged sentences

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

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 solution is validated, the agreed-upon specifications in the contract have been met and revenue can be recognized.

Table of Content

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.

16 unchanged sentences

Selling, general, and administrative expenses 339,139 312,107 309,354

Loss from fire (Note 22) 20,779 — —

Loss (recovery) from fire (Note 22) ( 8,000 ) 20,779 —

Restructuring charges (Note 23) — 1,657 —

Intangible asset impairment charges (Note 9) — — 19,571

Operating income 130,702 246,229 315,101

92 unchanged sentences

Amortization of intangible assets 4,610 3,274 3,667

Intangible asset impairment charges — — 19,571

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

Excess and obsolete inventory charges 3,775 3,084 2,573

Operating lease asset impairment charges — — 3,427

Fair value adjustment on acquired inventories (Note 21) 2,829 — —

Amortization of discounts or premiums on investments 1,745 4,968 4,887

Realized (gain) loss on sale of investments 1,954 182 ( 236 )

Revaluation of contingent consideration — — ( 114 )

Change in deferred income taxes ( 19,779 ) ( 27,338 ) ( 3,118 )

20 unchanged sentences

Payment of dividends ( 49,079 ) ( 45,921 ) ( 43,263 )

Payment of contingent consideration — — ( 1,039 )

Net cash used in financing activities ( 125,605 ) ( 240,374 ) ( 141,623 )

50 unchanged sentences

Actual results could differ from those estimates.

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

Significant estimates and judgments include those related to revenue recognition, income taxes, and business combinations.

Basis of Consolidation

15 unchanged sentences

Debt securities with remaining maturities greater than one year are classified as non-current investments.

It is the Company’s policy to invest in investment-grade debt securities with effective maturities that do not exceed ten years .

In July 2023, the Company’s investment policy was modified to reduce effective maturities of newly purchased securities to up to five years .

As of December 31, 2023, the Company held investments with maturities in excess of the five-year limit that were approved as pre-existing exceptions to the new policy.

Debt securities with original maturities greater than three months are designated as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax, included in shareholders’ equity as accumulated other comprehensive loss.

3 unchanged sentences

If the present value of the cash flows expected to be collected from the security is less than the amortized cost basis of the security, then a credit loss exists and an allowance against the security for credit losses is recorded.

The allowance is limited to the amount by which fair value is below amortized cost, recognizing that the investment could be sold at fair value.

Credit losses continue to be remeasured in subsequent reporting periods.

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.

allowance is limited to the amount by which fair value is below amortized cost, recognizing that the investment could be sold at fair value.

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 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.

17 unchanged sentences

As a result, the Company could recognize a higher-than-normal gross margin if the reserved inventory were subsequently sold.

In accordance with the accounting principles applied in business combinations, acquired inventories are recorded at fair value on the acquisition date.

This valuation policy typically results in the write-up of inventories above the acquired company’s pre-acquisition carrying value, which results in a lower-than-normal gross margin when these acquired inventories are sold.

Property, Plant, and Equipment

Property, plant, and equipment are stated at cost and depreciated using the straight-line method over the assets’ estimated useful lives.

Buildings’ useful lives are 39 years, building improvements’ useful lives are ten years , and the useful lives of computer hardware and software, manufacturing test equipment, and furniture and fixtures range from two to ten years .

Leasehold improvements are depreciated over the shorter of the estimated useful lives or the remaining terms of the leases.

Buildings’ original useful lives are 39 years, building improvements’ useful lives are ten years , and the useful lives of computer hardware and software, manufacturing test equipment, and furniture and fixtures range from two to ten years .

Land that is leased or granted, as well as leasehold improvements, are depreciated over the shorter of the estimated useful lives or the remaining terms of the leases.

Maintenance and repairs are expensed when incurred;

1 unchanged sentence

Upon retirement or disposition, the cost and related accumulated depreciation of the disposed assets are removed from the accounts, with any resulting gain or loss included in current operations.

In accordance with the accounting principles applied in business combinations, acquired property, plant, and equipment are recorded at fair value on the acquisition date.

This valuation policy typically results in the write-up of property, plant, and equipment above the acquired company’s pre-acquisition carrying value, which results in a higher depreciation expense over the estimated lives of the assets.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Internal-use Software

5 unchanged sentences

The post-implementation stage includes support and maintenance, and during this stage costs are expensed as incurred.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Capitalization begins when both the preliminary project stage is completed and management commits to funding the project.

4 unchanged sentences

The Company has control of the asset if it has the right to direct the use of the asset and obtains substantially all of the economic benefits from the use of the asset throughout the period of use.

As a practical expedient, the Company does not recognize a lease asset or lease liability for leases with a lease term of 12 months or less.

As a practical expedient, the Company does not recognize a lease asset or lease liability for leases with a lease term of twelve months or less.

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.

15 unchanged sentences

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, through year ended December 31, 2022, was estimated using 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, 2023, was estimated using the Secured Overnight Financing Rate (SOFR) plus a 2% credit risk spread.

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

2 unchanged sentences

Goodwill is stated at cost.

The Company evaluates the potential impairment of goodwill annually each fourth quarter and whenever events or circumstances indicate the carrying value of the goodwill may not be recoverable.

The Company evaluates the potential impairment of goodwill annually each fourth quarter

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and whenever events or circumstances indicate the carrying value of the goodwill may not be recoverable.

The Company performs a qualitative assessment of goodwill to determine whether further impairment testing is necessary.

4 unchanged sentences

The Company estimates the fair value of its reporting unit using the income approach based on a discounted cash flow model.

In addition, the Company uses the market approach, which compares the reporting unit to publicly-traded companies and transactions involving

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

similar businesses, to support the conclusions based on the income approach.

In addition, the Company uses the market approach, which compares the reporting unit to publicly traded companies and transactions involving similar businesses, to support the conclusions based on the income approach.

Intangible Assets

1 unchanged sentence

Intangible assets are either amortized in relation to the relative cash flows anticipated from the intangible asset or using the straight-line method, depending on facts and circumstances.

The useful lives of distribution networks range from eleven to twelve years , completed technologies from five to eight years , customer relationships from five to eight years , non-compete agreements from three to seven years , and trademarks two years .

