What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-10 compared with 2020-08-06 · 189 added, 168 removed, 284 unchanged (56% of the section changed)

106 unchanged sentences

Medical Market

For the three and six months ended July 3, 2020, the medical market accounted for approximately 55% and 57%, respectively, of our revenue.

For the three and nine months ended October 2, 2020, the medical market accounted for approximately 54% and 56%, respectively, of our revenue.

Revenue from our products sold to the medical market is generally affected by hospital and other healthcare provider capital spending, growth rates of surgical procedures, changes in regulatory requirements and laws, aggregation of purchasing by healthcare networks, changes in technology requirements, timing of OEM customers’ product development and new product launches, changes in customer or patient preferences, and general demographic trends.

Advanced Industrial Market

For the three and six months ended July 3, 2020, the advanced industrial market accounted for approximately 45% and 43%, respectively, of our revenue.

Revenue from our products sold to the advanced industrial market is affected by a number of factors, including changing technology requirements and preferences of our customers, productivity or quality investments in a manufacturing

environment, the f inancial condition of our customers, changes in regulatory requirements and laws, and general economic conditions.

For the three and nine months ended October 2, 2020, the advanced industrial market accounted for approximately 46% and 44%, respectively, of our revenue.

manufacturing environment, the f inancial condition of our customers, changes in regulatory requirements and laws, and general economic conditions.

We believe that the Purchasing Managers Index (PMI) on manufacturing activities specific to different regions around the world may provide an indication of the impact of general economic conditions on our sales into the advanced industrial market .

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Our Employees

In response to the COVID-19 pandemic, we have taken proactive, aggressive action to protect the health and safety of our employees.

In response to the COVID-19 pandemic, we have taken proactive, aggressive actions to protect the health and safety of our employees.

We established steering committees at both the corporate level and at each of our facilities to provide leadership for and manage our COVID-19 risk mitigation actions and countermeasures.

We enacted rigorous safety measures in all of our facilities, including implementing social distancing protocols, requiring working from home for those employees that do not need to be physically present on the manufacturing floor or in our facilities to perform their work, suspending travel, spreading production over more shifts, implementing temperature checks at the entrances to our facilities, frequently disinfecting our workspaces and providing masks to those employees who must be physically present in our facilities.

We instituted frequent, often daily, employee communications, providing guidance and updates to our employees with regard to COVID-19 safety procedures and status.

We expect to continue these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business.

have incurred and expect to continue to incur additional costs to protect the health of our employees.

We have provided frequent employee communications that include guidance and updates to our employees with regards to COVID-19 safety procedures and status.

We established rigorous safety measures in all of our facilities, including implementing social distancing protocols, requiring working from home for those employees that do not need to be physically present on the manufacturing floor or in our facilities to perform their work, suspending travel, spreading production over more shifts, implementing temperature checks at the entrances to our facilities, frequently disinfecting our workspaces, and providing masks to those employees who must be physically present in our facilities.

continue these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business.

In connection with our COVID-19 remediation actions, we have incurred additional costs to protect the health of our employees, including investment in technologies and monitoring equipment.

We expect such costs to continue to grow and be significant to our cost of operations .

We may take further actions as government authorities require or recommend or as we determine to be in the best interest of our employees.

We are committed to retaining and supporting our employees during this pandemic.

To retain our employees, we issued to substantially all of our employees a special one-time restricted stock unit grant in April 2020 totaling $14.4 million in the aggregate, which will vest in February 2021.

During the three months ended July 3, 2020, we provided special cash incentive bonuses to the majority of our on-site production staff for keeping our factories open and running during the pandemic.

In addition to retention, these actions were implemented to create an ownership mindset and focus among all employees for the duration of the crisis and through the expected recovery, while maintaining the Company’s talent and capabilities.

To retain our employees, we issued to substantially all of our employees a special one-time restricted stock unit grant in April 2020 at a total fair value of $14.4 million in the aggregate.

The restricted stock units are expected to vest in February 2021.

These actions were implemented to create an ownership mindset and focus among all employees for the duration of the crisis and through the expected recovery, while maintaining the Company’s talent and capabilities.

Executive Compensation

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To support our business during the COVID-19 pandemic, the Officers agreed to waive their 2020 merit and promotional increases, eliminate their 2020 cash bonuses, and take two weeks of unpaid time-off.

Further, the Officers will not receive the one-time special restricted stock unit grant issued to the rest of the employees.

These actions will result in an aggregate amount of $1.6 million (approximately 50%) reduction in the 2020 cash compensation, assuming bonuses were paid at target, for these Officers previously approved by the Compensation Committee in February 2020.

Further, the Officers did not receive the one-time special restricted stock unit grant issued to the rest of the employees.

In June 2020, our Board of Directors agreed to forgo the cash retainers payable to our non-employee directors for the third quarter of 2020.

This action will result in an aggregate amount of $0.1 million (approximately 25%) reduction in cash compensation of our Board of Directors for 2020.

This action resulted in an aggregate amount of $0.1 million (approximately 25%) reduction in the cash compensation of our Board of Directors for 2020.

Our Customers

The outbreak has significantly increased economic and demand uncertainty.

The spread of COVID-19 has caused a global economic slowdown and may cause a severe global recession.

The spread of COVID-19 has caused a global economic slowdown and a global recession.

In the event of a prolonged economic recession, overall demand for our products could decline further and our business would be adversely affected to a greater extent.

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We have important manufacturing operations in the U.S., the U.K., Germany, and China, all of which have been affected by the COVID-19 pandemic.

As of the date of this filing, our manufacturing facilities around the world are in operation.

While governmental measures may be modified or extended in the event of a resurgence of COVID-19 infections and in the absence of effective vaccines becoming available, we have taken measures to protect our employees and expect that our manufacturing facilities will remain operational.

As of October 2, 2020, our manufacturing facilities around the world were in operation.

While governmental measures may be modified or extended in the event of a resurgence of COVID-19 infections and in the absence of effective vaccines becoming available in the near term, we have taken measures to protect our employees and expect our manufacturing facilities to remain operational.

In connection with the COVID-19 pandemic, we have experienced limited absenteeism from those employees who are required to be on-site to perform their jobs.

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Although we are mitigating potential supply interruptions from the COVID-19 pandemic, if certain suppliers cannot produce a key component for us, or if the receipt of certain materials is otherwise delayed, we may miss our scheduled shipment deadlines and our relationship with customers may be harmed.

Additionally, restrictions on or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, has resulted in higher costs and delays, both for obtaining raw materials from suppliers and shipping finished products to customers.

Additionally, restrictions on or disruptions of transportation, such as reduced availability of air transports, port closures and increased border controls or closures, have resulted in higher costs and delays, both for obtaining raw materials from suppliers and for shipping finished products to customers.

