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 28, 2019 filed with the SEC. Interim results of operations for the second fiscal quarter ended March 28, 2020 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 2020 ending on October 3, 2020 will consist of 53 weeks. Fiscal year 2019 ended on September 28, 2019 consisted of 52 weeks.
Changes to Significant Accounting Policies
The following accounting policies have been updated since our fiscal year 2019 Annual Report on Form 10-K.
Leases
As described in Note 2, we adopted Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), followed by related amendments, on September 29, 2019 under the modified retrospective transition method. Our new lease accounting policy and disclosures related to this guidance are included in Note 5.
Business Acquisitions
We expanded our business acquisitions critical accounting policy to include contingent consideration liabilities measured at fair value on a recurring basis. See Item II of Part I of this Quarterly Report on Form 10-Q for additional information on our critical accounting policy updates related to business acquisitions.
COVID-19
The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. See Note 17 for further information on our risks and uncertainties related to COVID-19.
NOTE 2 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2016, the Financial Accounting Standards Board (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. 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 do not expect the adoption of this standard to have a material impact 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 do not expect the adoption of this standard to have a material impact on our financial condition, results of operations or disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions to Topic 740's general principles, improves consistent application and simplifies its application. The standard is required to be adopted for annual periods ending after December 15, 2020, which is our fiscal year 2021. We have not yet evaluated the impact the adoption of this guidance may have on our financial condition, results of operations or disclosures.
In April 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides relief for companies preparing for discontinuation of interest rates such as LIBOR. The standard can be applied immediately through December 31, 2022, which is our fiscal year 2023. 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 February 2016, the 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. We adopted the new lease standard on September 29, 2019 under the modified retrospective transition method and the optional transition method. As a result, we did not adjust our comparative period financial information or make the new required lease disclosures for periods before the effective date. We elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. In addition, we did not elect to apply the hindsight practical expedient. See Note 5 for our new lease accounting policy and disclosures related to the new lease standard.
NOTE 3 REVENUE
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 revenue recognition 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 14 for further information on reportable segments.
Test & Simulation
Our Test & Simulation segment (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 or to create a desired human experience. 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 platform on which a human or prototype specimen resides or 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, analyze and manipulate results. Our portfolio of Test & Simulation solutions includes standard, configurable products; engineered products which combine standard product configurations with a moderate degree of customization per customer specifications; and highly customized, highly engineered 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 several 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 transportation, 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. Certain contracts are measured using the as invoiced practical expedient as we have a right to consideration from a customer in an amount that corresponds directly with the value to the customer of our performance completed to date.
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.
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 14 for further information on our reportable segments and intersegment revenue.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
|
|
Test & Simulation
|
|
Sensors
|
|
Intersegment
|
|
Total
|
|
Test & Simulation
|
|
Sensors
|
|
Intersegment
|
|
Total
|
|
Sales type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
102,288
|
|
|
$
|
81,161
|
|
|
$
|
(226
|
)
|
|
$
|
183,223
|
|
|
$
|
126,511
|
|
|
$
|
80,540
|
|
|
$
|
(361
|
)
|
|
$
|
206,690
|
|
|
Service
|
|
23,209
|
|
|
5,037
|
|
|
(6
|
)
|
|
28,240
|
|
|
24,521
|
|
|
1,835
|
|
|
—
|
|
|
26,356
|
|
|
Total revenue
|
|
$
|
125,497
|
|
|
$
|
86,198
|
|
|
$
|
(232
|
)
|
|
$
|
211,463
|
|
|
$
|
151,032
|
|
|
$
|
82,375
|
|
|
$
|
(361
|
)
|
|
$
|
233,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Point-in-time
|
|
$
|
57,616
|
|
|
$
|
77,536
|
|
|
$
|
(232
|
)
|
|
$
|
134,920
|
|
|
$
|
98,360
|
|
|
$
|
82,375
|
|
|
$
|
(361
|
)
|
|
$
|
180,374
|
|
|
Over time
|
|
67,881
|
|
|
8,662
|
|
|
—
|
|
|
76,543
|
|
|
52,672
|
|
|
—
|
|
|
—
|
|
|
52,672
|
|
|
Total revenue
|
|
$
|
125,497
|
|
|
$
|
86,198
|
|
|
$
|
(232
|
)
|
|
$
|
211,463
|
|
|
$
|
151,032
|
|
|
$
|
82,375
|
|
|
$
|
(361
|
)
|
|
$
|
233,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
39,375
|
|
|
$
|
44,848
|
|
|
$
|
(232
|
)
|
|
$
|
83,991
|
|
|
$
|
51,399
|
|
|
$
|
38,975
|
|
|
$
|
(361
|
)
|
|
$
|
90,013
|
|
|
Europe
|
|
41,135
|
|
|
26,167
|
|
|
—
|
|
|
67,302
|
|
|
29,536
|
|
|
27,653
|
|
|
—
|
|
|
57,189
|
|
|
Asia
|
|
44,987
|
|
|
15,183
|
|
|
—
|
|
|
60,170
|
|
|
70,097
|
|
|
15,747
|
|
|
—
|
|
|
85,844
|
|
|
Total revenue
|
|
$
|
125,497
|
|
|
$
|
86,198
|
|
|
$
|
(232
|
)
|
|
$
|
211,463
|
|
|
$
|
151,032
|
|
|
$
|
82,375
|
|
|
$
|
(361
|
)
|
|
$
|
233,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
March 28, 2020
|
|
March 30, 2019
|
|
|
|
Test & Simulation
|
|
Sensors
|
|
Intersegment
|
|
Total
|
|
Test & Simulation
|
|
Sensors
|
|
Intersegment
|
|
Total
|
|
Sales type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product
|
|
$
|
197,784
|
|
|
$
|
164,935
|
|
|
$
|
(638
|
)
|
|
$
|
362,081
|
|
|
$
|
225,419
|
|
|
$
|
157,040
|
|
|
$
|
(690
|
)
|
|
$
|
381,769
|
|
|
Service
|
|
48,443
|
|
|
6,798
|
|
|
(16
|
)
|
|
55,225
|
|
|
51,173
|
|
|
3,285
|
|
|
—
|
|
|
54,458
|
|
|
Total revenue
|
|
$
|
246,227
|
|
|
$
|
171,733
|
|
|
$
|
(654
|
)
|
|
$
|
417,306
|
|
|
$
|
276,592
|
|
|
$
|
160,325
|
|
|
$
|
(690
|
)
|
|
$
|
436,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Point-in-time
|
|
$
|
117,720
|
|
|
$
|
154,699
|
|
|
$
|
(654
|
)
|
|
$
|
271,765
|
|
|
$
|
177,979
|
|
|
$
|
160,325
|
|
|
$
|
(690
|
)
|
|
$
|
337,614
|
|
|
Over time
|
|
128,507
|
|
|
17,034
|
|
|
—
|
|
|
145,541
|
|
|
98,613
|
|
|
—
|
|
|
—
|
|
|
98,613
|
|
|
Total revenue
|
|
$
|
246,227
|
|
|
$
|
171,733
|
|
|
$
|
(654
|
)
|
|
$
|
417,306
|
|
|
$
|
276,592
|
|
|
$
|
160,325
|
|
|
$
|
(690
|
)
|
|
$
|
436,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
$
|
77,223
|
|
|
$
|
91,393
|
|
|
$
|
(654
|
)
|
|
$
|
167,962
|
|
|
$
|
90,888
|
|
|
$
|
76,704
|
|
|
$
|
(690
|
)
|
|
$
|
166,902
|
|
|
Europe
|
|
67,650
|
|
|
48,709
|
|
|
—
|
|
|
116,359
|
|
|
58,163
|
|
|
53,001
|
|
|
—
|
|
|
111,164
|
|
|
Asia
|
|
101,354
|
|
|
31,631
|
|
|
—
|
|
|
132,985
|
|
|
127,541
|
|
|
30,620
|
|
|
—
|
|
|
158,161
|
|
|
Total revenue
|
|
$
|
246,227
|
|
|
$
|
171,733
|
|
|
$
|
(654
|
)
|
|
$
|
417,306
|
|
|
$
|
276,592
|
|
|
$
|
160,325
|
|
|
$
|
(690
|
)
|
|
$
|
436,227
|
|
Contract Assets and Liabilities
Contract assets and contract liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28,
2020
|
|
September 28,
2019
|
|
Contract assets
|
|
$
|
82,274
|
|
|
$
|
80,331
|
|
|
Contract liabilities
|
|
71,681
|
|
|
81,045
|
|
The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled accounts receivable (contract assets) and advance payments from customers (contract liabilities). Contract balances are classified as assets or liabilities on a contract-by-contract basis at the end of each reporting period. Contract liabilities represent payments received from customers at contract inception and at milestones per contract provisions. These payments are recorded in advance payments from customers and other long-term liabilities in our Consolidated Balance Sheets (current and non-current portions, respectively) and are liquidated as revenue is recognized. Conversely, when billing occurs subsequent to revenue recognition for contracts recognized over time, balances are recorded in unbilled accounts receivable, net in our Consolidated Balance Sheets. As customers are billed, unbilled accounts receivable balances are transferred to accounts receivable, net in the Consolidated Balance Sheets.
