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): May 13, 2003
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.)
8888 Ladue Road, Suite 200, St. Louis, Missouri 63124-2056
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 314-213-7200
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
Exhibit No. Description of Exhibit
99.1 Press Release dated May 13, 2003
ITEM 9. REGULATION FD DISCLOSURE (INFORMATION PROVIDED UNDER ITEM 12. RESULTS OF
OPERATIONS AND FINANCIAL CONDITION)
Operations and Financial Information Furnished
On May 13, 2003, the Company issued a press release announcing its fiscal second
quarter 2003 financial and operating results. This press release is furnished as
Exhibit 99.1, and incorporated herein by reference.
In addition, the Company announced in a press release issued on May 2, 2003 that
a webcast of a second quarter conference call would be held on May 13, 2003.
The press release furnished herewith will be posted to the Company's website
located at http://www.escotechnologies.com and can be viewed through the
Investor Relations page of the website under the tab "Press Releases", although
the Company 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 Company's operating
results in a manner that is focused on the performance of the Company's ongoing
operations. The Company 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 "Net earnings excluding the after-tax charges
relating to the MSA and MTA," "EBIT from continuing operations," "EBIT excluding
the after-tax charges relating to the MSA and MTA," "Free cash flow," and
"EBITDA from continuing operations."
The Company defines "Net earnings excluding the after-tax charges relating to
the MSA and MTA" as net earnings excluding the special items described in the
press release. These special items comprise a one-time charge resulting from the
termination of a Manufacturing and Supply Agreement (MSA) with Whatman HemaSure
Inc., and costs resulting from the Management Transition Agreement between the
Company and its former Chairman (MTA). The Company's management uses this
information in evaluating the results of the continuing operations of the
Company and believes that this information provides investors with better
insight into the period over period financial performance of the Company.
The Company defines "EBIT from continuing operations" as earnings before
interest and taxes. The Company's management evaluates the performance of its
operating segments based on EBIT from continuing operations and believes that
EBIT from continuing operations is useful to investors to demonstrate the
operational profitability of the Company's business segments by excluding
interest and taxes, which are generally accounted for across the entire Company
on a consolidated basis. EBIT from continuing operations is also one of the
measures used by management in determining resource allocations within the
Company and incentive compensation.
"EBIT excluding the after-tax charges relating to the MSA and MTA": The Company
calculates this non-GAAP financial measure as EBIT of the Company's business
operations for the respective period, excluding the special items described
above in the discussion of "Net earnings excluding the after-tax charges
relating to the MSA and MTA." The Company's management uses this information in
evaluating the results of the continuing operations of the Company and believes
that this information provides investors with better insight into the period
over period financial performance of the Company.
The Company defines "Free cash flow" as "Net cash provided by operating
activities" less "Capital expenditures". The Company's management believes that
free cash flow is useful to investors and management as a supplemental financial
measurement in the evaluation of the Company's business and believes that free
cash flow may provide additional information with respect to the Company's
ability to meet its future debt service, capital expenditures and working
capital requirements. Free cash flow can also be reinvested in the Company for
future growth.
The Company defines "EBITDA from continuing operations" as earnings before
interest, taxes, depreciation and amortization. The Company's management uses
EBITDA as a supplemental financial measurement in the evaluation of the
Company's business and believes that EBITDA may provide additional information
with respect to the Company's ability to meet its future debt service, capital
expenditures and working capital requirements.
The presentation of net earnings excluding the after-tax charges relating to the
MSA and MTA, EBIT from continuing operations, EBIT excluding the after-tax
charges relating to the MSA and MTA, free cash flow, and EBITDA from continuing
operations, is intended to supplement investors' understanding of the Company's
operating performance. The Company'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, or comprehensive income (loss), as determined in
accordance with GAAP.
Other Matters
The information contained in this report, including Exhibit 99.1, shall not be
deemed to be "filed" for the 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 Company specifically incorporates it by reference in
a document filed under the Securities Act of 1933 as amended or the Exchange
Act.
Statements in this report, including Exhibit 99.1, regarding the Company's
ability to negotiate a successful settlement and/or enforce the terms of the
MSA, statements in the Chairman's comments concerning future closures,
consolidations and relocations, the associated costs and resulting savings to be
achieved, results to be achieved from future Filtration initiatives, future
fiscal 2003 revenues, gains/charges and earnings and 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 report. The Company's actual results in the future
may differ materially from those projected in the forward-looking statements due
to risks and uncertainties that exist in the Company's operations and business
environment including, but not limited to: further weakening of economic
conditions in served markets; changes in customer demands or customer
insolvencies; competition; intellectual property rights; the Company's
successful exploitation of acquired intellectual property rights; the success of
future Filtration initiatives adopted by Management; successful execution of
planned facility closures, consolidations and relocations with regard to the
Company's Puerto Rico facility and U.K. facility; the impact of FASB
Interpretation No. 46; consolidation of internal operations; integration of
recently acquired businesses; delivery delays or defaults by customers;
termination for convenience of customer contracts; timing and magnitude of
future contract awards; performance issues with key suppliers and
subcontractors; collective bargaining and labor disputes; changes in laws and
regulations including changes in accounting standards and taxation requirements;
litigation uncertainty; and the Company's successful execution of internal
operating plans.
