Company Quick10K Filing
Quick10K
ESCO
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$74.44 26 $1,930
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-08-08 Earnings, Regulation FD, Exhibits
8-K 2019-05-01 Earnings, Officers, Regulation FD, Exhibits
8-K 2019-02-05 Earnings, Officers, Shareholder Vote, Regulation FD, Exhibits
8-K 2018-11-14 Earnings, Officers, Regulation FD, Exhibits
8-K 2018-08-07 Earnings, Regulation FD, Exhibits
8-K 2018-05-08 Earnings, Regulation FD, Exhibits
8-K 2018-02-02 Earnings, Officers, Shareholder Vote, Regulation FD, Exhibits
ACIW ACI Worldwide 3,750
SKYW Skywest 3,090
SNBR Sleep Number 1,060
UFI Unifi 371
IGC India Globalization Capital 51
PADR Asia Pacific Boiler 0
EDRG Rokk3R 0
SPS Southwestern Public Service 0
EXDI Exactus 0
RSPI RespireRx Pharmaceuticals 0
ESE 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 6. Exhibits
EX-31.1 ese-20190630ex311b44293.htm
EX-31.2 ese-20190630ex312670eee.htm
EX-32 ese-20190630xex32.htm

ESCO Earnings 2019-06-30

ESE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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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 EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______

COMMISSION FILE NUMBER 1-10596

ESCO TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

Missouri

43-1554045

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

9900A Clayton Road

 

St. Louis, Missouri

63124-1186

(Address of principal executive offices)

 (Zip Code)

(314) 213-7200

(Registrant’s telephone number, including area code)

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

 

 

 

 

Name of each exchange

Title of each class

 

Trading Symbol(s)

 

on which registered

Common Stock, par value $0.01 per share

 

ESE

 

New York Stock Exchange

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 (Section 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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth 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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

 

Shares outstanding at July 31, 2019

Common stock, $.01 par value per share

 

25,981,313

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share amounts)

Three Months Ended

June 30, 

    

2019

    

2018

Net sales

$

199,766

 

192,223

Costs and expenses:

 

 

  

Cost of sales

 

122,172

 

122,805

Selling, general and administrative expenses

 

43,400

 

39,910

Amortization of intangible assets

 

4,693

 

4,605

Interest expense, net

 

1,973

 

2,243

Other expenses (income), net

 

2,636

 

(656)

Total costs and expenses

 

174,874

 

168,907

 

 

  

Earnings before income taxes

 

24,892

 

23,316

Income tax expense

 

4,825

 

4,297

Net earnings

$

20,067

 

19,019

 

 

  

Earnings per share:

 

 

  

Basic - Net earnings

$

0.77

 

0.73

 

 

  

Diluted - Net earnings

$

0.77

 

0.73

See accompanying notes to consolidated financial statements.

2

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share amounts)

Nine Months Ended

June 30, 

    

2019

    

2018

Net sales

$

576,312

 

540,496

Costs and expenses:

 

 

  

Cost of sales

 

363,026

 

346,911

Selling, general and administrative expenses

 

126,066

 

122,813

Amortization of intangible assets

 

13,965

 

13,615

Interest expense, net

 

5,788

 

6,464

Other (income) expenses, net

 

(2,037)

 

992

Total costs and expenses

 

506,808

 

490,795

 

 

  

Earnings before income taxes

 

69,504

 

49,701

Income tax expense (benefit)

 

13,323

 

(13,983)

Net earnings

$

56,181

 

63,684

 

 

  

Earnings per share:

 

 

  

Basic - Net earnings

$

2.17

 

2.46

 

 

  

Diluted - Net earnings

$

2.15

 

2.45

See accompanying notes to consolidated financial statements.

3

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

Three Months Ended

Nine Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

Net earnings

$

20,067

 

19,019

 

56,181

 

63,684

Other comprehensive income net of tax:

 

 

  

 

 

  

Foreign currency translation adjustments

 

1,839

 

(6,865)

 

(2,013)

 

(2,740)

Net unrealized (loss) gain on derivative instruments

 

(7)

 

(62)

 

94

 

93

Total other comprehensive income (loss), net of tax

 

1,832

 

(6,927)

 

(1,919)

 

(2,647)

Comprehensive income

$

21,899

 

12,092

 

54,262

 

61,037

See accompanying notes to consolidated financial statements.

4

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)

June 30, 

September 30, 

    

2019

    

2018

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

38,956

 

30,477

Accounts receivable, net

 

168,675

 

163,740

Contract assets

 

99,499

 

53,034

Inventories

 

126,816

 

135,416

Other current assets

 

16,260

 

13,356

Total current assets

 

450,206

 

396,023

Property, plant and equipment, net of accumulated depreciation of $125,747 and $115,728, respectively

 

151,545

 

134,954

Intangible assets, net of accumulated amortization of $106,239 and $92,274, respectively

 

336,625

 

345,353

Goodwill

 

381,683

 

381,652

Other assets

 

6,036

 

7,140

Total assets

$

1,326,095

 

1,265,122

 

  

 

  

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Short-term borrowings and current maturities of long-term debt

$

20,921

 

20,000

Accounts payable

 

59,329

 

63,033

Contract liabilities

 

53,758

 

49,035

Accrued salaries

 

29,914

 

29,379

Accrued other expenses

 

35,814

 

39,083

Total current liabilities

 

199,736

 

200,530

Pension obligations

 

14,610

 

16,286

Deferred tax liabilities

 

66,286

 

