SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 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 April 30, 1996:
11,265,238 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)
<TABLE>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Net sales $ 117,444 109,797
Costs and expenses:
Cost of sales 92,336 84,145
Selling, general and administrative expenses 18,577 20,031
Interest expense 1,425 1,281
Other, net 857 2,276
Nonrecurring charges 17,362
Total costs and expenses 113,195 125,095
Earnings (loss) before income taxes 4,249 (15,298)
Income tax expense (benefit) 1,835 (250)
Net earnings (loss) $ 2,414 (15,048)
Earnings (loss) per share, primary and fully diluted $ .20 (1.37)
</TABLE>
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)
<TABLE>
Six Months Ended
March 31,
1996 1995
<S> <C> <C>
Net sales $ 230,054 207,988
Costs and expenses:
Cost of sales 181,526 159,387
Selling, general and administrative expenses 35,468 37,212
Interest expense 2,814 2,385
Other, net 2,613 4,673
Nonrecurring charges 28,276
Total costs and expenses 222,421 231,933
Earnings (loss) before income taxes 7,633 (23,945)
Income tax expense 3,297 155
Net earnings (loss) $ 4,336 (24,100)
Earnings (loss) per share, primary and fully diluted $ .37 (2.20)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
March 31, September 30,
1996 1995
Assets (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,116 320
Accounts receivable, less allowance for doubtful
accounts of $299 and $242, respectively 44,502 48,224
Costs and estimated earnings on long-term contracts, less
progress billings of $85,416 and $72,194 respectively 64,625 51,923
Inventories 105,182 107,421
Other current assets 4,092 3,975
Total current assets 221,517 211,863
Property, plant and equipment, at cost 120,176 116,226
Less accumulated depreciation and amortization 30,653 24,747
Net property, plant and equipment 89,523 91,479
Excess of cost over net assets of purchased businesses, less
accumulated amortization of $1,324 and $1,051 respectively 20,217 20,490
Other assets 53,686 54,169
$ 384,943 378,001
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 53,500 39,000
Accounts payable 35,196 42,327
Advance payments on long-term contracts, less costs incurred
of $20,072 and $2,816, respectively 16,752 19,617
Accrued expenses and other current liabilities 35,151 39,510
Total current liabilities 140,599 140,454
Other liabilities 31,657 31,840
Long-term debt 22,415 23,452
Total liabilities 194,671 195,746
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 11,786,834 and 11,574,420 shares, respectively 118 116
Additional paid-in capital 214,110 210,205
Retained earnings (deficit) since elimination of deficit of $60,798 at
September 30, 1993 (17,616) (21,952)
Cumulative foreign currency translation adjustment 51 292
Minimum pension liability (1,998) (1,998)
194,665 186,663
Less treasury stock, at cost; 568,372 and 570,472 common shares,
respectively (4,393) (4,408)
Total shareholders' equity 190,272 182,255
$ 384,943 378,001
</TABLE>
See accompanying notes to condensed consolidated financial statements.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
Six Months Ended
March 31,
1996 1995
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss) $ 4,336 (24,100)
Adjustments to reconcile net earnings (loss) to net cash
used by operating activities:
Depreciation and amortization 7,093 6,951
Changes in operating working capital (21,213) (12,332)
Write-off of prepaid assets 19,555
Other 3,284 (3,746)
Net cash used by operating activities (6,500) (13,672)
Cash flows from investing activities:
Capital expenditures (4,510) (5,275)
Acquisition of business, less cash acquired (1,596)
Net cash used by investing activities (4,510) (6,871)
Cash flows from financing activities:
Net increase in short-term borrowings 14,500 20,000
Proceeds from long-term debt 1,490
Principal payments on long-term debt (1,037) (1,029)
Other 343 500
Net cash provided by financing activities 13,806 20,961
Net increase in cash and cash equivalents 2,796 418
Cash and cash equivalents at beginning of period 320 2,656
Cash and cash equivalents at end of period $ 3,116 3,074
</TABLE>
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, 1995. Certain prior year amounts have been
reclassified to conform with the fiscal 1996 presentation. The fiscal
year 1995 second quarter and six month periods ended March 31, 1995
have been restated, as previously disclosed.
The results for the three and six month periods ended March 31, 1996
are not necessarily indicative of the results for the entire 1996
fiscal year.
2. Earnings (Loss) Per Share
Earnings per share are based on the weighted average number of common
shares outstanding plus shares issuable upon the assumed exercise of
dilutive common share options and performance shares by using the
treasury stock method. Loss per share is based on the weighted average
number of common shares outstanding. For the three month period ended
March 31, 1996, primary and fully diluted earnings per share are
computed using 11,810,203 and 11,950,667 common shares and common share
equivalents outstanding, respectively. For the six month period ended
March 31, 1996, primary and fully diluted earnings per share are
computed using 11,579,474 and 11,824,245 common shares and common
share equivalents outstanding, respectively. For the quarter and six
month periods ended March 31, 1995, loss per share is computed using
10,961,536 and 10,965,395 common shares outstanding, respectively.
3. Inventories
Inventories consist of the following (dollars in thousands):
<TABLE>
March 31, September 30,
1996 1995
<S> <C> <C>
Finished Goods $ 5,205 4,442
Work in process on long-term contracts 85,553 92,559
Raw materials 14,424 10,420
Total inventories $ 105,182 107,421
</TABLE>
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 $13,197,000 and $8,519,000 at
March 31, 1996 and September 30, 1995,
respectively.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations - Three months ended March 31, 1996 compared with
three months ended March 31, 1995.
Net sales of $117.4 million for the second quarter of fiscal 1996 increased
$7.6 million (6.9%) from net sales of $109.8 million for the second quarter
of fiscal 1995. The increase was primarily due to increased volume of
commercial sales at Systems & Electronics Inc. (SEI) and PTI. Defense sales
were $84.7 million and commercial sales were $32.7 million for the second
quarter of fiscal 1996, compared with defense and commercial sales of
$90.5 million and $19.3 million, respectively, in the second quarter of
fiscal 1995. The increase in commercial sales in the second quarter of
fiscal 1996 reflects additional sales of material handling equipment at SEI
and filtration products at PTI.
The backlog of firm orders at March 31, 1996 was $500.6 million, compared
with $530.9 million at September 30, 1995. During the second quarter of
fiscal 1996 new orders aggregating $91.1 million were received, compared
with $66.9 million in the second quarter of fiscal 1995. The most
significant orders in the current period were for tank transporters,
aircraft cargo loaders, and airborne radar equipment.
The gross profit percentage was 21.4% in the second quarter of fiscal 1996
and 23.4% in the second quarter of fiscal 1995. The fiscal 1996 second
quarter gross margin percentage 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 second quarter of
fiscal 1996 were $18.6 million, or 15.8% of net sales, compared with
$20 million, or 18.2% of net sales, for the same period a year ago.
The fiscal 1996 second quarter 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 $1.4 million from $1.3 million as a result
of additional short-term borrowings and higher interest rates in the
second quarter of fiscal 1996 as compared to the second quarter of
fiscal 1995.
Other costs and expenses, net, were $.9 million in the second quarter of
fiscal 1996 compared to $2.3 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 $17.4 million incurred during the second quarter
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 effective income tax rate in the second quarter of fiscal 1996 was
43.2%. Consistent with the policy implemented during fiscal 1995, the
Company decreased its deferred tax valuation allowance by $.1 million
during the quarter ended March 31, 1996. The impact of the Federal tax
provision and the reduction in deferred tax valuation allowance were
accounted for as credits to additional paid-in capital.
The effective tax rate for the three month period ended March 31, 1995
reflects foreign, state and local taxes and a $.3 million benefit for
deferred tax assets originating subsequent to the accounting readjustment
in fiscal 1993. The Company decreased its net deferred tax valuation
allowance by $9.1 million during this period, of which $8.8 million was
credited directly to additional paid-in capital.
Results of Operations - Six months ended March 31, 1996 compared with
six months ended March 31, 1995.
Net sales for the first six months of fiscal 1996 were $230.1 million
compared with net sales of $208 million for the first six months of fiscal
1995. The increase was primarily due to increased sales volume at SEI, PTI
and Hazeltine. Defense sales were $167.7 million and commercial sales were
$62.3 million for the first six months of fiscal 1996 compared with defense
and commercial sales of $168.2 million and $39.8 million, respectively, in
the first six months of fiscal 1995. The increase in commercial sales in
fiscal 1996 was the result of additional sales of material handling
equipment at SEI and filtration products at PTI.
The backlog of firm orders at March 31, 1996 was $500.6 million, compared
with $530.9 million at September 30, 1995. During the first six months of
fiscal 1996, orders aggregating $199.7 million were received, the most
significant of which were for aircraft cargo loaders, airborne electronic
identification systems, commercial filtration products and tank
transporters. This compares to $179.5 million of orders received in the
first six months of fiscal 1995.
The gross profit percentage was 21.1% in the first six months of fiscal
1996 compared to 23.4% in the first six months of fiscal 1995. The decrease
in gross profit percentage is attributable to changes in sales mix in both
the defense and commercial segments.
Selling, general and administrative expenses for the first six months of
fiscal 1996 were $35.5 million, or 15.4% of net sales, compared with
$37.2 million or 17.9% 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 $2.8 million from $2.4 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 were $2.6 million in the first six months of
fiscal 1996 as compared to $4.7 million in the first six months of fiscal
1995. The decrease reflects the absence of amortization of a contract
guarantee fee previously paid to Emerson.
Nonrecurring charges of $28.3 million incurred during the first six
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 effective income tax rate for the six month period ended March 31, 1996
was 43.2%. The effective income tax rate for the six month period ended
March 31, 1995 was (.6%), which reflects foreign, state and local taxes,
and a $.3 million benefit recognized in the second quarter. The tax
provision for both six month periods presented was impacted by the
Corporate Readjustment implemented in fiscal 1993.
Financial Condition
Working capital increased to $80.9 million at March 31, 1996 from
$71.4 million at September 30, 1995. During the first six months of fiscal
1996, accounts receivable decreased by $3.7 million as a result of cash
collections, and costs and estimated earnings on long-term contracts and
inventories increased in the aggregate by $10.5 million primarily to
satisfy near-term production and delivery requirements. Accounts payable
and accrued expenses were reduced by $11.5 million during the first six
months of fiscal 1996 through payments necessary to satisfy outstanding
commitments at September 30, 1995.
Net cash used by operating activities was $6.5 million in the first six
months of fiscal 1996 and $13.7 million in the same period of fiscal 1995,
primarily due to the changes in operating working capital mentioned above.
Capital expenditures were $4.5 million in the first six months of fiscal
1996 compared with $5.3 million in the first six months of fiscal 1995.
Major expenditures in the current period include capitalized facility costs
at SEI and Rantec and production test equipment at Hazeltine.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual Meeting of the Company's shareholders was held on
Tuesday, February 13, 1996. Voted on at the meeting was the
election of two directors. The voting for directors was as
follows:
FOR WITHHELD
J. J. Adorjan 8,115,876 32,543
W. S. Antle III 8,107,849 40,570
Item 5. Other Information
On January 31, 1996, the Company announced that it is assessing
the possible sale of Hazeltine Corporation and has retained
J. P. Morgan as its financial advisor in this effort.
The Company has identified a cost issue relating to the 60K
aircraft loader program at Systems & Electronics Inc. The
Company is currently conducting an in-depth review of the
60K loader program to determine the nature and magnitude of this
issue and its likely financial impact on the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K. There were no reports on Form 8-K filed
during the quarter ended March 31, 1996.
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 officer
of the registrant)
Dated: May 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,116
<SECURITIES> 0
<RECEIVABLES> 44,801<F1>
<ALLOWANCES> 299
<INVENTORY> 105,182
<CURRENT-ASSETS> 221,517
<PP&E> 120,176
<DEPRECIATION> 30,653
<TOTAL-ASSETS> 384,943
<CURRENT-LIABILITIES> 140,599
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> 190,154
<TOTAL-LIABILITY-AND-EQUITY> 384,943
<SALES> 230,054
<TOTAL-REVENUES> 230,054
<CGS> 181,526
<TOTAL-COSTS> 216,994
<OTHER-EXPENSES> 2,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,814
<INCOME-PRETAX> 7,633
<INCOME-TAX> 3,297
<INCOME-CONTINUING> 4,336
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,336
<EPS-PRIMARY> .37
<EPS-DILUTED> .37
<FN>
<F1>This number does not include $64.6 million of costs and estimated
earnings on long-term contracts.
</FN>
</TABLE>
