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~~2020


	☐	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~~MISSOURI	43-1554045
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

9900A ~~Clayton Road~~CLAYTON ROAD
~~St. Louis, Missouri~~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~~2020
Common stock, $.01 par value per share		~~25,981,313~~26,037,714

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


	Three Months Ended
	June 30,
	2020		2019

Net sales	$	172,665	178,259
Costs and expenses:
Cost of sales		107,686	105,036
Selling, general and administrative expenses		36,936	41,226
Amortization of intangible assets		5,535	4,445
Interest expense, net		1,523	1,878
Other (income) expenses, net		(824)	2,007
Total costs and expenses		150,856	154,592

Earnings before income taxes		21,809	23,667
Income tax expense		3,122	4,622
Earnings from continuing operations		18,687	19,045
Earnings from discontinued operations, net of tax expense of $203		—	1,022

Net earnings	$	18,687	20,067

Earnings per share:
Basic - Continuing operations	$	0.72	0.73
- Discontinued operations		—	0.04
- Net earnings	$	0.72	0.77

Diluted - Continuing operations	$	0.72	0.73
- Discontinued operations		—	0.04
- Net earnings	$	0.72	0.77

See accompanying notes to consolidated financial statements.

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

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


	Nine Months Ended
	June 30,
	2020		2019
Net sales	$	524,885	512,867
Costs and expenses:
Cost of sales		327,655	311,037
Selling, general and administrative expenses		119,023	119,093
Amortization of intangible assets		16,565	13,216
Interest expense, net		5,264	5,586
Other expenses (income), net		174	(3,350)
Total costs and expenses		468,681	445,582

Earnings before income taxes		56,204	67,285
Income tax expense		8,931	13,068
Earnings from continuing operations		47,273	54,217
(Loss) earnings from discontinued operations, net of tax expense of $269 and $255		(601)	1,964
Gain on sale of discontinued operations, net of tax expense of $23,734		76,614	—
Earnings from discontinued operations		76,013	1,964

Net earnings	$	123,286	56,181

Earnings per share:
Basic - Continuing operations	$	1.82	2.09
- Discontinued operations		2.92	0.08
- Net earnings	$	4.74	2.17

Diluted - Continuing operations	$	1.81	2.07
- Discontinued operations		2.91	0.08
- Net earnings	$	4.72	2.15

See accompanying notes to consolidated financial statements.

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


	Three Months Ended			Nine Months Ended
	June 30,			June 30,
	2020		2019	2020		2019
Net earnings	$	18,687	20,067		123,286	56,181
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		2,802	1,840		(160)	(2,013)
Net unrealized (loss) gain on derivative instruments		—	(7)		—	94
Total other comprehensive income (loss), net of tax		2,802	1,833		(160)	(1,919)
Comprehensive income	$	21,489	21,900		123,126	54,262

See accompanying notes to consolidated financial statements.

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


	June 30,		September 30,
	2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	104,739		61,808
Accounts receivable, net		138,080		158,715
Contract assets		101,533		110,211
Inventories, net		152,264		124,956
Other current assets		16,868		14,190
Assets of discontinued operations – current		—		25,314
Total current assets		513,484		495,194
Property, plant and equipment, net of accumulated depreciation of $127,311 and $113,520, respectively		141,461		127,843
Intangible assets, net of accumulated amortization of $123,812 and $107,247, respectively		370,100		381,605
Goodwill		389,942		390,256
Operating lease assets		18,351		—
Other assets		11,247		4,445
Assets of discontinued operations - other		—		67,377
Total assets	$	1,444,585		1,466,720

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and short-term borrowings	$	21,577		20,000
Accounts payable		54,305		63,800
Contract liabilities		87,421		81,177
Accrued salaries		29,137		37,194
Accrued other expenses		49,975		37,947
Liabilities of discontinued operations - current		—		11,517
Total current liabilities		242,415		251,635
Pension obligations		13,114		22,682
Deferred tax liabilities		65,954		60,856
Non-current operating lease liabilities		14,357		—
Other liabilities		35,288		36,326
Long-term debt		130,000		265,000
Liabilities of discontinued operations - other		—		3,999
Total liabilities		501,128		640,498
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 30,596,940 shares, respectively		307		306
Additional paid-in capital		292,631		292,408
Retained earnings		801,787		684,741
Accumulated other comprehensive loss, net of tax		(44,134)		(43,974)
		1,050,591		933,481
Less treasury stock, at cost: 4,607,911 and 4,615,627 common shares, respectively		(107,134)		(107,259)
Total shareholders’ equity		943,457		826,222
Total liabilities and shareholders’ equity	$	1,444,585		1,466,720

See accompanying notes to consolidated financial statements.

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


	Nine Months Ended
	June 30,
	2020		2019
Cash flows from operating activities:
Net earnings	$	123,286	56,181
Earnings from discontinued operations		(76,013)	(1,964)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		31,066	25,802
Stock compensation expense		4,184	3,685
Changes in assets and liabilities		(20,926)	(42,528)
Change in property, plant and equipment due to gain on sale of building		—	(8,922)
Pension contributions		(10,000)	(2,500)
Effect of deferred taxes		2,155	1,983
Net cash provided by operating activities – continuing operations		53,752	31,737
Net cash (used) provided by operating activities – discontinued operations		(14,737)	5,304
Net cash provided by operating activities		39,015	37,041

Cash flows from investing activities:
Proceeds from sale of building and land		—	17,201
Additions to capitalized software		(6,564)	(6,207)
Capital expenditures		(28,291)	(15,280)
Net cash used by investing activities – continuing operations		(34,855)	(4,286)
Proceeds from sale of discontinued operations		183,812	—
Acquisition of business – discontinued operations		—	(937)
Capital expenditures – discontinued operations		(1,728)	(11,177)
Net cash provided (used) by investing activities – discontinued operations		182,084	(12,114)
Net cash provided (used) by investing activities		147,229	(16,400)
Cash flows from financing activities:
Proceeds from long-term debt and short-term borrowings		11,577	32,000
Principal payments on long-term debt		(145,000)	(35,000)
Dividends paid		(6,240)	(6,227)
Other		(3,127)	(3,230)
Net cash used by financing activities – continuing operations		(142,790)	(12,457)
Net cash (used) provided by financing activities – discontinued operations		(2,140)	921
Net cash used by financing activities		(144,930)	(11,536)
Effect of exchange rate changes on cash and cash equivalents		1,617	(626)
Net increase in cash and cash equivalents		42,931	8,479
Cash and cash equivalents, beginning of period		61,808	30,477
Cash and cash equivalents, end of period	$	104,739	38,956

Supplemental cash flow information:
Interest paid	$	4,669	5,556
Income taxes paid (including state and foreign)		23,435	18,513

See accompanying notes to consolidated financial statements.

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.~~2019. Certain 2019 amounts have been reclassified to conform with the 2020 presentation.

The Company’s results for the ~~three and nine-month periods~~three-month period ended June 30, ~~2019~~2020 are not necessarily indicative of the results for the entire ~~2019~~2020 fiscal year. References to the third quarters of ~~2019~~2020 and ~~2018~~2019 represent the fiscal quarters ended June 30, 2020 and 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.

Beginning in the first quarter of 2020, Management has renamed the Filtration / Fluid Flow (Filtration) segment as Aerospace & Defense (A&D) to better reflect the composition of the segment’s products, end markets and customer characteristics. The A&D segment’s individual legal and operating entities, historical financial results, and management structure are unchanged from what was formerly presented as Filtration.

2. ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES UPDATE~~TECHNICAL PACKAGING DIVESTITURE

~~Our significant accounting policies are included in Note 1~~On December 31, 2019, the Company completed the sale 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 andits Technical Packaging ~~segments have that converted~~business segment, consisting of the Company's wholly-owned subsidiaries Thermoform Engineered Quality LLC, Plastique Ltd. and Plastique sp. z o.o. (the "Technical Packaging Business"), to Sonoco Plastics, Inc. and Sonoco Holdings, Inc. ("Buyers"), 2 wholly-owned subsidiaries of Sonoco Products Company, pursuant to the ~~cost-to-cost method for revenue recognition.~~Equity Purchase Agreement entered into on November 15, 2019. 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 606companies within this segment provide innovative solutions to the ~~prior accounting standards is provided in Note 14.~~

~~Revenue Recognition~~

~~Revenue is recognized when control~~medical and commercial markets for thermoformed packages and specialty products using a wide variety 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~~thin gauge plastics and pulp. Results of operations, financial position and cash flows 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.

~~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.

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.

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.

~~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.

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%~~business is reflected as discontinued operations in the consolidated financial statements and related notes for all periods presented.

Net sales from the Technical Packaging business were 0 and $16.5 million in the third quarter and first nine months of 2020, respectively, compared to $21.5 million and $63.4 million in the ~~revenues (approximately 10%~~corresponding periods of ~~consolidated revenues) are recognized over time as~~2019. The Company received net proceeds from the ~~product does not have an alternative use~~sale of approximately $184 million 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~~recorded a $76.6 million after-tax gain on the ~~nature~~sale in the first quarter of 2020. The Company finalized 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~~working capital adjustment and paid $0.2 million to the ~~customer that occurs as we incur costs on our contracts. Under this measure,~~buyer during the ~~extent~~third quarter 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.

~~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.2020.

117

The major classes of assets and liabilities of the Technical Packaging business included in the Consolidated Balance Sheet at September 30, 2019 are shown below (in millions).


	September 30, 2019
Assets:
Accounts receivable, net	$	15.7
Contract assets, net		5.1
Inventories		3.9
Other current assets		0.6
Current assets		25.3
Property, plant & equipment, net		33.6
Intangible assets, net		11.4
Goodwill		19.0
Other assets		3.4
Total assets	$	92.7
Liabilities:
Accounts payable	$	7.6
Accrued expenses and other current liabilities		3.9
Current liabilities		11.5
Other liabilities		4.0
Total liabilities	$	15.5

3. ACCOUNTING STANDARDS UPDATE

In February 2016, the FASB issued ASU No. 2016-062, "Leases" (ASU 2016-062) which supersedes ASC 840, "Leases" and creates a new topic, ASC 842, "Leases." Subsequent to the issuance of ASU 2016-062, ASC 842 was amended by various updates that amend and clarify the impact and implementation of the aforementioned update. Effective October 1, 2019, the Company adopted these updates using the optional transition method. These updates require lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. Upon initial application, the provisions of these updates are required to be applied using the modified retrospective method, which requires retrospective adoption to each prior reporting period presented with the cumulative effect of adoption recorded to the earliest reporting period presented. An optional transition method can be utilized which requires retrospective adoption beginning on the date of adoption with the cumulative effect of initially applying these updates recognized at the date of initial adoption. The standard also provided several optional practical expedients for use in transition. The Company elected to use what the FASB has deemed the “package of practical expedients,” which allowed the Company not to reassess previous conclusions regarding lease identification, lease classification and the accounting treatment for initial direct costs. These updates also expand the required quantitative and qualitative disclosures surrounding leases. The adoption resulted in the addition of "right of use" assets and lease liabilities of approximately $20 million in the consolidated balance sheet, with no significant change to the Company’s consolidated statements of operations or cash flows. Refer to Note 16 for further discussion.

