2022
ANNUAL REPORT
ESCO TECHNOLOGIES INC.
ESCO Technologies is a global provider of highly-engineered products and solutions to diverse end-markets that
include the defense, aerospace, space, wireless, consumer electronics, healthcare, automotive, electric utility, and
renewable energy industries. The company consists of three technology-driven business segments — Aerospace
& Defense, Utility Solutions Group, and RF Shielding & Test. Headquartered in St. Louis, Missouri, ESCO and its
subsidiaries have offices and manufacturing facilities worldwide.
// Aerospace & Defense
Aerospace & Defense (A&D) provides
highly-engineered hydraulic filtration
systems, fluid control valves, machined
components, and metal finishing for
the aerospace, space, and defense
industries. In addition, A&D designs
and manufactures complex shock and
vibration dampening tiles and signature
reduction solutions that enhance
the stealth capabilities of U.S. Navy
submarines and surface ships.
// Utility Solutions Group
Utility Solutions Group (USG) offers
industry-leading diagnostic, protection
testing, and condition monitoring
equipment, consulting and laboratory
testing services, and data analytics
vital for ongoing grid reliability and
renewable energy project development.
Our USG segment offers a complete
range of solutions that efficiently
measure asset health and ensure the
reliable, safe, and secure delivery
of power.
// RF Shielding & Test
RF Shielding & Test (Test) is an
innovative supplier of test and
measurement systems and shielded
enclosures. Our comprehensive
energy testing and management
solutions identify, measure and
contain magnetic, electromagnetic
and acoustic energy, creating an
environment that isolates and controls
unintended energy emissions to insure
immunity, compatibility and compliance
with regulatory and industry-
defined standards.
A Record Year
2022 was a year of record Revenue, Adjusted EPS, Entered Orders and
Year-End Backlog as we saw recovery across our key end-markets and
strong execution by our operating teams.
Persistent supply chain disruptions, inflationary impacts, and labor shortages continued to create global headwinds
throughout the year. Navigating these market disruptions also presented a unique opportunity, and we demonstrated
our ability to adapt to these changing conditions. Through teamwork and innovation, we were able to find solutions
that enabled us to both support our customers and deliver historic operating results.
As the year progressed, business conditions began to stabilize in our end-markets most impacted by the pandemic.
Increased activity from our North American utility customers and robust demand in renewables drove revenue growth
in our USG segment. The steady return of air travel began to drive increased aerospace production rates. Recovery
in these key end-markets combined with solid orders momentum across each of our business segments have us well-
positioned to drive meaningful growth going forward.
2022 Sales
DOLLARS IN MILLIONS
41%
Aerospace & Defense:
$351.4
32%
Utility Solutions Group:
$278.4
27%
RF Shielding & Test:
$227.7
2022 EBITDA – As Adjusted(1)
DOLLARS IN MILLIONS
$858m
42%
Aerospace & Defense:
$80.1
38%
Utility Solutions Group:
$72.0
20%
RF Shielding & Test:
$38.0
$190m
(1) Excludes $28.8 million of Corporate costs and $1.7 million of charges associated with the Altanova and NEco acquisition inventory step-ups,
severance at VACCO and NRG, and Corporate acquisition and management transition costs.
2022 ANNUAL REPORT 1
FINANCIAL HIGHLIGHTS FROM
CONTINUING OPERATIONS(1)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
2018
2019
2020
2021
2022
Net Sales
Entered Orders
$ 683.7
$ 726.0
$ 730.5
$ 715.4
$ 857.5
695.6
822.5
796.3
796.3
960.5
Earnings Per Share – GAAP
Earnings Per Share – As Adjusted(2)
3.31
2.54
2.97
2.95
0.88
2.67
2.42
2.59
Capital Performance (As of September 30)
Net Debt
Leverage Ratio
Cash Flow from Operating Activities
$ 190
$ 223
$ 10
$ 98
1.72
84
1.68
101
0.47
109
1.03
123
3.16
3.21
$ 55
0.78
135
Net Sales
IN MILLIONS
Earnings Per Share
– As Adjusted(2)
Ending Backlog
IN MILLIONS
4
8
6
$
6
2
7
$
0
3
7
$
5
1
7
$
8
5
8
$
4
5
2
$
.
5
9
2
$
.
7
6
2
$
.
9
5
2
$
.
1
2
3
$
.
1
6
3
$
5
4
4
$
1
1
5
$
2
9
5
$
5
9
6
$
2018 2019 2020 2021 2022
2018 2019 2020 2021 2022
2018 2019 2020 2021 2022
(1) Financial Highlights exclude Discontinued Operations – Technical Packaging Segment sale was completed 12/31/19.
(2) EPS – As adjusted excludes $0.05 per share of charges associated with the Altanova and NEco acquisition inventory step-ups, severance at VACCO
and NRG, and Corporate acquisition and management transition costs in 2022, $0.17 per share mainly consisting of management transition and
acquisition costs at Corporate, restructuring costs primarily within the USG segment, and purchase accounting adjustments related to the Phenix and
Altanova acquisitions, partially offset by the final settlement from the sale of the Doble Watertown facility in 2021, a $1.55 per share charge related
to the pension plan termination and $0.24 per share of charges primarily within the USG segment related to facility consolidation, asset impairment,
severance, and incremental costs associated with COVID-19 in 2020, $0.02 per share of income primarily related to the gain on the sale of the Doble
Watertown property, partially offset by restructuring charges at Doble, PTI and VACCO in 2019, and $.017 per share of restructuring charges and
($0.94) per share net tax benefit resulting from the implementation of U.S. Tax Reform in 2018.
2 ESCO TECHNOLOGIES INC.
LETTER TO SHAREHOLDERS
In 2022 we delivered record sales, orders, year-end backlog and Adjusted
EPS. Given the continuing global headwinds, we feel great about our ability to
navigate through economic disruptions to deliver significant revenue growth
and solid operating results.
The bottom line is that despite considerable challenges, all three of our
business segments delivered meaningfully improved results that met or
exceeded our initial guidance. Orders strength across each of our major end-
markets continued to drive backlog growth and gives us confidence in the
sustainable long-term economic viability of our diverse product offerings.
Financials
Broad orders strength drove
solid revenue growth and margin
improvement in 2022. With $961
million in orders, our ending backlog
increased 17 percent to $695 million.
Sales increased 20 percent to $858
million, with 13 percent organic growth
and 7 percent related to contributions
from recent acquisitions (Altanova,
Phenix, and NEco). The organic growth
was primarily driven by commercial
aerospace and utility markets finally
recovering from pandemic impacts,
continued strength in renewables,
and power filter, medical and test and
measurement chamber volume at Test.
Our Adjusted EPS increased 24 percent
to $3.21 per share and Adjusted
EBITDA increased 23 percent to $161
million. Our Adjusted EBITDA margin
increased a half point to 18.8 percent,
with leverage on higher revenue driving
the improvement.
From a liquidity standpoint, we
generated $135 million of cash flow
from operations resulting in a 108
percent free cash flow conversion rate.
During 2022, we opportunistically
repurchased approximately 257,500
shares of common stock for $20
million. With our focus on working
capital improvement and cash flow
generation, we ended the year with
a leverage ratio of ~0.78x and $589
million in liquidity. We remain well-
positioned to fund internal engineering
programs and capital investments to
drive growth organically while also
having the capability to expand through
acquisitions. We continually evaluate
a solid pipeline of M&A opportunities
with the intent to strengthen our
business portfolio and drive long-term
shareholder value.
Cash Flow from
Operating Activities
IN MILLIONS
4
8
$
1
0
1
$
9
0
1
$
3
2
1
$
5
3
1
$
2018 2019 2020 2021 2022
Leverage Ratio
2
7
1
.
8
6
1
.
7
4
.
3
0
1
.
8
7
.
2018 2019 2020 2021 2022
2022 ANNUAL REPORT 3
LETTER TO SHAREHOLDERS Continued
COURTESY NASA.GOV
COURTESY NAVY.MIL
AEROSPACE & DEFENSE
A&D sales increased 12 percent
to $351 million, with 10% organic
growth being driven by the recovery
in commercial aerospace, as well as
strength in Navy and space, and 2
percent related to the NEco acquisition.
Adjusted EBITDA increased 19
percent to $80 million (23 percent
margin). Orders strength throughout
the year resulted in a book-to-bill of
1.12 and record year-end backlog of
$408 million.
In commercial aerospace the steady
return of domestic passenger demand
resulted in solid orders growth driven
by increased single-aisle aircraft build
rates at Boeing and Airbus. We also
saw increased orders as demand for the
A350 widebody began to recover. In an
era of rising fuel costs, airlines are now
looking to fuel-efficient widebodies like
the A350 for their long-haul needs. On
the MRO side, Mayday Manufacturing
saw solid growth globally related to its
unique solutions which aid customers
by reducing the complexity of their
business operations.
4 ESCO TECHNOLOGIES INC.
In defense aerospace PTI Technologies
received its largest one-year order to
date for their proprietary 421® Metal
Fiber Media filters in support of the
U.S. Army’s Black Hawk and Apache
helicopter fleets totaling over 40,000
filter elements. This product was
developed in cooperation with the
U.S. Army to provide a superior level
of fluid cleanliness in the dynamic
environments seen by military aircraft.
In FY22, this filter media was also
chosen by a major engine manufacturer
for a next-generation commercial
aircraft development. The ability of
this media to support fluid filtration
at high temperatures will enable next
generation engines to be more fuel
efficient and to have lower emissions.
Early in the year we acquired Networks
Electronic Company (NEco), an industry
leader in miniature Cartridge Actuated
Devices/Propellant Actuated Devices
(CAD/PAD) industry. NEco received
its first major order as a part of ESCO
from Martin Baker in support of their
ejection seat upgrade program. NEco
will be a part of the PTI business and is
a nice expansion of their capabilities.
In space, VACCO hardware supported
NASA’s successful Double Asteroid
Redirection Test (DART) mission. DART
was the first-ever mission dedicated
to investigating and demonstrating
a method of asteroid deflection by
changing an asteroid’s motion in
space through kinetic impact. VACCO
played a critical role through providing
propulsion components for the main
spacecraft and a complete cold gas
Micro-Propulsion System (MiPS) for the
accompanying cubesat which recorded
the event and its aftereffects for
future analysis.
We continue to be a key supplier of
vital stealth components on U.S.
Navy submarines. VACCO, Globe
Composite Solutions and Westland
Technologies combine to provide
critical quiet technology valves, Special
Hull Treatment (SHT), and shock and
vibration dampening systems that
reduce acoustic signatures and modify
signal emissions. During the year we
continued to support the ongoing
Virginia Class production and continued
receiving initial orders for content on
the new Columbia Class platform.
AEROSPACE & DEFENSE
// Entered Orders
IN MILLIONS
8
8
2
$
0
1
4
$
0
2
4
$
7
3
3
$
2
9
3
$
2018 2019 2020 2021 2022
// Sales
IN MILLIONS
7
8
2
$
6
2
3
$
2
5
3
$
5
1
3
$
1
5
3
$
2018 2019 2020 2021 2022
// EBITDA – As Adjusted*
IN MILLIONS
7
6
$
0
8
$
1
8
$
7
6
$
0
8
$
2018 2019 2020 2021 2022
* Excludes $0.6 million of NEco acquisition
inventory step-up and VACCO severance
charges in 2022, $0.5 million of ATM
acquisition inventory step-up and
restructuring charges in 2021, $1.4
million primarily related to severance and
incremental costs associated with COVID-19
in 2020, $1.2 million in inventory step-up
and restructuring charges in 2019, and
$0.8 million in restructuring charges in 2018.
2022 ANNUAL REPORT 5
LETTER TO SHAREHOLDERS Continued
UTILITY SOLUTIONS GROUP
USG sales increased 37 percent to
$278 million, with 14 percent organic
growth being driven by increased
electric utility and renewables spending,
and 23 percent related to the impact of
the Altanova and Phenix acquisitions.
Adjusted EBITDA increased 29 percent
to $72 million (26 percent margin).
With $315 million in entered orders and
a book-to-bill of 1.13, USG ended the
year with $128 million in backlog.
Doble Engineering (Doble) continued
its focus on new product development,
launching key new technologies aimed
at providing electric utility teams
with intuitive new tools for analyzing
digital substation networks. In 2022,
Doble introduced the F6880 Digital
Network Analyzer and the Calisto®
R9 Dissolved Gas Analyzer (DGA)
Monitor. The F6880 is a compact
lightweight instrument that enables
power and utility teams to efficiently
troubleshoot communications and
network performance issues allowing
them to quickly discern whether
6 ESCO TECHNOLOGIES INC.
abnormal signal qualities in substation
networks are caused by conditions
on the power system or anomalies in
digital traffic. The Calisto R9 DGA
Monitor has a new patented design
that offers high accuracy and low
long-term maintenance costs. It uses a
new differential infrared photoacoustic
spectroscopy method which provides
accurate measurements and utilizes
water vapor to calibrate and maintain
the accuracy of gas measurements
over time.
Doble continued to integrate the
Altanova and Phenix business into the
USG segment throughout the year. In
2022, USG won its first major HV Cable
monitoring project in North America
utilizing Altanova’s technology. This is
a concrete example of the synergistic
cross-selling opportunities that exist
as we go to market domestically
and internationally with a broader
product portfolio.
NRG saw significant orders and revenue
growth in both wind and solar in 2022.
Orders increased 52 percent to over
$50 million and revenue increased
24 percent to $43 million. This
represented the second consecutive
year of significant growth for NRG. Last
year the business left the pandemic
with strong momentum and that trend
continued in 2022 as the cost of
wind and solar is now at parity with
traditional generation sources in more
regions than ever. In addition, several
key geographic trends are now driving
sustained renewables growth: the
Inflation Reduction Act is resulting in a
significant uptick in domestic wind and
solar activity with NRG’s largest U.S.
customers; in EMEA NRG is winning
new wind and solar projects with large
customers and developers who are
increasing their market share in various
regions; and in China, the government
released a new 5-year plan with
aggressive goals for wind and solar that
is driving new project wins.
UTILITY SOLUTIONS GROUP
// Entered Orders
IN MILLIONS
9
1
2
$
3
1
2
$
1
0
2
$
4
4
2
$
5
1
3
$
2018 2019 2020 2021 2022
// Sales
IN MILLIONS
4
1
2
$
2
1
2
$
2
9
1
$
3
0
2
$
8
7
2
$
2018 2019 2020 2021 2022
// EBITDA – As Adjusted*
IN MILLIONS
7
5
$
8
5
$
5
4
$
6
5
$
2
7
$
2018 2019 2020 2021 2022
* Excludes $0.5 million of Altanova
acquisition inventory step-up and NRG
severance charges in 2022, $1.5 million of
facility consolidation, inventory step-up and
restructuring charges, partially offset by the
final settlement from the sale of the Doble
Watertown facility in 2021, $6.6 million
of facility consolidation, asset impairment,
severance, and incremental costs associated
with COVID-19 in 2020, $5.9 million gain
related to the sale of Doble Watertown
property, partially offset by restructuring
charges in 2019, and $3.0 million
in restructuring charges in 2018.
2022 ANNUAL REPORT 7
LETTER TO SHAREHOLDERS Continued
RF SHIELDING & TEST
Test sales increased 15 percent to a
record $228 million, driven by solid
growth in powerline filters, medical
shielding, and test and measurement
projects. Higher revenue drove a 16
percent increase in EBITDA to $38
million (17 percent margin). Throughout
the challenges of the past few years,
Test has maintained their margins while
being faced with inflationary pressures
and significant material and labor
availability challenges. With record
entered orders of $253 million and a
book-to-bill of 1.11, Test ended the
year with record year-end backlog of
$159 million.
Test continues to maintain a strong
position in the 5G market and is seeing
strong demand for upgrades of existing
systems and an increasing need for
unique test systems driven by the
ever-expanding types of industrial and
consumer products being developed.
8 ESCO TECHNOLOGIES INC.
The automotive market continues to
present growth opportunities driven
by the demand for electric vehicles
(EV) and the ongoing development
of autonomous vehicles (AV). We
continue to provide successful testing
solutions for companies involved
in EV development, especially in
China. In addition, our work with
international standards committees
to develop standards and address the
numerous challenges associated with
AVs has allowed us to develop unique
technologies and solutions that serve
this emerging market.
The healthcare market has continued
to rebound from the pandemic as
hospitals return to expanding their
MRI capabilities. In addition, we have
successfully developed a number
of unique shielding solutions for
high-end hospitals, universities and
research institutes. Our continued
success in providing turnkey shielding
for intraoperative imaging solutions
has made us a leader in this rapidly
developing field.
We continue to see increasing interest
in Electromagnetic Pulse (EMP)
protection and our line of Red Edge™
power line filters. This demand is being
driven by the need to store more data
in data centers and a surge in the
construction of new data centers to
keep up with demand.
Test serves the needs of manufacturers
across numerous growing end-
markets that require its unique testing
technologies to support their new
product development programs. Test
employees continue to be very active on
standards committees and are working
with a variety of the new product and
service providers to develop and deliver
the next generation of testing solutions
that meet both their needs and industry
defined standards.
RF SHIELDING & TEST
// Entered Orders
IN MILLIONS
9
8
1
$
0
0
2
$
5
7
1
$
5
1
2
$
3
5
2
$
2018 2019 2020 2021 2022
// Sales
IN MILLIONS
3
8
1
$
8
8
1
$
7
8
1
$
8
9
1
$
8
2
2
$
2018 2019 2020 2021 2022
// EBITDA – As Adjusted*
IN MILLIONS
8
2
$
1
3
$
2
3
$
3
3
$
8
3
$
2018 2019 2020 2021 2022
* Excludes $0.1 million of incremental costs
associated with COVID-19 in 2020.
2022 ANNUAL REPORT 9
Vic Richey (center)
Chairman, Chief Executive
Officer and President
Chris Tucker (left)
Senior Vice President &
Chief Financial Officer
Dave Schatz (right)
Senior Vice President,
Secretary & General Counsel
ESG Update
At ESCO, we understand the fundamental interdependence between the resiliency of our
environment and the success of our company. In September we published our 2021 ESG
Report, presenting new developments in our ESG program, including a more diverse Board,
increased ESG oversight by our Board, the formation of our new ESG Committee, and releasing
two years of environmental data. This represents a positive step for ESCO as we navigate the
ESG landscape with a pragmatic approach that strengthens our governance and continues to
prepare the company for future requirements in this area.
Moving Forward
Our successes this year were driven by the dedication of our highly skilled work force. It was
through their creative efforts to work through challenges and find solutions, that we were
able to deliver record operating results. These results were a testament to the ingenuity and
determination of our employees who worked diligently to overcome the impacts of significant
economic disruptions. This year was very much a team effort, and I want to thank our employees
for their hard work and dedication in support of both our company and our customers.
As we announced in September, I will be retiring from my roles as CEO and President effective
December 31, 2022. I have been with the company for 37 years, serving as CEO for the
last 20 years and am proud of the work that has been accomplished over this time. Today
ESCO is a global provider of technology-driven businesses with market leading products and
solutions across diverse end-markets. I will continue as Executive Chairman of the Board
during a transition period as Bryan Sayler assumes the roles of CEO and President. Bryan is an
outstanding leader with a broad understanding of our businesses and industries. He has served
as President of our USG segment for the past 6 years, and prior to that held senior leadership
roles in our Test Segment for over 20 years. Bryan has played a key role in strategically building
out our utility segment and is uniquely qualified to lead ESCO’s continuing evolution as a
company. It’s been a privilege to serve as CEO and as my tenure winds down, I am excited
to see what the future holds as I am confident ESCO is well-positioned to deliver long-term
shareholder value.
Vic Richey
Chairman, Chief Executive Officer & President
10 ESCO TECHNOLOGIES INC.
MANAGEMENT AND BOARD OF DIRECTORS
Executive Officers
Vic Richey
Chairman, Chief Executive
Officer & President
Corporate Staff
Deborah Boniske
Vice President
Human Resources
Lara Crews
Vice President &
Treasurer
Operating Executives
Mike Alfred
President
Crissair, Inc.
Bruce Butler
President
ETS-Lindgren Inc.
Sam Chapetta
Aerospace & Defense
Group President
Board of Directors
Chris Tucker
Senior Vice President
& Chief Financial Officer
Dave Schatz
Senior Vice President,
Secretary & General Counsel
Mark Dunger
Vice President
Planning & Development
Kelly Kennedy
Vice President
Tax
Charles Kretschmer
Vice President
Kate Lowrey
Vice President
Investor Relations
Rowland Ellis
President
PTI Technologies Inc.
Joe McCadden
President Globe Composite
Solutions, LLC
Bryan Sayler
Utility Solutions Group
President & President
Doble Engineering Company
May Scally
Chief Operating Officer
Morgan Schaffer Ltd.
Tom Shaw
President
Mayday Manufacturing Co.
Matt Stafford
President
VACCO Industries
Michele Marren
Vice President &
Corporate Controller
Evan Vogel
President
NRG Systems, Inc.
Patrick M. Dewar 2,3
Chief Executive
The Trenton Group, LLC
Janice L. Hess 4
Retired President of the
Engineered Systems Segment
Teledyne Technologies Inc.
Vinod M. Khilnani 2,3
Retired Executive Chairman
CTS Corporation
Leon J. Olivier 4
Retired Executive
Vice President
Eversource Energy
Robert J. Phillippy 2,4
Executive Advisor;
Former President and
Chief Executive Officer
of Newport Corporation
1 Executive Committee
2 Audit and Finance Committee
Victor L. Richey 1
Chairman, Chief Executive
Officer & President
James M. Stolze 1,2,3
Retired Vice President &
Chief Financial Officer
Stereotaxis, Inc.
Gloria L. Valdez 3,4
Retired Deputy Assistant
Secretary of the Navy
3 Human Resources and
Compensation Committee
4 Nominating and Corporate
Governance Committee
2022 ANNUAL REPORT 11
2022 ANNUAL REPORT C
D ESCO TECHNOLOGIES INC.
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, 2022
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
(State or other jurisdiction
of incorporation or organization)
9900A Clayton Road
St. Louis, Missouri
(Address of principal executive offices)
43-1554045
(I.R.S. Employer
Identification No.)
