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PART I

This Report includes a number of forward-looking statements that reflect the Company’s current views with respect to future events and financial performance.  Please refer to the section addressing forward-looking information on page 910 for further discussion.  In this report, “we,” “our,” “us,” “Company,” and “Esterline” refer to Esterline Technologies Corporation and subsidiaries, unless otherwise noted or context otherwise indicates.

Item 1.  Business

General Development of Business

Esterline, a Delaware corporation formed in 1967, is a leading specialized manufacturing company principally serving aerospace and defense customers.  We design, manufacture and market highly engineered products and systems for application within the industries we serve.

Our strategy is to maintain a leadership position in niche markets for the development and manufacture of highly engineered products that are essential to our customers. We are concentrating our efforts to expand selectively our capabilities in these markets, to anticipate the global needs of our customers and to respond to such needs with comprehensive solutions. Our current business and strategic growth plan focuses on the continuouscontinued development of theseour products principally for aerospace and defense markets in three key technology segments:  Avionics & Controls, Sensors & Systems, and Advanced Materials, including thermally engineered components and specialized high-performance elastomers and other complex materials, principally for aerospace and defense markets.Materials.  Our products are often mission-critical equipment,mission critical, which have been designed into particular military and commercial platforms and in certain cases can only be replaced by products of other manufacturersmanufactures following a formal certification process.  As partWe are concentrating our efforts to expand our capabilities in these markets and anticipate the global needs of our implementation of this growth plan, wecustomers and respond to such needs with comprehensive solutions.  These efforts focus on among other things, expansioncontinuous research and new product development, acquisitions, and strategic realignment of operations to expand our capabilities as a more comprehensive supplier to our customers.customers across our entire product offering.  Such expansion included the July 26, 2011,December 2013 acquisition of the SouriauSunbank Family of Companies, LLC (Sunbank), and the February 2013 acquisition of the Gamesman Group (Souriau)(Gamesman), which is a leading global supplier of highly engineered connection technologies for harsh environments;input devices principally serving the December 30, 2010, acquisition of Eclipse Electronic Systems, Inc. (Eclipse), which develops and manufactures embedded communication intercept receivers for signal intelligence applications; and the October 15, 2010, execution of a license agreement with L-3 Avionics Systems, Inc. for the SmartDeck^® integrated cockpit technologies to enhance our integrated cockpit capabilities for both original equipment manufacturer (OEM) and retrofit opportunities. We also divested a non-core business operating as Pressure Systems, Inc. in 2010.gaming industry.  These acquisitions and divestitures are described in more detail in the “Overview” section of Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations contained in Item 7 of this report.

In December 2013, we announced the acceleration of our plans to consolidate certain facilities and create cost efficiencies through shared services in sales, general and administrative and support functions.  Our integration activities are expected to result in charges and expenses for a total of $35 million for fiscal 2014 and fiscal 2015.  We incurred costs of $20.4 million in fiscal 2014, with the balance to be incurred in fiscal 2015.  The costs include severance, relocation of facilities, and losses from the write off of certain property, plant and equipment.  Expense savings on short-cycle activities commenced in fiscal 2014, with substantially more savings projected in fiscal 2015.

In March 2014, we entered into a Consent Agreement with the U.S. Department of State’s Directorate of Defense Trade Controls Office of Defense Trade Controls Compliance (DDTC) to resolve alleged International Traffic in Arms Regulations (ITAR) civil violations.  Among other things, the Consent Agreement requires us to pay a $20 million penalty, of which $10 million was suspended and eligible for offset credit based upon verified expenditures for past and future remedial actions, and to continue to implement ongoing compliance remedial measures and to implement additional remedial measures related to ITAR compliance activities.  Due to these requirements, in fiscal 2014 we incurred $9 million in incremental compliance costs and expect to incur about $7 million in incremental costs in fiscal 2015.  More information about the Consent Agreement is set forth under U.S. Government Contracts and Subcontracts in Part I, Item 1 of this report.

In September 2014, our board of directors approved the 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; Pacific Aerospace and Electronics Inc. (PA&E), a manufacturer of hermetically sealed electrical connectors; and an immaterial distribution business.  Eclipse and the distribution business are included in our Avionics & Controls segment, Wallop is included in our Advanced Materials segment, and PA&E is included in our Sensors & Systems segment.  These businesses are reported as discontinued operations.  We recorded an estimated after-tax loss of $49.5 million in the fourth fiscal quarter of 2014 on the assets held for sale in discontinued operations.

In September 2014, we agreed to acquire the aerospace and defense display businesses of Barco N.V. The business designs and manufactures high-technology, harsh-environment displays and visualization solutions, holding positions in avionics, defense, air traffic control, and training and simulation markets.  The transaction is expected to close in January 2015, contingent upon completion of certain French regulatory procedures, and other customary closing conditions. The acquisition purchase price of €150 million, or approximately $187 million, will be funded primarily by international cash reserves.  The business will be included in our Avionics & Controls segment.

Our products have a long history in the aerospace and defense industry and are found on most military and commercial aircraft, helicopters, and land-based systems.  For example, our products are used on the majority of active and in-production U.S. military aircraft and on every Boeing commercial aircraft platform manufactured in the past 75 years.  In addition, our products are supplied to Airbus, allmany of the major regional and business jet manufacturers, and the major aircraft engine manufacturers.  We work closely with OEMs on new, highly engineered products with the objective of such products becoming designed into our customers’ platforms; this integration often results in sole-source positions for OEM production and aftermarket business.  We broadly categorize our commercial and military aerospace aftermarket sales as retrofit, repair services, and spare parts.  Spare parts alone made up approximately 8.5% of total sales in fiscal 2014.  Retrofit and repair services, which represent 5% of total sales in fiscal 2014, carry higher margins than OEM sales but lower margins than spare parts sales. In many cases, our aftermarket sales span the entire life of an aircraft.

We differentiate ourselves through our engineering and manufacturing capabilities and our reputation for safety, quality, on-time delivery, reliability, and innovation – all embodied in the Esterline Performance System, our way of approaching business that helps ensure all employees are focused on continuous improvement.  Safety of our operations is a critical factor in our business, and accordingly, we incorporate applicable regulatory guidance in the design of our facilities and the training oftrain our employees using a behavior-based approach that focuses on safety-designed work habits and on-going safety audits.  We work closelyOur industries are highly regulated, and compliance with OEMs on new, highly engineered product designs which often resultsapplicable regulations, including export control and anti-bribery regulations, is an important focus in our products being designed into their platforms;business.  For example, we have a global code of business conduct and ethics that covers compliance with laws, and we provide training on this integration often resultscode to our worldwide employees.  In addition, we maintain local ethics advisors and export control specialists in sole-source positions for OEM production and aftermarket business. We broadly categorize our commercial and military aerospace aftermarket sales as refitting, repair services, and spare parts. Spare parts alone made up approximately 10% of total sales in fiscal 2012. Refitting and repair services, which represent 5% of total sales, carry higher margins than OEM sales but lower margins than spare parts sales. In many cases,business units to support our aftermarket sales span the entire life of an aircraft.compliance efforts.

