UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended January 25, 2013.
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.) |
500 108th Avenue N.E., Bellevue, Washington 98004
(Address of principal executive offices)(Zip Code)
Registrants 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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
As of February 26, 2013, 30,989,131 shares of the issuers common stock were outstanding.
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEET
As of January 25, 2013 and October 26, 2012
(In thousands, except share amounts)
January 25,
2013 |
October 26,
2012 |
|||||||
ASSETS |
(Unaudited) | |||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 202,776 | $ | 160,675 | ||||
Cash in escrow |
5,017 | 5,016 | ||||||
Accounts receivable, net of allowances of $9,263 and $9,029 |
331,335 | 383,362 | ||||||
Inventories |
||||||||
Raw materials and purchased parts |
155,481 | 146,390 | ||||||
Work in process |
178,729 | 174,824 | ||||||
Finished goods |
87,416 | 88,623 | ||||||
|
|
|
|
|||||
421,626 | 409,837 | |||||||
Income tax refundable |
6,516 | 4,832 | ||||||
Deferred income tax benefits |
47,430 | 46,000 | ||||||
Prepaid expenses |
27,207 | 21,340 | ||||||
Other current assets |
6,083 | 4,631 | ||||||
|
|
|
|
|||||
Total Current Assets |
1,047,990 | 1,035,693 | ||||||
Property, Plant and Equipment |
715,584 | 701,541 | ||||||
Accumulated depreciation |
358,611 | 345,140 | ||||||
|
|
|
|
|||||
356,973 | 356,401 | |||||||
Other Non-Current Assets |
||||||||
Goodwill |
1,105,656 | 1,098,962 | ||||||
Intangibles, net |
599,396 | 609,045 | ||||||
Debt issuance costs, net of accumulated amortization of $5,046 and $4,577 |
8,349 | 8,818 | ||||||
Deferred income tax benefits |
97,758 | 97,952 | ||||||
Other assets |
19,282 | 20,246 | ||||||
|
|
|
|
|||||
$ | 3,235,404 | $ | 3,227,117 | |||||
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|
|
2
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEET
As of January 25, 2013 and October 26, 2012
(In thousands, except share amounts)
January 25,
2013 |
October 26,
2012 |
|||||||
LIABILITIES AND SHAREHOLDERS EQUITY |
(Unaudited) | |||||||
Current Liabilities |
||||||||
Accounts payable |
$ | 103,315 | $ | 108,689 | ||||
Accrued liabilities |
259,014 | 269,553 | ||||||
Credit facilities |
82 | 0 | ||||||
Current maturities of long-term debt |
10,953 | 10,610 | ||||||
Deferred income tax liabilities |
5,620 | 5,125 | ||||||
Federal and foreign income taxes |
4,326 | 2,369 | ||||||
|
|
|
|
|||||
Total Current Liabilities |
383,310 | 396,346 | ||||||
Long-Term Liabilities |
||||||||
Credit facilities |
225,000 | 240,000 | ||||||
Long-term debt, net of current maturities |
578,329 | 598,060 | ||||||
Deferred income tax liabilities |
204,509 | 205,198 | ||||||
Pension and post-retirement obligations |
143,475 | 132,074 | ||||||
Other liabilities |
35,519 | 34,904 | ||||||
Shareholders Equity |
||||||||
Common stock, par value $.20 per share, authorized 60,000,000 shares, issued and outstanding 30,960,812 and 30,869,390 |
6,192 | 6,174 | ||||||
Additional paid-in capital |
576,966 | 569,235 | ||||||
Retained earnings |
1,145,467 | 1,120,356 | ||||||
Accumulated other comprehensive loss |
(73,504 | ) | (85,284 | ) | ||||
|
|
|
|
|||||
Total Esterline shareholders equity |
1,655,121 | 1,610,481 | ||||||
Noncontrolling interests |
10,141 | 10,054 | ||||||
|
|
|
|
|||||
Total Shareholders Equity |
1,665,262 | 1,620,535 | ||||||
|
|
|
|
|||||
$ | 3,235,404 | $ | 3,227,117 | |||||
|
|
|
|
3
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Month Periods Ended January 25, 2013 and January 27, 2012
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended | ||||||||
January 25,
2013 |
January 27,
2012 |
|||||||
Net Sales |
$ | 457,962 | $ | 470,882 | ||||
Cost of Sales |
297,617 | 312,801 | ||||||
|
|
|
|
|||||
160,345 | 158,081 | |||||||
Expenses |
||||||||
Selling, general & administrative |
98,611 | 94,697 | ||||||
Research, development & engineering |
23,076 | 26,395 | ||||||
|
|
|
|
|||||
Total Expenses |
121,687 | 121,092 | ||||||
|
|
|
|
|||||
Operating Earnings |
38,658 | 36,989 | ||||||
Interest Income |
(101 | ) | (95 | ) | ||||
Interest Expense |
10,444 | 11,528 | ||||||
|
|
|
|
|||||
Income Before Income Taxes |
28,315 | 25,556 | ||||||
Income Tax Expense |
2,394 | 2,576 | ||||||
|
|
|
|
|||||
Income Including Noncontrolling Interests |
25,921 | 22,980 | ||||||
Income Attributable to Noncontrolling Interests |
(810 | ) | (192 | ) | ||||
|
|
|
|
|||||
Net Earnings Attributable to Esterline |
$ | 25,111 | $ | 22,788 | ||||
|
|
|
|
|||||
Earnings Per Share Attributable to Esterline: |
||||||||
Basic Earnings Per Share |
$ | .81 | $ | .74 | ||||
Diluted Earnings Per Share |
.80 | .73 | ||||||
Comprehensive Income (Loss) |
$ | 36,891 | $ | (41,078) |
4
ESTERLINE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Month Periods Ended January 25, 2013 and January 27, 2012
(Unaudited)
(In thousands)
Three Months Ended | ||||||||
January 25,
2013 |
January 27,
2012 |
|||||||
Cash Flows Provided (Used) by Operating Activities |
||||||||
Net earnings including noncontrolling interests |
$ | 25,921 | $ | 22,980 | ||||
Adjustments to reconcile net earnings including
|
||||||||
Depreciation and amortization |
27,971 | 26,123 | ||||||
Deferred income taxes |
(3,516 | ) | (7,619 | ) | ||||
Share-based compensation |
3,743 | 2,648 | ||||||
Gain on sale of capital assets |
(51 | ) | (447 | ) | ||||
Working capital changes, net of effect of acquisitions: |
||||||||
Accounts receivable |
54,172 | 11,202 | ||||||
Inventories |
(8,743 | ) | (2,439 | ) | ||||
Prepaid expenses |
(5,771 | ) | (2,275 | ) | ||||
Other current assets |
(1,658 | ) | 670 | |||||
Accounts payable |
(6,683 | ) | (3,777 | ) | ||||
Accrued liabilities |
(9,783 | ) | (1,550 | ) | ||||
Federal and foreign income taxes |
161 | 2,781 | ||||||
Other liabilities |
9,486 | 75 | ||||||
Other, net |
1,297 | (1,725 | ) | |||||
|
|
|
|
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86,546 | 46,647 | |||||||
Cash Flows Provided (Used) by Investing Activities |
||||||||
Purchases of capital assets |
(12,253 | ) | (12,926 | ) | ||||
Proceeds from sale of capital assets |
51 | 447 | ||||||
Escrow deposit |
(1 | ) | (6 | ) | ||||
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|
|
|
|||||
(12,203 | ) | (12,485 | ) | |||||
Cash Flows Provided (Used) by Financing Activities |
||||||||
Proceeds provided by stock issuance under employee stock plans |
3,671 | 1,379 | ||||||
Excess tax benefits from stock options exercised |
335 | 6 | ||||||
Dividends paid to noncontrolling interest |
(514 | ) | 0 | |||||
Proceeds from credit facilities |
82 | 0 | ||||||
Repayment of long-term debt |
(36,609 | ) | (31,385 | ) | ||||
Proceeds from government assistance |
650 | 7,942 | ||||||
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|
|
|
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(32,385 | ) | (22,058 | ) | |||||
Effect of Foreign Exchange Rates on Cash and Cash Equivalents |
143 | (3,850 | ) | |||||
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|
|
|
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Net Increase in Cash and Cash Equivalents |
42,101 | 8,254 | ||||||
Cash and Cash Equivalents Beginning of Period |
160,675 | 185,035 | ||||||
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|
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Cash and Cash Equivalents End of Period |
$ | 202,776 | $ | 193,289 | ||||
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Supplemental Cash Flow Information |
||||||||
Cash paid for interest |
$ | 2,830 | $ | 4,069 | ||||
Cash paid for taxes |
5,083 | 5,878 |
5
ESTERLINE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended January 25, 2013 and January 27, 2012
1. | The consolidated balance sheet as of January 25, 2013, the consolidated statement of operations for the three month periods ended January 25, 2013, and January 27, 2012, and the consolidated statement of cash flows for the three month periods ended January 25, 2013, and January 27, 2012, are unaudited but, in the opinion of management, all of the necessary adjustments, consisting of normal recurring accruals, have been made to present fairly the financial statements referred to above in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the above statements do not include all of the footnotes required for complete financial statements. The results of operations and cash flows for the interim periods presented are not necessarily indicative of results that can be expected for the full year. |
2. | The notes to the consolidated financial statements in the Companys Annual Report on Form 10-K for the fiscal year ended October 26, 2012, provide a summary of significant accounting policies and additional financial information that should be read in conjunction with this Form 10-Q. |
3. | The timing of the Companys revenues is impacted by the purchasing patterns of customers and, as a result, revenues are not generated evenly throughout the year. Moreover, the Companys first fiscal quarter, November through January, includes significant holiday periods in both Europe and North America. |
4. | Basic earnings per share is computed on the basis of the weighted average number of shares outstanding during the year. Diluted earnings per share includes the dilutive effect of stock options and restricted stock units. Common shares issuable from employee stock plans that are excluded from the calculation of diluted earnings per share because they were anti-dilutive were 672,825 and 632,275 in the first fiscal quarter of 2013 and 2012, respectively. Shares used for calculating earnings per share are disclosed in the following table. |
(In thousands) | Three Months Ended | |||||||
January 25,
2013 |
January 27,
2012 |
|||||||
Shares Used for Basic Earnings Per Share |
30,904 | 30,631 | ||||||
Shares Used for Diluted Earnings Per Share |
31,423 | 31,157 |
5. The Companys comprehensive income (loss) is as follows:
|
(In thousands) | Three Months Ended | |||||||
January 25,
2013 |
January 27,
2012 |
|||||||
Net Earnings |
$ | 25,111 | $ | 22,788 | ||||
Change in Fair Value of Derivative Financial Instruments,
|
(46 | ) | (3,350 | ) | ||||
Change in Pension and Post-Retirement Obligations,
|
(151 | ) | 1,494 | |||||
Foreign Currency Translation Adjustment |
11,977 | (62,010 | ) | |||||
|
|
|
|
|||||
Comprehensive Income (Loss) |
$ | 36,891 | $ | (41,078 | ) | |||
|
|
|
|
6
The Companys accumulated other comprehensive loss is comprised of the following:
(In thousands) |
January 25,
2013 |
October 26,
2012 |
||||||
Net unrealized gain on derivative contracts |
$ | 1,577 | $ | 1,623 | ||||
Pension and post-retirement obligations |
(99,330 | ) | (99,179 | ) | ||||
Currency translation adjustment |
24,249 | 12,272 | ||||||
|
|
|
|
|||||
Total accumulated other comprehensive loss |
$ | (73,504 | ) | $ | (85,284 | ) | ||
|
|
|
|
6. | The income tax rate was 8.5% compared with 10.1% for the first fiscal quarter of 2013 and 2012, respectively. In the first fiscal quarter of 2013, the Company recognized $3.7 million of discrete tax benefits principally related to the following items. The first item was approximately $1.5 million of tax benefits due to the retroactive extension of the U.S. federal research and experimentation credits. The second item was approximately $2.2 million of tax benefits related to the settlement of U.S. and foreign tax examinations. In the first fiscal quarter of 2012, the Company recognized $2.3 million of discrete tax benefits due to a change in French tax laws associated with the holding company structure and the financing of the Souriau acquisition. The income tax rate differed from the statutory rate in the first fiscal quarter of 2013 and 2012, as both years benefited from various tax credits and certain foreign interest expense deductions. |
It is reasonably possible that within the next twelve months approximately $5.1 million of tax benefits associated with research and development tax credits, capital and operating losses that are currently unrecognized could be recognized as a result of settlement of examinations and/or the expiration of a statute of limitations.
7. | Subsequent to period end, on February 4, 2013, the Company acquired the Gamesman Group (Gamesman) for approximately $39.9 million. Gamesman is a global supplier of input devices principally serving the gaming industry. Gamesman will be included in the Avionics & Controls segment. |
8. | As of January 25, 2013, the Company had three share-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans for the first fiscal quarter of 2013 and 2012 was $3.7 million and $2.6 million, respectively. During the first fiscal quarter of 2013 and 2012, the Company issued 91,422 and 30,493 shares, respectively, under its employee stock plans. |
Employee Stock Purchase Plan (ESPP)
The ESPP is a safe-harbor designed plan whereby shares are purchased by participants at a discount of 5% of the market value on the purchase date and, therefore, compensation cost is not recorded under the ESPP.
Employee Sharesave Scheme
The Company offers shares under its employee sharesave scheme for U.K. employees. This plan allows participants the option to purchase shares at a 5% discount of the market price of the stock as of the beginning of the offering period. The term of these options is three years. The sharesave scheme is not a safe-harbor design, and therefore, compensation cost is recognized on this plan. Under the sharesave scheme, option exercise prices are equal to the fair market value of the Companys common stock on the date of grant. No options were granted during the first fiscal quarter of 2013 or 2012.
Equity Incentive Plan
Under the equity incentive plan, option exercise prices are equal to the fair market value of the Companys common stock on the date of grant. The Company granted 237,700 options and 311,400 options in the three month periods ended January 25, 2013, and January 27, 2012, respectively. The weighted-average grant date fair value of options granted during the three-month periods ended January 25, 2013, and January 27, 2012, was $29.12 per share and $23.74 per share, respectively.
The fair value of each option granted by the Company was estimated using a Black-Scholes pricing model which uses the assumptions noted in the following table. The Company uses historical data to estimate volatility of the Companys common stock, option exercise, and employee termination assumptions. The risk-free
7
rate for the contractual life of the option is based on the U.S. Treasury zero coupon issues in effect at the time of the grant.
