Company Quick10K Filing
Quick10K
MTS Systems
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$55.08 18 $986
10-Q 2018-12-29 Quarter: 2018-12-29
10-K 2018-09-29 Annual: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-30 Quarter: 2017-12-30
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-K 2016-10-01 Annual: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-Q 2016-01-02 Quarter: 2016-01-02
8-K 2019-02-13 Shareholder Vote
8-K 2019-02-04 Earnings, Exhibits
8-K 2018-11-26 Earnings, Exhibits
8-K 2018-08-08 Other Events, Exhibits
8-K 2018-08-06 Earnings, Exhibits
8-K 2018-06-13 Enter Agreement, Exhibits
8-K 2018-03-12 Exit Costs
8-K 2018-02-13 Shareholder Vote
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SPXC SPX
VICR Vicor
ERII Energy Recovery
CPST Capstone Systems
CVR Chicago Rivet & Machine
NEON Neonode
NSYS Nortech Systems
DPW DPW Holdings
MTSC 2018-12-29
Part I - Financial Information
Item 1. Financial Statements
Note 1 Basis of Presentation
Note 2 Recently Issued Accounting Pronouncements
Note 3 Revenue
Note 4 Inventories
Note 5 Warranty Obligations
Note 6 Capital Assets
Note 7 Fair Value Measurements
Note 8 Derivative Instruments and Hedging Activities
Note 9 Financing
Note 10 Stock-Based Compensation
Note 11 Employee Benefit Plans
Note 12 Income Taxes
Note 13 Shareholders' Equity
Note 14 Earnings per Share
Note 15 Other Comprehensive Income (Loss)
Note 16 Business Segment Information
Note 17 Restructuring and Related Costs
Note 18 Business Acquisitions
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 exhibit101amendmentno3tocr.htm
EX-31.1 exhibit311q1fy1920181229.htm
EX-31.2 exhibit312q1fy1920181229.htm
EX-32.1 exhibit321q1fy1920181229.htm
EX-32.2 exhibit322q1fy1920181229.htm

MTS Systems Earnings 2018-12-29

MTSC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 q1fy19mtsc10q20181229.htm 10-Q Document

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 December 29, 2018
or  
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 
 mtslogoa54.jpg
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 every Interactive Data File required to be submitted 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 ☐
 
 
Non-accelerated filer ☐
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
As of January 30, 2019, there were 17,902,441 shares of common stock outstanding.




MTS Systems Corporation 
Quarterly Report on Form 10-Q 
For the Three Months Ended December 29, 2018 

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1



PART I – FINANCIAL INFORMATION
Item 1. Financial Statements 

MTS SYSTEMS CORPORATION
Consolidated Balance Sheets
(in thousands, except per share data)
 
 
December 29, 2018
 
September 29, 2018
 
 
(Unaudited)
 
(Note)
Assets
 
 

 
 

Current assets
 
 

 
 

Cash and cash equivalents
 
$
70,438

 
$
71,804

Accounts receivable, net of allowance for doubtful accounts of $5,005 and $5,004, respectively
 
115,384

 
122,243

Unbilled accounts receivable, net
 
60,656

 
70,474

Inventories, net
 
183,465

 
139,109

Prepaid expenses and other current assets
 
30,085

 
24,572

Total current assets
 
460,028

 
428,202

Property and equipment, net
 
89,266

 
90,269

Goodwill
 
402,152

 
369,275

Intangible assets, net
 
288,076

 
246,138

Other long-term assets
 
3,841

 
2,263

Deferred income taxes
 
4,501

 
3,249

Total assets
 
$
1,247,864

 
$
1,139,396

 
 
 
 
 
Liabilities and Shareholders' Equity
 
 

 
 

Current liabilities
 
 

 
 

Current maturities of long-term debt, net
 
$
30,462

 
$
32,738

Accounts payable
 
49,191

 
47,886

Accrued payroll and related costs
 
34,223

 
43,554

Advance payments from customers
 
101,367

 
80,131

Accrued warranty costs
 
5,229

 
5,418

Accrued income taxes
 
4,853

 
4,928

Accrued dividends
 
5,319

 
5,312

Other accrued liabilities
 
26,623

 
19,146

Total current liabilities
 
257,267

 
239,113

Long-term debt, less current maturities, net
 
435,586

 
355,640

Deferred income taxes
 
50,846

 
46,482

Non-current accrued income taxes
 
7,010

 
6,158

Defined benefit pension plan obligation
 
11,197

 
9,177

Other long-term liabilities
 
12,623

 
4,894

Total liabilities
 
774,529

 
661,464

 
 