Our sales are diversified across three broad markets:  defense, commercial aerospace, and general industrial.  For fiscal 2012,2014, approximately 40%30% of our sales were from the defense market, 40%50% from the commercial aerospace market, and 20% from the general industrial market.

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Financial Information About Industry Segments

A summary of net sales to unaffiliated customers, operating earnings and identifiable assets attributable to our business segments for fiscal years 2012, 2011,2014, 2013, and 20102012 is reported in Note 17 to the Company’s Consolidated Financial Statements, for the fiscal year ended October 26, 2012, and appears in Item 8 of this report.

Narrative Description of Business

Avionics & Controls

Our Avionics & Controls business segment includes avionics systems, control systems, interface technologies and communication systems, and interface technologies capabilities.  Avionics systems designs and develops cockpit systems integration and avionics subsystems for commercial and military applications.  Control and communication systems designs and manufactures technology interface systems for military and commercial aircraft and land-based as well as sea-based military vehicles.  Additionally, control and communication systems designs and manufactures military audio and data products for severe battlefield environments and communication control systems to enhance security and aural clarity in military applications.  Interface technologies manufactures and develops custom control panels and input systems for medical, industrial, military and casino gaming industries. Communication systems designs and manufactures military audio and data products for severe battlefield environments, embedded communication intercept receivers for signal intelligence applications, as well as communication control systems to enhance security and aural clarity in military applications.  We are a market leader in global positioning systems (GPS), head-up displays, enhanced vision systems, and electronic flight management systems that are used in a broad variety of control and display applications.  In addition, we develop, manufacture and market sophisticated, highly reliable technology interface systems for commercial and military aircraft.  These products include lighted push-button and rotary switches, keyboards, lighted indicators, panels and displays.  Over the years, ourOur products have been integrated into many existing aircraft designs, including every Boeing commercial aircraft platform currently in production.  Our large installed base provides us with a significant spare parts and retrofit business.  We are a Tier 1 supplier on the B-787Boeing 787 program to design and manufacture all of the cockpit overhead panels and embedded software for these systems.  We manufacture control sticks, grips and wheels, as well as specialized switching systems.  In this area, we primarily serve commercial and military aviation, and airborne and ground-based military equipment manufacturing customers.  For example, we are a leading manufacturer of pilot control grips for most types of military fighter jets and helicopters.  Additionally, our software engineering center supports our customers’ needs with such applications as primary flight displays, flight management systems, air data computers and engine control systems.

Our proprietary products meet critical operational requirements and provide customers with significant technological advantages in such areas as night vision compatibility and active-matrix liquid-crystal displays (a technology enabling pilots to read display screens in a variety of light conditions as well as from extreme angles).  Our products are incorporated in a wide variety of platforms ranging from military helicopters, fighters and transports, to commercial wide- and narrow-body, regional and business jets.  In fiscal 2012,2014, some of our largest customers for these products included Airbus, BAE Systems, The Boeing Company, Hawker Beechcraft, Honeywell, Lockheed Martin, Pilatus Aircraft, Rockwell Collins, Sikorsky, and Thales.

In addition, we design and manufacture ruggedized military personal communication equipment, primarily headsets, handsets and field communications.  We are the sole supplier of Active Noise Reduction (ANR) headsets to the British Army’s tracked and wheeled vehicle fleets under the Bowman communication system program.  We supply ANR headsets to the U.S. Army’s tracked and wheeled vehicle fleets, including Mine-Resistant Ambush Protected (MRAPs) and MRAP All Terrain Vehicle (M-ATVs) through the Vehicle Intercom System (VIS) and VIS-X programs comprising over 200,000 vehicles.  We are the sole supplier to the U.S. Marine Corps for their MRAP and M-ATV fleets.  We are also the sole ANR headset supplier to the Canadian Army.  We have a long-standing relationship with armies around the world, including forces in Australia, India, Saudi Arabia, and Spain.  In fiscal 2014, some of our largest customers for these products included BAE Systems, The Boeing Company, Canadian Commercial Corp.the British Ministry of Defence (MoD), Eurocopter, Gulfstream, Hawker Beechcraft, Honeywell,L-3 Communications, Lockheed Martin, Rockwell Collins, Sikorsky,Northrop Grumman, and Thales.Sanmina.

We also manufacture a full line of keyboard, switch and input technologies for specialized medical equipment and communication systems and comparable equipment for military applications.  These products include custom keyboards, keypads, and input devices that integrate cursor control devices, barcode scanners, displays, video, and voice activation.  We also produce instruments that are used for point-of-use and point-of-care diagnostics.  We have developed a wide variety of technologies, including plastic and vinyl membranes that protect high-use switches and fully depressible buttons, and backlit elastomer switch coverings that are resistant to exposure from harsh chemicals.  These technologies now serve as the foundation for a small but growing portion of our product line.  In fiscal 2012,2014, some of our largest customers for these products included Alere, Dictaphone,Aristocrat Technologies, General Electric, Jabil Circuit,Inspired Gaming, Merck, Nuance, Philips, Quidel, Roche, Siemens, and WMS.Siemens.

In addition, we design and manufacture ruggedized military personal communication equipment, primarily headsets. We are the sole supplier of Active Noise Reduction (ANR) headsets to the British Army’s tracked and wheeled vehicle fleets under the Bowman communication system program. In the U.S., we supply ANR headsets to the U.S. Army’s tracked and wheeled vehicle fleets under the Vehicle Intercom System (VIS) and VIS-X programs comprising over 200,000 vehicles, and we are the sole supplier to the U.S. Marine Corps for their MRAP fleet. We are also the sole ANR headset supplier to the Canadian Army. We have a long-standing relationship with armies around the world, including forces in Australia, India, Saudi Arabia, and Spain. We design and manufacture signal intelligence and communications intelligence (SIGINT/COMINT) receiver hardware for the airborne intelligence, surveillance and reconnaissance (ISR) market. These products incorporate modern, open-architecture software/firmware configurable designs, are deployed on a wide range of U.S. and foreign manned airborne platforms, and on such next generation unmanned platforms as the Northrop Grumman Global Hawk and General Atomics Reaper and Predator. In fiscal 2012, some of our largest customers for these products included The Boeing Company, the British Ministry of Defence (MoD), L-3 Communications, Lockheed Martin, Northrop Grumman, and Simex Defence.

