<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- -----------
Commission file number 1-6357
------
ESTERLINE TECHNOLOGIES CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2595091
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
Of incorporation or organization) Identification No.)
10800 NE 8th Street, Bellevue, Washington 98004
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 425/453-9400
------------
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
As of June 2, 1999, 17,342,374 shares of the issuer's common stock were
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------- --------------------
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEET
As of April 30, 1999 and October 31, 1998
(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
----------- -----------
(unaudited)
ASSETS
- ------
<S> <C> <C>
Current Assets
Cash and equivalents $ 67,927 $ 8,897
Accounts receivable, net of allowances
of $2,146 and $2,987 for doubtful accounts 63,562 77,477
Inventories
Raw materials and purchased parts 28,506 27,239
Work in process 33,178 33,284
Finished goods 14,279 11,312
---------- -----------
75,963 71,835
---------- -----------
Deferred income taxes 14,101 15,693
Prepaid expenses 5,338 4,055
---------- -----------
Total Current Assets 226,891 177,957
---------- -----------
Property, Plant and Equipment 212,163 206,104
Accumulated depreciation 118,777 112,042
---------- -----------
93,386 94,062
---------- -----------
Goodwill and Intangibles, net 97,397 99,344
Other Assets 15,761 15,816
---------- -----------
$ 433,435 $ 387,179
========== ===========
</TABLE>
<PAGE> 2
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEET
As of April 30, 1999 and October 31, 1998
(In thousands, except share amounts)
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
----------- -----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 17,496 $ 23,307
Accrued liabilities 59,153 68,275
Credit facilities 8,161 9,533
Current maturities of long-term debt 6,021 6,358
Federal and foreign income taxes 2,560 385
----------- -----------
Total Current Liabilities 93,391 107,858
----------- -----------
Long-Term Liabilities
Long-term debt, net of current maturities 123,256 74,043
Deferred income taxes 10,373 8,902
Commitments and Contingencies -- --
Shareholders' Equity
Common stock, par value $.20 per share,
authorized 60,000,000 shares, issued and
outstanding 17,342,374 and 17,317,178 shares 3,468 3,463
Capital in excess of par value 46,797 46,793
Retained earnings 161,290 149,091
Cumulative translation adjustment (5,140) (2,971)
----------- -----------
Total Shareholders' Equity 206,415 196,376
----------- -----------
$ 433,435 $ 387,179
=========== ===========
</TABLE>
<PAGE> 3
<TABLE>
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Six Months ended April 30, 1999 and 1998
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $116,121 $114,551 $224,819 $210,281
Costs and Expenses
Cost of sales 71,164 70,402 139,738 129,425
Selling, general and
administrative 32,521 31,591 63,129 60,724
Interest income (823) (403) (1,453) (1,003)
Interest expense 2,265 773 4,438 1,597
-------- -------- -------- --------
105,127 102,363 205,852 190,743
-------- -------- -------- --------
Earnings Before Income Taxes 10,994 12,188 18,967 19,538
Income Tax Expense 3,852 4,276 6,768 6,790
-------- -------- -------- --------
Net Earnings $ 7,142 $ 7,912 $ 12,199 $ 12,748
======== ======== ======== ========
Net Earnings Per Share - Basic $ .41 $ .46 $ .70 $ .74
======== ======== ======== ========
Net Earnings Per Share - Diluted $ .40 $ .45 $ .69 $ .72
======== ======== ======== ========
</TABLE>
<PAGE> 4
<TABLE>
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended April 30, 1999 and 1998
(Unaudited)
(In thousands)
<CAPTION>
Six Months Ended
April 30,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Cash Flows Provided (Used) by Operating Activities
Net earnings $ 12,199 $ 12,748
Depreciation and amortization 10,644 8,851
Deferred income taxes 3,063 (406)
Working capital changes, net of effect of acquisitions
Accounts receivable 12,369 2,030
Inventories (5,581) (10,611)
Prepaid expenses (1,467) (881)
Accounts payable (5,333) (701)
Accrued liabilities (8,461) (4,515)
Federal and foreign income taxes 2,173 1,450
Other, net (465) 967
-------- --------
19,141 8,932
-------- --------
Cash Flows Provided (Used) by Investing Activities
Capital expenditures (8,683) (12,766)
Capital dispositions 33 1,548
Acquisitions -- (20,309)
-------- --------
(8,650) (31,527)
-------- --------
Cash Flows Provided (Used) by Financing Activities
Net change in credit facilities (571) 5,591
Proceeds from sale of senior notes 100,000 --
Repayment of bridge facility (50,000) --
Repayment of long-term obligations (566) (393)
-------- --------
48,863 5,198
-------- --------
Effect of Exchange Rates (324) (511)
-------- --------
Net Increase (Decrease) in Cash and Equivalents 59,030 (17,908)
Cash and Equivalents - Beginning of Period 8,897 56,045
-------- --------
Cash and Equivalents - End of Period $ 67,927 $ 38,137
======== ========
Supplemental Cash Flow Information
Cash paid during the period for
Interest expense $ 2,453 $ 1,603
Income taxes 914 4,358
</TABLE>
<PAGE> 5
ESTERLINE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended April 30, 1999 and 1998
1. The consolidated balance sheet as of April 30, 1999, the consolidated
statements of operations for the three and six months ended
April 30, 1999 and 1998, and the consolidated statement of cash flows
for the six months ended April 30, 1999 and 1998 are unaudited, but
in the opinion of management all of the necessary adjustments have
been made to present fairly the financial statements referred to
above. The results of operations and cash flows for the interim
periods presented are not necessarily indicative of results for the
full year.
2. The notes to the consolidated financial statements in the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1998
provide a summary of significant accounting policies and additional
financial information that should be read in conjunction with this
Form 10-Q.
3. Classifications have been changed for certain amounts in the
preceding period to conform to the current period's financial
presentation.
4. The Company's comprehensive income is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Earnings $ 7,142 $ 7,192 $12,199 $12,748
Foreign Currency Translation Adj. (1,304) 141 (2,169) (1,086)
------- ------- ------- -------
Comprehensive Income $ 5,838 $ 7,333 $10,030 $11,662
======= ======= ======= =======
</TABLE>
<PAGE> 6
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
---------------------
Certain statements in the commentary contain forward-looking statements
within the meanings of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements involve risks and uncertainties regarding matters
that could significantly affect expected results, including information
about industry trends, growth, Year 2000, 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.
Results of Operations
- ---------------------
Quarter Ended April 30, 1999 Compared to Quarter Ended April 30, 1998
Net sales for the quarter ended April 30, by Group, were as follows:
(In thousands)
<TABLE>
<CAPTION>
Incr./(Decr.)
from prior
year 1999 1998
------------- -------- --------
<S> <C> <C> <C>
Automation (35)% $ 26,362 $ 40,775
Aerospace and Defense 36% 57,702 42,354
Instrumentation 2% 32,057 31,422
-------- --------
Total Net Sales $116,121 $114,551
======== ========
</TABLE>
Net sales for the second quarter of 1999 were up slightly from the same
prior year period. The 36% increase in Aerospace/Defense Group sales is
primarily the result of the acquisition of Kirkhill in August 1998.
Without Kirkhill, the Aerospace/Defense Group experienced modest growth
from period to period. Automation Group sales have been heavily impacted
<PAGE> 7
by the currently depressed worldwide market for printed circuit board
manufacturing equipment. In addition, comparison of Automation Group sales
to the prior year period is affected by a strong second quarter in 1998.
Sales in the Instrumentation Group improved slightly, as increases in sales
to aerospace customers offset declines in the general manufacturing
markets.
Total gross margin as a percentage of net sales was 39% for the second
quarters of both 1999 and 1998. Gross margins in capital goods markets,
such as printed circuit board manufacturing equipment, continued to be
affected by delayed purchasing decisions and pricing pressures, but total
gross margin was balanced by the stability in the other areas. Gross
margins among the Groups ranged from 33% to 42% compared with 34% to 42%
during the same period in 1998.
Selling, general and administrative expenses remained at 28% of sales for
the second quarter of 1999 compared to the prior year. Expenses totaled
$32.5 million in the current quarter compared with the prior year's total
of $31.6 million.
Interest expense increased $1.5 million to $2.3 million in the second
quarter. This increase was due primarily to the $100 million private
placement of senior notes ("1999 Senior Notes") completed in November 1998.
The effective income tax rate for the second quarter of 1999 remained at
35% compared to the same period last year.
The Company's market balance strategy-the belief that by participating in
several markets and industries, more consistent total performance can be
sustained-has been effective in the current market conditions. The
depressed market for printed circuit board manufacturing equipment and
delayed purchasing decisions for capital goods have caused declines in the
Automation Group. However, these declines continued to be offset by
increases from Groups serving other markets.
New orders for the second quarter of 1999 were $135 million compared with
$123.4 million for the same period in 1998. The increase in new orders was
primarily attributed to products in the Aerospace/Defense and
Instrumentation Groups.
<PAGE> 8
Six Months Ended April 30, 1999 Compared to Six Months Ended April 30, 1998
Year-to-date net sales ended April 30, by Group, were as follows:
(In thousands)
<TABLE>
<CAPTION>
Incr./(Decr.)
from prior
year 1999 1998
------------- -------- --------
<S> <C> <C> <C>
Automation (29)% $ 53,336 $ 75,250
Aerospace and Defense 45% 112,119 77,311
Instrumentation 3% 59,364 57,720
-------- --------
Total Net Sales $224,819 $210,281
======== ========
</TABLE>
Sales for the first half of 1999 were up compared with the prior year due
to revenue increases in the Aerospace/Defense Group. The Aerospace/Defense
Group benefited from sales contributed by new acquisitions, primarily
Kirkhill. The Automation Group continued to be pressured due to generally
poor worldwide market conditions for printed circuit board manufacturing
equipment. To a lesser extent, the sale of Tulon in late 1998 impacted
Automation Group sales.
Total gross margin as a percentage of net sales was 38% for the first half
of both 1999 and 1998. Gross margins among the Groups ranged from 31% to
41% compared with 36% to 40% during the same period in 1998.
Selling, general and administrative expenses improved from 29% to 28% of
net sales for the first half of 1999. Actual expenses for selling, general
and administrative increased to $63.1 million compared with $60.7 million
during the same period in 1998.
Interest income increased slightly to $1.5 million for the first half of
1999 while interest expense increased $2.8 million, primarily due to the
1999 Senior Notes. Available cash increased $59 million from
October 31, 1998 and has been invested in tax exempt notes and other
short-term instruments, which accounted for the modest increase in interest
income.
New orders for the first half of 1999 were $239.7 million compared with
$236.3 million for the same period in 1998. Company-wide backlog at
April 30, 1999 was $183.3 million compared with $180.1 million at
April 30, 1998. The increase in backlog was primarily attributed to orders
received for aerospace products. Approximately $61.2 million in backlog is
scheduled for delivery after fiscal 1999. Most orders in backlog are
subject to cancellation until delivery.
<PAGE> 9
The Company has assessed the risk from failure of internal systems and
those of vendors and suppliers from the year 2000 ("Y2K") conversion as
low. Due to its diversified and decentralized nature, the Company believes
that the impact of a failure at any one location would not have an overall
material impact. Because of this assessment, the Company has not
formalized any contingency plans in the event of a system failure. The
Company recognizes, however, that not all of its internal computer systems
are Y2K compliant and is taking steps to resolve these issues. Currently,
the Company believes that its systems are materially Y2K compliant and all
internal systems are expected to be compliant by July 1999. The Company
also understands and expects that certain compliance efforts will continue
throughout the year. Based on current information available, it is
estimated that the cost of compliance will be less than $1 million.
The Company has not undertaken a complete assessment of third party
exposure for Y2K issues. The Company believes the effects of third party
Y2K issues will not be material due to the Company's decentralized
structure which minimizes its reliance on single product vendors, and the
Company also believes that most of its third party relationships are
replaceable. However, the Company is unable to predict the ultimate impact
of Y2K non-compliance issues due to all of the uncertainties relating to
Y2K, especially with third party suppliers.
<PAGE> 10
Liquidity and Capital Resources
- -------------------------------
Cash and equivalents on hand at April 30, 1999 totaled $67.9 million, an
increase of $59 million from October 31, 1998. Net working capital
increased to $133.5 million at April 30, 1999 from $70.1 million at
October 31, 1998. Increases in both cash and net working capital are
primarily related to the 1999 Senior Notes.
Net accounts receivable were $63.6 million at April 30, 1999, compared to
$77.5 million from October 31, 1998. The decrease is primarily related to
reduced levels of receivables in both the Automation and Aerospace/Defense
Groups. The Aerospace/Defense Group experienced strong fourth quarter
sales which translated into higher receivables at yearend. The decline in
Automation Group sales have resulted in a lower level of outstanding
receivables. Current liabilities decreased to $93.4 million at
April 30, 1999 from $107.9 million at October 31, 1998, primarily due to
the timing of certain obligations.
Capital expenditures, consisting of machinery, equipment and computers, are
anticipated to be approximately $21 million during fiscal 1999, compared
with $29.8 million in fiscal 1998. Capital expenditures for the second
quarter ended April 30, 1999 totaled $8.7 million and were concentrated in
the Aerospace/Defense and Instrumentation Groups for machinery and
equipment, including enhancements to information technology.
Total debt at April 30, 1999 was $137.4 million, an increase of
$47.5 million from October 31, 1998, principally related to the 1999 Senior
Notes placement. Total debt outstanding at April 30, 1999 consisted of
$100 million under the Company's 1999 Senior Notes, $22.9 million under the
Company's 8.75% Senior Notes, $1.6 million for revenue bonds and
$12.9 million under various foreign currency debt agreements, including
capital lease obligations. The 8.75% Senior Notes have a scheduled annual
payment of $5.7 million, which will continue until maturity on
July 30, 2002. The 1999 Senior Notes have maturities ranging from
5 to 10 years and interest rates from 6% to 6.77%. Management believes
cash on hand and funds generated from operations will adequately service
operating cash requirements and capital expenditures through 1999.
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
The Company has various lawsuits and claims, both offensive and defensive,
and contingent liabilities arising from the conduct of its business, none
of which, in the opinion of management, is expected to have a material
effect on the Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
At the Company's annual meeting of shareholders held on March 3, 1999,
shareholders approved the following proposals:
(a) The election of the following directors for three-year terms
expiring at the 2002 annual meeting:
<TABLE>
<CAPTION>
Votes Cast
-------------------------
Name For Withheld
---- ---------- ----------
<S> <C> <C>
Robert W. Cremin 15,644,993 45,826
E. John Finn 15,644,693 46,126
Robert F. Goldhammer 15,644,881 45,938
Jerry D. Leitman 15,643,893 46,926
</TABLE>
Current directors whose terms will continue after the 1999
annual meeting are Richard R. Albrecht, Gilbert W. Anderson,
John F. Clearman, Wendell P. Hurlbut, Paul G. Schloemer and
Malcolm T. Stamper.
(b) The approval of an increase in the number of authorized shares
of common stock from 30,000,000 to 60,000,000 shares.
(14,483,601 votes For, 1,172,986 votes Against and 34,232 votes
Abstained).
(c) The selection of Deloitte & Touche LLP as independent auditors
for the fiscal year ending October 31, 1999. (15,660,126 votes
For, 4,801 votes Against and 25,892 votes Abstained).
There were no broker non-votes on any of the above proposals.
<PAGE> 12
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits.
11. Schedule setting forth computation of basic and
diluted earnings per common share for the three and
six months ended April 30, 1999 and 1998.
27. Financial Data Schedule (EDGAR Only).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for
which this report is filed.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Esterline Technologies Corporation
(Registrant)
Dated: June 11, 1999 By: /s/ Robert W. Stevenson
-----------------------------------
Robert W. Stevenson
Executive Vice President,
Chief Financial Officer and Secretary
(Principal Financial Officer)
By: /s/ Robert D. George
-----------------------------------
Robert D. George
Treasurer and Controller
(Principal Accounting Officer)
<PAGE> 13
Exhibit 11
<TABLE>
ESTERLINE TECHNOLOGIES CORPORATION
Computation of Basic and Diluted Earnings Per Common Share
For the Three and Six Months Ended April 30, 1999 and 1998
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Basic:
- ------
Net Earnings $ 7,142 $ 7,912 $12,199 $12,748
======= ======= ======= =======
Weighted Average Number of
Common Shares Outstanding 17,338 17,287 17,332 17,287
======= ======= ======= =======
Net Earnings per Common Share -
Basic $ .41 $ .46 $ .70 $ .74
======= ======= ======= =======
Diluted:
- --------
Net Earnings $ 7,142 $ 7,912 $12,199 $12,748
======= ======= ======= =======
Weighted Average Number of
Common Shares Outstanding 17,338 17,287 17,332 17,287
Net Shares Assumed to be Issued for
Stock Options 322 450 353 429
------- ------- ------- -------
Weighted Average Number of
Common Shares and Common
Equivalent Shares Outstanding 17,660 17,737 17,685 17,716
======= ======= ======= =======
Net Earnings per Common Share -
Diluted $ .40 $ .45 $ .69 $ .72
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule Contains Summary Financial Information
Extracted From the Esterline Technologies Corporation
Consolidated Balance Sheet at April 30, 1999 and the
Related Consolidated Statements of Operations for the
Six Months then Ended and is Qualified in its
Entirety by Reference to Such Financial
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 67,927
<SECURITIES> 0
<RECEIVABLES> 65,708
<ALLOWANCES> 2,146
<INVENTORY> 75,963
<CURRENT-ASSETS> 226,891
<PP&E> 212,163
<DEPRECIATION> 118,777
<TOTAL-ASSETS> 433,435
<CURRENT-LIABILITIES> 93,391
<BONDS> 123,256
0
0
<COMMON> 3,468
<OTHER-SE> 202,947
<TOTAL-LIABILITY-AND-EQUITY> 433,435
<SALES> 224,819
<TOTAL-REVENUES> 224,819
<CGS> 139,738
<TOTAL-COSTS> 139,738
<OTHER-EXPENSES> 63,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,985
<INCOME-PRETAX> 18,967
<INCOME-TAX> 6,768
<INCOME-CONTINUING> 12,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,199
<EPS-BASIC> .70
<EPS-DILUTED> .69
<PAGE>
</TABLE>
