ITEM 1. FINANCIAL STATEMENTS
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The accompanying consolidated financial statements,
in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation
of the results for the interim periods presented. The consolidated financial statements are presented in accordance with the requirements
of Form 10-Q and consequently do not include all the disclosures required for annual financial statements by accounting principles
generally accepted in the United States of America (GAAP). For further information, refer to the consolidated financial statements
and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016.
The Company’s results for the three and nine-month
periods ended June 30, 2017 are not necessarily indicative of the results for the entire 2017 fiscal year. References to the third
quarters of 2017 and 2016 represent the fiscal quarters ended June 30, 2017 and 2016, respectively.
The preparation of financial statements in conformity
with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
On May 25, 2017, the Company acquired the assets
of Morgan Schaffer Inc. (Morgan Schaffer), a global utilities provider located in Montreal, Quebec, Canada, for a purchase price
of $48.8 million in cash. Morgan Schaffer, founded in 1965, has annualized sales of approximately $25 million. Morgan Schaffer
designs, develops, manufactures and markets an integrated offering of dissolved gas analysis, oil testing, and data management
solutions which enhance the ability of electric utilities to accurately monitor the health of critical power transformers. Since
the date of acquisition, the operating results for Morgan Schaffer have been included in the Company’s Utilities Solution
Group (USG) segment. Based on the preliminary purchase price allocation, the Company recorded approximately $2.5 million of accounts
receivable, $5.2 million of inventory, $1.7 million of property, plant and equipment, $0.4 million of other assets, $3.8 million
of accounts payable and accrued expenses, $4.8 million of goodwill, $34.6 million of trade names and $3.4 million of amortizable
intangible assets consisting of customer relationships and developed technology with a weighted average life of approximately
10 years.
On May 8, 2017, the Company acquired NRG Systems,
Inc. (NRG), doing business as Renewable NRG Systems, located in Hinesburg, Vermont, for a purchase price of $38.6 million, less
cash acquired. NRG, founded in 1982, is the global market leader in the design and manufacture of decision support tools for the
renewable energy industry, primarily wind. NRG has annualized sales of approximately $45 million. Since the date of acquisition,
the operating results for NRG have been included in the Company’s USG segment. Based on the preliminary purchase price allocation,
the Company recorded approximately $1.5 million of cash, $4.1 million of accounts receivable, $5.1 million of inventory, $1.0 million
of other assets, $9.4 million of property, plant and equipment (including a capital lease), $4.1 million of accounts payable and
accrued expenses, $9.7 million of lease liability, $7.5 million of goodwill, $8.1 million of trade names and $17.2 million of amortizable
intangible assets consisting of customer relationships with a weighted average life of approximately 14 years.
On November 7, 2016, the Company acquired aerospace
suppliers Mayday Manufacturing Co. and its affiliate, Hi-Tech Metals, Inc. (collectively referred to as Mayday), which share a
130,000 square foot facility in Denton, Texas, for a purchase price of $75 million in cash. Mayday Manufacturing Co.
is a manufacturer of 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 industry. Hi-Tech Metals,
Inc. is a full-service metal processor offering aerospace OEM’s, Tier 1 suppliers, a large portfolio of processing services
including anodizing, cadmium and zinc-nickel plating, organic coatings, non-destructive testing, and heat treatment. Mayday
has annual sales of approximately $40 million. Since the date of acquisition the consolidated operating results for Mayday have
been included in the Company’s Filtration segment. Based on the preliminary purchase price allocation, the Company
recorded approximately $7.4 million of accounts receivable, $11.0 million of inventory, $16.6 million of property, plant and equipment
(including a capital lease), $9.5 million of lease liability, $15.7 million of deferred tax liabilities, $30.1 million of goodwill
(non-deductible for tax purposes), $4.8 million of trade names and $32.8 million of amortizable identifiable intangible assets
consisting primarily of customer relationships with a weighted-average life of approximately 20 years.
|
3.
|
EARNINGS PER SHARE (EPS)
|
Basic EPS is calculated using the weighted average
number of common shares outstanding during the period. Diluted EPS is calculated using the weighted average number of common shares
outstanding during the period plus shares issuable upon the assumed exercise of dilutive common share options and vesting of performance-accelerated
restricted shares (restricted shares) by using the treasury stock method. The number of shares used in the calculation of earnings
per share for each period presented is as follows (in thousands):
|
|
Three Months
Ended June 30,
|
|
|
Nine Months
Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding - Basic
|
|
|
25,815
|
|
|
|
25,725
|
|
|
|
25,756
|
|
|
|
25,777
|
|
Dilutive Options and Restricted Shares
|
|
|
210
|
|
|
|
185
|
|
|
|
219
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Shares - Diluted
|
|
|
26,025
|
|
|
|
25,910
|
|
|
|
25,975
|
|
|
|
25,962
|
|
|
4.
|
SHARE-BASED COMPENSATION
|
The Company provides compensation benefits to certain
key employees under several share-based plans providing for performance-accelerated restricted shares (restricted shares), and
to non-employee directors under a non-employee directors compensation plan.
