UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 1, 2006
ESCO TECHNOLOGIES INC.
(Exact Name of Registrant as Specified in Charter)
Missouri 1-10596 43-1554045
(State or Other (Commission (I.R.S. Employer
Jurisdiction of Incorporation) File Number) Identification No.)
9900A Clayton Road, St. Louis, Missouri 63124-1186
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 314-213-7200
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2 (b) under the
Exchange Act (17 CFR 240.14d-2 (b) )
[ ] Pre-commencement communications pursuant to Rule 13e-4 (c) under the
Exchange Act (17 CFR 240.13e-4 (c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
On February 1, 2006, ESCO Technologies Holding Inc. ("ESCO Holding"), a
wholly-owned subsidiary of the Registrant, entered into a Stock Purchase
Agreement (the "Agreement") with Lawrence Sears, Gary L. Moore, Richard C.
Riccardi, Martin Zucker, Bridge Associates, LLC, as Trustee of the ADLT Class 7
Liquidating Trust, successor in interest to Advanced Lighting Technologies,
Inc., and Strength Capital Partners, L.P. (collectively "Sellers"), being all of
the shareholders of Hexagram, Inc., an Ohio corporation ("Hexagram"), pursuant
to which ESCO Holding purchased all of the outstanding shares of Hexagram.
Hexagram is now a wholly-owned subsidiary of ESCO Holding. The closing of the
transaction contemplated under the Agreement occurred on February 1, 2006,
immediately following the execution of the Agreement.
The total consideration paid and to be paid by ESCO Holding pursuant to the
Agreement is $67,500,000, subject to a working capital adjustment, plus
contingent payments based upon the achievement by Hexagram of annual net sales
targets over a five (5) year period commencing February 1, 2006. The maximum
aggregate amount of such contingent payments is $6,250,000. The potential
working capital adjustment is based upon the working capital of Hexagram on
February 1, 2006. $6,500,000 of the cash purchase price was placed in escrow as
security for any claims of ESCO Holding under the Agreement, including indemnity
obligations of Sellers. Twelve months after closing, the amount remaining in
escrow in excess of $3,250,000 will be distributed to the four individual
Sellers. Twenty-four months after closing, the balance remaining in escrow will
be so distributed.
Included in the $67,500,000 consideration are commitments by ESCO Holding in the
total amount of $2,500,000 to: (i) make a contribution to a university endowment
fund for engineering studies; (ii) make contributions to establish a charitable
foundation for scholarship awards for eligible dependents of persons employed by
Hexagram at closing (subject to Internal Revenue Service regulations); and (iii)
cause Hexagram to create a cash retention plan for incentive awards to key
non-executive employees.
In connection with the acquisition, the Registrant guaranteed the performance by
Hexagram of its contract to provide equipment, software and services to Pacific
Gas and Electric Company ("PG&E") in support of the gas utility portion of
PG&E's Advanced Metering Infrastructure project. The total anticipated contract
value from commencement through the five-year full deployment is expected to be
approximately $225,000,000, subject to various PG&E and regulatory approvals,
conditions and contingencies.
Also in connection with the acquisition, Lawrence Sears has entered into a
consulting agreement with Hexagram. The other individual Sellers have entered
into employment agreements with Hexagram whereby such individuals are prohibited
from competing with Hexagram or soliciting its employees during their employment
and for a period of one to two years following termination of their respective
agreements. Additionally, all of the individual Sellers are prohibited from
competing with Hexagram for a period of four years following the closing.
The foregoing description of the Agreement does not purport to be a complete
description of the Agreement and is qualified in its entirety by reference to
the text of the Agreement, which is filed as Exhibit 2.1 to this Form 8-K.
A copy of Registrant's press release, dated February 2, 2006, which announced
the Agreement and acquisition of Hexagram is attached hereto as Exhibit 99.1.
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
The information required by this Item is contained in Item 1.01 herein, which is
incorporated herein by reference.
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Today, February 2, 2006, the Registrant is issuing a press release (Exhibit 99.2
to this report) announcing its fiscal 2006 first quarter financial and operating
results. See Item 7.01, Regulation FD Disclosure below.
ITEM 2.03. CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN
OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT
On February 1, 2006, in connection with the acquisition of all of the shares of
Hexagram, as described in Item 1.01 herein, Registrant partially funded the
acquisition by borrowing $47,000,000 under Registrant's Credit Agreement dated
as of October 6, 2004 among Registrant, Wells Fargo Bank, N.A., as agent, and
the lenders listed therein. The Credit Agreement is a $100 million revolving
credit facility having a final maturity and expiration of October 6, 2009. The
acquisition borrowing is a revolving credit loan subject to a LIBOR-based
interest rate, payable quarterly in arrears. There is no security for the loan
other than the corporate guarantees of Registrant's subsidiaries. Registrant has
certain rights of pre-payment, and payment is subject to acceleration in the
event of default under the Credit Agreement. In connection with the acquisition
borrowing, the parties to the Credit Agreement entered into a Consent And Waiver
To Credit Agreement (Exhibit 4.1 to this Form 8-K) wherein the lenders consented
to the Hexagram acquisition and waived certain limitations on acquisitions which
otherwise may have applied to the Hexagram acquisition and/or its combination
with ESCO Holding's previous acquisition of Nexus Energy Software, Inc.
ITEM 7.01. REGULATION FD DISCLOSURE
NON-GAAP FINANCIAL MEASURES
The press release furnished herewith as Exhibit 99.2 contains financial measures
and financial terms not calculated in accordance with generally accepted
accounting principles in the United States of America ("GAAP") in order to
provide investors and management with an alternative method for assessing the
Registrant's operating results in a manner that is focused on the performance of
the Registrant's ongoing operations. The Registrant has provided definitions
below for the non-GAAP financial measures utilized in the press release,
together with an explanation of why management uses these measures, and why
management believes that these non-GAAP financial measures are useful to
investors. The press release uses the non-GAAP financial measures of "EBIT" and
"EBIT margin".
The Registrant defines "EBIT" as earnings before interest and taxes. The
Registrant defines "EBIT margin" as EBIT as a percent of net sales. The
Registrant's management evaluates the performance of its operating segments
based on EBIT and EBIT margin, and believes that EBIT and EBIT margin are useful
to investors to demonstrate the operational profitability of the Registrant's
business segments by excluding interest and taxes, which are generally accounted
for across the entire Registrant on a consolidated basis. EBIT is also one of
the measures used by management in determining resource allocations within the
Registrant and incentive compensation.
The presentation of the information described above is intended to supplement
investors' understanding of the Registrant's operating performance. The
Registrant's non-GAAP financial measures may not be comparable to other
companies' non-GAAP financial performance measures. Furthermore, these measures
are not intended to replace net earnings, cash flows, financial position,
comprehensive income (loss), or any other measure as determined in accordance
with GAAP.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
The financial statements required by this Item, with respect to the acquisition
described in Item 1.01 herein, will be filed by amendment as soon as
practicable, and in any event not later than 71 days after the date on which
this Form 8-K is required to be filed.
(c) Exhibits
Exhibit No. Description of Exhibit
2.1 Stock Purchase Agreement dated February 1, 2006*
4.1 Consent and Waiver to Credit Agreement dated as of
January 20, 2006
99.1 Acquisition press release dated February 2, 2006
99.2 First Quarter results press release dated February 2, 2006
*The Registrant agrees to furnish supplementally a copy of any omitted schedule
to the Commission upon request.
OTHER MATTERS
The information contained in Item 2.02 of this report, including Exhibit 99.2,
shall not be deemed to be "filed" for purposes of Section 18 of the Securities
Exchange Act of 1934 as amended ("Exchange Act") or otherwise subject to the
liabilities of that section, unless the Registrant incorporates it by reference
into a filing under the Securities Act of 1933 as amended or the Exchange Act.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ESCO TECHNOLOGIES INC.
Dated: February 2, 2006 By: /s/ G.E. Muenster
G.E. Muenster
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
2.1 Stock Purchase Agreement dated February 1, 2006
4.1 Consent and Waiver to Credit Agreement dated as of
January 20, 2006
99.1 Acquisition press release dated February 2, 2006
99.2 First Quarter results press release dated February 2, 2006