What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-09 · 212 added, 356 removed, 578 unchanged (50% of the section changed)

47 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of revenue

19 unchanged sentences

Three Months Ended

Nine Months Ended

Consolidated net income

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dollars or shares)

Preferred Shares

Common Shares

Additional Paid-In

Retained Earnings

Accumulated Other Comprehensive

Earning (Deficit)

Three Months Ended October 1, 2021

Balance at July 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 October 1, 2021

Nine Months Ended October 1, 2021

Three Months Ended April 1, 2022

Balance at December 31, 2021

4 unchanged sentences

Other comprehensive income (loss), net of tax

Balance at October 1, 2021

Three Months Ended October 2, 2020

Balance at July 3, 2020

Consolidated net income

Common shares issued under stock plans

Common shares withheld for taxes on vested stock awards

Share-based compensation

Other comprehensive income (loss), net of tax

Balance at October 2, 2020

Nine Months Ended October 2, 2020

Balance at April 1, 2022

Three Months Ended April 2, 2021

Balance at December 31, 2020

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Common shares withheld for taxes on vested stock awards

Repurchases of common shares

Share-based compensation

Other comprehensive income (loss), net of tax

Balance at October 2, 2020

Balance at April 2, 2021

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

1 unchanged sentence

(In thousands of U.S.

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

6 unchanged sentences

Deferred income taxes

Inventory acquisition fair value adjustments

Write-off of unamortized deferred financing costs

Contingent consideration adjustments

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

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Other non-current assets and liabilities

Cash provided by operating activities

Net cash provided by operating activities

Cash flows from investing activities:

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

Working capital adjustments from business acquisition

Purchases of property, plant and equipment

Payment of contingent consideration related to acquisition of technology assets

Cash used in investing activities

Other investing activities

Net cash used in investing activities

Cash flows from financing activities:

Borrowings under revolving credit facilities

Repayments under term loan and revolving credit facilities

1 unchanged sentence

Payments of withholding taxes from share-based awards

Repurchases of common shares

Payment of contingent consideration related to acquisitions

Payment of contingent consideration related to an acquisition

Purchase of building under finance lease

Payments of deferred and escrowed purchase price related to acquisitions

Other financing activities

Cash provided by (used in) financing activities

Net cash used in financing activities

Effect of exchange rates on cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Decrease in cash and cash equivalents

Cash and cash equivalents, beginning of the period

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF OCTOBER 1, 2021

AS OF APRIL 1, 2022

Basis of Presentation

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Estimates and assumptions are reviewed on an on-going basis and the effects of revisions are reflected in the period in which such revisions are deemed to be necessary.

The Company evaluates its estimates based on historical experience, current conditions, including estimated economic implications of the COVID-19 pandemic, and various other assumptions that it believes are reasonable under the circumstances.

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 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.

The Company evaluates its estimates based on historical experience, current conditions, and various other assumptions that it believes are reasonable under the circumstances.

Actual results could differ significantly from these estimates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

AS OF APRIL 1, 2022

Recent Accounting Pronouncements

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Effect on the Financial Statements or Other Significant Matters

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.”

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

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

(ii) the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment (or vice-versa);

and (iii) the exception for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

ASU 2019-12 also simplifies GAAP for other areas of ASC 740 by clarifying and amending the existing guidance.

January 1, 2021.

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.

In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848):

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Upon issuance.

ASU 2020-04 is elective.

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

Adoption of ASU 2020-04 is elective.

In March 2022, the Company amended the Third Amended and Restated Credit Agreement and replaced LIBOR with SOFR as the new reference rate for U.S.

dollar borrowings.

The ASU did not have any impact on the Company’s consolidated financial statements.

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

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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 early adopted ASU 2021-08 as of January 1, 2022.

The adoption of ASU 2021-08 did not have any material impact on the Company’s consolidated financial statements.

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

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The consideration expected to be received in exchange for such services is typically the contractually stated amount.

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.

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

Certain engineering services are longer in duration and the related revenue is recognized over time.

As the Company’s right to payment from a customer is based on the value of engineering services performed, the Company recognizes revenue based on the corresponding value to the customer from the Company’s performance completed to date.

