Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the Consolidated Financial Statements and Notes included in Item 8 of this Annual Report on Form 10-K. The MD&A contains certain forward looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. These forward-looking statements include, but are not limited to, our future financial results and our financial condition; our belief that the Purchasing Managers Index may provide an indication of the impact of general economic conditions on our sales into the advanced industrial end market; our strategy; drivers of revenue growth and our growth expectations in various markets; management's plans and objectives for future operations, expenditures and product development, and investments in research and development; business prospects; potential of future product releases and expansion of our product and service offerings; anticipated revenue performance; industry trends; market conditions; our competitive position; the loss of sales, or significant reduction in orders from, any major customers; our ability to contain or reduce costs; changes in economic and political conditions; changes in accounting principles; changes in actual or assumed tax liabilities; expectations regarding tax exposures; anticipated reinvestment of future earnings and dividend policy; anticipated expenditures in regard to the Company's benefit plans; future acquisitions and integration and anticipated benefits from acquisitions and dispositions; anticipated economic benefits and expected costs of restructuring programs; ability to repay our indebtedness; our intentions regarding the use of cash; expectations regarding legal and regulatory requirements, including environmental requirements, and our compliance thereto; and other statements that are not historical facts. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various important factors, including those set forth in Item 1A of this Annual Report on Form 10-K under the heading "Risk Factors." The words "anticipates," "believes," "expects," "intends," "future," "estimates," "plans," "could," "would," "should," "potential," "continues," and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward looking statements. Readers should not place undue reliance on any such forward looking statements, which speak only as of the date they are made. Management and the Company disclaim any obligation to publicly update or revise any such statements to reflect any change in its expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward looking statements, except as required under applicable law.

Business Overview

Novanta Inc. and its subsidiaries (collectively referred to as the "Company", "Novanta", "we", "us", "our") is a leading global supplier of core technology solutions that give medical, life science, and advanced industrial original equipment manufacturers ("OEMs") a competitive advantage. We combine deep proprietary technology expertise and competencies in precision medicine, precision manufacturing, robotics and automation, and advanced surgery with a proven ability to solve complex technical challenges. This enables us to engineer proprietary technology solutions that deliver extreme precision and performance, tailored to our customers' demanding applications.

End Markets

We primarily operate in two end markets: the medical market and the advanced industrial market.

Medical Market

For the year ended December 31, 2025, the medical market accounted for approximately 53% of our revenue. Revenue from our products sold to the medical market is generally affected by hospital, life science, and other healthcare provider capital spending, growth rates of surgical procedures, changes in regulatory requirements and laws, demand levels for life science automation technology, aggregation of purchasing by healthcare networks, changes in technology requirements, timing of OEM customers' product development and new product launches, changes in customer or patient preferences, and general demographic trends.

Advanced Industrial Market

For the year ended December 31, 2025, the advanced industrial market accounted for approximately 47% of our revenue. Revenue from our products sold to the advanced industrial market is affected by a number of factors, including changing technology requirements and preferences of our customers, productivity or quality investments in a manufacturing environment, the financial condition of our customers, changes in regulatory requirements and laws, and general economic conditions. We believe that the Purchasing Managers Index on manufacturing activities specific to different regions around the world may provide an indication of the impact of general economic conditions on our sales into the advanced industrial market.

Strategy

Our strategy is to drive sustainable, profitable growth through short-term and long-term initiatives, including:

Significant Events and Updates

Tangible Equity Units Issuance

On November 12, 2025 we issued 12,650,000 of our 6.50% tangible equity units (the "Units") at a public offering price of $50.00 per Unit, for an aggregate offering of $632.5 million. We received proceeds of $613.1 million after the deduction of the underwriters fees and other issuance costs. Each Unit is comprised of a prepaid stock purchase contract and a senior amortizing note. Each amortizing note has a principal amount of $8.74 and bears interest at a rate of 6.30% per annum, with a final installment date of November 1, 2028 ("Amortizing Note").

Unless settled early in accordance with the terms of the instruments, and subject to postponement in certain limited circumstances, each prepaid stock purchase contract will automatically settle on November 1, 2028 (the mandatory settlement date) for a number of shares of the Company's common stock based on the arithmetic average of the volume weighted average price ("VWAPs") of the Company's common stock on each of the 20 consecutive trading days beginning on, and including, the 21st scheduled trading day immediately preceding November 1, 2028 ("Applicable Market Value") with reference to the following settlement rates:

The purchase contracts are mandatorily convertible into a minimum of 4.7 million shares or a maximum of 5.9 million shares of our common stock on the mandatory settlement date (unless redeemed by us or settled earlier at the unit holder's option). The 4.7 million minimum shares are included in the calculation of basic weighted average shares outstanding.

The number of shares included in diluted weighted average shares outstanding related to these stock purchase contracts can vary each period, and is determined based on the Applicable Market Value in that reporting period, based on the above settlement rates. If the Applicable Market Value a reporting period is less than $134.0842 but greater than $107.26, then the number of shares included in diluted weighted average shares outstanding will be based on the weighted-average price per share of common stock over the twenty consecutive trading day period immediately preceding the balance sheet date, or November 1, 2028, for settlement of the stock purchase contracts.

Fourth Amended and Restated Credit Agreement

On June 27, 2025, we entered into the Fourth Amended and Restated Credit Agreement. The Fourth Amended and Restated Credit Agreement amends and restates, in its entirety, the Third Amended and Restated Credit Agreement dated as of December 31, 2019 (the "Third Agreement"). The Fourth Amended and Restated Credit Agreement provides for an aggregate credit facility of approximately $1.0 billion, comprised of a €65.3 million euro-denominated 5-year term loan facility (the "Euro Term Loans"), a $75.0 million U.S. dollar denominated 5-year term loan facility (the "U.S. Term Loans"), and an $850.0 million 5-year revolving credit facility (the "Revolving Facility", and together with the Euro Term Loans and the U.S. Term Loans, collectively, the "Senior Credit Facilities"). The Senior Credit Facilities mature in June 2030 and include an uncommitted "accordion" feature pursuant to which the commitments thereunder may be increased by an additional $350.0 million in aggregate, subject to the satisfaction of certain customary conditions.

