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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended October 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-6357
ESTERLINE TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2595091
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10800 NE 8TH STREET
BELLEVUE, WASHINGTON 98004
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 425/453-9400
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------- ----------------------------
Common Stock ($.20 par value) New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of January 22, 1998, 8,642,911 shares of the Registrant's common
stock were outstanding. The aggregate market value of such common stock held
by non-affiliates at such date was $285,976,000 (based upon the closing sales
price of $33.50 per share).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Annual Report to Shareholders for Fiscal Year ended
October 31, 1997--Parts I, II and IV.
Portions of Definitive Proxy Statement relating to the 1998 Annual Meeting of
Shareholders, to be held on March 4, 1998--Part III.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS.
Esterline Technologies Corporation, a Delaware corporation formed in 1967
(the "Company"), is a diversified manufacturing company that has strong
market positions within, or in support of, a variety of manufacturing
industries, including electronic equipment, metal fabrication, commercial
aerospace and defense. The Company conducts its operations through three
business segments--Automation, Aerospace/Defense and Instrumentation.
The Company is strategically aligned to focus its efforts on growth
through acquisitions and product development. During 1997, the Company
completed the acquisition of a small product line that was integrated into
Excellon and introduced several new products including Excellon's Century
2001, Whitney's 3400 Fabricating Center, Auxitrol's radar-based marine
measurement system and Korry's LED cockpit switch line. In November 1997,
the Company purchased a small Ohio-based company, Fluid Regulators
Corporation, and two products lines: the Boeing 777 cockpit switch line and
an aerospace pressure sensor line. And on January 26,1998 the Company also
purchased a small California-based elastomeric product line. The Company
continues to investigate candidates for acquisition and potential product
development opportunities.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
A summary of net sales to unaffiliated customers, operating earnings and
identifiable assets attributable to the Company's business segments for the
years ended October 31, 1997, 1996 and 1995 is incorporated herein by
reference to Note 13 to the Company's Consolidated Financial Statements
(pages 52-53) of the Annual Report to Shareholders for the year ended
October 31, 1997.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
The Company consists of 12 individual businesses segmented into three
groups. Specific comments covering all of the Company's business segments and
operating units are set forth below.
AUTOMATION GROUP
The Automation Group consists of four subsidiaries--Excellon Automation
Co. ("Excellon"), Equipment Sales Co. ("ESCI"), Tulon Co. ("Tulon") and W.A.
Whitney Co. ("Whitney"). These units produce and/or sell automated equipment
for use by printed circuit board manufacturers; and construction,
agricultural, mining and transportation equipment manufacturers. The
Automation Group accounted for 39% and 42% of the Company's net sales in
1997 and 1996, respectively.
Excellon is a leading manufacturer of highly efficient automated
drilling systems for the printed circuit board ("PCB") manufacturing
industry. PCB manufacturers are faced with the need to increase production
capacity and drill more complex boards, creating additional market
opportunities for Excellon. As the number of electronic applications
multiply, board designers are forced to integrate increasingly more functions
into smaller packages, requiring more holes,
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smaller holes and tighter tolerances between holes. Management believes that
Excellon's drilling systems enable customers to achieve one of the lowest
costs per hole, an increasingly important consideration in the cost-conscious
electronics industry. In addition, Excellon's high level of research and
development expenditures are key to maintaining its important technology
lead.
Printed circuit board drilling equipment accounted for 22%, 22% and 26% of
the Company's consolidated net sales in 1997, 1996 and 1995, respectively.
ESCI acts as a sales representative for various manufacturers' products
sold to the PCB assembly industry, including high-speed "pick and place"
equipment.
Tulon produces tungsten carbide drill and router bits, commonly ranging in
size from 7mm down to .25mm--but some are as small as .10mm--for use in PCB
drilling equipment. Tulon utilizes computerized equipment which automatically
inspects drill bits and provides the product consistency customers need for high
technology drilling. Tulon's products can be used in most drilling machines,
including those produced by Excellon.
Whitney designs and builds highly productive automated machine tool and
material handling systems for cutting and punching plate and structural steel
for construction, transportation, agricultural and mining equipment
manufacturers and independent steel fabrication centers. Whitney produces
equipment specifically designed for mid- to heavy-plate metal that enables
manufacturers to meet rigid cut quality and accuracy standards. Whitney's
computer-controlled heavy punching and cutting machines significantly reduce
setup, work-in-process and material handling time and enable customers to
utilize just-in-time production to lower inventory and costs. Management
believes that Whitney's proprietary TRUECut-TM- oxygen plasma cutting technology
virtually eliminates rejected parts and additional finish work, resulting in
improved throughput and reduced cost per part. In its niche, Whitney is the
leading supplier in the United States and has market positions in both Europe
and Asia. Whitney continually evaluates new approaches to metal cutting such as
laser technology.
BACKLOG
At October 31, 1997 the backlog of the Automation Group was $28.1 million
(all of which is expected to be shipped during 1998) compared with $19.2 million
at October 31, 1996. The increase is attributable to demand for PCB drilling
equipment and high factory capacity utilization levels stimulating demand for
automated machine tools.
AEROSPACE AND DEFENSE GROUP
The Aerospace and Defense Group consists of six subsidiaries--Armtec
Defense Products Co. ("Armtec"), Auxitrol S.A. ("Auxitrol"), Hytek Finishes
Co. ("Hytek"), Mason Electric Co. ("Mason"), Midcon Cables Co. ("Midcon") and
TA Mfg. Co. ("TA"). These units primarily serve aerospace and defense
markets (including the U.S. government), as well as shipbuilders, European
electric utilities and electronic markets. The Aerospace and Defense Group
accounted for 36% and 32% of the Company's net sales in 1997 and 1996,
respectively.
Armtec manufactures molded fiber cartridge cases, mortar increments,
igniter tubes and other combustible ammunition components for the U.S. Armed
Forces and licenses such technology to foreign defense contractors and
governments. Armtec currently is the only U.S. producer of combustible ordnance
products utilized by the U.S. Army. These products include the 120mm
combustible case used as the main armament system on the U.S. Army's M-1A1 and
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M-1A2 tanks, the 60mm, 81mm and 120mm combustible mortar increments and the
155mm combustible case for artillery ammunition. As opposed to metal cartridge
casings, Armtec's products are part of the ammunition propulsion system and are
combusted when fired. In 1996, Armtec was designated by the U.S. Army as having
the preferred technology for its new generation 155mm artillery system.
Auxitrol, headquartered in France, manufactures high precision
temperature and pressure sensing devices used primarily in aerospace
applications; liquid level measurement devices for ships and storage tanks;
pneumatic accessories (including pressure gauges and regulators); and
industrial alarms. Auxitrol's principal customers are jet and rocket engine
manufacturers, aerospace equipment manufacturers, shipbuilders, petroleum
companies and electric utilities. Temperature and pressure sensing equipment
designed into jet and rocket engines constitutes a significant portion of
Auxitrol's sales. Auxitrol also distributes products manufactured by others,
including valves, temperature and pressure switches and flow gauges.
Auxitrol manufactures electrical penetration devices for nuclear power
plants under license for sale in territories that cover Europe and certain other
foreign countries. These penetration devices permit electrical signals to pass
safely through the containment dome while maintaining pressure integrity and
signal continuity. Auxitrol is also part of a joint venture with a Russian
company to facilitate use of its penetration devices in nuclear plants for
Eastern Europe.
Hytek provides specialized metal finishing and inspection services,
including plating, anodizing, polishing, nondestructive testing and organic
coatings, primarily for aerospace applications. Hytek also serves the
semiconductor industry using an automated tin-lead plating line that employs
some of the most advanced automated plating technology available.
Mason primarily manufactures control sticks, grips and wheels as well
as specialized switching systems for commercial and military aeorspace
applications. In addition, a variety of these products are manufactured for
land-based military vehicles such as tanks and missile launchers.
Midcon manufactures electronic and electrical cable assemblies and cable
harnesses for the military, government contractors and the commercial
electronics market, offering both product design services and product
assembly to customer specifications.
TA designs and manufactures specialty clamps and elastomeric compounds in
custom molded shapes for wiring and tubing installations for airframe and jet
engine manufacturers as well as military and commercial airline aftermarkets.
TA's products include proprietary elastomers that are specifically formulated
for various extreme applications, including high-temperature environments on or
near a jet engine.
BACKLOG
At October 31, 1997 the backlog of the Aerospace and Defense Group was
$81.5 million (of which $11.6 million is expected to be shipped after 1998)
compared with $71.6 million at October 31, 1996. This solid increase is due to
improving aerospace markets.
INSTRUMENTATION GROUP
The Instrumentation Group consists of two subsidiaries--Federal Products
Co. ("Federal") and Korry Electronics Co. ("Korry"). These units serve
aerospace, automotive, ordnance, bearing, farm implement, construction and
medical equipment manufacturers. The Instrumentation Group accounted for 25%
and 26% of the Company's net sales for 1997 and 1996, respectively.
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Federal manufactures a broad line of high-precision analog and digital
dimensional and surface measurement and inspection instruments as well as
systems for a wide range of industrial quality control and scientific
applications. Manufacturers use Federal equipment for direct shop-floor
inspections to reduce costly rework at more advanced production stages.
Federal's products include dial indicators, air gauges, electronic gauges and
other gauges where high-precision measurement is required; and custom-built and
dedicated semi-automatic and automatic gauging systems. Distributed products
manufactured by others include laser interferometer systems used primarily to
check machine tool calibrations. Federal's equipment is used extensively in
precision metal working.
In 1997, 1996 and 1995, gauge products manufactured by Federal accounted
for 11%, 12% and 12%, respectively, of the Company's consolidated net sales.
Korry is a market and technology leader in the manufacture of
high-reliability electro-optical instrumentation components and systems,
illuminated push button switches, indicators, panels and keyboards that act
as human interfaces in a broad variety of control and display applications.
Korry's products have been designed into many existing aircraft systems, and
as a result, Korry enjoys a considerable spares and retrofit business.
Korry's customers include original equipment manufacturers and the
aftermarkets (equipment operators and spare parts distributors), primarily in
the commercial aviation, airborne military, ground-based military equipment
and shipboard military equipment markets. Korry's proprietary products
provide its customers with a significant technological advantage in such
areas as night vision--a critical operational requirement--and active matrix
liquid crystal displays, a technology expected to have broad usage in
commercial aerospace and military applications.
Aerospace switches and indicators manufactured by Korry and Mason accounted
for 12%, 9% and 8% of the Company's consolidated net sales in 1997, 1996 and
1995, respectively.
BACKLOG
At October 31, 1997, the backlog of the Instrumentation Group was
$44.5 million (of which $8.1 million is expected to be shipped after 1998)
compared with $36.4 million at October 31, 1996. The Instrumentation Group's
backlog is benefiting from the increased order activity in the aerospace and
quality control instrumentation markets.
MARKETING AND DISTRIBUTION
The Company believes that one of the keys to its continued success in
any market is the ability to provide solutions that simplify, integrate and
improve the processes and procedures currently being applied. Preserving
service capability with this focus is an integral part of the marketing
function for most of the Company's businesses. Each of the Company's
operating units maintains its own separate and distinct sales force, outside
representatives or distributor relationships. In particular:
Automation Group products manufactured by Excellon are marketed
domestically principally through employees and in foreign markets through
employees and independent distributors. Whitney products are sold
principally through independent distributors and representatives.
Aerospace and Defense Group products manufactured by Auxitrol and Armtec
are marketed through employees and independent representatives.
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Instrumentation Group products manufactured by Federal and Korry are
marketed domestically principally through employees and outside sales
representatives and in foreign markets through both employees and
independent representatives.
RESEARCH AND DEVELOPMENT
Currently, the Company's subsidiaries conduct product development and
design programs with approximately 171 professional engineers, technicians and
support personnel, supplemented by outside engineering and consulting firms when
needed. In 1997, approximately $17.6 million was expended for research,
development and engineering, compared with $15.4 million in 1996 and
$16.6 million in 1995.