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: May 13, 2003 By: /s/ G.E. Muenster
G.E. Muenster
Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description of Exhibit
99.1 Press release dated May 13, 2003
EXHIBIT 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 SECOND QUARTER RESULTS
St. Louis, MO, May 13, 2003 - ESCO Technologies Inc. (NYSE: ESE) today
reported that net earnings for the fiscal second quarter ended March 31
increased 8 percent to $5.6 million, or $0.43 per share, from $5.2 million, or
$0.40 per share in the prior year second quarter. The second quarter fiscal 2003
reported results include two previously disclosed after-tax charges totaling
$1.3 million, or $0.10 per share. The after-tax charges include $0.9 million, or
$0.07 per share, resulting from the termination of a Manufacturing and Supply
Agreement (MSA) with Whatman HemaSure Inc. (Whatman), and $0.4 million, or $0.03
per share, resulting from the Management Transition Agreement (MTA) between the
Company and its former Chairman who retired in April 2003.
Net earnings, excluding the after-tax charges related to the MSA and MTA,
increased 34 percent to $6.9 million, or $0.53 per share, compared to the $5.2
million, or $0.40 per share, in the prior year second quarter. The attached
financial tables provide a reconciliation of GAAP reported results to the
results of operations excluding the MSA and MTA charges.
Under the terms of the MSA, the Company's termination based on Whatman's
breach of contract entitles ESCO to recover its damages and certain specified
costs. The parties are involved in settlement discussions and Management
believes it will be successful in negotiating a settlement, or otherwise
enforcing its contractual rights and expects to recover an amount at least equal
to the charge taken in the fiscal second quarter.
In April 2003, the Company sold its Rantec Power Systems Inc. (Rantec)
subsidiary for $6 million plus future consideration. The Rantec financial
results, previously reported in the "Other" operating segment, are accounted for
as "discontinued operations" at March 31, 2003.
Sales for the second quarter of fiscal 2003 increased 32 percent to $112.2
million from $85.1 million in the prior year second quarter. Communications
segment sales increased 85 percent to $37.8 million as a result of significantly
higher shipments of DCSI's Automatic Meter Reading (AMR) equipment. Test
- more -
Add One
segment sales increased 46 percent in the second quarter to $24.3 million due to
$2.4 million of sales from the recently acquired acoustic business, additional
test chamber sales, and sales from the Company's Asian operations. Filtration
segment sales increased 4 percent to $50.1 million primarily as a result of
higher product shipments from the Company's Filtertek subsidiary.
Earnings Before Interest and Taxes (EBIT) from continuing operations for
the second quarter of fiscal 2003 were $9.5 million compared to $8.1 million in
the comparable prior year quarter. The net increase in EBIT resulted from the
profit contributions of the Company's Communications segment. Test segment EBIT
increased over the comparable prior year quarter as a result of the significant
increase in sales. EBIT in the Filtration segment was impacted in this fiscal
year's second quarter by a pretax charge of $1.5 million related to the MSA and
the continuing investment in Microfiltration and Separations. The MTA pretax
charge of $0.7 million is included in the "Other" segment.
EBIT, excluding the MSA and MTA, increased during the second quarter of
fiscal 2003 to $11.7 million, or 10.4 percent of sales, compared to the $8.1
million, or 9.5 percent of sales, in the prior year. For a reconciliation of
EBIT and of EBIT excluding the MSA and MTA, see the attached financial tables.
Six Months Year-to-Date
Net earnings for the six-month period increased 22 percent to $12.2
million, or $0.93 per share, from $10.0 million, or $0.77 per share in the prior
year six-month period. The year-to-date fiscal 2003 reported results include six
month year-to-date after-tax charges of $1.7 million, or $0.13 per share related
to the MSA and MTA.
Year-to-date net earnings, excluding the after-tax charges related to the
MSA and MTA, increased 39 percent to $13.9 million, or $1.06 per share. The
attached financial tables provide a reconciliation of GAAP reported results to
the results of operations excluding the MSA and MTA.
