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, 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 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 April 30, 2000 was 12,306,793.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
---------
2000 1999
---- ----
Net sales $ 70,062 96,214
Costs and expenses: ------- ------
Cost of sales 48,486 71,178
Selling, general and administrative expenses14,686 18,593
Interest (income) expense (157) 1,704
Other, net 1,449 1,580
------ ------
Total costs and expenses 64,464 93,055
------ ------
Earnings before income taxes 5,598 3,159
Income tax expense 2,081 1,112
------ ------
Net earnings 3,517 2,047
------ ------
Earnings per share: - Basic $ .29 .17
- Diluted .28 .16
=== ===
See accompanying notes to consolidated financial statements.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Six Months Ended
March 31,
---------
2000 1999
---- ----
Net sales 135,927 184,407
------- -------
Costs and expenses:
Cost of sales 94,723 136,477
Selling, general and administrative
expenses 28,438 35,814
Interest (income) expense (308) 3,436
Other, net 3,040 3,190
Gain on sale of property (2,239) -
------- -------
Total costs and expenses 123,654 178,917
------- -------
Earnings before income taxes 12,273 5,490
Income tax expense 3,700 1,928
------- -------
Net earnings before accounting change 8,573 3,562
------- -------
Cumulative effect of accounting change,
net of tax - (25,009)
------- -------
Net earnings (loss) 8,573 (21,447)
======= =======
Earnings (loss) per share:
Earnings before accounting change:
- Basic $ .70 .29
- Diluted .68 .28
=== ===
Net earnings (loss) - Basic $ .70 (1.74)
- Diluted .68 (1.74)
=== ======
See accompanying notes to consolidated financial statements
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
March 31,September 30,
2000 1999
---- ----
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 11,928 87,709
Accounts receivable, less allowance for
doubtful accounts of $629 and $574,
respectively 43,415 38,669
Costs and estimated earnings on long-term
contracts, less progress billings of
$10,698 and $11,778, respectively 7,801 4,019
Inventories 41,431 39,590
Other current assets 4,560 3,559
------- -------
Total current assets 109,135 173,546
------- -------
Property, plant and equipment, at cost 106,719 109,763
Less accumulated depreciation and
amortization 38,177 38,445
------- -------
Net property, plant and equipment 68,542 71,318
Excess of cost over net assets of purchased
businesses, less accumulated amortization
of $7,684 and $6,631, respectively 72,537 68,950
Deferred tax assets 41,351 44,783
Other assets 21,651 19,788
------- -------
$313,216 378,385
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and current
maturities of long-term debt $ - 20,598
Accounts payable 27,485 26,339
Advance payments on long-term contracts,
less costs incurred of $2,256 and $479,
respectively 1,916 682
Accrued expenses and other current
liabilities 20,105 30,598
------- -------
Total current liabilities 49,506 78,217
------- -------
Other liabilities 10,127 9,583
Long-term debt 849 41,896
------- -------
Total liabilities 60,482 129,696
------- -------
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 13,180,504 and
12,782,663 shares, respectively 132 128
Additional paid-in capital 204,428 201,719
Retained earnings since elimination of
deficit at September 30, 1993 61,296 52,723
Accumulated other comprehensive loss (3,376) (1,870)
------- -------
262,480 252,700
Less treasury stock, at cost; 892,425
and 404,625 common shares, respectively (9,746) (4,011)
------- -------
Total shareholders' equity 252,734 248,689
------- -------
$313,216 378,385
======= =======
See accompanying notes to consolidated financial statements.
ESCO ELECTRONICS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Six Months Ended
March 31,
---------
2000 1999
---- ----
Cash flows from operating activities:
Net earnings (loss) $ 8,573 (21,447)
Adjustments to reconcile net earnings
(loss) to net cash (used) provided
by operating activities:
Depreciation and amortization 7,046 9,022
Changes in operating working capital,
net of accounting change (17,864) (13,107)
Effect of accounting change, net of tax - 25,009
Other (415) 3,649
------- -------
Net cash (used) provided by operating
activities (2,660) 3,126
------- -------
Cash flows from investing activities:
Capital expenditures (4,360) (4,295)
Acquisition (divestiture) of businesses,
less cash acquired (3,900) -
-------- --------
Net cash used by investing activities (8,260) (4,295)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in short-term
borrowings (12,506) 9,000
Proceeds from long-term debt 80 96
Principal payments on long-term debt (49,219) (4,241)
Purchases of common stock into treasury (5,765) (1,562)
Other 2,549 138
-------- -------
Net cash (used) provided by financing
activities (64,861) 3,431
-------- -------
Net (decrease) increase in cash and cash
equivalents (75,781) 2,262
Cash and cash equivalents, beginning of period 87,709 4,241
-------- -------
Cash and cash equivalents, end of period $ 11,928 6,503
======== =======
See accompanying notes to consolidated financial statements.
ESCO ELECTRONICS CORPORATION 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 six month periods ended March
31, 2000 are not necessarily indicative of the results for
the entire 2000 fiscal year.