FOREIGN OPERATIONS
The Company's principal foreign operations consist of Auxitrol's
manufacturing facilities located in France and Spain. Other locations
include Tulon's manufacturing facility in Mexico, Excellon's sales and
service operations located in England, Germany and Japan, and sales offices
for TA and Korry in England and France, respectively. Whitney also has a
small distribution facility in Italy. For further information regarding
foreign operations, reference is made to Note 1 to the Consolidated Financial
Statements (pages 42-43) and Note 13 to the Consolidated Financial Statements
(pages 52-53) of the Company's Annual Report to Shareholders for the year
ended October 31, 1997, which is incorporated herein by reference.
EMPLOYEES
The Company and its subsidiaries had 3,360 employees at October 31, 1997.
Less than 10% of these employees were members of an organized labor union.
GOVERNMENT CONTRACTS AND SUBCONTRACTS
As a contractor and subcontractor to the U.S. Government, the Company is
subject to various laws and regulations that are more restrictive than those
applicable to non-government contractors. Although only 3% of the Company's
sales are made directly to the United States Government, the Company's
subcontracting activities account for approximately 9% of additional sales.
Therefore, close to 12% of the Company's sales are governed by rules favoring
the government's contractual position. As a consequence, such contracts may be
subject to protest or challenge by unsuccessful bidders or to termination,
reduction or modification in the event of changes in government requirements,
reductions in federal spending, or other factors. The accuracy and
appropriateness of certain costs and expenses used to substantiate direct and
indirect costs of the Company for the U.S. Government under both cost-plus and
fixed-price contracts are subject to extensive regulation and audit by the
Defense Contract Audit Agency, an arm of the U.S. Department of Defense.
COMPETITION, PATENTS AND LEASES
The Company's subsidiaries experience varying degrees of competition
with respect to their products and services. The Company competes in most
markets it serves with other companies, many of which have far greater sales
volume and financial resources. The principal competitive factors in the
commercial markets in which the Company participates are product performance
and service. Part of product performance requires expenditures in research
and development that lead to product improvement on a rapid basis. The market
for many of the Company's products may be affected by rapid and significant
technological changes and new product introduction. Current competitors or
new entrants could introduce new products with
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features that render the Company's products obsolete or less marketable.
Excellon's principal competitors are Hitachi, Ltd., Schmoll and Pluritec.
Whitney's principal competitors are Cincinnati, Inc., Trumpf, Mazak and U.S.
Amada. Auxitrol's principal competitors are Ametek and Rosemount. Federal's
principal competitors are Mitutoyo, Brown & Sharpe and Starrett. Korry's
principal competitors are Eaton-MSC and Ducommun Jay-El.
Collectively, the Company holds a number of patents but in general relies
on technical superiority, continual product improvement, exclusive features
in their equipment, service to customers and marketing to meet competition.
Licenses that help maintain a significant competitive advantage include a
long-term license agreement under which Auxitrol manufactures and sells
electrical penetration assemblies.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND COMPONENTS
Due to the Company's diversification, the sources and availability of raw
materials and components are not nearly as important as they would be for a
company that manufactures a single product. However, certain components and
supplies such as air bearing spindles and ceramic beams for Excellon,
a few components for Whitney and certain other raw materials and
components for other subsidiaries are purchased from single sources.
In such instances, ongoing efforts are conducted to develop alternative sources
and design modifications to help avoid the possibility of any business
impairment.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state, local and foreign laws,
regulations and ordinances that (i) govern activities or operations that may
have adverse environmental effects, such as discharges to air and water, as well
as handling and disposal practices for solid and hazardous wastes and (ii)
impose liability for the costs of cleaning up, and certain damages resulting
from, sites of past spills, disposals or other releases of hazardous substances
(together, "Environmental Laws").
The Company's various operations use certain substances and generate
certain wastes that are regulated as or may be deemed hazardous under applicable
Environmental Laws, or for which the Company has incurred cleanup obligations.
While the Company endeavors at each of its facilities to assure compliance with
Environmental Laws, from time to time operations of the Company have resulted or
may result in certain noncompliance with applicable requirements under
Environmental Laws for which the Company has incurred cleanup and related costs.
However, the Company believes that any such noncompliance or cleanup liability
under current Environmental Laws would not have a material adverse effect on the
Company's results of operations and financial condition.
The Company has been identified as a potentially responsible party ("PRP"),
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended ("CERCLA"), and analogous state Environmental
Laws, for the cleanup of contamination resulting from past disposals of
hazardous wastes at certain sites to which the Company, among others, sent
wastes in the past. CERCLA requires PRPs to pay for cleanup of sites from which
there has been a release or threatened release of hazardous substances. Courts
have interpreted CERCLA to impose strict, joint and several liability upon all
persons liable for cleanup costs. As a practical matter, however, at sites
where there are multiple PRPs, the costs of cleanup typically are allocated
among the parties according to a volumetric or other standard. Although there
can be no assurance, the Company believes, based on, among other things, a
review of the data available to the Company regarding each such site, including
the minor volumes of waste which the Company is alleged to have contributed, and
a comparison of the
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Company's liability at each such site to settlements previously reached by
the Company in similar cases, that it has adequately accrued for the
estimated costs associated with such matters. Nonetheless, until the
Company's proportionate share is finally determined at each such site, there
can be no assurance that such matters, or any similar liabilities that arise
in the future, will not have a material adverse effect on the Company's
results of operations or financial condition.
Liabilities have been accrued for environmental remediation costs expected
to be incurred in the disposition of manufacturing facilities. No provision has
been recorded for environmental remediation costs that could result from changes
in laws or other circumstances currently not contemplated by the Company.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES.
See "Foreign Operations" above.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain statements in the Form 10-K and documents incorporated by
reference contain forward-looking statements within the meanings of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements involve risks
and uncertainties, certain of which are discussed below, regarding matters
that could significantly affect expected results including information about
industry trends, growth and backlog. Thus, these forward-looking statements
may be materially different from actual future outcomes. The Company does
not undertake any obligation to publicly release the results of any revisions
that may be made to these forward-looking statements to reflect any future
events or circumstances.
CYCLICALITY OF BUSINESS. The Company's business is susceptible to economic
cycles and its results can vary widely based on a number of factors, including
domestic and foreign economic conditions and developments affecting the specific
industries and customers served. The products sold by most of the Company's
businesses represent capital investment or support for capital investment by
either the initial customer or the ultimate end-user. Also, a significant
portion of the sales and profitability of some Company businesses is derived
from the telecommunications, computer, aerospace and defense markets as well as
other government contracts. Changes in general economic conditions or
conditions in these and other specific industries, capital acquisition cycles
and government policies, collectively or individually, can have a significant
impact on the Company's results of operations and financial condition. There
can be no assurance that such trends will continue at their current levels.
DEPENDENCE ON MAJOR CUSTOMERS; BACKLOG. Certain of the Company's
subsidiaries are dependent on a relatively small number of customers and defense
programs, which change from time to time. For example, Armtec does significant
business with the U.S. Army. Significant customers in 1997 included the U.S.
Army, Snecma and Boeing. There can be no assurance that the Company's current
customers will continue to buy the Company's products at their current levels.
Moreover, orders included in backlog are generally subject to cancellation by
the Company's customers. The inability to replace sales due to the loss of any
major customer or defense program could have a material adverse effect on the
Company's results of operations and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY. The Company's subsidiaries take
precautionary steps to protect their technological advantages and rely in part
on patent, trademark, trade secret and copyright law to protect their
intellectual property. There can be no assurances that the precautionary steps
taken by the Company will prevent misappropriation of its technology. Litigation
may be necessary in the future to enforce the Company's patents and other
intellectual
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property rights, to protect the Company's trade secrets, to determine the
validity and scope of proprietary rights of others or to defend against
claims of infringement or invalidity by others. Such litigation could result
in substantial costs and diversion of resources and could have a material
adverse effect on the Company's operating results and financial condition.
RISK OF FOREIGN OPERATIONS. Foreign sales represented approximately 33% of
the Company's total sales in 1997. Foreign sales are subject to numerous risks,
including political and economic instability in foreign markets, restrictive
trade policies of foreign governments, economic conditions in local markets,
inconsistent product regulation by foreign agencies or governments, the
imposition of product tariffs and the burdens of complying with a wide variety
of international and U.S. export laws and differing regulatory requirements. To
the extent that foreign sales are transacted in a foreign currency, the Company
would be subject to the risk of losses due to foreign currency fluctuations. In
addition, the Company has substantial assets denominated in foreign currencies
that are not offset by liabilities denominated in such foreign currencies.
These net foreign currency investments are subject to material changes in the
event of fluctuations in foreign currencies against the U.S. dollar.
PRODUCT LIABILITY. The Company is subject to the risk of claims arising
from injuries to persons or property due to the use of its products. Although
the Company maintains general liability and product liability insurance, there
can be no assurance that such insurance will be sufficient to cover any claims
that may arise.
VOLATILITY OF STOCK PRICE. The trading price of the Company's Common Stock
has from time to time fluctuated widely and in the future may be subject to
similar fluctuations in response to quarter-to-quarter variations in the
Company's operating results, announcements of technological innovations or new
products by the Company or its competitors, announcements of marketing and
distribution arrangements by the Company, general conditions in the industries
in which the Company competes and other events or factors. In addition, in
recent years broad stock market indices, in general, and the securities of
technology companies, in particular, have experienced substantial price
fluctuations. Such broad market fluctuations also may adversely affect the
future trading price of the Common Stock.
RISKS ASSOCIATED WITH ACQUISITIONS. A key operating strategy of the
Company is the pursuit of selective acquisitions. Although the Company reviews
many possible acquisitions, including some outside of its current markets and
acquisition criteria, the Company currently has no material commitments or
agreements to acquire any specific businesses or other material assets. There
can be no assurance that any acquisition will be consummated, or if consummated,
that any such acquisition will be successfully integrated or will not have a
material adverse effect upon the Company's financial condition or results of
operations.
CERTAIN ANTI-TAKEOVER PROVISIONS. The Company's Restated Certificate of
Incorporation, as amended, and Bylaws contain provisions for a classified Board
of Directors and restricting the ability of stockholders to call special
meetings. These provisions could delay or impede the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy contest
involving the Company, even if such events might be favorable to the Company's
stockholders. In addition, certain agreements to which the Company is a party,
including loan and employment agreements, contain provisions that impose
substantial penalties upon the Company in the event of a change of control.
The Company's Stockholder Rights Plan is designed to cause substantial
dilution to any "Acquiring Person" that attempts to merge or consolidate with,
or that takes certain other actions affecting the Company on terms that are not
approved by the Board of Directors of the Company. The Company is also subject
to the "business combination" statute of the Delaware General Corporation Law.
In general, the statute prohibits a publicly held Delaware corporation from
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engaging various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which such person became an "interested stockholder," unless the business
combination is approved in a prescribed manner. These provisions could
discourage or make more difficult a merger, tender offer or other similar
transaction, even if favorable to the Company's stockholders.
ITEM 2. PROPERTIES
The following table summarizes the principal properties (in excess of
50,000 square feet) owned or leased by the Company and its subsidiaries as of
October 31, 1997:
Approximate
Type of Number of Owned
Location Facility Square Feet or Leased
-------- -------- ----------- ---------
Rockford, IL Office and Plant (A) 257,000 Owned
Providence, RI Office and Plant (I) 166,000 Owned
Torrance, CA Office and Plant (A) 150,000 Leased
Seattle, WA Office and Plant (I) 138,000 Leased
Coachella, CA Office and Plant (D) 111,000 Owned
Kent, WA Office and Plant (D) 93,000 Owned
Joplin, MO Office and Plant (D) 92,000 Owned
Bourges, France Plant (D) 69,000 Owned
San Fernando, CA Office and Plant (D) 50,000 Leased
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The Company group (business segment) operating each facility described
above is indicated by the letter following the description of the facility, as
follows:
(A)- Automation
(D)- Aerospace and Defense
(I)- Instrumentation
In January 1998, the plant in Bourges, France was relocated to a new
facility within the same city that is approximately 101,000 square feet. This
leased facility may be purchased at the end of a 12-year period for a nominal
amount.
ITEM 3. LEGAL PROCEEDINGS
The Company has various lawsuits and claims, both offensive and defensive,
and contingent liabilities arising from the conduct of business, none of which,
in the opinion of management, is expected to have a material effect on the
Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the year ended October 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following information that appears in the Company's Annual Report to
Shareholders for 1997 is hereby incorporated by reference:
(a) The high and low market sales prices of the Company's common stock for
each quarterly period during the years ended October 31, 1997 and
1996, respectively, (page 37 of the Annual Report to Shareholders).
