What changed in this filing

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Item 1. Financial Statements

2021-05-11 compared with 2020-11-10 · 144 added, 252 removed, 606 unchanged (40% of the section changed)

34 unchanged sentences

Additional paid-in capital

Accumulated deficit

Retained earnings

Accumulated other comprehensive loss

7 unchanged sentences

Three Months Ended

Nine Months Ended

September 27,

Cost of revenue

10 unchanged sentences

Income before income taxes

Income tax provision

Income tax provision (benefit)

Consolidated net income

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 27,

Consolidated net income

4 unchanged sentences

Total consolidated comprehensive income (loss)

The tax effect on this component of comprehensive income was nominal for all periods presented.

The tax effect on this component of comprehensive income (loss) was nominal for all periods presented.

See Note 3 for the total amount of pension liability adjustments reclassified out of accumulated other comprehensive income (loss).

6 unchanged sentences

Accumulated Other Comprehensive

Three Months Ended October 2, 2020

Balance at July 3, 2020

Consolidated net income

Common shares issued under stock plans

Common shares withheld for taxes on vested stock awards

Share-based compensation

Other comprehensive income (loss), net of tax

Balance at October 2, 2020

Nine Months Ended October 2, 2020

Earning (Deficit)

Three Months Ended April 2, 2021

Balance at December 31, 2020

2 unchanged sentences

Common shares withheld for taxes on vested stock awards

Repurchases of common shares

Share-based compensation

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

Common shares withheld for taxes on vested stock awards

Repurchases of common shares

Share-based compensation

Other comprehensive income (loss), net of tax

Balance at September 27, 2019

Nine Months Ended September 27, 2019

Balance at April 2, 2021

Three Months Ended April 3, 2020

Balance at December 31, 2019

Consolidated net income

Common shares issued for a business combination

Common shares issued under stock plans

3 unchanged sentences

Other comprehensive income (loss), net of tax

Balance at September 27, 2019

Balance at April 3, 2020

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

1 unchanged sentence

(In thousands of U.S.

Nine Months Ended

September 27,

Three Months Ended

Cash flows from operating activities:

6 unchanged sentences

Deferred income taxes

Inventory acquisition fair value adjustments

Contingent consideration adjustments

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

8 unchanged sentences

Cash flows from investing activities:

Acquisition of businesses, net of cash acquired and working capital adjustments

Payment of business acquisition purchase price held in escrow

Purchases of property, plant and equipment

Payment of contingent consideration related to acquisition of technology assets

Other investing activities

Cash used in investing activities

Cash flows from financing activities:

Borrowings under revolving credit facilities

Repayments of term loan and revolving credit facilities

Repayments under term loan and revolving credit facilities

Payments of debt issuance costs

2 unchanged sentences

Payment of contingent consideration related to an acquisition

Payments of deferred and escrowed purchase price related to acquisitions

Purchase of building under finance lease

Other financing activities

Cash provided by (used in) financing activities

Cash used in financing activities

Effect of exchange rates on cash and cash equivalents

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF OCTOBER 2, 2020

AS OF APRIL 2, 2021

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 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.

While there was not a material change to the consolidated financial statements related to these estimates as of and for the three months ended April 2, 2021, 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 OCTOBER 2, 2020

AS OF APRIL 2, 2021

Recent Accounting Pronouncements

4 unchanged sentences

Simplifying the Accounting for Income Taxes.”

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles of Accounting Standards Codification (“ASC”) 740, including:

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles of Accounting Standards Codification (“ASC”) 740, “Income Taxes”, including:

(i) the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items;

4 unchanged sentences

Early adoption is permitted.

The Company is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.”

ASU 2016-13 requires the measurement of all expected credit losses of financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Financial institutions and other organizations will now use forward looking information to better inform their credit loss estimates.

January 1, 2020.

The Company adopted ASU 2016-13 during the first quarter of 2020.

The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements

8 unchanged sentences

The vast majority of the Company’s revenue is generated from the sale of distinct products.

Revenue is measured as the amount of consideration the Company expects to receive

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

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

Revenue is measured as the amount of consideration the Company expects to receive in exchange for such products, which is generally at contractually stated prices.

Sales taxes and value added taxes collected concurrently with revenue generating activities are excluded from revenue.

3 unchanged sentences

Professional services for the maintenance and repair of products are typically short in duration, mostly less than one month , and generally involve a single distinct performance obligation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

The related revenue is recognized at a point in time when control transfers to the customer upon completion of professional services.

