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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): November 14, 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 240.113d-4 (c))
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Today, November 14, 2006, the Registrant is issuing a press release (Exhibit
99.1 to this report) announcing its 2006 fiscal year and fourth 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 2006 fiscal year
and fourth 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 November 14, 2006
OTHER MATTERS
The information 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: November 14, 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 November 14, 2006
Exhibit 99.1
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 FISCAL YEAR 2006 RESULTS
St. Louis, MO, November 14, 2006 - ESCO Technologies Inc. (NYSE: ESE) today
announced its results for the fourth quarter and fiscal year ended September 30,
2006. Within this release, references to "quarters" and "years" relate to the
fiscal quarters and fiscal years ended September 30 for the respective fiscal
years noted.
4th Quarter Earnings Summary:
($ in millions) 4thQtr 4thQtr
2006 2005 Delta
---- ---- -----
Net Sales $ 121.8 109.8 10.9%
Pretax Earnings 13.2 15.8 (16.4%)
Tax Expense / Rate 2.6 19.8% 5.6 35.3% (53.6%)
--- ---
Net Earnings $ 10.6 10.2 3.9%
==== ====
EPS $ 0.40 0.39 2.6%
==== ====
Net earnings and earnings per share were higher in the fourth quarter of
2006 compared to the prior year period as a result of favorable changes in the
effective tax rate which are discussed in the "Effective Tax Rate" section of
this release.
Total Year Earnings Summary:
($ in millions) FY FY
2006 2005 Delta
---- ---- -----
Net Sales $ 458.9 429.1 6.9%
Pretax Earnings 48.9 63.9 (23.5%)
Tax Expense / Rate 17.6 36.0% 20.4 31.9% (13.7%)
---- ----
Net Earnings $ 31.3 43.5 (28.0%)
==== ====
EPS $ 1.19 1.66 (28.3%)
==== ====
Add One The primary drivers of the lower net earnings and earnings per
share in the full year of 2006 include:
o An additional $4.9 million of non-cash amortization expenses related
to identifiable intangible assets from recent acquisitions, and TNG
software amortization.
o A significantly higher effective tax rate in 2006 of 36.0 percent
compared to 31.9 percent in 2005.
o A $22.6 million increase in SG&A expenses comprised of the following
items: $14.3 million from the current year Nexus and Hexagram
acquisitions; an additional $6.0 million relating to engineering and
new product development; and stock option expense of $2.3 million.
o Lower sales of high margin defense spares and T-700 shipments at
VACCO, and lower sales of Comtrak's SecurVision video security
products which accounted for a combined reduction in EBIT of $8.1
million.
o Fiscal 2005 included $1.6 million in sales and $1.9 million of pretax
earnings at Filtertek from the termination and settlement of a supply
agreement ("Supply Agreement") with a medical device customer.
o The above items were partially offset by significantly improved
operating results in 2006 from the additional sales of RF Test
equipment, commercial aerospace products, and Advanced Metering
Infrastructure (AMI) devices for gas and water utilities.
Sales
- -----
Fourth quarter 2006 sales were $121.8 million, or 10.9 percent higher than
fourth quarter 2005 sales of $109.8 million. Acquisitions accounted for $11.0
million of the $12.0 million sales increase in the 2006 quarter.
Fiscal year 2006 sales were $458.9 million, or 6.9 percent higher than
fiscal year 2005 sales of $429.1 million, primarily due to Nexus and Hexagram
which contributed $28.2 million of sales since their respective acquisition
dates.
Communications sales of $44.6 million increased $7.3 million, or 19.6
percent in the 2006 fourth quarter compared to the fourth quarter of 2005 as a
result of the following items: $11.0 million of sales from Nexus and Hexagram;
partially offset by lower sales to COOP customers which decreased $1.8 million
as certain deliveries slipped to October; and lower sales
Add Two
to the Puerto Rico Electric Power Authority (PREPA) which decreased $1.9
million. In the 2006 fourth quarter, DCSI's sales to COOP and public power
(Municipal) customers were $22.5 million compared to $24.3 million in the fourth
quarter of 2005. Communications sales, excluding acquisitions, decreased $10.0
million in 2006 as compared to 2005. This change was primarily due to an $8.5
million decrease in sales related to Comtrak's SecurVision product, which was
upgraded to a next generation version during 2006, as well as an $8.1 million
decrease in PREPA deliveries as the contract nears completion. These sales
decreases were partially offset by a $22.9 million increase in shipments of AMI
products to investor owned utilities (IOUs) in 2006.
Filtration segment sales of $45.0 million increased $2.9 million, or 6.9
percent during the fourth quarter of 2006 as compared to 2005 primarily due to
an additional $2.5 million of commercial aerospace sales at PTI. For the full
year, Filtration sales increased $2.4 million in 2006 reflecting higher
shipments at PTI and Filtertek, partially offset by significantly lower defense
spares sales at VACCO.
Test segment sales of $32.2 million increased $1.8 million, or 5.9 percent,
during the fourth quarter of 2006 as compared to 2005, and total year sales
increased $9.2 million over 2005, or 7.7 percent, to $128.6 million in 2006 as
the overall wireless and electronics markets remained strong, especially in
Asia. 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 fourth quarter of fiscal 2006 included the
following.
In the Communications segment, EBIT for the 2006 fourth quarter was $8.2
million (18.4 percent of sales), compared to $10.3 million (27.6 percent of
sales) in the 2005 fourth quarter. The primary sources of the $2.1 million
decrease in EBIT dollars include: a $3.2 million decrease at DCSI resulting from
the lower sales in the quarter along with the amortization of the TNG software;
partially offset by a $1.3 million EBIT contribution from Hexagram. Nexus and
Comtrak were approximately breakeven. EBIT in total for fiscal year 2006
decreased $10.5 million versus 2005 primarily due to the lower sales at DCSI,
TNG software amortization, changes in the AMI related sales mix (IOU versus
COOP), higher SG&A spending, and the decrease in SecurVision sales described
above.
In the Filtration segment, the 2006 fourth quarter EBIT was $5.5 million
(12.2 percent of sales), compared to $4.4 million (10.4 percent of sales) in the
prior year fourth quarter. This $1.1 million increase in EBIT was the result of
a $1.4 million increase at PTI related to the additional
Add Three
sales volume associated with the continued strength in the commercial aerospace
market, partially offset by a $0.6 million reduction at VACCO resulting from the
decreased sales of high margin defense spares. Year-to-date Filtration EBIT
decreased $2.9 million primarily due to: a $4.3 million decrease at VACCO
related to lower defense spares sales; a $1.4 million net decrease in EBIT at
Filtertek resulting from the absence of the 2005 Supply Agreement settlement;
partially offset by a $2.8 million increase in EBIT at PTI.
In the Test segment, EBIT was $3.7 million (11.5 percent of sales) in the
fourth quarter of 2006 compared to $3.5 million in 2005 (11.5 percent of sales)
which was consistent with the year over year increase in sales. Total year 2006
EBIT increased $2.8 million over prior year and the EBIT margin improved to 11.7
percent of sales from 10.2 percent of sales due to favorable leverage on the
additional sales volume and a larger percentage of higher margin component
sales. In addition, EBIT was negatively impacted in 2005 as a result of higher
costs incurred on the foreign shielding projects.
The Corporate office operating expenses were $1.5 million higher in the
fourth quarter of 2006 compared to 2005 and included $0.8 million of pretax
amortization of identifiable intangible assets related to the 2006 acquisitions
and $0.7 million of pretax expenses related to stock options. Total Corporate
expenses in 2006 were $3.8 million higher than 2005 and included: $2.7 million
of amortization expense related to identifiable intangibles from acquisitions;
$2.3 million of pretax stock option expense; and higher professional fees;
partially offset by the 2006 second quarter pretax gain of $1.8 million
recognized on the reversal of the liability related to an indemnity attributable
to a former defense subsidiary.
Effective Tax Rate
- ------------------
The effective tax rate in the fourth quarter of 2006 was 19.8 percent and
was favorably impacted by: $1.4 million of additional research tax credits; a
$1.2 million credit resulting from the favorable settlement of an outstanding
tax contingency in Puerto Rico; a $0.6 million credit related to state taxes;
partially offset by $0.6 million of tax expense resulting from the additional
repatriation of foreign cash in September.
The 2006 total year effective tax rate was 36.0 percent and included: total
research tax credits of $2.5 million; the $1.2 million fourth quarter credit
from the Puerto Rico tax contingency; partially offset by $2.4 million of tax
expense related to the foreign cash repatriation throughout the year.
Add Four
The 2005 fourth quarter and fiscal year effective tax rates were 35.3
percent and 31.9 percent, respectively, and were favorably impacted by a higher
contribution of foreign-sourced income, primarily from Puerto Rico.
New Orders
- ----------
New orders received were $115.2 million and $91.5 million in the fourth
quarters of 2006 and 2005, respectively, resulting in a backlog of $253.4
million at September 30, 2006.
New orders received in the fourth quarter of 2006 compared to the fourth
quarter of 2005, respectively, were: in Filtration, $38.2 million and $35.5
million; in Communications, $43.1 million and $17.1 million; and in Test, $33.9
million and $38.9 million.
During 2006, total year orders were $172.2 million in Filtration, $187.5
million in Communications, which included $15 million of backlog acquired in the
Nexus and Hexagram acquisitions, and $119.6 million in Test for a total of
$479.2 million, compared to 2005 total year orders of $413.2 million.
Cash
- ----
At September 30, 2006, the Company had $36.8 million in cash and no debt,
compared to $104.5 million in cash at September 30, 2005. The $67.7 million
decrease in cash during 2006 reflects $92.0 million spent on the acquisitions of
Nexus and Hexagram, $37.1 million spent on capital equipment and software
upgrades, offset by the $61.4 million of cash generated by the Company.
Chairman's Commentary on 2006
Vic Richey, Chairman and Chief Executive Officer, commented, "Fourth
quarter operating results were in line with our expectations. We experienced
some softness in Filtration orders, which was offset by solid performance in the
Test segment. In Communications, while our book to bill ratio was slightly below
one-to-one, in September we received two new AMI system orders at DCSI which we
believe offer significant upside potential. DCSI booked a $1.5 million order
from Duke Energy Shared Services, Inc., a subsidiary of Duke Energy Corporation,
for substation equipment and 600 meter modules to be deployed in its service
territory in Kentucky. Also during the quarter, EDESUR, an electric utility
serving approximately 350,000 customers in the Dominican Republic, placed a $4.9
million order for 7,400 meter modules to address all of its commercial and
industrial customers' metering needs, as well as substation equipment to cover
its entire service territory.
Add Five
"Overall, I'd characterize fiscal 2006 as a year of significant
accomplishment towards our primary strategic objective of strengthening our
position in the AMI market. Earlier in the year, we completed two key
acquisitions which broadened our served market. Hexagram offers a robust
radio-frequency based AMI system that is highly regarded by gas and water
utilities, and Nexus provides best-in-class software solutions that allow
utilities to fully utilize the wealth of information produced by our AMI
systems. Also during the year, the California Public Utilities Commission
granted formal approval for Pacific Gas and Electric (PG&E) to proceed with it's
planned system-wide deployment of both DCSI's and Hexagram's AMI systems
covering more than nine million gas and electric customers. In addition, our
Communications companies continued to make advancements in the marketplace with
new products to address the enhanced functionality required and expected by our
customers.
"In fiscal year 2006, our Filtration segment continued to provide steady
revenues, reasonable profits and good cash flow, and our Test segment
demonstrated sales growth and increased profit margins, reflective of its market
leading position.
"In summary, our operating results for the year were consistent with the
expectations we had as we entered fiscal year 2006. More importantly, we believe
that the strategic acquisitions and the new products developed during 2006 have
positioned us for significant profitable growth."
Business Outlook - 2007
- -----------------------
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 does not include the impact of
potential acquisitions or divestitures, but does include the amortization of
identifiable intangible assets related to Nexus and Hexagram, as well as the
amortization of the TNG software.
Purchase Accounting - Identifiable Intangible Assets
- ----------------------------------------------------
The total amount of identifiable intangible assets subject to amortization
related to Nexus and Hexagram was $9.3 million as of the date of the respective
acquisitions. 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 2006 pretax amortization charges related to these identifiable
intangible assets were $0.8 million in the fourth quarter, $2.7 million for the
total year. Total pretax amortization
Add Six
expense for fiscal year 2007 is expected to be $2.1 million, decreasing to
approximately $1.0 million in subsequent years. These amortization charges are
recorded in the Corporate operating segment in the attached exhibits. TNG
Software Amortization
The 2006 pretax amortization charges related to the TNG software project at
DCSI were $0.9 million in the fourth quarter, $2.2 million for the total year.
Total pretax amortization expense for fiscal year 2007 is expected to be
approximately $7.0 million, increasing to approximately $8.5 million in 2008.
The TNG amortization charges are recorded in the Communications operating
segment in the attached exhibits.
TNG is being amortized on an individual release basis over a seven year
period which began in March 2006 with the issuance of version 1.0. As each
subsequent release is commercially available, its cost will be amortized from
its respective release date over the remaining period of the original seven
years.
PG&E Contract
- -------------
The Company previously announced its contracts with Pacific Gas and
Electric Company (PG&E) to provide hardware, software and services in support of
PG&E's AMI project covering approximately nine million electric and gas
endpoints with a potential value of up to approximately $535 million assuming
full deployment. The deployment period is expected to be approximately five
years and is contingent upon annual purchase order releases from PG&E.
The Business Outlook for 2007 and 2008 includes an estimate of expected
purchase order release amounts as well as an estimate of the delivery quantities
and timing in the future as required by the customer. The revenue and earnings
guidance described below assumes the Company will deliver between 700,000 and
750,000 total gas and electric units in fiscal 2007 based on PG&E's current
deployment schedule. The amounts and timing of these estimates may change as the
deployment progresses.
DCSI's contract with PG&E contains "multiple elements" as defined by U.S.
generally accepted accounting standards, and as a result, the Company is
required to defer revenue on this contract until delivery and acceptance of TNG
version 3.0 is achieved. Version 3.0 is currently expected to be delivered in
the fourth quarter of fiscal 2007, at which time the Company expects to
recognize the cumulative deferred revenue on the units delivered up to that
date.
Add Seven
Hexagram's gas portion of the PG&E contract is not affected by this
accounting.
Earnings Per Share - 2007
- -------------------------
Management estimates 2007 EPS to be in the range of $1.50 to $1.65 per
share, which includes $9.1 million of pretax amortization expense, or $0.21
per share, related to purchase accounting intangible assets and TNG software.
For the first half of the year, EPS should be between $0.25 and $0.30 per
share, and will be negatively impacted by the revenue recognition deferral on
the PG&E contract and the additional costs associated with the early stages of
the deployment. EPS for the first quarter of fiscal 2007 is expected to be
breakeven.
Stock option expense for 2007, which is included in the EPS guidance, is
expected to be in the range of $0.10 to $0.12 per share, or $0.03 to $0.04 per
quarter.
The effective tax rate for fiscal 2007 is expected to be approximately 38
percent.
Revenues and EBIT Margins
- -------------------------
Management expects 2007 consolidated revenues to increase approximately 22
percent and be in the range of $555 to $560 million and the consolidated EBIT
margins should be in the range of 11.5 to 12 percent (including the impact of
the amortization of identifiable intangible assets and the TNG amortization).
On a segment and operating unit basis for 2007, Management expects the
following:
o PTI sales are expected to increase approximately 4.5 percent and
should be between $48 and $49 million and EBIT margins should be in
the range of 15 to 15.5 percent.
o VACCO's sales are expected to increase approximately 8 percent with
sales expected to be between $35 and $36 million and EBIT margins in
the range of 17 to 19 percent as the sales mix changes between defense
spares and space products.
o Filtertek sales are expected to increase approximately 7 to 9 percent
and be in the range of $102 to $104 million with EBIT margins in the
range of 7 to 8 percent.
o The Test segment sales are expected to increase 7.5 to 8.5 percent and
be in the range of $138 and $140 million and EBIT margins in the range
of 12 to 12.5 percent.
o The Communications segment sales are expected to increase
approximately 48 to 50 percent and be in the range of $231 and $234
million and EBIT margins in the range of 18 to 20 percent. Nexus sales
are expected to be in the range of $16 to $18 million and EBIT margins
should be in the range of 6 to 7 percent. Hexagram sales are
Add Eight
expected to be in the range of $60 to $63 million and EBIT margins
should be in the range of 22 to 24 percent, including the continued
investment in SG&A to support engineering and new product development
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 $144 to $147
million and do not include any revenues in the first half of 2007
associated with the PG&E contract as software delivery is not expected
until the fourth quarter of fiscal 2007. DCSI's EBIT margin is
expected to be approximately 20 percent including approximately $7.0
million of TNG amortization costs. The Company has incurred
approximately $40 million in external TNG development costs through
September 30, 2006, which are included on the balance sheet in other
assets, and is expected to incur another $5 to $10 million in costs
over the next two years. Additional non-TNG related engineering and
development costs are being expensed as period costs.
o Corporate operating costs for 2007 are expected to be in the range of
$17.5 to $18 million and include $2.1 million of pretax amortization
of identifiable intangible assets related to Nexus and Hexagram, and
$2.8 million of pretax expense related to stock options.
Fiscal 2008 Preliminary Long-Term Outlook
- -----------------------------------------
Based on the current outlook for the business, and the significant growth
opportunities within the IOU market, Management expects fiscal 2008 revenues,
EBIT margins, and EPS to be meaningfully higher than in 2007. The major
assumption underlying this growth is the significant increases in the projected
deliveries to PG&E in fiscal 2008, after achieving customer acceptance of TNG as
currently scheduled. The Company currently expects to deliver approximately 2
million total gas and electric units in fiscal 2008, which represents an
increase of approximately 1.2 million additional units compared to fiscal 2007
expected deliveries.
This long-term outlook assumes no significant downturn in other major end
markets served by the Company. Chairman's Commentary on Business Outlook
Mr. Richey commented on the long-term outlook, "We anticipate generating
greater than a 20 percent increase in sales and approximately a 30 percent
increase in EPS in fiscal 2007 compared to fiscal 2006. As the PG&E contract
matures and other IOUs adopt AMI for electric, water and gas, we anticipate even
more significant growth in 2008. While we value the
Add Nine
contributions of our Test and Filtration segments, it is clear that the key to
substantial performance improvement is the significant growth opportunities
within our Communications segment. Therefore, we plan to continue to overweight
our investments in the Communications segment, both organically and through
acquisitions, while investing selectively in the Test segment to support our
international growth. In Filtration, we anticipate more modest growth with our
focus on niche opportunities and margin expansion. Overall, I believe the
combination of our opportunities and market positions, taken together with the
focus and dedication of our management team, position us well to meet our stated
long-term financial objectives and to substantially increase shareholder value."
Conference Call
- ---------------
The Company will host a conference call today, November 14, at 4:00 p.m.,
Central time, to discuss the Company's fourth quarter and total year 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 web site noted above or by phone (dial 1-888-203-1112 and enter the
pass code 8416272). Forward-Looking Statements
Statements in this press release regarding the amounts and timing of fiscal
2007 revenues, results, earnings, sales, EBIT, EPS, sales and EBIT margins on a
consolidated basis and on a segment and operating unit basis, fiscal 2008
revenues, EBIT margins and EPS, pretax amortization expenses in fiscal 2007,
2008 and beyond, achievement of strategic objectives, growth in the AMR IOU
market, the success of product development efforts, the success of the Company's
acquisition efforts, continued strength of major end markets served by the
Company, fiscal 2007 corporate operating expenses, fiscal 2007 effective tax
rate, long-term success of the Company, stock option expensing, TNG amortization
expense in fiscal 2007 and 2008, successful development and customer acceptance
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, the ultimate number, value
and timing of DCSI and Hexagram products ordered and deployed by PG&E, the total
value of the PG&E contracts, expected ramp-up of the PG&E contracts,
contributions from recent acquisitions, future investments, the Company's
ability to increase shareholder value and any other written or oral statements
which are not strictly historical are
Add Ten
"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 availability of selective acquisitions on acceptable
terms; 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; 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 proven supplier of special purpose
communications systems for electric, gas and water utilities, including hardware
and software to support advanced metering applications. In addition, the Company
provides engineered filtrations products to the transportation, health care and
process markets worldwide 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.
-- tables attached
Add Eleven
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
------------------
September 30, 2006
------------------
Net Sales $ 121,769
Cost and Expenses:
Cost of sales 78,656
Amortization of intangible assets 2,269
SG&A 28,308
Interest (income) expense (274)
Other (income) expenses, net (376)
----
Total costs and expenses 108,583
-------
Earnings before income taxes 13,186
Income taxes 2,616
-----
Net earnings $ 10,570
=========
Earnings per share:
Basic
Net earnings $ 0.41
=========
Diluted
Net earnings $ 0.40
=========
Average common shares O/S:
Basic 25,842
======
Diluted 26,485
======
Add Twelve
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
------------------
September 30, 2005
------------------
Net Sales $ 109,780
Cost and Expenses:
Cost of sales 72,584
Amortization of intangible assets 510
SG&A 21,846
Interest (income) expense (583)
Other (income) expenses, net (343)
----
Total costs and expenses 94,014
------
Earnings before income taxes 15,766
Income taxes 5,573
-----
Net earnings $ 10,193
=========
Earnings (loss) per share:
Basic
Net earnings $ 0.40
=========
Diluted
Net earnings $ 0.39
=========
Average common shares O/S:
Basic 25,538
======
Diluted 26,381
======
Add Thirteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Year Ended
----------
September 30, 2006
------------------
Net Sales $ 458,865
Cost and Expenses:
Cost of sales 300,309
Amortization of intangible assets 6,872
SG&A 106,882
Interest income (1,286)
Other (income) expenses, net (2,814)
------
Total costs and expenses 409,963
-------
Earnings before income taxes 48,902
Income taxes 17,622
------
Net earnings $ 31,280
=========
Earnings per share:
Basic
Net earnings $ 1.22
=========
Diluted
Net earnings $ 1.19
=========
Average common shares O/S:
Basic 25,718
======
Diluted 26,386
======
Add Fourteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Year Ended
----------
September 30, 2005
------------------
Net Sales $ 429,115
Cost and Expenses:
Cost of sales 281,654
Asset Impairment 790
Amortization of intangible assets 1,973
SG&A 84,241
Interest expense (1,900)
Other expenses, net (1,550)
------
Total costs and expenses 365,208
-------
Earnings before income taxes 63,907
Income taxes 20,363
------
Net earnings $ 43,544
=========
Earnings (loss) per share:
Basic
Net earnings $ 1.71
=========
Diluted
Net earnings $ 1.66
=========
Average common shares O/S:
Basic 25,511
======
Diluted 26,306
======
Add Fifteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information
(Unaudited)
(Dollars in millions)
Three Months Ended Year Ended
September 30, September 30,
------------- -------------
2006 2005 2006 2005
---- ---- ---- ----
Net Sales-GAAP
- --------------
Communications $ 44.6 37.3 156.2 138.0
PTI 12.6 10.1 46.4 40.7
VACCO 9.4 10.1 32.3 38.9
Filtertek 23.0 21.9 95.4 92.1
---- ---- ---- ----
Filtration subtotal 45.0 42.1 174.1 171.7
Test 32.2 30.4 128.6 119.4
---- ---- ----- -----
Totals $121.8 109.8 458.9 429.1
====== ===== ===== =====
EBIT-GAAP basis
- ---------------
Communications $ 8.2 10.3 28.3 38.8
PTI 2.3 0.9 6.6 3.8
VACCO 1.4 2.0 6.1 10.4
Filtertek 1.8 1.5 6.8 8.2
--- --- --- ---
Filtration subtotal 5.5 4.4 19.5 22.4
Test 3.7 3.5 15.0 12.2
Corporate (4.5)(1) (3.0) (15.2)(2) (11.4)
---- ---- ----- -----
Totals $ 12.9 15.2 47.6 62.0
====== ==== ==== ====
Note: Depreciation and amortization expense was $4.9 million and
$2.9 million for the quarters ended September 30, 2006 and
2005, respectively, and $17.3 million and $12.2 million
for the years ended September 30, 2006 and 2005, respectively.
(1) Corporate EBIT - GAAP basis includes $0.8 million of amortization
of acquired intangible assets related to the acquisitions of
Nexus Energy and Hexagram, Inc.
(2) Corporate EBIT - GAAP basis includes the following items:
EBIT
----
ASG-21 Gain $1.8
Amort. of acquired intangibles ($2.7)
-----
Total ($0.9)
=====
Add Sixteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Dollars in millions)
EBIT (1) - As Reported
Three Months Ended Year Ended
September 30, September 30,
--------------- --------------
2006 2005 2006 2005
---- ---- ---- ----
EBIT $12.9 15.2 47.6 62.0
Interest income 0.3 0.6 1.3 1.9
Less: Income taxes 2.6 5.6 17.6 20.4
--- --- ---- ----
Net earnings $10.6 10.2 31.3 43.5
===== ==== ==== ====
(1) EBIT is defined as earnings from continuing operations before
interest and taxes.
EBIT Margin Outlook - FY 2007
Consolidated EBIT margin in the range of 11.5 percent to 12 percent,
PTI EBIT margin in the range of 15 percent to 15.5 percent, VACCO
EBIT margin in the range of 17 percent to 19 percent, Filtertek
EBIT margin in the range of 7 percent to 8 percent, Test segment
EBIT margin in the range of 12 percent to 12.5 percent, Communications
segment EBIT margin in the range of 18 percent to 20 percent, Nexus
EBIT margin in the range of 6 percent to 7 percent, Hexagram EBIT
margin in the range of 22 percent to 24 percent, and DCSI's EBIT margin to
be approximately 20 percent under "Revenues and EBIT Margins" cannot
be reconciled with a GAAP measure as these represent forward-looking
measures with no comparable GAAP measurement quantifiable at this
time.
Add Seventeen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
September 30, September 30,
2006 2005
---- ----
Assets
- ------
Cash and cash equivalents $ 36,819 104,484
Accounts receivable, net 83,816 68,819
Costs and estimated earnings
on long-term contracts 1,345 4,392
Inventories 50,984 48,645
Current portion of deferred
tax assets 29,073 30,219
Other current assets 10,042 8,394
------ -----
Total current assets 212,079 264,953
Property, plant and equipment, net 68,754 67,190
Goodwill 143,450 68,880
Deferred tax assets - -
Other assets 69,233 27,697
------ ------
$493,516 428,720
======== =======
Liabilities and Shareholders' Equity
- ------------------------------------
Accounts payable $ 39,496 29,299
Other current liabilities 36,399 33,458
------ ------
Total current liabilities 75,895 62,757
Deferred income 7,458 3,134
Other liabilities 33,729 31,805
Long-term debt - -
Shareholders' equity 376,434 331,024
------- -------
$493,516 428,720
======== =======
Add Eighteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
FY 2006
-------
Cash flows from operating activities:
Net earnings $ 31,280
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 17,303
Stock compensation expense 4,790
Changes in operating working capital 1,162
Effect of deferred taxes 3,596
Pension contributions (1,350)
Change in deferred revenue and costs, net 1,133
Other 712
---
Net cash provided by operating activities 58,626
Cash flows from investing activities:
Acquisition of businesses (91,968)
Capital expenditures (9,117)
Additions to capitalized software (27,977)
-------
Net cash used by investing activities (129,062)
--------
Cash flows from financing activities:
Proceeds from payments of long-term debt -
Purchases of common stock into treasury -
Other, including exercise of stock options 2,771
-----
Net cash provided by financing activities 2,771
-----
Net decrease in cash and cash equivalents (67,665)
Cash and cash equivalents, beginning of period 104,484
-------
Cash and cash equivalents, end of period $ 36,819
=========
Add Nineteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data
(Unaudited)
(Dollars in thousands)
Backlog And Entered
- -------------------
Orders-Q4 FY 2006 Filtration Comm. Test Total
- ----------------- ---------- ----- ---- -----
Beginning Backlog
6/30/06 $ 85,414 120,549 54,001 259,964
Entered Orders 38,174 43,063 * 33,980 115,217
Sales (45,019) (44,626)* (32,124) (121,769)
------- ------- ------- --------
Ending Backlog-
9/30/06 $ 78,569 118,986 55,857 253,412
= == == ========= ======= ====== =======
Backlog And Entered
- -------------------
Orders-FY 2006 Filtration Comm. Test Total
- -------------- ---------- ----- ---- -----
Beginning Backlog
9/30/05 $ 80,497 87,781 64,836 233,114
Entered Orders 172,151 187,454 * 119,558 479,163
Sales (174,079) (156,249)* (128,537) (458,865)
-------- -------- -------- --------
Ending Backlog-
9/30/06 $ 78,569 118,986 55,857 253,412
========= ======= ====== =======
*Communications Recap
- --------------------- Q4 FY 2006 FY 2006
Entered Q4 FY 2006 Entered FY 2006
Orders Sales Orders Sales
------ ----- ------ -----
AMR Products (DCSI) $ 28,197 30,462 129,272 120,471
SecurVision Video
Security (Comtrak) 3,132 3,131 7,543 7,548
Nexus Energy 2,119 3,296 25,669 9,625(1)
Hexagram 9,615 7,737 24,970 18,605(2)
----- ----- ------ --------
Total 43,063 44,626 187,454 156,249
====== ====== ======= =======
(1) Represents ten months of sales.
(2) Represents eight months of sales.
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