2 0 1 4 A N N U A L R E P O R T
ESCO TECHNOLOGIES INC.
9900A Clayton Road
St. Louis, MO 63124
www.escotechnologies.com
T E C H N O L O G I E S I N C.
ESCO Technologies At A Glance
Shareholders’ Summary
Management and Board of Directors
ESCO Technologies manufactures highly engineered filtration
products for the aviation, Space and process markets worldwide
and is the industry leader in RF shielding and EMC test products.
We also provide diagnostic instruments, services and the premier
library of statistically significant apparatus test results in support
of the electric power grid. The Company’s business segments are
comprised of the following:
FILTRATION/FLUID FLOW
The engineering excellence and diverse resources of Crissair,
Inc., PTI Technologies Inc., and VACCO Industries collaborate
to provide, intelligent, high-tech fluid control solutions for
mission-critical systems. It is a long-standing partnership
that delivers innovation in products such as actuators,
filters, micro-propulsion systems, pumps, regulators,
reservoirs, and valves. Whether reaching the depths of
the ocean, safely soaring through the sky, or rocketing into
Space, this customer-centric union offers proven solutions
to the commercial aerospace, Space and defense, satellite
communications, and industrial markets worldwide.
RF SHIELDING & TEST
From simple products such as electric tooth brushes to
complex engineering marvels such as commercial aircraft,
just about everything in today’s world contains circuitry
which can be sensitive to electronic interference. To verify
products operate as intended, and don’t interfere with
other devices, they must be tested to ensure compliance
with numerous regulatory and industry-defined standards.
ETS-Lindgren designs, manufactures and installs a wide
range of components, test chambers and full turnkey
measurement systems to perform these demanding tests.
UTILITY SOLUTIONS
Doble Engineering Company’s innovation, knowledge and
experience help to protect the power industry by providing
products, consulting and testing, laboratory services and
the leading power industry conferences. Doble is a global
market leader in the electric power industry, partnering
with its customers to minimize risk, improve operations and
optimize electric power infrastructure performance. For nearly
a century, Doble has worked with clients to keep the greatest
innovation of the modern era — the electric grid — running.
SHAREHOLDERS’ ANNUAL MEETING
The Annual Meeting of Shareholders of ESCO Technologies Inc. will
be held at 9:30 a.m. Pacific Time on Thursday, February 5, 2015,
at the Westlake Village Inn, 31943 Agoura Road, Westlake Village,
CA 91361. You may access this Annual Report as well as the
Notice of the meeting and the Proxy Statement on the Company’s
Annual Meeting website at www.envisionreports.com/ese.
CERTIFICATIONS
Pursuant to New York Stock Exchange (NYSE) requirements,
the Company submitted to the NYSE the annual certifications,
dated March 11, 2014 and February 15, 2013, 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, 2014 and
September 30, 2013.
10-K REPORT
The Company’s 2014 Annual Report on Form 10-K as filed with
the Securities and Exchange Commission is included in this Annual
Report to Shareholders. The Form 10-K is also available on the
Company’s website at www.escotechnologies.com, or a copy will
be provided to shareholders without charge upon written request to
Kate Lowrey, Director of Investor Relations, ESCO Technologies Inc.,
9900A Clayton Road, St. Louis, Missouri 63124.
INVESTOR RELATIONS
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
website 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:
Computershare Shareholder Services
P.O. Box 30170
College Station, TX 77842-3170
(800) 368-5948
www.computershare.com/investor
CAPITAL STOCK INFORMATION
ESCO Technologies Inc. common stock shares (symbol ESE)
are listed on the New York Stock Exchange. There were
approximately 1,997 holders of record of shares of common
stock at October 31, 2014.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
10 South Broadway, Suite 900
St. Louis, Missouri 63102
EXECUTIVE OFFICERS
Victor L. Richey
Chairman,
Chief Executive
Officer, & President
CORPORATE STAFF
Deborah J. Boniske
Vice President
Human Resources
Gary E. Muenster
Executive Vice
President & Chief
Financial Officer
Alyson S. Barclay
Senior Vice President,
Secretary & General
Counsel
Richard A. Garretson
Vice President
Tax
Michele A. Marren
Vice President &
Corporate Controller
Mark S. Dunger
Vice President Planning
& Development
Charles J. Kretschmer
Vice President
OPERATING EXECUTIVES
Bruce E. Butler
President
ETS-Lindgren LP
Mike Alfred
President
Crissair, Inc.
Sam R. Chapetta
Filtration Group Vice
President & President,
PTI Technologies Inc.
David B. Zabetakis
President
Doble Engineering
Company
William M. Giacone
Senior Vice President
& General Manager,
Americas
ETS-Lindgren LP
Antonio E. Gonzalez
President
VACCO Industries
Randall K. Loga
President
Thermoform Engineered
Quality LLC
Mark Mawdsley
Senior Vice President &
Managing Director, Asia
ETS-Lindgren LP
Bryan Sayler
Senior Vice President,
Test Solutions
ETS-Lindgren LP
BOARD OF DIRECTORS
Gary E. Muenster
Executive Vice
President & Chief
Financial Officer
Victor L. Richey 1
Chairman, Chief
Executive Officer,
& President
Vinod M. Khilnani 2
Retired Executive
Chairman
CTS Corporation
Leon J. Olivier 4
EVP of Enterprise
Energy Strategy &
Business Development
Northeast Utilities
James M. Stolze 2,3
Retired Vice President
& Chief Financial
Officer
Stereotaxis, Inc.
Donald C. Trauscht 1,2,3,4
(Lead Director)
Chairman
BW Capital Corp.
Robert J. Phillippy 2
President & Chief
Executive Officer
Newport Corp.
Larry W. Solley 3,4
Retired Executive
Vice President
Emerson Electric Co.
1 Executive Committee
2 Audit and Finance Committee
3 Human Resources and Compensation Committee
4 Nominating and Corporate Governance Committee
This annual report is printed on recycled paper, made in the USA, with 10% post-consumer waste.
SOUND
Strategy.
ESCO has a well defined corporate strategy supported by each
of our operating units. Our multi-segment approach is designed
to enhance the sustainability of sales and earnings growth by
providing lower risk through diversification. Our highly engineered
products and solutions and continual focus on innovation support
consistent and predictable growth. Essentially debt free, we are
pursuing selective acquisitions to supplement organic growth.
We operate in diverse and growing end-markets and are focused
on increasing our global footprint. We are confident that we are
well positioned to execute on our strategies and deliver profitable
long term growth.
2014 SALES:
$531.1M
FILTRATION/FLUID FLOW:
$233.7 M
2014 EBIT (as adjusted):
$90.8M*
FILTRATION/FLUID FLOW:
$43.1M
RF SHIELDING & TEST:
$181.8 M
44%
34%
RF SHIELDING & TEST:
$21.1M
48%
UTILITY SOLUTIONS:
$115.6 M
22%
UTILITY SOLUTIONS:
$26.6M
23%
29%
* Excludes $25.3 million of Corporate Costs and $1.7 million of facility consolidation costs within the Filtration/Fluid
Flow segment.
1
2014 ANNUAL REPORT
Management Team’s Interests Are
Aligned With Shareholders
ESCO’s Executive staff and Operational management
teams are comprised of strong, experienced industry
leaders. With stock ownership requirements of
3X-5X total cash compensation, our management
team’s interests are aligned with shareholders.
From left to right: 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.
2
E S C O T E C H N O L O G I E S I N C .
Letter to Shareholders
2014 marked a year of transformation and tremendous accom-
plish ment for ESCO. With the sale of Aclara complete,
we emphasized strong operational execution around our
core businesses, while narrowing our strategic focus. Today, we are a different,
but simpler company, focused on growth. Each of our three business segments
have a demonstrated history of stable and profitable operating results. Going
forward we expect less volatility and considerably better visibility, which
will allow us to focus on continued improvements in execution resulting
in margin expansion and EPS growth. As our 2014 results demonstrate,
we are a more strategically focused, higher margin business well positioned
for future success.
Financial Results
At the start of the year, we had four primary goals:
sell Aclara, significantly pay down debt, successfully
execute our operating plan, and deliver solid EPS
performance. We accomplished each of these goals.
The decision to sell Aclara was made to improve
profitability and provide more predictable and profit-
able growth, and our 2014 results validate this choice.
Successfully executing our 2014 operating plan
resulted in an 8 percent increase in revenues, a
10 percent increase in EBIT dollars, and a 12 percent
increase in EPS from Continuing Operations – As
Adjusted to $1.65 per share. Revenue growth was
consistent with our guidance, and EPS exceeded
our goals. We also generated strong cash flow
enabling us to significantly pay down debt and return
approximately $21 million to shareholders through
dividends and share repurchases during the year.
Business Segments
ESCO is comprised of three business segments,
each with market leading positions and a focus on
providing highly engineered products and solutions.
We have several distinct opportunities for near-term
sales and EPS growth across all three segments, and
are well positioned to capitalize on these.
FILTRATION/FLUID FLOW: PTI, VACCO and Crissair
supply highly engineered fluid control products for
mission-critical systems in the aerospace, Space,
3
2014 ANNUAL REPORT With operations in 29 locations around the world,
the businesses of ESCO Technologies served markets in more than
100 countries on six continents in 2014.
We sell into
more than
100countries and
are continuously
expanding.
4
E S C O T E C H N O L O G I E S I N C .
Markets Served
ESCO Operations
North America
Cedar Park, TX
Durant, OK
Wood Dale, IL
Greenwood Village, CO
Huntley, IL
Marlborough, MA
Minocqua, WI
Oxnard, CA
Raleigh, NC
South El Monte, CA
St. Louis, MO
Valencia, CA
Watertown, MA
South America
São Paulo, Brazil
Europe
Eura, Finland
Glasgow, Scotland
Guildford, England
Luxembourg, Luxembourg
Stevenage, England
Taufkirchen, Germany
Trondheim, Norway
Africa
Pietermaritzburg,
South Africa
Asia
Bangalore, India
Beijing, China
Dubai, UAE
Singapore
Taipei, Taiwan
Tokyo, Japan
Australia
New South Wales,
Australia
defense and industrial markets. TEQ produces
highly engineered thermoformed products and
packaging materials for medical, retail and
electronic applications.
Filtration’s expected growth is driven by several
new platform wins and the continued up-cycle
in the global aerospace industry. Our aerospace
growth opportunities result from the industry’s need
for improved fuel efficiency, appropriate aircraft
utilization and overall fleet modernization, all which
provide PTI and Crissair with a growing revenue base.
Five new contracts were recently awarded to
provide hydraulic systems, components and valve
assemblies for numerous global aerospace customers
supporting new aircraft platforms on a full range of
commercial, regional and business jets.
When in full production, these contracts in the
aggregate are expected to generate approximately
$20 million dollars in revenue annually, with nearly
$300 million in potential new revenues over the
20 year life of the programs. The Airbus A-350 will
be a significant new contributor to the Company’s
future revenues.
In addition to recent sales growth, the 2014 facility
consolidation at Crissair positions it for increased
operating margins in 2015 and beyond.
VACCO’s outlook was enhanced with the recent
Virginia Class submarine contract extension which
extends production for an additional seven years.
While the Space business is expecting short-term
softness in 2015 with the re-set of the SLS program
revenues, the overall Space program continues to
thrive as evidenced by several new awards to produce
proprietary regulators and filters for NASA’s Jet
Propulsion Laboratory aiding the Mars 2020 mission.
TEQ continues to achieve above industry-average
operating margins due to its increased medical
and pharmaceutical packaging content. TEQ was
recently awarded a $30 million, three-year contract
extension to produce a next generation probe cover
for Thermoscan thermometers.
RF SHIELDING & TEST: ETS-Lindgren provides a
variety of test and measurement products and
solutions and shielded enclosures to the wireless,
electronics, aerospace, automotive and healthcare
markets worldwide. The Company’s products are
used in a variety of applications, including testing of
electronics to meet regulatory standards, testing of
wireless devices to improve product performance and
the protection of sensitive equipment and data from
electronic interference.
Test’s expected growth is driven by the global
proliferation of wireless devices, additional electronic
content being developed across a multitude of
industries and applications, additional standards
being developed to maintain the integrity of increased
electronic energy, and entering new market areas
such as electromagnetic pulse (EMP) protection
and machine-to-machine (M2M) communication
protocols being developed with the intent to
create the interconnected Internet of Things.
Our products assist in the advancement of these
new technologies and we are excited about our partici-
pation and the leadership we are providing given our
historical role in advanced technology development.
UTILITY SOLUTIONS: Doble plays a critical role in
enhancing the reliability of the electric grid worldwide
by developing and manufacturing diagnostic testing
equipment and solutions used by over 5,500 customers
around the globe.
Doble products, consulting and testing services,
and its database of electronic apparatus test results
are designed to improve operations, minimize risk,
and optimize electrical power assets and system
performance.
Doble’s expected growth is driven by the introduc-
tion of several new products, solutions and services,
combined with extending its geographic reach into
regions such as the Middle East and South Africa.
Doble is working to develop large service
and solution contracts to support transformative
programs at client sites that combine condition
5
2014 ANNUAL REPORT CAPITAL ALLOCATION
STRATEGY:
CAPITAL ALLOCATION
HISTORY:
40%
35%
60%
65%
Cash Returned to Shareholders
Growth Initiatives
FOUR-YEAR FREE CASH FLOW:
$93.3M
FOUR-YEAR CASH RETURNED
TO SHAREHOLDERS:
$61.1M
From 2011 to 2014, ESCO has a
consistent track record of delivering
value to our shareholders.
FOCUSED
Future.
ESCO has a defined formal Capital Allocation Strategy which is
utilized to enhance shareholder value. The goal of this strategy
is to continue investing in growth, supplemented by prudently
returning cash to shareholders and maintaining reasonable
levels of debt. This strategy includes allocating approximately
40 percent of annual free cash flow to provide cash returns to
shareholders through ongoing dividends and opportunistic
share repurchases. The balance will be used to support growth
initiatives such as research and development, capital spending,
and merger and acquisition initiatives.
6
E S C O T E C H N O L O G I E S I N C .
based monitoring, asset management, consulting
services, and knowledge sharing. Successful examples
of such programs are the recent awards from National
Grid Saudi Arabia and a major electric utility in
Southern California.
Examples of Doble’s new products include
enterprise-wide asset risk management systems
(dobleARMS™) and on-line monitoring platforms
(doblePRIME) that have been introduced to
consolidate and analyze current data sources of
asset condition, putting critical information into the
hands of decision makers. These products support
the industry’s transition towards condition-based
maintenance programs that use on-line monitoring
as the first notification of potential risk, with further
investigation supported by traditional diagnostic tools.
Focused Future
As we look to the future, our businesses today have
a lower cost structure and an enhanced focus on
increasing our returns on invested capital (ROIC).
We remain committed to our heritage of ongoing
performance improvement actions, improving asset
management, and increasing operating margins
as we work toward achieving higher total returns.
Driven by the current up-cycle in the aerospace
industry, coupled with an aging utility infrastructure,
and the proliferation of wireless and other electronic
devices, we are well positioned across a number of
healthy and growing end-markets.
We are essentially debt free, which allows us
to pursue selective acquisitions to supplement our
organic growth. Our acquisition efforts are focused
on technology-driven products and services within
our core businesses. Our targets ideally would have
strong competitive positions in niche markets,
with reasonably predictable revenue streams and
solid profitability.
Our stated goals are to achieve compounded
10 percent revenue growth and 15 percent EPS growth,
with approximately 80 percent of the growth being
organic and the remainder being from acquisitions.
We are committed to returning value to our
shareholders through ongoing dividends and share
repurchases. In 2014, we formalized our capital
allocation strategy by conveying our continued
commitment to investing in growth while prudently
returning cash to shareholders and effectively
managing debt levels.
Over the past year, the composition of the ESCO
board of directors has changed with one long-standing
member retiring, and three new members being
added. The new members further enhance Corporate
Governance and facilitate board refreshment
and director succession, while sharing new and
relevant experiences supplementing our existing
director oversight.
2014 was a transformational year with many
notable successes. We remain positive about our
future as we have meaningful growth opportunities
across all three segments and are well positioned
to execute our multi-segment strategy to achieve
predictable and profitable long-term growth.
Our well-defined operating plan positions ESCO
for long-term success and value creation, both organ-
ically and through acquisitions around our core, all
while maintaining a strong and healthy balance sheet
to invest in growth.
On behalf of our Board of Directors and our
Management team, we would like to sincerely
thank our shareholders and employees for their
unwavering support.
Vic Richey
Chairman,
Chief Executive Officer,
& President
November 26, 2014
Gary Muenster
Executive Vice President
& Chief Financial Officer
7
2014 ANNUAL REPORT Five-Year Financial Summary
(Dollars in millions, except per share amounts)
2014
2013
2012
2011
2010
For years ended September 30:
Net sales
$531.1
490.1
478.7
450.8
350.0
42.6
(42.2)
0.4
31.3
(56.9)
(25.6)
$ 1.61
(1.60)
$ 0.01
$ 1.60
(1.58)
$ 0.02
1.18
(2.15)
(0.97)
1.17
(2.13)
(0.96)
34.8
12.1
46.9
1.30
0.46
1.76
1.29
0.44
1.73
37.1
15.4
52.5
1.39
0.58
1.97
1.38
0.57
1.95
17.5
27.3
44.8
0.66
1.04
1.70
0.65
1.03
1.68
$ 1.65
1.47
1.29
1.38
0.65
SALES
($ in Millions)
600
500
400
300
200
100
USG
Test
Filtration
0
2010 2011 2012 2013 2014
Our 2010-2014 Sales
compound annual growth
rate (CAGR) of 11 percent
is in line with our stated
long term goal of 10 percent
annual growth.
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net earnings (loss)
Earnings (loss) per share:
Basic:
Continuing operations
Discontinued operations
Net earnings (loss)
Diluted:
Continuing operations
Discontinued operations
Net earnings (loss)
Diluted:
Continuing operations – As Adjusted
As of September 30:
Working capital
Total assets
Total debt
Shareholders’ equity
148.9
845.9
40.0
580.2
163.6
1,092.3
172.0
601.7
139.2
1,033.8
115.0
631.3
122.5
1,011.8
125.0
600.7
109.4
974.3
154.0
556.0
EBIT
($ in Millions)
Cash dividends declared per common share
$ 0.32
0.32
0.32
0.32
0.32
See Item 6 of Form 10-K and Notes 2 and 3 to the Consolidated Financial Statements for the definition of Continuing
Operations – As Adjusted and discussion of divestiture and acquisition activity. Beginning in the third quarter of 2013,
Aclara was classified as discontinued operations and assets/liabilities held for sale. Prior period amounts have been
reclassified to conform to the current period presentation.
By The Numbers:
45%
Sales from proprietary
products
30%
International sales
in 2014
40%
Free cash flow used
for dividends and
opportunistic share
repurchases
8
100
80
60
40
20
USG
Test
Filtration
0
2010 2011 2012 2013 2014
Our 2010-2014 EBIT
CAGR of 14 percent is
approaching our stated long
term goal of 15 percent
annual growth.
USG - Utility Solutions Group
Test - RF Shielding & Test
Filtration - Filtration/Fluid Flow
ESCO TECHNOLOGIES INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_______________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2014
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to_____
Commission file number: 1-10596
_______________________
ESCO Technologies Inc.
(Exact name of registrant as specified in its charter)
Missouri
(State or other jurisdiction
of incorporation or organization)
9900A Clayton Road
St. Louis, Missouri
(Address of principal executive offices)
43-1554045
(I.R.S. Employer
Identification No.)
63124-1186
(Zip Code)
Registrant’s telephone number, including area code:
(314) 213-7200
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Name of each exchange
on which registered
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
_______________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form l0-K or any amendment to this Form l0-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
Aggregate market value of the Common Stock held by non-affiliates of the registrant as of the close of trading on
March 31, 2014, the last business day of the registrant’s most recently completed second fiscal quarter:
approximately $911,388,000.*
* Based on the New York Stock Exchange closing price. For purpose of this calculation only,
without determining whether the following are affiliates of the registrant, the registrant has assumed
that (i) its directors and executive officers are affiliates, and (ii) no party who has filed a Schedule
13D or 13G is an affiliate.
Number of shares of Common Stock outstanding at October 31, 2014: 26,314,981.
_______________________
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s Proxy Statement for the registrant’s 2015 Annual Meeting of Shareholders, which the
registrant anticipates first sending to shareholders on or about December 16, 2014 (the “2014 Proxy Statement”), are
incorporated by reference into Part III.
INDEX TO ANNUAL REPORT ON FORM 10-K
FORWARD-LOOKING INFORMATION
PART I
1.
Business
The Company
Discontinued Operations/Assets Held for Sale
Products
Marketing and Sales
Intellectual Property
Backlog
Purchased Components and Raw Materials
Competition
Research and Development
Environmental Matters
Government Contracts
Employees
Financing
Available Information
Executive Officers of the Registrant
1A. Risk Factors
1B. Unresolved Staff Comments
Properties
2.
Legal Proceedings
3.
4. Mine Safety Disclosures
PART II
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Selected Financial Data
6.
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures About Market Risk
8.
9.
