What changed in this filing

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Item 1. Financial Statements

2021-11-09 compared with 2021-08-10 · 298 added, 166 removed, 636 unchanged (42% of the section changed)

47 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenue

19 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Consolidated net income

15 unchanged sentences

Earning (Deficit)

Three Months Ended July 2, 2021

Balance at April 2, 2021

Three Months Ended October 1, 2021

Balance at July 2, 2021

Consolidated net income

3 unchanged sentences

Other comprehensive income (loss), net of tax

Balance at July 2, 2021

Six Months Ended July 2, 2021

Balance at October 1, 2021

Nine Months Ended October 1, 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 1, 2021

Three Months Ended October 2, 2020

Balance at July 3, 2020

Three Months Ended July 3, 2020

Balance at April 3, 2020

Consolidated net income

3 unchanged sentences

Other comprehensive income (loss), net of tax

Balance at July 3, 2020

Six Months Ended July 3, 2020

Balance at October 2, 2020

Nine Months Ended October 2, 2020

Balance at December 31, 2019

5 unchanged sentences

Other comprehensive income (loss), net of tax

Balance at July 3, 2020

Balance at October 2, 2020

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

1 unchanged sentence

(In thousands of U.S.

Six Months Ended

Nine Months Ended

Cash flows from operating activities:

6 unchanged sentences

Deferred income taxes

Inventory acquisition fair value 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

Purchases of property, plant and equipment

2 unchanged sentences

Cash flows from financing activities:

Borrowings under revolving credit facilities

Repayments under term loan and revolving credit facilities

2 unchanged sentences

Repurchases of common shares

Payment of contingent consideration related to an acquisition

Payment of contingent consideration related to acquisitions

Purchase of building under finance lease

1 unchanged sentence

Other financing activities

Cash used in financing activities

Cash provided by (used in) financing activities

Effect of exchange rates on cash and cash equivalents

8 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF JULY 2, 2021

AS OF OCTOBER 1, 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 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.

While there was not a material change to the consolidated financial statements related to these estimates as of and for the nine months ended October 1, 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 JULY 2, 2021

AS OF OCTOBER 1, 2021

Recent Accounting Pronouncements

19 unchanged sentences

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

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.”

ASU 2021-08 requires that entities recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASC 606, “Revenue from Contracts with Customers”.

ASU 2021-08 also applies to contract assets or liabilities from other contracts to which the provisions of ASC 606 apply.

The amendments in ASU 2021-08 do not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in accordance with ASC 606, such as refund liabilities, or in a business combination, such as

customer-related intangible assets and contract-based intangible assets.

January 1, 2023.

Early adoption is permitted.

The Company is evaluating the impact of the adoption of ASU 2021-08 on its consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

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

7 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 JULY 2, 2021

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

1 unchanged sentence

Certain engineering services are longer in duration and the related revenue is recognized over time, as the Company has a right to consideration from a customer, based on the corresponding value to the customer from the Company’s performance completed to date.

Professional services aggregate to less than 3 % of the Company’s consolidated revenue.

Engineering services aggregate to less than 3 % of the Company’s consolidated revenue.

The Company occasionally sells separately priced non-standard/extended warranty services or preventative maintenance plans with the sale of products.

17 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 1, 2021

Contract Liabilities

1 unchanged sentence

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

As of July 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.

As of October 1, 2021 and December 31, 2020, contract liabilities were $ 9.5 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 increase in the contract liability balance during the nine months ended October 1, 2021 is primarily due to cash payments received in advance of satisfying performance obligations and acquired contract liabilities of $ 2.0 million from current year acquisitions, partially offset by $ 4.9 million of revenue recognized during the period that was included in the contract liability balance at December 31, 2020.

Disaggregated Revenue

See Note 16 for the Company’s disaggregation of revenue by segment, geography and end market.

