UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~March 30, ~~2018~~2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-02382

MTS SYSTEMS CORPORATION

(Exact name of Registrant as specified in its charter)



Minnesota	41-0908057
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

14000 Technology Drive Eden Prairie, Minnesota	55344
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (952) 937-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer ☒	Accelerated filer ☐	Emerging growth company ☐

Non-accelerated filer ☐	Smaller reporting company ☐
~~(Do not check if smaller reporting company)~~
	~~Emerging growth company ☐~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.25 par value	MTSC	The Nasdaq Stock Market LLC

As of ~~August~~May 2, ~~2018,~~2019, there were ~~17,860,052~~17,954,477 shares of ~~Common Stock~~common stock outstanding.

MTS Systems Corporation

Quarterly Report on Form 10-Q

For the Three Months Ended ~~June~~March 30, ~~2018~~2019

Table of Contents



PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of ~~June~~March 30, ~~2018~~2019 (unaudited) and September ~~30, 2017~~29, 2018	2

	Consolidated Statements of Income for the Three and ~~Nine~~Six Months Ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018 (unaudited)	3

	Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018 (unaudited)	4

	Consolidated Statements of Shareholders' Equity for the Three and Six Months Ended March 30, 2019 and March 31, 2018 (unaudited)	5

	Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018 (unaudited)	57

	Notes to Consolidated Financial Statements (unaudited)	68

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2734

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4147

Item 4.	Controls and Procedures	4248

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	4248

Item 1A.	Risk Factors	4248

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4348

Item 6.	Exhibits	4449

SIGNATURES		4550

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MTS SYSTEMS CORPORATION

Consolidated Balance Sheets

(in thousands, except per share data)


	June 30, 2018		September 30, 2017			March 30, 2019			September 29, 2018
	(Unaudited)		(Note)			(Unaudited)			(Note)
Assets
Current assets
Cash and cash equivalents	$	66,403	$	108,733		$	74,122		$	71,804
Accounts receivable, net of allowance for doubtful accounts of $5,439 and $5,371, respectively	111,894		123,994
Accounts receivable, net of allowance for doubtful accounts of $5,277 and $5,004, respectively						117,349			122,243
Unbilled accounts receivable, net	64,108		76,914			71,175			70,474
Inventories, net	142,431		127,728			179,071			139,109
Prepaid expenses and other current assets	27,296		19,880			32,307			24,572
Total current assets	412,132		457,249			474,024			428,202
Property and equipment, net	94,341		99,930			88,126			90,269
Goodwill	369,815		369,762			403,425			369,275
Intangible assets, net	247,076		255,079			287,101			246,138
Other long-term assets	3,061		4,116			3,900			2,263
Deferred income taxes	3,483		3,556			4,058			3,249
Total assets	$	1,129,908	$	1,189,692		$	1,260,634		$	1,139,396

Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt, net	$	48,913	$	39,095		$	28,076		$	32,738
Accounts payable	47,400		47,515			39,941			47,886
Accrued payroll and related costs	38,971		49,434			39,181			43,554
Advance payments from customers	78,702		76,712			102,033			80,131
Accrued warranty costs	5,589		6,018			4,741			5,418
Accrued income taxes	3,318		4,464			5,709			4,928
Accrued dividends	5,354		5,278			5,328			5,312
Other accrued liabilities	18,193		18,873			34,494			19,146
Total current liabilities	246,440		247,389			259,503			239,113
Long-term debt, less current maturities, net	342,419		418,544			436,344			355,640
Deferred income taxes	44,721		74,981			50,659			46,482
Non-current accrued income taxes	10,118		5,855			6,985			6,158
Defined benefit pension plan obligation	8,583		8,588			9,581			9,177
Other long-term liabilities	5,077		5,558			12,508			4,894
Total liabilities	657,358		760,915			775,580			661,464

Shareholders' Equity
Common stock, $0.25 par value; 64,000 shares authorized: 17,844 and 17,760 shares issued and outstanding as of June 30, 2018 and September 30, 2017, respectively	4,461		4,440
Common stock, $0.25 par value; 64,000 shares authorized: 17,900 and 17,856 shares issued and outstanding as of March 30, 2019 and September 29, 2018, respectively						4,475			4,464
Additional paid-in capital	169,339		163,632			176,918			171,407
Retained earnings	295,825		261,258			308,279			300,585
Accumulated other comprehensive income (loss)	2,925		(553		)	(4,618		)	1,476
Total shareholders' equity	472,550		428,777			485,054			477,932
Total liabilities and shareholders' equity	$	1,129,908	$	1,189,692		$	1,260,634		$	1,139,396

Note: The Consolidated Balance Sheet as of September ~~30, 2017~~29, 2018 has been derived from the audited consolidated financial statements at that date.

The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.

Table of Contents

MTS SYSTEMS CORPORATION

Consolidated Statements of Income (Unaudited)

(in thousands, except per share data)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017			March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018
Revenue
Product	$	168,651		$	167,592		$	503,345		$	514,987		$	206,690		$	165,453		$	381,769		$	334,694
Service	26,017			26,172			76,808			71,480			26,356			25,870			54,458			50,791
Total revenue	194,668			193,764			580,153			586,467			233,046			191,323			436,227			385,485
Cost of Sales
Product	103,182			101,629			304,809			316,012			129,579			101,133			237,746			201,627
Service	15,202			16,579			46,307			42,579			16,117			15,365			32,826			31,105
Total cost of sales	118,384			118,208			351,116			358,591			145,696			116,498			270,572			232,732
Gross profit	76,284			75,556			229,037			227,876			87,350			74,825			165,655			152,753
Operating expenses
Selling and marketing	32,171			31,857			94,796			92,954			33,395			30,597			65,484			62,625
General and administrative	19,081			18,726			58,635			66,305			22,105			18,992			43,183			39,554
Research and development	8,768			8,356			26,235			26,298			7,676			8,626			14,848			17,467
Total operating expenses	60,020			58,939			179,666			185,557			63,176			58,215			123,515			119,646
Income from operations	16,264			16,617			49,371			42,319			24,174			16,610			42,140			33,107
Interest expense, net	(6,249		)	(7,711		)	(19,761		)	(22,409		)	(7,368		)	(6,708		)	(14,186		)	(13,512		)
Other income (expense), net	30			(923		)	81			(1,086		)	270			274			319			51
Income before income taxes	10,045			7,983			29,691			18,824			17,076			10,176			28,273			19,646
Income tax provision (benefit)	1,066			(2,627		)	(20,877		)	(690		)	2,916			1,738			3,612			(21,943		)
Net income	$	8,979		$	10,610		$	50,568		$	19,514		$	14,160		$	8,438		$	24,661		$	41,589

Earnings per share
Basic
Earnings per share	$	0.47		$	0.56		$	2.64		$	1.03		$	0.74		$	0.44		$	1.28		$	2.17
Weighted average common shares outstanding	19,174			19,052			19,149			19,012			19,251			19,150			19,234			19,137

Diluted
Earnings per share	$	0.47		$	0.55		$	2.62		$	1.02		$	0.73		$	0.44		$	1.27		$	2.16
Weighted average common shares outstanding	19,305			19,138			19,269			19,108			19,441			19,273			19,393			19,258

Dividends declared per share	$	0.30		$	0.30		$	0.90		$	0.90		$	0.30		$	0.30		$	0.60		$	0.60

The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.

Table of Contents

MTS SYSTEMS CORPORATION

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017			March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018
Net income	$	8,979		$	10,610		$	50,568		$	19,514		$	14,160		$	8,438		$	24,661		$	41,589
Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss) adjustments	(8,056		)	5,811			(385		)	(794		)	(1,168		)	5,172			(2,671		)	7,671
Derivative instruments
Unrealized net gain (loss)	2,089			(781		)	3,359			2,360			(392		)	240			(1,808		)	1,270
Net (gain) loss reclassified to earnings	(516		)	153			274			(53		)	(567		)	687			(1,481		)	790
Defined benefit pension plan
Unrealized net gain (loss)	78			42			(193		)	368			959			(641		)	(586		)	(271		)
Net (gain) loss reclassified to earnings	92			174			278			511			95			95			191			186
Currency exchange rate gain (loss)	413			(663		)	145			(156		)	146			(181		)	261			(268		)
Other comprehensive income (loss)	(5,900		)	4,736			3,478			2,236			(927		)	5,372			(6,094		)	9,378
Comprehensive income (loss)	$	3,079		$	15,346		$	54,046		$	21,750		$	13,233		$	13,810		$	18,567		$	50,967

The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.

Table of Contents

MTS SYSTEMS CORPORATION

Consolidated Statements of Shareholders' Equity (Unaudited)

(in thousands)



	Three Months Ended March 30, 2019
	Common Stock					Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
	Shares Issued		Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance, December 29, 2018	17,872		$	4,468		$	173,065		$	299,493		$	(3,691	)	$	473,335
Total comprehensive income	—		—			—			14,160			(927		)	13,233
Exercise of stock options	3		1			105			—			—			106
Stock-based compensation	10		2			3,237			—			—			3,239
Issuance for employee stock purchase plan	16		4			553			—			—			557
Common stock purchased and retired	(1	)	—			(42		)	—			—			(42		)
Dividends, $0.30 per share	—		—			—			(5,374		)	—			(5,374		)
Balance, March 30, 2019	17,900		$	4,475		$	176,918		$	308,279		$	(4,618	)	$	485,054

	Six Months Ended March 30, 2019
	Common Stock					Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
	Shares Issued		Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance, September 29, 2018	17,856		$	4,464		$	171,407		$	300,585		$	1,476		$	477,932
Total comprehensive income	—		—			—			24,661			(6,094		)	18,567
Cumulative effect of accounting change	—		—			—			(6,227		)	—			(6,227		)
Exercise of stock options	3		1			143			—			—			144
Stock-based compensation	33		8			5,211			—			—			5,219
Issuance for employee stock purchase plan	16		4			553			—			—			557
Common stock purchased and retired	(8	)	(2		)	(396		)	—			—			(398		)
Dividends, $0.60 per share	—		—			—			(10,740		)	—			(10,740		)
Balance, March 30, 2019	17,900		$	4,475		$	176,918		$	308,279		$	(4,618	)	$	485,054

Table of Contents



	Three Months Ended March 31, 2018
	Common Stock					Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
	Shares Issued		Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance, December 30, 2017	17,780		$	4,445		$	164,577		$	289,105		$	3,453		$	461,580
Total comprehensive income	—		—			—			8,438			5,372			13,810
Stock-based compensation	—		—			1,663			—			—			1,663
Issuance for employee stock purchase plan	12		3			530			—			—			533
Common stock purchased and retired	—		—			(13		)	—			—			(13		)
Dividends, $0.30 per share	—		—			—			(5,343		)	—			(5,343		)
Balance, March 31, 2018	17,792		$	4,448		$	166,757		$	292,200		$	8,825		$	472,230

	Six Months Ended March 31, 2018
	Common Stock					Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
	Shares Issued		Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance, September 30, 2017	17,760		$	4,440		$	163,632		$	261,258		$	(553	)	$	428,777
Total comprehensive income	—		—			—			41,589			9,378			50,967
Cumulative effect of accounting change	—		—			(33		)	33			—			—
Exercise of stock options	4		1			211			—			—			212
Stock-based compensation	30		7			3,171			—			—			3,178
Issuance for employee stock purchase plan	12		3			530			—			—			533
Common stock purchased and retired	(14	)	(3		)	(754		)	—			—			(757		)
Dividends, $0.60 per share	—		—			—			(10,680		)	—			(10,680		)
Balance, March 31, 2018	17,792		$	4,448		$	166,757		$	292,200		$	8,825		$	472,230

The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.

Table of Contents

MTS SYSTEMS CORPORATION

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			March 30, 2019			March 31, 2018
Cash Flows from Operating Activities
Net income	$	50,568		$	19,514		$	24,661		$	41,589
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Stock-based compensation	5,378			3,925			4,689			3,290
Fair value adjustment to acquired inventory	—			7,975			984			—
Net periodic pension benefit cost	890			1,298			584			597
Depreciation and amortization	25,858			25,430			18,468			17,348
(Gain) loss on sale or disposal of property and equipment							510			159
Amortization of debt issuance costs	3,824			2,698			2,099			2,626
Deferred income taxes	(30,189		)	(4,399		)	(1,243		)	(30,654		)
Bad debt provision (recovery), net	1,344			1,345			503			1,201
Other	(111		)	—			—			(111		)
Changes in operating assets and liabilities
Accounts receivable and unbilled accounts receivable	22,915			16,992			(3,763		)	24,174
Inventories, net	(15,158		)	(5,134		)	(12,942		)	(14,441		)
Prepaid expenses	(784		)	(2,071		)	(4,106		)	(2,374		)
Accounts payable	(283		)	(452		)	(10,378		)	(901		)
Accrued payroll and related costs	(10,525		)	(5,204		)	(5,629		)	(11,921		)
Advance payments from customers	1,987			5,689			4,653			5,891
Accrued warranty costs	(422		)	(232		)	(671		)	157
Other assets and liabilities	(3,181		)	(14,763		)	12,250			628
Net Cash Provided by (Used in) Operating Activities	52,111			52,611			30,669			37,258
Cash Flows from Investing Activities
Purchases of property and equipment	(9,777		)	(13,239		)	(9,349		)	(5,368		)
Proceeds from sale of property and equipment	69			45			10			69
Purchases of business	—			(1,000		)
Purchases of business, net of acquired cash							(81,826		)	—
Other	823			—			(285		)	823
Net Cash Provided by (Used in) Investing Activities	(8,885		)	(14,194		)	(91,450		)	(4,476		)
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt							80,391			—
Payment of long-term debt	(63,233		)	(3,511		)	(1,423		)	(45,949		)
Payment of debt issuance costs for long-term debt	—			(186		)
Payment of debt component of tangible equity units	(6,805		)	(6,351		)	(4,818		)	(4,498		)
Payment of debt issuance costs for revolving credit facility	—			(49		)	(542		)	—
Receipts under short-term borrowings	12,750			—			30,000			7,750
Payments under short-term borrowings	(12,750		)	—			(30,000		)	(7,750		)
Cash dividends	(15,958		)	(14,976		)	(10,724		)	(10,667		)
Proceeds from exercise of stock options and employee stock purchase plan	1,701			5,580			701			745
Payments to purchase and retire common stock	(1,306		)	(1,652		)	(398		)	(757		)
Net Cash Provided by (Used in) Financing Activities	(85,601		)	(21,145		)	63,187			(61,126		)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	45			(432		)	(88		)	3,989
Cash and Cash Equivalents
Increase (decrease) during the period	(42,330		)	16,840			2,318			(24,355		)
Balance, beginning of period	108,733			84,780			71,804			108,733
Balance, end of period	$	66,403		$	101,620		$	74,122		$	84,378

Supplemental Disclosures
Cash paid during the period for
Interest	$	16,768		$	21,917		$	12,065		$	11,314
Income taxes	7,645			10,538			6,280			4,954
Non-cash investing and financing activities
Property and equipment acquired under capital lease	138			2,452
Dividends declared not yet paid	5,354			5,048			5,328			5,291

The accompanying Notes to Consolidated Financial Statements (Unaudited) are an integral part of these consolidated financial statements.

Table of Contents

MTS SYSTEMS CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, unless otherwise noted)

NOTE 1 BASIS OF PRESENTATION

The consolidated financial statements include the accounts of MTS Systems Corporation and its wholly owned subsidiaries. Significant intercompany account balances and transactions have been eliminated.

The terms "MTS," "we," "us," "the Company" or "our" in this Quarterly Report on Form 10-Q, unless the context otherwise requires, refer to MTS Systems Corporation and its wholly owned subsidiaries.

We have prepared the interim unaudited consolidated financial statements included herein pursuant to the rules and regulations of the United States (U.S.) Securities and Exchange Commission (SEC). The information furnished in these consolidated financial statements includes normal recurring adjustments and reflects all adjustments that are, in our opinion, necessary for a fair presentation of such financial statements. The consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). GAAP requires us to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2017~~29, 2018 filed with the SEC. Interim results of operations for the ~~third~~second fiscal quarter ended ~~June~~March 30, ~~2018~~2019 are not necessarily indicative of the results to be expected for the full fiscal year.

We have a 5-4-4 week, quarterly accounting cycle with our fiscal year ending on the Saturday closest to September 30. Fiscal year ~~2018~~2019 ending on September ~~29, 2018~~28, 2019 will consist of 52 weeks. Fiscal year ~~2017~~2018 ended on September ~~30, 2017~~29, 2018 and consisted of 52 weeks.

Changes to Significant Accounting Policies

The following accounting policies have been updated since our fiscal year 2018 Annual Report on Form 10-K.

Revenue Recognition

As described in Note 2, we adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), followed by related amendments on September 30, 2018 under the modified retrospective transition method. Our new revenue recognition accounting policy and disclosures relative to this guidance are included in Note 3.

NOTE 2 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

~~Revenue Recognition~~

~~In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606), and in August 2015, issued ASU No. 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date~~, which amended ASU No. 2014-09 as to the effective date of the standard. The guidance, as amended, clarifies the principles for revenue recognition in transactions involving contracts with customers. Determination of when and how revenue is recognized will be based on a five-step analysis. The new guidance will require revenue recognition to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The mandatory effective date of the new revenue recognition standard was deferred by one year under ASU No. 2015-14.

~~In March 2016, the FASB issued ASU No. 2016-08,~~ ~~Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which amends ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, to clarify principal versus agent guidance in situations in which a revenue transaction involves a third party in providing goods or services to a customer. In such circumstances, an entity must determine whether the nature of its promise to the customer is to provide the underlying goods or services (i.e., the entity is the principal in the transaction) or to arrange for the third party to provide the underlying goods or services (i.e., the entity is the agent in the transaction). To determine the nature of its promise to the customer, the entity must first identify each specified good or service to be provided to the customer and then (before transferring it) assess whether it controls each specified good or service. The new guidance clarifies how an entity should identify the unit of accounting (the specified good or service) for the principal versus agent evaluation, and how it should apply the control principle to certain types of arrangements, such as service transactions, by explaining what a principal controls before the specified good or service is transferred to the customer.

~~In April 2016, the FASB issued ASU No. 2016-10,~~ ~~Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to amend ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, on identifying performance obligations to allow entities to disregard items that are immaterial in the context of the contract, clarify when a promised good or service is separately identifiable from other promises in the contract and allow an entity to elect to account for the cost of shipping and handling performed after control of a good has been transferred to the customer as a fulfillment cost or an expense. The updated guidance also clarifies how an entity would evaluate the nature of its promise in granting a license of intellectual property, which determines whether the entity recognizes revenue over time or at a point in time, and other aspects relative to licensing.

~~Table of Contents~~

~~In May 2016, the FASB issued ASU No. 2016-11,~~ Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting (SEC Update), which rescinds previous guidance on revenue and expense recognition for freight services in process, accounting for shipping and handling fees and costs and accounting for consideration given by a vendor to a customer.

~~In May 2016, the FASB issued ASU No. 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which amends ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, to clarify that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. The amendment also added an expedient to ease transition for contracts that were modified prior to adoption of the new revenue standard and clarifies both how an entity should evaluate the collectibility threshold and when an entity can recognize non-refundable considerations received as revenue if the arrangement does not meet the standard's contract criteria. The amendment clarifies that fair value of non-cash considerations should be measured at contract inception when determining the transaction price and allows an entity to make an accounting policy election to exclude from the transaction price certain types of taxes collected from a customer if it discloses the policy.

~~In December 2016, the FASB issued ASU No. 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which amends ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606), providing thirteen corrections and improvements to the new revenue standard.~~

The aforementioned revenue standards and amendments are required to be adopted for annual periods beginning after December 15, 2017, including interim periods within that annual period, which is our fiscal year 2019. The new standards and amendments may be adopted retrospectively for all periods presented, or adopted using a modified retrospective approach. Early adoption is permitted for annual reporting periods beginning after December 15, 2016, and interim periods within that annual period, which is our fiscal year 2018. We intend to adopt the aforementioned revenue standards and amendments for our fiscal year 2019. The modified retrospective approach will be used as our method of adoption. We have substantially completed our review and analysis of our sales channels, selected contracts, policies and practices as compared to the new guidance and continue to work through implementation steps. We continue to evaluate and design our procedural and system requirements related to the provisions of this standard. We are updating and rewriting our revenue recognition accounting policy as needed to reflect the requirements of this standard, and we are drafting our new revenue disclosures. We anticipate the revenue recognition methodology will change for certain products and contracts. Certain contracts will have a delay in revenue recognition until the customer takes control of the product, while certain products and contracts will accelerate to recognize revenue over the life of the contract. This change may have a material impact on the timing of revenue recognition in our Test segment with minimal impact to our Sensors segment. We continue to evaluate the impact that these changes in methodology will have on our consolidated financial statements.

Leases

In February 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (Topic 842), followed by related amendments (collectively, "the new lease standard"), which requires lessees to recognize most leases on the balance sheet for the rights and obligations created by those leases. Under the new lease standard, a company recognizes a right-of-use asset, representing the right to use the underlying asset for the lease term, and a corresponding lease liability ~~on the balance sheet~~ for all leases with terms greater than 12 months. Lessees can forgo recognizing a right-of-use asset and lease liability with lease terms of 12 months or less on the balance sheet through accounting policy elections as long as the lease does not include options to renew or purchase the underlying assets that are reasonably certain to be exercised. The new guidance ~~also~~ requires ~~certain qualitative and quantitative~~enhanced disclosures ~~designed to assess~~regarding the amount, timing and uncertainty of cash flows arising from ~~leases, along with additional key information about leasing arrangements.~~

~~In July 2018, the FASB issued ASU No. 2018-10,~~ ~~Codification Improvements to Topic 842, Leases, to clarify certain aspects of the new lease standard. The FASB also issued ASU No. 2018-11,~~ ~~Leases (Topic 842): Targeted Improvements, which allows the election of an optional transition method to apply the provisions~~a company's leases. Adoption of the new lease standard as of the date of adoption and recognize a cumulative-effect adjustment to retained earnings in the period of adoption, while continuing to present all prior periods under previous lease accounting guidance.

~~The aforementioned lease standards and amendments are~~is required ~~to be adopted~~ for annual periods beginning after December 15, 2018, including interim periods within that annual period, which is our fiscal year 2020. The new ~~standards and amendments are~~guidance is required to be ~~applied~~adopted using a modified retrospective ~~approach, which includes a number of optional practical expedients~~transition method, and an optional transition ~~method. Early~~method may be elected to use the effective date as the date of initial application on transition.

We intend to adopt the new lease standard for our fiscal year 2020 under the optional transition method with an effective date of September 29, 2019. As a result, we will not adjust our comparative period financial information or make the new required lease disclosures for periods before the effective date, and we will record the impact from adoption ~~is permitted.~~as a cumulative-effect reduction to retained earnings as of the effective date. We are currently planning to elect the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs, and we are currently evaluating the ~~impact~~other practical expedients available under the new guidance. We continue to make progress with preparation for the adoption and implementation of the new lease standard, including assessing the completeness of our lease arrangements, evaluating practical expedients and accounting policy elections, revising our lease-related accounting policies, assessing impacts to controls, and implementing a lease software solution. We anticipate the adoption of ~~this guidance~~the new lease standard will result in an increase in assets and liabilities on our Consolidated Balance Sheet. The impact on our Consolidated Statement

Table of Contents

of Income and Consolidated Statement of Cash Flows is being evaluated. We continue to evaluate the impact that these changes in methodology will have on our financial condition, results of operations and disclosures.

~~Table of Contents~~

Other

~~In March 2016, the FASB issued ASU No. 2016-04,~~ ~~Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products~~, which amends existing guidance on extinguishing financial liabilities for certain prepaid stored-value products. The new standard requires recognition of the expected breakage amount or the value that is ultimately not redeemed either proportionally in earnings as redemption occurs or when redemption is remote, if issuers are not entitled to breakage. The standard is required to be adopted for annual periods beginning after December 15, 2017, including interim periods within that annual period, which is our fiscal year 2019. The amendment is to be applied either using a modified retrospective approach by recognizing a cumulative-effect adjustment to retained earnings as of the beginning of the year or retrospectively to each period presented. Early adoption is permitted. We do not expect the adoption of this standard to have a material effect on our financial condition, results of operations or disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the accounting for credit losses on instruments measured at amortized cost by adding an impairment model that is based on expected losses rather than incurred losses. An entity will recognize as an allowance its estimate of expected credit losses, which is believed to result in more timely recognition of such losses as the standard eliminates the probable initial recognition threshold. ~~The standard~~In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments–Credit Losses, which clarifies that a receivable arising from an operating lease that is accounted for by a lessor in accordance with Topic 842 is not within the scope of Subtopic 326. These standards are required to be adopted for annual periods beginning after December 15, 2019, including interim periods within that annual period, which is our fiscal year 2021. The ~~amendment is~~amendments are to be applied using a modified retrospective approach as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which adopted. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within that annual period, which is our fiscal year 2020. We have not yet evaluated the impact the adoption of this guidance may have on our financial condition, results of operations or disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, amends and adds disclosure requirements for fair value measurements. The standard is required to be adopted for annual periods beginning after December 15, 2019, including interim periods within that annual period, which is our fiscal year 2021. Certain disclosures in the amendment are to be applied using a retrospective approach while other disclosures are to be applied using a prospective approach. Early adoption is permitted. We have not yet evaluated the impact the adoption of this guidance may have on our financial condition, results of operations or disclosures.

