SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 1996
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 ELECTRONICS CORPORATION
(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 63124-2090
St. Louis, Missouri (Zip Code)
(Address of principal executive offices)
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
Number of common stock trust receipts outstanding at July 31, 1996:
11,400,537 receipts.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
June 30,
1996 1995
Net sales $ 109,103 107,939
Costs and expenses:
Cost of sales 107,597 83,890
Selling, general and administrative expenses 17,443 18,679
Interest expense 1,455 1,560
Other, net 2,115 2,767
Nonrecurring charges 25,300 1,968
Total costs and expenses 153,910 108,864
Loss before income taxes (44,807) (925)
Income tax expense (benefit) (25,396) 308
Net loss $ (19,411) (1,233)
Loss per share $ (1.72) (.11)
See accompanying notes to condensed consolidated financial statements.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Nine Months Ended
June 30,
1996 1995
Net sales $ 339,157 315,927
Costs and expenses:
Cost of sales 289,123 243,277
Selling, general and administrative expenses 52,911 55,891
Interest expense 4,269 3,945
Other, net 4,728 7,440
Nonrecurring charges 25,300 30,244
Total costs and expenses 376,331 340,797
Loss before income taxes (37,174) (24,870)
Income tax expense (benefit) (22,099) 463
Net loss $ (15,075) (25,333)
Loss per share $ (1.35) (2.31)
See accompanying notes to condensed consolidated financial statements.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
June 30, September 30,
1996 1995
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 1,526 320
Accounts receivable, less allowance for doubtful
accounts of $339 and $242, respectively 44,233 48,224
Costs and estimated earnings on long-term contracts, less
progress billings of $102,378 and $72,194 respectively 59,046 51,923
Inventories 80,620 107,421
Other current assets 4,605 3,975
Total current assets 190,030 211,863
Property, plant and equipment, at cost 121,690 116,226
Less accumulated depreciation and amortization 33,781 24,747
Net property, plant and equipment 87,909 91,479
Excess of cost over net assets of purchased businesses, less
accumulated amortization of $1,460 and $1,051 respectively 20,081 20,490
Deferred tax assets, net 63,685 25,637
Other assets 20,856 28,532
$382,561 378,001
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 56,000 39,000
Accounts payable 44,141 42,327
Advance payments on long-term contracts, less costs incurred
of $9,960 and $2,816, respectively 9,419 19,617
Accrued expenses and other current liabilities 36,250 39,510
Total current liabilities 145,810 140,454
Other liabilities 31,516 31,840
Long-term debt 21,897 23,452
Total liabilities 199,223 195,746
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 11,912,764 and 11,574,420 shares, respectively 119 116
Additional paid-in capital 226,514 210,205
Retained earnings (deficit) since elimination of deficit of $60,798 at
September 30, 1993 (37,027) (21,952)
Cumulative foreign currency translation adjustment 117 292
Minimum pension liability (1,998) (1,998)
187,725 186,663
Less treasury stock, at cost; 567,497 and 570,472 common shares,
respectively (4,387) (4,408)
Total shareholders' equity 183,338 182,255
$382,561 378,001
See accompanying notes to condensed consolidated financial statements.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Net loss $(15,075) (25,333)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 10,809 10,516
Changes in operating working capital (7,907) (20,272)
Write-off of certain assets 25,300 19,744
Effect of tax valuation allowance on tax provision (9,996)
Other (11,870) (5,549)
Net cash used by operating activities (8,739) (20,894)
Cash flows from investing activities:
Capital expenditures (6,468) (7,306)
Acquisition of business, less cash acquired (1,596)
Net cash used by investing activities (6,468) (8,902)
Cash flows from financing activities:
Net increase in short-term borrowings 17,000 30,000
Proceeds from long-term debt 1,490
Principal payments on long-term debt (1,555) (1,562)
Other 968 490
Net cash provided by financing activities 16,413 30,418
Net increase in cash and cash equivalents 1,206 622
Cash and cash equivalents at beginning of period 320 2,656
Cash and cash equivalents at end of period $ 1,526 3,278
See accompanying notes to condensed consolidated financial statements.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements,
in the opinion of management, include all adjustments necessary
for a fair presentation of the results for the interim periods
presented. The condensed consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and
consequently do not include all the disclosures required by
generally accepted accounting principles. For further information
refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1995. Certain prior year amounts have
been reclassified to conform with the fiscal 1996 presentation.
