ESCO Annual Report 2010 | Quarterlytics

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FY2010 Annual Report · ESCO

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E S C O TE Ch nOlOg iE S inC

. 2 0 1 0 A n n u Al REpO R T

U t i l i t y

S o lUt i o nS

F i l tRat i o n /

F lUi d F l o w

R F S h i e l d i n g

& teSt

E S C O TE Ch nOlOg iE S A

T A glAnC E

ESCO is a worldwide technology-driven manufacturer of highly engineered

products, services and solutions operating in three business segments.

utility Solutions: the Utility Solutions group pro-

vides solutions that improve the performance of electric,

gas and water utilities. aclara’s technologies provide ad-

vanced data networks, meter data collection, information

analysis, and efficiency tools that allow consumers to

better manage their resource usage while utilities bet-

ter serve their customers and the environment. doble offers diagnostic test

instruments, consulting and testing services, and knowledge-sharing to keep

electric power flowing safely and consistently while avoiding costly failures.

Filtration/Fluid Flow: Pti technologies inc., VaCCo

industries and Crissair inc. design and manufacture highly

engineered products, providing value-added solutions for

the aviation, space, defense and industrial markets. these

products are utilized in almost every commercial and mili-

tary aircraft, navy submarine, space launch vehicle and

satellite, as well as in various medical and industrial applications.

RF Shielding & Test: etS-lindgren is the industry leader providing ra-

dio frequency (RF), acoustic and magnetic testing and shielding products

to a diversified customer base. etS-lindgren provides

a variety of innovative, high-quality solutions to the

electromagnetic compatibility (eMC), microwave, wire-

less, acoustic and magnetic resonance imaging (MRi)

markets worldwide.

T O O uR S hA R EhOl dE R S

WE ARE plEASEd TO REpORT ThAT 2010 w AS A SuCCESSFul yEAR FOR ESCO On mAny FROnTS, inClud-

ing OuTSTAnding OpERATiOnAl pERFORmAnCE And SigniFiCAnTly inCREASEd CuSTOmER dEmAnd.

OvERAll, ESCO dElivEREd SOlid FinAnCiAl RESul TS FOR OuR ShAREhOldERS in 2010.

over the course of the recent market downturn, our three
segment business strategy was tested and, we believe, vali-
dated. Solid results were delivered across all three segments
driven by our market-leading positions and our ability to
successfully execute on the business at hand. Customers
regularly select us as a business partner and solution pro-
vider because we have products that perform; we provide
outstanding customer service and support; and we stand
behind our commitments without fail.

eSCo’s performance over the last several years supports
our belief that we are pursuing the right core strategies to
deliver on our steadfast commitment of increasing long-
term shareholder value.

▶ Continued strength in the CooP/Muni markets sup-
ported by aclara aMi orders worth over $105 million
with these customers. aclara also added 45 new CooP
customers in 2010, representing the strongest new cus-
tomer profile in over five years;

▶ Significant progress was made in the international aMi
market with initial project deployments in Mexico and
Colombia, along with continued successes demonstrat-
ed by additional pilot and deployment activity through-
out Central and South america;

▶ increased aMi technology evaluation activity in Japan
and China, where the number of metering endpoints are
substantial;

2010’s ten percent increase in pretax earnings, and twenty
percent increase in firm order backlog is evidence that our
strategy is working.

▶ large, multi-year contracts received in Filtration, in-
cluding products for the navy’s Virginia Class submarine
and the army’s t-700 engine de-icing valves;

we recognized numerous successes throughout the Com-

▶ test segment orders for two large RF shielded enclo-

pany in 2010, including:
▶ aclara orders for gas aMi products with Pg&e worth
$52 million. Since contract inception we have received
orders for 4.5 million units worth $251 million, making
this project the largest gas aMi deployment in north
america;

▶ aMi orders for aclara water products of $53.8 million.
through September 2010, new york City has ordered
approximately 870,000 units worth $67 million, repre-
senting the largest water aMi project in north america;
▶ aclara received aMi water orders from San Francisco
Public Utilities worth $13 million, which represents the
entire city-wide deployment;

sures worth over $14 million;

▶ initiated an annual $0.32 per share cash dividend;
▶ generated over $67 million of cash from operating ac-
tivities, acquired two additional companies, and fur-
ther paid down net debt at September 30, 2010; and
▶ we had a very strong year regarding new product de-
velopment across the business which will ensure our
future success.
2010 consolidated eBit margins increased to 12.1 per-
cent from 11.4 percent in 2009 in spite of slightly lower
revenues. Filtration maintained eBit margin percentages
in the high teens and made progress on several key proj-
ects benefiting the future, including the a-350 aircraft

Alyson S. Barclay, Senior Vice President,
Secretary, and General Counsel; Gary E.
Muenster, Executive Vice President and
Chief Financial Officer; and Victor L.
Richey, Chairman, Chief Executive Officer,
and President

T O O uR S hA R EhOl dE R S

hydraulic filtration system for airbus. test eBit margins
were lower in 2010 as the sales mix included several ad-
ditional large chambers with higher than normal “pass
through” content. in addition, we significantly increased
our investment in our new Systems Business within test,
where we are convinced that a focused Systems group will
further solidify our market leadership position and result
in significant future growth.

the Utility Solutions group (USg) continued to provide
significant cash and profit contributions during 2010, as
USg’s eBit margin increased to 19.4 percent from 16.7 per-
cent in 2009. doble’s sales increased nearly eight percent
as the capital spending environment within the global
electric utility market rebounded from 2009. doble also
had solid cash generation and produced an eBit margin in
the mid-20s. aclara reported lower sales in 2010 driven by
the wind-down of the Pg&e gas project, while increasing
its eBit margin to 17.6 percent.

our recently introduced acendant network solution,
which is a high-bandwidth, high-speed, wide-area network
for utility customers, demonstrates our commitment to ex-
pand our position as a leading provider of next generation
advanced technologies for the Smart grid. we are experi-

encing a great deal of interest in this network solution
and see it as an opportunity to further differentiate our
product offering to the customer.

Regarding our outlook for 2011 and beyond, we remain
very positive about our future. we expect sales and ePS
to increase approximately 10 to 15 percent in 2011, in
spite of making approximately $10 million of incremen-
tal investments throughout the USg segment. these in-
vestments are related to the development of several new
Smart grid applications; RF product development which
will allow us to re-enter the electric ioU market in a sig-
nificant way; global market expansion initiatives; and pre-
deployment costs expected to be incurred in advance of
north america’s largest gas aMi project located in South-
ern California.

we feel confident that our growth in 2011 and for the
next three to five years will be greater than the industry
average. this confidence comes from the strong positions
we have currently in the majority of our product lines and
the investments we continue to make in new product de-
velopment and global market expansion. the gas aMi proj-
ect located in Southern California, along with the large
international aMi project opportunities where we are cur-

glOb Al RE ACh

with operations in 24 locations around the world,
the businesses of eSCo technologies serve markets
in more than 100 countries on six continents.

Markets Served

eSCo operations

north America
Cedar Park, tX
durant, oK
glendale heights, il
greenwood Village, Co
huntley, il
Minocqua, wi
oxnard, Ca
Palmdale, Ca
Raleigh, nC
Solon, oh
South el Monte, Ca
St. louis, Mo
watertown, Ma
wellesley, Ma

Europe
dresden, germany
eura, Finland
guildford, england
Stevenage, england
trondheim, norway

Africa
Pietermaritzburg,
South africa

Asia
Bangalore, india
Beijing, China
tokyo, Japan

Australia
new South wales,
australia

T O O uR S hA R EhOl dE R S

rently involved, are expected to provide meaningful long-
term growth opportunities.

we have a proven leadership position in RF fixed-network
gas and water markets evidenced by our wins at such key
customers as Pg&e, new york City water, San Francisco
water and many others. the success realized on these
large-scale aMi projects allows us to utilize these well-
recognized and respected customers as references, thereby
positioning us to grow in both of these important markets.
we maintained our leadership position in the CooP market
and continue to enhance our product offering to ensure its
viability long-term. our aclara Software business is grow-
ing, and we have won a number of Meter data Management
System projects that position us well in this area.

our Filtration and test segments continue to make signif-
icant contributions to our current performance and future
growth. in recognition of the invaluable role that Filtra-
tion and test have played in our success, we will continue
to invest in these businesses to ensure their viability. the
proprietary technology as well as the knowledge and tal-
ents of the employees in these operating segments have
cemented our market position with all of the key custom-
ers served.

eSCo’s current and future customers recognize the ben-
efits of working with a company having such a strong fi-
nancial foundation as we enjoy. a proven track record of
execution on large and complex product developments and
project deployments, coupled with our financial strength,
is an advantage we possess when pursuing new business
opportunities. our low level of debt and ready access to
capital allows us to fund organic growth while also pursu-
ing acquisitions.

From 2006 through 2010, we reported compound aggre-
gate growth in net sales and ePS of approximately 13 per-
cent and 11 percent from continuing operations, respec-
tively. we are confident we have everything in place to
achieve our goals of long-term growth while providing a
significant return to our shareholders.

Vic Richey
Chairman, Chief executive
officer, & President

gary Muenster
executive Vice President
& Chief Financial officer

november 29, 2010

u Ti l iTy SOl uTiOnS

the Utility Solutions group provides market leadership for utilities im-

plementing advanced technologies and systems to meet increasingly
complex resource, operational and delivery challenges. aclara pro-
vides industry-leading networks and customer communications. doble
products, services and knowledge improve the reliability of electric power
generation and delivery. together, they define innovative solutions.

Aclara’s Acendant network™: as advanced technologies such as aMi,
SCada, demand response and distribution automation are deployed within
utility networks, the need to expand and secure a reliable link between
field-based installations and the utility’s operations increases. the acendant
network™ provides a private, multipurpose, standards-based, wide-area net-
work that manages data transmission between the utility and its expanding
technology infrastructure.

Aclara’s STAR® network: the StaR® network system is an advanced, highly
robust, meter-reading solution that delivers comprehensive meter data through
a secure, long-range wireless network using licensed radio frequencies. the
StaR network system provides timely, high-resolution meter reading that en-
ables gas, water and electric utilities to eliminate on-site visits and estimated
reads, reduce theft and loss, implement time-of-use billing and profit from all
of the financial and operational benefits of a fixed-network aMi.

Aclara’s TwACS® Technology: the aclara twaCS® technology is a proven,
fixed-network aMi solution that transmits secure meter and utility commu-
nication data over existing power lines. aclara twaCS technology offers two-
way communication to electric meters and a variety of demand response,
customer communication and distribution system devices. this platform
provides for timely billing, load control, demand response, and outage
detection and assessment. with the system, utilities can effectively
manage customer data and reduce costs while enabling innovation and
providing superior customer service.

Aclara’s meter data management and Customer Engagement: the
Smart grid operates in real time, and so should meter data manage-
ment systems and customer-engagement programs. aclara’s enterprise
applications enable utilities to understand meter data and to com-

The Aclara Demand
Response Unit (DRU)
allows utilities to
achieve significant
demand reduction
during peak times,
with minimal or
no impact on the
consumer.

Aclara leads the industry
in deploying advanced
AMI, leak detection, and
customer-engagement
tools for water utilities.

Every action impacts
our resource infrastruc-
ture. Aclara’s solutions
deliver efficiency for
utilities and their cus-
tomers by quantifying
resource use in easily
understood ways.

Aclara is pioneering
standards-based solu-
tions, integrating
Wi-Fi® into thermo-
stats, allowing con-
sumers to become
integral partners with
utilities, and achieving
a brighter energy and
resource future.

u Ti l iTy SOl uTiOnS

municate with their customers, while helping their customers make smart
energy choices. aclara solutions work with data in near real time, offering
the intelligence utilities and customers need.

doble Engineering: the electric power industry faces a diverse set of chal-
lenges worldwide. aging infrastructure requires careful monitoring and a stra-
tegic replacement program in one country, while aggressive growth and new
grid construction demands tremendous resources elsewhere. government and
regulatory mandates and Smart grid initiatives are being implemented
to address these challenges. over 5,500 companies in more than 100
countries count on doble to develop and deliver solutions for the re-
liability and sustainability of electrical power infrastructure. doble’s
unique business proposition combines three core elements — diagnos-
tic test instruments, expert consulting and testing services, and the
world’s largest resource of related knowledge — into complete solutions.

diagnostic Test instruments: Since 1920, doble has pioneered depend-
able diagnostic test instruments to assess the condition of electric power
apparatus. doble test results can be compared instantly to an ever-growing
online database of over 25 million test results on over 350,000 types of
electrical apparatus. the statistical significance of such a large database
gives customers the peace of mind they need when presenting critical rec-
ommendations to senior management.

Consulting and Testing Services: working with doble gives cli-
ents access to doble engineers for field-testing services and analy-
sis of test results, as well as consulting on their toughest prob-
lems and largest investment purchases. doble Material laboratories
complement these services with testing of insulating materials and
analysis by the finest chemical engineers in the industry.

Access to Knowledge: doble has an unwavering commitment to con-
nect clients with the answers they need to make critical energy decisions.
Valued as the unbiased authority and facilitator of knowledge, doble is
leading the industry with solutions for tomorrow’s Smart grid utilities
and the security and evolution of the world’s power infrastructure.

Aclara’s robust interval
data is expressed
in a clear, easy-to-
understand format,
which is crucial to
identifying efficiency
efforts that can pay
for themselves.

Increased client inter-
est in online substation
monitoring led Doble
to develop the PDS100
for detection of partial
discharge, which can be
a symptom of problems
and potential failures.

Long before electrical
apparatus fail, signs of
trouble are indicated
in their insulating
materials. Doble’s
Laboratory experts
provide testing and
analysis and lead
the industry in new
discoveries and sharing
of best practices.

Doble Client Service
Engineers stay in
close communication
with their clients to
perform customized
hands-on training
programs and analy-
sis of test results.

F i l T R A TiOn / F l u i d F lO

the Company’s Filtration/Fluid Flow segment includes Pti technologies

inc. (Pti), VaCCo industries (VaCCo) and Crissair inc. (Crissair). these
companies serve an array of technically demanding, solution-oriented
markets such as air transport, space and defense, satellite communications
and medical. technical knowledge, experience and capabilities in this seg-
ment have provided winning solutions across all served markets.

Aerospace, Space and defense Filtration: in practice, a solution-oriented
strategy recognizes that success is best measured by the solution that most
comprehensively addresses the customer’s needs—one which is best achieved
through mutual commitment and collaboration.

Utilizing this approach has resulted in success in providing highly engi-
neered products directly to oeMs, line replaceable units to the worldwide
commercial aircraft fleet, and spare parts to maintenance, repair and over-
haul companies. our proprietary products are utilized throughout the aero-
space, space and defense markets, from submarines beneath the surface
of the sea to space vehicles exploring Mars and beyond. examples of our
success include: Pti and Crissair’s components for the main hydraulics fil-
tration system in the airbus a350XwB aircraft; VaCCo’s proprietary “quiet
designs” for the Virginia Class submarine program, which include air reduc-
ing manifold stations and air and water flow control valves; and VaCCo’s
various filters, valves and other components utilized on every major space
and satellite program.

industrial Filtration: innovation and commercial competitiveness are
the hallmark of the various industrial markets served. whether maintaining
an existing product position or tactically pursuing new markets, techni-
cal superiority, increased value and next generation innovations are key
contributors to success. industrial products include filter housings and
filter elements that are used in power generation and chemical process-
ing plants, in heavy equipment for the construction and transportation
markets, and in various other products
utilized in the medical and petro-
chemical markets.

For over 40 years,
VACCO’s proprietary
Quiet Technology has
enabled US Navy subma-
rines to silently protect
the world’s oceans.
VACCO’s full comple-
ment of unique filters
and valves are on every
submarine in service.

The demand for VACCO’s
anti-icing valves, fuel
valves and refueling
receptacles is forecast
to continue well into
the future. VACCO’s
valves and filters are
also specified by every
major satellite and
spacecraft manufacturer
worldwide.

VACCO’s engineered
products, such as this
T700 Anti-Icing Valve,
operate in the harsh-
est environments,
from high tempera-
tures to cryogenic,
and from deep space
to ocean floors.

Our extensive distribu-
tion network coupled
with our wide range of
aircraft-on-ground and
safety stock inventory
allows us to service
worldwide customers
at a moment’s notice.

R F S h iEl d i n g & TE S T

t he proliferation of wireless devices, increased demand for medical

diagnostics, and more frequent use of acoustic quality as a selection
criterion have provided opportunities for etS-lindgren’s growth. as

a leader in providing innovative test and measurement solutions and
RF/MRi shielding systems, etS-lindgren has been able to provide a winning
combination of products and services across all of its served markets.

to effectively serve its global customer base, the company has man-
ufacturing and customer support facilities in north america, europe,
and asia. Most recently, etS-lindgren opened a sales and support of-
fice in Bangalore, india, to serve the fast-growing indian market. no
other supplier is better positioned to support a global customer base.
EmC and RF measurement Systems: etS-lindgren offers complete
test and measurement solutions, including the test chamber, required in-
strumentation, test automation software, system integration, training and
support. etS-lindgren supports a diverse customer base including wireless
device manufacturers, automotive suppliers, consumer electronics manufac-
turers, aerospace and defense suppliers, and government agencies. in ad-
dition to supplying products and services to these industries, etS-lindgren
plays a leadership role working with government and industry agencies to
develop test and verification standards that ensure products meet the de-
sired performance specifications.

Acoustic Chambers: Manufacturers of automobiles, audio equipment
and computers are all concerned about the sound quality of their products.
etS-lindgren offers acoustic chambers and testing services to verify sound
transmission and sound absorption performance. the company also leads
in providing self-contained hearing booths for patient testing by audiolo-
gists and the testing of hearing aid performance.

RF Shielded mRi Enclosures: the clarity of MRi images is directly affected
by the quality of the RF shielding that houses the magnet. during the scan
process, patients often experience anxiety. etS-lindgren’s high-quality RF
shielding assures image clarity while innovative RF shielded window walls
and specialty lighting enhance patient comfort and reduce stress.

Students learn the
fundamentals of
EMC testing in a new
hands-on course of-
fered by ETS-Lindgren.

A lab technician pre-
pares to measure the
noise generated by a
PC cooling fan inside
an ETS-Lindgren acous-
tic test chamber.

Designing and manu-
facturing specialized
antennas for EMC,
microwave and
wireless testing are
ETS-Lindgren core
competencies.

ETS-Lindgren’s wireless
test solutions help
engineers design prod-
ucts for optimal over-
the-air performance.