The useful lives of customer relationships range from five to fifteen years , completed technologies from five to nine years , non-compete agreements from three to seven years , and trademarks for three years .

In-process technology is an indefinite-lived intangible asset until the technology is completed, at which point it is amortized over its estimated useful life.

4 unchanged sentences

In step two, the impairment charge is measured as the amount by which the carrying value of the asset exceeds its fair value.

For indefinite-lived intangible assets that are not subject to amortization, the fair value of the asset is measured and an impairment charge is recorded as the amount by which the carrying value of the asset exceeds its fair value.

Warranty Obligations

8 unchanged sentences

Changes in the fair value of the Company’s economic hedges utilizing foreign currency forward contracts are included in "Foreign currency gain (loss)" on the Consolidated Statements of Operations.

The Company recognizes all derivative instruments as either current assets or current liabilities at fair value on the Consolidated Balance Sheets.

When the Company is engaged in more than one outstanding derivative contract with the same counterparty and also has a legally enforceable master netting agreement with that counterparty, the “net” mark-to-market exposure represents the netting of the positive and negative exposures with that counterparty.

2 unchanged sentences

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers.” The core principle of ASC 606 is to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company expects to be entitled in exchange for those goods or services.

The framework in support of this core principle includes:

4 unchanged sentences

and (5) recognizing revenue when (or as) the performance obligations are satisfied.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Identifying the Contract with the Customer

6 unchanged sentences

On-site support services that are provided to the customer after the solution is deployed are accounted for as a separate performance obligation.

These solutions are provided to customers in a variety of industries, including the consumer electronics and logistics industries.

Shipping and handling activities for which the Company is responsible under the terms and conditions of the sale are not accounted for as performance obligations but as fulfillment costs.

16 unchanged sentences

The Company recognizes revenue when it transfers the promised goods or services to the customer.

Revenue for standard products is recognized at the point in time when the customer obtains control of the goods, which is typically upon delivery when the customer has legal title, physical possession, the risks and rewards of ownership, and an enforceable obligation to pay for the products.

Revenue for standard products is recognized at the point in time when the customer obtains control of the goods, which is typically upon shipment or delivery when the customer has legal title, physical possession, the risks and rewards of ownership, and an enforceable obligation to pay for the products.

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 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

only upon validation.

contract have been met and the customer should reasonably accept the performance obligations in the arrangement.

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

26 unchanged sentences

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.

When determining the grant-date fair value of stock-based awards, management further considers whether an adjustment is required to the observable

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12 unchanged sentences

Valuation allowances are provided if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Tax Cuts and Jobs Act of 2017 imposed a minimum tax on foreign earnings related to intangible assets, known as the Global Intangible Low-Taxed Income (GILTI) tax.

In 2019, the Company elected to account for the impact of the GILTI minimum tax in deferred taxes, a change from the Company’s initial election made in 2018 whereby the GILTI minimum tax was included in income tax expense as incurred on an annual basis.

The change is considered preferable, as it appropriately matches the Company’s current and deferred income tax implications.

The Company accounts for the impact of the Global Intangible Low-Taxed Income (GILTI) tax in deferred taxes.

Sales tax in the United States and similar taxes in other jurisdictions that are collected from customers and remitted to government authorities are presented on a gross basis (i.e., a receivable from the customer with a corresponding payable to the government).

10 unchanged sentences

net unrealized losses on available-for-sale investments of $ 7,515,000 and $ 19,976,000 as of December 31, 2023 and December 31, 2022, respectively;

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

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

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1 unchanged sentence

The Company has certain domestic and foreign cash balances that exceed the insured limits set by the Federal Deposit Insurance Corporation (FDIC) in the United States and equivalent regulatory agencies in foreign countries.

The Company primarily invests in investment-grade debt securities and has established guidelines relative to credit ratings, diversification, and maturities of its debt securities that maintain safety and liquidity.

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

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.

2 unchanged sentences

This contract manufacturer has agreed to provide the Company with termination notification periods and last-time-buy rights, if and when that may be applicable.

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.

4 unchanged sentences

If we are unable to secure adequate supply from these sources, we may have to redesign our products, which may lead to higher costs, delays in manufacturing, and possible loss of sales.

Business Acquisitions

Business Combinations

The Company determines whether a transaction qualifies as a business combination by applying the definition of a business, which requires the assets acquired and liabilities assumed to be inputs and processes that have the ability to contribute to the creation of outputs.

3 unchanged sentences

Management is responsible for determining the appropriate valuation model and estimated fair values, and in doing so, considers a number of factors, including information provided by an outside valuation advisor.

Management primarily establishes fair value using the income approach based on a discounted cash flow model.

The income approach requires the use of many assumptions and estimates including future revenues and expenses, as well as discount factors.

Contingent consideration liabilities are reported at their estimated fair values based on probability-adjusted present values of the consideration expected to be paid, using significant inputs and estimates.

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

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.

Management bases the fair value of assets, including identifiable intangible assets acquired and liabilities assumed, on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use.

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.

6 unchanged sentences

Changes to the fair value of the liability are recorded as restructuring adjustments.

Closures of leased offices as part of a restructuring activity prior to the end of the contractual lease term are treated as abandoned right-to-use assets when the Company ceases to use the property for economic benefit and lacks either the intent or ability to sublease.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

either the intent or ability to sublease.

The lease asset is written down to zero as of the abandonment date.

4 unchanged sentences

New Pronouncements

Accounting Standards Update (ASU) 2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures

The amendments in this ASU apply to all entities that are subject to Topic 740, Income Taxes.

The amendments require public business entities to disclose specific categories in their rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

They also require all entities to disclose income taxes paid, net of refund received, disaggregated by federal, state, and foreign taxes and by individual jurisdictions in which income taxes paid, net of refunds received, is equal to or greater than five percent of total income taxes paid.

For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2024.

The amendments in this ASU should be applied on a prospective basis.

Management does not expect ASU 2023-09 to have a material impact on the Company's financial statements and disclosures.

