NEWS FROM ESCO TECHNOLOGIES
For more information contact: For media inquiries:
Patricia K. Moore David P. Garino
Director, Investor Relations (314) 982-0551
ESCO Technologies Inc.
(314) 213-7277
ESCO ANNOUNCES FIRST QUARTER RESULTS
------------------------------------
St. Louis, MO, February 4, 2005 - ESCO Technologies Inc. (NYSE: ESE) today
announced its results for the fiscal 2005 first quarter ended December 31, 2004.
Net earnings for the fiscal 2005 first quarter were $10.5 million, or $0.80
per share compared to net earnings of $6.2 million, or $0.46 per share in the
first quarter of fiscal 2004. The prior year's first quarter results included a
net loss from discontinued operations of ($0.4) million, or ($0.04) per share,
and the after-tax charges related to the exit and shut down of the Puerto Rican
facility of ($0.5) million, or ($0.04) per share. Excluding these items, prior
year first quarter "Operational" earnings as defined in earlier releases were
$7.1 million, or $0.54 per share.
A reconciliation of the prior year first quarter GAAP reported earnings to
"Operational" earnings is included in the Exhibits attached to this release. The
Company believes that the presentation of fiscal 2004 "Operational" earnings
provides meaningful additional insight into the Company's performance.
Sales
- -----
Fiscal 2005 first quarter consolidated sales of $104.4 million were $8.0
million, or 8 percent higher than 2004 first quarter sales of $96.4 million.
Favorable foreign currency values resulted in approximately $1.5 million of the
sales increase realized in the 2005 first quarter as compared to the prior year
period.
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On a segment basis for the first quarter of fiscal 2005, Communications
sales increased 7 percent; Filtration / Fluid Flow ("Filtration") sales
increased 10 percent; and Test sales increased 7 percent as compared to the
prior year period.
Communications segment sales increased in the first quarter as a result of
higher shipments of Comtrak's SecurVision video security products, which
generated $7.1 million in sales during the first quarter of 2005 versus $0.5
million of sales in the 2004 first quarter. The significant increase in sales of
these products was the result of additional deliveries which had been delayed by
the customer who had requested a modification of the operating system to provide
enhanced "virus" protection.
Also within the Communications segment, sales of DCSI's Automatic Meter
Reading (AMR) equipment to electric utility customers were $26.4 million in the
2005 first quarter compared to $31 million in the prior year first quarter.
Sales to PPL Electric Utilities Corporation (PPL) decreased approximately $11.5
million in the current year's first quarter compared to the first quarter of
fiscal 2004 due to the planned completion of the PPL contract. Sales to PPL were
$1.0 million and $12.5 million in the first quarter of fiscal 2005 and 2004,
respectively. DCSI's sales to electric utility cooperative customers (COOP) and
customers other than PPL increased 37 percent during the 2005 first quarter to
$25.4 million, from $18.5 million in the prior year first quarter.
Filtration segment sales increased in the first quarter of fiscal 2005
primarily as a result of higher sales of commercial and military aerospace
products at PTI, favorable foreign currency exchange rates related to
Filtertek's European operations, and higher defense shipments at VACCO. Test
segment sales increased in the first quarter of 2005 due to the completion of
several test chamber installations, higher antenna and other component sales,
and the completion of additional government shielding projects.
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Earnings Before Interest and Taxes (EBIT)
- -----------------------------------------
On a segment basis, items that impacted EBIT as a percent of sales ("EBIT
margin") during the first quarter of fiscal 2005 include the following.
In the Communications segment, EBIT margin for the 2005 first quarter is
higher than the prior year period due to the significant increase in shipments
of SecurVision products. The 2005 first quarter EBIT margin was also positively
impacted by the favorable sales mix of AMR products resulting from additional
sales to the COOP market and cost reductions realized on certain components.
In the Filtration segment, EBIT margin improved during the 2005 first
quarter primarily due to: higher aerospace sales at PTI; a more favorable sales
mix at VACCO; improved operating efficiencies realized at Filtertek subsequent
to exiting the Puerto Rican facility; and $0.6 million of cost reimbursement
realized at Filtertek from a medical device customer related to a shortfall in
their actual purchases versus the minimum contractually guaranteed amount. The
prior year EBIT margin in the Filtration segment was negatively impacted by the
exit and move costs incurred and the inefficiencies being absorbed at Filtertek
during the first six months of fiscal 2004 as a result of operating in both the
Puerto Rico and Juarez facilities.
In the Test segment, EBIT margin was lower in the current period primarily
as a result of approximately $0.3 million in installation cost overruns incurred
on government shielding projects located in particularly volatile areas of the
world, and higher costs of certain direct materials.
The Corporate office operating expenses were consistent in both periods
presented.
EBIT from continuing operations for the prior year first quarter was
affected by certain charges which are presented in detail in the financial
Exhibits attached at the end of this release.
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In the first quarter of fiscal 2004, the pretax charges in continuing operations
related to these items were $0.7 million. These items are included in "Earnings
before income taxes" in the Exhibits.
New Orders
- ----------
New orders received in the 2005 first quarter were $101.7 million,
resulting in a backlog at December 31, 2004 of $246.4 million. New orders
received in Filtration, Communications and Test were $39.2 million, $35.3
million, and $27.1 million in the 2005 first quarter, respectively.
Subsequent to December 31, 2004, the Company's VACCO subsidiary received
two significant orders to produce valves for delivery to the U.S. Government.
The orders were for anti-icing valves for the T-700 engine utilized on the
Blackhawk Helicopter, and for quiet valves and manifold assemblies used on the
Virginia Class Submarine. Both orders were multi-year follow-on awards. The
T-700 contract allows for orders up to 5,100 units through fiscal 2009 with an
aggregate value of $24.1 million, and included an initial release of 500 units
valued at $2.5 million. The Virginia Class order was received for a value not to
exceed $18.5 million and provided $6.1 million of initial funding for long-lead
materials. Deliveries under the Virginia Class program are scheduled to be
completed in fiscal 2008.
Cash Flow
- ---------
In the first quarter of 2005, the Company generated $12.3 million of free
cash flow, which is defined as "Net Cash Provided by Operating Activities" less
"Capital Expenditures." For a reconciliation of free cash flow, see the Exhibits
attached to this release.
Stock Repurchase Program
- ------------------------
During the first quarter of fiscal 2005, the Company spent $24.9 million to
repurchase 335,000 shares of its outstanding stock under its existing stock
repurchase program. As of December 31, 2004, approximately 575,000 shares remain
available for repurchase by the Company under the current program, which expires
September 30, 2006.
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Chairman's Commentary
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Vic Richey, Chairman and Chief Executive Officer, commented, "Our fiscal
2005 first quarter earnings and cash flow were modestly better than anticipated,
and our orders and sales were slightly below what we expected as we entered the
quarter. While there was some variability among the operating units' actual
performance versus expectations, most of the dynamics can be attributed to
timing within the fiscal quarters. Accordingly, our current outlook for fiscal
2005 is consistent with the guidance we provided in our November 16, 2004
release."
Mr. Richey continued, "As I have previously stated, having recently
completed our repositioning actions, we are more focused on growth, particularly
in the Automatic Meter Reading (AMR) market. In that regard, during the first
quarter we were awarded funded pilots for our AMR system from three Investor
Owned Utilities (IOUs). I believe these awards are not only indicative of the
increased activity in the marketplace, but also a reflection of the strength of
our product offering. During the quarter, we continued our AMR engineering
development efforts where we are working towards further product
differentiation. We are also continuing to aggressively seek acquisition
opportunities which would augment our AMR offering.
"Across the balance of the business, while our individual opportunities are
less significant than those within the AMR space, we are squarely focused on
achieving profitable growth. In particular, we are working to take full
advantage of the lower cost manufacturing locations we have established. We are
also concentrating on raw material cost reductions, not only to offset some of
the commodity cost increases we have experienced but also to enhance our
competitive position.
"Overall, I am confident that we will deliver solid results in 2005. I also
want to assure you that we are working vigorously across the Company to
accelerate the growth of our businesses, both organically and through
complementary acquisitions."
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Fiscal 2005 Business Outlook
- ----------------------------
The Business Outlook noted below is consistent with the guidance presented
in the November 16, 2004 Earnings Release, and is reiterated here for
convenience.
Statements contained in the preceding and following paragraphs are based on
current expectations. Statements that are not strictly historical are considered
forward-looking, and actual results may differ materially.
The fiscal 2005 Business Outlook described below does not include the
impact of potential acquisitions, or the impact of any significant orders from
new investor owned utility customers that may be entered into during the fiscal
year.
Revenues
- --------
Management expects fiscal 2005 year-over-year revenue growth in Filtration
in the range of 2 to 5 percent. In Test, Management expects revenue growth of 4
to 8 percent, and in Communications, Management expects revenue to be flat to
down 3 percent. The expected decrease in Communications is due to the fiscal
2004 wind-down of the PPL contract that generated $21.6 million in sales, and
the Idaho Power phase one and Bangor Hydro contracts that generated combined
sales of approximately $8.5 million in fiscal 2004.
EBIT Margin
- -----------
Management expects EBIT margins to be in the following ranges: Filtration
margins should be in the range of 13 to 15 percent; Test margins should be in
the range of 9 to 11 percent; and Communications margins should be in the range
of 27 to 29 percent.
Corporate operating expenses are expected to be consistent with fiscal 2004
amounts.
Earnings Per Share
- ------------------
Management estimates fiscal 2005 EPS to be in the range of $2.95 to $3.15
per share, with the first half of the fiscal year EPS being between $1.50 and
$1.60 per share.
The effective tax rate for fiscal 2005 is expected to be approximately 38
percent.
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Conference Call
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The Company will host a conference call today, February 4, 2005 at 9:30
a.m., Central Time, to discuss the Company's first quarter operating results. A
live audio webcast will be available on the Company's Web site at
www.escotechnologies.com. Please access the Web site at least 15 minutes prior
to the call to register, download and install any necessary audio software.
A replay of the conference call will be available for seven days on the
Company's website noted above or by phone (dial 1-888-203-1112 and enter the
pass code 251319).
Forward-Looking Statements
- --------------------------
Statements in this press release regarding the level of revenue
contributions from each segment, potential acquisitions, potential customer
contracts, the timing of deliveries under the VACCO T-700 and Virginia Class
contracts, the success of cost reduction efforts, fiscal 2005 corporate
operating expenses, the fiscal 2005 effective tax rate, future fiscal 2005
results, earnings, revenue growth, EBIT margins, EPS, long term success of the
Company and other written or oral statements which are not strictly historical
are "forward-looking" statements within the meaning of the safe harbor
provisions of the federal securities laws. Investors are cautioned that such
statements are only predictions and speak only as of the date of this release,
and the Company undertakes no duty to update. The Company's actual results in
the future may differ materially from those projected in the forward-looking
statements due to risks and uncertainties that exist in the Company's operations
and business environment including, but not limited to: weakening of economic
conditions in served markets; changes in customer demands or customer
insolvencies; competition; intellectual property rights; technical difficulties;
the availability of selected acquisitions; unforeseen charges impacting
corporate operating expenses; the performance of the Company's international
operations; successful execution of the planned sale of the Company's Puerto
Rico facility; delivery delays or defaults by customers; termination
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for convenience of customer contracts; timing and magnitude of future contract
awards; performance issues with key customers, suppliers and subcontractors;
collective bargaining and labor disputes; changes in laws and regulations
including changes in accounting standards and taxation requirements; changes in
foreign or U.S. business conditions affecting the distribution of foreign
earnings; costs relating to environmental matters; litigation uncertainty; and
the Company's successful execution of internal operating plans.
ESCO, headquartered in St. Louis, is a leading supplier of engineered
filtration products to the process, health care and transportation markets
worldwide. In addition, the Company markets proprietary, special purpose
communications systems and is the industry leader in RF shielding and EMC test
products.
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ESCO Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended December 31, 2004
------------------------------------
Net Sales $ 104,375
Cost and Expenses:
Cost of sales 68,509
SG&A 19,813
Interest income (481)
Other (income) expenses, net (453)
----
Total costs and expenses 87,388
------
Earnings before income taxes 16,987
Income taxes 6,464
-----
Net earnings $ 10,523
=========
Earnings per share:
Basic
Net earnings $ 0.82
=========
Diluted
Net earnings $ 0.80
=========
Average common shares O/S:
Basic 12,793
======
Diluted 13,204
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ESCO Technologies Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended December 31, 2003
------------------------------------
(1)
GAAP Adj. "Operational"
---- ---- -------------
Net Sales $ 96,396 96,396
Cost and Expenses:
Cost of sales 66,270 66,270
SG&A 18,769 (294) (2) 18,475
Interest expense (36) (36)
Other expenses, net 614 (392) (3) 222
--- ---- ---
Total costs and expenses 85,617 (686) 84,931
------ ---- ------
Earnings before income taxes 10,779 686 11,465
Income taxes 4,191 150 (4) 4,341
----- --- -----
Net earnings from
continuing operations 6,588 536 7,124
Loss from discontinued
operations, net of tax (437) 437 (5) --
---- --- -----
Net earnings $ 6,151 973 7,124
======== === =====
Earnings (loss) per share:
Basic
Net earnings from
continuing operations $ 0.51 0.55
Net loss from
discontinued operations (0.03) 0.00
----- ----
Net earnings $ 0.48 0.55
======== ====
Diluted
Net earnings from
continuing operations $ 0.50 0.54
Net loss from
discontinued operations (0.04) 0.00
----- ----
Net earnings $ 0.46 0.54
======== ====
Average common shares O/S:
Basic 12,838 12,838
====== ======
Diluted 13,284 13,284
====== ======
(1) Represents results on an adjusted basis, after removing the
items described below in (2)-(4).
(2) Represents severance charges related to the exit of the Puerto
Rico facility.
(3) Represents shutdown costs related to the exit of the Puerto
Rico facility.
(4) Represents the tax impact of items described above in (2)-(3).
(5) Relates to the Microfiltration and Separations businesses
which are classified as "discontinued operations."
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ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information
(Unaudited)
(Dollars in millions)
Three Months Ended
December 31,
------------
2004 2003
---- ----
Net Sales - GAAP
Filtration $ 44.0 39.9
Communications 33.6 31.4
Test 26.8 25.1
---- ----
Totals $104.4 96.4
====== ====
EBIT - GAAP basis(1)
Filtration $ 7.1 3.5 (2)
Communications 9.6 7.4
Test 2.1 2.2
Corporate (2.3) (2.4)
---- ----
Totals $ 16.5 10.7
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Note: Prior year amounts presented above exclude the operations
of the MicroSep businesses, which are classified as
"discontinued operations." Depreciation and amortization
expense for continuing operations was $3.1 million and
$2.8 million for the quarters ended December 31, 2004 and
2003, respectively.
(1) EBIT is defined as earnings from continuing operations before
interest and taxes.
(2) The reconciliation to Operational Revenue/EBIT for the Filtration
segment is below:
Q1 FY 04
--------
Net Sales EBIT
--------- ----
Filtration Segment - GAAP $39.9 3.5
Add: Puerto Rico facility exit costs - 0.7
---- ---
Filtration Segment - "Operational" $39.9 4.2
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ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Dollars in millions)
EBIT (1) - As Reported
Three Months Ended
December 31,
------------
2004 2003
---- ----
EBIT $16.5 10.7
Interest income 0.5 0.1
Less: Income taxes 6.5 4.2
--- ---
Net earnings from
continuing operations $10.5 6.6
===== ===
(1) EBIT is defined as earnings from continuing operations before
interest and taxes. Excludes the operations of the MicroSep
businesses, which are classified as "discontinued operations"
in fiscal 2004.
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ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
December 31, September 30,
2004 2004
---- ----
Assets
Cash and cash equivalents $ 60,357 $ 72,281
Accounts receivable, net 69,248 77,729
Costs and estimated earnings
on long-term contracts 2,957 2,476
Inventories 48,204 44,287
Current portion of deferred
tax assets 22,320 27,810
Other current assets 8,408 8,947
----- -----
Total current assets 211,494 233,530
Property, plant and equipment, net 69,496 69,103
Goodwill 69,437 68,949
Deferred tax assets 8,933 10,055
Other assets 22,252 20,803
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$381,612 $402,440
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Liabilities and Shareholders' Equity
Short-term borrowings and current
maturities of long-term debt $ 126 151
Other current liabilities 56,793 68,171
------ ------
Total current liabilities 56,919 68,322
Deferred income 2,623 2,738
Other liabilities 23,485 23,396
Long-term debt 407 368
Shareholders' equity 298,178 307,616
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$381,612 $402,440
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ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months Ended
December 31, 2004
-----------------
Cash flows from operating activities:
Net earnings $ 10,523
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 3,119
Changes in operating working capital (1,265)
Effect of deferred taxes 1,122
Other 781
---
Net cash provided by operating activities 14,280
Cash flows from investing activities:
Capital expenditures (2,013)
------
Net cash used by investing activities (2,013)
------
Cash flows from financing activities:
Proceeds from long-term debt --
Net increase (decrease) in short-term borrowings --
Principal payments on long-term debt (42)
Purchases of common stock into treasury (24,928)
Other, including exercise of stock options 779
---
Net cash used by financing activities (24,191)
-------
Net decrease in cash and cash equivalents (11,924)
Cash and cash equivalents, beginning of period 72,281
------
Cash and cash equivalents, end of period $ 60,357
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ESCO Technologies Inc. and Subsidiaries
Reconciliation of Free Cash Flow - Q1 FY 2005
(Dollars in thousands)
Total
-----
Net cash provided by operating activities $ 14,280
Less: Capital expenditures (2,013)
------
Free cash flow $ 12,267
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ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data
(Unaudited)
(Dollars in thousands)
Backlog And Entered
- -------------------
Orders-Q1 FY 2005 Filtration Comm. Test Total
- ----------------- ---------- ----- ---- -----
Beginning Backlog
9/30/04 $ 77,753 108,661 62,664 249,078
Entered Orders 39,213 35,308 27,129 101,650
Sales (44,005) (33,533) (26,837) (104,375)
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Ending Backlog-
12/31/04 $ 72,961 110,436 62,956 246,353
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