In August 2018, the FASB issued ASU No. 2018-14, Compensation–Retirement Benefits–Defined Benefit Plans–General (Subtopic 715-20): Disclosure Framework–Changes to the Disclosure Requirements for Defined Benefit Plans, which eliminates, amends and adds disclosure requirements for defined benefit pension and other postretirement plans. The standard is required to be adopted for annual periods ending after December 15, 2020, which is our fiscal year 2021. The amendment is to be applied using a retrospective approach with early adoption permitted. We have not yet evaluated the impact the adoption of this guidance may have on our financial condition, results of operations or disclosures.

Adopted

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), followed by related amendments (collectively, "the new revenue standard" or "ASC 606") to provide a single, comprehensive revenue recognition model for all contracts with customers. Under the new revenue standard, a company recognizes revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. Determination of when and how revenue is recognized is based on a five-step analysis. Enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from a company's contracts with customers are required.

We adopted the new revenue standard on September 30, 2018 for our fiscal year 2019 under the modified retrospective transition method. As of September 30, 2018, we recorded a cumulative-effect reduction to the opening balance of our fiscal year 2019 retained earnings of $6,227, net of tax, for the net deferral of previously recognized revenue and related cost of sales, partially offset by the capitalization and deferral of pre-contract costs. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. See Note 3 for our new revenue recognition accounting policy and disclosures relative to this guidance.

In March 2016, the FASB issued ASU No. 2016-04, Liabilities—Extinguishments of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products, which amends existing guidance on extinguishing financial liabilities for certain prepaid stored-value products. The new standard requires recognition of the expected breakage amount or the value that is ultimately not redeemed either proportionally in earnings as redemption occurs or when redemption is remote, if issuers are not entitled to breakage. We adopted the new standard on a modified retrospective basis for the annual period ending September 28, 2019, including interim periods within that annual period. The adoption of this guidance had no impact on our financial condition, results of operations or disclosures.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory, which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory when the transfer occurs. Current guidance requires companies to defer the income tax effects of intercompany

Table of Contents

transfers of assets until the asset has been sold to an outside party or otherwise recognized. ~~The~~We adopted the new standard ~~is required to be adopted~~on a modified retrospective basis for the annual ~~periods beginning after December 15, 2017,~~period ending September 28, 2019, including interim periods within that annual ~~period, which is our fiscal year 2019.~~period. The ~~amendment is to be applied using a modified retrospective approach. Early adoption is permitted as of the beginning of an annual period. We do not expect the~~ adoption of this ~~standard to have a material effect~~guidance had no impact on our financial condition, results of operations or disclosures.

In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. The new guidance requires the service cost component of net periodic benefit cost to be presented in the same income statement line items as other employee compensation costs arising from services rendered during the period, with only the service cost component eligible for capitalization in assets. Other components of the net periodic benefit cost are to be stated separately from the line items that include the service cost and outside of operating income. These components are not eligible for capitalization in assets. ~~The~~We adopted the new standard ~~is required to be adopted~~ for the annual ~~periods beginning after December 15, 2017,~~period ending September 28, 2019, including interim periods within that annual period, ~~which is our fiscal year 2019. The amendment is to be applied retrospectively. Early adoption is permitted as~~retrospectively for the presentation in the income statement of the ~~beginning~~service cost component and the other components of ~~an annual period. We are currently evaluating~~net periodic pension cost and prospectively for the ~~impact~~capitalization in assets of the service cost component of net periodic pension cost. The adoption of this guidance ~~will have on our financial condition, results of operations and disclosures.~~

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting~~, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Modification guidance must be applied if the fair value, vesting conditions or classification of the awards changes. The standard is required to be adopted for annual periods beginning after December 15, 2017, including interim periods within that annual period, which is our fiscal year 2019. The amendment is to be applied prospectively to an award modified on or after the adoption date, with early adoption permitted. We dodid not ~~expect the adoption of this standard to~~ have a material ~~effect~~impact on our current or prior year financial condition, results of operations or disclosures. Therefore, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends the hedge accounting model in Accounting Standards Codification (ASC) 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The standard is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within that annual period, which is our fiscal year 2020. The amendment is to be applied using a modified retrospective approach, withWe early ~~adoption permitted. We have not yet evaluated the impact the adoption of this guidance may have on our financial condition, results of operations or disclosures.~~

~~Table of Contents~~

~~In March 2018, the FASB issued ASU No. 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~, which provides an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) (AOCI) to retained earnings due to the lower U.S. corporate tax rate in the Tax Cuts and Jobs Act (the Tax Act). The standard is required to be adopted for annual periods beginning after December 15, 2018, including interim periods within that annual period, which is our fiscal year 2020. The amendment is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. Early adoption is permitted. We are currently evaluating the impact the adoption of this guidance will have on our financial condition, results of operations or disclosures.

~~Adopted~~

~~In July 2015, the FASB issued ASU No. 2015-11,~~ ~~Inventory (Topic 330): Simplifying the Measurement of Inventory~~, which modifies existing requirements regarding measuring inventory at the lower of cost or market. Under current inventory standards, the market value requires consideration of replacement cost, net realizable value and net realizable value less an approximately normal profit margin. The new guidance replaces market with net realizable value defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This eliminates the need to determine and consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. We adopted the new standard on a ~~prospective~~modified retrospective basis for the annual period ending September ~~29, 2018,~~28, 2019, including interim periods within that annual period. The adoption of this guidance had no impact on our ~~financial condition, results of operations or disclosures.~~

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~, which is intended to simplify certain aspects of accounting for share-based compensation arrangements, including modifications to the accounting for income taxes upon vesting or settlement of awards, employer tax withholding on share-based compensation, classification on the statement of cash flows and forfeitures. We adopted the new standard for the annual period ending September 29, 2018, including interim periods within that annual period. Certain aspects of the amendment were applied using a retrospective transition method, while others were applied prospectively. The adoption of this standard resulted in an increase in cash flows from operating activities and a decrease of cash flows from financing activities of $208 for fiscal year 2017 and $187 for fiscal year 2016 for the reclassification from financing activities to operating activities of excess tax benefits from stock-based compensation. Additionally, we elected to modify our accounting policy for forfeitures on stock-based awards to record forfeitures when the forfeiture occurs instead of recording stock-based compensation expense based on an estimation of stock awards that will ultimately vest. The adoption of this guidance will not have a material impact on our financial condition, results of operations or disclosures for fiscal year 2018.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~, which provides guidance on the classification of certain cash receipts and cash payments with the objective of reducing diversity in practice. We early adopted the new standard on a retrospective basis for the annual period ending September 29, 2018, including interim periods within that annual period. The adoption of this guidance did not have a material impact on our current or prior year financial condition, results of operations or disclosures.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~, which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The new guidance clarifies that a business must also include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606, ~~Revenue from Contracts with Customers~~. We early adopted the new standard on a prospective basis for the annual period ending September 29, 2018, including interim periods within that annual period. The adoption of this guidance had no impact on our financial condition, results of operations or disclosures, as the standard only applies to transactions occurring subsequent to adoption.

~~In March 2018, the FASB issued ASU No. 2018-05,~~ NOTE 3 REVENUE~~Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SAB 118)~~, which incorporates various SEC paragraphs from SAB 118 into income tax accounting guidance effective immediately. The SEC issued the interpretive guidance in SAB 118 on December 22, 2017 concurrent with the enactment of the Tax Act to clarify accounting and disclosure requirements. Pursuant to SAB 118, we recognized the estimated income tax effects of the Tax Act in our consolidated financial statements for all interim periods in our current fiscal year ending September 29, 2018.

Adoption

We adopted the new revenue standard on September 30, 2018 for our fiscal year 2019 under the modified retrospective transition method. We applied the new revenue standard to all contracts which were not completed as of the effective date and elected not to apply contract modification guidance retrospectively. As a result of adoption, we recorded a cumulative-effect reduction to the opening balance of our fiscal year 2019 retained earnings of $6,227, net of tax, for the ~~interim period ended March 31, 2018. See Note 11~~net deferral of previously recognized revenue and related cost of sales, partially offset by the capitalization and deferral of pre-contract costs.

The timing of revenue recognition for ~~disclosure~~the majority of our products and contracts remains substantially unchanged under the new revenue standard, with the exception of certain contracts in our Test & Simulation segment (Test & Simulation). Dependent on contract-specific terms that evidence customer control of the ~~impact~~work in process or an enforceable right to payment with no alternative use, certain contracts have a delay in revenue recognition until the customer takes control of the product, while certain contracts accelerate the recognition of revenue over the life of the contract. Under the new revenue standard, certain costs to obtain contracts (i.e., pre-contract costs) are capitalized at contract inception and recognized as revenue is earned. While we do not expect the adoption of ~~this guidance~~the new revenue standard to have a significant impact on annual revenue recognized, our financial condition ~~and~~or results of operations, ~~for fiscal year 2018.~~we do expect that it will have an impact on the timing of revenue recognition in interim periods.

910

Table of Contents

The impact of adopting the new revenue standard on our Consolidated Statements of Income and Consolidated Balance Sheets is as follows:



Consolidated Statements of Income	Three Months Ended March 30, 2019
	As Reported			Balances without Adoption of ASC 606			Effect of Change
Revenue	$	233,046		$	224,665		$	8,381
Cost of sales	145,696			140,312			5,384
Gross profit	87,350			84,353			2,997
Selling and marketing	33,395			33,239			156
Income tax provision (benefit)	2,916			2,422			494
Net income	14,160			11,813			2,347

��	Six Months Ended March 30, 2019
	As Reported			Balances without Adoption of ASC 606			Effect of Change
Revenue	$	436,227		$	423,103		$	13,124
Cost of sales	270,572			260,732			9,840
Gross profit	165,655			162,371			3,284
Selling and marketing	65,484			65,491			(7		)
Income tax provision (benefit)	3,612			3,037			575
Net income	24,661			21,945			2,716

Consolidated Balance Sheets	March 30, 2019
	As Reported			Balances without Adoption of ASC 606			Effect of Change
Assets
Accounts receivable, net	$	117,349		$	121,678		$	(4,329	)
Unbilled accounts receivable, net	71,175			79,819			(8,644		)
Inventories, net	179,071			160,914			18,157
Prepaid expenses and other current assets	32,307			28,216			4,091
Other long-term assets	3,900			2,794			1,106
Deferred income taxes	4,058			3,417			641
Liabilities and Shareholders' Equity
Advance payments from customers	102,033			100,589			1,444
Accrued income taxes	5,709			5,861			(152		)
Other accrued liabilities	34,494			20,855			13,639
Deferred income taxes	50,659			51,886			(1,227		)
Other long-term liabilities	12,508			11,748			760
Accumulated other comprehensive income (loss)	(4,618		)	(4,687		)	69
Retained earnings	308,279			311,790			(3,511		)

Table of Contents

The cumulative effect of the changes made to our September 29, 2018 Consolidated Balance Sheet from the modified retrospective adoption of the new revenue standard is as follows:



Consolidated Balance Sheets
	Balance at September 29, 2018		Adjustments due to ASC 606 Adoption			Balance at September 30, 2018
Assets
Accounts receivable, net	$	122,243	$	(4,481	)	$	117,762
Unbilled accounts receivable, net	70,474		(8,002		)	62,472
Inventories, net	139,109		16,727			155,836
Prepaid expenses and other current assets	24,572		4,651			29,223
Other long-term assets	2,263		1,060			3,323
Deferred income taxes	3,249		643			3,892
Liabilities and Shareholders' Equity
Advance payments from customers	80,131		13,568			93,699
Other accrued liabilities	19,146		(2,504		)	16,642
Deferred income taxes	46,482		(1,228		)	45,254
Other long-term liabilities	4,894		6,989			11,883
Retained earnings	300,585		(6,227		)	294,358

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those goods or providing those services. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are known, the contract has commercial substance and collectability of consideration is probable.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under the new revenue standard. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Many of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. In situations when our contract includes distinct goods or services that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct goods or services. For contracts with multiple performance obligations, we allocate the contract's transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

We do not adjust the promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Revenue is recorded net of taxes collected from customers, and taxes collected are recorded as current liabilities until remitted to the relevant government authority. Shipping and handling costs associated with outbound freight after control of a product has transferred are accounted for as a fulfillment cost and are included in cost of sales in the Consolidated Statements of Income.

The following is a description of the product offerings, end markets, typical revenue transactions and payment terms for each of our two reportable segments. See Note 16 for further information on reportable segments.

Test & Simulation

Test & Simulation manufactures and sells equipment and related software and services which are used by customers to characterize a product's mechanical properties or performance. Our solutions simulate forces and motions that customers expect their products to encounter in use or are necessary to properly characterize the product's performance. Primary Test & Simulation markets include transportation, infrastructure, energy, aerospace, materials science, medical, flight training and amusement parks. A typical system is a comprehensive solution which includes a reaction frame to hold the prototype specimen; a hydraulic or electro-mechanical power source; actuators to create the force or motion; and a computer controller with specialized software to coordinate the actuator movement and to measure, record and manipulate results. Our portfolio of Test & Simulation solutions includes standard, configurable testing products; engineered products which combine standard product configurations with a moderate degree of customization per customer specifications; and highly customized, highly

Table of Contents

engineered testing solutions built to address the customer's unique business need, which can include development of first-of-a-kind technology. To complement our Test & Simulation products, we provide our customers with a spectrum of services to maximize product performance including installation, product life cycle management, professional training, calibration and metrology, technical consulting and onsite and factory repair and maintenance. In addition, we sell a variety of accessories and spare parts. The manufacturing cycle for a typical system ranges from weeks to 12 months, depending on the complexity of the system and the availability of components, and can be up to three years for larger, more complex systems. For certain contracts, the order to revenue cycle may extend beyond the manufacturing cycle, such as when the manufacturing start date is driven by the customer's project timeline or when the contract terms require equipment installation and commissioning and customer acceptance prior to point-in-time revenue recognition.

Test & Simulation contracts often have multiple performance obligations, most commonly due to the contract covering multiple phases of the product life cycle (i.e., equipment design and production, installation and commissioning, extended warranty and software maintenance). The primary method used to estimate standalone selling price is the expected cost plus a margin approach under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.

Test & Simulation revenue is recognized either over time as work progresses or point-in-time, depending on contract-specific terms and the pattern of transfer of control of the product or service to the customer. Revenue from services is recognized in the period the service is performed or ratably over the period of the related service contract. Equipment revenue is recognized over time when: (i) control is transferred to the customer over time as work progresses; or (ii) contract terms evidence customer control of the work in process or an enforceable right to payment with no alternative use. Equipment revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the performance obligation. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Equipment contract costs include materials, component parts, labor and overhead costs.

Equipment revenue is recognized point-in-time when either: (i) control is transferred to the customer at a point-in-time when obligations under the terms of the contract are satisfied; or (ii) contract terms do not evidence customer control of the work in process or an enforceable right to payment with no alternative use, and consequently revenue is deferred as work progresses. Satisfaction of performance obligations under the terms of the contract occurs either upon product shipment (as evidenced by delivery or shipment terms), completion of equipment installation and commissioning, or customer acceptance.

For our Test & Simulation contracts with customers, payment terms vary and are subject to negotiation. Typical payment terms include progress payments based on specified events or milestones. For some contracts, we are entitled to receive an advance payment.

Sensors

Our Sensors segment (Sensors) manufactures and sells high-performance sensors which provide measurements of vibration, pressure, position, force and sound in a variety of applications. Our Sensors products are used to enable automation, enhance precision and safety, and lower our customers' production costs by improving performance and reducing downtime. Primary Sensors markets include automotive, aerospace and defense, industrial, and research and development. Our Sensors products are sold as configurable, standard units; utilize piezoelectric or magnetostriction technology; and are ideal for use in harsh operating environments to provide accurate and reliable sensor information. To complement our Sensors products, we also provide spare parts and services. The cycle from contract inception to shipment of equipment is typically one to three months, with the exception of certain high-volume contracts which are fulfilled in a series of shipments over an extended period.

Our Sensors contracts generally have a single performance obligation which is satisfied at a point in time. The performance obligation is a stand-alone sensor product, accessory, service or software license. Sensors contracts are generally fixed-price purchase order fulfillment contracts, and the transaction price is equal to the observable consideration in the contract. Revenue is recognized when obligations under the terms of the contract with our customer are satisfied; generally this occurs with the transfer of control upon product shipment (as evidenced by shipment or delivery terms) or with the performance of the service.

For our Sensors contracts with customers, payment terms are generally within 90 days. The timing of satisfying our Sensors performance obligations does not vary significantly from the typical timing of payment. For certain high-volume contracts, we are entitled to receive an advance payment.

Table of Contents

Disaggregation of Revenue

We disaggregate our revenue by reportable segment, sales type (product or service), the timing of recognition of revenue for transfer of goods or services to customers (point-in-time or over time), and geographic market based on the billing location of the customer. See Note 16 for further information on our reportable segments and intersegment revenue.



	Three Months Ended March 30, 2019
	Test & Simulation		Sensors		Intersegment			Total
Sales type
Product	$	126,511	$	80,540	$	(361	)	$	206,690
Service	24,521		1,835		—			26,356
Total revenue	$	151,032	$	82,375	$	(361	)	$	233,046

Timing of recognition
Point-in-time	$	98,360	$	82,375	$	(361	)	$	180,374
Over time	52,672		—		—			52,672
Total revenue	$	151,032	$	82,375	$	(361	)	$	233,046

Geographic market
Americas	$	51,399	$	38,975	$	(361	)	$	90,013
Europe	29,536		27,653		—			57,189
Asia	70,097		15,747		—			85,844
Total revenue	$	151,032	$	82,375	$	(361	)	$	233,046

	Six Months Ended March 30, 2019
	Test & Simulation		Sensors		Intersegment			Total
Sales type
Product	$	225,419	$	157,040	$	(690	)	$	381,769
Service	51,173		3,285		—			54,458
Total revenue	$	276,592	$	160,325	$	(690	)	$	436,227

Timing of recognition
Point-in-time	$	177,979	$	160,325	$	(690	)	$	337,614
Over time	98,613		—		—			98,613
Total revenue	$	276,592	$	160,325	$	(690	)	$	436,227

Geographic market
Americas	$	90,888	$	76,704	$	(690	)	$	166,902
Europe	58,163		53,001		—			111,164
Asia	127,541		30,620		—			158,161
Total revenue	$	276,592	$	160,325	$	(690	)	$	436,227

Contract Assets and Liabilities

Contract assets and contract liabilities are as follows:



	March 30, 2019		September 29, 2018
Contract assets	$	71,175	$	70,474
Contract liabilities	109,763		80,131

Table of Contents

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled accounts receivable (contract assets) and advance payments from customers (contract liabilities). Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period. Contract liabilities represent payments received from customers at contract inception and at milestones per contract provisions. These payments are recorded in advance payments from customers and other long-term liabilities in our Consolidated Balance Sheets (current and non-current portions, respectively) and are liquidated as revenue is recognized. Conversely, when billing occurs subsequent to revenue recognition for contracts recognized over time, balances are recorded in unbilled accounts receivable, net in our Consolidated Balance Sheets. As customers are billed, unbilled accounts receivable balances are transferred to accounts receivable, net in the Consolidated Balance Sheets.

Significant changes in contract assets and contract liabilities are as follows:



	Contract Assets
Balance, September 29, 2018	$	70,474
Cumulative transition adjustment upon adoption	(8,002		)
Changes in estimated stage of completion	69,857
Transfers to accounts receivable, net	(62,265		)
Acquisitions¹	1,518
Other	(407		)
Balance, March 30, 2019	$	71,175

	Contract Liabilities
Balance, September 29, 2018	$	80,131
Cumulative transition adjustment upon adoption	20,557
Revenue recognized included in balance at beginning of period	(58,947		)
Increases due to payments received, excluding amounts recognized as revenue during period	64,121
Acquisitions¹	4,777
Other	(876		)
Balance, March 30, 2019	$	109,763

¹ See Note 18 for additional information regarding acquisitions.

Remaining Performance Obligations

As of March 30, 2019, we had approximately $224,000 of remaining performance obligations on contracts with an original expected duration of one year or more which are primarily related to Test & Simulation. As of March 30, 2019, we expect to recognize approximately 74% of these remaining performance obligations as revenue within one year, an additional 24% within two years and the balance thereafter. We do not disclose the value of remaining performance obligations for contracts with an original expected duration of one year or less.

Contract Estimates

For contracts recognized over time, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that may span several years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, and internal and subcontractor performance.

Pricing is established at or prior to the time of sale with our customers, and we record sales at the agreed-upon selling price. The terms of a contract or the historical business practice can give rise to variable consideration due to but not limited to volume discounts, penalties and early payment discounts. We estimate variable consideration at the most likely amount we will receive from customers. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. In general, variable consideration in our contracts relates to the entire contract. As a result, the variable consideration is allocated proportionately to all performance obligations. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us at contract

Table of Contents

inception. There are no significant instances where variable consideration is constrained and not recorded at the initial time of sale.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the period it is identified. Our review of contract-related estimates has not resulted in adjustments that are significant to our results of operations.

Contract Modifications

When contracts are modified to account for changes in contract specifications and requirements, we consider whether the modification either creates new, or changes existing, enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original product or service provided, are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct and at a relative stand-alone selling price, they are accounted for as a new contract and performance obligation and recognized prospectively.

Warranties and Returns

For both Test & Simulation and Sensors, we provide a manufacturer's warranty on our products and systems which is included in customer contracts. At the time a sale is recognized, we record estimated future warranty costs. See Note 5 for further discussion of our product warranty liabilities. We also offer separately-priced extended warranties or service-type contracts on certain products for which revenue is recognized over the contractual period or as services are rendered.

Our sales terms generally do not allow for a right of return except for situations where the product fails. When the right of return exists, we recognize revenue for the transferred products at the expected amount of consideration for which we will be entitled.

Pre-contract Costs

We recognize an asset for the incremental costs of obtaining a contract with a customer (i.e., pre-contract costs) when costs are considered recoverable. Capitalized pre-contract costs, consisting primarily of Test & Simulation sales commissions, are amortized as the related revenue is recognized. We recognized total capitalized pre-contract costs of $5,936 in prepaid expenses and other current assets and other long-term assets in the Consolidated Balance Sheets as of March 30, 2019 and related expense of $1,249 and $3,869 in the Consolidated Statements of Income during the three and six months ended March 30, 2019, respectively.

NOTE 34 INVENTORIES

Inventories consist of material, labor and overhead costs and are stated at the lower of cost or net realizable value determined under the first-in, first-out accounting method. Certain inventories are measured using the weighted average cost method. Inventories, net are as follows:


	June 30, 2018		September 30, 2017		March 30, 2019		September 29, 2018
Components, assemblies and parts	$	95,453	$	86,991	$	105,669	$	93,020
Customer projects in various stages of completion	35,133		30,225		62,922		35,675
Finished goods	11,845		10,512		10,480		10,414
Total inventories, net	$	142,431	$	127,728	$	179,071	$	139,109

We adopted the new revenue standard effective September 30, 2018 under the modified retrospective transition method which impacted inventories, net. See Note 3 for the impact of this adoption on our Consolidated Balance Sheets.

Table of Contents

NOTE 45 WARRANTY OBLIGATIONS

Sales of our products and systems are subject to limited warranty obligations that are included in customer contracts. For sales that include installation services, warranty obligations generally extend for a period of 12 to 24 months from the date of either shipment or acceptance based on the contract terms. Product obligations generally extend for a period of 12 to 24 months from the date of purchase. Certain products offered in our Sensors segment include a lifetime warranty.

