UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ COMMISSION FILE NUMBER 1-10596 ESCO TECHNOLOGIES INC. (Exact name of registrant as specified in its charter) MISSOURI 43-1554045 (State or ot ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents ESCO Technologies Inc.'s unaudited consolidated financial statements, including statements of operations, comprehensive income, balance sheets, and cash flows, with detailed notes on accounting and segment information [Consolidated Statements of Operations](index=3&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) Net earnings for the three months ended December 31, 2019, significantly increased to $86,777 thousand from $17,317 thousand in the prior year, primarily driven by a substantial gain on the sale of discontinued operations | Metric | Three Months Ended Dec 31, 2019 ($k) | Three Months Ended Dec 31, 2018 ($k) | | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Net Sales | 171,728 | 163,365 | | Total Costs and Expenses | 157,358 | 139,870 | | Earnings Before Income Taxes | 14,370 | 23,495 | | Income Tax Expense | 3,606 | 6,145 | | Earnings from Continuing Operations | 10,764 | 17,350 | | Gain on Sale of Discontinued Operations | 76,614 | — | | Net Earnings | 86,777 | 17,317 | | Basic EPS - Net Earnings | $3.34 | $0.67 | | Diluted EPS - Net Earnings | $3.32 | $0.66 | [Consolidated Statements of Comprehensive Income (Loss)](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME%20(LOSS)) Comprehensive income for the three months ended December 31, 2019, was $90,700 thousand, a substantial increase from $12,763 thousand in the prior year, influenced by net earnings and positive foreign currency translation adjustments | Metric | Three Months Ended Dec 31, 2019 ($k) | Three Months Ended Dec 31, 2018 ($k) | | :---------------------------------------- | :----------------------------------- | :----------------------------------- | | Net Earnings | 86,777 | 17,317 | | Foreign Currency Translation Adjustments | 3,923 | (4,529) | | Net Unrealized (Loss) Gain on Derivative Instruments | — | (25) | | Total Other Comprehensive Income (Loss) | 3,923 | (4,554) | | Comprehensive Income | 90,700 | 12,763 | [Consolidated Balance Sheets](index=5&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) Total assets decreased to $1,431,569 thousand at December 31, 2019, from $1,466,720 thousand at September 30, 2019, primarily due to the divestiture of discontinued operations, while shareholders' equity increased significantly | Metric | December 31, 2019 ($k) | September 30, 2019 ($k) | | :---------------------------------------- | :--------------------- | :---------------------- | | Total Current Assets | 498,298 | 495,194 | | Assets of Discontinued Operations – Current | — | 25,314 | | Total Assets | 1,431,569 | 1,466,720 | | Total Current Liabilities | 252,030 | 251,635 | | Long-term Debt | 130,000 | 265,000 | | Total Liabilities | 516,078 | 640,498 | | Total Shareholders' Equity | 915,491 | 826,222 | [Consolidated Statements of Cash Flows](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Net cash provided by operating activities decreased to $2,707 thousand for the three months ended December 31, 2019, while investing activities saw a significant net cash inflow of $167,699 thousand, largely due to proceeds from the sale of discontinued operations | Cash Flow Activity | Three Months Ended Dec 31, 2019 ($k) | Three Months Ended Dec 31, 2018 ($k) | | :------------------------------------------------ | :----------------------------------- | :----------------------------------- | | Net Cash Provided by Operating Activities | 2,707 | 8,102 | | Net Cash Provided (Used) by Investing Activities | 167,699 | 6,256 | | Proceeds from Sale of Discontinued Operations | 183,997 | — | | Net Cash Used by Financing Activities | (139,219) | (6,239) | | Net Increase in Cash and Cash Equivalents | 34,884 | 6,153 | | Cash and Cash Equivalents, End of Period | 96,692 | 36,630 | [Notes to Consolidated Financial Statements](index=7&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) These notes provide detailed explanations and disclosures for the consolidated financial statements, covering accounting policies, segment information, recent divestitures, and the impact of new accounting standards [1. BASIS OF PRESENTATION](index=7&type=section&id=1.%20BASIS%20OF%20PRESENTATION) The interim financial statements are unaudited and prepared in accordance with Form 10-Q, with the Filtration/Fluid Flow segment renamed Aerospace & Defense (A&D) in Q1 2020 to better reflect its market - The Filtration / Fluid Flow segment has been renamed **Aerospace & Defense (A&D)** effective the first quarter of 2020 to better reflect its product composition, end markets, and customer characteristics[20](index=20&type=chunk) The segment's individual legal and operating entities, historical financial results, and management structure remain unchanged[20](index=20&type=chunk) [2. TECHNICAL PACKAGING DIVESTITURE](index=7&type=section&id=2.%20TECHNICAL%20PACKAGING%20DIVESTITURE) The Company completed the sale of its Technical Packaging business segment on December 31, 2019, for approximately $184 million in net proceeds, resulting in a $76.6 million after-tax gain, now reflected as discontinued operations - The Company completed the sale of its **Technical Packaging business segment** on December 31, 2019[21](index=21&type=chunk) - The Company received net proceeds from the sale of approximately **$184 million** and recorded a **$76.6 million after-tax gain** on the sale in the first quarter of 2020[22](index=22&type=chunk) Pretax Loss and Net Sales from Discontinued Operations | Metric | Three Months Ended Dec 31, 2019 ($M) | Three Months Ended Dec 31, 2018 ($M) | | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Pretax Loss from Discontinued Operations | (0.3) | (0.1) | | Net Sales from Discontinued Operations | 16.5 | 19.2 | [3. ACCOUNTING STANDARDS UPDATE](index=8&type=section&id=3.