Significant changes in contract assets and contract liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
Contract Assets
|
|
Balance, September 28, 2019
|
|
$
|
80,331
|
|
|
Changes in estimated stage of completion
|
|
60,450
|
|
|
Transfers to accounts receivable, net
|
|
(63,019
|
)
|
|
Acquisitions1
|
|
6,107
|
|
|
Other
|
|
(1,595
|
)
|
|
Balance, March 28, 2020
|
|
$
|
82,274
|
|
|
|
|
|
|
|
|
Contract Liabilities
|
|
Balance, September 28, 2019
|
|
$
|
81,045
|
|
|
Revenue recognized included in balance at beginning of period
|
|
(46,899
|
)
|
|
Increases due to payments received, excluding amounts recognized as revenue during period
|
|
36,061
|
|
|
Acquisitions1
|
|
3,182
|
|
|
Other
|
|
(1,708
|
)
|
|
Balance, March 28, 2020
|
|
$
|
71,681
|
|
1 See Note 16 for additional information regarding acquisitions.
Remaining Performance Obligations
As of March 28, 2020, we had approximately $228,500 of remaining performance obligations on contracts with an original expected duration of one year or more which are primarily related to Test & Simulation. As of March 28, 2020, we expect to recognize approximately 57% of these remaining performance obligations as revenue within one year, an additional 23% 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.
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) under the cumulative catch-up method. 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. 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 contract terms. Product obligations generally extend 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. At the time a sale is recognized, we record estimated future warranty costs. 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. 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.
Shipping and Handling
Freight revenue billed to customers is reported within revenue in the Consolidated Statements of Income. Expenses incurred for shipping products to customers are reported within cost of sales in the Consolidated Statements of Income.
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 $4,291 and $4,297 in prepaid expenses and other current assets and other long-term assets in the Consolidated Balance Sheets as of March 28, 2020 and September 28, 2019, respectively. We incurred the related pre-contract expense of $1,377 and $1,249 in the Consolidated Statements of Income during the three months ended March 28, 2020 and March 30, 2019, respectively, and $2,840 and $3,869 in the Consolidated Statements of Income during the six months ended March 28, 2020 and March 30, 2019, respectively.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28,
2020
|
|
September 28,
2019
|
|
Components, assemblies and parts
|
|
$
|
116,822
|
|
|
$
|
112,886
|
|
|
Customer projects in various stages of completion
|
|
47,279
|
|
|
39,534
|
|
|
Finished goods
|
|
16,090
|
|
|
14,779
|
|
|
Total inventories, net
|
|
$
|
180,191
|
|
|
$
|
167,199
|
|
NOTE 5 LEASES
We determine if an arrangement contains a lease at inception based on whether or not we have the right to control the asset during the contract period and other facts and circumstances. We are the lessee in a lease contract when we obtain the right to control the asset. Operating leases are included in other long-term assets, other accrued liabilities and other long-term liabilities in our Consolidated Balance Sheet. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on our Consolidated Balance Sheet and are expensed on a straight-line basis over the lease term in our Consolidated Statement of Income. We determine the lease term by assuming the exercise of renewal options that are reasonably certain. Most leases have remaining lease terms of one to ten years, some of which include options to extend the lease terms one to five years or more.
As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The incremental borrowing rate is used in determining the present value of lease payments, unless an implicit rate is specified. When our contracts contain lease and non-lease components, we account for both components as a single lease component.
We have operating leases for facilities, vehicles and equipment. We also have financing leases for certain vehicles. Our lease agreements do not contain any material residual value guarantees, material bargain purchase options or material restrictive covenants. We have no material sublease arrangements with third parties or lease transactions with related parties.
During the three and six months ended March 28, 2020, rent expense was $2,175 and $4,993, respectively, primarily related to operating lease costs. Costs associated with short-term leases, variable rent and subleases were immaterial.
Supplemental balance sheet information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
March 28, 2020
|
|
September 29, 2019
|
|
Assets
|
|
|
|
|
|
|
Operating leases
|
Other long-term assets
|
|
$
|
21,118
|
|
|
$
|
20,356
|
|
|
Finance leases
|
Other long-term assets 1
|
|
1,458
|
|
|
1,436
|
|
|
Total leased assets
|
|
|
$
|
22,576
|
|
|
$
|
21,792
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating leases
|
Other accrued liabilities
|
|
$
|
8,176
|
|
|
$
|
7,447
|
|
|
Finance leases
|
Other accrued liabilities 2
|
|
646
|
|
|
570
|
|
|
Non-current
|
|
|
|
|
|
|
Operating leases
|
Other long-term liabilities
|
|
12,942
|
|
|
12,909
|
|
|
Finance leases
|
Other long-term liabilities 2
|
|
812
|
|
|
866
|
|
|
Total lease liabilities
|
|
|
$
|
22,576
|
|
|
$
|
21,792
|
|
|
|
|
|
1
|
Assets held under capital leases were reclassified from property and equipment, net to other long-term assets as part of the adoption of the new lease standard.
|
|
|
|
|
2
|
Finance lease obligations were reclassified from long-term debt, less current maturities, net to other accrued liabilities and other long-term liabilities as part of the adoption of the new lease standard.
|
Supplemental cash flow information related to leases is as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
March 28, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
Operating cash flows from operating leases
|
$
|
4,777
|
|
|
Operating cash flows from finance leases
|
33
|
|
|
Financing cash flows from finance leases
|
301
|
|
|
|
|
|
Operating leased assets obtained in exchange for new lease liabilities
|
$
|
1,874
|
|
The weighted average remaining lease terms and weighted average discount rates are as follows:
|
|
|
|
|
|
|
|
March 28, 2020
|
|
|
Weighted average remaining lease term
|
|
|
Operating leases
|
4.4 years
|
|
|
Finance leases
|
2.3 years
|
|
|
Weighted average discount rate
|
|
|
Operating leases
|
3.3
|
%
|
|
Finance leases
|
4.6
|
%
|
Future lease payments under non-cancelable leases for the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
|
Operating Leases
|
Finance
Leases
|
|
Remainder of 2020
|
$
|
4,909
|
|
$
|
343
|
|
|
2021
|
6,924
|
|
688
|
|
|
2022
|
4,008
|
|
350
|
|
|
2023
|
2,731
|
|
58
|
|
|
2024
|
1,966
|
|
29
|
|
|
2025
|
740
|
|
—
|
|
|
Thereafter
|
1,714
|
|
—
|
|
|
Total lease payments
|
22,992
|
|
1,468
|
|
|
Less imputed interest
|
(1,874
|
)
|
(10
|
)
|
|
Total reported lease liability
|
$
|
21,118
|
|
$
|
1,458
|
|
As of March 28, 2020, we have no material additional operating or finance leases that have not yet commenced.
Future minimum lease commitments under non-cancelable leases for the next five years and thereafter were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
|
Operating Leases
|
Capital
Leases
|
|
2020
|
$
|
7,149
|
|
$
|
570
|
|
|
2021
|
5,291
|
|
588
|
|
|
2022
|
3,124
|
|
278
|
|
|
2023
|
1,602
|
|
—
|
|
|
2024
|
1,085
|
|
—
|
|
|
Thereafter
|
1,789
|
|
—
|
|
|
Total
|
$
|
20,040
|
|
$
|
1,436
|
|
NOTE 6 CAPITAL ASSETS
Property and Equipment
Property and equipment, net are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28,
2020
|
|
September 28,
2019
|
|
Land and improvements
|
|
$
|
3,956
|
|
|
$
|
3,949
|
|
|
Buildings and improvements
|
|
71,333
|
|
|
64,140
|
|
|
Machinery and equipment
|
|
230,040
|
|
|
224,684
|
|
|
Assets held under capital leases 1
|
|
—
|
|
|
2,796
|
|
|
Total property and equipment
|
|
305,329
|
|
|
295,569
|
|
|
Less: Accumulated depreciation
|
|
(203,473
|
)
|
|
(194,486
|
)
|
|
Total property and equipment, net
|
|
$
|
101,856
|
|
|
$
|
101,083
|
|
|
|
|
|
1
|
Assets held under capital leases were reclassified from property and equipment, net to other long-term assets as part of the adoption of the new lease standard. See Note 5 for additional information regarding leases.
