Company Quick10K Filing
Quick10K
MTS Systems
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$56.85 18 $1,020
10-Q 2019-06-29 Quarter: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
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
10-K 2015-10-03 Annual: 2015-10-03
10-Q 2015-06-27 Quarter: 2015-06-27
10-Q 2015-03-28 Quarter: 2015-03-28
10-Q 2014-12-27 Quarter: 2014-12-27
10-K 2014-09-27 Annual: 2014-09-27
10-Q 2014-06-28 Quarter: 2014-06-28
10-Q 2014-03-29 Quarter: 2014-03-29
10-Q 2013-12-28 Quarter: 2013-12-28
8-K 2019-08-05 Earnings, Exhibits
8-K 2019-07-16 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2019-05-06 Earnings, Exhibits
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
JCI Johnson Controls 35,550
DVN Devon Energy 12,980
PAC Pacific Airport Group 5,430
PNM PNM Resources 3,710
PEGI Pattern Energy Group 2,180
LBC Luther Burbank 586
CLPR Clipper Realty 232
FEIM Frequency Electronics 104
IPWR Ideal Power 6
OPC Oglethorpe Power 0
MTSC 2019-06-29
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 Income Taxes
Note 12 Shareholders' Equity
Note 13 Earnings per Share
Note 14 Other Comprehensive Income (Loss)
Note 15 Business Segment Information
Note 16 Business Acquisitions
Note 17 Subsequent Events
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-31.1 exhibit311q3fy192019629.htm
EX-31.2 exhibit312q3fy192019629.htm
EX-32.1 exhibit321q3fy192019629.htm
EX-32.2 exhibit322q3fy192019629.htm

MTS Systems Earnings 2019-06-29

MTSC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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 29, 2019
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 
 mtslogojpga01.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
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
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 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
 
 
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 August 1, 2019, there were 19,334,452 shares of common stock outstanding.




MTS Systems Corporation 
Quarterly Report on Form 10-Q 
For the Three Months Ended June 29, 2019 

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1


Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements 

MTS SYSTEMS CORPORATION
Consolidated Balance Sheets
(in thousands, except per share data)
 
 
June 29, 2019
 
September 29, 2018
 
 
(Unaudited)
 
(Note)
Assets
 
 

 
 

Current assets
 
 

 
 

Cash and cash equivalents
 
$
75,735

 
$
71,804

Accounts receivable, net of allowance for doubtful accounts of $5,430 and $5,004, respectively
 
131,365

 
122,243

Unbilled accounts receivable, net
 
68,804

 
70,474

Inventories, net
 
164,853

 
139,109

Prepaid expenses and other current assets
 
27,118

 
24,572

Total current assets
 
467,875

 
428,202

Property and equipment, net
 
92,893

 
90,269

Goodwill
 
403,448

 
369,275

Intangible assets, net
 
285,299

 
246,138

Other long-term assets
 
3,986

 
2,263

Deferred income taxes
 
3,818

 
3,249

Total assets
 
$
1,257,319

 
$
1,139,396

 
 
 
 
 
Liabilities and Shareholders' Equity
 
 

 
 

Current liabilities
 
 

 
 

Current maturities of long-term debt, net
 
$
28,316

 
$
32,738

Accounts payable
 
39,495

 
47,886

Accrued payroll and related costs
 
43,893

 
43,554

Advance payments from customers
 
87,935

 
80,131

Accrued warranty costs
 
3,843

 
5,418

Accrued income taxes
 
3,736

 
4,928

Accrued dividends
 
5,568

 
5,312

Other accrued liabilities
 
35,367

 
19,146

Total current liabilities
 
248,153

 
239,113

Long-term debt, less current maturities, net
 
434,200

 
355,640

Deferred income taxes
 
50,315

 
46,482

Non-current accrued income taxes
 
5,745

 
6,158

Defined benefit pension plan obligation
 
9,062

 
9,177

Other long-term liabilities
 
15,305

 
4,894

Total liabilities
 
762,780

 
661,464

 
 
 
 
 
Shareholders' Equity
 
 

 
 

Common stock, $0.25 par value; 64,000 shares authorized: 18,736 and 17,856 shares
issued and outstanding as of June 29, 2019 and September 29, 2018, respectively
 
4,684

 
4,464

Additional paid-in capital
 
179,015

 
171,407

Retained earnings
 
316,249

 
300,585

Accumulated other comprehensive income (loss)
 
