Esterline Reports Fourth Quarter and Full Fiscal Year Results; Q4 Net Earnings of $61.7 Million, or $1.97 per Share; $531 Million Sales

Company Issues Full-Year 2013 Guidance of $5.45 to $5.80 per Diluted Share

Marketwired

BELLEVUE, WA--(Marketwire - Dec 6, 2012) - Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace and defense markets, today reported fiscal 2012 fourth quarter (ended October 26) income from continuing operations of $61.7 million, or $1.97 per diluted share, on sales of $530.7 million. 

Brad Lawrence, Esterline's Chief Executive Officer, said, "Esterline ended the year on a strong note. Even without the benefit of several discrete items, our core underlying business was strong in the quarter." The quarter's performance included the items detailed in Table 1 below.

 
Table 1: Effects of Discrete Items on 4th Quarter 2012 EPS
(Estimated tax rate 20%; 31.3 million shares)
     
Earnings Per Share - GAAP $ 1.97
     
Foreign Exchange Benefit - Avionics & Controls   0.02
Change Orders; R&D Tax Credits   0.02
Income Tax Benefit   0.04
Urgent Customer Requirements   0.12
Total Discrete Items $ 0.20
     

Lawrence reiterated that the business challenge in the fourth quarter was execution, and "...uniformly, our business leaders met that challenge." He further confirmed that "...Esterline is in a healthy position, poised for another strong year."

The company provided fully diluted earnings per share (EPS) guidance for fiscal 2013 in a range of $5.45 to $5.80, and currently expects organic sales growth of approximately 4% over fiscal 2012. Lawrence noted that the estimates "...include our best analysis of the impact of anticipated defense spending reductions and exclude any potential sales in fiscal 2013 from a second tranche of C-130 cockpit retrofits from a large international customer." He added that "...although the order could still come to fruition, we aren't building it into our current plan and are making appropriate infrastructure adjustments. However, we're looking at a robust year with or without it."

The full-year EPS range for fiscal 2013 incorporates first quarter EPS in the range of $0.45 to $0.60. First quarter sales are expected to be in the range of $450 million to $480 million, in line with the expectation of steadily improving quarterly results as the year progresses. Lawrence noted that the first quarter results will also include the severance impact of selective workforce reductions related to the slowdown in defense activity at several operations.

With regard to the overall defense market in fiscal 2013, Lawrence said despite uncertainty related to sequestration, "...we see promise in our defense programs and technologies that we believe will hold up well as budget dollars are allocated in the coming year." These programs include the Boeing P-8 and Airbus A400M that are planned to come online next year.

Lawrence said "...we are confident that the continued strength of the commercial aerospace market will contribute to Esterline's performance in fiscal 2013. Some of our most important commercial customers, including Boeing and Airbus, are still increasing build rates." 

In addition, Lawrence said Esterline continues to pursue applications of its aerospace technology in many adjacent markets which are showing growth potential, such as medical capital equipment, high-speed rail, oil and gas exploration, and casino gaming consoles.

For the full fiscal year 2012, Esterline reported record sales of $2.0 billion, with income from continuing operations of $164.7 million, or $5.27 per diluted share, excluding a previously announced third quarter, non-cash charge against goodwill of $52.2 million, or $1.67 per diluted share, related to its U.K.-based Racal Acoustics defense business. Fiscal 2011 income from continuing operations was $133.1 million, or $4.27 per diluted share, on $1.7 billion in sales. Including the charge, full-year fiscal 2012 income from continuing operations was $112.5 million, or $3.60 per diluted share. 

New orders increased 23% in the fourth quarter compared with the same period last year. Fiscal 2012 fourth quarter new orders were $607 million compared with $492 million in the prior-year period. For the full-year fiscal 2012, new orders were $2.06 billion, up 10.2% compared with $1.87 billion for fiscal 2011. Backlog increased to $1.32 billion at October 26, 2012, compared with $1.25 billion at the end of the prior year.

Gross margin as a percentage of sales in the fourth quarter of fiscal 2012 was 38.5% compared to the year-ago level of 30.5%. The prior-year period included the effect of purchase accounting related to the Souriau acquisition that lowered gross margin performance in that period. Gross margin for the full fiscal year ended October 26, 2012, was 36.1% compared to the fiscal 2011 level of 34.3%. 

Fiscal 2012 fourth quarter selling, general and administrative (SG&A) expenses as a percent of sales were 18.3%, compared with 17.8% in the prior-year period. Full-year SG&A expenses for fiscal 2012 were 19.2%, compared with 17.7% in fiscal 2011; the full-year increase was mainly due to incremental SG&A expenses following the Souriau acquisition in mid-fiscal year 2011. Lawrence reiterated that "...the company is continuing to focus on operational enhancements to further improve operating margins."

Research, development and engineering spending in the fourth quarter was $24.6 million, or 4.6% of sales, compared with $30.6 million, or 6.1% of sales, a year ago. This year's level was favorably impacted by customer-funded engineering and foreign investment tax credits. The year-ago period included higher research and development expenses for avionics products. For the full fiscal year of 2012, research, development and engineering expenses were $107.7 million, or 5.4% of sales, compared with $94.5 million, or 5.5% of sales, in fiscal 2011. Lawrence said the company expects R&D expense levels "...to remain in the five to five and-a-half percent range in fiscal 2013."

The company's income tax rate in the fourth quarter of 2012 was 13.0% compared with 11.8% for the prior-year period. The rates for both periods benefited from various tax credits and foreign interest expense deductions. Total debt decreased by $83.7 million from the end of the third quarter. Lawrence noted that cash flow remains strong and the company will "...continue to pay down debt in addition to having broader opportunities to invest and create value for shareholders in 2013." 

Conference Call Information

Esterline will host a conference call to discuss this announcement today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). The U.S. dial-in number is 866-510-0712; outside the U.S., use 617-597-5380. The pass code for the call is: 84022046.

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "should" or "will," or the negative of such terms, or other comparable terminology. These forward-looking statements are only predictions based on the current intent and expectations of the management of Esterline, are not guarantees of future performance or actions, and involve risks and uncertainties that are difficult to predict and may cause Esterline's or its industry's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Esterline's actual results and the timing and outcome of events may differ materially from those expressed in or implied by the forward-looking statements due to risks detailed in Esterline's public filings with the Securities and Exchange Commission including its most recent Annual Report on Form 10-K.

   
ESTERLINE TECHNOLOGIES CORPORATION  
Consolidated Statement of Operations (unaudited)  
In thousands, except per share amounts  
                         
    Three Months Ended     Fiscal Year Ended  
    Oct 26,     Oct 28,     Oct 26,     Oct 28,  
    2012     2011     2012     2011  
Segment Sales                                
  Avionics & Controls   $ 220,359     $ 209,919     $ 790,015     $ 841,939  
  Sensors & Systems     174,436       163,768       702,394       414,609  
  Advanced Materials     135,861       128,710       499,909       461,437  
                                 
Net Sales     530,656       502,397       1,992,318       1,717,985  
                                 
Cost of Sales     326,403       349,285       1,273,365       1,128,265  
      204,253       153,112       718,953       589,720  
Expenses                                
  Selling, general and administrative     97,371       89,235       382,887       304,154  
  Research, development and engineering     24,607       30,560       107,745       94,505  
  Gain on settlement of contingency     --       --       (11,891 )     --  
  Goodwill impairment     --       --       52,169       --  
  Other income     --       (487 )     (1,263 )     (6,853 )
    Total Expenses     121,978       119,308       529,647       391,806  
                                 
Operating Earnings From Continuing Operations     82,275       33,804       189,306       197,914  
                                 
  Interest income     (145 )     (187 )     (465 )     (1,615 )
  Interest expense     11,067       11,835       46,238       40,216  
  Loss on extinguishment of debt     --       --       --       831  
                                 
Income From Continuing Operations                                
Before Income Taxes     71,353       22,156       143,533       158,482  
Income Tax Expense     9,281       2,615       29,958       24,938  
Income From Continuing Operations Including Noncontrolling Interests     62,072       19,541       113,575       133,544  
Income Attributable to Noncontrolling Interests     (412 )     (129 )     (1,040 )     (457 )
Income From Continuing Operations     61,660       19,412       112,535       133,087  
                                 
Income (Loss) From Discontinued Operations, Net of Tax     --       28       --       (47 )
                                 
Net Earnings   $ 61,660     $ 19,440     $ 112,535     $ 133,040  
                                 
Earnings Per Share - Basic:                                
  Continuing Operations   $ 2.00     $ .64     $ 3.66     $ 4.36  
  Discontinued Operations     .00       .00       .00       .00  
                                 
Earnings Per Share - Basic   $ 2.00     $ .64     $ 3.66     $ 4.36  
                                 
Earnings Per Share - Diluted:                                
  Continuing Operations   $ 1.97     $ .62     $ 3.60     $ 4.27  
  Discontinued Operations     .00       .00       .00       .00  
                                 
Earnings Per Share - Diluted   $ 1.97     $ .62     $ 3.60     $ 4.27  
                                 
Weighted Average Number of Shares Outstanding - Basic     30,860       30,613       30,749       30,509  
                                 
Weighted Average Number of Shares Outstanding - Diluted     31,330       31,183       31,282       31,154  
                           
   
ESTERLINE TECHNOLOGIES CORPORATION  
Consolidated Sales and Income from Continuing Operations by Segment (unaudited)  
In thousands  
                           
    Three Months Ended     Fiscal Year Ended  
    Oct 26,     Oct 28,     Oct 26,       Oct 28,  
    2012     2011     2012       2011  
                                   
Segment Sales                                  
  Avionics & Controls   $ 220,359     $ 209,919     $ 790,015       $ 841,939  
  Sensors & Systems     174,436       163,768       702,394         414,609  
  Advanced Materials     135,861       128,710       499,909         461,437  
                                   
Net Sales   $ 530,656     $ 502,397     $ 1,992,318       $ 1,717,985  
                                   
Income From Continuing Operations                                  
  Avionics & Controls   $ 42,214     $ 30,664     $ 54,917   (1)   $ 135,187  
  Sensors & Systems     21,060       (10,867 )     70,890         22,536  
  Advanced Materials     27,020       25,263       93,546         82,307  
        90,294       45,060       219,353         240,030  
                                     
  Corporate expense     (8,019 )     (11,743 )     (43,201 )       (48,969 )
  Other income     --       487       1,263         6,853  
  Gain on settlement of contingency     --       --       11,891         --  
  Interest income     145       187       465         1,615  
  Interest expense     (11,067 )     (11,835 )     (46,238 )       (40,216 )
  Loss on extinguishment of debt     --       --       --         (831 )
                                   
Income From Continuing Operations Before Income Taxes   $ 71,353     $ 22,156     $ 143,533       $ 158,482  
                                   
1 Includes a $52.2 million charge against goodwill of Racal Acoustics.  
 
 
ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands   Oct 26,   Oct 28,
    2012   2011
Assets            
Current Assets            
  Cash and cash equivalents   $ 160,675   $ 185,035
  Cash in escrow     5,016     5,011
  Accounts receivable, net     383,362     369,826
  Inventories     409,837     402,548
  Income tax refundable     4,832     2,857
  Deferred income tax benefits     46,000     48,251
  Prepaid expenses     21,340     19,245
  Other current assets     4,631     6,540
    Total Current Assets     1,035,693     1,039,313
             
Property, Plant and Equipment, Net     356,401     368,416
             
Other Non-Current Assets            
  Goodwill     1,098,962     1,163,725
  Intangibles, net     609,045     693,915
  Debt issuance costs, net     8,818     10,695
  Deferred income tax benefits     97,952     79,605
  Other assets     20,246     22,917
    $ 3,227,117   $ 3,378,586
             
Liabilities and Shareholders' Equity            
Current Liabilities            
  Accounts payable   $ 108,689   $ 119,888
  Accrued liabilities     269,553     270,422
  Credit facilities     --     5,000
  Current maturities of long-term debt     10,610     11,595
  Deferred income tax liabilities     5,125     9,538
  Federal and foreign income taxes     2,369     1,918
    Total Current Liabilities     396,346     418,361
             
Long-Term Liabilities            
  Credit facilities     240,000     360,000
  Long-term debt, net of current maturities     598,060     660,028
  Deferred income tax liabilities     205,198     238,709
  Pension and post-retirement obligations     132,074     107,877
  Other liabilities     34,904     19,693
             
Total Shareholders' Equity     1,620,535     1,573,918
    $ 3,227,117   $ 3,378,586
             

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