(b) Restrictions on the ability to pay future cash dividends (Note 6 to
the Consolidated Financial Statements, page 47 of the Annual Report to
Shareholders).
No cash dividends were paid during the years ended October 31, 1997 and
1996 as the Company continued its policy of retaining all internally generated
funds to support the long-term growth of the Company and to retire debt
obligations.
On January 17, 1998, there were approximately 927 record holders of the
Company's common stock.
The principal market for the Company's common stock is the New York Stock
Exchange.
ITEM 6. SELECTED FINANCIAL DATA
The Company hereby incorporates by reference the Selected Financial Data of
the Company that appears on page 36 of the Company's Annual Report to
Shareholders for 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company hereby incorporates by reference Management's Discussion and
Analysis of Results of Operations and Financial Condition which is set forth on
pages 30-35 of the Company's Annual Report to Shareholders for 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company hereby incorporates by reference the Consolidated Financial
Statements and the report thereon of Deloitte & Touche LLP, dated
December 9, 1997, which appear on pages 38-55 of the Company's Annual Report
to Shareholders for 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors.
The Company hereby incorporates by reference the information set forth
under "Election of Directors" in the definitive form of the Company's Proxy
Statement, relating to its Annual Meeting of Shareholders to be held on
March 4, 1998, filed with the Securities and Exchange Commission and the New
York Stock Exchange on January 23, 1998.
(b) Executive Officers.
The names and ages of all executive officers of the Company and the
positions and offices held by such persons as of January 23, 1998 are as
follows:
Name Position with the Company Age
- ------------------ ------------------------------------------------ ---
Wendell P. Hurlbut Chairman and Chief Executive Officer 66
Robert W. Cremin President and Chief Operating Officer 57
Robert W. Stevenson Executive Vice President, Chief Financial Officer 58
and Secretary
Larry A. Kring Group Vice President 57
Stephen R. Larson Group Vice President 53
Marcia J. M. Greenberg Vice President, Human Relations 45
Robert D. George Treasurer and Controller 41
Mr. Hurlbut has served as Chairman and Chief Executive Officer of the
Company since September 1997. Prior thereto, he served as Chairman, President
and Chief Executive Officer from January 1993 through September 1997. From
February 1989 through December 1992, he was President and Chief Executive
Officer. Mr. Hurlbut is also a member of the Board of Directors of the National
Association of Manufacturers.
Mr. Cremin has been President since September 1997 and Chief Operating
Officer since October 1996. In addition, he served as Executive Vice President
from October 1996 to September 1997. From January 1991 to October 1996, he was
Senior Vice President and Group Executive. Mr. Cremin has a M.B.A. from the
Harvard Business School and a B.S. degree in Metallurgical Engineering from
Polytechnic Institute of Brooklyn.
Mr. Stevenson has been Executive Vice President, Chief Financial Officer
and Secretary since October 1987. From October 1987 to June 1997 he also served
as Treasurer. Mr. Stevenson has a M.B.A. from the Wharton School of Business at
the University of Pennsylvania and a B.A. degree from Stanford University.
Mr. Kring has been Group Vice President since August 1993. From November
1978 to July 1993, he was President and Chief Executive Officer of Heath Tecna
Aerospace Co., a unit of Ciba Composites Division, Anaheim, California.
Mr. Kring has a M.B.A. from California State University at Northridge and a
B.S. degree in Aeronautical Engineering from Purdue University. He is a
director of Active Apparel Group, Inc.
12
<PAGE>
Mr. Larson has been Group Vice President since April 1991. From
February 1978 to March 1991, he held various executive positions with Korry
Electronics, a subsidiary of the Company, including President and Executive
Vice President, Marketing. Mr. Larson has a M.B.A. degree from the
University of Chicago and a B.S. degree in Electrical Engineering from
Northwestern University.
Ms. Greenberg has been Vice President, Human Resources since March 1993.
From January 1992 to February 1993, she was a partner in the law firm of Bogle &
Gates, Seattle, Washington. Ms. Greenberg has a J.D. degree from Northwestern
University School of Law and a B.A. degree from Portland State University.
Mr. George has been Treasurer and Controller since June 1997. From
October 1995 to June 1997, he was Group Vice President Finance for Zurn Power
Systems Group. Prior thereto, he served as Vice President Finance for the
Energy Division of Zurn Industries from March 1989 until October 1995. Mr.
George has a M.B.A. from the Fuqua School of Business at Duke University and
a B.A. degree from Drew University.
ITEM 11. EXECUTIVE COMPENSATION
The Company hereby incorporates by reference the information set forth
under "Executive Compensation" in the definitive form of the Company's Proxy
Statement, relating to its Annual Meeting of Shareholders to be held on
March 4,1998, filed with the Securities and Exchange Commission and the New
York Stock Exchange on January 23, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company hereby incorporates by reference the information with respect
to stock ownership set forth under "Security Ownership of Certain Beneficial
Owners and Management" in the definitive form of the Company's Proxy Statement,
relating to its Annual Meeting of Shareholders to be held on March 4, 1998,
filed with the Securities and Exchange Commission and the New York Stock
Exchange on January 23, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
13
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following consolidated financial statements, together with the
report thereon of Deloitte & Touche LLP, dated December 9, 1997, appearing on
pages 38-55 of the Company's Annual Report to Shareholders for 1997, are
hereby incorporated by reference:
Annual Report
Page Number
-------------
Consolidated Statement of Operations--Years ended
October 31, 1997, 1996 and 1995 .......................... 38
Consolidated Balance Sheet--October 31, 1997 and 1996 ....... 39
Consolidated Statement of Cash Flows--Years ended
October 31, 1997, 1996 and 1995 .......................... 40
Consolidated Statement of Shareholders' Equity--Years ended
October 31, 1997, 1996 and 1995 .......................... 41
Notes to Consolidated Financial Statements .................. 42-54
Report of Independent Auditors .............................. 55
(a)(2) Financial Statement Schedules.
The following additional financial data should be read in conjunction
with the consolidated financial statements in the Annual Report to Shareholders
for the year ended October 31, 1997:
Independent Auditors' Report
Schedule VIII--Valuation and Qualifying Accounts and Reserves, see
page 21.
(a)(3) Exhibits.
Exhibit
Number Exhibit
------- -------
3.1 Composite Restated Certificate of Incorporation of the Company as
amended by Certificate of Amendment dated March 14, 1990.
(Incorporated by reference to Exhibit 19 to the Company's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1990
(Commission File Number 1-6357).)
3.2 By-laws of the Company, as amended and restated
December 15, 1988. (Incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1988 (Commission File Number 1-6357).)
14
<PAGE>
4.2 Form of Rights Agreement, dated as of December 9, 1992, between
the Company and Chemical Bank, which includes as Exhibit A
thereto the form of Certificate of Designation, Preferences and
Rights of Series A Serial Preferred Stock and as Exhibit B
thereto the form of Rights Certificate. (Incorporated by reference
to Exhibit 1 to the Company's Registration Statement on Form 8-A
filed December 17, 1992 (Commission File Number 1-6357).)
10.1 Amendment of Lease and Agreement, dated March 11, 1959, between
the City of Torrance, California, and Longren Aircraft Company,
Inc., as original lessee; Lease, dated July 1, 1959, between the
City of Torrance and Aeronca Manufacturing Corporation, as
original lessee; and Assignment of Ground Lease, dated
September 26, 1985, from Robert G. Harris, as successor lessee
under the foregoing leases, to Excellon Industries, Inc., relating
to principal manufacturing facility of Excellon at 24751 Crenshaw
Boulevard, Torrance, California. (Incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1986 (Commission File
Number 1-6357).)
10.4 Industrial Lease dated July 17, 1984, between 901 Dexter
Associates and Korry Electronics Co., First Amendment to Lease
dated May 10, 1985, Second Amendment to Lease dated
June 20, 1986, Third Amendment to Lease dated September 1, 1987,
and Notification of Option Exercise dated January 7, 1991, relating
to the manufacturing facility of Korry Electronics at 901 Dexter
Avenue N., Seattle, Washington. (Incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1991 (Commission File
Number 1-6357).)
10.4a Fourth Amendment dated July 27, 1994, to Industrial Lease dated
July 17, 1984 between Houg Family Partnership, as successor to
901 Dexter Associates, and Korry Electronics Co. (Incorporated by
reference to Exhibit 10.4a to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1994 (Commission File
Number 1-6357).)
10.5 Industrial Lease dated July 17, 1984, between 801 Dexter
Associates and Korry Electronics Co., First Amendment to Lease
dated May 10, 1985, Second Amendment to Lease dated
June 20, 1986, Third Amendment to Lease dated September 1, 1987,
and Notification of Option Exercise dated January 7, 1991, relating
to the manufacturing facility of Korry Electronics at 801 Dexter
Avenue N., Seattle, Washington. (Incorporated by reference to
Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 31, 1991 (Commission File
Number 1-6357).)
15
<PAGE>
Exhibit
Number Exhibit
------- -------
10.5a Fourth Amendment dated March 28, 1994, to Industrial Lease dated
July 17, 1984, between Michael Maloney and the Bancroft & Maloney
general partnership, as successor to 801 Dexter Associates, and
Korry Electronics Co. (Incorporated by reference to Exhibit 10.5a
to the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1994 (Commission File Number 1-6357).)
10.9 Note Agreement, dated as of July 15, 1992, among Esterline
Technologies Corporation, certain of its subsidiaries, The
Northwestern Mutual Life Insurance Company and New England Mutual
Life Insurance Company relating to 8.75% Senior Notes due
July 30, 2002 of Esterline Technologies Corporation and certain of
its subsidiaries. (Incorporated by reference to Exhibit 10.9 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1992 (Commission File Number 1-6357).)
10.9a Amendment to Note Agreement, executed as of October 31, 1993, to
that certain Note Agreement, dated and effective as of
July 15, 1992, among Esterline Technologies Corporation, certain of
its subsidiaries, The Northwestern Mutual Life Insurance Company and
New England Mutual Life Insurance Company relating to 8.75%
Senior Notes due July 30, 2002 of Esterline Technologies
Corporation and certain of its subsidiaries. (Incorporated by
reference to Exhibit 10.9a to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1993 (Commission File
Number 1-6357).)
10.10 Compensation of Directors. (Incorporated by reference to first
paragraph under "Other Information as to Directors" in the
definitive form of the Company's Proxy Statement, relating to its
1998 Annual Meeting of Shareholders to be held on March 4, 1998,
filed with the Securities and Exchange Commission and the New
York Stock Exchange on January 23, 1998.)
10.21 Credit Agreement executed and effective as of October 31, 1996
among Esterline Technologies Corporation and certain of its
subsidiaries, various financial institutions and Bank of America,
National Trust and Savings Association, as Agent. (Incorporated
by reference to Exhibit 10.21 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1996 (Commission
File Number 1-6357).)
10.22 Real Property Lease and Sublease, dated June 28, 1996, between
810 Dexter L.L.C. and Korry Electronics Co. (Incorporated by
reference to Exhibit 10.22 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1996 (Commission File
Number 1-6357).)
16
<PAGE>
Exhibit
Number Exhibit
------- -------
11 Schedule setting forth computation of earnings per share for the
five fiscal years ended October 31, 1997.
13 Portions of the Annual Report to Shareholders for the fiscal year
ended October 31, 1997, incorporated by reference herein.
21 List of subsidiaries.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule (EDGAR only).
Exhibit
Number Exhibit
------- -------
MANAGEMENT CONTRACTS OR COMPENSATORY PLANS OR ARRANGEMENTS
10.13 Amended and Restated 1987 Stock Option Plan. (Incorporated by
reference to Exhibit 10.13 to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1992 (Commission File
Number 1-6357).)
10.15 Esterline Corporation Supplemental Retirement Income Plan for Key
Executives. (Incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1989 (Commission File Number 1-6357).)
10.16g Esterline Technologies Corporation Long-Term Incentive
Compensation Plan, fiscal years 1997-1999.
10.19 Executive Officer Termination Protection Agreement.
(Incorporated by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1992 (Commission File Number 1-6357).)
10.20d Esterline Technologies Corporation Corporate Management Incentive
Compensation Plan for fiscal year 1998.
