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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 27~~January 2, ~~2020~~2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: 000-02382

MTS SYSTEMS CORPORATION

(Exact name of Registrant as specified in its charter)


Minnesota		41-0908057
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

14000 Technology Drive
Eden Prairie,	Minnesota	55344
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (952) 937-4000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.25 par value	MTSC	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒☐ Accelerated filer ☐☒ Emerging growth company ☐ Non-accelerated filer ☐ Smaller reporting company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of ~~July~~February 304, ~~2020~~2021, there were 19,~~276~~474,~~522~~695 shares of common stock outstanding.

MTS Systems Corporation

Quarterly Report on Form 10-Q

For the Three Months Ended ~~June~~January 272, ~~2020~~2021

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1.	~~Financial Statements~~	Financial Statements
	Consolidated Balance Sheets as of June 27, 2020 (unaudited) and September 28, 2019	2
		Consolidated Balance Sheets as of January 2, 2021 (unaudited) and October 3, 2020	2
	Consolidated Statements of Income for the Three and Nine Months Ended June 27, 2020 and June 29, 2019 (unaudited)	3
		Consolidated Statements of Income for the Three Months Ended January 2, 2021 and December 28, 2019 (unaudited)	3
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 27, 2020 and June 29, 2019 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the Three Months Ended January 2, 2021 and December 28, 2019 (unaudited)	4
	Consolidated Statements of Shareholders' Equity for the Three and Nine Months Ended June 27, 2020 and June 29, 2019 (unaudited)	5
		Consolidated Statements of Shareholders' Equity for the Three Months Ended January 2, 2021 and December 28, 2019 (unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended June 27, 2020 and June 29, 2019 (unaudited)	7
		Consolidated Statements of Cash Flows for the Three Months Ended January 2, 2021 and December 28, 2019 (unaudited)	6
	~~Notes to Consolidated Financial Statements (unaudited)~~	8Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	~~Management's Discussion and Analysis of Financial Condition and Results of Operations~~	36Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	~~Quantitative and Qualitative Disclosures About Market Risk~~	51Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	~~Controls and Procedures~~	52Controls and Procedures	42
PART II – OTHER INFORMATION
Item 1.	~~Legal Proceedings~~	52Legal Proceedings	43
Item 1A.	~~Risk Factors~~	52Risk Factors	43
Item 2.	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	53Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 5.	Other Information	53
Item 6.		Exhibits	44
Item 6.	Exhibits	54
SIGNATURES			45
SIGNATURES		55

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MTS SYSTEMS CORPORATION

Consolidated Balance Sheets

(in thousands, except per share data)

	June 27, 2020			September 28, 2019
				January 2,2021			October 3,2020
	~~(Unaudited)~~			(~~Note~~Unaudited)			(Note)
Assets
Current assets
Cash and cash equivalents	$	~~65,073~~		$	57112,~~937~~584		$	88,913
Accounts receivable, net of allowance for doubtful accounts of $4,742 and $5,963, respectively	118,686			121,260
Accounts receivable, net of allowance for doubtful accounts of $3,884 and $4,528, respectively				123,524			128,733
Unbilled accounts receivable, net	~~91,787~~			80,~~331~~673			84,685
Inventories, net	~~177,210~~			~~167~~179,~~199~~643			174,241
Prepaid expenses and other current assets	~~30,363~~			2332,~~761~~020			24,429
Total current assets	~~483,119~~			~~450~~528,~~488~~444			501,001
Property and equipment, net	~~100,160~~			~~101~~90,~~083~~246			95,110
Goodwill	~~465,978~~			~~429~~230,~~039~~623			228,640
Intangible assets, net	~~342,901~~			~~306~~292,~~585~~933			295,095
Other long-term assets	~~24,902~~			320,~~553~~671			23,313
Deferred income taxes	~~6,060~~			75,~~229~~326			7,072
Total assets	$	~~1,423,120~~		$	1,~~297~~168,~~977~~243		$	1,150,231
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings	$	~~27,000~~		$	—10,000		$	17,000
Current maturities of long-term debt, net	~~2,830~~			2725,~~969~~857			25,843
Accounts payable	~~51,639~~			4659,~~849~~841			51,562
Accrued payroll and related costs	~~39,728~~			4643,~~760~~754			39,849
Advance payments from customers	~~64,980~~			7084,~~520~~491			78,774
Accrued warranty costs	~~4,869~~			35,~~541~~926			5,974
Accrued income taxes	~~4,155~~			74,~~077~~547			4,782
Accrued dividends	—			5,695
Contingent consideration				28,131			26,497
Other accrued liabilities	~~47,183~~			4351,~~165~~113			46,570
Total current liabilities	~~242,384~~			~~251~~313,~~576~~660			296,851
Long-term debt, less current maturities, net	~~565,266~~			~~484~~541,~~648~~228			541,730
Deferred income taxes	~~52,607~~			4134,~~531~~310			35,513
Non-current accrued income taxes	~~4,769~~			45,~~414~~354			4,819
Defined benefit pension plan obligation	~~19,002~~			1615,~~585~~579			15,982
Contingent consideration	19,180			—
Non-current accrued payroll and related costs				3,847			5,273
Non-current accrued payroll and related costs	2,694			—
Other long-term liabilities				21,302			28,880
Other long-term liabilities	28,362			15,164
Total liabilities				935,280			929,048
Total liabilities	934,264			813,918
Shareholders' Equity
Shareholders' Equity
Common stock, $0.25 par value; 64,000 shares authorized: 19,448 and 19,264 shares issued and outstanding as of January 2, 2021 and October 3, 2020, respectively				4,862			4,816
Common stock, $0.25 par value; 64,000 shares authorized: 19,220 and 19,124 shares issued and outstanding as of June 27, 2020 and September 28, 2019, respectively	4,805			4,781
Additional paid-in capital				194,602			189,580
Additional paid-in capital	187,128			182,422
Retained earnings				33,483			31,768
Retained earnings	312,444			315,329
Accumulated other comprehensive income (loss)				16			(4,981)
Accumulated other comprehensive income (loss)	(15,521		)	(18,473		)
Total shareholders' equity				232,963			221,183
Total shareholders' equity	488,856			484,059
Total liabilities and shareholders' equity				$	1,168,243		$	1,150,231
Total liabilities and shareholders' equity	$	1,423,120		$	1,297,977

Note: The Consolidated Balance Sheet as of ~~September~~October 283, ~~2019~~2020 has been derived from the audited consolidated financial statements at that date.

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

Table of Contents

MTS SYSTEMS CORPORATION

Consolidated Statements of Income (Unaudited)

(in thousands, except per share data)

~~Three Months Ended~~

Three Months Ended

~~Nine Months Ended~~

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

January 2,2021

December 28,2019

Revenue

Product

~~175,223~~

~~205~~174,~~528~~740

~~537,304~~

178,858

~~587,297~~

Service

~~21,002~~

2624,~~681~~064

~~76,227~~

26,985

~~81,139~~

Total revenue

~~196,225~~

~~232~~198,~~209~~804

~~613,531~~

205,843

~~668,436~~

Cost of Sales

Product

~~116,491~~

~~130~~109,~~514~~558

~~349,336~~

111,639

~~368,260~~

Service

~~14,239~~

1614,~~592~~831

~~50,850~~

17,595

~~49,418~~

Total cost of sales

~~130,730~~

~~147~~124,~~106~~389

~~400,186~~

129,234

~~417,678~~

Gross profit

~~65,495~~

8574,~~103~~415

~~213,345~~

76,609

~~250,758~~

Operating expenses

Selling and marketing

~~26,857~~

3328,~~321~~422

~~89,707~~

32,719

~~98,805~~

General and administrative

~~19,692~~

2034,~~621~~159

~~67,382~~

21,693

~~63,804~~

Research and development

~~6,303~~

87,~~160~~203

~~20,485~~

7,039

~~23,008~~

Total operating expenses

~~52,852~~

6269,~~102~~784

~~177,574~~

61,451

~~185,617~~

Income from operations

~~12,643~~

234,~~001~~631

~~35,771~~

15,158

~~65,141~~

Interest income (expense), net

~~(8,846~~

)

(68,~~687~~467)

)

~~(25,975~~

(8,272)

~~(20,873~~

)

Other income (expense), net

~~(446~~

)

~~(124~~6,413

)

~~(1,059~~

(431)

~~195~~

Income before income taxes

~~3,351~~

162,~~190~~577

~~8,737~~

6,455

~~44,463~~

Income tax provision (benefit)

~~(1,038~~

)

~~2,605~~862

~~113~~

1,149

~~6,217~~

Net income

~~4,389~~

131,~~585~~715

~~8,624~~

5,306

~~38,246~~

Earnings per share

Basic

Earnings per share

~~0.23~~

0.7009

~~0.45~~

0.28

~~1.99~~

Weighted average common shares outstanding

~~19,229~~

19,~~297~~312

~~19,189~~

19,146

~~19,255~~

Diluted

Earnings per share

~~0.23~~

0.7009

~~0.45~~

0.27

~~1.97~~

Weighted average common shares outstanding

~~19,315~~

19,~~520~~476

~~19,349~~

19,369

~~19,436~~

Dividends declared per share

—

~~0.30~~—

~~0.60~~

0.30

~~0.90~~

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

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MTS SYSTEMS CORPORATION

Consolidated Statements of Comprehensive Income (Unaudited)

(in thousands)

~~Three Months Ended~~

Three Months Ended

~~Nine Months Ended~~

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

January 2,2021

December 28,2019

Net income

~~4,389~~

131,~~585~~715

~~8,624~~

5,306

~~38,246~~

Other comprehensive income (loss), net of tax

Foreign currency translation gain (loss) adjustments

~~3,974~~

~~506~~8,457

~~4,922~~

3,547

~~(2,165~~

)

Derivative instruments

Unrealized net gain (loss)

~~(725~~

)

(14,~~074~~128)

)

(114)

~~(2,882~~

)

Net (gain) loss reclassified to earnings

~~(270~~

)

~~(655~~246

)

~~(946~~

(250)

~~(2,136~~

)

Defined benefit pension plan

Unrealized net gain (loss)

~~211~~

~~419~~665

~~(1,429~~

)384

~~(167~~

)

Net (gain) loss reclassified to earnings

~~211~~

95194

~~632~~

212

~~286~~

Currency exchange rate gain (loss)

~~(197~~

)

(82437)

)

~~(324~~

(182)

~~179~~

Other comprehensive income (loss)

~~3,204~~

~~(791~~4,997

)

~~2,952~~

3,597

~~(6,885~~

)

Comprehensive income

~~7,593~~

126,~~794~~712

~~11,576~~

8,903

~~31,361~~

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

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MTS SYSTEMS CORPORATION

Consolidated Statements of Shareholders' Equity (Unaudited)

(in thousands)

	Three Months Ended June 27, 2020
				Three Months Ended January 2, 2021
	~~Common Stock~~			Common Stock		~~AdditionalPaid-InCapital~~							~~AccumulatedOtherComprehensiveIncome (Loss)~~	AdditionalPaid-InCapital		~~TotalShareholders'Equity~~					AccumulatedOtherComprehensiveIncome (Loss)		TotalShareholders'Equity
	~~SharesIssued~~		~~Amount~~	SharesIssued					Amount	~~RetainedEarnings~~									RetainedEarnings
Balance, March 28, 2020	19,188		$	4,797		$	187,551			$	308,055		$	(18,725	)	$	481,678
Balance, October 3, 2020				19,264					$	4,816				$	189,580				$	31,768	$	(4,981)	$	221,183
Total comprehensive income	—		—	—		—			—	~~4,389~~			~~3,204~~	—		~~7,593~~			1,715		4,997		6,712
Stock-based compensation	50		12			(123		)		—			—			(111		)
Exercise of stock options				78					20					3,771					—		—		3,791
Issuance for employee stock purchase plan	—		—			(1		)		—			—			(1		)
Stock-based compensation				108					27					2,621					—		—		2,648
Common stock purchased and retired	(18	)	(4		)	(299		)		—			—			(303		)
Issuance for employee stock purchase plan				37					9					523					—		—		532
Balance, June 27, 2020	19,220		$	4,805		$	187,128			$	312,444		$	(15,521	)	$	488,856
Common stock purchased and retired				(39)					(10)					(1,893)					—		—		(1,903)
	Nine Months Ended June 27, 2020
Balance, January 2, 2021				19,448					$	4,862				$	194,602				$	33,483	$	16	$	232,963
	Common Stock					AdditionalPaid-InCapital							AccumulatedOtherComprehensiveIncome (Loss)			TotalShareholders'Equity
	SharesIssued		Amount							RetainedEarnings
Balance, September 28, 2019	19,124		$	4,781		$	182,422			$	315,329		$	(18,473	)	$	484,059
Total comprehensive income	—		—			—				8,624			2,952			11,576
Exercise of stock options	1		—			41				—			—			41
Stock-based compensation	117		29			5,247				—			—			5,276
Issuance for employee stock purchase plan	15		4			585				—			—			589
Common stock purchased and retired	(37	)	(9		)	(1,167		)		—			—			(1,176		)
Dividends, $0.60 per share	—		—			—				(11,509		)	—			(11,509		)
Balance, June 27, 2020	19,220		$	4,805		$	187,128			$	312,444		$	(15,521	)	$	488,856


	Three Months Ended December 28, 2019
	Common Stock			Additional Paid-In Capital				Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity
	Shares Issued	Amount				Retained Earnings
Balance, September 28, 2019	19,124	$	4,781	$	182,422	$	315,329	$	(18,473)	$	484,059
Total comprehensive income	—	—		—		5,306		3,597		8,903

Exercise of stock options	1	—		41		—		—		41
Stock-based compensation	49	12		2,316		—		—		2,328

Common stock purchased and retired	(18)	(4)		(831)		—		—		(835)
Dividends, $0.30 per share	—	—		—		(5,748)		—		(5,748)
Balance, December 28, 2019	19,156	$	4,789	$	183,948	$	314,887	$	(14,876)	$	488,748

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

Table of Contents

	Three Months Ended June 29, 2019
	Common Stock					AdditionalPaid-InCapital						AccumulatedOtherComprehensiveIncome (Loss)			TotalShareholders'Equity
	SharesIssued		Amount						RetainedEarnings
Balance, March 30, 2019	17,900		$	4,475		$	176,918		$	308,279		$	(4,618	)	$	485,054
Total comprehensive income	—		—			—			13,585			(791		)	12,794
Conversion of tangible equity units	781		195			(195		)	—			—			—
Exercise of stock options	20		5			991			—			—			996
Stock-based compensation	55		14			2,282			—			—			2,296
Common stock purchased and retired	(20	)	(5		)	(981		)	—			—			(986		)
Dividends, $0.30 per share	—		—			—			(5,615		)	—			(5,615		)
Balance, June 29, 2019	18,736		$	4,684		$	179,015		$	316,249		$	(5,409	)	$	494,539
	Nine Months Ended June 29, 2019
	Common Stock					AdditionalPaid-InCapital						AccumulatedOtherComprehensiveIncome (Loss)			TotalShareholders'Equity
	SharesIssued		Amount						RetainedEarnings
Balance, September 29, 2018	17,856		$	4,464		$	171,407		$	300,585		$	1,476		$	477,932
Total comprehensive income	—		—			—			38,246			(6,885		)	31,361
Cumulative effect of accounting change	—		—			—			(6,227		)	—			(6,227		)
Conversion of tangible equity units	781		195			(195		)	—			—			—
Exercise of stock options	23		6			1,134			—			—			1,140
Stock-based compensation	88		22			7,493			—			—			7,515
Issuance for employee stock purchase plan	16		4			553			—			—			557
Common stock purchased and retired	(28	)	(7		)	(1,377		)	—			—			(1,384		)
Dividends, $0.90 per share	—		—			—			(16,355		)	—			(16,355		)
Balance, June 29, 2019	18,736		$	4,684		$	179,015		$	316,249		$	(5,409	)	$	494,539

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

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MTS SYSTEMS CORPORATION

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Nine Months Ended
				Three Months Ended
	June 27, 2020			June 29, 2019
				January 2, 2021			December 28, 2019
Cash Flows from Operating Activities
Net income	$	~~8,624~~		$	381,~~246~~715		$	5,306
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Stock-based compensation	~~5,214~~			72,~~298~~678			2,167
Fair value adjustment to acquired inventory	~~1,140~~			~~1,141~~—			540
Net periodic pension benefit cost	~~1,386~~			~~871~~375			462
Depreciation	~~17,287~~			155,~~485~~612			5,662
Amortization	~~17,343~~			125,~~668~~655			4,785
Accretion of contingent consideration	~~895~~			—468			—
Contingent consideration fair value adjustment	1,301			—
(Gain) loss on sale or disposal of property and equipment and intangible assets				(5,512)			612
(Gain) loss on sale or disposal of property and equipment	2,327			552
Amortization of debt issuance costs				815			867
Amortization of debt issuance costs	2,220			2,807
Deferred income taxes				121			66
Deferred income taxes	1,718			(1,430		)
Bad debt provision (recovery), net				(109)			(460)
Bad debt provision (recovery), net	(1,258		)	586
Changes in operating assets and liabilities
Changes in operating assets and liabilities
Accounts receivable and unbilled accounts receivable				14,132			4,983
Accounts receivable and unbilled accounts receivable	13,903			(15,444		)
Inventories, net				(4,108)			(9,716)
Inventories, net	(10,398		)	1,013
Prepaid expenses				(4,616)			(177)
Prepaid expenses	3,015			(2,310		)
Accounts payable				7,202			913
Accounts payable	(6,421		)	(11,361		)
Accrued payroll and related costs				2,924			(12,410)
Accrued payroll and related costs	(8,722		)	(1,396		)
Advance payments from customers				(1,522)			(7,512)
Advance payments from customers	(8,869		)	(6,390		)
Accrued warranty costs				(60)			572
Accrued warranty costs	1,316			(1,571		)
Other assets and liabilities				(6,516)			(2,403)
Other assets and liabilities	(28,601		)	9,205
Net Cash Provided by (Used in) Operating Activities				19,254			(5,743)
Net Cash Provided by (Used in) Operating Activities	13,420			49,970
Cash Flows from Investing Activities
Cash Flows from Investing Activities
Purchases of property and equipment				(2,606)			(10,572)
Purchases of property and equipment	(21,144		)	(17,377		)
Proceeds from sale of property and equipment				8,752			—
Proceeds from sale of property and equipment	—			10
Net Cash Provided by (Used in) Investing Activities				6,146			(10,572)
Purchases of business, net of acquired cash	(49,268		)	(83,526		)
Cash Flows from Financing Activities
Other	87			(285		)
Payment of long-term debt				(1,335)			(1,283)
Net Cash Provided by (Used in) Investing Activities	(70,325		)	(101,178		)
Payment of debt issuance costs for long-term debt				—			(88)
Cash Flows from Financing Activities
Payment of debt issuance costs for revolving credit facility				—			(564)
Proceeds from issuance of long-term debt	58,576			80,391
Receipts under short-term borrowings				25,000			50,000
Payment of long-term debt	(4,180		)	(3,861		)
Payments under short-term borrowings				(32,000)			(20,000)
Payment of debt issuance costs for long-term debt	(88		)	—
Cash dividends				—			(5,739)
Payment of debt component of tangible equity units	—			(4,818		)
Proceeds from exercise of stock options and employee stock purchase plan				4,323			41
Payment of debt issuance costs for revolving credit facility	(564		)	(542		)
Payments to purchase and retire common stock				(1,903)			(835)
Receipts under short-term borrowings	115,000			35,000
Net Cash Provided by (Used in) Financing Activities				(5,915)			21,532
Payments under short-term borrowings	(88,000		)	(35,000		)
Effect of Exchange Rate Changes on Cash and Cash Equivalents				4,186			917
Cash dividends	(17,205		)	(16,099		)
Cash and Cash Equivalents
Proceeds from exercise of stock options and employee stock purchase plan	630			1,697
Increase (decrease) in cash and cash equivalents during the period				23,671			6,134
Payments to purchase and retire common stock	(1,176		)	(1,384		)
Cash and cash equivalents balance, beginning of period				88,913			57,937
Net Cash Provided by (Used in) Financing Activities	62,993			55,384
Cash and cash equivalents balance, end of period				$	112,584		$	64,071
Effect of Exchange Rate Changes on Cash and Cash Equivalents	1,048			(245		)
Supplemental Disclosures
Cash and Cash Equivalents
Cash paid during the period for
Increase (decrease) in cash and cash equivalents during the period	7,136			3,931
Interest				$	2,672		$	1,918
Cash and cash equivalents balance, beginning of period	57,937			71,804
Income taxes				2,509			2,069
Cash and cash equivalents balance, end of period	$	65,073		$	75,735
Non-cash investing and financing activities
Supplemental Disclosures
Dividends declared not yet paid				—			5,704
Cash paid during the period for
Interest	$	19,645		$	18,244
Income taxes	10,317			9,295
Non-cash investing and financing activities
Contingent consideration assumed in acquisition	19,180			—
Dividends declared not yet paid	—			5,568

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

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MTS SYSTEMS CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

(Dollars and shares in thousands, unless otherwise noted)

NOTE 1 BASIS OF PRESENTATION

The consolidated financial statements include the accounts of MTS Systems Corporation and its wholly owned subsidiaries. Significant intercompany account balances and transactions have been eliminated.

