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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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period to
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Commission file number: 1-10596
ESCO Technologies Inc.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Missouri 43-1554045
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8888 Ladue Road, Ste. 200
St. Louis, Missouri 63124-2056
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(314) 213-7200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each
Exchange on
Title of Each Class Which Registered
------------------- ----------------
Common Stock, par value $0.01 per New York Stock
share Exchange, Inc.
Preferred Stock Purchase Rights New York Stock
Exchange, Inc.
(Cover page 1 of 2 pages)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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 filing requirements
for the past 90 days. Yes X 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 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the Common Stock held by non-affiliates of the
registrant as of close of business on December 17, 2001: $387,536,021.*
* 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 December 17, 2001: 12,421,785
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the registrant's Annual Report to Stockholders for fiscal
year ended September 30, 2001 (the "2001 Annual Report") (Parts I and
II).
2. Portions of the registrant's Proxy Statement dated December 11, 2001
(Part III).
(Cover page 2 of 2 pages)
ESCO TECHNOLOGIES INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
Item Description Page
- ---- ----------- ----
Part I
1. Business....................................................................... 1
The Company............................................................. 1
Products................................................................ 1
Marketing and Sales..................................................... 3
Intellectual Property................................................... 4
Backlog................................................................. 4
Purchased Components and Raw Materials.................................. 4
Competition............................................................. 5
Research and Development................................................ 5
Environmental Matters................................................... 5
Government Contracts.................................................... 6
Employees............................................................... 6
Financing............................................................... 6
History of the Business................................................. 6
Forward-Looking Information............................................. 6
2. Properties..................................................................... 7
3. Legal Proceedings.............................................................. 8
4. Submission of Matters to a Vote of Security Holders............................ 8
Executive Officers of the Registrant...................................................... 9
Part II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................................ 9
6. Selected Financial Data........................................................ 9
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................... 10
7A. Quantitative and Qualitative Disclosures About Market Risk..................... 10
8. Financial Statements and Supplementary Data.................................... 10
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................... 10
I
Item Description Page
- ---- ----------- ----
Part III
10. Directors and Executive Officers of the Registrant............................. 10
11. Executive Compensation......................................................... 10
12. Security Ownership of Certain Beneficial Owners and Management................. 10
13. Certain Relationships and Related Transactions................................. 10
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............... 11
SIGNATURES ............................................................................... 15
INDEX TO EXHIBITS ........................................................................ 16
II
PART I
ITEM 1. BUSINESS
THE COMPANY
ESCO Technologies Inc. ("ESCO") is a producer of engineered products and
systems for industrial and commercial applications sold to customers world-wide.
ESCO operates in four industry segments which, together with the operating
subsidiaries within each segment, are as follows:
Filtration/Fluid Flow:
PTI Technologies Inc.
PTI Advanced Filtration Inc.
PTI Technologies Limited
Bea Filtri S.p.A. ("Bea")
Filtertek Inc.
Filtertek BV
Filtertek de Puerto Rico, Inc.
Filtertek do Brazil Industria E Commerico Limitada
Filtertek SA
VACCO Industries ("VACCO")
ESCO Electronica De Mexico, S.A. de C.V.
Test:
EMC Test Systems, L.P. ("ETS")
Lindgren R.F. Enclosures, Inc. ("Lindgren")
Rayproof Ltd.
Euroshield OY
Holaday Industries, Inc. ("Holaday")
Communications:
Distribution Control Systems, Inc. ("DCSI")
Distribution Control Systems Caribe, Inc. ("DCSI-Caribe")
Comtrak Technologies, L.L.C. ("Comtrak")
Other:
Rantec Power Systems Inc. ("Rantec")
The above operating subsidiaries are engaged primarily in the research,
development, manufacture, sale and support of the products and systems described
below, and are subsidiaries of ESCO Technologies Holding Inc., a wholly-owned
direct subsidiary of ESCO. ESCO and its direct and indirect subsidiaries are
hereinafter referred to collectively as the "Company". The Company's businesses
are subject to a number of risks and uncertainties, including without limitation
those discussed below. See "Management's Discussion and Analysis" appearing in
the 2001 Annual Report.
PRODUCTS
The Company's products are described below. See Note 11 of the Notes to
Consolidated Financial Statements in the 2001 Annual Report, which Note is
herein incorporated by reference.
FILTRATION/FLUID FLOW
The Company's Filtration/Fluid Flow segment accounted for approximately
55% of the Company's total revenue in fiscal year 2001.
