Press release

BELLEVUE, Wash., May 28, 2009 — Esterline Corporation, (NYSE: ESL www.esterline.com), a leading specialty manufacturer serving aerospace/defense markets, today reported fiscal 2009 second quarter (ended May 1) income from continuing operations of $25.3 million, or $.85 per diluted share, on sales of $359.5 million. Year-ago income from continuing operations was $23.9 million, or $.80 per diluted share, on sales of $358.0 million.

Robert W. Cremin, Esterline CEO, said “…earnings came in about where our January forecast projections indicated.” Cremin credited “sticking with our battle-tested business plan” for the solid performance. “We can move quite quickly to adjust to economic conditions,” he said, “but we aren’t going to sacrifice our long-term goals for short-term results. We’ve been making adjustments and we are prepared to take additional steps depending on circumstances.”

Citing the current uncertainty in the industry, Cremin reduced the company’s full-year earnings per share guidance range to $3.00 to $3.20, saying that a declining order rate in the second quarter dampened Esterline’s outlook for the second half. Cremin said, “...our customers are reducing inventory levels, which is a clear change from just three months ago.” He also noted potential timing issues with foreign shipments of countermeasure flares, declining business jet and spare parts demand, and the overall economic slowdown as contributing factors to ratcheting back the company’s forecast for the second half of the year.

However, he emphasized that the company’s backlog exceeds $1 billion and R&D expense is coming down as forecasted following a ramp-up over the last several years that locked in important positions on significant new programs. “The 787, the Joint Strike Fighter and the T-6B military trainer will be successful programs for Esterline,” he said.

Research, development and engineering spending was $18.3 million, or 5.1% of sales, for the second quarter compared with $25.0 million, or 7.0% of sales, a year ago.

Overall, gross margin as a percentage of sales was 31.3% in the quarter, compared to 33.9% in the same period a year ago. The gross margin decline was due to several factors, including currency-related mark-to-market accounting requirements, adjustments to long-term contracts, and the impact of starting up another manufacturing facility in Mexico.

Selling, general and administrative expenses were 15.2% of sales in the quarter compared with 16.1% of sales last year. The effective income tax rate for the second quarter was 12.2% (before a $0.7 million tax expense) compared with 23.0% (before a $0.7 million tax expense) for the prior-year period. The effective tax rate differed from the statutory rate in the second quarters of 2009 and 2008, as both years benefited from various tax credits and certain foreign interest expense deductions.

Income from discontinued operations in the second quarter of 2009 was $.01 per diluted share, compared with $.04 per diluted share in the prior-year period. Net income was $25.7 million, or $.86 per diluted share, compared with $25.2 million, or $.84 per diluted share, in the prior-year period.

For the first half of fiscal 2009, Esterline reported net earnings from continuing operations of $36.8 million, or $1.23 per diluted share, on sales of $669.2 million, compared with net earnings from continuing operations of $53.7 million, or $1.80 per diluted share, on $715.4 million in sales in 2008. Income from discontinued operations in the first half of 2009 was $.53 per diluted share, compared with $.08 per diluted share in the prior-year period. Net income was $52.7 million, or $1.76 per diluted share, compared with $56.2 million, or $1.88 per diluted share, in the prior-year period.

New orders for the first six months of 2009 were $676.3 million compared with $788.1 million for the same period in 2008. Orders in the first six months of 2009 include $41.0 million in backlog acquired in the Racal and NMC transactions. New orders declined by $152.8 million if the Racal and NMC acquired backlog is excluded. The decline in new orders principally reflects the timing of receiving orders and a decrease in commercial aviation demand. Backlog was $1.1 billion compared with $1.0 billion at the end of the prior-year period and $1.1 billion at the end of fiscal 2008.

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 our 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.


	Three months ended						Six months ended
	May 1, 2009			May 2, 2008			May 1, 2009			May 2, 2008
Segment Sales
Avionics & Controls	$	169,111		$	147,174		$	297,579		$	290,082
Sensors & Systems		86,755			97,332			171,310			190,873
Advanced Materials		103,636			113,527			200,330			234,403

Net Sales		359,502			358,033			669,219			715,358
Cost of Sales		246,904			236,646			454,469			478,758

		112,598			121,387			214,750			236,600
Expenses
Selling, General and Administrative		54,619			57,697			114,344			117,125
Research, Development and Engineering		18,294			25,046			35,692			46,678

Total Expenses		72,913			82,743			150,036			163,803
Other
Other Expense		2,714			86			7,728			86

Total Other		2,714			86			7,728			86

Operating Earnings From Continuing Operations		36,971			38,558			56,986			72,711
Interest Income		(370	)		(939	)		(781	)		(2,231	)
Interest Expense		7,610			7,272			14,346			15,178
Gain on Derivative Financial Instruments		—			—			—			(1,850	)

Other Expense, Net		7,240			6,333			13,565			11,097

Income From Continuing Operations
Before Income Taxes		29,731			32,225			43,421			61,614
Income Tax Expense		4,316			8,107			6,484			7,749

Income From Continuing Operations
Before Minority Interest		25,415			24,118			36,937			53,865
Minority Interest		(77	)		(171	)		(112	)		(193	)

Income From Continuing Operations		25,338			23,947			36,825			53,672
Income From Discontinued Operations,
Net of Tax		375			1,238			15,831			2,497

Net Earnings	$	25,713		$	25,185		$	52,656		$	56,169

Earnings Per Share – Basic:
Continuing Operations	$	.85		$	.81		$	1.24		$	1.82
Discontinued Operations		.02			.05			.53			.09

Earnings Per Share – Basic	$	.87		$	.86		$	1.77		$	1.91

Earnings Per Share – Diluted:
Continuing Operations	$	.85		$	.80		$	1.23		$	1.80
Discontinued Operations		.01			.04			.53			.08

Earnings Per Share – Diluted	$	.86		$	.84		$	1.76		$	1.88

Weighted Average Number of Shares Outstanding – Basic		29,705			29,442			29,684			29,413
Weighted Average Number of Shares Outstanding – Diluted		29,829			29,882			29,847			29,846


	May 1, 2009		May 2, 2008
Assets
Current Assets
Cash and cash equivalents	$	115,406	$	109,626
Short-term investments		—		12,050
Accounts receivable, net		266,589		248,708
Inventories		286,194		289,678
Income tax refundable		7,635		6,965
Deferred income tax benefits		32,563		30,986
Prepaid expenses		15,036		16,953
Other current assets		55		—

Total Current Assets		723,478		714,966
Property, Plant and Equipment, Net		219,820		216,630
Other Non-Current Assets
Goodwill		690,518		652,965
Intangibles, net		410,050		345,236
Debt issuance costs, net		8,151		8,326
Deferred income tax benefits		60,597		44,375
Other assets		38,137		26,696

	$	2,150,751	$	2,009,194

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	78,205	$	93,423
Accrued liabilities		201,074		160,226
Credit facilities		2,398		6,819
Current maturities of long-term debt		12,482		7,699
Federal and foreign income taxes		316		10,744

Total Current Liabilities		294,475		278,911
Long-Term Liabilities
Long-term debt, net of current maturities		513,559		393,594
Deferred income taxes liabilities		122,499		122,394
Other liabilities		123,452		53,118
Commitments and Contingencies		—		—
Minority Interest		2,909		3,161
Shareholders’ Equity		1,093,857		1,158,016

	$	2,150,751	$	2,009,194