UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~December 2928, 2018.

☐ 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)

Registrant’s telephone number, including area code (425) 453-9400

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ ~~(Do not check if a smaller reporting company)~~ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of ~~July 31~~February 1, ~~2018~~2019, 29,~~442~~692,~~875~~498 shares of the issuer’s common stock were outstanding.

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

ESTERLINE TECHNOLOGIES CORPORATION

CONSOLIDATED BALANCE SHEET

As of ~~June~~December 2928, 2018, and September 2928, ~~2017~~2018

(In thousands, except share amounts)

	June 29,		September 29,
	December 28,		September 28,
	2018		~~2017~~2018
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	~~351~~391,~~039~~182	$	~~307~~372,~~826~~406
Accounts receivable, net of allowances of $14,391 and $16,035		401,244		430,524
Accounts receivable, net of allowances of $16,647 and $16,203		439,401		441,696
Inventories
Raw materials and purchased parts		~~185~~188,~~211~~162		~~194~~180,~~034~~559
Work in progress		~~188~~159,~~956~~214		~~178~~173,~~191~~505
Finished goods		~~105~~104,~~327~~814		~~105~~103,~~744~~162
		479,494		477,969
		452,190		457,226
Income tax refundable		1810,~~503~~697		129,~~814~~077
Prepaid expenses		2324,~~778~~393		19,~~239~~975
Other current assets		4,~~574~~272		133,~~836~~497
Current assets of businesses held for sale		4,052		6,501
Total Current Assets		1,322,135		1,303,877
Total Current Assets		1,282,684		1,268,709
Property, Plant and Equipment		833,838		831,392
Property, Plant and Equipment		826,642		862,715
Accumulated depreciation		524,104		516,586
Accumulated depreciation		509,766		514,081
		309,734		314,806
		316,876		348,634
Other Non-Current Assets
Goodwill		1,~~031~~013,~~234~~461		1,~~053~~030,~~573~~667
Intangibles, net		~~318~~289,~~169~~869		~~359~~306,~~166~~085
Deferred income tax benefits		5544,~~532~~873		5644,~~793~~008
Other assets		1737,~~323~~309		1933,~~804~~249
Non-current assets of businesses held for sale		~~12,632~~-		134,~~334~~225
Total Assets	$	3,~~034~~017,~~450~~381	$	3,~~120~~036,~~013~~917

ESTERLINE TECHNOLOGIES CORPORATION

CONSOLIDATED BALANCE SHEET

As of ~~June~~December 2928, 2018, and September 2928, ~~2017~~2018

(In thousands, except share amounts)

	June 29,			September 29,
	December 28,			September 28,
	2018			~~2017~~2018
	(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	~~133~~123,~~470~~979		$	~~138~~147,~~595~~438
Accrued liabilities		~~218~~228,~~953~~865			~~230~~232,~~007~~730
Current maturities of long-term debt		1517,~~245~~439			17,~~424~~546
U.S. and foreign income taxes		7,~~151~~763			~~582~~5,160
Current liabilities of businesses held for sale		~~3,212~~-			~~7,184~~144
Total Current Liabilities		378,~~031~~046			~~393~~403,~~792~~018
Long-Term Liabilities
Credit facilities		25,000			50,000
Long-term debt, net of current maturities		646,845			654,922
Long-term debt, net of current maturities		695,884			709,424
Deferred income tax liabilities		26,095			28,899
Deferred income tax liabilities		34,927			43,978
Pension and post-retirement obligations		56,909			57,755
Pension and post-retirement obligations		65,443			66,981
Long-term U.S. income taxes payable		33,204			32,902
Long-term U.S. income taxes payable		38,640			-
Other liabilities		18,776			16,294
Other liabilities		17,703			18,838
Non-current liabilities of businesses held for sale		2,910			1,724
Shareholders' Equity
Common stock, par value $.20 per share, authorized 60,000,000 shares, issued 33,177,952 and 33,117,473 shares		6,636			6,623
Common stock, par value $.20 per share, authorized 60,000,000 shares, issued 33,421,720 and 33,190,467 shares		6,684			6,638
Additional paid-in capital		~~750~~768,~~449~~897			~~738~~751,~~329~~031
Treasury stock at cost, repurchased 3,737,327 and 3,135,927 shares		(351,964	)		(308,514	)
Treasury stock at cost, repurchased 3,737,327 and 3,737,327 shares		(351,964	)		(351,964	)
Retained earnings		1,~~671~~772,~~906~~240			1,~~655~~732,~~187~~327
Accumulated other comprehensive loss		(~~312~~349,~~164~~485	)		(~~266~~306,~~870~~189	)
Total Esterline Shareholders' Equity		1,~~764~~846,~~863~~372			1,~~824~~831,~~755~~843
Noncontrolling interests		11,~~049~~134			1011,~~521~~284
Total Shareholders' Equity		1,~~775~~857,~~912~~506			1,~~835~~843,~~276~~127
Total Liabilities and Shareholders' Equity	$	3,~~034~~017,~~450~~381		$	3,~~120~~036,~~013~~917

ESTERLINE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

For the Three-Month ~~and~~Periods ~~Nine Months~~ Ended ~~June~~December 2928, 2018, and ~~June~~December 3029, 2017

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended						~~Nine Months Ended~~
	June 29,			June 30,			June 29,			June 30,
	December 28,			December 29,
	2018			2017			~~2018~~			~~2017~~
Net Sales	$	~~499~~484,~~871~~987		$	~~504~~482,~~107~~045		$	~~1,499,545~~		$	~~1,471,654~~
Cost of Sales		~~329~~318,~~951~~857			~~330~~334,~~408~~316			~~1,017,562~~			~~977,837~~
		169,920			173,699			481,983			493,817
		166,130			147,729
Expenses
Selling, general & administrative		9892,~~895~~738			9399,~~615~~897			~~299,817~~			~~286,649~~
Research, development and engineering		2220,~~830~~404			3025,~~190~~966			~~73,397~~			~~80,937~~
License fee income		-			-			(5,293	)		-
Transaction costs		4,021			-
Loss (gain) on sale of business		(97	)		-			5,213			-
License fee income		-			(3,025	)
Insurance recovery		-			-			-			(7,789	)
Total Expenses		117,163			122,838
Total Expenses		121,628			123,805			373,134			359,797
Operating Earnings from Continuing Operations		48,967			24,891
Operating Earnings from Continuing Operations		48,292			49,894			108,849			134,020
Interest Income		(827	)		(298	)
Interest Income		(579	)		(150	)		(1,326	)		(346	)
Interest Expense		6,774			7,604
Interest Expense		7,902			7,299			23,673			22,645
Other Income		(2,143	)		(1,742	)
Earnings from Continuing Operations Before Income Taxes		4045,~~969~~163			4219,~~745~~327			~~86,502~~			~~111,721~~
Income Tax Expense		11,~~094~~280			1053,~~703~~789			~~66,962~~			~~23,320~~
Earnings from Continuing Operations Including Noncontrolling Interests		2933,~~875~~883			32(34,~~042~~462	)		~~19,540~~			~~88,401~~
Earnings Attributable to Noncontrolling Interests		(158	)		(278	)		(684	)		(1,069	)
Loss (Earnings) Attributable to Noncontrolling Interests		71			(353	)
Earnings from Continuing Operations Attributable to Esterline, Net of Tax		29,717			31,764			18,856			87,332
Earnings (Loss) from Continuing Operations Attributable to Esterline, Net of Tax		33,954			(34,815	)
Loss from Discontinued Operations Attributable to Esterline, Net of Tax		(~~1,894~~156	)		(~~815~~166	)		~~(2,137~~	)		~~(6,185~~	)
Net Earnings Attributable to Esterline	$	27,823		$	30,949		$	16,719		$	81,147
Net Earnings (Loss) Attributable to Esterline	$	33,798		$	(34,981	)
Earnings (Loss) Per Share Attributable to Esterline - Basic:
Continuing operations	$	1.0115		$	(1.0716	)	$	~~0.63~~		$	~~2.94~~
Discontinued operations		(0.0601	)		(0.0301	)		~~(0.07~~	)		~~(0.21~~	)
Earnings (Loss) Per Share	$	01.9514		$	(1.0417	)	$	~~0.56~~		$	~~2.73~~
Earnings (Loss) Per Share Attributable to Esterline - Diluted:
Continuing operations	$	1.0014		$	(1.0616	)	$	~~0.63~~		$	~~2.92~~
Discontinued operations		(0.0601	)		(0.0301	)		~~(0.07~~	)		~~(0.21~~	)
Earnings (Loss) Per Share	$	01.9413		$	(1.0317	)	$	~~0.56~~		$	~~2.71~~
Net Earnings (Loss)	$	2733,~~823~~798		$	30(34,~~949~~981	)	$	~~16,719~~		$	~~81,147~~
Change in Fair Value of Derivative Financial Instruments		(1310,~~588~~984	)		~~11,966~~(560	)		~~(20,961~~	)		~~11,034~~
Income Tax Expense (Benefit)		(42,~~104~~955	)		~~3,575~~(110	)		~~(6,038~~	)		~~3,094~~
		(9,484	)		8,391			(14,923	)		7,940
		(8,029	)		(450	)
Change in Pension and Post-Retirement Obligations		1,~~311~~101			~~536~~842			~~3,172~~			~~4,132~~
Income Tax Expense		~~359~~295			~~284~~297			~~833~~			~~1,536~~
		952			252			2,339			2,596
		806			545
Foreign Currency Translation Adjustment		(5036,~~889~~073	)		466,~~763~~354			~~(32,710~~	)		~~9,926~~
Comprehensive Income (Loss)	$	(319,~~598~~498	)	$	86(28,~~355~~532	)	$	~~(28,575~~	)	$	~~101,609~~

ESTERLINE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

For the ~~Nine~~Three-Month ~~Months~~Periods Ended ~~June~~December 2928, 2018, and ~~June~~December 3029, 2017

(Unaudited)

(In thousands)

	June 29,			June 30,
	December 28,			December 29,
	2018			2017
Cash Flows Provided (Used) by Operating Activities
Net earnings (loss) including noncontrolling interests	$	1733,~~403~~727		$	82(34,~~216~~628	)
Adjustments to reconcile net earnings (loss) including noncontrolling interests to net cash provided (used) by operating activities:
Depreciation and amortization		7924,~~827~~246			7726,~~005~~216
Deferred income taxes		(23,~~724~~800	)		~~(11~~4,~~640~~456	)
Share-based compensation		92,~~424~~861			73,~~549~~998
Loss on disposal of fixed assets		~~2,101~~-			-2,007
Loss on sale of business		5,213			-
Gain on assets held for sale		-			(89	)
Gain on sale of discontinued operations		-			(793	)
Gain (loss) on assets held for sale		780			3,537
Working capital changes:
Accounts receivable		1738,~~125~~023			2361,~~493~~148
Inventories		(2627,~~300~~576	)		(3115,~~462~~790	)
Prepaid expenses		(54,~~254~~673	)		(43,~~153~~427	)
Other current assets		(~~956~~2,012	)		(~~263~~590	)
Accounts payable		(122,~~156~~815	)		3(5,~~258~~870	)
Accrued liabilities		(2114,~~891~~740	)		(1321,~~416~~652	)
U.S. and foreign income taxes		~~718~~835			(75,~~621~~241	)
Long-term U.S. income taxes payable		~~38,640~~302			-38,640
Other liabilities		(~~2,765~~138	)		~~2,292~~(649	)
Other, net		9(3,~~209~~539	)		83,~~867~~427
		119,394			138,869
		20,701			62,438
Cash Flows Provided (Used) by Investing Activities
Purchase of capital assets		(3911,~~249~~136	)		(4213,~~153~~402	)
Proceeds from sale of capital assets		~~434~~4,268			-
Proceeds from sale of business		47,814			600
		(6,868	)		(13,402	)
		8,999			(41,553	)
Cash Flows Provided (Used) by Financing Activities
Proceeds provided by stock issuance under employee stock plans		315,~~101~~682			261,~~901~~171
Withholding taxes on restricted stock units vested		(~~402~~630	)		(~~1,115~~227	)
Shares repurchased		~~(43,450~~-	)		-(20,445	)
Repayment of long-term credit facilities		~~(70,000~~-	)		(955,000	)
Repayment of long-term debt		(~~10,701~~489	)		(123,~~872~~553	)
Proceeds from issuance of long-term credit facilities		~~45,000~~-			525,000
		(76,452	)		(77,086	)
		14,563			(3,054	)
Effect of Foreign Exchange Rates on Cash and Cash Equivalents		(89,~~728~~620	)		~~648~~1,064
Net Increase (Decrease) in Cash and Cash Equivalents		4318,~~213~~776			2047,~~878~~046
Cash and Cash Equivalents - Beginning of Year		~~307~~372,~~826~~406			~~258~~307,~~520~~826
Cash and Cash Equivalents - End of Period	$	~~351~~391,~~039~~182		$	~~279~~354,~~398~~872
Supplemental Cash Flow Information:
Cash paid for interest	$	258,~~295~~537		$	2410,~~094~~478
Cash paid for taxes		2314,~~671~~769			386,~~641~~179

ESTERLINE TECHNOLOGIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three-Month ~~and~~Periods ~~Nine Months~~ Ended ~~June~~December 2928, 2018, and ~~June~~December 3029, 2017

Note 1 – Basis of Presentation

The consolidated balance sheet as of ~~June~~December 2928, 2018, the consolidated statement of operations and comprehensive income (loss) for the three-month ~~and~~periods ~~nine months~~ ended ~~June~~December 2928, 2018, and ~~June~~December 3029, 2017, and the consolidated statement of cash flows for the ~~nine~~three-month ~~months~~periods ended ~~June~~December 2928, 2018, and ~~June~~December 3029, 2017, are unaudited~~. In~~ 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.

The notes to the consolidated financial statements in the Company’s Annual Report on Form 10-K/A for the fiscal year ended September 2928, ~~2017~~2018, provide a summary of significant accounting policies and additional financial information that should be read in conjunction with this Form 10-Q.

The timing of the Company’s revenues is impacted by the purchasing patterns of customers and, as a result, revenues are not generated evenly throughout the year. Moreover, the Company’s first fiscal quarter, October through December, includes significant holiday periods in both Europe and North America, resulting in fewer business days.

On October 9, 2018, the Company entered into an Agreement and Plan of Merger (as amended by the First Amendment to Agreement and Plan of Merger, dated as of October 10, 2018, the “Merger Agreement”) with TransDigm Group Incorporated, a Delaware corporation (“TransDigm”), and Thunderbird Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of TransDigm (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, at the closing, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation in the merger and as a wholly owned subsidiary of TransDigm (the “Merger”). At the closing of the Merger, each Company shareholder will receive $122.50 per share in cash, subject to any withholding taxes. The Merger, which is expected to close in March or April 2019, is subject to the receipt of certain required antitrust and regulatory approvals and the satisfaction of certain other closing conditions. The Merger was approved by Esterline shareholders at a special meeting held on January 17, 2019. Upon completion of the Merger, shares of the Company’s common stock will cease trading on the New York Stock Exchange.

The Merger Agreement and the First Amendment to the Merger Agreement have been filed as exhibits to the Company’s Current Reports on Form 8-K filed with the SEC on October 10, 2018, and October 11, 2018, respectively.

The Company incurred $4.0 million of Merger-related costs in the first quarter of fiscal 2019. These costs consisted of legal and advisory fees.

Note 2 – Recent Accounting Pronouncements

InRecently August 2017 the Financial Accounting Standards Board (“FASB”) amended its guidance on the financial reporting of hedging relationships. The new guidance eliminates the requirement to separately measure and report hedge ineffectiveness, expands permissible cash flow hedges on contractually specified components, and simplifies hedge documentation and effectiveness assessment. The guidance will be effective at the beginning of the Company’s first quarter of fiscal year 2020 and will require a modified retrospective approach on existing cash flow and net investment hedges. The presentation and disclosure requirements will be applied prospectively. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements and the timing of adoption.Adopted

In ~~March~~August ~~2017~~2016 the Financial Accounting Standards Board (FASB) issued new guidance onaddressing ~~the~~how ~~presentation~~certain ofcash ~~the~~receipts ~~net~~and ~~periodic~~cash ~~cost~~payments ofare ~~postretirement~~presented ~~benefit~~and ~~programs. The~~classified ~~new~~in ~~standard requires sponsors of defined benefit postretirement plans to present~~ the ~~non-service~~statement ~~cost components~~ of ~~net~~cash ~~periodic benefit cost separate from the service cost component on the income statement~~flows. The ~~new~~ standard ~~also~~was ~~requires~~implemented ~~that~~in the ~~non-service~~first ~~cost~~quarter ~~components~~ of ~~net~~fiscal ~~periodic~~2019 ~~benefit~~and ~~cost~~there was no ~~longer~~impact beto ~~capitalized within assets. The Company is evaluating~~ the ~~effects the standard will have on the~~ Company’s ~~consolidated~~Consolidated ~~financial~~Statement ~~statements~~of ~~and~~Cash ~~related disclosures beyond the change in income statement presentation~~Flows. ~~This new standard is effective for the Company in fiscal year 2019, with early adoption permitted. The Company plans to adopt the new standard in fiscal 2019.~~

In ~~January~~October ~~2017~~2016 the FASB issued new guidance regarding ~~the~~income ~~goodwill impairment test~~taxes. The new guidance ~~eliminates~~requires the ~~Step~~tax 2effects ~~valuation~~of ~~test~~intercompany ~~when~~transactions, ~~evaluating~~other ~~goodwill~~than ~~for~~sales ~~impairment. The new guidance requires that an entity performs its annual or interim goodwill test by comparing the fair value~~ of ~~the~~inventory, ~~reporting~~to ~~unit~~be ~~with~~recognized ~~its~~currently, ~~carrying~~eliminating ~~amount. An entity should recognize~~ an ~~impairment~~exception ~~charge~~under ~~for~~current ~~the~~GAAP ~~amount~~in by which the ~~carrying~~tax ~~amount~~effects ~~exceeds~~of ~~the~~intra-entity ~~reporting~~asset ~~unit’s~~transfers ~~fair~~are ~~value. The~~deferred ~~loss~~until ~~recognized should not exceed~~ the ~~total~~transferred ~~amount~~asset ofis ~~goodwill~~sold ~~allocated~~ to ~~that~~a ~~reporting~~third ~~unit. The~~party ~~guidance~~or isotherwise ~~effective~~recovered ~~for~~through ~~the Company in fiscal year 2021, with early adoption permitted~~uses. The standard was implemented in the first quarter of fiscal ~~2018. There~~2019 and there was no impact onto the Company’s ~~financial~~Consolidated ~~statements~~Statement asof aOperations ~~result~~and ofComprehensive ~~adopting~~Income ~~this~~(Loss) ~~guidance~~and the Consolidated Balance Sheet.