Accounting Standards Update (ASU) 2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures

The amendments in this ASU apply to all public entities, including public entities with a single reportable segment, that are required to report segment information in accordance with Topic 280, Segment Reporting.

The amendments require public business entities to provide in interim and annual periods one or more measures of segment profit or loss used by the chief operating decision maker to allocate resources and assess performance.

Additionally, the amendments require disclosure of significant segment expenses and other segment items, as well as incremental qualitative disclosures.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2023.

The amendments in the ASU should be applied on a retrospective basis.

We did not early adopt ASU 2023-07.

Management does not expect ASU 2023-07 to have a material impact on the Company's financial statements and disclosures.

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

8 unchanged sentences

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):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers"

The amendments in this ASU primarily address the accounting for contract assets and contract liabilities related to revenue contracts with customers in a business combination.

The ASU clarifies that an acquirer should account for the related revenue contracts in accordance with Accounting Standards Codification 606 as if the acquirer had originated the contracts.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, although early adoption is permitted.

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

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

9 unchanged sentences

Corporate bonds — 308,816 —

Treasury notes — 43,523 —

Asset-backed securities — 19,314 —

Treasury bills — 55,546 —

Agency bonds — 15,858 —

Sovereign bonds — 1,969 —

Municipal bonds — 624 —

Economic hedge forward contracts — 151 —

7 unchanged sentences

The market participants are generally large commercial banks.

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.

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

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

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

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

1 unchanged sentence

The Company evaluates these long-lived assets for impairment whenever events or changes in circumstances, referred to as "triggering events," indicate the carrying value may not be recoverable.

The adverse impact of the COVID-19 pandemic on our business in 2020 triggered a review of long-lived assets for potential impairment as of May 26, 2020, which resulted in operating lease asset impairment charges of $ 3,427,000 (refer to Notes 7 and 23) that were included in "Restructuring charges" on the Consolidated Statements of Operations, and intangible asset impairment charges of $ 19,571,000 (refer to Note 9) in the second quarter of 2020.

These fair value measurements were based on the present values of future cash flows using significant inputs that are not observable in the market, and were therefore classified as Level 3.

The Company did not record impairment charges related to non-financial assets in 2023, 2022, or 2021.

7 unchanged sentences

Asset-backed securities 3,551 26,890

Sovereign bonds 990 —

Agency bonds — 15,858

Treasury bills 11,332 18,912

Treasury notes — 11,332

Municipal bonds — 624

1 unchanged sentence

Corporate bonds 183,965 374,440

Treasury bills 44,214 39,753

Treasury notes 43,523 44,214

Asset-backed securities 15,763 33,539

Sovereign bonds 979 1,924

Agency bonds — 16,077

Municipal bonds — 641

Non-current investments 244,230 454,117

3 unchanged sentences

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

sovereign bonds consist of direct debt issued by foreign governments;

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;

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

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

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

All of the Company's securities as of December 31, 2023 and 2022 were denominated in U.S.

Accrued interest receivable is included in "Prepaid expenses and other current assets" on the Consolidated Balance Sheets and amounted to $ 3,169,000 and $ 3,620,000 as of December 31, 2023 and 2022, respectively.

The following table summarizes the Company’s available-for-sale investments as of December 31, 2023 (in thousands):

Losses Fair Value

Corporate bonds $ 128,150 $ — $ ( 3,299 ) $ 124,851

Asset-backed securities 3,637 — ( 86 ) 3,551

Sovereign bonds 1,012 — ( 22 ) 990

Corporate bonds 189,326 506 ( 5,867 ) 183,965

Treasury notes 43,654 82 ( 213 ) 43,523

Asset-backed securities 16,773 — ( 1,010 ) 15,763

Sovereign bonds 1,037 — ( 58 ) 979

$ 383,589 $ 588 $ ( 10,555 ) $ 373,622

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4 unchanged sentences

Agency bonds 16,143 — ( 285 ) 15,858

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

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

Municipal bonds 635 — ( 11 ) 624

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

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

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

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

11 unchanged sentences

Corporate bonds $ 30,770 $ ( 359 ) $ 226,643 $ ( 8,807 ) $ 257,413 $ ( 9,166 )

Treasury notes 20,725 ( 153 ) 2,441 ( 60 ) 23,166 ( 213 )

Asset-backed securities 17,062 ( 1,049 ) 2,252 ( 47 ) 19,314 ( 1,096 )

Treasury bills 32,614 ( 465 ) 102 ( 3 ) 32,716 ( 468 )

Sovereign bonds — — 1,968 ( 80 ) 1,968 ( 80 )

$ 68,557 $ ( 1,561 ) $ 233,304 $ ( 8,994 ) $ 301,861 $ ( 10,555 )

The following table summarizes the Company’s gross unrealized losses and fair values for available-for-sale investments in an unrealized loss position as of December 31, 2022 (in thousands):

Unrealized Loss

Position For Less than

12 Months Unrealized Loss

Position For Greater than

12 Months Total

Fair Value Unrealized

Losses Fair Value Unrealized

Corporate bonds $ 285,087 $ ( 9,591 ) $ 187,153 $ ( 14,609 ) $ 472,240 $ ( 24,200 )

Asset-backed securities 47,582 ( 2,299 ) 2,495 ( 126 ) 50,077 ( 2,425 )

Treasury notes 32,614 ( 465 ) 102 ( 3 ) 32,716 ( 468 )

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

6 unchanged sentences

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.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the Company's gross realized gains and losses on the sale of debt securities (in thousands):

Year Ended December 31,

2023 2022 2021

Gross realized gains $ 111 $ 133 $ 246

Gross realized losses ( 2,065 ) ( 315 ) ( 10 )

Net realized gains (losses) $ ( 1,954 ) $ ( 182 ) $ 236

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, 2023 (in thousands):

1 unchanged sentence

Corporate bonds $ 124,851 $ 62,596 $ 44,906 $ 44,896 $ 31,567 $ — $ 308,816

Treasury notes — 2,441 6,115 22,270 12,697 — 43,523

Asset-backed securities 3,551 5,872 3,448 — — 6,443 19,314

Treasury bills 11,332 2,429 6,384 17,758 17,643 — 55,546

Agency bonds 15,858 — — — — — 15,858

Sovereign bonds 990 979 — — — 1,969

Municipal bonds 624 — — — — — 624

$ 129,392 $ 71,888 $ 54,469 $ 67,166 $ 44,264 $ 6,443 $ 373,622

4 unchanged sentences

$ 162,285 $ 122,480

In connection with the acquisition of Moritex Corporation in the fourth quarter of 2023 (refer to Note 21), the Company recorded inventories with a fair value of $ 22,788,000 on the acquisition date.

