10-K/A 1 q4fy19evoqua10-kadoc.htm 10-K/A Document



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K/A
Amendment No. 1
ý
 
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended September 30, 2019
or
o
 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 001-38272
EVOQUA WATER TECHNOLOGIES CORP.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
 
46-4132761
(I.R.S. Employer Identification No.)

210 Sixth Avenue
Pittsburgh, Pennsylvania
(Address of principal executive offices)
 

15222
(Zip code)
(724) 772-0044
(Registrant’s telephone number, including area code)
         SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class:
Trading Symbol(s):
Name of each exchange on which registered:
Common Stock, par value $0.01 per share
AQUA
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 ý    No o
        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 o    No ý
         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 ý  No o 



         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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý  No o
         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 o
 
Accelerated filer ý
 
Non-accelerated filer o

 
Smaller reporting company o 
Emerging growth company o
         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. o
         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
         The aggregate market value of the outstanding common stock, par value $0.01 per share, of the registrant other than shares held by persons who may be deemed affiliates of the registrant, as of March 31, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $665 million.
         There were 114,400,103 shares of the registrant’s common stock, par value $0.01 per share, outstanding as of October 31, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement (the “Proxy Statement”) for its annual meeting of shareholders to be held in February 2020, are incorporated by reference into Part III of this Report. The Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.






EXPLANATORY NOTE

The registrant filed with the Securities and Exchange Commission an Annual Report on Form 10-K for the year ended September 30, 2019 on November 25, 2019 (the “Form 10-K”). The registrant is filing this Amendment solely (1) to include two missing signatures on the Reports of Independent Registered Public Accounting Firm under Item 8 of the Form 10-K and (2) to include a missing signature on Exhibit 23.1, Consent of Independent Registered Public Accounting Firm to the Form 10-K.

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by our principal executive officer and principal financial officer are being filed as Exhibits 31.1, 31.2, 32.1 and 32.2 to this Amendment.

This Amendment consists solely of the preceding cover page, this explanatory note, the information required by Items 8 and 15 of Form 10-K, a signature page, the Consent of Ernst & Young LLP and certifications required to be filed as exhibits hereto. Except as described in this Explanatory Note, this Amendment does not amend any other information set forth in the Form 10-K, and the registrant has not updated disclosures to reflect any events that occurred subsequent to November 25, 2019.




Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY FINANCIAL INFORMATION
Evoqua Water Technologies Corp.
 
Audited Consolidated Financial Statements
 


4



Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Evoqua Water Technologies Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Evoqua Water Technologies Corp. (the Company) as of September 30, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), changes in equity and changes in cash flows for each of the three years in the period ended September 30, 2019, and the related notes and the financial statement schedule listed in the Index at Item 15(a)1 to the consolidated financial statements (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2019, in conformity with U.S. generally accepted accounting principles.  
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, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated November 25, 2019 expressed an unqualified opinion thereon.
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 audits 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 audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2013.
Pittsburgh, Pennsylvania
November 25, 2019











5



Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Evoqua Water Technologies Corp.
Opinion on Internal Control over Financial Reporting
We have audited Evoqua Water Technologies Corp.’s internal control over financial reporting as of September 30, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Evoqua Water Technologies Corp. (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2019, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of ATG UV, which is included in the 2019 consolidated financial statements of the Company and constituted $4.1 million and $1.1 million of total and net assets, respectively, as of September 30, 2019 and $4.9 million and $1.0 million of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of ATG UV.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), changes in equity and changes in cash flows for each of the three years in the period ended September 30, 2019, and the related notes and the financial statement schedule listed in the Index at Item 15(a)1 to the consolidated financial statements and our report dated November 25, 2019 expressed an unqualified opinion thereon.
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

6


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/ Ernst & Young LLP
Pittsburgh, Pennsylvania
November 25, 2019



7


Evoqua Water Technologies Corp.
Consolidated Balance Sheets
(In thousands)
 
September 30, 2019
 
September 30, 2018
ASSETS
 
 
 
Current assets
$
637,293

 
$
565,560

Cash and cash equivalents
109,881

 
82,365

Receivables, net
257,585

 
254,756

Inventories, net
137,164

 
134,988

Contract assets
73,467

 
69,147

Prepaid and other current assets
21,940

 
23,854

Income tax receivable
—

 
450

Assets held for sale
37,256

 
—

Property, plant, and equipment, net
333,584

 
320,023

Goodwill
392,890

 
411,346

Intangible assets, net
314,767

 
340,408

Deferred income taxes, net of valuation allowance
2,790

 
2,438

Other non‑current assets
25,715

 
23,842

Non-current assets held for sale
30,809

 
—

Total assets
$
1,737,848

 
$
1,663,617

LIABILITIES AND EQUITY
 
 
 
Current liabilities
$
322,221

 
$
284,719

Accounts payable
144,247

 
141,140

Current portion of debt, net of deferred financing fees
13,418

 
11,555

Contract liabilities
39,051

 
17,652

Product warranties
4,922

 
8,907

Accrued expenses and other liabilities
101,839

 
97,672

Income tax payable
4,536

 
7,793

Liabilities held for sale
14,208

 
—

Non‑current liabilities
1,049,805

 
1,016,882

Long‑term debt, net of deferred financing fees
951,599

 
928,075

Product warranties
2,332

 
3,360

Other non‑current liabilities
78,661

 
74,352

Deferred income taxes, net of valuation allowance
13,548

 
11,095

Non-current liabilities held for sale
3,665

 
—

Total liabilities
1,372,026

 
1,301,601

Commitments and Contingent Liabilities (Note 21)


 


Shareholders’ equity
 
 
 
Common stock, par value $0.01: authorized 1,000,000 shares; issued 116,008 shares, outstanding 114,344 at September 30, 2019; issued 115,016, outstanding 113,929 shares at September 30, 2018
1,154

 
1,145

Treasury stock: 1,664 shares at September 30, 2019 and 1,087 shares at September 30, 2018
(2,837
)
 
(2,837
)
Additional paid‑in capital
552,422

 
533,435

Retained deficit
(174,976
)
 
(163,871
)
Accumulated other comprehensive loss, net of tax
(13,004
)
 
(9,017
)
Total Evoqua Water Technologies Corp. equity
362,759

 
358,855

Non‑controlling interest
3,063

 
3,161

Total shareholders’ equity
365,822

 
362,016

Total liabilities and shareholders’ equity
$
1,737,848

 
$
1,663,617

See accompanying notes to these Consolidated Financial Statements

8


Evoqua Water Technologies Corp.
Consolidated Statements of Operations
(In thousands except per share data)
 
Year Ended September 30,
 
2019
 
2018
 
2017
Revenue from product sales
$
851,161

 
$
802,302

 
$
718,098

Revenue from services
593,280

 
537,239

 
529,326

Revenue
1,444,441

 
1,339,541

 
1,247,424

Cost of product sales
(615,171
)
 
(582,606
)
 
(459,641
)
Cost of services
(403,308
)
 
(352,202
)
 
(388,032
)
Cost of product sales and services
(1,018,479
)
 
(934,808
)
 
(847,673
)
Gross profit
425,962

 
404,733

 
399,751

General and administrative expense
(217,013
)
 
(193,816
)
 
(169,617
)
Sales and marketing expense
(138,936
)
 
(136,009
)
 
(142,441
)
Research and development expense
(15,300
)
 
(15,877
)
 
(19,990
)
Total operating expenses
(371,249
)
 
(345,702
)
 
(332,048
)
Other operating income
5,613

 
8,406

 
2,361

Other operating expense
(654
)
 
(591
)
 
(860
)
Income before interest expense and income taxes
59,672

 
66,846

 
69,204

Interest expense
(58,556
)
 
(57,580
)
 
(55,377
)
Income before income taxes
1,116

 
9,266

 
13,827

Income tax expense
(9,587
)
 
(1,382
)
 
(7,417
)
Net (loss) income
(8,471
)
 
7,884

 
6,410

Net income attributable to non‑controlling interest
1,052

 
1,749

 
4,247

Net (loss) income attributable to Evoqua Water Technologies Corp.
$
(9,523
)
 
$
6,135

 
$
2,163

Basic (loss) income per common share
$
(0.08
)
 
$
0.05

 
$
0.02

Diluted (loss) income per common share
$
(0.08
)
 
$
0.05

 
$
0.02

See accompanying notes to these Consolidated Financial Statements



9


Evoqua Water Technologies Corp.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
 
Year Ended September 30,
 
2019
 
2018
 
2017
Net (loss) income
$
(8,471
)
 
$
7,884

 
$
6,410

Other comprehensive income (loss)
 
 
 
 
 
Foreign currency translation adjustments
1,507

 
(3,473
)
 
148

Unrealized derivative gain (loss) on cash flow hedges, net of tax of benefit of $154, $0 and $0, respectively
74

 
(21
)
 
(19
)
Change in pension liability, net of tax expense of $26, $232 and $0, respectively
(5,568
)
 
466

 
4,553

Total other comprehensive (loss) income
(3,987
)
 
(3,028
)
 
4,682

Less: Comprehensive income attributable to non‑controlling interest
(1,052
)
 
(1,749
)
 
(4,247
)
Comprehensive (loss) income attributable to Evoqua Water Technologies Corp.
$
(13,510
)
 
$
3,107

 
$
6,845

See accompanying notes to these Consolidated Financial Statements



10


Evoqua Water Technologies Corp.
Consolidated Statements of Changes in Equity
(In thousands)
 
Common Stock
 
Treasury Stock
 
Additional
Paid‑in
Capital
 
Retained
Deficit
 
Accumulated
Other Comprehensive Loss
 
Non‑controlling
Interest
 
Total
 
Shares
 
Cost
 
Shares
 
Cost
 
 
 
 
 
Balance at September 30, 2016
104,495

 
$
1,045

 
245

 
$
(1,133
)
 
$
381,223

 
$
(172,169
)
 
$
(10,671
)
 
$
5,640

 
$
203,935

Equity based compensation expense
—

 
—

 
—

 
—

 
2,251

 
—

 
—

 
—

 
2,251

Issuance of common stock
864

 
9

 
—

 
—

 
5,512

 
—

 
—

 
—

 
5,521

Stock repurchases
—

 
—

 
165

 
(1,474
)
 
—

 
—

 
—

 
—

 
(1,474
)
Dividends paid to non‑controlling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,750
)
 
(4,750
)
Net income
—

 
—

 
—

 
—

 
—

 
2,163

 
—

 
4,247

 
6,410

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
4,682

 
—

 
4,682

Balance at September 30, 2017
105,359

 
1,054

 
410

 
(2,607
)
 
388,986

 
(170,006
)
 
(5,989
)
 
5,137

 
216,575

Equity based compensation expense
—

 
—

 
—

 
—

 
15,742

 
—

 
—

 
—

 
15,742

Shares of common stock issued in initial public offering, net of offering costs
8,333

 
83

 
—

 
—

 
137,522

 
—

 
—

 
—

 
137,605

Shares withheld related to net share settlement (including tax withholdings)
1,324

 
8

 
659

 
—

 
(8,815
)
 
—

 
—

 
—

 
(8,807
)
Stock repurchases
—

 
—

 
18

 
(230
)
 
—

 
—

 
—

 
—

 
(230
)
Dividends paid to non-controlling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,725
)
 
(3,725
)
Net income
—

 
—

 
—

 
—

 
—

 
6,135

 
—

 
1,749

 
7,884

Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
(3,028
)
 
—

 
(3,028
)
Balance at September 30, 2018
115,016

 
1,145

 
1,087

 
(2,837
)
 
533,435

 
(163,871
)
 
(9,017
)
 
3,161

 
362,016

Cumulative effect of adoption of new accounting standards
—

 
—

 
—

 
—

 
—

 
(1,582
)
 
—

 
—

 
(1,582
)
Equity based compensation expense
—

 
—

 
—

 
—

 
19,903

 
—

 
—

 
—

 
19,903

Issuance of common stock
108

 
—

 
—

 
—

 
363

 
—

 
—

 
—

 
363

Shares withheld related to net share settlement (including tax withholdings)
884

 
9

 
577

 
—

 
(1,279
)
 
—

 
—

 
—

 
(1,270
)
Dividends paid to non-controlling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,150
)
 
(1,150
)
Net (loss) income
—

 
—

 
—

 
—

 
—

 
(9,523
)
 
—

 
1,052

 
(8,471
)
Other comprehensive loss
—

 
—

 
—

 
—

 
—

 
—

 
(3,987
)
 
—

 
(3,987
)
Balance at September 30, 2019
116,008

 
$
1,154

 
1,664

 
$
(2,837
)
 
$
552,422

 
$
(174,976
)
 
$
(13,004
)
 
$
3,063

 
$
365,822

See accompanying notes to these Consolidated Financial Statements

11


Evoqua Water Technologies Corp.
Consolidated Statements of Changes in Cash Flows
(In thousands)
 
Year Ended September 30,
 
2019
 
2018
 
2017
Operating activities
 
 
 
 
 
Net (loss) income
$
(8,471
)
 
$
7,884

 
$
6,410

Reconciliation of net income to cash flows provided by operating activities:
 
 
 
 
 
Depreciation and amortization
98,236

 
85,860

 
77,886

Amortization of debt related costs (includes $0, $5,575 and $3,094 write off of deferred financing fees)
2,612

 
8,073

 
8,511

Deferred income taxes
1,948

 
(6,232
)
 
1,273

Share-based compensation
19,903

 
15,742

 
2,251

Gain on sale of property, plant and equipment
(932
)
 
(6,750
)
 
1,230

Foreign currency exchange losses (gains) on intercompany loans and other non-cash items
10,713

 
5,766

 
(5,625
)
Changes in assets and liabilities
 
 
 
 
 
Accounts receivable
(13,235
)
 
(3,139
)
 
(44,047
)
Inventories
(1,469
)
 
(12,051
)
 
(5,948
)
Contract assets
(23,827
)
 
(3,544
)
 
(17,296
)
Prepaids and other current assets
9,447

 
(3,773
)
 
(2,971
)
Accounts payable
9,408

 
24,945

 
4,707

Accrued expenses and other liabilities
(9,159
)
 
(22,851
)
 
(2,243
)
Contract liabilities
21,311

 
(9,254
)
 
1,301

Income taxes
(3,651
)
 
2,777

 
6,656

Other non‑current assets and liabilities
12,362

 
(2,436
)
 
(3,593
)
Net cash provided by operating activities
125,196

 
81,017

 
28,502

Investing activities
 
 
 
 
 
Purchase of property, plant and equipment
(88,869
)
 
(80,713
)
 
(57,775
)
Purchase of intangibles
(6,426
)
 
(1,950
)
 
(4,914
)
Proceeds from sale of property, plant and equipment
3,636

 
21,641

 
5,422

Proceeds from sale of business
—

 
430

 
—

Acquisitions, net of cash received of $2,073, $27 and $209
(2,873
)
 
(146,443
)
 
(77,628
)
Net cash used in investing activities
(94,532
)
 
(207,035
)
 
(134,895
)
Financing activities
 
 
 
 
 
Issuance of debt, net of deferred issuance costs
38,381

 
155,270

 
415,602

Borrowings under credit facility
292,825

 
129,000

 
131,000

Repayment of debt
(307,809
)
 
(242,470
)
 
(423,418
)
Repayment of capital lease obligation
(12,900
)
 
(10,474
)
 
(7,962
)
Payment of earn-out related to previous acquisitions
(461
)
 
(5,528
)
 
—

Proceeds from issuance of common stock
363

 
137,605

 
5,521

Taxes paid related to net share settlements of share-based compensation awards
(1,270
)
 
(8,807
)
 
—

Stock repurchases
—

 
(230
)
 
(1,474
)
Cash paid for interest rate cap
(2,235
)
 
—

 
—

Distribution to non‑controlling interest
(1,150
)
 
(3,725
)
 
(4,750
)
Net cash provided by financing activities
5,744

 
150,641

 
114,519

Effect of exchange rate changes on cash
(1,601
)
 
(1,512
)
 
766

Cash and cash equivalents classified as held for sale
(7,291
)
 
—

 
—

Change in cash and cash equivalents
27,516

 
23,111

 
8,892

Cash and cash equivalents
 
 
 
 
 
Beginning of period
82,365

 
59,254

 
50,362

End of period
$
109,881

 
$
82,365

 
$
59,254

See accompanying notes to these Consolidated Financial Statements

12


Evoqua Water Technologies Corp.
Supplemental Disclosure of Cash Flow Information
(In thousands)
 
Year Ended September 30,
 
2019
 
2018
 
2017
Supplemental disclosure of cash flow information
 
 
 
 
 
Cash paid for taxes
$
10,340

 
$
4,450

 
$
3,017

Cash paid for interest
$
52,786

 
$
43,596

 
$
43,426

Non‑cash investing and financing activities
 
 
 
 
 