 
 
 
Shareholders' Equity
 
 

 
 

Common stock, $0.25 par value; 64,000 shares authorized: 17,872 and 17,856 shares issued
and outstanding as of December 29, 2018 and September 29, 2018, respectively
 
4,468

 
4,464

Additional paid-in capital
 
173,065

 
171,407

Retained earnings
 
299,493

 
300,585

Accumulated other comprehensive income (loss)
 
(3,691
)
 
1,476

Total shareholders' equity
 
473,335

 
477,932

Total liabilities and shareholders' equity
 
$
1,247,864

 
$
1,139,396

Note: The Consolidated Balance Sheet as of September 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.

2



MTS SYSTEMS CORPORATION
Consolidated Statements of Income (Unaudited)
(in thousands, except per share data)

 
 
Three Months Ended
 
 
December 29,
2018
 
December 30,
2017
Revenue
 
 

 
 

Product
 
$
175,078

 
$
169,241

Service
 
28,103

 
24,921

Total revenue
 
203,181

 
194,162

Cost of Sales
 
 

 
 

Product
 
108,168

 
100,494

Service
 
16,708

 
15,740

Total cost of sales
 
124,876

 
116,234

Gross profit
 
78,305

 
77,928

Operating expenses
 
 

 
 

Selling and marketing
 
32,089

 
32,028

General and administrative
 
21,078

 
20,562

Research and development
 
7,172

 
8,841

Total operating expenses
 
60,339

 
61,431

Income from operations
 
17,966

 
16,497

Interest expense, net
 
(6,818
)
 
(6,804
)
Other income (expense), net
 
49

 
(223
)
Income before income taxes
 
11,197

 
9,470

Income tax provision (benefit)
 
696

 
(23,681
)
Net income
 
$
10,501

 
$
33,151

 
 
 
 
 
Earnings per share
 
 

 
 

Basic
 
 

 
 

Earnings per share
 
$
0.55

 
$
1.73

Weighted average common shares outstanding
 
19,216

 
19,124

 
 
 
 
 
Diluted
 
 

 
 

Earnings per share
 
$
0.54

 
$
1.72

Weighted average common shares outstanding
 
19,556

 
19,254

 
 
 
 
 
Dividends declared per share
 
$
0.30

 
$
0.30

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

  

3



MTS SYSTEMS CORPORATION
Consolidated Statements of Comprehensive Income (Unaudited)
(in thousands)

 
 
Three Months Ended
 
 
December 29,
2018
 
December 30,
2017
Net income
 
$
10,501

 
$
33,151

Other comprehensive income (loss), net of tax
 
 

 
 

Foreign currency translation gain (loss) adjustments
 
(1,503
)
 
2,499

Derivative instruments
 
 

 
 

Unrealized net gain (loss)
 
(1,416
)
 
1,030

Net (gain) loss reclassified to earnings
 
(914
)
 
103

Defined benefit pension plan
 
 

 
 

Unrealized net gain (loss)
 
(1,545
)
 
370

Net (gain) loss reclassified to earnings
 
96

 
91

Currency exchange rate gain (loss)
 
115

 
(87
)
Other comprehensive income (loss)
 
(5,167
)
 
4,006

Comprehensive income (loss)
 
$
5,334

 
$
37,157

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


 

4



MTS SYSTEMS CORPORATION
Consolidated Statements of Shareholders' Equity (Unaudited)
(in thousands)

 
 
Three Months Ended December 29, 2018
 
 
Common Stock
 
Additional
Paid-In
Capital
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders'
Equity
 
 
Shares
Issued
 
Amount
 
 
Retained
Earnings
 
 
Balance, September 29, 2018
 
17,856

 
$
4,464

 
$
171,407

 
$
300,585

 
$
1,476

 
$
477,932

Total comprehensive income
 

 

 

 
10,501

 
(5,167
)
 
5,334

Cumulative effect of accounting change
 

 

 

 
(6,227
)
 

 
(6,227
)
Exercise of stock options
 

 