10.24 Esterline Technologies Corporation 1997 Stock Option Plan.
(Incorporated by reference to Exhibit A in the definitive form of
the Company's Proxy Statement, relating to its 1997 Annual
Meeting of Shareholders held on March 5, 1997, filed with
the Securities and Exchange Commission and the New York Stock
Exchange on January 17, 1997.)
(b) Reports on Form 8-K.
There were no Reports on Form 8-K filed during the fourth quarter of
fiscal year 1997.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ESTERLINE TECHNOLOGIES CORPORATION
(Registrant)
By /s/ Robert W. Stevenson
--------------------------------------------
Robert W. Stevenson
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
AND SECRETARY
(PRINCIPAL FINANCIAL OFFICER)
By /s/ Robert D. George
-------------------------------------------
Robert D. George
TREASURER AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
Dated: January 29, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Wendell P. Hurlbut Director, Chairman and January 29, 1998
- -------------------------- Chief Executive Officer -----------------
(Wendell P. Hurlbut) (Principal Executive Officer) Date
/s/ Robert W. Stevenson Executive Vice President, January 29, 1998
- ------------------------- Chief Financial Officer -----------------
(Robert W. Stevenson) and Secretary (Principal Date
Financial Officer)
/s/ Robert D. George Treasurer and Controller January 29, 1998
- ------------------------- (Principal Accounting -----------------
(Robert D. George) Officer) Date
/s/ Richard R. Albrecht Director January 29, 1998
- ------------------------- -----------------
(Richard R. Albrecht) Date
18
<PAGE>
/s/ Gilbert W. Anderson Director January 29, 1998
- ------------------------- -----------------
(Gilbert W. Anderson) Date
/s/ John F. Clearman Director January 29, 1998
- ------------------------- -----------------
(John F. Clearman) Date
/s/ Edwin I. Colodny Director January 29, 1998
- ------------------------- -----------------
(Edwin I. Colodny) Date
/s/ E. John Finn Director January 29, 1998
- ------------------------- -----------------
(E. John Finn) Date
/s/ Robert F. Goldhammer Director January 29, 1998
- ------------------------- -----------------
(Robert F. Goldhammer) Date
/s/ Jerome J. Meyer Director January 29, 1998
- ------------------------- -----------------
(Jerome J. Meyer) Date
/s/ Paul G. Schloemer Director January 29, 1998
- ------------------------- -----------------
(Paul G. Schloemer) Date
/s/ Malcolm T. Stamper Director January 29, 1998
- ------------------------- -----------------
(Malcolm T. Stamper) Date
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and the Board of Directors
Esterline Technologies Corporation
Bellevue, Washington
We have audited the consolidated financial statements of Esterline Technologies
Corporation (the Company) as of October 31, 1997 and 1996, and for each of the
three years in the period ended October 31, 1997, and have issued our report
thereon dated December 9, 1997; such financial statements and report are
included in your 1997 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the consolidated financial statement
schedule of Esterline Technologies Corporation, listed in Item 14. This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Seattle, Washington
December 9, 1997
20
<PAGE>
ESTERLINE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
For Years Ended October 31, 1997, 1996 and 1995
Deduction for
Balance at Additions Purpose for Balance
Beginning Charged which Reserve at End
Description of Year to Income was Created of Year
----------- ----------- ---------- -------------- ---------
Reserve for doubtful
accounts receivable
Year Ended October 31
- ---------------------
1997 $ 4,084 $ 742 $ (1,966) $ 2,860
========== ========== =========== ==========
1996 $ 4,117 $ 782 $ (815) $ 4,084
========== ========== =========== ==========
1995 $ 2,201 $ 2,095 $ (179) $ 4,117
========== ========== =========== ==========
Inventory Valuation Reserves
Year Ended October 31
- ---------------------
1997 $ 1,195 $ -- $ (695) $ 500
========== ========== =========== ==========
1996 $ 1,195 $ -- $ -- $ 1,195
========== ========== =========== ==========
1995 $ 3,546 $ -- $ (2,351) $ 1,195
========== ========== =========== ==========
21
<PAGE>
Exhibit 11
Page 1
ESTERLINE TECHNOLOGIES CORPORATION
Computation of Primary Earnings Per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Net Earnings (Loss) $25,321 $21,354 $17,381 $7,563 $(25,635)
======= ======= ======= ====== ========
Weighted-Average Number of
Common Shares Outstanding 8,562 7,921 6,568 6,513 6,512
Net Shares Assumed to be
Issued for Stock Options 242 246 302 58 67
------- ------- ------- ------ --------
Total 8,804 8,167 6,870 6,571 6,579
======= ======= ======= ====== ========
Earnings (Loss) Per Common
Share - Primary Basis $ 2.88 $ 2.61 $ 2.53 $ 1.15 $ (3.90)
======= ======= ======= ====== ========
</TABLE>
<PAGE>
Exhibit 11
Page 2
ESTERLINE TECHNOLOGIES CORPORATION
Computation of Fully Diluted Earnings Per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Net Earnings (Loss) $25,321 $21,354 $17,381 $7,563 $(25,635)
======= ======= ======= ====== ========
Weighted-Average Number of
Common Shares Outstanding 8,562 7,921 6,568 6,513 6,512
Net Shares Assumed to
be Issued for Stock Options 276 253 362 269 67
------- ------- ------- ------ --------
Total Common Shares on a
Fully Diluted Basis 8,838 8,174 6,930 6,782 6,579
======= ======= ======= ====== ========
Earnings (Loss) Per Common
Share - Fully Diluted Basis $ 2.87 $ 2.61 $ 2.51 $ 1.12 $ (3.90)
======= ======= ======= ====== ========
Earnings (Loss) Per Common
Share - Primary Basis $ 2.88 $ 2.61 $ 2.53 $ 1.15 $ (3.90)
======= ======= ======= ====== ========
Dilutive Effect Per Common Share $ .01 $ None $ .02 $ .03 $ None
======= ======= ======= ====== ========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION + ANALYSIS
GENERAL
Esterline's (the Company) record sales performance in 1997 reaffirmed
management's strategy of serving multiple industrial markets with high quality,
capital-intensive engineered products. Management focused significant attention
on converting the Company's strong capital position into growth through
investment in product development and acquisitions. Completed acquisitions
included a product line during 1997 and, subsequent to year-end, two additional
product lines and a small manufacturing company. Management continues to pursue
other acquisition opportunities. The Company consists of 12 separate operating
units organized into three business groups - Automation (4 units),
Aerospace/Defense (6 units) and Instrumentation (2 units). Combined, Excellon,
Auxitrol and Korry - the largest units in each Group - account for 49% and 51%
of net sales and 41% and 54% of operating earnings in 1997 and 1996,
respectively.
RESULTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
COMPARED TO YEAR ENDED OCTOBER 31, 1996
Net sales for 1997 grew 11% when compared with the prior period. Sales by Group
were as follows:
increase from
dollars in thousands prior year 1997 1996
Automation 3% $150,522 $146,698
Aerospace and Defense 26% 140,200 111,691
Instrumentation 6% 100,236 94,454
- --------------------------------------------------------------------
$390,958 $352,843
====================================================================
Net sales were a record $391 million and showed increases across all Groups for
1997. The improvement was driven by the Aerospace/Defense Group which benefited
from the overall strong aerospace market demand and the effects of a full year
of operation from Mason Electric, acquired in August 1996. The Instrumentation
Group also improved due to the strengthening order rate in aerospace-related and
quality control instrumentation markets, despite the divestiture of Angus
Electronics in May. Sales activity for the Automation Group began the year at
the slow pace experienced during the second half of 1996. Indications of
improvement in the electronic component industry noted in the first quarter of
1997 were realized by the Group over the remainder of the year. Net sales to
foreign customers, including export sales by domestic operations, totaled
$129.6 million and $122.6 million, and accounted for 33% and 35% of the
Company's net sales for 1997 and 1996, respectively.
Total gross margin as a percentage of net sales was 38% during 1997
compared with 39% in the prior year. On a comparative basis, the
Aerospace/Defense Group's gross margin increased due to overall favorable
commercial aerospace market conditions. Both the Instrumentation and Automation
Groups experienced decreases in gross margins. The decreases were primarily the
result of pricing pressures due to the strong U.S. dollar. Other contributing
factors were consolidation within the printed circuit board manufacturing
industry and new product/program start-up costs. Gross margins by Group ranged
from 35% to 41% in 1997, compared with 38% to 39% in the prior year.
Selling, general and administrative expenses (which include corporate
expenses, and research, development and related engineering costs) increased to
$108.5 million in 1997 compared with $103.4 million in the prior year. Just
under half of the overall increase was from research, development and related
engineering spending which increased to $17.6 million in 1997 from $15.4 million
in 1996. As a percentage of net sales, selling, general and administrative
expenses improved to 28% in 1997 from 29% in 1996.
Operating earnings (excluding corporate expenses) increased 11% to
$47.6 million compared with $42.8 million in the prior year. The
Aerospace/Defense and Instrumentation Groups posted operating earnings of
$22.3 million and $9.9 million in 1997 compared with $13.6 million and
$5.5 million in 1996. Strong aerospace markets, operating earnings generated
by Mason, the sale of Angus and increased demand for quality control
instrumentation contributed to this improvement. The Automation Group's
operating earnings decreased 35% for the year to $15.5 million from
$23.7 million in the prior year primarily as a result of the foreign pricing
pressures, the slow start at the beginning of the year and increased spending
for research and new product development.
<PAGE>
Increased levels of investment resulted in interest income of $2.4 million,
compared with $2 million in the prior year. Interest expense decreased to
$3.6 million during 1997 from $4.3 million in the prior year, primarily due to
the annual repayment on the Senior Notes.
Net earnings were $25.3 million, or $2.88 per share, for 1997 compared with
$21.4 million, or $2.61 per share, in the prior year.
Orders received in 1997 increased 16% to $417.8 million from $361.4 million
in the prior year. Backlog at October 31, 1997 was $154.1 million compared with
$127.3 million at the end of the prior year. Approximately $19.8 million of
backlog is scheduled to be delivered after 1998. All orders in backlog are
subject to cancellation until delivery.
YEAR ENDED OCTOBER 31, 1996
COMPARED TO YEAR ENDED OCTOBER 31, 1995
Net sales remained consistent with the prior period at $352.8 million in 1996
compared with $351.9 million in 1995. Automation Group sales declined 6% to
$146.7 million compared with $156.1 million for the prior year. Much of the
revenue decline was attributed to uncertainty among automated manufacturing
equipment users, especially in the printed circuit board industry, as they
delayed capital purchase decisions. The Instrumentation Group also experienced a
slight decrease in sales of 3% to $94.5 million compared with $97.8 million in
1995. However, on a pro forma basis when results are restated for Scientific
Columbus which was sold late in 1995, the Group experienced an increase in net
sales of 6%. The Aerospace/ Defense Group compensated for the slight declines
in revenues experienced by the other two segments by posting a 14% increase in
net sales totaling $111.7 million compared with $98 million for the prior year.
A recovering aerospace market and the acquisition of Mason Electric Co., which
was completed at the beginning of the fourth quarter of 1996, were primarily
responsible for the improvement. Net sales to foreign customers, including
export sales by domestic operations, totaled $122.6 million and $124.1 million
in 1996 and 1995, respectively, and accounted for 35% of the Company's net sales
in both years.
Net sales for the year ended October 31, by Group, were as follows:
dollars in thousands 1996 1995
Automation $146,698 $156,116
Aerospace and Defense 111,691 98,027
Instrumentation 94,454 97,754
- -------------------------------------------------
$352,843 $351,897
=================================================
Total gross margin as a percentage of sales remained consistent with the
prior year at 39%. On a comparative basis, in 1996, the Automation and
Aerospace/Defense Groups' gross margins increased while the Instrumentation
Group's gross margin decreased. The gross margins by Group ranged from 38% to
39% in 1996, compared with 38% to 41% in the prior year.
Selling, general and administrative expenses (which include corporate
expenses, and research, development and related engineering costs) decreased in
large measure due to the absence of selling, general and administrative expenses
at Scientific Columbus in 1996. As a percentage of sales, these expenses
improved to 29% in 1996 from 30% in 1995. Research, development and related
engineering costs decreased to $15.4 million in 1996 from $16.6 million in 1995.
