ESCO Annual Report 2015 | Quarterlytics

← All annual reports

FY2015 Annual Report · ESCO

Loading PDF…

HIGHLY
ENGINEERED
PRODUCTS

ESCO TECHNOLOGIES DEFINED:

SUSTAINABLE
COMPETITIVE
ADVANTAGES

INCREASING
SHAREHOLDER
VALUE

MARKET
LEADERSHIP
POSITIONS

2015 ANNUAL REPORT

DIVERSIFICATION TO LOWER RISK IS A CORE STRATEGY
Our multi-segment strategy continues to provide the resilience to withstand market challenges

by maintaining lower risk through diversification of both products and end-markets.

2015 SALES:

$537.3M

FILTRATION/FLUID FLOW:
$236.1M

44%

RF SHIELDING & TEST:
$177.6M

33%

UTILITY SOLUTIONS:
$123.6M

23%

2015 EBIT:

$85.7M*

FILTRATION/FLUID FLOW:
$46.6M

54%

RF SHIELDING & TEST:
$9.5M

11%

UTILITY SOLUTIONS:
$29.6M

35%

*Excludes $23.4 million of Corporate Costs.

ESCO IS A DIVERSIFIED MANUFACTURER ESCO TECHNOLOGIES AT A GLANCE

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.

OF HIGHLY ENGINEERED PRODUCTS SERVING A NUMBER OF END MARKETS,

BUSINESS SEGMENT

OVERVIEW

FILTRATION/FLUID FLOW

Our Filtration/Fluid Flow companies provide innovative solutions
essential to the aerospace, space, defense and industrial markets.
The combined technical capabilities and resources of Crissair, Inc.,
PTI Technologies Inc. and VACCO Industries enable us to provide
highly engineered fluid control solutions for mission critical systems.

WE HOLD
MARKET
LEADING
POSITIONS

RF SHIELDING & TEST

UTILITY SOLUTIONS

ETS Lindgen Inc. provides a broad and global customer
base with highly engineered components, chambers and test
and measurement systems that allow customers to perform
sophisticated tests to ensure their products operate as
intended and don’t interfere with other electronic devices while
complying with regulatory and industry-defined standards.

Doble Engineering Company is a global market leader in the electric
power industry, offering solutions and services to minimize risk,
improve operations and optimize electric power infrastructure
performance. Doble provides a comprehensive portfolio that
includes industry-leading diagnostic equipment, intelligent software,
advanced services, comprehensive support and professional training.

productsOF HIGHLY ENGINEERED PRODUCTS SERVING A NUMBER OF END MARKETS,

MAJOR BRANDS

PRODUCTS/SERVICES

MAJOR END MARKETS

• Aerospace
• Space
• Navy
• Industrial
• Healthcare

• Healthcare
• Consumer Electronics
• Wireless
• Automotive
• Aerospace
• Government/Security
• Acoustics

• Domestic and International

Electric Utilities

• Manifolds/Reservoirs
• Filters/Modules
• Valves/Regulators
• Actuators/Indicators
• Micro-Propulsion Systems
• Satellite Components
• Refueling Mechanisms
• Thermoformed Products

• Large Test Chambers/Systems
• Test Enclosures
• Shielded Rooms
• Absorber
• Antennas/Accessories
• EMP/HEMP/IEMI Shielding
• Amplifiers

• Asset Diagnostic Testing
Equipment & Software

• On-Line Monitoring & Analysis
• Grid Intelligence Applications
• Predictive Failure Assessment
• Knowledgebase Resource Library
• Independent Consulting & Testing Services
• Forensic/Failure Analysis
• Laboratory Services
• Technical Conferences & Training

marketsproductsNEW PLATFORM WINS IN
COMMERCIAL AEROSPACE LIFT
FILTRATION PROSPECTS
Future growth in the

Filtration/Fluid Flow

segment has been enhanced

through a number of

significant new program

wins across the commercial

and military aerospace,

space launch, commercial

satellite and Navy defense

markets. See page 7.