 
38

 

 

 
38

Stock-based compensation
 
23

 
6

 
1,974

 

 

 
1,980

Common stock purchased and retired
 
(7
)
 
(2
)
 
(354
)
 

 

 
(356
)
Dividends, $0.30 per share
 

 

 

 
(5,366
)
 

 
(5,366
)
Balance, December 29, 2018
 
17,872

 
$
4,468

 
$
173,065

 
$
299,493

 
$
(3,691
)
 
$
473,335


 
 
Three Months Ended December 30, 2017
 
 
Common Stock
 
Additional
Paid-In
Capital
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders'
Equity
 
 
Shares
Issued
 
Amount
 
 
Retained
Earnings
 
 
Balance, September 30, 2017
 
17,760

 
$
4,440

 
$
163,632

 
$
261,258

 
$
(553
)
 
$
428,777

Total comprehensive income
 

 

 

 
33,151

 
4,006

 
37,157

Cumulative effect of accounting change
 

 

 
(33
)
 
33

 

 

Exercise of stock options
 
4

 
1

 
211

 

 

 
212

Stock-based compensation
 
30

 
7

 
1,508

 

 

 
1,515

Common stock purchased and retired
 
(14
)
 
(3
)
 
(741
)
 

 

 
(744
)
Dividends, $.30 per share
 

 

 

 
(5,337
)
 

 
(5,337
)
Balance, December 30, 2017
 
17,780

 
$
4,445

 
$
164,577

 
$
289,105

 
$
3,453

 
$
461,580


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



5



MTS SYSTEMS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
 
Three Months Ended
 
 
December 29, 2018
 
December 30, 2017
Cash Flows from Operating Activities
 
 

 
 

Net income
 
$
10,501

 
$
33,151

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 

 
 

Stock-based compensation
 
1,794

 
1,622

Fair value adjustment to acquired inventory
 
445

 

Net periodic pension benefit cost
 
292

 
292

Depreciation and amortization
 
8,960

 
8,736

(Gain) loss on sale or disposal of property and equipment
 
161

 
67

Amortization of debt issuance costs
 
1,060

 
1,310

Deferred income taxes
 
(1,258
)
 
(30,352
)
Bad debt provision (recovery), net
 
136

 
432

Changes in operating assets and liabilities
 
 

 
 

Accounts receivable and unbilled accounts receivable
 
9,083

 
7,248

Inventories, net
 
(15,788
)
 
(5,498
)
Prepaid expenses
 
(2,288
)
 
(3,810
)
Accounts payable
 
(2,803
)
 
1,167

Accrued payroll and related costs
 
(10,759
)
 
(13,929
)
Advance payments from customers
 
3,265

 
2,947

Accrued warranty costs
 
(185
)
 
(190
)
Other assets and liabilities
 
8,015

 
6,030

Net Cash Provided by (Used in) Operating Activities
 
10,631

 
9,223

Cash Flows from Investing Activities
 
 

 
 

Purchases of property and equipment
 
(3,773
)
 
(2,801
)
Proceeds from sale of property and equipment
 
10

 
69

Purchases of business, net of acquired cash
 
(78,032
)
 

Other
 
(285
)
 

Net Cash Provided by (Used in) Investing Activities
 
(82,080
)
 
(2,732
)
Cash Flows from Financing Activities
 
 

 
 

Proceeds from issuance of long-term debt
 
80,391

 

Payment of long-term debt
 
(1,286
)
 
(19,667
)
Payment of debt component of tangible equity units
 
(2,388
)
 
(2,230
)
Payment of debt issuance costs for revolving credit facility
 
(445
)
 

Receipts under short-term borrowings
 
25,000

 
5,000

Payments under short-term borrowings
 
(25,000
)
 

Cash dividends
 
(5,359
)
 
(5,330
)
Proceeds from exercise of stock options and employee stock purchase plan
 
38

 
212

Payments to purchase and retire common stock
 
(356
)
 
(744
)
Net Cash Provided by (Used in) Financing Activities  
 
70,595

 
(22,759
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
 
(512
)
 
1,606

Cash and Cash Equivalents
 
 

 
 

Increase (decrease) during the period
 
(1,366
)
 
(14,662
)
Balance, beginning of period
 
71,804

 
108,733

Balance, end of period
 
$
70,438

 
$
94,071

 
 
