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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  MARCH 31, 2021

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 April 30, 2021

Common stock, $.01 par value per share

 

26,040,884

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

March 31, 

    

2021

    

2020

Net sales

    

$

166,644

    

180,492

Costs and expenses:

 

 

Cost of sales

 

103,113

 

113,242

Selling, general and administrative expenses

 

38,746

 

39,982

Amortization of intangible assets

 

4,917

 

5,220

Interest expense, net

 

432

 

1,320

Other (income) expenses, net

 

(1,903)

 

703

Total costs and expenses

 

145,305

 

160,467

Earnings before income taxes

 

21,339

 

20,025

Income tax expense

 

5,025

 

2,203

Net earnings

$

16,314

 

17,822

 

 

Earnings per share:

 

 

Basic -

 

 

Net earnings

0.63

0.69

 

Diluted -

Net earnings

$

0.62

 

0.68

See accompanying notes to consolidated financial statements.

2

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share amounts)

Six Months Ended

March 31,

    

2021

    

2020

Net sales

$

329,593

 

352,220

Costs and expenses:

 

 

 

Cost of sales

 

201,890

 

 

219,969

Selling, general and administrative expenses

 

79,746

 

 

82,087

Amortization of intangible assets

 

9,865

 

 

11,030

Interest expense, net

 

973

 

 

3,741

Other (income) expenses, net

 

(1,880)

 

 

998

Total costs and expenses

 

290,594

 

 

317,825

 

 

 

Earnings before income taxes

 

38,999

 

 

34,395

Income tax expense

 

8,999

 

 

5,809

Earnings from continuing operations

30,000

28,586

Loss from discontinued operations, net of tax expense of $269

(601)

Gain on sale of discontinued operations, net of tax expense of $23,734

 

 

76,614

Earnings from discontinued operations

76,013

Net earnings

$

30,000

 

104,599

 

 

Earnings per share:

 

 

Basic  Continuing operations

$

1.15

1.10

Discontinued operations

2.93

Net earnings

$

1.15

 

4.03

Diluted — Continuing operations

$

1.15

1.09

Discontinued operations

 

 

2.91

Net earnings

$

1.15

 

4.00

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

Six Months Ended

March 31,

March 31,

2021

    

2020

    

2021

    

2020

Net earnings

$

16,314

 

17,822

30,000

 

104,599

Other comprehensive income (loss), net of tax:

 

 

 

 

Foreign currency translation adjustments

 

116

 

(6,885)

 

5,465

 

(2,962)

Total other comprehensive income (loss), net of tax

 

116

 

(6,885)

 

5,465

 

(2,962)

Comprehensive income

$

16,430

 

10,937

35,465

 

101,637

See accompanying notes to consolidated financial statements.

4

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)

March 31,

September 30, 

    

2021

    

2020

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

45,653

 

52,560

Accounts receivable, net

 

124,580

 

144,082

Contract assets

 

95,002

 

96,746

Inventories, net

 

145,342

 

136,189

Other current assets

 

17,523

 

17,053

Total current assets

 

428,100

 

446,630

Property, plant and equipment, net of accumulated depreciation of $140,784 and $130,534, respectively

 

143,401

 

139,870

Intangible assets, net of accumulated amortization of $138,928 and $129,063, respectively

 

345,261

 

346,632

Goodwill

 

411,661

 

408,063

Operating lease assets

18,929

21,390

Other assets

 

10,050

 

10,938

Total assets

$

1,357,402

 

1,373,523

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Current maturities of long-term debt and short-term borrowings

$

20,000

 

22,368

Accounts payable

 

47,091

 

50,525

Contract liabilities

 

106,622

 

100,551

Accrued salaries

 

28,740

 

32,149

Accrued other expenses

 

44,130

 

50,436

Total current liabilities

 

246,583

 

256,029

Deferred tax liabilities

 

59,949

 

60,938

Non-current operating lease liabilities

14,501

16,785

Other liabilities

 

39,362

 

38,176

Long-term debt

 

2,000

 

40,000

Total liabilities

 

362,395

 

411,928

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 30,645,625 and 30,645,625 shares, respectively

 

306

 

306

Additional paid-in capital

 

295,796

 

293,682

Retained earnings

 

804,231

 

778,398

Accumulated other comprehensive income (loss), net of tax

 

1,808

 

(3,657)

 

1,102,141

 

1,068,729

Less treasury stock, at cost: 4,607,911 and 4,607,911 common shares, respectively

 

(107,134)

 

(107,134)

Total shareholders’ equity

 

995,007

 

961,595

Total liabilities and shareholders’ equity

$

1,357,402

 

1,373,523

See accompanying notes to consolidated financial statements.