InOn ~~October~~September 29, ~~2016~~2018, the ~~FASB~~Company ~~issued~~adopted ~~new~~ASC ~~guidance~~606, ~~regarding~~Revenue ~~income~~from ~~taxes. The~~Contracts ~~new~~with ~~guidance~~Customers ~~will~~using ~~require~~ the ~~tax~~modified ~~effects~~retrospective ofmethod ~~intercompany~~applied ~~transactions,~~to ~~other~~those ~~than~~contracts ~~sales~~not ofyet ~~inventory,~~completed toas beof ~~recognized currently~~September 29, ~~eliminating~~2018. Results anfor ~~exception~~reporting ~~under~~periods ~~current~~beginning ~~Generally~~after ~~Accepted~~September 29, ~~Accounting~~2018, ~~Principles~~are ~~(GAAP)~~presented inunder ~~which~~ASC ~~the~~606, ~~tax~~while ~~effects of intra~~prior-~~entity~~period ~~asset~~amounts ~~transfers~~ are ~~deferred~~not ~~until~~adjusted ~~the~~and ~~transferred~~continue ~~asset is sold~~ to abe ~~third~~reported ~~party~~in oraccordance ~~otherwise~~with ~~recovered through use. The Company is evaluating~~ the ~~effect the updated standard will have on the~~ Company’s ~~consolidated~~historical ~~financial~~accounting ~~statements~~under ~~and~~ASC ~~related disclosures~~605. ~~The guidance will be effective for the Company in fiscal year 2019, with early adoption permitted. The Company plans to adopt the new standard in fiscal 2019.~~

In August 2016 the FASB issued new guidance addressing how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The Company is evaluating the effect the updated standard will have on the Company’s consolidated financial statements and related disclosures. The guidance will be effective for the Company in fiscal year 2019, with early adoption permitted. The Company plans to adopt the new standard in fiscal 2019.

~~to result in earlier recognition of losses.~~ The ~~Company~~cumulative iseffect ~~evaluating~~from the ~~effect~~adoption ~~the~~of ~~updated standard will have on~~ the ~~Company’s consolidated financial statements and related disclosures. The~~ new revenue standard isas ~~effective~~of ~~for the Company in 2021~~September 29, ~~with early adoption permitted~~2018, ~~but~~was ~~not~~as ~~earlier than 2020. The Company will adopt the new standard in fiscal 2020.~~follows:

In February 2016 the FASB issued a new lease accounting standard, which provides revised guidance on accounting for lease arrangements by both lessors and lessees. The central requirement of the new standard is that lessees must recognize lease-related assets and liabilities for all leases with a term longer than 12 months. The Company is evaluating the effect the standard will have on the Company’s consolidated financial statements and related disclosures. The new standard is effective for the Company in fiscal year 2020, with early adoption permitted. The Company will adopt the new standard in fiscal 2020.

In Thousands			Adjustments
	As of		Due to			As of
	September 28,		Adoption			September 29,
	2018		of ASC 606			2018
Balance Sheet
Accounts receivable, net	$	441,696	$	41,262		$	482,958
Inventories		457,226		(24,682	)		432,544
Deferred income tax benefits		44,008		(2,081	)		41,927
Accrued liabilities		232,730		8,450			241,180
Deferred income tax liabilities		28,899		(65	)		28,834
Retained earnings		1,732,327		6,114			1,738,441

InThe ~~July~~most ~~2015~~significant ~~the~~impacts ~~FASB~~upon ~~issued~~adoption ~~guidance which simplifies the subsequent measurement~~ of ~~inventory~~ASC by606 ~~requiring~~on ~~inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price of inventory in the ordinary course of business~~September 29, ~~less reasonably predictable costs of completion, disposal and transportation. This new guidance was adopted in the first quarter of fiscal~~ 2018, ~~with~~include ~~no impact to~~ the ~~Company’s~~following ~~consolidated financial statements and related disclosures.~~items:

~~Revenue~~• ~~Recognition~~Unbilled revenue of $41.3 million was recorded at transition in accounts receivable, net, partially offset by a $24.7 million reduction in inventories in the Company’s Consolidated Balance Sheet with the impact primarily related to the recognition of more contract consideration under a cost-to-cost percentage of completion basis under ASC 606 as compared to historical guidance under ASC 605.

In• ~~May~~Deferred ~~2014~~revenue ~~the~~of ~~FASB~~$8.5 ~~issued~~million awas ~~comprehensive~~recorded ~~new~~at ~~revenue~~transition ~~recognition~~in ~~standard~~accrued ~~that~~liabilities ~~effectively~~in ~~replaces~~the ~~all~~Company’s ~~current~~Consolidated ~~guidance~~Balance onSheet, ~~the~~primarily ~~topic. The~~related ~~guidance~~to ~~permits~~customer ~~the~~funding ~~use~~received ofunder ~~either~~non-recurring aengineering ~~retrospective~~(NRE) orcontracts that do not transfer control of a ~~cumulative~~distinct ~~effect~~good ~~transition~~or ~~method~~service to the customer.

The ~~Company~~impact ~~has performed a review~~ of ~~the~~adoption ~~new~~on ~~guidance against~~ the Company’s ~~current~~Consolidated ~~accounting~~Statement ~~practices. The Company has reviewed a representative sample~~ of ~~contracts~~Operations and ~~other~~Comprehensive ~~agreements~~Income ~~with~~(Loss) ~~customers~~for ~~and evaluated~~ the ~~provisions~~three ~~contained~~months ~~within~~ended ~~these~~and ~~agreements~~as ~~compared~~of ~~with~~December 28, ~~the~~2018, ~~amended~~was ~~guidance.~~as follows:

This amended guidance is expected to change the revenue recognition practices for a number of revenue streams across the Company’s businesses; the most significant will be for certain U.S. government contracts and certain other contracts that meet one or more of the mandatory criteria, which will move revenue recognition from a “point-in-time” basis to an “over-time” basis. The ongoing effect of recording revenue on an “over-time” basis is not expected to be materially different than under the historical guidance.

In Thousands	Three Months Ended December 28, 2018
						Balances
			Adjustments			Without
			Increase/			Adoption
	As Reported		(Decrease)			of ASC 606

Net sales	$	484,987	$	(6,459	)	$	478,528
Cost of sales		318,857		(4,318	)		314,539
Selling, general & administrative		92,738		(3	)		92,735
Research, development and engineering		20,404		10			20,414
Income tax expense		11,280		(519	)		10,761
Earnings from continuing operations including noncontrolling interests	$	33,883	$	(1,629	)	$	32,254

The ~~amended~~most ~~guidance~~significant isimpacts ~~also expected~~ to ~~change~~financial ~~the~~statement ~~recognition~~results ofas ~~certain~~reported ~~development~~under ~~costs~~ASC ~~that~~606 ~~are~~as ~~contractually~~compared ~~guaranteed~~with ~~for~~ASC ~~reimbursement~~605 ~~by our customers. Contractually guaranteed reimbursements~~ for ~~development efforts are currently recognized as~~ the ~~development~~current ~~activities~~reporting ~~are~~period ~~performed. Under~~was the ~~amended~~recognition ~~guidance,~~of ~~the~~more ~~contractually guaranteed reimbursement specific to the development effort will be deferred as a~~ contract ~~liability~~consideration and recognized as revenue when future products are delivered to the customer. This requirement applies where the Company does not transfer all intellectual property rights related to the development effort to the customer or does not have an enforceable right to payment for performance completed to date. The costs associated with development effort under ana ~~arrangement with contractually guaranteed reimbursement will also be deferred, up~~ cost-to ~~the amount reimbursed, and recognized through~~ -cost ofpercentage ~~goods sold as products are delivered to the customer. The ongoing effect~~ of ~~deferring~~completion ~~contractually~~basis ~~guaranteed~~rather ~~reimbursements~~than ~~and~~at the ~~related~~point ~~costs~~in ~~until~~time that products ~~are~~were shipped, delivered, toor ~~the customer is not expected to be materially different from the historical guidance~~accepted.

~~The~~On ~~new~~September 29, ~~standard~~2018, ~~also~~the ~~significantly~~Company ~~enhances~~adopted ~~required~~the ~~disclosures~~amendments ~~regarding~~to ~~revenue~~ASC ~~and~~715 ~~related~~that ~~assets~~improve the presentation of net periodic pension and ~~liabilities~~postretirement benefit costs. The Company isretrospectively inadopted the ~~process~~presentation of ~~implementing~~service ~~changes~~cost toseparate ~~business~~from ~~processes~~the other components of net periodic costs and included it as a component of employee compensation cost in operating income. The interest cost, ~~systems~~expected return on assets, amortization of prior service costs, and ~~internal~~net ~~controls~~actuarial ~~required~~gain/loss components of net periodic benefit costs have been reclassified from operating income to ~~adopt~~other income, net. Additionally, the ~~new~~Company ~~accounting~~elected ~~standard~~to apply the practical expedient which allows it to reclassify amounts disclosed previously in Note 4 of the Company’s 2018 Form 10-Q for the three-month period ended December 29, 2017, as the basis for applying retrospective presentation for comparative periods.

The ~~updated~~effect ~~standard~~of ~~becomes~~the ~~effective~~retrospective ~~for~~change on the Company’s inConsolidated Statement of Operations and Comprehensive Income (Loss) for the first ~~quarter~~three-month ofperiod ~~fiscal~~ended ~~2019~~December 29, ~~with~~2017, ~~early~~was ~~adoption~~to ~~permitted. The~~increase ~~Company~~previously ~~expects~~reporting tocost ~~apply~~of ~~the~~sales, ~~standard~~selling, ~~using~~general ~~the~~and ~~modified~~administrative ~~retrospective~~expense ~~approach~~and research, ~~with~~development aand ~~cumulative~~engineering ~~effect~~by ~~adjustment~~$0.6 million, ~~recognized~~$1.0 million atand ~~the~~$0.1 million, ~~beginning~~respectively, ofand ~~fiscal~~increase ~~year~~other ~~2019~~income by $1.7 million.

~~Note~~Recent 3Accounting –Pronouncements ~~Earnings~~Not ~~Per~~Yet ~~Share and Shareholders’ Equity~~Adopted

~~Basic~~In ~~earnings~~February ~~per~~2016 ~~share is computed on~~ the ~~basis~~FASB ofissued ~~the~~a ~~weighted~~new ~~average~~lease ~~number~~accounting ofstandard, ~~shares~~which ~~outstanding~~provides ~~during~~revised ~~the~~guidance ~~year. Diluted~~on ~~earnings~~accounting ~~per~~for ~~share~~lease ~~includes~~arrangements ~~the~~by ~~dilutive~~both ~~effect~~lessors ~~of stock options, restricted stock units~~ and ~~share units related to the Company’s performance share plan to the extent that performance share plan objectives are met~~lessees. ~~Common~~The ~~shares~~central ~~issuable~~requirement ~~from~~of ~~stock options excluded from~~ the ~~calculation~~new ofstandard ~~diluted~~is ~~earnings~~that ~~per~~lessees ~~shares~~must ~~because~~recognize ~~they were anti~~lease-~~dilutive~~related ~~were~~assets ~~950,790~~ and ~~945,572~~liabilities for ~~the~~all ~~three~~leases ~~and~~with ~~nine~~a ~~months~~term ~~ended~~longer ~~June 29,~~than ~~2018~~12 months. ~~Common~~The ~~shares~~Company ~~issuable~~is ~~from~~evaluating ~~stock~~the ~~options~~effect ~~excluded~~the ~~from~~standard ~~the~~will ~~calculation~~have ofon ~~diluted~~the ~~earnings~~Company’s ~~per~~consolidated ~~share~~financial ~~because~~statements ~~they~~and ~~were~~related ~~anti-dilutive~~disclosures. The ~~were~~new ~~605,725~~standard ~~and~~is ~~690,475~~effective for the ~~three~~Company ~~and~~in ~~nine~~fiscal ~~months~~year ~~ended June 30~~2020, ~~2017,~~with ~~respectively. Shares~~early ~~used~~adoption ~~for calculating earnings per share are disclosed in the following table:~~permitted.

In Thousands	Three Months Ended				Nine Months Ended
	June 29,		June 30,		June 29,		June 30,
	2018		2017		2018		2017
Shares used for basic earnings per share		29,430		29,830		29,649		29,698
Shares used for diluted earnings per share		29,548		30,068		29,775		29,953

In June 2016 the FASB issued a new standard on the measurement of credit losses, which will impact the Company’s measurement of trade receivables. The new standard replaces the current incurred loss model with a forward-looking expected loss model that is likely to result in earlier recognition of losses. The Company is evaluating the effect the updated standard will have on the Company’s consolidated financial statements and related disclosures. The new standard is effective for the Company in 2021, with early adoption permitted, but not earlier than 2020.

~~The~~In ~~authorized~~August ~~capital~~2017 ~~stock~~the ofFASB amended its guidance on the ~~Company~~financial ~~consists~~reporting of ~~25,000~~hedging ~~shares~~relationships. The ofnew ~~preferred~~guidance ~~stock~~eliminates ~~($100~~the ~~par~~requirement ~~value),~~to ~~475~~separately measure and report hedge ineffectiveness,~~000~~ ~~shares~~expands ofpermissible ~~serial~~cash ~~preferred~~flow ~~stock~~hedges ~~($1.00~~on ~~par~~contractually ~~value)~~specified components, ~~each~~and ~~issuable~~simplifies inhedge ~~series,~~documentation and ~~60,000,000~~effectiveness ~~shares~~assessment. The guidance will be effective at the beginning of ~~common~~the ~~stock~~Company’s ($first quarter of fiscal year 2020 and will require a modified retrospective approach on existing cash flow and net investment hedges.20 The ~~par~~presentation ~~value)~~and disclosure requirements will be applied prospectively. AsThe ofCompany ~~June 29,~~is ~~2018,~~currently ~~and~~evaluating ~~September 29,~~the ~~2017,~~impact ~~there~~this ~~were~~guidance nowill ~~shares~~have ofon ~~preferred~~the ~~stock~~Company’s orconsolidated ~~serial~~financial ~~preferred~~statements ~~stock~~and ~~outstanding~~the timing of adoption.

InNote ~~June 2014~~3 ~~the~~– ~~Company’s~~Revenue Board of Directors approved a $200 million share repurchase program. In March 2015 the Company’s Board of Directors approved an additional $200 million for the share repurchase program. Under the program, the Company is authorized to repurchase up to $400 million of outstanding shares of common stock from time to time, depending on market conditions, share price and other factors. Repurchases may be made in the open market or through private transactions, in accordance with SEC requirements. The Company may enter into a Rule 10(b)5-1 plan designed to facilitate the repurchase of all or a portion of the repurchase amount. The program does not require the Company to acquire a specific number of shares. Common stock repurchased can be reissued, and accordingly, the Company accounts for repurchased stock under the cost method of accounting.Recognition

~~During~~As ~~the~~explained ~~three~~above ~~months~~in ~~ended~~Note ~~June 29~~2, ~~2018,~~the ~~there~~Company ~~were~~accounts nofor ~~shares~~revenues ~~repurchased. During~~in ~~the~~accordance ~~nine~~with ~~months~~ASC ~~ended June 29~~606, ~~2018,~~Revenue ~~the~~from ~~Company~~Contracts ~~repurchased~~with ~~601~~Customers,~~400~~ ~~shares~~which ~~under~~was ~~this~~adopted ~~program~~as ~~at an average price paid per share~~ of ~~$72.25~~September 29, ~~for~~2018, anon ~~aggregate~~a ~~purchase~~modified ~~price~~retrospective ~~of $43~~basis.~~4 million. There~~ Under ~~were~~ASC no606, ~~shares~~revenue ~~repurchased~~is ~~during~~recognized ~~the~~when ~~three~~control orof ~~nine~~a ~~months~~promised ~~ended~~good ~~June 30,~~and/or ~~2017. There~~service ~~have~~is ~~been~~transferred noto ~~shares~~a ~~repurchased~~customer ~~subsequent~~in toan ~~June 29,~~amount ~~2018. Since~~that reflects the ~~program~~consideration ~~began,~~that the Company ~~has~~expects ~~repurchased~~to ~~3,737,327~~be ~~shares~~entitled ~~for~~to ~~an aggregate purchase price of $352.0 million, with $48.0 million~~ in ~~shares~~exchange ~~remaining available~~ for ~~repurchase~~that ingood ~~the~~and/or ~~future~~service.

~~Changes~~The inmajority ~~issued~~of the Company’s revenues relate to follow-on orders from contracts to design, develop, and/or ~~outstanding~~manufacture ~~common~~complex ~~shares~~aerospace or defense parts, components or systems. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are ~~summarized~~identified, aspayment ~~follows:~~terms are identified, the contract has commercial substance, and collectability of consideration is probable.

	Nine Months Ended			Year Ended
	June 29,			September 29,
	2018			2017
Shares Issued:
Balance, beginning of year		33,117,473			32,564,252
Shares issued under share-based compensation plans		60,479			553,221
Balance, end of current period		33,177,952			33,117,473
Treasury Stock:
Balance, beginning of year		(3,135,927	)		(3,135,927	)
Shares purchased		(601,400	)		-
Balance, end of current period		(3,737,327	)		(3,135,927	)
Shares outstanding, end of period		29,440,625			29,981,546

For most of the Company’s long-term contracts to design, develop, and manufacture complex aerospace or defense equipment, the Company provides a series of distinct goods that are substantially the same and that have the same pattern of transfer to the customer. As such, the Company typically accounts for each of these long-term contracts as one performance obligation. In other long-term contracts, the Company is obligated to provide customers with distinct shipset installments, the control of which transfers at various points in time over multiple reporting periods. In those cases, the Company accounts for each shipset installment as a separate performance obligation.

At the time that the Company receives follow-on purchase orders, the production of one shipset is typically no longer dependent upon the design, development, or production of another shipset, such that each shipset is distinct. The Company typically accounts for each shipset in follow-on orders as a separate performance obligation.

Customer orders generally require the Company to deliver one or more shipsets of the same distinct good such that the transaction price is allocated evenly to each shipset. For other contracts where the Company promises to provide different distinct goods or services within the same contract, the Company allocates the total transaction price to each distinct good or service based on their estimated relative standalone selling prices. In cases where observable standalone sales of distinct goods or services have occurred, the observable standalone sales are used to determine the standalone selling prices. In other cases, the Company typically uses the expected-cost-plus-a-margin approach to estimate the standalone selling price of each performance obligation.

To determine the proper revenue recognition model for the Company’s contracts with customers, the Company evaluates whether the Company transfers control of the performance obligations in those contracts to the customer over time or at a point in time. This assessment requires significant judgment and is primarily based on the Company’s determination of whether the distinct goods that the Company is creating have an alternative use in their completed state and whether the Company has an enforceable right to payment for performance completed to date, including any work in process.

For distinct goods that the Company transfers control of at a point in time, the Company recognizes revenue at the point of shipment, delivery, or acceptance depending primarily on when risk of loss passes to the customer and whether the customer’s acceptance of the goods is more than a formality.

For distinct goods for which the Company transfers control of over time, the Company typically uses the cost-to-cost measure of progress to recognize revenue, because it best depicts the progress of the Company’s performance in transferring control of those

distinct goods to the customer. This is because the Company’s production-type contracts typically include significant work-in-process that the customer controls during the manufacturing process. Application of the cost-to-cost measure of progress requires significant judgment related to determining the costs that should be included in the ratio and the estimate of total costs that the Company expects to incur at completion of the performance obligation. The ~~components~~Company recognizes adjustments in estimated profit on contracts under the cumulative catch-up method. None of ~~Accumulated~~the ~~Other~~effects of such changes in estimates were material to the Consolidated Statements of Operations and Comprehensive Income (Loss): for any period presented.