 
 
 
Supplemental Disclosures
 
 

 
 

Cash paid during the period for
 
 

 
 

Interest
 
$
5,292

 
$
5,784

Income taxes
 
2,006

 
2,323

Non-cash investing and financing activities
 
 
 
 
Dividends declared not yet paid
 
5,319

 
5,285

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

6



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 29, 2018 filed with the SEC. Interim results of operations for the first fiscal quarter ended December 29, 2018 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 2019 ending on September 28, 2019 will consist of 52 weeks. Fiscal year 2018 ended on September 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 
Leases 
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset, representing the right to use the underlying asset for the lease term, and a 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 disclosures designed to assess 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 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.
In December 2018, the FASB issued ASU No. 2018-20, Leases (842): Narrow-Scope Improvements for Lessors, which clarifies how to account for sales tax and similar taxes collected from lessees, certain lessor costs and recognition of variable payments for contracts with lease and non-lease components.
The aforementioned lease standards and amendments ("the new lease standard") are 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 lease standard is to be applied using a modified retrospective approach, which includes a number of optional practical expedients and an optional transition method. Early adoption is permitted. We intend to adopt the new lease standard for our

7



fiscal year 2020. We are currently evaluation our lease portfolio; assessing system needs to support adoption of the new lease standard; and analyzing procedural changes, including updating our lease accounting policy as needed to reflect the new requirements of this standard. We continue to evaluate the impact that these changes in methodology will have on our financial condition, results of operations and disclosures.
Other
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. 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 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.

8



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 transfers of assets until the asset has been sold to an outside party or otherwise recognized. 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 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. We adopted the new standard for the annual period ending September 28, 2019, including interim periods within that annual period, retrospectively for the presentation in the income statement of the service cost component and the other components of net periodic pension cost and prospectively for the capitalization in assets of the service cost component of net periodic pension cost. The adoption of this guidance did not have a material 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. We early 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 current or prior year financial condition, results of operations or disclosures.
NOTE 3          REVENUE 
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 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 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 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 the new revenue standard to have a significant impact on annual revenue recognized, our financial condition or results of operations, we do expect that it will have an impact on the timing of revenue recognition in interim periods.

9



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 December 29, 2018
 
 
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change
Revenue
 
$
203,181

 
$
198,438

 
$
4,743

Cost of sales
 
124,876

 
120,420

 
4,456

Gross profit
 
78,305

 
78,018

 
287

Selling and marketing
 
32,089

 
32,252

 
(163
)
Income tax provision (benefit)
 
696

 
615

 
81

Net income
 
10,501

 
10,132

 
369

 
 
 
 
 
 
 
Consolidated Balance Sheets
 
December 29, 2018
 
 
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change
Assets
 
 
 
 
 
 
Accounts receivable, net
 
$
115,384

 
$
123,814

 
$
(8,430
)
Unbilled accounts receivable, net
 
60,656

 
59,901

 
755

Inventories, net
 
183,465

 
164,298

 
19,167

Prepaid expenses and other current assets
 
30,085

 
25,933

 
4,152

Other long-term assets
 
3,841

 
2,845

 
996

Deferred income taxes
 
4,501

 
3,856

 
645

Liabilities and Shareholders' Equity
 
 
 
 
 
 
Advance payments from customers
 
101,367

 
87,148

 
14,219

Accrued income taxes
 
4,853

 
5,196

 
(343
)
Other accrued liabilities
 
26,623

 
17,891

 
8,732

Deferred income taxes
 
50,846

 
52,074

 
(1,228
)
Other long-term liabilities
 
12,623

 
10,871

 
1,752

Accumulated other comprehensive income (loss)
 
(3,691
)
 
(3,702
)
 
11

Retained earnings
 
299,493

 
305,351

 
(5,858
)

10



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

11



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.