EXPANDING INTERNATIONAL MARKET OPPORTUNITIES
Building upon the success of recent large Doble

services contract awards in the Middle East,

additional international opportunities exist as the

demand for utilities to develop or enhance their

asset management initiatives grows. See page 8.

WITH STRONG GROWTH PROSPECTS AND

NEW SOLUTIONS
With a significant

expansion of its

product portfolio,

Doble is now offering

advanced monitoring

and testing diagnostic

solutions through its

asset risk management

systems and field force

automation solutions.

PROLIFERATION OF
WIRELESS DEVICES
From the Internet of Things

to autonomous vehicles,

wireless connectivity is

becoming increasingly

important worldwide.

ETS-Lindgren provides

global turnkey solutions

that allow wireless device

manufacturers and service

providers to test any

type of wireless device to

ensure inter-operability.

growthprospectsNEW ORDERS
IN MILLIONS

ENDING BACKLOG
IN MILLIONS

$561.9

$327.5

ORDERS AND BACKLOG
Backlog has grown approximately 40%

$457.4

2015
BOOK-TO-BILL
RATIO

1.05x

over the past 5 years, consistently

driven by an annual book-to-bill

greater than 1.0. Significant 2015

orders included additional power

grid reliability services in the Middle

East, commercial aerospace (A-350)

platform content, and a large

automotive test chamber in China.

$242.7

INTERNATIONALLY

RECURRING REVENUES
% OF TOTAL SALES

PROPRIETARY PRODUCTS
% OF TOTAL SALES

RECURRING

BY BUSINESS SEGMENT

PROPRIETARY

76% FILTRATION/FLUID FLOW 63%

45%

5% RF SHIELDING & TEST

25%

47%

OTHER

COMPETITIVE

45%

UTILITY SOLUTIONS

49%

The proprietary nature of our highly engineered, technology driven products and services results in

sustainable market leading positions across a diverse group of end markets. New platform wins in

aerospace and Doble’s proven products and services continue to result in significant recurring revenue.

advantagessustainableSUSTAINABLE COMPETITIVE ADVANTAGES,

GLOBAL FOOTPRINT
With operations in 27

locations around the world,

ESCO serves markets in

more than 80 countries

on six continents.

ESCO OPERATIONS

AN ABILTY TO EXPAND INTERNATIONALLY

GEOGRAPHIC NET SALES
% OF TOTAL SALES

72%

UNITED STATES

14%

ASIA

EUROPE

ROW

In 2015, international sales were 28% of total revenue

($152 million) with significant end-market content in the

United Kingdom, Saudi Arabia, China, Japan and South Korea.

28%

International sales
in 2015

Total revenue from
international sales
in 2015

$152M

global9.0%
CAGR

$537.3

9.9%
CAGR

$85.7

$350.0

$53.6

AND A HISTORY OF PROFITABLE GROWTH.

2011

2010

NET SALES
IN MILLIONS

2015

2014

2013

2012

2015

2014

2013

2012

2011

2010

EBIT*
IN MILLIONS

*Excludes Corporate Costs

IDENTIFIABLE AND TANGIBLE SOURCES OF FUTURE EBITDA EXPANSION
Defined opportunities exist to expand operating margins across all three business segments.

New platforms in Filtration related to the growth cycle in the global aerospace industry;

momentum at Doble in its international markets as well as with new products and services;

facility consolidation actions at Test; and, the continued pursuit of strategically significant

acquisitions have us well positioned to achieve profitable and sustainable long-term growth.

profitableLETTER TO SHAREHOLDERS

BUT
THAT’S ONLY PART
OF OUR STORY.

DEAR SHAREHOLDERS: Our corporate strategy is centered on a

multi-segment approach designed to enhance the sustainability of

sales and earnings growth by mitigating risk through end-market

diversification. Since our inception 25 years ago, we have

remained focused on generating consistent and predictable

growth though the continued innovation of our highly engineered

products and solutions, and the expansion of our global footprint.

We operate in healthy, diverse and growing end-markets that

include the aerospace, space, healthcare, wireless and electric

utility industries. Essentially debt free, we continue to pursue

selective acquisitions to supplement organic growth. We remain

confident that we are well positioned to execute on our clearly

defined strategies and to deliver profitable long-term growth.

LETTER TO SHAREHOLDERS

C O NTI N U ED

FINANCIAL RESULTS
2015 was a year of solid financial performance despite

FILTRATION/FLUID FLOW

PTI, VACCO and Crissair supply highly engineered fluid control

the softness we experienced in the shielding market within

products to the aerospace, space, Navy and industrial markets.

Test. Sales, EBIT and EBIT margins increased in both the

TEQ produces custom thermoformed products and packaging

Filtration/Fluid Flow and Utility Solutions segments, driven

materials for high-end medical, retail and electronic applications.

by the current aerospace upcycle and initial production ramp

EBIT margins in Filtration increased to 20 percent in

on recent new platform wins, combined with Doble’s new

2015 driven by the increase in commercial aerospace sales

product offerings and international growth.

and the favorable operating leverage resulting from Crissair’s

We recently announced several significant and

facility consolidation in 2014.

aggressive cost reduction actions in Test intended to

In addition to the A350, several other recent contract

meaningfully enhance our ability to achieve our previously

wins are supporting our future growth. As the new awards

stated goals. These specific and sustainable measures

move into production, we will be expanding our hydraulic

were initiated to increase operational efficiency, improve

systems, components and valve assemblies delivered

profitability, and increase our returns in 2016 and beyond.

on numerous aircraft platforms covering a full range of

Strong orders and solid cash flow were again a

commercial, regional and business jets. These programs are

bright spot during 2015, as our ending backlog increased

the result of the industry’s need for improved fuel efficiency,

$25 million, or 8 percent, supporting our current growth

appropriate aircraft utilization and overall fleet modernization.

outlook. Generating $65 million in cash from operating

As these programs reach full production over the next few

activities in 2015, along with minimal debt, supports our

years, they will continue to drive revenue and earnings growth.

ability to pursue acquisitions and return cash to shareholders

VACCO achieved several significant developments in

in support of our stated capital allocation plan.

2015 including the delivery of the first of many critical

BUSINESS SEGMENTS
ESCO is comprised of three business segments — Filtration/

flight components for NASA’s Space Launch System (SLS)

program. Additionally, they captured new program wins for

a next-generation European satellite platform, and the first

interplanetary satellite propulsion system supporting the

Fluid Flow (Filtration), RF Shielding & Test (Test) and Utility

exploration of Mars.

Solutions (USG, or Doble). Each segment provides highly

TEQ’s performance in 2015 was at a record level and

engineered products, stable market-leading positions, with a

included the cumulative milestone of five billion thermometer

clear focus on generating profitable and sustainable growth.

probe covers delivered to date defect-free.

MANAGEMENT INTERESTS ALIGNED
WITH SHAREHOLDERS
From left to right: Alyson S. Barclay,

Senior Vice President, Secretary and

General Counsel; Victor L. Richey, Chairman,

Chief Executive Officer and President;

and Gary E. Muenster, Executive Vice

President and Chief Financial Officer.

NEW AEROSPACE PLATFORM WINS
LIFT FILTRATION PROSPECTS AND VALIDATE OUR STRATEGY
From multi-component manifolds and complex valves to highly

engineered fluid control systems, our products are utilized across

the aerospace, space launch, commercial satellite and Navy defense

markets. As production increases on new programs, Crissair, PTI

and VACCO have solidified their future growth. By continuing to

build upon diverse solution-oriented technologies, our Filtration/

Fluid Flow segment is fully entrenched with a pioneering footprint

in the new wave of industry advancements and is well positioned

as an essential component provider well into the future.