COm m iTmEnT T

O COm m u n iTiE S

in 2010 AS ThE ECOnOmy COnTinuEd TO STRugglE, ThE ESCO TEChnOlOgiES FOundATiOn wAS AblE TO COnTinuE iTS pATTERn

OF gROwTh SinCE inCEpTiOn in 2005. ThE FOundATiOn iS dEdiCATEd TO pROviding FinAnCiAl SuppORT TO ChARiTiES in ThE

COmmuniTiES whERE ESCO OpERATES. FundEd by gEnEROuS COnTRibuTiOnS FROm ESCO, iTS EmplOyEES And OuTSidE dOnORS,

ThE FOundATiOn iS FOCuSEd On hElping ChildREn And FAmiliES in nEEd. EACh yEAR ThE FOundATiOn SElECTS quAliFiEd

ChARiTiES TO FulFill ThiS miSSiOn, And SOmE OF ThiS yEAR’S RECipiEnTS ARE highlighTEd bElOw.

habitat for humanity St. louis strives to eliminate
substandard housing through a comprehensive program that
supports families through the process of building and own-
ing a home. each homeowner is required to contribute 350
hours of “sweat equity” during the construction phase. this
organization enables families
to purchase new homes at
very affordable prices due to
donations of land, material
and labor. in 2010 habitat
is working to build 30 homes
in two neighborhoods in the
City of St. louis. each year the
Foundation provides financial
support for the construction
of a new home, and eSCo em-
ployees volunteer their time
working on build days during
the construction process.

Friends of Kids with Cancer,
also based in St. louis, is de-
voted to enriching the daily
lives of children undergoing
treatment for cancer and blood-related diseases. with pro-
grams available through the recommendation of doctors, nurs-
es and social workers at local pediatric cancer and hematology
centers, this organization provides children and their families
with recreational, educational and emotional support. this
year the Foundation donated play therapy equipment to the
newly developed Cardinal Kids Cancer Center (pictured above)
at St. John’s Mercy Children’s hospital. enjoyed by the chil-
dren and their siblings, the play equipment helps to ease the
stress associated with undergoing treatment.

boys & girls Club inspires and enables young people to
reach their full potential as productive, responsible, caring citi-
zens. this organization recognizes that there is an increasing

number of children in need of adult care or supervision, and
it provides a safe place for these children to learn and grow.
this year the Foundation supported the after-school program
at the Boys & girls Club of Camarillo, Ca, and the summer camp
program at the Boys & girls Club of San gabriel Valley, Ca.

Any baby Can, in austin,
tX, is a comprehensive family
service organization working
to help children reach their
potential through education,
therapy and family support
services. the children served
face challenges such as spe-
cial health care needs, pov-
erty, developmental delays,
and risk of abuse or neglect.
in 2010 the Foundation sup-
ported parenting/literacy pro-
grams and the Children’s hear-
ing aid texas (Chat) program.
Chat provides auditory ser-
vices and hearing aids to chil-
dren with financial need.

Kenneth young Center provides mental health and se-
nior citizens’ support services to adults, children and fami-
lies in the suburban Chicago area. this organization provides
counseling, assessment, treatment and service coordination.
this year the Foundation supported Kenneth young Center’s
essential treatment Services (etS) program. the etS program
provides additional assistance to children who have com-
pleted the 90-day treatment program but still need further
therapy and psychological support.

To make a tax-deductible contribution or to learn more
about the Foundation, please call 314-213-7277 or visit
the web site at www.escotechnologiesfoundation.org.

E S C O TE Ch nOlOg iE S inC. 2 0 1 0 F i n a nCi a lS

Management’s Discussion and Analysis

Consolidated Statements of Operations

Consolidated Balance Sheets

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Management’s Statement of Financial Responsibility

Management’s Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

Five-Year Financial Summary

Market Performance

Shareholders’ Summary

Management and Board of Directors

M a n a gE M EnT’S D iS CuS SiOn a nD an a l ySiS

The following discussion should be read in conjunction with
the Consolidated Financial Statements and Notes thereto. The
years 2010, 2009 and 2008 represent the fiscal years ended
September 30, 2010, 2009 and 2008, respectively, and are used
throughout the document.

introduction

ESCO Technologies Inc. and its wholly owned subsidiaries (ESCO, the
Company) are organized into three reportable operating segments:
utility Solutions group (uSg), RF Shielding and Test (Test), and
Filtration/Fluid Flow (Filtration). The Company’s business segments
are comprised of the following primary operating entities:

▶ USG: Aclara Power-line Systems Inc. (Aclara PlS), Aclara RF

Systems Inc. (Aclara RF), Aclara Software Inc., including Xtensible
Solutions, Inc. (Aclara Software), collectively (Aclara), and Doble
Engineering Company (Doble),

▶ Test: EMC group companies consisting primarily of ETS-lindgren
l.P. (ETS) and lindgren R.F. Enclosures, Inc. (lindgren), and

highlights of 2010 Operations

▶ Sales, net earnings and diluted earnings per share were

$607.5 million, $44.8 million and $1.68 per share, respectively.

▶ Net cash provided by operating activities was $67 million.

▶ At September 30, 2010, cash on hand was $26.5 million;

outstanding debt was $154 million, for a net debt position
of $127.5 million.

▶ Entered orders were $668.8 million resulting in a book-to-bill

ratio of 1.1x. Backlog at September 30, 2010, was $360.6 million
representing an increase of $61.2 million, or 20.4% from
September 30, 2009.

▶ In July 2010, the Company announced that Southern California
gas Co. (SoCalgas), a subsidiary of Sempra Energy, has selected
Aclara RF and its STAR® Network for negotiation of a definitive
agreement for SoCalgas’ AMI project. This contract is expected
to be signed in mid-fiscal 2011 with deployment beginning in
late 2011.

▶ Filtration: PTI Technologies Inc. (PTI), VACCO Industries (VACCO),

▶ Aclara PlS received a $21 million order to supply products to

Crissair, Inc. (Crissair) and TekPackaging llC (TekPack).

USG: Aclara is a proven supplier of special purpose fixed-network
communications systems for electric, gas and water utilities,
including hardware and software to support advanced metering
applications. Aclara’s STAR® Network system and TWACS® tech-
nology provide advanced radio-frequency (RF) and power-line (PlS)
based fixed-network technologies proven to meet the wide-ranging
data communications requirements of utilities worldwide. Aclara
Software applications add value across the utility enterprise,
addressing meter and energy data management, distribution
planning and operations, customer service, revenue management
and integration solutions. Doble provides high-end, intelligent
diagnostic test solutions for the electric power delivery industry
and is a leading supplier of power factor and partial discharge
testing instruments used to assess the integrity of high-voltage
power delivery equipment.

Mexico’s electric utility Federal Commission of Electricity (CFE)
related to CFE’s electric AMI deployment. The Company expects
to receive a $20 million follow-on order in 2011.

▶ Aclara PlS received a $5 million order from Colombia’s utility
EMCAlI EICE ESE (EMCAlI) for its electric AMI project. The
Company expects to receive a $5 million follow-on order in 2011.

▶ The Company received $52 million of orders in 2010 and recorded
$53.5 million in sales to Pacific gas & Electric Company (Pg&E)
related to its gas AMI deployment. Cumulative-to-date orders
from Pg&E for the gas AMI deployment total 4.5 million units and
$251 million through September 30, 2010.

▶ The Company received $28 million in orders and recorded

$29.7 million in sales to New York City related to the fixed-
network water AMI project. Cumulative-to-date orders total
869,000 units and $67.1 million through September 30, 2010.

Test: The EMC group is an industry leader in providing its customers
with the ability to identify, measure and contain magnetic,
electromagnetic and acoustic energy.

▶ Effective July 31, 2010, the Company acquired Crissair for

approximately $27 million in cash. Crissair is a leading supplier
of fluid control components for the aerospace industry.

Filtration: The companies within this segment primarily design and
manufacture specialty filtration products including hydraulic filter
elements used in commercial aerospace applications, unique filter
mechanisms used in micro-propulsion devices for satellites and
custom designed filters for manned and unmanned aircraft.

ESCO continues to operate with meaningful growth prospects
in its primary served markets and with considerable financial
flexibility. The Company continues to focus on new products
that incorporate proprietary design and process technologies.
Management is committed to delivering shareholder value through
internal growth, ongoing performance improvement initiatives, and
selective acquisitions.

▶ On September 3, 2010, the Company acquired Xtensible

Solutions, Inc. (Xtensible). Xtensible is a provider of informa-
tion management and integration solutions to the utility
industry worldwide.

▶ The Company initiated a quarterly cash dividend payable at an
annual rate of $0.32 per share. The Company declared dividend
payments of $8.4 million, with $6.3 million paid during 2010.

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

M a n a gE M EnT’S D iS CuS SiOn a nD an a l ySiS

Results of Continuing Operations

nET SalES

(Dollars in millions)

2010

2009

Fiscal year ended

Change Change
2009
2010
2008 vs. 2009 vs. 2008

of large chamber deliveries to the international wireless and
electronics end-markets; a decrease in component shipments and
unfavorable foreign currency impacts; and a $3.2 million decrease
in net sales from the segment’s Asian operations due to a decrease
in large chamber deliveries. This decrease was partially offset by a
$4 million increase in net sales from the segment’s u.S. operations
driven by an increase in domestic chamber deliveries.

uSg

Test

Filtration

Total

uSg

$348.3

374.0

352.7

(6.9)%

6.0 %

138.4

144.8

—

(4.4) %

Filtration

120.8

106.7

116.1

13.2 %

(8.1) %

$607.5

619.1

613.6

(1.9)%

0.9 %

The net sales decrease of 6.9%, or $25.7 million in 2010 as
compared to the prior year was due to: a $50.4 million decrease
in net sales from Aclara RF due to lower Advanced Metering
Infrastructure (AMI) gas and electric product deliveries at Pg&E
as the gas project nears completion; partially offset by an
$18.2 million increase in net sales from Aclara PlS due to higher
shipments to CFE, EMCAlI and the Puerto Rico Electric Power
Authority (PREPA); and a $6.7 million increase in net sales from
Doble driven by an increase in service and product revenues.

The Company’s total sales to Pg&E were $55.9 million in 2010
(representing approximately 9% of the Company’s consolidated net
sales), $106.2 million in 2009 (representing approximately 17% of
the Company’s consolidated net sales) and $110.2 million in 2008
(representing approximately 18% of the Company’s consolidated
net sales).

The 6%, or $21.3 million increase in net sales in 2009 as compared
to 2008 was due to: a $48.8 million increase in net sales from
Aclara RF primarily due to higher gas product AMI deliveries at
Pg&E and the shipment of water AMI products for the New York
City water project; a $9.9 million increase in net sales from Doble
reflecting the impact of a full twelve months of operations versus
ten months in 2008; a $3.9 million increase in net sales at Aclara
Software; partially offset by a $41.3 million decrease in net sales
at Aclara PlS, mainly driven by a $31.9 million decrease in sales to
Pg&E for the electric AMI deployment.

Test

Net sales for the segment were consistent in 2010 and 2009.
however, there was a $4.1 million increase in net sales from the
segment’s European operations due to an improvement in the
European medical business and the shipment of a large military
project; a $2.9 million increase in net sales from the segment’s
Asian operations due to higher chamber shipments; partially offset
by a $6.9 million decrease in net sales from the segment’s u.S.
operations driven by a decrease in small test and measurement
projects domestically.

The net sales decrease of $6.4 million, or 4.4% in 2009 as compared
to the prior year was mainly due to: a $7.2 million decrease in net
sales from the segment’s European operations due to the timing

The 13.2%, or $14.1 million increase in net sales in 2010 as
compared to the prior year was due to: a $5 million increase in net
sales at PTI due to higher shipments of aerospace assemblies and
elements; the acquisition of Crissair with a net sales contribution
of $4 million (representing two months of sales); a $2.8 million
increase in net sales at VACCO driven by higher shipments of space
products; and a $2.3 million increase at TekPack due to higher sales
to commercial customers.

Net sales in 2009 decreased $9.4 million, or 8.1%, compared to
2008 primarily due to: a $12.4 million decrease in net sales at
PTI due to lower commercial aerospace shipments; a $2.1 million
decrease in net sales at TekPack due to lower sales to commercial
customers; partially offset by a $5.1 million increase in net sales at
VACCO driven by higher military/defense aircraft product shipments.

ORDERS anD BaCKlOg

New orders received in 2010 were $668.8 million as compared to
$634 million in 2009, resulting in order backlog of $360.6 million
at September 30, 2010, as compared to order backlog of $299.4 mil-
lion at September 30, 2009. In 2010, the Company recorded
$369.4 million of orders related to uSg products, $158.5 mil lion
related to Test products, and $140.9 million related to Filtration
products (including $15.3 million related to the Crissair acquisi-
tion). Orders are entered into backlog as firm purchase order com-
mitments are received.

In 2009, the Company recorded $363.2 million of orders related
to uSg products, $122.8 million related to Test products, and
$148 million related to Filtration products.

The Company received orders from Pg&E for gas and electric AMI
products of $54 million, $80 million and $111.8 million during
2010, 2009 and 2008, respectively. Cumulative-to-date orders
from Pg&E for the gas AMI deployment total 4.5 million units
and $251 million through September 30, 2010.

Aclara RF received $28 million in orders from the City of New York
for its fixed-network AMI water project in 2010.

In December 2009, Aclara PlS received a $21 million order to
supply products to Mexico’s electric utility CFE related to its electric
AMI deployment and a $5 million order from Colombia’s utility
EMCAlI for its electric AMI project. These deployments are expected
to be completed in the first half of fiscal 2011. The Company is
anticipating a $20 million follow-on order from CFE and a $5 million
follow-on order from EMCAlI in 2011.

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2 0 1 0 AN Nu Al RE P O R T

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In January 2010, Aclara RF received a contract from the Toho Water
Authority of Kissimmee, Florida, (Toho) related to its AMI water
project with orders expected to total $9 million over a five-year
deployment period. In addition, Aclara RF received a contract from
Neptune Technology group ltd. to supply products for the City of
Toronto, Canada’s, AMI water project with orders anticipated to
total $34 million over a six-year deployment period. The Company
also received a $13 million order from the San Francisco Public
utilities Commission related to its AMI water project.

In July 2010, VACCO finalized a $41 million contract to provide the
next seven ship-sets of valves and manifolds for the u.S. Navy’s
Virginia Class submarine program with product deliveries from 2010
through 2014.

In July 2010, the Company announced that Southern California
gas Co. (SoCalgas), a subsidiary of Sempra Energy, has selected
Aclara RF and its STAR® Network for negotiation of a definitive
agreement for SoCalgas’ AMI project.

In August 2010, VACCO was awarded a five-year contract with orders
anticipated to be valued at up to $35 million to supply T-700
anti-icing valves for use on u.S. Army uh-60 series Black hawk
helicopters with product deliveries expected to begin in fiscal 2011.

2009

Aclara RF received $37.4 million in orders from the City of New York
for its fixed-network AMI water project during 2009.

Aclara PlS recorded $12.4 million in orders from Idaho Power
Company during 2009 for its electric AMI project.

Aclara PlS recorded $10.2 million and $22.4 million in orders from
PREPA during 2009 and 2008, respectively.

Aclara Software received an order for approximately $5 million from
the City of Tallahassee, Florida, for a system-wide implementation
of its Meter Data Management System (MDMS) and ENERgYprism®
AMI software applications.

TekPackaging llC was awarded a five-year production contract
with an initial purchase order received for $11.7 million. The total
value of purchase orders anticipated under this contract is between
$40 million to $50 million.

SElling, gEnERal anD aDMiniSTRa TiVE EXPEnSES

Selling, general and administrative expenses (Sg&A) were $157.3 mil-
lion, or 26% of net sales in 2010, $152.4 million, or 24.6% of net
sales in 2009, and $147.3 million, or 24% of net sales in 2008.

The increase in Sg&A expenses in 2010 as compared to the prior
year was due to increases in new product development, marketing
and engineering expenses at Doble; an increase in Sg&A within the

Test segment to support the international marketplace expansion;
and an increase within the Filtration segment due to higher
engineering expenses.

The increase in Sg&A expenses in 2009 as compared to the prior
year was primarily due to a $5 million increase related to Doble,
reflecting a full year versus ten months in the prior year.

aMORTiZaTiOn OF inTangiBlE aSSETS

Amortization of intangible assets was $11.6 million in 2010,
$19.2 million in 2009 and $17 million in 2008. The Company
recorded $4.5 million, $12.2 million and $11 million in 2010, 2009
and 2008, respectively, related to Aclara PlS’s TWACS Ng capitalized
software. Amortization of intangible assets included $4.8 million,
$4.7 million and $4.2 million of amortization of acquired intangible
assets related to the Company’s acquisitions in 2010, 2009 and
2008, respectively. The amortization of acquired intangible assets
related to the Company’s acquisitions is included in the Corporate
operating segment’s results. The remaining amortization expenses
consist of other identifiable intangible assets (primarily software,
patents and licenses).

During 2010, the Company re-evaluated the economic useful life
of its TWACS Ng capitalized software as a result of the successful
acceptance in the international markets and concluded the
remaining TWACS Ng asset value has an expected remaining useful
life of ten years (compared to its previous useful life of seven years).

OThER EXPEnSES, nET

Other expenses, net, were $2.9 million, $4.5 million and
$0.2 million in 2010, 2009 and 2008, respectively. The principal
item included in other expenses, net, in 2010 consisted of
approximately $1.5 million of severance expenses. The principal
item included in other expenses, net, in 2009 consisted of
$2.3 million of facility exit/relocation charges incurred in
connection with the move of the Aclara RF facility consisting
of leasehold improvement write-offs, lease contract termination
costs and physical move costs. There were no other individually
significant items included in other expenses, net, in 2010, 2009
or 2008.

EaRningS BEFORE inTEREST anD TaXES (EBiT)

The Company evaluates the performance of its operating segments
based on EBIT, which the Company defines as earnings before
interest and taxes. EBIT is not a defined gAAP measure. however,
the Company believes that EBIT provides investors and Management
with a valuable and alternative method for assessing the Company’s
operating results. Management evaluates the performance of its
operating segments based on EBIT and believes that EBIT is useful
to investors to demonstrate the operational profitability of the
Company’s business segments by excluding interest and taxes,
which are generally accounted for across the entire company on a

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

M a n a gE M EnT’S D iS CuS SiOn a nD an a l ySiS

consolidated basis. EBIT is also one of the measures Management
uses to determine resource allocations and incentive compensation.

EBiT

Fiscal year ended

(Dollars in millions)

2010

2009

2008

Change Change
2009
vs. 2009 vs. 2008

2010

uSg
% of net sales

$ 67.4

19.4%

66.6

62.5
16.7% 18.9%

7.8 %
2.7 %

(6.2) %
(2.2) %

Test
% of net sales

12.2

8.8%

14.1
10.2%

13.9

9.6%

(13.5) %
(1.4) %

1.4 %
0.6 %

Filtration

EBIT increased $1.4 million in 2010 as compared to 2009 primarily
due to increased sales volumes and favorable overhead absorption
at VACCO.

EBIT decreased $3.1 million in 2009 as compared to 2008 due to:
lower commercial aerospace shipments at PTI; and an increase in
research and development costs and higher bid and proposal costs
incurred in the pursuit of a significant number of Space-related
projects at VACCO.