21 unchanged sentences

The Company does not disclose the value of the remaining performance obligation for contracts with an original expected length of one year or less.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 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.

As of April 2, 2021 and December 31, 2020, contract liabilities were $ 5.6 million and $ 6.5 million, respectively, and are included in accrued expenses and other current liabilities and other liabilities in the accompanying consolidated balance sheets.

The decrease in the contract liability balance during the three months ended April 2, 2021 is primarily due to $ 2.8 million of revenue recognized during the period that was included in the contract liability balance at December 31, 2020, partially offset by cash payments received in advance of satisfying performance obligations.

Disaggregated Revenue

See Note 15 for the Company’s disaggregation of revenue by segment, geography and end market.

Business Combinations

On July 31, 2019 , the Company acquired 100 % of the outstanding shares of ARGES GmbH (“ARGES”), a Wackersdorf, Germany-based supplier of innovative laser scanning subsystems used in industrial materials processing and medical applications, for a total purchase price of € 65.7 million ($ 73.2 million), including net working capital adjustments.

The purchase price consists of € 24.0 million ($ 26.7 million) cash paid at closing, 124 thousand Novanta common shares issued upon closing (with a fair market value of € 9.8 million, or $ 10.9 million, based on the closing market price of $ 87.58 per share on July 30, 2019), € 7.1 million ($ 7.9 million) estimated fair value of contingent consideration and € 24.8 million ($ 27.7 million) deferred cash consideration.

In connection with the Company’s initiatives to preserve cash during a prolonged economic downturn caused by the COVID-19 pandemic, the Company reached an agreement with the former owner of ARGES in April 2020 to settle net working capital adjustments and to postpone a portion of the deferred cash consideration.

The Company paid the seller € 5.0 million in cash in June 2020 and expects to pay € 20.0 million in cash in December 2020.

The final purchase price allocation is as follows (in thousands):

Accounts receivable

Property, plant and equipment

Intangible assets

Total assets acquired

Accounts payable

Deferred tax liabilities

Other liabilities

Total liabilities assumed

Total assets acquired, net of liabilities assumed

cash acquired

Total purchase price, net of cash acquired

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

AS OF APRIL 2, 2021

Accumulated Other Comprehensive Loss

5 unchanged sentences

Amounts reclassified from accumulated other comprehensive loss

Balance at October 2, 2020

Balance at April 2, 2021

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 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.

For the three months ended April 2, 2021 and April 3, 2020, 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 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.

Dilutive effects of attainment-based contingently issuable shares granted to the former Laser Quantum Limited (“Laser Quantum”) noncontrolling interest shareholders, non-GAAP EPS performance-based restricted stock units and operating cash flow 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

Nine Months Ended

September 27,

Consolidated net income

5 unchanged sentences

Earnings per Common Share:

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.

For the three months ended April 2, 2021, 46 thousand non-GAAP EPS performance-based restricted stock units and 37 thousand operating cash flow 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

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 .

AS OF APRIL 2, 2021

considered contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of April 2, 202 1 .

For the three months ended April 3, 2020, 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 were considered contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of April 3, 2020.

Fair Value Measurements

12 unchanged sentences

Contingent Considerations

On July 31, 2019, the Company acquired ARGES.

On July 31, 2019, the Company acquired ARGES GmbH (“ARGES”).

Under the purchase and sale agreement for the ARGES acquisition, the former owner of ARGES is eligible to receive contingent consideration based on the achievement of certain revenue targets by the Company from August 2019 through December 2026.

The undiscounted range of possible contingent consideration is zero to € 10.0 million.

The undiscounted range of possible contingent consideration is zero to € 10.0 million ($ 11.1 million).

If the revenue targets are achieved, the contingent consideration would be payable annually with the first payment due in the first quarter of 2021.

1 unchanged sentence

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.

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.

In March 2021, the Company made the first installment payment of € 0.4 million ($ 0.4 million), which is included in cash flows from financing activities in the consolidated statement of cash flows for the three months ended April 2, 2021.

There were no other changes in the fair value of the contingent consideration during the three months ended April 2, 2021.

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

Under the purchase and sale agreement for the Ingenia acquisition, the shareholders of Ingenia are eligible to receive contingent consideration based on the achievement of certain revenue targets by the Company from April 2019 through March 2022.