Revenue from engineering services aggregated to less than 3 % of the Company’s consolidated revenue during the three months ended April 1, 2022 and April 2, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

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

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The Company accounts for shipping and handling activities that occur after the transfer of control over the related goods as fulfillment activities rather than performance obligations.

The shipping and handling fees charged to customers are recognized as revenue and the related costs are recorded in cost of revenue at the time of transfer of control.

Shipping and handling fees charged to customers are recognized as revenue and the related costs are recorded in cost of revenue at the time of transfer of control.

The Company generally provides warranties for its products.

The standard warranty period is typically 12 months to 24 months for the Photonics and Precision Motion segments and 12 months to 36 months for the Vision segment.

The standard warranty period for product sales is accounted for under the provisions of ASC 450, “Contingencies,” as the Company has the ability to ascertain the likelihood of the liability and can reasonably estimate the amount of the liability.

A provision for the estimated cost related to warranty is recorded as cost of revenue at the time revenue is recognized.

The Company’s estimate of costs to service the warranty obligations is based on historical experience and expectations of future conditions.

To the extent that the Company’s experience in warranty claims or costs associated with servicing those claims differ from the original estimates, revisions to the estimated warranty liability are recorded at that time, with an offsetting adjustment to cost of revenue.

The standard warranty period is typically 12 months to 36 months .

The Company recognizes liabilities associated with standard warranty periods for its products in accordance with the provisions of ASC 450, “Contingencies,” as the Company has the ability to ascertain the likelihood of the liabilities and can reasonably estimate the amount of the liabilities.

A provision for the estimated cost related to standard warranties is recorded as cost of revenue at the time revenue is recognized.

The Company’s estimate of the costs to service the warranty obligations is based on historical experience and expectations of future conditions.

To the extent that the Company’s experience in warranty claims or costs associated with servicing those claims differ from the original estimates, revisions to the estimated warranty liabilities are recorded at that time, with offsetting adjustments to cost of revenue.

Practical Expedients and Exemptions

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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

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

As of October 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.

As of April 1, 2022 and December 31, 2021, contract liabilities were $ 7.5 million and $ 7.3 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 three months ended April 1, 2022 is primarily due to cash payments received in advance of satisfying performance obligations, partially offset by $ 3.2 million of revenue recognized during the period that was included in the contract liability balance as of December 31, 2021.

Disaggregated Revenue

See Note 15 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 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

AS OF APRIL 1, 2022

Accumulated Other Comprehensive Loss

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Amounts reclassified from accumulated other comprehensive loss

Balance at October 1, 2021

Balance at April 1, 2022

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

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

For the three and nine months ended October 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.

For the three months ended April 1, 2022 and April 2, 2021, respectively, weighted average shares outstanding for the diluted earnings per common share included the dilutive effect of outstanding restricted stock units, stock options, and relative total shareholder return performance-based restricted stock units (“TSR-PSUs”), 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

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 (“EPS-PSUs”), operating cash flow performance-based restricted stock units (“OCF-PSUs”), and performance-based restricted stock units granted to the ATI Industrial Automation, Inc.

(“ATI”) employees (“ATI-PSUs”) are included in the weighted average common share calculation when the performance targets have been achieved based on the cumulative achievement against the performance targets as of the end of each reporting period.

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

Three Months Ended

Nine Months Ended

Consolidated net income

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Earnings per Common Share:

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.

For the three months ended April 1, 2022, 36 thousand EPS-PSUs and 37 thousand OCF-PSUs granted to certain members of the executive management team, 55 thousand ATI-PSUs, and 213 thousand shares of restricted stock issued to the former Laser

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Quantum non-controlling interest 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 April 1 , 202 2 .

For the three months ended April 2, 2021, 46 thousand EPS-PSUs and 37 thousand OCF-PSUs 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 2, 2021.

Fair Value Measurements

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

Contingent Consideration s

Contingent Considerations

On August 30, 2021, the Company acquired ATI.

1 unchanged sentence

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.