Three Months Ended | ||||||||
January 25,
2013 |
January 27,
2012 |
|||||||
Risk-free interest rate |
0.79 1.88% | 0.91 2.11% | ||||||
Volatility |
41.89 44.25% | 41.62 44.29% | ||||||
Expected life (years) |
4.5 9.5 | 4.5 9.5 | ||||||
Dividends |
0 | 0 |
In December 2012, the Board of Directors and Compensation Committee approved restricted stock unit awards under the equity incentive plan. The Company granted 32,200 restricted stock units during the three-month period ended January 25, 2013. The weighted-average grant date fair value of restricted stock units granted during the three-month period ended January 25, 2013, was $62.52 per share. The fair value for each restricted stock unit granted by the Company is equal to the fair market value of the Companys common stock on the date of grant. There were no restricted stock units granted in the three-month period ended January 27, 2012.
9. | The Companys pension plans principally include a U.S. pension plan maintained by Esterline and a non-U.S. plan maintained by CMC Electronics, Inc. (CMC). Components of periodic pension cost consisted of the following: |
(In thousands) | Three Months Ended | |||||||
January 25,
2013 |
January 27,
2012 |
|||||||
Service cost |
$ | 2,749 | $ | 2,402 | ||||
Interest cost |
4,317 | 4,646 | ||||||
Expected return on plan assets |
(5,573 | ) | (5,327 | ) | ||||
Amortization of prior service cost |
21 | 10 | ||||||
Amortization of actuarial loss |
3,412 | 2,575 | ||||||
|
|
|
|
|||||
Net Periodic Cost |
$ | 4,926 | $ | 4,306 | ||||
|
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|
|
The Companys principal post-retirement plans include non-U.S. plans, which are non-contributory healthcare and life insurance plans. The components of expense of these other retirement benefits consisted of the following:
(In thousands) | Three Months Ended | |||||||
January 25,
2013 |
January 27,
2012 |
|||||||
Service cost |
$ | 259 | $ | 102 | ||||
Interest cost |
190 | 163 | ||||||
Amortization of prior service cost |
(17 | ) | 0 | |||||
Amortization of actuarial loss (gain) |
8 | (7 | ) | |||||
|
|
|
|
|||||
Net Periodic Cost |
$ | 440 | $ | 258 | ||||
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|
10. | In March 2011, the Company entered into a $460.0 million secured credit facility made available through a group of banks. The credit facility is secured by substantially all of the Companys assets and interest is based on standard inter-bank offering rates. The credit facility expires in July 2016. The interest rate will range from LIBOR plus 1.5% to LIBOR plus 2.25% depending on the leverage ratios at the time the funds are drawn. At January 25, 2013, the Company had $225.0 million outstanding under the secured credit facility at an interest rate of LIBOR plus 1.75% or 1.96%. |
In July 2011, the Company amended the secured credit facility to provide for a 125.0 million term loan (Euro Term Loan). The interest rate on the Euro Term Loan will range from Euro LIBOR plus 1.5% to Euro LIBOR
8
plus 2.25% depending on the leverage ratios at the time the funds are drawn. At January 25, 2013, the Company had 45.4 million outstanding or $61.2 million under the Euro Term Loan at an interest rate of Euro LIBOR plus 1.75% or 1.81%. The loan amortizes at 1.25% of the original principal balance quarterly through March 2016, with the remaining balance due in July 2016.
The fair value of the Companys $250.0 million 7.0% Senior Notes due August 2020 was $277.5 million as of January 25, 2013, and October 26, 2012. The fair value of the Companys $175.0 million 6.625% Senior Notes due March 2017 was $176.8 million and $181.3 million as of January 25, 2013, and October 26, 2012, respectively. The carrying amounts of the secured credit facility and Euro Term Loan due 2016 approximate fair value. Estimates of fair value for the Senior Notes are based on quoted market prices, and considered Level 2 inputs as defined in the fair value hierarchy, described in Note 11.
Government refundable advances consist of payments received from the Canadian government to assist in research and development related to commercial aviation. The repayment of this advance is based on year-over-year commercial aviation revenue growth at CMC beginning in 2014. Imputed interest on the advance was 5.01% at January 25, 2013.
11. | Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value. An asset or liabilitys level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy of fair value measurements is described below: |
Level 1 Valuations are based on quoted prices that the Company has the ability to obtain in actively traded markets for identical assets and liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market or exchange traded market, a valuation of these instruments does not require a significant degree of judgment.
Level 2 Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 Valuations are based on model-based techniques for which some or all of the assumptions are obtained from indirect market information that is significant to the overall fair value measurement and which require a significant degree of management judgment.
9
The following table sets forth the Companys financial assets and liabilities that were measured at fair value on a recurring basis by level within the fair value hierarchy at January 25, 2013, and October 26, 2012:
(In thousands) | Level 2 | |||||||
January 25,
2013 |
October 26,
2012 |
|||||||
Assets: |
||||||||
Derivative contracts designated as hedging instruments |
$ | 7,108 | $ | 7,753 | ||||
Derivative contracts not designated as hedging instruments |
1,908 | 1,387 | ||||||
Embedded derivatives |
377 | 51 | ||||||
Liabilities: |
||||||||
Derivative contracts designated as hedging instruments |
$ | 1,794 | $ | 2,143 | ||||
Derivative contracts not designated as hedging instruments |
736 | 361 | ||||||
Embedded derivatives |
264 | 470 |
The Companys embedded derivatives are the result of entering into sales or purchase contracts that are denominated in a currency other than the Companys functional currency or the suppliers or customers functional currency. The fair value is determined by calculating the difference between quoted exchange rates at the time the contract was entered into and the period-end exchange rate. These contracts are categorized as Level 2 in the fair value hierarchy.
The Companys derivative contracts consist of foreign currency exchange contracts and interest rate swap agreements. These derivative contracts are over the counter and their fair value is determined using modeling techniques that include market inputs such as interest rates, yield curves, and currency exchange rates. These contracts are categorized as Level 2 in the fair value hierarchy.
12. | The Company uses derivative financial instruments in the form of foreign currency forward exchange contracts and interest rate swap contracts for the purpose of minimizing exposure to changes in foreign currency exchange rates on business transactions and interest rates, respectively. The Companys policy is to execute such instruments with banks the Company believes to be credit worthy and not to enter into derivative financial instruments for speculative purposes. These derivative financial instruments do not subject the Company to undue risk, as gains and losses on these instruments generally offset gains and losses on the underlying assets, liabilities, or anticipated transactions that are being hedged. |
All derivative financial instruments are recorded at fair value in the Consolidated Balance Sheet. For a derivative that has not been designated as an accounting hedge, the change in the fair value is recognized immediately through earnings. For a derivative that has been designated as an accounting hedge of an existing asset or liability (a fair value hedge), the change in the fair value of both the derivative and underlying asset or liability is recognized immediately through earnings. For a derivative designated as an accounting hedge of an anticipated transaction (a cash flow hedge), the change in the fair value is recorded on the Consolidated Balance Sheet in Accumulated Other Comprehensive Income (AOCI) to the extent the derivative is effective in mitigating the exposure related to the anticipated transaction. The change in the fair value related to the ineffective portion of the hedge, if any, is immediately recognized in earnings. The amount recorded within AOCI is reclassified into earnings in the same period during which the underlying hedged transaction affects earnings.
The fair values of derivative instruments are presented on a gross basis, as the Company does not have any derivative contracts which are subject to master netting arrangements. The Company does not have any hedges with credit-risk-related contingent features or that required the posting of collateral as of January 25, 2013. The cash flows from derivative contracts are recorded in operating activities in the Consolidated Statement of Cash Flows.
10
Foreign Currency Forward Exchange Contracts
The Company transacts business in various foreign currencies which subjects the Companys cash flows and earnings to exposure related to changes in foreign currency exchange rates. These exposures arise primarily from purchases or sales of products and services from third parties. Foreign currency forward exchange contracts provide for the purchase or sale of foreign currencies at specified future dates at specified exchange rates and are used to offset changes in the fair value of certain assets or liabilities or forecasted cash flows resulting from transactions denominated in foreign currencies. As of January 25, 2013, and October 26, 2012, the Company had outstanding foreign currency forward exchange contracts principally to sell U.S. dollars with notional amounts of $334.2 million and $358.4 million, respectively. These notional values consist primarily of contracts for the European euro, British pound sterling and Canadian dollar, and are stated in U.S. dollar equivalents at spot exchange rates at the respective dates.
Interest Rate Swaps
The Company manages its exposure to interest rate risk by maintaining an appropriate mix of fixed and variable rate debt, which over time should moderate the costs of debt financing. When considered necessary, the Company may use financial instruments in the form of interest rate swaps to help meet this objective. In November 2010, the Company entered into an interest rate swap agreement for $100.0 million on the $175.0 million Senior Notes due in 2017. The swap agreement exchanged the fixed interest rate of 6.625% for a variable interest rate on the $100.0 million of the principal amount outstanding. The variable interest rate is based upon LIBOR plus 4.865% and was 5.166% at January 25, 2013. The fair value of the Companys interest rate swap was a $1.9 million asset at January 25, 2013, and was estimated by discounting expected cash flows using market interest rates. The Company records interest receivable and interest payable on interest rate swaps on a net basis. In December 2010, the Company entered into an interest rate swap agreement for $75.0 million on the $175.0 million Senior Notes due in 2017. The swap agreement exchanged the fixed interest rate of 6.625% for a variable interest rate on the $75.0 million of the principal amount outstanding. The variable interest rate is based upon LIBOR plus 4.47% and was 4.771% at January 25, 2013. The fair value of the Companys interest rate swap was a $1.7 million asset at January 25, 2013, and was estimated by discounting expected cash flows using market interest rates. The Company recognized a net interest receivable of $1.2 million at January 25, 2013. On February 5, 2013, the $75.0 million interest rate swap agreement to exchange the fixed interest rate on the $175.0 million Senior Notes due in 2017 for a variable interest rate was called and is payable in 30 days.
Embedded Derivative Instruments
The Companys embedded derivatives are the result of entering into sales or purchase contracts that are denominated in a currency other than the Companys functional currency or the suppliers or customers functional currency.
Net Investment Hedge
In July 2011, the Company entered into a Euro Term Loan for 125.0 million under the secured credit facility. The Company designated the Euro Term Loan a hedge of the investment in a certain French business unit. The foreign currency gain or loss that is effective as a hedge is reported as a component of other comprehensive income in shareholders equity. To the extent that this hedge is ineffective, the foreign currency gain or loss is recorded in earnings. There was no ineffectiveness since inception of the hedge.
11
Fair Value of Derivative Instruments
Fair values of derivative instruments in the Consolidated Balance Sheet at January 25, 2013, and October 26, 2012, consisted of:
In each of the first fiscal quarters of 2013 and 2012, the Company recorded a loss of $0.9 million and a loss of $5.8 million on foreign currency forward exchange contracts that have not been designated as an accounting hedge, respectively. These foreign currency exchange losses are included in selling, general and administrative expense.
There was no significant impact to the Companys earnings related to the ineffective portion of any hedging instruments during the first fiscal quarter of 2013 and 2012. In addition, there was no significant impact to the Companys earnings when a hedged firm commitment no longer qualified as a fair value hedge or when a hedged forecasted transaction no longer qualified as a cash flow hedge during the first fiscal quarter of 2013.
Amounts included in AOCI are reclassified into earnings when the hedged transaction settles. The Company expects to reclassify approximately $2.0 million of net gain into earnings over the next 12 months. The maximum duration of the Companys foreign currency cash flow hedge contracts at January 25, 2013, is 23 months.
12
13. | Segment information: |
Business segment information for continuing operations includes the segments of Avionics & Controls, Sensors & Systems and Advanced Materials.
(In thousands) | Three Months Ended | |||||||||
January 25,
2013 |
January 27,
2012 |
|||||||||
Sales |
||||||||||
Avionics & Controls |
$ | 174,570 | $ | 179,572 | ||||||
Sensors & Systems |
171,810 | 171,672 | ||||||||
Advanced Materials |
111,582 | 119,638 | ||||||||
|
|
|
|
|||||||
Total Sales |
$ | 457,962 | $ | 470,882 | ||||||
|
|
|
|
|||||||
Income from Operations |
||||||||||
Avionics & Controls |
$ | 18,589 | $ | 20,063 | ||||||
Sensors & Systems |
19,001 | 6,815 | ||||||||
Advanced Materials |
17,644 | 23,073 | ||||||||
|
|
|
|
|||||||
Segment Earnings |
55,234 | 49,951 | ||||||||
Corporate expense |
(16,576 | ) | (12,962 | ) | ||||||
Interest income |
101 | 95 | ||||||||
Interest expense |
(10,444 | ) | (11,528 | ) | ||||||
|
|
|
|
|||||||
$ | 28,315 | $ | 25,556 | |||||||
|
|
|
|
14. | The following schedules set forth condensed consolidating financial information as required by Rule 3-10 of Securities and Exchange Commission Regulation S-X as of January 25, 2013, and October 26, 2012, and for the applicable periods ended January 25, 2013, and January 27, 2012, for (a) Esterline Technologies Corporation (the Parent); (b) on a combined basis, the current subsidiary guarantors (Guarantor Subsidiaries) of the secured credit facility, Senior Notes due 2017, and Senior Notes due 2020; and (c) on a combined basis, the subsidiaries that are not guarantors of the secured credit facility, Senior Notes due 2017, and Senior Notes due 2020 (Non-Guarantor Subsidiaries). The Guarantor Subsidiaries are direct and indirect wholly-owned subsidiaries of Esterline Technologies Corporation and have fully and unconditionally, jointly and severally, guaranteed the secured credit facility, the Senior Notes due 2017, and the Senior Notes due 2020. |
13
Condensed Consolidating Balance Sheet as of January 25, 2013.
