<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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 TECHNOLOGIES INC.
(formerly named 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
--- ---
The number of shares of the registrant's common stock outstanding at July 31,
2000 was 12,312,747.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------
2000 1999
------- -------
<S> <C> <C>
Net sales $79,235 113,978
------- -------
Costs and expenses:
Cost of sales 54,536 86,027
Selling, general and administrative expenses 16,750 18,934
Interest expense 209 1,715
Other, net 1,873 989
------- -------
Total costs and expenses 73,368 107,665
------- -------
Earnings before income taxes 5,867 6,313
Income tax expense 2,159 2,241
------- -------
Net earnings 3,708 4,072
------- -------
Earnings per share: - Basic $ .30 .33
- Diluted .29 .32
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Net sales 215,162 298,385
-------- --------
Costs and expenses:
Cost of sales 149,259 222,504
Selling, general and administrative expenses 45,188 54,748
Interest (income) expense (99) 5,151
Other, net 4,913 4,179
Gain on sale of property (2,239) --
-------- --------
Total costs and expenses 197,022 286,582
-------- --------
Earnings before income taxes 18,140 11,803
Income tax expense 5,860 4,169
-------- --------
Net earnings before accounting change 12,280 7,634
-------- --------
Cumulative effect of accounting change,
net of tax -- (25,009)
-------- --------
Net earnings (loss) 12,280 (17,375)
======== ========
Earnings (loss) per share:
Earnings before accounting change:
- Basic $ 1.00 .62
- Diluted .97 .61
======== ========
Net earnings (loss) - Basic $ 1.00 (1.41)
- Diluted .97 (1.41)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 4
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
----------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,510 87,709
Accounts receivable, less allowance for doubtful
accounts of $966 and $574, respectively 55,124 38,669
Costs and estimated earnings on long-term
contracts, less progress billings of
$15,769 and $11,778, respectively 4,552 4,019
Inventories 49,709 39,590
Other current assets 4,992 3,559
--------- ---------
Total current assets 124,887 173,546
--------- ---------
Property, plant and equipment, at cost 109,564 109,763
Less accumulated depreciation and amortization 40,389 38,445
--------- ---------
Net property, plant and equipment 69,175 71,318
Excess of cost over net assets of purchased
businesses, less accumulated amortization
of $8,442 and $6,631, respectively 89,693 68,950
Deferred tax assets 41,351 44,783
Other assets 21,863 19,788
--------- ---------
$ 346,969 378,385
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $ 18,000 20,598
Accounts payable 33,134 26,339
Advance payments on long-term contracts, less costs
incurred of $1,898 and $479, respectively 2,778 682
Accrued expenses and other current liabilities 25,630 30,598
--------- ---------
Total current liabilities 79,542 78,217
--------- ---------
Other liabilities 10,282 9,583
Long-term debt 830 41,896
--------- ---------
Total liabilities 90,654 129,696
--------- ---------
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 13,204,197 and
12,782,663 shares, respectively 132 128
Additional paid-in capital 205,045 201,719
Retained earnings since elimination of
deficit at September 30, 1993 65,003 52,723
Accumulated other comprehensive loss (4,134) (1,870)
--------- ---------
266,046 252,700
Less treasury stock, at cost; 890,625
and 404,625 common shares, respectively (9,731) (4,011)
--------- ---------
Total shareholders' equity 256,315 248,689
--------- ---------
$ 346,969 378,385
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 12,280 (17,375)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 10,837 13,506
Changes in operating working capital,
net of accounting change (19,132) (19,582)
Effect of accounting change, net of tax -- 25,009
Other 1,618 5,885
-------- --------
Net cash provided by operating
activities 5,603 7,443
-------- --------
Cash flows from investing activities:
Capital expenditures (7,817) (6,615)
(Acquisition) divestiture of businesses, less cash
acquired (28,231) --
-------- --------
Net cash used by investing activities (36,048) (6,615)
-------- --------
Cash flows from financing activities:
Net increase in short-term borrowings 5,494 8,000
Proceeds from long-term debt 80 96
Principal payments on long-term debt (49,238) (6,303)
Purchases of common stock into treasury (5,765) (1,562)
Other 2,675 193
-------- --------
Net cash (used) provided by financing activities (46,754) 424
-------- --------
Net (decrease) increase in cash and cash equivalents (77,199) 1,252
Cash and cash equivalents, beginning of period 87,709 4,241
-------- --------
Cash and cash equivalents, end of period $ 10,510 5,493
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying 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 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, 1999. Certain prior year
amounts have been reclassified to conform to the fiscal 2000 presentation.