%20ACCOUNTING%20STANDARDS%20UPDATE) Effective October 1, 2019, the Company adopted ASU No. 2016-062, 'Leases' (ASC 842), adding approximately $20 million in 'right of use' assets and lease liabilities to the balance sheet with no significant impact on operations or cash flows - Effective October 1, 2019, the Company adopted **ASU No. 2016-062, 'Leases' (ASC 842)**, using the optional transition method and electing the 'package of practical expedients'[26](index=26&type=chunk) - The adoption resulted in the addition of approximately **$20 million** in 'right of use' assets and lease liabilities to the consolidated balance sheet, with no significant change to the Company's consolidated statements of operations or cash flows[26](index=26&type=chunk) [4. EARNINGS PER SHARE (EPS)](index=9&type=section&id=4.%20EARNINGS%20PER%20SHARE%20(EPS)) Basic EPS for net earnings was $3.34 and diluted EPS was $3.32 for the three months ended December 31, 2019, significantly higher than the prior year, reflecting the impact of the discontinued operations gain Earnings Per Share | Metric | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | | :------------------------------------ | :------------------------------ | :------------------------------ | | Basic EPS - Net Earnings | $3.34 | $0.67 | | Diluted EPS - Net Earnings | $3.32 | $0.66 | | Weighted Average Shares Outstanding - Basic | 25,981 | 25,911 | | Adjusted Shares - Diluted | 26,168 | 26,120 | [5. SHARE-BASED COMPENSATION](index=9&type=section&id=5.%20SHARE-BASED%20COMPENSATION) Total share-based compensation expense remained consistent at $1.4 million for both the three-month periods ended December 31, 2019 and 2018, with $7.9 million of unrecognized cost remaining as of December 31, 2019 - Total share-based compensation cost recognized in SG&A was **$1.4 million** for both the three-month periods ended December 31, 2019 and 2018[32](index=32&type=chunk) - As of December 31, 2019, there was **$7.9 million** of total unrecognized compensation cost related to share-based compensation arrangements, expected to be recognized over a remaining weighted-average period of **1.8 years**[32](index=32&type=chunk) [6. INVENTORIES](index=9&type=section&id=6.%20INVENTORIES) Total inventories from continuing operations increased to $133,977 thousand at December 31, 2019, from $124,956 thousand at September 30, 2019, driven by increases in work in process and raw materials Inventories | (In thousands) | December 31, 2019 | September 30, 2019 | | :---------------- | :---------------- | :----------------- | | Finished goods | $22,472 | $23,550 | | Work in process | 33,417 | 26,407 | | Raw materials | 78,088 | 74,999 | | Total inventories | $133,977 | $124,956 | [7. GOODWILL AND OTHER INTANGIBLE ASSETS](index=10&type=section&id=7.%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) Goodwill remained stable at $390.4 million at December 31, 2019, while net intangible assets with determinable lives saw minor changes due to amortization and additions Goodwill and Other Intangible Assets | (In thousands) | December 31, 2019 | September 30, 2019 | | :----------------------------- | :---------------- | :----------------- | | Goodwill | $390,383 | $390,256 | | Net Patents | $1,232 | $1,197 | | Net Capitalized Software | $29,811 | $30,432 | | Net Customer Relationships | $168,888 | $171,899 | | Net Other Intangible Assets | $2,395 | $2,796 | | Trade Names (Indefinite Lives) | $175,922 | $175,281 | Goodwill by Segment | (Dollars in millions) | USG | Test | Aerospace & Defense | Total | | :----------------------------- | :---- | :--- | :------------------ | :---- | | Balance as of September 30, 2019 | 254.0 | 34.1 | 102.2 | 390.3 | | Foreign currency translation | 0.1 | — | — | 0.1 | | Balance as of December 31, 2019 | $254.1 | 34.1 | 102.2 | 390.4 | [8. BUSINESS SEGMENT INFORMATION](index=11&type=section&id=8.%20BUSINESS%20SEGMENT%20INFORMATION) The Company operates in three reportable segments: Aerospace & Defense (A&D), RF Shielding and Test (Test), and Utility Solutions Group (USG), with A&D net sales increasing significantly while USG net sales decreased - The Company's continuing business operations are classified into three reportable segments: **Aerospace & Defense** (formerly Filtration/Fluid Flow), **RF Shielding and Test (Test)**, and **Utility Solutions Group (USG)**[38](index=38&type=chunk) Net Sales and EBIT by Segment | (In thousands) Net Sales | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | | :-------------------------- | :------------------------------ | :------------------------------ | | Aerospace & Defense | $77,511 | $66,224 | | Test | 41,383 | 41,286 | | USG | 52,834 | 55,855 | | Consolidated Totals | $171,728 | $163,365 | | | | | | EBIT | | | | Aerospace & Defense | $12,513 | $10,610 | | Test | 4,656 | 3,310 | | USG | 9,288 | 21,546 | | Corporate (loss) | (9,666) | (10,116) | | Consolidated EBIT | 16,791 | 25,350 | [9. DEBT](index=12&type=section&id=9.%20DEBT) Total borrowings decreased to $150 million at December 31, 2019, from $285 million at September 30, 2019, following the establishment of a new $500 million revolving credit facility, with the Company in compliance with all debt covenants Total Borrowings | (In thousands) | December 31, 2019 | September 30, 2019 | | :----------------------------------- | :---------------- | :----------------- | | Total Borrowings | $150,000 | $285,000 | | Current Portion of Long-Term Debt | (20,000) | (20,000) | | Total Long-Term Debt, Less Current Portion | $130,000 | $265,000 | - The Company entered into a new five-year credit facility on September 27, 2019, which includes a **$500 million revolving line of credit** and provisions for an additional **$250 million increase**[44](index=44&type=chunk) - At December 31, 2019, the Company had approximately **$341 million available to borrow** under the Credit Facility, plus the **$250 million increase option**, in addition to **$96.7 million cash on hand**[45](index=45&type=chunk) The weighted average interest rates were **3.18%** and **3.25%** for the three-month periods ending December 31, 2019 and 2018, respectively[46](index=46&type=chunk) The Company was in compliance with all covenants[46](index=46&type=chunk) [10. INCOME TAX EXPENSE](index=12&type=section&id=10.%20INCOME%20TAX%20EXPENSE) The effective income tax rate from continuing operations decreased to 25.1% in Q1 2020 from 26.2% in Q1 2019, with the prior year unfavorably impacted by return to provision true-ups - The first quarter 2020 effective income tax rate from continuing operations was **25.1%**, compared to **26.2%** in the first quarter of 2019[47](index=47&type=chunk) The 2019 rate was unfavorably impacted by return to provision true-ups, increasing it by **1.1%**[47](index=47&type=chunk) [11. SHAREHOLDERS' EQUITY](index=13&type=section&id=11.