In Thousands	June 29,			September 29,
	2018			2017
Unrealized gain (loss) on derivative contracts	$	(7,492	)	$	13,469
Tax effect		2,146			(3,892	)
		(5,346	)		9,577
Pension and post-retirement obligations		(78,610	)		(81,782	)
Tax effect		27,123			27,956
		(51,487	)		(53,826	)
Foreign currency translation adjustment		(255,331	)		(222,621	)
Accumulated other comprehensive income (loss)	$	(312,164	)	$	(266,870	)

Under the typical payment terms of the Company’s long-term contracts to design, develop, and/or manufacture complex aerospace or defense components or systems, the customer pays us upon meeting contractually specified milestones. Revenue recognized may differ from billings because those milestones do not always align with the Company’s cost-to-cost measure of progress or the point at which the distinct goods are shipped, delivered, or accepted. Revenues recognized in excess of billings (unbilled receivables) are presented as accounts receivable, net, on the balance sheet, whereas billings in excess of revenue (deferred revenue) are presented as accrued liabilities on the balance sheet. Under the typical payment terms of purchase orders issued under the provisions of long-term agreements, the Company bills its customers upon shipment of the ordered goods. Revenue recognized may differ from billings because the point of shipment does not always align with the point at or period over which the Company recognizes revenue. This difference would also contribute to the balance of accounts receivable, net or accrued liabilities depending on the relationship of revenue recognized to billings, as described above.

~~Note~~Certain 4of –the ~~Retirement~~Company’s ~~Benefits~~long-term contracts require the Company to perform non-recurring engineering (NRE) activities to design and develop products that customers may or may not provide funding. Determining the proper recognition of that funding requires significant judgment and is based primarily on the determination of whether the Company transfers a distinct good or service to the customer under the contract. In cases where the Company transfers all intellectual property (IP) rights related to the design to the customer, or the customer makes an upfront, firm commitment to purchase finalized shipsets at the end of the development effort, the Company determines that the contract transfers a distinct good to the customer. In those cases, the Company’s recognition of the funding follows management’s determination of whether the assets that the Company is creating have an alternative use and whether the Company has an enforceable right to payment for performance completed to date. In cases where the Company does not transfer all related IP rights to the customer and the customer does not make a firm commitment to purchase finalized shipsets at the end of the development effort, the Company defers the funding and amortizes it over estimated future shipsets.

The Company’s ~~pension~~incurs ~~plans~~costs ~~principally~~for ~~include~~engineering aand ~~U.S.~~development ~~pension~~of ~~plan~~products ~~maintained~~directly byrelated ~~Esterline~~to ~~and~~existing aor ~~non-U~~anticipated contracts with customers.S. Such ~~plan~~costs ~~maintained~~generate byor ~~CMC~~enhance ~~Electronics,~~the ~~Inc.~~Company’s ~~(CMC),~~ability ato ~~wholly~~satisfy ~~owned~~its ~~subsidiary~~performance ofobligations ~~the~~under ~~Company~~these contracts. The Company ~~also~~capitalizes ~~sponsors~~these acosts ~~number~~as ofcontract ~~other~~fulfillment ~~non-U.S.~~costs ~~defined~~to ~~benefit~~the ~~pension~~extent ~~plans,~~the ~~primarily~~costs inare ~~Belgium,~~recoverable ~~France~~and relate to undelivered products, and ~~Germany. Components~~subsequently ofamortizes ~~periodic~~the ~~pension~~costs ~~cost~~when ~~consisted~~(or as) control of the ~~following:~~products to which such costs relate is transferred to the customer.

In Thousands	Three Months Ended						Nine Months Ended
	June 29,			June 30,			June 29,			June 30,
	2018			2017			2018			2017
Components of Net Periodic Cost
Service cost	$	3,356		$	3,287		$	10,125		$	10,012
Interest cost		4,085			3,838			12,312			11,293
Expected return on plan assets		(6,772	)		(6,241	)		(20,406	)		(18,796	)
Amortization of prior service cost		123			114			376			343
Amortization of actuarial (gain) loss		796			1,996			2,392			5,397
Net periodic cost	$	1,588		$	2,994		$	4,799		$	8,249

Remaining Performance Obligations

Total backlog was $1.6 billion at December 28, 2018, compared with $1.5 billion at September 28, 2018. Total backlog represents the Company’s remaining performance obligations.

The table below discloses, by segment, the aggregate amount of the transaction price allocated to remaining performance obligations as of December 28, 2018, and when the Company expects to recognize this revenue.

In Thousands	Remaining Performance Obligations
	2019		2020		2021		2022		2023		Thereafter		Total

Avionics & Controls	$	437,362	$	134,444	$	63,764	$	37,607	$	27,646	$	33,466	$	734,289
Sensors & Systems		310,342		44,625		13,363		13,135		1,682		12,662		395,809
Advanced Materials		212,718		99,365		59,103		38,258		37,636		27,200		474,280
	$	960,422	$	278,434	$	136,230	$	89,000	$	66,964	$	73,328	$	1,604,378

Note 4 – Accounts Receivable

In Thousands	December 28,			September 28,
	2018			2018

Trade and other receivables	$	401,264		$	442,838
Less allowance for doubtful accounts		(16,647	)		(16,203	)
Net trade receivables		384,617			426,635
Unbilled receivables		54,784			15,061
	$	439,401		$	441,696

Substantially all amounts of unbilled receivables are expected to be billed and collected within one year.

Note 5 – Earnings Per Share and Shareholders’ Equity

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, restricted stock units and share units related to the Company’s performance share plan to the extent that performance share plan objectives are met. There were no common shares issuable from stock options excluded from the calculation of diluted earnings per share because they were anti-dilutive in the three-month period ending December 28, 2018. Shares used for calculating earnings per share are disclosed in the following table:

In Thousands	Three Months Ended
	December 28,		December 29,
	2018		2017

Shares used for basic earnings per share		29,530		29,903
Shares used for diluted earnings per share		29,887		29,903

The authorized capital stock of the Company consists of 25,000 shares of preferred stock ($100 par value), 475,000 shares of serial preferred stock ($1.00 par value), each issuable in series, and 60,000,000 shares of common stock ($.20 par value). As of December 28, 2018, and September 28, 2018, there were no shares of preferred stock or serial preferred stock outstanding.

In 2014 the Company’s Board of Directors approved a $200 million share repurchase program. In March 2015 the Company’s Board of Directors approved an additional $200 million for the share repurchase program. Under the program, the Company is authorized to repurchase up to $400 million of outstanding shares of common stock from time to time, depending on market conditions, share price and other factors. Repurchases may be made in the open market or through private transactions, in accordance with SEC requirements. The Company may enter into a Rule 10(b)5-1 plan designed to facilitate the repurchase of all or a portion of the repurchase amount. The program does not require the Company to acquire a specific number of shares. Common stock repurchased can be reissued, and accordingly, the Company accounts for repurchased stock under the cost method of accounting.

During the three months ended December 29, 2017, the Company repurchased 287,500 shares under this program at an average price paid per share of $71.11, for an aggregate purchase price of $20.4 million. There were no shares repurchased during the three months ended December 28, 2018. Since the program began, the Company has repurchased 3,737,327 shares for an aggregate purchase price of $352.0 million, with $48.0 million in shares remaining available for repurchase in the future.

Changes in issued and outstanding common shares are summarized as follows:

	Three Months Ended			Year Ended
	December 28,			September 28,
	2018			2018
Shares Issued:
Balance, beginning of year		33,190,467			33,117,473
Shares issued under share-based compensation plans		231,253			72,994
Balance, end of current period		33,421,720			33,190,467

Treasury Stock:
Balance, beginning of year		(3,737,327	)		(3,135,927	)
Shares purchased		-			(601,400	)
Balance, end of current period		(3,737,327	)		(3,737,327	)

Shares outstanding, end of period		29,684,393			29,453,140

The components of Accumulated Other Comprehensive Loss:

In Thousands	December 28,			September 28,
	2018			2018

Unrealized loss on derivative contracts	$	(16,365	)	$	(5,381	)
Tax effect		4,628			1,673
		(11,737	)		(3,708	)

Pension and post-retirement obligations		(54,716	)		(55,817	)
Tax effect		14,158			22,135
		(40,558	)		(33,682	)

Cumulative effect of accounting change		-			(7,682	)
Currency translation adjustment		(297,190	)		(261,117	)
Accumulated other comprehensive loss	$	(349,485	)	$	(306,189	)

Note 6 – Retirement Benefits

The Company’s pension plans principally include a U.S. pension plan maintained by Esterline and a non-U.S. plan maintained by CMC Electronics, Inc. (CMC). The Company also sponsors a number of other non-U.S. defined benefit pension plans, primarily in Belgium, France and Germany. Components of periodic pension cost consisted of the following:

In Thousands	Three Months Ended
	December 28,			December 29,
	2018			2017

Components of Net Periodic Cost
Service cost	$	3,872		$	3,374
Interest cost		4,724			4,106
Expected return on plan assets		(7,149	)		(6,808	)
Amortization of prior service cost		146			126
Amortization of actuarial loss		127			797
Net periodic cost	$	1,720		$	1,595

The Company amortizes prior service cost and actuarial gains and losses from accumulated other comprehensive income to expense over the remaining service period.

Note 57 – Fair Value Measurements

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’s or liability’s 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 not observable and therefore obtained from indirect market information that is significant to the overall fair value measurement and which require a significant degree of management judgment.

911

The following table sets forth the Company’s financial assets and liabilities that were measured at fair value on a recurring basis by level within the fair value hierarchy at ~~June~~December 2928, 2018, and September 2928, ~~2017~~2018.

In Thousands	Level 2
	June 29,		September 29,
	December 28,		September 28,
	2018		~~2017~~2018
Assets:
Derivative contracts designated as hedging instruments	$	~~1,014~~16	$	131,~~932~~374
Derivative contracts not designated as hedging instruments		8450		~~284~~38
Embedded derivatives		36,~~298~~853		~~746~~1,296
Liabilities:
Derivative contracts designated as hedging instruments	$	816,~~507~~381	$	~~464~~6,756
Derivative contracts not designated as hedging instruments		1,~~440~~212		21,~~440~~026
Embedded derivatives		~~494~~623		~~2,239~~684

In Thousands	Level 3
	June 29,		September 29,
	December 28,		September 28,
	2018		~~2017~~2018
Assets:
Estimated value of assets held for sale	$	~~16,684~~-	$	194,~~835~~225
Liabilities:
Estimated value of liabilities held for sale	$	~~6,122~~-	$	~~8,908~~144

The Company’s embedded derivatives are the result of entering into sales or purchase contracts that are denominated in a currency other than the Company’s functional currency or the supplier’s or customer’s 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 Company’s derivative contracts consist of foreign currency exchange contracts and, from time to time, 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.

The Company’s Board of Directors previously approved athe plan to sell certain non-core business units. Based upon the estimated fair values, the Company adjusted the carrying value of the assets and liabilities of the businesses to fair value. Principal assumptions used in measuring the estimated value of assets and liabilities held for sale included estimated selling price of the discontinued business, discount rates, industry growth rates, and pricing of comparable transactions in the market. The valuations are categorized as Level 3 in the fair value hierarchy.

Note 68 – Derivative Financial Instruments

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 Company’s policy is to execute such instruments with banks the Company believes to be creditworthy 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.

1012

The fair value of derivative instruments is presented on a gross basis, as the Company does not have any derivative contracts which are subject to master netting arrangements. The Company did not have any hedges with credit-risk-related contingent features or that required the posting of collateral as of ~~June~~December 2928, 2018, and September 2928, ~~2017~~2018. The cash flows from derivative contracts are recorded in operating activities in the Consolidated Statement of Cash Flows.

Foreign Currency Forward Exchange Contracts

The Company transacts business in various foreign currencies, which subjects the Company’s 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. At ~~June~~December 2928, 2018, and September 2928, ~~2017~~2018, the Company had outstanding foreign currency forward exchange contracts principally to sell U.S. dollars with notional amounts of $~~465~~476.91 million and $~~406~~452.90 million, respectively. The notional value of ~~our~~the Company’s foreign currency forward contracts includes $93105.0 million related to the hedge of a portion of ~~our~~the Company’s net monetary assets, including the embedded derivatives in ~~our~~its backlog. These notional values consist primarily of contracts for the British pound sterling, Canadian dollar, and European euro 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 ~~are~~should ~~expected to~~ 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.

Embedded Derivative Instruments

Net Investment Hedge

In April 2015 the Company issued €330.0 million in 3.625% Senior Notes due April 2023 (2023 Notes) ~~which~~and ~~require~~requiring semi-annual interest payments in April and October each year until maturity. The Company designated the 2023 Notes and accrued interest as a hedge of the investment of certain foreign business units. The foreign currency gain or loss that is effective as a hedge is reported as a component of ~~AOCI~~accumulated other comprehensive income (loss) in shareholders’ equity. To the extent that this hedge is ineffective, the foreign currency gain or loss is recorded in earnings. There ~~has~~was ~~been~~ no ineffectiveness of the hedge since inception.

Fair Value of Derivative Instruments

Fair value of derivative instruments in the Consolidated Balance Sheet at ~~June~~December 2928, 2018, and September 2928, ~~2017~~2018, consisted of:

In Thousands		Fair Value
		June 29,		September 29,
		December 28,		September 28,
	Classification	2018		~~2017~~2018
Foreign Currency Forward Exchange Contracts:
	Other current assets	$	~~1,081~~56	$	111,~~433~~176
	Other assets		1710		~~2,783~~236
	Accrued liabilities		613,~~587~~507		26,~~506~~643
	Other liabilities		34,~~360~~086		~~398~~1,139
Embedded Derivative Instruments:
	Other current assets	$	12,~~776~~967	$	~~604~~1,050
	Other assets		13,~~522~~886		~~142~~246
	Accrued liabilities		~~392~~460		~~1,657~~398
	Other liabilities		~~102~~163		~~582~~286

11The effect of derivative instruments on the Consolidated Statement of Operations and Comprehensive Income (Loss) for the three-month periods ended December 28, 2018, and December 29, 2017, consisted of:

~~The effect of derivative instruments on the Consolidated Statement of Operations and Comprehensive Income (Loss) for the three and nine months ended June 29, 2018, and June 30, 2017, consisted of:~~13

Fair Value Hedges and Embedded Derivatives

The Company recognized the following gains (losses) on contracts designated as fair value hedges and embedded derivatives:

In Thousands	Three Months Ended						~~Nine Months Ended~~
Gain (Loss)	~~June~~December 2928,			~~June~~December 3029,			~~June 29,~~			~~June 30,~~
	2018			2017			~~2018~~			~~2017~~
Fair Value Hedges:
Recognized in cost of sales	$	(~~547~~1,685	)	$	~~1,086~~(378	)	$	~~(1,818~~	)	$	~~845~~
Recognized in selling, general & administrative		(13,~~652~~857	)		~~906~~(323	)		~~(2,666~~	)		~~699~~
Embedded derivatives:
Recognized in sales	$	~~868~~2,055		$	~~(952~~345	)	$	~~1,536~~		$	~~(1,169~~	)

Cash Flow Hedges

The Company recognized the following gains (losses) on contracts designated as cash flow hedges:

In Thousands

Three Months Ended

~~Nine Months Ended~~

Gain (Loss)

~~June~~December 2928,

~~June~~December 3029,

~~June 29,~~

~~June 30,~~

2018

2017

~~2018~~

~~2017~~

Foreign currency forward exchange contracts:

Recognized in AOCI (effective portion)

(159,~~087~~327

)

14(2,~~250~~493

)

~~(29,378~~

)

~~21,188~~

Reclassified from AOCI into sales

(1,~~499~~657

)

(21,~~284~~933

)

~~8,417~~

~~(10,154~~

)

Net Investment Hedges

The Company recognized the following gains (losses) on contracts designated as net investment hedges:

In Thousands

Three Months Ended

~~Nine Months Ended~~

Gain (Loss)

~~June~~December 2928,

~~June~~December 3029,

~~June 29,~~

~~June 30,~~

2018

2017

~~2018~~

~~2017~~

2023 Notes and Accrued Interest:

Recognized in AOCI

215,~~198~~361

(256,~~512~~297

)

~~4,219~~

~~(6,133~~

)

During the ~~third~~first quarter of fiscal ~~2018~~2019 and ~~2017~~2018, the Company recorded agains ~~loss~~ of $~~4.0 million and a gain of $5.~~3 ~~million, respectively, on foreign currency forward exchange contracts that have not been designated as accounting hedges~~. ~~During the first nine months of fiscal 2018 and 2017, the Company recorded a loss of $~~5.4 million and ~~a gain of~~ $41.75 million, respectively, on foreign currency forward exchange contracts that have not been designated as accounting hedges. These foreign currency exchange gains ~~and losses~~ are included in selling, general and administrative expense.

There was no significant impact to the Company’s earnings related to the ineffective portion of any hedging instruments during the first ~~nine~~quarter ~~months~~ of fiscal ~~2018~~2019 and ~~2017~~2018. In addition, there was no significant impact to the Company’s 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 ~~nine~~quarter ~~months~~ of fiscal ~~2018~~2019 and ~~2017~~2018.

Amounts included in AOCI are reclassified into earnings when the hedged transaction settles. The Company expects to reclassify approximately $412.46 million of net loss into earnings over the next 12 months. The maximum duration of the Company’s foreign currency cash flow hedge contracts at ~~June~~December 2928, 2018, was 24 months.

Note 79 – ~~Insurance~~Income ~~Recovery~~Taxes

InThe ~~fiscal~~income ~~2017~~tax rate for the ~~Company~~first ~~received~~quarter aof ~~$7.8 million~~fiscal ~~insurance~~2019 ~~recovery~~was ~~due~~25.0%. The toincome antax ~~energetic~~rate ~~incident~~for atthe ~~one~~first quarter of ~~its~~fiscal ~~countermeasure~~2018 ~~operations,~~was ~~which~~26.9% ~~occurred~~and inwas ~~the~~278.3% ~~third~~after ~~quarter~~the effect of ~~fiscal~~the ~~2016. Management~~provision ~~does~~taxes ~~not~~due ~~anticipate~~to ~~additional~~the ~~insurance~~Tax ~~recoveries~~Cuts ~~arising~~and ~~from~~Jobs ~~this~~Act ~~matter~~(the ~~in fiscal 2018~~Act). The ~~insurance~~Company ~~recovery~~conducts isbusiness ~~reported~~in asnumerous atax ~~separate~~jurisdictions, ~~line~~principally ~~item~~in onthe U.S., U.K. and France. As a result, the ~~Consolidated~~Company’s ~~Statement~~income oftax ~~Operations~~rate ~~and~~for ~~Comprehensive~~fiscal ~~Income~~2019 ~~(Loss)~~reflects ~~and~~the isestimated ~~included~~annual inglobal ~~Advanced~~effective ~~Materials~~tax ~~segment~~rate applied to year-to-date pre-tax earnings.

12The Act was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.

~~Note~~The 8SEC –recognized ~~License~~that ~~Fee~~a ~~Income~~company’s review of certain income tax effects of the Act may be incomplete at the time financial statements are issued. During the first year following the effectiveness of the Act, the SEC issued Staff Accounting Bulletin 118 (SAB 118), which provides that if a company does not have the necessary information available for certain effects of the Act, the Company may record provisional numbers and adjust those amounts during the measurement period not to extend beyond one year.