Filtration
% of net sales

19.5
16.1%

21.2

18.1
17.0% 18.3%

7.7 % (14.6) %
(1.3) %
(0.9) %

Corporate

(25.5)

(24.1)

(20.6)

5.8 % 17.0 %

Total
% of net sales

$ 73.6

12.1%

81.1

70.6
11.4% 13.2%

4.2 % (12.9) %
(1.8) %
0.7 %

The reconciliation of EBIT to a gAAP financial measure is as follows:

(Dollars in millions)

2010

2009

2008

EBIT

less: Interest expense

less: Income taxes

Net earnings from

$73.6

(4.0)

70.6

(7.4)

81.1

(9.8)

(24.8)

(13.9)

(23.7)

continuing operations

$44.8

49.3

47.6

uSg

The $4.9 million increase in EBIT in 2010 as compared to 2009
was due to: a $3 million increase in EBIT from Aclara primarily due
to increased sales volumes at Aclara PlS along with a decrease
in amortization for the TWACS Ng capitalized software; and a
$1.9 million increase in EBIT from Doble related to the increased
sales volumes.

The $4.1 million decrease in EBIT in 2009 as compared to 2008
was due to: a decrease in EBIT from Aclara due to lower margins
on product sales; a $2.3 million charge related to the Aclara RF
facility relocation, mentioned in other expenses, net, above; and
an increase in amortization for the TWACS Ng capitalized software.
Additionally, 2008 included $15 million of EBIT associated with the
Pg&E/Aclara PlS deferred revenue recognized in 2008.

Test

The $1.9 million decrease in EBIT in 2010 as compared to the
prior year was due to: a decrease in EBIT from the Company’s u.S.
operations due to changes in product mix; higher Sg&A expenses to
support the international marketplace expansion; partially offset by
a $1.4 million increase in EBIT from the Company’s European and
Asian operations related to the increased sales volumes.

The $0.2 million increase in EBIT in 2009 as compared to the prior
year was due to a reduction of the segment’s Sg&A expenses.

Corporate operating charges included in consolidated EBIT
increased $1.4 million in 2010 as compared to 2009 primarily
due to transaction costs related to acquisition activity, including
professional fees.

Corporate operating charges included in consolidated EBIT increased
by $3.5 million in 2009 as compared to 2008 primarily due to: a
$0.9 million increase in share-based compensation expense; and a
$0.5 million increase in amortization of acquired intangible assets.

The “Reconciliation to Consolidated Totals (Corporate)” in Note 15
to the Consolidated Financial Statements represents Corporate office
operating charges.

inTEREST EXPEnSE, nET

Interest expense was $4 million in 2010 compared to $7.4 million
in 2009 and $9.8 million in 2008, respectively. The decrease in
interest expense in 2010 as compared to the prior years was due
to lower average interest rates (1.9% vs. 3.3%) and lower average
outstanding borrowings ($171 million vs. $211 million) under the
revolving credit facility.

inCOME TaX EXPEnSE

The 2010 effective tax rate from continuing operations was 35.6%
compared to 22% in 2009 and 33.3% in 2008. The increase in
the 2010 effective tax rate as compared to the prior year was due
primarily to the absence of certain non-recurring items, such as
the decrease in the tax liabilities related to uncertain tax positions
recorded in 2009 for the fiscal years 2003 through 2007, of which
$3.5 million, or 5.5% was the result of the closing of a u.S. taxing
authority’s examination of the Company’s research credit claims;
and $5 million, or 7.9% was the result of the confirmation of the
Company’s tax position for the deduction of losses realized on the
disposition of the MicroSep business in 2004. The overall decrease
in uncertain tax positions reduced 2009 income tax expense by
$8.6 million and the effective tax rate by 13.6%.

The decrease in the 2009 effective tax rate as compared to 2008
was also due primarily to the decrease in uncertain tax positions
(tax liabilities) recorded in 2009 for the fiscal years 2003 through
2007. In addition, the impact of an export incentive reduced
2008 income tax expense by $1.6 million and the effective tax
rate by 2.2%.

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

M a n a gE M EnT’S D iS CuS SiOn a nD an a l ySiS

Capital Resources and liquidity

Working capital (current assets less current liabilities) decreased
to $109.4 million at September 30, 2010 from $116.2 million at
September 30, 2009, due to lower cash balances on hand and
higher payables.

The $32.5 million increase in accounts receivable at September 30,
2010, is mainly due to: $18.4 million related to the uSg segment
and $7.8 million related to the Test segment, both driven by
timing and volume of sales; and $3.1 million related to the Crissair
acquisition. The $11.9 million increase in accounts payable at
September 30, 2010, is mainly due to $7.7 million related to the
Test segment due to timing of payments.

Net cash provided by operating activities from continuing
operations was $67 million, $77.5 million and $77.1 million
in 2010, 2009 and 2008, respectively. The decrease in 2010 as
compared to prior years is related to changes in operating working
capital requirements.

Capital expenditures were $13.4 million, $9.3 million and $16.7 mil-
lion in 2010, 2009 and 2008, respectively. The increase in 2010
as compared to 2009 was due to approximately $4.5 million for
manufacturing equipment and ERP software within the Filtration
segment. The decrease in 2009 as compared to 2008 was primarily
due to the ETS Austin, Texas, facility expansion that occurred during
2008 within the Test segment and lower facility expansion costs
at Aclara PlS. There were no commitments outstanding that were
considered material for capital expenditures at September 30, 2010.
In addition, the Company incurred expenditures for capitalized
software of $8.8 million, $5 million and $10.5 million in 2010,
2009 and 2008, respectively.

aCQuiSiTiOnS

2010

Effective July 31, 2010, the Company acquired the capital stock
of Crissair, Inc. (Crissair) for a purchase price of approximately
$27 million, net of cash acquired. Crissair, headquartered in
Palmdale, California, is a manufacturer of high-quality hydraulic,
fuel and pneumatic system components for the aerospace industry.
The operating results for Crissair, since the date of acquisition,
are included within the Filtration segment. The Company recorded
approximately $9 million of goodwill as a result of the transaction,
$4.3 million of trade names and $7.4 million of amortizable
identifiable intangible assets consisting of customer relationships.

of acquisition, are included within Aclara Software in the uSg
segment. The agreement includes contingent consideration to be
paid out over the next three and one-half years based on target
revenues. The Company recorded approximately $15 million of
goodwill as a result of the transaction.

2009

On September 21, 2009, the Company acquired a minority interest
in Firetide, Inc. for $4 million in cash. Firetide, Inc. is a provider
of wireless infrastructure mesh network management systems which
will enable communications with other Smart grid assets and this
technology will be used in Aclara’s Acendant Network solution. This
investment is accounted for under the cost method and is included
in Other assets on the Company’s Consolidated Balance Sheet as
of September 30, 2010.

On July 2, 2009, the Company acquired certain assets of Complus
Systems Pvt ltd. (Complus) in India for approximately $1.2 million
in cash and formed a new Indian entity. The entity operates as
ETS-India and its operating results, since the date of acquisition,
are included within the Test segment.

2008

On November 30, 2007, the Company acquired the capital stock of
Doble for a purchase price of approximately $328 million, net of
cash acquired. Doble, headquartered in Watertown, Massachusetts,
is a worldwide leader in providing high-end intelligent diagnostic
test solutions for the electric utility industry. The operating results
for Doble, since the date of acquisition, are included within the
uSg segment.

All of the Company’s acquisitions have been accounted for using
the purchase method of accounting, and accordingly, the respective
purchase prices were allocated to the assets (including intangible
assets) acquired and liabilities assumed based on estimated
fair values at the date of acquisition. The financial results from
these acquisitions have been included in the Company’s financial
statements from the date of acquisition.

DiVESTiTuRES

2009

On March 13, 2009, the Company completed the sale of the
business and most of the assets of Comtrak for $3.1 million, net,
of cash. This business is reflected as a discontinued operation in
the financial statements and related notes for all periods presented.

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M a n a gE M EnT’S D iS CuS SiOn a nD an a l ySiS

Comtrak’s operations were previously included within the Company’s
uSg segment. A pretax loss of $1.2 million related to the sale and
its 2009 results of operations are reflected in the Company’s fiscal
2009 results in discontinued operations.

2008

On November 25, 2007, the Company completed the sale of the
filtration portion of Filtertek Inc. (Filtertek) to Illinois Tool Works
Inc. for $74.4 million, net. The Filtertek businesses are accounted
for as discontinued operations in the financial statements and
related notes for all periods presented. A pretax loss of $0.2 million
related to Filtertek is reflected in the Company’s fiscal 2008 results
in discontinued operations. Filtertek’s operations were included
within the Company’s Filtration segment prior to divestiture.

BanK CREDiT FaCiliTy

At September 30, 2010, the Company had approximately
$163 million available to borrow under its credit facility, plus a
$50 million increase option, in addition to $26.5 million cash
on hand. At September 30, 2010, the Company had outstanding
borrowings of $154 million, and outstanding letters of credit of
$13 million. The Company classified $50 million as the current
portion on long-term debt as of September 30, 2010, as the
Company intends to repay this amount within the next twelve
months; however, the Company has no contractual obligation to
repay such amount during the next twelve months. The Company’s
ability to access the additional $50 million increase option of the
credit facility is subject to acceptance by participating or other
outside banks.

Cash flow from operations and borrowings under the bank credit
facility are expected to provide adequate resources to meet the
Company’s capital requirements and operational needs for the
foreseeable future.

DiViDEnDS

During 2010, the Company initiated a quarterly cash dividend
payable at an annual rate of $0.32 per share. The Company
declared dividend payments of $8.4 million, with $6.3 million
paid during 2010.

OuTlOOK — 2011

Management expects 2011 consolidated revenues and EPS to
increase approximately ten to fifteen percent compared to
2010. In addition, the 2011 effective tax rate is projected to be
approximately 37%. During 2011, the Company anticipates gas
AMI product deliveries to Pg&E will be significantly lower than
the quantities delivered in 2010 as the contract is entering the
later stages of deployment. The current outlook for 2011 Pg&E gas
product sales is expected to decrease approximately $30 million
in 2011 as compared to 2010. The Company is expected to sign a
definitive agreement for the SoCalgas AMI project during mid-fiscal
2011. On a quarterly basis, Management expects 2011 revenues and
EPS to be second-half weighted, but not as severely as during 2010.

COnTRaCTual OBligaTiOnS

The following table shows the Company’s contractual obligations as
of September 30, 2010:

(Dollars in millions)

Payments due by period

less
than
1 year

1 to 3
years

More
3 to 5
than
years 5 years

Total

$ 154.0

50.0

104.0

—

6.8

2.2

4.1

0.5

—

27.3

7.0

10.8

5.6

3.9

Contractual
Obligations

long-Term Debt
Obligation

Estimated Interest
Payments(1)

Operating lease
Obligations

Purchase
Obligations(2)

Total

$ 193.5

64.6

118.9

5.4

—

6.1

—

3.9

(1) Estimated interest payments for the Company’s debt obligations were calculated
based on Management’s determination of the estimated applicable interest rates

and payment dates.

(2) A purchase obligation is defined as a legally binding and enforceable agree-

ment to purchase goods and services that specifies all significant terms. Since

the majority of the Company’s purchase orders can be cancelled, they are not

included in the table above.

As of September 30, 2010, the Company had $3.2 million of
liabilities for uncertain tax positions. The unrecognized tax benefits
have been excluded from the table above due to uncertainty as to
the amounts and timing of settlement with taxing authorities.

The Company has no off-balance-sheet arrangements outstanding at
September 30, 2010.

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ShaRE REPuRChaSES

In July 2010, the Company’s Board of Directors extended its previ-
ously authorized open market common stock repurchase program
of the Company’s shares at a value not to exceed $30 million, sub-
ject to market conditions and other factors which covers the period
through September 30, 2012. There were no stock repurchases
during 2010, 2009 or 2008.

PEnSiOn FunDing REQuiREMEnTS

The minimum cash funding requirements related to the Company’s
defined benefit pension plans are approximately $3 million in 2011,
approximately $3.5 million in 2012 and approximately $3 million
in 2013.

OThER

Management believes that, for the periods presented, inflation has
not had a material effect on the Company’s results of operations.

The Company is currently involved in various stages of investigation
and remediation relating to environmental matters. Based on
current information available, Management does not believe the
aggregate costs involved in the resolution of these matters will
have a material adverse effect on the Company’s operating results,
capital expenditures or competitive position.

Market Risk analysis

MaRKET RiSK EXPOSuRE

Market risks relating to the Company’s operations result primarily
from changes in interest rates and changes in foreign currency
exchange rates. The Company is exposed to market risk related to
changes in interest rates and selectively uses derivative financial
instruments, including forward contracts and swaps, to manage
these risks. During 2009, the Company entered into two $40 million
one-year forward interest rate swaps effective October 5, 2009, to
hedge some of its exposure to variability in future lIBOR-based
interest payments on variable rate debt. During 2010, the Company
entered into a $60 million one-year amortizing forward interest
rate swap effective October 5, 2010. All derivative instruments
are reported on the balance sheet at fair value. The derivative
instrument is designated as a cash flow hedge and the gain or loss
on the derivative is deferred in accumulated other comprehensive
income until recognized in earnings with the underlying hedged
item. Based on the interest rate swaps outstanding, the interest
rates on approximately 50% of the Company’s total borrowings
were effectively fixed as of September 30, 2010. The Company
has determined that the market risk related to interest rates with
respect to its variable debt that is not hedged is not material.
The Company estimates that if market interest rates averaged
one percentage point higher, the effect would have been less
than 2% of net earnings for the year ended September 30,
2010. The following is a summary of the notional transaction

amounts and fair values for the Company’s outstanding derivative
financial instruments by risk category and instrument type, as of
September 30, 2010.

(Dollars in thousands)

Average
Average
Notional
Amount Rec Rate Pay Rate

Fair
Value

Interest rate swaps

$80,000

0.26%

1.52%

$ (13)

Interest rate swap*

$ 60,000

N/A

1.10%

$(469)

* This swap represents a forward-starting swap and became effective in

October 2010.

The Company is also subject to foreign currency exchange rate risk
inherent in its sales commitments, anticipated sales, anticipated
purchases and assets and liabilities denominated in currencies other
than the u.S. dollar. The foreign currency most significant to the
Company’s operations is the Euro. Net sales to customers outside
of the united States were $141.4 million, $110.7 million, and
$130.9 million in 2010, 2009 and 2008, respectively. The Company
hedges certain foreign currency commitments by purchasing foreign
currency forward contracts. The estimated fair value of open forward
contracts at September 30, 2010 was not material. The Company
does not have material foreign currency market risk (e.g. net foreign
currency transaction gain/loss was less than 2% of net earnings for
fiscal years 2010, 2009 and 2008).

Critical accounting Policies

The preparation of financial statements in conformity with gAAP
requires Management to make estimates and assumptions in certain
circumstances that affect amounts reported in the accompanying
Consolidated Financial Statements. In preparing these financial
statements, Management has made its best estimates and
judgments of certain amounts included in the Consolidated
Financial Statements, giving due consideration to materiality. The
Company does not believe there is a great likelihood that materially
different amounts would be reported under different conditions
or using different assumptions related to the accounting policies
described below. however, application of these accounting policies
involves the exercise of judgment and use of assumptions as to
future uncertainties and, as a result, actual results could differ
from these estimates. The Company’s senior Management discusses
the critical accounting policies described below with the Audit
and Finance Committee of the Company’s Board of Directors on a
periodic basis.

The following discussion of critical accounting policies is intended
to bring to the attention of readers those accounting policies
which Management believes are critical to the Consolidated
Financial Statements and other financial disclosure. It is not
intended to be a comprehensive list of all significant accounting
policies that are more fully described in Note 1 of Notes to
Consolidated Financial Statements.

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REVEnuE RECOgniTiOn

Test Segment: Within the Test segment, approximately 40%
of revenues (approximately 10% of consolidated revenues) are
recognized when products are delivered (when title and risk
of ownership transfers) or when services are performed for
unaffiliated customers. Certain arrangements contain multiple
elements which are accounted for under the provisions of FASB
ASC Subtopic 605-25, Revenue Recognition: Multiple-Element
Arrangements. The application of the applicable guidance requires
judgment as to whether the deliverables can be divided into more
than one unit of accounting and whether the separate units of
accounting have value to the customer on a stand-alone basis.
Changes to these elements could affect the timing of revenue
recognition. There have been no material changes to these elements
for the financial statement periods presented.

Approximately 60% of the segment’s revenues (approximately
15% of consolidated revenues) are recorded under the percentage-
of-completion provisions of FASB ASC Subtopic 605-35, Revenue
Recognition: Construction-Type and Production-Type Contracts due
to the complex nature of the enclosures that are designed and
produced under these contracts. As discussed above, this method
of accounting involves the use of various estimating techniques
to project costs at completion, which are based on Management’s
judgment and the Company’s substantial experience in developing
these types of estimates. Changes in underlying assumptions/
estimates may adversely or positively affect financial performance.
Due to the nature of these contracts and the operating unit’s cost
estimating process, the Company believes that these estimates
generally should not be subject to significant variation in the

future. There have been no material changes to these estimates for
the financial statement periods presented. The Company regularly
reviews its contract estimates to assess revisions in contract values
and estimated costs at completion.

Filtration Segment: Within the Filtration segment, approximately
60% of segment revenues (approximately 10% of consolidated
revenues) are recognized when products are delivered (when title
and risk of ownership transfers) or when services are performed for
unaffiliated customers.

Approximately 40% of segment revenues (approximately 5% of
consolidated revenues) are recorded under the percentage-of-
completion provisions of FASB ASC Subtopic 605-35, Revenue
Recognition: Construction-Type and Production-Type Contracts
because the Company manufactures complex products for aerospace
and military customers under production contracts. The percentage-
of-completion method of accounting involves the use of various
estimating techniques to project costs at completion. These
estimates involve various assumptions and projections relative
to the outcome of future events over a period of several years,
including future labor productivity and availability, the nature and
complexity of the work to be performed, availability of materials,
the impact of delayed performance, and the timing of product
deliveries. These estimates are based on Management’s judgment
and the Company’s substantial experience in developing these
types of estimates. Changes in underlying assumptions/estimates
may adversely affect financial performance if they increase
estimated project costs at completion, or positively affect financial
performance if they decrease estimated project costs at completion.
Due to the nature of these contracts and the operating unit’s cost
estimating process, the Company believes that these estimates
generally should not be subject to significant variation in the
future. There have been no material changes to these estimates for
the financial statement periods presented. The Company regularly
reviews its estimates to assess revisions in contract values and
estimated costs at completion.

inVEnTORy

Inventories are valued at the lower of cost (first-in, first-out) or
market value. Management regularly reviews inventories on hand
compared to historical usage and estimated future usage and
sales. Inventories under long-term contracts reflect accumulated
production costs, factory overhead, initial tooling and other related
costs less the portion of such costs charged to cost of sales and
any unliquidated progress payments. In accordance with industry
practice, costs incurred on contracts in progress include amounts
relating to programs having production cycles longer than one year,
and a portion thereof may not be realized within one year.

