Cognex(CGNX) - 2019 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents Cognex Corporation's unaudited interim financial statements, including detailed notes, management's discussion, market risk disclosures, and controls and procedures Item 1. Financial Statements This section presents Cognex Corporation's unaudited consolidated financial statements, including statements of operations, comprehensive income, balance sheets, cash flows, and shareholders' equity, along with detailed notes on accounting policies, fair value measurements, investments, leases, intangible assets, warranty obligations, derivatives, revenue recognition, stock-based compensation, stock repurchases, and taxes for the periods ended June 30, 2019 Consolidated Statements of Operations Cognex Corporation reported a decrease in revenue and net income for both the three-month and six-month periods ended June 30, 2019, compared to the prior year. Diluted EPS also declined, while cash dividends per common share increased | Metric | Three-months Ended June 30, 2019 (in thousands) | Three-months Ended July 1, 2018 (in thousands) | Six-months Ended June 30, 2019 (in thousands) | Six-months Ended July 1, 2018 (in thousands) | | :----- | :---------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | | Revenue | $199,047 | $211,264 | $372,531 | $380,831 | | Net Income | $48,749 | $56,196 | $81,853 | $93,413 | | Diluted EPS | $0.28 | $0.32 | $0.47 | $0.52 | | Cash Dividends per Common Share | $0.050 | $0.045 | $0.100 | $0.090 | Consolidated Statements of Comprehensive Income Total comprehensive income for the three-month period increased slightly to $50.015 million in 2019 from $49.186 million in 2018, primarily due to a net unrealized gain on available-for-sale investments, offsetting a decrease in net income and foreign currency translation adjustments. For the six-month period, total comprehensive income decreased to $85.548 million in 2019 from $89.245 million in 2018 | Metric | Three-months Ended June 30, 2019 (in thousands) | Three-months Ended July 1, 2018 (in thousands) | Six-months Ended June 30, 2019 (in thousands) | Six-months Ended July 1, 2018 (in thousands) | | :----- | :---------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | | Net Income | $48,749 | $56,196 | $81,853 | $93,413 | | Net change related to available-for-sale investments | $1,929 | $243 | $4,140 | $(971) | | Net change related to foreign currency translation adjustments | $(663) | $(7,253) | $(445) | $(3,197) | | Total Comprehensive Income | $50,015 | $49,186 | $85,548 | $89,245 | Consolidated Balance Sheets As of June 30, 2019, total assets increased to $1.35 billion from $1.29 billion at December 31, 2018, driven by an increase in non-current investments. Total liabilities also increased slightly, while shareholders' equity grew | Metric | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :----- | :--------------------------- | :------------------------------- | | Total Assets | $1,349,920 | $1,289,667 | | Total Liabilities | $158,280 | $154,404 | | Total Shareholders' Equity | $1,191,640 | $1,135,263 | | Non-current investments | $408,032 | $262,039 | | Operating lease assets | $17,928 | — | | Operating lease liabilities (current) | $5,835 | — | | Non-current operating lease liabilities | $12,149 | — | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $120.150 million for the six-month period ended June 30, 2019, from $72.616 million in the prior year. Investing activities resulted in a net cash outflow of $86.690 million, a shift from a net inflow of $73.144 million in the prior year, primarily due to higher purchases of investments. Financing activities showed a reduced net cash outflow | Metric | Six-months Ended June 30, 2019 (in thousands) | Six-months Ended July 1, 2018 (in thousands) | | :----- | :-------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | $120,150 | $72,616 | | Net cash provided by (used in) investing activities | $(86,690) | $73,144 | | Net cash provided by (used in) financing activities | $(52,419) | $(123,021) | | Purchases of investments | $(664,896) | $(336,189) | | Repurchase of common stock | $(61,690) | $(121,308) | Consolidated Statements of Shareholders' Equity Total shareholders' equity increased to $1.19 billion as of June 30, 2019, from $1.14 billion at December 31, 2018. This increase was primarily driven by net income and additional paid-in capital, partially offset by common stock repurchases and dividend payments | Metric | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :----- | :--------------------------- | :------------------------------- | | Total Shareholders' Equity | $1,191,640 | $1,135,263 | | Net Income (6-month) | $81,853 | $93,413 | | Repurchase of common stock (6-month) | $(61,690) | $(121,308) | | Payment of dividends (6-month) | $(17,146) | $(15,524) | Notes to Consolidated