The undiscounted range of possible contingent consideration is zero to € 8.0 million.

The undiscounted range of possible contingent consideration is zero to € 8.0 million ($ 9.0 million).

If the revenue targets are achieved, the contingent consideration would be payable in cash in three annual installments from 2020 to 2022.

The estimated fair value of the contingent consideration of € 5.8 million ($ 6.6 million) was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date.

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 nine months ended October 2, 2020.

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

Subsequent changes in the estimated fair value of the contingent consideration liability are recorded in the consolidated statement of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

AS OF APRIL 2, 2021

operations in restructuring , acquisition , and related costs until the liability is fully settled.

Based on the revenue performance as of April 2, 2021 and the most recent revenue projections for fiscal years 2021 and 2022, the fair value of the contingent consideration was adjusted to € 2.4 million ($ 2.9 million) as of April 2, 2021 .

The Company made the first installment payment of € 1.0 million ($ 1.1 million) during the three months ended July 3, 2020.

The Company is expected to make a second installment payment of € 1.3 million ($ 1.5 million) during the three months ended July 2, 2021.

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 assets.

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 nine months ended October 2, 2020.

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

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

The Company made the first installment payment of € 2.4 million ($ 2.6 million) during the three months ended April 3, 2020.

In February 2021, the Company made the second installment payment of € 1.8 million ($ 2.2 million), which is included in cash flows from investing activities in the consolidated statement of cash flows for the three months ended April 2, 2021.

There were no other changes in the fair value of the contingent consideration during the three months ended April 2, 2021.

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 October 2, 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 April 2, 2021 (in thousands):

Quoted Prices in

13 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

AS OF APRIL 2, 2021

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, 2020 (in thousands):

13 unchanged sentences

Contingent considerations - Long-term

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

Changes in the fair value of Level 3 contingent considerations during the three months ended April 2, 2021 were as follows (in thousands):

Contingent Considerations

2 unchanged sentences

Effect of foreign exchange rates

Balance at October 2, 2020

Balance at April 2, 2021

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

October 2, 2020

April 2, 2021

(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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

See Note 9 to Consolidated Financial Statements for a discussion of the estimated fair value of the Company’s outstanding debt.

4 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 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 $ 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.

As of April 2, 2021, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 23.6 million and a net loss of less than $ 0.1 million, respectively.

As of December 31, 2020, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 28.5 million and a net gain of less than $ 0.1 million, respectively.

The Company recognized an aggregate net gain of $ 0.7 million and an aggregate net loss of $ 0.3 million for the three months ended April 2, 2021 and April 3, 2020, 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.

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

The following table summarizes changes in goodwill during the three months ended April 2, 2021 (in thousands):

Balance at beginning of the period

Net working capital adjustments from a prior-year acquisition

Effect of foreign exchange rate changes

Balance at end of the period

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

Goodwill by reportable segment as of April 2, 2021 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, 2020 was as follows (in thousands):

1 unchanged sentence

Accumulated impairment of goodwill

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

Intangible Assets

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

October 2, 2020

Intangible assets as of April 2, 2021 and December 31, 2020, respectively, are summarized as follows (in thousands):

April 2, 2021

December 31, 2020

4 unchanged sentences

Customer relationships

Customer backlog

Trademarks and trade names

6 unchanged sentences

Three 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 October 2, 2020 was as follows (in thousands):

Estimated amortization expense for each of the five succeeding years and thereafter as of April 2, 2021 was as follows (in thousands):

Year Ending December 31,

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

AS OF APRIL 2, 2021

Supplementary Balance Sheet Information

9 unchanged sentences

Contract liabilities, current portion

Deferred purchase price for acquisitions

Finance lease obligations

1 unchanged sentence

Accrued Warranty

Nine Months Ended

September 27,

Three Months Ended

Balance at beginning of the period

Provision charged to cost of revenue

Warranty liabilities from acquisitions

Use of provision

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

AS OF APRIL 2, 2021

Debt consisted of the following (in thousands):

10 unchanged sentences

dollar equivalent euro-denominated (approximately € 90.2 million) 5 -year term loan facility and a $ 350.0 million 5 -year revolving credit facility (collectively, the “Senior Credit Facilities”).

The Senior Credit Facilities mature in December 2024 and included an uncommitted “accordion” feature pursuant to which the commitments under the revolving credit facility may be increased by an additional $ 200.0 million in aggregate, subject to certain customary conditions.

