Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in nine sections: • Overview • Financial Results • Cash Flow Comparison
• Liquidity and Capital Resources
• Off-balance Sheet Arrangements
• Critical Accounting Policies
• Recently Issued Accounting Pronouncements
• Other Matters
• Forward-looking Statements
Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q. All dollar and share amounts are in thousands, unless otherwise noted. Overview Our testing and simulation hardware, software and service solutions simulate real world environments in other than real world settings thereby enabling customers to improve design, development and manufacturing processes, determine the mechanical behavior of materials, products and structures, or create a desired human experience such as amusement rides, vehicle simulators or flight training simulators. Our high-performance sensors provide measurements of vibration, pressure, position, force and sound in a variety of applications. Further globalization and expansion of many industries along with growth in emerging markets, such asChina andIndia , provide a strong and vibrant market base from which we can grow revenue. We have aligned our organizational structure to be more flexible to the demands of globalized and volatile markets by adjusting our structure to be more cost effective and nimble in responding to our customers' needs. We continue to deliver distinctive business performance through our commitment to sustain the differentiated competitive advantage that comes from offering an innovative portfolio of Test & Simulation and Sensor solutions that create value for customers, delivered with total customer satisfaction. Acquisition OnNovember 22, 2019 , we signed a definitive agreement to acquire R&D for approximately$80,000 , subject to working capital and other adjustments. OnJanuary 24, 2020 , we closed the acquisition of three R&D entities, specifically R&D Test Systems, R&D Engineering and R&D Steel, for a cash purchase price of approximately$83,000 . See Note 16 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for further discussion of the acquisition of R&D.
Financing
OnNovember 1, 2019 , we amended the Credit Agreement, increased the size of our Revolving Credit Facility from$150,000 to$200,000 , extended the expiration date toJuly 5, 2023 , reduced letter of credit commitments and modified certain financial covenants. See Note 9 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for further discussion of the amendment to the Credit Agreement. Foreign Currency Over the past 15 years, approximately 70% of our revenue has been derived from customers outside of theU.S. Our financial results are principally exposed to changes in exchange rates between theU.S. dollar and the Euro, the Japanese yen and the Chinese yuan. A change in foreign exchange rates could positively or negatively affect our reported financial results. The discussion below quantifies the impact of foreign currency translation on our financial results for the periods discussed. Terms The terms "MTS," "we," "us," "the Company" or "our" in this Quarterly Report on Form 10-Q, unless the context otherwise requires, refer toMTS Systems Corporation and its wholly owned subsidiaries. 30
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Table of Contents Financial ResultsTotal Company Results of Operations The following tables compare results of operations, separately identifying the estimated impact of currency translation. Three Months Ended Estimated December 28, Business Currency December 29, 2019 Change Translation 2018 Revenue$ 205,843 $ 4,432 $ (1,770 ) $ 203,181 Cost of sales 129,234 5,554 (1,196 ) 124,876 Gross profit 76,609 (1,122 ) (574 ) 78,305 Gross margin 37.2 % 38.5 % Operating expenses Selling and marketing 32,719 884 (254 ) 32,089 General and administrative 21,693 747 (132 ) 21,078 Research and development 7,039 (98 ) (35 ) 7,172 Total operating expenses 61,451 1,533 (421 ) 60,339 Income from operations$ 15,158 $ (2,655 ) $ (153 ) $ 17,966 Revenue Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Revenue$ 205,843 $ 203,181 $ 2,662 1.3 % Revenue for the three months endedDecember 28, 2019 increased 1.3% primarily driven by growth in the Sensors business, partially offset by a decline in the Test & Simulation business and the unfavorable impact of currency translation. Sensors revenue for the three months endedDecember 28, 2019 increased$7,585 driven by growth in the Sensors test sector primarily from a multi-year contract with theU.S. Department of Defense and the Endevco acquisition, partially offset by weakness in the Sensors position sector, specifically in the European region, and the unfavorable impact of currency translation. Test & Simulation revenue for the three months endedDecember 28, 2019 decreased$4,830 primarily driven by a decline in volume from weakness in the ground vehicles