The results for the three and nine month periods ended June 30, 2000 are
not necessarily indicative of the results for the entire 2000 fiscal year.
Effective July 10, 2000, the Company changed its name from ESCO
Electronics Corporation to ESCO Technologies Inc.
On September 30, 1999, the Company sold its last major defense business,
Systems & Electronics Inc. (SEI) for $85 million in cash, less working
capital adjustments. The prior year amounts include the operating results
of SEI for the entire year. The Company has provided a reconciliation of
reported earnings to "adjusted" earnings within "Item 2. Management's
Discussion and Analysis (MD&A)" noted below.
2. EARNINGS (LOSS) PER SHARE
Basic earnings per share is calculated using the weighted average number
of common shares outstanding during the period. Diluted earnings per share
is calculated using the weighted average number of common shares
outstanding during the period plus shares issuable upon the assumed
exercise of dilutive common share options and performance shares by using
the treasury stock method. The number of shares used in the calculation of
earnings (loss) per share for each period presented is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted Average Shares
Outstanding - Basic 12,305 12,357 12,311 12,318
Dilutive Options and
Performance Shares 386 352 337 249
------ ------ ------ ------
Adjusted Shares- Diluted 12,691 12,709 12,648 12,567
====== ====== ====== ======
</TABLE>
Options to purchase approximately 92,000 shares of common stock at prices
ranging from $15.72-$19.22 per share and options to purchase approximately
689,000 shares of common stock at approximately $10.78 - $19.22 were
outstanding during the nine month periods ended June 30, 2000 and 1999,
respectively, but were not included in the respective computations of
diluted EPS because the options' exercise price was greater than the
average market price of the common shares during such nine month periods.
These options expire in various periods through 2010. Approximately
166,000 performance shares were outstanding but unearned at June 30, 1999,
and therefore, were not included in the computation of diluted EPS.
6
<PAGE> 7
3. INVENTORIES
Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
-------- -------------
<S> <C> <C>
Finished goods $12,711 11,387
Work in process, including
long-term contracts 18,636 14,517
Raw materials 18,362 13,686
------- -------
Total inventories $49,709 39,590
======= =======
</TABLE>
The increase in inventories of approximately $10.1 million is primarily
due to the current year acquisitions which contributed $6.4 million of the
increase.
4. CHANGE IN ACCOUNTING PRINCIPLE
During the first quarter of fiscal 1999, the Company adopted the
provisions of Statement of Position (SOP) 98-5,"Reporting on the Costs of
Start-up Activities". This SOP provides guidance on accounting for
start-up activities, including precontract costs and organization costs.
The adoption of SOP 98-5 resulted in a non-cash, after-tax charge of
approximately $25 million, which was recognized as a cumulative effect of
an accounting change in the prior year first quarter ended December 31,
1998.
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income for the three-month periods ended June 30, 2000 and
1999 was $2.9 million and $4.0 million, respectively. Comprehensive income
(loss) for the nine-month periods ended June 30, 2000 and 1999 was $10.0
million and ($18.5) million, respectively. The Company's comprehensive
income and loss is impacted only by foreign currency translation
adjustments. During the first nine months of fiscal 2000, the foreign
currency adjustments were primarily impacted by the fluctuations in
certain European currencies.
6. BUSINESS SEGMENT INFORMATION
The Company is organized based on the products and services that it
offers.
