<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998
----------------
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
--------------
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.
Yes [X] No [ ]
As of June 11, 1998, 17,288,562 shares of the issuer's common stock were
outstanding.
<PAGE> 1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEET
As of April 30, 1998 and October 31, 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 30, October 31,
1998 1997
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS
- ------
Current Assets
Cash and equivalents $ 38,137 $ 56,045
Accounts receivable, net of allowances of $2,793 and
$2,860 for doubtful accounts 67,132 67,520
Inventories
Raw materials and purchased parts 24,502 17,502
Work in process 31,376 26,191
Finished goods 10,955 9,693
--------- ---------
66,833 53,386
--------- ---------
Deferred income taxes 12,689 14,186
Prepaid expenses 4,164 3,290
--------- ---------
Total Current Assets 188,955 194,427
--------- ---------
Property, Plant and Equipment 183,388 175,615
Accumulated depreciation 119,939 117,239
--------- ---------
63,449 58,376
--------- ---------
Intangibles, net and Other Assets 49,447 37,044
--------- ---------
$ 301,851 $ 289,847
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
Accounts payable $ 20,102 $ 20,475
Accrued liabilities 60,331 66,111
Credit facilities 8,056 2,467
Current maturities of long-term obligations 5,879 6,386
Federal and foreign income taxes 2,894 1,472
--------- ---------
Total Current Liabilities 97,262 96,911
--------- ---------
<PAGE> 2A
Long-Term Obligations, net of current maturities 27,170 27,218
Shareholders' Equity
Common stock, par value $.20 per share, authorized
30,000,000 shares, issued and outstanding 17,288,562
and 17,285,822 shares 3,458 3,457
Capital in excess of par value 46,869 46,831
Retained earnings 131,755 119,007
Cumulative translation adjustment (4,663) (3,577)
--------- ---------
Total Shareholders' Equity 177,419 165,718
--------- ---------
$ 301,851 $ 289,847
========= =========
</TABLE>
<PAGE> 2B
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Six Months ended April 30, 1998 and 1997
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------- ---------------------
1998 1997 1998 1997
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 114,551 $ 97,951 $ 210,281 $ 180,149
Costs and Expenses
Cost of sales 70,402 59,231 129,425 109,340
Selling, general and administrative 31,591 28,000 60,724 54,191
Interest income (403) (474) (1,003) (1,110)
Interest expense 773 947 1,597 1,904
--------- -------- --------- ---------
102,363 87,704 190,743 164,325
--------- -------- --------- ---------
Earnings Before Income Taxes 12,188 10,247 19,538 15,824
Income Tax Expense 4,276 3,645 6,790 5,463
--------- -------- --------- ---------
Net Earnings $ 7,912 $ 6,602 $ 12,748 $ 10,361
========= ======== ========= =========
Net Earnings Per Share - Basic $ .46 $ .39 $ .74 $ .61
========= ======== ========= =========
Net Earnings Per Share - Diluted $ .45 $ .38 $ .72 $ .59
========= ======== ========= =========
</TABLE>
<PAGE> 3
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended April 30, 1998 and 1997
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Cash Flows Provided (Used) by Operating Activities
Net earnings $ 12,748 $ 10,361
Depreciation and amortization 8,851 8,633
Deferred income taxes 332 1,440
Working capital changes
Accounts receivable 330 5,053
Inventories (10,214) (8,550)
Prepaid expenses (897) (998)
Accounts payable (216) 3,354
Accrued liabilities (4,651) (8,593)
Federal and foreign income taxes 1,450 (2,133)
Other, net 1,020 1,580
-------- --------
8,753 10,147
-------- --------
Cash Flows Provided (Used) by Investing Activities
Capital expenditures (12,766) (7,817)
Capital dispositions 1,548 836
Acquisitions (20,130) --
-------- --------
(31,348) (6,981)
-------- --------
Cash Flows Provided (Used) by Financing Activities
Net change in credit facilities 5,591 555
Repayment of long-term obligations (393) (433)
-------- --------
5,198 122
-------- --------
Effect of Exchange Rates (511) (1,086)
-------- --------
Net Increase (Decrease) in Cash and Equivalents (17,908) 2,202
Cash and Equivalents - Beginning of Period 56,045 46,436
-------- --------
Cash and Equivalents - End of Period $ 38,137 $ 48,638
======== ========
Supplemental Cash Flow Information
Cash paid during the period for
Interest expense $ 1,603 $ 1,869
Income taxes 4,358 4,848
</TABLE>
<PAGE> 4
ESTERLINE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended April 30, 1998 and 1997
1. The consolidated balance sheet as of April 30, 1998 and the consolidated
statements of operations and cash flows for the three and six months
ended April 30, 1998 and 1997 are unaudited, but in the opinion of
management all adjustments necessary to present fairly the financial
statements referred to above have been made. The results of operations
and cash flows for the interim periods presented are not necessarily
indicative of results for the full year.
2. The notes to the consolidated financial statements in the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1997
provide a summary of significant accounting policies and additional
financial information that should be read in conjunction with this
Form 10-Q.
3. Classifications have been changed for certain amounts in the preceding
period to conform to the current period's financial presentation.
<PAGE> 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
Certain sections in this Form 10-Q 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 regarding matters that could significantly
affect expected results, including information about industry trends, growth,
orders, capital expenditures and backlog. Thus, actual results may vary
materially from these forward-looking statements depending on a variety of
factors which include, but are not limited to, changes in the
telecommunications, computer, aerospace and defense markets; fluctuations in
foreign currency rates; reductions, terminations or changes in U.S. Government
defense budget priorities; variability of capital equipment markets and other
risks which are detailed in other Company documents and reports filed with the
Securities and Exchange Commission. 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.
Results of Operations
- ---------------------
Quarter Ended April 30, 1998 Compared to Quarter Ended April 30, 1997
Net sales for the quarter ended April 30, by Group, were as follows:
(In thousands)
<TABLE>
<CAPTION>
Increase from
prior year 1998 1997
------------- -------- --------
<S> <C> <C> <C>
Automation 7% $ 40,775 $ 37,932
Aerospace and Defense 20% 42,354 35,347
Instrumentation 27% 31,422 24,672
-------- --------
Total Net Sales $114,551 $ 97,951
======== ========
</TABLE>
Net sales for the quarter established a record high. The Aerospace/Defense and
Instrumentation Groups continued to improve due to strong aerospace markets. In
addition, sales in the Aerospace/Defense Group have benefited from additional
product offerings available through the Company's first quarter acquisitions of
Fluid Regulators and Kai R. Kuhl. The Instrumentation Group has also
experienced improvement in sales of quality control instrumentation. The
improvement in Automation Group sales was due to modest increases in the
printed circuit board drilling machine business.
Total gross margin as a percentage of net sales was 39% for the second quarter
compared with the prior year's 40%. Gross margins among the Groups ranged from
34% to 42% compared with 38% to 41% during the same period in 1997. The
Automation Group is continuing to experience pricing pressures from foreign
competitors with weaker currencies. Of particular note are Asian competitors
who are benefiting from local currency devaluations and the strong U.S. dollar.
<PAGE> 6
Selling, general and administrative expenses for the second quarter were
$31.6 million, or 28% of net sales, compared with the prior year period of
$28 million, or 29% of net sales.
Earnings from commercial aerospace, defense and general manufacturing
operations continue to demonstrate an upward trend while industry pricing
pressures have caused an opposite effect on the printed circuit board drilling
equipment operations. The Company employs a diversification strategy that has
tended to balance cycles that occur in its markets from time to time.
Diversification has been effective in this situation to date, with performance
from our commercial aerospace, defense and general manufacturing operations
more than making up for the effect on our printed circuit board operation.
New orders for the second quarter of 1998 were $123.4 million compared with
$117 million for the same period in 1997. The increase in new orders was
primarily attributed to products for the aerospace markets.
Six Months Ended April 30, 1998 Compared to Six Months Ended April 30, 1997
Year-to-date net sales ended April 30, by Group, were as follows:
(In thousands)
<TABLE>
<CAPTION>
Increase from
prior year 1998 1997
------------- -------- --------
<S> <C> <C> <C>
Automation 9% $ 75,250 $ 68,868
Aerospace and Defense 21% 77,311 64,140
Instrumentation 22% 57,720 47,141
-------- --------
Total Net Sales $210,281 $180,149
======== ========
</TABLE>
Sales for the first half of 1998 were up over the prior year due to strength in
the Aerospace/Defense and Instrumentation Groups. These Groups have continued
to benefit from strong aerospace markets; increased demand for quality control
instrumentation; and sales contributed by new acquisitions. The Automation
Group experienced modest improvements over the first half of 1997 due to
increased shipments for printed circuit board drilling equipment and metal
fabrication equipment.
Total gross margin as a percentage of net sales was 38% for the first half of
1998, compared with 39% in the prior year. Gross margins among the Groups
ranged from 36% to 40% compared with 37% to 40% during the same period in 1997.
Selling, general and administrative expenses for the first half of 1998
increased to $60.7 million compared with $54.2 million during the same period
in 1997. Selling, general and administrative expenses improved from 30% to 29%
of net sales.
New orders for the first half of 1998 were $236.3 million compared with
$202.2 million for the same period in 1997. Companywide backlog at
April 30, 1998 was $180.1 million compared with $149.3 million at
April 30, 1997. The increase in backlog is primarily
<PAGE> 7
attributable to orders received for aerospace products and from acquisitions
completed in the first quarter of 1998. Approximately $63.4 million in backlog
is scheduled for delivery after fiscal 1998. All orders in backlog are subject
to cancellation until delivery.
The Company is aware of the issues associated with programming code in existing
computer systems as the millennium (year 2000) approaches. The Company is
utilizing both internal and external resources to address year 2000 compliance.
It is anticipated that all related efforts will be completed by
December 31, 1998, allowing adequate time for implementation and testing. The
Company's assessment plan includes communications with suppliers and customers
regarding their plans to address processing of transactions in the year 2000.
At this time, management continues to believe that the costs associated with
compliance will not have a material effect on the Company's financial position
or results of operations.
Liquidity and Capital Resources
- -------------------------------
Cash and equivalents on hand at April 30, 1998 totaled $38.1 million, a
decrease of $17.9 million from October 31, 1997. Capital expenditures of
$12.8 million and acquisitions of $20.1 million have been funded through
available cash, cash flow provided by operations of $8.8 million, and an
increase in borrowings of $5.2 million.
Net accounts receivable were $67.1 million at April 30, 1998, essentially
unchanged from October 31, 1997. Inventories at April 30, 1998 were
$66.8 million, representing an increase of $13.4 million from October 31, 1997.
The increase was related to aerospace acquisitions and increased production
rates. Current liabilities increased slightly to $97.3 million at
April 30, 1998 from $96.9 million at October 31, 1997. Credit facilities
increased $5.6 million related to the Company's foreign operations and were
offset by a decrease in accrued liabilities of $5.8 million. Working capital
decreased $5.8 million from $97.5 million at October 31, 1997 to $91.7 million
at April 30, 1998.
Capital expenditures, consisting of buildings, machinery, equipment and
computers, are anticipated to be approximately $28 million during fiscal 1998,
compared with $21.6 million in fiscal 1997. Capital expenditures through
April 30, 1998 totaled $12.8 million and were related to additions of
equipment, leasehold improvements and buildings. In May 1998, the Company
completed the purchase of a new facility in Valencia, California, for
TA Mfg. Co. TA is currently located in Glendale, California, and will be
moving to the new facility during the next quarter.
Total long-term obligations at April 30, 1998 were $41.1 million, representing
an increase of $5 million from October 31, 1997. Of the total obligations
outstanding at April 30, 1998, $28.6 million was outstanding under the
Company's Senior Notes, and $12.5 million was outstanding under various foreign
currency debt agreements, including capital lease obligations for the new
Bourges, France facility. The annual principal repayment of $5.7 million on the
Senior Notes is scheduled to be made on July 30, 1998. This repayment schedule
will continue annually until maturity on July 30, 2002.
<PAGE> 8
On April 20, 1998 the Company effected a two-for-one stock split. All earnings
per share calculations are adjusted for the split. At April 30, 1998, total
shares outstanding were 17,288,562.
Subsequent Event
- ----------------
The Company completed the purchase of substantially all of the assets of a
small Michigan-based company, Memtron Technologies, Inc., in May 1998. Memtron
Technologies, a designer and manufacturer of membrane switches and panels for
medical, industrial computer, and other commercial markets, will be operated
under the direction of the Company's Seattle-based subsidiary, Korry
Electronics Co.
Recent Accounting Pronouncements
- --------------------------------
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income represents net income plus
certain items that are charged directly to shareholder's equity. This Statement
will not be effective for the Company until fiscal 1999.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", establishes standards for
the disclosure of information relating to operating segments. This Statement
will not be effective for the Company until fiscal 1999. The Company is
studying the pronouncement to determine what impact it may have on future
disclosure requirements.
<PAGE> 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
The Company is a party to various lawsuits and claims, 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
- ------------------------------------------------------------
At the Company's annual meeting of shareholders held on March 4, 1998,
shareholders approved the following proposals:
(a) The election of the following directors for three-year terms
expiring at the 2001 annual meeting:
<TABLE>
<CAPTION>
Votes Cast
----------------------
Name For Withheld
---- --------- --------
<S> <C> <C>
Richard R. Albrecht 7,750,710 26,310
John F. Clearman 7,757,035 19,985
Paul G. Schloemer 7,752,710 24,310
</TABLE>
Current directors whose terms continue after the 1998 annual
meeting are Gilbert W. Anderson, E. John Finn, Robert F.
Goldhammer, Wendell P. Hurlbut, Jerome J. Meyer and Malcolm T.
Stamper.
(b) The selection of Deloitte & Touche LLP as independent auditors for
the fiscal year ending October 31, 1998. (7,761,266 votes for,
3,414 votes against and 12,340 votes abstained.)
There were no broker non-votes on any of the above proposals.
The Company also announced a 2-for-1 stock split which became effective on
April 20, 1998.
<PAGE> 10
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits.
Exhibit
Number Exhibit
------- -------
11. Schedule setting forth computation of basic and diluted
earnings per common share for the three and six months ended
April 30, 1998 and 1997.
27. Financial Data Schedule (EDGAR Only).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE> 11
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Esterline Technologies Corporation
(Registrant)
Dated: June 15, 1998 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)
<PAGE> 12
ESTERLINE TECHNOLOGIES CORPORATION
Computation of Basic and Diluted Earnings Per Common Share
For the Three and Six Months Ended April 30, 1998 and 1997
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic:
- ------
Net Earnings $ 7,912 $ 6,602 $ 12,748 $ 10,361
======== ======== ======== ========
Weighted Average Number of Common Shares Outstanding 17,287 17,058 17,287 17,042
======== ======== ======== ========
Net Earnings per Common Share - Basic $ .46 $ .39 $ .74 $ .61
======== ======== ======== ========
Diluted:
- --------
Net Earnings $ 7,912 $ 6,602 $ 12,748 $ 10,361
======== ======== ======== ========
Weighted Average Number of Common Shares Outstanding 17,287 17,058 17,287 17,042
Net Shares Assumed to be Issued for Stock Options 450 502 429 520
-------- -------- -------- --------
Weighted Average Number of Common Shares and Common
Equivalent Shares Outstanding 17,737 17,560 17,716 17,562
======== ======== ======== ========
Net Earnings per Common Share - Diluted $ .45 $ .38 $ .72 $ .59
======== ======== ======== ========
</TABLE>
All per share data reflect the two-for-one stock split for shareholders of
record on March 31, 1998 and effective April 20, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule Contains Summary Financial Information Extracted From the Esterline
Technologies Corporation Consolidated Balance Sheet at April 30, 1998 and the
Related Consolidated Statements of Operations for the Six Months then Ended and
is Qualified in its Entirety by Reference to Such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 38,137
<SECURITIES> 0
<RECEIVABLES> 69,925
<ALLOWANCES> 2,793
<INVENTORY> 66,833
<CURRENT-ASSETS> 188,955
<PP&E> 183,388
<DEPRECIATION> 119,939
<TOTAL-ASSETS> 301,851
<CURRENT-LIABILITIES> 97,262
<BONDS> 27,170
0
0
<COMMON> 3,458
<OTHER-SE> 173,961
<TOTAL-LIABILITY-AND-EQUITY> 301,851
<SALES> 210,281
<TOTAL-REVENUES> 210,281
<CGS> 129,425
<TOTAL-COSTS> 129,425
<OTHER-EXPENSES> 60,724
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 594
<INCOME-PRETAX> 19,538
<INCOME-TAX> 6,790
<INCOME-CONTINUING> 12,748
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,748
<EPS-PRIMARY> .74<F1>
<EPS-DILUTED> .72<F1>
<FN>
<F1>All per share data reflect the two-for-one stock split for shareholders of
record on March 31, 1998 and effective April 20, 1998. Prior Financial Data
Schedules have not been restated for the stock split.
</FN>
</TABLE>