sector, specifically inEurope andAsia , lower service volume and the unfavorable impact of currency translation, partially offset by continued growth in the materials and structures sectors. Excluding the impact of currency translation, revenue increased 2.2%. Gross Profit Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Gross profit$ 76,609 $ 78,305 $ (1,696 ) (2.2 )% Gross margin 37.2 % 38.5 % (1.3 ) ppts Gross profit for the three months endedDecember 28, 2019 declined 2.2% primarily driven by lower revenue volume in Test & Simulation, higher compensation expense and the unfavorable impact of currency translation, partially offset by higher revenue volume in Sensors. Gross margin decreased 1.3 percentage points primarily due to higher compensation expense and lower gross margin contribution from product mix driven by both Test & Simulation and Sensors. Excluding the impact of currency translation and the inventory acquisition adjustments in both fiscal years, gross profit declined 1.3% and gross margin declined 1.4 percentage points. 31
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Selling and Marketing Expense
Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Selling and marketing$ 32,719 $ 32,089 $ 630 2.0 % % of revenue 15.9 % 15.8 % Selling and marketing expense for the three months endedDecember 28, 2019 increased 2.0% primarily due to higher compensation expense to support sales growth in Sensors, partially offset by lower commission expense from fewer orders in Test & Simulation and the favorable impact of currency translation. Excluding the impact of currency translation, selling and marketing expense increased 2.8%. General and Administrative Expense Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % General and administrative$ 21,693 $ 21,078 $ 615 2.9 % % of revenue 10.5 % 10.4 % General and administrative expense for the three months endedDecember 28, 2019 increased 2.9% primarily due to R&D and Endevco acquisition-related expenses of$1,746 and higher compensation expense in Sensors, partially offset by lower compensation expense in Test & Simulation and E2M acquisition-related expenses of$761 in the prior year. Excluding the impact of currency translation and acquisition-related expenses in both fiscal years, general and administrative expense decreased 1.2%. Research and Development Expense Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Research and development$ 7,039 $ 7,172 $ (133 ) (1.9 )% % of revenue 3.4 % 3.5 % Research and development expense for the three months endedDecember 28, 2019 declined 1.9% primarily due to the shift of internal resources to larger, capitalizable Test & Simulation projects, partially offset by continued investment in new product development and the acquisition of Endevco. Excluding the impact of currency translation, research and development expense decreased 1.4%. Income from Operations Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Income from operations$ 15,158 $ 17,966 $ (2,808 ) (15.6 )% % of revenue 7.4 % 8.8 % Income from operations for the three months endedDecember 28, 2019 declined 15.6% primarily due to lower gross profit, additional acquisition-related expenses in the current year and higher selling compensation expense in Sensors, partially offset by lower operating compensation expense in Test & Simulation. Excluding the impact of currency translation and the inventory acquisition adjustments and acquisition-related expenses in both fiscal years, income from operations decreased 8.2%. 32
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Table of Contents Interest Expense, Net Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Interest expense, net$ 8,272 $
6,818
Interest expense, net for the three months endedDecember 28, 2019 increased primarily due to higher interest expense on an increased debt position related to the issuance of the Notes in the fourth quarter of fiscal year 2019. Other Income (Expense), Net Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Other income (expense), net$ (431 ) $
49
The decrease in other income (expense), net for the three months endedDecember 28, 2019 was primarily driven by a relative increase in losses on foreign currency transactions. Income Tax Provision (Benefit) Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Income tax provision (benefit)$ 1,149 $ 696 $ 453 65.1 % Effective tax rate 17.8 % 6.2 % The effective tax rate for the three months endedDecember 28, 2019 increased primarily due to certain discrete benefits of$1,293 in the prior year for the impacts of the Tax Act. Excluding the impact of these discrete items, the effective tax rate for the three months endedDecember 29, 2018 would have been 17.8%, consistent with the current year effective tax rate. Net Income Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Net income$ 5,306 $ 10,501 $ (5,195 ) (49.5 )% Diluted earnings per share$ 0.27 $ 0.54$ (0.27 ) (50.0 )% Net income and diluted earnings per share for the three months endedDecember 28, 2019 decreased primarily due to lower income from operations in both Test & Simulation and Sensors, increased interest expense and an increase in the effective tax rate. 33