4. 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,		Three Months Ended		Nine Months Ended
	2019	2018	2019	2018	June 30,		June 30,
					2020	2019	2020	2019
Weighted Average Shares Outstanding - Basic	25,971	25,900	25,935	25,862	26,031	25,971	26,002	25,935
Dilutive Options and Restricted Shares	138	150	155	180	103	138	128	155

Adjusted Shares - Diluted	26,109	26,050	26,090	26,042	26,134	26,109	26,130	26,090

4.8

5. 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~~$3.2 million for the three and nine-month periods ended June 30, ~~2019,~~2020, respectively, and ~~$0.9~~$1.1 million and $3.1 million for the corresponding periods ~~of 2018.~~in 2019. There were ~~280,504~~221,024 non-vested shares outstanding as of June 30, ~~2019.~~2020.

Non-Employee Directors Plan

Compensation expense related to the non-employee director grants was $0.3 million and ~~$0.8~~$1.0 million for the three and nine-month periods ended June 30, ~~2019,~~2020, respectively, and $0.3 million and $0.8 million for the corresponding periods ~~of 2018.~~in 2019.

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~~$4.2 million for the three and nine-month periods ended June 30, ~~2019,~~2020, respectively, and ~~$1.2~~$1.3 million and $3.9 million for the ~~three and nine-month~~corresponding periods ~~ended June 30, 2018.~~in 2019. 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.~~2020, respectively, and $0.2 million and $0.8 million for the corresponding periods in 2019. As of June 30, ~~2019,~~2020, there was ~~$10.7~~$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 ~~2.1~~2.2 years.

5.6. INVENTORIES

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


	June 30,		September 30,	June 30,		September 30,
(In thousands)	2019		2018	2020		2019

Finished goods	$	18,583	26,678	$	26,706	23,550
Work in process		42,678	47,765		43,569	26,407
Raw materials		65,555	60,973		81,989	74,999
Total inventories	$	126,816	135,416	$	152,264	124,956

6.7. GOODWILL AND OTHER INTANGIBLE ASSETS

Included on the Company’s Consolidated Balance Sheets at June 30, ~~2019~~2020 and September 30, ~~2018~~2019 are the following intangible assets gross carrying amounts and accumulated ~~amortization:~~amortization from continuing operations:


	June 30,		September 30,	June 30,		September 30,
(Dollars in thousands)	2019		2018	2020		2019
Goodwill	$	381,683	381,652	$	389,942	390,256

Intangible assets with determinable lives:
Patents
Gross carrying amount	$	1,880	1,833	$	2,079	1,945
Less: accumulated amortization		873	791		832	748
Net	$	1,007	1,042	$	1,247	1,197

Capitalized software
Gross carrying amount	$	77,502	71,294	$	85,528	78,962
Less: accumulated amortization		47,206	41,624		55,315	48,530
Net	$	30,296	29,670	$	30,213	30,432

Customer relationships
Gross carrying amount	$	185,135	185,333	$	227,095	227,225
Less: accumulated amortization		55,641	47,802		64,562	55,326
Net	$	129,494	137,531	$	162,533	171,899

Other
Gross carrying amount	$	5,382	5,468	$	5,129	5,441
Less: accumulated amortization		2,518	2,056		3,105	2,645
Net	$	2,864	3,412	$	2,024	2,796
Intangible assets with indefinite lives:
Trade names	$	172,964	173,698	$	174,083	175,281

The changes in the carrying amount of goodwill attributable to each business segment for the nine months ended June 30, ~~2019~~2020 is as ~~follows:~~follows on a continuing operations basis:


										Aerospace
(Dollars in millions)	USG		Test	Filtration	Packaging	Total	USG		Test	& Defense	Total
Balance as of September 30, 2018		254.1	34.1	73.7	19.8	381.7
Balance as of September 30, 2019							$	254.0	34.1	102.2	390.3
Foreign currency translation		0.2	—	—	(0.2)	—		(0.3)	(0.1)	—	(0.4)
Balance as of June 30, 2019	$	254.3	34.1	73.7	19.6	381.7
Balance as of June 30, 2020							$	253.7	34.0	102.2	389.9

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 our Aerospace and Defense reporting units and was determined to be an event and change in circumstances that required a quantitative review of goodwill and other intangible assets for impairment. The determination of the fair value of reporting units is based, among other things, on estimates of future operating performance of the reporting unit being valued. The Company's methodology includes the use of an income approach that discounts future net cash flows to their present value at a rate that reflects the Company's cost of capital. These estimated fair values are based on estimates of future cash flows of the businesses. Factors affecting these future cash flows include the continued market demand for, and acceptance of, the products and services offered by the businesses, the development of new products and services by the businesses and the underlying cost of development, the future cost structure of the businesses and future technological changes. The Company also incorporates market multiples for comparable companies in determining the fair value of its reporting units where applicable. The quantitative review determined that there was 0 impairment during the three and nine months ended June 30, 2020. Due to similar and other challenges in our NRG reporting unit, a quantitative review of goodwill and other intangible assets for impairment was performed. The Company determined that there was no impairment during the three and nine months ended June 30, 2020.

1310

7.8. BUSINESS SEGMENT INFORMATION

The Company is organized based on the products and services that it offers, and classifies its continuing business operations in ~~four~~three reportable segments for financial reporting purposes: Aerospace & Defense (formerly called Filtration/Fluid ~~Flow (Filtration)~~Flow), RF Shielding and Test (Test), and Utility Solutions Group (USG) ~~and Technical Packaging.~~. The ~~Filtration~~Aerospace & Defense 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) and Globe Composite Solutions, LLC (Globe). The companies within this segment primarily design and manufacture specialty filtration and naval products, including hydraulic filter elements and fluid control devices used in commercial aerospace ~~applications,~~applications; unique filter mechanisms used in micro-propulsion devices for satellites and custom designed filters for manned aircraft and ~~unmanned aircraft; manufacture elastomeric-based~~submarines; products and systems to reduce vibration and/or acoustic signatures and otherwise reduce or obscure a vessel’s signature, ~~reduction solutions for the~~and other communications, sealing, surface control and hydrodynamic related applications to enhance U.S. ~~Navy; and manufacture landing gear~~Navy maritime survivability; precision-tolerance machined components for the aerospace and defense ~~industry.~~ industry; and metal processing services.

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.

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 and data management 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 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		Three Months Ended			Nine Months Ended
	Ended June 30,			Ended June 30,		June 30,			June 30,
(In thousands)	2019		2018	2019	2018	2020		2019	2020	2019
NET SALES
Filtration	$	83,067	69,721	228,769	195,531
Aerospace & Defense						$	84,072	83,067	256,707	228,769
Test		42,298	45,034	126,459	123,368		46,016	42,298	128,999	126,459
USG		52,894	55,489	157,639	157,942		42,577	52,894	139,179	157,639
Technical Packaging		21,507	21,979	63,445	63,655
Consolidated totals	$	199,766	192,223	576,312	540,496	$	172,665	178,259	524,885	512,867

EBIT
Filtration	$	19,039	14,292	47,092	35,056
Aerospace & Defense						$	17,409	19,039	51,658	47,092
Test		5,927	5,902	14,791	13,797		7,177	5,927	17,483	14,791
USG		10,148	11,528	40,461	27,805		6,156	10,148	20,310	40,461
Technical Packaging		1,625	2,505	3,333	5,355
Corporate (loss)		(9,874)	(8,668)	(30,385)	(25,848)		(7,410)	(9,569)	(27,983)	(29,473)
Consolidated EBIT		26,865	25,559	75,292	56,165		23,332	25,545	61,468	72,871
Less: Interest expense		(1,973)	(2,243)	(5,788)	(6,464)		(1,523)	(1,878)	(5,264)	(5,586)
Earnings before income taxes	$	24,892	23,316	69,504	49,701	$	21,809	23,667	56,204	67,285

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.

8.9. DEBT

The Company’s debt is summarized as follows:


	June 30,		September 30,	June 30,		September 30,
(In thousands)	2019		2018	2020		2019
Total borrowings	$	217,921	220,000	$	151,577	285,000
Short-term borrowings and current portion of long-term debt		(20,921)	(20,000)
Current portion of long-term debt and short-term borrowings					(21,577)	(20,000)
Total long-term debt, less current portion	$	197,000	200,000	$	130,000	265,000

~~The Company’s existing~~On September 27, 2019, the Company entered into a new five-year credit facility (“the Credit Facility”) ~~matures~~, modifying its previous credit facility which would have matured December 21, 2020. The Credit Facility includes a ~~$450~~$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 ~~nine~~eight banks led by ~~JPMorgan~~JP Morgan Chase Bank, N.A., as Administrative Agent. The Credit Facility matures September 27, 2024.

At June 30, ~~2019,~~2020, the Company had approximately ~~$225~~$340 million available to borrow under the Credit Facility, ~~and a~~plus the $250 million increase option, subject to lender approval, in addition to ~~$39.0~~$104.7 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~~$20.0 million as the current portion of long-term debt as of June 30, ~~2019,~~2020, as the Company intends to repay this amount within the next twelve ~~month period;~~months; however, the Company has no contractual obligation to repay such amount during the next twelve ~~month period.~~months. The letters of credit issued and outstanding under the Credit Facility totaled $9.9 million at June 30, 2020.

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 ~~as determined by certain financial ratios,~~ a facility fee ranging from ~~12.5~~10 to ~~27.5~~25 basis points per ~~year~~annum 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 facilityCredit Facility is secured by the unlimited guaranty of the Company’s direct and indirect material ~~domestic~~U.S. subsidiaries and ~~a 65%~~the pledge of 100% of the equity interests of its direct and indirect material foreign ~~subsidiaries’ share equity.~~subsidiaries. The financial covenants of the Credit Facility include a leverage ratio and an interest coverage ratio. The weighted average interest rates were 3.24% and 3.22% for the three and nine-month periods ending June 30, 2020, respectively , and 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~~2019. As of ~~2018. At~~ June 30, ~~2019,~~2020, the Company was in compliance with all ~~debt~~ covenants.

