What changed in this filing

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Item 1. Financial Statements

2020-11-10 compared with 2020-08-06 · 206 added, 159 removed, 652 unchanged (36% of the section changed)

44 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Cost of revenue

10 unchanged sentences

Income before income taxes

Income tax provision (benefit)

Income tax provision

Consolidated net income

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Consolidated net income

14 unchanged sentences

Accumulated Other Comprehensive

Three Months Ended July 3, 2020

Balance at April 3, 2020

Three Months Ended October 2, 2020

Balance at July 3, 2020

Consolidated net income

2 unchanged sentences

Share-based compensation

Other comprehensive income, net of tax

Balance at July 3, 2020

Six Months Ended July 3, 2020

Other comprehensive income (loss), net of tax

Balance at October 2, 2020

Nine Months Ended October 2, 2020

Balance at December 31, 2019

4 unchanged sentences

Share-based compensation

Other comprehensive income, net of tax

Balance at July 3, 2020

Three Months Ended June 28, 2019

Balance at March 29, 2019

Other comprehensive income (loss), net of tax

Balance at October 2, 2020

Three Months Ended September 27, 2019

Balance at June 28, 2019

Consolidated net income

Common shares issued for a business combination

Common shares issued under stock plans

2 unchanged sentences

Share-based compensation

Other comprehensive income, net of tax

Balance at June 28, 2019

Six Months Ended June 28, 2019

Other comprehensive income (loss), net of tax

Balance at September 27, 2019

Nine Months Ended September 27, 2019

Balance at December 31, 2018

Consolidated net income

Common shares issued for a business combination

Common shares issued under stock plans

2 unchanged sentences

Share-based compensation

Other comprehensive income, net of tax

Balance at June 28, 2019

Other comprehensive income (loss), net of tax

Balance at September 27, 2019

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

(In thousands of U.S.

Six Months Ended

Nine Months Ended

September 27,

Cash flows from operating activities:

7 unchanged sentences

Inventory acquisition fair value adjustments

Contingent consideration adjustments

Changes in assets and liabilities which (used)/provided cash, excluding

22 unchanged sentences

Other financing activities

Cash used in financing activities

Cash provided by (used in) financing activities

Effect of exchange rates on cash and cash equivalents

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JULY 3, 2020

AS OF OCTOBER 2, 2020

Basis of Presentation

14 unchanged sentences

The accounting estimates assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves and the carrying value of goodwill and other long-lived assets.

While there was not a material change to the consolidated financial statements related to these estimates as of and for the three and six months ended July 3, 2020, the Company’s future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

While there was not a material change to the consolidated financial statements related to these estimates as of and for the three and nine months ended October 2, 2020, the Company’s future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

AS OF OCTOBER 2, 2020

Recent Accounting Pronouncements

24 unchanged sentences

ASU 2020-04 is elective.

The Company is currently evaluating the impact of ASU 2020-04 on its consolidated financial statements.

The Company does not expect the impact of ASU 2020-04 to be material to its consolidated financial statements.

The Company recognizes revenue when control of promised goods or services is transferred to customers.

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

AS OF OCTOBER 2, 2020

in exchange for such products, which is generally at contractually stated prices.

28 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

AS OF OCTOBER 2, 2020

Contract Liabilities

1 unchanged sentence

These contract liabilities are classified as either current or long-term liabilities in the consolidated balance sheet based on the timing of when the Company expects to recognize the related revenue.

As of July 3, 2020 and December 31, 2019, contract liabilities were $ 4.6 million and $ 3.6 million, respectively, and are included in accrued expenses and other current liabilities and other liabilities in the accompanying consolidated balance sheets.

The increase in the contract liability balance during the six months ended July 3, 2020 is primarily due to cash payments received in advance of satisfying performance obligations, partially offset by $ 2.6 million of revenue recognized during the period that was included in the contract liability balance at December 31, 2019.

As of October 2, 2020 and December 31, 2019, contract liabilities were $ 4.8 million and $ 3.6 million, respectively, and are included in accrued expenses and other current liabilities and other liabilities in the accompanying consolidated balance sheets.