Our Liquidity

With respect to liquidity, we are evaluating and taking actions to reduce costs and cash expenditures across the Company.

These actions include reducing hiring activities, restricting travel, adjusting employee compensation by eliminating fiscal year 2020 cash bonuses and base salary increases, implementing an unpaid time-off program for substantially all of our non-production workforce, limiting discretionary spending, reducing or deferring spending on capital investment projects, deferring certain U.S.

payroll tax payments for the remainder of 2020 in accordance with relief provisions under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), deferring lease payments on certain facilities and temporarily suspending repurchases under our share repurchase plans.

As of July 3, 2020, we deferred $1.1 million in certain U.S.

With respect to liquidity, we have taken actions to reduce costs and cash expenditures across the Company.

These actions included reducing hiring activities, restricting travel, adjusting employee compensation by eliminating fiscal year 2020 cash bonuses and base salary increases, implementing an unpaid time-off program for substantially all of our non-production workforce, limiting discretionary spending, reducing or deferring spending on capital investment projects, deferring lease payments on certain facilities, and deferring certain U.S.

payroll tax payments for the remainder of 2020 in accordance with relief provisions under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

As of October 2, 2020, we deferred $2.0 million in certain U.S.

payroll tax payments under the CARES Act.

As of July 3, 2020, we had cash and cash equivalents of $97.5 million and available borrowing capacity under our revolving credit facility of $372.1 million.

Due to the uncertainty related to the future impact of the COVID-19 pandemic, we temporarily suspended repurchases under our share repurchase plans in April 2020.

In connection with our initiatives to preserve cash for a prolonged economic downturn caused by the COVID-19 pandemic, we reached an agreement with the former owner of ARGES GmbH (“ARGES”) in April 2020 to postpone a portion of the deferred cash consideration.

We paid the seller €5.0 million in cash in June 2020 and expect to pay €20.0 million in cash in December 2020.

As of October 2, 2020, we had cash and cash equivalents of $106.6 million and available borrowing capacity under our revolving credit facility of $398.8 million.

We have reviewed numerous potential scenarios in connection with the impact of COVID-19 on our business.

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Additionally, we believe we will remain in compliance with our debt covenants for the next twelve months.

In connection with our initiatives to preserve cash from a prolonged economic downturn caused by the COVID-19 pandemic, we reached an agreement with the former owner of ARGES GmbH (“ARGES”) in April 2020 to postpone a portion of the deferred cash consideration.

We paid the seller €5.0 million in cash in June 2020 and expect to pay €20.0 million in cash in December 2020.

Results of Operations for the Three and Six Months Ended July 3, 2020 Compared with the Three and Six Months Ended June 28, 2019

Results of Operations for the Three and Nine Months Ended October 2, 2020 Compared with the Three and Nine Months Ended September 27, 2019

The following table sets forth our unaudited results of operations as a percentage of revenue for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Cost of revenue

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Income before income taxes

Income tax provision (benefit)

Income tax provision

Consolidated net income

Overview of Financial Results

Total revenue of $144.7 million for the three months ended July 3, 2020 decreased $10.4 million, or 6.7%, from the prior year period primarily due to the COVID-19 pandemic as we experienced decreased demand in the advanced industrial market related to reductions in industrial manufacturing spending and in the medical market as a result of deferrals of elective surgical procedures.

Total revenue of $142.9 million for the three months ended October 2, 2020 decreased $11.1 million, or 7.2%, from the prior year period primarily due to the COVID-19 pandemic as we experienced decreased demand in the advanced industrial market related to reductions in industrial manufacturing spending and in the medical market as a result of deferrals of elective surgical procedures.

The effect of our prior year acquisitions resulted in an increase in revenue of $0.1 million, or 0.1%.

In addition, foreign currency exchange rates adversely impacted our revenue by $1.3 million, or 0.9%, for the three months ended July 3, 2020.

Total revenue of $300.2 million for the six months ended July 3, 2020 decreased $12.1 million, or 3.9%, from the prior year period primarily due to the COVID-19 pandemic as we experienced decreased demand in the advanced industrial market related to reductions in industrial manufacturing spending and in the medical market as a result of deferrals of elective surgical procedures.

In addition, foreign currency exchange rates positively impacted our revenue by $2.6 million, or 1.7%, for the three months ended October 2, 2020.

Total revenue of $443.1 million for the nine months ended October 2, 2020 decreased $23.3 million, or 5.0%, from the prior year period primarily due to the COVID-19 pandemic as we experienced decreased demand in the advanced industrial market related to reductions in industrial manufacturing spending and in the medical market as a result of deferrals of elective surgical procedures.

The effect of our prior year acquisitions resulted in an increase in revenue of $8.4 million, or 1.8%.

In addition, foreign currency exchange rates adversely impacted our revenue by $2.9 million, or 0.9%, for the six months ended July 3, 2020.

Operating income of $13.7 million for the three months ended July 3, 2020 decreased $1.4 million, or 9.3%, from the prior year period.

This decrease was primarily attributable to a decrease in gross profit of $7.1 million as a result of lower revenue and an increase in research and development and engineering (“R&D”) spending of $1.1 million, partially offset by decreases in selling, general and administrative (“SG&A”) expenses of $4.3 million and restructuring, acquisition, and related costs of $2.1 million.

Operating income of $27.0 million for the six months ended July 3, 2020 decreased $2.5 million, or 8.6%, from the prior year period.

In addition, foreign currency exchange rates adversely impacted our revenue by $0.2 million, or 0.1%, for the nine months ended October 2, 2020.

Operating income of $11.9 million for the three months ended October 2, 2020 decreased $0.9 million, or 7.3%, from the prior year period.

This decrease was primarily attributable to a decrease in gross profit of $4.9 million as a result of lower revenue, partially offset by a decrease in restructuring, acquisition, and related costs of $3.9 million.

Operating income of $38.8 million for the nine months ended October 2, 2020 decreased $3.5 million, or 8.2%, from the prior year period.

This decrease was primarily attributable to a decrease in gross profit of $13.9 million as a result of lower revenue and an increase in R&D spending of $3.8 million, offset by decreases in SG&A expenses of $6.5 million and restructuring, acquisition, and related costs of $6.3 million.

Basic earnings per common share (“Basic EPS”) of $0.33 for the three months ended July 3, 2020 increased $0.03 from the prior year period.

Diluted earnings per common share (“Diluted EPS”) of $0.33 for the three months ended July 3, 2020 increased $0.04 from the prior year period.

The increase was primarily attributable to a decrease in income tax provision, partially offset by a decrease in operating income.

Basic EPS of $0.67 for the six months ended July 3, 2020 increased $0.02 from the prior year period.

Diluted EPS of $0.66 for the six months ended July 3, 2020 increased $0.02 from the prior year period.

The increase was primarily attributable to a decrease in income tax provision, partially offset by a decrease in operating income.