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 net earnings per share for the
first six months of fiscal 2000, for both basic and diluted
earnings per share, is calculated using the weighted average
number of common shares outstanding during the period. The
number of shares used in the calculation of earnings (loss)
per share for each period presented is as follows (in
thousands):
Three Months Ended Six Months Ended
March 31, March 31,
--------- ---------
2000 1999 2000 1999
---- ---- ---- ----
Weighted Average Shares
Outstanding - Basic 12,275 12,274 12,312 12,294
Dilutive Options and
Performance Shares 324 300 317 294
------ ------ ------ ------
Adjusted Shares- Diluted 12,599 12,574 12,629 12,588
====== ====== ====== ======
Options to purchase approximately 125,000 shares of common
stock at prices ranging from $12.91-$19.22 per share and
options to purchase 691,000 shares of common stock at
approximately $10.00 - $19.22 were outstanding during the six
month periods ended March 31, 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. These
options expire in various periods through 2010. Approximately
20,000 and 166,000 performance shares were outstanding but
unearned at March 31, 2000, and 1999, respectively, and
therefore, were not included in the respective computations
of diluted EPS. The unearned performance shares expire in
2001.
3. Inventories
Inventories consist of the following (dollars in thousands):
March 31, September 30,
2000 1999
---- ----
Finished goods $ 11,444 11,387
Work in process, including
long-term contracts 15,234 14,517
Raw materials 14,753 13,686
------ ------
Total inventories $ 41,431 39,590
====== ======
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 March
31, 2000 and 1999 was $2.6 million and $1.0 million,
respectively. Comprehensive income (loss) for the six-month
periods ended March 31, 2000 and 1999 was $7.1 million and
($22.5) million, respectively. The Company's comprehensive
income and loss is impacted only by foreign currency
translation adjustments. During the second quarter of fiscal
2000, the foreign currency adjustments were primarily
impacted by the fluctuations in certain European currencies.
6. Business Segment information
The Company is organized based on the products and services
that it offers. Beginning with the first quarter of fiscal
2000, the operating results of Comtrak Technologies, L.L.C
(Comtrak) are included within the Company's Communications
segment. This change from September 30, 1999 is the result of
the consolidation of Distribution Control Systems, Inc.
(DCSI) and Comtrak under common management, and the move of
Comtrak operations into the DCSI operating facility. This
consolidation occurred in the quarter ended December 31,
1999.
($ in millions) Three Months ended
March 31,
---------
Net Sales 2000 1999
---- ----
Filtration/Fluid Flow $45.9 40.8
Test 10.3 10.1
Communications 10.7 5.4
Other 3.2 3.7
Divested Business - 36.2
---- ----
Consolidated totals $70.1 96.2
==== ====
Operating Profit (Loss)
Filtration/Fluid Flow $ 4.6 3.4
Test 1.2 1.2
Communications 2.1 .3
Other (1.0) (.6)
Divested Business - 2.1
--- ---
Consolidated totals $ 6.9 6.4
=== ===
($ in millions) Six Months ended
March 31,
---------
Net Sales 2000 1999
---- ----
Filtration/Fluid Flow $89.0 80.8
Test 19.0 17.2
Communications 21.2 10.2
Other 6.7 7.5
Divested Business - 68.7
---- ----
Consolidated totals $135.9 184.4
===== =====
Operating Profit (Loss)
Filtration/Fluid Flow $ 8.0 6.8
Test 1.9 1.7
Communications 4.4 .6
Other (1.5) (.7)
Divested Business - 3.7
--- ---
Consolidated totals $ 12.8 12.1
==== ====
7. Acquisitions / Divestitures
During February 2000, the Company completed the sale of its
microwave antenna product line, which had historically
operated as part of Rantec Microwave & Electronics, Inc. The
operating results for this business, prior to the divestiture,
have been included within the Company's Other segment. The
Company sold the contract order backlog and operating assets
of the microwave antenna product line for $2.1 million in
cash, plus contingent consideration based on future operating
results over the next two years. The Company retained the
land and buildings related to this business.
On March 31, 2000, the Company acquired the Eaton space
products business (Eaton), for approximately $6 million in
cash and accounted for the transaction as a purchase. Eaton
manufactures specialty valves and other fluid flow components
for satellite launch vehicles and aircraft applications. With
annual sales of approximately $7 million, this newly acquired
product line will be integrated into the existing VACCO
operations which is included in the Company's Filtration /
Fluid Flow segment. Eaton's assets and liabilities are
included in the Company's consolidated balance sheet at March
31, 2000.