In 1996, operating earnings (excluding corporate expenses) increased 15% to
$42.8 million from $37.3 million in the prior year. The primary areas of
improvement were in the Aerospace/ Defense Group where operating earnings more
than doubled to $13.6 million in 1996 from $6.5 million in the prior year.
Recovery in aerospace markets as well as the operating earnings generated by
Mason contributed to this increase. The Automation Group's operating earnings
decreased 2% to $23.7 million in 1996 from $24.2 million in 1995 reflecting a
slowdown in electronics industry capital expenditures. The Instrumentation
Group's operating earnings decreased to $5.5 million in 1996 when compared with
$6.6 million in the prior year.
Cash, generated from operations and the proceeds of a public offering, was
primarily invested in tax-exempt securities and generated interest income of
$2 million in 1996.
Interest expense decreased $1.3 million in 1996 to $4.3 million compared
with $5.6 million in 1995. This reduction is primarily related to a continuing
decline in debt which included the initial principal payment on the Senior
Notes.
The effective income tax rate for 1996 was 33% compared with 34% in the
prior year. The decrease in the effective rate is attributed primarily to
tax-exempt interest generated in the current year. Net earnings were
$21.4 million, or $2.61 per share, for 1996 compared with net earnings of
$17.4 million, or $2.53 per share, in the prior year period. In 1995, earnings
included $.20 per share and $.12 per share from the restructuring credit and
proceeds from a patent infringement settlement, respectively. Without these
items, 1995 earnings per share from operations was $2.21.
<PAGE>
Orders for 1996 increased 1% to $361.4 million from $358.3 million in the
prior year period. Backlog at October 31, 1996 was $127.3 million compared with
$103.2 million a year earlier. The increase in backlog relates to the aerospace
recovery and the Mason acquisition. Approximately $24.6 million of back-log was
scheduled to be delivered after 1997. All orders in backlog are subject to
cancellation until delivery.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents at October 31, 1997 totaled $56 million, an increase of
$9.6 million from the prior year and was generated primarily through operations.
Net accounts receivable decreased $1.6 million to $67.5 million due to the
collection of foreign accounts that were included in allowance for doubtful
accounts in the prior year. Trade accounts receivable remained essentially
unchanged even with a sales volume increase of 11%. Inventory increased
$8 million to $53.4 million in 1997 to support backlog at year-end and
increased levels of business. Current liabilities decreased $4.4 million to
$100.9 million primarily as the result of a decrease in foreign short-term
debt and income taxes payable. Net working capital increased 27% to $93.5
million at October 31, 1997 from $73.4 million at October 31, 1996.
Total debt at October 31, 1997 was $32.1 million, an $8.8 million decrease
from a year earlier. The decrease is attributable to a scheduled principal
payment of $5.7 million on the Company's Senior Notes and a reduction in foreign
notes outstanding. The scheduled payments will continue annually until maturity
on July 30, 2002. Debt was comprised of $28.6 million under the Company's
Senior Notes and $3.5 million under various foreign currency debt agreements.
Domestic and foreign credit facilities totaled $43 million, of which
$38.3 million was available at October 31, 1997.
Capital expenditures, consisting of buildings, machinery, equipment and
computers, are anticipated to be approximately $28 million during 1998 compared
with $21.6 million in 1997. The increase in capital expenditures for 1998
supports management's expectation for continued growth, creating the need to
reinvest in new technology and add capacity. Capital expenditures for 1997
(excluding acquisitions) were comprised of expenditures for two new plants;
expansion of certain existing plants; machinery and equipment; and enhancements
to information technology systems in order to support growth and operational
effectiveness.
Management believes cash on hand, funds generated from operations and
available bank credit lines will adequately service operating cash requirements,
including capital expenditures, through 1998.
SUBSEQUENT EVENTS
In November 1997, the Company completed the purchase of an Ohio-based company,
Fluid Regulators Corporation, and two product lines, a Boeing 777 cockpit switch
from Illinois Tool Works and an aerospace pressure sensor product line from
SAGEM S.A. Fluid Regulators Corporation, a designer and manufacturer of
advanced hydraulic controls and components for the commercial aerospace and
defense industries, and the aerospace pressure sensor product line will operate
under the direction of the Company's France-based Auxitrol S.A. The cockpit
switch will be integrated into the operations at Korry Electronics. The
purchases were funded with available cash.
FORWARD-LOOKING STATEMENTS
Certain statements in the above commentary and throughout this annual report
contain forward-looking information that involve risks and uncertainties,
including industry trends, currency fluctuations, backlog, capital expenditures
and cash requirements. The Company's business is susceptible to economic cycles
and its results can vary widely based on a number of factors, including domestic
and foreign economic conditions and developments affecting the specific
industries and customers served. The products sold by most of the Company's
businesses represent capital investment or support for capital investment by
either the initial customer or the ultimate end-user.
A significant portion of the sales and profitability of some Company
businesses is derived from the telecommunications, electronics, computer,
aerospace and defense markets. Changes in general economic conditions or
conditions in these and other specific industries, capital acquisition cycles
and government policies, collectively or individually, can have a significant
effect on the Company's results of operations and financial condition. Thus,
these forward-looking statements may be materially different from actual future
outcomes. The Company does not undertake any obligation to publicly release the
results of any revisions that may be made to these forward-looking statements to
reflect any future events or circumstances.
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which
supersedes APB Opinion No. 15 and will require the Company to report earnings
per outstanding share in addition to diluted earnings per share. Diluted
earnings per share under the new standard would be the same as currently
reported primary earnings per share under APB Opinion No. 15. The standard
becomes effective for financial statements for both interim and annual periods
ending after December 15, 1997. Early application is not permitted.
SELECTED FINANCIAL DATA
dollars in thousands, except per share amounts
for the years ended 10.31 1997 1996 1995 1994 1993
Operating Results
Net sales $390,958 $352,843 $351,897 $294,044 $285,152
Cost of sales 243,197 215,015 215,934 178,397 175,568
Selling, general and
administrative 108,474 103,415 107,113 100,845 100,669
Restructuring
provision (credit) - - (2,067) - 40,626
Interest income (2,397) (1,989) (1,156) (113) (122)
Interest expense 3,603 4,328 5,598 6,098 6,446
Income tax
expense (benefit) 12,760 10,720 9,094 1,254 (12,400)
Net earnings (loss) 25,321 21,354 17,381 7,563 (25,635)
Net earnings
(loss) per share $ 2.88 $ 2.61 $ 2.53 $ 1.15 $ (3.90)
Financial Structure
Total assets $289,847 $276,646 $225,714 $217,524 $205,672
Long-term debt, net 23,209 29,007 35,543 41,714 62,267
Shareholders' equity 165,718 142,304 83,706 65,491 55,323
Weighted average number
of shares outstanding 8,804 8,167 6,870 6,571 6,579
MARKET PRICE OF ESTERLINE COMMON STOCK
principal market: new york stock exchange
dollars
for the years ended 10.31 1997 1996
Quarter High Low High Low
First $28.00 $22.50 $24.00 $19.13
Second 29.75 25.13 23.88 20.38
Third 38.50 28.25 26.00 18.75
Fourth 43.50 34.56 23.38 20.00
At October 31, 1997 there were approximately 938 holders of record of the
Company's common stock.
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
dollars in thousands except per share amounts
for the years ended 10.31 1997 1996 1995
Net Sales $390,958 $352,843 $351,897
Costs and Expenses
Cost of sales 243,197 215,015 215,934
Selling,
general and
administrative 108,474 103,415 107,113
Restructuring credit - - (2,067)
Interest income (2,397) (1,989) (1,156)
Interest expense 3,603 4,328 5,598
- ---------------------------------------------------------------------------
352,877 320,769 325,422
- ---------------------------------------------------------------------------
Earnings Before
Income Taxes 38,081 32,074 26,475
Income Tax Expense 12,760 10,720 9,094
- ---------------------------------------------------------------------------
Net Earnings $ 25,321 $ 21,354 $ 17,381
Net Earnings
Per Share $ 2.88 $ 2.61 $ 2.53
===========================================================================
see notes to consolidated financial statements
<PAGE>
CONSOLIDATED BALANCE SHEET
dollars in thousands except share and per share amounts
10.31 1997 1996
Assets
CURRENT ASSETS
Cash and equivalents $ 56,045 $ 46,436
Accounts receivable,
net of allowances of
$2,860 and $4,084 67,520 69,120
Inventories 53,386 45,399
Deferred income taxes 14,186 15,321
Prepaid expenses 3,290 2,504
- -------------------------------------------------------------------------------
Total Current Assets 194,427 178,780
- -------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land 2,885 3,619
Buildings 47,899 43,875
Machinery and equipment 124,831 113,116
- -------------------------------------------------------------------------------
175,615 160,610
Accumulated depreciation 117,239 106,813
- -------------------------------------------------------------------------------
58,376 53,797
Intangibles, net
and Other Assets 37,044 44,069
- -------------------------------------------------------------------------------
$289,847 $276,646
===============================================================================
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 20,475 $ 20,836
Accrued liabilities 70,120 68,492
Credit facilities 2,467 5,242
Current maturities
of long-term debt 6,386 6,660
Federal and foreign income taxes 1,472 4,105
- -------------------------------------------------------------------------------
Total Current Liabilities 100,920 105,335
- -------------------------------------------------------------------------------
Long-Term Debt 23,209 29,007
SHAREHOLDERS' EQUITY
Common stock, par value
$.20 per share, authorized
30,000,000 shares, issued
and outstanding 8,642,911
and 8,501,668 shares 1,729 1,700
Capital in excess of par value 48,559 48,417
Retained earnings 119,007 93,686
Cumulative
translation adjustment (3,577) (1,499)
- -------------------------------------------------------------------------------
Total Shareholders' Equity 165,718 142,304
- -------------------------------------------------------------------------------
$289,847 $276,646
===============================================================================
see notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
dollars in thousands
for the years ended 10.31 1997 1996 1995
CASH FLOWS PROVIDED (USED)
BY OPERATING ACTIVITIES
Net earnings $ 25,321 $ 21,354 $ 17,381
Restructuring credit - - (2,067)
Depreciation and amortization 17,404 16,269 16,599
Deferred income taxes 4,764 (413) (2,969)
Working capital
changes, net of
effect of acquisitions
Accounts receivable (436) (4,319) 280
Inventories (8,947) (2,694) (9,496)
Prepaid expenses (862) (291) (176)
Accounts payable 447 (2,399) 4,121
Accrued liabilities 484 605 7,196
Federal and foreign
income taxes (2,611) 1,886 897
Other, net (1,099) 2,411 882
- -------------------------------------------------------------------------------
34,465 32,409 32,648
- -------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED)
BY INVESTING ACTIVITIES
Capital expenditures (17,390) (17,203) (11,461)
Capital dispositions 1,820 1,054 3,773
Acquisitions - (20,485) -
- -------------------------------------------------------------------------------
(15,570) (36,634) (7,688)
- -------------------------------------------------------------------------------
CASH FLOWS PROVIDED (USED)
BY FINANCING ACTIVITIES
Net change in
credit facilities (2,417) (2,214) 7,483
Repayment of
long-term debt (5,931) (6,812) (19,837)
Net proceeds
provided by sale
of common stock - 38,365 -
- -------------------------------------------------------------------------------
(8,348) 29,339 (12,354)
- -------------------------------------------------------------------------------
Effect of exchange rates (938) (775) 415
- -------------------------------------------------------------------------------
Net increase in
cash and equivalents 9,609 24,339 13,021
Cash and equivalents
- beginning of year 46,436 22,097 9,076
- -------------------------------------------------------------------------------
Cash and equivalents
- end of year $ 56,045 $ 46,436 $ 22,097
===============================================================================
SUPPLEMENTAL
CASH FLOW INFORMATION
Cash paid during
the year for
Interest $ 3,720 $ 4,480 $ 4,577
Income taxes 7,015 6,357 10,452
see notes to consolidated financial statements
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
dollars in thousands
for the years ended 10.31 1997 1996 1995
COMMON STOCK,
PAR VALUE
$0.20 PER SHARE
Beginning of year $ 1,700 $ 1,328 $ 1,302
1,800,000
shares issued - 360 -
Shares issued under
stock option plans 29 12 26
- -------------------------------------------------------------------------------
End of year 1,729 1,700 1,328
- -------------------------------------------------------------------------------
CAPITAL IN EXCESS
OF PAR VALUE
Beginning of year 48,417 10,390 10,482
1,800,000
shares issued - 38,005 -
Shares issued under
stock option plans 142 22 (92)
- -------------------------------------------------------------------------------
End of year 48,559 48,417 10,390
- -------------------------------------------------------------------------------
RETAINED EARNINGS
Beginning of year 93,686 72,332 54,951
Net earnings 25,321 21,354 17,381
- -------------------------------------------------------------------------------
End of year 119,007 93,686 72,332
- -------------------------------------------------------------------------------
CUMULATIVE FOREIGN
CURRENCY
TRANSLATION
ADJUSTMENTS
Beginning of year (1,499) (344) (1,244)
Change in
foreign currency
translation (2,078) (1,155) 900
- -------------------------------------------------------------------------------
End of year (3,577) (1,499) (344)
- -------------------------------------------------------------------------------
Shareholders' Equity $165,718 $142,304 $83,706
===============================================================================
see notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ACCOUNTING POLICIES
NATURE OF OPERATIONS
Esterline Technologies Corporation (the Company) - through
its 12 separate operating units - designs, manufactures and
markets a broad array of capital-intensive engineered
products. The Company principally serves the aerospace and
defense industry, electronic equipment manufacturers, metal
fabricators and general manufacturing industries throughout
the world.
BASIS OF PRESENTATION
The consolidated financial statements include all
subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Classifications have
been changed for certain amounts in the preceding period to
conform with the current year's presentation.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period.
FOREIGN CURRENCY TRANSLATION
Foreign currency assets and liabilities are translated into
their U.S. dollar equivalents based on year-end exchange
rates. Revenue and expense accounts are generally
translated at average exchange rates. Aggregate exchange
gains and losses arising from the translation of foreign
assets and liabilities are included in shareholders' equity.
Transaction gains and losses are included in income and have
not been significant in amount.
INVENTORIES
Inventories are stated at the lower of cost or market. Two
subsidiaries value their inventories under the last-in,
first-out (LIFO) method while the remainder use the
first-in, first-out (FIFO) method. Inventory cost includes
material, labor and factory overhead.
RESEARCH, DEVELOPMENT AND RELATED ENGINEERING COSTS
Research, development and related engineering costs
approximated $17,556,000, $15,373,000 and $16,638,000 in
1997, 1996 and 1995, respectively, and are generally
expensed as incurred.
PROPERTY, PLANT AND EQUIPMENT, AND DEPRECIATION
Property, plant and equipment is carried at cost and
includes expenditures for major improvements. Depreciation
is provided generally on the straight-line method. For
income tax purposes, depreciation is computed using various
methods prescribed by the taxing authorities.
INTANGIBLES
Intangible assets arise primarily from business acquisitions
and include the cost of purchased businesses in excess of
amounts assigned to identifiable assets. Intangible assets
are being amortized over estimated lives of up to 30 years.
ASSET VALUATION
The carrying amount of long-lived assets is reviewed
periodically. If the asset carrying amount is not
recoverable, the asset is considered to be impaired and the
carrying amount is adjusted.
ENVIRONMENTAL
Environmental exposures are provided for in total at the
time they are known to exist or are considered reasonably
probable and estimable. No provision has been recorded for
environmental remediation costs which could result from
changes in laws or other circumstances currently not
contemplated by the Company.
<PAGE>
EARNINGS PER SHARE
Earnings per share is computed using the weighted average
number of common and common equivalent shares outstanding
during each year. The weighted average number of shares
were 8,804,000, 8,167,000 and 6,870,000 in 1997, 1996 and
1995, respectively.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with
maturities of three months or less. Fair value of cash
equivalents approximates carrying value.
2.
INVENTORIES
Inventories at October 31 consisted of the following:
dollars in thousands 1997 1996
Raw materials and
purchased parts $17,502 $15,880
Work in process 26,191 23,195
Finished goods 9,693 6,324
------------------------------------------------------------
$53,386 $45,399
============================================================
Inventories stated under the last-in, first-out method totaled
$11,945,000 and $9,653,000 at October 31, 1997 and 1996,
respectively. Had the first-in, first-out method been used,
these inventories would have been $5,274,000 and $4,450,000
higher than reported at October 31, 1997 and 1996, respectively.
3.
ACCRUED LIABILITIES
Accrued liabilities at October 31 consisted of the
following:
dollars in thousands 1997 1996
Payroll and other compensation $19,354 $19,670
Self-insurance 6,329 8,649
Interest 2,244 2,321
Warranties 9,356 9,065
State and other tax accruals 10,195 8,554
Other 22,642 20,233
-------------------------------------------------------------
$70,120 $68,492
=============================================================
<PAGE>
4.
RETIREMENT BENEFITS
Pension benefits are provided for substantially all U.S.
employees under contributory and non-contributory pension and
other plans, and are based on years of service and five-year
average compensation. The Company makes actuarially computed
contributions as necessary to adequately fund benefits. The
actuarial computations assumed discount rates for benefit
obligations on plan assets of 7.5% and annual compensation
increases of 5%. The expected long-term rate of return on plan
assets was assumed at 8.5% for 1997 and 7.5% for both 1996 and
1995. Plan assets primarily consist of publicly traded common
stocks, bonds and government securities.
Total pension expense for all benefit plans, including defined
benefit plans, was $1,758,000, $2,329,000 and $2,016,000 for the
years ended October 31, 1997, 1996 and 1995, respectively. Net
periodic pension expense for the Company's defined benefit plans
for the years ended October 31 consisted of the following:
dollars in thousands 1997 1996 1995
Service cost
- benefits earned
during the year $ 3,150 $ 2,871 $ 2,316
Interest cost on
projected benefit
obligation 5,598 5,154 4,698
Actual return on
plan assets -
investment gains (26,279) (8,074) (13,496)
Net amortization
and deferral 18,297 1,319 7,599
---------------------------------------------------------------
Net pension expense $ 766 $ 1,270 $ 1,117
===============================================================
The funded status of the defined benefit pension plan at
October 31 was as follows:
dollars in thousands 1997 1996
Plan assets at fair value $113,001 $91,509
Projected benefit obligation
for service rendered to date 77,751 71,066
---------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 35,250 20,443
Unrecognized net gain (23,091) (7,576)
Unrecognized transition asset (1,444) (1,925)
---------------------------------------------------------------
Prepaid pension expense,
included in other assets $ 10,715 $10,942
===============================================================
Actuarial present value
of accumulated benefit
obligation, including
vested benefits of
$67,630 and $62,012 $ 67,744 $62,329
===============================================================
The Company also has an unfunded supplemental retirement plan for
key executives providing for periodic payments upon retirement.
The related accrued pension liability was $3,169,000 and
$2,630,000 as of October 31, 1997 and 1996, respectively.
<PAGE>
5.
INCOME TAXES
Income tax expense (benefit) for the years ended October 31
consisted of the following:
dollars in thousands 1997 1996 1995
Current $ 7,996 $11,133 $12,063
Deferred 4,764 (413) (2,969)
---------------------------------------------------------------
$12,760 $10,720 $ 9,094
===============================================================
Primary components of the Company's deferred tax assets and
(liabilities) for the years ended October 31 resulted from
temporary tax differences associated with the following:
dollars in thousands 1997 1996
Reserves and liabilities $15,776 $17,546
Employee benefits 4,067 4,007
Foreign tax loss carryforward - 1,430
---------------------------------------------------------------
Total deferred tax assets 19,843 22,983
Depreciation and amortization (4,806) (2,902)
Retirement benefits (2,754) (3,034)
---------------------------------------------------------------
Total deferred tax liabilities (7,560) (5,936)
---------------------------------------------------------------
$12,283 $17,047
===============================================================
A valuation allowance was not required due to the nature of and
circumstances associated with the temporary tax differences.
A reconciliation of the United States federal statutory income
tax rate to the effective income tax rate for the years ended
October 31 was as follows:
1997 1996 1995
U.S. statutory
income tax rate 35.0% 35.0% 35.0%
State income taxes 2.0 2.8 3.5
Foreign tax rates 0.5 (0.3) (1.5)
Foreign sales corporation (1.8) (2.1) (1.7)
Tax exempt interest (0.7) (1.5) -
Other, net (1.5) (0.5) (1.0)
---------------------------------------------------------------
Effective income
tax rate 33.5% 33.4% 34.3%
===============================================================
No provision for federal income taxes has been made on
accumulated earnings of foreign subsidiaries, since such earnings
have either been permanently reinvested or would be substantially
offset by foreign tax credits.
<PAGE>
6.
DEBT
Long-term debt at October 31 consisted of the following:
dollars in thousands 1997 1996
8.75% Senior Notes, due 2002 $28,571 $34,285
Other 1,024 1,382
---------------------------------------------------
29,595 35,667
Less current maturities 6,386 6,660
---------------------------------------------------
$23,209 $29,007
===================================================
The Senior Notes are unsecured and payable in equal annual
installments. Interest is payable semi-annually in January and
July of each year.
Maturities of long-term debt are as follows:
dollars in thousands
1998 $ 6,386
1999 5,788
2000 5,824
2001 5,819
2002 5,778
---------------------------------------------------
$ 29,595
===================================================
Short-term credit facilities at October 31 consisted of the
following:
1997 1996
dollars outstanding interest outstanding interest
in thousands borrowings rate borrowings rate
-------------------------------------------------------------
U.S. dollar $ - - $ - -
Foreign 2,467 7.7% 5,242 7.8%
-------------------------------------------------------------
$2,467 $5,242
=============================================================
The Company's primary U.S. dollar credit facility totals
$35,000,000 through a group of banks. The credit agreement is
unsecured and interest is based on standard inter-bank offering
rates. An additional $8,000,000 of unsecured foreign currency
credit facilities have been extended by foreign banks for a total
of $43,000,000 available companywide. The underlying agreements
contain various covenant restrictions which include maintenance
of net worth, payment of dividends, interest coverage and
limitations on additional borrowings. The Company is in
compliance with these covenants. Available credit under the
above credit facilities was $38,333,000 at October 31, 1997, when
reduced by outstanding borrowings and letters of credit of
$2,200,000.
The fair value of the Company's long-term debt and short-term
borrowings was estimated at $32,800,000 and $41,900,000 at
October 31, 1997 and 1996, respectively. These estimates were
derived using interest rates currently available to the Company
for issuance of debt with similar terms and remaining maturities.
<PAGE>
7.
LEASE COMMITMENTS
Net rental expense for operating leases totaled $3,754,000,
$3,159,000 and $3,103,000 in 1997, 1996 and 1995, respectively.
The Company's rental commitments for noncancelable operating
leases with a duration in excess of one year are as follows:
dollars in thousands
1998 $ 3,588
1999 2,777
2000 2,294
2001 2,202
2002 2,216
2003 and thereafter 7,414
---------------------------------------------------
$ 20,491
===================================================
As of October 31, 1997, the Company has accrued approximately
$4.2 million relating to a commitment to execute a capital lease
obligation for a new plant facility. The lease, which commences
upon the completion of the facility in December 1997, will have a
12 year term and result in a total obligation of approximately
$4.4 million.
8.
STOCK OPTION PLANS
The Company provides a non-qualified stock option plan for
officers and key employees. At October 31, 1997, the Company had
956,625 shares reserved for issuance to officers and key
employees, of which 361,625 shares were available for future
grant.
The Board of Directors authorized the Compensation and Stock
Option Committee to administer option grants, and their terms,
under both plans. Awards under the 1997 Plan may be granted to
eligible employees of the Company over a 10-year period ending
March 4, 2007. Options granted under the plans become
exercisable over a period of four years following the date of
grant and expire on the tenth anniversary of the grant. Option
exercise prices are equal to the fair value of the Company's
common stock on the date of grant.
The following table summarizes the changes in outstanding
options granted under the Company's stock option plans:
<TABLE>
<CAPTION>
1997 1996 1995
weighted weighted weighted
average average average
shares price shares price shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning
of year 758,125 $12.179 754,625 $ 9.786 1,038,500 $ 8.907
Granted 135,500 28.608 129,000 22.309 105,000 13.435
Exercised (294,875) 10.007 (121,750) 8.225 (381,375) 8.406
Cancelled (3,750) 7.500 (3,750) 7.625 (7,500) 9.313
- ---------------------------------------------------------------------------------------
Outstanding,
end of
year 595,000 $16.944 758,125 $12.179 754,625 $ 9.786
=======================================================================================
Exercisable,
end of
year 287,375 $11.022 475,250 $ 9.808 470,375 $ 9.311
=======================================================================================
</TABLE>
The Company accounts for its stock-based compensation plans in
accordance with Accounting Principles Board Opinion No. 25.
Additional disclosures as required under the
<PAGE>
Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," are included below.
The Black-Scholes option-pricing model was used to calculate the
estimated compensation expense that would have been recognized
under these guidelines. If the Company had elected to recognize
stock-based compensation expense based on the fair value of
options at the grant date, net income and earnings per share
would have been as follows:
dollars in thousands, except per share amounts
years ended 10.31 1997 1996
Net earnings as reported $25,321 $21,354
Pro forma net earnings 24,414 20,864
Earnings per share as reported $ 2.88 $ 2.61
Pro forma earnings per share 2.80 2.56
The pro forma disclosures presented above include the fair value
compensation expense for all options that would have been
amortized during 1997 and 1996. If only options granted during
1997 and 1996 were included, as prescribed by SFAS No. 123, pro
forma net income would have been $24,511,000 and $21,085,000,
respectively. Earnings per share for 1997 and 1996 would have
been $2.86 and $2.66, respectively.
The weighted-average Black-Scholes value of options granted
during 1997 and 1996 were $14.216 and $11.673, respectively. The
weighted-average assumptions used in performing this calculation
at October 31, 1997 and 1996 were as follows: risk-free interest
rate of 5.81% and 6.16%, respectively; expected volatility of
41.6% and 44.6%, respectively. An expected holding period of 6
years with no dividend yield was used for both years.
The following table summarizes information for stock options
outstanding at October 31, 1997:
options outstanding options exercisable
- -----------------------------------------------------------------------------
weighted
average weighted weighted
range of remaining average average
exercise prices shares life (years) price shares price
$ 7.375 - $11.249 186,500 5.713 $ 8.062 163,625 $ 8.125
11.250 - 17.749 136,500 6.140 12.387 89,000 12.070
17.750 - 26.499 136,500 8.441 22.059 34,750 21.981
26.500 - 39.750 135,500 9.271 28.608 - -
-------
595,000 287,375
======= =======
9.
CAPITAL STOCK
The authorized capital stock of the Company consists of
500,000 shares of preferred stock, including 25,000 shares
($100 par value) and 475,000 shares ($1.00 par value) issuable
in series, and 30,000,000 shares of common stock ($.20 par
value). At October 31, 1997, there were no shares of
preferred stock outstanding.
On February 8, 1996 the Company completed the public
offering of 1.8 million shares of common stock priced at $23
per share, generating net proceeds of $38.4 million. These
funds provide additional financial resources for general
corporate purposes, including the acquisition of other
companies.
The Company has a Shareholder Rights Plan providing for
the distribution of one Preferred Stock Purchase Right (Right)
for each share of common stock held. Each Right entitles the
holder to purchase one-one hundredth of a share of Series A
Serial Preferred Stock at an exercise price of $56. The
Rights expire December 23, 2002.
The Rights will be exercisable and transferable apart
from the common stock only if a person or group acquires
beneficial ownership of 10% or more of the Company's common
stock or commences a tender offer or exchange offer which
would result in a person or group beneficially owning 10% or
more of the Company's common stock. The Rights will be
redeemable by the Company for $.01
<PAGE>
each at any time prior to the tenth day after an announcement
that a person or group beneficially owns 10% or more of the
common stock. Upon the occurrence of certain events, the
holder of a Right can purchase, for the then current exercise
price of the Right, shares of common stock of the Company (or
under certain circumstances, as determined by the Board of
Directors, cash, other securities or property) having a value
of twice the Right's exercise price. Upon the occurrence of
certain other events, the holder of each Right would be
entitled to purchase, at the exercise price of the Right,
shares of common stock of a corporation or other entity
acquiring the Company or engaging in certain transactions
involving the Company, that has a market value of twice the
Right's exercise price.
10.
CONTINGENCIES
The Company has various lawsuits and claims, both offensive and
defensive, and contingent liabilities arising from the conduct
of business, none of which, in the opinion of management, is
expected to have a material effect on the Company's financial
position or results of operations.
11.
ACQUISITIONS
On August 1, 1996, the Company acquired all of the operating
assets of Mason Electric Co. The purchase method of
accounting was used, with the results of operations included
since the date of acquisition. In 1996, the Company also
acquired a noncontrolling equity interest in a company, and
executed an agreement to acquire a product line. The total
purchase price, including closing and other direct costs of
these purchase transactions was approximately $22,000,000 and
included excess of cost over identifiable tangible and
intangible assets of approximately $12,000,000.
On a pro forma basis, prepared as though the business
combination had occurred at the beginning of fiscal 1995,
consolidated revenues would be $365,108,000 and $365,685,000,
net earnings would be $21,910,000 and $17,729,000, and net
earnings per share would be $2.68 and $2.58, for the years
ended October 31, 1996 and 1995, respectively. These pro
forma results are unaudited, have been prepared for
comparative purposes only, and do not purport to be
indicative of what would have occurred had the acquisition
been made at the beginning of 1995, or of results which may
occur in the future.
12.
RESTRUCTURING PROVISION
The Company recorded a restructuring charge in the fourth
quarter of 1993. In the third quarter of fiscal year 1995 the
Company recorded a credit of $2,067,000 ($1,400,000, or
$.20 per share, net of income tax) representing the substantial
completion of the 1993 restructuring.
13.
BUSINESS SEGMENT INFORMATION
Details of the Company's operations by business segment for
the years ended October 31 were as follows:
<PAGE>
dollars in thousands 1997 1996 1995
Net Sales
Automation $150,522 $146,698 $156,116
Aerospace
and Defense 140,200 111,691 98,027
Instrumentation 100,236 94,454 97,754
----------------------------------------------------------------------
$390,958 $352,843 $351,897
======================================================================
Earnings Before
Income Taxes
Automation $ 15,450 $ 23,684 $ 24,215
Aerospace
and Defense 22,273 13,649 6,493
Instrumentation 9,889 5,507 6,627
----------------------------------------------------------------------
Operating
Earnings $ 47,612 $ 42,840 $ 37,335
======================================================================
Corporate expense (8,325) (8,427) (8,485)
Restructuring
credit - - 2,067
Interest income 2,397 1,989 1,156
Interest expense (3,603) (4,328) (5,598)
----------------------------------------------------------------------
$ 38,081 $ 32,074 $ 26,475
======================================================================
Identifiable Assets
Automation $ 67,957 $ 67,360 $ 57,849
Aerospace
and Defense 88,399 86,303 68,785
Instrumentation 50,691 46,507 45,412
Corporate(1) 82,800 76,476 53,668
----------------------------------------------------------------------
$289,847 $276,646 $225,714
======================================================================
Capital Expenditures
Automation $ 4,301 $ 7,379 $ 5,848
Aerospace
and Defense 9,851 3,414 2,750
Instrumentation 6,995 5,926 2,833
Corporate 461 484 30
----------------------------------------------------------------------
$ 21,608 $ 17,203 $ 11,461
======================================================================
Depreciation and
Amortization
Automation $ 5,037 $ 4,667 $ 4,388
Aerospace
and Defense 7,144 5,705 6,002
Instrumentation 4,814 5,618 5,754
Corporate 409 279 455
----------------------------------------------------------------------
$ 17,404 $ 16,269 $ 16,599
======================================================================
(1) Primarily cash, prepaid pension expense (see Note 4) and net deferred
tax assets (see Note 5).
<PAGE>
The Company's operations by geographic area for the years ended
October 31 were as follows:
dollars in thousands 1997 1996 1995
NET SALES
Domestic
Unaffiliated
customers
- U.S. $261,391 $230,286 $227,810
Unaffiliated
customers
- export 67,194 57,130 61,051
Intercompany 10,202 11,367 11,132
--------------------------------------------------------------
338,787 298,783 299,993
--------------------------------------------------------------
Foreign
Unaffiliated
customers 62,373 65,427 63,036
Intercompany 11,391 1,900 1,073
--------------------------------------------------------------
73,764 67,327 64,109
--------------------------------------------------------------
Eliminations (21,593) (13,267) (12,205)
--------------------------------------------------------------
Net Sales $390,958 $352,843 $351,897
==============================================================
OPERATING EARNINGS(1)
Domestic $ 42,905 $ 41,227 $ 38,238
Foreign 3,999 1,195 (80)
Eliminations 708 418 (823)
--------------------------------------------------------------
$ 47,612 $ 42,840 $ 37,335
==============================================================
IDENTIFIABLE ASSETS(2)
Domestic $164,467 $157,069 $134,897
Foreign 42,580 43,101 37,149
--------------------------------------------------------------
$207,047 $200,170 $172,046
==============================================================
(1) Before restructuring credit and corporate expense, shown on
page 52.
(2) Excludes Corporate, shown on page 52.
The Company's principal foreign operations consist of
manufacturing facilities located in France, Spain and Mexico, and
include sales and service operations located in England, Germany,
Italy, Japan, Singapore and France.
The net sales above are based upon geographic origin of sale.
Intercompany sales are made at selling prices comparable with
sales to unaffiliated customers. Sales to any single customer or
government entity did not exceed 10% of consolidated sales.
Product lines contributing more than 10% of total sales in any
of the years ended October 31 were as follows:
1997 1996 1995
Printed circuit board
drilling equipment 22% 22% 26%
Aerospace switches
and indicators 12% 9% 8%
Gauge products 11% 12% 12%
<PAGE>
14.
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial
information:
dollars in thousands, except per share amounts
year ended 10.31.97 fourth third second first
Net sales $108,741 $102,068 $97,951 $82,198
Gross margin 39,130 37,822 38,720 32,089
Net earnings 8,035 6,925 6,602 3,759
Net earnings
per share $ .91 $ .79 $ .75 $ .43
year ended 10.31.96
Net sales $ 98,142 $ 81,729 $88,975 $83,997
Gross margin 36,519 32,205 35,802 33,302
Net earnings 6,782 5,028 6,195 3,349
Net earnings
per share(1) $ .78 $ .58 $ .75 $ .48
(1) The sum of quarterly per share amounts may not equal per
share amounts reported for year-to-date periods. This is due
to changes in the number of weighted-average shares
outstanding for each period.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and the Board of Directors
Esterline Technologies Corporation
Bellevue, Washington
We have audited the accompanying consolidated balance sheets of Esterline
Technologies Corporation and its subsidiaries as of October 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended October 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Esterline Technologies
Corporation and its subsidiaries as of October 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche
DELOITTE & TOUCHE LLP
Seattle, Washington
December 9, 1997
<PAGE>
Exhibit 21
SUBSIDIARIES
The subsidiaries of the Company as of October 31, 1997 are as follows:
Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ ----------------
Armtec Defense Products Co. Delaware
Auxitrol Co. Delaware
Equipment Sales Co. Connecticut
Excellon Automation Co. California
Tulon Co. California
Excellon U.K. California
Excellon Europa GmbH Germany
Amtech Automated Manufacturing Technology, Inc. Utah
Federal Products Co. Delaware
Federal Products U.K. Ltd. Delaware
Hytek Finishes Co. Delaware
Korry Electronics Co. Delaware
Mason Electric Co. Delaware
Midcon Cables Co. Delaware
TA Mfg. Co. California
W.A. Whitney Co. Illinois
Auxitrol Technologies S.A. France
Auxitrol S.A. France
Auxitrol International France
Auxitrol Industries France
The above list excludes certain subsidiaries that, considered in the
aggregate as a single subsidiary, would not constitute a significant subsidiary
as of October 31, 1997.
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
No. 2-89293, No. 33-22321, No. 33-22322, No. 33-37134, No. 33-52851,
No. 33-58281, No. 33-58375 and No. 333-43843 of Esterline Technologies
Corporation on Form S-8 and No. 33-62625 on Form S-3 of our reports dated
December 9, 1997 appearing in and incorporated by reference in this Annual
Report on Form 10-K of Esterline Technologies Corporation for the year ended
October 31, 1997.