%20SHAREHOLDERS'%20EQUITY) Total shareholders' equity increased to $915,491 thousand at December 31, 2019, from $826,222 thousand at September 30, 2019, primarily due to net earnings Shareholders' Equity | (In thousands) | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | | :------------------------------------ | :------------------------------ | :------------------------------ | | Common Stock - Ending Balance | 306 | 305 | | Additional Paid-in Capital - Ending Balance | 293,056 | 292,293 | | Retained Earnings - Ending Balance | 769,439 | 627,670 | | Accumulated Other Comprehensive Income (Loss) - Ending Balance | (40,051) | (36,082) | | Treasury Stock - Ending Balance | (107,259) | (107,394) | | Total Equity | 915,491 | 776,792 | [12. RETIREMENT PLANS](index=13&type=section&id=12.%20RETIREMENT%20PLANS) Net periodic benefit cost for defined benefit plans increased slightly to $326 thousand for the three months ended December 31, 2019, from $276 thousand in the prior year Net Periodic Benefit Cost | (In thousands) | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | | :---------------------------- | :------------------------------ | :------------------------------ | | Defined Benefit Plans | | | | Interest Cost | $824 | $875 | | Expected Return on Assets | (1,041) | (1,086) | | Amortization of Actuarial Loss | 543 | 487 | | Net Periodic Benefit Cost | $326 | $276 | [13. DERIVATIVE FINANCIAL INSTRUMENTS](index=14&type=section&id=13.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) The Company uses derivative financial instruments, including forward contracts and interest rate swaps, to manage interest rate and foreign currency exchange rate risks, with one interest rate swap and forward contracts outstanding as of December 31, 2019 - The Company uses derivative financial instruments (forward contracts and swaps) to manage market risks related to changes in **interest rates** and **foreign currency exchange rates**[52](index=52&type=chunk) Derivative Financial Instruments | (In thousands) | Notional Amount | Fair Value (US$) | | :------------------ | :-------------- | :--------------- | | Forward contracts | 5,500 | 80 | | Interest rate swap | 150,000 | (918) | [14. FAIR VALUE MEASUREMENTS](index=14&type=section&id=14.%20FAIR%20VALUE%20MEASUREMENTS) The Company classifies its financial instruments, such as forward contracts and interest rate swaps, within Level 2 of the fair value hierarchy, with no impairments recorded for nonfinancial assets during the three-month period ended December 31, 2019 - The Company's forward contracts and interest rate swaps are classified within **Level 2** of the valuation hierarchy[56](index=56&type=chunk) Fair Value Measurements | (In thousands) | Level 1 | Level 2 | Level 3 | Total | | :------------------------------------------------ | :------ | :------ | :------ | :---- | | Assets (Liabilities): Forward contracts and interest rate swaps | $— | (838) | $— | (838) | - No impairments were recorded for nonfinancial assets during the three-month period ended December 31, 2019[58](index=58&type=chunk) [15. REVENUES](index=15&type=section&id=15.%20REVENUES) Total revenues for the three months ended December 31, 2019, were $171,728 thousand, with commercial customers contributing the majority, and approximately 76% of remaining performance obligations expected to be recognized in the next twelve months Revenue Breakdown (Three Months Ended Dec 31, 2019) | (In thousands) Revenue Breakdown (Three Months Ended Dec 31, 2019) | | :----------------------------------------------------------------- | | **Customer Type:** | | Commercial: $129,391 | | U.S. Government: $42,337 | | **Geographic Location:** | | United States: $124,194 | | International: $47,534 | | **Revenue Recognition Method:** | | Point in time: $83,687 | | Over time: $88,041 | | **Total Revenues:** $171,728 | - At December 31, 2019, the Company had **$500 million** in remaining performance obligations, of which approximately **76%** are expected to be recognized as revenues in the next twelve months[61](index=61&type=chunk) - At December 31, 2019, contract assets and liabilities totaled **$93.5 million** and **$84.8 million**, respectively[62](index=62&type=chunk) [16. LEASES](index=16&type=section&id=16.%20LEASES) Following the adoption of ASC 842, the Company recognized ROU assets and lease liabilities, with total lease costs for Q1 2020 at $2,369 thousand, and operating leases having a weighted-average remaining term of 6.51 years and a discount rate of 3.14% Lease Costs (Three Months Ended Dec 31, 2019) | (Dollars in thousands) Lease Costs (Three Months Ended Dec 31, 2019) | | :----------------------------------------------------------------- | | Finance lease cost - Amortization of right-of-use assets: $622 | | Finance lease cost - Interest on lease liabilities: $328 | | Operating lease cost: $1,419 | | Total lease costs: $2,369 | Lease Metrics (Three Months Ended Dec 31, 2019) | Lease Metrics (Three Months Ended Dec 31, 2019) | | :---------------------------------------------- | | Operating cash flows from operating leases: $1,408 | | Operating cash flows from finance leases: $138 | | Financing cash flows from finance leases: $351 | | Right-of-use assets obtained (Operating leases): $22,014 | | Weighted-average remaining lease term (Operating leases): 6.51 years | | Weighted-average discount rate (Operating leases): 3.14% | | Weighted-average remaining lease term (Finance leases): 13.16 years | | Weighted-average discount rate (Finance leases): 4.28% | Present Value of Lease Payments (Dec 31, 2019) | (Dollars in thousands) Present Value of Lease Payments (Dec 31, 2019) | | :-------------------------------------------------------------------- | | Operating Leases - Present value of net minimum lease payments: $20,580 | | Finance Leases - Present value of net minimum lease payments: $31,401 | | Operating Lease ROU assets: $20,209 | | Finance Lease ROU assets: $28,619 | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=18&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the Company's