64,794

Other liabilities

 

36,656

 

24,102

Long-term debt

 

197,000

 

200,000

Total liabilities

 

514,288

 

505,712

Shareholders’ equity:

 

  

 

  

Preferred stock, par value $.01 per share, authorized 10,000,000 shares

 

 

Common stock, par value $.01 per share, authorized 50,000,000 shares, issued 30,596,940 and 30,534,786 shares, respectively

 

306

 

305

Additional paid-in capital

 

291,204

 

291,190

Retained earnings

 

661,003

 

606,837

Accumulated other comprehensive loss, net of tax

 

(33,447)

 

(31,528)

 

919,066

 

866,804

Less treasury stock, at cost: 4,615,627 and 4,623,958 common shares, respectively

 

(107,259)

 

(107,394)

Total shareholders’ equity

 

811,807

 

759,410

Total liabilities and shareholders’ equity

$

1,326,095

 

1,265,122

See accompanying notes to consolidated financial statements.

5

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

Nine Months Ended

June 30, 

    

2019

    

2018

Cash flows from operating activities:

 

  

 

  

Net earnings

$

56,181

 

63,684

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

  

Depreciation and amortization

 

28,763

 

28,350

Stock compensation expense

 

3,878

 

3,864

Changes in assets and liabilities

 

(41,851)

 

(9,454)

Change in property, plant and equipment due to gain on sale of building

(8,922)

Effect of deferred taxes

 

1,492

 

(23,086)

Pension contributions

 

(2,500)

 

(9,414)

Net cash provided by operating activities

 

37,041

 

53,944

 

 

  

Cash flows from investing activities:

 

  

 

  

Acquisition of businesses, net of cash acquired

 

(937)

 

(11,445)

Additions to capitalized software

 

(6,207)

 

(7,118)

Capital expenditures

 

(26,457)

 

(15,539)

Proceeds from sale of building and land

 

17,201

 

Net cash used by investing activities

 

(16,400)

 

(34,102)

 

  

 

  

Cash flows from financing activities:

 

  

 

  

Proceeds from long-term debt

 

32,921

 

53,000

Principal payments on long-term debt

 

(35,000)

 

(66,000)

Dividends paid

 

(6,223)

 

(6,205)

Other

 

(3,234)

 

(2,886)

Net cash used by financing activities

 

(11,536)

 

(22,091)

Effect of exchange rate changes on cash and cash equivalents

 

(626)

 

(8)

Net increase (decrease) in cash and cash equivalents

 

8,479

 

(2,257)

Cash and cash equivalents, beginning of period

 

30,477

 

45,516

Cash and cash equivalents, end of period

$

38,956

 

43,259

 

 

  

Supplemental cash flow information:

 

 

  

Interest paid

$

5,556

 

6,333

Income taxes paid (including state and foreign)

 

18,513

 

4,343

See accompanying notes to consolidated financial statements.

6

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    BASIS OF PRESENTATION

The accompanying consolidated financial statements, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all the disclosures required for annual financial statements by accounting principles generally accepted in the United States of America (GAAP). For further information, refer to the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

The Company’s results for the three and nine-month periods ended June 30, 2019 are not necessarily indicative of the results for the entire 2019 fiscal year. References to the third quarters of 2019 and 2018 represent the fiscal quarters ended June 30, 2019 and 2018, respectively.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES UPDATE

Our significant accounting policies are included in Note 1 of our Annual Report on Form 10-K for the year ended September 30, 2018. On October 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASC 606). Significant changes to our policies resulting from the adoption are provided below. We adopted ASC 606 using the modified retrospective transition method applied to contracts that were not substantially complete at the end of fiscal year 2018. We recorded a $4.2 million adjustment to increase retained earnings to reflect the cumulative impact of adopting this standard at the beginning of fiscal year 2019, primarily related to certain long-term contracts our Filtration and Technical Packaging segments have that converted to the cost-to-cost method for revenue recognition. The comparative information has not been restated and is reported under the accounting standards in effect for those periods. A reconciliation of the financial statement line items impacted for the three and nine months ended June 30, 2019 under ASC 606 to the prior accounting standards is provided in Note 14.

Revenue Recognition

Revenue is recognized when control of the goods or services promised under the contract is transferred to the customer either at a point in time (e.g., upon delivery) or over time (e.g., as we perform under the contract). We account for a contract when it has approval and commitment from both parties, the rights and payment terms of the parties are identified, the contract has commercial substance and collectability of consideration is probable. Contracts are reviewed to determine whether there is one or multiple performance obligations. A performance obligation is a promise to transfer a distinct good or service to a customer and represents the unit of accounting for revenue recognition. For contracts with multiple performance obligations, the expected consideration, or the transaction price, is allocated to each performance obligation identified in the contract based on the relative standalone selling price of each performance obligation. Revenue is then recognized for the transaction price allocated to the performance obligation when control of the promised goods or services underlying the performance obligation is transferred.

Payment terms with customers vary by the type and location of the customer and the products or services offered. The Company does not adjust the promised amount of consideration for the effects of significant financing components based on the expectation that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Arrangements with customers that include payment terms extending beyond one year are not significant.