PTI Technologies Inc., PTI Advanced Filtration Inc., PTI Technologies
Limited and Bea develop and
1
manufacture a wide range of filtration products. PTI Technologies Inc. is a
leading supplier of filters to the commercial aerospace and industrial markets.
The industrial business includes the supply of filtration products for process
and mobile fluid power applications. PTI Advanced Filtration Inc. produces
microfiltration products for applications in microelectronic, food and beverage,
and pharmaceutical markets. Membrane separation products and systems are also
produced by PTI Advanced Filtration Inc. for use in the dairy industry and
industrial coatings applications. PTI Technologies Limited manufactures and
distributes filter products primarily in the European industrial marketplace.
Bea, acquired in June 2001, is a manufacturer and supplier of filtration
products to the pharmaceutical, food and beverage, healthcare and petro-chemical
markets, primarily in Europe. VACCO and PTI Technologies Inc. develop and
manufacture industrial filtration elements and systems primarily used within the
petrochemical and nuclear industries, where a premium is placed on superior
performance in very harsh environments. VACCO supplies flow control products to
the aerospace industry for use in aircraft, satellite propulsion systems,
satellite launch vehicles and the space shuttle. VACCO also uses its etched disc
technology to produce quiet valves and manifolds for U.S. Navy and severe
service industrial applications.
All of the Filtertek entities listed above under "THE COMPANY" are
hereinafter collectively referred to as "Filtertek". Filtertek develops and
manufactures a broad range of high-volume filtration products at its facilities
in North America, South America and Europe. Filtertek's products, which are
centered around its insert injection-molding technology wherein a filter medium
is inserted into the tooling prior to injection-molding of the filter housing,
have widespread applications in the medical and health care markets, automotive
fluid system market, and other commercial and industrial markets. Typical
Filtertek customers may require daily production of many thousands of units, at
very high levels of quality, that are generally produced in highly-automated
manufacturing cells. Many of Filtertek's products are produced utilizing
patented technology or incorporate proprietary product or process design, or
both. Filtertek's products are typically supplied to original equipment
manufacturers under long-term contracts. In fiscal year 2001, Filtertek
introduced a number of new products including automotive fuel injection and fuel
pump filters, newly patented transmission sump filters, blood filtration devices
and industrial products such as spray paint system filters.
TEST
The Company's Test segment accounted for approximately 25% of the
Company's total revenue in fiscal year 2001.
ETS designs and manufactures electromagnetic compatibility ("EMC") test
equipment. It also supplies controlled radio frequency ("RF") testing
environments (anechoic chambers) and electromagnetic absorption materials. ETS's
products include antennas, antenna masts, turntables, current probes, field
probes, TEM (transverse electromagnetic) cells, GTEM (gigahertz transverse
electromagnetic) cells, calibration equipment and other test accessories
required to perform a variety of RF tests. ETS also provides all the design,
program management and integration services required to supply customers with
turnkey EMC solutions. In fiscal year 1999, ETS was awarded a contract by
General Motors, valued at more than $20 million, to design and equip an EMC test
facility. Revenue from this contract, which was substantially completed during
fiscal year 2001, amounted to approximately 5% of total revenue for the Test
segment in fiscal year 2001.
Lindgren designs, manufactures, installs and services electromagnetic
("EM") shielding systems used in medical equipment, wireless communication
product testing and electronics products. Lindgren's products include RF and
magnetic shielding for magnetic resonance imaging ("MRI") rooms, shielded test
enclosures, RF filters, fiber optic interface components, active magnetic field
compensation systems, and a line of proprietary doors designed specifically for
EM isolation, containment and measurement applications. Lindgren also supplies
special high performance RF and acoustic shielded rooms for secure data
processing and communications for government security applications.
Euroshield OY designs and manufactures a broad range of modular shielding
systems and shielded doors, some of which are proprietary, for the world market.
It also provides the design, program management and integration services to
supply the European market with turnkey solutions.
Holaday designs and manufactures specialty measurement probes for use in
broadband and EMC test, health and safety, and microwave detection products.
Holaday's products include probes, meters, analysis
2
software, personal protection equipment and components used by original
equipment manufacturers and service professionals. Holaday also performs
calibration certification services for its probes and meters.
COMMUNICATIONS
In fiscal year 2001, approximately 17% of the Company's total revenue was
derived from its Communications segment.