Under the terms of these warranties, we are obligated to repair or replace any components or assemblies deemed defective due to workmanship or materials. We reserve the right to reject warranty claims where it is determined that failure is due to normal wear, customer modifications, improper maintenance or misuse. We record general warranty provisions based on an estimated warranty expense percentage applied to current period revenue. The percentage applied reflects our historical warranty claims experience over the preceding 12-month period. Both the experience percentage and the warranty liability are evaluated on an ongoing basis for adequacy. Warranty provisions are also recognized for certain unanticipated product claims that are individually significant.

Changes to accrued warranty costs are as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017			March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018
Beginning accrued warranty costs	$	6,191		$	5,240		$	6,018		$	5,718		$	5,229		$	5,832		$	5,418		$	6,018
Warranty claims	(1,384		)	(1,208		)	(3,969		)	(3,051		)	(1,167		)	(1,410		)	(2,446		)	(2,585		)
Warranty provisions	756			972			3,483			2,466			697			1,742			1,791			2,727
Adjustments to preexisting warranties	50			470			64			353			(15		)	14			(15		)	14
Currency translation	(24		)	21			(7		)	9			(3		)	13			(7		)	17
Ending accrued warranty costs	$	5,589		$	5,495		$	5,589		$	5,495		$	4,741		$	6,191		$	4,741		$	6,191

NOTE 56 CAPITAL ASSETS

Property and Equipment

Property and equipment, net are as follows:

June 30,
2018 September 30,
2017
Land and improvements $ 2,866
$ 2,867
Buildings and improvements 60,704
60,340
Machinery and equipment 203,293
196,621
Assets held under capital leases 2,886
2,747
Total property and equipment 269,749
262,575
Less: Accumulated depreciation (175,408 ) (162,645 )
Total property and equipment, net $ 94,341
$ 99,930

Assets held under capital leases, consisting of machinery and equipment, are recorded at the present value of minimum lease payments and are amortized on a straight-line basis over the estimated life of the asset or the lease term. Amortization of assets held as capital leases is included in depreciation expense in the Consolidated Statements of Income.

~~Table of Contents~~



	March 30, 2019			September 29, 2018
Land and improvements	$	2,881		$	2,881
Buildings and improvements	58,692			58,880
Machinery and equipment	210,065			203,647
Assets held under capital leases	2,796			2,815
Total property and equipment	274,434			268,223
Less: Accumulated depreciation	(186,308		)	(177,954		)
Total property and equipment, net	$	88,126		$	90,269

Goodwill

Changes to the carrying amount of goodwill are as follows:

Test Sensors Total
Balance, September 30, 2017 $ 25,109
$ 344,653
$ 369,762
Currency translation 69
(16 ) 53
Balance, June 30, 2018 $ 25,178
$ 344,637
$ 369,815



	Test & Simulation			Sensors			Total
Balance, September 29, 2018	$	24,631		$	344,644		$	369,275
Acquisitions ¹	34,387			—			34,387
Currency translation	(208		)	(29		)	(237		)
Balance, March 30, 2019	$	58,810		$	344,615		$	403,425

¹ See Note 18 for additional information regarding acquisitions.

Table of Contents

Intangible Assets

Intangible assets are as follows:


	June 30, 2018								March 30, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Life (in Years)
Software development costs	$	28,445	$	(15,859	)	$	12,586	6.7
Software development costs²									$	35,297	$	(15,859	)	$	19,438	6.3
Technology and patents	46,777		(11,683		)	35,094		14.9	59,055		(14,110		)	44,945		14.9
Trademarks and trade names	6,962		(2,916		)	4,046		25.6	12,697		(3,442		)	9,255		20.7
Customer lists	156,960		(20,814		)	136,146		15.8	179,919		(28,831		)	151,088		15.7
Land-use rights	2,382		(678		)	1,704		26.4	2,360		(858		)	1,502		26.2
Other									3,705		(332		)	3,373		4.0
Trade names	57,500		—			57,500		Indefinite	57,500		—			57,500		Indefinite
Total intangible assets	$	299,026	$	(51,950	)	$	247,076	15.0	$	350,533	$	(63,432	)	$	287,101	14.5


	September 30, 2017								September 29, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Life (in Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Weighted Average Useful Life (in Years)
Software development costs	$	26,083	$	(15,830	)	$	10,253	5.9
Software development costs²									$	31,251	$	(15,860	)	$	15,391	6.5
Technology and patents	46,731		(9,399		)	37,332		14.9	46,405		(12,188		)	34,217		14.9
Trademarks and trade names	6,936		(2,484		)	4,452		25.6	6,754		(2,987		)	3,767		25.4
Customer lists	157,016		(13,359		)	143,657		15.8	156,971		(23,314		)	133,657		15.8
Land-use rights	2,377		(492		)	1,885		26.4	2,336		(730		)	1,606		26.0
Trade names	57,500		—			57,500		Indefinite	57,500		—			57,500		Indefinite
Total intangible assets	$	296,643	$	(41,564	)	$	255,079	15.0	$	301,217	$	(55,079	)	$	246,138	14.8


²	The gross carrying amount of software development costs as of March 30, 2019 and September 29, 2018 includes $19,438 and $15,391, respectively, of intangible assets not yet placed in service.

Amortization expense recognized related to finite-lived intangible assets is as follows:

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 June 30,
2018 July 1,
2017
Amortization expense $ 3,453
$ 3,656
$ 10,388
$ 10,984

~~Table of Contents~~



	Three Months Ended				Six Months Ended
	March 30, 2019		March 31, 2018		March 30, 2019		March 31, 2018
Amortization expense	$	4,403	$	3,456	$	8,219	$	6,935

Estimated future amortization expense related to finite-lived intangible assets is as follows:


	Amortization Expense		Amortization Expense
Remainder of 2018	$	3,422
2019	13,595
Remainder of 2019			$	8,695
2020	13,314		17,108
2021	14,213		18,164
2022	14,929		19,036
2023	14,827		18,139
2024			17,770
Thereafter	115,276		130,689

Future amortization amounts presented above are estimates. Actual future amortization expense may be different due to fluctuations in foreign currency exchange rates, future acquisitions, impairments, changes in amortization periods or other factors.

Table of Contents

NOTE 67 FAIR VALUE MEASUREMENTS

In determining the fair value of financial assets and liabilities, we currently utilize market data or other assumptions that we believe market participants would use in pricing the asset or liability in the principal or most advantageous market and adjust for non-performance and/or other risk associated with the ~~company~~Company as well as counterparties, as appropriate. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1: Unadjusted quoted prices ~~which~~that are available in active markets for identical assets or liabilities accessible to us at the measurement date.

Level 2: Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The hierarchy gives the highest priority to Level 1, as this level provides the most reliable measure of fair value, while giving the lowest priority to Level 3.

~~Table of Contents~~

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Financial assets and liabilities subject to fair value measurements on a recurring basis are as follows:


	June 30, 2018								March 30, 2019
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Currency contracts ¹	$	—	$	977	$	—	$	977	$	—	$	411	$	—	$	411
Interest rate swaps ²	—		7,354		—		7,354		—		3,684		—		3,684
Total assets	—		8,331		—		8,331		—		4,095		—		4,095

Liabilities
Currency contracts ¹	—		114		—		114		—		78		—		78
Total liabilities	$	—	$	114	$	—	$	114	$	—	$	78	$	—	$	78


	September 30, 2017								September 29, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Currency contracts ¹	$	—	$	150	$	—	$	150	$	—	$	1,080	$	—	$	1,080
Interest rate swaps ²	—		3,499		—		3,499		—		7,411		—		7,411
Total assets	—		3,649		—		3,649		—		8,491		—		8,491

Liabilities
Currency contracts ¹	—		551		—		551		—		173		—		173
Total liabilities	$	—	$	551	$	—	$	551	$	—	$	173	$	—	$	173


¹	Based on observable market transactions of spot currency rates and forward currency rates on equivalently-termed instruments. Carrying amounts of the financial assets and liabilities are equal to the fair value. See Note 78 for additional information on derivative financial instruments.


²	Based on London Interbank Offered Rate (LIBOR) and spot rates. Carrying amount of the financial asset is equal to the fair value. See Note 78 for additional information on derivative financial instruments.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We measure certain financial instruments at fair value on a nonrecurring basis. These assets primarily include goodwill, intangible assets and other long-lived assets acquired either as part of a business acquisition, individually or with a group of other assets, as well as property and equipment. These assets were initially measured and recognized at amounts equal to the fair value determined as of the date of acquisition or purchase subject to changes in value only for foreign currency translation.

Table of Contents

Periodically, these assets are tested for impairment by comparing their respective carrying values to the estimated fair value of the reporting unit or asset group in which they reside. In the event any of these assets were to become impaired, we would recognize an impairment loss equal to the amount by which the carrying value of the reporting unit, impaired asset or asset group exceeds its estimated fair value. Fair value measurements of reporting units are estimated using an income approach involving discounted or undiscounted cash flow models that contain certain Level 3 inputs requiring management judgment, including projections of economic conditions and customer demand, revenue and margins, changes in competition, operating costs, working capital requirements and new product introductions. Fair value measurements of the reporting units associated with our goodwill balances and our indefinite-lived intangible assets are estimated at least annually in the fourth quarter of each fiscal year for purposes of impairment testing if a quantitative analysis is performed. Fair value measurements associated with our intangible assets, other long-lived assets and property and equipment are estimated when events or changes in circumstances such as market value, asset utilization, physical change, legal factors or other matters indicate that the carrying value may not be recoverable. See Note 56 for additional information on goodwill, indefinite-lived intangible assets, other long-lived assets and property and equipment.

Assets and Liabilities Not Measured at Fair Value

Certain financial instruments are not measured at fair value but are recorded at carrying amounts approximating fair value based on their short-term nature or variable interest rate. These financial instruments include cash and cash equivalents, accounts receivable, unbilled accounts receivable, accounts payable and short-term borrowings.

~~Table of Contents~~

Other Financial Instruments

Other financial instruments subject to fair value measurements include debt, which is recorded at carrying value in the Consolidated Balance Sheets. The carrying amount and estimated fair ~~value~~values of our debt isare as follows:


	June 30, 2018										March 30, 2019
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Debt component of tangible equity units ¹	$	9,638	$	11,650	$	—	$	11,650	$	—	$	2,472	$	2,939	$	—	$	2,939	$	—
Tranche B term loan ²	392,566		394,529		—		394,529		—		390,266		390,266		—		390,266		—
Total debt	$	402,204	$	406,179	$	—	$	406,179	$	—	$	392,738	$	393,205	$	—	$	393,205	$	—


	September 30, 2017										September 29, 2018
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Debt component of tangible equity units ¹	$	16,443	$	19,844	$	—	$	19,844	$	—	$	7,290	$	8,626	$	—	$	8,626	$	—
Tranche B term loan ²	455,400		457,085		—		457,085		—		391,416		395,330		—		395,330		—
Total debt	$	471,843	$	476,929	$	—	$	476,929	$	—	$	398,706	$	403,956	$	—	$	403,956	$	—


¹	The fair value of the 8.75% tangible equity units (TEUs) is based on the most recently quoted price for the outstanding securities, adjusted for any known significant deviations in value. The estimated fair value of these long-term obligations is not necessarily indicative of the amount that would be realized in a current market exchange. See Note 1213 for additional information on the TEUs.


²	The fair value of the tranche B term loan is based on the most recently quoted market price for the outstanding debt instrument, adjusted for any known significant deviations in value. The estimated fair value of the debt obligation is not necessarily indicative of the amount that would be realized in a current market exchange. See Note 89 for additional information on debt instruments.

Table of Contents

NOTE 78 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Our currency exchange contracts and interest rate swaps are designated as cash flow hedges and qualify as hedging instruments. We also have derivatives ~~which~~that are not designated as cash flow hedges and, therefore, are accounted for and reported under foreign currency guidance. Regardless of designation for accounting purposes, we believe all of our derivative instruments are hedges of transactional risk exposures. The fair value of our outstanding designated and undesignated derivative assets and liabilities are reported in the Consolidated Balance Sheets as follows:


	June 30, 2018				March 30, 2019
	Prepaid Expenses and Other Current Assets		Other Accrued Liabilities		Prepaid Expenses and Other Current Assets		Other Accrued Liabilities
Designated hedge derivatives
Cash flow derivatives	$	731	$	114	$	314	$	78
Interest rate swaps	7,354		—		3,684		—
Total designated hedge derivatives	8,085		114		3,998		78
Undesignated hedge derivatives
Balance sheet derivatives	246		—		97		—
Total hedge derivatives	$	8,331	$	114	$	4,095	$	78

~~Table of Contents~~


	September 30, 2017				September 29, 2018
	Prepaid Expenses and Other Current Assets		Other Accrued Liabilities		Prepaid Expenses and Other Current Assets		Other Accrued Liabilities
Designated hedge derivatives
Cash flow derivatives	$	73	$	551	$	989	$	173
Interest rate swaps	3,499		—		7,411		—
Total designated hedge derivatives	3,572		551		8,400		173
Undesignated hedge derivatives
Balance sheet derivatives	77		—		91		—
Total hedge derivatives	$	3,649	$	551	$	8,491	$	173

A reconciliation of the net fair value of designated hedge derivatives subject to master netting arrangements that are recorded in the Consolidated Balance Sheets to the net fair value that could have been reported in the Consolidated Balance Sheets are as follows:


	Gross Recognized Amount		Gross Offset Amount		Net Amount Presented		Derivatives Subject to Offset			Cash Collateral Received		Net Amount ¹		Gross Recognized Amount		Gross Offset Amount		Net Amount Presented		Derivatives Subject to Offset			Cash Collateral Received		Net Amount
June 30, 2018
March 30, 2019
Assets	$	8,085	$	—	$	8,085	$	(114	)	$	—	$	7,971	$	3,998	$	—	$	3,998	$	(78	)	$	—	$	3,920
Liabilities	114		—		114		(114		)	—		—		78		—		78		(78		)	—		—

September 30, 2017
September 29, 2018
Assets	$	3,572	$	—	$	3,572	$	(210	)	$	—	$	3,362	$	8,400	$	—	$	8,400	$	(173	)	$	—	$	8,227
Liabilities	551		—		551		(210		)	—		341		173		—		173		(173		)	—		—


¹	~~Net fair value of designated hedge derivatives that could have been reported in the Consolidated Balance Sheets.~~

Cash Flow Hedging – Currency Risks

Currency exchange contracts utilized to maintain the functional currency value of expected financial transactions denominated in foreign currencies are designated as cash flow hedges. ~~Qualifying gains~~Gains and losses related to changes in the market value of these contracts are reported as a component of ~~AOCI~~accumulated other comprehensive income (AOCI) within shareholders' equity in the Consolidated Balance Sheets and reclassified ~~into~~to earnings in the same line item in the Consolidated Statements of Income and in the same period ~~during which~~as the recognition of the underlying hedged transaction affects earnings. The effective portion of the cash flow hedges represents the change in fair value of the hedge that offsets the change in the functional currency value of the hedged item.transaction. We periodically assess whether our currency exchange contracts are effective and, when a contract is determined to be no longer effective as a hedge, we discontinue hedge accounting prospectively. ~~Subsequent changes in the market value~~

Table of ineffective currency exchange contracts are recognized as an increase or decrease in revenue in the Consolidated Statements of Income as that is the same line item in which the underlying hedged transaction is reported. Contents

As of ~~June~~March 30, ~~2018~~2019 and September ~~30, 2017,~~29, 2018, we had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of ~~$43,200~~$26,576 and ~~$29,136,~~$39,856, respectively. Upon netting offsetting contracts to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding was ~~$32,226~~$24,840 and ~~$24,093~~$29,315 as of ~~June~~March 30, ~~2018~~2019 and September ~~30, 2017,~~29, 2018, respectively. As of ~~June~~March 30, 2019, the net market value of the foreign currency exchange contracts was a net asset of $236, consisting of $314 in assets and $78 in liabilities. As of September 29, 2018, the net market value of the foreign currency exchange contracts was a net asset of ~~$617,~~$816, consisting of ~~$731~~$989 in assets and ~~$114 in liabilities. As of September 30, 2017, the net market value of the foreign currency exchange contracts was a net liability of $478, consisting of $73 in assets and $551~~$173 in liabilities.

~~Table of Contents~~

The pretax amounts recognized in AOCI on currency exchange contracts, including (gains) losses reclassified into earnings in the Consolidated Statements of Income and gains (losses) recognized in other comprehensive income (loss) (OCI), are as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017			March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018
Beginning unrealized net gain (loss) in AOCI	$	(1,092	)	$	(115	)	$	(443	)	$	(400	)	$	214		$	(444	)	$	672		$	(443	)
Net (gain) loss reclassified into revenue (effective portion)	(273		)	58			1,031			(679		)
Net gain (loss) recognized in OCI (effective portion)	1,967			(222		)	14			800
Net (gain) loss reclassified into revenue													(16		)	1,146			(601		)	1,304
Net gain (loss) recognized in OCI													(6		)	(1,794		)	121			(1,953		)
Ending unrealized net gain (loss) in AOCI	$	602		$	(279	)	$	602		$	(279	)	$	192		$	(1,092	)	$	192		$	(1,092	)

The amount recognized in earnings as a result of the ineffectiveness of cash flow hedges was $5 and $10 in the three and nine months ended June 30, 2018, respectively, and $0 and $7 in the three and nine months ended July 1, 2017, respectively. As of ~~June~~March 30, ~~2018,~~2019, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of ~~$552.~~$193. The maximum remaining maturity of any forward or optional contract as of ~~June~~March 30, ~~2018~~2019 was 1.6 years.

Interest Rate Swaps

On October 20, 2016, we entered into a floating to fixed interest rate swap agreement to mitigate our exposure to interest rate increases related to a portion of our tranche B term loan facility. The total notional amount of the interest rate swap was ~~$255,000~~$225,000 as of ~~June~~March 30, ~~2018.~~2019. The ~~interest rate~~ swap agreement expires April 3, 2021. As a result of this agreement, every month we pay fixed interest at 1.256% in exchange for interest received at one month U.S. LIBOR. The market value of the interest rate swap as of ~~June~~March 30, ~~2018~~2019 was an asset of ~~$7,354.~~$3,684. The interest rate swap has been designated as a cash flow hedge. As a result, changes in the fair value of the interest rate swap are recorded in AOCI within shareholders' equity in the Consolidated Balance Sheets.

The pretax amounts recognized in AOCI on interest rate swaps, including (gains) losses reclassified into earnings in the Consolidated Statements of Income and gains (losses) recognized in OCI, are as follows:


	Three Months Ended						Nine Months Ended					Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017		March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018
Beginning unrealized net gain (loss) in AOCI	$	6,925		$	4,310		$	3,499		$	—	$	4,889		$	5,027		$	7,411		$	3,499
Net (gain) loss reclassified into interest expense (effective portion)	(422		)	182			(661		)	598
Net gain (loss) recognized in OCI (effective portion)	851			(1,001		)	4,516			2,893
Net (gain) loss reclassified into interest expense												(709		)	(220		)	(1,293		)	(239		)
Net gain (loss) recognized in OCI												(496		)	2,118			(2,434		)	3,665
Ending unrealized net gain (loss) in AOCI	$	7,354		$	3,491		$	7,354		$	3,491	$	3,684		$	6,925		$	3,684		$	6,925

As of ~~June~~March 30, ~~2018,~~2019, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of ~~$2,821.~~$2,378.

Foreign Currency Balance Sheet Derivatives

We also use foreign currency derivative contracts to maintain the functional currency value of monetary assets and liabilities denominated in non-functional foreign currencies. The gains and losses related to the changes in the market value of these derivative contracts are included in other income (expense), net in the Consolidated Statements of Income.

As of ~~June~~March 30, ~~2018~~2019 and September ~~30, 2017,~~29, 2018, we had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of ~~$77,464~~$108,957 and ~~$52,208,~~$90,816, respectively. Upon netting offsetting contracts by counterparty banks to sell foreign currencies against contracts to purchase foreign currencies, irrespective of contract maturity dates, the net notional U.S. dollar equivalent amount of contracts outstanding as of ~~June~~March 30, ~~2018~~2019 and September ~~30, 2017~~29, 2018 was ~~$27,171~~$34,789 and ~~$14,762,~~$28,271, respectively. As of ~~June~~March 30, ~~2018~~2019 and September ~~30, 2017,~~29, 2018, the net market value of the foreign exchange balance sheet derivative contracts was a net asset of ~~$246~~$97 and ~~$77,~~$91, respectively.

Table of Contents

The net gain (loss) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts is as follows:

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 June 30,
2018 July 1,
2017
Net gain (loss) recognized in other income (expense), net $ 981
$ (680 ) $ (46 ) $ (691 )



	Three Months Ended						Six Months Ended
	March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018
Net gain (loss) recognized in other income (expense), net	$	(395	)	$	(848	)	$	(388	)	$	(1,027	)

~~Table of Contents~~

NOTE 89 FINANCING

Long-term debt consists of the following:


	June 30, 2018			September 30, 2017			March 30, 2019			September 29, 2018
Long-term debt
Tranche B term loan, 1.00% amortizing per year, maturing July 5, 2023	$	392,566		$	455,400		$	390,266		$	391,416
Revolving credit facility, non-current portion, expiring July 5, 2022							80,391			—
Tangible equity units, 8.75% coupon, maturing July 1, 2019 ¹	9,638			16,443			2,472			7,290
Capital lease obligations	2,205			2,466			1,709			2,000
Total long-term debt	404,409			474,309			474,838			400,706
Less: Unamortized underwriting discounts, commissions and other expenses	(9,190		)	(12,491		)	(6,862		)	(8,623		)
Less: Current maturities of tranche B term loan debt ²	(42,600		)	(33,600		)
Less: Current maturities of TEU debt ^{2, 3}	(9,638		)	(9,152		)
Less: Current maturities of tranche B term loan debt ^{2, 3}							(28,600		)	(28,600		)
Less: Current maturities of TEU debt ²							(2,472		)	(7,290		)
Less: Current maturities of capital lease obligations ²	(562		)	(522		)	(560		)	(553		)
Total long-term debt, less current maturities, net	$	342,419		$	418,544		$	436,344		$	355,640


¹	See Note 1213 for additional information on our TEUs issued in the third quarter of fiscal year 2016.


²	In addition to the current maturities above, current maturities of long-term debt, net in the Consolidated Balance Sheets includes the current portion of unamortized underwriting discounts, commissions and other expenses of ~~$3,887~~$3,556 and ~~$4,179~~$3,705 as of ~~June~~March 30, ~~2018~~2019 and September ~~30, 2017,~~29, 2018, respectively.


³	As of ~~June~~March 30, ~~2018~~2019 and September ~~30, 2017,~~29, 2018, current maturities of tranche B term loan ~~consists~~consist of the 1% annual payment and the calculated or estimated required annual Excess Cash Flow payment as defined below, as well as planned prepayments.

Tranche B Term Loan and Revolving Credit Facility

We have a credit agreement with U.S. Bank National Association and HSBC Bank USA, National Association as Co-Documentation Agents, Wells Fargo Bank, National Association as Syndication Agent, JPMorgan Chase Bank, N.A. as Administrative Agent and JP Morgan Chase Bank, N.A. and Wells Fargo Securities, LLC as Joint Bookrunners and Joint Lead Arrangers (the Credit Agreement). The Credit Agreement as amended provides for senior secured credit facilities consisting of a ~~$120,000~~$150,000 revolving credit facility (the Revolving Credit Facility), which expires on July 5, ~~2021~~2022, and a $460,000 tranche B term loan facility (the Term Facility) which expires on July 5, 2023. The proceeds of the Revolving Credit Facility can be drawn upon to refinance existing indebtedness, ~~and~~ for working capital and for other general corporate purposes, up to a maximum of ~~$120,000.~~$150,000. The Term Facility amortizes in equal quarterly installments equal to 1% of the original principal amount. The proceeds of the Term Facility were used for financing the acquisition of PCB Group, Inc. (PCB) in fiscal year 2016. ~~The Term~~Borrowings on the Revolving Credit Facility ~~amortizes~~were used for financing the acquisition of E2M Technologies B.V. (E2M) in ~~equal quarterly installments equal~~the first quarter of fiscal year 2019.

In the first quarter of fiscal year 2019, in conjunction with the E2M acquisition, we entered into a third amendment to 1%the Credit Agreement to increase the borrowing capacity on the Revolving Credit Facility from $120,000 to $150,000 and extend the expiration date of the ~~original principal amount.~~Revolving Credit Facility from July 5, 2021 to July 5, 2022. Additionally, the required performance levels under certain financial covenants were modified. During the six months ended March 30, 2019, we incurred debt financing costs of $541 as a result of this amendment which were capitalized in current maturities of long-term debt, net and long-term debt, less current maturities, net in the Consolidated Balance Sheets.