7

Filtration: Within the Filtration segment, approximately 48% of revenues (approximately 18% of consolidated revenues) are recognized at a point in time when products are shipped (when control of the goods transfers) to unaffiliated customers. The related contracts are with commercial and military customers and have a single performance obligation as there is only one good promised or the promise to transfer the goods or services is not distinct or separately identifiable from other promises in the contract. The transaction price for these contracts reflects our estimate of returns, rebates and discounts, which are based on historical, current and forecasted information to determine the expected amount to which the Company will be entitled in exchange for transferring the promised goods or services to the customer. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant. Amounts billed to customers for shipping and handling are included in the transaction price as the related activities are performed prior to customer obtaining control of the products. They generally are not treated as separate performance obligations as these costs fulfill a promise to transfer the product to the customer and are expensed in selling, general, and other costs in the period they are incurred. Taxes collected from customers and remitted to government authorities are recorded on a net basis. We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one to two years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation.

Approximately 52% of the segment’s revenues (approximately 19% of consolidated revenues) are accounted for over time as the product does not have an alternative use and the Company has an enforceable right to payment for costs incurred plus a reasonable margin or the inventory is owned by the customer. The related contracts are primarily cost-plus or fixed price contracts related to the design, development and manufacture of complex fluid control products, quiet valves, manifolds, shock and vibration dampening, thermal insulation and systems primarily for the commercial aerospace and military (U.S. Government) markets. The contracts may contain multiple products, which are capable of being distinct as the customer could benefit from each product on its own or together with other readily available resources. Each product is separately identifiable from the other products in the contract. Therefore, each product is distinct in context of the contract and will be accounted for as a separate performance obligation. Our contracts are frequently modified for changes in contract specifications and requirements. Most of our contract modifications are for products that are not distinct from the existing contract and are accounted for as part of that existing contract.

Contracts with the U.S. Government generally contain clauses that provide lien rights to work-in-process along with clauses that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work-in-process. Due to the continuous transfer of control to the U.S. Government, we recognize revenue over the time that we perform under the contract.

Selecting the method to measure progress towards completion for the commercial and military contracts requires judgment and is based on the nature of the products or service to be provided. We generally use the cost-to-cost method to measure progress for our Filtration segment contracts the rate at which costs are incurred to fulfill a contract best depicts the transfer of control to the customer. Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred based on an estimated profit margin.

The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration as applicable. Certain of our long-term contracts contain incentive fees that can increase the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. 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 other information that is reasonably available to us.

8

Total contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several months to one or more years, and the estimation of these costs requires judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change.

Under the typical payment terms of our long term fixed price contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of costs incurred as the work progresses. Because of the timing difference of revenue recognition and customer billing, these contracts will often result in revenue recognized in excess of billings and billings in excess of costs incurred, which we present as contract assets and contract liabilities, respectively, in the Consolidated Balance Sheets. Amounts billed and due from our customers are classified in Accounts receivable, net. For short term fixed price and cost-type contracts, we are generally paid within a short period of time.

For contracts where revenue is recognized over time, we generally recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting. This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.

Test: Within the Test segment, approximately 25% of revenues (approximately 6% of consolidated revenues) are recognized at a point in time when products such as, antennas and probes are shipped (when control of the goods transfers) to unaffiliated customers. The related contracts are with commercial customers. The contracts may contain multiple products which are capable of being distinct as the customer could benefit from each product on its own or together with other readily available resources. Each product is separately identifiable from the other products in the contract. Therefore, each product is distinct in context of the contract and will be accounted for as a separate performance obligation. The transaction price for these contracts reflects our estimate of variable consideration in the form of returns, rebates and discounts, which are based on historical, current and forecasted information to determine the expected amount to which the Company will be entitled in exchange for transferring the promised goods or services to the customer. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant. Amounts billed to customers for shipping and handling are included in the transaction price as the related activities are performed prior to customer obtaining control of the products. They generally are not treated as separate performance obligations as these costs fulfill a promise to transfer the product to the customer and are expensed in selling, general, and other costs in the period they are incurred. Taxes collected from customers and remitted to government authorities are recorded on a net basis. We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one to two years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation.

Approximately 75% of the segment’s revenues (approximately 17% of consolidated revenues) are recorded over time as the product does not have an alternative use and the Company has an enforceable right to payment for costs incurred plus a reasonable margin. Products accounted for under this guidance include the construction and installation of test chambers to a buyer’s specifications that provide its customers with the ability to measure and contain magnetic, electromagnetic and acoustic energy. The goods and services related to each installed test chamber are not distinct due to the significant amount of integration provided and each installed chamber is accounted for as a single performance obligation. Selecting the method to measure progress towards completion for these contracts requires judgment and is based on the nature of the products and service to be provided. We use milestones to measure progress for our Test segment contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts. For arrangements that are accounted for under this guidance, the Company estimates profit as the difference between total revenue and total estimated cost of a contract and recognizes these revenues and costs based primarily on contract milestones. The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration as applicable.

9

Total contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several months to a year, and the estimation of these costs requires judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change.

Under the typical payment terms of our fixed price contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of costs incurred as the work progresses. Because of the timing difference of revenue recognition and customer billing, these contracts result in revenue recognized in excess of billings and billings in excess of costs incurred, which we present as contract assets and contract liabilities, respectively, in the Consolidated Balance Sheets. Amounts billed and due from our customers are classified in Accounts receivable, net.

For contracts where revenue is recognized over time, we generally recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting. This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.

