What changed in this filing

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Item 1. Financial Statements

2021-08-10 compared with 2021-05-11 · 166 added, 114 removed, 636 unchanged (31% of the section changed)

29 unchanged sentences

Stockholders’ equity:

Preferred shares, no par value;

Authorized shares:

no shares issued and outstanding

Common shares, no par value;

13 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

19 unchanged sentences

Three Months Ended

Six Months Ended

Consolidated net income

3 unchanged sentences

Total other comprehensive income (loss)

Total consolidated comprehensive income (loss)

Total consolidated comprehensive income

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

9 unchanged sentences

Earning (Deficit)

Three Months Ended April 2, 2021

Three Months Ended July 2, 2021

Balance at April 2, 2021

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 July 2, 2021

Six Months Ended July 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 July 2, 2021

Three Months Ended July 3, 2020

Balance at April 3, 2020

Three Months Ended April 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 July 3, 2020

Six Months Ended July 3, 2020

Balance at December 31, 2019

5 unchanged sentences

Other comprehensive income (loss), net of tax

Balance at April 3, 2020

Balance at July 3, 2020

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

1 unchanged sentence

(In thousands of U.S.

Three Months Ended

Six Months Ended

Cash flows from operating activities:

16 unchanged sentences

Cash flows from investing activities:

Payment of business acquisition purchase price held in escrow

Purchases of property, plant and equipment

8 unchanged sentences

Purchase of building under finance lease

Payments of deferred and escrowed purchase price related to acquisitions

Other financing activities

10 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF APRIL 2, 2021

AS OF JULY 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 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.

While there was not a material change to the consolidated financial statements related to these estimates as of and for the six months ended July 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 APRIL 2, 2021

AS OF JULY 2, 2021

Recent Accounting Pronouncements

11 unchanged sentences

Early adoption is permitted.

The Company adopted ASU 2019-12 during the first quarter of 2021.

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

15 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

AS OF JULY 2, 2021

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

24 unchanged sentences

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 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.

As of July 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 six months ended July 2, 2021 is primarily due to $ 4.1 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

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

AS OF JULY 2, 2021

Accumulated Other Comprehensive Loss

5 unchanged sentences

Amounts reclassified from accumulated other comprehensive loss

Balance at April 2, 2021

Balance at July 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 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.

For the three and six months ended July 2, 2021 and July 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.

2 unchanged sentences

Three Months Ended

Six Months Ended

Consolidated net income

5 unchanged sentences

Earnings per Common Share:

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

For both the three and six months ended July 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

AS OF JULY 2, 2021

share holders 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 2, 202 1 .

For both the three and six months ended July 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 July 3, 2020.

Fair Value Measurements

18 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.

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.

During 2020, the fair value of the contingent consideration was adjusted to € 4.1 million ($ 5.1 million).

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

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

3 unchanged sentences

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.

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 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.

AS OF JULY 2, 2021

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 and revenue projections for fiscal years 2021 and 2022 as of December 31, 2020, the fair value of the contingent consideration was adjusted to € 2.3 million ($ 2.9 million).

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

The Company made the first installment payment of € 1.0 million ($ 1.1 million) in May 2020 and the second installment payment of €1.2 million ($ 1.4 million) in May 2021.

These installment payments are reported as cash flows from financing activities in the consolidate d statement of cash flows for the respective periods .

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

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

4 unchanged sentences

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.

The Company made the first installment payment of € 2.4 million ($ 2.6 million) in February 2020 and the second installment payment of € 1.8 million ($ 2.2 million) in February 2021.

These installment payments are reported as cash flows from investing activities in the consolidated statement of cash flows for the respective periods.

There were no other changes in the fair value of the contingent consideration during the three and six months ended July 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 April 2, 2021 (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 July 2, 2021 (in thousands):

Quoted Prices in

13 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

AS OF JULY 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 three months ended April 2, 2021 were as follows (in thousands):

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

Contingent Considerations

2 unchanged sentences

Effect of foreign exchange rates

Balance at April 2, 2021

Balance at July 2, 2021

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

April 2, 2021

(in thousands)

18 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

AS OF JULY 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 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 July 2, 2021, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 27.5 million and a net gain of $ 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.

The Company recognized an aggregate net loss of $ 0.1 million and an aggregate net gain of $ 0.6 million for the three and six months ended July 2, 2021, respectively, and an aggregate net gain of $ 0.7 million and $ 0.4 million for the three and six months ended July 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 2021 and noted no impairment.