Accrued earn-out related to acquisitions
$
—

 
$
1,570

 
$
7,479

Capital lease transactions
$
18,640

 
$
10,595

 
$
15,513

Landlord incentives
$
1,000

 
$
—

 
$
1,700

Cloud computing related intangible transaction
$
—

 
$
—

 
$
5,544

See accompanying notes to these Consolidated Financial Statements


13


Evoqua Water Technologies Corp.
Notes to Audited Consolidated Financial Statements
(In thousands)
1. Description of the Company and Basis of Presentation
Background
Evoqua Water Technologies Corp. (referred to herein as the “Company” or “EWT”) was incorporated on October 7, 2013. On January 15, 2014, Evoqua Water Technologies Corp., acquired through its wholly owned entities, EWT Holdings II Corp. and EWT Holdings III Corp. (a/k/a Evoqua Water Technologies), all of the outstanding shares of Siemens Water Technologies, a group of legal entity businesses formerly owned by Siemens AG (“Siemens”). The stock purchase closed on January 15, 2014 and was effective January 16, 2014 (the “Acquisition”). The stock purchase price, net of cash received, was approximately $730,577. On November 6, 2017, the Company completed its initial public offering (“IPO”), pursuant to which an aggregate of 27,777 shares of common stock were sold, of which 8,333 were sold by the Company and 19,444 were sold by the selling shareholders, with a par value of $0.01 per share. After underwriting discounts and commissions and expenses, the Company received net proceeds from the IPO of approximately $137,605. The Company used a portion of these proceeds to repay $104,936 of indebtedness (including accrued and unpaid interest) under EWT III’s senior secured first lien term loan facility and the remainder for general corporate purposes. The Company did not receive any proceeds from the sale of shares by the selling shareholders. On November 7, 2017, the selling shareholders sold an additional 4,167 shares of common stock as a result of the exercise in full by the underwriters of an option to purchase additional shares. On March 19, 2018, the Company completed a secondary public offering, pursuant to which 17,500 shares of common stock were sold by certain selling shareholders. On March 21, 2018, the selling shareholders sold an additional 2,625 shares of common stock as a result of the exercise in full by the underwriters of an option to purchase additional shares. The Company did not receive any proceeds from the sale of shares by the selling shareholders.
The Business
EWT provides a wide range of product brands and advanced water and wastewater treatment systems and technologies, as well as mobile and emergency water supply solutions and service contract options through its segment branch network. Headquartered in Pittsburgh, Pennsylvania, EWT is a multi‑national corporation with operations in the United States (“U.S.”), Canada, the United Kingdom (“UK”), the Netherlands, Germany, Australia, China, Singapore, Korea and India.
The Company is organizationally structured into two reportable operating segments for the purpose of making operational decisions and assessing financial performance: (i) Integrated Solutions and Services and (ii) Applied Product Technologies.
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) from the accounting records of the Company, and reflect the consolidated financial position and results of operations for the fiscal years ended September 30, 2019, 2018 and 2017. Unless otherwise specified, references in this section to a year refer to its fiscal year. All intercompany transactions have been eliminated. Unless otherwise specified, all dollar amounts in this section are referred to in thousands. Certain prior period amounts have been reclassified to conform to the current period presentation.
2. Summary of Significant Accounting Policies
Fiscal Year
The Company’s fiscal year ends on September 30.

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Use of Estimates
The Consolidated Financial Statements have been prepared in conformity with GAAP and require management to make estimates and assumptions. These assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the audited Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions are used for, but not limited to: (i) revenue recognition; (ii) allowance for doubtful accounts; (iii) inventory valuation, asset valuations, impairment, and recoverability assessments; (iv) depreciable lives of assets; (v) useful lives of intangible assets; (vi) income tax reserves and valuation allowances; and (vii) product warranty and litigation reserves. Estimates are revised as additional information becomes available. Actual results could differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents are liquid investments with an original maturity of three or fewer months when purchased.
Accounts Receivable
Receivables are primarily comprised of uncollected amounts owed to the Company from transactions with customers and are presented net of allowances for doubtful accounts. Allowances are estimated based on historical write‑offs and the economic status of customers. The Company considers a receivable delinquent if it is unpaid after the term of the related invoice has expired. Write‑offs are recorded at the time all collection efforts have been exhausted.
Inventories
Inventories are stated at the lower of cost or market, where cost is generally determined on the basis of an average or first‑in, first‑out (“FIFO”) method. Production costs comprise direct material and labor and applicable manufacturing overheads, including depreciation charges. The Company regularly reviews inventory quantities on hand and writes off excess or obsolete inventory based on estimated forecasts of product demand and production requirements. Manufacturing operations recognize cost of product sales using standard costing rates with overhead absorption which generally approximates actual cost.
Property, Plant, and Equipment
Property, plant, and equipment is valued at cost less accumulated depreciation. Depreciation expense is recognized using the straight‑line method. Useful lives are reviewed annually and, if expectations differ from previous estimates, adjusted accordingly. Estimated useful lives for major classes of depreciable assets are as follows:
Asset Class
Estimated Useful Life
Machinery and equipment
3 to 20 years
Buildings and improvements
10 to 40 years
Leasehold improvements are depreciated over the shorter of their estimated useful life or the term of the lease. Costs related to maintenance and repairs that do not extend the assets’ useful life are expensed as incurred.
Acquisitions
Acquisitions are recorded using the purchase method of accounting. The purchase price of acquisitions is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair value at the acquisition date. The excess of the acquisition price over those estimated fair values is recorded as goodwill. Changes to the acquisition date preliminary fair values prior to the expiration of the measurement period, a period not to exceed 12 months from date of acquisition, are recorded as an adjustment to the associated goodwill. Contingent consideration resulting from acquisitions is recorded at its estimated fair value on the acquisition date. These obligations are revalued during each subsequent reporting period and changes in the fair value of the contingent consideration obligations can result from adjustments in the probability of achieving future development steps, sales targets and profitability and are recorded in General and administrative expenses in the Consolidated Statements of Operations. Acquisition-related expenses and restructuring costs, if any, are recognized separately from the business combination and are expensed as incurred.

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Goodwill and Other Intangible Assets
Goodwill represents purchase consideration paid in a business combination that exceeds the value assigned to the net assets of acquired businesses. Other intangible assets consist of customer‑related intangibles, proprietary technology, software, trademarks and other intangible assets. The Company amortizes intangible assets with definite useful lives on a straight‑line basis over their respective estimated economic lives which range from 1 to 26 years.
The Company reviews goodwill to determine potential impairment annually during the fourth quarter of its fiscal year, or more frequently if events and circumstances indicate that the asset might be impaired. Impairment testing for goodwill is performed at a reporting unit level and the Company has determined that it has three reporting units. The quantitative impairment testing utilizes both a market (guideline public company) and income (discounted cash flows) method for determining fair value. In estimating the fair value of the reporting unit utilizing a discounted cash flow (“DCF”) valuation technique, the Company incorporates its judgment and estimates of future cash flows, future revenue and gross profit growth rates, terminal value amount, capital expenditures and applicable weighted‑average cost of capital used to discount these estimated cash flows. The estimates and projections used in the estimate of fair value are consistent with the Company’s current budget and long‑range plans, including anticipated change in market conditions, industry trend, growth rates and planned capital expenditures, among other considerations.
Impairment of Long‑Lived Assets
Long‑lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of the asset or asset group is measured by comparison of its carrying amount to undiscounted future net cash flows the asset or asset group is expected to generate. If the carrying amount of an asset or asset group is not recoverable, the Company recognizes an impairment loss based on the excess of the carrying amount of the asset or asset group over its respective fair value which is generally determined as the present value of estimated future cash flows or as the appraised value.
Assets Held for Sale
Assets and liabilities (the “disposal group”) are classified as held for sale when all of the following criteria are met: (i) the Company commits to a plan to sell the disposal group; (ii) it is unlikely the disposal plan will be significantly modified or discontinued; (iii) the disposal group is available for immediate sale in its present condition; (iv) actions required to complete the sale of the disposal group have been initiated; (v) the sale of the asset is probable and the completed sale is expected to occur within one year; and (vi) the disposal group is actively being marketed for sale at a price that is reasonable given its current market value. Upon classification as held for sale, such assets are no longer depreciated or depleted, and a measurement for impairment is performed to determine if there is any excess of carrying value over fair value less costs to sell. Subsequent changes to estimated fair value less the cost to sell will impact the measurement of assets held for sale if the fair value is determined to be less than the carrying value of the assets.
Debt Issuance Costs and Debt Discounts
Debt issuance costs are capitalized and amortized over the contractual term of the underlying debt using the straight line method which approximates the effective interest method. Debt discounts and lender arrangement fees deducted from the proceeds have been included as a component of the carrying value of debt and are being amortized to interest expense using the effective interest method.
Beginning in the first quarter of 2019, the Company entered into an interest rate cap to mitigate risks associated with the Company’s variable rate debt. See Note 12, “Derivative Financial Instruments” for further details. The Company paid $2,235 as a premium for the interest rate cap, which is being amortized to interest expense over its three-year term. The Company recorded $621 of premium amortization to interest expense during the year ended September 30, 2019.
Amortization of debt issuance costs and debt discounts/premiums included in interest expense were $1,991, $2,498 and $4,607 for the years ended September 30, 2019, 2018 and 2017, respectively.
In July 2018, the Company wrote off $2,581 of deferred financing fees and incurred and expensed an additional $1,346 of fees related to the sixth amendment of its First Lien Term Facility in which an additional $150,000 was borrowed.

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In November 2017, the Company wrote off $1,844 of deferred financing fees related to a $100,000 prepayment of debt, then subsequently wrote off another $1,150 of fees in December of 2017 due to the refinancing of its First Lien Term Loan. The Company incurred another $2,131 of fees as a result of the December refinancing.
In August 2017, the Company wrote off $1,829 of deferred financing fees related to the extinguishment of debt and incurred another $1,188 of fees related to an amendment of its First Lien Term Facility.
In October 2016, the Company wrote off $2,075 of deferred financing fees related to the extinguishment of debt and incurred another $481 of fees related to a tack-on financing the Company completed in October 2016.
Revenue Recognition
The Company adopted Topic 606, Revenue from Contracts with Customers on October 1, 2018, and recognizes sales of products and services based on the five-step analysis of transactions as provided in Topic 606 which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for such goods or services.
For sales of aftermarket parts or products with a low level of customization and engineering time, the Company recognizes revenues at the time risks and rewards of ownership pass, which is generally when products are shipped or delivered to the customer as the Company has no obligation for installation. Sales of short‑term service arrangements are recognized as the services are performed, and sales of long‑term service arrangements are typically recognized on a straight‑line basis over the life of the agreement.
For certain arrangements where there is significant customization to the product, the Company recognizes revenue either over time or at a point in time. These products include large capital water treatment projects, systems and solutions for municipal and industrial applications. The nature of the contracts is generally fixed price with milestone billings. The Company recognizes revenue over time if the product has no alternative use and the Company has an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. If these two criteria are not met, revenues from these contracts will not be recognized until construction is complete. Contract revenues and cost estimates are reviewed and revised at least quarterly at a minimum and the cumulative effect of such adjustments are recognized in current operations. The amount of such adjustments have not been material. See Note 4, “Revenue” for further details.
Product Warranties
Accruals for estimated expenses related to warranties are made at the time products are sold and are recorded as a component of Cost of product sales in the Consolidated Statements of Operations. The estimated warranty obligation is based on product warranty terms offered to customers, ongoing product failure rates, material usage and service delivery costs expected to be incurred in correcting a product failure, as well as specific obligations for known failures and other currently available evidence. The Company assesses the adequacy of the recorded warranty liabilities on a regular basis and adjusts amounts as necessary.
Shipping and Handling Cost
Shipping and handling costs are included as a component of Cost of product sales.

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Derivative Financial Instruments
The Company’s risk-management strategy uses derivative financial instruments to manage interest rate risk and foreign currency exchange rate risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and manage its exposure to interest rate movements. To accomplish this objective, in November 2018, the Company entered into an interest rate cap which has been designated as a cash flow hedge. The Company uses foreign currency derivative contracts in order to manage the effect of exchange fluctuations on forecasted sales and purchases that are denominated in foreign currencies. To mitigate the impact of foreign exchange rate risk, the Company entered into a series of forward contracts designated as cash flow hedges. The Company does not enter into derivatives for trading or speculative purposes. The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815, “Derivatives and Hedging” (Topic No. 815). The Company recognizes all derivatives on the balance sheet at fair value. Changes in the fair values of derivatives that are not designated as hedges are recognized in earnings. If the derivative is designated and qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the change in the hedged assets or liabilities through earnings or recognized in Accumulated other comprehensive income (loss), net of tax (“AOCI”) until the hedged item is recognized in earnings.
Income Taxes
The Company recognizes 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. Deferred tax assets and liabilities are measured 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are provided against deferred tax assets when it is deemed more likely than not that some portion or all of the deferred tax asset will not be realized within a reasonable time period. The Company assesses tax positions using a two‑step process. A tax position is recognized if it meets a more‑likely‑than‑not threshold, and is measured at the largest amount of benefit that is greater than 50.0% percent of being realized. Uncertain tax positions are reviewed each balance sheet date.
Foreign Currency Translation and Transactions
The functional currency for the international subsidiaries is the local currency. Assets and liabilities are translated into U.S. dollars using current rates of exchange, with the resulting translation adjustments recorded in Accumulated other comprehensive loss, net of tax within shareholders’ equity. Revenues and expenses are translated at the weighted‑average exchange rate for the period, with the resulting translation adjustments recorded in the Consolidated Statements of Operations.
Foreign currency translation losses (gains), mainly related to intercompany loans, which aggregated $12,599, $7,018 and $(7,111) for the years ended September 30, 2019, 2018 and 2017, respectively, are primarily included in General and administrative expenses in the Consolidated Statements of Operations.
Research and Development Costs
Research and development costs are expensed as incurred. The Company recorded $15,300, $15,877 and $19,990 of costs for the years ended September 30, 2019, 2018 and 2017, respectively.
Equity‑based Compensation
The Company measures the cost of awards of equity instruments to employees based on the grant‑date fair value of the award. The grant‑date fair value of a non-qualified stock option is determined using the Black‑Scholes model. The fair value of restricted stock unit awards is determined using the closing price of our common stock on date of grant. Compensation costs resulting from equity-based payment transactions are recognized primarily within General and administrative expenses, at fair value over the requisite vesting period on a straight-line basis.
Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed based on the weighted average number

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of shares of common stock, plus the effect of diluted common shares outstanding during the period using the treasury stock method. Diluted potential common shares include outstanding stock options.
Retirement Benefits
The Company applies ASC Topic 715, Compensation—Retirement Benefits, which requires the recognition in pension obligations and accumulated other comprehensive income of actuarial gains or losses, prior service costs or credits and transition assets or obligations that have previously been deferred. The determination of retirement benefit pension obligations and associated costs requires the use of actuarial computations to estimate participant plan benefits to which the employees will be entitled. The significant assumptions primarily relate to discount rates, expected long‑term rates of return on plan assets, rate of future compensation increases, mortality, years of service, and other factors. The Company develops each assumption using relevant experience in conjunction with market‑related data for each individual country in which such plans exist. All actuarial assumptions are reviewed annually with third‑party consultants and adjusted as necessary. For the recognition of net periodic postretirement cost, the calculation of the expected return on plan assets is generally derived by applying the expected long‑term rate of return on the market‑related value of plan assets. The fair value of plan assets is determined based on actual market prices or estimated fair value at the measurement date.
Treated Water Outsourcing
Treated Water Outsourcing (“TWO”) is a joint venture between the Company and Nalco Water, an Ecolab company, in which the Company holds a 50% partnership interest. The Company is obligated to absorb all risk of loss up to 100% of the joint venture partner’s equity. As such, the Company fully consolidates TWO as a variable interest entity (“VIE”) under ASC 810, Consolidation. The Company has not provided additional financial support to this entity which it is not contractually required to provide, and the Company does not have the ability to use the assets of TWO to settle obligations of the Company’s other subsidiaries.

The following provides a summary of TWO’s balance sheet as of September 30, 2019 and 2018, and summarized financial information for the years ended September 30, 2019, 2018 and 2017.
 
September 30, 2019
 
September 30, 2018
Current assets (includes cash of $3,903 and $3,304)
$
6,324

 
$
5,486

Property, plant and equipment
2,186

 
4,441

Goodwill
2,206

 
2,206

Other non-current assets
3

 
3

Total liabilities
(2,388
)
 
(3,608
)
 
Year Ended September 30,
 
2019
 
2018
 
2017
Total revenues
$
10,633

 
$
15,526

 
$
22,039

Total operating expenses
(8,732
)
 
(12,996
)
 
(14,835
)
Income from operations
$
1,901

 
$
2,530

 
$
7,204

Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses which clarifies that receivables from operating leases are accounted for using the lease guidance and not as financial instruments. ASU 2018-19 will be effective for the Company for the quarter ending December 31, 2020, with early adoptions permitted. The Company is currently assessing the impact of adoption on the Company’s Consolidated Financial Statements.