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inCOME TaXES

The Company operates in numerous taxing jurisdictions and is
subject to examination by various u.S. Federal, state and foreign
jurisdictions for various tax periods. Additionally, the Company has
retained tax liabilities and the rights to tax refunds in connection
with various divestitures of businesses in prior years. The Company’s
income tax positions are based on research and interpretations
of the income tax laws and rulings in each of the jurisdictions
in which the Company does business. Due to the subjectivity
of interpretations of laws and rulings in each jurisdiction, the
differences and interplay in tax laws between those jurisdictions, as
well as the inherent uncertainty in estimating the final resolution of
complex tax audit matters, Management’s estimates of income tax
liabilities may differ from actual payments or assessments.

Management regularly assesses the Company’s position with regard
to tax exposures and records liabilities for these uncertain tax
positions and related interest and penalties, if any, according to
the principles of FASB ASC Topic 740, Income Taxes (ASC 740).
The Company has recorded an accrual that reflects the recognition
and measurement process for the financial statement recognition
and measurement of a tax position taken or expected to be taken
on a tax return based upon ASC 740. Additional future income
tax expense or benefit may be recognized once the positions
are effectively settled. It is the Company’s policy to follow FASB
ASC 740-10-45-20 and record the tax effects of changes in the
opening balance of unrecognized tax benefits in net earnings from
continuing operations.

At the end of each interim reporting period, Management estimates
the effective tax rate expected to apply to the full fiscal year. The
estimated effective tax rate contemplates the expected jurisdiction
where income is earned, as well as tax planning strategies. Current
and projected growth in income in higher tax jurisdictions may
result in an increasing effective tax rate over time. If the actual
results differ from Management’s estimates, Management may
have to adjust the effective tax rate in the interim period if such
determination is made.

Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized 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. Deferred tax assets may
be reduced by a valuation allowance if it is more likely than not
that some portion of the deferred tax assets will not be realized.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date. The Company regularly reviews its deferred tax
assets for recoverability and establishes a valuation allowance when

Management believes it is more likely than not such assets will not
be recovered, taking into consideration historical operating results,
expectations of future earnings, tax planning strategies, and the
expected timing of the reversals of existing temporary differences.

gOODWill anD OThER lOng-liVED aSSETS

In accordance with FASB ASC Topic 350, Intangibles — Goodwill and
Other (ASC 350), Management annually reviews goodwill and other
long-lived assets with indefinite useful lives for impairment or
whenever events or changes in circumstances indicate the carrying
amount may not be recoverable. If the Company determines that
the carrying value of the long-lived asset may not be recoverable, a
permanent impairment charge is recorded for the amount by which
the carrying value of the long-lived asset exceeds its fair value. Fair
value is measured based on a discounted cash flow method using
a discount rate determined by Management to be commensurate
with the risk inherent in the Company’s current business model.
The estimates of cash flows and discount rate are subject to
change due to the economic environment, including such factors
as interest rates, expected market returns and volatility of markets
served. Management believes that the estimates of future cash
flows and fair value are reasonable; however, changes in estimates
could result in impairment charges. At September 30, 2010, the
Company has determined that no reporting units are at risk of
material goodwill impairment as the fair value of all reporting units
substantially exceeded its carrying value. Intangible assets with
estimable useful lives are amortized over their respective estimated
useful lives to their estimated residual values, and reviewed
annually for impairment.

PEnSiOn PlanS anD OThER POSTRETiREMEnT BEnEFiT PlanS

The measurement of liabilities related to pension plans and other
postretirement benefit plans is based on Management’s assumptions
related to future events including interest rates, return on pension
plan assets, rate of compensation increases, and health care cost
trend rates. Actual pension plan asset performance will either
decrease or increase unamortized pension losses that will affect net
earnings in future years. Depending upon the performance of the
equity and bond markets in 2011, the Company could be required
to record a charge to equity. In addition, if the discount rate was
decreased by 25 basis points from 5% to 4.75%, the projected
benefit obligation for the defined benefit plan would increase
by approximately $2.4 million and result in an additional after-
tax charge to shareholders’ equity of approximately $1.5 million.
The discount rate used in measuring the Company’s pension and
postretirement welfare obligations was developed by matching
yields of actual high-quality corporate bonds to expected future
pension plan cash flows (benefit payments). Over 400 Aa-rated,
non-callable bonds with a wide range of maturities were used in the
analysis. After using the bond yields to determine the present value
of the plan cash flows, a single representative rate that resulted in
the same present value was developed.

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M a n a gE M EnT’S D iS CuS SiOn a nD an a l ySiS

Other Matters

COnTingEnCiES

As a normal incident of the businesses in which the Company is
engaged, various claims, charges and litigation are asserted or
commenced against the Company. In the opinion of Management,
final judgments, if any, which might be rendered against the
Company are adequately reserved, covered by insurance, or
otherwise are not likely to have a material adverse effect on its
financial condition or results of operation.

QuanTiTaTiVE anD QualiTaTiVE DiSClOSuRES aBOuT MaRKET RiSK

Market risks relating to the Company’s operations result primarily
from changes in interest rates and changes in foreign currency
exchange rates. The Company is exposed to market risk related to
changes in interest rates and selectively uses derivative financial
instruments, including forward contracts and swaps, to manage
these risks. During 2009, the Company entered into two $40 million
one-year forward interest rate swaps effective October 5, 2009, to
hedge some of its exposure to variability in future lIBOR-based
interest payments on variable rate debt. During 2010, the Company
entered into a $60 million one-year amortizing forward interest
rate swap effective October 5, 2010. All derivative instruments
are reported on the balance sheet at fair value. The derivative
instrument is designated as a cash flow hedge and the gain or loss
on the derivative is deferred in accumulated other comprehensive
income until recognized in earnings with the underlying hedged
item. See further discussion in “Management’s Discussion and
Analysis — Market Risk Analysis” regarding the Company’s
market risks.

COnTROlS anD PROCEDuRES

The Company carried out an evaluation under the supervision
of and with the participation of Management, including the
Company’s Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of the Company’s
disclosure controls and procedures as of the end of the period
covered by this report. Based upon that evaluation, the Company’s
Chief Executive Officer and Chief Financial Officer concluded that
the Company’s disclosure controls and procedures are effective.
Disclosure controls and procedures are controls and procedures that
are designed to ensure that information required to be disclosed in
Company reports filed or submitted under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission’s rules and forms. There have been no significant
changes in the Company’s internal controls or in other factors
during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.

new accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (FASB)
issued update No. 2009-13, Multiple-Deliverable Revenue Arrange-
ments (ASu 2009-13) and update No. 2009-14, Certain Revenue
Arrangements That Include Software Elements (ASu 2009-14) —
Consensuses of the FASB Emerging Issues Task Force. ASu 2009-13
applies to multiple-deliverable revenue arrangements that are
currently within the scope of Subtopic 605-25 and provides two
significant changes: (i) requires an entity to allocate revenue
in an arrangement using estimated selling prices of deliverables
if a vendor does not have vendor-specific objective evidence or
third-party evidence of selling price and (ii) eliminates the residual
method to allocate the arrangement consideration. The consensus
also expands the disclosure requirements for multiple-deliverable
revenue arrangements. ASu 2009-14 removes tangible products from
the scope of the software revenue guidance and provides guidance
on determining whether software deliverables in an arrangement
that includes a tangible product are within the scope of the
software revenue guidance. These consensuses are to be applied
on a prospective basis for revenue arrangements entered into in
fiscal years beginning on or after June 15, 2010. The adoption of
these consensuses is not expected to have a material impact on the
Company’s financial position or results of operations.

Forward-looking information

Statements regarding future events and the Company’s future
results that are based on current expectations, estimates, forecasts
and projections about the Company’s performance and the
industries in which the Company operates, 2011 revenues, EBIT,
adequacy of the Company’s credit facilities and future cash flows,
the likelihood, size and timing of an AMI contract with SoCalgas,
estimates of anticipated contract costs and revenues, anticipated
future product deliveries by Aclara RF to Pg&E, the timing of
completion of the CFE and EMCAlI AMI deployments, the likelihood,
timing and amounts of any follow-on orders from CFE and EMCAlI,
the anticipated value and timing of deliveries by Aclara RF to Toho
and the city of Toronto, the anticipated timing of deliveries by
VACCO for the u.S. Navy’s Virginia Class submarine program and
the anticipated timing and value of deliveries for the u.S. Army’s
T-700 valve program, the anticipated total value of TekPackaging’s
five year production contract, the outcome of current litigation,
claims and charges, the anticipated timing and amount of lost
deferred tax assets, continued reinvestment of foreign earnings, the
timing, total value and period of performance of contracts awarded
to the Company, the accuracy of the Company’s estimates utilized
in software revenue recognition, the accuracy of the Company’s
estimates utilized to project costs at completion in the Test
segment and Filtration segment, income tax liabilities, the effective
tax rate, the amount, timing and ability to use net research tax

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credits, the timing and amount of the reduction of unrecognized
tax benefits, repayment of debt within the next twelve months,
the recognition of costs related to share-based compensation
arrangements, future costs relating to environmental matters, share
repurchases, investments, sustained performance improvement,
performance improvement initiatives, growth opportunities,
new product development, the Company’s ability to increase
shareholder value, acquisitions, and the beliefs and assumptions
of Management contained in the letter To Our Shareholders
(pages 1-3), and Management’s Discussion and Analysis and other
statements contained herein which are not strictly historical are
considered “forward-looking statements” within the meaning of
the safe harbor provisions of the Federal securities laws. Words
such as expects, anticipates, targets, goals, projects, intends,
plans, believes, estimates, variations of such words, and similar
expressions are intended to identify such forward-looking
statements. Investors are cautioned that such statements are
only predictions, speak only as of the date of this report, and the
Company undertakes no duty to update. The Company’s actual
results in the future may differ materially from those projected
in the forward-looking statements due to risks and uncertainties

that exist in the Company’s operations and business environment
including, but not limited to those described under “Item 1A.
Risk Factors” in the Company’s Annual Report on Form 10-K for
the fiscal year ended September 30, 2010, and the following:
the success of negotiations and the ultimate terms and timing of
any contract with SoCalgas; changes in requirements or financial
constraints impacting SoCalgas; the receipt of necessary regulatory
approvals pertaining to SoCalgas’ project; the timing and content
of future customer orders; termination for convenience of customer
contracts; timing and magnitude of future contract awards;
weakening of economic conditions in served markets; the success
of the Company’s competitors; changes in customer demands or
customer insolvencies; competition; intellectual property rights;
technical difficulties; the availability of selected acquisitions;
delivery delays or defaults by customers; performance issues with
key customers, suppliers and subcontractors; material changes
in the costs of certain raw materials; labor disputes; changes
in laws and regulations including but not limited to changes in
accounting standards and taxation requirements; costs relating to
environmental matters; litigation uncertainty; and the Company’s
successful execution of internal operating plans.

E S C O TE ChN OlOgI E S IN C.

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COnS Ol iD

a T E D ST a T E M EnT S O F OP E Ra

TiOnS

(Dollars in thousands, except per share amounts)
Years ended September 30,

Net sales

Costs and expenses:
Cost of sales
Selling, general and administrative expenses
Amortization of intangible assets

Interest expense, net

Other expenses, net

Total costs and expenses

Earnings before income tax
Income tax expense

Net earnings from continuing operations

Earnings (loss) from discontinued operations, net of tax of
$568 and $229 in 2009 and 2008, respectively
loss on sale of discontinued operations, net of tax of
$905 and $157 in 2009 and 2008, respectively

Net earnings (loss) from discontinued operations

2010

2009

2008

$ 607,493

619,064

613,566

361,942
157,348
11,633
3,977
2,928

372,351
152,397
19,214
7,450
4,480

537,828

555,892

69,665
24,819

$ 44,846

—

63,172
13,867

49,305

135

(32)

103

367,951
147,324
17,044
9,808
161

542,288

71,278
23,709

47,569

(282)

(576)

(858)

Net earnings

$ 44,846

49,408

46,711

Earnings (loss) per share:

Basic:

Continuing operations
Discontinued operations

Net earnings

Diluted:

Continuing operations
Discontinued operations

Net earnings

Average common shares outstanding (in thousands):

Basic

Diluted

See accompanying Notes to Consolidated Financial Statements.

1.70
—

1.70

1.68
—

1.68

1.88
—

1.88

1.86
—

1.86

1.84
(0.04)

1.80

1.81
(0.03)

1.78

26,450

26,738

26,216

26,560

25,909

26,315

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COnS Ol iD

a T E D B a l a nC E S hE E T S

(Dollars in thousands)
Years ended September 30,

aSSETS

Current assets:

Cash and cash equivalents

Accounts receivable, less allowance for doubtful accounts of
$1,885 and $1,457 in 2010 and 2009, respectively

Costs and estimated earnings on long-term contracts, less progress
billings of $12,189 and $19,861 in 2010 and 2009, respectively

Inventories

Current portion of deferred tax assets

Other current assets

Total current assets

Property, plant and equipment:

land and land improvements

Buildings and leasehold improvements

Machinery and equipment

Construction in progress

less accumulated depreciation and amortization

Net property, plant and equipment

goodwill

Intangible assets, net

Other assets

Total Assets

See accompanying Notes to Consolidated Financial Statements.

2010

2009

$ 26,508

44,630

141,098

108,620

12,743

83,034

15,809

17,169

10,758

82,020

20,417

13,750

296,361

280,195

4,986

50,318

75,721

5,970

4,996

49,181

71,773

2,290

136,995

128,240

64,432

72,563

355,656

229,736

19,975

$ 974,291

58,697

69,543

330,719

221,600

21,630

923,687

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

COnS Ol iD

a T E D B a l a nC E S hE E T S

(Dollars in thousands)
Years ended September 30,

liaBiliTiES anD ShaREhOlDERS’ EQuiTy

Current liabilities:

Current maturities of long-term debt

Accounts payable

Advance payments on long-term contracts, less costs incurred
of $19,547 and $17,484 in 2010 and 2009, respectively

Accrued salaries

Current portion of deferred revenue

Accrued other expenses

Total current liabilities

Pension obligations

Deferred tax liabilities

Other liabilities

long-term debt

Total liabilities

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 29,839,343 and 29,771,103 shares in 2010 and 2009, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss, net of tax

less treasury stock, at cost (3,338,986 and 3,357,046 common shares in

2010 and 2009, respectively)

Total shareholders’ equity

Total liabilities and Shareholders’ Equity

See accompanying Notes to Consolidated Financial Statements.

2010

2009

$ 50,000

59,088

5,729

23,762

21,907

26,494

50,000

47,218

2,840

20,465

20,215

23,247

186,980

163,985

29,980

79,388

17,961

104,000

418,309

—

298

270,943

359,274

(14,793)

27,483

78,471

5,941

130,467

406,347

—

298

265,794

322,878

(11,598)

615,722

577,372

(59,740)

(60,032)

555,982

$ 974,291

517,340

923,687

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

COnS Ol iD

a T E D ST a T E M EnT S O F S h aR EhOlD E R S’ EQu iTy

(In thousands)

Common Stock
Amount
Shares

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (loss)

Treasury
Stock

Total

Balance, September 30, 2007

29,160

$292

243,131

226,759

6,303

(61,002) 415,483

Comprehensive income:

Net earnings

Translation adjustments

Net unrecognized actuarial loss,

net of tax of $2,506

Interest rate swap, net of tax of $512

Comprehensive income

Stock options and stock compensation
plans, net of tax benefit of $(845)

—

46,711

—

(869)

(4,043)

(835)

—

46,711

(869)

(4,043)

(835)

40,964

305

11,109

—

678

11,790

Balance, September 30, 2008

29,465

295

254,240

273,470

556

(60,324) 468,237

Comprehensive income:

Net earnings

Translation adjustments

Net unrecognized actuarial loss,

net of tax of $7,488

Interest rate swap, net of tax of $62

Comprehensive income

Stock options and stock compensation
plans, net of tax benefit of $(325)

—

49,408

—

(707)

(11,393)

(54)

—

49,408

(707)

(11,393)

(54)

37,254

306

11,554

—

292

11,849

Balance, September 30, 2009

29,771

298

265,794

322,878

(11,598)

(60,032) 517,340

Comprehensive income:

Net earnings

Translation adjustments

Net unrecognized actuarial loss,

net of tax of $1,422

Interest rate swap, net of tax of $(385)

Comprehensive income

—

44,846

—

Cash dividends declared($0.32 per share)

—

(8,450)

Stock options and stock compensation
plans, net of tax benefit of $(105)

—

5,149

—

(1,557)

(2,234)

596

—

44,846

(1,557)

(2,234)

596

41,651

—

(8,450)

292

5,441

Balance, September 30, 2010

29,839

$298

270,943

359,274

(14,793)

(59,740) 555,982

See accompanying Notes to Consolidated Financial Statements.

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

COnS Ol iD

a T E D ST a T E M EnT S O F C aSh F lO W S

(Dollars in thousands)
Years ended September 30,

Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:

Net (earnings) loss from discontinued operations, net of tax
Depreciation and amortization
Stock compensation expense
Changes in current assets and liabilities
Effect of deferred taxes on tax provision
Change in deferred revenue and costs, net
Change in uncertain tax positions
Other

Net cash provided by operating activities — continuing operations

Net earnings (loss) from discontinued operations, net of tax
Net cash provided by discontinued operations

Net cash provided (used) by operating activities — discontinued operations

Net cash provided by operating activities

Cash flows from investing activities:
Acquisition of businesses, net of cash acquired
Proceeds from sale of marketable securities
Change in restricted cash (acquisition escrow)
Capital expenditures
Additions to capitalized software

Net cash used by investing activities — continuing operations

Capital expenditures — discontinued operations
Proceeds from divestiture of business, net — discontinued operations

Net cash provided by investing activities — discontinued operations

2010

2009

2008

$ 44,846

49,408

46,711

—
22,137
4,558
(9,615)
4,059
329
765
(56)

67,023

—
—

—

(103)
30,267
4,866
1,566
(2,543)
1,781
(5,700)
(2,068)

77,474

103
39

142

858
27,067
3,990
(12,154)
12,349
(3,284)
2,335
(801)

77,071

(858)
673

(185)

67,023

77,616

76,886

(32,316)
—
2,041
(13,438)
(8,827)

(52,540)

—
—

—

(6,442)
—
2,189
(9,255)
(5,004)

(345,395)
4,966
(6,841)
(16,669)
(10,488)

(18,512)

(374,427)

—
3,100

3,100

(1,140)
74,370

73,230

Net cash used by investing activities

(52,540)

(15,412)

(301,197)

Cash flows from financing activities:
Proceeds from long-term debt
Principal payments on long-term debt
Dividends paid
Debt issuance costs
Net decrease in short-term borrowings — discontinued operations
Proceeds from exercise of stock options
Other

Net cash (used) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Changes in current assets and liabilities:
Accounts receivable, net
Costs and estimated earnings on long-term contracts, net

Inventories

Other current assets
Accounts payable
Advance payments on long-term contracts, net
Accrued expenses

Supplemental cash flow information:

Interest paid
Income taxes paid (including state, foreign & AMT)

See accompanying Notes to Consolidated Financial Statements.