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

The fair value of the contingent consideration was $ 44.0 million as of December 31, 2021.

There were no changes in the fair value of the contingent consideration during the three months ended April 1, 2022.

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

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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 nine months ended October 1, 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.

During 2021, the fair value of the contingent consideration was adjusted to € 3.3 million ($ 3.8 million).

The Company made the first installment payment of € 0.4 million ($ 0.4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

million) in March 2021 and the second installment payment of € 0.3 million ($ 0.4 million) in March 2022 .

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

Based on the revenue performance and revenue projections as of April 1, 2022, the fair value of the remaining contingent consideration was adjusted to € 1.4 million ($ 1.5 million).

There were no other changes in the fair value of the contingent consideration during the three months ended April 1 , 202 2 .

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

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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 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.

During 2020, the fair value of the contingent consideration was adjusted to € 2.3 million ($ 2.9 million).

During 2021, the fair value of the contingent consideration was adjusted to € 1.5 million ($ 1.7 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 outflows from financing activities in the consolidated statement of cash flows for the respective periods.

Based on the revenue performance as of April 1, 2022, the end of the relevant performance period, the fair value of the remaining contingent consideration was adjusted to € 1.1 million ($ 1.2 million).

There were no other changes in the fair value of the contingent consideration during the three month ended April 1, 2022.

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

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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) 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 nine months ended October 1, 2021.

Based on revenue achievements against the target, the Company had recognized an aggregate fair value of € 5.5 million ($ 6.3 million) of the acquired intangible assets as of April 1, 2022.

The Company made the first installment payment of € 2.4 million ($ 2.6 million) in February 2020, the second installment payment of € 1.8 million ($ 2.2 million) in February 2021, and the final installment payment of € 1.3 million ($ 1.5 million) in March 2022.

The installment payments have been reported as cash outflows from investing activities in the consolidated statements of cash flows.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

AS OF APRIL 1, 2022

Summary by Fair Value Hierarchy

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of October 1, 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 April 1, 2022 (in thousands):

Quoted Prices in

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Contingent considerations - Long-term

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

Changes in the fair value of Level 3 contingent considerations during the three months ended April 1, 2022 were as follows (in thousands):

Contingent Considerations

Balance at December 31, 2021

Acquisition of ATI

Fair value adjustments

Effect of foreign exchange rates

Balance at October 1, 2021

Balance at April 1, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

AS OF APRIL 1, 2022

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

October 1, 2021

April 1, 2022

(in thousands)

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Monte Carlo method

Historical and projected adjusted

EBITDA for fiscal year 2021

Adjusted EBITDA for fiscal year 2021

EBITDA risk premium

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Monte Carlo method

Historical and projected revenues from April 2019 through March 2022

Revenue volatility

Discount rate

Contingent consideration (Other)

Discounted cash flow method

Historical and projected revenues for fiscal years 2018 to 2021

Revenue discount rate

Historical revenues from April 2019 through March 2022

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

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

As of October 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 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

As of April 1, 2022, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 40.6 million and a net gain of $ 0.1 million, respectively.

As of December 31, 2021, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 50.0 million and a net loss of less than $ 0.1 million, respectively.

The Company recognized an aggregate net loss of $ 0.1 million and an aggregate net gain of $ 0.7 million for the three months ended April 1, 2022 and April 2, 2021, respectively.

These amounts were included in foreign exchange transaction gains (losses) in the consolidated statements of operations.

Goodwill and Intangible Assets

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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 nine months ended October 1, 2021 (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

The following table summarizes changes in goodwill during the three months ended April 1, 2022 (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 October 1, 2021 was as follows (in thousands):

Goodwill by reportable segment as of April 1, 2022 was as follows (in thousands):

Reportable Segment

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Intangible Assets

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

October 1, 2021

Intangible assets as of April 1, 2022 and December 31, 2021, respectively, are summarized as follows (in thousands):

April 1, 2022

December 31, 2021

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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,

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):

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):

Three Months Ended

Nine Months Ended

Amortization expense – cost of revenue

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Total amortization expense

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Estimated amortization expense for each of the five succeeding years and thereafter as of April 1, 2022 was as follows (in thousands):

