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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, 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 July 31, 2021

Common stock, $.01 par value per share

 

26,061,432

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, 

    

2021

    

2020

Net sales

    

$

181,394

    

172,665

Costs and expenses:

 

 

Cost of sales

 

113,610

 

107,686

Selling, general and administrative expenses

 

42,882

 

36,936

Amortization of intangible assets

 

4,864

 

5,535

Interest expense, net

 

480

 

1,523

Other expenses (income), net

 

615

 

(824)

Total costs and expenses

 

162,451

 

150,856

Earnings before income taxes

 

18,943

 

21,809

Income tax expense

 

4,034

 

3,122

Net earnings

$

14,909

 

18,687

 

 

Earnings per share:

 

 

Basic -

 

 

Net earnings

0.57

0.72

 

Diluted -

Net earnings

$

0.57

 

0.72

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)

Nine Months Ended

June 30,

    

2021

    

2020

Net sales

$

509,962

 

524,885

Costs and expenses:

 

 

 

Cost of sales

 

316,785

 

 

327,655

Selling, general and administrative expenses

 

122,628

 

 

119,023

Amortization of intangible assets

 

14,729

 

 

16,565

Interest expense, net

 

1,453

 

 

5,264

Other (income) expenses, net

 

(1,265)

 

 

174

Total costs and expenses

 

454,330

 

 

468,681

 

 

 

Earnings before income taxes

 

55,632

 

 

56,204

Income tax expense

 

12,501

 

 

8,931

Earnings from continuing operations

43,131

47,273

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

$

43,131

 

123,286

 

 

Earnings per share:

 

 

Basic  Continuing operations

$

1.66

1.82

Discontinued operations

2.92

Net earnings

$

1.66

 

4.74

Diluted — Continuing operations

$

1.65

1.81

Discontinued operations

 

 

2.91

Net earnings

$

1.65

 

4.72

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, 

2021

    

2020

    

2021

    

2020

Net earnings

$

14,909

 

18,687

43,131

 

123,286

Other comprehensive income (loss), net of tax:

 

 

 

 

Foreign currency translation adjustments

 

535

 

2,802

 

6,000

 

(160)

Total other comprehensive income (loss), net of tax

 

535

 

2,802

 

6,000

 

(160)

Comprehensive income

$

15,444

 

21,489

49,131

 

123,126

See accompanying notes to consolidated financial statements.

4

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)

June 30, 

September 30, 

    

2021

    

2020

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

78,359

 

52,560

Accounts receivable, net

 

135,343

 

144,082

Contract assets

 

94,768

 

94,302

Inventories, net

 

141,113

 

135,296

Other current assets

 

21,282

 

17,053

Total current assets

 

470,865

 

443,293

Property, plant and equipment, net of accumulated depreciation of $144,642 and $130,534, respectively

 

141,967

 

139,870

Intangible assets, net of accumulated amortization of $143,792 and $129,063, respectively

 

343,346

 

346,632

Goodwill

 

411,732

 

408,063

Operating lease assets

30,426

21,390

Other assets

 

10,347

 

10,938

Total assets

$

1,408,683

 

1,370,186

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

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

$

20,000

 

22,368

Accounts payable

 

50,921

 

50,525

Contract liabilities

 

105,822

 

100,551

Accrued salaries

 

33,132

 

32,149

Accrued other expenses

 

43,517

 

50,436

Total current liabilities

 

253,392

 

256,029

Deferred tax liabilities

 

56,992

 

60,170

Non-current operating lease liabilities

26,458

16,785

Other liabilities

 

38,987

 

38,176

Long-term debt

 

28,000

 

40,000

Total liabilities

 

403,829

 

411,160

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 30,665,868 and 30,645,625 shares, respectively

 

307

 

306

Additional paid-in capital

 

296,578

 

293,682

Retained earnings

 

812,709

 

775,829

Accumulated other comprehensive income (loss), net of tax

 

2,343

 

(3,657)

 

1,111,937

 

1,066,160

Less treasury stock, at cost: 4,604,741 and 4,607,911 common shares, respectively

 

(107,083)

 

(107,134)

Total shareholders’ equity

 

1,004,854

 