ABOVE INDUSTRY-
AVERAGE TOP LINE
GROWTH PROSPECTS IN
FILTRATION/FLUID FLOW

INTERNATIONAL EXPANSION OPPORTUNITIES:
FOCUSING ON LARGE NATIONAL UTILITIES IN SAUDI ARABIA,
MEXICO AND SOUTH AFRICA
National utilities, such as those in Saudi Arabia, Mexico and

South Africa, have the immense responsibility of providing

reliable electricity to their entire country. Consulting and

testing services are gaining momentum with these large-

scale organizations as they need to understand the condition

of their aging assets, focus maintenance resources where

they are needed, plan for strategic spares, and continue to

expand their power grids. These customers turn to Doble

for its unique offering of diagnostic products, services and

SAUDI ARABIA

SOUTH AFRICA

technical training. Doble’s depth and breadth of expertise allows

companies to invest in these practical solutions that impact

MEXICO

daily decisions and long-term asset management initiatives.

WE ARE COMMITTED
TO INVESTMENT IN NEW
PRODUCTS, SERVICES
AND SOLUTIONS.

m
o
k
s
E

f
o

y
s
e
t
r
u
o
C

LETTER TO SHAREHOLDERS

C O NTI N U ED

RF SHIELDING & TEST

This purchase of test sets and accompanying software is a

Test’s products are utilized in a variety of electronic

significant step towards establishing a stronger foothold in

applications to help improve the performance of wireless and

the European market.

other electronic devices, to ensure products meet regulatory

Doble’s consulting and testing services continue to gain

standards, and to protect sensitive equipment and data from

momentum in the Middle East, evidenced by the renewal of

interference by providing innovative test and measurement

its transformer asset health review contract with National

products, solutions and shielded enclosures to a diverse

Grid Saudi Arabia.

group of end-markets worldwide. Approximately 50 percent

As organizations implement asset management

of Test’s 2015 sales were to international customers,

initiatives globally, Doble is positioned to provide the training,

primarily in Asia and Europe.

analytical support and diagnostic products that define a

Test was negatively impacted by the overall softness in the

comprehensive asset health and risk assessment program.

global shielding markets and adjustments recorded throughout

the year to write-down certain inventories. In response to these

challenges, specific restructuring actions were implemented

which are intended to create a more efficient, less complex, lower

INCREASING SHAREHOLDER VALUE
Our stated goals are to achieve annual sales growth of 10

cost operating structure yielding significantly higher margins.

percent and EPS growth of 15 percent, with 80 percent

UTILITY SOLUTIONS GROUP

being organic. The current outlook, supplemented by our

defined cost reductions and ongoing share repurchases,

Doble has been supporting the electric power industry

provide significant momentum toward achieving our goals.

for nearly a century by providing diagnostic instruments,

With the strength of our balance sheet, we have the ability

consulting and testing services, and solutions that provide

to selectively pursue acquisitions, with the targets ideally

actionable intelligence to help ensure asset health

offering highly-engineered, technology-driven products and

and reliability.

services with strong competitive positions in niche markets.

Doble’s growth is driven by the introduction of new

We remain committed to our capital allocation strategy

products, solutions and services, combined with the extension

which includes returning cash to shareholders through

of its geographic reach and the addition of ENOSERV.

dividends and opportunistic share repurchases. In 2015,

Doble recently delivered its first field-force automation

we returned $27 million to shareholders, which included

program which combines rugged controllers, testing software,

repurchasing 520,000 shares of stock.

cloud-technology, custom engineering and data management

We are well positioned to deliver meaningful revenue

processes intended to help customers simplify testing,

growth and margin expansion through our multi-segment

automate data processes, improve efficiency and streamline

approach which continues to mitigate risk through

business practices from the field to the office.

diversification. We are confident in our ability to execute

Supporting the industry’s move towards data

our strategy and deliver profitable long-term growth.

consolidation, intelligent analytics and condition-based

On behalf of our management team and our Board of

maintenance programs, Doble secured its first contract for
its dobleARMS™ asset risk management program in 2015.