12



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 December 29, 2018
 
 
Test & Simulation
 
Sensors
 
Intersegment
 
Total
Sales type
 
 
 
 
 
 
 
 
Product
 
$
98,907

 
$
76,500

 
$
(329
)
 
$
175,078

Service
 
26,653

 
1,450

 

 
28,103

Total revenue
 
$
125,560

 
$
77,950

 
$
(329
)
 
$
203,181

 
 
 
 
 
 
 
 
 
Timing of recognition
 
 
 
 
 
 
 
 
Point-in-time
 
$
79,619

 
$
77,950

 
$
(329
)
 
$
157,240

Over time
 
45,941

 

 

 
45,941

Total revenue
 
$
125,560

 
$
77,950

 
$
(329
)
 
$
203,181

 
 
 
 
 
 
 
 
 
Geographic market
 
 
 
 
 
 
 
 
Americas
 
$
39,489

 
$
37,729

 
$
(329
)
 
$
76,889

Europe
 
28,627

 
25,348

 

 
53,975

Asia
 
57,444

 
14,873

 

 
72,317

Total revenue
 
$
125,560

 
$
77,950

 
$
(329
)
 
$
203,181

Contract Assets and Liabilities
Contract assets and contract liabilities are as follows:
 
 
December 29,
2018
 
September 29,
2018
Contract assets
 
$
60,656

 
$
70,474

Contract liabilities
 
109,225

 
80,131

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.

13



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
 
33,096

Transfers to accounts receivable, net
 
(36,642
)
Acquisitions1
 
749

Other
 
981

Balance, December 29, 2018
 
$
60,656

 
 
 
 
 
Contract Liabilities
Balance, September 29, 2018
 
$
80,131

Cumulative transition adjustment upon adoption
 
20,557

Revenue recognized included in balance at beginning of period
 
(40,511
)
Increases due to payments received, excluding amounts recognized as revenue during period
 
43,383

Acquisitions1
 
5,561

Other
 
104

Balance, December 29, 2018
 
$
109,225

1    See Note 18 for additional information regarding acquisitions.
Remaining Performance Obligations
As of December 29, 2018, we had approximately $197,600 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 December 29, 2018, we expect to recognize approximately 63% of these remaining performance obligations as revenue within one year, an additional 30% 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 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.

14



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 $5,589 in prepaid expenses and other current assets and other long-term assets in the Consolidated Balance Sheets as of December 29, 2018 and related expense of $2,620 in the Consolidated Statements of Income during the three months ended December 29, 2018.
NOTE 4          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: 
 
 
December 29,
2018
 
September 29,
2018
Components, assemblies and parts
 
$
106,496

 
$
93,020

Customer projects in various stages of completion
 
66,466

 
35,675

Finished goods
 
10,503

 
10,414

Total inventories, net
 
$
183,465

 
$
139,109

We adopted the new revenue standard effective September 30, 2018 under the modified retrospective transition method. See Note 3 for the impact of this adoption on our Consolidated Balance Sheets.
NOTE 5          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.

15



Changes to accrued warranty costs are as follows: 
 
 
Three Months Ended
 
 
December 29,
2018
 
December 30,
2017
Beginning accrued warranty costs
 
$
5,418

 
$
6,018

Warranty claims
 
(2,892
)
 
(1,175
)
Warranty provisions
 
2,707

 
985

Adjustments to preexisting warranties
 

 

Currency translation
 
(4
)
 
4

Ending accrued warranty costs
 
$
5,229

 
$
5,832

NOTE 6          CAPITAL ASSETS 
Property and Equipment
Property and equipment, net are as follows: 
 
 
December 29,
2018
 
September 29,
2018
Land and improvements
 
$
2,881

 
$
2,881

Buildings and improvements
 
58,750

 
58,880

Machinery and equipment
 
207,275

 
203,647

Assets held under capital leases
 
2,796

 
2,815

Total property and equipment
 
271,702

 
268,223

Less: Accumulated depreciation
 
(182,436
)
 
(177,954
)
Total property and equipment, net
 
$
89,266

 
$
90,269

Goodwill
Changes to the carrying amount of goodwill are as follows:  
 
 
Test & Simulation
 
Sensors
 
Total
Balance, September 29, 2018
 
$
24,631

 
$
344,644

 
$
369,275

Acquisitions 1
 
32,791

 

 
32,791

Currency translation
 
100

 
(14
)
 
86

Balance, December 29, 2018
 
$
57,522

 
$
344,630

 
$
402,152

1    See Note 18 for additional information regarding acquisitions.
Intangible Assets
Intangible assets are as follows: 
 
 
December 29, 2018
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Value
 
Weighted
Average
Useful Life (in Years)
Software development costs 2
 
$
33,478

 
$
(15,859
)
 