9.12

10. INCOME TAX EXPENSE

The third quarter ~~2019~~2020 effective income tax rate from continuing operations was ~~19.4%~~14.3% compared to ~~18.4%~~19.5% in the third quarter of ~~2018.~~2019. The effective income tax ~~expense~~rate in the first nine months of 2020 was 15.9% compared to 19.4% for the first nine months of ~~2019 was $13.3 million compared to~~2019. The income tax ~~benefit of $14.0 million for~~expense in the third quarter and first nine months of ~~2018.~~2020 was favorably impacted by the following items: 1) additional tax benefits on share-based compensation that vested during the quarter decreasing the third quarter and year-to-date effective tax rate by 1.4% and 0.6%, respectively; 2) research credits and other 2019 tax return to provision true-ups decreasing the third quarter and year-to-date effective tax rate by 1.6% and 0.6%, respectively; and 3) an increase in the available 2019 and 2020 foreign tax credit which was attributable to new information and tax planning strategies, for which the combined effect was a 6.3% reduction in the third quarter effective tax rate and a 2.4% reduction in the year-to-date effective tax rate. The ~~effective~~ income tax expense was favorably impacted in the second quarter of 2020 by the release of a valuation allowance of $2.8 million for foreign net operating losses decreasing the year-to-date effective tax rate ~~for the first nine months of 2019 was 19.2% compared to (28.1)% for the first nine months of 2018.~~by 5.1%.

tax rate of 2019 by ~~1.0%~~1.4% and ~~4.1%~~4.3%, 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%~~0.6%, 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%~~1.1% 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.

1613

~~10.~~11. SHAREHOLDERS’ EQUITY

The change in shareholders’ equity for the first three and nine months of ~~2019~~2020 and ~~2018~~2019 is shown below (in thousands):


	Three Months Ended June 30,		Nine Months Ended June 30,		Three Months Ended June 30,		Nine Months Ended June 30,
	2018	2019	2018	2019	2020	2019	2020	2019

Common stock
Beginning balance	305	305	305	305	306	305	306	305
Stock plans	—	1	—	1	1	1	1	1
Ending balance	305	306	305	306	307	306	307	306

Additional paid-in-capital
Beginning balance	292,404	293,612	289,785	291,190	294,787	293,612	292,408	291,190
Stock plans	(2,298)	(2,408)	321	14	(2,156)	(2,408)	223	14
Ending balance	290,106	291,204	290,106	291,204	292,631	291,204	292,631	291,204

Retained earnings
Beginning balance	557,249	643,018	516,718	606,836	785,184	643,018	684,741	606,836
Net earnings common stockholders	19,019	20,067	63,684	56,181	18,687	20,067	123,286	56,181
Dividends paid	(2,076)	(2,082)	(6,210)	(6,227)	(2,084)	(2,082)	(6,240)	(6,227)
Adoption of accounting standards updates	—	—	—	4,213	—	—	—	4,213
Ending balance	574,192	661,003	574,192	661,003	801,787	661,003	801,787	661,003

Accumulated other comprehensive income (loss)
Beginning balance	(23,028)	(35,280)	(27,308)	(31,528)	(46,936)	(35,280)	(43,974)	(31,528)
Foreign currency translation	(6,865)	1,840	(2,801)	(2,013)	2,802	1,840	(160)	(2,013)
Pension	—	—	61	—	—	—	—	—
Forward exchange contracts	(62)	(7)	93	94	—	(7)	—	94
Ending balance	(29,955)	(33,447)	(29,955)	(33,447)	(44,134)	(33,447)	(44,134)	(33,447)

Treasury stock
Beginning balance	(107,394)	(107,259)	(107,582)	(107,394)	(107,134)	(107,259)	(107,259)	(107,394)
Issued under stock plans	—	—	188	135	—	—	125	135
Ending balance	(107,394)	(107,259)	(107,394)	(107,259)	(107,134)	(107,259)	(107,134)	(107,259)

Total equity	727,254	811,807	727,254	811,807	943,457	811,807	943,457	811,807

~~11.~~12. 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~~2020 and ~~2018~~2019 is shown in the following table. Net periodic benefit cost for each period presented is comprised of the following:


	Three Months			Nine Months		Three Months Ended			Nine Months Ended
	Ended June 30,			Ended June 30,		June 30,			June 30,
(In thousands)	2019		2018	2019	2018	2020		2019	2020		2019
Defined benefit plans
Interest cost	$	875	821	2,626	2,461	$	616	875		2,264	2,626
Expected return on assets		(1,086)	(975)	(3,259)	(2,924)		(1,067)	(1,086)		(3,149)	(3,259)
Amortization of:
Prior service cost		—	—	—	—		—	—		—	—
Actuarial loss		487	548	1,461	1,644		715	487		1,801	1,461
Net periodic benefit cost	$	276	394	828	1,181	$	264	276		916	828

1714

~~12.~~13. 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.~~debt, of which one swap is outstanding as of June 30, 2020. 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. The amounts ultimately recognized may differ for open positions, which remain subject to ongoing market price fluctuations until settlement. All derivative instruments are reported in either accrued expenses or other ~~receivables~~assets 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:~~2020:

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
%


	Notional		Fair Value
(In thousands)	amount		(US$)	Fix Rate
Forward contracts	5,000	USD	(106)
Interest rate swap	150,000	USD	(1,485)	2.24	%

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

~~13.~~14. 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~~2020 and September 30, ~~2018~~2019 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.

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, ~~2019:~~2020:


(In thousands)	Level 1		Level 2	Level 3		Total	Level 1		Level 2		Level 3	Total
Assets (Liabilities):
Forward contracts	$	—	(1,039)	$	—	(1,039)
Forward contracts and interest rate swaps							$	—	(1,591)	$	—	(1,591)

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. As more fully described in note 7, events and changes in circumstances for the NRG reporting unit and certain reporting units in our Aerospace & Defense segment resulting from the COVID-19 pandemic required that the property, plant and equipment, and other intangible assets of those businesses be reviewed for impairment. No impairments were recorded during the three and nine-month periods ended June 30, ~~2019.~~2020.

~~14.~~15. REVENUES

Disaggregation of Revenues

~~Our revenues~~Revenues by customer type, geographic location, and revenue recognition method for the three and nine-month periods ended June 30, ~~2019~~2020 are presented in the ~~table~~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 table below also ~~includes~~include a reconciliation of the disaggregated revenue within ~~our~~each reportable ~~segments.~~segment on a continuing operations basis.


Three Months Ended June 30, 2019							Technical
Three Months Ended June 30, 2020											Aerospace
(In thousands)	Filtration		Test		USG		Packaging		Total		& Defense		Test		USG		Total
Customer type:
Commercial	$	47,482	$	37,980	$	52,065	$	21,507	$	159,034	$	37,485	$	38,737	$	39,740	$	115,962
Government		35,585		4,318		829		—		40,732
U.S. Government												46,587		7,279		2,837		56,703
Total revenues	$	83,067	$	42,298	$	52,894	$	21,507	$	199,766	$	84,072	$	46,016	$	42,577	$	172,665

Geographic location:
United States	$	69,872	$	26,923	$	38,414	$	11,559	$	146,268	$	73,476	$	19,441	$	26,499	$	119,416
International		13,195		15,375		14,480		9,948		53,498		10,596		26,575		16,078		53,249
Total revenues	$	83,067	$	42,298	$	52,894	$	21,507	$	199,766	$	84,072	$	46,016	$	42,577	$	172,665

Revenue recognition method:
Point in time	$	41,633	$	6,485	$	40,968	$	—	$	89,092	$	36,461	$	9,138	$	27,765	$	73,364
Over time		41,434		35,813		11,926		21,507		110,674		47,611		36,878		14,812		99,301
Total revenues	$	83,067	$	42,298	$	52,894	$	21,507	$	199,766	$	84,072	$	46,016	$	42,577	$	172,665


Nine Months Ended June 30, 2019							Technical
Nine Months Ended June 30, 2020											Aerospace
(In thousands)	Filtration		Test		USG		Packaging		Total		& Defense		Test		USG		Total
Customer type:
Commercial	$	131,112	$	111,577	$	154,240	$	63,251	$	460,180	$	130,817	$	107,931	$	135,711	$	374,459
Government		97,657		14,882		3,399		194		116,132
U.S. Government												125,890		21,068		3,468		150,426
Total revenues	$	228,769	$	126,459	$	157,639	$	63,445	$	576,312	$	256,707	$	128,999	$	139,179	$	524,885

Geographic location:
United States	$	190,701	$	82,072	$	112,289	$	32,865	$	417,927	$	219,640	$	69,399	$	90,155	$	379,194
International		38,068		44,387		45,350		30,580		158,385		37,067		59,600		49,024		145,691
Total revenues											$	256,707	$	128,999	$	139,179	$	524,885

Revenue recognition method:
Point in time											$	118,660	$	26,157	$	100,289	$	245,106
Over time												138,047		102,842		38,890		279,779
Total revenues											$	256,707	$	128,999	$	139,179	$	524,885

1916

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~~Remaining performance obligations, which is the equivalent of ~~our~~ backlog, represent the expected transaction price allocated to ~~our~~ contracts that ~~we expect~~the Company expects to recognize as revenue in future periods when ~~we perform~~the Company performs 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~~2020, the Company had ~~$432.5~~$550.5 million in remaining performance obligations of which ~~we expect~~the Company expects to recognize revenues of ~~83%~~approximately 72% 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,~~2020, contract assets and liabilities totaled ~~$99.5~~$101.5 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~~$87.4 million, respectively. During the first nine months of ~~2019, we~~2020, the Company recognized approximately ~~$35~~$47.1 million in revenues that were included in the contract liabilities balance at the adoption date.

~~Reconciliation~~

16. LEASES

As described in Note 3, effective October 1, 2019, the Company adopted ASC 842, Leases. The Company determines at lease inception whether an arrangement that provides control over the use of ~~ASC 606~~an asset is a lease. The Company recognizes at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. The Company has elected not to ~~Prior Accounting Standards~~recognize a ROU asset and lease liability for leases with terms of 12 months or less. Certain of the Company’s leases include options to extend the term of the lease for up to 20 years. When it is reasonably certain that the Company will exercise the option, Management includes the impact of the option in the lease term for purposes of determining total future lease payments. As most of the Company’s lease agreements do not explicitly state the discount rate implicit in the lease, Management uses the Company’s incremental borrowing rate on the commencement date to calculate the present value of future payments based on the tenor of each arrangement.