63124-1186
(Zip Code)
Registrant’s telephone number, including area code:
(314) 213-7200
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Common Stock, par value $0.01 per share
ESE
Name of each exchange
on which registered
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
_______________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No
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 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,
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,
“accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
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 has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act
(15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
Aggregate market value of the Common Stock held by non-affiliates of the registrant as of the close of trading on
March 31, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, based on the
New York Stock Exchange closing price on March 31, 2022: approximately $1,784,000,000.*
*For purpose of this calculation only, without determining whether the following are affiliates of the
registrant, the registrant has assumed that (i) its directors and executive officers are affiliates, and
(ii) no party who has filed a Schedule 13D or 13G is an affiliate.
Number of shares of Common Stock outstanding at November 13, 2022: 25,885,528
_______________________
DOCUMENTS INCORPORATED BY REFERENCE:
Part III of this Report incorporates by reference certain portions of the registrant’s definitive Proxy Statement for its
2023 Annual Meeting of Shareholders, which the registrant currently anticipates first sending to shareholders on or
about December 14, 2022 (hereinafter, the “2022 Proxy Statement”).
INDEX TO ANNUAL REPORT ON FORM 10-K
FORWARD-LOOKING INFORMATION
PART I
1.
Business
The Company
Products
Marketing and Sales
Government Contracts
Intellectual Property
Backlog
Purchased Components and Raw Materials
Competition
Research and Development
Environmental Matters and Government Regulation
Human Capital Management
Financing
Additional Information
Information about our Executive Officers
1A. Risk Factors
1B. Unresolved Staff Comments
Properties
2.
3.
Legal Proceedings
4. Mine Safety Disclosures
PART II
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
[Reserved]
6.
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures about Market Risk
8.
9.
9A. Controls and Procedures
9B. Other Information
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
10. Directors, Executive Officers and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accountant Fees and Services
PART IV
15. Exhibits, Financial Statement Schedules
16. Form 10-K Summary
SIGNATURES
FINANCIAL INFORMATION
EXHIBITS
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F-1
FORWARD-LOOKING INFORMATION
Statements contained in this Form 10-K regarding future events and the Company’s future results that are based on
current expectations, estimates, forecasts and projections 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, without limitation, statements about: the effects of the
continuing COVID-19 pandemic and its known or unknown variants on the Company’s business and results of
operations; the adequacy of the Company’s buildings, machinery and equipment; the adequacy of the Company’s
credit facilities and future cash flows; the outcome of litigation, claims and charges; future costs relating to
environmental matters; repayment of debt within the next twelve months; the outlook for all or any part of the
Company’s business, including amounts, timing and sources of future sales, revenues, sales growth, and comparisons
with the current year; interest on Company debt obligations; the ability of expected hedging gains or losses to be
offset by losses or gains on related underlying exposures; the Company’s ability to increase shareholder value;
acquisitions; income tax expense and the Company’s expected effective tax rate; the recognition of unrecognized
compensation costs related to share-based compensation arrangements; the Company’s exposure to market risk
related to interest rates and to foreign currency exchange risk; the likelihood of future variations in the Company’s
assumptions or estimates used in recording contracts and expected costs at completion under the percentage of
completion method; the Company’s estimates and assumptions used in the preparation of its financial statements;
costs and estimated earnings from long-term contracts; valuation of inventories; estimates of uncollectible accounts
receivable; the risk of goodwill impairment; the Company’s estimates utilized in software revenue recognition, non-
cash depreciation and the amortization of intangible assets; the valuation of deferred tax assets; estimates of future
cash flows and fair values in connection with the risk of goodwill impairment; amounts of NOL not realizable and the
timing and amount of the reduction of unrecognized tax benefits; the effects of implementing recently issued
accounting pronouncements; 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-K, and
the Company undertakes no duty to update the information in this Form 10-K 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 herein under “Item 1A, Risk Factors,” and the following:
the duration, scope and effects of the COVID-19 pandemic and its variants, including the impact of mandates or other
restrictive protocols on our business and workforce and the availability and acceptance of effective vaccines by
enough of the U.S. and the world’s population to curtail or alleviate the seriousness of the pandemic; the impacts of
climate change and related regulation of greenhouse gases, the impacts of labor disputes, civil disorder, wars,
elections, political changes, tariffs and trade disputes, terrorist activities, cyberattacks or natural disasters on the
Company’s operations and those of the Company’s customers and suppliers; disruptions in manufacturing or delivery
arrangements due to shortages or unavailability of materials or components or supply chain disruptions; inability to
access work sites; the timing and content of future customer orders; the appropriation and allocation of Government
funds; the termination for convenience of Government and other customer contracts or orders; the timing and
magnitude of future contract awards; 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 or data breaches; the availability of selected acquisitions; defaults by customers;
performance issues with key customers, suppliers and subcontractors; material changes in the costs and availability of
certain raw materials; material changes in the cost of credit; changes in laws and regulations including but not limited
to changes in accounting standards and taxation requirements; costs relating to environmental matters; litigation
uncertainty; the Company’s inability to successfully execute internal restructuring and other plans; and the integration
and performance of recently acquired businesses.
ii
PART I
Item 1. Business
The Company
The Registrant is ESCO Technologies Inc., sometimes referred to in this report as ESCO. Except where the context
indicates otherwise, the terms “Company”, “we”, “our” and “us” are used in this report to refer to ESCO together with
its subsidiaries through which its businesses are conducted. We are:
• A global provider of highly engineered filtration and fluid control products and integrated propulsion
systems for the aviation, navy, space and process markets worldwide, as well as composite-based products
and solutions for navy, defense and industrial customers;
• An industry leader in radio frequency (RF) shielding and electromagnetic compatibility (EMC) test products;
and
• A provider of diagnostic instruments, software and services for the benefit of industrial power users and the
electric utility and renewable energy industries.
Our business is focused on generating predictable and profitable long-term growth through continued innovation and
expansion of our product offerings across each of our business segments. We conduct our business through a number
of wholly-owned direct and indirect subsidiaries. Our corporate strategy is centered on a multi-segment approach
designed to enhance the strength and sustainability of sales and earnings growth by providing lower risk through
diversification. Our stock is listed on the New York Stock Exchange, where its ticker symbol is “ESE”.
Our fiscal year ends September 30. Throughout this Annual Report, unless the context indicates otherwise, references
to a year (for example 2022) refer to our fiscal year ending on September 30 of that year, and references to the
“Consolidated Financial Statements” refer to our Consolidated Financial statements included in the Financial
Information section of this Annual Report beginning on page F-1, an Index to which is provided on page F-1.
We classify our business operations into three segments for financial reporting purposes, although for reporting certain
financial information we treat Corporate activities as a separate segment. Our three operating segments during 2022,
together with the significant domestic and foreign operating subsidiaries within each segment, are as follows:
Aerospace & Defense (A&D):
VACCO Industries (VACCO)
PTI Technologies Inc. (PTI)
Crissair, Inc. (Crissair)
Globe Composite Solutions, LLC (Globe)
Mayday Manufacturing Co. (Mayday) (includes former subsidiary Hi-Tech Metals, Inc., which was merged
into Mayday effective December 31, 2021)
Networks Electronic Co. (NEco)
Westland Technologies, Inc. (Westland)
Utility Solutions Group (USG):
Doble Engineering Company
I.S.A. – Altanova Group S.r.l. and affiliates (Altanova)
Morgan Schaffer Ltd. (Morgan Schaffer)
NRG Systems, Inc. (NRG)
Except as the context otherwise indicates, the term “Doble” as used herein includes Doble Engineering
Company and ESCO’s other USG subsidiaries except NRG.
RF Shielding and Test (Test):
ETS-Lindgren Inc.
Except as the context otherwise indicates, the term “ETS-Lindgren” as used herein includes ETS-
Lindgren Inc. and ESCO’s other Test segment subsidiaries.
Our operating subsidiaries are engaged primarily in the research, development, manufacture, sale and support of the
products and systems described below. Their respective businesses are subject to a number of risks and uncertainties,
including without limitation those discussed in Item 1A, “Risk Factors.” See also Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” and “Forward-Looking Information.”
We are continually seeking ways to reduce our overall operating costs, streamline business processes and enhance the
branding of our products and services. For example, during 2020 Doble consolidated its headquarters operations into a
single, more cost-efficient facility in Marlborough, Massachusetts, and in 2021 it closed its facility in Toronto, Ontario
and consolidated its Manta product line into its existing production capacity for Doble instruments.
We are also continually seeking opportunities to supplement our growth by making strategic acquisitions. In October
2020 we acquired Advanced Technology Machining, Inc. (ATM) and its sister company TECC Grinding, Inc.; in July
2021 we acquired I.S.A Altanova Group S.r.l. and its affiliated companies (Altanova); in August 2021 we acquired the
assets of Phenix Technologies Inc. (Phenix); and in November 2021 we acquired Networks Electronic Company, LLC
(NEco), a provider of miniature electro-explosive components and subsystems supporting mission, flight, and life-
critical applications to the aerospace and defense end-markets. Information about these acquired businesses is provided
in the following section, “Products,” and in Note 2 to the Consolidated Financial Statements.
In December 2019, we sold the businesses comprising our former Technical Packaging segment and used the proceeds
from the sale to pay down debt and for other corporate purposes. The Technical Packaging segment was reported as
Discontinued Operations in 2020. See Note 3 to the Consolidated Financial Statements.
Products
Our principal products are described below. See Note 12 to the Consolidated Financial Statements for financial
information regarding business segments and 10% customers.
A&D
Beginning in the first quarter of 2020, we renamed our Filtration/Fluid Flow segment as Aerospace & Defense 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 and historical financial results are unchanged from what was formerly
presented as Filtration/Fluid Flow.
The A&D segment accounted for approximately 41%, 44% and 48% of our total revenue in 2022, 2021 and 2020,
respectively. This segment has seven facilities in the United States and one in Mexico.
Our companies within this segment primarily design and manufacture specialty filtration, fluid control and naval
products, including hydraulic filter elements, fluid control devices, and precision-tolerance machined components used
in aerospace and defense applications, unique filter mechanisms used in micro-propulsion devices for satellites,
custom designed filters for manned aircraft and submarines, products and systems to reduce vibration and/or acoustic
signatures and otherwise reduce or obscure a vessel’s signature, and other communications, sealing, surface control
and hydrodynamic related applications to enhance U.S. Navy maritime survivability; and miniature electro-explosive
devices for military aircraft ejection seats and missile arming devices.
USG
Our USG segment accounted for approximately 32%, 28% and 26% of our total revenue in 2022, 2021 and 2020,
respectively. This segment has seven facilities in the United States, one in Canada, and eight outside North America.
Doble is an industry leader in the development, manufacture and delivery of diagnostic testing and data management
solutions that enable electric power grid operators to assess the integrity of high-voltage power delivery equipment. It
combines three core elements for customers – diagnostic test instruments and condition monitoring systems, expert
consulting, and testing services. The acquisition of Phenix’s assets has enhanced Doble’s high voltage, high current,
high power test systems, components and solutions. NRG is a global market leader in the design and manufacture of
decision support tools for the renewable energy industry, primarily wind and solar.
Altanova, headquartered in Taino, Italy, provides products and services in more than 100 countries. Its strong market
share in Europe and Asia creates a significant international platform for our USG segment and fills important product
gaps and geographies not previously served by our existing products and solutions. Doble’s offices outside North
America have been consolidated with Altanova’s, and going forward we expect that Altanova will represent their
combined businesses in markets outside the U.S. and Canada.
2
Test
Our Test segment accounted for approximately 27%, 28% and 26% of our total revenue in 2022, 2021 and 2020,
respectively. This segment has four facilities in the United States and six outside the United States.
ETS-Lindgren is an industry leader in designing and manufacturing products which provide its customers with the
ability to measure and contain magnetic, electromagnetic and acoustic energy. It supplies its customers with a broad
range of isolated environments and turnkey systems, including RF test facilities, acoustic test enclosures, RF and
magnetically shielded rooms, secure communication facilities, RF measurement systems and broadcast and recording
studios. Many of these facilities include proprietary features such as shielded doors and windows. ETS-Lindgren also
provides the design, program management, installation and integration services required to successfully complete these
types of facilities.
ETS-Lindgren also supplies customers with a broad range of components including RF absorptive materials, RF
filters, active compensation systems, antennas, antenna masts, turntables and electric and magnetic probes, RF test
cells, proprietary measurement software and other test accessories required to perform a variety of tests. ETS-Lindgren
offers a variety of services including calibration for antennas and field probes, chamber certification, field surveys,
customer training and a variety of product tests. ETS-Lindgren’s test labs are accredited by the following
organizations: American Association for Laboratory Accreditation, National Voluntary Laboratory Accreditation
Program and CTIA-The Wireless Association Accredited Test Lab. ETS-Lindgren serves the acoustics, medical,
health and safety, electronics, wireless communications, automotive and defense markets.
Marketing and Sales
Our products generally are distributed to customers through a domestic and foreign network of distributors, sales
representatives, direct sales teams and in-house sales personnel.
Our sales to international customers accounted for approximately 30%, 28% and 27% of our total revenue in 2022,
2021 and 2020, respectively. See Note 12 to the Consolidated Financial Statements for financial information by
geographic area. See Item 1A, “Risk Factors,” for a discussion of risks related to our international operations.
Government Contracts
Some of our products are sold to the U.S. Government either directly under contracts with the Army, Navy and Air
Force as well as other Government agencies or indirectly under subcontracts with their prime contractors. Direct and
indirect sales to the U.S. Government, primarily related to the A&D segment, accounted for approximately 27%, 26%
and 28% of our total revenue in 2022, 2021 and 2020, respectively.
Our Government contracts primarily include firm fixed-price contracts under which work is performed and paid for at
a fixed amount without adjustment for the actual costs experienced in connection with the contracts. All Government
prime contracts and virtually all of our Government subcontracts provide that they may be terminated at the
convenience of the Government or the customer. Upon a termination for convenience, we are entitled to receive
equitable compensation from the customer for the work we completed prior to termination.
All of our facilities are in material compliance with appliable COVID-related Government regulations and executive
orders.
See Item 1A, “Risk Factors,” for a discussion of risks related to our Government business.
Intellectual Property
We own or have other rights in various forms of intellectual property (i.e., patents, trademarks, service marks,
copyrights, mask works, trade secrets and other items). As a major supplier of engineered products to industrial and
commercial markets, we emphasize developing intellectual property and protecting our rights therein. However, the
legal protection afforded by intellectual property rights is often uncertain and can involve complex legal and factual
issues. Some intellectual property rights, such as patents, have a limited term, and there can be no assurance that third
parties will not infringe or design around our intellectual property. Policing the unauthorized use of intellectual
property is difficult, and infringement and misappropriation are persistent problems for many companies, particularly
in some international markets, and in some cases, we may elect not to pursue an unauthorized user due to the high
costs and uncertainties associated with litigation. Further, there can be no assurance that courts will ultimately hold
issued patents or other intellectual property valid and enforceable. See Item 1A, “Risk Factors.”
3
A number of products in the Aerospace & Defense segment are based on patented or otherwise proprietary technology
that sets them apart from the competition, such as VACCO’s proprietary quieting technology and Westland’s signature
reduction solutions. In addition, Globe has developed significant manufacturing and logistics capability useful for
special hull treatments for submarines.
In the USG segment, our policy is to seek patent and/or other forms of intellectual property protection on new and
improved products, components of products, and methods of operation for our businesses, as such developments are
made. Doble has obtained and is pursuing additional patent protection on improvements to its line of diagnostic
equipment and NERC CIP compliance tools and its newly-introduced Calisto R9 dissolved gas analyzer. Doble also
holds an extensive library of apparatus performance information useful to entities that generate, distribute or consume
electric energy, and it makes part of this library available to registered users via an Internet portal. Altanova has
obtained and is pursuing additional patent protection on instruments and methods for detecting partial discharges in
electrical apparatus. NRG has intellectual property related to certain LIDAR technology and applications, and has
obtained and is pursuing additional patent protection on its line of bat deterrent systems, which are designed to
significantly reduce bat mortality at windfarms and in other applications where bat conservation is a concern.
In the Test segment, we have sought patent protection for significant inventions. Examples of such inventions include
novel designs for window and door assemblies used in shielded enclosures and anechoic chambers, improved acoustic
techniques for sound isolation and a variety of unique antennas. In addition, the Test segment holds a number of
patents, and has patents pending, on products used to perform wireless device testing.
We consider our patents and other intellectual property to be of significant value to each of our segments.
Backlog
Total Company backlog of firm orders at September 30, 2022 was $695.0 million, representing an increase of $103.0
million (17.4%) from the backlog of $592.0 million at September 30, 2021. By segment, the backlog at September 30,
2022 and September 30, 2021, respectively, was $408.3 million and $367.2 million for A&D; $128.1 million and
$91.6 million for USG; and $158.6 million and $133.2. million for Test. We estimate that as of September 30, 2022
domestic customers accounted for approximately 70% of our total firm orders and international customers accounted
for approximately 30%. Of our total backlog at September 30, 2022, approximately 80% is expected to be completed
in the fiscal year ending September 30, 2023.
Purchased Components and Raw Materials
Our products require a wide variety of components and materials. Although we have multiple sources of supply for
most of our materials requirements, certain components and raw materials are supplied by sole source vendors, and our
ability to perform certain contracts depends on their timely performance. In the past, these required raw materials and
various purchased components generally have been available in sufficient quantities. However, we do have some risk
of shortages of materials or components due to reliance on sole or limited sources of supply; and supplies of
components and materials are periodically impacted by supply chain disruptions, as well as complications due to
current or future trade policies. Where feasible, we engineer and qualify substitute products to avoid short-term supply
issues; however, we are subject to the same supply chain risks as other electronics manufacturers. An unanticipated
delay in delivery by our suppliers could result in the inability to deliver our products on-time and to meet the
expectations of our customers. Additionally, we have experienced, and could continue to experience, an increase in the
costs of doing business, including increasing raw material prices and transportation costs, which have and could
continue to have an adverse impact on our business, results of operations, financial condition and cash flows. See also
Item 1A, “Risk Factors.”
Our A&D segment purchases supplies from a wide array of vendors. In most instances, multiple vendors of raw
materials are screened during a qualification process to ensure that there will not be an interruption of supply should
one of them underperform or discontinue operations. Nonetheless, in some situations, there is a risk of shortages due to
reliance on a limited number of suppliers or because of price fluctuations due to the nature of the raw materials. For
example, aerospace-grade titanium and gaseous helium, important raw materials for our A&D segment subsidiaries,
may at times be in short supply.
Our USG segment manufactures electronic instrumentation through a network of regional contract manufacturers
under long-term contracts. In general, USG purchases the same kinds of component parts as do other electronic
products manufacturers, and these electronic components can be subject to supply chain constraints. USG purchases
only a limited amount of raw materials, although some USG products require helium, which may at times be in short
supply.
4
Our Test segment is a vertically integrated supplier of electro-magnetic (EM) shielding and RF absorbing products,
producing most of its critical RF components itself. This segment purchases significant quantities of raw materials
such as polyurethane foam, polystyrene beads, steel, aluminum, copper, nickel and wood. Accordingly, it is subject to
price fluctuations in the worldwide raw materials markets. While ETS-Lindgren has long-term contracts with a
number of its suppliers, performance of these contracts is vulnerable to the risks described in Item 1A.
Competition
Competition in our major markets is broadly based and global in scope. This competition can be particularly intense
during periods of economic slowdown, and we have experienced this in some of our markets. Although we are a
leading supplier in several of the markets we serve, we maintain a relatively small share of the business in many of our
other markets. Individual competitors range in size from annual revenues of less than $1 million to billion-dollar
enterprises. Because of the specialized nature of our products, our competitive position with respect to our products
cannot be precisely stated. In our major served markets, competition is driven primarily by quality, technology, price
and delivery performance. See also Item 1A, “Risk Factors.”
Primary competitors of our A&D segment include Pall Corporation, Moog, Inc., Safran (Sofrance), CLARCOR Inc.,
TransDigm (PneuDraulics), Marotta Controls, and Parker Hannifin.
Significant competitors of our USG segment include OMICRON electronics Corp., Megger Group Limited, Vaisala,
and Qualitrol Company LLC (a subsidiary of Fortive Corporation).
Our Test segment is a global leader in EM shielding. Significant competitors in this market include Rohde & Schwarz
GMBH, Microwave Vision SA (MVG), TDK RF Solutions Inc., Albatross GmbH, IMEDCO AG, and Universal
Shielding Corp.
Research and Development
Research and development and our technological expertise are important factors in our business. Our research and
development programs are designed to develop technology for new products or to extend or upgrade the capability of
existing products, and to enhance their commercial potential. We perform research and development at our own
expense, and also engage in research and development funded by our customers. See Note 1 to the Consolidated
Financial Statements for financial information about our research and development expenditures.
Environmental Matters and Government Regulation
We are involved in various stages of investigation and cleanup relating to environmental matters. It is difficult to
estimate the potential costs of these matters and the possible impact of these costs on the Company at this time due in
part to: the uncertainty regarding the extent of pollution; the complexity and changing nature of Government laws and
regulations and their interpretations; the varying costs and effectiveness of alternative cleanup technologies and
methods; the uncertain level of insurance or other types of cost recovery; the uncertain level of our responsibility for
any contamination; the possibility of joint and several liability with other contributors under applicable law; and the
ability of other contributors to make required contributions toward cleanup costs. Based on information currently
available, we do not believe that the aggregate costs involved in the resolution of environmental matters or compliance
with Governmental regulations will have a material adverse effect on our financial condition or results of operations.
Human Capital Management
As of September 30, 2022, we employed 2,922 persons, including 2,894 full time employees 18% of whom were
located in 17 foreign countries.
We strive to be a responsible member of the communities in which we operate, and we are dedicated to preserving
operational excellence and remaining an employer of choice. We provide and maintain a work environment that
attracts, develops and retains top talent by offering our employees an engaging work experience that contributes to
their career development. Through our charitable Foundation and wellness activities we provide opportunities for civic
involvement that not only support our communities and provides our employees with meaningful experiences that
promote collaborative and rewarding work environments. We strive to maintain a culture that enables all employees to
be treated with dignity and respect while performing their jobs to the best of their abilities. We operate in a supportive
culture that incorporates strong ethical behavior and reinforces our human rights commitment through annual training
on ethics, human rights, anti-human trafficking and anti-harassment.
5
Our subsidiaries enjoy modest turnover at about half the national average for our industry. Fewer than 6% of our
workforce are contingent workers. We invest in creating a diverse, inclusive and safe work environment which will
inspire our employees to give their best efforts every day. In fact, nearly half of our employee base comes from diverse
backgrounds.