5

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

Six Months Ended

March 31,

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net earnings

$

30,000

 

104,599

Earnings from discontinued operations

(76,013)

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

 

 

Depreciation and amortization

 

20,115

 

20,583

Stock compensation expense

 

2,745

 

2,896

Changes in assets and liabilities

 

7,401

 

(16,247)

Gain on sale of building and land

(1,950)

Effect of deferred taxes

 

(989)

 

834

Net cash provided by operating activities – continuing operations

57,322

36,652

Net cash used by operating activities – discontinued operations

(14,622)

Net cash provided by operating activities

57,322

22,030

Cash flows from investing activities:

 

 

Acquisition of business, net of cash acquired

 

(6,684)

 

Proceeds from sale of building and land

 

1,950

 

Additions to capitalized software

 

(3,973)

 

(4,280)

Capital expenditures

(13,153)

(21,211)

Net cash used by investing activities – continuing operations

(21,860)

(25,491)

Proceeds from sale of discontinued operations

183,997

Capital expenditures – discontinued operations

(1,728)

Net cash provided by investing activities – discontinued operations

182,269

Net cash (used) provided by investing activities

(21,860)

156,778

Cash flows from financing activities:

 

 

Proceeds from long-term debt and short-term borrowings

 

34,000

 

10,000

Principal payments on long-term debt and short-term borrowings

 

(74,368)

 

(145,000)

Dividends paid

 

(4,167)

 

(4,156)

Net cash used by financing activities – continuing operations

(44,535)

(139,156)

Net cash used by financing activities – discontinued operations

(2,140)

Net cash used by financing activities

(44,535)

(141,296)

Effect of exchange rate changes on cash and cash equivalents

 

2,166

 

875

Net (decrease) increase in cash and cash equivalents

 

(6,907)

 

38,387

Cash and cash equivalents, beginning of period

 

52,560

 

61,808

Cash and cash equivalents, end of period

$

45,653

 

100,195

 

Supplemental cash flow information:

 

 

Interest paid

$

281

 

3,477

Income taxes paid (including state and foreign)

 

14,047

 

23,098

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). As a result of the pension plan termination referenced in the fourth quarter of 2020, certain prior year amounts have been reclassified to conform with the current year presentation. 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, 2020.

The Company’s results for the three-month period ended March 31, 2021 are not necessarily indicative of the results for the entire 2021 fiscal year. References to the second quarters of 2021 and 2020 represent the fiscal quarters ended March 31, 2021 and 2020, 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.    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

Six Months

Ended March 31,

Ended March 31,

2021

    

2020

    

2021

    

2020

Weighted Average Shares Outstanding Basic

 

26,038

 

25,988

 

26,038

 

25,985

Dilutive Options and Restricted Shares

163

100

154

141

Adjusted Shares Diluted

 

26,201

 

26,088

 

26,192

 

26,126

3.    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 $1.1 million and $2.1 million for the three and six-month periods ended March 31, 2021, respectively, and $1.1 million and $2.3 million for the corresponding periods in 2020. There were 220,430 non-vested shares outstanding as of March 31, 2021.

Non-Employee Directors Plan

Compensation expense related to the non-employee director grants was $0.3 million and $0.6 million for the three and six-month periods ended March 31, 2021, respectively, and $0.3 million and $0.6 million for the corresponding periods in 2020.