USG: Within the USG segment, approximately 80% of revenues (approximately 24% of consolidated revenues) are recognized at a point in time when products are shipped (when control of the goods transfers) to unaffiliated customers. The related contracts are with commercial customers. The contracts may contain multiple products which are capable of being distinct as the customer could benefit from each product on its own or together with other readily available resources. Each product is separately identifiable from the other products in the contract. Therefore, each product is distinct in context of the contract and will be accounted for as a separate performance obligation. The transaction price for these contracts reflects our estimate of variable consideration in the form of returns, rebates and discounts, which are based on historical, current and forecasted information to determine the expected amount to which the Company will be entitled in exchange for transferring the promised goods or services to the customer. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant. Amounts billed to customers for shipping and handling are included in the transaction price as the related activities are performed prior to customer obtaining control of the products. They generally are not treated as separate performance obligations as these costs fulfill a promise to transfer the product to the customer and are expensed in selling, general, and other costs in the period they are incurred. Taxes collected from customers and remitted to government authorities are recorded on a net basis. We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one to two years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation.

Approximately 20% of the segment’s revenues (approximately 6% of consolidated revenues) are recognized over time as services are performed. The services accounted for under this method include an obligation to provide testing services using hardware and embedded software, software maintenance, training, lab testing, and consulting services. The related contracts contain a bundle of goods and services that are integrated in the context of the contract. Therefore, the goods and services are not distinct and the Company has a single performance obligation. Selecting the method to measure progress towards completion for these contracts requires judgment and is based on the nature of the products and service to be provided. We will recognize revenue as a series of distinct services based on each day of providing services (straight-line over the contract term) for our USG segment contracts. The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration as applicable. Under the typical payment terms of our service contracts, the customer pays us in advance of when services are performed. Because of the timing difference of revenue recognition and customer payment, which is typically received upon commencement of the contract, these contracts result in deferred revenue, which we present as contract liabilities, in the Consolidated Balance Sheets.

10

Included in this category, approximately 8% of the segment’s revenues (approximately 2% of consolidated revenues) are recognized based on the terms of the software contract. For contracts that transfer a software license to the customer, revenue will be recognized at a point in time. These type of software contracts represent a right to use the software, or a functional license, in which revenue should be recognized upon transfer of the license. For contracts in software as a service (SaaS) arrangements, revenue will be recognized over time. The customer receives and consumes the benefits of the SaaS arrangement through access to the system which is for a stated period. We will recognize revenue based on each day of providing access (straight-line over the contract term). The transaction price for our contracts represent our best estimate of the consideration we will receive and includes assumptions regarding variable consideration as applicable. Under the typical payment terms of our software contracts, the customer pays us in advance of when services are performed. Because of the timing difference of revenue recognition and customer payment, these contracts result in deferred revenue, which we present as contract liabilities, in the Consolidated Balance Sheets.

Technical Packaging: Within the Technical Packaging segment, 100% of the revenues (approximately 10% of consolidated revenues) are recognized over time as the product does not have an alternative use and the Company has an enforceable right to payment. Selecting the method to measure progress towards completion for the contracts requires judgment and is based on the nature of the products to be provided. We use the cost-to-cost method to measure progress for our Technical Packaging segment contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts. Under this measure, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and revenue is recorded proportionally as costs are incurred. The transaction price for our contracts reflects our estimate of variable consideration in the form of returns, rebates and discounts, which are based on historical, current and forecasted information to determine the expected amount to which the Company will be entitled in exchange for transferring the promised goods or services to the customer. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant.

Total contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of weeks, minimizing the amount of judgment in developing the cost estimate. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change.

Under the typical payment terms of our contracts, the customer is billed upon shipment of product. Amounts billed and due from our customers are classified in Accounts receivable, net. Because of the timing difference of revenue recognition and customer billing, these contracts result in revenue recognized in excess of billings, which we present as contract assets in the Consolidated Balance Sheets.

For contracts where revenue is recognized over time, we generally recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting. This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period. Anticipated losses on contracts are recognized in full in the period in which the losses become probable and estimable.

Contract Assets and Liabilities

Contract assets arise from contracts when revenue is recognized over time and the amount of revenue recognized, including our estimate of variable consideration that has been included in the transaction price, exceeds the amount billed to the customer. These amounts are included in contract assets until the right to payment is no longer conditional on events other than the passage of time. These contract assets are reclassified to receivables when the right to consideration becomes unconditional. Contract liabilities include deposits, deferred revenue, upfront payments and billings in excess of revenue recognized. Liabilities for customer rebates and discounts are included in other current liabilities in the accompanying balance sheet.

11

3.    EARNINGS PER SHARE (EPS)

Basic EPS is calculated using the weighted average number of common shares outstanding during the period. Diluted EPS is calculated using the weighted average number of common shares outstanding during the period plus shares issuable upon the assumed exercise of dilutive common share options and vesting of performance-accelerated restricted shares (restricted shares) by using the treasury stock method. The number of shares used in the calculation of earnings per share for each period presented is as follows (in thousands):

Three Months

Nine Months

Ended June 30, 

Ended June 30, 

    

2019

    

2018

    

2019

    

2018

Weighted Average Shares Outstanding - Basic

25,971

25,900

25,935

25,862

Dilutive Options and Restricted Shares

 

138

 

150

 

155

 

180

 

 

  

 

 

  

Adjusted Shares - Diluted

 

26,109

 

26,050

 

26,090

 

26,042

4.    SHARE-BASED COMPENSATION

The Company provides compensation benefits to certain key employees under several share-based plans providing for performance-accelerated restricted shares (restricted shares), and to non-employee directors under a non-employee directors compensation plan.

