UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 15, 2005
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
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Today, November 15, 2005, the Registrant is issuing a press release (Exhibit
99.1 to this report) announcing its fiscal 2005 fourth quarter and year-end
financial and operating results. See Item 7.01, Regulation FD Disclosure below.
ITEM 7.01. REGULATION FD DISCLOSURE
Today, the Registrant is issuing a press release announcing its fiscal 2005
fourth quarter and year-end financial and operating results. This press release
is furnished herewith as Exhibit 99.1 and will be posted on the Registrant's
website located at http://www.escotechnologies.com. It can be viewed through the
"Investor Relations" page of the website under the tab "Press Releases,"
although the Registrant reserves the right to discontinue that availability at
any time.
NON-GAAP FINANCIAL MEASURES
The press release furnished herewith contains financial measures and financial
terms not calculated in accordance with generally accepted accounting principles
in the United States of America ("GAAP") in order to provide investors and
management with an alternative method for assessing the Registrant's operating
results in a manner that is focused on the performance of the Registrant's
ongoing operations. The Registrant has provided definitions below for the
non-GAAP financial measures utilized in the press release, together with an
explanation of why management uses these measures, and why management believes
that these non-GAAP financial measures are useful to investors. The press
release uses the non-GAAP financial measures of "operational" net earnings,
earnings per share and results of operations, as well as "EBIT from continuing
operations," "EBIT margin," "operational" EBIT margin and Filtration segment
"operational" EBIT.
The Registrant defines "operational" net earnings, earnings per share, and
results of operations as net earnings, earnings per share, and results of
operations in accordance with GAAP, except for the exclusion of (i) exit costs
and severance charges related to the shutdown and relocation of the Filtration
segment Puerto Rico facility recorded in fiscal 2004, and (ii) the results of
operations from the MicroSep businesses which were divested in fiscal 2004 and
are shown as "discontinued operations" in fiscal 2004. The Registrant's
management uses these "operational" results in evaluating the measures of
continuing operations of the Registrant and believes that this information
provides investors with additional insight into the period over period financial
performance of the Registrant.
The Registrant defines "EBIT from continuing operations" as earnings from
continuing operations before interest and taxes. The Registrant defines "EBIT
margin" as EBIT from continuing operations as a percent of net sales. The
Registrant's management evaluates the performance of its operating segments
based on EBIT from continuing operations and EBIT margin, and believes that EBIT
from continuing operations and EBIT margin are useful to investors to
demonstrate the operational profitability of the Registrant's business segments
by excluding interest and taxes, which are generally accounted for across the
entire Registrant on a consolidated basis. EBIT from continuing operations is
also one of the measures used by management in determining resource allocations
within the Registrant and incentive compensation.
The Registrant defines Filtration segment "operational" EBIT as segment EBIT,
excluding the costs related to the shutdown of the Puerto Rico facility.
The presentation of the information described above is intended to supplement
investors' understanding of the Registrant's operating performance. The
Registrant's non-GAAP financial measures may not be comparable to other
companies' non-GAAP financial performance measures. Furthermore, these measures
are not intended to replace net earnings, cash flows, financial position,
comprehensive income (loss), or any other measure as determined in accordance
with GAAP.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit No. Description of Exhibit
99.1 Press Release dated November 15, 2005
OTHER MATTERS
The information contained in this report, including Exhibit 99.1, shall not be
deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934 as amended ("Exchange Act") or otherwise subject to the liabilities of
that section, unless the Registrant incorporates it by reference into a filing
under the Securities Act of 1933 as amended or the Exchange Act.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ESCO TECHNOLOGIES INC.
Dated: November 15, 2005 By: /s/ G.E. Muenster
G.E. Muenster
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description of Exhibit
99.1 Press release dated November 15, 2005
Exhibit No. 99.1
NEWS FROM ESCO TECHNOLOGIES
For more information contact: For media inquiries:
Patricia K. Moore David P. Garino
Director, Investor Relations (314) 982-0551
ESCO Technologies Inc.
(314) 213-7277
ESCO ANNOUNCES FISCAL YEAR 2005 RESULTS
---------------------------------------
St. Louis, MO, November 15, 2005 - ESCO Technologies Inc. (NYSE: ESE)
today announced its results for the fourth quarter and fiscal year ended
September 30, 2005. Earnings Per Share (EPS) and Common Shares outstanding for
all periods presented reflect the impact of the Company's 2-for-1 stock split
which occurred September 23, 2005. Within this release, references to
"quarters" and "years" relate to fiscal quarters and fiscal years ended
September 30.
Net earnings for the 2005 fourth quarter were $10.2 million, or $0.39
per share compared to net earnings of $12.1 million, or $0.45 per share in the
fourth quarter of 2004. The 2004 fourth quarter operating results were
negatively impacted by a $0.3 million, or $0.01 per share, loss from
discontinued operations.
