What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-03-01 · 402 added, 380 removed, 1178 unchanged (40% of the section changed)

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We have audited the accompanying consolidated balance sheets of Novanta Inc.

and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded ATI Industrial Automation, Inc.

(“ATI”) and Schneider Electric Motion USA, Inc.

(“SEM”) from its assessment of internal control over financial reporting as of December 31, 2021, because they were acquired by the Company in purchase business combinations during 2021.

We have also excluded ATI and SEM from our audit of internal control over financial reporting.

ATI and SEM are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 5% and 1% of total assets, respectively and approximately 5% and 1% of total revenues, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

Definition and Limitations of Internal Control over Financial Reporting

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(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

and (iii) provide reasonable assurance regarding

prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Fair Value Measurements of the Contingent Consideration for ARGES GmbH and Ingenia-CAT, S.L.

As described in Notes 4 and 7 to the consolidated financial statements, the Company had $8.0 million of contingent consideration liabilities as of December 31, 2020 related to the 2019 acquisitions of ARGES GmbH and Ingenia-CAT, S.L.

The contingent consideration payments are payable annually based on the achievement of certain revenue targets by the Company from July 2019 through December 2026 for ARGES GmbH and from April 2019 through March 2022 for Ingenia-CAT, S.L.

Management determines the estimated fair value of contingent consideration liabilities using a Monte Carlo valuation method.

The following unobservable inputs were used by management to determine the fair value measurement of the contingent consideration liabilities:

historical and projected revenues, revenue volatilities, cost of debt, and the discount rates.

The principal considerations for our determination that performing procedures relating to the fair value measurements of the contingent consideration for ARGES GmbH and Ingenia-CAT, S.L.

acquisitions is a critical audit matter are (i) the significant judgment by management when developing the estimated fair value measurements;

(ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the Monte Carlo valuation method and evaluating management's significant assumptions related to the projected revenues, revenue volatilities, and the discount rates;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisitions of ATI Industrial Automation, Inc.

and Schneider Electric Motion USA, Inc.

– Valuation of Developed Technologies and Customer Relationships Intangible Assets

As described in Note 4 to the consolidated financial statements, the Company completed the acquisitions of ATI Industrial Automation, Inc.

(ATI) and Schneider Electric Motion USA, Inc.

(SEM) in 2021.

The acquisition of ATI resulted in a $23.9 million customer relationships intangible asset and a $19.8 million developed technologies intangible asset being recorded, and the acquisition of SEM resulted in a $41.7 million customer relationships intangible asset and a $9.1 million developed technologies intangible asset being recorded.

Assets acquired and liabilities assumed have been recorded by management at their estimated fair values as of the acquisition dates.

The fair values of intangible assets were based on valuations using an income approach, specifically the multi-period excess earnings method for customer relationships and the relief-from-royalty method for developed technologies.

The process for estimating the fair values of these identifiable intangible assets requires the use of significant estimates and assumptions by management, including revenue growth rates, customer attrition rates, royalty rates, discount rates, technology obsolescence curves, and EBITDA margins.

The principal considerations for our determination that performing procedures relating to the valuation of the developed technologies and customer relationships intangible assets acquired in the ATI and SEM acquisitions is a critical audit matter are (i) the significant judgment by management when determining the fair value of the developed technologies and customer relationships assets, (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, royalty rates, discount rates, and technology obsolescence curves used in the valuation of the developed technologies intangible assets and the revenue growth rates, discount rates, customer attrition rates, and EBITDA margins used in the valuation of the customer relationships intangible assets, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s fair value measurements of the contingent consideration, including controls over management’s valuation method, significant assumptions and data.

These procedures also included, among others, (i) testing management’s process for developing the fair value measurements of the contingent consideration, (ii) evaluating the appropriateness of the Monte Carlo valuation method, (iii) testing the completeness and accuracy of underlying data used in the method, and (iv) evaluating the significant assumptions used by management related to the projected revenues, revenue volatilities, and discount rates.

Evaluating the assumptions related to projected revenues involved evaluating whether the assumptions used by management were reasonable considering current and past performance of the acquired businesses, consistency with external market data, and whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s Monte Carlo valuation method and the revenue volatilities and discount rates assumptions.

These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s (i) valuation of the developed technologies and customer relationships intangible assets and (ii) development of significant assumptions related to revenue growth rates, customer attrition rates, royalty rates, discount rates, technology obsolescence curves and EBITDA margins.

These procedures also included, among others, (i) reading the purchase agreements and (ii) testing management’s process for determining the fair value of the developed technologies and customer relationships intangible assets.

Testing management’s process included evaluating the appropriateness of the multi-period excess earnings and relief-from-royalty valuation methods, testing the completeness and accuracy of underlying data used by management, and evaluating the reasonableness of management’s significant assumptions related to the revenue growth rates, royalty rates, discount rates, and technology obsolescence curves used in the valuation of the developed technologies intangible assets and the revenue growth rates, discount rates, customer attrition rates, and EBITDA margins used in the valuation of the customer relationships intangible assets.

Evaluating the reasonableness of the revenue growth rates in the valuation of developed technologies and revenue growth rates, EBITDA margins, and customer attrition rates used in the valuation of the customer relationships involved considering the past performance of the acquired businesses, consistency with economic and industry forecasts, and whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the valuation methods and of the reasonableness of the royalty rates, discount rates, and technology obsolescence curves in the valuation of the developed technologies intangible assets and the customer attrition rates and discount rates used in the valuation of the customer relationships intangible assets.

Fair Value of the Contingent Consideration for ARGES GmbH Acquisition

As described in Notes 4 and 7 to the consolidated financial statements, the Company had $3.8 million of a contingent consideration liability as of December 31, 2021 related to the 2019 acquisition of ARGES GmbH.

The contingent consideration payments are payable annually based on actual revenue achievement against certain revenue targets by the Company from August 2019 through December 2026.

Management determines the estimated fair value of the contingent consideration liability using a Monte Carlo valuation method.

The unobservable inputs used by management to determine the fair value of the contingent consideration liability included historical and projected revenues, revenue volatility, cost of debt, and the discount rate.

The principal considerations for our determination that performing procedures relating to the fair value of the contingent consideration for the ARGES GmbH acquisition is a critical audit matter are (i) the significant judgment by management when determining the fair value, (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the Monte Carlo valuation method and evaluating management's significant assumptions related to the projected revenues, revenue volatility, and discount rate, and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s valuation of the contingent consideration, including controls over management’s valuation method and significant assumptions related to projected revenues, revenue volatility, and discount rate.

These procedures also included, among others, (i) testing management’s process for determining the fair value of the contingent consideration, (ii) evaluating the appropriateness of the Monte Carlo valuation method, (iii) testing the completeness and accuracy of underlying data used by management, and (iv) evaluating the significant assumptions used by management related to the projected revenues, revenue volatility, and discount rate.

Evaluating the assumptions related to projected revenues involved evaluating whether the assumptions used by management were reasonable considering the current and past performance of the acquired business, consistency with external market data, and whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s Monte Carlo valuation method and the revenue volatility and discount rate assumptions.

/s/ PricewaterhouseCoopers LLP

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Stockholders’ Equity:

Preferred shares, no par value;

Authorized shares:

No shares issued and outstanding

Common shares, no par value;

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Additional paid-in capital

Accumulated deficit

Retained earnings

Accumulated other comprehensive loss

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Amortization of purchased intangible assets

Restructuring and acquisition related costs

Restructuring, acquisition and related costs

Total operating expenses

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Consolidated net income

Net income attributable to noncontrolling interest

Net income attributable to Novanta Inc.

Earnings per common share attributable to Novanta Inc.

Earnings per common share (Note 9):

Weighted average common shares outstanding—basic

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Total consolidated comprehensive income

Comprehensive income attributable to noncontrolling interest

Comprehensive income attributable to Novanta Inc.

The tax effect on this component of comprehensive income was $ 0 , $ 3 and ($ 93 ) in 2020, 2019 and 2018, respectively.

The tax effect on this component of comprehensive income was nominal in 2021, 2020 and 2019.