Performance-Accelerated Restricted Share Awards
Compensation expense related to the restricted share
awards was $1.0 million and $3.3 million for the three and nine-month periods ended June 30, 2017, respectively, and $0.8 million
and $3.1 million for the corresponding periods of 2016. There were 335,825 non-vested shares outstanding as of June 30, 2017.
Non-Employee Directors Plan
Compensation expense related to the non-employee
director grants was $0.3 million and $0.8 million for the three and nine-month periods ended June 30, 2017, respectively, and $0.2
million and $0.6 million for the corresponding periods of 2016.
The total share-based compensation cost that has
been recognized in the results of operations and included within selling, general and administrative expenses (SG&A) was $1.3
million and $4.1 million for the three-and nine-month periods ended June 30, 2017, respectively, and $1.0 million and $3.7 million
for the corresponding periods of 2016. The total income tax benefit recognized in results of operations for share-based compensation
arrangements was $1.2 million and $2.2 million for the three and nine-month periods ended June 30, 2017, respectively, and $0.4
million and $1.3 million for the corresponding periods of 2016, respectively. As of June 30, 2017, there was $7.3 million of total
unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a
remaining weighted-average period of 1.8 years.
Inventories consist of the following:
(In thousands)
|
|
June 30,
2017
|
|
|
September 30,
2016
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
28,559
|
|
|
|
19,451
|
|
Work in process
|
|
|
46,178
|
|
|
|
37,922
|
|
Raw materials
|
|
|
56,091
|
|
|
|
48,169
|
|
Total inventories
|
|
$
|
130,828
|
|
|
|
105,542
|
|
|
6.
|
GOODWILL AND OTHER INTANGIBLE
ASSETS
|
Included on the Company’s Consolidated Balance
Sheets at June 30, 2017 and September 30, 2016 are the following intangible assets gross carrying amounts and accumulated amortization:
(Dollars in thousands)
|
|
June 30, 2017
|
|
|
September 30, 2016
|
|
Goodwill
|
|
$
|
365,965
|
|
|
|
323,616
|
|
|
|
|
|
|
|
|
|
|
Intangible assets with determinable lives:
|
|
|
|
|
|
|
|
|
Patents
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
927
|
|
|
|
917
|
|
Less: accumulated amortization
|
|
|
742
|
|
|
|
726
|
|
Net
|
|
$
|
185
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
Capitalized software
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
60,216
|
|
|
|
54,003
|
|
Less: accumulated amortization
|
|
|
32,136
|
|
|
|
26,737
|
|
Net
|
|
$
|
28,080
|
|
|
|
27,266
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
163,331
|
|
|
|
111,887
|
|
Less: accumulated amortization
|
|
|
35,005
|
|
|
|
28,633
|
|
Net
|
|
$
|
128,325
|
|
|
|
83,254
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
5,255
|
|
|
|
2,777
|
|
Less: accumulated amortization
|
|
|
1,220
|
|
|
|
859
|
|
Net
|
|
$
|
4,035
|
|
|
|
1,918
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
Trade names
|
|
$
|
167,920
|
|
|
|
119,128
|
|
The changes in the carrying amount of goodwill attributable
to each business segment for the nine months ended June 30, 2017 is as follows:
(Dollars in millions)
|
|
USG
|
|
|
Test
|
|
|
Filtration
|
|
|
Packaging
|
|
|
Total
|
|
Balance as of September 30, 2016
|
|
|
226.2
|
|
|
|
34.1
|
|
|
|
43.9
|
|
|
|
19.4
|
|
|
|
323.6
|
|
Acquisition activity
|
|
|
12.3
|
|
|
|
-
|
|
|
|
30.1
|
|
|
|
-
|
|
|
|
42.4
|
|
Foreign currency translation and other
|
|
|
0.2
|
|
|
|
-
|
|
|
|
(0.5
|
)
|
|
|
0.3
|
|
|
|
-
|
|
Balance as of June 30, 2017
|
|
$
|
238.7
|
|
|
|
34.1
|
|
|
|
73.5
|
|
|
|
19.7
|
|
|
|
366.0
|
|
|
7.