40,000
(66,467)
(6,335)
—
—
767
988

(31,047)

(1,558)
(18,122)
44,630

$ 26,508

$ (27,960)
(1,985)
5,926
(2,397)
10,597
2,889
3,315

$ (9,615)

3,536
21,378

32,000
(85,183)
—
—
—
6,621
1,029

(45,533)

(708)
15,963
28,667

44,630

26,090
(1,663)
(17,001)
(714)
(1,764)
(4,627)
1,245

1,566

7,425
22,144

304,157
(71,197)
—
(2,965)
(2,844)
6,384
1,075

234,610

(270)
10,029
18,638

28,667

(32,688)
2,425
443
4,777
1,163
3,716
8,010

(12,154)

9,233
7,004

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1. Summary of Significant accounting Policies

a. PRinCiPlES OF COnSOliD aTiOn

The Consolidated Financial Statements include the accounts of
ESCO Technologies Inc. (ESCO) and its wholly owned subsidiaries
(the Company). All significant intercompany transactions and
accounts have been eliminated in consolidation.

B. BaSiS OF PRESEnTaTiOn

Fair values of the Company’s financial instruments are estimated
by reference to quoted prices from market sources and financial
institutions, as well as other valuation techniques. The estimated
fair value of each class of financial instruments approximated the
related carrying value at September 30, 2010, and 2009.

The business and most of the assets of Comtrak Technologies, llC
(Comtrak) were sold during the second quarter of fiscal 2009. In
addition, the Filtertek businesses (excluding TekPackaging llC) were
sold during fiscal 2008. Comtrak and Filtertek are accounted for as
discontinued operations in accordance with accounting principles
generally accepted in the united States of America (gAAP).

C. naTuRE OF OPERaTiOnS

The Company has three reportable segments: utility Solutions
group (uSg), RF Shielding and Test (Test), and Filtration/Fluid
Flow (Filtration).

Test: The EMC group is an industry leader in providing its customers
with the ability to identify, measure and contain magnetic,
electromagnetic and acoustic energy.

D. uSE OF ESTiMaTES

The preparation of financial statements in conformity with gAAP
requires Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. The Company regularly evaluates the
estimates and assumptions related to the allowance for doubtful

trade receivables, inventory obsolescence, warranty reserves, value
of equity-based awards, goodwill and purchased intangible asset
valuations, asset impairments, employee benefit plan liabilities,
income tax liabilities and assets and related valuation allowances,
uncertain tax positions, and litigation and other loss contingencies.
Actual results could differ from those estimates.

E. REVEnuE RECOgniTiOn

USG Segment: Within the uSg segment, approximately 96%
of the segment’s revenue arrangements (approximately 60% of
consolidated revenues) contain software components. Revenue
under these arrangements is recognized in accordance with
FASB ASC Subtopic 985-605, Software — Revenue Recognition.
The segment’s software revenue arrangements within Aclara
generally include multiple products and services, or “elements”
consisting of meter and substation hardware, meter reading system
software, program management support during the deployment
period and software support (post-contract customer support
or “PCS”). These arrangements typically require the Company to
deliver software at the inception of the arrangement while the
hardware and program management support are delivered over
the contractual deployment period. Software support is provided
during deployment and subsequent thereto. The software element
included in such arrangements is essential to the functionality
of the hardware and, therefore, the hardware is considered to be
software-related. hardware is considered a specified element in the
software arrangement and vendor-specific objective evidence of
fair value (“VSOE”) has been established for this element. VSOE for
the hardware element is determined based on the price when sold
separately to customers. These revenue arrangements are divided
into separate units of accounting if the delivered item(s) has
value to the customer on a stand-alone basis, there is objective
and reliable evidence of the fair value of the undelivered item(s)
and delivery/performance of the undelivered item(s) is probable.
For multiple element arrangements, revenue is allocated to the
individual elements based on VSOE of the individual elements.

The application of these principles requires judgment, including
the determination of whether a software arrangement includes
multiple elements and estimates of the fair value of the elements.
The VSOE of the fair value of undelivered elements is determined
based on the historical evidence of stand-alone sales of these
elements to customers. hardware revenues are generally recognized
at the time of shipment or receipt by customer depending upon
contract terms. VSOE generally does not exist for the software
element; therefore, the Company uses the residual method to
recognize revenue when VSOE exists for all other undelivered
elements. under the residual method, the fair value of the
undelivered elements is deferred and the remaining portion
of the arrangement fee is recognized as revenue.

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The applicable guidance requires the seller of software that
includes post-contract customer support (PCS) to establish VSOE
of the undelivered element of the contract in order to account
separately for the PCS revenue. The Company determines VSOE by
a consistent pricing of PCS and PCS renewals as a percentage of
the software license fees or by reference to contractual renewals,
when the renewal terms are substantive. Revenues for PCS are
recognized ratably over the maintenance term specified in the
contract (generally in 12 monthly increments). Revenues for program
management support are recognized when services have been
provided. The Company determines VSOE for program management
support based on hourly rates when services are performed separately.

Approximately 4% of segment revenues are recognized when
services are performed for unaffiliated customers or when products
are delivered (when title and risk of ownership transfers).

Test Segment: Within the Test segment, approximately 40% of rev -
enues (approximately 10% of consolidated revenues) are recognized
when products are delivered (when title and risk of ownership
transfers) or when services are performed for unaffiliated customers.
Certain arrangements contain multiple elements which are
accounted for under the provisions of FASB ASC Subtopic 605-25,
Revenue Recognition: Multiple-Element Arrangements. The multiple
elements generally consist of materials and installation services
used in the construction and installation of standard shielded
enclosures to measure and contain magnetic and electromagnetic
energy. The installation process does not involve changes to the
features or capabilities of the equipment and does not require
proprietary information about the equipment in order for the
installed equipment to perform to specifications. There is objective
and reliable evidence of fair value for each of the units of
accounting, and as a result, the arrangement revenue is allocated
to the separate units of accounting based on their relative fair
values. Typically, fair value is the price of the deliverable when it
is regularly sold on a stand-alone basis.

Approximately 60% of the segment’s revenues (approximately
15% of consolidated revenues) are recorded under the percentage-
of-completion provisions of FASB ASC Subtopic 605-35, Revenue
Recognition: Construction-Type and Production-Type Contracts due
to the complex nature of the enclosures that are designed and
produced under these contracts. Products accounted for under this
Subtopic include the construction and installation of complex test
chambers to a buyer’s specifications that provide its customers
with the ability to measure and contain magnetic, electromagnetic
and acoustic energy. As discussed above, for arrangements that are
accounted for under this Subtopic, the Company estimates profit as
the difference between total estimated revenue and total estimated
cost of a contract and recognizes these revenues and costs based
on either (a) units delivered or (b) contract milestones.

If a reliable measure of output cannot be established (which applies
in less than 10% of Test segment revenues or 2% of consolidated
revenues), input measures (e.g., costs incurred) are used to
recognize revenue. given the nature of the Company’s operations
related to these contracts, costs incurred represent an appropriate
measure of progress towards completion.

The percentage-of-completion method of accounting involves the
use of various techniques to estimate expected costs at completion.
These estimates are based on Management’s judgment and the
Company’s substantial experience in developing these types
of estimates.

Filtration Segment: Within the Filtration segment, approximately
60% of revenues (approximately 10% of consolidated revenues)
are recognized when products are delivered (when title and
risk of ownership transfers) or when services are performed for
unaffiliated customers.

Approximately 40% of segment revenues (approximately 5% of
consolidated revenues) are recorded under the percentage-of-
completion provisions of FASB ASC Subtopic 605-35, Revenue
Recognition: Construction-Type and Production-Type Contracts.
Products accounted for under this Subtopic include the design,
development and manufacture of complex fluid control products,
quiet valves, manifolds and systems primarily for the aerospace
and military markets. For arrangements that are accounted for
under this Subtopic, the Company estimates profit as the difference
between total estimated revenue and total estimated cost of a
contract and recognizes these revenues and costs based on units
delivered. The percentage-of-completion method of accounting
involves the use of various techniques to estimate expected costs
at completion.

F. CaSh anD CaSh EQuiValEnTS

Cash equivalents include temporary investments that are readily
convertible into cash, such as money market funds.

g. aCCOunTS RECEiVaBlE

Accounts receivable have been reduced by an allowance for
amounts that the Company estimates are uncollectible in the
future. This estimated allowance is based on Management’s
evaluation of the financial condition of the customer and historical
write-off experience.

h. COSTS anD ESTiMaTED EaRningS On lOng-TERM COnTRa CTS

Costs and estimated earnings on long-term contracts represent
unbilled revenues, including accrued profits, accounted for under
the percentage-of-completion method, net of progress billings.

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i. inVEnTORiES

Inventories are valued at the lower of cost (first-in, first-out)
or market value. Inventories under long-term contracts reflect
accumulated production costs, factory overhead, initial tooling and
other related costs less the portion of such costs charged to cost of
sales and any unliquidated progress payments. In accordance with
industry practice, costs incurred on contracts in progress include
amounts relating to programs having production cycles longer than
one year, and a portion thereof will not be realized within one year.

J. PROPERTy, PlanT anD EQuiPMEnT

Property, plant and equipment are recorded at cost. Depreciation
and amortization are computed primarily on a straight-line basis
over the estimated useful lives of the assets: buildings, 10-40
years; machinery and equipment, 3-10 years; and office furniture
and equipment, 3-10 years. leasehold improvements are amortized
over the remaining term of the applicable lease or their estimated
useful lives, whichever is shorter.

K. gOODWill anD OThER lOng-liVED aSSETS

goodwill represents the excess of purchase costs over the fair value
of net identifiable assets acquired in business acquisitions. The
Company accounts for goodwill as required by FASB ASC Topic 350,
Intangibles — Goodwill & Other. Management annually reviews
goodwill and other long-lived assets with indefinite useful lives
for impairment or whenever events or changes in circumstances
indicate the carrying amount may not be recoverable. If the
Company determines that the carrying value of the long-lived asset
may not be recoverable, a permanent impairment charge is recorded
for the amount by which the carrying value of the long-lived asset
exceeds its fair value.

Fair value is measured based on a discounted cash flow
method using a discount rate determined by Management to be
commensurate with the risk inherent in the Company’s current
business model. Other intangible assets represent costs allocated
to identifiable intangible assets, principally capitalized software,
patents, trademarks, and technology rights. See Note 4 regarding
goodwill and other intangible assets activity.

l. CaPiTaliZED SOFTWaRE

The costs incurred for the development of computer software
that will be sold, leased, or otherwise marketed are charged
to expense when incurred as research and development until
technological feasibility has been established for the product.
Technological feasibility is typically established upon completion
of a detailed program design. Costs incurred after this point are

capitalized on a project-by-project basis in accordance with FASB
ASC Topic 985, Software. Capitalized costs primarily consist of
external development costs. upon general release of the product
to customers, the Company ceases capitalization and begins
amortization, which is calculated on a project-by-project basis as
the greater of (1) the ratio of current gross revenues for a product
to the total of current and anticipated future gross revenues for
the product or (2) the straight-line method over the estimated
economic life of the product. The Company generally amortizes the
software development costs over a three-to-ten year period based
upon the estimated future economic life of the product. Factors
considered in determining the estimated future economic life of
the product include anticipated future revenues, and changes in
software and hardware technologies. Management annually reviews
the carrying values of capitalized costs for impairment or whenever
events or changes in circumstances indicate the carrying amount
may not be recoverable. If expected cash flows are insufficient to
recover the carrying amount of the asset, then an impairment loss
is recognized to state the asset at its net realizable value.

M. iMPaiRMEnT OF lOng-liVED aSSETS anD lOng-liVED aSSETS

TO BE DiSPOSED

Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future cash flows
expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to dispose.

n. inCOME TaXES

Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized 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. Deferred tax assets may be
reduced by a valuation allowance if it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the
enactment date. The Company regularly reviews its deferred tax
assets for recoverability and establishes a valuation allowance when
Management believes it is more likely than not such assets will not
be recovered, taking into consideration historical operating results,
expectations of future earnings, tax planning strategies, and the
expected timing of the reversals of existing temporary differences.

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O. RESEaRCh anD DEVElOPMEnT COSTS

Company-sponsored research and development costs include
research and development and bid and proposal efforts related to
the Company’s products and services. Company-sponsored product
development costs are charged to expense when incurred. Customer-
sponsored research and development costs incurred pursuant
to contracts are accounted for similar to other program costs.
Customer-sponsored research and development costs refer to certain
situations whereby customers provide funding to support specific
contractually defined research and development costs.

P. FOREign CuRREnCy TRanSlaTiOn

The financial statements of the Company’s foreign operations are
translated into u.S. dollars in accordance with FASB ASC Topic 830,
Foreign Currency Matters. The resulting translation adjustments
are recorded as a separate component of accumulated other
comprehensive income.

Q. EaRningS PER ShaRE

Basic earnings per share is calculated using the weighted average
number of common shares outstanding during the period. Diluted
earnings per share is calculated using the weighted average number
of common shares outstanding during the period plus shares
issuable upon the assumed exercise of dilutive common share
options and vesting of performance-accelerated restricted shares
using the treasury stock method.

The number of shares used in the calculation of earnings per share
for each year presented is as follows:

(In thousands)

2010

2009

2008

Weighted Average Shares
Outstanding — Basic

Dilutive Options and Performance-
Accelerated Restricted Stock

26,450

26,216

25,909

common shares. These options expire in various periods through
2014. Approximately 214,000, 180,000 and 140,000 restricted
shares were outstanding but unearned at September 30, 2010, 2009
and 2008, respectively, and, therefore, were not included in the
respective years’ computations of diluted EPS.

R. ShaRE-BaSED COMPEnSaTiOn

S. aCCuMulaTED OThER COMPREhEnSiVE inCOME (lOSS)

Accumulated other comprehensive loss of $(14.8) million at
September 30, 2010, consisted of $(20.1) million related to
the pension net actuarial loss; $5.6 million related to currency
translation adjustments; and $(0.3) million related to interest rate
swaps. Accumulated other comprehensive loss of $(11.6) million
at September 30, 2009, consisted of $(17.9) million related to
the pension net actuarial loss; $7.2 million related to currency
translation adjustments; and $(0.9) million related to interest
rate swaps.

T. DEFERRED REVEnuE anD COSTS

Deferred revenue and costs are recorded when products or services
have been provided but the criteria for revenue recognition have
not been met. If there is a customer acceptance provision or there
is uncertainty about customer acceptance, revenue and costs are
deferred until the customer has accepted the product or service.

288

344

406

u. DERiVaTiVE FinanCial inSTRuMEnTS

Shares — Diluted

26,738

26,560

26,315

Options to purchase 569,363 shares at prices ranging from $32.55-
$54.88 were outstanding during the year ended September 30, 2010,
but were not included in the respective computation of diluted EPS
because the options’ exercise price was greater than the average
market price of the common shares.

Options to purchase 605,186 shares at prices ranging from $35.69-
$54.88 were outstanding during the year ended September 30, 2009,
but were not included in the respective computation of diluted EPS
because the options’ exercise price was greater than the average
market price of the common shares. Options to purchase 542,689
shares at prices ranging from $35.69-$54.88 were outstanding
during the year ended September 30, 2008, but were not included
in the respective computation of diluted EPS because the options’
exercise price was greater than the average market price of the

All derivative financial instruments are reported on the balance
sheet at fair value. The accounting for changes in fair value of a
derivative instrument depends on whether it has been designated
and qualifies as a hedge and on the type of hedge. For each
derivative instrument designated as a cash flow hedge, the
effective portion of the gain or loss on the derivative is deferred
in accumulated other comprehensive income until recognized in
earnings with the underlying hedged item. For each derivative
instrument designated as a fair value hedge, the gain or loss on
the derivative and the offsetting gain or loss on the hedged item
are recognized immediately in earnings. Regardless of type, a
fully effective hedge will result in no net earnings impact while
the derivative is outstanding. To the extent that any hedge is
ineffective at offsetting cash flow or fair value changes in the
underlying hedged item, there could be a net earnings impact.

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V. nEW aCCOunTing STanDaRDS

2009

In October 2009, the Financial Accounting Standards Board (FASB)
issued update No. 2009-13, Multiple-Deliverable Revenue Arrange-
ments (ASu 2009-13) and update No. 2009-14, Certain Revenue
Arrangements That Include Software Elements (ASu 2009-14) —
Consensuses of the FASB Emerging Issues Task Force. ASu 2009-13
applies to multiple-deliverable revenue arrangements that are
currently within the scope of Subtopic 605-25 and provides two
significant changes: (i) requires an entity to allocate revenue
in an arrangement using estimated selling prices of deliverables
if a vendor does not have vendor-specific objective evidence or
third-party evidence of selling price and (ii) eliminates the residual
method to allocate the arrangement consideration. The consensus
also expands the disclosure requirements for multiple-deliverable
revenue arrangements. ASu 2009-14 removes tangible products from
the scope of the software revenue guidance and provides guid-
ance on determining whether software deliverables in an arrange-
ment that includes a tangible product are within the scope of the
software revenue guidance. These consensuses are to be applied
on a prospective basis for revenue arrangements entered into in
fiscal years beginning on or after June 15, 2010. The adoption of
these consensuses is not expected to have a material impact on the
Company’s financial position or results of operations.

2. acquisitions

2010

On September 3, 2010, the Company acquired the capital stock
of Xtensible Solutions, Inc. (Xtensible) for a purchase price of
approximately $4 million in cash plus contingent consideration
valued at approximately $12 million. Xtensible is a provider of
information management and integration solutions to the utility
industry worldwide and its operating results, since the date of
acquisition, are included within the uSg segment (as part of
Aclara). The agreement includes contingent consideration to be
earned and paid out over the next three and a half years based on
target revenues. The Company recorded approximately $15 million
of goodwill as a result of the transaction.

On September 21, 2009, the Company acquired a minority equity
interest in Firetide, Inc. for $4 million in cash. Firetide, Inc. is a
provider of wireless infrastructure mesh network management systems
which will enable communications with other Smart grid assets and
this technology will be used in Aclara’s Acendant Network solution.
This investment is accounted for under the cost method and is
included in Other assets on the Company’s Consolidated Balance
Sheet as of September 30, 2010.

On July 2, 2009, the Company acquired certain assets of Complus
Systems Pvt ltd. (Complus) in India for approximately $1.2 million
in cash and formed a new Indian entity. The entity will operate as
ETS-India and its operating results, since the date of acquisition,
are included within the Test segment.

