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Esterline Reports Record Performance for Fiscal 2010

Dec 9

Michelle DeGrand
12/9/2010

Contact: Brian D. Keogh (425) 453-9400

BELLEVUE, Wash., December 09, 2010 – Esterline Corporation (NYSE: ESL www.esterline.com), a leading specialty manufacturer serving aerospace/defense markets, today reported fiscal 2010 fourth quarter and full-year results for the period ended October 29, 2010. Income from continuing operations for the quarter was a record $49.3 million, or $1.60 per diluted share, on sales of $430.5 million. For the same period last year, income from continuing operations was $37.4 million, or $1.24 per diluted share, on sales of $390.1 million. (Continuing operations exclude results from Esterline’s Pressure Systems subsidiary, divested on September 8, 2010, and its Muirhead Aerospace subsidiary, divested on November 3, 2008.)

For the full year ended October 29, 2010, Esterline reported income from continuing operations of $130.0 million, or $4.27 per diluted share, on sales of $1.53 billion — an 8.5% improvement over last year, nearly all organic. FY2009 income from continuing operations was $105.6 million, or $3.52 per diluted share, on $1.41 billion in sales.

Brad Lawrence, Esterline CEO, said the record performance reflects several areas of strength over last year, principally new and retrofit military cockpit programs, control panels for medical capital equipment, and operating efficiency with countermeasure flares. Lawrence said, “Our Avionics & Controls business segment provided a significant boost for Esterline in FY2010. In this segment, demand for the new T 6B military trainer aircraft, as well as success in the international market for C-130 cockpit upgrades provided significant incremental new business for Esterline in 2010.”

On the commercial aerospace side, in addition to seeing accelerating activity in preparation for increased narrow body aircraft production at Airbus and Boeing, Lawrence said, “our aftermarket spare parts business is beginning to show definite signs of improvement across all of our segments.”

In the company’s non-aerospace Interface Technologies operation, Lawrence said business is benefiting from increased demand for medical imaging equipment to replace older systems. New products, such as Esterline’s programmable button panel, are also key growth ingredients for this business. “With our new OLED (organic light emitting diode) switches, customers now can create dynamic content and animation on each intelligent button — a truly revolutionary step forward in casino gaming technology,” he said.
Lawrence said Esterline’s focus on operational excellence, consistent investment in R&D and good-fit acquisitions “…is clearly shaping our performance.”

Gross margins in FY2010 were 33.8% compared with 32.2% last year, and selling, general and administrative expenses were essentially flat in FY2010 — 16.9% of sales compared with 16.7% in FY2009.

Fourth quarter 2010 research, development and engineering (R&D) expense totaled $17.7 million, or 4.1% of sales, compared with $15.3 million, or 3.9% of sales, in the same quarter a year ago. Full-year 2010 R&D totaled $69.8 million, compared with $64.5 million — 4.6% in both years. Lawrence said the rate reflects “…a return to more normalized R&D investment following several years of successful efforts to secure positions on a number of major programs.” He added that, “…our constant technology advancements have enabled us to steadily increase our total dollar content per aircraft for the hundreds of active aircraft platforms flying today.”

In October, Esterline entered into an agreement with L-3 Communications Avionics Systems (L-3) to acquire an exclusive license for SmartDeck® integrated cockpit technologies. Lawrence said “…by licensing these technologies we enable our avionics operation to expand its product portfolio and enhance its cockpit capabilities for both OEM and retrofit opportunities.”

Backlog at fiscal year-end was $1.1 billion, up slightly from last year. Orders received in FY2010 totaled $1.6 billion — up 11.2% compared with last year.

Fiscal 2010 income from discontinued operations was $0.39 per diluted share, compared with $0.48 per diluted share in fiscal 2009, reflecting the gain on the sale of Pressure Systems, Inc. in September 2010 and the sale of Muirhead Aerospace in November 2008. Fiscal 2010 net income was $141.9 million or $4.66 per diluted share, compared with net income of $119.8 million or $4.00 per diluted share in fiscal 2009.

FY2011 Outlook
Throughout FY2010, Esterline generated progressively stronger quarterly results following a soft first quarter. FY2011 is expected to unfold in much the same way, but at a higher level. Lawrence said he expects a relatively slow start to the year with performance gaining momentum as the year progresses. “Esterline’s first fiscal quarter has always been the weakest of the year, due primarily to the shorter number of work days in November through January,” he said. The company’s FY2011 annual revenue should grow about 5% to 8% with fully diluted earnings per share in the range of $4.40 to $4.65. Lawrence noted that Esterline’s effective tax rate for FY2011 is anticipated to be in the low- to mid-20% range, compared with the 15.8% rate in FY2010.

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 866.783.2140; outside the U.S., use 857.350.1599. The pass code for the call is: 66875837.

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 29,
2010 Oct 30,
2009 Oct 29,
2010 Oct 30,
2009

Segment Sales


Avionics & Controls
   $ 226,740    $ 204,222    $ 790,016    $ 672,828

Sensors & Systems
   78,539    79,377    298,559    321,753

Advanced Materials
   125,171    106,549    438,026    412,878



Net Sales
   430,450    390,148    1,526,601    1,407,459

Cost of Sales
   272,501    262,423    1,010,390    954,161



   157,949    127,725    516,211    453,298

Expenses


Selling, general and administrative
   69,708    64,638    258,290    235,483

Research, development and engineering
   17,741    15,255    69,753    64,456

Other (income) expense
   (3 ) 24    (8 ) 7,970



Total Expenses
   87,446    79,917    328,035    307,909

Operating Earnings From Continuing Operations
   70,503    47,808    188,176    145,389

Interest income
   (309 ) (685 ) (960 ) (1,634 )

Interest expense
   9,790    7,319    33,181    28,689

Loss on extinguishment of debt
   1,206    —      1,206    —



Income From Continuing Operations


Before Income Taxes
   59,816    41,174    154,749    118,334

Income Tax Expense
   10,427    3,712    24,504    12,549



Income From Continuing Operations


Including Noncontrolling Interests
   49,389    37,462    130,245    105,785

Income Attributable to Noncontrolling Interests
   (98 ) (81 ) (206 ) (217 )



Income From Continuing Operations
   49,291    37,381    130,039    105,568

Income (Loss) From Discontinued Operations,


Net of Tax
   10,398    (2,880 ) 11,881    14,230



Net Earnings
   $ 59,689    $ 34,501    $ 141,920    $ 119,798



Earnings Per Share – Basic:


Continuing Operations
   $ 1.63    $ 1.26    $ 4.34    $ 3.55

Discontinued Operations
   .35    (.10 ) .39    .48



Earnings Per Share – Basic
   $ 1.98    $ 1.16    $ 4.73    $ 4.03



Earnings Per Share – Diluted:


Continuing Operations
   $ 1.60    $ 1.24    $ 4.27    $ 3.52

Discontinued Operations
   .34    (.09 ) .39    .48



Earnings Per Share – Diluted
   $ 1.94    $ 1.15    $ 4.66    $ 4.00



Weighted Average Number of Shares Outstanding – Basic
   30,151    29,763    29,973    29,717

Weighted Average Number of Shares Outstanding – Diluted
   30,724    30,034    30,477    29,951

ESTERLINE TECHNOLOGIES CORPORATION

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

In thousands

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Balance Sheet (unaudited)

In thousands    Oct 29,
2010    Oct 30,
2009

Assets


Current Assets


Cash and cash equivalents
   $ 422,120       $ 176,794

Accounts receivable, net
   309,242       270,976

Inventories
   262,373       275,282

Income tax refundable
   17,806       7,638

Deferred income tax benefits
   37,539       31,434

Prepaid expenses
   16,264       17,425

Other current assets
   11,241       17,048



Total Current Assets
   1,076,585       796,597

Property, Plant and Equipment, Net
   273,770       263,251

Other Non-Current Assets


Goodwill
   739,730       736,808

Intangibles, net
   389,017       422,082

Debt issuance costs, net
   7,774       7,136

Deferred income tax benefits
   87,622       79,114

Other assets
   13,240       9,259



   $ 2,587,738       $ 2,314,247



Liabilities and Shareholders’ Equity


Current Liabilities


Accounts payable
   $ 82,275       $ 82,304

Accrued liabilities
   215,094       191,667

Credit facilities
   1,980       5,896

Current maturities of long-term debt
   12,646       5,409

Deferred income tax liabilities
   7,155       7,294

Federal and foreign income taxes
   5,227       1,669



Total Current Liabilities
   324,377       294,239

Long-Term Liabilities


Long-term debt, net of current maturities
   598,972       520,158

Deferred income taxes
   127,081       130,456

Pension and post-retirement obligations
   105,333       93,615

Other liabilities
   16,476       20,027

Total Shareholders’ Equity
   1,415,499       1,255,752



   $ 2,587,738       $ 2,314,247

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