|
BUSINESS SEGMENT INFORMATION
|
The Company is organized based on the products and
services that it offers, and classifies its business operations in four segments for financial reporting purposes: Filtration/Fluid
Flow (Filtration), RF Shielding and Test (Test), Utility Solutions Group (USG) and Technical Packaging. The Filtration segment’s
operations consist of PTI Technologies Inc. (PTI), VACCO Industries (VACCO), Crissair, Inc. (Crissair), Westland Technologies
Inc. (Westland), and Mayday. The companies within this segment primarily design and manufacture specialty filtration products,
including hydraulic filter elements used in commercial aerospace applications, unique filter mechanisms used in micro-propulsion
devices for satellites and custom designed filters for manned and unmanned aircraft; manufacture elastomeric-based signature reduction
solutions for the U.S. Navy; and manufacture landing gear components for the aerospace and defense industry. The Test segment’s
operations consist primarily of ETS-Lindgren Inc. (ETS-Lindgren). ETS-Lindgren is an industry leader in providing its customers
with the ability to identify, measure and contain magnetic, electromagnetic and acoustic energy. The USG segment’s operations
consist primarily of Doble Engineering Company (Doble), Morgan Schaffer, and NRG. Doble provides high-end, intelligent diagnostic
test solutions for the electric power delivery industry and is a leading supplier of partial discharge testing instruments used
to assess the integrity of high voltage power delivery equipment. Morgan Schaffer provides an integrated offering of dissolved
gas analysis, oil testing, and data management solutions for the electric power industry. NRG designs and manufactures decision
support tools for the renewable energy industry, primarily wind. The Technical Packaging segment’s operations consist of
Thermoform Engineered Quality LLC (TEQ) and Plastique Limited and Plastique Sp. zoo (together, Plastique). The companies within
this segment provide innovative solutions to the medical and commercial markets for thermoformed packages and specialty products
using a wide variety of thin gauge plastics and pulp.
Management evaluates and measures the performance
of its reportable segments based on “Net Sales” and “EBIT”, which are detailed in the table below. EBIT
is defined as earnings before interest and taxes.
(In thousands)
|
|
Three Months
Ended June 30,
|
|
|
Nine Months
Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
NET SALES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Filtration
|
|
$
|
71,179
|
|
|
|
54,396
|
|
|
|
198,869
|
|
|
|
145,758
|
|
Test
|
|
|
37,544
|
|
|
|
36,234
|
|
|
|
109,738
|
|
|
|
119,608
|
|
USG
|
|
|
42,059
|
|
|
|
29,121
|
|
|
|
110,287
|
|
|
|
93,657
|
|
Technical Packaging
|
|
|
20,407
|
|
|
|
20,440
|
|
|
|
59,841
|
|
|
|
52,931
|
|
Consolidated totals
|
|
$
|
171,189
|
|
|
|
140,191
|
|
|
|
478,735
|
|
|
|
411,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Filtration
|
|
$
|
11,945
|
|
|
|
12,163
|
|
|
|
34,296
|
|
|
|
29,511
|
|
Test
|
|
|
4,885
|
|
|
|
3,744
|
|
|
|
11,076
|
|
|
|
8,587
|
|
USG
|
|
|
8,477
|
|
|
|
6,124
|
|
|
|
25,585
|
|
|
|
21,581
|
|
Technical Packaging
|
|
|
2,433
|
|
|
|
2,474
|
|
|
|
5,660
|
|
|
|
7,035
|
|
Corporate (loss)
|
|
|
(9,105
|
)
|
|
|
(6,665
|
)
|
|
|
(23,499
|
)
|
|
|
(21,694
|
)
|
Consolidated EBIT
|
|
|
18,635
|
|
|
|
17,840
|
|
|
|
53,118
|
|
|
|
45,020
|
|
Less: Interest expense, net
|
|
|
(1,213
|
)
|
|
|
(320
|
)
|
|
|
(2,752
|
)
|
|
|
(917
|
)
|
Earnings before income taxes
|
|
$
|
17,422
|
|
|
|
17,520
|
|
|
|
50,366
|
|
|
|
44,103
|
|
Non-GAAP Financial Measures
The financial measure “EBIT” is presented
in the above table and elsewhere in this Report. EBIT on a consolidated basis is a non-GAAP financial measure. Management believes
that EBIT is useful in assessing the operational profitability of the Company’s business segments because it excludes interest
and taxes, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures
used by management in determining resource allocations within the Company as well as incentive compensation. A reconciliation of
EBIT to net earnings is set forth in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations
– EBIT.