The terms "MTS," "we," "us," "the Company" or "our" in this Quarterly Report on Form 10-Q, unless the context otherwise requires, refer to MTS Systems Corporation and its wholly owned subsidiaries.

We have prepared the interim unaudited consolidated financial statements included herein pursuant to the rules and regulations of the United States (U.S.) Securities and Exchange Commission (SEC). The information furnished in these consolidated financial statements includes normal recurring adjustments and reflects all adjustments that are, in our opinion, necessary for a fair presentation of such financial statements. The consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). GAAP requires us to make estimates and assumptions that affect amounts reported. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended ~~September~~October 283, ~~2019~~2020 filed with the SEC. Interim results of operations for the ~~third~~first fiscal quarter ended ~~June~~January 272, ~~2020~~2021 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~~2021 ending on October 32, ~~2020~~2021 will consist of 5352 weeks. Fiscal year ~~2019~~2020 ended on ~~September~~October 283, ~~2019~~2020 consisted of 5253 weeks.

~~Changes~~Definitive toMerger ~~Significant Accounting Policies~~Agreement

On December 8, 2020, we entered into a definitive agreement under which Amphenol Corporation (Amphenol) will acquire MTS for $58.50 per share in cash, or approximately $1.7 billion, including the assumption of outstanding debt and liabilities, net of cash. The ~~following~~acquisition ~~accounting~~is ~~policies~~expected ~~have~~to ~~been~~close ~~updated~~by ~~since~~the ~~our~~middle ~~fiscal~~of ~~year~~2021, ~~2019~~subject ~~Annual~~to ~~Report~~certain onregulatory ~~Form~~approvals, 10shareholder approval and other customary closing conditions. During the three months ended January 2, 2021, we incurred $11,577 of acquisition-Krelated expenses related to this pending transaction recorded within general and administrative expenses in the Consolidated Statements of Income.

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~~Ransomware ~~2 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS~~ Incident

In ~~June~~November ~~2016~~2020, we were the ~~Financial~~victim ~~Accounting~~of ~~Standards~~a ~~Board~~ransomware ~~(FASB)~~incident ~~issued~~that ~~ASU~~temporarily Noimpacted our operations. ~~2016-13,~~As ~~Financial~~a ~~Instruments—Credit~~result ~~Losses~~of ~~(Topic~~the ~~326):~~incident, ~~Measurement~~certain of ~~Credit~~our ~~Losses~~data onwas ~~Financial Instruments~~encrypted, ~~followed~~some byof ~~related~~our ~~amendments~~data was exfiltrated from our systems, ~~which~~and ~~changes~~business ~~the~~activities ~~accounting~~at ~~for~~several ~~credit~~of ~~losses~~our onfacilities ~~instruments~~were ~~measured~~temporarily atdisrupted. ~~amortized~~As ~~cost~~of bythe ~~adding~~date anhereof, ~~impairment~~our ~~model~~investigation indicates that isthe ~~based~~incident onhas ~~expected~~been ~~losses~~contained. ~~rather~~We ~~than~~recovered ~~incurred~~the ~~losses.~~impacted Andata ~~entity~~from ~~will~~the ~~recognize~~unauthorized asactor, anand ~~allowance~~we ~~its~~are ~~estimate~~not currently aware of ~~expected~~any ~~credit~~evidence ~~losses,~~of ~~which~~the isimpacted ~~believed~~data being publicly released. We continue to ~~result~~investigate inwhat ~~more~~information ~~timely~~the ~~recognition~~unauthorized ofactor ~~such~~may ~~losses~~have asaccessed or exfiltrated and resolve open items related to the ~~standard~~incident. ~~eliminates~~During the ~~probable~~three ~~initial~~months ~~recognition~~ended ~~threshold.~~January ~~Adoption~~2, 2021, we incurred $739 of ~~the~~expenses, ~~standard~~net isof ~~required~~insurance ~~for~~related ~~annual~~to ~~periods~~this ~~beginning~~event. ~~after~~We ~~December~~expect 15total expenses, ~~2019~~net of insurance, ~~including~~related ~~interim~~to ~~periods~~this ~~within~~event ~~that~~to ~~annual~~be ~~period~~approximately $2.0 to $3.0 million, ~~which~~with isthe ~~our~~majority incurred in the first half of fiscal year 2021. The ~~new~~temporary ~~guidance~~operational isdisruption ~~required~~that tooccurred bedid ~~adopted~~not ~~using~~have a ~~modified~~material ~~retrospective~~impact ~~approach~~on ~~with~~our afinancial ~~cumulative-effect~~results ~~adjustment~~as toof ~~retained~~January ~~earnings~~2, as2021. ofAny ~~the~~failure ~~beginning~~or ofperceived ~~the~~failure ~~first~~by ~~reporting~~us ~~period~~to ofcomply ~~adoption.~~with Weapplicable doprivacy ~~not~~or ~~expect~~security ~~the~~laws, ~~adoption~~regulations, ofpolicies or obligations in connection with this ~~standard~~incident, tocould ~~have~~result ain ~~material~~government ~~impact~~enforcement onactions, ~~our~~regulatory ~~financial~~investigations, ~~condition~~litigation, ~~results~~fines ofand ~~operations~~penalties and/or ~~disclosures~~adverse publicity, which could impact expenses associated with the incident.

~~In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework–~~Changes to ~~the~~Significant ~~Disclosure~~Accounting 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, Policies

8Accounts Receivable and Long-term Contracts

We grant credit to customers and generally do not require collateral or other security from domestic customers. When deemed appropriate, receivables from customers located outside the U.S. are supported by letters of credit from financial institutions.

Table of Contents

~~including~~The ~~interim~~allowance ~~periods~~for ~~within~~doubtful ~~that~~accounts ~~annual~~is ~~period~~based on our best estimate of the expected credit losses to be incurred, ~~which~~including iscredit ~~our~~worthiness, ~~fiscal~~financial ~~year~~condition ~~2021~~and history of the specific customers. ~~Certain~~We ~~disclosures~~record inan ~~the~~allowance ~~new~~to ~~guidance~~reduce ~~are~~receivables to the amount expected to be ~~applied~~collectible ~~using~~and aconsider ~~retrospective~~factors ~~approach~~such ~~while~~as ~~other~~the ~~disclosures~~historical ~~are~~write-off toexperience, becurrent ~~applied~~expectations ~~using~~of afuture ~~prospective~~credit ~~approach~~losses and economic conditions. ~~Early~~If ~~adoption~~there is ~~permitted.~~a Wedeterioration doof ~~not~~a ~~expect~~customer's ~~the~~financial ~~adoption~~condition, if we become aware of ~~this~~additional ~~standard~~information related to ~~have~~the credit worthiness of a ~~material~~customer, ~~impact~~if future actual default rates on ~~our~~trade ~~financial~~receivables ~~condition,~~differ ~~results~~from ofthose ~~operations~~currently anticipated or ~~disclosures~~if economic indicators result in additional expected losses, we may adjust the allowance for doubtful accounts, which would affect earnings in the period the adjustments were made.

InWe ~~August~~enter ~~2018,~~into ~~the~~long-term ~~FASB~~contracts ~~issued~~for ~~ASU~~customized ~~No.~~equipment ~~2018-14,~~sold ~~Compensation–Retirement~~to ~~Benefits–Defined~~our ~~Benefit~~customers. ~~Plans–General~~Under ~~(Subtopic~~the ~~715-20):~~terms ~~Disclosure~~of ~~Framework–Changes~~such tocontracts, ~~the~~revenue ~~Disclosure~~recognized ~~Requirements~~over ~~for~~time ~~Defined~~may ~~Benefit~~be ~~Plans,~~invoiced ~~which~~upon ~~eliminates,~~completion ~~amends~~of ~~and~~contractual ~~adds~~milestones, ~~disclosure~~shipment ~~requirements~~to ~~for~~the ~~defined~~customer ~~benefit~~or ~~pension~~installation and ~~other~~customer ~~postretirement plans~~acceptance. ~~The~~Unbilled ~~standard~~amounts isrelating ~~required~~ to bethese ~~adopted~~contracts ~~for~~are ~~annual~~included ~~periods~~in ~~ending~~unbilled ~~after~~accounts ~~December 15~~receivable, ~~2020,~~net ~~which~~in isthe ~~our~~Consolidated ~~fiscal~~Balance ~~year~~Sheets ~~2021.~~and ~~The~~are ~~new~~net ~~guidance~~of isexpected tocredit belosses ~~applied~~for ~~using~~lack aof ~~retrospective~~fulfilling ~~approach~~contractual ~~with~~billing ~~early adoption permitted~~milestones. WeAmounts dounbilled ~~not~~are ~~expect~~expected ~~the adoption of this standard~~ to ~~have~~be ainvoiced ~~material~~during ~~impact~~the onnext ~~our~~twelve ~~financial condition, results of operations or disclosures~~months.

InNOTE ~~December~~2 RECENTLY ~~2019,~~ISSUED ~~the~~ACCOUNTING 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 do not expect the adoption of this standard to have a material impact on our financial condition, results of operations or disclosures.PRONOUNCEMENTS

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~~June 2016, the FASB issued ASU No. 2016-0213, ~~Leases~~Financial Instruments—Credit Losses (Topic ~~842~~326),: ~~followed~~Measurement byof ~~related~~Credit ~~amendments~~Losses ~~(collectively~~on Financial Instruments, ~~"the~~followed ~~new~~by ~~lease~~related ~~standard")~~amendments, which ~~requires~~changes ~~lessees~~the toaccounting ~~recognize~~for ~~most~~credit ~~leases~~losses on ~~the~~instruments ~~balance~~measured ~~sheet~~at ~~for~~amortized ~~the~~cost ~~rights~~by ~~and~~adding ~~obligations~~an ~~created~~impairment bymodel ~~those~~that ~~leases.~~is Webased ~~adopted~~on ~~the~~expected ~~new~~losses ~~lease~~rather ~~standard~~than onincurred ~~September~~losses. ~~29,~~An ~~2019~~entity ~~under~~will ~~the~~recognize ~~modified~~as ~~retrospective~~an ~~transition~~allowance ~~method~~its ~~and~~estimate ~~the~~of ~~optional~~expected ~~transition~~credit ~~method.~~losses, Aswhich ais believed to result, wein ~~did~~more ~~not~~timely ~~adjust~~recognition ~~our~~of ~~comparative~~such ~~period~~losses ~~financial~~as ~~information~~the orstandard ~~make~~eliminates the ~~new~~probable ~~required~~initial ~~lease~~recognition ~~disclosures~~threshold. ~~for~~We ~~periods~~adopted ~~before~~ the ~~effective~~new ~~date.~~credit Welosses ~~elected~~standard at the ~~package~~beginning of ~~practical~~our ~~expedients~~fiscal toyear ~~not~~2021 ~~reassess~~under ~~prior~~the ~~conclusions~~modified ~~related~~retrospective toapproach. ~~contracts~~As ~~containing~~a ~~leases~~result, ~~lease~~we ~~classification~~did ~~and~~not ~~initial~~adjust ~~direct~~our ~~costs.~~comparative Inperiod ~~addition,~~financial weinformation ~~did~~for ~~not~~periods ~~elect~~before ~~to apply~~ the ~~hindsight~~effective ~~practical expedient~~date. See Note 51 for our new ~~lease~~accounts ~~accounting~~receivable ~~policy~~ and ~~disclosures~~long-term ~~related~~contracts topolicy. ~~the~~The ~~new~~adoption ~~lease~~of this standard did not have a significant impact 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. We adopted the new standard with disclosure changes implemented as part of the filing of our Quarterly Report on Form 10-Q for the first quarter of fiscal year 2021. The adoption of this standard did not have a significant impact on our disclosures. See Note 7 for our fair value measurement 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. We adopted the new standard under a retrospective approach for our fiscal year 2021 with disclosure changes to be implemented as part of the filing of our Annual Report on the Form 10-K for fiscal year 2021. We do not expect the adoption of this standard to have a significant impact on our disclosures.

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. We perform the determination of whether a contract meets all these criteria at contract inception and only reassess upon significant changes in facts and circumstances.

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.8

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.

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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.

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 under the practical expedient 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 electromechanical 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 ~~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, ~~revenue~~including an estimate of profit, is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying the performance ~~obligation~~obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. ~~Equipment~~Contract ~~contract~~ costs include materials, component parts, labor and overhead costs.

~~Equipment~~Revenue ~~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~~uses. 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~~9

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.

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~~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.

Our Sensors segment (Sensors) manufactures and sells high-performance sensors which provide measurements of vibration, pressure, position, force and sound in a variety of applications. Our Sensors products are used to enable automation, enhance precision and safety, and lower our customers' production costs by improving performance and reducing downtime. Primary Sensors markets include automotive, aerospace and defense, industrial, and research and development. Our Sensors products are sold as configurable, standard units; utilize piezoelectric or magnetostriction technology; and are ideal for use in harsh operating environments to provide accurate and reliable sensor information. To complement our Sensors products, we also provide spare parts and services. The cycle from contract inception to shipment of equipment is typically one to three months, with the exception of certain high-volume contracts which are fulfilled in a series of shipments over an extended period.

Our Sensors contracts generally have performance obligations which are 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 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.

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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.

	~~Three Months Ended~~		Three Months Ended
	June 27, 2020										June 29, 2019
			January 2, 2021																	December 28, 2019
	~~Test & Simulation~~		~~Sensors~~Test & Simulation		~~Intersegment~~		Sensors		~~Total~~		~~Test & Simulation~~Intersegment		~~Sensors~~		Total		~~Intersegment~~			~~Total~~Test & Simulation		Sensors		Intersegment		Total
Sales type
Product	$	~~96,870~~	$	7890,~~739~~933	$	~~(386~~	)$	84,029	$	~~175,223~~	$	~~123,573~~(222)	$	~~82,305~~	$	174,740	$	~~(350~~	)	$	~~205~~95,~~528~~496	$	83,774	$	(412)	$	178,858
Service	~~19,534~~		122,~~483~~290		~~(15~~		)1,774		~~21,002~~		~~24,755~~—		~~1,926~~		24,064		—			2625,~~681~~234		1,761		(10)		26,985
Total revenue	$	~~116,404~~	$	80113,~~222~~223	$	~~(401~~	)$	85,803	$	~~196,225~~	$	~~148,328~~(222)	$	~~84,231~~	$	198,804	$	~~(350~~	)	$	~~232~~120,~~209~~730	$	85,535	$	(422)	$	205,843
Timing of recognition
Point-in-time	$	~~60,792~~	$	7246,~~031~~702	$	~~(401~~	)$	77,773	$	~~132,422~~	$	~~95,247~~(222)	$	~~77,978~~	$	124,253	$	~~(350~~	)	$	~~172~~60,~~875~~104	$	77,163	$	(422)	$	136,845
Over time	~~55,612~~		866,~~191~~521		—		8,030		~~63,803~~		~~53,081~~—		~~6,253~~		74,551		—			5960,~~334~~626		8,372		—		68,998
Total revenue	$	~~116,404~~	$	80113,~~222~~223	$	~~(401~~	)$	85,803	$	~~196,225~~	$	~~148,328~~(222)	$	~~84,231~~	$	198,804	$	~~(350~~	)	$	~~232~~120,~~209~~730	$	85,535	$	(422)	$	205,843
Geographic market
Americas	$	~~32,821~~	$	4226,~~000~~382	$	~~(401~~	)$	41,577	$	~~74,420~~	$	~~47,892~~(222)	$	~~42,365~~	$	67,737	$	~~(350~~	)	$	8937,~~907~~848	$	46,545	$	(422)	$	83,971
Europe	~~36,951~~		1937,~~851~~525		—		23,942		~~56,802~~		~~34,137~~—		~~26,994~~		61,467		—			6126,~~131~~515		22,542		—		49,057
Asia	~~46,632~~		1849,~~371~~316		—		20,284		~~65,003~~		~~66,299~~—		~~14,872~~		69,600		—			8156,~~171~~367		16,448		—		72,815
Total revenue	$	~~116,404~~	$	80113,~~222~~223	$	~~(401~~	)$	85,803	$	~~196,225~~	$	~~148,328~~(222)	$	~~84,231~~	$	198,804	$	~~(350~~	)	$	~~232~~120,~~209~~730	$	85,535	$	(422)	$	205,843
	Nine Months Ended
	June 27, 2020										June 29, 2019
	Test & Simulation		Sensors		Intersegment				Total		Test & Simulation		Sensors				Intersegment			Total
Sales type
Product	$	294,654	$	243,674	$	(1,024	)		$	537,304	$	348,992	$	239,345			$	(1,040	)	$	587,297
Service	67,977		8,281		(31		)		76,227		75,928		5,211				—			81,139
Total revenue	$	362,631	$	251,955	$	(1,055	)		$	613,531	$	424,920	$	244,556			$	(1,040	)	$	668,436
Timing of recognition
Point-in-time	$	178,512	$	226,730	$	(1,055	)		$	404,187	$	273,226	$	231,507			$	(1,040	)	$	503,693
Over time	184,119		25,225		—				209,344		151,694		13,049				—			164,743
Total revenue	$	362,631	$	251,955	$	(1,055	)		$	613,531	$	424,920	$	244,556			$	(1,040	)	$	668,436
Geographic market
Americas	$	110,044	$	133,393	$	(1,055	)		$	242,382	$	138,780	$	119,069			$	(1,040	)	$	256,809
Europe	104,601		68,560		—				173,161		92,300		79,995				—			172,295
Asia	147,986		50,002		—				197,988		193,840		45,492				—			239,332
Total revenue	$	362,631	$	251,955	$	(1,055	)		$	613,531	$	424,920	$	244,556			$	(1,040	)	$	668,436

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Contract Assets and Liabilities

Contract assets and contract liabilities are as follows:

June 27, 2020

September 28, 2019

January 2,2021

October 3,2020

Contract assets

~~91,787~~

80,~~331~~673

84,685

Contract liabilities

~~75,651~~

8190,~~045~~052

90,354

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.10

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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 the 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 the 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~~			Contract Assets
Balance, September 28, 2019	$	80,331
Balance, October 3, 2020				$	84,685
Changes in estimated stage of completion	~~94,646~~			33,602
Transfers to accounts receivable, net	~~(88,566~~		)	(33,128)
Acquisitions1	6,107
Other				(4,486)
Other	(731		)
Balance, January 2, 2021				$	80,673
Balance, June 27, 2020	$	91,787
				Contract Liabilities
	Contract Liabilities
Balance, October 3, 2020				$	90,354
Balance, September 28, 2019	$	81,045
Revenue recognized included in balance at beginning of period				(25,519)
Revenue recognized included in balance at beginning of period	(52,176		)
Increases due to payments received, excluding amounts recognized as revenue during period				30,236
Increases due to payments received, excluding amounts recognized as revenue during period	44,871
Other				(5,019)
Acquisitions1	3,182
Balance, January 2, 2021				$	90,052
Other	(1,271		)
Balance, June 27, 2020	$	75,651

1 See Note 16 for additional information regarding acquisitions.

Remaining Performance Obligations

As of ~~June~~January 272, ~~2020~~2021, we had approximately $~~281~~229,~~700~~910 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 ~~June~~January 272, ~~2020~~2021, we expect to recognize approximately 5458% of these remaining performance obligations as revenue within one year, an additional 2923% 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~~time ~~life~~as ofwork ~~the contract~~progresses. 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.

13As 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

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~~reversal~~period ofit ~~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~~identified. ~~As a result, the variable consideration is allocated proportionately to all performance obligations.~~ Our ~~estimates~~review of ~~variable~~contract-related ~~consideration~~estimates ~~and~~has ~~determination~~not ofresulted ~~whether to include estimated amounts~~ in ~~the~~adjustments ~~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~~to ~~where~~our ~~variable~~results ~~consideration is constrained and not recorded at the initial time~~ of ~~sale~~operations.

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 ~~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 $3,~~965~~585 and $43,~~297~~581 in prepaid expenses and other current assets and other long-term assets in the Consolidated Balance Sheets as of ~~June~~January 272, ~~2020~~2021 and ~~September~~October 283, ~~2019~~2020, respectively. We incurred ~~the related~~ pre-contract expense of $~~1,017~~889 and $1,~~747~~463 in the Consolidated Statements of Income during the three months ended ~~June~~January 272, ~~2020~~2021 and ~~June~~December 2928, 2019, respectively~~, and $3,857 and $5,616 in the Consolidated Statements of Income during the nine months ended June 27, 2020 and June 29, 2019, respectively~~.