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In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In addition, unit-of-account guidance in Topic 808 was aligned with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. ASU 2018-18 should be applied retrospectively to the date of initial adoption of Topic 606 and is effective for the Company for the quarter ending December 31, 2020, with early adoption permitted. The Company is currently assessing the impact of adoption on the Company’s Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Subtopic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 will be effective for the Company for the quarter ending December 31, 2020, with early adoption permitted. The Company is currently assessing the impact of adoption on the Company’s disclosures.
In June 2018, the FASB issued ASU 2018‑07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company adopted this standard on October 1, 2019 but noted that this adoption did not have an impact on its Consolidated Financial Statements.
In August 2017, the FASB issued ASU 2017‑12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements and also made certain targeted improvements to simplify the application of hedge accounting guidance and ease the administrative burden of hedge documentation requirements and assessing hedge effectiveness. The Company adopted this standard on October 1, 2019 but noted that this adoption did not have a material impact on its Consolidated Financial Statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to use a new forward-looking “expected loss” model that reflects expected credit losses, including credit losses related to trade receivables, and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates which generally will result in the earlier recognition of allowances for losses. ASU 2016-13 will be effective for the Company for the quarter ending December 31, 2020, with early adoption permitted. The Company does not expect the impact of adoption on the Consolidated Financial Statements to be material.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires recognition of operating leases as lease assets and liabilities on the balance sheet, and disclosure of key information about leasing arrangements. Amendments to the standard were issued by the FASB in January, July and December 2018, and March 2019 including certain practical expedients, an amendment that provides an additional and optional transition method to adopt the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and certain narrow-scope improvements for lessors. The Company adopted this standard on October 1, 2019 using the modified retrospective approach. In order to comply with Topic 842, the Company completed an assessment of the existing lease portfolio including performing data and policy gap reviews, implemented a new lease accounting system, and updated its processes and accounting policies. The Company expects the impact of adoption on the Consolidated Financial Statements and related disclosures to result in an increase to the Consolidated Balance Sheet in the range of $38 million to $42 million. The Company continues to evaluate certain aspects of lessor accounting, however, it is not expected that this will have a material impact on the Consolidated Financial Statements.

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Accounting Pronouncements Recently Adopted
The Company adopted ASU 2017‑09, Scope of Modification Accounting, which amended Accounting Standards Code Topic 718 as of October 1, 2018. The FASB issued ASU 2017‑09 to reduce the cost and complexity when applying Topic 718 and standardize the practice of applying Topic 718 to financial reporting. The ASU was not developed to fundamentally change the definition of a modification, but instead to provide guidance for what changes would qualify as a modification. This adoption did not have a material impact on the Company’s Consolidated Financial Statements.    
The Company adopted ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, as of October 1, 2018. This ASU requires the disaggregation of the service cost component from other components of net periodic benefit cost, clarifies how to present the service cost component and other components of net benefit costs in the Statements of Consolidated Operations and allows only the service cost component of net benefit costs to be eligible for capitalization. The adoption of this guidance did not have an impact on the Consolidated Financial Statements and had a minimal impact to the related disclosures.
The Company adopted ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, as of October 1, 2018. The purpose of this update is to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. The ASU requires the tax effects of all intra-entity sales of assets other than inventory to be recognized in the period in which the transaction occurs. The changes were required to be applied by means of a cumulative-effect adjustment recorded to retained earnings as of the beginning of the year of adoption. This adoption did not have an impact on the Company’s Consolidated Financial Statements.
The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as of October 1, 2018. ASU 2014-09 clarifies the principles for recognizing revenue when an entity either enters into a contract with customers to transfer goods or services or enters into a contract for the transfer of non-financial assets. The Company utilized the modified retrospective approach and the cumulative effect of adoption resulted in a net decrease to opening retained earnings of $1,582 which was recognized at October 1, 2018. Based on the new guidance, the Company determined that for some of these contracts in which revenue was previously recognized over a period of time, revenue instead needs to be recognized at a point in time. This change is mainly due to the nature of certain products, which in some cases have an alternative use, and the Company’s right to payment in the event of termination for convenience. This adoption did not have a material impact on the Company’s Consolidated Financial Statements. See Note 4, “Revenue” for further details.
3. Acquisitions and Divestitures
Acquisitions support the Company’s strategy of delivering a broad solutions portfolio with robust technology across multiple geographies and end markets. The Company continues to evaluate potential strategic acquisitions of businesses, assets and product lines and believes that capex-like, tuck-in acquisitions present a key opportunity within its overall growth strategy.
On May 25, 2019, the Company acquired all of the issued and outstanding equity securities of ATG UV Technology Limited (“ATG UV”), a leading manufacturer of ultraviolet (“UV”) light disinfection systems used in a wide range of municipal, aquatics and industrial applications, for £5,500 ($6,931) paid in cash at closing. During the year ended September 30, 2019, the Company incurred approximately $193 in acquisition costs, which are included in General and administrative expenses. ATG UV, based in Wigan, UK, is the exclusive technology supplier to Evoqua’s ETS-UVTM product line in North America and the acquisition expands Evoqua’s reach, allowing the Company to serve customers globally. ATG UV is part of the Applied Product Technologies segment.
The accounting for the acquisition has not yet been completed because the Company has not finalized the valuations of the acquired assets, assumed liabilities and identifiable intangible assets, including goodwill. The preliminary opening balance sheet for ATG UV as of September 30, 2019 is summarized as follows:

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Current assets
$
6,296

Property, plant and equipment
362

Goodwill
1,738

Intangible assets
2,277

Total assets acquired
10,673

Total liabilities assumed
(3,742
)
Net assets acquired
$
6,931

On October 1, 2019, the Company, entered into a Purchase and Sale Agreement with DuPont de Nemours, Inc., pursuant to which the Company will divest their Memcor® low pressure membrane product line (including the product line’s global workforce, its manufacturing site in Windsor, Australia, associated operations and intellectual property) (“Memcor”) to DuPont. In connection with this transaction, DuPont will purchase 100% of the corporate capital of the Australian Subsidiaries and all of the assets related to the Memcor® low pressure membrane product line.
The Company expects to recognize a gain on this transaction upon closing. The agreement to sell Memcor met all of the criteria to classify its assets and liabilities as held for sale in the fourth quarter of 2019, which are included within the Company’s APT segment’s total assets. The sale of Memcor does not represent a strategic shift that will have a major effect on the Company’s operations and financial results and is, therefore, not classified as discontinued operations in accordance with ASU 2014-08. As part of the required evaluation under the held for sale guidance, the Company determined that the approximate fair value less costs to sell the operations exceeded the carrying value of the net assets and no impairment charge was recorded.

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The following represents the carrying amounts of assets and liabilities, by major class, classified as held for sale on the Consolidated Balance Sheets at September 30, 2019:
ASSETS
 
Cash and cash equivalents
$
7,291

Receivables, net
9,603

Inventories, net
6,456

Contract assets
13,025

Prepaid and other current assets
881

Current assets held for sale
37,256

Property, plant and equipment, net
14,827

Goodwill
14,911

Intangible assets, net
1,024

Other non-current assets
47

Non-current assets held for sale
30,809

Total assets held for sale
$
68,065

LIABILITIES
 
Accounts payable
$
5,646

Contract liabilities
1,302

Product warranties
3,264

Accrued expenses and other liabilities
3,996

Current liabilities held for sale
14,208

Product warranties
1,594

Other non-current liabilities
2,071

Non-current liabilities held for sale
3,665

Total liabilities held for sale
$
17,873

The above amounts are excluded from the respective balance sheet footnotes at September 30, 2019. The Company incurred aggregate deal costs related to this divestiture of $2,795 during the year ended September 30, 2019, which are primarily included in General and administrative expenses.
2018 Acquisitions
On August 31, 2018, the Company acquired substantially all of the assets of Le Groupe IsH20Top Inc. (“Isotope”), a Quebec-based provider of high-purity water treatment equipment and systems, equipment maintenance services and service deionization for CAD 3,651 ($2,804); CAD 3,171 ($2,435) cash at closing in addition to earn-out payments one year after the closing. Included in consideration is CAD 226 ($175), which represents the fair value of earn-out payments at the date of acquisition if certain revenue targets are achieved, with the maximum earn-out payment of CAD 480 ($369). Isotope serves the ultrapure pharmaceutical, laboratory, medical, university, industrial and microelectronics markets in the Quebec region and provides its customer base with a variety of solutions including reverse osmosis, deionized water systems and steam purification. The Company incurred approximately $188 of acquisition costs, which are included in General and administrative expenses. Isotope is part of the Integrated Solutions and Services segment and strengthens the Company’s Canadian service capabilities.
On July 26, 2018, the Company acquired all of the issued and outstanding equity securities of ProAct Services Corporation (“ProAct”) and its subsidiaries for $133,772 paid in cash at closing which was funded through incremental borrowings under the Company’s Term Loan. ProAct is a leading provider of on-site treatment services of contaminated water in all 50 states. ProAct will operate within the Company’s Integrated Solutions and Services segment and will continue to be based in Ludington, Michigan with a nationwide service footprint and facilities in California, Florida, Michigan,

23


Minnesota, New Jersey, Virginia and Texas. ProAct provides an array of expanded offerings across the Company’s existing environmental solutions and enhances its existing service capabilities in mobile/temporary process water and wastewaster treatment, hydrostatic water treatment and coal ash pond remediation. The Company incurred approximately $1,067 of acquisition costs, which are included in General and administrative expenses. The operating results of ProAct have been included in the Company’s Consolidated Statements of Operations since the acquisition date, and resulted in $8,042 and $590 of revenue and net income, respectively, for the year ended September 30, 2018.
The following table presents the unaudited pro forma results for the years ended September 30, 2018 and 2017. The unaudited pro forma financial information combines the results of operations of EWT and ProAct as though the Company had been combined as of the beginning of years ended September 30, 2018 and 2017, and the pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at such time. Pro forma results for other acquisitions completed in the year ended September 30, 2018 were determined to not be material. The unaudited pro forma results presented below include adjustments for increased fair value of acquired intangible assets and related amortization charges, acquisition costs, and interest.
 
Year Ended September 30,
 
2018
 
2017
Total revenues
$
1,385,159

 
$
1,294,167

Net loss attributable to Evoqua Water
2,116

 
1,527

On March 9, 2018, the Company acquired all of the issued and outstanding equity securities of Pacific Ozone Technology, Inc. (“Pacific Ozone”), a provider of advanced ozone disinfection systems, testing products and support services for $8,557; $6,557 cash at closing in addition to earn-out payments to be paid out over three years after the closing. Included in consideration is $934, which represents the fair value of earn-out payments if certain performance metrics are achieved, with a maximum amount of $2,000. The Company incurred approximately $191 of acquisition costs, which are included in General and administrative expenses. Pacific Ozone, based in Benecia, California, is part of the Applied Product Technologies segment and adds a new technology, ozone disinfection, to the portfolio and further enhances the Company’s ability in the industrial water treatment and aquatics market.
On January 31, 2018, the Company acquired substantially all of the assets of Pure Water Solutions, LLC (“Pure Water”), a provider of high-purity water equipment and systems, service deionization and resin regeneration, with service operations in suburban Denver, Colorado and Santa Fe, New Mexico for $4,699; $3,706 cash at closing in addition to earn-out payments to be paid out one year after the closing. Included in consideration is $993, which represents the fair value of earn-out payments if certain revenue targets are achieved, with a maximum amount of $461. The Company incurred approximately $132 of acquisition costs, which are included in General and administrative expenses. Pure Water is part of the Integrated Solutions and Services segment, and extends the Company’s service network.

24


The opening balance sheet for the acquisitions is summarized as follows:
 
Isotope
 
ProAct
 
Pacific Ozone
 
Pure Water
 
Total
Current Assets
$
627

 
$
11,513

 
$
1,822

 
$
295

 
$
14,257

Property, plant and equipment
—

 
26,272

 
151

 
156

 
26,579

Goodwill
1,266

 
84,308

 
4,337

 
2,506

 
92,417

Intangible assets
933

 
27,464

 
2,678

 
1,488

 
32,563

Other non-current assets
—

 
—

 
135

 
—

 
135

Total asset acquired
2,826

 
149,557

 
9,123

 
4,445

 
165,951

Total liabilities assumed
(216
)
 
(15,785
)
 
(1,632
)
 
(278
)
 
(17,911
)
Net assets acquired
$
2,610

 
$
133,772

 
$
7,491

 
$
4,167

 
$
148,040

2018 Divestitures    
On April 9, 2018, the Company completed the sale of 100% of the corporate capital of Evoqua Water Technologies S.r.l., which includes the Company’s former operations in Italy, to Giotto Water S.r.l. (“Giotto”). The aggregate purchase price paid in cash by Giotto in the transaction was €350 ($430), subject to certain earn-out adjustments to be paid by Giotto in connection with the realization of specified tax benefits relating to previous years, and resulted in a nominal gain which is included in Other operating income on the Consolidated Statements of Operations.
4. Revenue
Adoption of ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)”
As discussed in Note 2, “Summary of Significant Accounting Policies” the Company adopted ASU 2014-09 on October 1, 2018, using the modified retrospective approach to those contracts that were not completed or substantially complete as of October 1, 2018. Results for the reporting period beginning after October 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under Topic 605. The Company has applied the standard to all open contracts at the date of initial application. The Company recorded a net decrease to opening retained earnings of $1,582 as of October 1, 2018 as a result of the cumulative impact of adopting Topic 606 representing the unfavorable impact to prior results had the over-time revenue recognition for some customer agreements, as discussed below, been applied. In addition, a $6,106 reduction of contract assets, along with an increase of $6,194 to work-in-process inventory and an increase of $1,773 to contract liabilities was recorded as a result of the adoption using the modified retrospective method.
The impact to the Consolidated Statements of Operations as a result of applying Topic 606 was higher Revenue from product sales and services and higher Cost of product sales and services of $2,066 and $1,508, respectively, for the year ended September 30, 2019, as compared to what those amounts would have been under the previous revenue recognition guidance. In addition, the impact on the Consolidated Balance Sheets at September 30, 2019 was lower Inventories, net of $135 as compared to what this amount would have been under the previous guidance. Also, $644 of contract assets were recognized on the consolidated balance sheet at September 30, 2019 related to this over-time revenue recognition. As a result of adopting Topic 606, the Company reevaluated how they view the types of revenue between product sales and services, and their related cost of sales. As a result, the Company reclassified amounts between the two categories on the Consolidated Statements of Operations.

25


Revenue Recognition
The Company recognizes sales of products and services based on the five-step analysis of transactions as provided in Topic 606. For all contracts with customers, the Company first identifies the contract which usually is established when the customer’s purchase order is accepted or acknowledged. Next the Company identifies the performance obligations in the contract. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company then determines the transaction price in the arrangement and allocates the transaction price to each performance obligation identified in the contract. The Company’s allocation of the transaction price to the performance obligations are based on the relative standalone selling prices for the goods and services contained in a particular performance obligation. The transaction price is adjusted for the Company’s estimate of variable consideration which may include discounts if the Company would fail to meet certain performance requirements, volume discounts or early payment discounts. To estimate variable consideration, the Company utilizes historical experience and known terms. Variable consideration in contracts for the year ended September 30, 2019 was insignificant.
For sales of aftermarket parts or products with a low level of customization and engineering time, the Company recognizes revenues at the time risks and rewards of ownership pass, which is generally when products are shipped or delivered to the customer as the Company has no obligation for installation. The Company considers shipping and handling services to be fulfillment activities and as such they do not represent separate performance obligations for revenue recognition. Sales of service arrangements are recognized as the services are performed.
For certain arrangements where there is significant customization to the product and for long-term construction-type sales contracts, revenue may be recognized over time. In these instances, revenue is recognized using a measure of progress that applies an input method based on costs incurred in relation to total estimated costs. Approximately $326,035, of revenues from construction-type contracts was recognized over time during the year ended September 30, 2019. These arrangements include large capital water treatment projects, systems and solutions for municipal and industrial applications. The nature of the contracts is generally fixed price with milestone billings. In order for revenue to be recognized over a period of time, the product must have no alternative use and the Company must have an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. If these two criteria are not met, revenues from these contracts will not be recognized until construction is complete. Revenues from construction-type contracts formerly recognized over time of approximately $1,068 were not recognized during the year ended September 30, 2019. Instead, revenues from these contracts will be recognized when construction is complete. Contract revenues and cost estimates are reviewed and revised quarterly at a minimum and the cumulative effect of such adjustments are recognized in current operations. The amount of such adjustments have not been material.
The Company has made accounting policy elections to exclude all taxes by governmental authorities from the measurement of the transaction price and that long-term construction-type sales contracts, or those contracts for products with significant customization for which the total contract price is less than $100 will be recorded at the point in time when the construction is complete or the product is delivered. Approximately $19,815 of revenues from construction-type contracts was recognized on a completed contract method during the year ended September 30, 2019. This represents projects that are either below the $100 threshold, or the product has no alternative use, but the Company does not have an enforceable right to payment.
The Company has also elected the following practical expedients:
Financing Component

As the Company’s standard payment terms are less than one year, the Company has elected the practical expedient not to assess whether a contract has a significant financing component.