(In thousands) | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
Assets |
||||||||||||||||||||
Current Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 36,613 | $ | 1,219 | $ | 164,944 | $ | 0 | $ | 202,776 | ||||||||||
Cash in escrow |
5,017 | 0 | 0 | 0 | 5,017 | |||||||||||||||
Accounts receivable, net |
214 | 123,411 | 207,710 | 0 | 331,335 | |||||||||||||||
Inventories |
0 | 166,348 | 255,278 | 0 | 421,626 | |||||||||||||||
Income tax refundable |
0 | 6,516 | 0 | 0 | 6,516 | |||||||||||||||
Deferred income tax benefits |
22,761 | 111 | 24,558 | 0 | 47,430 | |||||||||||||||
Prepaid expenses |
132 | 7,189 | 19,886 | 0 | 27,207 | |||||||||||||||
Other current assets |
167 | 626 | 5,290 | 0 | 6,083 | |||||||||||||||
|
||||||||||||||||||||
Total Current Assets |
64,904 | 305,420 | 677,666 | 0 | 1,047,990 | |||||||||||||||
Property, Plant & Equipment, Net |
2,646 | 160,649 | 193,678 | 0 | 356,973 | |||||||||||||||
Goodwill |
0 | 314,652 | 791,004 | 0 | 1,105,656 | |||||||||||||||
Intangibles, Net |
0 | 122,609 | 476,787 | 0 | 599,396 | |||||||||||||||
Debt Issuance Costs, Net |
7,126 | 0 | 1,223 | 0 | 8,349 | |||||||||||||||
Deferred Income Tax Benefits |
36,014 | (294 | ) | 62,038 | 0 | 97,758 | ||||||||||||||
Other Assets |
7,572 | 1,498 | 10,212 | 0 | 19,282 | |||||||||||||||
Amounts Due From (To)
|
0 | 527,892 | 0 | (527,892 | ) | 0 | ||||||||||||||
Investment in Subsidiaries |
2,484,669 | 1,180,596 | 164,099 | (3,829,364 | ) | 0 | ||||||||||||||
|
||||||||||||||||||||
Total Assets |
$ | 2,602,931 | $ | 2,613,022 | $ | 2,376,707 | $ | (4,357,256 | ) | $ | 3,235,404 | |||||||||
|
14
15
Condensed Consolidating Statement of Operations for the three month period ended January 25, 2013.
16
Condensed Consolidating Statement of Cash Flows for the three month period ended January 25, 2013.
17
18
Condensed Consolidating Balance Sheet as of October 26, 2012.
(In thousands) | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
Assets |
||||||||||||||||||||
Current Assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 16,770 | $ | 1,324 | $ | 142,581 | $ | 0 | $ | 160,675 | ||||||||||
Cash in escrow |
5,016 | 0 | 0 | 0 | 5,016 | |||||||||||||||
Accounts receivable, net |
181 | 140,631 | 242,550 | 0 | 383,362 | |||||||||||||||
Inventories |
0 | 159,573 | 250,264 | 0 | 409,837 | |||||||||||||||
Income tax refundable |
0 | 4,832 | 0 | 0 | 4,832 | |||||||||||||||
Deferred income tax benefits |
22,874 | 105 | 23,021 | 0 | 46,000 | |||||||||||||||
Prepaid expenses |
76 | 5,391 | 15,873 | 0 | 21,340 | |||||||||||||||
Other current assets |
134 | 552 | 3,945 | 0 | 4,631 | |||||||||||||||
|
||||||||||||||||||||
Total Current Assets |
45,051 | 312,408 | 678,234 | 0 | 1,035,693 | |||||||||||||||
Property, Plant &
|
2,811 | 161,998 | 191,592 | 0 | 356,401 | |||||||||||||||
Goodwill |
0 | 314,641 | 784,321 | 0 | 1,098,962 | |||||||||||||||
Intangibles, Net |
0 | 126,142 | 482,903 | 0 | 609,045 | |||||||||||||||
Debt Issuance Costs, Net |
7,508 | 0 | 1,310 | 0 | 8,818 | |||||||||||||||
Deferred Income Tax
|
36,610 | (283 | ) | 61,625 | 0 | 97,952 | ||||||||||||||
Other Assets |
8,082 | 1,561 | 10,603 | 0 | 20,246 | |||||||||||||||
Amounts Due From (To)
|
0 | 491,143 | 0 | (491,143 | ) | 0 | ||||||||||||||
Investment in Subsidiaries |
2,457,859 | 1,179,938 | 170,223 | (3,808,020 | ) | 0 | ||||||||||||||
|
||||||||||||||||||||
Total Assets |
$ | 2,557,921 | $ | 2,587,548 | $ | 2,380,811 | $ | (4,299,163 | ) | $ | 3,227,117 | |||||||||
|
19
20
Condensed Consolidating Statement of Operations for the three month period ended January 27, 2012.
21
Condensed Consolidating Statement of Cash Flows for the three month period ended January 27, 2012.
(In thousands) | ||||||||||||||||||||
Parent |
Guarantor
Subsidiaries |
Non-
Guarantor Subsidiaries |
Eliminations | Total | ||||||||||||||||
Cash Flows Provided (Used)
|
||||||||||||||||||||
Net earnings (loss) including
|
$ | 22,980 | $ | 36,750 | $ | (2,398 | ) | $ | (34,352 | ) | $ | 22,980 | ||||||||
Depreciation & amortization |
0 | 9,561 | 16,562 | 0 | 26,123 | |||||||||||||||
Deferred income taxes |
226 | (34 | ) | (7,811 | ) | 0 | (7,619 | ) | ||||||||||||
Share-based compensation |
0 | 1,137 | 1,511 | 0 | 2,648 | |||||||||||||||
Gain on sale of capital assets |
0 | (54 | ) | (393 | ) | 0 | (447 | ) | ||||||||||||
Working capital changes, net
|
||||||||||||||||||||
Accounts receivable |
(97 | ) | 13,070 | (1,771 | ) | 0 | 11,202 | |||||||||||||
Inventories |
0 | (5,763 | ) | 3,324 | 0 | (2,439 | ) | |||||||||||||
Prepaid expenses |
(84 | ) | (1,369 | ) | (822 | ) | 0 | (2,275 | ) | |||||||||||
Other current assets |
4 | (4 | ) | 670 | 0 | 670 | ||||||||||||||
Accounts payable |
325 | 172 | (4,274 | ) | 0 | (3,777 | ) | |||||||||||||
Accrued liabilities |
5,425 | 1,840 | (8,815 | ) | 0 | (1,550 | ) | |||||||||||||
Federal & foreign
|
10,247 | (732 | ) | (6,734 | ) | 0 | 2,781 | |||||||||||||
Other liabilities |
1,965 | (1,153 | ) | (737 | ) | 0 | 75 | |||||||||||||
Other, net |
0 | 1,006 | (2,731 | ) | 0 | (1,725 | ) | |||||||||||||
|
||||||||||||||||||||
40,991 | 54,427 | (14,419 | ) | (34,352 | ) | 46,647 | ||||||||||||||
Cash Flows Provided (Used)
|
||||||||||||||||||||
Purchases of capital assets |
(408 | ) | (7,285 | ) | (5,233 | ) | 0 | (12,926 | ) | |||||||||||
Proceeds from sale
|
0 | 54 | 393 | 0 | 447 | |||||||||||||||
Escrow deposit |
(6 | ) | 0 | 0 | 0 | (6 | ) | |||||||||||||
|
||||||||||||||||||||
(414 | ) | (7,231 | ) | (4,840 | ) | 0 | (12,485 | ) |
22
23
Item 2. | Managements Discussion and Analysis of Financial Condition and |
Results of Operations |
Overview
We operate our businesses in three segments: Avionics & Controls, Sensors & Systems and Advanced Materials. Our segments are structured around our technical capabilities.
The Avionics & Controls segment includes avionics systems, control systems, interface technologies and communication systems capabilities. Avionics systems designs and develops cockpit systems integration and avionics solutions for commercial and military applications. Control systems designs and manufactures technology interface systems for military and commercial aircraft and land- and sea-based military vehicles. Interface technologies manufactures and develops custom control panels, input systems for medical, industrial, military and gaming industries. Communication systems designs and manufactures military audio and data products for severe battlefield environments, embedded communication intercept receivers for signal intelligence applications, as well as communication control systems to enhance security and aural clarity in military applications.
The Sensors & Systems segment includes power systems, connection technologies and advanced sensors capabilities. Power systems develops and manufactures electrical power switching and other related systems, principally for aerospace and defense customers. Connection technologies develops and manufactures highly engineered connectors for harsh environments and serves the aerospace, defense & space, power generation, rail and industrial equipment markets. Advanced sensors develops and manufactures high precision temperature and pressure sensors for aerospace and defense customers.
The Advanced Materials segment includes engineered materials and defense technologies capabilities. Engineered materials develops and manufactures thermally engineered components and high-performance elastomer products used in a wide range of commercial aerospace and military applications. Defense technologies develops and manufactures combustible ordnance components and warfare countermeasure devices for military customers. Sales in all segments include domestic, international, defense and commercial customers.
Our current business and strategic plan focuses on the continued development of our products principally for aerospace and defense markets. We are concentrating our efforts to expand our capabilities in these markets and to anticipate the global needs of our customers and respond to such needs with comprehensive solutions. These efforts focus on continuous research and new product development, acquisitions and strategic realignments of operations to expand our capabilities as a more comprehensive supplier to our customers across our entire product offering.
Net income was $25.1 million, or $0.80 per diluted share, in the first fiscal quarter of 2013 compared with $22.8 million, or $0.73 per diluted share, in the prior-year period.
Total sales decreased 2.7% over the prior-year period to $458.0 million, principally reflecting lower sales in Avionics & Controls and the Advanced Materials segment. These two segments were impacted by reductions in defense spending mainly due to the continued uncertainty of U.S. congressional budget cuts, or sequestration, on defense spending. Without additional congressional action, further budget cuts as set forth in the Budget Control Act of 2011 will be implemented on March 1, 2013. While we believe we have adequately anticipated the impact on our financial results for fiscal 2013, the impact of sequestration is yet to be fully determined and additional reductions in defense spending over the next decade could occur.
Gross margin increased to 35.0% in the first fiscal quarter of 2013 compared with 33.6% in the prior-year period. The prior-year period included effects of purchase accounting to recognize the fair value of the Souriau Group (Souriau) acquired inventory as expense over the first inventory turn. Research, development and engineering spending decreased $3.3 million over the prior-year period to 5.0% of sales due to decreased spending for Avionics & Controls developments. Selling, general and administrative expenses increased $3.9 million over the prior-year period, reflecting a $3.6 million increase in corporate expense. Selling, general and administrative expense as a percent of sales increased 1.4 percentage points over the prior-year period to 21.5% of sales. The increase in selling, general and administrative expense as a percent of sales mainly reflected lower sales volumes. Net income benefited from a decrease in the income tax rate to 8.5% from 10.1% in the prior-year period, reflecting certain discrete tax benefits.
24
Operating results for Avionics & Controls and Advanced Materials segments declined while Sensors & Systems improved compared to the prior-year period. The decrease in Avionics & Controls reflected lower sales of avionics systems. The decrease in Advanced Materials mainly reflected lower earnings from sales of engineered materials for defense applications. The increase in Sensors & Systems reflected a prior-year period charge of $12.0 million due to recording Souriaus acquired inventory at its fair value.
Results of Operations
Three Month Period Ended January 25, 2013, Compared with Three Month Period Ended January 27, 2012
Sales for the first fiscal quarter decreased 2.7% when compared with the prior-year period. Sales by segment were as follows:
(In thousands)
Incr./(Decr.) | Three Months Ended | |||||||||
from prior
year period |
January 25,
2013 |
January 27,
2012 |
||||||||
Avionics & Controls |
(2.8)% | $ | 174,570 | $ | 179,572 | |||||
Sensors & Systems |
0.1% | 171,810 | 171,672 | |||||||
Advanced Materials |
(6.7)% | 111,582 | 119,638 | |||||||
|
|
|
|
|||||||
Total Net Sales |
$ | 457,962 | $ | 470,882 | ||||||
|
|
|
|
The 2.8% decrease in sales of Avionics & Controls reflected decreased sales volumes of avionics systems of $6 million and communication systems of $3 million, partially offset by increased sales volumes of control systems. The decrease in avionics systems was principally due to a relative equal decline in cockpit integration and aviation product sales volumes. The decrease in cockpit integration sales reflected a reduction in retrofits for military transport aircraft and the T-6B. The decrease in avionics products mainly reflected the timing of orders and shipments from our defense customers. The decrease in communication systems principally reflected reduced sales of embedded communication intercept receivers. The increase in control systems mainly reflected strong commercial aviation demand.
The 6.7% decrease in sales of Advanced Materials principally reflected decreased sales volumes of defense technologies of $6 million and decreased sales volumes of engineered materials. The decrease in defense technologies sales volumes mainly reflected lower sales of countermeasure devices due to production inefficiencies resulting in delayed shipments. The decrease in engineered materials mainly reflected lower demand for defense applications.
Overall, gross margin was 35.0% and 33.6% for the first fiscal quarter of 2013 and 2012, respectively. Gross profit was $160.3 million and $158.1 million for the first fiscal quarter of 2013 and 2012, respectively.
Avionics & Controls segment gross margin was 36.6% and 38.8% for the first fiscal quarter of 2013 and 2012, respectively. Segment gross profit was $63.8 million compared to $69.7 million in the prior-year period. The decrease in segment gross profit was principally due to lower gross profit on avionics systems of $6 million mainly due to lower sales volumes for the T-6B military trainer cockpit and avionics products for defense applications. A $3 million increase in gross profit on control systems was offset by a decrease in communication systems due to lower demand for embedded communication intercept receivers.
Sensors & Systems segment gross margin was 36.5% and 28.5% for the first fiscal quarter of 2013 and 2012, respectively. Segment gross profit was $62.7 million compared to $48.8 million in the prior-year period. The increase in gross profit was mainly due to increased gross profit for connection technologies of $14 million. The prior-year period gross profit of connection technologies was impacted by a $12 million charge due to recording Souriaus acquired inventory at its fair value.
25
Advanced Materials segment gross margin was 30.3% compared to 33.0% for the prior-year period. Segment gross profit was $33.8 million compared to $39.5 million in the prior-year period. The decrease in segment gross profit was principally due to a $4 million reduction in gross profit on decreased sales of elastomer materials for defense applications. The decrease in gross profit on sales of defense technologies was due to lower sales and production inefficiencies of flare countermeasures.
Selling, general and administrative expenses (which include corporate expenses) totaled $98.6 million, or 21.5% of sales, and $94.7 million, or 20.1% of sales, for the first fiscal quarter of 2013 and 2012, respectively. The 1.4 percentage point increase in selling, general and administrative expense as a percentage of sales was principally due to lower sales volumes. The $3.9 million increase in selling, general and administrative expenses mainly reflected higher corporate compensation expense and professional fees for regulatory compliance and acquisitions.