Financial Statements This section provides detailed disclosures on the company's accounting policies, new pronouncements, fair value measurements, cash and investments, inventories, leases, intangible assets, warranty obligations, derivative instruments, revenue recognition, stock-based compensation, stock repurchase program, taxes, weighted-average shares, and subsequent events NOTE 1: Summary of Significant Accounting Policies This note outlines the company's significant accounting policies, emphasizing that these are condensed notes for the interim report. It specifically details the adoption of ASC 842 "Leases" as of January 1, 2019, and its impact on financial reporting - The Company adopted ASC 842 "Leases" as of January 1, 2019, applying it on a prospective basis with a cumulative-effect adjustment to the opening balance sheet[35][36] - Leases are classified as finance or operating based on criteria such as ownership transfer, purchase options, lease term relative to economic life, present value of payments, or specialized nature of the asset[37] NOTE 2: New Pronouncements This note discusses recently issued accounting pronouncements, including ASU 2016-13 (Credit Losses), ASU 2017-08 (Premium Amortization on Callable Debt Securities), and ASU 2018-15 (Internal-Use Software). Management does not expect a material impact from these ASUs on the Company's financial statements - Management does not expect ASU 2016-13, "Financial Instruments - Measurement of Credit Losses," to have a material impact on the Company's financial statements and disclosures[40] - Management does not expect ASU 2017-08, "Receivables - Nonrefundable Fees and Other Costs - Premium Amortization on Purchased Callable Debt Securities," to have a material impact on the Company's financial statements and disclosures[40] - Management does not expect ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software," to have a material impact on the Company's financial statements and disclosures[40] NOTE 3: Fair Value Measurements The company categorizes its financial assets and liabilities measured at fair value into Level 1, Level 2, and Level 3 inputs. Money market instruments are Level 1, debt securities and forward contracts are Level 2, and contingent consideration liabilities are Level 3. No other-than-temporary impairment was recorded for financial assets | Asset/Liability | Fair Value (June 30, 2019, in thousands) | Fair Value Hierarchy Level | | :---------------- | :--------------------------------------- | :------------------------- | | Money market instruments | $3,099 | Level 1 | | Treasury bills | $307,490 | Level 2 | | Corporate bonds | $278,991 | Level 2 | | Asset-backed securities | $145,432 | Level 2 | | Contingent consideration liabilities | $1,691 | Level 3 | - The Company did not record an other-than-temporary impairment of financial assets during the three-month or six-month periods ended June 30, 2019, and July 1, 2018[43] NOTE 4: Cash, Cash Equivalents, and Investments As of June 30, 2019, total cash, cash equivalents, and investments amounted to $861.623 million, an increase from $797.599 million at December 31, 2018. This was primarily driven by a significant increase in non-current investments, particularly in Treasury bills and corporate bonds | Category | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :------- | :--------------------------- | :------------------------------- | | Cash and cash equivalents | $89,104 | $108,212 | | Current investments | $364,487 | $427,348 | | Non-current investments | $408,032 | $262,039 | | Total Cash, Cash Equivalents, and Investments | $861,623 | $797,599 | - The Company's available-for-sale investments include Treasury bills, asset-backed securities, corporate bonds, agency bonds, sovereign bonds, and municipal bonds, all denominated in U.S. Dollars[48] NOTE 5: Inventories Total inventories decreased to $72.889 million as of June 30, 2019, from $83.282 million at December 31, 2018, primarily due to a reduction in raw materials and finished goods | Inventory Component | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :------------------ | :--------------------------- | :------------------------------- | | Raw materials | $32,545 | $42,738 | | Work-in-process | $4,112 | $3,435 | | Finished goods | $36,232 | $37,109 | | Total Inventories | $72,889 | $83,282 | NOTE 6: Leases The company adopted ASC 842 "Leases" on January 1, 2019, recognizing lease assets of $17.522 million and corresponding current and non-current lease liabilities. All leases are classified as operating leases, with a weighted-average discount rate of 4.8% and a remaining lease term of 3.6 years - As of January 1, 2019, the Company recorded lease assets of $17.522 million, current lease liabilities of $4.736 million, and non-current lease liabilities of $12.669 million due to ASC 842 