The fiscal year 1995 third quarter and nine month periods ended
June 30, 1995 have been restated, as previously disclosed.
The results for the three and nine month periods ended June 30,
1996 are not necessarily indicative of the results for the entire
1996 fiscal year.
2. Loss Per Share
Loss per share is based on the weighted average number of
common shares outstanding. For the three month and nine month
periods ended June 30, 1996, loss per share is computed using
11,281,395 and 11,170,129 common shares outstanding,
respectively. For the quarter and nine month periods ended
June 30, 1995, loss per share is computed using 10,981,629 and
10,964,975 common shares outstanding, respectively.
3. Inventories
Inventories consist of the following (dollars in thousands):
June 30, September 30,
1996 1995
Finished Goods $ 4,949 4,442
Work in process on long-term contracts 60,214 92,559
Raw materials 15,457 10,420
Total inventories $ 80,620 107,421
Under the contractual arrangements by which progress payments
are received, the U.S. Government has a security interest in the
inventories associated with specific contracts. Inventories are net
of progress payment receipts of $19,051,000 and $8,519,000 at
June 30, 1996 and September 30, 1995, respectively.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. Subsequent Event
On July 22, 1996, the Company completed the sale of its
Hazeltine subsidiary to GEC-Marconi Electronic Systems
Corporation (GEC). The Company sold 100% of the common stock
of Hazeltine for $110 million in cash and during July, repaid all
outstanding short-term borrowings, the $8 million subordinated
term loan, and paid down the bank term loan from $18.5 million
to $13 million. Refer to the Company's Current Report filed on
Form 8-K dated August 5, 1996.
The key financial statement accounts of Hazeltine which are
included in the unaudited condensed consolidated balance sheet
at June 30, 1996 are as follows:
June 30,
1996
Assets
Accounts receivables, net $ 8,842
Costs and estimated earnings on long-term contracts 15,931
Inventories 21,418
Property, plant & equipment 32,774
Other (current and noncurrent) 4,147
$83,112
Liabilities and Shareholders' Equity
Current liabilities $26,040
Other liabilities 1,081
Long-term debt 1,396
Shareholders' equity 54,595
$83,112
The estimated gain on the sale of Hazeltine may change upon final
determination and settlement of post-closing adjustments.
Included in the nine month unaudited condensed consolidated
statements of operations are the operating results of Hazeltine as
follows:
Nine Months Ended
June 30,
1996 1995
Net sales $86,301 80,078
Cost of sales 69,047 67,928
Selling, general and administrative expenses 11,485 10,427
Other costs and expenses, net 917 1,236
Earnings before income taxes $ 4,852 487
Included in the consolidated backlog of firm orders at June 30, 1996
is approximately $223.3 million related to Hazeltine.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Results of Operations - Three months ended June 30, 1996 compared
with three months ended June 30, 1995.
Net sales of $109.1 million for the third quarter of fiscal 1996
increased $1.2 million (1.1%) from net sales of $107.9 million for the
third quarter of fiscal 1995. The increase was primarily due to
increased volume at Hazeltine and PTI. Defense sales were $70.2
million and commercial sales were $38.9 million for the third quarter of
fiscal 1996, compared with defense and commercial sales of
$81.9 million and $26.0 million, respectively, in the third quarter of
fiscal 1995. The increase in commercial sales in the third quarter of
fiscal 1996 reflects additional sales of material handling equipment at
SEI, Radio Frequency (RF) test equipment at EMC Test Systems and
filtration products at PTI.
The backlog of firm orders at June 30, 1996 was $473.5 million,
compared with $500.6 million at March 31, 1996. During the third
quarter of fiscal 1996 new orders aggregating $82 million were
received, compared with $72.4 million in the third quarter of fiscal
1995. The most significant orders in the current period were for
material handling equipment, commercial filtration products, and tank
transporters.