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 $1.4 million and $2.7 million for the three and six-month periods ended March 31, 2021, respectively, and $1.5 million and $2.9 million for the corresponding periods in 2020. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $0.3 million and $0.7 million for the three and six-month periods ended March 31, 2021, respectively, and $0.3 million and $0.7 million for the corresponding periods in

7

2020. As of March 31, 2021, there was $6.1 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 1.5 years.

4.    INVENTORIES

Inventories, net, from continuing operations consist of the following:

    

March 31,

    

September 30, 

(In thousands)

    

2021

    

2020

Finished goods

$

29,363

 

28,471

Work in process

 

37,905

 

30,183

Raw materials

 

78,074

 

77,535

Total inventories

$

145,342

 

136,189

5.    GOODWILL AND OTHER INTANGIBLE ASSETS

Included on the Company’s Consolidated Balance Sheets at March 31, 2021 and September 30, 2020 are the following intangible assets gross carrying amounts and accumulated amortization from continuing operations:

    

March 31,

    

September 30, 

(Dollars in thousands)

    

2021

    

2020

Goodwill

$

411,661

    

408,063

 

Intangible assets with determinable lives:

 

Patents

 

Gross carrying amount

$

2,136

2,092

Less: accumulated amortization

 

915

858

Net

$

1,221

1,234

 

Capitalized software

 

Gross carrying amount

$

88,862

84,888

Less: accumulated amortization

 

60,563

57,302

Net

$

28,299

27,586

 

Customer relationships

 

Gross carrying amount

$

229,322

227,178

Less: accumulated amortization

 

73,864

67,643

Net

$

155,458

159,535

 

Other

 

Gross carrying amount

$

5,356

5,156

Less: accumulated amortization

 

3,586

3,260

Net

$

1,770

1,896

Intangible assets with indefinite lives:

 

Trade names

$

158,513

156,381

The changes in the carrying amount of goodwill attributable to each business segment for the six months ended March 31, 2021 is as follows on a continuing operations basis:

Aerospace

(Dollars in millions)

    

USG

    

Test

    

& Defense

    

Total

Balance as of September 30, 2020

271.9

 

34.1

 

102.1

 

408.1

Acquisition activity

2.5

2.5

Foreign currency translation

1.1

1.1

Balance as of March 31, 2021

$

273.0

34.1

104.6

411.7

8

The economic uncertainty, changes in the propensity for the general public to travel by air, and reductions in demand for commercial aircraft as a result of the COVID-19 pandemic have adversely impacted net sales and operating results in certain of the Aerospace and Defense reporting units. There were no impairment charges incurred for the three and six-month periods ended March 31, 2021, however, the fair value of the Mayday reporting unit exceeded carrying value by less than 10%. At March 31, 2021, we had $30 million of goodwill recorded for Mayday.

6.    BUSINESS SEGMENT INFORMATION

The Company is organized based on the products and services that it offers and classifies its continuing business operations in three reportable segments for financial reporting purposes: Aerospace & Defense, Utility Solutions Group (USG), and RF Shielding and Test (Test). The Aerospace & Defense segment’s operations consist of PTI Technologies Inc. (PTI), VACCO Industries (VACCO), Crissair, Inc. (Crissair), Westland Technologies Inc. (Westland), Mayday Manufacturing Co. and its affiliate Hi-Tech Metals, Inc. (collectively referred to as Mayday) and Globe Composite Solutions, LLC (Globe). The companies within this segment primarily design and manufacture specialty filtration, fluid control and naval products, including hydraulic filter elements and fluid control devices used in aerospace and defense applications; unique filter mechanisms used in micro-propulsion devices for satellites and custom designed filters for manned aircraft and submarines; products and systems to reduce vibration and/or acoustic signatures and otherwise reduce or obscure a vessel’s signature, and other communications, sealing, surface control and hydrodynamic related applications to enhance U.S. Navy maritime survivability; precision-tolerance machined components for the aerospace and defense industry; and metal processing services. The USG segment’s operations consist primarily of Doble Engineering Company and Morgan Schaffer Ltd. (together Doble), and NRG Systems, Inc. (NRG). Doble is an industry leader in the development, manufacture and delivery of diagnostic testing solutions that enable electric power grid operators to assess the integrity of high voltage power delivery equipment. NRG designs and manufactures decision support tools for the renewable energy industry, primarily wind and solar. 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. ETS-Lindgren also manufactures radio frequency shielding products and components used by manufacturers of medical equipment, communications systems, electronic products, and shielded rooms for high-security data processing and secure communication.

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 from continuing operations before interest and taxes. The table below is presented on the basis of continuing operations and excludes discontinued operations.