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Sensors & Systems

Our Sensors & Systems business segment includes power systems, connection technologies and advanced sensors capabilities.  We develop and manufacture high-precision temperature, pressure and speed sensors principally for aerospace customers, electrical interconnection systems for severe environments for aerospace, defense, geophysics & marine, and nuclear customers, as well as electrical power switching, control and data communication devices, and other related systems principally for aerospace and defense customers.  We are the OEM sole-source and aftersales supplier of temperature probes for use on all versions of the General Electric/Snecma CFM-56 jet engine.  The CFM-56 jet engine has an installed base of 23,500,25,700, is standard equipment on the current generation B-737Boeing 737 aircraft, and was selected as the engine for approximately 60%55% of all Airbus single-aisle aircraft delivered to date.  We have a contract to design and manufacture the B-787’s sensors for the environmental control system for Boeing 787 aircraft, and provide the primary power distribution assembly for the Airbus A400M military transport.  Additionally, we have secured a Tier 1 position with Rolls-Royce for the completea large suite of sensors for the engines that will power the A400M and A350.  We design and manufacture micro packaging, planet probe interconnectors, launcher umbilicals, and composite connectors for the B-787.Boeing 787.  Unique electrical interconnection products account for about 75%a significant portion of our connection technologies sales, and standard products qualified to customer standards or military specifications account for 25% of sales.  The principal customers for our products in this business segment are jet engine manufacturers, airframe and industrial manufacturers.  In fiscal 2012,2014, some of our largest customers for these products included Astrium,Airbus, The Boeing Company, Bombardier, Dassault, Flame, General Electric, Honeywell, Labinal, Pratt & Whitney, Rolls-Royce, SAFRAN, Sercel, TTI, Inc., and Sercel.UTC.

Advanced Materials

Our Advanced Materials business segment includes engineered materials and defense technologies capabilities.  We develop and manufacture high-performance elastomer products used in a wide range of commercial aerospace, space, and military applications, and highly engineered thermal components for commercial aerospace and industrial applications.  We also develop and manufacture combustible ordnance and countermeasures for military applications.

Specialized High-Performance Applications. We specialize in the development of proprietary formulations for silicone rubber and other elastomer products.  Our elastomer products are engineered to address specific customer requirements where superior performance in high temperature, high pressure, caustic, abrasive and other difficult environments is critical.  These products include clamping devices, thermal fire barrier insulation products, sealing systems, tubing and coverings designed in custom-molded shapes.  Some of the products include proprietary elastomers that are specifically designed for use on or near a jet engine.  We are a leading U.S. supplier of high-performance elastomer products to the aerospace industry, with our primary customers for these products being jet and rocket engine manufacturers, commercial and military airframe manufacturers, as well as commercial airlines.  In fiscal 2012,2014, some of the largest customers for these products included The Boeing Company, Goodrich, KAPCO, Lockheed Martin, Northrop Grumman, Pattonair,Spirit AeroSystems, and Spirit AeroSystems. Wesco Aircraft.

We also develop and manufacture high temperature, lightweight metallic insulation systems for aerospace and marine applications.  Our commercial aerospace programs include the B-737,Boeing 737, A320, and A380 series aircraft and the V2500 and BR710 engines.  Our insulation material is used on diesel engine manifolds for earthmoving and agricultural applications.  In addition, we specialize in the development of thermal protection for fire, nuclear, and petro-chemical industries.  We design and manufacture high temperature components for industrial and marine markets.  Our manufacturing processes consist of cutting, pressing, and welding stainless steel, inconel, and titanium fabrications.  In fiscal 2012,2014, some of the largest customers

of these products included Acktiv Nuclear, Airbus, The Boeing Company, B/E Aerospace, GKN Aerospace, Goodrich, KAPCO, Lockheed Martin, Northrop Grumman, Rolls-Royce, Short Brothers, and Spirit AeroSystems.

Ordnance and Countermeasure Applications. We develop and manufacture combustible ordnance and warfare countermeasure devices for military customers. We manufacture molded fiber cartridge cases, mortar increments, igniter tubes and other combustible ordnance components primarily for the U.S. Department of Defense.  Safety of our operations is a critical factor in manufacturing ordnance and countermeasures, and accordingly, we incorporate applicable regulatory guidance in the design of our facilities and in the training of our employees.  As part of our behavior-based approach to training, employees learn safety-designed work habits and perform on-going safety audits.  We also monitor safety metrics to ensure compliance.  We are currently the sole supplier of combustible casings utilized by the U.S. Armed Forces.  Sales are made either directly to the U.S. Department of Defense or through prime contractors, Alliant Techsystems and General Dynamics.  These products include the combustible case for the U.S. Army’s new generation 155mm Modular Artillery Charge System, the 120mm combustible case used with the main armament system on the U.S. Army and Marine Corps’ M1-A1/2 tanks, and the 60mm, 81mm and 120mm combustible mortar increments.  We are one of two suppliers to the U.S.

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Army of infrared decoy flares used by aircraft to help protect against radar and infrared guided missiles.  Additionally, we are a supplier of infrared decoy flares to the MoD and other international defense agencies. We are currently the only supplier of radar countermeasures to the U.S. Army.

A summary of product lines contributing sales of 10% or more of total sales for fiscal years 2012, 2011,2014, 2013, and 20102012 is reported in Note 17 to the Consolidated Financial Statements under Item 8 of this report.

Marketing and Distribution

We believe that a key to continued success is our ability to meet customer requirements both domestically and internationally.  We have and will continue to improve our world-wide sales and distribution channels in order to provide wider market coverage and to improve the effectiveness of our customers’ supply chain.  For example, our medical device assembly operation in Shanghai, China, serves our global medical customers, our service center in Singapore improves our capabilities in Asia for our temperature sensor customers, and our marketing representative office in Bangalore, India, facilitates marketing opportunities in India, and our marketing representative office in Beijing, China, facilitates marketing opportunities in China.India.  Other enhancements include combining sales and marketing forces of our operating units where appropriate, cross-training our sales representatives on multiple product lines, and cross-stocking our spares and components.

In the technical and highly engineered product segments in which we compete, relationship selling is particularly appropriate in targeted marketing segments where customer and supplier design and engineering inputs need to be tightly integrated.  Participation in industry trade shows is an effective method of meeting customers, introducing new products, and exchanging technical specifications.  In addition to technical and industry conferences, our products are supported through direct internal international sales efforts, as well as through manufacturer representatives and selected distributors.  As of October 26, 2012, 38331, 2014, 382 sales people, 323324 representatives, and 365306 distributors supported our operations internationally.

Backlog

Backlog was $1.3$1.1 billion at October 26, 2012,31, 2014, and $1.2 billion at October 28, 2011.25, 2013.  We estimate that approximately $408.0$303.5 million of backlog is scheduled to be shipped after fiscal 2013.2015.

Backlog is subject to cancellation until delivered, and therefore, we cannot assure that our backlog will be converted into revenue in any particular period or at all.  Backlog does not include the total contract value of cost-plus reimbursable contracts, which are funded as we incur the costs.  Except for the released portion, backlog also does not include fixed-price multi-year contracts.

