UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 9, 2006
ESCO TECHNOLOGIES INC.
(Exact Name of Registrant as Specified in Charter)
Missouri 1-10596 43-1554045
(State or Other (Commission (I.R.S. Employer
Jurisdiction of Incorporation) File Number) Identification No.)
9900A Clayton Road, St. Louis, Missouri 63124-1186
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 314-213-7200
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2 (b) under the
Exchange Act (17 CFR 240.14d-2 (b))
[ ] Pre-commencement communications pursuant to Rule 13e-4 (c) under the
Exchange Act (17 CFR 240.13e-4 (c))
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Today, May 9, 2006, the Registrant is issuing a press release (Exhibit 99.1 to
this report) announcing its fiscal 2006 second quarter financial and operating
results. See Item 7.01, Regulation FD Disclosure below.
ITEM 7.01. REGULATION FD DISCLOSURE
Today, the Registrant is issuing a press release announcing its fiscal 2006
second quarter financial and operating results, and will conduct a related
Webcast conference call at 4:00 p.m. central time. This press release is
furnished herewith as Exhibit 99.1 and will be posted on the Registrant's
website located at http://www.escotechnologies.com. It can be viewed through the
-------------------------------
"Investor Relations" page of the website under the tab "Press Releases,"
although the Registrant reserves the right to discontinue that availability at
any time.
NON-GAAP FINANCIAL MEASURES
The press release furnished herewith as Exhibit 99.1 contains financial measures
and financial terms not calculated in accordance with generally accepted
accounting principles in the United States of America ("GAAP") in order to
provide investors and management with an alternative method for assessing the
Registrant's operating results in a manner that is focused on the performance of
the Registrant's ongoing operations. The Registrant has provided definitions
below for the non-GAAP financial measures utilized in the press release,
together with an explanation of why management uses these measures, and why
management believes that these non-GAAP financial measures are useful to
investors. The press release uses the non-GAAP financial measures of "EBIT" and
"EBIT margin".
The Registrant defines "EBIT" as earnings before interest and taxes. The
Registrant defines "EBIT margin" as EBIT as a percent of net sales. The
Registrant's management evaluates the performance of its operating segments
based on EBIT and EBIT margin, and believes that EBIT and EBIT margin are useful
to investors to demonstrate the operational profitability of the Registrant's
business segments by excluding interest and taxes, which are generally accounted
for across the entire Registrant on a consolidated basis. EBIT is also one of
the measures used by management in determining resource allocations within the
Registrant and incentive compensation.
The presentation of the information described above is intended to supplement
investors' understanding of the Registrant's operating performance. The
Registrant's non-GAAP financial measures may not be comparable to other
companies' non-GAAP financial performance measures. Furthermore, these measures
are not intended to replace net earnings, cash flows, financial position,
comprehensive income (loss), or any other measure as determined in accordance
with GAAP.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit No. Description of Exhibit
99.1 Press Release dated May 9, 2006
OTHER MATTERS
The information contained in this report, including Exhibit 99.1, shall not be
deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934 as amended ("Exchange Act") or otherwise subject to the liabilities of
that section, unless the Registrant incorporates it by reference into a filing
under the Securities Act of 1933 as amended or the Exchange Act.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ESCO TECHNOLOGIES INC.
Dated: May 9, 2006 By: /s/ G.E. Muenster
-----------------
G.E. Muenster
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
-------------
Exhibit No. Description of Exhibit
99.1 Press Release dated May 9, 2006
Exhibit 99.1
Press Release
NEWS FROM ESCO TECHNOLOGIES
For more information contact: For media inquiries:
Patricia K. Moore David P. Garino
Director, Investor Relations (314) 982-0551
ESCO Technologies Inc.
(314) 213-7277
ESCO ANNOUNCES SECOND QUARTER RESULTS
-------------------------------------
St. Louis, MO, May 9, 2006 - ESCO Technologies Inc. (NYSE: ESE) today
announced its results for the fiscal 2006 second quarter ended March 31, 2006.
Within this release, references to "quarters" relate to the fiscal quarters
ended March 31 for the respective fiscal years noted.
The results of operations for the second quarter of fiscal 2006 included
three items which were not reflected in the first half earnings per share (EPS)
guidance of $0.35 to $0.40 provided in the February 2, 2006 earnings release.