26


Performance Obligations

The Company elects to apply the practical expedient to exclude from this disclosure revenue related to performance obligations if the product has an alternative use and the Company does not have an enforceable right to payment for the performance completed to date, including a normal profit margin, in the event of termination for convenience. The Company maintains a backlog of confirmed orders of approximately $179,341 at September 30, 2019. This backlog represents the aggregate amount of the transaction price allocated to performance obligations that were unsatisfied or partially unsatisfied as of the end of the reporting period. The Company estimates that the majority of these performance obligations will be satisfied within the next twelve months.

The recording of assets recognized from the costs to obtain and fulfill customer contracts primarily relate to the deferral of sales commissions. The Company’s costs incurred to obtain or fulfill a contract with a customer are classified as non-current assets and amortized to expense over the period of benefit of the related revenue. These costs are recorded within Cost of product sales and services. The amount of contract costs was insignificant at September 30, 2019.
The Company offers standard warranties that generally do not represent a separate performance obligation. In certain instances, a warranty is obtained separately from the original equipment sale or the warranty provides incremental services and as such is treated as a separate performance obligation.
Disaggregation of Revenue
In accordance with Topic 606, the Company disaggregates revenue from contracts with customers into source of revenue, reportable operating segment and geographical regions. The Company determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606 which is to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Information regarding the source of revenues:
 
Year Ended September 30, 2019
Revenue from contracts with customers recognized under Topic 606
$
1,309,303

Other (1)
135,138

Total
$
1,444,441

(1)
Other revenue relates to revenue recognized from Topic 840, Leases, mainly attributable to long term rentals.
Information regarding revenues disaggregated by source of revenue and segment is as follows:
 
Year Ended September 30, 2019
 
Integrated Solutions and Services
 
Applied Product Technologies
 
Total
Revenue from capital
$
219,289

 
$
344,097

 
$
563,386

Revenue from aftermarket
122,719

 
165,056

 
287,775

Revenue from service
568,826

 
24,454

 
593,280

Total
$
910,834

 
$
533,607

 
$
1,444,441


27


Information regarding revenues disaggregated by geographic area is as follows:
 
Year Ended September 30, 2019
United States
$
1,147,649

Europe
102,998

Asia
90,273

Canada
80,083

Australia
23,438

Total
$
1,444,441

Contract Balances
The Company performs its obligations under a contract with a customer by transferring products and/or services in exchange for consideration from the customer. The Company receives payments from customers based on a billing schedule as established in its contracts.
Contract assets relate to costs incurred to perform in advance of scheduled billings. Contract liabilities relate to payments received in advance of performance under the contracts. Change in contract assets and liabilities are due to our performance under the contract.

The tables below provides a roll-forward of contract assets and contract liabilities balances for the periods presented:
 
Contract
Assets (a)
Balance at September 30, 2018
$
69,147

Cumulative effect of adoption of new accounting standards
(6,106
)
Recognized in current period
325,289

Reclassified to accounts receivable
(302,055
)
Foreign currency
217

Reclassified to assets held for sale
(13,025
)
Balance at September 30, 2019
$
73,467

(a)
Excludes receivable balances which are disclosed on the Consolidated Balance Sheets.
 
Contract Liabilities
Balance at September 30, 2018
$
17,652

Cumulative effect of adoption of new accounting standards
1,773

Recognized in current period
319,722

Amounts in beginning balance reclassified to revenue
(20,754
)
Current period amounts reclassified to revenue
(276,002
)
Foreign currency
(2,038
)
Reclassified to liabilities held for sale
(1,302
)
Balance at September 30, 2019
$
39,051


28


5. Fair Value Measurements
As of September 30, 2019 and 2018, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximate carrying values due to the short maturity of these items.
The Company measures the fair value of pension plan assets and liabilities, deferred compensation and plan assets and liabilities on a recurring basis pursuant to ASC Topic 820. ASC Topic 820 establishes a three‑tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1: Quoted prices for identical instruments in active markets.
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model‑derived valuations whose inputs are observable or whose significant value driver is observable.
Level 3: Unobservable inputs in which little or no market data is available, therefore requiring an entity to develop its own assumptions.
The following table presents the Company’s financial assets and liabilities at fair value. The fair values related to the pension assets are determined using net asset value (“NAV”) as a practical expedient, or by information categorized in the fair value hierarchy level based on the inputs used to determine fair value. The reported carrying amounts of deferred compensation assets and liabilities and debt approximate their fair values. The Company uses interest rates and other relevant information generated by market transactions involving similar instruments to fair value these assets and liabilities, therefore all are classified as Level 2 within the valuation hierarchy. For the years ended September 30, 2019 and 2018, there were no transfers between Level 1 and 2 of the fair value hierarchy.

29


 
Net Asset Value
 
Quoted Market
Prices in Active
Markets (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
As of September 30, 2019
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Pension plan
 
 
 
 
 
 
 
Cash
$
—

 
$
14,607

 
$
—

 
$
—

Government Securities
4,703

 
—

 
—

 
—

Liability Driven Investment
3,261

 
—

 
—

 
—

Guernsey Unit Trust
997

 
—

 
—

 
—

Global Absolute Return
1,957

 
—

 
—

 
—

Deferred compensation plan assets
 
 

 

 

Trust Assets
—

 
16

 
—

 
—

Insurance
—

 
—

 
18,684

 
—

Interest rate cap
—

 
—

 
19

 
—

Foreign currency forward contracts
—

 
—

 
278

 
—

Liabilities:
 
 
 
 
 
 
 
Pension plan
—

 
—

 
(42,948
)
 
—

Deferred compensation plan liabilities
—

 
—

 
(21,318
)
 
—

Long‑term debt
—

 
—

 
(979,357
)
 
—

Foreign currency forward contracts
—

 
—

 
(154
)
 
—

Earn-outs related to acquisitions
—

 
—

 
—

 
(1,545
)
 
 
 
 
 
 
 
 
As of September 30, 2018
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Pension plan
 
 
 
 
 
 
 
Cash
$
—

 
$
15,821

 
$
—

 
$
—

Government Securities
3,161

 
—

 
—

 
—

Liability Driven Investment
2,598

 
—

 
—

 
—

Guernsey Unit Trust
965

 
—

 
—

 
—

Global Absolute Return
2,038

 
—

 
—

 
—

Deferred compensation plan assets
 
 
 
 
 
 
 
Trust Assets
—

 
648

 
—

 
—

Insurance
—

 
—

 
18,448

 
—

Foreign currency forward contracts
—

 
—

 
345

 
—

Liabilities:
 
 
 
 
 
 
 
Pension plan
—

 
—

 
(35,541
)
 
—

Deferred compensation plan liabilities
—

 
—

 
(21,834
)
 
—

Long‑term debt
—

 
—

 
(957,441
)
 
—

Foreign currency forward contracts
—

 
—

 
(67
)
 
—

Earn-outs related to acquisitions
—

 
—

 
—

 
(1,916
)
The pension plan assets and liabilities and deferred compensation assets and liabilities are included in other non-current assets and other non-current liabilities on the Consolidated Balance Sheets at September 30, 2019 and 2018.
The Company records contingent consideration arrangements at fair value on a recurring basis and the associated balances presented as of September 30, 2019 and 2018 are earn-outs related to acquisitions. See Note 3, “Acquisitions and Divestitures” for further discussion regarding the earn-outs recorded for specific acquisitions. The fair value of earn-outs related to acquisitions is based on significant unobservable inputs including the achievement of certain performance metrics.

30


Significant changes in these inputs would result in corresponding increases or decreases in the fair value of the earn-out each period until the related contingency has been resolved. Changes in the fair value of the contingent consideration obligations can result from adjustments in the probability of achieving future development steps, sales targets and profitability and are recorded in General and administrative expenses in the Consolidated Statements of Operations.
A rollforward of the activity in the Company’s fair value of earn-outs related to acquisitions is as follows:
 
Current Portion (1)
 
Long-term Portion (2)
 
Total
Balance at September 30, 2017
$
4,304

 
$
1,691

 
$
5,995

Acquisitions
634

 
934

 
1,568

Payments
(8,111
)
 
—

 
(8,111
)
Reclassifications
1,479

 
(1,479
)
 
—

Fair value increase
2,619

 
—

 
2,619

Foreign currency
(155
)
 
—

 
(155
)
Balance at September 30, 2018
770

 
1,146

 
1,916

Payments
(1,650
)
 
—

 
(1,650
)
Reclassifications
212

 
(212
)
 
—

Fair value increase
1,283

 
—

 
1,283

Foreign currency
(4
)
 
—

 
(4
)
Balance at September 30, 2019
$
611

 
$
934

 
$
1,545

(1)
Included in Accrued expenses and other liabilities on the Consolidated Balance Sheets.
(2)
Included in Other non‑current liabilities on the Consolidated Balance Sheets.
6. Accounts Receivable
Accounts receivable are summarized as follows:
 
September 30, 2019
 
September 30, 2018
Accounts Receivable
$
262,491

 
$
258,955

Allowance for Doubtful Accounts
(4,906
)
 
(4,199
)
Receivables, net
$
257,585

 
$
254,756

The movement in the allowance for doubtful accounts was as follows:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Balance at beginning of period
$
(4,199
)
 
$
(3,494
)
 
$
(4,784
)
Charged to costs and expenses
(788
)
 
(1,832
)
 
(1,206
)
Write-offs
39

 
1,387

 
2,481

Foreign currency and other
42

 
(260
)
 
15

Balance at end of period
$
(4,906
)
 
$
(4,199
)
 
$
(3,494
)

31


7. Inventories
The major classes of inventory, net are as follows:
 
September 30, 2019
 
September 30, 2018
Raw materials and supplies
$
75,223

 
$
69,176

Work in progress
14,741

 
19,461

Finished goods and products held for resale
58,223

 
53,786

Costs of unbilled projects
2,347

 
1,878

Reserves for excess and obsolete
(13,370
)
 
(9,313
)
Inventories, net
$
137,164

 
$
134,988

The following is the activity in the reserves for excess and obsolete inventory:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Balance at beginning of period
$
(9,313
)
 
$
(10,599
)
 
$
(10,141
)
Additions charged to expense
(5,754
)
 
(419
)
 
(1,004
)
Write-offs
1,541

 
104

 
947

Foreign currency and other
156

 
1,601

 
(401
)
Balance at end of period
$
(13,370
)
 
$
(9,313
)
 
$
(10,599
)
8. Property, Plant, and Equipment
Property, plant, and equipment consists of the following:
 
September 30, 2019
 
September 30, 2018
Machinery and equipment
$
488,924

 
$
399,619

Land and buildings
64,165

 
76,459

Construction in process
40,599

 
60,803

 
593,688

 
536,881

Less: accumulated depreciation
(260,104
)
 
(216,858
)
Property, plant, and equipment, net
$
333,584

 
$
320,023

The Company entered into secured financing agreements that require providing a security interest in specified equipment. As of September 30, 2019, the gross and net amounts of those assets are as follows:
 
Gross
 
Net
Machinery and equipment
$
48,288

 
$
42,162

Construction in process
2,531

 
2,531

 
$
50,819

 
$
44,693

Depreciation expense and maintenance and repairs expense for the years ended September 30, 2019, 2018 and 2017 were as follows:

32


 
Year Ended September 30,
 
2019
 
2018
 
2017
Depreciation expense
$
66,031

 
$
59,017

 
$
53,327

Maintenance and repair expense
23,861

 
23,343

 
21,392

9. Goodwill
Changes in the carrying amount of goodwill are as follows:
 
Integrated Solutions and Services
 
Applied Product Technologies
 
Total
Balance at September 30, 2017
$
138,181

 
$
183,732

 
$
321,913

Business combinations
88,080

 
4,192

 
92,272

Measurement period adjustment
(404
)
 
(311
)
 
(715
)
Foreign currency translation
(1,487
)
 
(637
)
 
(2,124
)
Balance at September 30, 2018
224,370

 
186,976

 
411,346

Business combinations and divestitures
—

 
1,738

 
1,738

Measurement period adjustments
(1,937
)
 
63

 
(1,874
)
Goodwill reclassified to assets held for sale
—

 
(14,911
)
 
(14,911
)
Foreign currency translation
(420
)
 
(2,989
)
 
(3,409
)
Balance at September 30, 2019
$
222,013

 
$
170,877

 
$
392,890

As of September 30, 2019 and 2018, $151,880 and $147,861, respectively, of goodwill is deductible for tax purposes.
The Company reviewed the recoverability of the carrying value of goodwill of its reporting units. As the fair value of the Company’s reporting units was determined to be in excess of the carrying values at July 1, 2019 and 2018, no further analysis was performed.

33


10. Other Intangible Assets
Intangible assets consist of the following:
 
 
 
September 30, 2019
 
Estimated Life
(years)
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortizing intangible assets
 
 
 
 
 
 
 
Customer related
5 ‑ 26
 
$
290,407

 
$
(64,548
)
 
$
225,859

Proprietary technology
10
 
50,725

 
(24,187
)
 
26,538

Trademark
10-15
 
26,432

 
(6,245
)
 
20,187

Backlog
1
 
81,834

 
(81,834
)
 
—

Other
3
 
22,868

 
(14,892
)
 
7,976

Total amortizing intangible assets 
 
 
472,266

 
(191,706
)
 
280,560

Indefinite‑lived intangible assets
 
 
34,207

 
—

 
34,207

Total intangible assets
 
 
$
506,473

 
$
(191,706
)
 
$
314,767

 
 
 
September 30, 2018
 
Estimated Life
(years)
 
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amortizing intangible assets
 
 
 
 
 
 
 
Customer related
5 ‑ 26
 
$
292,115

 
$
(47,348
)
 
$
244,767

Proprietary technology
10
 
49,315

 
(19,685
)
 
29,630

Trademark
10-15
 
26,535

 
(3,563
)
 
22,972

Backlog
1
 
82,315

 
(81,764
)
 
551

Other
4
 
17,175

 
(8,894
)
 
8,281

Total amortizing intangible assets 
 
 
467,455

 
(161,254
)
 
306,201

Indefinite‑lived intangible assets
 
 
34,207

 
—

 
34,207

Total intangible assets
 
 
$
501,662

 
$
(161,254
)
 
$
340,408

The Company’s indefinite-lived intangible asset relate to Federal hazardous waste treatment management permits obtained for locations operated by the Integrated Solutions and Services segment. The permits are considered perpetually renewable. The Company performs an indefinite-lived intangible asset impairment analysis on an annual basis during the fourth quarter of the year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company assessed the carrying value of the permits at the Integrated Solutions and Services segment as of July 1, 2019 using a quantitative analysis outlined in ASU No. 2012-02 to determine whether the existence of events or circumstances would lead to the conclusion that it is more likely than not that the fair values of the permits are less than the carrying amounts. Events and circumstances considered in this review included macroeconomic conditions, new competition, financial performance of the entities which utilizes the permits and other financial and non-financial events. Based on these factors, the Company concluded the fair value of the permits were not more likely than not less than the carrying amounts.

34


For the amortizing intangible assets, the remaining weighted-average amortization period at September 30, 2019 was as follows:

Years
Customer-related intangibles
11
Proprietary technology
5
Trademarks
7
Other
2
Aggregate net intangible assets
8
Intangible asset amortization was $32,205, $26,843 and $24,559 for the years ended September 30, 2019, 2018 and 2017, respectively. The estimated future amortization expense is as follows:
 
 
2020
$
29,403

2021
27,682

2022
27,473

2023
26,076

2024
22,591

Thereafter
147,335

Total
$
280,560

11. Debt
Long‑term debt consists of the following:
 
September 30, 2019
 
September 30, 2018
First Lien Term Loan, due December 20, 2024
$
928,753

 
$
938,230

Revolving Credit Facility
—

 
—

Equipment Financing, due June 30, 2024 to July 5, 2029
45,960

 
11,588

Notes Payable, due July 31, 2023
807

 
2,106

Mortgage, due June 30, 2028
1,635

 
1,835

Total debt
977,155

 
953,759

Less unamortized discount and lender fees
(12,138
)
 
(14,129
)
Total net debt
965,017

 
939,630

Less current portion
(13,418
)
 
(11,555
)
Total long‑term debt
$
951,599

 
$
928,075

Term Facilities and Revolving Credit Facility
On January 15, 2014, EWT Holdings III Corp. (“EWT III”), an indirect wholly-owned subsidiary of the Company, entered into a First Lien Credit Agreement and Second Lien Credit Agreement (the “Credit Agreements” or, after the prepayment and termination of the Second Lien Credit Agreement, the “First Lien Credit Agreement” or “Credit Agreement”) among EWT III, EWT Holdings II Corp., the lenders party thereto and Credit Suisse AG as administrative agent and collateral agent. The First Lien Credit Agreement provided for a seven-year term loan facility, and the Second Lien Credit Agreement provided for an eight-year term loan facility. The term loan facilities originally consisted of the “First Lien Term Loan” and “Second Lien Term Loan” in aggregate principal amounts of $505,000 and $75,000, respectively. The First Lien Credit

35


Agreement also made available to the Company a $75,000 revolving credit facility (the “Revolver”), which provided for a letter of credit sub-facility up to $35,000.