Competition

Our products and services are affected by varying degrees of competition.  We compete with other companies in most markets we serve, manyserve.  Many of whichthese companies have far greater sales volumes and financial resources.resources than we do.  Some of our competitors are also our customers on certain programs.  The principal competitive factors in the commercial markets in which we participate are product performance, on-time delivery, service and price.  Part of product performance requires expenditures in research and development that lead to product improvement.  The market for many of our products may be affected by rapid and significant technological changes and new product introductions.  Our principal competitors include Astronautics, BAE, Bose, Eaton, Elbit, EMS, GE Aerospace, Honeywell, IAI, L-3, Otto Controls, RAFI, Rockwell Collins, SELEX, Telephonics, Thales, Ultra Electronics, Universal Avionics Systems Corporation, and Zodiac in our Avionics & Controls segment; Ametek, Amphenol, Eaton, Goodrich, Hamilton Sundstrand, Meggitt, MPC Products, STPI-Deutsch, Tyco,TE Connectivity, and Zodiac in our Sensors & Systems segment; and Chemring, Doncasters, Hi-Temp, J&M, JPR Hutchinson, Kmass, Meggitt (including Dunlop Standard Aerospace Group), Rheinmetall, Trelleborg, ULVA, UMPCO, and UMPCOWoodward Products in our Advanced Materials segment.

Research and Development

Our product development and design programs utilize an extensive base of professional engineers, technicians and support personnel, supplemented by outside engineering and consulting firms when needed.  In fiscal 2012,2014, we expended approximately $107.7$98.9 million for research, development and engineering, compared with $94.5$90.2 million in fiscal 20112013 and $69.8$100.9 million in fiscal 2010.2012.  Research and development expense has averaged 5.2%5.0% of sales for the three years ended October 26, 2012.31, 2014.  We believe continued product development is key to our long-term growth, and consequently, we consistently invest in research and development.  Examples include research and development projects relating to advanced

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vision systems, SmartDeck^® integrated flight control and display system, avionics control panels, A350 engine sensors, high temperature, low observable material for military applications, and spectral countermeasure flares for military applications.  We actively participate in customer-funded research and development programs, including applications on C-130 cockpit upgrades, P-8 aircraft and power systems for the HH-47 Chinook helicopter and A400M.

Foreign Operations

Our foreign operations consist of manufacturing facilities located in Canada, China, the Dominican Republic, France, Germany, India, Japan, Mexico, Morocco, and the United Kingdom, and include sales and service operations located in Brazil, China, and Singapore.  For further information regarding foreign operations, see Note 17 to the Consolidated Financial Statements under Item 8 of this report.

U.S. Government Contracts and Subcontracts

As a contractor and subcontractor to the U.S. government (primarily the U.S. Department of Defense), we are subject to various laws and regulations that are more restrictive than those applicable to private sector contractors.  Approximately 7%4% of our sales werewas made directly to the U.S. government in fiscal 2012.2014.  In addition, we estimate that our subcontracting activities to contractors for the U.S. government accounted for approximately 19%14% of sales during fiscal 2012.2014.  In total, we estimate that approximately 26%18% of our sales during the fiscal year werewas subject to U.S. government contracting regulations.  Such contracts may be subject to termination, reduction or modification in the event of changes in government requirements, reductions in federal spending, and other factors.

Historically, our U.S. government contracts and subcontracts have been predominately fixed-price contracts.  Generally, fixed-price contracts offer higher margins than cost-plus contracts in return for accepting the risk that increased or unexpected costs may reduce anticipated profits or cause us to sustain losses on the contracts.  The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for the U.S. government under both cost-plus and fixed-price contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the U.S. Department of Defense.  The contracts and subcontracts to which we are a party are also subject to profit and cost controls and standard provisions for termination at the convenience of the U.S. government.  Upon termination, other than for our default, we will normally be entitled to reimbursement for allowable costs and to an allowance for profit.  To date, none of our material fixed-price contracts havehas been terminated.

We are subject to U.S. export laws and regulations, including ITAR, that generally restrict the export of defense products, technical data, and defense services.  On March 5, 2014, the Company entered into a Consent Agreement with the DTCC to resolve alleged ITAR civil violations.  The Consent Agreement settled the pending ITAR compliance matter with the DTCC previously reported by the Company that resulted from voluntary reports the Company filed with DTCC that disclosed possible technical and administrative violations of the ITAR.  The Consent Agreement has a three-year term and provides for:  (i) a payment of $20 million, $10 million of which is suspended and eligible for offset credit based on verified expenditures for past and future remedial compliance measures; (ii) the appointment of an external Special Compliance Official to oversee compliance with the Consent Agreement and the ITAR; (iii) two external audits of the Company’s ITAR compliance program; and (iv) continued implementation of ongoing remedial compliance measures and additional remedial compliance measures related to automated systems and ITAR compliance policies, procedures, and training.

The settlement amount in the Consent Agreement was consistent with the amount proposed by DTCC in August 2013, for which the Company estimated and recorded a $10 million charge in the fiscal quarter ended July 26, 2013.  The $10 million portion of the settlement that is not subject to suspension will be paid in installments, with $4 million paid in March 2014, and $2 million to be paid in each of March 2015, 2016, and 2017.  The Company expects that some part of recent investments made in our ITAR compliance program will be eligible for credit against the suspended portion of the settlement amount, which include:  additional staffing, ongoing implementation of a new software system, employee training, and establishment of a regular compliance audit program and corrective action process.  The Company expects recent and future investments in remedial compliance measures will be sufficient to cover the $10 million suspended payment.

Our failure to comply with applicable regulations could result in penalties, loss, or suspension of contracts or other consequences, and the costs to maintain compliance with these regulations may be higher than we anticipate.  Any of these consequences could adversely affect our operations or financial condition.

Patents and Licenses

Although we hold a number of patents and licenses, we do not believe that our operations are dependent on our patents and licenses.  In general, we rely on technical superiority, continual product improvement, exclusive product features, lean manufacturing and operational excellence, including superior lead-time, on-time delivery performance and quality, and customer relationships to maintain competitive advantage.

Seasonality

The timing of our revenues is impacted by the purchasing patterns of our customers, and as a result we do not generate revenues evenly throughout the year.  Moreover, our first fiscal quarter, November through January, includes significant holiday vacation periods in both Europe and North America.  This leads to decreased order and shipment activity; consequently, first quarter results are typically weaker than other quarters and not necessarily indicative of our performance in subsequent quarters.

Sources and Availability of Raw Materials and Components

The sources and availability of certain raw materials and components are not as critical as they would be for manufacturers of a single product line, due to our vertical integration and diversification.  However, certain components, supplies and raw materials for our operations are purchased from single sources.  In such instances, we strive to develop alternative sources and design modifications to minimize the effect of business interruptions.

Environmental Matters

We are subject to federal, state, local and foreign laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous waste, and (ii) impose liability for the costs of cleaning up, and certain damages resulting from, sites or past spills, disposals or other releases of hazardous substances.