The primary categories of borrowing include Alternate Base Rate (ABR) ~~Borrowing~~Borrowings (ABR Term Loans and ABR Revolving Loans), Swingline Loans and Eurocurrency ~~Borrowing (each~~ Borrowings (Eurocurrency Term Loans and Eurocurrency Revolving Loans), each

Table of Contents

as defined in the Credit ~~Agreement).~~Agreement. ABR Borrowings and Swingline Loans made in U.S. dollars under the Credit Agreement bear interest at a rate per annum equal to the ABR plus the Applicable Rate (as defined in the Credit Agreement). The ABR is defined as the greater of (a) the Prime Rate (as defined in the Credit Agreement) in effect on such day, (b) the New York Federal Reserve Bank (NYFRB) rate (as defined in the Credit Agreement) in effect on such day plus ½ of 1.00%, or (c) the Adjusted LIBOR (as defined in the Credit Agreement) for a one-month interest period in dollars on such day plus 1.00%. The ABR for ABR Term Loans shall not be less than 1.75% per annum. The Applicable Rate for any ABR Revolving Loans will be based upon the leverage ratio applicable on such date. As of ~~June~~March 30, ~~2018,~~2019, the Applicable Rate for ABR Term Loans was 2.25% per annum.

Eurocurrency Borrowings made under the Credit Agreement bear interest at a rate per annum equal to the Adjusted LIBOR Rate plus the Applicable Rate. The Adjusted LIBOR Rate is defined as an interest rate per annum equal to (a) the LIBOR Rate for such interest period multiplied by (b) the Statutory Reserve Rate (as defined in the Credit Agreement). The Applicable Rate for any Eurocurrency Revolving Loan is based upon the leverage ratio applicable on such date. The Adjusted LIBOR Rate for Eurocurrency Term Loans shall not be less than 0.75% per annum. Based on our leverage ratio as of ~~June~~March 30, ~~2018,~~2019, the Applicable Rate for Eurocurrency Revolving Loans was 3.00%. As of ~~June~~March 30, ~~2018,~~2019, the Applicable Rate for Eurocurrency Term Loans was 3.25% per annum, plus the applicable Adjusted LIBOR Rate of ~~2.09%~~2.49%. The weighted average interest rate on Term Facility debt during the ~~nine~~six months ended ~~June~~March 30, ~~2018~~2019 was ~~4.84%~~5.65%.

~~Table of Contents~~

As of ~~June~~March 30, ~~2018 and~~2019, there was $80,391 of outstanding borrowings under the Revolving Credit Facility which is included in long-term debt, less current maturities, net in the Consolidated Balance Sheets. As of September ~~30, 2017,~~29, 2018, there were no outstanding borrowings under the Revolving Credit Facility. We had outstanding letters of credit drawn from the Revolving Credit Facility totaling ~~$26,366~~$19,976 and ~~$37,811~~$20,448 as of ~~June~~March 30, ~~2018~~2019 and September ~~30, 2017,~~29, 2018, respectively, leaving approximately ~~$93,634~~$49,633 and ~~$82,189,~~$99,552, respectively, of unused borrowing capacity. Commitment fees are payable on the unused portion of the Revolving Credit Facility at rates between 0.25% and 0.40% based on our leverage ratio. During the three and ~~nine~~six months ended ~~June~~March 30, 2019, commitment fees incurred totaled $52 and $124, respectively. During the three and six months ended March 31, 2018, commitment fees incurred totaled ~~$94~~$77 and ~~$250, respectively. During the three and nine months ended July 1, 2017, commitment fees incurred totaled $106 and $320,~~$156, respectively.

The Credit Agreement governing the Term Facility requires us to prepay outstanding term loans, subject to certain exceptions, depending on the leverage ratio with (a) up to 50% of the ~~Company's~~our annual Excess Cash Flow (as defined in the Credit Agreement) and (b) 100% of the net cash proceeds of (i) certain asset sales and casualty and condemnation events, subject to reinvestment rights and certain other exceptions; and (ii) any incurrence or issuance of certain debt, other than debt permitted under the Credit Agreement. We may voluntarily prepay outstanding loans under the Term Facility at any time without premium or penalty. All obligations under the Credit Agreement are unconditionally guaranteed by certain of ~~the Company's~~our existing ~~wholly owned~~wholly-owned domestic subsidiaries, and are secured, subject to certain exceptions, by substantially all of ~~the Company's~~our assets and the assets of ~~the Company's~~our subsidiary guarantors.

Under the Credit Agreement, we are subject to customary affirmative and negative covenants, including, among others, restrictions on our ability to incur debt, create liens, dispose of assets, make investments, loans, advances, guarantees, and acquisitions, enter into transactions with affiliates, and enter into any restrictive agreements and customary events of default (including payment defaults, covenant defaults, change of control defaults and bankruptcy defaults). The Credit Agreement also contains financial covenants, including the ratio of consolidated total indebtedness to adjusted consolidated earnings before income, taxes, depreciation and amortization (Adjusted EBITDA), as defined in the Credit Agreement, as well as the ratio of Adjusted EBITDA to consolidated interest expense. These covenants restrict our ability to purchase outstanding shares of our common stock. As of ~~June~~March 30, ~~2018~~2019 and September ~~30, 2017,~~29, 2018, we were in compliance with these financial covenants.

See Note 67 for additional information on the fair value of the tranche B term loan and the TEU debt.

Interest Rate Swaps

On October 20, 2016, in order to mitigate our exposure to interest rate increases on our variable rate debt, we entered into a variable to fixed amortizing interest rate swap. See Note 78 for additional information on derivative financial instruments.

The interest rate swap will be reduced to the following notional amounts over the next ~~four~~three years:


	Notional Amount		Notional Amount
October 3, 2018	$	225,000
October 3, 2019	180,000		$	180,000
October 3, 2020	125,000		125,000
April 3, 2021	—		—

Table of Contents

NOTE 910 STOCK-BASED COMPENSATION

We compensate our officers, directors and employees with stock-based compensation under the 2017 Stock Incentive Plan (the 2017 Plan) approved by our shareholders and administered under the supervision of our Board of Directors. As of ~~June~~March 30, ~~2018,~~2019, a total of ~~1,258~~958 shares were available for issuance under the 2017 Plan.

We make an annual stock grant under the 2017 Plan of stock options, restricted stock units and performance restricted stock units, as well as stock grants throughout the fiscal year. For fiscal years 2019, 2018 ~~2017~~ and ~~2016,~~2017, the annual stock grant occurred in December 2018, April 2018 and April 2017, ~~and December 2015,~~ respectively.

~~In fiscal year 2018, we adopted ASU No. 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.~~ ~~See Note 2 for additional information regarding the impact of adoption.~~

Stock Options

~~There were 245 and 288~~During the six months ended March 30, 2019, 231 stock options were granted ~~during the nine months ended June 30, 2018 and July 1, 2017. The~~at a weighted average fair value of $9.91. During the six months ended March 30, 2018, no stock options ~~granted during the nine months ended June 30, 2018 and July 1, 2017 was $11.10 and $8.91, respectively.~~

~~Table of Contents~~

were granted.

Restricted Stock Units and Performance Restricted Stock Units

We award restricted stock units to directors and key employees and performance restricted stock units to key employees. During the ~~nine~~six months ended ~~June~~March 30, ~~2018 and July 1, 2017,~~2019, we granted ~~approximately 109~~124 restricted stock units and ~~29 performance restricted stock units and 118 restricted stock units and 35~~40 performance restricted stock units to directors, officers and ~~employees, respectively.~~employees. During the six months ended March 30, 2018, we granted 24 restricted stock units and no performance restricted stock units. The fair value of the restricted stock units and performance restricted stock units granted during the ~~nine~~six months ended ~~June~~March 30, 2019 and March 31, 2018 was $46.45 and ~~July 1, 2017 was $49.63 and $45.00,~~$48.61, respectively, representing the market value of our shares atas of the date of grant less the present value of estimated foregone dividends over the vesting period.

Employee Stock Purchase Plan

Our U.S. employees are eligible to participate in the 2012 Employee Stock Purchase Plan (2012 ESPP) approved by our shareholders. As of ~~June~~March 30, ~~2018, a total of 615~~2019, 599 shares were available for issuance under the 2012 ESPP. During the ~~nine~~six months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017,~~March 31, 2018, we issued 2416 and 2512 shares, respectively, ~~of our common stock for a single closed purchase period to participants~~ under the 2012 ESPP at a weighted average price per share of ~~$44.39~~$34.11 and ~~$40.49,~~$44.03, respectively.

NOTE 1011 EMPLOYEE BENEFIT PLANS

We sponsor a non-contributory, defined benefit ~~retirement~~pension plan for eligible employees of one of our German subsidiaries. Net periodic benefit cost for our defined benefit pension plan includes the following components:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017			March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018
Service cost	$	320		$	356		$	969		$	1,047		$	321		$	331		$	643		$	649
Interest cost	159			108			483			317			155			165			310			324
Expected return on plan assets	(317		)	(271		)	(960		)	(797		)	(321		)	(328		)	(643		)	(643		)
Net amortization and deferral	131			249			398			731			137			137			274			267
Net periodic benefit cost	$	293		$	442		$	890		$	1,298		$	292		$	305		$	584		$	597

The weighted average expected long-term rate of return on plan assets used to determine the net periodic benefit cost for each of the three and ~~nine~~six months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017~~March 31, 2018 was 5.5%.

NOTE 1112 INCOME TAXES

The Tax Cuts and Jobs Act (the Tax Act) was enacted into law on December 22, 2017 and made significant changes to U.S. federal corporate tax law. Effective January 1, 2018, the Tax Act lowered the U.S. corporate tax rate from 35% to 21% and prompted various other changes to U.S. federal corporate tax law, including the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations and a one-time deemed repatriation tax on untaxed foreign earnings. The Tax Act resulted in a U.S. federal blended statutory rate of 24.5% for fiscal year 2018 and a rate of 21.0% for fiscal year 2019.

Generally, the impacts of new tax legislation would be required to be recorded in the period of enactment, which was our first quarter of fiscal year 2018. However, in March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which incorporates various SEC paragraphs from Staff Accounting Bulletin No. 118 into income tax accounting guidance effective immediately, allowing registrants to record provisional amounts during a one-year measurement period.

Table of Contents

As of December 29, 2018, we completed our accounting for the tax effects of the Tax Act at the conclusion of the one-year measurement period. As a result, the income tax provision for the six months ended March 30, 2019 includes certain discrete benefits of $1,293 for Tax Act measurement period adjustments. The discrete benefits relate to $1,297 of additional dividends received deduction for certain foreign tax credits included in the mandatory deemed repatriation tax calculation, partially offset by $4 of expense for other Tax Act measurement period adjustments. The additional dividends received deduction is based on our assessment of the treatment under the applicable provisions of the Tax Act as currently written and enacted. If, in the future, Congress or the Department of the Treasury provides legislative or regulatory updates, this could change our assessment of the benefit associated with the dividends received deduction, and we may be required to recognize additional tax expense up to the full amount of the $1,297 in the period such updates are issued.

Excluding the impact of certain discrete benefits in the current and prior year, the effective tax rate for the six months ended March 30, 2019 and March 31, 2018 was essentially flat compared to the same prior year period. Factors that affected the effective tax rate for the six months ended March 30, 2019 included impacts of the Tax Act, such as elimination of the domestic manufacturing deduction and the implementation of the global intangible low-taxed income (GILTI) provision. These increases were offset by favorable aspects of the Tax Act, such as the decrease in the U.S. income tax rate and provisions for incentivizing foreign-derived intangible income (FDII). In the first quarter of fiscal year 2019, we made an accounting policy election to treat the future tax impacts of the GILTI provisions of the Tax Actas a period cost to the extent applicable.

The income tax benefit for the ~~nine~~six months ended ~~June 30,~~March 31, 2018 included certain discrete benefits of $25,378 for the estimated impact of the Tax ~~Act enacted into law on December 22, 2017.~~Act. The discrete benefits ~~primarily~~ related to $32,264 of estimated benefit from the remeasurement of our estimated net deferred tax liabilities, partially offset by $6,886 of estimated expense associated with the mandatory deemed repatriation tax. Excluding the impact of these discrete benefits, the effective tax rate for the nine months ended June 30, 2018 increased compared to the prior year primarily due to higher earnings before taxes, partially offset by the lower U.S. corporate tax rate under the Tax Act.

In March 2018, the FASB issued ASU No. 2018-05 which incorporates various SEC paragraphs from SAB 118 into income tax accounting guidance effective immediately, allowing registrants to record provisional amounts during a one-year measurement period. The updated guidance summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (i) the effects of the change in tax law for which accounting is complete; (ii) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (iii) if a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Act. See Note 2 for additional information on the adoption of this guidance.

Amounts recorded where the accounting is complete during the nine months ended June 30, 2018 primarily relate to the reduction in the U.S. corporate income tax rate to 21%. We recorded an income tax benefit of $32,244 to remeasure deferred tax liabilities associated with intangible assets that will reverse at the new 21% rate.

Amounts recorded where the accounting is provisional during the nine months ended June 30, 2018 include the remeasurement of other deferred taxes where the timing of the reversal cannot be known at this time. We have performed a provisional estimate of the net impact of remeasurement of other deferred tax assets and liabilities and recorded a $20 income tax benefit during the nine months ended June 30, 2018. In addition, the Tax Act includes a one-time mandatory repatriation transition tax on the net accumulated earnings and profits of our foreign subsidiaries. We have performed a provisional estimate of this tax and recorded

~~Table of Contents~~

a $6,886 income tax provision during the nine months ended June 30, 2018. The provisional amounts are based on information available at this time and may change due to a variety of factors, including, among others, anticipated guidance from the U.S. Department of Treasury about implementing the Tax Act and management's further assessment of the Tax Act and related regulatory guidance.

We have completed our initial analysis of the impact of all provisions of the Tax Act expected to be effective in fiscal year 2018, and there are no anticipated effects of the Tax Act where we have not yet recorded a provisional estimate of the accounting effect as of June 30, 2018.

The full-year estimated annual effective tax rate, which excludes the impact of discrete items, was 17.3% as of June 30, 2018, as compared to 11.6% as of July 1, 2017. This increase is primarily due to higher earnings before taxes, partially offset by the reduction of the U.S. federal statutory rate from 35.0% to 24.5%, a blended rate based upon our fiscal year.

The income tax benefit for ~~the three and nine months ended July 1, 2017~~fiscal year 2018 included certain discrete benefits of ~~$2,801 recognized during~~$25,008 for the ~~three months ended July 1, 2017 which consisted~~estimated impact of ~~additional U.S.~~the Tax Act. The discrete benefits primarily related to $31,647 of estimated benefit from the remeasurement of our estimated net deferred tax ~~benefits for prior fiscal years~~liabilities, partially offset by $6,639 of estimated expense associated with ~~domestic manufacturing, deductible PCB acquisition-related expenses and U.S. R&D tax credit.~~the mandatory deemed repatriation tax.

As of ~~June~~March 30, ~~2018,~~2019, the liability for unrecognized tax benefits was ~~$6,119,~~$6,985, of which ~~$3,531~~$4,510 would favorably affect our effective tax rate, if recognized. As of September ~~30, 2017,~~29, 2018, the liability for unrecognized tax benefits was ~~$5,849,~~$6,158, of which ~~$3,234~~$3,740 would favorably affect our effective tax rate, if recognized. As of ~~June~~March 30, ~~2018,~~2019, we do not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.

NOTE 1213 SHAREHOLDERS' EQUITY

Tangible Equity Units

During the third quarter of fiscal year 2016, we issued 1,150 TEUs in a registered public offering primarily to finance the acquisition of PCB, to repay amounts outstanding under our existing revolving credit facility and to pay related costs, fees and expenses. Total proceeds, net of underwriting discounts, commissions and other expenses were $110,926. Each TEU has a stated amount of $100 per TEU and is comprised of a prepaid stock purchase contract and a senior amortizing note having a final installment payment date of July 1, 2019. We allocated the proceeds from the issuance of the TEUs between equity and debt based on the relative fair values of the respective components of each TEU. The fair value of the prepaid stock purchase contracts, net of underwriting discounts, commissions and other expenses, was recorded in additional paid-in capital in the Consolidated Balance Sheets. The fair value of the senior amortizing note, net of underwriting discounts, commissions and other expenses, was split between current maturities of long-term debt, net and long-term debt, less current maturities, net in the Consolidated Balance Sheets. Underwriting discounts, commissions and other costs directly associated with the TEU-related debt will be amortized using the effective interest rate method over the three-year term of the instrument.

The aggregate values assigned upon issuance to each component of the TEUs, based on the relative fair value of the respective components, were as follows:


	Equity Component			Debt Component			Total			Equity Component			Debt Component			Total
Fair value price per TEU ¹	$	76.19		$	23.81		$	100.00		$	76.19		$	23.81		$	100.00

Gross proceeds	87,614			27,386			115,000			$	87,614		$	27,386		$	115,000
Less: Underwriting discounts and commissions	(2,628		)	(822		)	(3,450		)	(2,628		)	(822		)	(3,450		)
Less: Other expenses ²	(475		)	(149		)	(624		)	(475		)	(149		)	(624		)
Issuance of TEUs, net	$	84,511		$	26,415		$	110,926		$	84,511		$	26,415		$	110,926


¹	The fair value price allocation between equity and debt for each TEU was determined using a discounted cash flow model.


²	Other expenses include direct and incremental costs related to the issuance of the TEUs.

Table of Contents

Equity Component

Unless converted earlier at the option of the holder, each prepaid stock purchase contract will automatically settle on July 1, 2019. If converted prior to the automatic settlement date at the option of the holder, the minimum of 1.9841 shares of our common stock are delivered to the holder of each prepaid stock purchase contract. On the automatic settlement date, a minimum of 1.9841 shares and a maximum of 2.3810 shares of our common stock, subject to adjustment based upon the applicable market value discussed below, will be delivered to the holder of each prepaid stock purchase contract at the settlement date.

~~Table of Contents~~

The number of shares of our common stock issuable upon settlement of each purchase contract on July 1, 2019 will be determined as follows:

if the applicable market value is equal to or greater than the threshold appreciation price of $50.40 per share, holders will receive 1.9841 shares of common stock per purchase contract, or the minimum settlement rate;

if the applicable market value is greater than the reference price of $42.00 per share, but less than the threshold appreciation price of $50.40 per share, holders will receive a number of shares of common stock equal to $100 per TEU divided by the applicable market value; or

if the applicable market value is less than or equal to the reference price of $42.00 per share, holders will receive 2.3810 shares of common stock per purchase contract, or the maximum settlement rate.

The "applicable market value" is defined as the average of the daily volume-weighted average price of the common stock on each of the 20 consecutive trading days beginning on, and including, the 23rd scheduled trading day immediately preceding July 1, 2019.

During the fourth quarter of fiscal year 2017, certain holders of our TEUs elected to early convert the equity component on 473 of our outstanding TEUs at the minimum conversion rate of 1.9841 which resulted in the issuance of 939 shares of our common stock. During ~~the nine months ended June 30,~~fiscal years 2019 and 2018, no holders of our TEUs elected to early convert the equity component of our outstanding TEUs. There were 677 units of the equity component of TEUs outstanding as of both ~~June~~March 30, ~~2018~~2019 and September ~~30, 2017.~~29, 2018.

Debt Component

The amortizing senior note was issued with an initial principal amount of $27,386, or $23.8136 per TEU. Equal quarterly cash installments of $2.1875 per amortizing note ~~will be~~are paid, which in the aggregate ~~will be~~are equivalent to a 8.75% cash distribution per year with respect to each $100 stated amount per TEU. Each installment ~~will constitute~~constitutes a payment of interest and partial repayment of principal. The final installment will be paid in the fourth quarter of fiscal year 2019.

Earnings Per Common Share

The TEUs have a dilutive effect on our earnings per share. The 1.9841 minimum shares to be issued are included in the calculation of basic weighted average shares outstanding. The 0.3969 difference between the minimum shares and the 2.3810 maximum shares are potentially dilutive, and accordingly, are included in our diluted earnings per share on a pro rata basis to the extent the applicable market value is higher than the reference price but less than the threshold appreciation price. See Note 1314 for additional information regarding the calculation of earnings per share.

Capped Calls

In connection with the pricing of the TEUs sold in our public offering in fiscal year 2016, we purchased capped calls from third party banking institutions (Capped Calls) for $7,935. The initial Capped Calls were for 2,282 equivalent shares of our common stock with a strike price of $50.40, a cap price of $58.80 and an expiration date of July 1, 2019. The value of the Capped Calls is settled with shares of our common stock, based on the approximate market value of our common stock at such time, and could be settled as the TEUs were early converted or settled upon expiration on July 1, 2019 (Capped Call Expiration). During the fourth quarter of fiscal year 2017, we settled approximately 10% of the Capped Calls, which resulted in us receiving and retiring 12 shares of our common stock. ~~During the nine months ended June 30, 2018, no~~No Capped Calls were ~~settled.~~settled during fiscal years 2019 and 2018.

On June 13, 2018, we amended the agreements with third party banking institutions for the outstanding Capped Calls (Capped Call Agreements) to modify the timing of settlement to be only upon expiration for all outstanding Capped Calls. Per the Capped Call Agreements, the outstanding Capped Calls are for 2,054 equivalent shares of our common stock with a strike price of $50.40 and a cap price of $57.97. The Capped Calls will be automatically settled upon Capped Call Expiration with shares of our common stock based on the average market value of our common stock as defined in the Capped Call Agreements.

Table of Contents

As of ~~June~~March 30, ~~2018,~~2019, the range of shares of our common stock to be received for the outstanding Capped Calls was a minimum of 0 shares to a maximum of 268 shares, which will be realized if the average market value of our common stock as defined in the Capped Call Agreements is at or below $50.40 or at $57.97, respectively, upon Capped Call Expiration.

NOTE 1314 EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the daily weighted average number of common shares outstanding during the applicable period. The TEUs are assumed to be settled at the minimum settlement amount of 1.9841 shares per TEU when calculating weighted-average common shares outstanding for purposes of basic earnings per share.

~~Table of Contents~~

Using the treasury stock method, diluted earnings per share includes the potentially dilutive effect of common shares issued in connection with outstanding stock-based compensation options and grants. The potentially dilutive effect of common shares issued in connection with outstanding stock options is determined based on the average market price for the period. For diluted earnings per share, the TEUs are assumed to be settled at a conversion factor based on our daily volume-weighted average price per share of our common stock for the 20 consecutive trading days preceding the end of the current fiscal quarter not to exceed 2.3810 shares of common stock per TEU.

Under the treasury stock method, shares associated with certain stock options have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options would lead to a net reduction in common shares outstanding or anti-dilution. As a result, stock options to acquire ~~667~~865 and ~~813~~482 weighted common shares have been excluded from the diluted weighted average common shares outstanding calculation for the three months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017,~~March 31, 2018, respectively. Stock options to acquire ~~548~~791 and ~~702~~489 weighted common shares have been excluded from the diluted weighted average common shares outstanding calculation for the ~~nine~~six months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017,~~March 31, 2018, respectively.

In connection with the pricing of the TEUs, we purchased ~~Capped Calls.~~capped calls. The ~~Capped Calls~~capped calls will not be reflected in the calculation of diluted earnings per share until settled as they will lead to a net reduction in common shares outstanding or anti-dilution. See Note 1213 for additional information on our equity instruments.

Basic and diluted earnings per share are calculated as follows:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	June 30, 2018		July 1, 2017		June 30, 2018		July 1, 2017		March 30, 2019		March 31, 2018		March 30, 2019		March 31, 2018
Net income	$	8,979	$	10,610	$	50,568	$	19,514	$	14,160	$	8,438	$	24,661	$	41,589

Weighted average common shares outstanding	19,174		19,052		19,149		19,012		19,251		19,150		19,234		19,137
Effect of dilutive securities
Stock-based compensation	131		86		120		96		190		123		159		121
Weighted average dilutive common shares outstanding	19,305		19,138		19,269		19,108		19,441		19,273		19,393		19,258

Earnings per share
Basic	$	0.47	$	0.56	$	2.64	$	1.03	$	0.74	$	0.44	$	1.28	$	2.17
Diluted	0.47		0.55		2.62		1.02		0.73		0.44		1.27		2.16

Table of Contents

NOTE 1415 OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss), a component of shareholders' equity, consists of foreign currency translation adjustments, gains or losses on derivative instruments and defined benefit pension plan adjustments.