The three items not reflected in the previous guidance were:
1. The Company completed its purchase accounting valuation of identifiable
intangible assets subject to amortization related to Nexus Energy Software,
Inc. (Nexus) (acquired 11/29/05) and Hexagram, Inc. (acquired 2/1/06). The
non-cash after-tax amortization charge recognized in the second quarter
related to these acquisitions was ($0.5) million, or ($0.02) per share. The
pretax amount was ($0.8) million and is reflected in the Corporate segment
results.
2. The Company, via a special intercompany cash dividend, repatriated $28.7
million of its cash held by foreign subsidiaries into the United States
under the tax provisions of the "American Jobs Creation Act of 2004." The
non-cash tax provision charge recognized in the second quarter was ($1.7)
million, or ($0.06) per share. This equates to a 5.9 percent effective tax
rate on the cash balance repatriated.
3. In March 2006, the U.S. Government's Defense Contract Audit Agency issued
an audit report related to a defense contract from the mid-1980's involving
a previously divested subsidiary for which the Company had retained certain
indemnity obligations. The audit report supported the Company's conclusion
that the liability is no longer required in connection with this contract
indemnification.
- more -
Add One
As a result, the Company reversed its estimated liability related to this
obligation and recognized a non-cash after-tax gain of $1.0 million, or $0.04
per share. The pretax gain was $1.8 million.
The aggregate effect on net earnings in the 2006 second quarter related to
the above items was ($1.1) million, or ($0.04) per share and is included in the
results noted below.
Net earnings for the 2006 second quarter were $7.3 million, or $0.28 per
share compared to net earnings of $10.4 million, or $0.40 per share in the
second quarter of 2005. The primary drivers of the lower earnings in the 2006
second quarter include:
o The consolidated effective income tax rate was 53.5 percent in 2006
compared to 36.6 percent in 2005 primarily due to the $1.7 million
repatriation charge noted above and lower foreign-sourced income.
o A $1.9 million increase in SG&A expenses (excluding $3.7 million from Nexus
and Hexagram) relating to additional engineering, marketing, new product
development, and stock option expensing ($0.6 million, or $0.02 per share).
o Significantly lower sales of Comtrak's SecurVision video security products
in the current quarter compared to the prior year quarter.
o Lower sales of high margin defense spares and T-700 shipments at VACCO in
the current period versus prior year.
o The current period amortization of identifiable intangible assets described
above.
o The above items were partially offset by improved operating results from
the additional sales of RF Test equipment, Automatic Meter Reading (AMR)
devices, and commercial aerospace products.
o In addition, the gain on the settlement of the legacy defense contract
described above contributed favorably to the 2006 second quarter results.
Net earnings for the first six months of fiscal 2006 were $9.5 million, or
$0.36 per share, compared to $20.9 million, or $0.80 per share for the first six
months of fiscal 2005. The decrease in net earnings primarily related to the
decrease in the 2006 first quarter results of operations described in the
February 2, 2006 earnings release.
Sales
- -----
Second quarter 2006 sales were $122.9 million, or 16 percent higher than
second quarter 2005 sales of $106.2 million. Acquisitions accounted for $6.5
million of the $16.7 million sales increase in the 2006 second quarter.
Unfavorable foreign currency values in the 2006 second quarter resulted in a
$0.8 million negative sales comparison.
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Add Two
Fiscal 2006 year-to-date sales were $213.5 million, or 1.4 percent higher
than the first six months of fiscal 2005, primarily due to the Nexus and
Hexagram acquisitions which accounted for $7.7 million of sales since their
respective acquisition dates. Unfavorable foreign currency values year-to-date
in 2006 resulted in a $1.8 million negative sales comparison.
Communications sales of $43.2 million increased $7.1 million, or 19.7
percent in the 2006 second quarter compared to the second quarter of 2005 as a
result of the following items: $12.7 million of sales to TXU Electric Delivery
(TXU); $6.5 million of sales from Nexus and Hexagram; sales to COOP customers
decreased $6.3 million in the second quarter due to the weakness in orders
entered during the latter half of fiscal 2005; sales to the Puerto Rico Electric
Power Authority (PREPA) were $2.5 million lower in the current period compared
to the prior year; and lower shipments of Comtrak's SecurVision video security
products, which generated $0.4 million in sales during the second quarter of
2006 versus $3.5 million of sales in the 2005 second quarter. During the 2006
second quarter, DCSI's sales to COOP and public power (Municipal) customers were
$20.5 million compared to $26.8 million in the second quarter of 2005.
Year-to-date Communications sales, excluding acquisitions, decreased $14.9
million in 2006 primarily due to the $7.7 million decrease in SecurVision sales
and $7.2 million lower sales of DCSI's AMR products.
Filtration segment sales of $45.0 million increased $4.0 million, or 9.8
percent during the second quarter of 2006 compared to the prior year due to the
following items: $1.6 million of additional sales at PTI due to the continued
strengthening of the commercial aerospace market; $0.3 million lower sales at
VACCO resulting from lower deliveries of defense spares; and $2.7 million of
additional sales at Filtertek including automotive, medical and commercial
products. Year-to-date Filtration sales increased $1.5 million, or 1.8 percent
in 2006 to $86.5 million.
Test segment sales of $34.6 million increased $5.5 million, or 18.9 percent
during the second quarter of 2006 due to significantly higher component sales
and additional test chamber deliveries throughout the world. Year-to-date Test
sales increased $8.7 million, or 15.6 percent, to $64.6 million in 2006.
Earnings Before Interest and Taxes (EBIT)
- -----------------------------------------
On a segment basis, items that impacted EBIT dollars and EBIT as a percent
of sales ("EBIT margin") during the second quarter of fiscal 2006 included the
following.
In the Communications segment, EBIT for the 2006 second quarter was $9.7
million (22.5 percent of sales), compared to $10.6 million (29.4 percent of
sales) in the prior year second quarter. The primary causes of this $0.9 million
decrease include: the $3.1 million sales decrease of SecurVision products noted
above which caused a $1.4 million EBIT decrease; Nexus and
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Add Three
Hexagram's combined EBIT loss of $0.3 million; partially offset by an $0.8
million increase in EBIT from DCSI resulting from increased sales. The 2006
year-to-date Communications segment EBIT decreased $11.5 million versus 2005
primarily due to the sales decreases in AMR and SecurVision products described
above.
In the Filtration segment, the 2006 second quarter EBIT was $4.7 million
(10.4 percent of sales), compared to $5.0 million (12.2 percent of sales) in
prior year second quarter. This $0.3 million decrease in the second quarter was
the result of: a $0.8 million reduction in EBIT at VACCO resulting from the
decreased sales of defense spares; partially offset by $0.5 million increase at
PTI related to additional sales volume resulting from continued strength in the
commercial aerospace market. Additionally, the 2005 second quarter and six month
EBIT amounts included a $0.3 million and $0.9 million cost reimbursement
realized at Filtertek related to a supply agreement with a medical device
customer which was terminated in fiscal 2005. Year-to-date Filtration EBIT
decreased $3.3 million primarily due to: a $2.4 million decrease at VACCO
related to lower defense spares sales; a $1.4 million decrease in EBIT at
Filtertek resulting from the absence of the $0.9 million cost reimbursement
described above and weakness in the automotive market coupled with higher raw
material prices; partially offset by a $0.6 million increase at PTI.
In the Test segment, EBIT of $4.3 million (12.4 percent of sales) increased
in the second quarter of 2006 from $3.3 million (11.3 percent of sales) due to
additional sales volume and favorable changes in sales mix. The year-to-date
EBIT contribution increased $1.9 million over prior year and the EBIT margin
improved to 11.3 percent of sales from 9.7 percent due to favorable leverage on
the additional sales volume and a larger concentration of higher margin
component sales. In addition, EBIT was negatively impacted in the first half of
2005 as a result of higher installation costs incurred on certain government
shielding projects in foreign locations.
The Corporate office operating expenses were $0.2 million higher in the
second quarter of 2006 compared to 2005 and included: a $1.8 million pretax gain
on the reversal of the liability related to an indemnity owed to a former
defense subsidiary; the $0.8 million of pretax amortization of identifiable
intangible assets; and $0.6 million of pretax expenses related to stock options.
Effective Tax Rate
- ------------------
For the 2006 second quarter, the Company's effective tax rate was 53.5
percent versus 36.6 percent for the second quarter of 2005. The increased rate
was primarily driven by the $1.7 million non-cash charge related to the foreign
cash repatriation noted above which increased the
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Add Four
effective tax rate by 10.9 percentage points. In addition, the effective tax
rate was higher than previous expectations due to lower foreign-sourced pretax
income, primarily in Puerto Rico related to the lower sales to PREPA.
New Orders
- ----------
New orders received were $128.7 million (including $4.0 million of new
orders and $6.0 million of acquired backlog from Hexagram and $6.3 million of
new orders from Nexus) and $113.8 million in the second quarters of 2006 and
2005, respectively, resulting in a backlog of $274.5 million at March 31, 2006.
New orders received and acquired backlog in the second quarter of 2006
compared to the second quarter of 2005, respectively, were: in Filtration, $43.2
million and $60.5 million (which included multi-year buys for the T-700 and
Virginia Class submarine); in Communications, $55.5 million and $27.4 million;
and in Test $29.9 million and $25.9 million.
New orders received by DCSI in the second quarter totaled $38.8 million and
included $17.7 million in COOP and Municipal orders, and $21.1 million in
investor-owned utility (IOU) orders. The IOU orders include a follow-on order of
$8.7 million from TXU for an additional 100,000 unit expansion and $5.8 million
from Florida Power & Light (FPL) for approximately 60,000 load control
transponders.
During 2006, year-to-date orders were $84.4 million in Filtration, $114.6
million in Communications, and $55.8 million in Test for a six month total of
$254.8 million compared to year-to-date 2005 orders of $215.4 million.
Cash
- ----
At March 31, 2006, the Company had $20.9 million in cash and no debt
outstanding compared to $70.4 million cash and no debt at December 31, 2005.
During the second quarter of 2006, the Company generated $12.6 million of cash
and spent $62.1 million of cash related to the acquisition of Hexagram.
Chairman's Commentary
- ---------------------
Vic Richey, Chairman and Chief Executive Officer, commented,
"Operationally, the second quarter results were consistent with our
expectations. Each of the segments increased its contributions over the first
quarter. The improvement in Filtration was modest, the Test business improvement
was more significant, and in Communications we realized the strong rebound we
anticipated which resulted from the strength of our first quarter orders at
DCSI.
"While we had a solid second quarter from a financial standpoint, clearly
our most significant accomplishment was the acquisition of Hexagram. The
addition of Hexagram not
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Add Five
only more than doubles our served market in AMR, but it also allows us to offer
a broader portfolio of products and technologies to satisfy the AMR needs of any
utility.
"With respect to our full year outlook, our GAAP guidance is lower due to
the various items described in the Outlook section below. We still expect the
second half to be much stronger than the first.
"Beyond delivering the second half results, we are squarely focused on our
performance on the PG&E program, successful demonstrations where we have active
pilots, continued progress on our next generation software development at DCSI,
and capitalizing on the opportunities created by the additions of Nexus and
Hexagram. Collectively, these initiatives are the keys to capitalizing on the
significant opportunities that are available in what continues to be a rapidly
developing AMR/AMI market."
Business Outlook
- ----------------
Statements contained in the preceding and following paragraphs are based on
current expectations. Statements that are not strictly historical are considered
forward-looking, and actual results may differ materially.
The Business Outlook described below includes the expected operating
results of Nexus and Hexagram since their respective acquisition dates,
including the amortization of identifiable intangible assets. The Business
Outlook for 2006 does not include the tax impact of any future repatriation
activities related to the approximately $10 million of foreign cash outstanding
at March 31, 2006.
Purchase Accounting - Identifiable Intangible Assets
- ----------------------------------------------------
During the 2006 second quarter, Management completed its purchase
accounting valuation related to the identifiable intangible assets for Nexus and
Hexagram. These assets generally include: patents and proprietary know-how; firm
order long-term contracts in backlog; license and royalty agreements;
non-compete and employment agreements for key managers; and specific customer
lists. These identifiable assets are required to be recorded on the opening
balance sheet and amortized / expensed over their useful lives.
The total amount of identifiable intangible assets subject to amortization
related to Nexus and Hexagram was $9.3 million. The estimated lives for these
assets ranged from six months for certain contracts in backlog, to seven years
for certain patents and proprietary know-how. The total goodwill related to
Nexus and Hexagram was approximately $73 million.
The pretax amortization charge related to these identifiable intangible
assets recorded in the 2006 second quarter was $0.8 million and the pretax
charges expected in the third and fourth quarters are $1.1 million and $0.8
million, respectively for a total fiscal 2006 pretax charge of
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Add Six
$2.7 million. The total pretax amortization expense for fiscal year 2007 is
expected to be $2.1 million, decreasing to approximately $1.0 million in
subsequent years. The amortization charge for the second quarter is recorded in
the Corporate operating segment in the attached exhibits.
Earnings Per Share - 2006
- -------------------------
Management now estimates 2006 EPS to be in the range of $1.05 to $1.15 per
share, including the operating results of Nexus and Hexagram, the $1.8 million
pretax gain from the reversal of a liability related to a defense contract, the
$2.7 million of pretax amortization of intangible assets, the $1.7 million tax
repatriation charge, and the change in the expected effective tax rate for the
full year described below. The February 2, 2006 EPS guidance range for 2006 was
$1.20 to $1.30 per share.
For the second half of fiscal year 2006, EPS is now expected to be between
$0.77 and $0.87 per share.
As noted above, in fiscal 2006 the Company began expensing stock options.
This expense, included in the EPS numbers, is expected to be in the range of
$0.08 to $0.11 per share annually, or $0.02 to $0.03 per quarter.
The effective tax rate for the third and fourth quarters of fiscal 2006 is
expected to be approximately 38 percent, and for the full year, the annual rate
is expected to be approximately 42 percent. The annual rate is higher than
previously expected (39 percent) due to higher state taxes and lower foreign
sourced income, primarily in Puerto Rico.
Revenues and EBIT Margins
- -------------------------
Management expects 2006 consolidated revenues to be in the range of $450 to
$460 million and consolidated EBIT margins should be in the range of 10 to 12
percent reflecting the impact of the amortization of identifiable intangible
assets.
On a segment and operating unit basis for 2006, Management now expects the
following:
o PTI sales are expected to be between $43 and $45 million and EBIT margins
should be in the range of 12 to 13 percent.
o VACCO sales are expected to be between $31 and $32 million and EBIT margins
should be in the range of 20 to 21 percent as a result of the significantly
lower deliveries of defense spares and a production break in T-700
shipments.
o Filtertek sales are expected to be in the range of $93 to $95 million and
EBIT margins should be in the range of 7 to 8 percent.
o Test segment sales are expected to be in the range of $126 and $129 million
and EBIT margins should be in the range of 10.5 to 11.5 percent as a result
of the
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Add Seven
o continued strength of the wireless and electronics markets, and solid
growth in Asia.
o Communications segment sales, including Nexus and Hexagram, are expected to
be between $156 and $159 million and EBIT margins should be in the range of
18 to 20 percent. Nexus sales since the date of acquisition (10 months) are
expected to be in the range of $10 to $12 million and EBIT should be at
approximately break-even. Nexus' previous guidance included $0.9 million of
non-cash amortization expenses related to the acquired identifiable
intangible assets. Hexagram sales since the date of acquisition (8 months)
are expected to be in the range of $17 to $19 million and EBIT should be at
approximately break-even based on the significant investment in SG&A being
expended to support sales and marketing as well as the expected ramp up of
the PG&E contract. Sales of AMR products at DCSI are expected to be in the
range of $121 to $122 million and do not include any revenues associated
with the PG&E contract as software acceptance is not expected until the
latter part of fiscal 2007. DCSI's EBIT margin is expected to be 24 to 25
percent including approximately $2.1 million of costs as a result of DCSI
beginning to amortize the capitalized software development costs related to
the TNG software. TNG has been in development with a third party software
contractor for the past two years. TNG is being designed and deployed to
efficiently handle the additional levels of communications dictated by the
size of the service territories and the frequency of reads that are
required under time-of-use or critical peak pricing scenarios needed to
meet the requirements of large IOUs. The Company has incurred approximately
$31 million in external TNG development costs through March 31, 2006, which
are included on the balance sheet in other assets, and is expected to incur
another $10 to $15 million in costs over the next two years. Additional
non-TNG related engineering and development costs are being incurred to
ramp up the PG&E contract as well as support other IOU pilots which are in
process.
o Corporate operating costs for 2006 are expected to be in the range of $14.5
to $15.5 million and include the following items: $2.7 million of pretax
amortization of identifiable intangible assets related to Nexus and
Hexagram; the pretax costs related to the initiation of stock option
expensing which began in fiscal 2006 and is expected to be approximately
$2.2 to $2.4 million; partially offset by the $1.8
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Add Eight
million pretax gain associated with the reversal of a liability connected
with the legacy defense contract noted above.
Conference Call
- ---------------
The Company will host a conference call today, May 9, at 4:00 p.m., Central
Time, to discuss the Company's second quarter operating results. A live audio
webcast will be available on the Company's Web site at www.escotechnologies.com.
Please access the Web site at least 15 minutes prior to the call to register,
download and install any necessary audio software.
A replay of the conference call will be available for seven days on the
Company's website noted above or by phone (dial 1-888-203-1112 and enter the
pass code 4874006).
Forward-Looking Statements
- --------------------------
Statements in this press release regarding fiscal 2006 revenues, results,
earnings, sales, EBIT, EBIT margins, EPS, sales and EBIT margins on a
consolidated basis and on a segment and operating unit basis and the timing of
these contributions, pretax amortization expenses in fiscal 2006, 2007 and
beyond, achievement of strategic objectives, the success of product development
efforts, fiscal 2006 corporate operating expenses, fiscal 2006 effective tax
rate, long term success of the Company, stock option expensing, amortization of
capitalized software development costs in fiscal 2006, successful development of
the TNG software, and the timing and amount of costs to be incurred over the
next two years in connection with the TNG software, performance on the PG&E
contract, the timing of the software acceptance by PG&E, the success of
demonstrations at active pilots, the Company's ability to capture future AMR
opportunities, the Company's ability to increase shareholder value and any other
written or oral statements which are not strictly historical are
"forward-looking" statements within the meaning of the safe harbor provisions of
the federal securities laws. Investors are cautioned that such statements are
only predictions and speak only as of the date of this release, and the Company
undertakes no duty to update. The Company's actual results in the future may
differ materially from those projected in the forward-looking statements due to
risks and uncertainties that exist in the Company's operations and business
environment including, but not limited to: actions by the California Public
Utility Commission, PG&E's Board of Directors or PG&E's Management impacting
PG&E's AMI projects; the success of the Company's competitors; changes in or the
effect of the Federal Energy Bill; the timing and success of DCSI's software
development efforts; the timing and content of purchase order releases under the
PG&E contracts; DCSI's and Hexagram's successful performance of the PG&E
contracts; weakening of economic conditions in served markets; changes in
customer demands or customer insolvencies; competition;
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Add Nine
intellectual property rights; technical difficulties; unforeseen charges
impacting corporate operating expenses; the performance of the Company's
international operations; successful execution of the planned sale of the
Company's Puerto Rico facility; material changes in the costs of certain raw
materials including steel, copper and petroleum-based resins; delivery delays or
defaults by customers; termination for convenience of customer contracts; timing
and magnitude of future contract awards; containment of engineering and
development costs; performance issues with key customers, suppliers and
subcontractors; labor disputes; changes in laws and regulations including but
not limited to changes in accounting standards and taxation requirements;
changes in foreign or U.S. business conditions affecting the distribution of
foreign earnings; costs relating to environmental matters; litigation
uncertainty; successful integration of newly acquired businesses; and the
Company's successful execution of internal operating plans.
ESCO, headquartered in St. Louis, is a leading supplier of engineered
filtration products to the process, health care and transportation markets
worldwide. In addition, the Company markets proprietary, special purpose
communications systems and is the industry leader in RF shielding and EMC test
products. Further information regarding ESCO and its subsidiaries is available
on the Company's website at www.escotechnologies.com.
---------------------
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Add Ten
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31, 2006
--------------
Net Sales $ 122,884
Cost and Expenses:
Cost of sales 80,514
Amortization of intangible assets 1,536
SG&A 26,703
Interest (income) expense (100)
Other (income) expenses, net (1,548)
------
Total costs and expenses 107,105
-------
Earnings before income taxes 15,779
Income taxes 8,436
-----
Net earnings $ 7,343
=========
Earnings per share:
Basic
Net earnings $ 0.29
=========
Diluted
Net earnings $ 0.28
=========
Average common shares O/S:
Basic 25,659
======
Diluted 26,448
======
The following reflects the impact of certain items not reflected in
the first half EPS guidance:
Earnings before Net Diluted
income taxes earnings EPS
------------ -------- ---
Gain related to defense
indemnification
obligation(1) $1,801 $1,030 $0.04
Amort. of acquired
intangibles (2) ($ 789) ($ 451) ($0.02)
Cash Repatriation (3) - ($1,726) ($0.06)
------ ------- ------
Total $1,012 ($1,147) ($0.04)
====== ======= ======
(1) Included in other (income) expenses, net.
(2) Included in amortization of intangible assets and represents
amortization of acquired intangible assets related to the
Hexagram and Nexus acquisitions. Amortization of intangible
assets also includes items such as software, patents and
licenses.
(3) Included in income taxes.
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Add Eleven
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31, 2005
--------------
Net Sales $ 106,160
Cost and Expenses:
Cost of sales 68,909
Amortization of intangible assets 525
SG&A 21,073
Interest (income) expense (303)
Other (income) expenses, net (485)
----
Total costs and expenses 89,719
------
Earnings before income taxes 16,441
Income taxes 6,014
-----
Net earnings 10,427
======
Earnings (loss) per share:
Basic
Net earnings $ 0.41
==========
Diluted
Net earnings $ 0.40
==========
Average common shares O/S:
Basic 25,266
======
Diluted 26,034
======
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Add Twelve
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Six Months Ended
March 31, 2006
--------------
Net Sales $ 213,470
Cost and Expenses:
Cost of sales 144,501
Amortization of intangible assets 2,049
SG&A 50,189
Interest income (817)
Other (income) expenses, net (1,926)
------
Total costs and expenses 193,996
-------
Earnings before income taxes 19,474
Income taxes 9,926
-----
Net earnings $ 9,548
=========
Earnings per share:
Basic
Net earnings $ 0.37
=========
Diluted
Net earnings $ 0.36
=========
Average common shares O/S:
Basic 25,620
======
Diluted 26,402
======
See impact of certain items in preceding 2006 second quarter table,
which are also included in the results above.
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Add Thirteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Six Months Ended
March 31, 2005
--------------
Net Sales $ 210,535
Cost and Expenses:
Cost of sales 137,338
Amortization of intangible assets 1,024
SG&A 40,697
Interest expense (783)
Other expenses, net (1,169)
------
Total costs and expenses 177,107
-------
Earnings before income taxes 33,428
Income taxes 12,479
------
Net earnings $ 20,949
=========
Earnings (loss) per share:
Basic
Net earnings $ 0.82
=========
Diluted
Net earnings $ 0.80
=========
Average common shares O/S:
Basic 25,444
======
Diluted 26,236
======
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Add Fourteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information
(Unaudited)
(Dollars in millions)
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2006 2005 2006 2005
---- ---- ---- ----
Net Sales-GAAP
PTI $ 11.7 10.1 22.4 20.4
VACCO 8.3 8.6 16.4 19.2
Filtertek 25.0 22.3 47.7 45.4
---- ---- ---- ----
Filtration subtotal 45.0 41.0 86.5 85.0
Communications 43.2 36.1 62.4 69.6
Test 34.6 29.1 64.6 55.9
---- ---- ---- ----
Totals $122.8 106.2 213.5 210.5
====== ===== ===== =====
EBIT-GAAP basis
PTI $ 1.6 1.1 2.8 2.2
VACCO 1.4 2.2 3.3 5.8
Filtertek 1.7 1.7 2.7 4.1
--- --- --- ---
Filtration subtotal 4.7 5.0 8.8 12.1
Communications 9.7 10.6 8.8 20.3
Test 4.3 3.3 7.3 5.4
Corporate (3.0)(1) (2.8) (6.2)(2) (5.2)
---- ---- ---- ----
Totals $ 15.7 16.1 18.7 32.6
====== ==== ==== ====
Note: Depreciation and amortization expense was $4.2 million and
$3.0 million for the quarters ended March 31, 2006 and 2005,
respectively, and $7.2 million and $6.1 million for the six-
month periods ended March 31, 2006 and 2005, respectively.
(1) Includes a $1.8 million gain related to an indemnification
obligation with respect to a previously divested subsidiary and
$0.8 million of amortization of acquired intangible assets for
Hexagram and Nexus.
(2) Includes a $1.8 million gain related to an indemnification
obligation with respect to previously divested subsidiary and
$0.9 million of amortization of acquired intangible assets for
Hexagram and Nexus.
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Add Fifteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Dollars in millions)
EBIT (1) - As Reported
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2006 2005 2006 2005
---- ---- ---- ----
EBIT $15.7 16.1 18.7 32.6
Interest income 0.1 0.3 0.8 0.8
--- --- --- ---
Earnings before income taxes $15.8 16.4 19.5 33.4
===== ==== ==== ====
(1) EBIT is defined as earnings before interest and taxes.
EBIT Margin Outlook - FY 2006
- -----------------------------
Consolidated EBIT margin in the range of 10 percent to 12 percent,
PTI EBIT margin in the range of 12 percent to 13 percent, VACCO EBIT
margin in the range of 20 percent to 21 percent, Filtertek EBIT
margin in the range of 7 percent to 8 percent, Test segment EBIT
margin in the range of 10.5 percent to 11.5 percent, and
Communications segment EBIT margin in the range of 18 percent to
20 percent, DCSI's EBIT margin in the range of 24 percent to 25
Percent and Nexus and Hexagram EBIT at approximately break-even,
under "Business Outlook" cannot be reconciled with a GAAP measure
as they represent forward-looking measures with no comparable GAAP
measurements quantifiable at this time.
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Add Sixteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
March 31, September 30,
2006 2005
---- ----
Assets
Cash and cash equivalents $ 20,943 104,484
Accounts receivable, net 81,535 68,819
Costs and estimated earnings
on long-term contracts 1,877 4,392
Inventories 52,878 48,645
Current portion of deferred
tax assets 30,057 30,219
Other current assets 10,840 8,394
------ -----
Total current assets 198,130 264,953
Property, plant and equipment, net 69,047 67,190
Goodwill 141,845 68,880
Deferred tax assets - -
Other assets 59,669 27,697
------ ------
$468,691 428,720
======== =======
Liabilities and Shareholders' Equity
Accounts payable $ 43,461 29,299
Other current liabilities 40,822 33,458
------ ------
Total current liabilities 84,283 62,757
Deferred income 4,924 3,134
Other liabilities 33,775 31,805
Long-term debt - -
Shareholders' equity 345,709 331,024
------- -------
$468,691 428,720
======== =======
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Add Seventeen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
March 31, 2006
--------------
Cash flows from operating activities:
Net earnings $ 9,548
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 7,219
Stock compensation expense 2,643
Changes in operating working capital 7,624
Effect of deferred taxes (1,563)
Other 718
---
Net cash provided by operating activities 26,189
Cash flows from investing activities:
Acquisition of businesses, less cash acquired (90,862)
Capital expenditures (4,296)
Additions to capitalized software (18,095)
-------
Net cash used by investing activities (113,253)
--------
Cash flows from financing activities:
Proceeds from / payments of long-term debt -
Purchases of common stock into treasury -
Other, including exercise of stock options 3,523
-----
Net cash used by financing activities 3,523
-----
Net decrease in cash and cash equivalents (83,541)
Cash and cash equivalents, beginning of period 104,484
-------
Cash and cash equivalents, end of period $ 20,943
========
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Add Eighteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data
(Unaudited)
(Dollars in thousands)
Backlog And Entered
Orders-Q2 FY 2006 Filtration Comm. Test Total
- ----------------- ---------- ----- ---- -----
Beginning Backlog-
12/31/05 $ 80,196 127,814 60,663 268,673
Entered Orders 43,242 55,494 * 29,949 128,685
Sales (45,049) (43,239)* (34,596) (122,884)
------- ------- ------- --------
Ending Backlog-
3/31/06 $ 78,389 140,069 56,016 274,474
= == == ========= ======= ====== =======
Backlog And Entered
Orders-YTD FY 2006 Filtration Comm. Test Total
- ------------------ ---------- ----- ---- -----
Beginning Backlog
9/30/05 $ 80,497 87,781 64,836 233,114
Entered Orders 84,387 114,660 * 55,783 254,830
Sales (86,495) (62,372)* (64,603) (213,470)
------- ------- ------- --------
Ending Backlog-
3/31/06 $ 78,389 140,069 56,016 274,474
========= ======= ====== =======
Q2 FY YTD FY
2006 Q2 FY 2006 YTD FY
Entered 2006 Entered 2006
*Communications Recap: Orders Sales Orders Sales
- ---------------------- ------ ----- ------ ------
AMR Products (DCSI) $38,765 36,342 84,405 51,760
SecurVision Video
Security (Comtrak) 384 390 2,894 2,900
Nexus Energy 6,302 2,665 17,318 3,870(1)
Hexagram 10,043 3,842(2) 10,043 3,842(2)
------ ------- ------ -------
Total 55,494 43,239 114,660 62,372
====== ====== ======= ======
(1) Represents four months of sales.
(2) Represents two months of sales.
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