Net earnings for fiscal year 2005 were $43.5 million, or $1.66 per
share, compared to net earnings of $35.7 million, or $1.34 per share, in
fiscal year 2004. The fiscal year 2005 EPS was favorably impacted by $0.10 per
share resulting from the lower income tax rate realized in the third quarter.
The fiscal year 2004 operating results were negatively impacted by $1.0
million of net costs incurred resulting from exiting the Puerto Rico facility
and a $2.1 million net loss from discontinued operations. Excluding these
items, fiscal 2004 "Operational" net earnings, as defined in earlier releases,
were $38.8 million, or $1.45 per share.
A reconciliation of the 2004 GAAP reported earnings to "Operational"
earnings is included in the Exhibits attached to this release. The Company
believes the 2004 presentation of "Operational" earnings provides meaningful
additional insight into the Company's performance.
Sales
Fourth quarter 2005 sales were $109.8 million compared to fourth
quarter 2004 sales of $115.6 million. Fiscal year 2005 sales of $429.1 million
were $7.0 million, or 2 percent higher than fiscal year 2004 sales of $422.1
million. Favorable foreign currency values resulted in approximately $0.4
million and $3.6 million of sales value in the 2005 fourth quarter and full
year periods, respectively.
To provide additional insight and clarity into the various operating
units within the Filtration segment, Management, in the attached Exhibits, has
separately identified the operating results of PTI Technologies Inc.
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Add One
(PTI), VACCO Industries (VACCO), and Filtertek Inc. (Filtertek). The Test and
Communications segments remain as previously presented.
Communications sales of $37.3 million decreased $1.5 million, or 3.8
percent in the 2005 fourth quarter compared to the fourth quarter of 2004 as a
result of the following items: sales to Puerto Rico Electric Power Authority
(PREPA) were $4.5 million lower in the current period; sales in the 2004
fourth quarter included deliveries to Bangor Hydro and Idaho Power ($3.9
million in total) which were not repeated in the current period; and lower
shipments of Comtrak's SecurVision video security products, which generated
$3.2 million in sales during the fourth quarter of 2005 versus $3.8 million of
sales in the 2004 fourth quarter. These fourth quarter decreases were
partially offset by $5.6 million in deliveries to TXU Electric Delivery (TXU)
and $1.9 million of additional deliveries to electric utility cooperative
(COOP) customers. Fiscal year 2005 sales of $138.0 million were flat compared
to 2004. Fiscal year 2005 sales included a $10.5 million increase of
SecurVision product deliveries ($16.1 million versus $5.6 million), offset by
a $19.3 million reduction in sales to PPL Electric Utilities Corporation (PPL)
($2.3 million versus $21.6 million) and $10.7 million lower sales to other
IOUs (Bangor Hydro, Idaho, etc.) which were included in the prior year. During
fiscal year 2005, DCSI's sales to COOP and public power (Municipals) customers
increased 26 percent to $95.9 million from $76.2 million in fiscal year 2004.
Filtration segment sales of $42.1 million decreased $5.6 million, or
11.7 percent during the fourth quarter of fiscal 2005 compared to the prior
year period due to the following items: $1.5 million lower sales at PTI due
to the timing of aftermarket sales throughout 2004; $2.9 million lower sales
at VACCO resulting from lower deliveries of defense spares; and $1.2 million
lower sales at Filtertek primarily due to lower automotive shipments and lower
volumes in France. For the full year, 2005 Filtration segment sales of $171.7
million decreased $2.2 million, or 1.3 percent primarily due to the reduction
in defense spares shipments throughout the year at VACCO. PTI's sales
increased $2.6 million, or 6.8 percent for the year driven by the additional
volume of commercial and military aerospace products. Filtertek's 2005 annual
sales were relatively flat as the decreases in automotive products were
partially offset by higher medical product revenues.
Test segment sales of $30.4 million and $119.4 million increased 4.5
percent and 8.2 percent during the fourth quarter and total year periods of
2005, respectively, due to higher component sales, additional test chamber
installations, the completion of several government shielding projects, the
achievement of certain revenue milestones on the large Boeing contract, and
higher sales recorded at the Company's Asian operations. These increases were
partially offset by a $0.5 million decrease in sales in the fourth quarter of
fiscal 2005, and a $6.9 million decrease in 2005 total year sales at the
Company's European operations resulting from the fiscal 2004 completion of two
large test chamber installations.
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Add Two
Earnings Before Interest and Taxes (EBIT)
- -----------------------------------------
On a segment basis, items that impacted EBIT dollars and EBIT as a
percent of sales ("EBIT margin") during the fourth quarter and full year 2005
included the following.
