ESCO TECHNOLOGIES INC - Quarter Report: 2011 March (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 MARCH 31, 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)

                                                                                                              

Class		Outstanding at April 30, 2011
Common stock, $.01 par value per share		26,605,353 shares

 

Three Months Ended March 31,

		2011				2010
Net sales		$	166,748				129,281
Costs and expenses:
Cost of sales			98,594				79,399
Selling, general and administrative expenses			43,409				36,809
Amortization of intangible assets			3,035				2,887
Interest expense, net			538				755
Other expenses, net			125				288
Total costs and expenses			145,701				120,138
Earnings before income taxes			21,047				9,143
Income tax expense			7,820				3,177
Net earnings		$	13,227				5,966
Earnings per share:
Basic – Net earnings		$	0.50				0.23
Diluted – Net earnings		$	0.49				0.22

Six Months Ended March 31,

		2011				2010
Net sales		$	326,684				241,986
Costs and expenses:
Cost of sales			196,077				146,835
Selling, general and administrative expenses			87,054				76,017
Amortization of intangible assets			5,888				5,771
Interest expense, net			1,312				2,237
Other (income) expenses, net			(493	)			1,311
Total costs and expenses			289,838				232,171
Earnings before income taxes			36,846				9,815
Income tax expense			12,806				3,412
Net earnings		$	24,040				6,403
Earnings per share:
Basic – Net earnings		$	0.91				0.24
Diluted – Net earnings		$	0.90				0.24

		March 31, 2011				September 30, 2010
ASSETS		(Unaudited)
Current assets:
Cash and cash equivalents		$	32,604				26,508
Accounts receivable, net			137,792				141,098
Costs and estimated earnings on long-term contracts, less progress billings of $8,784 and $12,189, respectively			10,080				12,743
Inventories			94,697				83,034
Current portion of deferred tax assets			16,232				15,809
Other current assets			17,592				17,169
Total current assets			308,997				296,361
Property, plant and equipment, net			72,965				72,563
Goodwill			360,950				355,656
Intangible assets, net			231,941				229,736
Other assets			19,473				19,975
Total assets		$	994,326				974,291
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term debt		$	51,508				50,000
Accounts payable			47,715				59,088
Advance payments on long-term contracts, less costs incurred of $18,482 and $19,547, respectively			23,589				5,729
Accrued salaries			20,050				23,762
Current portion of deferred revenue			23,857				21,907
Accrued other expenses			31,323				26,494
Total current liabilities			198,042				186,980
Pension obligations			27,234				29,980
Deferred tax liabilities			78,925				79,388
Other liabilities			18,713				17,961
Long-term debt, less current portion			92,000				104,000
Total liabilities			414,914				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 29,930,279 and 29,839,343 shares, respectively			299				298
Additional paid-in capital			273,125				270,943
Retained earnings			379,067				359,274
Accumulated other comprehensive loss, net of tax			(13,502	)			(14,793	)
			638,989				615,722
Less treasury stock, at cost: 3,328,926 and 3,338,986 common shares, respectively			(59,577	)			(59,740	)
Total shareholders' equity			579,412				555,982
Total liabilities and shareholders’ equity		$	994,326				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			(64,656	)		$	13.34			$	1.6
Cancelled			(183,799	)		$	43.05
Outstanding at March 31, 2011			513,476			$	35.06			$	3.7		1.2 years
Exercisable at March 31, 2011			474,494			$	34.88			$	3.6

		Shares				Weighted  Avg. Price
Nonvested at October 1, 2010			304,176			$	38.95
Granted			109,957			$	32.86
Nonvested at March 31, 2011			414,133			$	37.40

 
 

(In thousands)		March 31, 2011				September 30,  2010
Finished goods		$	32,052				29,902
Work in process, including long-term contracts			21,676				18,743
Raw materials			40,969				34,389
Total inventories		$	94,697				83,034

7.	BUSINESS SEGMENT INFORMATION

(In thousands)		Three Months ended March 31,								Six Months ended March 31,
NET SALES		2011				2010				2011				2010
USG		$	84,992				72,009			$	177,182				133,232
Test			42,103				31,580				74,106				58,567
Filtration			39,653				25,692				75,396				50,187
Consolidated totals		$	166,748				129,281			$	326,684				241,986
EBIT
USG		$	15,814				10,621			$	31,169				15,191
Test			5,214				2,096				7,123				2,796
Filtration			6,534				2,989				12,009				5,347
Corporate (loss)			(5,977	)			(5,808	)			(12,143	)			(11,282	)
Consolidated EBIT			21,585				9,898				38,158				12,052
Less: Interest expense			(538	)			(755	)			(1,312	)			(2,237	)
Earnings before income taxes		$	21,047				9,143			$	36,846				9,815

   

(In thousands)		March 31, 2011				September 30, 2010
Revolving credit facility, including current portion		$	143,508				154,000
Short-term borrowings and current portion of long-term debt			(51,508	)			(50,000	)
Total long-term debt, less current portion		$	92,000				104,000

		Three Months Ended March 31,								Six Months Ended March 31,
(In thousands)		2011				2010				2011				2010
Defined benefit plans
Interest cost		$	969				976			$	1,897				1,952
Expected return on assets			(1,054	)			(1,035	)			(2,086	)			(2,070	)
Amortization of:
Prior service cost			3				3				6				6
Actuarial loss			241				226				597				452
Net periodic benefit cost		$	159				170			$	414				340

   

(In thousands)		Notional Amount				Average Receive  Rate				Average  Pay Rate				Fair Value
Interest rate swap		$	60,000				0.26	%			1.10	%		$	(256	)

 
 

         

(In thousands)		Level 1				Level 2				Level 3				Total
Liabilities:
Interest rate swaps		$	-			$	256			$	-			$	256

(In thousands)

Three Months ended March 31,

Six Months ended March 31,

		2011				2010				2011				2010
Consolidated EBIT		$	21,585				9,898				38,158				12,052
Less: Interest expense, net			(538	)			(755	)			(1,312	)			(2,237	)
Less: Income tax expense			(7,820	)			(3,177	)			(12,806	)			(3,412	)
Net earnings		$	13,227				5,966				24,040				6,403

						Average
(In thousands)		Notional Amount				Receive Rate				Average Pay Rate				Fair Value
Interest rate swap		$	60,000				0.26	%			1.10	%		$	(256	)

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

*31.1	Certification of Chief Executive Officer relating to Form 10-Q for period ended March 31, 2011
*31.2	Certification of Chief Financial Officer relating to Form 10-Q for period ended March 31, 2011
*32	Certification of Chief Executive Officer and Chief Financial Officer relating to Form 10-Q for period ended March 31, 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)