DCSI is a leading manufacturer of two-way power line communication
systems for the utility industry. These systems provide electric utilities with
a patented communication technology for automatic meter reading, demand-side
management and distribution automation (the TWACS(R) system). Revenue from the
TWACS systems accounted for approximately 16%, 14% and 6% of the Company's
consolidated revenue in fiscal years 2001, 2000 and 1999, respectively. During
fiscal year 2001, DCSI (through its subsidiary, DCSI-Caribe) received
substantial revenue from shipments of an automatic meter reading ("AMR") system
to the Puerto Rico Electric Power Authority ("PREPA") under a multi-year
contract signed in fiscal year 1998. Revenue from this contract amounted to
approximately 34% of total Communications segment revenue in fiscal year 2001,
when deliveries were completed. PREPA has awarded DCSI-Caribe a follow-on
contract running from fiscal 2001 to fiscal 2006 which has a value of
approximately $50 million. Revenue from this contract is expected to constitute
approximately 15% of total Communications segment revenue in fiscal year 2002.
During 1999, DCSI was chosen to supply the first phase of an AMR project to
Wisconsin Public Service Co. ("WPS"). The first phase was completed during
fiscal 2001. WPS has awarded DCSI a follow-on contract in the amount of $9.3
million, which is expected to be completed during fiscal 2002. In addition, in
October 2001 DCSI received in excess of $30 million in new orders from a total
of six customers, including Lee County (Florida) Electric Co-op, Inc. and
Perdenales (Texas) Electric Co-op, Inc.
Comtrak has developed an advanced video security monitoring system, which
has applications in commercial and industrial security systems. Currently,
Comtrak is working jointly with ADT Security Services, Inc., who is selling this
system under its SecurVision(R) trademark to a variety of markets.
OTHER
The Company's Other products segment represented approximately 3% of the
Company's total revenue in fiscal year 2001.
Rantec designs and manufactures high voltage and low voltage power
supplies, DC to DC converters and power systems, which are marketed to a broad
range of customers worldwide. Applications include medical and avionics CRT
displays, as well as ground-based, shipboard and airborne power systems. Rantec
has continued its development of state-of-the art, patented, miniature high
voltage technology, which provides the same basic functions of today's high
voltage power supplies and reduces package size by 80%.
MARKETING AND SALES
The Company's Filtration/Fluid Flow and Test segments' products generally
are distributed to customers through a domestic and foreign network of
distributors, sales representatives and factory salespersons. The Communications
and Other segments' systems are primarily sold directly to the respective end
users; however, the Communications segment utilizes distributors to sell its
systems to the electric co-op market.
The Company's international sales (excluding sales of ESCO's former
Systems & Electronics Inc. ("SEI") subsidiary which was sold on September 30,
1999) accounted for approximately 22%, 23% and 13% of the Company's total sales
in the fiscal years ended September 30, 2001, 2000 and 1999, respectively. The
increases since fiscal year 1999 were primarily due to increased sales at ETS
and Filtertek and the acquisition of Lindgren. See Note 11 of the Notes to
Consolidated Financial Statements in the 2001 Annual Report. Since the
divestiture of SEI, international sales have been derived primarily from
industrial and commercial products rather than defense products.
The Company's international sales are subject to risks inherent in
foreign commerce, including currency
3
fluctuations and devaluations, the risk of war, changes in foreign governments
and their policies, differences in foreign laws, uncertainties as to enforcement
of contract rights, and difficulties in negotiating and litigating with foreign
customers.
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. Excluding SEI results,
direct and indirect sales to the U.S. Government accounted for approximately
12%, 8% and 10% of the Company's total sales in the fiscal years ended September
30, 2001, 2000 and 1999, 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
growing 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. With
respect to patents, there can be no assurance that issued patents will not be
infringed or designed around by others. In addition, the Company may not elect
to pursue an infringer due to the high costs and uncertainties associated with
litigation. Further, there can be no assurance that courts will ultimately hold
issued patents valid and enforceable.
With respect to the Filtration/Fluid Flow segment, an increasing number
of products are based on patented or otherwise proprietary technology that sets
them apart from the competition. In the Test and Other segments, patent
protection is sought for significant inventions. In the Communications segment,
many of the products are based on patented or otherwise proprietary technology.
The Company considers its patent and other intellectual property to be
of significant value in each of its segments. The Communications segment owns
intellectual property which it deems necessary or desirable for the manufacture,
use or sale of its products. No other segment is materially dependent on any
single patent, group of patents or other intellectual property.