The tax effect on this component of comprehensive income was $ 920 , ($ 202 ) and $ 267 in 2021, 2020 and 2019, respectively.

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dollars or shares)

Preferred Shares

Common Shares

Additional Paid-In

Retained Earning

Accumulated Other Comprehensive

Balance at December 31, 2018

Redeemable noncontrolling interest redemption value adjustment

Acquisition of noncontrolling interest

Consolidated net income

Common shares issued for business combination

Common shares issued under stock plans

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Share-based compensation

Adoption of ASU 2016-16

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

Balance at December 31, 2019

Common shares issued for business combination

Consolidated net income

Common shares issued under stock plans

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Share-based compensation

Other comprehensive loss, net of tax

Other comprehensive income, net of tax

Balance at December 31, 2020

Consolidated net income

Common shares issued under stock plans

Common shares withheld for taxes on vested stock awards

Repurchases of common shares

Share-based compensation

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Deferred income taxes

Loss on disposal of fixed assets

Loss (gain) on disposal of fixed assets

Contingent consideration adjustments

Inventory acquisition fair value adjustment

Inventory acquisition fair value adjustments

Non-cash interest expense

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

effects from businesses acquisitions:

effects from business acquisitions:

Accounts receivable

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

Acquisition of assets

Payment of contingent consideration related to acquisition of technology assets

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Payments of deferred and escrowed purchase price related to acquisitions

Payment of contingent consideration related to an acquisition

Payments of contingent considerations related to acquisitions

Repurchases of common shares

Acquisition of noncontrolling interest

Purchase of building under finance lease

Other financing activities

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Supplemental disclosure of non-cash investing activity:

Accrual for capital expenditures

Accruals for capital expenditures

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

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Intercompany accounts and transactions have been eliminated.

Prior to January 10, 2017, the Company had an approximately 41 % ownership interest in Laser Quantum Limited (“Laser Quantum”), a privately held company located in the United Kingdom (“U.K.”), which was accounted for under the equity method of accounting.

On January 10, 2017, the Company acquired an additional approximately 35 % of the outstanding shares of Laser Quantum for $ 31.1 million in cash.

As a result of this transaction, the Company’s ownership in Laser Quantum increased from approximately 41% to approximately 76 %.

Since January 10, 2017, Laser Quantum has been consolidated in the Company’s consolidated financial statements.

On September 27, 2018, the Company acquired the remaining approximately 24 % of the outstanding shares of Laser Quantum for an aggregate consideration of $ 45.1 million in cash and restricted stock.

Summary of Significant Accounting Policies

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The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods.

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

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, accruals for contingent earnout agreements from business acquisitions, share-based compensation expense associated with performance-based restricted stock units, 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 year ended December 31, 2020, the Company’s future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

Actual results could differ significantly from these estimates.

Foreign Currency Translation

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These investments are carried at cost, which approximates fair value.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Accounts Receivable and Credit Losses

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The Company assesses each customer’s ability to pay by conducting a credit review which includes consideration of established credit rating or an internal assessment of the customer’s creditworthiness based on an analysis of their payment history when a credit rating is not available.

The Company monitors the credit exposure through active review of customer balances.

The Company monitors its credit exposure through active review of customer balances.

The Company’s expected loss methodology for accounts receivable is developed through consideration of factors including, but not limit to, historical collection experience, current customer credit ratings, current customer financial condition, current and future economic and market condition, and age of the receivables.

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Account balances are charged off against the allowance when the Company believes it is certain that the receivable will not be recovered.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

For the years ended December 31, 2021, 2020 and 2019, changes in the allowance for doubtful accounts were as follows (in thousands):

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Inventories, which include materials and conversion costs, are stated at the lower of cost or net realizable value, using the first-in, first-out method.

Cost includes the cost of purchased materials, inbound freight charges, external and internal processing and applicable labor and overhead costs.

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

Cost includes the cost of purchased materials, inbound freight and duties, external and internal processing and applicable labor and overhead costs.

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, storage, disposal and transportation.

The Company periodically reviews quantities of inventories on hand and compares these amounts to the expected use of each product.

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The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including revenue growth rates, customer attrition rates, royalty rates, discount rates and projected future cash flows.

All definite-lived intangible assets are amortized over the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

periods in which their economic benefits are expected to be realized.

All definite-lived intangible assets are amortized over the periods in which their economic benefits are expected to be realized.

The Company reviews the useful life assumptions, including the classification of certain intangible assets as “indefinite-lived,” on a periodic basis to determine if changes in circumstances warrant revisions to them.

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Impairment analyses of goodwill and indefinite-lived intangible assets are conducted in accordance with ASC 350, “Intangibles —Goodwill and Other.” The Company performs its goodwill impairment test annually as of the beginning of the second quarter or more frequently if indicators are present or changes in circumstances suggest that an impairment may exist.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

The Company has the option of first performing a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test.

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Alternatively, the Company may elect to bypass the qualitative assessment and perform the quantitative impairment test instead.

This approach requires a comparison of the carrying value of each of the Company’s reporting units to the estimated fair value of these reporting units.

This approach requires a comparison of the carrying value of each reporting unit to its estimated fair value.

The fair value of a reporting unit is estimated primarily using a discounted cash flow (“DCF”) method with a weighted average cost of capital.

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The carrying amounts of definite-lived long-lived assets are reviewed for impairment whenever changes in events or circumstances indicate that their carrying values may not be recoverable.

The recoverability of the carrying value is generally determined by comparison of the asset group’s carrying value to its undiscounted future cash flows.

The recoverability of the carrying value is generally determined by comparison of the carrying value of the asset group to its undiscounted future cash flows.

When this test indicates a potential for impairment, a fair value assessment is performed.

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Finance lease liabilities are included in accrued expenses and other current liabilities and other liabilities on the consolidated balance sheet based on the timing of future lease payments.

Leases with an initial term of 12 months or less are not recognized on the balance sheet.

Leases with an initial term of twelve months or less are not recognized on the balance sheet.

The Company recognizes lease expense on a straight-line basis over the lease term.

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The Company accounts for lease and non-lease components separately.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Most leases held by the Company do not provide an implicit rate.

The Company uses its incremental borrowing rate for the same jurisdiction and term as the associated lease based on the information available at the lease commencement date to determine the present value of future lease payments.

The Company used the incremental borrowing rate as of January 1, 2019 for operating leases that commenced prior to that date.

Upon adoption of ASC 842, “Leases”, the Company used the incremental borrowing rate as of January 1, 2019 for operating leases that commenced prior to that date.

The Company has a centrally managed treasury function;

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These costs are expensed as incurred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Share-Based Compensation

The Company records the expense associated with share-based compensation awards to employees and directors based on the fair value of awards as of the grant date.

For share-based compensation awards that vest over time based on employment, the associated expenses are recognized in the consolidated statements of operations ratably over the vesting period, net of estimated forfeitures.

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

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

Share-based compensation expense associated with EPS-PSUs is recognized ratably over the vesting period when it is probable that the performance targets are expected to be achieved based on management’s projections.

Management’s projections are revised, if necessary, in subsequent periods when underlying factors change the evaluation of the probability of achieving the performance targets as well as the level of achievement.

When the estimated achievement levels are adjusted at a later date, a cumulative adjustment to the share-based compensation expense previously recognized would be required.

Accordingly, share-based compensation expense associated with EPS-PSUs may differ significantly from period to period based on changes to both the probability and the level of achievement against performance targets.

Share-based compensation expense associated with TSR-PSUs is based on the grant-date fair value, determined using the Monte-Carlo valuation model, and is recognized on a straight-line basis from the grant date to the end of the performance period.

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

The Company records expenses associated with share-based compensation awards to employees and directors based on the fair value of awards as of the grant date.

The Company also grants three types of performance-based awards to certain members of the executive management team:

non-GAAP earnings per share performance-based restricted stock units (“EPS-PSUs”), operating cash flow performance-based restricted stock units (“OCF-PSUs”), and relative total shareholder return performance-based restricted stock units (“TSR-PSUs”).

Share-based compensation expenses associated with EPS-PSUs and OCF-PSUs are recognized ratably over their vesting periods when it is probable that the performance targets are expected to be achieved based on management’s projections.

