UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended October 31, 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
------------
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
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. [ ]
<PAGE> 1A
As of January 5, 1999, 17,334,388 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 $388,940,331 (based upon the closing
sales price of $22.4375 per share).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Annual Report to Shareholders for Fiscal Year ended October 31,
1998-Parts I, II and IV.
Portions of Definitive Proxy Statement relating to the 1999 Annual Meeting
of Shareholders, to be held on March 3, 1999-Part III.
<PAGE> 1B
PART I
This Report includes a number of forward-looking statements that
reflect the Company's current views with respect to future events and
financial performance. Please refer to the section addressing forward-
looking information on page 8 for further discussion.
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 focused its efforts on growth through acquisitions,
product development and manufacturing facility expansion during fiscal 1998,
completing seven acquisitions throughout the year, completing construction
of two new facilities and expanding two other facilities. The products
manufactured and markets served by the new acquisitions complement the
Company's existing products. In addition, the acquisitions and investment
in manufacturing facilities provide opportunities for new products,
production efficiency improvements, and future growth.
The Automation Group expanded by completing an acquisition of a small
printed circuit board ("PCB") routing equipment company, Advanced
Technologies, Inc. Assets from this purchase are being integrated with an
existing router line. In addition, an exclusive licensing agreement was
completed with Exitech Ltd., a U.K.-based company, for the manufacture and
sale rights on advanced laser PCB drilling equipment. The Company expects
this agreement to lead the way to new, innovative processes and products for
electronic equipment manufacturers. Late in the year, the Company divested
Tulon Co., a small drill bit manufacturer that no longer met the criteria
used to evaluate the Company's ongoing businesses.
The Aerospace and Defense Group expanded with the acquisition of Fluid
Regulators Corporation, a manufacturer of aerospace-related hydraulic valves
and controls; an aerospace sensor product line; and a manufacturer of high-
performance seals for the aerospace industry. The largest addition of the
year was Kirkhill Rubber Co., announced in August. Kirkhill manufactures
specialized elastomers for aerospace markets as well as a broad array of
products for other markets including automotive and recreation. In
addition, two operations moved to new facilities during the year.
The Instrumentation Group expanded as well. The Company acquired the
Boeing 777 cockpit switch product line and purchased Memtron Technologies
Co., a manufacturer of membrane switches and panels for medical, industrial
computer and other commercial markets. Memtron's technology and markets
create diversity and a broader business base for the Instrumentation Group.
(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, 1998, 1997 and 1996 is incorporated herein by
<PAGE> 2
reference to Note 11 to the Company's Consolidated Financial Statements
(pages 58-60) of the Annual Report to Shareholders for the year ended
October 31, 1998.
(c) Narrative Description of Business.
The Company is organized into three business groups-Automation,
Aerospace/Defense and Instrumentation-that focus on developing products
strategically positioned into distinct niche markets for aerospace, defense,
electronic equipment, automotive, metal fabricating and general
manufacturing industries. Specific comments covering all of the Company's
business groups and operations are set forth below.
Automation Group
The Automation Group consists of three operations-Excellon, Equipment
Sales Co. and Whitney. These operations manufacture and/or market automated
equipment for use by printed circuit board, construction, agricultural,
mining and transportation equipment manufacturers. The Automation Group
accounted for 32% and 39% of the Company's net sales in 1998 and 1997,
respectively.
Excellon manufactures highly efficient automated drilling systems for
the PCB manufacturing industry and is a leader in this niche. During the
past few years, Excellon has focused on expanding its product lines to
include material handling equipment and routers used in the fabrication of
both bare and populated circuit boards. More recently, laser technology has
been developed which the Company expects will pave the way for improved
drilling systems in the near future. In addition, another operation acts as
a sales representative for various manufacturers' products sold to the PCB
assembly industry, including high-speed "pick and place" equipment.
Printed circuit board drilling equipment accounted for 16%, 22% and
22% of the Company's consolidated net sales in 1998, 1997 and 1996,
respectively.
Whitney designs and builds highly productive automated machine tools
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. The Company
believes that the 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, and reduce inventory
and production costs. In its niche, Whitney is the leading supplier in the
U.S. and has market positions in both Europe and Asia. Whitney recently
introduced laser technology into its line of products. The Company expects
this advancement will allow customers opportunities to further reduce the
time it takes to produce a final product since finish work will be
essentially eliminated.
Backlog
At October 31, 1998 the backlog of the Automation Group was
$20 million (all of which is expected to be shipped during fiscal 1999)
compared with $28.1 million at October 31, 1997.
<PAGE> 3
Aerospace and Defense Group
The Aerospace and Defense Group consists of seven operations-Armtec,
Auxitrol, Hytek, Kirkhill, Mason, Midcon and TA Mfg. which accounted for 42%
and 36% of the Company's net sales in 1998 and 1997, 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. supplier of combustible
casings 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 M-1A2 tanks, the 60mm, 81mm and 120mm combustible mortar increments and
the 155mm combustible case for artillery ammunition.
Auxitrol is a French manufacturer of high precision temperature and
pressure sensing devices, and hydraulic controls used primarily in aerospace
applications. Other product applications include liquid level measurement
devices for ships and storage tanks; and industrial alarms. Auxitrol's
principal customers are jet and rocket engine manufacturers. The
acquisitions completed during the year will also expand their product
offerings and provide for additional penetration into U. S. markets.
Auxitrol also manufactures electrical penetration devices, under license,
for sale to nuclear power plants in most of Europe and certain other foreign
countries. These penetration devices permit electrical signals to pass
safely through the reactor containment dome while maintaining pressure
integrity and signal continuity.
Two operations, Kirkhill and TA Mfg., manufacture elastomer products
primarily for the aerospace markets. The products include specialty clamps,
seals, tubing and coverings; all designed in custom molded shapes
principally for airframe and jet engine manufacturers as well as military
and commercial airline aftermarkets. Some of the products include
proprietary elastomers that are specifically formulated for various extreme
applications, including high-temperature environments on or near a jet
engine.
Other operations in the Aerospace/Defense Group provide a variety of
products including specialized metal finishing and inspection services
primarily for aerospace applications (plating, anodizing, polishing,
nondestructive testing and organic coatings); control sticks, grips and
wheels as well as specialized switching systems for commercial and military
aerospace applications; electronic and electrical cable assemblies and cable
harnesses for the military, government contractors and the commercial
electronics markets. In addition, a variety of products are manufactured
for land-based military vehicles such as tanks and missile launchers.
Backlog
At October 31, 1998 the backlog of the Aerospace and Defense Group was
$106.5 million (of which $10.1 million is expected to be shipped after
fiscal 1999) compared with $81.5 million at October 31, 1997.
<PAGE> 4
Instrumentation Group
The Instrumentation Group consists of two operations-Federal and
Korry-serving aerospace, automotive, ordnance, farm implement, construction
and medical equipment manufacturers. The Instrumentation Group accounted
for 26% and 25% of the Company's net sales for 1998 and 1997, respectively.
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 the equipment for direct shop-floor
inspections to reduce costly rework at more advanced production stages.
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 1998, 1997 and 1996, gauge products accounted for 10%, 11% 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. These
products act as human interfaces in a broad variety of control and display
applications. Products have been designed into many existing aircraft
systems, and as a result, Korry has significant spares and retrofit
business. Primary markets served include commercial aviation, and airborne
and ground-based military equipment manufacturers. Proprietary products
provide customers with significant technological advantage in such areas as
night vision-a critical operational requirement-and backlighting for active
matrix liquid-crystal displays.
Switches and indicators, including certain sales from the
Aerospace/Defense Group, accounted for 13%, 12% and 9% of the Company's
consolidated net sales in 1998, 1997 and 1996, respectively.
Backlog
At October 31, 1998, the backlog of the Instrumentation Group was
$41.9 million (of which $7.6 million is expected to be shipped after
fiscal 1999) compared with $44.5 million at October 31, 1997.
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 by customers.
Preserving worldwide 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 operations maintains its own separate and distinct sales force,
outside representatives or distributor relationships. The marketing and
distribution approach varies by operation depending on the market and
geographic area.
<PAGE> 5
Research and Development
Currently, the Company's product development and design programs
utilize an extensive base of professional engineers, technicians and support
personnel, supplemented by outside engineering and consulting firms when
needed. In 1998, approximately $20.3 million was expended for research,
development and engineering, compared with $17.6 million in 1997 and
$15.4 million in 1996.
Foreign Operations
The Company's principal foreign operations consist of manufacturing
facilities located in France and Spain. Other locations include sales and
service operations located in England, France, Germany and Japan, sales
offices in England and France, and a small distribution facility in Italy.
During fiscal 1998, the Company opened an office in Hong Kong to facilitate
purchasing and sales in the area. For further information regarding foreign
operations, reference is made to Note 1 to the Consolidated Financial
Statements (pages 46-47) and Note 11 to the Consolidated Financial
Statements (pages 58-60) of the Company's Annual Report to Shareholders for
the year ended October 31, 1998, which is incorporated herein by reference.
Employees
The Company and its operations had over 4,200 employees at
October 31, 1998. Less than 10% of these employees were members of an
organized labor union. In addition, the European operations are subject
to specific local regulations governing employment.
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. The Company sells both
directly and indirectly to the United States Government. Combined,
approximately 13% of the Company's sales are controlled by government
contracting regulations. 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, and 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 products and services are affected by varying degrees of
competition. The Company competes with other companies in most markets it
serves, 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 features that render the Company's products
obsolete or less marketable. Principal competitors by Group include
<PAGE> 6
Hitachi, Ltd., Schmoll, Pluritec, Cincinnati, Inc., Trumpf, Mazak and U.S.
Amada for the Automation Group; Ametek and Rosemount for the
Aerospace/Defense Group; and Mitutoyo, Brown & Sharpe, Starrett, Eaton-MSC
and Ducommun Jay-El for the Instrumentation Group.
The Company holds a number of patents and licenses including a long-
term license agreement under which Auxitrol manufactures and sells
electrical penetration assemblies. In general, the Company relies on
technical superiority, continual product improvement, exclusive equipment
features, service to customers and marketing to maintain competitive
advantage.
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, and certain other raw materials and components for other
operations are purchased from single sources. In such instances, the
Company strives to develop alternative sources and design modifications to
minimize the effect of business interruptions.
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. The Company believes, however, 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
<PAGE> 7
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
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
Except for the historical information contained in this Report and the
documents incorporated herein by reference, the matters discussed in this
Report, particularly those identified with the words "expects," "believes,"
"anticipates," "intends" and similar expressions, are forward-looking
statements. These statements reflect management's best judgment based on
factors known to them at the time of such statements. Such forward-looking
statements are subject to certain risks and uncertainties, including,
without limitation, those set forth below, many of which are beyond the
Company's control, that could cause actual results to differ materially from
those anticipated. The factors set forth below should be carefully
considered when evaluating the Company's business and prospects. Readers
should also carefully review the risk factors described in other documents
the Company files from time to time with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence
of unanticipated events.
Year 2000 Compliance. The Company is aware of the issues associated
with programming codes in existing computer systems as the year 2000 ("Y2K")
approaches and is utilizing both internal and external resources to address
Y2K compliance. The Company continues to assess the Y2K risk from failure
of its internal systems as low. It is the Company's belief that the impact
of a Y2K failure at any one location would not have a material impact due to
its diversified and decentralized nature. Although risk is assessed as low,
the Company recognizes that not all of its internal computer systems are
compliant and steps are being taken to resolve these issues. Currently, it
is expected that the systems will be materially compliant by March 1999,
even though efforts on ancillary and supporting modules will continue
throughout the year.
Cyclicality of Business. The Company's business is susceptible to
economic cycles and actual results can vary widely based on a number of
<PAGE> 8
factors, including domestic and foreign economic conditions and developments
affecting the specific industries and customers served. Certain products
sold 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, defense and automotive
markets as well as 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.
Dependence on Major Customers; Backlog. Certain of the Company's
operations are dependent on a relatively small number of customers and
defense programs, which change from time to time. Significant customers in
1998 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 takes precautionary
steps to protect technological advantages and intellectual property and
relies in part on patent, trademark, trade secret and copyright laws. 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 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
26% of the Company's total sales in 1998. 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 all claims that may arise.
Volatility of Stock Price. The trading price of the Company's Common
Stock may be subject to fluctuations in response to quarter-to-quarter
<PAGE> 9
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 shareholders 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 increased costs upon the Company in the event of a
change of control.
The Company's Shareholder 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 engaging various "business combination"
transactions with any "interested shareholder" for a period of three years
after the date of the transaction in which such person became an "interested
shareholder," 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 shareholders.
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 operations as of
October 31, 1998:
<PAGE> 10
<TABLE>
<CAPTION>
Approximate
Type of Number of Owned
Location Facility Square Feet or Leased
-------- -------- ----------- ---------
<S> <C> <C> <S>
Brea, CA Office and Plant (D) 329,000 Owned
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
Bourges, France Plant (D) 100,700 Leased
Brea, CA Warehouse (D) 100,000 Owned
Kent, WA Office and Plant (D) 93,000 Owned
Joplin, MO Office and Plant (D) 92,000 Owned
Valencia, CA Office and Plant (D) 88,000 Owned
San Fernando, CA Office and Plant (D) 50,000 Leased
</TABLE>
- ------------------------
The Group 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
Item 3. Legal Proceedings
The Company is party to various lawsuits and claims, both offensive
and defensive, and contingent liabilities arising from the conduct of its
business, none of which, is expected by management 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, 1998.
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 the year ended October 31, 1998 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, 1998 and 1997, respectively, (page 41 of the Annual
Report to Shareholders).
<PAGE> 11
(b) Restrictions on the ability to pay future cash dividends (Note 6
to the Consolidated Financial Statements, pages 52-53 of the
Annual Report to Shareholders).
No cash dividends were paid during the years ended October 31, 1998
and 1997. The Company expects to continue its policy of retaining all
internally generated funds to support the long-term growth of the Company
and to retire debt obligations.
On January 5, 1999, there were approximately 853 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 40 of the Company's Annual Report
to Shareholders for the year ended October 31, 1998.
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 34-39 of the Company's Annual Report to Shareholders for the
year ended October 31, 1998.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company hereby incorporates by reference the narrative discussion
regarding market risk appearing on page 38 of the Company's Annual Report to
Shareholders for the year ended October 31, 1998.
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, 1998, which appear on pages 42-61 of the Company's Annual Report
to Shareholders for the year ended October 31, 1998.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
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 3, 1999, filed with the Securities and Exchange Commission and the New
York Stock Exchange on January 15, 1999.
<PAGE> 12
(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 15, 1999 are as
follows:
<TABLE>
<CAPTION>
Name Position with the Company Age
---- ------------------------- ---
<S> <C> <C>
Wendell P. Hurlbut Chairman and Chief Executive Officer 67
Robert W. Cremin President and Chief Operating Officer 58
Robert W. Stevenson Executive Vice President, Chief
Financial Officer and Secretary 59
James J. Cich, Jr. Group Vice President 37
Larry A. Kring Group Vice President 58
Stephen R. Larson Group Vice President 54
Marcia J. M. Greenberg Vice President, Human Relations 46
Robert D. George Treasurer and Controller 42
</TABLE>
Mr. Hurlbut has served as Chairman and Chief Executive Officer of the
Company since September 1997. Previously, 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. Cich has been Group Vice President since March 1998. Previously,
he was Group Executive from February 1997 to February 1998. From
June 1995 to February 1997, he was President, Chief Executive Officer and
Director for WFI Industries, Ltd. From June 1988 to May 1995, he was
President of Patton Electric Company, Inc. Mr. Cich has a M.B.A. from
Harvard Business School and a B.S. degree in Industrial Engineering from the
University of Washington.
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.
<PAGE> 13
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. Previously, 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 3, 1999, filed with the Securities and Exchange Commission and the New
York Stock Exchange on January 15, 1999.
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 3, 1999, filed with the Securities and Exchange Commission and the
New York Stock Exchange on January 15, 1999.
Item 13. Certain Relationships and Related Transactions
None.
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, 1998, appearing
on pages 42-61 of the Company's Annual Report to Shareholders for the year
ended October 31, 1998, are hereby incorporated by reference:
<PAGE> 14
<TABLE>
<CAPTION>
Annual Report
Page Number
-------------
<S> <C>
Consolidated Statement of Operations-Years ended
October 31, 1998, 1997 and 1996 42
Consolidated Balance Sheet-October 31, 1998 and 1997 43
Consolidated Statement of Cash Flows-Years ended
October 31, 1998, 1997 and 1996 44
Consolidated Statement of Shareholders' Equity-Years ended
October 31, 1998, 1997 and 1996 45
Notes to Consolidated Financial Statements 46-60
Report of Independent Auditors 61
</TABLE>
(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, 1998:
Independent Auditors' Report
Schedule VIII-Valuation and Qualifying Accounts and Reserves, see
page 22.
(a)(3) Exhibits.
See Exhibits Index on Pages 17-20.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K under Item 2 on
August 26, 1998, as amended by Form 8-K/A on October 23, 1998.
<PAGE> 15
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 15, 1999
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 15, 1999
- -------------------------- Chief Executive Officer ----------------
(Wendell P. Hurlbut) (Principal Executive Officer) Date
/s/ Robert W. Stevenson Executive Vice President, January 15, 1999
- -------------------------- Chief Financial Officer ----------------
(Robert W. Stevenson) and Secretary Date
(Principal Financial Officer)
/s/ Robert D. George Treasurer and Controller January 15, 1999
- -------------------------- (Principal Accounting Officer) ----------------
(Robert D. George) Date
/s/ Richard R. Albrecht Director January 15, 1999
- -------------------------- ----------------
(Richard R. Albrecht) Date
/s/ Gilbert W. Anderson Director January 15, 1999
- -------------------------- ----------------
(Gilbert W. Anderson) Date
<PAGE> 16
/s/ Robert W. Cremin Director January 15, 1999
- -------------------------- ----------------
(Robert W. Cremin) Date
/s/ John F. Clearman Director January 15, 1999
- -------------------------- ----------------
(John F. Clearman) Date
/s/ E. John Finn Director January 15, 1999
- -------------------------- ----------------
(E. John Finn) Date
/s/ Robert F. Goldhammer Director January 15, 1999
- -------------------------- ----------------
(Robert F. Goldhammer) Date
/s/ Jerry D. Leitman Director January 15, 1999
- -------------------------- ----------------
(Jerry D. Leitman) Date
/s/ Jerome J. Meyer Director January 15, 1999
- -------------------------- ----------------
(Jerome J. Meyer) Date
/s/ Paul G. Schloemer Director January 15, 1999
- -------------------------- ----------------
(Paul G. Schloemer) Date
/s/ Malcolm T. Stamper Director January 15, 1999
- -------------------------- ----------------
(Malcolm T. Stamper) Date
<PAGE> 17
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).)
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
<PAGE> 18
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).)
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("1992 Note
Agreement"), 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
the 1992 Note Agreement. (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).)
10.9b Amendment No. 1 to Note Agreement, effective September 30, 1998,
to the 1992 Note Agreement.
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 1999 Annual Meeting of Shareholders to be held on
March 3, 1999, filed with the Securities and Exchange Commission
and the New York Stock Exchange on January 15, 1999.)
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).)
<PAGE> 19
10.23 Single Tenant Industrial Lease, dated April 1, 1994, between G&G
8th Street Partners, Ltd., James and Loralee Cassidy and Mason
Electric Co. (Incorporated by reference to Exhibit 10.23 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1997 (Commission File Number 1-6357).)
10.23a Single Tenant Industrial Sublease, dated August 1, 1996, between
Mason Electric Company, Inc. and ME Acquisition Co.
(Incorporated by reference to Exhibit 10.23a to the Company's
Quarterly Report on Form 10-Q for the quarter ended
July 31, 1997 (Commission File Number 1-6357).)
Exhibit
Number Exhibit
- ------- -------
10.23b Amendment of Lease, Estoppel, and Consent to Sublease, dated
August 6, 1996, between G&G 8th Street Partners, Ltd., Mason
Electric Company, Inc. and ME Acquisition Co. (Incorporated by
reference to Exhibit 10.23b to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1997 (Commission File
Number 1-6357).)
10.25 Property lease between Slibail Immobilier and Norbail Immobilier
and Auxitrol S.A., dated April 29, 1997, relating to the
manufacturing facility of Auxitrol at 5, allee Charles Pathe,
18941 Bourges Cedex 9, France, effective on the construction
completed date (December 5, 1997). (Incorporated by reference
to Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q
for the quarter ended January 31, 1998 (Commission File
Number 1-6357).)
10.26 Industrial and build-to-suit purchase and sale agreement between
The Newhall Land and Farming Company, Esterline Technologies
Corporation and TA Mfg. Co., dated February 13, 1997 include
Amendments. The agreement is for land and building located at
28065 West Franklin Parkway, Valencia, CA 91384, effective upon
acceptance of construction completion (May 12, 1998).
(Incorporated by reference to Exhibit 10.26 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
July 31, 1998 (Commission File Number 1-6357).)
11 Schedule setting forth computation of earnings per share for the
five fiscal years ended October 31, 1998.
13 Portions of the Annual Report to Shareholders for the fiscal
year ended October 31, 1998, incorporated by reference herein.
21 List of subsidiaries.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule (EDGAR only).
<PAGE> 20
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).)
10.20e Esterline Technologies Corporation Corporate Management
Incentive Compensation Plan for fiscal year 1999.
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 (Commission File Number 1-6357).)
<PAGE> 21
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, 1998 and 1997, and
for each of the three years in the period ended October 31, 1998, and have
issued our report thereon dated December 9, 1998; such financial statements
and report are included in your 1998 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedule of the Company, 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, 1998
<PAGE> 22A
ESTERLINE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
SCHEDULE VIII-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
For Years Ended October 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Deduction for
Balance at Additions Purpose for Balance
Beginning Charged which Reserve at End
Description of Year to Income was Created of Year
----------- --------- --------- ------------- -------
<S> <C> <C> <C> <C>
Reserve for Doubtful
Accounts Receivable
Years Ended October 31
- ----------------------
1998 $2,860 $584 $ (457) $2,987
====== ==== ======= ======
1997 $4,084 $742 $(1,966) $2,860
====== ==== ======= ======
1996 $4,117 $782 $ (815) $4,084
====== ==== ======= ======
Inventory Valuation Reserves
Years Ended October 31
- ----------------------
1998 $ 500 $ - $ $ 500
====== ==== ======= ======
1997 $1,195 $ - $ (695) $ 500
====== ==== ======= ======
1996 $1,195 $ - $ - $1,195
====== ==== ======= ======
</TABLE>
<PAGE> 22B
Exhibit 10.9b
AMENDMENT NO. 1 TO NOTE AGREEMENT
THIS AMENDMENT dated as of September 30, 1998 (this "Amendment") to
the Note Agreement dated as of July 15, 1992 and as amended (the "Note
Agreement") is between Esterline Technologies Corporation, a Delaware
corporation (the "Company"); Angus Electronics Co., a Delaware corporation;
Armtec Defense Products Co., a Delaware corporation; Auxitrol Co., a
Delaware corporation; Auxitrol U.S.A., Inc., a Delaware corporation;
Equipment Sales Co., a Connecticut corporation; Excellon Automation Co., a
California corporation; Excellon U.K., a California corporation; Federal
Products Co., a Delaware corporation; Federal Products U.K. Ltd., a Delaware
corporation; H.A. Sales Co. (formerly Hollis Automation Co.), a Delaware
corporation; Hytek Finishes Co., a Delaware corporation; Scientific Columbus
Co. (formerly Jemtec Electronics Co.), a Delaware corporation; Korry
Electronics Co., a Delaware corporation; Midcon Cables Co., a Delaware
corporation; Republic Electronics Co., a Delaware corporation; TA Mfg. Co.,
a California corporation; Tulon Co., a California corporation; W.A. Whitney
Co., an Illinois corporation (each of the foregoing being a direct or
indirect subsidiary of the Company and hereinafter referred to individually
a "Co-Obligor" and collectively as "Co-Obligors"); and The Northwestern
Mutual Life Insurance Company and the Metropolitan Life Insurance Company
(the "Noteholders").
RECITALS:
A. The Company, together with the Co-Obligors, and the Noteholders
have heretofore entered into the Note Agreement. The Company and such
Co-Obligors have heretofore issued the $40,000,000 Original Principal Amount
of 8.75% Senior Notes Due July 30, 2002 (the "Notes") pursuant to the Note
Agreement. The Noteholders are the holders of 100% of the outstanding
principal amount of the Notes.
B. The Company, the Co-Obligors and the Noteholders now desire to
amend the Note Agreement and the Notes as of September 30, 1998 (the
"Effective Date") in the respects, but only in the respects, hereinafter set
forth.
C. Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Note Agreement unless herein defined or the context
shall otherwise require.
NOW THEREFORE, upon the full and complete satisfaction of the conditions
precedent to the effectiveness of the Amendment set forth in [Section
Sign]4.1 hereof, and in consideration of good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the Company, the
Co-Obligors and the Noteholders do hereby agree as follows:
SECTION 1. AMENDMENTS
- ----------------------
1.1. Tulon Co. shall be deleted from the title page of the Note
Agreement and the definition of Co-Obligor and Co-Obligors and shall cease
to be a Co-Obligor under the Note Agreement and the Note.
<PAGE> 23
1.2. The Note shall be amended to reflect the deletion described
above in Section 1.1 of this Agreement.
SECTION 2. AFFIRMATION OF THE COMPANY AND CO-OBLIGORS
- ------------------------------------------------------
2.1. The Company and each Co-Obligor confirms to the Noteholders
that, both before and after giving effect to the Amendment, its respective
obligations under the Note Agreement and the Note remain in full force and
effect, and reaffirms its obligations thereunder.
SECTION 3. REPRESENTATIONS AND WARRANTIES
- ------------------------------------------
3.1. To induce the Noteholders to execute and deliver this Amendment,
the Company and each Co-Obligor represents and warrants to the Noteholders
(which representations shall survive the execution and delivery of this
Amendment) that:
(a) this Amendment has been duly authorized, executed and delivered
by it and this Amendment constitutes the legal, valid and binding
obligation, contract and agreement of the Company and each Co-Obligor
enforceable against it in accordance with its terms except as enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors'
rights generally;
(b) the Note Agreement, as amended by this Amendment, constitutes the
legal, valid and binding obligation, contract and agreement of the Company
and each Co-Obligor enforceable against it in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating
to or limiting creditors' rights generally;
(c) the execution, delivery and performance by the Company and each
Co-Obligor of this Amendment (i) have been duly authorized by all requisite
corporate action and, if required, shareholder action, (ii) do not require
the consent or approval of any governmental or regulatory body or agency,
and (iii) will not (A) violate (1) any provision of law, statute, rule or
regulation or its certificate of incorporation or bylaws, (2) any order of
any court or any rule, regulation or order of any other agency or government
binding upon it, (B) violate or require any consent under or with respect to
any provision of any material indenture, agreement or other instrument to
which it is a party or by which its properties or assets are or may be
bound, or (C) result in a breach or constitute (alone or with due notice or
lapse of time or both) a default under any such indenture, agreement or
other instrument;
(d) as of the date hereof and after giving effect to this Amendment,
no Default or Event of Default has occurred which is continuing; and
(e) since October 31, 1997, there has been no change in the financial
condition, operations, business or properties of the Company or any
Subsidiary that, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on the financial condition,
operations, business or properties of the Company and its subsidiaries.
<PAGE> 24
SECTION 4. CONDITIONS PRECEDENT; MISCELLANEOUS.
- ------------------------------------------------
4.1. This Amendment shall not become effective until each and
everyone of the following conditions shall have been satisfied:
(a) executed counterparts of this Amendment, duly executed by the
Company, each Co-Obligor and the Noteholders, shall have been delivered to
the Noteholders; and
(b) The Noteholders shall have received a certificate, in form
satisfactory to it, of an appropriate officer of the Company to the effect
that the representations and warranties of the Company and each Co-Obligor
set forth in [Section Sign]3 hereof are true and correct on and with respect
to the date hereof.
Upon receipt of all of the foregoing, this Amendment shall become
effective as of the Effective Date referred to in Paragraph B of the
Recitals.
4.2. This Amendment shall be construed in connection with and as part
of the Note Agreement, and except as modified and expressly amended by this
Amendment, all terms, conditions and covenants contained in the Note
Agreement and the Notes are hereby ratified and shall be and remain in full
force and effect.
4.3. Any and all notices, requests, certificates and other
instruments executed and delivered after the execution and delivery of this
Amendment may refer to the Note Agreement without making specific reference
to this Amendment but nevertheless all such references shall include this
Amendment unless the context otherwise requires.
4.4. The descriptive headings of the various Sections or parts of
this Amendment are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
4.5. This Amendment shall be governed by and construed in accordance
with Illinois law.
4.6. This Amendment may be executed in any number of counterparts,
each executed counterpart constituting an original, but all together only
one agreement.
ESTERLINE TECHNOLOGIES CORPORATION
By: /s/ R.W. Stevenson
-----------------------------------
Title: Executive Vice President and Chief
Financial Officer
ANGUS ELECTRONICS CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
<PAGE> 25
ARMTEC DEFENSE PRODUCTS CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
AUXITROL CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
AUXITROL U.S.A., INC.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
EQUIPMENT SALES CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
EXCELLON AUTOMATION CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
EXCELLON U.K.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
FEDERAL PRODUCTS CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
FEDERAL PRODUCTS U.K. LTD.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
H.A. SALES CO.
(formerly Hollis Automation Co.)
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
<PAGE> 26
HYTEK FINISHES CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
SCIENTIFIC COLUMBUS CO.
(formerly Jemtec Electronics Co.)
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
KORRY ELECTRONICS CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
MIDCON CABLES CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
REPUBLIC ELECTRONICS CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
TA MFG. CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
TULON CO.
By: /s/ R.W. Stevenson
1 -----------------------------------
Title: Vice President
W.A. WHITNEY CO.
By: /s/ R.W. Stevenson
-----------------------------------
Title: Vice President
Accepted and Agreed to as of
September 30, 1998:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/ John M. Bremen
-----------------------------------
Its: Executive Vice President, General
Counsel & Secretary
<PAGE> 27A
METROPOLITAN LIFE INSURANCE COMPANY
By: _________________________________
Title: ______________________________
<PAGE> 27B
Exhibit 11
Page 1
ESTERLINE TECHNOLOGIES CORPORATION
Computation of Earnings Per Common Share - Basic
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Earnings $30,084 $25,321 $21,354 $17,381 $ 7,563
======= ======= ======= ======= =======
Weighted-Average Number of
Common Shares Outstanding 17,290 17,124 15,842 13,292 13,026
Earnings Per Common
Share - Basic $ 1.74 $ 1.48 $ 1.35 $ 1.32 $ .58
======= ======= ======= ======= =======
</TABLE>
<PAGE> 28
Exhibit 11
Page 2
ESTERLINE TECHNOLOGIES CORPORATION
Computation of Earnings Per Share - Diluted
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Earnings $30,084 $25,321 $21,354 $17,381 $ 7,563
======= ======= ======= ======= =======
Weighted-Average Number of
Common Shares Outstanding 17,290 17,124 15,842 13,136 13,026
Net Shares Assumed to
be Issued for Stock Options 428 484 492 604 116
------- ------- ------- ------- -------
Total Common Shares - Diluted 17,718 17,608 16,334 13,740 13,142
======= ======= ======= ======= =======
Earnings Per Common
Share - Diluted $ 1.70 $ 1.44 $ 1.31 $ 1.26 $ .58
======= ======= ======= ======= =======
Earnings Per Common
Share - Basic $ 1.74 $ 1.48 $ 1.35 $ 1.32 $ .58
======= ======= ======= ======= =======
Dilutive Effect Per Common
Share $ .04 $ .04 $ .04 $ .06 $ None
======= ======= ======= ======= =======
</TABLE>
<PAGE> 29
Exhibit 13
ESTERLINE TECHNOLOGIES
Management's Discussion and Analysis.
General
- -------
Esterline Technologies (the "Company") completed its second consecutive year
of record sales and earnings in 1998. A two-for-one stock split was
declared for shareholders of record on March 31, 1998 and became effective
April 20, 1998. During the year, the Company completed seven acquisitions
with cash (four companies and three product lines) for a combined total
purchase price of $127.2 million. The largest acquisition, Kirkhill Rubber
Co., significantly bolsters the Aerospace and Defense Group. Kirkhill is a
manufacturer of high-performance custom-engineered elastomer products for
the aerospace industry and a broad array of specialty elastomer products for
other markets. Two subsidiaries, Auxitrol and TA Mfg., moved into new,
larger facilities enabling them to meet growing customer demand, allowing
for new product expansions and providing for increased operating
efficiencies. The Company divested Tulon Co., a small drill bit
manufacturer, which no longer fit the strategic criteria used to evaluate
the Company's ongoing businesses. Subsequent to year-end, the Company
completed a $100 million private placement of senior notes. A portion of
the proceeds was used to retire the bridge facility used for the Kirkhill
acquisition, and the remainder will be used to finance continued expansion
efforts as opportunities are identified.
The Company focuses on developing businesses with strategically-positioned
niche products managed through three groups: Automation, Aerospace/Defense,
and Instrumentation. The groups focus on multiple, counter-cyclical
industrial markets and on high quality, capital-intensive engineered
products. These markets include aerospace, defense, electronic equipment,
automotive, metal fabricating and general manufacturing industries.
Results of Operations
- ---------------------
Year Ended October 31, 1998 Compared to Year Ended October 31, 1997
Sales for 1998 grew 16% when compared with the prior period. Sales by Group
were as follows:
<TABLE>
<CAPTION>
increase
(decrease)
dollars in thousands from prior year 1998 1997
<S> <C> <C> <C>
Automation (5%) $143,356 $150,522
Aerospace and Defense 35% 189,569 140,200
Instrumentation 21% 120,977 100,236
- ---------------------------------------- -------- --------
$453,902 $390,958
======== ========
</TABLE>
<PAGE> 30
Sales in the Aerospace/Defense and Instrumentation Groups grew substantially
in 1998. The growth was primarily attributable to continued strong
aerospace market demand and acquisitions. In the past several years, both
Groups have benefited from the increased production of new aircraft. The
Company expects the rate of growth in new aircraft deliveries to begin to
slow over the next few years. However, production supporting maintenance,
repair and retrofit for the active fleet of aircraft will continue to grow.
The Automation Group experienced a downturn during the last half of the year
primarily due to sluggish worldwide market demand for printed circuit board
("PCB") manufacturing equipment. A contributing factor was the destabilized
Asian economy. Sales to foreign customers, including export sales by
domestic operations, totaled $120.2 million and $129.6 million, and
accounted for 26% and 33% of the Company's sales for 1998 and 1997,
respectively.
Gross margin as a percentage of sales was 38% for both 1998 and 1997. On a
comparative basis, the Aerospace/Defense Group's gross margin improved due
to favorable commercial aerospace market conditions, while decreases were
experienced in the Instrumentation and Automation Groups. A key factor in
the Instrumentation Group's gross margin decrease was the fourth quarter
weakness in the market for quality control instrumentation products related
to a strike at General Motors. The Automation Group's margin deteriorated
due to the economic instability in Asia that directly affected pricing and
demand for PCB manufacturing equipment. The Company expects that this
dampening effect will continue through 1999. In addition, consolidation of
the customer base has resulted in larger, but fewer buyers in the PCB
manufacturing markets. Gross margins by Group ranged from 34% to 41% in
1998, compared with 35% to 41% in the prior year.
Selling, general and administrative expenses (which include corporate
expenses, and research, development and related engineering costs) increased
to $122.6 million in 1998 compared with $108.5 million in the prior year.
As a percentage of sales, selling, general and administrative expenses
improved to 27% in 1998 compared with 28% in 1997. Research, development
and related engineering spending increased to $20.3 million in 1998 from
$17.6 million in 1997, and remained constant as a percentage of sales. A
core strategy of the Company is to invest in the future through research and
development notwithstanding business cycles. New laser technology,
specialized materials, and lighting solutions for aircraft cockpits were
some of the projects being pursued in 1998 which resulted in new and
enhanced products.
Operating earnings (excluding corporate expenses) increased 26% to
$60.1 million compared with $47.6 million in the prior year. The
Aerospace/Defense and Instrumentation Groups posted operating earnings of
$35.6 million and $13.4 million in 1998 compared with $22.3 million and
$9.9 million in 1997. Strong aerospace and defense markets were the primary
factors for improved operating earnings in both Groups. In addition,
current year acquisitions and the prior year divestiture of Angus
Electronics Co. contributed to improved operating earnings. The Automation
Group's operating earnings decreased 28% for the year to $11.1 million from
$15.5 million in the prior year primarily due to the difficult PCB
manufacturing environment.
<PAGE> 31
As available cash was used to complete acquisitions, interest income
decreased to $1.6 million compared with $2.4 million in the prior year.
Interest expense remained essentially unchanged at $3.8 million during 1998
from $3.6 million in the prior year.
The effective income tax rate increased to 35.9% in 1998 from 33.5% in 1997
primarily due to non-deductible goodwill resulting from acquisitions made
during the year.
Net earnings in 1998 were $30.1 million, or $1.70 per share on a diluted
basis, compared with $25.3 million, or $1.44 per share, in the prior year.
Orders received in 1998 increased 7% to $448.5 million from $417.8 million
in the prior year. Backlog at October 31, 1998 was $168.4 million compared
with $154.1 million at the end of the prior year. Approximately
$17.7 million of backlog is scheduled to be delivered after 1999. Backlog
is subject to cancellation until delivery.
Year Ended October 31, 1997 Compared to Year Ended October 31, 1996
Sales for 1997 grew 11% when compared with the prior period. Sales by Group
were as follows:
<TABLE>
<CAPTION>
increase
dollars in thousands from prior year 1997 1996
<S> <C> <C> <C>
Automation 3% $150,522 $146,698
Aerospace and Defense 26% 140,200 111,691
Instrumentation 6% 100,236 94,454
- ---------------------------------------- -------- --------
$390,958 $352,843
======== ========
</TABLE>
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. 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 sales for 1997 and 1996, respectively.
Total gross margin as a percentage of 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
<PAGE> 32
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 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.
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 $1.44 per share on a diluted basis, for
1997 compared with $21.4 million, or $1.31 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 was scheduled to be delivered after 1998. Backlog
is subject to cancellation until delivery.
Liquidity and Capital Resources
- -------------------------------
The Company completed seven acquisitions during 1998, the most significant
of which was Kirkhill Rubber Co. While most of the transactions were
structured using available cash, the Kirkhill transaction required
additional funds provided through a bridge facility available to the
Company. Essentially all major asset categories other than cash increased
due to acquisition activity. In each case, the majority of the increase was
attributed directly to the acquisition of Kirkhill.
In November 1998, the Company completed a private placement of senior notes
for $100 million. The placement has maturities ranging from 5 to 10 years
and interest rates from 6% to 6.77%. A portion of the cash received from
this placement retired the bridge facility and residual proceeds will be
used for other internal expansion and acquisition activities. Management
believes cash on hand (including cash from the subsequent private placement
of senior notes) and funds generated from operations will adequately service
operating cash requirements and capital expenditures through 1999.
<PAGE> 33
Cash and equivalents at October 31, 1998 totaled $8.9 million compared to
$56 million in the prior year. Net working capital decreased to
$70.1 million at October 31, 1998 from $99.4 million at October 31, 1997,
primarily due to the cash reduction for acquisitions.
Total debt at October 31, 1998 was $89.9 million, an increase of
$53.9 million from a year earlier, and is principally due to the Kirkhill
acquisition. The existing 8.75% Senior Notes have a scheduled payment of
$5.7 million, which will continue annually until maturity on July 30, 2002.
Debt was comprised of the $50 million bridge facility used in the Kirkhill
transaction, $22.9 million under the Company's 8.75% Senior Notes,
$15.4 million under various foreign currency debt agreements, and
$1.6 million for revenue bonds assumed as part of a smaller acquisition
completed during the year. Domestic and foreign credit facilities totaled
$96 million, of which $34.6 million was available at October 31, 1998.
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.
Capital expenditures for 1998 (excluding acquisitions) were comprised of 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. Capital expenditures are anticipated
to be approximately $21 million for 1999 compared with $29.8 million in
1998. In 1999, the Company expects to continue to support expansion through
investments in machinery, equipment and improvements to information
technology, however there are no current plans for plant expansion.
The Company is aware of the issues associated with programming codes in
existing computer systems as the year 2000 ("Y2K") approaches and is
utilizing both internal and external resources to address Y2K compliance.
The Company continues to assess the Y2K risk from failure of its internal
systems as low. It is the Company's belief that the impact of a Y2K failure
at any one location would not have a material impact due to its diversified
and decentralized nature. Although risk is assessed as low, the Company
recognizes that not all of its internal computer systems are compliant and
steps are being taken to resolve these issues. Currently, it is expected
that the systems will be materially compliant by March 1999, even though
efforts on ancillary and supporting modules will continue throughout the
year. Based on current information available, it is estimated that the cost
of compliance will be less than $1 million.
While the Company does not have a complete assessment of third party
exposure for Y2K issues, its decentralized structure minimizes the reliance
on single product vendors and most third party relationships are deemed
replaceable.
Forward-Looking Statements
- --------------------------
Certain statements in the above commentary and throughout this annual report
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
<PAGE> 34A
uncertainties regarding matters that could significantly affect expected
results, including information about industry trends, growth, Y2K, orders,
currency fluctuations, backlog, capital expenditures and cash requirements.
The Company is susceptible to economic cycles and financial results can vary
widely based on a number of factors, including domestic and foreign economic
conditions and developments affecting specific industries and customers.
A significant portion of the sales and profitability of some Company
businesses is derived from telecommunications, electronics, computer,
automotive, aerospace and defense markets. 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. 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, actual results may vary
materially from these forward-looking statements. 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.
Recent Accounting Pronouncements
- --------------------------------
Statement of Financial Accounting Standards ("SFAS") 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 shareholders'
equity. This Statement will be effective for the Company in 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 be effective for the Company in fiscal 1999.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," an amendment of SFAS Nos. 87,
88, and 106. The objective of this amendment is to provide disclosures that
are more comparable, understandable and concise. This Statement will be
effective for the Company in fiscal 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and established standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and hedging activities. The Statement will become effective
in the Company's fiscal 1999 third quarter.
The Company is studying each of these pronouncements to determine their
effect, including additional disclosure requirements that may be necessary.
<PAGE> 34B
<TABLE>
<CAPTION>
Selected Financial Data.
in thousands, except per share amounts
for the years ended October 31, 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Operating Results Sales $453,902 $390,958 $352,843 $351,897 $294,044
Cost of sales 282,135 243,197 215,015 215,934 178,397
Selling, general
and administrative 122,611 108,474 103,415 107,113 100,845
Restructuring
credit - - - (2,067) -
Interest income (1,594) (2,397) (1,989) (1,156) (113)
Interest expense 3,803 3,603 4,328 5,598 6,098
Income tax expense 16,863 12,760 10,720 9,094 1,254
Net earnings 30,084 25,321 21,354 17,381 7,563
Net earnings
per share - diluted $ 1.70 $ 1.44 $ 1.31 $ 1.26 $ .58
--------------------------------------------------------------------------------------
Financial Structure Total assets $387,179 $289,847 $276,646 $225,714 $217,524
Long-term debt, net 74,043 27,218 29,007 35,543 41,714
Shareholders' equity 196,376 165,718 142,304 83,706 65,491
Weighted average
shares outstanding -
diluted 17,718 17,608 16,334 13,740 13,142
--------------------------------------------------------------------------------------
<CAPTION>
Market Price of Esterline Common Stock.
Principal Market - New York Stock Exchange
for the years ended October 31, 1998 1997
High Low High Low
<S> <S> <C> <C> <C> <C>
Quarter First $19.13 $15.81 $14.00 $11.25
Second 23.13 16.50 14.88 12.56
Third 24.50 17.63 19.25 14.13
Fourth 21.88 15.50 21.75 17.28
---------------------------------------------------------------------
</TABLE>
At October 31, 1998 there were approximately 860 holders of record
of the Company's common stock.
<PAGE> 35
<TABLE>
<CAPTION>
Consolidated Statement of Operations.
in thousands, except per share amounts
for the years ended October 31, 1998 1997 1996
<S> <C> <C> <C>
Sales $453,902 $390,958 $352,843
Costs and Expenses
Cost of sales 282,135 243,197 215,015
Selling, general and administrative 122,611 108,474 103,415
Interest income (1,594) (2,397) (1,989)
Interest expense 3,803 3,603 4,328
-------------------------------------------------- -------- --------
406,955 352,877 320,769
-------------------------------------------------- -------- --------
Earnings Before Income Taxes 46,947 38,081 32,074
Income Tax Expense 16,863 12,760 10,720
-------------------------------------------------- -------- --------
Net Earnings $ 30,084 $ 25,321 $ 21,354
======== ======== ========
Net Earnings Per Share - Basic $ 1.74 $ 1.48 $ 1.35
======== ======== ========
Net Earnings Per Share - Diluted $ 1.70 $ 1.44 $ 1.31
======== ======== ========
</TABLE>
see notes to consolidated financial statements
<PAGE> 36
<TABLE>
<CAPTION>
Consolidated Balance Sheet.
in thousands, except share and per share amounts
October 31, 1998 1997
<S> <S> <C> <C>
Assets
Current Assets Cash and equivalents $ 8,897 $ 56,045
Accounts receivable, net of
allowances of $2,987 and $2,860 77,477 67,520
Inventories 71,835 53,386
Deferred income taxes 15,693 14,186
Prepaid expenses 4,055 3,290
------------------------------------------------------ --------
Total Current Assets 177,957 194,427
Property, Plant and Equipment Land 13,400 2,885
Buildings 66,451 47,899
Machinery and equipment 126,253 124,831
------------------------------------------------------ --------
206,104 175,615
Accumulated depreciation 112,042 117,239
------------------------------------------------------ --------
94,062 58,376
Other Non-Current Assets Goodwill and intangibles, net 99,344 22,925
Other assets 15,816 14,119
------------------------------------------------------ --------
$387,179 $289,847
======== ========
Liabilities and Shareholders' Equity
Current Liabilities Accounts payable $ 23,307 $ 20,475
Accrued liabilities 68,275 64,208
Credit facilities 9,533 2,467
Current maturities of long-term debt 6,358 6,386
Federal and foreign income taxes 385 1,472
------------------------------------------------------ --------
Total Current Liabilities 107,858 95,008
Long-Term Liabilities Long-term debt, net of current maturities 74,043 27,218
Deferred income taxes 8,902 1,903
Commitments and contingencies - -
<PAGE> 37A
Shareholders' Equity Common stock, par value
$.20 per share,
authorized 30,000,000 shares,
issued and outstanding
17,317,178 and 17,285,822 shares 3,463 3,457
Capital in excess of par value 46,793 46,831
Retained earnings 149,091 119,007
Cumulative translation adjustment (2,971) (3,577)
------------------------------------------------------ --------
Total Shareholders' Equity 196,376 165,718
------------------------------------------------------ --------
$387,179 $289,847
======== ========
</TABLE>
see notes to consolidated financial statements
<PAGE> 37B
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows.
in thousands
for the years ended October 31, 1998 1997 1996
<S> <S> <C> <C> <C>
Cash Flows Provided (Used)
by Operating Activities Net earnings $ 30,084 $ 25,321 $ 21,354
Depreciation and amortization 18,316 17,404 16,269
Deferred income taxes (447) 4,764 (413)
Working capital changes,
net of effect of acquisitions
Accounts receivable (2,344) (436) (4,319)
Inventories (4,920) (8,947) (2,694)
Prepaid expenses (222) (862) (291)
Accounts payable 167 447 (2,399)
Accrued liabilities (1,557) (3,525) 605
Federal and foreign income taxes (1,542) (2,611) 1,886
Other, net (2,420) (1,099) 2,411
------------------------------------------------------ -------- --------
35,115 30,456 32,409
------------------------------------------------------ -------- --------
Cash Flows Provided (Used)
by Investing Activities Capital expenditures (29,773) (17,390) (17,203)
Capital dispositions 9,421 1,820 1,054
Acquisitions (113,304) - (20,485)
------------------------------------------------------ -------- --------
(133,656) (15,570) (36,634)
------------------------------------------------------ -------- --------
Cash Flows Provided (Used)
by Financing Activities Net change in credit facilities 6,579 (2,417) (2,214)
Repayment of long-term debt (5,079) (1,922) (6,812)
Proceeds from bridge facility 50,000 - -
Net proceeds provided by
sale of common stock - - 38,365
------------------------------------------------------ -------- --------
51,500 (4,339) 29,339
------------------------------------------------------ -------- --------
Effect of exchange rates (107) (938) (775)
------------------------------------------------------ -------- --------
Net increase (decrease) in
cash and equivalents (47,148) 9,609 24,339
Cash and equivalents - beginning of year 56,045 46,436 22,097
------------------------------------------------------ -------- --------
Cash and equivalents - end of year $ 8,897 $ 56,045 $ 46,436
========= ======== ========
Supplemental
Cash Flow Information Cash paid during the year for
Interest $ 3,244 $ 3,720 $ 4,480
Income taxes 17,517 7,015 6,357
</TABLE>
see notes to consolidated financial statements
<PAGE> 38
<TABLE>
<CAPTION>
Consolidated Statement of Shareholders' Equity.
in thousands, except share amounts
for the years ended October 31, 1998 1997 1996
<S> <S> <C> <C> <C>
Common Stock, Par Value
$.20 Per Share Beginning of year $ 3,457 $ 3,401 $ 2,657
3,600,000 shares issued - - 720
Shares issued under stock option plans 6 56 24
--------------------------------------------------- -------- --------
End of year 3,463 3,457 3,401
--------------------------------------------------- -------- --------
Capital in Excess of Par Value Beginning of year 46,831 46,716 9,061
3,600,000 shares issued - - 37,645
Shares issued under stock option plans (38) 115 10
--------------------------------------------------- -------- --------
End of year 46,793 46,831 46,716
--------------------------------------------------- -------- --------
Retained Earnings Beginning of year 119,007 93,686 72,332
Net earnings 30,084 25,321 21,354
--------------------------------------------------- -------- --------
End of year 149,091 119,007 93,686
--------------------------------------------------- -------- --------
Cumulative Foreign Currency
Translation Adjustments Beginning of year (3,577) (1,499) (344)
Change in foreign currency translation 606 (2,078) (1,155)
--------------------------------------------------- -------- --------
End of year (2,971) (3,577) (1,499)
--------------------------------------------------- -------- --------
Shareholders' Equity $196,376 $165,718 $142,304
======== ======== ========
</TABLE>
see notes to consolidated financial statements
<PAGE> 39
Notes to Consolidated Financial Statements.
Note 1. Accounting Policies
- ----------------------------
Nature of Operations
Esterline Technologies (the "Company") - through its three groups - 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
To prepare financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
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
$20,250,000, $17,556,000 and $15,373,000 in 1998, 1997 and 1996,
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 generally provided on the straight-
line method.
<PAGE> 40
Goodwill and Intangibles
Intangible assets and the excess purchase price paid over net assets of
businesses acquired are amortized on a straight-line basis over the period
of expected benefit which ranges from 5 to 40 years. Accumulated
amortization as of October 31, 1998 and 1997 was $28,876,000 and
$25,612,000, respectively.
Asset Valuation
The carrying amount of long-lived assets is reviewed periodically for
impairment. An asset is considered impaired when estimated future cash flows
are less than the carrying amount of the asset. In the event the carrying
amount of such asset is not deemed recoverable, the asset is adjusted to its
estimated fair value. Fair value is generally determined based upon
discounted future cash flow.
Environmental
Environmental exposures are provided for 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.
Stock Split
In April 1998, the Company effected a two-for-one stock split on all
outstanding shares of common stock. All share and per share data have been
restated.
Earnings Per Share
All prior period earnings per share data have been restated to comply with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
Basic earnings per share are computed on the basis of the weighted average
number of common shares outstanding during the year. Diluted earnings per
share also include the dilutive effect of stock options. The weighted
average number of shares outstanding used to compute basic earnings per
share was 17,290,000, 17,124,000 and 15,842,000 for the years ended
October 31, 1998, 1997 and 1996, respectively. The weighted average number
of shares outstanding used to compute diluted earnings per share was
17,718,000, 17,608,000 and 16,334,000 for the years ended October 31, 1998,
1997 and 1996, respectively.
Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of
three months or less at the date of purchase. Fair value of cash
equivalents approximates carrying value.
<PAGE> 41
Note 2. Inventories
- --------------------
Inventories at October 31 consisted of the following:
<TABLE>
<CAPTION>
in thousands 1998 1997
<S> <C> <C>
Raw materials and purchased parts $27,239 $17,502
Work in process 33,284 26,191
Finished goods 11,312 9,693
- -------------------------------------------------- -------
$71,835 $53,386
======= =======
</TABLE>
Inventories stated under the last-in, first-out method totaled $8,845,000
and $11,945,000 at October 31, 1998 and 1997, respectively. Had the first-
in, first-out method been used, these inventories would have been $5,621,000
and $5,274,000 higher than reported at October 31, 1998 and 1997,
respectively.
Note 3. Accrued Liabilities
- ---------------------------
Accrued liabilities at October 31 consisted of the following:
<TABLE>
<CAPTION>
in thousands 1998 1997
<S> <C> <C>
Payroll and other compensation $24,762 $19,354
Self-insurance 5,137 6,329
Interest 1,240 2,244
Warranties 7,212 9,356
State and other tax accruals 8,077 8,292
Other 21,847 18,633
- ----------------------------------------------- -------
$68,275 $64,208
======= =======
</TABLE>
Note 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 6.5% for 1998 and 7.5% for both 1997 and 1996 and annual
compensation increases of 5%. The expected long-term rate of return on plan
assets was assumed at 8.5% for 1998 and 1997 and 7.5% for 1996. Plan assets
primarily consist of publicly traded common stocks, bonds and government
securities.
<PAGE> 42
Total pension expense (benefit) for all benefit plans, including defined
benefit plans, was ($971,000), $1,758,000 and $2,329,000 for the years ended
October 31, 1998, 1997 and 1996, respectively. Net periodic pension expense
(benefit) for the Company's defined benefit plans for the years ended
October 31 consisted of the following:
<TABLE>
<CAPTION>
in thousands 1998 1997 1996
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 2,639 $ 3,150 $ 2,871
Interest cost on projected benefit obligation 5,645 5,598 5,154
Actual return on plan assets - investment gains (7,144) (26,279) (8,074)
Net amortization and deferral (3,208) 18,297 1,319
- ----------------------------------------------------------- -------- -------
Net pension expense (benefit) $(2,068) $ 766 $ 1,270
======= ======== =======
</TABLE>
The funded status of the defined benefit pension plan at October 31 was as
follows:
<TABLE>
<CAPTION>
in thousands 1998 1997
<S> <C> <C>
Plan assets at fair value $109,663 $113,001
Projected benefit obligation for service rendered to date 87,272 77,751
- --------------------------------------------------------------------------- --------
Plan assets in excess of projected benefit obligation 22,391 35,250
Unrecognized prior service cost 634 -
Unrecognized net gain (8,635) (23,091)
Unrecognized transition asset (963) (1,444)
- --------------------------------------------------------------------------- --------
Prepaid pension expense, included in other assets $ 13,427 $ 10,715
======== ========
Actuarial present value of accumulated benefit obligation,
including vested benefits of $73,083 and $67,360 $ 73,620 $ 67,744
======== ========
</TABLE>
The Company also has an unfunded supplemental retirement plan for key
executives providing for periodic payments upon retirement. The related
liability was $3,774,000 and $3,169,000 as of October 31, 1998 and 1997,
respectively. This has been accounted for in accrued liabilities.
<PAGE> 43
Note 5. Income Taxes
- ---------------------
Income tax expense (benefit) for the years ended October 31 consisted of the
following:
<TABLE>
<CAPTION>
in thousands 1998 1997 1996
<S> <C> <C> <C>
Current
U.S. Federal $14,799 $ 5,776 $ 9,309
State 1,295 1,200 1,394
Foreign 1,216 1,020 430
- --------------------------------------- ------- -------
17,310 7,996 11,133
Deferred
U.S. Federal (429) 3,138 (593)
State (18) 196 (17)
Foreign - 1,430 197
- --------------------------------------- ------- -------
(447) 4,764 (413)
- --------------------------------------- ------- -------
$16,863 $12,760 $10,720
======= ======= =======
</TABLE>
U.S. and foreign components of income before income taxes for the years
ended October 31 were:
<TABLE>
<CAPTION>
in thousands 1998 1997 1996
<S> <C> <C> <C>
U.S. $45,608 $34,121 $30,444
Foreign 1,339 3,960 1,630
- --------------------------------------- ------- -------
$46,947 $38,081 $32,074
======= ======= =======
</TABLE>
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:
<PAGE> 44A
<TABLE>
<CAPTION>
in thousands 1998 1997
<S> <C> <C>
Reserves and liabilities $ 17,108 $ 15,776
Employee benefits 4,306 4,067
- ------------------------------------------------------- --------
Total deferred tax assets 21,414 19,843
Depreciation and amortization (10,869) (4,806)
Retirement benefits (3,496) (2,754)
Other (258) -
- ------------------------------------------------------- --------
Total deferred tax liabilities (14,623) (7,560)
- ------------------------------------------------------- --------
$ 6,791 $ 12,283
======== ========
</TABLE>
A valuation allowance was not required due to the nature of and
circumstances associated with the temporary tax differences.
<PAGE> 44B
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:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
U.S. statutory income tax 35.0% 35.0% 35.0%
State income taxes 1.8 2.0 2.8
Foreign taxes 1.3 0.5 (0.3)
Foreign sales corporation (1.5) (1.8) (2.1)
Tax exempt interest (0.3) (0.7) (1.5)
Non-deductible goodwill 0.9 - -
Other, net (1.3) (1.5) (0.5)
- ----------------------------------------------- ---- ----
Effective income tax rate 35.9% 33.5% 33.4%
==== ==== ====
</TABLE>
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.
Note 6. Debt
- -------------
Long-term debt at October 31 consisted of the following:
<TABLE>
<CAPTION>
in thousands 1998 1997
<S> <C> <C>
Bridge facility $50,000 $ -
8.75% Senior Notes, due 2002 22,857 28,571
Other 7,544 5,033
- ---------------------------------------------- -------
80,401 33,604
Less current maturities 6,358 6,386
- ---------------------------------------------- -------
$74,043 $27,218
======= =======
</TABLE>
The Senior Notes are unsecured and payable in equal annual installments.
Interest is payable semi-annually in January and July of each year. The
unsecured bridge facility was retired in November 1998 from the proceeds of
the private placement senior notes of $100,000,000. Maturities of these
debt instruments range from 5 years to 10 years, with interest rates from
6.0% to 6.77%.
Maturities of long-term debt are as follows:
<PAGE> 45A
<TABLE>
<CAPTION>
in thousands
<C> <C>
1999 $ 6,358
2000 6,645
2001 6,692
2002 6,290
2003 30,366
2004 and thereafter 24,050
- ---------------------------------------
$80,401
=======
</TABLE>
<PAGE> 45B
Short-term credit facilities at October 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
Outstanding Interest Outstanding Interest
in thousands Borrowings Rate Borrowings Rate
<S> <C> <C> <C> <C>
U.S. dollar $ - - $ - -
Foreign 9,533 4.22% 2,467 7.7%
- ---------------------------------- ------
$9,533 $2,467
====== ======
</TABLE>
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 $11,000,000 of
unsecured foreign currency credit facilities have been extended by foreign
banks for a total of $46,000,000 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 $34,617,000 at
October 31, 1998, when reduced by outstanding borrowings and letters of
credit of $1,850,000.
The fair value of the Company's long-term debt and short-term borrowings was
estimated at $91,000,000 and $36,800,000 at October 31, 1998 and 1997,
respectively. These estimates were derived using interest rates currently
available to the Company for issuance of debt with similar terms and
remaining maturities.
Note 7. Commitments and Contingencies
- --------------------------------------
Net rental expense for operating leases totaled $4,628,000, $3,754,000 and
$3,159,000 in 1998, 1997 and 1996, respectively.
The Company's rental commitments for noncancelable operating leases with a
duration in excess of one year are as follows:
<TABLE>
<CAPTION>
in thousands
<C> <C>
1999 $ 3,532
2000 3,219
2001 3,136
2002 3,099
2003 3,085
2004 and thereafter 6,102
- ---------------------------------------
$22,173
=======
</TABLE>
<PAGE> 46
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.
Note 8. Stock Option Plans
- ---------------------------
The Company provides a non-qualified stock option plan for officers and key
employees. At October 31, 1998, the Company had 1,849,500 shares reserved
for issuance to officers and key employees, of which 536,250 shares were
available to be granted in the future. The Board of Directors authorized
the Compensation and Stock Option Committee to administer option grants and
their terms. Awards under the plan may be granted to eligible employees of
the Company over a 10-year period ending March 4, 2007. Options granted
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>
1998 1997 1996
----------------------- ---------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 1,190,000 $ 8.472 1,516,250 $ 6.089 1,509,250 $ 4.893
Granted 187,000 18.644 271,000 14.304 258,000 11.155
Exercised (63,750) 4.261 (589,750) 5.086 (243,500) 4.112
Cancelled - - (7,500) 3.750 (7,500) 3.813
- --------------------------------------------- ------- --------- ------- --------- -------
Outstanding, end of year 1,313,250 $10.125 1,190,000 $ 8.472 1,516,250 $ 6.089
- --------------------------------------------- ------- --------- ------- --------- -------
Exercisable, end of year 741,500 $ 6.893 574,750 $ 5.511 950,500 $ 4.946
========= ======= ========= ======= ========= =======
</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 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 only options granted after 1995 were included, as prescribed by SFAS
No. 123, pro forma net income would have been $28,971,000, $24,517,000 and
$21,089,000, respectively. Basic earnings per share for 1998, 1997 and 1996
would have been $1.68, $1.43 and $1.33, respectively. Diluted earnings per
share for 1998, 1997 and 1996 would have been $1.64, $1.40 and $1.29,
respectively.
The pro forma disclosures presented below include the fair value
compensation expense for all options that would have been amortized during
1998, 1997 and 1996.
<PAGE> 47A
<TABLE>
<CAPTION>
in thousands, except per share amounts
years ended October 31, 1998 1997 1996
<S> <C> <C> <C>
Net earnings as reported $30,084 $25,321 $21,354
Pro forma net earnings 28,928 24,400 20,852
Basic earnings per share as reported $ 1.74 $ 1.48 $ 1.35
Pro forma basic earnings per share $ 1.67 $ 1.43 $ 1.32
Diluted earnings per share as reported $ 1.70 $ 1.44 $ 1.31
Pro forma diluted earnings per share $ 1.63 $ 1.39 $ 1.28
- ---------------------------------------------------------------------------
</TABLE>
<PAGE> 47B
The weighted average Black-Scholes value of options granted during 1998,
1997 and 1996 was $10.870, $7.320 and $6.012, respectively. The assumptions
used in the Black-Scholes option-pricing model for 1998, 1997, and 1996 were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Volatility 55.3% 41.6% 44.6%
Risk-free interest rate 4.1 - 4.57% 5.73 - 5.92% 6.12 - 6.38%
Expected life (years) 5 - 8 5 - 8 5 - 8
Dividends - - -
- ---------------------------------------------------------------------------
</TABLE>
The following table summarizes information for stock options outstanding at
October 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Prices Shares Life (years) Price Shares Price
<S> <C> <C> <C> <C> <C>
$ 3.6875 - 4.3750 278,000 4.74 $ 4.0226 278,000 $ 4.0226
4.5000 - 6.4375 295,000 4.92 5.9820 252,500 5.9053
6.9375 - 11.6875 286,000 7.38 10.8433 147,000 10.7700
13.2500 - 17.8125 261,250 8.33 14.0308 57,500 13.7310
18.2500 - 19.8750 193,000 9.16 18.8964 6,500 19.8750
- -----------------------------------------------------------------------------------------------
</TABLE>
Note 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, 1998, there were no shares of preferred
stock outstanding. All prior share and per share data have been restated
for the two-for-one stock split effected in April 1998.
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
<PAGE> 48
for $.01 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.
Note 10. Acquisitions
- ----------------------
The Company completed seven acquisitions during 1998. The acquisitions were
financed with available cash and credit facilities. Following is a table
summarizing the acquisitions:
<TABLE>
<CAPTION>
Purchase
Date Description
<S> <S> <C> <S>
Company Fluid 11/97 Manufacturer of advanced hydraulic controls
Regulators Co. and components for the commercial aerospace
and defense industries
Kai R. Kuhl Co. 1/98 Manufacturer of high-performance seals for
the aerospace industry
Memtron 5/98 Manufacturer of membrane switches and panels
Technologies Co. for medical, industrial computer and other
commercial markets
Kirkhill 8/98 Manufacturer of high-performance custom-
Rubber Co. engineered elastomer products for the aerospace
industry and broad array of other specialty elastomer
products for other markets
Product Line Sagem 11/97 An aerospace pressure sensor product line
Illinois Tool Works 11/97 A Boeing 777 cockpit switch product line
Advanced 8/98 Manufacturer of dedicated routers for the printed
Technology, Inc. circuit board industry, primarily for populated
board applications
</TABLE>
The total purchase price (including post-closing adjustments and third-party
acquisition costs) for Kirkhill Rubber Co. and the other acquisitions were
$93,140,000 and $34,022,000, respectively, and the purchase method of
accounting was applied. For each transaction, the purchase price exceeded
net assets resulting in goodwill which will be amortized over a range of 10
to 40 years using the straight-line method. The consolidated financial
statements include the operating results from the date of the acquisition.
In conjunction with these acquisitions, liabilities were assumed as follows:
<PAGE> 49
<TABLE>
<CAPTION>
in thousands
<S> <C>
Fair value of assets acquired $139,967
Cash paid 122,812
- -------------------------------------------------
Liabilities assumed $ 17,155
========
</TABLE>
The following unaudited pro forma information gives effect to the
acquisition of Kirkhill had the acquisition occurred as of the beginning of
the prior year. Pro forma results have not been presented for the other
acquisitions since they are not material, both individually and in the
aggregate, when compared to the pro forma results being presented. The
unaudited pro forma information is intended for informational purposes only
and is not necessarily indicative of the future financial position or future
results of operations of the combined company, or of the financial position
or results of operations of the combined company had the acquisition
actually occurred as of the beginning of the prior period:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Sales $498,419 $448,354
Net Income 31,595 27,125
Earnings per share - basic $ 1.83 $ 1.58
Earnings per share - diluted $ 1.78 $ 1.54
- -----------------------------------------------------------
</TABLE>
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 from the date of acquisition. In 1996, the Company
also acquired a noncontrolling equity interest in a company.
<PAGE> 50
Note 11. Business Segment Information
- --------------------------------------
Details of the Company's operations by business segment for the years ended
October 31 were as follows:
<TABLE>
<CAPTION>
in thousands 1998 1997 1996
<S> <C> <C> <C>
Sales
Automation $143,356 $150,522 $146,698
Aerospace and Defense 189,569 140,200 111,691
Instrumentation 120,977 100,236 94,454
- ------------------------------------------ -------- --------
$453,902 $390,958 $352,843
======== ======== ========
Earnings Before Income Taxes
Automation $ 11,101 $ 15,450 $ 23,684
Aerospace and Defense 35,623 22,273 13,649
Instrumentation 13,419 9,889 5,507
- ------------------------------------------ -------- --------
Operating Earnings $ 60,143 $ 47,612 $ 42,840
======== ======== ========
Corporate expense (10,987) (8,325) (8,427)
Interest income 1,594 2,397 1,989
Interest expense (3,803) (3,603) (4,328)
- ------------------------------------------ -------- --------
$ 46,947 $ 38,081 $ 32,074
======== ======== ========
Identifiable Assets
Automation $ 66,757 $ 67,957 $ 67,360
Aerospace and Defense 222,065 88,399 86,303
Instrumentation 64,653 50,691 46,507
Corporate(1) 33,704 82,800 76,476
- ------------------------------------------ -------- --------
$387,179 $289,847 $276,646
======== ======== ========
Capital Expenditures
Automation $ 5,653 $ 4,301 $ 7,379
Aerospace and Defense 16,368 9,851 3,414
Instrumentation 6,827 6,995 5,926
Corporate 925 461 484
- ------------------------------------------ -------- --------
$ 29,773 $ 21,608 $ 17,203
======== ======== ========
Depreciation and Amortization
Automation $ 4,894 $ 5,037 $ 4,667
Aerospace and Defense 7,946 7,144 5,705
Instrumentation 4,888 4,814 5,618
Corporate 588 409 279
- ------------------------------------------ -------- --------
$ 18,316 $ 17,404 $ 16,269
======== ======== ========
<PAGE> 51A
<FN>
<F1> Primarily cash, prepaid pension expense (see Note 4) and net deferred
tax assets (see Note 5).
</FN>
</TABLE>
<PAGE> 51B
Note 11. Business Segment Information (Continued)
- --------------------------------------------------
The Company's operations by geographic area for the years ended October 31
were as follows:
<TABLE>
<CAPTION>
in thousands 1998 1997 1996
<S> <C> <C> <C>
Sales
Domestic
Unaffiliated customers - U.S. $333,678 $261,391 $230,286
Unaffiliated customers - export 58,926 67,194 57,130
Intercompany 11,042 10,202 11,367
- -------------------------------------------- -------- --------
403,646 338,787 298,783
- -------------------------------------------- -------- --------
France
Unaffiliated customers 47,056 40,467 41,690
Intercompany 9,552 9,576 -
- -------------------------------------------- -------- --------
56,608 50,043 41,690
- -------------------------------------------- -------- --------
All Other Foreign
Unaffiliated customers 14,242 21,906 23,737
Intercompany 1,761 1,815 1,900
- -------------------------------------------- -------- --------
16,003 23,721 25,637
- -------------------------------------------- -------- --------
Eliminations (22,355) (21,593) (13,267)
- -------------------------------------------- -------- --------
$453,902 $390,958 $352,843
======== ======== ========
Operating Earnings(1)
Domestic $ 58,579 $ 43,439 $ 41,517
France 2,485 3,587 2,647
All other foreign (1,025) (122) (1,742)
Eliminations 104 708 418
- -------------------------------------------- -------- --------
$ 60,143 $ 47,612 $ 42,840
======== ======== ========
Identifiable Assets(2)
Domestic $302,977 $165,216 $158,004
France 39,343 28,986 29,378
All other foreign 11,155 12,845 12,788
$353,475 $207,047 $200,170
======== ======== ========
<PAGE> 52A
<FN>
<F1> Before corporate expense, shown on page 58.
<F2> Excludes corporate, shown on page 58.
</FN>
</TABLE>
The Company's principal foreign operations consist of manufacturing
facilities located in France and Spain, and include sales and service
operations located in England, Germany, Italy, Japan, Singapore and France.
The 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.
<PAGE> 52B
Product lines contributing more than 10% of total sales in any of the years
ended October 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Printed circuit board drilling equipment 16% 22% 22%
Aerospace switches and Indicators 13% 12% 9%
Gauge products 10% 11% 12%
- ------------------------------------------------------------------
</TABLE>
Note 12. Quarterly Financial Data (Unaudited)
- ----------------------------------------------
The following is a summary of unaudited quarterly financial information:
<TABLE>
<CAPTION>
in thousands,
except per share amounts Fourth Third Second First
<S> <C> <C> <C> <C>
Year ended October 31, 1998
Sales $132,730 $110,891 $114,551 $95,730
Gross margin 48,860 42,051 44,149 36,707
Net earnings 9,417 7,919 7,912 4,836
Net earnings
per share - basic $ .54 $ .46 $ .46 $ .28
Net earnings
per share - diluted $ .53 $ .45 $ .45 $ .27
- ------------------------------------------------------------------------------
Year ended October 31, 1997
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 - basic $ .47 $ .40 $ .39 $ .22
Net earnings
.per share(1) - diluted $ .45 $ .39 $ .38 $ .21
- ------------------------------------------------------------------------------
<FN>
<F1> 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 and the effects of
rounding for each period.
</FN>
</TABLE>
<PAGE> 53
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, 1998 and
1997, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended
October 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended October 31, 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Seattle, Washington
December 9, 1998
<PAGE> 54
Exhibit 21
SUBSIDIARIES
The subsidiaries of the Company as of October 31, 1998 are as follows:
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
- ------------------ ---------------
<S> <C>
Armtec Defense Products Co. Delaware
Auxitrol Co. Delaware
Equipment Sales Co. Connecticut
Esterline Technologies (Hong Kong) Limited Hong Kong
Excellon Automation Co. California
Excellon U.K. California
Excellon Europa GmbH Germany
Amtech Automated Manufacturing Technology, Inc. Utah
Excellon Japan Co. Japan
Federal Products Co. Delaware
Federal Products U.K. Ltd. Delaware
Fluid Regulators Corporation Ohio
Hytek Finishes Co. Delaware
Kirkhill Rubber Co. California
Korry Electronics Co. Delaware
Memtron Technologies Co. Delaware
Mason Electric Co. Delaware
Midcon Cables Co. Delaware
TA Mfg. Co. California
Kai R. Kuhl Company, Inc. California
W.A. Whitney Co. Illinois
Auxitrol Technologies S.A. France
Auxitrol S.A. France
Auxitrol International France
Auxitrol Industries France
</TABLE>
<PAGE> 55A
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, 1998.
<PAGE> 55B
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, 1998 appearing in and incorporated by reference in this Annual
Report on Form 10-K of Esterline Technologies Corporation for the year ended
October 31, 1998.
/s/ Deloitte & Touche LLP
Seattle, Washington
January 15, 1999
<PAGE> 56
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:
<PAGE> 57
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.
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 AWARDS EACH YEAR
- -------------------------------
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> 58
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> <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%
<FN>
<F1> Performance prorated between minimum and target, and between maximum
and target.
<F2> Based on the average of each year's audited beginning and ending
common shareholder equity, excluding any amounts for any preferred
shares.
</FN>
</TABLE>
<PAGE> 59
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> <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%
<FN>
<F1> Performance prorated between minimum and target, and between maximum
and target.
<F2> At each year end, performance for each specific objective is
scored/rated on a scale of "1 to 9".
<F3> Objectives renamed to reflect 2/25/97 proposed objectives.
</FN>
</TABLE>
<PAGE> 60
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> <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%
<FN>
<F1> Performance prorated between minimum and target, and between maximum
and target.
<F2> 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.
</FN>
</TABLE>
<PAGE> 61
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%
<FN>
<F*> However, each actual annual payment to an appointee is subject to an
overall maximum of 150% of an individual's target award dollar amount.
</FN>
</TABLE>
<PAGE> 62
EXHIBIT 10.20e
ESTERLINE TECHNOLOGIES CORPORATION
----------------------------------
CORPORATE MANAGEMENT INCENTIVE COMPENSATION PLAN
------------------------------------------------
FISCAL YEAR 1999
----------------
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 1999.
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 participant's payouts will vary from 5% to 60%, as
stipulated in his/her appointment letter, of fiscal year-end 1999
salary. These target nomination awards will be earned if earnings per
share of $1.70 are achieved.
2. Actual earnings per share will be as audited before extraordinary
items for the year ending October 31, 1999.
3. Awards will be pro-rated for performance and will be interpolated on
the following basis.
EPS Award
--- -----
Below $1.70 Pro-rata share of target award
At $1.70 performance 100% of target award
120% or more of $1.70 150% of target award
<PAGE> 63
4. Actual individual payouts earned from earnings per share computations
are limited to 150% of target nomination.
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 1999.
7. If a Plan member is terminated for any reason other than retirement,
or death or disability prior to the end of fiscal 1999, 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 1999, 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 1999 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
<PAGE> 64
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule Contains Summary Financial Information Extracted from the Esterline
Technologies Corporation Consolidated Balance Sheet at October 31, 1998 and the
Related Consolidated Statement of Operations for the Year then Ended and is
Qualified in its Entirety by Reference to Such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 8,897
<SECURITIES> 0
<RECEIVABLES> 80,464
<ALLOWANCES> 2,987
<INVENTORY> 71,835
<CURRENT-ASSETS> 177,957
<PP&E> 206,104
<DEPRECIATION> 112,042
<TOTAL-ASSETS> 387,179
<CURRENT-LIABILITIES> 107,858
<BONDS> 74,043
0
0
<COMMON> 3,463
<OTHER-SE> 192,913
<TOTAL-LIABILITY-AND-EQUITY> 387,179
<SALES> 453,902
<TOTAL-REVENUES> 453,902
<CGS> 282,135
<TOTAL-COSTS> 282,135
<OTHER-EXPENSES> 122,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,209
<INCOME-PRETAX> 46,947
<INCOME-TAX> 16,863
<INCOME-CONTINUING> 30,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,084
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.70
</TABLE>