Six months year-to-date sales increased 33 percent to $221.5 million from
$166.7 million in the prior year comparable period. Communications segment sales
increased 94 percent to $77.4 million as a result of significantly higher
shipments of AMR equipment, primarily to PPL. Test segment sales increased by
27 percent in the first six months to $43.9 million due to the revenues from the
acoustic business acquisition, additional chamber sales and sales from the
Company's recently established Asian operations. Filtration segment sales
increased 8 percent to $100.2 million.
Earnings Before Interest and Taxes (EBIT) from continuing operations for
the first six months of fiscal 2003 increased 28 percent to $19.9 million
compared to $15.6 million in the comparable prior year period. The net increase
in EBIT resulted from the profit contributions of the Company's Communications
segment. Test segment EBIT increased slightly, as the contribution from the
increased sales was offset by the investments to expand the Company's presence
in China and Japan. EBIT in the Filtration segment was
- more -
Add Two
impacted in this year's six-month period by a pretax charge of $1.5 million
related to the MSA, the continuing investment in engineering and new product
development, and the costs related to establishing a new German sales and
support operation. The MTA pretax charge of $1.4 million is included in the
"Other" segment.
EBIT, excluding the MSA and MTA, increased during the first six months of
fiscal 2003 to $22.8 million, or 10.0 percent of sales, compared to the $15.6
million, or 9.4 percent of sales, in the prior year six months. For a
reconciliation of EBIT and of EBIT excluding the MSA and MTA, see the attached
financial tables. New orders in the second quarter and first six months of
fiscal 2003 were $102.3 million and $204.4 million, respectively, resulting in a
backlog at March 31, 2003 of $268.2 million. These amounts exclude discontinued
operations.
During the first six months of fiscal 2003, the Company generated $10.0
million of free cash flow, defined as "Net Cash Provided by Operating Activities
- - Continuing Operations" less "Capital Expenditures - Continuing Operations."
For a reconciliation of free cash flow, see the attached financial tables.
Victor L. Richey, Chairman and Chief Executive Officer, commented,
"Notwithstanding the MSA charge related to our dispute with Whatman, our second
quarter results in the aggregate were consistent with our expectations. However,
the disparity in the contribution between the segments continues to be an issue
in the context of meeting our longer-term objectives.
"In Communications, we are getting excellent results. Our focus continues
to be on strengthening the organization and broadening our product offering in
order to capitalize on the large and growing market for automatic meter reading
equipment.
"In the Test business, where the economy has presented significant
challenges over the past 18 months, our results are improving. The improvement
is a product of both a somewhat better market environment and the actions we
have taken to reduce our costs. As an additional step to improve our cost and
competitive position, we are streamlining our U.K. operations and centralizing
the management of our European Test operations. As indicated in the Business
Outlook Section of this release, the European consolidation will result in a
second half pretax charge of between $0.3 to $0.6 million. The consolidation
will be complete in fiscal 2003. These cost savings, coupled with the top line
growth we expect from our acoustic's business and recent Asian investments,
should position us well for the attainment of our aggregate longer-term
objectives in this segment.
"In Filtration, our results have been below expectations. While I am
extremely disappointed by our operating results in Filtration, I am pleased that
we concluded an agreement to resolve an intellectual property dispute related to
certain filtration products which will result in a pretax gain in the third
quarter between $2.1 and $2.3 million and contribute approximately $7.0 million
to our third quarter cash flow.
- more -
Add Three
"With respect to the erosion in our Filtration operating results, and after
having completed a thorough review of our operations and investments, I believe
that a number of significant steps are warranted to reposition our Filtration
business as a significant contributor. In that regard, at our May meeting, the
Company's Board of Directors approved Management's proposal to proceed with the
closure of our Filtration operation in Puerto Rico. The manufacturing will be
moved to existing Filtertek facilities in Hebron, Illinois and Juarez, Mexico.
The closure will result in a third quarter charge of $3.0 million to $4.0
million primarily related to writing down the Puerto Rico facility to the
appraised value. The cost of effecting the move over the next 12 months is
expected to be between $1.5 and $2.0 million. When the closure and relocation is
completed in fiscal 2004, we expect this action to result in at least $2.0
million of annual cost savings."
Mr. Richey continued, "With respect to the investments we have made in
Microfiltration and Separations which currently are significantly dilutive to
our earnings, my current assessment is that while the long-term prospects may be
good, we will be better served by narrowing our focus. To address this issue we
are considering a wide range of alternatives to deal with the performance of the
Microfiltration and Separations business. The actions being considered may
result in a material charge to future earnings.