The Company recorded provisions for excess and obsolete inventories of $ 3,775,000 and $ 3,084,000 in 2023 and 2022, respectively, which reduced the carrying value of the inventories to their net realizable value.

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

$ 105,849 $ 79,714

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 .

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the acquisition of Moritex Corporation in the fourth quarter of 2023 (refer to Note 21), the Company recorded property, plant and equipment with a fair value of $ 19,876,000 on the acquisition date.

The Company disposed of property, plant, and equipment with a cost basis of $ 12,421,000 and accumulated depreciation of $ 12,184,000 in 2023, net of proceeds of $ 8,000 , resulting in a loss of $ 229,000 .

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 related 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 and is included in "Non-cash impact of charges related to fire (Note 22)" on the Consolidated Statements of Cash Flows.

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, 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.

As of December 31, 2023, there were no options to terminate and twenty-eight 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.

Lease costs associated with variable payments were $ 1,175,000 in 2023, $ 1,009,000 in 2022, and $ 1,253,000 in 2021.

There were no restrictions or covenants for the outstanding leases as of December 31, 2023.

The Company did not have any leases that had not yet commenced but that created significant rights and/or obligations as of December 31, 2023.

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.

The total lease expense for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability was $ 144,000 , $ 154,000 , and $ 123,000 in 2022, 2021, and 2020, respectively.

The total operating lease expense was $ 11,598,000 in 2023, $ 8,939,000 in 2022, and $ 8,180,000 in 2021.

The total operating lease cash payments were $ 10,148,000 in 2023, $ 8,548,000 in 2022, and $ 8,225,000 in 2021.

The total lease expense for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability was $ 427,000 in 2023, $ 144,000 in 2022, and $ 154,000 in 2021.

Future operating lease cash payments are as follows (in thousands):

Year Ended December 31, Amount

2024 $ 13,612

Thereafter 53,257

The discounted present value of the future lease cash payments resulted in a lease liability of $ 78,601,000 and $ 39,752,000 as of December 31, 2023 and 2022, respectively.

In connection with the acquisition of Moritex Corporation in the fourth quarter of 2023 (refer to Note 21), the Company assumed multiple lease agreements, the most significant of which is for a 22,000 square-foot building in Vietnam that serves as a production plant for optical components.

In June 2023, the Company entered into a lease for a 115,000 square-foot building in Singapore to serve as a new distribution center for customers in Asia.

The lease contains two components, including an 88,000 square-foot premises with a term of ten years, six months .

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

This lease component commenced during the second quarter of 2023, and therefore the Company recorded approximately $ 29,639,000 , which reflects an estimated extension period of five years, within "Operating lease assets" and "Operating lease liabilities" on the Consolidated Balance Sheets on the commencement date.

The second component of this Singapore lease is for a 27,000 square-foot premises with a term of eight years .

The commencement date for this lease component is in the fourth quarter of 2025, and therefore it was not yet recorded on the Consolidated Balance Sheets, nor did it create any significant rights and obligations as of December 31, 2023.

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

Future payment obligations associated with this lease component total $ 13,231,000 , none of which was payable in 2023 and which reflects an estimated extension

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

period of five years .

Future payment obligations related to this lease component are not included in the future operating lease cash payments table above.

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 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.

This lease commenced during the first quarter of 2022, and therefore the Company recorded approximately $ 9,271,000 , which does not reflect an estimated extension period, within "Operating lease assets" and "Operating lease liabilities" on the Consolidated Balance Sheets on the commencement date.

The weighted-average discount rate was 5.7 % and 3.3 % for the leases outstanding as of December 31, 2023 and December 31, 2022, respectively.

The weighted-average remaining lease term was 10.5 years and 7.8 years for the leases outstanding as of December 31, 2023 and 2022, 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 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.

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 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, 2021 $ 241,713

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

Foreign exchange rate changes ( 1,442 )

Balance as of December 31, 2022 242,630

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

Acquisition of Moritex Corporation (refer to Note 21) 145,047

Foreign exchange rate changes 5,504

7 unchanged sentences

Amortization Net

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

Customer relationships $ 75,965 $ ( 5,352 ) $ 70,613

Completed technologies 62,123 ( 20,745 ) 41,378

Trademarks 903 ( 50 ) 853

Non-compete agreements 340 ( 232 ) 108

5 unchanged sentences

Non-compete agreements 340 ( 177 ) 163

Distribution networks 38,060 ( 38,060 ) —

Trademarks 110 ( 110 ) —

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

In connection with the acquisition of Moritex Corporation in the fourth quarter of 2023 (refer to Note 21), the Company acquired customer relationships valued at $ 66,900,000 with an estimated useful life of fifteen years , completed technologies valued at $ 32,300,000 with an estimated useful life of nine years , and trademarks valued at $ 850,000 with an estimated useful life of three years .

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Based on this assessment, management concluded that certain of the Company's finite-lived intangible assets failed the recoverability test, and recorded impairment charges for these assets equal to the amount by which their carrying value exceeded their fair value.

The Company also measured the fair value and recorded an impairment charge for its indefinite-lived intangible asset related to in-process technologies.

The fair values were established, with the assistance of an outside valuation advisor, using the income approach based on a discounted cash flow model that estimated future revenue streams and expenses attributable to those revenue streams provided by management.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

("Sualab") as a result of the deteriorating global economic conditions from the COVID-19 pandemic.

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.

In addition, customer relationships acquired from EnShape GmbH that had a gross carrying value of $ 447,000 and accumulated amortization of $ 228,000 on the measurement date were reduced to zero , resulting in an impairment charge of $ 219,000 .