$
17,619

 
6.4
Technology and patents
 
59,079

 
(13,005
)
 
46,074

 
14.9
Trademarks and trade names
 
12,688

 
(3,162
)
 
9,526

 
20.5
Customer lists
 
178,655

 
(25,957
)
 
152,698

 
15.7
Land-use rights
 
2,332

 
(791
)
 
1,541

 
26.0
Other
 
3,205

 
(87
)
 
3,118

 
4.0
Trade names
 
57,500

 

 
57,500

 
Indefinite
Total intangible assets
 
$
346,937

 
$
(58,861
)
 
$
288,076

 
14.6
 

16



 
 
September 29, 2018
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Value
 
Weighted
Average
Useful Life (in Years)
Software development costs 2
 
$
31,251

 
$
(15,860
)
 
$
15,391

 
6.5
Technology and patents
 
46,405

 
(12,188
)
 
34,217

 
14.9
Trademarks and trade names
 
6,754

 
(2,987
)
 
3,767

 
25.4
Customer lists
 
156,971

 
(23,314
)
 
133,657

 
15.8
Land-use rights
 
2,336

 
(730
)
 
1,606

 
26.0
Trade names
 
57,500

 

 
57,500

 
Indefinite
Total intangible assets
 
$
301,217

 
$
(55,079
)
 
$
246,138

 
14.8
 
2 
The gross carrying amount of software development costs as of December 29, 2018 and September 29, 2018 includes $17,619 and $15,391, respectively, of intangible assets not yet placed in service.
Amortization expense recognized is as follows:
 
 
Three Months Ended
 
 
December 29,
2018
 
December 30,
2017
Amortization expense
 
$
3,816

 
$
3,479

Estimated future amortization expense related to finite-lived intangible assets is as follows: 
 
Amortization Expense
Remainder of 2019
$
12,794

2020
16,779

2021
17,784

2022
18,607

2023
17,817

2024
17,465

Thereafter
129,330

 
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.
NOTE 7          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 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 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. 

17



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:
 
 
December 29, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Currency contracts 1
 
$

 
$
405

 
$

 
$
405

Interest rate swaps 2
 

 
4,889

 

 
4,889

Total assets
 

 
5,294

 

 
5,294

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Currency contracts 1
 

 
758

 

 
758

Total liabilities
 
$

 
$
758

 
$

 
$
758

 
 
September 29, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Currency contracts 1
 
$

 
$
1,080

 
$

 
$
1,080

Interest rate swaps 2
 

 
7,411

 

 
7,411

Total assets
 

 
8,491

 

 
8,491

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Currency contracts 1
 

 
173

 

 
173

Total liabilities
 
$

 
$
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 8 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 8 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. 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 6 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, accounts payable and short-term borrowings.

18



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 values of our debt are as follows:
 
 
December 29, 2018
 
 
Carrying
Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Debt component of tangible equity units 1
 
$
4,902

 
$
4,532

 
$

 
$
4,532

 
$

Tranche B term loan 2
 
390,266

 
378,558

 

 
378,558

 

Total debt
 
$
395,168

 
$
383,090

 
$

 
$
383,090

 
$

 
 
September 29, 2018
 
 
Carrying
Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Debt component of tangible equity units 1
 
$
7,290

 
$
8,626

 
$

 
$
8,626

 
$

Tranche B term loan 2
 
391,416

 
395,330

 

 
395,330

 

Total debt
 
$
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 13 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 9 for additional information on debt instruments.
NOTE 8          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 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: 
 
 
December 29, 2018
 
 
Prepaid Expenses
and Other
Current Assets
 
Other Accrued
Liabilities
Designated hedge derivatives
 
 

 
 

Cash flow derivatives
 
$
405

 
$
170

Interest rate swaps
 
4,889

 

Total designated hedge derivatives
 
5,294

 
170

Undesignated hedge derivatives
 
 

 
 

Balance sheet derivatives
 

 
588

Total hedge derivatives
 
$
5,294

 
$
758


19



 
 
September 29, 2018
 
 
Prepaid Expenses
and Other
Current Assets
 
Other Accrued
Liabilities
Designated hedge derivatives
 
 

 
 

Cash flow derivatives
 
$
989

 
$
173

Interest rate swaps
 
7,411

 