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Table of Contents Segment Results Test & Simulation Segment Results of Operations The following tables compare results of operations for Test & Simulation, separately identifying the estimated impact of currency translation. See Note 14 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on our reportable segments. Three Months Ended Estimated December 28, Business Currency December 29, 2019 Change Translation 2018 Revenue$ 120,730 $ (3,882 ) $ (948 ) $ 125,560 Cost of sales 83,760 (1,533 ) (722 ) 86,015 Gross profit 36,970 (2,349 ) (226 ) 39,545 Gross margin 30.6 % 31.5 % Operating expenses Selling and marketing 16,879 (374 ) (95 ) 17,348 General and administrative 11,005 (968 ) (98 ) 12,071 Research and development 2,090 (693 ) (12 ) 2,795 Total operating expenses 29,974 (2,035 ) (205 ) 32,214 Income from operations$ 6,996 $ (314 ) $ (21 ) $ 7,331 Revenue Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Revenue$ 120,730 $ 125,560 $ (4,830 ) (3.8 )% Revenue for the three months endedDecember 28, 2019 decreased 3.8% primarily driven by a decline in volume from weakness in the ground vehicles sector, specifically inEurope andAsia , lower service volume and the unfavorable impact of currency translation, partially offset by continued growth in the materials and structures sectors. Excluding the impact of currency translation, revenue decreased 3.1%. Gross Profit Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Gross profit$ 36,970 $ 39,545 $ (2,575 ) (6.5 )% Gross margin 30.6 % 31.5 % (0.9 ) ppts Gross profit for the three months endedDecember 28, 2019 declined 6.5% primarily due to lower revenue volume and higher compensation expense as part of normal inflation. Gross margin declined 0.9 percentage points primarily driven by higher compensation expense and lower gross margin contribution from product mix, partially offset by the E2M inventory acquisition adjustment of$445 in the prior year. Excluding the impact of currency translation and the inventory acquisition adjustment in the prior year, gross profit declined 7.0% and gross margin declined 1.2 percentage points. 34
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Selling and Marketing Expense
Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Selling and marketing$ 16,879 $ 17,348 $ (469 ) (2.7 )% % of revenue 14.0 % 13.8 %
Selling and marketing expense for the three months ended
Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % General and administrative$ 11,005 $ 12,071 $ (1,066 ) (8.8 )% % of revenue 9.1 % 9.6 % General and administrative expense for the three months endedDecember 28, 2019 declined 8.8% primarily driven by lower compensation expense due to headcount reductions, E2M acquisition-related expenses incurred in the prior year of$761 and lower professional fees, partially offset by R&D acquisition-related expenses of$867 . Excluding the impact of currency translation and acquisition-related expenses incurred in both fiscal years, general and administrative expense decreased 9.5%. Research and Development Expense Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Research and development$ 2,090 $ 2,795 $ (705 ) (25.2 )% % of revenue 1.7 % 2.2 % Research and development expense for the three months endedDecember 28, 2019 declined 25.2% primarily due to the shift of internal resources to larger, capitalizable Test & Simulation projects, partially offset by continued investment in new product development. Excluding the impact of currency translation, research and development expense decreased 24.8%. Income from Operations Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Income from operations$ 6,996 $ 7,331 $ (335 ) (4.6 )% % of revenue 5.8 % 5.8 % Income from operations for the three months endedDecember 28, 2019 declined 4.6% primarily due to decreased gross profit on lower revenue volume and R&D acquisition-related expenses of$867 , partially offset by lower operating compensation expense and the E2M inventory acquisition adjustment in the prior year. Excluding the impact of currency translation, the inventory acquisition adjustment in the prior year and acquisition-related expenses in both fiscal years, income from operations decreased 7.6%. 35