/s/ Deloitte & Touche LLP
Seattle, Washington
January 29, 1998
<PAGE>
EXHIBIT 10.16g
ESTERLINE TECHNOLOGIES CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN
FISCAL YEARS 1997 through 1999
PURPOSE OF PLAN
This Plan is for the fiscal years 1997 through 1999 and is intended to provide a
program to retain and compensate Esterline officers and selected senior
executives based on the long-term performance of Esterline Technologies. The
Plan is designed to reward successful employment of Esterline's resources to
achieve superior performance against three broad objectives, specifically:
improvement of shareholder value; specified strategic initiatives; and good
operating performance in relation to a comparable peer group of companies.
MEMBERSHIP IN PLAN
Esterline officers and senior executives shall be eligible for membership in the
Plan after appointment and return of a signed acceptance of the appointment
letter specifying the member's award level each year.
The Plan may be modified, amended or terminated at any time; but any such
modification, amendment or termination shall not, without a member's written
consent, affect his/her incentive compensation accrued prior to such
modification, amendment or termination of the Plan. Nothing in this Plan limits
Esterline from exercising the right to terminate an employee at any time for any
reason.
APPOINTMENTS AND PERFORMANCE TARGETS
Each appointee to the Plan shall be entitled to incentive compensation based on
Esterline's combined annual performance in three equally weighted objective
groups. Each of these groups, in turn is made up of several individual targets
which may be changed by the Compensation Committee of the Board of Directors at
the beginning of any fiscal year. No award will be earned for a target if the
performance is less than minimum. No additional award will be earned for any
performance above the maximum for each target. Awards will be prorated for
other performance levels. However, actual annual payment to each appointee is
subject to an overall maximum of 150% of an individual's annual target award
dollar amount. Additionally, if directed, the above computed awards for plan
members may be further adjusted, up or down, by the Compensation & Stock Option
Committee of the Board of Directors by an amount not to exceed the greater of
25% of an individual's computed award or annual target.
The performance targets for each objective group are:
Objective Group I: Improvement of shareholder value.
Target a. Grow earnings per share; 10% per year.
Target b. Maintain return on equity above 15%
Objective Group II: Specified strategic initiatives.
Target a. Accomplish smooth transition to a new chief executive officer.
<PAGE>
Target b. Maintain a strategic plan that focuses on profitable growth.
Target c. Take appropriate action on under-performing units; and take
action to encourage improved performance by all other units.
Objective Group III: Operating performance compared to a peer group of
companies.
Target a. Change in earnings per share
Target b. Current period return on equity
COMPUTATION OF FOUR-YEAR AWARDS
Esterline's performance is calculated relative to each performance target
individually. Each year the discretionary evaluations of Esterline's
progress toward accomplishment of long-term objectives is made by the
Compensation Committee using the individual targets. Achievement of each
criteria at the target level earns the full targeted weight of the
individual's award for each performance target. (See Attachment A, B, and
C). Overall, annually each individual can only receive 150% of his/her
annual dollar target unless the Compensation Committee makes an overall
adjustment as described above (see "Appointments and Performance Targets").
The Compensation Committee's evaluated performance is recommended to the
Board of Directors for approval before payment.
PAYMENT OF AWARDS
The amount of each annual payment, if any, based on annual evaluation, will be
made prior to the following March 1 after the close of each of the three fiscal
years. These partial payments under this plan, once paid, are not refundable to
Esterline Technologies.
A Plan member must be an employee on October 31, 1997, 1998 or 1999 to receive
payment related to that year. However, if an employee's participation in the
Plan is terminated during any Plan year due to normal retirement, death or
disability, a pro rata share of his/her annual award will be determined after
completion of the incomplete fiscal year, and paid no later than the following
March 1. In the case of death, payments shall be made to his/her estate.
/s/ W. P. Hurlbut
- --------------------------
W. P. Hurlbut
Chairman and
Chief Executive Officer
<PAGE>
ATTACHMENT A
ESTERLINE TECHNOLOGIES CORPORATION
PROPOSED WEIGHTING SYSTEM
LONG-TERM INCENTIVE COMPENSATION
GROUP I OBJECTIVES
(GROUP I WEIGHT AT TARGET PERFORMANCE(1)
=1/3 OF PLAN)
<TABLE>
<CAPTION>
MAXIMUM
OBJECTIVE MINIMUM TARGET 2X TARGET
--------- --------------------- --------------------- ---------------------
Performance Weight Performance Weight Performance Weight
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Ia. EPS no growth = 0% 10% growth= 16 2/3% 20% growth= 33 1/3%
Ib. ROE(2) 7 1/2% return 22 1/2%
or less= 0% 15% return= 16 2/3% return= 33 1/3%
------ ------ ------
0% 33 1/3% 66 2/3%
</TABLE>
(1) Performance prorated between minimum and target, and between maximum and
target.
(2) Based on the average of each year's audited beginning and ending common
shareholder equity, excluding any amounts for any preferred shares.
<PAGE>
ATTACHMENT B
ESTERLINE TECHNOLOGIES CORPORATION
PROPOSED RATING SYSTEM - CONTINUED
GROUP II OBJECTIVES
(GROUP II WEIGHT AT TARGET PERFORMANCE(1)
=1/3 OF PLAN)
<TABLE>
<CAPTION>
MAXIMUM
OBJECTIVE(3) MINIMUM TARGET 2X TARGET
--------- ------------------ ------------------ ------------------
Rating(2) Weight Rating(2) Weight Rating(2) Weight
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
IIa. CEO Transition 0 = 0% 6 = 11.1% 9 = 22.2%
IIb. Maintain Strategic Plan 0 = 0% 6 = 11.1% 9 = 22.2%
IIc. Action RE: Improved
Unit Performance 0 = 0% 6 = 11.1% 9 = 22.2%
-------- -------- --------
0% 33 1/3% 66 2/3%
</TABLE>
(1) Performance prorated between minimum and target, and between maximum and
target.
(2) At each year end, performance for each specific objective is scored/rated
on a scale of "1 to 9".
(3) Objectives renamed to reflect 2/25/97 proposed objectives.
<PAGE>
ATTACHMENT C
ESTERLINE TECHNOLOGIES CORPORATION
PROPOSED WEIGHTING SYSTEM--CONTINUED
GROUP III OBJECTIVES
(GROUP III WEIGHT AT TARGET PERFORMANCE(1)
=1/3 OF PLAN)
<TABLE>
<CAPTION>
MAXIMUM
OBJECTIVE MINIMUM TARGET 2X TARGET
--------- --------------------- --------------------- ---------------------
Company Company Company
vs. Peer vs. Peer vs. Peer
Performance Weight Performance Weight Performance Weight
------------ ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
IIIa. vs. Peer EPS Behind peers Ahead of
Change(2) by 50% or Match peers by 50%
more= 0% peers= 16 2/3% or more= 33 1/3%
IIIb. vs. Peer ROE(2) Behind peers Ahead of
by 50% or Match peers by 50%
more= 0% peers= 16 2/3% or more= 33 1/3%
----- ------ ------
0% 33 1/3% 66 2/3%
</TABLE>
(1) Performance prorated between minimum and target, and between maximum and
target.
(2) For Group III targets the "peer group" shall be computed by equal weighting
of the following industries as reported by Value Line: Machine Tool,
Computer and Peripherals, Electronics, Aerospace/Defense.
<PAGE>
ATTACHMENT D
ESTERLINE TECHNOLOGIES CORPORATION
LONG-TERM INCENTIVE COMPENSATION PLAN
PERCENTAGE OF APPOINTEE'S AWARD EARNED AT VARYING
LEVELS OF COMPANY PERFORMANCE
<TABLE>
<CAPTION>
Performance % of Award % of Award % of Award
Relative to from Sum of from Sum of from Sum of Total % of
Target Level Group I Targets Group II Targets Group III Targets Award Earned
------------ --------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
Less than
Minimum 0% 0% 0% 0%
Minimum Level 0% 0% 0% 0%
Target Level 33 1/3% 33 1/3% 33 1/3% 100%
Maximum Level 66 2/3% 66 2/3% 66 2/3% 200%
</TABLE>
*However, each actual annual payment to an appointee is subject to an overall
maximum of 150% of an individual's target award dollar amount.
<PAGE>
EXHIBIT 10.20d
ESTERLINE TECHNOLOGIES CORPORATION
CORPORATE MANAGEMENT INCENTIVE COMPENSATION PLAN
FISCAL YEAR 1998
PURPOSE OF PLAN
This Plan is intended to reward eligible officers and key employees of
Esterline's corporate staff for successful management in fiscal year 1998. It
is believed that the Plan will provide incentives to put forth maximum efforts
to employ Esterline's assets effectively.
MEMBERSHIP IN PLAN
Officers and key employees of the Esterline corporate staff shall be eligible
for membership in the Plan after appointment and return of a signed acceptance
of the appointment letter.
The Plan may be modified, amended or terminated at any time; but any such
modification, amendment or termination shall not, without a member's written
consent, affect his/her incentive compensation accrued prior to such
modification, amendment or termination of the Plan. Nothing in this Plan limits
Esterline from exercising the right to terminate an employee at any time for any
reason.
TERMS AND CONDITIONS
1. Individual participants payouts will vary from 5% to 60%, as stipulated in
his/her appointment letter, of fiscal year-end 1998 salary. These target
nomination awards will be earned if earnings per share of $3.14 are
achieved.
2. Actual earnings per share will be as audited before extraordinary items for
the year ending October 31, 1998.
3. Awards will be pro-rated for performance and will be interpolated on the
following basis.
EPS AWARD
--------------------- ---------
Below $3.14 Pro-rata share of target award
At $3.14 performance 100% of target award
120% or more of $3.14 150% of target award
4. Actual individual payouts earned from earnings per share computations are
limited to 150% of target nomination.
<PAGE>
5. If directed, computed awards for officers may be further adjusted, up or
down, by the Compensation & Stock Option Committee of the Board of
Directors by an amount not to exceed greater than 25% of the computed award
or target award for the Plan, whichever is greater.
6. Payout of awards will be no later than March 1, 1999 if the auditors have
issued an opinion; otherwise payout is delayed until an opinion is issued
for FY 1998.
7. If a Plan member is terminated for any reason other than retirement, or
death or disability prior to the end of fiscal 1998, he/she shall not
receive the benefits provided by the Plan. (However, Esterline retains the
right to grant a pro-rata award to a terminated employee, based upon salary
earned prior to termination, except those terminated for cause.)
a. If the company in its sole discretion specifically determines that the
employment of a Plan member has been terminated prior to the end of
such fiscal year because of retirement or disability, the Plan member
will be paid a pro-rata amount based on the time he/she was a Plan
member prior to his/her termination for disability.
b. For any Plan member who dies prior to the end of Esterline's fiscal
1998, a pro-rata amount based on the time he/she was a Plan member
prior to the date of death will be paid to his/her estate.
8. An employee who becomes a Plan member as of a date after the beginning of
Esterline's fiscal 1998 will be paid a pro-rata amount based on the time
the employee participates in the Plan.
/s/ Wendell P. Hurlbut
- -----------------------
Wendell P. Hurlbut
Chairman and Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ESTERLINE TECHNOLOGIES CORPORATION CONSOLIDATED BALANCE AT OCTOBER 31, 1997 AND
THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN IT'S ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 56,045
<SECURITIES> 0
<RECEIVABLES> 70,380
<ALLOWANCES> 2,860
<INVENTORY> 53,386
<CURRENT-ASSETS> 194,427
<PP&E> 175,615
<DEPRECIATION> 117,239
<TOTAL-ASSETS> 289,847
<CURRENT-LIABILITIES> 100,920
<BONDS> 23,209
0
0
<COMMON> 1,729
<OTHER-SE> 163,989
<TOTAL-LIABILITY-AND-EQUITY> 289,847
<SALES> 390,958
<TOTAL-REVENUES> 390,958
<CGS> 243,197
<TOTAL-COSTS> 243,197
<OTHER-EXPENSES> 108,474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,206
<INCOME-PRETAX> 38,081
<INCOME-TAX> 12,760
<INCOME-CONTINUING> 25,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,321
<EPS-PRIMARY> 2.88
<EPS-DILUTED> 2.87
</TABLE>
