Esterline Technologies Corp.
Esterline Technologies Corp.
10800 Northeast 8th Street
Bellevue, Washington 98004
Fax: (206) 453-2916
Incorporated: 1967 as Boyar-Schultz, Inc.
Sales: $351.9 million (1995)
Stock Exchanges: New York
SICs: 3559 Special Industry Machinery, Not Elsewhere Classified; 3569 General Industrial Machinery, Not Elsewhere Classified; 3483 Ammunition, Except for Small Arms, Not Elsewhere Classified; 3823 Process Control Instruments; 3679 Electronic Components, Not Elsewhere Classified; 3824 Fluid Meters and Counting Devices; 3829 Measuring and Controlling Devices, Not Elsewhere Classified
A diversified manufacturing company divided into three business groups—Automation, Aerospace and Defense, and Instrumentation—Esterline Technologies Corp. serves several major markets, including electronic equipment manufacturers, metal fabricators, commercial aerospace companies, and the defense industry. During the mid-1990s, Esterline comprised 13 individual companies located in California, Ohio, Indiana, Washington, Missouri, Rhode Island, and Illinois, as well as abroad. Esterline’s presence in international markets, where the company made roughly a third of its total annual sales, was sustained by manufacturing facilities in Dietzenbach, Germany; Rustington, England; Guadalajara, Mexico; Torino, Italy; and Torrejon de Ardoz, Spain.
When Gerhard R. Andlinger, a former chairman of Esterline, stood before the New York Society of Security Analysts on July 9, 1970, he informed his audience that it was his intention “to create a new major industrial company based on the technology of measurement sciences and automation.” Although less than three years old at the time of Andlinger’s pronouncement, Esterline was already well on its way toward achieving such an objective, having assembled through acquisitions a solid collection of properties and technological expertise that positioned the company as a rising contender in the measurement sciences field and the factory automation market. The company had been organized during the late summer and early fall of 1967: in August, Boyar-Schultz, Inc., was incorporated to acquire the assets of Boyar-Schultz Corp., a manufacturer of surface grinding machines, and two months later, Esterline Angus Instrument Company was merged into Boyar-Schultz Inc., with the resultant corporate entity adopting Esterline Corp. as its title. The company moved quickly to acquire additional assets that would deepen and broaden its interests, much of which were divested several years after Andlinger’s presentation to the New York Society of Security Analysts. Those acquisitions that remained formed the foundation for the Esterline of the 1990s.
In the summer of 1968, the newly formed Esterline acquired Costa Mesa, California-based Babcock Electronics Corp., a manufacturer of sophisticated electronic devices used for defense-related applications. Although Babcock Electronics would later be sold, remaining in the Esterline fold until 1984, the addition of the company’s connections to the aerospace and missile markets provided one of the three pillars that would support Esterline throughout the 1970s and 1980s, and into the 1990s. The same could not be said of the acquisitions made by Esterline in the wake of its purchase of Babcock Electronics. Beginning in 1969, Esterline acquired a handful of hospital equipment and medical supply distributors in a bid to develop a presence in the U.S. medical market, creating a medical products distribution network that encompassed 19 Eastern and Midwestern states by the beginning of the 1970s. The company’s foray into the health care market was intensified further with the acquisition of several optical manufacturers and a hearing aid company, including the 1969 purchases of Titmus Optical Company, the fifth-largest manufacturer of ophthalmic goods in the United States, and Radioear Corporation, a company with 40 years of experience manufacturing hearing aids.
Combined, Esterline’s medical products distribution system and its ophthalmic goods and hearing aid manufacturing businesses made up the company’s medical group, part of which remained an aspect of Esterline’s business throughout the first half of the 1970s. By the late 1970s, however, Esterline’s attempt to build a lasting presence in the U.S. health care market was abandoned, and the entire medical group had been sold, beginning with the divestiture of the company’s ophthalmic goods business in 1971. Next to go was Esterline’s medical supply distribution business, which was completely divested by 1977, followed by the sale of the company’s hearing aid business in 1978. The core of what remained after the divestiture of the medical group formed the basis of Esterline’s business for the next two decades: production facilities geared toward the development of measurement sciences products and factory automation machinery.