9A. Controls and Procedures
9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
10. Directors, Executive Officers and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accounting Fees and Services
PART IV
15. Exhibits, Financial Statement Schedules
SIGNATURES
FINANCIAL INFORMATION
EXHIBITS
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F-1
FORWARD-LOOKING INFORMATION
Statements contained in this Form 10-K 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 are considered “forward-looking statements” within the meaning of the safe harbor
provisions of the Federal securities laws. These include statements about: the effects of uncertainties and
weaknesses in the global economy and changes in the political situation in certain countries; the likelihood of price
increases by suppliers; the effects of increases in the prices of raw materials or disruptions in the supply of certain
products; the adequacy of the Company’s buildings, machinery and equipment; the adequacy of the Company’s
credit facilities and future cash flows; the outcome of litigation, claims and charges; future costs relating to
environmental matters; continued reinvestment of foreign earnings and the resulting U.S. tax liability in the event
such earnings are repatriated; repayment of debt within the next twelve months; the outlook for 2015 and beyond,
including amount and timing of 2015-2017 sales, revenues, sales growth, EPS and EPS – As Adjusted; expectations
for new product development; expectations related to the duration, continuation and timing of certain VACCO and
TEQ programs, and the timing and amount of related products and sales; quarterly weightings of earnings and EPS;
the Company’s ability to increase shareholder value; acquisitions; the Company’s expected effective tax rate;
minimum cash funding required by, expected benefits payable from, and Management’s assumptions about future
events which could affect liability under, the Company’s defined benefit plans and other postretirement benefit
plans; the Company’s exposure to market risk related to interest rates and to foreign currency exchange risk; the
likelihood of future variations in the Company’s assumptions or estimates used in recording the Test and Filtration
segments’ contracts and expected costs at completion under the percentage of completion method; the effect of
certain changes in the Company’s internal controls or in other factors on the effectiveness of its internal controls;
the Company’s estimates and assumptions used in the preparation of its financial statements; cost and estimated
earnings on long-term contracts valuation of inventories; estimates of uncollectible accounts receivable; the risk of
additional goodwill impairment; the Company’s estimates utilized in software revenue recognition and the
amortization of intangible assets; the valuation of deferred tax assets; the amount of NOLs not realizable and the
timing and amount of the reduction of unrecognized tax benefits; the effects of accounting pronouncements; and any
other statements contained herein which are not strictly historical. 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 and speak only as of the date of this Form 10-K,
and the Company undertakes no duty to update the information in this Form 10-K except as may be required by
applicable laws or regulations. 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 herein under “Item 1A, Risk Factors,” and the
following: final agreement on the Aclara working capital adjustment; Aclara’s continuing ability to perform
contracts guaranteed by the Company; the impacts of labor disputes, civil disorder, wars, terrorist activities or
natural disasters on the Company’s operations and those of the Company’s customers and suppliers; the timing and
content of future customer orders; the appropriation and allocation of government funds; the termination for
convenience of government and other customer contracts; the 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; material changes in
the cost of credit; 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 restructuring and consolidation plans.
ii
PART I
Item 1. Business
The Company
The Registrant, ESCO Technologies Inc. (“ESCO”), is a producer of engineered products and systems sold to
customers worldwide, primarily for utility, industrial, aerospace and commercial applications. ESCO conducts its
business through a number of wholly-owned direct and indirect subsidiaries. ESCO and its subsidiaries are referred
to in this Report as “the Company.”
ESCO was incorporated in Missouri in August 1990 as a wholly owned subsidiary of Emerson Electric Co.
(“Emerson”) to be the indirect holding company for several Emerson subsidiaries, which were primarily in the
defense business. Ownership of the Company was spun off by Emerson to its shareholders on October 19, 1990,
through a special distribution. Since that time, through a series of acquisitions and divestitures, the Company has
shifted its primary focus from defense contracting to the production and supply of engineered products and systems
marketed to utility, industrial, aerospace and commercial users.
The Company conducts its business in three operating segments. These segments, together with the significant
domestic and foreign operating subsidiaries within each segment, are as follows:
Filtration/Fluid Flow (“Filtration”):
Crissair, Inc. (“Crissair”)
PTI Technologies Inc. (“PTI”)
Thermoform Engineered Quality LLC (“TEQ”)
VACCO Industries (“VACCO”)
Canyon Engineering Products, Inc. (“Canyon”), formerly a part of this segment, was merged into Crissair
on January 1, 2014.
RF Shielding and Test (“Test”):
Beijing Lindgren ElectronMagnetic Technology Co., Ltd.
ETS-Lindgren GmbH (name changed from EMV Elektronische Messgeräte Vertriebs-GmbH in 2013)
ETS Lindgren Engineering India Pvt. Ltd.
ETS-Lindgren Inc. (“ETS-Lindgren”) (successor to ETS-Lindgren, L.P. and formerly known as Lindgren
R.F. Enclosures, Inc. – see below)
ETS Lindgren Japan, Inc.
ETS Lindgren Limited
ETS-Lindgren OY
The Test segment entities listed above are sometimes collectively referred to herein as “ETS-Lindgren.”
Utility Solutions Group (“USG”):
Doble Engineering Company
Doble PowerTest Ltd.
Doble TransiNor AS
The Doble entities listed above are sometimes collectively referred to herein as “Doble.”
Aclara Technologies LLC, formerly a part of this segment, was characterized as discontinued operations
and/or assets held for sale beginning in the third quarter of fiscal 2013, and was divested in the second
quarter of fiscal 2014. See the discussion in the next section, “Discontinued Operations/Assets Held for
Sale,” and in Note 2 of the Notes to Consolidated Financial Statements included herein.
The Company’s operating subsidiaries are engaged primarily in the research, development, manufacture, sale and
support of the products and systems described below. Their respective businesses are subject to a number of risks
and uncertainties, including without limitation those discussed in Item 1A, “Risk Factors.” See also Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Forward-Looking
Information” herein.
ESCO is continually seeking ways to save costs, streamline its business processes and enhance the branding of its
products and services. On October 1, 2012 the Company consolidated its two domestic Test segment operating
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companies by merging ETS-Lindgren, L.P. into Lindgren R.F. Enclosures Inc., which was renamed ETS-Lindgren
Inc., and during fiscal 2013 it also consolidated the Test segment’s four domestic manufacturing facilities into three,
closing the facility in Glendale Heights, Illinois. On April 17, 2013, the Company announced plans to close its
Doble Lemke manufacturing operation in Germany and relocate the manufacture of its Partial Discharge products to
existing lower-cost locations in Europe; this closure was substantially completed by the end of fiscal 2013. On
January 1, 2014 the Company merged Canyon into Crissair and during fiscal 2014 the Company substantially
completed the consolidation of Crissair’s operations into Canyon’s facility in Valencia, California.
ESCO is also continually seeking opportunities to supplement its growth by making strategic acquisitions.
Information about the Company’s acquisitions during fiscal 2013 is provided in Note 3 of the Notes to Consolidated
Financial Statements included herein; the Company did not make any acquisitions during fiscal 2014.
Discontinued Operations/Assets Held for Sale
During the third quarter of fiscal 2013, the Company’s Board of Directors approved the initiation of a process to sell
that portion of the Company’s USG segment represented by Aclara Technologies LLC and two related entities
(together, “Aclara”). The sale of Aclara was completed on March 28, 2014.
Prior to the sale Aclara constituted a component of the Company with operations and cash flows that were clearly
distinguishable, operationally and for financial reporting purposes, from the rest of the entity, and Aclara’s assets
and liabilities constituted a disposal group to be classified as held for sale. Accordingly, for financial reporting
purposes Aclara is reflected as discontinued operations and/or assets/liabilities held for sale for all periods presented
in this report; and the Company’s financial statements for prior periods have been appropriately restated. Unless
otherwise specifically stated, all operating results presented in this report are exclusive of discontinued operations.
Products
The Company’s principal products are described below. See Note 15 of the Notes to Consolidated Financial
Statements included herein, for financial information regarding business segments and 10% customers.
Filtration
The Filtration segment accounted for approximately 44%, 44% and 41% of the Company’s total revenue in fiscal
years 2014, 2013 and 2012, respectively.
PTI is a leading supplier of filtration and fluid control products serving the commercial aerospace, military
aerospace and various industrial markets. Products include filter elements, manifolds, assemblies, modules,
indicators and other related components. All products must meet stringent qualification requirements and withstand
severe operating conditions. Product applications include: hydraulic, fuel, cooling and air filtration systems for fixed
wing and rotary aircraft, mobile transportation and construction equipment, aircraft engines and stationary plant
equipment. PTI supplies products worldwide to original equipment manufacturers and the U.S. government under
long term contracts, and to the commercial and military aftermarket through distribution channels.
VACCO supplies filtration and fluid control products including valves, manifolds, filters, regulators and various
other components for use in the space, military aerospace, defense missile systems, U.S. Navy and commercial
industries. Applications include aircraft fuel and de-icing systems, missiles, satellite propulsion systems, satellite
launch vehicles and other space transportation systems such as the Space Launch System. VACCO also utilizes its
multi-fab technology and capabilities to produce products for use in space and U.S. Navy applications.
Crissair supplies a wide variety of custom and standard valves, actuators, manifolds and other various components
to the aerospace, defense, automotive and commercial industries. Product applications include hydraulic, fuel and
air filtration systems for commercial and military fixed wing and rotary aircraft, defense missile systems and
commercial engines. Crissair supplies products worldwide to original equipment manufacturers and to the U.S.
Government under long term contracts and to the commercial aftermarket through distribution channels.
TEQ produces highly engineered thermoformed products and packaging materials for medical, pharmaceutical,
retail, food and electronic applications. Through its alliance partner program, TEQ also provides its clients with a
total packaging solution including engineering services and testing, sealing equipment and tooling, contract
manufacturing, and packing.
2
Test
The Test segment accounted for approximately 34%, 34% and 37% of the Company’s total revenue in fiscal years
2014, 2013 and 2012, respectively.
ETS-Lindgren designs and manufactures products to measure and contain magnetic, electromagnetic and acoustic
energy. It supplies customers with a broad range of isolated environments and turnkey systems, including RF test
facilities, acoustic test enclosures, RF and magnetically shielded rooms, secure communication facilities, RF
measurement systems and broadcast and recording studios. Many of these facilities include proprietary features such
as shielded doors and windows. ETS-Lindgren also provides the design, program management, installation and
integration services required to successfully complete these types of facilities.
ETS-Lindgren also supplies customers with a broad range of components including RF absorptive materials, RF
filters, active compensation systems, antennas, antenna masts, turntables and electric and magnetic probes, RF test
cells, proprietary measurement software and other test accessories required to perform a variety of tests.
ETS-Lindgren offers a variety of services including calibration for antennas and field probes, chamber certification,
field surveys, customer training and a variety of product tests. ETS-Lindgren’s test labs are accredited by the
following organizations: American Association for Laboratory Accreditation, National Voluntary Laboratory
Accreditation Program and CTIA-The Wireless Association Accredited Test Lab. ETS-Lindgren serves the
acoustics, medical, health and safety, electronics, wireless communications, automotive and defense markets.
USG
Revenue from Doble’s various products and services accounted for approximately 22%, 22% and 23% of the
Company’s total revenue in fiscal years 2014, 2013 and 2012, respectively.
Doble develops, manufactures, and delivers diagnostic testing solutions for electrical equipment comprising the
electric power grid, and enterprise management systems, that are designed to optimize electrical power assets and
system performance, minimize risk and improve operations. It combines three core elements for customers –
diagnostic test and monitoring instruments, expert consulting, and testing services – and provides access to its large
reserve of related empirical knowledge. Doble flagship solutions include protection diagnostics with the Doble
Protection Suite and F6000 series, the M4100 and new transformational patent-pending technology of the M7100
Doble Tester, and the recently announced dobleARMS™ asset risk management system solutions.
Doble has been operating for over 90 years, and serves over 5,500 companies in over 110 countries. It has six
offices in the United States and nine international offices.
Marketing and Sales
The Filtration and Test segments’ products, as well as Doble’s products, generally are distributed to customers
through a domestic and foreign network of distributors, sales representatives, direct sales teams and in-house sales
personnel.
The Company’s international sales accounted for approximately $157 million (30%), $154 million (31%) and $162
million (34%) of the Company’s total revenue in fiscal years 2014, 2013 and 2012, respectively. See Note 15 of the
Notes to Consolidated Financial Statements included herein for financial information regarding geographic areas.
See also Item 1A, “Risk Factors,” for a discussion of risks of the Company’s international operations.
Some of the Company’s products are sold directly or indirectly to the U.S. Government under contracts with the
Army, Navy and Air Force and subcontracts with prime contractors of such entities. Direct and indirect sales to the
U.S. Government, primarily related to the Filtration segment, accounted for approximately 19%, 20% and 13% of
the Company’s total revenue in fiscal years 2014, 2013 and 2012, respectively.
Intellectual Property
The Company owns or has other rights in various forms of intellectual property (i.e., patents, trademarks, service
marks, copyrights, mask works, trade secrets and other items). As a major supplier of engineered products to
industrial and commercial markets, the Company emphasizes developing intellectual property and protecting its
rights therein. However, the scope of protection afforded by intellectual property rights, including those of the
Company, is often uncertain and involves complex legal and factual issues. Some intellectual property rights, such
as patents, have only a limited term. Also, there can be no assurance that third parties will not infringe or design
around the Company’s intellectual property. Policing unauthorized use of intellectual property is difficult, and
3
infringement and misappropriation are persistent problems for many companies, particularly in some international
markets. In addition, the Company may not elect to pursue an unauthorized user due to the high costs and
uncertainties associated with litigation. Further, there can be no assurance that courts will ultimately hold issued
patents or other intellectual property valid and enforceable. See Item 1A, “Risk Factors.”
A number of products in the Filtration segment are based on patented or otherwise proprietary technology that sets
them apart from the competition. VACCO’s proprietary quieting technology, which it protects as trade secrets, is a
significant differentiator for products supplied to the U.S. Navy submarine fleet.
In the Test segment, patent protection has been sought for significant inventions. Examples of such inventions
include novel designs for window and door assemblies used in shielded enclosures and anechoic chambers,
improved acoustic techniques for sound isolation and a variety of unique antennas. In addition, the Test segment
holds a number of patents, and has patents pending, on products used to perform wireless device testing.
In the USG segment, the segment policy is to seek patent and/or other forms of intellectual property protection on
new and improved products, components of products and methods of operation for its businesses, as such
developments are made. Doble is pursuing patent protection on improvements to its line of diagnostic equipment.
Doble also holds an extensive library of apparatus performance information useful to Doble employees and to
entities that generate, distribute or consume electric energy. Doble makes part of this library available to registered
users via an Internet portal.
The Company considers its patents and other intellectual property to be of significant value in each of its segments.
Backlog
Total Company backlog of firm orders from continuing operations at September 30, 2014 was $302.9 million,
representing an increase of $30.8 million (11%) from the beginning of the fiscal year backlog of $272.1 million. The
backlog at September 30, 2014 and September 30, 2013, respectively, was: $179.1 million and $157.7 million for
Filtration; $90.7 million and $90.4 million for Test; and $33.1 million and $24.0 million for USG. As of September
30, 2014, it is estimated that domestic customers accounted for approximately 70% of the Company’s total firm
orders, and international customers accounted for approximately 30%. Of the total Company backlog at September
30, 2014, approximately 79% is expected to be completed in the fiscal year ending September 30, 2015.
Purchased Components and Raw Materials
The Company’s products require a wide variety of components and materials. Although the Company has multiple
sources of supply for most of its materials requirements, certain components and raw materials are supplied by sole
source vendors, and the Company’s ability to perform certain contracts depends on their performance. In the past,
these required raw materials and various purchased components generally have been available in sufficient
quantities. However, The Company does have some risk of shortages of materials or components due to reliance on
sole or limited sources of supply. See Item 1A, “Risk Factors.”
The Filtration segment purchases supplies from a wide array of vendors. In most instances, multiple vendors of raw
materials are screened during a qualification process to ensure that there will not be an interruption of supply should
one of them discontinue operations. Nonetheless, in some situations, there is a risk of shortages due to reliance on a
limited number of suppliers or because of price fluctuations due to the nature of the raw materials. For example,
aerospace-grade titanium and gaseous helium, important raw materials for our Filtration segment subsidiaries, may
at times be in short supply.
The Test segment is a vertically integrated supplier of electro-magnetic (“EM”) shielding and RF absorbing
products, producing most of its critical RF components. This segment purchases significant quantities of raw
materials such as polyurethane foam, polystyrene beads, steel, aluminum, copper, nickel and wood. Accordingly, it
is subject to price fluctuations in the worldwide raw materials markets, although ETS-Lindgren has long-term
contracts with a number of its suppliers of certain raw materials.
Competition
Competition in the Company’s major markets is broadly based and global in scope. The Company faces intense
competition from a large number of companies for nearly all of its products. Competition can be particularly intense
during periods of economic slowdown, and this has been experienced in some of our markets. Although the
Company is a leading supplier in several of the markets it serves, it maintains a relatively small share of the business
4
in many of the other markets it serves. Individual competitors range in size from annual revenues of less than $1
million to billion-dollar enterprises. Because of the specialized nature of the Company’s products, its competitive
position with respect to its products cannot be precisely stated. In the Company’s major served markets, competition
is driven primarily by quality, technology, price and delivery performance. See Item 1A, “Risk Factors.”
Primary competitors of the Filtration segment include Pall Corporation, Moog, Inc., Sofrance, CLARCOR Inc. and
PneuDraulics.
The Test segment is a global leader in the EM shielding market. Significant competitors in this served market
include Rohde & Schwarz GMBH, Microwave Vision SA (MVG), TDK RF Solutions Inc., Albatross GmbH,
IMEDCO AG and Cuming Corporation.
OMICRON electronics Corp. USA has for some time been a primary competitor of Doble in the international
market, and has increased competition in the North America market. OMICRON has the ability to heavily fund
research and development. In addition, Megger Group Limited and Qualitrol (a subsidiary of Danaher Group) are
significant diagnostic test equipment competitors to Doble.
Research and Development
Research and development and the Company’s technological expertise are important factors in the Company’s
business. Research and development programs are designed to develop technology for new products or to extend or
upgrade the capability of existing products, and to enhance their commercial potential. The Company performs
research and development at its own expense, and also engages in research and development funded by customers.
Total Company-sponsored research and development expenses were approximately $16.9 million, $12.7 million and
$14.3 million for fiscal years 2014, 2013 and 2012, respectively. Total customer-sponsored research and
development expenses were approximately $11.6 million, $15.0 million and $9.2 million for fiscal years 2014, 2013
and 2012, respectively. All of the foregoing expense amounts exclude certain engineering costs primarily associated
with product line extensions, modifications and maintenance, which amounted to approximately $12.5 million, $7.7
million and $12.2 million for fiscal years 2014, 2013 and 2012, respectively.
Environmental Matters
The Company is involved in various stages of investigation and cleanup relating to environmental matters. It is very
difficult to estimate the potential costs of such matters and the possible impact of these costs on the Company at this
time due in part to: the uncertainty regarding the extent of pollution; the complexity of Government laws and
regulations and their interpretations; the varying costs and effectiveness of alternative cleanup technologies and
methods; the uncertain level of insurance or other types of cost recovery; the uncertain level of the Company’s
responsibility for any contamination; the possibility of joint and several liability with other contributors under
applicable law; and the ability of other contributors to make required contributions toward cleanup costs. Based on
information currently available, the Company does not believe that the aggregate costs involved in the resolution of
any of its environmental matters will have a material adverse effect on the Company’s financial condition or results
of operations.
Government Contracts
The Company contracts with the U.S. Government and subcontracts with prime contractors of the U.S. Government.
Although VACCO has a number of “cost-plus” Government contracts, the Company’s Government contracts also
include firm fixed-price contracts under which work is performed and paid for at a fixed amount without adjustment
for the actual costs experienced in connection with the contracts. Under these fixed-price contracts, unless the
customer actually or constructively alters or impedes the work performed, all risk of loss due to cost overruns is
borne by the Company. All Government prime contracts and virtually all of the Company’s Government
subcontracts provide that they may be terminated at the convenience of the Government or the customer. Upon such
termination, the Company is normally entitled to receive equitable compensation from the customer. See
“Marketing and Sales” in this Item 1, and Item 1A, “Risk Factors,” for additional information regarding Government
contracts and related risks.
Employees
As of September 30, 2014, the Company employed approximately 2,103 persons.
5
Financing
For information about the Company’s credit facility, see Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Bank Credit Facility,” and Note 9 of the Notes to Consolidated
Financial Statements included herein, which are incorporated into this Item by reference.
Available Information
The Company makes available free of charge on or through its Internet website, www.escotechnologies.com, its
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, as soon as reasonably practicable after such material is electronically filed with or furnished to the
Securities and Exchange Commission.
Executive Officers of the Registrant
The following sets forth certain information as of November 1, 2014 with respect to the Company’s executive
officers. These officers are elected annually to terms which expire at the first meeting of the Board of Directors
after the next Annual Meeting of Stockholders.
Name
Victor L. Richey
Gary E. Muenster
Alyson S. Barclay
____________
Age
Position(s)
57
54
Chairman of the Board of Directors and Chief Executive Officer since April 2003;
President since October 2006 *
Executive Vice President and Chief Financial Officer since February 2008;
Director since February 2011
55
Senior Vice President, Secretary and General Counsel since November 2008
* Mr. Richey also serves as Chairman of the Executive Committee of the Board of Directors.
There are no family relationships among any of the executive officers and directors.
Item 1A. Risk Factors
This Form 10-K, including Item 1, “Business,” Item 2, “Properties,” Item 3, “Legal Proceedings,” Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 7A,
“Quantitative and Qualitative Disclosures About Market Risk,” contains “forward-looking statements” within the
meaning of the safe harbor provisions of the federal securities laws, as described under “Forward-Looking
Statements” above.
In addition to the risks and uncertainties discussed in that section and elsewhere in this Form 10-K, the following
important risk factors could cause actual results and events to differ materially from those contained in any forward-
looking statements, or could otherwise adversely affect the Company’s business, operating results or financial
condition:
Our sales of products to the Government depend upon continued Government funding.
During the past three fiscal years, from 13% to 20% of our revenues from continuing operations have been
generated from sales to the U.S. Government or its contractors. These sales are dependent on government funding
of the underlying programs. There could be reductions or terminations of, or delays in, the government funding on
programs which apply to us or our customers. These funding effects could adversely affect our sales and profit, and
could bring about a restructuring of our operations, which could result in an adverse effect on our financial condition
or results of operations.