Business Combinations

On August 30, 2021 , the Company acquired 100 % of the outstanding shares of ATI Industrial Automation, Inc.

(“ATI”), an Apex, North Carolina-based leading supplier of intelligent end-of-arm technology solutions to OEMs for advanced industrial and surgical robots for an initial cash purchase price of $ 170.0 million, net of cash acquired, and $ 51.9 million estimated fair value of contingent consideration.

The contingent consideration will be payable in 2022 based on a multiple of actual standalone ATI Adjusted EBITDA, as defined in the purchase and sale agreement, for the fiscal year ending December 31, 2021.

The initial cash purchase price was financed with borrowings under the Company’s revolving credit facility and cash available on hand.

The addition of ATI is expected to complement and add intelligent technology solutions to further expand the Company’s position in mission critical robotic applications.

ATI will contribute to the Company’s operations and growth within the Precision Motion reportable segment.

On August 31, 2021 , the Company acquired 100 % of the outstanding shares of 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 $ 115.1 million, net of cash acquired, subject to customary working capital adjustments.

The acquisition was financed with borrowings under our revolving credit facility.

The addition of SEM is expected to complement and expand the Company’s presence in life science applications and solutions for industrial automation applications within the Precision Motion reportable segment.

Allocation of Purchase Price

The acquisitions of ATI and SEM have been accounted for as business combinations.

The purchase price for each acquisition is allocated based upon a valuation of the fair values of assets acquired and liabilities assumed as of the acquisition date.

The fair values of intangible assets were based on valuations using a discounted cash flow income approach and a relief from royalty income approach, with estimates and assumptions developed by management.

The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates.

The excess of the purchase price over the fair values of tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill for each acquisition.

The Company’s estimates and assumptions in determining the estimated fair values of certain assets and liabilities are subject to change within the measurement period (up to one year from the acquisition date) as a result of additional information obtained with regards to facts and circumstances that existed as of the acquisition date.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

AS OF OCTOBER 1, 2021

Based upon a preliminary valuation, the total purchase price for ATI was allocated as follows (in thousands):

Purchase Price

Accounts receivable

Property, plant and equipment

Intangible assets

Deferred tax assets

Total assets acquired

Accounts payable

Deferred tax liabilities

Other liabilities

Total liabilities assumed

Total assets acquired, net of liabilities assumed

cash acquired

contingent consideration

Initial purchase price, net of cash acquired

The purchase price allocation is preliminary as the Company is in the process of collecting additional information for the valuation of inventories, property plant and equipment, intangible assets, other liabilities, contingent consideration and unrecognized tax benefits.

The fair value of intangible assets for ATI is comprised of the following (dollar amounts in thousands):

Weighted Average

Estimated Fair

Developed technologies

Customer relationships

Trademarks and trade names

The purchase price allocation resulted in $ 52.4 million of identifiable intangible assets and $ 143.9 million of goodwill.

Goodwill amounting to $ 143.4 million is expected to be deductible for U.S.

income tax purposes.

Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized.

The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to:

(i) ATI’s ability to grow the business with existing and new customers, including leveraging the Company’s customer base;

(ii) ATI’s ability to grow the business through new product introductions;

and (iii) cost improvements due to the integration of ATI’s operations into the Company’s existing infrastructure.

The operating results of ATI were included in the Company’s results of operations beginning on August 31, 2021.

ATI contributed revenues of $ 8.7 million and a profit before income taxes of $ 0.8 million to the Company’s operating results for the nine months ended October 1, 2021.

ATI’s profit before income taxes for the period from the acquisition date through October 1, 2021 included amortization of inventory fair value adjustments and amortization of purchased intangible assets of $ 0.8 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

Based upon a preliminary valuation, the total purchase price for SEM was allocated as follows (in thousands):

Purchase Price

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

The purchase price allocation is preliminary as the Company is in the process of collecting additional information for the valuation of inventories, intangible assets, other liabilities and unrecognized tax benefits.

