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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on June 6, 2011

Registration No. 333-173841

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



AMENDMENT NO. 1

TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



ESCO CORPORATION
(Exact name of registrant as specified in its charter)

Oregon
(State or other jurisdiction of
incorporation or organization)
  3532
(Primary Standard Industrial
Classification Code Number)
  93-0989423
(I.R.S. Employer
Identification Number)

2141 NW 25th Avenue
Portland, Oregon 97210
(503) 228-2141
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)

Kevin S. Thomas
Vice President, General Counsel and Corporate Secretary
ESCO Corporation
2141 NW 25th Avenue
Portland, Oregon 97210
(503) 228-2141
(Name, address, including zip code and telephone number,
including area code, of agent for service)



Copies To:

Robert J. Moorman
James M. Kearney
Stoel Rives LLP
900 SW Fifth Avenue, Ste. 2600
Portland, Oregon 97204
Tel: (503) 224-3380
Fax: (503) 220-2480

 

Sarah K. Solum
Davis Polk & Wardwell LLP
1600 El Camino Real
Menlo Park, California 94025
Tel: (650) 752-2011
Fax: (650) 752-3611



Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.



            If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

            If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

            If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

            If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

            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 definitions of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of
Securities to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee(3)

 

Class A Common Stock

  $175,000,000   $20,317.50

 

(1)
Includes shares of Class A Common Stock that the underwriters have the option to purchase.

(2)
Estimated solely for purposes of determining the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.

(3)
Previously paid.



            The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated June 6, 2011.

             Shares

GRAPHIC

ESCO Corporation

Class A Common Stock



          This is an initial public offering of shares of Class A Common Stock of ESCO Corporation.

          ESCO Corporation is offering             of the shares to be sold in the offering. The selling shareholders identified in this prospectus, who include some of our executive officers and shareholders affiliated with some of our directors, are offering an additional             shares. ESCO Corporation will not receive any of the proceeds from the sale of the shares by the selling shareholders.

          Before this offering, there has been no public market for the Class A Common Stock. We estimate the initial public offering price per share will be between $             and $             . We have applied to list our Class A Common Stock on the NASDAQ Global Market under the symbol "ESCO".

          See "Risk Factors" on page 14 to read about factors you should consider before buying shares of the Class A Common Stock.



          Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.



 
Per Share
 
Total
 

Initial public offering price

  $   $  

Underwriting discounts

  $   $  

Proceeds, before expenses, to ESCO Corporation

  $   $  

Proceeds, before expenses, to the selling shareholders

  $   $  

          To the extent that the underwriters sell more than             shares of Class A Common Stock, the underwriters have the option to purchase up to an additional              shares from us at the initial public offering price less the underwriting discount.



          The underwriters expect to deliver the shares against payment in New York, New York on                    , 2011.

Goldman, Sachs & Co.   Morgan Stanley



Prospectus dated                    , 2011.


Table of Contents


TABLE OF CONTENTS

 
 
Page

Prospectus Summary

  1

Explanatory Note Regarding Changes in Our Capital Stock

  6

The Offering

  7

Summary Consolidated Financial and Other Data

  9

Risk Factors

  14

Special Note Regarding Forward-Looking Statements

  28

Use of Proceeds

  30

Dividend Policy

  31

Capitalization

  32

Dilution

  34

Selected Consolidated Financial and Other Data

  36

Management's Discussion and Analysis of Financial Condition and Results of Operations

  41

Industries

  75

Business

  80

Management

  101

Compensation of Executive Officers

  108

Certain Relationships and Related Person Transactions

  126

Principal and Selling Shareholders

  128

Description of Employee Stock Ownership Plan

  133

Description of Capital Stock

  134

Shares Eligible for Future Sale

  140

Material United States Federal Income Tax Consequences to Non-U.S. Holders

  143

Underwriting

  147

Legal Matters

  152

Experts

  152

Where You Can Find More Information

  152

Index to Financial Statements

  F-1

          Through and including                           , 2011 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.



          Neither we, the selling shareholders, nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby but only in circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. Our business, financial condition, results of operations and prospects may have changed since that date.


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PROSPECTUS SUMMARY

          This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. Before investing in our Class A Common Stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes and the information under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". In this prospectus, unless otherwise indicated or the context otherwise requires, references to "we", "us", "our", the "Company", and "ESCO" refer to ESCO Corporation and its subsidiaries on a consolidated basis.


Our Company

          We are a leading independent designer, developer and manufacturer of highly engineered wear parts and replacement products used in surface mining, infrastructure development, power generation, aerospace and industrial applications. Our products are often essential to the performance of our customers' capital equipment, which frequently operates continuously in harsh environments and is subject to abrasion, impact, corrosion or extreme temperatures. We have focused on product innovation throughout our nearly 100-year history and as of June 1, 2011, we had 45 U.S. patents and 490 foreign patents (including foreign counterparts to our U.S. patents). We believe our expertise in metallurgy, tribology (the science of wear), design engineering, manufacturing processes and distribution are our core competencies.

          We have two operating groups:


GRAPHIC

 

Engineered Products Group, or EPG, designs, develops and manufactures wear parts and wear part carriers and provides wear solutions for mining, infrastructure development and other challenging industrial wear applications. EPG wear parts include ground engaging tools, or GET, such as mechanically attached teeth on buckets for earth moving, crusher parts, scrap recycling hammers and dragline rigging. We believe we are the global market leader in GET tooth systems used in surface mining and infrastructure development, with an extensive offering of patented GET products. Our wear parts, which typically are consumed in less than one year, represented 80% of EPG net sales in 2010. In addition to wear parts, we also design and manufacture wear part carriers, such as dragline buckets for coal mining where we believe we are the global market leader. We have a global network of 21 EPG manufacturing facilities and 36 EPG sales and distribution offices in 18 countries. EPG represented $712.6 million, or 84%, of our net sales in 2010.

Sample EPG products, which include wear parts and wear part carriers:

GRAPHIC

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GRAPHIC

 

Turbine Technologies Group, or TTG, manufactures superalloy precision investment cast components used in the aerospace, power generation and other industrial markets, such as blades, vanes and complex structural parts used in aircraft engines and industrial gas turbines. Broad manufacturing and metallurgical capabilities and extensive engineering expertise, backed by the strength of our brand, have enabled TTG to become an important supplier in these markets. In 2010, 70% of TTG net sales were from products used in the "hot gas path" of turbines and considered replacement parts. TTG represented $136.9 million, or 16%, of our net sales in 2010.


Our Industries

          EPG.    Growth in demand for our EPG products is primarily driven by growing populations and urbanization in emerging markets. These macro trends are driving significant demand for a wide range of commodities. According to the TSI iron ore index, the LME Copper index and the West Texas Intermediate crude oil market price, from March 2009 to March 2011 prices for iron ore, copper and crude oil were up 189%, 133% and 115%, respectively. The capital expenditure budgets for the top five global mining companies by market capitalization have increased an average of 73% in 2011 over 2010.

          Our EPG net sales are also driven by demand for new infrastructure in emerging markets and the need to replace aging infrastructure in developed markets. According to Business Monitor International, infrastructure spending globally is expected to grow at a compound annual growth rate of 13% from 2010 to 2014.

          TTG.    Growth in the aerospace market is driven by new aircraft builds and airplane flight hours. With the recovery in the global economy and growth in airline traffic, aircraft OEMs are increasing production rates and consequently, according to Airline Monitor, engine deliveries are expected to grow 6.8% in 2011 and 13.0% in 2012. Economic growth and increasing urbanization are expected to drive growth for components supporting the power OEM markets. According to Frost & Sullivan, gas turbine sales are expected to increase at a compound annual growth rate of 5.1% from 2010 through 2015.


Our Strengths

          Leading Position in Attractive, Diverse and Growing Markets.    We believe we are the global leader in GET tooth systems in the surface mining and infrastructure development markets and are positioned to benefit from positive secular trends in commodities markets and global infrastructure spending. We serve more than 1,000 customers in the mining, infrastructure development, power generation, aerospace and industrial markets, including the 10 largest global mining companies.

          Broad Portfolio of Innovative, Mission-Critical Products.    We sell mission-critical wear parts essential to the productivity of our customers' capital equipment in mining and infrastructure development applications where downtime is expensive. Over the past five years, we have sold EPG products under more than 25,000 SKUs. As of June 1, 2011, we had 45 U.S. patents and 490 foreign patents, including foreign counterparts to our U.S. patents.

          Significant and Growing Installed Base Generates Recurring Sales.    We estimate that our EPG products are installed on approximately one-third of the world's surface mining machines, and we believe there are opportunities to capture additional share of an increasing base of machines. Our consumable, often patented, wear parts are generally an operating requirement for our

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customers and can require replacement as often as every few weeks, generating recurring sales as parts wear. The majority of TTG net sales are from products used in the "hot gas path" of aerospace and industrial gas turbines where they are subjected to extreme heat and operating stresses, resulting in the need for periodic replacement as part of the turbine maintenance, repair and overhaul cycle.

          Well-Established Brand with a Loyal, Diverse Customer Base.    For nearly a century, we have built our brand with responsive service, productivity improvement and customer-driven innovation. Today, the ESCO brand is globally recognized for quality, durability, reliability, safety and superior performance in the most demanding operating conditions, from the high stress and impact of hard rock dredging and the severe abrasion of oil sands, to the extreme temperature ranges of a jet engine. We have served each of our top 10 customers in 2010 for at least 15 years.

          Global Operations with Local Presence.    We have an expansive network of 28 manufacturing facilities, including 16 foundries, and 36 sales and distribution offices. We operate in 19 countries on six continents, which allows us to develop expertise in solving the world's most challenging mining and infrastructure development problems and helps us maintain an advantage in developing new products and technologies that we can offer to customers around the world. Our local presence in most of the major mining regions we serve enables us to develop deep customer relationships, enhance our logistical capabilities and cross-sell a wide range of products and solutions.

          Management Team and Organizational Capability.    Our executive officers have an average of over 20 years of experience in our business. Our management team has grown ESCO from a company with operations only in North America and Western Europe to a global business with operations in 19 countries on six continents and a broad, diverse and growing product portfolio.


Our Strategies

          Customer-Driven Innovation.    Through ongoing contact with our customers in the field, we will continue to develop close relationships that allow us to determine firsthand the new products and solutions our customers need. Through these relationships, we are able to solve customer problems using our design engineering, metallurgical and manufacturing expertise to create new and, in many cases, patented products that can then be applied across multiple geographies. These products and solutions developed in close collaboration with customers can deliver greater value and command higher prices and are not easily displaced because of the risk of productivity loss and high switching costs.

          Expand Our Global Presence.    We will continue to grow our global operations by expanding alongside customers into key regions. Our global expansion strategy is driven by our desire to serve the fastest-growing mining and infrastructure development markets, expand our direct sales channel and expand our manufacturing in low-cost regions. Consequently, over the past several years we have made investments in establishing our presence in Australia, Brazil, China, Indonesia, Peru, Russia and South Africa, to capture significant growth in the mining and infrastructure development markets in these regions.

          Expand Direct Distribution, Selling a Broader Range of Products and Solutions.    We employ a diversified distribution model for product sales in the aftermarket that includes direct sales, a network of independent dealers, licensees and OEMs. We will continue to focus on building a direct sales channel in markets where there is a high concentration of mining activity. Our direct sales channel allows us to manage how our products are positioned with customers, provides us with significant opportunities to cross-sell products and solutions and positions us to capture incremental growth and profitability.

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          Increase Our Installed Base.    In EPG, we will continue to pursue a "push/pull" strategy to increase first fitments of our branded products on capital equipment. We work closely with OEMs to develop the next generation of products that match the requirements of their new machines. This creates a "push" for our parts and a recurring sales stream as the end-user purchases our wear products that are attached to our proprietary fitments on machines on an ongoing basis in the aftermarket. In addition, our close customer relationships have allowed us to provide products and solutions to address customers' critical problems, creating a "pull" through demand for our products. In TTG, our engineers work closely with OEMs and their revenue sharing partners to manufacture new and modified products that provide high turbine efficiencies and performance.

          Pursue Strategic Acquisitions.    We plan to continue our successful identification, acquisition and integration of businesses that we believe will provide us with some or all of the following: foundry capacity in strategic regions, proximity to key customers and enhanced distribution capabilities and complementary products or technologies. We will continue to focus on expanding our presence in the top mining regions globally and in emerging markets and low-cost regions. We will continue to evaluate acquisitions based on synergy potential, return on invested capital and earnings accretion.

          Focus on Continuous Improvement and Lean Processes.    We will continue to focus on lean processes to drive continuous improvements in all aspects of our business. Our lean system, which we refer to as QVS, or "Quality, Value and Speed", has allowed us to improve process cycle times, improve safety, increase quality and customer service, and reduce capital requirements, including working capital and capital deployed to increase foundry tonnage. As we continue to expand our global operations, we will continue to pursue opportunities to shorten product development cycles, enhance margins and improve customer service.

Selected Risk Factors

          Investing in our Class A Common Stock involves risks. You should carefully read "Risk Factors" beginning on page 14 for an explanation of these risks before investing in our common stock. These risks include:

    our business is subject to changes in general economic conditions;

    our business is affected by cyclicality in the end markets we serve;

    inventory stocking decisions by our customers can exaggerate the effects of changing economic and market conditions on our financial results;

    we are subject to government regulation, including under environmental laws and regulations, and any violation of or liabilities under these laws and regulations could adversely affect us;

    our production capacity may not be sufficient to meet customer demand;

    we operate in highly competitive industries;

    our continued global expansion efforts may not be successful;

    the expansion of our direct sales model may have negative consequences;

    a material disruption to one or more of our manufacturing plants could adversely affect our ability to generate revenue;

    OEM customers may develop their own product lines or work with our competitors to develop products that compete with ours;

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    our business could be adversely affected by our failure to effectively manage proprietary product life cycles and to develop new and innovative products;

    our continued success depends on our ability to protect our intellectual property rights; and

    the holders of our Class B Common Stock have the right to approve or reject change in control transactions presented to shareholders for approval and may otherwise have the de facto ability to control the outcome of matters submitted to shareholders.

Corporate Information

          We were founded in 1913 in Portland, Oregon and are an Oregon corporation. Our principal executive office is at 2141 NW 25th Avenue, Portland, Oregon 97210, and our telephone number is (503) 228-2141. Our website address is www.escocorp.com. Information contained on or accessible through our website is not incorporated by reference into this prospectus, and should not be considered part of this prospectus. Our website address included in this prospectus is an inactive textual reference only. As of March 31, 2011, we had more than 4,600 employees worldwide.

          The ESCO logos and other trademarks or service marks of ESCO appearing in this prospectus are the property of ESCO. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of the holders.

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EXPLANATORY NOTE REGARDING CHANGES IN OUR CAPITAL STOCK

          In connection with this offering, we will amend our articles of incorporation to:

    rename our existing authorized Class A Common Stock "Legacy Class A Common Stock";

    authorize the class of common stock, "Class A Common Stock", that is offered pursuant to this prospectus;

    authorize blank-check preferred stock;

    amend the terms of the Legacy Class A Common Stock to provide that each share (a) sold in an underwritten public offering (including this offering) will automatically convert into one share of Class A Common Stock immediately upon the sale, (b) outstanding on the date that is 180 days after the date of this prospectus (the first "Automatic Conversion Date") will automatically convert on that date into one-half share of new Class A Common Stock and one-half share of Legacy Class A Common Stock and (c) outstanding on the date that is 360 days after the date of this prospectus (the second "Automatic Conversion Date") will automatically convert on that date into one share of new Class A Common Stock (subject, in each case, to adjustment for stock splits, stock dividends, recapitalizations and similar events occurring after the offering made pursuant to this prospectus); and

    amend the terms of the existing Class B Common Stock to provide that each share will automatically convert upon transfer to a person other than those described below (a) if transferred before the first Automatic Conversion Date, into one share of Legacy Class A Common Stock; (b) if transferred after the first but before the second Automatic Conversion Date, into one-half share of Legacy Class A Common Stock and one-half share of Class A Common Stock; and (c) if transferred on or after the second Automatic Conversion Date, into one share of Class A Common Stock (subject, in each case, to adjustment for any stock splits, stock dividends, recapitalizations and similar events occurring after the offering made pursuant to this prospectus). The shares of Class B Common Stock are owned by Henry T. Swigert as trustee of the Swigert 2000 Trust and may be transferred without automatic conversion to Henry T. Swigert; any trustee, in the capacity of trustee, of the Swigert 2000 Trust; or any trustee, in the capacity of trustee, of any trust created under the Swigert 2000 Trust. Mr. Swigert is a member of our board of directors.

          Before completing this offering, we will effect a         -for-one stock split of Legacy Class A Common Stock and Class B Common Stock by means of a stock dividend. Each share of these classes of stock converts automatically into shares of new Class A Common Stock on the conditions specified in our articles of incorporation and described above. In addition, upon completion of the offering made by this prospectus, each share of our outstanding Class C Preferred Stock will convert automatically into              shares of the new Class A Common Stock.

          After giving pro forma effect to the automatic conversion of all shares of Class C Preferred Stock and Legacy Class A Common Stock into Class A Common Stock and the          -for-one stock split of the Legacy Class A Common Stock and Class B Common Stock, as of                          , 2011 we would have had outstanding              shares of new Class A Common Stock,             shares of Class B Common Stock convertible into             shares of new Class A Common Stock and no shares of preferred stock.

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THE OFFERING

Class A Common Stock offered by us

               shares

Class A Common Stock offered by selling shareholders

 

             shares

Class A Common Stock outstanding after this offering

 

             shares or             shares if the underwriters exercise their option to purchase additional shares in full

Class B Common Stock outstanding after this offering

 

             shares

Total Class A Common Stock and Class B Common Stock outstanding after this offering

 

             shares or             shares if the underwriters exercise their option to purchase additional shares in full

Underwriters' option to purchase additional shares of Class A Common Stock

 

             shares from us and no shares from the selling shareholders

Use of proceeds

 

We estimate that we will receive net proceeds from our sale of shares of Class A Common Stock of approximately $        million, assuming an initial public offering price of $         per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of shares by selling shareholders. We intend to use the proceeds for general corporate and working capital purposes, including possible acquisitions of businesses to complement or enhance our product offerings and manufacturing capacity and repayment of debt. See "Use of Proceeds" for additional information.

Proposed NASDAQ Global Market symbol

 

ESCO

Risk factors

 

See "Risk Factors" and the other information included in this prospectus for a discussion of factors you should carefully consider before investing in shares of our Class A Common Stock.

          Without taking into account the         -for-one stock split that will occur before completion of the offering made by this prospectus, the number of shares of Class A Common Stock outstanding after this offering is based on 885,714 shares outstanding as of March 31, 2011 and excludes:

    19,251 shares issuable upon exercise of options outstanding as of March 31, 2011 to purchase Legacy Class A Common Stock at a weighted average exercise price of $57.85 per share;

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    20,569 shares issuable upon the exercise of stock-settled stock appreciation rights, the number of which will depend upon the fair value of our Class A Common Stock at the time of exercise (             shares assuming a fair value of $         per share, the midpoint of the range set forth on the cover of this prospectus);

    up to 16,742 shares issuable pursuant to performance units, the number of which will depend upon the achievement of specified performance measures; and

    362,500 additional shares of Class A Common Stock, reserved for issuance under our 2000 Stock Incentive Plan and 2010 Stock Incentive Plan.

          Unless otherwise indicated, all information in this prospectus reflects and assumes the following:

    the amendment of our articles of incorporation described in "Explanatory Note Regarding Changes in Our Capital Stock";

    the         -for-one stock split of Legacy Class A Common Stock and Class B Common Stock by means of a stock dividend before this offering;

    the conversion of our Class C Preferred Stock and Legacy Class A Common Stock into Class A Common Stock as described in "Explanatory Note Regarding Changes in Our Capital Stock";

    no exercise of outstanding options or stock-settled stock appreciation rights, and no issuance of stock pursuant to performance units;

    no exercise of the put rights described in "Description of Capital Stock — Shareholder Agreements"; and

    no exercise by the underwriters of their option to purchase up to             additional shares of Class A Common Stock from us in this offering.

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

          We derived the summary consolidated statement of earnings data for the years ended December 26, 2008 and December 31, 2009 and 2010 and the summary consolidated balance sheet data as of December 31, 2009 and 2010 from our audited consolidated financial statements and related notes included in this prospectus. Before 2009, we reported on a 52/53-week fiscal year consisting of four 13-week periods and ending on the last Friday of the calendar year. Effective December 27, 2008, we changed to a calendar year. Our fiscal year 2009, however, began on December 27, 2008 and ended on December 31, 2009, resulting in a 370-day year.

          We derived the summary consolidated statement of earnings data for the three months ended March 31, 2010 and 2011 and the summary consolidated balance sheet data as of March 31, 2011 from our unaudited condensed consolidated financial statements and notes thereto included elsewhere in the prospectus. These unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information set forth herein. Interim financial results are not necessarily indicative of results that may be expected for the full fiscal year or any future period.

          The results indicated below and elsewhere in this prospectus are not necessarily indicative of our future performance. You should read this information together with "Capitalization", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  Three months ended   Fiscal year ended  
(dollars in thousands, except per share data)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 

Statement of earnings data:

                               

Net sales

  $ 253,843   $ 185,256   $ 849,481   $ 680,390   $ 939,913  

Cost of goods sold(1)

    183,299     136,174     626,883     507,115     724,921  
                       

Gross profit

    70,544     49,082     222,598     173,275     214,992  

Operating expenses

                               
 

Selling and administrative expenses(1), (2)

    46,729     31,189     147,881     112,535     132,719  
 

Restructuring and other(3)

    20     281     748     6,332     1,792  
                       

Operating profit

    23,795     17,612     73,969     54,408     80,481  

Interest expense, net

    3,079     6,354     23,710     26,226     26,736  

Loss on early extinguishment of debt(4)

            13,013          

Other (income) expense(5)

    (1,079 )   458     (731 )   (1,091 )   4,259  
                       

Earnings from continuing operations before income taxes

    21,795     10,800     37,977     29,273     49,486  

Income tax expense

    7,420     3,689     9,423     8,487     13,297  
                       

Earnings from continuing operations, net of tax

    14,375     7,111     28,554     20,786     36,189  

Earnings from discontinued operations, net of tax(6)

                306     443  

Net earnings

    14,375     7,111     28,554     21,092     36,632  

Less: net earnings attributable to the noncontrolling interest — continuing operations

    (1,491 )   (1,161 )   (4,634 )   (2,537 )   (5,073 )

Less: net earnings attributable to the noncontrolling interest — discontinued operations

                (141 )   (343 )

Net earnings attributable to ESCO shareholders from continuing operations

    12,884     5,950     23,920     18,249     31,116  

Valuation adjustment of Class C Preferred Stock(7)

    (1,154 )   (771 )   (16,521 )   7,933     13,287  

Net earnings attributable to ESCO common shareholders from continuing operations

    11,730     5,179     7,399     26,182     44,403  

Pro forma earnings from continuing operations attributable to ESCO shareholders(8)

    12,884     5,950     23,920     18,249     31,116  

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  Three months ended   Fiscal year ended  
(dollars in thousands, except per share data)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 

Earnings per weighted average share outstanding(9)

                               
 

Basic earnings per share from continuing operations allocated to ESCO common shareholders

  $ 10.69   $ 4.78   $ 6.81   $ 24.18   $ 41.08  
 

Diluted earnings per share from continuing operations allocated to ESCO common shareholders(10)

  $ 10.42   $ 4.64   $ 6.62   $ 15.16   $ 26.21  
 

Weighted average shares outstanding

                               
   

Basic

    1,097     1,084     1,086     1,083     1,081  
   

Diluted

    1,236     1,117     1,118     1,204     1,187  
 

Pro forma earnings per share from continuing operations attributable to ESCO shareholders

                               
   

Basic

  $     $     $     $     $    
   

Diluted

  $     $     $     $     $    
 

Pro forma weighted average shares outstanding

                               
   

Basic

                               
   

Diluted

                               

Cash dividends declared per common share(11)

              $ 11.00   $ 10.00   $ 11.00  

 

 
  As of  
 
 
March 31,
2011 pro forma
 
March 31,
2011
 
December 31,
2010
 

Balance sheet data:

                   

Cash and cash equivalents

  $ 81,078   $ 81,078   $ 114,101  

Current assets, excluding cash and cash equivalents

    314,321     314,321     268,166  

Property and equipment, net

    173,788     173,788     167,446  

Total assets

    748,337     748,337     723,622  

Current liabilities, excluding the current portion of debt

    144,641     144,641     133,854  

Total debt, including current portion

    271,760     271,760     273,314  

Contingently redeemable equity securities(12)

        254,244     232,184  

Total equity/(deficit)(12)

    247,180     (7,064 )   (4,622 )

 

 
  Three months ended   Fiscal year ended  
 
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 

Other data:

                               

Adjusted EBITDA(13)

  $ 39,457   $ 27,838   $ 127,780   $ 99,497   $ 130,853  

Adjusted EBITDA margin(13)

    15.6 %   15.0 %   15.0 %   14.6 %   13.9 %

Adjusted net earnings from continuing operations(14)

  $ 18,483   $ 8,563   $ 48,588   $ 28,977   $ 44,108  

(1)
Non-cash ESOP compensation costs are included in cost of goods sold and selling and administrative expenses. See "Description of Employee Stock Ownership Plan."

(2)
The mark to market on stock-appreciation rights (SARs), an expense of $7.7 million and $0.0 million and income of $0.3 million in 2010, 2009 and 2008, respectively, is included in selling and administrative expenses. The mark to market on SARs, an expense of $3.5 million and $0.0 million in the three months ended March 31, 2011 and March 31, 2010, is included in selling and administrative expenses.

(3)
Restructuring and other costs included: in 2010, expenses related to the closure of our Saskatoon, Saskatchewan foundry; in 2009, personnel reductions and the closure of our West Jordan, Utah plant and the Saskatoon, Saskatchewan foundry; and in 2008, personnel reductions, the closure of our West Jordan, Utah plant and curtailment costs related to freezing benefits for our U.S. defined benefit plans.

(4)
Loss on early extinguishment of debt primarily includes the write-off of $4.0 million of unamortized loan costs and the early redemption call premium of $8.6 million paid upon redemption of $300.0 million principal amount of senior unsecured notes in December 2010 as part of our debt refinancing. Debt extinguishment costs also include $0.4 million of unamortized costs associated with our asset-backed line of credit cancelled in November 2010 as part of our debt refinancing.

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(5)
Other (income) expense primarily includes foreign exchange losses and gains on settlement transactions of foreign denominated accounts receivable and accounts payable. Other expense in each of 2009 and 2008 includes $0.3 million of insurance retention expenses.

(6)
Discontinued operations for 2009 and 2008 included earnings from ESCO Soldering Locacoes de Marquinas e Equipmentos Ltda, which we divested in June 2009 as part of the transaction that resulted in our acquisition of 100% ownership of ESCO Soldering, now known as ESCO Brazil.

(7)
Valuation adjustment of Class C Preferred Stock is the mark to market change of the redemption value of the shares of Class C Preferred Stock classified as contingently redeemable equity securities on our balance sheet. The corresponding offset is a change in our retained earnings. Upon the conversion of Class C Preferred Stock into Class A Common Stock in connection with the offering made by this prospectus, the stock will be reclassified from contingently redeemable equity securities to shareholders' equity and this valuation adjustment will no longer be included in our financial statements.

(8)
Pro forma earnings from continuing operations attributable to ESCO shareholders reflects the reclassification from contingently redeemable equity securities to shareholders' equity of Class C Preferred Stock and Class A Common Stock subject to contingent repurchase obligations. See "Description of our Employee Stock Ownership Plan" and "Description of Capital Stock."

(9)
Share data reflect the changes in our capital structure that will occur before we complete the offering described in this prospectus; other per share data do not. See "Explanatory Note Regarding Changes in Our Capital Stock".

(10)
Diluted earnings per share includes the weighted average number of Class C Preferred Stock outstanding and the incremental shares that would be issued upon the assumed exercise of stock options for the period they were outstanding.

(11)
See "Dividend Policy".

(12)
Contingently redeemable equity securities are redeemable upon the holder's retirement at age 65, death or disability. See "Description of Capital Stock — Shareholder Agreements" and "Description of Employee Stock Ownership Plan". The presentation reflects shares of Class C Preferred Stock and Legacy Class A Common Stock at their redemption value. Shares of Class C Preferred Stock automatically convert on a one-for-one basis into shares of the Class A Common Stock upon the completion of the offering made by this prospectus. Shares of Legacy Class A Common Stock automatically convert on a one-for-one basis into shares of the Class A Common Stock over a period of up to 360 days as described in "Explanatory Note Regarding Changes in Our Capital Stock". Upon the conversion of Class C Preferred Stock or Legacy Class A Common Stock into Class A Common Stock, the stock will be reclassified from contingently redeemable equity securities to shareholders' equity.

(13)
Adjusted EBITDA is earnings from continuing operations, net of tax, before interest, taxes, depreciation and amortization and non-operating expense (income), adjusted to add back ESOP non-cash compensation expenses, mark to market on SARs expense, unrealized (gains) losses on long-term investments and certain restructuring charges. Adjusted EBITDA margin is adjusted EBITDA divided by net sales. Adjusted EBITDA and Adjusted EBITDA margins have limitations as analytical tools. Adjusted EBITDA is not intended to represent net earnings, earnings from continuing operations, net of tax, or cash flow from operating activities as these terms are defined by generally accepted accounting principles in the United States and should not be used as an alternative to net earnings as an indicator of operating performance or to cash flow as a measure of liquidity. Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies because other companies may not calculate those measures in the same manner we do. We have included Adjusted EBITDA and Adjusted EBITDA Margin in this prospectus because they are used by our management to assess financial performance and may provide a more complete understanding of the factors and trends affecting our business. We believe Adjusted EBITDA and Adjusted EBITDA margin are useful to investors in evaluating our operating performance for the following reasons:

Our management uses these measures in conjunction with GAAP financial measures as part of our assessment of our business and in communications with our board of directors concerning our financial performance;

These measures provide consistency and comparability with our past financial performance, facilitate period-to-period comparisons of operations and facilitate comparisons with peer companies, many of which use similar non-GAAP financial measures to supplement GAAP disclosure; and

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    These measures exclude non-cash charges, such as depreciation, amortization, ESOP compensation expense and mark to market on SARs expense, and those non-cash charges in any specific period may not directly correlate to the underlying performance of our business operations and can vary significantly from period to period.

    The following table reconciles earnings from continuing operations, net of tax to Adjusted EBITDA for the periods indicated below.

 
  Three months ended   Fiscal year ended  
(dollars in thousands)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 

Earnings from continuing operations, net of tax

  $ 14,375   $ 7,111   $ 28,554   $ 20,786   $ 36,189  

Add/(Subtract):

                               
 

Interest (net) and loss on early extinguishment of debt

    3,079     6,354     36,723     26,226     26,736  
 

Income tax expense

    7,420     3,689     9,423     8,487     13,297  
 

Depreciation and amortization(a)

    7,774     6,492     27,479     25,113     24,187  
 

Other (income) expense

    (1,079 )   458     (731 )   (1,091 )   4,259  
 

ESOP non-cash compensation expense(b)

    5,101     4,020     17,259     16,504     20,248  
 

Mark to market on SARs(c)

    3,513         7,678         (260 )
 

Unrealized (gains) losses on long-term investments(d)

    (746 )   (567 )   (1,953 )   (2,860 )   4,405  
 

Restructuring and other(e)

    20     281     748     6,332     1,792  
 

Port Hope reclamation(f)

            2,600          
                       
 

Adjusted EBITDA

  $ 39,457   $ 27,838   $ 127,780   $ 99,497   $ 130,853  
                       

(a)
Depreciation and amortization excludes the amortization of debt issuance costs, which are included in interest (net).

(b)
We recognize non-cash compensation expense equal to the fair value of the Class C Preferred Stock released as security for the loan to the ESOP and allocated to participant accounts. A portion of the non-cash ESOP compensation expense is allocated to cost of goods sold and a portion is allocated to selling and administrative expenses, based on the number of shares allocated to the accounts of manufacturing employees and other employees. See "Description of Employee Stock Ownership Plan."

(c)
Each quarter, we record the mark to market change in the value of our SARs. Our determination of fair value includes, among other factors, the valuation determined by the independent valuation firm used by the ESOP trustee. We add this back to derive Adjusted EBITDA because it is a non-cash expense. In 2011, we changed our SARs long-term incentive program to stock-settled grants. The grant date fair value of an award will be amortized over the required service period. 92.6% of our existing cash-settled SARs were converted to stock-settled SARs in 2011. As a result, beginning in the second quarter of 2011, those awards are no longer required to be marked to market. Any impact to expense from this conversion will be amortized over the remaining service period for the unvested awards.

(d)
Unrealized (gains) and losses on long-term investments represent the mark to market on our investments held to fund our deferred compensation and supplemental executive retirement programs.

(e)
Restructuring and other activity in 2010 included restructuring expenses related to the closure of our Saskatoon, Saskatchewan foundry. Restructuring activity in 2009 included restructuring expenses related to personnel reductions and the closure of our West Jordan, Utah plant and the Saskatoon, Saskatchewan foundry. Restructuring activity in 2008 included restructuring expenses related to personnel reductions, the closure of our West Jordan, Utah plant and curtailment costs related to freezing benefits for our U.S. defined benefit plans.

(f)
The expense in 2010 represents the estimated cost of removing an accumulation of solid waste at our Port Hope, Ontario, Canada facility. We plan to complete the removal within a five-year period. This expense is included in selling and administrative expenses in our consolidated financial statements.

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    The most closely comparable GAAP measure to Adjusted EBITDA margin is operating profit margin, which is operating profit divided by net sales. The following table shows how each of operating profit margin and Adjusted EBITDA margin is calculated.

 
  Three months ended   Fiscal year ended  
(dollars in thousands)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 

Net sales

  $ 253,843   $ 185,256   $ 849,481   $ 680,390   $ 939,913  

Operating profit

    23,795     17,612     73,969     54,408     80,481  

Adjusted EBITDA

    39,457     27,838     127,780     99,497     130,853  
                       
 

Operating profit margin

    9.4 %   9.5 %   8.7 %   8.0 %   8.6 %
 

Adjusted EBITDA margin

    15.6 %   15.0 %   15.0 %   14.6 %   13.9 %

 
  Three months ended   Fiscal year ended  
(dollars in thousands)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 

Operating profit

  $ 23,795   $ 17,612   $ 73,969   $ 54,408   $ 80,481  

Interest expense, net

    3,079     6,354     23,710     26,226     26,736  

Loss on early extinguishment of debt(4)

            13,013          

Other (income) expense(5)

    (1,079 )   458     (731 )   (1,091 )   4,259  
                       

Earnings from continuing operations before income taxes

    21,795     10,800     37,977     29,273     49,486  
                       
(14)
We define adjusted net earnings from continuing operations as net earnings from continuing operations attributable to ESCO shareholders plus loss on early extinguishment of debt, net of tax; mark to market on SARs expense, net of tax; and ESOP non-cash compensation expense, net of tax. The adjustments assume a 35% tax rate. We have included adjusted net earnings from continuing operations in this prospectus because it represents a basis upon which our management assesses financial performance and may provide a more complete understanding of the factors and trends affecting our business.

The following table reconciles net earnings from continuing operations attributable to ESCO shareholders to adjusted net earnings from continuing operations.

 
  Three months ended   Fiscal year ended  
(dollars in thousands)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 

Net earnings from continuing operations attributable to ESCO shareholders

  $ 12,884   $ 5,950   $ 23,920   $ 18,249   $ 31,116  

Loss on early extinguishment of debt, net of tax

            8,458          

Mark to market on SARs, net of tax

    2,283         4,991         (169 )

ESOP non-cash compensation expense, net of tax

    3,316     2,613     11,219     10,728     13,161  
                       

Adjusted net earnings from continuing operations

  $ 18,483   $ 8,563   $ 48,588   $ 28,977   $ 44,108  
                       

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RISK FACTORS

          Investing in our Class A Common Stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus, including our consolidated financial statements and the related notes, before making a decision to invest. If any of the events or circumstances described below occurs, our business, operating results, financial condition or growth prospects could be materially and adversely affected. In those cases, the trading price of our Class A Common Stock could decline and you may lose all or part of your investment.

Risks Related to Our Business

Our business is subject to changes in general economic conditions.

          Our results of operations are materially affected by the conditions in the global economy and in the global capital and credit markets. Recessions, downturns and other negative economic conditions around the world may significantly affect our profits as a result of increases in costs of materials, reduced sales, restructuring costs and challenges in receivables collections and other important elements of our business. The effect of changing economic conditions may not be immediate. For example, in 2009 our net sales decreased by $260 million compared to 2008, which we believe resulted primarily from the economic downturn that began in 2008. Similarly, changes in a local economy's business conditions, exchange rates or inflation can affect our customers and their decisions and ability to purchase products, which in turn affects our net sales. Further, market volatility, unpredictable government interventions in various industries and financial markets, increased regulation and difficult economic conditions may also make it harder or impossible for us to access capital and credit markets to fund operating needs on acceptable terms.

Our business is affected by cyclicality in the end markets we serve.

          We make significant decisions based on our outlook on business activity in the mining, infrastructure development, power generation, aerospace and industrial markets we serve. These decisions include the levels of business that we seek and accept, production schedules, raw materials and other component commitments, personnel needs and other resource requirements. Each of the principal end markets we serve is cyclical, and our outlook on business activity in our markets may fail to predict accurately the timing, nature and extent of changing market conditions. Many factors affect these markets, including, for example, the level of production, levels and locations of mineral deposits, commodity prices, substitution of new or competing inputs and methods, and government regulations and tax policies. As a result of cyclicality in the end markets we serve, we have experienced, and we will experience, significant fluctuation in our net sales and operating profit. Further, the end markets for EPG and TTG vary substantially, and improvements in one may not be accompanied by similar changes in the other.

Inventory stocking decisions by our customers can exaggerate the effects of changing economic and market conditions on our financial results.

          Many of our customers maintain an inventory of our products for use or resale. Purchases of our products by these customers may differ materially, at least for periods measured in months rather than years, from amounts required to maintain a steady level of inventory. As a result, their purchases from us may be at a lower rate than the rate of their sale or use of the product as they "destock" in anticipation of a downturn in the economy generally or in their particular market. Conversely, when they purchase products from us to build inventory levels, because they anticipate future increased net sales or for other reasons, the resulting growth in our net sales may be temporary and a misleading indicator of future results. For example, we believe the decrease in net sales from 2008 to 2009 and subsequent increase from 2009 to 2010 were exaggerated by

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inventory destocking and restocking by our customers in response to significant changes in most commodity prices.

Our production capacity may not be sufficient to meet customer demand.

          Many of the products we supply are mission-critical parts, the loss of which may result in lost productivity and significant costs for our customers. If we are unable to anticipate production demand for these parts or adequately increase production if demand increases, our delivery times could be delayed. We have experienced increased lead times, the times at which commitments for deliveries to customers can be made by our sales representatives, because customer demand is outstripping our ability to supply products on a timely basis. We estimate that customer demand has led to extended lead times for products that represented approximately 45% of EPG net sales in 2010. In 2010, we estimate the average lead time for mining GET products, for example, was less than 10 weeks; as of June 1, 2011, average lead time was over 20 weeks. We have not experienced significant order cancellations to date; however, if our lead times are significantly longer than those of our competitors, that may place us at a disadvantage and could adversely affect our sales and results of operations. If we continue to experience significant delays in product delivery, our customer relationships and reputation for reliability could suffer, and current and potential customers may purchase parts from one of our competitors as a result.

A material disruption to one or more of our manufacturing plants could adversely affect our ability to generate revenue.

          We produce our products at manufacturing plants around the world. If operations at one or more plants are disrupted as a result of equipment failures, natural disasters, work stoppages, power outages, acts of terrorism or other reasons, our business and results of operations could be adversely affected. Acts of terrorism, for example, have caused in the past and may in the future cause a decline in the airline industry, which is likely to affect our TTG business. Interruptions in production would increase costs and reduce sales. Our facilities are also subject to the risk of catastrophic loss due to earthquakes, fires, explosions or adverse weather conditions, including hurricanes and tornadoes. Any interruption in production capability could require us to make large capital expenditures to remedy the interruption, which could negatively affect our profitability and cash flows. These events could affect our manufacturing and distribution capabilities and, because we specialize our manufacturing processes at our foundries and fabrication facilities and often have limited backup operations, an event that affects one facility could have an exaggerated effect on our ability to meet production demands and our sales. In addition, these events also could result in delays or cancellations of customer orders, or the delay in the manufacture, deployment or shipment of our products, which would adversely affect our business, financial condition and results of operations. Lost sales may not be recoverable under our insurance policies and longer-term business disruptions could result in a loss of customers. If this occurred, future sales could be adversely affected.

We operate in highly competitive industries.

          We compete on a variety of factors, including productivity, design and performance, technology, metallurgical expertise, reliability, customer relationships, delivery lead times and price. Some of our competitors are larger, have greater financial resources and are less leveraged than we are or may develop products or services that put us at a disadvantage. Our effectiveness in managing our manufacturing efficiency and our costs are key factors in determining our future profitability and competitiveness.

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OEM customers may develop their own product lines or work with our competitors to develop products that compete with ours.

          Some of our products compete with products manufactured and sold by our OEM customers. This competition could damage our relationships with those OEMs. OEMs may also develop new product lines or work with our competitors to develop product lines. If that occurs, our results of operations could suffer due to lost sales to the OEMs and increased competition.

Our business could be adversely affected by our failure to effectively manage proprietary product life cycles and to develop new and innovative products.

          Many of our products are protected by patents in key regions around the world. We manage product life cycles by managing the patent life of our products and by focusing research and development spending to develop proprietary products to replace those that will lose their patent protection. Our effectiveness in managing this process is a key factor in determining our future profitability and competitiveness.

          In addition, to remain competitive, we must continue to develop new and innovative products that meet our customers' changing requirements. Our future growth will depend, in part, on our ability to address the increasingly demanding needs of our customers by enhancing our products and timely developing and selling new products. If we are not successful in these efforts, if we experience difficulties that delay or prevent these efforts, or if our new products or enhancements do not achieve market acceptance, our business could be adversely affected.

Our continued success depends on our ability to protect our intellectual property rights.

          We rely on a combination of nondisclosure, confidentiality, invention assignment and other types of agreements, and trade secret, trademark, copyright and patent law to establish, maintain, protect and enforce our intellectual property rights. These measures may be inadequate to protect our intellectual property rights, and any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated by others. For example, some of our patent applications may not be approved, some issued patents may not adequately protect our intellectual property or provide us with a competitive advantage, or may be challenged by others. Furthermore, our contracts may not effectively prevent disclosure or use of our confidential information or provide an adequate remedy in the event of unauthorized disclosure or use of our confidential information. In addition, when terminated, these contracts provide for continued protection of our confidential information and trade secrets only for a limited period of time. Others may independently discover our trade secrets and proprietary information or exploit our trade secrets after the expiration of contractual protections for those trade secrets, and in those cases we could not assert any trade secret rights against those parties or others to whom those parties disclose our trade secrets. To the extent our employees, contractors or other parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to determine the scope of and enforce our intellectual property rights, and even litigation we initiate could result in the narrowing or invalidation of the intellectual property rights we seek to enforce. In addition, the laws of some countries do not protect intellectual property rights to the same extent as the laws in the United States. Our expansion into some emerging markets may increase the risk of intellectual property infringement due to, among other things, the presence of independent firms called "will-fitters" that may produce copies of our products. Therefore, in some jurisdictions, we may be unable to adequately protect our intellectual property, even if intellectual property laws purport to offer adequate protection, against unauthorized copying or use, which could adversely affect our competitive position. The inability to protect our proprietary information and enforce our

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intellectual property rights could have an adverse effect on our business, financial condition and results of operations.

          In addition, parties may claim that we, our customers, licensees or other parties indemnified by us are infringing upon their intellectual property rights. Even if we believe claims are without merit, they can be time-consuming and costly to defend. Claims of intellectual property infringement also might require us to redesign affected products or technologies, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from using certain of our technologies or marketing or selling certain of our products. Even if another party has agreed to indemnify us against these costs, it may not be able to do so. If we cannot or do not license the infringed technology on reasonable pricing terms or at all, or substitute similar technology from another source, our business, financial condition and results of operations could be adversely affected.

Our continued global expansion efforts may not be successful.

          We intend to continue to pursue expansion of our international operations and international sales and marketing activities. Expansion in international markets requires significant management attention and resources. We may form relationships with local partners in connection with our international expansion. Disputes with local partners may adversely affect our business.

          In addition, we may be unable to scale our infrastructure effectively in these markets, which would cause our results to suffer. We may not be able to hire, train, retain and manage required personnel, which may limit our international growth. We will also face significant competition from multinational and local companies. Local companies may have a substantial competitive advantage because of their greater understanding of, and focus on, local customers and more established local brand names.

          We have taken steps to expand our direct presence in Australia and in South Africa, where our relationships with licensees have recently expired or soon will expire. Our investments in these areas, including investments in foundry capacity and in personnel, may not be sufficient to allow us to compete effectively in those markets or with our former licensees. In addition, if we are not able to build our operations in these territories to meet customer demand, including customers that have operations in other areas of the world, our reputation and results of operations in these areas and in other geographies may suffer.

The expansion of our direct sales model may have negative consequences.

          We employ a diversified distribution model that includes direct sales, a network of independent dealers, licensees and OEMs. Our network of independent dealers and our licensees are important to our success. In recent years, however, we have grown our direct sales channel, particularly in markets where there is a high concentration of mining activity. The percentage of our EPG net sales through direct channels grew from approximately 31% in 2007 to approximately 48% in 2010. This increased direct sales effort may be unsuccessful or adversely affect our relationships with dealers and licensees, which could harm our business.

          We will begin competing with Bradken Resources Pty Ltd. in Australia, New Zealand and Papua New Guinea when our licensee relationship with Bradken ends on June 30, 2011. Royalty income from Bradken, which contributes directly to our net earnings, was $2.4 million for the first quarter of 2011, $8.7 million in 2010, $7.2 million in 2009 and $7.4 million in 2008. If we are not able to make sales sufficient to replace the royalty income from Bradken, or if we fail to fulfill customer demands as we replace licensee sales with direct sales, our relationships with customers and our results of operations will suffer.

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Our ability to recover increased costs resulting from price increases in raw materials may be limited.

          Price increases for steel and other raw materials have occurred and will occur again. Prices for raw materials may be influenced by competitors, trends in our markets, private or government cartels, world politics, natural disasters, unstable governments in exporting nations and inflation. We may not be able to adjust product prices, especially in the short term, to recover the costs resulting from price increases.

Our operations may be affected by government policies and spending.

          Government policies on taxes and spending affect our businesses. Throughout the world, government spending finances infrastructure development, such as highways, airports, sewer and water systems and dams. Tax regulations determine depreciation lives and the amount of money potential customers can retain, both of which influence spending decisions. Developments more unfavorable than anticipated, such as declines in government revenues, decisions to reduce public spending or increases in taxes, could negatively affect our results.

          Our business plans typically reflect assumptions about the stability or strength of local economies and the interest rates, exchange rates and inflation in a number of countries. To the extent government intervention is different than we anticipate, the fiscal and monetary mechanisms can cause market demand to change materially from our forecasts. For example, interest rates affect the ability of customers to finance capital equipment purchases and can change the optimal time to keep capital equipment in operation. As a result, monetary policies, such as increases in interest rates higher than those assumed by us, could result in lower net sales than anticipated.

We may be adversely affected by government regulations.

          We are subject to government regulations in the countries where we operate. We incur additional legal compliance costs associated with our international operations and could become subject to penalties in foreign countries if we do not comply with local laws and regulations, which may be substantially different from those in the United States. We are also subject to U.S. government laws and regulations affecting our international activities, including those relating to bribery of foreign government officials, import-export control, trade sanctions and repatriation of earnings. Although we have policies and procedures designed to ensure compliance with these laws, our employees, contractors and agents could take actions in violation of our policies, which could have an adverse effect on our business.

          Approximately 56% of our employees are located outside the United States. We are subject to changes in foreign laws governing our relationships with our employees, including wage and hour laws and regulations, fair labor standards, unemployment tax rates, workers' compensation rates, citizenship requirements and payroll and other taxes.

          We engage primarily in heavy industrial manufacturing. Our customers are engaged primarily in industrial activities, including mining, infrastructure development, power generation and aerospace. As a result of the wide array of applicable regulations and laws, our and our customers' operations could be disrupted or curtailed. The high cost of compliance with environmental, health, safety and other regulations may also induce us or our customers to discontinue or limit operations. As a result of these factors, our ability to operate and our customers' demand for our products could be substantially and adversely affected.

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Our international operations are subject to many uncertainties.

          Our international operations are subject to political, economic, legal and other uncertainties that could adversely affect our business. A key part of our long-term strategy is to increase our manufacturing, distribution and sales presence in international markets. In 2010, 55.7% of our sales were to customers outside the United States.

          In addition to other general business risks, risks faced by our international operations include, among others, political, regulatory, judicial and business instability; less reliable or nonexistent physical, financial and legal infrastructures; differing environmental standards; currency exchange fluctuations; and restrictive trade rules, such as tariffs and currency controls.

          We take steps to monitor and respond to these risks. However, the fixed nature of the capital investments at many of our facilities and the fixed locations of many of our customers, in particular those in the mining industry, limit our ability to quickly alter our sales, supply chain, operational and purchasing efforts in response to political, regulatory or economic changes. As a result, we may suffer an impairment or loss of facilities or investment or we may find our ability to access and use our capital significantly restrained.

We are exposed to foreign currency risks.

          We are exposed to fluctuations in foreign currencies for transactions denominated in other currencies. We conduct a significant number of transactions in currencies other than the U.S. dollar. Changes in the value of major foreign currencies, particularly the Australian dollar, Brazilian Real, Canadian dollar, Chinese Renminbi, Euro and South African Rand, relative to the U.S. dollar can significantly affect net sales and our operating results. Generally, our revenues and operating results are adversely affected when the U.S. dollar strengthens relative to other currencies and are positively affected when the U.S. dollar weakens. In addition, we incur foreign currency transaction gains and losses, primarily related to intercompany transactions with and between our subsidiaries. If we increase our international sales, the percentage of our net sales denominated in local currencies will increase. Although we may engage in exchange rate hedging to mitigate exchange rate fluctuations, hedging transactions may not be available or may be ineffective. In addition to the direct effect of changes in exchange rates, those changes also indirectly affect the unit sales volume and foreign currency pricing of our products as we compete with products that are affected differently by the same currency exchange rate fluctuations. To the extent our related costs are denominated in other currencies, our margins may be affected by fluctuations in those currencies. We do not engage in cash flow hedging to mitigate this risk. Furthermore, currency controls, devaluations, trade restrictions and other disruptions in currency convertibility and in the market for currency exchange could limit our ability to convert sales earned abroad into U.S. dollars in a timely way. This could adversely affect our ability to service our U.S. dollar indebtedness, fund our U.S. dollar costs, finance capital expenditures and pay dividends on our capital stock.

We are subject to environmental laws and regulations, and any violation of, litigation relating to or liabilities under these laws and regulations could adversely affect us.

          We are subject to federal, state, provincial, regional, local and foreign laws and regulations relating to the protection of health, safety and the environment, including those governing emissions and discharges to the ground, air and water; handling and disposal practices for solid and hazardous wastes; the cleaning of contaminated sites; and the maintenance of a safe workplace. We are also required to obtain environmental permits from governmental authorities for some aspects of our foundry and manufacturing operations. These permits typically have terms of several years and are subject to renewal and modification, which could include additional requirements or restrictions. We may be unable to comply with all permit terms or renew our permits on a timely basis or at all.

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Furthermore, we could incur substantial costs or suffer reduced production capacity as a result of noncompliance with, or liability for cleanup or other costs or damages under, these permits or under environmental laws. We have in the past been required to pay fines in connection with permit violations. We could also be held liable for any consequences arising out of human exposure to hazardous materials, including asbestos, or other environmental damage.

          The U.S. Superfund law and similar state and foreign laws and regulations impose liability on entities that own or operate, or previously owned or operated, contaminated property; cause or caused contamination; or send or sent wastes to disposal facilities that become contaminated. The cleanup of contaminated sites can be expensive, and these laws may impose liability for the entire cost on any one party, particularly if other parties are unable to pay. As a result of our current and former ownership and operation of facilities and our disposal of wastes, we could incur substantial liability even if we are unaware of, or are not responsible for, releases of hazardous materials at our current or former sites, or we could suffer reduced production capacity or other costs or damages. We may be required to expend amounts for investigation and cleanup of contamination, which amounts we cannot determine at the present time but may ultimately prove to be significant. For example, in January 2008 we received a questionnaire from the Environmental Protection Agency, or the EPA, regarding historical operational practices in connection with the Portland Harbor Superfund site. The EPA sent the questionnaire to approximately 300 businesses located along the Willamette River in Oregon. The EPA named us as one of more than 100 businesses to date that are potentially responsible parties for this site in March 2010. The current aggregate clean-up cost to be allocated among responsible parties is estimated to be approximately $1.0 billion. We have entered into a participation agreement with a group of named potentially responsible parties and other companies under which we admit to no liability. The agreement provides a framework to determine how to allocate cleanup costs among the parties to the agreement if the EPA finds them responsible. The inability of a party to pay its portion of assessed costs may result in increased costs to other parties. We are also participating in a process with other potentially responsible parties to quantify and potentially allocate natural resource damages claims with respect to the site. We cannot predict our ultimate liability with respect to the Portland Harbor Superfund site at this time, but it could be substantial if the EPA determines we are a responsible party for this site.

          Environmental laws are complex, change frequently and have tended to become more stringent over time. Our costs of complying with current and future environmental laws, and our liabilities arising from past or future releases of, or exposure to, hazardous materials may adversely affect our business, financial condition or results of operations. In addition, increased environmental regulation of the industries to which we market could increase our customers' costs and adversely affect our net sales.

Regulatory effects of climate change could adversely affect our business.

          Our operations emit carbon dioxide and other greenhouse gases (GHG). Laws and regulations have been, and may be, adopted at the federal, state, provincial, regional and local levels in the United States and other countries where we operate with respect to GHG emissions. These laws, regulations and initiatives could result in additional costs to us, in the form of taxes or emission allowances, or could otherwise adversely affect our operations. For example, the EPA is proceeding with regulation of GHG emissions under the Clean Air Act. Under EPA regulations finalized in May 2010, the EPA began regulating GHG emissions from certain stationary sources in January 2011. Under these regulations, any source that emits at least 75,000 tons per year of GHGs will be required to have a Title V operating permit under the Clean Air Act. Sources that already have a Title V permit, including our U.S. foundries, will have GHG reporting provisions added to their permits upon renewal. Title V permits require renewal every five years. The permit for our Portland, Oregon foundries is currently in the renewal process; the permit for our Newton, Mississippi foundry

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is subject to renewal in 2014. Additionally, construction permits for new major sources of GHG emissions and GHG sources that undergo major modifications require the implementation of best available control technology for the control of GHG emissions. The effect of any current or future GHG regulation or initiatives on our global businesses and products could be significant, could require us to incur substantial costs and could otherwise affect our business, financial condition and results of operations.

Loss of or failure to recruit and develop skilled personnel could have an adverse effect on our business.

          Our ability to provide high-quality products and services depends in part on our ability to recruit and retain skilled personnel in the areas of management, product engineering and manufacturing, service and sales. The loss of the services of key personnel, or the failure to effectively implement succession plans, could have a significant negative effect on our business, particularly if we are unable to retain the customer relationships and technical expertise provided by our management team and personnel.

Our operations and products expose us to potential liability.

          We engage primarily in heavy industrial manufacturing. Some of our manufacturing processes involve high pressures, hot metal and other materials and equipment that present safety risks to our employees. Although we employ safety procedures in the design and operation of our facilities, accidents involving death or serious injury could occur. Any uninsured liability resulting from an accident could have an adverse effect on our business, financial condition or results of operations.

          Our business exposes us to possible claims for personal injury or death and property damage resulting from the use of products we manufacture. We maintain product liability and other insurance to cover claims of this nature. Our policies, however, are subject to deductible and recovery limitations and do not cover every contingency. Claims brought against us that our insurance does not cover or that exceed our insurance coverage could have an adverse effect on our business, financial condition or results of operations.

Our business involves risks associated with complex manufacturing.

          Few suppliers can provide the sophisticated and high-value equipment we use in our manufacturing plants. For example, at our TTG facilities, some of our investment casting furnaces and spare parts can only be purchased from a limited number of suppliers. Moreover, the competitive nature of our businesses requires us to periodically implement process changes to improve products and manufacturing efficiencies. These process changes may result in production delays, quality concerns and increased costs. Equipment failures or disruption of operations at our facilities, particularly at facilities where we do not have redundant capacity, may result in production delays, sales loss and significant costs.

Our manufacturing operations rely on the continued supply of a number of raw materials and manufactured components.

          To reduce costs and inventories, we sometimes rely on preferred vendors as a sole source for raw materials and manufactured components. In addition, we use some raw materials that are only found in a few locations in the world, including metals such as cobalt, nickel, tantalum and molybdenum required for the alloys used in some of our castings.

          In EPG, we have single suppliers for the cast and rubber components for the pins for locking systems for some of our tooth system, and sleeves for rigging casting. Disruptions in the supply of these products could affect our operations and require us to incur additional costs to identify those

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supplies or, in the case of cast components for locking pins, produce them ourselves. We typically purchase our commodity supplies on a purchase order basis, even where we have a written contract that governs the general terms of purchases.

          Delays in delivery of raw materials by TTG's suppliers could affect our business or our results of operations. Under typical arrangements with customers, TTG's manufacturing processes, including its supply sources for critical materials, are "fixed" once the production processes are approved by the customer. TTG may not change suppliers without customer approval; if the supplier does not make timely delivery, delivery of products and our recognition of net sales could be delayed. Changing suppliers may be difficult because there are limited alternate suppliers in the market for some alloys, such as cobalt and nickel based super-alloys. Approximately 83% of TTG's purchases of alloys in 2010 were directly from suppliers owned by competitors of TTG which also sell alloys in the open market to TTG and to other investment castings manufacturers.

          While we regularly assess the ability of these vendors to deliver as contracted and their viability as going concerns, because we maintain relatively low raw material inventories, even brief unanticipated delays in delivery by suppliers may adversely affect our ability to satisfy our customers' demands and could thereby affect our business or our results of operations.

Acquisitions present many risks, and we may not realize our financial and strategic goals for those transactions.

          We intend to continue to acquire businesses we believe will enhance our operations and profitability. We may not, however, be able to find suitable businesses to purchase or to obtain the financing to complete future strategic transactions. Acquisitions may present financial, managerial and operational challenges, including diversion of management attention from existing businesses, difficulty integrating personnel, acquired technologies or products and financial and other systems, increased expenses, failure to retain customers, assumption of unknown liabilities and indemnities and potential disputes with the sellers. Our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases, dividend payments and retirement of outstanding indebtedness. If we are unable to complete these transactions, or successfully integrate and grow acquisitions and achieve contemplated synergies, net sales growth and cost savings, our financial results could be adversely affected. We may significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition. To the extent we issue equity securities in connection with future acquisitions, existing shareholders may be diluted and earnings per share may decrease.

We are exposed to credit risk in our sales practices.

          To remain competitive, we often offer customers short-term credit on sales. We extend credit based on an assessment of a customer's financial condition, generally without requiring collateral beyond the products sold. A slowdown in applicable markets or a recession could have an adverse effect on the financial health of our customers, which in turn could have an adverse effect on our results of operations. We monitor our customers' creditworthiness, but we bear the risk of a significant delay in payment or default if a customer becomes insolvent or enters bankruptcy.

The conditions of the U.S. and international capital markets may adversely affect supplier financial viability, customer demand and our ability to draw on our credit facility.

          Recent volatility in credit and capital markets caused a significant decline in and restricted access to liquidity and financing for many businesses. If these conditions return or continue for extended periods, the liquidity of our suppliers and customers could be adversely affected. As a result, their ability to supply raw materials to us or purchase products from us could be negatively affected, and our business could suffer.

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          In addition, if financial institutions that have extended credit commitments to us are adversely affected by the conditions of the U.S. and international capital markets, they may be unable or unwilling to fund borrowings under their credit commitments to us, which could have an adverse effect on our ability to borrow additional funds for working capital, capital expenditures, acquisitions, research and development and other corporate purposes.

Our indebtedness could adversely affect our financial condition and impair our ability to operate our business.

          Our senior secured credit agreement contains covenants that limit our ability to incur indebtedness and acquire other businesses and impose other restrictions. These covenants could affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. In addition, our credit agreement requires us to maintain financial ratios and satisfy financial conditions. Our ability to comply with the provisions of our credit agreement may be affected by changes in economic or business conditions beyond our control. We may be unable to comply with the financial ratios or covenants and, if we fail to comply, we may be unable to obtain waivers from our lenders.

Labor disputes and increasing labor costs could adversely affect us.

          Collective bargaining agreements or similar types of arrangements cover approximately 24% of our employees. When these collective bargaining agreements expire, we may not be able to reach new agreements with our employees. These collective bargaining agreements expire at various times; agreements covering approximately 10.7% of our employees have expired or will expire in 2011. New agreements may be on substantially different terms and may result in increased direct and indirect labor costs. Disputes with our employees could adversely affect our business, financial condition or results of operations.

Risks Related to This Offering

Our stock price is likely to be volatile and could decline following this offering, resulting in a substantial loss on your investment.

          Before this offering, there has not been a public market for our Class A Common Stock. An active trading market for our Class A Common Stock may never develop or be sustained, which could affect your ability to sell your shares and could depress the market price of your shares. In addition, the initial public offering price has been determined through negotiations between us and the representatives of the underwriters and may not reflect the price at which our Class A Common Stock will trade after the offering.

          The stock market in general has been highly volatile. As a result, the market price of our Class A Common Stock is likely to be volatile, and investors in our Class A Common Stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. The price of our Class A Common Stock could be subject to wide fluctuations in response to a number of factors, including those described in this "Risk Factors" section and others, such as:

    our operating performance and the performance of other similar companies;

    the overall performance of the equity markets;

    publication of unfavorable research reports about us or our industry or withdrawal of research coverage by securities analysts;

    speculation in the press or investment community; and

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    global economic, political, legal and regulatory factors unrelated to our performance.

          Fluctuations or decreases in the trading price of our Class A Common Stock may adversely affect your ability to trade your shares. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert management's attention and resources that would otherwise be used to benefit the future performance of our operations. Securities class action costs may not be covered by insurance.

If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.

          The trading market for our Class A Common Stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities or industry analysts cover our business, the trading price for our Class A Common Stock would be negatively affected. If one or more of the analysts who covers us downgrades our Class A Common Stock or publishes incorrect or unfavorable research about our business, our stock price could decline. If one or more of these analysts stops covering our business or fails to publish reports on us regularly, demand for our Class A Common Stock could decrease, which could cause our stock price or trading volume to decline.

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results.

          As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance requirements. These requirements include compliance with Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, and rules promulgated by the Securities and Exchange Commission, or SEC, and The NASDAQ Stock Market LLC. In addition, our management team will have to adapt to the requirements of our public company status. We expect that complying with these rules and regulations will substantially increase our legal and financial compliance costs and make some activities more time-consuming and costly.

          The increased costs associated with operating as a public company will decrease our net earnings or increase our net loss and may require us to reduce costs in other areas of our business or increase the prices of our products. Additionally, if these requirements divert management's attention from other business concerns, they could have an adverse effect on our business, prospects, financial condition and operating results.

There may be sales of a substantial number of shares of our Class A Common Stock after this offering, which could cause our Class A Common Stock price to decline significantly.

          Additional sales of our Class A Common Stock in the public market after this offering, or the expectation that sales may occur, could cause the price of our Class A Common Stock to decline. Upon the completion of the offering, we will have             shares of Class A Common Stock outstanding,              shares of Legacy Class A Common Stock, all of which will convert into Class A Common Stock no later than 360 days after the date of this prospectus, and              shares of Class B Common Stock outstanding, which are convertible into             shares of Class A Common Stock or Legacy Class A Common Stock depending on the date of transfer.

          The shares of Class A Common Stock sold in this offering will be freely tradable in the public market unless held by our affiliates. The remaining             shares of Class A Common Stock held by our ESOP will be eligible for sale in the public market upon completion of our initial public

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offering, subject to the restrictions regarding distributions and diversification under the terms of our ESOP, ERISA regulations and restrictions under securities laws.

          Only the             shares of Legacy Class A Common Stock owned by our officers and directors and all of the shares of Class B Common Stock will be subject to lock-up agreements with the underwriters of our public offering. We expect that the remaining             shares of Legacy Class A Common Stock outstanding will be freely tradable following the offering, subject to any volume restrictions imposed by Rule 144 on shares held by affiliates, although no public market for those shares exists and we do not plan to list the Legacy Class A Common Stock on any exchange or create a market for those shares.

          Most of the holders of Legacy Class A Common Stock and Class B Common Stock have owned shares of our stock for many years and have not had access to a public market in which to sell their shares. Following conversion, a significant number of holders of our Legacy Class A Common Stock and Class B Common Stock may take advantage of the public market in our Class A Common Stock and sell shares.

          Pursuant to our equity incentive plans, options to purchase approximately             shares of Class A Common Stock will be outstanding upon completion of this offering. After the offering, we intend to file a registration statement under the Securities Act that will cover the shares available for issuance under our equity incentive plans (including shares underlying the outstanding options) as well as shares held for resale by our existing shareholders that were previously issued under our equity incentive plans. See "Shares Eligible for Future Sale".

          Sales of Class A Common Stock by existing shareholders in the public market, the availability of these shares for sale, our issuance of securities or the perception that any of these events might occur could materially and adversely affect the market price of our Class A Common Stock. In addition, the sale of these shares by these shareholders could impair our ability to raise capital through the sale of additional stock.

As a new investor, you will incur immediate and substantial dilution as a result of this offering.

          Investors purchasing shares of our Class A Common Stock in this offering will pay more for their shares than the amount paid by shareholders who acquired shares before this offering. If you purchase Class A Common Stock in this offering, you will incur immediate dilution in pro forma net tangible book value of approximately $             per share. In addition, the exercise of outstanding options and stock appreciation rights, the settlement of performance unit awards and grants of restricted stock will, and future equity issuances may, result in further dilution to investors.

We may not pay dividends on the Class A Common Stock.

          We have paid dividends on our common stock in the past and expect to do so in the future. Any determination to pay dividends in the future, however, will be at the discretion of our board of directors, will be subject to compliance with covenants in current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors our board of directors deems relevant.

The Class B Common Stock is held by a single shareholder, will have a significant number of votes and has separate approval rights for change in control transactions presented to shareholders for approval.

          The Class B Common Stock will represent approximately         % of the voting securities outstanding after the offering made by this prospectus, and will be able to influence the vote on matters requiring shareholder approval, may have interests and goals that differ from yours and

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may vote shares differently than you would. In addition, the Class B Common Stock votes as a separate voting group on a company conversion, merger requiring shareholder approval or share exchange; a sale of all or substantially all of our assets; and dissolution. Our Class B Common Stock is held by Henry T. Swigert as sole trustee of the Swigert 2000 Trust. Upon Mr. Swigert's death, Robert C. Warren, Jr. and Peter F. Adams, who are directors of ours, are designated to become co-trustees of the trust. If they do so, each must agree to vote the shares in trust in favor of a change in control transaction for the transaction to be approved. These voting rights may delay or prevent a change in control or sale of our business, including a transaction approved by our board of directors, and discourage tender offers for our shares. In the event of a change in control, the Class B Common Stock may have an opportunity to receive a premium for the Class B Common Stock that may not be available to the Class A Common Stock, which may affect the market price of our Class A Common Stock.

The trustee of our ESOP has the discretion to vote a large block of shares on matters presented to shareholders for approval.

          Upon the closing of the offering made by this prospectus, each participant in our ESOP may direct the ESOP trustee (North Star Trust Company, an independent trust company) how to vote the shares of stock allocated to the participant's ESOP account. The trustee must vote any unallocated shares held by the ESOP or allocated shares for which no direction has been given by the participant. Consequently, the trustee has the ability to vote a significant block of shares on important matters, which could delay or prevent a change in control or sale of our business, including a transaction approved by our board of directors.

We have broad discretion to determine how to use the funds raised in this offering, and may use them in ways that do not enhance our operating results or the price of our Class A Common Stock.

          We could spend the proceeds from this offering in ways our shareholders may not agree with or that do not yield a favorable return. We plan to use the net proceeds from this offering for general corporate purposes, which may include working capital, sales and marketing activities, general and administrative matters, capital expenditures, repayment of indebtedness and acquisitions of businesses to complement or enhance our product offerings and manufacturing capacity. Until we use the proceeds of this offering, we plan to invest the net proceeds in interest-bearing securities. If we do not invest or apply the proceeds of this offering in ways that enhance shareholder value, our stock price could decline.

Provisions in our articles of incorporation and bylaws, Oregon law, and our credit agreement may delay or prevent an acquisition of our business.

          Our articles of incorporation, bylaws and Oregon law contain provisions that may delay or prevent a change in control transaction or changes in our management. Our articles of incorporation and bylaws, which will be amended before the completion of this offering, will include provisions that:

    authorize "blank check" preferred stock, which could be issued without shareholder approval and could have voting, liquidation, dividend and other rights superior to the Class A Common Stock;

    create a classified board of directors whose members serve staggered three-year terms, resulting in the election of one-third of the directors in any year;

    provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and

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    require supermajority votes of the holders of our common stock, voting as a single group, to amend specified provisions of our articles of incorporation and bylaws.

          In addition, the separate vote of the Class B Common Stock, as described above, is required for certain change in control transactions. These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

          Because we are incorporated in Oregon, we are governed by the provisions of the Oregon Business Corporation Act, which, among other things, limits the ability of shareholders owning in excess of 15% of our outstanding voting stock to merge or combine with us and regulates the process by which persons may acquire control of our business without the consent and cooperation of our board of directors.

          In addition, under our credit agreement certain changes in the majority of our directors over a two-year period or specified changes or accumulations of ownership of our voting stock could result in an event of default, which may delay or prevent a change in control or sale of our business.

          Any provision of our articles of incorporation or bylaws, Oregon law or our credit agreement that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares of our Class A Common Stock, and could also affect the price that some investors are willing to pay for our Class A Common Stock.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

          This prospectus includes forward-looking statements, which can be identified by the use of forward-looking terminology, including, but not limited to, the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "will", "would" or "should" or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements appear in a number of places throughout this prospectus and include statements regarding our plans, estimates, outlook, beliefs or expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industries in which we operate.

          By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity and the development of the industries in which we operate may differ materially from those made in or suggested by the forward-looking statements in this prospectus. In addition, even if our historical or future results of operations, financial condition and liquidity and the development of the industries in which we operate are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in other future periods. Important factors that could cause those differences include, but are not limited to:

    general economic conditions, including any economic downturn in the markets in which we operate;

    fluctuations in worldwide or regional demand for (i) engineered metal parts and components, (ii) commodities, energy and infrastructure and (iii) air travel and engineered replacement parts for jet engines;

    consolidation within our customer base and the resulting increased concentration of our net sales;

    the effectiveness of our cost management and productivity measures and our continued utilization of our lean initiatives;

    changes in practices or policies of our customers related to their requirements for the products we manufacture and sell;

    changes in the sourcing and pricing practices of our customers, including demands for price concessions as a condition to retaining current business or obtaining new business;

    fluctuations in foreign currency exchange rates;

    fluctuations in interest rates that may affect our borrowing costs;

    fluctuations in the cost and availability of raw materials, labor and energy, and our ability to pass those costs on to our customers;

    fluctuations in shipping costs and our ability to pass those costs on to our customers;

    work stoppages or other labor disputes that could disrupt production at our facilities or those of our suppliers or customers;

    factors or presently unknown circumstances that may affect the charges related to the impairment of our assets;

    changes in environmental laws and regulations (or the implementation thereof);

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    our ability to improve our products and manufacturing processes to meet customer demands and to successfully implement new technologies and manufacturing processes when launching new products;

    constraints on our ability to shift production between our plants in response to customer needs;

    our ability to attract and retain key employees;

    industry innovation and our own product development and engineering efforts and our ability to obtain patent protection on our key products;

    changes in our exposure to product liability and warranty claims;

    our ability to meet the financial covenants in our debt agreements;

    liabilities arising from litigation; and

    our ability to integrate acquired businesses and realize anticipated benefits.

          See "Risk Factors" beginning on page 14 for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. These and other risk factors described in this offering prospectus may not be all of the factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could affect our results. Given these uncertainties and risks, readers are cautioned not to place undue reliance on these forward-looking statements. We disclaim any obligation to update any risk factors or to publicly announce the result of any revisions to any of the forward-looking statements contained in this prospectus to reflect future results, events or developments.

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USE OF PROCEEDS

          We estimate that we will receive net proceeds from the sale of                          shares of Class A Common Stock in this offering of approximately $              million or approximately $              million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $             per share (the midpoint of the price range set forth on the cover page of this prospectus) after deducting underwriting discounts and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) the net proceeds to us by $              million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting the underwriting discounts and estimated offering expenses payable by us.

          The principal purposes of this offering are to increase our financing flexibility, provide shareholders an opportunity to sell shares to the public and create a public market for our Class A Common Stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us of this offering. We intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures. We may also use a portion of the net proceeds for (a) acquisitions of businesses to complement or enhance our product offerings and manufacturing capacity or (b) the repayment of debt. We have no commitments or agreements to make any acquisitions or plans to repay indebtedness. We plan to invest the net proceeds of this offering in interest-bearing securities until used. We will not receive any proceeds from the sale of shares by the selling shareholders. See "Principal and Selling Shareholders."

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DIVIDEND POLICY

          Without taking into account the         -for-one stock split that will occur before completion of the offering made by this prospectus, we paid cash dividends of:

    $11.00 per share on Legacy Class A Common Stock and Class B Common Stock in December 2010;

    $10.00 per share on Legacy Class A Common Stock and Class B Common Stock in January 2010;

    $16,298,578 in the aggregate on Class C Preferred Stock in 2010;

    $11.00 per share on Legacy Class A Common Stock and Class B Common Stock in January 2009; and

    $16,419,345 in the aggregate on Class C Preferred Stock in 2009.

          We have typically paid a single annual dividend on our Legacy Class A Common Stock and Class B Common Stock in January of each year. In 2010, in addition to a $10.00 per share dividend paid in January, we declared and paid another dividend of $11.00 per share in December rather than in January 2011 due to uncertainty about the tax treatment of dividends in 2011. We have not declared or paid a dividend to common shareholders in 2011.

          We have been required to pay quarterly dividends on the Class C Preferred Stock held by our employee stock ownership plan, or ESOP, at an annualized rate of 7.428% of the original issue price of $1,161.36 per share of Class C Preferred Stock. The Class C Preferred Stock will convert into Class A Common Stock upon completion of the offering made by this prospectus. See "Description of Employee Stock Ownership Plan".

          We expect to pay quarterly cash dividends on all classes of our capital stock, subject to applicable law. However, any determination to pay dividends and the amount of any dividends will be at the discretion of our board of directors, subject to compliance with covenants in current and future agreements governing our indebtedness, and will depend upon our results of operations, financial condition, capital requirements and other factors that our board of directors deems relevant. We expect per share dividends after completion of the offering made by this prospectus will be less than historical dividends. Class A Common Stock, Legacy Class A Common Stock and Class B Common Stock will share equally and ratably in any dividends we pay or set aside.

          Our senior secured credit agreement contains covenants that limit our ability to pay dividends or make other distributions to our shareholders. We are permitted to pay dividends as long as (i) no default exists under the agreement immediately before and after giving effect to the dividend and (ii) we would both (A) be in compliance with the financial covenants set forth in our credit agreement on a pro forma basis and (B) maintain a consolidated net leverage ratio at least 0.25 less than the maximum net leverage ratio then permitted under the agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Description of Indebtedness". Our credit agreement is filed as an exhibit to the registration statement of which this prospectus is a part.

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CAPITALIZATION

          The table below sets forth our capitalization as of March 31, 2011:

    on an actual basis;

    on a pro forma basis to give effect to the                          -for-one stock split, the authorization of the Class A Common Stock and the conversion of Legacy Class A Common Stock and Class C Preferred Stock into Class A Common Stock, all as described under "Explanatory Note Regarding Changes in Our Capital Stock"; and

    on a pro forma as adjusted basis to give effect to the sale by us of                          shares of Class A Common Stock in this offering (at an estimated initial public offering price of $             per share, the midpoint of the price range set forth on the cover of this prospectus) less the underwriting discounts and estimated offering expenses payable by us, and the use of proceeds received by us from this offering as disclosed under "Use of Proceeds".

          You should read the table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

 
  As of March 31, 2011  
 
 
Actual
 
Pro forma
 
Pro forma as
adjusted(6)
 
 
  (in thousands)
 

Total debt, including current portion

  $ 271,760   $ 271,760   $    

Contingently redeemable equity securities(1)

                   
 

Class C Preferred Stock, 205,000 shares authorized, 188,354 outstanding, actual(2)

    114,500            
 

Legacy Class A Common Stock, 5,000,000 shares authorized, 890,294 shares outstanding, actual(3)

    139,744            

Shareholders' equity/(deficit)

                   
 

Class A Common Stock, no shares authorized or outstanding,              actual;             shares authorized, pro forma and pro forma as adjusted,              shares outstanding, pro forma;             shares outstanding, pro forma as adjusted

          254,244        
 

Legacy Class A Common Stock, 5,000,000 shares authorized, 890,294 shares outstanding, actual;             shares authorized, no shares outstanding, pro forma and pro forma as adjusted(4)

               
 

Class B Common Stock, 243,737 shares authorized, 208,395 shares outstanding, actual;             shares authorized, pro forma and pro forma as adjusted,             shares outstanding, pro forma and pro forma as adjusted

    10,343     10,343        
 

Class C Preferred Stock, 205,000 shares authorized, 188,354 outstanding, actual; 205,000 shares authorized, none outstanding, pro forma and pro forma as adjusted(2)

               
 

Preferred stock, no shares authorized or outstanding, actual; 205,000 shares authorized, none outstanding, pro forma and pro forma as adjusted

                   
 

Accumulated deficit(5)

    (26,641 )   (26,641 )      
 

Accumulated other comprehensive loss

    (2,623 )   (2,623 )      
 

Noncontrolling interests

    11,857     11,857        
               
   

Total shareholders' equity/(deficit)

  $ (7,064 ) $ 247,180   $    

Total capitalization

  $ 518,940   $ 518,940   $    
               

(1)
Contingently redeemable equity securities are redeemable upon a shareholder's retirement at age 65, death or disability. See "Description of Capital Stock — Shareholder Agreements".

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(2)
The actual presentation reflects shares of Class C Preferred Stock at their redemption value. Shares of Class C Preferred Stock automatically convert on a one-for-one basis into shares of Class A Common Stock upon our initial public offering as described in "Explanatory Note Regarding Changes in Our Capital Stock".

(3)
The actual presentation reflects             shares of Legacy Class A Common Stock subject to repurchase obligations at their redemption value. Shares of Legacy Class A Common Stock automatically convert on a one-for-one basis into shares of Class A Common Stock over a period of up to 360 days as described in "Explanatory Note Regarding Changes in Our Capital Stock". Until conversion, the holders of approximately                          shares of Legacy Class A Common Stock may require us to purchase shares upon retirement at age 65, death or disability. Upon the conversion of Legacy Class A Common Stock into Class A Common Stock, the stock will be reclassified from contingently redeemable equity securities to shareholders' equity. The pro forma presentation in the table reflects the conversion of all Legacy Class A Common Stock and, accordingly, no remaining contingently redeemable equity securities balance. See "Description of Capital Stock — Shareholders Agreements".

(4)
The actual presentation reflects             shares of Legacy Class A Common Stock not subject to repurchase obligations. See note 3.

(5)
Accumulated deficit is caused by the periodic revaluation of our contingently redeemable equity securities to their current redemption value.

(6)
A $1.00 increase (decrease) in the assumed initial public offering price of $             per share would increase (decrease) each of total shareholders' equity and total capitalization by $              million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting the underwriting discounts and estimated offering expenses payable by us.

          The number of shares of Class A Common Stock to be outstanding after this offering is based on                          shares outstanding as of March 31, 2011 and excludes:

    shares issuable upon exercise of options outstanding as of March 31, 2011 to purchase Legacy Class A Common Stock at a weighted average exercise price of $             per share;

    shares issuable upon the exercise of stock-settled stock appreciation rights, the number of which will depend upon the fair value of our Class A Common Stock at the time of exercise (             shares assuming a fair value of $             per share, the midpoint of the range set forth on the cover of this prospectus);

    shares issuable pursuant to performance units, the number of which will depend upon the achievement of specified performance measures; and

    additional shares of Class A Common Stock reserved for issuance under our 2000 Stock Incentive Plan and 2010 Stock Incentive Plan.

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DILUTION

          If you invest in our Class A Common Stock, your interest will be diluted to the extent of the difference between the public offering price per share of our Class A Common Stock and the pro forma as adjusted net tangible book value per share of our Class A Common Stock immediately after this offering. Pro forma historical net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the number of shares of our common stock outstanding at March 31, 2011, after giving effect to the pro forma adjustments referenced under "Capitalization".

          After giving effect to the pro forma adjustments referenced under "Capitalization" and the sale by us of                          shares of Class A Common Stock in this offering at a price of $             per share, the midpoint of the price range set forth on the cover of this prospectus, and after deducting the underwriting discounts and estimated offering expenses payable by us, our pro forma net tangible book value as of March 31, 2011 would have been approximately $              million, or $             per share. This represents an immediate increase in net tangible book value of $             per share to existing shareholders and an immediate dilution in net tangible book value of $             per share to new investors purchasing Class A Common Stock in the offering.

          The following table illustrates this dilution on a per share basis:

Assumed initial public offering price per share

        $    
 

Pro forma net tangible book value per share as of March 31, 2011

  $          
 

Increase in net tangible book value per share attributable to new investors

  $          

Pro forma as adjusted net tangible book value per share after this offering

        $    
           

Dilution per share to new investors

        $    
           

          A $1.00 increase (decrease) in the assumed initial public offering price would increase (decrease) our pro forma as adjusted net tangible book value per share by $             , and increase (decrease) the dilution per share to new investors by $             , assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same, and after deducting the underwriting discounts and estimated offering expenses payable by us.

          If the underwriters exercise their option to purchase additional shares of our Class A Common Stock in full, based upon a price of $             per share, the midpoint of the price range set forth on the cover of this prospectus, the pro forma as adjusted net tangible book value per share after this offering would be $             per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $             per share.

          The following table sets forth, as of March 31, 2011, on a pro forma as adjusted basis, the differences between existing shareholders and new investors with respect to the total number of shares of Class A Common Stock purchased from us, the total consideration paid, and the average price per share paid before deducting the underwriting discounts and estimated offering expenses payable by us, based upon a price of $             per share, the midpoint of the price range set forth on the cover of this prospectus.

 
  Shares Purchased   Total Consideration    
 
 
Average
Price Per
Share
 
 
Number
 
%
 
Amount
 
%

Existing shareholders

                   

New investors

                   
                     

Total

                   
                     

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          Sales by the selling shareholders in this offering will cause the number of shares held by existing shareholders to be reduced to                          shares, or         % of the total number of shares of our Class A Common Stock outstanding after this offering. If the underwriters' option to purchase additional shares is exercised in full, the number of shares held by existing shareholders after this offering would be reduced to         % of the total number of shares of our Class A Common Stock outstanding after this offering.

          The above discussion and tables are based on a pro forma as adjusted basis of                          shares of Class A Common Stock issued and outstanding as of March 31, 2011, and excludes:

    shares issuable upon exercise of options outstanding as of March 31, 2011 to purchase Legacy Class A Common Stock at a weighted average exercise price of $             per share;

    shares issuable upon the exercise of stock-settled stock appreciation rights, the number of which will depend upon the fair value of our Class A Common Stock at the time of exercise (             shares assuming a fair value of $             per share, the midpoint of the range set forth on the cover of this prospectus);

    shares issuable pursuant to performance units, the number of which will depend upon the achievement of specified performance measures; and

    additional shares of Class A Common Stock reserved for issuance under our 2000 Stock Incentive Plan and 2010 Stock Incentive Plan.

          To the extent that any outstanding options are exercised, new investors will experience further dilution.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

          We derived the selected consolidated statement of earnings data for the years ended December 26, 2008 and December 31, 2009 and 2010 and the selected consolidated balance sheet data as of December 31, 2009 and 2010 from our audited consolidated financial statements and related notes included in this prospectus. We derived the selected statement of earnings data for the years ended December 29, 2006 and December 28, 2007 and the balance sheet data as of December 29, 2006, December 28, 2007 and December 26, 2008 from our audited consolidated financial statements not included in this prospectus. Before 2009, we reported on a 52/53-week fiscal year consisting of four 13-week periods and ending on the last Friday of the calendar year. Effective December 27, 2008, we changed to a calendar year. Our fiscal year 2009, however, began on December 27, 2008 and ended on December 31, 2009, resulting in a 370-day year.

          We derived the selected consolidated statement of earnings data for the three months ended March 31, 2010 and 2011 and the selected consolidated balance sheet data as of March 31, 2011 from our unaudited condensed consolidated financial statements and notes thereto included elsewhere in the prospectus. These unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information set forth herein. Interim financial results are not necessarily indicative of results that may be expected for the full fiscal year or any future period.

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          The results indicated below and elsewhere in this prospectus are not necessarily indicative of our future performance. You should read this information together with "Capitalization", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and related notes included elsewhere in this prospectus.

 
  Three months ended   Fiscal year ended  
(dollars in thousands,
except per share data)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 
December 28,
2007
 
December 29,
2006
 

Statement of earnings data:

                                           

Net sales

  $ 253,843   $ 185,256   $ 849,481   $ 680,390   $ 939,913   $ 790,514   $ 690,919  

Cost of goods sold(1)

    183,299     136,174     626,883     507,115     724,921     608,028     544,432  
                               

Gross profit

    70,544     49,082     222,598     173,275     214,992     182,486     146,487  

Operating expenses

                                           
 

Selling and administrative expenses(1), (2)

    46,729     31,189     147,881     112,535     132,719     116,750     110,053  
 

Restructuring and other(3)

    20     281     748     6,332     1,792          
                               

Operating profit

    23,795     17,612     73,969     54,408     80,481     65,736     36,434  

Interest expense, net

    3,079     6,354     23,710     26,226     26,736     27,816     7,561  

Loss on early extinguishment of debt(4)

                13,013                  

Other (income) expense(5)

    (1,079 )   458     (731 )   (1,091 )   4,259     (2,610 )   (450 )
                               

Earnings from continuing operations before income taxes

    21,795     10,800     37,977     29,273     49,486     40,530     28,423  

Income tax expense

    7,420     3,689     9,423     8,487     13,297     14,013     11,416  

Earnings from continuing operations, net of tax

    14,375     7,111     28,554     20,786     36,189     26,517     17,007  

Earnings from discontinued operations, net of tax(6)

                306     443     1,368     10,371  
                               

Net earnings

    14,375     7,111     28,554     21,092     36,632     27,885     27,378  

Less: net earnings attributable to the noncontrolling interest-continuing operations

    (1,491 )   (1,161 )   (4,634 )   (2,537 )   (5,073 )   (2,393 )   (138 )

Less: net earnings attributable to the noncontrolling interest-discontinued operations

                (141 )   (343 )   (182 )    

Net earnings attributable to ESCO shareholders from continuing operations

    12,884     5,950     23,920     18,249     31,116     24,124     16,869  

Valuation adjustment of Class C Preferred Stock(7)

    (1,154 )   (771 )   (16,521 )   7,933     13,287     803     7,461  

Net earnings attributable to ESCO common shareholders from continuing operations

    11,730     5,179     7,399     26,182     44,403     24,927     24,330  

Pro forma earnings from continuing operations attributable to ESCO shareholders(8)

    12,884     5,950     23,920     18,249     31,116     24,124     16,869  

Earning per weighted average share outstanding(9)

                                           
   

Basic earnings per share from continuing operations allocated to ESCO common shareholders

  $ 10.69   $ 4.78   $ 6.81   $ 24.18   $ 41.08   $ 23.14   $ 156.32  
   

Diluted earnings per share from continuing operations allocated to ESCO common shareholders(10)

  $ 10.42   $ 4.64   $ 6.62   $ 15.16   $ 26.21   $ 20.74   $ 12.62  
 

Weighted average shares outstanding

                                           
   

Basic

    1,097     1,084     1,086     1,083     1,081     1,077     106  
   

Diluted

    1,236     1,117     1,118     1,204     1,187     1,163     1,337  
 

Pro forma earnings per share from continuing operations attributable to ESCO shareholders

                                           
   

Basic

  $     $     $     $     $     $     $    
   

Diluted

  $     $     $     $     $     $     $    
 

Pro forma weighted average shares outstanding

                                           
   

Basic

                                           
   

Diluted

                                           

Cash dividends declared per common share(11)

              $ 11.00   $ 10.00   $ 11.00   $ 12.00   $ 10.52  

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  Three months ended    
   
   
   
   
 
 
  As of  
 
 
March 31,
2011 pro
forma
   
 
(dollars in thousands)
 
March 31,
2011
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 
December 28,
2007
 
December 29,
2006
 

Balance sheet data:

                                           

Cash and cash equivalents

  $ 81,078   $ 81,078   $ 114,101   $ 168,487   $ 113,167   $ 84,070   $ 92,230  

Current assets, excluding cash and cash equivalents

    314,321     314,321     268,166     203,854     231,169     240,043     201,423  

Property and equipment, net

    173,788     173,788     167,446     161,919     164,237     171,640     148,191  

Total assets

    748,337     748,337     723,622     675,745     646,111     619,489     538,711  

Current liabilities, excluding the current portion of debt

    144,641     144,641     133,854     101,162     121,767     115,831     95,391  

Total debt, including current portion

    271,760     271,760     273,314     306,498     304,096     305,753     309,529  

Contingently redeemable equity securities(12)

        254,244     232,184     144,064     132,038     135,653     97,471  

Total equity/(deficit)(12)

    247,180     (7,064 )   (4,622 )   44,699     17,259     16,563     10,262  

 

 
  Three months ended   Fiscal year ended  
(dollars in thousands)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 
December 28,
2007
 
December 29,
2006
 

Other data:

                                           

Adjusted EBITDA(13)

  $ 39,457   $ 27,838   $ 127,780   $ 99,497   $ 130,853   $ 105,903   $ 90,182  

Adjusted EBITDA margin(13)

    15.6%     15.0%     15.0%     14.6%     13.9%     13.4%     13.1%  

Adjusted net earnings from continuing operations(14)

  $ 18,483   $ 8,563   $ 48,588   $ 28,977   $ 44,108   $ 37,090   $ 36,639  

(1)
Non-cash ESOP compensation costs are included in cost of goods sold and selling and administrative expenses. See "Description of Employee Stock Ownership Plan."

(2)
The mark to market on SARs, an expense of $7.7 million and $0.0 million, income of $0.3 million and an expense of $0.3 million in 2010, 2009, 2008 and 2007, respectively, is included in selling and administrative expenses. No SARs were outstanding in 2006. The mark to market on SARs, an expense of $3.5 million and $0.0 million in the three months ended March 31, 2011 and March 31, 2010, is included in selling and administrative expenses.

(3)
Restructuring and other costs included: in 2010, expenses related to the closure of our Saskatoon, Saskatchewan foundry; in 2009, personnel reductions and the closure of our West Jordan, Utah plant and the Saskatoon, Saskatchewan foundry; and in 2008, personnel reductions, the closure of our West Jordan, Utah plant and curtailment costs related to freezing benefits for our U.S. defined benefit plans.

(4)
Loss on early extinguishment of debt primarily includes the write-off of $4.0 million of unamortized loan costs and the early redemption call premium of $8.6 million paid upon redemption of $300.0 million principal amount of senior unsecured notes in December 2010 as part of our debt refinancing. Debt extinguishment costs also include $0.4 million of unamortized debt costs associated with our asset-backed line of credit cancelled in November 2010 as part of our debt refinancing.

(5)
Other (income) expense primarily includes foreign exchange losses and gains on settlement transactions of foreign denominated accounts receivable and accounts payable. Other expense in each of 2009 and 2008 includes $0.3 million of insurance retention expenses.

(6)
Discontinued operations for 2009, 2008 and 2007 included earnings from ESCO Soldering Locacoes de Marquinas e Equipmentos Ltda, which we divested in June 2009 as part of the transaction that resulted in our acquisition of 100% ownership of ESCO Soldering, now known as ESCO Brazil. Discontinued operations for the periods ended December 28, 2007 and December 29, 2006 included earnings from our Integrated Manufacturing (IMG) and Engineered Metals (EMG) groups, which were divested in the fourth quarter of 2006, except certain assets and the related income stream that we retained.

(7)
Valuation adjustment of Class C Preferred Stock is the mark to market change of the redemption value of the shares of Class C Preferred Stock classified as contingently redeemable equity securities on our balance sheet. The corresponding offset is a change in our retained earnings. Upon the conversion of Class C Preferred Stock into Class A Common Stock in connection with the offering made by this prospectus, the stock will be reclassified from contingently redeemable equity securities to shareholders' equity and this valuation adjustment will no longer be included in our financial statements.

(8)
Pro forma earnings from continuing operations attributable to ESCO shareholders reflects the reclassification from contingently redeemable equity securities to shareholders' equity of Class C Preferred Stock and Class A Common Stock subject to contingent repurchase obligations. See "Description of our Employee Stock Ownership Plan" and "Description of Capital Stock."

(9)
Per share data reflect the changes in our capital structure that will occur before we complete the offering described in this prospectus; other per share data do not. See "Explanatory Note Regarding Changes in Our Capital Stock". Per share data in 2006 reflect our 2006 ESOP transaction. The Legacy Class A Common Stock and the Class B Common Stock were converted from preferred stock when we implemented our ESOP, which occurred on December 27, 2006. The weighted average common shares outstanding in 2006 was minimal due to the short time the Legacy Class A Common Stock and Class B Common Stock existed in 2006.

(10)
Diluted earnings per share includes the weighted average number of Class C Preferred Stock outstanding and the incremental shares that would be issued upon the assumed exercise of stock options for the period they were outstanding.

(11)
See "Dividend Policy".

(12)
Contingently redeemable equity securities are redeemable upon the holder's retirement at age 65, death or disability. See "Description of Capital Stock — Shareholder Agreements" and "Description of Employee Stock Ownership Plan". The presentation reflects shares

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Table of Contents

    of Class C Preferred Stock and Legacy Class A Common Stock at their redemption value. Shares of Class C Preferred Stock automatically convert on a one-for-one basis into shares of the Class A Common Stock upon the completion of the offering made by this prospectus. Shares of Legacy Class A Common Stock automatically convert on a one-for-one basis into shares of the Class A Common Stock over a period of up to 360 days as described in "Explanatory Note Regarding Changes in Our Capital Stock". Upon the conversion of Class C Preferred Stock or Legacy Class A Common Stock into Class A Common Stock, the stock will be reclassified from contingently redeemable equity securities to shareholders' equity.

(13)
Adjusted EBITDA is earnings from continuing operations, net of tax, before interest, taxes, depreciation and amortization and non-operating expense (income) adjusted to add back ESOP non-cash compensation expenses, mark to market on SARs expense, unrealized (gains) losses on long-term investments and certain restructuring charges. Adjusted EBITDA margin is adjusted EBITDA divided by net sales. Adjusted EBITDA and Adjusted EBITDA margins have limitations as analytical tools. Adjusted EBITDA is not intended to represent net earnings, earnings from continuing operations, net of tax, or cash flow from operating activities as these terms are defined by generally accepted accounting principles in the United States and should not be used as an alternative to net earnings as an indicator of operating performance or to cash flow as a measure of liquidity. Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies because other companies may not calculate those measures in the same manner we do. We have included Adjusted EBITDA and Adjusted EBITDA Margin in this prospectus because they are used by our management to assess financial performance and may provide a more complete understanding of the factors and trends affecting our business. We believe Adjusted EBITDA and Adjusted EBITDA margin are useful to investors in evaluating our operating performance for the following reasons:

Our management uses these measures in conjunction with GAAP financial measures as part of our assessment of our business and in communications with our board of directors concerning our financial performance;

These measures provide consistency and comparability with our past financial performance, facilitate period-to-period comparisons of operations and facilitate comparisons with peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and

These measures exclude non-cash charges, such as depreciation, amortization, ESOP compensation expense and mark to market on SARs expense, and those non-cash charges in any specific period may not directly correlate to the underlying performance of our business operations and can vary significantly from period to period.

The following table reconciles earnings from continuing operations, net of tax to Adjusted EBITDA for the periods indicated below.

   
  Three months ended   Fiscal year ended  
 
(dollars in thousands)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 
December 28,
2007
 
December 29,
2006
 
 

Earnings from continuing operations, net of tax

  $ 14,375   $ 7,111   $ 28,554   $ 20,786   $ 36,189   $ 26,517   $ 17,007  
 

Add/(Subtract):

                                           
 

    Interest (net) and loss on early extinguishment of debt

    3,079     6,354     36,723     26,226     26,736     27,816     7,561  
 

    Income tax expense

    7,420     3,689     9,423     8,487     13,297     14,013     11,416  
 

    Depreciation and amortization(a)

    7,774     6,492     27,479     25,113     24,187     22,661     19,191  
 

    Other (income) expense

    (1,079 )   458     (731 )   (1,091 )   4,259     (2,610 )   450  
 

    ESOP non-cash compensation expense(b)

    5,101     4,020     17,259     16,504     20,248     19,682     34,315  
 

    Mark to market on SARs expense(c)

    3,513         7,678         (260 )   266      
 

    Unrealized (gains) losses on long-term investments(d)

    (746 )   (567 )   (1,953 )   (2,860 )   4,405     (1,142 )   (1,758 )
 

    Restructuring and other(e)

    20     281     748     6,332     1,792     (1,300 )   2,000  
 

    Port Hope reclamation(f)

            2,600                      
                                 
 

    Adjusted EBITDA

  $ 39,457   $ 27,838   $ 127,780   $ 99,497   $ 130,853   $ 105,903   $ 90,182  
                                 

(a)
Depreciation and amortization excludes the amortization of debt issuance costs, which are included in interest (net).

(b)
We recognize non-cash compensation expense equal to the fair value of the Class C Preferred Stock released as security for the loan to the ESOP and allocated to participant accounts. A portion of the non-cash ESOP compensation expense is allocated to cost of goods sold and a portion is allocated to selling and administrative expenses, based on the number of shares allocated to the accounts of manufacturing employees and other employees. See "Description of Employee Stock Ownership Plan". ESOP non-cash compensation expense in 2006 includes $3.9 million of ESOP-related expenses.

(c)
Each quarter, we record the mark to market change in the value of our SARs. Our determination of fair value includes, among other factors, the valuation determined by the independent valuation firm used by the ESOP trustee. We add this back to derive Adjusted EBITDA because it is a non-cash expense. In 2011, we changed our SARs long-term incentive program to stock-settled grants. The grant date fair value of an award will be amortized over the required service period. 92.6% of our existing cash-settled SARs were converted to stock-settled SARs in 2011. As a result, in the second quarter of 2011, those awards are no longer required to be marked to market. Any impact to expense from this conversion will be amortized over the remaining service period for the unvested awards.

(d)
Unrealized (gains) and losses on long-term investments represent the mark to market on our investments held to fund our deferred compensation and supplemental executive retirement programs.

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(e)
Restructuring and other activity in 2010 included restructuring expenses related to the closure of our Saskatoon, Saskatchewan foundry. Restructuring activity in 2009 included restructuring expenses related to personnel reductions and the closure of our West Jordan, Utah plant and the Saskatoon, Saskatchewan foundry. Restructuring activity in 2008 included restructuring expenses related to personnel reductions, the closure of our West Jordan, Utah plant and curtailment costs related to freezing benefits for our U.S. defined benefit plans. Other activity in 2007 included insurance recovery from a fire in our U.K. facility in 2006 and estimated lost earnings before interest and taxes due to a work stoppage at our Herstal, Belgium facility. Other activity in 2006 included estimated costs and business interruption expenses associated with a fire in our U.K. facility, net of partial insurance recovery received in 2006.

(f)
The expense in 2010 represents the estimated cost of removing an accumulation of solid waste at our Port Hope, Ontario, Canada facility. We plan to complete the removal within a five-year period. This expense is included in selling and administrative expenses in our consolidated financial statements.

    The most closely comparable GAAP measure to Adjusted EBITDA margin is operating profit margin, which is operating profit divided by net sales. The following table shows how each of operating profit margin and Adjusted EBITDA margin are calculated.

   
  Three months ended   Fiscal year ended  
 
(dollars in thousands)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 
December 28,
2007
 
December 29,
2006
 
 

Net sales

  $ 253,843   $ 185,256   $ 849,481   $ 680,390   $ 939,913   $ 790,514   $ 690,919  
 

Operating profit

    23,795     17,612     73,969     54,408     80,481     65,736     36,434  
 

Adjusted EBITDA

    39,457     27,838     127,780     99,497     130,853     105,903     90,182  
                                 
   

Operating profit margin

    9.4%     9.5%     8.7%     8.0%     8.6%     8.3%     5.3%  
   

Adjusted EBITDA margin

    15.6%     15.0%     15.0%     14.6%     13.9%     13.4%     13.1%  
(14)
We define adjusted net earnings from continuing operations as net earnings from continuing operations attributable to ESCO shareholders plus loss on early extinguishment of debt, net of tax; mark to market on SARs expense, net of tax; and ESOP non-cash compensation expense, net of tax. The adjustments assume a 35% tax rate. We have included adjusted net earnings from continuing operations in this prospectus because it represents a basis upon which our management assesses financial performance and may provide a more complete understanding of the factors and trends affecting our business.

The following table reconciles net earnings from continuing operations attributable to ESCO shareholders to adjusted net earnings from continuing operations.

   
  Three months ended   Fiscal year ended  
 
(dollars in thousands)
  March 31,
2011
  March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 
December 28,
2007
 
December 29,
2006
 
 

Net earnings from continuing operations attributable to ESCO shareholders

  $ 12,884   $ 5,950   $ 23,920   $ 18,249   $ 31,116   $ 24,124   $ 16,869  
 

Loss on early extinguishment of debt, net of tax

            8,458                  
 

Mark to market on SARs expense, net of tax

    2,283         4,991         (169 )   173      
 

ESOP non-cash compensation expense, net of tax

    3,316     2,613     11,219     10,728     13,161     12,793     19,770  
                                 
 

Adjusted net earnings from continuing operations

  $ 18,483   $ 8,563   $ 48,588   $ 28,977   $ 44,108   $ 37,090   $ 36,639  
                                 

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

          You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes included in this prospectus. In addition to historical financial information, this discussion contains forward-looking statements reflecting our plans, estimates, outlook, beliefs and expectations that involve risks and uncertainties. As a result of many factors, particularly those under "Risk Factors" and "Special Note Regarding Forward-Looking Statements" in this prospectus, our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements.

Overview

          We design, develop and manufacture highly engineered wear and replacement parts and related products used in mining, infrastructure development, industrial, power generation and aerospace applications. Our consumable wear and replacement products, which accounted for more than 75% of our 2010 net sales, generate recurring sales for us as these items wear and are required to be replaced. We employ a diversified distribution model for product sales that includes direct sales, a network of independent dealers, licensees and OEMs.

          We have two operating groups:

    Engineered Products Group, or EPG, designs, develops and manufactures wear parts and wear part carriers and attachments and provides solutions for mining, infrastructure development and other challenging industrial wear applications. EPG accounted for $712.6 million, or 84%, of our net sales in 2010.

    Turbine Technologies Group, or TTG, manufactures superalloy precision investment cast components used in the power generation and aerospace markets. In 2010, 70% of TTG net sales were from products used in the "hot gas path" of turbines and considered replacement parts. TTG represented $136.9 million, or 16%, of our net sales in 2010.

          We were founded in 1913 in Portland, Oregon. Through nearly a century of operations, we have focused on product innovation and on growing our business to serve customer needs. Our business has been built on creating solutions to customer problems through metallurgy, foundry casting capabilities and innovative product design that emphasizes value, durability and safety. We were an early innovator in earthmoving wear parts, producing the industry's first two-piece ground engaging tool, or GET, tooth system. Since then we have introduced new generations of two- and three-piece tooth systems, making us the global leader in GET tooth systems used in surface mining and infrastructure development, and expanded our EPG product portfolio to over 25,000 SKUs. Over time we also diversified our business to include the production of superalloy precision investment castings for gas turbine engines used in aerospace and power generation applications. We have expanded geographically and grown our business, and are now a global company with more than 1,000 customers and 4,600 employees and operations in 19 countries on six continents.

          Our net sales were $849.5 million, $680.4 million and $939.9 million in 2010, 2009 and 2008, respectively. More than half of our net sales were from outside of the United States in each of these years. We generated net earnings attributable to ESCO shareholders of $23.9 million, $18.4 million and $31.2 million and Adjusted EBITDA (as defined in "Selected Consolidated Financial and Other Data") of $127.8 million, $99.5 million and $130.9 million in 2010, 2009 and 2008, respectively.

          Our net sales were $253.8 million in the three months ended March 31, 2011, a 37% increase from $185.3 million in the three months ended March 31, 2010. Net earnings attributable to ESCO shareholders were $12.9 million in three months ended March 31, 2011, an increase of $6.9 million, or 115%, from $6.0 million in the three months ended March 31, 2010. Adjusted EBITDA increased

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to $39.5 million in the three months ended March 31, 2011, a 42.1% increase from $27.8 million in the three months ended March 31, 2010.

Trends, Opportunities and Challenges

Recent Activity

          Our customers maintain inventories of our parts to use or resell in the short term based on their expectations of market activity. As a result, their purchases from us may be at a higher or lower rate than the rate of their use or sale of our products as they "stock up" or "destock" in anticipation of upswings or downturns in the economy generally or in their particular market. Throughout much of 2008, customers built elevated inventory levels in anticipation of continuing strong market conditions. In late 2008, however, activity in our customers' end markets decreased significantly, which resulted in some customers holding excess levels of inventory of our products and led to destocking of our parts. In 2009, the recession further decreased activity in the mining, infrastructure development and industrial markets served by EPG and in the power generation and aerospace markets served by TTG. This resulted in further supply chain destocking and lower demand for our products. In late 2009, our bookings and net sales began to increase, which we believe was driven by increased market activity in our customers' end markets and a need to replenish inventory of our parts. In TTG, we believe there was a similar destocking that started later and continued in 2010 because of the order lead time and the length of the supply chain in the power generation market, mitigated by recovery in the aerospace market.

          In 2010, we saw a return to the secular growth trends in mining and infrastructure development due to the continued urbanization and infrastructure development in emerging markets, and resulting increased demand for commodities. We believe these market dynamics, as well as some customer inventory restocking, led to increased demand for our EPG wear parts and attachments. In 2010, we focused on:

    efficiently managing the rapid turnaround in EPG from the recession in 2009 and supply chain restocking;

    executing our geographic expansion and direct distribution strategies through strategic acquisitions of Swift Engineering and Austcast in Australia, which added foundry and fabrication capabilities and additional products, including a patented truck body, to our EPG product portfolio; and

    expanding manufacturing and distribution in Brazil, Canada, China, Indonesia, South Africa and the United States.

          As a result of the economic turnaround and our expansion initiatives, we increased our global workforce to more than 4,600 employees at March 31, 2011 from fewer than 3,800 employees in 2009. We have experienced increased EPG lead times in 2011 because customer demand is outstripping our ability to supply products on a timely basis. We estimate that customer demand has led to extended lead times for products that represented approximately 45% of EPG net sales in 2010. In 2010, we estimate the average lead time for mining GET products, for example, was less than 10 weeks; as of June 1, 2011, average lead time was over 20 weeks. See "Risk Factors — Our production capacity may not be sufficient to meet customer demand." We believe our competitors also face increased lead times. We have taken steps to address lead time issues, and expected increased orders in Australia when our license with Bradken terminates, including incremental expansion of certain existing facilities, some of which has been implemented and some of which is scheduled for the second half of 2011 and early 2012; the expansion of our acquired Austcast facilities in Australia scheduled for the second half of 2011; and the start-up of our Chilean joint venture facility scheduled for 2012.

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Market Outlook

          EPG.    We believe we are well positioned to capitalize on our investments in foundry capacity, direct distribution and global expansion as the mining and infrastructure development markets grow.

          Demand for mined commodities is expected to increase as the global economy grows and consumption of raw materials in connection with urbanization and development in emerging markets increases. These dynamics can be expected to drive increased demand for mining capital equipment on which we expect to have first fitment opportunities; increased restocking of inventories of our products; and increased use of wear parts, particularly as ore grades decline and shallow ore deposits are depleted, requiring more earth excavation.

          As a result of market activity levels and expected trends, we plan to continue to invest in our geographic expansion in key mining regions in countries such as Australia, Brazil, Canada, Peru, Indonesia, South Africa and the United States. We also plan to continue to build our direct distribution model and grow our product offering in markets where there is a high concentration of mining activity. These investments in our growth may negatively impact our operating margin in the short term.

          TTG.    Continued growth in global air traffic, which began in 2010, can be expected to cause OEMs to increase production and increase demand for aerospace components. We expect improved sales of components for new OEM equipment driven by increased production in aircraft programs such as Boeing's 787 and 747-8 and the Airbus A380. While visibility remains limited, we also believe our industrial gas turbine, or IGT, markets may begin to improve in late 2011, but at a lower rate than in past recoveries. We expect growth in orders for power turbine components, including in the aftermarket, to be driven by new turbine builds, restocking in the supply chain, and shorter maintenance cycles as energy consumption grows.

Key Metrics

          We regularly review a number of metrics, including the following, to evaluate our business, measure our performance, indentify trends affecting our business, formulate financial projections and make strategic decisions.

 
  Three months ended   Fiscal year ended  
(dollars in millions)
 
March 31,
2011
 
March 31,
2010
 
December 31,
2010
 
December 31,
2009
 
December 26,
2008
 

Net sales

  $ 253.8   $ 185.3   $ 849.5   $ 680.4   $ 939.9  

Operating profit

  $ 23.8   $ 17.6   $ 74.0   $ 54.4   $ 80.5  

Operating profit margin

    9.4%     9.5%     8.7%     8.0%     8.6%  

Net earnings attributable to ESCO shareholders

  $ 12.9   $ 6.0   $ 23.9   $ 18.4   $ 31.2  

Adjusted net earnings from continuing operations*

  $ 18.5   $ 8.6   $ 48.6   $ 29.0   $ 44.1  

Adjusted EBITDA*

  $ 39.5   $ 27.8   $ 127.8   $ 99.5   $ 130.9  

Adjusted EBITDA Margin*

    15.6%     15.0%     15.0%     14.6%     13.9%  

Cash from operations

  $ (5.4 ) $ 17.7   $ 78.3   $ 88.8   $ 88.5  

*
These measures are non-GAAP financial measures. See "Selected Consolidated Financial and Other Data" where these measures are discussed and where non-GAAP financial measures are reconciled to the most comparable GAAP measure.

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          In addition to the measures above, we review monthly key raw material costs and pricing trends. In EPG, we track, among other things, the price of scrap steel, plate steel, nickel and molybdenum, which prices affect the cost of our products. In TTG, we track, among other things, the price of key alloys, such as nickel, cobalt, molybdenum, and tantalum, used in TTG products. Our long-term TTG customer agreements have price escalation provisions for critical alloys, which allow us to pass costs through to customers. We generally seek to pass raw material cost increases to our customers through EPG product price increases and through surcharges or escalator provisions in our long-term agreements with TTG customers. Historically, there is a delay of several months between raw material cost increases and our realization of price increases.

Basis of Presentation of Our Results of Operations

Net Sales

          EPG net sales primarily consist of sales of wear parts and attachments serving as wear part carriers for mining, infrastructure development and other industrial markets and royalties from a limited number of licensees from sales of our products in some geographies. EPG sales are made to OEMs and end-users directly and indirectly through a network of independent dealers.

          TTG net sales primarily consist of sales of replacement parts and structural components for turbines used in the aerospace and power generation markets. TTG net sales are derived from products that are developed by our customers, and almost all TTG net sales are direct.

Cost of Goods Sold

          Cost of goods sold includes raw materials; employee compensation and benefits, including ESOP non-cash compensation expense; and other costs, including distribution expenses, depreciation, product development costs, insurance, taxes, operating supplies, utilities and warranty costs. Manufacturing development expense and a portion of foundry pattern amortization, which we consider part of our product development cost, are included in cost of goods sold rather than in research and development.

Selling and Administrative Expenses

          Selling and administrative expenses include employee compensation and benefits, including ESOP non-cash compensation expense and long-term incentive accruals; research and development costs; product optimization costs; outbound freight not invoiced to the customer; professional fees; insurance; mark to market gains or losses on our long-term investments held to fund our deferred compensation and supplemental executive retirement programs and certain facility costs. All long-term incentive performance awards and SARs expenses are recorded in selling and administrative expenses. See "— Critical Accounting Policies and Estimates — Share-Based Compensation".

          Product optimization, part of which we consider part of our product development cost, is included in selling and administrative expenses in addition to research and development expense.

Restructuring and Other

          Restructuring and other represents costs associated with plant shutdowns and reduction in force programs initiated in 2008 and 2009 and other non-routine expenses.

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Operating Results

          Dollar amounts are in millions and are derived from the consolidated financial statements included in this prospectus, which present amounts in thousands. Small rounding differences may be reflected in the percentage of net sales and percentage change columns below.

Three Months Ended March 31, 2011 Compared to Three Months ended March 31, 2010

Statement of Earnings Data (dollars in millions)
 
Three months
ended
March 31,
2011
 
% of Net
Sales
 
Three months
ended
March 31,
2010
 
% of Net
Sales
 

Net sales

  $ 253.8     100.0 % $ 185.3     100.0 %

Cost of goods sold(1)

    183.3     72.2     136.2     73.5  

Gross profit

    70.5     27.8     49.1     26.5  

Selling and administrative expenses(1)

    46.7     18.4     31.2     16.8  

Restructuring and other

            0.3     0.2  

Operating profit

    23.8     9.4     17.6     9.5  

Interest expense, net

    3.1     1.2     6.4     3.5  

Other income, net

    (1.1 )   (0.4 )   0.4     0.2  
                   

Earnings from continuing operations before income taxes

    21.8     8.6     10.8     5.8  

Income tax expense

    7.4     2.9     3.7     2.0  
                   

Earnings from continuing operations, net of tax

    14.4     5.7     7.1     3.8  

Less: net earnings attributable to the noncontrolling interest — continuing operations

    (1.5 )   (0.6 )   (1.1 )   (0.6 )
                   
 

Net earnings attributable to ESCO shareholders

  $ 12.9     5.1 % $ 6.0     3.2 %
                   

(1)
ESOP non-cash compensation expense included in these line items is as follows:

 

Cost of goods sold

  $ 3.5     1.4 % $ 2.7     1.5 %
 

Selling and administrative expenses

    1.6     0.6     1.3     0.7  
                     
   

Total

  $ 5.1     2.0 % $ 4.0     2.2 %
                     

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  Three months ended    
   
 
Statement of Earnings Data (dollars in millions)
 
March 31,
2011
 
March 31,
2010
 
$ Change
 
% Change
 

Net sales

  $ 253.8   $ 185.3   $ 68.5     37.0 %

Cost of goods sold(1)

    183.3     136.2     47.1     34.6  

Gross profit

    70.5     49.1     21.4     43.6  

Selling and administrative expenses(1)

    46.7     31.2     15.5     49.7  

Restructuring and other

        0.3     (0.3 )   (100.0 )

Operating profit

    23.8     17.6     6.2     35.2  

Interest expense, net

    3.1     6.4     (3.3 )   (51.6 )

Other income, net

    (1.1 )   0.4     (1.5 )   (375.0 )
                   

Earnings from continuing operations before income taxes

    21.8     10.8     11.0     101.9  

Income tax expense

    7.4     3.7     3.7     100.0  
                   

Earnings from continuing operations, net of tax

    14.4     7.1     7.3     102.8  

Less: net earnings attributable to the noncontrolling interest — continuing operations

    (1.5 )   (1.1 )   (0.4 )   36.4  
                   

Net earnings attributable to ESCO shareholders.

  $ 12.9   $ 6.0   $ 6.9     115.0 %
                   

(1)
ESOP non-cash compensation expense included in these line items is as follows:

 

Cost of goods sold

  $ 3.5   $ 2.7   $ 0.8     29.6 %
 

Selling and administrative expenses

    1.6     1.3     0.3     23.1  
                     
   

Total

  $ 5.1   $ 4.0   $ 1.1     27.5 %
                     

Net sales

(dollars in millions)
 
Three months
ended
March 31,
2011
 
Three months
ended
March 31,
2010
 
$ Change
 
% Change
 

Net Sales

  $ 253.8   $ 185.3   $ 68.5     37.0 %
 

EPG

    218.8     154.0     64.8     42.1  
 

TTG

    35.0     31.3     3.7     11.8  

          For the first quarter of 2011, net sales were $253.8 million, an increase of $68.5 million, or 37.0%, from $185.3 million for the first quarter of 2010. This increase was driven by higher sales in both EPG and TTG. The increase in EPG net sales was due to strengthening markets and additional net sales of $20.2 million from the Australian businesses we acquired in late 2010 and the Wyoming distributor we acquired in the first quarter of 2011. Both TTG aerospace engine component and industrial gas turbine (IGT) net sales also increased. The combined net sales of EPG and TTG wear parts and replacement components represented approximately 75% of our net sales for the first quarters of 2010 and 2011. Net sales directly or indirectly outside of the United States made up 60.6% of net sales in the first quarter of 2011 and 55.8% of net sales in the first quarter of 2010. Our top 10 customers generated 25.0% of our net sales in the first quarter of 2011 and 25.6% in the first quarter of 2010. No single customer accounted for 10% or more of our net sales in either quarter.

          EPG.    Net sales increased $64.8 million, or 42.1%, to $218.8 million for the first quarter of 2011 from $154.0 million for the first quarter of 2010. The $64.8 million increase was composed of a $50.4 million, or 57.1%, increase in mining product sales across all geographies, including $16.3 million contributed by the two Australian businesses acquired in 2010 and $3.9 million from the Wyoming business acquired in the first quarter of 2011; a $17.5 million, or 34.4%, increase in infrastructure development product sales across all geographies; and a $3.1 million, or 20.9%, decrease in industrial product sales. Included in these increases is the net effect of a $5.4 million

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benefit and a $4.4 million benefit due to favorable foreign exchange rates and price realization, respectively, in the first quarter of 2011 compared to the first quarter of 2010. In the first quarter of 2011, 51.7% of our EPG net sales were made directly to end-users, 33.3% were generated through our EPG global dealer distribution network and 15.0% were sales to original equipment manufacturers (OEMs), compared to 48.8% of EPG net sales directly to end-users; 36.4% generated through our EPG global dealer distribution network and 14.8% sold to OEMs in the first quarter of 2010. The increase in net sales directly to end-users or direct channels was primarily driven by our two Australian acquisitions, increased sales in North America and the continued strength in global mining markets.

          TTG.    Net sales were $35.0 million for the first quarter of 2011, an increase of $3.7 million, or 11.8%, from $31.3 million for the first quarter of 2010, due to higher aerospace engine component and IGT sales.

Gross profit

(dollars in millions)
 
Three months
ended
March 31,
2011
 
% of Net
Sales
 
Three months
ended
March 31,
2010
 
% of Net
Sales
 
$ Change
 
% Change
 

Gross profit

  $ 70.5     27.8 % $ 49.1     26.5 % $ 21.4     43.6 %
 

EPG

    68.4     31.3     46.9     30.5     21.5     45.8  
 

TTG

    5.7     16.3     4.9     15.7     0.8     16.3  
 

Other

    (3.6 )         (2.7 )         (0.9 )   33.3  

          Gross profit was $70.5 million for the first quarter of 2011, an increase of $21.4 million, or 43.8%, from $49.1 million for the first quarter of 2010. This increase was driven primarily by stronger sales in both operating groups in the first quarter of 2011, which resulted in a $26.8 million favorable impact on gross profit. The favorable volume impact was partially offset by $4.5 million of increased operating costs, including distribution expenses and other expenses due to higher volumes and the addition of manufacturing costs from the Australian operations acquired in the second half of 2010, and $0.8 million of increased non-cash ESOP compensation. Excluding ESOP non-cash compensation expense of $3.5 million for the first quarter of 2011 and $2.7 million for the first quarter of 2010, gross profit as a percentage of sales increased to 29.2% in the first quarter of 2011 from 28.0% in the first quarter of 2010.

          EPG.    Gross profit increased $21.5 million, or 45.8%, to $68.4 million for the first quarter of 2011 compared to $46.9 million for the first quarter of 2010, primarily due to an increase in net sales. EPG gross profit margin improved to 31.3% in the first quarter of 2011 from 30.5% in the first quarter of 2010.

          TTG.    Gross profit increased $0.8 million, or 16.3%, to $5.7 million for the first quarter of 2011 from $4.9 million for the first quarter of 2010 primarily due to an increase in net sales. TTG gross profit margin improved to 16.3% in the first quarter of 2011 from 15.7% in the first quarter of 2010, primarily due to improved operating efficiencies and volume leverage at certain manufacturing facilities.

          Other.    Other represents primarily the ESOP non-cash compensation expense of $3.5 million and $2.7 million in the first quarter of 2011 and 2010, respectively.

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Selling and administrative expenses

(dollars in millions)
 
Three months
ended
March 31,
2011
 
% of Net
Sales
 
Three months
ended
March 31,
2010
 
% of Net
Sales
 
$ Change
 
% Change
 

Selling and administrative

  $ 46.7     18.4 % $ 31.2     16.8 % $ 15.5     49.7 %
 

EPG

    32.3     14.8     22.9     14.9     9.4     41.0  
 

TTG

    4.1     11.7     4.2     13.4     (0.1 )   (2.4 )
 

Other

    10.3           4.1           6.2     151.2  

          Selling and administrative expenses were $46.7 million for the first quarter of 2011, an increase of $15.5 million, or 49.7%, from $31.2 million of selling and administrative expenses for the first quarter of 2010. Selling and administrative expenses as a percentage of net sales increased to 18.4% in the first quarter of 2011 from 16.8% in the first quarter of 2010. Excluding ESOP non-cash compensation expense, selling and administrative expenses increased $15.2 million in the first quarter of 2011 compared to the first quarter of 2010 and, as a percentage of net sales, selling and administrative expenses increased to 17.8% from 16.1%.

          EPG.    Selling and administrative expenses for the first quarter of 2011 were $32.3 million, an increase of $9.4 million, or 41.0%, from $22.9 million for the first quarter of 2010. The increase was primarily due to $4.6 million of expansion-related expenses, particularly the continued investment in our Australian and South African organizational infrastructure and the Australian businesses and Wyoming distributor we acquired in late 2010 and in the first quarter of 2011, and $3.6 million attributable to increased sales volumes, including travel and outbound freight expenses. EPG selling and administrative expenses as a percentage of net sales decreased to 14.8% in the first quarter of 2011 from 14.9% in the first quarter of 2010.

          TTG.    Selling and administrative expenses for the first quarter of 2011 were $4.1 million compared to $4.2 million for the first quarter of 2010. Selling and administrative expenses remained flat despite higher sales volumes, which led to improvement in selling and administrative expenses as a percentage of net sales. TTG selling and administrative expenses as percentage of net sales decreased to 11.7% in the first quarter of 2011 from 13.4% in the first quarter of 2010.

          Other.    Increased selling and administrative expenses in the first quarter of 2011 was primarily related to a $4.9 million increase in our incentive compensation accrual, including a $3.5 million mark-to-market change on cash-settled SARs.

Operating profit

(dollars in millions)
 
Three months
ended
March 31,
2011
 
% of Net
Sales
 
Three months
ended
March 31,
2010
 
% of Net
Sales
 
$ Change
 
% Change
 

Operating Profit

  $ 23.8     9.4 % $ 17.6     9.5 % $ 6.2     35.2 %
 

EPG

    36.0     16.5     24.0     15.6     12.0     50.0  
 

TTG

    1.6     4.6     0.7     2.2     0.9     128.6  
 

Other

    (13.8 )         (7.1 )         (6.7 )   94.4  

          EPG.    Operating profit increased 50.0% to $36.0 million, or 16.5% of net sales, for the first quarter of 2011 compared to $24.0 million, or 15.6% of net sales, for the first quarter of 2010. The increase in operating profit was primarily due to increased net sales and gross profit margin improvement in the first quarter of 2011.

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          TTG.    Operating profit increased to $1.6 million, or 4.6% of net sales, for the first quarter of 2011 compared to $0.7 million, or 2.3% of net sales, for the first quarter of 2010. The increase in operating profit was driven primarily by higher net sales in the first quarter of 2011.

Other

          Operating loss increased to $13.8 million in the first quarter of 2011 compared to $7.1 million in the first quarter of 2010. The primary drivers were the $4.9 million increase in our incentive compensation accrual and $1.1 million additional non-cash ESOP compensation expense.

Interest expense, net

          Interest expense, net was $3.1 million for the first quarter of 2011 compared to $6.4 million for the first quarter of 2010. The decrease in net interest expense reflects the lower average effective interest rates and reduced debt as a result of our debt refinancing in December 2010.

Income tax expense

          Income tax expense was $7.4 million and $3.7 million for the first quarter of 2011 and 2010, respectively. The increase in tax expense was primarily due to the increase in earnings. The effective tax rate was 34.0% for the first quarter of 2011 and 34.2% for the first quarter of 2010.

Noncontrolling interest

          Noncontrolling interest reflects the portion of net after-tax profits from our less-than-100%-owned subsidiaries allocable to non-ESCO shareholders. Noncontrolling interest was $1.5 million for the first quarter of 2011 compared to $1.2 million for the first quarter of 2010, reflecting slightly higher sales for those entities in the first quarter of 2011.

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Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Statement of Earnings Data (dollars in millions)
 
Year ended
December 31,
2010
 
% of Net Sales
 
Year ended
December 31,
2009
 
% of Net Sales
 

Net sales

  $ 849.5     100.0 % $ 680.4     100.0 %

Cost of goods sold(1)

    626.9     73.8 %   507.1     74.5 %

Gross profit

    222.6     26.2 %   173.3     25.5 %

Selling and administrative expenses(1)

    147.9     17.4 %   112.5     16.5 %

Restructuring and other

    0.7     0.1 %   6.4     0.9 %
                   

Operating profit

    74.0     8.7 %   54.4     8.0 %

Interest expense, net

    23.7     2.8 %   26.2     3.9 %

Loss on early extinguishment of debt

    13.0     1.5 %        

Other income, net

    (0.7 )   (0.1 )%   (1.1 )   (0.2 )%
                   

Earnings from continuing operations before income taxes

    38.0     4.5 %   29.3     4.3 %

Income tax expense

    9.4     1.1 %   8.5     1.2 %
                   

Earnings from continuing operations, net of tax

    28.6     3.4 %   20.8     3.1 %

Earnings from discontinued operations, net of tax

            0.3      
                   

Net earnings

    28.6     3.4 %   21.1     3.1 %

Less: net earnings attributable to the noncontrolling interest — continuing operations

    (4.7 )   (0.6 )%   (2.5 )   (0.4 )%

Less: net earnings attributable to the noncontrolling interest — discontinued operations

            (0.2 )    
                   
 

Net earnings attributable to ESCO shareholders

  $ 23.9     2.8 % $ 18.4     2.7 %
                   

(1)
ESOP non-cash compensation expense included in these line items is as follows:

 

Cost of goods sold

  $ 11.9     1.4 % $ 11.1     1.6 %
 

Selling and administrative expenses

    5.4     0.6 %   5.4     0.8 %
                     
   

Total

  $ 17.3     2.0 % $ 16.5     2.4 %
                     

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  Year ended    
   
 
Statement of Earnings Data (dollars in millions)
 
December 31,
2010
 
December 31,
2009
 
$ Change
 
% Change
 

Net sales

  $ 849.5   $ 680.4   $ 169.1     24.9 %

Cost of goods sold(1)

    626.9     507.1     119.8     23.6 %

Gross profit

    222.6     173.3     49.3     28.4 %

Selling and administrative expenses(1)

    147.9     112.5     35.4     31.5 %

Restructuring and other

    0.7     6.4     (5.7 )   (89.1) %
                   

Operating profit

    74.0     54.4     19.6     36.0 %

Interest expense, net

    23.7     26.2     (2.5 )   (9.5) %

Loss on early extinguishment of debt

    13.0         13.0     n/m  

Other income, net

    (0.7 )   (1.1 )   0.4     (36.4) %
                   

Earnings from continuing operations before income taxes

    38.0     29.3     8.7     29.7 %

Income tax expense

    9.4     8.5     0.9     10.6 %
                   

Earnings from continuing operations, net of tax

    28.6     20.8     7.8     37.5 %

Earnings from discontinued operations, net of tax

        0.3     (0.3 )   (100.0) %
                   

Net earnings

    28.6     21.1     7.5     35.5 %

Less: net earnings attributable to the noncontrolling interest — continuing operations

    (4.7 )   (2.5 )   (2.2 )   88.0 %

Less: net earnings attributable to the noncontrolling interest — discontinued operations

        (0.2 )   0.2     (100.0) %
                   
 

Net earnings attributable to ESCO shareholders. 

  $ 23.9   $ 18.4   $ 5.5     29.9 %
                   

(1)
ESOP non-cash compensation expense included in these line items is as follows:

 

Cost of goods sold

  $ 11.9   $ 11.1   $ 0.8     7.2 %
 

Selling and administrative expenses

    5.4     5.4          
                     
   

Total

  $ 17.3   $ 16.5   $ 0.8     4.8 %
                     

Net sales

(dollars in millions)
 
2010
 
2009
 
$ Change
 
% Change
 

Net Sales

  $ 849.5   $ 680.4   $ 169.1     24.9 %
 

EPG

  $ 712.6   $ 530.5   $ 182.1     34.3 %
 

TTG

  $ 136.9   $ 149.9   $ (13.0 )   (8.7 )%

          For 2010, net sales were $849.5 million, an increase of $169.1 million, or 24.9%, from $680.4 million for 2009. The combined net sales of EPG and TTG wear parts and replacement components represented more than 75% of our net sales for both 2010 and 2009. Net sales directly or indirectly outside of the United States made up 55.7% of our 2010 net sales and 52% of our 2009 net sales. Our top 10 customers generated 26% of our net sales in 2010 and 23% of our net sales in 2009. No single customer accounted for 10% or more of our net sales in 2010 or 2009.

          EPG.    Net sales increased $182.1 million, or 34.3%, to $712.6 million for 2010 from $530.5 million for 2009. The $182.1 million increase was composed of a $130.2 million, or 40.9%, increase in mining product sales across all geographies, including $30.5 million contributed by the two Australian businesses acquired in 2010; a $41.3 million, or 24.3%, increase in infrastructure development product sales driven by customer inventory restocking and market growth; and a $10.6 million, or 25.0%, increase in industrial products sales. Included in these increases is the net effect of a $14.0 million benefit in 2010 compared to 2009 due to favorable foreign exchange rates. In 2010, 48% of our EPG net sales were sales directly to end-users, 36% were generated through our EPG global dealer distribution network and 16% were sales to OEMs. In 2009, 44% of our EPG net sales were sales directly to end customers, 43% were generated through our EPG global dealer

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distribution network and 13% were sales to OEMs. The increase in net sales generated through our direct channel in 2010 was primarily driven by the acquisition of two Australian businesses and the secular recovery of global mining markets. The increase in net sales generated by our OEMs was primarily driven by supply chain restocking.

          TTG.    Net sales were $136.9 million for 2010, a decrease of $13.0 million, or 8.7%, from $149.9 million for 2009. The decrease was primarily composed of a $19.6 million decrease in IGT sales driven by late cycle destocking, particularly with our maintenance, repair and overhaul ("MRO") customers, and a $2.5 million decrease in industrial/other sales. The IGT decrease was mitigated by a $9.1 million increase in our aerospace engine component sales, which we believe was driven by increased airline traffic.

Gross profit

(dollars in millions)
 
2010
 
% of Net
Sales
 
2009
 
% of Net
Sales
 
$ Change
 
% Change
 

Gross profit

  $ 222.6     26.2 % $ 173.3     25.5 % $ 49.3     28.4 %
 

EPG

  $ 209.8     29.4 % $ 154.1     29.0 % $ 55.7     36.1 %
 

TTG

  $ 24.8     18.1 % $ 30.4     20.3 % $ (5.6 )   (18.4 )%
 

Other

  $ (12.0 )       $ (11.2 )       $ (0.8 )   (7.1 )%

          Gross profit was $222.6 million for 2010, an increase of $49.3 million from $173.3 million for 2009 driven primarily by EPG sales volume impact of $55.6 million and increased utilization efficiencies of the EPG manufacturing cost base of $14.4 million, partially offset by EPG sales volume-related costs, such as increased distribution and other expenses of $12.2 million, lower TTG sales volume and lower TTG capacity utilization of $5.6 million and a $2.9 million LIFO decrement. This decrement was the effect of reduced inventories in 2009, resulting in a liquidation of LIFO inventory carried at the lower costs prevailing in prior years than the cost of 2009 purchases. Gross profit as a percentage of net sales increased to 26.2% for 2010 from 25.5% for 2009. Excluding ESOP non-cash compensation expense of $11.9 million for 2010 and $11.1 million for 2009, gross profit as a percentage of net sales increased for 2010 to 27.6% from 27.1% for 2009.

          EPG.    Gross profit increased $55.7 million, or 36.1%, to $209.8 million in 2010 from $154.1 million in 2009, primarily due to an increase in net sales volumes and increased utilization efficiencies of EPG manufacturing cost base. EPG gross profit margin increased to 29.4% for 2010 from 29.0% for 2009, primarily as the result of higher production volumes, which better leveraged manufacturing capacities, and manufacturing cost reductions that focused on utilities and operating supplies. Partially offsetting the increase in gross profit percentage were increased raw material costs in 2010. We did not initiate pricing increases to pass on raw material costs until the second half of 2010.

          TTG.    Gross profit decreased $5.6 million, or 18.4%, to $24.8 million in 2010 from $30.4 million in 2009 due to lower sales volumes, lower manufacturing capacity utilization and manufacturing development and product trial expenses associated with new parts and a higher aerospace product mix, which generally have lower margins than IGT, as a result of the late cycle destocking in the IGT markets.

          Other.    Other represents principally the ESOP non-cash compensation expense of $11.9 million in 2010 and $11.1 million in 2009.

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Selling and administrative expenses

(dollars in millions)
 
2010
 
% of Net
Sales
 
2009
 
% of Net
Sales
 
$ Change
 
% Change
 

Selling and administrative

  $ 147.9     17.4 % $ 112.5     16.5 % $ 35.4     31.5 %
 

EPG

  $ 101.6     14.3 % $ 81.6     15.4 % $ 20.0     24.5 %
 

TTG

  $ 16.1     11.8 % $ 15.8     10.5 % $ 0.3     1.9 %
 

Other

  $ 30.2         $ 15.1         $ 15.1        

          Selling and administrative expenses were $147.9 million for 2010, an increase of $35.4 million, or 31.5%, over 2009. Selling and administrative expenses as a percentage of net sales increased to 17.4% for 2010 from 16.5% for 2009. Excluding ESOP non-cash compensation expense, selling and administrative expenses increased $35.4 million, or 32.9%, for 2010 compared to 2009 and, as a percentage of net sales, selling and administrative expenses increased to 16.8% for 2010 from 15.8% for 2009.

          EPG.    Increased selling and administrative expenses for 2010 resulted from increased sales volume activity due to improved market conditions, growth-related hiring and our entry into Australia in anticipation of the expiration of our Australian license agreement on June 30, 2011, expansion of our global direct distribution model and recovery in our markets. Our entry into Australia in the second half of 2010 increased selling and administrative expenses by $6.6 million, which primarily consisted of operational costs and acquisition related costs of $1.1 million. EPG selling and administrative expenses as a percentage of net sales decreased to 14.3% in 2010 from 15.4% in 2009.

          TTG.    Increased selling and administrative expenses was due to customer-related travel expenses. Selling and administrative expenses as a percentage of net sales increased to 11.8% in 2010 from 10.5% in 2009.

          Other.    Increased selling and administrative expenses for 2010 resulted primarily from a $10.1 million increase in our long-term incentive compensation cash awards accrual due to a mark to market change on our cash-settled SARs, a $2.6 million charge to remove accumulation of solid waste at a Canadian plant and a $0.9 million increase from a less favorable unrealized gain on our long-term investment assets.

Restructuring and other

          In 2010 we incurred $0.7 million of restructuring costs associated with a restructuring plan initiated in prior years for the shutdown of our West Jordan, Utah blades facility in 2008 and our Saskatoon, Saskatchewan foundry in 2009. These restructuring costs were primarily composed of impairment losses and on-going facility costs. In 2009, we incurred $6.3 million of restructuring costs associated with the shutdown of these facilities and severance and other costs as a result of our global workforce reduction of 17.6% in 2009.

Operating profit

(dollars in millions)
 
2010
 
% of Net
Sales
 
2009
 
% of Net
Sales
 
$ Change
 
% Change
 

Operating Profit

  $ 74.0     8.7 % $ 54.4     8.0 % $ 19.6     36.0 %
 

EPG

  $ 108.2     15.2 % $ 72.5     13.7 % $ 35.7     49.2 %
 

TTG

  $ 8.7     6.4 % $ 14.6     9.7 % $ (5.9 )   (40.4 )%
 

Other

  $ (42.9 )       $ (32.7 )       $ (10.2 )   31.2 %

          EPG.    Operating profit increased 49.2% to $108.2 million, or 15.2% of net sales, for 2010 from $72.5 million, or 13.7% of net sales, for 2009. The increase in operating profit was caused by

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increased sales volumes in 2010. Operating profit margin increased in 2010 to 15.2% from 13.7% in 2009 as the result of the leveraging of manufacturing expenses and selling and administrative expenses.

          TTG.    Operating profit decreased to $8.7 million, or 6.4% of net sales, for 2010 compared to $14.6 million, or 9.7% of net sales, for 2009. The decrease in operating profit was caused by lower IGT sales volumes and the associated reduced capacity utilization as that market recovered more slowly from the global economic downturn and its supply chain destocking experienced over the past two years.

Interest expense, net

          Interest expense, net was $23.7 million for 2010 compared to $26.2 million for 2009. The decrease in interest expense, net reflects lower average effective interest rates on our floating rate notes during 2010, a two-week benefit of the refinancing of our fixed and floating rate notes at lower interest rates, a net reduction in debt of $35.3 million and higher interest income of $0.3 million, resulting from improved yields on our invested cash funds.

Loss on early extinguishment of debt

          During the fourth quarter of 2010, we refinanced $300 million of fixed and floating rate notes that we issued in 2006 through a five-year term loan and a revolving credit facility. As a result, we incurred $8.6 million in prepayment fees on the notes and a write-off of $4.0 million unamortized loan costs for the remaining 2006 transaction fees.

          During the fourth quarter of 2010, we terminated our U.S. asset-backed line of credit agreement and recorded a $0.4 million loss on an early extinguishment of debt for the unamortized loan costs on the line of credit.

Income tax expense

          The effective tax rate from continuing operations for 2010 was 24.8% compared to 29.0% for 2009. The effective tax rate decreased in 2010 due to the reversal of uncertain tax provisions from prior years and lower state income tax.

Noncontrolling interest

          Noncontrolling interest reflects the net after tax profits in our three less than 100%-owned subsidiary companies allocable to the non-ESCO shareholders. Noncontrolling interest was $4.7 million for 2010 compared to $2.5 million for 2009. The increase in 2010 reflects increased sales for those entities.

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Table of Contents

Year Ended December 31, 2009 Compared to Year Ended December 26, 2008

Statement of Earnings Data (dollars in millions)
 
Year ended
December 31,
2009
 
% of Net Sales
 
Year ended
December 26,
2008
 
% of Net Sales
 

Net sales

  $ 680.4     100.0 % $ 939.9     100.0 %

Cost of goods sold(1)

    507.1     74.5 %   724.9     77.1 %

Gross profit

    173.3     25.5 %   215.0     22.9 %

Selling and administrative expense(1)

    112.5     16.5 %   132.7     14.1 %

Restructuring and other

    6.4     0.9 %   1.8     0.2 %
                   

Operating profit

    54.4     8.0 %   80.5     8.6 %

Interest expense, net

    26.2     3.9 %   26.7     2.8 %

Other (income) expense, net

    (1.1 )   (0.2 )%   4.3     0.5 %
                   

Earnings from continuing operations before income taxes

    29.3     4.3 %   49.5     5.3 %

Income tax expense

    8.5     1.2 %   13.3     1.4 %
                   

Earnings from continuing operations, net of tax

    20.8     3.1 %   36.2     3.9 %

Earnings from discontinued operations, net of tax

    0.3         0.4      
                   

Net earnings

    21.1     3.1 %   36.6     3.9 %

Less: net earnings attributable to the noncontrolling interest — continuing operations

    (2.5 )   (0.4 )%   (5.1 )   (0.6 )%

Less: net earnings attributable to the noncontrolling interest — discontinued operations

    (0.2 )       (0.3 )    
                   
 

Net earnings attributable to ESCO shareholders

  $ 18.4     2.7 % $ 31.2     3.3 %
                   

(1)   ESOP non-cash compensation expense included in these line items is as follows:

                         
   

Cost of goods sold

  $ 11.1     1.6 % $ 14.0     1.5 %
   

Selling and administrative expenses

    5.4     0.8 %   6.3     0.7 %
                   
     

Total

  $ 16.5     2.4 % $ 20.3     2.2 %
                   

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Table of Contents


 
  Year ended    
   
 
Statement of Earnings Data (dollars in millions)
 
December 31,
2009
 
December 26,
2008
 
$ Change
 
% Change
 

Net sales

  $ 680.4   $ 939.9   $ (259.5 )   (27.6 )%

Cost of goods sold(1)

    507.1     724.9     (217.8