In the Communications segment, EBIT for the 2005 fourth quarter was
$10.3 million, or 14.9 percent lower than the prior year due to the decreased
sales volume of AMR products noted above, and due to a $1.3 million increase
in SG&A expenses relating to additional engineering, marketing and new product
development efforts being expended in pursuit of the IOU market. EBIT in
fiscal year 2005 was $38.8 million, or 1.0 percent higher than prior year
primarily due to the additional profit associated with the increased sales
volume of SecurVision products, and cost reductions realized on the DCSI
modules.
In the Filtration segment, EBIT was $4.4 million, or 42.9 percent
lower during the 2005 fourth quarter due to the lower sales volume at each
operating unit. Fiscal year 2005 Filtration EBIT was $22.4 million, or 2.8
percent higher than prior year and included the following items: a significant
increase in aerospace deliveries at PTI which carried through to EBIT; an $0.8
million asset impairment charge recognized in the third quarter of 2005
related to the abandonment of a sensor development program at PTI; a
significant increase in raw material costs at Filtertek (ie., petroleum based
resins); a $1.9 million gain realized during the year at Filtertek as a result
of the termination of a supply agreement with a medical device customer;
partially offset by a $3.2 million reduction in EBIT during 2005 at VACCO
resulting from the decreased sales of defense spares. The fiscal year 2004
EBIT in the Filtration segment was negatively impacted by the exit and move
costs incurred and the inefficiencies being absorbed at Filtertek during the
first six months of 2004 as a result of operating in both the Puerto Rico and
Juarez facilities.
In the Test segment, EBIT of $3.5 million and $12.2 million increased
16.7 percent and 8.0 percent in the fourth quarter and fiscal year periods of
2005, respectively, due to additional sales volume and favorable changes in
sales mix. In addition, for the full year, EBIT was negatively impacted in
2005 as a result of higher installation costs incurred on certain
government-shielding projects located in volatile areas of the world, and
higher costs of steel and copper.
The Corporate office operating expenses were $0.6 million, or 16.7
percent lower in the fourth quarter of 2005 versus 2004 as the prior year's
fourth quarter included separation costs paid to terminated employees.
EBIT from continuing operations for fiscal year 2004 was affected by
certain charges which are presented in detail in the financial Exhibits
attached at the end of this release. For fiscal 2004, the pretax charges in
continuing operations related to these items were $1.3 million. These items
are included in "Earnings before income taxes" in the Exhibits.
Effective Tax Rate
- ------------------
For the fourth quarter of 2005, the Company's effective tax rate was
35.3 percent consistent with the 35.7 percent tax rate realized in the fourth
quarter of 2004. The decrease in the 2005 fourth quarter tax rate from
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the previously expected rate of 37 percent was primarily driven by higher than
expected foreign sourced pretax income. The tax rate for fiscal year 2005 was
31.9 percent, and was favorably impacted by the adjustments recorded in the
third quarter of 2005, and discussed in the August 2005 release.
New Orders
- ----------
New orders received were $91.5 million and $116.5 million in the
fourth quarters of 2005 and 2004, respectively, and $413.1 million and $408.2
million for the fiscal years 2005 and 2004, respectively, resulting in a
backlog of $233.1 million at September 30, 2005.
New orders received in the fourth quarter of 2005 compared to the
fourth quarter of 2004, respectively, were: in Filtration, $35.5 million and
$38.8 million; in Communications, $17.1 million and $26.8 million; and in Test
were $38.9 million and $50.9 million (which included the $20 million Boeing
order with Korea).
New orders received in fiscal year 2005 compared to fiscal year 2004,
respectively, were: in Filtration, $174.4 million and $165.4 million; in
Communications, $117.2 million and $116.0 million; and in Test, $121.5 million
and $126.8 million.
Cash
- ----
The Company ended fiscal 2005 with $104.5 million in cash and no debt
outstanding, after generating approximately $19 million of cash in the fourth
quarter. During fiscal 2005, the Company generated $57.7 million of cash and
used $24.9 million of cash during the first quarter to repurchase 670,000
split-adjusted shares of its outstanding stock.
Stock Split - September 2005
- ----------------------------
As reported in the August 2005 release, the Board of Directors
declared a 2-for-1 split of the Company's stock which was distributed in the
form of a 100 percent stock dividend and was paid September 23, 2005.
Chairman's Commentary on 2005
- -----------------------------
Vic Richey, Chairman and Chief Executive Officer, commented, "Our
fourth quarter sales and earnings were in line with our expectations, our cash
flow was better than expected, and our orders picture was mixed. We saw
strength in the Test segment orders, some weakness in Filtration, and in
Communications, we were not able to overcome the competitive challenges in the
COOP market as quickly as we had anticipated. The COOP situation is one
significant element impacting the shape of our fiscal 2006 outlook. I believe
we have effectively responded and have re-established our position in the COOP
market through a combination of our recently released outage management
software and data storage enhancements, together with the flexibility we have
created as a result of our cost improvement initiatives. Perhaps the best
support for my view that our initiatives have been successful is our
expectation that during the first quarter, we are expecting $35 to $40 million
of orders at DCSI, a substantial portion of which we have already received.
