ESCO Technologies Communications Segment Update

Sep 18, 2007, 01:00 ET from ESCO Technologies Inc.

    ST. LOUIS, Sept. 18 /PRNewswire-FirstCall/ -- ESCO Technologies Inc.
 (NYSE:   ESE) today announced the strategic integration of its three primary
 Communications Segment operating entities to more effectively serve the
 electric, gas and water markets. In addition, the Company provided a
 current status update on its TWACS Next Generation (TWACS NG(TM)) software
 development program and updated guidance.
     Strategic Integration of the Communications Segment
     The realignment of the Communications Segment was in response to the
 utility markets' increasing requirements for fully integrated,
 state-of-the- art advanced metering solutions which include comprehensive
 data management systems. These actions position ESCO to further expand its
 market presence within this fast-growing Segment.
     The strategic alignment and integration of DCSI, Hexagram, and Nexus
 Energy Software into a more concentrated customer-facing organization will
 bring together a comprehensive suite of unique products and services
 providing proven technologies and industry leadership while offering
 seamless, integrated solutions that have not existed in the marketplace
     As a result of these actions, ESCO is now capable of providing
 customers with a comprehensive hybrid solution that offers the highest
 caliber, proven-at-scale, two-way fixed network Advanced Metering
 communication system. This new hybrid solution includes both power-line and
 wireless / RF based technologies which are fully integrated with enterprise
 software (including Meter Data Management) that stands alone in its ability
 to optimize what Smart Metering data can accomplish for utilities and their
     This combined technology offering provides customers with the option to
 choose a fully customized AMR / AMI solution suite designed to meet their
 individual needs regardless of size, geography, or advanced functional
 requirements currently or in the future.
     Vic Richey, Chairman and Chief Executive Officer, commented, "The AMR /
 AMI market continues to expand and offers a tremendous growth opportunity
 for our Company. In this regard, I am pleased to announce that Bruce
 Phillips, currently President of DCSI, will assume the role of Group
 President of the Communications Segment. Bruce is now responsible for the
 overall growth strategy and operating performance of the Group, with the
 senior management teams of DCSI, Hexagram, and Nexus reporting to him.
 Bruce is a proven leader with an exceptional track record and brings a
 wealth of experience to this position. I am confident in his capabilities
 to effectively lead this organization.
     "Our strategic actions announced today position us to provide utilities
 with a proven suite of solutions that are unique and unsurpassed by any of
 our competitors. One of our primary objectives has always been to help our
 customers mitigate their operational challenges while providing superior
 customer service to their consumers.
     "We are now able to more effectively satisfy customer requirements by
 offering a complete suite of interchangeable solutions allowing them to
 select an optimal configuration of technologies to meet their current and
 future needs. All of this is now available from one solution provider,
     "Additionally, our recent initiatives on the international front
 confirm that the opportunities to deploy our technology solutions outside
 of North America are substantial, and that this integration should assist
 us in capitalizing on these opportunities."
     Mr. Richey concluded, "I am confident that this alignment and
 integration put us in an excellent position to capture new business and
 enhance our ability to satisfy our customers' needs. These actions
 significantly optimize our market position and capitalize on the strengths
 of the respective organizations and the tremendous employees who have made
 DCSI, Hexagram and Nexus successful, and should allow us to garner more
 than our fair share of the AMR / AMI opportunities in front of us."
     TWACS NG ("TNG") Software Update
     All of the code development for the new functionality has been
 completed on the recently developed TNG software versions 2.0 and 3.0, with
 both functional and performance testing continuing with favorable results.
     To ensure that the Company delivers the most capable, robust and
 upgradeable AMI software application available in the market today, DCSI
 has established a very rigorous set of internal testing protocols and
 procedures which are designed to detect and mitigate performance
 deficiencies prior to the delivery of the software.
     As a result of this comprehensive testing protocol, the Company has
 identified a number of small issues which are being remediated through
 minor modifications to the original code. This ongoing "debugging" process
 has resulted in additional retesting of the patches which has added
 development time and, therefore, moves the expected delivery date of
 version 3.0 into the first quarter of fiscal 2008.
     Given that the customer is not planning to use version 3.0 until
 sometime later in calendar 2008, Management determined that it is more
 efficient to utilize this additional time window to conduct even more
 thorough testing of the software prior to delivery.
     This revised expected delivery date has no impact on the customer's
 current product delivery and installation schedule.
     As a result of accounting rules previously described throughout fiscal
 2007 earnings releases, the Company will be required to defer revenue
 recognition on this contract until the first fiscal quarter of 2008 when
 the software is now expected to be delivered.
     Operationally during fiscal 2007, DCSI is expected to deliver 338,000
 electric modules and 62 pieces of substation equipment with a total sales
 value of $20.2 million and a related pretax profit of $8.4 million. These
 sales and profit amounts are now expected to be recognized in the first
 quarter of fiscal 2008 versus our previous expectations of revenue
 recognition in the fiscal 2007 fourth quarter.
     Additionally, this revenue and profit deferral does not have any cash
 flow impact to DCSI as nearly $22 million of payments for the product
 deliveries to date have been received consistent with normal payment terms.
     Operationally, with the exception of this issue, the Company continues
 to be on track with our previous expectations.
     Vic Richey commented, "While I am disappointed that we will not be able
 to recognize this revenue in final 2007 for the hardware delivered to date,
 I am very pleased with the performance of the software. I remain confident
 that TWACS NG will be the best-in-class AMI software offering available in
 the market. While time consuming, I believe adherence to our rigid testing
 discipline will result in having a final software product that both meets
 and exceeds current and future customers' expectations."
     Forward Looking Statement
     Statements in this release regarding the amounts and timing of fiscal
 2007 and 2008 future profits, earnings and sales, long term success of the
 Company, successful development, delivery and customer acceptance of the
 TNG Software, the timing of deferred revenue and products previously
 delivered to PG&E, and any 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 the risk factors described in Item 1A of the Company's
 annual report on Form 10-K for the fiscal year ended September 30, 2006 and
 Item 1A of the Company's Form 10-Q for the three months ended June 30,
 2007; actions by the California Public Utility Commission; PG&E's Board of
 Directors or PG&E's management impacting PG&E's AMI projects; the timing
 and success of DCSI's software development efforts; DCSI successful
 performance of the PG&E contracts; technical difficulties; and termination
 of customer contracts.
     ESCO, headquartered in St. Louis, is a proven supplier of special
 purpose communications systems for electric, gas and water utilities,
 including hardware and software to support advanced metering applications.
 In addition, the Company provides engineered filtration products to the
 transportation, health care and process markets worldwide and is the
 industry leader in RF shielding and EMC test products. Further information
 regarding ESCO and its subsidiaries is available on the Company's website

SOURCE ESCO Technologies Inc.