Income tax expense or benefit allocated to each component of other comprehensive income (loss) ~~are~~is as follows:


	Three Months Ended									Nine Months Ended									Three Months Ended									Six Months Ended
	June 30, 2018																		March 30, 2019
	Pre-tax			Tax			Net			Pretax			Tax			Net			Pre-tax			Tax			Net			Pretax			Tax			Net
Foreign currency translation gain (loss) adjustments	$	(8,056	)	$	—		$	(8,056	)	$	(385	)	$	—		$	(385	)	$	(1,168	)	$	—		$	(1,168	)	$	(2,671	)	$	—		$	(2,671	)
Derivative instruments
Unrealized net gain (loss)	2,817			(728		)	2,089			4,530			(1,171		)	3,359			(502		)	110			(392		)	(2,313		)	505			(1,808		)
Net (gain) loss reclassified to earnings	(695		)	179			(516		)	370			(96		)	274			(725		)	158			(567		)	(1,894		)	413			(1,481		)
Defined benefit pension plan
Unrealized net gain (loss)	111			(33		)	78			(277		)	84			(193		)	1,374			(415		)	959			(839		)	253			(586		)
Net (gain) loss reclassified to earnings	131			(39		)	92			398			(120		)	278			137			(42		)	95			274			(83		)	191
Currency exchange rate gain (loss)	413			—			413			145			—			145			146			—			146			261			—			261
Other comprehensive income (loss)	$	(5,279	)	$	(621	)	$	(5,900	)	$	4,781		$	(1,303	)	$	3,478		$	(738	)	$	(189	)	$	(927	)	$	(7,182	)	$	1,088		$	(6,094	)



	Three Months Ended									Six Months Ended
	March 31, 2018
	Pre-tax			Tax			Net			Pretax			Tax			Net
Foreign currency translation gain (loss) adjustments	$	5,172		$	—		$	5,172		$	7,671		$	—		$	7,671
Derivative instruments
Unrealized net gain (loss)	324			(84		)	240			1,713			(443		)	1,270
Net (gain) loss reclassified to earnings	926			(239		)	687			1,065			(275		)	790
Defined benefit pension plan
Unrealized net gain (loss)	(918		)	277			(641		)	(388		)	117			(271		)
Net (gain) loss reclassified to earnings	137			(42		)	95			267			(81		)	186
Currency exchange rate gain (loss)	(181		)	—			(181		)	(268		)	—			(268		)
Other comprehensive income (loss)	$	5,460		$	(88	)	$	5,372		$	10,060		$	(682	)	$	9,378

The changes in the net-of-tax balances of each component of AOCI are as follows:



	Three Months Ended												Six Months Ended
	March 30, 2019
	Adjustments												Adjustments
	Foreign Currency Translation			Unrealized Derivative Instrument			Defined Benefit Pension Plan			Total			Foreign Currency Translation			Unrealized Derivative Instrument			Defined Benefit Pension Plan			Total
Beginning balance	$	269		$	3,990		$	(7,950	)	$	(3,691	)	$	1,772		$	6,320		$	(6,616	)	$	1,476
Other comprehensive net gain (loss) reclassifications	(1,168		)	(392		)	1,105			(455		)	(2,671		)	(1,808		)	(325		)	(4,804		)
Net (gain) loss reclassified to earnings	—			(567		)	95			(472		)	—			(1,481		)	191			(1,290		)
Other comprehensive income (loss)	(1,168		)	(959		)	1,200			(927		)	(2,671		)	(3,289		)	(134		)	(6,094		)
Ending balance	$	(899	)	$	3,031		$	(6,750	)	$	(4,618	)	$	(899	)	$	3,031		$	(6,750	)	$	(4,618	)

2229

Table of Contents

Three Months Ended Nine Months Ended
July 1, 2017
Pre-tax Tax Net Pretax Tax Net
Foreign currency translation gain (loss) adjustments $ 5,811
$ —
$ 5,811
$ (794 ) $ —
$ (794 )
Derivative instruments

Unrealized net gain (loss) (1,223 ) 442
(781 ) 3,693
(1,333 ) 2,360
Net (gain) loss reclassified to earnings 240
(87 ) 153
(81 ) 28
(53 )
Defined benefit pension plan

Unrealized net gain (loss) 60
(18 ) 42
527
(159 ) 368
Net (gain) loss reclassified to earnings 249
(75 ) 174
731
(220 ) 511
Currency exchange rate gain (loss) (663 ) —
(663 ) (156 ) —
(156 )
Other comprehensive income (loss) $ 4,474
$ 262
$ 4,736
$ 3,920
$ (1,684 ) $ 2,236

~~The changes in the net of tax balances of each component of AOCI are as follows:~~

Three Months Ended Nine Months Ended
June 30, 2018
Adjustments Adjustments

Foreign
Currency
Translation

Unrealized
Derivative
Instrument

Defined
Benefit
Pension Plan
Total
Foreign
Currency
Translation

Unrealized
Derivative
Instrument

Defined
Benefit
Pension Plan
Total
Beginning balance $ 11,617
$ 4,013
$ (6,805 ) $ 8,825
$ 3,946
$ 1,953
$ (6,452 ) $ (553 )
Other comprehensive net gain (loss) reclassifications (8,056 ) 2,089
491
(5,476 ) (385 ) 3,359
(48 ) 2,926
Net (gain) loss reclassified to earnings —
(516 ) 92
(424 ) —
274
278
552
Other comprehensive income (loss) (8,056 ) 1,573
583
(5,900 ) (385 ) 3,633
230
3,478
Ending balance $ 3,561
$ 5,586
$ (6,222 ) $ 2,925
$ 3,561
$ 5,586
$ (6,222 ) $ 2,925


	Three Months Ended												Nine Months Ended												Three Months Ended									Six Months Ended
	July 1, 2017																								March 31, 2018
	Adjustments												Adjustments												Adjustments									Adjustments
	Foreign Currency Translation			Unrealized Derivative Instrument			Defined Benefit Pension Plan			Total			Foreign Currency Translation			Unrealized Derivative Instrument			Defined Benefit Pension Plan			Total			Foreign Currency Translation		Unrealized Derivative Instrument		Defined Benefit Pension Plan			Total		Foreign Currency Translation		Unrealized Derivative Instrument		Defined Benefit Pension Plan			Total
Beginning balance	$	(5,932	)	$	2,680		$	(9,621	)	$	(12,873	)	$	673		$	(255	)	$	(10,791	)	$	(10,373	)	$	6,445	$	3,086	$	(6,078	)	$	3,453	$	3,946	$	1,953	$	(6,452	)	$	(553	)
Other comprehensive net gain (loss) reclassifications	5,811			(781		)	(621		)	4,409			(794		)	2,360			212			1,778			5,172		240		(822		)	4,590		7,671		1,270		(539		)	8,402
Net (gain) loss reclassified to earnings	—			153			174			327			—			(53		)	511			458			—		687		95			782		—		790		186			976
Other comprehensive income (loss)	5,811			(628		)	(447		)	4,736			(794		)	2,307			723			2,236			5,172		927		(727		)	5,372		7,671		2,060		(353		)	9,378
Ending balance	$	(121	)	$	2,052		$	(10,068	)	$	(8,137	)	$	(121	)	$	2,052		$	(10,068	)	$	(8,137	)	$	11,617	$	4,013	$	(6,805	)	$	8,825	$	11,617	$	4,013	$	(6,805	)	$	8,825

~~Table of Contents~~

The effect on certain line items in the Consolidated Statements of Income of amounts reclassified out of AOCI are as follows:


	Three Months Ended						Nine Months Ended						Affected Line Item in the Consolidated Statements of Income	Three Months Ended						Six Months Ended						Affected Line Item in the Consolidated Statements of Income
	June 30, 2018			July 1, 2017			June 30, 2018			July 1, 2017			Affected Line Item in the Consolidated Statements of Income	March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018			Affected Line Item in the Consolidated Statements of Income
Derivative instruments
Currency exchange contracts gain (loss)	$	273		$	(58	)	$	(1,031	)	$	679		Revenue	$	16		$	(1,146	)	$	601		$	(1,304	)	Revenue
Interest rate swap contracts gain (loss)	422			(182		)	661			(598		)	Interest expense, net	709			220			1,293			239			Interest expense, net
Income tax benefit (expense)	(179		)	87			96			(28		)	Income tax provision (benefit)	(158		)	239			(413		)	275			Income tax provision (benefit)
Total net gain (loss) on derivative instruments	516			(153		)	(274		)	53			Net income	567			(687		)	1,481			(790		)	Net income
Defined benefit pension plan
Defined benefit pension plan ¹
Actuarial loss														—			(75		)	—			(146		)	Cost of sales
Actuarial loss	(71		)	(136		)	(217		)	(399		)	Cost of sales	—			(38		)	—			(75		)	Selling and marketing
Actuarial loss	(38		)	(70		)	(113		)	(207		)	Selling and marketing	—			(24		)	—			(46		)	General and administrative
Actuarial loss	(22		)	(43		)	(68		)	(125		)	General and administrative	(137		)	—			(274		)	—			Other income (expense), net
Total actuarial loss	(131		)	(249		)	(398		)	(731		)	Income before income taxes	(137		)	(137		)	(274		)	(267		)	Income before income taxes
Income tax benefit	39			75			120			220			Income tax provision (benefit)	42			42			83			81			Income tax provision (benefit)
Total net loss on pension plan	(92		)	(174		)	(278		)	(511		)	Net income	(95		)	(95		)	(191		)	(186		)	Net income
Total net of tax reclassifications out of AOCI included in net income	$	424		$	(327	)	$	(552	)	$	(458	)		$	472		$	(782	)	$	1,290		$	(976	)


¹	Change in classification of actuarial loss on defined benefit pension plan related to the adoption of ASU No. 2017-07 in fiscal year 2019. See Note 2 for additional information on the impact of adoption.

NOTE 1516 BUSINESS SEGMENT INFORMATION

Our Chief Executive Officer (the Chief Operating Decision Maker) regularly reviews financial information for our two ~~operating~~reportable segments, Test & Simulation and Sensors. Test ~~provides testing~~& Simulation manufactures and sells equipment ~~systems~~and related software and services which are used by customers to ~~the ground vehicles, materials~~characterize a product's mechanical properties or performance. Sensors manufactures and ~~structures sectors. Sensors provides high performance~~sells high-performance sensors ~~for acceleration,~~which provide measurements of vibration, pressure, position, ~~vibration, motion, pressure~~force and ~~force measurement.~~sound in a variety of applications.

In evaluating each segment's performance, our Chief Executive Officer focuses on income from operations. This measure excludes interest income and expense, income taxes and other non-operating items. Corporate expenses, including costs associated with various support functions such as human resources, information technology, legal, finance and accounting, and general and administrative costs are allocated to the reportable segments on the basis of revenue. The accounting policies of the

Table of Contents

reportable segments are the same as those described in Note 1 to the Consolidated Financial Statements found in our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2017.~~ 29, 2018 and in Note 3 of this Quarterly Report on Form 10-Q.

~~The acquisition of PCB in fiscal year 2016 generated new opportunities to sell between our operating segments.~~ Intersegment revenue is based on standard costs with reasonable mark-ups established between the reportable segments. All significant intersegment amounts are eliminated to arrive at consolidated financial results.

~~Table of Contents~~

Financial information by reportable segment is as follows:


	Three Months Ended					Nine Months Ended					Three Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017		June 30, 2018			July 1, 2017		March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018
Revenue
Test	$	116,055		$	124,359	$	344,496		$	379,325
Test & Simulation											$	151,032		$	110,238		$	276,592		$	228,441
Sensors	79,000			69,405		236,501			207,142		82,375			81,542			160,325			157,501
Intersegment eliminations	(387		)	—		(844		)	—		(361		)	(457		)	(690		)	(457		)
Total revenue	$	194,668		$	193,764	$	580,153		$	586,467	$	233,046		$	191,323		$	436,227		$	385,485

Income from operations
Test	$	3,873		$	8,709	$	12,777		$	26,792
Test & Simulation											$	12,684		$	3,295		$	20,015		$	8,904
Sensors	12,398			7,908		36,623			15,527		11,504			13,337			22,138			24,225
Intersegment eliminations	(7		)	—		(29		)	—		(14		)	(22		)	(13		)	(22		)
Total income from operations	$	16,264		$	16,617	$	49,371		$	42,319	$	24,174		$	16,610		$	42,140		$	33,107

NOTE 1617 RESTRUCTURING AND RELATED COSTS

Fiscal Year 2018 Restructuring

During the fourth quarter of fiscal year 2018, we initiated a Test & Simulation workforce reduction intended to simplify the organization and reduce the overall cost structure. No restructuring expenses were recognized in the three or six months ended March 30, 2019 or March 31, 2018 related to this restructuring action. As of March 30, 2019, we have incurred a total of $880 of pre-tax severance and related expense.

Fiscal Year 2017 Restructuring

During the fourth quarter of fiscal year 2017, we initiated a series of Test & Simulation workforce reductions and facility closures intended to increase organizational effectiveness, gain manufacturing efficiencies and provide cost savings that can be reinvested in our growth initiatives. These actions include the transfer of certain production operations in China to a contract manufacturing partner inthroughout fiscal ~~year 2018.~~years 2018 and 2019. As a result, induring the three and ~~nine~~six months ended ~~June~~March 30, 2019, we recorded $0 and $130 of pre-tax severance and related expense, respectively. During the three and six months ended March 31, 2018, we recorded ~~$715~~$321 and ~~$1,129~~$414 of pre-tax severance and related expense, respectively, and ~~$24~~$25 and ~~$211~~$187 of pre-tax facility closure costs, respectively. As of ~~June~~March 30, ~~2018,~~2019, we have incurred a total of ~~$4,262~~$4,871 of pre-tax expense, including ~~$4,028~~$4,579 and ~~$234~~$292 of pre-tax expense related to severance and facility closure costs, respectively. For our fiscal year ending September 29, 2018, we expect to incur total expense of approximately $2,000 related to these restructuring actions. The majority of the expenses are expected to be paid in the first half of fiscal year 2019.

During the fourth quarter of fiscal year 2017, in an effort to reduce costs and create economic efficiencies in Sensors, we initiated plans to close our Machida, Japan sales office in the second quarter of fiscal year 2018. In the three months ended June 30, 2018, we recorded ~~an immaterial adjustment to the severance and related expense reported in previous periods.~~ In the nine months ended June 30, 2018, we recorded $3 of pre-tax severance and related expense. As of June 30, 2018, we have incurred a total of $133 of pre-tax severance and related expense. We expect to incur additional pre-tax severance and related expense of approximately $40. The majority of the expenses are expected to be paid in fiscal year 2018 and the first half of fiscal year 2019.

~~Fiscal Year 2016 Restructuring~~

During fiscal year 2016, we initiated plans to reduce costs in Sensors by closing our Machida, Japan manufacturing facility in the third quarter of fiscal year 2017. We recorded no restructuring expenses in the three and nine months ended June 30, 2018 and $92 and $1,036 in the three and nine months ended July 1, 2017, respectively. As of June 30, 2018, we have incurred a total of $1,964 of pre-tax expense, including $1,444 and $520 related to severance and facility closure costs, respectively. The remaining severance and facility closing costs are expected to be paid during the fourth quarter of fiscal year 2018.

~~Fiscal Year 2014 Restructuring~~

During fiscal year 2014, we initiated workforce and other cost reduction actions at certain of our Test locations in the U.S. and Europe. No restructuring expenses were recognized during the three or nine months ended June 30, 2018 or July 1, 2017 related to these restructuring actions.

~~Table of Contents~~

Restructuring expenses included in our Consolidated Statements of Income for ~~all~~the above restructuring actions are as follows:


	Three Months Ended													Three Months Ended				Six Months Ended
	June 30, 2018							July 1, 2017						March 30, 2019		March 31, 2018		March 30, 2019		March 31, 2018
	Test		Sensors			Total		Test		Sensors		Total		Test & Simulation		Test & Simulation		Test & Simulation		Test & Simulation
Cost of sales	$	386	$	—		$	386	$	—	$	67	$	67	$	—	$	304	$	117	$	424
Selling and marketing	158		(4		)	154		—		10		10		—		—		—		—
General and administrative	52		—			52		—		15		15		—		42		13		177
Research and development	143		—			143		—		—		—
Total restructuring expense	$	739	$	(4	)	$	735	$	—	$	92	$	92	$	—	$	346	$	130	$	601

Table of Contents

Nine Months Ended
June 30, 2018 July 1, 2017
Test Sensors Total Test Sensors Total
Cost of sales $ 810
$ —
$ 810
$ —
$ 647
$ 647
Selling and marketing 158
3
161
—
136
136
General and administrative 229
—
229
—
253
253
Research and development 143
—
143
—
—
—
Total restructuring expense $ 1,340
$ 3
$ 1,343
$ —
$ 1,036
$ 1,036

Restructuring expense accruals included in payroll and related costs in the Consolidated Balance Sheets for ~~all~~the above restructuring actions are as follows:


	2017						2016			2014						2018			2017
	Test			Sensors			Sensors			Test			Total			Test & Simulation			Test & Simulation
Balance, September 30, 2017	$	2,899		$	120		$	209		$	734		$	3,962
Balance, September 29, 2018																$	1,051		$	2,933
Restructuring expense	1,340			3			—			—			1,343			—			130
Payments	(1,451		)	(92		)	(62		)	(202		)	(1,807		)	(1,012		)	(3,058		)
Other adjustments	74			—			—			—			74			(39		)	(5		)
Currency translation	—			—			5			(98		)	(93		)	—			—
Balance, June 30, 2018	$	2,862		$	31		$	152		$	434		$	3,479
Balance, March 30, 2019																$	—		$	—

~~Restructuring expense accruals~~

NOTE 18 BUSINESS ACQUISITIONS

On November 21, 2018, we acquired all ownership interests of E2M for a cash purchase price of $80,287. Based in Amsterdam, Netherlands, E2M is a leading manufacturer of high force, electrically driven actuation systems, serving primarily the human-rated entertainment and training simulation markets. The acquisition of E2M expands our technology and product offerings for human-rated simulation systems and brings key regulatory approvals and customers in the flight simulation and entertainment markets. The transaction was accounted for under the acquisition method of accounting. The acquired assets, liabilities and operating results have been included in our financial statements within Test & Simulation from the date of acquisition. During the three and six months ended March 30, 2019, we included $10,138 and $13,659, respectively, of revenue from E2M in our Consolidated ~~Balance Sheets are~~Statements of Income. We funded the acquisition of E2M primarily with borrowings on our Revolving Credit Facility. Costs of $1,035 associated with the acquisition of E2M were expensed as ~~follows:~~

June 30,
2018 September 30,
2017
Accrued payroll and related costs $ 3,257
$ 3,485
Other accrued liabilities 99
98
Other long-term liabilities 123
379
Total severance and related costs $ 3,479
$ 3,962

incurred. Pro forma information related to the acquisition of E2M has not been included as the impact on our consolidated results of operations was not considered material.

2632

Table of Contents

The following table summarizes the preliminary fair value measurement of the assets acquired and liabilities assumed, net of cash acquired, as of the date of acquisition:



	Fair Value			Finite-Lived Intangible Asset Lives (Years)
Asset (Liability)
Accounts receivable	$	4,651
Unbilled accounts receivable	1,518
Inventories	11,063
Prepaid expenses and other current assets	123
Property and equipment	672
Intangible assets
Customer lists	21,595			15
Trademarks and trade names	5,926			15
Technology	12,650			15
Other intangible assets	3,761			4
Other long-term assets	60
Purchased goodwill	32,523
Accounts payable	(3,657		)
Accrued payroll and related costs	(1,328		)
Advance payments from customers	(4,315		)
Accrued income taxes	(290		)
Other accrued liabilities	(127		)
Deferred income taxes	(6,278		)
Net assets acquired	$	78,547

Supplemental information
Consideration paid at closing	$	79,772
Post-closing purchase price adjustment	515
Less: Cash acquired	(1,740		)
Purchase price, net of cash acquired	$	78,547

The allocation of purchase price consideration is considered preliminary as of March 30, 2019 with provisional amounts primarily related to inventory, intangible assets, advanced payments to customers and certain tax related items included as our allocation process has not been finalized. We expect to finalize the allocation of purchase price as soon as possible, but no later than one year from the acquisition date.

Goodwill was calculated as the difference between the acquisition date fair value of the total purchase price consideration and the fair value of the net assets acquired and represents the future economic benefits that we expect to achieve as a result of the acquisition. This resulted in a purchase price in excess of the fair value of identifiable net assets acquired. The purchase price also included the fair value of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. All of the goodwill was assigned to Test & Simulation. None of the goodwill is deductible for income tax purposes.

The preliminary fair value of the acquired intangible assets was $43,932. The acquired intangible assets are being amortized on a straight-line basis over the useful lives identified in the table above.

Table of Contents

Item 2. 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) is designed to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in nine sections:

Overview

Financial Results

Cash Flow Comparison

Liquidity and Capital Resources

Off-balance Sheet Arrangements

Critical Accounting Policies

Recently Issued Accounting Pronouncements

Other Matters

Forward-looking Statements

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q. All dollar and share amounts are in thousands, unless otherwise noted.

Overview

MTS Systems ~~Corporation is a leading global supplier of high performance test systems~~Corporation's testing and ~~sensors. Our testing~~simulation hardware, software and ~~software~~service solutions help customers accelerate and improve their design, development and manufacturing processes and are used for determining the mechanical behavior of materials, products and structures. Our ~~high performance~~high-performance sensors provide ~~controls for~~measurements of vibration, pressure, position, force and sound in a variety of ~~applications measuring acceleration, position, vibration, motion, pressure, force and sound.~~applications. As of September ~~30, 2017,~~29, 2018, we had ~~3,500~~3,400 employees and revenue of ~~$787,955~~$778,032 for fiscal year ~~2017.~~2018.

~~Our goal is~~Further globalization and expansion of many industries along with growth in emerging markets, such as China and India, provide a strong and vibrant market base from which we can grow revenue. We have aligned our organizational structure to be more flexible to the demands of globalized and volatile markets by adjusting our structure to be more cost effective and nimble in responding to our customers' needs. We are looking ahead to delivering distinctive business performance through our commitment to sustain ~~profitable enterprise growth, consistently generate strong cash flow~~the differentiated competitive advantage that comes from offering an innovative portfolio of Test & Simulation and ~~deliver a strong return on invested capital to our shareholders by leveraging our leadership position in the research~~Sensors solutions that create value for customers and ~~development and industrial global end markets for high-performance test systems and sensors. Our desire is to be the innovation leader in creating test and measurement solutions and to provide~~are delivered with total customer satisfaction. We believe we can create value for our customers by helping to enhance the precision, improve the reliability and create superior safety for their products, while reducing the delivery time to market. Our competitive advantages include our proprietary technology and advanced application expertise, our expansive global footprint with long-term customer relationships, our large installed base of testing equipment and our expanded presence in the rapidly growing sensors market. We believe these competitive advantages position us well in both the Test and Sensors markets to deliver profitable growth in the years ahead.

We are working toward our goals of sustained five to seven percent growth in annual revenue; three to four points of expanded earnings before interest, taxes, depreciation and amortization (EBITDA); and mid-teens for return on invested capital (ROIC). We believe the growth in our end markets, combined with four primary opportunities we are currently pursuing, will support these goals:

~~Realize growth within the rapidly expanding Sensors market through an increase in our global market share and new product development;~~

~~Expand Test services offerings into our large installed base of Test equipment;~~

Capitalize on growth opportunities in the Test materials sector spurred by new manufacturing processes, focus on light-weight materials in aerospace and ground vehicle markets, and trends in energy exploration; and

~~Adapt our industry-leading ground vehicle testing applications to align with emerging trends in vehicle electrification, autonomous vehicles and simulation.~~

We believe that our business model supports our growth objectives, provided that we continue to move aggressively to build our infrastructure, expand our offerings and execute on opportunities with our key customers around the world. In order to accelerate our revenue growth over the next five years, investments in infrastructure, sales support and field service capacity and capability are essential.

~~Tax Cuts and Jobs Act~~Acquisition

~~The Tax Cuts and Jobs Act (the Tax Act) was signed into law~~On November 21, 2018, we acquired E2M Technologies B.V. (E2M) for a cash purchase price of $80,287. We funded the acquisition of E2M through borrowings on ~~December 22, 2017. The Tax Act made numerous changes to U.S. federal corporate tax law and reduced~~ our effective tax rate for fiscal year 2018 and future periods. Effective January 1, 2018, the Tax Act lowers the U.S. corporate tax rate from 35% to 21% and prompts various other changes to U.S. federal corporate tax law, including the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations. We have completed our initial analysis to quantify the tax impacts of the Tax Act and have recorded

~~Table of Contents~~

~~an estimate of the impact in our fiscal year 2018 results.~~Revolving Credit Facility. See Note 1118 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for further discussion of the ~~impact~~acquisition of E2M.