2008

The purchase price allocation was as follows:

(In thousands)

Net tangible assets
Identifiable intangible assets:
Trade names
Customer relationships
Software and databases

Total identifiable intangible assets
goodwill
long-term deferred tax liabilities

Total cash consideration

Reconciliation of purchase price:
Total cash consideration
less: cash acquired

Purchase price

$ 44,498

112,290
52,510
3,790

168,590
192,203
(67,830)

$ 337,461

$ 337,461
(9,639)

$ 327,822

The identifiable intangible assets consisting of customer relation-
ships will be amortized on a straight-line basis over twenty years
and the software and databases will be amortized on a straight-
line basis over five years. The identifiable intangible asset consist-
ing of trade names has an indefinite life and is not subject to
amortization.

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On July 31, 2008, the Company acquired the capital stock of Doble
lemke gmbh and Doble lemke Ag (collectively “lemke”, formerly
named “lDIC”) for a purchase price of approximately $13 million,
net of cash acquired. lemke is a manufacturer of partial discharge
diagnostic testing instruments and systems serving the interna-
tional electric utility industry. The operating results for lemke since
the date of acquisition are included within Doble in the uSg seg-
ment. The Company recorded approximately $8 million of goodwill
as a result of the transaction, $2.5 million of trade names and
$1.5 million of amortizable identifiable intangible assets consisting
of customer relationships.

All of the Company’s acquisitions have been accounted for using
the purchase method of accounting and accordingly, the respective
purchase prices were allocated to the assets (including intangible
assets) acquired and liabilities assumed based on estimated
fair values at the date of acquisition. The financial results
from these acquisitions have been included in the Company’s
financial statements from the date of acquisition. Pro forma
financial information related to the Company’s acquisitions was
not presented as it was not significant to the Company’s results
of operations. None of the goodwill recorded as part of the
acquisitions mentioned above is expected to be deductible for
u.S. Federal or state income tax purposes except for the goodwill
recorded in connection with the Xtensible acquisition.

3. Divestitures

2009

On March 13, 2009, the Company completed the sale of the busi-
ness and most of the assets of Comtrak Technologies, llC (Comtrak)
for $3.1 million, net, of cash (referred to as the “Comtrak sale”).
This business is reflected as a discontinued operation in the
financial statements and related notes for all periods presented.
Comtrak’s operations were previously included within the Company’s
uSg segment. A pretax loss of $1.2 million related to the sale and
its 2009 results of operations are reflected in the Company’s fiscal
2009 results in discontinued operations. Comtrak’s net sales were
$3.4 million and $10.3 million for the years ended September 30,
2009, and 2008, respectively. The pretax loss from Comtrak’s opera-
tions was $0.3 million for the year ended September 30, 2008.

2008

On November 25, 2007, the Company completed the sale of the
filtration portion of Filtertek Inc. (Filtertek) to Illinois Tool Works
Inc. for $74.4 million, net. The TekPack division of Filtertek was not
included in the transaction. Accordingly, the Filtertek businesses
are reflected as discontinued operations in the financial statements
and related notes for all periods presented. A pretax loss of
$0.2 million related to Filtertek is reflected in the Company’s fiscal
2008 results in discontinued operations. Filtertek’s net sales were
$13.7 million for the two-month period ended November 25, 2007.

Filtertek’s operations were included within the Company’s Filtration
segment prior to divestiture. The operations of the TekPack business
are reflected in continuing operations and continue to be included
in the Filtration segment.

4. goodwill and Other intangible assets

Included on the Company’s Consolidated Balance Sheets at
September 30, 2010, and 2009 are the following intangible assets
gross carrying amounts and accumulated amortization:

(Dollars in millions)

goodwill

2010

$ 355.7

2009

330.7

Intangible assets with determinable lives:
Patents

gross carrying amount
less: accumulated amortization

Net

Capitalized software

gross carrying amount
less: accumulated amortization

Net

Customer Relationships

gross carrying amount
less: accumulated amortization

Net

Other

gross carrying amount
less: accumulated amortization

Net

$ 13.5
13.3

$ 0.2

$ 102.4
49.3

$ 53.1

$ 61.4
8.3

$ 53.1

$ 9.7
8.2

$ 1.5

13.6
13.1

0.5

93.7
41.9

51.8

54.0
5.0

49.0

10.2
7.5

2.7

Intangible assets with indefinite lives:
Trade names

$ 121.8

117.6

The Company performed its annual evaluation of goodwill and
intangible assets for impairment during the fourth quarter of fiscal
2010 and concluded no impairment existed at September 30, 2010.

The changes in the carrying amount of goodwill attributable to each
business segment for the years ended September 30, 2010, and
2009 are as follows:

(Dollars in millions)

uSg

Test

Filtration

Total

Balance as of
September 30, 2008

Acquisitions

Balance as of
September 30, 2009

Acquisitions

Balance as of
September 30, 2010

$279.1

0.8

279.9

16.2

29.5

1.0

30.5

—

20.3

328.9

—

1.8

20.3

8.8

330.7

25.0

$ 296.1

30.5

29.1

355.7

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Amortization expense related to intangible assets with determin-
able lives was $11.6 million, $19.2 million and $17 million in
2010, 2009 and 2008, respectively. The decrease in amortization
expense in 2010 as compared to the prior years was mainly due
to the Company’s TWACS Ng software. During 2010, the Company
re-evaluated the economic useful life of its TWACS Ng software and
concluded the remaining TWACS Ng asset value has an expected
remaining useful life of ten years. The Company recorded $4.5 mil-
lion, $12.2 million and $11 million of amortization expense related
to Aclara PlS’s TWACS Ng software in 2010, 2009 and 2008, respec-
tively. Patents are amortized over the life of the patents, generally
17 years. Capitalized software is amortized over the estimated
useful life of the software, generally three to seven years. Customer
relationships are generally amortized over twenty years. Intangible
asset amortization for fiscal years 2011 through 2015 is estimated
at approximately $11.5 million declining to $10 million per year.

5. accounts Receivable

Accounts receivable, net of the allowance for doubtful accounts,
consist of the following at September 30, 2010, and 2009:

7. Property, Plant and Equipment

Depreciation expense of property, plant and equipment from
continuing operations for the years ended September 30, 2010,
2009 and 2008 was $10.5 million, $11.1 million and $10 million,
respectively.

The Company leases certain real property, equipment and machinery
under noncancelable operating leases. Rental expense under these
operating leases for the years ended September 30, 2010, 2009 and
2008 was $7.7 million, $8 million and $7.8 million, respectively.
Future aggregate minimum lease payments under operating leases
that have initial or remaining noncancelable lease terms in excess
of one year as of September 30, 2010 are:

(Dollars in thousands)
Years ending September 30:

2011

2012

2013

2014

2015 and thereafter

$ 7,004

6,142

4,625

3,299

6,234

$27,304

(Dollars in thousands)

Commercial

2010

2009

Total

$137,833

104,409

u.S. government and prime contractors

3,265

4,211

Total

$141,098

108,620

8. income Tax Expense

6. inventories

Inventories consist of the following at September 30, 2010,
and 2009:

(Dollars in thousands)

Finished goods

Work in process — including

long-term contracts

Raw materials

Total

2010

2009

$29,902

38,153

18,743

34,389

16,433

27,434

$83,034

82,020

Total income tax expense (benefit) for the years ended
September 30, 2010, 2009 and 2008 was allocated as follows:

(Dollars in thousands)

2010

2009

2008

Income tax expense from
continuing operations
Discontinued operations

$24,819
—

13,867
(1,473)

23,709
386

Total income tax expense

$24,819

12,394

24,095

The components of income from continuing operations before
income taxes consisted of the following for the years ended
September 30:

(Dollars in thousands)

2010

2009

2008

united States
Foreign

$66,639
3,026

60,477
2,695

66,723
4,555

Total income before income taxes $69,665

63,172

71,278

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The principal components of income tax expense (benefit) from
continuing operations for the years ended September 30, 2010,
2009 and 2008 consist of:

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at September 30,
2010, and 2009 are presented below.

(Dollars in thousands)

2010

2009

2008

(Dollars in thousands)

2010

2009

Federal

Current (including Alternative

Deferred tax assets:

Inventories, long-term contract accounting,

Minimum Tax)

$ 17,585

10,425

463

contract cost reserves and others

$ 3,331

4,017

4,199

(1,666)

16,820

Pension and other postretirement benefits

12,178

11,421

Deferred

State and local:

Current

Deferred

Foreign:

Current

Deferred

Total

2,193

4,683

230

(421)

1,130

1,179

(518)

(333)

2,788

2,139

1,234

265

$ 24,819

13,867

23,709

The actual income tax expense from continuing operations for the
years ended September 30, 2010, 2009 and 2008 differs from the
expected tax expense for those years (computed by applying the
u.S. Federal corporate statutory rate) as follows:

2010

2009

2008

Federal corporate statutory rate

35.0%

State and local, net of Federal benefits

3.1

Foreign

Research credit

Export Incentive

Domestic production deduction

Share-based compensation

Change in uncertain tax positions

Transaction costs

Other, net

(1.5)

0.3

—

(1.9)

—

0.1

0.2

0.3

4.4

(0.2)

(7.5)

—

(1.8)

0.4

(7.9)

—

(0.4)

2.5

(0.3)

(1.4)

(2.2)

(1.1)

0.7

(0.3)

—

0.4

Effective income tax rate

35.6%

22.0%

33.3%

Net operating loss carryforward — domestic

Net operating loss carryforward — foreign

Capital loss carryforward

Other compensation-related costs

and other cost accruals

Federal research credit carryforward

State credit carryforward

Total deferred tax assets

Deferred tax liabilities:

813

2,018

254

1,516

1,468

254

14,196

11,761

—

1,545

4,643

1,200

34,335

36,280

Plant and equipment, depreciation methods,
acquisition asset allocations, and other

(96,300)

(92,708)

Net deferred tax liabilities before
valuation allowance

less valuation allowance

(61,965)

(56,428)

(1,613)

(1,626)

Net deferred tax liabilities

$ (63,578)

(58,054)

The Foreign net operating loss carryforward of $2 million at
September 30, 2010, reflects tax loss carryovers in Brazil, germany
and the united Kingdom. These losses have no expiration date.

At September 30, 2010, the Company has established a valuation
allowance of $0.3 million against the capital loss carryforward
generated in 2008, as such loss carryforward may not be realized
in future periods. In addition, the Company has established a
valuation allowance against certain net operating loss (NOl)
carryforwards in foreign jurisdictions which may not be realized
in future periods. The valuation allowance established against the
foreign NOl carryforwards was $1.4 million at September 30, 2010,
and 2009. The Company classifies its valuation allowance related to
deferred taxes on a pro rata basis.

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The Federal research credit expired on December 31, 2009, and
was not reinstated prior to September 30, 2010, so the Company
estimates the net Federal research tax credits related to fiscal year
2010 to be approximately $0.1 million compared to $0.7 million
in 2009. Research credits of $3.5 million were included in the
fiscal 2009 provision as a result of a decrease in the Company’s tax
positions for the fiscal years 2000 through 2007. The state research
credit has not expired and the Company expects the net fiscal year
2010 state research tax credits to be $0.3 million compared to
$0.4 million in 2009. The Company has a net state research and
other credit carryforward of $1.5 million of which $0.8 million
expires between 2021 and 2025.

No deferred taxes have been provided on the accumulated
unremitted earnings of $33.7 million for the Company’s foreign
subsidiaries as of September 30, 2010. The Company’s intention is
to reinvest these earnings indefinitely. In the event these foreign
entities’ earnings were distributed, it is estimated that u.S. taxes,
net of available foreign tax credits, of approximately $6.7 million
would be due, which would correspondingly reduce the Company’s
net earnings.

As of September 30, 2010, the Company had $3.2 million of
unrecognized benefits (see table below), of which $3.1 million,
net of Federal benefit, if recognized, would affect the Company’s
effective tax rate.

A reconciliation of the Company’s unrecognized tax benefits for
the years ended September 30, 2010, and 2009 is presented in the
table below:

(Dollars in millions)

Balance as of October 1,

Increases related to prior year tax positions

2010

2009

$ 3.3

0.2

13.0

0.2

position for the deduction of losses realized on the disposition of
a portion of the MicroSep business in 2004. It is the Company’s
policy to record the tax effects of changes in the opening balance
of unrecognized tax benefits in net earnings from continuing
operations.

The Company anticipates a $0.5 million reduction in the amount
of unrecognized tax benefits in the next twelve months as a result
of a lapse of the applicable statute of limitations. The Company’s
policy is to include interest related to unrecognized tax benefits
in income tax expense and penalties in operating expense. As of
September 30, 2010, 2009 and 2008, the Company had accrued
interest related to uncertain tax positions of $0.1 million,
$0.1 million and $0.2 million, respectively, net of Federal income
tax benefit, on its Consolidated Balance Sheet. No penalties have
been accrued.

The principal jurisdictions for which the Company files income
tax returns are u.S. Federal and the various city, state, and
international locations where the Company has operations. Due to
the timing of the utilization of the Company’s net operating loss,
the u.S. Federal tax years for the periods ended September 30,
1995, and forward remain subject to income tax examination. In
the fourth quarter of 2009, the Internal Revenue Service (IRS)
completed its examination of the Company’s u.S. income tax returns
for the periods ended September 30, 2003, through September 30,
2007; and the Company and the IRS reached mutual agreement of
the adjustments to those returns. Various state tax years for the
periods ended September 30, 2006, and forward remain subject
to income tax examinations. The Company is subject to income
tax in many jurisdictions outside the united States, none of
which is individually material to the Company’s financial position,
statements of cash flows, or results of operations.

Decreases related to prior year tax positions

(0.2)

(10.0)

Increases related to current year tax positions

0.1

0.9

9. Debt

Decreases related to settlements with

taxing authorities

lapse of statute of limitations

Balance as of September 30,

—

(0.2)

$ 3.2

(0.7)

(0.1)

3.3

The $10 million decrease related to prior year tax positions for the
year ended September 30, 2009, was primarily the result of the
closing of a u.S. taxing authority’s examination of the Company’s
research credit claims and the confirmation of the Company’s tax

Debt consists of the following at September 30, 2010, and 2009:

(Dollars in thousands)

2010

2009

Revolving credit facility,

including current portion

$154,000

180,467

Current portion of long-term debt

(50,000)

Total long-term debt,
less current portion

$104,000

130,467

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At September 30, 2010, the Company had approximately $163 mil-
lion available to borrow under the credit facility, plus a $50 million
increase option, in addition to $26.5 million cash on hand. The
Company classified $50 million as the current portion of long-term
debt as of September 30, 2010, as the Company intends to repay
this amount within the next twelve months; however, the Company
has no contractual obligation to repay such amount during the
next twelve months. The Company’s ability to access the additional
$50 million increase option of the credit facility is subject to
acceptance by participating or other outside banks. The credit
facility has a maturity date of November 30, 2012.

The credit facility requires, as determined by certain financial
ratios, a facility fee ranging from 15 to 25 basis points per annum
on the unused portion. The terms of the facility provide that
interest on borrowings may be calculated at a spread over the
london Interbank Offered Rate (lIBOR) or based on the prime rate,
at the Company’s election. The facility is secured by the unlimited
guaranty of the Company’s material domestic subsidiaries and
a 65% pledge of the material foreign subsidiaries’ share equity.
The financial covenants of the credit facility include a leverage
ratio and an interest coverage ratio. During 2010 and 2009, the
maximum aggregate short-term borrowings at any month-end
were $180.4 million and $225.7 million, respectively; the average
aggregate short-term borrowings outstanding based on month-end
balances were $170.6 million and $210.8 million, respectively; and
the weighted average interest rates were 1.87%, 3.26%, and 4.75%
for 2010, 2009 and 2008, respectively. The letters of credit issued
and outstanding under the credit facility totaled $13 million and
$7.2 million at September 30, 2010, and 2009, respectively.

10. Capital Stock

The 29,839,343 and 29,771,103 common shares as presented in
the accompanying Consolidated Balance Sheets at September 30,
2010, and 2009 represent the actual number of shares issued at
the respective dates. The Company held 3,338,986 and 3,357,046
common shares in treasury at September 30, 2010, and 2009,
respectively.

In July 2010, the Company’s Board of Directors authorized an open
market common stock repurchase program of the Company’s shares
at a value not to exceed $30 million, subject to market conditions
and other factors which covers the period through September 30,
2012. There were no stock repurchases during 2010, 2009 or 2008.

11. Share-Based Compensation

The Company provides compensation benefits to certain key
employees under several share-based plans providing for employee
stock options and/or performance-accelerated restricted shares
(restricted shares), and to non-employee directors under a non-
employee directors compensation plan. During fiscal 2004, the
Board of Directors authorized and the shareholders approved, the
2004 Incentive Compensation Plan, which states, in part, that on
February 5, 2004, there shall be 2,000,000 shares added to the
authorized shares allocated for the grant of stock options, stock
appreciation rights, performance-accelerated restricted stock,
or other full value awards. Of these, shares up to 600,000 may
be utilized for performance-accelerated restricted stock or other
full value awards. At September 30, 2010, the maximum number
of full value shares available for issue under the 2004 Incentive
Compensation Plan and the 2001 Stock Incentive Plan was 600,000
and 36,856 shares, respectively.

Stock Option Plans

The Company’s stock option awards are generally subject to graded
vesting over a three-year service period. All outstanding options
were granted at prices equal to fair market value at the date of
grant. The options granted prior to September 30, 2003, have a
ten-year contractual life from date of issuance, expiring in various
periods through 2013. Beginning in fiscal 2004, the options granted
have a five-year contractual life from date of issuance. The Company
recognizes compensation cost on a straight-line basis over the
requisite service period for the entire award.

The fair value of each option award is estimated as of the date of
grant using the Black-Scholes option pricing model. The weighted
average assumptions for the periods indicated are noted below.
Expected volatility is based on historical volatility of ESCO’s stock
calculated over the expected term of the option. The Company
utilizes historical company data to develop its expected term
assumption. The risk-free rate for the expected term of the option
is based on the u.S. Treasury yield curve in effect at the date of
grant. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 2010,
2009 and 2008, respectively: expected dividend yield of 0.9%,
0% and 0%; expected volatility of 48.1%, 39.3% and 34.8%;
risk-free interest rate of 1.9%, 1.9% and 2.9%; and expected term
of 3.9 years, 3.8 years and 3.8 years.

E S C O TE ChN OlOgI E S IN C.