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At various times we have been identified as a potentially responsible party pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), and analogous state environmental laws, for the cleanup of contamination resulting from past disposals of hazardous wastes at certain sites to which we, among others, sent wastes in the past.  CERCLA requires potentially responsible persons to pay for cleanup of sites from which there has been a release or threatened release of hazardous substances.  Courts have interpreted CERCLA to impose strict, joint and several liability on all persons liable for cleanup costs.  As a practical matter, however, at sites where there are multiple potentially responsible persons, the costs of cleanup typically are allocated among the parties according to a volumetric or other standard.

We have accrued liabilities for environmental remediation costs expected to be incurred by our operating facilities.incurred.  Environmental exposures are provided for at the time they are known to exist or are considered reasonably probable and estimable.

Employees

We had 12,18512,874 employees at October 26, 2012,31, 2014, of which 5,2245,210 were based in the United States, 4,1274,159 in Europe, 1,0431,120 in Canada, 7141,029 in Mexico, 468564 in Morocco, 360 in Asia, 468255 in MoroccoIndia, and 141177 in the Dominican Republic.  Approximately 12%13% of the U.S.-based employees were represented by avarious labor union.unions.  Our European operations are subject to national trade union agreements and to local regulations governing employment.

Financial Information About Foreign and Domestic Operations and Export Sales

See risk factor below entitled “Political and economic changes in foreign countries and markets, including foreign currency fluctuations, may have a material effect on our operating results” under Item 1A of this report and Note 17 to the Consolidated Financial Statements under Item 8 of this report.

Available Information ofAbout the Registrant

You can access financial and other information on our Web site,www.esterline.com.  We make available through our Web site, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act

of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the Securities and Exchange Commission (SEC).  The SEC also maintains a Web site atwww.sec.gov, which contains reports, proxy and information statements, and other information regarding public companies, including Esterline.  Any reports filed with the SEC may also be obtained from the SEC’s Reference Room at 100 F Street, NE, Washington, DC 20549.  Our Corporate Governance Guidelines and charters for our board committees are available on our Web site,www.esterline.com on the Corporate Governance tab, and our Code of Business Conduct and Ethics, which includes a code of ethics applicable to our accounting and financial employees, including our Chief Executive Officer and Chief Financial Officer, is available on our Web site atwww.esterline.com on the Corporate Governance tab.  Each of these documents is also available in print (at no charge) to any shareholder upon request.  Our Web site and the information contained therein or connected thereto are not incorporated by reference into this Form 10-K.

Executive Officers of the Registrant

The names and ages of all executive officers of the Company and the positions and offices held by such persons as of December 21, 2012,19, 2014, are as follows:

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Mr. LawrenceReusser has been Chairman, since March 2012. In addition, he has served asPresident and Chief Executive Officer and President since November 2009 and July 2009, respectively.March 2014.  Prior to that time, he was President and Chief OperatingExecutive Officer sincefrom October 2013 to March 2014.  Previously, he was President, Aircraft Systems of UTC Aerospace Systems for United Technologies Corporation, a provider of a broad range of high-technology products and services to the global aerospace and building systems industries, from July 20092012 to October 2013.  Prior to that time, he was President of the Electronic Systems segment of Goodrich Corporation, an aerospace and Group Vice President sincedefense company that was acquired by UTC in July 2012, from January 2007.2008 to July 2012.  Mr. LawrenceReusser has an M.B.A.a B.S. degree in Industrial and Mechanical Engineering from the University of PittsburghWashington and a B.S. degreeCertificate in Business AdministrationManagement from Pennsylvania State University.the University of San Diego.

Mr. George has been Chief Financial Officer, Vice President, and Corporate Development since October 2012.  From July 2011 to October 2012, he was Vice President, Chief Financial Officer, Corporate Development and Secretary.  Prior to that time, he was Vice President, Chief Financial Officer, Secretary and Treasurer since July 1999.  Mr. George has an M.B.A. from the Fuqua School of Business at Duke University and a B.A. degree in Economics from Drew University.

Mr. Benson has been Vice President of Human Resources since December 2014.  Prior to that time, he was Senior Human Resources Director at Hewlett Packard Company, a technology products and services company, from 2006 to November 2014.  Mr. Benson has an M.B.A. from Arizona State University and a B.A. degree in Business from St. Martin’s College.

Mr. Durand has been President, Sensors & Systems Segment since March 2014.  From June 2011 to February 2014, he was Group Vice President since June 2011.President.  Prior to that time, he was President of the Advanced Sensors business platform from May 2007 to June 2011.  Mr. Durand has an M.B.A. from Ecole Supérieure de Commerce in Reims, France, and a Mechanical Engineering degree from Ecole Catholique d’Arts et Métiers in Lyon, France.

Mr. Heine has been Vice President, Human Resources since August 2012. Prior to that time, he was Vice President, Leadership and Organizational Development since March 2007. He has an M.P.A. in Human Resource Management from the University of Colorado and a B.S. degree in English from Eastern Michigan University.

Mr. Houston has been President, Avionics & Controls Segment since March 2014.  From December 2009 to February 2014 he was Senior Group Vice President since December 2009.President.  Prior to that time, he was Group Vice President since March 2005.  Mr. Houston has an M.B.A. from the University of Washington and a B.A. degree in Political Science from Seattle Pacific University.

Ms. Mason has been Vice President and General Counsel since September 2013.  Prior to that time she was General Counsel and Vice President, Administration sincefrom August 2012. Prior2012 to that time, she wasSeptember 2013, and Vice President, Human Resources sincefrom March 1993.1993 to July 2012.  Ms. Mason has a J.D. degree from Northwestern University School of Law and a B.A. degree in Political Science from Portland State University.

Mr. Yost has been President, Advanced Materials Segment and Treasurer since March 2014.  From July 2011 to February 2014, he was Group Vice President and Treasurer, sinceand from November 2009 and Julyto June 2011 respectively.he was Group Vice President.  Previously, he was President of Advanced Input Systems, a subsidiary of the Company from January 2007, and held

management responsibilities for Esterline’s Interface Technologies business platform from May 2007.  Mr. Yost has an M.B.A. from Utah State University and a B.A. degree in Economics from Brigham Young University.

Forward-Looking Statements

This annual report on Form 10-K includes forward-looking statements.  These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will” or the negative thereof or other variations thereon or comparable terminology.  In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this report under the headings “Risks Relating to Our Business and Our Industry,” “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” and “Business” are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections.  While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control.  These and other important factors, including those discussed in this report under the headings “Risks Relating to Our Business and Our Industry,” “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” and “Business” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements.  Some of the key factors that could cause actual results to differ from our expectations are:

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.

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Item 1A.  Risk Factors

Risks Relating to Our Business and Our Industry

Reductions in defense spending could adversely affect our business.