The first quarter order outlook
includes an additional $9.1 million order received in early November for a
100,000 endpoint expansion of our
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Add Four
existing program at TXU. The first quarter orders are expected to ship
throughout the second half of 2006 and into 2007."
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 and Chairman's Commentary described below does not include
the impact of potential acquisitions or divestitures.
On November 7, 2005, the Company announced it had finalized its
contract with PG&E to provide equipment, software and services in support of
the electric portion of PG&E's Advanced Metering Infrastructure (AMI) Project
covering approximately five million electric endpoints, with annual purchase
order releases anticipated. The PG&E contract is contingent upon satisfactory
system testing, regulatory approval and final PG&E management approval.
In addition, as defined by U.S. financial accounting standards, and
as a result of the contract containing multiple elements, the Company will be
required to defer revenue recognition on this contract during fiscal 2006 and
until delivery and customer acceptance of the final version of the Next
Generation TWACS (TNG) software is achieved. When the customer acceptance
provisions of the software are satisfied, which is currently projected to be
in the latter portion of fiscal 2007, the Company will recognize the
cumulative deferred revenue on a percentage-of-completion basis using the
formula of "modules delivered to date" compared to "total modules" in the
contract. Based on current expectations, it is estimated that approximately 18
to 20 percent of the modules will have been delivered to the customer by the
software acceptance date. This delivery estimate equates to a range of
revenues from $54 to $60 million which would be recognized in the 2007 fiscal
quarter of software acceptance. If the customer acceptance of the software is
not achieved in fiscal 2007, the Company will have to continue this deferral
until acceptance, and may incur additional costs to satisfy the acceptance
requirements.
From a cash perspective prior to the acceptance date, the Company
anticipates delivering equipment (meter modules, disconnect switches and
substation equipment), software (incremental releases of TNG), and providing
support services (both program support and software support) for which the
Company is entitled to be paid in cash within normal payment terms. Cash flow
will not be impacted by the revenue recognition deferral.
Earnings Per Share - 2006 (Split Adjusted)
- ------------------------------------------
Management estimates 2006 EPS to be in the range of $1.15 to $1.30
per share, with the first half of the fiscal year EPS being between $0.35 and
$0.40 per share on sales of approximately $195 million, and the second half of
the fiscal year EPS being between $0.80 and $0.90 per share, on sales of
approximately $225 million. Also, in fiscal 2006 the Company will begin
expensing stock options. This expense, included in the EPS numbers above, is
expected to be in the range of $0.10 to $0.12 per share annually, or $0.03 per
quarter.
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Add Five
The effective tax rate for 2006 is expected to be approximately 38
percent.
Revenues and EBIT Margins
- -------------------------
Management expects 2006 consolidated revenues to be flat to down 2
percent compared to 2005 and consolidated EBIT margins should be in the range
of 12.5 to 13 percent.
On a segment, and operating unit basis for 2006, Management expects the
following:
o PTI sales are expected to increase approximately 2 percent and
EBIT margins should be in the range of 11 to 12 percent (up from
9.2 percent in 2005).
o VACCO sales are expected to decrease approximately 20 percent and
EBIT margins should be in the range of 20 to 22 percent (down
from 26.9 percent in 2005) as a result of the significantly lower
deliveries of defense spares and a production break in T-700
shipments.
o Filtertek sales are expected to increase approximately 4 to 6
percent and EBIT margins should be in the range of 8 to 8.5
percent (down from 8.9 percent in 2005). The 2005 results
included approximately $2 million in sales and EBIT realized from
the settlement of a contract termination with a medical device
customer.
o Test segment sales are expected to increase approximately 3 to 5
percent and EBIT margins should be in the range of 10.5 to 11.5
percent (up from 10.2 percent in 2005) as a result of the
continued strength of the wireless and electronics markets, and
solid growth in Asia.
o Communications segment sales are expected to decrease
approximately 7 to 9 percent and EBIT margins should be in the
range of 25 to 27 percent (down from 28.1 percent in 2005) driven
primarily by an expected $8 million decrease in sales of
SecurVision products at Comtrak. The 2005 sales of SecurVision
products included a catch up in deliveries previously delayed by
the customer from the prior year. Sales of AMR products at DCSI
are expected to be relatively flat and, as mentioned above, 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 27 to 28
percent. Cost of sales will also include approximately $2.2
million of additional costs as a result of DCSI beginning to
amortize the capitalized software 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 pricing scenarios needed to meet the requirements
of large IOUs. The Company has incurred approximately $15 million
in external development costs through September 30, 2005, which
are included on the balance sheet in other assets, and is
expected to incur another $15 to $20 million in costs over the
next
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Add Six
two years. Additional non-TNG related engineering and
development costs are being incurred to ramp up the PG&E
contract as well as support other IOU pilots which are in
process.
o Corporate operating costs are expected to be relatively flat in
2006, excluding the costs related to the initiation of stock
option expensing beginning in the first quarter of 2006.