Year Ending December 31,

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Finance lease obligations

Accrued earn-out and contingent considerations

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

Accrued contingent considerations and earn-outs

Accrued Warranty

Nine Months Ended

Three Months Ended

Balance at beginning of the period

Provision charged to cost of revenue

Warranty liabilities acquired from acquisitions

Use of provision

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Balance at end of the period

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Other Long-Term Liabilities

Finance lease obligations

Accrued pension liabilities

Accrued contingent considerations

Accrued contingent considerations and earn-outs

Debt consisted of the following (in thousands):

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

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

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

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

The 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.

The Company may make additional principal payments at any time, which will reduce the next quarterly installment payment due.

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

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.

Borrowings under the revolving credit facility may be repaid at any time through March 2027 .

The Company made principal payments of € 1.1 million ($ 1.2 million) towards its term loan and $ 10.4 million towards its revolving credit facility during the three months ended April 1, 2022.

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

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 option to $ 200.0 million for potential future expansion.

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 option to $ 200.0 million for potential future expansion.

On March 10, 2022, the Company entered into an amendment (the “Fifth Amendment”) to the Third Amended and Restated Credit Agreement to extend the maturity date from December 31, 2024 to March 10, 2027, update the pricing grid, replace LIBOR with SOFR as the reference rate for US dollar borrowings, and increase the uncommitted accordion option from $ 200 million to $ 350 million.

In connection with the Fifth Amendment, the Company capitalized $ 2.5 million deferred financing costs and recorded a $ 0.6 million loss from the write-off of a portion of the unamortized deferred financing costs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

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

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

The Company was in compliance with these covenants as of October 1, 2021.

The Company was in compliance with these covenants as of April 1 , 202 2 .

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

Fair Value of Debt

As of October 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.

As of April 1, 2022 and December 31, 2021, 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.

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

therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use assets and operating lease liabilities as they are not reasonably certain of being exercised.

therefore, the majority of renewal options to extend the lease terms are not included in the Company’s right-of-use assets and operating lease liabilities as they are not reasonably certain of being exercised.

The Company regularly evaluates the renewal options and includes the renewal periods in the lease term when they are reasonably certain of being exercised.

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Three Months Ended

Nine Months Ended

Operating lease cost

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

AS OF APRIL 1, 2022

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

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

Nine Months Ended

Three Months Ended

Cash paid for amounts included in lease liabilities:

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

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.

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

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

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):

AS OF APRIL 1, 2022

Future minimum lease payments under operating and finance leases expiring subsequent to April 1, 2022, 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,

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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 October 1, 2021, no preferred shares had been issued and outstanding.

As of April 1, 2022, no preferred shares had been issued and outstanding.

Common Share Repurchases

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

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

As of April 1, 2022, the Company had $ 59.5 million available for future share repurchases under these share repurchase plans.

Share-Based Compensation Expense

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Three Months Ended

Nine Months Ended

Selling, general and administrative

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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 $ 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

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 $ 1.0 million and $ 1.1 million during the three months ended April 1, 2022 and April 2, 2021, respectively.

Restricted Stock Units and Deferred Stock Units

The Company’s restricted stock units (“RSUs”) have generally been issued with vesting periods ranging from zero to five years and vest based solely on service conditions.

Accordingly, the Company recognizes compensation expense on a straight-line basis over the requisite service period.

The Company reduces the compensation expense by an estimated forfeiture rate which is based on anticipated forfeitures and historical forfeiture experience.

Accordingly, the Company recognizes compensation expense on a straight-line basis

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

over the requisite service period.

The Company reduces the compensation expense by an estimated forfeiture rate which is based on an ticipated forfeitures and historical forfeiture experience.

Deferred stock units (“DSUs”) are granted to the members of the Company’s Board of Directors.

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 October 1, 2021 and December 31, 2020, respectively.

There were 90 thousand and 91 thousand DSUs outstanding as of April 1, 2022 and December 31, 2021, 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 nine months ended October 1, 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 three months ended April 1, 2022:

(In thousands)

2 unchanged sentences

Unvested at December 31, 2021

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.