Performance-Accelerated Restricted Share Awards

Compensation expense related to the restricted share awards was $1.0 million and $3.1 million for the three and nine-month periods ended June 30, 2019, respectively, and $0.9 million and $3.1 million for the corresponding periods of 2018. There were 280,504 non-vested shares outstanding as of June 30, 2019.

Non-Employee Directors Plan

Compensation expense related to the non-employee director grants was $0.3 million and $0.8 million for the three and nine-month periods ended June 30, 2019, respectively, and $0.3 million and $0.8 million for the corresponding periods of 2018.

The total share-based compensation cost that has been recognized in the results of operations and included within selling, general and administrative expenses (SG&A) was $1.3 million and $3.9 million for the three and nine-month periods ended June 30, 2019, respectively, and $1.2 million and $3.9 million for the three and nine-month periods ended June 30, 2018. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $0.2 million and $0.8 million for the three and nine-month periods ended June 30, 2019, respectively, and $0.2 million and $0.9 million for the three and nine-month periods ended June 30, 2018, respectively. As of June 30, 2019, there was $10.7 million of total unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a remaining weighted-average period of 2.1 years.

12

5.    INVENTORIES

Inventories consist of the following:                                                                                                                   

June 30, 

September 30, 

(In thousands)

    

2019

    

2018

Finished goods

$

18,583

 

26,678

Work in process

 

42,678

 

47,765

Raw materials

 

65,555

 

60,973

Total inventories

$

126,816

 

135,416

6.    GOODWILL AND OTHER INTANGIBLE ASSETS

Included on the Company’s Consolidated Balance Sheets at June 30, 2019 and September 30, 2018 are the following intangible assets gross carrying amounts and accumulated amortization:

June 30, 

September 30, 

(Dollars in thousands)

    

2019

    

2018

Goodwill

$

381,683

 

381,652

Intangible assets with determinable lives:

 

 

  

Patents

 

 

  

Gross carrying amount

$

1,880

 

1,833

Less: accumulated amortization

 

873

 

791

Net

$

1,007

 

1,042

Capitalized software

 

 

  

Gross carrying amount

$

77,502

 

71,294

Less: accumulated amortization

 

47,206

 

41,624

Net

$

30,296

 

29,670

Customer relationships

 

 

  

Gross carrying amount

$

185,135

 

185,333

Less: accumulated amortization

 

55,641

 

47,802

Net

$

129,494

 

137,531

Other

 

 

  

Gross carrying amount

$

5,382

 

5,468

Less: accumulated amortization

 

2,518

 

2,056

Net

$

2,864

 

3,412

Intangible assets with indefinite lives:

 

 

  

Trade names

$

172,964

 

173,698

The changes in the carrying amount of goodwill attributable to each business segment for the nine months ended June 30, 2019 is as follows:

(Dollars in millions)

    

USG

    

Test

    

Filtration

    

Packaging

    

Total

Balance as of September 30, 2018

 

254.1

 

34.1

 

73.7

 

19.8

 

381.7

Foreign currency translation

 

0.2

 

 

 

(0.2)

 

Balance as of June 30, 2019

$

254.3

 

34.1

 

73.7

 

19.6

 

381.7

13

7.    BUSINESS SEGMENT INFORMATION

The Company is organized based on the products and services that it offers, and classifies its business operations in four reportable segments for financial reporting purposes: Filtration/Fluid Flow (Filtration), RF Shielding and Test (Test), Utility Solutions Group (USG) and Technical Packaging. The Filtration segment’s operations consist of PTI Technologies Inc. (PTI), VACCO Industries (VACCO), Crissair, Inc. (Crissair), Westland Technologies Inc. (Westland), and Mayday Manufacturing Co. and its affiliate Hi-Tech Metals, Inc. (collectively referred to as Mayday). The companies within this segment primarily design and manufacture specialty filtration products, including hydraulic filter elements used in commercial aerospace applications, unique filter mechanisms used in micro-propulsion devices for satellites and custom designed filters for manned and unmanned aircraft; manufacture elastomeric-based signature reduction solutions for the U.S. Navy; and manufacture landing gear components for the aerospace and defense industry. The Test segment’s operations consist primarily of ETS-Lindgren Inc.

(ETS-Lindgren). ETS-Lindgren is an industry leader in providing its customers with the ability to identify, measure and contain magnetic, electromagnetic and acoustic energy. The USG segment’s operations consist primarily of Doble Engineering Company (Doble), Morgan Schaffer Inc. (Morgan Schaffer), and NRG Systems, Inc. (NRG). Doble provides high-end, intelligent diagnostic test solutions for the electric power delivery industry and is a leading supplier of partial discharge testing instruments used to assess the integrity of high voltage power delivery equipment. Morgan Schaffer provides an integrated offering of dissolved gas analysis, oil testing, and data management solutions for the electric power industry. NRG designs and manufactures decision support tools for the renewable energy industry, primarily wind. The Technical Packaging segment’s operations consist of Thermoform Engineered Quality LLC (TEQ) and Plastique Limited and Plastique Sp. z o.o. (together, Plastique). The companies within this segment provide innovative solutions to the medical and commercial markets for thermoformed packages and specialty products using a wide variety of thin gauge plastics and pulp.

Management evaluates and measures the performance of its reportable segments based on “Net Sales” and “EBIT”, which are detailed in the table below. EBIT is defined as earnings before interest and taxes.