Basic earnings per common share (“Basic EPS”) of $0.23 for the three months ended October 2, 2020 decreased $0.02 from the prior year period.

Diluted earnings per common share (“Diluted EPS”) of $0.23 for the three months ended October 2, 2020 decreased $0.02 from the prior year period.

The decrease was primarily attributable to a decrease in operating income.

Basic EPS of $0.91 for the nine months ended October 2, 2020 increased $0.01 from the prior year period.

The increase was primarily attributable to decreases in income tax provision and net interest expense, partially offset by a decrease in operating income.

Diluted EPS of $0.89 for the nine months ended October 2, 2020 remained flat from the prior year period.

The following table sets forth external revenue by reportable segment for the periods noted (dollars in thousands):

Three Months Ended

September 27,

Precision Motion

Six Months Ended

Nine Months Ended

September 27,

Precision Motion

Photonics segment revenue for the three months ended July 3, 2020 decreased by $10.5 million, or 18.0%, versus the prior year period, primarily due to decreased demand in the advanced industrial market related to reductions in industrial manufacturing spending and in the medical market as a result of deferrals of elective surgical procedures and a reduction in certain medical

diagnostic testing during the COVID-19 pandemic , partially offset by revenue from the ARGES acquisition consummated in July 2019 .

Photonics segment revenue for the six months ended July 3, 2020 decreased by $14.6 million, or 12.4%, versus the prior year period, primarily due to decreased demand in the advanced industrial market related to reductions in industrial manufacturing spending and in the medical market as a result of deferrals of elective surgical procedures and a reduction in certain medical diagnostic testing during the COVID-19 pandemic, partially offset by revenue of $4.1 million from the ARGES acquisition consummated in July 2019.

Vision segment revenue for the three months ended July 3, 2020 decreased by $1.2 million, or 1.8%, versus the prior year period, primarily due to a decrease in revenue from our minimally invasive surgery (“MIS”) products as a result of deferrals of elective surgical procedures during the COVID-19 pandemic, partially offset by an increase in revenue from our optical data collection products and an increase in revenue from the Med X Change acquisition consummated in June 2019.

Vision segment revenue for the six months ended July 3, 2020 increased by $1.9 million, or 1.5%, versus the prior year period, primarily due to a $3.7 million increase in revenue from the Med X Change acquisition consummated in June 2019 and an increase in revenue from our optical data collection products, partially offset by a decrease in revenue from our MIS products as a result of deferrals of elective surgical procedures during the COVID-19 pandemic.

Photonics segment revenue for the three months ended October 2, 2020 decreased by $8.2 million, or 15.0%, versus the prior year period, primarily due to decreased demand in the advanced industrial market related to reductions in industrial manufacturing spending and in the medical market as a result of deferrals of elective surgical procedures and a reduction in certain medical diagnostic testing during the COVID-19 pandemic.

Photonics segment revenue for the nine months ended October 2, 2020 decreased by $ 22.7 million, or 13.2% , versus the prior year period, primarily due to decreased demand in the advanced industrial market related to reductions in industrial manufacturing spending and in the medical market as a result of deferrals of elective surgical procedures and a reduction in certain medical diagnostic testing during the COVID-19 pandemic , partially offset by a $3.3 million increase in revenue from the ARGES acquisition consummated in July 2019 .

Vision segment revenue for the three months ended October 2, 2020 decreased by $5.6 million, or 8.0%, versus the prior year period, primarily due to a decrease in revenue from our minimally invasive surgery (“MIS”) products as a result of deferrals of elective surgical procedures during the COVID-19 pandemic.

Vision segment revenue for the nine months ended October 2, 2020 decreased by $3.7 million, or 1.8%, versus the prior year period, primarily due to a decrease in revenue from our MIS products as a result of deferrals of elective surgical procedures during the COVID-19 pandemic, partially offset by a $3.0 million increase in revenue from the Med X Change acquisition consummated in June 2019 and an increase in revenue from our optical data collection products.

Precision Motion

Precision Motion segment revenue for the three months ended July 3, 2020 increased by $1.2 million, or 3.9%, versus the prior year period, primarily due to an increase in revenue related to microelectronics demand, partially offset by decreased demand in the medical market as a result of deferrals of elective surgical procedures during the COVID-19 pandemic.

Precision Motion segment revenue for the six months ended July 3, 2020 increased by $0.5 million, or 0.8%, versus the prior year period, primarily due to an increase in revenue related to microelectronics demand and an increase in revenue from the Ingenia acquisition consummated in June 2019, partially offset by decreased demand in the medical market as a result of deferrals of elective surgical procedures during the COVID-19 pandemic.

Precision Motion segment revenue for the three months ended October 2, 2020 increased by $2.7 million, or 9.0%, versus the prior year period, primarily due to an increase in revenue related to microelectronics demand, partially offset by decreased demand in the medical market as a result of deferrals of elective surgical procedures during the COVID-19 pandemic.

Precision Motion segment revenue for the nine months ended October 2, 2020 increased by $3.2 million, or 3.4%, versus the prior year period, primarily due to an increase in revenue related to microelectronics demand, partially offset by decreased demand in the medical market as a result of deferrals of elective surgical procedures during the COVID-19 pandemic.

Gross Profit and Gross Profit Margin

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Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Gross profit:

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Gross profit and gross profit margin can be influenced by a number of factors, including product mix, pricing, volume, manufacturing efficiencies and utilization, costs for raw materials and outsourced manufacturing, trade tariffs, freight costs, headcount, inventory obsolescence and warranty expenses.

Photonics segment gross profit for the three months ended July 3, 2020 decreased $6.4 million, or 23.5%, versus the prior year period, primarily due to a decrease in revenue.

Photonics segment gross profit margin was 43.7% for the three months ended July 3, 2020, versus a gross profit margin of 46.9% for the prior year period.

The decrease in gross profit margin was primarily attributable to higher operational costs in our factories and unfavorable product mix changes as a result of the COVID-19 pandemic.

Photonics segment gross profit for the six months ended July 3, 2020 decreased $9.1 million, or 16.6%, versus the prior year period, primarily due to a decrease in revenue.

Photonics segment gross profit margin was 44.3% for the six months ended July 3, 2020, versus a gross profit margin of 46.5% for the prior year period.

The decrease in gross profit margin was primarily attributable to higher operational costs in our factories and unfavorable product mix changes as a result of the COVID-19 pandemic.

Vision segment gross profit for the three months ended July 3, 2020 decreased $0.7 million, or 2.8%, versus the prior year period, primarily due to a decrease in revenue.

Vision segment gross profit margin was 37.9% for the three months ended July 3, 2020, versus a gross profit margin of 38.3% for the prior year period.

The decrease in gross profit margin was primarily attributable to higher operational costs in our factories and unfavorable product mix changes as a result of the COVID-19 pandemic.

