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Esterline Technologies Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: June 3, 2010 05:21PM
Esterline Technologies Corp. (ESL) filed Quarterly Report for the period ended 2010-04-30.
Highlight of Business Operations:
During the first six months of fiscal 2010, our income from continuing operations was $42.4 million or $1.40 per diluted share compared to $36.8 million or $1.23 per diluted share during the prior-year period, reflecting strong sales and earnings from Avionics & Controls, improved results from Advanced Materials, and weak results from Sensors & Systems. Sales and operating earnings of Avionics & Controls increased 24.0% and 32.4%, respectively, over the prior-year period and reflected strong sales and gross margins of avionics systems for the T-6B military trainer and a military transport retrofit, as well as incremental sales from the acquisition of Racal Acoustics. Avionics & Controls sales and earnings also reflected strong sales and gross margins of interface technology devices. Advanced Materials results improved principally due to strong sales and gross margins from flare countermeasure devices. Sensors & Systems sales and earnings were weak compared to the prior-year period principally due to the downturn in commercial aviation. Income from continuing operations in the first six months of fiscal 2009 was impacted by a foreign currency loss of $7.9 million relating to the pound sterling-denominated funding of Racal Acoustics. Income from continuing operations in the first six months of fiscal 2010 reflected an effective tax rate of 22.9% compared to 14.2% in the prior-year period. The increase in the effective income tax rate from the prior-year period reflected a change in tax law in France, the expiration of U.S. research and development credits and changes in a U.S.-Canadian tax treaty. In addition, the prior-year periods effective income tax rate reflected tax benefits associated with the $7.9 million foreign currency loss.
Avionics & Controls segment earnings were $28.5 million, or 14.3% of sales, in the second fiscal quarter of 2010 and $21.7 million, or 12.8% of sales, in the second fiscal quarter of 2009, principally reflecting strong earnings from our avionics systems and interface technologies operations. Our avionics systems results substantially improved from an operating loss in the second fiscal quarter of 2009 to solid earnings in the second fiscal quarter of 2010. The increase in earnings from avionics systems reflected increased sales and gross margin from the T-6B program and a cockpit retrofit program of a military transport aircraft. In the second fiscal quarter of fiscal 2010 and 2009, the avionics systems operation was impacted by a $1.0 million and $4.1 million, respectively, estimate-to-complete adjustments related to certain long-term contracts. Our cockpit control systems and communications systems operations earnings declined against the prior-year period. Cockpit controls operations were impacted by $1.3 million in new product development costs and higher operating costs and research, development and engineering expense. Our communications operations were impacted by delayed shipments due to a supplier quality issue.
The effective income tax rate for the first six months of 2010 was 22.9% (before a $0.5 million discrete tax expense) compared with 14.2% (before a $0.3 million discrete tax expense) for the prior-year period. The $0.5 million tax expense in the first six months of 2010 was related mainly to tax law changes in France. The $0.3 million tax expense in the first six months of 2009 was the result of three events. The first event was a $2.0 million tax benefit for the reduction of previously recorded withholding tax liabilities as a result of the enactment of a U.S.-Canadian tax treaty. The second event was the recording of a $1.6 million tax expense as a result of accruing a penalty due to a development with regard to certain foreign tax laws. The third event was a $0.7 million expense resulting from the reversal of previously recorded tax benefits associated with the implementation of CMCs SADI program. The effective tax rate differed from the statutory rate in the first six months of 2010 and 2009, as both years benefited from various tax credits and certain foreign interest expense deductions.
Cash and cash equivalents at April 30, 2010, totaled $223.7 million, an increase of $46.9 million from October 30, 2009. Net working capital increased to $556.8 million at April 30, 2010, from $502.4 million at October 30, 2009. Sources and uses of cash flows from operating activities principally consist of cash received from the sale of products and cash payments for material, labor and operating expenses. Cash flows provided by operating activities were $71.7 million and $40.3 million in the first six months of 2010 and 2009, respectively, reflecting increased income from continuing operations and advanced payments on long-term contracts and decreased payments for inventory and income taxes.
Capital expenditures, consisting of machinery, equipment and computers, are anticipated to be approximately $50.0 million during fiscal 2010, compared to $87.4 million expended in fiscal 2009. Capital expenditures for fiscal 2009 included $28.2 million under capitalized lease obligations related to our newly constructed facility for an avionics controls operation and a facility expansion for an interface technologies facility. Capital expenditures for the first six months of fiscal 2010 totaled $33.7 million, primarily for machinery and equipment, building, construction in process, and enhancements to information systems. Capital expenditures for the first six months of fiscal 2010 included $8.1 million under capitalized lease obligations for our newly constructed avionics controls facility and facility expansion noted above.
Total debt at April 30, 2010, was $541.3 million and consisted of $175.0 million of Senior Notes due in 2017, $176.3 million of Senior Subordinated Notes due in 2013, $123.4 million under our U.S. term loan, $2.0 million of deferred gain on a terminated interest rate swap, $44.1 million under capital lease obligations and $20.5 million under our credit facility and various foreign currency debt agreements and other debt agreements.