The increase in the contract liability balance during the nine months ended October 2, 2020 is primarily due to cash payments received in advance of satisfying performance obligations, partially offset by $ 3.1 million of revenue recognized during the period that was included in the contract liability balance at December 31, 2019.

Disaggregated Revenue

18 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

AS OF OCTOBER 2, 2020

Accumulated Other Comprehensive Loss

5 unchanged sentences

Amounts reclassified from accumulated other comprehensive loss (1)

Balance at July 3, 2020

Balance at October 2, 2020

The amounts reclassified from accumulated other comprehensive loss were included in other income (expense) in the consolidated statements of operations.

2 unchanged sentences

For diluted earnings per common share, the denominator includes the dilutive effect of outstanding common share equivalents.

For the three and six months ended July 3, 2020 and June 28, 2019, respectively, weighted average shares outstanding for the diluted earnings per common share included the dilutive effect of outstanding restricted stock units, stock options, and total shareholder return performance-based restricted stock units, determined using the treasury stock method.

For the three and nine months ended October 2, 2020 and September 27, 2019, respectively, weighted average shares outstanding for the diluted earnings per common share included the dilutive effect of outstanding restricted stock units, stock options, and total shareholder return performance-based restricted stock units, determined using the treasury stock method.

The dilutive effects of market-based contingently issuable shares are included in the weighted average common share calculation based on the number of shares, if any, that would be issuable as of the end of the reporting period assuming the end of the reporting period is also the end of the performance period.

Dilutive effects of attainment-based contingently issuable shares granted to the former Laser Quantum Limited (“Laser Quantum”) noncontrolling interest shareholders, as well as the non-GAAP EPS performance-based restricted stock units will be included in the weighted average common share calculation when the performance targets have been achieved.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

Dilutive effects of attainment-based contingently issuable shares granted to the former Laser Quantum Limited (“Laser Quantum”) noncontrolling interest shareholders, as well as the non-GAAP EPS performance-based restricted stock units are included in the weighted average common share calculation when the performance targets have been achieved based on the cumulative achievement against the performance targets as of the end of each reporting period.

The following table sets forth the computation of basic and diluted earnings per common share (amounts in thousands, except per share data):

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Consolidated net income

5 unchanged sentences

Earnings per Common Share:

71 thousand non-GAAP EPS performance-based restricted stock units granted to certain members of the executive management team and 213 thousand shares of restricted stock issued to the former Laser Quantum non-controlling interest shareholders are considered contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of July 3, 2020.

45 thousand non-GAAP EPS performance-based restricted stock units granted to certain members of the executive management team and 213 thousand shares of restricted stock issued to the former Laser Quantum non-controlling interest shareholders were considered contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of June 28, 2019.

73 thousand non-GAAP EPS performance-based restricted stock units granted to certain members of the executive management team and 213 thousand shares of restricted stock issued to the former Laser Quantum non-controlling interest shareholders are considered contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of October 2, 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

47 thousand non-GAAP EPS performance -based restricted stock units granted to certain members of the executive management team and 213 thousand shares of restricted stock issued to the former Laser Quantum non-controlling interest share holders were considered contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of September 27, 2019 .

Fair Value Measurements

7 unchanged sentences

The fair values of cash, accounts receivable, income taxes receivable, accounts payable, income taxes payable and accrued expenses and other current liabilities approximate their carrying values because of their short-term nature.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

Foreign Currency Contracts

9 unchanged sentences

Subsequent changes in the estimated fair value of the contingent consideration liability are recorded in the consolidated statement of operations in restructuring, acquisition, and related costs until the liability is fully settled.

There were no changes to the fair value of the contingent consideration during the six months ended July 3, 2020.

Based on the revenue performance as of October 2, 2020 and the most recent revenue projections for fiscal years 2021 to 2016, the fair value of the contingent consideration was adjusted to € 6.4 million ($ 7.6 million) as of October 2, 2020.

On April 16, 2019, the Company acquired Ingenia CAT, S.L.

4 unchanged sentences

In June 2020, the Company made the first installment payment of € 1.0 million ($ 1.1 million), which is included in cash flows from financing activities in the consolidated statement of cash flows for the six months ended July 3, 2020.