Vision segment gross profit for the six months ended July 3, 2020 decreased $0.1 million, or 0.2%, versus the prior year period, primarily due to a decrease in gross profit margin.

Vision segment gross profit margin was 38.2% for the six months ended July 3, 2020, versus a gross profit margin of 38.8% for the prior year period.

The decrease in gross profit margin was primarily attributable to higher operational costs in our factories and unfavorable product mix changes as a result of the COVID-19 pandemic.

Photonics segment gross profit for the three months ended October 2, 2020 decreased $5.1 million, or 20.3%, versus the prior year period, primarily due to a decrease in revenue.

Photonics segment gross profit margin was 43.5% for the three months ended October 2, 2020, versus a gross profit margin of 46.3% for the prior year period.

The decrease in gross profit margin was primarily attributable to lower factory utilization associated with lower production volumes and higher period costs as a result of the COVID-19 pandemic.

Photonics segment gross profit for the nine months ended October 2, 2020 decreased $ 14.2 million, or 17.8% , versus the prior year period, primarily due to a decrease in revenue.

Photonics segment gross profit margin was 44.

0 % for the nine months ended October 2, 2020 , versus a gross profit margin of 46.

4 % for the prior year period.

The decrease in gross profit margin was primarily attributable to lower factory utilization associated with lower production volumes and higher period costs as a result of the COVID-19 pandemic .

Vision segment gross profit for the three months ended October 2, 2020 decreased $2.3 million, or 8.7%, versus the prior year period, primarily due to a decrease in revenue.

Vision segment gross profit margin was 38.2% for the three months ended October 2, 2020, versus a gross profit margin of 38.5% for the prior year period.

The decrease in gross profit margin was primarily attributable to unfavorable product mix changes as a result of the COVID-19 pandemic.

Vision segment gross profit for the nine months ended October 2, 2020 decreased $2.4 million, or 3.1%, versus the prior year period, primarily due to a decrease in revenue.

Vision segment gross profit margin was 38.2% for the nine months ended October 2, 2020, versus a gross profit margin of 38.7% for the prior year period.

The decrease in gross profit margin was primarily attributable to unfavorable product mix changes as a result of the COVID-19 pandemic.

Precision Motion

Precision Motion segment gross profit for the three months ended July 3, 2020 increased $0.1 million, or 0.5%, versus the prior year period, primarily due to an increase in revenue.

Precision Motion segment gross profit margin was 43.0% for the three months ended July 3, 2020, versus a gross profit margin of 44.4% for the prior year period.

The decrease in gross profit margin was primarily attributable to higher inventory obsolescence related to the discontinuation of a product.

Precision Motion segment gross profit for the six months ended July 3, 2020 increased $0.5 million, or 1.7%, versus the prior year period, primarily due to an increase in revenue and an increase in gross profit margin.

Precision Motion segment gross profit margin was 43.7% for the six months ended July 3, 2020, versus a gross profit margin of 43.3% for the prior year period.

Precision Motion segment gross profit for the three months ended October 2, 2020 increased $2.5 million, or 20.0%, versus the prior year period, primarily due to an increase in revenue and an increase in gross profit margin.

Precision Motion segment gross profit margin was 46.6% for the three months ended October 2, 2020, versus a gross profit margin of 42.3% for the prior year period.

The increase in gross profit margin was primarily attributable to favorable product and customer mix changes.

Precision Motion segment gross profit for the nine months ended October 2, 2020 increased $3.0 million, or 7.5%, versus the prior year period, primarily due to an increase in revenue and an increase in gross profit margin.

Precision Motion segment gross profit margin was 44.7% for the nine months ended October 2, 2020, versus a gross profit margin of 43.0% for the prior year period.

The increase in gross profit margin was primarily attributable to favorable product and customer mix changes.

Operating Expenses

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Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Research and development and engineering

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Research and Development and Engineering (“R&D”) expenses are primarily comprised of employee compensation related expenses and cost of materials for R&D projects.

R&D expenses were $14.4 million, or 10.0% of revenue, during the three months ended July 3, 2020, versus $13.4 million, or 8.6% of revenue, during the prior year period.

R&D expenses increased in terms of total dollars and as a percentage of revenue primarily due to R&D expenses from 2019 acquisitions.

R&D expenses were $29.8 million, or 9.9% of revenue, during the six months ended July 3, 2020, versus $27.4 million, or 8.8% of revenue, during the prior year period.

R&D expenses increased in terms of total dollars and as a percentage of revenue primarily due to R&D expenses from 2019 acquisitions.

R&D expenses were $15.2 million, or 10.7% of revenue, during the three months ended October 2, 2020, versus $13.8 million, or 9.0% of revenue, during the prior year period.

R&D expenses increased in terms of total dollars and as a percentage of revenue primarily due to higher R&D project spending and higher share-based compensation expense.

R&D expenses were $45.0 million, or 10.2% of revenue, during the nine months ended October 2, 2020, versus $41.2 million, or 8.8% of revenue, during the prior year period.

R&D expenses increased in terms of total dollars and as a percentage of revenue primarily due to R&D expenses from 2019 acquisitions, higher R&D project spending and higher share-based compensation expense.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses include costs for sales and marketing, sales administration, finance, human resources, legal, information systems, and executive management functions.

SG&A expenses were $24.9 million, or 17.2% of revenue, during the three months ended July 3, 2020, versus $29.2 million, or 18.8% of revenue, during the prior year period.

SG&A expenses decreased in terms of total dollars and as a percentage of revenue primarily due to lower variable compensation as we eliminated 2020 annual bonuses, lower salaries due to unpaid-time off, and lower travel costs and other discretionary spending, partially offset by higher stock-based compensation expense.

SG&A expenses were $55.7 million, or 18.5% of revenue, during the six months ended July 3, 2020, versus $61.1 million, or 19.5% of revenue, during the prior year period.

SG&A expenses were $26.8 million, or 18.7% of

revenue, during the three months ended October 2, 2020 , versus $ 27.9 million, or 18.

1 % of revenue, during the prior year period .

SG&A expenses de creased in terms of total dollars primarily due to lower salaries as a result of unpaid-time off, and lower travel costs and other discretionary spending , partially offset by higher s hare -based compensation expense.

SG&A expenses were $82.5 million, or 18.6% of revenue, during the nine months ended October 2, 2020, versus $89.0 million, or 19.1% of revenue, during the prior year period.

Amortization of Purchased Intangible Assets

Amortization of purchased intangible assets, excluding the amortization of developed technologies included in cost of revenue, was $3.4 million, or 2.4% of revenue, during the three months ended July 3, 2020, versus $3.8 million, or 2.4% of revenue, during the prior year period.

Amortization of purchased intangible assets, excluding the amortization of developed technologies included in cost of revenue, was $6.9 million, or 2.3% of revenue, during the six months ended July 3, 2020, versus $7.8 million, or 2.5% of revenue, during the prior year period.