The fair value of intangible assets for SEM is comprised of the following (dollar amounts in thousands):

Weighted Average

Estimated Fair

Developed technologies

Customer relationships

Trademarks and trade names

The purchase price allocation resulted in $ 54.6 million of identifiable intangible assets and $ 70.1 million of goodwill.

As the SEM acquisition was structured as a stock acquisition for income tax purposes, the goodwill is not expected to be deductible for income tax purposes.

Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized.

The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to:

(i) SEM’s ability to grow the business with existing and new customers, including leveraging the Company’s customer base;

(ii) SEM’s ability to grow the business through new product introductions;

and (iii) cost improvements due to the integration of SEM’s operations into the Company’s existing infrastructure.

The operating results of SEM were included in the Company’s results of operations beginning on September 1, 2021.

SEM contributed revenues of $ 2.4 million and a profit before income taxes of $ 0.1 million to the Company’s operating results for the nine months ended October 1, 2021.

SEM’s profit before income taxes for the period from the acquisition date through October 1, 2021 included amortization of inventory fair value adjustments and amortization of purchased intangible assets of $ 0.5 million.

Unaudited Pro Forma Information

The pro forma information for all periods presented below includes the effects of business combination accounting resulting from the acquisitions of ATI and SEM, including amortization of inventory fair value adjustments, amortization of intangible assets, interest expense on borrowings in connection with the acquisition, and the related tax effects, assuming that the acquisitions had been

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

consummated as of January 1, 2020.

The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisitions had taken place on January 1, 2020.

Three Months Ended

Nine Months Ended

Consolidated net income

Acquisition Costs

Acquisition costs are included in restructuring and acquisition related costs in the consolidated statements of operations.

Acquisition-related costs for ATI and SEM acquisitions are as follows (in thousands):

Three Months Ended

Nine Months Ended

Accumulated Other Comprehensive Loss

5 unchanged sentences

Amounts reclassified from accumulated other comprehensive loss

Balance at July 2, 2021

Balance at October 1, 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 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.

For the three and nine months ended October 1, 2021 and October 2, 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, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

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

Three Months Ended

Six Months Ended

Nine Months Ended

Consolidated net income

5 unchanged sentences

Earnings per Common Share:

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 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.

For both the three and nine months ended October 1, 2021, 45 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 considered contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of October 1, 2021.

For both the three and nine months ended October 2, 2020, 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 were 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.

Fair Value Measurements

11 unchanged sentences

The fair value of these foreign currency forward contracts is reported either in other current assets or in other current liabilities as of the end of the period.

Contingent Considerations

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

Contingent Consideration s

On August 30, 2021, the Company acquired ATI.

Under the purchase and sale agreement for the ATI acquisition, the former shareholders of ATI are eligible to receive contingent consideration based on ATI’s fiscal year 2021 Adjusted EBITDA, as defined in the purchase and sale agreement.

The contingent consideration will be payable in 2022.

The preliminary fair value of the contingent consideration of $ 51.9 million was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date.

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

There have been no changes in the fair value of the contingent consideration since the date of the acquisition.

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

5 unchanged sentences

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

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 six months ended July 2, 2021.

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

Based on the revenue performance and revenue projections as of October 1, 2021, the fair value of the contingent consideration was adjusted to € 3.7 million ($ 4.3 million).

There were no other changes in the fair value of the contingent consideration during the three and nine months ended October 1, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

2 unchanged sentences

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.

These installment payments are reported as cash flows from financing 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 nine months ended October 1, 2021.

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

6 unchanged sentences

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.