When the estimated achievement levels are adjusted at a later date, a cumulative adjustment to the share-based compensation expense previously recognized would be recorded in the period such determination is made.

Accordingly, share-based compensation expenses associated with EPS-PSUs and OCF-PSUs may differ significantly from period to period based on changes to both the probability and the level of achievement against performance targets.

Share-based compensation expenses associated with TSR-PSUs are based on the grant-date fair value, determined using the Monte-Carlo valuation model, and are recognized on a straight-line basis from the grant date to the end of the performance period.

Compensation expenses associated with TSR-PSUs will not be affected by the number of common shares that will ultimately be issued upon vesting at the end of the performance period.

Advertising Costs

Advertising costs are expensed to selling, general and administrative expenses as incurred and were not material for 2021, 2020 and 2019.

Restructuring and Acquisition Related Costs

Restructuring, Acquisition and Related Costs

The Company accounts for its restructuring activities in accordance with the provisions of ASC 420, “Exit or Disposal Cost Obligations.” The Company makes assumptions related to the amounts of employee severance benefits and related costs, useful lives and residual value of long-lived assets, and discount rates.

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Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled.

A valuation allowance is established to reduce the deferred tax assets if it is

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

more likely than not that some or all of the related tax benefits will not be realized in the future.

A valuation allowance is established to reduce the deferred tax assets if it is more likely than not that some or all of the related tax benefits will not be realized in the future.

Valuation allowances are reassessed periodically to determine whether it is more likely than not that the tax benefits will be realized in the future and if any existing valuation allowance should be released.

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Consequently, the Company generally does not accrue income taxes for the repatriation of such earnings in accordance with ASC 740, “Income Taxes.” To the extent that there are excess accumulated earnings that the Company intends to repatriate from any such subsidiaries, the Company recognizes deferred tax liabilities on such foreign earnings.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

The Company assesses its income tax positions and records tax benefits for all years subject to examination based on the evaluation of the facts, circumstances, and information available at each reporting date.

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Foreign Currency Contracts

The Company uses foreign currency contracts as a part of its strategy to limit its exposures related to foreign currency denominated monetary assets and liabilities.

The Company uses foreign currency contracts as a part of its strategy to limit its exposures to fluctuations in foreign currency exchange rates related to foreign currency denominated monetary assets and liabilities.

The time duration of these foreign currency contracts approximates the underlying foreign currency transaction exposures, generally less than three months.

These contracts are not designated as cash flow, fair value or net investment hedges.

These foreign currency contracts are not designated as cash flow, fair value or net investment hedges.

Changes in the fair value of these foreign currency contracts are recognized in income before income taxes.

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Simplifying the Accounting for Income Taxes.”

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, 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;

ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles of 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);

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January 1, 2021.

Early adoption is permitted.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Effective Date

Effect on the Financial Statements or Other Significant Matters

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

Measurement of Credit Losses on Financial Instruments.”

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

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

January 1, 2020.

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

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Upon issuance.

Adoption of ASU 2020-04 is elective.

ASU 2020-04 is elective.

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

In August 2018, the FASB issued ASU 2018-14, “Compensation - retirement benefits - defined benefit plans – General (Subtopic 715-20):

Disclosure framework – Change to the disclosure requirements for defined benefit plans.”

ASU 2018-14 provides minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans.

Fiscal years ending after December 15, 2020

The Company adopted ASU 2018-14 during the fourth quarter of 2020.

The adoption of this standard did not have a material impact on the Company's financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition,” and requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company adopted ASU 2014-09 during the first quarter of 2018 using the modified retrospective method.

ASU 2014-09 has been applied to those contracts which had not been completed as of January 1, 2018 and all new contracts entered into by the Company subsequent to January 1, 2018.

The adoption of ASU 2014-09 did not have an impact on the Company’s accumulated deficit.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Effective Date

Effect on the Financial Statements or Other Significant Matters

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

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

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

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

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

January 1, 2023.

Early adoption is permitted.

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

The Company accounts for its revenue transactions in accordance with ASC 606, “Revenue from Contracts with Customers,” which requires entities to recognize revenue in a way that depicts the transfer of control over goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

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

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Substantially all of the Company’s revenue is recognized at a point in time, upon shipment, rather than over time.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

At the request of its customers, the Company may perform professional services, generally for the maintenance and repair of products previously sold to those customers and for engineering services.

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

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 is typically 12 months to 36 months .

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.

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As of December 31, 2021 and December 31, 2020, contract liabilities were $ 7.3 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 year ended December 31, 2020 is primarily due to cash payments received in advance of satisfying performance obligations offset by $ 3.3 million of revenue recognized during the year that was included in the contract liability balance at December 31, 2019.

The increase in the contract liability balance during the year ended December 31, 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 $ 5.6 million of revenue recognized during the year that was included in the contract liability balance at December 31, 2020.

Disaggregated Revenue

See Note 18 for the Company’s disaggregation of revenue by segment, geography and end market.

Business Combinations

2021 Acquisitions

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 $ 169.2 million, net of cash acquired and estimated working capital adjustments, and $ 44.0 million estimated fair value of contingent consideration.

The contingent consideration will be payable in 2022 based on a multiple of the standalone ATI Adjusted EBITDA, as defined in the purchase and sale agreement, for the fiscal year ended 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 Company expects that the addition of ATI will complement and add intelligent technology solutions to further expand the Company’s position in mission critical robotic applications 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 motion control solutions and electronic controls for automation equipment for a total purchase price of $ 114.7 million, net of cash acquired and working capital adjustments.

The acquisition was financed with borrowings under the Company’s revolving credit facility.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Business Combinations

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.

Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition dates.

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.

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

Purchase Price

Accounts receivable

Property, plant and equipment

Operating lease assets

Intangible assets

Total assets acquired

Accounts payable

Current portion of operating lease liabilities

Operating lease liabilities

Other liabilities

Total liabilities assumed

Total assets acquired, net of liabilities assumed

cash acquired

contingent consideration

Initial purchase price, net of cash acquired

Subsequent to the preliminary valuation, additional information that existed as of the acquisition date became available that resulted in adjustments to certain inputs used for the determination of estimated fair value of the contingent consideration.

These changes resulted in a $ 7.9 million decrease to the liability and a $ 0.4 million increase to identifiable intangible assets.

Adjustments to the preliminary purchase price allocation resulted in a decrease to goodwill of $ 8.3 million.

As of December 31, 2021, the working capital adjustments had not been finalized and were estimated to be a cash receipt of $ 0.8 million.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

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 $ 52.8 million of identifiable intangible assets and $ 134.4 million of goodwill.

Goodwill amounting to $ 134.4 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 $ 34.0 million and a profit before income taxes of $ 3.4 million to the Company’s operating results for the year ended December 31, 2021.

ATI’s profit before income taxes for the period from the acquisition date through December 31, 2021 included amortization of inventory fair value adjustments and amortization of purchased intangible assets of $ 3.5 million.

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 other liabilities and unrecognized tax benefits.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

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 $ 68.3 million of goodwill.

As the SEM acquisition was structured as a stock acquisition for income tax purposes, the goodwill is no t 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 $ 9.1 million and a profit before income taxes of $ 0.3 million to the Company’s operating results for the year ended December 31, 2021.

SEM’s profit before income taxes for the period from the acquisition date through December 31, 2021 included amortization of inventory fair value adjustments and amortization of purchased intangible assets of $ 1.8 million.

Unaudited Pro Forma Information

The pro forma information 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 acquisitions, acquisition costs, and the related tax effects, assuming that the acquisitions had been 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.

Year Ended December 31,

Consolidated net income

2019 Acquisitions

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

The contingent consideration will be payable annually based on actual revenue achievement against certain revenue targets from August 2019 through December 2026, with the first payment due in the first quarter of 2021.

The contingent consideration would be payable annually based on actual revenue achievement against certain revenue targets from August 2019 through December 2026, with the first payment due in the first quarter of 2021.

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

In 2020, the Company paid € 25.0 million to the former owner of ARGES in deferred cash consideration and to settle working capital.

In 2020, the Company paid € 25.0 million to the former owner of ARGES for the deferred cash consideration and to settle working capital.