Amortization of purchased intangible assets, excluding the amortization of developed technologies included in cost of revenue, was $3.5 million, or 2.5% of revenue, during the three months ended October 2, 2020, versus $4.0 million, or 2.6% of revenue, during the prior year period.

Amortization of purchased intangible assets, excluding the amortization of developed technologies included in cost of revenue, was $10.4 million, or 2.3% of revenue, during the nine months ended October 2, 2020, versus $11.7 million, or 2.5% of revenue, during the prior year period.

Restructuring, Acquisition, and Related Costs

We recorded restructuring, acquisition, and related costs of $2.2 million during the three months ended July 3, 2020, versus $4.3 million during the prior year period.

The decrease in restructuring, acquisition, and related costs versus the prior year period was primarily due to a decrease in restructuring charges of $1.4 million as a result of the 2018 and 2019 restructuring programs and a decrease in acquisition and related costs of $0.6 million.

The decrease was primarily attributable to higher acquisition costs associated with acquisitions in the prior year, offset by $0.6 million legal fees during the three months ended July 3, 2020 related to an arbitration demand in connection with a pre-acquisition contract dispute from a 2019 acquisition.

We recorded restructuring, acquisition, and related costs of $3.9 million during the six months ended July 3, 2020, versus $6.4 million during the prior year period.

The decrease in restructuring, acquisition, and related costs versus the prior year period was primarily due to a decrease in restructuring charges of $2.0 million as a result of the 2018 and 2019 restructuring programs and a decrease in acquisition and related costs of $0.4 million.

The decrease was primarily attributable to higher acquisition costs associated with acquisitions in the prior year, offset by $0.6 million legal fees during the six months ended July 3, 2020 related to an arbitration demand in connection with a pre-acquisition contract dispute from a 2019 acquisition.

We recorded restructuring, acquisition, and related costs of $1.7 million during the three months ended October 2, 2020, versus $5.5 million during the prior year period.

The decrease in restructuring, acquisition, and related costs versus the prior year period was primarily due to a decrease in acquisition and related charges attributable to higher professional services fees for acquisitions in the prior year.

We recorded restructuring, acquisition, and related costs of $5.6 million during the nine months ended October 2, 2020, versus $11.9 million during the prior year period.

The decrease in restructuring, acquisition, and related costs versus the prior year period was primarily due to a decrease in restructuring charges of $2.4 million and a decrease in acquisition and related costs of $3.9 million.

The decrease in acquisition and related costs was primarily attributable to higher professional services fees for acquisitions in the prior year and a decrease in costs recognized under earn-out agreements in the current year period, offset by legal fees during the nine months ended October 2, 2020 related to a dispute involving a company we acquired in 2019.

Operating Income (Loss) by Segment

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Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Operating Income (Loss)

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Unallocated Corporate and Shared Services

Photonics segment operating income was $6.9 million, or 14.5% of revenue, during the three months ended July 3, 2020, versus $11.7 million, or 20.0% of revenue, during the prior year period.

The decrease in operating income was primarily due to a decrease in gross profit of $6.4 million and an increase in R&D spending of $1.0 million primarily due to R&D expenses from a prior year

acquisition , offset by a decrease in SG&A expenses of $0.9 million, a decrease in restructuring related charge s of $1.3 million and a decrease in amortization of purchased intangible assets of $0.4 million .

Photonics segment operating income was $15.9 million, or 15.4% of revenue, during the six months ended July 3, 2020, versus $24.0 million, or 20.4% of revenue, during the prior year period.

The decrease in operating income was primarily due to a decrease in gross profit of $9.1 million and an increase in R&D spending of $2.2 million primarily due to R&D expenses from a prior year acquisition, partially offset by a decrease in SG&A expenses of $1.0 million, a decrease in restructuring related charges of $1.3 million, and a decrease in amortization of purchased intangible assets of $0.9 million.

Vision segment operating income was $4.7 million, or 7.2% of revenue, during the three months ended July 3, 2020, versus $4.2 million, or 6.4% of revenue, during the prior year period.

The increase in operating income was primarily due to a decrease of SG&A expenses of $2.0 million, partially offset by a decrease in gross profit of $0.7 million and an increase in acquisition and related charges of $0.5 million.

Vision segment operating income was $10.3 million, or 7.7% of revenue, during the six months ended July 3, 2020, versus $8.8 million, or 6.7% of revenue, during the prior year period.

The increase in operating income was primarily due to a decrease of SG&A expenses of $2.6 million, partially offset by an increase in acquisition and related charges of $0.5 million and an increase in R&D expenses of $0.3 million.

Photonics segment operating income was $7.0 million, or 15.1% of revenue, during the three months ended October 2, 2020, versus $10.7 million, or 19.5% of revenue, during the prior year period.

The decrease in operating income was primarily due to a decrease in gross profit of $5.1 million and an increase in R&D spending of $0.5 million, offset by a decrease in restructuring, acquisition, and related charges of $1.2 million and a decrease in amortization of purchased intangible assets of $0.6 million.

Photonics segment operating income was $22.9 million, or 15.3% of revenue, during the nine months ended October 2, 2020, versus $34.6 million, or 20.1% of revenue, during the prior year period.

The decrease in operating income was primarily due to a decrease in gross profit of $14.2 million and an increase in R&D spending of $2.7 million, partially offset by a decrease in SG&A expenses of $1.2 million, a decrease in restructuring, acquisition, and related charges of $2.4 million, and a decrease in amortization of purchased intangible assets of $1.5 million.

Vision segment operating income was $3.8 million, or 5.9% of revenue, during the three months ended October 2, 2020, versus $5.8 million, or 8.3% of revenue, during the prior year period.

The decrease in operating income was primarily due to a decrease in gross profit of $2.3 million, an increase in R&D spending of $0.6 million, and an increase in restructuring, acquisition, and related charges of $0.6 million, partially offset by a decrease in SG&A expenses of $1.6 million.

Vision segment operating income was $14.1 million, or 7.1% of revenue, during the nine months ended October 2, 2020, versus $14.6 million, or 7.2% of revenue, during the prior year period.

The decrease in operating income was primarily due to a decrease in gross profit of $2.4 million, an increase in R&D spending of $0.9 million, and an increase in restructuring, acquisition, and related charges of $1.1 million, partially offset by a decrease in SG&A expenses of $4.2 million.

Precision Motion

Precision Motion segment operating income was $6.5 million, or 20.2% of revenue, during the three months ended July 3, 2020, versus $6.0 million, or 19.3% of revenue, during the prior year period.

The increase in operating income was primarily due to a decrease in SG&A expenses of $0.2 million and a decrease in restructuring, acquisition, and related costs of $0.2 million.