Approximately 40%30% of our business is dependent on defense spending.  The defense industry is dependent upon the level of equipment expenditures by the armed forces of countries throughout the world, and especially those of the United States, which represents a significant portion of world-wide defense expenditures.  In August 2011, Congress enacted the Budget Control Act of 2011 (BCA), which requires spending caps and certainresulted in substantial, automatic reductions in securityboth defense and discretionary spending.  The automatic across-the-board budget cuts, or sequestration, are incremental to spending reductions already included in the defense funding over a ten-year period through 2021. Without additional congressional action, further budgetperiod.  These spending cuts (or sequestration) as set forthimpacted our financial results in the BCA will be implemented on January 3, 2013. While thefiscal 2014, and could have significant future consequences to our business and industry, including disruption of programs and personnel reductions that could impact of sequestration is yet to be fully determined, significant additional reductions to defense spending over the next decade could occur.our manufacturing operations and engineering capabilities.

In the event the sequestration is implemented in January 2013 as currently mandated, there could beThe loss of a significant customer or defense program could have a material adverse impact toeffect on our company and to the defense industry in general. Approximately 26%operating results.

Some of our operations are dependent on a relatively small number of customers and aerospace and defense programs, which change from time to time.  Significant customers in fiscal year 2012 sales were to2014 included The Boeing Company, Flame, General Electric, Hawker Beechcraft, Honeywell, Lockheed Martin, Northrop Grumman, Rolls-Royce, Sikorsky, and the U.S. government, including sales for whichDepartment of Defense.  There can be no assurance that our current significant customers will continue to buy our products at current levels.  The loss of a significant customer or the cancellation of orders related to a sole-source defense program could have a material adverse effect on our operating results if we were unable to replace the related sales.

We are the prime or a subcontractorsubject to the prime. While congressional leadership is considering a variety of options to avoid sequestration, it remains uncertain as to whether the government will be able to do so.

Additionally, the war on terror has increased the level of equipment expenditures by the U.S. armed forces. This level of spending may not be sustainable in light of government spending priorities by the U.S. and the winding down of U.S. armed forces operations in Iraq and Afghanistan.

A global recession may adversely affect our business operations, capital, and cost of capital.

If a recession occurs, our future cost of debt and equity capital could be adversely affected. Any inability to obtain adequate financing from debt and equity sources could force us to self fund strategic initiatives or even forgo some opportunities, potentially harming our financial position, results of operations, and liquidity.

Economic conditions may impair our customers’ business and markets,numerous regulatory requirements, which could adversely affect our business.

Among other things, we are subject to the Foreign Corrupt Practices Act, or FCPA, and the U.K. Bribery Act, which generally prohibit companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment.  In particular, we may be held liable for actions taken by our strategic or local partners even though our partners are not subject to the FCPA or the U.K. Bribery Act.  Any determination that we have violated the FCPA or the U.K. Bribery Act could result in sanctions that could have a material adverse effect on our business, financial condition and results of operations.

InWe are also subject to a variety of international laws, as well as U.S. export laws and regulations, such as ITAR, which generally restrict the eventexport of defense products, technical data and defense services.  We have filed voluntary reports that disclosed certain technical and administrative violations of the ITAR with the DDTC Office of Defense Trade Controls Compliance (DDTC Office of Compliance).  As further described in this report under “Item 1,” we recorded a global recession occurs in$10 million charge as of July 26, 2013, for penalties proposed by the United StatesDDTC Office of Compliance associated with our earlier handling of ITAR-controlled transactions, including the substance of our prior voluntary disclosures and other partsaspects of the world, customers may chooseITAR compliance errors.  Our failure to delaycomply with these regulations could result in penalties, loss, or postpone purchases from us until the economy and their businesses strengthen. Decisions by currentsuspension of contracts or future customers to forgo or defer purchases and/or our customers’ inability to pay us for our products mayother consequences.  Any of these could adversely affect our earningsoperations and financial condition.

We may be unable to realize expected benefits from our business integration efforts and our profitability may be hurt or our business otherwise might be adversely affected.

In 2014, we began to consolidate certain facilities and to create greater cost efficiencies through shared services in sales, general administration and support functions across our segments.  We have never before pursued integration initiatives to this extent, and there is no assurance that our efforts will be successful.  These integration activities are intended to generate operating expense savings through direct and indirect overhead expense reductions as well as other savings and realizing these savings may be difficult.  If we do not successfully manage our current integration activities, or any other similar activities that we may undertake in the future, expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted.  Risks associated with these actions include inability to complete or delay in the planned transfer of business activities to other locations due to dependency on third-party agreements or certification of projects affected by the transfer, unanticipated costs in implementing the initiatives, delays in implementation of anticipated workforce reductions, adverse effects on employee morale, creation of customer or supplier uncertainty that may impact our business, and the failure to meet operational targets due to the loss of employees.  If any of these risks are realized, our ability to achieve anticipated cost reductions may be impaired or our business may otherwise be harmed, which could have a material adverse effect on our competitive position, results of operations, cash flow.flows or financial condition.

Future operating results could be impacted by sanctions against Russia.

During the third fiscal quarter of 2014, the U.S. and other countries expanded the sanctions against Russia, which increased the restrictions on sales of certain products, including aviation products, to Russia and to specified restricted parties in or affiliated with Russia.  Our Avionics & Controls and Sensors & Systems segments have programs with Russian customers.  We evaluated the impact of these sanctions and determined the impact from Canadian, European Union and U.S. sanctions against Russia on our sales to Russia was not material.  Increased sanctions could have a material impact on our sales to Russia in future periods.

Implementing our acquisition strategy involves risks, and our failure to successfully implement this strategy could have a material adverse effect on our business.

One of our key strategies is to grow our business by selectively pursuing acquisitions.  Since 1996 we have completed over 30 acquisitions, and we are continuing to actively pursue additional acquisition opportunities, some of which may be material to our business and financial performance.  Although we have been successful with this strategy in the past, we may not be able to grow our business in the future through acquisitions for a number of reasons, including:

In addition, there are potential risks associated with growing our business through acquisitions, including the failure to successfully integrate and realize the expected benefits of an acquisition.  For example, with any past or future acquisition, there is the possibility that:

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Failure to continue implementing our acquisition strategy, including successfully integrating acquired businesses, could have a material adverse effect on our business, financial condition and results of operations.

We may have exposure to greater than anticipated tax liabilities and a higher effective tax rate.

We are subject to income taxes in the United States and foreign jurisdictions.  Our effective tax rate is influenced by a number of factors, including, but not limited to, modification on tax policy, interpretation of existing tax laws, and our ability to sustain our reporting positions on examination.  Any adverse changes in those factors could have a negative effect on our effective tax rate and financial results.

Our future financial results could be adversely impacted by asset impairment charges.