financial performance and condition for the first quarter of 2020, highlighting changes in net sales, earnings, segment performance, liquidity, and future outlook [OVERVIEW](index=18&type=section&id=OVERVIEW) Net sales increased by 5.1% to $171.7 million in Q1 2020, while net earnings and diluted EPS from continuing operations decreased due to a significant gain on property sale in Q1 2019 - Sales from continuing operations increased by **5.1%** to **$171.7 million** in Q1 2020, compared to **$163.4 million** in Q1 2019[74](index=74&type=chunk) - Net earnings from continuing operations decreased to **$10.8 million** (**$0.41 diluted EPS**) in Q1 2020, from **$17.4 million** (**$0.66 diluted EPS**) in Q1 2019, mainly due to an approximately **$8 million gain** on the sale of the Doble Watertown property in Q1 2019[74](index=74&type=chunk) [NET SALES](index=18&type=section&id=NET%20SALES) Net sales increased by $8.4 million (5.1%) to $171.7 million in Q1 2020, driven by strong performance in Aerospace & Defense, partially offset by a decrease in USG - Net sales increased **$8.4 million**, or **5.1%**, to **$171.7 million** in the first quarter of 2020 from **$163.4 million** in the first quarter of 2019[75](index=75&type=chunk) - **Aerospace & Defense (A&D)** net sales increased **$11.3 million** (**17.1%**) to **$77.5 million**, mainly due to the addition of **$8.8 million** from Globe, higher shipments of space products at VACCO, and increased aerospace assembly shipments at PTI and Crissair[76](index=76&type=chunk) - **USG** net sales decreased **$3.0 million** (**5.4%**) to **$52.8 million**, mainly due to lower product sales at Doble[78](index=78&type=chunk) [ORDERS AND BACKLOG](index=18&type=section&id=ORDERS%20AND%20BACKLOG) Backlog from continuing operations increased to $500.3 million at December 31, 2019, with new orders in Q1 2020 totaling $220.4 million, up from $181.1 million in Q1 2019, showing significant growth in Aerospace & Defense - Backlog from continuing operations was **$500.3 million** at December 31, 2019, compared with **$451.6 million** at September 30, 2019[79](index=79&type=chunk) New Orders | New Orders (in millions) | Q1 2020 | Q1 2019 | | :----------------------- | :------ | :------ | | Total | $220.4 | $181.1 | | Aerospace & Defense | $129.0 | $83.7 | | Test | $38.5 | $45.4 | | USG | $52.9 | $52.0 | [SELLING, GENERAL AND ADMINISTRATIVE EXPENSES](index=19&type=section&id=SELLING,%20GENERAL%20AND%20ADMINISTRATIVE%20EXPENSES) SG&A expenses increased to $42.1 million (24.5% of net sales) in Q1 2020 from $38.5 million (23.6% of net sales) in Q1 2019, primarily due to higher R&D, sales commissions, and the Globe acquisition - **Selling, general and administrative (SG&A)** expenses from continuing operations increased to **$42.1 million** (**24.5% of net sales**) in Q1 2020, from **$38.5 million** (**23.6% of net sales**) in Q1 2019[81](index=81&type=chunk) - The increase was mainly due to higher spending on **R&D/new product development**, higher **sales commissions**, and the addition of **Globe**[81](index=81&type=chunk) [AMORTIZATION OF INTANGIBLE ASSETS](index=19&type=section&id=AMORTIZATION%20OF%20INTANGIBLE%20ASSETS) Amortization expense increased to $5.8 million in Q1 2020 from $4.4 million in Q1 2019, mainly due to the Globe acquisition and increased capitalized software amortization at Doble - Amortization of intangible assets from continuing operations was **$5.8 million** for Q1 2020, compared to **$4.4 million** for Q1 2019[82](index=82&type=chunk) - The increase was mainly due to the **Globe acquisition** and an increase in amortization of **capitalized software at Doble**[82](index=82&type=chunk) [OTHER (INCOME) EXPENSES, NET](index=19&type=section&id=OTHER%20(INCOME)%20EXPENSES,%20NET) The Company reported other expenses, net, of $0.3 million in Q1 2020, a significant change from other income, net, of $7.4 million in Q1 2019, which included an $8 million gain on the sale of the Doble Watertown property - Other expenses, net, was **$0.3 million** in Q1 2020, compared to other income, net, of **$7.4 million** in Q1 2019[83](index=83&type=chunk) - The principal component of other income in Q1 2019 was an approximately **$8 million gain** on the sale of the Doble Watertown, Massachusetts building and land[83](index=83&type=chunk) [EBIT](index=19&type=section&id=EBIT) Consolidated EBIT decreased to $16.8 million (9.8% of net sales) in Q1 2020 from $25.4 million (15.5% of net sales) in Q1 2019, primarily due to the absence of the Doble Watertown property sale gain and lower sales volumes at Doble - Consolidated EBIT was **$16.8 million** (**9.8% of net sales**) for Q1 2020, compared to **$25.4 million** (**15.5% of net sales**) for Q1 2019[84](index=84&type=chunk) - **Aerospace & Defense EBIT** increased to **$12.5 million** (**16.1% of net sales**) in Q1 2020, from **$10.6 million** (**16.0% of net sales**) in Q1 2019, driven by the contribution from Globe and higher sales volumes at PTI and Crissair[86](index=86&type=chunk) - **USG EBIT** decreased to **$9.3 million** (**17.6% of net sales**) in Q1 2020, from **$21.5 million** (**38.6% of net sales**) in Q1 2019, mainly due to the **$8 million gain** on sale of the Doble Watertown facility in Q1 2019, lower sales volumes at Doble, and approximately **$0.6 million of facility move costs**[90](index=90&type=chunk) [INTEREST EXPENSE, NET](index=20&type=section&id=INTEREST%20EXPENSE,%20NET) Interest expense increased to $2.4 million in Q1 2020 from $1.9 million in Q1 2019, primarily due to higher average outstanding borrowings - Interest expense was **$2.4 million** in Q1 2020, compared to **$1.9 million** in Q1 2019[92](index=92&type=chunk) - The increase was mainly due to higher average outstanding borrowings (**$279 million** in Q1 2020 compared to **$212 million** in Q1 2019) at relatively consistent average interest rates of **3.2%**[92](index=92&type=chunk) [INCOME TAX EXPENSE](index=20&type=section&id=INCOME%20TAX%20EXPENSE) The effective income tax rate from continuing operations was 25.1% in Q1 2020, down from 26.2% in Q1 2019, which was unfavorably impacted by prior-year true-ups - The first quarter 2020 effective income tax rate from continuing operations was **25.1%**, compared to **26.2%** in the first quarter of 