There were no changes to the fair value of the contingent consideration during the six months ended July 3, 2020.

There were no other changes to the fair value of the contingent consideration during the nine months ended October 2, 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

On December 14, 2016 , the Company acquired certain video signal processing and management technologies used in medical visualization solutions.

3 unchanged sentences

As the acquired assets did not meet the definition of a business, the fair value of the contingent consideration is recognized when probable and estimable and is capitalized as part of the cost of the acquired assets.

Subsequent changes in the estimated fair value of this contingent liability are recorded as adjustments to the carrying value of the asset acquired and amortized over the remaining useful life of the underlying asset.

In February 2020, the Company made the first installment payment of € 2.4 million ($ 2.6 million), which is included in cash flows from investing activities in the consolidated statement of cash flows for the six months ended July 3, 2020.

There were no other changes in the fair value of the contingent consideration during the six months ended July 3, 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

There were no other changes in the fair value of the contingent consideration during the nine months ended October 2, 2020.

Summary by Fair Value Hierarchy

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of July 3, 2020 (in thousands):

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of October 2, 2020 (in thousands):

Quoted Prices in

12 unchanged sentences

Contingent considerations - Long-term

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 (in thousands):

13 unchanged sentences

Contingent considerations - Long-term

Changes in the fair value of Level 3 contingent considerations during the six months ended July 3, 2020 were as follows (in thousands):

Changes in the fair value of Level 3 contingent considerations during the nine months ended October 2, 2020 were as follows (in thousands):

Contingent Considerations

Balance at December 31, 2019

Fair value adjustments

Effect of foreign exchange rates

Balance at July 3, 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

The following table provides qu ali tative information associated with the fair value measurement of the Company’s Level 3 liabilities:

Balance at October 2, 2020

The following table provides qualitative information associated with the fair value measurement of the Company’s Level 3 liabilities:

October 2, 2020

(in thousands)

16 unchanged sentences

Revenue discount rate

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

Increases or decreases in the unobservable inputs noted above would result in a higher or lower fair value measurement.

5 unchanged sentences

Furthermore, the Company manages its exposures to counterparty risks on derivative instruments by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions.

As of July 3, 2020, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 26.7 million and a net gain of $ 0.1 million, respectively.

As of October 2, 2020, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 7.3 million and a net gain of less than $ 0.1 million, respectively.

As of December 31, 2019, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 12.4 million and a net loss of less than $ 0.1 million, respectively.

The Company recognized an aggregate net gain of $ 0.7 million and $ 0.4 million for the three and six months ended July 3, 2020, respectively, and an aggregate net gain of $ 0.9 million and $ 0.4 million for the three and six months ended June 28, 2019, respectively.

The Company recognized an aggregate net gain of $ 1.0 million and $ 1.4 million for the three and nine months ended October 2, 2020, respectively, and an aggregate net gain of $ 0.7 million and $ 1.2 million for the three and nine months ended September 27, 2019, respectively.

These amounts were included in foreign exchange transaction gains (losses) in the consolidated statement of operations for all periods presented.

3 unchanged sentences

The Company performed the most recent annual goodwill and indefinite-lived intangible asset impairment test as of the beginning of the second quarter of 2020 and noted no impairment.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

The following table summarizes changes in goodwill during the six months ended July 3, 2020 (in thousands):

The following table summarizes changes in goodwill during the nine months ended October 2, 2020 (in thousands):

Balance at beginning of the period

2 unchanged sentences

Balance at end of the period

Goodwill by reportable segment as of July 3, 2020 was as follows (in thousands):

Goodwill by reportable segment as of October 2, 2020 was as follows (in thousands):

Reportable Segment

Accumulated impairment of goodwill

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

Goodwill by reportable segment as of December 31, 2019 was as follows (in thousands):

2 unchanged sentences

Intangible Assets

Intangible assets as of July 3, 2020 and December 31, 2019, respectively, are summarized as follows (in thousands):

Intangible assets as of October 2, 2020 and December 31, 2019, respectively, are summarized as follows (in thousands):

October 2, 2020

December 31, 2019

8 unchanged sentences

Non-amortizable intangible assets:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

All definite-lived intangible assets are amortized either on a straight-line basis or an economic benefit basis over their remaining estimated useful life.