The addition of ARGES complements and expands the Company’s existing portfolio of lasers and laser beam steering solutions capabilities within the Photonics reportable segment.

On June 5, 2019, the Company acquired 100 % of the outstanding stock of Med X Change, Inc.

(“Med X Change”), a Bradenton, Florida-based provider of medical grade, high definition and 4K video recording and documentation solutions to OEMs in the medical market.

(“Med X Change”), a Bradenton, Florida-based provider of medical grade, high definition and 4K video recording and documentation solutions to OEMs

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

in the medical market.

The purchase price of $ 21.9 million, net of working capital adjustments, was financed with cash on hand and a $ 21.0 million borrowing under the Company’s revolving credit facility.

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

The contingent consideration will be payable annually based on actual revenue achievement against certain revenue targets from April 2019 through March 2022, with the first payment due in the second quarter of 2020.

The contingent consideration would be payable annually based on actual revenue achievement against certain revenue targets from April 2019 through March 2022, with the first payment due in the second quarter of 2020.

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

The Ingenia purchase and sale agreement requires € 0.8 million ($ 0.9 million) of the purchase price to be held back by the Company for indemnification of certain representations and warranties claims by the Company until the expiration of the holdback agreement in October 2020 .

The Ingenia purchase and sale agreement required € 0.8 million ($ 0.9 million) of the purchase price to be held back by the Company for indemnification of certain representations and warranties claims by the Company until the expiration of the holdback agreement in October 2020 .

The Company released the indemnification holdback in the fourth quarter of 2020.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

The final purchase price for ARGES was allocated as follows (in thousands):

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Initial cash purchase price, net of cash acquired

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

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

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The purchase price allocation resulted in $ 24.7 million of identifiable intangible assets and $ 43.0 million of goodwill.

As the ARGES acquisition was an acquisition of outstanding common shares, none of the resulting goodwill is expected to be deductible for income tax purposes.

As the ARGES acquisition was an acquisition of outstanding common shares, none of the resulting goodwill is 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.

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Loss before income taxes for the year ended December 31, 2019 included amortization of inventory fair value adjustments and purchased intangible assets of $ 2.2 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

The pro forma financial information reflecting the operating results of ARGES, as if it had been acquired as of January 1, 2018, would not differ materially from the operating results of the Company as reported for the year ended December 31, 2018.

Med X Change and Ingenia

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Net cash used for acquisition of businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

The fair value of intangible assets for Med X Change and Ingenia is comprised of the following (dollar amounts in thousands):

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(i) the ability of Med X Change and Ingenia to grow the business with existing and new customers, including leveraging the Company’s customer base;

(ii) their ability to grow the businesses

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

through new product introductions;

(ii) their ability to grow the businesses through new product introductions;

and (iii) cost improvements due to the integration of Med X Change and Ingenia operations into the Company’s existing infrastructure.

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Income before income taxes for the year ended December 31, 2019 included amortization of inventory fair value adjustments and purchased intangible assets of $ 1.5 million.

The pro forma financial information reflecting the operating results of Med X Change and Ingenia, as if they had been acquired as of January 1, 2018, would not differ materially from the operating results of the Company as reported for the year ended December 31, 2018.

2018 Acquisitions

During the year ended December 31, 2018, the Company acquired two businesses for total cash considerations of $ 33.5 million, including the acquisition of Zettlex Holdings Limited ("Zettlex").

The consolidated statement of operations includes the operating results of the businesses from the dates of acquisition.

On May 1, 2018, the Company acquired 100 % of the outstanding stock of Zettlex, a Cambridge, United Kingdom-based provider of inductive encoder products that provide absolute and accurate positioning, even in extreme operating environments, to OEMs in the medical and advanced industrial markets.

The purchase price of £ 23.3 million ($ 32.0 million), net of working capital adjustments, was financed with cash on hand and borrowings under the Company’s revolving credit facility.

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

Accounts receivable

Property, plant and equipment

Intangible assets

Total assets acquired

Accounts payable

Accrued expenses and other liabilities

Deferred tax liabilities

Total liabilities assumed

Total assets acquired, net of liabilities assumed

cash acquired

Total purchase price, net of cash acquired

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

The fair value of intangible assets 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 $ 14.6 million of identifiable intangible assets and $ 11.8 million of goodwill.

As the Zettlex acquisition was an acquisition of outstanding common shares, none of the resulting goodwill is 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) Zettlex’s ability to grow its business with existing and new customers, including leveraging the Company’s customer base;

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

The operating results of Zettlex were included in the Company’s results of operations beginning on May 1, 2018.

Zettlex contributed revenues of $ 8.3 million and a loss before income taxes of $ 1.8 million for the year ended December 31, 2018.

Loss before income taxes for the year ended December 31, 2018 included amortization of purchased intangible assets of $ 1.3 million and compensation expense of $ 4.4 million recognized under earn-out agreements.

Zettlex is included in the Company’s Precision Motion reportable segment.

Acquisition Costs

The Company did no t consummate an acquisition during 2020.

The Company recognized acquisition costs of $ 1.6 million and $ 1.1 million in the years ended December 31, 2019 and 2018, respectively, related to the acquisitions that occurred during these years.

The Company recognized acquisition costs of $ 5.0 million, zero and $ 1.6 million in the years ended December 31, 2021, 2020 and 2019, respectively, related to the acquisitions that occurred during these years.

These costs consisted of finders’ fees, legal, valuation and other professional or consulting fees.

These amounts were included in restructuring and acquisition related costs in the consolidated statements of operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Accumulated Other Comprehensive Loss

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Balance at December 31, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

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

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

Goodwill, Intangible Assets and Impairment Charges

2 unchanged sentences

Balance at beginning of year

Goodwill adjustment from acquisitions

Goodwill from current year acquisitions

Effect of foreign exchange rate changes

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Accumulated impairment of goodwill

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Intangible Assets

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Customer relationships

Customer backlog

Trademarks and trade names

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Non-amortizable intangible assets:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

December 31, 2020

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Customer relationships

Customer backlog

Trademarks and trade names

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Year Ending December 31,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Impairment Charges

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Unobservable inputs

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Current Assets and Liabilities

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Contingent Considerations

On August 30, 2021, the Company acquired ATI.

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

The contingent consideration will be payable in 2022.

The preliminary fair value of the contingent consideration 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.

On July 31, 2019, the Company acquired ARGES.

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The estimated fair value of the contingent consideration of € 7.1 million ($ 7.9 million) was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date.

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

Based on revenue performance through December 31, 2020 and the most recent revenue projections for fiscal years 2021 to 2026, the fair value of the contingent consideration was adjusted to € 4.1 million ($ 5.1 million), of which € 0.4 million ($ 0.4 million) is expected to be paid in the first quarter of 2021 and is recorded in accrued expenses and other current liabilities.

The remaining fair value is reported as a long-term liability in other liabilities on the consolidated balance sheet as of December 31, 2020.

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.

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 year ended December 31, 2021.

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

There were no other changes in the fair value of the contingent consideration during the year ended December 31, 2021.

On April 16, 2019, the Company acquired Ingenia.

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

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

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

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

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

The first payment of € 1.0 million ($ 1.1 million) was made in the second quarter of 2020.

Based on revenue performance through December 31, 2020 and the most recent revenue projections for fiscal years 2021 to 2022, the fair value of the remaining contingent consideration was adjusted to € 2.3 million ($ 2.9 million), of which € 1.3 million ($ 1.6 million) is expected to be paid in the second quarter of 2021 and is recorded in accrued expenses and other current liabilities.

The remaining fair value is reported as a long-term liability in other liabilities on the consolidated balance sheet as of December 31, 2020.

If the revenue targets are achieved, the contingent consideration would be payable in cash in three annual

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

installments from 2020 to 2022.

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

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.

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).

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

Under the purchase and sale agreement, the owners are eligible to receive contingent consideration based on the achievement of certain revenue targets by the Company from 2018 to 2021 from products utilizing the acquired technologies.

Under the purchase and sale agreement, the former owners are eligible to receive contingent consideration based on the achievement of certain revenue targets by the Company from 2018 to 2021 from products utilizing the acquired technologies.