adoption[56] - All of the Company's leases are classified as operating leases, primarily for leased properties worldwide[58] | Metric | Three-months Ended June 30, 2019 (in thousands) | Six-months Ended June 30, 2019 (in thousands) | | :----- | :---------------------------------------------- | :-------------------------------------------- | | Total operating lease expense | $1,742 | $3,227 | | Total operating lease cash payments | $1,669 | $3,070 | | Lease expense for leases <= 12 months | $64 | $233 | - The weighted-average discount rate for leases was 4.8%, and the weighted-average remaining lease term was 3.6 years as of June 30, 2019[61] NOTE 7: Intangible Assets Net carrying value of intangible assets decreased to $8.575 million as of June 30, 2019, from $10.113 million at December 31, 2018, primarily due to ongoing amortization | Intangible Asset | Net Carrying Value (June 30, 2019, in thousands) | Net Carrying Value (December 31, 2018, in thousands) | | :----------------- | :----------------------------------------------- | :--------------------------------------------------- | | Completed technologies | $5,848 | $7,068 | | Customer relationships | $2,634 | $2,891 | | Non-compete agreements | $93 | $154 | | Total | $8,575 | $10,113 | - Estimated future amortization expense for intangible assets for the remainder of fiscal 2019 is $1.163 million[66] NOTE 8: Warranty Obligations The company's warranty obligation increased to $5.452 million as of June 30, 2019, from $4.743 million at December 31, 2018, reflecting new provisions for warranties issued during the period | Warranty Activity | Amount (in thousands) | | :---------------- | :-------------------- | | Balance as of December 31, 2018 | $4,743 | | Provisions for warranties issued during the period | $2,533 | | Fulfillment of warranty obligations | $(1,824) | | Balance as of June 30, 2019 | $5,452 | NOTE 9: Derivative Instruments The company uses foreign currency forward contracts as economic hedges to manage foreign currency risk, with maturities up to 45 days. These are not designated for hedge accounting. As of June 30, 2019, the notional value of outstanding forward contracts was $32.151 million (USD equivalent) - The Company enters into economic hedges using foreign currency forward contracts with maturities up to 45 days to manage exposure to foreign currency exchange rate fluctuations[68] - These economic hedges are not designated as hedging instruments for hedge accounting treatment[71] | Currency | Notional Value (June 30, 2019, in thousands) | USD Equivalent (June 30, 2019, in thousands) | | :------- | :------------------------------------------- | :------------------------------------------- | | Euro | 19,000 | $21,681 | | Japanese Yen | 400,000 | $3,717 | | Hungarian Forint | 900,000 | $3,178 | | Korean Won | 3,550,000 | $3,072 | | British Pound | 2,400 | $3,055 | | Taiwanese Dollar | 50,000 | $1,617 | | Canadian Dollar | 1,100 | $841 | | Total USD Equivalent | | $32,151 | | Metric | Three-months Ended June 30, 2019 (in thousands) | Three-months Ended July 1, 2018 (in thousands) | Six-months Ended June 30, 2019 (in thousands) | Six-months Ended July 1, 2018 (in thousands) | | :----- | :---------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | | Gains (losses) recognized in current operations | $(439) | $(354) | $66 | $(665) | NOTE 10: Revenue Recognition Revenue decreased for both the three-month and six-month periods ended June 30, 2019, compared to the prior year. Geographically, Americas revenue increased, while Europe, Greater China, and Other Asia saw declines. Standard products and services remain the largest revenue type | Geographic Area | Three-months Ended June 30, 2019 (in thousands) | Three-months Ended July 1, 2018 (in thousands) | Six-months Ended June 30, 2019 (in thousands) | Six-months Ended July 1, 2018 (in thousands) | | :---------------- | :---------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | | Americas | $78,500 | $71,812 | $143,656 | $131,029 | | Europe | $58,881 | $70,366 | $118,538 | $126,569 | | Greater China | $35,782 | $41,175 | $58,592 | $68,334 | | Other Asia | $25,884 | $27,911 | $51,745 | $54,899 | | Total Revenue | $199,047 | $211,264 | $372,531 | $380,831 | | Revenue Type | Three-months Ended June 30, 2019 (in thousands) | Three-months Ended July 1, 2018 (in thousands) | Six-months Ended June 30, 2019 (in thousands) | Six-months Ended July 1, 2018 (in thousands) | | :------------- | :---------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | | Standard products and services | $173,368 | $183,627 | $334,420 | $342,026 | | Application-specific customer solutions | $25,679 | $27,637 | $38,111 | $38,805 | | Total Revenue | $199,047 | $211,264 | $372,531 | $380,831 | Costs to Fulfill a Contract Costs to fulfill a contract, recorded as prepaid expenses and other current assets, increased to $6.852 million as of June 30, 2019, from $3.514 million at December 31, 2018 | Metric | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :----- | :--------------------------- | :------------------------------- | | Costs to Fulfill a Contract | $6,852 | $3,514 | Accounts Receivable, Contract Assets, and Contract Liabilities Deferred revenue and customer deposits increased to $18.332 million as of June 30, 2019, from $9.845 million at December 31, 2018, reflecting increases from new billings/collections and recognition of revenue | Metric | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :----- | :--------------------------- | :------------------------------- | | Deferred revenue and customer deposits | $18,332 | $9,845 | - Increases to deferred revenue and customer deposits for the six-month period ended June 30, 2019, totaled $29.883 million, while $21.308 million of revenue was recognized from these balances[76] NOTE 11: Stock-Based Compensation Expense Total stock-based compensation expense for the six-month period ended June 30, 2019, was $23.248 million, an increase from $22.196 million in the prior year. The company had 14.765 million stock options outstanding with a weighted-average exercise price of $36.00 as of June 30, 2019 | Metric | Six-months Ended June 30, 2019 (in thousands) | Six-months Ended July 1, 2018 (in thousands) | | :----- | :-------------------------------------------- | :------------------------------------------- | | Total Stock-Based Compensation Expense | $23,248 | $22,196 | | Related Income Tax Benefit | $4,035 | $3,954 | | Stock Option Activity | Shares (in thousands) | Weighted-Average Exercise Price | | :-------------------- | :-------------------- | :------------------------------ | | Outstanding as of December 31, 2018 | 13,789 | $31.73 | | Granted | 2,821 | $51.37 | | Exercised | (1,239) | $21.32 | | Forfeited or expired | (606) | $40.27 | | Outstanding as of June 30, 2019 | 14,765 | $36.00 | - As of June 30, 2019, total unrecognized compensation expense related to non-vested stock options was $66.645 million, expected to be recognized over a weighted-average period of 1.88 years[86] NOTE 12: Stock Repurchase Program Under a $200 million repurchase program authorized in October 2018, the company repurchased 1.398 million shares at a cost of $61.690 million during the six-month period ended June 30, 2019. A remaining balance of $129.688 million is available for future repurchases - The Board of Directors authorized a $200 million common stock repurchase program in October 2018[87] - During the six-month period ended June 30, 2019, the Company repurchased 1.398 million shares at a cost of $61.690 million[87] - As of June 30, 2019, $129.688 million remained available for repurchase under the program[87] NOTE 13: Taxes The effective tax rate for the six-month period ended June 30, 2019, was 12%, primarily influenced by foreign tax rate differentials and discrete tax benefits from stock options. The company increased its reserves for income taxes by $952 thousand during the period | Metric | Three-months Ended June 30, 2019 | Three-months Ended July 1, 2018 | Six-months Ended June 30, 2019 | Six-months Ended July 1, 2018 | | :----- | :------------------------------- | :------------------------------ | :----------------------------- | :---------------------------- | | Income tax expense at U.S. federal statutory corporate tax rate | 21% | 21% | 21% | 21% | | State income taxes, net of federal benefit | 1% | 2% | 1% | 2% | | Foreign tax rate differential | (7)% | (7)% | (7)% | (7)% | | Discrete tax benefit related to stock options | (2)% | (1)% | (4)% | (5)% | | Income tax expense (effective rate) | 14% | 16% | 12% | 11% | - During the six-month period ended June 30, 2019, the Company recorded a $952 thousand increase in reserves for income taxes, net of deferred tax benefit[91] - There is a potential for a $1.250 million to $1.350 million decrease in income tax expense over the next twelve months due to the expiration of certain statutes of limitations related to tax reserves[92] NOTE 14: Weighted-Average Shares Diluted weighted-average common and common-equivalent shares outstanding for the six-month period ended June 30, 2019, were 175.528 million, slightly lower than 178.418 million in the prior year | Metric | Three-months Ended June 30, 2019 (in thousands) | Three-months Ended July 1, 2018 (in thousands) | Six-months Ended June 30, 2019 (in thousands) | Six-months Ended July 1, 2018 (in thousands) | | :----- | :---------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | | Basic weighted-average common shares outstanding | 171,318 | 172,370 | 171,209 | 172,825 | | Effect of dilutive stock options | 4,130 | 4,779 | 4,319 | 5,593 | | Weighted-average common and common-equivalent shares outstanding (Diluted) | 175,448 | 177,149 | 175,528 | 