1 unchanged sentence

Amortization expense for customer relationships and definite-lived trademarks, trade names and other intangibles is included in operating expenses in the accompanying consolidated statements of operations.

Amortizat ion expense was as follows (in thousands):

Amortization expense was as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Amortization expense – cost of revenue

1 unchanged sentence

Total amortization expense

Estimated amortization expense for each of the five succeeding years and thereafter as of July 3, 2020 was as follows (in thousands):

Estimated amortization expense for each of the five succeeding years and thereafter as of October 2, 2020 was as follows (in thousands):

Year Ending December 31,

1 unchanged sentence

2020 (remainder of year)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

Supplementary Balance Sheet Information

11 unchanged sentences

Finance lease obligations

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

Accrued earn-out and contingent considerations

Accrued Warranty

Six Months Ended

Nine Months Ended

September 27,

Balance at beginning of the period

8 unchanged sentences

Accrued contingent considerations

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

Debt consisted of the following (in thousands):

13 unchanged sentences

The First Amendment increased the revolving credit facility commitment under the Third Amended and Restated Credit Agreement by $ 145.0 million, from $ 350.0 million to $ 495.0 million and reset the uncommitted accordion feature to $ 200.0 million for potential future expansion.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

The outstanding principal balance under the term loan facility is payable in quarterly installments of € 1.1 million beginning in March 2020, with the remaining balance due upon maturity.

1 unchanged sentence

Borrowings under the revolving credit facility may be repaid at any time through December 2024 .

The Company repaid € 2.3 million ($ 2.5 million) of its term loan during the six months ended July 3, 2020.

The Company repaid € 3.4 million ($ 3.9 million) of its term loan and $ 30.1 million of borrowings under its revolving credit facility during the nine months ended October 2, 2020.

The Company is required to satisfy certain financial and non-financial covenants under the Third Amended and Restated Credit Agreement.

The Third Amended and Restated Credit Agreement also contains customary events of default.

The Company was in compliance with these covenants as of July 3, 2020.

The Company was in compliance with these covenants as of October 2, 2020.

The Company’s obligations under the Senior Credit Facilities are secured, on a senior basis, by a lien on substantially all of the assets of Novanta Inc.

Fair Value of Debt

As of July 3, 2020 and December 31, 2019, the outstanding balance of the Company’s debt approximated its fair value based on current rates available to the Company for debt of similar maturities.

As of October 2, 2020 and December 31, 2019, the outstanding balance of the Company’s debt approximated its fair value based on current rates available to the Company for debt of similar maturities.

The fair value of the Company’s debt is classified as Level 2 under the fair value hierarchy.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

Most leases held by the Company expire between 2020 and 2034 .

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Operating lease cost

4 unchanged sentences

Total lease cost

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

The following table provides additional details of balance sheet information related to the Company’s leases (in thousands, except lease term and discount rate):

17 unchanged sentences

Finance leases

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

The following table provides additional details of cash flow information related to the Company’s leases (in thousands):

Six Months Ended

Nine Months Ended

September 27,

Cash paid for amounts included in lease liabilities:

4 unchanged sentences

Right-of-use assets obtained in exchange for new operating lease liabilities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

Future minimum lease payments under operating and finance leases expiring subsequent to July 3, 2020, including operating leases associated with facilities that have been vacated as a result of the Company’s restructuring actions, are summarized as follows (in thousands):

Future minimum lease payments under operating and finance leases expiring subsequent to October 2, 2020, including operating leases associated with facilities that have been vacated as a result of the Company’s restructuring actions, are summarized as follows (in thousands):

Year Ending December 31,

Operating Lease

Finance Lease (1)

Operating Leases

Finance Leases (1)

2020 (remainder of year)

5 unchanged sentences

In October 2018, the Company’s Board of Directors approved a share repurchase plan (the “2018 Repurchase Plan”) authorizing the repurchase of $ 25.0 million worth of the Company’s common shares.