The undiscounted range of possible contingent consideration is zero to € 5.5 million ($ 6.6 million).

If the revenue targets are achieved, the contingent consideration would be payable in four installments from 2019 to 2022.

If the revenue targets are achieved, the contingent consideration would be payable in cash in four installments from 2019 to 2022.

As the acquired assets did not meet the definition of a business, the fair value of the contingent consideration is recognized when probable and estimable and is capitalized as part of the cost of the acquired assets.

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

The first payment of € 2.4 million ($ 2.6 million) was made in the first quarter of 2020.

Based on revenue performance as of December 31, 2020 and the most recent revenue projections for fiscal year 2021, the fair value of the remaining contingent consideration was adjusted to € 2.9 million ($ 3.6 million), of which € 1.9 million ($ 2.3 million) will be paid in the first quarter of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

2021 and is r eported in accrued expenses and other current liabilities .

T he remaining fair value is reported as a long-term liability in other liabilities on the consolidated balance sheet as of December 31, 2020.

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

The Company made the first installment payment of € 2.4 million ($ 2.6 million) 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.

As of December 31, 2021, the Company recorded a current liability of € 1.2 million ($ 1.4 million) for the third and last installment payment, which is expected to be paid in March 2022.

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 (in thousands):

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Contingent considerations - Long-term

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 (in thousands):

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During the years ended December 31, 2021 and 2020, there were no transfers between fair value levels.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Changes in the fair value of Level 3 contingent considerations for the year ended December 31, 2021 were as follows (in thousands):

1 unchanged sentence

Balance at December 31, 2020

Acquisition of ATI

Fair value adjustments

1 unchanged sentence

Balance at December 31, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

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

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Percentage Applied

Contingent consideration (ATI)

Monte Carlo method

Historical and projected Adjusted EBITDA for the full year 2021

EBITDA risk premium

EBITDA volatility

Credit spread

Contingent consideration (ARGES)

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Furthermore, the Company manages its exposure 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 December 31, 2020, the 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.

As of December 31, 2021, the 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

As of December 31, 2020, the 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.

For the years ended December 31, 2021, 2020 and 2019, the Company recognized aggregate net gains of $ 1.3 million, $ 1.3 million and $ 0.8 million, respectively, from the settlement of foreign currency forward contracts, which were included in foreign exchange transaction gains (losses) in the consolidated statements of operations.

Earnings per Common Share

Basic earnings per common share is computed by dividing net income attributable to Novanta Inc., after redeemable noncontrolling interest redemption value adjustment, if any, by the weighted average number of common shares outstanding during the year.

Prior to the acquisition of the remaining noncontrolling interest in Laser Quantum in September 2018, the Company recognized changes in the redeemable noncontrolling interest redemption value by adjusting the carrying amount of the redeemable noncontrolling interest as of the end of the period to the higher of:

(i) the estimated redemption value assuming the end of the period was also the redemption date or (ii) the carrying value without any redemption value adjustments.

Such adjustments were recorded in retained earnings in stockholders’ equity instead of net income attributable to Novanta Inc.

However, for both basic and diluted earnings per common share, such redemption value adjustments were included in the calculation of the numerator for 2018.

For diluted earnings per common share, the denominator includes the dilutive effects of outstanding restricted stock units, stock options, total shareholder return performance-based restricted stock units and certain non-GAAP EPS performance-based restricted stock units, determined using the treasury stock method.

Basic earnings per common share is computed by dividing consolidated net income by the weighted average number of common shares outstanding during the year.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

For diluted earnings per common share, the denominator includes the dilutive effect s of outstanding restricted stock units and stock options, determined using the treasury stock method .

The dilutive effects of market-based contingently issuable shares are included in the weighted average dilutive 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 .

The dilutive effects of attainment-based contingently issuable shares granted to the former Laser Quantum noncontrolling interest shareholders and non-GAAP EPS performance-based restricted stock units are included in the weighted average dilutive share calculation after the performance targets have been achieved.

The d ilutive effects of attainment-based contingently issuable shares granted to the former Laser Quantum Limited noncontrolling interest shareholders and non-GAAP EPS performance-based restricted stock units and cumulative operating cash flow performance-based restricted stock units granted to certain members of the executive management team are included in the weighted average dilutive share calculation only 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 (in thousands, except per share amounts):

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Consolidated net income

Net income attributable to noncontrolling interest

Net income attributable to Novanta Inc.

Redeemable noncontrolling interest redemption value adjustment

Net income attributable to Novanta Inc.

after adjustment for redeemable noncontrolling interest redemption value

Denominators:

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Antidilutive potential common shares excluded from above

Earnings per Common Share Attributable to Novanta Inc.:

For the year ended December 31, 2020, 45 non-GAAP EPS performance-based restricted stock units granted to certain members of the executive management team and 213 shares of restricted stock issued to Laser Quantum former 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 December 31, 2020.

For the year ended December 31, 2019, 46 non-GAAP EPS performance-based restricted stock units granted to certain members of the executive management team and 213 shares of restricted stock issued to Laser Quantum former 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 December 31, 2019.

Earnings per Common Share:

For the year ended December 31, 2021, 45 shares of non-GAAP EPS performance-based restricted stock units and 37 shares of operating cash flow performance-based restricted stock units granted to certain members of the executive management team and 213 shares of restricted stock issued to Laser Quantum former 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 December 31, 2021.

For the year ended December 31, 2020, 45 shares of non-GAAP EPS performance-based restricted stock units granted to certain members of the executive management team and 213 shares of restricted stock issued to Laser Quantum former 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 December 31, 2020.

For the year ended December 31, 2019, 46 shares of non-GAAP EPS performance-based restricted stock units granted to certain members of the executive management team and 213 shares of restricted stock issued to Laser Quantum former 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 December 31, 2019.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

For the year ended December 31, 201 8 , 54 non-GAAP EPS performance-based restricted stock units granted to certain members of the executive management team and 213 shares of restricted stock issued to Laser Quantum former 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 December 31, 201 8 .

Supplementary Balance Sheet Information

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Property, plant and equipment, net

The Company capitalized software development costs of less than $ 0.1 million, $ 0.2 million and $ 1.1 million in 2020, 2019 and 2018, respectively, in accordance with the guidance in ASC 350-40, “Internal-Use Software.”

The following table summarizes depreciation expense on property, plant and equipment, including demo units and assets under finance leases (in thousands):

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Depreciation expense

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Accrued Expenses and Other Current Liabilities

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Accrued compensation and benefits

Contingent consideration and earn-outs

Accrued contingent considerations and earn-outs

Finance lease obligations

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Accrued warranty

Deferred purchase price for acquisitions

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Accrued Warranty

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Accrued contingent considerations and earn-outs

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Debt consisted of the following (in thousands):

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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 DECEMBER 31, 2021

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.

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 the Company’s 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 the Company’s consolidated leverage ratio.

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and (iv) limitations on indebtedness, investments, and liens.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

The Third Amended and Restated Credit Agreement also requires the Company to satisfy certain financial covenants, such as maintaining a minimum consolidated fixed charge coverage ratio of 1.50 :1 .

00 and a maximum consolidated leverage ratio of 3.50 :1 .

The maximum consolidated leverage ratio will increase to 4.00 :1 .

00 for four consecutive quarters following an acquisition with an aggregate consideration greater than or equal to $ 50.0 million.

The Third Amended and Restated Credit Agreement also requires the Company to satisfy certain financial covenants, such as maintaining a minimum consolidated fixed charge coverage ratio of 1.50 :1.00 and a maximum consolidated leverage ratio of 3.50 :1.00.

The maximum consolidated leverage ratio will increase to 4.00 :1.00 for four consecutive quarters following an acquisition with an aggregate consideration greater than or equal to $ 50.0 million .

As of December 31, 2021, the outstanding principal under the Company’s term loan facility is scheduled to be repaid as follows (in thousands):

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Each Guarantor, jointly and severally, unconditionally guarantees the due and punctual payment of the principal, interest and fees under the Senior Credit Facilities, when due and payable, whether at maturity, by required prepayment, by acceleration or otherwise.