|
Goodwill
Changes to the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Test & Simulation
|
|
Sensors
|
|
Total
|
|
Balance, September 28, 2019
|
|
$
|
61,153
|
|
|
$
|
367,886
|
|
|
$
|
429,039
|
|
|
Acquisitions 2
|
|
35,980
|
|
|
32
|
|
|
36,012
|
|
|
Currency translation
|
|
351
|
|
|
9
|
|
|
360
|
|
|
Balance, March 28, 2020
|
|
$
|
97,484
|
|
|
$
|
367,927
|
|
|
$
|
465,411
|
|
2 See Note 16 for additional information regarding acquisitions.
Intangible Assets
Intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Weighted
Average
Useful Life (in Years)
|
|
Software development costs 3
|
|
$
|
46,228
|
|
|
$
|
(16,167
|
)
|
|
$
|
30,061
|
|
|
5.9
|
|
Technology and patents
|
|
68,155
|
|
|
(17,930
|
)
|
|
50,225
|
|
|
14.9
|
|
Trademarks and trade names
|
|
28,674
|
|
|
(4,497
|
)
|
|
24,177
|
|
|
17.4
|
|
Customer lists
|
|
216,838
|
|
|
(41,385
|
)
|
|
175,453
|
|
|
15.5
|
|
Land-use rights
|
|
2,303
|
|
|
(1,919
|
)
|
|
384
|
|
|
25.7
|
|
Other
|
|
7,788
|
|
|
(1,237
|
)
|
|
6,551
|
|
|
1.9
|
|
Trade names
|
|
57,500
|
|
|
—
|
|
|
57,500
|
|
|
Indefinite
|
|
Total intangible assets
|
|
$
|
427,486
|
|
|
$
|
(83,135
|
)
|
|
$
|
344,351
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Value
|
|
Weighted
Average
Useful Life (in Years)
|
|
Software development costs 3
|
|
$
|
39,546
|
|
|
$
|
(16,035
|
)
|
|
$
|
23,511
|
|
|
6.2
|
|
Technology and patents
|
|
63,015
|
|
|
(15,739
|
)
|
|
47,276
|
|
|
14.9
|
|
Trademarks and trade names
|
|
20,186
|
|
|
(3,808
|
)
|
|
16,378
|
|
|
18.4
|
|
Customer lists
|
|
192,488
|
|
|
(34,735
|
)
|
|
157,753
|
|
|
15.6
|
|
Land-use rights
|
|
2,303
|
|
|
(968
|
)
|
|
1,335
|
|
|
25.7
|
|
Other
|
|
3,606
|
|
|
(774
|
)
|
|
2,832
|
|
|
4.0
|
|
Trade names
|
|
57,500
|
|
|
—
|
|
|
57,500
|
|
|
Indefinite
|
|
Total intangible assets
|
|
$
|
378,644
|
|
|
$
|
(72,059
|
)
|
|
$
|
306,585
|
|
|
14.4
|
|
|
|
|
3
|
The gross carrying amount of software development costs as of March 28, 2020 and September 28, 2019 includes $28,522 and $21,840, respectively, of software not yet available for general release to the public.
|
Amortization expense recognized related to finite-lived intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Amortization expense
|
|
$
|
6,270
|
|
|
$
|
4,403
|
|
|
$
|
11,055
|
|
|
$
|
8,219
|
|
Assessing goodwill, indefinite-lived intangible and long-lived assets for impairment requires management to make assumptions and apply judgment, including forecasting future sales and expenses, and selecting appropriate discount rates, which can be affected by economic conditions and other factors that can be difficult to predict. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions used to calculate impairment losses of goodwill, indefinite-lived intangible or long-lived assets as of the end of the second quarter of fiscal year 2020. However, if actual results are not consistent with the estimates and assumptions used in the calculations, we may be exposed to future impairment losses that could be material.
Estimated future amortization expense related to finite-lived intangible assets is as follows:
|
|
|
|
|
|
|
|
|
Amortization Expense
|
|
Remainder of 2020
|
$
|
12,538
|
|
|
2021
|
24,559
|
|
|
2022
|
23,952
|
|
|
2023
|
23,068
|
|
|
2024
|
22,701
|
|
|
2025
|
22,544
|
|
|
Thereafter
|
157,489
|
|
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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Currency contracts 1
|
|
$
|
—
|
|
|
$
|
870
|
|
|
$
|
—
|
|
|
$
|
870
|
|
|
Cross currency swap 1
|
|
—
|
|
|
943
|
|
|
—
|
|
|
943
|
|
|
Total assets
|
|
—
|
|
|
1,813
|
|
|
—
|
|
|
1,813
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Currency contracts 1
|
|
—
|
|
|
46
|
|
|
—
|
|
|
46
|
|
|
Contingent consideration 2
|
|
—
|
|
|
—
|
|
|
17,673
|
|
|
17,673
|
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
46
|
|
|
$
|
17,673
|
|
|
$
|
17,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Currency contracts 1
|
|
$
|
—
|
|
|
$
|
907
|
|
|
$
|
—
|
|
|
$
|
907
|
|
|
Total assets
|
|
—
|
|
|
907
|
|
|
—
|
|
|
907
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Currency contracts 1
|
|
—
|
|
|
251
|
|
|
—
|
|
|
251
|
|
|
Total liabilities
|
|
$
|
—
|
|
|
$
|
251
|
|
|
$
|
—
|
|
|
$
|
251
|
|
|
|
|
|
1
|
Based on observable market transactions of spot currency rates, forward currency rates on equivalently-termed instruments and interest rate curves, as applicable. 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 discounted cash flow analyses that included revenue estimates, probability of financial performance achievement and a discount rate. Carrying amounts of the financial assets and liabilities are equal to the fair value. See Note 16 for additional information on business acquisitions.
|
Included in Level 3 fair value measurements as of March 28, 2020 was a noncurrent contingent consideration liability related to achievement of revenue and value-creating milestones associated with the acquisition of R&D entities described in Note 16. Changes to the contingent consideration are as follows:
|
|
|
|
|
|
|
|
|
Balance, September 28, 2019
|
|
$
|
—
|
|
|
Additions
|
|
17,447
|
|
|
Interest accretion
|
|
455
|
|
|
Foreign currency translation
|
|
(229
|
)
|
|
Balance, March 28, 2020
|
|
$
|
17,673
|
|
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 and right-of-use lease assets. 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, property and equipment and right-of-use lease assets 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. See Note 5 for additional information on right-of-use lease assets.
Assets and Liabilities Not Measured at Fair Value
Certain financial instruments are not measured at fair value but are recorded at carrying amounts approximating fair value based on their short-term nature or variable interest rate. These financial instruments include cash and cash equivalents, accounts receivable, unbilled accounts receivable, accounts payable and short-term borrowings.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
|
|
Carrying
Value
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Tranche B term loan 3
|
|
$
|
171,395
|
|
|
$
|
157,683
|
|
|
$
|
—
|
|
|
$
|
157,683
|
|
|
$
|
—
|
|
|
Senior unsecured notes 3
|
|
350,000
|
|
|
326,375
|
|
|
—
|
|
|
326,375
|
|
|
—
|
|
|
Total debt
|
|
$
|
521,395
|
|
|
$
|
484,058
|
|
|
$
|
—
|
|
|
$
|
484,058
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
|
|
Carrying
Value
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Tranche B term loan 3
|
|
$
|
173,695
|
|
|
$
|
174,563
|
|
|
$
|
—
|
|
|
$
|
174,563
|
|
|
$
|
—
|
|
|
Senior unsecured notes 3
|
|
350,000
|
|
|
366,625
|
|
|
—
|
|
|
366,625
|
|
|
—
|
|
|
Total debt
|
|
$
|
523,695
|
|
|
$
|
541,188
|
|
|
$
|
—
|
|
|
$
|
541,188
|
|
|
$
|
—
|
|
|
|
|
|
3
|
The fair value of the tranche B term loan and senior unsecured notes 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 financing arrangements.