Two acquisitions in particular bolstered Esterline’s business early on, both of which were purchased in 1969. In the summer of 1969, as plans were being formulated to carve a presence in the medical products distribution market, Esterline acquired Providence, Rhode Island-based Federal Products Corporation, a manufacturer of precision instruments, then later in the fall the company purchased Rockford, Illinois-based W.A. Whitney Corporation, a producer of automatic steel-fabrication equipment. Both companies, once organized as subsidiaries, represented integral contributors to Esterline’s business for the ensuing three decades. Esterline’s automation segment served as the company’s chief engine for growth, generating the majority of the company’s annual sales through the manufacture of metal fabrication machinery, numerically controlled production equipment, and custom automation equipment used to produce a wide array of products, ranging from beer cans to hypodermic needles. With the manufacture of highly engineered, precision measurement instruments and factory automation equipment propelling the company forward, Esterline grew through both internal and external means during the 1970s, using companyfunded research to spur technological developments that spawned new products and benefiting from a host of acquisitions that solidified the company’s position in its two primary businesses.
By the mid-1970s, Esterline was generating roughly $125 million in annual sales, fast on its way toward becoming a leading manufacturer of “machines that make machines,” as industry pundits referred to the factory automation industry. Largely dependent on the expansion of production capacity in the electronics industry, Esterline grew as the industry it served grew, more than doubling its annual sales volume between the mid-1970s and the beginning of the 1980s. In 1980 the company’s annual sales hovered around $250 million, representing a prodigious increase from five years earlier, but the financial health of the company quickly turned anemic during the early 1980s.
From 1980 forward Esterline’s financial growth stagnated, its annual sales volume remaining checked at approximately $250 million. Nearly half of Esterline’s annual volume of business during the company’s extended stretch of lackluster performance was derived from its printed-circuit automation group, which produced equipment for everything from printing to the automated drilling of printed-circuit boards. This equipment was in high demand when electronics companies were increasing their production capacity, but during the sluggish early and mid-1980s, such facility expansion was slow. After six years of hobbled growth, Esterline at last reeled from the affects of stunted capital-goods demand, recording a $29.3 million loss in 1987 on $260 million in sales. Other financial statistics reflected the pallid performance: in 1980, Esterline’s peak year, earnings stood at $2.51 a share; by 1987 earnings per share had plummeted to a $3.47 deficit, while the company’s stock price had plunged from a high of $40 in 1980 to $8 in 1987.
A cost-cutting program had been in place for several years by the time 1987’s financial figures were announced, but beginning in 1987 more drastic and pervasive changes were implemented. In November 1987, following the dismissal of the company’s executive staff by Esterline’s board of directors, the company relocated its corporate headquarters from Darien, Connecticut, to Bellevue, Washington, a suburb of Seattle. For a new management team Esterline’s directors selected Carroll Martenson and his executive team, who had orchestrated a revival of floundering Criton Technologies, a company that had flourished during the 1960s as a manufacturer of airplane parts, electronic equipment, and building exteriors then fallen on hard times during the 1970s. Martenson had come to the attention of Esterline’s directors through a New York investment group named Dyson-Kissner-Moran (DKM), Esterline’s largest shareholder and Criton Technologies’ parent company. In fact, a former chairman of Esterline and one of the company’s founders, Charles Dyson, was a DKM principal, so news of Martenson’s success at Criton Technologies did not have to travel far to reach Esterline’s directors, who now looked to Martenson to resuscitate Esterline.
Martenson and six Criton officers took charge of Esterline under a management-services contract just after the disastrous financial figures of 1987 were reported, with their tenure beginning on the sourest of notes. To restore Esterline’s lost luster, the management team quickly assessed the company’s condition by visiting each of Esterline’s 10 principal manufacturing sites, which were spread across seven states from California to New Hampshire, including one in Asnieres, France. Sweeping cost-containment measures were then implemented, followed by the liquidation of underperforming assets, stripping the company of properties that had been stifling profit growth. Those properties deemed to be performing well and capable of generating strong sales and profits in the future were revitalized with an infusion of cash to strengthen marketing efforts and to accelerate research and development work, creating a leaner and more strategically focused company.