During the six months ended July 3, 2020, the Company repurchased 65 thousand shares for an aggregate purchase price of $ 5.5 million at an average price of $ 84.55 per share under the 2018 Repurchase Plan.

During the nine months ended October 2, 2020, the Company repurchased 65 thousand shares for an aggregate purchase price of $ 5.5 million at an average price of $ 84.55 per share under the 2018 Repurchase Plan.

In February 2020, the Company’s Board of Directors approved a new share repurchase plan (the “2020 Repurchase Plan”) authorizing the repurchase of an additional $ 50.0 million worth of the Company’s common shares.

As of July 3, 2020, the Company had $ 59.5 million available under the 2018 and 2020 share repurchase plans for future share repurchases.

As of October 2, 2020, the Company had $ 59.5 million available under the 2018 and 2020 share repurchase plans for future share repurchases.

In an effort to preserve cash in light of the economic slowdown caused by the COVID-19 pandemic, the Company has temporarily suspended repurchases under the share repurchase plans since April 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

Share-Based Compensation Expense

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Selling, general and administrative

3 unchanged sentences

Total share-based compensation expense

Share-based compensation reported in selling, general and administrative expenses included expenses related to restricted stock units and deferred stock units granted to the members of the Company’s Board of Directors of $ 1.0 million and $ 0.9 million during the six months ended July 3, 2020 and June 28, 2019, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

Share-based compensation reported in selling, general and administrative expenses included expenses related to restricted stock units and deferred stock units granted to the members of the Company’s Board of Directors of $ 1.0 million and $ 0.9 million during the nine months ended October 2, 2020 and September 27, 2019, respectively.

Restricted Stock Units and Deferred Stock Units

4 unchanged sentences

Compensation expense associated with the DSUs is recognized in full on the date of grant, as the DSUs are fully vested and non-forfeitable upon grant.

There were 162 thousand and 187 thousand DSUs outstanding as of July 3, 2020 and December 31, 2019, respectively, which were included in the calculation of weighted average basic shares outstanding for the respective periods.

The table below summarizes activities relating to RSUs and DSUs issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the six months ended July 3, 2020:

There were 162 thousand and 187 thousand DSUs outstanding as of October 2, 2020 and December 31, 2019, respectively, which were included in the calculation of weighted average basic shares outstanding for the respective periods.

The table below summarizes activities relating to RSUs and DSUs issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the nine months ended October 2, 2020:

(In thousands)

2 unchanged sentences

Unvested at December 31, 2019

Unvested at July 3, 2020

Expected to vest as of July 3, 2020

The total fair value of RSUs and DSUs that vested during the six months ended July 3, 2020 was $ 9.4 million based on the market price of the underlying shares on the date of vesting.

Unvested at October 2, 2020

Expected to vest as of October 2, 2020

The total fair value of RSUs and DSUs that vested during the nine months ended October 2, 2020 was $ 9.7 million based on the market price of the underlying shares on the date of vesting.

Performance Stock Units

2 unchanged sentences

Both types of performance-based restricted stock units generally cliff vest on the first day following the end of the three-year performance period.

The number of common shares to be issued upon settlement following vesting of the EPS-PSUs is determined based on the Company’s cumulative non-GAAP EPS over a three-year performance period against the performance targets established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200 % of the target number of shares.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

Company’s Board of Directors at the time of grant and will be in the range of zero to 200 % of the target number of shares.

The Company recognizes compensation expense ratably over the performance period based on the number of shares that are deemed probable of vesting at the end of the three-year performance cycle.

3 unchanged sentences

Compensation expense will not be affected by the number of TSR-PSUs that will actually vest at the end of the three-year performance period.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

The table below summarizes the activities relating to the performance-based awards issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the six months ended July 3, 2020:

(In thousands)

3 unchanged sentences

Performance adjustment (2)

Unvested at July 3, 2020

Expected to vest as of July 3, 2020

Unvested at October 2, 2020

Expected to vest as of October 2, 2020

The unvested PSUs are shown in this table at target, except for the number of shares vested, which reflects the number of shares earned and expected to vest.

As of July 3, 2020, the maximum number of PSUs available to be earned was approximately 284 thousand shares.