BACKLOG
The backlog of firm orders at September 30, 2001 and September 30, 2000,
respectively, was: $70.8 million and $73.5 million for Filtration/Fluid Flow;
$27.4 million and $33.9 million for Test; $72.8 million and $27.9 million for
Communications; and $9.1 million and $10.1 million for Other. As of September
30, 2001, it is estimated that domestic customers accounted for approximately
77% of the Company's total firm orders, and international customers accounted
for approximately 23%. Of the Company's total backlog of orders at September 30,
2001, approximately 86% is expected to be completed in the fiscal year ending
September 30, 2002.
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
material 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. The Test segment is a vertically integrated supplier of EM shielding
products, producing most of its critical RF components. This capability enables
the Test segment to control the level of quality, RF performance and delivery
response time for its customers. In the Communications segment, DCSI utilizes a
single source or a limited number of sources to produce substantially all of
DCSI's end-products. Although the Company believes alternative suppliers of
components and end-products are available, the inability of DCSI to develop
alternative sources quickly or cost-effectively could have a material adverse
effect on the Communications segment.
4
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 firms for
nearly all of its products. Competition can be particularly intense during
periods of economic slowdown, and this has been experienced in the past in some
of the Filtration/Fluid Flow markets. Although the Company is a leading supplier
in several of the markets it serves, it maintains a relatively small share of
the business in many of the markets in which it participates. 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, it is impossible to state precisely its competitive position with
respect to its products. Substantial efforts are required in order to maintain
existing business levels. In the Company's major served markets, competition is
driven primarily by quality, technology, price and delivery performance. The
following information concerns the Company's primary segments.
Pall Corporation is a major competitor in the Filtration/Fluid Flow
market. Other significant competitors in this market include Millipore Corp.,
Osmonics Inc. and Cuno Inc.
The Test segment is the global leader in the EM shielding market.
Significant competitors in this served market include Braden Shielding Systems
and TDK RF Solutions Inc.
Primary competitors of the Communications segment in the utility
communications market include Itron, Inc. and Schlumberger Limited.
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 following information excludes expenses attributable to SEI. The
Company performs research and development at its own expense, and also engages
in research and development funded by customers. For the fiscal years ended
September 30, 2001, 2000 and 1999, total Company-sponsored research and
development expenses were approximately $9.4 million, $6.2 million and $6.3
million, respectively. The increase in fiscal 2001 for Company-sponsored
research and development expenses was due to additional investments made within
the Filtration/Fluid Flow and Communications segments. Total customer-sponsored
research and development expenses were approximately $5.2 million, $4.0 million
and $8.3 million for the fiscal years ended September 30, 2001, 2000 and 1999,
respectively. The decreases since fiscal year 1999 for customer-sponsored
research and development expenses were due primarily to lower activity at
Rantec, as well as the sale of the Rantec microwave antenna business. All of the
foregoing expense amounts exclude certain engineering costs primarily associated
with product line extensions, modifications and maintenance, which amounted to
approximately $10.8 million and $8.4 million for the fiscal years ended
September 30, 2001 and 2000, 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; and in the case of off-site waste disposal facilities, the
uncertain level of the Company's relative involvement and the possibility of
joint and several liability with other contributors under applicable law. 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 statements.
5
GOVERNMENT CONTRACTS
The Company's contracts with the U.S. Government and subcontracts with
prime contractors of the U.S. Government are primarily 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.
Therefore, 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 subcontracts
provide that they may be terminated at the convenience of the Government. Upon
such termination, the Company is normally entitled to receive equitable
compensation for same. See "Marketing And Sales" in this Item 1.
EMPLOYEES
As of November 30, 2001, the Company employed approximately 2,400
persons. Approximately 230 of these employees are covered by a collective
bargaining agreement, which will expire in fiscal year 2005.
FINANCING
On April 11, 2000, the Company entered into a $75 million revolving
credit facility replacing its previous $40 million credit facility. The $75
million credit facility has the following scheduled reductions: $9,750,000 on
April 11, 2002, $10,500,000 on April 11, 2003, $9,750,000 on April 11, 2004, and
the remaining balance is due upon maturity and expiration, April 11, 2005. The
credit facility was amended on February 28, 2001 to allow for borrowings in
foreign currencies. The Company maintains the option to increase the credit
facility by $25 million through April 11, 2002. The credit facility is available
for direct borrowings and/or the issuance of letters of credit. The credit
facility contains customary events of default, including change in control of
the Company. The credit facility is provided by a group of five banks, led by
Bank of America. Substantially all of the assets of the Company are pledged
under the credit facility. See "Management's Discussion and Analysis--Capital
Resources & Liquidity" in the 2001 Annual Report, and Note 7 of the Notes to
Consolidated Financial Statements in the 2001 Annual Report, which Note is
herein incorporated by reference.
HISTORY OF THE BUSINESS
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 ESCO and its subsidiaries was distributed on October 19,
1990 by Emerson to its shareholders through a special distribution. Effective
July 10, 2000, ESCO changed its name from ESCO Electronics Corporation to ESCO
Technologies Inc.
On June 8, 2001, the Company acquired the stock of Bea Filtri, S.p.A.,
and integrated this business into the Filtration/Fluid Flow segment.
In fiscal year 2001, the Company completed the consolidation of the Eaton
fluid flow components business into VACCO's facility at South El Monte,
California; closed redundant facilities of the Test segment in Riviera Beach,
Florida and of the Filtration/Fluid Flow segment in Stockton, California; and
made significant progress in consolidating operations in the Test segment.
FORWARD-LOOKING INFORMATION
The statements contained in this Item 1. "Business" and in Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" concerning the Company's future revenues, profitability, financial
resources, utilization of net deferred tax assets, product mix, production and
deliveries, market demand, product development, competitive position, impact of
environmental matters and statements containing phrases such as "believes",
"anticipates", "may", "could", "should", and "is expected to" are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The Company's actual results
in the future may differ materially from those projected in
6
the forward-looking statements due to risks and uncertainties that exist in the
Company's operations and business environment including, but not limited to:
further weakening of economic conditions in served markets; changes in customer
demands or customer insolvencies; electricity shortages; competition;
intellectual property matters; consolidation of internal operations; integration
of recently acquired businesses; delivery delays or defaults by customers;
performance issues with key suppliers and subcontractors; collective bargaining
labor disputes; and the Company's successful execution of internal operating
plans.
ITEM 2. PROPERTIES
The Company's principal buildings contain approximately 1,313,050 square
feet of floor space. Approximately 672,400 square feet are owned by the Company
and approximately 640,650 square feet are leased. Substantially all of the
Company's owned properties are encumbered in connection with the Company's
credit facility. See Item 1. "Business--Financing" and Note 7 of the Notes to
Consolidated Financial Statements in the 2001 Annual Report. The principal
plants and offices are as follows:
SQ. FT. LEASE
SIZE OWNED/ EXPIRATION PRINCIPAL USE
LOCATION (SQ. FT.) LEASED DATE (INDUSTRY SEGMENT)
- -------- --------- ------ ------------- ------------------
Oxnard, CA 127,400 Leased 12-29-05 Management, Engineering and
Manufacturing (Filtration/Fluid
Flow)
Oxnard, CA 125,000 Leased 12-29-05 Management, Engineering and
Manufacturing (Filtration/Fluid
Flow)
Patillas, PR 110,000 Owned Manufacturing (Filtration/Fluid
Flow)
Durant, OK 100,000 Owned Manufacturing (Test)
Hebron, IL 99,800 Owned Management, Engineering and
Manufacturing (Filtration/Fluid
Flow)
Milan, Italy 85,700 Leased 6-7-13 Management, Engineering and
(w/one 6-year Manufacturing (Filtration/Fluid
renewal option) Flow)
South El Monte, CA 80,800 Owned Management, Engineering and
Manufacturing (Filtration/Fluid
Flow)
Huntley, IL 74,000 Owned Manufacturing (Filtration/Fluid
Flow)
Cedar Park, TX 70,400 Leased 12-29-05 Management, Engineering and
Manufacturing (Test)
Glendale Heights, IL 59,400 Leased 3-31-05 Management, Engineering and
(w/one 5-year Manufacturing (Test)
and three 3-year
renewal options)
Los Osos, CA 40,000 Owned Management, Engineering and
Manufacturing
(Other Products)
7
Newcastle West, 37,000 Owned Manufacturing (Filtration/Fluid
Ireland Flow)
St. Louis, MO 35,000 Owned Management, Engineering and
Manufacturing (Communications)
Juarez, Mexico 34,400 Leased 12-31-04 Engineering and Manufacturing
(Filtration/Fluid Flow)
Sheffield, England 33,500 Owned Management, Engineering and
Manufacturing (Filtration/Fluid
Flow)
Plailly, France 33,000 Owned Engineering and Manufacturing
(Filtration/Fluid Flow)
Sao Paulo, Brazil 31,000 Leased 12-14-02 Manufacturing (Filtration/Fluid
Flow)
Minocqua, WI 30,200 Leased 3-31-05 Engineering and Manufacturing
(w/one 5-year, (Test)
and three 3-
year renewal
options)
Eden Prairie, MN 29,700 Leased 5-31-08 Engineering and Manufacturing
(option to (Test)
terminate after
5-31-98)
Eura, Finland 29,300 Owned Management, Engineering and
Manufacturing (Test)
Stevenage, England 25,650 Leased 8-11-17 Management, Engineering and
(w/option to Manufacturing (Test)
terminate on
8-12-07)
St. Louis, MO 21,800 Leased 8-31-05 ESCO Headquarters
(w/two 5-year
renewal options)
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.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information as of December 13, 2001 with
respect to ESCO's executive officers. These officers have been elected to terms
which expire at the first meeting of the Board of Directors after the next
annual meeting of stockholders.
Name Age Position(s)
---- --- -----------
Dennis J. Moore * 63 Chairman and Chief Executive Officer
Victor L. Richey, Jr. 44 President and Chief Operating Officer
Charles J. Kretschmer 45 Executive Vice President and Chief Financial Officer
Alyson S. Barclay 42 Vice President, Secretary and General Counsel
- ------------
* Also a director and Chairman of the Executive Committee of the Board of
Directors.
There are no family relationships among any of the executive officers and
directors.
Mr. Moore was Chairman, President and Chief Executive Officer of ESCO from
October 1992 until August 2001, and has been Chairman and Chief Executive
Officer since the latter date.
Mr. Richey was Vice President, Administration of ESCO from May 1998 until
October 2000, Senior Vice President and Group Executive from October 2000 until
August 2001, and President and Chief Operating Officer since the latter date.
Mr. Kretschmer was Vice President of ESCO from February 1999 until October
1999, Vice President and Chief Financial Officer from October 1999 until October
2000, Senior Vice President and Chief Financial Officer from October 2000 until
October 2001, and Executive Vice President and Chief Financial Officer since the
latter date.
Ms. Barclay has been Vice President, Secretary and General Counsel of ESCO
since October 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference
to Note 8 of the Notes to Consolidated Financial Statements, "Common Stock
Market Prices" and "Shareholders' Summary--Capital Stock Information" appearing
in the 2001 Annual Report. ESCO does not anticipate, currently or in the
foreseeable future, paying cash dividends on the Common Stock, although it
reserves the right to do so to the extent permitted by applicable law and
agreements. ESCO's dividend policy will be reviewed by the Board of Directors at
such future time as may be appropriate in light of relevant factors at that
time, based on ESCO's earnings and financial position and such other business
considerations as the Board deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item, with respect to selected financial
data, is incorporated herein by reference to "Five-Year Financial Summary" and
Note 2 of the Notes to Consolidated Financial Statements appearing in the 2001
Annual Report.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated herein by reference
to "Management's Discussion and Analysis" appearing in the 2001 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference
to "Management's Discussion and Analysis - Market Risk Analysis" appearing in
the 2001 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference
to the Consolidated Financial Statements of the Company on pages 23 through 44
and the report thereon of KPMG LLP, independent certified public accountants,
appearing on page 46 of the 2001 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding nominees and directors appearing under "Nominees and
Continuing Directors" in ESCO's Notice of the Annual Meeting of the Stockholders
and Proxy Statement dated December 11, 2001 (the "2002 Proxy Statement") is
hereby incorporated by reference. Information regarding executive officers is
set forth in Part I of this Form 10-K.
Information appearing under "Section 16(a) Beneficial Ownership Reporting
Compliance" in the 2002 Proxy Statement is hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under "Board of Directors and Committees" and
"Executive Compensation" (except for the "Report of the Human Resources And
Ethics Committee On Executive Compensation" and the "Performance Graph") in the
2002 Proxy Statement is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information regarding beneficial ownership of shares of common stock by
nominees and directors, by executive officers, by directors and executive
officers as a group and by any known five percent stockholders appearing under
"Security Ownership of Management" and "Security Ownership of Certain Beneficial
Owners" in the 2002 Proxy Statement is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. The Consolidated Financial Statements of the Company on pages
23 through 44 and the Independent Auditors' Report thereon of
KPMG LLP appearing on page 46 of the 2001 Annual Report.
2. Financial statement schedules have been omitted because the
subject matter is disclosed elsewhere in the financial
statements and notes thereto, not required or not applicable, or
the amounts are not sufficient to require submission.
3. Exhibits
Filed Herewith or Incorporated by
Exhibit Reference to Document Indicated By
Number Description Footnote
------ ----------- --------
2 Stock Purchase Agreement dated as of August 23, Incorporated by Reference, Exhibit 2 [1]
1999, as amended September 23, 1999 and September
30, 1999, among Engineered Systems and
Electronics, Inc., ESCO and Defense Holding Corp.
3.1 Restated Articles of Incorporation Incorporated by Reference, Exhibit 3(a)[2]
3.2 Amended Certificate of Designation, Preferences Incorporated by Reference, Exhibit 4(e)[3]
and Rights of Series A Participating Cumulative
Preferred Stock of the Registrant
3.3 Articles of Merger effective July 10, 2000 Incorporated by Reference, Exhibit
3(c)[4]
3.4 Bylaws, as amended Incorporated by Reference, Exhibit 3(d)[4]
4.1 Specimen Common Stock Certificate Incorporated by reference, Exhibit
4(a)[4]
4.2 Specimen Rights Certificate Incorporated by Reference, Exhibit
B to Exhibit 4.1[5]
4.3 Rights Agreement dated as of September 24, 1990 Incorporated by Reference, Exhibit 4.1[5]
(as amended and restated as of February 3, 2000)
between the Registrant and Registrar and Transfer
Company, as successor Rights Agent
4.4 Amended and Restated Credit Agreement dated as of Incorporated by Reference, Exhibit 4(d)[6]
February 28, 2001, among the Registrant, Bank of
America, N.A., as agent, and the lenders listed
therein
11
10.1 Form of Split Dollar Agreement* Incorporated by Reference, Exhibit 10(j)[7]
10.2 Form of Indemnification Agreement with each of Incorporated by Reference, Exhibit
ESCO's directors. 10(k)[7]
10.3 Supplemental Executive Retirement Plan as Incorporated by Reference, Exhibit 10(n)
amended and restated as of August 2, 1993* [8]
10.4 Second Amendment to Supplemental Executive
Retirement Plan effective May 1, 2001*
10.5 Directors' Extended Compensation Plan* Incorporated by Reference, Exhibit 10(o)
[8]
10.6 First Amendment to Directors' Extended Incorporated by Reference, Exhibit 10.11
Compensation Plan* [9]
10.7 Second Amendment to Directors' Extended
Compensation Plan effective April 1, 2001*
10.8 1994 Stock Option Plan (as amended and Incorporated by Reference, Exhibit 10.1
restated effective October 16, 2000)* [10]
10.9 Form of Incentive Stock Option Agreement* Incorporated by Reference, Exhibit 10.15
[9]
10.10 Severance Plan* Incorporated by Reference, Exhibit 10(p)
[11]
10.11 Performance Compensation Plan dated as of Incorporated by reference, Exhibit 10(q)
August 2, 1993 (as amended and restated as [12]
of October 1, 1995)*
10.12 Amendment to Performance Compensation Plan
effective January 1, 2000*
10.13 Notice Of Award--Stock award to executive Incorporated by Reference, Exhibit
officer* 10(s)[13]
10.14 1999 Stock Option Plan (as amended and restated Incorporated by Reference, Exhibit
effective October 16, 2000)* 10.2[10]
10.15 Form of Incentive Stock Option Agreement* Incorporated by Reference, Exhibit
10.3[10]
10.16 Employment Agreement with Executive Incorporated by Reference, Exhibit
Officer* 10(aa)[2]
10.17 Employment Agreement with Executive Officer* Incorporated by Reference, Exhibit
[14] 10(bb)[2]
10.18 Amendment to Employment Agreement with
Executive Officer*[15]
12
10.19 Executive Stock Purchase Plan* Incorporated by Reference, Exhibit
10.24[9]
10.20 Notice of Award - stock award to executive Incorporated by Reference, Exhibit
officer* 10.25[9]
10.21 2001 Stock Incentive Plan* Incorporated by Reference, Exhibit
B[16]
10.22 Compensation Plan For Non-Employee
Directors*
13 The following-listed sections of the Annual Report
to Stockholders for the year ended September 30,
2001:
Five-Year Financial Summary (p.47)
Management's Discussion and Analysis
(pgs.13-22)
Consolidated Financial Statements
(pgs.23-44) and Independent
Auditors' Report (p.46)
Shareholders' Summary--Capital Stock
Information (p.48)
Common Stock Market Prices (p.47)
21 Subsidiaries of ESCO
23 Independent Auditors' Consent
- ---------------
[1] Incorporated by reference to Current Report on Form 8-K--date of
earliest event reported: September 30, 1999, at the Exhibit indicated.
[2] Incorporated by reference to Form 10-K for the fiscal year ended
September 30, 1999, at the Exhibit indicated.