Three Months

Nine Months

Ended June 30, 

Ended June 30, 

(In thousands)

    

2019

    

2018

    

2019

2018

NET SALES

 

  

 

  

 

  

 

  

Filtration

$

83,067

 

69,721

 

228,769

 

195,531

Test

 

42,298

 

45,034

 

126,459

 

123,368

USG

 

52,894

 

55,489

 

157,639

 

157,942

Technical Packaging

 

21,507

 

21,979

 

63,445

 

63,655

Consolidated totals

$

199,766

 

192,223

 

576,312

 

540,496

EBIT

 

 

  

 

 

  

Filtration

$

19,039

 

14,292

 

47,092

 

35,056

Test

 

5,927

 

5,902

 

14,791

 

13,797

USG

 

10,148

 

11,528

 

40,461

 

27,805

Technical Packaging

 

1,625

 

2,505

 

3,333

 

5,355

Corporate (loss)

 

(9,874)

 

(8,668)

 

(30,385)

 

(25,848)

Consolidated EBIT

 

26,865

 

25,559

 

75,292

 

56,165

Less: Interest expense

 

(1,973)

 

(2,243)

 

(5,788)

 

(6,464)

Earnings before income taxes

$

24,892

 

23,316

 

69,504

 

49,701

Non-GAAP Financial Measures

The financial measure “EBIT” is presented in the above table and elsewhere in this Report. EBIT on a consolidated basis is a non-GAAP financial measure. Management believes that EBIT is useful in assessing the operational profitability of the Company’s business segments because it excludes interest and taxes, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by

14

management in determining resource allocations within the Company as well as incentive compensation. A reconciliation of EBIT to net earnings is set forth in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations – EBIT.

The Company believes that the presentation of EBIT provides important supplemental information to investors to facilitate comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. However, the Company’s non-GAAP financial measures may not be comparable to other companies’ non-GAAP financial performance measures. Furthermore, the use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.

8.    DEBT

The Company’s debt is summarized as follows:

June 30, 

September 30, 

(In thousands)

    

2019

    

2018

Total borrowings

$

217,921

 

220,000

Short-term borrowings and current portion of long-term debt

 

(20,921)

 

(20,000)

Total long-term debt, less current portion

$

197,000

 

200,000

The Company’s existing credit facility (“the Credit Facility”) matures December 21, 2020. The Credit Facility includes a $450 million revolving line of credit as well as provisions allowing for the increase of the credit facility commitment amount by an additional $250 million, if necessary, with the consent of the lenders. The bank syndication supporting the facility is comprised of a diverse group of nine banks led by JPMorgan Chase Bank, N.A., as Administrative Agent.

At June 30, 2019, the Company had approximately $225 million available to borrow under the Credit Facility, and a $250 million increase option, in addition to $39.0 million cash on hand. At June 30, 2019, the Company had $217.0 million of outstanding borrowings under the Credit Facility, and $0.9 million of short-term borrowing in addition to outstanding letters of credit of $7.2 million. The Company classified $20.9 million as the current portion of long-term debt as of June 30, 2019, as the Company intends to repay this amount within the next twelve month period; however, the Company has no contractual obligation to repay such amount during the next twelve month period.

The Credit Facility requires, as determined by certain financial ratios, a facility fee ranging from 12.5 to 27.5 basis points per year on the unused portion. The terms of the facility provide that interest on borrowings may be calculated at a spread over the London Interbank Offered Rate (LIBOR) or based on the prime rate, at the Company’s election. The facility is secured by the unlimited guaranty of the Company’s material domestic subsidiaries and a 65% pledge of the material foreign subsidiaries’ share equity. The financial covenants of the Credit Facility include a leverage ratio and an interest coverage ratio. The weighted average interest rates were 3.21% and 3.22% for the three and nine-month periods ending June 30, 2019, respectively, and 3.17% and 2.97% for the corresponding periods of 2018. At June 30, 2019, the Company was in compliance with all debt covenants.

9.    INCOME TAX EXPENSE

The third quarter 2019 effective income tax rate was 19.4% compared to 18.4% in the third quarter of 2018. The income tax expense for the first nine months of 2019 was $13.3 million compared to income tax benefit of $14.0 million for the first nine months of 2018. The effective income tax rate for the first nine months of 2019 was 19.2% compared to (28.1)% for the first nine months of 2018.

The income tax expense in the third quarter and first nine months of 2019 was favorably impacted by tax planning strategies to increase foreign tax credits claimed retrospectively. The Company reduced the valuation allowance for excess foreign tax credits by $2.4 million ($2.3 million in the second quarter of 2019 and $0.1 million in third quarter of 2019) and recorded an amended return benefit of $0.3 million ($0.2 million in the second quarter of 2019 and $0.1 million in the third quarter of 2019) which favorably impacted the third quarter and year-to-date effective

15

tax rate by 1.0% and 4.1%, respectively. Income tax expense in the third quarter of 2019 and first nine months of 2019 was also favorably impacted by additional tax benefits on share-based compensation that vested during the quarter decreasing the effective tax rate by 1.8% and 0.7%, respectively. A non-automatic accounting method change filed with the 2018 tax return was approved by the Internal Revenue Service during the third quarter of 2019 and favorably impacted the third quarter and year-to-date effective tax rate by 1.0% and 0.4%, respectively.