In January 2018 the Company granted an exclusive license to a third party to manufacture, repair and sell certain legacy avionics components for $4.5 million. In addition, the Company sold $0.4 million in inventory. The Company will be paid a 15% royalty on future sales of the licensed product. The Company recorded $2.3 million in license fee income, net of the write-off of the related intangible assets of $2.2 million in the second quarter of fiscal 2018. In December 2017 the Company granted an exclusive license to a third party to manufacture, repair and sell certain legacy control devices for $3.0 million. Additionally, the Company sold certain inventory and manufacturing equipment to the licensee for $1.0 million. The Company will be paid a 15% royalty on future sales of the licensed product. The license fee income is reported as a separate line item on the Consolidated Statement of Operations and Comprehensive Income (Loss) and is included in Avionics & Controls segment earnings.14

~~Note~~In fiscal 2018 the Company recorded a provisional net charge of $49.9 million –related ~~Sale~~to the Act based on reasonable estimates for those tax effects. During the first quarter of ~~Business~~fiscal 2019, the Company completed the accounting for the tax effects of enactment of the Act and recorded a tax benefit of $0.2 million, resulting in a total net charge of $49.7 million. The Company has now completed the accounting estimates for all of the enactment-date income tax effects of the Act in accordance with the SAB 118 measurement period.

InOn ~~March~~February ~~2018~~5, 2019, the ~~Board~~U.S. ofTreasury ~~Directors~~Department ~~approved~~published ~~the~~in ~~sale of~~ the ~~Kirkhill~~Federal ~~business,~~Register ~~and~~final onregulations ~~March 15,~~relating ~~2018,~~to the ~~Company~~transition ~~sold~~tax ~~the~~imposed ~~assets~~by ~~and~~the ~~certain liabilities of this business to TransDigm, Inc~~Act. ~~for~~The ~~$50 million~~final ~~before~~regulations ~~selling~~result ~~costs. The~~in ~~Company incurred~~ an ~~estimated~~increase ~~$5.2 million~~in ~~loss~~transition ontax ~~sale~~ of ~~the~~approximately ~~business and an estimated~~ $~~0.8~~2 million. ~~gain~~In ~~after~~accordance ~~tax~~with ~~due~~U.S. toGAAP, the ~~release~~additional oftransition atax ~~valuation~~will ~~allowance~~be onrecorded aat ~~capital~~the ~~loss~~enactment ~~carryover. Based~~date onin ~~current discontinued operations accounting guidance,~~ the ~~sale~~second quarter of ~~the~~fiscal ~~Kirkhill~~2019 ~~business does not qualify~~ as a ~~discontinued~~change ~~operation~~in tax law.

~~Note~~During 10the –next ~~Income~~12 ~~Taxes~~months, it is reasonably possible that approximately $0.8 million of tax benefits that are currently unrecognized could be recognized as a result of settlement of examinations and/or the expiration of applicable statutes of limitations. We recognize interest related to unrecognized tax benefits in income tax expense.

~~The~~Note ~~Tax~~10 ~~Cuts~~– and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, and creates new taxes on certain foreign sourced earnings. Debt

~~The~~Long-term ~~SEC~~debt ~~recognized that a company’s review of certain income tax effects of the Act may be incomplete~~ at ~~the~~December 28, ~~time~~2018, ~~financial~~and ~~statements~~September 28, ~~are issued. According to FASB Accounting Standards Update No.~~ 2018~~-05~~, ifconsisted ~~a company does not have the necessary information available for certain effects~~ of the ~~Act, the Company may record provisional numbers and adjust those amounts during the measurement period not to extend beyond one year.~~following:

At June 29, 2018, the Company had not completed the accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, the Company made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. In other cases, the Company was not able to make a reasonable estimate in the first nine months of fiscal 2018 and continued to account for those items based on its existing accounting under ASC 740, Income Taxes, and the provisions of the tax laws that were in effect immediately prior to enactment. For the items for which the Company was able to determine a reasonable estimate, the Company recognized a provisional amount of $48.6 million, which is included as a component of income tax expense from continuing operations. In all cases, the Company will continue to make and refine the calculations as additional analysis is completed. In addition, the estimates may also be affected as the Company gains a more thorough understanding of the tax law.

In Thousands	December 28,			September 28,
	2018			2018

U.S. Term Loan, due April 2020	$	180,000		$	180,000
3.625% Senior Notes, due April 2023		377,619			382,965
Government refundable advances		41,362			43,873
Obligations under capital leases		68,744			69,310
Debt issuance costs		(3,441	)		(3,680	)
		664,284			672,468
Less current maturities		17,439			17,546
Carrying amount of long-term debt	$	646,845		$	654,922

Provisional Amounts

U.S. Deferred Tax Assets and Liabilities

The Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of the Act and refining its calculations, including evaluation of limits on employee remuneration, which could affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of the deferred tax balance was $6.6 million.

Foreign Tax Effects

The one-time transition tax is based on the Company’s total post-1986 earnings and profits (E&P) that the Company previously deferred from U.S. income taxes. The Company recorded a provisional amount for its one-time transition tax liability resulting in an increase in income tax expense of $42.0 million. The Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these amounts, including the benefit attributable to foreign tax credits and related elections. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculations of post-1986 foreign E&P previously deferred from U.S. taxation and finalizes the amounts of cash or other specified assets. The Act sets certain limits that may restrict the Company’s use of any foreign tax credits generated from the one-time transaction tax. As of the date of this report, management was not able to (1) determine a reasonable estimate of the tax liability for the Company’s remaining outside basis; (2) complete an analysis of the Global Intangible Low Taxed Income (GILTI); or (3) evaluate how the Act will impact the Company’s existing ASC 740-10-25-3 position to indefinitely reinvest unremitted foreign earnings.

The income tax rate for the third quarter of fiscal 2018 was 27.1% compared with the prior-year period of 25.0%. The difference in the effective tax rate was primarily driven by the repeal of certain benefits of foreign tax regimes, discrete tax benefits related to employee share-based payment awards, with an offset associated with a reduction in the U.S. federal statutory tax rate.

The income tax rate for the first nine months of fiscal 2018 was 77.4% mainly due to the effect of the Act. In addition, the income tax rate for the first nine months of fiscal 2018 reflected a $4.6 million tax benefit from a release of a capital loss valuation reserve due to a realized capital gain upon the sale of the Kirkhill business.

The 20.9% income tax rate in the first nine months of fiscal 2017 reflected the following items: the Company recognized $8.0 million of discrete tax benefits primarily related to a reduction of the income tax rate in France for fiscal 2020 and the early adoption of the accounting standard update for employee share-based payment awards.

By the end of fiscal 2018, it is reasonably possible that approximately $1.0 million of tax benefits that are currently unrecognized could be recognized as a result of settlement of examinations and/or the expiration of applicable statutes of limitations. The Company recognizes interest related to unrecognized tax benefits in income tax expense.

Note 11 – Debt

Long-term debt at June 29, 2018, and September 29, 2017, consisted of the following:

In Thousands	June 29,			September 29,
	2018			2017
U.S. credit facility	$	25,000		$	50,000
U.S. Term Loan, due April 2020		215,625			225,000
3.625% Senior Notes, due April 2023		385,539			389,862
Government refundable advances		44,068			45,549
Obligation under capital leases		69,817			71,091
Debt issuance costs		(3,920	)		(4,654	)
		736,129			776,848
Less current maturities		15,245			17,424
Carrying amount of long-term debt	$	720,884		$	759,424

U.S. Credit Facility

On April 9, 2015, the Company amended its secured credit facility to extend the maturity to April 9, 2020, increase the revolving credit facility to $500 million, and provide for a delayed-draw term loan facility of $250 million~~, which was drawn on August 3, 2015~~. The Company recorded $2.3 million in debt issuance costs. The credit facility is secured by substantially all the Company’s assets, and interest is based on standard inter-bank offering rates. The interest rate ranges from LIBOR plus 1.25% to LIBOR plus 2.00% depending on leverage ratios at the time the funds are drawn. At ~~June~~December 2928, 2018, the Company had ~~$25.0 million~~no outstanding borrowings under the secured credit facility ~~at an interest rate of LIBOR plus 1~~.~~50%, which was 3.6%.~~

U.S. Term Loan, due April 2020

On August 3, 2015, the Company borrowed $250 million under the ~~amended~~delayed-draw ~~secured~~term ~~credit~~loan facility (U.S. Term Loan, due 2020). The interest rate on the U.S. Term Loan, due 2020, ranges from LIBOR plus 1.25% to LIBOR plus 2.00%. At ~~June~~December 2928, 2018, the interest rate was LIBOR plus 1.50%, or 3.685%. The loan amortizes at 1.25% of the original principal balance quarterly through March 2020, with the remaining balance due in April 2020.

3.625% Senior Notes, due April 2023

In April 2015 TA Mfg. Limited, a wholly owned subsidiary of the Company, issued €330.0 million in 3.625% Notes, due 2023, requiring semi-annual interest payments in April and October of each year until maturity. The notes are designated as a net investment hedge and translated to U.S. dollars each period, with the associated gains or losses recorded to AOCI. The net proceeds from the sale of the notes, after deducting $5.9 million of debt issuance costs, were $350.8 million. The 2023 Notes are general unsecured senior obligations of the Company. The 2023 Notes are unconditionally guaranteed on a senior basis by the Company and certain subsidiaries of the Company that are guarantors under the Company’s existing secured credit facility. The 2023 Notes are also subject to redemption at the option of the Company, in whole or in part, at redemption prices starting at 102.719% of the principal amount plus accrued interest during the period beginning April 15, 2018, and declining annually to 100% of principal and accrued interest on or after April 15, 2021.

Based on quoted market prices, the fair value of the Company’s 2023 Notes was $~~388~~383.90 million and $~~403~~392.21 million as of ~~June~~December 2928, 2018, and September 2928, ~~2017~~2018, respectively. The carrying amount of the ~~secured credit facility and the~~ U.S. Term Loan, due 2020, approximates fair value. The estimate of fair value for the 2023 Notes is based on Level 2 inputs as defined in the fair value hierarchy described in Note 7.

approximate fair value. The estimate of fair value for the 2023 Notes is based on Level 2 inputs as defined in the fair value hierarchy described in Note 5.

Government Refundable Advances

Government refundable advances consist of payments received from the Canadian government to assist in research and development related to commercial aviation. The requirement to repay this advance is solely based on year-over-year commercial aviation revenue growth at CMC beginning in 2014. Imputed interest on the advance was 2.52% at June 29, 2018. The debt recognized was $44.1 million and $45.5 million at June 29, 2018, and September 29, 2017, respectively.

~~Obligation Under Capital Lease~~15

~~The~~growth ~~Company~~at ~~leases~~CMC ~~certain~~beginning ~~buildings~~in ~~and equipment under capital leases~~2014. ~~The~~Imputed ~~present~~interest ~~value~~on of the ~~minimum~~advance ~~capital~~was ~~lease~~negative ~~payments,~~1.65% ~~net~~at ofDecember 28, ~~the~~2018. The ~~current~~debt ~~portion,~~recognized ~~totaled~~was $6741.64 million and $6943.09 million asat ~~of June~~December 2928, 2018, and September 2928, ~~2017~~2018, respectively.

~~Note~~Obligations 12Under –Capital ~~Commitments and Contingencies~~Leases

The Company leases building and equipment under capital leases. The present value of the minimum capital lease payments, net of the current portion, totaled $66.4 million and $67.1 million as of December 28, 2018, and September 28, 2018, respectively.

Note 11 – Commitments and Contingencies

On December 18, 2018, an energetic incident occurred at one of the Company’s countermeasure facilities. The incident resulted in an injury to one employee, damage to a building, and the destruction of inventory and certain equipment. Operations at the factory are currently halted for investigation of the incident, repairs to the building and equipment, and implementation of process and facility improvements. Management expects the factory to be operating at a limited level of capacity in the second quarter of fiscal 2019 and at planned capacity in the third quarter of fiscal 2019.

On October 31, 2018, the Company’s Darchem Engineering Ltd. (Darchem) subsidiary, through an unincorporated joint venture between Darchem and an independent contractor, known as EDEL, entered into a long-term contract as a subcontractor to manufacture and install pool liners for the Hinkley Point – C nuclear plant in the U.K. (the Manufacturing Contract). EDEL was formed to facilitate a single point of contact for the project and to simplify the billing processes to the customer. Accordingly, the assets and liabilities of the joint venture are not significant. Darchem’s portion of the $165.0 million Manufacturing Contract is approximately $116.0 million. Darchem and the third-party contractor have equal voting rights to direct and manage EDEL’s activities. Each party will only incur economic consequences, whether losses or gains, specific to its own role in the delivery of its specific scope of work under the Manufacturing Contract. Darchem does not have a controlling financial interest in the joint venture, and Darchem is not deemed to be the primary beneficiary of the joint venture. Darchem accounts for its investment in the joint venture on the equity method of accounting. Revenues and expenses for Darchem’s share of the contract are recorded over time in accordance with ASC 606. The maximum potential future payments for delays and liquidated damages that could be required under the contract is equal to 50% of the contract value or approximately $82.5 million. The maximum potential future payments would be mitigated by a required performance bond equal to 10% of the total contract, or $16.5 million, and a 3% retention, or $5.0 million. Pursuant to the Manufacturing Contract, the Company is required to execute a parent guarantee covering the obligations of EDEL to the customer, including the third-party contractor’s scope of work which is approximately 30% of the total contract value, or approximately $49.5 million. Separately, the sub-contractor’s parent company will furnish an indemnity to the Company in relation to the sub-contractor’s scope of work. Management determined the valuation of liability of the parent guarantee is not material.

The Company is party to various lawsuits and claims, both as a plaintiff and defendant, and has contingent liabilities arising from the conduct of business, none of which, in the opinion of management, is expected to have a material effect on the Company’s financial position or results of operations. The Company believes that it has made appropriate and adequate provisions for contingent liabilities.

OnNote ~~March 5,~~12 ~~2014,~~– ~~the~~Employee ~~Company~~Stock entered into a Consent Agreement with the U.S. Department of State’s Directorate of Defense Trade Controls Office of Defense Trade Controls Compliance (DTCC) to resolve alleged International Traffic in Arms Regulations (ITAR) civil violations. The Consent Agreement was closed in fiscal 2017. Plans

~~Note~~As 13of –December 28, ~~Employee~~2018, ~~Stock~~the ~~Plans~~Company had three share-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans was $2.9 million and $4.0 million for the first three months of fiscal 2019 and 2018, respectively. During the first three months of fiscal 2019 and 2018, the Company issued 231,253 and 27,693 shares, respectively, under its share-based compensation plans.

As of June 29, 2018, the Company had three share-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans was $9.4 million and $7.5 million for the first nine months of fiscal 2018 and 2017, respectively. During the first nine months of fiscal 2018 and 2017, the Company issued 60,479 and 532,491 shares, respectively, under its share-based compensation 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.

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 Company’s common stock on the date of grant. ~~The~~There ~~Company~~were ~~granted~~no ~~20,981~~grants ~~and 11,338 options~~ in the ~~nine~~three-month ~~months~~periods ended ~~June~~December 2928, 2018, and ~~June~~December ~~30, 2017, respectively. The weighted-average grant date fair value of options granted during the nine months ended June~~ 29, ~~2018, and June 30,~~ 2017~~, was $22~~.~~67 and $24.61, respectively.~~

The fair value of the awards under the employee share-save scheme was estimated using a Black-Scholes pricing model which uses the assumptions noted in the following table. The risk-free rate for the contractual life of the options is based on the U.S. Treasury zero coupon issues in effect at the time of grant.

	Nine Months Ended
	June 29,			June 30,
	2018			2017
Volatility		38.89	%		35.58	%
Risk-free interest rate		1.98	%		1.75	%
Expected life (years)	3			3
Dividends	0			0

Equity Incentive Plan

Under the equity incentive plan, option exercise prices are equal to the fair market value of the Company’s common stock on the date of grant. ~~The~~There ~~Company~~were no stock options granted ~~239~~during the three-month period ended December 28,~~680~~ ~~and~~2018. The ~~237~~Company granted 197,~~200~~700 options to purchase shares in the ~~nine~~three-month ~~months~~period ended ~~June~~December 29, ~~2018, and June 30,~~ 2017~~, respectively~~. The weighted-average grant date fair value of options granted during the ~~nine~~three-month ~~months~~period ended ~~June~~December 29, ~~2018, and June 30,~~ 2017, was $3031.8020 ~~and $32.66~~ 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 Company’s common stock and option exercise and employee termination assumptions. The risk-free 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.

	Nine Months Ended
	June 29,	June 30,
	2018	2017
Volatility	34.32%	34.97 - 35.42%
Risk-free interest rate	2.15 - 2.47%	1.98 - 2.51%
Expected life (years)	5 - 9	5 - 9
Dividends	0	0

The Company granted 45,985 and 37,100 restricted stock units in the nine months ended June 29, 2018, and June 30, 2017, respectively. The weighted-average grant date fair value of restricted stock units granted during the nine months ended June 29, 2018, and June 30, 2017, was $86.26 and $76.83 per share, respectively. The fair value of each restricted stock unit granted by the Company is equal to the fair market value of the Company’s common stock on the date of grant.

The Company granted 33,700 and 43,650 performance share plan (PSP) shares in the nine months ended June 29, 2018, and June 30, 2017, respectively. PSP shares will be paid out in shares of Esterline common stock at the end of the three-year performance period. The PSP shares granted in each period equaled the number of shares participants would receive if the Company achieves target performance over the relevant period. The actual number of shares that will be paid out upon completion of the performance period is based on actual performance and may range from 0% to 300% of the target number of shares.

Note 14 – Discontinued Operations

The Company’s Board of Directors previously approved a plan to sell certain non-core business units including Wallop Defence Systems, Ltd. (Wallop), a manufacturer of flare countermeasure devices; a small distribution business; and a small manufacturing business.

On May 4, 2016, the Company sold certain assets of Wallop for 2.5 million British pounds and deferred consideration up to a maximum payment of 9 million British pounds. The deferred consideration is payable based upon receipt of acceptable orders during a three-year period ending May 3, 2019, and is equal to the amount of the acceptable order times a specified percentage ranging from 26.5% to 31%. The earn-out payment is estimated to be 4.9 million British pounds, or $6.5 million, at June 29, 2018. The Company was notified in December 2017 that it earned 1.3 million British pounds, or $1.8 million, in deferred consideration, half of which was paid to the Company in the second quarter of fiscal 2018 and the remaining half of which is expected to be paid in the fourth quarter of fiscal 2018 in accordance with the terms of the purchase and sale agreement. In the definitive purchase and sale agreement for the sale of these assets, the Company provided standard representations and warranties as well as indemnification to the buyer of the Wallop operation. The Company is obligated to indemnify the buyer for certain losses of up to 5.0 million British pounds, if, among other things, the Company breaches the representations and warranties. In the first quarter of fiscal 2018, the Company received notification of a claim from the buyer of the Wallop operation alleging breaches of representations and warranties primarily associated with defective products and late product deliveries. Although a loss is possible, the amount of any loss related to this claim cannot be estimated at this time. The Company does not expect the possible loss to have a material effect on the Company’s financial position.