During the year ended September 30, 2018, certain subsidiaries of the Company entered into two amendments to the Credit Agreement which provided for, among other things, the refinancing of the Existing Term Loans with the proceeds of refinancing term loans, extension of the maturity date to December 20, 2024, the reduction in the interest rate spreads on the Term Loan borrowing to 3.00% and an additional $150,000 borrowed in incremental term loans. In addition, the revolving credit commitment and letters of credit sublimit were increased to $125,000 and $45,000, respectively. The other terms of the Existing Credit Agreement, including rates, remain generally the same. As a result of the incremental borrowings, quarterly principal payments increased to $2,369. At September 30, 2019, the interest rate on borrowings was 5.11%, comprised of 2.11% LIBOR plus the 3.00% spread.

Total deferred fees related to the First Lien Term Loan were $12,138 and $14,129, net of amortization, as of September 30, 2019 and 2018, respectively. These fees were included as a contra liability to debt on the Consolidated Balance Sheets.

At September 30, 2019 and 2018, the Company had no outstanding revolver borrowings and as a result, borrowing availability under the Revolver was $125,000 at September 30, 2019 and 2018, respectively, reduced for outstanding letters of credit. The Company’s outstanding letters of credit under this agreement aggregated approximately $12,956 and $11,777 at September 30, 2019 and 2018, respectively. Unused amounts, defined as total revolver capacity less outstanding letters of credit and revolver borrowings, were $112,044 and $113,223 at September 30, 2019 and 2018, respectively. At September 30, 2019 and 2018, the Company had additional letters of credit of $204 and $64 issued under a separate arrangement, respectively.
  The First Lien Credit Agreement contains limitations on incremental borrowings, is subject to leverage ratios and allows for optional prepayments. Under certain circumstances, the Company may be required to remit excess cash flows as defined based upon exceeding certain leverage ratios. The Company did not exceed such ratios during the year ended September 30, 2019, does not anticipate exceeding such ratios during the year ending September 30, 2020, and therefore does not anticipate any additional repayments during the year ending September 30, 2020.
Equipment Financing
As of September 30, 2019 and 2018, the Company had equipment financings in an aggregate outstanding amount of $45,960 and $11,588, with interest rates ranging from 5.02% to 8.07%, and due dates ranging from June 30, 2024 to July 5, 2029.

Notes Payable
As of September 30, 2019 and 2018, the Company had notes payable in an aggregate outstanding amount of $807 and $2,106, with an interest rate of 6.53%, and a due date of July 31, 2023. These notes are related to certain equipment related contracts and are secured by the underlying equipment and assignment of the related contracts.
Mortgage
On June 29, 2018, the Company's subsidiary MAGNETO special anodes B.V. entered into a 10-year mortgage agreement for €1,600 ($1,744) to finance a facility in the Netherlands, subject to monthly principal payments of €7 ($7) at a blended interest rate of 2.4% with maturity in June 2028. The Company had $1,635 and $1,835 principal outstanding under this facility at September 30, 2019 and 2018, respectively.
Repayment Schedule
Aggregate maturities of all long‑term debt, including current portion of long‑term debt and excluding capital lease obligations as of September 30, 2019, are presented below:

36


Year Ended September 30,
 
2020
$
13,418

2021
13,589

2022
13,794

2023
13,952

2024
13,864

Thereafter
908,538

Total
$
977,155

12. Derivative Financial Instruments
Interest Rate Risk Management
    The Company is subject to market risk exposure arising from changes in interest rates on the senior secured credit facilities, which bear interest at rates that are indexed against LIBOR. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to mitigate its exposure to rising interest rates. To accomplish these objectives, the Company entered into an interest rate cap, designated as a cash flow hedge, to mitigate risks associated with variable rate debt effective November 28, 2018. The LIBOR interest rate cap covers a notional amount of $600,000 of the Company’s senior secured debt, is effective for a period of three years and has a strike rate of 3.5%. Interest rate caps designated as cash flow hedges involve the receipt of stipulated amounts from a counterparty if interest rates rise above the strike rate defined in the contract. The premium paid for the interest rate cap was $2,235 and is being amortized to interest expense over its three-year term using the caplet method. The unamortized premium was $1,614 at September 30, 2019, of which $745 is included in Prepaid and other current assets and the remaining $869 is included in Other non‑current assets. The Company recorded $621 of premium amortization to interest expense during the year ended September 30, 2019, respectively.
Foreign Currency Risk Management
The Company’s functional currency is the U.S. dollar. By operating internationally, the Company is subject to foreign currency risk from transactions denominated in currencies other than the U.S. dollar (“foreign currencies”). To mitigate cross-currency transaction risk, the Company analyzes significant exposures where it has receipts or payments in a currency other than the functional currency of its operations, and from time to time may strategically enter into short-term foreign currency forward contracts to lock in some or all of the cash flows associated with these transactions. The Company is also subject to currency translation risk associated with converting the foreign operations’ financial results into U.S. dollars. The Company uses foreign currency derivative contracts in order to manage the effect of exchange fluctuations on forecasted sales and purchases that are denominated in foreign currencies. To mitigate the impact of foreign exchange rate risk, the Company entered into a series of forward contracts designated as cash flow hedges. As of September 30, 2019, the notional amount of the forward contracts held to sell foreign currencies was $12,917.
Credit Risk Management
The counterparties to the Company’s derivative contracts are highly rated financial institutions. The Company regularly reviews the creditworthiness of its financial counterparties and does not expect to incur a significant failure of any counterparties to perform under any agreements. The Company is not subject to any obligations to post collateral under derivative instrument contracts. The Company records all derivative instruments on a gross basis in the Consolidated Balance Sheets. Accordingly, there are no offsetting amounts that net assets against liabilities.

37


Derivatives Designated as Cash Flow Hedges
The Company accounts for derivatives and hedging activities in accordance with ASC Topic No. 815, “Derivatives and Hedging” (Topic No. 815). As required by Topic No. 815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis. The Company’s interest rate cap is valued based on readily observable market inputs, such as quotations on interest rates and LIBOR yield curves at the reporting date. The Company’s foreign currency forward contracts are valued based on quoted forward foreign exchange prices and spot rates at the reporting date. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in AOCI to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings. To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings in the Consolidated Statements of Operations. The Company recorded no hedge ineffectiveness during the year ended September 30, 2019. The Company does not use derivative financial instruments for trading or speculative purposes.
The following represents the fair value recorded for derivatives designated as cash flow hedges for the periods presented:
 
 
 
Asset Derivatives
 
Balance Sheet Location
 
September 30,
2019
 
September 30,
2018
Interest rate cap
Prepaid and other current assets
 
$
19

 
$
—

Foreign currency forward contracts
Prepaid and other current assets
 
269

 
282

 
 
 
Liability Derivative
 
Balance Sheet Location
 
September 30,
2019
 
September 30,
2018
Foreign currency forward contracts
Accrued expenses and other current liabilities
 
$
154

 
$
67

The following represents the amount of gain (loss) recognized in AOCI (net of tax) during the periods presented:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Interest rate cap
$
19

 
$
—

 
$
—

Foreign currency forward contracts
(443
)
 
(118
)
 
(70
)
 
$
(424
)
 
$
(118
)
 
$
(70
)
The following represents the amount of (loss) gain reclassified from AOCI into earnings (effective portion) during the periods presented:
 
 
 
Year Ended September 30,
 
Location of (Loss) Gain
 
2019
 
2018
 
2017
Foreign currency forward contracts
Cost of product sales and services
 
$
(309
)
 
$
(76
)
 
$
(13
)
Foreign currency forward contracts
General and administrative expense
 
82

 
18

 
(35
)
Foreign currency forward contracts
Research and development expense
 
(271
)
 
(39
)
 
(3
)
 
 
 
$
(498
)
 
$
(97
)
 
$
(51
)

38



Based on the fair value amounts of the Company’s cash flow hedges at September 30, 2019, the Company expects that approximately $7 of pre-tax net losses will be reclassified from AOCI into earnings during the next twelve months. The amount ultimately realized, however, will differ as exchange rates vary and the underlying contracts settle. In addition, $745 of caplet amortization will be amortized into interest expense during the next twelve months.
Derivatives Not Designated as Cash Flow Hedges
The following represents the fair value recorded for derivatives not designated as cash flow hedges for the periods presented:
 
 
 
Asset Derivative
 
Balance Sheet Location
 
September 30,
2019
 
September 30,
2018
Foreign currency forward contracts
Prepaid and other current assets
 
$
9

 
$
63

13. Product Warranties
The Company accrues warranty obligations associated with certain products as revenue is recognized. Provisions for the warranty obligations are based upon historical experience of costs incurred for such obligations, adjusted for site‑specific risk factors and as necessary, for current conditions and factors. There are significant uncertainties and judgments involved in estimating warranty obligations, including changing product designs, differences in customer installation processes and future claims experience which may vary from historical claims experience.
A reconciliation of the activity related to the accrued warranty, including both the current and long‑term portions, is as follows:
 
Current Product Warranties
 
Non-Current Product Warranties
 
Year Ended September 30,
 
Year Ended September 30,
 
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Balance at beginning of the period
$
8,907

 
$
11,164

 
$
16,860

 
$
3,360

 
$
6,110

 
$
6,449

Business combination recognition
—

 
—

 
285

 
—

 
—

 
—

Warranty provision for sales
5,745

 
4,930

 
5,970

 
1,915

 
654

 
727

Settlement of warranty claims
(6,529
)
 
(6,836
)
 
(11,817
)
 
(999
)
 
(3,132
)
 
(852
)
Foreign currency translation and other
63

 
(351
)
 
(134
)
 
(350
)
 
(272
)
 
(214
)
Amounts reclassified to liabilities held for sale
(3,264
)
 
—

 
—

 
(1,594
)
 
—

 
—

Balance at end of the period
$
4,922

 
$
8,907

 
$
11,164

 
$
2,332

 
$
3,360

 
$
6,110

14. Restructuring and Related Charges
To better align its resources with its growth strategies and reduce the cost structure, the Company commits to restructuring plans as necessary. The Company has undertaken various restructuring initiatives, including the wind-down of the Company’s operations in Italy, restructuring of the Company’s operations in Australia, consolidation of functional support structures on a global basis, and consolidation of the Singaporean research and development center.

On October 30, 2018, the Company announced a transition from a three-segment structure to a two-segment operating model designed to better serve the needs of customers worldwide. This new structure was effective October 1,

39


2018 and combined the Municipal services business with the former Industrial segment into a new segment, Integrated Solutions and Services, a group entirely focused on engaging directly with end users. The former Products segment and Municipal products businesses have been combined into a new segment, Applied Product Technologies, which is focused on developing product platforms to be sold primarily through third party channels. The Company expects to incur approximately $3 million of cash costs through fiscal 2020 as a result of this transition related to other non-employee related business optimizations.
During the year ended September 30, 2017, the Company initiated a Voluntary Separation Plan (“VSP”) that continued throughout the year ended September 30, 2018 and concluded during the six months ended March 31, 2018. The VSP plan included severance payments to employees as a result of streamlining business operations for efficiency, elimination of redundancies, and reorganizing business processes.

The table below sets forth the amounts accrued for the restructuring components and related activity:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Balance at beginning of the period
$
710

 
$
3,542

 
$
13,217

Restructuring charges related to two-segment realignment
11,090

 
—

 
—

Restructuring charges related to other initiatives (including VSP)
2,444

 
11,085

 
32,392

Write-off charge and other non‑cash activity
(541)

 
(663)

 
(727)

Cash payments
(12,966)

 
(13,280)

 
(41,432)

Other adjustments
(82)

 
26

 
92

Balance at end of the period
$
655

 
$
710

 
$
3,542

The balances for accrued restructuring liabilities at September 30, 2019 and 2018, are recorded in Accrued expenses and other liabilities on the Consolidated Balance Sheets. Restructuring charges primarily represent severance charges. The Company expects to pay the remaining amounts accrued as of September 30, 2019 during the first half of 2020.

The table below sets forth the location of amounts recorded above on the Consolidated Statements of Operations:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Cost of product sales and services
$
6,257

 
$
3,897

 
$
14,574

General and administrative expense
5,531

 
4,775

 
7,877

Sales and marketing expense
1,082

 
908

 
8,727

Research and development expense
123

 
606

 
487

Other operating (income) expense, net
—

 
236

 
—


$
12,993

 
$
10,422

 
$
31,665

The Company continues to evaluate restructuring activities that may result in additional charges in the future.
15. Employee Benefit Plans
Defined Benefit Plans    
The Company maintains multiple employee benefit plans.
Certain of the Company’s employees in the UK were participants in a Siemen’s defined benefit plan established for employees of a UK-based operation acquired by Siemens in 2004. The plan was frozen with respect to future service

40


credits for active employees, however the benefit formula recognized future compensation increases. The Company agreed to establish a replacement defined benefit plan, with the assets of the Siemens scheme transferring to the new scheme on April 1, 2015.
The Company’s employees in Germany also participate in a defined benefit plan. Assets equaling the plan’s accumulated benefit obligation were transferred to a German defined benefit plan sponsored by the Company upon the acquisition of EWT from Siemens. The German entity also sponsors a defined benefit plan for a small group of employees located in France.
The changes in projected benefit obligations, plan assets and the funded status of the UK and German defined benefit plans as of and for the years ended September 30, 2019 and 2018, respectively, are as follows:
 
2019
 
2018
Change in projected benefit obligation
 
 
 
Projected benefit obligation at prior year measurement date
$
35,541

 
$
34,803

Service cost
898

 
933

Interest cost
699

 
466

Actuarial losses
8,056

 
76

Benefits paid from company assets
(139
)
 
(294
)
Plan amendment
113

 
—

Foreign currency exchange impact
(2,220
)
 
(443
)
Projected benefit obligation at measurement date
42,948

 
35,541

Change in plan assets
 
 
 
Fair value of assets at prior year measurement date
24,583

 
25,055

Actual return on plan assets
2,269

 
145

Benefits paid
(48
)
 
(271
)
Employer contribution
175

 
211

Foreign currency exchange impact
(1,454
)
 
(557
)
Fair value of assets at measurement date
25,525

 
24,583

Funded status and amount recognized in assets and liabilities
$
(17,423
)
 
$
(10,958
)
Amount recognized in assets and liabilities
 
 
 
Other non‑current assets
$
2,655

 
$
2,558

Other non‑current liabilities
$
(20,078
)
 
$
(13,516
)
Amount recognized in accumulated other comprehensive loss, before taxes
 
 
 
Actuarial loss
$
11,251

 
$
5,607

The following table provides summary information for the German plan where the projected benefit obligation and accumulated benefit obligation are in excess of plan assets:
 
September 30, 2019
 
September 30, 2018
Projected benefit obligation
$
42,948

 
$
27,181

Accumulated benefit obligation
$
22,469

 
$
24,864

Fair value of plan assets
$
25,525

 
$
13,665

The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year indicated as well as net periodic pension cost for the following year. The discount rate is based on settling the obligation with high grade, high yield corporate bonds, and the rate of compensation increase is based upon actual experience. The expected return on assets is based on historical performance as well as expected future rates of return on plan assets considering the current investment portfolio mix and the long‑term investment strategy.