The ~~amount by~~Company’s leases for real estate commonly include escalating payments. These variable lease payments are included in the calculation of the ROU asset and lease liability. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease.

In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which ~~each financial statement line item is affected in 2019~~are considered non-lease components for accounting purposes. Non-lease components are excluded from our ROU assets and lease liabilities and expensed as ~~a result~~incurred.

The Company’s leases are for office space, manufacturing facilities, and machinery and equipment.

The components of ~~applying the new accounting standard as discussed in Note 2 is presented~~lease costs are shown below:

June 30, 2019




Effect of the


adoption of

Under Prior
(In thousands)

As Reported

ASC 606

Accounting
Consolidated Balance Sheets






Contract assets (1)

$
99,499

$
(43,576)

$
55,923
Inventories

126,816

36,089

162,905
Total current assets

450,206

(7,487)

442,719
Total assets

1,326,095

(7,487)

1,318,608
Contract liabilities (2)

53,758

4,549

58,307
Total current liabilities

199,736

4,549

204,285
Deferred tax liabilities

66,286

(1,678)

64,608
Total liabilities

514,288

2,871

517,159
Retained earnings

661,003

(10,358)

650,645
Total shareholders’ equity

811,807

(10,358)

801,449
Total liabilities and shareholders’ equity

$
1,326,095

(7,487)

1,318,608

~~(1)~~

~~Previously “cost and estimated earnings on long-term contracts”~~

~~(2)~~

~~Previously “advance payments on long-term contracts” and “current portion of deferred revenue”~~


	Three Months Ended		Nine Months Ended
	June 30,		June 30,
(Dollars in thousands)	2020		2020
Finance lease cost
Amortization of right-of-use assets	$	540	$	1,622
Interest on lease liabilities		319		970
Operating lease cost		1,474		4,399
Total lease costs	$	2,333	$	6,991

2017

Three Months Ended

June 30, 2019




Effect of the


adoption of

Under Prior
(In thousands, except per share amounts)

As Reported

ASC 606

Accounting
Consolidated Statements of Operations

Net sales

$
199,766

$
(4,008)

$
195,758
Cost of sales

122,172

(1,380)

120,792
Total costs and expenses

174,874

(1,380)

173,494
Earnings before income tax

24,892

(2,628)

22,264
Income tax expense (benefit)

4,825

(399)

4,426
Net earnings

20,067

(2,229)

17,838
Earnings per share:

Basic:

Net earnings

$
0.77

$
(0.08)

$
0.69
Diluted:

Net earnings

$
0.77

$
(0.08)

$
0.69
Consolidated Statements of Comprehensive Income

Net earnings

$
20,067

$
(2,229)

$
17,838
Comprehensive income

21,899

(2,229)

19,670

Additional information related to leases are shown below:

Nine Months Ended

June 30, 2019




Effect of the


adoption of

Under Prior
(In thousands, except per share amounts)

As Reported

ASC 606

Accounting
Consolidated Statements of Operations

Net sales

$
576,312

$
(9,787)

$
566,525
Cost of sales

363,026

(8,360)

354,666
Total costs and expenses

506,808

(8,360)

498,448
Earnings before income tax

69,504

(1,427)

68,077
Income tax expense (benefit)

13,323

(171)

13,152
Net earnings

56,181

(1,256)

54,925
Earnings per share:

Basic:

Net earnings

$
2.17

$
(0.05)

$
2.12
Diluted:

Net earnings

$
2.15

$
(0.04)

$
2.11
Consolidated Statements of Comprehensive Income

Net earnings

$
56,181

$
(1,256)

$
54,925
Comprehensive income

54,262

(1,256)

53,006
Consolidated Statements of Cash flows

Net earnings

$
56,181

$
(1,256)

$
54,925
Adjustments to reconcile net earnings to net cash provided by operating activities:

Change in assets and liabilities

$
(41,851)

1,256

$
(40,595)
Net cash provided by operating activities

37,041

—

37,041


	Three Months Ended		Nine Months Ended
	June 30,		June 30,
(Dollars in thousands)	2020		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,452	$	4,334
Operating cash flows from finance leases		319		655
Financing cash flows from finance leases		418		1,145
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	$	53	$	22,072
Weighted-average remaining lease term
Operating leases				6.64	years
Finance leases				12.76	years
Weighted-average discount rate
Operating leases				3.14	%
Finance leases				4.29	%

~~15. NEW ACCOUNTING STANDARDS~~

~~In February 2016, the FASB issued ASU No. 2016-062, “Leases” (ASU 2016-02) which supersedes ASC 840, “Leases” and creates~~The following is a ~~new topic, ASC 842 “Leases.” Subsequent~~reconciliation of future undiscounted cash flows to the ~~issuance of ASU 2016-02, ASC 842 was amended by various updates that amend~~operating and ~~clarify~~finance lease liabilities, and the impact and implementation of the aforementioned update. These updates require lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. Upon initial application, the provisions of these updates are required to be applied using the modified retrospective method which requires retrospective adoption to each prior

~~reporting period~~related ROU assets, presented with the cumulative effect of adoption recorded to the earliest reporting period presented. An optional transition method can be utilized which requires retrospective adoption beginning on the date of adoption with the cumulative effect of initially applying these updates recognized at the date of initial adoption. These updates also expand the required quantitative and qualitative disclosures surrounding leases. These updates are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. We expect to adopt these updates on October 1, 2019 using the optional transition method. We continue to evaluate the impact these updates will have on our consolidated financial statements. Based upon the analysis and preliminary evaluation of the standard, we estimate the adoption will result in the addition of assets and liabilities of less than $30 million to our consolidated balance sheet, with no significant change to our consolidated statements of operations or cash flows. We believe the updates will also have an impactConsolidated Balance Sheet on ~~our accounting policies, internal controls and disclosures related to leases.~~June 30, 2020:


(Dollars in thousands)		Operating	Finance
Years Ending September 30:	Leases		Leases
2020 (excluding the nine months ended June 30, 2020)	$	1,294		718
2021		4,664		2,930
2022		4,005		3,011
2023		3,057		3,094
2024 and thereafter		7,633		31,416
Total minimum lease payments		20,653		41,169
Less: amounts representing interest		2,021		10,502
Present value of net minimum lease payments	$	18,632		30,667
Less: current portion of lease obligations		4,275		1,908
Non-current portion of lease obligations		14,357		28,759
ROU assets	$	18,351		27,535

~~In October 2016,~~

Operating lease liabilities are included in the ~~FASB issued ASU No. 2016-16,~~ ~~Intra-Entity Transfers~~Consolidated Balance Sheet in accrued other expenses and operating lease liabilities. Finance lease liabilities are included in accrued other expenses and other liabilities. Operating lease ROU assets are included as a caption on the Consolidated Balance Sheet and finance lease ROU assets are included in Property, plant and equipment on the Consolidated Balance sheets.

As the Company has not restated prior-year information for the adoption of ~~Assets Other Than Inventory~~~~, which eliminates~~ASC 842, the ~~exception for all intra-entity sale of assets other than inventory. This standard is effective for annual periods beginning after December 15, 2017. There was no significant impact to~~following presents the Company’s ~~consolidated financial statements~~future minimum lease payments for operating and capital leases under ASC 840 for continuing operations as ~~a result~~ of ~~adopting this new standard.~~September 30, 2019:


(Dollars in thousands)	Operating		Finance
Years Ending September 30:	Leases		Leases
2020	$	5,574		2,518
2021		4,558		2,930
2022		3,950		3,012
2023		3,270		3,094
2024 and thereafter		8,443		31,499
Total minimum lease payments	$	25,795		43,053
Less: amounts representing interest		*		11,241
Present value of net minimum lease payments		*		31,812
Less: Current portion of lease obligations		*		1,832
Non-current portion of lease obligations		*		29,980

~~16. SUBSEQUENT EVENT~~

~~On July 2, 2019, the Company acquired Globe Composite Solutions, LLC (Globe), a supplier of mission-critical composite-based products and solutions~~* Not applicable for ~~navy, defense, and industrial customers. Globe’s~~ operating ~~results from date of acquisition will be included in the Company’s Filtration segment.~~leases

2218

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COVID-19 TRENDS AND UNCERTAINTIES

The COVID-19 global pandemic has created significant and unprecedented challenges, and during these highly uncertain times, our top priority remains the health and safety of our employees, customers and suppliers, thereby securing the financial well-being of the Company and supporting business continuity. Our businesses have been deemed essential and are currently operational, supplying our customers with vital and necessary products. To date, our global supply chains have not been materially affected by the global pandemic. Given our diverse portfolio of strong, durable businesses serving non-discretionary end-markets, the strength and resilience of our business model positions us to continue to support our long-term outlook.

Recognizing the uncertainty presented by this global pandemic, we are suspending our full-year 2020 financial guidance. Our businesses are facing varying levels of pressure depending on the markets they serve as outlined below and the impact on our business cannot be reasonably estimated at this time. In response to COVID-19, we have taken decisive actions to enhance our financial condition, while continuing to execute our long-term strategy for profitable growth. Some of the actions we have taken include: deferring a portion of executive compensation, reducing discretionary spending, minimizing capital spending, implementing hiring and salary freezes, and increasing our focus on optimizing free cash flow. These operational measures are prudent steps to maintain our liquidity and will help manage our financial flexibility as we work through near-term volatility. As of June 30, 2020, we had nearly $700 million of liquidity, with $105 million in cash, net debt of approximately $47 million. Additionally, we have no debt maturities nor repayment obligations coming due and payable until September 2024. The Company has made no changes to its dividend plan. We are also monitoring the impacts of COVID-19 on the fair value of assets. We do not currently anticipate any material impairments on assets as a result of COVID-19. A portion of our workforce has worked from home at times due to COVID-19, however we have not had to redesign or design new internal controls over financial reporting at this time. Depending on the duration of COVID-19, it may become necessary for us to redesign or design new internal controls over financial reporting in a future period. We do not believe such an event will have a material impact on our business. Further details by operating segment are outlined below.

In our A&D segment, our third quarter revenues were negatively impacted by a decrease of approximately $4 million as compared to our expectations in April 2020 and we continue to see a slowdown in commercial aerospace deliveries and revenues over the remainder of the year. For the quarter ended June 30, 2020, 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 our Aerospace and Defense reporting units and was determined to be an event and change in circumstances that required a quantitative review of goodwill and other intangible assets for impairment. We determined that there was no impairment during the three and nine months ended June 30, 2020 and the fair value of each reporting unit reviewed substantially exceeded carrying value, with the exception of Mayday where fair value exceeded carrying value by 8%. At June 30, 2020, we had $30 million of goodwill recorded for Mayday. The valuation methodology we use involves estimates of discounted cash flows, which are subject to change, and if they change negatively it could result in the need to write down those assets to fair value. We will continue to monitor the impacts of COVID-19 on the fair value of assets. The defense portion of A&D, both military aerospace and navy products is expected to remain at approximately historical business levels given its backlog coupled with the timing of expected platform deliveries.