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Information regarding stock options awarded under the option plans is as follows:

October 1,

granted

Exercised

Cancelled

September 30,

At September 30,

Fy2010

FY2009

FY2008

Estimated
Weighted
avg. Price

$33.63

$32.55

$12.03

$41.17

891,826

2,000

(73,765)

(58,130)

Estimated
Weighted
Avg. Price

$ 30.40

$ 37.42

$ 22.85

$ 45.03

1,139,201

129,300

(336,876)

(39,799)

Estimated
Weighted
Avg. Price

$ 30.35

$ 35.82

$ 24.83

$ 42.22

1,558,941

16,000

(295,339)

(140,401)

761,931

$35.15

891,826

$ 33.63

1,139,201

$ 30.40

Reserved for future grant

Exercisable

949,062

677,538

$34.88

935,345

683,192

1,010,014

$ 31.61

884,812

$ 26.25

The aggregate intrinsic value of options exercised during 2010,
2009 and 2008 was $1.3 million, $5.2 million and $5.5 million,
respectively. The aggregate intrinsic value of stock options out-
standing and exercisable at September 30, 2010, was $4.1 million.
The weighted-average contractual life of stock options outstanding
at September 30, 2010, was 1.3 years. The weighted-average fair
value of stock options per share granted in 2010, 2009 and 2008
was $11.90, $12.11, and $10.98, respectively.

Summary information regarding stock options outstanding at
September 30, 2010, is presented below:

Options Outstanding

number
Outstanding at
Sept. 30, 2010

Weighted-

average Weighted
average
Exercise
Price

Remaining
Contractual
life

82,710

1.0 year

$ 12.46

129,908

1.9 years

$14.91

304,665

1.3 years

$40.49

244,648

1.0 year

$46.90

761,931

1.3 years

$35.15

Exercisable Options Outstanding

number
Exercisable at
Sept. 30, 2010

82,710

129,374

220,806

244,648

677,538

Weighted
average
Exercise
Price

$ 12.46

$14.86

$41.70

$46.90

$34.88

Range of
Exercise Prices

$ 8.61 - $13.64

$14.52 - $27.44

$32.55 - $42.99

$43.83 - $54.88

Range of
Exercise Prices

$ 8.61 - $13.64

$14.52 - $27.44

$35.69 - $42.99

$43.83 - $54.88

Performance-accelerated Restricted Share awards

The performance-accelerated restricted shares (restricted shares)
have a five-year term with accelerated vesting if certain perfor-
mance targets are achieved. In these cases, if it is probable that
the performance condition will be met, the Company recognizes
compensation cost on a straight-line basis over the shorter perfor-
mance period; otherwise, it will recognize compensation cost over
the longer service period. Compensation cost for the majority of
the outstanding restricted share awards is being recognized over
the longer performance period as it is not probable the performance
condition will be met. The restricted share award grants were
valued at the stock price on the date of grant. Pretax compensation
expense related to the restricted share awards was $3.6 million,
$2.8 million and $1.2 million for the fiscal years ended Septem-
ber 30, 2010, 2009 and 2008, respectively.

The following summary presents information regarding outstanding
restricted share awards as of September 30, 2010, and changes
during the period then ended:

Nonvested at October 1, 2009

granted

Vested

Cancelled

Weighted
Shares Avg. Price

300,354

$39.94

81,352

$37.88

(49,030)

$42.70

(28,500)

$40.42

Nonvested at September 30, 2010

304,176

$38.95

non-Employee Directors Plan

The non-employee directors compensation plan provides to each
non-employee director a retainer of 800 common shares per quarter.
Compensation expense related to the non-employee director grants
was $0.5 million, $0.7 million and $0.7 million for the years ended
September 30, 2010, 2009 and 2008, respectively.

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The total share-based compensation cost that has been recognized
in results of operations and included within Sg&A (continuing
operations) was $4.6 million, $4.9 million and $4 million for the
years ended September 30, 2010, 2009 and 2008, respectively.
The total income tax benefit recognized in results of operations
for share-based compensation arrangements was $1.8 million,
$1.7 million and $1.1 million for the years ended September 30,
2010, 2009 and 2008, respectively. The Company has elected to
use tax law ordering rules when calculating the income tax benefit
associated with its share-based payment arrangements. In addition,
the Company elected to use the simplified method of calculating
the pool of excess tax benefits available to absorb tax deficiencies
recognized. As of September 30, 2010, there was $6.5 million
of total unrecognized compensation cost related to share-based
compensation arrangements. That cost is expected to be recognized
over a weighted-average period of 1.7 years.

12. Retirement and Other Benefit Plans

Substantially all domestic employees are covered by a defined
contribution pension plan maintained by the Company. Effective
December 31, 2003, the Company’s defined benefit plan was frozen
and no additional benefits have been accrued after that date. As
a result, the accumulated benefit obligation and projected benefit
obligation are equal. These frozen retirement income benefits
are provided to employees under defined benefit pay-related and
flat-dollar plans, which are noncontributory. In conjunction with
the acquisition of Doble, the Company assumed responsibility
for their defined benefit plan and has frozen the plan effective
December 31, 2008 and no additional benefits have been accrued
after that date. Effective October 1, 2009, the Company’s defined
benefit plan and Doble’s benefit plan were merged into one plan.
The annual contributions to the defined benefit retirement plans
equal or exceed the minimum funding requirements of the Employee
Retirement Income Security Act or applicable local regulations.
In addition to providing retirement income benefits, the Company
provides unfunded postretirement health and life insurance benefits
to certain retirees. To qualify, an employee must retire at age 55
or later and the employee’s age plus service must equal or exceed
75. Retiree contributions are defined as a percentage of medical
premiums. Consequently, retiree contributions increase with
increases in the medical premiums. The life insurance plans are
noncontributory and provide coverage of a flat dollar amount for
qualifying retired employees. Effective December 31, 2004, no new
retirees are eligible for life insurance benefits.

The Company uses a measurement date of September 30 for its
pension and other postretirement benefit plans. The Company has
an accrued benefit liability of $0.7 million and $0.7 million at
September 30, 2010 and 2009, respectively, related to its other
postretirement benefit obligations. All other information related to
its postretirement benefit plans is not considered material to the
Company’s results of operations or financial condition.

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The following tables provide a reconciliation of the changes in the
pension plans and fair value of assets over the two-year period
ended September 30, 2010, and a statement of the funded status as
of September 30, 2010, and 2009:

(Dollars in millions)

Reconciliation of benefit obligation

Pension Benefits

2010

2009

Net benefit obligation at beginning of year

$ 74.9

Service cost

Interest cost

Actuarial loss

Settlements

gross benefits paid

Net benefit obligation at end of year

0.2

4.0

4.2

(0.8)

(3.1)

$ 79.4

59.7

0.4

4.2

13.9

(0.3)

(3.0)

74.9

(Dollars in millions)

Pension Benefits

2010

2009

Reconciliation of fair value of plan assets

Fair value of plan assets at beginning of year

$ 46.5

Actual return on plan assets

Employer contributions

gross benefits paid

Settlements

Fair value of plan assets at end of year

4.2

2.4

(3.1)

(0.8)

$ 49.2

48.0

(0.8)

2.6

(3.0)

(0.3)

46.5

(Dollars in millions)

Funded Status

Pension Benefits

2010

2009

Funded status at end of year

$(30.2)

(28.4)

unrecognized prior service cost

unrecognized net actuarial (gain) loss

Accrued benefit cost

Amounts recognized in the Balance Sheet

consist of:

Noncurrent asset

Current liability

Noncurrent liability

—

(30.2)

(28.4)

—

(0.3)

—

(1.0)

(29.9)

(27.4)

Accumulated other comprehensive income/loss

(before tax effect)

34.1

30.5

Amounts recognized in Accumulated Other
Comprehensive Income/loss consist of:

Net actuarial loss

Prior service cost

34.0

0.1

Accumulated Other Comprehensive Income/loss $34.1

30.4

0.1

30.5

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a T E M EnT S

The following table provides the components of net periodic benefit
cost for the plans for the years ended September 30, 2010, 2009
and 2008:

The asset allocation for the Company’s pension plans at the end
of 2010 and 2009, the Company’s acceptable range and the target
allocation for 2011, by asset category, follows:

(Dollars in millions)

2010

2009

2008

Pension Benefits

Service cost

Interest cost

Expected return on plan assets

Net actuarial loss

Settlement gain

Net periodic benefit cost

Defined contribution plans

Total

$ 0.2

4.0

(4.1)

0.9

(0.5)

0.5

4.3

$ 4.8

0.4

4.2

0.6

3.8

(4.3)

0.2

—

0.5

4.4

4.9

0.2

—

0.3

4.2

4.5

The discount rate used in measuring the Company’s pension
obligations was developed by matching yields of actual high-
quality corporate bonds to expected future pension plan cash flows
(benefit payments). Over 400 Aa-rated, non-callable bonds with
a wide range of maturities were used in the analysis. After using
the bond yields to determine the present value of the plan cash
flows, a single representative rate that resulted in the same present
value was developed. The expected long-term rate of return on
plan assets assumption was determined by reviewing the actual
investment return of the plans since inception and evaluating
those returns in relation to expectations of various investment
organizations to determine whether long-term future returns are
expected to differ significantly from the past.

The following weighted-average assumptions were used to
determine the net periodic benefit cost for the pension plans:

Target Acceptable Percentage of Plan
Assets at Year-end

Range

Allocation

asset Category

Equity securities

Fixed income

Cash/cash equivalents

2011

60%

40%

2010

2009

50-70%

30-50%

0-5%

63%

35%

61%

36%

The Company’s pension plan assets are managed by outside
investment managers and assets are rebalanced when the target
ranges are exceeded. Pension plan assets consist principally
of marketable securities including common stocks, bonds, and
interest-bearing deposits. The Company’s investment strategy
with respect to pension assets is to achieve a total rate of return
(income and capital appreciation) that is sufficient to accomplish
the purpose of providing retirement benefits to all eligible and
future retirees of the pension plan. The Company regularly monitors
performance and compliance with investment guidelines.

FaiR ValuE OF FinanCial MEaSuREMEnTS

The fair values of the Company’s defined benefit plan investments
as of September 30, 2010, by asset category, are as follows:

(Dollars in millions)

level 1 level 2 level 3 Total

Investments at Fair Value:
Cash and Cash Equivalents

$ 0.9

$ —

$ — $ 0.9

Common and Preferred Stock Funds:
Domestic large capitalization

21.2

—

21.2

Domestic mid capitalization

3.9

—

3.9

2010

2009

2008

Domestic small capitalization

1.0

—

1.0

5.50%

7.25%

6.25%

International funds

5.2

—

5.2

Discount rate

Rate of increase in

compensation levels

Expected long-term rate of

n/a

N/A

return on assets

8.00%

8.25%

The following weighted-average assumptions were used to determine
the net periodic benefit obligations for the pension plans:

Discount rate

Rate of increase in

compensation levels

2010

2009

5.0%

5.5%

n/a

N/A

The assumed rate of increase in compensation levels is not
applicable in 2010, 2009 and 2008 as the plan was frozen.

Fixed Income Funds

Real Estate Investments

—

16.3

—

16.3

—

0.7

Total Investments at Fair Value

$ 32.2

16.3

0.7

49.2

For assets that are measured using quoted prices in active markets,
the total fair value is the published market price per unit multiplied
by the number of units held without consideration of transaction
costs, which have been determined to be immaterial. Assets that
are measured using significant other observable inputs are primarily
valued by reference to quoted prices of markets that are not active.
The following methods and assumptions were used to estimate the
fair value of each class of financial instrument:

Cash and cash equivalents: The carrying value of cash represents
fair value as it consists of actual currency, and is classified as
level 1.

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

n O T E S T O COnS Ol iD

a T E D F i n a nCi a l ST

a T E M EnT S

Common and preferred stock funds: The plans’ common and
preferred stock funds primarily consist of investments in listed
u.S. and international company stock. The stock investments are
valued using quoted prices from the various public markets. Most
equity securities trade on formal exchanges, both domestic and
foreign (e.g. NYSE, NASDAQ, lSE), and can be accurately described
as active markets. The observable valuation inputs are unadjusted
quoted prices that represent active market trades and are classified
as level 1.

Fixed income funds: Fixed income funds consist of investments
in u.S. and foreign corporate credit, u.S. and foreign government
issues (including agencies and mortgages), u.S. Treasuries, u.S.
state and municipal securities and asset backed securities. These
investments are generally priced by institutional bids, which reflect
estimated values based on underlying model frameworks at various
dealers and vendors, or are formally listed on exchanges, where
dealers exchange bid and ask offers to arrive at most executed
transaction prices. These investments are classified as level 2.

Real estate investments: The plan invests in u.S. real estate
through indirect ownership entities, which are structured as limited
partnerships or private real estate investment trusts (REITs). Real
estate investments are generally illiquid long-term assets valued in
large part using inputs not readily observable in the public markets.
All real estate investments are classified as level 3.

EXPECTED CaSh FlOWS

Information about the expected cash flows for the pension and
other postretirement benefit plans follows:

(Dollars in millions)

Pension
Benefits

Other
Benefits

Expected Employer Contributions — 2011

$ 6.3

0.1

Expected Benefit Payments

2011

2012

2013

2014

2015

2016-2020

3.6

3.8

4.3

4.1

4.3

$24.5

0.1

0.2

13. Derivative Financial instruments

to hedge some of its exposure to variability in future lIBOR-
based interest payments on variable rate debt. During 2010, the
Company entered into a $60 million one-year amortizing forward
interest rate swap effective October 5, 2010. All derivative
instruments are reported on the balance sheet at fair value. The
derivative instruments are designated as a cash flow hedge and
the gain or loss on the derivative is deferred in accumulated
other comprehensive income until recognized in earnings with
the underlying hedged item. Including the impact of interest
rate swaps outstanding, the interest rates on approximately 50%
of the Company’s total borrowings were effectively fixed as of
September 30, 2010. The following is a summary of the notional
transaction amounts and fair values for the Company’s outstanding
derivative financial instruments by risk category and instrument
type, as of September 30, 2010.

(Dollars in thousands)

Notional
Average
Average
Amount Rec Rate Pay Rate

Fair
Value

Interest rate swaps

$ 80,000

0.26%

1.52%

$ (13)

Interest rate swap*

$ 60,000

N/A

1.10%

$ (469)

* This swap represents a forward-starting swap and became effective in

October 2010.

FaiR ValuE OF FinanCial inSTRuMEnTS

Effective in fiscal 2009, the Company adopted the guidance in
SFAS 157, now codified as FASB ASC 825, Financial Instruments,
which defines fair value in generally accepted accounting principles
and expands disclosures about fair value measurements.

At September 30, 2010, the Company’s financial statements
included a liability of $0.5 million classified within accrued other
expenses on the Company’s Consolidated Balance Sheet, and
accumulated other comprehensive loss of $(0.3) million (net of
deferred income tax effects of $0.2 million) relating to the fair
value of the interest rate swaps.

FASB ASC 825 establishes a three-level hierarchy for disclosure of
fair value measurements, based upon the transparency of inputs to
the valuation of an asset or liability as of the measurement date,
as follows:

Level 1: Inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active markets.

Level 2: Inputs to the valuation methodology include quoted prices
for similar assets and liabilities in active markets, and inputs that
are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument.

Level 3: Inputs to the valuation methodology are unobservable and
significant to the fair value measurement.

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

n O T E S T O COnS Ol iD

a T E D F i n a nCi a l ST

a T E M EnT S

The Company’s interest rate swaps are valued using a present value
calculation based on an implied forward lIBOR curve (adjusted for
the Company’s credit risk) and are classified within level 2 of the
valuation hierarchy, as presented below as of September 30, 2010:

(Dollars in thousands)

level 1

level 2

level 3

Total

liabilities

Interest rate swaps

$ —

$482

$ —

$482

14. Other Financial Data

Items charged to operations during the years ended September 30,
2010, 2009 and 2008 included the following:

(Dollars in thousands)

2010

2009

2008

Salaries and wages

(including fringes)

$160,780

153,416

144,199

Maintenance and repairs

3,440

3,807

3,356

Research and development

(R&D) costs:

Company-sponsored

32,199

31,974

32,955

Customer-sponsored

4,035

2,937

5,293

Total R&D

$ 36,234

34,911

38,248

Other engineering costs

13,250

14,370

8,644

Total R&D and other
engineering costs

$ 49,484

49,281

46,892

As a % of net sales

8.1%

8.0%

7.6%

A reconciliation of the changes in accrued product warranty
liability for the years ended September 30, 2010, 2009, and 2008
is as follows:

(Dollars in thousands)

2010

2009

Balance as of October 1,

Additions charged to expense

$4,370

1,813

2,788

4,086

2008

1,445

3,387

Deductions

(2,306)

(2,504)

(2,044)

Balance as of September 30,

$3,877

4,370

2,788

15. Business Segment information

The Company is organized based on the products and services it
offers. under this organizational structure, the Company has three
reporting segments: utility Solutions group (uSg), RF Shielding and
Test (Test) and Filtration/Fluid Flow (Filtration).

The uSg segment’s operations consist of: Aclara Power-line
Systems Inc. (Aclara PlS); Aclara RF Systems Inc. (Aclara RF);

Aclara Software Inc. (Aclara Software) and Doble Engineering
Company (Doble). Aclara is a proven supplier of special purpose
fixed-network communications systems for electric, gas and water
utilities, including hardware and software to support advanced
metering applications. Aclara’s STAR® Network system and TWACS®
technology provide advanced radio-frequency (RF) and power-line
(PlS) based fixed-network technologies proven to meet the wide-
ranging data communications requirements of utilities worldwide.
Aclara Software applications add value across the utility enterprise,
addressing meter and energy data management, distribution
planning and operations, customer service, revenue management
and integration solutions. Doble provides high-end, intelligent
diagnostic test solutions for the electric power delivery industry
and is a leading supplier of power factor and partial discharge
testing instruments used to assess the integrity of high-voltage
power delivery equipment.

Test segment operations represent the EMC group, consisting
primarily of ETS-lindgren l.P. (ETS) and lindgren R.F. Enclosures,
Inc. (lindgren). The EMC group is an industry leader in providing
its customers with the ability to identify, measure and contain
magnetic, electromagnetic and acoustic energy. The EMC group
also manufactures radio frequency (RF) shielding products and
components used by manufacturers of medical equipment,
communications systems, electronic products, and shielded rooms
for high-security data processing and secure communication.

The Filtration segment’s operations consist of: PTI Technologies
Inc., VACCO Industries, Crissair, Inc. and TekPackaging llC. The
companies within this segment design and manufacture specialty
filtration products including hydraulic filter elements used in
commercial aerospace applications, unique filter mechanisms used
in micro-propulsion devices for satellites and custom designed
filters for manned and unmanned aircraft.

Accounting policies of the segments are the same as those de-
scribed in the summary of significant accounting policies in Note 1
to the Consolidated Financial Statements. The operating units
within each reporting segment have been aggregated because of
similar economic characteristics and meet the other aggregation
criteria of FASB ASC 280.

The Company evaluates the performance of its operating units based
on EBIT, which is defined as: Earnings Before Interest and Taxes.
Intersegment sales and transfers are not significant. Segment assets
consist primarily of customer receivables, inventories, capitalized
software and fixed assets directly associated with the production
processes of the segment. Segment depreciation and amortization is
based upon the direct assets listed above. Information in the tables
below is presented on a Continuing Operations basis and excludes
Discontinued Operations.