Unvested at April 1, 2022

Expected to vest as of April 1, 2022

The total fair value of RSUs and DSUs that vested during the three months ended April 1, 2022 was $ 12.9 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 performance-based restricted stock units (“TSR-PSUs”).

The Company typically grants two types of performance-based stock awards, EPS-PSUs and TSR-PSUs, to certain members of the executive management team on an annual basis.

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

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

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

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

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

In January 2022, the Company granted ATI-PSUs to ATI employees.

The number of common shares to be issued upon settlement following vesting is determined based on a performance matrix for a four-year performance period against certain performance targets and will be in the range of zero to 100 % of the target number of shares.

The Company recognizes compensation expense ratably over the performance period based on the number of shares that are deemed probable of vesting at the end of the four-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 statements of operations in the period in which such determination is made.

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.

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 table below summarizes the activities relating to the performance-based awards issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the nine months ended October 1, 2021:

AS OF APRIL 1, 2022

(In thousands)

2 unchanged sentences

Unvested at December 31, 2021

Performance adjustment

Unvested at October 1, 2021

Expected to vest as of October 1, 2021

Unvested at April 1, 2022

Expected to vest as of April 1, 2022

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

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 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.

As of April 1, 2022, the maximum number of common shares to be earned under these PSU grants was approximately 350 thousand shares.

The total fair value of PSUs that vested during the three months ended April 1, 2022 was $ 7.2 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

Three Months Ended

April 1, 2022

Grant-date stock price

3 unchanged sentences

Stock Options

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.

In February 2022, the Company granted 40 thousand stock options to certain members of the executive management team to purchase common shares of the Company at a strike price equal to the closing market price of the Company’s common shares on the date of grant.

The stock options vest ratably over a three-year period from the date of grant and expire on the seventh anniversary of the date of grant.

The Company estimates the fair value of stock options using the Black-Scholes valuation model.

The Company recognizes compensation expense related to the stock options on a straight-line basis over the vesting period in the consolidated statement of operations.

The table below summarizes activities relating to stock options issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the three months ended April 1, 2022:

(In thousands)

Average Exercise

Outstanding as of December 31, 2021

Forfeited or expired

Outstanding as of April 1, 2022

Exercisable as of April 1, 2022

Expected to vest as of April 1, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

The aggregate Black-Scholes fair value of $ 1.9 million for the stock options granted during the three months ended April 1, 2022 was estimated using the following assumptions as of the grant date:

Three Months Ended

April 1, 2022

Expected option term in year (1)

Expected volatility (2)

Risk-free interest rate (3)

Expected annual dividend yield (4)

The expected option term was calculated using the simplified method provided by Codification of Staff Accounting Bulletins Topic 14:

“Share-Based Payment”.

The expected volatility was determined based on the historical volatility of the Company’s common shares over the expected option term.

Risk-free interest rate was based upon treasury instrument whose term was half year longer than the expected option term.

The expected annual dividend yield is zero , as the Company does not have plans to issue dividends.

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 changes are 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.

3 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 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.

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 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.

The Company’s effective tax rate of 9.1 % for the three months ended April 1, 2022 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 disallowed compensation and uncertain tax position accruals.

For the three months ended April 1, 2022, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 3 % on the Company’s effective tax rate.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Restructuring, Acquisition, and Related Costs

1 unchanged sentence

Three Months Ended

Nine Months Ended

2020 restructuring

2019 restructuring

2018 restructuring

Total restructuring charges

4 unchanged sentences

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

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

During the three 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.

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

During the three months ended April 1, 2022, the Company recorded $ 0.6 million in severance and other costs in connection with the 2020 restructuring program.

As of April 1, 2022, the Company had incurred cumulative costs related to this restructuring plan totaling $ 8.7 million.

The Company anticipates substantially completing the 2020 restructuring program in the fourth quarter of 2022 and expects to incur additional restructuring charges of $ 3.5 million to $ 4.5 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

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 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.

The Company did no t incur any costs related to the 2019 restructuring plan during the three months ended April 1, 2022.