In our Test segment, our third quarter revenues were negatively impacted by a decrease of approximately $6 million as compared to our expectations in April 2020 due to the China facility’s temporary three-week shutdown in February, and delayed timing of installation projects caused by access limitations to customer sites due to COVID-19. We expect the Test segment to remain at relatively normal business levels over the remainder of the year given the strength of its backlog and its served markets, primarily related to new communications technologies such as 5G.

In our USG segment, our third quarter revenues were negatively impacted by approximately $7 million as compared to our expectations in April 2020 as several utility customers continued to defer purchase orders and maintenance-related project deliveries so they could divert resources to other issues such as critical power delivery given their concerns around COVID-19. Additionally, Doble’s service business continued to largely be on hold during the pandemic. We expect USG’s customer spending softness to continue for the next few quarters before returning to normal levels. We reviewed the long-lived assets, including goodwill, of our NRG business for impairment that had $8 million of goodwill as of June 30, 2020. While the quantitative review determined that there was no impairment, the fair value of that reporting unit exceeded carrying value by 10%. The valuation methodology we use involves estimates of discounted cash flows, which are subject to change, and if they change negatively it could result in the need to write down those assets to fair value. We will continue to monitor the impacts of COVID-19 on the fair value of assets.

See the “Outlook” and “Part II – Other Information, Item 1A, Risk Factors” sections below for additional details.

RESULTS OF OPERATIONS

References to the third quarters of ~~2019~~2020 and ~~2018~~2019 represent the three-month periods ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

OVERVIEW

In the third quarter of ~~2019,~~2020, sales, net earnings and diluted earnings per share from continuing operations were ~~$199.8~~$172.7 million, ~~$20.1~~$18.7 million and ~~$0.77~~$0.72 per share, respectively, compared to ~~$192.2~~$178.3 million, $19.0 million and $0.73 per share, respectively, in the third quarter of ~~2018.~~2019. In the first nine months of ~~2019,~~2020, sales, net earnings and diluted earnings per share from continuing operations were ~~$576.3~~$524.9 million, ~~$56.2~~$47.3 million and ~~$2.15,~~$1.81, respectively, compared to ~~$540.5~~$512.9 million, ~~$63.7~~$54.2 million and ~~$2.45~~$2.07 per share, respectively, in the first nine months of ~~2018.~~2019. The decrease in net earnings and diluted earnings per share in the first nine months of 2020 as compared to the first nine months of 2019 was mainly due to the gain of approximately $8 million on the sale of the Doble Watertown property in the first quarter of 2019.

NET SALES

In the third quarter of ~~2019,~~2020, net sales of ~~$199.8~~$172.7 million were ~~$7.6~~$5.6 million, or ~~4.0%~~3.1%, ~~higher~~lower than the ~~$192.2~~$178.3 million in the third quarter of ~~2018.~~2019. In the first nine months of ~~2019,~~2020, net sales of ~~$576.3~~$524.9 million were ~~$35.8~~$12.0 million, or ~~6.6%~~2.3%, higher than the ~~$540.5~~$512.9 million in the first nine months of ~~2018.~~2019. The ~~increase~~decrease in net sales in the third quarter of ~~2019~~2020 as compared to the third quarter of ~~2018~~2019 was due to a ~~$13.4 million increase in the Filtration segment, partially offset by a $2.7 million decrease in the Test segment, a $2.6~~$10.3 million decrease in the USG segment, partially offset by a $3.7 million increase in the Test segment and a ~~$0.5~~$1.0 million ~~decrease~~increase in the ~~Technical Packaging~~Aerospace & Defense segment. The increase in net sales in the first nine months of ~~2019~~2020 as compared to the first nine months of ~~2018~~2019 was due to a ~~$33.3~~$27.8 million increase in the ~~Filtration~~Aerospace & Defense segment and a ~~$3.1~~$2.7 million increase in the Test segment, partially offset by ~~a $0.3~~an $18.5 million decrease in the USG ~~segment and a $0.2 million decrease in the Technical Packaging~~ segment.

-~~-Filtration~~Aerospace & Defense (A&D)

In the third quarter of ~~2019,~~2020, net sales of ~~$83.1~~$84.1 million were ~~$13.4~~$1.0 million, or ~~19.2%~~1.2%, higher than the ~~$69.7~~$83.1 million in the third quarter of ~~2018.~~2019. In the first nine months of ~~2019,~~2020, net sales of ~~$228.8~~$256.7 million were ~~$33.3~~$27.9 million, or ~~17.0%~~12.2%, higher than the ~~$195.5~~$228.8 million in the first nine months of ~~2018.~~2019. The sales increase in the third quarter of ~~2019~~2020 compared to the third quarter of ~~2018~~2019 was mainly due to ~~a $6.7~~the addition of $7.9 million ~~increase~~ in net sales ~~at PTI due to higher aerospace assembly and element shipments,~~from Globe, a ~~$3.3~~$2.4 million increase in net sales at VACCO due to ~~higher shipments of~~increased revenue from space products and ~~defense spares,~~ a ~~$2.2~~$0.5 million increase in net sales at ~~Crissair~~Westland, partially offset by a $4.2 million decrease in net sales at PTI due to ~~higher~~lower aerospace assembly shipments, a $3.5 million decrease in net sales at Crissair, and a ~~$1.5~~$2.1 million decrease in net sales at Mayday all due to the impacts of COVID-19. The sales increase in the first nine months of 2020 compared to the first nine months of 2019 was due to the addition of $25.7 million in net sales from Globe, a $7.8 million increase in net sales at ~~Mayday~~VACCO due to ~~higher aerospace shipments,~~increased revenue from space products, partially offset by $2.2 million decrease in net sales at Crissair, a ~~$0.3~~$1.6 million decrease in net sales at Westland due to timing of ~~shipments. The increase in the first nine months of 2019 compared to the first nine months of 2018 was primarily due to an~~revenue on government programs, a ~~$11.7~~$1.6 million ~~increase in net sales at PTI due to higher aerospace assembly and element shipments, $10.2 million increase in net sales at Crissair due to higher aerospace shipments, a $4.9 million increase~~decrease in net sales at Mayday, ~~due to higher aerospace shipments $3.3~~and a $0.2 million ~~increase~~decrease in net sales at ~~Westland due to timing of shipments on government programs and a $3.2 million increase in net sales at VACCO due to higher shipments of defense spares.~~PTI.

-Test

In the third quarter of ~~2019,~~2020, net sales of ~~$42.3~~$46.0 million were ~~$2.7~~$3.7 million, or ~~6.0%~~8.7%, ~~lower~~higher than the ~~$45.0~~$42.3 million in the third quarter of ~~2018.~~2019. In the first nine months of ~~2019,~~2020, net sales of ~~$126.5~~$129.0 million were ~~$3.1~~$2.5 million, or ~~2.5%~~2.0%, higher than the ~~$123.4~~$126.5 million in the first nine months of ~~2018.~~2019. The ~~decrease~~increase in the third quarter ~~of 2019 compared to the third quarter of 2018 was primarily due to lower sales from the segment’s U.S. operations due to timing of test~~ and ~~measurement chamber projects. The increase in the~~ first nine months of ~~2019~~2020 compared to the ~~first nine months~~corresponding periods of ~~2018~~2019 was primarily due to higher sales from the segment’s Asian operations due to the catch up in shipments as the China facility had a temporary three-week shutdown during the second quarter due to COVID-19 and ~~U.S.~~higher sales from the segment’s European operations due to the timing of test and measurement chamber projects.

-~~Utility Solutions Group (USG)~~USG

In the third quarter of ~~2019,~~2020, net sales of ~~$52.9~~$42.6 million were ~~$2.6~~$10.3 million, or ~~4.7%,~~19.5% lower than the ~~$55.5~~$52.9 million in the third quarter of ~~2018.~~2019. In the first nine months of ~~2019,~~2020, net sales of ~~$157.6~~$139.2 million were ~~$0.3~~$18.4 million, or 11.7%, lower than the ~~$157.9~~$157.6 million in the first nine months of ~~2018.~~2019. The decrease in the third quarter and first nine months of ~~2019~~2020 compared to the corresponding periods of ~~2018~~2019 was mainly due to lower product and software sales at ~~NRG due to continued softness in~~Doble primarily driven by the ~~renewable energy market.~~impact of COVID-19 as customers delayed orders and on-site testing.

ORDERS AND BACKLOG

~~-Technical Packaging~~

~~In the third quarter of 2019, net sales of $21.5~~Backlog from continuing operations was $550.5 million ~~were $0.5~~at June 30, 2020 compared with $451.6 million ~~or 2.3%, lower than the $22.0~~at September 30, 2019. The Company received new orders totaling $157.8 million in the third quarter of 2018. In the first nine months of 2019, net sales of $63.4 million were $0.3 million lower than the $63.7 million in the first nine months of 2018. The decrease in the third quarter and first nine months of 20192020 compared to ~~the corresponding periods of 2018 was primarily due to the decrease in net sales from Plastique due to timing of projects.~~

~~ORDERS AND BACKLOG~~

~~Backlog was $432.5 million at June 30, 2019 compared with $382.8 million at September 30, 2018. The Company received new orders totaling $196.2~~$170.7 million in the third quarter of ~~2019 compared to $201.1 million~~2019. Of the new orders received in the third quarter of ~~2018.~~2020, $65.9 million related to Aerospace & Defense products, $41.5 million related to Test products, and $50.4 million related to USG products. Of the new orders received in the third quarter of 2019, $71.2 million related to ~~Filtration~~Aerospace & Defense products, $44.1 million related to Test products, and $55.4 million related to USG ~~products, and $25.4~~products.

The Company received new orders totaling $623.9 million ~~related~~in the first nine months of 2020 compared to ~~Technical Packaging products.~~$561.3 million in the first nine months of 2019. Of the new orders received in the ~~third quarter~~first nine months of ~~2018, $85.9~~2020, $350.9 million related to ~~Filtration~~Aerospace & Defense products, ~~$37.9~~$121.8 million related to Test products, ~~$57.8~~and $151.2 million related to USG ~~products, and $19.5 million related to Technical Packaging~~ products.