959,026

Total liabilities and shareholders’ equity

$

1,408,683

 

1,370,186

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, 

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net earnings

$

43,131

 

123,286

Earnings from discontinued operations

(76,013)

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

 

 

Depreciation and amortization

 

30,259

 

31,066

Stock compensation expense

 

5,386

 

4,184

Changes in assets and liabilities

 

2,520

 

(20,926)

Gain on sale of building and land

(1,950)

Pension contributions

(10,000)

Effect of deferred taxes

 

(3,946)

 

2,155

Net cash provided by operating activities – continuing operations

75,400

53,752

Net cash used by operating activities – discontinued operations

(14,737)

Net cash provided by operating activities

75,400

39,015

Cash flows from investing activities:

 

 

Acquisition of business, net of cash acquired

 

(6,684)

 

Proceeds from sale of building and land

 

1,950

 

Capital expenditures

(17,887)

(28,291)

Additions to capitalized software

 

(6,500)

 

(6,564)

Net cash used by investing activities – continuing operations

(29,121)

(34,855)

Proceeds from sale of discontinued operations

183,812

Capital expenditures – discontinued operations

(1,728)

Net cash provided by investing activities – discontinued operations

182,084

Net cash (used) provided by investing activities

(29,121)

147,229

Cash flows from financing activities:

 

 

Proceeds from long-term debt and short-term borrowings

 

80,000

 

11,577

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

 

(94,368)

 

(145,000)

Dividends paid

 

(6,251)

 

(6,240)

Other

 

(1,672)

 

(3,127)

Net cash used by financing activities – continuing operations

(22,291)

(142,790)

Net cash used by financing activities – discontinued operations

(2,140)

Net cash used by financing activities

(22,291)

(144,930)

Effect of exchange rate changes on cash and cash equivalents

 

1,811

 

1,617

Net increase in cash and cash equivalents

 

25,799

 

42,931

Cash and cash equivalents, beginning of period

 

52,560

 

61,808

Cash and cash equivalents, end of period

$

78,359

 

104,739

 

Supplemental cash flow information:

 

 

Interest paid

$

316

 

4,669

Income taxes paid (including state and foreign)

 

21,982

 

23,435

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 and nine-month periods ended June 30, 2021 are not necessarily indicative of the results for the entire 2021 fiscal year. References to the third quarters of 2021 and 2020 represent the fiscal quarters ended June 30, 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 unvested restricted share units (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, 

2021

    

2020

    

2021

    

2020

Weighted Average Shares Outstanding Basic

 

26,045

 

26,031

 

26,040

 

26,002

Dilutive Options and Restricted Shares

169

103

159

128

Adjusted Shares Diluted

 

26,214

 

26,134

 

26,199

 

26,130

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 $2.5 million and $4.5 million for the three and nine-month periods ended June 30, 2021, respectively, and $1.0 million and $3.2 million for the corresponding periods in 2020. There were 229,602 non-vested shares outstanding as of June 30, 2021.

Non-Employee Directors Plan

Compensation expense related to the non-employee director grants was $0.3 million and $1.0 million for the three and nine-month periods ended June 30, 2021, respectively, and $0.3 million and $1.0 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 $2.8 million and $5.5 million for the three and nine-month periods ended June 30, 2021, respectively, and $1.3 million and $4.2 million for the corresponding periods in 2020. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $0.4 million and $1.1 million for the three

7

and nine-month periods ended June 30, 2021, respectively, and $0.2 million and $0.9 million for the corresponding periods in 2020. As of June 30, 2021, there was $9.2 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 1.9 years.