By the end of 1988, the efforts of Martenson and Criton Technologies officials had realized great gains, enabling Esterline to put its decline behind it and face a more promising future. In fiscal 1988, the company generated a profit of $8.4 million on $284.4 million in sales. The relationship between Criton Technologies and Esterline soon grew beyond their identical executive management teams. In September 1989, Esterline finalized the buyout of its largest shareholder— DKM—and acquired six of eight subsidiaries from privately held Criton Technologies, creating a $400 million conglomerate that greatly increased the prospects of a bright future for Ester-line as the company prepared to enter the 1990s.
With the addition of Criton Technologies’ six subsidiaries, the number of Esterline’s operating divisions increased from 11 to 17 and the company realized instant sales and profit growth, gaining $110 million in annual sales and $15 million in annual profits. Most importantly, however, the merger broadened Esterline’s operations beyond the depressed capital goods manufacturing market and into specialized niches of the defense industry and the aerospace industry. Bolstered by the addition of Criton Technologies subsidiaries such as Korry Electronics Co., which manufactured lighted panels for airplane cockpits, and Hytek Finishes Co., an aerospace concern involved in finishing metal, Esterline entered the 1990s confident that the newly constituted company could look forward to considerably more robust growth than had been achieved during the previous decade.
For several years, such confidence was validated by Esterline’s steady annual profit totals. But by 1993, when sales amounted to $285 million, earnings had slipped to a laggard $ 1.6 million after averaging $7 million a year between 1988 and 1991. By the following year, 1994, improvements were again evident, as internal efficiencies effected by the company and a revamped product line buoyed Esterline’s financial performance. The company’s net income increased to $7.6 million by the end of 1994, while sales inched up to $294 million, then rose more resolutely by the end of 1995, when net earnings more than doubled on a 20 percent gain in sales.
As Esterline moved into the late 1990s, the company was registering modest increases in its aerospace and defense and instrumentation businesses, but its greatest growth was being achieved by its automation group, which was benefiting from strong demand for automated manufacturing equipment. The company’s Excellon subsidiary, the world’s leading manufacturer of printed-circuit board drilling systems, was performing particularly well, fueling hopes that the company could look forward to stable earnings in the future.
Angus Electronics Co.; Armtec Defense Products Co.; Auxitrol Co.; Equipment Sales Co.; Esterline International Finance N.V. (Netherlands Antilles); Excellon Automation Co.; Tulon Co. Excellon U.K. (England); Excellon Europe GmbH (Germany); Amtech; Federal Products Co.; Federal Products U.K. Ltd. (England); Hytek Finishes Co.; Scientific Columbus Co.; Korry Electronics Co.; Midcon Cables Co.; TA Mfg. Co.; W.A. Whitney Co. Auxitrol Technologies S.A. (France).
Principal Operating Units
Automation Group; Aerospace and Defense Group; Instrumentation Group.
Acohido, Byron. “… And the Two Became One.” Seattle Times, October 2, 1989. p. El.
Cochran, Thomas N., “In Line for a Rebound,” Barron’s, June 27. 1988. p. 56.
“Esterline Buys 4 Firms in Medical-Supply Field,” Wall Street Journal, December 11, 1969, p. 4.
“Esterline Reports Year-End EPS. of $2.53 on $352 Million Sales.” PR Newswire, December 12, 1995, p. 12.
Wilhelm, Steve. “Esterline’s Prospects Improve after 2-Year Slump,” Puget Sound Business Journal, October 28. 1994, p. 19.
_____, “Life with Burgeoning Esterline Anything hut Simple,” Puget Sound Business Journal, March 5, 1990, p. 10.
—Jeffrey L. Covell