~~The Company received new orders totaling $626.0 million in the first nine months of 2019 compared to $588.9 million in the first nine months of 2018.~~ Of the new orders received in the first nine months of 2019, $255.7 million related to ~~Filtration~~Aerospace & Defense products, $147.1 million related to Test products, and $158.5 million related to USG products, and $64.7 million related to Technical Packaging products. Of the new orders received in the first nine months of 2018, $219.1 million related to Filtration products, $144.2 million related to Test products, $168.0 million related to USG products, and $57.6 million related to Technical Packaging products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (SG&A) expenses from continuing operations for the third quarter of ~~2019~~2020 were ~~$43.4~~$36.9 million ~~(21.7%~~(21.4% of net sales), compared with ~~$39.9~~$41.2 million ~~(20.8%~~(23.1% of net sales) for the third quarter of ~~2018.~~2019. For the first nine months of ~~2019,~~2020, SG&A expenses were ~~$126.1~~$119.0 million ~~(21.9%~~(22.7% of net sales) compared to ~~$122.8~~$119.1 million ~~(22.7%~~(23.2% of net sales) for the first nine months of ~~2018.~~2019. The ~~increase~~decrease in SG&A in the third quarter and first nine months of ~~2019~~2020 compared to the corresponding periods of ~~2018~~2019 was mainly due to ~~an increase in the USG segment~~lower discretionary spending related to travel and other discretionary expenses due to ~~higher sales commissions including additional sales and marketing expenses to support future revenue growth.~~the COVID-19 pandemic; partially offset by the addition of Globe.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets from continuing operations was ~~$4.7~~$5.5 million and ~~$14.0~~$16.6 million for the third quarter and first nine months of ~~2019,~~2020, respectively, compared to ~~$4.6~~$4.4 million and ~~$13.6~~$13.2 million for the corresponding periods of ~~2018.~~2019. Amortization expenses consist of amortization of acquired intangible assets from acquisitions and other identifiable intangible assets (primarily software). The increase in amortization expense in the third quarter and first nine months of ~~2019~~2020 compared to the ~~first nine months~~corresponding periods of ~~2018~~2019 was mainly due to an increase in amortization of ~~intangibles~~intangible assets related to the ~~Manta acquisition.~~Globe acquisition and an increase in amortization of capitalized software at Doble.

OTHER (INCOME) EXPENSES, ~~(INCOME),~~ NET

Other ~~expenses,~~income, net, was ~~$2.6~~($0.8) million in the third quarter of ~~2019~~2020 compared to other ~~income,~~expenses, net, of ~~$0.7~~$2.0 million in the third quarter of ~~2018.~~2019. The principal ~~components~~component of other income, net, in the third quarter of 2020 was a gain on derivative instruments of $0.5 million. The principal component of other expenses, net, in the third quarter of 2019 ~~were $1.2~~was $0.8 million of restructuring charges related to the ~~closure~~consolidation of ~~Plastique’s headquarters in Tunbridge Wells, UK; the consolidation of~~

VACCO’s aircraft/aerospace business into PTI’s aerospace facility in Oxnard, ~~California;~~California and the completion of other restructuring activities begun in 2018; and losses on derivative instruments. ~~The principal component in other income, net, in the third quarter of 2018 was a gain on derivative instruments of $0.5 million.~~

Other ~~income,~~expenses, net, was ~~$2.0~~$0.2 million in the first nine months of ~~2019~~2020 compared to other ~~expenses,~~income, net, of ~~$1.0~~($3.4) million in the first nine months of ~~2018.~~2019. There were no individually significant items in other expenses (income), net, in the first nine months of 2020. The principal component inof other income, net, in the first nine months of 2019 was a gain of approximately $8 million on the sale of the Doble Watertown, MA building and land, partially offset by certain restructuring activities at Doble, PTI and VACCO and ~~Plastique and~~ losses on derivative instruments. The principal components in other expenses, net, in the first nine months of 2018 were $2.1 million of charges related to the USG segment restructuring activities as mentioned above, partially offset by gains on derivative instruments.

EBIT

The Company evaluates the performance of its operating segments based on EBIT, and provides EBIT on a consolidated basis, which is a non-GAAP financial measure. Please refer to the discussion of non-GAAP financial measures in Note 78 to the Consolidated Financial Statements, above. EBIT was ~~$26.9~~$23.3 million ~~(13.4%~~(13.5% of net sales) for the third quarter of ~~2019~~2020 compared to ~~$25.6~~$25.5 million ~~(13.3%~~(14.3% of net sales) for the third quarter of ~~2018.~~2019. For the first nine months of ~~2019,~~2020, EBIT was ~~$75.3~~$61.5 million ~~(13.1%~~(11.7% of net sales) compared to ~~$56.2~~$72.9 million ~~(10.4%~~(14.2% of net sales) for the first nine months of ~~2018.~~2019.

The following table presents a reconciliation of EBIT to net ~~earnings.~~earnings from continuing operations.


	Three Months Ended			Nine Months Ended		Three Months Ended				Nine Months Ended
	June 30,			June 30,		June 30,				June 30,
(In thousands)	2019		2018	2019	2018	2020		2019		2020	2019
Consolidated EBIT	$	26,865	25,559	75,292	56,165	$	23,332		25,545	61,468	72,871
Less: Interest expense, net		(1,973)	(2,243)	(5,788)	(6,464)		(1,523)		(1,878)	(5,264)	(5,586)
(Less) Plus: Income tax		(4,825)	(4,297)	(13,323)	13,983
Net earnings	$	20,067	19,019	56,181	63,684
Less: Income tax							(3,122)		(4,622)	(8,931)	(13,068)
Net earnings from continuing operations						$	18,687		19,045	47,273	54,217

-Aerospace & Defense

-~~Filtration~~

EBIT in the third quarter of ~~2019~~2020 was ~~$19.0~~$17.4 million ~~(22.9%~~(20.7% of net sales) compared to ~~$14.3~~$19.0 million ~~(20.5%~~(22.9% of net sales) in the third quarter of ~~2018.~~2019. EBIT in the first nine months of ~~2019~~2020 was ~~$47.1~~$51.7 million ~~(20.6%~~(20.1% of net sales) compared to ~~$35.1~~$47.1 million ~~(17.9%~~(20.6% of net sales) in the first nine months of ~~2018.~~2019. The decrease in EBIT in the third quarter of 2020 compared to the third quarter of 2019 was mainly due to a $1.8 million decrease at Crissair due to lower sales volumes, a $1.0 million decrease at VACCO due to product mix, an $0.8 million decrease at PTI due to lower sales volumes; partially offset by the $1.8 million contribution from Globe. The increase in EBIT in the first nine months of 2020 compared to the first nine months of 2019 was mainly due to the $6.4 million contribution from Globe; partially offset by a $1.5 million decrease at Crissair due to lower sales volumes. In addition, EBIT in the third quarter of 2020 was negatively impacted by $0.8 million of incremental costs associated with the COVID-19 pandemic.

-Test

EBIT in the third quarter of 2020 was $7.2 million (15.6% of net sales) compared to $5.9 million (14.0% of net sales) in the third quarter of 2019. EBIT in the first nine months of 2020 was $17.5 million (13.6% of net sales) compared to $14.8 million (11.7% of net sales) in the first nine months of 2019. The increase in EBIT in the third quarter and first nine months of ~~2019~~2020 compared to the corresponding periods of ~~2018~~2019 was ~~mainly~~primarily due to ~~an increase across all companies within the segment due to the~~ higher sales volumes from the segment’s Asian and European operations as mentioned above. EBIT in the third quarter and first nine months of 2019 was negatively impacted by restructuring charges incurred related to the consolidation of VACCO’s aircraft/aerospace business into PTI’s aerospace facility in Oxnard, California, ($0.3 million in the third quarter of 2019 and $0.8 million in the first nine months of 2019). These charges consisted primarily of severance and compensation benefits.

-USG

-~~Test~~

EBIT in the third quarter of ~~2019~~2020 was ~~$5.9~~$6.2 million ~~(14.0%~~(14.5% of net sales) compared to ~~$5.9~~$10.1 million ~~(13.1%~~(19.2% of net sales) in the third quarter of ~~2018.~~2019. EBIT in the first nine months of ~~2019~~2020 was ~~$14.8~~$20.3 million ~~(11.7%~~(14.6% of net sales) compared to ~~$13.8~~$40.5 million ~~(11.2%~~(25.7% of net sales) in the first nine months of ~~2018.~~2019. The ~~increase~~decrease in EBIT in the third quarter of 2020 compared to the third quarter of 2019 was mainly due to a decrease in EBIT from Doble due to lower sales volumes of higher margin products and software mentioned above. The decrease in EBIT in the first nine months of ~~2019~~2020 as compared to the first nine months of ~~2018 was primarily due to the increased sales volumes mainly from the segment’s Asian operations.~~

-~~Utility Solutions Group~~

~~EBIT in the third quarter of~~ 2019 was $10.1 million (19.2% of net sales) compared to $11.5 million (20.8% of net sales) in the third quarter of 2018. EBIT in the first nine months of 2019 was $40.5 million (25.7% of net sales) compared to

~~EBIT of $27.8 million (17.6% of net sales) in the first nine months of 2018. The increase in EBIT in the third quarter and first nine months of 2019 compared to the corresponding periods of 2018~~ was mainly due to the gain on sale of the Doble Watertown facility of approximately $8 million in the first quarter of 2019 as well as ~~an increase in EBIT from Morgan Schaffer and Manta product lines partially offset by~~ a decrease in EBIT from ~~NRG~~Doble due to ~~market softness.~~

~~-Technical Packaging~~

lower sales volumes in the first nine months of 2020. In addition, EBIT in the third quarter of ~~2019~~2020 was ~~$1.6~~negatively impacted by approximately $0.2 million ~~(7.6%~~ of ~~net sales) compared to $2.5 million (11.4% of net sales) in~~incremental costs associated with the ~~third quarter of 2018.~~COVID-19 pandemic and EBIT in the first nine months of 2019 was $3.3 million (5.3% of net sales) compared to $5.4 million (8.4% of net sales) in the first nine months of 2018. The decrease in EBIT in the third quarter and first nine months of 2019 compared to the corresponding periods of 2018 was mainly due to the restructuring charges incurred related to the Plastique facility consolidation, ($0.6 million in the third quarter of ~~2019 and $1.3~~2020 was negatively impacted by approximately $0.6 million ~~in the first nine months~~ of ~~2019). These charges consisted primarily of severance and compensation benefits and asset impairment charges.~~facility move costs at Doble.

