Esterline Reports Fiscal 2015 Fourth Quarter and Full-Year Results

BELLEVUE, WA--(Marketwired - Nov 19, 2015) -  Esterline Corporation (NYSE: ESL)

• Revenue of $349.6 million for the two-month fiscal fourth quarter
• Earnings from continuing operations of $20.7 million, or $0.69 per diluted share
• Adjusted earnings from continuing operations of $39.9 million, or $1.33 per diluted share
• Full-year free cash flow conversion of 159% of net income
• Company issues fiscal 2016 guidance
  
  

Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace and defense markets, today reported results for the 2015 two-month fiscal fourth quarter and 11-month fiscal year ended October 2, 2015. All amounts for the fourth quarter and full year periods of fiscal 2014 are presented for the two months and 11 months ended September 26, 2014. In the fourth quarter of fiscal 2015, the company reported that consolidated revenue increased 11.6% to $349.6 million compared with the comparable year-ago period of $313.2 million. Higher revenue was attributable to an additional week in the fourth quarter of fiscal 2015 and the inclusion of revenue from the defense, aerospace and training display business (DAT) acquired from Barco N.V. in the second quarter of fiscal 2015. These factors were partially offset by a negative foreign exchange impact in the fourth quarter of fiscal 2015 compared with 2014. Excluding these factors, organic sales were relatively unchanged.

Earnings from continuing operations in the fiscal fourth quarter of 2015 were $20.7 million, or $0.69 per diluted share, compared with fourth quarter fiscal 2014 earnings from continuing operations of $20.0 million, or $0.63 per diluted share.

Adjusted earnings from continuing operations for the fiscal fourth quarter in 2015 were $39.9 million, or $1.33 per diluted share. As previously noted by the company, adjusted results exclude $0.17 per diluted share related to integration and compliance activities, $0.16 per diluted share related to the financial results of the DAT business, and $0.31 per diluted share in conjunction with debt refinancing activity (see Table 1). In the prior-year period, the company would have reported adjusted earnings from continuing operations of $23.5 million, or $0.74 per diluted share. 

Curtis Reusser, Esterline's Chief Executive Officer, said, "2015 marked an important year for Esterline, as we navigated through strategic initiatives that touched many aspects of our business. Operationally this included continued progress on our accelerated integration, strategic sourcing and continuous improvement activities as well as reshaping our business portfolio. Also, we refinanced our outstanding debt, adjusted our reporting calendar to better align with our industry, and returned $260 million of cash to shareholders through our share repurchase program." 

Reusser continued, "While 2015 was a challenging year by many measures, I'm pleased with the focus of our teams to successfully execute on our plans and finish on a strong note."

Table 1:	Effect of Certain Items on 4th Fiscal Quarter
	2015 Earnings from Continuing Operations
		$ millions			EPS
Earnings - U.S. GAAP		$	20.7		$	0.69
Accelerated Integration Costs			1.6			0.05
Compliance Costs			3.3			0.12
DAT Net Loss			5.0			0.16
Bond Redemption Costs			9.3			0.31
Adjusted Earnings		$	39.9		$	1.33

Including discontinued operations, net earnings for the nine-week fiscal fourth quarter of 2015 were $3.0 million, or $0.10 per diluted share, compared with a loss of $31.4 million, or $(0.98) per diluted share, in the comparable period last year. Net earnings in the fourth quarter of fiscal 2015 included a $17.7 million loss from discontinued operations, while the prior year included a $51.5 million loss from discontinued operations.

For the 11-month fiscal year of 2015, the company reported revenues of $1.77 billion compared with $1.80 billion in the comparable prior-year period. Fiscal 2015 earnings from continuing operations were $96.7 million, or $3.10 per diluted share. In the comparable period of 2014, the company would have reported earnings from continuing operations of $133.7 million, or $4.12 per diluted share. Adjusted earnings from continuing operations in fiscal 2015 were $145.5 million, or $4.67 per diluted share, excluding the discrete items shown in Table 2. Adjusted earnings in the comparable period of 2014 were $154.0 million, or $4.75 per diluted share, excluding compliance and integration expenses.

Net income in fiscal 2015 was $59.6 million, or $1.91 per diluted share, compared with $74.5 million, or $2.29 per diluted share, in the prior year period. The loss from discontinued operations was $37.1 million in fiscal 2015 and $59.2 million in the comparable period of 2014.

