COMMITMENTS AND CONTINGENCIES

Internal Investigation Related to China Operations

As previously reported by us, in November 2016, after the end of fiscal year 2016, we initiated an internal investigation into apparent violations of our Code of Conduct involving certain employees in our China operations, including association by those employees with an independent business that may compete with us in certain markets. As the apparent violations implicated members of leadership in our China operations, the Audit Committee engaged independent external counsel to conduct an investigation of our China operations in order to assess the impact of these apparent violations on financial input from China and to review for potential violations to our Code of Conduct, anticorruption compliance policies and procedures and related U.S. law. Independent forensic accountants, acting at the direction of external counsel, performed testing of certain transactions related to our China operations as part of this investigation.

Substantial investigative work was completed during fiscal year 2017 and confirmed the former China Test leader and several other former senior managers associated with our China Test operations violated the conflict of interest provisions of our Code of Conduct in connection with their involvement with an independent business that competed with our low-end products in the China market. This inconsistent adherence to our Code of Conduct could have resulted in management override of internal control over financial reporting.

In light of, and to address the findings of the investigation, and to remediate the material weakness in our internal control over financial reporting resulting from the conclusion described in the prior paragraph, we are conducting more robust monitoring to ensure ongoing adherence to our Code of Conduct. We have also enhanced our third-party intermediary diligence and monitoring processes, with the support of and guidance from external resources, and have continued clear and consistent messaging on compliance expectations at all levels of the organization.

To address the challenges presented by the findings of the investigation of our China operations, we are exploring multiple business alternatives to address the low-end materials market. The consideration of these alternatives could possibly result in a future expectation of sale or disposal of certain assets that could cause an impairment charge to be recognized in a subsequent period. As of September 30, 2017, we do not anticipate any material impairment charges for the tangible and intangible assets. We are prepared to assess the mix of products, markets in which we compete and manner by which we select and utilize resellers, agents, consultants and vendors to support these commitments.

Government Investigation

As previously reported by us with disclosures starting in March 2012, we investigated certain gift, travel, entertainment and other expenses incurred in connection with some of our operations in the Asia Pacific region. This investigation focused on possible violations of Company policy, corresponding internal control issues and possible violations of applicable law, including the Foreign Corrupt Practices Act. Substantial investigative work was completed on this matter and we implemented remedial measures, including changes to internal control procedures and removing certain persons formerly employed in our Korea office. We voluntarily disclosed this matter to the Department of Justice and the SEC (the Agencies). We also investigated certain business practices in China, starting in 2014 and that investigation had a similar focus to the 2012 investigation described above. We have also updated the Agencies regarding the China investigation described in the Internal Investigation Related to China Operations above. We were notified by the Agencies in August 2017 that their respective investigations were closed as to MTS without further action taken by either U.S. agency. With the closure of the government investigations by the Agencies and the steps being taken by the Company voluntarily, we believe that the matter has been resolved. We are committed to continuing to monitor compliance with our Code of Conduct and applicable law.

Litigation

We are subject to various claims, legal actions and complaints arising in the ordinary course of business. We believe the final resolution of legal matters outstanding as of September 30, 2017 will not have a material adverse effect on our consolidated financial position or results of operations. We expense legal costs as incurred.

Operating Leases

We have operating lease commitments for equipment, automobiles, land and facilities that expire on various dates through 2052. Total lease expense was $7,506, $7,053 and $5,787 for fiscal years 2017, 2016 and 2015, respectively.

Minimum annual rents payable under operating leases for the next five fiscal years and thereafter are as follows:



Fiscal Year	Operating Lease Payments (in thousands)
2018	$	4,833
2019	2,320
2020	1,281
2021	591
2022	364
Thereafter	1,236
Total	$	10,625