Research, development and engineering spending was $23.1 million, or 5.0% of sales, for the first fiscal quarter of 2013 compared with $26.4 million, or 5.6% of sales, for the first fiscal quarter of 2012. The decrease in research, development and engineering spending principally reflects lower spending on avionics systems. Fiscal 2013 research, development and engineering spending is expected to be in the range of approximately 5% to 5.25% of sales.
Segment earnings (operating earnings excluding corporate expenses and other income or expense) for the first fiscal quarter of 2013 totaled $55.2 million, or 12.1% of sales, compared with $50.0 million, or 10.6% of sales, for the first fiscal quarter in 2012.
Avionics & Controls segment earnings were $18.6 million, or 10.6% of sales, in the first fiscal quarter of 2013 and $20.1 million, or 11.2% of sales, in the first fiscal quarter of 2012, mainly reflecting a $3 million decrease in avionics systems and a $2 million decrease in communication systems, partially offset by an increase in control systems. Avionics systems earnings were impacted by decreased gross profit, partially offset by lower spending on research, development and engineering. Communication systems earnings were mainly impacted by decreased gross profit on lower sales of embedded communication intercept receivers.
Sensors & Systems segment earnings were $19.0 million, or 11.1% of sales, for the first fiscal quarter of 2013 compared with $6.8 million, or 4.0% of sales, for the first fiscal quarter of 2012, principally reflecting the $12.0 million inventory fair value charge discussed above. Sensors & Systems also benefited by strong earnings from increased sales of power systems, partially offset by weaker earnings from decreased sales of advanced sensors for the aftermarket.
Advanced Materials segment earnings were $17.6 million, or 15.8% of sales, for the first fiscal quarter of 2013 compared with $23.1 million, or 19.3% of sales, for the first fiscal quarter of 2012, primarily reflecting decreased gross profit on lower sales of elastomer materials for defense applications.
Interest expense for the first fiscal quarter of 2013 was $10.4 million compared with $11.5 million for the first fiscal quarter of 2012, reflecting lower borrowings.
The income tax rate was 8.5% compared with 10.1% for the first fiscal quarter of 2013 and 2012, respectively. In the first fiscal quarter of 2013, the Company recognized $3.7 million of discrete tax benefits principally related to the following items. The first item was approximately $1.5 million of tax benefits due to the retroactive extension of the U.S. federal research and experimentation credits. The second item was approximately $2.2 million of tax benefits related to the settlement of U.S. and foreign tax examinations. In the first fiscal quarter of 2012, the Company recognized $2.3 million of discrete tax benefits due to a change in French tax laws associated with the holding company structure and the financing of the Souriau acquisition. The income tax rate differed from the statutory rate in the first fiscal quarter of 2013 and 2012, as both years benefited from various tax credits and certain foreign interest expense deductions.
It is reasonably possible that within the next twelve months approximately $5.1 million of tax benefits associated with research and development tax credits, capital and operating losses that are currently unrecognized could be recognized as a result of settlement of examinations and/or the expiration of a statute of limitations.
26
To the extent that sales are transacted in a currency other than the functional currency of the operating unit, we are subject to foreign currency fluctuation risk.
We use forward contracts to hedge our foreign currency exchange risk. To the extent that these hedges qualify under U.S. GAAP, the amount of gain or loss is deferred in Accumulated Other Comprehensive Income (AOCI) until the related sale occurs. Also, we are subject to foreign currency gains or losses from embedded derivatives on backlog denominated in a currency other than the functional currency of our operating companies or its customers. Gains and losses on forward contracts, embedded derivatives, and revaluation of assets and liabilities denominated in a currency other than the functional currency of the Company for the first fiscal quarter of 2013 and 2012 are as follows:
(In thousands) | ||||||||
Three Months Ended | ||||||||
January 25,
2013 |
January 27,
2012 |
|||||||
Forward foreign currency contracts loss |
$ | (905 | ) | $ | (5,803 | ) | ||
Forward foreign currency contracts reclassified from AOCI |
(80 | ) | (101 | ) | ||||
Embedded derivatives gain |
496 | 337 | ||||||
Revaluation of monetary assets/liabilities gain (loss) |
(3,113 | ) | 3,351 | |||||
|
|
|
|
|||||
Total |
$ | (3,602 | ) | $ | (2,216 | ) | ||
|
|
|
|
New orders for the first fiscal quarter of 2013 were $473.6 million compared with $467.8 million for the same period in 2012. Backlog was $1.3 billion at January 25, 2013, compared to $1.2 billion at January 27, 2012, and $1.3 billion at the end of fiscal 2012.
27
Liquidity and Capital Resources
Cash and cash equivalents at January 25, 2013, totaled $202.8 million, an increase of $42.1 million from October 26, 2012. Net working capital increased to $664.7 million at January 25, 2013, from $639.3 million at October 26, 2012. Sources and uses of cash flows from operating activities principally consisted of cash received from the sale of products and cash payments for material, labor and operating expenses. Cash flows provided by operating activities were $86.5 million and $46.6 million in the first fiscal quarter of 2013 and 2012, respectively. The increase principally reflected high cash receipts from the sale of products.
Cash flows used by investing activities were $12.2 million and $12.5 million in the first fiscal quarter of 2013 and 2012, respectively. Cash flows used by investing activities in the first fiscal quarter of 2013 and 2012 mainly reflected cash paid for capital expenditures.
Cash flows used by financing activities were $32.4 million in the first fiscal quarter of 2013 and mainly reflected $36.6 million repayment of long-term debt. Cash flows used by financing activities were $22.1 million in the first fiscal quarter of 2012 and mainly reflected $28.3 million repayment of long-term debt and government assistance payments received of $7.9 million.
Capital expenditures, consisting of machinery, equipment and computers, are anticipated to be approximately $80.0 million during fiscal 2013, compared with $49.4 million expended in fiscal 2012.
Total debt at January 25, 2013, was $814.4 million and consisted of $250.0 million of Senior Notes due in 2020, $175.0 million of Senior Notes due in 2017, $61.2 million (45.4 million) of the Euro Term Loan, $225.0 million in borrowings under our secured credit facility, $52.0 million government refundable advances, $44.8 million under capital lease obligations, and $6.4 million under our various foreign currency debt agreements and other debt agreements. On February 5, 2013, the $75.0 million interest rate swap agreement to exchange the fixed interest rate on the $175.0 million Senior Notes due in 2017 for a variable interest rate was called and is payable in 30 days.
Subsequent to period end, on February 4, 2013, we acquired the Gamesman Group (Gamesman) for approximately $39.9 million. Gamesman is a global supplier of input devices principally serving the gaming industry. Gamesman will be included in the Avionics & Controls segment.
We believe cash on hand and funds generated from operations are adequate to service operating cash requirements and capital expenditures through the next twelve months.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases you can identify forward-looking statements by terminology such as anticipate, believe, continue, could, estimate, expect, intend, may, might, plan, potential, predict, should or will or the negative of such terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risk factors set forth in Forward-Looking Statements and Risk Factors in our Annual Report on Form 10-K for the fiscal year ended October 26, 2012, that may cause our or the industrys actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You should not place undue reliance on these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievements. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included or incorporated by reference into this report are made only as of the date hereof. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.
28
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There have been no significant changes in our exposure to market risk during the first three months of fiscal 2013. A discussion of our exposure to market risk is provided in the Companys Annual Report on Form 10-K for the fiscal year ended October 26, 2012.
Item 4. | Controls and Procedures |
Our principal executive and financial officers evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of January 25, 2013. Based upon that evaluation, they concluded as of January 25, 2013, that our disclosure controls and procedures were effective to ensure that information we are required to disclose in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within time periods specified in Securities and Exchange Commission rules and forms. In addition, our principal executive and financial officers concluded as of January 25, 2013, that our disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
During the time period covered by this report, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
From time to time we are involved in legal proceedings arising in the ordinary course of business. We believe that adequate reserves for these liabilities have been made and that there is no litigation pending that could have a material adverse effect on our results of operations and financial condition.
Item 6. | Exhibits |
3.1 |
Amended and Restated Bylaws of the Company, effective December 13, 2012. (Incorporated by reference to Exhibit 3.1 to the Companys Current Report
on
Form 8-K filed on December 18, 2012 [Commission File Number 1-6357].) |
|
10.1* | Esterline Technologies Corporation Fiscal Year 2013 Annual Incentive Compensation Plan. | |
10.2* | Esterline Technologies Corporation Long-Term Incentive Plan. | |
10.3* | Form of Global Stock Option Agreement under the Esterline Technologies Corporation Amended and Restated 2004 Equity Incentive Plan. | |
10.4* | Form of Restricted Stock Unit Agreement under the Esterline Technologies Corporation Amended and Restated 2004 Equity Incentive Plan. | |
10.5* | Promotion Letter from Esterline Technologies Corporation to Marcia Mason dated August 1, 2012. | |
10.6* | Promotion Letter from Esterline Technologies Corporation to Albert Yost dated November 16, 2009. | |
10.7 | Letter Agreement, dated December 13, 2012, among Esterline Technologies Corporation, Relational Investors, LLC and the other parties named in the Letter Agreement. (Incorporated by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K dated December 18, 2012 [Commission File Number 1- 6357].) | |
11 | Schedule setting forth computation of basic and diluted earnings per common share for the three month periods ended January 25, 2013, and January 27, 2012. | |
31.1 | Certification of Chief Executive Officer. | |
31.2 | Certification of Chief Financial Officer. | |
32.1 | Certification (of R. Bradley Lawrence) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification (of Robert D. George) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
30
Item 6. | Exhibits |
101.INS |
XBRL Instance Document | |||
101.SCH |
XBRL Taxonomy Extension Schema | |||
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase | |||
101.DEF |
XBRL Taxonomy Extension Definition Linkbase | |||
101.LAB |
XBRL Taxonomy Extension Label Linkbase | |||
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase |
|
* Indicates management contract or compensatory plan or arrangement.
31
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: March 1, 2013 | By: |
/s/ Robert D. George |
||||||
Robert D. George | ||||||||
Chief Financial Officer, Vice President, and | ||||||||
Corporate Development | ||||||||
(Principal Financial Officer) |
32
EXHIBIT 10.1
FY13 Annual Incentive Compensation Plan
Esterline Technologies Corporation
1. | Purpose. Esterline Technologies Corporation (the Company) has established this Annual Incentive Plan (Annual IC Plan or the Plan) to reward its officers and selected senior managers for prudent decisions and actions that deliver financial results for shareholders in this fiscal year. The Annual IC Plan is designed to reward Participants for successful achievement of two business performance goals, and to provide incentives for them to achieve outstanding results. |
2. | Annual IC Terms. The Company established this Annual IC Plan pursuant to its 2004 Equity Incentive Plan, as amended (2004 Plan). The terms of a Participants appointment, this document, and the 2004 Plan together constitute the Annual IC Terms. Provided, however, that upon shareholder approval of a proposed 2013 Incentive Plan (2013 Plan), the 2013 Plan will automatically and retroactively replace the 2004 Plan in all respects as part of the Annual IC Terms. |
3. | Participation. |
a. | Selection. The Companys officers and other senior managers employed by the Companys corporate offices are eligible to participate in this Annual IC Plan. Appointment to the Plan is effective for a single fiscal year and requires recommendation by the Companys Chief Executive Officer (CEO), and approval by either the Companys Board of Directors (the Board) or by its Compensation Committee (the Committee); provided, however, that the CEOs appointment may be decided only by the Board, based on Committee recommendation. Esterlines CEO may also appoint eligible employees to the Annual IC Plan, provided such employees do not report directly to the CEO. Employees appointed to the Plan are referred to as Participant(s). |
b. | Mid-Year Appointments. Participants may be appointed to the Plan at any time. If appointed after the first fiscal quarter, however, Participants will receive a pro-rata award for the portion of the fiscal year following their appointment, calculated as provided in section 6 below. |
4. | Performance Goals. The Plan has two business performance goals for the fiscal year (Annual IC Goals), as follows: earnings per share achievement to budget (EPS), weighted at 70% of the Plans goals; and adjusted return on sales (ROS), weighted at 30% of the Plans goals. The numerical values for these goals will be determined by the Company and stated in Participant appointment letters. |
5. | Plan Awards. Appointment letters will also establish a Target Award for each Participant, expressed as a percentage of the Participants base salary in effect on the last day of the fiscal year. Participants will earn 100% of their Target Award if the Company achieves Plan Goals. Participants actual awards will vary from their Target Awards if the Company performs above or below Plan Goals. Participants will receive no award if Company results fall short of certain minimum threshold levels. At such thresholds, Participants will earn 25% of their Target Award. Participants will receive up to a maximum of 200% of their Target Award if Company performance exceeds Plan Goals and reaches certain maximum performance levels. Between the Plans threshold and maximum goals, Participants awards will increase or decrease from target levels in proportion to the Companys incremental achievement. |
6. | Calculations. |
a. | Performance Goals. Esterline will calculate EPS achievement on a fully-diluted basis and before extraordinary items. ROS will be calculated as total operating profit, minus corporate expenses, divided by total sales, with adjustments (if any) to each such factor to remove the effects of acquisition or divestiture activity. |
b. | Pro-rata Awards. For Participants appointed after the first fiscal quarter, pro-rata award calculations will be based on the portion of the fiscal year following their appointment, measured in full-month increments and rounded up for months in which a Participant was actively employed under the Plan for 15 days or more, and rounded down for active employment under the Plan of 14 days or less. |
7. | Adjustments. The Committee may exercise its discretion to ensure Participants receive an equitable award by adjusting: (a) Plan calculations to include or exclude unusual items, in whole or in part; (b) an individual Participants actual award; or (c) the factors used to calculate Plan awards. Such adjustments may be made if unanticipated events occur or unusual business conditions develop after the beginning of a fiscal year that materially alter earnings or returns, such as significant acquisitions or divestitures. Notwithstanding the forgoing, the Committee may not adjust individual awards for any Participant who is a covered employee for purposes of Section 162(m) of the Internal Revenue Code of 1986 in such a manner as would increase the amount of compensation otherwise payable to that employee. The maximum range of any individual award adjustments under (b) above is limited to either 25% of the Participants actual award or 25% of the Participants Target Award, whichever is greater. The Committee must seek and consider advice from an independent executive compensation expert before deciding to make either type of adjustment under this section. |
8. | Payment. Subject to section 9 below, the Company will pay Plan awards within 60 days following fiscal year-end, provided Company auditors have issued an opinion consistent with the calculations, the Committee has approved the awards, and Participants remain employed through the payment date. |
9. | Employment Status Changes. Except as otherwise determined by the CEO, Committee, or Board, consistent with the levels of authority outlined in section 3.a. above: |
a. | Suspension, Resignation, or Discharge. All Participant rights under this Plan will be suspended during any period of suspension from employment. A Participants appointment will automatically end when s/he leaves employment with the Company for any reason other than Retirement, Disability, or death. |
b. | Retirement, Disability, or Death. If a Participant leaves employment before the Plan payment date due to Retirement, Disability, or death, the Company will pay a pro-rata amount for the months of active employment as a Participant. |
10. | Employment Terms. Participants terms of employment remain unchanged by appointment to this Plan, except as specifically provided in the Annual IC Terms. Nothing in the appointment process or in the Annual IC Terms guarantees continued employment. Participants remain subject to usual Company policies and practices, and to any other employment agreements, service terms, appointments, or mandates to which they are otherwise subject. |
11. | Plan Administration & Interpretation. The Committee administers this Plan. As such it shall consider and decide any issues arising under the Plan, and shall oversee and approve actual award calculations and payments. Definitions in the 2004 Plan apply to terms used in this Plan unless otherwise defined here. All references to the Company include a Related Company, as that term is defined in the 2004 Plan. The Committees decisions concerning Plan administration and interpretation are final and binding, except as they might relate to the CEO, in which case the Board has final decision-making authority. |
12. | Modification. The Committee may modify or terminate this Plan at any time, provided it pays Participants on a pro-rata basis for any awards earned prior to such change. |
13. | Reimbursement. Plan participation and awards are subject to the Boards Policy on Reimbursement of Incentive Awards, as it might change from time to time. |
Approved by the Committee & Board and issued on their behalf.
