<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 31, 1995 Commission file number 1-6357
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ESTERLINE TECHNOLOGIES CORPORATION
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-2595091
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10800 NE 8th Street, Bellevue, Washington 98004
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(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code 206/453-9400
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
X Yes No
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Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of September 11, 1995:
Common Stock, par value $.20 per share--6,645,214 shares.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
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ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
As of July 31, 1995 and October 31, 1994
(In thousands)
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
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ASSETS (unaudited)
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<S> <C> <C>
Current Assets
Cash and equivalents $ 13,434 $ 9,076
Accounts receivable, net of allowances
of $ 2,328 and $2,201 for doubtful accounts 57,336 63,685
Inventories
Finished goods 5,295 6,016
Work in process 21,321 16,887
Raw materials and purchased parts 11,488 8,770
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38,104 31,673
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Deferred income taxes 11,033 13,002
Prepaid expenses 2,328 1,876
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Total Current Assets 122,235 119,312
Property, Plant and Equipment 153,365 145,673
Accumulated depreciation 102,928 94,070
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50,437 51,603
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Intangibles, net and Other Assets 36,624 45,060
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$ 209,296 $ 215,975
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable $ 22,277 $ 18,927
Accrued liabilities 56,789 67,877
Notes payable 7,706 58
Current maturities of long-term debt 6,303 20,588
Federal and foreign income taxes 1,374 1,320
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Total Current Liabilities 94,449 108,770
Long-Term Debt, net of current maturities 36,391 41,714
Shareholders' Equity
Common stock, par value $.20 per share,
authorized 30,000,000 shares, issued and
outstanding 6,634,539 and 6,513,057 shares 1,326 1,302
Capital in excess of par value 10,372 10,482
Retained earnings 66,789 54,951
Cumulative translation adjustment (31) (1,244)
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Total Shareholders' Equity 78,456 65,491
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$ 209,296 $ 215,975
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 3
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended July 31, 1995 and 1994
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 87,318 $ 71,676 $ 255,462 $ 200,415
Costs and Expenses
Cost of sales 51,284 43,180 151,441 122,327
Selling, general and
administrative 27,183 24,728 84,956 70,194
Restructuring provision (credit) (2,067) -- (2,067) --
Interest expense, net 981 1,390 3,471 4,309
--------- -------- ---------- --------
77,381 69,298 237,801 196,830
Earnings Before Income Taxes 9,937 2,378 17,661 3,585
Income Tax Expense 3,348 863 5,823 1,320
--------- -------- ---------- --------
Net Earnings $ 6,589 $ 1,515 $ 11,838 $ 2,265
========= ========= ========== ========
Net Earnings Per Share $ .93 $ .23 $ 1.70 $ .35
========= ========= ========== ========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE> 4
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended July 31, 1995 and 1994
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
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1995 1994
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<S> <C> <C>
Cash Flows Provided (Used) by Operating Activities
Net earnings $ 11,838 $ 2,265
Restructuring provision (credit) (2,067) --
Depreciation and amortization 12,131 12,275
Deferred income taxes (680) 951
Working capital changes
Accounts receivable 7,489 1,431
Inventories (5,743) (682)
Prepaid expenses (476) (68)
Accounts payable 2,854 970
Accrued liabilities (2,854) (2,153)
Federal and foreign income taxes 70 (794)
Other, net 1,170 (1,073)
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23,732 13,122
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Cash Flows Used by Investing Activities
Capital additions, net (7,018) (8,395)
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Cash Flows Provided (Used) by Financing Activities
Net change in notes payable 7,328 (182)
Repayment of long-term debt (19,764) (7,134)
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(12,436) (7,316)
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Effect of Exchange Rates 80 185
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Net Increase (Decrease) in Cash and Equivalents 4,358 (2,404)
Cash and Equivalents - Beginning of Period 9,076 3,218
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Cash and Equivalents - End of Period $ 13,434 $ 814
========= ==========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
Interest expense $ 4,505 $ 4,033
Income taxes 6,057 2,204
See Notes to Consolidated Financial Statements
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<PAGE> 5
ESTERLINE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended July 31, 1995 and 1994
1. The consolidated balance sheets as of July 31, 1995 and the
consolidated statements of operations for the three months and nine
months ended July 31, 1995 and 1994 and cash flows for the nine
months ended July 31, 1995 and 1994 are unaudited, but in the opinion
of management, all adjustments necessary to present fairly the
financial statements referred to above have been made, none of which
were other than normal recurring accruals.