The Company believes that the presentation of EBIT
provides important supplemental information to investors to facilitate comparisons with other companies, many of which use similar
non-GAAP financial measures to supplement their GAAP results. However, the Company’s non-GAAP financial measures may not
be comparable to other companies’ non-GAAP financial performance measures. Furthermore, the use of non-GAAP financial measures
is not intended to replace any measures of performance determined in accordance with GAAP.
The Company’s debt is summarized as follows:
(In thousands)
|
|
June 30,
2017
|
|
|
September 30,
2016
|
|
Total borrowings
|
|
$
|
265,000
|
|
|
|
110,000
|
|
Short-term borrowings and current portion of long-term debt
|
|
|
(20,000
|
)
|
|
|
(20,000
|
)
|
Total long-term debt, less current portion
|
|
$
|
245,000
|
|
|
|
90,000
|
|
The Company’s existing credit facility (“the
Credit Facility”) matures December 21, 2020. The Credit Facility includes a $450 million revolving line of credit as well
as provisions allowing for the increase of the facility commitment amount by an additional $250 million, if necessary, with the
consent of the lenders. The bank syndication supporting the facility is comprised of a diverse group of nine banks led by JPMorgan
Chase Bank, N.A., as Administrative Agent.
At June 30, 2017, the Company had approximately
$178 million available to borrow under the Credit Facility, and a $250 million increase option, in addition to $48.5 million cash
on hand. At June 30, 2017, the Company had $265 million of outstanding borrowings under the Credit Facility in addition to outstanding
letters of credit of $7.2 million. The Company classified $20.0 million as the current portion of long-term debt as of June 30,
2017, as the Company intends to repay this amount within the next twelve month period; however, the Company has no contractual
obligation to repay such amount during the next twelve month period.
The Credit Facility requires, as determined by certain
financial ratios, a facility fee ranging from 12.5 to 27.5 basis points per year on the unused portion. The terms of the facility
provide that interest on borrowings may be calculated at a spread over the London Interbank Offered Rate (LIBOR) or based on the
prime rate, at the Company’s election. The facility is secured by the unlimited guaranty of the Company’s material
domestic subsidiaries and a 65% pledge of the material foreign subsidiaries’ share equity. The financial covenants of the
Credit Facility include a leverage ratio and an interest coverage ratio. The weighted average interest rates were 2.11% and 1.90%
for the three and nine-month periods ending June 30, 2017, respectively, and 1.50% and 1.58% for the corresponding periods of 2016.
At June 30, 2017, the Company was in compliance with all debt covenants.
The third quarter 2017 effective income tax rate
was 27.4% compared to 34.2% in the third quarter of 2016. The effective income tax rate for the first nine months of 2017 was 31.4%
compared to 34.3% for the first nine months of 2016. The Company elected to early adopt Accounting Standards Update No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
, resulting in the income tax expense in the third quarter and first
nine months of 2017 being favorably impacted by additional tax benefits on share-based compensation that vested during the quarter
decreasing the effective tax rate by 5.1% and 1.8%, respectively.
The income tax expense in the first nine months
of 2016 was unfavorably impacted by a U.K. foreign valuation allowance that increased the year-to-date effective tax rate by1.5%.
The income tax expense in the third quarter and first nine months of 2016 was favorably impacted by the extension of the research
credit as a result of The Protecting Americans from Tax Hikes Act reducing the year-to-date effective tax rate by 1.8%. The income
tax expense in the third quarter and first nine months of 2016 was unfavorably impacted by return to provision true-ups increasing
the third quarter and year-to-date effective tax rate by 1.3% and 0.5%, respectively. The income tax expense in the first nine
months of 2016 was unfavorably impacted by losses in foreign jurisdictions for which no tax benefit was recorded, increasing the
year-to-date effective tax rate by 1.7%.
The change in shareholders’ equity for the
first nine months of 2017 is shown below (in thousands):
Balance at September 30, 2016
|
|
$
|
615,109
|
|
Net earnings
|
|
|
34,529
|
|
Other comprehensive income
|
|
|
2,958
|
|
Cash dividends
|
|
|
(6,190
|
)
|
Stock compensation plans
|
|
|
(1,817
|
)
|
Balance at June 30, 2017
|
|
$
|
644,589
|
|
A summary of net periodic benefit expense for the
Company’s defined benefit plans for the three and nine-month periods ended June 30, 2017 and 2016 is shown in the following
table. Net periodic benefit cost for each period presented is comprised of the following:
|
|
Three Months
Ended June 30,
|
|
|
Nine Months
Ended June 30,
|
|
(In thousands)
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Defined benefit plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
737
|
|
|
|
963
|
|
|
|
2,438
|
|
|
|
2,888
|
|
Expected return on assets
|
|
|
(942
|
)
|
|
|
(1,093
|
)
|
|
|
(2,978
|
)
|
|
|
(3,280
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
-
|
|
|
|
3
|
|
|
|
3
|
|
|
|
10
|
|
Actuarial loss
|
|
|
683
|
|
|
|
486
|
|
|
|
1,871
|
|
|
|
1,459
|
|
Net periodic benefit cost
|
|
$
|
478
|
|
|
|
359
|
|
|
|
1,334
|
|
|
|
1,077
|
|
|
12.