178,418 | - Stock options to purchase 6.113 million shares (3-month) and 5.503 million shares (6-month) were anti-dilutive and excluded from diluted net income per share calculation for the periods ended June 30, 2019[93] NOTE 15: Subsequent Events On July 29, 2019, the Board of Directors declared a cash dividend of $0.050 per share, payable on August 30, 2019 - On July 29, 2019, the Company's Board of Directors declared a cash dividend of $0.050 per share, payable on August 30, 2019[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, highlighting a decrease in revenue and net income for Q2 2019 due to lower sales in consumer electronics and automotive, partially offset by strong logistics sales. It also discusses operating expenses, non-operating income, income tax, and liquidity Forward-Looking Statements This section cautions readers about forward-looking statements, which are based on current estimates and expectations and involve known and unknown risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from projections[96] - Key risks include loss of large customers, global economic conditions (e.g., tariffs), reliance on consumer electronics or automotive industries, inability to penetrate new markets, foreign currency fluctuations, and technological obsolescence[96] Executive Overview Cognex Corporation is a leading provider of machine vision products for manufacturing and distribution automation. Q2 2019 revenue decreased by 6% year-over-year to $199.047 million, primarily due to lower sales in consumer electronics and automotive, despite strong logistics sales. Gross margin remained consistent at 74%, but operating income and net income percentages declined - Cognex Corporation is a leading worldwide provider of machine vision products for automating tasks in manufacturing and distribution processes[97] | Metric | Q2 2019 (in thousands) | Q2 2018 (in thousands) | | :----- | :--------------------- | :--------------------- | | Revenue | $199,047 | $211,264 | | Gross Margin % | 74% | 74% | | Operating Income % of Revenue | 26% | 30% | | Net Income % of Revenue | 24% | 27% | | Net Income per Diluted Share | $0.28 | $0.32 | - The 6% decrease in Q2 2019 revenue was due to lower sales in the consumer electronics and automotive industries, and unfavorable foreign currency exchange rates, partially offset by strong sales in the logistics industry[97] Results of Operations This section details the financial performance for the three-month and six-month periods, covering revenue, gross margin, operating expenses (RD&E, SG&A), non-operating income/expense, and income tax expense Revenue Revenue decreased by 6% for the three-month period and 2% for the six-month period, significantly impacted by foreign currency exchange rates (approx. 3 percentage points decrease). On a constant-currency basis, revenue decreased by 3% for three months and increased by 1% for six months. Strong logistics sales were offset by declines in consumer electronics and automotive across Europe and Asia - Revenue decreased by $12.217 million (6%) for the three-month period and $8.300 million (2%) for the six-month period[100] - Changes in foreign currency exchange rates accounted for approximately a 3 percentage point decrease in revenue for both periods[100] - On a constant-currency basis, revenue decreased by 3% for the three-month period and increased by 1% for the six-month period[100] - Sales to customers in the Americas increased by 9% (3-month) and 10% (6-month) due to higher logistics sales, while sales in Europe, Greater China, and Other Asia declined, primarily due to lower consumer electronics sales[101][102][103] - Revenue for Q3 2019 is expected to decrease from both Q2 2019 and Q3 2018, driven by significantly lower consumer electronics revenue (smartphone manufacturing), delays/reductions in capital spending (automotive), and seasonal softness, partially offset by logistics growth[104][105][106] Gross Margin Gross margin as a percentage of revenue remained consistent at 74% for the three-month periods in both 2019 and 2018. For the six-month period, it slightly declined from 75% in 2018 to 74% in 2019, mainly due to unfavorable absorption of manufacturing overhead and negative foreign currency impacts - Gross margin as a percentage of revenue was 74% for both the three-month periods in 2019 and 2018[107] - For the six-month period, gross margin percentage declined from 75% in 2018 to 74% in 2019, primarily due to unfavorable absorption of manufacturing overhead costs and the unfavorable impact of foreign currency exchange rates[107] - The gross margin percentage for Q3 2019 is expected to be in the mid-70s range, slightly lower than Q2 2019[107] Operating Expenses Operating expenses increased due to higher personnel-related costs from headcount additions, partially offset by lower incentive compensation and