<PAGE> 1
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): February 7, 1997
ESCO ELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER 1-10596
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
<PAGE> 2
ESCO ELECTRONICS CORPORATION
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As reported in Item 5 of its Form 10-Q for the quarterly period ended
December 31, 1996, ESCO Electronics Corporation (the "Company") completed its
acquisition of the Filtertek and the thermoform packaging businesses
("Filtertek") of Schawk, Inc. ("Schawk") on February 7, 1997. This Form 8-K
sets forth the financial statements and pro forma financial information
required to be filed in connection with this acquisition. Filtertek is a
leader in the manufacture of plastic insert injection molded filter
assemblies. The transaction involved the purchase of assets and stock of
subsidiary corporations of Schawk. The assets included manufacturing and
office facilities, equipment, inventories and accounts receivable, and the
Company intends to continue the use of these assets in the on-going operation
of the above-mentioned businesses. The consideration paid was $92 million in
cash plus working capital adjustments, which was funded by cash and
borrowings from the Company's bank credit facility. The banks involved are
listed in Exhibit 4 to this Form 8-K. The consideration was arrived at
through arms-length negotiations between the parties. This acquisition will
be accounted for under the purchase method of accounting.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
Audited financial statements of Filtertek at December 31, 1996 and the
consolidated results of its operations and its cash flows for the year then
ended.
(b) Pro forma financial information.
Introduction to Unaudited Pro Forma Consolidated Financial Statements.
Unaudited Pro Forma Consolidated Statement of Operations for the fiscal year
ended September 30, 1996.
Unaudited Pro Forma Consolidated Statement of Operations for the three months
ended December 31, 1996.
Unaudited Pro Forma Consolidated Balance Sheet at December 31, 1996.
<PAGE> 3
ESCO ELECTRONICS CORPORATION
(c) Exhibits
Exhibit
Number
------
2(a) Acquisition Agreement dated December 18, 1996 between the
Company and Schawk, Inc.
Certain schedules and attachments have been omitted due to
immateriality. The Registrant agrees to furnish
supplementally a copy of any omitted schedule or
attachment to the Commission upon request.
2(b) First Amendment dated as of February 7, 1997 to Acquisition
Agreement listed as Exhibit 2(a) above
4 Credit Agreement dated as of September 23, 1990 (as most
recently amended and restated as of February 7, 1997)
among the Company, Defense Holding Corp., the Banks
listed therein and Morgan Guaranty Trust Company of New
York, as agent
The above-listed Exhibits are incorporated by reference to Form 10-Q for the
quarterly period ended December 31, 1996, at the Exhibit Numbers listed
above, respectively.
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 Electronics Corporation
(Registrant)
/s/ Philip M. Ford
-------------------
By: Philip M. Ford
Senior Vice President and
Chief Financial Officer
April 18, 1997
<PAGE> 1
REPORT OF INDEPENDENT AUDITORS
ESCO Electronics Corporation
We have audited the accompanying balance sheet of Filtertek, Inc., The
Plastics Group of Schawk, Inc., ("Filtertek") as of December 31, 1996, and
the related statements of income, division equity, and cash flows for the
year then ended. These financial statements are the responsibility of
Filtertek management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Filtertek at December 31,
1996 and the consolidated results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
February 27, 1997
<PAGE> 2
<TABLE>
BALANCE SHEET FILTERTEK (THOUSANDS OF DOLLARS)
- -------------------------------------------------------------------------------------------------------
<CAPTION>
DEC. 31
1996
- -------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents........................................ $ 583
Trade Accounts Receivable, Net of Reserves of $262 .............. 11,212
Inventories...................................................... 12,441
Deferred Income Taxes............................................ 873
Other Current Assets............................................. 472
------------------------
Total Current Assets......................................... 25,581
Intangible Assets, Net.............................................. 42,302
Other Assets........................................................ 144
Plant and Equipment:
Land and Buildings............................................... 28,858
Machinery and Equipment.......................................... 40,218
Furniture and Fixtures........................................... 3,133
------------------------
72,209
Less Accumulated Depreciation.................................... 24,011
------------------------
Total Plant and Equipment, Net............................... 48,198
------------------------
$ 116,225
========================
LIABILITIES AND DIVISION EQUITY
Current Liabilities:
Accounts Payable-Trade.......................................... $ 5,362
Accrued Liabilities:
Compensation and Related Payroll Taxes...................... 1,604
Other....................................................... 988
------------------------
Total Current Liabilities................................... 7,954
Deferred Income Taxes.............................................. 3,813
Division Equity.................................................... 104,458
------------------------
$ 116,225
========================
The accompanying notes to the financial statements are an integral part of these statements.
</TABLE>
<PAGE> 3
<TABLE>
STATEMENT OF DIVISION EQUITY FILTERTEK
- --------------------------------------------------------------------------------------------
<CAPTION>
(Thousands of Dollars)
- --------------------------------------------------------------------------------------------
<S> <C>
BALANCE DECEMBER 31, 1995......................................... $115,060
Effect of Foreign Currency
Rate Fluctuations............................................. (233)
Net Income...................................................... 2,490
Net Payments To/Intercompany Charges From Schawk, Inc........... (12,859)
--------------------------
BALANCE DECEMBER 31, 1996......................................... $104,458
The accompanying notes to financial statements are an integral part of these financial statements.
</TABLE>
<PAGE> 4
<TABLE>
STATEMENT OF INCOME Filtertek
- ------------------------------------------------------------------------------------------
<CAPTION>
(THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31, 1996
==========================================================================================
<S> <C>
Net Sales.............................................. $77,752
Cost of Sales.......................................... 64,037
------------------
Gross Profit........................................ 13,715
Selling, General & Administrative...................... 10,143
------------------
Income From Operations.............................. 3,572
Other Income (Expenses):
Interest Expense.................................... (936)
Interest Income..................................... 44
Other, Net.......................................... (72)
------------------
Total Other....................................... (964)
------------------
Income Before Income Taxes............................. 2,608
Income Taxes........................................ 118
------------------
Net Income............................................. $ 2,490
==================
The accompanying notes to financial statements are an integral part of these financial statements.
</TABLE>
<PAGE> 5
<TABLE>
STATEMENT OF CASH FLOWS FILTERTEK (THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C>
CASH PROVIDED FROM OPERATIONS
Net income .............................................................. $ 2,490
Adjustments to Reconcile Net Income to Cash Provided from Operations:
Depreciation........................................................... 6,832
Amortization of Intangibles............................................ 1,212
Deferred Income Taxes.................................................. (482)
Non-cash Intercompany Charges.......................................... 2,116
Change in Accounts Receivable.......................................... 859
Change in Inventories.................................................. 59
Change in Accounts Payable and Accrued Liabilities..................... (75)
Other.................................................................. 943
----------------
Cash Provided From Operations....................................... 13,954
----------------
CASH USED FOR INVESTMENT ACTIVITIES
Additions to Plant and Equipment......................................... (7,785)
Proceeds From Retirement of Capital Assets............................... 477
Proceeds From Sale of Plastic Molded Concepts............................ 4,914
----------------
Cash Used For Investment Activities................................. (2,394)
----------------
CASH USED FOR FINANCING ACTIVITIES
Net Payments to Schawk, Inc.............................................. (12,537)
----------------
Cash Used For Financing Activities.................................. (12,537)
----------------
EFFECT OF FOREIGN CURRENCY RATE FLUCTUATIONS 53
----------------
Decrease in Cash & Cash Equivalents...................................... (924)
Cash and cash equivalents:
Beginning of Year...................................................... 1,507
----------------
End of Year............................................................ $ 583
================
Supplemental Disclosures of Cash Payments:
Interest ............................................................. $ -
Income taxes........................................................... $ 44
The accompanying notes to the financial statements are an integral part of these statements.
</TABLE>
<PAGE> 6
FILTERTEK
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
Filtertek, Inc., the Plastics Group of Schawk, Inc., (the "Division")
develops and manufactures insert injection molded plastic filtration elements
and custom specialty plastic products for the automotive, health care, and
industrial markets. The Division also manufactures thermoform visual and
specialty packaging for the general commercial, health care and consumer
markets.
The accompanying financial statements of the Division include the
Hebron, Illinois; Huntley, Illinois; and Stockton, California operations of
Filtertek USA, Inc.; the Puerto Rico operations of Schawk, Inc.; and the
European operations of Filtertek BV (Ireland), Filtertek SA (France) and
Filtertek GmbH (Germany). All significant intercompany balances and
transactions have been eliminated.
These financial statements are presented as if the Division had existed
as an entity separate from Schawk, Inc. ("Schawk") during the period
presented and include the historical assets and liabilities that are directly
related to the Division's operations. However, these financial statements
are not necessarily indicative of the financial position and results of
operations which would have occurred had the Division been an independent
company.
CASH EQUIVALENTS
Marketable securities classified as cash equivalents, primarily time
deposits, are stated at cost which approximates market value at the financial
statement date and have a maturity of ninety days or less.
CONCENTRATION OF CREDIT RISK
The Division sells to healthcare and automotive original equipment
manufacturers and other markets. Receivables are in approximately the same
proportion as product sales to the above customer groups (healthcare 26%,
automotive 35%, consumer 20%, and industrial 19% as of December 31, 1996).
<PAGE> 7
FILTERTEK
NOTES TO FINANCIAL STATEMENTS
INVENTORIES
Inventories are comprised of material, labor and overhead and are
valued at the lower of cost (determined on a first-in, first-out basis) or
market. The components of inventories are as follows at December 31, 1996
(in thousands):
<TABLE>
<S> <C>
Raw materials......................... $ 3,959
Work-in-process....................... 5,128
Finished goods........................ 3,354
--------
$ 12,441
========
</TABLE>
PLANT, EQUIPMENT AND DEPRECIATION
Plant, equipment and certain company-owned tooling accounts are stated
at cost. Depreciation expense has been provided for financial reporting
purposes using the straight-line method and for income tax purposes using
principally accelerated methods, except for the Puerto Rican operation which
uses primarily the straight-line method for both financial reporting and
income tax purposes.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs relate to the development of customer
prototype and production tooling. Amounts expended for research and
development were $3,059,000 in 1996. Customers provided approximately 94% of
this amount. The amounts received from customers are recorded as a reduction
of actual research and development costs. The remaining research and product
development costs are funded by the Company and are charged to expense as
incurred in the Division's financial statements.
INTANGIBLE ASSETS
The excess of the purchase cost over the fair value of net assets
acquired is being amortized principally over 40 years on a straight-line
basis. The Division continually evaluates the existence of goodwill
impairment on the basis of whether the goodwill is fully recoverable from
projected, undiscounted net cash flows. Accumulated goodwill amortization as
of December 31, 1996 was $4,447,000.
<PAGE> 8
FILTERTEK
NOTES TO FINANCIAL STATEMENTS
FOREIGN CURRENCY TRANSLATION
Foreign currency assets and liabilities are translated at the rate of
exchange existing at year-end and income amounts are translated at the
average of the monthly exchange rates. Gains and losses resulting from the
translation of foreign currency financial statements are deferred and
classified as a separate component of division equity. For the year ended
December 31, 1996, the statement of income for the Division included net
currency transaction losses of $109,000.
USE OF ESTIMATES
Management is required to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NOTE 2. BUSINESS DISPOSITION
Effective April 30, 1996, the Division sold all of the common stock of
Plastic Molded Concepts ("PMC") for net book value. The Company received
$4,914,000 in cash and a note receivable of $2,438,000. The note receivable
was contributed to Schawk and has been reflected as a charge to division
equity in the accompanying financial statements.
NOTE 3. RELATED PARTY TRANSACTIONS
The Division received direct charges from Schawk primarily for interest
expense, health insurance claims, Company 401(k) contributions and other
insurance related costs. The total amount of these direct charges from
Schawk included in the statement of income for the year ended December 31,
1996 was approximately $2,116,000.
The Division has intercompany debt with Schawk of approximately
$8,676,000 which was capitalized as part of the sale of the Division (see
Note 8) and is included in division equity in the December 31, 1996 balance
sheet. Schawk charged the Division interest on this balance during 1996 at a
rate of 6.98% which amounted to $925,000 for the year ended December 31, 1996
and is included in the direct charges described above. The Company also has
an intercompany payable to Schawk related to an accumulation of the direct
charges on which no interest is charged. The balance of the intercompany
payable of approximately $4,556,000 is included in division equity in the
December 31, 1996 balance sheet.
<PAGE> 9
FILTERTEK
NOTES TO FINANCIAL STATEMENTS
NOTE 4. INCOME TAXES
Income tax expense includes federal and state income taxes. Deferred
income taxes are determined based on differences between the financial
reporting and tax bases of assets and liabilities measured using currently
enacted tax rates. The Division is included in the consolidated income tax
return of Schawk. For purposes of these financial statements, the income tax
provision has been determined on a basis as if the Division was a separate
taxpayer. Current income tax liabilities due Schawk have been included in
division equity.
The provision for income taxes is comprised of the following for the
year ended December 31, 1996 (in thousands):
<TABLE>
<S> <C>
Current:
U.S./Puerto Rico.............. $ 592
Foreign....................... 8
-----
600
Deferred:
United States................. (258)
Foreign....................... (224)
-----
(482)
-----
Total...................... $ 118
=====
</TABLE>
Components of deferred income tax liabilities and assets at December
31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred income tax liabilities:
Plant and equipment....................................... $3,852
Deferred income tax assets:
Accruals and reserves not currently deductible............. 450
Net operating losses carryforward.......................... 264
Other...................................................... 198
------
Total deferred tax assets............................... 912
------
Net deferred tax liabilities............................... $2,940
======
</TABLE>
The net operating loss carryforward relates to the Division's operation
in France and expires at various dates through 2000.
<PAGE> 10
FILTERTEK
NOTES TO FINANCIAL STATEMENTS
A reconciliation between the provision for income taxes computed by applying
the Federal statutory tax rate to income before taxes and the actual
provision for the year ended December 31, 1996 is as follows:
<TABLE>
<S> <C>
Income taxes at statutory rate............................................ 34.0%
Puerto Rico and Irish income exempt from income taxes..................... (32.9)
France net operating loss not previously benefited........................ (16.5)
Nondeductible expenses.................................................... 15.1
Other..................................................................... 4.8
-----
Effective tax rate........................................................ 4.5%
=====
</TABLE>
The Division has operations in two countries with tax holidays, Puerto
Rico and Ireland. The Division's Puerto Rican operations are exempt from the
payment of Puerto Rico income taxes on 90% of its income from the manufacture
and sales of all products until January 1, 2010. In addition, 90% of the
dividends paid to residents of Puerto Rico are exempt from tax under grant.
The Division qualifies under Section 936 of the Internal Revenue Code to
receive a credit equal to its United States tax on income from sources in
Puerto Rico. As a result, no United States income tax has been provided on
the exempt income. The Division's operation in the Republic of Ireland is
subject to a 10% income tax. The approximate effects of these tax holidays
was to increase net income by $857,000 in 1996.
The undistributed earnings of foreign subsidiaries were approximately
$5,661,000 at December 31, 1996. No income taxes are provided on the
distribution of such earnings because they are considered permanently
invested. The foreign component of income before income taxes was $563,000
for the year ended December 31, 1996.
NOTE 5. EMPLOYEE BENEFIT PLANS
The Division maintains a 401(k) defined contribution plan covering
substantially all United States and Puerto Rico employees. The 401(k) plan
provides for a 100% Division match of employee contributions up to 5% of
wages (as defined) and are subject to a seven year vesting period. The
Divison's contributions to the plan for the year ended December 31, 1996 were
$280,000.
NOTE 6. CONTINGENCIES
The production facility in Ireland is being financed in part by a grant
from the Industrial Development Authority of Ireland (IDA). The grant
provides 25% of the actual amount of funds expended on the acquisition and
equipping of the production facility up to a maximum of $2,316,000. Grants
received to date total $2,303,000 and are reported as a reduction of the
related assets. A contingent liability for repayment of grants received
exists if the Division were to liquidate the Ireland operation. The grants
are forgiven ratably over a ten year period. The contingent grant liability
totaled $638,000 at December 31, 1996. In 2006, all obligations for
repayment of such grants terminate. The Division has no present intention of
selling or liquidating the Ireland operation.
<PAGE> 11
FILTERTEK
NOTES TO FINANCIAL STATEMENTS
NOTE 7. SEGMENT DATA
The Division operates in a single industry segment, that being the
production of specialty filtration elements, custom injection molded
components, and thermoform packaging. Summary financial information by
geographic area for the year ended December 31, 1996 is as follows (in
thousands):
<TABLE>
<CAPTION>
UNITED STATES EUROPE TOTAL
------------- ------ -----
<S> <C> <C> <C>
Net sales....................................... $62,376 $15,376 $ 77,752
Operating income................................ 2,955 617 3,572
Identifiable assets............................. 99,643 16,582 116,225
</TABLE>
Production facilities are located in the United States, France, and
Ireland. Operating income is comprised of total revenues less operating
expenses before interest expense and income taxes. Identifiable assets are
those assets of the Division that are identifiable with the operations in
each geographic area and include cash and marketable securities maintained at
these locations.
Export sales were $1,406,000 for the year ended December 31, 1996. The
Division had no single customer which accounted for over 10% of net sales.
NOTE 8. SUBSEQUENT EVENT
Effective February 7, 1997, the Division was sold to ESCO Electronics
Corporation for cash of approximately $92,000,000 plus working capital
adjustments. This sale was structured as a sale of the net assets of the
North American, Puerto Rican and German operations and the sale of the
capital stock ownership of Filtertek BV and Filtertek SA.
<PAGE> 12
ESCO ELECTRONICS CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated financial statements as presented here
have been prepared from the historical financial statements of Esco and
Filtertek for the respective periods noted. On July 22, 1996, the Company
sold its former Hazeltine Corporation subsidiary for $110 million in cash
(see Form 8-K dated August 5, 1996). On February 7, 1997, Esco acquired
Filtertek for $92 million in cash plus working capital adjustments. This
acquisition will be accounted for under the purchase method of accounting,
and accordingly, the acquisition cost will be allocated among the net assets
of Filtertek based upon their estimated fair market values. However, this
allocation process has not yet been completed. Therefore, the excess
purchase price over Filtertek's net book value ("Goodwill") is presented as a
separate caption in the unaudited pro forma consolidated balance sheet.
The operations of Esco for fiscal year ended September 30, 1996 have been
combined with Filtertek's operations for the year ended December 31, 1996.
The differences in year end periods as presented does not have a material
impact on the combined results.
The unaudited pro forma consolidated statement of operations for fiscal year
ended September 30, 1996 and the three-months ended December 31, 1996
present the Company's results of operations as adjusted to give effect to the
acquisition of Filtertek and the divestiture of Hazeltine as if both
transactions had occurred on October 1, 1995, which represents the beginning
of Esco's most recent fiscal year . The unaudited pro forma consolidated
balance sheet as of December 31, 1996 gives effect to the acquisition of
Filtertek as if it had occurred on December 31, 1996.
The unaudited pro forma financial statements should be read in conjunction
with the Company's consolidated financial statements and notes thereto
previously filed as part of the Company's most recent annual and quarterly
reports on Forms 10-K and 10-Q for the periods ended September 30, 1996 and
December 31, 1996, respectively.
The unaudited pro forma information below is provided for informational
purposes only and is not necessarily indicative of what the actual financial
position or results of operations of the Company would have been had the
transactions actually occurred on the dates indicated, nor does it purport to
indicate the future financial position or results of operations of the
Company. Results of operations for the three months ended December 31, 1996
may not be indicative of results of operations to be expected for a full
year. The pro forma adjustments are based upon available information and
assumptions believed to be reasonable in the circumstances. There can be no
assurance that such information and assumptions will not change from those
reflected in the pro forma financial statements and notes thereto.
<PAGE> 13
<TABLE>
ESCO ELECTRONICS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1996
($ in thousands, except per share amounts)
<CAPTION>
Esco <Fg>
Esco Filtertek Pro forma Elimination
Historical Historical Pro forma With of Pro forma Esco
9/30/96 12/31/96 Adjustments Filtertek Hazeltine Adjustments Pro forma
---------- ---------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $438,543 77,752 0 $516,295 93,585 0 $422,710
Cost and Expenses:
Cost of sales 366,719 64,037 0 430,756 75,196 0 355,560
Selling, general and administrative 70,464 10,143 (1,808)<Fa> 78,799 12,859 750 <Fe> 66,690
Interest expense (income) 4,781 892 5,456 <Fb> 11,129 29 (4,781)<Ff> 6,319
Other, net 5,017 72 800 <Fc> 5,889 912 0 4,977
Gain on sale of Hazeltine (48,500) 0 0 (48,500) 0 0 (48,500)
Nonrecurring charges 25,300 0 0 25,300 0 0 25,300
-------- ------ ------ -------- ------ ------ --------
Total costs and expenses 423,781 75,144 4,448 503,373 88,996 (4,031) 410,346
-------- ------ ------ -------- ------ ------ --------
Earnings (loss) before income taxes 14,762 2,608 (4,448) 12,922 4,589 4,031 12,364
Income tax expense (benefit) (11,374) 118 (1,779)<Fd> (13,035) 1,836<Fd> 1,612 <Fd> (13,258)
-------- ------ ------ -------- ------ ------ --------
Net earnings (loss) $ 26,136 2,490 (2,669) $ 25,957 2,753 2,419 $ 25,622
======== ====== ====== ======== ====== ====== ========
Earnings (loss) per share:
Primary $ 2.26 $ 2.24 $ 2.21
Fully diluted $ 2.25 $ 2.23 $ 2.20
======== ======== ========
Outstanding shares:
Primary 11,580 11,580 11,580
Fully diluted 11,638 11,638 11,638
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 14
<TABLE>
ESCO ELECTRONICS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996
($ in thousands, except per share amounts)
<CAPTION>
Esco Filtertek Pro forma Esco
Historical Historical Adjustments Pro forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $68,899 17,712 0 $86,611
Cost and Expenses:
Cost of sales 51,939 14,512 0 66,451
Selling, general and administrative 12,951 2,471 (202)<Fa> 15,220
Interest expense (income) 277 180 1,407 <Fb> 1,864
Other, net 730 (24) 200 <Fc> 906
------- ------ ------ -------
Total costs and expenses 65,897 17,139 1,405 84,441
------- ------ ------ -------
Earnings before income taxes 3,002 573 (1,405) 2,170
Income taxes 820 (312) (562)<Fd> (54)
------- ------ ------ -------
Net earnings $ 2,182 885 (843) $ 2,224
======= ====== ====== =======
Earnings per share:
Primary $ 0.18 $ 0.18
Fully diluted $ 0.18 $ 0.18
======= =======
Average common and common share
equivalents outstanding:
Primary 12,045 12,045
Fully diluted 12,055 12,055
======= =======
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 15
<TABLE>
ESCO ELECTRONICS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
($ in thousands, except per share amounts)
<CAPTION>
Esco Filtertek
Historical Historical Pro forma Esco
12/31/96 12/31/96 Adjustments Pro forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 18,877 583 (583)<Fj> $ 18,877
Accounts receivable, net 27,228 11,212 0 38,440
Unbilled receivables 52,987 0 0 52,987
Inventories 45,848 12,441 0 58,289
Other current assets 2,874 1,345 0 4,219
-------- ------- ------- --------
Total current assets 147,814 25,581 (583) 172,812
Property, plant and equipment, net 53,713 48,198 0 101,911
Goodwill 20,256 42,302 (10,725)<Fh> 51,833
Deferred tax asset 53,147 0 0 53,147
Other assets 16,898 144 0 17,042
-------- ------- ------- --------
$291,828 116,225 (11,308) $396,745
======== ======= ======= ========
Short-term borrowings / current maturities LT debt $ 1,300 0 48,200 <Fi> $ 49,500
Accounts payable 27,347 5,362 0 32,709
Advance payments on LT contracts 7,057 0 0 7,057
Accrued expenses and other current liabilities 22,882 2,592 0 25,474
-------- ------- ------- --------
Total current liabilities 58,586 7,954 48,200 114,740
Other liabilities 28,793 3,813 0 32,606
Long-term debt 11,050 0 44,950 <Fi> 56,000
-------- ------- ------- --------
Total liabilities 98,429 11,767 93,150 203,346
Committments and contingencies -- -- -- --
Shareholders' equity:
Preferred stock, par value, $.01 / share -- -- -- --
Common stock, par value $.01 / share 124 0 0 124
Additional paid-in capital 193,147 104,458 (104,458)<Fj> 193,147
Retained earnings 6,366 0 0 6,366
Cumulative foreign currency translation adj. 516 0 0 516
Minimum pension liability (1,869) 0 0 (1,869)
-------- ------- ------- --------
Subtotal 198,284 104,458 (104,458) 198,284
Less treasury stock, at cost (4,885) 0 0 (4,885)
-------- ------- ------- --------
Total shareholders' equity 193,399 104,458 (104,458) 193,399
-------- ------- ------- --------
$291,828 116,225 (11,308) $396,745
======== ======= ======= ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 16
ESCO ELECTRONICS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a): Represents the elimination of $1,212,000 of historical annual goodwill
amortization resulting from the original purchase of Filtertek by Schawk (see
note (c) below). In addition, this amount includes the reduction of
historical intercompany charges as paid to Schwak versus what the estimated
intercompany charges would have been had Filtertek been a part of Esco for
the entire year. The three month period ended December 31, 1996 reflects one
quarter of the estimated annual impact.
(b): Represents the net interest charge related to the acquisition debt of
$92 million at an average interest rate of 6.9%. The fiscal year net charge
also eliminates the $892,000 of net interest expense noted on the historical
Filtertek financial statements. The three month period ended December 31,
1996 reflects one quarter of the estimated annual impact, with the
elimination of $180,000 of net interest expense on the historical Filtertek
financial statements.
(c): Represents the goodwill amortization charge assuming $32 million of
goodwill being amortized over 40 years. The allocation of the purchase price
has not yet been completed. See note (h) below.
(d): To provide for income tax expense (benefit) on pretax earnings and pro
forma adjustments at an estimated combined statutory tax rate of 40%.
(e): Represents certain cost allocations from the Company which were
previously absorbed by Hazeltine operations.
(f): Represents the elimination of Esco's historical interest expense
assuming the net proceeds of the sale of Hazeltine were used in part to repay
all outstanding debt (see related assumption at note (b)).
(g): Represents the elimination of the operating results of Hazeltine
reflecting the terms of the Hazeltine purchase and sale agreement as
previously filed.
(h): Represents the net elimination of Filtertek's historical unamortized
goodwill and the estimated addition of $32 million of goodwill related to the
acquisition. The allocation of the excess purchase price over the net assets
acquired between tangibles, identifiable intangibles, and goodwill has not
yet been completed.
(i): Represents the net debt impact to acquire Filtertek. The amounts
represent $45.5 million of short-term borrowings and $60 million of term debt
(with $4 million classified as current maturities of long-term debt). This
total debt structure was used to fund the $92 million purchase price and the
repayment of $12,350,000 of outstanding debt as noted in the Esco historical
financial statements. The cash elimination represents the cash balances of
Filtertek as retained by Schawk in conjunction with the terms of the
acquisition agreement.
(j): Represents the elimination of Filtertek's additional paid-in capital.