Acquisition of Keonn Technologies, S.L.

On April 8, 2025, we acquired 100% of the outstanding stock of Keonn Technologies, S.L. ("Keonn"), a Barcelona, Spain-based leader in Radio-Frequency Identification ("RFID") solutions for a purchase price of €64.8 million ($71.0 million), net of cash acquired, including €4.1 million ($4.5 million) estimated fair value of contingent consideration and €2.0 million ($2.2 million) related to a purchase price holdback. The purchase includes up to €20.0 million ($21.9 million) in contingent consideration payable upon the achievement of certain revenue targets through December 2027. In addition, we have granted equity totaling €9.0 million ($9.9 million) to Keonn employees. Keonn is included in the Medical Solutions reportable segment.

Business Environment

In recent years, the global economy has faced significant challenges, including inflation, supply chain disruptions, business slowdowns, labor shortages, and market volatility, and new and proposed tariffs announced by the U.S. Presidential Administration have introduced additional uncertainty. We address macroeconomic challenges by continuing to execute our strategy. There have been improvements in the supply chain with better on-time deliveries, and recent efforts have successfully addressed talent shortages. However, uncertainty remains about overall macroeconomic conditions due to geopolitical tensions and changes in trade policies.

Economic tensions and changes in trade policies, such as higher tariffs, retaliatory measures, renegotiated free trade agreements, changes in government funding, and the ongoing impact from prolonged inflationary pressures have impacted the global market for our products and the related cost to manufacture.

Overview of Financial Results

Total revenue for 2025 was $980.6 million, an increase of $31.4 million, or 3.3%, versus 2024. This increase was primarily due to revenue from our 2025 acquisition and an increase in revenue in the Automation Enabling Technologies segment, partially offset by a decrease in revenue in the Medical Solutions segment excluding the impact of our 2025 acquisition. The net effect of our current year acquisition resulted in an increase in revenue of $21.8 million, or 2.3%. In addition, foreign currency exchange rate favorably impacted our revenue by $14.6 million or 1.5%, in 2025.

Operating income for 2025 was $94.0 million, a decrease of $16.6 million, or 15.0%, versus 2024. This was primarily attributable to an increase in selling, general and administrative ("SG&A") expenses of $19.7 million, an increase in restructuring, acquisition and related costs of $8.9 million, and an increase in amortization expense of $1.7 million, partially offset by an increase in gross profit of $13.7 million.

Basic earnings per common share ("basic EPS") of $1.47 in 2025 decreased $0.31 from basic EPS of $1.78 in 2024. Diluted earnings per common share ("diluted EPS") of $1.47 in 2025 decreased $0.30 from diluted EPS of $1.77 in 2024. The decreases in basic EPS and diluted EPS were primarily attributable to lower operating income, partially offset by reduced interest expense.

Specific components of our operating results for 2025 and 2024 are further discussed below.

Results of Operations

Information pertaining to fiscal year 2023 results of operations, including a year-over-year comparison with fiscal year 2024, was included in our Annual Report on Form 10-K for the year ended December 31, 2024 under Part II, Item 7, "Management's Discussion and Analysis of Financial Position and Results of Operations," which was filed with the SEC on February 25, 2025.

The following table sets forth external revenue by reportable segment for 2025 and 2024 (dollars in thousands):

Automation Enabling Technologies

Automation Enabling Technologies segment revenue in 2025 increased by $10.2 million, or 2.1%, versus 2024, primarily due to a $30.3 million increase in revenue from our robotics and automation products, partially offset by a $20.0 million decline in revenue from our precision manufacturing products.

Medical Solutions

Medical Solutions segment revenue in 2025 increased $21.1 million, or 4.6%, versus 2024, primarily driven by a $33.7 million increase in revenue from our advanced surgery products, partially offset by a $12.6 million decline in precision medicine products. The decrease in precision medicine product revenue was primarily attributable to lower demand, partially offset by revenue contributions from our 2025 acquisition.

Gross Profit

The following table sets forth the gross profit and gross profit margin for each of our reportable segments for 2025 and 2024 (dollars in thousands):

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

Automation Enabling Technologies

Automation Enabling Technologies segment gross profit for 2025 increased $4.5 million, or 1.9%, versus 2024, primarily due to an increase in revenue. Automation Enabling Technologies segment gross profit margin was 47.8% in 2025, versus a gross profit margin of 47.9% for 2024. The decrease in gross profit margin was primarily attributable to higher tariff costs and temporary cost increases incurred as part of our regionalized manufacturing strategy.

Medical Solutions

Medical Solutions segment gross profit for 2025 increased by $9.7 million, or 5.1%, versus 2024, primarily due to an increase in revenue. Medical Solutions gross profit margin was 41.6% for 2025, versus a gross profit margin of 41.4% for 2024. The increase in gross profit margin was primarily attributable to margin improvements in advanced surgery products, driven by increased factory

utilization and productivity, partially offset by margin declines due to temporary cost increases incurred as part of our regionalized manufacturing strategy and lower factory utilization for precision medicine products. In addition, 2024 gross profit margin included a one-time inventory related charge associated with a product line closure and amortization of inventory fair value adjustment associated with our 2024 acquisition.

Operating Expenses

The following table sets forth operating expenses for 2025 and 2024 (dollars in thousands):

Research and Development and Engineering Expenses

Research and development and engineering ("R&D") expenses are primarily comprised of employee compensation and related expenses and cost of materials for R&D projects.

R&D expenses were $95.5 million, or 9.7% of revenue, in 2025, versus $95.5 million, or 10.1% of revenue, in 2024.