We are required to test both acquired goodwill and other indefinite-lived intangible assets for impairment on an annual basis based upon a fair value approach, rather than amortizing them over time.  We have chosen to perform our annual impairment reviews of goodwill and other indefinite-lived intangible assets during the fourth quarter of each fiscal year.  We also are required to test goodwill for impairment between annual tests if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value.  These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other factors.  If the fair market value is less than the book value of goodwill, we could be required to record an impairment charge.  The valuation of reporting units requires judgment in estimating future cash flows, discount rates and estimated product life cycles.  In making these judgments, we evaluate the financial health of the business, including such factors as industry performance, changes in technology and operating cash flows.

As we have grown through acquisitions, we have accumulated $1.1 billion of goodwill, and have $47.9$43.8 million of indefinite-lived intangible assets, out of total assets of $3.2 billion at October 26, 2012.31, 2014.  As a result, the amount of any annual or interim impairment could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken. During the third fiscal quarter of 2012, management performed a Step One impairment test for Racal Acoustics, Inc. (Racal Acoustics) upon identification of an indicator of impairment, since Racal Acoustics’ third quarter forecast projected an operating loss for fiscal 2012. Additionally, management determined that requirements for hearing protection devices for the U.S. Army would not recover in our five-year planning horizon in light of the cancellation of Humvee retrofits, delays in VIS-X and the slowdown in operational tempo of the U.S. armed forces as well as a global slowdown in defense spending. As required under U.S. GAAP, a Step Two impairment test was required because the current fair value of the business using a discounted cash flow and market approach was less than its carrying amount of the business. Under the Step Two impairment test, all assets and liabilities were assessed at fair value. The excess of the carrying amount of goodwill over the implied fair value of goodwill resulted in an impairment charge of $52.2 million.

We performed our annual impairment review for fiscal 20122014 as of July 28, 2012,August 2, 2014, and our Step One analysisreview indicates that no impairment of goodwill or other indefinite-lived assets exists at any of our other reporting units.  Our Souriau reporting unit’s margin in passing the Step One analysisreview was approximately 5%, mainly reflecting lower market valuation assumptions in 2012.9%.  Management expects that continued improvements in operations will result in favorable actual results compared with our original plan.and a higher valuation in respect to its carrying costs.  It is possible, however, that as a result of events or circumstances, we could conclude at a later date that goodwill of $328.0$339.7 million at Souriau may be considered impaired.  We also may be required to record an earnings charge or incur unanticipated expenses if, due to a change in strategy or other reasons, we determined the value of other assets has been impaired.  These other assets include trade names of $36.2$26.6 million and intangible assets of $186.6$163.4 million. Our CMC Electronics Incorporated (CMC) reporting unit’s margin in passing the Step One analysis was about 10%, mainly reflecting lower forecast operating results due to the delay in booking new cockpit integration retrofits for military transport aircraft. Management expects that new opportunities for cockpit integration will result in favorable actual results compared to our original plan. It is possible, however, that as a result of events or circumstances, we could conclude at a later date that goodwill of $239.0 million at CMC may be considered impaired. We also may be required to record an earnings charge or incur unanticipated expenses if, due to a change in strategy or other reasons, we determined the value of other assets has been impaired. These other assets include trade names of $27.4 million and intangible assets of $73.9 million. Our Eclipse Electronic Systems, Inc. (Eclipse) reporting unit’s margin in passing the Step One analysis was about 14%, mainly reflecting lower forecast operating results due to uncertainty over defense spending beginning in fiscal 2014. Management expects new opportunities for embedded communication intercept signal intelligence applications will result in more favorable results compared to our current forecast. It is possible, however, that as a result of events or circumstances, we could conclude at a later date that goodwill of $67.4 million at Eclipse may be considered impaired. We also may be required to record an earnings charge or incur unanticipated expenses if, due to a change in strategy or other reasons, we determined the value of intangible assets of up to $42.9 million has been impaired.

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A long-lived asset to be disposed of is reported at the lower of its carrying amount or fair value less cost to sell.  An asset (other than goodwill and indefinite-lived intangible assets) is considered impaired when estimated future undiscounted cash flows are less than the carrying amount of the asset.  In the event the carrying amount of such asset is not deemed recoverable, the asset is adjusted to its estimated fair value.  Fair value is generally determined based upon estimated discounted future cash flows. As we have grown through acquisitions, we have accumulated $561.1$427.6 million of definite-lived intangible assets.  As a result, the amount of any annual or interim impairment could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken.

The amount of debt we have outstanding, as well as any debt we may incur in the future, could have an adverse effect on our operational and financial flexibility.

As of October 26, 2012,31, 2014, we had approximately $848.7 billion$622.5 million of long-term debt outstanding, which is long-term debt.outstanding.  Under our existing secured credit facility, we have a $460 million revolving line of credit and a €62.0$161.9 million term loan (Euro(U.S. Term Loan). Up to $100.0 million in letters of credit may be drawn in U.K. pounds or euros in addition to U.S. dollars.  The credit facility is secured by substantially all of the Company’s assets, and interest is based on standard inter-bank offering rates.  In addition, we have unsecured foreign currency credit facilities that have been extended by foreign banks for up to $67.8$59.8 million.  Available credit under the above credit facilities was $256.2$387.9 million at October 26, 2012,31, 2014, reflecting bank borrowings of $240.0$100.0 million and letters of credit of $31.7$31.9 million.

We also have outstanding $175.0 million 6.625% senior notes due in March 2017 and $250.0 million 7.0% senior notesSenior Notes due in August 2020.2020 (2020 Notes).  The indentures governing those notes and other debt agreements limit but do not prohibit, us from incurringthe amount of additional debt in the future. we may incur.

Our level of debt could have significant consequences to our business, including the following:

The loss of a significant customer or defense program could have a material adverse effect on our operating results.

Some of our operations are dependent on a relatively small number of customers and aerospace and defense programs, which change from time to time. Significant customers in fiscal 2012 included The Boeing Company, Flame, General Electric, Hawker Beechcraft, Honeywell, Lockheed Martin, Northrop Grumman, Rolls-Royce, Sikorsky, and the U.S. Department of Defense. There can be no assurance that our current significant customers will continue to buy our products at current levels. The loss of a significant customer or the cancellation of orders related to a sole-source defense program could have a material adverse effect on our operating results if we were unable to replace the related sales.

Our revenues are subject to fluctuations that may cause our operating results to decline.

Our business is susceptible to seasonality and economic cycles, and as a result, our operating results have fluctuated widely in the past and are likely to continue to do so.  Our revenue tends to fluctuate based on a number of factors, including domestic and foreign economic conditions and developments affecting the specific industries and customers we serve.  For example, it is possible that a global recession could occur and result in a more severe downturn in commercial aviation and defense.

It is also possible that in the future our operating results in a particular quarter or quarters will not meet the expectations of securities analysts or investors, causing the market price of our common stock or senior notes to decline.  We believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance and should not be relied upon to predict our future performance.

A global recession may adversely affect our business operations and results, capital, and cost of capital.