Management expects quarterly stock option pretax expenses to be
approximately $0.8 million.
Fiscal 2007 Preliminary Long-Term Outlook
- -----------------------------------------
Based on the current outlook for the business, and the significant
opportunities within the IOU market, Management expects fiscal 2007 revenues,
EBIT margins, and EPS to be meaningfully higher than the 2006 expectations.
The major underlying assumptions include DCSI achieving customer acceptance of
the software on the PG&E contract in 2007, and not experiencing a significant
downturn in other major end markets served by the Company.
Chairman's Commentary on Business Outlook
Mr. Richey additionally commented on the Business Outlook, "Looking
forward, I believe our outlook is best understood if we take it in three
pieces. In the first half of 2006, we have a pocket of softness, in the
second half of 2006, we anticipate improved performance, and for fiscal 2007,
our expectations keep us on track to meet our stated long-term objectives.
"A handful of things are responsible for the softness in the first
half of 2006, including the COOP orders which I mentioned earlier. In
addition, our outlook reflects deliveries to PREPA shifting to the second half
of 2006, a decline in SecurVision deliveries as a result of having caught up
on previously delayed shipments, and in Filtration, we expect continued
softness in automotive and defense spares. The most significant dimension of
the second half performance improvement is the expected volume increase in our
Communications business. The second half of 2006 is driven by our
expectations for continuing progress at TXU, much higher COOP volumes, and the
expectation that we will ship $5 million of product to PREPA.
"Our 2007 outlook contemplates continued progress in Test and modest
improvement in Filtration in terms of the operating environment. At VACCO, we
expect to be back in full production on the T-700 program which was an
important contributor in 2005 and a significant part of our expected 2006
downturn. As with the second half of 2006, the most significant facet of our
expected earnings expansion in 2007 is the anticipated growth in our
Communications segment. Our 2007 outlook reflects a substantial contribution
from the PG&E program, continued expansion of TXU, and the initiation of
full-scale deployment on another significant investor owned utility.
"While I do not want to diminish the contributions of our Filtration
and Test businesses, it is clear that our expectation of substantial
performance improvement, and therefore shareholder value, is conditioned upon
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Add Seven
significant growth in our Communications segment. As such, I want to be clear
about how I see the Communications business and what our plans include.
"I expect continued adoption of AMR in the COOP and municipal markets
and acceleration of the implementation of Advanced Metering programs in the
IOU market, with the latter being the key to our growth. The activity in the
IOU market remains strong. The Federal Energy Bill should provide stimulus
through its requirement for investigation of Advanced Metering. I also
believe that as the substantial benefits to both the utilities and their
customers become even clearer through programs such as PG&E's, the market will
move more quickly towards further adoption. Given our belief that the
opportunities in Advanced Metering are significant, we have been making
substantial investments in software, hardware enhancements, and personnel to
be in a position to satisfy the challenges that Advanced Metering presents in
terms of functionality and scale. While I think several competitors will also
pursue new programs, I firmly believe we are in the best position to
capitalize on these opportunities.
"Additionally, we are actively seeking to extend our product offering
through the acquisition of businesses which can support the management of the
information, and which provide direct access to gas and water AMR. Given our
current market outlook, we believe that adding these capabilities is the best
utilization of our cash. We are making solid progress in the pursuit of
targeted acquisitions and the addition of these capabilities is at the top of
our near-term objectives.
"In short, we expect to deliver meaningful improvement in shareholder
value from a strong and improving foundation in Test and Filtration and most
importantly, through significant growth in our Communications segment, where
we will be uniquely positioned to capitalize on what we expect to be
extraordinary growth in Advanced Metering."
Conference Call
- ---------------
The Company will host a conference call today, November 15, at 9:30
a.m., Central Time, to discuss the Company's fourth quarter and full year
operating results. A live audio webcast will be available on the Company's
Web site at www.escotechnologies.com. Please access the Web site at least 15
minutes prior to the call to register, download and install any necessary
audio software.
A replay of the conference call will be available for seven days on
the Company's website noted above or by phone (dial 1-888-203-1112 and enter
the pass code 3645995).
Forward-Looking Statements
- --------------------------
Statements in this press release regarding fiscal 2006 revenues, results,
earnings, sales, EBIT, EBIT margins, EPS, performance and the level of revenue
contributions from each segment and the timing of these contributions, fiscal
2007 revenues, EBIT margins, EPS, potential customer contracts, growth in the
AMR market, the success of product development efforts, fiscal 2006 corporate
operating expenses, fiscal 2006
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Add Eight
effective tax rate, long term success of the Company, stock option expensing,
amortization of capitalized software development costs in fiscal 2006, the
success of the Company's acquisition efforts, continued strength of major end
markets served by the Company, the impact of the Federal Energy Bill, the
ability of DCSI's competitors to address Advanced Metering (AM) opportunities,
continued adoption of AMR in the COOP and municipal markets, continued
acceleration of AM programs in the IOU market, successful development of the
TNG software, the ultimate value of the DCSI/PG&E contract, the future
delivery to and acceptance of the TNG software by PG&E, the timing and
quantity of deliveries required by PG&E, the amount of revenue to be
recognized upon software acceptance by PG&E, initiation of full scale
deployment of DCSI's AMR products by another IOU, future requirements of TXU,
PREPA, PG&E and COOP customers for DCSI's AMR products, future orders in
connection with VACCO's T-700 program, DCSI's ability to capture future AM
opportunities, the Company's ability to increase shareholder value and any
other written or oral statements which are not strictly historical are
"forward-looking" statements within the meaning of the safe harbor provisions
of the federal securities laws. Investors are cautioned that such statements
are only predictions and speak only as of the date of this release, and the
Company undertakes no duty to update. The Company's actual results in the
future may differ materially from those projected in the forward-looking
statements due to risks and uncertainties that exist in the Company's
operations and business environment including, but not limited to: actions by
the California Public Utility Commission, PG&E's Board of Directors or PG&E's
Management impacting PG&E's AMI projects; the availability of selective
acquisitions on acceptable terms; the success of DCSI'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 contract; DCSI's successful performance of the PG&E
contract; 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; 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; and the Company's successful execution of internal
operating plans.
ESCO, headquartered in St. Louis, is a leading supplier of engineered
filtration products to the process, health care and transportation markets
worldwide. In addition, the Company markets proprietary, special purpose
communications systems and is the industry leader in RF shielding and EMC test
products.
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Add Nine
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
------------------
September 30, 2005
------------------
GAAP
----
Net Sales $ 109,780
Cost and Expenses:
Cost of sales 72,704
SG&A 22,010
Interest (income) expense (583)
Other (income) expenses, net (117)
----
Total costs and expenses 94,014
------
Earnings before income taxes 15,766
Income taxes 5,573
-----
Net earnings $ 10,193
=========
Earnings per share:
Basic
Net earnings $ 0.40
=========
Diluted
Net earnings $ 0.39
=========
Average common shares O/S:
Basic 25,538
======
Diluted 26,381
======
- more -
Add Ten
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended September 30, 2004
-------------------------------------
(1)
GAAP Adj. "Operational"
---- ---- -------------
Net Sales $115,608 115,608
Cost and Expenses:
Cost of sales 75,592 75,592
SG&A 20,473 20,473
Interest (income) expense (196) (196)
Other (income) expenses, net 377 377
--- --- ---
Total costs and expenses 96,246 96,246
------ --- ------
Earnings before income taxes 19,362 19,362
Income taxes 6,915 6,915
----- --- -----
Net earnings from
continuing operations 12,447 12,447
Loss from discontinued
operations, net of tax -- -- --
Loss on sale of discontinued
operations, net of tax (333) 333 (2) --
---- --- --
Net earnings from
discontinued operations (333) 333 --
Net earnings (loss) $ 12,114 333 12,447
======== === ======
Earnings (loss) per share:
Basic
Net earnings from
continuing operations $ 0.48 0.48
Net earnings from
discontinued operations (0.01) 0.00
----- ----
Net earnings $ 0.47 0.48
======== ====
Diluted
Net earnings from
continuing operations $ 0.46 0.46
Net earnings from
discontinued operations (0.01) 0.00
----- ----
Net earnings $ 0.45 0.46
======== ====
Average common shares O/S:
Basic 25,912 25,912
====== ======
Diluted 26,708 26,708
====== ======
(1) Represents results on an adjusted basis, after removing the
item described below in (2).
(2) Relates to the Microfiltration and Separations businesses
which are classified as "discontinued operations."
- more -
Add Eleven
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Year Ended
----------
September 30, 2005
------------------
GAAP
----
Net Sales $ 429,115
Cost and Expenses:
Cost of sales 282,113
Asset impairment 790
SG&A 84,814
Interest (income) expense (1,900)
Other (income) expenses, net (609)
----
Total costs and expenses 365,208
-------
Earnings before income taxes 63,907
Income taxes 20,363
------
Net earnings $ 43,544
=========
Earnings per share:
Basic
Net earnings $ 1.71
=========
Diluted
Net earnings $ 1.66
=========
Average common shares O/S:
Basic 25,511
======
Diluted 26,306
======
- more -
Add Twelve
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Year Ended September 30, 2004
-----------------------------
(1)
GAAP Adj. "Operational"
---- ---- -------------
Net Sales $422,085 422,085
Cost and Expenses:
Cost of sales 282,766 282,766
SG&A 78,023 (470) (2) 77,553
Interest (income) expense (844) (844)
Other (income) expenses, net 1,576 (860) (3) 716
----- ---- ---
Total costs and expenses 361,521 (1,330) 360,191
------- ------ -------
Earnings before income taxes 60,564 1,330 61,894
Income taxes 22,748 305 (4) 23,053
------ --- ------
Net earnings from
continuing operations 37,816 1,025 38,841
Loss from discontinued
operations, net of tax (3,737) 3,737 (5) --
Gain on sale of discontinued
operations, net of tax 1,592 (1,592) (5) --
----- ------ --
Net loss from discontinued
operations (2,145) 2,145 --
Net earnings (loss) $ 35,671 3,170 38,841
======== ===== ======
Earnings (loss) per share:
Basic
Net earnings from
continuing operations $ 1.47 1.51
Net loss from
discontinued operations (0.08) 0.00
----- ----
Net earnings $ 1.39 1.51
======== ====
Diluted
Net earnings from
continuing operations $ 1.42 1.45
Net loss from
discontinued operations (0.08) 0.00
----- ----
Net earnings $ 1.34 1.45
======== ====
Average common shares O/S:
Basic 25,802 25,802
====== ======
Diluted 26,648 26,648
====== ======
(1) Represents results on an adjusted basis, after removing the
items described below in (2)-(4).
(2) Represents severance charges related to the exit of the Puerto
Rico facility.
(3) Represents shutdown costs related to the exit of the Puerto
Rico facility.
(4) Represents the tax impact of items described above in (2)-(3).
(5) Relates to the Microfiltration and Separations businesses
which are classified as "discontinued operations."
- more -
Add Thirteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information
(Unaudited)
(Dollars in millions)
Three Months Ended Year Ended
September 30, September 30,
------------- -------------
2005 2004 2005 2004
---- ---- ---- ----
Net Sales-GAAP
- --------------
PTI $ 10.1 11.6 40.7 38.1
VACCO 10.1 13.0 38.9 43.2
Filtertek 21.9 23.1 92.1 92.6
---- ---- ---- ----
Filtration subtotal 42.1 47.7 171.7 173.9
Communications 37.3 38.8 138.0 137.8
Test 30.4 29.1 119.4 110.4
---- ---- ----- -----
Totals $109.8 115.6 429.1 422.1
====== ===== ===== =====
EBIT-GAAP basis (1)
PTI $ 0.9 1.1 3.7 2.4
VACCO 2.0 4.2 10.5 13.7
Filtertek 1.5 2.4 8.2 5.7
--- --- --- ---
Filtration subtotal 4.4 7.7 22.4 21.8 (2)
Communications 10.3 12.1 38.8 38.4
Test 3.5 3.0 12.2 11.3
Corporate (3.0) (3.6) (11.4) (11.8)
---- ---- ----- -----
Totals $ 15.2 19.2 62.0 59.7
====== ==== ==== ====
Note: Prior year amounts presented above exclude the operations
of the MicroSep businesses, which are classified as
"discontinued operations." Depreciation and amortization
expense for continuing operations was $2.9 million for the
fiscal quarters ended September 30, 2005 and 2004, and $12.2
million and $11.9 million for the year ended September 30,
2005 and 2004, respectively.
(1) EBIT is defined as earnings from continuing operations before
interest and taxes.
(2) The reconciliation to FY '04 Operational Revenue/EBIT for the
Filtration segment is below:
FY 04
-----
Net Sales EBIT
--------- ----
Filtration Segment - GAAP $173.9 21.8
Add: Puerto Rico facility
exit costs -- 1.3
-- ---
Filtration Segment -
"Operational" $173.9 23.1
====== ====
- more -
Add Fourteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Dollars in millions)
EBIT (1) - As Reported
Three Months Ended Year Ended
September 30, September 30,
------------- -------------
2005 2004 2005 2004
---- ---- ---- ----
EBIT $15.2 19.2 $62.0 59.7
Interest income (expense) 0.6 0.2 1.9 0.8
Less: Income taxes 5.6 6.9 20.4 22.7
--- --- ---- ----
Net earnings from
continuing operations $10.2 12.5 $43.5 37.8
===== ==== ===== ====
(1) EBIT is defined as earnings from continuing operations before
interest and taxes. Excludes the operations of the MicroSep
businesses, which are classified as "discontinued operations".