Total designated hedge derivatives
 
8,400

 
173

Undesignated hedge derivatives
 
 

 
 

Balance sheet derivatives
 
91

 

Total hedge derivatives
 
$
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
December 29, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
$
5,294

 
$

 
$
5,294

 
$
(169
)
 
$

 
$
5,125

Liabilities
 
170

 

 
170

 
(169
)
 

 
1

 
 
 
 
 
 
 
 
 
 
 
 
 
September 29, 2018
 
 

 
 

 
 

 
 

 
 

 
 

Assets
 
$
8,400

 
$

 
$
8,400

 
$
(173
)
 
$

 
$
8,227

Liabilities
 
173

 

 
173

 
(173
)
 

 

 
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. Gains and losses related to changes in the market value of these contracts are reported as a component of accumulated other comprehensive income (AOCI) within shareholders' equity in the Consolidated Balance Sheets and reclassified to earnings in the same line item in the Consolidated Statements of Income and in the same period as the recognition of the underlying hedged 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. 
As of December 29, 2018 and September 29, 2018, we had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $37,953 and $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 $22,804 and $29,315 as of December 29, 2018 and September 29, 2018, respectively. As of December 29, 2018, the net market value of the foreign currency exchange contracts was a net asset of $235, consisting of $405 in assets and $170 in liabilities. As of September 29, 2018, the net market value of the foreign currency exchange contracts was a net asset of $816, consisting of $989 in assets and $173 in liabilities.
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
 
 
December 29,
2018
 
December 30,
2017
Beginning unrealized net gain (loss) in AOCI
 
$
672

 
$
(443
)
Net (gain) loss reclassified into revenue
 
(585
)
 
158

Net gain (loss) recognized in OCI
 
127

 
(159
)
Ending unrealized net gain (loss) in AOCI
 
$
214

 
$
(444
)

20



As of December 29, 2018, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of $105. The maximum remaining maturity of any forward or optional contract as of December 29, 2018 was 1.3 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 $225,000 as of December 29, 2018. The 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 December 29, 2018 was an asset of $4,889. 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
 
 
December 29,
2018
 
December 30,
2017
Beginning unrealized net gain (loss) in AOCI
 
$
7,411

 
$
3,499

Net (gain) loss reclassified into interest expense
 
(584
)
 
(19
)
Net gain (loss) recognized in OCI
 
(1,938
)
 
1,547

Ending unrealized net gain (loss) in AOCI
 
$
4,889

 
$
5,027

As of December 29, 2018, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of $2,777.
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 December 29, 2018 and September 29, 2018, we had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $130,780 and $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 December 29, 2018 and September 29, 2018 was $40,991 and $28,271, respectively. As of December 29, 2018 and September 29, 2018, the net market value of the foreign exchange balance sheet derivative contracts was a net liability of $588 and a net asset of $91, respectively.
The net gain (loss) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts is as follows:
 
 
Three Months Ended
 
 
December 29,
2018
 
December 30,
2017
Net gain (loss) recognized in other income (expense), net
 
$
7

 
$
(179
)

21



NOTE 9          FINANCING
Long-term debt consists of the following:
 
 
December 29,
2018
 
September 29,
2018
Long-term debt
 
 
 
 
Tranche B term loan, 1.00% amortizing per year, maturing July 5, 2023
 
$
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
 
4,902

 
7,290

Capital lease obligations
 
1,846

 
2,000

Total long-term debt
 
477,405

 
400,706

Less: Unamortized underwriting discounts, commissions and other expenses
 
(7,766
)
 
(8,623
)
Less: Current maturities of tranche B term loan debt 2, 3
 
(28,600
)
 
(28,600
)
Less: Current maturities of TEU debt 2
 
(4,902
)
 
(7,290
)
Less: Current maturities of capital lease obligations 2
 
(551
)
 
(553
)
Total long-term debt, less current maturities, net
 
$
435,586

 
$
355,640

1 
See Note 13 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 $3,591 and $3,705 as of December 29, 2018 and September 29, 2018, respectively.
3 
As of December 29, 2018 and September 29, 2018, current maturities of tranche B term loan 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 $150,000 revolving credit facility (the Revolving Credit Facility), which expires on July 5, 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, for working capital and other general corporate purposes up to a maximum of $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. Borrowings on the Revolving Credit Facility were used for financing the acquisition of E2M Technologies B.V. (E2M) in 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 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 Revolving Credit Facility from July 5, 2021 to July 5, 2022. Additionally, the required performance levels under certain financial covenants were modified. During the three months ended December 29, 2018, 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 (ABR Term Loans and ABR Revolving Loans), Swingline Loans and Eurocurrency Borrowing (each as defined in the Credit 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 December 29, 2018, the Applicable Rate for ABR Term Loans was 2.25% per annum.