On March 28, 2017, the Company sold a small manufacturing business for $0.6 million and a note receivable of $2.4 million, resulting in a gain on sale of the business of $0.8 million. The note receivable is due March 28, 2021, with an interest rate of 2.05%.

The Company incurred a $1.9 million loss from discontinued operations in the third quarter of fiscal 2018 compared to a $0.8 million loss from discontinued operations in the third quarter of fiscal 2017. During the first nine months of fiscal 2018 and 2017, the Company incurred a loss from discontinued operations of $2.1 million and $6.2 million, respectively. Included in the $6.2 million loss for the first nine months of fiscal 2017 was a $3.6 million loss on Wallop assets held for sale, principally due to a reduction in the estimated sale price and the effect of changes of foreign currency exchange rates. There was no significant change to the estimated sale price in the third quarter of fiscal 2018.

The ~~operating~~fair ~~results~~value of each option granted by the ~~discontinued~~Company ~~operations~~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 Company’s common stock and option exercise and employee termination assumptions. The risk-free rate for the ~~three~~contractual ~~months~~life ~~ended~~of ~~June 29,~~the ~~2018,~~option ~~consisted~~is based on the U.S. Treasury zero coupon issues in effect at the time of the ~~following:~~grant.

In Thousands	Avionics &			Sensors &		Advanced
	Three Months Ended
	Controls			Systems		Materials			Other			Total
	December 29,
Net Sales	$	-		$	-	$	-		$	-		$	-
	2017
Operating earnings (loss)		(1,182	)		-		(1,452	)		(17	)		(2,651	)
Volatility	34.32%
Tax expense (benefit)		(35	)		-		(722	)		-			(757	)
Risk-free interest rate	2.15 - 2.47%
Income (loss) from discontinued operations	$	(1,147	)	$	-	$	(730	)	$	(17	)	$	(1,894	)
Expected life (years)	5 - 9
Included in Operating Earnings (Loss):
Dividends	0
Gain (loss) on net assets held for sale	$	(1,041	)	$	-	$	(1,134	)	$	-		$	(2,175	)

The ~~operating~~Company ~~results~~granted of121,313 and 33,600 restricted stock units in the ~~discontinued~~three-month ~~operations~~periods ~~for~~ended December 28, 2018, and December 29, 2017, respectively. The weighted-average grant date fair value of restricted stock units granted during the three-month ~~months~~periods ended ~~June~~December 3028, 2018, and December 29, 2017, ~~consisted~~was $117.35 and $91.79 per share, respectively. The fair value of each restricted stock unit granted by the ~~following:~~Company is equal to the fair market value of the Company’s common stock on the date of grant.

In Thousands	Avionics &			Sensors &		Advanced
	Controls			Systems		Materials			Other			Total
Net Sales	$	-		$	-	$	270		$	-		$	270
Operating earnings (loss)		(594	)		-		(598	)		(3	)		(1,195	)
Tax expense (benefit)		(62	)		-		(318	)		-			(380	)
Income (loss) from discontinued operations	$	(532	)	$	-	$	(280	)	$	(3	)	$	(815	)
Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	163		$	-	$	709		$	-		$	872
Gain on sale of discontinued operations		(395	)		-		-			-			(395	)

There were no performance share plan (PSP) shares granted in the three-month period ended December 28, 2018. The Company granted 33,700 PSP shares in the three-month period ended December 29, 2017. PSP shares will be paid out in shares of Esterline common stock at the end of the three-year performance period. The PSP shares granted in each period equaled the number of shares participants would receive if the Company achieves target performance over the relevant period. The actual number of shares that will be paid out upon completion of the performance period is based on actual performance and may range from 0% to 300% of the target number of shares.

~~The~~Note ~~operating~~13 ~~results~~– ofBusiness ~~the~~Segment ~~discontinued operations for the nine months ended June 29, 2018, consisted of the following:~~Information

In Thousands	Avionics &			Sensors &		Advanced
	Controls			Systems		Materials			Other			Total
Net Sales	$	-		$	-	$	-		$	-		$	-
Operating earnings (loss)		(299	)		-		(2,942	)		(67	)		(3,308	)
Tax expense (benefit)		(2	)		-		(1,156	)		(13	)		(1,171	)
Income (loss) from discontinued operations	$	(297	)	$	-	$	(1,786	)	$	(54	)	$	(2,137	)
Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	(291	)	$	-	$	(489	)	$	-		$	(780	)

Business segment information for continuing operations includes the segments of Avionics & Controls, Sensors & Systems and Advanced Materials.

In Thousands	Three Months Ended
	December 28,			December 29,
	2018			2017
Sales
Avionics & Controls	$	210,744		$	202,703
Sensors & Systems		179,448			175,468
Advanced Materials		94,795			103,874
	$	484,987		$	482,045

Earnings from Continuing Operations Before Income Taxes
Avionics & Controls	$	29,293		$	19,181
Sensors & Systems		23,053			11,522
Advanced Materials		20,125			13,898
Segment Earnings		72,471			44,601

Corporate expense		(23,504	)		(19,710	)
Interest income		827			298
Interest expense		(6,774	)		(7,604	)
Other income		2,143			1,742
	$	45,163		$	19,327

~~The~~Disaggregation ~~operating results~~ of ~~the discontinued operations for the nine months ended June 30, 2017, consisted of the following:~~Sales

In Thousands	Avionics &			Sensors &		Advanced
	Controls			Systems		Materials			Other			Total
Net Sales	$	4,964		$	-	$	270		$	-		$	5,234
Operating earnings (loss)		(713	)		893		(7,214	)		(896	)		(7,930	)
Tax expense (benefit)		(492	)		-		(941	)		(312	)		(1,745	)
Income (loss) from discontinued operations	$	(221	)	$	893	$	(6,273	)	$	(584	)	$	(6,185	)
Included in Operating Earnings (Loss):
Gain (loss) on net assets held for sale	$	77		$	-	$	(3,614	)	$	-		$	(3,537	)
Gain on sale of discontinued operations		793			-		-			-			793

The following table presents the Company’s total net sales disaggregated by end market, customer type, timing of transfer to the customer and geography for the three months ended December 28, 2018:

Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at June 29, 2018, are comprised of the following:

In Thousands	Avionics &		Sensors &		Advanced
	Controls		Systems		Materials		Total
Markets
Commercial Aerospace	$	71,827	$	114,309	$	45,930	$	232,066
Defense		71,620		30,912		44,077		146,609
General Industry		67,297		34,227		4,788		106,312
	$	210,744	$	179,448	$	94,795	$	484,987

In Thousands	Avionics &		Sensors &		Advanced
	Controls		Systems		Materials		Total
Other current assets	$	-	$	-	$	4,052	$	4,052
Current Assets of Businesses Held for Sale		-		-		4,052		4,052
Net property, plant and equipment		4,221		-		-		4,221
Other assets		-		-		8,411		8,411
Non-Current Assets of Businesses Held for Sale		4,221		-		8,411		12,632
Accounts payable		-		-		12		12
Accrued liabilities		-		-		3,200		3,200
Current Liabilities of Businesses Held for Sale		-		-		3,212		3,212
Deferred income tax liabilities		-		-		2,590		2,590
Other liabilities		-		-		320		320
Non-Current Liabilities of Businesses Held for Sale		-		-		2,910		2,910
Net Assets of Businesses Held for Sale	$	4,221	$	-	$	6,341	$	10,562

The Company’s sales by geographic area are as follows:

In Thousands	Three Months
	Ended
	December 28,
	2018

Sales ¹
Domestic
Unaffiliated customers - U.S.	$	201,583
Unaffiliated customers - export		44,327
Intercompany		6,172
		252,082
Canada
Unaffiliated customers		48,791
Intercompany		1,690
		50,481
France
Unaffiliated customers		91,624
Intercompany		11,254
		102,878
United Kingdom
Unaffiliated customers		53,237
Intercompany		4,932
		58,169
All other Foreign
Unaffiliated customers		45,426
Intercompany		24,916
		70,342

Eliminations		(48,965	)
	$	484,987

¹ Based on country from which the sale originated and the sale was recorded.

Assets and Liabilities Held for Sale within the Consolidated Balance Sheet at September 29, 2017, were comprised of the following:

In Thousands	Avionics &		Sensors &		Advanced
	Controls		Systems		Materials		Total
Other current assets	$	-	$	-	$	6,501	$	6,501
Current Assets of Businesses Held for Sale		-		-		6,501		6,501
Net property, plant and equipment		5,262		-		-		5,262
Other assets		-		-		8,072		8,072
Non-Current Assets of Businesses Held for Sale		5,262		-		8,072		13,334
Accounts payable		-		-		138		138
Accrued liabilities		-		-		7,046		7,046
Current Liabilities of Businesses Held for Sale		-		-		7,184		7,184
Deferred income tax liabilities		-		-		1,404		1,404
Other liabilities		-		-		320		320
Non-Current Liabilities of Businesses Held for Sale		-		-		1,724		1,724
Net Assets of Businesses Held for Sale	$	5,262	$	-	$	5,665	$	10,927

Note 15 – Business Segment Information

Business segment information for continuing operations includes the segments of Avionics & Controls, Sensors & Systems and Advanced Materials.

In Thousands	Three Months Ended						Nine Months Ended
	June 29,			June 30,			June 29,			June 30,
	2018			2017			2018			2017
Sales
Avionics & Controls	$	210,787		$	209,168		$	626,304		$	615,143
Sensors & Systems		190,895			184,804			564,516			535,287
Advanced Materials		98,189			110,135			308,725			321,224
	$	499,871		$	504,107		$	1,499,545		$	1,471,654
Earnings from Continuing Operations Before Income Taxes
Avionics & Controls	$	23,781		$	22,496		$	67,839		$	61,185
Sensors & Systems		22,135			25,587			53,119			70,087
Advanced Materials		21,152			17,780			45,288			55,982
Segment Earnings		67,068			65,863			166,246			187,254
Corporate expense		(18,776	)		(15,969	)		(57,397	)		(53,234	)
Interest income		579			150			1,326			346
Interest expense		(7,902	)		(7,299	)		(23,673	)		(22,645	)
	$	40,969		$	42,745		$	86,502		$	111,721

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

On October 9, 2018, we entered into the Merger Agreement providing for the acquisition of the Company by TransDigm. If the Merger is consummated, we will become a wholly owned subsidiary of TransDigm. Each Company shareholder will receive $122.50 per share in cash, subject to any withholding taxes. The Merger, which is expected to close in March or April 2019, is subject to the receipt of certain required antitrust and regulatory approvals and the satisfaction of certain other closing conditions. The Company’s shareholders approved the Merger at a special meeting held on January 17, 2019. Upon completion of the Merger, shares of our common stock will cease trading on the New York Stock Exchange. Additional information about the Merger transaction is included in Note 1 to the Financial Statements included in this report and in the definitive proxy statement filed with the SEC on November 30, 2018.

We operate our businesses in three segments: Avionics & Controls, Sensors & Systems and Advanced Materials. Our segments are structured around our technical capabilities. Sales in all segments include domestic, international, defense and commercial customers.

The Avionics & Controls segment includes avionics systems, control and communication systems, and interface technologies capabilities. The Sensors & Systems segment includes power systems, connection technologies and advanced sensors capabilities. The Advanced Materials segment includes engineered materials and defense technologies capabilities.

Our current business and strategic plan focuses on the continued development and enhancement of our products principally for aerospace and defense markets. We are concentrating our efforts to expand our capabilities in these markets, to anticipate the global needs of our customers, and to continually improve our operational performance. These efforts focus on continuous research and new product development, acquisitions and strategic realignments of operations to offer more comprehensive solutions across our product offerings, and the implementation of the principles of our operating system to become a supplier of choice for our customers.

In March ~~2014~~2018 the Board of Directors approved the sale of the Kirkhill business, and on March 15, 2018, we ~~entered~~sold ~~into~~the assets and certain liabilities of this business to TransDigm for $50 million before selling costs. We incurred a ~~Consent~~$3.7 million ~~Agreement~~loss ~~with~~on sale of the ~~DTCC~~business toand ~~resolve~~an ~~alleged~~after ~~ITAR~~tax ~~civil~~gain ~~violations~~of $2.1 million. The ~~Consent~~after-tax ~~Agreement~~gain was ~~closed~~due to the release of a capital loss valuation reserve of $4.9 million and an additional tax benefit of $4.1 million recognized as a result of the loss on the sale of the business. Based on current discontinued operations accounting guidance, the sale of the Kirkhill business does not qualify as a discontinued operation, and was therefore included in ~~fiscal~~the ~~2017~~Advanced Materials segment. Operating loss for the three-month period ended December 29, 2017, is summarized below:

In fiscal 2014 our Board of Directors approved a plan to sell certain non-core business units including Eclipse Electronic Systems, Inc. (Eclipse), a manufacturer of embedded communication intercept receivers for signal intelligence applications; Wallop Defence Systems, Ltd. (Wallop), a manufacturer of flare countermeasure devices; a small distribution business; Pacific Aerospace and Electronics Inc. (PA&E), a manufacturer of hermetically sealed electrical connectors; and a small manufacturing business. As of June 29, 2018, we have sold these business units, except for the land and buildings at Eclipse and Wallop, which are currently held for sale. These businesses are reported as discontinued operations.

In Thousands	Three Months Ended
	December 29,
	2017

Sales	$	19,509
Cost of Sales		21,823
Gross Profit (Loss)		(2,314	)

Selling, general & administrative		3,170
Research, development and engineering		549
Operating Earnings (Loss)	$	(6,033	)

InOn ~~fiscal 2017 we evaluated the ongoing performance challenges at our elastomer business based in Brea~~June 19, ~~California~~2014, ~~known~~our asBoard ~~the~~of ~~Kirkhill~~Directors ~~business,~~approved ~~resulting~~a inshare ~~the~~repurchase ~~decision~~program toand ~~explore~~authorized ~~all strategic options associated with~~ the ~~business. The~~repurchase ~~historic volatility~~ of ~~this~~up ~~business’s~~to ~~results~~$200 million of ~~operations~~outstanding ~~was~~shares aof ~~consideration~~common ~~in this evaluation~~stock. In March ~~2018~~2015 ~~the~~our Board of Directors ~~approved~~authorized ~~the~~an ~~sale~~additional of$200 million for the ~~Kirkhill~~repurchase ~~business,~~of ~~and~~outstanding onshares ~~March 15,~~of ~~2018,~~common westock ~~sold~~under the ~~assets~~program. Under ~~and~~the ~~certain~~program, ~~liabilities~~the ofCompany ~~this~~is ~~business~~authorized to ~~TransDigm,~~repurchase ~~Inc.~~up ~~for~~to $50400 million ~~before selling costs. We incurred an estimated $5.2 million loss on sale~~ of the ~~business~~outstanding ~~and~~shares ~~an estimated after tax gain~~ of ~~$0.8 million. The~~common ~~after-tax~~stock ~~gain~~from ~~was~~time ~~due~~ to ~~the~~time, ~~release~~depending ofon amarket ~~capital~~conditions, ~~loss~~share ~~valuation~~price ~~reserve~~and ofother $4factors.~~6 million~~ In ~~and~~the anfirst ~~additional~~quarter ~~tax benefit~~ of ~~$1.4 million~~fiscal ~~recognized~~2019 asand a2018, ~~result~~no ofshares ~~the~~were ~~loss~~repurchased onunder ~~the~~this ~~sale of the business~~program. ~~Based~~Since onthe ~~current~~program ~~discontinued operations accounting guidance~~began, the ~~sale~~Company ofhas ~~the~~repurchased ~~Kirkhill~~3,737,327 ~~business~~shares ~~does~~for ~~not~~an ~~qualify~~aggregate aspurchase aprice ~~discontinued~~of ~~operation~~$352. ~~Kirkhill~~0 million, ~~was~~with ~~included~~$48.0 million in ~~the~~shares ~~Advanced~~remaining ~~Materials~~available ~~segment. Operating~~for ~~earnings~~repurchase ~~(loss)~~in ~~for~~ the ~~Kirkhill business are summarized below:~~future.

In Thousands	Three Months Ended						Nine Months Ended
	June 29,			June 30,			June 29,			June 30,
	2018			2017			2018			2017
Sales	$	-		$	23,394		$	35,489		$	76,546
Cost of Sales		-			21,963			40,617			69,826
Gross Profit (Loss)		-			1,431			(5,128	)		6,720
Selling, general & administrative		-			3,378			5,751			10,255
Research, development and engineering					625			1,025			1,984
Loss (gain) on sale of business		(97	)		-			5,213			-
Operating Earnings (Loss)	$	97		$	(2,572	)	$	(17,117	)	$	(5,519	)
Loss (Gain) on Sale of Business, Net of Tax:
Loss (gain) on sale of business		(97	)		-			5,213			-
Income Tax Expense (Benefit):
Release of Capital Loss Valuation Reserve		50			-			(4,630	)		-
Income Tax Expense (Benefit)		5			-			(1,369	)		-
	$	(42	)	$	-		$	(786	)	$	-

On September 29, 2018, we adopted ASC 606, Revenue from Contracts with Customers using the modified retrospective method applied to those contracts not yet completed as of September 29, 2018. The impact of adoption on our Consolidated Statement of Operations and Comprehensive Income (Loss) and Consolidated Balance Sheet for the three months ended and as of December 28, 2018, is reported in Note 2 in the Consolidated Financial Statements under Part 1, Item 1 of this report. Results for reporting periods beginning after September 28, 2018, are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605.

Sales for the first quarter of fiscal 2019 increased $2.9 million to $485.0 million over the prior-year period. The $2.9 million increase was mainly due to higher sales for Avionics & Controls segment products of $8.0 million and higher sales of Sensors & Systems segment products of $4.0 million. These increases were partially offset by lower Advanced Materials sales in the first quarter of fiscal 2019 as a result of the March 2018 sale of the Kirkhill business.

Gross margin was 34.3% in the first quarter of fiscal 2019 compared with 30.6% in the prior-year period. Gross profit was $166.1 million and $147.7 million for the first quarter of fiscal 2019 and 2018, respectively. For further explanation about changes in sales and gross profit in the first quarter of fiscal 2019 over the prior-year period, refer to the table at the end of this Overview section.

Selling, general and administrative expenses decreased by $7.2 million to $92.7 million, or 19.1% of sales, in the first quarter of fiscal 2019 from the prior-year period.

Transaction costs related to the pending Merger transaction with TransDigm were $4.0 million in the first quarter of fiscal 2019. These costs consisted of legal and advisory fees.

Research, development and engineering expense decreased by $5.6 million to $20.4 million, or 4.2% of sales, in the first quarter of fiscal 2019 from the prior-year period. The decrease reflected lower expense across all three segments.

On December 18, 2018, an energetic incident occurred at one of our countermeasure facilities. The incident resulted in an injury to one employee, damage to a building, and the destruction of certain equipment. Operations at the factory are currently halted for investigation of the incident, repairs to the building and equipment, and implementation of process and facility improvements. Management expects the factory to be operating at a limited level of capacity in the second quarter of fiscal 2019 and at planned capacity in the third quarter of fiscal 2019.

On December 22, 2017, we granted an exclusive license to a third party to manufacture, repair and sell certain legacy control devices for $3.0 million. The license fee is reported as a separate line item on the Consolidated Statement of Operations and Comprehensive Income (Loss) and is included in Avionics & Controls segment earnings.

