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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 3, 2006
ESCO TECHNOLOGIES INC.
(Exact Name of Registrant as Specified in Charter)
Missouri 1-10596 43-1554045
(State or Other (Commission (I.R.S. Employer
Jurisdiction of Incorporation) File Number) Identification No.)
9900A Clayton Road, St. Louis, Missouri 63124-1186
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 314-213-7200
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2 (b) under the
Exchange Act (17 CFR 240.14d-2 (b))
[ ] Pre-commencement communications pursuant to Rule 13e-4 (c) under the
Exchange Act (17 CFR 240.113d-4 (c))
ITEM 1.02 TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT
The actions listed below in this Item 1.02 reflect the decision by Charles J.
Kretschmer, currently the President and Chief Operating Officer ("COO") of the
Registrant, to reduce his responsibilities and make more time for his other
interests. Mr. Kretschmer has elected to resign as a director and as President
and COO, but will continue his employment with the Registrant. See Item 5.02
below.
By mutual agreement of the parties on August 3, 2006, the Employment Agreement
between the Registrant and Charles J. Kretschmer, dated as of November 3, 1999,
as amended, has been terminated effective September 30, 2006. This Agreement
covered the compensation and employee benefits to be provided to Mr. Kretschmer
and certain rights in the event of termination of his employment. Further
information concerning this Agreement is incorporated herein by reference to the
Registrant's Proxy Statement dated December 21, 2005 under the heading
"EMPLOYMENT AGREEMENTS."
Also by mutual agreement of the parties on August 3, 2006, Mr. Kretschmer's
participation in the Registrant's Severance Plan, adopted August 10, 1995 and
restated February 5, 2002, has been terminated effective September 30, 2006.
This Plan provided that in the event of a change in control of the Registrant,
Mr. Kretschmer would continue to be employed for a two-year period with
specified compensation and employee benefits. Further information concerning
this Plan is incorporated herein by reference to the Registrant's Proxy
Statement dated December 21, 2005 under the heading "SEVERANCE PLAN."
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Today, August 8, 2006, the Registrant is issuing a press release (Exhibit 99.1
to this report) announcing its fiscal 2006 third quarter financial and operating
results. See Item 7.01, Regulation FD Disclosure below.
ITEM 5.02 DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS;
ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS
Charles J. Kretschmer, a director and President and COO of the Registrant,
resigned as a director effective August 3, 2006. On that date, he also submitted
his resignation as President and COO, to become effective September 30, 2006.
See Item 1.02 above. After September 30, 2006, Mr. Kretschmer will become a Vice
President (a non-"executive officer" position) of the Registrant with
responsibility primarily for acquisition / divestiture activity, contract
manufacturing for the Communications segment, selected major contract
negotiations and profit improvement initiatives. Mr. Kretschmer has been
President and COO of the Registrant since October 2002.
Victor L. Richey, Jr., currently Chairman and Chief Executive Officer ("CEO") of
the Registrant, will also become President effective September 30, 2006. Mr.
Richey has been CEO of the Registrant since October 2002. Since April 2003, he
has also been Chairman. Further information concerning Mr. Richey is
incorporated herein by reference to (i) the Registrant's Proxy Statement dated
December 21, 2005 under the headings "NOMINEES AND CONTINUING DIRECTORS" and
"EMPLOYMENT AGREEMENTS", and (ii) Registrant's Form 10-K for the fiscal year
ended September 30, 2005 under the heading "EXECUTIVE OFFICERS OF THE
REGISTRANT."
ITEM 7.01 REGULATION FD DISCLOSURE
Today, the Registrant is issuing a press release announcing its fiscal 2006
third quarter financial and operating results, and will conduct a related
Webcast conference call at 4:00 p.m. central time. This press release is
furnished herewith as Exhibit 99.1, and will be posted on the Registrant's
website located at http://www.escotechnologies.com. It can be viewed through the
"Investor Relations" page of the website under the tab "Press Releases,"
although the Registrant reserves the right to discontinue that availability at
any time.
NON-GAAP FINANCIAL MEASURES
The press release furnished herewith as Exhibit 99.1 contains financial measures
and financial terms not calculated in accordance with generally accepted
accounting principles in the United States of America ("GAAP") in order to
provide investors and management with an alternative method for assessing the
Registrant's operating results in a manner that is focused on the performance of
the Registrant's ongoing operations. The Registrant has provided definitions
below for the non-GAAP financial measures utilized in the press release,
together with an explanation of why management uses these measures, and why
management believes that these non-GAAP financial measures are useful to
investors. The press release uses the non-GAAP financial measures of "EBIT" and
"EBIT margin".
The Registrant defines "EBIT" as earnings before interest and taxes. The
Registrant defines "EBIT margin" as EBIT as a percent of net sales. The
Registrant's management evaluates the performance of its operating segments
based on EBIT and EBIT margin, and believes that EBIT and EBIT margin are useful
to investors to demonstrate the operational profitability of the Registrant's
business segments by excluding interest and taxes, which are generally accounted
for across the entire Registrant on a consolidated basis. EBIT is also one of
the measures used by management in determining resource allocations within the
Registrant and incentive compensation.
The presentation of the information described above is intended to supplement
investors' understanding of the Registrant's operating performance. The
Registrant's non-GAP 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 August 8, 2006
OTHER MATTERS
The information in this report furnished pursuant to Item 2.02 or Item 7.01,
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: August 8, 2006 By: /s/ G.E. Muenster
G.E. Muenster
Senior Vice President and
Chief Financial Officer
Exhibit 99.1
ESCO Technologies Inc.
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 THIRD QUARTER RESULTS
St. Louis, MO, August 8, 2006 - ESCO Technologies Inc. (NYSE: ESE) today
announced its results for the fiscal 2006 third quarter ended June 30, 2006.
Within this release, references to "quarters" and "year-to-date" relate to the
fiscal quarters and nine month periods ended June 30 for the respective fiscal
years noted.
3rd Quarter Earnings Summary:
- -----------------------------
($ in millions) 3rd Qtr 3rd Qtr
2006 2005 Delta
---- ---- -----
Net Sales $ 123.6 108.8 13.6%
Pretax Earnings 16.2 14.7 10.2%
Tax Expense / Rate 5.1 31.3% 2.3 15.7% 121.7%
--- --- -----
Net Earnings $ 11.2 12.4 (9.7%)
==== ====
EPS $ 0.42 0.47 (10.6%)
==== ====
Net earnings and earnings per share were lower in the third quarter of 2006
compared to the prior year period as a result of changes in the effective tax
rate. The effective tax rate in the third quarter of 2006 was 31.3 percent and
was favorably impacted by 6.0 percentage points as a result of a $1.0 million
research tax credit recognized in the quarter. The 2005 third quarter effective
tax rate was 15.7 percent, and was favorably impacted by a true-up in the
estimate of foreign-sourced income, primarily in Puerto Rico.
YTD Earnings Summary:
- ---------------------
($ in millions)
9 Mon. 9 Mon.
2006 2005 Delta
---- ---- -----
Net Sales $ 337.1 319.3 5.6%
Pretax Earnings 35.7 48.1 (25.8)%
Tax Expense / Rate 15.0 42.0% 14.8 30.8% 1.4%
---- ---- ---
Net Earnings $ 20.7 33.4 (38.0%)
====== ==== =====
EPS $ 0.78 1.27 (38.6%)
====== ==== =====
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Add One
The primary drivers of the lower net earnings and earnings per share in the
2006 year-to-date period include:
o An additional $3.0 million of non-cash amortization expenses related to
identifiable intangible assets from recent acquisitions, and TNG software
amortization.
o A significantly higher effective tax rate in 2006 of 42.0 percent compared
to 30.8 percent in 2005, primarily due to the $1.7 million foreign cash
repatriation charge recognized in the 2006 second quarter, along with lower
foreign-sourced income in 2006 compared to 2005.
o A $16.2 million increase in SG&A expenses comprised of the following items:
$9.3 million from the current year Nexus and Hexagram acquisitions; an
additional $5.2 million relating to engineering, sales and marketing, and
new product development in the Communications segment; and stock option
expense of $1.7 million.
o Lower sales of high margin defense spares and T-700 shipments at VACCO, and
lower sales of Comtrak's SecurVision video security products.
o Fiscal 2005 year-to-date results included $1.6 million in sales and $1.9
million of pretax earnings at Filtertek from the termination and settlement
of a supply agreement ("Supply Agreement") with a medical device customer
which was not repeated in 2006.
o The above items were partially offset by improved operating results in 2006
from the additional sales of RF Test equipment, commercial aerospace
products, and Automatic Meter Reading (AMR) devices for gas and water
utilities.
Sales
- -----
Third quarter 2006 sales were $123.6 million, or 13.6 percent higher than
third quarter 2005 sales of $108.8 million. Acquisitions accounted for $9.5
million of the $14.8 million sales increase. Favorable foreign currency values
in the 2006 third quarter resulted in an additional $1.1 million of sales.
Fiscal 2006 year-to-date sales were $337.1 million, or 5.6 percent higher
than the $319.3 million in sales for first nine months of 2005, primarily due to
the Nexus and Hexagram acquisitions which contributed $17.2 million of sales
since their respective acquisition dates. Unfavorable foreign currency values
year-to-date in 2006 resulted in a $0.6 million negative sales comparison.
- more -
Add Two
Communications sales of $49.2 million increased $18.1 million, or 58.2
percent in the 2006 third quarter compared to the third quarter of 2005 as a
result of the following items: Sales to TXU Electric Delivery (TXU) increased
$8.9 million to $10.2 million; $9.5 million of sales from the Nexus and Hexagram
acquisitions; and additional sales to COOP customers which increased $1.9
million; partially offset by lower sales to the Puerto Rico Electric Power
Authority (PREPA) which decreased $2.9 million; and lower shipments of Comtrak's
SecurVision video security products which decreased $0.8 million. During the
2006 third quarter, DCSI's sales to COOP and public power (Municipal) customers
were $25.0 million compared to $23.1 million in the third quarter of 2005.
Year-to-date Communications sales, excluding acquisitions, decreased $6.3
million in 2006 primarily due to the $8.5 million decrease in SecurVision sales,
partially offset by an increase of $2.2 million in sales of DCSI's AMR products.
Filtration segment sales of $42.6 million decreased $2.1 million, or 4.7
percent during the third quarter of 2006 compared to the prior year period due
to the following items: a $3.0 million decrease in sales at VACCO resulting from
lower deliveries of defense spares and T-700 valves; a net $0.2 million decrease
in sales at Filtertek primarily due to the Supply Agreement settlement which
contributed $1.6 million in sales in the 2005 third quarter; partially offset by
$1.1 million of additional sales at PTI due to the continued strength of the
commercial aerospace market. Year-to-date Filtration sales decreased $0.6
million in 2006 primarily due to lower defense spares sales at VACCO, partially
offset by increases at PTI and Filtertek.
Test segment sales of $31.8 million decreased $1.2 million, or 3.6 percent,
during the third quarter of 2006 due to lower foreign embassy shielding projects
in the current year and the timing of completion of a large chamber project in
Japan. Year-to-date Test sales increased $7.6 million, or 8.5 percent, to $96.5
million in 2006 as the overall wireless and electronics markets remained strong.
Earnings Before Interest and Taxes (EBIT)
- -----------------------------------------
On a segment basis, items that impacted EBIT dollars and EBIT as a percent
of sales ("EBIT margin") during the third quarter of fiscal 2006 included the
following.
In the Communications segment, EBIT for the 2006 third quarter was $11.4
million (23.2 percent of sales), compared to $8.2 million (26.4 percent of
sales) in the prior year third quarter. The primary sources of the $3.2 million
increase in EBIT dollars include: a $3.6 million increase from DCSI resulting
from the increased sales in the quarter; partially offset by a $0.4 million
decrease related to SecurVision. Nexus and Hexagram's combined EBIT was
breakeven and
- more -
Add Three
excludes the amortization of identifiable intangible assets. The 2006
year-to-date Communications segment EBIT decreased $8.3 million versus 2005
primarily due to the decrease in SecurVision sales described above, changes in
the AMR related sales mix, and higher SG&A spending.
In the Filtration segment, the 2006 third quarter EBIT was $5.2 million
(12.2 percent of sales), compared to $5.9 million (13.2 percent of sales) in the
prior year third quarter. This $0.7 million decrease in the third quarter was
the result of: a $1.3 million reduction in EBIT at VACCO resulting from the
decreased sales of high margin defense spares; partially offset by $0.9 million
increase at PTI related to additional sales volume resulting from continued
strength in the commercial aerospace market. Additionally, the 2005 third
quarter and nine month EBIT amounts included $1.0 million and $1.9 million from
the Supply Agreement settlement at Filtertek which was not repeated in 2006.
Year-to-date Filtration EBIT decreased $4.0 million primarily due to: a $3.8
million decrease at VACCO related to lower defense spares sales; a $1.7 million
net decrease in EBIT at Filtertek resulting from the absence of the Supply
Agreement settlement; partially offset by a $1.4 million increase in EBIT at
PTI.
In the Test segment, EBIT of $4.0 million (12.6 percent of sales) increased
in the third quarter of 2006 from $3.3 million (10.0 percent of sales) due to
favorable changes in sales mix. The 2006 third quarter included a lower amount
of foreign embassy shielding projects, which in the prior year incurred higher
installation costs on projects located in volatile areas of the world. The
year-to-date EBIT increased $2.6 million over prior year, and the EBIT margin
improved to 11.7 percent of sales from 9.8 percent of sales due to favorable
leverage on the additional sales volume and a larger percentage of higher margin
component sales. In addition, EBIT was negatively impacted in the nine months of
2005 as a result of higher costs incurred on the foreign shielding projects.
The Corporate office operating expenses were $1.4 million higher in the
third quarter of 2006 compared to 2005 and included $1.0 million of pretax
amortization of identifiable intangible assets related to recent acquisitions
and $0.6 million of pretax expenses related to stock options. Year-to-date,
Corporate expenses were $2.4 million higher than prior year and included: $1.9
million of amortization expense; $1.7 million of pretax stock option expense;
and higher professional fees; partially offset by the 2006 second quarter pretax
gain of $1.8 million recognized on the reversal of the liability related to an
indemnity owed to a former defense subsidiary.
- more -
Add Four
Effective Tax Rate
- ------------------
For the 2006 third quarter, the Company's effective tax rate was 31.3
percent versus 15.7 percent for the third quarter of 2005. The effective tax
rate in the 2006 third quarter was favorably impacted by 6.0 percentage points
as a result of a $1.0 million research tax credit recognized in the quarter. The
2005 third quarter effective tax rate was favorably impacted by a true-up in the
estimate of foreign-sourced income, primarily in Puerto Rico.
The 2006 year-to-date effective tax rate of 42.0 percent, compared to 30.8
in 2005, included a $1.7 million non-cash charge related to the repatriation of
$28.7 million of foreign cash in the 2006 second quarter.
New Orders
- ----------
New orders received were $109.1 million and $106.2 million in the third
quarters of 2006 and 2005, respectively, resulting in a backlog of $260.0
million at June 30, 2006.
New orders received in the third quarter of 2006 compared to the third
quarter of 2005, respectively, were: in Filtration, $49.6 million and $39.2
million; in Communications, $29.7 million and $37.4 million; and in Test, $29.8
million and $29.6 million.
During 2006, year-to-date orders were $134.0 million in Filtration, $144.4
million in Communications, and $85.6 million in Test for a nine month total of
$363.9 million, compared to year-to-date 2005 orders of $321.6 million.
Cash
- ----
At June 30, 2006, the Company had $35.3 million in cash and no outstanding
debt, compared to $20.9 million cash and no debt at March 31, 2006. During the
third quarter of 2006, the Company generated $14.4 million of cash.
Stock Repurchase Program
- ------------------------
On August 3, 2006, the Company's Board of Directors authorized a stock
repurchase program whereby Management may repurchase up to 1.2 million shares of
its outstanding common stock in the open market and otherwise throughout the
period ending September 30, 2008.
Chairman's Commentary
- ---------------------
Vic Richey, Chairman and Chief Executive Officer, commented, "On an
operating basis, our third quarter performance in the aggregate was consistent
with our expectations. Our current view of the full year earnings remains within
the range of our previous guidance.
"Perhaps the most significant event since our second quarter release was
the California Public Utility Commission's (CPUC) recent approval of PG&E's AMI
program, which includes equipping over nine million meters with a combination of
DCSI and Hexagram products.
- more -
Add Five
"Also of significance with respect to building our AMR business, in June,
Hexagram established a distribution alliance with Neptune Technology Group which
will significantly increase our reach in the stand-alone water AMR market.
Neptune is a market leader in the water industry and accessing its extensive
distribution network should significantly accelerate our growth in the large,
but highly fragmented municipal water market. In my view, Neptune's desire to be
aligned with Hexagram is further evidence that the shift we are seeing in the
water AMR market to fixed network solutions will continue and we expect it to
accelerate in the future. We are seeing substantially increased activity in the
major municipal markets, along with a heightened desire for the broader range of
benefits that can be derived from a fixed network solution.
"As I have suggested previously, our top priority is to capitalize on the
extraordinary opportunities in the rapidly developing AMI/AMR market. The CPUC's
approval and the Neptune alliance are important milestones in that regard. In
addition to continuing our efforts in support of the PG&E program, we have
established a structured initiative aimed at enhancing our AMI offering through
the integration of our technologies and accelerating our growth through the
unification of our sales and marketing efforts. We are also actively considering
other opportunities to augment our product suite to provide further
differentiation from our competitors. While AMI/AMR remains our highest
priority, we continue to expect solid performance across all our businesses."
Management Changes
- ------------------
Mr. Richey continued, "Effective August 3rd, we have reduced the number of
active Directors on our Board from eight to seven, and have reduced the number
of inside Directors from two to one. This change was made in conjunction with
Chuck Kretschmer's resignation from our Board of Directors. Chuck will continue
in his role as President and Chief Operating Officer through September 30, 2006,
after which time he will stay on with the Company for an indefinite period of
time with narrower responsibilities primarily supporting our key initiatives,
including M&A activities and various profit improvement projects currently
underway.
"After September 30, I will assume the additional title of President, and
Chuck's previous operational responsibilities will be assumed in part by Gary
Muenster, our Senior Vice President and Chief Financial Officer, and in part by
our current Filtration management team.
"After more than 28 years with the Company, we respect Chuck's desire to
make more time for his other interests, and we appreciate his willingness to
continue to support some of our key initiatives after September 30."
- more -
Add Six
Business Outlook
- ----------------
Statements contained in the preceding and following paragraphs are based on
current expectations. Statements that are not strictly historical are considered
forward-looking, and actual results may differ materially.
The Business Outlook described below includes the expected operating
results of Nexus and Hexagram since their respective acquisition dates, as well
as the amortization of identifiable intangible assets.
The Business Outlook for the balance of 2006 does not include the tax
impact of any potential fourth quarter repatriation activities related to the
approximately $13 million of foreign cash outstanding at June 30, 2006, or any
additional research tax credits.
Purchase Accounting - Identifiable Intangible Assets
- ----------------------------------------------------
As described in the May 9, 2006 earnings release, Management completed its
purchase accounting valuation related to the identifiable intangible assets for
Nexus and Hexagram. The total amount of identifiable intangible assets subject
to amortization was $9.3 million. The estimated lives for these assets ranged
from six months for certain contracts in backlog, to seven years for certain
patents and proprietary know-how.
The 2006 pretax amortization charges related to these identifiable
intangible assets were $1.0 million in the third quarter, and year-to-date was
$1.9 million. The pretax charge in the fourth quarter is expected to be $0.8
million, for a total fiscal 2006 pretax charge of $2.7 million. The total pretax
amortization expense for fiscal year 2007 is expected to be $2.1 million,
decreasing to approximately $1.0 million in subsequent years. These amortization
charges are recorded in the Corporate operating segment in the attached
exhibits.
Earnings Per Share - 2006
- -------------------------
Management now estimates 2006 EPS to be in the range of $1.10 to $1.15 per
share. The May 9, 2006 EPS guidance range for 2006 was $1.05 to $1.15 per share.
In fiscal 2006, the Company began expensing stock options. This expense for
2006 which is included in the EPS guidance, is expected to be in the range of
$0.08 to $0.11 per share, or $0.02 to $0.03 per quarter.
The effective tax rate for the fourth quarter of fiscal 2006 is expected to
be approximately 38 percent and does not include the effect of the above
mentioned fourth quarter foreign cash repatriation tax expense or any additional
research tax credits.
- more -
Add Seven
Revenues and EBIT Margins
- -------------------------
Management expects 2006 consolidated revenues to be in the range of $455 to
$460 million and consolidated EBIT margins should be in the range of 10 to 11
percent reflecting the impact of the amortization of identifiable intangible
assets.
On a segment and operating unit basis for 2006, Management now expects the
following (as compared to the May 9, 2006 Business Outlook):
o PTI sales are expected to be between $46 and $47 million (versus $43
to $45 million) and EBIT margins should be in the range of 13 to 14
percent (versus 12 to 13 percent).
o VACCO's outlook remains unchanged with sales expected to be between
$31 and $32 million and EBIT margins in the range of 20 to 21 percent.
o Filtertek sales are expected to be in the range of $94 to $96 million
(versus $93 to $95 million) and the EBIT margin outlook remains
unchanged and should be in the range of 7 to 8 percent.
o The Test segment outlook remains unchanged with sales expected in the
range of $126 and $129 million and EBIT margins in the range of 10.5
to 11.5 percent.
o The Communications segment outlook remains unchanged with sales
expected to be between $156 and $159 million and EBIT margins in the
range of 18 to 20 percent. Nexus sales since the date of acquisition
(10 months) are expected to be in the range of $10 to $12 million and
EBIT should be slightly negative. Hexagram sales since the date of
acquisition (8 months) are expected to be in the range of $17 to $19
million and EBIT margins should be in the low single digits based on
the significant investment in SG&A to support sales and marketing as
well as the expected ramp up of the PG&E contract. Sales of AMR
products at DCSI are expected to be in the range of $121 to $122
million and do not include any revenues associated with the PG&E
contract as software acceptance is not expected until the latter part
of fiscal 2007. DCSI's EBIT margin is expected to be 24 to 25 percent
including approximately $2.1 million of costs as a result of DCSI
beginning to amortize the capitalized development costs related to the
TNG software. TNG has been in development with a third party software
contractor for the past two years. TNG is being designed and deployed
to efficiently handle the additional levels of communications dictated
by the size of the service territories and the frequency of reads that
are required under time-of-use or critical peak
- more -
Add Eight
pricing scenarios needed to meet the requirements of large IOUs. The
Company has incurred approximately $35 million in external TNG
development costs through June 30, 2006, which are included on the
balance sheet in other assets, and is expected to incur another $7 to
$12 million in costs over the next two years. TNG amortization expense
for fiscal 2006 is expected to be $2.1 million and for 2007 is
anticipated to be approximately $7.0 million. Additional non-TNG
related engineering and development costs are being incurred as period
costs.
o Corporate operating costs for 2006 are expected to be in the range of
$15 to $16 million and include the following items: $2.7 million of
pretax amortization of identifiable intangible assets related to Nexus
and Hexagram; the pretax costs related to the adoption of stock option
expensing which began in fiscal 2006 and is expected to be
approximately $2.2 to $2.4 million; partially offset by the $1.8
million pretax gain recognized in the second quarter of 2006
associated with the reversal of a liability connected with the legacy
defense contract noted above.
Conference Call
- ---------------
The Company will host a conference call today, August 8, at 4:00 p.m.,
Central Time, to discuss the Company's third quarter operating results. A live
audio webcast will be available on the Company's Web site at
www.escotechnologies.com. Please access the Web site at least 15 minutes prior
to the call to register, download and install any necessary audio software.
A replay of the conference call will be available for seven days on the
Company's website noted above or by phone (dial 1-888-203-1112 and enter the
pass code 6788431).
Forward-Looking Statements
- --------------------------
Statements in this press release regarding fiscal 2006 revenues, results,
earnings, sales, EBIT, EBIT margins, EPS, sales and EBIT margins on a
consolidated basis and on a segment and operating unit basis, pretax
amortization expenses in fiscal 2006, 2007 and beyond, achievement of strategic
objectives, the success of product development efforts, fiscal 2006 corporate
operating expenses, fiscal 2006 effective tax rate, long term success of the
Company, stock option expensing, TNG amortization expense in fiscal 2006,
successful development of the TNG software, and the timing and amount of costs
to be incurred over the next two years in connection with the TNG software, the
ultimate number of DCSI and Hexagram products deployed by PG&E, expected ramp-up
of the PG&E contract, the timing of the software acceptance by PG&E, the success
of the Hexagram alliance with Neptune, Hexagram sales in the water market, the
Company's expectations for the water market, and any other written or oral
statements which are not strictly historical are "forward-looking" statements
within the meaning
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Add Nine
of the safe harbor provisions of the federal securities laws. Investors are
cautioned that such statements are only predictions and speak only as of the
date of this release, and the Company undertakes no duty to update. The
Company's actual results in the future may differ materially from those
projected in the forward-looking statements due to risks and uncertainties that
exist in the Company's operations and business environment including, but not
limited to: PG&E's Board of Directors or PG&E's Management impacting PG&E's AMI
projects; the success of the Company's competitors; changes in or the effect of
the Federal Energy Bill; the timing and success of DCSI's software development
efforts; the timing and content of purchase order releases under the PG&E
contracts; DCSI's and Hexagram's successful performance of the PG&E contracts;
weakening of economic conditions in served markets; changes in customer demands
or customer insolvencies; competition; intellectual property rights; technical
difficulties; unforeseen charges impacting corporate operating expenses; the
performance of the Company's international operations; successful execution of
the planned sale of the Company's Puerto Rico facility; material changes in the
costs of certain raw materials including steel, copper and petroleum-based
resins; delivery delays or defaults by customers; termination for convenience of
customer contracts; timing and magnitude of future contract awards; containment
of engineering and development costs; performance issues with key customers,
suppliers and subcontractors; labor disputes; changes in laws and regulations
including but not limited to changes in accounting standards and taxation
requirements; changes in foreign or U.S. business conditions affecting the
distribution of foreign earnings; costs relating to environmental matters;
litigation uncertainty; successful integration of newly acquired businesses; and
the Company's successful execution of internal operating plans.
ESCO, headquartered in St. Louis, is a proven supplier of special purpose
communications systems for electric, gas and water utilities, including hardware
and software to support advanced metering applications. In addition, the Company
provides engineered filtrations products to the transportation, health care and
process markets worldwide and is the industry leader in RF shielding and EMC
test products. Further information regarding ESCO and its subsidiaries is
available on the Company's website at www.escotechnologies.com.
- tables attached -
Add Ten
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
June 30, 2006
-------------
Net Sales $ 123,626
Cost and Expenses:
Cost of sales 77,152
Amortization of intangible assets 2,554
SG&A 28,385
Interest (income) expense (195)
Other (income) expenses, net (513)
----
Total costs and expenses 107,383
-------
Earnings before income taxes 16,243
Income taxes 5,080
-----
Net earnings $ 11,163
======
Earnings per share:
Basic
Net earnings $ 0.43
====
Diluted
Net earnings $ 0.42
====
Average common shares O/S:
Basic 25,790
======
Diluted 26,441
======
- more -
Add Eleven
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
June 30, 2005
-------------
Net Sales $ 108,800
Cost and Expenses:
Cost of sales 71,732
Asset impairment 790
Amortization of intangible assets 475
SG&A 21,662
Interest (income) expense (534)
Other (income) expenses, net (38)
---
Total costs and expenses 94,087
------
Earnings before income taxes 14,713
Income taxes 2,312
-----
Net earnings 12,401
======
Earnings per share:
Basic
Net earnings $ 0.49
====
Diluted
Net earnings $ 0.47
====
Average common shares O/S:
Basic 25,424
======
Diluted 26,188
======
- more -
Add Twelve
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Nine Months Ended
June 30, 2006
-------------
Net Sales $ 337,096
Cost and Expenses:
Cost of sales 221,654
Amortization of intangible assets 4,603
SG&A 78,574
Interest (income) expense (1,012)
Other (income) expenses, net (2,440)
------
Total costs and expenses 301,379
-------
Earnings before income taxes 35,717
Income taxes 15,006
------
Net earnings $ 20,711
======
Earnings per share:
Basic
Net earnings $ 0.81
====
Diluted
Net earnings $ 0.78
====
Average common shares O/S:
Basic 25,678
======
Diluted 26,418
======
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Add Thirteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Nine Months Ended
June 30, 2005
-------------
Net Sales $ 319,335
Cost and Expenses:
Cost of sales 209,070
Asset impairment 790
Amortization of intangible assets 1,463
SG&A 62,395
Interest (income) expense (1,317)
Other (income) expenses, net (1,207)
------
Total costs and expenses 271,194
-------
Earnings before income taxes 48,141
Income taxes 14,790
------
Net earnings $ 33,351
======
Earnings per share:
Basic
Net earnings $ 1.31
====
Diluted
Net earnings $ 1.27
====
Average common shares O/S:
Basic 25,442
======
Diluted 26,226
======
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Add Fourteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information
(Unaudited)
(Dollars in millions)
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
2006 2005 2006 2005
---- ---- ---- ----
Net Sales
PTI $ 11.4 10.3 33.8 30.6
VACCO 6.6 9.6 22.9 28.8
Filtertek 24.6 24.8 72.3 70.2
---- ---- ---- ----
Filtration subtotal 42.6 44.7 129.0 129.6
Communications 49.2 31.1 111.6 100.8
Test 31.8 33.0 96.5 88.9
---- ---- ---- ----
Totals $123.6 108.8 337.1 319.3
====== ===== ===== =====
EBIT
PTI $ 1.5 0.6 4.3 2.8
VACCO 1.4 2.7 4.7 8.5
Filtertek 2.3 2.6 5.0 6.7
--- --- --- ---
Filtration subtotal 5.2 5.9 14.0 18.0
Communications 11.4 8.2 20.1 28.4
Test 4.0 3.3 11.3 8.7
Corporate (4.6)(1) (3.2) (10.7)(2) (8.3)
---- ---- ----- ----
Totals $ 16.0 14.2 34.7 46.8
==== ==== ==== ====
Note: Depreciation and amortization expense was $5.2 million and
$3.2 million for the quarters ended June 30, 2006 and 2005,
respectively, and $12.4 million and $9.3 million for the nine-
month periods ended June 30, 2006 and 2005, respectively.
(1) Corporate EBIT includes $1.0 million of amortization of acquired
intangible assets related to the acquisitions of Nexus Energy and
Hexagram, Inc.
(2) Corporate EBIT includes the following items:
EBIT
----
ASG-21 Gain $1.8
Amort. of acquired intangibles ($1.9)
-----
Total ($0.1)
=====
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Add Fifteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Dollars in millions)
EBIT (1) - As Reported
Three Months Ended Nine Months Ended
June 30, June 30,
-------- --------
2006 2005 2006 2005
---- ---- ---- ----
EBIT $16.0 14.2 34.7 46.8
Interest income 0.2 0.5 1.0 1.3
Less: Income taxes 5.0 2.3 15.0 14.7
--- --- ---- ----
Net earnings $11.2 12.4 20.7 33.4
==== ==== ==== ====
(1) EBIT is defined as earnings from continuing operations before
interest and taxes.
EBIT Margin Outlook - FY 2006
- -----------------------------
Consolidated EBIT margin in the range of 10 percent to 11 percent,
PTI EBIT margin in the range of 13 percent to 14 percent, VACCO
EBIT margin in the range of 20 percent to 21 percent, Filtertek
EBIT margin in the range of 7 percent to 8 percent, Test segment
EBIT margin in the range of 10.5 percent to 11.5 percent,
Communications segment EBIT margin in the range of 18 percent to
20 percent, and DCSI EBIT margin in the range of 24 percent to
25 percent under "Business Outlook" cannot be reconciled with a
GAAP measure as this represents a forward-looking measure with no
comparable GAAP measurement quantifiable at this time.
- more -
Add Sixteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
June 30, September 30,
2006 2005
---- ----
Assets
- ------
Cash and cash equivalents $ 35,258 104,484
Accounts receivable, net 82,744 68,819
Costs and estimated earnings
on long-term contracts 2,321 4,392
Inventories 50,208 48,645
Current portion of deferred
tax assets 26,616 30,219
Other current assets 11,487 8,394
------ -----
Total current assets 208,634 264,953
Property, plant and equipment, net 69,363 67,190
Goodwill 143,677 68,880
Deferred tax assets - -
Other assets 63,783 27,697
------ ------
$485,457 428,720
======== =======
Liabilities and Shareholders' Equity
- ------------------------------------
Accounts payable $ 46,918 29,299
Other current liabilities 39,031 33,458
------ ------
Total current liabilities 85,949 62,757
Deferred income 6,452 3,134
Other liabilities 34,235 31,805
Long-term debt - -
Shareholders' equity 358,821 331,024
------- -------
$485,457 428,720
======== =======
- more -
Add Seventeen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
June 30 2006
------------
Cash flows from operating activities:
Net earnings $ 20,711
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 12,407
Stock compensation expense 3,660
Changes in operating working capital 13,005
Effect of deferred taxes 444
Other (2,831)
------
Net cash provided by operating activities 47,396
Cash flows from investing activities:
Acquisition of businesses (91,468)
Capital expenditures (6,753)
Additions to capitalized software (24,413)
-------
Net cash used by investing activities (122,634)
--------
Cash flows from financing activities:
Proceeds from / payments of long-term debt -
Purchases of common stock into treasury -
Other, including exercise of stock options 6,012
-----
Net cash provided by financing activities 6,012
-----
Net decrease in cash and cash equivalents (69,226)
Cash and cash equivalents, beginning of period 104,484
-------
Cash and cash equivalents, end of period $ 35,258
======
- more -
Add Eighteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data
(Unaudited)
(Dollars in thousands)
Backlog And Entered
- -------------------
Orders-Q3 FY 2006 Filtration Comm. Test Total
- ----------------- ---------- ----- ---- -----
Beginning Backlog
3/31/06 $ 78,389 140,069 56,016 274,474
Entered Orders 49,590 29,731 * 29,795 109,116
Sales (42,565) (49,251)* (31,810) (123,626)
------- ------- ------- --------
Ending Backlog-
6/30/06 $ 85,414 120,549 54,001 259,964
====== ======= ====== =======
Backlog And Entered
- -------------------
Orders-YTD FY 2006 Filtration Comm. Test Total
- ------------------ ---------- ----- ---- -----
Beginning Backlog-
9/30/05 $ 80,497 87,781 64,836 233,114
Entered Orders 133,977 144,391 * 85,578 363,946
Sales (129,060) (111,623)* (96,413) (337,096)
-------- -------- ------- --------
Ending Backlog-
6/30/06 $ 85,414 120,549 54,001 259,964
====== ======= ====== =======
Q3 FY YTD FY
2006 Q3 FY 2006 YTD FY
Entered 2006 Entered 2006
*Communications Recap: Orders Sales Orders Sales
- ---------------------- ------ ----- ------ ------
AMR Products (DCSI) $16,670 38,249 101,075 90,009
SecurVision Video
Security (Comtrak) 1,517 1,517 4,411 4,417
Nexus Energy 6,232 2,459 23,550 6,329(1)
Hexagram 5,312 7,026 15,355 10,868(2)
----- ----- ------ --------
Total 29,731 49,251 144,391 111,623
====== ====== ======= =======
(1) Represents seven months of sales.
(2) Represents five months of sales.
# # #