In addition, Guarantors guarantee the due and punctual payment, fees and interest on the overdue principal of the Senior Credit Facilities and the due and punctual performance of all obligations of the Company in accordance with the terms of the Third Amended and Restated Credit Agreement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Furthermore, each Guarantor, jointly and severally, unconditionally guarantees that in the event of any extension, renewal, amendment, refinancing or modification of any of the Senior Credit Facilities, amounts due will be promptly paid in full when due in accordance with the terms of the extension or renewal, at stated maturity, by acceleration or otherwise.

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or (ii) payment in full of the principal and accrued and unpaid interest on the Senior Credit Facilities and all other obligations.

The maximum potential amount of future payments the Guarantors could be required to make under the Guarantee is the principal amount of the Senior Credit Facilities plus all accrued and unpaid interest thereon.

The maximum potential amount of future payments that the Guarantors could be required to make under the Guarantee is the principal amount of the Senior Credit Facilities plus all accrued and unpaid interest thereon.

However, as of December 31, 2021, the Guarantors were not expected to be required to perform under the Guarantee.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

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.

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Deferred Financing Costs

In connection with the execution of the Third Amended and Restated Credit Agreement and the First Amendment, the Company capitalized an additional $ 4.3 million of deferred financing costs.

In connection with the execution of the Third Amended and Restated Credit Agreement, the First Amendment, and the Fourth Amendment, the Company capitalized an additional $ 5.2 million of deferred financing costs.

The Company allocated these costs between the term loan and the revolving credit facility based on the maximum borrowing capacity and amortizes the costs on a straight-line basis over the term of the Senior Credit Facilities.

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

The following table summarizes the components of lease costs included in the statements of operations for the periods indicated (in thousands):

Year Ended December 31,

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Total lease cost

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

The following table provides the details of balance sheet information related to leases as of the date indicated (in thousands, except lease term and discount rate):

The following table provides the details of balance sheet information related to leases as of the dates indicated (in thousands, except lease term and discount rate):

Operating leases:

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Finance leases

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

The following table provides the details of cash flow information related to leases for the periods indicated (in thousands):

Year Ended December 31,

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

During the year ended December 31, 2021, the Company paid $ 8.7 million upon the exercise of an option to purchase a building under a finance lease agreement in Germany.

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

Future minimum lease payments under operating and finance leases expiring subsequent to December 31, 2021, including operating leases associated with facilities that have been vacated as a result of the Company’s restructuring actions, are summarized as follows (in thousands):

Year Ended December 31,

Year Ending December 31,

Operating Leases

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Present value of lease liabilities

Future minimum lease payments under finance leases include the exercise price of an option to purchase a facility in Germany exercised by the Company in December 2020 and expected to close in March 2021.

Common Shares and Share-Based Compensation

Capital Shares

The authorized capital of the Company consists of an unlimited number of common shares without nominal or par value.

Stockholders’ Equity and Share-Based Compensation

Preferred Shares

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

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

As of December 31, 2021, no preferred shares had been issued and outstanding.

Common Shares

The Company has an unlimited number of non-par value common shares authorized for issuance.

Holders of common shares are entitled to one vote per share.

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The Company’s Board of Directors may approve share repurchase plans from time to time.

Under these repurchase plans, shares may be repurchased at the Company’s discretion based on ongoing assessment of the capital needs of the business, the market price of the Company’s common shares, and general market conditions.

Shares may also be repurchased through an accelerated share purchase agreement, on the open market or in privately negotiated transactions in accordance with applicable federal securities laws.

Under these repurchase plans, shares may be repurchased at the Company’s discretion based on ongoing assessment of the capital needs of the business, market prices of the Company’s common shares, and general market conditions.

Shares may also be repurchased through an accelerated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

share purchase agreement, on the open market or in privately negotiated transactions in accordance with applicable federal securities laws.

Repurchases may be made under certain SEC regulations, which would permit common shares to be repurchased when the Company would otherwise be prohibited from doing so under insider trading laws.

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In October 2018, the Company’s Board of Directors approved a share repurchase plan (the “2018 Repurchase Plan”) authorizing the repurchase of $ 25.0 million worth of common shares.

During 2018, the Company repurchased 89 thousand shares in the open market for an aggregate purchase price of $ 5.9 million at an average price of $ 65.43 per share.

As of December 31, 2018, the Company had repurchased an aggregate of 385 thousand shares for an aggregate purchase price of $ 10.0 million at an average price of $ 25.97 per share.

As of December 31, 2018, the Company had completed the 2013 Repurchase Plan.

In October 2018, the Company’s Board of Directors approved a share repurchase plan (the “2018 Repurchase Plan”) authorizing the repurchase of $ 25.0 million worth of common shares.

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

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The Company had $ 9.5 million available for share repurchases under the 2018 Repurchase Plan as of December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

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 common shares, effective after the completion of the 2018 Repurchase Plan.

No shares have been repurchased under the 2020 Repurchase Plan to date.

As of December 31, 2021, the Company had $ 59.5 million available under the 2018 and 2020 share repurchase plans for future share repurchases.

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

2010 Incentive Award Plan

In November 2010, the Company’s shareholders approved the 2010 Incentive Award Plan under which the Company may grant share-based compensation awards to employees, consultants and directors.

In May 2014, the Company’s shareholders approved the amended and restated 2010 Incentive Award Plan and, in July 2016, the Company approved a further amended and restated 2010 Incentive Award Plan (as amended, the “Amended and Restated 2010 Incentive Plan”).

In May 2021, the Company’s shareholders approved an amended and restated 2010 Incentive Award Plan (as amended, the “Amended and Restated 2010 Incentive Plan”).

The maximum number of shares which can be issued pursuant to the Amended and Restated 2010 Incentive Plan is 6,148,613 , subject to adjustment as set forth in the Amended and Restated 2010 Incentive Plan.

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The Amended and Restated 2010 Incentive Plan provides for specific limits on the number of shares with respect to Awards that may be granted to any person during any calendar year and the amount of cash that can be paid with respect to Awards to any one person during any calendar year.

The Amended and Restated 2010 Incentive Plan will expire and no further Awards may be granted after April 9, 2024 .

The Amended and Restated 2010 Incentive Plan will expire and no further Awards may be granted after May 13, 2031 .

As of December 31, 2021, there were 2,242,880 shares available for future awards under the Amended and Restated 2010 Incentive Plan.

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Shares issued to satisfy Awards under the Amended and Restated 2010 Incentive Plan may be previously authorized but unissued shares, treasury shares or shares repurchased on the open market.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Share-Based Compensation Expense

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The expense recorded during each of the three years ended December 31, 2021, 2020 and 2019 included $ 1.1 million, $ 1.0 million and $ 0.9 million, respectively, related to restricted stock units and deferred stock units granted to the members of the Company’s Board of Directors.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

On April 15, 2020 , the Company issued to all employees , other than the Chief Executive Officer, the Chief Financial Officer, the Chief Human Resources Officer, and the Chief Accounting Officer, a special one-time restricted stock unit grant at a total fair value of $ 14.4 million in the aggregate.

The restricted stock units vested o n February 16, 2021 .

As of December 31, 2021, the Company’s outstanding equity awards for which compensation expense will be recognized in the future consisted of time-based restricted stock units and performance stock units granted under the Amended and Restated 2010 Incentive Plan.

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Restricted Stock Units and Deferred Stock Units

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

The Company’s restricted stock units (“RSUs”) have generally been issued to employees 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.

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The total fair value of restricted stock units and deferred stock units that vested in 2021, based on the market price of the underlying shares on the day of vesting, was $ 68.5 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Performance Stock Units

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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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

The number of common shares to be issued upon settlement following vesting of the TSR-PSUs is determined based on the relative market performance of the Company’s common stock compared to the Russell 2000 Index over the three-year performance period using a payout formula established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200 % of the target number of shares.

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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 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

The table below summarizes activities during 2021 relating to performance-based stock awards issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan:

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The amount shown represents performance adjustments for performance-based awards granted on February 22, 2018.

These units vested at 200 % during 2020 based on the achievement of cumulative Non-GAAP EPS and applicable relative TSR performance conditions during the performance period of fiscal years 2017 through 2019.