(5,409
)
 
1,476

Total shareholders' equity
 
494,539

 
477,932

Total liabilities and shareholders' equity
 
$
1,257,319

 
$
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


Table of Contents

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

 
 
Three Months Ended
 
Nine Months Ended
 
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Revenue
 
 

 
 

 
 

 
 

Product
 
$
205,528

 
$
168,651

 
$
587,297

 
$
503,345

Service
 
26,681

 
26,017

 
81,139

 
76,808

Total revenue
 
232,209

 
194,668

 
668,436

 
580,153

Cost of Sales
 
 

 
 

 
 

 
 

Product
 
130,514

 
103,182

 
368,260

 
304,809

Service
 
16,592

 
15,202

 
49,418

 
46,307

Total cost of sales
 
147,106

 
118,384

 
417,678

 
351,116

Gross profit
 
85,103

 
76,284

 
250,758

 
229,037

Operating expenses
 
 

 
 

 
 

 
 

Selling and marketing
 
33,321

 
32,171

 
98,805

 
94,796

General and administrative
 
20,621

 
19,081

 
63,804

 
58,635

Research and development
 
8,160

 
8,768

 
23,008

 
26,235

Total operating expenses
 
62,102

 
60,020

 
185,617

 
179,666

Income from operations
 
23,001

 
16,264

 
65,141

 
49,371

Interest expense, net
 
(6,687
)
 
(6,249
)
 
(20,873
)
 
(19,761
)
Other income (expense), net
 
(124
)
 
30

 
195

 
81

Income before income taxes
 
16,190

 
10,045

 
44,463

 
29,691

Income tax provision (benefit)
 
2,605

 
1,066

 
6,217

 
(20,877
)
Net income
 
$
13,585

 
$
8,979

 
$
38,246

 
$
50,568

 
 
 
 
 
 
 
 
 
Earnings per share
 
 

 
 

 
 

 
 

Basic
 
 

 
 

 
 

 
 

Earnings per share
 
$
0.70

 
$
0.47

 
$
1.99

 
$
2.64

Weighted average common shares outstanding
 
19,297

 
19,174

 
19,255

 
19,149

 
 
 
 
 
 
 
 
 
Diluted
 
 

 
 

 
 

 
 

Earnings per share
 
$
0.70

 
$
0.47

 
$
1.97

 
$
2.62

Weighted average common shares outstanding
 
19,520

 
19,305

 
19,436

 
19,269

 
 
 
 
 
 
 
 
 
Dividends declared per share
 
$
0.30

 
$
0.30

 
$
0.90

 
$
0.90

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

  

3


Table of Contents

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

 
 
Three Months Ended
 
Nine Months Ended
 
 
June 29,
2019
 
June 30,
2018
 
June 29,
2019
 
June 30,
2018
Net income
 
$
13,585

 
$
8,979

 
$
38,246

 
$
50,568

Other comprehensive income (loss), net of tax
 
 

 
 

 
 

 
 

Foreign currency translation gain (loss) adjustments
 
506

 
(8,056
)
 
(2,165
)
 
(385
)
Derivative instruments
 
 

 
 

 
 

 
 

Unrealized net gain (loss)
 
(1,074
)
 
2,089

 
(2,882
)
 
3,359

Net (gain) loss reclassified to earnings
 
(655
)
 
(516
)
 
(2,136
)
 
274

Defined benefit pension plan
 
 

 
 

 
 

 
 

Unrealized net gain (loss)
 
419

 
78

 
(167
)
 
(193
)
Net (gain) loss reclassified to earnings
 
95

 
92

 
286

 
278

Currency exchange rate gain (loss)
 
(82
)
 
413

 
179

 
145

Other comprehensive income (loss)
 
(791
)
 
(5,900
)
 
(6,885
)
 
3,478

Comprehensive income (loss)
 
$
12,794

 
$
3,079

 
$
31,361

 
$
54,046

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


 

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

 
 
Three Months Ended June 29, 2019
 
 
Common Stock
 
Additional
Paid-In
Capital
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders'
Equity
 
 
Shares
Issued
 
Amount
 
 
Retained
Earnings
 
 
Balance, March 30, 2019
 
17,900

 
$
4,475

 
$
176,918

 
$
308,279

 
$
(4,618
)
 
$
485,054

Total comprehensive income
 

 