-Corporate

Corporate costs included in EBIT were ~~$9.9~~$7.4 million and ~~$30.4~~$28.0 million in the third quarter and first nine months of ~~2019,~~2020, respectively, compared to ~~$8.7~~$9.6 million and ~~$25.8~~$29.5 million in the corresponding periods of ~~2018.~~2019. The ~~increase~~decrease in Corporate costs in the third quarter of 2020 and first nine months of ~~2019~~2020 compared to the corresponding periods of ~~2018~~2019 was ~~primarily~~mainly due to ~~higher~~lower professional ~~fees, acquisition costs~~services and ~~timing of other Corporate costs recorded in the first nine months of 2019.~~lower compensation expense.

INTEREST EXPENSE, NET

Interest expense was ~~$2.0~~$1.5 million and ~~$5.9~~$5.3 million in the third quarter and first nine months of ~~2019,~~2020, respectively, and ~~$2.2~~$1.9 million and ~~$6.5~~$5.6 million in the corresponding periods of ~~2018.~~2019. The decrease in interest expense in the ~~first nine months~~third quarter of ~~2019~~2020 as compared to the ~~first nine months~~third quarter of ~~2018~~2019 was mainly due to lower average outstanding borrowings ($~~216~~151 million compared to ~~$263~~$218 million) at relatively consistent average interest rates of 3.2%.

INCOME TAX EXPENSE

The third quarter ~~2019~~2020 effective income tax rate from continuing operations was ~~19.4%~~14.3% compared to ~~18.4%~~19.5% in the third quarter of ~~2018.~~2019. The effective income tax ~~expense~~rate in the first nine months of 2020 was 15.9% compared to 19.4% for the first nine months of ~~2019 was $13.3 million compared to~~2019. The income tax ~~benefit of $14.0 million for~~expense in the third quarter and first nine months of ~~2018.~~2020 was favorably impacted by the following items: 1) additional tax benefits on share-based compensation that vested during the third quarter and year-to-date quarter decreasing the effective tax rate by 1.4% and 0.6%, respectively; 2) research credits and other 2019 tax return to provision true-ups decreasing the third quarter and year-to-date effective tax rate by 1.6% and 0.6%, respectively; and 3) an increase in the available 2019 and 2020 foreign tax credit which was attributable to new information and tax planning strategies; for which the combined effect was a 6.3% reduction in the third quarter effective tax rate and a 2.4% reduction in the year-to-date effective tax rate. The ~~effective~~ income tax expense was favorably impacted in the second quarter of 2020 by the release of a valuation allowance of $2.8 million for foreign net operating losses decreasing the year-to-date effective tax rate ~~for the first nine months of 2019 was 19.2% compared to (28.1%) for the first nine months of 2018.~~ by 5.1%.

The income tax expense in the third quarter and first nine months of 2019 was favorably impacted by tax planning strategies to increase the 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 the third quarter of 2019) and recorded an amended return ~~benefit~~receivable 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 tax rate of 2019 by ~~1.0%~~1.4% and ~~4.1%~~4.3%, 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%~~0.6%, 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%~~1.1% and 0.4%, respectively.

~~$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.~~

CAPITAL RESOURCES AND LIQUIDITY

The Company’s overall financial position and liquidity remains strong. The effects of COVID-19 have not materially affected liquidity. Working capital from continuing operations (current assets less current liabilities) increased to ~~$250.5~~$271.1 million at June 30, ~~2019~~2020 from ~~$195.5~~$229.8 million at September 30, ~~2018.~~2019. Inventories ~~decreased~~increased by ~~$8.6~~$27.3 million during this period ~~mainly~~ due to a ~~$12.7~~$12.3 million ~~decrease~~increase within the ~~Filtration~~Aerospace & Defense segment, a $7.2 million increase within the Test segment and a $7.8 million increase within the USG segment, resulting primarily from the ~~adoption~~timing of ~~ASU No. 2014-09,~~ ~~Revenue~~receipt of raw materials and work-in-process due to timing of projects.

Net cash provided by operating activities from ~~Contracts with Customers~~ ~~(ASC 606). Contract assets increased $46.5~~continuing operations was $53.8 million and $30.8 million in the first nine months of ~~2019 mainly due to the adoption of ASC 606 within the Filtration segment.~~

~~Net cash provided by operating activities was $37.0 million~~2020 and ~~$53.9 million in the first nine months of~~ 2019, ~~and 2018,~~ respectively. The ~~decrease~~increase in net cash provided by operating activities from continuing operations in the first nine months of ~~2019~~2020 as compared to the first nine months of ~~2018~~2019 was ~~due to higher~~driven by lower working capital requirements.

Capital expenditures from continuing operations were ~~$26.5~~$28.3 million and ~~$15.5~~$15.3 million in the first nine months of ~~2019~~2020 and ~~2018,~~2019, respectively. The increase in the first nine months of ~~2019~~2020 was mainly due to the building improvement additions at the new Doble headquarters facility of approximately $7 million and a ~~$9.1~~$2.7 million ~~facility expansion~~increase in capital expenditures at ~~TEQ.~~VACCO primarily for construction of a new parking lot and certain machinery and equipment. In addition, the Company incurred expenditures for capitalized software of ~~$6.2~~$6.6 million and ~~$7.1~~$6.2 million in the first nine months of ~~2019~~2020 and ~~2018,~~2019, respectively.

Credit Facility

At June 30, ~~2019,~~2020, the Company had approximately ~~$225~~$340 million available to borrow under its bank credit facility, a $250 million increase option subject to lender approval, and ~~$39.0~~$104.7 million cash on hand. At June 30, ~~2019,~~2020, the Company had ~~$217.0~~$150 million of outstanding borrowings under the ~~Credit Facility,~~credit facility, and ~~$0.9~~$1.6 million of short-term ~~borrowing~~borrowings in addition to outstanding letters of credit of ~~$7.2~~$9.9 million. Cash flow from operations and borrowings under the Company’s credit facility are expected to meet the Company’s capital requirements and operational needs for the foreseeable future. The Company’s ability to access the additional $250 million increase option of the credit facility is subject to acceptance by participating or other outside banks.

~~New Accounting Standards~~Pension contributions

~~In February 2016,~~The Company paid $10 million of pension contributions during the ~~FASB issued ASU No. 2016-062, “Leases” (ASU 2016-02) which supersedes ASC 840, “Leases”~~third quarter of 2020. During the first quarter of 2020, the Company announced that it plans to terminate and ~~creates a new topic, ASC 842 “Leases.” Subsequent to~~annuitize the ~~issuance~~defined benefit pension plan during the fourth quarter of ~~ASU 2016-02, ASC 842 was amended by~~2020.

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various updates that amend and clarify the impact and implementation of the aforementioned update. These updates require lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. Upon initial application, the provisions of these updates are required to be applied using the modified retrospective method which requires retrospective adoption to each prior reporting period presented with the cumulative effect of adoption recorded to the earliest reporting period presented. An optional transition method can be utilized which requires retrospective adoption beginning on the date of adoption with the cumulative effect of initially applying these updates recognized at the date of initial adoption. These updates also expand the required quantitative and qualitative disclosures surrounding leases. These updates are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. We expect to adopt these updates on October 1, 2019 using the optional transition method. We continue to evaluate the impact these updates will have on our consolidated financial statements. Based upon the analysis and preliminary evaluation of the standard, we estimate the adoption will result in the addition of assets and liabilities of less than $30 million to our consolidated balance sheet, with no significant change to our consolidated statements of operations or cash flows. We believe the updates will also have an impact on our accounting policies, internal controls and disclosures related to leases.

~~In October 2016, the FASB issued ASU No. 2016-16,~~ ~~Intra-Entity Transfers of Assets Other Than Inventory~~, which eliminates the exception for all intra-entity sale of assets other than inventory. This standard is effective for annual periods beginning after December 15, 2017. There was no significant impact to the Company’s consolidated financial statements as a result of adopting this new standard.

~~Acquisition~~

~~During the third quarter of 2019, the Company paid a deferred payment of $0.9 million in connection with the 2016 acquisition of Plastique.~~

~~Subsequent Event~~Dividends

On July 2, 2019, the Company acquired Globe Composite Solutions, LLC (Globe), a supplier of mission-critical composite-based products and solutions for navy, defense, and industrial customers. Globe’s operating results from date of acquisition will be included in the Company’s Filtration segment.

~~Dividends~~

A ~~quarterly~~ dividend of $0.08 per share, totaling $2.1 million, was paid on April ~~18, 2019~~17, 2020 to stockholders of record as of April ~~3, 2019.~~2, 2020. Subsequent to June 30, ~~2019,~~2020, a quarterly dividend of $0.08 per share, totaling $2.1 million, was paid on July ~~19, 2019~~16, 2020 to stockholders of record as of July ~~5, 2019.~~2, 2020.

OUTLOOK

~~Management’s current expectations for 2019 remain consistent with~~During the ~~details outlined in the Business Outlook in the previous release~~second and ~~expects 2019 Adjusted EPS guidance in the range~~third quarters of $3.05 to $3.10 per share. Management is excluding the following expected adjustments to 2019 GAAP EPS: A pre-tax gain from the October 2018 sale of Doble’s headquarters building in Watertown, Massachusetts; and pre-tax costs2020, business disruptions related to the ~~relocation~~COVID-19 pandemic affected the Company’s operations. Given the considerable uncertainty regarding the extent and duration of ~~Doble’s headquarters,~~these economic circumstances, it is difficult to predict how our future operations will be affected using our normal forecasting methodologies, therefore, the ~~closure of Plastique’s headquarters in Tunbridge Wells, UK and the consolidation of~~Company is suspending its product design and administrative functions into its facilities in Nottingham, UK and Poznan, Poland; the consolidation of VACCO’s aircraft/aerospace business into PTI’s aerospace facility in Oxnard, California; and the completion of other restructuring activities begun in 2018.previously issued fiscal year 2020 guidance.

CRITICAL ACCOUNTING POLICIES

Management has evaluated the accounting policies used in the preparation of the Company’s financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by ~~management~~Management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based

on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving ~~management~~Management judgments and estimates may be found in the Critical Accounting Policies section of Management’s Discussion and Analysis and in Note 1 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019.

OTHER MATTERS

Contingencies

As a normal incident of the business in which the Company is engaged, various claims, charges and litigation are asserted or commenced against the Company. Additionally, the Company is currently involved in various stages of investigation and remediation relating to environmental matters. In the opinion of ~~management,~~Management, the aggregate costs involved in the resolution of these matters, and final judgments, if any, which might be rendered against the Company, are adequately reserved, are covered by insurance, or would not have a material adverse effect on the Company’s results from operations, capital expenditures, or competitive position.