These awards vested at 160 % of target number of shares during 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 in 2021, based on the market price of the underlying shares on the date of vesting, was $ 9.3 million.

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

Year Ended December 31, 2020

December 31, 2021

Grant-date stock price

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AS OF DECEMBER 31, 2021

The following table shows stock options that were outstanding, exercisable and expected to vest as of December 31, 2020 and the related weighted average exercise price, weighted average remaining contractual term and aggregate intrinsic value:

The following table shows stock options that were outstanding and exercisable as of December 31, 2021 and the related weighted average exercise price, weighted average remaining contractual term and aggregate intrinsic value:

Number of Shares

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The aggregate intrinsic value is calculated as the difference between the closing market price of $ 176.33 per share of the Company’s common stock on December 31, 2021 and the exercise price of the stock options.

The total intrinsic value of stock options exercised in 2020, based on the difference between the market price on the date of exercise and the date of grant, was $ 1.0 million.

The total amount of cash received from the exercise of these stock options was $ 0.2 million.

The Company did no t record any income tax deductions from the stock options exercised in 2020 as these were non-qualified stock options.

Employee Benefit Plans

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Weighted-average long-term rate of return on plan assets

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

The actuarial assumptions used to compute the benefit obligations as of December 31, 2021 and 2020, respectively, were as follows:

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Rate of inflation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

The discount rates used are derived from (AA) corporate bonds that have maturities approximating the terms of the pension obligations under the U.K.

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Benefits paid

Prior service cost

Foreign currency exchange rate changes

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Net actuarial gains (losses) during the year

Prior service cost arising during the year

Amounts reclassified from accumulated other comprehensive income to income before income taxes

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Net actuarial losses

(1) Fiscal year 2020 and 2019 actuarial losses in the U.K.

Plan primarily resulted from changes in the discount rate assumptions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

(1) Actuarial (gains)/losses in the U.K.

Plan for the years ended December 31, 2021 and 2020, respectively, primarily resulted from changes in the discount rate assumptions.

The funded status of the U.K.

Plan is included in other long term liabilities in the accompanying consolidated balance sheets.

Plan was included in other long term assets on the accompanying consolidated balance sheet as of December 31, 2021 and in other long term liabilities as of December 31, 2020.

The following table reflects the total expected benefit payments to plan participants for each of the next five years and the following five years in aggregate and have been estimated based on the same assumptions used to measure the Company’s benefit obligations as of December 31, 2021 (in thousands):

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

In the U.K., funding valuations are conducted every three years in order to determine the future level of contributions.

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This class comprises a diversified portfolio of global investments which seeks fixed income growth and is allocated on a weighted average basis as follows:

bonds ( 83 %) and other assets ( 16 %) and cash ( 1 %).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

bonds ( 88 %), other assets ( 6 %), and cash ( 6 )%.

The following table summarizes the fair values of Plan assets by asset category as of December 31, 2020 (in thousands):

10 unchanged sentences

bonds ( 83 %), other assets ( 16 %) and cash ( 1 %).

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Components of the Company’s income (loss) before income taxes are as follows (in thousands):

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Effective tax rate

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Deferred income taxes result principally from temporary differences in the recognition of certain revenue and expense items and operating loss and tax credit carryforwards for financial and tax reporting purposes.

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Operating lease right-of-use assets

Deferred revenue

Total deferred tax liabilities

Net deferred income tax assets (liabilities)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

In determining its income tax provisions, the Company calculated deferred tax assets and liabilities for each separate jurisdiction.

The Company then considered a number of factors, including positive and negative evidence related to the realization of its deferred tax assets, to determine whether a valuation allowance should be recognized with respect to its deferred tax assets.

In 2020, the Company reversed valuation allowance of $ 0.7 million recorded on net operating losses and other timing items in certain tax jurisdictions due to current and forecasted taxable income.

In 2019, the Company reversed valuation allowance of $ 0.5 million recorded on net operating losses and other timing in certain tax jurisdictions due to taxable income generated during the year.

In 2018, the Company recorded an additional $ 0.4 million valuation allowance associated with an increase in deferred tax assets in Canada.

In 2021, the Company recorded an additional $ 0.9 million valuation allowance.

In 2020, the Company reversed valuation allowance of $ 0.7 million recorded on net operating losses and other timing items in certain tax jurisdictions due to current and forecast taxable income.

In 2019, the Company reversed valuation allowance of $ 0.5 million recorded on net operating losses and other timing items in certain tax jurisdictions due to taxable income generated during the year.

Valuation allowance continues to be provided on the remaining balances of certain U.S.

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

As of December 31, 2020, the Company had net operating loss carryforwards of $ 3.1 million (tax effected) available to reduce future taxable income.

Of this amount, approximately $ 0.9 million relates to the U.S.

and expires through 2037 ;

and $ 2.1 million relates to Canada and expires starting in 2033 .

In addition, the Company had capital loss carryforwards of $ 5.7 million, which had a full valuation allowance.

As of December 31, 2021, the Company had net operating loss carryforwards of $ 3.5 million (tax effected).

Of this amount, approximately $ 2.9 million relates to Canada and begin to expire starting in 2033 and have a full valuation allowance.

The remainder $ 0.6 million relates to various U.S.

and other foreign jurisdictions, of which $ 0.2 million can be carried forward indefinitely and the remaining $ 0.4 million will begin to expire in 2022 through 2036 .

In addition, the Company had capital loss carryforwards of $ 5.9 million, which can be carried forward indefinitely and have a full valuation allowance.

Of this amount, $ 5.1 million and $ 0.8 million related to Canada and the U.K, respectively.

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Of this amount, $ 5.1 million and $ 0.6 million related to Canada and the U.K, respectively.

As of December 31, 2020, the Company had tax credit carryforwards of approximately $ 3.3 million available to reduce income taxes in future years.

Approximately $ 1.4 million relates to the U.S.

state tax credits, of which $ 1.3 million will expire through 2035 and $ 0.1 million can be carried forward indefinitely.

The remaining $ 1.9 million tax credit carryforwards were related to Canada, of which $ 1.2 million expires through 2022 and $ 0.7 million can be carried forward indefinitely.

As of December 31, 2021, the Company had tax credit carryforwards of approximately $ 3.8 million.

Approximately $ 2.6 million relate primarily to the U.S.

and other immaterial foreign jurisdictions and will expire through 2042 .

The remaining $ 1.2

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

million tax credit carryforwards were related to Canada, of which $ 0.5 million expires through 2022 and $ 0.7 million can be carried forward indefinitely.

As of December 31, 2020, the Company had tax credit carryforwards of approximately $ 3.3 million available to reduce income taxes in future years.

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The remaining $ 1.9 million tax credit carryforwards were related to Canada, of which $ 1.2 million expires through 2022 and $ 0.7 million can be carried forward indefinitely.

Income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting purposes over the tax basis of investments in foreign subsidiaries that are essentially permanent in nature.

This amount becomes taxable upon a repatriation of assets from a subsidiary or a sale or liquidation of a subsidiary.

Income and foreign withholding taxes have not been recognized on the excess of the amount recognized for financial reporting purposes over the tax basis of investments in foreign subsidiaries that are essentially permanent in nature.

The excess amount becomes taxable upon a repatriation of assets from a subsidiary or a sale or liquidation of a subsidiary.

The amount of undistributed earnings of foreign subsidiaries totaled $ 266.1 million as of December 31, 2021.

The estimated unrecognized income tax and foreign withholding tax liability on this temporary difference is approximately $ 4.0 million.

As of December 31, 2020, the Company’s total amount of gross unrecognized tax benefits was $ 5.3 million, of which $ 5.0 million would favorably affect the effective tax rate if benefited.

Over the next twelve months, the Company may need to record up to $ 0.5 million of previously unrecognized tax benefits due to statute of limitations closures.

As of December 31, 2021, the Company’s total amount of unrecognized tax benefits was $ 4.8 million, of which $ 4.6 million would favorably affect the effective tax rate if benefited.

Over the next twelve months, the Company may need to reverse up to $ 0.5 million of previously recorded unrecognized tax benefits due to statute of limitations closures.