As of October 2, 2020, the maximum number of PSUs available to be earned was approximately 283 thousand shares.

The amount shown represents performance adjustment for performance-based awards granted on February 28, 2017.

These units vested at 200 % during the six months ended July 3, 2020 based on the achievement of cumulative Non-GAAP EPS and applicable relative TSR performance conditions during the performance period of fiscal years 2017 through 2019.

The total fair value of PSUs that vested during the six months ended July 3, 2020 was $ 10.8 million based on the market price of the underlying shares on the date of vesting.

These units vested at 200 % during the nine months ended October 2, 2020 based on the achievement of cumulative Non-GAAP EPS and applicable relative TSR performance conditions during the performance period of fiscal years 2017 through 2019.

The total fair value of PSUs that vested during the nine months ended October 2, 2020 was $ 10.8 million based on the market price of the underlying shares on the date of vesting.

The fair value of the TSR-PSUs at the date of grant was estimated using the Monte Carlo valuation model with the following assumptions:

Six Months Ended

Nine Months Ended October 2, 2020

Grant-date stock price

2 unchanged sentences

Expected annual dividend yield

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

Stock Options

The total intrinsic value of stock options exercised during the six months ended July 3, 2020, based on the difference between market price on the date of exercise and the date of grant, was $ 1.0 million.

The total intrinsic value of stock options exercised during the nine months ended October 2, 2020, based on the difference between market price on the date of exercise and the date of grant, was $ 1.0 million.

The total amount of cash received from the exercise of these stock options was $ 0.2 million.

No stock options were granted during the six months ended July 3, 2020.

There were 60 thousand fully-vested stock options outstanding as of July 3, 2020.

No stock options were granted during the nine months ended October 2, 2020.

There were 60 thousand fully-vested stock options outstanding as of October 2, 2020.

The Company determines its estimated annual effective tax rate at the end of each interim period based on full-year forecasted pre-tax income and facts known at that time.

4 unchanged sentences

state net operating losses and certain non-U.S.

tax attributes that the Company has determined that it is more likely than not that they will not be realized.

A valuation allowance is

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

required when, based upon an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.

I n conjunction with the Company’s ongoing review of its actual results and anticipated future earnings, the Company continuously reassesses the possibility of releasing the valuation allowance currently in place on its deferred tax assets.

For the three and six months ended July 3, 2020, the Company recognized a tax benefit of $ 1.3 million due to the release of a portion of a valuation allowance on deferred tax assets which the Company believes will more likely than not be realized.

The Company’s effective tax rate of 0.3 % for the three months ended July 3, 2020 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions and other tax credits, and a release of a portion of the valuation allowance.

For the three months ended July 3, 2020, the valuation allowance release had a benefit of 11.4 % on the Company’s effective tax rate.

The Company’s effective tax rate of ( 0 %) for the six months ended July 3, 2020 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions and other tax credits, windfall tax benefits upon vesting of certain stock-based compensation awards during the period, and a release of a portion of the valuation allowance.

For the six months ended July 3, 2020, the windfall tax benefits upon vesting of certain share-based compensation awards and the valuation allowance release had a benefit of 11.2 % and 5.7 %, respectively, on the Company’s effective tax rate.

The Company’s effective tax rate of 19.5 % for the three months ended June 28, 2019 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, and U.K.

tax attributes that the Company has determined are more likely than not to be realized.

A valuation allowance is required when, based upon an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized.

In conjunction with the Company’s ongoing review of its actual results and anticipated future earnings, the Company continuously reassesses the possibility of releasing the valuation allowance currently in place on its deferred tax assets.

For the nine months ended October 2, 2020, in part because the Company achieved three years of cumulative taxable income in the Canadian jurisdiction, the Company determined that it is more likely than not that a portion of its Canadian net operating losses are realizable.

Therefore, the Company reduced $ 1.1 million of the valuation allowance against its deferred tax assets during the nine months ended October 2, 2020.

The Company’s Canadian entity serves as a holding company with limited amounts of income and expenses.

The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income in the carryforward period are reduced or increased.