We generally conduct formal compensation benchmarking reviews every 1-2 years to ensure wages are competitive in
local markets and support our retention and recruiting efforts. Additionally, we invest time and resources in reviewing
pay equity within our workforce. The majority of full-time domestic and international employees are eligible for bonus
or commission plans, most of which are designed to incentivize and reward performance based on results such as EPS,
EBIT, cash flow, quality and backlog reduction, or other measures.
We recognize that our success is based on the talents and dedication of those we employ, and we are invested in their
success. Significant investments are made in the areas of talent development, technical skills and compliance training
in areas such as supervisor training, employee coaching, ethics, safety, hazmat, ITAR, etc. For succession planning
purposes, we focus on identifying high-potential future leaders and working with them on individual development
plans and executive coaching.
Attracting and retaining a talented workforce is of utmost importance. Given the ever-changing talent market, we have
looked to broaden the ways in which we can recognize and reward performance, including more frequent merit
increases, market adjustments, spot bonuses, and other creative ways to recognize and reward employees. While
utilizing these and other measures, at the end of our fiscal year the average tenure of our workforce was nine years.
One third of employees have been with us for 10 or more years and more than 50% of employees have been with us
for five or more years.
We are committed to the health and wellbeing of our employees and their families by encouraging participation in
wellness programs. Generally, all our full-time employees, both domestic and international, are offered health and
welfare benefits. We remain committed to our communities through financial support from our employees and the
ESCO Foundation, and through personal participation of our employees with a variety of local organizations, such as
food banks, blood drives, the Boys & Girls Club, and Habitat for Humanity. We believe strong human capital is a
competitive differentiator, and we focus on ensuring we have the right domestic and international talent in place to
drive our strategic initiatives not only today but well into the future.
Workforce Composition
(As of September 30, 2022)
By Gender
By Race
Male
Female
Unknown*
71%
24%
5%
Minorities
White
Unknown*
48%
40%
12%
*Some countries do not permit the collection or reporting of some or all of the above types of data.
By Generation
Gen Z (1996-2015)
Millennials (1977-1995)
Gen X (1965-1976)
Boomers (1946-1964)
Silent (1945 & before)
8%
39%
28%
25%
<1%
Minorities are defined to include individuals of Native American or Alaskan Native, Asian, Black or
African American, Hispanic or Latino, Native Hawaiian or Other Pacific Islander, and Two or More Races.
The above is based on employees’ self-identification or other information believed by the Company to be reliable.
6
Financing
For information about our credit facility, see Note 8 to the Consolidated Financial Statements, which is incorporated
into this Item by reference.
Additional Information
The information set forth in Item 1A, “Risk Factors,” is incorporated in this Item by reference.
We make available free of charge on or through our website, www.escotechnologies.com, our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as well as our recent
Proxy Statements for meetings of our shareholders, as soon as reasonably practicable after we file or furnish this
material to the Securities and Exchange Commission. Information contained on our website is not incorporated into
this Report.
Information about our Executive Officers
The following sets forth certain information as of the date of this report with respect to the persons who are, or who
have been selected to become, our executive officers. These officers are elected annually to terms which expire at the
first meeting of the Board of Directors held after the Annual Meeting of Stockholders.
Name
Age
Position(s) and Business Experience
Victor L. Richey
65
Bryan H. Sayler
56
Christopher L. Tucker
51
David M. Schatz
59
Mr. Richey has been Chairman of the Board of Directors and Chief Executive Officer
since April 2003, and President since October 2006. He also serves as Chairman of the
Executive Committee of the Board of Directors. Mr. Richey will retire as Chief Executive
Officer and President on December 31, 2022 but will continue as an employee and
Chairman of the Board for a transition period.
Mr. Sayler will become the Company’s Chief Executive Officer and President on
January 1, 2023. Mr. Sayler has led our Utility Solutions Group since 2016, where he
played a key role in strategically building out the group, including leading our entry into
the renewables business and overseeing six successful acquisitions that have more
than doubled the size of the segment. From 1995 to 2016, he held senior positions with
ETS-Lindgren.
Mr. Tucker has been Senior Vice President and Chief Financial Officer since April
2021. Prior to joining ESCO, Mr. Tucker worked at Emerson Electric Co (NYSE:EMR)
for 24 years, where he held a series of financial and administrative positions, most
recently as Vice President and Chief Financial Officer of Emerson’s Commercial and
Residential Solutions business, consisting of 11 business units generating
approximately $6 billion in annual revenue.
Mr. Schatz has been Senior Vice President, General Counsel and Secretary since April
2021.He has worked at ESCO since 1998 in various positions with increasing
responsibility, including serving as Vice President, IP Counsel and Assistant Secretary
from 2015 until April 2021; he has extensive knowledge of ESCO’s operations,
technologies, intellectual property, regulatory matters, M&A and other complex legal
matters.
____________
There are no family relationships among any of our executive officers and directors.
7
Item 1A. Risk Factors
This Form 10-K, including Item 1, “Business,” Item 2, “Properties,” Item 3, “Legal Proceedings,” Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk,” contains “forward-looking statements” within the
meaning of the safe harbor provisions of the federal securities laws, as described under “Forward-Looking Statements”
above.
In addition to the risks and uncertainties discussed in those Items and elsewhere in this Form 10-K, and risks and
uncertainties that apply to businesses or public companies generally, the following important risk factors which are
particularly applicable to our business could cause actual results and events to differ materially from those contained in
any forward-looking statements, or could otherwise materially adversely affect our business, operating results or
financial condition:
COVID-19 Related Risks
The continuation of the COVID-19 pandemic and the impacts of known or unknown COVID-19 variants may
have a material adverse effect on our business which could continue for an unknown period of time.
The effects of the COVID-19 global pandemic continue to create or increase the economic, demand and operational
uncertainties of our business. We have global operations, customers and suppliers, including in countries most
impacted by COVID-19, and both the disease itself and the actions taken around the world to slow the spread of
COVID-19 and its variants have impacted our customers and suppliers; and future developments could cause further
disruptions to the Company due to the interconnected nature of our business relationships.
We have been and may continue to be subject to postponement or cancellation of certain contracts to which we are a
party. Current restrictions and conditions have and may continue to prevent or delay us in accessing customer facilities
to deliver products and provide services, and disrupt or delay our supply chain. Further, we have occasionally incurred
short-term disruptions in some facility operations, and due to the nature of the COVID-19 pandemic there can be no
assurance that we will not suffer facility closures or other adverse effects on our business operations in the future.
The facilities of our suppliers and customers have experienced, and may continue to experience, disruptions in
manufacturing and supply arrangements due to the loss or disruption of critical manufacturing and supply elements,
such as raw materials or other finished product components, transportation, workforce or other manufacturing and
distribution capability. We may also experience failure of third parties on which we rely, including our suppliers,
distributors and contractors, to meet their obligations to us, or significant restrictions in their ability to do so.
These facts and circumstances may have a material adverse effect on our business, results of operations, financial
condition and cash flows. The extent to which the COVID-19 pandemic will impact our 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 and its variants, the longevity of COVID-19
and its variants, and the actions taken to contain their impacts.
Risks Related to our Governmental and Aerospace Business
Our sales of products to the Government depend upon continued Government funding.
Sales to the U.S. Government and its prime contractors and subcontractors represent a significant portion of our
business. Over the past three fiscal years, from 26% to 28% of our revenues have been generated from sales to the U.S.
Government or its contractors, primarily within our A&D segment. These sales are dependent on government funding
of the underlying programs, which is generally subject to annual Congressional appropriations. There could be
reductions or terminations of, or delays in, the government funding on programs which apply to us or our customers.
These funding effects could adversely affect our sales and profit, and could bring about a restructuring of our
operations, which could result in an adverse effect on our financial condition or results of operations. A significant
portion of VACCO’s, Westland’s and Globe’s sales involve major U.S. Government programs such as NASA’s Space
Launch System (SLS) and U.S. Navy submarines. A reduction or delay in Government spending on these programs
could have a significant adverse impact on our financial results which could extend for more than a single year.
8
Our Government business increases the risk that we may not realize the full amount of our backlog.
As of September 30, 2022, our twelve-month backlog was approximately $556.2 million, which represents confirmed
orders we believe will be recognized as revenue within the next twelve months. There can be no assurance that our
customers will purchase all the orders represented in our backlog, particularly as to contracts which are subject to the
U.S. Government’s and its subcontractors’ ability to modify or terminate major programs or contracts, and if and to the
extent that this occurs, our future revenues could be materially reduced.
The end of customer product life cycles could negatively affect our A&D segment’s results.
Many of our A&D segment products are sold to be components in our customers’ end-products. If a customer
discontinues a certain end-product line, our ability to continue to sell those components will be reduced or eliminated.
The result could be a significant decrease in our sales. For example, a substantial portion of PTI’s revenue is generated
from commercial aviation aftermarket sales. As certain aircraft are retired and replaced by newer aircraft, there could
be a corresponding decrease in sales associated with our current products. Such a decrease could adversely affect our
operating results.
Risks Related to our International Business
Negative worldwide economic conditions and related inflation, rising interest rates and a potential economic
slowdown could result in a decrease in our sales and an increase in our operating costs, which could
adversely affect our business and operating results.
If there is a worsening of global and U.S. economic and financial market conditions and additional tightening of global
credit markets, many of our customers may further delay or reduce their purchases of our products. Uncertainties in
the global economy may cause the utility industry and commercial market customers to experience increases in cost of
capital, which could limit spending. To the extent this problem affects our customers, our sales and profits could be
adversely affected. Likewise, if our suppliers face challenges in obtaining credit, they may have to increase their prices
or become unable to continue to offer the products and services we use to manufacture our products, which could have
an adverse effect on our business, results of operations and financial condition.
Increases in tariffs or other changes in trade policies could adversely affect our ability to compete.
In addition to the effects of increases in market prices, increases in domestic import tariffs could increase the prices to
us of our foreign-sourced raw materials and product components and thereby require us to either increase our selling
prices or accept reduced margins. In the case of ETS-Lindgren, for example, tariffs on imports of Chinese goods have
raised the costs of components purchased by it either from its China facility or from other Chinese suppliers, and its
margins in China have been impacted by the increased costs of its products made in the U.S. and sold through its
Chinese business.
In addition, increases in foreign-country tariffs applicable to our exported products could increase the effective prices
of our products to our customers in those countries unless we are able to offset the tariffs by reducing our selling
prices. Any or all of these factors could decrease the demand for our products, reduce our profitability, and/or make
our products less competitive than those of other manufacturers that are not subject to the same tariffs. For example,
since 2019 increased tariffs imposed by China on U.S. origin goods have adversely affected sales of NRG’s products
in China by increasing their prices to Chinese customers.
In addition, trade restrictions against certain foreign-made products or entities may adversely affect our business and
our ability to compete in certain markets. Our business may also be impacted by the ongoing trade tensions between
the U.S. and China which are causing U.S. goods to be viewed in a less favorable light by Chinese customers.
Our international operations expose us to fluctuations in currency exchange rates that could adversely affect
our results of operations and cash flows.
We have significant manufacturing and sales activities in foreign countries, and our domestic operations have sales to
foreign customers. Our financial results may be affected by fluctuations in foreign currencies and by the translation of
the financial statements of our foreign subsidiaries from local currencies into U.S. dollars, and we may not be able to
adequately or successfully hedge against these risks. In addition, a rise in the dollar against foreign currencies could
make our products more expensive for foreign customers and cause them to reduce the volume of their purchases.
9
Economic, political and other risks of our international operations, including terrorist activities or armed
conflict, could adversely affect our business.
In 2022, approximately 30% of our net sales were to customers outside the United States. Adverse changes in the
political situation in certain foreign countries in which we do business could cause a decline in revenues and adversely
affect our financial condition. For example, our Test segment does significant business in Asia, and changes in the
Asian political climate or political changes in specific Asian countries could negatively affect our business. Several of
our subsidiaries are based in Europe and could be negatively impacted by the ongoing conflict between Russia and
Ukraine. If this conflict were to spread beyond these two countries, we would expect an increasingly unfavorable
impact on our global business environment.
Our international sales are also subject to other risks inherent in foreign commerce, including currency fluctuations
and devaluations, differences in foreign laws, uncertainties as to enforcement of contract or intellectual property rights,
and difficulties in negotiating and resolving disputes with our foreign customers.
Our governmental sales and our international and export operations are subject to special U.S. and foreign
government laws and regulations which may impose significant compliance costs, create reputational and
legal risk, and impair our ability to compete in international markets.
The international scope of our operations subjects us to a complex system of commercial and trade regulations around
the world, and our foreign operations are governed by laws and business practices that often differ from those of the
U.S. In addition, laws such as the U.S. Foreign Corrupt Practices Act and similar laws in other countries increase the
need for us to manage the risks of improper conduct not only by our own employees but by distributors and
contractors who may not be within our direct control. Many of our exports are of products which are subject to U.S.
Government regulations and controls such as the U.S. International Traffic in Arms Regulations (ITAR), which
impose certain restrictions on the U.S. export of defense articles and services, and these restrictions are subject to
change from time to time, including changes in the countries into which our products may lawfully be sold.
If we were to fail to comply with these laws and regulations, we could be subject to significant fines, penalties and
other sanctions including the inability to continue to export our products or to sell our products to the U.S.
Government or to certain other customers. In addition, some of these regulations may be viewed as too restrictive by
our international customers, who may elect to develop their own domestic products or procure products from other
international suppliers which are not subject to comparable export restrictions; and the laws, regulations or policies of
certain other countries may also favor their own domestic suppliers over foreign suppliers such as the Company.
Risks Related to our Manufacturing and Sales Operations and Technology
Disruptions of Our Information Technology Systems, or Information Security and/or Data Privacy Breaches,
Could Adversely Affect Our Business.
We have many information technology systems that are important to the operation of our businesses, some of which
are managed by third parties. These systems are used to obtain, process, transmit and store electronic information and
to manage or support a variety of integral business processes and activities. Our primary and backup computer systems
are vulnerable to damage, disruptions or shutdowns during the process of upgrading or replacing software, databases
or components and from power outages, computer and telecommunication failures, security breaches, natural disasters
and errors by employees. Any failure in the operation of our information technology systems could adversely affect
our businesses or operating results. Although losses arising from some of these issues may be covered by information
security insurance, we cannot guarantee that our coverage will be adequate for all costs or losses incurred.
Global information technology security threats and targeted computer crime are increasing in frequency and
sophistication and pose a risk to the security of our systems and networks and the confidentiality, availability and
integrity of our data and communications. We attempt to mitigate these risks through numerous measures, including
implementation of standard cybersecurity controls, employee training and testing, comprehensive monitoring of our
networks and systems, and maintenance of backup and protective systems. Although we do not believe we have
experienced a material information security breach in the last three years, and we have incurred no fines, settlement
costs or other material expenses related to information security breaches, if we were to experience such a breach it
could adversely affect our reputation and result in litigation, regulatory action, liability for fines, penalties and related
expenses, and costs of implementing additional data protection procedures. In addition, even though we generally do
not conduct business directly with retail or individual customers or consumers we must comply with increasingly
complex and rigorous regulatory standards enacted to protect business and personal data in the U.S. and elsewhere.
Compliance with data privacy laws and regulations increases operational complexity, and failure to comply with legal
10
or regulatory standards could subject us to fines and penalties, as well as legal and reputational risks, including
proceedings against us by governmental entities or others. Although we maintain insurance coverage for data privacy
risks, we cannot guarantee that our coverage will be adequate for all costs or losses incurred.
A significant part of our manufacturing operations depends on a small number of third-party suppliers.
A significant part of our manufacturing operations relies on a small number of third-party manufacturers to supply
component parts or products. For example, Doble has arrangements with six manufacturers which produce and supply
a substantial portion of its end-products, and one of these suppliers produces approximately 23% of Doble’s products
from a single location within the United States. As another example, PTI has a single supplier of critical electronic
components for a significant aircraft production program, and if this supplier were to discontinue producing these
components the need to secure another source could pose a risk to the production program. A significant disruption in
the supply of those products or others provided by a small number of suppliers could negatively affect the timely
delivery of products to customers as well as future sales, which could increase costs and reduce margins.
Certain of our other businesses are dependent upon sole source or a limited number of third-party manufacturers of
parts and components. Many of these suppliers are small businesses. Since alternative supply sources are limited, there
is an increased risk of adverse impacts on our production schedules and profits if our suppliers were to default in
fulfilling their price, quality or delivery obligations. In addition, some of our customers or potential customers may
prefer to purchase from a supplier which does not have such a limited number of sources of supply.
Increases in prices of raw material and components, and decreased availability of such items, could adversely
affect our business.
The cost of raw materials and product components is a major element of the total cost of many of our products. For
example, our Test segment’s critical components rely on purchases of raw materials from third parties. Increases in the
prices of raw materials (such as steel, copper, nickel, zinc, wood and petrochemical products) could have an adverse
impact on our business by, among other things, increasing costs and reducing margins. Aerospace-grade titanium and
gaseous helium, important raw materials for our A&D segment, may at times be in short supply; in addition, although
we try to tie our supplier pricing to long-term contracts this is not always possible, and we are experiencing price
inflation on a number of products. Further, some of Doble’s items of equipment which are provided to its customers
for their use are in the maturity of their life cycles, which creates the risk that replacement components may be
unavailable or available only at increased costs. We have experienced COVID-related short term disruptions in the
supply chain which have periodically resulted in extended lead times and cost increases, and the long term impacts of
these disruptions are uncertain. See also “COVID-19 Related Risks” above.
In addition, our reliance on sole or limited sources of supply of raw materials and components in each of our segments
could adversely affect our business, as described in the preceding Risk Factor. The potential physical impacts of
climate change, such as increased frequency and severity of storms, floods and other climatic events, could disrupt our
supply chain, and cause our suppliers to incur significant costs in preparing for or responding to these effects. These
and other weather-created disruptions in supply, in addition to affecting costs, could impact our ability to procure an
adequate supply of these raw materials and components, and delay or prevent deliveries of products to our customers.
The entire electronics industry is currently disrupted due to limited sources of supply, and we are subject to the same
supply chain risks as other manufacturers of products containing electronic components.
Our inability to timely develop new products could reduce our future sales.
Much of our business is dependent on the continuous development of new products and technologies to meet the
changing needs of our markets on a cost-effective basis. Many of these markets are highly technical from an
engineering standpoint, and the relevant technologies are subject to rapid change. If we fail to timely enhance existing
products or develop new products as needed to meet market or competitive demands, we could lose sales
opportunities, which would adversely affect our business. In addition, in some existing contracts with customers, we
have made commitments to develop and deliver new products. If we fail to meet these commitments, the default could
result in the imposition on us of contractual penalties including termination. Our inability to enhance existing products
in a timely manner could make our products less competitive, while our inability to successfully develop new products
may limit our growth opportunities. Development of new products and product enhancements may also require us to
make greater investments in research and development than we now do, and the increased costs associated with new
product development and product enhancements could adversely affect our operating results. In addition, our costs of
new product development may not be recoverable if demand for our products is not as great as we anticipate it to be.
11
Product defects or customer claims could result in costly fixes, litigation and damages.
Our business exposes us to potential product liability risks that are inherent in the design, manufacture and sale of our
products and the products of third-party vendors which we use or resell, many of which are mission-critical to our
customers. If there are claims related to defective products (under warranty or otherwise), particularly in a product
recall situation, we could be faced with significant expenses in replacing or repairing the product. For example, the
A&D segment obtains raw materials, machined parts and other product components from suppliers who provide
certifications of quality which we rely on. Should these product components be defective and pass undetected into
finished products, or should a finished product contain a defect, we could incur significant costs for repairs, re-work
and/or removal and replacement of the defective product. In addition, if a dispute over product claims cannot be
settled, arbitration or litigation may result, requiring us to incur attorneys’ fees and exposing us to the potential of
damage awards against us.
A major portion of our Test segment’s business involves working in conjunction with general contractors to produce
complex building components constructed on-site, such as electronic test chambers, secure communication rooms and
MRI facilities. If there are performance problems caused by either us or a contractor, they could result in cost overruns
and may lead to a dispute as to which party is responsible. The resolution of such disputes can involve arbitration or
litigation, and can cause us to incur significant expense including attorneys’ fees. In addition, these disputes could
result in a reduction in revenue, a loss on a particular project, or even a significant damages award against us.
Despite our efforts, we may be unable to adequately protect our intellectual property.
Much of our business success depends on our ability to protect and freely utilize our various intellectual properties,
including both patents and trade secrets. Despite our efforts to protect our intellectual property, unauthorized parties or
competitors may copy or otherwise obtain and use our products and technology, particularly in foreign countries such
as China where the laws may not protect our proprietary rights as fully as in the United States. Our current and future
actions to enforce our proprietary rights may ultimately not be successful; or in some cases we may not elect to pursue
an unauthorized user due to the high costs and uncertainties associated with litigation. We may also face exposure to
claims by others challenging our intellectual property rights. Any or all of these actions may divert our resources and
cause us to incur substantial costs.
Environmental laws and regulations or environmental contamination could increase our expenses and
adversely affect our profitability.
Our operations and properties are subject to U.S. and foreign environmental laws and regulations governing, among
other things, the generation, storage, emission, discharge, transportation, treatment and disposal of hazardous materials
and the clean-up of contaminated properties. In addition, governments around the world are increasingly focused on
enacting laws and regulations regarding climate change and regulation of greenhouse gases. These regulations, and
changes to them, could increase our cost of compliance, and our failure to comply could result in the imposition of
significant fines, suspension of production, alteration of product processes, cessation of operations or other actions
which could materially and adversely affect our business, financial condition and results of operations.
We are currently involved as a responsible party in several ongoing investigations and remediations of contaminated
third-party owned properties. In addition, environmental contamination may be discovered in the future on properties
which we formerly owned or operated and for which we could be legally responsible. Future costs associated with
these situations, including ones which may be currently unknown to us, are difficult to quantify but could have a
significant effect on our financial condition. See Item 1, “Business – Environmental Matters” for a discussion of these
factors.
Risks Related to Our Business Strategy and Corporate Structure
Changes in testing standards could adversely impact our Test and USG segments’ sales.
A significant portion of the business of our USG and Test segments involves sales to technology customers who need
to have a third party verify that their products meet specific international and domestic test standards. If regulatory
agencies were to eliminate or reduce certain domestic or international test standards, or if demand for product testing
from these customers were to decrease for some other reason, our sales could be adversely affected. For example, if a
regulatory authority were to relax the test standards for certain electronic devices because they were determined not to
interfere with the broadcast spectrum, or if new wireless communication technologies were developed that required
less testing or different types of testing, our sales of certain testing products could be significantly reduced.
