First Quarter Includes a Tax Benefit and Higher than Previously Announced Severance Expense
BELLEVUE, Wash., February 26, 2004— Esterline Technologies (NYSE/ESL www.esterline.com), a leading specialty manufacturer serving aerospace/defense markets, today reported fiscal 2004 first quarter (ended January 30) net earnings of $1.9 million, or $.09 per diluted share, on $132.6 million sales. The results include a $1.9 million tax benefit, or $.09 per share, from a reduction of previously estimated tax liabilities for U.S. research and development tax credits, and a $2.9 million after-tax, or $.14 per share, severance expense related to the merger of a recently acquired UK-based operation with an existing France-based operation. The prior year’s comparable earnings were $5.8 million, or $.28 per diluted share, on sales of $126.3 million.
Robert W. Cremin, Esterline CEO said, “…a number of issues, not altogether unexpected, dampened our first quarter performance. More importantly, however, our outlook remains unchanged, with full-year EPS expected to be in the $1.50 to $1.60 range.” Cremin said, “…the severance expense that we discussed in our year-end release in December was impacted by additional complexities to get regulatory approvals, and exchange rate changes. In addition, we experienced a number of customer requested delivery delays and other negative timing issues during the quarter, all of which are expected to be compensated for during the remainder of the year.”
Cremin emphasized that, “…order rates are improving, the backlog is solid and growing, and industry trends appear to be turning in our favor.” He noted that industry wide, defense spending continues to strengthen, and U.S. and international airline traffic is picking up, “…a trend that bodes well for the spare parts and retrofit portion of our business.” Orders received in the first quarter totaled $153.3 million compared with $140.0 million just three months ago, “…reflecting good balance across our operating units.” Backlog at January 30, 2004, was $321.6 million compared with $283.7 million at the end of the prior-year period, and $300.9 million at the end of fiscal 2003.
Cremin said the company continues to focus on good-fit acquisitions and invest in research and development to advance the technological solutions offered to customers. In December, the company acquired the outstanding stock of Avista Inc., a $10 million in sales Wisconsin-based developer of embedded software for mission critical applications. He said that, “...embedded software is expanding exponentially with each successive generation of hardware, and Avista’s capabilities are an excellent fit with our operations.”
R&D spending rose $1.7 million, totaling $5.9 million, or 4.5% of sales, for the first fiscal quarter of 2004 compared with $4.2 million, or 3.3% of sales, for the first fiscal quarter of 2003.
The effective tax rate for the first fiscal quarter of 2004 was 29.6% (before a $1.9 million reduction of previously estimated tax liabilities) compared with 30.7% for the first quarter of 2003. The $1.9 million reduction was based upon the receipt of a Notice of Proposed Adjustment (NOPA) from the Internal Revenue Service covering the audit of research and development tax credits for fiscal years 1997 through 1999. As a result of the NOPA and the expectation of a similar result for fiscal years 2000 through 2003, the company revised its estimated liability for income taxes as of January 30, 2004. The revision resulted in a $1.9 million reduction of previously estimated tax liabilities.
Cremin also noted that in addition to severance expense, the company continues to absorb integration expenses associated with acquisitions. “There are real costs associated with the rationalization of facilities and product lines, and the integration of new employees, but once the transition period is behind us these efforts will bring significant positive results going forward,” he said.
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the current intent and expectations of the management of Esterline, are not guarantees of future performance, and involve risks and uncertainties that are difficult to predict. 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 changes in aerospace/defense industry demand and other risks detailed in the company's public filings with the Securities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended October 31, 2003.
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