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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:

June 27, 2020

September 28, 2019

January 2,2021

October 3,2020

Components, assemblies and parts

~~120,019~~

~~112~~119,~~886~~200

117,865

Customer projects in various stages of completion

~~41,121~~

3943,~~534~~665

39,156

Finished goods

~~16,070~~

1416,~~779~~778

17,220

Total inventories, net

~~177,210~~

~~167~~179,~~199~~643

174,241

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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~~the Consolidated Balance ~~Sheet~~Sheets. 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~~the Consolidated Balance Sheet and are expensed on a straight-line basis over the lease term in ~~our~~the Consolidated ~~Statement~~Statements 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 nine~~ months ended ~~June~~January 272, ~~2020~~2021 and December 28, 2019, rent expense was $2,~~731~~583 and $72,~~724~~818, 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~~	~~June 27, 2020~~Classification		~~September 29, 2019~~		January 2, 2021		October 3, 2020
Assets
Operating leases	~~Other long-term assets~~	$Other long-term assets	~~20,043~~	$	~~20,356~~	$	16,176	$	18,522
Finance leases	~~Other long-term assets 1~~	~~1,013~~Other long-term assets		~~1,436~~		783		956
Total leased assets		$	~~21,056~~	$	~~21,792~~	$	16,959	$	19,478
Liabilities
Current
Operating leases	~~Other accrued liabilities~~	$Other accrued liabilities	~~7,684~~	$	~~7,447~~	$	6,181	$	7,014
Finance leases	~~Other accrued liabilities 2~~	~~506~~Other accrued liabilities		~~570~~		441		445
Non-current
Operating leases	~~Other long-term liabilities~~	~~12,359~~Other long-term liabilities		~~12,909~~		9,995		11,508
Finance leases	~~Other long-term liabilities 2~~	~~507~~Other long-term liabilities		~~866~~		342		511
Total lease liabilities		$	~~21,056~~	$	~~21,792~~	$	16,959	$	19,478

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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:

	Nine Months Ended
			Three Months Ended
	June 27, 2020
			January 2, 2021		December 28, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	~~7,105~~	$	2,114	$	2,536
Operating cash flows from finance leases	46		7		17
Financing cash flows from finance leases	~~451~~		101		147
Operating leased assets obtained in exchange for new lease liabilities	$	~~2,705~~	$	304	$	1,116

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The weighted average remaining lease terms and weighted average discount rates are as follows:

	June 27, 2020
			January 2, 2021		December 28, 2019
Weighted average remaining lease term
Operating leases	~~4.7 years~~		4.8 years		4.4 years
Finance leases	~~2.3 years~~		2.2 years		2.2 years
Weighted average discount rate
Operating leases	~~3.2~~	%	3.3	%	3.3	%
Finance leases	~~3.9~~	%	3.6	%	5.0	%

Future lease payments under non-cancelable leases for the next five years and thereafter are as follows:

	June 27, 2020
			January 2, 2021
	~~Operating Leases~~		Operating Leases	~~Finance Leases~~		Finance Leases
Remainder of 2020	$	3,442		$	141
Remainder of 2021			$	5,357		$	348
2021	7,083			525
2022			4,419			278
2022	4,097			291
2023			3,006			122
2023	2,944			59
2024			2,224			58
2024	2,129			29
2025			927			—
2025	865			—
2026			494			—
Thereafter	~~1,913~~		1,566	—		—
Total lease payments	~~22,473~~		17,993	~~1,045~~		806
Less imputed interest	~~(2,430~~		(1,817)	~~(32~~		(23)
Total reported lease liability	$	~~20,043~~	$	$16,176	~~1,013~~	$	783

AsFuture lease payments presented above are based on information as of ~~June 27,~~January ~~2020~~2, we2021. ~~have~~Actual nofuture ~~material~~lease ~~additional~~payments ~~operating~~may orbe ~~finance~~different ~~leases~~due ~~that~~to ~~have~~fluctuations ~~not~~in ~~yet~~foreign ~~commenced~~currency exchange rates, the addition of new lease agreements or other factors.

16As of January 2, 2021, we have one material additional operating lease right that has not yet commenced in Asia with a future right-of-use asset and lease liability of $956 at the date of commencement. We have no material additional finance leases that have not yet commenced.

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Future minimum lease commitments under non-cancelable leases for the next five years and thereafter were as follows:

	September 28, 2019
	Operating Leases		CapitalLeases
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:

	June 27, 2020			September 28, 2019
				January 2,2021			October 3,2020
Land and improvements	$	~~3,957~~		$	3,~~949~~967		$	3,963
Buildings and improvements	~~72,927~~			6472,~~140~~076			75,689
Machinery and equipment	~~231,261~~			~~224~~231,~~684~~802			228,155
Assets held under capital leases 1	—			2,796
Total property and equipment				307,845			307,807
Total property and equipment	308,145			295,569
Less: Accumulated depreciation				(217,599)			(212,697)
Less: Accumulated depreciation	(207,985		)	(194,486		)
Total property and equipment, net				$	90,246		$	95,110
Total property and equipment, net	$	100,160		$	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~~Test & Simulation		~~Total~~		Sensors		Total
Balance, September 28, 2019	$	61,153	$	367,886	$	429,039
Balance, October 3, 2020 1			$	48,840			$	179,800	$	228,640
Acquisitions 2	35,794		32		35,826
Currency translation			1,948				35		1,983
Currency translation	1,093		20		1,113
Balance, January 2, 2021			$	50,788			$	179,835	$	230,623
Balance, June 27, 2020	$	98,040	$	367,938	$	465,978

~~2 See Note 16 for additional information regarding acquisitions.~~14

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1 Goodwill is net of impairment charges recorded in fiscal year 2020 of $53,344 in Test & Simulation and $188,174 in Sensors.

Intangible Assets

Intangible assets are as follows:

	June 27, 2020
			January 2, 2021
	~~Gross Carrying Amount~~		~~Accumulated~~Gross ~~Amortization~~Carrying Amount			~~Net Carrying Value~~		Accumulated Amortization		~~WeightedAverageUseful Life (in Years)~~	Net Carrying Value		WeightedAverageUseful Life (in Years)
Software development costs 3	$	49,666	$	(16,233	)	$	33,433			5.7
Software development costs 2			$	55,441				$	(16,365)		$	39,076	6.9
Technology and patents	~~68,457~~		~~(19~~59,~~121~~267		)	~~49,336~~		(20,360)		~~14.9~~	38,907		14.7
Trademarks and trade names	~~28,923~~		(425,~~928~~332		)	~~23,995~~		(5,229)		~~17.4~~	20,103		17.6
Customer lists	~~217,233~~		~~(44~~197,~~527~~403		)	~~172,706~~		(48,347)		~~15.6~~	149,056		15.7
Land-use rights	~~2,305~~		(1,~~152~~201		)	~~1,153~~		(997)		~~25.7~~	204		5.4
Other	~~7,975~~		(35,~~197~~291		)	~~4,778~~		(3,804)		~~1.9~~	1,487		1.7
Trade names	~~57,500~~		—44,100			~~57,500~~		—		~~Indefinite~~	44,100		Indefinite
Total intangible assets	$	~~432,059~~	$	~~(89~~388,~~158~~035	)	$	~~342,901~~	$	(95,102)	~~14.1~~	$	292,933	14.0

	September 28, 2019
			October 3, 2020
	~~Gross Carrying Amount~~		~~Accumulated~~Gross ~~Amortization~~Carrying Amount			~~Net Carrying Value~~		Accumulated Amortization		~~WeightedAverageUseful Life (in Years)~~	Net Carrying Value		WeightedAverageUseful Life (in Years)
Software development costs 3	$	39,546	$	(16,035	)	$	23,511			6.2
Software development costs 2			$	53,171				$	(16,299)		$	36,872	6.9
Technology and patents	~~63,015~~		~~(15~~58,~~739~~575		)	~~47,276~~		(19,033)		~~14.9~~	39,542		14.7
Trademarks and trade names	~~20,186~~		(324,~~808~~688		)	~~16,378~~		(4,752)		~~18.4~~	19,936		17.6
Customer lists	~~192,488~~		~~(34~~196,~~735~~251		)	~~157,753~~		(45,079)		~~15.6~~	151,172		15.7
Land-use rights	~~2,303~~		~~(968~~2,345		)	~~1,335~~		(1,223)		~~25.7~~	1,122		26.1
Other	~~3,606~~		~~(774~~5,070		)	~~2,832~~		(2,719)		~~4.0~~	2,351		1.7
Trade names	~~57,500~~		—44,100			~~57,500~~		—		~~Indefinite~~	44,100		Indefinite
Total intangible assets	$	~~378,644~~	$	~~(72~~384,~~059~~200	)	$	~~306,585~~	$	(89,105)	~~14.4~~	$	295,095	14.1

3 2 The gross carrying amount of software development costs as of ~~June 27~~January 2, ~~2020~~2021 and ~~September 28~~October 3, ~~2019~~2020 includes $3137,~~971~~736 and $2135,~~840~~466, 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~~

Three Months Ended

~~Nine Months Ended~~

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

January 2,2021

December 28,2019

Amortization expense

~~6,288~~

45,~~449~~655

~~17,343~~

4,785

~~12,668~~

Assessing goodwill, indefinite-lived intangible asset 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. Due to the uncertainty stemming from the COVID-19 pandemic, as described in Note 17, we ~~performed~~assessed awhether ~~qualitative~~there ~~assessment~~has ~~over~~been ~~our~~an ~~goodwill~~event ~~and~~or ~~indefinite-lived~~change ~~intangible~~in ~~asset~~circumstances tothat ~~determine~~would ~~whether~~indicate that it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit and indefinite-lived intangible asset were less than their carrying value. We determined that it was more likely than not that the fair value exceeds the carrying amount for all of our reporting units and our indefinite-lived intangible asset as of the end of the ~~third~~first quarter of fiscal year ~~2020~~2021. Therefore, a quantitative analysis was not necessary. In performing this assessment, we believe we have made reasonable accounting ~~estimates~~conclusions based on the facts and circumstances that were available as of the reporting date considering the ~~developing~~evolving situation resulting from the COVID-19 pandemic and the pending merger with Amphenol. 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.

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Estimated future amortization expense related to finite-lived intangible assets is as follows:

	~~Amortization Expense~~		Amortization Expense
Remainder of 2020	$	6,366
Remainder of 2021			$	16,611
2021	24,970
2022			21,738
2022	24,557
2023			21,636
2023	23,660
2024			21,398
2024	23,291
2025			21,210
2025	23,134
2026			20,942
Thereafter	~~159,423~~		125,298

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.

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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:

	June 27, 2020
			January 2, 2021
	~~Level 1~~		Level 21		~~Level 3~~		Level 2		~~Total~~		Level 3		Total
Assets
Currency contracts 1	$	—	$	~~170~~—	$	—	$	42	$	~~170~~	$	—	$	42
Cross currency swap 1	—		284		—				284
Total assets			—				42				—		42
Total assets	—		454		—				454
Liabilities
Liabilities
Currency contracts 1			—				789				—		789
Currency contracts 1	—		271		—				271
Cross currency swap 1			—				8,735				—		8,735
Contingent consideration 2	—		—		~~19,180~~		—		~~19,180~~		28,131		28,131
Total liabilities	$	—	$	~~271~~—	$	~~19,180~~	$	9,524	$	~~19,451~~	$	28,131	$	37,655

	September 28, 2019
			October 3, 2020
	~~Level 1~~		Level 21		~~Level 3~~		Level 2		~~Total~~		Level 3		Total
Assets
Currency contracts 1	$	—	$	~~907~~—	$	—	$	54	$	~~907~~	$	—	$	54
Total assets	—		~~907~~—		—		54		~~907~~		—		54
Liabilities
Currency contracts 1	—		~~251~~—		—		532		~~251~~		—		532
Total liabilities	$	—	$	251	$	—			$	251
Cross currency swap 1			—				4,165				—		4,165
Contingent consideration 2			—				—				26,497		26,497
Total liabilities			$	—			$	4,697			$	26,497	$	31,194

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 a discounted cash flow analysis 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 ~~June~~January 272, ~~2020~~2021 was a ~~noncurrent~~ contingent consideration liability related to achievement of revenue and value-creating milestones associated with the acquisition of the R&D entities described in Note 16. Changes to the contingent consideration are as follows:

Balance, September 28, 2019	$	—
Balance, October 3, 2020			$	26,497
Additions	16,903
Interest accretion			468
Fair value adjustments 3	1,301
Foreign currency translation			1,166
Interest accretion	895
Balance, January 2, 2021			$	28,131
Foreign currency translation	81
Balance, June 27, 2020	$	19,180

3 Changes in the fair value of the contingent consideration liability are recognized in general and administrative expense in the Consolidated Statements of Income in the period in which the fair value adjustment was determined.

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 cash flow models that contain certain Level 3 inputs requiring significant

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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 and changes in competition, revenue ~~and~~growth ~~margins~~rates, ~~changes~~gross inprofit ~~competition~~margins, operating ~~costs~~margins, capital expenditures, working capital requirements, ~~and~~terminal ~~new~~growth ~~product~~rates ~~introductions~~and discount rates. 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.

See Note 6 for additional information on goodwill, indefinite-lived intangible asset, other long-lived assets, 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:

	June 27, 2020
			January 2, 2021
	~~Carrying Value~~		~~Fair~~Carrying Value		~~Level 1~~		Fair Value		~~Level 2~~		Level 31		Level 2		Level 3
Tranche B term loan 4	$	~~170,245~~	$	~~166~~167,~~840~~945	$	—	$	169,204	$	~~166,840~~	$	—	$	169,204	$	—
Senior unsecured notes 4	~~350,000~~		~~325~~350,~~500~~000		—		379,313		~~325,500~~		—		379,313		—
Total debt	$	~~520,245~~	$	~~492~~517,~~340~~945	$	—	$	548,517	$	~~492,340~~	$	—	$	548,517	$	—

	September 28, 2019
			October 3, 2020
	~~Carrying Value~~		~~Fair~~Carrying Value		~~Level 1~~		Fair Value		~~Level 2~~		Level 31		Level 2		Level 3
Tranche B term loan 4	$	~~173,695~~	$	~~174~~169,~~563~~095	$	—	$	169,940	$	~~174,563~~	$	—	$	169,940	$	—
Senior unsecured notes 4	~~350,000~~		~~366~~350,~~625~~000		—		346,500		~~366,625~~		—		346,500		—
Total debt	$	~~523,695~~	$	~~541~~519,~~188~~095	$	—	$	516,440	$	~~541,188~~	$	—	$	516,440	$	—

4 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.

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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:

June 27, 2020

January 2, 2021

~~Prepaid Expensesand OtherCurrent Assets~~

~~Other~~Prepaid ~~AccruedLiabilities~~Expensesand OtherCurrent Assets

Other AccruedLiabilities

Designated hedge derivatives

Cash flow derivatives

~~170~~

~~162~~8

789

Cross currency swap

~~284~~

—

8,735

Total designated hedge derivatives

~~454~~

~~162~~8

9,524

Undesignated hedge derivatives

Balance sheet derivatives

—

~~109~~34

—

Total hedge derivatives

~~454~~

~~271~~42

9,524

	September 28, 2019
	Prepaid Expensesand OtherCurrent Assets		Other AccruedLiabilities
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

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	October 3, 2020
	Prepaid Expenses and Other Current Assets		Other Accrued Liabilities
Designated hedge derivatives
Cash flow derivatives	$	54	$	489
Cross currency swap	—		4,165
Total designated hedge derivatives	54		4,654
Undesignated hedge derivatives
Balance sheet derivatives	—		43
Total hedge derivatives	$	54	$	4,697

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:

	~~GrossRecognizedAmount~~		~~GrossOffsetAmount~~GrossRecognizedAmount		~~NetAmountPresented~~		GrossOffsetAmount		~~DerivativesSubject toOffset~~			~~CashCollateralReceived~~NetAmountPresented		~~NetAmount~~		DerivativesSubject toOffset		CashCollateralReceived		NetAmount
June 27, 2020
January 2, 2021
Assets	$	~~454~~	$	—8	$	~~454~~	$	—	$	~~(156~~	)	$	—8	$	~~298~~	$	(8)	$	—	$	—
Liabilities	~~162~~		—9,524		~~162~~		—		~~(156~~		)	—9,524		6		(8)		—		9,516
September 28, 2019
October 3, 2020
Assets	$	~~907~~	$	—54	$	~~907~~	$	—	$	~~(133~~	)	$	—54	$	~~774~~	$	(54)	$	—	$	—
Liabilities	~~133~~		—4,654		~~133~~		—		~~(133~~		)	—4,654		—		(54)		—		4,600

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.

22As of January 2, 2021 and October 3, 2020, we had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $25,452 and $24,983, 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 $20,525 and $23,874 as of January 2, 2021 and October 3, 2020, respectively. As of January 2, 2021, the net market value of the foreign currency exchange contracts was a net liability of $781, consisting of $8 in assets and $789 in liabilities. As of October 3, 2020, the net market value of the foreign currency exchange contracts was a net liability of $435, consisting of $54 in assets and $489 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
	January 2, 2021		December 28, 2019
Beginning unrealized net gain (loss) in AOCI	$	(335)	$	566
Net (gain) loss reclassified into revenue	511		(19)
Net gain (loss) recognized in OCI	(757)		(150)
Ending unrealized net gain (loss) in AOCI	$	(581)	$	397

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As of ~~June~~January 272, ~~2020 and September 28~~2021, 2019, we had outstanding cash flow hedge currency exchange contracts with gross notional U.S. dollar equivalent amounts of $28,652 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 ofprojected ~~contracts~~to ~~outstanding~~be ~~was~~reclassified ~~$26,729~~from ~~and~~AOCI ~~$38,177~~into asearnings ofin ~~June 27, 2020 and September 28, 2019, respectively. As of June 27, 2020,~~ the ~~net~~next ~~market~~12 ~~value~~months ~~of the foreign currency exchange contracts~~ was a net ~~asset~~loss of $~~8, consisting of $170 in assets and $162 in liabilities~~581. AsThe ofmaximum ~~September 28,~~remaining ~~2019,~~maturity ~~the net market value~~ of ~~the~~any ~~foreign~~forward ~~currency~~or ~~exchange~~optional ~~contracts~~contract ~~was~~as ~~a net asset~~ of ~~$774~~January 2, ~~consisting~~2021 ofwas ~~$907~~1.0 ~~in assets and $133 in liabilities~~year.

	Three Months Ended						Nine Months Ended
	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Beginning unrealized net gain (loss) in AOCI	$	348		$	192		$	566		$	672
Net (gain) loss reclassified into revenue	(151		)	(142		)	(486		)	(743		)
Net gain (loss) recognized in OCI	(271		)	(46		)	(154		)	75
Ending unrealized net gain (loss) in AOCI	$	(74	)	$	4		$	(74	)	$	4

As of June 27, 2020, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net loss of $53. The maximum remaining maturity of any forward or optional contract as of June 27, 2020 was 1.2 years.

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~~			Three Months Ended			~~Nine Months Ended~~
	June 27, 2020			June 29, 2019			June 27, 2020				June 29, 2019
				January 2,2021					December 28,2019
Beginning unrealized net gain (loss) in AOCI	$	~~542~~		$	~~3,684~~193		$	~~1,079~~	$	1,079	$	~~7,411~~
Net (gain) loss reclassified into interest expense	~~(192~~		)	(~~695~~193)		)	~~(729~~		(301)		~~(1,988~~		)
Net gain (loss) recognized in OCI	—			~~(1,325~~—		)	—		—		~~(3,759~~		)
Ending unrealized net gain (loss) in AOCI	$	~~350~~		$	~~1,664~~—		$	~~350~~	$	778	$	~~1,664~~

As of June 27, 2020, the amount projected to be reclassified from AOCI into earnings in the next 12 months was a net gain of $350.

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 ~~June~~January 272, ~~2020~~2021 and ~~September~~October 283, ~~2019~~2020, we had outstanding foreign currency balance sheet derivative contracts with gross notional U.S. dollar equivalent amounts of $6762,~~066~~188 and $6061,~~827~~984, 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 asat ~~of June~~January 272, ~~2020~~2021 and ~~September~~October 283, ~~2019~~2020 was $314,~~792~~717 and $~~118~~10,644, respectively. As of ~~June~~January 272, ~~2020~~2021 and ~~September~~October 283, ~~2019~~2020, the net market value of the foreign exchange balance sheet derivative contracts was a net ~~liability~~asset of $~~109~~34 and a net liability of $~~118~~43, respectively.

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The net gain (loss) recognized in the Consolidated Statements of Income on foreign exchange balance sheet derivative contracts is as follows:

~~Three Months Ended~~

Three Months Ended

~~Nine Months Ended~~

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

January 2,2021

December 28,2019

Net gain (loss) recognized in other income (expense), net

~~(58~~

)

~~218~~(323)

~~(464~~

(546)

~~(170~~

)

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~~the Consolidated Balance Sheets. As of ~~June~~January 272, ~~2020~~2021, the deferred foreign currency activity associated with the net investment hedge was not considered material.

