ESCO TECHNOLOGIES INC - Quarter Report: 2011 June (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 JUNE 30, 2011

(  )	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 June 30,

		2011				2010
Net sales		$	176,326				157,582
Costs and expenses:
Cost of sales			105,522				91,994
Selling, general and administrative expenses			47,520				38,144
Amortization of intangible assets			3,055				2,891
Interest expense, net			534				791
Other (income) expenses, net			(522	)			551
Total costs and expenses			156,109				134,371
Earnings before income taxes			20,217				23,211
Income tax expense			7,139				8,664
Net earnings		$	13,078				14,547
Earnings per share:
Basic – Net earnings		$	0.49				0.55
Diluted – Net earnings		$	0.49				0.55

Nine Months Ended June 30,

		2011				2010
Net sales		$	503,010				399,568
Costs and expenses:
Cost of sales			301,599				238,829
Selling, general and administrative expenses			134,574				114,161
Amortization of intangible assets			8,943				8,662
Interest expense, net			1,846				3,028
Other (income) expenses, net			(1,015	)			1,862
Total costs and expenses			445,947				366,542
Earnings before income taxes			57,063				33,026
Income tax expense			19,945				12,076
Net earnings		$	37,118				20,950
Earnings per share:
Basic – Net earnings		$	1.40				0.79
Diluted – Net earnings		$	1.38				0.79

		June 30, 2011				September 30, 2010
ASSETS		(Unaudited)
Current assets:
Cash and cash equivalents		$	31,798				26,508
Accounts receivable, net			144,966				141,098
Costs and estimated earnings on long-term contracts, less progress billings of $11,086 and $12,189, respectively			9,693				12,743
Inventories			102,240				83,034
Current portion of deferred tax assets			18,632				15,809
Other current assets			11,923				17,169
Total current assets			319,252				296,361
Property, plant and equipment, net			73,664				72,563
Goodwill			362,694				355,656
Intangible assets, net			231,524				229,736
Other assets			19,042				19,975
Total assets			1,006,176				974,291
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt		$	50,370				50,000
Accounts payable			47,402				59,088
Advance payments on long-term contracts, less costs incurred of $23,250 and $19,547, respectively			28,677				5,729
Accrued salaries			24,624				23,762
Current portion of deferred revenue			24,902				21,907
Accrued other expenses			24,059				26,494
Total current liabilities			200,034				186,980
Pension obligations			26,808				29,980
Deferred tax liabilities			79,588				79,388
Other liabilities			17,645				17,961
Long-term debt, less current portion			89,000				104,000
Total liabilities			413,075				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 29,932,347 and 29,839,343 shares, respectively			299				298
Additional paid-in capital			274,627				270,943
Retained earnings			389,997				359,274
Accumulated other comprehensive loss, net of tax			(12,310	)			(14,793	)
			652,613				615,722
Less treasury stock, at cost: 3,324,926 and 3,338,986 common shares, respectively			(59,512	)			(59,740	)
Total shareholders' equity			593,101				555,982
Total liabilities and shareholders’ equity		$	1,006,176				974,291

 

1.	BASIS OF PRESENTATION

 
 

2.	ACQUISITION

On February 28, 2011, the Company acquired the capital stock of EMV Elektronische Messgerate Vertriebs – GmbH, together with its subsidiary EMSCREEN Electromagnetic Screening GmbH (collectively, EMV) for a purchase price of approximately $5.0 million, inclusive of cash acquired. EMV, with operations in Taufkirchen, Germany provides turnkey systems and shielded environments for research, development and quality assurance testing of electronic equipment.  EMV’s operating results, since the date of acquisition, are included within the Test segment and the Company recorded approximately $4.8 million of goodwill as a result of the transaction.

3.	EARNINGS PER SHARE (EPS)

 

4.	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			(66,724	)		$	13.36			$	1.7
Cancelled			(215,632	)		$	44.60
Outstanding at June 30, 2011			479,575			$	33.92			$	3.3		1.0 year
Exercisable at June 30, 2011			441,260			$	33.63			$	3.3

		Shares				Weighted  Avg. Price
Nonvested at October 1, 2010			304,176			$	38.95
Granted			110,957			$	32.86
Nonvested at June 30, 2011			415,133			$	37.40

 
 

(In thousands)		June 30, 2011				September 30, 2010
Finished goods		$	33,560				29,902
Work in process, including long-term contracts			26,270				18,743
Raw materials			42,410				34,389
Total inventories		$	102,240				83,034

7.	BUSINESS SEGMENT INFORMATION

(In thousands)		Three Months ended June 30,								Nine Months ended June 30,
NET SALES		2011				2010				2011				2010
USG		$	86,837				91,718			$	264,018				224,950
Test			45,848				34,575				119,955				93,143
Filtration			43,641				31,289				119,037				81,475
Consolidated totals		$	176,326				157,582			$	503,010				399,568
EBIT
USG		$	12,428				20,424			$	43,597				35,615
Test			4,616				3,397				11,739				6,193
Filtration			9,595				6,072				21,604				11,419
Corporate (loss)			(5,888	)			(5,891	)			(18,031	)			(17,173	)
Consolidated EBIT			20,751				24,002				58,909				36,054
Less: Interest expense			(534	)			(791	)			(1,846	)			(3,028	)
Earnings before income taxes		$	20,217				23,211			$	57,063				33,026

(In thousands)		June 30, 2011				September 30, 2010
Revolving credit facility, including current portion		$	139,370				154,000
Short-term borrowings and current portion of long-term debt			(50,370	)			(50,000	)
Total long-term debt, less current portion		$	89,000				104,000

		Three Months Ended June 30,								Nine Months Ended June 30,
(In thousands)		2011				2010				2011				2010
Defined benefit plans
Interest cost		$	969				976			$	2,867				2,928
Expected return on assets			(1,054	)			(1,035	)			(3,140	)			(3,107	)
Amortization of:
Prior service cost			3				3				9				10
Actuarial loss			289				226				885				679
Net periodic benefit cost		$	207				170			$	621				510

(In thousands)		Notional Amount				Average Receive Rate				Average Pay Rate				Fair Value
Interest rate swap		$	60,000				0.19	%			1.10	%		$	(143	)

 
 

(In thousands)		Level 1				Level 2				Level 3				Total
Liabilities:
Interest rate swaps		$	-			$	143			$	-			$	143

(In thousands)

Three Months ended June 30,

Nine Months ended June 30,

		2011				2010				2011				2010
Consolidated EBIT		$	20,751				24,002				58,909				36,054
Less: Interest expense, net			(534	)			(791	)			(1,846	)			(3,028	)
Less: Income tax expense			(7,139	)			(8,664	)			(19,945	)			(12,076	)
Net earnings		$	13,078				14,547				37,118				20,950

(In thousands)		Notional Amount				Average Receive Rate				Average  Pay Rate				Fair Value
Interest rate swap		$	60,000				0.19	%			1.10	%		$	(143	)

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

 

*31.1	Certification of Chief Executive Officer relating to Form 10-Q for period ended June 30, 2011
*31.2	Certification of Chief Financial Officer relating to Form 10-Q for period ended June 30, 2011
*32	Certification of Chief Executive Officer and Chief Financial Officer relating to Form 10-Q for period ended June 30, 2011
*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)