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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 1-10596
ESCO TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1554045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8888 LADUE ROAD, SUITE 200
ST. LOUIS, MISSOURI 63124-2056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 213-7200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No___
The number of shares of the registrant's common stock outstanding at July 31,
2005 was 12,736,707.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
June 30,
--------
2005 2004
------ ------
Net sales $ 108,800 107,911
Costs and expenses:
Cost of sales 71,911 70,125
Asset impairment 790 -
Selling, general and administrative
expenses 21,722 19,670
Interest income (534) (129)
Other (income) expense, net 198 71
----- -------
Total costs and expenses 94,087 89,737
Earnings before income taxes 14,713 18,174
Income tax expense 2,312 6,958
-------- --------
Net earnings from continuing operations 12,401 11,216
Loss from discontinued operations, net of
tax benefit of $(83) in 2004 - (1,100)
Gain on sale of discontinued operations,
net of tax benefit of $(1,153) in 2004 - 1,925
--------- ---------
Net earnings from discontinued operations - 825
Net earnings $ 12,401 12,041
====== ======
Earnings (loss) per share:
Basic - Continuing operations $ 0.98 0.87
- Discontinued operations - 0.06
------ ------
- Net earnings $ 0.98 0.93
==== ====
Diluted - Continuing operations $ 0.95 0.84
- Discontinued operations - 0.06
----- -----
- Net earnings $ 0.95 0.90
==== ====
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Nine Months Ended
June 30,
--------
2005 2004
------ ------
Net sales $ 319,335 306,477
Costs and expenses:
Cost of sales 209,409 207,175
Asset impairment 790 -
Selling, general and administrative
expenses 62,804 57,549
Interest income (1,317) (648)
Other (income) expense, net (492) 1,199
------- --------
Total costs and expenses 271,194 265,275
Earnings before income taxes 48,141 41,202
Income tax expense 14,790 15,833
--------- --------
Net earnings from continuing operations 33,351 25,369
Loss from discontinued operations, net of
tax benefit of $(1,291) in 2004 - (3,737)
Gain on sale discontinued operations, net
of tax benefit of $(1,153) in 2004 - 1,925
--------- --------
Net loss from discontinued operations - (1,812)
Net earnings $ 33,351 23,557
===== =====
Earnings (loss) per share:
Basic - Continuing operations $ 2.62 1.97
- Discontinued operations - (0.14)
----- -------
- Net earnings $ 2.62 1.83
==== ====
Diluted - Continuing operations $ 2.54 1.91
- Discontinued operations - (0.14)
----- -------
- Net earnings $ 2.54 1.77
==== ====
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, September 30,
2005 2004
------ ------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 85,765 72,281
Accounts receivable, net 71,045 77,729
Costs and estimated earnings on long-term
contracts, less progress billings of
$6,752 and $2,210, respectively 3,056 2,476
Inventories 53,881 44,287
Current portion of deferred tax assets 20,022 27,810
Other current assets 9,184 8,947
-------- -------
Total current assets 242,953 233,530
Property, plant and equipment, net 67,360 69,103
Goodwill 68,884 68,949
Other assets 30,423 30,858
-------- --------
$ 409,620 402,440
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $ 37 151
Accounts payable 31,403 32,455
Advance payments on long-term contracts,
less costs incurred of $11,825 and
$8,017, respectively 6,012 4,305
Accrued salaries 10,763 11,896
Accrued taxes 992 4,454
Accrued other expenses 11,919 15,061
-------- --------
Total current liabilities 61,126 68,322
Deferred income 3,288 2,738
Pension obligations 13,902 13,899
Other liabilities 9,625 9,497
Long-term debt 360 368
---- ----
Total liabilities 88,301 94,824
Shareholders' equity:
Preferred stock, par value $.01 per share,
authorized 10,000,000 shares -- --
Common stock, par value $.01 per share,
authorized 50,000,000 shares, issued
14,322,536 and 14,148,902 shares,
respectively 143 142
Additional paid-in capital 226,264 221,711
Retained earnings 149,314 115,963
Accumulated other comprehensive loss (3,011) (3,698)
------- -------
372,710 334,118
Less treasury stock, at cost: 1,589,013 and
1,257,352 common shares, respectively (51,391) (26,502)
--------- --------
Total shareholders' equity 321,319 307,616
-------- -------
$ 409,620 402,440
======= =======
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
June 30,
--------
2005 2004
------ ------
Cash flows from operating activities:
Net earnings $ 33,351 23,557
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Net loss from discontinued operations
net of tax - 1,812
Depreciation and amortization 9,263 8,980
Changes in operating working capital (3,020) (6,843)
Effect of deferred taxes 3,526 121
Other (2,689) 3,163
------- -------
Net cash provided by operating
activities - continuing operations 40,431 30,790
Net cash used by discontinued
operations - (2,735)
-------- -------
Net cash provided by operating
activities 40,431 28,055
Cash flows from investing activities:
Acquisition of business - continuing
operations - (238)
Proceeds from Riverhead note receivable - 2,120
Proceeds from divestiture of businesses - 23,275
Capital expenditures - continuing
operations (6,580) (7,905)
Capital expenditures - discontinued
operations - (1,390)
------- -------
Net cash (used) provided by investing
activities (6,580) 15,862
Cash flows from financing activities:
Net decrease in short-term borrowings - (10,000)
Proceeds from long-term debt - 378
Principal payments on long-term debt -
continuing operations (122) (478)
Principal payments on long-term debt -
discontinued operations - (9,024)
Purchases of common stock into treasury (24,928) -
Other (including exercise of stock options) 4,683 1,466
------- -------
Net cash used by financing activities (20,367) (17,658)
-------- --------
Net increase in cash and cash equivalents 13,484 26,259
Cash and cash equivalents, beginning of period 72,281 31,285
-------- --------
Cash and cash equivalents, end of period $ 85,765 $ 57,544
====== ======
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements, in the opinion of
management, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the results for the interim
periods presented. The consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not
include all the disclosures required by accounting principles generally
accepted in the United States of America (GAAP). For further information
refer to the consolidated financial statements and related notes included
in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2004.
The results for the three and nine-month periods ended June 30, 2005 are
not necessarily indicative of the results for the entire 2005 fiscal year.
2. DISCONTINUED OPERATIONS - 2004
Microfiltration and Separations Businesses (MicroSep) The MicroSep
businesses consisted of PTI Advanced Filtration Inc., PTI Technologies
Limited, and PTI S.p.A. Effective April 2, 2004, the Company completed the
sale of PTI Advanced Filtration Inc. (Oxnard, California) and PTI
Technologies Limited (Sheffield, England) to domnick hunter group plc for
$18 million in cash. On June 8, 2004, the Company completed the sale of PTI
S.p.A. (Milan, Italy) to a group of investors comprised of the subsidiary's
senior management for $5.3 million. An after-tax gain of $0.8 million and
an after-tax loss $(1.8) million related to the MicroSep businesses is
reflected in the Company's fiscal 2004 results from discontinued operations
for the three and nine-month periods ended June 30, 2004, respectively.
3. EARNINGS PER SHARE (EPS)
Basic EPS is calculated using the weighted average number of common shares
outstanding during the period. Diluted EPS is calculated using the weighted
average number of common shares outstanding during the period plus shares
issuable upon the assumed exercise of dilutive common share options and
vesting of performance-accelerated restricted shares (restricted shares) by
using the treasury stock method. The number of shares used in the
calculation of earnings per share for each period presented is as follows
(in thousands):
Three Months Ended Nine Months Ended
June 30, June 30,
----------- -----------
2005 2004 2005 2004
------ ------ ------ ------
Weighted Average
Shares Outstanding -
Basic 12,712 12,938 12,721 12,885
Dilutive Options and
Restricted Shares 382 377 392 425
------ ----- ----- -----
Adjusted Shares-
Diluted 13,094 13,315 13,113 13,310
====== ====== ====== ======
Options to purchase 4,000 shares of common stock at prices ranging from
$79.72 - $100.52 and options to purchase 110,750 shares of common stock at
prices ranging from $46.95 - $50.55 were outstanding during the nine-month
periods ended June 30, 2005 and 2004, respectively, but were not included
in the computation of diluted EPS because the options' exercise prices were
greater than the average market price of the common shares. The options
expire at various periods through 2013. Approximately 19,000 and 16,000
restricted shares were excluded from the respective computation of diluted
EPS based upon the application of the treasury stock method for the three
month periods ended June 30, 2005 and 2004, respectively.
Had compensation cost for the Company's stock option plans and restricted
share plans been determined based on the fair value at the grant date for
awards outstanding during the three and nine-month periods ended June 30,
2005 and 2004 consistent with the provisions of SFAS 148, the Company's net
earnings and net earnings per share would have been as shown in the table
below:
(Unaudited)
(Dollars in thousands,
except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
---------- ----------
2005 2004 2005 2004
------- ------ ------ ------
Net earnings, as reported $ 12,401 12,041 $ 33,351 23,557
Add: stock-based employee
compensation expense
included in reported
net earnings, net of tax 202 162 952 704
Less: total stock-based
employee compensation
expense determined
under fair value based
methods, net of tax (704) (368) (2,549) (1,457)
----- ----- ------- -------
Pro forma net earnings $ 11,899 11,835 $31,754 22,804
====== ====== ====== ======
Net earnings per share:
Basic - as reported $ 0.98 0.93 $ 2.62 1.83
==== ==== ==== ====
Basic - pro forma 0.94 0.91 2.50 1.77
==== ==== ==== ====
Diluted - as reported $ 0.95 0.90 $ 2.54 1.77
==== ==== ==== ====
Diluted - pro forma 0.91 0.89 2.42 1.71
==== ==== ==== ====
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in the three and nine-month periods ended June
30, 2005 and 2004, respectively: expected dividend yield of 0% in both
periods; expected volatility of 27.6% and 16.4%; risk-free interest rate of
3.7% and 4.6%; and expected life based on historical exercise periods of
4.17 years and 4.24 years.
4. INVENTORIES
Inventories consist of the following (in thousands):
June 30, September 30,
2005 2004
------ ------
Finished goods $ 14,051 11,444
Work in process, including
long- term contracts 16,358 13,759
Raw materials 23,472 19,084
-------- --------
Total inventories $ 53,881 44,287
====== ======
5. COMPREHENSIVE INCOME
Comprehensive income for the three-month periods ended June 30, 2005 and
2004 was $11.2 million and $11.9 million, respectively. Comprehensive
income for the nine-month periods ended June 30, 2005 and 2004 was $34.0
million and $25.8 million, respectively. For the three and nine-month
periods ended June 30, 2005, the Company's comprehensive income was
negatively impacted by foreign currency translation adjustments of $1.2
million and positively impacted by foreign currency translation adjustments
of $0.7 million, respectively. For the three and nine-month periods ended
June 30, 2004, the Company's comprehensive income was negatively impacted
by foreign currency translation adjustments of $0.2 million and positively
impacted by foreign currency translation adjustments of $2.1 million,
respectively.
6. ASSET IMPAIRMENT
In June 2005, the Company abandoned its plans to commercialize certain
sensor products within the Filtration/Fluid Flow segment. This action
resulted in an asset impairment charge of $0.8 million to write down
certain patents and a related licensing agreement to their respective fair
market values. The Company ended its development efforts on this program
after it determined that the market was not developing as quickly as
anticipated and the future costs and timeframe to fully commercialize the
products were not acceptable.
7. INCOME TAX EXPENSE
The third quarter fiscal 2005 effective income tax rate was 15.7% compared
to 38.3% in the third quarter of fiscal 2004. The effective income tax rate
in the first nine months of fiscal 2005 was 30.7% compared to 38.4% in the
prior year period. The decrease in the effective income tax rate in the
third quarter and in the first nine months of fiscal 2005 as compared to
the prior year periods is primarily due to the timing and volume of profit
contributions of the Company's foreign operations. The decrease in the
third quarter effective tax rate was primarily driven by an adjustment to
income tax expense due to the Company finalizing certain foreign tax
returns in June; an adjustment to the current year tax provision resulting
from higher foreign sourced pretax income; and a favorable state tax rate
adjustment. The majority of the rate adjustment resulted from DCSI pretax
income sourced in Puerto Rico. The third quarter effective tax rate, absent
the adjustments mentioned above, would have been approximately 33%. The
difference between the 15.7% actual third quarter effective income tax rate
and the 33% tax rate approximated $0.20 per share in the quarter. The
Company estimates the annual effective tax rate for fiscal 2005 to be
approximately 32.5%.
8. BUSINESS SEGMENT INFORMATION
The Company is organized based on the products and services that it offers.
Under this organizational structure, the Company operates in three
segments: Filtration/Fluid Flow, Communications and Test.
Management evaluates and measures the performance of its operating segments
based on "Net Sales" and "EBIT", which are detailed in the table below.
EBIT is defined as earnings from continuing operations before interest and
taxes. The table below is presented for continuing operations and excludes
discontinued operations.
($ in thousands) Three Months ended Nine Months Ended
June 30, June 30,
---------- ----------
NET SALES 2005 2004 2005 2004
--------- ---- ---- ---- ----
Filtration/Fluid
Flow $ 44,652 44,034 $129,631 126,161
Communications 31,141 37,190 100,759 98,963
Test 33,007 26,687 88,945 81,353
------ ------ ------- -------
Consolidated totals $108,800 107,911 $319,335 306,477
======= ======= ======= =======
EBIT
Filtration/Fluid
Flow $ 5,887 6,416 $ 17,987 14,074(1)
Communications 8,192 11,694 28,446 26,306
Test 3,274 2,836 8,694 8,310
Corporate (3,174) (2,901) (8,303) (8,136)
------- ------- ------- -------
Consolidated EBIT 14,179 18,045 46,824 40,554
Add: Interest income 534 129 1,317 648
--- --- ----- ---
Earnings before
income taxes $ 14,713 18,174 $ 48,141 41,202
====== ====== ====== ======
(1) Includes $1.3 million of exit costs related to the Filtertek
Puerto Rico facility.
9. RETIREMENT AND OTHER BENEFIT PLANS
A summary of net periodic benefit expense for the Company's defined benefit
plans and postretirement healthcare and other benefits for the three and
nine-month periods ended June 30, 2005 and 2004 are shown in the following
tables. Effective December 31, 2003, the Company's defined benefit plan was
frozen and no additional benefits will be accrued after that date. Net
periodic benefit cost for each period presented is comprised of the
following:
Three Months Ended Nine Months Ended
June 30, June 30,
---------- ----------
(Dollars in thousands) 2005 2004 2005 2004
------ ------ ------ ------
Defined benefit plans
Service cost $ - 140 $ - 420
Interest cost 663 623 1,988 1,868
Expected return on
assets (713) (675) (2,138) (2,025)
Amortization of:
Prior service cost - - - -
Actuarial (gain)
loss 125 100 375 300
--- --- --- ---
Net periodic benefit
cost $ 75 188 $ 225 563
--- --- --- ---
Net periodic postretirement (retiree medical) benefit cost for each period
presented is comprised of the following:
Three Months Ended Nine Months Ended
June 30, June 30,
---------- ----------
(Dollars in thousands) 2005 2004 2005 2004
---- ---- ----- ----
Service cost $ 8 8 $ 23 24
Interest cost 10 13 30 38
Amortization of
actuarial gain (5) (13) (14) (38)
--- ---- ---- ----
Net periodic
postretirement
benefit cost $13 8 $ 39 24
=== === === ===
10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123 (R), "Share-Based Payment" (SFAS No. 123 (R)). This Statement
replaces SFAS No. 123, "Accounting for Stock-Based Compensation" and
supersedes APB No. 25, "Accounting for Stock Issued to Employees." SFAS 123
(R) requires all stock-based compensation to be recognized as an expense in
the financial statements and that such cost be measured according to the
fair value of stock options. SFAS 123 (R) will be effective for the first
annual period beginning after June 15, 2005. The Company plans to adopt the
provisions of this Statement in the first quarter of fiscal 2006 on a
prospective basis. The Company currently provides the pro forma disclosures
required by SFAS No. 148, "Accounting for Stock-Based Compensation-
Transition and Disclosure," on a quarterly basis (see "Note 3 - Earnings
Per Share").
In December 2004, the FASB issued FASB Staff Position FAS 109-2,
"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004 (FSP 109-2)." The
American Jobs Creation Act of 2004, (the "Act") provides for a special
one-time deduction of 85 percent of certain foreign earnings repatriated
into the U.S. from non-U.S. subsidiaries through September 30, 2006. The
Company is currently evaluating the merits of repatriating funds under the
Act. The range of reasonably possible amounts of unremitted earnings that
are being considered for repatriation is between zero and $32.2 million,
which would require the Company to pay income taxes in the range of zero to
$2.6 million. Federal income taxes on the repatriated amounts would be
based on the 5.25% effective statutory rate as provided in the Act, plus
applicable withholding taxes. To date, the Company has not provided for
income taxes on unremitted earnings generated by non-U.S. subsidiaries
given the Company's historical intent to permanently invest these earnings
abroad. As a result, additional taxes may be required to be recorded for
any funds repatriated under the Act. The Company expects to complete its
evaluation of the repatriation provision of the Act by September 30, 2006.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion refers to the Company's results from continuing
operations, except where noted. The Microfiltration and Separations businesses
(MicroSep), which were sold in the third quarter of fiscal 2004, are accounted
for as discontinued operations in accordance with SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." Accordingly, the MicroSep
businesses are reflected as discontinued operations in the financial statements
and related notes for fiscal 2004.
NET SALES
Net sales were $108.8 million for the third quarter of fiscal 2005 and $107.9
million for the third quarter of fiscal 2004. Net sales increased $12.8 million
(4.2%) to $319.3 million for the first nine months of fiscal 2005 from $306.5
million for the first nine months of fiscal 2004. Favorable foreign currency
values resulted in approximately $0.9 million and $3.2 million of the sales
increases realized in the 2005 third quarter and year-to-date periods,
respectively.
- -Filtration/Fluid Flow
Net sales increased $0.7 million (1.6%) to $44.7 million for the third quarter
of fiscal 2005 from $44.0 million for the third quarter of fiscal 2004. Net
sales increased $3.4 million (2.7%) to $129.6 million for the first nine months
of fiscal 2005 from $126.2 million for the first nine months of fiscal 2004. The
sales increase during the fiscal quarter ended June 30, 2005 as compared to the
prior year quarter is due to the following: higher commercial and military
aerospace shipments at PTI of $1.1 million; a net sales increase at Filtertek of
$0.6 million (mainly due to $1.6 million related to the termination of a supply
agreement with one of its medical device customers); partially offset by lower
defense spares shipments at VACCO of $1.1 million and lower automotive shipments
at Filtertek. The sales increase for the first nine months of fiscal 2005 as
compared to the prior year period is due to the following: higher commercial and
military aerospace shipments at PTI of $4.1 million; a net sales increase at
Filtertek of $0.7 million (mainly due to $1.6 million related to the termination
of a supply agreement with one of its medical device customers); partially
offset by lower defense spares shipments at VACCO of $1.4 million.
- -Communications
Net sales decreased $6.1 million (16.4%) to $31.1 million for the third quarter
of fiscal 2005 from $37.2 million for the third quarter of fiscal 2004. Net
sales increased $1.8 million (1.8%) to $100.8 million for the first nine months
of fiscal 2005 from $99.0 million for the first nine months of fiscal 2004. The
sales decrease in the third quarter of fiscal 2005 as compared to the prior year
period was the result of lower shipments by DCSI of automatic meter reading
(AMR) products to investor owned utility companies (IOU's) of $3.4 million
(sales to Bangor Hydro-Electric Company and Idaho Power Company totaled $4.7
million in the prior year third quarter partially offset by sales to TXU
Electric Delivery Company (TXU) of $1.3 million in the current year third
quarter) and to Puerto Rico Electric Power Authority (PREPA) of approximately $3
million. The increase in sales in the first nine months of fiscal 2005 as
compared to the prior year period was the result higher shipments of Comtrak's
SecurVision video security products, which contributed $11.0 million to the
sales increase, partially offset by a decrease in sales of AMR products
(primarily PPL) of $9.2 million.
Comtrak's sales were $2.3 million for the third quarter of fiscal 2005 as
compared to $1.0 million for the prior year third quarter and $12.9 million for
the first nine months of fiscal 2005 as compared to $1.9 million for the prior
year nine-month period.
The decrease in sales of AMR products for the first nine months of fiscal 2005
as compared to the prior year period is mainly due to the wind-down of the PPL
Electric Utilities Corporation (PPL) contract. Sales to PPL were $0.5 million
and $0.6 million in the fiscal quarters ended June 30, 2005 and 2004,
respectively, and $1.9 million and $20.6 million in the first nine months of
fiscal 2005 and 2004, respectively. The decrease in year-to-date sales to PPL
was partially offset by higher AMR product sales to the electric utility
cooperative (COOP) market and other customers. DCSI's sales to customers other
than PPL were $28.4 million and $35.6 million in the fiscal quarters ended June
30, 2005 and 2004, respectively, and were $86.0 million and $76.5 million for
the first nine months of fiscal 2005 and 2004, respectively.
- -Test
For the third quarter of fiscal 2005, net sales of $33.0 million were $6.3
million, or 23.6% higher than the $26.7 million of net sales recorded in the
third quarter of fiscal 2004. Net sales of $88.9 million in the first nine
months of fiscal 2005 were $7.5 million, or 9.2% higher than the $81.4 million
recorded in the first nine months of fiscal 2004. The sales increase during the
fiscal quarter ended June 30, 2005 as compared to the prior year quarter is
mainly due to an increase from the Company's U.S. operations of approximately
$7.1 million (driven by the successful completion of the critical design review
on a large Boeing project, additional test chamber installations, component
sales, and the installation of several government shielding projects); an
increase in sales from the Company's Asian operations of approximately $2.5
million mainly due to a large test chamber installation in Japan and increased
test chamber business throughout Asia; partially offset by a decrease in sales
from the Company's European operations of approximately $3.3 million due to the
conclusion of two large test chamber projects. The sales increase in the first
nine months of fiscal 2005 as compared to the prior year period is mainly due to
an increase from the Company's U.S. operations of approximately $9.9 million for
reasons mentioned above; an increase in sales from the Company's Asian
operations of approximately $4.0 million; partially offset by a decrease in
sales from the Company's European operations of approximately $6.4 million due
to the conclusion of two large test chamber projects.
ORDERS AND BACKLOG
Backlog was $251.4 million at June 30, 2005 compared with $249.1 million at
September 30, 2004. The Company received new orders totaling $321.6 million in
the first nine months of fiscal 2005. New orders of $138.9 million were received
in the first nine months of fiscal 2005 related to Filtration/Fluid Flow
products, $100.1 million related to Communications products (includes $91.2
million of new orders related to AMR products), and $82.6 million related to
Test products. The new orders received in the Communications segment include an
$18.5 million order from TXU for AMR products. The new orders received in the
Filtration/Fluid Flow segment include a $15.9 million multi-year order for quiet
valves and manifold assemblies used on the Virginia Class Submarine.
GROSS PROFIT
The Company computes gross profit as net sales less cost of sales less asset
impairment charges. The gross profit margin is the gross profit divided by net
sales, expressed as a percentage. The gross profit margin was 33.2% and 35.0% in
the third quarter of fiscal 2005 and 2004, respectively. The gross profit margin
was 34.2% and 32.4% for the first nine months of fiscal 2005 and 2004,
respectively. The decrease in the gross profit margin in the third quarter of
2005 as compared to the prior year quarter is mainly due to cost overruns on
certain government shielding projects, increases in raw material costs within
the Test and Filtration Fluid Flow segments and the asset impairment charge
recorded in the Filtration/Fluid Flow segment which contributed 0.7% to the
decrease. The increase in gross profit margins in first nine months of fiscal
2005 was mainly due to higher margins on shipments in the Communications segment
due to the favorable sales mix of AMR products resulting from additional sales
to the COOP market, and additional shipments of Comtrak's products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the third quarter of
fiscal 2005 were $21.7 million (20.0% of net sales), compared with $19.7 million
(18.2% of net sales) for the prior year period. For the first nine months of
fiscal 2005, SG&A expenses were $62.8 million (19.7% of net sales) compared with
$57.5 million (18.8% of net sales) for the prior year period. The increase in
SG&A spending in the fiscal quarter ended June 30, 2005 and in the first nine
months of fiscal 2005 as compared to the respective prior year periods is mainly
due to an increase of $0.8 million and $3.6 million, respectively, associated
with engineering, marketing, and new product development within the
Communications segment to further penetrate the investor owned utility market.
In addition, Corporate professional fees have increased approximately $0.8
million in the first nine months of fiscal 2005 as compared to the prior year
period due to the implementation of requirements under Section 404 of the
Sarbanes-Oxley Act of 2002.
OTHER (INCOME) EXPENSES, NET
Other (income) expenses, net, were $0.2 million for the quarter ended June 30,
2005 compared to $0.1 million for the prior year quarter. Other (income)
expenses, net, were ($0.5) million for the first nine months of fiscal 2005
compared to $1.2 million for the prior year period. Principal components of
other (income) expenses, net, for the first nine months of fiscal 2005 included
$1.5 million of royalty income; partially offset by $0.7 million of amortization
expense of identifiable intangible assets (primarily patents, licenses and
software); and a $0.5 million write down of fixed assets related to the
termination of a supply agreement with a medical device customer. Principal
components of other (income) expenses, net, for the first nine months of fiscal
2004 included $0.9 million of exit costs related to the Filtertek Puerto Rico
facility; $0.7 million of amortization of identifiable intangible assets
(primarily patents, licenses and software); a $0.6 million gain from a sales and
use tax refund claim related to a former defense subsidiary (Systems &
Electronics Inc.); partially offset by a $0.4 million charge for settlement of a
claim involving a former defense subsidiary (Hazeltine).
EBIT
The Company evaluates the performance of its operating segments based on EBIT,
defined below. EBIT was $14.2 million (13.0% of net sales) for the third quarter
of fiscal 2005 and $18.0 million (16.7% of net sales) for the third quarter of
fiscal 2004. For the first nine months of fiscal 2005, EBIT was $46.8 million
(14.7% of net sales) and was $40.6 million (13.2% of net sales) for the first
nine months of fiscal 2004. EBIT for the first nine months of fiscal 2004 was
negatively impacted by $1.3 million of severance and exit costs related to the
Filtertek Puerto Rico facility (Filtration/Fluid Flow segment).
This Form 10-Q contains the financial measure "EBIT", which is not calculated in
accordance with generally accepted accounting principles in the United States of
America (GAAP). EBIT provides investors and Management with an alternative
method for assessing the Company's operating results. The Company defines "EBIT"
as earnings from continuing operations before interest and taxes. Management
evaluates the performance of its operating segments based on EBIT and believes
that EBIT is useful to investors to demonstrate the operational profitability of
the Company's business segments by excluding interest and taxes, which are
generally accounted for across the entire Company on a consolidated basis. EBIT
is also one of the measures Management uses to determine resource allocations
within the Company and incentive compensation. The following table represents a
reconciliation of EBIT to net earnings from continuing operations.
Three Months ended Nine Months ended
June 30 June 30
($ in thousands) ------- --------
2005 2004 2005 2004
---- ---- ---- ----
EBIT $14,179 18,045 $46,824 40,554
Interest income /
(expense) 534 129 1,317 648
Less: Income taxes 2,312 6,958 14,790 15,833
------ ------ ------ ------
Net earnings from
continuing operations $12,401 11,216 $33,351 25,369
====== ====== ====== ======
- -Filtration/Fluid Flow
EBIT was $5.9 million (13.2% of net sales) and $6.4 million (14.6% of net sales)
in the third quarters of fiscal 2005 and 2004, respectively, and $18.0 million
(13.9% of net sales) and $15.4 million (12.2% of net sales) in the first nine
months of fiscal 2005 and 2004, respectively. For the third quarter of fiscal
2005 as compared to the prior year quarter, EBIT decreased $0.5 million due to
the following: a $1.0 million decrease at VACCO due to lower defense spares
shipments; a $0.1 million net decrease at PTI primarily due to the asset
impairment charge of $0.8 million; partially offset by a $0.5 million net
increase at Filtertek primarily due to $1.0 million recorded upon the
termination of a supply agreement with a medical device customer. For the first
nine months of fiscal 2005 as compared to the prior year period, EBIT increased
$2.6 million due to the following: a $2.1 million increase at Filtertek, which
included $1.9 million related to the termination of a medical device customer
(the first nine months of fiscal 2004 included $1.3 million of exit costs
related to the Puerto Rico facility); a $1.5 million net increase at PTI
(consisting of $2.3 million due to higher shipments of aerospace products
partially offset by the $0.8 million asset impairment charge); and a $1.0
million decrease at VACCO due to lower defense spares shipments.
Effective June 30, 2005, Filtertek signed an agreement to terminate its supply
agreement with a medical device customer. During the third quarter of 2005, the
Company received $2.1 million in cash and recognized $1.6 million of revenue and
$1.0 million of income related to this transaction, after a $0.5 million write
down of related fixed assets. During the first six months of fiscal 2005, the
Company recorded $0.9 million of cost reimbursement related to a shortfall
between its actual purchases versus the minimum contractually guaranteed amount
from this customer, for a total profit contribution of $1.9 million recorded
year-to-date.
- -Communications
EBIT in the third quarter of fiscal 2005 was $8.2 million (26.3% of net sales)
as compared to $11.7 million (31.4% of net sales) in the prior year period. For
the first nine months of fiscal 2005, EBIT was $28.4 million (28.2% of net
sales) as compared to $26.3 million (26.6% of net sales) in the prior year
period. The decrease in EBIT in the third quarter of fiscal 2005 is due to: a
$4.2 million decrease at DCSI due to lower shipments of AMR products, partially
offset by a $0.7 million increase at Comtrak due to higher shipments of its
video security products. The increase in EBIT in the first nine months of fiscal
2005 as compared to the prior year period is due to: a $4.6 million increase at
Comtrak due to higher shipments of its video security products, partially offset
by a $2.5 million decrease at DCSI due to lower shipments of AMR products. The
Company expects to continue to increase its engineering and new product
development expenditures in the Communications segment in order to continue its
growth in the AMR markets, and to further differentiate its technology from the
competition.
- -Test
EBIT in the third quarter of fiscal 2005 was $3.3 million (9.9% of net sales) as
compared to $2.8 million (10.6% of net sales) in the prior year period. For the
first nine months of fiscal 2005, EBIT was $8.7 million (9.8% of net sales) as
compared to $8.3 million (10.2% of net sales) in the prior year period. In the
third quarter of fiscal 2005 and in the first nine months of fiscal 2005, EBIT
was higher than in the prior year periods due primarily to the favorable changes
in sales mix resulting from additional sales of antennas and other components
and increases from the Company's Asian operations. EBIT in the third quarter of
fiscal 2005 and in the first nine months of 2005 as compared to the prior year
periods was adversely affected by installation cost overruns incurred on certain
government shielding projects being installed in challenging areas throughout
the world, as well as increased material costs (steel and copper).
- -Corporate
Corporate costs included in EBIT were $(3.2) million and $(8.3) million for the
three and nine-month periods ended June 30, 2005, respectively, compared to
$(2.9) million and $(8.1) million for the respective prior year periods. The
increase of $0.3 million in Corporate costs in the third quarter of fiscal 2005
as compared to the prior year quarter is due to the implementation of
requirements under Section 404 of the Sarbanes-Oxley Act of 2002.
INTEREST INCOME, NET
Interest income, net, was $0.5 million and $1.3 million for the three and
nine-month periods ended June 30, 2005, respectively, compared to interest
income of $0.1 million and $0.6 million for the respective prior year periods.
The increase in interest income in the third quarter and in the first nine
months of fiscal 2005 as compared to the respective prior year periods is due to
higher average cash balances on hand in fiscal 2005 and a tax refund of lookback
interest received in the first fiscal quarter.
INCOME TAX EXPENSE
The third quarter fiscal 2005 effective income tax rate was 15.7% compared to
38.3% in the third quarter of fiscal 2004. The effective income tax rate in the
first nine months of fiscal 2005 was 30.7% compared to 38.4% in the prior year
period. The decrease in the effective income tax rate in the third quarter and
in the first nine months of fiscal 2005 as compared to the prior year periods is
primarily due to the timing and volume of profit contributions of the Company's
foreign operations. The decrease in the third quarter effective tax rate was
primarily driven by an adjustment to income tax expense due to the Company
finalizing certain foreign tax returns in June; an adjustment to the current
year tax provision resulting from higher foreign sourced pretax income; and a
favorable state tax rate adjustment. The majority of the rate adjustment
resulted from DCSI pretax income sourced in Puerto Rico. The third quarter
effective tax rate, absent the adjustments mentioned above, would have been
approximately 33%. The difference between the 15.7% actual third quarter
effective income tax rate and the 33% tax rate approximated $0.20 per share in
the quarter. The Company estimates the annual effective tax rate for fiscal 2005
to be approximately 32.5%.
CAPITAL RESOURCES AND LIQUIDITY
Working capital (current assets less current liabilities) increased to $181.8
million at June 30, 2005 from $165.2 million at September 30, 2004. During the
first nine months of fiscal 2005, cash increased $13.5 million, net of the $24.9
million share repurchase. Accounts receivable decreased by $6.7 million in the
first nine months of fiscal 2005, of which $7.0 million related to collections
of receivables within the Communications segment. Inventories increased by $9.6
million in the first nine months of fiscal 2005, of which $3.5 million related
to the Test segment due to the timing of sales and $3.6 million related to the
Communications segment (new product offerings and safety stock to satisfy
customer requirements). In addition, accounts payable and accrued expenses
decreased by $8.8 million in the first nine months of fiscal 2005 primarily due
to the timing of vendor payments and personnel related costs.
Net cash provided by operating activities from continuing operations increased
$9.6 million to $40.4 million in the first nine months of fiscal 2005, compared
to $30.8 million in the same period of fiscal 2004.
During the second quarter of fiscal 2005, Filtertek signed an agreement to
license certain of its patents related to needle-free connectors to a third
party for $1.5 million in cash and recognized $0.2 million of royalty income
related to this transaction, after deducting $0.2 million of professional fees.
The unrealized gain of $1.1 million will be recognized on a straight-line basis
over the remaining patent life, through 2011.
Capital expenditures for continuing operations were $6.6 million and $7.9
million in the first nine months of fiscal 2005 and 2004, respectively. Major
expenditures in the current period included manufacturing equipment used in the
Filtration/Fluid Flow businesses.
At June 30, 2005, the Company had approximately $7.5 million in commitments in
the Communications segment to further differentiate its products and to further
penetrate the investor owned utility market. This amount is expected to be spent
during the next six months.
The closure and relocation of the Filtertek Puerto Rico facility was completed
in March 2004. The Puerto Rico facility is included in other current assets with
a carrying value of $3.6 million at June 30, 2005. The facility continues to be
actively marketed for sale.
In October 2004, the Company entered into a new $100 million five-year revolving
bank credit facility with a $50 million increase option, which replaced its
then-existing credit facility. At June 30, 2005, the Company had approximately
$98.6 million available to borrow under the credit facility in addition to $85.8
million cash on hand. Against the $100 million available under the revolving
credit facility at June 30, 2005, the Company had outstanding letters of credit
of $1.4 million. Cash flow from operations and borrowings under the Company's
bank credit facility are expected to meet the Company's capital requirements and
operational needs for the foreseeable future.
SUBSEQUENT EVENT
On August 5, 2005, the Company's Board of Directors approved a 2-for-1 stock
split to be effected as a 100 percent stock dividend payable September 23, 2005
to shareholders of record as of September 9, 2005.
CRITICAL ACCOUNTING POLICIES
Management has evaluated the accounting policies used in the preparation of the
Company's financial statements and related notes and believes those policies to
be reasonable and appropriate. Certain of these accounting policies require the
application of significant judgment by management in selecting appropriate
assumptions for calculating financial estimates. By their nature, these
judgments are subject to an inherent degree of uncertainty. These judgments are
based on historical experience, trends in the industry, information provided by
customers and information available from other outside sources, as appropriate.
The most significant areas involving management judgments and estimates may be
found in the Critical Accounting Policies Section of Management's Discussion and
Analysis and in Note 1 to the Consolidated Financial Statements contained in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2004, at Exhibit 13.
OTHER MATTERS
Contingencies
As a normal incident of the businesses in which the Company is engaged, various
claims, charges and litigation are asserted or commenced against the Company. In
the opinion of Management, final judgments, if any, which might be rendered
against the Company in current litigation are adequately reserved, covered by
insurance, or would not have a material adverse effect on its financial
statements.
FORWARD LOOKING STATEMENTS
Statements in this report that are not strictly historical are "forward looking"
statements within the meaning of the safe harbor provisions of the federal
securities laws. Forward looking statements include those relating to the
estimates or projections made in connection with the Company's accounting
policies, annual effective tax rate, timing of Communications segment
commitments and expenditures, continued growth in the AMR market, outcome of
current claims and litigation, future cash flow, and capital requirements and
operational needs for the foreseeable future and the amounts, if any, and timing
of foreign earnings repatriated into the U.S. and the additional taxes resulting
from such repatriation. Investors are cautioned that such statements are only
predictions, and speak only as of the date of this report. 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:
weakening of economic conditions in served markets; changes in customer demands
or customer insolvencies; competition; intellectual property rights; 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; performance issues with key suppliers, customers and subcontractors;
collective bargaining and labor disputes; changes in laws and regulations
including 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; and
the Company's successful execution of internal operating plans.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company's operations result primarily from changes
in interest rates and changes in foreign currency exchange rates. There has been
no material change to the Company's risks since September 30, 2004. Refer to the
Company's 2004 Annual Report on Form 10-K for further discussion about market
risk.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the
participation of Management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. Based upon that evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective as of that date. Disclosure controls and
procedures are controls and procedures that are designed to ensure that
information required to be disclosed in Company reports filed or submitted under
the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. There has been no change in the Company's
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act) during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In August 2004, the Company's Board of Directors approved the extension of the
previously authorized (February 2001) open market common stock repurchase
program of up to 1.1 million shares, which is subject to market conditions and
other factors and covers the period ending September 30, 2006. Approximately
575,000 remaining shares may be repurchased under the program. There were no
stock repurchases during the third quarter of fiscal 2005.
ITEM 6. EXHIBITS
a) Exhibits
Exhibit
Number
3.1 Restated Articles of Incorporated by reference to
Incorporation Form 10-K for the fiscal year
ended September 30, 1999, at
Exhibit 3(a)
3.2 Amended Certificate of Incorporated by reference to
Designation Form 10-Q for the fiscal quarter
Preferences and Rights ended March 31, 2000, at Exhibit
of Series A 4(e)
Participating
Cumulative Preferred
Stock of the Registrant
3.3 Articles of Merger Incorporated by reference to
effective July 10, 2000 Form10-Q for the fiscal quarter
ended June 30, 2000, at Exhibit
3(c)
3.4 Bylaws, as amended and Incorporated by reference to
restated. Form10-K for the fiscal year
ended September 30, 2003, at
Exhibit 3.4
4.1 Specimen Common Stock Incorporated by reference to
Certificate Form10-Q for the fiscal quarter
ended June 30, 2000, at Exhibit
4(a)
4.2 Specimen Rights Incorporated by reference to
Certificate Current Report on Form 8-K dated
February 3, 2000, at Exhibit B
to Exhibit 4.1
4.3 Rights Agreement dated Incorporated by reference to
as of September 24, Current Report on Form 8-K dated
1990 (as amended and February 3, 2000, at Exhibit 4.1
Restated as of
February 3, 2000)
between the Registrant
and Registrar and
Transfer Company, as
successor Rights Agent
4.4 Credit Agreement dated as of Incorporated by reference to
October 6, 2004 among the Form10-K for the fiscal year
Registrant, Wells Fargo ended September 30, 2004, at
Bank, N.A., as agent, and Exhibit 4.4
the lenders listed therein
31.1 Certification of Chief
Executive Officer relating
to Form 10-Q for period
ended June 30, 2005
31.2 Certification of Chief
Financial Officer relating
to Form 10-Q for period
ended June 30, 2005
32 Certification of Chief
Executive Officer and Chief
Financial Officer relating
to Form 10-Q for period
ended June 30, 2005
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 thereunto duly authorized.
ESCO TECHNOLOGIES INC.
/s/ Gary E. Muenster
Gary E. Muenster
Vice President and Chief Financial Officer
(As duly authorized officer and principal
accounting officer of the registrant)
Dated: August 9, 2005
Exhibit 31.1
CERTIFICATIONS
I, V.L. Richey, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of ESCO Technologies
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit and finance committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 9, 2005
(s) V.L. Richey, Jr.
V.L. Richey, Jr.
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, G.E. Muenster, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ESCO Technologies
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit and finance committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: August 9, 2005
(s) G.E. Muenster
G.E. Muenster
Chief Financial Officer
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of ESCO Technologies Inc. (the
"Company") on Form 10-Q for the period ended June 30, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), we, V. L.
Richey, Jr., Chief Executive Officer of the Company, and G. E. Muenster, Chief
Financial Officer of the Company, certify, to the best of our knowledge,
pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: August 9, 2005
/s/ V.L. Richey, Jr.
V.L. Richey, Jr.
Chief Executive Officer
ESCO Technologies Inc.
/s/ G.E. Muenster
G.E. Muenster
Chief Financial Officer
ESCO Technologies Inc.