22



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 December 29, 2018, the Applicable Rate for Eurocurrency Revolving Loans was 3.00%. As of December 29, 2018, the Applicable Rate for Eurocurrency Term Loans was 3.25% per annum, plus the applicable Adjusted LIBOR Rate of 2.46%. The weighted average interest rate on Term Facility debt during the three months ended December 29, 2018 was 5.57%.
As of December 29, 2018, 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 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 $20,221 and $20,448 as of December 29, 2018 and September 29, 2018, respectively, leaving approximately $49,388 and $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 months ended December 29, 2018 and December 30, 2017, commitment fees incurred totaled $72 and $79, 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 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 our existing wholly-owned domestic subsidiaries, and are secured, subject to certain exceptions, by substantially all of our assets and the assets of 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 December 29, 2018 and September 29, 2018, we were in compliance with these financial covenants.
See Note 7 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 8 for additional information on derivative financial instruments.
The interest rate swap will be reduced to the following notional amounts over the next three years:
 
 
Notional Amount

October 3, 2019
 
$
180,000

October 3, 2020
 
125,000

April 3, 2021
 

NOTE 10          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 December 29, 2018, a total of 967 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 and 2017, the annual stock grant occurred in December 2018, April 2018 and April 2017, respectively.

23



Stock Options
During the three months ended December 29, 2018, 230 stock options were granted at a weighted average fair value of $9.89. During the three months ended December 30, 2017, no stock options 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 three months ended December 29, 2018, we granted 106 restricted stock units and 40 performance restricted stock units to directors, officers and employees. During the three months ended December 30, 2017, we granted 1 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 three months ended December 29, 2018 and December 30, 2017 was $45.80 and $51.78, respectively, representing the market value of our shares as 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 December 29, 2018, 615 shares were available for issuance under the 2012 ESPP. During the three months ended December 29, 2018 and December 30, 2017, we issued no shares under the 2012 ESPP.
NOTE 11          EMPLOYEE BENEFIT PLANS
We sponsor a non-contributory, defined benefit 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
 
 
December 29,
2018
 
December 30,
2017
Service cost
 
$
322

 
$
318

Interest cost
 
155

 
159

Expected return on plan assets
 
(322
)
 
(315
)
Net amortization and deferral
 
137

 
130

Net periodic benefit cost
 
$
292

 
$
292

 
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 months ended December 29, 2018 and December 30, 2017 was 5.5%.
NOTE 12          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.
As of December 29, 2018, we have completed our accounting for the tax effects of the Tax Act. As a result, the income tax provision for the three months ended December 29, 2018 included certain discrete benefits of $1,293 for Tax Act measurement period adjustments. The discrete benefits related 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 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.

24



Excluding the impact of certain discrete benefits in the current and prior year, the effective tax rate for the three months ended December 29, 2018 was essentially flat compared to the same prior year period. Factors that increased the effective tax rate for the three months ended December 29, 2018 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 Act as a period cost to the extent applicable.
The income tax benefit for the three months ended December 30, 2017 included certain discrete benefits of $25,378 for the estimated impact of the Tax Act. The discrete benefits 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 income tax benefit for fiscal year 2018 included certain discrete benefits of $25,008 for the estimated impact of the Tax Act. The discrete benefits primarily related to $31,647 of estimated benefit from the remeasurement of our estimated net deferred tax liabilities, partially offset by $6,639 of estimated expense associated with the mandatory deemed repatriation tax.
As of December 29, 2018, the liability for unrecognized tax benefits was $7,010, of which $4,529 would favorably affect our effective tax rate, if recognized. As of September 29, 2018, the liability for unrecognized tax benefits was $6,158, of which $3,740 would favorably affect our effective tax rate, if recognized. As of December 29, 2018, we do not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.
NOTE 13          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