favorable foreign currency exchange rates Research, development, and engineering (RD&E) expenses RD&E expenses increased by 4% for the three-month period and 1% for the six-month period, driven by higher personnel costs from headcount additions for new product initiatives. These increases were partially offset by lower incentive compensation and favorable foreign currency impacts. RD&E as a percentage of revenue was 14% (3-month) and 16% (6-month) in 2019 | Metric | Three-month period (in thousands) | Six-month period (in thousands) | | :----- | :-------------------------------- | :------------------------------ | | RD&E expenses in 2018 | $26,888 | $57,964 | | Personnel-related costs | $1,099 | $2,198 | | Incentive compensation plans | $(1,086) | $(1,344) | | Foreign currency exchange rate changes | $(537) | $(1,266) | | RD&E expenses in 2019 | $28,079 | $58,321 | - RD&E expenses as a percentage of revenue were 14% and 16% for the three-month and six-month periods in 2019, respectively, compared to 13% and 15% for the same periods in 2018[110] - The Company targets RD&E spending to be between 10% and 15% of revenue on an annual basis[110] Selling, General, and Administrative Expenses SG&A expenses increased by 2% for the three-month period and 4% for the six-month period, mainly due to higher personnel-related costs from sales headcount additions. This was partially offset by lower incentive compensation, reduced ERP project costs (as the system was implemented in mid-2018), and favorable foreign currency impacts | Metric | Three-month period (in thousands) | Six-month period (in thousands) | | :----- | :-------------------------------- | :------------------------------ | | SG&A expenses in 2018 | $66,752 | $130,449 | | Personnel-related costs | $6,093 | $13,878 | | Foreign currency exchange rate changes | $(1,931) | $(3,616) | | Incentive compensation plans | $(2,117) | $(3,097) | | ERP project costs | $(1,422) | $(2,667) | | SG&A expenses in 2019 | $68,245 | $135,056 | - The increase in SG&A expenses was primarily due to higher personnel-related costs from headcount additions, principally sales personnel[112] - These increases were partially offset by lower incentive compensation, reduced ERP project costs (system placed into service mid-2018), and favorable foreign currency exchange rates[112] Non-operating Income (Expense) The company reported a foreign currency gain of $140 thousand for the three-month period and a loss of $108 thousand for the six-month period in 2019. Investment income significantly increased by 47% (3-month) and 49% (6-month) due to higher yields and additional funds. Other income (expense) included fair value adjustments of contingent consideration liabilities | Metric | Three-months Ended June 30, 2019 (in thousands) | Three-months Ended July 1, 2018 (in thousands) | Six-months Ended June 30, 2019 (in thousands) | Six-months Ended July 1, 2018 (in thousands) | | :----- | :---------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | | Foreign currency gain (loss) | $140 | $(195) | $(108) | $(329) | | Investment income | $5,223 | $3,559 | $10,128 | $6,799 | | Other income (expense) | $(144) | $(246) | $783 | $31 | - Investment income increased by $1.664 million (47%) for the three-month period and $3.329 million (49%) for the six-month period, driven by higher yields on debt securities and additional funds available for investment[115] Income Tax Expense The effective tax rate was 14% for the three-month period and 12% for the six-month period in 2019, compared to 16% and 11% in 2018, respectively. This includes significant discrete tax benefits from stock option exercises. Excluding these benefits, the effective tax rate was 17% for both three-month periods and 16% for both six-month periods | Metric | Three-months Ended June 30, 2019 | Three-months Ended July 1, 2018 | Six-months Ended June 30, 2019 | Six-months Ended July 1, 2018 | | :----- | :------------------------------- | :------------------------------ | :----------------------------- | :---------------------------- | | Effective Tax Rate | 14% | 16% | 12% | 11% | | Decrease in tax expense from stock options | $1,248k | $654k | $3,978k | $5,589k | - Excluding the impact of discrete tax events, the effective tax rate was 17% for both three-month periods and 16% for both six-month periods[117] - The Company's foreign effective tax rate is lower than U.S. statutory rates due to international intellectual property held by a subsidiary in a jurisdiction that does not tax this income[117] Liquidity and Capital Resources The company maintains a strong liquidity position with $861.623 million in cash and investments as of June 30, 2019. Operating cash flow increased significantly, funding stock repurchases, dividends, and capital expenditures. The company has no long-term debt and expects existing cash and operations