For example, a significant part of VACCO’s sales involve major U.S. Government space programs. A reduction or
delay in Government spending on these programs could have a significant adverse impact on our financial results.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – 2015 and
Three Year Outlook,” below.
6
Negative worldwide economic conditions and related credit shortages could result in a decrease in our sales
and an increase in our operating costs, which could adversely affect our business and operating results.
If there is a worsening of global and U.S. economic and financial market conditions and additional tightening of
global credit markets, as experienced in certain European countries, many of our customers may further delay or
reduce their purchases of our products. Uncertainties in the global economy may cause the utility industry to
experience shortages in available credit, which could limit capital spending. To the extent this problem affects
customers of our USG segment, the sales and profits of this segment could be adversely affected. Likewise, if our
suppliers face challenges in obtaining credit, they may have to increase their prices or become unable to continue to
offer the products and services we use to manufacture our products, which could have an adverse effect on our
business, results of operations and financial condition.
Economic, political and other risks of our international operations could adversely affect our business.
In fiscal 2014, approximately 30% of our sales from continuing operations were made to international customers.
An economic downturn or an adverse change in the political situation in certain foreign countries in which we do
business could cause a decline in revenues and adversely affect our financial condition. For example, our Test
segment does significant business in Asia and Europe. Changes in the Asian political climate or political changes in
specific Asian countries could negatively affect our business. Weakness in the European economy could have a
significant adverse effect on our European revenues. For example, several Doble and ETS-Lindgren companies are
based in Europe, and could be negatively impacted by weakness in the European economy. In addition, political
unrest, wars and terrorism, such as the current situation in the Middle East, could adversely affect our business.
The U.S. International Traffic in Arms Regulations (“ITAR”), which impose certain restrictions on the U.S. export
of defense articles and services, may be viewed as too restrictive by our international customers, who may develop
their own domestic products or elect to procure products from other international suppliers which are not subject to
such export restrictions. In addition, the laws, regulations or policies of certain other countries may favor domestic
suppliers over foreign suppliers such as the Company.
Our international sales are also subject to other risks inherent in foreign commerce, including currency fluctuations
and devaluations, differences in foreign laws, uncertainties as to enforcement of contract rights, and difficulties in
negotiating and resolving disputes with our foreign customers.
The Company has guaranteed certain Aclara contracts.
In connection with the sale of Aclara, the Company agreed to remain a guarantor of Aclara’s performance of certain
Aclara contracts. If Aclara were to fail to perform any of these guaranteed contracts, the other party to the contract
could seek damages resulting from the non-performance from the Company, and such damages could have an
adverse effect on our business, operating results or financial condition. If the Company did become liable for these
damages, it would be entitled to seek indemnification from Aclara, although its ability to recover would be subject
to Aclara’s financial position at that time.
Much of our competition is broadly based and global in scope.
We face competition from a large number of manufacturers and distributors for nearly all of our products. Some of
our competitors are larger, more diversified corporations, global in scope, with greater financial, marketing,
production and research and development resources. If we cannot compete successfully against current or future
competitors, it could have a material adverse effect on our business, financial condition and results of operations.
See Item 1, “Business – Competition” for further discussion of these factors.
A significant part of our manufacturing operations depends on a small number of third-party suppliers.
A significant part of our manufacturing operations relies on a small number of third-party manufacturers to supply
the segment’s products. For example, Doble has arrangements with four manufacturers which produce and supply
substantially all of its end-products. One of these suppliers produces approximately 90% of Doble’s products from
two locations within the United States. A significant disruption in the supply of those products could negatively
affect the timely delivery of products to customers as well as future sales, increasing costs and reducing margins.
Certain of our other businesses are dependent upon sole source or a limited number of third-party manufacturers of
parts and components. Many of these suppliers are small businesses. Since alternative supply sources are limited,
7
there is an increased risk of adverse impacts on our production schedules and profits if our suppliers were to default
in fulfilling their price, quality or delivery obligations.
Increases in prices of raw material and components, and decreased availability of such items, could
adversely affect our business.
The cost of raw materials and product components is a major element of the total cost of many of our products. For
example, our Test segment’s critical components rely on purchases of raw materials from third parties. Increases in
the prices of raw materials (such as steel, copper, nickel, zinc, wood and petrochemical products) could have an
adverse impact on our business by, among other things, increasing costs and reducing margins. In the Filtration
segment, aerospace-grade titanium and gaseous helium, important raw materials for VACCO, Crissair and PTI, may
at times be in short supply. Further, many of Doble’s items of equipment which are provided to its customers for
their use are in the maturity of their life cycles, which creates the risk that replacement components may be
unavailable or available only at increased costs.
In addition, our reliance on sole or limited sources of supply of raw materials and components in each of our
segments could adversely affect our business. Weather-created disruptions in supply, in addition to affecting costs,
could impact our ability to procure an adequate supply of these raw materials and components, and delay or prevent
deliveries of products to our customers.
Our quarterly results may fluctuate substantially.
We have experienced variability in quarterly results and believe our quarterly results will continue to fluctuate as a
result of many factors, including the size and timing of customer orders, governmental actions, changes in existing
taxation rules or practices, the gain or loss of significant customers, timing and levels of new product developments,
shifts in product or sales channel mix, increased competition and pricing pressure, and general economic conditions.
Failure or delay in new product development could reduce our future sales.
Much of our business is dependent on the continuous development of new products and technologies to meet the
changing needs of our markets on a cost-effective basis. Many of these markets are highly technical from an
engineering standpoint, and the relevant technologies are subject to rapid change.
If we fail to timely enhance existing products or develop new products, sales opportunities could be lost, which
would adversely affect our business. In addition, in some existing contracts with customers, we have made
commitments to develop and deliver new products. If we fail to meet these commitments, the default could result in
the imposition on us of contractual penalties including termination. Our inability to enhance existing products in a
timely manner could make our products less competitive, while our inability to successfully develop new products
may limit our growth opportunities. Delays in product development may also require greater investment in research
and development. Increased costs associated with new product development and product enhancements could
adversely affect our operating results. Our costs of new product development may not be recoverable if demand for
our products is not as anticipated.
Despite our efforts, we may be unable to adequately protect our intellectual property.
Despite our efforts to protect our intellectual property, unauthorized parties or competitors may copy or otherwise
obtain and use our products and technology, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. Current and future actions to enforce our proprietary rights may
result in substantial costs and diversion of our resources, and may not be successful. In addition, we may not elect
to pursue an unauthorized user due to the high costs and uncertainties associated with litigation. We may also face
exposure to claims by others challenging our intellectual property rights.
Inventory obsolescence could require a charge against our earnings.
We maintain significant inventories of raw materials, components and finished goods deemed necessary to satisfy
existing and future customer requirements. If our customers were to change, reduce or eliminate these requirements,
or if product technology were to change significantly, certain of our inventories could become obsolete, which
would require a charge against our earnings.
8
Changes in testing standards could adversely impact our Test and USG segments’ sales.
A significant portion of the business of our Test and USG segments involves sales to technology customers, which
result from these customers needing to meet specific international and domestic test standards. If demand for
product testing from these customers decreases, our business could be adversely affected. Likewise, if regulatory
agencies eliminate or reduce certain domestic or international test standards, our sales could be adversely affected.
For example, if Wi-Fi technology in mobile phones were to be superseded by a new communications technology,
then there might be no need for certain testing on mobile phones. Also, if a regulatory authority were to relax the
test standards for certain electronic devices because they were determined not to interfere with the broadcast
spectrum, our sales of certain products could be reduced.
Disputes with contractors could adversely affect our Test segment’s costs.
A major portion of our Test segment’s business involves working in conjunction with general contractors to produce
end-products, such as electronic test chambers, secure communication rooms, MRI facilities, etc. If there are
performance problems caused by either us or a contractor, they often result in cost overruns and may lead to a
dispute as to which party is responsible. The resolution of such disputes can involve arbitration or litigation, and
could cause us to incur significant expense including attorneys’ fees. In addition, these disputes may result in a
reduction in revenue, a loss on a particular project, or even a significant damages award against us.
The end of customer product life cycles could negatively affect our Filtration segment’s results.
Many of our Filtration segment products are sold to be components in our customers’ end-products. If a customer
discontinues a certain end-product line, our ability to continue to sell those components will be reduced or
eliminated. The result could be a significant decrease in our sales.
For example, a substantial portion of PTI’s revenue is generated from commercial aviation aftermarket sales. As
certain aircraft are retired and replaced by newer aircraft, there could be a corresponding decrease in sales associated
with our current products. Such a decrease could adversely affect our operating results. In addition, if the
Government cuts back the space program (for example, the Space Launch System), VACCO’s sales of space
products would be reduced, and its revenues could be adversely affected.
Product defects could result in costly fixes, litigation and damages.
If there are claims related to defective products (under warranty or otherwise), particularly in a product recall
situation, we could be faced with significant expenses in replacing or repairing the product. For example, the
Filtration segment obtains raw materials, machined parts and other product components from suppliers who provide
certifications of quality which we rely on. Should these product components be defective and pass undetected into
finished products, or should a finished product contain a defect, we could incur significant costs for repairs, re-work
and/or removal and replacement of the defective product.
In addition, if a dispute over product claims cannot be settled, arbitration or litigation may result, requiring us to
incur attorneys’ fees and exposing us to the potential of damage awards against us.
Environmental or regulatory requirements could increase our expenses and adversely affect our profitability.
Our operations and properties are subject to U.S. and foreign environmental laws and regulations governing, among
other things, the generation, storage, emission, discharge, transportation, treatment and disposal of hazardous
materials and the clean-up of contaminated properties. These regulations, and changes to them, could increase our
cost of compliance, and our failure to comply could result in the imposition of significant fines, suspension of
production, alteration of product processes, cessation of operations or other actions which could materially and
adversely affect our business, financial condition and results of operations.
We are currently involved as a responsible party in several ongoing investigations and remediations of contaminated
third-party owned properties. In addition, environmental contamination may be discovered in the future on
properties which we formerly owned or operated and for which we could be legally responsible. Future costs
associated with these situations, including those currently unknown to us, are difficult to quantify but could have a
significant effect on our financial condition. See Item 1, “Business – Environmental Matters” for a discussion of
these factors.
9
The loss of specialized key employees could affect our performance and revenues.
There is a risk of our losing key employees having engineering and technical expertise to other employers. For
example, our USG segment relies heavily on engineers with significant experience and reputation in the utility
industry to furnish expert consulting services and support to customers. There is a current trend of a shortage of
these qualified engineers because of hiring competition from other companies in the industry. Loss of these
employees to other employers could reduce the segment’s ability to provide services and negatively affect our
revenues.
Our acquisitions of other companies carry risk.
We have acquired other companies in the past and expect to continue to do so in the future if favorable opportunities
arise. Acquisitions of other companies involve numerous risks, including difficulties in the integration of the
operations, technologies and products of the acquired companies, the potential exposure to unanticipated and
undisclosed liabilities, the potential that expected benefits or synergies are not realized and that operating costs
increase, the potential loss of key personnel, suppliers or customers of acquired businesses and the diversion of
Management’s time and attention from other business concerns. Although we will attempt to identify and evaluate
the risks inherent in any future transaction, we may not properly ascertain or mitigate all such risks, and our failure
to do so could have a material adverse effect on our business.
We may incur significant costs, experience short term inefficiencies, or be unable to realize expected long
term savings from our planned facility consolidations and other business reorganizations.
We periodically assess the cost and operational structure of our facilities in order to manufacture and sell our
products in the most efficient manner. Based on our assessments, we determined to relocate and consolidate
Crissair’s operations from a leased facility in Palmdale, California into Canyon’s owned facility in Valencia,
California. Although the relocation was completed as of September 30, 2014, completion of the consolidation, as
well as any future facility reorganizations which we may undertake, may require us to incur significant costs and
may result in short term business inefficiencies as we consolidate and close facilities and transition our employees.
In addition, we may not achieve the expected long term benefits from these consolidations. Any or all of these
factors could result in an adverse impact on our operating results, cash flows and financial condition.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
The Company believes its buildings, machinery and equipment have been generally well maintained, are in good
operating condition and are adequate for the Company’s current production requirements and other needs.
The Company’s principal properties comprise approximately 1,004,200 square feet of floor space, as described in
the table below, of which approximately 760,500 square feet are owned and approximately 243,700 square feet are
leased. Leased facilities of less than 10,000 square feet are not included. See also Note 7 to the Consolidated
Financial Statements included herein.
10
Location
Oxnard, CA
Approximate
Size (Sq. Ft.)
127,400
Owned/
Leased
Owned
If Leased,
Expiration Date
Cedar Park, TX
118,000
Owned
South El Monte, CA
100,100
Owned
Durant, OK
Huntley, IL
100,000
85,000
Owned
Owned
Watertown, MA
78,500
Owned
Valencia, CA
79,300
Owned
South El Monte, CA
43,700
Leased
6/30/2016
Eura, Finland
40,900
Owned
Beijing, China
39,100
Leased
Various, from
Palmdale, CA *
38,000
Leased
12/2014 to 12/2016
7/31/2015 (five 1-year
renewal options)
Minocqua, WI
South El Monte, CA
31,300
20,400
Owned
Leased
6/30/2016
St. Louis, MO
21,500
Leased
Taufkirchen, Germany
Stevenage, England
13,700
12,200
Leased
Leased
8/31/2020 (two 5-year
renewal options)
12/1/2015
6/2017
Principal Use(s) and
(Operating Segment)
Management, Engineering &
Manufacturing (Filtration)
Management, Engineering &
Manufacturing (Test)
Management, Engineering &
Manufacturing (Filtration)
Manufacturing (Test)
Management & Manufacturing
(Filtration)
Management, Engineering &
Manufacturing (USG)
Management, Engineering &
Manufacturing (Filtration)
Management, Engineering &
Manufacturing (Filtration)
Management, Engineering &
Manufacturing (Test)
Manufacturing (Test)
Management, Engineering &
Manufacturing (Filtration)
Engineering & Manufacturing (Test)
Management & Engineering
(Filtration)
ESCO Corporate Headquarters
Management & Engineering (Test)
Management, Engineering &
Manufacturing (Test)
Huntley, IL
11,500
Leased
8/31/2015
Management & Manufacturing
(Filtration)
Marlborough, MA
11,200
Leased
6/30/2020
Management & Engineering (USG)
Wood Dale, IL
Bangalore, India
10,700
10,100
Leased
Leased
2/28/2019
Various, from
Management & Engineering (Test)
Management & Engineering
4/2015 to 6/2019
Warehouse (Test)
* This facility was vacated at the end of fiscal 2014.
Item 3. Legal Proceedings
As a normal incident of the businesses in which the Company is engaged, various claims, charges and litigation are
asserted or commenced from time to time 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 for, are covered by insurance, or are not likely to have a
material adverse effect on the Company’s financial condition or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
11
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Price Range Of Common Stock. The Company’s common stock is 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 in
the last two fiscal years.
Quarter
First
Second
Third
Fourth
$
2014
High
37.16
37.39
35.60
36.70
Low
32.18 $
32.44
32.21
32.77
2013
High
39.31
42.42
41.31
35.70
Low
34.00
37.85
31.20
30.25
Holders of Record. As of October 31, 2014 there were approximately 1,997 holders of record of the Company’s
common stock.
Dividends. For information about dividends paid on the common stock in the last two fiscal years, please refer to
Note 17 to the Company’s Consolidated Financial Statements included herein.
Company Purchases of Equity Securities.
During the fourth quarter of fiscal 2014 the Company repurchased the following shares of its Common Stock:
Total Number of
Shares
Purchased
147,351
33,771
63,521
244,643
Average Price
Paid per
Share
$33.91
$33.92
$34.95
$34.18
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs*
147,351
33,771
63,521
244,643
Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the Plans
or Programs*
$76.3 Million
$75.1 Million
$72.9 Million
$72.9 Million
Period
July 1-31, 2014
August 1-31, 2014
September 1-30, 2014
Total
__________________
* On August 8, 2012, the Company’s Board of Directors authorized a common stock repurchase program (the “2012
Program”), which was announced on August 9, 2012. Under the 2012 Program, the Company may repurchase shares
of its stock from time to time in its discretion, in the open market or otherwise, up to a maximum total repurchase
amount equal to $100 million (or such lesser amount as may be permitted under the Company’s bank credit
agreements). The 2012 Program has twice been extended by the Board and is currently scheduled to expire
September 30, 2015. There currently is no repurchase program which the Company has determined to terminate prior
to the program’s expiration, or under which the Company does not intend to make further purchases.
Securities Authorized for Issuance Under Equity Compensation Plans. For information about securities
authorized for issuance under the Company’s equity compensation plans, please refer to Item 12 of this Form 10-K
and to Note 11 to the Company’s Consolidated Financial Statements included herein.
Performance Graph. The graph and table below present a comparison of the cumulative total shareholder return on
the Company’s common stock as measured against the Russell 2000 index and two customized peer groups whose
individual component companies are listed below. The Company changed the composition of the peer group in
2014, so the peer group used for the corresponding disclosures in 2013 is also shown for comparison. The Company
is not a component of either the 2014 peer group or the 2013 peer group, but it is a component of the Russell 2000
Index. The measurement period begins on September 30, 2009 and measures at each September 30 thereafter.
These figures assume that all dividends, if any, paid over the measurement period were reinvested, and that the
starting values of each index and the investments in the Company’s common stock were $100 at the close of trading
on September 30, 2009.
12
$250
$200
$150
$100
$50
$0
9/09
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among ESCO Technologies Inc., the Russell 2000 Index,
2013 Peer Group and 2014 Peer Group
9/10
9/11
9/12
9/13
9/14
ESCO Technologies Inc.
2013 Peer Group
Russell 2000
2014 Peer Group
Russell 2000 Index information Copyright© 2014 Russell Investment Group. All rights reserved.
ESCO Technologies Inc.
Russell 2000
2013 Peer Group
2014 Peer Group
9/30/09
$100.00
100.00
100.00
100.00
9/30/10
85.08
113.35
115.75
126.11
9/30/11
65.81
109.35
115.48
130.59
9/30/12
101.29
144.24
141.18
167.33
9/30/13
87.39
187.59
168.53
195.58
9/30/14
92.53
194.96
157.16
215.85
The 2014 peer group is comprised of nine companies that correspond to the Company’s three industry segments as
follows: Filtration/Fluid Flow segment (44% of the Company’s 2014 total revenue) – CIRCOR International, Inc.,
CLARCOR Inc., Moog Inc. and Pall Corporation; Test segment (34% of the Company’s 2014 total revenue) –
EXFO Inc. and FARO Technologies, Inc.; and Utility Solutions Group segment (22% of the Company’s 2014 total
revenue) – Aegion Corporation, Ameresco, Inc. and EnerNOC, Inc.
The 2013 peer group was comprised of seven companies that corresponded to the Company’s three industry
segments as follows: Filtration/Fluid Flow segment (44% of the Company’s 2013 total revenue) – CLARCOR Inc.
and Pall Corporation; Test segment (34% of the Company’s 2013 total revenue) – Aeroflex Holding
Corporation; and Utility Solutions Group segment (22% of the Company’s 2013 total revenue) – Badger Meter Inc.,
Echelon Corporation, Itron Inc. and Roper Industries Inc. Aeroflex Holding Corporation was acquired in September
2014 and is therefore not included in the September 2014 figures.
In calculating the composite return of the 2013 and 2014 peer groups, the return of each company comprising the
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 total revenue represented by its corresponding
Company industry segment. For purposes of these calculations, total revenue excludes discontinued operations.
13
Item 6. Selected Financial Data
The following selected consolidated financial data of the Company and its subsidiaries should be read in conjunction
with the Company’s Consolidated Financial Statements, the Notes thereto, and Management’s Discussion and
Analysis of Financial Condition and Results of Operations, as of the respective dates indicated and for the respective
periods ended thereon.
(Dollars in millions, except per share amounts)
2014
2013
2012
2011
2010
For years ended September 30:
Net sales
$
531.1
490.1
478.7
450.8
350.0
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net earnings (loss)
42.6
(42.2 )
0.4
31.3
(56.9 )
(25.6 )
34.8
12.1
46.9
Earnings (loss) per share:
Basic:
Continuing operations
Discontinued operations
Net earnings (loss)
Diluted:
Continuing operations
Discontinued operations
Net earnings (loss)
Diluted:
$
$
$
$
1.61
(1.60 )
0.01
1.60
(1.58 )
0.02
1.18
(2.15 )
(0.97 )
1.17
(2.13 )
(0.96 )
1.30
0.46
1.76
1.29
0.44
1.73
37.1
15.4
52.5
1.39
0.58
1.97
1.38
0.57
1.95
17.5
27.3
44.8
0.66
1.04
1.70
0.65
1.03
1.68
Continuing operations -- as adjusted*
$
1.65
1.47
1.29
1.38
0.65
As of September 30:
Working capital
Total assets
Total debt
Shareholders’ equity
$
148.9
845.9
40.0
580.2
163.6
1,092.3
172.0
601.7
139.2
1,033.8
115.0
631.3
122.5
1,011.8
125.0
600.7
Cash dividends declared per common share
$
0.32
0.32
0.32
0.32
109.4
974.3
154.0
556.0
0.32
* 2014 diluted EPS from continuing operations – as adjusted excludes $0.05 per share of charges related to the exit
and relocation of Crissair’s facility from Palmdale, CA to Valencia, CA. 2013 diluted EPS from continuing operations –
as adjusted excludes $0.30 per share of facility consolidation and restructuring charges incurred at ETS-Lindgren and
Doble Lemke.