4.    INVENTORIES

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

    

June 30, 

    

September 30, 

(In thousands)

    

2021

    

2020

Finished goods

$

28,732

 

28,471

Work in process

 

37,874

 

30,183

Raw materials

 

74,507

 

76,642

Total inventories

$

141,113

 

135,296

5.    GOODWILL AND OTHER INTANGIBLE ASSETS

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

    

June 30, 

    

September 30, 

(Dollars in thousands)

    

2021

    

2020

Goodwill

$

411,732

    

408,063

 

Intangible assets with determinable lives:

 

Patents

 

Gross carrying amount

$

2,144

2,092

Less: accumulated amortization

 

943

858

Net

$

1,201

1,234

 

Capitalized software

 

Gross carrying amount

$

91,388

84,888

Less: accumulated amortization

 

62,111

57,302

Net

$

29,277

27,586

 

Customer relationships

 

Gross carrying amount

$

229,385

227,178

Less: accumulated amortization

 

76,986

67,643

Net

$

152,399

159,535

 

Other

 

Gross carrying amount

$

5,358

5,156

Less: accumulated amortization

 

3,730

3,260

Net

$

1,628

1,896

Intangible assets with indefinite lives:

 

Trade names

$

158,841

156,381

8

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

2.2

2.2

Foreign currency translation

1.4

1.4

Balance as of June 30, 2021

$

273.3

34.1

104.3

411.7

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 nine-month periods ended June 30, 2021, however, the fair value of the Mayday and Westland reporting units, included in the Aerospace and Defense segment, exceeded carrying value by less than 10%. At June 30, 2021, we had $30 million and $18 million of goodwill recorded for Mayday and Westland, respectively.

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.

9

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

Nine Months

Ended June 30, 

Ended June 30, 

(In thousands)

    

2021

    

2020

    

2021

    

2020

NET SALES

  

  

  

  

Aerospace & Defense

$

85,576

84,072

234,720

256,707

USG

47,704

42,577

141,799

139,179

Test

48,114

46,016

133,443

128,999

Consolidated totals

$

181,394

172,665

509,962

524,885

EBIT

Aerospace & Defense

$

16,714

17,409

41,980

51,658

USG

8,227

6,156

27,683

20,310

Test

6,751

7,177

17,781

17,483

Corporate (loss)

(12,269)

(7,410)

(30,359)

(27,983)

Consolidated EBIT

19,423

23,332

57,085

61,468

Less: Interest expense

(480)

(1,523)

(1,453)

(5,264)

Earnings before income taxes

$

18,943

21,809

55,632

56,204

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 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:

    

June 30, 

September 30, 

(In thousands)

    

2021

    

2020

Total borrowings

$

48,000

 

62,368

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

 

(20,000)

 

(22,368)

Total long-term debt, less current portion

$

28,000

 

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 June 30, 2021, the Company had approximately $444 million available to borrow under the Credit Facility, plus the $250 million increase option, subject to lender approval, in addition to $78.4 million cash on hand. The Company classified $20.0 million as the current portion of long-term debt as of June 30, 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 $8.4 million at June 30, 2021.

10

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 1.16% and 1.33% for the three and nine- month periods ending June 30, 2021, respectively, and 3.24% and 3.22% for the three and nine-month periods ending June 30, 2020. As of June 30, 2021, the Company was in compliance with all covenants.

8.  INCOME TAX EXPENSE

The third quarter 2021 effective income tax rate was 21.3% compared to 14.3% in the third quarter of 2020. The effective income tax rate from continuing operations in the first nine months of 2021 was 22.5% compared to 15.9% in the first nine months of 2020. The income tax expense in the third quarter and first nine months of 2021 was favorably impacted by a tax return to provision true-up to foreign derived intangible income and other 2020 true-ups decreasing the third quarter and year-to-date effective tax rate by 3.9% and 1.2%, respectively.

The income tax expense in the third quarter and first nine months of 2020 was favorably impacted mainly by the following items: 1) an increase in the available 2019 foreign tax credit which was attributable to new information and tax planning strategies reducing the third quarter effective tax rate and year-to-date effective tax rate by 3.3% and 1.3%; and 2) new information and tax planning strategies resulted in an increase in the 2020 foreign tax credit and the catch-up of the benefit which reduced the 2020 third quarter effective tax rate by 2.5%. The year-to-date 2020 effective tax rate was favorably impacted by the release of a valuation allowance of $2.8 million for foreign net operating losses decreasing the year-to-date 2020 effective tax rate by 5.1%.