Table 2:	Effect of Certain Items on Full-Year
	2015 Earnings from Continuing Operations
		$ millions				EPS
Earnings - U.S. GAAP		$	96.7			$	3.10
Accelerated Integration Costs			9.8				0.31
Compliance Costs			15.3				0.49
DAT Closing Expenses			4.7				0.15
DAT Net Loss			13.4				0.43
Long-term Contract Adjustments			7.7				0.25
Pension Expense			2.3				0.08
Bond Redemption Costs			9.3				0.30
Non-Income Tax Gain			(13.7	)			(0.44	)
Adjusted Earnings		$	145.5			$	4.67

New orders in the fiscal fourth quarter of 2015 were $306.8 million, compared with $273.7 million in the comparable prior-year period. Backlog at the end of fiscal 2015 was $1.2 billion, compared with $1.1 billion at the end of the fiscal year ending October 31, 2014.

Reported gross margin as a percentage of sales in the fourth quarter of fiscal 2015 was 32.7%, compared with 32.6% in the prior-year period. For the 2015 fiscal year, reported gross margin as a percentage of sales was 33.2%, compared with 34.7% in the prior year. The lower gross margins in fiscal 2015 were due to weaker sales mix and lower sales in Avionics & Controls and Advanced Materials. 

Fiscal fourth quarter selling, general and administrative (SG&A) expenses as a percent of sales were 17.8%, compared with the prior-year level of 18.0%. For fiscal-year 2015, selling, general and administrative expenses as a percentage of sales were 19.5%, compared with 18.0% in the prior-year period. The higher rate in fiscal 2015 mainly reflected higher incremental SG&A expenses from the DAT acquisition and increased compliance expense.

Research, development and engineering (R&D) spending in the fourth quarter of fiscal 2015 was $13.1 million, or 3.7% of sales, compared with $14.1 million, or 4.5% of sales, in the prior-year period. Fiscal 2015 R&D spending was $91.5 million, or 5.2% of sales, compared with $88.7 million, or 4.9% of sales, in the comparable period of 2014. 

The company's income tax rate in the fourth quarter of fiscal 2015 was 1.3%, compared with 19.1% for the prior-year period. Lower taxes in the fourth quarter of 2015 reflect certain discrete tax benefits during the period, including those associated with the DAT net loss. The fiscal 2015 tax rate was 16.3%, compared with a tax rate of 21.0% during the comparable 2014 period. The company expects a tax rate in a range of 21% to 22% in fiscal 2016.

Cash flow from operations for fiscal 2015 was $144.3 million. Free cash flow conversion was 159% of net income. During fiscal 2015, the company repurchased 2.6 million shares of common stock for $259.5 million. Within the company's $400 million share repurchase authorization, it has purchased a total of 2.8 million shares for a purchase price of approximately $290 million.

Guidance for Fiscal Year 2016

The company today also provided guidance for fiscal 2016 ending on September 30, 2016. Revenues for fiscal 2016 are expected to be in the range of $2.03 billion to $2.08 billion. Adjusted earnings per share from continuing operations, excluding anticipated integration and compliance costs, are expected to be in the range of $5.50 to $5.80 per diluted share.

Reusser said 2016 would not be without challenges, but that the company "...looked closely at our plan and took into account some of the uncertainty that still exists in several of our core markets when we developed this guidance." He further commented that as the company completes its accelerated integration projects and continues to make progress within strategic sourcing, the Esterline operating system, the DAT integration and its trade compliance activities, incremental sales and profits should become more evident.

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 1-866-318-8611; outside the U.S., use 617-399-5130. The pass code for the call is: 23783176. The company has posted a presentation on its website (www.esterline.com) to provide additional information about its fourth fiscal quarter operational and financial results. 

Non-GAAP Financial Information

This press release and the related presentation providing supplemental financial information include non-GAAP financial measures -- adjusted earnings from continuing operations, adjusted earnings from continuing operations per diluted share, adjusted earnings before interest and tax (EBIT), adjusted sales, adjusted gross margin, and free cash flow conversion -- that have not been calculated in accordance with generally accepted accounting principles in the U.S. (GAAP). Adjusted earnings from continuing operations consists of earnings from continuing operations attributable to Esterline less the costs associated with certain integration activities -- including restructuring charges -- and incremental compliance costs as well as discrete items associated with the acquisition of the DAT business in January 2015, a bond redemption completed in August 2015, adjustments to reserves on long-term contracts incurred in the periods presented, and unique amounts related to pension expense and a non-income tax gain, in each case, as further detailed in the tables below. Adjusted earnings from continuing operations per diluted share divides each element of adjusted earnings from continuing operations by the weighted average number of shares outstanding, diluted for the periods presented (except the fourth quarter of fiscal 2014). EBIT is defined as operating earnings from continuing operations. Adjusted EBIT excludes the same costs excluded from adjusted earnings from continuing operations, as well as excluding from GAAP sales the DAT sales of $20.0 million in the fiscal 2015 fourth quarter and $82.5 million for full fiscal year 2015. Adjusted gross margin excludes the cost of certain integration activities and DAT's gross margin from GAAP gross margin and excludes DAT's sales from GAAP sales. Full-year 2015 free cash flow conversion is calculated by dividing free cash flow of $95.0 million (cash flow from operations of $144.3 million less capital expenditures of $49.3 million) by net earnings of $59.6 million. In accordance with the SEC's requirements, the reconciliations of adjusted sales, adjusted gross margin, and adjusted EBIT to their respective GAAP measures are included in the supplemental information related to this press release. Below is the reconciliation of the non-GAAP adjusted earnings from continuing operations to the comparable GAAP earnings from continuing operations.

In millions, except per share amounts
			Two Months Ended						Two Months Ended
			Oct. 2, 2015						Sept. 26, 2014
			Per Diluted						Per Diluted
			Share						Share
Earnings from Continuing Operations Attributable to Esterline (GAAP), Net of Tax			$	20.7		$	0.69		$	20.0		$	0.63
	Accelerated Integration Costs, Net of $0 and $0.7 Tax Benefit			1.6			0.05			2.4			0.07
	Compliance Costs, Net of $0 and $0.3 Tax Benefit			3.3			0.12			1.1			0.04
	DAT Net Loss, Net of $0.7 Tax Benefit			5.0			0.16			--			--
	Bond Redemption Costs, Net of $1.8 Tax Benefit			9.3			0.31			--			--
Adjusted Earnings from Continuing Operations (non-GAAP), Net of Tax			$	39.9		$	1.33		$	23.5		$	0.74

In millions, except per share amounts
			Eleven Months Ended								Eleven Months Ended
			Oct. 2, 2015								Sept. 26, 2014
			Per Diluted								Per Diluted
			Share								Share
Earnings from Continuing Operations Attributable to Esterline (GAAP), Net of Tax			$	96.7			$	3.10			$	133.7		$	4.12
	Accelerated Integration Costs, Net of $2.0 and $3.7 Tax Benefit			9.8				0.31				13.8			0.43
	Compliance Costs, Net of $3.0 and $1.8 Tax Benefit			15.3				0.49				6.5			0.20
	DAT Closing Expenses, Net of $1.3 Tax Benefit			4.7				0.15				--			--
	DAT Net Loss, Net of $2.6 Tax Benefit			13.4				0.43				--			--
	Long-term Contract Adjustments, Net of $2.2 Tax Benefit			7.7				0.25				--			--
	Pension Expense, Net of $0.7 Tax Benefit			2.3				0.08				--			--
	Bond Redemption Costs, Net of $1.8 Tax Benefit			9.3				0.30				--			--
	Non-Income Tax Gain, Net of $4.4 Tax Expense			(13.7	)			(0.44	)			--			--
Adjusted Earnings from Continuing Operations (non-GAAP), Net of Tax			$	145.5			$	4.67			$	154.0		$	4.75

The company provides these non-GAAP financial measures as supplemental information to the GAAP financial measures. Management uses these non-GAAP financial measures to (a) evaluate the company's historical and prospective financial performance and its performance relative to its competitors, (b) allocate resources, and (c) measure the operational performance of the company's business units.

In addition, management believes investors' and financial analysts' understanding of the company's performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing the company's historical results of operations.

These non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the comparable GAAP measures, and free cash flow is not necessarily indicative of amounts available for discretionary use. There are limitations to these non-GAAP financial measures because they are not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies due to potential differences in methods of calculation and items that comprise the calculation. The company compensates for these limitations by using these non-GAAP financial measures as a supplement to the GAAP measures and by providing reconciliations of the non-GAAP and comparable GAAP financial measures. The non-GAAP financial measures should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP.

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 the company's 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
				Two Months Ended								Eleven Months Ended
				Oct. 2,				Sept. 26,				Oct. 2,				Sept. 26,
				2015				2014				2015				2014
Segment Sales
	Avionics & Controls			$	151,086			$	112,412			$	727,801			$	668,595
	Sensors & Systems				117,835				110,719				633,446				689,850
	Advanced Materials				80,706				90,069				413,202				442,682
Net Sales					349,627				313,200				1,774,449				1,801,127
Cost of Sales					235,462				211,100				1,185,056				1,176,413
					114,165				102,100				589,393				624,714
Expenses
	Selling, general and administrative				62,356				56,285				346,781				323,957
	Research, development and engineering				13,075				14,142				91,491				88,656
	Restructuring charges				1,264				1,824				6,639				12,103
	Other income				241				--				(12,503	)			--
		Total Expenses			76,936				72,251				432,408				424,716
Operating Earnings From Continuing Operations					37,229				29,849				156,985				199,998
Interest Income					(131	)			(101	)			(578	)			(501	)
Interest Expense					5,067				5,062				30,090				29,986
Loss on Extinguishment of Debt					11,122				--				11,451				533
Earnings From Continuing Operations Before Income Taxes					21,171				24,888				116,022				169,980
Income Tax Expense					284				4,761				18,956				35,759
Earnings From Continuing Operations Including Noncontrolling Interests					20,887				20,127				97,066				134,221
Earnings Attributable to Noncontrolling Interests					(183	)			(98	)			(401	)			(527	)
Earnings From Continuing Operations Attributable to Esterline, Net of Tax					20,704				20,029				96,665				133,694
Loss From Discontinued Operations,
Attributable to Esterline, Net of Tax					(17,718	)			(51,465	)			(37,053	)			(59,240	)
Net Earnings Attributable to Esterline				$	2,986			$	(31,436	)		$	59,612			$	74,454
Earnings (Loss) Per Share--Basic:
	Continuing Operations			$	.70			$	.63			$	3.15			$	4.20
	Discontinued Operations				(.60	)			(1.61	)			(1.21	)			(1.86	)
Earnings (Loss) Per Share--Basic				$	.10			$	(.98	)		$	1.94			$	2.34
Earnings (Loss) Per Share--Diluted:
	Continuing Operations			$	.69			$	.63			$	3.10			$	4.12
	Discontinued Operations				(.59	)			(1.61	)			(1.19	)			(1.83	)
Earnings (Loss) Per Share--Diluted				$	.10			$	(.98	)		$	1.91			$	2.29
Weighted Average Number of Shares Outstanding--Basic					29,543				31,975				30,729				31,839
Weighted Average Number of Shares Outstanding--Diluted					29,901				31,975				31,215				32,443

ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Sales and Earnings From Continuing Operations by Segment (unaudited)
In thousands
				Two Months Ended								Eleven Months Ended
				Oct. 2,				Sept. 26,				Oct. 2,				Sept. 26,
				2015				2014				2015				2014
Segment Sales
	Avionics & Controls			$	151,086			$	112,412			$	727,801			$	668,595
	Sensors & Systems				117,835				110,719				633,446				689,850
	Advanced Materials				80,706				90,069				413,202				442,682
		Net Sales		$	349,627			$	313,200			$	1,774,449			$	1,801,127
Earnings From Continuing Operations Before Income Taxes
	Avionics & Controls			$	15,230			$	11,402			$	65,910			$	92,227
	Sensors & Systems				16,296				11,842				71,787				73,653
	Advanced Materials				15,043				18,539				80,951				94,450
		Segment Earnings			46,569				41,783				218,648				260,330
	Corporate expense				(9,099	)			(11,934	)			(74,166	)			(60,332	)
	Other income				(241	)			--				12,503				--
	Interest income				131				101				578				501
	Interest expense				(5,067	)			(5,062	)			(30,090	)			(29,986	)
	Loss on extinguishment of debt				(11,122	)			--				(11,451	)			(533	)
		Earnings From Continuing Operations Before Income Taxes		$	21,171			$	24,888			$	116,022			$	169,980

ESTERLINE TECHNOLOGIES CORPORATION
Consolidated Balance Sheet (unaudited)
In thousands
			October 2,			October 31,
			2015			2014
Assets
Current Assets
	Cash and cash equivalents		$	191,355		$	238,144
	Accounts receivable, net			380,748			379,889
	Inventories			446,768			433,595
	Income tax refundable			12,575			5,266
	Deferred income tax benefits			41,082			48,679
	Prepaid expenses			23,008			20,336
	Other current assets			5,427			2,149
	Current assets held for sale			27,851			41,446
		Total Current Assets		1,128,814			1,169,504
Property, Plant and Equipment, Net				309,399			319,342
Other Non-Current Assets
	Goodwill			1,041,991			1,071,786
	Intangibles, net			452,040			471,377
	Debt issuance costs, net			8,467			4,295
	Deferred income tax benefits			28,979			71,307
	Other assets			12,423			14,179
	Non-current assets held for sale			24,917			71,677
			$	3,007,030		$	3,193,467
Liabilities and Shareholders' Equity
Current Liabilities
	Accounts payable		$	117,976		$	115,284
	Accrued liabilities			259,734			262,536
	Current maturities of long-term debt			13,589			12,774
	Deferred income tax liabilities			11			1,773
	Federal and foreign income taxes			2,393			1,571
	Current liabilities held for sale			17,106			14,191
		Total Current Liabilities		410,809			408,129
Long-Term Liabilities
	Credit facilities			160,000			100,000
	Long-term debt, net of current maturities			707,786			509,720
	Deferred income tax liabilities			73,849			149,165
	Pension and post-retirement obligations			75,019			62,693
	Other liabilities			29,367			46,884
	Non-current liabilities held for sale			2,409			18,876
Total Shareholders' Equity				1,547,791			1,898,000
			$	3,007,030		$	3,193,467