ESCO TECHNOLOGIES INC - Quarter Report: 2010 December (Form 10-Q)

(X)	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2010

(  )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______  TO ______

COMMISSION FILE NUMBER 1-10596

MISSOURI (State or other jurisdiction of incorporation or organization)	43-1554045 (I.R.S. Employer Identification No.)
9900A CLAYTON ROAD ST. LOUIS, MISSOURI (Address of principal executive offices)	63124-1186 (Zip Code)

Three Months Ended December 31,

		2010				2009
Net sales		$	159,936				112,705
Costs and expenses:
Cost of sales			97,483				67,436
Selling, general and administrative expenses			43,645				39,208
Amortization of intangible assets			2,853				2,884
Interest expense, net			774				1,482
Other (income) expenses, net			(618	)			1,023
Total costs and expenses			144,137				112,033
Earnings before income taxes			15,799				672
Income tax expense			4,986				236
Net earnings		$	10,813				436
Earnings per share:
Basic – Net earnings		$	0.41				0.02
Diluted – Net earnings		$	0.40				0.02

		December 31, 2010				September 30, 2010
ASSETS		(Unaudited)
Current assets:
Cash and cash equivalents		$	29,848				26,508
Accounts receivable, net			131,664				141,098
Costs and estimated earnings on long-term contracts, less progress billings of $12,996 and $12,189, respectively			8,070				12,743
Inventories			88,382				83,034
Current portion of deferred tax assets			15,655				15,809
Other current assets			12,482				17,169
Total current assets			286,101				296,361
Property, plant and equipment, net			72,457				72,563
Goodwill			355,717				355,656
Intangible assets, net			229,402				229,736
Other assets			18,943				19,975
Total assets		$	962,620				974,291
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt		$	51,533				50,000
Accounts payable			39,406				59,088
Advance payments on long-term contracts, less costs incurred of $31,694 and $19,547, respectively			19,829				5,729
Accrued salaries			16,652				23,762
Current portion of deferred revenue			26,758				21,907
Accrued other expenses			24,156				26,494
Total current liabilities			178,334				186,980
Pension obligations			26,835				29,980
Deferred tax liabilities			79,900				79,388
Other liabilities			18,445				17,961
Long-term debt, less current portion			94,000				104,000
Total liabilities			397,514				418,309
Shareholders' equity:
Preferred stock, par value $.01 per share, authorized 10,000,000 shares			-				-
Common stock, par value $.01 per share, authorized 50,000,000 shares, issued 29,889,147 and 29,839,343 shares, respectively			299				298
Additional paid-in capital			271,581				270,943
Retained earnings			367,965				359,274
Accumulated other comprehensive loss, net of tax			(15,064	)			(14,793	)
			624,781				615,722
Less treasury stock, at cost: 3,334,986 and 3,338,986 common shares, respectively			(59,675	)			(59,740	)
Total shareholders' equity			565,106				555,982
Total liabilities and shareholders’ equity		$	962,620				974,291

Three Months Ended December 31,

		2010				2009
Cash flows from operating activities:
Net earnings		$	10,813				436
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			5,537				5,564
Stock compensation expense			1,232				1,031
Changes in current assets and liabilities			(1,262	)			(958	)
Effect of deferred taxes			666				(1,218	)
Change in deferred revenue and costs, net            Pension contributions			4,427				598
			(3,400	)			(68	)
Other			1,127				(183	)
Net cash provided by operating activities			19,140				5,202
Cash flows from investing activities:
Additions to capitalized software			(2,668	)			(1,381	)
Capital expenditures			(2,661	)			(3,715	)
Net cash used by investing activities			(5,329	)			(5,096	)
Cash flows from financing activities:
Proceeds from long-term debt			9,533				-
Principal payments on long-term debt			(18,000	)			(10,044	)
Dividends paid			(2,122	)			-
Other			462				880
Net cash used by financing activities			(10,127	)			(9,164	)
Effect of exchange rate changes on cash and cash equivalents			(344	)			(219	)
Net increase (decrease) in cash and cash equivalents			3,340				(9,277	)
Cash and cash equivalents, beginning of period			26,508				44,630
Cash and cash equivalents, end of period		$	29,848				35,353

1.	BASIS OF PRESENTATION

 
 

2.	EARNINGS PER SHARE (EPS)

		Three Months Ended December 31,
		2010				2009
Weighted Average Shares Outstanding - Basic			26,540				26,423
Dilutive Options and Restricted Shares			276				286
Adjusted Shares - Diluted			26,816				26,709

3.	SHARE-BASED COMPENSATION

		Shares				Weighted Avg. Price				Aggregate Intrinsic Value (in millions)			Weighted Avg. Remaining Contractual Life
Outstanding at October 1, 2010			761,931			$	35.15
Granted			-				-
Exercised			(17,376	)		$	12.71			$	0.4
Cancelled			(177,715	)		$	42.98
Outstanding at December 31, 2010			566,840			$	33.38			$	4.7		1.4 years
Exercisable at December 31, 2010			526,608			$	33.08			$	4.7