EBIT Margin Outlook - FY 2006
- -----------------------------
Consolidated EBIT margin in the range of 12.5 percent to 13 percent,
PTI EBIT margin in the range of 11 percent to 12 percent, VACCO
EBIT margin in the range of 20 percent to 22 percent, Filtertek
EBIT margin in the range of 8 percent to 8.5 percent, and DCSI EBIT
margin in the range of 27 percent to 28 percent under "Fiscal 2006
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 Fifteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
September 30, September 30,
2005 2004
---- ----
Assets
- ------
Cash and cash equivalents $104,484 72,281
Accounts receivable, net 68,819 77,729
Costs and estimated earnings
on long-term contracts 4,392 2,476
Inventories 48,645 44,287
Current portion of deferred
tax assets 30,219 27,810
Other current assets 8,394 8,947
----- -----
Total current assets 264,953 233,530
Property, plant and equipment, net 67,190 69,103
Goodwill 68,880 68,949
Deferred tax assets -- 10,055
Other assets 27,697 20,803
------ ------
$428,720 402,440
======== =======
Liabilities and Shareholders' Equity
- ------------------------------------
Short-term borrowings and current
maturities of long-term debt $ -- 151
Other current liabilities 62,757 68,171
------ ------
Total current liabilities 62,757 68,322
Deferred income 3,134 2,738
Other liabilities 31,805 23,396
Long-term debt -- 368
Shareholders' equity 331,024 307,616
------- -------
$428,720 402,440
======== =======
- more -
Add Sixteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
FY 2005 FY 2004
------- -------
Cash flows from operating activities:
Net earnings $ 43,544 35,671
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Loss from discontinued operations, net of tax -- 3,737
Gain on sale of discontinued operations,
net of tax -- (1,592)
Asset impairment 790 --
Depreciation and amortization 12,184 11,888
Changes in operating working capital (4,634) (2,349)
Effect of deferred taxes 15,221 14,056
Other 1,451 2,351
----- -----
Net cash provided by operating activities -
Continuing operations 68,556 63,762
Net cash used by discontinued operations(1) -- (2,735)
-- ------
Net cash provided by operating activities 68,556 61,027
------ ------
Cash flows from investing activities:
Acquisition of businesses -
continuing operations -- (294)
Proceeds from divestiture of businesses -- 23,275
Proceeds from note receivable -- 2,120
Capital expenditures - continuing operations (8,848) (10,823)
Capital expenditures - discontinued operations -- (1,390)
Additions to capitalized software (8,342) (8,299)
------ ------
Net cash(used)provided by investing activities (17,190) 4,589
------- -----
Cash flows from financing activities:
Proceeds from long-term debt -- 378
Net decrease in short-term borrowings -- (10,000)
Principal payments on long-term debt -
continuing operations (519) (516)
Principal payments on long-term debt -
discontinued operations (1) -- (9,024)
Purchases of common stock into treasury (24,928) (9,981)
Other, including exercise of stock options 6,284 4,523
----- -----
Net cash used by financing activities (19,163) (24,620)
------- -------
Net increase in cash and cash equivalents 32,203 40,996
Cash and cash equivalents, beginning of period 72,281 31,285
------ ------
Cash and cash equivalents, end of period $104,484 72,281
======== ======
(1) Relates to the MicroSep businesses which are
classified as "discontinued operations."
- more -
Add Seventeen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data
(Unaudited)
(Dollars in thousands)
Backlog And Entered
- -------------------
Orders-Q4 FY 2005 Filtration Comm. Test Total
- ----------------- ---------- ----- ---- -----
Beginning Backlog-
6/30/05 $ 87,069 107,967 56,318 251,354
Entered Orders 35,497 17,093 38,950 91,540
Sales (42,069) (37,279) (30,432) (109,780)
------- ------- ------- --------
Ending Backlog-
9/30/05 $ 80,497 87,781 64,836 233,114
========= ====== ====== =======
Backlog And Entered
- -------------------
Orders-FY 2005 Filtration Comm. Test Total
- -------------- ---------- ----- ---- -----
Beginning Backlog-
9/30/04 $ 77,753 108,661 62,664 249,078
Entered Orders 174,444 117,158 121,549 413,151
Sales (171,700) (138,038) (119,377) (429,115)
-------- -------- -------- --------
Ending Backlog-
9/30/05 $ 80,497 87,781 64,836 233,114
========= ====== ====== =======
Filtration Detail
- -----------------
Backlog and Entered
Orders - Q4 FY 2005 PTI VACCO Filtertek Total
- ------------------- --- ----- --------- -----
Beginning Backlog-
6/30/05 $ 20,538 38,362 28,169 87,069
Entered Orders 8,569 5,928 21,000 35,497
Sales (10,122) (10,117) (21,830) (42,069)
------- ------- ------- -------
Ending Backlog-
9/30/05 $ 18,985 34,173 27,339 80,497
========= ====== ====== ======
Backlog and Entered
Orders - FY 2005 PTI VACCO Filtertek Total
- ---------------- --- ----- --------- -----
Beginning Backlog-
9/30/04 $ 16,311 30,463 30,979 77,753
Entered orders 43,417 42,614 88,413 174,444
Sales (40,743) (38,904) (92,053) (171,700)
------- ------- ------- --------
Ending Backlog-
9/30/05 $ 18,985 34,173 27,339 80,497
========= ====== ====== ======
# # #