R. Bradley Lawrence
Chairman, President & CEO
December 6, 2012
FY13 Annual IC Plan
Page 2
EXHIBIT 10.2
Esterline Technologies Corporation
2004 Equity Incentive Plan
LONG TERM INCENTIVE PLAN
Revised December 2012
1. Purpose. Esterline Technologies Corporation (the Company) has established this Long Term Incentive Plan (LTIP) to reward its officers and selected senior managers for their contributions to the long-term performance of the Company. The LTIP rewards effective use of the Companys resources to achieve expected and superior performance.
2. LTIP Terms. The Company established this LTIP pursuant to its 2004 Equity Incentive Plan, as amended (2004 Plan). The terms of a Participants appointment, this LTIP document, and the 2004 Plan together constitute the LTIP Terms.
3. Participation.
a. The Companys officers and other senior managers employed by the Companys corporate offices are eligible to participate in this LTIP. Appointment to the LTIP is effective for a single performance period and requires recommendation by the Companys Chief Executive Officer (CEO), and approval by either the Companys Board of Directors (the Board) or by its Compensation Committee (the Committee); provided, however, that the CEOs appointment may be decided only by the Board, based on Committee recommendation. Esterlines CEO may also appoint eligible employees to the LTIP, provided such employees do not report directly to the CEO. Employees appointed to the LTIP are referred to as Participant(s).
b. Usually Participants are appointed to the LTIP in the first fiscal quarter of a performance period. However, Participants may be appointed at any time. Participants appointed after the first fiscal quarter will receive a pro-rata award for the portion of the performance period following their appointment, calculated as provided in section 7 below.
c. Each Participant will receive a written appointment in the form attached. Appointment as a Participant in one or more LTIP performance periods does not entitle employees to participate in subsequent periods.
4. Performance Periods. LTIP performance periods will be three years in duration, beginning on the first day of a Company fiscal year and ending on the last day of the third fiscal year thereafter. A new three-year performance period will start with each new fiscal year, such that there will be three overlapping LTIP performance periods open at any given time, as illustrated below. The Committee may establish shorter performance periods as it determines are reasonable.
5. Performance Measures & Goals. The LTIP has two business performance measures: average return on invested capital (ROIC); and cumulative compound earnings per share growth (EPSG), together referred to as LTIP Goals. At the beginning of each performance period, the Committee will set target LTIP Goals on a matrix to establish and show their relative relationship and potential award levels for Participants (LTIP Matrix).
6. Target and Actual Awards. The Board, Committee, or CEO will establish a target award for each Participant, calculated as a percentage of the Participants base pay at the time of appointment, and expressed as a fixed cash value. Participants actual earned awards will equal the value of their target awards if the Company fully achieves the LTIP Goals. Participants actual awards will vary from their target awards if the Company performs above or below LTIP Goals. Participants will receive no award for performance less than established minimum performance on the LTIP Goals. Actual awards for superior performance are subject to a maximum of 400% of a Participants target award.
7. Calculations. The Board will use the following formulas to determine Company performance and actual awards:
Average Return on Invested Capital (ROIC) = |
Net Income (before extraordinary items) + Tax-Adjusted Interest Expense Short-term Debt + Long Term Debt Cash + Shareholders Equity
averaged over the applicable performance period, and expressed as a percentage. The Company will use a long-term planning most likely tax rate of 25% in such ROIC calculations.
|
|
Compound Annual Earnings Per Share Growth (EPSG) = |
Compound annual growth in fully-diluted earnings per share (net income before extraordinary items, divided by the monthly average of total common shares and share equivalents outstanding) (EPS), measured from the base year EPS achieved in the fiscal year immediately prior to the performance period and ending with the EPS achieved in the final year of the performance period.
|
|
Pro-Rata Awards: |
For Participants appointed during a performance period, pro-rata award calculations will be based on the portion of the performance period following their appointment, measured in full-month increments, rounded up for months in which a Participant was actively employed under the Plan for 15 days or more, and rounded down for active employment under the Plan of 14 days or less.
|
8. Adjustments . The Committee may exercise its discretion to ensure Participants receive an equitable award, by adjusting: (a) Plan calculations to include or exclude unusual items, in whole or in part; (b) an individual Participants actual award; or (c) the factors used to calculate Plan awards. Such adjustments may be made if unanticipated events occur or unusual business conditions develop after the beginning of a performance period that materially alter earnings or returns, such as significant acquisitions or divestitures. Provided, however, the Committee may not adjust awards for any Participant who is a covered employee for purposes of Section 162(m) of the Internal Revenue Code of 1986 in such a manner as would increase the amount of compensation otherwise payable to that employee.
9. Payments. The Company will pay LTIP awards no later than two-and-a-half months following approval by the Boards Audit Committee of the Companys financial reports for the pertinent fiscal periods. The form of payment will be in cash or in a combination of cash and Company stock, as determined by Board policy.
10. Continuous Employment. Except as provided in this Plan, to be eligible for payment, Participants must be actively employed by the Company through the end of the performance period and through the date on which the Company pays LTIP awards. Appointments will end automatically for Participants who do not satisfy these
Long-Term Incentive Plan
Revised December 2012
Page 2
conditions and no LTIP awards will be earned or due. The Company considers approved leaves of absence to be active employment, provided they do not exceed the amount of leave to which a Participant might be entitled under applicable Company policies, and under disability, family and medical leave laws. For approved leaves that exceed such limits, payment of LTIP awards, if any, is subject to Committee discretion.
11. End of Employment.
a. Suspension, Resignation, or Discharge. All Participant rights under this Plan will be suspended during any period of suspension from employment. A Participants appointment will automatically end when s/he leaves employment with the Company for any reason other than Retirement, Disability, or death.
b. Retirement, Disability, or Death. If a Participant leaves employment with the Company due to Retirement, Disability, or death, the Company will pay the Participants actual award for the full performance period in the normal course, provided the Participant completed at least one year of continuous, active employment during the performance period. If a Participant does not complete this minimum employment period, his/her appointment will automatically end, and no LTIP award will be earned or due.
c. Other. The Board may immediately cancel a Participants appointment and recover any payments made if it discovers facts that, if known earlier, would have constituted grounds for termination of employment for cause.
12. Employment Terms. Participants terms of employment remain unchanged by appointment to this LTIP, except as specifically provided in the LTIP Terms. Nothing in the appointment process or in the LTIP Terms guarantees continued employment. Participants remain subject to usual Company policies and practices, and to any other employment agreements, service terms, appointments, or mandates to which they are otherwise subject.
13. Plan Administration & Interpretation. The Committee administers this Plan. As such it shall consider and decide any issues arising under the Plan, and shall oversee and approve actual award calculations and payments. Definitions in the 2004 Plan apply to terms used in this LTIP unless otherwise defined here. All references to the Company include a Related Company, as that term is defined in the 2004 Plan. The Committees decisions concerning LTIP administration and interpretation are final and binding, except as they might relate to the CEO, in which case the Board has final decision-making authority.
14. Modification. The Board may modify or terminate this LTIP at any time, provided it pays Participants on a pro-rata basis for any awards earned prior to such change.
15. Reimbursement. LTIP participation and awards are subject to the Boards Policy on Reimbursement of Incentive Awards, as it might change from time to time.
Approved by the Committee & Board and issued on their behalf.
R. Bradley Lawrence
Chairman, President & CEO
December 6, 2012
Attachments: | LTIP Appointment form | |
LTIP Matrix |
Long-Term Incentive Plan
Revised December 2012
Page 3
EXHIBIT 10.3
Esterline Technologies Corporation
Amended and Restated 2004 Equity Incentive Plan
GLOBAL STOCK OPTION AGREEMENT Esterline Officers Only
Pursuant to your Stock Option Award (the Award) and this Global Stock Option Agreement, including the Appendix which includes any applicable country-specific provisions (together the Agreement), Esterline Technologies Corporation (the Company) has granted you an Option under its Amended and Restated 2004 Equity Incentive Plan (the Plan) to purchase the number of shares of the Companys Common Stock stated in the Award at the exercise price stated in the Award. Some other details of the Option are as follows:
1. Vesting and Exercise. The Option will vest annually over four years, as outlined in the Award and subject to limitations stated below and in the Plan. Only the vested portion of the Option is eligible for exercise. Upon your Termination of Service as an Eligible Person (Termination), vesting will cease and the unvested portion of the Option will automatically terminate, except in the case of Full Retirement as provided in section 5(c) below.
2. Method of Exercise . To exercise the Option, you must give written notice to the Company stating your decision to exercise the Option and the number of shares you want to purchase. With the notice you must send full payment of the exercise price. You may make this payment by:
(a) | cash; |
(b) | check acceptable to the Company; |
(c) | broker-assisted cashless exercise according to procedures approved by the Committee; or |
(d) | by any other method the Committee permits. |
3. Taxes and Other Deductions . Regardless of any action the Company or your employer (the Employer) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax related items related to your participation in the Plan and legally applicable to you (Tax-Related Items), you acknowledge that the ultimate liability for all Tax-Related Items is and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer. You further acknowledge that the Company and/or the Employer (a) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including, but not limited to, the grant, vesting or exercise of the Option, the subsequent sale of shares of Common Stock acquired pursuant to such exercise and the receipt of any dividends; and (b) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Option to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result. Further, if you have become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, you acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to the relevant taxable or tax withholding event, as applicable, you will pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, you authorize the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from your wages or other cash compensation paid to you by the Company and/or the Employer; or (ii) withholding from proceeds of the sale of shares of Common Stock acquired at exercise of the Option either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization); or (iii) withholding in shares of Common Stock to be issued at exercise of the Option.
To avoid any negative accounting treatment, the Company and/or the Employer may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates. If the obligation for Tax-Related Items is satisfied by withholding in shares of Common Stock, for tax purposes, you are deemed to have been issued the full number of shares of Common Stock subject to the exercised Options, notwithstanding that a number of the shares of Common Stock are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of your participation in the Plan.
Officers Stock Option Award & Agreement
Rev. December 2012
Page 1 of 8
Finally, you shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of your participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares or the proceeds of the sale of shares of Common Stock, if you fail to comply with your obligations in connection with the Tax-Related Items.
4. Legal Compliance . The Option exercise must comply with the Securities Act and with all other applicable laws and regulations. You may not exercise the Option if the Company determines the exercise would not comply.
5. Option Expiration Date. Upon your Termination, the Option might expire earlier than the Option Expiration Date established in your Award, as follows:
(a) | General Rule . Any unvested portion of the Option will expire automatically and without further notice upon your Termination. You must exercise the vested portion of the Option on or before the earlier of: (i) three months after your Termination; or (ii) the Option Expiration Date. |
(b) | Early Retirement, Disability, or Death . If your Termination is due to Early Retirement, Disability, or death, any unvested portion of the Option will expire automatically and without further notice upon your Termination. You must exercise the vested portion of the Option on or before the earlier of: (i) three years after your Termination; or (ii) the Option Expiration Date. For purposes of the Option, Early Retirement is defined as a voluntary Termination when a Participant is younger than age 65, and that is a bona fide end to the Participants career in the industries and markets within which the Company does business. |
(c) | Full Retirement. If your Termination is due to Full Retirement, any unvested portion of the Option will continue to vest in accordance with the normal vesting schedule unaffected by your Full Retirement. The exercise period for the portion of the Option that is vested and exercisable on the date of your Full Retirement, and the portion that becomes vested and exercisable subsequent to that date, will expire on the earlier of: (i) the fifth anniversary of your Full Retirement; or (ii) the Option Expiration Date. For purposes of the Option, Full Retirement is defined as a voluntary Termination when a Participant is age 65 or older, and that is a bona fide end to the Participants career in the industries and markets within which the Company does business. |
(d) | Cause . The entire Option will automatically expire, whether vested or unvested, when you first receive notice from the Company or a Related Company of Termination for Cause. If your employment or other service relationship is suspended pending investigation, all your rights under the Option also will be suspended during the period of investigation. Further, the Committee may immediately terminate any Option if it discovers facts after your Termination that if known earlier would have constituted grounds for Termination for Cause. |
(e) | Notwithstanding the provisions in this Section 5, if the Company develops a good faith belief that any provision in this Section 5 may be found to be unlawful, discriminatory or against public policy in any relevant jurisdiction, then the Company in its sole discretion may choose not to apply such provision. |
If you die after Termination but while the Option is otherwise eligible for exercise, it may be exercised until the later of: (i) one year following your death; or (ii) the original post-termination exercise period applicable to the Option (three months, three years, or five years, as applicable, under section 5(a) through (c) above); provided, however, that in no event may the Option be exercised following the Option Expiration Date.