See also Notes 2 and 3 to the Consolidated Financial Statements included herein for discussion of divestiture and
acquisition activity. Beginning in the third quarter of 2013, Aclara was classified as discontinued operations and
assets/liabilities held for sale. Prior period amounts have been reclassified to conform to the current period
presentation.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements included herein
and Notes thereto and refers to the Company’s results from continuing operations, except where noted. On March
28, 2014, the Company completed the sale of Aclara Technologies LLC (Aclara) to an affiliate of Sun Capital
Partners, Inc. The divestiture generated approximately $135 million of gross cash proceeds. The cash proceeds
were used to pay down a significant portion of the Company’s outstanding debt under its revolving credit facility.
At September 30, 2014, the Company had a net debt position of approximately $5 million (net debt position is
defined as total debt less net cash).
14
The parties have not reached agreement on the calculation of the final working capital adjustment as the buyer has
proposed several adjustments to the working capital estimate calculated at closing. The Company is currently
working with the buyer relating to its proposed adjustments; however, the final working capital adjustment cannot
be determined at this time. Aclara is reflected as discontinued operations and/or assets/liabilities held for sale in the
financial statements and related notes for all periods shown.
Aclara’s pretax (loss) earnings recorded in discontinued operations was $(48.2) million, $(62.1) million and $19.5
million for 2014, 2013 and 2012, respectively. Aclara’s net sales were $129.6 million, $184.5 million and $209.7
million for 2014, 2013 and 2012, respectively. Aclara’s operations were included within the Company’s USG
segment prior to the classification as discontinued operations.
The years 2014, 2013 and 2012 refer to the fiscal years ended September 30, 2014, 2013 and 2012, respectively, and
are used throughout the document.
Introduction
ESCO Technologies Inc. and its wholly owned subsidiaries (the Company) are organized into three reportable
operating segments: Filtration/Fluid Flow (Filtration), RF Shielding and Test (Test), and Utility Solutions Group
(USG). The Company’s business segments are comprised of the following primary operating entities:
Filtration: PTI Technologies Inc. (PTI), VACCO Industries (VACCO), Crissair, Inc. (Crissair) and Thermoform
Engineered Quality LLC (TEQ),
Test: ETS-Lindgren Inc. (ETS-Lindgren),
USG: Doble Engineering Company (Doble).
Filtration. The companies within this segment primarily design and manufacture specialty filtration products
including hydraulic filter elements and fluid control devices used in commercial aerospace applications, unique filter
mechanisms used in micro-propulsion devices for satellites and custom designed filters for manned aircraft and
submarines.
Test. ETS-Lindgren is an industry leader in providing its customers with the ability to identify, measure and contain
magnetic, electromagnetic and acoustic energy.
USG. 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.
The Company 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 acquisitions.
Highlights of 2014 Continuing Operations
Sales, net earnings from continuing operations and diluted earnings per share from continuing operations were
$531.1 million, $42.6 million and $1.60 per share, respectively, compared to sales, net earnings and diluted
earnings per share of $490.1 million, $31.3 million and $1.17 per share in 2013.
Diluted earnings per share from continuing operations on an adjusted basis was $1.65 per share in 2014 which
excludes $0.05 per share of restructuring costs related to the exit and relocation of Crissair’s Palmdale,
California operation into the Canyon facility in Valencia, California. This move was completed as of
September 30, 2014. Management believes EPS-As Adjusted is more representative of the Company’s 2014
ongoing performance and allows shareholders better visibility into the Company’s underlying operations.
Net cash provided by operating activities from continuing operations was approximately $45 million in 2014.
At September 30, 2014, cash on hand was $35.1 million and outstanding debt was $40.0 million, for a net debt
position of approximately $5 million.
2014 entered orders from continuing operations were $561.9 million resulting in a book-to-bill ratio of 1.06x.
Backlog from continuing operations at September 30, 2014 was $302.9 million compared to $272.1 million at
September 30, 2013.
15
During 2014, the Company repurchased approximately 350,000 shares of its common stock for $12.0 million.
The Company declared dividends of $0.32 per share, totaling $8.5 million in payments during 2014.
Results of Continuing Operations
Net Sales
(Dollars in millions)
Filtration
Test
USG
Total
Fiscal year ended
2013
214.1
166.7
109.3
490.1
2014
233.7
181.8
115.6
531.1
$
$
2012
194.8
175.9
108.0
478.7
Change
2014
vs.2013
9.2 %
9.1 %
5.8 %
8.4 %
Change
2013
vs.2012
9.9 %
(5.2 )%
1.2 %
2.4 %
Net sales increased $41.0 million, or 8.4%, to $531.1 million in 2014 from $490.1 million in 2013. Net sales
increased $11.4 million, or 2.4%, to $490.1 million in 2013 from $478.7 million in 2012. The increase in net sales
in 2014 as compared to 2013 was due to: a $19.6 million increase in the Filtration segment; a $15.1 million
increase in the Test segment; and a $6.3 million increase in the USG segment. The increase in net sales in 2013 as
compared to 2012 was due to: a $19.3 million increase in the Filtration segment; a $1.3 million increase in the USG
segment; partially offset by a $9.2 million decrease in the Test segment.
Filtration. The $19.6 million, or 9.2%, increase in net sales in 2014 as compared to 2013 was due to: a $10.2
million increase in net sales from VACCO due to higher shipments of its space products; an $8.5 million increase
in net sales at Crissair mainly due to the Canyon acquisition and higher aerospace product shipments; and a $0.9
million increase in net sales at TEQ due to higher shipments to commercial customers.
The $19.3 million, or 9.9%, increase in net sales in 2013 as compared to 2012 was due to: a $16.2 million increase
in net sales from VACCO due to higher shipments of its space and defense products; a $6.7 million increase in net
sales at Crissair (the 2013 acquisition of Canyon contributed $3.3 million of this increase); partially offset by a $3.2
million decrease in net sales at PTI driven by lower shipments of aerospace elements and couplings, and a
$0.4 million decrease in net sales at TEQ.
Test. The net sales increase of $15.1 million, or 9.1%, in 2014 as compared to 2013 was due to: a $12.9 million
increase in net sales from the segment’s U.S. operations mainly due to a large automotive chamber project, and
projects in the test and measurement market; a $3.3 million increase in net sales from the segment’s European
operations; partially offset by a $1.1 million decrease in net sales from the Company’s Asian operations due to
timing of projects.
The sales decrease of $9.2 million, or 5.2%, in 2013 as compared to 2012 was due to: an $8 million decrease in net
sales from the segment’s European operations due to timing of projects and softness in the European economy; a
$6.4 million decrease in net sales from the Company’s Asian operations due to timing of chamber projects; partially
offset by a $5.2 million increase in net sales from the segment’s U.S. operations due to an increase in projects in the
EMP (electro-magnetic pulse) market.
USG. The net sales increase of $6.3 million, or 5.8%, in 2014 as compared to 2013, and the sales increase of $1.3
million, or 1.2%, in 2013 as compared to 2012 were both driven by an increase in service revenues at Doble.
Orders and Backlog
New orders received from continuing operations in 2014 were $561.9 million as compared to $516.7 million in
2013, resulting in order backlog of $302.9 million at September 30, 2014, as compared to order backlog of
$272.1 million at September 30, 2013. In 2014, the Company recorded $255.1 million of orders related to
Filtration products, $182.1 million related to Test products, and $124.7 million related to USG products. Orders are
entered into backlog as firm purchase order commitments are received.
In 2013, the Company recorded $232.1 million of orders related to Filtration products, $177.7 million related to Test
products, and $106.9 million related to USG products.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses were $134.9 million, or 25.4% of net sales, in 2014, $129.8
million, or 26.5% of net sales, in 2013, and $128.2 million, or 26.8% of net sales, in 2012. The increase in SG&A
16
expenses in 2014 as compared to 2013 was mainly due to the acquisition of Canyon Engineering in June 2013,
higher engineering costs in the Filtration segment related to the recently announced new aerospace platform wins,
higher commissions within the Test segment, and higher marketing and selling expenses within the USG segment;
partially offset by lower SG&A expenses at Corporate.
The increase in SG&A expenses in 2013 as compared to 2012 was mainly due to an increase in professional fees
and acquisition costs incurred at the Corporate level.
Amortization Of Intangible Assets
Amortization of intangible assets was $6.7 million in 2014, $6.2 million in 2013 and $5.7 million in 2012.
Amortization of intangible assets included $3.4 million, $3.2 million and $3.8 million of amortization of acquired
intangible assets in 2014, 2013 and 2012, respectively, related to the Company’s acquisitions. 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) and are included in the respective segment’s operating results.
Other Expenses (Income), Net
Other expenses (income), net, were $1.8 million in 2014, $5.9 million in 2013 and $(4.4) million in 2012,
respectively. The principal components of other expenses (income), net, in 2014 included $1.7 million of costs
related to the exit and relocation of Crissair’s Palmdale, California operation into the Canyon facility in Valencia,
California. This move was completed as of September 30, 2014. The principal components of other expenses
(income), net, in 2013 included $4.1 million of restructuring costs related to the closure of the Doble Lemke facility
in Germany; $2.6 million of restructuring costs within the Test segment as a result of the closure of the Glendale
Heights, Illinois facility; and a $0.8 million gain on the sale of machinery and equipment within the Filtration
segment. The principal component of other expenses (income), net, in 2012 was $(4.5) million of income
representing a revaluation of the earnout liability related to the Xtensible acquisition. There were no other
individually significant items included in other expenses (income), net, in 2014, 2013 or 2012.
Earnings Before Interest and Taxes (EBIT)
The information reported herein includes the financial measures EBIT, EBIT as a percentage of net sales (EBIT
margin), and EPS on an adjusted basis from continuing operations. The Company defines EBIT as earnings before
interest and taxes from continuing operations, and defines EPS on an adjusted basis from continuing operations as
GAAP EPS from continuing operations less defined restructuring charges. EBIT, and EBIT margin on a
consolidated basis and EPS on an adjusted basis are not recognized in accordance with U.S. generally accepted
accounting principles (GAAP). However, the Company believes that EBIT and EBIT margin provide investors and
Management with a valuable 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 consolidated basis. EBIT is also one of the measures
Management uses to determine resource allocations and incentive compensation. The Company believes that the
presentation of EBIT, EBIT margin and EPS on an adjusted basis provides important supplemental information to
investors by facilitating comparisons with other companies, many of which use similar non-GAAP financial
measures to supplement their GAAP results. The use of non-GAAP financial measures is not intended to replace any
measures of performance determined in accordance with GAAP.
EBIT
(Dollars in millions)
Filtration
% of net sales
Test
% of net sales
USG
% of net sales
Corporate
Total
% of net sales
Fiscal year ended
$
$
2014
41.4
17.7 %
21.1
11.6 %
26.6
23.0 %
(25.3 )
63.8
12.0 %
2012
38.0
19.5 %
14.0
8.0 %
25.9
24.0 %
(23.2 )
54.7
11.4 %
2013
42.4
19.8 %
16.3
9.8 %
21.6
19.8 %
(28.0 )
52.3
10.7 %
17
Change
2014
vs. 2013
Change
2013
vs. 2012
(2.4 )%
29.4 %
23.1 %
(9.6 )%
22.0 %
11.6 %
16.4 %
(16.6 )%
(20.7 )%
(4.4 )%
The reconciliation of EBIT from continuing operations to a GAAP financial measure is as follows:
(Dollars in millions)
EBIT
Less: Interest expense
Less: Income taxes
Net earnings from continuing operations
Filtration
$
$
2014
63.8
(1.6 )
(19.6 )
42.6
2013
52.3
(2.7 )
(18.3 )
31.3
2012
54.7
(2.5 )
(17.4 )
34.8
EBIT decreased $1.0 million in 2014 as compared to 2013 primarily due to $1.7 million of costs related to the exit
and relocation of Crissair’s Palmdale, California operation into the Canyon facility in Valencia, California
consisting mainly of a facility lease termination charge, severance expenses and manufacturing inefficiencies
resulting from the disruption. This move was completed as of September 30, 2014.
EBIT increased $4.4 million in 2013 as compared to 2012 primarily due to the additional sales volumes at VACCO
and Crissair as noted earlier.
Test
The $4.8 million increase in EBIT in 2014 as compared to 2013 was due to the additional sales volumes from the
segment’s U.S. operations and the cost savings achieved as a result of the 2013 domestic facility consolidation.
Approximately $3.4 million of restructuring costs were incurred in 2013 related to the domestic facility
consolidation.
The $2.3 million increase in EBIT in 2013 as compared to 2012 was due to product price increases and the savings
being realized from the domestic facility consolidation. The increase was partially offset by approximately $3.4
million of restructuring costs consisting mainly of a facility lease termination charge, severance and relocation
expenses and manufacturing inefficiencies resulting from the disruption.
USG
The $5.0 million increase in EBIT in 2014 as compared to 2013 was mainly due to an increase in sales volumes
and a decrease in restructuring costs that were incurred in 2013 related to the closure of the Doble Lemke
manufacturing operation.
The $4.3 million decrease in EBIT in 2013 as compared to 2012 was mainly due to $2.6 million of restructuring
costs related to the closure of the manufacturing operation in Germany (Doble Lemke GmbH) and relocation of its
partial discharge products and intellectual property to its existing lower cost locations in Europe. These shut-down
costs consisted of personnel costs, asset impairment charges, and move related costs. In addition, a $4.5 million gain
was recorded in 2012 related to the revaluation of the earnout liability related to the Xtensible acquisition.
Corporate
Corporate operating charges included in consolidated EBIT decreased to $25.3 million as compared to $28 million
in 2013 mainly due to a decrease in professional fees and acquisition-related costs.
Corporate operating charges included in consolidated EBIT increased to $28 million as compared to $23.2 million in
2012 mainly due to a $1.5 million pretax write-down of a Doble Lemke trade name and an increase in professional
fees and acquisition costs.
The “Reconciliation to Consolidated Totals (Corporate)” in Note 15 to the Consolidated Financial Statements
included herein represents Corporate office operating charges.
Interest Expense, Net
Interest expense was $1.6 million in 2014, $2.7 million in 2013, and $2.5 million in 2012. The decrease in interest
expense in 2014 as compared to 2013 was due to lower average interest rates (1.5% vs. 1.6%) and lower average
outstanding borrowings ($103 million vs. $171 million). The increase in interest expense in 2013 as compared to
2012 was due to higher average interest rates (1.6% vs. 1.2%) and higher average outstanding borrowings ($171
million vs. $126 million).
18
Income Tax Expense
The effective tax rate from continuing operations for 2014, 2013 and 2012 was 31.5%, 37.0% and 33.4%,
respectively. The decrease in the 2014 effective tax rate as compared to 2013 was primarily due to: the release of
accruals related to uncertain tax positions as a result of the lapse of statute of limitations and the closing of a U.S.
taxing authority’s examination of the Company’s research credit claims which reduced the 2014 effective tax rate
by 2.9%; the December 31, 2013 expiration of the research tax credit which increased the 2014 effective tax rate
by 1.4%; and an adjustment to the foreign valuation allowance which increased the 2013 effective tax rate by
3.3%.
The increase in the 2013 effective tax rate as compared to 2012 was primarily due to: an adjustment to the foreign
valuation allowance which increased the 2013 effective tax rate by 3.3%; the extension of the research tax credit as a
result of the American Taxpayer Relief Act of 2012 which reduced the 2013 effective tax rate by 2.2%; a purchase
accounting charge which increased the 2012 effective tax rate by 1.0%; and the release of accruals related to
uncertain tax positions as a result of the lapse of statute of limitations which reduced the 2012 effective tax rate by
3.7%.
The Company’s foreign subsidiaries have accumulated unremitted earnings of $32.6 million and cash of $27.0
million at September 30, 2014. No deferred taxes have been provided on these accumulated unremitted earnings
because these funds are not needed to meet the liquidity requirements of the Company’s U.S. operations and it is the
Company’s intention to indefinitely reinvest these earnings in continuing international operations. In the event these
foreign entities’ earnings were distributed, it is estimated that U.S. taxes, net of available foreign tax credits, of
approximately $4.7 million would be due, which would correspondingly reduce the Company’s net earnings. No
significant portion of the Company’s foreign subsidiaries’ earnings was taxed at a very low tax rate.
Capital Resources and Liquidity
The Company’s overall financial position and liquidity are strong. Working capital (current assets less current
liabilities) decreased to $148.9 million at September 30, 2014, from $163.6 million at September 30, 2013, mainly
due to the sale of Aclara partially offset by higher accounts receivable and inventory balances. The $13.5 million
increase in accounts receivable at September 30, 2014, was mainly due to: a $6.3 million increase within the USG
segment, a $4.1 million increase within the Filtration segment and a $1.9 million increase in the Test segment all
due to the increase of sales in the fourth quarter. The $4.1 million increase in inventory at September 30, 2014, was
mainly due to a $3.4 million increase in the Test segment due to timing of receipt of raw materials to meet
increased sales volumes.
Net cash provided by operating activities from continuing operations was $44.9 million, $37.1 million and $46.1
million in 2014, 2013 and 2012, respectively. The increase in 2014 as compared to 2013 was mainly due to an
increase in net earnings and lower operating working capital requirements. The decrease in 2013 as compared to
2012 was due to a decrease in net earnings and higher operating working capital requirements.
Capital expenditures from continuing operations were $12.7 million, $13.9 million and $10.8 million in 2014,
2013 and 2012, respectively. The decrease in 2014 as compared to 2013 was mainly due to the 2013 purchase of
the ETS-Lindgren facility in Minocqua, Wisconsin for $1.2 million. The increase in 2013 as compared to 2012 was
mainly due to the purchase of the ETS-Lindgren facility in Minocqua, Wisconsin for $1.2 million and an increase
in manufacturing equipment within the Filtration segment of approximately $2 million mainly due to the Felix
Tool acquisition. There were no commitments outstanding that were considered material for capital expenditures at
September 30, 2014. In addition, the Company incurred expenditures for capitalized software of $8.6 million, $8.4
million and $5.3 million in 2014, 2013 and 2012, respectively. The increase in 2014 as compared to 2013 was not
material. The increase in 2013 as compared to 2012 was mainly attributable to the Test segment’s software
development.
The Company made required pension contributions of $2.7 million, $3.9 million and $4.8 million in 2014, 2013
and 2012, respectively.
Divestiture
On March 28, 2014, the Company completed the sale of Aclara Technologies LLC (Aclara) to an affiliate of Sun
Capital Partners, Inc. The divestiture generated approximately $135 million of gross cash proceeds. The cash
proceeds were used to pay down a significant portion of the Company’s outstanding debt under its revolving credit
facility. At September 30, 2014, the Company had a net debt position (total debt less net cash) of approximately
$5 million.
19
Acquisitions
2013
On June 26, 2013, the Company acquired the stock of Canyon Engineering Products, Inc. (Canyon) for $9.2 million
in cash, and additionally, purchased Canyon’s 70,000 square foot manufacturing facility located in Valencia,
California for $7 million. Canyon designs and manufactures precision fluid control devices primarily for the
aerospace industry and Canyon’s products, technology and customers are very similar to Crissair, Inc. The operating
results for Canyon, since the date of acquisition, are included as part of Crissair, Inc. within the Company’s
Filtration segment. The Company recorded approximately $1.3 million of goodwill related to the transaction and
$1.7 million of amortizable identifiable intangible assets consisting primarily of customer relationships.
On December 21, 2012, the Company acquired the assets of Felix Tool & Engineering, Inc. (Felix Tool) for a
purchase price of $1.2 million in cash. Felix Tool is engaged in the design, manufacture and sale of customized
perforated tubes for filtration applications in the aerospace and fluid power industry. The purchase price was
allocated to property, plant and equipment and inventory based on fair market value at the date of acquisition and
there were no intangible assets recorded upon the transaction. The operating results for the business, since the date
of acquisition, are included within PTI in the Filtration segment.
On December 10, 2012, the Company acquired the assets of Finepoint Marketing, Inc. (Finepoint) for a purchase
price of $2.5 million. Finepoint is the electric power industry’s leading conference provider focused on medium and
high voltage circuit breakers, as well as related substation and switchgear topics. The operating results for the
business, since the date of acquisition, are included as part of Doble in the USG segment. The Company recorded
approximately $1.3 million of goodwill as a result of the transaction and $1.2 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.
Bank Credit Facility
The Company maintains a $450 million revolving credit facility with JPMorgan Chase Bank, N.A., as administrative
agent, PNC Bank, N.A., as syndication agent, and eight other participating lenders, with a maturity date of May 14,
2017 (the “Credit Facility”). Through a credit facility expansion option, the Company may elect to increase the size
of the Credit Facility by entering into incremental term loans, in any agreed currency, at a minimum of $25 million
each up to a maximum of $250 million aggregate; the Company’s ability to access this increase option is subject to
acceptance by participating or other outside banks. The Company’s sale of Aclara did not impact the covenants or
the amount of availability under the Credit Facility.
At September 30, 2014, the Company had approximately $399 million available to borrow under the Credit Facility,
plus the$250 million increase option, in addition to $35.1 million cash on hand. The Company classified $20 million
as the current portion of short-term debt as of September 30, 2014, as the Company intends to repay this amount
within the next 12 months; however, the Company has no contractual obligation to repay such amount during the
next twelve months.
The Credit Facility requires, as determined by certain financial ratios, a facility fee ranging from 17.5 to 35 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. As of September 30, 2014, the Company was
in compliance with all bank covenants.
Cash flow from operations and borrowings under the Credit Facility are expected to provide adequate resources to
meet the Company’s capital requirements and operational needs for the foreseeable future.
Dividends
Since 2010 the Company has paid a regular quarterly cash dividend at an annual rate of $0.32 per share. The
Company paid dividends of $8.5 million, $8.5 million and $8.6 million in 2014, 2013 and 2012, respectively.
