Loss from Fire

6 Months Ended

Jul. 03, 2022

Catastrophe [Abstract]

Loss from Fire

Loss from Fire

On June 7, 2022, the Company’s primary contract manufacturer experienced a fire at its plant in Indonesia. The fire destroyed a significant amount of Cognex-owned consigned inventories as well as component inventories owned by the contract manufacturer that were designated for Cognex products. There was no significant damage to the Company's production equipment. Since the date of the fire and continuing through the date of this report, the Company has worked with the contract manufacturer to assess the damage, resume production, and begin the process of replenishing inventories destroyed by the fire. Additionally, beginning last year, the Company has been working to ramp up an additional contract manufacturer to further mitigate risk, diversify supply chain, and expand production capacity. We expect this additional contract manufacturer to commence production later in the year. As a result of the fire, the Company recorded $44,903,000 in gross losses, including $36,484,000 of primarily Cognex-owned inventory that was destroyed or deemed to have a net realizable value of zero and $8,419,000 of primarily prepayments related to Cognex-designated components that were owned by the contract manufacturer.

Based on the provisions of the Company's insurance policies, the gross losses have been reduced by the estimated insurance proceeds expected to be received from the Company’s insurance carrier. The Company has determined that partial recovery of the incurred losses is probable and therefore recorded an insurance recovery of $27,500,000 during the three-month period ended July 3, 2022. The insurance receivable is included in “Prepaid expenses and other current assets” on the Consolidated Balance Sheets. The gross losses, net of insurance recovery, total $17,403,000 and is presented in the caption “Loss from fire” on the Consolidated Statements of Operations.

As of July 3, 2022 and through the date of financial statement issuance, management cannot 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 the expected insurance coverage and/or recoveries from the contract manufacturer will be available to cover the losses 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 the three-month period ended July 3, 2022 as a result of the fire.