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

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

Balance at beginning of the period

1 unchanged sentence

Balance at end of the period

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

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

Reportable Segment

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

AS OF JULY 2, 2021

Intangible Assets

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

April 2, 2021

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

December 31, 2020

12 unchanged sentences

Three Months Ended

Six Months Ended

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 April 2, 2021 was as follows (in thousands):

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

Year Ending December 31,

Cost of Revenue

2021 (remainder of year)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

Supplementary Balance Sheet Information

5 unchanged sentences

Total inventories

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

Accrued Expenses and Other Current Liabilities

5 unchanged sentences

Accrued Warranty

Three Months Ended

Six Months Ended

Balance at beginning of the period

7 unchanged sentences

Accrued contingent considerations

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

Debt consisted of the following (in thousands):

7 unchanged sentences

Total Senior Credit Facilities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

Senior Credit Facilities

7 unchanged sentences

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

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

The Company repaid € 2.3 million ($ 2.7 million) of its term loan during the six months ended July 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 April 2, 2021.

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

As of July 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 APRIL 2, 2021

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

5 unchanged sentences

The depreciable lives of the right-of-use assets and leasehold improvements are limited to the expected lease terms.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

The following table summarizes the components of lease costs (in thousands):

Three Months Ended

Six Months Ended

Operating lease cost

24 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

AS OF JULY 2, 2021

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

Three Months Ended

Six 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

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.

During the six months ended July 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):

Future minimum lease payments under operating and finance leases expiring subsequent to July 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

Common Shares and Share-Based Compensation

Preferred and Common Shares and Share-Based Compensation

Preferred Shares

In May 2021, the Company’s shareholders approved a special resolution to amend the Company’s articles to authorize up to 7.0 million preferred shares for future issuance.

The Company’s Board of Directors is authorized to designate and issue one or more series of preferred shares, fix the rights, preferences and designation, as deemed necessary or advisable, relating to the preferred shares, provided that no shares of any series may be entitled to more than one vote per share .

As of July 2, 2021, no preferred shares have been issued and outstanding.

Common Share Repurchases

1 unchanged sentence

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

As of July 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 APRIL 2, 2021

AS OF JULY 2, 2021

Share-Based Compensation Expense

1 unchanged sentence

Three Months Ended

Six Months Ended

Selling, general and administrative

1 unchanged sentence

Cost of revenue

Restructuring, acquisition, and related costs

Total share-based compensation expense

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.

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 $ 1.0 million during the six months ended July 2, 2021 and July 3, 2020, respectively.

On May 13, 2021, the Company’s shareholders approved the Amended and Restated 2010 Incentive Award Plan, which increases the number of shares authorized for issuance under the plan from 4,398,613 shares to 6,148,613 shares, extends the term of the plan through May 13, 2031, and includes certain provisions that reflect good corporate governance practices.

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 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:

There were 91 thousand and 162 thousand DSUs outstanding as of July 2, 2021 and December 31, 2020, respectively.

Outstanding DSUs are 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 2, 2021:

(In thousands)

2 unchanged sentences

Unvested at December 31, 2020

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.

Unvested at July 2, 2021

Expected to vest as of July 2, 2021

The total fair value of RSUs and DSUs that vested during the six months ended July 2, 2021 was $ 40.3 million based on the market price of the underlying shares on the date of vesting.

Performance Stock Units

The Company typically grants two types of performance-based stock awards to certain members of the executive management team:

non-GAAP EPS performance-based restricted stock units (“EPS-PSUs”) and relative total shareholder return performance-based restricted stock units (“TSR-PSUs”).

The Company typically grants two types of annual performance-based stock awards to certain members of the executive management team:

non-GAAP EPS performance-based restricted stock units (“EPS-PSUs”) and relative total shareholder return

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

performance-based restricted stock units (“TSR-PSUs”).

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 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.

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.

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.

7 unchanged sentences

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 three months ended April 2, 2021:

(In thousands)

3 unchanged sentences

Performance adjustment

Unvested at April 2, 2021

Expected to vest as of April 2, 2021

Unvested at July 2, 2021

Expected to vest as of July 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.

As of July 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.

These awards vested at 160 % of target number of shares during the six months ended July 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 six months ended July 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

AS OF JULY 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:

Three Months Ended April 2, 2021

Six Months Ended July 2, 2021

Grant-date stock price

3 unchanged sentences

Stock Options

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.

No stock options were granted during the six months ended July 2, 2021.

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

7 unchanged sentences

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.

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 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.

The Company’s effective tax rate of 19.2 % for the three months ended July 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 a release of uncertain tax position reserves, partially offset by the revaluation of long term deferred tax balances resulting from the UK corporate tax rate change.