20
2015 and Three Year Outlook
The Company’s goals and expectations through fiscal 2017 reflect compound annual sales growth of 10 percent and
compound annual EPS growth of 15 percent, with approximately 80 percent of the growth being organic and
approximately 20 percent coming from future acquisitions. While expectations for fiscal 2015 reflect lower than
normal growth due to timing issues on two large programs, and a higher expected tax rate, the three-year outlook
remains unchanged.
The 2015 sales outlook is muted by the expectation of lower Space sales at VACCO and lower sales at TEQ related
to its KAZ thermometer probe cover project. Regarding VACCO, while the Company expects the SLS launch
vehicle program to remain a critical project for NASA and expects overall project revenues to increase over the
remaining life of the development stage, the customer recently informed the Company that NASA has decided to
smooth the SLS spending timeline over the next three years. This will result in VACCO’s expected revenues being
approximately $10 million lower in 2015, but approximately $10 million higher in 2016 and approximately $5
million higher in 2017, than indicated by earlier project timelines. At TEQ, during 2014 the KAZ project was
extended from five years to eight years, with total expected project revenues increasing from approximately $50
million to approximately $80 million; however, because the extension included an upgrade to a next generation
probe cover to be compatible with a newly designed thermometer, the Company expects product design
enhancements during the first quarter of 2015 to temporarily limit TEQ’s production revenue from the KAZ project,
resulting in approximately $3 million of sales being pushed into future years.
As a result of the above items, Management expects 2015 sales growth of 2% to 5% and EPS in the range of $1.70
to $1.80 per share. By segment: Filtration sales are expected to be lower than in 2014 due to the VACCO and TEQ
items noted above, but partially offsetting these, PTI and Crissair sales are expected to increase approximately 7%
and 5%, respectively, Test sales are expected to increase between 5% and 7%, and USG sales are expected to
increase between 8% and 10%. On a quarterly basis, Management expects 2015 revenues and EPS to reflect a
profile similar to 2014, including EPS being more second-half weighted.
For 2015, the Company’s effective tax rate is expected to be 35 percent, compared to the adjusted effective tax rate
of 31.6 percent in 2014.
Contractual Obligations
The following table shows the Company’s contractual obligations as of September 30, 2014:
(Dollars in millions)
Long-Term Debt Obligation
Estimated Interest Payments (1)
Operating Lease Obligations
Purchase Obligations (2)
Total
Payments due by period
Less than
1 year
—
0.5
5.0
6.7
12.2
Total
40.0
0.7
15.9
7.0
63.6
1 to 3
years
40.0
0.2
6.4
0.3
46.9
3 to 5 More than
5 years
years
—
—
—
—
0.9
3.6
—
—
0.9
3.6
$
$
(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 agreement 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, 2014, the Company had $0.5 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, 2014.
Share Repurchases
In August 2012, the Company’s Board of Directors authorized a common stock repurchase program under which the
Company may repurchase shares of its stock from time to time in its discretion, in the open market or otherwise, up
to a maximum total repurchase amount of $100 million (or such lesser amount as may be permitted under the
Company’s bank credit agreements). This program has been twice extended by the Company’s Board of Directors
21
and is currently scheduled to expire September 30, 2015. There currently is no repurchase program which the
Company has determined to terminate prior to the program’s expiration, or under which the Company does not
intend to make further purchases. The Company repurchased approximately 350,000 shares for $12.0 million in
2014, 270,000 shares for $9.7 million in 2013, and 150,000 shares for $5.4 million in 2012.
Pension Funding Requirements
The minimum cash funding requirements related to the Company’s defined benefit pension plans are estimated to be
approximately $0.7 million in 2015, and zero in both 2016 and 2017.
Other
Management believes that, for the periods presented, inflation has not had a material effect on the Company’s
results of operations.
As a normal incident of the business in which the Company is engaged, various claims, charges and litigation are
asserted or commenced from time to time against the Company. Additionally, the Company is currently involved
in various stages of investigation and remediation relating to environmental matters. It is the opinion of
Management that the aggregate costs involved in the resolution of these matters, and final judgments, if any, which
might be rendered against the Company are adequately reserved for, are covered by insurance, or are not likely to
have a material adverse effect on the Company’s results from continuing operations, 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. All
derivative instruments are reported on the balance sheet at fair value. In June 2014, the Company entered into a
forward contract to sell 10.9 million Euros (US$14.7 million) on November 3, 2014 to hedge the foreign currency
risk related to an intercompany transaction. Gains and losses on foreign currency derivatives are reported in other
(income) expenses, net, on the Company’s Consolidated Statements of Operations. The Company has determined
that the market risk related to interest rates with respect to its variable debt is not material. The Company estimates
that if market interest rates averaged one percentage point higher, the effect would have been less than 2% of net
earnings for the year ended September 30, 2014. The following is a summary of the notional transaction amounts
and fair values for the Company’s outstanding derivative financial instruments as of September 30, 2014.
(In thousands)
Forward contract
Notional
Amount
(Euros)
10,891
Fair Value
(US$)
927
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 $157.1 million, $153.7 million, and $162.1 million in 2014, 2013 and 2012, respectively. The
Company occasionally hedges certain foreign currency commitments by purchasing foreign currency forward
contracts. 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 2014, 2013 and 2012).
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (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
22
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 the Notes to Consolidated Financial Statements included herein.
Revenue Recognition
Filtration Segment: Within the Filtration segment, approximately 85% of segment revenues (approximately 37% 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 15% of segment revenues (approximately 7% of consolidated revenues) are recorded under the
percentage-of-completion provisions 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.
Test Segment: Within the Test segment, approximately 40% of revenues (approximately 14% 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 and the application of the
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 20% of consolidated revenues) are recorded under
the percentage-of-completion method 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 in a period. 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.
USG Segment: Within the USG segment, approximately 100% of the segment’s revenues (approximately 22% of
consolidated revenues) represent products and services sold under a single element arrangement and are recognized
when products are delivered (when title and risk of ownership transfers), when services are performed for
unaffiliated customers or on a straight-line basis over the lease term.
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. The Company estimates an
inventory reserve for excess quantities and obsolete items based on specific identification and historical write-offs,
taking into account future demand and market conditions. The Company’s reserves for excess and obsolete
inventory were $3.9 million and $3.4 million at September 30, 2014 and 2013, respectively. If actual demand or
23
market conditions in the future are less favorable than those estimated, additional inventory write-downs may be
required.
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 Financial Accounting
Standards Board (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
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, 2014, the Company has determined that no reporting units are at risk of material goodwill
impairment as the fair value of each reporting unit 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 are 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, and health
24
care cost trend rates. Actual pension plan asset performance will either decrease or increase unamortized pension
losses/gains that will affect net earnings in future years. Depending upon the performance of the equity and bond
markets in 2015, the Company could be required to record a charge to other comprehensive income/loss. In addition,
if the discount rate were decreased by 25 basis points from 4.25% to 4.0%, the projected benefit obligation for the
defined benefit plan would increase by approximately $2.8 million and result in an additional after-tax charge to
other comprehensive income/loss of approximately $1.7 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.
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 from time to time against the Company. Additionally, the Company is currently involved
in various stages of investigation and remediation relating to environmental matters. It is the opinion of
Management that the aggregate costs involved in the resolution of these matters, and final judgments, if any, which
might be rendered against the Company are adequately reserved for, are covered by insurance, or are not likely to
have a material adverse effect on the Company’s results from continuing operations, capital expenditures, or
competitive position. Because the final Aclara working capital adjustment has not been agreed upon, the Company
is unable to determine its impact on the results from discontinued operations.
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. All
derivative instruments are reported on the balance sheet at fair value. In June 2014, the Company entered into a
forward contract to sell 10.9 million Euros ($14.7 million USD) on November 3, 2014 to hedge the foreign
currency risk related to an intercompany transaction. Gains and losses on foreign currency derivatives are reported
in other (income) expenses, net, on the Company’s Consolidated Statements of Operations. See the further
discussion regarding the Company’s market risks in “Market Risk Analysis,” above.
Controls and Procedures
For a description of the Company’s evaluation of its disclosure controls and procedures1, see Item 9A, “Controls
and Procedures,” below.
New Accounting Pronouncements
In April 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-08 (ASU 2014-08), Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends ASC 205,
Presentation of Financial Statements and ASC 360, Property, Plant, and Equipment. This update changes the
criteria for a disposal transaction to qualify as a discontinued operation, and expands the disclosure requirements
surrounding discontinued operations. ASU 2014-08 is effective for fiscal years beginning after December 15, 2014.
It will not have a material effect on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, which
requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised
goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S.
GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning after
December 15, 2016. Early application is not permitted. The standard permits the use of either the retrospective or
cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its
consolidated financial statements and related disclosures. The Company has not yet selected a transition method
nor has it determined the effect of the standard on its ongoing financial reporting.
25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See “Market Risk Analysis” and “Other Matters – Quantitative And Qualitative Disclosures About Market Risk” in
Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are
incorporated into this Item by reference.
Item 8. Financial Statements and Supplementary Data
The information required by this Item, consisting of the Consolidated Financial Statements of the Company, the
Notes thereto, and the related “Report of Independent Registered Public Accounting Firm” of KPMG LLP, is set
forth in the Financial Information section beginning on page F-1 of this Annual Report; an Index is provided on
page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Not Applicable.
Item 9A. Controls and Procedures
For fiscal 2014 the Company carried out an evaluation of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d–15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). The evaluation was conducted under the supervision and
with the participation of the Company’s Management, including the Company’s Chief Executive Officer and Chief
Financial Officer, using the Internal Control – Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based upon that evaluation, the Company’s Chief
Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures
were effective as of September 30, 2014. 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
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commission’s rules and forms.
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) during the fiscal quarter ended September 30, 2014 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
For the remainder of the information required by this item, see “Management’s Report on Internal Control over
Financial Reporting” and the related “Report of Independent Registered Public Accounting Firm” of KPMG LLP, in
the Financial Information section beginning on page F-1 of this Annual Report, which are incorporated into this
Item by reference.
Item 9B. Other Information
None.
26
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding nominees and directors, the Company’s Code of Ethics, its Audit and Finance Committee,
and compliance with Section 16(a) of the Securities Exchange Act of 1934 is hereby incorporated by reference to
the sections captioned “Proposal 1: Election of Directors,” “Board of Directors – Governance Policies and
Management Oversight,” “Committees” and “Securities Ownership – Section 16(a) Beneficial Ownership
Reporting Compliance” in the 2014 Proxy Statement.
Information regarding the Company’s executive officers is set forth in Item 1, “Business – Executive Officers of the
Registrant,” above.
Item 11. Executive Compensation
The information in the sections captioned “Committees – Compensation Committee Interlocks and Insider
Participation,” “Director Compensation” and “Executive Compensation Information” in the 2014 Proxy Statement is
hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information regarding the beneficial ownership of shares of the Company’s common stock by nominees and
directors, by executive officers, by directors and executive officers as a group and by any known five percent
stockholders is hereby incorporated by reference to the section captioned “Securities Ownership” in the 2014 Proxy
Statement.
The following table summarizes certain information regarding shares of Company common stock that may be issued
by the Company pursuant to its equity compensation plans existing as of September 30, 2014:
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights (1)
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a)) (1)
404,692 (3)
N/A (4)
1,373,203 (5)(6)
20,826 (7)
425,518
N/A (4)
N/A (4)
106,432 (7)
1,479,635
Plan Category
Equity compensation plans
approved by security
holders (2)
Equity compensation plans
not approved by security
holders
Total
__________________
(1) The number of shares is subject to adjustment for future changes in capitalization by stock splits, stock dividends and
similar events.
(2) Consists of the Company’s 2001 Stock Incentive Plan, 2004 Incentive Compensation Plan and 2013 Incentive
Compensation Plan. Since their adoption, the 2001 Stock Incentive Plan and 2004 Incentive Compensation Plan have
been amended without shareholder approval in accordance with their terms, as follows:
(i) With respect to the 2001 Stock Incentive Plan, (A) to authorize the Human Resources and Compensation
Committee (“Committee”) of the Company’s Board of Directors to delegate to any employee the power to extend a
stock option beyond termination of employment for persons who are not “officers” as defined in Rule 16a-1 under
the Exchange Act, and to authorize the Committee to delegate to the Chief Executive Officer the power to grant
stock options to persons who are not such “officers,” with the limitation of 10,000 shares per award and 100,000
shares awarded in the aggregate in any fiscal year; and (B) to limit the maximum period of time for an option
extension to the original option term;
27
(ii) With respect to performance share distributions, to eliminate the participant’s options to pay cash for tax
withholding and receive all shares due or to defer the distribution, and in the case of the 2004 Incentive
Compensation Plan, to eliminate the Committee’s discretion to determine the percentage of the distribution to be
made in Shares or to be withheld for tax payments;
(iii) To remove the restriction that stock issued pursuant to options must be held for investment purposes only; and
(iv) In accordance with Section 409A of the Code, to eliminate the Committee’s discretion to grant alternative stock
appreciation rights to stock option holders covering additional shares, and in the case of the 2004 Incentive
Compensation Plan, to restrict the payment of dividend equivalents to recipients of restricted stock awards to the
time when the shares to which the dividend equivalents apply are delivered to the recipients.
(3)
Includes 72,352, 222,936 and 109,404 shares issuable in connection with the vesting and distribution of outstanding
performance-accelerated restricted share awards under the 2001 Stock Incentive Plan, 2004 Incentive Compensation
Plan and 2013 Incentive Compensation Plan, respectively.
(4) The securities outstanding at September 30, 2014 have no exercise price.
(5) Represents shares currently available for awards under the 2013 Incentive Compensation Plan. No shares remain
available for issuance under the 2001 Stock Incentive Plan or 2004 Incentive Compensation Plan.
(6) Does not include shares that may be purchased on the open market pursuant to the Company’s Employee Stock
Purchase Plan (the “ESPP”). Under the ESPP, participants may elect to have up to 10% of their current salary or
wages withheld and contributed to one or more independent trustees for the purchase of shares. At the discretion of
an officer of the Company, the Company or a domestic subsidiary or division may contribute cash in an amount not to
exceed 20% of the amounts contributed by participants; however, the total number of shares purchased with the
Company’s matching contributions after October 15, 2003 may not exceed 200,000. As of September 30, 2014,
554,906 shares had been purchased with the Company’s matching funds of which 142,884 were purchased after
October 15, 2003.
(7) Represents shares issuable pursuant to the Company’s Compensation Plan for Non-Employee Directors (the “Director
Compensation Plan”), which provides for each director to be paid (in addition to other fees) an annual retainer fee
payable partially in cash and partially in shares. Periodically, the Committee determines the amount of the retainer fee
and the allocation of the fee between cash and shares. The maximum number of Shares available for issuance under
the Director Compensation Plan is 400,000 shares; as of September 30, 2014, 272,742 shares had been issued and a
total of approximately 20,826 shares had been elected by three directors to be issued on a deferred basis. The stock
portion of the retainer fee is distributable in quarterly installments. Directors may elect to defer receipt of all of their
cash compensation and/or all of the stock portion of the retainer fee. The deferred amounts are credited to the
director’s deferred compensation account in stock equivalents. Deferred amounts are distributed in shares or cash at
such future dates as specified by the director unless distribution is accelerated in certain circumstances, including a
change in control of the Company. The stock portion which has been deferred may only be distributed in shares.
Item 13. Certain Relationships and Related Transactions and Director Independence
Information regarding transactions with related parties and the independence of the Company’s directors, nominees
for directors and members of the committees of the board of directors is hereby incorporated by reference to the
sections captioned “Board of Directors” and “Committees” in the 2014 Proxy Statement.
Item 14. Principal Accounting Fees and Services
Information regarding the Company’s independent registered public accounting firm, its fees and services, and the
Company’s Audit and Finance Committee’s pre-approval policies and procedures regarding such fees and services,
is hereby incorporated by reference to the section captioned “Audit-Related Matters” in the 2014 Proxy Statement.
28
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as a part of this Report:
(1) Financial Statements. The Consolidated Financial Statements of the Company, and the Report of
Independent Registered Public Accounting Firm thereon of KPMG LLP, are included in this Report
beginning on page F-1; an Index thereto is set forth on page F-1.
(2) Financial Statement Schedules. Financial Statement Schedules are omitted because either they are not
applicable or the required information is included in the Consolidated Financial Statements or the Notes
thereto.
(3) Exhibits. The following exhibits are filed with this Report or incorporated herein by reference to the
document location indicated:
Exhibit No.
Description
Document Location
3.1(a)
Restated Articles of Incorporation
3.1(b)
Amended Certificate of Designation, Preferences and
Rights of Series A Participating Cumulative Preferred
Stock
Exhibit 3(a) to the Company’s Form 10-K for the
fiscal year ended September 30, 1999
Exhibit 4(e) to the Company’s Form 10-Q for the
fiscal quarter ended March 31, 2000
3.1(c)
Articles of Merger, effective July 10, 2000
Exhibit 3(c) to the Company’s Form 10-Q for the
3.2
4.1
4.2
Bylaws
fiscal quarter ended June 30, 2000
Exhibit 3.1 to the Company’s Form 8-K filed
August 7, 2014
Specimen revised Common Stock Certificate
Exhibit 4.1 to the Company’s Form 10-Q for the
fiscal quarter ended March 31, 2010
Exhibit 4.1 to the Company’s Form 8-K filed May
18, 2012
Credit Agreement dated as of May 14, 2012 among the
Registrant, the Foreign Subsidiary Borrowers from time
to time party thereto, the Lenders from time to time
party thereto, JPMorgan Chase Bank, N.A. as
Administrative Agent, PNC Bank, National Association
as Syndication Agent, and SunTrust Bank, Wells Fargo
Bank, National Association and Bank of America, N.A.
as Co-Documentation Agents.
10.1
Securities Purchase Agreement dated March 14, 2014
between ESCO Technologies Holding LLC and Meter
Readings Holding LLC
Exhibit 10.1 to the Company’s Form 8-K filed
March 28, 2014
10.2
Form of Indemnification Agreement with each of
Exhibit 10.1 to the Company’s Form 10-K for the
ESCO’s non-employee directors
fiscal year ended September 30, 2012
10.3(a)
* First Amendment to the ESCO Electronics Corporation
Supplemental Executive Retirement Plan, effective
August 2, 1993 (comprising restatement of entire Plan)
Exhibit 10.2(a) to the Company’s Form 10-K for the
fiscal year ended September 30, 2012
10.3(b)
* Second Amendment to Supplemental Executive
Exhibit 10.4 to the Company’s Form 10-K for the
Retirement Plan, effective May 1, 2001
fiscal year ended September 30, 2001
10.3(c)
* Form of Supplemental Executive Retirement Plan
Exhibit 10.28 to the Company’s Form 10-K for the
Agreement
fiscal year ended September 30, 2002
10.4(a)
* Directors’ Extended Compensation Plan, adopted
Exhibit 10.3(a) to the Company’s Form 10-K for the
effective October 11, 1993
fiscal year ended September 30, 2012
29
Exhibit No.
Description
Document Location
10.4(b)
* First Amendment to Directors’ Extended Compensation
Exhibit 10.11 to the Company’s Form 10-K for the
Plan effective January 1, 2000
fiscal year ended September 30, 2000
10.4(c)
* Second Amendment to Directors’ Extended
Compensation Plan, effective April 1, 2001
Exhibit 10.7 to the Company’s Form 10-K for the
fiscal year ended September 30, 2001
10.4(d)
* Third Amendment to Directors’ Extended
Exhibit 10.43 to the Company’s Form 10-K for the
Compensation Plan, effective October 3, 2007
fiscal year ended September 30, 2007
10.4(e)
* Fourth Amendment to Directors’ Extended
Exhibit 10.3(e) to the Company’s Form 10-K for the
Compensation Plan, effective August 7, 2013
fiscal year ended September 30, 2013
10.5
* Compensation Plan For Non-Employee Directors, as
restated to reflect all amendments through May 29,
2014
Exhibit 10.1 to the Company’s Form 8-K filed
October 2, 2014
10.6(a)
* 2004 Incentive Compensation Plan
Appendix B to the Company’s Schedule 14A Proxy
Statement filed December 29, 2003
10.6(b)
* Form of Incentive Stock Option Agreement under 2004
Exhibit 10.6 to the Company’s Form 10-Q for the
Incentive Compensation Plan
fiscal quarter ended December 31, 2004
10.6(c)
* Form of Non-Qualified Stock Option Agreement under
Exhibit 10.7 to the Company’s Form 10-Q for the
2004 Incentive Compensation Plan
fiscal quarter ended December 31, 2004
10.6(d)
* First Amendment to 2004 Incentive Compensation
Exhibit 10.40 to the Company’s Form 10-K for the
Plan, effective August 3, 2006
fiscal year ended September 30, 2006
10.6(e)
* Forms of Exhibits (“Non-Compete” and “Change of
Exhibit 10.42 to the Company’s Form 10-K for the
Control”) to Option Agreements in Exhibits 10.8(b) and
10.8(c) above
fiscal year ended September 30, 2007
10.6(f)
* Second Amendment to 2004 Incentive Compensation
Exhibit 10.44 to the Company’s Form 10-K for the
Plan, effective October 3, 2007
fiscal year ended September 30, 2007
10.6(g)
* Third Amendment to 2004 Incentive Compensation
Appendix A to the Company’s Schedule 14A Proxy
Plan, effective October 1, 2007
Statement filed December 20, 2007
10.6(h)
* Board Committee Resolutions Regarding Interpretation
Exhibit 10.1 to the Company’s Form 8-K dated
of 2004 Incentive Compensation Plan, adopted
February 4, 2010
February 10, 2010
10.6(i)
* Fourth Amendment to 2004 Incentive Compensation
Exhibit 10.4 to the Company’s Form 8-K filed
Plan, effective February 4, 2010
February 10, 2010
10.6(j)
* Form of Exhibits (“Non-Compete,” “Compensation
Exhibit 10.8 to the Company’s Form 8-K filed
Recovery Policy” and “Clawback”) to Incentive Stock
Option Agreements and Non-Qualified Stock Option
Agreements under 2004 Incentive Compensation Plan
February 10, 2010
10.6(k)
* Form of Notice of Award--Performance– Accelerated
Restricted Stock under 2004 Incentive Compensation
Plan
Exhibit 10 to the Company’s Form 10-Q for the
fiscal quarter ended December 31, 2010
10.7(a)
* 2013 Incentive Compensation Plan
Appendix A to the Company’s Schedule 14A Proxy
Statement filed December 19, 2012
10.7(b)
* Form of Notice of Award – Performance-Accelerated
Restricted Stock (2013 Incentive Compensation Plan)
Exhibit 10.7(b) to the Company’s Form 10-K for the
fiscal year ended September 30, 2013
10.8(a)
* Sixth Amendment and Restatement of Employee Stock
Appendix C to the Company’s Schedule 14A Proxy
Purchase Plan effective as of October 15, 2003
Statement filed December 29, 2003
30
Exhibit No.