|
NOTE 8 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Our currency exchange contracts are designated as cash flow hedges and qualify as hedging instruments. We also have derivatives that are not designated as cash flow hedges and, therefore, are accounted for and reported under foreign currency guidance. Regardless of designation for accounting purposes, we believe all of our derivative instruments are hedges of transactional risk exposures. The fair value of our outstanding designated and undesignated derivative assets and liabilities are reported in the Consolidated Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
|
|
Prepaid Expenses
and Other
Current Assets
|
|
Other Accrued
Liabilities
|
|
Designated hedge derivatives
|
|
|
|
|
|
|
|
Cash flow derivatives
|
|
$
|
542
|
|
|
$
|
46
|
|
|
Cross currency swap
|
|
943
|
|
|
—
|
|
|
Total designated hedge derivatives
|
|
1,485
|
|
|
46
|
|
|
Undesignated hedge derivatives
|
|
|
|
|
|
|
|
Balance sheet derivatives
|
|
328
|
|
|
—
|
|
|
Total hedge derivatives
|
|
$
|
1,813
|
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
|
|
Prepaid Expenses
and Other
Current Assets
|
|
Other Accrued
Liabilities
|
|
Designated hedge derivatives
|
|
|
|
|
|
|
|
Cash flow derivatives
|
|
$
|
907
|
|
|
$
|
133
|
|
|
Total designated hedge derivatives
|
|
907
|
|
|
133
|
|
|
Undesignated hedge derivatives
|
|
|
|
|
|
|
|
Balance sheet derivatives
|
|
—
|
|
|
118
|
|
|
Total hedge derivatives
|
|
$
|
907
|
|
|
$
|
251
|
|
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 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Recognized
Amount
|
|
Gross
Offset
Amount
|
|
Net
Amount
Presented
|
|
Derivatives
Subject to
Offset
|
|
Cash
Collateral
Received
|
|
Net
Amount
|
|
March 28, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
1,485
|
|
|
$
|
—
|
|
|
$
|
1,485
|
|
|
$
|
(46
|
)
|
|
$
|
—
|
|
|
$
|
1,439
|
|
|
Liabilities
|
|
46
|
|
|
—
|
|
|
46
|
|
|
(46
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
907
|
|
|
$
|
—
|
|
|
$
|
907
|
|
|
$
|
(133
|
)
|
|
$
|
—
|
|
|
$
|
774
|
|
|
Liabilities
|
|
133
|
|
|
—
|
|
|
133
|
|
|
(133
|
)
|
|
—
|
|
|
—
|
|
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 March 28, 2020 and September 28, 2019, we had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $29,323 and $43,033, 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 $28,179 and $38,177 as of March 28, 2020 and September 28, 2019, respectively. As of March 28, 2020, the net market value of the foreign currency exchange contracts was a net asset of $496, consisting of $542 in assets and $46 in liabilities. As of September 28, 2019, the net market value of the foreign currency exchange contracts was a net asset of $774, consisting of $907 in assets and $133 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
|
|
Six Months Ended
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Beginning unrealized net gain (loss) in AOCI
|
|
$
|
397
|
|
|
$
|
214
|
|
|
$
|
566
|
|
|
$
|
672
|
|
|
Net (gain) loss reclassified into revenue
|
|
(316
|
)
|
|
(16
|
)
|
|
(335
|
)
|
|
(601
|
)
|
|
Net gain (loss) recognized in OCI
|
|
267
|
|
|
(6
|
)
|
|
117
|
|
|
121
|
|
|
Ending unrealized net gain (loss) in AOCI
|
|
$
|
348
|
|
|
$
|
192
|
|
|
$
|
348
|
|
|
$
|
192
|
|
As of March 28, 2020, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of $307. The maximum remaining maturity of any forward or optional contract as of March 28, 2020 was 1.0 year.
Interest Rate Swap
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. In connection with the repayment of a portion of the tranche B term loan facility during the fourth quarter of fiscal year 2019, we terminated the interest rate swap agreement. Prior to termination, every month we paid fixed interest at 1.256% in exchange for interest received at one month U.S. LIBOR. The interest rate swap was designated as a cash flow hedge. As a result, changes in the fair value of the interest rate swap were recorded in AOCI within shareholders' equity in the Consolidated Balance Sheets. The unrealized gains on the interest rate swap associated with the interest payments on our tranche B term loan facility that are still forecasted to occur are included in AOCI. These gains will be reclassified into interest expense over the life of the original swap agreement as the hedged interest payments occur.
The pretax amounts recognized in AOCI on the interest rate swap, including (gains) losses reclassified into earnings in the Consolidated Statements of Income and gains (losses) recognized in OCI, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Beginning unrealized net gain (loss) in AOCI
|
|
$
|
778
|
|
|
$
|
4,889
|
|
|
$
|
1,079
|
|
|
$
|
7,411
|
|
|
Net (gain) loss reclassified into interest expense
|
|
(236
|
)
|
|
(709
|
)
|
|
(537
|
)
|
|
(1,293
|
)
|
|
Net gain (loss) recognized in OCI
|
|
—
|
|
|
(496
|
)
|
|
—
|
|
|
(2,434
|
)
|
|
Ending unrealized net gain (loss) in AOCI
|
|
$
|
542
|
|
|
$
|
3,684
|
|
|
$
|
542
|
|
|
$
|
3,684
|
|
As of March 28, 2020, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of $542.
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 March 28, 2020 and September 28, 2019, we had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $73,681 and $60,827, 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 March 28, 2020 and September 28, 2019 was $14,027 and $118, respectively. As of March 28, 2020 and September 28, 2019, the net market value of the foreign exchange balance sheet derivative contracts was a net asset of $328 and a net liability of $118, 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
|
|
Six Months Ended
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Net gain (loss) recognized in other income (expense), net
|
|
$
|
140
|
|
|
$
|
(395
|
)
|
|
$
|
(406
|
)
|
|
$
|
(388
|
)
|
Net Investment Hedge
We have net investments in foreign subsidiaries that are subject to changes in foreign currency exchange rates. In the second quarter of fiscal year 2020, we entered into a cross-currency swap with a gross notional U.S. dollar equivalent amount of $100,485 as a net investment hedge for a portion of our net investments in our Euro denominated subsidiaries. Gains and losses resulting from a change in fair value of the net investment hedge are offset by gains and losses on the underlying foreign currency exposure and included in AOCI in our Consolidated Balance Sheets. As of March 28, 2020, the deferred foreign currency activity associated with the net investment hedge was not considered material.
NOTE 9 FINANCING
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28,
2020
|
|
September 28,
2019
|
|
Long-term debt
|
|
|
|
|
|
Tranche B term loan, 1.00% amortizing per year, maturing July 5, 2023
|
|
$
|
171,395
|
|
|
$
|
173,695
|
|
|
Revolving credit facility, non-current portion, expiring July 5, 2023
|
|
58,576
|
|
|
—
|
|
|
Senior unsecured notes, 5.75% coupon, maturing August 15, 2027
|
|
350,000
|
|
|
350,000
|
|
|
Capital lease obligations 1
|
|
—
|
|
|
1,436
|
|
|
Total long-term debt
|
|
579,971
|
|
|
525,131
|
|
|
Less: Unamortized underwriting discounts, commissions and other expenses
|
|
(9,597
|
)
|
|
(10,313
|
)
|
|
Less: Current maturities of tranche B term loan debt 2, 3
|
|
(4,600
|
)
|
|
(29,600
|
)
|
|
Less: Current maturities of capital lease obligations 1, 2
|
|
—
|
|
|
(570
|
)
|
|
Total long-term debt, less current maturities, net
|
|
$
|
565,774
|
|
|
$
|
484,648
|
|
|
|
|
|
1
|
Capital lease obligations were reclassified from long-term debt, less current maturities, net and current maturities of long-term debt, net to other accrued liabilities and other long-term liabilities in the Consolidated Balance Sheets as part of the adoption of the new lease standard in the first quarter of fiscal year 2020. See Note 5 for additional information on leases.
|
|
|
|
|
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 $1,782 and $2,201 as of March 28, 2020 and September 28, 2019, respectively.
|
|
|
|
|
3
|
As of March 28, 2020 and September 28, 2019, 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 $200,000 revolving credit facility (the Revolving Credit Facility) and a $460,000 tranche B term loan facility (the Term Facility) which expire on July 5, 2023. The proceeds of the Revolving Credit Facility can be drawn upon to refinance existing indebtedness, for working capital and for other general corporate purposes, up to a maximum of $200,000. The Term Facility amortizes in equal quarterly installments equal to 1% of the original principal amount.
In the first quarter of fiscal year 2020, we entered into a fourth amendment to the Credit Agreement to increase the borrowing capacity on the Revolving Credit Facility from $150,000 to $200,000 and extend the expiration date of the Revolving Credit Facility from July 5, 2022 to July 5, 2023. The amendment also reduced letter of credit commitments from $60,000 to $50,000. Additionally, the required performance levels under certain financial covenants were modified. During the six months ended March 28, 2020, we incurred debt financing costs of $577 as a result of this amendment which were capitalized in prepaid and other current assets and other long-term assets in the Consolidated Balance Sheets.
The primary categories of borrowing include Alternate Base Rate (ABR) Borrowings (ABR Term Loans and ABR Revolving Loans), Swingline Loans and Eurocurrency Borrowings (Eurocurrency Term Loans and Eurocurrency Revolving Loans), 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 March 28, 2020, the Applicable Rate for ABR Term Loans was 2.25% per annum.