41



2019
 
2018
Discount rate
0.80% - 1.97%
 
1.90% - 2.97%
Expected long‑term rate of return on plan assets
0.90% - 1.98%
 
0.90% - 3.12%
Salary scale
2.25% - 4.44%
 
2.25% - 4.58%
Pension increases
1.00% - 3.38%
 
1.00% - 3.46%
The Plan trustees for the UK and German pension plans have established investment policies and strategies. The UK Pension Committee established and implemented a liability driven investment approach to take advantage of, and seeking to protect, its well‑funded status. The current German investment strategy is to maintain cash reserves.
Through a trust arrangement, the German plan assets are held in cash at a German bank.
The actual overall asset allocation for the UK pension plan as compared to the investment policy goals as of September 30, 2019 was as follows by asset category:
 
2019 Actual
 
2019 Target
Equity
49.6
%
 
23.5
%
Index‑linked gilts
37.6
%
 
76.5
%
Cash
12.8
%
 
—
%
Pension expense for the German and UK plans were as follows:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Service cost
$
898

 
$
933

 
$
1,137

Interest cost
699

 
742

 
606

Expected return on plan assets
(440
)
 
(470)

 
(476)

Amortization of actuarial losses
371

 
299

 
797

Pension expense for defined benefit plans
$
1,528

 
$
1,504

 
$
2,064

The components of pension expense, other than the service cost component which is included in General and administrative expense, are included in the line item Other operating expense in the Consolidated Statements of Operations.
Benefits expected to be paid to participants of the plans are as follows:
Year Ended September 30,
 
2020
$
310

2021
294

2022
526

2023
507

2024
575

Five years thereafter
5,089

Total
$
7,301


42


Defined Contribution Plans    
The Company maintains a defined contribution 401(k) plan, which covers all U.S.-based employees who meet minimum age and length of service requirements. Plan participants can elect to defer pre-tax compensation through payroll deductions. These deferrals are regulated under Section 401(k) of the Internal Revenue Code. The Company matches 100% of eligible participants’ deferrals that do not exceed 6% of their pay (subject to limitations imposed by the Internal Revenue Code). The Company’s matching contributions were $14,533, $12,955 and $13,026 for the years ended September 30, 2019, 2018 and 2017, respectively.
Employees in the UK and Germany also participate in a defined contribution plan maintained by the Company. For the years ended September 30, 2019, 2018 and 2017, contributions made to the Company’s plan in the UK and Germany were $796, $707 and $739, respectively.
Deferred Compensation
    On April 1, 2014, the Company adopted a non-qualified deferred compensation plan for certain highly compensated employees. The Plan matches on a dollar-for-dollar basis, up to the first 6% of a participants’ pay. The Company’s obligation under the plan represents an unsecured promise to pay benefits in the future. In the event of bankruptcy or insolvency of the Company, assets of the plan would be available to satisfy the claims of general creditors. To increase the security of the participants’ deferred compensation plan benefits, the Company has established and funded a grantor trust (known as a rabbi trust). The rabbi trust is specifically designed so that assets are available to pay plan benefits to participants in the event the Company is unwilling or unable to pay the plan benefits for any reason other than bankruptcy or insolvency. As a result, the Company is prevented from withdrawing or accessing assets for corporate needs. Plan participants choose to receive a return on their account balances equal to the return on the various investment options. The rabbi trust assets are primarily invested in mutual funds and insurance contracts of which the rabbi trust is the owner and beneficiary.

Health Benefit Plan
The Company maintains a qualified employee health benefit plan in the U.S. and is self‑funded by the Company with respect to claims up to a certain amount. The plan requires contributions from eligible employees and their dependents.
16. Income Taxes
For financial reporting purposes, (loss) income before income taxes includes the following components:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Domestic
$
(9,140
)
 
$
(8,613
)
 
$
12,833

Foreign
10,256

 
17,879

 
994

Income before income taxes
$
1,116

 
$
9,266

 
$
13,827


43


The components of income tax (expense) benefit were as follows:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Current:
 
 
 
 
 
Federal
$
—

 
$
—

 
$
(876
)
State
(400
)
 
(911
)
 
—

Foreign
(7,239
)
 
(6,703
)
 
(5,268
)
 
(7,639
)
 
(7,614
)
 
(6,144
)
Deferred:
 
 
 
 
 
Federal
(3,597
)
 
6,311

 
(2,350
)
State
196

 
(209
)
 
(421
)
Foreign
1,453

 
130

 
1,498

 
(1,948
)
 
6,232

 
(1,273
)
Total income tax expense
$
(9,587
)
 
$
(1,382
)
 
$
(7,417
)
For the year ended September 30, 2019, the U.S. federal statutory rate was 21% and for the year ended September 30, 2018, the U.S. federal statutory rate was 24.5%, a blended rate based upon the number of days in fiscal 2018 that the company will be taxed at the former statutory rate of 35% and the number of days that it will be taxed at the new rate of 21.0%.

44


A reconciliation of income tax (expense) benefit and the amount computed by applying 21% for the year ended September 30, 2019, the blended statutory federal income tax rate of 24.5% for the year ended September 30, 2018 and 35% for the year ended September 30, 2017 to income from operations before income taxes was as follows:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Income tax (expense) benefit at the federal statutory rate of 21%
$
(234
)
 
$
(2,270
)
 
$
(4,839
)
State and local income taxes, net of federal tax benefit
(204
)
 
(1,053
)
 
(34
)
Foreign tax rate differential
(1,471
)
 
(2,389
)
 
914

Nondeductible transaction costs
—

 
(1,489
)
 
—

Nondeductible interest expense
(1,073
)
 
(853
)
 
(1,396
)
Meals and entertainment expense
(953
)
 
(553
)
 
(649
)
U.S. tax on foreign earnings
(1,421
)
 
—

 
—

Nondeductible legal expenses
(112
)
 
—

 
(859
)
Other nondeductible expenses
(223
)
 
(47
)
 
(488
)
Impact of tax rate changes
(548
)
 
3,626

 
—

Valuation allowances
(3,886
)
 
(4,218
)
 
(2,264
)
Share-based compensation in excess of accounting
475

 
5,156

 
—

Nondeductible loss on sale of subsidiary
—

 
1,131

 
—

Return-to-provision adjustments
(655
)
 
449

 
895

Non-controlling interest
221

 
428

 
1,486

Net benefit of foreign R&D expenses
191

 
336

 
(1,060
)
Transaction related contingent liabilities
(58
)
 
89

 
—

Puerto Rico taxes, net of federal benefit
—

 
—

 
(556
)
Contingent liabilities - warranty
93

 
—

 
566

Contingent liabilities - long term disability
—

 
—

 
105

Foreign R&D credit
—

 
—

 
1,165

Foreign withholding taxes
369

 
—

 
—

Non-deductible exchange gain or loss
(587
)
 
—

 
—

Deferred tax adjustments
2,016

 
—

 
—

Accrued tax adjustments
(1,348
)
 
—

 
—

Tax benefits of other comprehensive income
(154
)
 
—

 
—

Other
(25
)
 
275

 
(403
)
Total
$
(9,587
)
 
$
(1,382
)
 
$
(7,417
)
Annual Tax (Expense) Benefit
For the year ended September 30, 2019, tax expense differed from tax expense based on the Company’s blended U.S. federal statutory tax rate principally due to the unfavorable impact of maintain a valuation allowance against U.S., state and certain foreign deferred tax assets, providing tax expense on U.S. deferred tax liabilities associated with indefinite lived intangible assets and non-deductible interest expense at certain holding company locations.    
For the year ended September 30, 2019, the Company provided tax expense of $9,587 as compared to expense of $1,382 for the fiscal year ended September 30, 2018. This increase in expense was primarily the result of the favorable impact included in the prior fiscal year related to the reduction of the U.S. federal tax rate which required the remeasurement of U.S. deferred tax liabilities associated with indefinite lived intangible assets and the favorable impact of current year

45


acquisitions for which the acquired deferred tax liabilities generated a reduction in the amount of valuation allowance required against the Company’s existing U.S. and state deferred tax assets.
For the year ended September 30, 2018, the Company provided tax expense of $1,382 as compared to expense of $7,417 in the fiscal year ended September 30, 2017. This reduction in expense was primarily the result of the favorable impact of the reduction of the U.S. federal tax rate which required the remeasurement of U.S. deferred tax liabilities associated with indefinite lived intangible assets and the favorable impact of current year acquisitions for which the acquired deferred tax liabilities generated a reduction in the amount of valuation allowance required against the Company’s existing U.S. and state deferred tax assets.
Significant components of deferred tax assets and liabilities were as follows:
 
September 30, 2019
 
September 30, 2018
Deferred Tax Assets
 
 
 
Receivable allowances
$
1,018

 
$
975

Reserves and accruals
24,473

 
16,813

Inventory valuation and other assets
4,989

 
3,772

Investment in partnership
2,569

 
4,345

Unrealized foreign exchange gains (losses)
6,730

 
4,632

Other deferred taxes
897

 
704

Disallowed interest
7,096

 
—

Net operating loss carryforwards
49,786

 
42,392

Gross deferred tax assets
97,558

 
73,633

Less: Valuation allowance
(41,084
)
 
(36,683
)
Deferred tax assets less valuation allowance
56,474

 
36,950

Deferred Tax Liabilities
 
 
 
Goodwill
(9,801
)
 
(7,231
)
Fixed assets
(38,293
)
 
(20,372
)
Intangibles
(15,720
)
 
(15,717
)
Other deferred tax liabilities
(3,418
)
 
(2,287
)
Gross deferred tax liabilities
(67,232
)
 
(45,607
)
Net deferred tax liabilities
$
(10,758
)
 
$
(8,657
)
Accounting standards require that deferred tax assets be reduced by a valuation allowance if, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. This assessment requires significant judgement, and in making this evaluation, the Company considers all available positive and negative evidence, including the potential to carryback net operating losses and credits, the future reversal of certain taxable temporary differences, actual and forecasted results, and tax planning strategies that are both prudent and feasible. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three‑year period ended September 30, 2019. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections for future growth.
After considering all available evidence, both positive and negative, management determined that a valuation allowance was necessary in certain jurisdictions. As of September 30, 2019, the company maintains a full valuation allowance against its net deferred tax assets (excluding deferred tax liabilities related to indefinite lived intangibles) in the U.S., Germany, and the UK. A partial valuation allowance is maintained in the Netherlands related to deferred tax assets generated prior to the Magneto acquisition that are not expected to be realized.

46


A reconciliation of the valuation allowance on deferred tax assets is as follows:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Valuation allowance beginning of period
$
36,683

 
$
48,573

 
$
47,846

Change in assessment
(865
)
 
—

 
—

Current year operations
3,495

 
(1,435
)
 
3,398

Foreign currency and other
2,254

 
71

 
(953
)
Acquisitions
(483
)
 
(10,526
)
 
(1,718
)
Valuation allowance end of period
$
41,084

 
$
36,683

 
$
48,573

Subject to the assets held for sale, the Company does not anticipate that it will dispose any of its foreign subsidiaries in the foreseeable future and as such has not recorded a U.S. deferred tax asset where the tax basis exceeds the financial reporting basis of these investments. Additionally, the Company has not provided a U.S. deferred tax liability on the excess of financial reporting over tax basis of its investments.
As of September 30, 2019, 2018 and 2017, undistributed earnings of non-U.S. affiliates were approximately $49,480, $36,879 and $5,218, respectively, which are considered to be indefinitely reinvested. Upon distribution of these earnings the Company may be subject to U.S. income taxes and foreign withholding taxes. The amount of taxes that may be payable on remittance of these earnings is dependent on the tax laws and profile of the Company at that time and the availability of foreign tax credits in the year in which such earnings are remitted. Therefore, it is not practicable to estimate the amount of taxes that may be payable when these earnings are remitted in the future.
The Company utilizes the more-likely-than-not standard in recognizing a tax benefit in its financial statements. For the year ended September 30, 2019, the Company had unrecognized tax benefits. The Company did not have unrecognized tax benefits for the years ended September 30, 2018 or 2017.
The following is a reconciliation of the Company’s total gross unrecognized tax benefits:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Balance as of beginning of period
$
—

 
$
—

 
$
—

Tax positions related to the current year
 
 
 
 
 
Additions
—

 
—

 
—

Tax positions related to prior years
 
 
 
 
 
Additions
1,075

 
—

 
—

Expiration of statutes of limitations
—

 
—

 
—

Balance as of end of period
$
1,075

 
$
—

 
$
—

At September 30, 2019, the Company has classified $1,075 as a current liability. The amount of unrecognized tax benefits is not expected to change significantly during the next 12 months. If the Company’s tax positions are sustained by the taxing authorities in favor of the Company, the amount that would affect the Company’s effective tax rate is approximately $1,075 at September 30, 2019. No such amounts would affect the Company’s effective tax rate at September 30, 2018.
The Company classifies interest expense and, if applicable, penalties which could be assessed related to unrecognized tax benefits as component of income tax (expense) benefit. For the year ended September 30, 2019, the Company recognized approximately $(95) of gross interest and penalties, respectively, which was accrued for at September 30, 2019. No such amounts were recognized for the years ended September 30, 2018 and 2017, respectively.
Tax attributes available to reduce future taxable income begin to expire as follows:

47


 
September 30, 2019
 
First year of Expiration
Federal net operating loss
$
197,122

 
September 30, 2034
State net operating loss
94,082

 
September 30, 2019
Foreign net operating loss
2,814

 
September 30, 2023
Foreign net operating loss (Germany and the UK)
18,806

 
Indefinitely
The Company is subject to audit in the U.S. as well as various states and foreign jurisdictions. The following table summarizes the Company’s earliest open tax years by major jurisdiction as of September 30, 2019:
Jurisdiction
 
Open Tax Years
United States
 
2015-2019
Australia
 
2015-2019
Canada
 
2015-2019
China
 
2014-2018
Germany
 
2015-2019
Netherlands
 
2014-2019
Singapore
 
2015-2019
United Kingdom
 
2017-2019
Effects of the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act (the Tax Act) introduced new provisions that were effective January 1, 2018 and changed how certain provisions are calculated beginning with the year ended September 30, 2018. These provisions included additional limitations on certain meals and entertainment expenses, and the inclusion of commissions and performance-based compensation in determining the excessive compensation limitation applicable to certain employees, a limitation on the current deductibility of net interest expense in excess of 30% of adjusted taxable income, a limitation on the use of net operating losses generated after fiscal 2018 to 80% of taxable income, an incremental tax (base erosion anti-abuse tax or BEAT) on excessive amounts paid to foreign related parties. These new provisions did not have a material impact to the Company’s tax expense. The Tax Act also created a provision known as GILTI that imposes a tax on certain earnings of foreign subsidiaries. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore has not provided any deferred tax impacts of GILTI in its Consolidated Financial Statements for the year ended September 30, 2018.
Amounts recorded where accounting is complete principally related to the reduction in the U.S. corporate income tax rate to 21%, which resulted in the Company reporting an income tax benefit of $3,641 to remeasure deferred taxes liabilities associated with indefinite lived intangible assets that will reverse at the new 21% rate. Absent this deferred tax liability, the Company is in a net deferred tax asset position that is fully offset by a valuation allowance. Though the tax effected net deferred tax asset changed, the movement was offset by movement in the valuation allowance with a net tax effect of $0.
17. Share-Based Compensation
The Company designs equity compensation plans to attract and retain employees while also aligning employees’ interests with the interests of the Company’s shareholders. In addition, members of the Company’s Board of Directors (the “Board”) participate in equity compensation plans in connection with their service on the Company’s Board.
The Company established the Evoqua Water Technologies Corp. Stock Option Plan (the “Stock Option Plan”) shortly after the acquisition date of January 16, 2014. The plan allows certain management employees and the Board to purchase shares in Evoqua Water Technologies Corp. Under the Stock Option Plan, the number of shares available for award was 11,083. As of September 30, 2019, there were approximately 1,704 shares available for future grants, however,

48


the Company does not currently intend to make additional grants under the Stock Option Plan.
In connection with the IPO, the Board adopted and the Company’s shareholders approved the Evoqua Water Technologies Corp. 2017 Equity Incentive Plan (the “Equity Incentive Plan”), under which equity awards may be made in the respect of 5,100 shares of common stock of the Company. Under the Equity Incentive Plan, awards may be granted in the form of options, restricted stock, restricted stock units (“RSU”), stock appreciation rights, dividend equivalent rights, share awards and performance-based awards (including performance share units and performance-based restricted stock). As of September 30, 2019, there were approximately 2,008 shares available for grants under the Equity Incentive Plan.
In addition to the establishment of the Equity Incentive Plan, in connection with the IPO, the Company entered into RSU agreements with each of the executive officers and certain other key members of management. Pursuant to the RSU agreements, recipients received, in the aggregate 1,197 stock-settled RSUs, the aggregate value of which equals $25,000. The RSUs will vest and settle in full upon the second anniversary of the IPO (the “Vesting Date”), subject to the grantee’s continued employment with the Company or any of its subsidiaries through the Vesting Date; provided, however, that in the event that a Change in Control (as defined in the RSU agreements) occurs prior to the Vesting Date, the RSUs will vest and settle in full upon the date of such Change in Control, subject to the grantee’s continued employment with the Company or any of its subsidiaries through the Change in Control date. In the event that the grantee’s employment is terminated for any reason prior to the Vesting Date, the grantee will forfeit each of his or her RSUs for no consideration as of the date of such termination of employment; provided, that, if the grantee’s employment is terminated without Cause (as defined in the RSU agreement) prior to the Vesting Date, the RSUs will vest and settle in full upon the Vesting Date as though the grantee had remained employed through such date.
Option awards are granted at various times during the year, vest ratably at 25% per year, and are exercisable at the time of vesting. The options granted have a ten-year contractual term.
    A summary of the stock option activity for the years ended September 30, 2019 and 2018 is presented below:
(In thousands, except per share amounts)
Options
 
Weighted Average Exercise Price/Share
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value
Outstanding at September 30, 2017
9,060

 
5.18

 
7.5 years
 
 
Granted
1,380

 
20.94

 
 
 
 
Exercised
(1,303
)
 
4.80

 
 
 
 
Forfeited
(164
)
 
10.37

 
 
 
 
Expired
—

 
—

 
 
 
 
Outstanding at September 30, 2018
8,973

 
$
7.57

 
6.9 years
 
$
95,864

Granted
1,114

 
$
12.74

 
 
 
 
Exercised
(930
)
 
$
5.22

 
 
 
 
Forfeited
(511
)
 
$
12.43

 
 
 
 
Cancelled
(27
)
 
20.88

 
 
 
 
Expired
—

 
—

 
 
 
 
Outstanding at September 30, 2019
8,619

 
$
8.15

 
6.3 years
 
$
80,826

Options exercisable at September 30, 2019
6,240

 
$
5.70

 
5.4 years
 
$
71,757

Options vested and expected to vest at September 30, 2019
8,560

 
$
8.11

 
6.3 years
 
$
80,606

The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options of the date of exercise) during the year ended September 30, 2019 was $4,941. During the year ended September 30, 2019, $363 was received from the exercise of stock options. The remaining stock options exercised during the year ended September 30, 2019 were effected through a cashless net exercise.