2019[93](index=93&type=chunk) The Q1 2019 rate was unfavorably impacted by return to provision true-ups, increasing it by **1.1%**[93](index=93&type=chunk) [CAPITAL RESOURCES AND LIQUIDITY](index=20&type=section&id=CAPITAL%20RESOURCES%20AND%20LIQUIDITY) The Company's financial position remains strong, with working capital increasing to $246.3 million, despite decreased net cash from operating activities and increased capital expenditures, maintaining significant borrowing capacity - Working capital from continuing operations increased to **$246.3 million** at December 31, 2019, from **$229.8 million** at September 30, 2019[94](index=94&type=chunk) - Net cash provided by operating activities from continuing operations was **$3.3 million** in Q1 2020, a decrease from **$4.5 million** in Q1 2019, driven by higher working capital requirements[95](index=95&type=chunk) - Capital expenditures from continuing operations were **$12.6 million** in Q1 2020, up from **$4.8 million** in Q1 2019, mainly due to **$6 million** in building improvement additions at the new Doble headquarters facility[96](index=96&type=chunk) - At December 31, 2019, the Company had approximately **$341 million available to borrow** under its bank credit facility, a **$250 million increase option**, and **$96.7 million cash on hand**[97](index=97&type=chunk) [Dividends](index=21&type=section&id=Dividends) The Company paid a quarterly dividend of $0.08 per share, totaling $2.1 million, in October 2019 and again in January 2020 - A dividend of **$0.08 per share**, totaling **$2.1 million**, was paid on October 17, 2019[99](index=99&type=chunk) A subsequent quarterly dividend of **$0.08 per share**, totaling **$2.1 million**, was paid on January 17, 2020[99](index=99&type=chunk) [OUTLOOK](index=21&type=section&id=OUTLOOK) Management maintains its 2020 Adjusted EPS expectation in the range of $3.20 to $3.30 per share, with Q2 2020 Adjusted EPS expected between $0.70 and $0.75 - Management expects **2020 Adjusted EPS** to be in the range of **$3.20 to $3.30 per share**[100](index=100&type=chunk) - Management expects the **2020 second quarter Adjusted EPS** to be in the range of **$0.70 to $0.75**[100](index=100&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=21&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) Management believes its accounting policies are reasonable and appropriate, involving significant judgment and estimates based on historical experience and industry trends - Management believes the accounting policies used in the preparation of the financial statements are reasonable and appropriate, requiring significant judgment and estimates based on historical experience, industry trends, and available information[101](index=101&type=chunk) [OTHER MATTERS](index=21&type=section&id=OTHER%20MATTERS) This section addresses various other matters, including contingencies related to claims, charges, litigation, and environmental issues [Contingencies](index=21&type=section&id=Contingencies) The Company is involved in various claims, charges, litigation, and environmental matters, but management believes the aggregate costs are adequately reserved, covered by insurance, or would not materially adversely affect the Company's financial results - The Company is involved in various claims, charges, litigation, and environmental matters as a normal incident of business[102](index=102&type=chunk) - Management believes the aggregate costs involved in the resolution of these matters are adequately reserved, covered by insurance, or would not have a material adverse effect on the Company's results from operations, capital expenditures, or competitive position[102](index=102&type=chunk) [FORWARD LOOKING STATEMENTS](index=21&type=section&id=FORWARD%20LOOKING%20STATEMENTS) This section contains forward-looking statements regarding future events, financial results, and operational performance, which are subject to risks and uncertainties detailed in the Company's Form 10-K and other factors - Statements in this Form 10-Q regarding future events and results are considered **'forward-looking statements'** and are subject to risks and uncertainties[103](index=103&type=chunk) - Investors are cautioned that such statements are only predictions, and actual results may differ materially due to risks and uncertainties described in Item 1A, 'Risk Factors,' of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019, and other factors[105](index=105&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=22&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The Company's primary market risks are from changes in interest rates and foreign currency exchange rates, which it manages using derivative financial instruments like forward contracts and interest rate swaps, with no material change in market risks since September 30, 2019 - The Company's primary market risks result from changes in **interest rates** and **foreign currency exchange rates**[106](index=106&type=chunk) - The Company uses derivative financial instruments, including **forward contracts** and **interest rate swaps**, to manage these risks[106](index=106&type=chunk) - There has been no material change to the Company's market risks since September 30, 2019[106](index=106&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=22&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 31, 2019, with no material changes to internal control over financial reporting occurring during the period - The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2019[107](index=107&type=chunk) - There has been no material change in the Company's internal control over financial reporting during the period covered by this report[107](index=107&type=chunk) [PART II. OTHER INFORMATION](index=23&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 6. EXHIBITS](index=23&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including XBRL documents, articles of incorporation, bylaws, and certifications of the CEO and CFO - Exhibit 101 consists of documents formatted in **XBRL (Extensible Business Reporting Language)**, containing unaudited financial information[109](index=109&type=chunk) - Key exhibits include **Restated Articles of Incorporation**, **Amended Certificate of Designation**, **Articles of Merger**, **Amendment of Articles of Incorporation**, **Bylaws**, **Equity Purchase Agreement**, and **Certifications of Chief Executive Officer and Chief Financial Officer**[110](index=110&type=chunk) [SIGNATURE](index=24&type=section&id=SIGNATURE) The report is duly signed on behalf of ESCO TECHNOLOGIES INC. by Gary E. Muenster, Executive Vice President and Chief Financial Officer, dated February 7, 2020 - The report is signed by **Gary E. Muenster**, Executive Vice President and Chief Financial Officer of ESCO TECHNOLOGIES INC[114](index=114&type=chunk) - The report is dated **February 7, 2020**[114](index=114&type=chunk)