Eurocurrency Borrowings made under the Credit Agreement bear interest at a rate per annum equal to the Adjusted LIBOR Rate plus the Applicable Rate. The Adjusted LIBOR Rate is defined as an interest rate per annum equal to (a) the LIBOR Rate for such interest period multiplied by (b) the Statutory Reserve Rate (as defined in the Credit Agreement). The Applicable Rate for any Eurocurrency Revolving Loan is based upon the leverage ratio applicable on such date. The Adjusted LIBOR Rate for Eurocurrency Term Loans shall not be less than 0.75% per annum. Based on our leverage ratio as of March 28, 2020, the Applicable Rate for Eurocurrency Revolving Loans was 2.75%. As of March 28, 2020, the Applicable Rate for Eurocurrency Term Loans was 3.25% per annum, plus the applicable Adjusted LIBOR Rate of 1.61%. The weighted average interest rate on Term Facility debt during the six months ended March 28, 2020 was 5.02%.
As of March 28, 2020, there was $90,576 of outstanding borrowings under the Revolving Credit Facility which is included in short-term borrowings and long-term debt, less current maturities, net in the Consolidated Balance Sheets. As of September 28, 2019, there were no outstanding borrowings under the Revolving Credit Facility. We had outstanding letters of credit drawn from the Revolving Credit Facility totaling $13,680 and $21,173 as of March 28, 2020 and September 28, 2019, respectively, leaving approximately $95,744 and $128,827, respectively, of unused borrowing capacity. Commitment fees are payable on the unused portion of the Revolving Credit Facility at rates between 0.20% and 0.35% based on our leverage ratio. During the three months ended March 28, 2020 and March 30, 2019, commitment fees incurred totaled $91 and $52, respectively. During the six months ended March 28, 2020 and March 30, 2019, commitment fees incurred totaled $191 and $124, 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 March 28, 2020 and September 28, 2019, we were in compliance with these financial covenants.
Senior Unsecured Notes
In the fourth quarter of fiscal year 2019, we issued $350,000 in aggregate principal amount of 5.750% senior unsecured notes due in 2027 (the Notes). The Notes were issued pursuant to an Indenture dated as of July 16, 2019 among us, the Guarantors (as defined therein) and Wells Fargo Bank, National Association, as trustee (the Indenture). The Notes will mature on August 15, 2027. Interest accrues at the rate of 5.750% per annum and is payable semi-annually on each February 15 and August 15. We used the net proceeds after discounts and expenses of $343,352 from the offering to repay all then outstanding debt under the Revolving Credit Facility, to repay a portion of the Term Facility and for general corporate purposes.
The Notes and the guarantees constitute senior unsecured obligations of the company and the Guarantors, respectively. The Notes are: (a) equal in right of payment with all existing or future unsecured indebtedness that is not subordinated to the Notes; (b) senior in right of payment to any existing or future indebtedness that is subordinated to the Notes; (c) unconditionally guaranteed by the Guarantors; (d) effectively subordinated to all existing or future indebtedness this is secured, including borrowings under the Credit Agreement, to the extent of the value of assets securing such indebtedness; and (e) structurally subordinated to all indebtedness, other liabilities and preferred stock, of any of our subsidiaries that are not Guarantors.
The Indenture governing the Notes contains covenants that limit, among other things, our ability and the ability of our restricted subsidiaries to incur additional indebtedness or issue certain preferred shares, create liens; pay dividends, redeem stock or make other distributions; make investments; for our restricted subsidiaries to pay dividends to us or make other intercompany transfers; transfer or sell assets; merge or consolidate; enter into certain transactions with our affiliates; and designate subsidiaries as unrestricted subsidiaries. If we experience a change of control, we must offer to repurchase all of the Notes (unless otherwise redeemed) at a price equal to 101% of the aggregate principal amount of the Notes, plus accrued and unpaid interest, if any, on such Notes to the repurchase date. If we sell assets under certain circumstances, we must use the proceeds to make an offer to repurchase all of the Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.
See Note 7 for additional information on the fair value of the tranche B term loan and the senior unsecured notes.
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. During the second quarter of fiscal year 2020, we registered an additional 500 shares of common stock for issuance under the 2017 Plan. As of March 28, 2020, a total of 570 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 2020, 2019 and 2018, the annual stock grant occurred in December 2019, December 2018 and April 2018, respectively.
Stock Options
During the six months ended March 28, 2020, 274 stock options were granted at a weighted average fair value of $9.31. During the six months ended March 30, 2019, 231 stock options were granted at a weighted average fair value of $9.91.
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 six months ended March 28, 2020, we granted 133 restricted stock units and 53 performance restricted stock units to directors, officers and employees. During the six months ended March 30, 2019, we granted 124 restricted stock units and 40 performance restricted stock units. The fair value of the restricted stock units and performance restricted stock units granted during the six months ended March 28, 2020 and March 30, 2019 was $43.54 and $46.45, 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. During the six months ended March 28, 2020 and March 30, 2019, we issued 14 and 16 shares, respectively, under the 2012 ESPP at a weighted average price per share of $40.83 and $34.11, respectively. As of March 28, 2020, 567 shares were available for issuance under the 2012 ESPP.
NOTE 11 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.
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.
The effective tax rate for the six months ended March 28, 2020 increased primarily due to certain discrete benefits in the prior year for the estimated impact of the Tax Act, as well as a discrete tax expense of $382 in the current year related to foreign taxes that are not creditable in the U.S. Excluding the impact of certain discrete items in both fiscal years, the effective tax rate for the six months ended March 28, 2020 decreased compared to the same prior year period primarily due to a decrease in earnings.
As of December 29, 2018, we completed our accounting for the tax effects of the Tax Act at the conclusion of the one-year measurement period. As a result, the income tax provision for the six months ended March 30, 2019 includes certain discrete benefits of $1,293 for Tax Act measurement period adjustments. The discrete benefits relate to $1,297 of additional dividends received deduction for certain foreign tax credits included in the mandatory deemed repatriation tax calculation, partially offset by $4 of expense for other Tax Act measurement period adjustments. The additional dividends received deduction is based on our assessment of the treatment under the applicable provisions of the Tax Act as written and enacted during the first quarter of fiscal year 2019. The Department of the Treasury provided regulatory updates during the three months ended June 29, 2019, causing us to change our assessment of the benefit associated with the dividends received deduction, and in the third quarter of fiscal year 2019 to reverse the entire benefit of $1,297 that was recorded in the first quarter of fiscal year 2019.
As of March 28, 2020, the liability for unrecognized tax benefits was $4,985, of which $3,332 would favorably affect our effective tax rate, if recognized. As of September 28, 2019, the liability for unrecognized tax benefits was $4,414, of which $2,761 would favorably affect our effective tax rate, if recognized. As of March 28, 2020, we do not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.
NOTE 12 EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss) by the daily weighted average number of common shares outstanding during the applicable period. For the three and six months ended March 30, 2019, the tangible equity units (TEUs) were assumed to be settled at the minimum settlement amount of 1.9841 shares per TEU when calculating weighted-average common shares outstanding for purposes of basic earnings (loss) per share.
Using the treasury stock method, diluted earnings (loss) per share includes the potentially dilutive effect of common shares issued in connection with outstanding stock-based compensation options and grants. The potentially dilutive effect of common shares issued in connection with outstanding stock options is determined based on the average market price for the period. For the three and six months ended March 30, 2019 diluted earnings per share, the TEUs were assumed to be settled at a conversion factor based on our daily volume-weighted average price per share of our common stock for the 20 consecutive trading days preceding the end of the current fiscal quarter not to exceed 2.3810 shares of common stock per TEU.
Under the treasury stock method, shares associated with certain stock options have been excluded from the diluted weighted average shares outstanding calculation because the exercise of those options would lead to a net reduction in common shares outstanding or anti-dilution. As a result, stock options to acquire 1,230 and 865 weighted common shares have been excluded from the diluted weighted average common shares outstanding calculation for the three months ended March 28, 2020 and March 30, 2019, respectively. Stock options to acquire 984 and 791 weighted common shares have been excluded from the diluted weighted average common shares outstanding calculation for the six months ended March 28, 2020 and March 30, 2019, respectively.
In connection with the pricing of the TEUs, we purchased capped calls. For the three and six months ended March 30, 2019, the capped calls were not reflected in the calculation of diluted earnings per share as they had not yet settled and, therefore, led to a net reduction in common shares outstanding or anti-dilution. The capped calls were settled in the fourth quarter of fiscal year 2019 in conjunction with the settlement of the TEUs.