12
We may not be able to identify suitable acquisition candidates or complete acquisitions successfully, which
may inhibit our rate of growth.
As part of our growth strategy, we plan to continue to pursue acquisitions of other companies, assets and product lines
that either complement or expand our existing business. However, we may be unable to implement this strategy if we
are unable to identify suitable acquisition candidates or consummate future acquisitions at acceptable prices and terms.
We expect to face competition for acquisition candidates which may limit the number of acquisition opportunities
available to us and may result in higher acquisition prices. As a result, we may be limited in the number of acquisitions
which we are able to complete and we may face difficulties in achieving the profitability or cash flows needed to
justify our investment in them.
Our acquisitions of other companies carry risk.
Acquisitions of other companies involve numerous risks, including difficulties in the integration of the operations,
technologies and products of the acquired companies, the potential exposure to unanticipated and undisclosed
liabilities, the potential that expected benefits or synergies are not realized and that operating costs increase, the
potential loss of key personnel, suppliers or customers of acquired businesses and the diversion of Management’s time
and attention from other business concerns. Although we attempt to identify and evaluate the risks inherent in any
acquisition, we may not properly ascertain or mitigate all such risks, and our failure to do so could have a material
adverse effect on our business.
We may incur significant costs, experience short-term inefficiencies, or be unable to realize expected long-term
savings from facility consolidations and other business reorganizations.
We periodically assess the cost and operational structure of our facilities in order to manufacture and sell our products
in the most efficient manner, and based on these assessments, we may from time to time reorganize, relocate or
consolidate certain of our facilities. These actions may require us to incur significant costs and may result in short term
business inefficiencies as we consolidate and close facilities and transition our employees; and in addition, we may not
achieve the expected long-term benefits. Any or all of these factors could result in an adverse impact on our operating
results, cash flows and financial condition.
Our inability to hire or retain qualified key employees could affect our performance and revenues.
There is a risk of our losing key employees having engineering and technical expertise. For example, our USG
segment relies heavily on engineers with significant experience and reputation in the utility industry to furnish expert
consulting services and support to customers, and our other segments similarly rely on qualified and experienced
employees to carry on their businesses. Despite our active recruitment efforts, there remains a shortage of these
qualified engineers and other employees because of hiring competition from other companies in the industry and a
generally tight labor market, possibly exacerbated by COVID-related retirements or career changes. Losing current
employees or qualified candidates to other employers or for other reasons could reduce our ability to provide services
and negatively affect our revenues.
Our decentralized organizational structure presents certain risks.
We are a relatively decentralized company in comparison with some of our peers. This decentralization necessarily
places significant control and decision-making powers in the hands of local management, which present various risks,
including the risk that we may be slower or less able to identify or react to problems affecting a key business than we
would in a more centralized management environment. We may also be slower to detect or react to compliance related
problems (such as an employee undertaking activities prohibited by applicable law or by our internal policies), and
Company-wide business initiatives may be more challenging and costly to implement, and the risks of noncompliance
or failures higher, than they would be under a more centralized management structure. Depending on the nature of the
problem or initiative in question, such noncompliance or failure could have a material adverse effect on our business,
financial condition or result of operations.
Provisions in our articles of incorporation, bylaws and Missouri law could make it more difficult for a third
party to acquire us and could discourage acquisition bids or a change of control, and could adversely affect
the market price of our common stock.
Our articles of incorporation and bylaws contain certain provisions which could discourage potential hostile takeover
attempts, including: a limitation on the shareholders’ ability to call special meetings of shareholders; advance notice
requirements to nominate candidates for election as directors or to propose matters for action at a meeting of
13
shareholders; a classified board of directors, which means that approximately one-third of our directors are elected
each year; and the authority of our board of directors to issue, without shareholder approval, preferred stock with such
terms as the board may determine. In addition, the laws of Missouri, in which we are incorporated, require a two-thirds
vote of outstanding shares to approve mergers or certain other major corporate transactions, rather than a simple
majority as in some other states such as Delaware. These provisions could impede a merger or other change of control
not approved by our board of directors, which could discourage takeover attempts and in some circumstances reduce
the market price of our common stock.
Item 1B. Unresolved Staff Comments
None
14
Item 2. Properties
We believe our buildings, machinery and equipment have been generally well maintained, are in good operating
condition and are adequate for our current production requirements and other needs.
At September 30, 2022, our physical properties, including those described in the table below, comprised
approximately 1,618,000 square feet of floor space, of which approximately 757,500 square feet were owned and
approximately 860,500 square feet were leased. The table below includes our principal physical properties. We do not
believe any of the omitted properties, consisting primarily of office and/or warehouse space, are individually or
collectively material to our operations or business. See also Note 14 to the Consolidated Financial Statements.
Approx.
Sq. Ft.
181,500
145,000
130,000
127,400
100,100
100,000
79,300
79,100
77,000
71,400
66,800
63,300
47,300
41,500
38,400
38,100
35,400
28,200
26,900
24,800
21,500
18,000
12,900
11,600
10,700
Owned / Leased (with
Expiration Date)
Leased (9/30/2033)
Leased (9/30/2029, plus options)
Owned
Owned
Owned
Owned
Owned
Leased (2/28/2037)
Owned
Leased (1/31/2029)
Owned
Leased (6/30/2024)
Leased (7/31/2023)
Owned
Leased (8/31/2041)
Leased (11/19/2027)
Owned
Leased (8/13/2028)
Leased (8/31/2025)
Leased (12/31/2023)
Leased (8/31/2025)
Leased (various term ends)
Leased (1/31/2029)
Leased (1/31/2027), plus options
Leased (6/30/2024)
Principal Use(s)
(M=Manufacturing,
E=Engineering, O=Office,
W=Warehouse)
M, E, O,W
M, E, O, W
M, E, O, W
M, E, O, W
M, E, O, W
M, O, W
M, E, O
M, E, O, W
M, E, O, W
M, E, O, W
M, E, O, W
M, O, W
W
M, E, O, W
M, E, O, W
M, E, O
M, O, W
M, E, O, W
M, E, O, W
M, E, O, W
ESCO Corporate Office
M, E, O, W
M, E, O, W
O
E, O
Operating
Segment
A&D
A&D
Test
A&D
A&D
Test
A&D
USG
USG
A&D
USG
A&D
A&D
Test
USG
Test
Test
USG
USG
A&D
Corporate
USG
USG
USG
Test
Location
Modesto, CA
Denton, TX
Cedar Park, TX
Oxnard, CA
South El Monte, CA
Durant, OK
Valencia, CA
Marlborough, MA
Hinesburg, VT
Stoughton, MA
Accident, MD
South El Monte, CA
Brockton, MA
Eura, Finland
Montreal, Québec
Tianjin, China
Minocqua, WI
Bologna, Italy
Ontario, CA
Chatsworth, CA
St. Louis, MO
Taino, Italy
Zola Predosa, Italy
Morrisville, NC
Wood Dale, IL
____________
15
Item 3. Legal Proceedings
As a normal incident of the businesses in which we are engaged, various claims, charges and litigation are asserted or
commenced from time to time against us. With respect to claims and litigation currently asserted or commenced
against us, it is the opinion of our Management that final judgments, if any, which might be rendered against us are
adequately reserved for, are covered by insurance, or are not likely to have a material adverse effect on our financial
condition or results of operations. Nevertheless, given the uncertainties of litigation, it is possible that certain types of
claims, charges and litigation could have a material adverse impact on us; see Item 1A, “Risk Factors.”
Item 4. Mine Safety Disclosures
Not applicable.
16
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Holders of Record. As of November 7, 2022, there were approximately 1,808 holders of record of our common
stock.
Price Range of Common Stock and Dividends. Our common stock is listed on the New York Stock Exchange; its
trading symbol is “ESE”.
Company Purchases of Equity Securities. For information about our common stock repurchase programs, please
refer to Note 9 to the Consolidated Financial Statements. We did not repurchase any shares of our common stock
during the fourth quarter of fiscal 2022.
Securities Authorized for Issuance Under Equity Compensation Plans. For information about securities
authorized for issuance under our equity compensation plans, please refer to Item 12 of this Form 10-K and to Note
10 to the Consolidated Financial Statements.
Performance Graph. The graph and table on the following page present a comparison of the cumulative total
shareholder return on our common stock as measured against the cumulative total returns of the Russell 2000 index,
which is a broad equity market index, and the S&P SmallCap 600 Industrials index, which is a published industry
index designed to measure the performance of small-cap companies that are classified as members of the GICS
Industrials sector. The Company is a component of both the Russell 2000 index and the S&P SmallCap 600 Industrials
index.
The measurement period begins on September 30, 2017 and measures at each September 30 thereafter. These figures
assume that all dividends, if any, paid over the measurement period were reinvested, and that the starting values of
each index and the investments in our common stock were $100 at the close of trading on September 30, 2017.
17
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among ESCO Technologies Inc., the Russell 2000 Index,
and the S&P SmallCap 600 Industrials Index
180.00
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
9/17
9/18
9/19
9/20
9/21
9/22
ESCO Technologies Inc.
Russell 2000 Index
S&P SmallCap 600 Industrials Index
ESCO Technologies Inc.
Russell 2000 Index
S&P Small Cap 600 Industrials Index
9/30/17
$100.00
100.00
100.00
9/30/18
$114.13
115.24
121.53
9/30/19
$134.04
104.99
112.63
9/30/20
$136.42
105.40
105.97
9/30/21
$130.83
155.66
155.41
9/30/22
$125.19
119.08
134.57
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto
and refers to our results from continuing operations except where noted.
Selected financial information for each of our business segments is provided in the discussion below and in Note 12 to
the Company’s Consolidated Financial Statements.
This section includes comparisons of certain 2022 financial information to the same information for 2021. Year-to-
year comparisons of the 2021 financial information to the same information for 2020 are contained in Item 7 of our
Form 10-K for 2021 filed with the Securities and Exchange Commission on November 29, 2021 and available through
the SEC’s website at https://www.sec.gov/edgar/searchedgar/companysearch.html.
Introduction
We classify our business operations into three segments for financial reporting purposes, although for reporting certain
financial information we treat Corporate activities as a separate segment. Our three operating segments during 2022
were Aerospace & Defense (A&D), Utility Solutions Group (USG), and RF Shielding and Test (Test). Our operating
segments are comprised of the following primary operating subsidiaries:
A&D: PTI Technologies Inc. (PTI); VACCO Industries (VACCO); Crissair, Inc. (Crissair); Westland
Technologies, Inc. (Westland); Mayday Manufacturing Co. (Mayday); Globe Composite Solutions, LLC
(Globe); and Networks Electronic Co. (NEco).
18
USG: Doble Engineering Company, I.S.A. – Altanova Group S.r.l. and affiliates (Altanova) and Morgan
Schaffer Ltd. (collectively, Doble); and NRG Systems, Inc. (NRG).
Test: ETS-Lindgren Inc. (ETS-Lindgren).
A&D. PTI, VACCO and Crissair primarily design and manufacture specialty filtration products, including hydraulic
filter elements and fluid control devices used in commercial aerospace applications, unique filter mechanisms used in
micro-propulsion devices for satellites and custom designed filters for manned aircraft and submarines. Westland and
Globe design, develop and manufacture elastomeric-based signature reduction solutions for U.S. naval vessels.
Mayday designs and manufactures mission-critical bushings, pins, sleeves and precision-tolerance machined
components for landing gear, rotor heads, engine mounts, flight controls, and actuation systems for the aerospace and
defense industries.
USG. Doble develops, manufactures and delivers diagnostic testing solutions that enable electric power grid operators
to assess the integrity of high-voltage power delivery equipment. NRG designs and manufactures decision support
tools for the renewable energy industry, primarily wind and solar.
Test. ETS-Lindgren is an industry leader in providing its customers with the ability to identify, measure and contain
magnetic, electromagnetic and acoustic energy.
We continue to operate with meaningful growth prospects in our primary served markets and with considerable
financial flexibility. We continue to focus on new products that incorporate proprietary design and process
technologies. Our Management is committed to delivering shareholder value through organic growth, ongoing
performance improvement initiatives, and acquisitions.
In December 2019, we sold the businesses comprising our former Technical Packaging segment. We received net
proceeds from the sale of approximately $184 million and recorded $76.5 million of after-tax net earnings on the sale
in 2020. The Technical Packaging segment is reflected as discontinued operations in the Consolidated Financial
Statements and related notes for all periods presented, in accordance with accounting principles generally accepted in
the United States of America (GAAP). See Note 3 to the Consolidated Financial Statements for further discussion.
Highlights of 2022
Sales, net earnings and diluted earnings per share in 2022 were $857.5 million, $82.3 million and $3.16 per
share, respectively, compared to sales, net earnings and diluted earnings per share in 2021 of $715.4 million,
$63.5 million and $2.42 per share, respectively.
Diluted EPS – GAAP for 2022 was $3.16, compared to Diluted EPS – GAAP for 2021 of $2.42.
Diluted EPS – As Adjusted for 2022 was $3.21 excluding $1.3 million of pretax charges (or $0.05 per shares
after tax), consisting of Altanova and NEco purchase accounting adjustments, severance charges primarily at
VACCO and NRG, and acquisition and management transition costs at Corporate. Diluted EPS – As
Adjusted for 2021 was $2.59 excluding $6.0 million of pretax charges (or $0.17 per share after tax) consisting
of one-time compensation and acquisition related costs at Corporate; restructuring costs within the USG
segment, primarily facility consolidation charges; purchase accounting adjustments related to the Phenix and
Altanova acquisitions, primarily inventory step-up charges; partially offset by the final settlement from the
sale of the Doble Watertown facility. See “Non-GAAP Financial Measures” below.
(Dollars in millions)
Diluted EPS – GAAP
One time compensation & acquisition related costs
Restructuring adjustments
Purchase accounting adjustments
Gain on building sale
Diluted EPS – As Adjusted
$
$
Fiscal year ended
2022
3.16
0.02
0.01
0.02
–
3.21
2021
2.42
0.12
0.08
0.03
(0.06 )
2.59
Net cash provided by operating activities was $135.3 million in 2022 compared to $123.1 million in 2021.
At September 30, 2022, cash on hand was $97.7 million and outstanding debt was $153.0 million, for a net
debt position (total debt less cash on hand) of approximately $55.3 million.
19
Entered orders for 2022 were $960.5 million resulting in a book-to-bill ratio of 1.12x. Backlog at September
30, 2022 was $695.0 million compared to $592.0 million at September 30, 2021.
The Company declared dividends of $0.32 per share during 2022, totaling $8.3 million in dividend payments.
Results of Operations
Net Sales
(Dollars in millions)
A&D
USG
Test
Total
Fiscal year ended
2022
351.4
278.4
227.7
857.5
$
$
2021
314.8
202.9
197.7
715.4
Change
2022
vs. 2021
11.6 %
37.2 %
15.2 %
19.9 %
Net sales increased $142.1 million, or 19.9%, to $857.5 million in 2022 from $715.4 million in 2021. The increase in
net sales in 2022 as compared to 2021 was mainly due to a $75.5 million increase in the USG segment, a $36.6 million
increase in the A&D segment, and a $30.0 million increase in the Test segment. Organic sales increased $90 million
and recent acquisitions added approximately $52 million of revenue growth in 2022 as compared to 2021.
A&D.
The $36.6 million, or 11.6%, increase in net sales in 2022 as compared to 2021 was mainly due to a $16.4 million
increase in net sales at PTI (including $5.2 million from NEco), a $14.1 million increase in net sales at Mayday, both
primarily due to an increase in commercial aerospace sales driven by the rebound from the COVID-19 pandemic; a
$3.0 million increase in net sales at Westland driven by timing of navy defense projects, a $1.5 million increase in net
sales at VACCO, a $0.9 million increase in net sales at Crissair and a $0.7 million increase in net sales at Globe.
USG.
The $75.5 million, or 37.2%, increase in net sales in 2022 as compared to 2021 was mainly due to a $46.9 million
increase in net sales from the 2021 acquisitions of Altanova and Phenix, a $20 million increase in core Doble products
and services; and a $8.2 million increase in net sales at NRG driven by renewable energy products.
Test.
The $30.0 million, or 15.2%, increase in net sales in 2022 as compared to 2021 was mainly due to a $22.3 million
increase in net sales from the Company’s U.S. operations, $11.5 million increase in net sales from the Company’s
Asian operations both driven by increased medical and industrial shielding and power filter demand, partially offset by
a $3.8 million decrease in net sales from the Company’s European operations, primarily driven by the timing of test
and measurement chamber projects.
Orders and Backlog
New orders received were $960.5 million in 2022 and $796.3 million in 2021. Order backlog was $695.0 million at
September 30, 2022, compared to order backlog of $592.0 million at September 30, 2021. Orders are entered into
backlog as firm purchase order commitments are received.
By operating segment, 2022 orders were $392.5 million related to A&D products, $314.9 million related to USG
products, and $253.1 million related to Test products; and 2021 orders were $337.4 million related to A&D products,
$243.9 million related to USG products (including $29 million of acquired backlog), and $215.0 million related to
Test products.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses were $195.1 million, or 22.7% of net sales, in 2022, and $167.5
million, or 23.4% of net sales, in 2021. The increase in SG&A expenses in 2022 as compared to 2021 was mainly due
to higher expenses at Doble as a result of the SG&A expenses from the Altanova and Phenix acquisitions and the
return of discretionary spending to more normal levels (travel, events, etc.) as COVID-19 pandemic related restrictions
eased.
20
Amortization of Intangible Assets
Amortization of intangible assets was $25.9 million in 2022 and $20.8 million in 2021, including $19.3 million and
$14.3 million of amortization of acquired intangible assets in 2022 and 2021, respectively, related to our acquisitions.
The amortization of acquired intangible assets related to acquisitions is included in the Corporate segment’s results.
The remaining amortization expenses relate to other identifiable intangible assets (primarily software, patents and
licenses), which are included in the respective segment’s operating results. The increase in amortization expense in
2022 as compared to 2021 was mainly due to the Company’s recent acquisitions of Phenix, Altanova and NEco.
Other Income or Expenses, Net
Other income, net, was $0.3 million in 2022, compared to other income, net, of $0.9 million in 2021. There were no
individually significant items in other income, net in 2022. The principal components of other income, net, in 2021
included a gain of approximately $2 million for the final settlement on the sale of the Doble Watertown, MA
property, partially offset by facility consolidation charges within the USG segment (Doble Manta, Morgan Schaffer
and Altanova facilities).
Non-GAAP Financial Measures
The information reported herein includes the financial measures Diluted EPS As Adjusted, which we define as Diluted
EPS excluding the per-share impact of discrete compensation and acquisition related costs, severance charges
primarily within the A&D segment, and purchase accounting charges related to the Company’s recent acquisitions
(Altanova and NEco) in 2022; the per-share net impact of discrete compensation and acquisition related costs, facility
consolidation charges within the USG segment, and purchase accounting charges related to the Company’s recent
acquisitions in 2021, partially offset by a gain on the final installment of the Doble Watertown, MA property sale; and
pension plan termination charge and restructuring charges related to our facility consolidation restructuring plans in
2020; EBIT, which we define as earnings before interest and taxes; and EBIT margin, which we define as EBIT
expressed as a percentage of net sales. Diluted EPS – Continuing Operations As Adjusted, EBIT on a consolidated
basis, and EBIT margin on a consolidated basis are not recognized in accordance with U.S. generally accepted
accounting principles (GAAP). However, we believe that EBIT and EBIT margin provide investors and Management
with valuable information for assessing our operating results. Management evaluates the performance of our operating
segments based on EBIT and believes that EBIT is useful to investors to demonstrate the operational profitability of
our business segments by excluding interest and taxes, which are generally accounted for across the entire company on
a consolidated basis. EBIT is also one of the measures Management uses to determine resource allocations and
incentive compensation. We believe that the presentation of EBIT, EBIT margin and Diluted EPS – Continuing
Operations As Adjusted provides important supplemental information to investors by facilitating comparisons with
other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. The use
of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance
with GAAP.
EBIT
The reconciliation of EBIT to a GAAP financial measure is as follows:
(Dollars in millions)
EBIT
Less: Interest expense, net
Less: Income tax expense
Net earnings
2022
111.3
(4.9 )
(24.1 )
82.3
$
$
2021
82.9
(2.2 )
(17.2 )
63.5
21
EBIT by business segment is as follows:
(Dollars in millions)
A&D
% of net sales
USG
% of net sales
Test
% of net sales
Corporate
Total
% of net sales
A&D
Fiscal year ended
$
$
2022
68.4
19.5 %
57.6
20.7 %
32.6
14.3 %
(47.3 )
111.3
13.0 %
2021
56.5
17.9 %
40.9
20.2 %
27.6
14.0 %
(42.1 )
82.9
11.6 %
Change
2022
vs. 2021
21.1 %
40.8 %
18.1 %
(12.4) %
34.3 %
The $11.9 million, or 21.1%, increase in EBIT in 2022 as compared to 2021 was primarily due to higher sales
volumes, favorable product mix and price increases at Mayday, Westland, PTI and Globe partially offset by a decrease
in EBIT at Crissair and VACCO due to product mix and inflationary pressures. EBIT in 2022 was negatively impacted
by a $0.3 million inventory step-up charge related to the NEco acquisition and $0.4 million of severance charges
primarily at VACCO.
USG
The $16.7 million, or 40.8%, increase in EBIT in 2022 as compared to 2021 was mainly due to higher sales volumes at
Doble and NRG with a favorable product mix and price increases, partially offset by inflationary pressures and
increased travel and event costs. EBIT in 2022 was negatively impacted by approximately $0.5 million of inventory
step-up charges related to the Altanova acquisition.
Test
The $5.0 million, or 18.1%, increase in EBIT in 2022 as compared to 2021 was primarily due to leverage on higher
sales volumes and price increases mainly from the segment’s Asian and U.S. operations partially offset by material
cost and wage inflation.
Corporate
Corporate operating charges included in 2022 consolidated EBIT increased to $47.3 million as compared to $42.1
million in 2021 mainly due to an increase in amortization expense of acquired intangible assets related to the
Company’s recent acquisitions of Phenix, Altanova and NEco.
The “Reconciliation to Consolidated Totals (Corporate)” in Note 12 to the Consolidated Financial Statements
represents Corporate office operating charges.