Selling, General and Administrative Expenses

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

SG&A expenses were $195.7 million, or 20.0% of revenue, in 2025, versus $175.9 million, or 18.5% of revenue, in 2024. SG&A expenses increased in terms of total dollars and as a percentage of revenue primarily due to costs associated with the planning and design phase of our financial and operation system implementation, costs incurred in connection with an insurance recovery claim, and increased costs from our 2025 acquisition.

Amortization of Purchased Intangible Assets

Amortization of purchased intangible assets is charged to our Automation Enabling Technologies and our Medical Solutions segments. Amortization of developed technologies is included in cost of revenue in the consolidated statement of operations. Amortization of customer relationships, trademarks, trade names, backlog and other intangibles are included in operating expenses in the consolidated statement of operations.

Amortization of purchased intangible assets, excluding the amortization of developed technologies that is included in cost of revenue, was $27.5 million, or 2.8% of revenue, in 2025, versus $25.8 million, or 2.7% of revenue, in 2024. The increase, in terms of total dollars and as a percentage of revenue, was the result of more acquired intangible assets from our 2025 acquisition, partially offset by certain intangible assets being fully amortized in 2025.

Restructuring, Acquisition and Related Costs

Restructuring, acquisition and related costs primarily relate to our restructuring programs, acquisition related costs incurred for completed acquisitions, acquisition costs related to future potential acquisitions and failed acquisitions, and changes in fair value of contingent considerations.

We recorded restructuring, acquisition and related costs of $22.7 million in 2025, versus $13.7 million in 2024. The increase was primarily attributable to restructuring costs incurred in connection with the 2025 restructuring program, which was undertaken to regionalize our manufacturing footprint and establishing manufacturing centers of excellence to better serve our customers, as well as higher acquisition and related expenses associated with a 2025 acquisition. These increases were partially offset by a gain on the sale of an owned facility.

Operating Income (Loss) by Segment

The following table sets forth operating income (loss) by segment for 2025 and 2024 (in thousands):

Automation Enabling Technologies

Automation Enabling Technologies segment operating income was $114.5 million, or 22.9% of revenue, in 2025, versus $106.4 million, or 21.7% of revenue, in 2024. The increase in operating income was primarily due to an increase in gross profit of $4.5 million, a decrease in restructuring, acquisition and related costs of $1.8 million, a decrease in amortization expense of $1.4 million, and a decrease in R&D expenses of $1.2 million, partially offset by an increase in SG&A expenses of $0.9 million.

Medical Solutions

Medical Solutions segment operating income was $51.2 million, or 10.7% of revenue, in 2025, versus $57.5 million, or 12.5% of revenue, in 2024. The decrease in operating income was primarily due to an increase in SG&A expenses of $6.2 million, an increase in restructuring, acquisition and related costs of $5.5 million, an increase in amortization expenses of $3.1 million as a result of our 2025 acquisition, and an increase in R&D expenses of $1.2 million, partially offset by an increase in gross profit of $9.7 million.

Unallocated costs

Unallocated costs primarily represent costs of corporate and shared SG&A functions and other public company costs that are not allocated to the reportable segments, including certain restructuring and most acquisition related costs.

Unallocated costs for 2025 increased by $18.3 million, or 34.4%, from 2024. The increase in operating loss was primarily driven by costs associated with the planning and design phase of our financial and operation system implementation, costs associated with the 2025 restructuring program, and costs incurred in connection with an insurance recovery claim.

Interest Income (Expense), Foreign Exchange Transaction Gains (Losses), and Other Income (Expense), Net

The following table sets forth interest income (expense), foreign exchange transaction gains (losses), and other income (expense) for 2025 and 2024 (in thousands):

Interest Income (Expense), Net

Net interest expense was $21.5 million in 2025 versus $31.5 million in 2024. The decrease in net interest expense was primarily due to a decrease in average debt levels and a decrease in the weighted average interest rate. The weighted average interest rate on our outstanding debt was 5.57% and 6.58% for 2025 and 2024, respectively. Included in net interest expense was non-cash interest expense of approximately $1.5 million for 2025 and $1.2 million 2024, related to the amortization of deferred financing costs. Net interest expense also included $0.9 million interest expense related to the amortizing notes.

Foreign Exchange Transaction Gains (Losses), Net

Foreign exchange transaction gains (losses) were $(2.2) million in 2025, and nominal in 2024. The increase in net foreign exchange transaction losses was primarily due to changes in the value of the U.S. Dollar against the British Pound and Euro.

Other Income (Expense), Net

Net other expenses were nominal in 2025 and 2024.

Income Tax Provision

We recorded a tax provision of $15.8 million in 2025, compared to a tax provision of $15.0 million in 2024. The effective tax rate for 2025 was 22.7% of income before income taxes, compared to an effective tax rate of 18.9% of income before income taxes for 2024. Our effective tax rate for 2025 differed from the combined 29% Canadian federal and provincial statutory rate, which are 15% and 14%, respectively, primarily due to the mix of income earned in jurisdictions with varying tax rates. Additionally, the Company reported a $0.7 million benefit for foreign derived intangible income, a $6.7 million benefit from U.K. patent box deductions, and a $2.4 million benefit for R&D and other U.S. tax credits. These benefits to the Company's tax rate are partially offset by a $1.9 million detriment related to non-tax deductible employee compensation, a $1.5 million detriment related to Base Erosion and Anti-Abuse Tax ("BEAT"), a $1.0 million detriment related to Pillar Two minimum taxes, and $1.1 million of withholding taxes.

On December 12, 2022, the EU member states agreed to implement the Organisation for Economic Co-operation and Development's ("OECD") Pillar Two Model Rules. These rules, which establish a global minimum corporate income tax rate of 15%, have been enacted or proposed legislation in numerous countries worldwide, including most of the jurisdictions in which we operate. We qualify for the transitional safe harbor rules in the majority of jurisdictions in which we operate and are therefore not subject to Pillar Two global minimum tax in those jurisdictions. Where we cannot apply the safe harbor rules, we have estimated the impact of this minimum tax in our effective tax rate analysis. We continue to monitor any legislative developments closely.