		Shares				Weighted  Avg. Price
Nonvested at October 1, 2010			304,176			$	38.95
Granted			103,457			$	32.86
Nonvested at December 31, 2010			407,633			$	37.40

 
 

(In thousands)		December 31, 2010				September 30, 2010
Finished goods		$	33,069				29,902
Work in process, including long-term contracts			19,324				18,743
Raw materials			35,989				34,389
Total inventories		$	88,382				83,034

6.	BUSINESS SEGMENT INFORMATION

(In thousands)		Three Months ended December 31,
NET SALES		2010				2009
USG		$	92,189				61,224
Test			32,004				26,986
Filtration			35,743				24,495
Consolidated totals		$	159,936				112,705
EBIT
USG		$	15,355				4,570
Test			1,909				700
Filtration			5,475				2,358
Corporate (loss)			(6,166	)			(5,474	)
Consolidated EBIT			16,573				2,154
Less: Interest expense			(774	)			(1,482	)
Earnings before income taxes		$	15,799				672

(In thousands)		December 31, 2010				September 30, 2010
Revolving credit facility, including current portion		$	145,533				154,000
Short-term borrowings and current portion of long-term debt			(51,533	)			(50,000	)
Total long-term debt, less current portion		$	94,000				104,000

		Three Months Ended December 31,
(In thousands)		2010				2009
Defined benefit plans
Interest cost		$	928				976
Expected return on assets			(1,032	)			(1,035	)
Amortization of:
Prior service cost			3				3
Actuarial loss			356				226
Net periodic benefit cost		$	255				170

						Average
(In thousands)		Notional Amount				Receive Rate				Average Pay Rate				Fair Value
Interest rate swap		$	60,000				0.27	%			1.10	%		$	(359	)

 
 

(In thousands)		Level 1				Level 2				Level 3				Total
Liabilities:
Interest rate swaps		$	-			$	359			$	-			$	359

(In thousands)

Three Months ended December 31,

		2010				2009
Consolidated EBIT		$	16,573				2,154
Less: Interest expense, net			(774	)			(1,482	)
Less: Income tax expense			(4,986	)			(236	)
Net earnings from continuing operations		$	10,813				436

						Average
(In thousands)		Notional Amount				Receive Rate				Average Pay Rate				Fair Value
Interest rate swap		$	60,000				0.27	%			1.10	%		$	(359	)

Exhibit Number

3.1

Restated Articles of Incorporation

Incorporated by reference to Form 10-K for the fiscal year ended September 30, 1999, at Exhibit 3(a)

3.2

Amended Certificate of Designation, Preferences and Rights of Series A Participating Cumulative Preferred Stock of the Registrant

Incorporated by reference to Form 10-Q for the fiscal quarter ended March 31, 2000, at Exhibit 4(e)

3.3	Articles of Merger effective July 10, 2000	Incorporated by reference to Form 10-Q for the fiscal quarter ended June 30, 2000, at Exhibit 3(c)
3.4	Bylaws, as amended and restated as of July 10, 2000	Incorporated by reference to Form 10-K for the fiscal year ended September 30, 2003, at Exhibit 3.4
3.5	Amendment to Bylaws effective as of February 2, 2007	Incorporated by reference to Form 10-Q for the fiscal quarter ended December 31, 2006, at Exhibit 3.5
3.6	Amendment to Bylaws effective as of November 9, 2007	Incorporated by reference to Current Report on Form 8-K dated November 12, 2007, at Exhibit 3.1

4.1

Specimen revised Common Stock Certificate

Incorporated by reference to Form 10-Q for the fiscal quarter ended March 31, 2010, at Exhibit 4.1

4.2

Credit Agreement dated as of November 30, 2007 among the Registrant, National City Bank and the lenders from time to time parties thereto

Incorporated by reference to Current Report on Form 8-K dated November 30, 2007, at Exhibit 4.1

4.3	Amendment No. 1 to the Agreement listed at 4.2 above, with retroactive effect to November 12, 2009 among the Registrant, the lenders from time to time parties thereto, and PNC Bank, National Association (successor to National City Bank)	Incorporated by reference to Current Report on Form 8-K dated January 12, 2010, at Exhibit 4.1
*10	Form of Notice of Award – Performance-Accelerated Restricted Stock under 2004 Stock Incentive Plan

 

*31.1

Certification of Chief Executive Officer relating to Form 10-Q for period ended December 31, 2010

*31.2	Certification of Chief Financial Officer relating to Form 10-Q for period ended December 31, 2010
*32	Certification of Chief Executive Officer and Chief Financial Officer relating to Form 10-Q for period ended December 31, 2010
*101.INS	XBRL Instance Document
*101.SCH	XBRL Schema Document
*101.CAL	XBRL Calculation Linkbase Document
*101.LAB	XBRL Label Linkbase Document
*101.PRE	XBRL Presentation Linkbase Document

	ESCO TECHNOLOGIES INC.
	/s/ Gary E. Muenster Gary E. Muenster Executive Vice President and Chief Financial Officer (As duly authorized officer and principal accounting and financial officer of the registrant)