11

9.  SHAREHOLDERS’ EQUITY

The change in shareholders’ equity for the first three and nine months of 2021 and 2020 is shown below (in thousands):

Three Months Ended June 30, 

Nine Months Ended June 30, 

    

2021

    

2020

    

2021

    

2020

Common stock

Beginning balance

306

306

306

306

Stock plans

1

1

1

1

Ending balance

307

307

307

307

Additional paid-in-capital

Beginning balance

295,796

294,787

293,682

292,408

Stock plans

782

(2,156)

2,896

223

Ending balance

296,578

292,631

296,578

292,631

Retained earnings

Beginning balance

799,884

785,184

775,829

684,741

Net earnings common stockholders

14,909

18,687

43,131

123,286

Dividends paid

(2,084)

(2,084)

(6,251)

(6,240)

Ending balance

812,709

801,787

812,709

801,787

Accumulated other comprehensive income (loss)

Beginning balance

1,808

(46,936)

(3,657)

(43,974)

Foreign currency translation

535

2,802

6,000

(160)

Ending balance

2,343

(44,134)

2,343

(44,134)

Treasury stock

Beginning balance

(107,134)

(107,134)

(107,134)

(107,259)

Issued under stock plans

51

51

125

Ending balance

(107,083)

(107,134)

(107,083)

(107,134)

Total equity

1,004,854

943,457

1,004,854

943,457

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 June 30, 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.

12

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 June 30, 2021:

(In thousands)

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets (Liabilities):

Forward contracts

$

 

(27)

 

$

 

(27)

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, 2021.

11.  REVENUES

Disaggregation of Revenues

Revenues by customer type, geographic location, and revenue recognition method for the three and nine-month periods ended June 30, 2021 are presented in the tables below as the Company believes it best depicts how the nature, amount, timing and

13

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 June 30, 2021

    

Aerospace

    

    

    

(In thousands)

& Defense

USG

Test

Total

Customer type:

 

  

 

  

 

  

 

  

 

Commercial

$

34,708

$

46,735

$

42,063

$

123,506

U.S. Government

 

50,868

969

6,051

 

57,888

Total revenues

$

85,576

$

47,704

$

48,114

$

181,394

 

 

Geographic location:

 

  

  

 

United States

$

75,701

$

32,111

$

27,719

$

135,531

International

 

9,875

15,593

20,395

 

45,863

Total revenues

$

85,576

$

47,704

$

48,114

$

181,394

 

 

Revenue recognition method:

 

  

  

 

Point in time

$

37,513

$

35,242

$

9,673

$

82,428

Over time

 

48,063

12,462

38,441

 

98,966

Total revenues

$

85,576

$

47,704

$

48,114

$

181,394

Nine months ended June 30, 2021

    Aerospace

    

    

    

(In thousands)

    

& Defense

    

USG

    

Test

    

Total

    

Customer type:

 

  

 

  

 

  

 

  

 

Commercial

$

95,712

$

139,149

$

118,089

$

352,950

U.S. Government

 

139,008

 

2,650

 

15,354

 

157,012

Total revenues

$

234,720

$

141,799

$

133,443

$

509,962

Geographic location:

 

 

 

  

 

United States

$

205,527

$

96,601

$

73,950

$

376,078

International

 

29,193

 

45,198

 

59,493

 

133,884

Total revenues

$

234,720

$

141,799

$

133,443

$

509,962

Revenue recognition method:

 

 

 

  

 

Point in time

$

103,492

$

105,173

$

27,789

$

236,454

Over time

 

131,228

 

36,626

 

105,654

 

273,508

Total revenues

$

234,720

$

141,799

$

133,443

$

509,962

14

Revenues by customer type, geographic location, and revenue recognition method for the three and nine-month periods ended June 30, 2020 are presented in the tables below.

Three months ended June 30, 2020

Aerospace

(In thousands)

    

& Defense

    

USG

    

Test

    

Total

Customer type:

 

  

 

  

 

  

 

  

Commercial

$

37,485

$

39,740

$

38,737

$

115,962

U.S. Government

 

46,587

 

2,837

 

7,279

 

56,703

Total revenues

$

84,072

$

42,577

$

46,016

$

172,665

Geographic location:

 

  

 

  

 

  

 

  

United States

$

73,476

$

26,499

$

19,441

$

119,416

International

 

10,596

 

16,078

 

26,575

 

53,249

Total revenues

$

84,072

$

42,577