The Company did not record impairment charges related to intangible assets in 2023, 2022 or 2021.

1 unchanged sentence

Year Ended December 31, Amount

2024 $ 11,389

Thereafter 61,041

1 unchanged sentence

Accrued expenses consisted of the following (in thousands):

Deferred payments related to Sualab Co., Ltd.

acquisition (1)

Foreign retirement obligations $ 12,835 $ 7,191

Incentive compensation 10,645 18,554

Salaries and payroll taxes 8,774 8,121

Foreign retirement obligations 7,191 7,572

Vacation 5,827 5,847

Warranty obligations 4,244 4,375

Deferred payments related to Sualab Co., Ltd.

acquisition (1)

Other 30,049 29,865

1 unchanged sentence

(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.

included deferred payments, contingent upon the continued employment of key talent, of $ 24,040,000 that was paid fully in October 2023.

The deferred payments were recorded as compensation expense over the four-year period.

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

6 unchanged sentences

Balance as of December 31, 2022 4,375

Provisions for warranties issued during the period 2,940

Fulfillment of warranty obligations ( 3,078 )

Foreign exchange rate changes 7

Balance as of December 31, 2023 $ 4,244

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies

As of December 31, 2022, the Company had outstanding purchase orders totaling $ 50,942,000 to procure inventory from various vendors, due in part to higher inventory purchases in response to global supply chain constraints.

As of December 31, 2023, the Company had outstanding purchase orders totaling $ 61,459,000 to procure inventory from various vendors.

Certain of these purchase orders may be canceled by the Company, subject to cancellation penalties.

22 unchanged sentences

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.

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.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Additionally, during 2023, the Company entered into a foreign currency forward contract to exchange U.S.

Dollars for ¥ 40,000,000,000 to hedge the Japanese Yen purchase price of the acquisition of Moritex Corporation (refer to Note 21).

Upon the settlement of this contract, the Company recorded a foreign currency loss of $ 8,456,000 , which was recorded in "Foreign currency gain (loss)" on the Consolidated Statements of Operations.

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

3 unchanged sentences

Euro 40,000 $ 44,302 60,000 $ 64,174

Singapore Dollar 39,700 30,136 — —

Mexican Peso 145,000 8,505 185,000 9,480

Chinese Renminbi 50,000 7,025 55,000 7,619

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

Hungarian Forint 2,240,000 6,466 1,590,000 4,238

British Pound 3,345 4,258 3,445 4,161

Japanese Yen 600,000 4,255 700,000 5,281

Canadian Dollar 1,470 1,112 1,730 1,278

13 unchanged sentences

Net amount of assets presented $ 151 $ 27 Net amount of liabilities presented $ 106 $ 479

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information regarding the effect of derivative instruments, net of the underlying exposure, on the consolidated financial statements was as follows (in thousands):

3 unchanged sentences

Gains (losses) recognized in current operations Foreign currency gain (loss) $ ( 10,023 ) $ 9,823 $ 4,262

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

18 unchanged sentences

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 primarily certain application-specific customer solutions contracts.

Contract assets consist of unbilled revenue which arises when revenue is recognized in advance of billing primarily for 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.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

8 unchanged sentences

Balance as of December 31, 2023 $ 583

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the deferred revenue and customer deposits activity (in thousands):

6 unchanged sentences

Recognition of revenue deferred in prior period ( 20,987 )

Returned customer deposit ( 9,205 )

Foreign exchange rate changes ( 608 )

Balance as of December 31, 2023 $ 31,525

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.

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

The remaining unsatisfied performance obligations for our contracts that have an original expected duration of more than one year, primarily related to extended warranties, is not material.

Shareholders’ Equity

2 unchanged sentences

On April 25, 2018, the Company's shareholders approved an amendment to the Company's Articles of Organization to increase the authorized number of shares of $ .002 par value common stock from 200,000,000 to 300,000,000 .

In addition, on April 25, 2018, the Company's shareholders approved an amendment and restatement of the Company's 2001 General Stock Option Plan which provides for an increase in the number of available shares by 10,000,000 .

Each outstanding share of common stock entitles the record holder to one vote on all matters submitted to a vote of the Company’s shareholders.

2 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, 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 October 2018 program, in addition to repurchases made in prior years, the Company repurchased 957,000 shares at a cost of $ 78,652,000 in 2021, which completed purchases under the October 2018 program.

In March 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 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 .

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 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 cost of $ 87,314,000 in 2022 and 1,723,000 shares at a cost of $ 79,794,000 in 2023, leaving a remaining balance of $ 332,892,000 .

The 2023 repurchase included $ 446,000 of buyback Excise Tax in accordance with the Inflation Reduction Act of 2022.

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 $ 0.060 per share in the first, second, and third quarters of 2021, $ 0.065 per share in the fourth quarter of 2021 and in the first, second, and third quarters of 2022, and $ 0.070 per share in the fourth quarter of 2022 and in the first, second, and third quarters of 2023.

The dividend was increased to $ 0.075 per share in the fourth quarter of 2023.

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 $ 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.

1 unchanged sentence

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.

In May 2023, the shareholders of the Company approved the Cognex Corporation 2023 Stock Option and Incentive Plan (the “2023 Plan”).

The 2023 Plan permits awards of stock options (both incentive and non-qualified options), stock appreciation rights, RSUs, and PRSUs.

Up to 8,100,000 shares of common stock (subject to adjustment in the event of stock splits and other similar events) may be issued pursuant to awards granted under the 2023 Plan.

In connection with the approval of the 2023 Plan, no further awards will be made under the Cognex Corporation 2001 General Stock Option Plan, as amended and restated (the “2001 Plan”), and the Cognex Corporation 2007 Stock Option and Incentive Plan, as amended and restated (the “2007 Plan”).

With the approval of the 2023 Plan, the 10,610,800 shares of common stock subject to awards granted under the 2001 Plan and the 2007 Plan that were outstanding as of May 3, 2023 may become eligible for issuance under the 2023 Plan if such awards are forfeited, cancelled, or otherwise terminated (other than by exercise) (the “Carryover Shares”).