Three Months

Six Months

Ended March 31,

Ended March 31,

(In thousands)

    

2021

    

2020

    

2021

    

2020

NET SALES

  

  

  

  

Aerospace & Defense

$

83,278

95,124

150,169

172,635

USG

39,555

43,768

94,095

96,602

Test

43,811

41,600

85,329

82,983

Consolidated totals

$

166,644

180,492

329,593

352,220

EBIT

Aerospace & Defense

$

18,196

21,736

27,576

34,249

USG

6,725

4,866

19,456

14,153

Test

5,688

5,651

11,030

10,307

Corporate (loss)

(8,838)

(10,908)

(18,090)

(20,573)

Consolidated EBIT

21,771

21,345

39,972

38,136

Less: Interest expense

(432)

(1,320)

(973)

(3,741)

Earnings before income taxes

$

21,339

20,025

38,999

34,395

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 management in determining resource allocations within the

9

Company as well as incentive compensation. A reconciliation of EBIT to net earnings from continuing operations 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.

7.    DEBT

The Company’s debt is summarized as follows:

    

March 31,

September 30, 

(In thousands)

    

2021

    

2020

Total borrowings

$

22,000

 

62,368

Current portion of long-term debt and short-term borrowings

 

(20,000)

 

(22,368)

Total long-term debt, less current portion

$

2,000

 

40,000

The Credit Facility includes a $500 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 eight banks led by JP Morgan Chase Bank, N.A., as Administrative Agent. The Credit Facility matures September 27, 2024.

At March 31, 2021, the Company had approximately $468 million available to borrow under the Credit Facility, plus the $250 million increase option, subject to lender approval, in addition to $45.7 million cash on hand. The Company classified $20.0 million as the current portion of long-term debt as of March 31, 2021, as the Company intends to repay this amount within the next twelve months; however, the Company has no contractual obligation to repay such amount during the next twelve months. The letters of credit issued and outstanding under the Credit Facility totaled $10.4 million at March 31, 2021.

Interest on borrowings under the Credit Facility is calculated at a spread over either the London Interbank Offered Rate (LIBOR), the New York Federal Reserve Bank Rate or the prime rate, depending on various factors. The Credit Facility also requires a facility fee ranging from 10 to 25 basis points per annum on the unused portion. The Credit Facility is secured by the unlimited guaranty of the Company’s direct and indirect material U.S. subsidiaries and the pledge of 100% of the equity interests of its direct and indirect material foreign subsidiaries. The financial covenants of the Credit Facility include a leverage ratio and an interest coverage ratio. The weighted average interest rates were 1.27% and 1.40% for the three and six- month periods ending March 31, 2021, respectively, and 3.24% and 3.21% for the three and six-month periods ending March 31, 2020. As of March 31, 2021, the Company was in compliance with all covenants.

8.  INCOME TAX EXPENSE

The second quarter 2021 effective income tax rate from continuing operations was 23.5% compared to 11.0% in the second quarter of 2020. The effective income tax rate in the first six months of 2021 was 23.1% compared to 16.9% for the first six months of 2020. Income tax expense in the second quarter of 2021 was unfavorably impacted by a change in our estimate of the fiscal 2020 research credit increasing the second quarter and year-to-date effective tax rate by 0.6% and 0.3%, respectively. Income tax expense in the second quarter of 2020 was favorably impacted by the release of a valuation allowance of $2.8 million for foreign net operating losses decreasing the second quarter 2020 and year-to-date effective tax rate by 14.3% and 8.2%, respectively.

10

9.  SHAREHOLDERS’ EQUITY

The change in shareholders’ equity for the first three and six  months of 2020 and 2019 is shown below (in thousands):

Three Months Ended March 31,

Six Months Ended March 31,

    

2021

    

2020

    

2021

    

2020

Common stock

Beginning balance

306

306

306

306

Stock plans

Ending balance

306

306

306

306

Additional paid-in-capital

Beginning balance

294,735

293,056

293,682

292,408

Stock plans

1,061

1,731

2,114

2,379

Ending balance

295,796

294,787

295,796

294,787

Retained earnings

Beginning balance

790,000

769,439

778,398

684,741

Net earnings common stockholders

16,314

17,822

30,000

104,599

Dividends paid

(2,083)

(2,077)

(4,167)

(4,156)

Ending balance

804,231

785,184

804,231

785,184

Accumulated other comprehensive income (loss)

Beginning balance

1,692

(40,051)

(3,657)

(43,974)

Foreign currency translation

116

(6,885)

5,465

(2,962)

Ending balance

1,808

(46,936)

1,808

(46,936)

Treasury stock

Beginning balance

(107,134)

(107,259)

(107,134)

(107,259)

Issued under stock plans

125

125

Ending balance

(107,134)

(107,134)

(107,134)

(107,134)

Total equity

995,007

926,207

995,007

926,207

10.  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 March 31, 2021 and September 30, 2020 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.