8. Subsequent Events
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 $25 million in cash and accounted for the
transaction as a purchase. Lindgren has annual sales in
excess of $40 million and is a leading supplier of radio
frequency (RF) shielding products and components used by
manufacturers of medical equipment, communications systems and
electronic products. Lindgren is headquartered near Chicago,
IL and operates facilities in Wisconsin, Florida, the United
Kingdom and Singapore. The operating results for Lindgren
will be included within the Company's Test segment.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Reconciliation of Adjusted Net Earnings - 1999
The following table is not intended to present prior year net
earnings as defined within generally accepted accounting
principles (GAAP), and is presented for informational purposes
only. The table is comparable to the full year table presented in
the 1999 Annual Report to Shareholders (page 11).
The table provides a reconciliation between the 1999 reported
financials and what Management believes the 1999 operating
results may have been after removing certain nonrecurring items
and assuming that all of the actions taken during 1999 to
reposition the business were complete at the beginning of the
period. Management believes the estimated 1999 adjusted operating
results provide a meaningful presentation for purposes of
analyzing ESCO's ongoing financial performance.
Three Months Ended March 31, 1999
---------------------------------
(a) (b)
Elimination Adjusting
($ in millions, rounded) Reported of SEI Items Adjusted
- ----------------------- -------- ------ ----- --------
Net sales $96.2 36.2 - $60.0
---- ---- ---- ----
Cost of sales 71.2 28.4 (.2) 42.6
SG&A expenses 18.6 5.7 .1 13.0
Interest expense (income) 1.7 .1 (2.0) (.4)
Other, net 1.6 .1 - 1.5
---- ---- ---- ----
Total costs and expenses 93.1 34.3 (2.1) 56.7
---- ---- ---- ----
Earnings before tax 3.1 1.9 2.1 3.3
Income tax expense 1.1 - .1 1.2
---- ---- ---- ----
Net earnings 2.0 1.9 2.0 2.1
Six Months Ended March 31, 1999
-------------------------------
(a) (b)
Elimination Adjusting
($ in millions, rounded) Reported of SEI Items Adjusted
- ------------------------ -------- ------ ----- --------
Net sales $184.4 68.7 - $115.7
----- ---- ----- -----
Cost of sales 136.5 54.1 (.4) 82.0
SG&A expenses 35.8 10.9 .3 25.2
Interest expense (income) 3.5 .3 (3.8) (.6)
Other, net 3.2 .2 - 3.0
----- ----- ----- -----
Total costs and expenses 179.0 65.5 (3.9) 109.6
----- ----- ----- -----
Earnings before tax 5.4 3.2 3.9 6.1
Income tax expense 1.9 - .3 2.2
----- ----- ----- -----
Net earnings before
accounting change 3.5 3.2 3.6 3.9
Cumulative effect of
accounting change,
net of tax (25.0) - 25.0 -
----- ----- ----- -----
Net earnings (loss) $(21.5) 3.2 28.6 $3.9
===== ===== ===== =====
(a) Represents the operations of SEI, which were included in the
ESCO consolidated 1999 GAAP reported results of operations for
the first three and six 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.
Results of Operations
Net Sales
Net sales of $70.1 million for the second quarter of fiscal 2000
decreased $26.1 million from reported net sales of $96.2 million
for the second quarter of fiscal 1999 due to the divestiture of
SEI. The prior year amount included SEI sales of $36.2 million.
Excluding SEI from the prior year amounts, second quarter sales
increased $10.1 million, or 16.8% over 1999 "adjusted" sales of
$60.0 million.
Net sales decreased $48.5 million to $135.9 million for the first
six months of fiscal 2000 from reported net sales of $184.4
million for the first six months of fiscal 1999 due to the
divestiture of SEI. The prior year amount included SEI sales of
$68.7 million. Excluding SEI from the prior year amounts, sales
for the first six months of fiscal 2000 increased $20.2 million,
or 17.5% over 1999 "adjusted" sales of $115.7 million.
Filtration/Fluid Flow
Net sales of $45.9 million in the second quarter of fiscal 2000
were 12.5% higher than prior year sales of $40.8 million. Net
sales increased $8.2 million, or 10% to $89.0 million in the
first six months of fiscal 2000 from prior year sales of $80.8
million. The increase was mainly due to new product introductions
and increases in microfiltration sales. Increased shipments of
disposable water filter cartridges and automotive transmission
sump filters and fuel filters also contributed to the sales
growth.
Test
Net sales were $10.3 million and $10.1 million for the second
quarter of fiscal 2000 and 1999, respectively. Net sales of $19.0
million for the first six months increased $1.8 million or 10.5%
in fiscal 2000 over the prior period net sales of $17.2 million.
The increase in both periods is primarily due to additional
revenue related to the General Motors contract to design and
build an electromagnetic compatibility (EMC) test complex.
Communications
For the second quarter of fiscal 2000, net sales were $10.7
million and were 98.1% higher than the $5.4 million of sales
recorded in the second quarter of fiscal 1999. Net sales of
$21.2 million for the first six months of fiscal 2000 were 107.8%
higher than the $10.2 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 $3.2 million in the second quarter of fiscal 2000 and
$3.7 million in fiscal 1999. In the first six months of fiscal
2000, sales were $6.7 million compared to $7.5 million in the
prior year period. The decreases are due to the sale of the
Rantec microwave antenna business, which occurred in February
2000.
Orders and Backlog
Firm order backlog was $150.4 million at March 31, 2000, compared
with $142.9 million at September 30, 1999. Orders totaling $149.8
million were received in the first six months of fiscal 2000,
with the majority of the orders relating to Filtration/Fluid Flow
products. The sale of the Rantec microwave business resulted in
a decrease to backlog of $6.3 million. The backlog related to
the Eaton acquisition has not been included as of March 31, 2000.
Gross Profit
The gross profit margin increased to 30.8% in the second quarter
of fiscal 2000 from 26.0% in the second quarter of fiscal 1999 as
reported. The "adjusted" gross margin for the second quarter of
fiscal 1999 was 28.9%. The gross profit margin was 30.3% in the
first six months of fiscal 2000 and 26.0% in the first six months
of fiscal 1999 as reported. The fiscal 1999 "adjusted" gross
margin was 29.1%.
The gross margin increased in both 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 periods compared to "adjusted" 1999 due
to operational improvements in all three primary operating
segments and changes in sales mix.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the
second quarter of fiscal 2000 were $14.7 million, or 21.0% of net
sales, compared with $18.6 million, or 19.3% of net sales for the
prior year period. "Adjusted" SG&A expense was $13.0 million, or
21.7% of net sales for the same period a year ago. The
percentage decrease from "adjusted" 1999 is the result of
favorable sales leverage achieved on the higher sales volume.
For the first six months of fiscal 2000, SG&A expenses were $28.4
million, or 20.9% of net sales, compared with $35.8 million, or
19.4% of net sales for the prior year period. "Adjusted" SG&A
expense was $25.2 million, or 21.8% of net sales for the same
period a year ago. The decrease as a percent of sales from
"adjusted" 1999 is due to the favorable sales leverage achieved
on the higher sales volume.
Operating Profit
Operating profit increased to $6.9 million (9.8% of sales) for
the second quarter of fiscal 2000 from reported operating profit
of $6.4 million (6.7% of sales) for the second quarter of fiscal
1999. The prior year operating profit amount included $2.1
million related to SEI. Current year operating profit increased
$2.5 million, or 56.8% over prior year "adjusted" operating
profit of $4.4 million.
Operating profit of $12.8 million (9.4% of sales) for the first
six months of fiscal 2000 increased from reported operating
profit of $12.1 million (6.6% of sales) for the first six months
of fiscal 1999. The prior year operating profit amount included
$3.7 million related to SEI. Current year operating profit
increased $4.3 million, or 50.6% over prior year "adjusted"
operating profit of $8.5 million.
Filtration/Fluid Flow
Operating profit increased $1.2 million or 35.3% to $4.6 million
(10.0% of sales) in second quarter of fiscal 2000 over the $3.4
million (8.3% of sales) of operating profit in fiscal 1999.
Operating profit of $8.0 million increased 17.6% in the first six
months of fiscal 2000 over the $6.8 million of operating profit
in fiscal 1999. The improved operating profit in the second
quarter is mainly due to increasing new product sales and
productivity gains.
Test
Second quarter operating profit was $1.2 million in both periods
presented. Operating profit was $1.9 million in the first six
months of fiscal 2000 compared to $1.7 million in the prior year
period. Operating profit increased in the current year-to-date
period primarily due to additional revenue related to the General
Motors contract.
Communications
Second quarter operating profit of $2.1 million in fiscal 2000
was $1.8 million (600%) higher than the $.3 million of operating
profit in the second quarter of fiscal 1999. For the first six
months of fiscal 2000, operating profit increased $3.8 million
(633%)to $4.4 million from $.6 million in fiscal 1999. The large
increase is the result of significantly higher shipments to
PREPA and WPS as described above.
Other
Operating loss was ($1.0) million and ($1.5) million for the
three and six-month periods ended March 31, 2000, respectively,
compared to ($.6) million and (.7) million for the respective
prior year periods. The increase in the current period operating
loss primarily related to the operations of the Rantec microwave
antenna business that was sold in February 2000.
Interest (Income) Expense
Interest income was $.2 million and $.3 million for the three and
six-month periods ended March 31, 2000, respectively, compared to
interest expense of $1.7 million and $3.4 million for the three
and six-month periods ended March 31, 1999, respectively. The
fluctuation in interest is due to the decrease in debt during the
first six months of fiscal 2000. All outstanding debt, excluding
approximately $.9 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 $1.4 million and $3.0 million
for the three and six-month periods ended March 31, 2000,
respectively, compared to $1.6 million and $3.2 million for the
three and six-month periods ended March 31, 1999, respectively.
The amount for the first six months of fiscal 2000 included
amortization expense of $1.7 million related to goodwill and
patents. The balance relates to miscellaneous costs.
Gain on the Sale of Property
In the first quarter of fiscal 2000, the Company recorded a gain
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 second quarter fiscal 2000 effective income tax rate was
37.2% compared to 35.2% in the second quarter of fiscal 1999.