On July 4, 2025, the U.S. enacted H.R.1 - One Big Beautiful Bill Act (the "Act"). The Act contains numerous income tax provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act and modifications to the international tax framework. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We have evaluated the implications of the Act on our consolidated financial statements and related disclosures and have included the impact of items affecting our income tax expense for the twelve months ended December 31, 2025.

Net Income

Net income was $53.8 million for 2025, compared to $64.1 million for 2024, reflecting the impact of the factors described above.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our primary ongoing cash requirements are funding operations, capital expenditures, investments in businesses, and repayment of debt and related interest payments. Our primary sources of liquidity are cash flows from operations and borrowings under our Senior Credit Facilities. We believe our future operating cash flows will be sufficient to meet our future operating and capital expenditure cash needs for the foreseeable future, including at least the next 12 months. The availability of borrowing capacity under our Senior Credit Facilities provides another potential source of liquidity for any future capital expenditures and other liquidity needs. In addition, we have the ability to expand our borrowing capacity by up to $350.0 million by exercising the accordion feature under our Credit Agreement. We may seek to raise additional capital, which could be in the form of bonds, convertible debt or preferred or common equity, to fund business development activities or other future investing cash requirements, subject to approval by the lenders in the Fourth Amended and Restated Credit Agreement. There is no assurance that such capital will be available on reasonable terms or at all.

Significant factors affecting the management of our ongoing cash requirements are the adequacy of available bank lines of credit and our ability to attract long-term capital with satisfactory terms. The sources of our liquidity are subject to all of the risks of our business and could be adversely affected by, among other factors, risks associated with events outside of our control, such as economic consequences of geopolitical conflicts and global pandemics, prolonged supply chain disruptions and electronics and other material shortages, a decrease in demand for our products, our ability to integrate current and future acquisitions, deterioration in certain financial ratios, availability of borrowings under our Senior Credit Facilities, and market changes in general. See "Risks Relating to Our Common Shares and Our Capital Structure" included in Item 1A of this Annual Report on Form 10-K.

Our ability to make payments on our indebtedness and to fund our operations may be dependent upon the operating income and the distribution of funds from our subsidiaries. However, as local laws and regulations and/or the terms of our indebtedness restrict certain of our subsidiaries from paying dividends and transferring assets to us, there is no assurance that our subsidiaries will be permitted to provide us with sufficient dividends, distributions or loans when necessary.

As of December 31, 2025, $67.6 million of our $380.9 million of cash and cash equivalents was held by our subsidiaries outside of North America. Generally, our intent is to use cash held in these foreign subsidiaries to fund our local operations or acquisitions by those local subsidiaries and to pay down borrowings under our Senior Credit Facilities. Approximately $74.0 million of the outstanding borrowings under our Senior Credit Facilities were held in our subsidiaries outside of North America as of December 31, 2025. Additionally, we may use intercompany loans to address short-term cash flow needs from various subsidiaries.

The Company's articles authorize up to 7.0 million preferred shares for future issuance. Our Board of Directors may designate and issue one or more series of preferred shares in order to raise additional capital, provided that no shares of any series may be entitled to more than one vote per share. As of December 31, 2025, no preferred shares were issued and outstanding.

Share Repurchase Plans

Our Board of Directors may approve share repurchase plans from time to time. Under these repurchase plans, shares may be repurchased at our discretion based on ongoing assessment of the capital needs of the business, the market price of our 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. Repurchases may be made under certain SEC regulations, which would permit common shares to be repurchased when we would otherwise be prohibited from doing so under insider trading laws. While the share repurchase plans are generally intended to offset dilution from equity awards granted to our employees and directors, the plans do not obligate us to acquire any particular amount of common shares. No time limit is typically set for the completion of the share repurchase plans, and the plans may be suspended or discontinued at any time. We expect to fund share repurchases through cash on hand and cash generated from operations.

In February 2020, our Board of Directors approved a share repurchase plan (the "2020 Repurchase Plan") authorizing the repurchase of $50.0 million worth of common shares, effective after our prior repurchase plan was completed. Share repurchases have been made under the 2020 Repurchase Plan pursuant to Rule 10b-18 under the Securities Exchange Act of 1934. During the year ended December 31, 2025, we repurchased 357 thousand shares for an aggregate purchase price of $39.3 million at an average price of $110.17 per share under the 2020 Repurchase Plan. No shares were repurchased during the years ended December 31, 2024 or 2023. As of December 31, 2025, we had $10.2 million available for share repurchases under the 2020 Repurchase Plan.

In September 2025, our Board of Directors approved a share repurchase plan (the "2025 Repurchase Plan") authorizing the repurchase of $200.0 million worth of common shares. No shares have been repurchased under the 2025 Repurchase Plan as of December 31, 2025.

Senior Credit Facilities

On June 27, 2025, we entered into the Fourth Amended and Restated Credit Agreement, consisting of a €65.3 million Euro Term Loan, a $75.0 million U.S. Term Loan, and an $850.0 million Revolving Facility. The Senior Credit Facilities mature in June 2030 and include an uncommitted "accordion" feature pursuant to which the commitments thereunder may be increased by an additional $350.0 million in aggregate, subject to the satisfaction of certain customary conditions.

On November 5, 2025, we entered into an amendment (the "First Amendment") to the Fourth Amended and Restated Credit Agreement. The First Amendment, among other things, amends the Fourth Amended and Restated Credit Agreement to (i) increase the maximum consolidated leverage ratio permitted thereunder to 3.75:1.00, with a step-up to 4.25:1.00 at the Borrowers' option for the four consecutive quarters following certain acquisitions with aggregate consideration greater than or equal to $50.0 million, from the previous maximum ratios of 3.50:1.00 and 4.00:1.00, respectively, and (ii) increase the maximum amount of cash that can be netted against consolidated indebtedness when calculating leverage ratios under the Fourth Amended and Restated Credit Agreement from $50.0 million to $100.0 million.