Description
Document Location
10.8(b)
* Seventh Amendment to Employee Stock Purchase
Exhibit 10.8(b) to the Company’s Form 10-K for the
Plan effective as of February 6, 2013
fiscal year ended September 30, 2013
10.9
* Performance Compensation Plan for Corporate,
Exhibit 10.9 to the Company’s Form 10-K for the
Subsidiary and Division Officers and Key Managers,
adopted August 2, 1993, as amended and restated
through August 8, 2012
fiscal year ended September 30, 2012
10.10
*
Incentive Compensation Plan for Executive Officers,
adopted November 9, 2005, as amended and restated
through August 8, 2012
Exhibit 10.10 to the Company’s Form 10-K for the
fiscal year ended September 30, 2012
10.11
* Compensation Recovery Policy, adopted effective
Exhibit 10.6 to the Company’s Form 8-K filed
February 4, 2010
February 10, 2010
10.12(a)
* Severance Plan adopted as of August 10, 1995, as
Exhibit 10 to the Company’s Form 10-Q for the
Amended and Restated February 5, 2002
fiscal quarter ended March 31, 2002
10.12(b)
* Second Amendment to Severance Plan, effective
Exhibit 10.48 to the Company’s Form 10-K for the
October 3, 2007
fiscal year ended September 30, 2007
10.13(a)
* Employment Agreement with Victor L. Richey, effective
November 3, 1999
Exhibit 10(bb) to the Company’s Form 10-K for the
fiscal year ended September 30, 1999 (Agreement
with Victor L. Richey is substantially identical to the
referenced Exhibit and is therefore omitted as a
separate exhibit pursuant to Rule 12b-31)
10.13(b)
* Second Amendment to Employment Agreement with
Exhibit 10.1 to the Company’s Form 10-Q for the
Victor L. Richey, effective May 5, 2004
fiscal quarter ended June 30, 2004
10.13(c)
* Third Amendment to Employment Agreement with
Victor L. Richey, effective December 31, 2007
Exhibit 10.1 to the Company’s Form 8-K filed
January 7, 2008
10.14(a)
* Employment Agreement with Gary E. Muenster,
effective November 3, 1999
Exhibit 10(bb) to the Company’s Form 10-K for the
fiscal year ended September 30, 1999 (Agreement
with Gary E. Muenster is substantially identical to
the referenced Exhibit except that it provides a
minimum base salary of $108,000, and is therefore
omitted as a separate exhibit pursuant to Rule
12b-31)
10.14(b)
* Second Amendment to Employment Agreement with
Exhibit 10.2 to the Company’s Form 10-Q for the
Gary E. Muenster, effective May 5, 2004
fiscal quarter ended June 30, 2004
10.14(c)
* Third Amendment to Employment Agreement with Gary
Exhibit 10.1 to the Company’s Form 8-K filed
E. Muenster, effective December 31, 2007
January 7, 2008 (Third Amendment with Gary E.
Muenster is substantially identical to the
referenced Exhibit except that (i) the termination
amounts payable under Paragraph 9.a(1) are
equal to base salary for 12 months and (ii) under
Paragraph 9.a(1)(B), such termination amounts
may be paid in biweekly installments equal to
1/26th of such amounts, and is therefore omitted
as a separate exhibit pursuant to Rule 12b-31)
10.14(d)
* Fourth Amendment to Employment Agreement with
Exhibit 10.1 to the Company’s Form 8-K filed
Gary E. Muenster, effective February 6, 2008
February 12, 2008
31
Exhibit No.
Description
Document Location
10.15(a)
* Employment Agreement with Alyson S. Barclay,
effective November 3, 1999
10.15(b)
* Second Amendment to Employment Agreement with
Alyson S. Barclay, effective May 5, 2004
10.15(c)
* Third Amendment to Employment Agreement with
Alyson S. Barclay, effective December 31, 2007
Exhibit 10(bb) to the Company’s Form 10-K for the
fiscal year ended September 30, 1999 (Agreement
with Alyson S. Barclay is substantially identical to
the referenced Exhibit except that it provides a
minimum base salary of $94,000, and is therefore
omitted as a separate exhibit pursuant to Rule
12b-31)
Exhibit 10.2 to the Company’s Form 10-Q for the
fiscal quarter ended June 30, 2004 (Second
Amendment with Alyson S. Barclay is substantially
identical to the referenced Exhibit, and is therefore
omitted as a separate exhibit pursuant to Rule
12b-31)
Exhibit 10.1 to the Company’s Form 8-K filed
January 7, 2008 (Note: Third Amendment with
Alyson S. Barclay is substantially identical to the
referenced Exhibit except that (i) the termination
amounts payable under Paragraph 9.a(1) are
equal to base salary for 12 months and (ii) under
Paragraph 9.a(1)(B), such termination amounts
may be paid in biweekly installments equal to
1/26th of such amounts, and is therefore omitted
as a separate exhibit pursuant to Rule 12b-31)
10.15(d)
* Fourth Amendment to Employment Agreement with
Exhibit 10.1 to the Company’s Form 8-K filed
Alyson S. Barclay, effective July 29, 2010
Subsidiaries of the Company
August 3, 2010
Filed herewith
Consent of Independent Registered Public Accounting
Filed herewith
Firm
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Filed herewith
Filed herewith
** Certification of Chief Executive Officer and Chief
Filed herewith
21
23
31.1
31.2
32
Financial Officer
101.INS
*** XBRL Instance Document
101.SCH
*** XBRL Schema Document
101.CAL
*** XBRL Calculation Linkbase Document
101.LAB
*** XBRL Label Linkbase Document
101.PRE
*** XBRL Presentation Linkbase Document
101.DEF
*** XBRL Definition Linkbase Document
Submitted herewith
Submitted herewith
Submitted herewith
Submitted herewith
Submitted herewith
Submitted herewith
-----------
*
Indicates a management contract or compensatory plan or arrangement.
** Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.
*** Exhibit 101 to this report consists of documents formatted in XBRL (Extensible Business Reporting Language).
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ESCO TECHNOLOGIES INC.
By: /s/ Victor L. Richey
Victor L. Richey
President and Chief Executive Officer
Date: November 26, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Victor L. Richey
Victor L. Richey
Chairman, President, Chief Executive
November 26, 2014
Officer and Director
/s/ Gary E. Muenster
Gary E. Muenster
/s/ Vinod M. Khilnani
Vinod M. Khilnani
/s/ Leon J. Olivier
Leon J. Olivier
/s/ Robert J. Phillippy
Robert J. Phillippy
/s/ Larry W. Solley
Larry W. Solley
/s/ James M. Stolze
James M. Stolze
/s/ Donald C. Trauscht
Donald C. Trauscht
Executive Vice President, Chief Financial
Officer (Principal Accounting Officer)
and Director
November 26, 2014
November 26, 2014
November 26, 2014
November 26, 2014
November 26, 2014
November 26, 2014
November 26, 2014
Director
Director
Director
Director
Director
Director
33
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34
FINANCIAL INFORMATION
INDEX
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
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
F-2
F-3
F-4
F-6
F-7
F-8
F-28
F-29
F-30
F-1
CONSOLIDATED STATEMENTS OF OPERATIONS
(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 (income), 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 expense (benefit) of
$5,713, $(5,215) and $7,397, in 2014, 2013 and 2012, respectively
Loss on sale from discontinued operations, net of tax benefit of $11,747
Net (loss) earnings from discontinued operations
Net earnings (loss)
Earnings (loss) per share:
Basic:
Continuing operations
Discontinued operations
Net earnings (loss)
Diluted:
Continuing operations
Discontinued operations
Net earnings (loss)
Average common shares outstanding (in thousands):
Basic
Diluted
See accompanying Notes to Consolidated Financial Statements.
2014
531,120
2013
490,079
$
2012
478,699
323,939
134,899
6,744
1,567
1,764
468,913
62,207
19,594
42,613
9,858
(52,061 )
(42,203 )
410
1.61
(1.60 )
0.01
1.60
(1.58 )
0.02
295,863
129,809
6,179
2,693
5,940
440,484
49,595
18,335
31,260
(56,863 )
–
(56,863 )
(25,603 )
1.18
(2.15 )
(0.97 )
1.17
(2.13 )
(0.96 )
$
$
$
$
$
294,655
128,152
5,674
2,469
(4,433 )
426,517
52,182
17,408
34,774
12,105
–
12,105
46,879
1.30
0.46
1.76
1.29
0.44
1.73
26,447
26,644
26,450
26,802
26,699
27,030
F-2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
Years ended September 30,
Net earnings (loss)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments
Amortization of prior service costs and actuarial gains (losses)
Change in fair value of interest rate swap
Total other comprehensive (loss) income, net of tax
Comprehensive income (loss)
See accompanying Notes to Consolidated Financial Statements.
2014
410
(844 )
(1,686 )
—
(2,530 )
(2,120 )
$
$
2013
(25,603 )
644
8,078
—
8,722
(16,881 )
2012
46,879
(2,018 )
(4,171 )
2
(6,187 )
40,692
F-3
CONSOLIDATED BALANCE SHEETS
2014
2013
(Dollars in thousands)
As of September 30,
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $1,122 and $1,124 in 2014 and
2013, respectively
Costs and estimated earnings on long-term contracts, less progress billings of $30,041 and
$
35,131
42,850
105,449
91,980
$30,887 in 2014 and 2013, respectively
Inventories
Current portion of deferred tax assets
Other current assets
Assets held for sale – current
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
Intangible assets, net
Goodwill
Other assets
Assets held for sale - other
Total Assets
See accompanying Notes to Consolidated Financial Statements.
27,798
94,292
19,946
13,337
–
295,953
8,217
53,901
81,513
3,528
147,159
(70,694 )
76,465
182,063
282,337
9,088
–
20,717
90,228
23,349
15,930
108,867
393,921
7,178
54,316
74,948
3,426
139,868
(64,332 )
75,536
180,217
282,949
9,469
150,236
$
845,906
1,092,328
F-4
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
As of 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 $44,110 and $23,853 in
$
2014 and 2013, respectively
Accrued salaries
Current portion of deferred revenue
Accrued other expenses
Liabilities held for sale – current
Total current liabilities
Pension obligations
Deferred tax liabilities
Other liabilities
Long-term debt
Liabilities held for sale – other
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
30,247,512 and 30,147,504 shares in 2014 and 2013, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
Less treasury stock, at cost (4,040,532 and 3,707,407 common shares in 2014 and
2013, respectively)
Total shareholders’ equity
2014
2013
20,000
40,328
15,035
25,558
19,895
26,284
–
147,100
19,234
77,440
1,961
20,000
–
265,735
50,000
38,537
17,543
21,730
17,508
21,453
63,585
230,356
19,089
99,795
3,348
122,000
16,026
490,614
–
–
302
285,305
399,451
(19,186 )
665,872
301
284,565
407,512
(16,656 )
675,722
(85,701 )
580,171
(74,008 )
601,714
Total Liabilities and Shareholders’ Equity
$
845,906
1,092,328
See accompanying Notes to Consolidated Financial Statements.
F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Balance, September 30, 2011
29,957 $
300 275,807 403,241
(19,191 )
(59,447 )
600,710
Comprehensive income:
Net earnings
Translation adjustments
Net unrecognized actuarial loss,
net of tax of $2,769
Interest rate swap,
net of tax of $(1)
Cash dividends declared
($0.32 per share)
Stock options and stock
compensation plans, net of
tax benefit of $(123)
Purchases into treasury
Balance, September 30, 2012
Comprehensive income (loss):
Net (loss) earnings
Translation adjustments
Net unrecognized actuarial gain,
net of tax of $(5,468)
Cash dividends declared
($0.32 per share)
Stock options and stock
compensation plans, net of
tax benefit of $(84)
Purchases into treasury
Balance, September 30, 2013
Comprehensive income (loss):
Net (loss) earnings
Translation adjustments
Net unrecognized actuarial loss,
net of tax of $310
Cash dividends declared
($0.32 per share)
Stock options and stock
compensation plans, net of
tax benefit of $(295)
Purchases into treasury
Balance, September 30, 2014
—
—
—
—
—
87
—
30,044 $
—
—
—
—
104
—
30,148 $
—
—
—
—
100
—
30,248 $
—
—
—
—
— 46,879
—
—
—
(2,018 )
—
—
46,879
(2,018 )
—
—
—
—
(4,171 )
—
(4,171 )
2
—
2
—
—
(8,554 )
—
—
(8,554 )
—
3,585
—
—
283
3,868
—
—
300 279,392 441,566
—
—
(25,378 )
(5,403 )
(64,567 )
(5,403 )
631,313
—
—
—
— (25,603 )
—
—
—
644
—
—
8,078
—
—
—
(25,603 )
644
8,078
—
—
(8,451 )
—
—
(8,451 )
1
5,173
—
—
262
5,436
—
—
301 284,565 407,512
—
—
(16,656 )
(9,703 )
(74,008 )
(9,703 )
601,714
—
—
—
—
410
—
—
(844 )
—
—
410
(844 )
(1,686 )
—
(1,686 )
—
—
(8,471 )
—
—
(8,471 )
1
740
—
—
277
1,018
—
—
302 285,305 399,451
—
—
(19,186 )
(11,970 )
(85,701 )
(11,970 )
580,171
See accompanying Notes to Consolidated Financial Statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended September 30,
Cash flows from operating activities:
2014
2013
2012
Net earnings (loss)
Adjustments to reconcile net earnings (loss) to net cash provided by
$
410
(25,603 )
46,879
operating activities:
Net loss (earnings) 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 acquisition earnout obligation
Pension contributions
Change in deferred revenue and costs, net
Other
Net cash provided by operating activities – continuing operations
Net cash (used) provided by discontinued operations
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired
Change in restricted cash (acquisition escrow)
Capital expenditures
Additions to capitalized software
Net cash used by investing activities – continuing operations
Net cash provided (used) by investing activities – discontinued operations
Net cash provided (used) by investing activities
Cash flows from financing activities:
Proceeds from long-term debt
Principal payments on long-term debt
Dividends paid
Purchases of shares into treasury
Deferred financing costs
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 assets
Accounts payable
Advance payments on long-term contracts, net
Accrued expenses
Supplemental cash flow information:
Interest paid
Income taxes paid (including state & foreign)
See accompanying Notes to Consolidated Financial Statements.
F-7
42,203
16,362
4,815
(14,150 )
(2,664 )
—
(2,700 )
2,458
(1,849 )
44,885
(1,443 )
43,442
—
—
(12,714 )
(8,629 )
(21,343 )
123,512
102,169
84,000
(216,000 )
(8,472 )
(11,970 )
—
—
(45 )
(152,487 )
(843 )
(7,719 )
42,850
35,131
(13,469 )
(7,081 )
(4,064 )
2,522
1,791
(2,508 )
8,659
14,150
1,863
29,944
$
$
$
$
56,863
14,805
4,577
(19,031 )
10,084
—
(3,900 )
913
(1,626 )
37,082
10,069
47,151
(19,452 )
—
(13,862 )
(8,408 )
(41,722 )
(35,031 )
(76,753 )
122,000
(65,000 )
(8,451 )
(9,703 )
—
1,750
998
41,594
643
12,635
30,215
42,850
(6,377 )
(6,150 )
(5,219 )
(2,513 )
3,120
(4,157 )
2,265
(19,031 )
2,573
11,680
(12,105 )
14,495
4,356
(3,451 )
1,086
(4,459 )
(4,800 )
2,373
1,694
46,068
7,096
53,164
—
1,367
(10,799 )
(5,344 )
(14,776 )
(15,036 )
(29,812 )
192,455
(202,455 )
(8,554 )
(5,403 )
(1,937 )
(184 )
801
(25,277 )
(2,018 )
(3,943 )
34,158
30,215
8,881
(1,593 )
(8,590 )
4,186
(1,535 )
(1,967 )
(2,833 )
(3,451 )
1,588
16,544
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
A. Principles of Consolidation
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, 2014 and 2013.
Aclara is reflected as discontinued operations and/or assets/liabilities held for sale in the consolidated financial
statements and related notes for all periods presented, in accordance with accounting principles generally accepted
in the United States of America (GAAP). Prior period amounts have been reclassified to conform to the current
period presentation. See Note 2.
C. Nature of Continuing Operations
The Company has three reportable segments: Filtration/Fluid Flow (Filtration), RF Shielding and Test (Test), and
Utility Solutions Group (USG).
Filtration: The companies within this segment primarily design and manufacture specialty filtration products
including hydraulic filter elements and fluid control devices used in commercial aerospace applications, unique filter
mechanisms used in micro-propulsion devices for satellites and custom designed filters for manned aircraft and
submarines.
Test: ETS-Lindgren Inc. (ETS-Lindgren) is an industry leader in providing its customers with the ability to
identify, measure and contain magnetic, electromagnetic and acoustic energy.
USG: Doble Engineering Company (Doble) provides high-end, intelligent, diagnostic test solutions for the electric
power delivery industry.
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, estimates on long-term contracts, and litigation and
other loss contingencies. Actual results could differ from those estimates.
E. Revenue Recognition
Filtration: Within the Filtration segment, approximately 85% of revenues (approximately 37% 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 15% of segment revenues (approximately 7% of consolidated revenues) are recorded under the
percentage-of-completion method. Products accounted for under this guidance 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 guidance, 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-8
Test: Within the Test segment, approximately 40% of revenues (approximately 14% 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 generally consisting 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.
Approximately 60% of the segment’s revenues (approximately 20% of consolidated revenues) are recorded under
the percentage-of-completion method due to the complex nature of the enclosures that are designed and produced
under these contracts. Products accounted for under this guidance 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 guidance, 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 to less than 2% of Test segment
revenues or 1% 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.
USG: Within the USG segment, approximately 100% of segment revenues (approximately 22% of consolidated
revenues) are recognized when products are delivered (when title and risk of ownership transfers), when services are
performed for unaffiliated customers or on a straight-line basis over the lease term.
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 Contracts
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.
I.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or market value. Inventories are regularly reviewed for
excess quantities and obsolescence based upon historical experience, specific identification of discontinued items,
future demand, and market conditions. 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.
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. Long-lived tangible assets are
reviewed for impairment whenever events or changes in business circumstances indicate the carrying value of the
assets may not be recoverable. Impairment losses are recognized based on fair value.
F-9
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. 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. See Note 2.
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. Capitalized costs consist of internal and
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-seven 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. 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.
N. 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 similarly 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.
O. 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.
F-10
P. 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)
Weighted Average Shares Outstanding — Basic
Dilutive Options and Performance- Accelerated Restricted Stock
Shares — Diluted
2014
26,447
197
26,644
2013
26,450
352
26,802
2012
26,699
331
27,030
Options to purchase 1,433 shares at a price of $37.54 were outstanding during the year ended September 30, 2014,
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 78,166 shares at prices ranging from
$36.70-$37.98 were outstanding during the year ended September 30, 2013, 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 126,787 shares at prices ranging from $35.69-$45.81 were outstanding during
the year ended September 30, 2012, 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. These options expired in
various periods through 2014.
Approximately 135,000, 156,000 and 175,000 restricted shares were outstanding but unearned at September 30,
2014, 2013 and 2012, respectively, and therefore were not included in the respective years’ computations of diluted
EPS.
Q. 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. Share-based payment expense is measured
at the grant date based on the fair value of the award and is recognized on a straight-line basis over the requisite
service period (generally the vesting period of the award).
R. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss of $(19.2) million at September 30, 2014, consisted of $(22.3) million
related to the pension net actuarial loss; and $3.1 million related to currency translation adjustments. Accumulated
other comprehensive loss of $(16.7) million at September 30, 2013, consisted of $(20.6) million related to the
pension net actuarial loss; and $3.9 million related to currency translation adjustments.
S. 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.
T. Derivative Financial Instruments
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.
F-11
U. Fair Value of Financial Measurements
Fair value is defined as the price at which an asset could be exchanged in a current transaction between
knowledgeable, willing parties or the amount that would be paid to transfer a liability to a new obligor, not the
amount that would be paid to settle the liability with the creditor. Where available, fair value is based on
observable market prices or parameters or derived from such prices or parameters. Where observable prices or
inputs are not available, valuation models are applied. These valuation techniques involve some level of
Management estimation and judgment, the degree of which is dependent on the price transparency for the
instruments or market and the instruments’ complexity.
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level
of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC 820,
and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and
liabilities, are as follows:
Level 1 – Inputs were unadjusted, quoted prices in active markets for identical assets or liabilities at the
measurement date.
Level 2 – Inputs (other than quoted prices included in Level 1) were either directly or indirectly observable for
the asset or liability through correlation with market data at the measurement date and for the duration of the
instrument’s anticipated life.
Level 3 – Inputs reflected Management’s best estimate of what market participants would use in pricing the
asset or liability at the measurement date.