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NOTE 9 FINANCING

Long-term debt consists of the following:

	June 27, 2020			September 28, 2019
				January 2,2021			October 3,2020
Long-term debt
Tranche B term loan, 1.00% amortizing per year, maturing July 5, 2023	$	~~170,245~~		$	~~173~~167,~~695~~945		$	169,095
Revolving credit facility, non-current portion, expiring July 5, 2023	58,576			—
Revolving credit facility, expiring July 5, 20231				58,576			58,576
Senior unsecured notes, 5.75% coupon, maturing August 15, 2027	~~350,000~~			350,000			350,000
Capital lease obligations 1	—			1,436
Total long-term debt				576,521			577,671
Total long-term debt	578,821			525,131
Less: Unamortized underwriting discounts, commissions and other expenses				(7,693)			(8,341)
Less: Unamortized underwriting discounts, commissions and other expenses	(8,955		)	(10,313		)
Less: Current maturities of tranche B term loan debt 2,3				(4,600)			(4,600)
Less: Current maturities of tranche B term loan debt 2, 3	(4,600		)	(29,600		)
Less: Current maturities of revolving credit facility				(23,000)			(23,000)
Less: Current maturities of capital lease obligations 1, 2	—			(570		)
Total long-term debt, less current maturities, net				$	541,228		$	541,730
Total long-term debt, less current maturities, net	$	565,266		$	484,648

1 Excludes ~~Capital~~short-term ~~lease~~borrowings ~~obligations~~in ~~were~~the ~~reclassified~~Consolidated ~~from~~Balance ~~long-term~~Sheets ~~debt,~~of ~~less current maturities~~$10,000 ~~net~~ and ~~current~~$17,000 ~~maturities~~as of ~~long-term debt~~January 2, ~~net~~2021 ~~to other accrued liabilities~~ and ~~other~~October 3, ~~long-term~~2020, ~~liabilities~~respectively, inutilized ~~the Consolidated Balance Sheets~~ as part of ~~the~~working ~~adoption~~capital ofand ~~the~~other ~~new~~general ~~lease~~corporate ~~standard in the first quarter of fiscal year 2020~~purposes. ~~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,~~770~~743 and $21,~~201~~757 as of ~~June 27~~January 2, ~~2020~~2021 and ~~September 28~~October 3, ~~2019~~2020, respectively.

3 As of ~~June 27~~January 2, ~~2020~~2021 and ~~September 28~~October 3, ~~2019~~2020, 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% annually 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 ~~nine~~three months ended December 28, 2019, 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.

24In the fourth quarter of fiscal year 2020, we entered into a fifth amendment to the Credit Agreement, which governs the Term Facility and Revolving Credit Facility, to increase the maximum leverage ratio to 6.0x through March 31, 2021 with step downs thereafter. In addition, we amended the interest coverage ratio to maintain 3.0x through March 31, 2021 with subsequent revisions thereafter. This amendment was completed to maximize flexibility and available liquidity under our current capital structure in the event we would need to access additional funds. As of January 2, 2021 and October 3, 2020, we were in compliance with these financial covenants.

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 is not less than 1.75% per annum. The Applicable Rate for any ABR Revolving Loans will be based

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~~June~~upon ~~27,~~the ~~2020,~~leverage weratio ~~incurred~~applicable ~~debt~~on ~~financing~~such ~~costs~~date. ofAs ~~$577 as a result~~ of ~~this~~January 2, ~~amendment~~2021, ~~which~~the ~~were~~Applicable ~~capitalized~~Rate infor ~~prepaid~~ABR ~~and~~Term ~~other~~Loans ~~current~~was ~~assets~~2.25% ~~and~~per ~~other long-term assets in the Consolidated Balance Sheets~~annum.

~~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~~Adjusted LIBOR Rate plus the Applicable Rate. ~~(as~~The ~~defined~~Adjusted inLIBOR ~~the~~Rate ~~Credit~~is ~~Agreement).~~defined ~~The~~as ~~ABR~~an isinterest ~~defined~~rate asper ~~the~~annum ~~greater~~equal ofto (a) the ~~Prime~~LIBOR Rate ~~(as~~for ~~defined~~such ininterest ~~the~~period ~~Credit~~multiplied ~~Agreement)~~by ~~in effect on such day,~~ (b) the ~~New~~Statutory ~~York Federal~~ Reserve ~~Bank~~Rate (~~NYFRB) rate (~~as defined in the Credit Agreement). inThe ~~effect~~Applicable onRate ~~such~~for ~~day~~any ~~plus~~Eurocurrency ½Revolving ofLoan ~~1.00%,~~is orbased ~~(c)~~upon the ~~Adjusted~~leverage ~~LIBOR~~ratio ~~(as~~applicable ~~defined in the Credit Agreement) for a one-month interest period in dollars~~ on such ~~day plus 1~~date.~~00%.~~ The ~~ABR~~Adjusted LIBOR Rate for ~~ABR~~Eurocurrency Term Loans is not less than 10.75% per annum. ~~The~~Based ~~Applicable~~on ~~Rate~~our ~~for~~leverage ~~any~~ratio ~~ABR~~as ~~Revolving~~of ~~Loans~~January 2, ~~will~~2021, bethe ~~based~~Applicable ~~upon~~Rate ~~the~~for ~~leverage~~Eurocurrency ~~ratio~~Revolving ~~applicable~~Loans onwas ~~such date~~3.25%. As of ~~June~~January 272, ~~2020~~2021, the Applicable Rate for ~~ABR~~Eurocurrency Term Loans was 23.25% per annum, plus the applicable Adjusted LIBOR Rate of 0.75%. The weighted average interest rate on the Term Facility debt during the three months ended January 2, 2021 was 4.00%.

~~Eurocurrency~~We ~~Borrowings~~had ~~made~~$68,576 ~~under~~and ~~the~~$75,576 ~~Credit~~of ~~Agreement~~outstanding ~~bear~~borrowings ~~interest~~under atthe aRevolving ~~rate~~Credit ~~per~~Facility ~~annum~~as ~~equal~~of toJanuary 2, ~~the~~2021 ~~Adjusted~~and ~~LIBOR~~October 3, ~~Rate~~2020, ~~plus~~respectively, ~~the~~which ~~Applicable~~is ~~Rate.~~included ~~The~~in ~~Adjusted~~short-term ~~LIBOR~~borrowings ~~Rate~~and islong-term ~~defined~~debt, asless ancurrent ~~interest~~maturities, ~~rate~~net ~~per~~in ~~annum~~the ~~equal~~Consolidated toBalance ~~(a)~~Sheets. ~~the~~We ~~LIBOR~~had ~~Rate~~outstanding ~~for~~letters ~~such~~of ~~interest~~credit ~~period~~drawn ~~multiplied~~from bythe ~~(b)~~Revolving ~~the~~Credit ~~Statutory~~Facility ~~Reserve~~totaling ~~Rate~~$27,502 ~~(as~~and ~~defined~~$27,895 inas ~~the~~of ~~Credit~~January 2, ~~Agreement).~~2021 ~~The~~and ~~Applicable~~October 3, ~~Rate~~2020, ~~for~~respectively, ~~any~~leaving ~~Eurocurrency~~approximately ~~Revolving~~$103,922 ~~Loan~~and is$96,529, ~~based~~respectively, ~~upon~~of ~~the~~unused ~~leverage~~borrowing ~~ratio~~capacity. ~~applicable~~Commitment onfees ~~such~~are ~~date.~~payable ~~The~~on ~~Adjusted~~the ~~LIBOR~~unused ~~Rate~~portion ~~for~~of ~~Eurocurrency~~the ~~Term~~Revolving ~~Loans~~Credit isFacility ~~not~~at ~~less~~rates ~~than~~between 0.7520% ~~per~~and ~~annum~~0.45% ~~Based~~based on our leverage ratio. asDuring ~~of June 27, 2020,~~ the ~~Applicable~~three ~~Rate~~months ~~for~~ended ~~Eurocurrency~~January ~~Revolving Loans was~~ 2~~.75%.~~, As2021 ofand ~~June~~December 2728, ~~2020~~2019, ~~the~~commitment ~~Applicable~~fees ~~Rate~~incurred ~~for~~totaled ~~Eurocurrency~~$115 ~~Term~~and ~~Loans was 3.25% per annum~~$100, ~~plus the applicable Adjusted LIBOR Rate of 0~~respectively.~~75%.~~ The weighted average interest rate on ~~Term~~the Revolving Credit Facility ~~debt~~outstanding balance during the ~~nine~~three months ended ~~June~~January 272, ~~2020~~2021 was 4.7206%.

AsThe ofCredit ~~June 27,~~Agreement ~~2020,~~governing ~~there was $85,576 of outstanding borrowings under~~ the ~~Revolving~~Term ~~Credit~~ Facility ~~which~~requires isus ~~included~~to inprepay ~~short-term~~outstanding ~~borrowings and long-~~term ~~debt~~loans, ~~less~~subject ~~current~~to ~~maturities~~certain exceptions, ~~net~~depending inon the ~~Consolidated~~leverage ~~Balance~~ratio ~~Sheets.~~with As(a) up to 50% of ~~September 28,~~the ~~2019,~~annual ~~there~~Excess ~~were~~Cash noFlow ~~outstanding~~(as ~~borrowings~~defined ~~under~~in the ~~Revolving~~ Credit ~~Facility.~~Agreement) Weand ~~had~~(b) ~~outstanding~~100% ~~letters~~ of ~~credit~~the ~~drawn~~net ~~from~~cash ~~the~~proceeds ~~Revolving~~of ~~Credit~~(i) ~~Facility~~certain ~~totaling~~asset ~~$24,961~~sales and ~~$21,173~~casualty asand ofcondemnation ~~June 27~~events, ~~2020~~subject ~~and~~to ~~September 28,~~reinvestment ~~2019,~~rights ~~respectively,~~and ~~leaving~~certain ~~approximately~~other ~~$89,463~~exceptions; and ~~$128,827,~~(ii) ~~respectively,~~any ofincurrence ~~unused~~or ~~borrowing~~issuance ~~capacity.~~of ~~Commitment~~certain ~~fees~~debt, ~~are~~other ~~payable~~than ondebt ~~the~~permitted ~~unused~~under ~~portion of~~ the ~~Revolving~~ Credit ~~Facility at rates between 0~~Agreement.~~20%~~ ~~and~~We ~~0.35%~~may ~~based~~voluntarily onprepay ~~our~~outstanding ~~leverage~~loans ~~ratio.~~under ~~During~~ the ~~three~~Term ~~months~~Facility ~~ended~~at ~~June~~any ~~27,~~time ~~2020~~without ~~and~~premium ~~June 29,~~or ~~2019,~~penalty. ~~commitment~~All ~~fees~~obligations ~~incurred~~under ~~totaled~~the ~~$66~~Credit ~~and~~Agreement ~~$52,~~are ~~respectively.~~unconditionally ~~During~~guaranteed ~~the~~by ~~nine~~certain ~~months~~of ~~ended~~our ~~June~~existing ~~27,~~wholly-owned ~~2020~~domestic subsidiaries, and ~~June 29,~~are ~~2019~~secured, ~~commitment~~subject ~~fees~~to ~~incurred~~certain ~~totaled $257 and $176~~exceptions, ~~respectively.~~by ~~The~~substantially ~~weighted~~all ~~average~~of ~~interest~~our ~~rate~~assets onand the ~~Revolving~~assets ~~Credit~~of ~~Facility~~our ~~outstanding~~subsidiary ~~balance during the nine months ended June 27, 2020 was 4~~guarantors.~~25%.~~

~~The~~Under the Credit Agreement, ~~governing~~we ~~the~~are ~~Term~~subject ~~Facility~~to ~~requires~~customary usaffirmative toand ~~prepay~~negative ~~outstanding~~covenants, ~~term loans~~including, ~~subject~~among ~~to certain exceptions~~others, ~~depending~~restrictions on ~~the~~our ~~leverage~~ability ~~ratio~~to ~~with~~incur ~~(a)~~debt, upcreate toliens, ~~50%~~dispose of ~~the~~assets, ~~our~~make ~~annual~~investments, ~~Excess~~loans, ~~Cash~~advances, ~~Flow~~guarantees, ~~(as~~and ~~defined~~acquisitions, inenter ~~the~~into ~~Credit~~transactions ~~Agreement)~~with affiliates, and ~~(b)~~enter ~~100%~~into ofany ~~the~~restrictive ~~net~~agreements ~~cash~~and ~~proceeds~~customary events of default (i)including ~~certain~~payment ~~asset~~defaults, ~~sales~~covenant ~~and casualty and condemnation events~~defaults, ~~subject~~change toof ~~reinvestment~~control ~~rights~~defaults and ~~certain~~bankruptcy ~~other exceptions; and (ii~~defaults). ~~any~~The ~~incurrence~~Credit orAgreement ~~issuance~~also ofcontains ~~certain~~financial ~~debt~~covenants, ~~other~~including ~~than debt permitted under~~ the ~~Credit~~ratio ~~Agreement.~~of Weconsolidated ~~may~~total ~~voluntarily~~indebtedness ~~prepay~~to ~~outstanding~~adjusted ~~loans~~consolidated ~~under~~earnings ~~the~~before ~~Term~~income, ~~Facility~~taxes, atdepreciation ~~any~~and ~~time~~amortization ~~without~~(Adjusted ~~premium~~EBITDA), oras ~~penalty.~~defined ~~All~~in ~~obligations under~~ the Credit Agreement, ~~are~~as ~~unconditionally~~well ~~guaranteed~~as bythe ~~certain~~ratio of ~~our~~Adjusted ~~existing~~EBITDA ~~wholly-owned~~to ~~domestic~~consolidated ~~subsidiaries,~~interest ~~and~~expense. ~~are~~These ~~secured,~~covenants ~~subject~~restrict toour ~~certain~~ability ~~exceptions,~~to bypurchase ~~substantially~~outstanding ~~all~~shares of our ~~assets~~common stock. As of January 2, 2021 and ~~the~~October 3, ~~assets~~2020, ofwe ~~our~~were ~~subsidiary~~in ~~guarantors~~compliance with these financial covenants.

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 June 27, 2020 and September 28, 2019, we were in compliance with these financial covenants.

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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 us 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.

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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 ~~June~~January 272, ~~2020~~2021, a total of ~~738~~883 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~~2021, ~~2019~~2020 and ~~2018~~2019, the annual stock grant occurred in December ~~2019,~~of ~~December~~each ~~2018~~fiscal ~~and April 2018, respectively~~year.

Stock Options

During the ~~nine~~three months ended ~~June~~January 272, ~~2020~~2021, ~~278~~no stock options were granted ~~at a weighted average fair value of $9~~.~~24.~~ During the ~~nine~~three months ended ~~June~~December 2928, 2019, ~~231~~263 stock options were granted at a weighted average fair value of $9.9132.

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 ~~nine~~three months ended ~~June~~January 272, ~~2020~~2021, we granted ~~159~~170 restricted stock units and 5341 performance restricted stock units to directors, officers and employees. During the ~~nine~~three months ended ~~June~~December 2928, 2019, we granted ~~129~~103 restricted stock units and 4049 performance restricted stock units. The fair value of the restricted stock units and performance restricted stock units granted during the ~~nine~~three months ended ~~June~~January 272, ~~2020~~2021 and ~~June~~December 2928, 2019 was $4053.3813 and $4644.6737, 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 ~~nine~~three months ended ~~June~~January 272, ~~2020 and June 29~~2021, ~~2019,~~ we issued 1437 ~~and 16~~ shares, ~~respectively,~~ under the 2012 ESPP at a weighted average price per share of $4014.8342. ~~and~~During ~~$34.11,~~the ~~respectively.~~three Asmonths ofended ~~June~~December 2728, ~~2020,~~2019 ~~567~~no shares were ~~available~~issued ~~for issuance~~ under the 2012 ESPP. Due to the pending acquisition between Amphenol and MTS, no further phases under the ESPP will occur beyond the phase ended December 31, 2020.

NOTE 11 INCOME TAXES

~~The~~On ~~Tax~~March ~~Cuts~~27, 2020, the Coronavirus Aid, Relief, and ~~Jobs~~Economic Security Act (~~the~~CARES ~~Tax~~ Act) was ~~enacted~~signed into law onto ~~December~~help ~~22,~~alleviate ~~2017~~the ~~and~~impact ~~made~~of ~~significant~~the ~~changes~~COVID-19 toglobal ~~U.S.~~pandemic ~~federal~~in ~~corporate~~the ~~tax~~United ~~law~~States. ~~Effective~~Amongst ~~January~~other 1provisions, ~~2018,~~ the ~~Tax~~CARES Act ~~lowered~~allows ~~the~~taxpayers ~~U.S.~~to ~~corporate~~modify ~~tax~~their ~~rate~~IRC ~~from~~Section ~~35%~~163(j) tobusiness ~~21%~~interest ~~and~~limitation ~~prompted~~in ~~various~~a ~~other~~favorable ~~changes~~way tothat ~~U.S.~~allows ~~federal~~for ~~corporate~~the utilization of more interest deduction for tax ~~law,~~years ~~including~~2019 and 2020. We are analyzing the ~~establishment~~impacts of athese ~~territorial-style~~and ~~system~~other ~~for~~provisions of the CARES Act to take full advantage of possible tax savings.

26The effective tax rate of 33.4% for the three months ended January 2, 2021 increased primarily due to certain discrete tax expenses of $443 for stock-based compensation activity and future limitations on the deductibility of officer compensation. Excluding the impact of certain discrete items, the effective tax rate for the three months ended January 2, 2021 would have been 16.3%, a decrease from the prior year period primarily driven by favorable global intangible low-taxed income (GILTI) regulations issued in July 2020.

As of January 2, 2021, the liability for unrecognized tax benefits was $5,338, of which $3,685 would favorably affect our effective tax rate, if recognized. As of October 3, 2020, the liability for unrecognized tax benefits was $4,819, of which $3,166 would favorably affect our effective tax rate, if recognized. As of January 2, 2021, we do not expect significant changes in the amount of unrecognized tax benefits during the next twelve months.

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~~taxing~~NOTE ~~foreign-source~~12 EARNINGS ~~income~~PER ~~of domestic multinational corporations and a one-time deemed repatriation tax on untaxed foreign earnings.~~ SHARE

~~Generally,~~Basic ~~the~~earnings ~~impacts~~per ofshare ~~new~~is ~~tax~~computed ~~legislation~~by ~~would~~dividing benet ~~required~~income toby bethe ~~recorded~~daily inweighted ~~the~~average ~~period~~number of ~~enactment,~~common ~~which~~shares ~~was~~outstanding ~~our~~during ~~first~~the ~~quarter~~applicable ofperiod. ~~fiscal~~Under ~~year~~the ~~2018.~~treasury ~~However~~stock method, inshares ~~March~~associated ~~2018,~~with certain stock options have been excluded from the ~~FASB~~diluted ~~issued~~weighted ~~ASU~~average ~~No.~~shares ~~2018-05,~~outstanding ~~Income~~calculation ~~Taxes~~because ~~(Topic~~the ~~740):~~exercise ~~Amendments~~of tothose ~~SEC~~options ~~Paragraphs~~would ~~Pursuant~~lead to ~~SEC~~a ~~Staff~~net ~~Accounting~~reduction ~~Bulletin~~in Nocommon shares outstanding or anti-dilution. ~~118~~As a result, ~~which~~stock ~~incorporates~~options ~~various~~to ~~SEC~~acquire ~~paragraphs~~805 ~~from~~and ~~Staff~~858 ~~Accounting~~weighted ~~Bulletin~~common ~~No.~~shares ~~118~~have ~~into~~been ~~income~~excluded ~~tax~~from ~~accounting~~the ~~guidance~~diluted ~~effective~~weighted ~~immediately,~~average ~~allowing~~common ~~registrants~~shares tooutstanding ~~record~~calculation ~~provisional~~for ~~amounts~~the ~~during~~three amonths ~~one-year~~ended ~~measurement~~January ~~period.~~2, 2021 and December 28, 2019, respectively.

OnBasic ~~March 27, 2020, the Coronavirus Aid, Relief,~~ and ~~Economic~~diluted ~~Security~~earnings ~~Act~~per ~~(CARES~~share Act) was signed into law to help alleviate the impact of the COVID-19 pandemic in the United States. Amongst other provisions, the CARES Act allows taxpayers to modify their IRC Section 163(j) business interest limitation in a favorable way that allows for the utilization of more interest deduction for tax years 2019 and 2020. We are ~~analyzing~~calculated ~~the~~as ~~impacts of these and other provisions of the CARES Act to take full advantage of possible tax savings.~~follows:

The effective tax rate for the nine months ended June 27, 2020 decreased primarily due to certain discrete tax benefits of $1,807 in the current year for finalization of the Tax Cuts and Jobs Act for the fiscal year ending September 28, 2019, offset by $405 of discrete tax expense for stock-based compensation expense and 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 nine months ended June 27, 2020 compared to the same prior year period remained relatively consistent.


	Three Months Ended
	January 2, 2021		December 28, 2019
Net income	$	1,715	$	5,306

Weighted average common shares outstanding	19,312		19,146
Effect of dilutive securities
Stock-based compensation	164		223

Weighted average dilutive common shares outstanding	19,476		19,369

Earnings per share
Basic	$	0.09	$	0.28
Diluted	0.09		0.27

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 nine months ended June 29, 2019 includes certain discrete tax benefits of $1,293 for Tax Act measurement period adjustments. The discrete tax 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 June 27, 2020, the liability for unrecognized tax benefits was $4,770, of which $3,117 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 June 27, 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 nine months ended June 29, 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 nine months ended June 29, 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 1,187 and 835 weighted common shares have been excluded from the diluted weighted average common shares outstanding calculation for the three months ended June 27, 2020 and June 29, 2019, respectively. Stock options to acquire 1,154 and 812 weighted common shares have been excluded from the diluted weighted average common shares outstanding calculation for the nine months ended June 27, 2020 and June 29, 2019, respectively.