As of December 31, 2023, forfeitures, cancellations, and other terminations from the 2001 Plan and the 2007 Plan have resulted in 343,492 Carryover Shares, raising the authorized total shares that may be issued under the 2023 Plan to 8,443,492 .

As of December 31, 2023, the Company had 7,978,000 shares available for issuance 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.

2 unchanged sentences

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

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

6 unchanged sentences

Outstanding as of December 31, 2022

8,467 $ 51.56

Granted 1,541 46.33

2 unchanged sentences

Outstanding as of December 31, 2023

9,008 $ 50.87 5.92 $ 17,164

Exercisable as of December 31, 2023

5,207 $ 47.78 4.42 $ 16,212

Options vested or expected to vest as of

December 31, 2023 (1)

8,548 $ 50.79 5.78 $ 16,896

(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future.

Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.

The total cash received as a result of stock option exercises was $ 11,104,000 in 2023, $ 12,267,000 in 2022, and $ 63,860,000 in 2021.

In connection with these exercises, the tax benefit (expense) realized by the Company was $( 4,691,000 ) in 2023, $ 2,548,000 in 2022, and $ 46,529,000 in 2021.

The fair values of stock options granted in each period presented were estimated using the following weighted-average assumptions:

5 unchanged sentences

Expected term (in years) 5.0 5.5 6.0

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Risk-free rate

1 unchanged sentence

Expected dividend yield

Generally, the current dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors and dividing that result by the closing stock price on the grant date.

The current dividend yield was calculated by annualizing the cash dividend declared by the Company’s Board of Directors and dividing that result by the closing stock price on the grant date.

Expected volatility

5 unchanged sentences

The total fair value of stock options vested was $ 34,751,000 in 2023, $ 41,497,000 in 2022, and $ 45,328,000 in 2021.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Units (RSUs)

3 unchanged sentences

Nonvested as of December 31, 2022

1,269 $ 61.74

Granted 791 46.14

2 unchanged sentences

Nonvested as of December 31, 2023

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.

1,429 $ 54.22

The fair value of RSUs was 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 was $ 46.14 in 2023, $ 58.06 in 2022, and $ 87.03 in 2021.

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

There were 521,000 , 192,000 , and 16,000 RSUs that vested in 2023, 2022, and 2021, respectively.

Tax obligations for vested RSUs are settled by withholding a portion of the shares prior to distribution to the shareholder.

The total cash used by the Company to fund the tax payments was $ 7,836,000 in 2023, $ 2,406,000 in 2022, and $ 568,000 in 2021.

In connection with these vested RSUs, the tax benefit (expense) realized by the Company was $( 3,229,000 ) in 2023, $( 1,049,000 ) in 2022, and $ 126,000 in 2021.

Performance Restricted Stock Units (PRSUs)

6 unchanged sentences

Nonvested as of December 31, 2023

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

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

The weighted average grant-date fair value of PRSUs granted was $ 44.86 in 2023 and $ 62.49 in 2022.

No PRSUs were granted in 2021.

No PRSUs vested in 2023, 2022, and 2021.

Stock-Based Compensation Expense

The Company stratifies its employee population into two groups:

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

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.

The Company stratifies its employee population into three groups:

one consisting of the CEO, another consisting of senior management, and another consisting of all other employees.

The Company currently applies an estimated annual forfeiture rate of 0 % to all stock-based awards for the CEO, 8 % to all stock-based awards for senior management, and 13 % 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.

This resulted in a decrease to compensation expense of $ 234,000 in 2023, an increase to compensation expense of $ 1,536,000 in 2022, and a decrease to compensation expense of $ 255,000 in 2021.

As of December 31, 2023, total unrecognized compensation expense, net of estimated forfeitures, related to non-vested stock-based awards, including stock options, RSUs, and PRSUs, was $ 58,489,000 , which is expected to be recognized over a weighted-average period of 1.92 years.

The total stock-based compensation expense and the related income tax benefit recognized was $ 54,768,000 and $ 8,442,000 , respectively, in 2023, $ 54,505,000 and $ 9,540,000 , respectively, in 2022, and $ 43,774,000 and $ 6,764,000 , respectively, in 2021.

Stock-based compensation expense recognized in 2020 included credits of $ 1,401,000 relating to grants cancelled as a result of the Company's workforce reduction in the second quarter of 2020.

No compensation expense was capitalized in 2023, 2022, or 2021.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the stock-based compensation expense by caption for each period presented on the Consolidated Statements of Operations (in thousands):

35 unchanged sentences

Foreign tax rate differential ( 6 ) ( 7 ) ( 5 )

Tax credit ( 1 ) ( 2 ) ( 1 )

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

Tax credits ( 3 ) ( 1 ) ( 2 )

Taxation on multinational operations ( 3 ) — —

Tax reserves 3 1 —

Limitation on deduction for executive compensation 2 1 —

Discrete tax expense related to employee stock-based compensation 1 — ( 3 )

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

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

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

Discrete tax benefit related to GILTI adjustments

Discrete tax expense related to international tax reserves

Discrete tax benefit for audit settlements ( 1 ) — —

( 2 ) ( 3 ) —

Discrete tax benefit for release of valuation allowance ( 4 ) ( 1 ) —

Limitation on executive compensation 1 — 1

Discrete tax benefit for audit settlements — ( 1 ) —

Income tax expense 16 % 14 % 12 %

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

The changes in gross amounts of unrecognized tax benefits, excluding 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

Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in the current period 525

Gross amounts of decreases in unrecognized tax benefits as a result of the expiration of the applicable statutes of limitations ( 485 )

Reductions as a result of tax positions taken in prior periods ( 280 )

Additions as a result of tax positions taken in prior periods 100

Additions as a result of tax positions taken in the current period 525

Reductions as a result of the expiration of the applicable statutes of limitations ( 485 )

Balance of reserve for income taxes as of December 31, 2021 13,812

Gross amounts of decreases in unrecognized tax benefits as a result of tax positions taken in prior periods ( 119 )

Gross amounts of increases in unrecognized tax benefits as a result of tax positions taken in prior periods 2,850

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 )

Reductions as a result of tax positions taken in prior periods ( 119 )

Additions as a result of tax positions taken in prior periods 2,850

Additions as a result of tax positions taken in the current period 505

Reductions relating to settlements with taxing authorities ( 2,329 )

Reductions 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 $ 15,866,000 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.