V. New Accounting Standards
In April 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-08 (ASU 2014-08), Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends ASC 205,
Presentation of Financial Statements and ASC 360, Property, Plant, and Equipment. This update changes the criteria
for a disposal transaction to qualify as a discontinued operation, and expands the disclosure requirements
surrounding discontinued operations. ASU 2014-08 is effective for fiscal years beginning after December 15, 2014.
It will not have a material effect on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, which
requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised
goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S.
GAAP when it becomes effective. The new standard is effective for annual reporting periods beginning after
December 15, 2016. Early application is not permitted. The standard permits the use of either the retrospective or
cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its
consolidated financial statements and related disclosures. The Company has not yet selected a transition method
nor has it determined the effect of the standard on its ongoing financial reporting.
2. Aclara Divestiture
On March 28, 2014, the Company completed the sale of Aclara to an affiliate of Sun Capital Partners, Inc. The
divestiture generated approximately $135 million of gross cash proceeds. As of March 28, 2014, the Company
expected to receive an additional $10 million related to specific Aclara receivables retained by ESCO. As of
September 30, 2014, the Company has received approximately $8.5 million of collections related to these specific
Aclara receivables and the remaining outstanding receivables totaling $1.5 million were included in Other Current
Assets on the Company’s Consolidated Balance Sheet as of September 30, 2014. In addition, as of March 28, 2014,
the Company expected to receive an estimated working capital adjustment of approximately $5 million, however,
the parties have not reached agreement on the calculation of the final working capital adjustment. The risk in
negotiation has been considered in the Company’s consolidated financial statements. Aclara is reflected as
discontinued operations and/or assets/liabilities held for sale in the consolidated financial statements and related
notes for all periods presented.
Aclara’s pretax (loss) earnings recorded in discontinued operations was $(48.2) million, $(62.1) million and $19.5
million for the years ended September 30, 2014, 2013 and 2012, respectively. The 2014 pretax loss consisted of
Aclara’s pretax earnings from its results of operations of $15.6 million and a pretax loss of $63.8 million on the
sale of Aclara. The 2013 pretax loss was due to the $48 million goodwill impairment charge recorded in the fourth
F-12
quarter of 2013; lower sales volumes; and changes in product mix (higher shipments of lower margin gas products).
Aclara’s net sales were $129.6 million, $184.5 million and $209.7 million for the years ended September 30, 2014,
2013 and 2012, respectively. Aclara’s operations were included within the Company’s USG segment prior to the
classification as discontinued operations.
The major classes of Aclara assets and liabilities held for sale included in the Consolidated Balance Sheets at
September 30, 2013 are shown below:
(Dollars in millions)
Assets:
Accounts receivable, net
Inventories
Other current assets
Current assets
Net property, plant & equipment
Intangible assets, net
Goodwill
Other assets
Total assets
Liabilities:
Accounts payable
Accrued expenses and other current liabilities
Current liabilities
Other liabilities
Total liabilities
3. Acquisitions
2013
2013
55.5
34.9
18.5
108.9
14.5
66.0
57.9
11.8
259.1
22.2
41.4
63.6
16.0
79.6
$
$
On June 26, 2013, the Company acquired the stock of Canyon Engineering Products, Inc. (Canyon) for $9.2 million
in cash, and additionally, purchased Canyon’s 70,000 square foot manufacturing facility located in Valencia,
California, for $7 million. Canyon designs and manufactures precision fluid control devices primarily for the
aerospace industry and Canyon’s products, technology and customers are very similar to Crissair, Inc. The operating
results for Canyon, since the date of acquisition, are included as part of Crissair, Inc. within ESCO’s Filtration
segment. The Company recorded approximately $1.3 million of goodwill related to the transaction and $1.7 million
of amortizable identifiable intangible assets consisting primarily of customer relationships.
On December 21, 2012, the Company acquired the assets of Felix Tool & Engineering, Inc. (Felix Tool) for a
purchase price of $1.2 million in cash. Felix Tool is engaged in the design, manufacture and sale of customized
perforated tubes for filtration applications in the aerospace and fluid power industry. The purchase price was
allocated to property, plant and equipment and inventory based on fair market value at the date of acquisition and
there were no intangible assets recorded upon the transaction. The operating results for the business, since the date
of acquisition, are included within PTI Technologies Inc. in the Filtration segment.
On December 10, 2012, the Company acquired the assets of Finepoint Marketing, Inc. (Finepoint) for a purchase
price of $2.5 million. Finepoint is the electric power industry’s leading conference provider focused on medium and
high voltage circuit breakers, as well as related substation and switchgear topics. The operating results for the
business, since the date of acquisition, are included as a part of Doble in the USG segment. The Company recorded
approximately $1.3 million of goodwill as a result of the transaction and $1.2 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.
F-13
4. Goodwill and Other Intangible Assets
Included on the Company’s Consolidated Balance Sheets at September 30, 2014 and 2013 are the following
intangible assets gross carrying amounts and accumulated amortization:
(Dollars in millions)
Goodwill
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
Intangible assets with indefinite lives:
Trade names
2014
282.3
2013
282.9
1.0
0.8
0.2
37.4
15.2
22.2
64.1
21.2
42.9
0.4
0.2
0.2
0.9
0.6
0.3
28.7
11.9
16.8
64.1
17.9
46.2
0.4
0.2
0.2
$
$
$
$
$
$
$
$
$
$
116.6
116.7
The Company performed its annual evaluation of goodwill and intangible assets for impairment during the fourth
quarter of fiscal 2014 and concluded no impairment existed at September 30, 2014.
The changes in the carrying amount of goodwill attributable to each business segment for the years ended September
30, 2014 and 2013 are as follows:
(Dollars in millions)
Balance as of September 30, 2012
Acquisitions/adjustments
Balance as of September 30, 2013
Adjustments
Balance as of September 30, 2014
USG
215.6
1.7
217.3
(0.5 )
216.8
$
$
Test
34.7
0.3
35.0
(0.3 )
34.7
Filtration
29.3
1.3
30.6
0.2
30.8
Total
279.6
3.3
282.9
(0.6 )
282.3
Amortization expense related to intangible assets with determinable lives was $6.7 million, $6.2 million and
$5.7 million in 2014, 2013 and 2012, respectively. 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 2015
through 2019 is estimated at approximately $6.7 million per year.
F-14
5. Accounts Receivable
Accounts receivable, net of the allowance for doubtful accounts, consist of the following at September 30, 2014 and
2013:
(Dollars in thousands)
Commercial
U.S. Government and prime contractors
Total
6.
Inventories
Inventories consist of the following at September 30, 2014 and 2013:
(Dollars in thousands)
Finished goods
Work in process — including long-term contracts
Raw materials
Total
7. Property, Plant and Equipment
2014
101,153
4,296
105,449
$
$
2013
88,938
3,042
91,980
2014
18,949
31,634
43,709
94,292
$
$
2013
20,925
30,884
38,419
90,228
Depreciation expense of property, plant and equipment for the years ended September 30, 2014, 2013 and 2012 was
$9.6 million, $8.6 million and $8.1 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, 2014, 2013 and 2012 was $5.3 million,
$5 million and $5 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, 2014, are:
(Dollars in thousands)
Years ending September 30:
2015
2016
2017
2018
2019 and thereafter
Total
8.
Income Tax Expense
$
$
4,995
3,807
2,555
2,101
2,412
15,870
Total income tax expense (benefit) for the years ended September 30, 2014, 2013 and 2012 was allocated to income
tax expense as follows:
(Dollars in thousands)
Income tax expense from Continuing Operations
Income tax (benefit) expense from Discontinued Operations
Total income tax expense
2014
19,594
(6,034 )
13,560
$
$
2013
18,335
(5,215 )
13,120
2012
17,408
7,397
24,805
The components of income from continuing operations before income taxes consisted of the following for the years
ended September 30:
(Dollars in thousands)
United States
Foreign
Total income before income taxes
2014
56,196
6,011
62,207
$
$
2013
43,159
6,436
49,595
2012
46,883
5,299
52,182
F-15
The principal components of income tax expense (benefit) from continuing operations for the years ended
September 30, 2014, 2013 and 2012 consist of:
(Dollars in thousands)
Federal:
Current
Deferred
State and local:
Current
Deferred
Foreign:
Current
Deferred
Total
2014
2013
2012
$
18,756
(2,442 )
10,723
2,942
1,397
(245 )
2,044
84
19,594
$
896
642
2,033
1,099
18,335
11,144
2,954
1,372
309
1,863
(234 )
17,408
The actual income tax expense (benefit) from continuing operations for the years ended September 30, 2014, 2013
and 2012 differs from the expected tax expense for those years (computed by applying the U.S. Federal corporate
statutory rate) as follows:
2014
2013
2012
Federal corporate statutory rate
State and local, net of Federal benefits
Foreign
Research credit
Domestic production deduction
Change in uncertain tax positions
Purchase accounting adjustment
Executive compensation
Valuation allowance
Other, net
Effective income tax rate
35.0 %
2.0
(1.7 )
(1.0 )
(2.9 )
(2.9 )
—
1.3
1.3
0.4
31.5 %
35.0 %
2.7
(1.9 )
(2.5 )
(2.5 )
0.1
—
1.8
4.0
0.3
37.0 %
35.0 %
3.3
(0.7 )
(0.3 )
(2.4 )
(3.6 )
1.0
0.6
0.2
0.3
33.4 %
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities
at September 30, 2014 and 2013 are presented below:
(Dollars in thousands)
Deferred tax assets:
Inventories, long-term contract accounting, contract cost reserves and other
Pension and other postretirement benefits
Net operating loss carryforward — domestic
Net operating loss carryforward — foreign
Capital loss carryforward
Other compensation-related costs and other cost accruals
State credit carryforward
Total deferred tax assets
Deferred tax liabilities:
Goodwill
Acquisition assets
Depreciation, software amortization
Net deferred tax liabilities before valuation allowance
Less valuation allowance
Net deferred tax liabilities
2014
2013
$
7,710
6,974
658
4,702
—
13,996
1,276
35,316
(14,338 )
(57,795 )
(16,380 )
(53,197 )
(4,297 )
(57,494 )
$
6,825
7,417
848
3,955
240
19,325
1,099
39,709
(14,576 )
(61,403 )
(36,396 )
(72,666 )
(3,780 )
(76,446 )
The Company has a foreign net operating loss carryforward of $18.2 million at September 30, 2014, which reflects
tax loss carryforwards in Brazil, Germany, India, Japan, Finland, China and the United Kingdom. $16.4 million of
the tax loss carryforwards have no expiration date while the remaining $1.8 million will expire between 2016 and
2024. The Company has state net operating loss carryforwards of $0.3 million at September 30, 2014 which expire
F-16
between 2020 and 2033. The Company also has net state research and other credit carryforwards of $1.3 million of
which $0.9 million expires between 2025 and 2034. The remaining $0.4 million does not have an expiration date.
The valuation allowance for deferred tax assets as of September 30, 2014 and 2013 was $4.3 million and $3.8
million, respectively. The net change in the total valuation allowance for each of the years ended September 30,
2014 and 2013 was an increase of $0.5 million and an increase of $2.8 million, respectively. The Company has
established a valuation allowance against state credit carryforwards of $0.4 million at both September 30, 2014 and
2013. In addition, the Company has established a valuation allowance against state net operating loss (NOL)
carryforwards that are not expected to be realized in future periods of $0.3 million and $0.4 million at September
30, 2014 and 2013, respectively. Lastly, the Company has established a valuation allowance against certain NOL
carryforwards in foreign jurisdictions which may not be realized in future periods. The valuation allowance
established against the foreign NOL carryforwards was $3.6 million and $2.8 million at September 30, 2014, and
2013, respectively. The Company classifies its valuation allowance related to deferred taxes on a pro rata basis by
taxing jurisdiction.
The Company’s foreign subsidiaries have accumulated unremitted earnings of $32.6 million and cash of $27.0
million at September 30, 2014. No deferred taxes have been provided on these accumulated unremitted earnings
because these funds are not needed to meet the liquidity requirements of the Company’s U.S. operations and it is the
Company’s intention to indefinitely reinvest these earnings in continuing international operations. In the event these
foreign entities’ earnings were distributed, it is estimated that U.S. taxes, net of available foreign tax credits, of
approximately $4.7 million would be due, which would correspondingly reduce the Company’s net earnings. No
significant portion of the Company’s foreign subsidiaries’ earnings was taxed at a very low tax rate.
As of September 30, 2014, the Company had $0.5 million of unrecognized benefits (see table below), which, 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, 2014 and 2013 is
presented in the table below:
(Dollars in millions)
Balance as of October 1,
Increases related to prior year tax positions
Decreases related to prior year tax positions
Increases related to current year tax positions
Decreases related to settlements with taxing authorities
Lapse of statute of limitations
Balance as of September 30,
2014
2.2
—
(0.7 )
—
—
(1.0 )
0.5
$
$
2013
1.8
0.5
—
0.2
(0.1 )
(0.2 )
2.2
The Company anticipates a $0.1 million reduction in the amount of unrecognized tax benefits in the next 12
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,
2014, 2013 and 2012, the Company had accrued interest related to uncertain tax positions of zero, $0.1 million and
$0.1 million, respectively, net of Federal income tax benefit, on its Consolidated Balance Sheet. No significant
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. The U.S. Federal tax years for the periods
ended September 30, 2011 and forward remain subject to income tax examination. In the second quarter of 2014, the
Internal Revenue Service completed their examination of the Company’s U.S. Federal income tax return for the period
ended September 30, 2011; no adjustments were proposed. Various state tax years for the periods ended September 30,
2010 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.
F-17
9. Debt
Debt consists of the following at September 30, 2014 and 2013:
(Dollars in thousands)
Revolving credit facility, including current portion
Current portion of long-term debt
Total long-term debt, less current portion
2014
40,000
(20,000 )
20,000
$
$
2013
172,000
(50,000 )
122,000
On May 14, 2012, the Company entered into a new $450 million five-year revolving credit facility with JPMorgan
Chase Bank, N.A., as administrative agent, PNC Bank, N.A., as syndication agent, and eight other participating
lenders (the “Credit Facility”). The Credit Facility replaced the Company’s $330 million revolving credit facility
that would otherwise have matured in November, 2012. Through a credit facility expansion option, the Company
may elect to increase the size of the Credit Facility by entering into incremental term loans, in any agreed currency,
at a minimum of $25 million each up to a maximum of $250 million aggregate. The Company’s ability to access the
additional $250 million increase option of the Credit Facility is subject to acceptance by participating or other
outside banks.
At September 30, 2014, the Company had approximately $399 million available to borrow under the Credit Facility,
plus a $250 million increase option, in addition to $35.1 million cash on hand. The Company classified $20 million
as the current portion of long-term debt as of September 30, 2014, 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 Credit Facility requires, as determined by certain financial ratios, a facility fee ranging from 17.5 to 35 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 2014 and 2013, the maximum
aggregate short-term borrowings at any month-end were $187 million and $191 million, respectively; the average
aggregate short-term borrowings outstanding based on month-end balances were $103 million and $171 million,
respectively; and the weighted average interest rates were 1.48%, 1.55% and 1.20% for 2014, 2013 and 2012,
respectively. The letters of credit issued and outstanding under the Credit Facility totaled $11 million and $13
million at September 30, 2014 and 2013, respectively.
10. Capital Stock
The 30,247,512 and 30,147,504 common shares as presented in the accompanying Consolidated Balance Sheets at
September 30, 2014 and 2013 represent the actual number of shares issued at the respective dates. The Company
held 4,040,532 and 3,707,407 common shares in treasury at September 30, 2014 and 2013, respectively.
In August 2012, the Company’s Board of Directors authorized a common stock repurchase program under which the
Company may repurchase shares of its stock from time to time in its discretion, in the open market or otherwise, up
to a maximum total repurchase amount of $100 million (or such lesser amount as may be permitted under the
Company’s bank credit agreements). This program has been twice extended by the Company’s Board of Directors
and is currently scheduled to expire September 30, 2015. The Company repurchased approximately 350,000 shares
for $12.0 million in 2014; 270,000 shares for $9.7 million in 2013; and 150,000 shares for $5.4 million in 2012.
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.
Stock Option Plans
The Company’s stock option awards have generally been 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. Beginning in fiscal
F-18
2004, the options granted have had 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. 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.
Information regarding stock options awarded under the option plans is as follows:
FY 2014
FY 2013
FY 2012
Estimated
Weighted
Avg. Price
37.39
—
—
37.39
—
Estimated
Weighted
Avg. Price
36.29
—
34.70
37.30
37.39
Shares
125,816
—
(51,116 )
(7,350 )
67,350
Shares
67,350 $
—
— $
(67,350 ) $
— $
Estimated
Weighted
Avg. Price
35.58
—
14.98
45.18
36.29
Shares
435,054
—
(100,872 )
(208,366 )
125,816
October 1,
Granted
Exercised
Cancelled
September 30,
At September 30,
Reserved for future grant
Exercisable
500,000
— $
—
500,000
67,350
37.39
1,301,090
125,149
36.31
The aggregate intrinsic value of stock options exercised during 2013 and 2012 was $0.3 million and $2 million,
respectively; no stock options were exercised during 2014. No stock options were granted during 2014, 2013 or
2012, and no stock options were outstanding at September 30, 2014.
Performance-Accelerated Restricted Share Awards
The performance-accelerated restricted shares (restricted shares) have a five-year term with accelerated vesting if
certain targets based on market conditions 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
performance 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 shorter performance
period as it is 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 for continuing
operations was $4.1 million, $4 million and $3.8 million for the fiscal years ended September 30, 2014, 2013 and
2012, respectively.
The following summary presents information regarding outstanding restricted share awards as of September 30,
2014, and changes during the period then ended:
Nonvested at September 30, 2013
Granted
Vested
Cancelled
Nonvested at September 30, 2014
Non-Employee Directors Plan
Shares
425,245
109,404
(168,809 )
(33,500 )
332,340
Weighted
Average Price
33.29
$
33.12
35.13
34.08
32.23
$
The non-employee directors compensation plan provides to each non-employee director a retainer of 900 common
shares per quarter. Compensation expense related to the non-employee director grants was $0.7 million, $0.6 million
and $0.6 million for the years ended September 30, 2014, 2013 and 2012, respectively.
Total Share-Based Compensation
The total share-based compensation cost that has been recognized in results of operations and included within
SG&A from continuing operations was $4.8 million, $4.6 million and $4.4 million for the years ended September
30, 2014, 2013 and 2012, respectively. The total income tax benefit recognized in results of operations for share-
F-19
based compensation arrangements was $1.3 million, $1.3 million and $1.6 million for the years ended September 30,
2014, 2013 and 2012, 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, 2014, there was $4.7 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 1.5 years.
12. Retirement and Other Benefit Plans
Substantially all domestic employees were 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 its 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. 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 were 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 $0.9 million and $0.7 million at September 30, 2014 and 2013,
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.
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, 2014, and a statement of the funded status as of September 30, 2014 and 2013:
(Dollars in millions)
Reconciliation of benefit obligation
Net benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Settlements
Gross benefits paid
Net benefit obligation at end of year
(Dollars in millions)
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Gross benefits paid
Fair value of plan assets at end of year
$
$
$
$
2014
87.2
—
4.0
5.1
—
(3.8 )
92.5
2014
67.9
5.9
3.0
(3.8 )
73.0
2013
97.1
0.1
3.6
(9.7 )
(0.3 )
(3.6 )
87.2
2013
61.1
6.2
4.5
(3.9 )
67.9
F-20
(Dollars in millions)
Funded Status
Funded status at end of year
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
Accumulated other comprehensive (income)/loss (before tax effect)
Amounts recognized in Accumulated Other Comprehensive (Income)/Loss consist of:
Net actuarial loss
Prior service cost
Accumulated Other Comprehensive (Income)/Loss (before tax effect)
$
2014
(19.5 )
—
—
(19.5 )
—
(0.3 )
(19.2 )
36.7
36.7
—
36.7
2013
(19.3 )
—
—
(19.3 )
—
(0.3 )
(19.0 )
34.8
34.8
—
34.8
The following table provides the components of net periodic benefit cost for the plans for the years ended September
30, 2014, 2013 and 2012:
(Dollars in millions)
Service cost
Interest cost
Expected return on plan assets
Net actuarial loss
Settlement gain
Net periodic benefit cost
Defined contribution plans
Total
$
$
2014
—
4.0
(4.4 )
1.6
—
1.2
3.3
4.5
2013
0.1
3.6
(4.4 )
2.1
(0.1 )
1.3
4.6
5.9
2012
0.1
3.8
(4.1 )
1.5
—
1.3
4.5
5.8
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:
Discount rate
Rate of increase in compensation levels
Expected long-term rate of return on assets
2014
4.75%
N/A
7.00%
2013
3.75%
N/A
7.50%
2012
4.50%
N/A
7.50%
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
2014
4.25%
N/A
2013
4.75%
N/A
The assumed rate of increase in compensation levels is not applicable in 2014, 2013 and 2012 as the plan was frozen
in earlier years.
F-21
The asset allocation for the Company’s pension plans at the end of 2014 and 2013, the Company’s acceptable range
and the target allocation for 2015, by asset category, follows:
Asset Category
Equity securities
Fixed income
Cash/cash equivalents
Target
Allocation
2015
38%
62%
0%
Acceptable
Range
34-42%
58-66%
0-5%
Percentage of Plan Assets
at Year-end
2014
35%
64%
1%
2013
34%
65%
1%
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 funds which invest in 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
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level
of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to
the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities. The Company
is required to separately disclose assets and liabilities measured at fair value on a recurring basis, from those
measured at fair value on a nonrecurring basis.