There were no other changes in the fair value of the contingent consideration during the three and nine months ended October 1, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 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 July 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 October 1, 2021 (in thousands):

Quoted Prices in

12 unchanged sentences

Contingent considerations - Long-term

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 six months ended July 2, 2021 were as follows (in thousands):

Changes in the fair value of Level 3 contingent considerations during the nine months ended October 1, 2021 were as follows (in thousands):

Contingent Considerations

Balance at December 31, 2020

Acquisition of ATI

Fair value adjustments

Effect of foreign exchange rates

Balance at July 2, 2021

Balance at October 1, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

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

October 1, 2021

(in thousands)

2 unchanged sentences

Percentage Applied

Contingent consideration (ATI)

Monte Carlo method

Historical and projected adjusted

EBITDA for fiscal year 2021

EBITDA risk premium

EBITDA volatility

Credit spread

Contingent consideration (ARGES)

13 unchanged sentences

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 JULY 2, 2021

See Note 10 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 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 October 1, 2021, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 48.3 million and a net gain of $ 0.2 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 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.

The Company recognized an aggregate net gain of $ 0.3 million and $ 0.9 million for the three and nine months ended October 1, 2021, respectively, and an aggregate net gain of $ 1.0 million and $ 1.4 million for the three and nine months ended October 2, 2020, respectively.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

Goodwill and Intangible Assets

2 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 six months ended July 2, 2021 (in thousands):

The following table summarizes changes in goodwill during the nine months ended October 1, 2021 (in thousands):

Balance at beginning of the period

Goodwill acquired from acquisitions

Effect of foreign exchange rate changes

Balance at end of the period

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

Goodwill by reportable segment as of October 1, 2021 was as follows (in thousands):

Reportable Segment

3 unchanged sentences

Accumulated impairment of goodwill

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

Intangible Assets

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

Intangible assets as of October 1, 2021 and December 31, 2020, respectively, are summarized as follows (in thousands):

October 1, 2021

December 31, 2020

4 unchanged sentences

Customer relationships

Customer backlog

Trademarks and trade names

3 unchanged sentences

Amortization expense for patents and developed technologies is included in cost of revenue in the accompanying consolidated statements of operations.

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

Amortization expense was as follows (in thousands):

Amortization expense for customer relationships and definite-lived trademarks,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

trade names and other intangibles is included in operating expenses in the accompanying consolidated statements of operations.

Amortizat ion expense was as follows (in thousands):

Three Months Ended

Six Months Ended

Nine 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 July 2, 2021 was as follows (in thousands):

Estimated amortization expense for each of the five succeeding years and thereafter as of October 1, 2021 was as follows (in thousands):

Year Ending December 31,

Cost of Revenue

2021 (remainder of year)

6 unchanged sentences

Total inventories

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

Accrued Expenses and Other Current Liabilities

4 unchanged sentences

Accrued earn-out and contingent considerations

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

Accrued Warranty

Six Months Ended

Nine Months Ended

Balance at beginning of the period

Provision charged to cost of revenue

Warranty liabilities acquired from acquisitions

Use of provision

14 unchanged sentences

Total Senior Credit Facilities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

Senior Credit Facilities

4 unchanged sentences

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

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

1 unchanged sentence

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

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

The Company made principal payments of € 3.4 million ($ 4.0 million) towards its term loan and $ 20.0 million towards its revolving credit facility during the nine months ended October 1, 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 July 2, 2021.

The Company was in compliance with these covenants as of October 1, 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 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.

As of October 1, 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.

6 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

Nine Months Ended

Operating lease cost

4 unchanged sentences

Total lease cost

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

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

17 unchanged sentences

Finance leases

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

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

Six Months Ended

Nine 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 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.

During the nine months ended October 1, 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 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):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

Future minimum lease payments under operating and finance leases expiring subsequent to October 1, 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,

8 unchanged sentences

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.

As of October 1, 2021, no preferred shares had 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 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 JULY 2, 2021

As of October 1, 2021, the Company had $ 59.5 million available for future share repurchases under these share repurchase plans.

Share-Based Compensation Expense

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Selling, general and administrative

3 unchanged sentences

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 $ 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.