The income tax rate for the first quarter of fiscal 2019 was 25.0%. The income tax rate for the first quarter of fiscal 2018 was 26.9% and was 278.3% after the effect of the provision taxes due to the Tax Cuts and Jobs Act (the Act). Our income tax rate for fiscal 2019 reflects the fact that a significant portion of our earnings before income taxes is earned by our foreign operations and the income tax rate for these foreign operations ranges from 26% to 27%.

As explained in Note 9 to the Consolidated Financial Statements included in Part 1, Item 1 of this report, the Act was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. In fiscal 2018, the Company recorded a provisional net charge of $49.9 million related to the Act based on reasonable estimates for those tax effects. We have now completed our accounting estimates for all of the enactment-date income tax effects of the Act in accordance with the SAB 118 measurement period. In the first quarter of fiscal 2019, we recorded a tax benefit of $0.2 million, resulting in a total net charge of $49.7 million.

On February 5, 2019, the U.S. Treasury Department published in the Federal Register final regulations relating to the transition tax imposed by the Act. The final regulations result in an increase in transition tax of approximately $2 million. In accordance with U.S. GAAP, the additional transition tax will be recorded at the enactment date in the second quarter of fiscal 2019 as a change in tax law.

Earnings from continuing operations in the first quarter of fiscal 2019 of $34.0 million, or $1.14 per diluted share, compared with a loss from continuing operations of $34.8 million, or $1.16 per diluted share. In the prior-year period, earnings from continuing operations were impacted due to the $48.6 million, or $1.63 per diluted share, income charge resulting from the Act.

Loss from discontinued operations was $0.2 million, or $0.01 per diluted share, in both the first quarter of fiscal 2019 and 2018.

Net earnings in the first quarter of fiscal 2019 was $33.8 million, or $1.13 per diluted share, compared with a net loss of $35.0 million, or $1.17 per diluted share, in the prior-year period.

Cash flows from operating activities were $20.7 million in the first three months of fiscal 2019 compared with $62.4 million in the prior-year period. The decrease in cash flow was due to higher uses of working capital.

Our sales, gross margin and earnings results for the first quarter of fiscal 2019 compared with the prior-year period included a number of significant items which are summarized in the tables below.

The following is a roll forward of sales and gross ~~profit~~margin from the three-month ~~months~~period ended ~~June~~December 3029, 2017, to the three-month ~~months~~period ended ~~June~~December 2928, 2018, including the effect of the adoption of ASC 606, Revenue from Contracts with Customers (ASC 606) compared with the prior-year period:

In Thousands	Avionics &			Sensors &			Advanced
	Controls			Systems			Materials			Total
Sales:
Three months ended June 30, 2017	$	209,168		$	184,804		$	110,135		$	504,107
Three months ended December 29, 2017	$	202,703		$	175,468		$	103,874		$	482,045
Foreign currency gain (loss)		~~2,679~~617			5(1,~~896~~093	)		~~1,359~~(894	)		9(1,~~934~~370	)
Forward contract gain (loss)		~~1,322~~(902	)		(2,~~403~~674	)		-			(3,~~725~~576	)
Sales volume		(28,~~382~~507	)		(26,~~208~~614	)		105,~~089~~920			521,~~499~~041
Sale of business		-			-			(23,394	)		(23,394	)
Adoption of ASC 606		(181	)		1,133			5,507			6,459
Three months ended June 29, 2018	$	210,787		$	190,895		$	98,189		$	499,871
Sale of business		-			-			(19,612	)		(19,612	)
Three months ended December 28, 2018	$	210,744		$	179,448		$	94,795		$	484,987
Gross Profit:
Three months ended June 30, 2017		71,188			69,496			33,015			173,699
Three months ended December 29, 2017		63,992			54,948			28,789			147,729
Foreign currency gain (loss)		~~987~~1,857			~~(387~~67	)		~~294~~(234	)		~~894~~1,690
Forward contract gain (loss)		~~1,251~~(912	)		(2,~~403~~674	)		-			(3,~~654~~586	)
Volume/mix		(35,~~425~~395	)		(38,~~146~~239	)		2,~~513~~153			(415,~~058~~787	)
Lower (higher) manufacturing costs		~~926~~1,692			(~~1,805~~15	)		~~313~~(2,121	)		(~~566~~444	)
Business integration		(17	)		-			-			(17	)
Adoption of ASC 606		(512	)		515			2,138			2,141
Inventory cost and EAC adjustment		279			(614	)		-			(335	)
Sale of business		-			-			2,314			2,314
Sale of business		-			-			(1,431	)		(1,431	)
Other		164			227			108			499
Other		(236	)		(1,689	)		5			(1,920	)
Three months ended December 28, 2018	$	71,676		$	61,307		$	33,147		$	166,130
Three months ended June 29, 2018	$	70,953		$	64,258		$	34,709		$	169,920

OnThe ~~June 19,~~following ~~2014,~~table ~~our~~shows ~~Board of Directors approved a share repurchase program and authorized~~ the ~~repurchase~~average offoreign ~~$200 million~~exchange ofrates ~~outstanding shares of common stock. In March 2015 our Board of Directors authorized an additional $200 million~~ for the ~~repurchase~~British ofpound, ~~outstanding~~Canadian ~~shares~~dollar ofand ~~common~~European ~~stock~~euro ~~under~~relative ~~the program. Under the program we are authorized~~ to ~~repurchase up to $400 million of~~ the ~~outstanding shares of common stock from time to time, depending on market conditions, share price and other factors~~U. ~~There~~S. ~~were~~dollar nofor ~~shares repurchased in~~ the ~~third~~three-month ~~quarter~~periods ~~of fiscal 2018 or fiscal 2017. During the nine months~~ ended ~~June~~December 2928, 2018, weand ~~repurchased 601,400 shares under this program at an average price paid per share of $72.25, for an aggregate purchase price of $43.4~~December ~~million. There have been no shares repurchased subsequent to June~~ 29, ~~2018~~2017. ~~Since the program began, we have repurchased 3,737,327 shares for an aggregate purchase price of $352.0 million, with $48.0 million remaining available for repurchase in the future.~~

Sales for the third quarter of fiscal 2018 decreased $4.2 million to $499.9 million from the prior-year period due mainly to decreased segment sales at Advanced Materials of $11.9 million, partially offset by higher sales at Sensors & Systems and Avionics & Controls. The decrease in Advanced Materials sales was due to the sale of the Kirkhill business, partially offset by sales growth.

	Three Months Ended
	December 28,		December 29,
	2018		2017		Change

GBP to USD		1.2829		1.3305	(3.6)%
CAD to USD		0.7576		0.7889	(4.0)%
EUR to USD		1.1422		1.1817	(3.3)%

~~Gross~~The ~~margin~~following ~~was~~table ~~34.0%~~shows in the ~~third~~impact ~~quarter~~ of ~~fiscal~~changes ~~2018 compared with 34.5%~~ in the ~~prior-year~~foreign ~~period. Gross~~currency ~~profit~~exchange ~~was~~rates ~~$169.9 million and $173.7 million~~ for the ~~third~~British ~~quarter~~pound, ofCanadian ~~fiscal~~dollar ~~2018~~ and ~~2017,~~European ~~respectively. For~~euro ~~further~~relative ~~explanation~~to ~~about~~the ~~changes~~U.S. indollar ~~sales~~on ~~and~~operating ~~gross~~earnings ~~profit~~during in the ~~third~~three-month ~~quarter~~period ofended ~~fiscal~~December 28, 2018, ~~from~~compared with the prior-year period~~, refer to the table at the end of this Overview section~~.

Selling, general and administrative expenses increased by $5.3 million in the third quarter of fiscal 2018 over the prior-year period to $98.9 million or 19.8% of sales. The increase was due to higher corporate expenses and Avionics & Controls and Sensors & Systems’ selling, general and administrative expenses, partially offset by lower Advanced Materials segment expenses reflecting the sale of the Kirkhill business.

In Thousands	Avionics &			Sensors &			Advanced
	Controls			Systems			Materials			Total

Sales:
Foreign currency gain (loss)	$	617		$	(1,093	)	$	(894	)	$	(1,370	)
Forward contract gain (loss)		(902	)		(2,674	)		-			(3,576	)
	$	(285	)	$	(3,767	)	$	(894	)	$	(4,946	)

Gross Profit:
Foreign currency gain (loss)	$	1,857		$	67		$	(234	)	$	1,690
Forward contract gain (loss)		(912	)		(2,674	)		-			(3,586	)
	$	945		$	(2,607	)	$	(234	)	$	(1,896	)

Operating Earnings (Loss):
Foreign currency gain (loss)	$	4,978		$	967		$	771		$	6,716
Forward contract gain (loss)		(2,252	)		(2,907	)		(1,268	)		(6,427	)
	$	2,726		$	(1,940	)	$	(497	)	$	289

Research, development and engineering expense decreased by $7.4 million to $22.8 million, or 4.6% of sales, in the third quarter of fiscal 2018 from the prior-year period. The decrease primarily reflected lower expense mainly at Avionics & Controls and Sensors & Systems.

Loss from discontinued operations in the third quarter of fiscal 2018 was $1.9 million, or $0.06 per diluted share. The loss from discontinued operations in the third quarter of fiscal 2017 was $0.8 million, or $0.03 per diluted share.

~~Net~~Results ~~earnings in the third quarter~~ of ~~fiscal 2018 were $27.8 million, or $0.94 per diluted share, compared with $30.9 million, or $1.03 per diluted share, in the prior-year period.~~Operations

~~Cash~~Three-Month ~~flows~~Period ~~from~~Ended ~~operating activities were $119.4~~December ~~million~~28, ~~in the first nine months of fiscal~~ 2018, ~~compared~~Compared with ~~$138.9 million in the prior~~Three-~~year~~Month ~~period. The~~Period ~~decrease~~Ended inDecember 29, ~~cash flows from operating activities is primarily attributable to lower net earnings.~~2017

~~Sales~~Total sales for the first ~~nine~~three months of fiscal ~~2018~~2019 increased by $272.9 million, toor $10.~~5 billion~~6%, over the prior-year period. Sales ~~due~~by ~~mainly to increased~~ segment ~~sales~~were atas ~~Avionics & Controls and Sensors & Systems, partially offset by lower sales at Advanced Materials.~~follows:

Gross margin was 32.1% in the first nine months of fiscal 2018 compared with 33.6% in the prior-year period. Gross profit was $482.0 million and $493.8 million for the first nine months of fiscal 2018 and 2017, respectively. For further explanation about changes in sales and gross profit in the first nine months of fiscal 2018 over the prior-year period, refer to the table at the end of this Overview section.

In Thousands		Three Months Ended
	Increase (Decrease)	December 28,		December 29,
	From Prior Year	2018		2017

Avionics & Controls	4.0%	$	210,744	$	202,703
Sensors & Systems	2.3%		179,448		175,468
Advanced Materials	(8.7%)		94,795		103,874
Total Net Sales		$	484,987	$	482,045

~~Selling,~~The ~~general and administrative expenses increased by~~ $138.20 million increase in ~~the~~Avionics & ~~first~~Controls ~~nine~~sales ~~months of fiscal 2018~~ over the prior-year period ~~to $299.8 million, or 20.0% of sales,~~ mainly ~~due~~reflected to the ~~effects of changes in foreign currency exchange rates.~~following:

~~Research,~~• ~~development~~Higher ~~and~~sales ~~engineering~~volumes ~~expense~~of ~~decreased~~control byand ~~$7.5 million~~communication insystems ~~the~~of ~~first~~$10 ~~nine~~million ~~months~~mainly ofreflecting ~~fiscal~~higher ~~2018~~sales ~~over~~of ~~the~~aftermarket ~~prior-year~~and ~~period~~repairs toof $~~73.~~4 million, orincreased ~~4.9%~~sales of secure communication systems of $3 million and higher sales, ~~mainly~~for ~~reflecting~~an ~~lower~~overhead ~~expense~~cockpit ~~across~~control ~~all~~system ~~three~~of ~~segments.~~ $2 million

On• ~~January 4,~~Higher 2018, we granted an exclusive license to a third party to manufacture, repair and sell certain legacy avionics components for $4.5 million. We recorded $2.3 million in license fee income, net of the write-off of the related intangible assets of $2.2 million in the second quarter of fiscal 2018. In addition, we sold $0.4 million in inventory at book value. We will be paid a 15% royalty on future sales of ~~the licensed product. On December 22, 2017, we granted an exclusive license to a third party to manufacture, repair and sell certain legacy control devices for~~ $~~3.0 million. Additionally,~~7 ~~we sold certain inventory and manufacturing equipment to the licensee for $1.0~~ million~~. We~~ ~~will be paid a 15% royalty on future sales of the licensed product. License fee income~~ from ~~both~~interface ~~transactions~~technologies ismainly ~~reported~~for asmedical ~~a separate line item on the Consolidated Statement of Operations and Comprehensive Income (Loss) and is included in Avionics & Controls segment earnings.~~applications

In• ~~fiscal~~Partially ~~2017~~offset we received a $7.8 million insurance recovery resulting from an energetic incident at one of our countermeasure operations, which occurred in the third quarter of fiscal 2016. We do not anticipate additional insurance recoveries arising from this matter in fiscal 2018. The insurance recovery is reported as a separate line item on the Consolidated Statement of Operations and Comprehensive Income (Loss) and is included in Advanced Materials segment earnings.by:

As• ~~explained~~Lower insales ~~Note 10 to the Consolidated Financial Statements included in Part 1, Item 1~~ of ~~this~~avionics ~~report,~~systems the Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of ~~certain~~$2 ~~foreign subsidiaries that were previously tax deferred~~million, ~~and~~mainly ~~creates~~due new taxes on certain foreign sourced earnings. At June 29, 2018, we had not completed our accounting for the tax effects of enactment of the Act; however, we made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax based on our total post-1986 earnings and profits that we previously deferred from U.S. income tax. In the first three months of fiscal 2018, we recorded a provisional amount related to ~~the~~decreased ~~remeasurement~~simulator ofprogram ~~our deferred income tax balance of $6.6 million and a provisional amount related to our one-time transition tax liability of $42.0 million.~~sales

~~The~~• ~~income~~Lower ~~tax~~sales ~~rate for the first nine months~~ of ~~fiscal~~interface ~~2018~~technologies ~~was 77.4% mainly due to the effect~~ of ~~the~~$7 ~~Act. The~~million income tax rate in the first nine months of fiscal 2017 was 20.9%, which reflected certain discrete income tax benefits mainly due to a reduction in the income tax rate in France in 2020 and the early adoption of the accounting standard update for ~~employee~~gaming ~~share-based payment awards.~~applications

WeThe ~~reported earnings from continuing operations in the first nine months of fiscal 2018 of~~ $184.~~9 million, or $~~0~~.63 per diluted share, compared with the first nine months of fiscal 2017 earnings from continuing operations of $87.3~~ million, orincrease ~~$2.92~~in ~~per~~Sensor ~~diluted~~& ~~share. The~~Systems ~~decline~~sales ~~was~~over ~~due to~~ the ~~income~~prior-year ~~tax~~period ~~charge~~principally ofreflected ~~$48.6 million, or $1.63 per diluted share, resulting from~~ the ~~Act and lower operating earnings.~~following:

~~Loss~~• ~~from~~Higher ~~discontinued~~sales ~~operations in the first nine months~~ of ~~fiscal~~advanced ~~2018~~sensors ~~was $2.1 million, or $0.07 per diluted share, compared with a loss~~ of $~~6.2~~ 5 million, orfor ~~$0.21 per diluted share, in~~ the ~~prior-year period.~~aftermarket

~~Net~~• ~~earnings~~Higher insales ~~the first nine months~~ of ~~fiscal~~connection ~~2018~~technologies ~~was~~systems ~~$16.7 million, or $0.56 per diluted share, compared with net earnings~~ of $~~81.1 million, or $~~2~~.71~~ ~~per~~million ~~diluted~~mainly ~~share,~~for incommercial ~~the prior-year period.~~aviation

~~Our~~• ~~sales,~~Favorable ~~gross~~effect ~~profit~~due ~~and~~to ~~earnings results for~~ the ~~third~~adoption ~~quarter~~ of ~~fiscal~~ASC ~~2018~~606 ~~compared with the prior-year period included a number~~ of ~~significant~~$1 ~~items which are summarized in the tables below.~~million

•

Partially offset by an unfavorable effect of changes in foreign currency exchange rates of $4 million

The $9.1 million decrease in sales in Advanced Materials over the prior-year period mainly reflected the following:

•

Lower sales of $20 million due to the sale of the Kirkhill business assets

•

Partially offset by:

•

Higher sales volumes of defense technologies of $2 million mainly due to higher sales volumes of combustible ordnance

•

Higher sales volumes of engineered materials of $3 million mainly for clamping devices of $2 million and long-term contracts of $2 million, principally due to the U.K. Hinkley Point - C Nuclear Plant project

•

Favorable effect due to the adoption of ASC 606 of $6 million

Overall, gross margin was 34.3% and 30.6% for the first three months of fiscal 2019 and 2018, respectively. Gross profit was $166.1 million and $147.7 million for the first three months of fiscal 2019 and 2018, respectively. Gross profit and gross margin percentage by segment were as follows:

In Thousands		Three Months Ended
	Increase (Decrease)	December 28,			December 29,
	From Prior Year	2018			2017

Avionics & Controls	12.0%	$	71,676		$	63,992
Sensors & Systems	11.6%		61,307			54,948
Advanced Materials	15.1%		33,147			28,789
Total Gross Profit		$	166,130		$	147,729

Avionics & Controls	2.4%		34.0	%		31.6	%
Sensors & Systems	2.9%		34.2	%		31.3	%
Advanced Materials	7.3%		35.0	%		27.7	%
Gross Margin Percentage			34.3	%		30.6	%

The ~~following~~$7.7 million isincrease ain ~~roll~~Avionics ~~forward~~& ofControls ~~sales and~~ gross profit ~~from~~is ~~the~~mainly ~~nine~~due ~~months ended June 30, 2017,~~ to the ~~nine months ended June 29, 2018~~following:

In Thousands	Avionics &			Sensors &			Advanced
	Controls			Systems			Materials			Total
Sales:
Nine months ended June 30, 2017	$	615,143		$	535,287		$	321,224		$	1,471,654
Foreign currency gain (loss)		7,840			22,413			5,622			35,875
Forward contract gain (loss)		9,003			9,323			-			18,326
Sales volume		(5,682	)		(2,507	)		22,936			14,747
Sale of business		-			-			(41,057	)		(41,057	)
Nine months ended June 29, 2018	$	626,304		$	564,516		$	308,725		$	1,499,545
Gross Profit:
Nine months ended June 30, 2017		202,472			195,758			95,587			493,817
Foreign currency gain (loss)		(353	)		(1,179	)		1,352			(180	)
Forward contract gain (loss)		9,022			9,323			-			18,345
Volume/mix		(3,103	)		(8,373	)		5,767			(5,709	)
Lower (higher) manufacturing costs		(2,674	)		(12,252	)		2,430			(12,496	)
Business integration		313			-			-			313
Inventory cost and EAC adjustment		1,590			(196	)		-			1,394
Sale of business		-			-			(11,848	)		(11,848	)
Other		(3,500	)		1,847			-			(1,653	)
Nine months ended June 29, 2018	$	203,767		$	184,928		$	93,288		$	481,983

•

Favorable sales volume/mix of $6 million mainly on sales of control and communication systems

~~The~~• ~~following~~Lower ~~table~~manufacturing ~~shows~~expenses ~~the~~of ~~average~~$2 ~~foreign~~million ~~exchange~~mainly ~~rates~~at ~~for~~interface ~~the British pound, Canadian dollar and European euro relative to the U.S. dollar for the three and nine months ended June 29, 2018, and June 30, 2017.~~technologies

	Three Months Ended					Nine Months Ended
	June 29,		June 30,			June 29,		June 30,
	2018			2017	Change	2018		2017		Change
GBP to USD		1.3566		1.2847	5.6%		1.3612		1.2591	8.1%
CAD to USD		0.7732		0.7457	3.7%		0.7861		0.7497	4.9%
EUR to USD		1.1927		1.1040	8.0%		1.2013		1.0825	11.0%

The $6.4 million increase in Sensors & Systems gross profit principally reflected the following:

~~The~~• ~~following~~Higher ~~table~~sales ~~shows~~volume/mix ~~the impact~~ of ~~changes~~$4 inmillion ~~the foreign currency exchange rates for the British pound, Canadian dollar and European euro relative to the U.S. dollar~~ on sales, ~~gross~~of ~~profit,~~advanced ~~and operating earnings during the three months ended June 29, 2018, compared with the prior-year period.~~sensors

In Thousands	Avionics &		Sensors &			Advanced
	Controls		Systems			Materials			Total
Sales:
Foreign currency gain (loss)	$	2,679	$	5,896		$	1,359		$	9,934
Forward contract gain (loss)		1,322		2,403			-			3,725
	$	4,001	$	8,299		$	1,359		$	13,659
Gross Profit:
Foreign currency gain (loss)	$	987	$	(387	)	$	294		$	894
Forward contract gain (loss)		1,251		2,403			-			3,654
	$	2,238	$	2,016		$	294		$	4,548
Operating Earnings (Loss):
Foreign currency gain (loss)	$	1,971	$	970		$	2,577		$	5,518
Forward contract gain (loss)		9		1,926			(3,262	)		(1,327	)
	$	1,980	$	2,896		$	(685	)	$	4,191

•

Higher sales volume/mix of $4 million on sales of connection technologies systems of $2 million and on sales of power systems of $2 million

•

Favorable effects from the adoption of ASC 606 of $1 million

•

Partially offset by an unfavorable effect of changes in foreign currency rates of $3 million

The $4.4 million increase in Advanced Materials gross profit principally reflected the following:

•

Higher sales volume/mix of $2 million mainly due to higher sales of engineered materials

•

Increase in gross profit of $2 million due to the sale of the Kirkhill business assets

•

Favorable effect from the adoption of ASC 606 of $2 million

•

Partially offset by higher manufacturing costs of $2 million mainly at our Valencia, California engineered materials plant.