The Company’s effective tax rate of 17.6 % for the three months ended October 2, 2020 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions and other tax credits.

The Company’s effective tax rate of 10.3 % for the six months ended June 28, 2019 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions and other tax credits, and windfall tax benefits upon vesting of certain stock-based compensation awards during the period.

For the six months ended June 28, 2019, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 10.6 % on the Company’s effective tax rate.

The Company’s effective tax rate of 5.2 % for the nine months ended October 2, 2020 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions, other tax credits, windfall tax benefits upon vesting of certain share-based compensation awards during the period, and a release of a portion of the valuation allowance on the deferred tax assets in Canada.

For the nine months ended October 2, 2020, the windfall tax benefits upon vesting of certain share-based compensation awards and the valuation allowance release had a benefit of 7.9 % and 3.3 %, respectively, on the Company’s effective tax rate.

The Company’s effective tax rate of 18.8 % for the three months ended September 27, 2019 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions and other tax credits.

The Company’s effective tax rate of 12.9 % for the nine months ended September 27, 2019 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions, other tax credits, and windfall tax benefits upon vesting of certain share-based compensation awards during the period.

For the nine months ended September 27, 2019, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 7.4 % on the Company’s effective tax rate.

On March 27, 2020, the U.S.

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The CARES Act will not have a material impact on the Company’s income taxes or related disclosures.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

Restructuring, Acquisition, and Related Costs

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Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

2020 restructuring

2019 restructuring

2018 restructuring

Total restructuring charges

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2020 Restructuring

As a result of the Company’s ongoing evaluations and efforts to reduce its operating costs, while improving efficiency and effectiveness, the Company initiated the 2020 restructuring program in the third quarter of 2020.

This program is focused on reducing operating complexity in the Company, including reducing infrastructure costs and streamlining the Company’s operating model to better serve its customers.

In addition, the program will be focused on cost reduction actions that improve gross margins for the overall company.

During the three months ended October 2, 2020, the Company recorded $ 1.0 million in severance and other costs in connection with the 2020 restructuring program.

These costs were reported in the Vision reportable segment.

2019 Restructuring

During the fourth quarter of 2018, the Company implemented a restructuring plan intended to realign operations, reduce costs, achieve operational efficiencies and focus resources on growth initiatives (the “2019 restructuring plan”).

During the six months ended July 3, 2020, the Company recorded $ 0.1 million in severance and related costs, $ 0.2 million in facility related costs, and other costs of $ 0.3 million in connection with the 2019 restructuring plan.

As of July 3, 2020, the Company incurred cumulative costs

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

related to this restructuring plan totaling $ 8.4 million.

T he 2019 restructuring program was substantially completed in the first quarter of 2020 .

During the nine months ended October 2, 2020, the Company recorded $ 0.1 million in severance and related costs, $ 0.2 million in facility related costs, and $ 0.4 million of other costs in connection with the 2019 restructuring plan.

As of October 2, 2020, the Company incurred cumulative costs related to this restructuring plan totaling $ 8.5 million.

The 2019 restructuring program was substantially completed in the first quarter of 2020 .

The following table summarizes restructuring costs associated with the 2019 restructuring program by reportable segment (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Precision Motion

Unallocated Corporate and Shared Services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

2018 Restructuring

During the second quarter of 2018, the Company initiated a program to integrate manufacturing operations as a result of acquisition activities (the “2018 restructuring plan”).

During the six months ended July 3, 2020, the Company recorded $ 0.8 million in severance and other costs in connection with the 2018 restructuring plan.

During the nine months ended October 2, 2020, the Company recorded $ 0.8 million in severance and other costs in connection with the 2018 restructuring plan.

These costs were reported in the Vision reportable segment.

As of July 3, 2020, the Company incurred cumulative costs related to this restructuring plan totaling $ 3.6 million.

The 2018 restructuring program has been substantially completed.

As of October 2, 2020, the Company incurred cumulative costs related to this restructuring plan totaling $ 3.6 million.

The 2018 restructuring program was substantially completed in the second quarter of 2020.