The fiscal 1996 third quarter gross profit decreased from the
comparable period of fiscal 1995 primarily due to a $23 million
adjustment of the estimate of the costs to complete the 60K Loader
program at SEI. The fiscal 1996 third quarter gross margin, excluding
the 60K Loader adjustment, decreased from the comparable period of
fiscal 1995 due to changes in sales mix in both the defense and
commercial segments.
Selling, general and administrative expenses for the third quarter of
fiscal 1996 were $17.4 million, or 16% of net sales, compared with
$18.7 million, or 17.3% of net sales, for the same period a year ago.
The fiscal 1996 third quarter decrease in both spending and as a
percentage of sales is a result of successful cost containment programs
throughout the Company.
Interest expense was consistent in both periods presented.
Other costs and expenses, net, were $2.1 million in the third quarter
of fiscal 1996 compared to $2.8 million in the same period of fiscal
1995. The decrease in fiscal 1996 reflects the absence of amortization
of a contract guarantee fee previously paid to Emerson Electric Co.
(Emerson).
Nonrecurring charges of $25.3 million in the third quarter of fiscal
1996 represent non-cash charges to reflect recent events which
impacted the value of certain assets on the Company's balance sheet.
The items affected include certain assets which management has
determined are obsolete, costs incurred in anticipation of certain
defense contract awards which the Company no longer expects to
receive, and the downward adjustment in the Company's estimate of
recoveries by the Company in a contract dispute. Nonrecurring charges
of $2 million incurred during the third quarter of fiscal 1995 were
related to the 1995 facilities consolidation program.
Based on the Company's historical pretax income and losses, adjusted
for significant nonrecurring items such as the facilities consolidation
program, the change in accounting estimates and other nonrecurring
costs, together with management's projection of future taxable
income, management believes it is more likely than not that the
Company will realize the benefits of the net deferred tax asset existing
at June 30, 1996. In order to fully realize the net deferred tax asset
existing at June 30, 1996, the Company will need to generate future
taxable income of approximately $180 million, a significant portion of
which is required to be realized prior to the expiration of the net
operating loss (NOL) carryforwards, which will begin to expire in 2006.
The Company had previously reduced its deferred tax valuation
allowance systematically by utilizing projected taxable income over a
specified future period of time. Management currently believes,
considering the aforementioned items, the Company will generate
sufficient taxable income to absorb all net operating loss carryforwards
and deductible temporary differences prior to expiration of the NOLs,
and accordingly, in the third quarter reduced its deferred tax valuation
allowance by $21.6 million. The remaining deferred tax valuation
allowance of approximately $3.5 million, represents management's
best estimate of the portion of the deferred tax asset that may not be
realized. Due to the 1993 Corporate Readjustment, $11.6 million of
this reduction was credited directly to additional paid-in capital. The
remaining $10 million was credited directly to the tax provision. There
can be no assurance, however, that the Company will generate
sufficient taxable income or a specific level of continuing taxable
income in order to fully utilize the deferred tax assets in the future.
The provision for taxes for this period also reflects foreign, state and
local taxes.
The tax expense for the three months ended June 30, 1995 reflects
foreign, state and local taxes.
Results of Operations - Nine months ended June 30, 1996 compared
with nine months ended June 30, 1995.
Net sales for the first nine months of fiscal 1996 were $339.2 million
compared with net sales of $315.9 million for the first nine months of
fiscal 1995. The increase was primarily due to increased sales volume
at SEI, Hazeltine and PTI. Defense sales were $238 million and
commercial sales were $101.2 million for the first nine months of fiscal
1996 compared with defense and commercial sales of $250.1 million
and $65.8 million, respectively, in the first nine months of fiscal 1995.
The increase in commercial sales in fiscal 1996 was the result of
additional sales of material handling equipment at SEI, Radio Frequency
(RF) test equipment at EMC Test Systems and filtration products at
PTI.
The backlog of firm orders at June 30, 1996 was $473.5 million,
compared with $530.9 million at September 30, 1995. During the first
nine months of fiscal 1996, orders aggregating $281.8 million were
received, the most significant of which were for aircraft cargo loaders,
commercial filtration products, airborne electronic identification
systems and tank tansporters. This compares to $251.9 million of
orders received in the first nine months of fiscal 1995.