Financial Data and Key Metrics Changes - The company reported an adjusted EPS of $0.43 for Q1 2020, which was $0.03 above the top of the guidance range and above analyst consensus estimates [16] - Sales increased by 5% year-over-year to $172 million, driven by growth in Aerospace and Defense (A&D) and other segments [17] - Adjusted EBITDA rose by 5%, with Test and A&D segments increasing by 30% and 18% respectively [17] - The net debt was reduced to $53 million, lowering the leverage ratio to 0.92, which is considered below the ideal capital structure [18] Business Line Data and Key Metrics Changes - The A&D segment showed strong performance with higher sales volumes and a favorable sales mix, contributing to increased profits [7] - The USG sales were impacted by the timing of orders, with expectations for a strong trend continuing into Q2 [8] - The company anticipates meaningful growth in the A&D segment for the remainder of the year, supported by a significant number of received orders [9] Market Data and Key Metrics Changes - The company expects to receive orders for the Columbia class submarines in the latter half of the year, with advanced deliveries anticipated in 2021 [30] - The Navy business now accounts for about $100 million in sales, with military sales making up approximately 35% of the A&D segment [44][46] Company Strategy and Development Direction - The company is actively pursuing M&A opportunities, particularly in the A&D and USG segments, to enhance its global distribution network [12] - The recent divestiture of the packaging business has provided liquidity to support the M&A strategy and further growth [20] - The company aims to improve cash flow generation and conversion, targeting a cash conversion ratio of mid-90s by the end of fiscal 2020 [67] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the fiscal year outlook, despite potential headwinds from the 737 Max production issues [10] - The company is monitoring the impact of the coronavirus, with management indicating that as long as the situation resolves within 60 days, there should be minimal impact [28] - The overall sentiment is positive, with management noting a solid start to the year and a strong order profile supporting Q2 revenue expectations [41] Other Important Information - The company recognized a $100 million pretax gain from the sale of the packaging business, netting approximately $161 million after taxes and fees [14] - The company has completed the move to a new headquarters, expecting annual savings of nearly $1 million from this restructuring [36] Q&A Session Summary Question: Outlook for Q2 and annual guidance - Management indicated that while Q1 performance was strong, it is too early to raise annual guidance due to potential risks [24][25] Question: Content per plane on the MAX and other risks - The content per plane on the MAX is about $15,000, with management noting a modest revenue contribution [26][27] Question: Update on Globe and submarine content - The content per Virginia class submarine is around $29 million, with expectations for orders in the back half of the year [30] Question: M&A opportunities and appetite - The company is evaluating several potential acquisitions and feels optimistic about the pipeline of opportunities [35] Question: Cash conversion and free cash flow generation - Management aims to improve cash conversion to the mid-90s percentage, with a clear path to achieve this by the end of fiscal 2020 [67]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to_____ Commission file number: 1-10596 ESCO Technologies Inc. (Exact name of registrant as specified in its charter) Missouri 43-1554045 (State or oth ...

Financial Data and Key Metrics Changes - The company reported a 9% growth in adjusted EBITDA and a 13% growth in adjusted EPS for fiscal 2019 compared to fiscal 2018, with adjusted EBITDA reaching $151 million and adjusted EPS at $3.13 per share [11][14][21] - Cash flow from operating activities for the year was $105 million, resulting in a leverage ratio of 1.68 as of September 30 [16] - Q4 cash from operating activities was $68 million, marking the strongest quarterly cash flow in the company's history [17] Business Line Data and Key Metrics Changes - Filtration sales increased by 14% year-over-year, with aerospace businesses contributing a $32 million increase, while the renewable energy business saw a decrease [12][14] - The Test and Doble segments experienced better-than-expected sales growth, while the USG segment showed signs of recovery [43][51] Market Data and Key Metrics Changes - The company expects consolidated top-line growth of 9% to 10% for fiscal 2020, driven by a 14% growth in Filtration and 7% to 8% growth in USG [19] - Entered orders exceeded $900 million for the first time, leading to a backlog increase of $92 million or 24% from the start of the year [17][18] Company Strategy and Development Direction - The divestiture of the Technical Packaging business is seen as a strategic move to streamline operations and focus on core segments, allowing for debt reduction and increased liquidity for future M&A [9][10] - The company aims to leverage its strong market position in medical device and pharmaceutical packaging to pursue additional acquisitions that align with its core businesses [9][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the backlog growth and the ability to achieve fiscal 2020 targets despite potential timing issues in revenue recognition [35][36] - The company is closely monitoring geopolitical risks, particularly in relation to operations in China, but does not foresee significant impacts on its business [38][39] Other Important Information - The effective tax rate for fiscal 2020 is projected to be 23% to 24%, higher than the previous year, which will negatively impact projected EPS by $0.10 per share [20][21] - The company is focused on maintaining a flat capital expenditure outlook while continuing to invest in automation and efficiency improvements [48][49] Q&A Session Summary Question: Can you provide the adjusted EBITDA number and margins for next year? - The adjusted EBITDA for 2019 is approximately $139 million, with expected growth of 12% to 13% for 2020 [30] Question: What is the timing of your backlog and forecast dip from Q1 to Q2? - The company anticipates a back-half weighted year, similar to fiscal 2018, with 30% to 33% of adjusted EPS expected in the first half [31][33] Question: How much of the backlog is related to the packaging business being divested? - Approximately $11 million of the backlog is associated with the packaging business [36] Question: What is the current status of the M&A pipeline? - The company is actively pursuing several promising opportunities in its M&A pipeline [37] Question: Have there been any changes in global and geopolitical risks? - Management indicated that geopolitical risks have not significantly impacted operations, particularly in relation to China [38] Question: Can you discuss the cash generation of the Technical Packaging business? - The Technical Packaging business has been a cash drain, but its divestiture is expected to improve overall free cash flow generation [46] Question: What are the expectations for acquired revenues for 2020? - The company expects approximately $37 million in revenue from the Globe acquisition for 2020 [51] Question: Where do you see the biggest area of concern or opportunity in forecasting? - The capital budgets in utilities present some risk, but the company is diversified enough to mitigate potential impacts [53]

Financial Data and Key Metrics Changes - The company reported Q3 adjusted EPS of $0.81, exceeding the guidance range of $0.75 to $0.80 and the consensus estimate of $0.77, representing an 11% increase from Q3 2018's adjusted EPS of $0.73 [12] - Q3 adjusted EBITDA increased by 9% to $38 million, while year-to-date adjusted EBITDA rose by 15% to $100 million [13] - Year-to-date sales increased by 7%, led by a 17% increase in the Filtration segment [13] Business Line Data and Key Metrics Changes - The Filtration segment experienced a significant sales increase of 17% [13] - The company successfully lowered SG&A as a percentage of sales despite ongoing cost inflation, contributing to a 32% increase in year-over-year adjusted EPS through June 30 [14] Market Data and Key Metrics Changes - The company reported a $50 million increase in backlog since the start of the year, reflecting strong order growth across all operating segments [6][45] - The submarine business showed robust order growth, particularly with new contracts related to the Virginia Class and Lot 5 [42] Company Strategy and Development Direction - The company is focused on executing its M&A strategy and supporting future growth both organically and through acquisitions, while maintaining a focus on return on invested capital (ROIC) and increasing shareholder value [17] - The integration of the recently acquired Globe is progressing smoothly, and the company is actively seeking additional acquisitions to support organic growth [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering commitments for the remainder of the year, citing strong year-to-date performance [6] - The company anticipates a strong finish for the year, with no significant areas of softness in order trends [45] Other Important Information - The company is experiencing a timing issue with cash generation related to navy programs, but expects a significant improvement in Q4 [63] - Management indicated that the current market for acquisitions is somewhat frothy, but they are actively pursuing opportunities [54] Q&A Session Summary Question: Were there any push outs in the test segment this quarter? - Management acknowledged a slight push out primarily related to site preparation in China, estimating a revenue impact of about $3 million [23][25] Question: Can you quantify the pushed out revenue? - Management estimated the pushed out revenue to be around $3 million, with an EBIT impact of approximately $400,000 to $500,000 moving to Q4 [25] Question: What are the growth opportunities for the new products? - Management indicated that while it is hard to quantify, they expect significant sales growth from new products next year [27] Question: Can you comment on order trends exiting the quarter? - Management noted that order dollars remain robust, with no softness observed, and anticipate solid dollar growth in orders [40][41] Question: What is the state of your appetite for M&A? - Management confirmed they are actively pursuing M&A opportunities and are seeing good prospects in the market [36] Question: What is the expected accretion from the recent acquisition? - Management indicated that the recent acquisition is expected to provide positive accretion, with meaningful growth prospects [56] Question: How would you grade your cash generation performance this quarter? - Management graded their cash generation performance as a C or C-, citing timing issues but expecting significant improvement in Q4 [62]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ COMMISSION FILE NUMBER 1-10596 ESCO TECHNOLOGIES INC. (Exact name of registrant as specified in its charter) Missouri 43-1554045 (State or oth ...

ESCO Technologies, Inc. (NYSE:ESE) Q2 2019 Earnings Conference Call May 7, 2019 5:00 PM ET Company Participants Kate Lowrey - Director, Investor Relations Vic Richey - Chairman & Chief Executive Officer Gary Muenster - Vice President & Chief Financial Officer Conference Call Participants Operator Good day and welcome to the ESCO Technologies, Inc. Q2 2019 Earnings Conference Call. Today's call is being recorded. With us today are Vic Richey, Chairman and CEO; Gary Muenster, Vice President and CFO. And now t ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019 OR ¨ TRANSITION EXCHANGE ACT OF 1934 FOR | --- | --- | --- | |----------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|------------------------------------------------- ...

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Q1 2019, including key statements and notes, highlighting the adoption of ASC 606 [Notes to Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail accounting policies and financial data, covering ASC 606 implementation, segment performance, debt, income tax changes, and derivative instruments, including ASC 606 impact reconciliation - Revenue recognition policies have been updated under ASC 606, with revenue recognized over time for approximately **52% of Filtration**, **75% of Test**, **20% of USG**, and **100% of Technical Packaging** revenues, based on methods like cost-to-cost or milestones[25](index=25&type=chunk)[35](index=35&type=chunk)[40](index=40&type=chunk) Segment EBIT (Q1 2019 vs Q1 2018) | Segment | EBIT Q1 2019 (in thousands) | EBIT Q1 2018 (in thousands) | | :--- | :--- | :--- | | Filtration | $10,610 | $9,645 | | Test | $3,310 | $2,596 | | USG | $21,546 | $10,651 | | Technical Packaging | $106 | $965 | | **Consolidated EBIT** | **$25,147** | **$14,986** | - The Q1 2018 income tax was a **$25.1 million net benefit** due to the Tax Cuts and Jobs Act (TCJA), which significantly lowered the effective tax rate for that period compared to Q1 2019's **25.5% rate**[68](index=68&type=chunk) - As of December 31, 2018, the company had **$398.3 million** in remaining performance obligations (backlog), with approximately **83%** expected to be recognized as revenue in the next twelve months[86](index=86&type=chunk) Consolidated Statements of Operations Highlights (Q1 2019 vs Q1 2018) | Indicator | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net Sales | $182,597 thousand | $173,495 thousand | | Earnings before income taxes | $23,257 thousand | $12,801 thousand | | Net Earnings | $17,317 thousand | $34,671 thousand | | Diluted EPS | $0.66 | $1.33 | Consolidated Balance Sheet Highlights | Indicator | December 31, 2018 | September 30, 2018 | | :--- | :--- | :--- | | Total Current Assets | $411,919 thousand | $396,023 thousand | | Total Assets | $1,268,211 thousand | $1,265,122 thousand | | Total Liabilities | $491,419 thousand | $505,712 thousand | | Total Shareholders' Equity | $776,792 thousand | $759,410 thousand | Consolidated Statements of Cash Flows Highlights (Q1 2019 vs Q1 2018) | Indicator | Three Months Ended Dec 31, 2018 | Three Months Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,102 thousand | $17,797 thousand | | Net cash provided (used) by investing activities | $6,256 thousand | $(5,922) thousand | | Net cash (used) by financing activities | $(6,959) thousand | $(17,050) thousand | | Net increase (decrease) in cash | $6,153 thousand | $(3,916) thousand | - The company adopted the new revenue recognition standard ASC 606 on October 1, 2018, using the modified retrospective method, resulting in a **$5.5 million increase** to retained earnings, primarily affecting the Filtration and Technical Packaging segments[20](index=20&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%20(MD%26A)) Management discusses Q1 2019 financial performance, highlighting 5.2% net sales growth, a net earnings decrease due to prior-year tax benefits, and a fiscal 2019 Adjusted EPS outlook of $2.95 to $3.05 [Results of Operations](index=24&type=section&id=Results%20of%20Operations) This section details segment operational performance, noting strong sales growth in Filtration and Test, a USG EBIT surge from a property sale, Technical Packaging decline, and reduced SG&A as a percentage of sales Net Sales Change by Segment (Q1 2019 vs Q1 2018) | Segment | Q1 2019 Sales (in millions) | Q1 2018 Sales (in millions) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Filtration | $66.2 | $60.0 | +10.3% | | Test | $41.3 | $37.5 | +10.0% | | USG | $55.9 | $55.8 | +0.2% | | Technical Packaging | $19.2 | $20.2 | -4.7% | - The company's backlog increased to **$398.3 million** at December 31, 2018, from **$382.8 million** at September 30, 2018[102](index=102&type=chunk) - SG&A expenses decreased to **$41.0 million (22.4% of sales)** from **$42.2 million (24.3% of sales)** in the prior-year quarter, mainly due to cost reduction actions in the USG segment[103](index=103&type=chunk) - USG segment EBIT increased from **$10.7 million to $21.5 million**, primarily due to the gain on the sale of the Doble Watertown facility[113](index=113&type=chunk) [Capital Resources and Liquidity](index=29&type=section&id=Capital%20Resources%20and%20Liquidity) The company maintains a strong financial position with increased working capital, despite decreased operating cash flow due to lower earnings and higher working capital needs, retaining significant liquidity - Working capital increased to **$217.3 million** at Dec 31, 2018, from **$195.5 million** at Sep 30, 2018, with contract assets increasing by **$41.0 million** mainly due to the adoption of ASC 606[122](index=122&type=chunk) - Net cash provided by operating activities was **$8.1 million**, a decrease from **$17.8 million** in Q1 2018, driven by lower earnings (excluding non-cash tax benefits in prior year) and higher working capital requirements[123](index=123&type=chunk) - As of December 31, 2018, the company had **$215 million** in outstanding borrowings, **$209 million** available under its credit facility, and **$36.6 million** in cash[125](index=125&type=chunk) - Q1 2019 net earnings and EPS were **$17.3 million** and **$0.66**, respectively, a decrease from **$34.7 million** and **$1.33** in Q1 2018, primarily due to a **$25.1 million** net tax benefit recorded in Q1 2018 from the Tax Cuts and Jobs Act[95](index=95&type=chunk) - Net sales increased by **$9.1 million (5.2%)** YoY, driven by growth in the Filtration segment (+$6.2 million) and Test segment (+$3.8 million)[96](index=96&type=chunk) - Other income included an **$8 million gain** on the sale of the Doble Watertown, MA building and land, significantly boosting EBIT for the USG segment and the consolidated company[106](index=106&type=chunk) - Management expects 2019 Adjusted EPS to be in the range of **$2.95 to $3.05 per share**, excluding certain gains and restructuring costs[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's market risk exposure from interest rates and foreign currency, managed through derivatives, with no material changes reported since the last fiscal year - The company's primary market risks stem from changes in interest rates and foreign currency exchange rates[135](index=135&type=chunk) - To manage risk, the company uses derivative instruments, entering into interest rate swaps with a notional amount of **$150 million** in 2018 to hedge against variable rate debt interest payments[135](index=135&type=chunk) - There has been no material change to the Company's market risks since September 30, 2018[136](index=136&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of December 31, 2018, due to a material weakness in deferred revenue internal controls, with remediation efforts ongoing - The CEO and CFO concluded that the company's disclosure controls and procedures were **ineffective** as of December 31, 2018[138](index=138&type=chunk) - The ineffectiveness is due to a **material weakness** in internal control over financial reporting related to the deferred revenue general ledger account, as disclosed in the 2018 Form 10-K[139](index=139&type=chunk) - Remedial actions, including enhanced policies and training, are being implemented but have not been in place long enough to be considered fully remediated[139](index=139&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, SOX certifications, and XBRL-formatted financial data - The report includes certifications from the Chief Executive Officer and Chief Financial Officer (Exhibits 31.1, 31.2, 32)[143](index=143&type=chunk) - Financial information is also provided in **XBRL** (Extensible Business Reporting Language) format (Exhibit 101)[142](index=142&type=chunk)