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Sensors Segment Results of Operations The following tables compare results of operations for Sensors, separately identifying the estimated impact of currency translation. See Note 14 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on our reportable segments. Three Months Ended Estimated December 28, Business Currency December 29, 2019 Change Translation 2018 Revenue$ 85,535 $ 8,407 $ (822 ) $ 77,950 Cost of sales 45,899 7,182 (474 ) 39,191 Gross profit 39,636 1,225 (348 ) 38,759 Gross margin 46.3 % 49.7 % Operating expenses Selling and marketing 15,840 1,258 (159 ) 14,741 General and administrative 10,688 1,715 (34 ) 9,007 Research and development 4,949 595 (23 ) 4,377 Total operating expenses 31,477 3,568 (216 ) 28,125
Income (loss) from operations
$ 10,634 Revenue Three Months Ended December 28, December 29, Increased /(Decreased) 2019 2018 $ % Revenue$ 85,535 $ 77,950 $ 7,585 9.7 % Revenue for the three months endedDecember 28, 2019 increased 9.7% driven by growth in the Sensors test sector primarily from a multi-year contract with theU.S. Department of Defense and the Endevco acquisition, partially offset by weakness in the Sensors position sector, specifically in the European region, and the unfavorable impact of currency translation. Excluding the impact of currency translation, revenue increased 10.8%. Gross Profit Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Gross profit$ 39,636 $ 38,759 $ 877 2.3 % Gross margin 46.3 % 49.7 % (3.4 ) ppts Gross profit for the three months endedDecember 28, 2019 increased 2.3% primarily due to increased revenue volume, partially offset by the Endevco inventory acquisition adjustment of$540 , higher compensation expense and the unfavorable impact of currency translation. Gross margin declined 3.4 percentage points primarily driven by lower gross margin contribution from product mix, higher compensation expense during the ramp-up of manufacturing capacity to support new products, growth in order volume in a tight labor market and the Endevco inventory acquisition adjustment. Excluding the impact of currency translation and the integration of Endevco into existing manufacturing facilities and the Endevco inventory acquisition adjustment, gross profit increased 4.6% and gross margin declined 2.8 percentage points. 36
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Table of Contents Selling and Marketing Expense Three Months Ended Increased / December 28, December 29, (Decreased) 2019 2018 $ % Selling and marketing$ 15,840 $ 14,741 $ 1,099 7.5 % % of revenue 18.5 % 18.9 % Selling and marketing expense for the three months endedDecember 28, 2019 increased 7.5% primarily driven by higher compensation from headcount additions to support sales growth, partially offset by the favorable impact of currency translation. Excluding the impact of currency translation, selling and marketing expense increased 8.5%. General and Administrative Expense Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % General and administrative$ 10,688 $ 9,007 $ 1,681 18.7 % % of revenue 12.5 % 11.6 % General and administrative expense for the three months endedDecember 28, 2019 increased 18.7% primarily driven by acquisition-related expenses of$879 and higher compensation expense due to planned headcount additions. Excluding the impact of currency translation and acquisition-related expenses, general and administrative expense increased 9.3%. Research and Development Expense Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Research and development$ 4,949 $ 4,377 $ 572 13.1 % % of revenue 5.8 % 5.6 % Research and development expense for the three months endedDecember 28, 2019 increased 13.1% primarily driven by continued investment in new product development and the acquisition of Endevco. Excluding the impact of currency translation, research and development expense increased 13.6%. Income from Operations Three Months Ended December 28, December 29, Increased / (Decreased) 2019 2018 $ % Income from operations$ 8,159 $ 10,634 $ (2,475 ) (23.3 )% % of revenue 9.5 % 13.6 % Income from operations for the three months endedDecember 28, 2019 declined 23.3% primarily due to additional expenses related to the Endevco acquisition and higher compensation expense, partially offset by increased gross profit on higher revenue volume. Excluding the impact of currency translation, the Endevco inventory acquisition adjustment and acquisition-related expenses, income from operations decreased 8.7%. 37
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Cash Flow Comparison The following table summarizes our cash flows from total operations: Three
Months Ended
December 28, 2019 December 29, 2018 Total cash provided by (used in): Operating activities $ (5,743 ) $ 10,631 Investing activities (10,572 ) (82,080 ) Financing activities 21,532 70,595 Effect of exchange rate changes on cash and cash equivalents 917 (512 )
Increase (decrease) in cash and cash equivalents during the period
6,134 (1,366 ) Cash and cash equivalents balance, beginning of period 57,937 71,804 Cash and cash equivalents balance, end of period $
64,071 $ 70,438