In addition, if the exercise of the Option following your Termination, but while the Option is otherwise exercisable, would be prohibited solely because the issuance of Common Stock would violate either the registration requirements under the Securities Act or the Companys insider trading policy, Section 7.6(c) of the Plan may serve to extend the original post-termination exercise period applicable to the Option.
Officers Stock Option Award & Agreement
Rev. December 2012
Page 2 of 8
It is your responsibility to be aware of the date the Option expires.
6. Limited Transfer . During your lifetime only you can exercise the Option. You cannot transfer the Option except by will or by the applicable laws of descent and distribution. The Plan provides for Option exercise by a beneficiary you designate on a Company-approved form, or by the personal representative of your estate. Nevertheless, the Committee has discretion to permit you to assign or transfer the Option as an exception to these rules, subject to such terms and conditions as they might specify.
7. No Effect on Terms of Employment or Service Relationship. Nothing in these Award Terms and Conditions has any effect on the terms of your employment or other service relationship with the Company or any Related Company. The terms of your employment or service relationship are determined by Company policy, and by the terms of any contract to which you might be party. These Award Terms and Conditions create no rights to continued employment, or any other service relationship, nor do they limit the discretion the Company or any Related Company would otherwise have to terminate your employment or other service relationship, with or without Cause.
8. No Right to Damages . Nothing in these Award Terms and Conditions gives you a right to receive damages for any portion of the Option that you might lose due to Company, Related Company or Committee decisions. The loss of potential profit from the Award will not constitute an element of damages in the event of your Termination for any reason, even if such Termination violates an obligation the Company or a Related Company owes you.
9. Definitions. Capitalized terms not defined in this Agreement or the Award but defined in the Plan have the same definitions as in the Plan. On any issues of interpretation arising from these Award Terms and Conditions and/or Plan definitions, the Committees decisions will be final and binding.
10. Binding Effect . The Award Terms and Conditions will inure to the benefit of the successors and assigns of the Company and be binding on you and your heirs, executors, administrators, successors, and assigns.
11. Section 409A Compliance . Notwithstanding any provision in these Award Terms and Conditions to the contrary, the Committee may, at any time and without your consent, modify the terms of the Option as it determines appropriate to avoid the imposition of interest or penalties under Section 409A of the Code; provided, however, that the Committee makes no representations that the Option shall be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to the Option.
12. Nature of Grant. In accepting the Option, you acknowledge, understand and agree that:
(a) | the Plan is established voluntarily by the Company, it is discretionary in nature, and may be amended, suspended or terminated by the Company at any time; |
(b) | the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted repeatedly in the past; |
(c) | all decisions with respect to future option grants, if any, will be at the sole discretion of the Company; |
(d) | your participation in the Plan shall not create a right to further employment with the Employer and shall not interfere with the ability of the Employer to terminate your employment or service relationship (if any) at any time; |
(e) | you are voluntarily participating in the Plan; |
(f) | the Option and any shares of Common Stock acquired under the Plan are extraordinary items that do not constitute compensation of any kind for services of any kind rendered to the Company or the Employer, and which are outside the scope of your employment or service contract, if any; |
Officers Stock Option Award & Agreement
Rev. December 2012
Page 3 of 8
(g) | the Option grant and your participation in the Plan will not be interpreted to form an employment or service contract or relationship with the Company or any Related Company; |
(h) | the future value of the shares of Common Stock underlying the Option is unknown and cannot be predicted with certainty; |
(i) | if the underlying shares of Common Stock do not increase in value, the Option will have no value; |
(j) | if you exercise the Option and acquire shares of Common Stock, the value of such shares of Common Stock may increase or decrease in value, even below the Exercise Price; |
(k) | if you reside outside the United States then the following additional terms shall apply: |
(i) | the Option and any shares of Common Stock acquired under the Plan are not intended to replace any pension rights or compensation; |
(ii) | the Option and any shares of Common Stock acquired under the Plan are not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company, the Employer or any Related Company; |
(iii) | no claim or entitlement to compensation or damages shall arise from forfeiture of the Option resulting from termination of your employment by the Company or the Employer (for any reason whatsoever and whether or not in breach of local labor laws and whether or not later found to be invalid) and in consideration of the grant of the Option to which you are otherwise not entitled, you irrevocably agree never to institute any claim against the Company or the Employer, waive your ability, if any, to bring any such claim, and release the Company and the Employer from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, you shall be deemed irrevocably to have agreed not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claims; and |
(iv) | in the event of termination of your employment (whether or not in breach of local labor laws and whether or not later found to be invalid), your right to vest in the Option under the Plan, if any, will terminate effective as of the date that you are no longer actively employed and will not be extended by any notice period mandated under local law (e.g., active employment would not include a period of garden leave or similar period pursuant to local law); furthermore, in the event of termination of your employment (whether or not in breach of local labor laws), your right to exercise the Option after termination of employment, if any, will be measured by the date of termination of your active employment and will not be extended by any notice period mandated under local law; the Committee shall have the exclusive discretion to determine when you are no longer actively employed for purposes of your Option grant. |
13. No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying shares of Common Stock. You are hereby advised to consult with your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Plan.
14. Data Privacy. If you reside outside the United States, then you hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Agreement and any other Option grant materials by and among, as applicable, the Employer, the Company and its Related Companies for the exclusive purpose of implementing, administering and managing your participation in the Plan.
Officers Stock Option Award & Agreement
Rev. December 2012
Page 4 of 8
You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in your favor, for the exclusive purpose of implementing (Data), administering and managing the Plan.
You understand that Data will be transferred to Morgan Stanley Smith Barney or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. You understand that the recipients of the Data may be located in the United States or elsewhere, and that the recipients country (e.g., the United States) may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the Company, Morgan Stanley Smith Barney and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing your participation in the Plan. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. You understand, however, that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.
15. Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.
16. Language. If you have received this Agreement, or any other document related to the Option and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
17. Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
18. Appendix. Notwithstanding any provision in this Agreement, the Option grant shall be subject to any special terms and conditions set forth in any Appendix to this Agreement for your country of residence. Moreover, if you relocate to one of the countries included in the Appendix, the special terms and conditions for such country will apply to you, to the extent the Company determines that the application of such terms and conditions is necessary or advisable in order to comply with local law or facilitate the administration of the Plan. The Appendix constitutes part of this Agreement.
19. Imposition of Other Requirements. The Company reserves the right to impose other requirements on your participation in the Plan, on the Option and on any shares of Common Stock purchased upon exercise of the Option, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
20. Reimbursement. Plan participation and awards are subject to the Boards Policy on Reimbursement of Incentive Awards, as it might change from time to time.
Officers Stock Option Award & Agreement
Rev. December 2012
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APPENDIX
COUNTRY-SPECIFIC PROVISIONS TO THE
ESTERLINE TECHNOLOGIES CORPORATION
GLOBAL STOCK OPTION AGREEMENT
Terms and Conditions
This Appendix includes additional terms and conditions that govern the Option granted to you under the Amended and Restated 2004 Equity Incentive Plan (the Plan) if you reside in one of the countries listed below. Certain capitalized terms used but not defined in this Appendix have the meanings set forth in the Plan and/or the Global Stock Option Agreement (the Agreement).
Notifications
This Appendix also includes information regarding exchange controls and certain other issues of which you should be aware with respect to your participation in the Plan. The information is based on the securities, exchange control and other laws in effect as of May 2011. Such laws are often complex and change frequently. As a result, the Company strongly recommends that you not rely on the information in this this Appendix as the only source of information relating to the consequences of your participation in the Plan because the information may be out of date at the time that you exercise the Option or sell shares of Common Stock acquired under the Plan.
In addition, the information contained herein is general in nature and may not apply to your particular situation and the Company is not in a position to assure you of any particular result. Accordingly, you are advised to seek appropriate professional advice as to how the relevant laws in your country may apply to your situation.
Finally, you understand that if you are a citizen or resident of a country other than the one in which you are currently working, transfer employment after the Grant Date, or are considered a resident of another country for local law purposes, the information contained herein may not apply to you, and the Company shall, in its discretion, determine to what extent the terms and conditions contained herein shall apply.
CANADA
Terms and Conditions
Method of Exercise . The following provision supplements Section 2 the Agreement:
Notwithstanding anything in the Agreement or the Plan, you agree to pay the Exercise Price and any Tax-Related Items solely by means of (i) cash, which may be paid by check, or other instrument acceptable to the Company or (ii) a broker-assisted cashless exercise, whereby the broker sells some or all of the shares of Common Stock to be issued upon exercise to pay the Exercise Price, brokerage fees and any applicable Tax-Related Items. To the extent that tax regulatory requirements change, the Company reserves the right to permit you to exercise the Option and pay the Exercise Price and any applicable Tax-Related Items in shares of Common Stock to the extent permitted by the Plan.
Option Expiration Date . This provision supplements Section 5 of the Agreement.
In the event of involuntary Termination of your employment (whether or not in breach of local labor laws and whether or not later found to be invalid), your right to receive any Options and vest under the Plan, if any, will terminate effective as of the date that is the earlier of: (1) the date that you are no longer actively employed by the Company or the Employer, or at the discretion of the Committee, (2) the date the you receive notice of termination of employment from the Employer, if earlier than (1), regardless of any notice period or period of pay in lieu of such
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Rev. December 2012
Page 6 of 8
notice required under local law (including, but not limited to statutory law, regulatory law and/or common law); the Company shall have the exclusive discretion to determine when you are no longer employed for purposes of the Option.
The following provisions will apply if you are a resident of Quebec:
French Language Provision .
The parties acknowledge that it is their express wish that this Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
Les parties reconnaissent avoir exigé la rédaction en anglais de cette convention, ainsi que de tous documents exécutés, avis donnés et procedures judiciaries intentées, directement ou indirectement, relativement à la présente convention.
Data Privacy . This provision supplements Section 14 of the Agreement:
You hereby authorize the Company and the Companys representatives to discuss with and obtain all relevant information from all personnel, professional or not, involved in the administration and operation of the Plan. You further authorize the Company and any Related Company and the Committee to disclose and discuss the Plan with their advisors. You further authorize the Employer to record such information and to keep such information in your employee file.
Notifications
Securities Law Notice . You are permitted to sell shares of Common Stock acquired through the Plan through the designated broker appointed under the Plan, if any, provided the resale of shares of Common Stock acquired under the Plan takes place outside of Canada through the facilities of a stock exchange on which the shares of Common Stock are listed. The Companys shares of Common Stock are currently listed on the New York Stock Exchange.
FRANCE
Terms and Conditions
Consent to Receive Information in English . By accepting the Option, you confirm having read and understood the Plan and this Agreement, including all terms and conditions included therein, which were provided in the English language. You accept the terms of those documents accordingly.
En acceptant cette Option, vous confirmez avoir lu et compris le Plan et cette convention, incluant tous leurs termes et conditions, qui ont été transmis en langue anglaise. Vous acceptez les dispositions de ces documents en connaissance de cause.
Notifications
Exchange Control Notification . You may hold shares of Common Stock obtained under the Plan outside of France provided that you declare all foreign accounts whether open, current, or closed on your annual income tax return.
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Rev. December 2012
Page 7 of 8
GERMANY
There are no country-specific provisions.
HONG KONG
Notifications
Warning: The Option and shares of Common Stock acquired upon exercise of the Option do not constitute a public offering of securities under Hong Kong law and are available only to employees of the Company. The Agreement, including this Appendix, the Plan and other incidental communication materials have not been prepared in accordance with and are not intended to constitute a prospectus for a public offering of securities under the applicable securities legislation in Hong Kong, nor have the documents been reviewed by any regulatory authority in Hong Kong. The Option is intended only for the personal use of each eligible employee of the Company and may not be distributed to any other person. If you are in any doubt about any of the contents of the Agreement, including this Appendix or the Plan, you should obtain independent professional advice.
Securities Law Notification . To facilitate compliance with securities laws in Hong Kong, in the event your Option vests and becomes exercisable within six (6) months of the Grant Date, you agree not to sell the shares of Common Stock issued upon exercise of the Option prior to the six-month anniversary of the Grant Date.
Nature of Scheme . The Company specifically intends that the Plan will not be an occupational retirement scheme for purposes of the Occupational Retirement Schemes Ordinance (ORSO). Notwithstanding the foregoing, if the Plan is deemed to constitute an occupational retirement scheme for the purposes of ORSO, then your grant shall be void.
UNITED KINGDOM
Terms and Conditions
Taxes and Other Deductions . The following supplements Section 3 of the Agreement:
If payment or withholding of the income tax due is not made within ninety (90) days of the event giving rise to the liability or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003 (the Due Date), the amount of any uncollected tax liability shall constitute a loan owed by you to the Employer, effective as of the Due Date. You agree that the loan will bear interest at the then-current official rate of Her Majestys Revenue & Customs (HMRC), it will be immediately due and repayable, and the Company or the Employer may recover it at any time thereafter by any of the means referred to in Section 3 of the Agreement.
Notwithstanding the foregoing, if you are a director or executive officer of the Company (within the meaning of Section 13(k) of the U.S. Securities and Exchange Act of 1934, as amended), you shall not be eligible for a loan as described above. In the event that you are a director or executive officer and the amount of any income tax is not collected from or paid by you by the Due Date, the amount of any uncollected tax liability will constitute a benefit to you on which additional income tax and National Insurance contributions (NICs) will be payable. You understand that you will be responsible for reporting any income tax and NICs due on this additional benefit directly to HMRC under the self-assessment regime.
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Rev. December 2012
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EXHIBIT 10.4
ESTERLINE TECHNOLOGIES CORPORATION
2004 EQUITY INCENTIVE PLAN (AS AMENDED)
RESTRICTED STOCK UNIT AWARD NOTICE
Esterline Technologies Corporation (the Company) hereby grants to Participant a Restricted Stock Unit Award (the Award). The Award is subject to all the terms and conditions set forth in this Restricted Stock Unit Award Notice (the Award Notice), in the Restricted Stock Unit Award Agreement, including any applicable country-specific provisions in the Appendix thereto (together, the Agreement), and in the Esterline Technologies Corporation 2004 Equity Incentive Plan, as amended (the Plan), which are incorporated into this Award Notice in their entirety.
Participant : | ||
Grant Date : | , 20 | |
Number of Restricted Stock Units Subject to the Award (the Units) : |
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Vesting Schedule : | 100% of the Units will vest on the third anniversary of the Grant Date |
Award Terms, Acknowledgement, & Agreement : Participant acknowledges that he or she has received this Award Notice, the Agreement, the Plan Summary, and the Plan, which together constitute the Award Terms and Conditions. Participant has carefully read those documents and understands them. Participant accepts the Award Terms and Conditions as the entire understanding between Participant and the Company regarding the Award, and further agrees that these Award Terms and Conditions supersede all prior oral and written agreements on the subject.