Basic and diluted earnings (loss) per share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Net income (loss)
|
|
$
|
(1,071
|
)
|
|
$
|
14,160
|
|
|
$
|
4,235
|
|
|
$
|
24,661
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
19,193
|
|
|
19,251
|
|
|
19,169
|
|
|
19,234
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
168
|
|
|
190
|
|
|
192
|
|
|
159
|
|
|
Weighted average dilutive common shares outstanding
|
|
19,361
|
|
|
19,441
|
|
|
19,361
|
|
|
19,393
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
|
$
|
0.74
|
|
|
$
|
0.22
|
|
|
$
|
1.28
|
|
|
Diluted
|
|
(0.06
|
)
|
|
0.73
|
|
|
0.22
|
|
|
1.27
|
|
NOTE 13 OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss), a component of shareholders' equity, consists of foreign currency translation adjustments, gains or losses on derivative instruments and defined benefit pension plan adjustments.
Income tax expense or benefit allocated to each component of other comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 28, 2020
|
|
|
|
Pre-tax
|
|
Tax
|
|
Net
|
|
Pretax
|
|
Tax
|
|
Net
|
|
Foreign currency translation gain (loss) adjustments
|
|
$
|
(2,599
|
)
|
|
$
|
—
|
|
|
$
|
(2,599
|
)
|
|
$
|
948
|
|
|
$
|
—
|
|
|
$
|
948
|
|
|
Derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gain (loss)
|
|
1,210
|
|
|
(274
|
)
|
|
936
|
|
|
1,060
|
|
|
(238
|
)
|
|
822
|
|
|
Net (gain) loss reclassified to earnings
|
|
(552
|
)
|
|
126
|
|
|
(426
|
)
|
|
(872
|
)
|
|
196
|
|
|
(676
|
)
|
|
Defined benefit pension plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gain (loss)
|
|
(2,898
|
)
|
|
874
|
|
|
(2,024
|
)
|
|
(2,348
|
)
|
|
708
|
|
|
(1,640
|
)
|
|
Net (gain) loss reclassified to earnings
|
|
301
|
|
|
(92
|
)
|
|
209
|
|
|
603
|
|
|
(182
|
)
|
|
421
|
|
|
Currency exchange rate gain (loss)
|
|
55
|
|
|
—
|
|
|
55
|
|
|
(127
|
)
|
|
—
|
|
|
(127
|
)
|
|
Other comprehensive income (loss)
|
|
$
|
(4,483
|
)
|
|
$
|
634
|
|
|
$
|
(3,849
|
)
|
|
$
|
(736
|
)
|
|
$
|
484
|
|
|
$
|
(252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 30, 2019
|
|
|
|
Pre-tax
|
|
Tax
|
|
Net
|
|
Pretax
|
|
Tax
|
|
Net
|
|
Foreign currency translation gain (loss) adjustments
|
|
$
|
(1,168
|
)
|
|
$
|
—
|
|
|
$
|
(1,168
|
)
|
|
$
|
(2,671
|
)
|
|
$
|
—
|
|
|
$
|
(2,671
|
)
|
|
Derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gain (loss)
|
|
(502
|
)
|
|
110
|
|
|
(392
|
)
|
|
(2,313
|
)
|
|
505
|
|
|
(1,808
|
)
|
|
Net (gain) loss reclassified to earnings
|
|
(725
|
)
|
|
158
|
|
|
(567
|
)
|
|
(1,894
|
)
|
|
413
|
|
|
(1,481
|
)
|
|
Defined benefit pension plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized net gain (loss)
|
|
1,374
|
|
|
(415
|
)
|
|
959
|
|
|
(839
|
)
|
|
253
|
|
|
(586
|
)
|
|
Net (gain) loss reclassified to earnings
|
|
137
|
|
|
(42
|
)
|
|
95
|
|
|
274
|
|
|
(83
|
)
|
|
191
|
|
|
Currency exchange rate gain (loss)
|
|
146
|
|
|
—
|
|
|
146
|
|
|
261
|
|
|
—
|
|
|
261
|
|
|
Other comprehensive income (loss)
|
|
$
|
(738
|
)
|
|
$
|
(189
|
)
|
|
$
|
(927
|
)
|
|
$
|
(7,182
|
)
|
|
$
|
1,088
|
|
|
$
|
(6,094
|
)
|
The changes in the net-of-tax balances of each component of AOCI are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 28, 2020
|
|
|
|
Adjustments
|
|
Adjustments
|
|
|
|
Foreign
Currency
Translation
|
|
Unrealized
Derivative
Instrument
|
|
Defined
Benefit
Pension Plan
|
|
Total
|
|
Foreign
Currency
Translation
|
|
Unrealized
Derivative
Instrument
|
|
Defined
Benefit
Pension Plan
|
|
Total
|
|
Beginning balance
|
|
$
|
(4,661
|
)
|
|
$
|
910
|
|
|
$
|
(11,125
|
)
|
|
$
|
(14,876
|
)
|
|
$
|
(8,208
|
)
|
|
$
|
1,274
|
|
|
$
|
(11,539
|
)
|
|
$
|
(18,473
|
)
|
|
Other comprehensive net gain (loss) reclassifications
|
|
(2,599
|
)
|
|
936
|
|
|
(1,969
|
)
|
|
(3,632
|
)
|
|
948
|
|
|
822
|
|
|
(1,767
|
)
|
|
3
|
|
|
Net (gain) loss reclassified to earnings
|
|
—
|
|
|
(426
|
)
|
|
209
|
|
|
(217
|
)
|
|
—
|
|
|
(676
|
)
|
|
421
|
|
|
(255
|
)
|
|
Other comprehensive income (loss)
|
|
(2,599
|
)
|
|
510
|
|
|
(1,760
|
)
|
|
(3,849
|
)
|
|
948
|
|
|
146
|
|
|
(1,346
|
)
|
|
(252
|
)
|
|
Ending balance
|
|
$
|
(7,260
|
)
|
|
$
|
1,420
|
|
|
$
|
(12,885
|
)
|
|
$
|
(18,725
|
)
|
|
$
|
(7,260
|
)
|
|
$
|
1,420
|
|
|
$
|
(12,885
|
)
|
|
$
|
(18,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 30, 2019
|
|
|
|
Adjustments
|
|
Adjustments
|
|
|
|
Foreign
Currency
Translation
|
|
Unrealized
Derivative
Instrument
|
|
Defined
Benefit
Pension Plan
|
|
Total
|
|
Foreign
Currency
Translation
|
|
Unrealized
Derivative
Instrument
|
|
Defined
Benefit
Pension Plan
|
|
Total
|
|
Beginning balance
|
|
$
|
269
|
|
|
$
|
3,990
|
|
|
$
|
(7,950
|
)
|
|
$
|
(3,691
|
)
|
|
$
|
1,772
|
|
|
$
|
6,320
|
|
|
$
|
(6,616
|
)
|
|
$
|
1,476
|
|
|
Other comprehensive net gain (loss) reclassifications
|
|
(1,168
|
)
|
|
(392
|
)
|
|
1,105
|
|
|
(455
|
)
|
|
(2,671
|
)
|
|
(1,808
|
)
|
|
(325
|
)
|
|
(4,804
|
)
|
|
Net (gain) loss reclassified to earnings
|
|
—
|
|
|
(567
|
)
|
|
95
|
|
|
(472
|
)
|
|
—
|
|
|
(1,481
|
)
|
|
191
|
|
|
(1,290
|
)
|
|
Other comprehensive income (loss)
|
|
(1,168
|
)
|
|
(959
|
)
|
|
1,200
|
|
|
(927
|
)
|
|
(2,671
|
)
|
|
(3,289
|
)
|
|
(134
|
)
|
|
(6,094
|
)
|
|
Ending balance
|
|
$
|
(899
|
)
|
|
$
|
3,031
|
|
|
$
|
(6,750
|
)
|
|
$
|
(4,618
|
)
|
|
$
|
(899
|
)
|
|
$
|
3,031
|
|
|
$
|
(6,750
|
)
|
|
$
|
(4,618
|
)
|
The effect on certain line items in the Consolidated Statements of Income of amounts reclassified out of AOCI are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Affected Line Item in the
Consolidated Statements
of Income
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
|
Derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency exchange contracts gain (loss)
|
|
$
|
316
|
|
|
$
|
16
|
|
|
$
|
335
|
|
|
$
|
601
|
|
|
Revenue
|
|
Interest rate swap contracts gain (loss)
|
|
236
|
|
|
709
|
|
|
537
|
|
|
1,293
|
|
|
Interest expense, net
|
|
Income tax benefit (expense)
|
|
(126
|
)
|
|
(158
|
)
|
|
(196
|
)
|
|
(413
|
)
|
|
Income tax provision (benefit)
|
|
Total net gain (loss) on derivative instruments
|
|
426
|
|
|
567
|
|
|
676
|
|
|
1,481
|
|
|
Net income (loss)
|
|
Defined benefit pension plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
(301
|
)
|
|
(137
|
)
|
|
(603
|
)
|
|
(274
|
)
|
|
Other income (expense), net
|
|
Income tax benefit
|
|
92
|
|
|
42
|
|
|
182
|
|
|
83
|
|
|
Income tax provision (benefit)
|
|
Total net loss on pension plan
|
|
(209
|
)
|
|
(95
|
)
|
|
(421
|
)
|
|
(191
|
)
|
|
Net income (loss)
|
|
Total net of tax reclassifications out of AOCI included in net income
|
|
$
|
217
|
|
|
$
|
472
|
|
|
$
|
255
|
|
|
$
|
1,290
|
|
|
|
NOTE 14 BUSINESS SEGMENT INFORMATION
Our Chief Executive Officer (the Chief Operating Decision Maker) regularly reviews financial information for our two reportable segments, Test & Simulation and Sensors. 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 or create a desired human experience. Sensors manufactures and sells high-performance sensors which provide measurements of vibration, pressure, position, force and sound in a variety of applications.