Interest Expense, Net
Interest expense, net was $4.9 million and $2.3 million in 2022 and 2021, respectively. The increase in interest
expense in 2022 was mainly due to higher average outstanding borrowings and higher average interest rates. Average
outstanding borrowings were $190 million in 2022 compared to $71 million in 2021. The weighted average interest
rates were 2.11% in 2022 compared to 1.20% in 2021.
Income Tax Expense
The effective tax rates from continuing operations for 2022, 2021 and 2020 were 22.7%, 21.3% and 37.1%,
respectively. The increase in the 2022 effective tax rate as compared to 2021 was due an increase in state income tax
expense and a reduction in research credit benefits, increasing the rate by 1.0% and 0.6%, respectively.
No provision has been made in 2022 for foreign withholding of any applicable U.S. income taxes on the undistributed
earnings of non-U.S. subsidiaries where these earnings are considered indefinitely invested or otherwise retained for
continuing international operations. Determination of the amount of taxes that might be paid on these undistributed
earnings if eventually remitted is not practicable.
22
Acquisitions and Divestiture
Information regarding our acquisitions and divestiture during 2022, 2021 and 2020 is set forth in Notes 2 and 3 to the
Consolidated Financial Statements, which Notes are incorporated by reference herein.
All of our acquisitions have been accounted for using the purchase method of accounting, and accordingly, the
respective purchase prices were allocated to the assets (including intangible assets) acquired and liabilities assumed
based on estimated fair values at the date of acquisition. The financial results from these acquisitions have been
included in our financial statements from the date of acquisition.
Capital Resources and Liquidity
Our overall financial position and liquidity are strong. Working capital (current assets less current liabilities)
increased to $254.5 million at September 30, 2022 from $191.2 million at September 30, 2021. Accounts receivable
increased by $18.3 million during 2022 mainly due to a $10.4 million increase within the USG segment, a $4.7
million increase within the Test segment and a $3.2 million increase within the A&D segment, driven by timing and
higher sales volumes in the current year. Inventories increased by $15.3 million during 2022 mainly due to a $7.9
million increase within the Test segment and an $8.7 million increase within the USG segment resulting primarily
from the timing of receipt of raw materials to meet anticipated demand and an increase in work in process inventories
due to timing of manufacturing existing orders. Accounts payable increased by $22.1 million during 2022 mainly due
to a $9.6 million increase within the Test segment, a $7.1 million increase within the A&D segment and a $4.2
million increase within the USG segment, due to the timing of payments.
Net cash provided by operating activities was $135.3 million in 2022 and $123.1 million in 2021.
Net cash used in investing activities was $55.9 million in 2022 and $202.4 million in 2021. The decrease in net cash
used in investing activities in 2022 as compared to 2021 was mainly due to a decrease in amounts spent on
acquisitions in 2022. Capital expenditures were $32.1 million in 2022 and $26.7 million in 2021. The increase in
2022 as compared to 2021 was mainly due to the purchase of the NRG building of approximately $10 million in the
first quarter of 2022. In addition, the Company incurred expenditures for capitalized software of $12.9 million in
2022 and $8.8 million in 2021.
There were no commitments outstanding that were considered material for capital expenditures at September 30,
2022.
Net cash used by financing activities was $32 million in 2022 compared to net cash provided by financing activities
of $81.5 million in 2021, primarily due to lower borrowings in the current year and repurchases of common stock
into treasury.
Bank Credit Facility
A description of our credit facility (the “Credit Facility”) is set forth in Note 8 to the Consolidated Financial
Statements, which Note is incorporated by reference herein.
Cash flow from operations and borrowings under the Credit Facility is expected to provide adequate resources to meet
our capital requirements and operational needs both for the next 12 months and for the foreseeable future.
Dividends
During both 2022 and 2021 we paid a regular quarterly cash dividend at an annual rate of $0.32 per share, totaling
$8.3 million in both 2022 and 2021.
Off-Balance-Sheet Arrangements
We had no off-balance-sheet arrangements outstanding at September 30, 2022.
Share Repurchases
During 2022, the Company repurchased approximately 257,500 shares for approximately $20.0 million.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP)
requires Management to make estimates and assumptions in certain circumstances that affect amounts reported in the
Consolidated Financial Statements. In preparing these financial statements, Management has made its best estimates
and judgments of certain amounts included in the Consolidated Financial Statements, giving due consideration to
23
materiality. We do not believe there is a great likelihood that materially different amounts would be reported under
different conditions or using different assumptions related to the accounting policies described below. However,
application of these accounting policies involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these estimates. Our senior Management discusses the
critical accounting policies described below with the Audit and Finance Committee of our Board of Directors on a
periodic basis.
The following discussion of critical accounting policies is intended to bring to the attention of readers those accounting
policies which Management believes are critical to the Consolidated Financial Statements and other financial
disclosure. It is not intended to be a comprehensive list of all significant accounting policies that are more fully
described in Note 1 to the Consolidated Financial Statements.
Revenue Recognition
We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. The unit of
account in ASC Topic 606 is a performance obligation. The transaction price for our contracts represents our best
estimate of the consideration we will receive and includes assumptions regarding variable consideration, as applicable,
which are based on historical, current and forecasted information. The transaction price is allocated to each distinct
performance obligation within the contract and recognized as revenue when, or as, the performance obligation is
satisfied. 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. The estimated amounts are
based on an assessment of our anticipated performance and all other information that is reasonably available to us.
Approximately 60% of the A&D segment’s revenue (25% of consolidated revenue) is recognized over time as the
products do not have an alternative use and either we have an enforceable right to payment for costs incurred plus a
reasonable margin or the inventory is owned by the customer. Selecting the method to measure progress towards
completion for our contracts requires judgment and is based on the nature of the products or services to be provided.
The A&D segment generally uses the cost-to-cost method to measure progress on our contracts, as the rate at which
costs are incurred to fulfill a contract best depicts the transfer of control to the customer. Under this method, we
measure the extent of progress towards completion based on the ratio of costs incurred to date to the estimated costs at
completion of the performance obligation, and we record revenue proportionally as costs are incurred based on an
estimated profit margin.
The Test segment generally uses the milestone output method to measure progress on our contracts because it best
depicts the transfer of control to the customer that occurs as we incur costs on our contracts. Under this method, we
estimate profit as the difference between total revenue and total estimated costs at completion of a contract and
recognize these revenues and costs based on milestones achieved.
Total contract cost estimates are based on current contract specifications and expected engineering requirements and
require us to make estimates on expected profit. The estimates on profit are based on judgments we make to project the
outcome of future events, and can often span more than one year and include labor productivity and availability, the
complexity of the work to be performed, change orders issued by our customers, and other specialized engineering and
production related activities. Our cost estimation process is based on historical results of contracts and historical
actuals to original estimates, and the application of professional knowledge and experience of engineers and program
managers along with finance professionals to these historical results. We review and update our estimates of costs
quarterly or more frequently when circumstances significantly change, which can affect the profitability of our
contracts.
For contracts where revenue is recognized over time, we 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. We
have net revenue recognized in the current year from performance obligations satisfied in the prior year due to changes
in our estimated costs to complete the related performance obligations. We recognize anticipated losses on contracts in
full in the period in which the losses become known.
The impact of adjustments in contract estimates on our operating earnings can be reflected in either revenue or
operating costs and expenses. The aggregate impact of adjustments in contract estimates decreased our earnings before
income tax and diluted earnings per share by $0.9 million and $0.03 per share, respectively, in 2022.
24
Income Taxes
We operate in numerous taxing jurisdictions and are subject to examination by various U.S. Federal, state and foreign
jurisdictions for various tax periods. Our income tax positions are based on research and interpretations of the income
tax laws and rulings in each of the jurisdictions in which we do business. Due to the subjectivity of interpretations of
laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions, as well as
the inherent uncertainty in estimating the final resolution of complex tax audit matters, Management’s estimates of
income tax liabilities may differ from actual payments or assessments.
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. We may reduce deferred tax assets by a valuation allowance if it is more likely than not that some
portion of the deferred tax assets will not be realized. We recognize the effect on deferred tax assets and liabilities of a
change in tax rates in income in the period that includes the enactment date. We regularly review our deferred tax
assets for recoverability and establish a valuation allowance when Management believes it is more likely than not such
assets will not be recovered, taking into consideration historical operating results, expectations of future earnings, tax
planning strategies, and the expected timing of the reversals of existing temporary differences.
Goodwill and Other Long-Lived Assets
Our Management annually reviews goodwill and other long-lived assets for impairment or whenever events or changes
in circumstances indicate the carrying amount may not be recoverable. If we determine that the carrying value of the
goodwill and other long-lived assets may not be recoverable, we record a permanent impairment charge for the amount
by which the carrying value of the goodwill and other long-lived assets exceeds its fair value. We measure fair value
based on a discounted cash flow method using a discount rate determined by Management to be commensurate with
the risk inherent in each of our reporting units’ or asset groups’ current business models. Our estimates of cash flows
and discount rate are subject to change due to the economic environment, including such factors as interest rates,
expected market returns and volatility of markets served. We believe that Management’s estimates of future cash flows
and fair value are reasonable; however, changes in estimates could result in impairment charges. At September 30,
2022 we have determined that no goodwill or other long-lived assets were impaired.
We amortize intangible assets with estimable useful lives over their respective estimated useful lives to their estimated
residual values, and review them for impairment whenever events or changes in business circumstances indicate the
carrying value of the assets may not be recoverable.
Other Matters
Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency
exchange rates. We are exposed to market risk related to changes in interest rates, and we selectively use derivative
financial instruments, including forward contracts and swaps, to manage these risks. Our Canadian subsidiary Morgan
Schaffer has entered into foreign exchange contracts to manage foreign currency risk, because a portion of their
revenue is denominated in U.S. dollars. We report all derivative instruments on our balance sheet at fair value. For
derivative instruments designated as cash flow hedges, we defer the gain or loss on the derivative in accumulated
other comprehensive income until recognized in earnings with the underlying hedged item.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated by reference to the Consolidated Financial Statements of the
Company, the Notes thereto, and the related Reports of Independent Registered Public Accounting Firm of Grant
Thornton LLP and KPMG LLP, as set forth in the Financial Information section of this Annual Report, an Index to
which is provided on page F-1.
25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not Applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer (“Certifying Officers”) carried out an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of September
30,2022. The evaluation was conducted under the supervision and with the participation of the Company’s
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, using the Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Disclosure controls and procedures are designed to ensure that information required to be
disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based
upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective as of September 30, 2022.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s Management, with participation of the
Certifying Officers, under the oversight of our Board of Directors, evaluated the effectiveness of the Company’s
internal control over financial reporting as of September 30, 2022 using the framework in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Because of its inherent limitations, any system of internal control over financial reporting, no matter how
well designed, may not prevent or detect misstatement due to the possibility that a control can be circumvented or
overridden or that misstatements due to error or fraud may occur that are not detected. Also, because of changes in
conditions, internal control effectiveness may vary over time.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30,
2022, using criteria established in Internal Control – Integrated Framework (2013) issued by COSO and concluded that
the Company maintained effective internal control over financial reporting as of September 30, 2022, based on these
criteria.
Our internal control over financial reporting as of September 30, 2022, has been audited by Grant Thornton, an
independent registered public accounting firm, as stated in its report which is included herein.
Changes in Internal Control Over Financial Reporting
No changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) occurred during the fiscal quarter ended September 30, 2022, that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Not applicable.
26
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our directors, nominees and nominating procedures, Code of Ethics, Audit and Finance
Committee, and non-compliance (if any) with Section 16(a) of the Securities Exchange Act of 1934 is hereby
incorporated by reference to the sections captioned “Proposal 1: Election of Directors” and “Securities Ownership
of Directors and Executive Officers” in the 2022 Proxy Statement.
Information regarding our executive officers is set forth in Item 1, “Business – Information about our Executive
Officers,” above.
Item 11. Executive Compensation
Information regarding our compensation committee and director and executive officer compensation is hereby
incorporated by reference to the sections captioned “Committees – Compensation Committee Interlocks and Insider
Participation,” “Director Compensation” and “Proposal 3: Advisory Vote to Approve Executive Compensation” in the
2022 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information regarding the beneficial ownership of our common stock by our directors, director nominees and
executive officers individually and as a group, and by any known holder of five percent or more of the common stock,
is hereby incorporated by reference to the sections captioned “Securities Ownership of Directors and Executive
Officers” and “Securities Ownership of Certain Beneficial Owners” in the 2022 Proxy Statement.
Information regarding shares of our common stock issued or issuable under our equity compensation plans is hereby
incorporated by reference to the section captioned “Other Equity Compensation Plan Information” in the 2022 Proxy
Statement.
Item 13. Certain Relationships and Related Transactions and Director Independence
Information regarding transactions with related parties and the independence of our directors, nominees for directors
and members of the committees of our board of directors is hereby incorporated by reference to the section captioned
“Proposal 1: Election of Directors” in the 2022 Proxy Statement.
Item 14. Principal Accountant Fees and Services
Information regarding our independent registered public accounting firm, its fees and services, and our Audit and
Finance Committee’s pre-approval policies and procedures regarding such fees and services, is hereby incorporated by
reference to the section captioned “Proposal 5: Ratification of Appointment of Independent Registered Pubic
Accounting Firm” in the 2022 Proxy Statement.
27
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as a part of this Report:
(1) Financial Statements. The Consolidated Financial Statements of the Company, and the Report of
Independent Registered Public Accounting Firm thereon of KPMG LLP, are included in this Report
beginning on page F-1; an Index thereto is set forth on page F-1.
(2) Financial Statement Schedules. Financial Statement Schedules are omitted because either they are not
applicable or the required information is included in the Consolidated Financial Statements or the Notes
thereto.
(3) Exhibits. The following exhibits are filed with this Report or incorporated herein by reference to the
document location indicated:
Exhibit No.
Description
Document Location
3.1(a)
Restated Articles of Incorporation
3.1(b)
Amended Certificate of Designation, Preferences and
Rights of Series A Participating Cumulative Preferred
Stock
Exhibit 3(a) to the Company’s Form 10-K for the
fiscal year ended September 30, 1999
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 to Articles of Incorporation, effective
Exhibit 3.1 to the Company’s Form 8-K filed
3.2
3.3
February 5, 2018
Bylaws
February 7, 2018
Exhibit 3.1 to the Company’s Form 8-K filed
November 19, 2019
Bylaws, as amended and restated effective as of
Exhibit 3.1 to the Company’s Form 8-K filed
January 1, 2023
November 22, 2022
4.1(a)
Description of Common Stock
Exhibit 4.1(a) to the Company’s Form 10-K for the
fiscal year ended September 30, 2019
4.1(b)
Specimen revised Common Stock Certificate
Exhibit 4.1 to the Company’s Form 10-Q for the
fiscal quarter ended March 31, 2010
4.2
Credit Agreement dated September 27, 2019,
Exhibit 10.1 to the Company’s Form 8-K filed
incorporated by reference to Exhibit 10.1 hereto
September 30, 2019
10.1
Credit Agreement dated as of September 27, 2019
Exhibit 10.1 to the Company’s Form 8-K filed
among ESCO Technologies Inc., the Foreign
Subsidiary Borrowers party thereto, the Lenders party
thereto, JPMorgan Chase Bank, N.A. as Administrative
Agent, BMO Harris Bank N.A. as Syndication Agent,
and Bank of America, N.A., SunTrust Bank, U.S. Bank
National Association and Wells Fargo Bank, National
Association as Co-Documentation Agents
September 30, 2019
10.2
Form of Indemnification Agreement with each of
Exhibit 10.1 to the Company’s Form 10-K for the
ESCO’s non-employee directors
fiscal year ended September 30, 2012
10.3(a)
* First Amendment to the ESCO Electronics Corporation
Supplemental Executive Retirement Plan, effective
August 2, 1993 (comprising restatement of entire Plan)
Exhibit 10.2(a) to the Company’s Form 10-K for the
fiscal year ended September 30, 2012
10.3(b)
* Second Amendment to Supplemental Executive
Exhibit 10.4 to the Company’s Form 10-K for the
Retirement Plan, effective May 1, 2001
fiscal year ended September 30, 2001
28
Exhibit No.
Description
Document Location
10.3(c)
* Form of Supplemental Executive Retirement Plan
Exhibit 10.28 to the Company’s Form 10-K for the
Agreement
fiscal year ended September 30, 2002
10.4
10.5(a)
* Directors’ Extended Compensation Plan, adopted
effective October 11, 1993, restated to include all
amendments through August 7, 2013 (current as of
November 2021)
* Compensation Plan For Non-Employee Directors, as
amended and restated to reflect all amendments
through December 8, 2020
Exhibit 10.5 to the Company’s Form 10-K for the
fiscal year ended September 30, 2019
Exhibit 10.1 to the Company’s Form 8-K filed
December 9, 2020
10.5(b)
* Sub-Plan for Compensation of Non-Employee Directors
Exhibit 10.1 to the Company’s Form 10-Q filed
under 2018 Omnibus Incentive Plan
May 10, 2022
10.5(c)
* Form of Director Share Award Agreement
Exhibit 10.2 to the Company’s Form 10-Q filed
(Non-Employee Director)
May 10, 2022
10.6(a)
* 2018 Omnibus Incentive Plan
Exhibit 10.1 to the Company’s Form 8-K filed
February 6, 2018
10.6(b)
* 2018 Omnibus Incentive Plan as Amended and
Exhibit 10.3 to the Company’s Form 8-K filed
Restated November 17, 2020
November 19, 2020
10.7(a)
10.7(b)
10.7(c)
* Form of 2020-21 Awards of Performance-Accelerated
Restricted Shares under 2018 Omnibus Incentive Plan
Exhibit 10.1 to the Company’s Form 10-Q filed
August 9, 2021
* Form of Restricted Share Unit Awards to Executive
Officers under 2018 Omnibus Incentive Plan (2021)
* Form of Restricted Share Unit Awards to Executive
Officers under 2018 Omnibus Incentive Plan (2022)
Exhibit 10.2 to the Company’s Form 10-Q filed
August 9,2021
Exhibit 10.1 to the Company’s Form 10-Q filed
August 9,2022
10.7(d)
* Form of Performance Share Unit Awards to Executive
Exhibit 10.1 to the Company’s Form 10-Q filed
Officers under 2018 Omnibus Incentive Plan
February 7, 2022
10.8(a)
Eighth Amendment and Restatement of Employee
Stock Purchase Plan, effective August 2, 2018
Exhibit 10.7 to the Company’s Form 10-K for the
fiscal year ended September 30, 2018
10.8(b)
Ninth Amendment and Restatement of Employee Stock
Exhibit 10.1 to the Company’s Form 8-K filed
Purchase Plan, effective February 5, 2019
February 7, 2019
10.9
* Performance Compensation Plan for Corporate,
Exhibit 10.1 to the Company’s Form 8-K filed
Subsidiary and Division Officers and Key Managers,
adopted August 2, 1993, as amended and restated
through February 4, 2019
November 19, 2019
10.10
* Compensation Recovery Policy, adopted effective
Exhibit 10.6 to the Company’s Form 8-K filed
February 4, 2010
February 10, 2010
10.11
* Fourth Amended and Restated Severance Plan dated
Exhibit 10.2 to the Company’s Form 8-K filed
November 17, 2020
November 19, 2020
10.12
* Employment and Compensation Agreement with Victor
Exhibit 10.3 to the Company’s Form 10-Q filed
L. Richey effective May 10, 2021
August 9, 2021
10.13
* Employment and Compensation Agreement with
Christopher L. Tucker effective April 30, 2021
Exhibit 10.4 to the Company’s Form 10-Q filed
August 9, 2021
10.14
* Employment and Compensation Agreement with David
Exhibit 10.5 to the Company’s Form 10-Q filed
M. Schatz effective April 30, 2021
21
Subsidiaries of the Company
August 9, 2021
Filed herewith
29
Exhibit No.
Description
Document Location
23
31.1
31.2
32
Consent of Independent Registered Public Accounting
Filed herewith
Firm
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Filed herewith
Filed herewith
** Certification of Chief Executive Officer and
Furnished herewith
Chief Financial Officer
101.INS
*** Inline XBRL Instance Document
101.SCH
*** Inline XBRL Schema Document
Submitted herewith
Submitted herewith
101.CAL
*** Inline XBRL Calculation Linkbase Document
Submitted herewith
101.LAB
*** Inline XBRL Label Linkbase Document
Submitted herewith
101.PRE
*** Inline XBRL Presentation Linkbase Document
Submitted herewith
101.DEF
*** Inline XBRL Definition Linkbase Document
Submitted herewith
104
*** Cover Page Inline Interactive Data File
Submitted herewith
(contained in Exhibit 101)
-----------
*
Indicates a management contract or compensatory plan or arrangement.
** Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.
*** Exhibits 101 and 104 to this report consist of documents formatted in XBRL (Extensible Business Reporting
Language) and filed with the Securities and Exchange Commission; they are not included in printed copies of this
Report.