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In connection with the pricing of the TEUs, we purchased capped calls. For the three and nine months ended June 29, 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				Nine Months Ended
	June 27, 2020		June 29, 2019		June 27, 2020		June 29, 2019
Net income (loss)	$	4,389	$	13,585	$	8,624	$	38,246
Weighted average common shares outstanding	19,229		19,297		19,189		19,255
Effect of dilutive securities
Stock-based compensation	86		223		160		181
Weighted average dilutive common shares outstanding	19,315		19,520		19,349		19,436
Earnings per share
Basic	$	0.23	$	0.70	$	0.45	$	1.99
Diluted	0.23		0.70		0.45		1.97

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~~			Three Months Ended							~~Nine Months Ended~~
	June 27, 2020
				January 2, 2021
	~~Pre-tax~~			~~Tax~~Pre-tax			~~Net~~		Tax		~~Pretax~~			~~Tax~~Net			~~Net~~
Foreign currency translation gain (loss) adjustments	$	~~3,974~~		$	—8,457		$	~~3,974~~	$	—	$	~~4,922~~		$	—8,457		$	~~4,922~~
Derivative instruments
Unrealized net gain (loss)	~~(930~~		)	~~205~~(5,327)			~~(725~~		)1,199		~~130~~			(334,128)		)	97
Net (gain) loss reclassified to earnings	~~(343~~		)	73318			~~(270~~		(72)		~~(1,215~~		)	~~269~~246			~~(946~~		)
Defined benefit pension plan
Unrealized net gain (loss)	~~301~~			~~(90~~952		)	~~211~~		(287)		~~(2,047~~		)	~~618~~665			~~(1,429~~		)
Net (gain) loss reclassified to earnings	~~302~~			~~(91~~278		)	~~211~~		(84)		~~905~~			~~(273~~194		)	~~632~~
Currency exchange rate gain (loss)	~~(197~~		)	—(437)			~~(197~~		)—		~~(324~~		)	—(437)			~~(324~~		)
Other comprehensive income (loss)	$	~~3,107~~		$	974,241		$	~~3,204~~	$	756	$	~~2,371~~		$	~~581~~4,997		$	~~2,952~~

2824

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	~~Three Months Ended~~			Three Months Ended							~~Nine Months Ended~~
	June 29, 2019
				December 28, 2019
	~~Pre-tax~~			~~Tax~~Pre-tax			~~Net~~		Tax		~~Pretax~~			~~Tax~~Net			~~Net~~
Foreign currency translation gain (loss) adjustments	$	~~506~~		$	—3,547		$	~~506~~	$	—	$	~~(2,165~~	)	$	—3,547		$	~~(2,165~~	)
Derivative instruments
Unrealized net gain (loss)	~~(1,371~~		)	~~297~~(150)			~~(1,074~~		)36		~~(3,684~~		)	~~802~~(114)			~~(2,882~~		)
Net (gain) loss reclassified to earnings	~~(837~~		)	~~182~~(320)			~~(655~~		)70		~~(2,731~~		)	~~595~~(250)			~~(2,136~~		)
Defined benefit pension plan
Unrealized net gain (loss)	~~600~~			~~(181~~550		)	~~419~~		(166)		~~(239~~		)	72384			~~(167~~		)
Net (gain) loss reclassified to earnings	~~134~~			~~(39~~302		)	95		(90)		~~408~~			~~(122~~212		)	~~286~~
Currency exchange rate gain (loss)	~~(82~~		)	—(182)			~~(82~~		)—		~~179~~			—(182)			~~179~~
Other comprehensive income (loss)	$	~~(1,050~~	)	$	~~259~~3,747		$	~~(791~~	)$	(150)	$	~~(8,232~~	)	$	13,~~347~~597		$	~~(6,885~~	)

	Three Months Ended												Nine Months Ended
	June 27, 2020
	Adjustments												Adjustments
	ForeignCurrencyTranslation			UnrealizedDerivativeInstrument			DefinedBenefitPension Plan			Total			ForeignCurrencyTranslation			UnrealizedDerivativeInstrument			DefinedBenefitPension Plan			Total
Beginning balance	$	(7,260	)	$	1,420		$	(12,885	)	$	(18,725	)	$	(8,208	)	$	1,274		$	(11,539	)	$	(18,473	)
Other comprehensive net gain (loss) reclassifications	3,974			(725		)	14			3,263			4,922			97			(1,753		)	3,266
Net (gain) loss reclassified to earnings	—			(270		)	211			(59		)	—			(946		)	632			(314		)
Other comprehensive income (loss)	3,974			(995		)	225			3,204			4,922			(849		)	(1,121		)	2,952
Ending balance	$	(3,286	)	$	425		$	(12,660	)	$	(15,521	)	$	(3,286	)	$	425		$	(12,660	)	$	(15,521	)

The changes in the net-of-tax balances of each component of AOCI are as follows:

	~~Three Months Ended~~			Three Months Ended										~~Nine Months Ended~~
	June 29, 2019
				January 2, 2021
	~~Adjustments~~			Adjustments										~~Adjustments~~
	~~ForeignCurrencyTranslation~~			~~UnrealizedDerivativeInstrument~~ForeignCurrencyTranslation			~~DefinedBenefitPension Plan~~		UnrealizedDerivativeInstrument		~~Total~~			~~ForeignCurrencyTranslation~~DefinedBenefitPension Plan			~~UnrealizedDerivativeInstrument~~		Total		~~DefinedBenefitPension Plan~~			~~Total~~
Beginning balance	$	~~(899~~	)	$	38,~~031~~778		$	~~(6,750~~	)$	(3,339)	$	~~(4,618~~	)	$	1(10,~~772~~420)		$	~~6,320~~	$	(4,981)	$	~~(6,616~~	)	$	~~1,476~~
Other comprehensive net gain (loss) reclassifications	~~506~~			(18,~~074~~457		)	~~337~~		(4,128)		~~(231~~		)	~~(2,165~~228		)	~~(2,882~~		)4,557		12			~~(5,035~~		)
Net (gain) loss reclassified to earnings	—			~~(655~~—		)	95		246		~~(560~~		)	—194			~~(2,136~~		)440		~~286~~			~~(1,850~~		)
Other comprehensive income (loss)	~~506~~			(18,~~729~~457		)	~~432~~		(3,882)		~~(791~~		)	~~(2,165~~422		)	~~(5,018~~		)4,997		~~298~~			~~(6,885~~		)
Ending balance	$	~~(393~~	)	$	117,~~302~~235		$	~~(6,318~~	)$	(7,221)	$	~~(5,409~~	)	$	(~~393~~9,998)	)	$	~~1,302~~	$	16	$	~~(6,318~~	)	$	~~(5,409~~	)


	Three Months Ended
	December 28, 2019
	Adjustments
	Foreign Currency Translation		Unrealized Derivative Instrument		Defined Benefit Pension Plan		Total
Beginning balance	$	(8,208)	$	1,274	$	(11,539)	$	(18,473)
Other comprehensive net gain (loss) reclassifications	3,547		(114)		202		3,635
Net (gain) loss reclassified to earnings	—		(250)		212		(38)
Other comprehensive income (loss)	3,547		(364)		414		3,597
Ending balance	$	(4,661)	$	910	$	(11,125)	$	(14,876)

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The effect on certain line items in the Consolidated Statements of Income of amounts reclassified out of AOCI are as follows:

~~Three Months Ended~~

Three Months Ended

~~Nine Months Ended~~

~~Affected Line Item in theConsolidated Statementsof Income~~

Affected Line Item in theConsolidated Statementsof Income

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

January 2,2021

December 28,2019

Derivative instruments

Currency exchange contracts gain (loss)

~~151~~

~~142~~(511)

~~486~~

~~743~~

~~Revenue~~

Revenue

Interest rate swap contracts gain (loss)

~~192~~

~~695~~193

~~729~~

301

~~1,988~~

~~Interest expense, net~~

Interest expense, net

Income tax benefit (expense)

~~(73~~

)

~~(182~~72

)

~~(269~~

(70)

~~(595~~

)

~~Income tax provision (benefit)~~

Income tax provision (benefit)

Total net gain (loss) on derivative instruments

~~270~~

~~655~~(246)

~~946~~

250

~~2,136~~

~~Net income (loss)~~

Net income (loss)

Defined benefit pension plan

Actuarial loss

~~(302~~

)

(~~134~~278)

)

~~(905~~

(302)

~~(408~~

)

~~Other income (expense), net~~

Other income (expense), net

Income tax benefit

3984

~~273~~

~~122~~

~~Income tax provision (benefit)~~

Income tax provision (benefit)

Total net loss on pension plan

~~(211~~

)

(95194)

)

~~(632~~

(212)

~~(286~~

)

~~Net income (loss)~~

Net income (loss)

Total net of tax reclassifications out of AOCI included in net income

~~560~~(440)

~~314~~

~~1,850~~

NOTE 14 BUSINESS SEGMENT INFORMATION

Our ~~Interim~~ Chief Executive Officer (the Chief Operating Decision Maker) regularly reviews financial information for our two ~~reportable~~operating segments, Test & Simulation and Sensors. Test & Simulation manufactures and sells ~~equipment~~testing and ~~related~~simulation solutions including hardware, software and services ~~which~~that are used by customers in product development to characterize a product's mechanical properties oralong ~~performance~~with orsimulation ~~create~~systems afor ~~desired~~ human ~~experience~~response features. Sensors manufactures and sells ~~high-performance~~precision sensors ~~which~~that provide measurements of vibration, pressure, position, force and sound in a variety of applications.

In evaluating each segment's performance, our ~~Interim~~ 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~~October 283, ~~2019~~2020.

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.

	Three Months Ended						Nine Months Ended
	June 27, 2020			June 29, 2019			June 27, 2020			June 29, 2019
Revenue
Test & Simulation	$	116,404		$	148,328		$	362,631		$	424,920
Sensors	80,222			84,231			251,955			244,556
Intersegment eliminations	(401		)	(350		)	(1,055		)	(1,040		)
Total revenue	$	196,225		$	232,209		$	613,531		$	668,436
Income (Loss) from operations
Test & Simulation1	$	(292	)	$	11,424		$	5,899		$	31,439
Sensors	12,935			11,556			29,873			33,694
Intersegment eliminations	—			21			(1		)	8
Total income from operations 1	$	12,643		$	23,001		$	35,771		$	65,141

Financial information by reportable segment is as follows:


	Three Months Ended
	January 2, 2021		December 28, 2019
Revenue
Test & Simulation	$	113,223	$	120,730
Sensors	85,803		85,535
Intersegment eliminations	(222)		(422)
Total revenue	$	198,804	$	205,843

Income (Loss) from operations
Test & Simulation	$	(2,951)	$	6,996
Sensors	7,581		8,159
Intersegment eliminations	1		3
Total income from operations	$	4,631	$	15,158

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1 Test & Simulation Income (Loss) from operations for the three and nine months ended June 27, 2020 includes $2,745 and $8,883 of pre-tax severance and related expense, respectively. 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 three ~~and nine~~ months ended ~~June~~January 272, ~~2020~~2021, we recorded $~~734~~672 of pre-tax severance and $6related expense. As of January 2,~~872~~ 2021, ~~respectively~~we have incurred a total of $6, 227 of pre-tax severance and related expense, ~~respectively~~since this action was initiated. WeIn fiscal year 2021, we expect to incur ~~a total of~~ approximately $~~7,000~~700 to $101,~~000~~100 of additional pre-tax severance and related expense and facility closure costs related to these actions ~~throughout fiscal year 2020 and 2021~~. The majority of the remaining unpaid expenses are expected to be paid in the second ~~half~~and third quarters of fiscal year 2021.

In the third quarter of fiscal year 2020, we initiated an additional workforce reduction within Test & Simulation to reduce the overall cost structure in response to COVID-19. AsThese arestructuring ~~result,~~activities ~~during~~resulted ~~the~~in ~~three~~severance and ~~nine~~related ~~months~~pre-tax ~~ended~~expense ~~June 27,~~of ~~2020, we recorded~~ $2,~~011~~028 ofin ~~pre-tax~~fiscal ~~severance~~year ~~and related expense~~2020. As of ~~June~~January 272, ~~2020~~2021, substantially all expenses have been paid.

In the fourth quarter of fiscal year 2020, we initiated further global workforce reductions within Test & Simulation, including a product rationalization of certain product lines in China designed to increase organizational effectiveness, gain operational efficiencies, improve profitability and provide permanent cost savings in response to COVID-19. As a result, during the three months ended January 2, 2021, we recorded $306 of pre-tax severance and related expense. As of January 2, 2021, we have incurred a total of $4,571 of pre-tax severance and related expense since this action was initiated. We expect to incur approximately $50 of additional pre-tax and related expense in the second quarter of fiscal year 2021. The majority of the remaining unpaid 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 Months Ended~~

~~Nine~~Three Months Ended

June 27, 2020

January 2, 2021

~~Test & Simulation~~

Test & Simulation

Cost of sales

~~2,192~~

~~6,060~~594

Selling and marketing

~~686~~

~~686~~257

General and administrative

~~(183~~

)

~~2,087~~127

Research and development

50—

Total restructuring expense

~~2,745~~

~~8,883~~978

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~~			Test &Simulation
Balance, September 28, 2019	$	—
Balance, October 3, 2020				$	8,516
Restructuring expense	~~8,883~~			978
Payments	~~(2,332~~		)	(4,390)
Other adjustments	~~187~~			—
Currency translation	—			—
Balance, June 27, 2020	$	6,738
Balance, January 2, 2021				$	5,104

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~~373. 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 and further impacted by fluctuations in exchange rates. As of the acquisition date, we estimated the fair value of the earn-out liability (contingent consideration) to be $16,903. As of ~~June 27~~January 2, ~~2020~~2021, the fair value of the contingent consideration was $19,180. See Note 7 for addition information on the fair value of the contingent consideration. 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 nine months ended June 27, 2020, we included $14,105 and $28,813, respectively, of revenue from R&D in our Consolidated Statements of Income. Costs of $2,493 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.

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~~The~~$28,131. ~~following~~See ~~table~~Note ~~summarizes~~7 ~~the~~for ~~preliminary~~addition information on the fair value ~~measurement~~of the contingent consideration. Based in Denmark, R&D is a leader in high-quality, durable, rotating test systems, serving primarily the wind energy markets. During the three months ended January 2, 2021, we included $21,601 of revenue from R&D in our Consolidated Statements of Income. Costs of $748 associated with the ~~assets~~acquisition ~~acquired~~of R&D were expensed as incurred during the three months ended January 2, 2021. Pro forma information related to the acquisition of R&D has not been included as the ~~date~~impact on our consolidated results of ~~acquisition:~~operations was not considered material.

	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	24,364			15
Trademarks and trade names	8,546			15
Technology	5,083			10
Other intangible assets	4,258			1
Other long-term assets	3,122
Purchased goodwill	35,794
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	(10,138		)
Other long-term liabilities	(2,230		)
Net assets acquired	$	66,265
Supplemental information
Consideration paid at closing	$	58,280
Estimated contingent consideration	16,903
Less: Cash acquired	(8,918		)
Purchase price, net of cash acquired	$	66,265

The following table summarizes the fair value measurement of the assets acquired as of the date of acquisition:

The allocation of purchase price consideration is considered preliminary as of June 27, 2020 with provisional amounts related to accounts receivable, unbilled accounts receivable, 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. Measurement period adjustments were recorded in the third quarter of fiscal year 2020 and have been reflected in the table above. The measurement period adjustments were not material.


	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	24,364		15
Trademarks and trade names	8,546		15
Technology	5,083		10
Other intangible assets	4,258		1
Other long-term assets	3,122
Purchased goodwill	35,887
Accounts payable	(12,592)
Accrued payroll and related costs	(2,193)
Advanced payments from customers	(3,203)
Accrued income taxes	(12)
Other accrued liabilities	(5,074)
Deferred income taxes	(11,239)
Other long-term liabilities	(2,230)
Net assets acquired	$	66,358

Supplemental information
Consideration paid at closing	$	58,373
Estimated contingent consideration	16,903
Less: Cash acquired	(8,918)
Purchase price, net of cash acquired	$	66,358

The allocation of purchase price consideration was completed as of January 2, 2021. Measurement period adjustments were recorded in the first quarter of fiscal year 2021 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 Test & Simulation. None of the goodwill is deductible for income tax purposes.

~~The fair value of the acquired intangible assets was $42,251. The acquired intangible assets are being amortized on a straight-line basis over the useful lives identified in the table above.~~28

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~~Endevco~~The ~~Acquisition~~fair value of the acquired intangible assets was $42,251. The acquired intangible assets are being amortized on a straight-line basis over the useful lives identified in the table above.

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 nine months ended June 27, 2020, we included approximately $5,000 and $12,500, 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 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.

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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.,

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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~~We ~~extent~~continue to ~~which COVID-19~~monitor the impacts ~~our~~of ~~business,~~COVID-19 ~~operations and~~on ~~financial~~the ~~results will~~fair ~~depend~~value onof ~~numerous~~our ~~evolving~~assets. ~~factors~~While ~~that~~ we ~~may~~do ~~or may~~ not becurrently ~~able~~anticipate toany ~~accurately~~additional ~~predict,~~material ~~including:~~impairments ~~the~~on ~~duration~~assets ~~and~~from ~~scope~~those ofrecognized in the ~~pandemic;~~fourth ~~governmental,~~quarter ~~business~~of ~~and~~fiscal ~~individual~~year ~~actions~~2020 ~~that~~as ~~have~~a ~~been~~result ~~and~~of ~~continue~~COVID-19, tofuture bechanges ~~taken~~ in ~~response~~sales, toearnings ~~the~~and ~~pandemic;~~cash ~~the~~flows ~~impact~~related ofto ~~the~~goodwill, ~~pandemic~~indefinite-lived onintangible ~~economic~~asset ~~activity~~ and ~~actions~~long-lived ~~taken~~assets incould ~~response;~~cause ~~the~~these ~~effect~~assets onto ~~our~~become ~~customers'~~impaired. ~~demand~~We ~~for~~anticipate ~~our~~the ~~goods~~challenges ~~and~~posed ~~services;~~by ~~our~~COVID-19 ~~vendors'~~will ~~ability~~continue to ~~supply~~negatively usimpact ~~with raw materials;~~ our ~~ability~~fiscal toyear ~~sell~~2021 ~~and~~revenue ~~provide our goods~~ and ~~services~~operating ~~amidst travel restrictions~~results; however, the ~~ability~~future ofimpact ~~our~~COVID-19 ~~customers~~will tohave ~~pay~~on ~~for~~ our ~~goods~~business, ~~and~~operations ~~services;~~ and ~~any~~financial ~~further~~results ~~closures~~remains ofunknown ~~our~~at ~~facilities~~this ortime, ~~the facilities of our customers. Customers have~~ and ~~may~~we ~~continue~~remain unable to ~~slow~~accurately ~~down~~quantify ~~decision-making,~~the ~~delay~~impact ~~planned~~due ~~work or seek~~ to ~~terminate~~the ~~existing~~continued ~~agreements.~~global ~~Any~~economic ~~of these events could materially adversely affect our business, financial condition, results of operations and/or stock price~~uncertainty.

