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Esterline Reports 17% Earnings Improvement from Continuing Operations in Second Quarter 2010

May 27

Michelle DeGrand
5/27/2010

FOR IMMEDIATE RELEASE

Contact: Brian Keogh 425-453-9400

ESTERLINE REPORTS A 17% EARNINGS IMPROVEMENT FROM CONTINUING OPERATIONS IN SECOND QUARTER 2010;

Earnings $29.6 Million, or $.98 per Share, on $387.6 Million Sales

BELLEVUE, Wash., May 27, 2010 ― Esterline Corporation (NYSE: ESL www.esterline.com), a leading specialty manufacturer serving aerospace/defense markets, today reported fiscal 2010 second quarter (ended April 30) income from continuing operations of $29.6 million, or $.98 per diluted share, on sales of $387.6 million. Year-ago income from continuing operations was $25.3 million, or $.85 per diluted share, on sales of $359.5 million. Income from discontinued operations in last year’s second quarter was $.01 per diluted share, bringing net income per diluted share to $.86.

Brad Lawrence, Esterline’s CEO, said the company’s solid performance — year-over-year sales up nearly 8% and earnings from continuing operations up 17% — reflected strength from the Avionics & Controls segment, where sales improved nearly 18% and segment income was up 31% compared with last year. He said, “…sales and gross margin improvement in this segment reflects a particularly successful ramp up of T-6B military trainer cockpit production and good progress on military transport retrofit projects.” In addition, he said Esterline’s military markets continue to show strength, specifically from “…increased Advanced Materials segment sales at our U.S. and non-U.S. countermeasure flare operations.”

Lawrence noted that Esterline’s commercial air transport spare parts business “…showed only sporadic improvement during the quarter, while business jet markets continue to struggle.” He said that although market conditions appear to be improving,
“…we are still experiencing plenty of market volatility and some of our operations have yet to turn the corner.” Overall, however, he said, “…many elements are beginning to move into place, giving us more confidence in our full-year outlook.” The company is raising its full-year earnings per share guidance range to $3.45 to $3.65 from its earlier range of $3.20 to $3.45.

Lawrence said one source of strength is improved performance at certain operations serving markets adjacent to Esterline’s core aerospace and defense business. He said the company is benefiting primarily from “…solid sales of interface technologies devices to medical equipment markets and casino gaming machine manufacturers.”

Consolidated gross margin in the quarter was 33.3% compared with 31.3% a year ago. The increase in gross margin mainly reflected cost control measures, improved recovery of fixed costs due to higher sales volumes, and a favorable sales mix of military and commercial aerospace products.

Selling, general and administrative expenses (SG&A) as a percent of sales were 16.8% in the quarter compared with 15.2% in the prior-year period. The increase in SG&A expenses was due principally to the effect of exchange rates on operating expenses at our non-U.S. operations. In addition, last year’s SG&A benefited from foreign currency gains on forward contracts.

Research, development and engineering expense declined during the quarter to 4.8% of sales compared with 5.1% a year ago. Lawrence said R&D has stabilized in the 4.5% to 5% range.

For the first half of fiscal 2010, Esterline reported income from continuing operations and net income of $42.4 million, or $1.40 per diluted share, on sales of $727.0 million. Income from continuing operations in the same period last year was $36.8 million, or $1.23 per diluted share. Income from discontinued operations in the first half of 2009 was $.53 per diluted share. Net income in that period was $52.7 million, or $1.76 per diluted share, on $669.2 million in sales.

Backlog at quarter-end totaled $1.1 billion, about even with last year. New orders in the first half of FY10 totaled $743.3 million, up nearly 10% compared with the same period a year ago.

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 Six Months Ended

   April 30,
2010 May 1,
2009 April 30,
2010 May 1,
2009

Net Sales
   $ 387,620    $ 359,502    $ 726,980    $ 669,219

Cost of Sales
   258,422    246,904    493,253    454,469



   129,198    112,598    233,727    214,750

Expenses


Selling, general and administrative
   65,294    54,619    127,609    114,344

Research, development and engineering
   18,477    18,294    35,524    35,692

Other (income) expense
   (38 ) 2,714    3    7,728



Total Expenses
   83,733    75,627    163,136    157,764

Operating Earnings from Continuing Operations
   45,465    36,971    70,591    56,986

Interest income
   (20 ) (370 ) (403 ) (781 )

Interest expense
   7,348    7,610    15,309    14,346



Income from Continuing Operations


Before Income Taxes
   38,137    29,731    55,685    43,421

Income Tax Expense
   8,465    4,316    13,234    6,484



Income from Continuing Operations


Including Noncontrolling Interests
   29,672    25,415    42,451    36,937

Income Attributable to Noncontrolling Interests
   (24 ) (77 ) (78 ) (112 )



Income from Continuing Operations
   29,648    25,338    42,373    36,825

Income from Discontinued Operations, Net of Tax
   —      375    —      15,831



Net Earnings
   $ 29,648    $ 25,713    $ 42,373    $ 52,656



Earnings Per Share – Basic:


Continuing Operations
   $ .99    $ .85    $ 1.42    $ 1.24

Discontinued Operations
   —      .02    —      .53



Earnings Per Share – Basic
   $ .99    $ .87    $ 1.42    $ 1.77



Earnings Per Share – Diluted:


Continuing Operations
   $ .98    $ .85    $ 1.40    $ 1.23

Discontinued Operations
   —      .01    —      .53



Earnings Per Share – Diluted
   $ .98    $ .86    $ 1.40    $ 1.76



Weighted Average Number of Shares Outstanding – Basic
   29,908    29,705    29,848    29,684

Weighted Average Number of Shares Outstanding – Diluted
   30,406    29,829    30,312    29,847

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Sales and Income from Continuing Operations by Segment (unaudited)

In thousands

   Three Months Ended Six Months Ended

   April 30,
2010 May 1,
2009 April 30,
2010 May 1,
2009

Segment Sales


Avionics & Controls
   $ 198,719    $ 169,111    $ 368,976    $ 297,579

Sensors & Systems
   80,346    86,755    155,088    171,310

Advanced Materials
   108,555    103,636    202,916    200,330



Net Sales
   $ 387,620    $ 359,502    $ 726,980    $ 669,219



Income from Continuing Operations


Avionics & Controls
   $ 28,461    $ 21,685    $ 47,893    $ 36,160

Sensors & Systems
   8,693    9,899    13,789    20,151

Advanced Materials
   17,127    14,359    25,857    24,333



   54,281    45,943    87,539    80,644

Corporate expense
   (8,854 ) (6,258 ) (16,945 ) (15,930 )

Other income (expense)
   38    (2,714 ) (3 ) (7,728 )

Interest income
   20    370    403    781

Interest expense
   (7,348 ) (7,610 ) (15,309 ) (14,346 )



Income from Continuing Operations Before Income Taxes
   $ 38,137    $ 29,731    $ 55,685    $ 43,421

Consolidated Balance Sheet (unaudited)

In thousands    April 30,
2010    May 1,
2009

Assets


Current Assets


Cash and cash equivalents
   $ 223,665    $ 115,406

Accounts receivable, net
   278,580    266,589

Inventories
   262,789    286,194

Income tax refundable
   4,299    7,635

Deferred income tax benefits
   38,029    36,432

Prepaid expenses
   18,490    15,036

Other current assets
   14,684    55



Total Current Assets
   840,536    727,347

Property, Plant and Equipment, Net
   272,628    219,820

Other Non-Current Assets


Goodwill
   732,140    690,518

Intangibles, net
   397,421    410,050

Debt issuance costs, net
   6,182    8,151

Deferred income tax benefits
   81,408    60,597

Other assets
   13,419    38,137



   $ 2,343,734    $ 2,154,620



Liabilities and Shareholders’ Equity


Current Liabilities


Accounts payable
   $ 76,083    $ 78,205

Accrued liabilities
   181,654    201,074

Credit facilities
   4,299    2,398

Current maturities of long-term debt
   8,425    12,482

Deferred income tax liabilities
   8,244    3,869

Federal and foreign income taxes
   5,046    316



Total Current Liabilities
   283,751    298,344

Long-Term Liabilities


Long-term debt, net of current maturities
   528,638    513,559

Deferred income tax liabilities
   126,379    122,499

Pension and post-retirement obligations
   92,475    74,915

Other liabilities
   23,923    48,537

Shareholders’ Equity
   1,288,568    1,096,766



   $ 2,343,734    $ 2,154,620

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