49


A summary of the status of the Company's nonvested stock options as of and for the years ended September 30, 2019, 2018 and 2017 is presented below.
 
2019
 
2018
 
2017
(In thousands, except per share amounts)
Shares
 
Weighted Average Grant Date Fair Value/Share
 
Shares
 
Weighted Average Grant Date Fair Value/Share
 
Shares
 
Weighted Average Grant Date Fair Value/Share
Nonvested at beginning of period
3,335

 
$
4.11

 
4,300

 
$
1.36

 
5,931

 
$
1.15

Granted
1,114

 
$
3.87

 
1,380

 
$
7.91

 
1,039

 
$
2.12

Vested
(1,559
)
 
$
2.61

 
(2,180
)
 
$
1.20

 
(2,002
)
 
$
1.23

Forfeited
(511
)
 
$
4.38

 
(165
)
 
$
3.27

 
(668
)
 
$
1.00

Nonvested at end of period
2,379

 
$
4.96

 
3,335

 
$
4.11

 
4,300

 
$
1.36

The total fair value of options vested during the year was $4,064, $2,623 and $2,514 for the years ended September 30, 2019, 2018 and 2017, respectively.
Restricted Stock Units
The following is a summary of the RSU activity for the years ended September 30, 2019 and 2018. On November 2, 2019, 1,158 stock-settled RSUs vested, resulting in the issuance of 739 shares of common stock to the grantees and 419 shares of common stock to treasury to satisfy withholding tax obligations.
 
Shares
 
Weighted Average Grant Date Fair Value/Share
Outstanding at September 30, 2017
—

 
$
—

Granted
1,224

 
$
20.88

Forfeited
(11
)
 
$
20.88

Outstanding at September 30, 2018
1,213

 
$
20.88

Granted
883

 
$
12.69

Vested
(24
)
 
$
20.75

Forfeited
(70
)
 
$
15.84

Outstanding at September 30, 2019
2,002

 
$
17.45

Vested and expected to vest at September 30, 2019
1,946

 
$
17.50

Expense Measurement and Recognition
The Company recognizes share-based compensation for all current award grants and, in future periods, will recognize compensation costs for the unvested portion of previous award grants based on grant date fair values. Total share-based compensation expense was $19,978 during the year ended September 30, 2019, of which $19,903 was non-cash. Share-based compensation expense was $15,742 and $2,251 during the years ended September 30, 2018 and 2017, respectively.
Reported non-cash share-based compensation expense was classified on the Consolidated Statements of Operations as shown in the following table:

50


 
Year Ended September 30,
 
2019
 
2018
 
2017
Cost of services
$
142

 
$
80

 
$
43

General and administrative
19,761

 
15,662

 
2,208

 
$
19,903

 
$
15,742

 
$
2,251

The unrecognized compensation expense related to stock options and RSUs was $9,117 and $8,531, respectively at September 30, 2019, and is expected to be recognized over a weighted average period of 2.5 years and 1.1 years, respectively.
The Company has little historic data with respect to estimates of expected employee behaviors related to option exercises and forfeitures. As a result, in addition to Company data, the Company has used historic data from public disclosures of comparable companies which the Company believes to be representative of its own expected employee behaviors.
    The Company estimates the fair value of each stock option award on the grant date using the Black-Scholes valuation model incorporating the assumptions noted in the following table. Option valuation models require the input of highly subjective assumptions, and changes in assumptions used can materially affect the fair value estimate.
Option valuation assumptions for options granted are as follows:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Expected volatility
26.3% -30.0 %
 
23.5% - 34.3%
 
25.30% ‑ 28.70%
Expected dividends
—
 
—
 
—
Expected term (in years)
5.6 - 6.0
 
6.0 - 6.1
 
6.0 - 6.1
Risk free rate
1.5% - 2.6%
 
2.5% - 2.8%
 
1.89% ‑ 1.93%
Grant date fair value per share of options granted
$3.14 - $7.06
 
$5.58 - $7.96
 
$2.13 ‑ $2.41
The risk‑free interest rate is based on the U.S. treasury security rate in effect as of the date of grant. As the Company has little history with respect to volatility of share prices the expected volatility is not based on realized volatility. The Company, as permitted under ASC 718, has identified guideline public companies who are participants in the Company’s markets. The Company obtained share price trading data from the guideline companies and based their estimate of expected volatility on the implied volatility of the guideline companies in addition to the Company’s own implied volatility. As the guideline companies are comparable in most significant respects, the Company believes they represent an appropriate basis for estimating expected volatility.
Employee Stock Purchase Plan    
Effective October 1, 2018, the Company implemented an employee stock purchase plan (“ESPP”) which allows employees to purchase shares of the Company’s stock at 85% of the lower of the fair market value on the first day of the applicable offering period or on the last business day of a six-month purchase period within the offering period. These purchases were offered twice throughout fiscal 2019, and were paid by employees through payroll deductions over the respective six month purchase period, at which point the stock was be transferred to the employees. On December 21, 2018, the Company registered 11,297 shares of common stock, par value $0.01 per share, of which 5,000 are available for future issuance under the ESPP. During the year ended September 30, 2019, the Company incurred compensation expense of $400, primarily in salaries and wages in respect of the ESPP, representing the fair value of the discounted price of the shares. These amounts are included in the total share-based compensation expense above. On April 1, 2019 and October 1, 2019, 46 shares and 58 shares, respectively, were issued under the ESPP plan.

51


18. Other Comprehensive Loss
The components of accumulated other comprehensive (loss) were:
 
September 30, 2019
 
September 30, 2018
Foreign currency translation loss
$
(2,705
)
 
$
(4,212
)
Pension benefit plans, net of tax benefit of $776 and $700
(10,475
)
 
(4,907
)
Unrealized derivative gain on cash flow hedges, net of tax expense of $135 and $289
176

 
102

Total accumulated other comprehensive loss
$
(13,004
)
 
$
(9,017
)
The gains (losses) in accumulated other comprehensive (loss) by component, net of tax, for the years ended September 30, 2019, 2018 and 2017 are as follows:
 
Foreign currency
translation
 
Pension
plans
 
Cash flow Hedges
Balance at September 30, 2016
$
(887
)
 
$
(9,926
)
 
$
142

Other comprehensive income (loss) before reclassifications
148

 
4,553

 
(70
)
Amounts (loss) reclassified from accumulated other comprehensive loss into earnings
—

 
—

 
51

Balance at September 30, 2017
$
(739
)
 
$
(5,373
)
 
$
123

Other comprehensive (loss) income before reclassifications
(3,473
)
 
167

 
(118
)
Amounts (loss) reclassified from accumulated other comprehensive loss into earnings
—

 
299

 
97

Balance at September 30, 2018
(4,212
)
 
(4,907
)
 
102

Other comprehensive income (loss) before reclassifications
1,507

 
(5,939
)
 
(424
)
Amounts (loss) reclassified from accumulated other comprehensive loss into earnings
—

 
371

 
498

Balance at September 30, 2019
$
(2,705
)
 
$
(10,475
)
 
$
176

Amounts reclassified out of other comprehensive loss related to the amortization of actuarial losses are included in pension expense. Refer to Note 12, “Derivative Financial Instruments” for the location in the Consolidated Statements of Operations of amounts reclassified out of other comprehensive loss related to cash flow hedges.
19. Concentration of Credit Risk
The Company’s cash and cash equivalents and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are of high credit quality. Accounts receivable are derived from revenue earned from customers located in the U.S. and internationally and generally do not require collateral. The Company’s trade receivables do not represent a significant concentration of credit risk at September 30, 2019 and 2018 due to the wide variety of customers and markets into which products are sold and their dispersion across geographic areas. The Company does perform ongoing credit evaluations of its customers and maintains an allowance for potential credit losses on trade receivables. As of and for the years ended September 30, 2019, 2018 and 2017, no customer accounted for more than 10% of net sales or net accounts receivable.
The Company operates predominantly in ten countries worldwide and provides a wide range of proven product brands and advanced water and wastewater treatment technologies, mobile and emergency water supply solutions and service contract options through its Integrated Solutions and Services and Applied Product Technologies segments. The Company is a multi-national business but its sales and operations are primarily in the U.S. Sales to unaffiliated customers are based on the Company locations that maintain the customer relationship and transacts the external sale.

52


The following tables set forth external net revenue, net of intercompany eliminations, and net asset information by region:
 
Year Ended September 30,
 
2019
 
2018
 
2017
Sales to external customers
 
 
 
 
 
United States
$
1,147,649

 
$
1,067,636

 
$
1,033,404

Rest of World
296,792

 
271,905

 
214,020

Total
$
1,444,441

 
$
1,339,541

 
$
1,247,424

 
September 30, 2019
 
September 30, 2018
Net Assets
 
 
 
United States
$
324,887

 
$
332,624

Rest of World
40,935

 
29,392

 
365,822

 
362,016

 
 
 
 
Long Lived Assets
 
 
 
United States
304,088

 
286,193

Rest of World
29,496

 
33,830

 
$
333,584

 
$
320,023

20. Related‑Party Transactions
Transactions with Investors
Prior to the IPO, the Company paid an advisory fee of $333 per quarter to AEA Investors LP (“AEA”), the private equity firm and ultimate majority shareholder. In addition, the Company reimburses AEA for normal and customary expenses incurred by AEA on behalf of the Company. The Company incurred expenses, excluding advisory fees, of $20, $328 and $288 for the years ended September 30, 2019, 2018 and 2017, respectively. The Company owed no amounts to AEA at September 30, 2019 and 2018, respectively.
Transactions with Customers and Employees
The Company also has a related party relationship with one of their customers, who is also a shareholder of the Company. The Company had sales to this customer of $2,476, $3,603 and $3,917, respectively, for the years ended September 30, 2019, 2018 and 2017 and was owed $518 and $3,139 from them at September 30, 2019 and 2018, respectively.
21. Commitments and Contingencies
Operating Leases
The Company occupies certain facilities and operates certain equipment and vehicles under non‑cancelable lease arrangements. Lease agreements may contain lease escalation clauses and purchase and renewal options. The Company recognizes scheduled lease escalation clauses over the course of the applicable lease term on a straight-line basis in the Consolidated Statement of Operations.
Total rent expense was $20,088, $18,864 and $15,267 for the years ended September 30, 2019, 2018 and 2017, respectively.

53


Future minimum aggregate rental payments under non-cancelable operating leases are as follows:
Year Ended September 30,
 
2020
$
15,994

2021
12,714

2022
8,554

2023
6,147

2024
4,073

Thereafter
8,765

Total
$
56,247

Capital Leases
The Company leases certain equipment under leases classified as capital leases. The leased equipment is depreciated on a straight line basis over the life of the lease and is included in depreciation expense on the Consolidated Statements of Operations.
The gross and net carrying values of the equipment under capital leases as of September 30, 2019 and 2018 was as follows:
 
September 30, 2019
 
September 30, 2018
Gross carrying amount
$
69,760

 
$
52,314

Net carrying amount
36,337

 
31,116

The following is a schedule showing the future minimum lease payments under capital leases by years and the present value of the minimum lease payments as of September 30, 2019.
Year Ended September 30,
 
2020
$
13,663

2021
10,328

2022
7,628

2023
5,033

2024
2,987

Thereafter
1,957

Total
41,596

Less amount representing interest (at rates ranging from 1.71% to 9.71%)
5,451

Present value of net minimum capital lease payments
36,145

Less current installments of obligations under capital leases
17,859

Obligations under capital leases, excluding current installments
$
18,286

The current installments of obligations under capital leases are included in Accrued expenses and other liabilities on the Consolidated Balance Sheets. Obligations under capital leases, excluding current installments, are included in other non-current liabilities on the Consolidated Balance Sheets.
The Company is a lessor to multiple parties. The Company purchases equipment through internal funding or bank debt equal to the fair market value of the equipment. The equipment is then leased to customers for periods ranging from five to twenty years. As of September 30, 2019, future minimum lease payments receivable under operating leases are as follows:

54


Year Ended September 30,
 
2020
$
5,986

2021
5,044

2022
5,072

2023
4,090

2024
3,967

Thereafter
55,737

Future minimum lease payments
$
79,896

Guarantees
From time to time, the Company is required to provide letters of credit, bank guarantees, or surety bonds in support of its commitments and as part of the terms and conditions on water treatment projects.  In addition, the Company is required to provide letters of credit or surety bonds to the department of environmental protection or equivalent in some states in order to maintain its licenses to handle toxic substances at certain of its water treatment facilities.
These financial instruments typically expire after all Company commitments have been met, a period typically ranging from twelve months to ten years, or more in some circumstances.  The letters of credit, bank guarantees, or surety bonds are arranged through major banks or insurance companies. In the case of surety bonds, the Company generally indemnifies the issuer for all costs incurred if a claim is made against the bond. 
As of September 30, 2019 and 2018 the Company had Revolving Credit capacity to issue of $45,000 with letters of credit outstanding of $12,956 and $11,777, respectively, and remaining available of $32,044 and $33,223, respectively, under the Company's credit arrangements. As of September 30, 2019 and 2018 the Company had Surety capacity from surety underwriters of $220,000 and $200,000 with surety issuance of $144,717 and $123,427 and remaining available of $75,283 and $76,573. Additionally, as of September 30, 2018, the Company had letters of credit and surety bonds totaling $857 and $2,469, respectively, outstanding under the Company's prior arrangement with Siemens. No such amounts were outstanding as of September 30, 2019. The longest maturity date of letters of credit and surety bonds in effect as of September 30, 2019 was March 26, 2029.
Litigation
From time to time, as a normal incident of the nature and kind of business in which the Company is engaged, various claims or charges are asserted and litigation commenced against it arising from or related to: product liability; personal injury; trademarks, trade secrets or other intellectual property; labor and employee disputes; commercial or contractual disputes; breach of warranty; or environmental matters. Claimed amounts may be substantial but may not bear any reasonable relationship to the merits of the claim or the extent of any real risk of court or arbitral awards. While it is not feasible to predict the outcome of these matters with certainty, and some lawsuits, claims or proceedings may be disposed or decided unfavorably, the Company does not expect that any asserted or un-asserted legal claims or proceedings, individually or in the aggregate, will have a material adverse effect on the results of operations, or financial condition.