The effective income tax rate in the first six months of fiscal
2000 was 30.1% compared to 35.1% in the prior year period. The
tax rate for the first six months of fiscal 2000 was favorably
impacted by the $2.2 million gain on the sale of property, in
which the Company recognized zero tax expense. Management
estimates the annual effective tax rate for fiscal 2000 to be
approximately 35%.
Financial Condition
Working capital decreased to $59.6 million at March 31, 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 March 31, 2000. During the first six months of
fiscal 2000, accounts receivable increased by $4.7 million as a
result of the sales growth of the business. Costs and estimated
earnings on long-term contracts and inventories increased in the
aggregate by $5.6 million primarily due to the 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 decreased by $9.3 million mainly due to the
timing of payments related to the September 30, 1999 divestiture
of SEI.
Net cash used by operating activities was $2.7 million in the
first six months of fiscal 2000 compared to net cash provided by
operating activities of $3.1 million in the same period of fiscal
1999. The cash used by operating activities in fiscal 2000 was
primarily a result of divestiture related (SEI) payments and the
above mentioned inventory requirements.
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.
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 six 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.
Capital expenditures were $4.4 million in the first six months of
fiscal 2000 compared with $4.3 million in the comparable period
of fiscal 1999. Major expenditures in the current period included
manufacturing equipment used in the filtration / fluid flow
business.
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.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
Exhibit
Number
3(a) Restated Articles of Incorporated by reference to
Incorporation Form 10-K for the fiscal year
ended September 30, 1999 at
Exhibit 3(a)
3(b) By laws, as amended Incorporated by reference to
Form 10-K for the fiscal year
ended September 30, 1991 at
Exhibit 3(b)
4(a) Specimen Common Stock
Certificate
4(b) Specimen Right 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 Current Report on Form 8-K
amended and restated as of dated February 3, 2000 at
February 3, 2000) between at Exhibit 4.1
the Registrant and
ChaseMellon Shareholder
Services, L.L.C., as Rights
Agent
4(d) Fifth Amendment, dated as of
January 7, 2000, to the
Credit Agreement dated as of
September 23, 1990, as most
recently amended and restated
as of February 7, 1997 and as
subsequently amended, among
the Registrant, Defense
Holding Corp., the Banks
listed therein and Morgan
Guaranty Trust Company
of New York, as agent.
4(e) Amended Certificate of
Designation, Preferences and
Rights of Series A
Participating Cumulative
Preferred Stock of the
Registrant
b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K, dated February 3,
2000, during the quarter ended March 31, 2000 which reported the
restatement and amendment of the Company's shareholder rights
plan under "Item 5. Other Events" and "Item 7. Financial
Statements, Pro Forma Financial Information and Exhibits".
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/ Gary E. Muenster
Gary E. Muenster
Vice President and
Corporate Controller
(As duly authorized officer
and principal accounting
officer of the registrant)
Dated: May 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,928
<SECURITIES> 0
<RECEIVABLES> 44,044<F1>
<ALLOWANCES> 629
<INVENTORY> 41,431
<CURRENT-ASSETS> 109,135
<PP&E> 106,719
<DEPRECIATION> 38,177
<TOTAL-ASSETS> 313,216
<CURRENT-LIABILITIES> 49,506
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 252,602
<TOTAL-LIABILITY-AND-EQUITY> 313,216
<SALES> 135,927
<TOTAL-REVENUES> 135,927
<CGS> 94,723
<TOTAL-COSTS> 123,161
<OTHER-EXPENSES> 801
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (308)
<INCOME-PRETAX> 12,273
<INCOME-TAX> 3,700
<INCOME-CONTINUING> 8,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,573
<EPS-BASIC> .70
<EPS-DILUTED> .68
<FN>
<F1>THIS NUMBER DOES NOT INCLUDE $7.8 MILLION OF COSTS AND ESTIMATED EARNINGS ON
LONG-TERM CONTRACTS.
</FN>
</TABLE>
EXHIBIT 4(a)
COMMON STOCK $.01 PAR VALUE
NUMBER (INCORPORATED UNDER THE LAWS SHARES
OF THE STATE OF MISSOURI)
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 269030 10 2
NEW YORK, N.Y. AND RIDGEFIELD PARK, N.J. see reverse for
certain definitions
ESCO ELECTRONICS CORPORATION
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
ESCO ELECTRONICS CORPORATION, INCLUDING RELATED RIGHTS (THE
"RIGHTS") TO PURCHASE PREFERRED STOCK ISSUED PURSUANT TO THE
RIGHTS AGREEMENT (DEFINED ON THE REVERSE), TRANSFERRABLE IN
PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS
CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE AND THE
SHARES REPRESENTED HEREBY ARE ISSUED AND SHALL BE HELD
SUBJECT TO ALL OF THE PROVISIONS OF THE ARTICLES OF
INCORPORATION AND BY-LAWS OF THE COMPANY, AS AMENDED, TO ALL
OF WHICH THE HOLDER BY ACCEPTANCE HEREOF, ASSENTS. THIS
CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED AND REGISTERED
BY THE TRANSFER AGENT AND REGISTRAR.
IN WITNESS WHEREOF, THE COMPANY HAS CAUSED THIS
CERTIFICATE TO BE SIGNED IN FACSIMILE BY ITS DULY AUTHORIZED
OFFICERS AND A FACSIMILE SEAL OF THE COMPANY TO BE HEREUNTO
AFFIXED.
DATED:
/S/ALYSON S. BARCLAY /S/D. J. MOORE countersigned and
SECRETARY CHAIRMAN, PRESIDENT AND registered:
CHIEF EXECUTIVE OFFICER CHASEMELLON SHAREHOLDER
ESCO ELECTRONICS CORPORATION SERVICES, L.L.C.
SEAL Transfer Agent and
1990 Registrar
MISSOURI By
Authorized signature
(reverse side)
ESCO ELECTRONICS CORPORATION
The Rights Agreement
This certificate also evidences certain Rights arising
with respect to the Common Stock as set forth in an Amended
and Restated Rights Agreement, as it may from time to time
be supplemented or amended (the "Rights Agreement"), between
ESCO Electronics Corporation ("the Company") and the Rights
Agent (as defined in the Rights Agreement), the terms of
which are hereby incorporated herein by reference and a copy
of which is on file at the principal executive offices of
the Company. The Company will mail to the holder of this
certificate a copy of the Rights Agreement without charge
promptly after receipt of a written request therefor. Under
certain circumstances, as set forth in the Rights Agreement,
such Rights may be evidenced by separate certificates and no
longer be evidenced by this certificate. As set forth in the
Rights Agreement, Rights issued to, or held by, any Person
who is, was or becomes an Acquiring Person or an Affiliate
or Associate thereof (as such terms are defined in the
Rights Agreement), whether currently held by or on behalf of
such Person or by any subsequent holder, may become null and
void.
EXHIBIT 4(d)
FIFTH AMENDMENT dated as of January 7,
2000, to the Credit Agreement dated as of
September 23, 1990, as amended and restated as
of February 7, 1997, and as subsequently
amended (the "Credit Agreement"), among ESCO
ELECTRONIC CORPORATION, a Missouri corporation
("Parent"), DEFENSE HOLDING CORP., formerly
Emerson Defense Holding Corp., a Delaware
corporation (the "Borrower"), the financial
institutions party thereto as lenders (the
"Banks") and MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Agent. Unless otherwise defined
herein, capitalized terms shall have the
meanings assigned to such terms in the Credit
Agreement.
The Borrower has requested that the Required Banks
agree to amend certain provisions of the Credit Agreement as
provided herein. The Required Banks are willing, on the
terms, subject to the conditions and to the extent set forth
below, to amend such provisions of the Credit Agreement.
In consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto
hereby agree, on the terms and subject to the conditions set
forth herein, as follows:
SECTION 1. Amendment.
(a) Section 5.12 of the Credit Agreement is hereby amended by
replacing the amount "$5,000,000" in clause (iii) of paragraph
(b) thereof with the amount "$10,000,000".
(b) Section 5.13(a)(iv) of the Credit Agreement is hereby
amended to add the following clause (D) at the end of such
section:
and (D) the Lindgren RF Enclosures and Lindgren-
Rayproof acquisition (for total consideration not to
exceed $30,000,000), the Holaday Industries, Inc.
acquisition (for total consideration not to exceed
$6,000,000) and the Multiple Eaton Corporation
product lines acquisition (for total consideration
not to $12,000,000) may be consummated.
(c) Section 5.13(b) of the Credit Agreement is hereby amended
by replacing the amount "$10,000,000" in clause (1)(iv)
thereof with the amount "$15,000,000".
(d) Section 5.13(b) of the Credit Agreement is hereby amended
to add the following clause (5) at the end of such Section:
or (5) the sale of all the assets of Rantec
Microwave, the sale of the Riverhead, New York
building and property, and the sale of the Winter
Springs, Florida property.
(e) Section 5.16(f) of the Credit Agreement is hereby amended
to add the following clause (vii) at the end of such Section:
and (vii) clauses (iii) and (v) of this
paragraph shall not apply to the Lindgren RF
Enclosures and Lindgren-Rayproof acquisition (for
total consideration not to exceed $30,000,000), the
Holaday Industries, Inc. acquisition (for total
consideration not to exceed $6,000,000) and the
Multiple Eaton Corporation product lines acquisition
(for total consideration not to exceed $12,000,000).
SECTION 2. Representations and Warranties. Each of
ESCO and the Borrower represents and warrants to the Agent and
each of the other Banks that:
(a) After giving effect to this Amendment, the
representations and warranties set forth in Article IV of the
Credit Agreement are true and correct in all material respects
with the same effects as if made on the date hereof, except to
the extent such representations and warranties expressly
relate to an earlier date.
(b) After giving effect to this Amendment, no Event
of Default or Default has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. This
Amendment shall become effective as of the date first above
written when the Agent shall have received counterparts of
this Amendment that, when taken together, bear the signatures
of ESCO, the Borrower and the Required Banks.
SECTION 4. Credit Agreement. Except as specifically
amended and waived hereby, the Credit Agreement shall continue
in full force and effect in accordance with the provisions
thereof as in existence on the date hereof. After the date
hereof, any reference to the Credit Agreement shall mean the
Credit Agreement as amended hereby. This Amendment shall
constitute a Loan Document for all purposes under the Credit
Agreement
SECTION 5. Applicable Law. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 6. Counterparts. This Amendment may be
executed in two or more counterparts, each of which shall
constitute an original but all of which when taken together
shall constitute but one contract. Delivery of an executed
signature page of this Amendment by facsimile transmission
shall be effective as delivery of a manually executed
counterpart hereof.
SECTION 7. Expenses. The Borrower agrees to
reimburse the Agent for its out-of-pocket expenses in
connection with this Amendment, including the reasonable fees,
charges and disbursements of Cravath, Swaine & Moore, counsel
for the Agent.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed by their respective
authorized officers as of the day and year first written
ESCO ELECTRONICS CORPORATION,
by__________________________
Name:
Title:
DEFENSE HOLDING CORP.,
by______________________
Name:
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, individually and
as Agent,
by______________________________
Name:
Title:
BANK OF AMERICA, N.A.,
by______________________________
Name:
Title:
FLEET CAPITAL CORP.,
by_______________________________
Name:
Title:
THE BANK OF NOVA SCOTIA,
by_______________________________
Name:
Title:
FIRST UNION NATIONAL BANK,
by______________________________
Name:
Title:
NATIONAL CITY BANK,
by_______________________________
Name:
Title:
EXHIBIT 4(e)
AMENDED
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK
OF
ESCO Electronics Corporation
Pursuant to Section 351 of the
Revised Statutes of Missouri
We, D.J. Moore, President, and A. S. Barclay,
Secretary, of ESCO Electronics Corporation, a corporation
organized and existing under the laws of the General Business and
Corporations Law of Missouri (the "GBCL"), in accordance with the
provisions thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board
of Directors by the Restated Articles of Incorporation of the
Company, as amended, the said Board of Directors on September 23,
1990, adopted a resolution (the "1990 Resolution") creating a
series of One Hundred Twenty Thousand (120,000) shares of
Preferred Stock designated as Series A Participating Cumulative
Preferred Stock, a copy of which 1990 Resolution was set forth on
a certificate of designation that was executed by the Company's
President, acknowledged and filed with the Missouri Secretary of
State (the "Certificate of Designation");
That no shares of such Series A Participating
Cumulative Preferred Stock are issued and outstanding; and
That pursuant to the authority conferred upon the Board
of Directors by the Restated Articles of Incorporation of the
Company, as amended, and Section 351.180.7 of the General and
Business Corporation Law of Missouri, which provides, in
pertinent part, that the Board of Directors may amend the
Certificate of Designation and the series of preferred stock set
forth thereon, so long as no shares of Series A Participating
Cumulative Preferred Stock are issued and outstanding, the said
Board of Directors on February 3, 2000, adopted the following
resolution deleting the Certificate of Designation in its
entirety and amending the terms, preferences and rights thereof
to creating and designate a series of Five Hundred Thousand
(500,000) shares of Preferred Stock, par value $0.01 per share:
RESOLVED, that pursuant to the authority vested in the
Board of Directors of the Company in accordance with the
provisions of its Restated Articles of Incorporation, as amended,
the designation and amount and the powers, preferences and
relative, participating, optional or other special rights of the
Series A Participating Cumulative Preferred Stock as set forth on
the Certificate of Designation be, and such terms hereby are,
deleted in their entirety, and a series of Preferred Stock of the
Company is hereby created, and the designation and amount thereof
and the powers, preferences and relative, participating, optional
or other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are amended
in their entirety as follows:
Section 1. Designation and Amount. The shares of
such series shall be designated as "Series A Junior Participating
Preferred Stock," par value $0.01 per share (the "Series A
Preferred Stock"), and the number of shares constituting the
Series A Preferred Stock shall be 500,000. Such number of shares
may be increased or decreased by resolution of the Board of
Directors; provided that no decrease shall reduce the number of
shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares
reserved for issuance upon the exercise of outstanding options,
rights or warrants or upon the conversion of any outstanding
securities issued by the Company.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares
of any series of preferred stock of the Company ranking prior and
superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock, in
preference to the holders of shares of common stock, par value
$0.01 per share of the Company (the "Common Stock"), and of any
other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available
for the purpose, quarterly dividends payable in cash on any
regular quarterly dividend payment date as shall be established
by the Board of Directors (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of
a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the
greater of (a) $1.00 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of
Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common
Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock. In the event the Company
shall at any time after February 3, 2000 (the "Rights Amendment
Date") declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or
distribution on the Series A Preferred Stock as provided in
paragraph (A) of this Section immediately after it declares a
dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment
Date, a dividend of $1.00 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series A Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue
of such shares, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date,
in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is
a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of
Directors may, in accordance with applicable law, fix a record
date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not
more than such number of days prior to the date fixed for the
payment thereof as may be allowed by applicable law.
Section 3. Voting Rights.
The holders of shares of Series A Preferred Stock shall
have the following voting rights:
(A) Each share of Series A Preferred Stock shall
entitle the holder thereof to 100 votes on all matters submitted
to a vote of the shareholders of the Company. In the event the
Company shall at any time after the Rights Amendment Date declare
or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the number of votes to
which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in the
Company's Restated Articles of Incorporation or by law, the
holders of shares of Series A Preferred Stock, the holders of
shares of Common Stock, and the holders of shares of any other
capital stock of the Company having general voting rights, shall
vote together as one class on all matters submitted to a vote of
shareholders of the Company.
(C) Except as otherwise set forth herein or in the
Company's Restated Articles of Incorporation, and except as
otherwise provided by law, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
(A) Whenever dividends or distributions payable on the
Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the
Company shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and
all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) except as permitted in Section 4(A)(iv)
below, redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, provided that
the Company may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for
shares of any stock of the Company ranking junior (either as
to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Stock; and
(iv) purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the
Company to purchase or otherwise acquire for consideration any
shares of stock of the Company unless the Company could, under
paragraph (A) of this Section 4, purchase or otherwise acquire
such shares at such time and in such manner.
Section 5. Reacquired Shares.
Any shares of Series A Preferred Stock purchased or
otherwise acquired by the Company in any manner whatsoever shall
be retired and canceled promptly after the acquisition thereof.
The Company shall cause all such shares upon their cancellation
to be authorized but unissued shares of Preferred Stock which may
be reissued as part of a new series of Preferred Stock, subject
to the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Subject to the rights of the holders of any shares
of any series of Preferred Stock of the Company ranking prior and
superior to the Series A Preferred Stock with respect to
liquidation, upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Company, no distribution shall
be made to the holders of shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock unless, prior thereto, the
holders of shares of Series A Preferred Stock shall have received
$100.00 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to
the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A
Liquidation Preference, no additional distributions shall be made
to the holders of shares of Series A Preferred Stock, unless,
prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to
the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph C below to reflect such events as stock dividends,
and subdivisions, combinations and consolidations with respect to
the Common Stock) (such number in clause (ii) being referred to
as the "Adjustment Number"). Following the payment of the full
amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A
Preferred Stock and Common Stock, respectively, holders of Series
A Preferred Stock and holders of shares of Common Stock shall
receive their ratable and proportionate share of the remaining
assets to be distributed in the ratio of the Adjustment Number to
1 with respect to such Series A Preferred Stock and Common Stock,
on a per share basis, respectively.
(B) In the event there are not sufficient assets
available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
preferred stock, if any, which rank on a parity with the Series A
Preferred Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion to
their respective liquidation preferences. In the event there are
not sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Company shall at any time after
the Rights Amendment Date declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the
Adjustment Number in effect immediately prior to such event shall
be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc.
In case the Company shall enter into any consolidation,
merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case
the shares of Series A Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which
or for which each share of Common Stock is changed or exchanged.
In the event the Company shall at any time after the Rights
Amendment Date declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that are outstanding immediately
prior to such event.
Section 8. Redemption.
The shares of Series A Preferred Stock shall not be
redeemable.
Section 9. Ranking.
The Series A Preferred Stock shall rank junior to all
other series of the Company's Preferred Stock as to the payment
of dividends and the distribution of assets, unless the terms of
any such series shall provide otherwise.
Section 10. Fractional Shares.
Series A Preferred Stock may be issued in fractions of
a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit
of all other rights of holders of Series A Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed
this Certificate and do affirm and acknowledge the foregoing as
true under the penalties of perjury this 14th day of February,
2000.
/s/ D. J. Moore
D. J. Moore, President
Attest:
/s/ Alyson S. Barclay
A. S. Barclay, Secretary
STATE OF MISSOURI )
) SS.
COUNTY OF ST. LOUIS )
On this 14th day of February, 2000, before me, Norma J.
Reger, a Notary Public in the State of Missouri, personally
appeared D. J. Moore, President of ESCO Electronics Corporation,
known to me to be the person who executed the foregoing
Certificate of Designation and acknowledged to me that he
executed the same pursuant to the authority given by the Board of
Directors of such corporation as his free and voluntary act, and
as the free and voluntary act and deed of such corporation, for
the uses and purposes therein set forth.
/s/ Norma J. Reger
Notary Public
My Commission expires:
06/24/00