Precision Motion segment operating income was $13.1 million, or 20.6% of revenue, during the six months ended July 3, 2020, versus $ 11.6 million, or 18.4% of revenue, during the prior year period.

The increase in operating income was primarily due to an increase in gross profit of $0.5 million, a decrease in SG&A expenses of $0.6 million and a decrease in amortization of purchased intangible assets of $0.3 million.

Precision Motion segment operating income was $7.7 million, or 23.8% of revenue, during the three months ended October 2, 2020, versus $5.2 million, or 17.7% of revenue, during the prior year period.

The increase in operating income was primarily due to an increase in gross profit of $2.5 million.

Precision Motion segment operating income was $20.7 million, or 21.7% of revenue, during the nine months ended October 2, 2020, versus $16.8 million, or 18.2% of revenue, during the prior year period.

The increase in operating income was primarily due to an increase in gross profit of $3.0 million and a decrease in SG&A expenses of $0.8 million.

Unallocated Corporate and Shared Services

Unallocated corporate and shared services costs primarily represent costs of corporate and shared services functions that are not allocated to the operating segments, including certain restructuring and most acquisition costs.

These costs for the three months ended July 3, 2020 decreased by $2.3 million versus the prior year period primarily due to a decrease in SG&A expenses of $1.1 million and a decrease in restructuring, acquisition, and related costs of $1.3 million.

Unallocated corporate and shared services costs for the six months ended July 3, 2020 decreased by $2.6 million versus the prior year period primarily due to a decrease in SG&A expenses of $1.1 million and a decrease in restructuring, acquisition, and related costs of $1.8 million.

These costs for the three months ended October 2, 2020 decreased by $2.3 million versus the prior year period primarily due to a decrease in restructuring, acquisition, and related costs of $3.0 million, partially offset by higher shared-based compensation expense.

Unallocated corporate and shared services costs for the nine months ended October 2, 2020 decreased by $4.9 million versus the prior year period primarily due to a decrease in restructuring, acquisition, and related costs of $4.8 million.

Other Income and Expense Items

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Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

Interest income (expense), net

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Interest Income (Expense), Net

Net interest expense was $1.7 million for the three months ended July 3, 2020, versus $2.2 million in the prior year period.

The decrease in net interest expense was primarily due to a decrease in the weighted average interest rate on our senior credit facilities.

The weighted average interest rate on our senior credit facilities was 2.40% during the three months ended July 3, 2020, versus 3.51%

during the three months ended June 28, 2019 .

As of July 3, 2020 , our outstanding borrowings under the Third Amended and Restated Credit Agreement denominated in Euro, British Pound, and U.S .

Dollars were $1 73.2 million, $13.

7 million, and $35.0 million, respectively.

Net interest expense was $3.4 million for the six months ended July 3, 2020, versus $4.2 million in the prior year period.

The decrease in net interest expense was primarily due to a decrease in the weighted average interest rate on our senior credit facilities.

The weighted average interest rate on our senior credit facilities was 2.40% during the six months ended July 3, 2020, versus 3.64% during the six months ended June 28, 2019.

Net interest expense was $1.7 million for the three months ended October 2, 2020, versus $2.2 million in the prior year period.

The decrease in net interest expense was primarily due to a decrease in average debt levels and a decrease in the weighted average interest rate on our senior credit facilities.

The weighted average interest rate on our senior credit facilities was 2.31% during the three months ended October 2, 2020, versus 3.13% during the three months ended September 27, 2019.

Net interest expense was $5.1 million for the nine months ended October 2, 2020, versus $6.4 million in the prior year period.

The decrease in net interest expense was primarily due to a decrease in average debt levels and a decrease in the weighted average interest rate on our senior credit facilities.

The weighted average interest rate on our senior credit facilities was 2.37% during the nine months ended October 2, 2020, versus 3.46% during the nine months ended September 27, 2019.

Foreign Exchange Transaction Gains (Losses), Net

Foreign exchange transaction gains (losses) were $0.3 million net losses for the three months ended July 3, 2020, versus less than $0.1 million net gains in the prior year period.

Foreign exchange transaction gains (losses) were $0.1 million net losses for the three months ended October 2, 2020, versus $0.4 million net gains in the prior year period.

The decrease in net gains was primarily due to changes in the value of the U.S.

Dollar against the British Pound and Euro and net realized gains from foreign currency contracts.

Foreign exchange transaction gains (losses) were less than $0.1 million net losses for the six months ended July 3, 2020, versus less than $0.1 million net gains in the prior year period.

Dollar against the British Pound and the Euro and lower net realized gains from foreign currency contracts.

Foreign exchange transaction gains (losses) were $0.2 million net losses for the nine months ended October 2, 2020, versus $0.5 million net gains in the prior year period.

The decrease in net gains was primarily due to changes in the value of the U.S.

Dollar against the British Pound and the Euro and lower net realized gains from foreign currency contracts.

Other Income (Expense), Net

Net other expense was nominal for both the six months ended July 3, 2020 and the six months ended June 28, 2019.

Income Tax Provision (Benefit)

Our effective tax rate for the three months ended July 3, 2020 was 0.3%, versus 19.5% for the prior year period.

Our 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 on our deferred tax assets in Canada.

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

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

and patent box deductions and other tax credits.

Our effective tax rate for the six months ended July 3, 2020 was (0%), versus 10.3% for the prior year period.

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

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

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

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

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

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

Net other expense was nominal for both the three and nine months ended October 2, 2020 and the three and nine months ended September 27, 2019.

Income Tax Provision

Our effective tax rate for the three months ended October 2, 2020 was 17.6%, versus 18.8% for the prior year period.

Our 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.

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

patent box deductions and other tax credits.

Our effective tax rate for the nine months ended October 2, 2020 was 5.2%, versus 12.9% for the prior year period.

Our 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 our 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 release of the valuation allowance had a benefit of 7.9% and 3.3%, respectively, on our effective tax rate.

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

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

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

On March 27, 2020, the U.S.

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We believe our future operating cash flows will be sufficient to meet our future operating and capital expenditure cash needs for the foreseeable future, including at least the next 12 months.

The availability of borrowing capacity under our revolving credit

facility provides another potential source of liquidity for acquisitions.

The availability of borrowing capacity under our revolving credit facility provides another potential source of liquidity for acquisitions.

We may also seek to raise additional capital, which could be in the form of bonds, convertible debt or equity, to fund business development activities or other future investing cash requirements, subject to approval by the lenders in the Third Amended and Restated Credit Agreement.

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Significant factors affecting the management of our ongoing cash requirements are the adequacy of available bank lines of credit and our ability to attract long term capital with satisfactory terms.

