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 16, 2004
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.)
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
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Today, November 16, 2004, the Registrant is issuing a press release (Exhibit
99.1 to this report) announcing its fiscal 2004 fourth quarter and year-end
financial and operating results. See Item 7.01, Regulation FD Disclosure below.
ITEM 7.01. REGULATION FD DISCLOSURE
Today, the Registrant is issuing a press release announcing its fiscal 2004
fourth quarter and year-end financial and operating results. 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 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 "operational" net earnings,
earnings per share and results of operations, as well as "EBIT from continuing
operations," "EBIT margin," "operational" EBIT margin, "free cash flow from
continuing operations" and Filtration segment "operational" EBIT.
The Registrant defines "operational" net earnings, earnings per share, and
results of operations as net earnings, earnings per share, and results of
operations in accordance with GAAP, except for the exclusion of (i) exit costs
and severance charges related to the shutdown and relocation of the Filtration
segment Puerto Rico facility, (ii) asset impairment charges related to the
Filtration segment Puerto Rico facility and Test segment U.K. facility, (iii)
severance charges related to the Test segment U.K. facility, (iv) gain from
settlement of patent litigation related to the Filtration segment, (v) costs
resulting from the Management Transition Agreement between the Registrant and
its former Chairman, (vi) the charge resulting from an equipment lease
termination related to the Whatman Hemasure contract dispute, (vii) the interest
rate swap charge, (viii) the cumulative effect of accounting charge related to
the synthetic lease obligation, (ix) gain on the sale of Rantec Power Systems,
Inc., which was divested and is shown as "discontinued operations" in fiscal
2003 and (x) the results of operations from the MicroSep businesses which were
divested in fiscal 2004 and are shown as "discontinued operations" in fiscal
2004 and 2003. The Registrant defines "operational" EBIT margin as EBIT margin
(defined below) with the foregoing exclusions. The Registrant's management uses
these "operational" results in evaluating the measures of continuing operations
of the Registrant and believes that this information provides investors with
additional insight into the period over period financial performance of the
Registrant.
The Registrant defines "EBIT from continuing operations" as earnings before
interest and taxes. The Registrant defines "EBIT margin" as EBIT from continuing
operations as a percent of net sales. The Registrant's management evaluates the
performance of its operating segments based on EBIT from continuing operations
and EBIT margin, and believes that EBIT from continuing operations 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 from continuing operations is also one of the measures used by management
in determining resource allocations within the Registrant and incentive
compensation.
The Registrant defines "Free cash flow from continuing operations" as "Net cash
provided by operating activities-continuing operations" less "Capital
expenditures-continuing operations." The Registrant's management believes that
free cash flow from continuing operations is useful to investors and management
as a supplemental financial measurement in the evaluation of the Registrant's
business and believes that free cash flow may provide additional information
with respect to the Registrant's ability to meet its future debt service,
capital expenditures and working capital requirements. Free cash flow can also
be reinvested in the Registrant for future growth.
The Registrant defines Filtration segment "operational" EBIT as segment EBIT,
excluding the costs related to the shutdown of the Puerto Rico facility, the
gain from settlement of the patent litigation, and the Whatman Hemasure charge.
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 16, 2004
OTHER MATTERS
The information contained in this report, including Exhibit 99.1, shall not be
deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934 as amended ("Exchange Act") or otherwise subject to the liabilities of
that section, unless the Registrant incorporates it by reference into a filing
under the Securities Act of 1933 as amended or the Exchange Act.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ESCO TECHNOLOGIES INC.
Dated: November 16, 2004 By: /s/ G.E. Muenster
G.E. Muenster
Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description of Exhibit
99.1 Press release dated November 16, 2004
EXHIBIT 99.1
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 2004 RESULTS
---------------------------------------
St. Louis, MO, November 16, 2004 - ESCO Technologies Inc. (NYSE: ESE) today
announced its results for the fourth quarter and fiscal year ended September 30,
2004. The results of operations reflect certain repositioning items that were
announced and described in detail in previous releases in fiscal 2003 and 2004.
These included severance and move charges incurred in 2004 and 2003 related to
the exit and relocation of Filtertek's Puerto Rican manufacturing facility; the
fiscal 2004 divestiture of the Microfiltration and Separations businesses
(MicroSep) which is accounted for as discontinued operations; the fiscal 2003
gain related to a patent litigation settlement; the fiscal 2003 interest rate
swap charge; and the fiscal 2003 costs associated with the Management Transition
Agreement (MTA) and the Whatman Manufacturing and Supply Agreement (MSA). The
reconciliation of GAAP reported earnings to "Operational" earnings is included
in the Exhibits attached to this release. The Company believes that the
presentation of "Operational" earnings provides meaningful additional insight
into the Company's performance.
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Add One
Results of Operations (in millions, except EPS)
- -----------------------------------------------
Sales and net earnings for the fiscal 2004 and 2003 fourth quarters and
fiscal year periods ended September 30 are noted below (dollars in millions,
except EPS):
4th Qtr. - FY 2004 Sales Net Earnings Diluted EPS
------------------ ----- ------------ -----------
GAAP $115.6M $12.1M $0.91
Operational $115.6M $12.4M $0.93
4th Qtr. - FY 2003 Sales Net Earnings Diluted EPS
------------------ ----- ------------ -----------
GAAP $105.6M $(57.5M) $(4.33)
Operational $105.6M $8.8M $0.67
FY 2004 Sales Net Earnings Diluted EPS
------- ----- ------------ -----------
GAAP $422.1M $35.7M $2.68
Operational $422.1M $38.8M $2.91
FY 2003 Sales Net Earnings Diluted EPS
------- ----- ------------ -----------
GAAP $396.7M $(41.1M) $(3.13)
Operational $396.7M $32.9M $2.51
Sales
- -----
Fiscal 2004 fourth quarter consolidated sales of $115.6 million were $10.0
million, or 9 percent higher than 2003 fourth quarter sales. Fiscal year 2004
sales of $422.1 million increased $25.4 million, or 6 percent over total sales
in 2003. Favorable foreign currency values resulted in approximately $1.3
million and $6.5 million of the sales increases realized in the fourth quarter
and total year 2004, respectively, as compared to the prior year periods. On a
segment basis for 2004, Communications sales increased 7 percent in the quarter
and decreased 3 percent for the year; Filtration sales increased 10 percent in
the quarter and 6 percent for the year; and Test sales increased 13 percent in
the quarter and 22 percent for the year, as compared to the respective prior
year periods.
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Add Two
Communications segment sales increased in the fourth quarter as a result of
higher shipments of Comtrak's SecurVision video security products, which
generated $3.8 million in sales during the fourth quarter of 2004 versus $1.2
million of sales in the 2003 fourth quarter. Total SecurVision sales in 2004
were $5.6 million compared to $8.4 million in 2003. The decreased sales for the
full year were a result of a previously discussed delay in deliveries due to a
significant customer requesting a modification of the operating system to
provide enhanced "virus" protection. Deliveries of SecurVision products to this
customer resumed during the fourth quarter of fiscal 2004.
Also within the Communications segment, sales of DCSI's Automatic Meter
Reading (AMR) equipment to electric utility customers were approximately $35
million in both fiscal 2004 and 2003 fourth quarters. Sales to PPL Electric
Utilities Corporation (PPL) decreased approximately $12.5 million in the current
year's fourth quarter compared to the fourth quarter of fiscal 2003 due to the
wind-down of the PPL contract. Sales to PPL were $1.0 million and $21.6 million
in the 2004 fourth quarter and full year, respectively, compared to $13.6
million and $63.9 million in the 2003 fourth quarter and full year,
respectively. DCSI's sales to electric utility cooperative customers (COOP) and
customers other than PPL increased 58 percent during fiscal 2004 to $110.5
million, from $70.0 million in fiscal 2003. Fiscal year 2004 sales decreased
approximately $1.8 million at DCSI compared to the prior year, primarily as a
result of $42.3 million less sales to PPL in the current year related to the
wind-down of the contract.
Filtration segment sales increased in the fourth quarter and full year of
fiscal 2004 primarily as a result of higher defense shipments at VACCO; higher
sales of industrial products at PTI; and favorable foreign currency exchange
rates related to Filtertek's European operations.
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Add Three
Test segment sales increased in the fourth quarter of 2004 due to the
completion of a large chamber in Asia and additional antenna and other component
sales. For the full year, Test sales increased significantly over prior year as
a result of two large test chamber installations in Europe, increased volume
from the Company's Asian operations, and higher sales of government and
industrial shielding products.
Earnings Before Interest and Taxes (EBIT)
- -----------------------------------------
EBIT from continuing operations for the fourth quarters and full year
periods ended September 30, 2004 and 2003 was affected by certain gains and
charges described above which are presented in detail in the financial Exhibits
attached at the end of this release. In the fourth quarters of fiscal 2004 and
2003, the pretax charges in continuing operations related to these items were
zero and $1.9 million, respectively. For the full fiscal years 2004 and 2003,
the pretax charges in continuing operations related to these items were $1.3
million and $7.8 million, respectively. These items are included in "Earnings
before income taxes" in the Exhibits.
On a segment basis, items that impacted EBIT from continuing operations as
a percent of sales ("EBIT margin") during the fourth quarter and full year of
fiscal 2004 include the following.
In the Communications segment, EBIT margin for fiscal year 2004 is higher
than prior year due to the favorable sales mix of AMR products resulting from
additional sales to the COOP market, and significant cost reductions realized on
certain components. The 2004 fourth quarter EBIT margin was also positively
impacted by the higher shipments of SecurVision products.
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Add Four
In the Filtration segment, EBIT margin improved in the fourth quarter of
fiscal 2004 primarily due to higher defense sales at VACCO and increased sales
of industrial products at PTI. The full year EBIT margin in the Filtration
segment was impacted by the exit and move costs incurred and the inefficiencies
being absorbed at Filtertek during the first six months of fiscal 2004 as a
result of operating in both the Puerto Rico and Juarez facilities. The move out
of Puerto Rico was completed in mid-March 2004, and the facility is being
marketed for sale.
In the Test segment, EBIT margin improved in the full year as a result of
the significantly higher sales volume recognized in fiscal 2004. The 2004 fourth
quarter EBIT margin was slightly lower than the prior year fourth quarter due to
changes in sales mix resulting from a higher amount of large chamber deliveries
that have lower margins than the component products and service business
revenues. The fiscal 2003 amounts included costs associated with the U.K.
facility consolidation mentioned in earlier releases.
The Corporate office operating expenses were higher during the fourth
quarter of 2004 than previously anticipated as a result of additional
compensation related costs.
Effective Tax Rate
- ------------------
The effective tax rate for the fourth quarter of fiscal 2004 was 35.7
percent and was impacted by the favorable foreign income tax rate differential.
The actual tax rate in the fourth quarter of 2004, when compared to the
previously anticipated tax rate of 38 percent, generated a positive variance of
$0.03 per share.
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Add Five
New Orders
- ----------
New orders received in the 2004 fourth quarter and fiscal year were $116.5
million and $408.2 million, respectively, resulting in a backlog at September
30, 2004 of $249.1 million. New orders received in Filtration, Communications
and Test were $165.4 million, $116.0 million, and $126.8 million in fiscal year
2004 respectively, and $180.4 million, $102.1 million, and $102.3 million in
fiscal year 2003, respectively.
Cash Flow
- ---------
In the fourth quarter of 2004, the Company generated $21.7 million of free
cash flow from continuing operations. During fiscal year 2004, the Company
generated $44.6 million of free cash flow from continuing operations, and ended
the year with $72.3 million of cash and $0.5 million of debt. Discontinued
operations used $4.1 million of free cash flow. Free cash flow from continuing
operations is defined as "Net Cash Provided by Operating Activities - Continuing
Operations" less "Capital Expenditures - Continuing Operations." For a
reconciliation of free cash flow, see the Exhibits attached to this release.
Stock Repurchase Program
- ------------------------
During the fourth quarter of fiscal 2004, the Company spent approximately
$10 million to repurchase 156,200 shares of its outstanding stock under its
existing stock repurchase program. As of September 30, 2004, the Company has
authorization to repurchase approximately 900,000 shares under the current
program, which expires September 30, 2006.
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Add Six
MicroSep Divestiture
- --------------------
During the fiscal 2004 third quarter, the Company sold its MicroSep
businesses in two separate transactions for approximately $23 million in cash.
The transactions were detailed in earlier releases. In the fourth quarter of
fiscal 2004, the Company recorded the final post-closing balance sheet
adjustments that resulted in a $0.3 million after-tax charge recorded in
discontinued operations.
Chairman's Commentary
- ---------------------
Vic Richey, Chairman and Chief Executive Officer, commented, "Our fiscal
2004 fourth quarter results were better than we anticipated. In addition to the
impact of a lower effective tax rate in the fourth quarter, we also had a broad
based operational contribution to the upside. All three of our operating
segments exceeded the sales and EBIT expectations we had as we entered the
quarter."
Mr. Richey continued, "Reflecting on the full year results, I believe that
our financial performance clearly demonstrated that we met our primary
objective, which was to strengthen our foundation as we begin to add emphasis to
our long-term growth initiatives. In particular, I would point to our EBIT
margin, which grew on an operational basis from 12.8 percent in fiscal 2003 to
14.5 percent in fiscal 2004, our free cash flow from continuing operations which
reached $45 million in fiscal 2004 and the fact that we ended the year with
approximately $72 million of cash net of debt. Collectively, these measures
reflect not only a stronger core but also the capacity we have to fully support
our growth programs and our share repurchase plans."
Addressing the future, Mr. Richey commented, "While we are projecting
modest EPS growth in fiscal year 2005, absent any significant contributions from
major new investor owned
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Add Seven
utility programs or an acquisition, I believe we have positions and
opportunities that support longer term revenue and EPS growth rates that are
consistent with our previously established goals of 10 percent and 15 percent,
respectively. One prominent reason for the moderation of our 2005 EPS outlook is
our plan to significantly increase our support of the Communications business,
in spite of our fiscal 2005 revenue outlook for this segment, which is projected
to be flat to modestly down year-over-year. Specifically, our fiscal 2005
baseline plan includes a year-over-year increase in SG&A of $3.2 million, or 14
percent, in the Communications segment primarily directed at marketing, project
management, and new product development. While this decision will cost us 15
cents of EPS in fiscal 2005, I am convinced, based on the current level of
activity in the IOU segment of the AMR market, that it is appropriate from a
long-term growth perspective.
"From a management standpoint going forward, we are not looking at any
major course corrections. Having stabilized our base through the recently
completed repositioning actions, we are now placing more emphasis on growing the
top line.
"While we will continue to vigorously work our cost and competitive
position, long term revenue growth should play a more prominent role than it has
in the recent past with respect to meeting our long term goals.
Fiscal 2005 Business Outlook
- ------------------------------
Statements contained in the preceding and following paragraphs are based on
current expectations. Statements that are not strictly historical are
forward-looking, and actual results may differ materially.
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Add Eight
The fiscal 2005 Business Outlook described below does not include the
impact of potential acquisitions, or the impact of any significant orders from
new investor owned utility customers that may be entered into during the fiscal
year.
Revenues
- --------
Management expects fiscal 2005 year-over-year revenue growth in Filtration
in the range of 2 to 5 percent. In Test, Management expects revenue growth of 4
to 8 percent, and in Communications, Management expects revenue to be flat to
down 3 percent. The expected decrease in Communications is due to the fiscal
2004 wind-down of the PPL contract that generated $21.6 million in sales, and
the Idaho Power phase one and Bangor Hydro contracts that generated combined
sales of approximately $8.5 million.
EBIT Margin
- -----------
Management expects EBIT margins to be in the following ranges: Filtration
margins should be in the range of 13 to 15 percent; Test margins should be in
the range of 9 to 11 percent; and Communications margins should be in the range
of 27 to 29 percent.
Corporate operating expenses are expected to be consistent with fiscal 2004
amounts.
Earnings Per Share
- ------------------
Management estimates fiscal 2005 EPS to be in the range of $2.95 to $3.15
per share, with the first half of the fiscal year EPS being between $1.50 and
$1.60 per share.
The effective tax rate for fiscal 2005 is expected to be approximately 38
percent.
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Add Nine
Share Repurchase
- ----------------
Management intends to continue its open market share repurchase program
during fiscal 2005, and is currently planning to spend an additional $25 million
to repurchase its outstanding shares in the near term.
Conference Call
- ---------------
The Company will host a conference call today, November 16, at 9:30 a.m.,
Central Time, to discuss the Company's fourth quarter and full 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 today from 12:00 p.m.,
Central Time, until 11:59 p.m., Central Time on November 24, 2004. To access the
replay, dial 1-888-203-1112 and enter the pass code 963844. In addition, a
replay will be available for seven days on the Company's Web site noted above.
Forward-Looking Statements
- --------------------------
Statements in this press release regarding the results of real estate
sales, the level of contributions from each segment, future investments,
potential acquisitions, potential customer contracts, share repurchases, fiscal
2005 corporate operating expenses, the fiscal 2005 effective tax rate, future
fiscal 2005 revenues, EBIT, EPS, SG&A, longer term revenue, earnings, long term
success of the Company, and other written or oral statements which are not
strictly historical are "forward-looking" statements within the meaning of the
safe harbor provisions of the federal securities laws. Investors are cautioned
that such statements are only predictions and speak only as of the date of this
release, and the Company undertakes no duty to update.
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Add Ten
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; technical difficulties; the availability of selected acquisitions; the
timing, pricing and availability of shares offered for sale; 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; delivery delays or defaults by customers;
termination for convenience of customer contracts; timing and magnitude of
future contract awards; performance issues with key suppliers 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.
ESCO, headquartered in St. Louis, is a leading supplier of engineered
filtration products to the process, health care and transportation markets
worldwide. In addition, the Company markets proprietary, special purpose
communications systems and is the industry leader in RF shielding and EMC test
products.
(Tables Attached)
exhibit 1
ESCO Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended September 30, 2004
-------------------------------------
(1)
GAAP Adj. "Operational"
---- ---- -------------
Net Sales $115,608 115,608
Cost and Expenses:
Cost of sales 75,592 75,592
SG&A 20,473 20,473
Interest income (196) (196)
Other expenses, net 377 377
--- --- ---
Total costs and expenses 96,246 - 96,246
------ --- ------
Earnings before income taxes 19,362 - 19,362
Income taxes 6,915 6,915
----- --- -----
Net earnings from
continuing operations 12,447 - 12,447
Loss from discontinued
operations, net of tax - -
Gain (loss) on sale of
discontinued operations,
net of tax (333) 333 (2) -
---- --- ---
Net loss from discontinued
operations (333) 333 -
---- --- ---
Net earnings (loss) $ 12,114 333 12,447
------ --- ------
Earnings (loss)per share:
Basic
Net earnings from continuing
operations $ 0.96 0.96
Net loss from discontinued
operations (0.02) -
----- ----
Net earnings $ 0.94 0.96
==== ====
Diluted
Net earnings from continuing
operations $ 0.93 0.93
Net loss from discontinued
operations (0.02) -
----- ----
Net earnings $ 0.91 0.93
==== ====
Average common shares O/S:
Basic 12,956 12,956
====== ======
Diluted 13,354 13,354
====== ======
(1) Represents results on an adjusted basis, after removing the
item described below in (2).
(2) Relates to the Microfiltration and Separations businesses
which are classified as "discontinued operations." The adjustment
reflects the final post-closing balance sheet adjustment recorded
in the fourth quarter of fiscal 2004.
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EXHIBIT 2
ESCO Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended September 30, 2003
-------------------------------------
(1) (2)
GAAP Adj. "Operational"
---- ---- -------------
Net Sales $105,608 105,608
Cost and Expenses:
Cost of sales 72,198 72,198
SG&A 19,055 (258) (3) 18,797
Interest expense (125) (125)
Other expenses, net 3,345 (1,637) (4) 1,708
----- ------ -----
Total costs and expenses 94,473 (1,895) 92,578
------ ------ ------
Earnings before income taxes 11,135 1,895 13,030
Income taxes 4,660 (473) (5) 4,187
----- ---- -----
Net earnings from
continuing operations 6,475 2,368 8,843
Loss from discontinued operations,
net of tax (2,082) 2,082 (6) -
Gain (loss) on sale of
discontinued operations,
net of tax (60,450) 60,450 (6) -
------- ------ ---
Net loss from discontinued
operations (62,532) 62,532 -
Loss before cumulative effect
of accounting change (56,057) 64,900 8,843
Cumulative effect of accounting
change, net of tax (1,419) 1,419 -
------ ----- ---
Net earnings (loss) $(57,476) 66,319 8,843
======== ====== =====
Earnings (loss) per share:
Basic
Net earnings from
continuing operations $ 0.50 0.69
Net loss from
discontinued operations (4.88) -
Cumulative effect of
accounting change (0.11) -
----- ---
Net earnings $ (4.49) 0.69
====== ====
Diluted
Net earnings from
continuing operations $ 0.49 0.67
Net loss from
discontinued operations (4.71) -
Cumulative effect of
accounting change (0.11) -
----- ---
Net earnings $ (4.33) 0.67
====== ====
Average common shares O/S:
Basic 12,803 12,803
====== ======
Diluted 13,266 13,266
====== ======
- more -
(1) Adjustments represent items previously described in the FY 2003
Gains/Charges of the press release dated November 20, 2003.
(2) Represents results on an adjusted basis, after removing the
items described below in (3)-(6).
(3) Represents severance charges consisting of $258K related to the
exit of the Puerto Rico facility.
(4) Represents the following items: Amount
------
Interest rate swap charge $ 2,556
Whatman recovery (1,300)
Puerto Rico shutdown/move costs & other 202
UK restructuring shutdown costs 179
---
$ 1,637
=====
(5) Represents the tax impact of items described above in (3)-(4).
(6) Relates to the Microfiltration and Separations businesses
which are classified as "discontinued operations."
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EXHIBIT 3
ESCO Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Year Ended September 30, 2004
-----------------------------
GAAP (1)
2004 Adj. "Operational"
---- ---- -------------
Net Sales $422,085 422,085
Cost and Expenses:
Cost of sales 282,766 282,766
SG&A 78,023 (470) (2) 77,553
Interest income (844) (844)
Other expenses, net 1,576 (860) (3) 716
----- ---- ---
Total costs and expenses 361,521 (1,330) 360,191
------- ------ -------
Earnings before income taxes 60,564 1,330 61,894
Income taxes 22,748 305 (4) 23,053
------ --- ------
Net earnings from
continuing operations 37,816 1,025 38,841
Earnings (loss) from
discontinued operations,
net of tax (3,737) 3,737 (5) -
Gain (loss) on sale of
discontinued operations,
net of tax 1,592 (1,592) (5) -
----- ------ ---
Net earnings (loss) from
discontinued operations (2,145) 2,145 -
------ ----- ---
Net earnings $ 35,671 3,170 38,841
====== ===== ======
Earnings (loss) per share:
Basic
Net earnings from
continuing operations $ 2.93 3.01
Net earnings from
discontinued operations (0.17) -
----- ---
Net earnings (loss) $ 2.76 3.01
==== ====
Diluted
Net earnings from
continuing operations $ 2.84 2.91
Net earnings from
discontinued operations (0.16) -
----- ---
Net earnings (loss) $ 2.68 2.91
===== ====
Average common shares O/S:
Basic 12,901 12,901
====== ======
Diluted 13,324 13,324
====== ======
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(1) Represents results on an adjusted basis, after removing the items
described below.
(2) Represents severance charges related to the exit of the Puerto
Rico facility.
(3) Represents shutdown costs related to the exit of the Puerto Rico
facility.
(4) Represents the tax impact of the items described above in
(2)-(3).
(5) Relates to the MicroSep businesses, sold in Q3 of 2004, which are
classified as "discontinued operations."
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EXHIBIT 4
ESCO Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Year Ended September 30, 2003
-----------------------------
GAAP (1) (2)
2003 Adj. "Operational"
---- ---- -------------
Net Sales $396,687 396,687
Cost and Expenses:
Cost of sales 271,164 271,164
Asset impairment 4,528 (4,528) (3) -
SG&A 73,185 (1,971) (4) 71,214
Interest income (217) (217)
Other expenses, net 4,664 (1,325) (5) 3,339
----- ------ -----
Total costs and expenses 353,324 (7,824) 345,500
------- ------ -------
Earnings before income taxes 43,363 7,824 51,187
Income taxes 16,625 1,634 (6) 18,259
------ ----- ------
Net earnings from
continuing operations 26,738 6,190 32,928
Earnings (loss) from
discontinued operations,
net of tax (6,901) 6,901 (7) -
Gain (loss) on sale of
discontinued operations,
net of tax (59,556) 59,556 (7) -
------- ------ ---
Net earnings (loss) from
discontinued operations (66,457) 66,457 -
Earnings (loss) before
cumulative effect of
acctg chg (39,719) 72,647 32,928
Cumulative effect of acctg
chg, net of tax (1,419) 1,419 -
------ ----- ---
Net earnings (loss) $(41,138) 74,066 32,928
======== ====== ======
Earnings (loss)per share:
Basic
Net earnings from
continuing operations $ 2.10 2.60
Net earnings from
discontinued operations (5.24) -
Cumulative effect of
accounting change (0.11) -
----- ---
Net earnings (loss) $ (3.25) 2.60
====== ====
Diluted
Net earnings from
continuing operations $ 2.04 2.51
Net earnings from
discontinued operations (5.06) -
Cumulative effect of
accounting change (0.11) -
----- ---
Net earnings (loss) $ (3.13) 2.51
====== ====
Average common shares O/S:
Basic 12,675 12,675
====== ======
Diluted 13,128 13,128
====== ======
- more -
(1) Adjustments represent items previously described in the FY 2003 Gains/
Charges of the press release dated November 20, 2003.
(2) Represents results on an adjusted basis, after removing the items
described below in (3)-(7).
(3) Represents asset impairment charges of $4,348K related to the
Filtertek Puerto Rico facility shutdown consisting of building
and equipment write-downs; and $180K of costs related to the U.K.
move/restructuring consisting of leasehold improvement write-
downs.
(4) Represents $1,411K of costs related to the previously disclosed MTA
between the Company and its former Chairman; and $560K of
severance charges consisting of $450K related to the exit of the
Filtertek Puerto Rico facility and $110K related to the U.K.
move/restructuring.
(5) Represents the following items: Amount
------
Interest rate swap charge $ 2,556
Whatman MSA settlement 242
Gain from settlement of patent litigation (2,056)
UK restructuring shutdown costs 179
Puerto Rico shutdown/move costs 404
---
$ 1,325
=====
(6) Represents the tax impact of items (3)-(5) described above.
(7) Relates to Rantec Power Systems, Inc., which was divested on
April 11, 2003 and the Microfiltration and Separations businesses
which are classified as "discontinued operations."
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EXHIBIT 5
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information
(Unaudited)
(Dollars in millions)
Three Months Ended Year Ended
September 30 September 30
------------ ------------
2004 2003 2004 2003
---- ---- ---- ----
Net Sales - GAAP
Filtration $ 47.7 43.5 $173.9 164.1
Communications 38.8 36.4 137.8 142.3
Test 29.1 25.7 110.4 90.3
---- ---- ----- ----
Totals $115.6 105.6 $422.1 396.7
====== ===== ====== =====
EBIT - GAAP basis(1)
Filtration (2) $ 7.7 7.3 $ 21.8 18.8
Communications 12.1 7.6 38.4 33.5
Test 3.0 2.9 11.3 7.5 (4)
Corporate (3.6) (6.8)(3) (11.8) (16.7)(5)
---- ---- ----- -----
Totals $ 19.2 11.0 $ 59.7 43.1
==== ==== ==== ====
Note: Amounts presented above exclude the operations of the Microsep
businesses, which are classified as "discontinued operations."
Depreciation and amortization expense for continuing
operations was $11.9 million and $13.5 million for the years
ended September 30, 2004 and 2003, respectively. Previously,
corporate costs were allocated to the operating segments based
on 2.5% of net sales. The 2003 periods have been adjusted to
reflect the change in corporate costs.
(1) EBIT is defined as earnings from continuing operations before
interest and taxes.
(2) The reconciliation to Operational Revenue/EBIT for the Filtration
segment is below:
Q4FY04 Q4FY03
------ ------
Net Sales EBIT Net Sales EBIT
--------- ---- --------- ----
Filtration Segment - GAAP $47.7 7.7 $43.5 7.3
Add: Puerto Rico facility
exit costs - - - 0.5
Less: Whatman MSA gain - - - (1.3)
--- --- --- ----
Filtration Segment-
"Operational" $47.7 7.7 $43.5 6.5
===== === ===== ===
FY04 FY03
---- ----
Net Sales EBIT Net Sales EBIT
--------- ---- --------- ----
Filtration Segment - GAAP $173.9 21.8 $164.1 18.8
Add: Puerto Rico facility
exit costs - 1.3 - 5.2
Less: Gain from settlement
of patent litigation - - - (2.1)
Add: Whatman MSA charge - - - 0.2
--- --- --- ---
Filtration Segment -
"Operational" $173.9 23.1 $164.1 22.1
===== ==== ===== ====
(3) Includes an interest rate swap charge of $2.6 million recorded
in the fourth quarter of fiscal 2003.
(4) Includes a pretax charge of $0.2 million related to the U.K./Test
restructuring recorded in fiscal 2003.
(5) Includes $1.4 million of MTA costs and an interest rate swap
charge of $2.6 million recorded in fiscal 2003.
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EXHIBIT 6
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,
------------- -------------
2004 2003 2004 2003
---- ---- ---- ----
EBIT $19.2 11.0 $59.7 43.1
Interest income 0.2 0.2 0.8 0.2
Less: Income taxes 6.9 4.7 22.7 16.6
--- --- ---- ----
Net earnings from
continuing operations $12.5 6.5 $37.8 26.7
==== === ==== ====
(1) EBIT is defined as earnings from continuing operations before
interest and taxes. Excludes the operations of the MicroSep
businesses, which are classified as "discontinued operations."
EBIT Margin - Operational
2004 2003
---- ----
EBIT $59.7 43.1
Adjustments (2) 1.3 7.8
-- --- ---
EBIT - Operational $61.0 50.9
==== ====
EBIT Margin - Operational
(as a percent of net sales) 14.5% 12.8%
(2) Represents pretax charges in continuing operations as described
in the Exhibits.
EBIT Margin Outlook - FY 2005
- -----------------------------
Filtration EBIT margin in the range of 13 percent to 15 percent,
Test EBIT margin in the range of 9 percent to 11 percent, and
Communications EBIT margin in the range of 27 percent to 29 percent
under "EBIT margin" cannot be reconciled with a GAAP measure as this
represents a forward-looking financial measure with no comparable
GAAP measurement quantifiable at this time.
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EXHIBIT 7
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
September 30, September 30,
2004 2003
---- ----
Assets
Cash and cash equivalents $ 72,281 31,285
Accounts receivable, net 77,729 69,379
Costs and estimated earnings
on long-term contracts 2,476 4,663
Inventories 44,287 48,432
Current portion of deferred
tax assets 27,810 24,187
Other current assets 8,947 6,549
Current assets from discontinued
operations (1) - 21,640
--- ------
Total current assets 233,530 206,135
Property, plant and equipment, net 69,103 71,169
Goodwill 68,949 68,653
Deferred tax assets 10,055 16,618
Other assets 20,803 14,081
Other assets from discontinued
operations (1) - 16,725
--- ------
$402,440 393,381
======= =======
Liabilities and Shareholders' Equity
Short-term borrowings and current
maturities of long-term debt $ 151 10,143
Other current liabilities 68,171 66,097
Current liabilities from
discontinued operations (1) - 9,397
--- -----
Total current liabilities 68,322 85,637
Deferred income 2,738 3,194
Other liabilities 23,396 20,556
Long-term debt 368 490
Liabilities from discontinued
operations (1) - 8,115
Shareholders' equity 307,616 275,389
------- -------
$402,440 $393,381
======= =======
(1) Relates to MicroSep businesses, sold in Q3 of 2004, which are
classified as "discontinued operations."
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EXHIBIT 8
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
FY 2004 FY 2003
------- -------
Cash flows from operating activities:
Net earnings (loss) $ 35,671 (41,138)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Loss from discontinued operations,
net of tax 3,737 6,901
Loss (gain) on sale of discontinued
operations, net of tax (1,592) 59,556
Depreciation and amortization 11,888 13,451
Changes in operating working capital (2,349) (15,669)
Effect of deferred taxes 3,584 10,137
Proceeds from settlement of patent litigation - 7,300
Gain on settlement of patent litigation - (2,056)
Other 4,524 7,441
----- -----
Net cash provided by operating
activities - continuing operations 55,463 45,923
Net cash used by discontinued operations(1) (2,735) (7,907)
------ ------
Net cash provided by operating activities 52,728 38,016
------ ------
Cash flows from investing activities:
Acquisition of businesses - continuing
operations (294) (4,000)
Acquisition of businesses - discontinued
operations (1) - (1,364)
Proceeds from divestiture of businesses 23,275 6,000
Proceeds from note receivable 2,120 -
Capital expenditures-continuing operations (10,823) (10,599)
Capital expenditures-discontinued operations(1) (1,390) (3,528)
------ ------
Net cash provided (used) by investing
activities 12,888 (13,491)
------ -------
Cash flows from financing activities:
Proceeds from long-term debt 378 -
Net increase (decrease) in short-term
borrowings (10,000) 10,000
Principal payments on long-term debt -
continuing operations (516) (31,636)
Principal payments on long-term debt -
discontinued operations (1) (9,024) (621)
Purchases of common stock into treasury (9,981) (1,438)
Other, including exercise of stock options 4,523 5,525
----- -----
Net cash provided by financing activities (24,620) (18,170)
------- -------
Net increase in cash and cash equivalents 40,996 6,355
Cash and cash equivalents, beginning of period 31,285 24,930
------ ------
Cash and cash equivalents, end of period $ 72,281 31,285
====== ======
(1) Relates to the MicroSep and Rantec businesses which are classified
as "discontinued operations."
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EXHIBIT 9
ESCO Technologies Inc. and Subsidiaries
Reconciliation of Free Cash Flow - FY 2004
(Dollars in thousands)
Continuing Discontinued
Operations Operations Total
---------- ---------- -----
Net cash provided by
operating activities $ 55,463 (2,735) 52,728
Less: Capital expenditures (10,823) (1,390) (12,213)
------- ------ -------
Free cash flow $ 44,640 (4,125) 40,515
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EXHIBIT 10
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data
(Unaudited)
(Dollars in thousands)
Backlog And Entered
- -------------------
Orders-Q4 FY 2004 (1) Filtration Comm. Test Total
- --------------------- ---------- ----- ---- -----
Beginning Backlog-
6/30/04 $ 86,612 120,707 40,868 248,187
Entered Orders 38,841 26,758 * 50,901 116,500
Sales (47,700) (38,804)* (29,105) (115,609)
------- ------- ------- --------
Ending Backlog-
9/30/04 $ 77,753 108,661 62,664 249,078
= == == ====== ======= ====== =======
Backlog And Entered
- -------------------
Orders-FY 2004 (1) Filtration Comm. Test Total
- ------------------ ---------- ----- ---- -----
Beginning Backlog-
9/30/03 $ 86,194 130,434 46,342 262,970
Entered Orders 165,419 115,994 * 126,780 408,193
Sales (173,860) (137,767)*(110,458) (422,085)
-------- -------- -------- --------
Ending Backlog-
9/30/04 $ 77,753 108,661 62,664 249,078
= == == ====== ======= ====== =======
(1) Excludes the MicroSep businesses for the period presented.
Q4 FY 2004 Q4 FY FY 2004 FY
Entered 2004 Entered 2004
*Communications Recap: Orders Sales Orders Sales
- ---------------------- ------ ------ ------ ------
AMR Products (DCSI) $ 18,970 35,030 $106,346 132,133
SecurVision Video
Security (Comtrak) 7,788 3,774 9,648 5,634
----- ----- ----- -----
Total 26,758 38,804 115,994 137,767
Orders/Sales to PPL - (1,041) - (21,595)
--- ------ --- -------
Excluding PPL $ 26,758 37,763 $115,994 116,172
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