InThe ~~response~~extent to which COVID-19 ~~and~~impacts ~~the~~our ~~economic uncertainty~~business, ~~we continue to right-size our~~ operations and ~~manage~~financial ~~short-term~~results will ~~business~~depend ~~risk~~on tonumerous ~~allow~~evolving ~~for~~factors ~~bottom-line~~that ~~improvement~~we ~~through~~may ~~the~~or ~~execution~~may ofnot ~~cost~~be ~~savings~~able ~~initiatives. We have taken actions~~ to ~~manage~~accurately ~~and reduce operating costs and further enhance our financial flexibility~~predict, including: the ~~temporary~~duration ~~reduction~~and byscope ~~senior executives~~ of ~~their salaries by 10% to at least 15%;~~ the ~~temporary reduction by non-employee directors of their cash compensation by 20%~~pandemic; agovernmental, ~~reduction~~business inand ~~workforce~~individual inactions ~~connection~~that ~~with~~have ~~global~~been ~~restructuring~~and ~~efforts~~continue into ~~Test~~be &taken ~~Simulation being executed~~ in ~~specifically~~response ~~targeted~~to ~~areas,~~the ~~including~~pandemic; the ~~reorganization~~impact of ~~our~~the ~~European~~pandemic ~~operations;~~on ~~other~~economic ~~reductions~~activity ~~in salaries or work schedules~~ and ~~temporary~~actions ~~furloughs~~taken ~~for~~in ~~employees, targeted toward specific, short-term impacted areas within each business~~response; ~~and~~ the ~~reduction~~effect ~~in all discretionary spending, capital expenditures and a strong focus~~ on ~~working~~our ~~capital~~customers' ~~management.~~demand Tofor ~~the~~our ~~extent~~goods weand ~~are~~services; ~~eligible~~our ~~based~~vendors' onability ~~actions~~to ~~taken,~~supply weus ~~have~~with ~~participated~~raw inmaterials; ~~government~~our ~~aid~~ability ~~programs~~to insell ~~the United States~~ and ~~Europe,~~provide ~~including~~our ~~the~~goods ~~employer~~and ~~payroll~~services ~~tax~~amidst ~~(FICA)~~travel ~~deferrals~~restrictions; ~~extensions offered under~~ the ~~CARES~~ability ~~Act. We also continued the suspension~~ of our ~~quarterly~~customers ~~dividend of $0.30 per share, equating~~ to ~~approximately~~pay ~~$23~~for ~~million~~our ingoods ~~annualized~~and ~~cash~~services; ~~payments,~~and ~~which~~any ~~will~~further ~~enable~~closures usof ~~to maximize~~ our ~~liquidity~~facilities ~~for~~or the ~~foreseeable~~facilities ~~future~~of asour ~~we face uncertain economic times~~customers. ~~Lastly,~~ inCustomers ~~the~~have ~~fourth~~and ~~quarter~~may ofcontinue ~~fiscal~~to ~~year~~slow ~~2020~~down decision-making, wedelay ~~entered~~planned ~~into~~work aor ~~fifth~~seek ~~amendment~~ to ~~the~~terminate ~~Credit~~existing ~~Agreement~~agreements. toAny ~~maximize~~of ~~flexibility~~these ~~and~~events ~~available~~could ~~liquidity~~materially ~~under~~adversely affect our ~~current~~business, ~~capital~~financial ~~structure~~condition inand ~~the~~results ~~event~~of ~~we would need to access additional funds~~operations.

~~Although~~In response to COVID-19 and the economic uncertainty, we ~~believe~~right-sized our ~~financial~~operations ~~position~~and ismanaged ~~strong,~~short-term ~~given~~business risk to allow for bottom-line improvement through the ~~level~~execution of ~~economic~~cost ~~uncertainty,~~savings ~~these~~initiatives ~~cost~~including ~~reduction~~workforce ~~actions~~reductions ~~provide~~taken anin ~~increased~~fiscal ~~level~~year of2020 ~~flexibility~~and ~~during~~continued ~~these~~temporary ~~challenging~~furloughs ~~times.~~and ~~The~~workshare ~~temporary,~~arrangements ~~incremental~~in ~~cost~~fiscal ~~reduction~~year ~~measures~~2021. ~~taken~~To ~~will~~the ~~remain~~extent inwe ~~place~~are ~~until~~eligible based on actions taken, we ~~begin~~have toparticipated ~~see~~in ~~marked~~government ~~improvement~~aid programs in the ~~markets~~United weStates ~~serve.~~and ~~While~~Europe, weincluding ~~expect~~the ~~that~~employer ~~these~~payroll ~~actions~~tax ~~will~~(FICA) bedeferrals ~~sufficient~~extensions tooffered ~~provide~~under the ~~needed~~CARES ~~flexibility,~~Act. weWe ~~continue~~have toalso ~~evaluate~~continued the ~~ongoing~~suspension ~~impact~~ of ~~COVID-19~~our ~~and~~quarterly ~~may~~dividend ~~need~~of to$0.30 ~~take~~per ~~further~~share, ~~cost~~allowing ~~reduction~~us orto ~~other~~maximize ~~actions~~our inliquidity for the foreseeable future. as we face uncertain economic times.

35Although we believe our financial position is strong, given the level of economic uncertainty, these cost reduction actions have provided and will provide an increased level of flexibility during these challenging times. 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.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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~~MTS Systems Corporation's testing and simulation hardware, software and service solutions ~~simulate~~help ~~real world environments in other than real world settings thereby enabling~~ customers toaccelerate and improve their design, development and manufacturing processes, and are used to 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~~precision 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, and are delivered with total customer satisfaction.

Definitive Merger Agreement

On December 8, 2020, we entered into a definitive agreement under which Amphenol will acquire MTS for $58.50 per share in cash, or approximately $1.7 billion, including the assumption of outstanding debt and liabilities, net of cash. The acquisition is expected to close by the middle of 2021, subject to certain regulatory approvals, shareholder approval and other customary closing conditions. During the three months ended January 2, 2021, we incurred $11,577 of acquisition-related expense recognized in general and administrative expense in the Consolidated Statements of Income.

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 other parts of the world as permitted. Our production capacity continues to recover as jurisdictions ease work restrictions throughout the world; however, restrictions on our employees' ability to access our customers, ~~temporary closures of customer facilities~~ and delays in customer spending ~~continued~~are anticipated to ~~negatively~~ impact our sales and operating results ~~for~~in ~~the third quarter of~~ fiscal year ~~2020~~2021. We anticipate these challenges to continue to negatively impact our fiscal year ~~2020 and~~ 2021 revenue and operating results. The future impact COVID-19 will have on our business, operations and financial results isremains unknown at this time, and we are unable to accurately quantify the impact due to the significant global economic uncertainty. In response, we ~~continue to~~ right-~~size~~sized our operations and ~~manage~~managed short-term business risk to allow for bottom-line improvement through the execution of cost savings initiatives ~~previously~~including ~~discussed~~workforce reduction actions taken in fiscal year 2020 and continued temporary furloughs and workshare arrangements in fiscal year 2021. Additionally, we continue to evaluate our global business operations and may take future actions as deemed necessary to improve our profitability and optimize our overall cost structure. See Note 17 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for further discussion of COVID-19.

~~Acquisition~~Ransomware Incident

~~Effective~~In ~~December~~November 312020, ~~2019,~~ we ~~acquired~~were ~~R&D~~the ~~for~~victim anof ~~upfront~~a ~~cash~~ransomware ~~purchase~~incident ~~price~~that oftemporarily ~~$58,280~~impacted ~~primarily~~our ~~funded~~operations. ~~through~~As ~~our~~a ~~existing~~result ~~Revolving~~of ~~Credit~~the ~~Facility.~~incident, ~~The~~certain ~~remaining~~of ~~purchase~~our ~~price~~data iswas ~~based~~encrypted, onsome ~~earn-out~~of ~~payments~~our ofdata upwas toexfiltrated anfrom ~~additional~~our ~~$26~~systems,~~000~~ ~~contingent~~and onbusiness ~~financial~~activities ~~performance~~at ~~through~~several ~~June~~of ~~2021.~~our ~~See~~facilities ~~Note~~were 16temporarily todisrupted. As of the ~~Consolidated~~date ~~Financial~~hereof, ~~Statements~~our ~~included~~investigation inindicates ~~Item~~that 1the ofincident ~~Part~~has Ibeen ofcontained. ~~this~~We ~~Quarterly~~recovered ~~Report~~the onimpacted ~~Form~~data ~~10-Q~~from ~~for~~the ~~further~~unauthorized ~~discussion~~actor, and we are not currently aware of ~~the~~any ~~acquisition~~evidence of ~~R&D.~~the

~~Restructuring Initiatives~~30

In the second and third quarters 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, provide cost savings that can be reinvested in our growth initiatives and reduce our overall cost structure in light of COVID-19. As a result, during three and nine months ended June 27, 2020, we recorded $2,745 and $8,883 of pre-tax severance and related expense, respectively.

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~~See~~impacted ~~Note~~data 15being publicly released. We continue to investigate what information the ~~Consolidated~~unauthorized ~~Financial~~actor ~~Statements~~may ~~included~~have accessed or exfiltrated and resolve open items related to the incident. During the three months ended January 2, 2021, we incurred $739 of expenses, net of insurance related to this event recognized in ~~Item~~general 1and administrative expense in the Consolidated Statements of ~~Part~~Income. IWe expect total expenses, net of insurance, related to this ~~Quarterly~~event ~~Report~~to onbe ~~Form~~approximately ~~10-Q~~$2.0 ~~for~~to ~~further~~$3.0 ~~discussion~~million, with the majority incurred in the first half of ~~restructuring~~fiscal ~~initiatives~~year 2021. The temporary operational disruption that occurred has not had a material impact on our financial results as of January 2, 2021. Any failure or perceived failure by us to comply with applicable privacy or security laws, regulations, policies or obligations in connection with this incident, could result in government enforcement actions, regulatory investigations, litigation, fines and penalties and/or adverse publicity, which could impact expenses associated with the incident.

Foreign Currency

Over the past 15 years, approximately 60 to 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.

Financial Results

Total Company

Results of Operations

The following tables compare results of operations, separately identifying the estimated impact of currency translation, the acquisition of R&D in the second quarter of fiscal year 2020, ~~restructuring~~acquisition-related ~~costs~~expenses incurred inas ~~fiscal~~a ~~year~~result ~~2020~~of ~~and~~the ~~acquisition-related~~pending ~~costs~~merger ~~associated~~ with ~~Endevco~~Amphenol and restructuring costs incurred in fiscal year ~~2020~~2021.

	~~Three Months Ended~~			Three Months Ended
				~~Estimated~~					Estimated
	June 27, 2020			BusinessChange			Acquisition / Restructuring1				CurrencyTranslation			June 29, 2019
				January 2,2021					BusinessChange					Acquisition / Restructuring1			CurrencyTranslation		December 28,2019
Revenue	$	~~196,225~~		$	~~(48~~198,~~663~~804	)	$	~~14,105~~	$	(33,196)	$	~~(1,426~~	)	$	~~232~~21,~~209~~601		$	4,556	$	205,843
Cost of sales	~~130,730~~			~~(26~~124,~~810~~389		)	~~11,513~~		(24,531)		~~(1,079~~		)	~~147~~16,~~106~~571			3,115		129,234
Gross profit	~~65,495~~			~~(21~~74,~~853~~415		)	~~2,592~~		(8,665)		~~(347~~		)	855,~~103~~030			1,441		76,609
Gross margin	~~33.4~~		%	37.4		%								~~36.6~~		%			37.2		%
Operating expenses
Selling and marketing	~~26,857~~			(728,~~601~~422		)	~~1,064~~		(5,908)		73			~~33,321~~886			725		32,719
General and administrative	~~19,692~~			(534,~~881~~159		)	~~5,029~~		(3,348)		~~(77~~		)	2015,~~621~~604			210		21,693
Research and development	~~6,303~~			(17,~~695~~203		)	~~(148~~		)80		~~(14~~		)	~~8,160~~—			84		7,039
Total operating expenses	~~52,852~~			~~(15~~69,~~177~~784		)	~~5,945~~		(9,176)		~~(18~~		)	6216,~~102~~490			1,019		61,451
Income from operations	$	~~12,643~~		$	(64,~~676~~631	)	$	~~(3,353~~	)$	511	$	~~(329~~	)	$	23(11,~~001~~460)		$	422	$	15,158
	Nine Months Ended
				Estimated
	June 27, 2020			BusinessChange			Acquisition / Restructuring1				CurrencyTranslation			June 29, 2019
Revenue	$	613,531		$	(78,289	)	$	28,813			$	(5,429	)	$	668,436
Cost of sales	400,186			(40,434		)	26,971				(4,029		)	417,678
Gross profit	213,345			(37,855		)	1,842				(1,400		)	250,758
Gross margin	34.8		%											37.5		%
Operating expenses
Selling and marketing	89,707			(10,056		)	1,493				(535		)	98,805
General and administrative	67,382			(9,644		)	13,545				(323		)	63,804
Research and development	20,485			(2,289		)	(148		)		(86		)	23,008
Total operating expenses	177,574			(21,989		)	14,890				(944		)	185,617
Income from operations	$	35,771		$	(15,866	)	$	(13,048	)		$	(456	)	$	65,141

371 The Acquisition / Restructuring column includes operating results and costs incurred as a result of the acquisition of R&D, acquisition-related expenses of $11,577 incurred as a result of the pending merger with Amphenol and restructuring costs of $978 for the three months ended January 2, 2021. See Note 1, Note 15 and Note 16 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on the pending merger with Amphenol, restructuring and the R&D acquisition, respectively.

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1 The Acquisition / Restructuring column includes operating results and costs incurred as part of the acquisition of R&D, costs incurred as part of the acquisition of Endevco and $2,745 and $8,883, for the three and nine months ended June 27, 2020, respectively, of restructuring costs. Endevco operating results are not separately identifiable as Endevco has been integrated into the existing Sensors business. See Note 15 and Note 16 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on restructuring and related costs and the R&D acquisition, respectively.


Revenue
	Three Months Ended
	January 2, 2021		December 28, 2019		Increased / (Decreased)
					$		%
Revenue	$	198,804	$	205,843	$	(7,039)	(3.4)	%

Revenue
	Three Months Ended									Nine Months Ended
	June 27, 2020		June 29, 2019		Increased / (Decreased)					June 27, 2020		June 29, 2019		Increased / (Decreased)
					$			%						$			%
Revenue	$	196,225	$	232,209	$	(35,984	)	(15.5	)%	$	613,531	$	668,436	$	(54,905	)	(8.2	)%

Revenue for the three months ended January 2, 2021 declined 3.4% primarily driven by a decline in Test & Simulation, partially offset by the favorable impact of currency translation. Both businesses continue to be negatively impacted by COVID-19.

~~Revenue~~Test & Simulation revenue for the three months ended ~~June~~January 272, ~~2020~~2021 ~~declined~~decreased ~~15.5%~~$7,507, primarily driven by alower ~~decline~~volume infrom ~~both~~weakness ~~Test~~in &all ~~Simulation~~sectors and ~~Sensors~~all regions, ~~and~~excluding the ~~unfavorable~~contributions ~~impact~~from ~~of currency translation. Revenue for~~ the ~~nine~~acquisition ~~months~~of ~~ended June 27~~R&D, ~~2020~~as ~~declined 8.2% primarily driven by a decline in~~ Test & Simulation ~~and~~continues ~~the~~to ~~unfavorable~~be ~~impact of currency translation, partially offset by growth in Sensors. Both businesses were~~ negatively impacted by COVID-19. ~~resulting~~The ~~from~~decline ~~our~~was ~~employees’~~partially ~~inability~~offset toby ~~access~~contributions ~~our~~from ~~customers,~~the ~~reduced~~acquisition ~~production~~of ~~capacity,~~R&D ~~temporary closures~~ of ~~customer~~$21,601 ~~facilities~~ and ~~delayed~~the ~~spending~~favorable byimpact ~~our~~of ~~customers~~currency translation.

~~Test~~Sensors ~~& Simulation~~ revenue for the three ~~and nine~~ months ended ~~June~~January 272, ~~2020~~2021 ~~decreased~~increased $~~31,924~~268 ~~and $62,289, respectively,~~ primarily ~~driven~~due byto ~~lower volume from weakness in our ground vehicles sector, materials sector and service in all regions, and~~ the ~~unfavorable~~favorable impact of currency translation., ~~This decline was~~ partially offset by ~~contributions~~lower ~~from~~volume ~~the~~primarily ~~acquisition~~in ofthe ~~R&D~~industrial ~~of $14,105 and $28,813, respectively~~sector.

~~Sensors~~Excluding ~~revenue for~~ the three and nine months ended June 27, 2020 decreased $4,009 and increased $7,399, respectively. The three-month decrease was primarily due to weakness in all sectors except our test sector, which included contributions from the Endevco acquisition and volume growth from a multi-year contract with the U.S. Department of Defense and the unfavorable impact of currency translation. ~~The nine-month increase was primarily due to growth in our test sector from contracts with the U.S. Department of Defense~~ and ~~contributions from~~ the ~~Endevco~~R&D acquisition, ~~partially~~total ~~offset~~Company byrevenue ~~weakness~~decreased ~~in the other three sectors, specifically in Europe, and the unfavorable impact of currency translation~~16.1%.

Excluding the impact of currency translation and the R&D acquisition, total Company revenue decreased 21.0% and 11.7%, respectively.


Gross Profit
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Gross profit	$	74,415		$	76,609		$	(2,194)	(2.9)	%
Gross margin	37.4		%	37.2		%	0.2		ppts

Gross Profit
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$			%
Gross profit	$	65,495		$	85,103		$	(19,608	)	(23.0	)%	$	213,345		$	250,758		$	(37,413	)	(14.9	)%
Gross margin	33.4		%	36.6		%	(3.2		)	ppts		34.8		%	37.5		%	(2.7		)	ppts

Gross profit for the three months ended January 2, 2021 declined 2.9% primarily driven by lower revenue volume in both Test & Simulation and Sensors, partially offset by the gross profit contribution from the R&D acquisition, lower compensation expense in both businesses and the favorable impact of currency translation. Both businesses continue to be negatively impacted by COVID-19. Gross margin increased 0.2 percentage points primarily due to lower compensation expense in both businesses, improved project execution in Test & Simulation and the Endevco acquisition inventory fair value adjustment in the prior year of $540. This increase was partially offset by unfavorable leverage on lower revenue volumes and lower gross margin contribution from product mix in both Test & Simulation and Sensors, along with restructuring costs of $594. Excluding the impact of currency translation, the R&D acquisition, restructuring costs and the Endevco acquisition inventory fair value adjustment in the prior year, gross profit declined 11.9% and gross margin increased 1.9 percentage points.

Gross profit for the three months ended June 27, 2020 declined 23.0% primarily driven by lower revenue volume in both Test & Simulation and Sensors and restructuring costs of $2,192, partially offset by the gross profit contribution from the R&D acquisition. Both businesses were negatively impacted by COVID-19. Gross margin decreased 3.2 percentage points primarily due to unfavorable operating leverage on lower revenue volumes in both Test & Simulation and Sensors, restructuring costs, higher Test & Simulation warranty expense and the unfavorable impact from Endevco integration efforts, partially offset by lower compensation expense and cost savings initiatives in both businesses. Excluding the impact of currency translation, R&D expenses, restructuring costs and the inventory acquisition adjustment in the prior year, gross profit declined 25.8% and gross margin declined 2.2 percentage points.


Selling and Marketing Expense
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Selling and marketing	$	28,422		$	32,719		$	(4,297)	(13.1)	%
% of revenue	14.3		%	15.9		%

~~Gross~~Selling ~~profit~~and marketing expense for the ~~nine~~three months ended ~~June 27~~January 2, ~~2020~~2021 declined 1413.91% primarily ~~driven~~due byto lower ~~revenue volume in Test & Simulation~~compensation, ~~higher~~marketing ~~restructuring costs of $5,943~~ and ~~the~~travel ~~unfavorable~~expense ~~impact~~driven ~~from Endevco integration efforts, partially offset~~ by the ~~contributions~~realization ~~from~~of ~~the~~cost ~~R&D~~savings ~~acquisition~~from ~~and~~restructuring ~~lower~~actions ~~compensation~~taken ~~expense~~ in ~~both~~fiscal ~~businesses.~~year ~~Both~~2020, ~~businesses~~along ~~were~~with ~~negatively~~reduced ~~impacted~~travel bystemming from COVID-19. ~~Gross margin decreased 2~~restrictions.7 ~~percentage~~The ~~points~~decline ~~primarily~~was ~~due to leverage on lower revenue volume in Test & Simulation, higher restructuring costs and the unfavorable impact from Endevco integration efforts,~~ partially offset by ~~lower~~the ~~compensation~~addition ~~expense~~of ~~in Test~~ R&D ~~Simulation~~expenses and ~~cost~~restructuring ~~savings~~costs ~~initiatives~~of ~~in both businesses~~$257. Excluding the impact of currency translation, R&D expenses, restructuring costs and ~~the inventory~~ acquisition-related ~~adjustment in both fiscal years~~expenses, ~~gross~~selling ~~profit declined 15.5%~~ and ~~gross~~marketing ~~margin~~expense ~~declined~~decreased 18.1%.~~6 percentage points.~~

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Selling and Marketing Expense
General and Administrative Expense
	~~Three Months Ended~~			Three Months Ended									~~Nine Months Ended~~
	June 27, 2020			June 29, 2019			Increased / (Decreased)						June 27, 2020			June 29, 2019				Increased / (Decreased)
				January 2,2021					December 28,2019					Increased / (Decreased)
							$				%			$					%	$			%
Selling and marketing	$	26,857		$	33,321		$	(6,464	)		(19.4	)%	$	89,707		$	98,805			$	(9,098	)	(9.2	)%
General and administrative				$	34,159				$	21,693				$	12,466				57.5		%
% of revenue	~~13.7~~		%	1417.32		%			10.5		%		~~14.6~~		%	~~14.8~~		%

~~Selling~~General and ~~marketing~~administrative expense for the three months ended ~~June~~January 272, ~~2020~~2021 ~~declined~~increased 1957.45% primarily due to ~~lower~~higher ~~compensation,~~acquisition-related ~~marketing~~expenses ~~and~~of ~~travel~~$10,089, ~~expense~~the ~~driven~~addition byof ~~cost~~R&D ~~savings~~expenses ~~initiatives~~and inexpenses ~~response~~related to ~~COVID-19~~the ~~and~~ransomware ~~lower~~incident ~~commission~~of ~~expense on fewer orders~~$739, partially offset by ~~restructuring~~lower ~~costs~~compensation ofexpense ~~$686~~in ~~and~~both businesses primarily from the ~~addition~~realization of Rcost savings from Test &D ~~expenses~~Simulation restructuring actions taken in fiscal year 2020. Excluding the impact of currency translation, the addition of R&D expenses, restructuring costs, ~~and~~ acquisition-related expenses in both fiscal years and ransomware incident expenses, ~~selling~~general and ~~marketing~~administrative expense decreased 2211.87%.