 

 
13,585

 
(791
)
 
12,794

Conversion of tangible equity units
 
781

 
195

 
(195
)
 

 

 

Exercise of stock options
 
20

 
5

 
991

 

 

 
996

Stock-based compensation
 
55

 
14

 
2,282

 

 

 
2,296

Issuance for employee stock purchase plan
 

 

 

 

 

 

Common stock purchased and retired
 
(20
)
 
(5
)
 
(981
)
 

 

 
(986
)
Dividends, $0.30 per share
 

 

 

 
(5,615
)
 

 
(5,615
)
Balance, June 29, 2019
 
18,736

 
$
4,684

 
$
179,015

 
$
316,249

 
$
(5,409
)
 
$
494,539

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 29, 2019
 
 
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
 

 

 

 
38,246

 
(6,885
)
 
31,361

Cumulative effect of accounting change
 

 

 

 
(6,227
)
 

 
(6,227
)
Conversion of tangible equity units
 
781

 
195

 
(195
)
 

 

 

Exercise of stock options
 
23

 
6

 
1,134

 

 

 
1,140

Stock-based compensation
 
88

 
22

 
7,493

 

 

 
7,515

Issuance for employee stock purchase plan
 
16

 
4

 
553

 

 

 
557

Common stock purchased and retired
 
(28
)
 
(7
)
 
(1,377
)
 

 

 
(1,384
)
Dividends, $0.90 per share
 

 

 

 
(16,355
)
 

 
(16,355
)
Balance, June 29, 2019
 
18,736

 
$
4,684

 
$
179,015

 
$
316,249

 
$
(5,409
)
 
$
494,539




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Table of Contents

 
 
Three Months Ended June 30, 2018
 
 
Common Stock
 
Additional
Paid-In
Capital
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Shareholders'
Equity
 
 
Shares
Issued
 
Amount
 
 
Retained
Earnings
 
 
Balance, March 31, 2018
 
17,792

 
$
4,448

 
$
166,757

 
$
292,200

 
$
8,825

 
$
472,230

Total comprehensive income
 

 

 

 
8,979

 
(5,900
)
 
3,079

Exercise of stock options
 
9

 
2

 
416

 

 

 
418

Stock-based compensation
 
41

 
11

 
2,177

 

 

 
2,188

Issuance for employee stock purchase plan
 
12

 
3

 
535

 

 

 
538

Common stock purchased and retired
 
(10
)
 
(3
)
 
(546
)
 

 

 
(549
)
Dividends, $0.30 per share
 

 

 

 
(5,354
)
 

 
(5,354
)
Balance, June 30, 2018
 
17,844

 
$
4,461

 
$
169,339

 
$
295,825

 
$
2,925

 
$
472,550

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2018
 
 
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
 

 

 

 
50,568

 
3,478

 
54,046

Cumulative effect of accounting change
 

 

 
(33
)
 
33

 

 

Exercise of stock options
 
13

 
3

 
627

 

 

 
630

Stock-based compensation
 
71

 
18

 
5,348

 

 

 
5,366

Issuance for employee stock purchase plan
 
24

 
6

 
1,065

 

 

 
1,071

Common stock purchased and retired
 
(24
)
 
(6
)
 
(1,300
)
 

 

 
(1,306
)
Dividends, $0.90 per share
 

 

 

 
(16,034
)
 

 
(16,034
)
Balance, June 30, 2018
 
17,844

 
$
4,461

 
$
169,339

 
$
295,825

 
$
2,925

 
$
472,550


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



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MTS SYSTEMS CORPORATION
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
 
Nine Months Ended
 
 
June 29, 2019
 
June 30, 2018
Cash Flows from Operating Activities
 
 

 
 

Net income
 
$
38,246

 
$
50,568

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

 
 

Stock-based compensation
 
7,298

 
5,378

Fair value adjustment to acquired inventory
 
1,141

 

Net periodic pension benefit cost
 
871

 
890

Depreciation and amortization
 
28,153

 
25,858

(Gain) loss on sale or disposal of property and equipment
 
552

 
171

Amortization of debt issuance costs
 
2,807

 
3,824

Deferred income taxes
 
(1,430
)
 
(30,189
)
Bad debt provision (recovery), net
 
586

 
1,344

Other
 

 
(111
)
Changes in operating assets and liabilities
 
 

 
 