The Senior Credit Facilities mature in December 2024 and includes an uncommitted “accordion” feature pursuant to which the commitments under the revolving credit facility may be increased by an additional $ 200.0 million in aggregate, subject to certain customary conditions.

On March 27, 2020, the Company entered into an amendment (the “First Amendment”) to the Third Amended and Restated Credit Agreement and exercised a portion of the uncommitted accordion feature.

3 unchanged sentences

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

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 repaid € 1.1 million ($ 1.3 million) of its term loan during the three months ended April 2, 2021.

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 October 2, 2020.

The Company was in compliance with these covenants as of April 2, 2021.

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 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.

As of April 2, 2021 and December 31, 2020, 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

AS OF APRIL 2, 2021

Most leases held by the Company expire between 2021 and 2034 .

In the U.K., where longer lease terms are more common, the Company has a land lease that extends through 2078 .

Certain leases include terms such as an option to purchase the property, one or more options to renew, with renewal terms that can extend the lease term from one to 10 years , and options to terminate the leases within one year .

Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years , and options to terminate the leases within one year .

The exercise of lease renewal or termination options is at the Company’s sole discretion;

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 27,

Operating lease cost

24 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

AS OF APRIL 2, 2021

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

Nine Months Ended

September 27,

Three Months Ended

Cash paid for amounts included in lease liabilities:

4 unchanged sentences

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

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):

During the three months ended April 2, 2021, the Company paid $ 8.7 million upon the exercise of an option to purchase a building under a finance lease agreement in Germany.

The cash payment is presented as a cash outflow from financing activities in the consolidated statement of cash flows.

Future minimum lease payments under operating and finance leases expiring subsequent to April 2, 2021, 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,

4 unchanged sentences

Present value of lease liabilities

Future minimum lease payments under finance leases include the exercise price of an option to purchase a facility in Germany in 2021.

Common Shares and Share-Based Compensation

1 unchanged sentence

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 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 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.

As of April 2, 2021, the Company had $ 59.5 million available for future share repurchases under the 2018 and 2020 Share Repurchase Plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

AS OF APRIL 2, 2021

Share-Based Compensation Expense

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 27,

Selling, general and administrative

1 unchanged sentence

Cost of revenue

Restructuring, acquisition, and related costs

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 nine months ended October 2, 2020 and September 27, 2019, respectively.

Share-based compensation expense 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 $ 1.1 million and $ 0.9 million during the three months ended April 2, 2021 and April 3, 2020, 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 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:

There were 171 thousand and 162 thousand DSUs outstanding as of April 2, 2021 and December 31, 2020, 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 three months ended April 2, 2021:

(In thousands)

2 unchanged sentences

Unvested at December 31, 2020

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.

Unvested at April 2, 2021

Expected to vest as of April 2, 2021

The total fair value of RSUs and DSUs that vested during the three months ended April 2, 2021 was $ 39.9 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.

AS OF APRIL 2, 2021

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.

This probability assessment is performed quarterly and the cumulative effect of a change in the estimated compensation expense, if any, is recognized in the consolidated statement of operations in the period in which such determination is made.

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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.

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 nine months ended October 2, 2020:

In February 2021, the Company granted operating cash flow performance-based restricted stock units (“OCF-PSUs”) to certain members of the executive management team.

Upon completion of the requisite service periods, the OCF-PSUs will vest in two tranches if the Company achieves the cumulative operating cash flow performance target for fiscal years 2021 through 2023 as approved by the Company’s Compensation Committee as of the date of grant.

The first fifty percent of the OCF-PSU grant will vest at the end of the four-year service period from the date of grant and the remaining fifty percent of the OCF-PSU grant will vest at the end of the five-year service period from the date of grant.

The Company recognizes compensation expense ratably over the requisite service period based on the expectation that 100 percent of the OCF-PSUs are deemed probable of vesting.

(In thousands)

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Performance adjustment

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 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 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.

Unvested at April 2, 2021

Expected to vest as of April 2, 2021

The unvested PSUs are shown at target in the table above.

As of April 2, 2021, the maximum number of shares to be earned under these PSU grants was approximately 286 thousand shares.

The performance adjustment shares and vested shares shown in the table above are for performance-based awards granted on February 22, 2018.

These awards vested at 160 % of target number of shares during the three months ended April 2, 2021 based on the achievement of cumulative Non-GAAP EPS and applicable relative TSR performance conditions during the performance period of fiscal years 2018 through 2020.