Selling and marketing expense for the nine months ended June 27, 2020 declined 9.2% primarily due to lower compensation, marketing and travel expense driven by cost savings initiatives in response to COVID-19, lower commission expense on fewer orders and the favorable impact of currency translation, partially offset by higher compensation expense in Sensors, the addition of R&D expenses and restructuring costs of $686. Excluding the impact of currency translation, R&D expenses, restructuring costs and acquisition-related expenses in both fiscal years, selling and marketing expense decreased 10.2%.


Research and Development Expense
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Research and development	$	7,203		$	7,039		$	164	2.3	%
% of revenue	3.6		%	3.4		%

General and Administrative Expense
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$		%
General and administrative	$	19,692		$	20,621		$	(929	)	(4.5	)%	$	67,382		$	63,804		$	3,578	5.6	%
% of revenue	10.0		%	8.9		%						11.0		%	9.5		%

Research and development expense for the three months ended January 2, 2021 increased 2.3% primarily due to continued investment in Test & Simulation technology, partially offset by the realization of cost savings from restructuring actions taken in fiscal year 2020. Excluding the impact of currency translation, restructuring costs and acquisition-related expenses in the prior year, research and development expense increased 1.1%.

General and administrative expense for the three months ended June 27, 2020 declined 4.5% primarily due to lower compensation expense, including the stock-based compensation forfeitures associated with our former CEO, and cost savings initiatives in response to COVID-19, partially offset by the addition of R&D expenses, the R&D contingent consideration fair value adjustment of $1,301 and higher R&D and Endevco acquisition-related expenses of $763. Excluding the impact of currency translation, R&D expenses, the R&D contingent consideration fair value adjustment, restructuring costs and acquisition-related expenses incurred in both fiscal years, general and administrative expense decreased 28.5%.


Income from Operations
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Income from operations	$	4,631		$	15,158		$	(10,527)	(69.4)	%
% of revenue	2.3		%	7.4		%

~~General~~Income ~~and~~from ~~administrative~~operations ~~expense~~ for the ~~nine~~three months ended ~~June 27~~January 2, ~~2020~~2021 ~~increased~~declined 569.64%, primarily due to ~~the~~lower ~~addition~~gross ofprofit Rin both Test &D ~~expenses~~Simulation and Sensors, higher acquisition-related expenses of $210,~~976~~111, higher restructuring costs of $~~2,074~~978 and ~~the~~expenses ~~R&D~~related ~~contingent~~to ~~consideration~~the ~~fair~~ransomware ~~value~~incident ~~adjustment~~ of $1739,~~301,~~ partially offset by lower operating compensation expense ~~and~~from the realization of cost savings ~~initiatives~~from Test & Simulation restructuring actions taken in ~~response~~fiscal toyear ~~COVID-19~~2020. Excluding the impact of currency translation, the R&D ~~expenses~~acquisition, restructuring costs, the ~~R&D~~Endevco ~~contingent~~acquisition ~~consideration~~inventory fair value adjustment, ~~restructuring~~in ~~costs~~the ~~and~~prior year, acquisition-related expenses ~~incurred~~ in both fiscal years, ~~general~~ and ~~administrative~~ransomware ~~expense~~incident expenses, income from operations decreased 135.89%.

Research and Development Expense
Interest Expense, Net
	~~Three Months Ended~~			Three Months Ended									~~Nine Months Ended~~
	June 27, 2020			June 29, 2019			Increased / (Decreased)						June 27, 2020			June 29, 2019				Increased / (Decreased)
				January 2,2021					December 28,2019					Increased / (Decreased)
							$				%			$					%	$			%
Research and development	$	6,303		$	8,160		$	(1,857	)		(22.8	)%	$	20,485		$	23,008			$	(2,523	)	(11.0	)%
Interest expense, net				$	8,467				$	8,272				$	195				2.4		%
% of revenue	3.2		%	3.5		%							3.3		%	3.4		%

~~Research~~Interest ~~and development~~ expense, net for the three months ended ~~June 27~~January 2, ~~2020~~2021 ~~declined~~increased ~~22.8%~~ primarily due to ~~cost~~accretion ~~savings~~on ~~initiatives~~the contingent consideration purchase price for the R&D acquisition and ~~lower~~higher ~~compensation~~interest ~~expense,~~on ~~partially~~an ~~offset~~increased bydebt ~~the~~level ~~acquisition~~to offund the R&D. ~~Excluding~~acquisition, ~~the~~partially ~~impact~~offset ofby ~~currency~~debt ~~translation,~~financing ~~restructuring~~ costs ~~and~~incurred ~~acquisition-related expenses~~ in the prior ~~year,~~period ~~research~~related ~~and~~to ~~development~~the ~~expense~~fourth ~~decreased~~amendment 20to the Credit Agreement.~~2%.~~

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Research and development expense for the nine months ended June 27, 2020 declined 11.0% primarily due to the shift of internal resources to larger, capitalizable Test & Simulation projects, cost savings initiatives and lower compensation expense, partially offset by investment in new product development during the first half of fiscal year 2020 and the acquisition of Endevco. Excluding the impact of currency translation, restructuring costs and acquisition-related expense in the prior fiscal year, research and development expense decreased 9.5%.


Other Income (Expense), Net
	Three Months Ended
	January 2, 2021		December 28, 2019		Increased / (Decreased)
					$		%
Other income (expense), net	$	6,413	$	(431)	$	6,844	1,587.9	%

Income from Operations
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$			%
Income from operations	$	12,643		$	23,001		$	(10,358	)	(45.0	)%	$	35,771		$	65,141		$	(29,370	)	(45.1	)%
% of revenue	6.4		%	9.9		%						5.8		%	9.7		%

The increase in other income (expense), net for the three months ended January 2, 2021 was primarily driven by the $5,794 gain on sale of our China manufacturing facility and associated assets along with a gain on foreign currency transactions.

Income from operations for the three and nine months ended June 27, 2020 declined 45.0% and 45.1%, respectively, primarily due to lower gross profit in both Test & Simulation and Sensors, higher acquisition-related expenses and restructuring costs, partially offset by lower operating compensation expense and cost savings initiatives in both businesses. Excluding the impact of currency translation, the R&D acquisition, restructuring costs, and the inventory acquisition adjustments and acquisition-related expenses in both fiscal years, income from operations decreased 29.8% and 27.0%, respectively.


Income Tax Provision (Benefit)
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Income tax provision (benefit)	$	862		$	1,149		$	(287)	(25.0)	%
Effective tax rate	33.4		%	17.8		%

Interest Expense, Net
	Three Months Ended								Nine Months Ended
	June 27, 2020		June 29, 2019		Increased / (Decreased)				June 27, 2020		June 29, 2019		Increased / (Decreased)
					$		%						$		%
Interest expense, net	$	8,846	$	6,687	$	2,159	32.3	%	$	25,975	$	20,873	$	5,102	24.4	%

The effective tax rate of 33.4% for the three months ended January 2, 2021 increased primarily due to certain discrete tax expenses of $443 for stock-based compensation activity and future limitations on the deductibility of officer compensation. Excluding the impact of these discrete items, the effective tax rate for the three months ended January 2, 2021 would have been 16.3%, a decrease from the prior year primarily driven by favorable GILTI regulations issued in July 2020.

Interest expense, net for the three and nine months ended June 27, 2020 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 and accretion on the contingent purchase price of R&D.


Net Income
	Three Months Ended
	January 2, 2021		December 28, 2019		Increased / (Decreased)
					$		%
Net income	$	1,715	$	5,306	$	(3,591)	(67.7)	%
Diluted earnings per share	$	0.09	$	0.27	$	(0.18)	(66.7)	%

Other Income (Expense), Net
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019		Increased / (Decreased)
							$			%							$			%
Other income (expense), net	$	(446	)	$	(124	)	$	(322	)	(259.7	)%	$	(1,059	)	$	195	$	(1,254	)	(643.1	)%

Net income and diluted earnings per share for the three months ended January 2, 2021 decreased primarily due to lower income from operations in both Test & Simulation and Sensors, partially offset by higher other income from the gain on sale of our China manufacturing facility.

~~The decrease in other income (expense), net for the three months ended June 27, 2020 was primarily driven by the loss on sale of an asset partially offset by a gain on foreign currency transactions.~~ 34

The decrease in other income (expense), net for the nine months ended June 27, 2020 was primarily driven by an increase in losses on foreign currency transactions and the loss on sale of an asset.

Income Tax Provision (Benefit)
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$			%
Income tax provision (benefit)	$	(1,038	)	$	2,605		$	(3,643	)	(139.8	)%	$	113		$	6,217		$	(6,104	)	(98.2	)%
Effective tax rate	(31.0		)%	16.1		%						1.3		%	14.0		%

The effective tax rate for the three months ended June 27, 2020 decreased primarily due to certain discrete tax benefits in the current quarter of $1,897 for the finalization of the Tax Cuts and Jobs Act as part of the fiscal year 2019 tax return, partially offset by $348 of discrete tax expense for stock-based compensation expense. Excluding the impact of these discrete items, the effective tax rate for the three months ended June 27, 2020 would have been 15.2% primarily driven by a decrease in earnings.

The effective tax rate for the nine months ended June 27, 2020 decreased primarily due to certain discrete tax benefits in the current year of $1,807 for the finalization of the Tax Cuts and Jobs Act as part of the fiscal year 2019 tax return, partially offset by $405 of discrete tax expense for stock-based compensation expense and $382 of discrete tax expense for foreign dividend withholdings that are not creditable in the U.S. Excluding the impact of these discrete items, the effective tax rate for the nine months ended June 27, 2020 would have been 13.0% primarily driven by a decrease in earnings.

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Net Income
	Three Months Ended									Nine Months Ended
	June 27, 2020		June 29, 2019		Increased / (Decreased)					June 27, 2020		June 29, 2019		Increased / (Decreased)
					$			%						$			%
Net income	$	4,389	$	13,585	$	(9,196	)	(67.7	)%	$	8,624	$	38,246	$	(29,622	)	(77.5	)%
Diluted earnings per share	$	0.23	$	0.70	$	(0.47	)	(67.1	)%	$	0.45	$	1.97	$	(1.52	)	(77.2	)%

Net income and diluted earnings per share for the three months ended June 27, 2020 decreased primarily due to lower income from operations in Test & Simulation, partially offset by higher income from operations in Sensors and lower income tax expense from decreased earnings and higher interest expense.

Net income and diluted earnings per share for the nine months ended June 27, 2020 decreased primarily due to lower income from operations in both Test & Simulation and Sensors, partially offset by lower income tax expense from decreased earnings and increased interest expense.

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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, ~~and~~ the acquisition of R&D, acquisition-related expenses incurred as a result of the pending merger with Amphenol and restructuring costs incurred in fiscal year ~~2020~~2021. 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~~			Three Months Ended
				~~Estimated~~					Estimated
	June 27, 2020			BusinessChange			Acquisition / Restructuring1				CurrencyTranslation			June 29, 2019
				January 2,2021					BusinessChange					Acquisition / Restructuring1			CurrencyTranslation		December 28,2019
Revenue	$	~~116,404~~		$	~~(45~~113,~~000~~223	)	$	~~14,105~~	$	(31,721)	$	~~(1,029~~	)	$	~~148~~21,~~328~~601		$	2,613	$	120,730
Cost of sales	~~87,629~~			~~(27~~78,~~104~~820		)	~~11,513~~		(23,547)		~~(833~~		)	~~104~~16,~~053~~571			2,036		83,760
Gross profit	~~28,775~~			~~(17~~34,~~896~~403		)	~~2,592~~		(8,174)		~~(196~~		)	445,~~275~~030			577		36,970
Gross margin	~~24.7~~		%	30.4		%								~~29.8~~		%			30.6		%
Operating expenses
Selling and marketing	~~14,536~~			(515,~~093~~067		)	~~1,064~~		(3,105)		~~115~~			~~18,450~~886			407		16,879
General and administrative	~~12,157~~			(319,~~080~~319		)	~~4,484~~		(2,000)		~~(76~~		)	10,~~829~~150			164		11,005
Research and development	~~2,374~~			(12,~~045~~968		)	~~(148~~		)848		(5		)	~~3,572~~—			30		2,090
Total operating expenses	~~29,067~~			(937,~~218~~354		)	~~5,400~~		(4,257)		34			3211,~~851~~036			601		29,974
Income from operations	$	~~(292~~	)	$	(82,~~678~~951)	)	$	~~(2,808~~	)$	(3,917)	$	~~(230~~	)	$	11(6,~~424~~006)		$	(24)	$	6,996
	Nine Months Ended
				Estimated
	June 27, 2020			BusinessChange			Acquisition / Restructuring1				CurrencyTranslation			June 29, 2019
Revenue	$	362,631		$	(87,854	)	$	28,813			$	(3,248	)	$	424,920
Cost of sales	263,777			(53,111		)	25,831				(2,753		)	293,810
Gross profit	98,854			(34,743		)	2,982				(495		)	131,110
Gross margin	27.3		%											30.9		%
Operating expenses
Selling and marketing	47,180			(8,458		)	1,493				(168		)	54,313
General and administrative	38,914			(7,712		)	11,171				(261		)	35,716
Research and development	6,861			(2,606		)	(148		)		(27		)	9,642
Total operating expenses	92,955			(18,776		)	12,516				(456		)	99,671
Income from operations	$	5,899		$	(15,967	)	$	(9,534	)		$	(39	)	$	31,439

1 The Acquisition / Restructuring column includes operating results, and costs incurred as ~~part~~a result of the acquisition of R&D, ~~and~~acquisition-related ~~$2,745~~expenses ~~and~~of $86,~~883,~~123 ~~for~~incurred as a result of the ~~three~~pending merger with Amphenol and ~~nine~~restructuring ~~months~~costs ~~ended~~of ~~June~~$978 ~~27,~~for ~~2020,~~the ~~respectively,~~three ofmonths ~~restructuring~~ended ~~costs~~January 2, 2021. See Note 1, Note 15 and Note 16 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information on ~~restructuring~~the ~~and~~pending ~~related~~merger with Amphenol, restructuring costs and the R&D acquisition, respectively.


Revenue
	Three Months Ended
	January 2, 2021		December 28, 2019		Increased / (Decreased)
					$		%
Revenue	$	113,223	$	120,730	$	(7,507)	(6.2)	%

Revenue for the three months ended January 2, 2021 decreased 6.2%, primarily driven by lower volume from weakness in all sectors and all regions, excluding the contributions from the acquisition of R&D, as Test & Simulation continues to be negatively impacted by COVID-19. The decline was partially offset by contributions from the acquisition of R&D of $21,601 and the favorable impact of currency translation. Excluding the impact of currency translation and the R&D acquisition, revenue decreased 26.3%.


Gross Profit
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Gross profit	$	34,403		$	36,970		$	(2,567)	(6.9)	%
Gross margin	30.4		%	30.6		%	(0.2)		ppts

Gross profit for the three months ended January 2, 2021 declined 6.9%, primarily due to lower revenue volume and restructuring costs of $594, partially offset by contributions from the R&D acquisition and lower compensation expense from the realization of cost savings from restructuring initiatives taken in fiscal year 2020. Gross margin declined 0.2 percentage points, primarily driven by reduced leverage on lower revenue volume, lower gross margin contribution from product mix and higher restructuring costs, partially offset by lower compensation expense and improved project execution. Excluding the

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Revenue
	Three Months Ended									Nine Months Ended
	June 27, 2020		June 29, 2019		Increased / (Decreased)					June 27, 2020		June 29, 2019		Increased / (Decreased)
					$			%						$			%
Revenue	$	116,404	$	148,328	$	(31,924	)	(21.5	)%	$	362,631	$	424,920	$	(62,289	)	(14.7	)%

impact of currency translation, the R&D acquisition and restructuring costs, gross profit declined 22.1% and gross margin increased 1.8 percentage points.

Revenue for the three and nine months ended June 27, 2020 decreased 21.5% and 14.7%, respectively, primarily driven by lower volume from weakness in our ground vehicles sector, materials sector and service in all regions as Test & Simulation was negatively impacted by COVID-19, and the unfavorable impact of currency translation. The decline was partially offset by contributions from the acquisition of R&D of $14,105 and $28,813, respectively. Excluding the impact of currency translation and the R&D acquisition, revenue decreased 30.3% and 20.7%, respectively.


Selling and Marketing Expense
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Selling and marketing	$	15,067		$	16,879		$	(1,812)	(10.7)	%
% of revenue	13.3		%	14.0		%

Gross Profit
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$			%
Gross profit	$	28,775		$	44,275		$	(15,500	)	(35.0	)%	$	98,854		$	131,110		$	(32,256	)	(24.6	)%
Gross margin	24.7		%	29.8		%	(5.1		)	ppts		27.3		%	30.9		%	(3.6		)	ppts

Selling and marketing expense for the three months ended January 2, 2021 declined 10.7%, primarily due to lower compensation, marketing and travel expenses mainly driven by the realization of cost savings from restructuring actions taken in fiscal year 2020, along with reduced travel stemming from COVID-19 restrictions, partially offset by the addition of R&D expenses and restructuring costs of $257. Excluding the impact of currency translation, R&D expenses, restructuring costs and acquisition-related expenses, selling and marketing expense decreased 18.4%.

Gross profit for the three and nine months ended June 27, 2020 declined 35.0% and 24.6%, respectively, primarily due to lower revenue volume and higher restructuring costs of $2,192 and $5,943, respectively, partially offset by contributions from the R&D acquisition, lower compensation expense and cost savings initiatives. Overall, Test & Simulation was negatively impacted by COVID-19. Gross margin declined 5.1 and 3.6 percentage points, respectively, primarily driven by leverage on lower revenue volume, higher restructuring costs and higher warranty expense, partially offset by lower compensation expense and higher gross margin contribution from product mix. Excluding the impact of currency translation, R&D expenses, restructuring costs in both fiscal years and the inventory acquisition adjustment in the prior year, gross profit declined 40.7% and 27.2%, respectively, and gross margin declined 4.5 and 2.6 percentage points, respectively.


General and Administrative Expense
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
General and administrative	$	19,319		$	11,005		$	8,314	75.5	%
% of revenue	17.1		%	9.1		%

Selling and Marketing Expense
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$			%
Selling and marketing	$	14,536		$	18,450		$	(3,914	)	(21.2	)%	$	47,180		$	54,313		$	(7,133	)	(13.1	)%
% of revenue	12.5		%	12.4		%						13.0		%	12.8		%

General and administrative expense for the three months ended January 2, 2021 increased 75.5% primarily driven by higher acquisition-related expenses of $5,514, the addition of R&D expenses and expenses related to the ransomware incident of $391, partially offset by lower compensation expense and the realization of cost savings from restructuring actions taken in fiscal year 2020 in response to COVID-19. Excluding the impact of currency translation, R&D expenses, restructuring costs, acquisition-related expenses in both fiscal years and ransomware incident expenses, general and administrative expense decreased 15.0%.

Selling and marketing expense for the three and nine months ended June 27, 2020 declined 21.2% and 13.1%, respectively, primarily due to lower compensation, marketing and travel expenses mainly driven by cost savings initiatives in response to COVID-19 and lower commission expense on fewer orders, partially offset by the addition of R&D expenses and restructuring costs of $686. Excluding the impact of currency translation, R&D expenses, restructuring costs and acquisition-related expenses in both fiscal years, selling and marketing expense decreased 27.6% and 15.6%, respectively.


Research and Development Expense
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Research and development	$	2,968		$	2,090		$	878	42.0	%
% of revenue	2.6		%	1.7		%

General and Administrative Expense
	Three Months Ended										Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)				June 27, 2020			June 29, 2019			Increased / (Decreased)
							$		%								$		%
General and administrative	$	12,157		$	10,829		$	1,328	12.3	%	$	38,914		$	35,716		$	3,198	9.0	%
% of revenue	10.4		%	7.3		%					10.7		%	8.4		%

Research and development expense for the three months ended January 2, 2021 increased 42.0% primarily due to continued investment in Test & Simulation technology, partially offset by the realization of cost savings from restructuring actions taken in fiscal year 2020. Excluding the impact of currency translation, research and development expense increased 40.6%.

General and administrative expense for the three months ended June 27, 2020 increased 12.3% primarily driven by the addition of R&D expenses, the R&D contingent consideration fair value adjustment of $1,301 and higher acquisition-related expenses of $218, partially offset by lower compensation expense and cost savings initiatives in response to COVID-19. Excluding the impact of currency translation, R&D expenses, the R&D contingent consideration fair value adjustment, restructuring costs and acquisition-related expenses in both fiscal years, general and administrative expense decreased 28.3%.


