•   Sales up 6.7% to $517.1 million in the fiscal third quarter; strong book-to-bill of 1.1

•   Earnings from continuing operations of $38.0 million; adjusted earnings from continuing operations of $40.9 million

•   GAAP earnings per diluted share from continuing operations of $1.28; adjusted earnings per diluted share of $1.38

Esterline Corporation (NYSE: ESL) (www.esterline.com), a leading specialty manufacturer serving the global aerospace and defense markets, today reported results for the third fiscal quarter ended July 1, 2016. During the third quarter of fiscal 2016, the company grew consolidated revenue to $517.1 million, an increase of 6.7% compared with the year-ago period results of $484.7 million. This revenue growth was driven by strength in various end markets for the company’s Avionics & Controls and Sensors & Systems business segments. In order to provide meaningful comparisons to prior-year periods, the results for our 2015 fiscal year have been recast to the twelve months ended October 2, 2015.

Curtis Reusser, Esterline’s Chief Executive Officer, said, “We are pleased to report a strong third quarter, delivering on commitments to our stakeholders despite market fluctuations. Our teams are executing well and making good progress against our objectives for growth, backlog, and profitability, while also continuing to drive a range of operational improvement initiatives.”

Earnings from continuing operations in the third quarter of fiscal 2016 increased to $38.0 million, or $1.28 per diluted share, compared with prior-year earnings from continuing operations of $28.2 million, or $0.90 per diluted share. Adjusted earnings from continuing operations for the third fiscal quarter of 2016 were $40.9 million, or $1.38 per diluted share. In the comparable period of the prior year, adjusted earnings from continuing operations were $36.0 million, or $1.15 per diluted share. For the third fiscal quarter of 2016, adjusted earnings exclude $0.19 per diluted share of costs related to previously identified integration, restructuring and compliance activities partially offset by $0.09 per diluted share of a one-time benefit related to long-term contract adjustments (see Table 1).

—————————————————————–

Table 1: Effect of Certain Items on 3rd Fiscal Quarter 2016

Earnings from Continuing Operations

$ Millions      EPS

———–  ———–

Earnings (GAAP)                         $      38.0  $      1.28

Accelerated Integration Costs                   1.2         0.04

Compliance Costs                                2.1         0.08

DAT Integration Costs                           2.1         0.07

Long-term Contract Adjustments                 (2.5)       (0.09)

———–  ———–

Adjusted Earnings (non-GAAP)            $      40.9  $      1.38

===========  ===========

—————————————————————–

Including discontinued operations, net earnings for the third fiscal quarter of 2016 were $29.4 million, or $0.99 per diluted share, compared with $27.7 million, or $0.88 per diluted share, in the comparable fiscal period in 2015. Net earnings in the third fiscal quarter of 2016 included an $8.7 million loss from discontinued operations, while the prior year included a $0.6 million loss from discontinued operations.

New orders in the third fiscal quarter of 2016 were $552.1 million, compared with $467.4 million in the comparable prior-year period; the company’s book-to-bill ratio for the third quarter and first nine months of fiscal 2016 was 1.1. The Avionics & Controls segment accounted for most of the increase in fiscal 2016 third quarter orders. Backlog at the end of the third quarter of 2016 was $1.4 billion, compared with $1.2 billion at the end of the third fiscal quarter of 2015.

Gross profit in the third fiscal quarter of 2016 was $173.6 million, compared with $165.3 million in the prior-year period. Reported gross margin as a percentage of sales in the third fiscal quarter of 2016 was 33.6% compared with 34.1% in the prior-year period. On an adjusted basis, excluding the discrete items consistent with adjusted earnings, the company reported gross margin of $173.0 million, or 33.5% of sales, in the third fiscal quarter of 2016, compared with adjusted gross margin of $169.3 million, or 34.9% of sales, in the prior-year period.

Selling, general and administrative (SG&A) expenses during the third fiscal quarter of 2016 were $96.8 million, or 18.7% of sales, compared with $92.0 million, or 19.0% of sales, in the prior-year period.

Research, development and engineering (R&D) spending in the third fiscal quarter of 2016 was $22.2 million, or 4.3% of sales, compared with $26.4 million, or 5.4% of sales, in the prior-year period. This change was primarily attributable to a change in mix of engineering expenses with greater customer funded and sustaining projects than in the prior-year period. The company continues to expect full-year R&D spending to be approximately 5% of sales.