Financing

On November 21, 2018, we amended the Credit Agreement to increase the size of our Revolving Credit Facility from $120,000 to $150,000 and to extend the expiration date to July 5, 2022. The size of the ~~Tax Act.~~

~~Restructuring Initiative~~

~~During~~Revolving Credit Facility was increased to finance the ~~fourth quarter~~purchase of fiscal year 2017, we initiated a series of Test workforce reductions and facility closures intended to increase organizational effectiveness, gain manufacturing efficiencies and provide cost savings that can be reinvested in our growth initiatives. These actions include the transfer of certain production operations in China to a contract manufacturing partner in fiscal year 2018. As a result, we recorded $739 and $1,340 of pre-tax restructuring expense in the three and nine months ended June 30, 2018, respectively.E2M. See Note 169 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for further discussion of ~~restructuring initiatives.~~the amendment to the Credit Agreement.

Foreign Currency

Approximately 70% of our revenue has historically been derived from customers outside of the U.S. Our financial results are principally exposed to changes in exchange rates between the U.S. dollar and the Euro, the Japanese yen and the Chinese yuan. A change in foreign exchange rates could positively or negatively affect our reported financial results. The discussion below quantifies the impact of foreign currency translation on our financial results for the periods discussed.

Adoption of New Revenue Recognition Standard

In fiscal year 2019, we adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), followed by related amendments (collectively, "the new revenue standard" or "ASC 606"). See Note 2 and Note 3 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for the impact of this adoption on our Consolidated Income Statements and Consolidated Balance Sheets.

Terms

The terms "MTS," "we," "us," "the ~~Company,"~~Company" or "our" in this Quarterly Report on Form 10-Q, unless the context otherwise requires, refer to MTS Systems Corporation and its wholly owned subsidiaries.

Table of Contents

Financial Results

Total Company

Results of Operations

The following ~~table compares~~tables compare results of operations, separately identifying the estimated impact of currency translation, the acquisition of E2M in the first quarter of fiscal year 2019 and restructuring costs incurred in the first quarter of fiscal year ~~2018.~~2019.


	Three Months Ended														Three Months Ended¹
				Estimated														Estimated
	June 30, 2018			Business Change			Restructuring			Currency Translation		July 1, 2017			March 30, 2019			Business Change			Acquisition²		Currency Translation			March 31, 2018
Revenue	$	194,668		$	(3,878	)	$	—		$	4,782	$	193,764		$	233,046		$	37,302		$	10,138	$	(5,717	)	$	191,323
Cost of sales	118,384			(3,364		)	386			3,154		118,208			145,696			25,891			7,260		(3,953		)	116,498
Gross profit	76,284			(514		)	(386		)	1,628		75,556			87,350			11,411			2,878		(1,764		)	74,825
Gross margin	39.2		%									39.0		%	37.5		%									39.1		%

Operating expenses
Selling and marketing	32,171			(474		)	154			634		31,857			33,395			3,229			319		(750		)	30,597
General and administrative	19,081			(6		)	52			309		18,726			22,105			1,535			1,875		(297		)	18,992
Research and development	8,768			199			143			70		8,356			7,676			(1,229		)	348		(69		)	8,626
Total operating expenses	60,020			(281		)	349			1,013		58,939			63,176			3,535			2,542		(1,116		)	58,215
Income from operations	$	16,264		$	(233	)	$	(735	)	$	615	$	16,617		$	24,174		$	7,876		$	336	$	(648	)	$	16,610



	Six Months Ended¹
				Estimated
	March 30, 2019			Business Change			Acquisition / Restructuring³			Currency Translation			March 31, 2018
Revenue	$	436,227		$	45,243		$	13,659		$	(8,160	)	$	385,485
Cost of sales	270,572			33,553			10,193			(5,906		)	232,732
Gross profit	165,655			11,690			3,466			(2,254		)	152,753
Gross margin	38.0		%										39.6		%

Operating expenses
Selling and marketing	65,484			3,453			410			(1,004		)	62,625
General and administrative	43,183			972			3,208			(551		)	39,554
Research and development	14,848			(3,085		)	558			(92		)	17,467
Total operating expenses	123,515			1,340			4,176			(1,647		)	119,646
Income from operations	$	42,140		$	10,350		$	(710	)	$	(607	)	$	33,107

Financial results for fiscal year 2019 are presented in accordance with the new revenue standard adopted in the first quarter of fiscal year 2019. Prior period results have not been restated to reflect this change. The three and six months ended March 30, 2019 include a favorable impact on income from operations related to the ASC 606 adoption of $2,841 and $3,291, respectively. While we do not expect the adoption of the new revenue standard to have a significant impact on annual operating results, we do expect that it will have an impact on the timing of revenue recognition in interim periods.


²	The Acquisition column includes revenues and costs from the acquisition of E2M and costs incurred as part of the acquisition of E2M.


³	The Acquisition / Restructuring column includes revenues and costs from the acquisition of E2M, costs incurred as part of the acquisition of E2M and restructuring costs.

2835

Table of Contents



Revenue
	Three Months Ended								Six Months Ended
	March 30, 2019		March 31, 2018		Increased / (Decreased)				March 30, 2019		March 31, 2018		Increased / (Decreased)
	March 30, 2019		March 31, 2018		$		%		March 30, 2019		March 31, 2018		$		%
Revenue	$	233,046	$	191,323	$	41,723	21.8	%	$	436,227	$	385,485	$	50,742	13.2	%

Revenue for the three and six months ended March 30, 2019 increased 21.8% and 13.2%, respectively, primarily driven by growth in both the Test & Simulation and Sensors businesses, partially offset by the unfavorable impact of currency translation. Test & Simulation revenue for the three and six months ended March 30, 2019 increased $40,794 and $48,151, respectively, primarily driven by growth in equipment volume from conversion of robust beginning-of-year backlog across all sectors and strong current-year order volume and the acquisition of E2M in the first quarter of fiscal year 2019. The increase was partially offset by the unfavorable impact of currency translation. Sensors revenue for the three and six months ended March 30, 2019 increased $833 and $2,824, respectively, primarily driven by continued growth in the Sensors position sector from ongoing strength in industrial and mobile hydraulics markets and growth in the Sensors test sector from a multi-year contract with the U.S. Department of Defense, partially offset by the unfavorable impact of currency translation. Excluding the impact of currency translation and the E2M acquisition, revenue increased 19.5% and 11.7%, respectively.



Gross Profit
	Three Months Ended											Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)					March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$			%		March 30, 2019			March 31, 2018			$			%
Gross profit	$	87,350		$	74,825		$	12,525		16.7	%	$	165,655		$	152,753		$	12,902		8.4	%
Gross margin	37.5		%	39.1		%	(1.6		)	ppts		38.0		%	39.6		%	(1.6		)	ppts

Gross profit for the three and six months ended March 30, 2019 increased 16.7% and 8.4%, respectively, primarily driven by revenue growth in Test & Simulation and the gross profit contribution from the E2M acquisition. This increase was partially offset by increased compensation expense, revenue mix between Test & Simulation and Sensors, the E2M inventory acquisition adjustment of $539 and $984, respectively, and the unfavorable impact of currency translation. Gross margin rate declined 1.6 percentage points in both periods primarily due to increased compensation expense, revenue mix between Test & Simulation and Sensors, and the E2M inventory acquisition adjustment. This decrease was partially offset by favorable leverage on higher revenue volume and strong project execution. Excluding the impact of currency translation, the E2M acquisition, and restructuring costs incurred in both fiscal years, gross profit increased 14.8% and 7.4% and the gross margin rate declined 1.6 and 1.5 percentage points, respectively.



Selling and Marketing Expense
	Three Months Ended										Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)				March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$		%		March 30, 2019			March 31, 2018			$		%
Selling and marketing	$	33,395		$	30,597		$	2,798	9.1	%	$	65,484		$	62,625		$	2,859	4.6	%
% of revenue	14.3		%	16.0		%					15.0		%	16.2		%

Selling and marketing expense for the three and six months ended March 30, 2019 increased 9.1% and 4.6%, respectively, primarily due to increased compensation and commissions expense to support sales growth and the addition of E2M expenses, partially offset by the favorable impact of currency translation. Excluding the impact of currency translation and E2M expenses, selling and marketing expense increased 10.6% and 5.5%, respectively.

Table of Contents

Nine Months Ended

Estimated
June 30,
2018 Business
Change Restructuring Currency
Translation July 1,
2017
Revenue $ 580,153
$ (24,794 ) $ —
$ 18,480
$ 586,467
Cost of sales 351,116
(20,951 ) 810
12,666
358,591
Gross profit 229,037
(3,843 ) (810 ) 5,814
227,876
Gross margin 39.5 %

38.9 %

Operating expenses

Selling and marketing 94,796
(889 ) 161
2,570
92,954
General and administrative 58,635
(8,992 ) 229
1,093
66,305
Research and development 26,235
(470 ) 143
264
26,298
Total operating expenses 179,666
(10,351 ) 533
3,927
185,557
Income from operations $ 49,371
$ 6,508
$ (1,343 ) $ 1,887
$ 42,319



General and Administrative Expense
	Three Months Ended										Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)				March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$		%		March 30, 2019			March 31, 2018			$		%
General and administrative	$	22,105		$	18,992		$	3,113	16.4	%	$	43,183		$	39,554		$	3,629	9.2	%
% of revenue	9.5		%	9.9		%					9.9		%	10.3		%

General and administrative expense for the three and six months ended March 30, 2019 increased 16.4% and 9.2%, respectively, primarily due to the addition of E2M expenses, acquisition-related expenses, higher compensation expense in Sensors and increased professional fees, partially offset by lower compensation expense in Test & Simulation. Excluding the impact of currency translation, E2M expenses, and restructuring costs incurred in both fiscal years, general and administrative expense increased 8.3% and 2.9%, respectively.



Research and Development Expense
	Three Months Ended											Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)					March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$			%		March 30, 2019			March 31, 2018			$			%
Research and development	$	7,676		$	8,626		$	(950	)	(11.0	)%	$	14,848		$	17,467		$	(2,619	)	(15.0	)%
% of revenue	3.3		%	4.5		%						3.4		%	4.5		%

Research and development (R&D) expense for the three months ended March 30, 2019 declined 11.0% primarily due to lower compensation expense in Test & Simulation, partially offset by the addition of E2M expenses. Excluding the impact of currency translation and E2M expenses, R&D expense decreased 14.2%.

R&D expense for the six months ended March 30, 2019 declined 15.0% primarily due to lower compensation expense in Test & Simulation due in part to the shift of internal resources to capital projects, partially offset by the addition of E2M expenses and continued investment in new product development in Sensors. Excluding the impact of currency translation and E2M expenses, R&D expense decreased 17.7%.



Income from Operations
	Three Months Ended										Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)				March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$		%		March 30, 2019			March 31, 2018			$		%
Income from operations	$	24,174		$	16,610		$	7,564	45.5	%	$	42,140		$	33,107		$	9,033	27.3	%
% of revenue	10.4		%	8.7		%					9.7		%	8.6		%

Income from operations for the three and six months ended March 30, 2019 increased 45.5% and 27.3%, respectively, primarily due to increased gross profit on higher revenue volume and the impact of the E2M acquisition, partially offset by higher compensation expense and acquisition-related expenses. Excluding the impact of currency translation, the E2M acquisition, and restructuring costs incurred in both fiscal years, income from operations increased 44.4% and 28.9%, respectively.



Interest Expense, Net
	Three Months Ended								Six Months Ended
	March 30, 2019		March 31, 2018		Increased / (Decreased)				March 30, 2019		March 31, 2018		Increased / (Decreased)
	March 30, 2019		March 31, 2018		$		%		March 30, 2019		March 31, 2018		$		%
Interest expense, net	$	7,368	$	6,708	$	660	9.8	%	$	14,186	$	13,512	$	674	5.0	%

Interest expense, net for the three and six months ended March 30, 2019 increased primarily due to an increase in interest expense on the revolving credit facility, which was partially offset by a reduction in interest expense related to lower balances on the tranche B term loan, as well as current year gains on interest rate swaps.

Table of Contents



Other Income (Expense), Net
	Three Months Ended									Six Months Ended
	March 30, 2019		March 31, 2018		Increased / (Decreased)					March 30, 2019		March 31, 2018		Increased / (Decreased)
	March 30, 2019		March 31, 2018		$			%		March 30, 2019		March 31, 2018		$		%
Other income (expense), net	$	270	$	274	$	(4	)	(1.5	)%	$	319	$	51	$	268	525.5	%

Other income (expense), net remained flat for the three months ended March 30, 2019.

The increase in other income (expense), net for the six months ended March 30, 2019 was primarily driven by a relative decrease in losses on foreign currency transactions.



Income Tax Provision (Benefit)
	Three Months Ended										Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)				March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$		%		March 30, 2019			March 31, 2018			$		%
Income tax provision (benefit)	$	2,916		$	1,738		$	1,178	67.8	%	$	3,612		$	(21,943	)	$	25,555	116.5	%
Effective tax rate	17.1		%	17.1		%					12.8		%	(111.7		)%

The effective tax rate for the three months ended March 30, 2019 was flat.

The effective tax rate for the six months ended March 30, 2019 increased primarily due to certain discrete benefits of $25,378 in the prior year for the estimated impact of the Tax Cuts and Jobs Act (the Tax Act). The current year also includes a certain discrete tax benefit of $1,293 related to the Tax Act. Excluding the impact of these discrete benefits, the effective tax rate for the six months ended March 30, 2019 and March 31, 2018 would have been 17.3% and 17.5%, respectively.



Net Income
	Three Months Ended								Six Months Ended
	March 30, 2019		March 31, 2018		Increased / (Decreased)				March 30, 2019		March 31, 2018		Increased / (Decreased)
	March 30, 2019		March 31, 2018		$		%		March 30, 2019		March 31, 2018		$			%
Net income	$	14,160	$	8,438	$	5,722	67.8	%	$	24,661	$	41,589	$	(16,928	)	(40.7	)%
Diluted earnings per share	$	0.73	$	0.44	$	0.29	65.9	%	$	1.27	$	2.16	$	(0.89	)	(41.2	)%

Net income and diluted earnings per share for the three months ended March 30, 2019 increased primarily due to higher income from operations.

Net income and diluted earnings per share for the six months ended March 30, 2019 decreased primarily due to an increase in the effective tax rate, partially offset by higher income from operations.

Table of Contents

Segment Results

Test & Simulation Segment

Results of Operations

The following tables compare results of operations for Test & Simulation, separately identifying the estimated impact of currency translation, the acquisition of E2M in the first quarter of fiscal year 2019 and restructuring costs incurred in the first quarter of fiscal year 2019. See Note 16 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on our reportable segments.



	Three Months Ended¹
				Estimated
	March 30, 2019			Business Change			Acquisition²		Currency Translation			March 31, 2018
Revenue	$	151,032		$	34,007		$	10,138	$	(3,351	)	$	110,238
Cost of sales	103,742			23,110			7,260		(2,639		)	76,011
Gross profit	47,290			10,897			2,878		(712		)	34,227
Gross margin	31.3		%									31.0		%

Operating expenses
Selling and marketing	18,515			2,626			319		(389		)	15,959
General and administrative	12,816			410			1,875		(211		)	10,742
Research and development	3,275			(1,299		)	348		(5		)	4,231
Total operating expenses	34,606			1,737			2,542		(605		)	30,932
Income from operations	$	12,684		$	9,160		$	336	$	(107	)	$	3,295



	Six Months Ended¹
				Estimated
	March 30, 2019			Business Change			Acquisition / Restructuring³			Currency Translation			March 31, 2018
Revenue	$	276,592		$	39,352		$	13,659		$	(4,860	)	$	228,441
Cost of sales	189,757			28,528			10,193			(4,039		)	155,075
Gross profit	86,835			10,824			3,466			(821		)	73,366
Gross margin	31.4		%										32.1		%

Operating expenses
Selling and marketing	35,863			2,227			410			(495		)	33,721
General and administrative	24,887			274			3,208			(428		)	21,833
Research and development	6,070			(3,390		)	558			(6		)	8,908
Total operating expenses	66,820			(889		)	4,176			(929		)	64,462
Income from operations	$	20,015		$	11,713		$	(710	)	$	108		$	8,904


²	The Acquisition column includes revenues and costs from the acquisition of E2M and costs incurred as part of the acquisition of E2M.


³	The Acquisition / Restructuring column includes revenues and costs from the acquisition of E2M, costs incurred as part of the acquisition of E2M and restructuring costs.

Table of Contents

See Notes 3, 17 and 18 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on the new revenue standard, restructuring and related costs. In the fourth quarter of fiscal year 2016, we completed the acquisition of PCB Group, Inc. (PCB). As a result of the PCB acquisition, we incurred certain non-recurring costs during fiscal year 2017 including acquisition integration costs, and ~~a fair value adjustment on acquired PCB inventory (PCB~~the E2M acquisition, ~~inventory adjustment).~~

~~Revenue~~respectively.

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)

$ % $ %
Revenue $ 194,668
$ 193,764
$ 904
0.5 % $ 580,153
$ 586,467
$ (6,314 ) (1.1 )%



Revenue
	Three Months Ended								Six Months Ended
	March 30, 2019		March 31, 2018		Increased / (Decreased)				March 30, 2019		March 31, 2018		Increased / (Decreased)
	March 30, 2019		March 31, 2018		$		%		March 30, 2019		March 31, 2018		$		%
Revenue	$	151,032	$	110,238	$	40,794	37.0	%	$	276,592	$	228,441	$	48,151	21.1	%

Revenue for the three and six months ended ~~June~~March 30, ~~2018~~2019 increased ~~0.5%~~37.0% and 21.1%, respectively, primarily driven by growth in ~~our Sensors business~~equipment volume across all sectors from conversion of robust beginning-of-year backlog and strong current-year order volume and the acquisition of E2M in the first quarter of fiscal year 2019. The increase was partially offset by the unfavorable impact of currency translation. Excluding the impact of currency translation and the E2M acquisition, revenue increased 30.8% and 17.2%, respectively.



Gross Profit
	Three Months Ended										Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)				March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$		%		March 30, 2019			March 31, 2018			$			%
Gross profit	$	47,290		$	34,227		$	13,063	38.2	%	$	86,835		$	73,366		$	13,469		18.4	%
Gross margin	31.3		%	31.0		%	0.3		ppts		31.4		%	32.1		%	(0.7		)	ppts

Gross profit for the three months ended March 30, 2019 increased 38.2% primarily due to higher revenue volume and the gross profit contribution from the E2M acquisition, partially offset by increased compensation expense. Gross margin rate increased 0.3 percentage points primarily driven by higher revenue volume, strong project execution and the favorable impact of currency translation, partially offset by ~~lower Test revenue. Sensors revenue~~ increased ~~$9,595 primarily driven by continued growth in~~compensation expense and the Sensors position sector and continued momentum from new opportunities in the Sensors test sector, along with broad demand across the remaining Sensors sectors. Test revenue decreased $8,304 primarily driven by a decline in equipment volume resulting from weakness in the ground vehicles sector that continues to operate in a rapidly changing environment. Current year Test revenue was also impacted by higher custom project backlog which takes longer to convert to revenue, partially offset by continued growth in the Test materials sector.$539 E2M acquisition inventory adjustment. Excluding the impact of currency translation, ~~revenue decreased 2.0%.~~the E2M acquisition, and prior year restructuring costs, gross profit increased 30.7% and gross margin rate remained flat.

~~Revenue~~Gross profit for the ~~nine~~six months ended ~~June~~March 30, ~~2018~~2019 increased 18.4% primarily due to higher revenue volume and the gross profit contribution from the E2M acquisition, partially offset by increased compensation expense. Gross margin rate declined ~~1.1%~~0.7 percentage points primarily driven by ~~lower Test revenue,~~increased compensation expense and the $984 E2M acquisition inventory adjustment, partially offset by ~~growth in our Sensors business~~higher revenue volume, strong project execution and the favorable impact of currency translation. Test revenue decreased $34,829 primarily driven by a decline in equipment volume resulting from weakness in the ground vehicles sector that continues to operate in a rapidly changing environment. Current year Test revenue was also impacted by higher custom project backlog which takes longer to convert to revenue, partially offset by continued growth in the Test materials sector. Sensors revenue increased $29,359 primarily driven by continued growth in the Sensors position sector and continued momentum from new opportunities in the Sensors test sector, along with broad demand across the remaining Sensors sectors. Excluding the impact of currency translation, ~~revenue decreased 4.2%.~~

~~Gross Profit~~the E2M acquisition, and restructuring costs incurred in both fiscal years, gross profit increased 14.1% and gross margin rate declined 0.9 percentage points.

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)

$ % $ %
Gross profit $ 76,284
$ 75,556
$ 728
1.0 % $ 229,037
$ 227,876
$ 1,161
0.5 %
Gross margin 39.2 % 39.0 % 0.2
ppts 39.5 % 38.9 % 0.6
ppts

~~Gross profit~~



Selling and Marketing Expense
	Three Months Ended										Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)				March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$		%		March 30, 2019			March 31, 2018			$		%
Selling and marketing	$	18,515		$	15,959		$	2,556	16.0	%	$	35,863		$	33,721		$	2,142	6.4	%
% of revenue	12.3		%	14.5		%					13.0		%	14.8		%

Selling and marketing expense for the three and six months ended ~~June~~March 30, ~~2018~~2019 increased ~~1.0%~~16.0% and 6.4%, respectively, primarily ~~driven by~~due higher ~~Sensors revenue volume,~~commissions and compensation expense, as well as the addition of E2M expenses, partially offset by ~~lower Test revenue volume. Gross margin rate~~the favorable impact of currency translation. Excluding the impact of currency translation and E2M expenses, selling and marketing expense increased ~~0.2 percentage points primarily due to leverage on~~16.5% and 6.6%, respectively.

2940

Table of Contents

increased Sensors revenue volume and cost containment measures in Test, partially offset by the lower contribution from product mix and unfavorable leverage on lower Test revenue volume. Excluding the impact of currency translation, the prior year PCB acquisition inventory adjustment, prior year PCB acquisition integration expenses, and restructuring costs incurred in both fiscal years, gross profit declined 1.2% and the gross margin rate increased 0.3 percentage points.

Gross profit for the nine months ended June 30, 2018 increased 0.5% primarily driven by increased Sensors revenue volume and the prior year impact of the PCB acquisition inventory adjustment of $7,975, partially offset by reduced Test revenue volume. Gross margin rate increased 0.6 percentage points primarily due to the prior year impact from the PCB acquisition inventory adjustment and leverage on increased Sensors revenue volume, partially offset by the lower contribution from product mix and unfavorable leverage on lower Test revenue volume. Excluding the impact of currency translation, the prior year PCB acquisition inventory adjustment, prior year PCB acquisition integration expenses, and restructuring costs incurred in both fiscal years, gross profit declined 5.4% and the gross margin rate declined 0.5 percentage points.

~~Selling and Marketing Expense~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)

$ % $ %
Selling and marketing $ 32,171
$ 31,857
$ 314
1.0 % $ 94,796
$ 92,954
$ 1,842
2.0 %
% of Revenue 16.5 % 16.4 %

16.3 % 15.8 %

Selling and marketing expense for the three months ended June 30, 2018 increased 1.0% primarily due to the unfavorable impact of currency translation and increased compensation and commission expenses in Sensors, partially offset by lower bad debt expense and cost containment measures in Test. Excluding the impact of currency translation, prior year PCB acquisition integration expenses, prior year China investigation expenses, and restructuring costs incurred in both fiscal years, selling and marketing expense decreased 1.0%.

Selling and marketing expense for the nine months ended June 30, 2018 increased 2.0% primarily driven by increased compensation and commission expenses in Sensors and the unfavorable impact of currency translation, partially offset by lower commission expense and cost containment measures in Test. Excluding the impact of currency translation, prior year PCB acquisition integration expenses, prior year China investigation expenses, and restructuring costs incurred in both fiscal years, selling and marketing expense was flat.