The sources of our liquidity are subject to all of the risks of our business and could be adversely affected by, among other factors, risks associated with events outside our control, such as the economic consequences of the COVID-19 pandemic, a decrease in demand for our products, our ability to integrate current and future acquisitions, deterioration in certain financial ratios, availability of borrowings under our revolving credit facility, and market changes in general.

acquisitions, deterioration in certain financial ratios, availability of borrowings under our revolving credit facility, and market changes in general.

See “Risks Relating to Our Common Shares and Our Capital Structure” included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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There is no assurance that the applicable laws and regulations and/or the terms of our indebtedness will permit our subsidiaries to provide us with sufficient dividends, distributions or loans when necessary.

As of July 3, 2020, $61.4 million of our $97.5 million cash and cash equivalents was held by subsidiaries outside of Canada and the United States.

Generally, our intent is to use cash held in these foreign subsidiaries to fund our local operations or acquisitions by those local subsidiaries and to pay down borrowings under our Senior Credit Facilities (defined below).

As of October 2, 2020, $69.6 million of our $106.6 million cash and cash equivalents was held by subsidiaries outside of Canada and the United States.

Approximately $179.0 million of our outstanding term loan and revolver borrowings under our Senior Credit Facilities were held in our subsidiaries outside of Canada and the United States.

Additionally, we may use intercompany loans to address short-term cash flow needs for various subsidiaries.

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

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

We paid the seller €5.0 million in cash in June 2020 and expect to pay €20.0 million in cash in December 2020.

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payroll tax payments in 2020 in accordance with relief provisions under the CARES Act.

As of July 3, 2020, we deferred $1.1 million in certain U.S.

As of October 2, 2020, we deferred $2.0 million in certain U.S.

payroll tax payments under the CARES Act.

In addition, with respect to the COVID-19 pandemic impact on liquidity, we are evaluating and have taken actions to reduce costs and cash expenditures across the Company.

These include reducing hiring activities, restricting travel, adjusting employee compensation by eliminating fiscal year 2020 cash bonuses and base salary increases, implementing an unpaid time-off program for substantially all of our non-production workforce, limiting discretionary spending, reducing or deferring spending on capital investment projects, and deferring lease payments on certain facilities.

As permitted under the CARES Act, we expect to pay half of the deferred U.S.

payroll tax by December 31, 2021 and the remaining half by December 31, 2022.

In addition, with respect to the COVID-19 pandemic impact on liquidity, we have taken actions to reduce costs and cash expenditures across the Company.

These included reducing hiring activities, restricting travel, adjusting employee compensation by eliminating fiscal year 2020 cash bonuses and base salary increases, implementing an unpaid time-off program for substantially all of our non-production workforce, limiting discretionary spending, reducing or deferring spending on capital investment projects, and deferring lease payments on certain facilities.

Senior Credit Facilities

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

We may make payments to pay down our revolving credit facility with cash on hand and cash generated from future operations at any time.

We may pay down outstanding borrowings under our revolving credit facility with cash on hand and cash generated from future operations at any time.

On March 27, 2020, we 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.

As of July 3, 2020, we had a €87.9 million euro-denominated term loan (approximately $99.1 million) and $122.9 million revolver borrowings outstanding under our Senior Credit Facilities.

The borrowings outstanding under the Senior Credit Facilities bear interest at rates based on (a) the Base Rate, as defined in the Third Amended and Restated Credit Agreement, plus a margin ranging between 0.25% to 1.25% per annum, determined by reference to our consolidated leverage ratio, or (b) the Eurocurrency Rate, as defined in the Third Amended and Restated Credit Agreement, plus a margin ranging between 1.25% and 2.25% per annum, determined by reference to our consolidated leverage ratio.

In addition, we are obligated to pay a commitment fee on the unused

portion of the revolving credit facility, ranging between 0.20% and 0.40% per annum, determined by reference to our consolidated leverage ratio .

As of October 2, 2020, we had $101.8 million term loan and $96.2 million revolver borrowings outstanding under our Senior Credit Facilities.

The borrowings outstanding under the Senior Credit Facilities bear interest at rates based on (a) the Base Rate, as defined in the Third Amended and Restated Credit Agreement, plus a margin ranging between 0.25% and 1.25% per annum, determined by reference to our consolidated leverage ratio, or (b) the Eurocurrency Rate, as defined in the Third Amended and Restated Credit Agreement, plus a margin ranging between 1.25% and 2.25% per annum, determined by reference to our consolidated leverage ratio.

In addition, we are obligated to pay a commitment fee on the unused portion of the revolving credit facility, ranging between 0.20% and 0.40% per annum, determined by reference to our consolidated leverage ratio.

As of October 2, 2020, we had outstanding borrowings under the Third Amended and Restated Credit Agreement denominated in Euro and U.S.

Dollars of $179.0 million and $19.0 million, respectively.

The Third Amended and Restated Credit Agreement contains various covenants that we believe are usual and customary for this type of agreement, including a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio (as defined in the Third Amended and Restated Credit Agreement).

The following table summarizes these financial covenants and our compliance therewith as of July 3, 2020:

The following table summarizes these financial covenant s and our compliance therewith as of October 2, 2020 :

Maximum consolidated leverage ratio

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Share repurchases have been made under the 2018 Repurchase Plan pursuant to Rule 10b-18 under the Securities Exchange Act of 1934.

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

We had $9.5 million available for share repurchases under the 2018 Repurchase Plan as of July 3, 2020.

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

We had $9.5 million available for share repurchases under the 2018 Repurchase Plan as of October 2, 2020.

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

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

Cash Flows for the Six Months Ended July 3, 2020 and June 28, 2019

Cash Flows for the Nine Months Ended October 2, 2020 and September 27, 2019

The following table summarizes our cash flows, cash and cash equivalents, and unused and available funds under our revolving credit facility for the periods indicated (in thousands):

Six Months Ended

Nine Months Ended

September 27,

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) financing activities

Cash and cash equivalents

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Operating Cash Flows

Cash provided by operating activities was $51.6 million for the six months ended July 3, 2020, versus $20.9 million for the prior year period.

Cash provided by operating activities for the six months ended July 3, 2020 increased from the prior year period primarily

due to working capital improvements resulting in an increase in cash flows from accounts receivable and inventory , and a decrease in income tax payments.

Cash provided by operating activities for the six months ended July 3, 2020 was positively impacted by an increase in our inventory turnover ratio from 3.1 at December 31, 2019 to 3.2 at July 3, 2020 and a decrease in accounts receivable, offset by a decrease in our days payables outstanding which decreased from 53 days at December 31, 2019 to 49 days at July 3, 2020.

During the six months ended July 3, 2020, we paid the 2019 annual employee bonuses which had been accrued for as of December 31, 2019.

Cash provided by operating activities for the six months ended June 28, 2019 was negatively impacted by an increase in our days sales outstanding which increased from 51 days at December 31, 2018 to 52 days at June 28, 2019, a decrease in our days payables outstanding which decreased from 52 days at December 31, 2018 to 51 days at June 28, 2019 and an increase in inventories, as our inventory turnover ratio decreased from 3.4 at December 31, 2018 to 3.2 at June 28, 2019.