As of December 31, 2021, the Company incurred cumulative costs related to this restructuring plan totaling $ 9.0 million.

The 2019 restructuring program was completed in 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Rollforward of Accrued Expenses Related to Restructuring

The following table summarizes the accrual activities, by component, related to the Company’s restructuring plans recorded in the accompanying consolidated balance sheets (in thousands):

Employee Related

Balance at December 31, 2021

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Non-cash charges and other adjustments

Balance at October 1, 2021

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

Balance at April 1, 2022

Acquisition and Related Charges

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

Acquisition costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled less than $ 0.1 million and $ 0.2 million for the three months ended April 1, 2022 and April 2, 2021 respectively.

The Company incurred zero and $ 0.9 million for the three months ended April 1, 2022 and April 2, 2021, respectively, in legal costs related to a dispute involving a company that was acquired in 2019.

During the three months ended April 1, 2022, the Company recognized $ 2.3 million reductions in the fair values of certain prior-year acquisition contingent considerations.

During the three months ended April 2, 2021, the Company recognized $ 1.0 million of earn-out expense related to a prior-year acquisition.

The majority of acquisition and related costs for the three months ended April 1, 2022 were included in the Company’s Precision Motion and Photonics reportable segments.

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.

Commitments and Contingencies

Purchase Commitments

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.

There have been no material changes to the Company’s purchase commitments since December 31, 2021.

Legal Contingencies

In April 2020, the Company received notification of an arbitration demand filed with the American Arbitration Association against a business acquired by the Company in June 2019.

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 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 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.

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

12 unchanged sentences

Certain of the Company’s officers and directors are also a party to indemnification agreements with the Company.

These indemnification agreements provide, among other things, that the director and officer shall be indemnified to the fullest extent permitted by applicable law against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such officer or director in connection with any proceeding by reason of his or her relationship with the Company.

These indemnification agreements provide,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

among other things, that the director or officer shall be indemnified to the fullest extent permitted by applicable law against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such director or officer in connection with any proceeding by reason of their relationship with the Company.

In addition, the indemnification agreements provide for the advancement of expenses incurred by such director or officer in connection with any proceeding covered by the indemnification agreement, subject to the conditions set forth therein and to the extent such advancement is not prohibited by law.

3 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF OCTOBER 1, 2021

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

The Company evaluates the performance of and allocates resources to 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 customer s .

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

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

2 unchanged sentences

The Photonics segment designs, manufactures and markets photonics-based solutions, including laser scanning, laser beam delivery, CO2 laser, solid state laser, ultrafast laser, and optical light engine products to customers worldwide.

The segment serves highly demanding photonics-based applications for advanced industrial processes, metrology, medical and life science imaging, DNA sequencing, and medical laser procedures.

The segment serves highly demanding photonics-based applications for advanced industrial processes, metrology, medical and life science imaging, DNA sequencing, and medical laser procedures, particularly ophthalmology applications.

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

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visualization solutions;

wireless, recorder and video integration technologies for operating room integrations;

wireless technologies, video recorder and video integration technologies for operating room integrations;

optical data collection and machine vision technologies;

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Precision Motion

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 Precision Motion segment designs, manufactures and markets optical and inductive encoders, precision motor, servo drives and motion control solutions, integrated stepper motors, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Reportable Segment Financial Information

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Three Months Ended

Nine Months Ended

Precision Motion

Three 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

Nine Months Ended

Gross Profit Margin

1 unchanged sentence

Three Months Ended

Nine Months Ended

Operating Income (Loss)

2 unchanged sentences

Three Months Ended

Nine Months Ended

Depreciation and Amortization Expenses

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Unallocated Corporate and Shared Services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Revenue by Geography

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Three Months Ended

Nine Months Ended

United States

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Rest of Asia-Pacific

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

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

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

The Company primarily operates in two end markets:

the medical market and advanced industrial market.

the medical market and the advanced industrial market.

Revenue by end market was approximately as follows:

Three Months Ended

Nine Months Ended

Advanced Industrial

1 unchanged sentence

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

Subsequent Events

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