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 nine months ended October 1, 2021 and October 2, 2020, respectively.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

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

There were 91 thousand and 162 thousand DSUs outstanding as of October 1, 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:

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 1, 2021:

(In thousands)

2 unchanged sentences

Unvested at December 31, 2020

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.

Unvested at October 1, 2021

Expected to vest as of October 1, 2021

The total fair value of RSUs and DSUs that vested during the nine months ended October 1, 2021 was $ 68.0 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 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”).

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

2 unchanged sentences

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.

The number of shares to be issued upon settlement following vesting of the TSR-PSUs is determined based on the relative market performance of the Company’s common shares compared to the Russell 2000 Index over a three-year performance period using a payout formula 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.

The Company recognizes the related compensation expense based on the fair value of the TSR-PSUs, determined using the Monte Carlo valuation model as of the grant date, on a straight-line basis from the grant date to the end of the three-year performance period.

The number of common shares to be issued upon settlement following vesting of the TSR-PSUs is determined based on the relative market performance of the Company’s common shares compared to the Russell 2000 Index over a three-year performance period using a payout formula 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.

The Company recognizes the related compensation expense based on the fair value of the TSR-PSUs, determined using the Monte Carlo valuation method as of the grant date, on a straight-line basis from the grant date to the end of the three-year performance period.

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.

1 unchanged sentence

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 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

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.

The table below summarizes the activities relating to the performance-based awards issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the six months ended July 2, 2021:

(In thousands)

3 unchanged sentences

Performance adjustment

Unvested at July 2, 2021

Expected to vest as of July 2, 2021

Unvested at October 1, 2021

Expected to vest as of October 1, 2021

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

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

As of October 1, 2021, the maximum number of common 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 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 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:

Six Months Ended July 2, 2021

These awards vested at 160 % of target number of common shares during the nine months ended October 1, 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 nine months ended October 1, 2021 was $ 9.3 million based on the market price of the underlying common shares on the date of vesting.

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

Nine Months Ended October 1, 2021

Grant-date stock price

3 unchanged sentences

Stock Options

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.

No stock options were granted during the nine months ended October 1, 2021.

There were 60 thousand fully-vested stock options outstanding as of October 1, 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.

The estimated annual effective tax rate is applied to the year-to-date pre-tax income at the end of each interim period with the cumulative effect of any changes in the estimated annual effective tax rate being recorded in the fiscal quarter in which the change is determined.

The tax effect of significant unusual items is reflected in the period in which they occur.

Since the Company is incorporated in Canada, it is required to use Canada’s statutory tax rate of 29.0 % in the determination of the estimated annual effective tax rate.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

The Company maintains a valuation allowance on balances of certain U.S.

2 unchanged sentences

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

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

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 JULY 2, 2021

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

The Company’s effective tax rate of ( 0.6 %) for the three months ended October 1, 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, partially offset by an increase in valuation allowances.

The Company’s effective tax rate of 2.0 % for the nine months ended October 1, 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.

corporate tax rate change and an increase in valuation allowances during the period.

For the nine months ended October 1, 2021, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 14.5 % on the Company’s effective tax rate.

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.

Restructuring, Acquisition, and Related Costs

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine 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 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.

During the three and nine months ended October 1, 2021, the Company recorded $ 5.2 million and $ 7.7 million, respectively, in severance and other costs in connection with the 2020 restructuring program.

As of October 1, 2021, the Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

had incurred cumulative costs related to this restructuring plan totaling $ 10.4 million.

The Company anticipates substantially completing the 2020 restructuring program in the second quarter of 202 2 and expects to incur additional restructuring charges of $ 3.0 million to $ 4.0 million related to the 2020 restructuring program.

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

Three Months Ended

Six Months Ended

Nine Months Ended

Precision Motion

2 unchanged sentences

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 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.

During the three and nine months ended October 1, 2021, the Company incurred zero and $ 0.2 million, respectively, in severance and related costs in connection with the 2019 restructuring plan.