2. During the quarter ended July 31, 1995, several remaining actions
associated with the fourth quarter 1993 restructuring were completed,
and the Company comprehensively reviewed all of the actions as they
were originally contemplated. Asset accounts, including intangibles
and accrued liabilities associated with the plan were adjusted such
that the total restructuring costs were lowered from $40.6 million to
$38.5 million. As a result, the Company took a third quarter fiscal
1995 restructuring credit of $2.1 million, or 5% of the original
charge. No other amounts related to the restructuring plan were
charged or credited to earnings since the inception of the plan.
Cash impacts of actions taken during this period were not significant
nor materially different than originally anticipated. The Company
believes the restructuring action is now substantially complete.
3. Sales during the quarter ended July 31, 1995 include the effect of
a $1.3 million favorable settlement of a patent infringement case.
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<PAGE> 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
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FINANCIAL CONDITION
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Restructuring Plan
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In the fourth quarter of fiscal 1993 the Company recorded a $40.6 million
charge ($27.2 million, or $4.14 per share, net of income tax effect)
associated with a board-approved restructuring plan. The objective of the
plan was to strengthen the Company for long-term growth and permit its
management to focus on operations with strong market positions. The estimated
costs represented the Company's best assessment of the plan; although, the
Company expected that some cost elements of the original plan could change.
During fiscal 1995's third quarter (ended July 31), several remaining
restructuring actions were completed and the Company comprehensively reviewed
all of the actions as they were originally contemplated. Asset accounts,
including intangibles and accrued liabilities associated with the plan were
adjusted such that the total restructuring costs were lowered to $38.5 million.
As a result, the Company took a third quarter fiscal 1995 restructuring credit
of $2.1 million ($1.4 million, or $.20 per share, net of income tax), or
approximately 5% of the original charge. No other amounts related to the
restructuring plan were charged or credited to earnings since the inception
of the plan. Cash impacts of actions taken during this period were not
significant nor materially different than originally anticipated. The Company
believes the restructuring action is now substantially complete.
Results of Operations
---------------------
Sales for the third quarter of fiscal 1995 were $87.3 million compared with
$71.7 million in the prior-year quarter. For the nine-months ended
July 31, 1995, sales were $255.5 million versus $200.4 million in the same
year-ago period. Both sales improvements were primarily attributable to the
Automation Group, where sales increased to $39.1 million and $114.7 million
in the current year periods, compared with $26.9 million and $70.9 million in
the prior-year periods. Continuing strong demand for the group's automated
manufacturing equipment, particularly at the group's Excellon Automation
subsidiary, was primarily responsible for the sales increases.
Sales in the Company's two other groups, Aerospace and Defense, and
Instrumentation, also improved in the current-year periods as compared
with the prior year. In the Aerospace and Defense Group, sales for the
third quarter and first nine months of fiscal 1995 were $23.7 million and
$67.9 million, respectively, compared with $21.5 million and $62.2 million
in the prior-year periods. These increases were primarily attributable to
translation effects resulting from changes in the exchange rates related to
sales at the group's Auxitrol S.A. subsidiary. Instrumentation Group sales
for the three months and nine months ended July 31, 1995 were $24.5 million
and $72.8 million, respectively, versus $23.2 million and $67.2 million in
the year-ago periods. These increases were primarily due to new product
introductions and expanded sales efforts at the group's Federal Products
subsidiary, and a $1.3 million favorable settlement of a patent infringement
case.
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<PAGE> 7
Cost of sales increased to $51.3 million and $151.4 million for the three
months and nine months ended July 31, 1995 compared with $43.2 million and
$122.3 million in the prior-year periods primarily due to the increased sales
volume discussed above. Gross margin as a percentage of sales improved to
41.3% and 40.7% in the current-year periods compared with 39.8% and 39% in the
year-ago periods primarily due to favorable product mix of sales and receipt
of the patent infringement settlement discussed above. By group, gross
margins ranged from 40% to 45% in the current-year periods, compared with 37%
to 41% in the prior-year periods.
Selling, general and administrative expenses (which includes corporate
expenses, and research, development and related engineering costs) for the
three months and nine months ended July 31, 1995 increased to $27.2 million
and $85 million, respectively, compared with $24.7 million and $70.2 million
in the prior-year periods. As a percent of sales, however, they decreased
from 34.5 % and 35%, respectively, in the 1994 periods, to 31.1% and 33.3%,
respectively, in the 1995 periods. These decreases were primarily due to
cost containment and operating leverage the Company is experiencing due to
increased sales volumes. Research, development and related engineering costs
for the first nine months of fiscal 1995 increased to $12.1 million, versus
$10.4 million in the year-ago period, reflecting the Company's continuing
commitment to invest in strategic product development programs.
Operating earnings (excluding corporate expenses and the restructuring credit)
for the three months and nine months ended July 31, 1995 increased
significantly versus the prior-year periods in the Automation Group,
particularly at Excellon. Operating earnings in the Aerospace and Defense
Group were lower in the current-year periods versus the prior year, while in
the Instrumentation Group, receipt of the settlement of the patent
infringement added to an already improved level of earnings.
Net interest expense for the three months and nine months ended July 31, 1995
was $981,000 and $3.5 million compared with $1.4 million and $4.3 million in
the prior-year periods due primarily to reduced debt levels, offset by slight
increases in interest rates.
The effective income tax rate for the third quarter and first nine months of
1995 was 34% and 33% compared with 36% and 37% in the prior-year periods.
This reduction was primarily due to the availability of foreign tax offsets
in the current-year periods.
Net earnings for the third quarter of fiscal 1995 were $6.6 million, or $.93
per share, compared with net earnings of $1.5 million, or $.23 per share, in
the year-ago quarter. For the nine months ended July 31, 1995, net earnings
were $11.8 million, or $1.70 per share, compared with net earnings of $2.3
million, or $.35 per share in the prior-year period. Earnings in the
current-year periods include $.20 per share and $.12 per share, respectively,
from the restructuring credit and patent infringement settlement discussed
above.
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<PAGE> 8
Orders in the third quarter of 1995 totaled $104.9 million, compared with
$90.5 million in the prior-year quarter. For the nine months ended
July 31, 1995, orders were $274.1 million, compared with $235.4 million a
year earlier. These increases were primarily attributable to the Automation
Group and its improved markets as discussed above. Backlog at July 31, 1995
was $115.5 million, compared with $106.4 million a year earlier.
At July 31, 1995, approximately $50 million of Company-wide backlog was
scheduled to be delivered after fiscal 1995.
Liquidity and Capital Resources
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Total debt at July 31, 1995 was $50.4 million, $12 million less than at the
end of the prior fiscal year (October 31). This debt reduction primarily
reflects the Company's previously announced early redemption of its $20 million
principal amount of 8.25% convertible debentures which was effected in May 1995
using available cash. Cash and equivalents on hand at July 31, 1995 totaled
$13.4 million, an increase of $4.4 million from October 31, 1994. Working
capital at July 31, 1995 increased to $27.8 million from $10.5 million at
October 31, 1994 primarily due to cash generated from operations, and to
reductions in accrued liabilities related to the 1993 restructuring, as
discussed above.
Of the total debt outstanding at July 31, 1995, $40 million was outstanding
under the Company's 8.75% Senior Notes, nothing was outstanding under the
Company's bank credit facility and $10.4 million was outstanding under various
bank credit facilities and other debt agreements, primarily those related to
Auxitrol. The Company's financing arrangements contain various restrictions,
including maintenance of net worth, various cash flow, leverage and fixed
charge coverage ratios, and limitations on capital expenditures, mergers and
acquisitions, disposition of assets and securities proceeds, payment of
dividends, and additional borrowings.
Capital expenditures, consisting primarily of machinery, equipment and
computers, are anticipated to be approximately $12 million during fiscal 1995,
compared with $11.3 million in fiscal 1994. At July 31, 1995, $8.1 million
had been expended. In addition, the Company is required to prepay $5.7
million principal amount of the Senior Notes on July 30, 1996 and each year
thereafter until the Senior Notes mature on July 30, 2002. Management believes
cash on hand, funds generated from operations, and available bank credit lines
at July 31, 1995 of $32.2 million will adequately service cash requirements
through fiscal 1996.
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<PAGE> 9
</TABLE>
<TABLE>
<CAPTION>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
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<S> <C>
(a) Exhibits.
11. Schedule setting forth computation of earnings per common
share for the three months and nine months ended
July 31, 1995 and 1994.
27. Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
</TABLE>
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
<TABLE>
<S> <C>
Esterline Technologies Corporation
(Registrant)
Date: September 13, 1995 By: /s/ Robert W. Stevenson
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Robert W. Stevenson
Executive Vice President and
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
</TABLE>
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<PAGE> 10
ESTERLINE TECHNOLOGIES CORPORATION
Form 10-Q Report for Fiscal Quarter Ended
July 31, 1995
INDEX TO EXHIBITS
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<TABLE>
<CAPTION>
Exhibit Page
Number Exhibit Number
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<S> <C> <C>
11. Schedule setting forth computation of earnings per common 10
share for the three months and nine months ended
July 31, 1995 and 1994.
27. Financial Data Schedule.
</TABLE>
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<PAGE> 1
EXHIBIT 11
ESTERLINE TECHNOLOGIES CORPORATION
Computation of Earnings Per Common Share
For the Three Months and Nine Months Ended July 31, 1995 and 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
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<S> <C> <C> <C> <C>
1995 1994 1995 1994
---- ---- ---- ----
Primary
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Net earnings $ 6,589 $ 1,515 $ 11,838 $ 2,265
========= ========= ========== =========
Average number of common shares
outstanding 6,582 6,513 6,545 6,513
Add - net shares assumed to be issued
for stock options 484 6 437 6
--------- --------- ---------- ---------
Total average common shares
on a primary basis 7,066 6,519 6,982 6,519
========= ========= ========== =========
Primary net earnings per
common share $ .93 $ .23 $ 1.70 $ .35
========= ========= ========== =========
Fully Diluted
-------------
Net earnings $ 6,589 $ 1,515 $ 11,838 $ 2,265
========= ========= ========== ==========
Average number of common shares
outstanding 6,582 6,513 6,545 6,513
Add - net shares assumed to be issued
for stock options 544 118 613 118
--------- --------- ---------- ----------
Total average common shares on
a fully diluted basis 7,126 6,631 7,158 6,631
========= ========= ========== ==========
Fully diluted net earnings per
common share $ .92 $ .22 $ 1.65 $ .34
========= ========= ========== ==========
Primary net earnings per
common share $ .93 $ .23 $ 1.70 $ .35
========= ========= ========== ==========
Dilutive effect per common share $ .01 $ .01 $ .05 $ .01
========= ========= ========== ==========
</TABLE>
Note: The sum of quarterly per share amounts may not equal per share amounts
reported for the year-to-date periods primarily due to changes in the
number of weighted average shares outstanding for each period.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> The Schedule Contains Summary Financial Information
Extracted From the Esterline Technologies Corporation
Consolidated Balance Sheets at July 31, 1995 and the
Related Consolidated Statements of Operations for the
Nine Months then Ended and is Qualified in its Entirety
by Reference to Such Financial Statements.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JUL-31-1995
<PERIOD-TYPE> 9-MOS
<CASH> 13,434
<SECURITIES> 0
<RECEIVABLES> 59,664
<ALLOWANCES> 2,328
<INVENTORY> 38,104
<CURRENT-ASSETS> 122,235
<PP&E> 153,365
<DEPRECIATION> 102,928
<TOTAL-ASSETS> 209,296
<CURRENT-LIABILITIES> 94,449
<BONDS> 36,391
0
0
<COMMON> 1,326
<OTHER-SE> 77,130
<TOTAL-LIABILITY-AND-EQUITY> 209,296
<SALES> 255,462
<TOTAL-REVENUES> 255,462
<CGS> 151,441
<TOTAL-COSTS> 151,441
<OTHER-EXPENSES> 82,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,471
<INCOME-PRETAX> 17,661
<INCOME-TAX> 5,823
<INCOME-CONTINUING> 11,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,838
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
</TABLE>