FORWARD LOOKING STATEMENTS

Statements contained in this Form 10-Q regarding future events and the Company’s future results that reflect or are based on current expectations, estimates, forecasts, projections or assumptions about the Company’s performance and the industries in which the Company operates are considered “forward-looking statements” within the meaning of the safe harbor provisions of the Federal securities laws. These include, but are not necessarily limited to, statements about: the ~~amount~~effects of the COVID-19 pandemic including any impairment to the Company’s assets, impacts to commercial aerospace, military and ~~timing~~navy markets which the Company serves, and the strength of ~~future sales, revenues, cash flows, growth, Adjusted EPS~~the markets served by the Company’s Test and ~~EPS;~~USG segments; the adequacy of the Company’s credit facility and the Company’s ability to increase it; the outcome of current litigation, claims and charges; ~~income taxation of foreign earnings and the future repatriation, reinvestment or distribution of foreign earnings; future income tax liabilities and effective tax rate;~~ timing of the repayment of the current portion of the Company’s long-term debt; ~~changes in the amount~~future revenues from remaining performance obligations; fair values of unrecognized tax benefits; the recognition and timing of costs related to share-based compensation arrangements; returns on retirement plan assets; estimates or projections made in connection with the Company’s accounting policies; market risks relating to the Company’s operations and changes in interest rates; the extent to which hedging gains or losses are offset by losses or gains on related underlying exposures;reporting units; the Company’s ability to hedge against or otherwise manage ~~them~~market risks through the use of derivative financial instruments; the extent to which hedging gains or losses will be offset by losses or gains on related underlying exposures; and any other statements contained herein which are not strictly historical. Words such as expects, anticipates, targets, goals, projects, intends, plans, believes, estimates, variations of such words, and similar expressions are intended to identify such forward-looking statements.

Investors are cautioned that such statements are only predictions and speak only as of the date of this Form 10-Q, and the Company undertakes no duty to update them except as may be required by applicable laws or regulations. The Company’s actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company’s operations and business environment, including but not limited to those described in Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018,~~2019 and this Quarterly Report on Form 10-Q, and the following: the impact of the COVID-19 pandemic including labor shortages, facility closures, material shortages, transportation delays, termination or delays of Company contracts, the inability of our suppliers or customers to perform, and weakening of economic conditions in served markets; the impacts of natural disasters on the Company’s operations and those of the Company’s customers and suppliers; the timing and content of future contract awards or customer orders; the appropriation, allocation and availability of Government funds; the termination ~~for convenience~~ of Government and other customer contracts or orders; ~~financial exposure in connection with Company guarantees of certain Aclara contracts;~~ weakening of economic conditions in served markets; the success of the Company’s competitors; changes in customer demands or customer insolvencies; competition; intellectual property rights; technical difficulties; the availability of selected acquisitions; delivery delays or defaults by customers; performance issues with key customers, suppliers and subcontractors; material changes in the costs and availability of certain raw materials; labor disputes; changes in U.S. tax laws and regulations; other changes in laws and regulations including but not limited to changes in accounting standards and foreign taxation; changes in interest rates; costs relating to environmental matters arising from current or former facilities; and uncertainty regarding the ultimate resolution of current disputes, claims, litigation or ~~arbitration; and the integration of recently acquired businesses.~~arbitration.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.~~debt, of which one swap is outstanding as of June 30, 2020. 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. All derivative instruments are reported on the balance sheet at fair value. For derivative instruments designated as cash flow hedges, the gain or loss on the respective 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. There has been no material change to the Company’s market risks since September 30, ~~2018.~~2019. See Note 1213 to the Consolidated Financial Statements in Item 1 of this Report for a summary of the Company’s outstanding derivative financial instruments as of June 30, ~~2019.~~2020. Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018~~2019 for further discussion about market risk.

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and with the participation of ~~management,~~Management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, due to the material weakness in the Company’s internal control over financial reporting related to the ineffective design and operation of controls impacting the deferred revenue general ledger account, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ~~ineffective~~effective as of that date.

~~As previously~~ Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in ~~Part II Item 9A~~Company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Company’s Annual Report on Form 10-K for the year ended September 30, 2018, management concluded there was a material weakness in the Company’s internal control over financial reporting related to the ineffective designSecurities and ~~operation of controls impacting the deferred revenue general ledger account. Remedial actions have been identified to address these controls, including enhancing our policies~~Exchange Commission’s rules and procedures related to the deferred revenue reconciliation and review, and providing additional training to our segment finance department. These new procedures are in the process of being implemented but have not been in place long enough to provide sufficient assurances to support the conclusion that the above identified material weaknessforms. There has been ~~fully remediated as of June 30, 2019.~~

~~Other than the above, there have been~~ no ~~changes~~change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

“Item 1A. Risk Factors” of our most recent Form 10-K, filed November 29, 2019, includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Form 10-K.

The COVID-19 pandemic and its widespread effects on the United States and global economies may have a material adverse effect on our business which could continue for an unknown period of time.

The rapid spread of the COVID-19 virus, as well as the measures governments and private organizations have implemented in order to stem the spread of this pandemic, is resulting in significant worldwide disruptions and contractions in economic activity, including those resulting from “shelter in place” and similar orders, restrictions on non-essential business operations and travel, and increased unemployment. Significant governmental and business resources are being reallocated from normal governmental and business expenditures toward COVID-19 prevention and treatment as well as toward attempting to mitigate the effects of the pandemic on individuals physically or economically harmed by these disruptions.

The Company may be subject to postponement or cancellation of certain contracts to which it is a party, including a substantial number of government contracts which may be delayed or terminated for convenience without penalty. Current restrictions and conditions may also prevent or delay the Company in accessing customer facilities to deliver products and provide services, and may disrupt or delay the Company’s supply chain. While the Company's businesses have been classified as essential businesses and allowed to remain in operation in jurisdictions in which facility closures have been mandated, the Company can give no assurance that this will not change in the future or that the Company's businesses will be classified as essential in each of the jurisdictions in which it operates. Further, although the Company has implemented prevention procedures at its own facilities, including enhanced cleaning procedures, social distancing efforts and working from home where feasible, and substantially all of its facilities have so far remained in business, due to the nature of the COVID-19 pandemic, there can be no assurance that the Company will not suffer facility closures or other adverse effects on its business operations in the future.

These facts and circumstances may have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. The extent to which the COVID-19 pandemic will impact the Company’s business, results of operations, financial condition and cash flows in the future, and the length of time these impacts may continue, will depend on future developments that are highly uncertain and cannot be predicted at this time, including new information that may emerge concerning the severity of COVID-19, the longevity of COVID-19 and the actions to contain its impact.

ITEM 6. EXHIBITS


Exhibit Number	Description	Document Location

3.1(a)	Restated Articles of Incorporation	Exhibit 3(a) to the Company’s Form 10-K for the fiscal year ended September 30, 1999

3.1(b)	Amended Certificate of Designation, Preferences and Rights of Series A Participating Cumulative Preferred Stock of the Registrant	Exhibit 4(e) to the Company’s Form 10-Q for the fiscal quarter ended March 31, 2000

3.1(c)	Articles of Merger effective July 10, 2000	Exhibit 3(c) to the Company’s Form 10-Q for the fiscal quarter ended June 30, 2000

3.1(d)	Amendment of Articles of Incorporation effective February 5, 2018	Exhibit 3.1 to the Company’s Form 8-K filed February 7, 2018

3.2	Bylaws	Exhibit ~~3.2~~3.1 to the Company’s Form 8-K filed ~~February 7, 2018~~

~~4.1~~	~~Specimen revised Common Stock Certificate~~	~~Exhibit 4.1 to Form 10-Q for the fiscal quarter ended March 31, 2010~~

~~4.2~~	Amended and Restated Credit Agreement dated as of December 21, 2015 among the Registrant, the Foreign Subsidiary Borrowers from time to time party thereto, the Lenders from time to time party thereto, JP Morgan Chase Bank, N.A. as Administrative Agent, and Bank of America, N.A., BMO Harris Bank, N.A., SunTrust Bank and Wells Fargo Bank, National Association as Co-Documentation Agents	~~Exhibit 4.1 to Form 8-K filed December 23, 2015~~

~~4.3~~	~~Amendment No. 1 to December 21, 2015 Credit Agreement, effective September 30, 2016~~	~~Exhibit 4.4 to Form 10-K for the fiscal year ended September 30, 2016~~

~~4.4~~	~~Amendment No. 2 to December 21, 2015 Credit Agreement, effective May 15, 2017~~	~~Exhibit 4.4 to Form 10-Q for the fiscal quarter ended June 30, 2017~~November 19, 2019

31.1	Certification of Chief Executive Officer ~~relating to Form 10Q for period ended June 30, 2019~~	Filed herewith

31.2	Certification of Chief Financial Officer ~~relating to Form 10Q for period ended June 30, 2019~~	Filed herewith

32	Certification of Chief Executive Officer and Chief Financial Officer ~~relating to Form 10Q for period ended June 30, 2019~~	Filed herewith

101.INS	XBRL Instance Document*	Submitted herewith
101.SCH	XBRL Schema Document*	Submitted herewith
101.CAL	XBRL Calculation Linkbase Document*	Submitted herewith
101.DEF	XBRL Definition Linkbase Document*	Submitted herewith
101.LAB	XBRL Label Linkbase Document*	Submitted herewith
101.PRE	XBRL Presentation Linkbase Document*	Submitted herewith

104	Cover Page Interactive Data File (contained in Exhibit 101)	Submitted herewith

* Exhibit 101 to this report consists of documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL – related documents is “unaudited” or “unreviewed”.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	ESCO TECHNOLOGIES INC.

	/s/ Gary E. Muenster
	Gary E. Muenster
	Executive Vice President and Chief Financial Officer
	(As duly authorized officer and principal accounting and
	financial officer of the registrant)

Dated: August ~~9, 2019~~10, 2020

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		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	%


	June 30, 2019
			Effect of the
			adoption of		Under Prior
(In thousands)	As Reported		ASC 606		Accounting
Consolidated Balance Sheets
Contract assets (1)	$	99,499	$	(43,576)	$	55,923
Inventories		126,816		36,089		162,905
Total current assets		450,206		(7,487)		442,719
Total assets		1,326,095		(7,487)		1,318,608
Contract liabilities (2)		53,758		4,549		58,307
Total current liabilities		199,736		4,549		204,285
Deferred tax liabilities		66,286		(1,678)		64,608
Total liabilities		514,288		2,871		517,159
Retained earnings		661,003		(10,358)		650,645
Total shareholders’ equity		811,807		(10,358)		801,449
Total liabilities and shareholders’ equity	$	1,326,095		(7,487)		1,318,608