to meet future needs - The Company's accumulated cash and investment balance was $861.623 million as of June 30, 2019[118] - Net cash provided by operations for the six months ended June 30, 2019, was $120.150 million, primarily funding stock repurchases ($61.690 million), dividend payments ($17.146 million), and capital expenditures ($8.969 million)[118] - The Company has no long-term debt and believes its existing cash and investment balances, along with cash flow from operations, will be sufficient to meet its operating, investing, and financing activities for the next twelve months[118][119][120] New Pronouncements This section refers to Note 2 for a full description of recently issued accounting pronouncements, their expected adoption dates, and their anticipated impact on the company's financial position and results of operations - Refer to Part I - Note 2 for a full description of recently issued accounting pronouncements, including expected adoption dates and impact on financial position and results of operations[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's exposures to market risk since December 31, 2018 - No material changes to the Company's exposures to market risk have occurred since December 31, 2018[121] Item 4. Controls and Procedures Management, including the Chief Executive Officer and the Principal Financial & Accounting Officer, concluded that the company's disclosure controls and procedures were effective as of June 30, 2019. No material changes to internal control over financial reporting occurred during the quarter - The Chief Executive Officer and Principal Financial & Accounting Officer concluded that disclosure controls and procedures were effective as of June 30, 2019[123] - There was no material change in the Company's internal control over financial reporting during the quarter ended June 30, 2019[123] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, other information, and a list of exhibits Item 1. Legal Proceedings Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened, but management believes any liability arising from them will not have a material adverse effect on the company's financial position, liquidity, or results of operations - Various claims and legal proceedings are pending or threatened, generally incidental to the normal course of business[125] - Management believes any liability from these matters will not have a material adverse effect on the Company's financial position, liquidity, or results of operations[125] Item 1A. Risk Factors This section refers readers to the detailed discussion of risk factors in Part I—Item 1A of the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - For a list of factors that could affect the Company's business, results of operations, and financial condition, refer to the risk factors discussion in Part I—Item 1A of the Annual Report on Form 10-K for the fiscal year ended December 31, 2018[126] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three-month period ended June 30, 2019, the company repurchased 1.398 million shares of common stock at an average price of $44.10 per share under its $200 million repurchase program. As of June 30, 2019, $129.688 million remained available under the program | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining Under Program | | :----- | :------------------------------- | :--------------------------- | :----------------------------------------------- | | April 1 - April 28, 2019 | — | — | $191,378,000 | | April 29 - May 26, 2019 | 639,221 | $45.54 | $162,267,000 | | May 27 - June 30, 2019 | 759,600 | $42.89 | $129,688,000 | | Total (3-month period) | 1,398,821 | $44.10 | $129,688,000 | - The repurchases were made under a $200 million program authorized in October 2018[127] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - The Company reported no defaults upon senior securities[127] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the Company[127] Item 5. Other Information No other information was reported under this item - No other information was reported under this item[127] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including various agreements, certifications (CEO, CFO), and XBRL-related documents - Exhibits include Letter Agreement, Stock Option Agreement, Certifications of Principal Executive Officer and Principal Financial Officer, and various XBRL documents[129] SIGNATURES This section contains the official signatures certifying the submission of the report Signatures The report is signed by Robert J. Willett, President and Chief Executive Officer, and Laura A. MacDonald, Vice President and Corporate Controller, on July 29, 2019, certifying its submission - The report was signed on July 29, 2019, by Robert J. Willett, President and Chief Executive Officer, and Laura A. MacDonald, Vice President and Corporate Controller[132]