<TABLE>
<CAPTION>
($ in millions) Three Months ended
June 30,
--------------------
2000 1999
----- -----
<S> <C> <C>
NET SALES
Filtration/Fluid Flow $44.8 43.5
Test 21.4 8.2
Communications 10.7 8.6
Other 2.3 2.9
Divested Business -- 50.8
----- -----
Consolidated totals $79.2 114.0
===== =====
OPERATING PROFIT (LOSS)
Filtration/Fluid Flow $ 4.1 4.0
Test 2.6 .7
Communications 2.4 1.1
Other (1.2) (1.5)
Divested Business -- 4.7
----- -----
Consolidated totals $ 7.9 9.0
===== =====
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
($ in millions) Nine Months ended
June 30,
----------------------
2000 1999
------ ------
<S> <C> <C>
NET SALES
Filtration/Fluid Flow $133.8 124.3
Test 40.5 25.4
Communications 31.9 18.8
Other 9.0 10.3
Divested Business -- 119.6
------ ------
Consolidated totals $215.2 298.4
====== ======
OPERATING PROFIT (LOSS)
Filtration/Fluid Flow $ 12.1 10.8
Test 4.5 2.4
Communications 6.7 1.7
Other (2.6) (2.3)
Divested Business -- 8.5
------ ------
Consolidated totals $ 20.7 21.1
====== ======
</TABLE>
7. ACQUISITIONS
Effective April 9, 2000, the Company acquired all of the outstanding common
stock of The Curran Company (doing business as Lindgren RF Enclosures) and
Lindgren, Inc. (doing business as Lindgren-Rayproof) (collectively
"Lindgren") for approximately $22 million in cash plus additional
consideration based upon the future performance of the Company. The Company
accounted for the transaction as a purchase. Lindgren has annual sales in
excess of $40 million and is a leading supplier of radio frequency (RF)
shielding products and components used by manufacturers of medical
equipment, communications systems and electronic products. Lindgren is
headquartered near Chicago, Illinois and operates facilities in Wisconsin,
Florida, the United Kingdom and Singapore. The operating results for
Lindgren, since the date of acquisition, are included within the Company's
Test segment. The Company recorded approximately $15 million of goodwill as
a result of the transaction, subject to post-closing adjustments and
finalization of the purchase accounting entries. These post-closing items
are expected to be completed prior to September 30, 2000.
Effective June 2, 2000, the Company purchased Holaday Industries, Inc.
("Holaday") for approximately $4 million in cash. Holaday is a leading
supplier of specialty measurement probes to the electromagnetic
compatibility (EMC) test, health and safety, and microwave markets. The
business, headquartered in Eden Prairie, Minnesota, has annual sales of
approximately $5.5 million. The operating results for Holaday, since the
date of acquisition, are included within the Company's Test segment. The
purchase is subject to final post-closing adjustments which will be
completed prior to September 30, 2000.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RECONCILIATION OF ADJUSTED NET EARNINGS - 1999
The following table is not intended to present prior year net earnings as
defined within generally accepted accounting principles (GAAP), and is presented
for informational purposes only. The table is comparable to the full year table
presented in the 1999 Annual Report to Shareholders (page 11).
The table provides a reconciliation between the 1999 reported financials and
what Management believes the 1999 operating results may have been after removing
certain nonrecurring items and assuming that all of the actions taken during
1999 to reposition the business were complete at the beginning of the period.
Management believes the estimated 1999 adjusted operating results provide a
meaningful presentation for purposes of analyzing ESCO's ongoing financial
performance.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
------------------------------------------
(a) (b)
Elimination Adjusting
($ in millions, rounded) Reported of SEI Items Adjusted
------------------------ -------- ----------- --------- --------
<S> <C> <C> <C> <C>
Net sales $114.0 50.8 -- $ 63.2
------ ------ ------ ------
Cost of sales 86.0 40.6 (.2) 45.2
SG&A expenses 19.0 5.4 .1 13.7
Interest expense (income) 1.7 .1 (2.3) (.7)
Other, net 1.0 .1 -- .9
------ ------ ------ ------
Total costs and expenses 107.7 46.2 (2.4) 59.1
------ ------ ------ ------
Earnings before tax 6.3 4.6 2.4 4.1
Income tax expense 2.2 -- (.8) 1.4
------ ------ ------ ------
Net earnings 4.1 4.6 3.2 2.7
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended June 30, 1999
------------------------------------------
(a) (b)
Elimination Adjusting
($ in millions, rounded) Reported of SEI Items Adjusted
------------------------ -------- ----------- --------- --------
<S> <C> <C> <C> <C>
Net sales $298.4 119.6 -- $178.8
------ ------ ------ ------
Cost of sales 222.5 94.7 (.6) 127.2
SG&A expenses 54.8 16.4 .6 39.0
Interest expense (income) 5.1 .4 (6.1) (1.4)
Other, net 4.2 .2 (.2) 3.8
------ ------ ------ ------
Total costs and expenses 286.6 111.7 (6.3) 168.6
------ ------ ------ ------
Earnings before tax 11.8 7.9 6.3 10.2
Income tax expense 4.2 -- (.6) 3.6
------ ------ ------ ------
Net earnings before
accounting change 7.6 7.9 6.9 6.6
Cumulative effect of
accounting change, net of tax (25.0) -- 25.0 --
------ ------ ------ ------
Net earnings (loss) $(17.4) 7.9 31.9 $ 6.6
====== ====== ====== ======
</TABLE>
(a) Represents the operations of SEI, which were included in the ESCO
consolidated 1999 GAAP reported results of operations for the third
quarter and first nine months of fiscal 1999, respectively.
(b) Represents the adjusting items as explained in detail in the 1999
Annual Report to Shareholders (page 11), including: the operating
results of Rantec's microwave business which has been sold; the
adjustment to the corporate office operating expenses resulting from
the 1999 actions; the estimated net interest impact of the SEI
transaction proceeds; and any related tax adjustment.
9
<PAGE> 10
RESULTS OF OPERATIONS
NET SALES
Net sales of $79.2 million for the third quarter of fiscal 2000 decreased $34.8
million from reported net sales of $114.0 million for the third quarter of
fiscal 1999 due to the divestiture of SEI. The prior year amount included SEI
sales of $50.8 million. Excluding SEI from the prior year amounts, third quarter
sales increased $16.0 million, or 25.3% over 1999 "adjusted" third quarter sales
of $63.2 million.
Net sales decreased $83.2 million, or 27.9% to $215.2 million for the first nine
months of fiscal 2000 from reported net sales of $298.4 million for the first
nine months of fiscal 1999 due to the divestiture of SEI. The prior year amount
included SEI sales of $119.6 million. Excluding SEI from the prior year amounts,
sales for the first nine months of fiscal 2000 increased $36.4 million, or 20.4%
over 1999 "adjusted" nine months sales of $178.8 million.
Filtration/Fluid Flow
Net sales of $44.8 million in the third quarter of fiscal 2000 were 3.0% higher
than prior year third quarter sales of $43.5 million. Net sales increased $9.5
million, or 7.6% to $133.8 million in the first nine months of fiscal 2000 from
prior year nine months sales of $124.3 million. During the third quarter of
fiscal 2000, the Company experienced a reduction in sales volumes of its blood
filters and a temporary slowdown in the sales of its disposable water filter
cartridges. The sales increase during the first nine months of fiscal 2000
compared to prior year was mainly due to new product introductions and increases
in microfiltration sales.
Test
Net sales increased $13.2 million or 161% to $21.4 million in the third quarter
of fiscal 2000 from $8.2 million for the third quarter of fiscal 1999. Net sales
of $40.5 million for the first nine months increased $15.1 million or 59.4% in
fiscal 2000 over the prior period net sales of $25.4 million. The increase in
both periods is primarily due to the Lindgren acquisition, which contributed
approximately $10 million in sales in the fiscal 2000 third quarter, as well as
additional revenue related to the General Motors contract to design and build an
electromagnetic compatibility (EMC) test complex.
Communications
For the third quarter of fiscal 2000, net sales of $10.7 million were 24.4%
higher than the $8.6 million of sales recorded in the third quarter of fiscal
1999. Net sales of $31.9 million for the first nine months of fiscal 2000 were
69.7% higher than the $18.8 million of sales recorded in the prior year period.
The significant increase in both periods is the result of significantly higher
shipments to the Puerto Rico Electric Power Authority (PREPA) and Wisconsin
Public Service Corporation (WPS) to provide Automatic Meter Reading (AMR)
systems.
Other
Sales were $2.3 million in the third quarter of fiscal 2000 and $2.9 million in
the prior year period. In the first nine months of fiscal 2000, sales were $9.0
million compared to $10.3 million in the prior year period. The decreases are
due to the sale of the Rantec microwave antenna business, which occurred in
February 2000. Sales for the Rantec microwave antenna business were
approximately $2.1 million and $4.9 million in fiscal 2000 and 1999,
respectively.
ORDERS AND BACKLOG
Firm order backlog was $164.2 million at June 30, 2000, compared with $142.9
million at September 30, 1999. Orders totaling $222.5 million were received in
the first nine months of fiscal 2000, with the majority of the orders relating
to Filtration/Fluid Flow products. In addition, the recent acquisitions of
Lindgren and Eaton Space Products contributed approximately $20.3 million in
backlog. The February 2000 sale of the Rantec microwave business resulted in a
decrease to backlog of $6.3 million.
GROSS PROFIT
The gross profit margin increased to 31.2% in the third quarter of fiscal 2000
from 24.5% in the third quarter of fiscal 1999 as reported. The "adjusted"
10
<PAGE> 11
gross profit margin for the third quarter of fiscal 1999 was 28.5%. The gross
profit margin was 30.6% in the first nine months of fiscal 2000 and 25.4% in the
first nine months of fiscal 1999 as reported. The fiscal 1999 "adjusted" gross
profit margin was 28.9%.
The gross profit margin increased in both fiscal 2000 periods compared to the
reported 1999 results primarily due to the lower margins in 1999 related to the
former defense subsidiary, SEI. Gross profit margin increased in both fiscal
2000 periods compared to "adjusted" 1999 results due to operational improvements
in all three primary operating segments including favorable changes in sales mix
and successful cost containment programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses for the third quarter of
fiscal 2000 were $16.8 million, or 21.1% of net sales, compared with $18.9
million, or 16.6% of net sales for the prior year period. "Adjusted" SG&A
expense was $13.7 million, or 21.7% of net sales for the same period a year ago.
The percentage decrease from "adjusted" 1999 SG&A expenses is the result of
favorable sales leverage achieved on the higher sales volume.
For the first nine months of fiscal 2000, SG&A expenses were $45.2 million, or
21.0% of net sales, compared with $54.7 million, or 18.3% of net sales for the
prior year period. "Adjusted" SG&A expense was $39.0 million, or 21.8% of net
sales for the same period a year ago. The decrease as a percent of sales from
"adjusted" 1999 SG&A expenses is due to the favorable sales leverage achieved on
the higher sales volume.
OPERATING PROFIT
Operating profit was $7.9 million (10.0% of sales) for the third quarter of
fiscal 2000 compared to reported operating profit of $9.0 million (7.9% of
sales) for the third quarter of fiscal 1999. The prior year operating profit
amount included $4.7 million related to SEI. Current year third quarter
operating profit increased $3.6 million, or 83.7% over prior year "adjusted"
third quarter operating profit of $4.3 million.
Operating profit was $20.7 million (9.6% of sales) for the first nine months of
fiscal 2000 compared to reported operating profit of $21.1 million (7.1% of
sales) for the first nine months of fiscal 1999. The prior year operating profit
amount included $8.5 million related to SEI. Current year nine months operating
profit increased $8.1 million, or 64.3% over prior year "adjusted" operating
profit of $12.6 million.
Filtration/Fluid Flow
Operating profit increased to $4.1 million (9.2% of sales) in third quarter of
fiscal 2000 from the $4.0 million (9.2% of sales) of operating profit in the
prior year period. Operating profit of $12.1 million increased 12.0% in the
first nine months of fiscal 2000 over the $10.8 million of operating profit in
the prior year period. Operating profit has remained consistent at 9.2% of sales
in the third quarter of fiscal 2000 as compared to prior year mainly due to the
temporary slowdown in sales of disposable water filter cartridges and blood
filters as well as increased investments in new product start-ups.
Test
Third quarter operating profit increased $1.9 million, or 271% to $2.6 million
from $.7 million in the prior year quarter. Operating profit was $4.5 million in
the first nine months of fiscal 2000 compared to $2.4 million in the prior year
period. Operating profit for the current quarter and year-to-date increased
primarily due to the Lindgren acquisition, which contributed approximately $1.0
million, as well as additional profit related to the General Motors contract to
design and build an EMC test complex.
Communications
Third quarter operating profit of $2.4 million in fiscal 2000 was $1.3 million
(118%) higher than the $1.1 million of operating profit in the third quarter of
fiscal 1999. For the first nine months of fiscal 2000, operating profit
increased $5.0 million (294%)to $6.7 million from $1.7 million in the prior year
period. The large increase is the result of significantly higher shipments to
PREPA and WPS as described above.
11
<PAGE> 12
Other
Operating loss was ($1.2) million and ($2.6) million for the three and
nine-month periods ended June 30, 2000, respectively, compared to ($1.5) million
and ($2.3) million for the respective prior year periods. The increase in the
current nine month period operating loss primarily related to the operations of
the Rantec microwave antenna business that was sold in February 2000.
INTEREST (INCOME) EXPENSE
Interest expense was $.2 million and $1.7 million for the three-month period
ended June 30, 2000 and 1999, respectively. Interest income was $.1 million for
the nine-month period ended June 30, 2000 compared to interest expense of $5.2
million for the nine-month period ended June 30, 1999. The decline in interest
expense for the nine-month period ended June 30, 2000 is due to the lower debt
level in the current year. All outstanding debt, excluding approximately $.8
million of foreign debt, was repaid in October 1999 with the proceeds from the
sale of SEI.
OTHER COSTS AND EXPENSES, NET
Other costs and expenses, net, were $1.9 million and $4.9 million for the three
and nine-month periods ended June 30, 2000, respectively, compared to $1.0
million and $4.2 million for the three and nine-month periods ended June 30,
1999, respectively. The amount for the first nine months of fiscal 2000 included
amortization expense of $2.8 million related to goodwill and patents. During the
third quarter of fiscal 2000, the Company recorded a charge of approximately $.7
million to write-off an investment in a third party start-up company who has
filed for bankruptcy. This investment had been recorded within the Company's
Test segment. The Company will be a distributor of the products.
GAIN ON THE SALE OF PROPERTY
In the first quarter of fiscal 2000, the Company recorded a gain of $2.2 million
(or $.18 per share) on the sale of the Riverhead, New York property, used by the
Company's former Hazeltine subsidiary. The property was sold for $2.6 million,
consisting of $.5 million in cash and a $2.1 million interest-bearing, 18-month
note receivable.
INCOME TAX EXPENSE
The third quarter fiscal 2000 effective income tax rate was 36.8% compared to
35.5% in the third quarter of fiscal 1999. The effective income tax rate in the
first nine months of fiscal 2000 was 32.3% compared to 35.3% in the prior year
period. The tax rate for the first nine months of fiscal 2000 was favorably
impacted by the $2.2 million gain on the sale of property, in which the Company
recognized minimal tax expense. Management estimates the annual effective tax
rate for fiscal 2000 to be approximately 36%.
FINANCIAL CONDITION
Working capital decreased to $45.3 million at June 30, 2000 from $95.3 million
at September 30, 1999. The decrease is primarily due to the use of cash to repay
all of the debt outstanding at September 30, 1999, except for the $0.8 million
of foreign debt outstanding at June 30, 2000. During the first nine months of
fiscal 2000, accounts receivable increased by $16.5 million as a result of the
recent acquisitions and sales growth of the business. Costs and estimated
earnings on long-term contracts and inventories increased in the aggregate by
$10.7 million primarily due to the recent acquisitions, General Motors contract
to design and build an EMC test complex, and safety stock related to the West
Coast plant consolidation. Accounts payable and accrued expenses increased by
$1.8 million mainly due to the recent acquisitions offset by the payments
related to the September 30, 1999 divestiture of SEI.
Net cash provided by operating activities was $5.6 million in the first nine
months of fiscal 2000 compared to $7.4 million in the same period of fiscal
1999. The cash provided by operating activities in fiscal 2000 was positively
impacted by the Company's recent acquisitions which was offset by divestiture
related (SEI) payments and the above mentioned inventory requirements.
Net cash used by investing activities was $36.0 million in the first nine months
of fiscal 2000 compared to $6.6 million in the same period of fiscal 1999. The
increase in net cash used by investing activities is mainly due to the
acquisitions of Lindgren, Eaton Space Products and Holaday.
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Capital expenditures were $7.8 million in the first nine months of fiscal 2000
compared with $6.6 million in the comparable period of fiscal 1999. Major
expenditures in the current period included manufacturing equipment used in the
filtration / fluid flow business.
On April 11, 2000, the Company entered into a new $75 million reducing revolving
credit facility replacing its previous $40 million credit facility. The
revolving credit facility is available for direct borrowings and/or the issuance
of letters of credit. The maturity of the new bank credit facility is April 11,
2005. The new credit facility is provided by a group of five banks, led by Bank
of America. At June 30, 2000, the Company had approximately $50 million
available to borrow under the credit facility.
Cash flow from operations and borrowings under the bank credit facility are
expected to provide adequate resources to meet the Company's capital
requirements and operational needs for the foreseeable future.
During the first nine months of fiscal 2000, the Company repurchased
approximately 500,000 shares of ESCO common stock as part of its ongoing open
market repurchase program. Since announcing the program in fiscal 1999, the
Company has repurchased approximately 700,000 shares of the 1.3 million shares
authorized under the current program. In June 2000, the Company initiated an odd
lot buy back program which extends through August 2000. The Company anticipates
that 25,000 shares will be repurchased under the program for a total cost of
approximately $.5 million.
FORWARD LOOKING STATEMENTS
Statements in this report that 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. Actual results may
differ materially due to risks and uncertainties, which are described in the
Company's Form 10-K for fiscal year 1999 and on page 41 of the 1999 Annual
Report to Shareholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risks relating to the Company's operations result primarily from changes
in interest rates and changes in foreign currency exchange rates. Based on the
current debt structure, the exposure to interest rate risk is not material. The
Company is subject to foreign currency exchange rate risk relating to receipts
from customers and payments to suppliers in foreign currencies. The Company
hedges foreign currency commitments by purchasing foreign currency forward
contracts.
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
Exhibit
Number
3(a) Restated Articles of Incorporation Incorporated by reference to
Form 10-K for the fiscal year
ended September 30, 1999 at
Exhibit 3(a)
3(b) Amended Certificate of Designation, Incorporated by reference to
Preferences and Rights of Series A Form 10-Q for the quarter
Participating Cumulative Preferred ended March 31, 2000
Stock of the Registrant at Exhibit 4(e)
3(c) Articles of Merger effective
July 10, 2000
3(d) Bylaws, as amended
4(a) Specimen Common Stock Certificate
4(b) Specimen Rights Certificate Incorporated by reference to
Exhibit B to Exhibit 4.1 to
the Registrant's Current
Report on Form 8-K dated
February 3, 2000
4(c) Rights Agreement dated as of Incorporated by reference to
September 24, 1990 (as amended and Current Report on Form 8-K
restated as of February 3, 2000) dated February 3, 2000, at
between the Registrant and Exhibit 4.1
ChaseMellon Shareholder Services,
L.L.C., as Rights Agent
4(d) Credit Agreement dated as of April 11,
2000, among the Registrant,
Bank of America, N.A., as agent,
and the lenders listed therein
27 Financial Data Schedule
b) Reports on Form 8-K. There were no reports on Form 8-K filed during the
quarter ended June 30, 2000.
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 TECHNOLOGIES INC.
/s/ Gary E. Muenster
-----------------------------------------
Gary E. Muenster
Vice President and
Corporate Controller
(As duly authorized officer
and principal accounting
officer of the registrant)
Dated: August 14, 2000
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