[3] Incorporated by reference to Form 10-Q for the fiscal quarter ended
March 31, 2000, at the Exhibit indicated.
[4] Incorporated by reference to Form 10-Q for the fiscal quarter ended
June 30, 2000, at the Exhibit indicated.
[5] Incorporated by reference to Current Report on Form 8-K dated
February 3, 2000, at the Exhibit indicated.
[6] Incorporated by reference to Form 10-Q for the fiscal quarter ended
March 31, 2001, at the Exhibit indicated.
[7] Incorporated by reference to Form 10-K for the fiscal year ended
September 30, 1991, at the Exhibit indicated.
[8] Incorporated by reference to Form 10-K for the fiscal year ended
September 30, 1993, at the Exhibit indicated.
13
[9] Incorporated by reference to Form 10-K for the fiscal year ended
September 30, 2000, at the Exhibit indicated.
[10] Incorporated by reference to Form 10-Q for the fiscal quarter ended
December 31, 2000, at the Exhibit indicated.
[11] Incorporated by reference to Form 10-K for the fiscal year ended
September 30, 1995, at the Exhibit indicated.
[12] Incorporated by reference to Form 10-K for the fiscal year ended
September 30, 1996, at the Exhibit indicated.
[13] Incorporated by reference to Form 10-K for the fiscal year ended
September 30, 1997, at the Exhibit indicated.
[14] Identical Employment Agreements between ESCO and executive officers
Alyson S. Barclay and Victor L. Richey, Jr., except that in the case of
Ms. Barclay the minimum annual salary is $94,000.
[15] Identical Amendments to Employment Agreements between ESCO and
executive officers Alyson S. Barclay and Victor L. Richey, Jr.
[16] Incorporated by reference to Notice of Annual Meeting of the
Stockholders and Proxy Statement dated December 11, 2000, at the Exhibit
indicated.
* Represents a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K pursuant to Item
14(c) of this Part IV.
(b) No report on Form 8-K was filed during the quarter ended September
30, 2001.
(c) Exhibits: Reference is made to the list of exhibits in this Part
IV, Item 14(a)3 above.
(d) Financial Statement Schedules: Reference is made to Part IV, Item
14(a)2 above.
14
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) D.J. Moore
----------------------------
D.J. Moore
Chairman and
Chief Executive Officer
Dated: December 20, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below effective December 20, 2001, by the
following persons on behalf of the registrant and in the capacities indicated.
SIGNATURE TITLE
(s) D.J. Moore Chairman, Chief Executive Officer
------------------------------------- and Director
D.J. Moore
(s) V.L. Richey, Jr. President and
------------------------------------- Chief Operating Officer
V.L. Richey, Jr.
(s) C.J. Kretschmer Exec. Vice President and
------------------------------------- Chief Financial Officer
C.J. Kretschmer
(s) G.E. Muenster Vice President and Controller
------------------------------------- (Principal Accounting Officer)
G.E. Muenster
(s) W.S. Antle III Director
-------------------------------------
W.S. Antle III
(s) J.M. McConnell Director
-------------------------------------
J.M. McConnell
(s) L.W. Solley Director
-------------------------------------
L.W. Solley
(s) J.M. Stolze Director
-------------------------------------
J.M. Stolze
(s) D.C. Trauscht Director
- --------------------------------------
D.C. Trauscht
(s) J.D. Woods Director
-------------------------------------
J.D. Woods
15
INDEX TO EXHIBITS
Exhibits are listed by numbers corresponding to the Exhibit Table of Item 601 in
Regulation S-K.
Exhibit No. Exhibit
10.4 Second Amendment to Supplemental Executive Retirement Plan effective
May 1, 2001.
10.7 Second Amendment to Directors' Extended Compensation Plan effective
April 1, 2001.
10.12 Amendment to Performance Compensation Plan effective January 1, 2000
10.18 Amendment to Employment Agreement with Executive Officer
10.22 Compensation Plan For Non-Employee Directors
13 The following-listed sections of the Annual Report to Stockholders for
the year ended September 30, 2001:
Five-year Financial Summary (p. 47)
Management's Discussion and Analysis (pgs. 13-22)
Consolidated Financial Statements (pgs. 23-44) and Independent
Auditors' Report (p. 46)
Shareholders' Summary--Capital Stock Information (p. 48)
Common Stock Market Prices (p. 47)
21 Subsidiaries of ESCO
23 Independent Auditors' Consent
See Item 14(a)3 for a list of exhibits incorporated by reference
16