The term loan facilities require quarterly scheduled principal repayments of €1.1 million that began in September 2025 (with respect to the Euro Term Loans), and $0.5 million beginning in September 2026, increasing to $0.9 million in September 2027 (with respect the U.S. Term Loans), with the remaining principal balance of the term loans due on June 27, 2030, if the maturity date of the term loan facility is not otherwise extended. We may make additional principal payments at any time, which will reduce the next quarterly installment payment due. We may pay down outstanding borrowings under our revolving credit facility with cash on hand and cash generated from future operations at any time.

As of December 31, 2025, we had $74.0 (€63.1) million outstanding under the Euro Term Loans and $75.0 million outstanding under the U.S. Term Loans. As of December 31, 2025, we had no outstanding revolver borrowings under our Senior Credit Facilities. The borrowings under the Fourth Amended and Restated Credit Agreement bear interest at the Base Rate (as defined in the Fourth Amended and Restated Credit Agreement) plus a margin ranging between zero and 0.75% per annum, determined by reference to the our consolidated leverage ratio, or SOFR, SONIA or EURIBOR, as applicable, plus a margin ranging between 1.00% and 1.75% per

annum, determined by reference to our consolidated leverage ratio. In addition, we are obligated to pay a commitment fee on the unused portion of the Revolving Facility. As of December 31, 2025, we had outstanding borrowings under the Senior Credit Facilities denominated in Euro and U.S. Dollars of $74.0 million and $75.0 million, respectively.

The Fourth Amended and Restated Credit Agreement contains various covenants that, we believe, are usual and customary for this type of agreement, including a maximum allowed leverage ratio and a minimum required fixed charge coverage ratio (as defined in the Fourth Amended and Restated Credit Agreement). The following table summarizes these financial covenants and our compliance therewith as of December 31, 2025:

In addition, the Fourth Amended and Restated Credit Agreement contains various other customary representations, warranties and covenants applicable to the Company and its subsidiaries, including: (i) limitations on certain payments; (ii) limitations on fundamental changes involving the Company; (iii) limitations on the disposition of assets; and (iv) limitations on indebtedness, investments, and liens.

Tangible Equity Units - Amortizing Notes

On November 12, 2025, we issued 12,650,000 of our 6.50% tangible equity units ("Units") at a public offering price of $50.00 per Unit for an aggregate offering of $632.5 million (the "Units Offering"). We received proceeds of $613.1 million after the deduction of the underwriters fees and other issuance costs. Each Unit is comprised of a prepaid stock purchase contract and a senior amortizing note. Each purchase contract will automatically settle on November 1, 2028, and we will deliver at least 0.3729, but no more than 0.4662 of our common shares per purchase contract, subject to adjustment based upon the applicable market value of our common shares. Each amortizing note has a principal amount of $8.74 and bears interest at a rate of 6.30% per annum, with a final installment date of November 1, 2028 ("Amortizing Note").

As of December 31, 2025, we had $110.6 million outstanding under the Amortizing Notes.

Cash Flows

Cash and cash equivalents totaled $380.9 million as of December 31, 2025, versus $114.0 million as of December 31, 2024. The net increase in cash and cash equivalents is primarily attributable to $614.4 million of proceeds from the issuance of tangible equity units, net of issuance costs paid, $82.8 million of borrowings under our Senior Credit Facilities, and cash provided by operating activities of $64.1 million, partially offset by $365.7 million of debt repayments, $64.3 million of cash consideration for our 2025 acquisition, $39.3 million related to the repurchase of common shares, $15.6 million of capital expenditures, and $7.8 million of payroll tax payments upon vesting of share-based compensation awards.

The following table summarizes our cash and cash equivalent balances, cash flows and unused borrowing capacity available under our revolving credit facility for the years indicated (in thousands):

Operating Cash Flows

Net cash provided by operating activities was $64.1 million in 2025, versus $158.5 million in 2024. The decrease from 2024 was primarily attributable to higher inventory levels resulting from our regionalized manufacturing strategy, as well as increased accounts receivable due to the timing of collections and higher income tax payments. These uses of cash were partially offset by lower interest payments, reflecting reduced debt levels and a lower weighted average interest rate.

Investing Cash Flows

Net cash used in investing activities was $74.3 million in 2025, primarily related to the $64.3 million of cash consideration (net of cash acquired) paid for our 2025 acquisition and capital expenditures of $15.6 million.

Net cash used in investing activities was $208.2 million in 2024, primarily related to the $191.2 million of cash consideration (net of cash acquired) paid for our 2024 acquisition and capital expenditures of $17.2 million.

We have no material commitments to purchase property, plant and equipment as of December 31, 2025. We expect to use approximately $20 million to $25 million in 2026 for capital expenditures related to investments in new property, plant and equipment for our existing businesses.

Financing Cash Flows

Net cash provided by financing activities was $276.3 million in 2025, was primarily driven by proceeds from the issuance of tangible equity units, net of issuance costs, of $614.4 million, and borrowings under the credit facilities of $82.8 million, partially offset by $365.7 million of term loan and revolving credit facility repayments, $39.3 million related to the repurchase of common shares, $7.8 million of payroll tax payments upon vesting of share-based compensation awards, and $4.7 million of payments for debt issuance costs related to our senior credit facilities.

Net cash provided by financing activities was $56.9 million in 2024, primarily due to borrowings under the credit facilities of $198.0 million, partially offset by $131.1 million of term loan and revolving credit facility repayments and $9.7 million of payroll withholding tax payments related to net share settlement upon vesting of share-based compensation awards.

In 2026, we are contractually required to make $6.2 million in repayments under our term loan facilities. In addition, we are contractually required to make $33.9 million in repayments under our Amortizing Notes.