In evaluating each segment's performance, our Chief Executive Officer focuses on income from operations. This measure excludes interest income and expense, income taxes and other non-operating items. Corporate expenses, including costs associated with various support functions such as human resources, information technology, legal, finance and accounting, and general and administrative costs are allocated to the reportable segments on the basis of revenue. The accounting policies of the reportable segments are the same as those described in Note 1 and Note 3 to the Consolidated Financial Statements found in our Annual Report on Form 10-K for the fiscal year ended September 28, 2019.
Intersegment revenue is based on standard costs with reasonable mark-ups established between the reportable segments. All significant intersegment amounts are eliminated to arrive at consolidated financial results.
Financial information by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Test & Simulation
|
|
$
|
125,497
|
|
|
$
|
151,032
|
|
|
$
|
246,227
|
|
|
$
|
276,592
|
|
|
Sensors
|
|
86,198
|
|
|
82,375
|
|
|
171,733
|
|
|
160,325
|
|
|
Intersegment eliminations
|
|
(232
|
)
|
|
(361
|
)
|
|
(654
|
)
|
|
(690
|
)
|
|
Total revenue
|
|
$
|
211,463
|
|
|
$
|
233,046
|
|
|
$
|
417,306
|
|
|
$
|
436,227
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
Test & Simulation1
|
|
$
|
(805
|
)
|
|
$
|
12,684
|
|
|
$
|
6,191
|
|
|
$
|
20,015
|
|
|
Sensors
|
|
8,779
|
|
|
11,504
|
|
|
16,938
|
|
|
22,138
|
|
|
Intersegment eliminations
|
|
(4
|
)
|
|
(14
|
)
|
|
(1
|
)
|
|
(13
|
)
|
|
Total income from operations 1
|
|
$
|
7,970
|
|
|
$
|
24,174
|
|
|
$
|
23,128
|
|
|
$
|
42,140
|
|
|
|
|
|
1
|
Test & Simulation Income from operations for the three and six months ended March 28, 2020 includes $6,138 of pre-tax severance and related expense. See Note 15 for additional information on restructuring and related costs.
|
NOTE 15 RESTRUCTURING AND RELATED COSTS
Fiscal Year 2020 Restructuring
In the second quarter of fiscal year 2020, we initiated a series of global workforce reductions and facility closures, including the reorganization of our European operations within Test & Simulation intended to increase organizational effectiveness, gain operational efficiencies and provide cost savings that can be reinvested in our growth initiatives. As a result, during the second quarter of fiscal year 2020, we recorded $6,138 of pre-tax severance and related expense. In fiscal years 2020 and 2021, we expect to incur a total of approximately $7,000 to $10,600 of pre-tax severance and related expense and facility closure costs related to these actions. No cash outlay was required in the second quarter of fiscal year 2020. The majority of the expenses are expected to be paid in the first half of fiscal year 2021.
Restructuring expenses included in the Consolidated Statements of Income are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three and Six Months Ended
|
|
|
|
March 28, 2020
|
|
|
|
Test &
Simulation
|
|
Cost of sales
|
|
$
|
3,868
|
|
|
General and administrative
|
|
2,270
|
|
|
Total restructuring expense
|
|
$
|
6,138
|
|
Restructuring expense accruals included in accrued payroll and related costs in the Consolidated Balance Sheets for the above restructuring action are as follows:
|
|
|
|
|
|
|
|
|
|
|
Test &
Simulation
|
|
Balance, September 28, 2019
|
|
$
|
—
|
|
|
Restructuring expense
|
|
6,138
|
|
|
Balance, March 28, 2020
|
|
$
|
6,138
|
|
NOTE 16 BUSINESS ACQUISITIONS
Acquisition of R&D Entities
Effective December 31, 2019, we completed the acquisition of R&D Test Systems, R&D Engineering, R&D Steel, R&D Prague, RGDK Engineering Private Limited and R&D Tools and Structures (collectively, R&D) for an upfront cash purchase
price of $58,280. The acquisition was primarily funded through our existing Revolving Credit Facility. The remaining purchase price is based on earn-out payments of up to an additional $26,000 contingent on financial performance through June 2021. As of the acquisition date, we estimated the fair value of the earn-out liability (contingent consideration) to be $17,447. Based out of Denmark, R&D is a leader in high-quality, durable, rotating test systems, serving primarily the wind energy markets. During the three and six months ended March 28, 2020, we included $14,708 of revenue from R&D in our Consolidated Statements of Income. Costs of $1,340 associated with the acquisition of R&D were expensed as incurred. Pro forma information related to the acquisition of R&D has not been included as the impact on our consolidated results of operations was not considered material.
The following table summarizes the preliminary fair value measurement of the assets acquired as of the date of acquisition:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Finite-Lived Intangible Asset Lives (Years)
|
|
Asset (Liability)
|
|
|
|
|
Accounts receivable
|
$
|
13,557
|
|
|
|
|
Unbilled accounts receivable
|
6,325
|
|
|
|
|
Inventories
|
41
|
|
|
|
|
Prepaid expenses and other current assets
|
533
|
|
|
|
|
Property and equipment
|
1,185
|
|
|
|
|
Intangible assets
|
|
|
|
|
Customer lists
|
24,282
|
|
|
15
|
|
Trademarks and trade names
|
8,539
|
|
|
15
|
|
Technology
|
5,075
|
|
|
10
|
|
Other intangible assets
|
4,198
|
|
|
1
|
|
Other long-term assets
|
3,121
|
|
|
|
|
Purchased goodwill
|
36,461
|
|
|
|
|
Accounts payable
|
(12,592
|
)
|
|
|
|
Accrued payroll and related costs
|
(2,193
|
)
|
|
|
|
Advanced payments from customers
|
(3,203
|
)
|
|
|
|
Accrued income taxes
|
(1,113
|
)
|
|
|
|
Other accrued liabilities
|
(5,074
|
)
|
|
|
|
Deferred income taxes
|
(10,103
|
)
|
|
|
|
Other long-term liabilities
|
(2,230
|
)
|
|
|
|
Net assets acquired
|
$
|
66,809
|
|
|
|
|
|
|
|
|
|
Supplemental information
|
|
|
|
|
Consideration paid at closing
|
$
|
58,280
|
|
|
|
|
Estimated contingent consideration
|
17,447
|
|
|
|
|
Less: Cash acquired
|
(8,918
|
)
|
|
|
|
Purchase price, net of cash acquired
|
$
|
66,809
|
|
|
|
The allocation of purchase price consideration is considered preliminary as of March 28, 2020 with provisional amounts related to accounts receivable, unbilled accounts receivable, property and equipment, intangible assets, accounts payable, advanced payments from customers, accrued income taxes, other accrued liabilities, deferred income taxes and purchase price adjustments included, which includes the contingent consideration, as our allocation process has not been finalized. We expect to finalize the allocation of purchase price as soon as possible, but no later than one year from the acquisition date.
Goodwill was calculated as the difference between the acquisition date fair value of the total purchase price consideration and the fair value of the net assets acquired and represents the future economic benefits that we expect to achieve as a result of the acquisition. This resulted in a purchase price in excess of the fair value of identifiable assets acquired. The purchase price also included the fair value of other assets that were not identifiable, not separately recognizable under accounting rules (e.g.,
assembled workforce) or of immaterial value. All of the goodwill was assigned to Test & Simulation. None of the goodwill is deductible for income tax purposes.
The fair value of the acquired intangible assets was $42,094. The acquired intangible assets are being amortized on a straight-line basis over the useful lives identified in the table above.