Income from Operations
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Income from operations	$	(2,951)		$	6,996		$	(9,947)	(142.2)	%
% of revenue	(2.6)		%	5.8		%

43Income from operations for the three months ended January 2, 2021 declined 142.2%, primarily due to decreased gross profit on lower revenue volume, higher acquisition-related expenses of $5,536, higher restructuring costs of $978 and expenses related to the ransomware incident of $391, partially offset by lower operating compensation expense from the realization of cost savings from restructuring actions taken in fiscal year 2020 and the contributions from the R&D acquisition. Excluding the impact of currency translation, the R&D acquisition, restructuring costs, acquisition-related expenses in both fiscal years and ransomware incident expenses, income from operations decreased 55.9%.

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General and administrative expense for the nine months ended June 27, 2020 increased 9.0% primarily driven by the addition of R&D expenses, higher restructuring costs of $2,074, the R&D contingent consideration fair value adjustment of $1,301 and higher acquisition-related expenses of $602, partially offset by lower compensation expense and cost savings initiatives in response to COVID-19. Excluding the impact of currency translation, R&D expenses, the R&D contingent consideration fair value adjustment, and restructuring costs and acquisition-related expenses incurred in both fiscal years, general and administrative expense decreased 19.4%.

Research and Development Expense
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$			%
Research and development	$	2,374		$	3,572		$	(1,198	)	(33.5	)%	$	6,861		$	9,642		$	(2,781	)	(28.8	)%
% of revenue	2.0		%	2.4		%						1.9		%	2.3		%

Research and development expense for the three months ended June 27, 2020 declined 33.5% primarily due to cost savings initiatives and lower compensation expense in response to COVID-19. Excluding the impact of currency translation and restructuring costs, and acquisition-related expense in the prior fiscal year, research and development expense decreased 28.2%.

Research and development expense for the nine months ended June 27, 2020 declined 28.8% primarily due to the shift of internal resources to larger, capitalizable Test & Simulation projects, cost savings initiatives in response to COVID-19 and lower compensation expense, partially offset by investment in new product development. Excluding the impact of currency translation, restructuring costs and acquisition-related expense in the prior year, research and development expense decreased 26.1%.

Income from Operations
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$			%
Income from operations	$	(292	)	$	11,424		$	(11,716	)	(102.6	)%	$	5,899		$	31,439		$	(25,540	)	(81.2	)%
% of revenue	(0.3		)%	7.7		%						1.6		%	7.4		%

Income from operations for the three and nine months ended June 27, 2020 declined 102.6% and 81.2%, respectively, primarily due to decreased gross profit on lower revenue volume, higher restructuring costs of $2,745 and $8,753, respectively, the R&D contingent consideration fair value adjustment of $1,301 and higher acquisition-related expenses of $160 and $465, respectively, partially offset by lower operating compensation expense and cost savings initiatives in response to COVID-19, the contributions from the R&D acquisition and the E2M inventory acquisition adjustment in the prior year. Excluding the impact of currency translation, the R&D acquisition, restructuring costs in both fiscal years, the inventory acquisition adjustment in the prior year and acquisition-related expenses in both fiscal years, income from operations decreased 76.5% and 54.3%, respectively.

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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 and ~~the Endevco~~ acquisition-related expenses incurred as a result of the pending merger with Amphenol in fiscal year ~~2020~~2021. 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~~			Three Months Ended
				~~Estimated~~					Estimated
	June 27, 2020			BusinessChange			Acquisition1				CurrencyTranslation			June 29, 2019
				January 2,2021					BusinessChange					Acquisition1			CurrencyTranslation		December 28,2019
Revenue	$	~~80,222~~		$	(385,~~612~~803	)	$	—	$	(1,675)	$	~~(397~~	)	$	~~84,231~~—		$	1,943	$	85,535
Cost of sales	~~43,502~~			~~324~~45,792			—		(1,186)		~~(246~~		)	~~43,424~~—			1,079		45,899
Gross profit	~~36,720~~			(340,~~936~~011		)	—		(489)		~~(151~~		)	~~40,807~~—			864		39,636
Gross margin	~~45.8~~		%	46.6		%								~~48.4~~		%			46.3		%
Operating expenses
Selling and marketing	~~12,321~~			(213,~~508~~355		)	—		(2,803)		~~(42~~		)	~~14,871~~—			318		15,840
General and administrative	~~7,535~~			(214,~~801~~840		)	~~545~~		(1,348)		(1		)	95,~~792~~454			46		10,688
Research and development	~~3,929~~			~~(650~~4,235		)	—		(768)		(9		)	~~4,588~~—			54		4,949
Total operating expenses	~~23,785~~			(532,~~959~~430		)	~~545~~		(4,919)		~~(52~~		)	295,~~251~~454			418		31,477
Income (loss) from operations	$	~~12,935~~		$	27,~~023~~581		$	~~(545~~	)$	4,430	$	~~(99~~	)	$	11(5,~~556~~454)		$	446	$	8,159
	Nine Months Ended
				Estimated
	June 27, 2020			BusinessChange			Acquisition1				CurrencyTranslation			June 29, 2019
Revenue	$	251,955		$	9,580		$	—			$	(2,181	)	$	244,556
Cost of sales	137,463			12,683			1,140				(1,276		)	124,916
Gross profit	114,492			(3,103		)	(1,140		)		(905		)	119,640
Gross margin	45.4		%											48.9		%
Operating expenses
Selling and marketing	42,527			(1,598		)	—				(367		)	44,492
General and administrative	28,468			(1,932		)	2,374				(62		)	28,088
Research and development	13,624			317			—				(59		)	13,366
Total operating expenses	84,619			(3,213		)	2,374				(488		)	85,946
Income (loss) from operations	$	29,873		$	110		$	(3,514	)		$	(417	)	$	33,694

1 The Acquisition column includes costs incurred as ~~part~~a ofresult ~~the acquisition~~ of ~~Endevco. The Endevco operating results are not separately identifiable as Endevco has been integrated into~~ the ~~existing~~pending ~~Sensors~~merger ~~business~~with Amphenol. See Note 161 to the Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for additional information ~~on the Endevco acquisition~~.


Revenue
	Three Months Ended
	January 2, 2021		December 28, 2019		Increased /(Decreased)
					$		%
Revenue	$	85,803	$	85,535	$	268	0.3	%

Revenue for the three months ended January 2, 2021 increased 0.3% primarily due to the favorable impact of currency translation, partially offset by lower volume primarily in the industrial sector. Excluding the impact of currency translation, revenue decreased 2.0%.


Gross Profit
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Gross profit	$	40,011		$	39,636		$	375	0.9	%
Gross margin	46.6		%	46.3		%	0.3		ppts

Gross profit for the three months ended January 2, 2021 increased 0.9% primarily due to the favorable impact of currency translation, lower compensation expense and the Endevco acquisition inventory fair value adjustment in the prior year of $540, partially offset by lower revenue volume. Gross margin increased 0.3 percentage points primarily driven by lower compensation expense and the Endevco acquisition inventory fair value adjustment in the prior year, partially offset by lower gross margin contribution from product mix and the unfavorable leverage on lower revenue volumes. Excluding the impact of currency translation and the Endevco acquisition inventory fair value adjustment in the prior year, gross profit declined 2.6% and gross margin declined 0.3 percentage points.

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Revenue
Selling and Marketing Expense
	~~Three Months Ended~~		Three Months Ended									~~Nine Months Ended~~
	June 27, 2020		June 29, 2019			Increased /(Decreased)						June 27, 2020			June 29, 2019			Increased / (Decreased)
			January 2,2021					December 28,2019					Increased / (Decreased)
						$				%			$				%	$		%
Revenue	$	80,222	$	84,231		$	(4,009	)		(4.8	)%	$	251,955		$	244,556		$	7,399	3.0	%
Selling and marketing			$	13,355				$	15,840				$	(2,485)			(15.7)		%
% of revenue			15.6		%			18.5		%

~~Revenue~~Selling and marketing expense for the three months ended ~~June 27~~January 2, ~~2020~~2021 decreased 415.87% primarily ~~due~~driven toby ~~weakness~~lower ~~in all sectors except our test sector~~compensation, ~~which~~marketing ~~included contributions from the Endevco acquisition~~ and ~~volume~~travel ~~growth~~expense ~~from~~driven ~~contracts~~by ~~with~~temporary ~~the~~cost ~~U.S.~~savings ~~Department~~initiatives ~~of Defense,~~ and ~~the~~travel ~~unfavorable~~restrictions ~~impact~~stemming offrom ~~currency translation~~COVID-19. Excluding the impact of currency translation, ~~revenue~~selling and marketing expense decreased 417.37%.

Revenue for the nine months ended June 27, 2020 increased 3.0% primarily driven by growth in our test sector from contracts with the U.S. Department of Defense and contributions from the Endevco acquisition, partially offset by weakness in the other three sectors, specifically in Europe, and the unfavorable impact of currency translation. Excluding the impact of currency translation, revenue increased 3.9%.


General and Administrative Expense
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
General and administrative	$	14,840		$	10,688		$	4,152	38.8	%
% of revenue	17.3		%	12.5		%

Gross Profit
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$			%
Gross profit	$	36,720		$	40,807		$	(4,087	)	(10.0	)%	$	114,492		$	119,640		$	(5,148	)	(4.3	)%
Gross margin	45.8		%	48.4		%	(2.6		)	ppts		45.4		%	48.9		%	(3.5		)	ppts

General and administrative expense for the three months ended January 2, 2021 increased 38.8% primarily driven by higher acquisition-related expenses of $4,575 and expenses related to the ransomware incident of $348, partially offset by lower compensation expense. Excluding the impact of currency translation, acquisition-related expenses in both fiscal years and ransomware incident expenses, general and administrative expense decreased 8.3%.

Gross profit for the three months ended June 27, 2020 declined 10.0% primarily due to lower revenue volume in all sectors except our test sector as Sensors was negatively impacted by COVID-19. Gross margin declined 2.6 percentage points primarily driven by the unfavorable impact from Endevco integration efforts and the unfavorable operating leverage on lower revenue volumes. Excluding the impact of currency translation, gross profit declined 9.6% and gross margin declined 2.7 percentage points.


Research and Development Expense
	Three Months Ended
	January 2, 2021			December 28, 2019			Increased / (Decreased)
							$		%
Research and development	$	4,235		$	4,949		$	(714)	(14.4)	%
% of revenue	4.9		%	5.8		%

~~Gross~~Research ~~profit~~and development expense for the ~~nine~~three months ended ~~June 27~~January 2, ~~2020~~2021 ~~declined~~decreased 414.34% primarily ~~due~~driven toby ~~the~~lower ~~Endevco~~compensation ~~inventory~~expense ~~acquisition~~from ~~adjustment~~temporary ofcost ~~$1,140~~savings ~~and~~initiatives ~~the~~taken ~~unfavorable~~in ~~impact~~response ofto ~~currency translation, partially offset by increased revenue volume. Overall, Sensors was negatively impacted by~~ COVID-19. Gross margin declined 3.5 percentage points primarily driven by the unfavorable impact from Endevco integration efforts, lower gross margin contribution from product mix and the Endevco inventory acquisition adjustment. Excluding the impact of currency translation ~~and the Endevco inventory acquisition adjustment~~, ~~gross~~research ~~profit declined 2.6%~~ and ~~gross~~development ~~margin~~expense ~~declined~~decreased 315.~~0 percentage points~~5%.

Selling and Marketing Expense
Income from Operations
	~~Three Months Ended~~			Three Months Ended									~~Nine Months Ended~~
	June 27, 2020			June 29, 2019			Increased / (Decreased)						June 27, 2020			June 29, 2019				Increased / (Decreased)
				January 2,2021					December 28,2019					Increased / (Decreased)
							$				%			$					%	$			%
Selling and marketing	$	12,321		$	14,871		$	(2,550	)		(17.1	)%	$	42,527		$	44,492			$	(1,965	)	(4.4	)%
Income from operations				$	7,581				$	8,159				$	(578)				(7.1)		%
% of revenue	~~15.4~~		%	178.78		%			9.5		%		~~16.9~~		%	~~18.2~~		%

~~Selling~~Income ~~and~~from ~~marketing~~operations ~~expense~~ for the three ~~and nine~~ months ended ~~June~~January 272, ~~2020~~2021 ~~decreased~~declined 177.1% ~~and~~primarily due to higher acquisition-related expenses of $4~~.4%~~, ~~respectively~~575, ~~primarily~~expenses ~~driven~~related byto ~~lower~~the ~~compensation,~~ransomware ~~marketing~~incident of $348 and ~~travel~~reduced ~~expense~~revenue ~~driven~~volume, bypartially ~~cost~~offset ~~savings~~by ~~initiatives~~lower incompensation ~~response~~expenses, tocost ~~COVID-19~~savings initiatives and lower ~~commission~~travel ~~expense~~and onmarketing ~~fewer orders~~expense. Excluding the impact of currency translation, ~~selling~~acquisition-related expenses, and ~~marketing~~ransomware ~~expense~~incident ~~decreased~~expenses, ~~16.9%~~income ~~and~~from 3operations increased 35.61%~~, respectively~~.

4638

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General and Administrative Expense
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$		%
General and administrative	$	7,535		$	9,792		$	(2,257	)	(23.0	)%	$	28,468		$	28,088		$	380	1.4	%
% of revenue	9.4		%	11.6		%						11.3		%	11.5		%

General and administrative expense for the three months ended June 27, 2020 decreased 23.0% primarily driven by lower compensation expense, cost savings initiatives and lower professional fees in response to COVID-19, partially offset by acquisition-related expenses of $545. Excluding the impact of currency translation and acquisition-related expenses, general and administrative expense decreased 28.6%.

General and administrative expense for the nine months ended June 27, 2020 increased 1.4% primarily driven by acquisition-related expenses of $2,374, partially offset by lower compensation expense, cost savings initiatives and lower professional fees in response to COVID-19. Excluding the impact of currency translation and acquisition-related expenses, general and administrative expense decreased 6.9%.

Research and Development Expense
	Three Months Ended											Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)					June 27, 2020			June 29, 2019			Increased / (Decreased)
							$			%								$		%
Research and development	$	3,929		$	4,588		$	(659	)	(14.4	)%	$	13,624		$	13,366		$	258	1.9	%
% of revenue	4.9		%	5.4		%						5.4		%	5.5		%

Research and development expense for the three months ended June 27, 2020 decreased 14.4% primarily driven by cost savings initiatives and lower compensation expense in response to COVID-19, partially offset by the addition of Endevco expenses. Excluding the impact of currency translation, research and development expense decreased 14.2%.

Research and development expense for the nine months ended June 27, 2020 increased 1.9% primarily driven by the addition of Endevco expenses, partially offset by cost savings initiatives and lower compensation expense in response to COVID-19. Excluding the impact of currency translation, research and development expense increased 2.4%.

Income from Operations
	Three Months Ended										Nine Months Ended
	June 27, 2020			June 29, 2019			Increased / (Decreased)				June 27, 2020			June 29, 2019			Increased / (Decreased)
							$		%								$			%
Income from operations	$	12,935		$	11,556		$	1,379	11.9	%	$	29,873		$	33,694		$	(3,821	)	(11.3	)%
% of revenue	16.1		%	13.7		%					11.9		%	13.8		%

Income from operations for the three months ended June 27, 2020 increased 11.9% primarily due to lower operating compensation expenses, cost savings initiatives and lower marketing expense in response to COVID-19, partially offset by lower gross profit. Excluding the impact of currency translation and acquisition-related expenses, income from operations increased 17.5%.

Income from operations for the nine months ended June 27, 2020 declined 11.3% primarily due to additional expenses related to the Endevco acquisition and lower gross profit, partially offset by lower operating compensation expenses, cost savings initiatives and lower marketing expense in response to COVID-19. Excluding the impact of currency translation, the Endevco inventory acquisition adjustment and acquisition-related expenses, income from operations increased 0.3%.

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Cash Flow Comparison

The following table summarizes our cash flows from total operations:

Nine Months Ended

Three Months Ended

June 27, 2020

June 29, 2019

January 2,2021

December 28, 2019

Total cash provided by (used in):

Operating activities

~~13,420~~

4919,~~970~~254

(5,743)

Investing activities

~~(70,325~~

)

~~(101~~6,~~178~~146

)

(10,572)

Financing activities

~~62,993~~

55(5,~~384~~915)

21,532

Effect of exchange rate changes on cash and cash equivalents

~~1,048~~

~~(245~~4,186

)

917

Increase (decrease) in cash and cash equivalents during the period

~~7,136~~

323,~~931~~671

6,134

Cash and cash equivalents balance, beginning of period

~~57,937~~

7188,~~804~~913

57,937

Cash and cash equivalents balance, end of period

~~65,073~~

75112,~~735~~584

64,071

Operating Activities

The ~~decrease~~increase in cash provided by operating activities was primarily due to ~~lower~~an ~~net~~increase ~~income and higher cash used by other assets and liabilities related to accrued project costs. These increases were partially offset by a decrease~~ in cash ~~used~~provided by working capital associated with timing fluctuations from accounts receivable payments received ~~and unbilled accounts receivable accruals~~, accounts payable payments made, advanced payments received from customers, and inventory purchases. These increases were partially offset by lower net income and higher cash used by other assets and liabilities related to accrued project costs.

Investing Activities

The ~~decrease~~increase in cash ~~used~~provided inby investing activities was primarily due to ~~the~~proceeds ~~acquisition~~received offrom ~~E2M in~~ the ~~first~~sale ~~quarter~~ of ~~fiscal~~a ~~year~~building ~~2019, partially offset by the acquisition of R&D~~ in the ~~second~~first quarter of fiscal year ~~2020~~2021, and ana ~~increase~~decrease in cash used to purchase property and equipment ~~for~~due ~~continued~~to ~~strategic~~cost ~~investments~~containment ~~in the business~~measures.

Financing Activities

The increase in cash ~~provided~~used byin financing activities was primarily due to anpayments ~~increase~~of inshort-term ~~borrowings~~notes ~~under~~payable. ~~the~~This ~~Revolving~~increase ~~Credit~~was ~~Facility~~partially ~~used~~offset toby ~~fund~~a ~~the~~decrease ~~acquisition of R&D~~ in ~~the~~payment ~~second quarter~~ of ~~fiscal~~cash ~~year~~dividends ~~2020~~ and ~~operations.~~an ~~These~~increase ~~increases~~in ~~were~~proceeds ~~partially~~from ~~offset~~exercise byof ~~borrowings~~stock ~~under~~options ~~the~~as ~~Revolving~~a ~~Credit~~result ~~Facility used to fund the acquisition~~ of ~~E2M in~~ the ~~first~~increased ~~quarter~~share ~~of fiscal year 2019~~price.

Liquidity and Capital Resources

We had cash and cash equivalents of $65112,~~073~~584 as of ~~June~~January 272, ~~2020~~2021. Of this amount, $212,~~353~~347 was located in North America, $3860,~~315~~165 in Europe and $2440,~~405~~072 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 ~~June~~January 272, ~~2020~~2021, 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 ~~June~~January 272, ~~2020~~2021, our capital structure was comprised of $3137,600 in short-term debt, $~~574~~548,~~221~~921 in long-term debt and $~~488~~232,~~856~~963 in shareholders' equity. The ~~Consolidated~~consolidated ~~Balance~~balance ~~Sheets~~sheets also included $109,~~725~~436 of unamortized debt issuance costs as of ~~June~~January 272, ~~2020~~2021. Total interest-bearing debt as of ~~June~~January 272, ~~2020~~2021 was $~~605~~586,~~821~~521. As of ~~June~~January 272, ~~2020~~2021, we had ~~approximately~~$68,576 outstanding borrowings and $8927,~~463~~502 ofoutstanding ~~unused~~letters ~~borrowing~~of ~~capacity~~credit onunder the Revolving Credit Facility, leaving approximately $103,922 of unused borrowing capacity.

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.

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~~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 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 June 27, 2020, we were in compliance with these financial covenants. Specifically, we ended the third quarter of fiscal year 2020 with a leverage ratio of 4.8x, which is below the current maximum leverage ratio of 5.0x under the Credit Agreement.

On July 30, 2020, we entered into a fifth amendment to the Credit Agreement, which governs the Term Facility and Revolving Credit Facility, to increase the maximum leverage ratio to 6.0x through March 31, 2021 with step downs thereafter. In addition, we amended the interest coverage ratio to maintain 3.0x through March 31, 2021 with subsequent revisions thereafter. This amendment was completed to maximize flexibility and available liquidity under our current capital structure in the event we would need to access additional funds. As of January 2, 2021, we were in compliance with these financial covenants. Specifically, we ended the first quarter of fiscal year 2021 with a leverage ratio of 4.7x, which is below the current maximum leverage ratio of 6.0x under the Credit Agreement.

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 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.

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 $411,~~797~~780 during the ~~nine~~three months ended ~~June~~January 272, ~~2020~~2021 primarily due to $84,~~624~~997 ~~net~~other comprehensive income, $53,~~276~~791 stock options exercised, $2,648 stock-based compensation and $21,~~952~~715 ~~other~~net ~~comprehensive~~ income. The increase was partially offset by $111,~~509~~903 ~~dividends~~

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