Item 16. Form 10-K Summary
Not applicable.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Victor L. Richey
Victor L. Richey
President and Chief Executive Officer
Date: November 29, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Victor L. Richey
Victor L. Richey
Chairman, President, Chief Executive
Officer (Principal Executive Officer)
and Director
November 29, 2022
/s/ Christopher L. Tucker
Christopher L. Tucker
Senior Vice President and Chief Financial
Officer (Principal Accounting Officer)
November 29, 2022
/s/ Patrick M. Dewar
Patrick M. Dewar
/s/ Janice L. Hess
Janice L. Hess
/s/ Vinod M. Khilnani
Vinod M. Khilnani
/s/ Leon J. Olivier
Leon J. Olivier
/s/ Robert J. Phillippy
Robert J. Phillippy
/s/ James M. Stolze
James M. Stolze
/s/ Gloria L. Valdez
Gloria L. Valdez
Director
Director
Director
Director
Director
Director
Director
31
November 29, 2022
November 29, 2022
November 29, 2022
November 29, 2022
November 29, 2022
November 29, 2022
November 29, 2022
[This page intentionally left blank]
FINANCIAL INFORMATION
INDEX
Reports of Independent Registered Public Accounting Firm, PCAOB ID Number 248 [Grant Thornton LLP]
Report of Independent Registered Public Accounting Firm, PCAOB ID Number 185 [KPMG LLP]
Consolidated Statements of Operations for the Years Ended September 30, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the Years Ended September 30, 2022, 2021 and 2020
Consolidated Balance Sheets as of September 30, 2022 and 2021
Consolidated Statements of Shareholders’ Equity for the Years Ended September 30, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the Years Ended September 30, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Management’s Statement of Financial Responsibility
F-2
F-5
F-6
F-7
F-8
F-10
F-11
F-12
F-32
F-1
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,
PCAOB ID NUMBER 248
Board of Directors and Shareholders
ESCO Technologies Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of ESCO Technologies Inc. (a Missouri corporation)
and subsidiaries (the “Company”) as of September 30, 2022, and the related consolidated statements of operations,
comprehensive income, shareholders’ equity, and cash flows for the fiscal year ended September 30, 2022, and the
related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of September 30, 2022, and the results of its
operations and its cash flows for the fiscal year ended September 30, 2022, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, 2022, based on
criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”), and our report dated November 29, 2022 expressed an
unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audit provides a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Estimate of contract costs expected at completion
As described further in Notes 1 and 15 to the financial statements, the Company’s Aerospace & Defense and Test
segments enter into certain long-term fixed price contracts with their customers to produce certain products that do not
have an alternative use to the Company and for which the Company has an enforceable right to payment for costs
incurred to date plus a reasonable margin. For the Aerospace & Defense segment, the Company uses a cost-to-cost
method to recognize the revenue for these contracts over time. Using the cost-to-cost method, the Company measures
progress to contract completion using the ratio of contract costs incurred to date compared to estimated total contract
costs at completion. Judgment is required in estimating the total contract costs at completion due to the unique
specifications and requirements for each individual contract relating to the design, development, manufacturing, and
installation of the built-to-spec products.
F-2
We identified the determination of the estimated total contract costs at completion for certain contracts in the
Aerospace & Defense segment for which revenue is recognized over time using the cost-to-cost method as a critical
audit matter.
The principal considerations for our determination that the estimated total contract costs at completion is a critical
audit matter are that the estimated total contract costs at completion require complex judgment to evaluate the
engineering and production requirements of the contract and the related labor and materials costs, which are
assumptions with a high level of estimation uncertainty and susceptibility to potential management bias. Changes to
the assumptions used in developing these estimates may significantly impact the net sales and earnings recorded
during the fiscal year.
Our audit procedures related to the estimated total contract costs at completion include the following, among others.
We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s
revenue recognition and job cost processes. This included controls over the accumulation and estimation of costs to
complete the contracts. For a selection of completed contracts, we compared the Company’s historical estimated costs
and profit margin to the actual costs and profit margin to assess the Company’s ability to accurately estimate costs.
We also tested the Company’s assumptions for labor hours and materials to be incurred for a selection of in-process
contracts by:
•
•
•
•
•
inspecting a sample of underlying contracts, including any applicable amendments, to obtain an
understanding of the contractual requirements and deliverables and the nature of the costs necessary to fulfill
those contracts
assessing the progress towards completion by obtaining customer validation of the achievement of
milestones, if applicable, and performing inquiries of key financial and operations executives to evaluate the
progress to date and factors impacting the estimated total contract costs expected at completion
comparing the actual costs incurred to date, as a percentage of the estimated total contract costs at
completion, and comparing that to the revenue recognized to date
comparing the margins to date on selected contracts to similar products previously produced, if applicable
evaluating the estimates for indicators of management bias through the procedures described above.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2021.
St. Louis, Missouri
November 29, 2022
F-3
Board of Directors and Shareholders
ESCO Technologies Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of ESCO Technologies Inc. (a Missouri corporation) and
subsidiaries (the “Company”) as of September 30, 2022, based on criteria established in the 2013 Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of September 30, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework
issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended September 30,
2022, and our report dated November 29, 2022 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ GRANT THORNTON LLP
St. Louis, Missouri
November 29, 2022
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,
PCAOB ID NUMBER 185
To the Shareholders and Board of Directors
ESCO Technologies Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of ESCO Technologies Inc. and subsidiaries (the
Company) as of September 30, 2021, the related consolidated statements of operations, comprehensive income,
shareholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2021, and the
related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of September 30, 2021, and the results
of its operations and its cash flows for each of the years in the two-year period ended September 30, 2021, in
conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Company’s auditor from 1990 to 2021.
St. Louis, Missouri
November 29, 2021
F-5
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Years ended September 30,
Net sales
Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Amortization of intangible assets
Interest expense, net
Pension plan termination charge
Other (income) expenses, net
Total costs and expenses
Earnings before income tax
Income tax expense
Net earnings from continuing operations
Net gain on sale from discontinued operations, net of tax expense of $23,501
Net earnings from discontinued operations
Net earnings
Earnings per share:
Basic:
Continuing operations
Discontinued operations
Net earnings
Diluted:
Continuing operations
Discontinued operations
Net earnings
Average common shares outstanding (in thousands):
Basic
Diluted
See accompanying Notes to Consolidated Financial Statements.
2022
857,502
2021
715,440
$
525,457
195,127
25,936
4,851
—
(304 )
751,067
106,435
24,115
82,320
—
—
82,320
445,045
167,534
20,829
2,255
—
(894 )
634,769
80,671
17,175
63,496
—
—
63,496
3.17
—
3.17
3.16
—
3.16
2.44
—
2.44
2.42
—
2.42
$
$
$
$
$
2020
730,471
458,311
159,490
21,812
6,730
40,600
7,122
694,065
36,406
13,510
22,896
76,515
76,515
99,411
0.88
2.94
3.82
0.88
2.93
3.81
25,933
26,067
26,046
26,225
26,010
26,135
F-6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
Years ended September 30,
Net earnings
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments
Pension plan termination
Amortization of prior service costs, actuarial losses and other
Total other comprehensive (loss) income, net of tax
2022
82,320
2021
63,496
$
(28,876 )
—
(727 )
(29,603 )
1,496
—
—
1,496
2020
99,411
3,172
40,600
(3,455 )
40,317
Comprehensive income
$
52,717
64,992
139,728
See accompanying Notes to Consolidated Financial Statements.
F-7
CONSOLIDATED BALANCE SHEETS
2022
2021
(Dollars in thousands)
As of September 30,
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for credit losses of $2,612 and $1,949 in 2022 and
$
97,724
56,232
2021, respectively
Contract assets, net
Inventories, net
Other current assets
Total current assets
Property, plant and equipment:
Land and land improvements
Buildings and leasehold improvements
Machinery and equipment
Construction in progress
Less accumulated depreciation and amortization
Net property, plant and equipment
Intangible assets, net
Goodwill
Operating lease assets, net
Other assets
Total Assets
See accompanying Notes to Consolidated Financial Statements.
164,645
125,154
162,403
22,696
572,622
12,126
110,306
187,287
11,576
321,295
(165,322 )
155,973
394,464
492,709
29,150
9,538
146,341
93,771
147,148
22,662
466,154
10,547
109,279
176,447
5,543
301,816
(147,551 )
154,265
409,250
504,853
31,846
10,977
$
1,654,456
1,577,345
F-8
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
As of September 30,
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and short-term borrowings
Accounts payable
Contract liabilities, net
Accrued salaries
Accrued other expenses
Total current liabilities
Deferred tax liabilities, net
Non-current operating lease liabilities
Other liabilities
Long-term debt
Total liabilities
Shareholders’ equity:
2022
2021
$
20,000
78,746
125,009
40,572
53,802
318,129
82,023
24,853
48,294
133,000
606,299
20,000
56,669
106,045
39,768
52,513
274,995
73,560
28,032
47,062
134,000
557,649
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
30,707,748 and 30,666,173 shares in 2022 and 2021, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
Less treasury stock, at cost (4,854,997 and 4,604,741 common shares in 2022 and
2021, respectively)
Total shareholders’ equity
307
301,553
905,022
(31,764 )
1,175,118
307
297,644
830,989
(2,161 )
1,126,779
(126,961 )
1,048,157
(107,083 )
1,019,696
Total Liabilities and Shareholders’ Equity
$
1,654,456
1,577,345
See accompanying Notes to Consolidated Financial Statements.
F-9
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Balance, September 30, 2019
30,597 $
306 292,408 684,741
(43,974 ) (107,259 )
826,222
Comprehensive income (loss):
Net earnings
Translation adjustments, net of tax of $0
Pension termination and net unrecognized
actuarial loss, net of tax of $(1,161)
Cash dividends declared ($0.32 per share)
Stock compensation plans, net of tax of $0
—
—
—
—
49
—
—
—
—
—
— 99,411
—
—
—
3,172
—
—
99,411
3,172
—
—
37,145
—
37,145
—
(8,323 )
1,274
—
—
—
—
(8,323 )
125
1,399
Balance, September 30, 2020
30,646 $
306 293,682 775,829
(3,657 ) (107,134 )
959,026
Comprehensive income (loss):
Net earnings
Translation adjustments, net of tax of $0
Cash dividends declared ($0.32 per share)
Stock compensation plans, net of tax of $0
—
—
—
20
—
—
—
— 63,496
—
—
—
(8,336 )
1
3,962
—
—
1,496
—
—
63,496
1,496
—
—
—
(8,336 )
51
4,014
Balance, September 30, 2021
30,666 $
307 297,644 830,989
(2,161 ) (107,083 ) 1,019,696
Comprehensive income (loss):
Net earnings
Net unrecognized actuarial loss – SERP
Translation adjustments, net of tax of $0
Cash dividends declared ($0.32 per share)
Purchases of common stock into treasury
Stock compensation plans, net of tax of $0
—
—
—
—
—
42
—
—
—
—
—
—
— 82,320
—
—
—
—
3,909
—
—
(8,287 )
—
—
—
(727 )
(28,876 )
—
—
—
82,320
(727 )
(28,876 )
—
—
—
—
(8,287 )
(19,878 )
(19,878 )
—
3,909
Balance, September 30, 2022
30,708
307 301,553 905,022
(31,764 ) (126,961 ) 1,048,157
See accompanying Notes to Consolidated Financial Statements.
F-10
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended September 30,
Cash flows from operating activities:
2022
2021
2020
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating
$
82,320
63,496
99,411
activities:
Net earnings from discontinued operations, net of tax
Depreciation and amortization
Stock compensation expense
Changes in assets and liabilities
Gain on sale of building and land
Effect of deferred taxes on tax provision
Pension contributions
Pension plan termination charge
Net cash provided by operating activities – continuing operations
Net cash (used) by discontinued operations
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired
Capital expenditures
Additions to capitalized software
Proceeds from sale of building and land
Net cash used by investing activities – continuing operations
Net cash provided by investing activities – discontinued operations
Net cash (used) provided by investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Principal payments on long-term debt
Dividends paid
Purchases of common stock into treasury
Other
Net cash (used) provided by financing activities – continuing operations
Net cash used by financing activities – discontinued operations
Net cash (used) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Changes in assets and liabilities:
Accounts receivable, net
Contract assets and liabilities, net
Inventories
Other assets and liabilities
Accounts payable
Accrued expenses
Supplemental cash flow information:
Interest paid
Income taxes paid (including state & foreign)
See accompanying Notes to Consolidated Financial Statements.
F-11
—
48,343
7,320
(11,654 )
—
8,946
—
—
135,275
—
135,275
(10,906 )
(32,101 )
(12,912 )
—
(55,919 )
—
(55,919 )
100,000
(101,000 )
(8,268 )
(19,878 )
(2,976 )
(32,122 )
—
(32,122 )
(5,742 )
41,492
56,232
97,724
(17,676 )
(12,419 )
(13,788 )
9,412
21,985
832
(11,654 )
2,835
9,856
$
$
$
$
—
42,049
6,914
15,671
(1,950 )
(3,041 )
—
—
123,139
—
123,139
(168,903 )
(26,705 )
(8,783 )
1,950
(202,441 )
—
(202,441 )
216,000
(124,368 )
(8,336 )
—
(1,823 )
81,473
—
81,473
1,501
3,672
52,560
56,232
11,266
8,974
612
(477 )
(688 )
(3,836 )
15,671
590
26,054
(76,515 )
41,338
5,550
26,585
—
(2,785 )
(25,650 )
40,600
108,534
(26,254 )
82,280
—
(32,108 )
(9,023 )
—
(41,131 )
182,084
140,953
12,368
(235,000 )
(8,323 )
—
(3,125 )
(234,080 )
(2,140 )
(236,220 )
3,739
(9,248 )
61,808
52,560
14,633
35,283
(10,340 )
(8,609 )
(13,275 )
8,893
26,585
5,869
37,714
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
A. Principles of Consolidation
The Consolidated Financial Statements include the accounts of ESCO Technologies Inc. (ESCO) and its wholly
owned subsidiaries. Except where the context indicates otherwise, the terms “Company”, “we”, “our” and “us” are
used in this report to refer to ESCO together with its subsidiaries through which its businesses are conducted. All
significant intercompany transactions and accounts have been eliminated in consolidation.
B. Basis of Presentation
Our fiscal year ends on September 30. Throughout the Consolidated Financial Statements, unless the context
indicates otherwise, references to a year (for example 2022) refer to fiscal year ending on September 30 of that
year. Certain prior period amounts have been reclassified to conform to the current period presentation.
Our former Technical Packaging segment is reflected as discontinued operations in the Consolidated Financial
Statements and related notes for all periods presented, in accordance with accounting principles generally accepted in
the United States of America (GAAP).
C. Nature of Operations
We are organized based on the products and services we offer and we currently classify our business operations in
three segments for financial reporting purposes: Aerospace & Defense (A&D), Utility Solutions Group (USG), and
RF Shielding and Test (Test).
A&D: The companies within this segment primarily design and manufacture specialty filtration products, including
hydraulic filter elements and fluid control devices used in commercial aerospace applications; unique filter
mechanisms used in micro-propulsion devices for satellites; custom designed filters for manned aircraft and
submarines; products and systems to reduce vibration and/or acoustic signatures and otherwise reduce or obscure a
vessel’s signature, and other communications, sealing, surface control and hydrodynamic related applications to
enhance U.S. Navy maritime survivability; precision-tolerance machined components for the aerospace and defense
industry; and metal processing services; and miniature electro-explosive devices for military aircraft ejection seats and
missile arming devices.
USG: The companies within this segment provide diagnostic testing solutions that enable electric power grid
operators to assess the integrity of high-voltage power delivery equipment, as well as decision support tools for the
renewable energy industry, primarily wind and solar.
Test: The companies within this segment provide their customers with the ability to identify, measure and contain
magnetic, electromagnetic and acoustic energy.
In addition, for reporting certain financial information we treat Corporate activities as a separate segment.
D. Use of Estimates
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.
E. Revenue Recognition
We recognize revenue when control 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 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. We review
contracts to determine whether there are 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, we allocate the expected consideration, or the
transaction price, to each performance obligation identified in the contract based on the relative standalone selling
price of each performance obligation. We then recognize revenue for the transaction price allocated to the
F-12
performance obligation when control of the promised goods or services underlying the performance obligation is
transferred.
Payment terms with our customers vary by the type and location of the customer and the products or services offered.
We do not adjust the promised amount of consideration for the effects of significant financing components based on
the expectation that the period between when we transfer 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. We account for shipping and handling costs on a gross basis and
include them in net sales. We account for taxes collected from customers and remitted to governmental authorities on
a net basis and exclude them from net sales.
A&D: Within the A&D segment, approximately 40% of revenues (approximately 17% 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 and discounts, which are based on historical, current and forecasted information to determine the
expected amount to which we 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 the 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 cost of goods sold 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 60% of the segment’s revenues (approximately 25% of consolidated revenues) are accounted for over
time as the product does not have an alternative use and we have 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 Aerospace & Defense segment contracts, as the rate at which costs are incurred to
fulfill a contract best depicts the transfer of control to the customer. Under this method, we measure the extent of
progress towards completion based on the ratio of costs incurred to date to the estimated costs at completion of the
performance obligation, and record revenue 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.
F-13
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. We
classify amounts billed and due from our customers 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 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. We
have net revenue recognized in the current year from performance obligations satisfied in the prior year due to
changes in our estimated costs to complete the related performance obligations. We recognize anticipated losses on
contracts in full in the period in which the losses become known.
USG: Within the USG segment, approximately 80% of revenues (approximately 25% 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 is 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 we 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. We generally do not treat them as
separate performance obligations as these costs fulfill a promise to transfer the product to the customer and are
expensed in selling, general and administrative costs in the period they are incurred. We record taxes collected from
customers and remitted to government authorities 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.
Typically, 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 we have 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 6% 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
F-14
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 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 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.
Test: Within the Test segment, approximately 25% of revenues (approximately 7% 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 because 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 the 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 we 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 20% of consolidated revenues) are recorded over time
as the product does not have an alternative use and we have 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, we estimate profit as the difference between
total revenue and total estimated cost of a contract and recognize these revenues and costs based primarily on contract
milestones. The transaction price for our contracts is typically fixed price and represents our best estimate of the
consideration we will receive.
We estimate total contract cost 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 based on progress or based
on a fixed billing schedule within the contract. Performance-based payments represent interim payments based on
noted progress points 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 revenue recognized,
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 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. We have net revenue recognized in the current year from performance obligations satisfied in the prior year
due to changes in our estimated costs to complete the related performance obligations. We recognize anticipated
losses on contracts in full in the period in which the losses become probable and estimable.
F-15
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. We include liabilities for customer rebates and discounts in other current
liabilities in the Consolidated Balance Sheets.
See the further discussion of our revenue recognition in Note 15 below.
F. Cash and Cash Equivalents
Cash equivalents include temporary investments that are readily convertible into cash, such as money market funds,
with original maturities of three months or less.
G. Accounts Receivable
We reduce accounts receivable by an allowance for amounts that we estimate are uncollectible in the future. This
estimated allowance is based on Management’s evaluation of the financial condition of the customer and historical
write-off experience.
H. Inventories
We value inventories at the lower of cost (first-in, first-out) or net realizable value. We regularly review inventories
for excess quantities and obsolescence based upon historical experience, specific identification of discontinued items,
future demand, and market conditions. Inventories under long-term contracts reflect accumulated production costs,
factory overhead, initial tooling and other related costs less the portion of such costs charged to cost of sales.
I. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and amortization are computed primarily on a
straight-line basis over the estimated useful lives of the assets: buildings, 10-40 years; machinery and equipment, 3-10
years; and office furniture and equipment, 3-10 years. Leasehold improvements are amortized over the remaining term
of the applicable lease or their estimated useful lives, whichever is shorter. Long-lived tangible assets are reviewed for
impairment whenever events or changes in business circumstances indicate the carrying value of the assets may not be
recoverable. Impairment losses are recognized based on fair value.
J. Leases
Our lease agreements primarily relate to office space, manufacturing facilities, and machinery and equipment. We
determine at lease inception whether an arrangement that provides control over the use of an asset is a lease. We
recognize 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. We have elected not to recognize a ROU asset and lease liability for leases
with terms of 12 months or less. Certain of our leases include options to extend the term of the lease for up to 20
years. When it is reasonably certain that we 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 our lease agreements do not
explicitly state the discount rate implicit in the lease, Management uses our incremental borrowing rate on the
commencement date to calculate the present value of future payments based on the tenor of each arrangement.
K. Goodwill and Other Long-Lived Intangible Assets
Goodwill represents the excess of purchase price over the fair value of net identifiable assets acquired in business
acquisitions. Management annually reviews goodwill and other long-lived assets with indefinite useful lives for
impairment or whenever events or changes in circumstances indicate the carrying amount may be less than fair value.
If we determine that the carrying value of the long-lived asset or reporting unit is less than fair value, we record a
permanent impairment charge for the amount by which the carrying value of the long-lived asset exceeds its fair
value. We measure the fair value of our reporting units based on a discounted cash flow method using a discount rate
determined by Management to be commensurate with the risk inherent in each of our reporting units’ current business
models. We determine the fair value of trade names using a generally accepted valuation method based on an income
F-16
approach called the relief from royalty method. During 2022, Management performed a quantitative impairment
analysis, which included a detailed calculation of the fair value of our trade names and reporting units related to
certain reporting units within these segments. A Step 0 analysis was performed on the other reporting units for which
a quantitative analysis was not performed. The results of these impairment analyses indicated that the fair values of
the trade names and reporting units are not less than their carrying values. Our estimates of discounted cash flows to
derive the fair value were measured in accordance with ASC 350, Intangibles – Goodwill and Other. We are using
estimates of discounted cash flows that may change, and if they change negatively it could result in the need to write
down those assets to fair value.
Other intangible assets represent costs allocated to identifiable intangible assets, principally customer relationships,
capitalized software, patents, trademarks, and technology rights. We amortize intangible assets with estimable useful
lives over their respective estimated useful lives to their estimated residual values, and review them for impairment
whenever events or changes in business circumstances indicate the carrying value of the assets may not be
recoverable.
See Note 4 regarding goodwill and other intangible assets activity.
L. Capitalized Software
Costs incurred for the development of computer software that will be sold, leased, or otherwise marketed are charged
to research and development expense when incurred, until technological feasibility has been established for the
product. Technological feasibility is typically established upon completion of a detailed program design. Costs
incurred after this point are capitalized on a project-by-project basis. Capitalized costs consist of internal and external
development costs. Upon general release of the product to customers, we cease capitalization and begin amortization,
which is calculated on a project-by-project basis as the greater of (1) the ratio of current gross revenues for a product
to the total of current and anticipated future gross revenues for the product or (2) the straight-line method over the
estimated economic life of the product. We generally amortize software development costs over a three-to-seven year
period based upon the estimated future economic life of the product. Factors we consider in determining the estimated
future economic life of the product include anticipated future revenues, and changes in software and hardware
technologies. Management annually reviews the carrying values of capitalized costs for impairment or whenever
events or changes in circumstances indicate the carrying amount may not be recoverable. If expected cash flows are
insufficient to recover the carrying amount of the asset, then we recognize an impairment loss to state the asset at its
net realizable value.
M. Income Taxes
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. We may reduce deferred tax assets by a valuation allowance if it is more likely than not that
some portion or all of the deferred tax assets will not be realized. We recognize the effect on deferred tax assets and
liabilities of a change in tax rates in income in the period that includes the enactment date. We regularly review our
deferred tax assets for recoverability and establish a valuation allowance when Management believes it is more likely
than not such assets will not be recovered, taking into consideration historical operating results, expectations of future
earnings, tax planning strategies, and the expected timing of the reversals of existing temporary differences. Our
policy is to include interest related to unrecognized tax benefits in income tax expense and penalties in operating
expense.
