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 as China and India, provide a strong and vibrant market
base from which we can grow revenue. We have aligned our organizational
structure to be more flexible to the demands of globalized and volatile markets
by adjusting our structure to be more cost effective and nimble in responding to
our customers' needs. We 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
On November 22, 2019, we signed a definitive agreement to acquire R&D for
approximately $80,000, subject to working capital and other adjustments. On
January 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


On November 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 to July 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 the U.S. Our financial results are principally exposed to
changes in exchange rates between the U.S. dollar and the Euro, the Japanese yen
and the Chinese yuan. A change in foreign exchange rates could positively or
negatively affect our reported financial results. The discussion below
quantifies the impact of foreign currency translation on our financial results
for the periods discussed.
Terms
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.

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Financial Results
Total 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 ended December 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 ended December 28, 2019 increased $7,585
driven by growth in the Sensors test sector primarily from a multi-year contract
with the U.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 ended December 28, 2019 decreased $4,830 primarily
driven by a decline in volume from weakness in the ground vehicles sector,
specifically in Europe and Asia, 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 ended December 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.

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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 ended December 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 ended December 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 ended December 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 ended December 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%.

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Interest Expense, Net
                                                        Three Months Ended
                                                  December 28,        December 29,      Increased / (Decreased)
                                                      2019                2018                $             %
Interest expense, net                          $       8,272         $      

6,818 $ 1,454 21.3 %





Interest expense, net for the three months ended December 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 $ (480 ) (979.6 )%





The decrease in other income (expense), net for the three months ended December
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 ended December 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 ended December 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 ended December
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.

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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 ended December 28, 2019 decreased 3.8% primarily
driven by a decline in volume from weakness in the ground vehicles sector,
specifically in Europe and Asia, 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 ended December 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.

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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 December 28, 2019 declined 2.7% primarily due to lower commission expense from fewer orders. Excluding the impact of currency translation, selling and marketing expense decreased 2.2%. General and Administrative Expense


                                   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 ended December 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 ended December 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 ended December 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%.

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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 $ 8,159 $ (2,343 ) $ (132 )

$     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 ended December 28, 2019 increased 9.7% driven by
growth in the Sensors test sector primarily from a multi-year contract with the
U.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 ended December 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.

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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 ended December 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 ended December 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 ended December 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 ended December 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%.

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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 of December 28, 2019. Of this
amount, $7,052 was located in North America, $26,299 in Europe and $30,720 in
Asia. Repatriation of certain foreign earnings is restricted by local law. The
North American cash balance was primarily invested in bank deposits. The cash
balances in Europe and Asia were primarily invested in money market funds and
bank deposits. In accordance with our investment policy, we place cash
equivalent investments with issuers who have high-quality investment credit
ratings. In addition, we limit the amount of investment exposure we have with
any particular issuer. Our investment objectives are to preserve principal,
maintain liquidity and achieve the best available return consistent with our
primary objectives of safety and liquidity. As of December 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 the U.S.
As of December 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 of December 28, 2019. Total interest-bearing debt as of
December 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 is July 5, 2023,
unless a term loan lender agrees to extend the maturity date pursuant to a loan
modification agreement made in accordance with the terms of the Credit
Agreement. The Credit Agreement also requires mandatory prepayments on our Term
Facility in certain circumstances, including the potential for an annual
required prepayment of a certain percentage of our excess cash flow.
Under the Credit Agreement, we are subject to customary affirmative and negative
covenants, including, among others, restrictions on our ability to incur debt,
create liens, dispose of assets, make investments, loans, advances, guarantees
and acquisitions, enter into transactions with affiliates and enter into any
restrictive agreements and customary events of default

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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 of
December 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) and Wells Fargo
Bank, National Association, as trustee (the Indenture). The Notes will mature on
August 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 of December 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 ended December
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 of December 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 of December 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 ended September 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 ended September 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

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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 the SEC, in press releases and in oral and written
statements made by us or with our approval that are not statements of historical
fact 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 ended September 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 ended September 28, 2019 and in
other documents we file from time to time with the SEC, including our Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K.

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