The gross profit percentage was 14.8% in the first nine months of
fiscal 1996 compared to 23% in the first nine months of fiscal 1995.
The decrease in gross profit percentage is primarily attributable to the
third quarter 1996 adjustment on the 60K Loader program and changes
in sales mix in both the defense and commercial segments.
Selling, general and administrative expenses for the first nine months
of fiscal 1996 were $52.9 million, or 15.6% of net sales, compared
with $55.9 million or 17.7% of net sales, for the same period a year
ago. The fiscal 1996 decrease in both spending and as a percentage of
sales is a result of successful cost containment programs throughout
the Company.
Interest expense increased to $4.3 million from $3.9 million as a result
of additional short-term borrowings and higher interest rates in fiscal
1996 as compared to fiscal 1995.
Other costs and expenses, net, were $4.7 million in the first nine
months of fiscal 1996 as compared to $7.4 million in the first nine
months of fiscal 1995. The decrease reflects the absence of
amortization of a contract guarantee fee previously paid to Emerson.
Nonrecurring charges of $25.3 million in the nine months ended June
30, 1996 represent the costs as disclosed in three months ended June
30, 1996. Nonrecurring charges of $30.2 million incurred during the
first nine months of fiscal 1995 were related to the facilities
consolidation program and the change in accounting estimates for
certain prepaid assets implemented in fiscal 1995.
The tax benefit recognized in the nine month period ended June 30,
1996 reflects state, local and foreign tax expense of $1 million, and a
federal deferred tax benefit of $10 million as described in the results
of operations for the three months ended June 30, 1996. In addition,
the Company recognized a federal deferred tax benefit of approximately
$15.7 million relating to the current quarter's pretax loss.
Tax expense in the nine month period ended June 30, 1995 reflects
foreign, state and local taxes.
Financial Condition
Working capital decreased to $44.2 million at June 30, 1996 from
$71.4 million at September 30, 1995. During the first nine months of
fiscal 1996, accounts receivable decreased by $4 million as a result of
cash collections. Inventories and costs and estimated earnings on long-
term contracts decreased by $19.7 million primarily due to the
nonrecurring adjustments in the quarter ended June 30, 1996.
Advance payments on long-term contracts decreased by $10.2 million
as production costs were incurred on certain foreign contracts.
Accounts payable and accrued expenses decreased by $1.4 million
during the first nine months of fiscal 1996 through payments necessary
to satisfy outstanding commitments at September 30, 1995.
Net cash used by operating activities was $8.7 million in the first nine
months of fiscal 1996 and $20.9 million in the same period of fiscal
1995, primarily due to the changes in operating working capital
mentioned above.
Capital expenditures were $6.5 million in the first nine months of
fiscal 1996 compared with $7.3 million in the first nine months of
fiscal 1995. Major expenditures in the current period include capitalized
facility costs at SEI, PTI and Rantec.
On July 22, 1996, the Company completed the sale of its Hazeltine
subsidiary, received $110 million in cash and repaid all outstanding
short-term borrowings and the $8 million subordinated term loan. The
remaining term debt, paid down from $18.5 million to $13 million, will
be amortized at $.325 million per quarter until maturity. The remaining
excess cash balance was invested in short-term accounts pending
management's application of the excess cash balances (SEE ITEM 5.
Other Information.).
PART II. OTHER INFORMATION
Item 5. Other Information.