The total fair value of PSUs that vested during the three months ended April 2, 2021 was $ 9.3 million based on the market price of the underlying shares on the date of vesting.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

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

Nine Months Ended October 2, 2020

Three Months Ended April 2, 2021

Grant-date stock price

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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 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 nine months ended October 2, 2020.

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

No stock options were granted during the three months ended April 2, 2021.

There were 60 thousand fully-vested stock options outstanding as of April 2, 2021.

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.

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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 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.

The Company’s effective tax rate of ( 20.8 )% for the three months ended April 2, 2021 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.

federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in response to the COVID-19 pandemic.

The CARES Act is an emergency economic stimulus package which, among other things, contains numerous provisions concerning income taxes.

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

For the three months ended April 2, 2021, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 35.9 % on the Company’s effective tax rate.

The Company’s effective tax rate of ( 0.3 )% for the three months ended April 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 windfall tax benefits upon vesting of certain share-based compensation awards during the period.

For the three months ended April 3, 2020, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 19.8 % on the Company’s effective tax rate.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

AS OF APRIL 2, 2021

Restructuring, Acquisition, and Related Costs

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Three Months Ended

Nine Months Ended

September 27,

2020 restructuring

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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 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 .

During the three months ended April 2, 2021, the Company recorded $ 1.3 million in severance and other costs in connection with the 2020 restructuring program.

As of April 2, 2021, the Company had incurred cumulative costs related to this restructuring plan totaling $ 4.1 million.

The Company anticipates substantially completing the 2020 restructuring program in the fourth quarter of 2021 and expects to incur additional restructuring charges of $ 6.0 million to $ 7.0 million related to the 2020 restructuring program in the next twelve months.

The following table summarizes restructuring costs associated with the 2020 restructuring program by reportable segment (in thousands):

Three 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

2019 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 nine months ended October 2, 2020, the Company recorded $ 0.8 million in severance and other costs in connection with the 2018 restructuring plan.

During the three months ended April 2, 2021, the Company recorded $ 0.2 million in severance and related costs in connection with the 2019 restructuring plan.

These costs were reported in the Vision reportable segment.

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.

As of April 2, 2021, the Company incurred cumulative costs related to this restructuring plan totaling $ 9.0 million.

The 2019 restructuring program was completed in the first quarter of 2021.

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”).

The Company did not incur any costs related to the 2018 restructuring plan during the three months ended April 2, 2021.

As of April 2, 2021, the Company incurred cumulative costs related to this restructuring plan totaling $ 3.6 million.

The 2018 restructuring program was completed in 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

Rollforward of Accrued Expenses Related to Restructuring

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Non-cash charges and other adjustments

Balance at October 2, 2020

Balance at April 2, 2021

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 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.

Acquisition costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled $ 0.2 million and $ 0.1 million for the three months ended April 2, 2021 and April 3, 2020, respectively.

During the three months ended April 2, 2021, the Company incurred $ 0.9 million 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 $ 1.0 million and $ 0.9 million for the three months ended April 2, 2021 and April 3, 2020, respectively.

The majority of acquisition and related costs for the three months ended April 2, 2021 were included in the Company’s Precision Motion and Vision reportable segments.

The majority of acquisition and related costs for the three months ended April 3, 2020 were included in the Company’s Precision Motion and Unallocated Corporate and Shared Services reportable segments.

Commitments and 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

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.

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.

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 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 .

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

Guarantees and Indemnifications

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radio frequency identification (“RFID”) technologies;

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 2, 2020

chart recorders;

thermal chart recorders;

spectrometry technologies;

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The Precision Motion segment designs, manufactures and markets optical and inductive encoders, precision motor and motion control sub-assemblies, servo drives, air bearings, and air bearing spindles to customers worldwide.

The vast majority of the segment’s product offerings are sold to OEM customers.

The vast majority of the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

segment’s product offerings are sold to OEM customers.

The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors .

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Three Months Ended

Nine Months Ended

September 27,

Precision Motion

Three Months Ended

Nine Months Ended

September 27,

Precision Motion

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 27,

Gross Profit Margin

1 unchanged sentence

Three 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

Nine Months Ended

September 27,

Depreciation and Amortization Expenses

1 unchanged sentence

Unallocated Corporate and Shared Services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

Revenue by Geography

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Three Months Ended

Nine Months Ended

September 27,

United States

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Three 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