Other Liquidity Matters

Pension Plans

We maintain a defined benefit pension plan (the "U.K. Plan") in Novanta Technologies U.K. Limited, a wholly owned subsidiary of the Company. Our U.K. Plan was closed to new members in 1997 and stopped accruing additional pension benefits for existing members in 2003, thereby limiting our obligation to benefits earned through that date. Benefits under this plan were based on the participants' years of service and compensation as of the date the plan was frozen, adjusted for inflation. On July 1, 2013, the Company provided a Guarantee (the "Guarantee") in favor of the trustees of the U.K. Plan with respect to all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severally and in any capacity whatsoever) under the U.K. Plan.

Our funding policy is to fund the U.K. Plan based on actuarial methods as permitted by the Pensions Regulator in the U.K. The results of funding valuations depend on both the funding deficit and the assumptions used, such as asset returns, discount rates, mortality rates, retail price inflation and other market driven assumptions. Each assumption used represents one estimate of many possible future outcomes. The final cost to us will be determined by events as they actually become known, including actual return on plan assets and pension payments to plan participants. As of December 31, 2025, the fair value of plan assets exceeded the projected benefit obligation under the U.K. Plan by $4.2 million. Based on the results of the most recent funding valuation in 2024, we will not be required to contribute any additional funds for the next two years. Future annual funding contributions, if any, will be determined in the next statutory funding valuation in 2027.

Material Cash Requirements

Senior Credit Facilities

As of December 31, 2025, we had $74.0 (€63.1) million outstanding under the Euro Term Loans and $75.0 million outstanding under the U.S. Term Loans. As of December 31, 2025, we had no outstanding revolver borrowings under our Senior Credit Facilities. The Euro Term Loans require quarterly scheduled principal repayments of €1.1 million ($1.3 million) that began in September 2025, and the remaining principal balance of €42.7 million ($50.1 million) is due upon maturity in June 27, 2030, if the maturity date of the term loan facility is not otherwise extended. The U.S. Term Loans require quarterly principal payments of $0.5 million beginning in September 2026, increasing to $0.9 million in September 2027, with the remaining principal balance of $61.9 million due on June 27, 2030, if the maturity date of the term loan facility is not otherwise extended.

As of December 31, 2025, future interest payments under our Senior Credit Facilities are estimated to be approximately $33.6 million through maturity based on the current contractual term, with $8.1 million payable within the next twelve months. These

estimates are based on current interest rates on floating rate obligations, as defined in the Fourth Amended and Restated Credit Agreement, for the remainder of the contractual life of both the term loan and outstanding borrowings under the revolving credit facility, and the current commitment fee rate was used for the unused commitments under the revolving credit facility as of December 31, 2025. These estimates also assume only quarterly term loan payments are made and outstanding revolving credit facility remains unchanged throughout the remainder of the contractual term. Actual future interest payments will vary due to changes in our debt level and interest rates. See Note 11, "Debt," in the Consolidated Financial Statements for further details of our debt obligations and the timing of expected future payments.

Tangible Equity Units - Amortizing Notes

As of December 31, 2025, we had $110.6 million outstanding under the Amortizing Notes. Each Amortizing Note had an initial principal amount of $8.74, bears interest at the rate of 6.30% per annum and will have a final installment payment date of November 1, 2028. On each February 1, May 1, August 1 and November 1, commencing February 1, 2026, the Company will pay quarterly cash installments of $0.8125 per Amortizing Note (except for the February 1, 2026 installment payment, which will be $0.7132 per Amortizing Note), which will constitute a payment of interest and a partial repayment of principal, and which cash payment in the aggregate per year will be equivalent to 6.50% per year with respect to each $50.00 stated amount of Unit. The Amortizing Notes will be the direct, unsecured and unsubordinated obligations of the Company and will rank equally with all of the existing and future other unsecured and unsubordinated indebtedness of the Company. See Note 12, "Tangible Equity Unit ("TEU") Offering" in the Consolidated Financial Statements for further details of our obligations and the timing of expected future payments.

As of December 31, 2025, future interest payments under the Amortizing Notes are estimated to be approximately $11.5 million through maturity based on the current contractual term, with $6.0 million payable within the next twelve months.

Operating and Finance Leases

We have entered into various lease agreements for office and manufacturing facilities, vehicles, and equipment used in the normal course of business. As of December 31, 2025, undiscounted operating and finance lease obligations were $62.8 million, with $12.6 million payable within the next twelve months. See Note 13, "Leases," in the Consolidated Financial Statements for further details of our obligations and the timing of expected future payments.

Purchase Obligations

Purchase obligations represent an estimate of all open purchase orders and contractual obligations in the ordinary course of business for which we have not received the goods or services. As of December 31, 2025, we had $160.3 million of purchase obligations, with $155.8 million payable within the next twelve months.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenues and expenses for the reporting periods. On an ongoing basis, we evaluate our estimates, assumptions and judgments, including those related to revenue recognition, inventory valuation, impairment assessment and valuation of goodwill, intangible assets and tangible long-lived assets, valuation of contingent consideration obligations, accounting for income taxes, and accounting for loss contingencies. Actual results in the future could differ significantly from our estimates.

We believe that the following critical accounting policies and estimates most significantly affect the portrayal of our financial condition and results of operations and require the most difficult and subjective judgments.

Revenue Recognition.We recognize revenue in accordance with Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers". We recognize revenue when control of promised goods or services is transferred to customers. This generally occurs upon shipment when the title and risk of loss pass to the customer. The vast majority of our revenue is generated from the sale of distinct products. Revenue is measured as the amount of consideration we expect to receive in exchange for such products, which is generally at contractually stated prices. Sales taxes and value added taxes collected concurrently with revenue generating activities are excluded from revenue.