"I am certain that when we complete our Filtration initiatives we will see
meaningful improvement in the operating results and cash flow. I also continue
to believe that a more focused Filtration business with a better cost and
competitive position can be a significant contributor to the growth and
prosperity of our company.
"As previously announced, in April we completed the sale of Rantec Power
Systems Inc. (Rantec) to a group of investors primarily comprised of Rantec's
management. The sale will result in a pretax gain of between $1.5 to $2.0
million in the third quarter. The sale of Rantec will allow key ESCO management
personnel to focus more fully on the reorientation of our Filtration business
and the development of our best opportunities across the company.
"I appreciate that what I have outlined is a lot to digest. To clarify the
financial impact of these initiatives we have included a table in the Business
Outlook section of this release. I also respect that the actions outlined
reflect a change in the near-term view of what we thought could be accomplished
in Filtration. However, I believe the actions are constructive and support
meeting the long-term objectives we have previously communicated.
"Finally, I want to summarize my view of ESCO today. In Communications, we
are getting extraordinary results and have good prospects. In Test, we have
excellent positions in our end markets and have largely completed the actions
required to deliver sustained profitable growth. In Filtration, we have
initiated significant actions to improve the profitability and cash flow and we
are reviewing additional steps to address the remaining issues. Taken together,
I am convinced that we will meet the mission and deliver continued improvement
in shareholder value."
- more -
Add Four
Fiscal 2003 Business Outlook
Statements contained in the preceding and following paragraphs are based on
current expectations. These statements are forward-looking, and actual results
may differ materially.
Revenues
Absent any additional fiscal 2003 acquisitions or divestitures, Management
expects year-over-year revenue growth of greater than 20 percent. In the
Communications segment, the Company expects revenue growth of greater than 40
percent excluding any contribution from fiscal 2003 AMR system orders from new
customers in the Investor Owned Utility (IOU) sector. In the Test segment, we
anticipate revenue growth of at least 25 percent, including the sales
contribution of the acoustic business acquired December 31, 2002. Filtration
segment revenue growth is expected to be in the low to mid-single-digit range.
Second Half Gains / Charges
As indicated in the Chairman's commentary, the Company expects to incur
certain gains and charges throughout the second half of fiscal 2003 related to
the following items and events. A summary table is provided below with narrative
following the table. The table and the footnotes should be read together. Items
(1), (2) and (3) have been identified in previous communications.
Total (Second Half) FY 03
($ in millions)/Gains (Charges) Future Pretax FY03 Pretax Timing Total Cash
------------------------------ ------------ ----------- ------ ----------
(1)Patent litigation settlement $5.9 - $6.1 $2.1 - $2.3 Q3 $7.0 - $7.3
(2)Rantec divestiture $1.5 - $2.0 $1.5 - $2.0 Q3 $6.0
(3)Whatman MSA settlement $1.5 - $2.3 $1.5 - $2.3 $0 - $0.8
(4)Puerto Rico facility exit ($3.0)-($4.0) ($3.0)-($4.0) Q3 $4.0 - $5.0
(5)Puerto Rico severance/move ($1.5)-($2.0) ($0.8)-($1.1) Q3/Q4($1.5)-($2.0)
(6) U.K. Test move/restructure ($0.3)-($0.6) ($0.3)-($0.6) Q3/Q4($0.2)-($0.5)
----- ----- ----- ----- - ------ -----
Totals/Ranges $2.3 - $5.6 ($0.6)- $2.5 $14.5 -$17.4
Note: The table does not include any potential impact of the alternatives being
considered to reorient the Microfiltration and Separations business as discussed
in the Chairman's commentary.
(1) During the third quarter, the patent litigation, related to the defense
of certain revenue generating patents used in the Company's Filtration / Fluid
Flow business, was settled with a $7.3 million cash payment expected to be
received by June 30, 2003. For accounting purposes, the pretax gain is
calculated as the gross proceeds, less the deferred legal costs incurred by the
Company to defend this patent. The net gain is allocated to past and future
licensing periods. The remaining unrealized gain will be recognized in pretax
income over the remaining eight years of the patent.
(2) The Rantec gain will be finalized after the post-closing balance sheet
is prepared, and the pretax gain will be recognized in the fiscal third quarter
of 2003. This gain will be included in discontinued operations. Cash of $6.0
million was received in April at closing. The Company is also entitled to
additional consideration based on the future operating results of Rantec.
- more -
Add Five
(3) Management has initiated litigation against Whatman in order to recover
the amount it is entitled to under the terms of the MSA contract. The Company
was required to take the $1.5 million pretax charge in the fiscal second quarter
related to the buyout of the remaining lease term for manufacturing equipment
that was unique to the production of leukocyte filters. In accordance with GAAP,
the charge was required because a settlement was not reached before the date of
this release. Since the equipment lease buy-out amount has been fully expensed,
the proceeds of any settlement or court determined award will be recognized as a
pretax gain when the settlement is finalized or litigation is concluded. This
item also relates to the Filtration / Fluid Flow operating segment.