Rollforward of Accrued Expenses Related to Restructuring

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Non-cash charges and other adjustments

Balance at July 3, 2020

Balance at October 2, 2020

Acquisition and Related Charges

Acquisition costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled less than $ 0.1 million and $ 0.1 million for the three and six months ended July 3, 2020, respectively, and $ 1.4 million and $ 1.6 million for the three and six months ended June 28, 2019, respectively.

During the three and six months ended July 3, 2020, we incurred $ 0.6 million in legal costs related to an arbitration demand in connection with a pre-acquisition contract dispute from a 2019 acquisition.

Acquisition and related costs recognized under earn-out agreements in connection with acquisitions totaled $ 0.9 million and $ 1.8 million for the three and six months ended July 3, 2020, respectively, and $ 0.8 million and $ 1.4 million for the three and six months ended June 28, 2019, respectively.

The majority of acquisition and related costs for the three and six months ended July 3, 2020 were included in the Company’s Precision Motion and Vision reportable segments.

The majority of acquisition and related costs for the three and six months ended June 28, 2019 were included in the Company’s Precision Motion and Unallocated Corporate and Shared Services reportable segments.

Acquisition costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled less than $ 0.1 million and $ 0.1 million for the three and nine months ended October 2, 2020, respectively, and $ 3.3 million and $ 4.9 million for the three and nine months ended September 27, 2019, respectively.

During the three and nine months ended October 2, 2020, the Company incurred $ 0.4 million and $ 1.0 million, respectively, in legal costs related to a dispute involving a company that was acquired in 2019.

Acquisition and related costs recognized under earn-out agreements in connection with acquisitions totaled $ 0.2 million and $ 2.0 million for the three and nine months ended October 2, 2020, respectively, and $ 0.8 million and $ 2.2 million for the three and nine months ended September 27, 2019, respectively.

The majority of acquisition and related costs for the three and nine months ended October 2, 2020 were included in the Company’s Precision Motion and Vision reportable segments.

The majority of acquisition and related costs for the three and nine months ended September 27, 2019 were included in the Company’s Precision Motion and Unallocated Corporate and Shared Services reportable segments.

Commitments and Contingencies

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There have been no material changes to the Company’s purchase commitments since December 31, 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

Legal Contingencies

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Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable.

Because of uncertainties related to these matters, accruals are based only on the best information available as of the date of the consolidated balance sheet.

As additional information becomes available, the Company reassesses the potential liability related to any pending claims and litigations and may revise its estimates.

Because of uncertainties related to these matters, accruals are based

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

only on the best information available as of the date of the consolidated balance sheet.

As additional information becomes available, the Company reassesses the potential liability related to any pending claims and litigation s and may revise its estimates.

When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made.

Legal fees are expensed as incurred.

The Company does not believe that the outcome of these claims will have a material adverse effect on its consolidated financial statements but there can be no assurance that any such claims, or any similar claims, would not have a material adverse effect on the consolidated financial statements.

The Company does not believe that the outcome of these claims will hav e a material adverse effect on its consolidated financial statements but there can be no assurance that any such claims, or any similar claims, would not hav e a material adverse effect on the consolidated financial statements .

Guarantees and Indemnifications

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The Company determined that disclosing revenue by specific product was impracticable due to the highly customized and extensive portfolio of technologies offered to customers.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

Based upon the information provided to the CODM, the Company has determined that it operates in three reportable segments:

10 unchanged sentences

radio frequency identification (“RFID”) technologies;

thermal chart recorders;

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

chart recorders;

spectrometry technologies;

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Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Precision Motion

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Precision Motion

Unallocated Corporate and Shared Services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Gross Profit Margin

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Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Operating Income (Loss)

1 unchanged sentence

Unallocated Corporate and Shared Services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Depreciation and Amortization Expenses

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Revenue by Geography

The Company aggregates geographic revenue based on the customer location where products are shipped.

The Company aggregates geographic revenue based on the customer location where products are shipped to.

Revenue from these customers was as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

United States

1 unchanged sentence

Rest of Asia-Pacific

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 3, 2020

The majority of revenue from our Photonics, Vision and Precision Motion segments is generated from sales to customers within the United States and Europe.

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Advanced Industrial

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements