Solid Defense and Industrial Business Balances Soft Commercial Aerospace Markets
BELLEVUE, Wash., February 27, 2003--Esterline Technologies (NYSE/ESL http://www.esterline.com) a leading specialty manufacturer serving aerospace/defense markets,today reported fiscal 2003 first quarter (ended January 31) earnings from continuing operations of $5.8 million, or $.28 per diluted share, on sales of $126.3 million. The prior year’s first quarter earnings from continuing operations were $6.6 million, or $.32 per diluted share, on sales of $96.8 million.
Robert W. Cremin, Esterline CEO said, “…our defense business, which accounts for roughly 45% of revenue, continues strong, plus industrial applications of our technologies are gaining strength.” He said that improvements in defense and industrial markets offset much of the continued weakness in the approximately one-third of Esterline’s business related to commercial aerospace markets. Cremin said, “…our business is right on track with our expectations. We continue to focus on good-fit acquisitions and drive investment into research and development to advance the technological solutions we offer our customers.” R&D spending rose $1.2 million, totaling $4.2 million, or 3.3% of sales, for the first fiscal quarter of 2003 compared with $3.0 million, or $3.1% of sales, for the first fiscal quarter of 2002.
Other factors affecting the quarter-over-quarter comparisons included increased intangible asset amortization expense totaling approximately $1 million related to last year’s acquisition activity, and another $1 million in increased pension and insurance expense. Cremin also noted that the company is absorbing integration expenses associated with the 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 pay significant dividends going forward,” he said.
The company continued its acquisition activity during the quarter, acquiring the assets of BVR Aero Precision, a maker of precision gear assemblies and electronic data concentrators based in Rockford, Ill. Cremin said, “...the acquisition adds a small but highly regarded company to Esterline’s Sensors & Systems segment – one with solid capabilities, products, customer relationships and people, plus a great technological fit with five other current Esterline operations.” He said, “...BVR maintains leading edge technology for electronics and mission critical software, and we see potential for dynamic growth through collaboration with other Esterline companies.”
The Avionics & Controls segment posted a 24% revenue increase, reflecting strong sales to military OEMs, some improvement in sales of aftermarket spares to airlines, increased sales of input devices to industrial/commercial markets, and two small acquisitions in the latter half of fiscal 2002. Cremin noted that “…even without the acquisitions, the segment posted a solid 15% revenue increase.” Sensors & Systems’ 20% revenue increase principally reflected the change in the exchange rate between the U.S. dollar and the Euro. Advanced Materials’ 45% sales increase reflected $21 million in incremental sales from two acquisitions completed in the latter half of fiscal 2002, offset by declines in sales of high-end elastomer products to commercial aerospace customers, decreased sales volumes of rocket booster insulation material, and the timing of sales of combustible ammunition components.
Orders received in the first quarter totaled $122.0 million compared with $105.4 million a year ago. Backlog at January 31, 2003, was $277.4 million compared with $230.1 million at the end of the prior year period, and $281.7 million at the end of fiscal 2002. The increase in backlog over the year-ago period primarily reflected acquisitions completed in late 2002 and the change in the U.S. dollar to Euro exchange rate. The sequential decline in backlog reflects the timing of receipt of orders in the Advanced Materials segment.
As previously reported, Esterline adopted a formal plan on July 25, 2002, to sell its Automation segment, which serves printed circuit board manufacturers and makers of heavy equipment. As a result, the attached consolidated financial statements present the Automation segment as a discontinued operation.
Including the above, the company reported net earnings of $5.8 million, or $.28 per diluted share, in the first quarter of fiscal 2003, compared with a net loss of $3.2 million, or $(.15) per diluted share, in the prior-year period. Last year’s first quarter included a $2.3 million loss, or $(.11) per diluted share, from the discontinuance of Automation, and a $7.6 million charge, or $(.36) per diluted share, for the cumulative effect of an accounting change as a result of the adoption of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”
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 or because of current uncertainties associated with telecommunications and computer markets 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 25, 2002.
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