SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
Amendment No. 1
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended December 31, 1998
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 January 31, 1999:
12,273,963 receipts.
This Amendment No. 1 is filed to correct a typographical error in "Cash flows
from operating activities: Other" appearing in the Condensed Consolidated
Statements of Cash Flows (Unaudited) under Item 1. Financial Statements.
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
December 31,
--------------------
1998 1997
---- ----
Net sales $ 88,193 78,077
------- -------
Costs and expenses:
Cost of sales 65,299 56,048
Selling, general and administrative expenses 17,221 15,532
Interest expense 1,732 1,691
Other, net 1,610 1,071
------- -------
Total costs and expenses 85,862 74,342
------- -------
Earnings before income taxes 2,331 3,735
Income tax expense 816 1,125
------- -------
Net earnings before accounting change 1,515 2,610
------- -------
Cumulative effect of accounting change, net of tax (25,009) -
------- -------
Net earnings (loss) $(23,494) 2,610
========= =======
Earnings (loss) per share:
Earnings before accounting change: - Basic $ .12 .22
======== =======
- Diluted .12 .21
======== =======
Net earnings (loss) - Basic $ (1.91) .22
======== =======
- Diluted (1.91) .21
======== =======
See accompanying notes to condensed consolidated financial statements.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
December 31, September 30,
1998 1998
------------ -------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 5,286 4,241
Accounts receivable, less allowance
for doubtful accounts of $738 and
$664, respectively 54,335 51,530
Costs and estimated earnings on long-term
contracts, less progress billings of
$28,983 and $51,529, respectively 21,424 26,995
Inventories 60,634 81,579
Other current assets 3,775 2,776
------- -------
Total current assets 145,454 167,121
------- -------
Property, plant and equipment, at cost 151,880 150,332
Less accumulated depreciation and
amortization 55,609 52,323
------- -------
Net property, plant and equipment 96,271 98,009
Excess of cost over net assets of purchased
businesses, less accumulated amortization
of $5,148 and $4,557, respectively 71,978 72,512
Deferred tax assets 55,735 44,740
Other assets 22,866 26,920
------- -------
$392,304 409,302
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current
Maturities of long-term debt $ 46,500 30,111
Accounts payable 33,619 39,908
Advance payments on long-term contracts,
less costs incurred of $42,212 and
$5,046, respectively 17,135 11,442
Accrued expenses and other current
liabilities 19,548 25,346
------- -------
Total current liabilities 116,802 106,807
------- -------
Other liabilities 28,128 28,339
Long-term debt 48,176 50,077
------- -------
Total liabilities 193,106 185,223
------- -------
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
12,676,346 and 12,641,664 shares,
respectively 127 126
Additional paid-in capital 201,114 200,913
Retained earnings since elimination of
deficit at September 30, 1993 3,783 27,277
Cumulative foreign currency translation
adjustments 480 520
Minimum pension liability (2,260) (2,260)
-------- --------
203,244 226,576
Less treasury stock, at cost; 409,025
and 234,025 common shares, respectively (4,046) (2,497)
-------- --------
Total shareholders' equity 199,198 224,079
------- -------
$392,304 409,302
======= =======
See accompanying notes to condensed consolidated financial statements.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended
December 31,
------------------
1998 1997
---- ----
Cash flows from operating activities:
Net earnings (loss) after accounting change $(23,494) 2,610
Adjustments to reconcile net earnings (loss)
to net cash used by operating activities:
Depreciation and amortization 4,501 4,773
Changes in operating working capital,
net of accounting change (19,019) (21,448)
Effect of accounting change, net of tax 25,009 -
Other 2,751 219
------- -------
Net cash used by operating activities (10,252) (13,846)
------- -------
Cash flows from investing activities:
Capital expenditures (1,681) (3,747)
Acquisition of businesses, less cash acquired - (3,460)
------- -------
Net cash used by investing activities (1,681) (7,207)
------- -------
Cash flows from financing activities:
Net increase in short-term borrowings 16,500 18,500
Proceeds from long-term debt 96 -
Principal payments on long-term debt (2,108) (1,000)
Other (1,510) (530)
------- -------
Net cash provided by financing activities 12,978 16,970
------- -------
Net increase (decrease) in cash and cash
equivalents 1,045 (4,083)
Cash and cash equivalents, beginning of period 4,241 5,818
------- -------
Cash and cash equivalents, end of period $ 5,286 1,735
======= =======
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, consisting only of normal recurring
accruals, 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, 1998. Certain prior year amounts
have been reclassified to conform with the fiscal 1999 presentation.
The results for the three month period ended December 31, 1998 are not
necessarily indicative of the results for the entire 1999 fiscal year.
2. Earnings Per Share
The net loss per share for the first quarter of fiscal 1999, for both
basic and diluted loss per share, is calculated using the weighted
average number of common shares outstanding during the period. Basic
earnings per share, before accounting change, is calculated using the
weighted average number of common shares outstanding during the
period. Diluted earnings per share 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 performance shares by using the treasury stock method.
The number of shares used in the calculation of earnings (loss) per
share for each period presented is as follows (in thousands):
Three Months Ended
December 31,
------------------
1998 1997
---- ----
Weighted Average Shares Outstanding - Basic 12,310 11,818
Dilutive Options and Performance Shares 312 764
------ ------
Adjusted Shares - Diluted 12,622 12,582
====== ======
Options to purchase 298,000 shares of common stock at prices ranging
from $10.00-$19.22 per share and options to purchase 22,750 shares of
common stock at $18.00 were outstanding during the three month
periods ended December 31, 1998 and December 31, 1997, respectively,
but were not included in the respective computations of diluted EPS
because the options' exercise price was greater than the average
market price of the common shares. These options expire in 2007 and
2008. Approximately 166,000 and 167,000 performance shares were
outstanding but unearned at December 31, 1998, and 1997,
respectively, and therefore, were not included in the respective
computations of diluted EPS. The unearned performance shares expire
in 2001.
3. Inventories
Inventories consist of the following (dollars in thousands):
December 31, September 30,
1998 1998
------------ -------------
Finished goods $ 11,024 9,491
Work in process, including long-term
contracts 32,686 54,754
Raw materials 16,924 17,334
------- -------
Total inventories $ 60,634 81,579
======= =======
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
$16.5 million and $14 million at December 31, 1998 and September 30, 1998,
respectively.
4. Change in Accounting Principle
In April 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-up
Activities". This SOP is applicable to all non-governmental entities and
provides guidance on accounting for start-up activities, including
pre-contract start-up costs and organization costs. SOP 98-5 broadly defines
start-up costs as those one-time activities related to opening a new
facility, introducing a new product or service, conducting business in a new
territory, conducting business with a new class of customer or beneficiary,
initiating a new process in an existing facility, or commencing some new
operation. Start-up activities also include activities related to organizing
a new entity, commonly referred to as organization costs.
The Company had previously accounted for these costs under the existing
guidance provided by SOP 81-1,"Accounting for Performance of Construction-
type Contracts." Under SOP 81-1, costs incurred for a specific anticipated
contract were capitalized if those costs could be directly associated with
the specific anticipated contract, and if their recoverability from that
contract was probable. SOP 98-5 amends SOP 81-1 by requiring precontract,
start-up and organization costs to be expensed as incurred.
The Company is required to adopt this change in accounting principle no later
than the first quarter of fiscal year 2000. The Company decided to adopt the
provisions of SOP 98-5 in the first quarter of fiscal year 1999 ended
December 31, 1998. This change in accounting principle resulted in a
non-cash, after-tax charge of approximately $25 million, and was recognized
as a cumulative effect of an accounting change.
The after-tax charge related to precontract start-up, and organization costs
incurred in anticipation of specific future contract awards which were based
on specific customer-identified requirements. The after-tax charge is
comprised of the following programs: the Tunner 60K aircraft cargo loader at
SEI ($17.2 million); the Quiktrak automatic vehicle location system at the
Comtrak division of SEI ($2 million); the advanced video surveillance system
(Securvision) at Comtrak ($2 million); the Seawolf (U.S. Navy attach
submarine) valve and manifold ship set program at Vacco Industries
($1.9 million); and other minor programs which aggregate $1.9 million.
The impact of adopting SOP 98-5 on the results of operations for first
quarter ended December 31, 1998 was an increase to net earnings of
approximately $.5 million, or $.04 per share. The favorable impact noted is
primarily the net result of the absence of amortization expense related to
the previously capitalized start-up costs, net of additional costs expensed.
The after tax charge of adopting SOP 98-5 amounted to $25.0 million, or
$2.03 per basic and diluted share.
5. Comprehensive Income (Loss)
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
SFAS No. 130 requires the Company to disclose all non-owner changes included
in equity but not included in net earnings (loss) in a financial statement
that is displayed with the same prominence as other financial statements.
Prior year amounts have been conformed to the current year presentation.
Comprehensive loss for the three month period ended December 31, 1998 was
$23.5 million. Comprehensive income for the three month period ended
December 31, 1997 was $2.4 million. The Company's comprehensive income and
loss is impacted only by foreign currency translation adjustments,
net of tax.
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
Philip M. Ford
Senior Vice President
and Chief Financial Officer
(as duly authorized officer
and principal financial
Dated: February 25, 1999 officer of the registrant)
5
1,000
3-MOS
SEP-30-1999
DEC-31-1998
5,286
0
55,073
738
60,634
145,454
151,880
55,609
392,304
116,802
0
0
0
127
0
199,071
88,193
88,193
65,299
82,520
1,732
0
1,610
2,331
816
0
0
0
(25,009)
(23,494)
(1.91)
(1.91)
This number does not include $21.4 million of costs and estimated earnings on
long-term contracts.