Reductions as a result of tax positions taken in prior periods ( 242 )

Additions as a result of tax positions taken in prior periods 12,556

Additions as a result of tax positions taken in the current period 1,877

Reductions relating to settlements with taxing authorities ( 1,230 )

Reductions as a result of the expiration of the applicable statutes of limitations ( 894 )

Balance of reserve for income taxes as of December 31, 2023 $ 25,714

The Company’s reserve for income taxes, including gross interest and penalties, was $ 29,053,000 as of December 31, 2023, of which $ 26,685,000 was classified as a non-current liability and $ 2,368,000 was classified as an offset to deferred tax assets.

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

The amount of gross interest and penalties included in these balances was $ 3,339,000 and $ 2,219,000 as of December 31, 2023 and 2022, respectively.

If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period.

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.

As a result of the

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.

The statutory tax rate is 12.5 % in Ireland, 25 % in China, and 21.5 % in Korea, compared to the U.S.

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 $ 650,000 to $ 1,000,000 over the next twelve months.

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

The statutory tax rate is 12.5 % in Ireland, 25 % in China, 34.6 % in Japan, and 21 % in Korea, compared to the U.S.

federal statutory corporate tax rate of 21 %.

1 unchanged sentence

Management has determined that earnings from its legal entity in China will be indefinitely reinvested to provide local funding for growth, and that earnings from all other jurisdictions will not be indefinitely reinvested.

In 2023, the Company qualified for a tax holiday in China, which is renewed every three years.

The tax effect of this benefit, derived from the tax holiday, on basic and diluted earnings per share for 2023 was not material.

Within the United States, the tax years 2019 through 2022 remain open to examination by the Internal Revenue Service ("IRS") and various state taxing authorities.

The tax years 2017 through 2022 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates.

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.

The Company is under audit by the Commonwealth of Massachusetts for the returns filed for tax years 2020 and 2021.

In addition, the Company is under audit in Ireland for the returns filed for tax years 2019 through 2020.

Management believes the Company is adequately reserved for these audits.

1 unchanged sentence

Any reserves associated with this audit period will not be released until the issue is settled or the audit is concluded.

Interest and penalties included in income tax expense were $ 229,000 , $ 281,000 , and $ 340,000 in 2022, 2021, and 2020, respectively.

Interest and penalties included in income tax expense were $ 1,032,000 in 2023, $ 229,000 in 2022, and $ 281,000 in 2021.

Cash paid for income taxes totaled $ 56,618,000 in 2023, $ 57,016,000 in 2022, and $ 49,435,000 in 2021.

4 unchanged sentences

Stock-based compensation expense 20,916 21,962

Federal and state tax credit carryforwards 8,284 11,051

Tax credit carryforwards 7,848 8,284

Inventory and revenue related 10,897 8,117

8 unchanged sentences

Deferred tax liabilities:

Amortization $ ( 28,685 ) $ ( 2,762 )

GILTI tax basis differences in connection with change in tax structure ( 274,327 ) ( 298,922 )

$ ( 303,012 ) $ ( 301,684 )

Net deferred taxes $ 153,523 $ 157,280

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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 fifteen 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.

As of December 31, 2022, the Company had state research and development tax credit carryforwards of $ 7,658,000 , which will begin to expire for the 2032 tax return.

As of 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 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.

As of December 31, 2023, the Company had foreign net operating loss carryforwards of $ 1,720,000 , state tax credit carryforwards of $ 8,740,000 that will begin to expire for the 2031 tax return, and foreign tax credit carryforwards of $ 943,000 .

As of December 31, 2023, the Company had a valuation allowance for foreign tax credits of $ 943,000 that was not considered to be realized.

As of December 31, 2023, the Company released the valuation allowance for state research and development tax credits of $ 5,427,000 , as these credits are expected to be utilized to offset future state income tax liabilities.

While the deferred tax assets, net of valuation allowance, are not assured of realization, management has evaluated the realizability of these deferred tax assets and has determined that it is more likely than not that these assets will be realized.

9 unchanged sentences

Stock options to purchase 6,854,092 , 4,715,104 , and 497,504 shares of common stock, on a weighted-average basis, were outstanding in 2023, 2022, and 2021, respectively, but were not included in the calculation of dilutive net income per share because they were anti-dilutive.

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.

Restricted stock units totaling 365 , 26,079 , and 605 that will be settled in shares of common stock to the extent they vest, on a weighted-average basis, were outstanding in 2023, 2022, and 2021, 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 2023, 2022, and 2021 as PRSUs were not anti-dilutive on a weighted-average basis.

3 unchanged sentences

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.

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

The following table summarizes information about geographic areas (in thousands):

11 unchanged sentences

Revenue from a single customer accounted for 11 % and 17 % of total revenue in 2022 and 2021, 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 2023.

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

Accounts receivable from this customer was not greater than 10% of total accounts receivable as of December 31, 2023 or December 31, 2022.

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

Revenue from this customer was not greater than 10% of total revenue in 2023 or 2021.

Accounts receivable from this customer was not greater than 10% of total accounts receivable as of December 31, 2023 or December 31, 2022.

Business Combinations

Moritex Corporation

On October 18, 2023, the Company acquired all the outstanding shares of Moritex Corporation (Moritex), a global provider of premium optical components based in Japan, for an enterprise value of ¥ 40 billion Japanese Yen, or approximately $ 270 million U.S.

Dollars based on the closing date foreign exchange rate.

The cash-free, debt-free enterprise value was adjusted by cash acquired, debt assumed, and final working capital balances to arrive at total consideration to be allocated to assets acquired and liabilities assumed of ¥ 44,376,245,000 ($ 296,138,000 based on the closing date foreign exchange rate), of which ¥ 44,227,414,000 ($ 295,144,000 ) was paid in cash on the closing date and ¥ 148,831,000 ($ 994,000 ) is expected to be paid in the first quarter of 2024 as a final purchase price adjustment based on the closing balance sheet.