ESTERLINE TECHNOLOGIES CORPORATION | ||||
By: |
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Its: |
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PARTICIPANT | ||||
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[Name] | ||||
Taxpayer ID: |
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Address: |
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Attachments :
1. Agreement
2. Plan Summary
ESTERLINE TECHNOLOGIES CORPORATION
2004 EQUITY INCENTIVE PLAN (AS AMENDED)
RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to your Restricted Stock Unit Award Notice (the Award Notice) and this Restricted Stock Unit Award Agreement, including any applicable country-specific provisions in the Appendix hereto (together, this Agreement), Esterline Technologies Corporation (the Company) has granted you a Restricted Stock Unit Award (the Award) under its 2004 Equity Incentive Plan, as amended (the Plan), for the number of Restricted Stock Units indicated in your Award Notice. 1
The details of the Award are as follows:
1. | Definitions |
1.1 RSUs Restricted Stock Units, which are rights awarded by the Company to Participants to receive shares of Company stock, subject to the Award Terms and Conditions. One share of Common Stock will be issuable for each RSU that vests.
1.2 Unvested Units RSUs that have not vested and remain subject to forfeiture under the Vesting Schedule.
1.3 Vested Units RSUs that have vested and are no longer subject to forfeiture according to the Vesting Schedule.
1.4 Units Unvested and Vested RSUs, collectively.
1.5 Vesting Schedule The vesting schedule set forth in the Award Notice.
1.6 Full Retirement A voluntary Termination of Service when you are age 65 or older that is a bona fide end to your career in the industries and markets within which the Company does business.
2. | Vesting |
The Award will vest according to the Vesting Schedule. As soon as practicable, but in any event within 60 days, after Unvested Units become Vested Units, the Company will settle the Vested Units by issuing to you one share of Common Stock for each Vested Unit; provided, however, that the Award will terminate and the Unvested Units will be forfeited upon your Termination of Service as set forth in Section 3.
3. | Termination of Service |
Upon your Termination of Service for any reason, the Award will immediately terminate and all Unvested Units shall immediately be forfeited without payment of any further consideration to you.
[ For Officer Agreements: Upon your Termination of Service for any reason, the Award will immediately terminate and all Unvested Units shall immediately be forfeited without payment of any further consideration to you; provided, however, that in the event of your Termination of Service by reason of Full Retirement, the Committee in its sole discretion may provide that all Unvested Units shall become Vested Units upon such Termination of Service. ]
4. | Securities Law Compliance |
The Company intends to maintain registration of the shares of Common Stock that you receive pursuant to settlement of this Award (the Shares) with the U.S. Securities and Exchange Commission under the
1 Capitalized terms not explicitly defined in this Agreement but defined in the Plan shall have the same definitions as in the Plan.
Securities Act or any other applicable securities act (the Acts) in order to facilitate your ability to resell the Shares. However, circumstances may arise that result in the loss of registration of the Shares, which means that your ability to resell the Shares would be more limited. You understand that the Company has no obligation to you to maintain any registration of the Shares with the U.S. Securities and Exchange Commission and has not represented to you that it will so maintain registration of the Shares. In addition, to help ensure compliance with the Acts:
4.1 You represent and warrant that you: (a) have been furnished with a copy of the Plan Summary and all information that you deem necessary to evaluate the merits and risks of receipt of the Award; (b) have had the opportunity to ask questions and receive answers concerning the information received about the Award and the Company; and (c) have been given the opportunity to obtain any additional information you deem necessary to verify the accuracy and meaning of any information obtained concerning the Award and the Company.
4.2 You hereby agree that in no event will you sell or distribute all or any part of the Shares, unless: (a) there is an effective registration statement under the Securities Act and any applicable local, state or foreign securities laws covering any such transaction involving the Shares; or (b) the Company receives an opinion of your legal counsel (concurred in by legal counsel for the Company) stating that such transaction is exempt from registration or the Company otherwise satisfies itself that such transaction is exempt from registration.
4.3 You confirm that you have been advised, prior to your receipt of the Shares, that neither the offering of the Shares nor any offering materials have been reviewed by any administrator under the Acts.
4.4 You hereby agree to indemnify the Company and hold it harmless from and against any loss, claim or liability, including attorneys fees or legal expenses, incurred by the Company as a result of any breach by you of, or any inaccuracy in, any representation, warranty or statement made by you in this Agreement or the breach by you of any terms or conditions of this Agreement.
5. | Transfer Restrictions |
Units shall not be sold, transferred, assigned, encumbered, pledged or otherwise disposed of, whether voluntarily or by operation of law.
6. | No Rights as Stockholder |
You shall not have voting or other rights as a stockholder of the Company with respect to the Units.
7. | Independent Tax Advice |
The Company hereby advises you that determining the actual tax consequences to you of receiving or disposing of the Units and Shares may be complicated. These tax consequences will depend, in part, on your specific situation and may also depend on the resolution of currently uncertain tax law and other variables not within the control of the Company. The Company strongly recommends that you consult with a competent tax advisor independent of the Company prior to signing the Award Notice . By signing the Award Notice, you acknowledge receipt of this advice and agree that you have had the opportunity to consult with such a tax advisor.
8. | Book Entry Registration of the Shares |
The Company will issue the Shares by registering the Shares in book entry form with the Companys transfer agent in your name and applicable securities law or trading restrictions, if any, with respect to the Shares will be noted in the records of the Companys transfer agent and in the book entry system.
9. | Responsibility for Taxes |
You acknowledge that, regardless of any action taken by the Company or, if different, your employer (the Employer), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to your participation in the Plan and legally applicable to you (Tax-Related Items), is and remains your responsibility and may exceed the amount actually withheld by the
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Company or the Employer. You further acknowledge that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Units, including, but not limited to, the grant, vesting or settlement of the Units, the subsequent sale of shares of Common Stock acquired pursuant to such settlement; and (2) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Award to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result. Further, if you are subject to Tax-Related Items in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, you acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
Prior to any relevant taxable or tax withholding event, as applicable, you agree to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items.
In this regard, you authorize the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following: (i) withholding from your wages or other cash compensation paid to you by the Company and/or the Employer; (ii) withholding from proceeds from the sale of Shares acquired upon settlement either through a voluntary sale or through a mandatory sale (which the Company may either arrange on your behalf pursuant to this authorization without further consent or may require you to enter into a trading plan that complies with the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act with a brokerage firm acceptable to the Company for this purpose); or (iii) withholding in Shares to be issued upon settlement. Notwithstanding the foregoing, if you are a Section 16 officer of the Company, you agree and acknowledge that the Company or its agent are authorized to satisfy the obligations with regard to all Tax-Related Items by withholding in Shares to be issued upon settlement, unless the Committee determines in its discretion to satisfy the obligations for all Tax-Related Items by one or a combination of (i), (ii) and (iii) above.
Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding rates or other applicable withholding rates. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, you are deemed to have been issued the full number of Shares subject to the Vested Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items.
Finally, you agree to pay to the Company or the Employer, as applicable, any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of your participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares, if you fail to comply with your obligations in connection with the Tax-Related Items.
10. | Nature of Grant |
In accepting the Award, you acknowledge, understand and agree that:
10.1 the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;
10.2 the grant of the Award is voluntary and occasional and does not create any contractual or other right to receive future grants, or benefits in lieu of awards, even if awards have been granted in the past;
10.3 all decisions with respect to future awards or other grants, if any, will be at the sole discretion of the Company;
10.4 the grant of the Award and your participation in the Plan shall not create a right to employment or be interpreted as forming an employment or service contract with the Company or any Related Company and shall not interfere with the ability of the Employer to terminate your employment or service relationship (if any);
10.5 you are voluntarily participating in the Plan;
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10.6 the Award and the Shares subject to the Award are not intended to replace any pension rights or compensation;
10.7 the Award and the Shares subject to the Award, and the income and value of same, are not part of normal or expected compensation for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
10.8 the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
10.9 no claim or entitlement to compensation or damages shall arise from forfeiture of the Units resulting from your Termination of Service (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any); and
10.10 the following provision applies only to Participants based outside the United States: you acknowledge and agree that neither the Company, the Employer nor any Related Company shall be liable for any foreign exchange rate fluctuation between your local currency and the United States Dollar that may affect the value of the Award or of any amounts due to you pursuant to the settlement of the Award or the subsequent sale of any Shares acquired upon settlement.
11. | Data Privacy |
You hereby explicitly and unambiguously consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this Agreement and any other Award grant materials by and among, as applicable, the Employer, the Company and any Related Company for the exclusive purpose of implementing, administering and managing your participation in the Plan.
You understand that the Company and the Employer may hold certain personal information about you, including, but not limited to, your name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Units or any other entitlement to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor (Data), for the exclusive purpose of implementing, administering and managing the Plan.
You understand that Data will be transferred to Morgan Stanley Smith Barney, or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. You understand that the recipients of the Data may be located in the United States or elsewhere, and that the recipients country (e.g., the United States) may have different data privacy laws and protections than your country. You understand that if you reside outside the United States, you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the Company, Morgan Stanley Smith Barney, and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing your participation in the Plan. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that if you reside outside the United States, you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your local human resources representative. Further, you understand that you are providing the consents herein on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, your employment status or service and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing your consent is that the Company would not be able to grant you Units or other equity awards or administer or maintain such awards. Therefore, you understand that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.
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12. | General Provisions |
12.1 Assignment . The Company may assign its rights under this Agreement at any time, whether or not such rights are then exercisable, to any person or entity selected by the Companys Board of Directors.
12.2 No Waiver . No waiver of any provision of this Agreement will be valid unless in writing and signed by the person against whom such waiver is sought to be enforced, nor will failure to enforce any right hereunder constitute a continuing waiver of the same or a waiver of any other right hereunder.
12.3 Imposition of Other Requirements. You hereby agree to take any additional action and execute whatever additional documents or undertakings the Company may deem necessary or advisable for legal or administrative reasons in connection with your participation in the Plan, the grant of Award, or the acquisition of any Shares.
12.4 Agreement Is Entire Contract . This Agreement, the Award Notice and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the Plan and will in all respects be construed in conformity with the express terms and provisions of the Plan.
12.5 Successors and Assigns . The provisions of this Agreement will inure to the benefit of, and be binding on, the Company and its successors and assigns and you and your legal representatives, heirs, legatees, distributees, assigns and transferees by operation of law, whether or not any such person will have become a party to this Agreement and agreed in writing to join herein and be bound by the terms and conditions hereof.
12.6 Section 409A Compliance . Payments made pursuant to this Agreement and the Plan are intended to qualify for an exception from or to comply with Section 409A of the Code. Notwithstanding any other provision in the Plan or this Agreement to the contrary, the Committee reserves the right, but shall not be required to, unilaterally amend or modify the terms of this Agreement and/or the Plan as it determines necessary or appropriate, in its sole discretion, to avoid the imposition of interest or penalties under Section 409A of the Code; provided, however, that the Company makes no representation that that the Award shall be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to the Award.
12.7 Counterparts . This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but which, upon execution, will constitute one and the same instrument.
12.8 Governing Law and Venue . This Agreement will be construed and administered in accordance with and governed by the laws of the State of Washington without giving effect to principles of conflicts of law.
For purposes of litigating any dispute that arises under this grant or the Agreement, the parties hereby submit to and consent to the jurisdictions of the State of Washington, agree that such litigation shall be conducted in the courts of King County, Washington, or the federal courts for the United States for the Western District of Washington, where this grant is made and/or to be performed.
12.9 Language. If you have received this Agreement or any other documents related to the Plan translated to a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
12.10 Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an online or electronic system established and maintained by the Company or a third party designated by the Company.
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12.11 Severability. The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
12.12 Appendix. Notwithstanding any provisions in this Agreement, the Award shall be subject to any special terms and conditions set forth in the appendix to this Agreement for your country (the Appendix). The Appendix constitutes part of this Agreement.
12.13 Reimbursement. Plan participation and awards are subject to the Boards Policy on Reimbursement of Incentive Awards, as it might change from time to time.
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APPENDIX
COUNTRY-SPECIFIC TERMS TO THE
RESTRICTED STOCK UNIT AWARD AGREEMENT
Terms and Conditions
This Appendix to the Restricted Stock Unit Award Agreement (the Agreement) includes special terms and conditions applicable to Participants in the countries covered by the Appendix. These terms and conditions are in addition to, or, if so indicated, in place of, the terms and conditions set forth in the Agreement.
Notifications
This Appendix also includes notifications relating to exchange control and other issues of which you should be aware with respect to your participation in the Plan. The information is based on the exchange control, securities and other laws in effect in the respective countries as of November 2012. Such laws are often complex and change frequently. As a result, the Company strongly recommends that you not rely on the notifications herein as the only source of information relating to the consequences of participation in the Plan because the information may be out of date at the time the Award vests or Shares acquired under the Plan are sold.
In addition, the information contained herein is general in nature and may not apply to your particular situation, and the Company is not in a position to assure you of any particular result. Accordingly, you are advised to seek appropriate professional advice as to how the relevant laws in your country may apply to your situation.
Finally, you understand that if you are a citizen or resident of a country other than the one in which you are currently working, transfer employment after the Grant Date, or are considered a resident of another country for local law purposes, the information contained herein may not apply to you, and the Company shall, in its discretion, determine to what extent the terms and conditions contained herein shall apply.
CANADA
Terms and Conditions
The following provisions apply if you are a resident of Quebec:
French Language Provision. The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English.
Les parties reconnaissent avoir exigé la rédaction en anglais de la Convention, ainsi que de tous documents, avis et procédures judiciaires, exécutés, donnés ou intentés en vertu de, ou liés directement ou indirectement à, la présente convention
Data Privacy Notice and Consent. The following provision supplements Section 11 of the Agreement:
You hereby authorize the Company and the Companys representatives to discuss with and obtain all relevant information from all personnel, professional or not, involved in the administration and operation of the Plan. You further authorize the Company or any Related Company and the Administrator to disclose and discuss the Plan with their advisors and to record such information and to keep such information in your employee file.
Notifications
Securities Law Information. You are permitted to sell Shares acquired under the Plan through the designated broker appointed under the Plan, if any, provided the resale of the Shares acquired under the Plan takes place outside of Canada through the facilities of a stock exchange on which the Shares are listed. The Shares are currently listed on the NYSE.