As of October 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

Rollforward of Accrued Expenses Related to Restructuring

4 unchanged sentences

Non-cash charges and other adjustments (1)

Balance at July 2, 2021

Balance at October 1, 2021

Non-cash charges included stock compensation charges amounting to $ 3.0 million associated with severance agreements for certain employees.

Acquisition and Related Charges

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.

Acquisition costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled $ 2.9 million and $ 4.7 million for the three and nine months ended October 1, 2021, respectively, and less than $ 0.1 million and $ 0.1 million for the three and nine months ended October 2, 2020, respectively.

The Company incurred $ 0.1 million and $ 1.9 million for the three and nine months ended October 1, 2021, respectively, and $ 0.4 million and $ 1.0 million for the three and nine months ended October 2, 2020, 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 less than ($ 0.1 ) million and $ 1.9 million for the three and nine months ended October 1, 2021, respectively, and $ 0.2 million and $ 2.0 million for the three and nine months ended October 2, 2020, respectively.

The majority of acquisition and related costs for the three months ended October 1, 2021 were included in the Company’s Unallocated Corporate and Shared Services reportable segment.

The majority of acquisition and related costs for the nine months ended October 1, 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 nine months ended October 2, 2020 were included in the Company’s Precision Motion and Vision reportable segments.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

Commitments and Contingencies

Purchase Commitments

There have been no material changes to the Company’s purchase commitments since December 31, 2020.

Excluding ATI’s purchase commitments, there have been no material changes to the Company’s purchase commitments since December 31, 2020.

As of October 1, 2021, ATI had noncancellable commitments of $ 17.9 million, primarily related to inventory purchases.

The majority of these purchase commitments are expected to be incurred within the next twelve months.

Legal Contingencies

1 unchanged sentence

The arbitration demand was filed by a contract counterparty to a joint product development agreement entered into by the business before Novanta acquired it.

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 arbitration demand alleged 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 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.

During the second quarter of 2021, the arbitrator formally closed the arbitration pursuant to a settlement between the parties.

No financial damages payments were made by the Company.

5 unchanged sentences

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.

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 potential loss or a range of potential losses, if such an estimate can be made.

Legal fees are expensed as incurred.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

Guarantees and Indemnifications

9 unchanged sentences

The Company’s Chief Operating Decision Maker (“CODM”) utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company.

The Company evaluates the performance of and allocates resources to its segments based on revenue, gross profit and operating profit.

The Company evaluates the performance of and allocates resources to

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

its segments based on revenue, gross profit and operating profit.

The Company’s reportable segments have been identified based on commonality and adjacency of technologies, applications and customers amongst the Company’s individual product lines.

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

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

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

16 unchanged sentences

Precision Motion

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

segment’s product offerings are sold to OEM customers.

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

The vast majority of the 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.

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Precision Motion

Three Months Ended

Six Months Ended

Nine Months Ended

Precision Motion

Unallocated Corporate and Shared Services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

Three Months Ended

Six Months Ended

Nine Months Ended

Gross Profit Margin

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Operating Income (Loss)

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Depreciation and Amortization Expenses

1 unchanged sentence

Unallocated Corporate and Shared Services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 2, 2021

Revenue by Geography

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

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

Revenue by geography was as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

United States

3 unchanged sentences

Each segment also generates revenue across the other geographies, with no significant concentration of any segment’s remaining revenue.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

Revenue by End Market

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Advanced Industrial

2 unchanged sentences

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.

On October 5, 2021, the Company entered into an amendment (the “Fourth Amendment”) to the Third Amended and Restated Credit Agreement to exercise the accordion option.

The Fourth Amendment increased the revolving credit facility commitment under the Third Amended and Restated Credit Agreement by $ 200.0 million, from $ 495.0 million to $ 695.0 million, and reset the uncommitted accordion feature to $ 200.0 million for potential future expansion.

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