ESCO Technologies(ESE) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 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 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) 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 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 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 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 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] The segment's individual legal and operating entities, historical financial results, and management structure remain unchanged[20] 2. TECHNICAL PACKAGING DIVESTITURE 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] - The Company received net proceeds from the sale of approximately $184 million and recorded a $76.6 million after-tax gain on the sale in the first quarter of 2020[22] Pretax Loss and Net Sales from Discontinued Operations | Metric | Three Months Ended Dec 31, 2019 ($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 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] - 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] 4. EARNINGS PER SHARE (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 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] - 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] 6. INVENTORIES 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 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 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] 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 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] - 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] The weighted average interest rates were 3.18% and 3.25% for the three-month periods ending December 31, 2019 and 2018, respectively[46] The Company was in compliance with all covenants[46] 10. INCOME TAX EXPENSE 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] The 2019 rate was unfavorably impacted by return to provision true-ups, increasing it by 1.1%[47] 11. SHAREHOLDERS' EQUITY 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 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 | $276 | 13. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial instruments, including forward contracts and interest rate swaps, to manage interest rate and foreign currency exchange rate risks, with one interest rate swap and forward contracts outstanding as of December 31, 2019 - The Company uses derivative financial instruments (forward contracts and swaps) to manage market risks related to changes in interest rates and foreign currency exchange rates[52] Derivative Financial Instruments | (In thousands) | Notional Amount | Fair Value (US$) | | :------------------ | :-------------- | :--------------- | | Forward contracts | 5,500 | 80 | | Interest rate swap | 150,000 | (918) | 14. FAIR VALUE MEASUREMENTS 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] 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] 15. REVENUES 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] - At December 31, 2019, contract assets and liabilities totaled $93.5 million and $84.8 million, respectively[62] 16. LEASES 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 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 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] - 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] NET SALES 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] - 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] - USG net sales decreased $3.0 million (5.4%) to $52.8 million, mainly due to lower product sales at Doble[78] ORDERS AND BACKLOG 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] 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 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] - The increase was mainly due to higher spending on R&D/new product development, higher sales commissions, and the addition of Globe[81] AMORTIZATION OF INTANGIBLE ASSETS 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] - The increase was mainly due to the Globe acquisition and an increase in amortization of capitalized software at Doble[82] OTHER (INCOME) EXPENSES, NET 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] - 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] 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] - 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] - 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] INTEREST EXPENSE, NET 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] - 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] INCOME TAX EXPENSE 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] The Q1 2019 rate was unfavorably impacted by return to provision true-ups, increasing it by 1.1%[93] CAPITAL RESOURCES AND LIQUIDITY 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] - 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] - 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] - 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] 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] A subsequent quarterly dividend of $0.08 per share, totaling $2.1 million, was paid on January 17, 2020[99] 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] - Management expects the 2020 second quarter Adjusted EPS to be in the range of $0.70 to $0.75[100] CRITICAL ACCOUNTING POLICIES 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] OTHER MATTERS This section addresses various other matters, including contingencies related to claims, charges, litigation, and environmental issues 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] - 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] FORWARD LOOKING STATEMENTS 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] - 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] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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] - The Company uses derivative financial instruments, including forward contracts and interest rate swaps, to manage these risks[106] - There has been no material change to the Company's market risks since September 30, 2019[106] ITEM 4. CONTROLS AND PROCEDURES 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] - There has been no material change in the Company's internal control over financial reporting during the period covered by this report[107] PART II. OTHER INFORMATION ITEM 6. EXHIBITS 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] - 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] 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] - The report is dated February 7, 2020[114]