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

n O T E S T O COnS Ol iD

a T E D F i n a nCi a l ST

a T E M EnT S

nET SalES

(Dollars in millions)

In addition to the above amounts, the Company incurred expen-
ditures for capitalized software of $8.8 million, $5 million and
$10.5 million in 2010, 2009 and 2008, respectively.

Year ended September 30,

2010

2009

2008

utility Solutions

Test

Filtration

Consolidated totals

$348.3

138.4

120.8

$607.5

374.0

138.4

106.7

619.1

352.7

144.8

116.1

613.6

DEPRECiaTiOn anD aMORTiZaTiOn

(Dollars in millions)

Year ended September 30,

utility Solutions

No customers exceeded 10% of sales in 2010. One customer (Pg&E)
exceeded 10% of sales in 2009 with sales of $106.2 million and in
2008 with sales of $110.2 million.

Test

Filtration

Corporate

2010

$12.2

2.3

2.7

4.9

2009

20.5

2.2

2.7

4.9

2008

18.0

1.8

2.8

4.5

Consolidated totals

$22.1

30.3

27.1

EBiT

(Dollars in millions)

Year ended September 30,

2010

2009

2008

utility Solutions

Test

Filtration

$ 67.4

12.2

19.5

62.5

14.1

18.1

66.6

13.9

21.2

Reconciliation to consolidated

totals (Corporate)

(25.5)

(24.1)

(20.6)

Consolidated EBIT

less: interest expense

73.6

(3.9)

Earnings before income tax

$ 69.7

70.6

(7.4)

63.2

81.1

(9.8)

71.3

iDEnTiFiaBlE aSSETS

(Dollars in millions)

Year ended September 30,

2010

2009

2008

utility Solutions

$207.5

193.2

198.3

Test

Filtration

Corporate

Consolidated totals

80.4

79.2

607.2

$ 974.3

69.4

61.7

599.4

923.7

84.2

59.7

585.9

928.1

Corporate assets consist primarily of goodwill, deferred taxes,
acquired intangible assets and cash balances.

CaPiTal EXPEnDiTuRES

(Dollars in millions)

Year ended September 30,

2010

2009

2008

utility Solutions

Test

Filtration

Corporate

Consolidated totals

$ 5.3

1.9

6.2

—

$ 13.4

6.2

1.5

1.6

—

9.3

9.0

5.9

1.6

0.2

16.7

gEOgRaPhiC inFORMaTiOn

net sales

(Dollars in millions)

Year ended September 30,

2010

2009

2008

united States

$466.1

508.4

482.7

Far East

Europe

Other

54.2

36.7

50.5

48.4

28.2

34.1

55.5

34.4

41.0

Consolidated totals

$607.5

619.1

613.6

long-lived assets

(Dollars in millions)

Year ended September 30,

united States

Europe

Other

2010

$66.1

3.1

3.4

2009

62.3

3.2

4.0

2008

66.2

3.5

2.7

Consolidated totals

$72.6

69.5

72.4

Net sales are attributed to countries based on location of customer.
long-lived assets are attributed to countries based on location of
the asset.

16. Commitments and Contingencies

At September 30, 2010, the Company had $13 million in letters
of credit outstanding as guarantees of contract performance. As
a normal incidence of the businesses in which the Company is
engaged, various claims, charges and litigation are asserted or
commenced against the Company. With respect to claims and
litigation asserted or commenced against the Company, it is the
opinion of Management that final judgments, if any, which might be
rendered against the Company are adequately reserved, covered by
insurance, or are not likely to have a material adverse effect on its
financial condition or results of operation.

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

n O T E S T O COnS Ol iD

a T E D F i n a nCi a l ST

a T E M EnT S

17. Quarterly Financial information (unaudited)

(Dollars in thousands, except per share amounts)

2010

Net sales

Net earnings from continuing operations
Net earnings from discontinued operations

Net earnings

Basic earnings per share:
Net earnings from continuing operations
Net earnings from discontinued operations

Net earnings

Diluted earnings per share:
Net earnings from continuing operations
Net earnings from discontinued operations

Net earnings

2009

Net sales

Net earnings from continuing operations
Net earnings (loss) from discontinued operations

Net earnings

Basic earnings (loss) per share:
Net earnings from continuing operations
Net earnings (loss) from discontinued operations

Net earnings

Diluted earnings (loss) per share:
Net earnings from continuing operations
Net earnings (loss) from discontinued operations

Net earnings

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

Fiscal
year

$ 112,705

129,281

157,582

207,925

607,493

436
—

436

0.02
—

0.02

0.02
—

0.02

5,966
—

14,547
—

23,897
—

44,846
—

5,966

14,547

23,897

44,846

0.23
—

0.23

0.22
—

0.22

0.55
—

0.55

0.55
—

0.55

0.90
—

0.90

0.89
—

0.89

1.70
—

1.70

1.68
—

1.68

$ 147,357

154,156

148,102

169,449

619,064

5,840
(20)

10,605
(209)

11,093
332

21,767
—

49,305
103

5,820

10,396

11,425

21,767

49,408

0.22
—

0.22

0.22
—

0.41
(0.01)

0.40

0.40
(0.01)

0.22

0.39

0.42
0.02

0.44

0.42
0.01

0.43

0.83
—

0.83

0.82
—

0.82

1.88
—

1.88

1.86
—

1.86

See Notes 2 and 3 of Notes to Consolidated Financial Statements for discussion of acquisition and divestiture activity.

See Note 8 of Notes to Consolidated Financial Statements for discussion of the favorable settlement of uncertain tax positions in the 2009
fourth quarter that positively affected EPS by $0.19 related to the disposition of a portion of the MicroSep business in 2004.

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

M a n a gE M EnT’S ST

a T E M EnT O F F i n a nCi a l RE S P OnSiBi l iTy

The Company’s Management is responsible for the fair presentation
of the Company’s financial statements in accordance with account-
ing principles generally accepted in the united States of America,
and for their integrity and accuracy. Management is confident that
its financial and business processes provide accurate information on
a timely basis.

Management, with the oversight of ESCO’s Board of Directors, has
established and maintains a strong ethical climate in which the
Company’s affairs are conducted. Management also has established
an effective system of internal controls that provide reasonable
assurance as to the integrity and accuracy of the financial state-
ments, and responsibility for the Company’s assets. KPMg llP, the
Company’s independent registered public accounting firm, reports
directly to the Audit and Finance Committee of the Board of Direc-
tors. The Audit and Finance Committee has established policies
consistent with corporate reform laws for auditor independence.
In accordance with corporate governance listing requirements of
the New York Stock Exchange:

▶ A majority of Board members are independent of the Company and

its Management.

▶ All members of the key Board committees — the Audit and Finance,
the human Resources and Compensation and the Nominating and
Corporate governance Committees — are independent.

▶ The independent members of the Board meet regularly without the

presence of Management.

▶ The Company has a clear code of ethics and a conflict of inter-
est policy to ensure that key corporate decisions are made by
individuals who do not have a financial interest in the outcome,
separate from their interest as Company officials.

▶ The charters of the Board committees clearly establish their

respective roles and responsibilities.

▶ The Company has a Corporate Ethics Committee, ethics officers at
each operating location and an ombudsman hot line available to
all domestic employees and all foreign employees have local ethics
officers and access to the Company’s ombudsman.

The Company has a strong financial team, from its executive
leadership to each of its individual contributors. Management
monitors compliance with its financial policies and practices over
critical areas including internal controls, financial accounting
and reporting, accountability, and safeguarding of its corporate
assets. The internal audit control function maintains oversight
over the key areas of the business and financial processes and
controls, and reports directly to the Audit and Finance Committee.
Additionally, all employees are required to adhere to the ESCO
Code of Business Conduct and Ethics, which is monitored by the
Corporate Ethics Committee.

Management is dedicated to ensuring that the standards of financial
accounting and reporting that are established are maintained. The
Company’s culture demands integrity and a commitment to strong
internal practices and policies.

The Consolidated Financial Statements have been audited by
KPMg llP, whose report is included herein.

Victor l. Richey
Chairman, Chief Executive Officer,
and President

gary E. Muenster
Executive Vice President,
and Chief Financial Officer

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

M a n a gE M EnT’S RE P O R T On inT E Rn a l COnT R Ol O

V E R F i n a nCi a l RE P O R Ti n g

The Company’s Management is responsible for establishing and
maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of
1934). Our internal control over financial reporting is 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 in the united States of America.

Because of its inherent limitations, any system of internal control
over financial reporting, no matter how well designed, may not
prevent or detect misstatements due to the possibility that a
control can be circumvented or overridden or that misstatements
due to error or fraud may occur that are not detected. Also, because
of changes in conditions, internal control effectiveness may vary
over time.

Management assessed the effectiveness of the Company’s internal
control over financial reporting as of September 30, 2010, using
criteria established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) and concluded that the Company
maintained effective internal control over financial reporting as of
September 30, 2010, based on these criteria.

Our internal control over financial reporting as of September 30, 2010,
has been audited by KPMg llP, an independent registered public
accounting firm, as stated in their report which is included herein.

Victor l. Richey
Chairman, Chief Executive Officer,
and President

gary E. Muenster
Executive Vice President,
and Chief Financial Officer

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

RE P O R T O F inD E P EnD EnT REg iS T E R E D P uBl iC a C C Ou nTi n g F iR M

The Board of Directors and Shareholders
ESCO Technologies Inc.:

We have audited the accompanying Consolidated Balance Sheets
of ESCO Technologies Inc. and subsidiaries (the Company) as of
September 30, 2010, and 2009, and the related Consolidated
Statements of Operations, Shareholders’ Equity, and Cash Flows for
each of the years in the three-year period ended September 30,
2010. We also have audited the Company’s internal control over
financial reporting as of September 30, 2010, based on criteria
established in Internal Control — Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). ESCO Technologies Inc.’s Management is
responsible for these Consolidated Financial Statements, 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 Manage-
ment’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on these consolidated
financial statements and an opinion on ESCO Technologies Inc.’s
internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (united States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control
over financial reporting was maintained in all material respects.
Our audits of the Consolidated Financial Statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by Management, and
evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.

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 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.

In our opinion, the Consolidated Financial Statements referred to
above present fairly, in all material respects, the financial position
of ESCO Technologies Inc. and subsidiaries as of September 30,
2010, and 2009, and the results of their operations and their
cash flows for each of the years in the three-year period ended
September 30, 2010, in conformity with u.S. generally accepted
accounting principles. Also in our opinion, ESCO Technologies Inc.
and subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2010,
based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission.

St. louis, Missouri
November 29, 2010

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

F iV E-y EaR F i n a nCi a l S uM MaRy

(Dollars in millions, except per share amounts)

2010

2009

2008

2007

2006

For years ended September 30:

Net sales

Net earnings from continuing operations

Net earnings (loss) from discontinued operations

Net earnings

Earnings (loss) per share:

Basic:

Continuing operations

Discontinued operations

Net earnings

Diluted:

Continuing operations

Discontinued operations

Net earnings

As of September 30:

Working capital from continuing operations

Total assets

Total debt

Shareholders’ equity

$607.5

44.8

—

44.8

$1.70

—

$1.70

$1.68

—

$1.68

109.4

974.3

154.0

$556.0

619.1

49.3

0.1

49.4

1.88

—

1.88

1.86

—

1.86

116.2

923.7

180.5

517.3

613.6

47.6

(0.9)

46.7

1.84

(0.04)

1.80

1.81

(0.03)

1.78

100.6

928.1

233.7

468.2

437.4

30.8

2.9

33.7

1.19

0.11

1.30

1.17

0.11

1.28

118.2

576.1

—

415.5

374.8

29.4

1.9

31.3

1.14

0.08

1.22

1.11

0.08

1.19

108.6

488.7

—

376.4

See Notes 2 and 3 of Notes to Consolidated Financial Statements for discussion of acquisition and divestiture activity.

CO M M On ST O C K M aR K E T PRiC E

ESCO’s common stock and associated preferred stock purchase rights (subsequently referred to as common stock) are listed on the New York
Stock Exchange under the symbol “ESE.” The following table summarizes the high and low prices of the common stock for each quarter of fiscal
2010 and 2009.

Quarter

First

Second

Third

Fourth

2010

2009

high

$42.24

36.89

33.78

34.85

low

31.20

29.90

24.76

24.55

high

$49.20

42.87

45.99

46.87

low

24.84

29.04

36.70

35.44

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

M aR K E T PE R F O R Ma nC E

Peer Group

Russell 2000®

ESCO Technologies Inc.

The adjacent graph presents a comparison of the cumulative total
shareholder return on the Company’s common stock as measured
against the Russell 2000 Index and a peer group (the “2010 Peer
group”). The Company is not a component of the 2010 Peer group, but
it is a component of the Russell 2000 Index. The measurement period
begins on September 30, 2005 and measures at each September 30
thereafter. These figures assume that all dividends, if any, paid over
the measurement period were reinvested, and the starting value of
each index and the investments in the Company’s common stock were
$100 at the close of trading on September 30, 2005.

$180

160

140

120

100

ESCO Technologies Inc.

Russell 2000 Index

2010 Peer Group

9/05

9/06

9/07

9/08

9/09

9/10

9/05

9/06

9/07

9/08

9/09

9/10

100.00

91.95

66.39

96.21

78.69

66.95

100.00

109.92

123.49

105.60

95.52

108.27

100.00

109.32

143.57

125.13

106.54

128.27

In calculating the composite return of the 2010 Peer group,
the return of each company comprising the 2010 Peer group
is weighted by (a) its market capitalization in relation to the
other companies in its corresponding Company industry segment,
and (b) the percentage of the Company’s 2010 total revenue
represented by its corresponding Company industry segment.

ESCO Technologies inc.

Russell 2000 Index

2010 Peer group

The 2010 Peer group is the same peer group included in the
performance graph in last year’s Annual Report designated the
“2009 Peer group”. The 2010 Peer group is comprised of eight
companies that correspond to the Company’s three industry
segments as follows: utility Solutions group segment (57% of
the Company’s 2010 total revenue) — Badger Meter Inc., Itron
Inc., Comverge, Inc., Echelon Corporation and Roper Industries
Inc.; Test segment (23% of the Company’s 2010 total revenue) —
leCroy Corporation; and Filtration/Fluid Flow segment (20% of the
Company’s 2010 total revenue) — Pall Corporation and Clarcor Inc.

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

S h aR EhOlD E R S’ S uM MaRy

ShaREhOlDERS’ annual MEETing

inVESTOR RElaTiOnS

The Annual Meeting of the Shareholders of ESCO Technologies
Inc. will be held at 9:30 a.m. Thursday, February 3, 2011, at the
Company’s Corporate headquarters, 9900A Clayton Road, St. louis,
Missouri 63124. You may access this Annual Report as well as the
Notice of the meeting and the Proxy Statement on the Company’s
Annual Meeting web site at http://www.cfpproxy.com/5157.

CERTiFiCaTiOnS

Pursuant to New York Stock Exchange (NYSE) requirements, the
Company submitted to the NYSE the annual certifications, dated
February 19, 2010 and February 17, 2009, by the Company’s chief
executive officer that he was not aware of any violations by the
Company of NYSE’s corporate governance listing standards. In
addition, the Company filed with the Securities and Exchange
Commission the certifications by the Company’s chief executive
officer and chief financial officer required under Section 302 of
the Sarbanes-Oxley Act of 2002 as exhibits to the Company’s
Forms 10-K for its fiscal years ended September 30, 2010 and
September 30, 2009.

10-K REPORT

a copy of the Company’s 2010 annual Report on Form 10-K filed
with the Securities and Exchange Commission is available to
shareholders without charge. Direct your written request to Kate
lowrey, Director of investor Relations, ESCO Technologies inc.,
9900a Clayton Road, St. louis, Missouri 63124.

The Form 10-K is also available on the Company’s web site at
www.escotechnologies.com.

Additional investor-related information may be obtained by
contacting the Director of Investor Relations at (314) 213-7277 or
toll free at (888) 622-3726. Information is also available through
the Company’s web site at www.escotechnologies.com or via e-mail
to klowrey@escotechnologies.com.

TRanSFER agEnT anD REgiSTRaR

Shareholder inquiries concerning lost certificates, transfer of shares
or address changes should be directed to:

Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
1 (800) 368-5948
E-mail: info@rtco.com

CaPiTal STOCK inFORMaTiOn

ESCO Technologies Inc. common stock shares (symbol ESE)
are listed on the New York Stock Exchange. There were
approximately 2,400 holders of record of shares of common stock
at November 18, 2010.

inDEPEnDEnT REgiSTERED PuBliC aCCOunTing FiRM

KPMg llP
10 South Broadway, Suite 900
St. louis, Missouri 63102

E S C O TE ChN OlOgI E S IN C.

2 0 1 0 AN Nu Al RE P O R T

M a n a gE M En t a n d BOa r d Of di rEc tOr s

E xEc u t i vE O f f i cEr s

O pEr a t i n g E xEc u t i vEs

BOa r d Of di rEc tOr s

victor l. Richey
Chairman, Chief executive
officer, & President

gary E. muenster
executive Vice President &
Chief Financial officer

Alyson S. barclay
Senior Vice President,
Secretary & general Counsel

c Or pOr a tE st a f f

mark S. dunger
Vice President
Planning & development

Richard A. garretson
Vice President
tax

deborah J. hanlon
Vice President
human Resources

Charles J. Kretschmer
Vice President

matthew J. mainer
Vice President & treasurer

michele A. marren
Vice President & Corporate
Controller

bruce E. butler
President
etS-lindgren lP

Sam R. Chapetta
Filtration group Vice President &
President
Pti technologies inc.

william m. giacone
Senior Vice President &
general Manager, americas
etS-lindgren lP

Antonio E. gonzalez
President
VaCCo industries

Randall K. loga
President
tekPackaging llC

gary l. moore
Chief operating officer
aclara

bryan Sayler
Senior Vice President,
test Solutions
etS-lindgren lP

david b. Zabetakis
President
doble engineering Company

James m. mcConnell 2,4
Retired President &
Chief executive officer
instron Corp.

victor l. Richey 1
Chairman, Chief executive
officer, & President

larry w. Solley 3,4
Retired executive Vice President
emerson electric Co.

James m. Stolze 2
Retired Vice President &
Chief Financial officer
Stereotaxis, inc.

donald C. Trauscht 1,2,3,4
(lead director)
Chairman
Bw Capital Corp.

James d. woods 3
Chairman emeritus &
Retired Chief executive officer
Baker hughes inc.

Committee membership

1 executive Committee

2 audit and Finance Committee

3 human Resources and

Compensation Committee

4 nominating and Corporate

governance Committee

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2 0 1 0 an nU a l R ePoRt

this annual report is

printed with soy-based

process inks on recycled

paper with 10% post-

consumer waste.

ESCO Technologies inc.
9900a Clayton Road
St. louis, Mo 63124