Esterline Announces Fiscal 2012 Third Quarter Results

BELLEVUE, WA--(Marketwire -08/30/12)- Esterline Corporation (ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace/defense markets, today reported third quarter 2012 (ended July 27) earnings from continuing operations of $35.1 million, or $1.12 per diluted share (EPS), on sales of $485.9 million, prior to a previously announced $52.2 million, or $1.69 per diluted share, non-cash charge against goodwill for its U.K.-based Racal Acoustics defense business. This compared with year-ago income from continuing operations of $37.7 million, or $1.21 per diluted share, on sales of $409.5 million. Including the goodwill charge, third quarter net loss from continuing operations was $17.1 million, or $0.55 per diluted share.

Brad Lawrence, Esterline's Chief Executive Officer, said, "...we expect a rebound to finish the year as discrete events that impacted the third quarter are abating and improvements at our Avionics Systems, Control Systems, and Engineered Materials operations will contribute to a strong fourth quarter performance." Lawrence added that "...our solid backlog positions the company to drive growth and capture additional profitability in fiscal 2013."

As stated in the company's preliminary third quarter announcement, full-year revenue is anticipated to range between $1.95 billion and $2.00 billion, representing growth of approximately 15% over fiscal 2011. Including anticipated fourth quarter diluted EPS of $1.60 to $1.70, the company expects full-year EPS (excluding the goodwill charge) to be in the range of $4.90 to $5.00 per diluted share, compared with $4.27 a year ago.

Lawrence commented that, with respect to the company's broader business, "...we're well positioned to benefit from further strengthening in the commercial aerospace cycle and continue to increase our content on a number of key aircraft programs." He added that stronger customer relationships and revenue synergies are continuing to develop following the integration of the Souriau acquisition into the company's Sensors & Systems segment, saying "...increasingly, we are able to find ways to develop valuable, multi-pronged solutions for our customers using our complementary range of products."

Lawrence reiterated his remarks from early August regarding the discrete issues currently affecting the company -- including Lockheed's F-35 Joint Strike Fighter inventory rebalancing initiative, and a slowdown in both Airbus A380 and T-6B production. He emphasized that all of these programs are expected to be back on track in the first part of the coming year.

With regard to Esterline's overall defense business, Lawrence noted, "...our mix of new and retrofit programs with significant Esterline content, especially in international markets, should minimize the impact of the defense budget environment in the next fiscal year and beyond." He added, "...just in the last few weeks we have received instructions to begin shipping product in early fiscal 2013 for two large and long-delayed international countermeasure orders."

Gross margin as a percentage of sales was 35.4% in the third quarter compared with 35.1% in the prior-year period. Selling, general and administrative expenses were 18.9% of sales in the quarter compared with 18.7% last year. Lawrence said that the company's focus on operational excellence and determination to be its customers' best supplier, combined with the resumption of cockpit retrofit sales, will enable Esterline to continue to improve "...our operating margins and reach our goal of 15%."

Research, development and engineering expense in the quarter was $27.2 million, or 5.6% of sales, compared with $23.1 million, or 5.6% of sales, a year ago. The company is continuing to hold R&D spending at a level that will support new programs as previously expensed programs begin to ramp into production.

The company's quarterly income tax rate before the goodwill charge was 16.5% compared with 6.9% for the third fiscal quarter of 2011, including a four percentage point tax benefit in the third quarter mainly due to a reduction in the U.K. corporate tax rates.

For the first nine months of fiscal 2012, excluding the goodwill charge, net income was $103.0 million, or $3.30 per diluted share, compared with $113.6 million, or $3.65 per diluted share last year. Including the charge, net income for the first nine months of fiscal 2012 was $50.9 million, or $1.63 per diluted share. Sales for the first nine months of fiscal 2012 were $1.46 billion, compared with $1.22 billion in the same period a year ago.

New orders for the first nine months of fiscal 2012 were $1.45 billion compared with $1.38 billion for the same period in 2011, a 5% year-over-year increase. Backlog was $1.24 billion at July 27, 2012, compared with $1.26 billion at the end of the prior-year period.

Conference Call Information
The company will hold a conference call to discuss this announcement today, August 30, at 5:00 pm EDT. The call can be accessed by dialing 800-901-5247 from within the United States or 617-786-4501 outside of the U.S. and using this participant passcode: 55640693. A replay of the call will be available for one week by dialing 888-286-8010 or 617-801-6888 and using this passcode: 38299814.

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 Nine Months Ended ------------------------ ------------------------ Jul 27, Jul 29, Jul 27, Jul 29, 2012 2011 2012 2011 ----------- ----------- ----------- ----------- Segment Sales Avionics & Controls $ 195,059 $ 208,021 $ 569,656 $ 632,020 Sensors & Systems 171,603 88,605 527,958 250,841 Advanced Materials 119,287 112,886 364,048 332,727 ----------- ----------- ----------- ----------- Net Sales 485,949 409,512 1,461,662 1,215,588 Cost of Sales 313,853 265,973 946,962 778,980 ----------- ----------- ----------- ----------- 172,096 143,539 514,700 436,608 Expenses Selling, general and administrative 91,869 76,418 285,516 214,919 Research, development and engineering 27,198 23,075 83,138 63,945 Gain on settlement of contingency -- -- (11,891) -- Goodwill impairment 52,169 -- 52,169 -- Other income (1,263) (6,366) (1,263) (6,366) ----------- ----------- ----------- ----------- Total Expenses 169,973 93,127 407,669 272,498 ----------- ----------- ----------- ----------- Operating Earnings From Continuing Operations 2,123 50,412 107,031 164,110 Interest income (109) (658) (320) (1,428) Interest expense 12,159 10,286 35,171 28,381 Loss on extinguishment of debt -- -- -- 831 ----------- ----------- ----------- ----------- Income (Loss) From Continuing Operations Before Income Taxes (9,927) 40,784 72,180 136,326 Income Tax Expense 6,963 2,821 20,677 22,323 ----------- ----------- ----------- ----------- Income (Loss) From Continuing Operations Including Noncontrolling Interests (16,890) 37,963 51,503 114,003 Income Attributable to Noncontrolling Interests (214) (222) (628) (328) ----------- ----------- ----------- ----------- Income (Loss) From Continuing Operations (17,104) 37,741 50,875 113,675 Loss From Discontinued Operations, Net of Tax -- (46) -- (75) ----------- ----------- ----------- ----------- Net Earnings (Loss) $ (17,104) $ 37,695 $ 50,875 $ 113,600 =========== =========== =========== =========== Earnings (Loss) Per Share - Basic: Continuing Operations $ (.55) $ 1.23 $ 1.66 $ 3.73 Discontinued Operations .00 .00 .00 .00 ----------- ----------- ----------- ----------- Earnings (Loss) Per Share - Basic $ (.55) $ 1.23 $ 1.66 $ 3.73 =========== =========== =========== =========== Earnings (Loss) Per Share - Diluted: Continuing Operations $ (.55) $ 1.21 $ 1.63 $ 3.65 Discontinued Operations .00 .00 .00 .00 ----------- ----------- ----------- ----------- Earnings (Loss) Per Share - Diluted $ (.55) $ 1.21 $ 1.63 $ 3.65 =========== =========== =========== =========== Weighted Average Number of Shares Outstanding - Basic 30,835 30,579 30,712 30,475 Weighted Average Number of Shares Outstanding - Diluted 30,835 31,260 31,266 31,144 ESTERLINE TECHNOLOGIES CORPORATION Consolidated Sales and Income (Loss) from Continuing Operations by Segment (unaudited) In thousands Three Months Ended Nine Months Ended ------------------------- ------------------------ Jul 27, Jul 29, Jul 27, Jul 29, 2012 2011 2012 2011 ------------ ----------- ----------- ----------- Segment Sales Avionics & Controls $ 195,059 $ 208,021 $ 569,656 $ 632,020 Sensors & Systems 171,603 88,605 527,958 250,841 Advanced Materials 119,287 112,886 364,048 332,727 ------------ ----------- ----------- ----------- Net Sales $ 485,949 $ 409,512 $ 1,461,662 $ 1,215,588 ============ =========== =========== =========== Income (Loss) From Continuing Operations Avionics & Controls $(25,611)(1) $ 28,604 $ 12,703(1) $ 104,523 Sensors & Systems 18,305 10,764 49,830 33,403 Advanced Materials 17,293 18,797 66,526 57,044 ------------ ----------- ----------- ----------- 9,987 58,165 129,059 194,970 Corporate expense (9,127) (14,119) (35,182) (37,226) Other income 1,263 6,366 1,263 6,366 Gain on settlement of contingency -- -- 11,891 -- Interest income 109 658 320 1,428 Interest expense (12,159) (10,286) (35,171) (28,381) Loss on extinguishment of debt -- -- -- (831) ------------ ----------- ----------- ----------- Income (Loss) From Continuing Operations Before Income Taxes $ (9,927) $ 40,784 $ 72,180 $ 136,326 ============ =========== =========== =========== (1) Includes a $52.2 million charge against goodwill of Racal Acoustics. ESTERLINE TECHNOLOGIES CORPORATION Consolidated Balance Sheet (unaudited) In thousands Jul 27, Jul 29, 2012 2011 ----------- ----------- Assets Current Assets Cash and cash equivalents $ 213,073 $ 207,838 Cash in escrow 5,014 5,000 Accounts receivable, net 333,815 364,303 Inventories 410,515 444,771 Income tax refundable 10,409 7,086 Deferred income tax benefits 46,078 49,342 Prepaid expenses 23,872 21,752 Other current assets 2,651 13,924 ----------- ----------- Total Current Assets 1,045,427 1,114,016 Property, Plant and Equipment, Net 355,051 340,453 Other Non-Current Assets Goodwill 1,076,874 1,190,506 Intangibles, net 608,416 728,642 Debt issuance costs, net 9,294 11,177 Deferred income tax benefits 88,208 93,276 Other assets 18,756 21,200 ----------- ----------- $ 3,202,026 $ 3,499,270 =========== =========== Liabilities and Shareholders' Equity Current Liabilities Accounts payable $ 109,936 $ 125,079 Accrued liabilities 268,889 289,630 Credit facilities 127 -- Current maturities of long-term debt 12,521 13,174 Deferred income tax liabilities 3,503 22,335 Federal and foreign income taxes 13,713 11,415 ----------- ----------- Total Current Liabilities 408,689 461,633 Long-Term Liabilities Credit facilities 300,000 395,000 Long-term debt, net of current maturities 619,753 675,290 Deferred income tax liabilities 208,702 255,534 Pension and post-retirement obligations 89,770 91,072 Other liabilities 34,180 20,161 Total Shareholders' Equity 1,540,932 1,600,580 ----------- ----------- $ 3,202,026 $ 3,499,270 =========== ===========