~~General and Administrative Expense~~


General and Administrative Expense																						General and Administrative Expense
	Three Months Ended									Nine Months Ended													Three Months Ended													Six Months Ended
	June 30, 2018			July 1, 2017		Increased / (Decreased)				June 30, 2018			July 1, 2017				Increased / (Decreased)						March 30, 2019			March 31, 2018				Increased / (Decreased)						March 30, 2019			March 31, 2018				Increased / (Decreased)
			$			%			$							%				$									%				$									%
General and administrative		$	19,081			$	18,726	$	355		1.9	%		$	58,635			$	66,305		$	(7,670	)	(11.6	)%		$	12,816			$	10,742		$	2,074		19.3	%		$	24,887			$	21,833	$	3,054	14.0	%
% of Revenue	9.8	%		9.7	%					10.1	%		11.3		%
% of revenue																							8.5	%		9.7		%								9.0	%		9.6		%

General and administrative expense for the three and six months ended ~~June~~March 30, ~~2018~~2019 increased ~~1.9%~~19.3% and 14.0%, respectively, primarily ~~due to an increase in professional fees~~driven by the addition of E2M expenses and ~~the unfavorable impact of currency translation,~~acquisition-related expenses, partially offset by ~~prior year PCB acquisition integration expenses.~~lower compensation expense. Excluding the impact of currency translation, ~~prior year PCB acquisition integration expenses, prior year China investigation~~E2M expenses, and restructuring costs incurred in both fiscal years, general and administrative expense increased ~~3.1%.~~4.2% and 2.1%, respectively.

~~General and administrative~~



Research and Development Expense
	Three Months Ended											Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)					March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$			%		March 30, 2019			March 31, 2018			$			%
Research and development	$	3,275		$	4,231		$	(956	)	(22.6	)%	$	6,070		$	8,908		$	(2,838	)	(31.9	)%
% of revenue	2.2		%	3.8		%						2.2		%	3.9		%

R&D expense for the ~~nine~~three months ended ~~June~~March 30, ~~2018 decreased 11.6%~~2019 declined 22.6% primarily due to ~~prior year China investigation expenses of $8,300 and prior year PCB acquisition integration expenses of $2,402,~~lower compensation expense, partially offset by ~~an increase in professional fees and~~ the ~~unfavorable impact~~addition of ~~currency translation.~~E2M expenses. Excluding the impact of currency translation ~~prior year PCB acquisition integration~~and E2M expenses, ~~prior year China investigation expenses, and restructuring costs incurred in both fiscal years, general and administrative~~R&D expense ~~increased 3.5%~~decreased 30.7%.

~~Table of Contents~~

~~Research and Development Expense~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)

$ % $ %
Research and development $ 8,768
$ 8,356
$ 412
4.9 % $ 26,235
$ 26,298
$ (63 ) (0.2 )%
% of Revenue 4.5 % 4.3 %

4.5 % 4.5 %

~~Research and development (R&D)~~R&D expense for the ~~three~~six months ended ~~June~~March 30, ~~2018 increased 4.9%~~2019 declined 31.9% primarily due to ~~continued investment in product development in Sensors,~~the shift of internal resources to capital projects and lower compensation expense, partially offset by ~~cost containment measures in Test.~~the addition of E2M expenses. Excluding the impact of currency translation ~~prior year China investigation~~and E2M expenses, ~~and current year restructuring costs, R&D expense increased 2.8%.~~

R&D expense for the nine months ended June 30, 2018 declined 0.2% primarily due to prior year focused R&D spending to meet certain Test market needs and cost containment measures in Test, partially offset by continued investment in product development in Sensors. Excluding the impact of currency translation, prior year China investigation expenses, and current year restructuring costs, R&D expense decreased ~~0.9%~~38.1%.

~~Income from Operations~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)

$ % $ %
Income from operations $ 16,264
$ 16,617
$ (353 ) (2.1 )% $ 49,371
$ 42,319
$ 7,052
16.7 %
% of Revenue 8.4 % 8.6 %

8.5 % 7.2 %



Income from Operations
	Three Months Ended										Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)				March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$		%		March 30, 2019			March 31, 2018			$		%
Income from operations	$	12,684		$	3,295		$	9,389	284.9	%	$	20,015		$	8,904		$	11,111	124.8	%
% of revenue	8.4		%	3.0		%					7.2		%	3.9		%

Income from operations for the three and six months ended ~~June~~March 30, ~~2018 declined 2.1%~~2019 increased 284.9% and 124.8%, respectively, primarily due to ~~the lower~~increased gross ~~margin contribution from product mix, unfavorable leverage~~profit on ~~lower Test~~higher revenue volume and ~~continued investment in product development in Sensors,~~operational productivity, partially offset by ~~leverage on volume growth in Sensors.~~higher compensation expense. Excluding the impact of currency translation, the ~~prior year PCB~~E2M acquisition, ~~inventory adjustment, prior year non-recurring PCB acquisition integration expenses, prior year China investigation expenses,~~ and restructuring costs incurred in both fiscal years, income from operations ~~decreased 7.9%.~~

~~Income from operations for the nine months ended June 30, 2018~~ increased ~~16.7% primarily driven by leverage on volume growth in Sensors, prior year China investigation expenses of $8,980, prior year impact from the PCB acquisition inventory adjustment of $7,975,~~242.1% and prior year non-recurring PCB acquisition integration expenses of $2,955. The increase was partially offset by the lower gross margin contribution from product mix, unfavorable leverage on lower Test revenue volume, and an increase in professional fees. Excluding the impact of currency translation, the prior year PCB acquisition inventory adjustment, prior year non-recurring PCB acquisition integration expenses, prior year China investigation expenses, and restructuring costs incurred in both fiscal years, income from operations decreased 22.8%.

~~Interest Expense, Net~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)

$ % $ %
Interest expense, net $ 6,249
$ 7,711
$ (1,462 ) (19.0 )% $ 19,761
$ 22,409
$ (2,648 ) (11.8 )%

Interest expense, net for the three and nine months ended June 30, 2018 decreased primarily due to reduced interest rates on the tranche B term loan facility as a result of the debt repricing completed in the fourth quarter of fiscal year 2017, lower current year average debt outstanding and current year gains on interest rate swaps.116.9%, respectively.

~~Table of Contents~~

~~Other Income (Expense), Net~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)

$ % $ %
Other income (expense), net $ 30
$ (923 ) $ 953
103.3 % $ 81
$ (1,086 ) $ 1,167
107.5 %

~~The increase in other income (expense), net for the three and nine months ended June 30, 2018 was primarily driven by a relative decrease in losses on foreign currency transactions.~~

~~Income Tax Provision (Benefit)~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)

$ % $ %
Income tax provision (benefit) $ 1,066
$ (2,627 ) $ 3,693
140.6 % $ (20,877 ) $ (690 ) $ (20,187 ) (2,925.7 )%
Effective tax rate 10.6 % (32.9 )%

(70.3 )% (3.7 )%

The effective tax rate for the three months ended June 30, 2018 increased primarily due to certain prior year discrete benefits of $2,801 which consisted of additional U.S. tax benefits for prior fiscal years associated with domestic manufacturing, deductible PCB acquisition-related expenses and U.S. R&D tax credit. Excluding the impact of these discrete benefits, the effective tax rate for the three months ended July 1, 2017 was 2.2%. The increase in the effective tax rate was primarily due to higher earnings before taxes and a less favorable mix of geographic earnings, partially offset by the lower U.S. corporate tax rate under the Tax Act. Current year earnings in foreign jurisdictions are generally taxed at higher rates relative to domestic earnings as a result of the Tax Act.

The effective tax rate for the nine months ended June 30, 2018 decreased primarily due to certain discrete benefits of $25,378 from the estimated impact of the Tax Act. The discrete benefits primarily related to $32,264 of estimated benefit from the remeasurement of our estimated net deferred tax liabilities, partially offset by $6,886 of estimated expense associated with the mandatory deemed repatriation tax. The nine months ended July 1, 2017 included certain discrete benefits of $2,801 which consisted of additional U.S. tax benefits for prior fiscal years associated with domestic manufacturing, deductible PCB acquisition-related expenses and U.S. R&D tax credit. Excluding the impact of these discrete benefits, the effective tax rate for the nine months ended June 30, 2018 and July 1, 2017 would have been 15.2% and 11.2%, respectively. The increase in the effective tax rate was primarily due to higher earnings before taxes, partially offset by the lower U.S. corporate tax rate under the Tax Act.

~~Net Income~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)

$ % $ %
Net income $ 8,979
$ 10,610
$ (1,631 ) (15.4 )% $ 50,568
$ 19,514
$ 31,054
159.1 %
Diluted earnings per share $ 0.47
$ 0.55
$ (0.08 ) (14.5 )% $ 2.62
$ 1.02
$ 1.60
156.9 %

Net income and diluted earnings per share for the three months ended June 30, 2018 decreased due to an increase in the effective tax rate and higher operating expenses, partially offset by increased gross profit.

Net income and diluted earnings per share for the nine months ended June 30, 2018 increased due to a reduction in the effective tax rate driven by discrete benefits stemming from the Tax Act, as well as lower operating expenses and increased gross profit.

3241

Table of Contents

Sensors Segment ~~Results~~

~~Test Segment~~

Results of Operations

The following ~~table compares~~tables compare results of operations for ~~Test,~~Sensors, separately identifying the estimated impact of currency ~~translation and restructuring costs incurred in fiscal year 2018.~~translation. See Note 1516 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on our ~~operating~~reportable segments.


	Three Months Ended														Three Months Ended
				Estimated														Estimated
	June 30, 2018			Business Change			Restructuring			Currency Translation		July 1, 2017			March 30, 2019			Business Change			Currency Translation			March 31, 2018
Revenue	$	116,055		$	(10,949	)	$	—		$	2,645	$	124,359		$	82,375		$	3,199		$	(2,366	)	$	81,542
Cost of sales	79,475			(6,121		)	386			1,970		83,240			42,301			2,693			(1,314		)	40,922
Gross profit	36,580			(4,828		)	(386		)	675		41,119			40,074			506			(1,052		)	40,620
Gross margin	31.5		%									33.1		%	48.6		%							49.8		%

Operating expenses
Selling and marketing	17,479			(776		)	158			317		17,780			14,880			603			(361		)	14,638
General and administrative	10,921			441			52			219		10,209			9,289			1,125			(86		)	8,250
Research and development	4,307			(263		)	143			6		4,421			4,401			70			(64		)	4,395
Total operating expenses	32,707			(598		)	353			542		32,410			28,570			1,798			(511		)	27,283
Income from operations	$	3,873		$	(4,230	)	$	(739	)	$	133	$	8,709
Income (loss) from operations															$	11,504		$	(1,292	)	$	(541	)	$	13,337


	Nine Months Ended														Six Months Ended
				Estimated														Estimated
	June 30, 2018			Business Change			Restructuring			Currency Translation		July 1, 2017			March 30, 2019			Business Change			Currency Translation			March 31, 2018
Revenue	$	344,496		$	(45,194	)	$	—		$	10,365	$	379,325		$	160,325		$	6,124		$	(3,300	)	$	157,501
Cost of sales	234,550			(21,063		)	810			8,165		246,638			81,492			5,267			(1,867		)	78,092
Gross profit	109,946			(24,131		)	(810		)	2,200		132,687			78,833			857			(1,433		)	79,409
Gross margin	31.9		%									35.0		%	49.2		%							50.4		%

Operating expenses
Selling and marketing	51,200			(2,450		)	158			1,304		52,188			29,621			1,226			(509		)	28,904
General and administrative	32,754			(7,040		)	229			733		38,832			18,296			698			(123		)	17,721
Research and development	13,215			(1,821		)	143			18		14,875			8,778			305			(86		)	8,559
Total operating expenses	97,169			(11,311		)	530			2,055		105,895			56,695			2,229			(718		)	55,184
Income from operations	$	12,777		$	(12,820	)	$	(1,340	)	$	145	$	26,792
Income (loss) from operations															$	22,138		$	(1,372	)	$	(715	)	$	24,225

~~Revenue~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
Revenue $ 116,055
$ 124,359
$ (8,304 ) (6.7 )% $ 344,496
$ 379,325
$ (34,829 ) (9.2 )%



Revenue
	Three Months Ended								Six Months Ended
	March 30, 2019		March 31, 2018		Increased /(Decreased)				March 30, 2019		March 31, 2018		Increased / (Decreased)
	March 30, 2019		March 31, 2018		$		%		March 30, 2019		March 31, 2018		$		%
Revenue	$	82,375	$	81,542	$	833	1.0	%	$	160,325	$	157,501	$	2,824	1.8	%

Revenue for the three and six months ended ~~June~~March 30, ~~2018 decreased 6.7%~~2019 increased 1.0% and 1.8%, respectively, primarily driven by a decline in equipment volume resulting from weakness in the ground vehicles sector that continues to operate in a rapidly changing environment. Current year Test revenue was also impacted by higher custom project backlog which takes longer to convert to revenue. This was partially offset by continued growth in the ~~materials~~Sensors position sector from continued strength in industrial and ~~the favorable impact of currency translation. Excluding the impact of currency translation, revenue decreased 8.8%.~~

~~Table of Contents~~

Revenue for the nine months ended June 30, 2018 decreased 9.2% primarily driven by a decline in equipment volume resulting from weakness in the ground vehicles sector that continues to operate in a rapidly changing environment. Current year Test revenue was also impacted by higher custom project backlog which takes longer to convert to revenue. This was partially offset by the favorable impact of currency translation, continuedmobile hydraulics markets and growth in the ~~materials~~Sensors test sector ~~and growth in service revenue. Excluding~~from a multi-year contract with the ~~impact~~U.S. Department of ~~currency translation, revenue decreased 11.9%.~~

~~Gross Profit~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
Gross profit $ 36,580
$ 41,119
$ (4,539 ) (11.0 )% $ 109,946
$ 132,687
$ (22,741 ) (17.1 )%
Gross margin 31.5 % 33.1 % (1.6 ) ppts 31.9 % 35.0 % (3.1 ) ppts

Gross profit for the three months ended June 30, 2018 declined 11.0% primarily due to lower revenue volume and product mix. Gross margin rate declined 1.6 percentage points primarily driven by the lower contribution from product mix, unfavorable leverage on lower revenue volume, and current year restructuring costs, partially offset by the impact of lower compensation and warranty expense. Excluding the impact of currency translation and current year restructuring costs, gross profit declined 11.7% and gross margin rate declined 1.1 percentage points.

Gross profit for the nine months ended June 30, 2018 declined 17.1% primarily due to lower revenue volume. Gross margin rate declined 3.1 percentage points primarily driven by the lower contribution from product mix, unfavorable leverage on lower revenue volume, the unfavorable impact of currency translation, and current year restructuring costs. Excluding the impact of currency translation and current year restructuring costs, gross profit declined 18.2% and gross margin rate declined 2.5 percentage points.

~~Selling and Marketing Expense~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
Selling and marketing $ 17,479
$ 17,780
$ (301 ) (1.7 )% $ 51,200
$ 52,188
$ (988 ) (1.9 )%
% of Revenue 15.1 % 14.3 % 14.9 % 13.8 %

~~Selling and marketing expense for the three months ended June 30, 2018 declined 1.7% primarily due to lower bad debt expense and cost containment measures,~~Defense, partially offset by the unfavorable impact of currency translation. Excluding the impact of currency translation, ~~prior year China investigation expenses,~~revenue increased 3.9% in both periods.

Table of Contents



Gross Profit
	Three Months Ended											Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)					March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$			%		March 30, 2019			March 31, 2018			$			%
Gross profit	$	40,074		$	40,620		$	(546	)	(1.3	)%	$	78,833		$	79,409		$	(576	)	(0.7	)%
Gross margin	48.6		%	49.8		%	(1.2		)	ppts		49.2		%	50.4		%	(1.2		)	ppts

Gross profit for the three and ~~current year restructuring costs, selling~~six months ended March 30, 2019 declined 1.3% and ~~marketing~~0.7%, respectively, primarily due to the unfavorable impact of currency translation and increased compensation expense, ~~decreased 4.1%.~~partially offset by increased revenue volume. Gross margin rate declined 1.2 percentage points in both periods primarily driven by increased compensation expense during the ramp-up of manufacturing capacity to support both new products and growth in order volume in a tight labor market. Excluding the impact of currency translation, gross profit increased 1.2% and 1.1%, respectively, and the gross margin rate declined 1.3 percentage points in both periods.



Selling and Marketing Expense
	Three Months Ended										Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)				March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$		%		March 30, 2019			March 31, 2018			$		%
Selling and marketing	$	14,880		$	14,638		$	242	1.7	%	$	29,621		$	28,904		$	717	2.5	%
% of revenue	18.1		%	18.0		%					18.5		%	18.4		%

Selling and marketing expense for the ~~nine~~three and six months ended ~~June~~March 30, ~~2018 declined 1.9%~~2019 increased 1.7% and 2.5%, respectively, primarily ~~due~~driven by increased compensation from headcount additions to ~~a decrease in commission expense and cost containment measures,~~support sales growth, partially offset by the ~~unfavorable~~favorable impact of currency translation. Excluding the impact of currency translation, ~~prior year China investigation expenses, and current year restructuring costs,~~ selling and marketing expense ~~decreased 3.9%.~~

~~General~~increased 4.1% and ~~Administrative Expense~~4.2%, respectively.


General and Administrative Expense																						General and Administrative Expense
	Three Months Ended									Nine Months Ended													Three Months Ended													Six Months Ended
	June 30, 2018			July 1, 2017		Increased / (Decreased)				June 30, 2018			July 1, 2017				Increased / (Decreased)						March 30, 2019			March 31, 2018				Increased / (Decreased)						March 30, 2019			March 31, 2018				Increased / (Decreased)
			$			%			$							%				$									%				$									%
General and administrative		$	10,921			$	10,209	$	712		7.0	%		$	32,754			$	38,832		$	(6,078	)	(15.7	)%		$	9,289			$	8,250		$	1,039		12.6	%		$	18,296			$	17,721	$	575	3.2	%
% of Revenue	9.4	%		8.2	%					9.5	%		10.2		%
% of revenue																							11.3	%		10.1		%								11.4	%		11.3		%

General and administrative expense for the three months ended ~~June~~March 30, ~~2018~~2019 increased ~~7.0%~~12.6% primarily driven by higher compensation expense. Excluding the impact of currency translation, general and administrative expense increased 13.6%.

General and administrative expense for the six months ended March 30, 2019 increased 3.2% primarily driven by higher professional fees and compensation expense. Excluding the impact of currency translation, general and administrative expense increased 3.9%.



Research and Development Expense
	Three Months Ended										Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)				March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$		%		March 30, 2019			March 31, 2018			$		%
Research and development	$	4,401		$	4,395		$	6	0.1	%	$	8,778		$	8,559		$	219	2.6	%
% of revenue	5.3		%	5.4		%					5.5		%	5.4		%

R&D expense for the three months ended March 30, 2019 was flat. R&D expense for the six months ended March 30, 2019 increased 2.6% primarily driven by continued investment in new product development. Excluding the impact of currency translation, R&D expense increased 1.6% and 3.6%, respectively.

Table of Contents



Income from Operations
	Three Months Ended											Six Months Ended
	March 30, 2019			March 31, 2018			Increased / (Decreased)					March 30, 2019			March 31, 2018			Increased / (Decreased)
	March 30, 2019			March 31, 2018			$			%		March 30, 2019			March 31, 2018			$			%
Income from operations	$	11,504		$	13,337		$	(1,833	)	(13.7	)%	$	22,138		$	24,225		$	(2,087	)	(8.6	)%
% of revenue	14.0		%	16.4		%						13.8		%	15.4		%

Income from operations for the three and six months ended March 30, 2019 declined 13.7% and 8.6%, respectively, primarily due to increased ~~professional fees~~compensation expense and the unfavorable impact of currency translation. Excluding the impact of currency translation, ~~prior year China investigation expenses, and current year restructuring costs, general and administrative expense increased 5.9%.~~

General and administrative expense for the nine months ended June 30, 2018 declined 15.7% primarily due to prior year China investigation expenses of $8,300, partially offset by the unfavorable impact of currency translation and increased professional

~~Table of Contents~~

~~fees. Excluding the impact of currency translation, prior year China investigation expenses, and current year restructuring costs, general and administrative expense increased 4.1%.~~

~~Research and Development Expense~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
Research and development $ 4,307
$ 4,421
$ (114 ) (2.6 )% $ 13,215
$ 14,875
$ (1,660 ) (11.2 )%
% of Revenue 3.7 % 3.6 % 3.8 % 3.9 %

R&D expense for the three months ended June 30, 2018 declined 2.6% primarily due to lower compensation expense. Excluding the impact of currency translation, prior year China investigation expenses, and current year restructuring costs, R&D expense decreased 5.2%.

R&D expense for the nine months ended June 30, 2018 declined 11.2% primarily due to prior year focused R&D spending to meet certain Test market needs and lower compensation expense. Excluding the impact of currency translation, prior year China investigation expenses, and current year restructuring costs, R&D expense decreased 10.8%.

~~Income from Operations~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
Income from operations $ 3,873
$ 8,709
$ (4,836 ) (55.5 )% $ 12,777
$ 26,792
$ (14,015 ) (52.3 )%
% of Revenue 3.3 % 7.0 % 3.7 % 7.1 %

Income from operations for the three months ended June 30, 2018 declined 55.5% primarily due to the decrease in gross profit driven by the decline in equipment volume resulting from weakness in the ground vehicles sector and the lower contribution from product mix, as well as current year restructuring costs. The decrease was partially offset by cost containment measures. Excluding the impact of currency translation, prior year China investigation expenses, and current year restructuring costs, income from operations decreased ~~50.0%.~~

Income from operations for the nine months ended June 30, 2018 declined 52.3% primarily due to the decrease in gross profit driven by the decline in equipment volume resulting from weakness in the ground vehicles sector9.7% and the lower contribution from product mix, as well as current year restructuring costs. The decrease was partially offset by prior year China investigation expenses of $8,980, focused R&D spending to meet certain market needs in the prior year, and lower commission expense. Excluding the impact of currency translation, prior year China investigation expenses, and current year restructuring costs, income from operations decreased 60.9%.

~~Table of Contents~~

~~Sensors Segment~~

~~Results of Operations~~

The following table compares results of operations for Sensors, separately identifying the estimated impact of currency translation and restructuring costs incurred in fiscal year 2018. See Note 15 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on our operating segments.

Three Months Ended

Estimated
June 30,
2018 Business
Change Restructuring Currency
Translation July 1,
2017
Revenue $ 79,000
$ 7,458
$ —
$ 2,137
$ 69,405
Cost of sales 39,289
3,137
—
1,184
34,968
Gross profit 39,711
4,321
—
953
34,437
Gross margin 50.3 %

49.6 %

Operating expenses

Selling and marketing 14,692
302
(4 ) 317
14,077
General and administrative 8,160
(447 ) —
90
8,517
Research and development 4,461
462
—
64
3,935
Total operating expenses 27,313
317
(4 ) 471
26,529
Income (loss) from operations $ 12,398
$ 4,004
$ 4
$ 482
$ 7,908

Nine Months Ended

Estimated
June 30,
2018 Business
Change Restructuring Currency
Translation July 1,
2017
Revenue $ 236,501
$ 21,244
$ —
$ 8,115
$ 207,142
Cost of sales 117,381
927
—
4,501
111,953
Gross profit 119,120
20,317
—
3,614
95,189
Gross margin 50.4 %

46.0 %

Operating expenses

Selling and marketing 43,596
1,561
3
1,266
40,766
General and administrative 25,881
(1,952 ) —
360
27,473
Research and development 13,020
1,351
—
246
11,423
Total operating expenses 82,497
960
3
1,872
79,662
Income (loss) from operations $ 36,623
$ 19,357
$ (3 ) $ 1,742
$ 15,527

~~Revenue~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased /(Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
Revenue $ 79,000
$ 69,405
$ 9,595
13.8 % $ 236,501
$ 207,142
$ 29,359
14.2 %

Revenue for the three and nine months ended June 30, 2018 increased 13.8% and 14.2%, respectively, primarily driven by continued growth in the Sensors position sector and continued momentum from new revenue opportunities in the Sensors test sector, along with broad demand across the remaining Sensors sectors and the favorable impact of currency translation. Excluding the impact of currency translation, revenue increased 10.7% and 10.3%5.7%, respectively.

~~Table of Contents~~

~~Gross Profit~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
Gross profit $ 39,711
$ 34,437
$ 5,274
15.3 % $ 119,120
$ 95,189
$ 23,931
25.1 %
Gross margin 50.3 % 49.6 % 0.7
ppts 50.4 % 46.0 % 4.4
ppts

Gross profit for the three months ended June 30, 2018 increased 15.3% primarily due to increased revenue volume and the favorable impact of currency translation. Gross margin rate increased 0.7 percentage points primarily driven by favorable leverage on increased revenue volume, partially offset by the lower gross margin contribution from product mix. Excluding the impact of currency translation, the prior year PCB acquisition inventory adjustment, prior year non-recurring PCB acquisition integration expenses, and prior year restructuring costs, gross profit increased 11.2% and the gross margin rate increased 0.2 percentage points.