Doble also expanded its core product line with the

M7100 High Voltage Asset Analyzer which is an industry-

changing diagnostic instrument automating a number of

complex tests that previously required multiple instruments,

Directors, we would like to sincerely thank our shareholders

and employees for their continuing support.

thereby allowing companies to reduce safety risk and to

Vic Richey

Gary Muenster

complete the required testing in one third of the time.

Chairman, Chief Executive

Executive Vice President

Doble’s industry standard M4100 insulation analyzer

Officer & President

& Chief Financial Officer

was selected by a major transmission company in France as

a cornerstone of its transformer fleet maintenance program.

November 30, 2015

FIVE-YEAR FINANCIAL SUMMARY

(Dollars in millions, except per share amounts)

2015

2014

2013

2012

2011

For years ended September 30:
Net sales

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)

As of September 30:
Working capital
Total assets
Total debt
Shareholders’ equity

Cash dividends declared per common share

$537.3

531.1

490.1

478.7

450.8

41.7
0.8

42.5

$ 1.60
.03

$ 1.63

$ 1.59
.03

$ 1.62

155.0
864.2
50.0
584.2

$ 0.32

42.6
(42.2)

0.4

1.61
(1.60)

0.01

1.60
(1.58)

0.02

148.9
845.9
40.0
580.2

0.32

31.3
(56.9)

(25.6)

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

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

0.32

See Note 2 to the Consolidated Financial Statements for discussion of divestiture activity.

ESCO TECHNOLOGIES, INC.

2015 FORM 10-K

fiscal year2015SHAREHOLDERS’ SUMMARY

MANAGEMENT AND BOARD OF DIRECTORS

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
1,915 holders of record of shares of
common stock at November 2, 2015.

INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
KPMG LLP
10 South Broadway, Suite 900
St. Louis, MO 63102

EXECUTIVE OFFICERS

Victor L. Richey
Chairman,
Chief Executive Officer
& President

CORPORATE STAFF

Deborah J. Boniske
Vice President
Human Resources

Mark S. Dunger
Vice President Planning
& Development

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

Charles J. Kretschmer
Vice President

David M. Schatz
Vice President
& Intellectual
Property Counsel

OPERATING EXECUTIVES

Mike Alfred
President
Crissair, Inc.

Bruce E. Butler
President
ETS-Lindgren LP

Sam R. Chapetta
Filtration Group Vice
President & President
PTI Technologies Inc.

Randall K. Loga
President
Thermoform Engineered
Quality LLC

Antonio E. Gonzalez
President
VACCO Industries

David B. Zabetakis
President
Doble Engineering Company

BOARD OF DIRECTORS

Vinod M. Khilnani 2
Retired Executive
Chairman
CTS Corporation

Robert J. Phillippy 2
President &
Chief Executive Officer
Newport Corp.

James M. Stolze 2,3
Retired Vice President &
Chief Financial Officer
Stereotaxis, Inc.

Gary E. Muenster
Executive Vice President
& Chief Financial Officer

Victor L. Richey 1
Chairman, Chief Executive
Officer & President

Leon J. Olivier 4
EVP of Enterprise
Energy Strategy &
Business Development
Northeast Utilities

Larry W. Solley 3,4
Retired Executive
Vice President
Emerson Electric Co.

Donald C. Trauscht 1,2,3,4
(Lead Director)
Chairman
BW Capital Corp.

SHAREHOLDERS’ ANNUAL
MEETING
The Annual Meeting of Shareholders
of ESCO Technologies Inc. will be
held at 10:30 a.m. Central Time
on Thursday, February 4, 2016, at
ETS Lindgren Inc., 1301 Arrow Point
Drive, Cedar Park, TX 78613. 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
by the Company’s chief executive
officer dated February 11, 2015
and March 11, 2014, 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, 2015
and September 30, 2014.

10-K REPORT
The Company’s 2015 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, MO 63124.

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.

marketsE
S
C
O

T
E
C
H
N
O
L
O
G
I
E
S

I
N
C

2
0
1
5

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