The Company believes there are no jurisdictions in which the outcome of unresolved issues or claims is likely to be material to its results of operations, financial position or cash flows.

Furthermore, the Company believes that it has adequately provided for all significant income tax uncertainties.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

The reconciliation of the total amounts of unrecognized tax benefits is as follows (in thousands):

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As of December 31, 2021 and 2020, the Company had approximately $ 0.6 million and $ 0.7 million, respectively, of accrued interest and penalties related to uncertain tax positions.

During the years ended December 31, 2020, 2019 and 2018, the Company recognized $ 0.2 million, $ 0.1 million and $ 0.1 million, respectively, of expense for an increase in interest and penalties related to uncertain tax positions.

During the years ended December 31, 2021, 2020 and 2019, the Company recognized ($ 0.1 ) million, $ 0.2 million and $ 0.1 million, respectively, of expense for an increase (decrease) in interest and penalties related to uncertain tax positions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

The Company files income tax returns in Canada, the U.S., and various foreign jurisdictions.

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2016 - Present

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Restructuring and Acquisition Related Costs

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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.

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

In 2021, the Company recorded $ 8.1 million in severance and other costs in connection with the 2020 restructuring program.

The Company anticipates completing the 2020 restructuring program in the fourth quarter of 2021 and expects to incur additional restructuring charges of $ 4.0 million to $ 5.0 million related to the 2020 restructuring program in the next twelve months.

The Company anticipates completing the 2020 restructuring program in the fourth quarter of 2022 and expects to incur additional restructuring charges between $ 3.5 million and $ 4.5 million related to the 2020 restructuring program in the next twelve months.

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

Year Ended December 31,

Cumulative Costs as of

December 31, 2021

December 31, 2020

Precision Motion

Unallocated Corporate and Shared Services

2019 Restructuring

During the fourth quarter of 2018, the Company implemented a restructuring plan intended to realign operations, reduce costs, achieve operational efficiencies and focus resources on growth initiatives.

In 2020, the Company recorded $ 0.1 million in severance and related costs, $ 0.5 million in facility related cost and $ 0.4 million of other costs in connection with the 2019 restructuring plan.

The Company anticipates completing the 2019 restructuring program in the first quarter of 2021 and expects to incur additional restructuring charges of $ 0.1 million to $ 0.2 million related to the 2019 restructuring program in the next twelve months.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

The following table summarizes restructuring costs associated with the 2019 restructuring program by reportable segment (in thousands):

Cumulative Costs

December 31, 2020

December 31, 2019

December 31, 2018

December 31, 2020

Precision Motion

Unallocated Corporate and Shared Services

2019 Restructuring

During the second quarter of 2018, the Company initiated a program to integrate manufacturing operations as a result of acquisition activities.

In 2021, the Company recorded $ 0.2 million in severance and related costs in connection with the 2019 restructuring plan.

The plan was completed in 2020.

The following table summarizes restructuring costs associated with the 2018 restructuring program by reportable segment (in thousands):

Cumulative Costs

December 31, 2020

December 31, 2019

December 31, 2018

December 31, 2020

Precision Motion

Unallocated Corporate and Shared Services

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 the first quarter of 2021.

Rollforward of Accrued Expenses Related to Restructuring

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

Employee Related

Facility Related

Balance at December 31, 2019

1 unchanged sentence

Cash payments

Reclassification of reserves (2)

Non-cash write-offs and other adjustments

4 unchanged sentences

Balance at December 31, 2021

Other restructuring charges mainly related to consulting fees and relocation costs.

Accruals related to facilities exited prior to January 1, 2019 were reclassified to operating lease liabilities upon adoption of ASU 2016-02.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Non-cash write-offs included impairment of operating lease right-of-use assets amounting to $ 2.6 million associated with the cessations of use of certain leased facilities.

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

Acquisition and Related Charges

Acquisition related costs incurred in connection with business combinations, primarily including finders’ fees, legal, valuation and other professional or consulting fees, totaled $ 0.6 million, $ 5.3 million, and $ 1.4 million during 2020, 2019, and 2018, respectively.

During 2020, the Company incurred $ 1.7 million in legal costs related to a dispute involving a company that was acquired in 2019.

Acquisition and related costs incurred in connection with business combinations, primarily including finders’ fees, legal, valuation and other professional or consulting fees, totaled $ 5.9 million, $ 0.6 million, and $ 5.3 million during 2021, 2020, and 2019, respectively.

The Company incurred $ 1.9 million and $ 1.7 million in legal costs related to a dispute involving a company that was acquired in 2019 during 2021 and 2020, respectively.

Acquisition related costs recognized under earn-out agreements in connection with acquisitions totaled $ 1.9 million, $( 3.0 ) million, and $ 2.6 million during 2021, 2020, and 2019, respectively.

8 unchanged sentences

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

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

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

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

The 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 other legal proceedings and claims that arise in the ordinary course of business.

1 unchanged sentence

If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable.

Significant judgment is required in both the determination of probability and the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

determination as to whether an exposure is reasonably estimable.

Because of uncertainties related to these matters, accruals are based only on the best information available as of the date of the consolidated balance sheet.

9 unchanged sentences

The indemnification agreements also set out the procedures for determining entitlement to indemnification, the requirements relating to notice and defense of claims for which indemnification is sought, the procedures for enforcement of indemnification rights, the limitations on and exclusions from indemnification, and the minimum levels of directors’ and officers’ liability insurance to be maintained by the Company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

On July 1, 2013, the Company provided a Guarantee (the “Guarantee”) in favor of the trustees of the U.K.

11 unchanged sentences

The Company’s Chief Operating Decision Maker (“CODM”) is our Chief Executive Officer.

Our CODM utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company.

The CODM utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company.

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

The Company’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’s reportable segments have been identified based on commonality and adjacency of technologies, applications and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

customers amongst the Company’s individual product lines.

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

8 unchanged sentences

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;

5 unchanged sentences

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 DECEMBER 31, 2020

Precision Motion

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

The Precision Motion segment designs, manufactures and markets optical and inductive encoders, precision motors, 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.

7 unchanged sentences

Unallocated Corporate and Shared Services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Year Ended December 31,

6 unchanged sentences

Unallocated Corporate and Shared Services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Accounts Receivable

12 unchanged sentences

Intangible assets, net

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2021

Geographic Information

5 unchanged sentences

Rest of Asia-Pacific

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

AS OF DECEMBER 31, 2020

Long-lived assets consist of property, plant and equipment, net, and are aggregated based on the location of the assets.

12 unchanged sentences

Significant Customers

During the year ended December 31, 2020, an OEM customer primarily from the Vision segment accounted for approximately 11 % of our consolidated revenue.

No customer accounted for greater than 10% of the Company’s revenue during the years ended December 31, 2019 or 2018.

Supplementary Information

The Company’s interim financial statements are prepared on a quarterly basis ending on the Friday closest to the end of the calendar quarter, with the exception of the fourth quarter which always ends on December 31.

The following tables reflect the Company’s unaudited condensed consolidated statements of operations for each of the quarterly periods in 2020 and 2019 (in thousands except per share data):

Three Months Ended

Cost of revenue

Operating expenses:

Research and development and engineering

Selling, general and administrative

Amortization of purchased intangible assets

Restructuring and acquisition related costs

Total operating expenses

Operating income

Interest income (expense), foreign exchange transaction gains (losses) and other income (expense), net

Income before income taxes

Income tax provision

Earnings per common share:

Three Months Ended

September 27,

Cost of revenue

Operating expenses:

Research and development and engineering

Selling, general and administrative

Amortization of purchased intangible assets

Restructuring and acquisition related costs

Total operating expenses

Operating income

Interest income (expense), foreign exchange transaction gains (losses) and other income (expense), net

Income before income taxes

Income tax provision

Earnings per common share:

No customer accounted for greater than 10% of the Company’s consolidated revenue during the years ended December 31, 2021 and December 31, 2019.

For the year ended December 31, 2020, the Company recognized revenue from an OEM customer in the medical end market which accounted for approximately 11 % of the Company’s consolidated revenue .

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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-K

Item 8. Financial Statements and Supplementary Data