55


22. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following:
 
September 30, 2019
 
September 30, 2018
Salaries, wages and other benefits
$
35,206

 
$
34,688

Obligation under capital leases
17,859

 
12,236

Third party commissions
11,394

 
5,097

Taxes, other than income
5,215

 
11,561

Insurance liabilities
4,895

 
5,005

Provisions for litigation
1,533

 
1,137

Severance payments
655

 
710

Earn-outs related to acquisitions
611

 
770

Other
24,471

 
26,468

 
$
101,839

 
$
97,672

23. Business Segments
The Company’s reportable operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance. The key factors used to identify these reportable operating segments are the organization and alignment of the Company’s internal operations, the nature of the products and services, and customer type.
During the first quarter of 2019, the Company implemented changes to its organizational and management structure that resulted in changes to our reportable operating segments for financial reporting purposes. Through the fiscal year ended September 30, 2018, the Company had three reportable operating segments: Industrial, Municipal and Products. Changes in the management reporting structure during the first quarter of 2019 required an assessment to be conducted in accordance with ASC Topic 280, Segment Reporting, to determine the Company’s reportable operating segments.
As a result of this assessment, the Company now has two reportable operating segments, Integrated Solutions and Services and Applied Product Technologies. Prior period information has been revised to reflect this new segment structure. The business segments are described as follows:
Integrated Solutions and Services is a group entirely focused on engaging directly with end users through direct sales with a market vertical focus. Integrated Solutions and Services provides tailored services and solutions in collaboration with the customers backed by life‑cycle services including on‑demand water, outsourced water, recycle / reuse and emergency response service alternatives to improve operational reliability, performance and environmental compliance. Key offerings within this segment also include equipment systems for industrial needs (influent water, boiler feed water, ultrahigh purity, process water, wastewater treatment and recycle / reuse), full-scale outsourcing of operations and maintenance, and municipal services, including odor and corrosion control services.
Applied Product Technologies is focused on developing product platforms to be sold primarily through third party channels. This segment primarily engages in indirect sales through independent sales representatives, distributors and aftermarket channels. Applied Product Technologies provides a range of highly differentiated and scalable products and technologies specified by global water treatment designers, OEMs, engineering firms and integrators. Key offerings within this segment include filtration and separation, disinfection, wastewater solutions, anode and electrochlorination technology and aquatics technologies and solutions for the global recreational and commercial pool market.

56


The Company evaluates its business segments’ operating results based on revenue, earnings before interest, taxes, depreciation and amortization, and certain other charges that are specific to the activities of the respective segments. Corporate activities include general corporate expenses, elimination of intersegment transactions, interest income and expense and certain other charges. Certain other charges include restructuring and other business transformation charges that have been undertaken to align and reposition the Company to the current reporting structure, acquisition related costs (including transaction costs, certain integration costs and recognition of backlog intangible assets recorded in purchase accounting) and share-based compensation charges. 
Since certain administrative costs and other operating expenses have not been allocated to business segments, the results in the below table are not necessarily a measure computed in accordance with generally accepted accounting principles and may not be comparable to other companies.
The tables below provide segment information for the periods presented and a reconciliation to total consolidated information:

57


 
Year Ended September 30,
 
2019
 
2018
 
2017
Total sales
 
 
 
 
 
Integrated Solutions and Services
$
919,985

 
$
844,851

 
$
753,858

Applied Product Technologies
631,332

 
579,291

 
567,820

Total sales
1,551,317

 
1,424,142

 
1,321,678

Intersegment sales

 

 
 
Integrated Solutions and Services
9,151

 
9,217

 
8,524

Applied Product Technologies
97,725

 
75,384

 
65,730

Total intersegment sales
106,876

 
84,601

 
74,254

Sales to external customers

 

 
 
Integrated Solutions and Services
910,834

 
835,634

 
745,334

Applied Product Technologies
533,607

 
503,907

 
502,090

Total sales
1,444,441

 
1,339,541

 
1,247,424

Earnings before interest, taxes, depreciation and amortization (EBITDA)

 
 
 
 
Integrated Solutions and Services
205,810

 
186,824


168,182

Applied Product Technologies
87,052

 
88,682


100,634

Corporate
(134,954
)
 
(122,800
)

(121,726
)
Total EBITDA
157,908

 
152,706

 
147,090

Depreciation and amortization

 

 
 
Integrated Solutions and Services
57,217

 
48,781

 
43,583

Applied Product Technologies
17,675

 
16,734

 
16,007

Corporate
23,344

 
20,345

 
18,296

Total depreciation and amortization
98,236

 
85,860

 
77,886

Income (loss) from operations

 

 
 
Integrated Solutions and Services
148,593

 
138,043


124,599

Applied Product Technologies
69,377

 
71,948


84,627

Corporate
(158,298
)
 
(143,145
)

(140,022
)
Total income from operations
59,672

 
66,846

 
69,204

Interest expense
(58,556
)
 
(57,580
)
 
(55,377
)
Income before income taxes
1,116

 
9,266

 
13,827

Income tax expense
(9,587
)
 
(1,382
)
 
(7,417
)
Net (loss) income
$
(8,471
)
 
$
7,884

 
$
6,410

Capital expenditures
 
 
 
 
 
Integrated Solutions and Services
73,656

 
$
58,464

 
$
45,611

Applied Product Technologies
7,589

 
11,501

 
5,282

Corporate
7,624

 
10,748

 
6,882

Total Capital expenditures
$
88,869

 
$
80,713

 
$
57,775


58


 
September 30, 2019
 
September 30, 2018
Assets
 
 
 
Integrated Solutions and Services
$
762,707

 
$
711,622

Applied Product Technologies
657,879

 
677,993

Corporate
317,262

 
274,002

Total assets
1,737,848

 
1,663,617

Goodwill
 
 
 
Integrated Solutions and Services
222,013

 
224,370

Applied Product Technologies
170,877

 
186,976

Total goodwill
$
392,890

 
$
411,346

24. Earnings Per Share
The following table sets forth the computation of basic and diluted income from continuing operations per common share:
 
Year Ended September 30,
(In thousands, except per share data)
2019
 
2018
 
2017
Numerator:
 
 
 
 
 
Net (loss) income attributable to Evoqua Water Technologies Corp.
$
(9,523
)
 
$
6,135

 
$
2,163

Denominator:
 
 
 
 
 
Denominator for basic net income per common share—weighted average shares
114,703

 
113,944

 
104,964

Effect of dilutive securities:
 
 
 
 
 
Share‑based compensation
—

 
6,221

 
4,724

Denominator for diluted net loss per common share—adjusted weighted average shares
114,703

 
120,165

 
109,688

Basic (loss) income per common share
$
(0.08
)
 
$
0.05

 
$
0.02

Diluted (loss) income per common share
$
(0.08
)
 
$
0.05

 
$
0.02

Since the Company was in a net loss position for the year ended September 30, 2019, there was no difference between the number of shares used to calculate basic and diluted loss per share. Because of their anti-dilutive effect, 3,356 common share equivalents, comprised of employee stock options, have been excluded from the diluted EPS calculation for the year ended September 30, 2019.

59


25. Quarterly Financial Data
(Unaudited, in thousands, except per share data)
Three months ended
December 31,
2018
 
March 31,
2019
 
June 30,
2019
 
September 30,
2019
Revenue from product sales and services
$
323,002

 
$
348,628

 
$
360,343

 
$
412,468

Gross profit
88,730

 
95,611

 
111,294

 
130,327

Interest expense
(14,443
)
 
(14,474
)
 
(14,842
)
 
(14,797
)
Income tax benefit (expense)
4,514

 
4,579

 
(7,959
)
 
(10,721
)
Net (loss) income
(16,288
)
 
1,573

 
4,290

 
1,954

Net (loss) income attributable to Evoqua Water Technologies, Corp
(16,730
)
 
1,384

 
4,135

 
1,688

Basis (loss) earnings per common share
$
(0.15
)
 
$
0.01

 
$
0.04

 
$
0.01

Diluted (loss) earnings per common share
$
(0.15
)
 
$
0.01

 
$
0.03

 
$
0.01

Three months ended
December 31,
2017
 
March 31,
2018
 
June 30,
2018
 
September 30,
2018
Revenue from product sales and services
$
297,051

 
$
333,690

 
$
342,475

 
$
366,326

Gross profit
88,379

 
107,997

 
102,007

 
106,350

Interest expense
(17,243
)
 
(10,810
)
 
(12,370
)
 
(17,157
)
Income tax benefit (expense)
4,410

 
(2,018
)
 
(1,433
)
 
(2,342
)
Net (loss) income
(3,005
)
 
12,980

 
1,035

 
(3,128
)
Net (loss) income attributable to Evoqua Water Technologies, Corp
(3,713
)
 
12,503

 
793

 
(3,450
)
Basis (loss) earnings per common share
$
(0.03
)
 
$
0.11

 
$
0.01

 
$
(0.03
)
Diluted (loss) earnings per common share
$
(0.03
)
 
$
0.10

 
$
0.01

 
$
(0.03
)

26. Subsequent Events
On October 1, 2019, the Company acquired a 60% investment position in San Diego-based Frontier Water Systems, LLC (“Frontier”). Frontier is a pioneer in the development of patented, engineered equipment packages for high-rate treatment and removal of selenium, nitrate and other metals from complex water systems. Frontier will be part of the Integrated Solutions and Services segment
On October 3, 2019, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with DuPont de Nemours, Inc. (“DuPont”), pursuant to which the Company will divest their Memcor® low pressure membrane product line (including the product line’s global workforce, its manufacturing site in Windsor, Australia, associated operations and intellectual property) (“Memcor”) to DuPont (the “Transaction”). In connection with the Transaction, DuPont will purchase 100% of the corporate capital of the Australian Subsidiaries and all of the assets related to the Memcor® low pressure membrane product line. The aggregate purchase price to be paid by DuPont in the Transaction is $110 million in cash, subject to certain post-closing purchase price adjustments as described in the Agreement. The Agreement contains representations, warranties and covenants customary for dispositions of this type. The Company currently expects the Transaction to close in the first quarter of fiscal 2020, subject to customary closing conditions. The Company and DuPont have a history of collaboration, and following the Transaction, Dupont will continue to supply the Company with Memcor® products. As of a result of this transaction, all of the assets and liabilities associated with the Memcor product line were moved to Held for Sale on the Consolidated Balance Sheets and Consolidated Statements of Changes in Cash Flows. Memcor is part of the Applied Product Technologies segment.

60


On November 2, 2019, 1,158 stock-settled RSUs vested, resulting in the issuance of 739 shares of common stock to the grantees and 419 shares of common stock to treasury to satisfy withholding tax obligations.

61


Evoqua Water Technologies Corp.
Supplementary Financial Information

SCHEDULE I-Evoqua Water Technologies Corp.
(Parent company only)
Condensed Consolidated Balance Sheets
(In thousands)
 
September 30, 2019
 
September 30, 2018
ASSETS
 
 
 
Current assets
$
335

 
$
129

Cash and cash equivalents
121

 
76

Prepaid and other current assets
214

 
53

Investment in affiliate
385,175

 
376,555

Total assets
$
385,510

 
$
376,684

LIABILITIES AND EQUITY
 
 
 
Due to affiliates
9,747

 
8,812

Total liabilities
9,747

 
8,812

 
 
 
 
Common stock, par value $0.01: authorized 1,000,000 shares; issued 116,008 shares, outstanding 114,344 at September 30, 2019; issued 115,016, outstanding 113,929 shares at September 30, 2018
1,154

 
1,145

Treasury stock: 1,664 shares at September 30, 2019 and 1,087 shares at September 30, 2018
(2,837
)
 
(2,837
)
Additional paid‑in capital
552,422

 
533,435

Retained deficit
(174,976
)
 
(163,871
)
Total shareholders’ equity
375,763

 
367,872

Total liabilities and shareholder’s equity
$
385,510

 
$
376,684



62


SCHEDULE I-Evoqua Water Technologies Corp.
(Parent company only)
Condensed Statements of Operations
(In thousands)
 
Year Ended September 30,
 
2019
 
2018
 
2017
Other operating income
$
73

 
$
78

 
$
29

General and administrative expense
(303
)
 
(2,142
)
 
—

Net (loss) income of subsidiaries
(9,293
)
 
8,199

 
2,134

(Loss) income before taxes
(9,523
)
 
6,135

 
2,163

Benefit for income taxes
—

 
—

 
—

Net (loss) income
$
(9,523
)
 
$
6,135

 
$
2,163



63


SCHEDULE 1-Evoqua Water Technologies Corp.
Condensed Statements of Changes in Cash Flows
(Parent company only)
(In thousands)
 
Year Ended September 30,
 
2019
 
2018
 
2017
Operating activities
 
 
 
 
 
Net income
$
(9,523
)
 
$
6,135

 
$
2,163

Adjustments to reconcile net income to net cash used in operating activities
 
 
 
 
 
Net income of subsidiaries
9,293

 
(8,199
)
 
(2,134
)
Changes in assets and liabilities
 
 
 
 
 
Due to affiliates
1,343

 
8,812

 
—

Accrued expenses
—

 
(61
)
 
61

Prepaids and other current assets
(161
)
 
—

 
256

New cash provided by operating activities
952

 
6,687

 
346

Investing activities
 
 
 
 
 
Contributed capital
—

 
(140,999
)
 
—

Net cash used in investing activities
—

 
(140,999
)
 
—

Financing activities
 
 
 
 
 
Proceeds from issuance of common stock
363

 
137,605

 
5,521

Stock repurchases
—

 
(230
)
 
(1,474
)
Taxes paid related to net share settlements of share-based compensation awards
(1,270
)
 
(8,807
)
 
—

Net cash provided by financing activities
(907
)
 
128,568

 
4,047

Change in cash and cash equivalents
45

 
(5,744
)
 
4,393

Cash and cash equivalents
 
 
 
 
 
Beginning of period
76

 
5,820

 
1,427

End of period
$
121

 
$
76

 
$
5,820



64


SCHEDULE I-Evoqua Water Technologies Corp.
(Parent company only)
Notes to Financial Statements
(In thousands)
1. Basis of Presentation
Basis of Presentation
In the parent‑company‑only financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries. The Company’s share of net income (loss) of its consolidated subsidiaries is included in consolidated income (loss) using the equity method. The parent‑company‑only financial statements should be read in conjunction with the Company’s consolidated financial statements.
2. Guarantees and Restrictions
As of September 30, 2019, EWT Holdings III, Corp., a subsidiary of the Company, had $928,753 collectively of debt outstanding under the First Lien Term Loan. Under the terms of the credit agreements governing the Company’s senior secured credit facilities, EWT Holdings II, Corp. has guaranteed the payment of all principal and interest. In the event of a default under our senior secured credit facilities, certain of the Company’s subsidiaries will be directly liable to the debt holders. As of September 30, 2019, the Term Loan Facility had a maturity date of December 20, 2024. The credit agreements governing the Company’s senior secured credit facilities also include restrictions on the ability of the Company and its subsidiaries to (i) incur additional indebtedness and liens in connection therewith; (ii) pay dividends and make certain other restricted payments; (iii) effect mergers or consolidations; (iv) enter into transactions with affiliates; (v) sell or dispose of property or assets; and (vi) engage in unrelated lines of business.
3. Dividends from Subsidiaries
There were no cash dividends paid to Evoqua Water Technologies Corp. from the Company’s consolidated subsidiaries of each of the periods ended September 30, 2019, 2018 and 2017.

65


Item 15.    Exhibits, Financial Statement Schedules
(a) 1.     Financial Statements:
The following items are included in Part II, Item 8:
 
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2019 and 2018
Consolidated Statements of Operations for the Years Ended September 30, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended September 30, 2019, 2018 and 2017
Consolidated Statements of Changes in Equity for the Years Ended September 30, 2019, 2018 and 2017
Consolidated Statements of Changes in Cash Flow for the Years Ended September 30, 2019, 2018 and 2017
Supplemental Disclosure of Cash Flow Information for the Years Ended September 30, 2019, 2018 and 2017
Notes to Audited Consolidated Financial Statements
Schedule I Parent Company Financial Information
2.    Schedules. An index of exhibits and schedules is included below. Schedules other than those listed below have been omitted from this Annual Report on Form 10-K because they are not required, are not applicable or the required information is included in the financial statements or the notes thereto in Part II, Item 8.
3.     Exhibits:
The following exhibits are filed or furnished as a part of this report:

Exhibit No.
 
Exhibit Description
 
 
 
 
 
 

66


 
 
 
 
 
 
 
 
 
 
 
 
†
†
†

67


†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
†
 
†
†
†

68


†
†
†
†
†
 
*
*
*
*
*
101.INS
 
XBRL Instance Document (incorporated by reference to Exhibit 101.INS to the Registrant’s Form 10-K filed on November 25, 2019 (File No. 001-38272)).
101.SCH
 
XBRL Taxonomy Extension Schema Document (incorporated by reference to Exhibit 101.SCH to the Registrant’s Form 10-K filed on November 25, 2019 (File No. 001-38272)).
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document (incorporated by reference to Exhibit 101.CAL to the Registrant’s Form 10-K filed on November 25, 2019 (File No. 001-38272)).
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document (incorporated by reference to Exhibit 101.DEF to the Registrant’s Form 10-K filed on November 25, 2019 (File No. 001-38272)).
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document (incorporated by reference to Exhibit 101.LAB to the Registrant’s Form 10-K filed on November 25, 2019 (File No. 001-38272)).
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document (incorporated by reference to Exhibit 101.PRE to the Registrant’s Form 10-K filed on November 25, 2019 (File No. 001-38272)).
†    Indicates a management contract or compensatory plan or arrangement.
*    Filed herewith.





69



SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
EVOQUA WATER TECHNOLOGIES CORP.
 
 
 
 
December 4, 2019
/s/ RONALD C. KEATING
 
By:
Ronald C. Keating
 
 
Chief Executive Officer (Principal Executive Officer)




70