N. Research and Development Costs
Company-sponsored research and development costs include research and development and bid and proposal efforts
related to our products and services. We charge Company-sponsored product development costs to expense when
incurred. Customer-sponsored research and development costs refer to certain situations whereby customers provide
funding to support specific contractually defined research and development costs. We account for customer-sponsored
research and development costs incurred pursuant to contracts similarly to other program costs. Total Company and
customer-sponsored research and development expenses were approximately $12.3 million, $15.4 million and
$13.3 million for 2022, 2021 and 2020, respectively.
F-17
O. Foreign Currency Translation
We translate the financial statements of our foreign operations into U.S. dollars in accordance with FASB ASC Topic
830, Foreign Currency Matters. We record the resulting translation adjustments as a separate component of
accumulated other comprehensive income.
P. Earnings Per Share
We calculate basic earnings per share using the weighted average number of common shares outstanding during the
period. We calculate diluted earnings per share using the weighted average number of common shares outstanding
during the period plus shares issuable upon the assumed exercise of dilutive vesting of unvested restricted units
(restricted shares) using the treasury stock method. There are no anti-dilutive shares.
The number of shares used in the calculation of earnings per share for each year presented is as follows:
(in thousands)
Weighted Average Shares Outstanding — Basic
Dilutive Restricted Shares
Shares — Diluted
Q. Share-Based Compensation
2022
25,933
134
26,067
2021
26,046
179
26,225
2020
26,010
125
26,135
We provide compensation benefits to certain key employees under several share-based plans providing for
performance-accelerated, performance-based and/or time-vested restricted stock unit awards, and to non-employee
directors under a separate compensation plan for non-employee directors. We measure share-based payment expense
at the grant date based on the fair value of the award and recognize it on a straight-line basis over the requisite service
period (generally the vesting period of the award) and/or if the performance criteria are deemed probable.
R. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss of $(31.8) million at September 30, 2022 consisted primarily of currency
translation adjustments.
S. Fair Value Measurements
Fair value is defined as the price at which an asset could be exchanged in a current transaction between
knowledgeable, willing parties or the amount that would be paid to transfer a liability to a new obligor, not the
amount that would be paid to settle the liability with the creditor. Where available, we base fair value on observable
market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not
available, we apply valuation models. These valuation techniques involve some level of Management estimation and
judgment, the degree of which is dependent on the price transparency for the instruments or market and the
instruments’ complexity.
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
We have estimated the fair value of our financial instruments as of September 30, 2022 using available market
information or other appropriate valuation methodologies. The carrying amounts of cash and cash equivalents,
receivables, payables and other current assets and liabilities approximate fair value because of the short maturity of
those instruments. The carrying amounts due under the revolving credit facility approximate fair value as the interest
on outstanding borrowings is calculated at a spread over the London Interbank Offered Rate (LIBOR) or based on
the prime rate, at our election.
F-18
Nonfinancial Assets and Liabilities
Our nonfinancial assets such as property, plant and equipment, inventories, and other intangible assets are not
measured at fair value on a recurring basis; however they are subject to fair value adjustments in certain
circumstances, such as when there is evidence that an impairment may exist. No impairments were recorded during
2022.
2. Acquisitions
2022
On November 4, 2021, we acquired Networks Electronic Company, LLC (NEco) for a purchase price of
approximately $15.4 million, net of cash acquired. NEco, based in Chatsworth, California, provides miniature electro-
explosive devices utilized in mission-critical defense and aerospace applications. Since the date of acquisition, the
operating results for the NEco business have been included as part of PTI in the A&D segment. The acquisition date
fair value of the assets acquired and liabilities assumed primarily were as follows: approximately $0.6 million of
accounts receivable, $1.5 million of inventory, $0.2 million of property, plant and equipment, $0.7 million of accounts
payable and accrued expenses, $8.1 million of identifiable intangible assets, mainly consisting of customer
relationships totaling $6.3 million. The acquired goodwill of $5.7 million related to excess value associated with
opportunities to expand the services and products that the Company can offer to its customers. We anticipate that the
goodwill will be deductible for tax purposes.
2021
On August 9, 2021 we acquired the assets of Phenix Technologies, Inc. (Phenix), for a purchase price of
approximately $47.2 million in cash. Phenix, based in Accident, Maryland, is a leading designer and manufacturer of
high voltage, high current, high power test systems and components and solutions supporting the electric utility
industry, high voltage test laboratories, and field service organizations worldwide. Since the date of acquisition, the
operating results for the Phenix business have been included as part of the USG segment. The acquisition date fair
value of the assets acquired and liabilities assumed were as follows: approximately $2.6 million of accounts
receivable, $5.8 million of inventory, $8.0 million of property, plant and equipment, $6.2 million of accounts payable
and accrued expenses, $3.7 million for tradenames, $9.6 million of customer relationships and $0.5 million of
miscellaneous items. The tradename was determined to have an indefinite useful life and the customer relationships
were determined to have a useful life of 13 years. The acquired goodwill of $18.7 million relates to excess value
associated with opportunities to expand the services and products that the Company can offer to its customers, with
approximately $15 million of goodwill deductible for tax purposes. During the fourth quarter of 2022, the Company
received $4.6 million upon finalization of the working capital adjustment.
On July 29, 2021 we acquired I.S.A. – Altanova Group S.r.l., (Altanova), headquartered in Taino, Italy, for a purchase
price of approximately $115 million, net of cash acquired. Altanova is a supplier of diagnostic products, monitoring
systems and services related to power generation, transmission and distribution networks, renewable energy and
storage, and process industries to customers in more than 100 countries. Since the date of acquisition, the operating
results for the Altanova business have been included as part of the USG segment. The acquisition date fair value of the
assets acquired and liabilities assumed were as follows: $9.7 million of accounts receivable, $5.6 million of inventory,
$1.2 million of property, plant and equipment, $9.0 million of other assets, $12.8 million of accounts payable and
accrued expenses, $6.9 million of other liabilities, $16.7 million of deferred tax liabilities, $50.5 million of customer
relationships and $4.3 million of tradenames. The tradename was determined to have a useful life of ten years and the
customer relationships were determined to have a useful life of twenty years. The acquired goodwill of $71.1 million
relates to the excess value associated with opportunities to expand the services and products that the Company can
offer to its customers, access to new markets, and synergies anticipated by combining Altanova with existing USG
businesses. The goodwill is not deductible for tax purposes.
We accounted for these acquisitions using the purchase method of accounting, and accordingly, we allocated the
respective purchase prices to the assets (including intangible assets) acquired and liabilities assumed based on
estimated fair values at the date of acquisition. We have included the financial results from these acquisitions in our
financial statements from the date of acquisition.
F-19
3. Technical Packaging Divestiture
In December 2019, we completed the sale of our Technical Packaging business segment, consisting of our 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”), two wholly-owned subsidiaries
of Sonoco Products Company (NYSE:SON). 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. Results of operations, financial position and cash flows for the Technical Packaging business
are reflected as discontinued operations in the Consolidated Financial Statements and related notes for all periods
presented.
Net sales and pretax (loss) from the Technical Packaging business were $16.5 million and $(0.3) million, respectively,
in 2020. We received net proceeds from the sale of approximately $184 million and recorded $76.5 million after-tax
net earnings on the sale in 2020. We finalized a contractual working capital adjustment and paid $0.2 million to the
buyer during the third quarter of 2020.
4. Goodwill and Other Intangible Assets
Included on the Consolidated Balance Sheets at September 30, 2022 and 2021 are the following intangible assets
gross carrying amounts and accumulated amortization:
(Dollars in thousands)
Goodwill
Intangible assets with determinable lives:
Patents
Gross carrying amount
Less: accumulated amortization
Net
Capitalized software
Gross carrying amount
Less: accumulated amortization
Net
Customer Relationships
Gross carrying amount
Less: accumulated amortization
Net
Other
Gross carrying amount
Less: accumulated amortization
Net
Intangible assets with indefinite lives:
Trade names
2022
492,709
2021
504,853
$
$
$
$
$
$
$
$
$
2,353
1,091
1,262
106,583
70,476
36,107
2,131
972
1,159
93,671
63,740
29,931
287,447
96,921
190,526
288,530
80,882
207,648
13,985
7,440
6,545
13,177
4,398
8,779
$
160,024
161,733
We performed our annual evaluation of goodwill and intangible assets for impairment during the fourth quarter of
2022 and concluded that no impairment existed at September 30, 2022. There were no accumulated impairment losses
as of September 30, 2022.
F-20
The changes in the carrying amount of goodwill attributable to each business segment for 2022 and 2021 are as
follows:
(Dollars in millions)
Balance as of September 30, 2020
Acquisition activity
Foreign currency translation and other
Balance as of September 30, 2021
Acquisition activity
Foreign currency translation and other
Balance as of September 30, 2022
$
$
$
A&D
102.1
2.2
–
104.3
5.7
–
110.0
Test
34.1
–
–
34.1
–
(0.1 )
34.0
USG
271.9
95.2
(0.6 )
366.5
(4.7 )
(13.1 )
348.7
Total
408.1
97.4
(0.6 )
504.9
1.0
(13.2 )
492.7
Amortization expense related to intangible assets with determinable lives was $25.9 million, $20.8 million and $21.8
million in 2022, 2021 and 2020, respectively. Patents are amortized over the life of the patents, generally ten to twenty
years. Capitalized software is amortized over the estimated useful life of the software, generally three to seven years.
Customer relationships are generally amortized over thirteen to twenty years. Intangible asset amortization for fiscal
years 2023 through 2027 is estimated at $18.5 million in 2023, and approximately $17 million in years 2024 through
2027.
5. Accounts Receivable
Accounts receivable, net of the allowance for credit losses, consisted of the following at September 30, 2022 and
2021:
(Dollars in thousands)
Commercial
U.S. Government and prime contractors
Total
6.
Inventories, Net
2022
151,565
13,080
164,645
$
$
2021
128,952
17,389
146,341
Inventories, net, from continuing operations consisted of the following at September 30, 2022 and 2021:
(Dollars in thousands)
Finished goods
Work in process
Raw materials
Total
7.
Income Tax Expense
2022
32,471
38,492
91,440
162,403
$
$
2021
32,998
34,201
79,949
147,148
We allocated total income tax expense for the years ended September 30, 2022, 2021 and 2020 to income tax expense
as follows:
(Dollars in thousands)
Income tax expense from continuing operations
Income tax expense from discontinued operations
Total income tax expense (benefit)
2022
24,115
–
24,115
2021
17,175
–
17,175
2020
13,510
23,501
37,011
$
$
The components of income from continuing operations before income taxes for2022, 2021 and 2020 consisted of the
following:
(Dollars in thousands)
United States
Foreign
Total income before income taxes
2022
90,674
15,761
106,435
$
$
2021
70,214
10,457
80,671
2020
23,951
12,455
36,406
F-21
The principal components of income tax expense (benefit) from continuing operations for 2022, 2021 and 2020
consist of:
(Dollars in thousands)
Federal:
Current
Deferred
State and local:
Current
Deferred
Foreign:
Current
Deferred
Total
2022
2021
2020
$
$
7,248
9,752
1,635
1,774
4,645
(939 )
24,115
14,807
(1,598 )
2,257
(786 )
2,922
(427 )
17,175
10,495
1,311
1,984
(932 )
2,875
(2,223 )
13,510
The actual income tax expense from continuing operations for 2022, 2021 and 2020 differs from the expected tax
expense for those years (computed by applying the U.S. Federal corporate statutory rate) as follows:
Federal corporate statutory rate
State and local, net of Federal benefits
Impact of foreign operations
Federal research credit
Executive compensation
Valuation allowance
U.S. tax on GILTI
GILTI foreign tax credits
FDII deduction
Pension plan termination charge
Other, net
Effective income tax rate
2022
2021
2020
21.0 %
2.9
(0.3 )
(0.3 )
0.5
(0.3 )
1.8
(1.5 )
(0.9 )
-
(0.2 )
22.7 %
21.0 %
1.9
(0.4 )
(0.9 )
0.9
-
1.0
(0.6 )
(1.7 )
-
0.1
21.3 %
21.0 %
2.3
1.3
(3.7 )
1.6
(6.8 )
3.2
(2.7 )
(2.6 )
23.4
0.1
37.1 %
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at
September 30, 2022 and 2021 are presented below:
(Dollars in thousands)
Deferred tax assets:
Inventories
Pension and other postretirement benefits
Timing differences related to revenue recognition
Lease liabilities
Net operating and capital loss carryforwards — domestic
Net operating loss carryforward — foreign
Other compensation-related costs and other cost accruals
State credit carryforward
Foreign credit carryforward
Total deferred tax assets
Deferred tax liabilities:
ROU assets
Goodwill
Acquisition intangible assets
Depreciation, software amortization
Net deferred tax liabilities before valuation allowance
Less valuation allowance
Net deferred tax liabilities
$
2022
4,990
664
61
7,073
575
3,396
9,032
1,676
203
27,670
(7,073 )
(11,691 )
(62,051 )
(24,503 )
(77,648 )
(1,208 )
(78,856 )
$
2021
4,267
859
9,365
7,614
542
4,279
8,174
2,639
192
37,931
(7,614 )
(13,746 )
(62,052 )
(22,418 )
(67,899 )
(2,011 )
(69,910 )
F-22
We had a foreign net operating loss (NOL) carryforward of $12.1 million at September 30, 2022, which reflects tax
loss carryforwards in Germany, South Africa, Canada, Japan and the United Kingdom. Approximately $10.4 million
of the tax loss carryforwards have no expiration date while the remaining $1.7 million will expire between 2031 and
2041. We had net foreign credit carryforwards of $0.2 million, that will expire between 2041 and 2042. We had
deferred tax assets related to state NOL carryforwards of $0.6 million at September 30, 2022 which expire between
2025 and 2042. We also had net state research and other credit carryforwards of $1.7 million of which $0.9 million
expires between 2024 and 2037. The remaining $0.8 million does not have an expiration date.
The valuation allowance for deferred tax assets as of September 30, 2022 and 2021 was $1.2 million and $2.0
million, respectively. The net change in the total valuation allowance for each of the years ended September 30,
2022 and 2021 was a decrease of $0.8 million and an increase of $0.1 million, respectively. We established a
valuation allowance against state credit carryforwards of $0.6 million at September 30, 2021. This balance was
released as of September 30, 2022. In addition, we maintained a valuation allowance against state NOL
carryforwards that are not expected to be realized in future periods of $0.5 million at September 30 of both 2022 and
2021. Lastly, we established a valuation allowance against certain NOL carryforwards in foreign jurisdictions which
may not be realized in future periods of $0.7 million and $0.9 million at September 30, 2022 and 2021, respectively.
As of September 30, 2022, the Company does not have any material unrecognized tax benefits.
8. Debt
Debt consists of the following at September 30, 2022 and 2021:
(Dollars in thousands)
Total borrowings
Current portion of long-term debt and short-term borrowings
Total long-term debt, less current portion
2022
153,000
(20,000 )
133,000
$
$
2021
154,000
(20,000 )
134,000
The Credit Facility includes a $500 million revolving line of credit as well as provisions allowing for an increase of
the credit facility commitment amount by an additional $250 million, if necessary, with the consent of the lenders. The
bank syndication supporting the facility is comprised of a diverse group of eight banks led by JP Morgan Chase Bank,
N.A., as Administrative Agent. The Credit Facility matures September 27, 2024, with balance due by this date.
Interest on borrowings under the Credit Facility is calculated at a spread over either the New York Federal Reserve
Bank Rate, the prime rate, or the London Interbank Offered Rate (LIBOR), depending on various factors. The Credit
Facility also requires a facility fee ranging from 10 to 25 basis points per annum on the unused portion. The interest
rate spreads and the facility fee are subject to increase or decrease depending on the Company’s leverage ratio.
The Credit Facility is secured by the unlimited guaranty of our direct and indirect material U.S. subsidiaries and the
pledge of 100% of the equity interests of our direct and indirect material foreign subsidiaries. The financial covenants
of the Credit Facility include a leverage ratio and an interest coverage ratio. As of September 30, 2022, we were in
compliance with all covenants.
At September 30, 2022, we had approximately $339 million available to borrow under the Credit Facility, plus the
$250 million increase option subject to the lenders’ consent, in addition to $97.7 million cash on hand. We classified
$20 million as the current portion of long-term debt as of September 30, 2022, as we intend to repay this amount
within the next twelve months; however, we have no contractual obligation to repay such amount during the next
twelve months.
During 2022 and 2021, our maximum aggregate short-term borrowings at any month-end were $208 million and $174
million, respectively, and the average aggregate short-term borrowings outstanding based on month-end balances were
$189.8 million and $71.3 million, respectively. The weighted average interest rates were 2.11% and 1.20% for 2022
and 2021, respectively. As of September 30, 2022, the interest rate on our debt was 4.12%. The letters of credit issued
and outstanding under the Credit Facility totaled $8.0 million and $8.5 million at September 30, 2022 and 2021,
respectively.
F-23
9. Capital Stock
The 30,707,748 and 30,666,173 common shares as presented in the accompanying Consolidated Balance Sheets at
September 30, 2022 and 2021 represent the actual number of shares issued at the respective dates. We held 4,854,997
and 4,604,741 common shares in treasury at September 30, 2022 and 2021, respectively.
In August 2021, our Board of Directors approved a new common stock repurchase program authorizing us to
repurchase shares of our stock from time to time in Management’s discretion, in the open market or otherwise, up to a
maximum total repurchase amount of $200 million (or the maximum amount permitted under our bank credit
agreements, if less). This program is scheduled to expire September 30, 2024. We repurchased approximately 257,500
shares under this program in 2022 at an aggregate cost of $20.0 million. We did not repurchase any shares in 2021 or
2020.
10. Share-Based Compensation
We provide compensation benefits to certain key employees under several share-based plans providing for
performance-accelerated and/or time-vested restricted stock unit awards, and to non-employee directors under a
separate compensation plan for non-employee directors. As of September 30, 2022, our equity compensation plans
had a total of 580,437 shares authorized and available for future issuance.
Performance-Accelerated Restricted Stock Unit (PARS) Awards, Time-Vested Restricted Stock Unit (RSU)
Awards, and Performance Share Unit (PSU) Awards
A PARS award represents the right to receive a specified number of shares of Company common stock if and when
the award vests. A PARS award is not stock and does not give the recipient any rights as a shareholder until it vests
and is paid out in shares of stock. PARS awards currently outstanding have a five-year vesting period, with
accelerated vesting if certain targets based on market conditions are achieved. In these cases, if it is probable that the
performance condition will be met, the Company recognizes compensation cost on a straight-line basis over the
shorter performance period; otherwise, it will recognize compensation cost over the longer service period.
Compensation cost for the outstanding PARS awards is being recognized over the shorter performance period, as it is
probable the performance condition will be met. The PARS award grants were valued at the stock price on the date of
grant.
The terms of the RSU awards are similar to those of the PARS awards, but without any provision for acceleration of
the vesting date. Each RSU represents the right to receive one share of Company common stock if the recipient
remains continuously employed by the Company until the award vests, in this case 3 ½ years after the effective award
date. The RSU award grants were valued at the stock price on the date of grant.
Beginning in fiscal year 2022, the Company granted PSU awards with a three-year vesting period, with each PSU
representing the right to receive one share of Company common stock if certain performance targets are achieved. The
targets are based on achieving certain EBITDA metrics and a Total Shareholder return (rTSR) metric over a three-year
period.
Pretax compensation expense related to the above awards for continuing operations was $6.1 million, $5.6 million and
$4.3 million for 2022, 2021 and 2020, respectively.
The following summary presents information regarding outstanding share-based compensation awards as of the
specified dates, and changes during the specified periods:
FY 2022
FY 2021
FY 2020
Estimated
Weighted
Avg. Price
76.15
82.54
56.87
89.51
84.29
Estimated
Weighted
Avg. Price
66.55
108.05
64.40
70.50
76.15
Shares
220,300 $
51,476
(35,753 )
(9,318 )
226,705 $
Estimated
Weighted
Avg. Price
59.72
74.80
50.51
60.48
66.55
Shares
281,004 $
45,723
(89,822 )
(16,605 )
220,300 $
Shares
226,705 $
117,045
(75,327 )
(3,056 )
265,367 $
Nonvested at October 1,
Granted
Vested
Cancelled
Nonvested at September 30,
F-24
Compensation Plan for Non-Employee Directors
In addition to an annual cash retainer, we provide each non-employee director with an annual equity award having a
grant date market value of $180,000, based on the NYSE closing price of the Company’s stock on the date of grant.
For calendar years prior to 2021, the award consisted of actual shares of Company stock, but beginning in January
2021, the award has been in the form of Restricted Stock Units, each of which represents the right to receive one share
of Company stock at the end of a one-year vesting period. At the end of the vesting period, each award will be
converted into the right to receive the same number of actual shares of common stock, plus additional shares
representing the value of the quarterly dividends which would have accrued on the underlying shares during the
vesting period. Compensation expense related to the non-employee director grants was $1.2 million, $1.3 million and
$1.3 million for 2022, 2021 and 2020, respectively.
Total Share-Based Compensation
The total share-based compensation cost that has been recognized in results of operations and included within SG&A
from continuing operations was $7.3 million, $6.9 million and $5.6 million for 2022, 2021 and 2020, respectively.
The total income tax benefit recognized in results of operations for share-based compensation arrangements was $1.5
million, $1.4 million and $1.2 million for 2022, 2021 and 2020, respectively. As of September 30, 2022, there was
$11.2 million of total unrecognized compensation cost related to share-based compensation arrangements. That cost is
expected to be recognized over a weighted-average period of 1.7 years.
11. Retirement and Other Benefit Plans
On November 14, 2019, our Board of Directors approved a resolution to terminate the Company’s defined benefit
pension plan (the Plan) effective as of February 29, 2020. In connection with the termination, we contributed $25.7
million of cash to the Plan during 2020, settled approximately $32.4 million of Plan liabilities during 2020 through
lump-sum payments from existing plan assets to eligible participants who elected to receive them, and recorded
approximately $40.6 million of charges associated with these settlements. During 2020, we settled approximately
$69.1 million of Plan liabilities by entering into an agreement to purchase annuities from a third-party insurance
company. This agreement covered active and former employees and their beneficiaries, with the insurance company
assuming the future annuity payments for these individuals.
Substantially all our domestic employees are covered by a defined contribution plan maintained by the Company. In
addition, we offer unfunded post-retirement pre-Medicare health insurance benefits to a small number of eligible
retirees and employees. We formerly provided unfunded post-retirement life insurance to qualifying retired employees
who retired before 2005, but ceased providing this coverage on July 31, 2020. There was no financial impact of this
plan in 2022.