Selling, general and administrative expenses (which include corporate expenses) totaled $92.7 million, or 19.1% of sales, and $99.9 million, or 20.7% of sales, for the first three months of fiscal 2019 and 2018, respectively. The decrease in selling, general and administrative expense mainly reflected the following:

•

A $2 million favorable effect of changes in foreign currency rates

•

A $2 million write-off of capitalized software costs in the prior-year period

•

A $3 million decrease due to the sale of the Kirkhill business

Research, development and engineering spending was $20.4 million, or 4.2% of sales, for the first three months of fiscal 2019 compared with $26.0 million, or 5.4% of sales, for the first three months of fiscal 2018. The $5.6 million decrease in research, development and engineering principally reflected lower levels of expense in fiscal 2019 as certain aircraft programs moved into production over the course of fiscal 2018.

Segment earnings (operating earnings excluding corporate expenses and other income or expense) for the first three months of fiscal 2019 totaled $72.5 million, or 14.9% of sales, compared with $44.6 million, or 9.3% of sales, for the first three months in fiscal 2018. Segment earnings by segment were as follows:

In Thousands		Three Months Ended
	Increase (Decrease)	December 28,			December 29,
	From Prior Year	2018			2017

Avionics & Controls	52.7%	$	29,293		$	19,181
Sensors & Systems	100.1%		23,053			11,522
Advanced Materials	44.8%		20,125			13,898
Total Segment Earnings		$	72,471		$	44,601

Avionics & Controls	4.4%		13.9	%		9.5	%
Sensors & Systems	6.2%		12.8	%		6.6	%
Advanced Materials	7.8%		21.2	%		13.4	%
Segment Earnings Percentage			14.9	%		9.3	%

The $10.1 million increase in Avionics & Controls segment earnings mainly reflected the following:

•

An $8 million increase in gross profit

•

A $3 million decrease in research, development and engineering mainly for avionics systems

•

A $2 million favorable effect of changes in foreign currency exchange rates on operating expenses

•

Partially offset by a $3 million license fee from licensing certain legacy avionics controls to a third-party manufacturer recognized in the prior-year period

The $11.5 million increase in Sensors & Systems segment earnings mainly reflected the following:

•

A $6 million increase in gross profit

•

A $1 million favorable effect of changes in foreign currency exchange rates

~~The~~• ~~following~~A ~~table~~$3 ~~shows~~million ~~the~~decrease ~~impact of changes~~ in ~~the foreign currency exchange rates for the British pound~~selling, ~~Canadian~~general ~~dollar~~ and ~~European~~administrative ~~euro~~expense ~~relative~~mainly due to the ~~U.S.~~write-off ~~dollar~~of oncapitalized ~~sales,~~software ~~gross~~costs ~~profit,~~in ~~and operating earnings during~~ the ~~nine months ended June 29, 2018, compared with the~~ prior-year period.

In Thousands	Avionics &			Sensors &			Advanced
	Controls			Systems			Materials			Total
Sales:
Foreign currency gain (loss)	$	7,840		$	22,413		$	5,622		$	35,875
Forward contract gain (loss)		9,003			9,323			-			18,326
	$	16,843		$	31,736		$	5,622		$	54,201
Gross Profit:
Foreign currency gain (loss)	$	(353	)	$	(1,179	)	$	1,352		$	(180	)
Forward contract gain (loss)		9,022			9,323			-			18,345
	$	8,669		$	8,144		$	1,352		$	18,165
Operating Earnings (Loss):
Foreign currency gain (loss)	$	(2,526	)	$	(8,189	)	$	3,594		$	(7,121	)
Forward contract gain (loss)		7,335			9,113			(1,884	)		14,564
	$	4,809		$	924		$	1,710		$	7,443

•

A $2 million decrease in research, development and engineering for power systems developments

~~Results~~The of$6.2 million ~~Operations~~increase in Advanced Materials segment earnings reflected the following:

~~Three~~• ~~Months~~A ~~Ended~~$4 ~~June 29,~~million ~~2018,~~increase ~~Compared~~in ~~with~~gross ~~Three Months Ended June 30, 2017~~profit

~~Total~~• ~~sales~~A ~~for~~$3 ~~the~~million ~~third~~decrease ~~quarter~~in ofoperating ~~fiscal~~expenses ~~2018~~due ~~decreased~~to bythe ~~$4.2 million,~~sale orof ~~0.8%, over~~ the ~~prior-year~~Kirkhill ~~period. Sales by segment were as follows:~~business

In Thousands		Three Months Ended
	Increase (Decrease)	June 29,		June 30,
	From Prior Year	2018		2017
Avionics & Controls	0.8%	$	210,787	$	209,168
Sensors & Systems	3.3%		190,895		184,804
Advanced Materials	(10.8)%		98,189		110,135
Total Net Sales		$	499,871	$	504,107

•

Partially offset by a $1 million increase in operating expenses at defense technologies due to a December 18, 2018, energetic incident, further described in the “Overview” section above.

~~The~~Interest expense for the first three months of fiscal 2019 was $1.6.8 million ~~increase~~compared inwith ~~Avionics~~$7.6 &million ~~Controls~~for ~~sales~~the ~~over~~first ~~the~~three ~~prior-year~~months ~~period~~of fiscal 2018. The decrease in interest expense mainly reflected ~~the~~lower ~~following:~~borrowings, partially offset by a higher interest rate.

•As ~~Higher~~explained ~~sales~~in ~~volumes~~Note 9 to the Consolidated Financial Statements included in Part 1, Item 1 of ~~control~~this report, the Act was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and ~~communication~~creates ~~systems~~new taxes on certain foreign sourced earnings. In fiscal 2018 the Company recorded a provisional net charge of $849.9 million related to the Act based on reasonable estimates for those tax effects. We have now completed our accounting estimates for all of the enactment-date income tax effects of the Act in accordance with the SAB 118 measurement period. In the first quarter of fiscal 2019, ~~principally~~we ~~due~~recorded toa ~~aftermarket~~tax ~~and~~benefit ~~commercial~~of ~~aviation~~$0.2 million, ~~OEM~~resulting ~~demand~~in a total net charge of $49.7 million.

•The ~~Favorable~~income ~~effect~~tax rate for the first quarter of ~~changes~~fiscal in2019 ~~foreign~~was ~~currency~~25.0%. ~~exchange~~The ~~rates~~income tax rate for the first quarter of $4fiscal ~~million~~2018 was 26.9% and was 278.3% after the effect of the provision taxes due to the Act.

•During ~~Partially~~the ~~offset~~next by12 ~~lower~~months, ~~sales~~it ~~volumes~~is ofreasonably ~~avionics~~possible ~~systems~~that ofapproximately $10 0.8 million ~~principally~~of ~~due~~tax tobenefits ~~decreased~~that ~~sales~~are ofcurrently aunrecognized ~~defense~~could ~~time~~be ~~and~~recognized ~~material~~as ~~contract~~a ~~and~~result ~~lower~~of ~~simulation~~settlement ~~sales.~~of ~~Additionally,~~examinations ~~avionics~~and/or ~~systems sales in~~ the ~~third~~expiration ~~fiscal~~of ~~quarter~~applicable statutes of ~~2018~~limitations. We ~~were~~recognize ~~impacted~~interest byrelated ato ~~13-day~~unrecognized ~~work~~tax ~~stoppage~~benefits atin ~~our~~income ~~Canada~~tax ~~operation~~expense.

~~The~~Backlog was $1.6 billion at December 28, 2018, $1.5 billion at September 28, 2018, and $1.4 ~~million~~billion ~~increase~~at inDecember 29, ~~Sensor~~2017. New &orders ~~Systems~~for ~~sales~~the ~~over~~first three months of fiscal 2019 were approximately $607.0 million compared with $565.8 million in the prior-year period, ~~principally~~mainly ~~reflected~~due ~~the~~to ~~following:~~a $116 million U.K. Hinkley Point - C Nuclear Plant project within our Advanced Materials segment.

• Favorable effect of changes in foreign currency exchange rates of $8 million

• Higher sales of connection technologies of $2 million mainly for commercial aviation and defense applications

• Partially offset by

• Lower sales of power systems of $2 million principally due to the completion of an FAA requirement for ground fault interrupt (GFI) relays in fiscal 2017

• Lower sales of advanced sensors of $2 million mainly due to decreased OEM sales for commercial aviation

The $11.9 million decrease in sales in Advanced Materials over the prior-year period mainly reflected the following:

• Lower sales of $23 million due to the sale of the Kirkhill business

• Partially offset by

• Higher sales of engineered products of $5 million, mainly for elastomer clamping devices

• Higher sales volumes of defense technologies of $5 million mainly due to production and delivery challenges experienced at our countermeasures business in the prior-year period

• Favorable effect of changes in foreign currency exchange rates of $1 million

Overall, gross margin was 34.0% and 34.5% for the third quarter of fiscal 2018 and 2017, respectively. Gross profit was $169.9 million and $173.7 million for the third quarter of fiscal 2018 and 2017, respectively. Gross profit and gross margin percentage by segment were as follows:

In Thousands		Three Months Ended
	Increase (Decrease)	June 29,			June 30,
	From Prior Year	2018			2017
Avionics & Controls	(0.3)%	$	70,953		$	71,188
Sensors & Systems	(7.5)%		64,258			69,496
Advanced Materials	5.1%		34,709			33,015
Total Gross Profit		$	169,920		$	173,699
Avionics & Controls	(0.3)%		33.7	%		34.0	%
Sensors & Systems	(3.9)%		33.7	%		37.6	%
Advanced Materials	5.3%		35.3	%		30.0	%
Gross Margin Percentage			34.0	%		34.5	%

The $0.2 million decrease in Avionics & Controls gross profit is mainly due to the following:

• Unfavorable avionics systems sales volume/mix of $4 million mainly for displays

• Partially offset by

• Higher sales volumes/mix of $2 million mainly due to control and communication systems and interface technologies

• Favorable effect of changes in foreign currency exchange rates of $2 million

The $5.2 million decrease in Sensors & Systems gross profit principally reflected the following:

• Lower power systems sales volume and unfavorable product mix of $3 million and increased manufacturing costs of $3 million

• Partially offset by favorable effect of changes in foreign currency exchange rates of $2 million

The $1.7 million increase in Advanced Materials gross profit principally reflected the following:

• Higher sales volumes of engineered materials of $2 million

• Higher sales volume of combustible ordnance and flare countermeasure devices of $1 million

• Partially offset by gross profit of $1 million earned by Kirkhill in the prior-year period

Selling, general and administrative expenses (which include corporate expenses) totaled $98.9 million, or 19.8% of sales, and $93.6 million, or 18.6% of sales, for the third quarter of fiscal 2018 and 2017, respectively. The increase in selling, general and administrative expense was mainly due higher benefit costs for health and welfare of $2 million, severance of $2 million, and professional fees of $2 million mainly driven by government contract data security compliance requirements, the on-going remediation of the material weakness in the design and operation of internal control over financial reporting previously reported on our 2017 Form 10-K/A, and the absence of a bonus expense reversal in the prior-year period of $2 million. These increases were partially offset by the effect of the sale of the Kirkhill business of $3 million.

Research, development and engineering spending was $22.8 million, or 4.6% of sales, for the third quarter of fiscal 2018 compared with $30.2 million, or 6.0% of sales, for the third quarter of fiscal 2017. The $7.4 million decrease in research, development and engineering principally reflected lower spending in the Avionics & Controls and Sensors & Systems segments in the third quarter of fiscal 2018 as programs moved from development into production. Management expects that the full year research, development and engineering expense will be slightly less than 5% of sales.

Segment earnings (operating earnings excluding corporate expenses and other income or expense) for the third quarter of fiscal 2018 totaled $67.1 million, or 13.4% of sales, compared with $65.9 million, or 13.1% of sales, for the third quarter in fiscal 2017. Segment earnings by segment were as follows:

In Thousands		Three Months Ended
	Increase (Decrease)	June 29,			June 30,
	From Prior Year	2018			2017
Avionics & Controls	5.7%	$	23,781		$	22,496
Sensors & Systems	(13.5)%		22,135			25,587
Advanced Materials	19%		21,152			17,780
Total Segment Earnings		$	67,068		$	65,863
Avionics & Controls	0.5%		11.3	%		10.8	%
Sensors & Systems	(2.2)%		11.6	%		13.8	%
Advanced Materials	5.4%		21.5	%		16.1	%
Segment Earnings Percentage			13.4	%		13.1	%

The $1.3 million increase in Avionics & Controls segment earnings mainly reflected the following:

• A $3 million decrease in research, development and engineering expenses mainly for cockpit control applications

• Partially offset by increased selling, general and administrative expenses of $2 million

The $3.5 million decrease in Sensors & Systems segment earnings mainly reflected the following:

• A $5 million decrease in gross profit (including a $2 million favorable effect of changes in foreign currency exchange rates)

• A $3 million increase in selling, general and administrative expense mainly due to severance and bad debt expense

• Partially offset by

• A $4 million decrease in research, development and engineering expenses for power systems

• A $1 million favorable effect of changes in foreign currency exchange rates on operating expenses

The $3.4 million increase in Advanced Materials segment earnings mainly reflected the following:

• A $2 million increase in gross profit

• A $4 million decrease in operating expenses due to the sale of the Kirkhill business

• Partially offset by

• A $1 million unfavorable effect of changes in foreign currency exchange rates on operating expenses

• A $1 million increase in selling, general and administrative expense

Interest expense for the third quarter of fiscal 2018 was $7.9 million compared with $7.3 million for the third quarter of fiscal 2017. The increase in interest expense mainly reflected a higher interest rate.

Nine Months Ended June 29, 2018, Compared with Nine Months Ended June 30, 2017

Total sales for the first nine months of fiscal 2018 increased by $27.9 million, or 1.9%, over the prior-year period. Sales by segment were as follows:

In Thousands		Nine Months Ended
	Increase (Decrease)	June 29,		June 30,
	From Prior Year	2018		2017
Avionics & Controls	1.8%	$	626,304	$	615,143
Sensors & Systems	5.5%		564,516		535,287
Advanced Materials	(3.9)%		308,725		321,224
Total Net Sales		$	1,499,545	$	1,471,654

The $11.2 million increase in Avionics & Controls sales over the prior-year period mainly reflected the following:

• Favorable effect of changes in foreign currency exchange rates of $17 million

• Higher sales volumes of $19 million in control and communication systems principally for the aftermarket and for OEM commercial aviation

• Partially offset by

• Lower sales of interface technologies of $10 million, principally due to lower demand for medical applications nearing end of life and engineering development services for medical devices

• Lower sales of avionics systems of $15 million primarily due to decreased sales mainly for defense applications of $12 million and a one-time order in the prior-year period for satellite communication devices of $3 million

The $29.2 million increase in Sensors & Systems sales over the prior-year period principally reflected the following:

• Favorable effect of changes in foreign currency exchange rates of $32 million

• Higher sales volumes of connection technologies of $6 million mainly for industrial applications

• Partially offset by

• Lower sales of power systems of $8 million principally due to the completion of an FAA requirement for GFI relays in fiscal 2017 and lower spare sales for the A400M program

• A $2 million sales reduction on advanced sensors due to late delivery

The $12.5 million decrease in sales in Advanced Materials over the prior-year period mainly reflected the following:

• Lower sales of $41 million due to the sale of the Kirkhill business

• Partially offset by

• Higher engineered materials sales mainly for insulation materials for commercial aviation applications of $6 million

• Higher sales volumes of defense technologies of $17 million mainly due to the countermeasures operations returning to full production, as we recovered from a partial factory shutdown in the prior-year period and increased sales of combustible ordnance

• Favorable effect of changes in foreign currency exchange rates of $6 million

Overall, gross margin was 32.1% and 33.6% for the first nine months of fiscal 2018 and 2017, respectively. Gross profit was $482.0 million and $493.8 million for the first nine months of fiscal 2018 and 2017, respectively. Gross profit and gross margin percentage by segment were as follows:

In Thousands		Nine Months Ended
	Increase (Decrease)	June 29,			June 30,
	From Prior Year	2018			2017
Avionics & Controls	0.6%	$	203,767		$	202,472
Sensors & Systems	(5.5)%		184,928			195,758
Advanced Materials	(2.4)%		93,288			95,587
Total Gross Profit		$	481,983		$	493,817
Avionics & Controls	(0.4)%		32.5	%		32.9	%
Sensors & Systems	(3.8)%		32.8	%		36.6	%
Advanced Materials	0.4%		30.2	%		29.8	%
Gross Margin Percentage			32.1	%		33.6	%

The $1.3 million increase in Avionics & Controls gross profit mainly reflected the following:

• Favorable effect of changes in foreign currency exchange rates of $9 million

• Higher gross profit of $6 million on increased sales of control and communication systems for the aftermarket

• Lower manufacturing costs of $1 million at interface technologies

• Partially offset by

• Higher manufacturing costs of $7 million due to a low rate of initial production of control and communication systems for new programs

• Unfavorable sales volume/mix of $5 million on displays and higher engineering of $3 million mainly due to startup of a new program

The $10.8 million decrease in Sensors & Systems gross profit principally reflected the following:

• Unfavorable sales volume and product mix of $10 million mainly due to lower power systems GFI relay sales

• Higher manufacturing costs at power systems of $10 million due to higher material, labor and overhead costs of $8 million and inventory excess and obsolete adjustments of $2 million

• Partially offset by

• Favorable effect of changes in foreign currency exchange rates of $8 million

• Higher sales volume of connection technologies of $2 million

The $2.3 million decrease in Advanced Materials gross profit principally reflected the following:

• Lower gross profit of $12 million due to the sale of the Kirkhill business

• Partially offset by

• Higher sales volume/mix mainly due to countermeasures of $8 million

• Favorable effect of changes in foreign currency exchange rates of $1 million

Selling, general and administrative expenses (which include corporate expenses) totaled $299.8 million, or 20.0% of sales, and $286.6 million, or 19.5% of sales, for the first nine months of fiscal 2018 and 2017, respectively. The increase in selling, general and administrative expense was mainly due to the following:

• Unfavorable effect of changes in foreign currency exchange rates of $8 million

• Higher professional fees of $7 million mainly for higher information technologies expenses driven by government contract data security compliance requirements

• Higher benefit costs for health and welfare of $3 million

• A $2 million write-off of capitalized software costs

• Partially offset by

• A $3 million decrease in selling, general and administrative expense due to the sale of the Kirkhill business

• Lower pension expense of $3 million

• Prior-year bad debt for a long-term contract of $2 million

Research, development and engineering spending was $73.4 million, or 4.9% of sales, for the first nine months of fiscal 2018 compared with $80.9 million, or 5.5% of sales, for the first nine months of fiscal 2017. The decrease in research, development and engineering spending mainly reflected lower expense on Avionics & Controls and Sensors & Systems programs. Management expects that the full year research, development and engineering expense will be slightly less than 5% of sales.