Operating Activities The increase in cash used by operating activities was primarily due to an increase in cash used by other assets and liabilities related to accrued project costs, as well as an increase in cash used by working capital associated with timing fluctuations from advanced payments received from customers, accounts receivable payments received and unbilled accounts receivable accruals, accounts payable payments, and inventory purchases. Investing Activities The decrease in cash used in investing activities was primarily due to the acquisition of E2M in the first quarter of fiscal year 2019, partially offset by an increase in cash used to purchase property and equipment for continued strategic investments in the business. Financing Activities The decrease in cash provided by financing activities was primarily due to borrowings under the Revolving Credit Facility used to fund the acquisition of E2M in the first quarter of fiscal year 2019, partially offset by an increase in short-term borrowings under the Revolving Credit Facility. Liquidity and Capital Resources We had cash and cash equivalents of$64,071 as ofDecember 28, 2019 . Of this amount,$7,052 was located inNorth America ,$26,299 inEurope and$30,720 inAsia . Repatriation of certain foreign earnings is restricted by local law. The North American cash balance was primarily invested in bank deposits. The cash balances inEurope andAsia were primarily invested in money market funds and bank deposits. In accordance with our investment policy, we place cash equivalent investments with issuers who have high-quality investment credit ratings. In addition, we limit the amount of investment exposure we have with any particular issuer. Our investment objectives are to preserve principal, maintain liquidity and achieve the best available return consistent with our primary objectives of safety and liquidity. As ofDecember 28, 2019 , we held no short-term investments. As a result of the transition tax related to the enactment of the Tax Act, we are able to repatriate cash held in our foreign subsidiaries without such funds being subject to additional federal income tax liability. We plan to continue to repatriate certain amounts of our existing offshore cash and future earnings back to theU.S. As ofDecember 28, 2019 , our capital structure was comprised of$59,600 in short-term debt,$492,945 in long-term debt and$488,748 in shareholders' equity. The Consolidated Balance Sheets also included$11,835 of unamortized debt issuance costs as ofDecember 28, 2019 . Total interest-bearing debt as ofDecember 28, 2019 was$552,545 . We have a credit agreement with a consortium of financial institutions (the Credit Agreement) that provides for senior secured credit facilities consisting of a Revolving Credit Facility and a Term Facility. The maturity date of the Revolving Credit Facility and the loans under the Term Facility isJuly 5, 2023 , unless a term loan lender agrees to extend the maturity date pursuant to a loan modification agreement made in accordance with the terms of the Credit Agreement. The Credit Agreement also requires mandatory prepayments on our Term Facility in certain circumstances, including the potential for an annual required prepayment of a certain percentage of our excess cash flow. Under the Credit Agreement, we are subject to customary affirmative and negative covenants, including, among others, restrictions on our ability to incur debt, create liens, dispose of assets, make investments, loans, advances, guarantees and acquisitions, enter into transactions with affiliates and enter into any restrictive agreements and customary events of default 38
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(including payment defaults, covenant defaults, change of control defaults and bankruptcy defaults). The Credit Agreement also contains financial covenants, including the ratio of consolidated total indebtedness to adjusted consolidated earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), as defined in the Credit Agreement, as well as the ratio of Adjusted EBITDA to consolidated interest expense. These covenants restrict our ability to pay dividends and purchase outstanding shares of common stock. As ofDecember 28, 2019 , we were in compliance with these financial covenants. In 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 among us, the Guarantors (as defined therein) andWells Fargo Bank, National Association , as trustee (the Indenture). The Notes will mature onAugust 15, 2027 . 