The Company's Board of Directors has approved a major
share repurchase program that, subject to market conditions
and certain other factors, will use up to $40 million to $50
million of the proceeds from the sale of Hazeltine to buy
back shares of the Company's common stock. Depending
upon market conditions and other factors, the Company
expects to commence the share repurchase program within
the next 90 days.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Filed Herewith
or
Exhibit Incorporated
Number Description by Reference
2 Stock Purchase Agreement dated Incorporated by
as of May 23, 1996 (as amended Reference to
July 19, 1996) between the Form 8-K dated
Company and GEC-Marconi August 5, 1996
Electronic Systems Corporation at Exhibit 2
4 Amendment, Waiver and Consent
dated as of June 6, 1996 to the
Credit Agreement dated as of
September 23, 1990 (as amended
and restated as of September
29, 1995) among the Company,
Defense Holding Corp., the Banks
listed therein and Morgan Guaranty
Trust Company of New York, as Agent
(b) Reports on Form 8-K. There were no reports on Form 8-K
filed during the quarter ended June 30, 1996. Subsequently,
the registrant filed a Current Report on Form 8-K dated
August 5, 1996 related to the sale of Hazeltine to GEC.
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 ELECTRONICS CORPORATION
/s/ Philip M. Ford
Senior Vice President and
Chief Financial Officer
(as duly authorized officer and principal
financial officer of the registrant)
Dated: August 13, 1996
5
1,000
9-MOS
SEP-30-1996
JUN-30-1996
1,526
0
44,572
339
80,620
190,030
121,690
33,781
382,561
145,810
0
0
0
119
183,219
382,561
339,157
339,157
289,123
342,034
4,728
25,300
4,269
(37,174)
(22,099)
(15,075)
0
0
0
(15,075)
(1.35)
(1.35)
THIS NUMBER DOES NOT INCLUDE $59.0 MILLION OF COSTS AND ESTIMATED
EARNINGS ON LONG-TERM CONTRACTS.
>
EXHIBIT 4
AMENDMENT, WAIVER AND CONSENT dated as of June 6, 1996
(this Amendment) to the Credit Agreement dated as of
September 23, 1990 (as amended and restated as of
September 29, 1995) (the Credit Agreement), among ESCO
ELECTRONICS CORPORATION, a Missouri corporation (ESCO),
DEFENSE HOLDING CORP., a Delaware corporation (the
Borrower), the BANKS party thereto (the Banks) and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent
(the Agent).
A. Capitalized terms used and not otherwise
defined herein shall have the meanings assigned to them
in the Credit Agreement, as amended hereby.
B. ESCO and the Borrower have requested that
the Banks enter into this Amendment in order to permit
the potential sale of Hazeltine or its assets (the
Hazeltine Transaction). Hazeltine is one of the
Borrower's Subsidiaries. The Banks are willing to
permit the Hazeltine Transaction, subject to the terms
and conditions set forth herein.
Accordingly, in consideration of the mutual
agreements herein contained and other good and valuable
consideration, the sufficiency and receipt of which are
hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. Consent and Waiver. (a) Subject
to the conditions set forth in paragraph (b) below, the
undersigned Banks hereby consent to the Hazeltine
Transaction under Section 5.13(b) of the Credit
Agreement and waive compliance with the provisions of
Sections 5.11(d) and 5.12 of the Credit Agreement to
the extent, but only to the extent, necessary to allow
the use of the proceeds of the Hazeltine Transaction as
provided below.
(b) The foregoing consent and waiver shall
be subject to the satisfaction of the following
conditions:
(i) The Hazeltine Transaction shall be
consummated on or before September 30, 1996,
as a sale of all the outstanding capital
stock or all or substantially all of the
assets of Hazeltine for fair market value
(and in any event no less than $100,000,000)
and solely for cash consideration.
(ii) At the time of and after giving
effect to the Hazeltine Transaction, no
Default shall have occurred and be
continuing.
(iii) On the date of consummation of the
Hazeltine Transaction (the Hazeltine Closing
Date), the Agent shall have received a
certificate from the Borrower as to the
portion of the Borrowing Base (as reflected
in the most recent Borrowing Base Certificate
delivered prior to the Hazeltine Closing
Date) transferred as a result of the
Hazeltine Transaction. The Borrowing Base
shall thereupon be reduced to reflect the
consummation of the Hazeltine Transaction and
if on the Hazeltine Closing Date, after
giving effect to the Hazeltine Transaction,
the sum of the Letter of Credit Exposure plus
the aggregate outstanding principal amount of
the Working Capital Loans exceeds the
Borrowing Base, the Borrower shall forthwith
comply with Section 2.08(c) of the Credit
Agreement.
(iv) None of ESCO, the Borrower or any
Subsidiary shall have transferred any assets
to Hazeltine prior to the Hazeltine Closing
Date except in the ordinary course of
business.
(v) On or prior to the Hazeltine
Closing Date, unless the Borrower shall
choose to remain liable after the Hazeltine
Closing Date for all obligations and
liabilities under the Hazeltine Letters of
Credit, each Issuing Bank that shall have
issued any of the Hazeltine Letters of Credit
shall have received (A) letters of credit
issued to such Issuing Bank in respect of the
Hazeltine Letters of Credit issued by it, in
amounts equal to the Letter of Credit
Exposure in respect of such Hazeltine Letters
of Credit and issued by a bank and in a form
satisfactory to such Issuing Bank, supporting
the obligations to reimburse drawings under
such Hazeltine Letters of Credit, and (B) if
the Hazeltine Transaction is consummated as a
sale of assets, a written agreement,
satisfactory in form to such Issuing Bank,
signed by the purchaser of such assets, to
the effect that such purchaser assumes all
liability of the Borrower in respect of fees
payable in respect of such Hazeltine Letters
of Credit and obligations to reimburse Letter
of Credit Disbursements thereunder. If each
such Issuing Bank receives the letters of
credit and written agreement (if any) set
forth in (A) and (B) above on the Hazeltine
Closing Date, the Borrower shall pay all fees
in respect of the Hazeltine Letters of Credit
accrued through and including the Hazeltine
Closing Date.
(vi) On, or within one Business Day
after, the Hazeltine Closing Date, the
Borrower shall prepay Term Loans in the
aggregate principal amount of $6,000,000, if
such prepayment is made prior to June 30,
1996, or $5,500,000, if such prepayment is
made on or after June 30, 1996. As soon as
practicable after the Hazeltine Closing Date
and with such advance notice as is required
by the terms thereof, the Borrower shall
fully prepay the PTI Note.
SECTION 2. Amendment of the Credit
Agreement. The Credit Agreement is hereby amended as
follows:
(a) Section 1.01 of the Credit Agreement is
hereby amended as follows:
(i) The definition of Consolidated
Adjusted Net Income is hereby amended by
inserting an ending parenthesis after the
word nature at the end of such definition.
(ii) The definition of Letter of Credit
Exposure is hereby amended by inserting at
the end of the first sentence thereof: , but
the Letter of Credit Exposure shall not
include any drawn or undrawn amounts under
the Hazeltine Letters of Credit if and when
the Hazeltine Letters of Credit cease to
constitute Letters of Credit as provided in
Section 2.14(n).
(iii) The definition of Specified
Subsidiaries is hereby amended by inserting
at the end of such definition the following
proviso: ;provided that Hazeltine shall
cease to be a Specified Subsidiary upon
consummation of the Hazeltine Transaction.
(iv) The following definitions are
hereby added to Section 1.01 in their
appropriate alphabetical order:
Hazeltine Closing Date means the date of
consummation of the Hazeltine Transaction.
Hazeltine Letters of Credit means Letters of
Credit that will remain outstanding after consummation
of the Hazeltine Transaction and that are issued to
support an obligation of Hazeltine or for the account
of Hazeltine.
Hazeltine Transaction means the sale of all
the outstanding capital stock or all or substantially
all the assets of Hazeltine (and, in the case of an
asset sale, the liquidation of Hazeltine) in accordance
with the terms and conditions of Section 1 of the
Amendment, Waiver and Consent dated as of June 6, 1996,
relating to this Agreement.
Restricted Payment Amount means an amount
equal to the net cash proceeds of the Hazeltine
Transaction received by the Borrower less the sum of
the amounts applied to prepay Term Loans and the PTI
Note in connection with the Hazeltine Transaction as
required by the terms and conditions of Section 1 of
the Amendment, Waiver and Consent dated as of June 6,
1996, relating to this Agreement; provided that the
Restricted Payment Amount shall not exceed $50,000,000.
(b) The first sentence of Section 2.08(a) of
the Credit Agreement is hereby amended by inserting at
the end thereof the following proviso: ;provided that
if the Hazeltine Transaction is consummated, the
$500,000 amount referred to above shall be reduced to
$325,000 for payments due thereafter.
(c) Section 2.14 of the Credit Agreement is
hereby amended by inserting at the end thereof the
following additional paragraph:
(n) If the Hazeltine Transaction is
consummated in accordance with Section 1 of
the Amendment, Waiver and Consent dated as of
June 6, 1996, relating to this Agreement and
if each Issuing Bank that shall have issued
any of the Hazeltine Letters of Credit shall
have received the letters of credit and
written agreement (if any) referred to in
Section 1(b)(v) thereto, then on and as of
the Hazeltine Closing Date (i) the Hazeltine
Letters of Credit shall cease to constitute
Letters of Credit hereunder, (ii) the
Borrower, ESCO and the Subsidiaries shall be
released from their obligations and
liabilities in respect of the Hazeltine
Letters of Credit and (iii) the Banks shall
be released from their participations in the
Hazeltine Letters of Credit; provided that
(i) the Borrower shall indemnify the Issuing
Banks in respect of the Hazeltine Letters of
Credit for any failure by Hazeltine (or the
purchaser of its assets) to pay fees in
respect of the Hazeltine Letters of Credit
after the Hazeltine Closing Date, and
(ii) unless the Hazeltine Transaction is
consummated as a sale by Hazeltine of its
assets, Hazeltine shall not be released from
its obligations and liabilities in respect of
the Hazeltine Letters of Credit and shall
remain liable on and after the Hazeltine
Closing Date for the reimbursement of
drawings under the Hazeltine Letters of
Credit and for the payment of fees in respect
thereof to the respective Issuing Banks, all
on the terms specified in this Agreement
applicable to Letters of Credit,
notwithstanding any contrary provision herein
or in any other Loan Document.
(d) Section 5.12 of the Credit Agreement is
hereby amended as follows:
(i) Clause (ii)(b) of Section 5.12 is hereby
deleted and replaced with the following: (b) the
aggregate, cumulative dividends paid pursuant to
this clause (ii) does not exceed during any fiscal
year 25% of Consolidated Net Income for the next
preceding fiscal year of ESCO plus, if the
Hazeltine Transaction is consummated, additional
dividends not to exceed, on a cumulative basis
commencing with the Hazeltine Closing Date, the
Restricted Payment Amount less any amounts paid
for stock repurchases based on the Restricted
Payment Amount pursuant to clause (iii) below;
(ii) Clause (iii)(b) of Section 5.12 is
hereby deleted and replaced with the following:
(b) aggregate Restricted Payments pursuant to this
clause (iii) shall not exceed $5,000,000 during
the 12-month period ending on the date of such
purchase and shall not exceed $10,000,000 on a
cumulative basis commencing with September 30,
1995, plus, if the Hazeltine Transaction is
consummated, additional stock repurchases not to
exceed, on a cumulative basis commencing with the
Hazeltine Closing Date, the Restricted Payment
Amount less any amounts paid as cash dividends
based on the Restricted Payment Amount pursuant to
clause (ii) above;
(e) Section 5.13(a) of the Credit Agreement
is hereby amended by inserting at the end of the first
parenthetical clause appearing in clause (iii) of such
Section, immediately before the close of such
parenthetical clause, the following: ;provided that,
if the Hazeltine Transaction is consummated, then on
and after the Hazeltine Closing Date the foregoing
provisions of this parenthetical clause shall cease to
apply and, in lieu thereof, such cash consideration
shall not exceed, in any fiscal year, the excess of
$10,000,000 over the aggregate cumulative amount of
Investments made in such fiscal year in reliance upon
clause (g) of Section 5.16.
(f) Section 5.16 of the Credit Agreement is
hereby amended as follows:
(i) Section 5.16(c) thereof is hereby
deleted in its entirety.
(ii) Section 5.16(g)(iii) is hereby
amended by inserting at the end of Section
5.16(g)(iii) the following: ;provided that,
if the Hazeltine Transaction is consummated,
then on and after the Hazeltine Closing Date
the foregoing provisions of this Section
5.16(g)(iii) shall cease to apply and, in
lieu thereof, the aggregate cumulative amount
of all Investments made immediately after any
such Investment is made or acquired, in any
fiscal year made in reliance upon this
clause (g), shall not exceed the excess of
$10,000,000 over the aggregate cumulative
amount of consideration paid in such fiscal
year in respect of acquisitions made in
reliance upon clause (iii) of Section
5.13(a).
(g) Section 5.22 of the Credit Agreement is
hereby amended by inserting at the end thereof the
phrase minus (iv) if the Hazeltine Transaction is
consummated, the aggregate amount that Consolidated
Adjusted Tangible Net Worth is reduced as a result of
repurchases of ESCO capital stock or the payment of any
cash dividends to the holders of ESCO capital stock
pursuant to clause (ii) or (iii) of Section 5.12, but
only to the extent made in reliance upon the Restricted
Payment Amount.
SECTION 3. Representations and Warranties.
Each of ESCO and the Borrower hereby represents and
warrants to each Bank, on and as of the date hereof,
that:
(a) This Amendment has been duly authorized,
executed and delivered by each of ESCO and the
Borrower, and each of this Amendment and the Credit
Agreement as amended by this Amendment constitutes a
legal, valid and binding obligation of each of ESCO and
the Borrower, enforceable in accordance with its terms.
(b) The representations and warranties of
each of ESCO and Borrower contained in the Credit
Agreement and in each other Loan Document are true and
correct in all respects with the same effect as if made
on and as of the date hereof, except to the extent that
such representations and warranties expressly relate to
an earlier date.
(c) Before and after giving effect to this
Amendment, no Default has occurred and is continuing.
SECTION 4. Effectiveness. This Amendment
shall become effective upon receipt by the Agent of
counterparts hereof signed by each of ESCO, the
Borrower, the Required Banks and each Issuing Bank.
SECTION 5. Miscellaneous. (a) This
Amendment constitutes the entire agreement and
understanding of the parties with respect to the
subject matter hereof and supersedes any and all prior
agreements and understandings, oral or written,
relating to the subject matter hereof.
(b) Section headings used herein are for
convenience of reference only and are not to affect the
construction of, or to be taken into consideration in
interpreting, this Amendment.
(c) This Amendment shall be construed in
accordance with and governed by the law of the State of
New York.
(d) Each reference to a party hereto shall
be deemed to include its successors and assigns, all of
whom shall be bound by this Amendment and to whose
benefit the provisions of this Amendment shall inure.
(e) This Amendment may be executed in any
number of counterparts, each of which shall be an
original but all of which, when taken together, shall
constitute but one instrument.
(f) Except as specifically amended or
modified hereby, the Credit Agreement shall continue in
full force and effect in accordance with the provisions
thereof.
IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be duly executed by their
respective authorized officers as of the date first
above written.
ESCO ELECTRONICS CORPORATION
by
/s/ Donald H. Nonnenkamp
Name: Donald H. Nonnenkamp
Title: Vice President &
Treasurer
DEFENSE HOLDING CORP.
by
/s/ P.M. Ford
Name: P.M. Ford
Title: Sr. Vice President &
CFO
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Agent
by
/s/ Kevin J. O'Brien
Name: Kevin J. O'Brien
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
by
/s/ Kevin J. O'Brien
Name: Kevin J. O'Brien
Title: Vice President
THE BOATMAN'S NATIONAL BANK
OF ST. LOUIS
by
/s/ Debra G. Jansma
Name: Debra G. Jansma
Title: Vice President
THE BANK OF NEW YORK
by
/s/ John C. Lambert
Name: John C. Lambert
Title: Vice President
THE BANK OF NOVA SCOTIA
by
___________________________
Name:
Title:
THE SUMITOMO BANK, LIMITED
by
/s/ Teresa A. Lekich
Name: Teresa A. Lekich
Title: Vice President
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
by
/s/ Mark M. Harden
Name: Mark M. Harden
Title: Vice President
SANWA BUSINESS CREDIT
CORPORATION
by
/s/ Lawrence J. Placek
Name: Lawence J. Placek
Title: Vice President
