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8-K - 8-K - ESTERLINE TECHNOLOGIES CORPd92436d8k.htm
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Exhibit 99.1

 

LOGO

FOR IMMEDIATE RELEASE

Contact: Julie Albrecht
   +1 425-453-9400

ESTERLINE REPORTS FISCAL 2015 FOURTH QUARTER AND FULL-YEAR RESULTS

 

    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

BELLEVUE, Wash., November 19, 2015—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.

 

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Page 2 of 10 Esterline Reports 2015 Fiscal Fourth Quarter and Full-Year Financial Results

 

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.

 

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Page 3 of 10 Esterline Reports 2015 Fiscal Fourth Quarter and Full-Year Financial Results

 

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.

 

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Page 4 of 10 Esterline Reports 2015 Fiscal Fourth Quarter and Full-Year Financial Results

 

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

 

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Page 5 of 10 Esterline Reports 2015 Fiscal Fourth Quarter and Full-Year Financial Results

 

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
Oct. 2, 2015
     Two Months Ended
Sept. 26, 2014
 
     Per Diluted
Share
     Per Diluted
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   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Page 6 of 10 Esterline Reports 2015 Fiscal Fourth Quarter and Full-Year Financial Results

 

In millions, except per share amounts

 

     Eleven Months Ended
Oct. 2, 2015
    Eleven Months Ended
Sept. 26, 2014
 
     Per Diluted Share     Per Diluted 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.

 

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Page 7 of 10 Esterline Reports 2015 Fiscal Fourth Quarter and Full-Year Financial Results

 

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.

See attached Consolidated Statement of Operations, Consolidated Sales and Earnings from Continuing

Operations by Segment, and Consolidated Balance Sheet

 

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Page 8 of 10 Esterline Reports 2015 Fiscal Fourth Quarter and Full-Year Financial Results

 

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Statement of Operations (unaudited)

In thousands, except per share amounts

 

     Two Months Ended     Eleven Months Ended  
     Oct. 2,
2015
    Sept. 26,
2014
    Oct. 2,
2015
    Sept. 26,
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   


Page 9 of 10 Esterline Reports 2015 Fiscal Fourth Quarter and Full-Year Financial Results

 

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Sales and Earnings From Continuing Operations by Segment (unaudited)

In thousands

 

     Two Months Ended     Eleven Months Ended  
     Oct. 2,
2015
    Sept. 26,
2014
    Oct. 2,
2015
    Sept. 26,
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   
  

 

 

   

 

 

   

 

 

   

 

 

 


Page 10 of 10 Esterline Reports 2015 Fiscal Fourth Quarter and Full-Year Financial Results

 

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Balance Sheet (unaudited)

In thousands      
     October 2,
2015
     October 31,
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