The fair values of the Company’s defined benefit plan investments as of September 30, 2014, by asset category,
were as follows:
(Dollars in millions)
Investments at fair value:
Cash and cash equivalents
Common and preferred stock funds:
Domestic large capitalization
Domestic small/mid capitalization
International funds
Fixed income funds
Real estate investment funds
Total investments at fair value
Level 1
Level 2
Level 3
Total
$
0.8
5.8
6.8
10.5
46.8
2.3
73.0
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.8
5.8
6.8
10.5
46.8
2.3
73.0
The fair values of the Company’s defined benefit plan investments as of September 30, 2013, by asset category,
were as follows:
(Dollars in millions)
Investments at fair value:
Cash and cash equivalents
Common and preferred stock funds:
Domestic large capitalization
Domestic small/mid capitalization
International funds
Fixed income funds
Real estate investment funds
Total investments at fair value
Level 1
Level 2
Level 3
Total
$
0.9
4.8
6.5
9.7
43.8
2.2
67.9
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.9
4.8
6.5
9.7
43.8
2.2
67.9
The following methods 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.
Investment Funds: The fair value of the investment funds, which are classified as Level 1, is determined based on
the published net asset value of the funds.
There were no defined benefit plan investments classified as Level 2 or Level 3 during 2014 or 2013.
F-22
Expected Cash Flows
Information about the expected cash flows for the pension and other postretirement benefit plans follows:
(Dollars in millions)
Expected Employer Contributions — 2015
Expected Benefit Payments:
2015
2016
2017
2018
2019
2020-2024
13. Derivative Financial Instruments
Pension
Benefits
0.9
$
Other
Benefits
0.1
4.4
4.9
4.9
5.0
5.2
29.0
$
0.1
0.1
0.1
0.1
0.1
0.4
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. In
June 2014, the Company entered into a forward contract to sell 10.9 million Euros (US$14.7 million) on
November 3, 2014 to hedge the foreign currency risk related to an intercompany transaction. The Company
expects hedging gains or losses to be essentially offset by losses or gains on the related underlying exposures. The
amounts ultimately recognized may differ for open positions, which remain subject to ongoing market price
fluctuations until settlement. Gains and losses on foreign currency derivatives are reported in other expenses
(income), net, on the Company’s Consolidated Statements of Operations. The fair value of the foreign currency
derivative is classified in accounts receivable on the Company’s Consolidated Balance Sheet. The following is a
summary of the notional transaction amounts and fair values for the Company’s outstanding derivative financial
instruments as of September 30, 2014.
(In thousands)
Forward contract
14. Other Financial Data
Notional
Amount
(Euros)
Fair Value
(US$)
10,891
927
Items charged to continuing operations during the years ended September 30, 2014, 2013 and 2012 included the
following:
(Dollars in thousands)
Salaries and wages (including fringes)
Maintenance and repairs
Research and development (R&D) costs:
Company-sponsored
Customer-sponsored
Total R&D
Other engineering costs
Total R&D and other engineering costs
As a % of net sales
$
$
2014
158,333
4,638
16,880
11,586
28,466
12,484
40,950
2013
151,805
4,368
12,704
15,014
27,718
7,715
35,433
2012
138,192
4,248
14,293
9,171
23,464
12,217
35,681
7.7 %
7.2 %
7.5 %
F-23
A reconciliation of the changes in accrued product warranty liability for the years ended September 30, 2014, 2013
and 2012 is as follows:
(Dollars in thousands)
Balance as of October 1,
Additions charged to expense
Deductions
Balance as of September 30,
2014
1,880
239
(639 )
1,480
$
$
2013
1,536
1,048
(704 )
1,880
2012
2,120
197
(781 )
1,536
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: Filtration/Fluid Flow (Filtration), RF Shielding and Test (Test), and Utility
Solutions Group (USG).
The Filtration segment’s operations consist of: PTI Technologies Inc., VACCO Industries, Crissair, Inc. and
Thermoform Engineered Quality LLC. The companies within this segment design and manufacture specialty
filtration products including hydraulic filter elements and fluid control devices used in commercial aerospace
applications, unique filter mechanisms used in micro-propulsion devices for satellites and custom designed filters for
manned aircraft and submarines.
Test segment operations consist of ETS-Lindgren Inc. (ETS-Lindgren). ETS-Lindgren is an industry leader in
providing its customers with the ability to identify, measure and contain magnetic, electromagnetic and acoustic
energy. ETS-Lindgren also manufactures radio frequency 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 USG segment’s operations consist of Doble Engineering Company (Doble). 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.
Previously, USG also included Aclara Technologies LLC. See Note 2.
Accounting policies of the segments are the same as those described 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.
Net Sales
(Dollars in millions)
Year ended September 30,
Filtration
Test
USG
Consolidated totals
$
$
2014
233.7
181.8
115.6
531.1
2013
214.1
166.7
109.3
490.1
2012
194.8
175.9
108.0
478.7
One customer exceeded 10% of sales in 2014; no customer exceeded 10% of sales in 2013 or 2012.
F-24
EBIT
(Dollars in millions)
Year ended September 30,
Filtration
Test
USG
Reconciliation to consolidated totals (Corporate)
Consolidated EBIT
Less: interest expense
Earnings before income tax
Identifiable Assets
(Dollars in millions)
Year ended September 30,
Filtration
Test
USG
Corporate (includes assets held for sale)
Consolidated totals
$
$
2014
41.4
21.1
26.6
(25.3 )
63.8
(1.6 )
62.2
$
$
2013
42.4
16.3
21.6
(28.0 )
52.3
(2.7 )
49.6
2014
131.5
114.6
98.6
501.2
845.9
2012
38.0
14.0
25.9
(23.2 )
54.7
(2.5 )
52.2
2013
122.9
102.4
72.3
794.7
1,092.3
Corporate assets consist primarily of goodwill, deferred taxes, acquired intangible assets, cash balances and assets
held for sale.
Capital Expenditures
(Dollars in millions)
Year ended September 30,
Filtration
Test
USG
Corporate
Consolidated totals
2014
2013
$
$
7.0
1.4
4.1
0.2
12.7
6.6
3.2
3.9
0.2
13.9
2012
4.4
2.2
3.6
0.6
10.8
In addition to the above amounts, the Company incurred expenditures for capitalized software of $8.6 million, $8.4
million and $5.3 million in 2014, 2013 and 2012, respectively.
Depreciation and Amortization
(Dollars in millions)
Year ended September 30,
Filtration
Test
USG
Corporate
Consolidated totals
Geographic Information
Net Sales
(Dollars in millions)
Year ended September 30,
United States
Asia
Europe
Canada
India
Other
Consolidated totals
2014
2013
$
$
$
$
5.2
2.7
4.8
3.7
16.4
2014
374.0
59.9
62.0
10.4
3.3
21.5
531.1
4.2
2.5
4.6
3.5
14.8
2013
336.4
59.5
51.5
14.3
10.2
18.2
490.1
2012
3.9
2.5
3.4
4.7
14.5
2012
316.6
66.3
61.7
12.6
7.5
14.0
478.7
F-25
Long-Lived Assets
(Dollars in millions)
Year ended September 30,
United States
Europe
Other
Consolidated totals
$
$
2014
73.6
2.2
0.7
76.5
2013
72.8
2.2
0.5
75.5
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, 2014, the Company had $11.2 million in letters of credit outstanding as guarantees of contract
performance. As a normal incident of the businesses in which the Company is engaged, various claims, charges
and litigation are asserted or commenced from time to time against the Company. Additionally, the Company is
currently involved in various stages of investigation and remediation relating to environmental matters. It is the
opinion of Management that the aggregate costs involved in the resolution of these matters, and final judgments, if
any, which might be rendered against the Company are adequately reserved for, are covered by insurance, or are
not likely to have a material adverse effect on the Company’s results from continuing operations, capital
expenditures, or competitive position. Because the final Aclara working capital adjustment has not been agreed
upon, the Company is unable to determine its impact on the results from discontinued operations.
F-26
17. Quarterly Financial Information (Unaudited)
(Dollars in thousands, except per share amounts)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Fiscal
Year
2014
Net sales
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net earnings (loss)
$
124,450
8,832
2,357
11,189
124,762
9,264
(42,941 )
(33,677 )
130,495
11,590
—
11,590
151,413
12,927
(1,619 )
11,308
531,120
42,613
(42,203 )
410
Basic earnings (loss) per share:
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net earnings (loss)
Diluted earnings (loss) per share:
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net earnings (loss)
0.33
0.09
0.42
0.33
0.09
0.42
0.35
(1.62 )
(1.27 )
0.35
(1.61 )
(1.26 )
0.44
—
0.44
0.43
—
0.43
0.49
(0.06 )
0.43
0.49
(0.06 )
0.43
1.61
(1.59 )
0.02
1.60
(1.58 )
0.02
Dividends declared per common share
$
0.08
0.08
0.08
0.08
0.32
2013
Net sales
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net (loss) earnings
$
110,518
5,343
(5,097 )
246
118,039
5,523
(3,964 )
1,559
116,922
6,514
(1,617 )
4,897
144,600
13,880
(46,185 )
(32,305 )
490,079
31,260
(56,863 )
(25,603 )
Basic earnings (loss) per share:
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net (loss) earnings
Diluted earnings (loss) per share:
Net earnings from continuing operations
Net (loss) earnings from discontinued operations
Net (loss) earnings
0.20
(0.19 )
0.01
0.20
(0.19 )
0.01
0.21
(0.15 )
0.06
0.21
(0.15 )
0.06
0.25
(0.06 )
0.19
0.24
(0.06 )
0.18
0.52
(1.75 )
(1.23 )
0.52
(1.73 )
(1.21 )
1.18
(2.15 )
(0.97 )
1.17
(2.13 )
(0.96 )
Dividends declared per common share
$
0.08
0.08
0.08
0.08
0.32
See Notes 2 and 3 for discussion of divestiture and acquisition activity. Beginning in the third quarter of 2013,
Aclara was classified as discontinued operations and assets/liabilities held for sale. Prior period amounts have been
reclassified to conform to the current period presentation.
F-27
MANAGEMENT’S STATEMENT OF FINANCIAL RESPONSIBILITY
The Company’s Management is responsible for the fair presentation of the Company’s financial statements in
accordance with accounting 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 statements, 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 Directors. 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 interest 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.
November 26, 2014
/s/Victor L. Richey
Victor L. Richey
Chairman, Chief Executive Officer
and President
/s/Gary E. Muenster
Gary E. Muenster
Executive Vice President
and Chief Financial Officer
F-28
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
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, 2014, using criteria established in Internal Control — Integrated Framework (1992) 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, 2014, based on these criteria.
Our internal control over financial reporting as of September 30, 2014, has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in its report which is included herein.
November 26, 2014
/s/Victor L. Richey
/s/Gary E. Muenster
Victor L. Richey
Chairman, Chief Executive Officer
and President
Gary E. Muenster
Executive Vice President
and Chief Financial Officer
F-29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
ESCO Technologies Inc.:
We have audited the accompanying consolidated balance sheets of ESCO Technologies Inc. and subsidiaries (the
Company) as of September 30, 2014 and 2013, and the related consolidated statements of operations,
comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period
ended September 30, 2014. We also have audited ESCO Technologies Inc.’s internal control over financial reporting
as of September 30, 2014, based on criteria established in Internal Control – Integrated Framework (1992) 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 Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’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 consolidated 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 consolidated
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 consolidated 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 consolidated 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 consolidated 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, 2014 and 2013, and the results of
its operations and its cash flows for each of the years in the three-year period ended September 30, 2014, in
conformity with U.S. generally accepted accounting principles. Also in our opinion, ESCO Technologies Inc.
maintained, in all material respects, effective internal control over financial reporting as of September 30, 2014,
based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP
St. Louis, Missouri
November 26, 2014
F-30
EXHIBITS
The following exhibits are submitted with and attached to this Form 10-K; exhibit numbers correspond to the exhibit
table in Item 601 of Regulation S-K. For a complete list of exhibits including those incorporated by reference, see
Item 15(a)(3) of this Form 10-K, above.
Exhibit No.
Exhibit
21
23
31.1
31.2
32
Subsidiaries of the Company
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer
Certification of Chief Financial Officer
** Certification of Chief Executive Officer and Chief Financial Officer
101.INS
*** XBRL Instance Document
101.SCH
*** XBRL Schema Document
101.CAL
*** XBRL Calculation Linkbase Document
101.LAB
*** XBRL Label Linkbase Document
101.PRE
*** XBRL Presentation Linkbase Document
101.DEF
*** XBRL Definition Linkbase Document
-----------
** Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.
*** Exhibit 101 to this report consists of documents formatted in XBRL (Extensible Business
Reporting Language); a printed copy is not included.
EXHIBIT 21
Subsidiaries of Esco Technologies Inc.
The following list omits certain of the Company’s subsidiaries which, if considered in the aggregate as a single
subsidiary, would not, as of the end of the year covered by this Report, constitute a “significant subsidiary” as
defined in SEC Regulation S-X.
Name
State or Jurisdiction
of Incorporation
or Organization
Name(s) Under Which
It Does Business
Beijing Lindgren ElectronMagnetic Technology Co., Ltd. People’s Republic of China
Same; also ETS-Lindgren
Crissair, Inc.
Doble Engineering Company
Doble PowerTest Limited
Doble TransiNor AS
ESCO Finance International S.à r.l.
ESCO International Holding Inc.
ESCO Technologies Holding LLC
ETS Lindgren Engineering India Pvt. Ltd.
ETS-Lindgren GmbH
ETS-Lindgren Inc.
California
Massachusetts
United Kingdom
Norway
Luxembourg
Delaware
Delaware
India
Germany
Illinois
ETS Lindgren Japan, Inc. (also known as ETS Lindgren
Japan
Japan KK)
ETS Lindgren Limited
ETS-Lindgren OY
PTI Technologies Inc.
Thermoform Engineered Quality LLC
VACCO Industries
United Kingdom
Finland
Delaware
Delaware
California
Same
Same
Same
Same
Same
Same
Same
Same
Same
Same; also Lindgren R.F.
Enclosures and Acoustic
Systems
Same
Same
Same
Same
Same
Same
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23
The Board of Directors
ESCO Technologies Inc.:
We consent to the incorporation by reference in the registration statements (Nos. 333-77887, 333-63930,
333-117953, 333-186537 and 333-192663) on Form S-8 of ESCO Technologies Inc. of our report dated November
26, 2014, with respect to the consolidated balance sheets of ESCO Technologies Inc. and subsidiaries as of
September 30, 2014 and 2013, and the related consolidated statements of operations, stockholders’ equity, cash
flows, and comprehensive income (loss) for each of the years in the three-year period ended September 30, 2014,
and all related financial statement schedules, and the effectiveness of internal control over financial reporting as of
September 30, 2014, which report appears in the September 30, 2014 annual report on Form 10-K of ESCO
Technologies Inc.
/s/ KPMG LLP
St. Louis, Missouri
November 26, 2014
EXHIBIT 31.1
I, Victor L. Richey, certify that:
Certification
1.
I have reviewed this annual report on Form 10-K of ESCO Technologies Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit and finance committee of
the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: November 26, 2014
/s/ Victor L. Richey
Victor L. Richey
Chairman, President and Chief Executive Officer
EXHIBIT 31.2
I, Gary E. Muenster, certify that:
Certification
1.
I have reviewed this annual report on Form 10-K of ESCO Technologies Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report.
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit and finance committee of
the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: November 26, 2014
/s/ Gary E. Muenster
Gary E. Muenster
Executive Vice President and Chief Financial Officer
Certification
Pursuant to 18 U.S.C. Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
EXHIBIT 32
In connection with the annual report of ESCO Technologies Inc. (the “Company”) on Form 10-K for the period
ended September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
we, Victor L. Richey, Chairman, President and Chief Executive Officer of the Company, and Gary E. Muenster,
Executive Vice President and Chief Financial Officer of the Company, certify, to the best of our knowledge,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2)`The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: November 26, 2014
/s/ Victor L. Richey
Victor L. Richey
Chairman, President and Chief Executive Officer
/s/ Gary E. Muenster
Gary E. Muenster
Executive Vice President and Chief Financial Officer
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ESCO Technologies At A Glance
Shareholders’ Summary
Management and Board of Directors
ESCO Technologies manufactures highly engineered filtration
products for the aviation, Space and process markets worldwide
and is the industry leader in RF shielding and EMC test products.
We also provide diagnostic instruments, services and the premier
library of statistically significant apparatus test results in support
of the electric power grid. The Company’s business segments are
comprised of the following:
FILTRATION/FLUID FLOW
The engineering excellence and diverse resources of Crissair,
Inc., PTI Technologies Inc., and VACCO Industries collaborate
to provide, intelligent, high-tech fluid control solutions for
mission-critical systems. It is a long-standing partnership
that delivers innovation in products such as actuators,
filters, micro-propulsion systems, pumps, regulators,
reservoirs, and valves. Whether reaching the depths of
the ocean, safely soaring through the sky, or rocketing into
Space, this customer-centric union offers proven solutions
to the commercial aerospace, Space and defense, satellite
communications, and industrial markets worldwide.
RF SHIELDING & TEST
From simple products such as electric tooth brushes to
complex engineering marvels such as commercial aircraft,
just about everything in today’s world contains circuitry
which can be sensitive to electronic interference. To verify
products operate as intended, and don’t interfere with
other devices, they must be tested to ensure compliance
with numerous regulatory and industry-defined standards.
ETS-Lindgren designs, manufactures and installs a wide
range of components, test chambers and full turnkey
measurement systems to perform these demanding tests.
UTILITY SOLUTIONS
Doble Engineering Company’s innovation, knowledge and
experience help to protect the power industry by providing
products, consulting and testing, laboratory services and
the leading power industry conferences. Doble is a global
market leader in the electric power industry, partnering
with its customers to minimize risk, improve operations and
optimize electric power infrastructure performance. For nearly
a century, Doble has worked with clients to keep the greatest
innovation of the modern era — the electric grid — running.
SHAREHOLDERS’ ANNUAL MEETING
The Annual Meeting of Shareholders of ESCO Technologies Inc. will
be held at 9:30 a.m. Pacific Time on Thursday, February 5, 2015,
at the Westlake Village Inn, 31943 Agoura Road, Westlake Village,
CA 91361. You may access this Annual Report as well as the
Notice of the meeting and the Proxy Statement on the Company’s
Annual Meeting website at www.envisionreports.com/ese.
CERTIFICATIONS
Pursuant to New York Stock Exchange (NYSE) requirements,
the Company submitted to the NYSE the annual certifications,
dated March 11, 2014 and February 15, 2013, 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, 2014 and
September 30, 2013.
10-K REPORT
The Company’s 2014 Annual Report on Form 10-K as filed with
the Securities and Exchange Commission is included in this Annual
Report to Shareholders. The Form 10-K is also available on the
Company’s website at www.escotechnologies.com, or a copy will
be provided to shareholders without charge upon written request to
Kate Lowrey, Director of Investor Relations, ESCO Technologies Inc.,
9900A Clayton Road, St. Louis, Missouri 63124.
INVESTOR RELATIONS
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
website 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:
Computershare Shareholder Services
P.O. Box 30170
College Station, TX 77842-3170
(800) 368-5948
www.computershare.com/investor
CAPITAL STOCK INFORMATION
ESCO Technologies Inc. common stock shares (symbol ESE)
are listed on the New York Stock Exchange. There were
approximately 1,997 holders of record of shares of common
stock at October 31, 2014.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
10 South Broadway, Suite 900
St. Louis, Missouri 63102
EXECUTIVE OFFICERS
Victor L. Richey
Chairman,
Chief Executive
Officer, & President
CORPORATE STAFF
Deborah J. Boniske
Vice President
Human Resources
Gary E. Muenster
Executive Vice
President & Chief
Financial Officer
Alyson S. Barclay
Senior Vice President,
Secretary & General
Counsel
Richard A. Garretson
Vice President
Tax
Michele A. Marren
Vice President &
Corporate Controller
Mark S. Dunger
Vice President Planning
& Development
Charles J. Kretschmer
Vice President
OPERATING EXECUTIVES
Bruce E. Butler
President
ETS-Lindgren LP
Mike Alfred
President
Crissair, Inc.
Sam R. Chapetta
Filtration Group Vice
President & President,
PTI Technologies Inc.
David B. Zabetakis
President
Doble Engineering
Company
William M. Giacone
Senior Vice President
& General Manager,
Americas
ETS-Lindgren LP
Antonio E. Gonzalez
President
VACCO Industries
Randall K. Loga
President
Thermoform Engineered
Quality LLC
Mark Mawdsley
Senior Vice President &
Managing Director, Asia
ETS-Lindgren LP
Bryan Sayler
Senior Vice President,
Test Solutions
ETS-Lindgren LP
BOARD OF DIRECTORS
Gary E. Muenster
Executive Vice
President & Chief
Financial Officer
Victor L. Richey 1
Chairman, Chief
Executive Officer,
& President
Vinod M. Khilnani 2
Retired Executive
Chairman
CTS Corporation
Leon J. Olivier 4
EVP of Enterprise
Energy Strategy &
Business Development
Northeast Utilities
James M. Stolze 2,3
Retired Vice President
& Chief Financial
Officer
Stereotaxis, Inc.
Donald C. Trauscht 1,2,3,4
(Lead Director)
Chairman
BW Capital Corp.
Robert J. Phillippy 2
President & Chief
Executive Officer
Newport Corp.
Larry W. Solley 3,4
Retired Executive
Vice President
Emerson Electric Co.
1 Executive Committee
2 Audit and Finance Committee
3 Human Resources and Compensation Committee
4 Nominating and Corporate Governance Committee
This annual report is printed on recycled paper, made in the USA, with 10% post-consumer waste.
2 0 1 4 A N N U A L R E P O R T
ESCO TECHNOLOGIES INC.
9900A Clayton Road
St. Louis, MO 63124
www.escotechnologies.com
T E C H N O L O G I E S I N C.