(4) The Puerto Rico facility exit costs include the write-down of the
building and equipment from their respective carrying value to their estimated
net realizable value. Management expects the building to be sold within the next
18 months. These exit costs will be recognized as a third quarter fiscal 2003
charge in accordance with recently adopted accounting rules related to exit and
restructuring costs and will be included in the Filtration / Fluid Flow
operating segment.
(5) The Puerto Rico severance and move costs consist of personnel severance
costs including the Company fulfilling its collective bargaining obligations
with the Union representing the hourly employees at this location and costs
relating to physically moving the manufacturing equipment to its new location
and other related costs, and will be recognized as period costs when incurred.
Management expects the move to be complete within the next 12 months.
(6) The U.K. Test move / restructure costs primarily relate to severance,
write-offs of leasehold improvements, and moving costs as a result of
consolidating a portion of the operating facilities. These costs will be
included in the Test operating segment.
Synthetic Lease Obligation
As previously disclosed in the Company's Form 10-Q for December 31, 2002,
the Company has a $31.5 million obligation under a synthetic lease facility
arranged by Bank of America. For GAAP purposes, this is accounted for as an
operating lease. This obligation is secured by leases of three manufacturing
locations, two of which are located in Oxnard, CA (Filtration/Fluid Flow) and
the other in Cedar Park, TX, (Test) as well as a $10.6 million letter of credit
issued under the Company's $70 million credit facility. The leases expire on
December 29, 2005 at which time the Company will be required to extend the
leases on terms to be negotiated, purchase the properties for $31.5 million, or
refinance the obligation.
The Financial Accounting Standards Board (FASB) recently issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" which
provides guidance related to identifying variable interest entities and
determining whether such entities should be consolidated. The Company is
currently reviewing the impact of this new FASB interpretation and the possible
consolidation of the synthetic lease obligation.
- more -
Add Six
Upon consolidation, the Company expects to record an after-tax charge reported
as a cumulative effect of a change in accounting principle of approximately $1.4
million, or $0.11 per share, during the fiscal 2003 fourth quarter.
Earnings Per Share
Beyond the items included in the "Second Half Gains / (Charges)" section
above, and any charge that might result from the actions outlined in the
Chairman's commentary regarding the potential reorientation of the
Microfiltration and Separations business, there has been no fundamental change
in our aggregate outlook for fiscal 2003.
Considering the numerous potential gains and charges described above which
will impact both the amount and the timing of GAAP reported earnings per share
(EPS) throughout the third and fourth fiscal quarters, and giving consideration
to the uncertainties and estimates surrounding the outcome of the final amounts
of these items, Management estimates the range of fiscal 2003 GAAP EPS to be
between $1.75 to $2.00 per share, including the $0.11 per share after-tax charge
reported as a cumulative effect of a change in accounting principle related to
the Synthetic Lease, but excluding any charge that might arise from actions
taken to reorient the Microfiltration and Separations business.
Conference Call
The Company will host a conference call today, May 13, 2003, at 9:30 a.m.,
Central Daylight Time (CDT), to discuss the Company's fiscal 2003 second quarter
operating results. A live audio web cast will be available on the Company's web
site at www.escotechnologies.com. Please access the web site at least fifteen
minutes prior to the call to register, download and install any necessary audio
software.
A replay of the conference call will be available today from 12:30 p.m.,
CDT, until 11:59 p.m., CDT on May 20, 2003. To access the replay, dial
1-888-203-1112 and enter the pass code 334929. In addition, a replay will be
available for seven days on the Company's website noted above.
Forward Looking Statements
Statements in this press release regarding the Company's ability to
negotiate a successful settlement and/or enforce the terms of the MSA,
statements in the Chairman's comments concerning future closures, consolidations
and relocations, the associated costs and resulting savings to be achieved,
results to be achieved from future Filtration initiatives, future fiscal 2003
revenues, gains/charges and earnings and 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. The Company's actual results
- more -
Add Seven
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: further weakening of
economic conditions in served markets; changes in customer demands or customer
insolvencies; competition; intellectual property rights; the Company's
successful exploitation of acquired intellectual property rights; the success of
future Filtration initiatives adopted by Management; successful execution of
planned facility closures, consolidations and relocations with regard to the
Company's Puerto Rico facility and U.K. facility; the impact of FASB
Interpretation No. 46; consolidation of internal operations; integration of
recently acquired businesses; delivery delays or defaults by customers;
termination for convenience of customer contracts; timing and magnitude of
future contract awards; performance issues with key suppliers and
subcontractors; collective bargaining and labor disputes; changes in laws and
regulations including changes in accounting standards and taxation requirements;
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.
- tables attached -
Add Eight
ESCO Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months
Three Months Ended Ended
March 31, March 31,
-------- --------
GAAP Operational(1)
2003 Adj. 2003 2002
---- ---- ---- ----
Net Sales $112,197 112,197 85,096
Cost and Expenses:
Cost of sales 77,336 77,336 57,022
SG&A 22,786 (730)(2) 22,056 19,417
Interest expense
(income) (23) (23) 59
Other expenses, net 2,559 (1,489)(3) 1,070 585
----- ------ -- ----- ---
Total costs and
expenses 102,658 100,439 77,083
------- ------- ------
Earnings before
income taxes 9,539 11,758 8,013
Income taxes 3,879 909(4) 4,788 3,004
----- ----- ----- -----
Net earnings from
continuing
operations 5,660 1,310 6,970 5,009
Earnings (loss) from
discontinued operations,
net of tax (5) (29) (29) 184
--- --- ---
Net earnings $ 5,631 6,941 5,193
======== ===== =====
Earnings per share:
Basic $ 0.45 0.55 0.42
======== ==== ====
Diluted $ 0.43 0.53 0.40
======== ==== ====
Average common shares O/S:
Basic 12,627 12,627 12,477
====== ====== ======
Diluted 13,072 13,072 13,063
====== ====== ======
(1) Represents results on a comparable operational basis, after the
adjustments noted below.
(2) Excludes the cost of the previously disclosed Management
Transition Agreement (MTA) between the Company and its former
Chairman. (The related tax adj. is $297).
(3) Excludes the charge of $1,489 resulting from an equipment
lease termination related to the previously disclosed Whatman
HemaSure Manufacturing and Supply Agreement (MSA) dispute
(Filtration segment). (The related tax adj. is $612.) See
previous disclosure on page 9 of ESCO's Form 10-Q for the
period ended December 31, 2002.
(4) Represents the tax impact of items (2) and (3) described above.
(5) Relates to Rantec Power Systems, Inc. (Rantec), which was
divested on April 11, 2003 and is classified as "discontinued
operations."
- more -
Add Nine
ESCO Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Six Months
Six Months Ended Ended
March 31, March 31,
------- --------
GAAP Operational(1)
2003 Adj. 2003 2002
---- --- ---- ----
Net Sales $221,484 221,484 166,675
Cost and Expenses:
Cost of sales 152,462 152,462 112,753
SG&A 45,351 (1,411)(2) 43,940 37,412
Interest expense
(income) (78) (78) 107
Other expenses, net 3,727 (1,489)(3) 2,238(5) 874(6)
----- ------ ------- -----
Total costs and
expenses 201,462 198,562 151,146
------- ------- -------
Earnings before
income taxes 20,022 22,922 15,529
Income taxes 7,852 1,170(4) 9,022 5,824
----- ------- ----- -----
Net earnings from
continuing
operations 12,170 1,730 13,900 9,705
Earnings (loss) from
discontinued operations,
net of tax (7) 13 (29) 260
-- -- --- ---
Net earnings $ 12,183 13,871 9,965
======== ====== =====
Earnings per share:
Basic $ 0.97 1.10 0.80
======== ==== ====
Diluted $ 0.93 1.06 0.77
======== ==== ====
Average common shares O/S:
Basic 12,590 12,590 12,448
====== ====== ======
Diluted 13,056 13,056 12,993
====== ====== ======
(1) Represents results on a comparable operational basis, after the
adjustments noted below.
(2) Excludes the cost of the previously disclosed MTA between the Company
and its former Chairman. (The related tax adj. is $558).
(3) Excludes the charge of $1,489 resulting from an equipment lease
termination related to the previously disclosed Whatman HemaSure MSA
Dispute (Filtration segment). (The related tax adj. is $612.) See
previous disclosure on page 9 of ESCO's Form 10-Q for the period ended
December 31, 2002.
(4) Represents the tax impact of items (2) and (3) described above.
(5) Principal components include the following: $1.0 million of patent and
other intangible amortization, and $0.2 million of exit costs incurred
in the first fiscal quarter related to the Brooklyn Park, MN facility.
(An additional $0.2 million was included in Cost of Sales, for a total
charge of $0.4 million to exit the MN facility during the first fiscal
quarter.)
(6) Principal components include the following: $0.6 million of patent and
other intangible amortization; $0.3 million of exit costs related to the
Company's joint venture in India (Filtration segment); offset by a $0.4
million gain from insurance proceeds related to a former subsidiary.
(7) Relates to Rantec which was divested on April 11, 2003 and is classified
as "discontinued operations."
- more -
Add Ten
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information
(Unaudited)
(Dollars in millions)
Three Months Six Months
Ended March 31, Ended March 31,
--------------- ---------------
2003 2002 2003 2002
---- ---- ---- ----
Net Sales (Continuing Operations)
Filtration $ 50.1 48.0 100.2 92.4
Communications 37.8 20.4 77.4 39.8
Test 24.3 16.7 43.9 34.5
---- ---- ---- ----
Totals $112.2 85.1 221.5 166.7
====== ==== ===== =====
EBIT (Continuing Operations)(1)
Filtration $ --(2) 3.1 1.7(2) 5.4
Communications 8.8 4.9 18.2 9.2
Test 1.8 0.9 2.6 2.3
Other (1.1)(3) (0.8) (2.6)(4) (1.3)
---- ---- ---- ----
Totals $ 9.5 8.1 19.9 15.6
====== === ==== ====
(1) EBIT is defined as Earnings Before Interest and Taxes and
excludes the discontinued operations of Rantec.
(2) Includes the pre-tax charge of $1.5 million resulting from an
equipment lease termination related to the previously
disclosed Whatman HemaSure MSA dispute. See previous
disclosure on page 9 of ESCO's Form 10-Q for the period ended
December 31, 2002. The six month period ended March 31, 2003
includes $0.4 million of costs to exit the Brooklyn Park, MN
facility.
(3) Amount consists of unallocated corporate operating charges,
which includes $0.7 million of MTA costs recorded in the
second quarter of fiscal 2003.
(4) Amount consists of unallocated corporate operating charges,
which includes $1.4 million of MTA costs recorded in the
first six months of fiscal 2003.
- more -
Add Eleven
ESCO Technologies Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(Dollars in thousands)
EBIT from continuing operations
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
EBIT $ 9,516 $ 8,072 $19,944 $15,636
Interest expense
(income) (23) 59 (78) 107
Less: Income taxes 3,879 3,004 7,852 5,824
----- ----- ----- -----
Net earnings from
continuing operations $ 5,660 $ 5,009 $12,170 $ 9,705
======= ======= ======= =======
EBIT, excluding charges relating to the MSA and MTA
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
---- ---- ---- ----
EBIT $ 9,516 $ 8,072 $19,944 $15,636
MSA charge 1,489 -- 1,489 --
MTA charge 730 -- 1,411 --
--- ----- ----- -----
EBIT, excluding MSA
and MTA charges $11,735 $ 8,072 $22,844 $15,636
======= ======= ======= =======
EBITDA from continuing operations
Q2 FY Q2 FY YTD FY YTD FY
2003 2002 2003 2002
---- ---- ---- ----
EBITDA $13,443 $10,786 $26,975 $21,484
Interest expense
(income) (23) 59 (78) 107
Less: Income taxes 3,879 3,004 7,852 5,824
Less: Depreciation 2,795 2,411 5,420 5,228
Less: Amortization 1,132 303 1,611 620
----- --- ----- ---
Net earnings from
continuing operations $ 5,660 $ 5,009 $12,170 $ 9,705
======= ======= ======= =======
- more -
Add Twelve
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
March 31, September 30,
2003 2002
---- ----
(Unaudited)
Assets
Cash and cash equivalents $ 29,657 $ 25,160
Accounts receivable, net 78,034 67,347
Costs and estimated earnings on
long-term contracts 4,793 2,951
Inventories 63,464 50,991
Current portion of deferred tax assets 20,038 22,796
Other current assets 7,511 8,500
----- -----
Total current assets 203,497 177,745
Property, plant and equipment, net 68,443 66,254
Goodwill 105,078 103,283
Deferred tax assets 24,062 26,950
Other assets 26,077 26,219
Assets from discontinued operations (1) 6,951 7,501
----- -----
$434,108 $407,952
======== ========
Liabilities and Shareholders' Equity
Short-term borrowings and current
maturities of long-term debt $ 67 $ 121
Other current liabilities 77,181 67,357
------ ------
Total current liabilities 77,248 67,478
Other liabilities 24,271 24,313
Long-term debt 8,086 8,277
Liabilities from discontinued
operations (1) 1,877 1,956
Shareholders' equity 322,626 305,928
------- -------
$434,108 $407,952
======== ========
(1) Relates to Rantec, which was divested on April 11, 2003 and
is classified as "discontinued operations."
- more -
Add Thirteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months
Ended
March 31,
2003
----
Cash flows from operating activities:
Net earnings $ 12,183
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 7,031
Changes in operating working capital (8,843)
Effect of deferred taxes 2,888
Other 2,683
-----
Net cash provided by operating
activities-continuing operations 15,942
Net cash used by discontinued operations(1) (329)
----
Net cash provided by operating activities 15,613
------
Cash flows from investing activities:
Capital expenditures - continuing operations (5,899)
Acquisition of businesses (5,364)
Capital expenditures of discontinued operations (1) (119)
----
Net cash used by investing activities (11,382)
-------
Cash flows from financing activities:
Net decrease in short-term borrowings (54)
Proceeds from long-term debt 0
Principal payments on long-term debt (626)
Other 1,014
-----
Net cash provided by financing activities 334
---
Net increase in cash and cash equivalents -
continuing operations 4,565
Net decrease in cash and cash equivalents -
discontinued operations(1) (68)
Cash and cash equivalents, beginning of period 25,160
------
Cash and cash equivalents, end of period $ 29,657
========
Changes in Working Capital(2):
Accounts Receivable $ (9,648)
Costs and Estimated Earnings on Long-Term
Contracts/Inventories (13,205)
Accounts Payable/Accruals 10,168
Other Current Assets/Other Current Liabilities 3,842
-----
$ (8,843)
========
(1) Relates to Rantec, which was divested on April 11, 2003 and
is classified as "discontinued operations."
(2) Includes the impact of fiscal 2003 acquisitions.
- more -
Add Fourteen
ESCO Technologies Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures (Unaudited)
(Dollars in thousands)
Free Cash Flow(1)
Six Months
----------
Ended March 31,
---------------
2003
----
Net cash provided by operating activities -
continuing operations $15,942
Less: Capital Expenditures - continuing operations 5,899
-----
Free cash flow $10,043
=======
(1) Excludes the discontinued operations of Rantec.
- more -
Add Fifteen
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data
(Unaudited)
(Dollars in thousands)
Backlog And Entered
-------------------
Orders-Q2 FY 2003 Filtration Comm. Test Other Total
----------------- ---------- ----- ---- ----- -----
Beginning Backlog-
12/31/02 $ 86,740 155,751 35,622 7,602 285,715
Entered Orders 52,829 22,202* 27,254 -- 102,285
Sales (50,048) (37,832)*(24,317) -- (112,197)
Less: Discontinued
Operations -- -- -- (7,602) (7,602)
---- ---- ---- ------ ------
Ending Backlog-
3/31/03 $ 89,521 140,121 38,559 -- 268,201
======== ======= ====== ===== =======
Backlog And Entered
-------------------
Orders-YTD FY 2003 Filtration Comm. Test Other Total
------------------ ---------- ----- ---- ----- -----
Beginning Backlog-
9/30/02 $ 80,305 170,668 34,315 7,957 293,245
Entered Orders 109,416 46,804* 48,177 -- 204,397
Sales (100,200) (77,351)*(43,933) -- (221,484)
Less: Discontinued
Operations -- -- -- (7,957) (7,957)
----- ----- ----- ----- -----
Ending Backlog-
3/31/03 $ 89,521 140,121 38,559 -- 268,201
======== ======= ====== ===== =======
Q2 FY 2003 Q2 FY YTD FY 2003 YTD FY
Entered 2003 Entered 2003
*Communications Recap: Orders Sales Orders Sales
--------------------- ------ ----- ------ -----
AMR Products (DCSI) $ 19,521 35,124 41,101 71,567
SecurVision Video
Security (Comtrak) 2,681 2,708 5,703 5,784
----- ----- ----- -----
Total 22,202 37,832 46,804 77,351
Sales to PPL 0 (15,196) 0 (37,827)
------ ------- ------ -------
Excluding PPL $ 22,202 22,636 46,804 39,524
======== ====== ====== ======
EBITDA(Continuing
Operations)(1) Q2 FY Q2 FY YTD FY YTD FY
2003 2002 2003 2002
---- ---- ---- ----
EBIT $ 9,516 8,072 19,944 15,636
Depreciation 2,795 2,411 5,420 5,228
Amortization 1,132 303 1,611 620
----- --- ----- ---
EBITDA $ 13,443 10,786 26,975 21,484
======== ====== ====== ======
(1) Excludes Rantec in all periods presented.
PP&E (Continuing YTD FY
----------------
Operations) 2003
---------- ----
Beginning Balance-9/30/02 $ 66,254
Capital Expenditures 5,899
Depreciation (5,420)
Acquisitions 1,327
Other 383
------
Ending Balance-3/31/03 $ 68,443
========
# # #