Endevco Acquisition
On August 5, 2019, we acquired the Endevco sensors business (Endevco) from Meggitt PLC for a cash purchase price of $68,330. We funded the acquisition of Endevco through cash on hand. Endevco is a historic leader in high performance test and measurement sensors used primarily in the testing of new products. This strategic product line purchase brings together two iconic brands in the test and measurement sensors market, in PCB and Endevco, and further enhances our long-term strategy of growth and market leadership in our core businesses. The transaction was accounted for under the acquisition method of accounting. The acquired assets and operating results have been included in our financial statements within Sensors from the date of acquisition. During the three and six months ended March 28, 2020, we included approximately $4,200 and $7,500, respectively, of revenue from Endevco in our Consolidated Statements of Income. Pro forma information related to the acquisition of Endevco has not been included as the impact on our consolidated results of operations was not considered material.
The following table summarizes the preliminary fair value measurement of the assets acquired as of the date of acquisition:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Finite-Lived Intangible Asset Lives (Years)
|
|
Asset
|
|
|
|
|
Inventories
|
$
|
11,649
|
|
|
|
|
Property and equipment
|
1,078
|
|
|
|
|
Intangible assets
|
|
|
|
|
Customer lists
|
13,400
|
|
|
15
|
|
Trademarks and trade names
|
7,900
|
|
|
15
|
|
Technology
|
4,400
|
|
|
15
|
|
Purchased goodwill
|
23,324
|
|
|
|
|
Deferred income taxes
|
6,579
|
|
|
|
|
Net assets acquired
|
$
|
68,330
|
|
|
|
|
|
|
|
|
|
Supplemental information
|
|
|
|
|
Consideration paid at closing
|
$
|
70,000
|
|
|
|
|
Post-closing purchase price adjustment
|
(1,670
|
)
|
|
|
|
Purchase price
|
$
|
68,330
|
|
|
|
The fair value measurement was completed as of March 28, 2020. Measurement period adjustments were recorded in fiscal year 2020 and have been reflected in the table above. The measurement period adjustments were not material.
Goodwill was calculated as the difference between the acquisition date fair value of the total purchase price consideration and the fair value of the net assets acquired and represents the future economic benefits that we expect to achieve as a result of the acquisition. This resulted in a purchase price in excess of the fair value of identifiable assets acquired. The purchase price also included the fair value of other assets that were not identifiable, not separately recognizable under accounting rules (e.g., assembled workforce) or of immaterial value. All of the goodwill was assigned to Sensors. All of the goodwill is deductible for income tax purposes.
The fair value of the acquired intangible assets was $25,700. The acquired intangible assets are being amortized on a straight-line basis over the useful lives identified in the table above.
E2M Technologies B.V. Acquisition
On November 21, 2018, we acquired all ownership interests of E2M Technologies B.V. (E2M) for a cash purchase price of $80,287. Based in Amsterdam, Netherlands, E2M is a leading manufacturer of high force, electrically driven actuation systems, serving primarily the human-rated entertainment and training simulation markets. The acquisition of E2M expands our technology and product offerings for human-rated simulation systems and brings key regulatory approvals and customers in the flight simulation and entertainment markets. The transaction was accounted for under the acquisition method of accounting. The acquired assets, liabilities and operating results have been included in our financial statements within Test & Simulation from the date of acquisition. During fiscal year 2019, we included $29,554 of revenue from E2M in our Consolidated Statements of Income. We funded the acquisition of E2M primarily with borrowings on our Revolving Credit Facility. Costs of $1,287 associated with the acquisition of E2M were expensed as incurred. Pro forma information related to the acquisition of E2M has not been included as the impact on our consolidated results of operations was not considered material.
The following table summarizes the fair value measurement of the assets acquired and liabilities assumed, net of cash acquired, as of the date of acquisition:
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Finite-Lived Intangible Asset Lives (Years)
|
|
Asset (Liability)
|
|
|
|
|
Accounts receivable
|
$
|
4,651
|
|
|
|
|
Unbilled accounts receivable
|
1,518
|
|
|
|
|
Inventories
|
11,063
|
|
|
|
|
Prepaid expenses and other current assets
|
123
|
|
|
|
|
Property and equipment
|
672
|
|
|
|
|
Intangible assets
|
|
|
|
|
Customer lists
|
21,652
|
|
|
15
|
|
Trademarks and trade names
|
5,926
|
|
|
15
|
|
Technology
|
12,650
|
|
|
15
|
|
Other intangible assets
|
3,761
|
|
|
4
|
|
Other long-term assets
|
60
|
|
|
|
|
Purchased goodwill
|
36,665
|
|
|
|
|
Accounts payable
|
(3,657
|
)
|
|
|
|
Accrued payroll and related costs
|
(1,328
|
)
|
|
|
|
Advance payments from customers
|
(4,315
|
)
|
|
|
|
Accrued income taxes
|
(290
|
)
|
|
|
|
Other accrued liabilities
|
(127
|
)
|
|
|
|
Deferred income taxes
|
(10,477
|
)
|
|
|
|
Net assets acquired
|
$
|
78,547
|
|
|
|
|
|
|
|
|
|
Supplemental information
|
|
|
|
|
Consideration paid at closing
|
$
|
79,772
|
|
|
|
|
Post-closing purchase price adjustment
|
515
|
|
|
|
|
Less: Cash acquired
|
(1,740
|
)
|
|
|
|
Purchase price, net of cash acquired
|
$
|
78,547
|
|
|
|
The fair value measurement was completed as of September 28, 2019. Measurement period adjustments were recorded in fiscal year 2019 and have been reflected in the table above. The measurement period adjustments were not material.
Goodwill was calculated as the difference between the acquisition date fair value of the total purchase price consideration and the fair value of the net assets acquired and represents the future economic benefits that we expect to achieve as a result of the acquisition. This resulted in a purchase price in excess of the fair value of identifiable net assets acquired. The purchase price also included the fair value of other assets that were not identifiable, not separately recognizable under accounting rules (e.g.,
assembled workforce) or of immaterial value. All of the goodwill was assigned to Test & Simulation. None of the goodwill is deductible for income tax purposes.
The fair value of the acquired intangible assets was $43,989. The acquired intangible assets are being amortized on a straight-line basis over the useful lives identified in the table above.
NOTE 17 RISKS AND UNCERTAINTIES
Coronavirus 2019 (COVID-19) Pandemic
The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption. As an essential critical infrastructure business, we have continued to operate in the U.S. and plan to continue to operate in other parts of the world as permitted. Restrictions on our employees' ability to access our customers and the temporary closures of our facilities or the facilities of our customers negatively impacted our sales and operating results for the second quarter of fiscal year 2020. We anticipate these challenges to continue to negatively impact our fiscal year 2020 revenue and operating results. The future impact COVID-19 will have on our business, operations and financial results is unknown at this time, and we are unable to accurately quantify the impact due to the significant global economic uncertainty.
The extent to which COVID-19 impacts our business, operations and financial results will depend on numerous evolving factors that we may or may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our customers' demand for our goods and services; our vendors' ability to supply us with raw materials; our ability to sell and provide our goods and services amidst travel restrictions; the ability of our customers to pay for our goods and services; and any further closures of our facilities or the facilities of our customers. Customers may also slow down decision-making, delay planned work or seek to terminate existing agreements. Any of these events could materially adversely affect our business, financial condition, results of operations and/or stock price.
In response to COVID-19 and the economic uncertainty, we continue to right-size our operations and manage short-term business risk to allow for bottom-line improvement through the execution of cost savings initiatives. We have taken actions to manage and reduce operating costs and further enhance our financial flexibility, including a temporary reduction by Dr. Jeffrey Graves of his salary by 20%; a temporary reduction by senior executives of their salaries by 10% to at least 15%; a temporary reduction by non-employee directors of their cash compensation by 20%; a reduction in workforce in connection with a global restructuring effort in our Test & Simulation business unit being executed in specifically targeted areas, including the reorganization of our European operations; other reductions in salaries or work schedules and temporary furloughs for employees, targeted toward specific, short-term impacted areas within each business unit; and reduction in all discretionary spending, capital expenditures and a strong focus on working capital management. We have also suspended our quarterly dividend of $0.30 per share, equating to approximately $23 million in annualized cash payments, which will enable us to maximize our liquidity for the foreseeable future as we face uncertain economic times.
Although we believe our financial position is strong, given the level of economic uncertainty, these cost reduction actions provide an increased level of flexibility during these challenging times. The temporary, incremental cost reduction measures taken will remain in place until we begin to see marked improvement in the markets we serve. While we expect that these actions will be sufficient to provide the needed flexibility, we continue to evaluate the ongoing impact of COVID-19 and may need to take further cost reduction or other actions in the future.