H.R. 1, Tax Cuts and Jobs Act (“TCJA”), was signed into law on December 22, 2017. The total impact of the TCJA in the third quarter and first nine months of 2018 was a net expense of $0.1 million and a net benefit of $24.3 million, respectively. The impacts were as follows: First, the Company’s 2018 federal statutory rate dropped from 35.0% to 24.5% which required an adjustment to the value of its deferred tax assets and liabilities. This adjustment ($30.3 million provisional amount recorded in the first quarter of 2018 and $0.4 million provisional amount in the third quarter of 2018) favorably impacted the third quarter and year-to-date effective tax rate by 1.5% and 61.7%, respectively. Second, the TCJA subjected the Company’s cumulative foreign earnings to deferral income tax ($4.1 million provisional amount of which $2.9 million was recorded in the first quarter of 2018, $0.7 million was recorded in the third quarter of 2018 and $0.5 million in the third quarter of 2019) which unfavorably impacted the third quarter and year-to-date effective tax rate by 2.1% and 8.2%, respectively.

In the first quarter of 2018, the Company recorded a $2.3 million provisional estimate of the income tax effects of the future repatriation of the cumulative earnings of its foreign subsidiaries which unfavorably impacted the year-to-date effective tax rate by 4.7%. An additional $7.5 million pension contribution for the 2017 plan year was approved during the second quarter of 2018 increasing the value of the deferred tax liability by $1.0 million. This favorable adjustment, net of the $0.3 million unfavorable impact to the 2017 Domestic Production Deduction, favorably impacted the year-to-date effective tax rate by 1.6%. An accounting method change was filed with the 2017 tax return which resulted in an additional deferred tax liability to be adjusted as a result of the TCJA. A favorable adjustment, net of the $0.3 million unfavorable impact to the 2018 Domestic Production deduction, favorably impacted the third quarter and year-to-date effective tax rate by 2.9% and 1.4%, respectively. The income tax expense in the third quarter and first nine months of 2018 was favorably impacted by return to provision true-ups decreasing the third quarter and year-to-date effective tax rate by 1.4% and 0.7%, respectively. Income tax expense in the third quarter and first nine months of 2018 was also favorably impacted by additional tax benefits on share-based compensation that vested during the quarter decreasing the effective tax rate by 1.9% and 0.9%, respectively.

Provisions under the TCJA that became effective for the Company in the current fiscal year include a further reduction in the U.S. statutory rate to 21%, a new minimum tax on global intangible low-taxed income (“GILTI”), the benefit of the deduction for foreign-derived intangible income (“FDII”), and changes to IRC Section 162(m) related to the deductibility of executive compensation.

16

10.  SHAREHOLDERS’ EQUITY

The change in shareholders’ equity for the first nine months of 2019 and 2018 is shown below (in thousands):

Three Months Ended June 30,

Nine Months Ended June 30,

    

2018

    

2019

    

2018

    

2019

Common stock

Beginning balance

305

305

305

305

Stock plans

1

1

Ending balance

305

306

305

306

Additional paid-in-capital

Beginning balance

292,404

293,612

289,785

291,190

Stock plans

(2,298)

(2,408)

321

14

Ending balance

290,106

291,204

290,106

291,204

Retained earnings

Beginning balance

557,249

643,018

516,718

606,836

Net earnings common stockholders

19,019

20,067

63,684

56,181

Dividends paid

(2,076)

(2,082)

(6,210)

(6,227)

Adoption of accounting standards updates

4,213

Ending balance

574,192

661,003

574,192

661,003

Accumulated other comprehensive income (loss)

Beginning balance

(23,028)

(35,280)

(27,308)

(31,528)

Foreign currency translation

(6,865)

1,840

(2,801)

(2,013)

Pension

61

Forward exchange contracts

(62)

(7)

93

94

Ending balance

(29,955)

(33,447)

(29,955)

(33,447)

Treasury stock

Beginning balance

(107,394)

(107,259)

(107,582)

(107,394)

Issued under stock plans

188

135

Ending balance

(107,394)

(107,259)

(107,394)

(107,259)

Total equity

727,254

811,807

727,254

811,807

11.  RETIREMENT PLANS

A summary of net periodic benefit expense for the Company’s defined benefit plans for the three and nine-month periods ended June 30, 2019 and 2018 is shown in the following table. Net periodic benefit cost for each period presented is comprised of the following:

Three Months

Nine Months

Ended June 30, 

Ended June 30, 

(In thousands)

    

2019

    

2018

    

2019

2018

Defined benefit plans

  

  

  

  

Interest cost

$

875

 

821

 

2,626

 

2,461

Expected return on assets

 

(1,086)

 

(975)

 

(3,259)

 

(2,924)

Amortization of:

 

 

  

 

 

  

Prior service cost

 

 

 

 

Actuarial loss

 

487

 

548

 

1,461

 

1,644

Net periodic benefit cost

$

276

 

394

 

828

 

1,181

17

12.  DERIVATIVE FINANCIAL INSTRUMENTS

Market risks relating to the Company’s operations result primarily from changes in interest rates and changes in foreign currency exchange rates. The Company is exposed to market risk related to changes in interest rates and selectively uses derivative financial instruments, including forward contracts and swaps, to manage these risks. In 2018, the Company entered into three interest rate swaps with a notional amount of $150 million to hedge some of its exposure to variability in future LIBOR-based interest payments on variable rate debt. In addition, the Company’s Canadian subsidiary Morgan Schaffer enters into foreign exchange contracts to manage foreign currency risk as a portion of their revenue is denominated in U.S. dollars. The Company expects hedging gains or losses to be essentially offset by losses or gains on the related underlying exposures. All derivative instruments are reported in either accrued expenses or other receivables on the balance sheet at fair value. For derivative instruments designated as cash flow hedges, the gain or loss on the derivative is deferred in accumulated other comprehensive income until recognized in earnings with the underlying hedged item. The interest rate swaps entered into during 2018 were not designated as cash flow hedges and, therefore, the gain or loss on the derivative is reflected in earnings each period.