The Company’s effective tax rate of 3.5 % for the six months ended July 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, a release of uncertain tax position reserves, and windfall tax benefits upon vesting of certain share-based compensation awards, partially offset by the revaluation of long term deferred tax balances resulting from the UK corporate tax rate change during the period.

For the six months ended July 2, 2021, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 14.7 % on the Company’s effective tax rate.

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 share-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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

AS OF JULY 2, 2021

Restructuring, Acquisition, and Related Costs

1 unchanged sentence

Three Months Ended

Six Months Ended

2020 restructuring

8 unchanged sentences

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

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.

During the three and six months ended July 2, 2021, the Company recorded $ 1.2 million and $ 2.5 million, respectively, in severance and other costs in connection with the 2020 restructuring program.

As of July 2, 2021, the Company had incurred cumulative costs related to this restructuring plan totaling $ 5.2 million.

The Company anticipates substantially completing the 2020 restructuring program in the fourth quarter of 2021 and expects to incur additional restructuring charges of $ 3.0 million to $ 4.0 million related to the 2020 restructuring program in the next twelve months.

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Six Months Ended

Precision Motion

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

During the three months and six months ended July 2, 2021, the Company incurred $ 0 and $ 0.2 million, respectively, in severance and related costs in connection with the 2019 restructuring plan.

As of July 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

AS OF JULY 2, 2021

Rollforward of Accrued Expenses Related to Restructuring

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Non-cash charges and other adjustments

Balance at April 2, 2021

Balance at July 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 $ 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.

Acquisition costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled $ 1.6 million and $ 1.8 million for the three and six months ended July 2, 2021, respectively, and less than $ 0.1 million and $ 0.1 million for the three and six months ended July 3, 2020, respectively.

During the three and six months ended July 2, 2021, the Company incurred $ 0.8 million and $ 1.8 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 $ 0.9 million and $ 1.9 million for the three and six months ended July 2, 2021, respectively, and $ 0.9 million and $ 1.8 million for the three and six months ended July 3, 2020, respectively.

The majority of acquisition and related costs for the three and six months ended July 2, 2021 were included in the Company’s Precision Motion, Vision and Unallocated Corporate and Shared Services reportable segments.

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.

Commitments and Contingencies

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The arbitration demand alleges breach of contract and other claims arising out of allegations that the business failed to engage in required marketing activities for the product developed under the joint product development agreement.

The claimant is seeking compensatory and punitive damages, lost profits and other relief.

The Company believes that the claims are without merit and no amount has been accrued for in the consolidated financial statements.

The Company is subject to various other legal proceedings and claims that arise in the ordinary course of business.

The claimant sought compensatory and punitive damages, lost profits and other relief.

During the three months ended July 2, 2021, the arbitrator formally closed the arbitration pursuant to a settlement between the parties.

No financial damages payments were made by the Company.

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business.

The Company reviews the status of each significant matter and assesses the potential financial exposure on a quarterly basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

AS OF JULY 2, 2021

Guarantees and Indemnifications

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

AS OF JULY 2, 2021

segment’s product offerings are sold to OEM customers.

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Precision Motion

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Precision Motion

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Gross Profit Margin

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Operating Income (Loss)

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Depreciation and Amortization Expenses

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 2, 2021

AS OF JULY 2, 2021

Revenue by Geography

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

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

Revenue by geography was as follows (in thousands):

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United States

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Advanced Industrial

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The majority of revenue from the Vision segment is generated from sales to customers in the medical market.

Subsequent Events

On July 9, 2021 , the Company signed a purchase and sale agreement to acquire Schneider Electric Motion USA, Inc.

(“SEM”), a Marlborough, Connecticut-based manufacturer of integrated stepper motors and electronic controls for automation equipment for a total purchase price of $ 115 million in cash, subject to customary closing and net working capital adjustments.

The transaction is subject to customary regulatory approvals and closing conditions and is anticipated to close in the third quarter of fiscal year 2021.

SEM will be included in our Precision Motion reportable segment.

On July 18, 2021 , the Company signed a purchase and sale agreement to acquire ATI Industrial Automation Inc.

(“ATI”), an Apex, North Carolina-based developer and manufacturer of robotic end-of-arm tooling for an initial purchase price of $ 172 million upfront in cash and additional contingent cash payments associated with 2021 financial performance.

The transaction is subject to customary regulatory approvals and closing conditions and is anticipated to close in the third quarter of fiscal year 2021.

ATI will be included in our Precision Motion reportable segment.

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