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. As ofDecember 28, 2019 , we were in compliance with these financial covenants. See Note 9 to the Consolidated Financial Statements included in Item I of Part I of this Quarterly Report on Form 10-Q for additional information on our financing arrangements. Shareholders' equity increased by$4,689 during the three months endedDecember 28, 2019 primarily due to$5,306 net income,$2,328 stock-based compensation and$3,597 other comprehensive loss. The increase was partially offset by$5,748 dividends declared. As ofDecember 28, 2019 , we believe our current capital resources will be sufficient to fund working capital requirements, capital expenditures and operations for the foreseeable future, including at least the next twelve months. Off-balance Sheet Arrangements As ofDecember 28, 2019 , we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. Critical Accounting Policies The Consolidated Financial Statements have been prepared in accordance with GAAP, which requires us to make estimates and assumptions in certain circumstances that affect amounts reported, giving due consideration to materiality, that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of any contingent assets and liabilities at the date of the financial statements. We regularly review our estimates and assumptions, which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For further information, see Note 1 and Note 3 to the Consolidated Financial Statements included in Item 8 of our Annual Report on Form 10-K for the fiscal year endedSeptember 28, 2019 . For a discussion of our critical accounting policies, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year endedSeptember 28, 2019 . Recently Issued Accounting Pronouncements Information regarding new accounting pronouncements is included in Note 2 and Note 5 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q. Other Matters Dividends Our dividend policy is to maintain a payout ratio that allows dividends to increase in conjunction with the long-term growth of earnings per share, while sustaining dividends through economic cycles. Our dividend practice is to target, over time, a payout ratio of approximately 25% of net earnings per share. We have historically paid dividends to holders of our common stock on a quarterly basis. The declaration and payment of future dividends will depend on many factors, including, but not limited to, our earnings, financial condition, debt repayment obligations, business development needs and regulatory considerations and are at the discretion of our Board of Directors. Forward-looking Statements Statements contained in this Quarterly Report on Form 10-Q including, but not limited to, the discussion under Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, that are not statements of historical 39
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fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the Act). In addition, certain statements in our future filings with theSEC , in press releases and in oral and written statements made by us or with our approval that are not statements of historical fact also constitute forward-looking statements. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, ROIC, Adjusted EBITDA, net income or loss, earnings or loss per share, the payment or nonpayment of dividends, our capital structure, the adequacy of our liquidity and reserves, the anticipated level of expenditures required and other statements concerning future financial performance; (ii) statements of our plans and objectives by our management or Board of Directors, including those relating to products or services, our restructuring initiatives, merger or acquisition activity and the potential impact of newly acquired businesses; (iii) statements of assumptions underlying such statements; (iv) statements regarding business relationships with vendors, customers or collaborators or statements relating to our order cancellation history, our ability to convert our backlog of undelivered orders into revenue, the timing of purchases, competitive advantages and growth in end markets; and (v) statements regarding our products and their characteristics, fluctuations in the costs of raw materials for products, our geographic footprint, performance, sales potential or effect in the hands of customers. Words such as "believes," "anticipates," "expects," "intends," "targeted," "should," "potential," "goals," "strategy" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year endedSeptember 28, 2019 and in Item 1A of Part II of this Quarterly Report on Form 10-Q. The performance of our business and our securities may be adversely affected by these factors and by other factors common to other businesses and investments, or to the general economy. Forward-looking statements are qualified by some or all of these risk factors. Therefore, you should consider these forward-looking statements with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events or circumstances. You should carefully review the disclosures and the risk factors described in our Annual Report on Form 10-K for the fiscal year endedSeptember 28, 2019 and in other documents we file from time to time with theSEC , including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. 40
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