Substantially all of our revenue is recognized at a point in time, upon shipment, rather than over time. At the request of our customers, we may perform professional services, generally for the maintenance and repair of products previously sold to those customers and for engineering services. Professional services are less than 3% of our consolidated revenue. Revenue is typically recognized at a point in time when control transfers to the customer upon completion of professional services. These services

generally involve a single distinct performance obligation. The consideration expected to be received in exchange for such services is normally the contractually stated amount.

We occasionally sell separately priced non-standard/extended warranty services or preventative maintenance plans with the sale of products. The transfer of control over the service plans is over time. We recognize the related revenue ratably over the terms of the service plans. The transaction price of a contract is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using the expected cost plus a margin.

We account for shipping and handling activities that occur after the transfer of control over the related goods as fulfillment activities rather than performance obligations. The shipping and handling fees charged to customers are recognized as revenue and the related costs are recorded in cost of revenue at the time of transfer of control.

We generally provide warranties for our products. 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 we have the ability to ascertain the likelihood of the liability and can reasonably estimate the amount of the liability. A provision for the estimated cost related to warranty is recorded to cost of revenue at the time revenue is recognized. Our estimate of the costs to service warranty obligations is based on historical experience and expectations of future conditions. To the extent our experience in warranty claims or costs associated with servicing those claims differ from the original estimates, revisions to the estimated warranty liability are recorded at that time, with an offsetting entry recorded to cost of revenue.

We expense incremental direct costs of obtaining a contract when incurred if the expected amortization period is one year or less. These costs are recorded within selling, general and administrative expenses in the consolidated statement of operations. We do not adjust the promised amount of consideration for the effects of a financing component because the time period between the transfer of a promised good to a customer and the customer's payment for that good is typically one year or less.

Inventories. 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. We regularly review inventory quantities on hand and, when necessary, record provisions for excess and obsolete inventory based on either our forecasted product demand and production requirements or trailing historical usage of the product. If our sales do not materialize as previously forecasted or at historical levels, we may have to increase our provision for excess and obsolete inventory, which would reduce our operating income. If actual market conditions are more favorable than anticipated, inventory previously written down may be sold, resulting in lower cost of revenue and higher operating income than expected in that period.

Share-Based Compensation.We record expenses associated with share-based compensation awards to employees and directors based on the fair value of awards as of the grant date. In addition to service-based awards granted to a wider employee base and stock options granted to certain members of the executive management team, we typically grant three types of performance-based awards to certain members of the executive management team: performance-based restricted stock units with company-specific financial performance conditions ("attainment-based PSUs"), performance-based restricted stock units with market-based performance conditions ("market-based PSUs"), and performance-based restricted stock units with a hybrid of company-specific financial performance conditions and market-based performance conditions ("hybrid PSUs").

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

For stock options, share-based compensation expenses are recognized based on the fair value of the stock options, which is determined using the Black-Scholes option pricing model as of the date of grant. Shared-based compensation expenses related to stock options are recognized on a straight-line basis ratably over the vesting period of the awards. Black-Scholes option pricing model includes various assumptions, including the expected term of the award, the expected volatility of our common shares and the expected risk-free interest rate over the expected term of the award, expected dividend payments, and the fair value of our common shares.

For attainment-based PSUs, share-based compensation expenses are recognized based on the closing price of our common shares on the date of grant ratably over the vesting period when it is probable that specified performance targets are expected to be achieved based on management's projections as of the end of each period. Management's projections are revised, if necessary, in subsequent periods when underlying factors change the estimated probability of achieving the performance targets as well as the levels 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 expenses associated with attainment-based PSUs may differ significantly from period to period based on changes to both the probability and the level of achievement against the specified performance targets.

For market-based PSUs, share-based compensation expenses are recognized based on the fair value of the market-based PSUs, which is determined using the Monte-Carlo simulation valuation model as of the date of grant. Shared-based compensation expenses related to market-based PSUs are recognized on a straight-line basis from the grant date to the end of the performance period, which is generally three years, regardless of whether the target relative total shareholder return is achieved. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the performance conditions stipulated in the grant agreement in a large number of simulated scenarios. Key assumptions for the Monte Carlo simulation model include risk-free interest rate and expected stock price volatility of both the Company's common shares and the Russell 2000 index.

For hybrid PSUs, share-based compensation expenses are recognized ratably over the vesting period based on the fair value of the hybrid PSUs as of the grant date and the number of shares that are deemed probable of vesting at the end of the specified performance period. The fair value of hybrid PSUs is determined using the Monte-Carlo simulation valuation model as of the date of grant. The 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. Accordingly, share-based compensation expenses associated with hybrid PSUs may differ significantly from period to period based on changes to both the probability and the level of achievement against the specified performance targets.

Valuation of Long-lived Assets.The purchase price we pay for acquired companies is allocated first to the identifiable assets acquired and liabilities assumed at their estimated fair value. Any excess purchase price is then allocated to goodwill. We make various assumptions and estimates in order to assign fair value to acquired tangible and intangible assets and liabilities. Key assumptions used to value identifiable intangible assets typically include revenue growth rates and projected cash flows, discount rates, royalty rates, technology obsolescence curves, and customer attrition rates, among others. Actual cash flows may vary from forecasts used to value these assets at the time of the business combination.

The estimated fair value of real estate assets acquired in a business combination is estimated based on comparable sales information and other market data, if available, as well as using an income or cost approach, specifically the direct capitalization and replacement value approaches. The direct capitalization and replacement value approaches use key assumptions such as market rent estimates, capitalization rates, local multipliers and remaining useful life of the real estate assets. Assumptions used are subject to management judgment and changes in those assumptions could impact the estimation of the fair value.

Our most significant identifiable intangible assets are customer relationships, acquired technologies, trademarks and trade names. In addition to our review of the carrying value of each asset, the estimated useful life assumptions for identifiable intangible assets, including the classification of certain intangible assets as "indefinite-lived," are reviewed on a periodic basis to determine if changes in circumstances warrant revisions to them. All definite-lived intangible assets are amortized over the periods in which their economic benefits are expected to be realized.