The company’s income tax rate in the third fiscal quarter of 2016 was 17.2% compared with 19.2% in the prior-year period. The higher tax rate in the prior-year period was primarily due to non-deductible compliance expenses. For the full year, the company expects a tax rate in the range of 15% to 17%.

For the nine months of fiscal 2016 ended July 1, year-to-date (YTD) sales were $1.45 billion, roughly even with the same period in the prior year. Fiscal 2016 YTD GAAP earnings from continuing operations were $64.9 million, or $2.18 per diluted share, compared with the prior-year period results of $87.6 million, or $2.76 per diluted share. Excluding the discrete costs described in Table 2 below, adjusted earnings from continuing operations in the first nine months of fiscal 2016 were $86.6 million, or $2.91 per diluted share, compared with the prior-year period results of $113.1 million, or $3.57 per diluted share.

——————————————————————

Table 2: Effect of Certain Items on YTD Fiscal 2016

Earnings from Continuing Operations

$ Millions      EPS

———–  ———–

Earnings (GAAP)                          $      64.9  $      2.18

Accelerated Integration Costs                    4.2         0.14

Compliance Costs                                 7.0         0.23

DAT Integration Costs                            8.9         0.30

Long-term Contract Adjustments                   1.6         0.06

———–  ———–

Adjusted Earnings (non-GAAP)             $      86.6  $      2.91

===========  ===========

——————————————————————

Cash flow from operations for the nine months ended July 1, 2016, was $114.7 million, compared with $117.2 million in the prior-year period. After capital expenditures of $58.5 million, free cash flow was $56.2 million in the first nine months of fiscal 2016. In the prior-year period, free cash flow was $80.9 million. Capital expenditures in fiscal 2016 are higher than the prior year due to approximately $15 million used to purchase and improve the primary facility of the DAT business. Additionally, during the third fiscal quarter of 2016, the company repurchased 102,267 of its shares for approximately $6.7 million. This brings the total number of shares repurchased since the inception of the company’s share repurchase program in the third fiscal quarter of 2014 to 3.1 million shares for a total purchase amount of $308.5 million. A total of $91.5 million remains under the $400 million share repurchase authorization.

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 877-307-0078; outside the U.S., use 531-289-2890. The pass code for the call is: 49084439. The company has posted a presentation on its website (www.esterline.com) under “Presentations” in the Investor Relations section to provide additional information about its fiscal 2016 third quarter and YTD operational and financial results. The presentation is also included as Exhibit 99.2 to the company’s report on Form 8-K, which is being submitted today to the SEC.

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), operating earnings from continuing operations adjusted to exclude depreciation and amortization expense (EBITDA), adjusted gross margin, and free cash flow — that have not been calculated in accordance with generally accepted accounting principles in the U.S. (GAAP). Adjusted earnings from continuing operations consist 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 our acquisition of the DAT business in January 2015, adjustments to reserves on long-term contracts incurred in the periods presented and unique amounts related to pension expense, 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. EBIT is defined as operating earnings from continuing operations. Adjusted EBIT excludes the same costs excluded from adjusted earnings from continuing operations set forth in the table below. Third fiscal quarter 2016 adjusted gross margin excludes the cost of certain integration activities and adjustments to long-term contract reserves that have a total net impact of reducing GAAP gross margin by $(0.6) million. Fiscal third quarter 2015 adjusted gross margin excludes certain integration costs and purchase accounting charges totaling $4.0 million. In accordance with the SEC’s requirements, below is the reconciliation of the non-GAAP adjusted earnings from continuing operations to the comparable GAAP earnings from continuing operations and additional relevant reconciliations are included in the presentation providing supplemental financial information.

In millions, except per share

amounts

Three             Recast Three

Months Ended          Months Ended

July 1, 2016          June 26, 2015

——————–  ——————–

Diluted               Diluted

EPS                   EPS

Earnings from Continuing

Operations Attributable to

Esterline (GAAP), Net of Tax    $    38.0  $    1.28  $    28.2  $    0.90

Accelerated Integration Costs,

Net of Tax of $0.3 and $0.4         1.2       0.04        2.0       0.07

Compliance Costs, Net of Tax of

$0.6 and $0.8                       2.1       0.08        3.3       0.10

DAT Integration and Purchase

Acctg Adjustments, Net of Tax

of $0.7 and $0.9                    2.1       0.07        2.5       0.08

Long-term Contract Adjustments,

Net of Tax of $0.2                 (2.5)     (0.09)        —         —

———  ———  ———  ———

Adjusted Earnings from Continuing

Operations (non-GAAP), Net of

Tax                             $    40.9  $    1.38  $    36.0  $    1.15

=========  =========  =========  =========

In millions, except per share

amounts

Nine               Recast Nine

Months Ended          Months Ended

July 1, 2016          June 26, 2015

——————–  ——————–

Diluted               Diluted

EPS                   EPS

Earnings from Continuing

Operations Attributable to

Esterline (GAAP), Net of Tax    $    64.9  $    2.18  $    87.6  $    2.76

Accelerated Integration Costs,

Net of Tax of $0.7 and $2.5         4.2       0.14        9.4       0.29

Compliance Costs, Net of Tax of

$1.2 and $2.4                       7.0       0.23        8.9       0.29

DAT Integration and Purchase

Acctg Adjustments, Net of Tax

of $1.5 and $1.7                    8.9       0.30        6.2       0.20

DAT Closing Expenses, Net of

Tax of $1.3                          —         —        4.7       0.14

Long-term Contract Adjustments,

Net of Tax of $0.3 and $2.2         1.6       0.06        7.7       0.25

Pension Expense, Net of Tax of

$0.7                                 —         —        2.3       0.07

Non-Income Tax Gain, Net of Tax

of $4.4                              —         —      (13.7)     (0.43)

———  ———  ———  ———

Adjusted Earnings from Continuing

Operations (non-GAAP), Net of

Tax                             $    86.6  $    2.91  $   113.1  $    3.57

=========  =========  =========  =========

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 including these non-GAAP financial measures enhances investors’ and financial analysts’ understanding of the company’s performance as well as their ability to assess and compare 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 Transition Report on Form 10-K.

(NOTE: If you are having trouble viewing the tables below, please click here.)

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Statement of Operations (unaudited)

In thousands, except per share amounts

Three Months Ended      Nine Months Ended

——————–  ———————-

July 1,    June 26,    July 1,    June 26,

2016       2015       2016        2015

———  ———  ———-  ———-

(Recast)               (Recast)

Segment Sales

Avionics & Controls          $ 222,583  $ 200,078  $  607,493  $  594,025

Sensors & Systems              186,337    175,544     514,836     529,976

Advanced Materials             108,172    109,101     326,550     333,543

———  ———  ———-  ———-

Net Sales                        517,092    484,723   1,448,879   1,457,544

Cost of Sales                    343,508    319,433     981,403     963,996

———  ———  ———-  ———-

173,584    165,290     467,476     493,548

Expenses

Selling, general and

administrative                 96,769     92,028     293,283     289,549

Research, development and

engineering                    22,211     26,401      72,760      75,075

Restructuring charges              559      1,135       2,430       6,062

Other income                        —         —          —     (12,744)

———  ———  ———-  ———-

Total Expenses               119,539    119,564     368,473     357,942

———  ———  ———-  ———-

Operating Earnings from

Continuing Operations            54,045     45,726      99,003     135,606

Interest Income                    (30)       (87)       (211)       (406)

Interest Expense                 7,659     10,393      22,169      24,409

Loss on Extinguishment of

Debt                               —        329          —         329

———  ———  ———-  ———-

Earnings from Continuing

Operations Before Income Taxes   46,416     35,091      77,045     111,274

Income Tax Expense                 7,975      6,744      11,358      23,430

———  ———  ———-  ———-

Earnings from Continuing

Operations

Including Noncontrolling

Interests                        38,441     28,347      65,687      87,844

Earnings Attributable to

Noncontrolling Interests           (395)      (125)       (781)       (216)

———  ———  ———-  ———-

Earnings from Continuing

Operations Attributable to

Esterline, Net of Tax            38,046     28,222      64,906      87,628

Loss from Discontinued

Operations, Attributable to

Esterline, Net of Tax            (8,690)      (558)    (15,493)    (21,034)

———  ———  ———-  ———-

Net Earnings Attributable to

Esterline                     $  29,356  $  27,664  $   49,413  $   66,594

=========  =========  ==========  ==========

Earnings (Loss) Per Share–

Basic:

Continuing Operations        $    1.30  $     .92  $     2.19  $     2.81

Discontinued Operations           (.30)      (.02)       (.52)       (.67)

———  ———  ———-  ———-

Earnings (Loss) Per Share–

Basic                         $    1.00  $     .90  $     1.67  $     2.14

=========  =========  ==========  ==========

Earnings (Loss) Per Share–

Diluted:

Continuing Operations        $    1.28  $     .90  $     2.18  $     2.76

Discontinued Operations           (.29)      (.02)       (.52)       (.66)

———  ———  ———-  ———-

Earnings (Loss) Per Share–

Diluted                       $     .99  $     .88  $     1.66  $     2.10

=========  =========  ==========  ==========

Weighted Average Number of

Shares Outstanding–Basic        29,381     30,831      29,517      31,183

Weighted Average Number of

Shares Outstanding–Diluted      29,601     31,322      29,788      31,702

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Sales and Earnings From Continuing Operations by

Segment (unaudited)

In thousands

Three Months Ended      Nine Months Ended

——————–  ———————-

July 1,    June 26,    July 1,    June 26,

2016       2015       2016        2015

———  ———  ———-  ———-

(Recast)               (Recast)

Segment Sales

Avionics & Controls          $ 222,583  $ 200,078  $  607,493  $  594,025

Sensors & Systems              186,337    175,544     514,836     529,976

Advanced Materials             108,172    109,101     326,550     333,543

———  ———  ———-  ———-

Net Sales                      $ 517,092  $ 484,723  $1,448,879  $1,457,544

=========  =========  ==========  ==========

Earnings from Continuing

Operations Before Income Taxes

Avionics & Controls          $  28,517  $  16,836  $   40,579  $   62,096

Sensors & Systems               27,942     22,968      61,670      56,682

Advanced Materials              15,512     24,514      51,710      65,538

———  ———  ———-  ———-

Segment Earnings              71,971     64,318     153,959     184,316

Corporate expense              (17,926)   (18,592)    (54,956)    (61,454)

Other income                        —         —          —      12,744

Interest income                     30         87         211         406

Interest expense                (7,659)   (10,393)    (22,169)    (24,409)

Loss on extinguishment of

debt                               —       (329)         —        (329)

———  ———  ———-  ———-

Earnings from Continuing

Operations Before Income Taxes$  46,416  $  35,091  $   77,045  $  111,274

=========  =========  ==========  ==========

ESTERLINE TECHNOLOGIES CORPORATION

Consolidated Balance Sheet (unaudited)

In thousands

July 1,     October 2,

2016         2015

———–  ———–

Assets

Current Assets

Cash and cash equivalents                         $   237,845  $   191,355

Escrow cash                                             1,125           —

Accounts receivable, net                              393,632      380,748

Inventories                                           466,975      446,768

Income tax refundable                                   4,957       12,575

Deferred income tax benefits                               —       41,082

Prepaid expenses                                       20,611       23,008

Other current assets                                    5,370        5,427

Current assets of businesses held for sale             18,034       27,851

———–  ———–

Total Current Assets                              1,148,549    1,128,814

Property, Plant and Equipment, Net                      326,775      309,399

Other Non-Current Assets

Goodwill                                            1,027,873    1,041,991

Intangibles, net                                      405,531      452,040

Deferred income tax benefits                           69,259       28,979

Other assets                                           15,395       14,348

Non-current assets of businesses held for sale         10,735       24,917

———–  ———–

$ 3,004,117  $ 3,000,488

===========  ===========

Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable                                  $   128,635  $   117,976

Accrued liabilities                                   246,967      259,734

Current maturities of long-term debt                   16,340       13,376

Federal and foreign income taxes                        6,322        2,404

Current liabilities of businesses held for sale        12,283       17,106

———–  ———–

Total Current Liabilities                           410,547      410,596

Long-Term Liabilities

Credit facilities                                     170,000      160,000

Long-term debt, net of current maturities             688,753      701,457

Deferred income tax liabilities                        57,690       73,849

Pension and post-retirement obligations                73,653       75,019

Other liabilities                                      24,868       29,367

Non-current liabilities of businesses held for

sale                                                   1,222        2,409

Total Shareholders’ Equity                            1,577,384    1,547,791

———–  ———–

$ 3,004,117  $ 3,000,488

===========  ===========