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
Market risks relating to the Company’s operations
result primarily from changes in interest rates and changes in foreign currency exchange rates. The Company is exposed to market
risk related to changes in interest rates and selectively uses derivative financial instruments, including forward contracts and
swaps, to manage these risks. During 2016, the Company entered into several forward contracts to purchase pounds sterling (GBP)
to hedge two deferred payments due in connection with the acquisition of Plastique. In addition, our Canadian subsidiary Morgan
Schaffer enters into foreign exchange contracts to manage foreign currency risk as a portion of their revenue is denominated in
U.S. dollars. The Company expects hedging gains or losses to be essentially offset by losses or gains on the related underlying
exposures. All derivative instruments are reported in either accrued expenses or other receivables on the balance sheet at fair
value. For derivative instruments designated as cash flow hedges, the gain or loss on the derivative is deferred in accumulated
other comprehensive income until recognized in earnings with the underlying hedged item.
The following is a summary of the notional transaction
amounts and fair values for the Company’s outstanding derivative financial instruments by risk category and instrument type
as of June 30, 2017:
(In thousands)
|
|
Notional
amount
|
|
|
Fair
Value
(US$)
|
|
Forward contracts
|
|
|
1,859
|
GBP
|
|
|
(238
|
)
|
Forward contracts
|
|
|
4,750
|
USD
|
|
|
64
|
|
Forward contracts
|
|
|
500
|
EUR
|
|
|
(14
|
)
|
|
13.
|
FAIR VALUE MEASUREMENTS
|
The accounting guidance establishes a three-level
hierarchy for disclosure of fair value measurements, based upon the transparency of inputs to the valuation of an asset or liability
as of the measurement date, as follows:
|
·
|
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
·
|
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
·
|
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
Financial Assets and Liabilities
The Company has estimated the fair value of its financial
instruments as of June 30, 2017 and September 30, 2016 using available market information or other appropriate valuation methodologies.
The carrying amounts of cash and cash equivalents, receivables, inventories, payables, debt and other current assets and liabilities
approximate fair value because of the short maturity of those instruments.
Fair Value of Financial Instruments
The Company’s forward contracts are classified
within Level 2 of the valuation hierarchy in accordance with FASB Accounting Standards Codification (ASC) 825, as presented below
as of June 30, 2017:
(In thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
$
|
-
|
|
|
|
(188
|
)
|
|
$
|
-
|
|
|
|
(188
|
)
|
Valuation was based on third party evidence of similarly
priced derivative instruments.
Nonfinancial Assets and Liabilities
The Company’s nonfinancial assets such as property,
plant and equipment, and other intangible assets are not measured at fair value on a recurring basis; however they are subject
to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist. No impairments
were recorded during the three and nine-month periods ended June 30, 2017.
|
14.
|
NEW ACCOUNTING STANDARDS
|
In March 2016, the FASB issued Accounting Standards
Update (ASU) No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which simplified the income tax consequences,
accounting for forfeitures and classification on the Statements of Consolidated Cash Flows. The Company adopted this standard in
the current year resulting in the income tax expense in the third quarter and first nine months of 2017 being favorably impacted
by additional tax benefits on share-based compensation that vested during the third quarter of 2017 decreasing the effective tax
rate by 5.1% and 1.8%, respectively.
In February 2016, the FASB issued ASU No. 2016-062,
Leases (Topic 842)
, which, among other things, requires an entity to recognize lease assets and lease liabilities on the
balance sheet and disclose key information about leasing arrangements. This standard will increase an entities’ reported
assets and liabilities. The standard is effective for fiscal years beginning after December 15, 2018 and mandates a modified retrospective
transition period for all entities. The Company is currently assessing the impact of this standard on its consolidated financial
statements and related disclosures.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue
from Contracts with Customers
, which requires an entity to recognize the amount of revenue to which it expects to be entitled
for the transfer of promised goods or services to customers. This guidance has been further clarified and amended. The new standard
will be effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods.
The standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently in the
process of evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures and
selecting the method of transition to the new standard.