The Company acquired cash balances totaling $ 38,088,000 as part of this transaction, to arrive at a net cash outflow of $ 257,056,000 on the closing date.

There was no contingent consideration as part of this transaction.

Established in 1973, Moritex develops, manufactures, and sells high-end optical components, such as lenses and lighting, for industrial use.

The acquisition of Moritex is expected to increase the Company's optical technology capabilities, which include our proprietary embedded liquid lenses and, more recently, computational lighting from our 2022 acquisition of SAC Sirius Advanced Cybernetics GmbH (described below).

Vision technology relies on acquiring high-quality images to optimize the performance of machine vision tools.

Historically, our customers have primarily used third-party lenses and lighting for image acquisition.

We anticipate the portfolio of Moritex optical components will allow us to expand our served market to include high-end lenses and lighting and provide our customers with a more complete product offering by replacing third-party components with Cognex-manufactured optical components.

Moritex also provides the Company with a more substantial presence in Japan, which is an important machine vision market where we believe we can increase our share through a stronger local presence.

This transaction was accounted for as a business combination.

As of the date of this filing, the purchase price allocation is preliminary and may change during the one-year measurement period ending October 18, 2024 as new

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

information becomes available, particularly related to tax positions reflected as of the acquisition date.

Identifiable assets acquired and liabilities assumed were recorded at their estimated fair values, which were valued using level 3 inputs, as of the acquisition date.

Pro-forma information, as well as revenue and earnings from the date of the acquisition, are not presented because they are not material to the Company’s consolidated financial statements.

Transaction costs were approximately $ 5,800,000 and were expensed as incurred as part of SG&A expenses on the Consolidated Statement of Operations.

The purchase price was allocated based on provisional amounts as follows (in thousands):

Cash and cash equivalents $ 38,088

Accounts receivable 11,572

Inventories 22,788

Property, plant and equipment 19,876

Goodwill 145,047

Customer relationships 66,900

Completed technologies 32,300

Trademarks 850

Deferred income tax assets 4,516

Other assets 4,935

Accounts payable ( 6,700 )

Accrued expenses ( 13,521 )

Deferred income tax liabilities ( 22,055 )

Reserve for income taxes ( 5,864 )

Other liabilities ( 2,594 )

Purchase price $ 296,138

The customer relationships, completed technologies, and trademarks are included in "Intangible assets" on the Consolidated Balance Sheet.

The customer relationships are being amortized to SG&A expenses over fifteen years, the completed technologies are being amortized to cost of revenue over nine years, and the trademarks are being amortized to SG&A expenses over three years.

None of the acquired goodwill is deductible for tax purposes.

SAC Sirius Advanced Cybernetics GmbH

2 unchanged sentences

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

Sualab Co., Ltd.

On October 16, 2019, the Company acquired all the outstanding shares of Sualab Co., Ltd.

("Sualab"), a provider of deep learning-based vision software for industrial image analysis based in Korea.

The total consideration of $ 193,638,000 included cash payments of $ 170,602,000 upon closing.

In the fourth quarter of 2020, the Company recorded a credit to goodwill in the amount of $ 1,004,000 representing a purchase price adjustment.

The remaining consideration consists of deferred payments of $ 24,040,000 that may become payable in October 2023, contingent upon the continued employment of key talent, and is being recorded as compensation expense over the four-year period.

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

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

Loss (Recovery) from Fire

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

1 unchanged sentence

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.

Since the date of the fire, the Company has worked with the contract manufacturer to 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.

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

In 2023, the Company recorded recoveries related to the fire of $ 8,000,000 , consisting of $ 2,500,000 for proceeds received from the Company's insurance carrier in relation to a business interruption claim and $ 5,500,000 for proceeds received as part of a financial settlement for lost inventory and other losses incurred as a result of the fire.

Management does not anticipate additional recoveries.

These losses and recoveries are presented in the caption "Loss (recovery) from fire" on the Consolidated Statements of Operations.

COGNEX CORPORATION - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

In December 2022, following its acquisition of SAC Sirius Advanced Cybernetics GmbH (refer to Note 21), the Company completed 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):

1 unchanged sentence

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):

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):

One-time Termination Benefits Contract Termination Costs Total

4 unchanged sentences

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.

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

The Company recorded restructuring charges from these actions totaling $ 15,924,000 in 2020 which are included in “Restructuring charges” on the Consolidated Statements of Operations.

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 2022 or 2021 related to this restructuring plan.

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

One-time termination benefits $ 10,159

Contract termination costs 5,207

Other associated costs 558

One-time termination benefits included severance, health insurance, and outplacement services for 181 employees who were either terminated during the second quarter of 2020, or were notified during the second quarter of 2020 that they would be terminated at a future date.

For employees not required to render service beyond a minimum retention period, the one-time termination benefits were recognized in the second quarter of 2020.

Otherwise, these benefits, including retention bonuses for selected employees, were recognized over the remaining service period which was completed by December 31, 2020.

Contract termination costs included operating lease asset impairment charges for eleven offices closed prior to the end of the contractual lease term.

These costs also included the write-off of leasehold improvements and other equipment related to these abandoned offices that had no alternative use, as well as other associated operating costs, such as utilities, that the Company is obligated to pay for the remainder of the lease term.

These contract termination costs were primarily recognized in the second quarter of 2020 when the Company ceased using the property for economic benefit.

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

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

Cash payments ( 973 ) ( 75 ) ( 1,048 )

1 unchanged sentence

Balance as of December 31, 2023 $ — $ — $ —

Cash payments ( 482 ) ( 265 ) — ( 747 )

Foreign exchange rate changes — ( 6 ) — ( 6 )

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

Subsequent Events

On February 15, 2024, the Company's Board of Directors declared a cash dividend of $ 0.075 per share.

The dividend is payable March 17, 2023 to all shareholders of record as of the close of business on March 3, 2023.

The dividend is payable March 14, 2024 to all shareholders of record as of the close of business on February 29, 2024.

COGNEX CORPORATION – SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

21 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-K

Item 8. Financial Statements and Supplementary Data