During the six months ended June 28, 2019, we paid the first milestone payment under the earn-out agreement for our acquisition of Zettlex Holdings Limited amounting to $3.9 million and paid the 2018 annual employee bonuses, both of which had been accrued for as of December 31, 2018.

Cash provided by operating activities was $93.7 million for the nine months ended October 2, 2020, versus $27.8 million for the prior year period.

Cash provided by operating activities for the nine months ended October 2, 2020 increased from the prior year period primarily due to working capital improvements resulting in an increase in cash flows from accounts receivable and inventory, and a decrease in income tax payments.

Cash provided by op erating activities for the nine months ended October 2, 2020 was pos itively impacted by an increase in our inventory turnover ratio from 3.1 at December 31, 2019 to 3.

3 at October 2, 2020 and a decrease in accounts receivable, offset by a decrease in our days payables outstanding which decreased from 5 3 days at December 31, 2019 to 4 4 days at October 2, 2020 .

During the nine months ended October 2, 2020 , we paid the 201 9 annual employee bonuses which had been accrued for as of December 31, 2019 .

Cash provided by operating activities for the nine months ended September 27, 2019 was negatively impacted by an increase in our days sales outstanding which increased from 51 days at December 31, 2018 to 59 days at September 27, 2019 primarily due to poor sales linearity, a decrease in our days payables outstanding which decreased from 52 days at December 31, 2018 to 48 days at September 27, 2019 and an increase in inventories.

Our inventory turnover ratio decreased from 3.4 at December 31, 2018 to 3.2 at September 27, 2019.

During the nine months ended September 27, 2019, we paid the first milestone payment under the earn-out agreement for our acquisition of Zettlex Holdings Limited amounting to $3.9 million and paid the 2018 annual employee bonuses, both of which had been accrued for as of December 31, 2018.

Investing Cash Flows

Cash used in investing activities was $7.3 million for the six months ended July 3, 2020, primarily driven by capital expenditures of $4.6 million and a payment for intangible assets of $2.6 million related to our 2016 asset acquisition of video signal processing and management technologies.

Cash used in investing activities was $34.4 million for the six months ended June 28, 2019, primarily driven by the Ingenia and Med X Change acquisitions.

In connection with these acquisitions, we paid $28.9 million cash considerations (net of cash acquired of $1.0 million) during the six months ended June 28, 2019.

We also paid $5.6 million for capital expenditures during the six months ended June 28, 2019.

We have no material commitments to purchase property, plant, and equipment as of July 3, 2020.

Cash used in investing activities was $9.8 million for the nine months ended October 2, 2020, primarily driven by capital expenditures of $7.2 million and a payment for intangible assets of $2.6 million related to our 2016 asset acquisition of video signal processing and management technologies.

Cash used in investing activities was $61.1 million for the nine months ended September 27, 2019, primarily driven by the Arges GmbH, Med X Change Inc., and Ingenia CAT, S.L.

acquisitions.

In connection with these acquisitions, we paid $53.1 million cash considerations, net of cash acquired, during the nine months ended September 27, 2019.

We also paid $8.0 million for capital expenditures during the nine months ended September 27, 2019.

We have no material commitments to purchase property, plant, and equipment as of October 2, 2020.

We expect to use an aggregate of approximately $8 million to $9 million in fiscal 2020 for capital expenditures related to investments in new property, plant and equipment.

Financing Cash Flows

Cash used in financing activities was $25.0 million for the six months ended July 3, 2020, primarily due to $7.9 million of payroll tax payments on share-based compensation awards, ARGES deferred purchase price payment of $5.6 million, $5.5 million of repurchases of common shares, $2.5 million repayment of our term loan, and $1.6 million of fees paid in connection with the First Amendment to our Third Amended and Restated Credit Agreement.

Cash used in financing activities was $2.8 million for the six months ended June 28, 2019, primarily due to $16.1 million of term loan payments, $6.7 million of payroll tax payments upon vesting of stock-based compensation awards, and $3.3 million of repurchases of common stock, partially offset by $23.6 million of borrowings under our revolving credit facility used to fund the Ingenia and Med X Change acquisitions.

Cash used in financing activities was $57.2 million for the nine months ended October 2, 2020, primarily due to $34.0 million in repayments of borrowings under our Senior Credit Facilities, $8.3 million of payroll tax payments upon vesting of share-based compensation awards, $5.8 million payments of deferred and escrowed purchase price related to prior year acquisitions, $5.5 million of repurchases of common shares, and $1.6 million of fees paid in connection with the First Amendment to our Third Amended and Restated Credit Agreement.

We expect to pay the final ARGES deferred purchase price of €20.0 million in cash in December 2020.

Cash provided by financing activities was $12.4 million for the nine months ended September 27, 2019, primarily due to $66.8 million of borrowings under our revolving credit facility used to fund the Arges GmbH, Med X Change Inc., and Ingenia CAT, S.L.

acquisitions, partially offset by $40.8 million repayments of borrowings under our Senior Credit Facilities, $6.8 million of payroll tax payments upon vesting of share-based compensation awards, and $6.7 million of repurchases of common shares.

Off-Balance Sheet Arrangements, Contractual Obligations

Contractual Obligations

Our contractual obligations primarily consist of the principal and interest associated with our Senior Credit Facilities, operating and finance leases, purchase commitments, pension obligations, deferred cash considerations associated with acquisitions, contingent considerations and earn-outs.

Our contractual obligations primarily consist of the principal and interest payments associated with our Senior Credit Facilities, operating and finance leases, purchase commitments, pension obligations, deferred cash considerations associated with acquisitions, contingent considerations and earn-outs.

Such contractual obligations are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

As of July 3, 2020, other than the First Amendment to the Third Amended and Restated Credit Agreement, we have not entered into any other material new or modified contractual obligations since the end of the fiscal year ended December 31, 2019 .

As of October 2, 2020, other than the First Amendment to the Third Amended and Restated Credit Agreement, we have not entered into any other material new or modified contractual obligations since December 31, 2019 .

Off-Balance Sheet Arrangements

Through July 3, 2020, we have not entered into any other off-balance sheet arrangements or material transactions with any unconsolidated entities or other persons.

Through October 2, 2020, we have not entered into any other off-balance sheet arrangements or material transactions with any unconsolidated entities or other persons.

Critical Accounting Policies and Estimates

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our consolidated financial statements presented in this periodic report on Form 10-Q are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

There have been no material changes to our critical accounting policies and estimates through July 3, 2020 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

There have been no material changes to our critical accounting policies and estimates through October 2, 2020 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Recent Accounting Pronouncements

1 unchanged sentence

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 2. Management’s Discussion and Analysis