Impairment analyses of goodwill and indefinite-lived intangible assets are conducted in accordance with ASC 350, "Intangibles-Goodwill and Other." We test our goodwill balances 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. Should the fair value of our goodwill or indefinite-lived intangible assets decline because of reduced operating performance, market declines or other indicators of impairment, or as a result of changes in the discount rate, charges for impairment loss may be necessary.

We evaluate our goodwill, intangible assets and other long-lived assets for impairment at the reporting unit level which is generally at least one level below our reportable segments. We have the option of first performing a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. In performing the qualitative assessment, we review factors both specific to the reporting unit and to the Company as a whole, such as financial performance, macroeconomic conditions, industry and market considerations, and the fair value of each reporting unit as of the last valuation date. If we elect this option and believe, as a result of the qualitative assessment, that it is more likely than not that the carrying value of goodwill is not recoverable, the quantitative impairment test is required; otherwise, no further testing is performed.

Alternatively, we 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 our reporting units to the fair value of these reporting units. If the carrying value of a reporting unit exceeds its fair value, an impairment charge is recorded for the difference. The fair value of a reporting unit is estimated primarily using a discounted cash flow ("DCF") method. The DCF method requires that we forecast future cash flows for each of the reporting units and discount the cash flow streams based on a weighted average cost of capital ("WACC") that is derived, in part, from comparable companies within similar industries. The DCF calculations also include a terminal value calculation that is based upon an expected long-term growth rate for the applicable reporting unit. The carrying values of each reporting unit include assets and liabilities which relate to the reporting unit's operations. Additionally, reporting units that benefit from corporate assets or liabilities are allocated a portion of those corporate assets and liabilities on a proportional basis.

We assess indefinite-lived intangible assets for impairment on an annual basis, and more frequently if impairment indicators are identified. We also periodically reassess their continuing classification as indefinite-lived intangible assets. Impairment exists if the

fair value of the intangible asset is less than its carrying value. An impairment charge equal to the difference is recorded to reduce the carrying value to its fair value.

We evaluate amortizable intangible assets and other long-lived assets for impairment in accordance with ASC 360-10-35-15, "Impairment or Disposal of Long-Lived Assets," whenever changes in events or circumstances indicate that the carrying values of the reporting units may exceed the undiscounted cash flow forecasts attributable to the reporting units. If undiscounted cash flow forecasts indicate that the carrying value of definite-lived intangible assets or other long-lived assets may not be recoverable, a fair value assessment is performed. For intangible assets, fair value estimates are derived from discounted cash flow forecasts. For other long-lived assets (primarily property, plant and equipment), fair value estimates are derived from the sources most appropriate for the particular asset and have historically included such approaches as sales comparison approach and replacement cost approach. If fair value is less than carrying value, an impairment charge equal to the difference is recorded. We also review the useful life and residual value assumptions for definite-lived intangible assets and other long-lived assets on a periodic basis to determine if changes in circumstances warrant revisions to them.

Factors which may trigger an impairment of our goodwill, intangible assets and other long-lived assets include the following:

The occurrence of any of these events or any other unforeseeable events or circumstances that materially affect future operating results or cash flows may cause an impairment that is material to our results of operations or financial position in the reporting period in which it occurs or is identified.

The most recent annual goodwill and indefinite-lived intangible asset impairment test was performed as of the beginning of the second quarter of 2025, using a qualitative assessment, noting no impairment. As of December 31, 2025, there were no indicators of impairment of our long-lived assets.

Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to calculate our income tax provision (benefit) in each of the jurisdictions in which we operate. This process involves estimating our current income tax provision (benefit) together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are reported on our consolidated balance sheet.

Judgment is required in determining our worldwide income tax provision. In the ordinary course of a global business, there are many transactions and calculations where the ultimate outcome is uncertain. Although we believe our estimates are reasonable, there is no assurance that the final outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. Such differences could have a material impact on our income tax provision and net income in the period in which such determination is made.

We record a valuation allowance on our deferred tax assets when it is more likely than not that they will not be realized. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. In the event we determine that we are able to realize our deferred tax assets in the future in excess of their net recorded amount, an adjustment to the valuation allowance for the deferred tax assets would be recorded and would increase our net income in the period in which such determination is made. Likewise, should we determine that we will not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the valuation allowance for the deferred tax assets will be recorded and will reduce our net income in the period such determination is made.

In conjunction with our ongoing review of our actual results and anticipated future earnings, we continuously reassess the adequacy of the valuation allowance currently in place on our deferred tax assets. In 2025, we established a valuation allowance of $4.6 million recorded on net operating losses, various credits, and other timing items in certain tax jurisdictions.

The amount of income taxes we pay is subject to audits by federal, state and foreign tax authorities, which may result in proposed assessments. We believe that we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable or unfavorable adjustments to our tax liabilities in the period that the assessments are made or resolved, or when the statute of limitations for certain periods expires. As of December 31, 2025, the Company's total amount of gross unrecognized tax benefits was $4.4 million, of which $3.7 million would favorably affect our effective tax rate, if recognized.

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 the repatriation of assets from a subsidiary or a sale or liquidation of a subsidiary. The estimated unrecognized income and foreign withholding tax liabilities on these undistributed earnings is approximately $5.4 million.

Loss Contingencies.We are subject to legal proceedings, lawsuits and other claims relating to product quality, labor, service and other matters arising in the ordinary course of business. We review the status of each significant matter and assess our potential financial exposure on a quarterly basis. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue 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. Because of uncertainties related to these matters, accruals are based only on the best information available as of the date of the financial statements. As additional information becomes available, we will reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position. We expense legal fees as incurred.

Recent Accounting Pronouncements

See Note 2 to Consolidated Financial Statements for recent accounting pronouncements that could have a significant effect on us.