11

Fair Value of Financial Instruments

The Company’s forward contracts and interest rate swaps are classified within Level 2 of the valuation hierarchy in accordance with FASB Accounting Standards Codification (ASC) 825, as presented below as of March 31, 2021:

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets (Liabilities):

Forward contracts

$

 

141

 

$

 

141

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 six-month periods ended March 31, 2021.

11.  REVENUES

Disaggregation of Revenues

Revenues by customer type, geographic location, and revenue recognition method for the three and six-month periods ended March 31, 2021 are presented in the tables 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 tables below also include a reconciliation of the disaggregated revenue within each reportable segment on a continuing operations basis.

Three months ended March 31, 2021

    

Aerospace

    

    

    

(In thousands)

& Defense

USG

Test

Total

Customer type:

 

  

 

  

 

  

 

  

 

Commercial

$

33,973

$

38,549

$

39,305

$

111,827

U.S. Government

 

49,305

1,006

4,506

 

54,817

Total revenues

$

83,278

$

39,555

$

43,811

$

166,644

 

 

Geographic location:

 

  

  

  

 

  

United States

$

73,037

$

27,445

$

22,965

$

123,447

International

 

10,241

12,110

20,846

 

43,197

Total revenues

$

83,278

$

39,555

$

43,811

$

166,644

 

 

Revenue recognition method:

 

  

  

  

 

  

Point in time

$

37,127

$

27,563

$

9,248

$

73,938

Over time

 

46,151

11,992

34,563

 

92,706

Total revenues

$

83,278

$

39,555

$

43,811

$

166,644

12

Six months ended March 31, 2021

    Aerospace

    

    

    

(In thousands)

    

& Defense

    

USG

    

Test

    

Total

    

Customer type:

 

  

 

  

 

  

 

  

 

Commercial

$

62,114

$

92,414

$

76,027

$

230,555

U.S. Government

 

88,055

 

1,681

 

9,302

 

99,038

Total revenues

$

150,169

$

94,095

$

85,329

$

329,593

Geographic location:

 

 

 

  

 

  

United States

$

130,849

$

64,490

$

46,231

$

241,570

International

 

19,320

 

29,605

 

39,098

 

88,023

Total revenues

$

150,169

$

94,095

$

85,329

$

329,593

Revenue recognition method:

 

 

 

  

 

  

Point in time

$

64,000

$

69,931

$

18,116

$

152,047

Over time

 

86,169

 

24,164

 

67,213

 

177,546

Total revenues

$

150,169

$

94,095

$

85,329

$

329,593

Revenues by customer type, geographic location, and revenue recognition method for the three and six-month periods ended March 31, 2020 are presented in the tables below.

Three months ended March 31, 2020

Aerospace

(In thousands)

    

& Defense

    

USG

    

Test

    

Total

Customer type:

 

  

 

  

 

  

 

  

Commercial

$

51,550

$

43,736

$

33,952

$

129,238

U.S. Government

 

43,574

 

32

 

7,648

 

51,254

Total revenues

$

95,124

$

43,768

$

41,600

$

180,492

Geographic location:

 

  

 

  

 

  

 

  

United States

$

81,458

$

28,706

$

25,121

$

135,285

International

 

13,666

 

15,062

 

16,479

 

45,207

Total revenues

$

95,124

$

43,768

$

41,600

$

180,492

Revenue recognition method:

 

  

 

  

 

  

 

  

Point in time

$

46,610

$

32,209

$

8,009

$

86,828

Over time

 

48,514

 

11,559

 

33,591

 

93,664

Total revenues

$

95,124

$

43,768

$

41,600

$

180,492

Six months ended March 31, 2020

Aerospace

(In thousands)

    

& Defense

    

USG

    

Test

    

Total

Customer type: