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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. [ ]
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.
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
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.
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.
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.
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
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
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
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
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:
10
Approximate
Type of Number of Owned
Location Facility Square Feet or Leased
-------- -------- ----------- ---------
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
- ------------------------
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).
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.
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:
Name Position with the Company Age
---- ------------------------- ---
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
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.
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:
14
Annual Report
Page Number
-------------
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
(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.
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
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
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
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).)
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).
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).)
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
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
Deduction for
Balance at Additions Purpose for Balance
Beginning Charged which Reserve at End
Description of Year to Income was Created of Year
----------- --------- --------- ------------- -------
Reserve for Doubtful
Accounts Receivable
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
====== ==== ======= ======
22B