The following is a summary of the notional transaction amounts and fair values for the Company’s outstanding derivative financial instruments by risk category and instrument type as of June 30, 2019:

Fair

 

Notional

Value

Float

Fix

 

(In thousands)

    

amount

    

(US$)

    

Rate

    

Rate

 

Forward contracts

 

6,000

 

USD

 

(4)

 

  

 

  

Interest rate swap

 

150,000

 

USD

 

6

 

2.38

%  

2.09

%

Interest rate swap *

 

150,000

 

USD

 

(1,041)

 

N/A

 

2.24

%

*This swap represents a forward contract and will be effective in November 2019.

13.  FAIR VALUE MEASUREMENTS

The accounting guidance establishes a three-level hierarchy for disclosure of fair value measurements, based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Financial Assets and Liabilities

The Company has estimated the fair value of its financial instruments as of June 30, 2019 and September 30, 2018 using available market information or other appropriate valuation methodologies. The carrying amounts of cash and cash equivalents, receivables, inventories, payables, debt and other current assets and liabilities approximate fair value because of the short maturity of those instruments.

18

Fair Value of Financial Instruments

The Company’s forward contracts are classified within Level 2 of the valuation hierarchy in accordance with FASB Accounting Standards Codification (ASC) 825, as presented below as of June 30, 2019:

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets (Liabilities):

 

  

 

  

 

  

 

  

Forward contracts

$

 

(1,039)

$

 

(1,039)

Valuation was based on third party evidence of similarly priced derivative instruments.

Nonfinancial Assets and Liabilities

The Company’s nonfinancial assets such as property, plant and equipment, and other intangible assets are not measured at fair value on a recurring basis; however they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist. No impairments were recorded during the three and nine-month periods ended June 30, 2019.

14.  REVENUES

Disaggregation of Revenues

Our revenues by customer type, geographic location, and revenue recognition method for the three and nine-month periods ended June 30, 2019 are presented in the table below as the Company deems it best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors. The table below also includes a reconciliation of the disaggregated revenue within our reportable segments.

Three Months Ended June 30, 2019

    

    

    

    

Technical 

    

(In thousands)

Filtration

Test

USG

Packaging

Total

Customer type:

 

  

 

  

 

  

 

  

 

  

Commercial

$

47,482

$

37,980

$

52,065

$

21,507

$

159,034

Government

 

35,585

 

4,318

 

829

 

 

40,732

Total revenues

$

83,067

$

42,298

$

52,894

$

21,507

$

199,766

 

 

 

 

 

Geographic location:

 

 

 

 

 

United States

$

69,872

$

26,923

$

38,414

$

11,559

$

146,268

International

 

13,195

 

15,375

 

14,480

 

9,948

 

53,498

Total revenues

$

83,067

$

42,298

$

52,894

$

21,507

$

199,766

 

  

 

  

 

  

 

  

 

  

Revenue recognition method:

 

  

 

  

 

  

 

  

 

  

Point in time

$

41,633

$

6,485

$

40,968

$

$

89,092

Over time

 

41,434

 

35,813

 

11,926

 

21,507

 

110,674

Total revenues

$

83,067

$

42,298

$

52,894

$

21,507

$

199,766

Nine Months Ended June 30, 2019

    

    

    

    

Technical

    

(In thousands)

Filtration

Test

USG

Packaging

Total

Customer type:

 

  

 

  

Commercial

$

131,112

$

111,577

$

154,240

$

63,251

$

460,180

Government

 

97,657

 

14,882

 

3,399

 

194

 

116,132

Total revenues

$

228,769

$

126,459

$

157,639

$

63,445

$

576,312

 

 

 

 

 

Geographic location:

 

 

 

 

 

United States

$

190,701

$

82,072

$

112,289

$

32,865

$

417,927

International

 

38,068

 

44,387

 

45,350

 

30,580

 

158,385

19

Total revenues

$

228,769

$

126,459

$

157,639

$

63,445

$

576,312

 

 

 

 

 

Revenue recognition method:

 

 

 

 

 

Point in time

$

115,852

$

29,092

$

122,075

$

-

$

267,021

Over time

 

112,917

 

97,367

 

35,564

 

63,445

 

309,291

Total revenues

$

228,769

$

126,459

$

157,639

$

63,445

$

576,312

Remaining Performance Obligations

Our remaining performance obligations, which is the equivalent of our backlog, represent the expected transaction price allocated to our contracts that we expect to recognize as revenue in future periods when we perform under the contracts. These remaining obligations include amounts that have been formally appropriated under contracts with the U.S. Government, and exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At June 30, 2019, we had $432.5 million in remaining performance obligations of which we expect to recognize revenues of 83% in the next twelve months.

Contract assets and liabilities

Assets and liabilities related to our contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At June 30, 2019, contract assets and liabilities totaled $99.5 million and $53.8 million, respectively. Upon adoption of ASC 606 on October 1, 2018, contract assets and liabilities related to our contracts with customers were $87 million and $51 million, respectively. During the first nine months of 2019, we recognized approximately $35 million in revenues that were included in the contract liabilities balance at the adoption date.

Reconciliation of ASC 606 to Prior Accounting Standards

The amount by which each financial statement line item is affected in 2019 as a result of applying the new accounting standard as discussed in Note 2 is presented below: