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19
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 MARCH 31, 2004
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 63124-2090
(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 stock outstanding at April 30, 2004 was
12,936,295.
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
March 31,
---------
2004 2003
---- ----
Net sales $ 102,171 101,996
Costs and expenses:
Cost of sales 70,781 69,640
Selling, general and administrative
expenses 19,111 18,327
Interest income (483) (158)
Other, net 513 2,300
--- -----
Total costs and expenses 89,922 90,109
------ ------
Earnings before income taxes 12,249 11,887
Income tax expense 4,684 4,549
----- -----
Net earnings from continuing operations 7,565 7,338
Loss from discontinued operations, net of
tax of $551 and $627, respectively (2,200) (1,707)
------ ------
Net earnings $ 5,365 5,631
------ -----
Earnings (loss) per share:
Basic - Continuing operations $ 0.59 $ 0.58
- Discontinued operations (0.17) (0.13)
----- -----
- Net earnings $ 0.42 $ 0.45
===== =====
Diluted - Continuing operations $ 0.57 $ 0.56
- Discontinued operations (0.17) (0.13)
----- -----
- Net earnings $ 0.40 $ 0.43
===== ====
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
Six Months Ended
March 31,
---------
2004 2003
---- ----
Net sales $ 198,567 200,285
Costs and expenses:
Cost of sales 137,051 136,197
Selling, general and administrative
expenses 37,880 36,391
Interest income (519) (269)
Other, net 1,127 2,816
----- -----
Total costs and expenses 175,539 175,135
------- -------
Earnings before income taxes 23,028 25,150
Income tax expense 8,875 9,338
----- -----
Net earnings from continuing operations 14,153 15,812
Loss from discontinued operations, net of
tax of $1,208 and $1,345, respectively (2,637) (3,629)
------ ------
Net earnings $ 11,516 12,183
====== ======
Earnings (loss) per share:
Basic - Continuing operations $ 1.10 $ 1.26
- Discontinued operations (0.20) (0.29)
----- -----
- Net earnings $ 0.90 $ 0.97
===== ====
Diluted - Continuing operations $ 1.06 $ 1.21
- Discontinued operations (0.19) (0.28)
----- -----
- Net earnings $ 0.87 $ 0.93
===== ====
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31, September 30,
2004 2003
---- ----
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 40,672 31,285
Accounts receivable, less allowance for doubtful
accounts of $653 and $734, respectively 66,314 69,379
Costs and estimated earnings on long-term
contracts, less progress billings of
$8,331 and $5,089, respectively 4,456 4,663
Inventories 51,080 48,432
Current portion of deferred tax assets 23,446 24,187
Other current assets 4,817 6,549
Current assets from discontinued operations 23,405 21,640
------ ------
Total current assets 214,190 206,135
------- -------
Property, plant and equipment, at cost 127,988 122,791
Less accumulated depreciation and amortization 56,575 51,622
------ ------
Net property, plant and equipment 71,413 71,169
Goodwill 68,886 68,653
Deferred tax assets 16,432 16,618
Other assets 15,958 14,081
Other assets from discontinued operations 13,904 16,725
------ ------
400,783 393,381
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $ 440 10,143
Accounts payable 35,540 34,940
Advance payments on long-term contracts, less costs
incurred of $1,143 and $1,728, respectively 2,661 1,144
Accrued expenses and other current liabilities 27,108 30,013
Current liabilities from discontinued operations 10,633 9,397
------ -----
Total current liabilities 76,382 85,637
------ ------
Deferred income 2,966 3,194
Other liabilities 20,439 20,556
Long-term debt 513 490
Other liabilities from discontinued operations 9,395 8,115
----- -----
Total liabilities 109,695 117,992
------- -------
Commitments and contingencies -- --
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
13,990,723 and 13,933,193 shares, respectively 140 139
Additional paid-in capital 218,351 216,506
Retained earnings 91,807 80,292
Accumulated other comprehensive loss (2,667) (4,982)
------ ------
307,631 291,955
Less treasury stock, at cost: 1,103,102 and 1,105,052
common shares, respectively (16,543) (16,566)
------- -------
Total shareholders' equity 291,088 275,389
------- -------
400,783 393,381
======= =======
See accompanying notes to consolidated financial statements.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
March 31,
2004 2003
---- ----
Cash flows from operating activities:
Net earnings $11,516 12,183
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net loss from discontinued operations 2,637 3,629
Depreciation and amortization 5,904 5,796
Changes in operating working capital 2,309 (8,455)
Effect of deferred taxes 186 2,912
Other 1,768 3,025
----- -----
Net cash provided by operating activities
- continuing operations 24,320 19,090
Net cash used by discontinued operations (2,246) (3,315)
------ ------
Net cash provided by operating activities 22,074 15,775
Cash flows from investing activities:
Acquisition of business - continuing operations - (4,000)
Acquisition of business - discontinued operations - (1,364)
Proceeds from Riverhead note receivable 2,120 -
Capital expenditures - continuing operations (4,803) (4,121)
Capital expenditures - discontinued operations (1,379) (1,897)
------ ------
Net cash used by investing activities (4,062) (11,382)
------ -------
Cash flows from financing activities:
Net decrease in short-term borrowings (9,635) (54)
Proceeds from long-term debt 378 -
Principal payments on long-term debt (76) (626)
Other (including exercise of stock options) 708 1,014
--- -----
Net cash (used) provided by financing
activities (8,625) 334
------ ---
Net increase in cash and cash equivalents 9,387 4,727
Cash and cash equivalents, beginning of period 31,285 24,930
------ ------
Cash and cash equivalents, end of period $40,672 29,657
======= ======
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, 2003. Certain prior year amounts have been reclassified to
conform to the fiscal 2004 presentation.
The results for the three and six month periods ended March 31, 2004 are
not necessarily indicative of the results for the entire 2004 fiscal year.
2. DISCONTINUED OPERATIONS
Microfiltration and Separations Businesses (MicroSep) - In July 2003, the
Company announced its decision to sell the MicroSep businesses in the
Filtration/Fluid Flow segment, and therefore, these businesses were
recorded as discontinued operations beginning in the fourth quarter of
fiscal 2003. The net sales from the MicroSep businesses were $12.0 million
and $10.2 million for the three-month periods ended March 31, 2004 and
2003, respectively and $23.9 million and $21.2 million for the six-month
periods ended March 31, 2004 and 2003, respectively. Effective April 2,
2004, the Company completed the sale of two of its three MicroSep
businesses. PTI Advanced Filtration Inc. (Oxnard, California) and PTI
Technologies Limited (Sheffield, England) were sold to domnick hunter group
plc for $18 million in cash.
The major classes of discontinued assets and liabilities included in the
Consolidated Balance Sheets at March 31, 2004 and September 30, 2003 are
shown below (in thousands). The Company will retain the deferred tax assets
shown below and plans to repay the outstanding long-term borrowings with
Bank of America (included in Other liabilities below).
March 31, 2004 September 30, 2003
-------------- ------------------
Assets:
Accounts receivable, net $11,685 10,728
Inventories 9,920 8,778
Current portion of deferred tax assets 1,337 1,379
Other current assets 463 755
--- ---
Current assets 23,405 21,640
------ ------
Net property, plant & equipment 10,967 9,096
Deferred tax assets 2,791 7,493
Other assets 146 136
--- ---
Total assets of Discontinued
Operations 37,309 38,365
====== ======
Liabilities:
Accounts payable $ 5,865 4,522
Accrued expenses and other current
liabilities 4,768 4,875
----- -----
Current liabilities 10,633 9,397
Other liabilities 9,395 8,115
----- -----
Total liabilities of Discontinued
Operations $20,028 17,512
======= ======
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 (performance 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 Six Months Ended
March 31, March 31,
--------- ---------
2004 2003 2004 2003
---- ---- ---- ----
Weighted Average Shares
Outstanding - Basic 12,874 12,627 12,857 12,590
Dilutive Options and
Performance Shares 451 445 448 466
--- --- --- ---
Adjusted Shares- Diluted 13,325 13,072 13,305 13,056
====== ====== ====== ======
Options to purchase 104,050 shares of common stock at prices ranging from
$45.36 - $48.58 and options to purchase approximately 76,500 shares of
common stock at prices ranging from $34.58 - $36.33 were outstanding during
the six month periods ended March 31, 2004 and 2003, 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 2014. Approximately
16,000 and 52,000 performance 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 March 31, 2004 and 2003,
respectively.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure, an Amendment of FASB Statement
No. 123," (SFAS 148) to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. The Company previously adopted the disclosure-only provisions of
SFAS 123. Under APB 25, no compensation cost was recognized for the
Company's stock option plans. Had compensation cost for the Company's stock
option plans and performance share plans been determined based on the fair
value at the grant date for awards outstanding during the three and
six-month periods ended March 31, 2004 and 2003 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 Six Months Ended
March 31, March 31,
--------- ---------
2004 2003 2004 2003
---- ---- ---- ----
Net earnings, as reported $5,365 5,631 11,516 12,183
Less: total stock-based
employee compensation expense
determined under fair value
based methods, net of tax 286 617 548 1,235
--- --- --- -----
Pro forma net earnings $5,079 5,014 10,968 10,948
====== ===== ====== ======
Net earnings per share:
Basic - as reported $ 0.42 0.45 0.90 0.97
Basic - pro forma $ 0.39 0.40 0.85 0.87
====== ==== ==== ====
Diluted - as reported $ 0.40 0.43 0.87 0.93
Diluted - pro forma $ 0.38 0.38 0.82 0.84
====== ==== ==== ====
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 six-month periods ended March
31, 2004 and 2003, respectively: expected dividend yield of 0% in both
periods; expected volatility of 20.0% and 38.8%; risk-free interest rate of
3.8% and 3.8%; and expected life based on historical exercise periods of
4.22 years and 4.25 years.
4. INVENTORIES
Inventories consist of the following (in thousands):
March 31, September 30,
2004 2003
---- ----
Finished goods $13,578 12,449
Work in process,
including long- term contracts 16,126 14,611
Raw materials 21,376 21,372
------ ------
Total inventories $51,080 48,432
======= ======
5. COMPREHENSIVE INCOME
Comprehensive income for the three-month periods ended March 31, 2004 and
2003 was $5.2 million and $5.8 million, respectively. Comprehensive income
for the six-month periods ended March 31, 2004 and 2003 was $13.8 million
and $13.6 million, respectively. For the six months ended March 31, 2004,
the Company's comprehensive income was positively impacted by foreign
currency translation adjustments of approximately $2.3 million.
6. BUSINESS SEGMENT INFORMATION
The Company is organized based on the products and services that it offers.
Under this organizational structure, the Company operates in three
segments: Filtration/Fluid Flow, Communications and Test.
Management evaluates and measures the performance of its operating segments
based on "Net Sales" and "EBIT", which are detailed in the table below.
EBIT is defined as earnings from continuing operations before interest and
taxes. Effective October 1, 2003, corporate office operating charges are no
longer being allocated to the operating units. Previously, corporate costs
were allocated to the operating segments based on 2.5% of the segment's net
sales. The prior year period has been adjusted to reflect the change in
corporate office operating charges. "Corporate" consists of those
unallocated corporate office operating charges, which were included in the
"Other" operating segment in fiscal 2003 and prior periods. The table below
is presented for continuing operations and excludes discontinued
operations.
($ in millions) Three Months ended Six Months Ended
March 31, March 31
--------- --------
NET SALES 2004 2003 2004 2003
--------- ---- ---- ---- ----
Filtration/Fluid Flow $ 42.2 39.9 82.1 79.0
Communications 30.4 37.8 61.8 77.4
Test 29.6 24.3 54.7 43.9
---- ---- ---- ----
Consolidated totals $102.2 102.0 198.6 200.3
====== ===== ===== =====
EBIT
Filtration/Fluid Flow $ 4.2(1) 3.4(2) 7.7(3) 9.1(2)
Communications 7.2 9.8 14.6 20.1
Test 3.3 2.4 5.5 3.7
Corporate (2.9) (3.9)(4) (5.3) (8.0)(5)
---- ---- -- ---- ---- --
Consolidated EBIT 11.8 11.7 22.5 24.9
Add: Interest income 0.5 0.2 0.5 0.3
--- --- --- ---
Earnings before income
taxes $ 12.3 11.9 23.0 25.2
====== ==== ==== ====
The items listed below were described in detail in previous filings.
(1) Includes $0.6 million of exit costs related to the Filtertek Puerto
Rico facility.
(2) Includes a $1.5 million charge resulting from an equipment lease
termination related to the Whatman Hemasure MSA dispute.
(3) Includes $1.3 million of exit costs related to the Filtertek Puerto
Rico facility.
(4) Includes $0.7 million of costs related to the Management Transition
Agreement (MTA)
between the Company and its former Chairman.
(5) Includes $1.4 million of costs related to the MTA.
7. 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
six-month periods ended March 31, 2004 and 2003 are shown in the following
tables. Net periodic benefit cost for each period presented is comprised of
the following:
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
(Dollars in thousands) 2004 2003 2004 2003
---- ---- ---- ----
Defined benefit plans
Service cost $ 140 463 $ 280 1,019
Interest cost 623 675 1,245 1,491
Expected return on assets (675) (700) (1,350) (1,400)
Amortization of:
Prior service cost -- -- -- 47
Actuarial (gain) loss 100 112 200 318
--- --- --- ---
Net periodic benefit cost $ 188 550 $ 375 1,475
==== === ==== =====
Net periodic postretirement benefit cost for each period presented is
comprised of the following:
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
(Dollars in thousands) 2004 2003 2004 2003
---- ---- ---- ----
Service cost $ 11 $ 5 $ 16 $ 10
Interest cost 17 25 25 50
Amortization of actuarial gain (12) (30) (25) (60)
--- --- --- ---
Net periodic postretirement
benefit cost $ 16 $ -- $ 16 $ --
==== == ==== ==
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following discussion refers to the Company's results from continuing
operations, except where noted. The Microfiltration and Separations businesses
(MicroSep) 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 all periods shown. In addition,
at March 31, 2003, Rantec Power Systems Inc. was also accounted for as a
discontinued operation.
NET SALES Net sales were $102.2 million and $102.0 million for the fiscal
quarters ended March 31, 2004 and 2003, respectively. Net sales for the
six-month periods ended March 31, 2004 and 2003 were $198.6 million and $200.3
million, respectively.
- -Filtration/Fluid Flow Net sales increased $2.3 million (5.8%) to $42.2 million
for the second quarter of fiscal 2004 from $39.9 million for the second quarter
of fiscal 2003. Net sales increased $3.1 million (3.9%) to $82.1 million for the
first six months of fiscal 2004 from $79.0 million for the first six months of
fiscal 2003. The sales increase during the fiscal quarter ended March 31, 2004
as compared to the prior year quarter is mainly due to the following: higher
defense shipments at VACCO of $1.4 million, higher commercial and military
aerospace shipments at PTI of $0.6 million and a net sales increase at Filtertek
of $0.4 million primarily driven by the favorable impact of foreign currency
exchange rates. The sales increase for the first six months of fiscal 2004 as
compared to the prior year period is mainly due to the following: higher defense
shipments at VACCO of $2.1 million and a net sales increase at Filtertek of $1.7
million primarily driven by the favorable impact of foreign currency exchange
rates, partially offset by a $0.6 million decline in sales of commercial
aerospace products.
- -Communications For the second quarter of fiscal 2004, net sales of $30.4
million were $7.4 million, or 19.6% lower than the $37.8 million of net sales
recorded in the second quarter of fiscal 2003. Net sales of $61.8 million in the
first six months of fiscal 2004 were $15.6 million, or 20.2% lower than the
$77.4 million recorded in the first six months of fiscal 2003. The sales
decreases in the second quarter of fiscal 2004 and the first six months of
fiscal 2004 as compared to the prior year periods are the result of a decline in
shipments of Automatic Meter Reading (AMR) products to PPL Electric Utilities
Corporation (PPL) as the contract is nearing completion. Sales to PPL were $7.4
million and $15.2 million in the fiscal quarters ended March 31, 2004 and 2003,
respectively, and $19.9 million and $37.8 million in the first six months of
fiscal 2004 and 2003, respectively. The PPL contract is scheduled for completion
in the fourth quarter of fiscal 2004. The Company expects sales to PPL to be
less than $1.0 million in the second half of fiscal 2004. The decrease in sales
to PPL was partially offset by significantly higher AMR product sales to the
electric utility cooperative (COOP) market and other customers. Sales to COOP
and other customers were $22.5 million and $19.9 million in the fiscal quarters
ended March 31, 2004 and 2003, respectively, and were $41.0 million and $33.7
million for the first six months of fiscal 2004 and 2003, respectively.
Sales of Comtrak's SecurVision products were $0.4 million for the second quarter
of fiscal 2004 as compared to $2.7 million for the prior year second quarter and
$0.9 million for the first six months of fiscal 2004 as compared to $5.8 million
for the prior year six-month period. The decreases in sales for the second
quarter of fiscal 2004 and in the first six months of fiscal 2004 as compared to
the prior year periods are due to a delay in deliveries as a result of a
significant customer requesting Comtrak to modify its software operating system
to provide enhanced "virus" protection within the product. Normal sales volumes
are anticipated to resume during the third quarter of fiscal 2004.
- -Test Net sales increased $5.3 million (21.8%) to $29.6 million for the second
quarter of fiscal 2004 from $24.3 million for the second quarter of fiscal 2003.
Net sales increased $10.8 million (24.6%) to $54.7 million for the first six
months of fiscal 2004 from $43.9 million for the first six months of fiscal
2003. The sales increase during the fiscal quarter ended March 31, 2004 as
compared to the prior year quarter is mainly due to higher sales of test
chambers of approximately $5.7 million, primarily driven by two projects in
Europe. The sales increase for the first six months of fiscal 2004 as compared
to the prior year period is mainly due to the following: higher sales of test
chambers of approximately $8.5 million, primarily driven by two projects in
Europe; the acoustics business (which includes results of operations for two
quarters in the current year compared to one quarter in the prior year), which
contributed $1.7 million to the increase in sales for the first six months of
fiscal 2004 and an increase in sales from the Company's Asian operations of
approximately $0.5 million
ORDERS AND BACKLOG Backlog was $259.5 million at March 31, 2004 compared with
$263.0 million at September 30, 2003. The Company received new orders totaling
$195.1 million in the first six months of fiscal 2004. New orders of $86.3
million were received in the first six months of fiscal 2004 related to
Filtration/Fluid Flow products, $57.5 million related to Communications products
(includes $56.6 million of new orders related to AMR products, primarily for the
COOP market), and $51.3 million related to Test products. Backlog decreased in
the Communications segment due to $19.9 million of shipments to PPL during the
first six months of fiscal 2004.
COST OF SALES Cost of sales was $70.8 million (69.3% of net sales) and $69.6
million (68.3% of net sales) for the second quarter of fiscal 2004 and 2003,
respectively. Cost of sales was $137.1 million (69.0% of net sales) and $136.2
million (68.0% of net sales) for the first six months of fiscal 2004 and 2003,
respectively. Cost of sales as a percent of net sales increased slightly in the
second quarter of fiscal 2004 and the first six months of fiscal 2004 as
compared to the prior year periods mainly due to dual facility costs in the
Filtration/Fluid Flow segment as a result of the closure of the Puerto Rico
facility and ramp-up in Mexico and lower margins on the Company's commercial
aerospace products. The closure and relocation of the Puerto Rico facility was
completed in March 2004.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
(SG&A) expenses for the second quarter of fiscal 2004 were $19.1 million (18.7%
of net sales), compared with $18.3 million (18.0% of net sales) for the prior
year period. For the first six months of fiscal 2004, SG&A expenses were $37.9
million (19.1% of net sales) compared with $36.4 million (18.2% of net sales)
for the prior year period. The increase in SG&A spending in the fiscal quarter
ended March 31, 2004 and in the first six months of fiscal 2004 as compared to
the respective prior year periods is mainly due to the costs associated with
research and development, engineering, and marketing within the Communications
segment to further penetrate the investor owned utility market. In addition, the
acoustics business acquired in fiscal 2003 had $0.9 million of SG&A expenses in
the first six months of fiscal 2004 (two quarters) compared to $0.5 million in
the prior year period (one quarter). SG&A also includes severance charges
related to the closure of the Puerto Rico facility of $0.2 million in the second
quarter of fiscal 2004 and $0.5 million in the first six months of fiscal 2004.
The first six months of fiscal 2003 included $1.4 million of SG&A expenses
related to the MTA, as described in previous filings.
OTHER COSTS AND EXPENSES, NET Other costs and expenses, net, were $0.5 million
for the quarter ended March 31, 2004 compared to $2.3 million for the prior year
quarter. Other costs and expenses, net, were $1.1 million for the first six
months of fiscal 2004 compared to $2.8 million for the prior year period. The
principal component of other costs and expenses, net, for the fiscal quarter
ended March 31, 2004 included $0.5 million of exit costs related to the Puerto
Rico facility. Principal components of other costs and expenses, net, for the
first six months of fiscal 2004 included $0.9 million of exit costs related to
the Puerto Rico facility and $0.5 million of amortization of identifiable
intangible assets (primarily patents and licenses). Principal components of
other costs and expenses, net, for the first six months of fiscal 2003 included
a $1.5 million charge resulting from an equipment lease termination related to
the previously disclosed Whatman MSA dispute (Filtration/Fluid Flow segment) and
$0.5 million of amortization of patents and licenses.
EBIT The Company evaluates the performance of its operating segments based on
EBIT, defined below. EBIT was $11.8 million (11.5% of net sales) for the second
quarter of fiscal 2004 and $11.7 million (11.5% of net sales) for the second
quarter of fiscal 2003. For the first six months of fiscal 2004, EBIT was $22.5
million (11.3% of net sales) and $24.9 million (12.4% of net sales) for the
first six months of fiscal 2003. EBIT in the second quarter of fiscal 2004 was
negatively impacted by the cost of sales and SG&A items mentioned earlier, which
included $0.6 million of severance and exit costs related to the Puerto Rico
facility (Filtration/Fluid Flow segment). EBIT for the first six months of
fiscal 2004 was negatively impacted by the cost of sales and SG&A items
mentioned earlier, which included $1.3 million of severance and exit costs
related to the Filtertek Puerto Rico facility (Filtration/Fluid Flow segment).
EBIT for the six-month period ended March 31, 2003 was negatively impacted by
$1.4 million of MTA costs and a $1.5 million charge resulting from an equipment
lease termination related to the Whatman Hemasure MSA dispute (Filtration/Fluid
Flow segment).
This Form 10-Q contains the financial measure "EBIT", which is not calculated in
accordance with generally accepted accounting principles in the United States of
America (GAAP). EBIT provides investors and Management with an alternative
method for assessing the Company's operating results. The Company defines "EBIT"
as earnings from continuing operations before interest and taxes. Management
evaluates the performance of its operating segments based on EBIT and believes
that EBIT is useful to investors to demonstrate the operational profitability of
the Company's business segments by excluding interest and taxes, which are
generally accounted for across the entire Company on a consolidated basis. EBIT
is also one of the measures Management uses to determine resource allocations
within the Company and incentive compensation. The following table represents a
reconciliation of EBIT to net earnings from continuing operations.
Three Months ended Six Months ended
($ in thousands) March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
EBIT $11,766 $11,729 22,509 24,881
Add: Interest income 483 158 519 269
Less: Income taxes 4,684 4,549 8,875 9,338
----- ----- ----- -----
Net earnings from
continuing operations $ 7,565 $ 7,338 14,153 15,812
======= ======= ====== ======
- -Filtration/Fluid Flow EBIT was $4.2 million and $3.4 million in the second
quarters of fiscal 2004 and 2003, respectively, and $7.7 million and $9.1
million in the first six months of fiscal 2004 and 2003, respectively. For the
second quarter of fiscal 2004 as compared to the prior year quarter, EBIT
increased $0.8 million due to higher defense shipments at VACCO. For the first
six months of fiscal 2004 as compared to the prior year period, EBIT decreased
approximately $1.4 million due to the following: a $1.8 million decrease at PTI
due to lower shipments of commercial aerospace products and changes in the sales
mix of military aftermarket products; a $1.0 million decrease at Filtertek due
to $1.3 million of exit costs related to the Puerto Rico facility; partially
offset by a $1.4 million increase at VACCO due to higher defense shipments. The
closure and relocation of the Puerto Rico facility was completed in March 2004.
Management expects the Puerto Rico facility to be sold within the next twelve
months.
- -Communications
EBIT in the second quarter of fiscal 2004 was $7.2 million as compared to $9.8
million in the prior year period. For the first six months of fiscal 2004, EBIT
was $14.6 million as compared to $20.1 million in the prior year period. The
decrease in EBIT in the second quarter of fiscal 2004 and in the first six
months of fiscal 2004 as compared to the prior year periods is mainly due to
lower shipments of AMR equipment to PPL as the contract is nearing completion.
The Company continues 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.
In addition, Comtrak's EBIT decreased approximately $0.8 million in the second
quarter of fiscal 2004 and $1.9 million in the first six months of fiscal 2004
as compared to the respective prior year periods due to the decreased sales as a
result of the software modifications noted earlier.
- -Test
EBIT in the second quarter of fiscal 2004 was $3.3 million as compared to
$2.4 million in the prior year period. For the first six months of fiscal 2004,
EBIT increased $1.8 million to $5.5 million from $3.7 million in fiscal 2003.
The increases in EBIT as compared to the prior year periods are mainly due to
the increases in sales volume.
- -Corporate
Corporate costs included in EBIT were ($2.9) million and ($5.3) million for the
three and six-month periods ended March 31, 2004, respectively, compared to
($3.9) million and ($8.0) million for the respective prior year periods. EBIT
for the first six months of fiscal 2003 included $1.4 million of MTA costs. The
decrease in corporate costs for the first six months of fiscal 2004 as compared
to the prior year period is also due to lower operating costs, including
personnel related costs.
INTEREST INCOME, NET
Interest income, net, was $0.5 million for both the three and six-month periods
ended March 31, 2004, compared to $0.2 million and $0.3 million for the
respective prior year periods. The increase in interest income for the second
quarter of fiscal 2004 and in the first six months of fiscal 2004 as compared to
the respective prior year periods is due to higher average cash balances on hand
in fiscal 2004 and the interest received on the collection of the Riverhead note
receivable, see further discussion below.
INCOME TAX EXPENSE
The second quarter fiscal 2004 effective income tax rate was 38.2% compared to
38.3% in the second quarter of fiscal 2003. The effective income tax rate in the
first six months of fiscal 2004 was 38.5% compared to 37.1% in the prior year
period. The increase in the effective income tax rate in the first six months of
fiscal 2004 is primarily due to the timing and volume of profit contributions of
the Company's foreign operations. The Company estimates the annual effective tax
rate for fiscal 2004 to be approximately 38%, excluding the effect of
discontinued operations.
CAPITAL RESOURCES AND LIQUIDITY
Working capital increased to $137.8 million at March 31, 2004 from $120.5
million at September 30, 2003. During the first six months of fiscal 2004,
accounts receivable decreased by $3.1 million due to cash collections during the
period. Inventories increased by $2.6 million in the first six months of fiscal
2004 mainly to provide safety stock to support the facility relocations related
to the Filtertek Puerto Rico move (Filtration/Fluid Flow segment) and to support
near term demand in the Test segment. In addition, accounts payable and accrued
expenses decreased by $2.3 million in the first six months of fiscal 2004
primarily due to the timing of payments.
Net cash provided by operating activities from continuing operations increased
$5.2 million to $24.3 million in the first six months of fiscal 2004, compared
to $19.1 million in the same period of fiscal 2003, mainly due to lower working
capital investments in the current period.
Capital expenditures from continuing operations were $4.8 million and $4.1
million in the first six months of fiscal 2004 and 2003, respectively. Major
expenditures in the current period included manufacturing equipment and facility
modifications used in the Filtration/Fluid Flow businesses. The Company has
approximately $4 million in capital commitments in the Communications segment to
further differentiate its products and to further penetrate the investor owned
utility market. This amount will be spent within the next six months.
On February 18, 2004, the Company received $2.1 million as final payment on the
note receivable from the sale of the Riverhead, NY property and recorded the
excess over book value of $0.3 million as interest income.
Effective September 5, 2003, the Company amended its existing revolving credit
facility. The amended credit facility continues to have $5 million annual
reductions, a $25 million increase option through April 11, 2004 (which has
expired) and a final maturity and expiration of April 11, 2005. At March 31,
2004, the Company had not exercised the $25 million increase option and the
revolving line of credit was $65 million. At March 31, 2004, the Company had
approximately $52.7 million available to borrow under the credit facility in
addition to $40.7 million cash on hand. Against the $65 million available under
the revolving credit facility at March 31, 2004, the Company had $9.2 million of
outstanding long-term borrowings related to the Bea acquisition (included in
"Other liabilities from discontinued operations") and outstanding letters of
credit of $3.1 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
Effective April 2, 2004, the Company completed the sale of two of its three
Microfiltration and Separations (MicroSep) businesses. PTI Advanced Filtration
Inc. (Oxnard, California) and PTI Technologies Limited (Sheffield, England) were
sold to domnick hunter group plc for $18 million in cash. Management expects to
complete the sale of the remaining MicroSep business, PTI S.p.A. (Milan, Italy)
prior to September 30, 2004. PTI S.p.A. will continue to be accounted for as a
discontinued operation through the date of its divestiture.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires Management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the accompanying consolidated financial statements. In preparing these
financial statements, Management has made its best estimates and judgments of
certain amounts included in the financial statements, giving due consideration
to materiality. The Company does not believe there is a great likelihood that
materially different amounts would be reported under different conditions or
using different assumptions related to the accounting policies described below.
However, application of these accounting policies involves the exercise of
judgment and use of assumptions as to future uncertainties and, as a result,
actual results could differ from these estimates. The Company's senior
Management discusses the accounting policies described below with the Audit and
Finance Committee of the Company's Board of Directors on a periodic basis.
The following discussion of critical accounting policies is intended to bring to
the attention of readers those accounting policies which Management believes are
critical to the Consolidated Financial Statements and other financial
disclosure. It is not intended to be a comprehensive list of all significant
accounting policies that are more fully described in Note 1 of the Notes to the
Consolidated Financial Statements included in the 2003 Annual Report on Form
10-K.
The Company has identified the following areas as critical accounting policies.
Revenue Recognition
The majority of the Company's revenues are recognized when products are shipped
to or when services are performed for unaffiliated customers. Other revenue
recognition methods the Company uses include the following: Revenue on
production contracts is recorded when specific contract terms are fulfilled,
usually by delivery or acceptance. Revenues from cost reimbursement contracts
are recorded as costs are incurred, plus fees earned. Revenue under long-term
contracts, for which delivery is an inappropriate measure of performance, is
recognized on the percentage-of-completion method based upon incurred costs
compared to total estimated costs under the contract. Revenue under engineering
contracts is generally recognized as milestones are attained. The Company has
certain revenue arrangements with multiple elements within the Test segment. For
such arrangements, the Company determines the fair value of each element under
the provisions of EITF 00-21, "Revenue Arrangements with Multiple Deliverables."
Revenue of each element is then recognized when the products and/or services are
delivered. Revenue arrangements with software components are recognized under
the provisions of SOP 97-2, "Software Revenue Recognition." Management believes
that all relevant criteria and conditions are considered when recognizing
revenue.
Accounts Receivable
Accounts receivable have been reduced by an allowance for amounts that may
become uncollectible. This estimated allowance is based primarily on
Management's evaluation of the financial condition of the customer and
historical bad debt experience.
Inventory
Inventories are valued at the lower of cost (first-in, first-out) or market
value and have been reduced by an allowance for excess, slow-moving and obsolete
inventories. The estimated allowance is based on Management's review of
inventories on hand compared to historical usage and estimated future usage and
sales. Inventories under long-term contracts reflect accumulated production
costs, factory overhead, initial tooling and other related costs less the
portion of such costs charged to cost of sales and any unliquidated progress
payments. In accordance with industry practice, costs incurred on contracts in
progress include amounts relating to programs having production cycles longer
than one year, and a portion thereof may not be realized within one year.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Deferred tax assets may be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company regularly reviews its deferred tax
assets for recoverability and establishes a valuation allowance when Management
believes it is more likely than not such assets will not be recovered, taking
into consideration historical operating results, expectations of future
earnings, and the expected timing of the reversals of existing temporary
differences.
Goodwill and Other Long-Lived Assets
The Company adopted the provisions of SFAS No. 142 effective October 1, 2001.
Management annually reviews goodwill and other long-lived assets with indefinite
useful lives for impairment or whenever events or changes in circumstances
indicate the carrying amount may not be recoverable. If indicators of impairment
are present, the determination of the amount of impairment for long-lived assets
with definite lives is based on Management's judgment as to the future operating
cash flows to be generated from these assets throughout their estimated useful
lives. SFAS No. 142 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 144.
Pension Plans and Other Postretirement Benefit Plans
The measurement of liabilities related to pension plans and other
post-retirement benefit plans is based on Management's assumptions related to
future events including interest rates, return on pension plan assets, rate of
compensation increases, and health care cost trend rates. Actual pension plan
asset performance will either decrease or increase unamortized pension losses
that will affect net earnings in future years. Depending upon the performance of
the equity and bond markets in 2004, the Company could be required to record a
charge to equity.
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On December 23, 2003, the FASB issued FASB Statement No. 132 (Revised 2003),
"Employers' Disclosures about Pensions and Other Postretirement Benefits." This
standard increases the existing GAAP disclosure requirements by requiring more
detailed information about pension plan assets, benefit obligations, cash flows,
benefit costs and related information. Companies will be required to segregate
plan assets by category, such as debt, equity and real estate, and to provide
certain expected rates of return and other informational disclosures. The
provisions of this standard were adopted in the second quarter of fiscal 2004.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the Act) became law in the United States. The Act introduces a
prescription drug benefit under Medicare as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide a benefit that is at
least actuarially equivalent to the Medicare benefit. In accordance with FASB
Staff Position FAS 106-1, "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003," the
Company has elected to defer recognition of the effects of the Act in any
measures of the benefit obligation or cost. Specific authoritative guidance on
the accounting for the federal subsidy is pending and that guidance, when
issued, could require the Company to change previously reported information.
Currently, the Company does not believe it will need to amend its plan to
benefit from the Act.
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 made in connection with the Company's accounting policies, annual
effective tax rate, SecurVision sales volumes, results of sale of real estate
in Puerto Rico, results of PTI S.p.A. divestiture, and capital requirements and
operational needs for the foreseeable future. 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: the timing and terms of the PTI S.p.A. divestiture; weakening of
economic conditions in served markets; changes in customer demands or customer
insolvencies; competition; intellectual property rights; the performance of
discontinued operations prior to completion of the PTI S.p.A. divestiture;
successful execution of planned sales with regard to 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.
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, 2003. Refer to the
Company's 2003 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 are effective. 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 have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibit
Number
3(a) Restated Articles of Incorporated by reference to Form 10-K
Incorporation for the fiscal year ended
September 30, 1999, at Exhibit 3(a)
3(b) Amended Certificate of Incorporated by reference to Form 10-Q
Designation Preferences for the fiscal quarter ended March 31,
and Rights of Series A 2000, at Exhibit 4(e)
Participating Cumulative
Preferred Stock of the
Registrant
3(c) Articles of Merger effective Incorporated by reference to Form10-Q
July 10, 2000 for the fiscal quarter ended June 30,
2000, at Exhibit 3(c)
3(d) Bylaws, as amended and Incorporated by reference to Form10-K
restated. for the fiscal year ended September 30,
2003, at Exhibit 3.4
4(a) Specimen Common Stock Incorporated by reference to Form10-Q for
Certificate the fiscal quarter ended June 30, 2000,
at Exhibit 4(a)
4(b) Specimen Rights Certificate Incorporated by reference to Exhibit B to
Exhibit 4.1 to the Registrant's Current
Report on Form 8-K dated February 3, 2000
4(c) Rights Agreement dated as of Incorporated by reference to Current
September 24, 1990 (as amended Report on Form 8-K dated February 3,
and Restated as of February 3, 2000, at Exhibit 4.1
2000) between the Registrant
and Registrar and Transfer
Company, as successor Rights
Agent
4(d) Amended and Restated Credit Incorporated by reference to Form 10-Q
Agreement dated as of for the fiscal quarter ended March 31,
February 28, 2001 among the 2001, at Exhibit 4(d)
Registrant, Bank of America,
N.A., as agent, and the lenders
listed therein
4(e) Amendment No. 1 dated as of Incorporated by reference to Form 10-Q
April 5, 2002 to Credit for the fiscal quarter ended June 30,
Agreement listed as Exhibit 2002, at Exhibit 4(e).
4(d) above.
4(f) Amendment No. 2 and Consent Incorporated by reference to Form 10-K
dated as of September 5, 2003 for the fiscal year ended September 30,
to Credit Agreement listed as 2003, at Exhibit 4(d)
Exhibit 4(d) above
10 2004 Incentive Compensation Plan Incorporated by reference to Notice of
Annual Meeting of Stockholders and Proxy
Statement dated December 29, 2003, at
Appendix B
31.1 Certification of Chief Executive
Officer relating to Form 10-Q
for period ended March 31, 2004
31.2 Certification of Chief Financial
Officer relating to Form 10-Q for
period ended March 31, 2004
32 Certification of Chief Executive
Officer and Chief Financial Officer
relating to Form 10-Q for period
ended March 31, 2004
b) Reports on Form 8-K.
On February 5, 2004, the Company filed a Current Report on Form 8-K, dated
February 5, 2004, which reported in Item 7, Item 9 and Item 12 that the
Company was issuing a press release that date announcing its fiscal 2004
first quarter financial and operating results, which would be included on
its website, and that a related conference call would be held.
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: May 11, 2004
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: May 11, 2004
(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: May 11, 2004
(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 March 31, 2004 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: May 11, 2004
/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.