Segment earnings (operating earnings excluding corporate expenses and other income or expense) for the first nine months of fiscal 2018 totaled $166.2 million, or 11.1% of sales, compared with $187.3 million, or 12.7% of sales, for the first nine months of fiscal 2017. Segment earnings by segment were as follows:

In Thousands		Nine Months Ended
	Increase (Decrease)	June 29,			June 30,
	From Prior Year	2018			2017
Avionics & Controls	10.9%	$	67,839		$	61,185
Sensors & Systems	(24.2)%		53,119			70,087
Advanced Materials	(19.1)%		45,288			55,982
Total Segment Earnings		$	166,246		$	187,254
Avionics & Controls	0.9%		10.8	%		9.9	%
Sensors & Systems	(3.7)%		9.4	%		13.1	%
Advanced Materials	(2.7)%		14.7	%		17.4	%
Segment Earnings Percentage			11.1	%		12.7	%

The $6.7 million increase in Avionics & Controls segment earnings mainly reflected the following:

• License fee income of $5 million from licensing certain legacy avionics components to third-party manufacturers

• A $1 million increase in gross profit (including a $9 million favorable effect of changes in foreign currency exchange rates)

• A $3 million decrease in operating expenses mainly due to lower research, development and engineering expense mainly for control and communication programs

• A prior-year period $2 million bad debt expense related to an avionics systems program

• Partially offset by a $4 million unfavorable effect of changes in foreign currency exchange rates on operating expenses

The $17.0 million decrease in Sensors & Systems segment earnings mainly reflected the following:

• A $7 million unfavorable effect of changes in foreign currency exchange rates on operating expenses

• An $11 million decrease in gross profit (including an $8 million favorable effect of changes in foreign currency exchange rates)

• A $6 million increase in selling, general and administrative expense mainly due to a $2 million write-off of capitalized software costs and severance expense

• Partially offset by a $7 million decrease in research, development and engineering for power system developments

The $10.7 million decrease in Advanced Materials segment earnings reflected the following:

• A prior-year period $8 million insurance recovery from an incident at one of our countermeasure operations

• A $5 million loss on the sale of the Kirkhill business

• A $2 million decrease in gross profit

• Partially offset by a $5 million decrease in operating expenses due to the sale of the Kirkhill business

Interest expense for the first nine months of fiscal 2018 was $23.7 million compared with $22.6 million for the first nine months of fiscal 2017. The increase in interest expense largely reflected a higher interest rate.

As explained in Note 10 to the Consolidated Financial Statements included in Part 1, Item 1 of this report, the Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. We recorded a provisional amount related to the remeasurement of our deferred income tax balance of $6.6 million and a provisional amount related to our one-time transition tax liability of $42.0 million. We expect that the provisional tax liability of $42.0 million will be paid over an eight-year period.

The income tax rate for the first nine months of fiscal 2018 was 77.4% mainly due to the effect of the Act. In addition, the income tax rate for the first nine months of fiscal 2018 also reflected a $4.6 million tax benefit from a release of a capital loss valuation reserve due to a realized capital gain upon the sale of the Kirkhill business.

By operation of law, the statutory income tax rate for the first nine months of fiscal 2018 reflected a blended U.S. tax rate of 24.5%.

We estimate that our income tax rate for fiscal 2018, excluding the $48.6 million provisional amount recognized for the one-time transition income tax, will range from 25% to 27%. Our income tax rate for fiscal 2018 reflects the fact that a significant portion of our earnings from continuing operations before income taxes is earned by our foreign operations and the income tax rate for these foreign operations will range from 26% to 27%. The Company conducts business in numerous tax jurisdictions, principally in Canada, France, U.K. and U.S. As a result, the Company’s income tax rate for the first fiscal quarter of 2018 reflects the estimated annual global effective tax rate, excluding discrete items, applied to year-to-date pre-tax earnings.

During the next 12 months, it is reasonably possible that approximately $1.0 million of tax benefits that are currently unrecognized could be recognized as a result of settlement of examinations and/or the expiration of applicable statutes of limitations. We recognize interest related to unrecognized tax benefits in income tax expense.

Backlog was $1.5 billion at June 29, 2018, $1.3 billion at September 29, 2017, and $1.2 billion at June 30, 2017. New orders for the first nine months of fiscal 2018 were approximately $1.7 billion compared with $1.4 billion in the prior-year period reflecting an increase in all segments. The increase in orders reflects strong demand across all three segments, mainly for orders scheduled to be shipped beyond fiscal 2018.

Liquidity and Capital Resources

Cash and cash equivalents at ~~June~~December 2928, 2018, totaled $~~351~~391.02 million, an increase of $4318.28 million from September 2928, ~~2017~~2018. Net working capital increased to $~~904~~944.71 million at ~~June~~December 2928, 2018, from $~~874~~900.9 million at September 2928, ~~2017~~2018. 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 $~~119~~20.47 million and $~~138~~62.94 million in the first ~~nine~~three months of fiscal ~~2018~~2019 and ~~2017~~2018, respectively. The decrease in cash flows from operating activities is primarily ~~attributable~~from toincreased working capital primarily from increases in inventory and lower ~~net~~rate ~~earnings~~of collection of receivables in fiscal 2019 compared to fiscal 2018.

Cash flows ~~provided~~used by investing activities were $96.09 million in the first ~~nine~~three months of fiscal ~~2018~~2019, ~~and~~mainly ~~reflected~~reflecting ~~the~~capital expenditures of $4711.81 million, ~~proceeds~~partially ~~from~~offset by the sale of ~~the~~a ~~Kirkhill~~building ~~business,~~for ~~partially offset by capital expenditures~~$4.3 million. Cash flows used by investing activities ~~were $41.6 million~~ in the first ~~nine~~three months of fiscal ~~2017~~2018 ~~and~~of ~~principally~~$13.4 million ~~reflected~~were primarily for capital expenditures.

29Cash flows provided by financing activities were $14.6 million in the first three months of fiscal 2019, mainly reflecting proceeds provided by stock issuance of common stock under our employee stock plans.

Cash flows used by financing activities were $763.50 million in the first ~~nine~~three months of fiscal 2018, mainly reflecting:

• $7020.04 million ~~repayment~~for ofshares ~~borrowing under our long-term credit facilities~~repurchased

• $~~43.~~5.0 million ~~for~~repayment ~~shares~~of ~~repurchased~~borrowing under our long-term credit facilities

• $103.76 million repayment of long-term debt

•

Partially offset by:

• $4525.0 million in proceeds from borrowing under our long-term credit facilities

• $3.1.2 million in proceeds from the issuance of common stock under our employee stock plans

~~Cash~~Total ~~flows~~debt ~~used~~at byDecember 28, ~~financing~~2018, ~~activities~~was ~~were~~$664.3 million and consisted of $77180.10 million inof the ~~first~~U.S. ~~nine~~Term ~~months~~Loan, due 2020, $377.6 million (€330.0 million) of ~~fiscal~~the ~~2017~~2023 Notes, $68.7 million under capital lease obligations, $41.4 million in government refundable advances and ~~mainly~~net ~~reflected:~~of debt issuance costs of $3.4 million.

~~• $95.0 million repayment of borrowing under our long-term credit facilities~~24

•The transition tax liability of $1239.9 5 million ~~repayment~~is ofbeing ~~long~~paid over an eight-~~term~~year ~~debt~~period, starting in fiscal year 2019.

• Partially offset by:

• $26.9 million in proceeds from the issuance of common stock under our employee stock plans

• $5.0 million in proceeds from borrowing under our long-term credit facilities

Capital expenditures, consisting of building, machinery, equipment and computers, are anticipated to be $65 million during fiscal 2018, compared with $58.0 million expended in fiscal 2017.

Total debt at June 29, 2018, was $736.1 million and consisted of $215.6 million of the U.S. Term Loan, due 2020, $385.5 million (€330.0 million) of the 2023 Notes, $25.0 million in borrowings under our secured credit facility, $69.8 million under capital lease obligations, $44.1 million in government refundable advances and net of debt issuance costs of $3.9 million.

We expect that the provisional tax liability of $42.0 million will be paid over an eight-year period.

We believe cash on hand and funds generated from operations and borrowing capacity available under our debt facilities are sufficient to fund 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 Report on Form 10-K/A for the fiscal year ended September 2928, ~~2017~~2018, that may cause our or the industry’s 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.

This quarterly report on Form 10-Q also includes forward-looking statements regarding the proposed acquisition of the Company by TransDigm. Actual results may differ materially from those projected as a result of certain risks and uncertainties relating to the proposed Merger, including but not limited to: (1) the ability to (i) receive (if not waived) the required regulatory or other foreign investment approvals for the Merger (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transactions) and (ii) satisfy the other conditions to the consummation of the Merger on a timely basis or at all; (2) the outcome of consultation with employees, their works councils or other employee representatives; (3) the potential that a governmental entity or a regulatory body may prohibit, delay or refuse to grant approval for the consummation of the Merger and may require conditions, limitations or restrictions in connection with such approvals that can adversely affect the anticipated benefits of the proposed Merger or cause the parties to abandon the proposed Merger; (4) unexpected or significant transaction costs and/or unknown liabilities; (5) negative effects of the announcement or the consummation of the transaction on the market price of the Company’s common stock, its business (including relationships with customers, suppliers or other business relationship), financial conditions, results of operations and financial performance; (6) risks associated with legal proceedings related to the Merger and the outcome of any legal proceedings related to the Merger; (7) adverse effects of general industry, economic, business, and/or competitive factors; (8) unforeseen events, changes or other circumstances that could give rise to the termination of the Merger Agreement or affect the ability to recognize benefits of the Merger; (9) the potential that the proposed Merger may disrupt current plans and operations and present potential difficulties in employee retention as a result of the Merger; (10) other risks to consummation of the Merger, including the risk that the Merger will not be consummated within the expected time period or at all; and (11) the risks described from time to time in the Company’s reports filed with the SEC under the heading “Risk Factors,” including the Annual Report on Form 10-K for the fiscal year ended September 28, 2018, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and in other of the Company’s filings with the SEC. These risks, as well as other risks associated with the proposed Merger, are more fully discussed in the definitive proxy statement filed by the Company with the SEC on November 30, 2018, in connection with the proposed Merger. There can be no assurance that the Merger will be completed, or if it is completed, that it will close within the anticipated time period or that the expected benefits of the Merger will be realized.

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in our exposure to market risk during the first ~~nine~~three months of fiscal ~~2018~~2019. A discussion of our exposure to market risk is provided in the Company’s Report on Form 10-K/A for the fiscal year ended September 2928, ~~2017~~2018.

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 ~~June~~December 2928, 2018. As described in Management’s Report on Internal Control over Financial Reporting in Item 9A of the Company’s Annual Report on Form 10-K/A for the fiscal year ended September 2928, ~~2017~~2018, we reported two material weaknesses in internal control over financial reporting that existed as of September 2928, ~~2017~~2018.

~~Financial~~In ~~personnel~~fiscal at2017 ~~our~~we ~~U.S.~~had ~~power~~a ~~systems~~material ~~business~~weakness ~~unit~~associated ~~directed~~with ~~financial accountants to make improper accounting entries in the financial records, which were contrary to~~ our ~~internal~~intercompany ~~accounting policies and circumvented our internal controls over the~~ reconciliation ofprocess ~~intercompany~~between ~~charges~~entities ~~between~~within our ~~French and~~ U.S. power systems business ~~units~~unit. In We ~~addition,~~also ~~our~~had ~~monitoring~~a ~~controls~~material atweakness ~~our~~associated ~~power~~with ~~systems business units failed to detect these errors, and accordingly,~~ our ~~control~~monitoring ~~over the review~~ and ~~approval of power systems~~ financial ~~statements~~statement ~~and~~close ~~intercompany~~process ~~account~~at ~~reconciliations~~our ~~was not effective~~U. ~~These~~S. ~~material~~power ~~weaknesses~~system ~~resulted~~business ~~in misstatements in the financial results for fiscal 2017, fiscal 2016 and fiscal 2015 reported in our annual report on Form 10-K for~~ unit.

3025

~~fiscal~~These ~~2017~~material ~~filed~~weaknesses onin ~~November~~our internal control over financial reporting were not remediated as of December 2128, ~~2017,~~2018. As ~~with~~a ~~the~~result, ~~Securities~~our ~~and~~Chief ~~Exchange~~Executive ~~Commission~~Officer and ~~required~~Chief ~~adjustments~~Financial Officer concluded that ~~were~~our ~~included~~disclosure incontrols ~~our~~and ~~fiscal~~procedures ~~2017~~were ~~Form~~not ~~10-K/A~~effective as of December 28, 2018.

~~These~~Remediation ~~material~~Efforts ~~weaknesses~~to inAddress ~~our~~Material internal control over financial reporting were not remediated as of June 29, 2018. As a result, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of June 29, 2018.Weaknesses

Remediation of Material Weaknesses

The Board of Directors and management are fully committed to maintaining a strong internal control environment. The Company has taken and will continue to take significant and comprehensive actions to remediate the material weaknesses in internal control over financial reporting.

~~Our~~We ~~power~~have ~~systems~~enhanced ~~business~~and ~~units~~ will ~~implement~~continue to enhance our ~~policies~~design, documentation and ~~procedures~~execution ~~over~~of the ~~reconciliation~~controls ofassociated with the intercompany ~~transactions~~reconciliation process. WeIn ~~continue~~addition, towe ~~monitor~~have ~~the~~improved ~~reconciliation control execution~~ and will ~~make~~continue ~~further~~to ~~changes~~improve asour ~~necessary. Additionally,~~monitoring weand ~~are~~financial ~~enhancing~~statement ~~our~~close ~~monitoring~~process ~~controls~~as ~~and~~well as our analytical procedures ~~over~~for reviewing ~~business~~U.S. power systems unit financial statements. Such steps include and will continue to include the use of incremental resources and additional training of our personnel.

We ~~replaced~~believe the ~~financial~~remediation ~~staff~~steps atoutlined above have improved and will continue to improve the effectiveness of our Uinternal control over financial reporting.~~S.-based~~ While ~~power~~we ~~systems~~have ~~unit~~made ~~with~~substantial aprogress ~~new~~on ~~platform~~strengthening ~~finance~~our ~~director~~internal controls relative to the material weaknesses, ~~unit~~we ~~finance~~have ~~director~~not ~~and~~fully ~~controller~~tested ~~with~~all ~~appropriate~~of ~~levels~~U.S. power systems business unit remediation actions to verify the effectiveness of ~~experience~~their design or operation.

~~Subject~~The toBoard ~~these~~of ~~remediation~~Directors ~~efforts,~~and ~~there~~management ~~have~~believe ~~been~~that ~~no significant changes in~~ the Company’s ~~internal~~remediation ~~control~~actions ~~over~~will ~~financial~~provide ~~reporting~~an ~~during~~appropriate ~~the~~control ~~period~~environment ~~covered~~going byforward ~~this~~once ~~report~~the ~~that~~material ~~have~~weaknesses ~~materially~~disclosed ~~affected,~~herein or are ~~reasonably~~remediated ~~likely~~and toother ~~materially~~actions ~~affect,~~described ~~our~~herein ~~internal~~have ~~control~~been ~~over financial reporting~~taken.

As our management continues to evaluate and work to continue to improve our disclosure controls and procedures and internal control over financial reporting, we may determine to take additional measures to address these deficiencies or determine to modify certain of the remediation measures described above.

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.

See Note 1211 to the Consolidated Financial Statements included in Part 1, Item 1 of this report for information regarding legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)	Not applicable.

(b)	Not applicable.

(c)	Not applicable.

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Item 6. Exhibits

Exhibit
Number		Exhibit Index
11		Schedule setting forth computation of basic and diluted earnings (loss) per share for the three and nine months ended June 29, 2018, and June 30, 2017.
10.1	*	Esterline Technologies Corporation Fiscal 2019 Annual Incentive Compensation Plan.
10.2	*	Offer Letter from Esterline Technologies Corporation to Donald E. Walther, dated April 20, 2018.
10.3	*	Form of Global Restricted Stock Unit Agreement for Esterline Technologies Corporation 2013 Equity Incentive Plan (dated November 2018).
10.4	*	Form of Global Restricted Stock Unit Agreement for Esterline Technologies Corporation 2013 Equity Incentive Plan (with Proration) (dated November 2018).
10.5	*	Form of Termination Protection Agreement for Executive Officers.
11		Schedule setting forth computation of basic and diluted earnings (loss) per share for the three-month periods ended December 28, 2018, and December 29, 2017.
31.1		Certification of Chief Executive Officer.
31.2		Certification of Chief Financial Officer.
32.1		Certification (of Curtis C. Reusser) 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 Stephen M. Nolan) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.

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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: August 3, 2018	By:	/s/ Stephen M. Nolan
Dated: February 5, 2019	By:	/s/ Stephen M. Nolan
		Stephen M. Nolan
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

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