Accounts receivable and unbilled accounts receivable
 
(15,444
)
 
22,915

Inventories, net
 
1,013

 
(15,158
)
Prepaid expenses
 
(2,310
)
 
(784
)
Accounts payable
 
(11,361
)
 
(283
)
Accrued payroll and related costs
 
(1,396
)
 
(10,525
)
Advance payments from customers
 
(6,390
)
 
1,987

Accrued warranty costs
 
(1,571
)
 
(422
)
Other assets and liabilities
 
9,205

 
(3,352
)
Net Cash Provided by (Used in) Operating Activities
 
49,970

 
52,111

Cash Flows from Investing Activities
 
 

 
 

Purchases of property and equipment
 
(17,377
)
 
(9,777
)
Proceeds from sale of property and equipment
 
10

 
69

Purchases of business, net of acquired cash
 
(83,526
)
 

Other
 
(285
)
 
823

Net Cash Provided by (Used in) Investing Activities
 
(101,178
)
 
(8,885
)
Cash Flows from Financing Activities
 
 

 
 

Proceeds from issuance of long-term debt
 
80,391

 

Payment of long-term debt
 
(3,861
)
 
(63,233
)
Payment of debt component of tangible equity units
 
(4,818
)
 
(6,805
)
Payment of debt issuance costs for revolving credit facility
 
(542
)
 

Receipts under short-term borrowings
 
35,000

 
12,750

Payments under short-term borrowings
 
(35,000
)
 
(12,750
)
Cash dividends
 
(16,099
)
 
(15,958
)
Proceeds from exercise of stock options and employee stock purchase plan
 
1,697

 
1,701

Payments to purchase and retire common stock
 
(1,384
)
 
(1,306
)
Net Cash Provided by (Used in) Financing Activities  
 
55,384

 
(85,601
)
Effect of Exchange Rate Changes on Cash and Cash Equivalents
 
(245
)
 
45

Cash and Cash Equivalents
 
 

 
 

Increase (decrease) during the period
 
3,931

 
(42,330
)
Balance, beginning of period
 
71,804

 
108,733

Balance, end of period
 
$
75,735

 
$
66,403

 
 
 
 
 
Supplemental Disclosures
 
 

 
 

Cash paid during the period for
 
 

 
 

Interest
 
$
18,244

 
$
16,768

Income taxes
 
9,295

 
7,645

Non-cash investing and financing activities
 
 
 
 
Dividends declared not yet paid
 
5,568

 
5,354

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

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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 29, 2018 filed with the SEC. Interim results of operations for the third fiscal quarter ended June 29, 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 2019 ending on September 28, 2019 will consist of 52 weeks. Fiscal year 2018 ended on September 29, 2018 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), 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 for all leases with terms greater than 12 months. The new lease standard requires enhanced disclosures regarding the amount, timing and uncertainty of cash flows arising from a company's leases. Adoption of the new lease standard is required for annual periods beginning after December 15, 2018, including interim periods within that annual period, which is our fiscal year 2020. The new guidance is required to be adopted using a modified retrospective transition method, and an optional transition 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 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 other practical expedients available under the new lease standard. 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 the new lease standard will result in an increase in assets and liabilities on our Consolidated Balance Sheet. The impact on our Consolidated Statement 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.

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Other
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, followed by related amendments, 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. Adoption of the standard is required for annual periods beginning after December 15, 2019, including interim periods within that annual period, which is our fiscal year 2021. The new guidance is required to be adopted using a modified retrospective approach with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period of adoption. 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 new guidance 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 new guidance 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 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 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. Existing guidance required 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 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.

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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 standard 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 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 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.

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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 June 29, 2019
 
 
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change
Revenue
 
$
232,209

 
$
213,443

 
$
18,766

Cost of sales
 
147,106

 
136,563

 
10,543

Gross profit
 
85,103

 
76,880

 
8,223

Selling and marketing
 
33,321

 
33,075

 
246

Income tax provision (benefit)
 
2,605

 
1,326

 
1,279

Net income
 
13,585

 
6,887

 
6,698

 
 
 
 
 
 
 
 
 
Nine Months Ended June 29, 2019
 
 
As Reported
 
Balances without Adoption of ASC 606
 
Effect of Change
Revenue
 
$
668,436

 
$
636,546

 
$
31,890

Cost of sales
 
417,678

 
397,295

 
20,383

Gross profit
 
250,758