12. Business Segment Information
We are organized based on the products and services we offer, and we classify our continuing business operations in
three reportable segments for financial reporting purposes: Aerospace & Defense (A&D), Utility Solutions Group
(USG) and RF Shielding and Test (Test). In addition, for reporting certain financial information we treat Corporate
activities as a separate segment. The former Technical Packaging segment was divested in December 2019 and is
reflected as discontinued operations for 2020.
The A&D segment’s operations consist of PTI Technologies Inc. (PTI), VACCO Industries (VACCO), Crissair, Inc.
(Crissair), Mayday Manufacturing Co. (Mayday), Westland Technologies, Inc. (Westland), Globe Composite
Solutions, LLC (Globe) and Networks Electronic Company, LLC (NEco).The companies within this segment
primarily design and manufacture specialty filtration, fluid control and naval products, including hydraulic filter
elements and fluid control devices used in aerospace and defense applications, unique filter mechanisms used in
micro-propulsion devices for satellites, custom designed filters for manned aircraft and submarines, products and
systems to reduce vibration and/or acoustic signatures and otherwise reduce or obscure a vessel’s signature, and other
communications, sealing, surface control and hydrodynamic related applications to enhance U.S. Navy maritime
survivability; precision-tolerance machined components for the aerospace and defense industry; metal processing
services; and miniature electro-explosive devices utilized in mission-critical defense and aerospace applications.
The USG segment’s operations consist of Doble Engineering Company and related subsidiaries including Morgan
Schaffer and Altanova (collectively, Doble), and NRG Systems, Inc. (NRG). Doble is an industry leader in the
development, manufacture and delivery of diagnostic testing and data management solutions that enable electric
F-25
power grid operators to assess the integrity of high-voltage power delivery equipment. It combines three core elements
for customers – diagnostic test and condition monitoring instruments, expert consulting, and testing services – and
provides access to its large reserve of related empirical knowledge. NRG is a global market leader in the design and
manufacture of decision support tools for the renewable energy industry, primarily wind and solar. The recent
acquisition of Altanova not only complements our existing products and services but its strong market share in Europe
and Asia provides a significant international platform for our USG segment.
The Test segment’s operations consist of ETS-Lindgren Inc. and related subsidiaries (ETS-Lindgren). ETS-Lindgren
is an industry leader in designing and manufacturing products which provide its customers with the ability to identify,
measure and contain magnetic, electromagnetic and acoustic energy. It supplies its customers with a broad range of
isolated environments and turnkey systems, including RF test facilities, acoustic test enclosures, RF and magnetically
shielded rooms, secure communication facilities, RF measurement systems and broadcast and recording studios. Many
of these facilities include proprietary features such as shielded doors and windows. ETS-Lindgren also provides the
design, program management, installation and integration services required to successfully complete these types of
facilities. ETS-Lindgren also supplies customers with a broad range of components including RF absorptive materials,
RF filters, active compensation systems, antennas, antenna masts, turntables and electric and magnetic probes, RF test
cells, proprietary measurement software and other test accessories required to perform a variety of tests.
ETS-Lindgren offers a variety of services including calibration for antennas and field probes, chamber certification,
field surveys, customer training and a variety of product tests. ETS-Lindgren serves the acoustics, medical, health and
safety, electronics, wireless communications, automotive and defense markets.
Accounting policies of the segments are the same as those described in the summary of significant accounting policies
in Note 1 to the Consolidated Financial Statements. The operating units within each reporting segment have been
aggregated because of similar economic characteristics and meet the other aggregation criteria of FASB ASC 280.
We evaluate the performance of our operating units based on EBIT, which is defined as earnings before interest and
taxes. EBIT on a consolidated basis is a non-GAAP financial measure. Intersegment sales and transfers are not
significant. Segment assets consist primarily of customer receivables, inventories, capitalized software and fixed
assets directly associated with the production processes of the segment. Segment depreciation and amortization is
based upon the direct assets listed above. The tables below are presented on the basis of continuing operations and
exclude discontinued operations.
Net Sales
(Dollars in millions)
Year ended September 30,
A&D
USG
Test
Consolidated totals
$
$
2022
351.4
278.4
227.7
857.5
2021
314.8
202.9
197.7
715.4
2020
351.9
191.7
186.9
730.5
No customer exceeded 10% of consolidated sales in 2022 or 2021 and one customer exceeded 10% of consolidated
sales in 2020.
EBIT
(Dollars in millions)
Year ended September 30,
A&D
USG
Test
Reconciliation to consolidated totals (Corporate)
Consolidated EBIT
Less: interest expense
Earnings before income tax
$
$
2022
68.4
57.6
32.6
(47.3 )
111.3
(4.9 )
106.4
2021
56.5
40.9
27.6
(42.1 )
82.9
(2.2 )
80.7
2020
69.9
24.4
27.2
(78.4 )
43.1
(6.7 )
36.4
F-26
Identifiable Assets
(Dollars in millions)
Year ended September 30,
A&D
USG
Test
Corporate
Consolidated totals
$
$
2022
295.2
220.0
174.6
964.7
1,654.5
2021
270.0
197.5
153.6
956.2
1,577.3
Corporate consists primarily of deferred taxes, acquired intangible assets including goodwill and cash balances.
Capital Expenditures
(Dollars in millions)
Year ended September 30,
A&D
USG
Test
Corporate
Consolidated totals
2022
2021
$
$
9.4
14.4
8.3
–
32.1
10.4
11.6
4.7
–
26.7
2020
15.9
12.4
3.6
0.2
32.1
In addition to the above amounts, we incurred expenditures for capitalized software of $12.9 million, $8.8 million and
$9.0 million in 2022, 2021 and 2020, respectively.
Depreciation and Amortization
(Dollars in millions)
Year ended September 30,
A&D
USG
Test
Corporate
Consolidated totals
$
$
2022
11.1
12.6
5.4
19.2
48.3
2021
10.4
13.5
5.2
12.9
42.0
2020
9.4
14.4
5.0
12.5
41.3
Depreciation expense of property, plant and equipment was $22.4 million, $21.2 million and $19.5 million for 2022,
2021 and 2020, respectively.
Geographic Information
Net Sales
(Dollars in millions)
Year ended September 30,
United States
Asia
Europe
Canada
India
Other
Consolidated totals
Long-Lived Assets
(Dollars in millions)
Year ended September 30,
United States
Mexico
Other
Consolidated totals
2020
529.4
96.3
51.3
31.7
10.3
11.5
730.5
$
$
$
$
2022
603.2
122.4
72.4
31.2
10.3
18.0
857.5
2022
141.5
5.8
8.7
156.0
2021
517.0
92.3
53.5
27.0
12.4
13.2
715.4
2021
141.0
3.8
9.5
154.3
We attribute net sales to countries based on the location of the customer. We attribute long-lived assets to countries
based on the location of the asset.
F-27
13. Commitments and Contingencies
At September 30, 2022, we had $8.0 million in letters of credit outstanding as guarantees of contract performance and
cash amounts that exceeded federally insured amounts. As a normal incident of the businesses in which we are
engaged, various claims, charges and litigation are asserted or commenced from time to time against us.
Additionally, we are currently involved in various stages of investigation and remediation relating to environmental
matters. It is the opinion of Management that the aggregate costs involved in the resolution of these matters, and
final judgments, if any, which might be rendered against us are adequately accrued, are covered by insurance or are
not likely to have a material adverse effect on our financial results as the estimated exposure to loss is not material.
F-28
14. Leases
Effective October 1, 2019 we adopted ASC 842, Leases. We determine at lease inception whether an arrangement that
provides control over the use of an asset is a lease. We recognize 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 (including anticipated
renewals). We have elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less.
Certain of our leases include options to extend the term of the lease for up to 20 years. When it is reasonably certain
that we 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 our lease agreements do not explicitly state the discount rate
implicit in the lease, Management uses our incremental borrowing rate on the commencement date to calculate the
present value of future payments based on the tenor of each arrangement.
Our leases for real estate commonly include escalating payments. We include these variable lease payments in the
calculation of our 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 are considered non-lease components for accounting purposes. Non-lease components are
excluded from our ROU assets and lease liabilities and expensed as incurred.
Our leases are for office space, manufacturing facilities, and machinery and equipment.
The components of lease costs are shown below:
(Dollars in thousands)
Finance lease cost:
Amortization
Interest on lease liabilities
Operating lease cost
Total lease cost
Additional information related to leases is shown below:
(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for operating lease liabilities
Weighted-average remaining lease term:
Operating leases
Finance leases
Weighted-average discount rate:
Operating leases
Finance leases
Year Ended
September 30,
2022
Year Ended
September 30,
2021
$
$
1,572
973
6,347
8,892
2,413
1,235
5,879
9,527
Year Ended
September 30,
2022
Year Ended
September 30,
2021
$
$
6,101
973
1,224
4,160
9.3 yrs
12.0 yrs
3.2 %
4.6 %
5,504
1,228
1,757
15,609
10.3 yrs
11.7 yrs
3.1 %
4.2 %
F-29
The table below is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and
the related ROU assets, presented on our Consolidated Balance Sheet on September 30, 2022:
(Dollars in thousands)
Years Ending September 30:
2023
2024
2025
2026
2027 and thereafter
Total minimum lease payments
Less: amounts representing interest
Present value of net minimum lease payments
Less: current portion of lease obligations
Non-current portion of lease obligations
Operating
Leases
Finance
Leases
$
$
5,953
5,132
3,790
2,881
17,029
34,785
4,760
30,025
5,172
24,853
2,256
2,315
2,370
2,434
18,997
28,372
7,189
21,183
1,331
19,852
ROU assets
$
29,150
17,343
The table below is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and
the related ROU assets, presented on our Consolidated Balance Sheet on September 30, 2021:
(Dollars in thousands)
Years Ending September 30:
2022
2023
2024
2025
2026 and thereafter
Total minimum lease payments
Less: amounts representing interest
Present value of net minimum lease payments
Less: current portion of lease obligations
Non-current portion of lease obligations
Operating
Leases
Finance
Leases
$
$
5,448
4,679
4,032
3,654
20,453
38,266
5,691
32,575
4,543
28,032
3,153
3,235
3,319
3,399
25,516
38,622
9,092
29,530
2,180
27,350
ROU assets
$
31,846
24,964
We include operating and finance lease liabilities in the Consolidated Balance Sheet in accrued other expenses
(current portion) and other liabilities (long-term portion). We include operating lease ROU assets as a caption on the
Consolidated Balance Sheet and include finance lease ROU assets in Property, plant and equipment on the
Consolidated Balance Sheet.
F-30
15. Revenues
(a) Disaggregation of Revenues
The tables below present our revenues by customer type, geographic location, and revenue recognition method for the
years ended September 30, 2022 and 2021, as we believe this presentation best depicts how the nature, amount, timing
and uncertainty of net sales and cash flows are affected by economic factors. The tables also include a reconciliation
of the disaggregated revenue within our reportable segments.
Year Ended September 30, 2022
(In thousands)
Customer type:
A&D
USG
Test
Total
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 144,305
207,108
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 351,413
272,432
5,935
278,367
209,016
18,706
227,722
Geographic location:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 299,158
52,255
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 351,413
180,586
97,781
278,367
123,428
104,294
227,722
Revenue recognition method:
Point in time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 144,039
207,374
Over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 351,413
224,502
53,865
278,367
58,522
169,200
227,722
625,753
231,749
857,502
603,172
254,330
857,502
427,063
430,439
857,502
Year Ended September 30, 2021
(In thousands)
Customer type:
A&D
USG
Test
Total
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 130,217
184,607
Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 314,824
199,111
3,797
202,908
177,601
20,107
197,708
Geographic location:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 275,976
38,848
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 314,824
140,545
62,363
202,908
100,438
97,270
197,708
Revenue recognition method:
Point in time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 136,449
178,375
Over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 314,824
153,163
49,745
202,908
40,609
157,099
197,708
506,929
208,511
715,440
516,959
198,481
715,440
330,221
385,219
715,440
(b) Remaining Performance Obligations
Our remaining performance obligations, which is the equivalent of our backlog, represent the expected transaction
price allocated to our contracts that we expect to recognize as revenue in future periods when we perform 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 September 30, 2022, we had $695.0 million in remaining
performance obligations of which we expect to recognize revenues of approximately 80% in the next twelve months.
(c) Contract assets and contract liabilities
We report assets and liabilities related to our contracts with customers on a contract-by-contract basis at the end of
each reporting period. At September 30, 2022, our contract assets and contract liabilities totaled $125.2 million and
$137.6 million, respectively. At September 30, 2021, our contract assets and contract liabilities totaled $93.8 million
and $108.8 million, respectively. During 2022, we recognized approximately $83.8 million in revenues that were
included in the contract liabilities balance at September 30, 2021.
F-31
MANAGEMENT’S STATEMENT OF FINANCIAL RESPONSIBILITY
The Company’s Management is responsible for the fair presentation of the Company’s financial statements in
accordance with accounting principles generally accepted in the United States of America, and for their integrity and
accuracy. Management is confident that its financial and business processes provide accurate information on a timely
basis.
Management, with the oversight of ESCO’s Board of Directors, has established and maintains a strong ethical
climate in which the Company’s affairs are conducted. Management also has established an effective system of
internal controls that provide reasonable assurance as to the integrity and accuracy of the financial statements, and
responsibility for the Company’s assets. Grant Thornton LLP, the Company’s independent registered public
accounting firm, reports directly to the Audit and Finance Committee of the Board of Directors. The Audit and
Finance Committee has established policies consistent with corporate reform laws for auditor independence. In
accordance with corporate governance listing requirements of the New York Stock Exchange:
A majority of Board members are independent of the Company and its Management.
All members of the key Board committees – the Audit and Finance, the Human Resources and
Compensation and the Nominating and Corporate Governance Committees – are independent.
The independent members of the Board meet regularly without the presence of Management.
The Company has a clear code of ethics and a conflict of interest policy to ensure that key corporate
decisions are made by individuals who do not have a financial interest in the outcome, separate from their
interest as Company officials.
The charters of the Board committees clearly establish their respective roles and responsibilities.
The Company has a Corporate Ethics Committee, ethics officers at each operating location and an
ombudsman hot line available to all domestic employees and all foreign employees have local ethics
officers and access to the Company’s ombudsman.
The Company has a strong financial team, from its executive leadership to each of its individual contributors.
Management monitors compliance with its financial policies and practices over critical areas including internal controls,
financial accounting and reporting, accountability, and safeguarding of its corporate assets. The internal audit function
maintains oversight over the key areas of the business and financial processes and controls, and reports directly to the
Audit and Finance Committee. Additionally, all employees are required to adhere to the ESCO Code of Business
Conduct and Ethics, which is monitored by the Corporate Ethics Committee.
Management is dedicated to ensuring that the standards of financial accounting and reporting that are established are
maintained. The Company’s culture demands integrity and a commitment to strong internal practices and policies.
The Consolidated Financial Statements have been audited by Grant Thornton LLP and KPMG LLP, whose reports are
included herein.
November 29, 2022
/s/Victor L. Richey
Victor L. Richey
Chairman, Chief Executive Officer
and President
/s/Christopher L. Tucker
Christopher L. Tucker
Senior Vice President
and Chief Financial Officer
F-32
EXHIBITS
The following exhibits are submitted with and attached to this Form 10-K; exhibit numbers correspond to the exhibit
table in Item 601 of Regulation S-K. For a complete list of exhibits including those incorporated by reference, see
Item 15(a)(3) of this Form 10-K, above.
Exhibit No.
Exhibit
21
23.1
23.2
31.1
31.2
32
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
*
**
**
**
**
**
**
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP)
Consent of Independent Registered Public Accounting Firm (KPMG LLP)
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer and Chief Financial Officer
Inline XBRL Instance Document
Inline XBRL Schema Document
Inline XBRL Calculation Linkbase Document
Inline XBRL Label Linkbase Document
Inline XBRL Presentation Linkbase Document
Inline XBRL Definition Linkbase Document
104
** Cover Page Inline Interactive Data File (contained in Exhibit 101)
-----------
* Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.
** Exhibits 101 and 104 to this report consist of documents formatted in XBRL (Extensible
Business Reporting Language) and filed with the Securities and Exchange Commission; they
are not included in printed copies of this Report.
Subsidiaries of ESCO Technologies Inc.
EXHIBIT 21
The following list omits certain of the Company’s subsidiaries which, if considered in the aggregate as a single
subsidiary, would not, as of the end of the year covered by this Report, constitute a “significant subsidiary” as defined
in SEC Regulation S-X.
Name
State or Jurisdiction
of Incorporation
or Organization
Name(s) Under Which
It Does Business
Beijing Lindgren ElectronMagnetic Technology Co., Ltd. People’s Republic of China Same; also ETS-Lindgren
Crissair, Inc.
Doble Engineering Company
Doble PowerTest Limited
ESCO International Holding Inc.
ESCO Technologies Holding LLC
California
Massachusetts
United Kingdom
Delaware
Delaware
ESCO UK Global Holdings Ltd
United Kingdom
ETS-Lindgren Inc.
ETS-Lindgren OY
Illinois
Finland
Same
Same
Same
Same
Same
Same
Same
Same
ETS-Lindgren Technology (Tianjin) Co., Ltd.
People’s Republic of China Same; also ETS-Lindgren
Globe Composite Solutions, LLC
Massachusetts
Same
I.S.A. – Altanova Group S.r.l.
Mayday Manufacturing Co.
Morgan Schaffer Ltd.
Networks Electronic Company, LLC
NRG Systems, Inc.
PTI Technologies Inc.
VACCO Industries
Westland Technologies, Inc.
Italy
Texas
Quebec, Canada
California
Vermont
Delaware
California
California
Same; also Altanova
Same
Same
Same; also NEco
Same
Same
Same
Same; also Westland Machine Shop
Consent of Independent Registered Public Accounting Firm (Grant Thornton LLP)
We have issued our report dated November 29, 2022 with respect to the consolidated financial statements and
internal control over financial reporting included in the Annual Report of ESCO Technologies Inc. on
Form 10-K for the year ended September 30, 2022. We consent to the incorporation by reference of said report in
the Registration Statements of ESCO Technologies Inc. on Forms S-8 (File No. 333-63930, File No. 333-223029, and
File No. 333-231364).
EXHIBIT 23.1
/s/ GRANT THORNTON LLP
St. Louis, Missouri
November 29, 2022
Consent of Independent Registered Public Accounting Firm (KPMG LLP)
We consent to the incorporation by reference in the registration statements (Nos. 333-63930, 333-223029,
333-231364) on Form S-8 of our report dated November 29, 2021, with respect to the consolidated financial
statements of ESCO Technologies Inc.
EXHIBIT 23.2
/s/ KPMG LLP
St. Louis, Missouri
November 29, 2022
EXHIBIT 31.1
I, Victor L. Richey, certify that:
Certification
1.
I have reviewed this annual report on Form 10-K of ESCO Technologies Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit and finance committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: November 29, 2022
/s/ Victor L. Richey
Victor L. Richey
Chairman, President and Chief Executive Officer
EXHIBIT 31.2
I, Christopher L. Tucker, certify that:
Certification
1.
I have reviewed this annual report on Form 10-K of ESCO Technologies Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit and finance committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: November 29, 2022
/s/ Christopher L. Tucker
Christopher L. Tucker
Senior Vice President and Chief Financial Officer
Certification
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32
In connection with the annual report of ESCO Technologies Inc. (the “Company”) on Form 10-K for the period ended
September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we,
Victor L. Richey, Chairman, President and Chief Executive Officer of the Company, and Christopher L. Tucker,
Senior Vice President and Chief Financial Officer of the Company, certify, to the best of our knowledge, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Date: November 29, 2022
/s/ Victor L. Richey
Victor L. Richey
Chairman, President and Chief Executive Officer
/s/ Christopher L. Tucker
Christopher L. Tucker
Senior Vice President and Chief Financial Officer
[This page intentionally left blank]
Shareholders’ Summary
Shareholders’ Annual Meeting
The Annual Meeting of Shareholders of ESCO Technologies Inc.
will be held at Westlake Village Inn, 31943 Agoura Road, Westlake
Village, CA 91361 at 8:00 a.m. Pacific Time on Friday, February 3,
2023. You may access this Annual Report as well as the Notice
of the meeting and the Proxy Statement on the Company’s
Annual Meeting website at www.envisionreports.com/ese.
Certifications
Pursuant to New York Stock Exchange (NYSE) requirements,
the Company submitted to the NYSE the annual certifications
by the Company’s chief executive officer dated February 7,
2022 and February 9, 2021, that he was not aware of any
violations by the Company of NYSE’s corporate governance
listing standards. In addition, the Company filed with the
Securities and Exchange Commission the certifications by the
Company’s chief executive officer and chief financial officer
required under Section 302 of the Sarbanes-Oxley Act of 2002
as exhibits to the Company’s Forms 10-K for its fiscal years
ended September 30, 2022 and September 30, 2021.
10-K Report
The Company’s 2022 Annual Report on Form 10-K as filed with
the Securities and Exchange Commission is included in this
Annual Report to Shareholders, except that certain of its Exhibits
have been omitted. The complete Form 10-K is available on the
Company’s website at www.escotechnologies.com, or a copy
will be provided to shareholders without charge upon written
request to Kate Lowrey, Vice President of Investor Relations,
ESCO Technologies Inc., 9900A Clayton Road, St. Louis, MO 63124.
Investor Relations
Additional investor-related information may be
obtained by contacting ESCO Investor Relations at
(314) 213-7277 or toll free at (888) 622-3726.
Information is also available through the Company’s
website at www.escotechnologies.com or via
e-mail to klowrey@escotechnologies.com.
Transfer Agent and Registrar
Shareholder inquiries concerning lost certificates, transfer
of shares or address changes should be directed to:
Computershare Shareholder Services
P.O. Box 505000
Louisville, KY 40233-5000
(800) 368-5948
www.computershare.com/investor
Capital Stock Information
ESCO Technologies Inc. common stock shares
(symbol ESE) are listed on the New York Stock Exchange.
There were approximately 1,808 holders of record of
shares of common stock at November 7, 2022.
Independent Registered Public Accounting Firm
Grant Thornton LLP
231 South Bemiston Ave., Suite 600
St. Louis, MO 63105
ESCO Technologies Inc.
9900A Clayton Road • St. Louis, MO 63124
www.escotechnologies.com