FRANCE
Terms and Conditions
French Language Provision . By accepting the Agreement providing for the terms and conditions of your Award, you confirm having read and understood the documents relating to this Award (the Plan and the Agreement) which were provided in the English language. You accept the terms of those documents accordingly.
En acceptant le Contrat dAttribution décrivant les termes et conditions de lAttribution, le participant confirme ainsi avoir lu et compris les documents relatifs à cette Attribution (le Plan et le Contrat dAttribution) qui ont été communiqués en langue anglaise. Le participant accepte les termes en connaissance de cause.
Notifications
Tax Information. The Award is not intended to be a French tax-qualified award.
Exchange Control Information. If you hold Shares outside of France or maintain a foreign bank account, you are required to report such to the French tax authorities when filing your annual tax return.
GERMANY
Notifications
Exchange Control Information. Cross-border payments in excess of 12,500 must be reported monthly to the State Central Bank. You will be responsible for obtaining the appropriate form from the bank and complying with the applicable reporting obligations.
UNITED KINGDOM
Terms and Conditions
Responsibility for Taxes. The following provisions supplement Section 8 of the Agreement:
You are required to pay to the Company or the Employer, as applicable, any amount of income tax that the Company or the Employer may be required to account to Her Majestys Revenue and Customs (HMRC) with respect to the event giving rise to the income tax (the Taxable Event) that cannot be satisfied by the means described in Section 8 of the Agreement. If payment or withholding of the income tax is not made within ninety (90) days of the Taxable Event or such other period as required under U.K. law (the Due Date), you agree that the amount of any uncollected income tax shall constitute a loan owed by you to the Employer, effective on the Due Date. You agree that the loan will bear interest at the then-current HMRC Official Rate and it will be immediately due and repayable, and the Company and/or the Employer may recover it at any time thereafter by any of the means referred to in Section 8 of the Agreement. If you fail to comply with your obligations in connection with the income tax as described in this section, the Company may refuse to deliver the Shares acquired under the Plan.
Notwithstanding the foregoing, if you are a director or executive officer of the Company (within the meaning of Section 13(k) of the Exchange Act), you will not be eligible for such a loan to cover the income tax due. In the event that you are a director or executive officer and the income tax due is not collected from or paid by you by the Due Date, the amount of any uncollected income tax will constitute a benefit to you on which additional income tax and National Insurance contributions (NICs) will be payable. You will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for reimbursing the Company or the Employer, as applicable, for the value of any NICs due on this additional benefit.
EXHIBIT 10.5
To | Marcia J. Mason | Date | August 1, 2012 | |||
From | Brad Lawrence | Subject | Promotion |
Congratulations Marcia. We are pleased to confirm that the Board voted unanimously to promote you to a new executive officer position, effective August 1 st , as follows:
1. | Your new title will be General Counsel & VP Administration. You will continue to report to me. See the enclosed organization chart. |
2. | Your base salary will increase by $35,000.00 to bring your annual salary from $310,000.00 to $345,000.00, an 11.3% change. |
3. |
Your Annual Incentive Compensation target will increase from $124,000 (40% of base salary) to $155,250 (45% of base salary), representing a 15.3% change in your total annual cash compensation. This will be pro-rated for FY12 from the effective date of August 1 st . |
4. | Your long-term incentive compensation total target will increase from $310,000 (100% of base) to $379,500 (110% of base). Accordingly, your LTIP cash plan appointment for FY12-FY14 cycle will increase to a target of 44%, or $151,800. Please see the revised appointment enclosed with this memo. Targets and allocation for the FY13-FY15 cycle will be determined in the normal course in December, based on the outcomes of a current executive incentive compensation project. |
5. |
You will also receive an exceptional promotion grant of 20,000 options at the closing price on August 1 st as reported on the next day in the Wall Street Journal. |
6. | You will continue to receive the fringe benefits under the standard executive officer program. |
Marcia, based on your strong contributions to Esterline in the past, I know you will be successful in this new role, and we look forward to your future achievements. We also hope your new position will be satisfying and rewarding to you and your family.
Enclosures: |
Organization chart Revised LTIP appointment, FY12-FY14 Option grant
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cc: |
Suzanne Farraj (for personnel file) Alexa Juarez Gary Posner Peggy Haberly Debbie Rynhoud (for option grant) |
EXHIBIT 10.6
To | Al Yost | Date | November 16, 2009 | |||
From | Brad Lawrence | Subject | Promotion to Group Vice President |
Al, this is to confirm Esterlines offer of promotion to the position of Group Vice President, on the following terms as now approved by our Board of Directors. As we discussed, I would like you to start on Monday, November 23.
Scope & reporting relationship. As Group Vice President you will have senior-level leadership and oversight responsibility for the operations and financial results of certain Esterline subsidiary companies assigned to you. Your initial assignments will be for the companies that currently comprise Esterline Interface Technologies. Other assignments will be forthcoming as your general orientation, work capacity, and business circumstances allow.
You will also become an executive officer of the corporation. That role will require you to work closely with the other officers and corporate staff to lead, develop, and maintain the most effective strategies and business processes we can to ensure Esterlines success. In addition, you will have legal obligations similar to those with which you are familiar as an officer of Advanced Input Systems.
You will report directly to me on a solid-line basis, and to Frank Houston on a dotted-line. At my request, Frank will take a lead role in orienting you to your new responsibilities, and will serve as an experienced mentor for you.
Compensation. Normally, the Board reviews officer compensation on an annual basis in December, and makes various changes to plan designs, performance goals, and base salary based on market data, professional advice, management recommendations, and on the corporations general business conditions. The Board has authorized the following for you effective as of November 23, 2009:
Salary. Your new base salary will be $275,000.00 per year gross, subject to the usual payroll tax deductions and fringe benefit costs.
Annual Incentive Compensation. The Board appointed you to Esterlines Annual IC Plan for FY10, which is designed to reward successful achievement of our budgeted earnings per share. Your target award will be 35% of your base salary, consistent with competitive market benchmarks. The actual award will vary, of course, depending on the earnings we achieve by year-end.
The Plan will pay from 25% and up to 200% of your target award for performance ranging from a minimum of 70% of budgeted EPS to a maximum of 130% of budget. We expect the Board to issue the FY10 IC Plan in December, at which time you will receive a copy.
Because your new assignment will take effect early in the fiscal year, your annual incentive compensation appointment will be effective for all of FY10.
Long Term Incentive Plan. You will also participate in Esterlines Long Term Incentive Compensation Plan (LTIP), which is similar to the operating unit plan you currently have.
Your appointments will be for three pending plan cycles: FY08-FY10, FY09-FY11, and FY10-FY12. The Board will evaluate and establish new LTIP target awards for all officers in December. Based on preliminary market data, we estimate your LTIP target award for each of those 3-year cycles will be about $100,000.00.
Your actual LTIP award would be payable at that level if we achieve the Plans earnings growth and ROIC goals. It will vary depending on company performance from 0% to as much as 400% of your target, in accordance with the LTIP matrix.
Incentive Plan Transfer. In exchange for these new appointments to Esterline IC plans, we ask that you relinquish your participation in all pending Esterline Interface Technologies long term incentive plans in which you participate now.
Stock Options. The Board also approved an exceptional promotion grant for you of 25,000 shares of Esterline stock at the NYSE market closing price on November 23, 2009 as quoted in the Wall Street Journal on the subsequent day. Due to administrative requirements, we will send the option award to you under separate cover.
As you know from participation in your current LTI program, the Board will also consider you for additional option grants annually in December.
Retirement Benefits. With your transfer to Esterline, you will re-join our defined benefit pension plan, thus ending the substitute DC SERP employer discretionary funding. You will also participate in Esterlines Supplemental Executive Retirement Plan (pension SERP) as provided for the other officers. The pension SERP supplements the regular, tax-qualified plan to allow you to earn pension benefits on eligible compensation that exceeds formula limits. Those limits index from year to year according to federal tax regulations. For 2010, the SERP will cover your pensionable income above $245,000.
You remain eligible to defer a portion of your earnings into the DC SERP plan that operates in a similar way to supplement our standard 401(k) plan.
Change in Control Agreement. As an officer, you will also receive our usual change of control protection agreement, which would pay three times your average total cash compensation should you lose your position due to a change in corporate control. The agreement is enclosed for your review and signature.
Car. You will also receive a car allowance under Esterlines Vehicle Allowance policy #233, a copy of which is available for your review in the EPS accounting policies. The amount of the allowance depends on typical costs for the purchase, operating, maintenance, and insurance of a vehicle in your residential area. For this first year, we will use Esterlines office address for purposes of computing your allowance. It will be approximately $800 per month.
Financial Advice Services . The corporation will pay up to $7,000 in financial advice service fees for you each year. We have a corporate arrangement in which you may choose to participate with the firm of Brownson, Rehmus & Foxworth, Inc. The officers who use BRFs services have found them very helpful. If you are interested, Marcia Greenberg will arrange an introduction for you. Alternatively, if you have an established relationship with another financial advisor, the corporation will reimburse you for actual service fees up to $7,000 a year. With either arrangement, the corporations fee payments will be treated as income to you, and thus you will have responsibility for income taxes on those amounts.
Vacation & Sick Leave. When you transfer to the Esterline payroll, we will transfer any paid time off you have accrued at AIS and convert it to vacation time and sick leave under corporate office policies. Your future vacation accrual will be at the rate of four weeks per year, subject to a maximum limit as explained in our Corporate Staff Handbook, a copy of which is enclosed.
Health Care & Other Fringe Benefits. In most other respects, we will provide the same retirement, health care, and other fringe benefits you are accustomed to receiving at AIS.
Housing Stipend. To assist your transition from the Spokane area housing market to the Bellevue area, Esterline will also pay you a housing stipend for four years that reflects the change in overall housing expense you will face in making this move. The stipend will be taxable income to you, and we have added an estimated tax gross-up factor to the stipend to give you both housing cost assistance and tax help. The total stipend will be $55,644.00 gross per
year for the first two years, followed by an annual stipend of $27,828.00 for years three and four. The housing stipend will expire on the fourth anniversary of your promotion, on November 23, 2013. As with other aspects of your compensation, the housing stipend is subject to modification if for unforeseeable reasons your job assignment or geographic location were to change in the next four years; and, like your other compensation, the stipend would end if you were to leave Esterline for any reason.
Relocation . Other relocation benefits are outlined in the enclosed Summary of Benefits for relocating homeowners, with the following modifications:
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We will allow up temporary living expenses through June 2010 |
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You will use Cartus Relocation services for sale of your current home under their Buyer Value Option Home Sale program |
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If your Liberty Lake house does not sell within 60 days after the listing date, we will authorize Cartus to purchase the house from you through its Guaranteed Offer/Appraised Value Sale program. |
Future Changes. This new position and its terms fit the corporations needs well, as we can best foresee them. Nevertheless, the companys growth, its future business challenges, and certain leadership succession decisions could result in a different executive assignment and a different title for you in the future. In short, the corporate organization is evolving fairly rapidly and with limited predictability. Thus Esterline might reassign you to a different position in the future, as the Board and I determine is best. If I see a change developing that could affect your role, I will certainly speak to you about it as early as I reasonably can, and solicit your ideas.
General Policies. This offer includes and is contingent on satisfactory completion of the various forms and agreements enclosed here, and on a physical examination. Except as specifically provided in this letter, other aspects of your employment will be the same as those that apply to our corporate staff. We are all employed at-will, and the officers serve at the pleasure of the Board for one-year terms subject to company by-laws.
Welcome. Al, the other officers and I have all enjoyed working with you, and we look forward to continuing and strengthening those relationships in your new position. I believe you will find the work here challenging and diverse, with opportunity for continued career growth benefits for you and your family. Congratulations on your well-earned success.
To accept this offer, please sign the duplicate copy together with the various materials enclosed, and return them all to Suzanne Farraj.
Best regards,
R. Bradley Lawrence
President & Chief Executive Officer
Enclosures: |
Benefits Summary Change in Control Agreement Duplicate memo Executive Physical Form |
Corporate Staff Handbook
Employee Relocation Repayment
Invention Agreement Relocation Benefits Summary Summary of Outside Interests |
EXHIBIT 11
ESTERLINE TECHNOLOGIES CORPORATION
Computation of Basic and Diluted Earnings Per Common Share
For the Three Month Periods Ended January 25, 2013 and January 27, 2012
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended | ||||||||
January 25,
2013 |
January 27,
2012 |
|||||||
Net Sales |
$ | 457,962 | $ | 470,882 | ||||
Gross Margin |
160,345 | 158,081 | ||||||
Net Earnings Attributable to Esterline |
$ | 25,111 | $ | 22,788 | ||||
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Basic |
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Weighted Average Number of Shares Outstanding |
30,904 | 30,631 | ||||||
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Earnings Per Share Attributable to Esterline Basic |
$ | .81 | $ | .74 | ||||
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Diluted |
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Weighted Average Number of Shares Outstanding |
30,904 | 30,631 | ||||||
Net Shares Assumed to be Issued for Stock Options |
519 | 526 | ||||||
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Weighted Average Number of Shares
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31,423 | 31,157 | ||||||
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Earnings Per Share Attributable to Esterline Diluted |
$ | .80 | $ | .73 | ||||
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EXHIBIT 31.1
CERTIFICATIONS
I, R. Bradley Lawrence, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Esterline Technologies Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: March 1, 2013 | By: |
/s/ R. Bradley Lawrence |
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R. Bradley Lawrence | ||||
Chairman, President and Chief Executive Officer | ||||
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATIONS
I, Robert D. George, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Esterline Technologies Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Dated: March 1, 2013 | By: |
/s/ Robert D. George |
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Robert D. George | ||||
Chief Financial Officer, Vice President, and | ||||
Corporate Development | ||||
(Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Esterline Technologies Corporation (the Company ) on Form 10-Q for the period ended January 25, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Form 10-Q ), I, R. Bradley Lawrence, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 1, 2013 | By: | /s/ R. Bradley Lawrence | ||||||
R. Bradley Lawrence | ||||||||
Chairman, President and Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Esterline Technologies Corporation (the Company ) on Form 10-Q for the period ended January 25, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Form 10-Q ), I, Robert D. George, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 1, 2013 | By: | /s/ Robert D. George | ||||||
Robert D. George | ||||||||
Chief Financial Officer, Vice President, and | ||||||||
Corporate Development |