Gross profit for the nine months ended June 30, 2018 increased 25.1% primarily due to increased revenue volume, the prior year PCB acquisition inventory adjustment of $7,975, and the favorable impact of currency translation, partially offset by an increase in compensation expense. Gross margin rate increased 4.4 percentage points primarily driven by the prior year PCB acquisition inventory adjustment and favorable leverage on increased revenue volume, partially offset by the lower gross margin contribution from product mix. Excluding the impact of currency translation, the prior year PCB acquisition inventory adjustment, prior year non-recurring PCB acquisition integration expenses, and prior year restructuring costs, gross profit increased 10.9% and the gross margin rate increased 0.3 percentage points.

~~Selling and Marketing Expense~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
Selling and marketing $ 14,692
$ 14,077
$ 615
4.4 % $ 43,596
$ 40,766
$ 2,830
6.9 %
% of Revenue 18.6 % 20.3 % 18.4 % 19.7 %

Selling and marketing expense for the three and nine months ended June 30, 2018 increased 4.4% and 6.9%, respectively, primarily driven by the unfavorable impact of currency translation, increased compensation expense, and increased commission expense on higher revenue volume. Excluding the impact of currency translation, prior year PCB acquisition integration expenses, and restructuring costs incurred in both years, selling and marketing expense increased 2.8% and 4.8%, respectively.

~~General and Administrative Expense~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
General and administrative $ 8,160
$ 8,517
$ (357 ) (4.2 )% $ 25,881
$ 27,473
$ (1,592 ) (5.8 )%
% of Revenue 10.3 % 12.3 % 10.9 % 13.3 %

General and administrative expense for the three months ended June 30, 2018 declined 4.2% primarily driven by prior year PCB acquisition integration expenses. Excluding the impact of currency translation, prior year PCB acquisition integration expenses, and prior year restructuring costs, general and administrative expense was flat.

General and administrative expense for the nine months ended June 30, 2018 decreased 5.8% primarily driven by prior year PCB acquisition integration expenses of $2,402, partially offset by an increase in professional fees. Excluding the impact of currency translation, prior year PCB acquisition integration expenses, and prior year restructuring costs, general and administrative expense increased 2.8%.

~~Table of Contents~~

~~Research and Development Expense~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
Research and development $ 4,461
$ 3,935
$ 526
13.4 % $ 13,020
$ 11,423
$ 1,597
14.0 %
% of Revenue 5.6 % 5.7 % 5.5 % 5.5 %

R&D expense for the three and nine months ended June 30, 2018 increased 13.4% and 14.0%, respectively, primarily driven by continued investment in product development and the unfavorable impact of currency translation. Excluding the impact of currency translation, R&D expense increased 11.7% and 11.8%, respectively.

~~Income from Operations~~

Three Months Ended Nine Months Ended
June 30,
2018 July 1,
2017 Increased / (Decreased) June 30,
2018 July 1,
2017 Increased / (Decreased)
$ % $ %
Income from operations $ 12,398
$ 7,908
$ 4,490
56.8 % $ 36,623
$ 15,527
$ 21,096
135.9 %
% of Revenue 15.7 % 11.4 % 15.5 % 7.5 %

Income from operations for the three months ended June 30, 2018 increased 56.8% primarily due to leverage on increased revenue volume, prior year PCB acquisition integration expenses of $577 and the favorable impact of currency translation, partially offset by continued investments in product development. Excluding the impact of currency translation, prior year PCB acquisition integration expenses, and restructuring costs incurred in both fiscal years, income from operations increased 34.9%.

Income from operations for the nine months ended June 30, 2018 increased 135.9% primarily driven by leverage on increased revenue volume, the prior year PCB acquisition inventory adjustment of $7,975, prior year PCB acquisition integration expenses of $2,955 and the favorable impact of currency translation. The increase was partially offset by higher compensation and commission expense and investments in product development. Excluding the impact of currency translation, the prior year PCB acquisition inventory adjustment, prior year PCB acquisition integration expenses, and restructuring costs incurred in both fiscal years, income from operations increased 26.9%.

Cash Flow Comparison

The following table summarizes our cash flows from total operations:


	Nine Months Ended						Six Months Ended
	June 30, 2018			July 1, 2017			March 30, 2019			March 31, 2018
Total cash provided by (used in):
Operating activities	$	52,111		$	52,611		$	30,669		$	37,258
Investing activities	(8,885		)	(14,194		)	(91,450		)	(4,476		)
Financing activities	(85,601		)	(21,145		)	63,187			(61,126		)
Effect of exchange rate changes on cash	45			(432		)	(88		)	3,989
Increase (decrease) during the period	(42,330		)	16,840			2,318			(24,355		)
Cash and cash equivalents balance, beginning of period	108,733			84,780			71,804			108,733
Cash and cash equivalents balance, end of period	$	66,403		$	101,620		$	74,122		$	84,378

Operating Activities

The decrease in cash provided by operating activities was primarily due to ~~a decrease~~an increase in cash ~~provided~~used by working capital associated with timing fluctuations from ~~inventory purchases, advanced payments from customers,~~ accounts receivable payments received and unbilled accounts receivable accruals, ~~and billings and~~ accounts payable ~~payments. Timing of payroll-related~~ payments, ~~also contributed to the decrease in cash provided by operating activities. This decrease in cash provided by operating activities was partially offset by~~inventory purchases, and advanced payments received from customers, as well as a decrease in ~~cash used by other assets and liabilities primarily driven by an increase in income taxes payable, as well as an increase in~~ net income ~~offset by a decrease in deferred income taxes~~ due to the remeasurement of our estimated deferred tax liabilities as a result of the Tax ~~Act.~~

~~Table of Contents~~

Act in fiscal year 2018. This decrease was partially offset by a decrease in cash used by deferred income taxes, an increase in cash provided by other assets and liabilities related to accrued project costs, and a decrease in cash used by payroll-related accruals.

Investing Activities

The ~~decrease~~increase in cash used in investing activities was primarily due to the ~~timing~~acquisition of ~~investments in property and equipment~~E2M in the ~~current year.~~first quarter of fiscal year 2019.

Financing Activities

The increase in cash ~~used in~~provided by financing activities was primarily due to borrowings under the ~~annual required excess~~Revolving Credit Facility used to fund the acquisition of E2M and a decrease in cash ~~flow payment and planned prepayments on the tranche B term loan made in fiscal year 2018.~~used for long-term debt payments.

Liquidity and Capital Resources

We had cash and cash equivalents of ~~$66,403~~$74,122 as of ~~June~~March 30, ~~2018.~~2019. Of this amount, ~~$2,722~~$10,597 was located in North America, ~~$24,530~~$28,847 in Europe and ~~$39,151~~$34,678 in Asia. Repatriation of certain foreign earnings is restricted by local law. The North American cash balance was primarily invested in bank deposits. The cash balances in Europe and Asia were primarily invested in money market funds and bank deposits. In accordance with our investment policy, we place cash equivalent investments with issuers who have high-quality investment credit ratings. In addition, we limit the amount of investment exposure we have with any particular issuer. Our investment objectives are to preserve principal, maintain liquidity and achieve the best available return consistent with our primary objectives of safety and liquidity. As of ~~June~~March 30, ~~2018,~~2019, we held no short-term investments.

As a result of the transition tax related to the enactment of the Tax Act, we ~~repatriated a portion of the~~are able to repatriate cash held in our foreign subsidiaries without such funds being subject to additional federal income tax ~~liability during the nine months ended June 30, 2018.~~liability. We ~~are currently evaluating repatriation of any additional funds held by~~plan to continue to repatriate certain amounts of our ~~foreign subsidiaries, including whether~~existing offshore cash and future earnings back to ~~utilize such funds for early repayment of debt.~~the U.S.

As of ~~June~~March 30, ~~2018,~~2019, our capital structure was comprised of ~~$52,800~~$31,632 in short-term debt, ~~$351,609~~$443,206 in long-term debt and ~~$472,550~~$485,054 in shareholders' equity. Long-term debt included $80,391 on our Revolving Credit Facility used to finance the acquisition of E2M. The Consolidated Balance Sheets also included ~~$13,077~~$10,418 of unamortized debt issuance costs as of ~~June~~

Table of Contents

March 30, ~~2018.~~2019. Total interest-bearing debt ~~at June~~as of March 30, ~~2018~~2019 was ~~$404,409.~~$474,838. We have a credit agreement with a consortium of financial institutions (the Credit Agreement) ~~which~~that provides for senior secured credit facilities consisting of a Revolving Credit Facility and a Term Facility. The maturity date of the Revolving Credit Facility is July 5, ~~2021~~2022 and the maturity date of the loans under the Term Facility is July 5, 2023, unless a term loan lender agrees to extend the maturity date pursuant to a loan modification agreement made in accordance with the terms of the Credit Agreement.

The Credit Agreement also requires mandatory prepayments on our Term Facility in certain circumstances, including the potential for an annual required prepayment of a certain percentage of our excess cash flow.

Under the Credit Agreement, we are subject to customary affirmative and negative covenants, including, among others, restrictions on our ability to incur debt, create liens, dispose of assets, make investments, loans, advances, guarantees and acquisitions, enter into transactions with affiliates and enter into any restrictive agreements and customary events of default (including payment defaults, covenant defaults, change of control defaults and bankruptcy defaults). The Credit Agreement also contains financial covenants, including the ratio of consolidated total indebtedness to adjusted consolidated earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), as defined in the Credit Agreement, as well as the ratio of Adjusted EBITDA to consolidated interest expense. These covenants restrict our ability to pay dividends and purchase outstanding shares of common stock. As of ~~June~~March 30, ~~2018 and September 30, 2017,~~2019, we were in compliance with these financial covenants. See Note 89 to the Consolidated Financial Statements included in Item I of Part I of this Quarterly Report on Form 10-Q for additional information on ~~debt instruments.~~our financing arrangements.

Shareholders' equity increased by ~~$43,773~~$7,122 during the ~~nine~~six months ended ~~June~~March 30, ~~2018~~2019 primarily due to ~~$50,568~~$24,661 net income ~~$3,478 other comprehensive income~~ and ~~$5,366~~$5,219 stock-based ~~compensation,~~compensation. The increase was partially offset by ~~$16,034~~$10,740 dividends ~~declared.~~ declared and $6,094 other comprehensive loss.Also contributing to the decrease was a cumulative effect of accounting change reduction to our opening retained earnings balance of $6,227 related to the adoption of the new revenue recognition standard, ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).

As of ~~June~~March 30, ~~2018,~~2019, we believe our current capital resources will be sufficient to fund working capital requirements, capital expenditures and operations for the foreseeable future, including at least the next twelve months.

Off-balance Sheet Arrangements

As of ~~June~~March 30, ~~2018,~~2019, we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

~~Table of Contents~~

Critical Accounting Policies

The Consolidated Financial Statements have been prepared in accordance with GAAP, which ~~require~~requires us to make estimates and assumptions in certain circumstances that affect amounts ~~reported. The preparation of these financial statements requires us to make estimates and assumptions,~~reported, giving due consideration to materiality, that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of any contingent assets and liabilities at the date of the financial statements. We regularly review our estimates and assumptions, which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For further information, see "Summary of Significant Accounting Policies" under Note 1 to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2017.~~29, 2018. For a discussion of our critical accounting policies, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 29, 2018.

The following critical accounting policy has been updated since our Annual Report on Form 10-K for the fiscal year ended September 29, 2018.

Revenue Recognition (Over Time)

Revenue is recognized either over time as work progresses or at a point-in-time, dependent upon contract-specific terms and the pattern of transfer of control of the product or service to the customer. Contracts with equipment revenue recognized over time use costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the performance obligation. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Equipment contract costs include materials, component parts, labor and overhead costs. For contracts recognized over time, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract. Contract estimates are based on various assumptions to determine the outcome of future events that may span several years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, and internal and subcontractor performance.

Table of Contents

Recently Issued Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 2 and Note 3 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Other Matters

Dividends

Our dividend policy is to maintain a payout ratio that allows dividends to increase in conjunction with the long-term growth of earnings per share, while sustaining dividends through economic cycles. Our dividend practice is to target, over time, a payout ratio of approximately 25% of net earnings per share. We have historically paid dividends to holders of our common stock on a quarterly basis. The declaration and payment of future dividends will depend on many factors, including, but not limited to, our earnings, financial condition, debt repayment obligations, business ~~developments~~development needs and regulatory ~~consideration,~~considerations and are at the discretion of our Board of Directors.

Forward-looking Statements

Statements contained in this Quarterly Report on Form 10-Q including, but not limited to, the discussion under Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, that are not statements of historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act). In addition, certain statements in our future filings with the SEC, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, ROIC, Adjusted EBITDA, net income or loss, earnings or loss per share, the payment or nonpayment of dividends, our capital structure, the adequacy of our liquidity and reserves, the anticipated level of expenditures required and other statements concerning future financial performance; (ii) statements of our plans and objectives by our management or Board of Directors, including those relating to products or services, our restructuring initiatives, merger or acquisition activity and the potential impact of newly acquired businesses; (iii) statements of assumptions underlying such statements; (iv) statements regarding business relationships with vendors, customers or collaborators or statements relating to our order cancellation history, our ability to convert our backlog of undelivered orders into revenue, the timing of purchases, competitive advantages and growth in end markets; and (v) statements regarding our products and their characteristics, fluctuations in the costs of raw materials for products, our geographic footprint, performance, sales potential or effect in the hands of ~~customers; and (vi) statements regarding the estimated tax benefits we may receive under the Tax Act and our expectations concerning recorded adjustments.~~customers. Words such as "believes," "anticipates," "expects," "intends," "targeted," "should," "potential," "goals," "strategy," and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2017~~29, 2018 and in Item 1A of Part II of this Quarterly Report on Form 10-Q. The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these forward-looking statements with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances. ~~Readers~~You should carefully review the disclosures and the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September ~~30, 2017~~29, 2018 and in other documents we file from time to time with the SEC, including our ~~reports~~Quarterly Reports on ~~Forms~~Form 10-Q and Current Reports on Form 8-K.

4046

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

Approximately 70% of our revenue has historically been derived from customers outside of the U.S. Our international subsidiaries have functional currencies other than our U.S. dollar reporting currency and, occasionally, transact business in currencies other than their functional currencies. These non-functional currency transactions expose us to market risk on assets, liabilities and cash flows recognized on these transactions.

The strengthening of the U.S. dollar relative to foreign currencies decreases the value of foreign currency-denominated revenue and earnings when translated into U.S. dollars resulting in an unfavorable currency translation impact on revenue and earnings. Conversely, a weakening of the U.S. dollar increases the value of foreign currency-denominated revenue and earnings resulting in a favorable currency translation impact on revenue and earnings.

A hypothetical 10% appreciation or depreciation in foreign currencies against the U.S. dollar, assuming all other variables are held constant, would result in an increase or decrease in revenue of approximately ~~$22,719~~$16,581 for the ~~nine~~six months ended ~~June~~March 30, ~~2018.~~2019.

We have operational procedures to mitigate these non-functional currency exposures. We also utilize foreign currency exchange contracts to exchange currencies at set exchange rates on future dates to offset expected gains or losses on specifically identified exposures.

Mark-to-market gains and losses on derivatives designated as cash flow hedges in our currency hedging program are recorded within accumulated other comprehensive income (loss) (AOCI) in the Consolidated Balance Sheets. We recognize gains and losses associated with the fair value of cash flow hedges at the time a gain or loss is recognized on the hedged exposure in the Consolidated Statements of Income or at the time the cash flow hedge is determined to be ineffective. The associated mark-to-marketMark-to-market gains and losses are reclassified from ~~accumulated other comprehensive income (loss)~~AOCI to earnings in the same line item in the Consolidated Statements of Income and in ~~which~~the same period as the recognition of the underlying hedged ~~transaction is reported.~~transaction. Net gains and losses on foreign currency transactions included in the accompanying Consolidated Statements of Income were net losses of ~~$73~~$309 and ~~$2,588 in~~$642 during the ~~nine~~six months ended ~~June~~March 30, ~~2018~~2019 and ~~July 1, 2017,~~March 31, 2018, respectively. See Note 78 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on our cash flow hedge currency exchange contracts.

Interest Rates

We are directly exposed to changes in market interest rates on cash, cash equivalents, short-term investments and long-term debt, and are indirectly exposed to the impact of market interest rates on overall business activity.

On floating-rate investments, increases or decreases in market interest rates will increase or decrease future interest income, respectively. On floating-rate debt, increases or decreases in market interest rates will increase or decrease future interest expense, respectively. On fixed-rate investments, increases or decreases in market interest rates do not impact future interest income but may decrease or increase the fair market value of the investments, respectively. On fixed-rate debt, increases or decreases in market interest rates do not impact future interest expense but may decrease or increase the fair market value of the debt, respectively.

As of ~~June~~March 30, ~~2018,~~2019, we had cash and cash equivalents of ~~$66,403,~~$74,122, some of which was invested in interest-bearing bank deposits or money market funds. The interest-bearing bank deposits and money market funds have interest rates that reset every 1 to 89 days and generate interest income that will vary based on changes in short-term interest rates. A hypothetical decrease of 100 basis points in market interest rates, assuming all other variables were held constant, would decrease interest income by approximately ~~$171~~$59 for the ~~nine~~six months ended ~~June~~March 30, ~~2018.~~2019.

Secured floating rate credit facilities require interest payments to be calculated at a floating rate and are therefore impacted by increases or decreases in market interest rates. We have swapped a portion of our floating-rate debt to a fixed-rate such that the interest expense on this debt will not vary with changes in short-term interest rates. See Note 79 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on our interest rate swaps. A hypothetical increase of 100 basis points in floating interest rates, assuming all other variables were held constant, would result in an approximately ~~$2,413~~$2,426 increase in future annual interest expense.

4147

Table of Contents

Item 4. Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, ~~have~~has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of ~~June~~March 30, ~~2018.~~2019. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~June~~March 30, ~~2018,~~2019, our disclosure controls and procedures were effective.

There were no changes in ~~the Company's~~our internal control over financial reporting during the ~~third~~second quarter of fiscal year ~~2018~~2019 that have materially affected, or are reasonably likely to materially affect, ~~the Company's~~our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are ~~or may be involved~~subject to various claims, legal actions and complaints arising in ~~various legal proceedings from time to time arising from~~ the ~~normal~~ordinary course of business. We are not presently a party to any litigation the outcome of which we believe, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, cash flows or financial condition.

Item 1A. Risk Factors

A discussion of our risk factors can be found in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. The information below includes additional risks relating to the transfer of certain Test segment production operations in China to a contract manufacturing partner and the enactment of U.S. federal income tax legislation, the Tax Cuts and Jobs Act (the Tax Act).29, 2018. The risks described ~~below and~~ in our Annual Report on Form 10-K are not the only risks we face. Additional risks not currently known to us, or that we currently deem to be immaterial, may also adversely affect our business, financial condition or results of operations in future periods.

~~The transfer of certain Test production operations in China to our new contract manufacturing partner may be subject to delays, increased costs or other unanticipated consequences.~~

On March 13, 2018, we announced workforce reductions and manufacturing facility closures in our Test segment corresponding to the transfer of certain production operations in China to a contract manufacturing partner. These changes are designed to increase organizational effectiveness, gain manufacturing efficiencies and provide cost savings that can be reinvested in growth initiatives. We can make no assurances that our current estimates of costs and timing of this restructuring action will be accurate or that additional costs will not be incurred as we continue the restructuring action. Any differences from our current estimates could be material and could adversely impact our business, financial condition and results of operations through delays in our timeline or increased costs. For further information on restructuring actions, see Note 16 to the Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

While we believe our China contract manufacturing partner to be qualified to manufacture our Test segment products, we may need to address short-term quality and delivery issues. We have not previously used contract manufacturing partners on a large scale. Significant quality or delivery schedule concerns and unforeseen costs might adversely affect our relationships with customers and our overall business, financial condition or results of operations.

~~The final impacts of the Tax Cuts and Jobs Act could be materially different from our current estimates.~~

The Tax Act was signed into law on December 22, 2017. The new law made numerous changes to U.S. federal corporate tax law and is expected to reduce our effective tax rate for fiscal year 2018 and future periods. Effective January 1, 2018, the Tax Act lowers the U.S. corporate tax rate from 35% to 21% and prompts various other changes to U.S. federal corporate tax law, including the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations. The tax benefit recorded for the nine months ended June 30, 2018 involves significant judgment and assumptions as to the impact of the Tax Act. Our estimated impact of the new law is based on management's current knowledge and assumptions. The provisional amounts are based on information available at this time and may change due to a variety of factors, including, among others, anticipated guidance from the U.S. Department of Treasury about implementing the Tax Act and management's further assessment of the Tax Act and related regulatory guidance. Recognized impacts could be materially different from current estimates based on our actual results in fiscal year 2018. We expect to record any adjustments within one year of the enactment of the Tax Act in accordance with the guidance provided in Accounting Standards Update No. 2018-05, ~~Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SAB 118)~~, and these adjustments could be material. The full impact of the Tax Act on our business, operations and financial statements cannot be predicted at this time, and we make no assurances in this regard.

~~Table of Contents~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents repurchases of our equity securities we made during the fiscal quarter ended ~~June~~March 30, ~~2018:~~2019:



	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as As Part of Publicly Announced Plans ~~Plans~~ or Programs		Maximum Number ~~Number~~ of Shares that May ~~Yet~~ Yet be Purchased ~~Under the~~As Part of Publicly Announced Plans or or Programs
~~April 1,~~December 30, 2018 ~~- May 5, 2018~~– February 2, 2019	—	$	—	—		438
~~May 6, 2018 - June~~February 3, 2019 – March 2, ~~2018~~2019	—	$	—	—		438
~~June~~March 3, ~~2018 - June~~2019 – March 30, ~~2018~~2019	—	$	—	—		438
~~Total~~	—	$	—	—

We purchase common stock from time to time to mitigate dilution related to new shares issued as equity for employee compensation such as stock options, restricted stock units, performance restricted stock units and employee stock purchase plan activity, as well as to return to shareholders capital not immediately required to fund ongoing operations.

Share Purchase Plan

Our Board of Directors approved, and on February 11, 2011 announced, a purchase authorization of 2,000 ~~share purchase authorization.~~shares. Authority over pricing and timing under the authorization has been delegated to management. The share purchase authorization has no expiration date. We made no share purchases during the ~~third~~second quarter of fiscal year ~~2018.~~2019. As of ~~June~~March 30, ~~2018,~~2019, there were 438 shares available for purchase under the existing authorization.

Capped Calls

In connection with the pricing of the ~~TEUs~~tangible equity units (TEUs) sold in our public offering in fiscal year 2016, we purchased capped calls from third party banking institutions (Capped Calls) for $7,935. On June 13, 2018, we amended the agreements with third party banking institutions for the outstanding Capped Calls (Capped Call Agreements) to modify the timing of settlement to be only upon expiration for all outstanding Capped Calls. Per the Capped Call Agreements, the outstanding Capped Calls will automatically settle upon expiration on July 1, 2019. As of ~~June~~March 30, ~~2018~~2019 the range of shares of our common stock to be received for the outstanding Capped Calls was a minimum of 0 shares to a maximum of 268 shares, subject to market conditions. See Note 1213 to the Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q for additional information on our equity instruments.

4348

Table of Contents

Item 6. Exhibits



Exhibit Number				Description

~~10.1~~				Amended and Restated Capped Call Transaction Confirmation, dated as of June 13, 2018, by and between MTS Systems Corporation and JPMorgan Chase Bank, National Association, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed June 13, 2018.

~~10.2~~				Amended and Restated Capped Call Transaction Confirmation, dated as of June 13, 2018, by and between MTS Systems Corporation and Wells Fargo Bank, National Association, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed June 13, 2018.

31.1				Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2				Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1				Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

32.2				Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

101.INS				XBRL Instance Document (filed herewith).

101.SCH				XBRL Taxonomy Extension Schema Document (filed herewith).

101.CAL				XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith).

101.DEF				XBRL Taxonomy Extension Definition Linkbase Document (filed herewith).

101.LAB				XBRL Taxonomy Extension Label Linkbase Document (filed herewith).

101.PRE				XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith).

4449

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




		MTS SYSTEMS CORPORATION

Date:	~~August~~May 6, ~~2018~~2019	/s/ JEFFREY A. GRAVES
		Jeffrey A. Graves
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	~~August~~May 6, ~~2018~~2019	/s/ BRIAN T. ROSS
		Brian T. Ross
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

4550