In the event of a global recession, our customers may choose to delay or postpone purchases from us until the economy and their businesses strengthen.  Decisions by current or future customers to forgo or defer purchases and/or our customers’ inability to pay for our products may adversely affect our earnings and cash flow.  A recession could also adversely affect our future cost of debt and equity.  Any inability to obtain adequate financing from debt and equity sources could force us to self-fund strategic initiatives or even forgo some opportunities, potentially harming our financial position, results of operations, and liquidity.

12Our operations depend on our production facilities throughout the world. These production facilities are subject to physical and other risks that could disrupt production.

Political and economic changes in foreign countries and markets, including foreign currency fluctuations, may have a material effect on our operating results.

Foreign sales originating from non-U.S. locations were approximately 49%50% of our total sales in fiscal 2012,2014, and we have manufacturing facilities in a number of foreign countries.  A substantial portion of our Avionics & Controls operations is based in Canada and the U.K., and a substantial portion of our Sensors & Systems operations is based in the U.K. and France.  We also have manufacturing operations in China, the Dominican Republic, Germany, India, Japan, Mexico, and Morocco.  Doing business in foreign countries is subject to numerous risks, including political and economic instability, restrictive trade policies of foreign governments, economic conditions in local markets, health concerns, inconsistent product regulation or unexpected changes in regulatory and other legal requirements by foreign agencies or governments, the imposition of product tariffs and the burdens of complying with a wide variety of international and U.S. export laws and differing regulatory requirements.  To the extent that foreign sales are transacted in a foreign currency, we are subject to the risk of losses due to foreign currency fluctuations.  In addition, we have substantial assets denominated in foreign currencies, primarily the Canadian dollar, U.K. pound and euro, that are not offset by liabilities denominated in those foreign currencies.  These net foreign currency investments are subject to material changes in the event of fluctuations in foreign currencies against the U.S. dollar.

We are subject to numerous regulatory requirements, which could adversely affect our business.

Among other things, we are subject to the Foreign Corrupt Practices Act, or FCPA, and the U.K. Bribery Act which generally prohibit companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment. In particular, we may be held liable for actions taken by our strategic or local partners even though our partners are not subject to the FCPA or the U.K. Bribery Act. Any determination that we have violated the FCPA or the U.K. Bribery Act could result in sanctions that could have a material adverse effect on our business, financial condition and results of operations.

We are also subject to a variety of international laws, as well as U.S. export laws and regulations, such as the International Traffic in Arms Regulations (ITAR), which generally restrict the export of defense products, technical data and defense services. We have filed voluntary disclosure reports in fiscal 2012 at certain U.S. operating units and voluntarily reported certain technical violations of U.S. export laws and regulations. We continue to enhance our internal and external auditing compliance program. While management believes that this increased oversight is adequate to address the technical violations, the impact of filing these voluntary disclosure statements covering technical violations, as well as compliance with these laws and regulations and any changes thereto, are difficult to predict. The costs to maintain compliance with these regulations, or failure to comply with these regulations could result in penalties, loss, or suspension of contracts or other consequences, any of which could adversely affect our operations or financial condition in the future.

A downturn in the aircraft market could adversely affect our business.

The aerospace industry is cyclical in nature and affected by periodic downturns that are beyond our control.  The principal customers for manufacturers of commercial aircraft are the commercial and regional airlines, which can be adversely affected by a number of factors, including a recession, increasing fuel and labor costs, intense price competition, outbreak of infectious disease and terrorist attacks, as well as economic cycles, all of which can be unpredictable and are outside our control.  Any decrease in demand resulting from a downturn in the market could adversely affect our business, financial condition and results of operations.

We may not be able to compete effectively.

Our products and services are affected by varying degrees of competition.  We compete with other companies and divisions and units of larger companies in most markets we serve, many of which have greater sales volumes or financial, technological or marketing resources than we do.  Our principal competitors include: Astronautics, BAE, Bose, Eaton, ECE, Elbit, EMS, GE Aerospace, Honeywell, IAI, L-3, Otto Controls, RAFI, Rockwell Collins, SELEX, Telephonics, Thales, Ultra Electronics, and Universal Avionics Systems Corporation in our Avionics & Controls segment; Ametek, Amphenol, Eaton, ECE, Goodrich, Hamilton Sundstrand, MPC Products, Meggitt, STPI-Deutsch, and TycoTE Connectivity in our Sensors & Systems segment; and Chemring, Doncasters, Hitemp,Hi-Temp, J&M, JPR Hutchinson, Kmass, Meggitt (including Dunlop Standard Aerospace Group), Rheinmetall, Trelleborg, ULVA, and UMPCO in our Advanced Materials segment.  The principal competitive factors in the commercial markets in which we participate are product performance, service and price.  Maintaining product performance requires expenditures in research and development that lead to product improvement and new product introduction.  Companies with more substantial financial resources may have a better ability to make such expenditures.  We cannot assure that we will be able to continue to successfully compete in our markets, which could adversely affect our business, financial condition and results of operations.

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Our backlog is subject to modification or termination, which may reduce our sales in future periods.

We currently have a backlog of orders based on our contracts with customers.  Under many of our contracts, our customers may unilaterally modify or terminate their orders at any time.  In addition, the maximum contract value specified under a government contract awarded to us is not necessarily indicative of the sales that we will realize under that contract.  For example, we are a sole-source prime contractor for many different military programs with the U.S. Department of Defense.  We depend heavily on the government contracts underlying these programs.  Over its lifetime, a program may be implemented by the award of many different individual contracts and subcontracts.  The funding of government programs is subject to congressional appropriation.

Changes in defense procurement models may make it more difficult for us to successfully bid on projects as a prime contractor and limit sole-source opportunities available to us.

In recent years, the trend in combat system design and development appears to be evolving toward the technological integration of various battlefield components, including combat vehicles, command and control network communications, advanced technology artillery systems and robotics.  If the U.S. military procurement approach continues to require this kind of overall battlefield combat system integration, we expect to be subject to increased competition from aerospace and defense companies which have significantly greater resources than we do.

We may lose money or generate less than expected profits on our fixed-price contracts.

Our customers set demanding specifications for product performance, reliability and cost.  Some of our government contracts and subcontracts provide for a predetermined, fixed price for the products we make regardless of the costs we incur.  Therefore,

we must absorb cost overruns, notwithstanding the difficulty of estimating all of the costs we will incur in performing these contracts and in projecting the ultimate level of sales that we may achieve.  Our failure to anticipate technical problems, estimate costs accurately, integrate technical processes effectively or control costs during performance of a fixed-price contract may reduce the profitability of a fixed-price contract or cause a loss.  While we believe that we have recorded adequate provisions in our financial statements for losses on our fixed-price contracts as required under GAAP, we cannot assure that our contract loss provisions will be adequate to cover all actual future losses.  Therefore, we may incur losses on fixed-price contracts that we had expected to be profitable, or such contracts may be less profitable than expected.

Our business is subject to government contracting regulations, and our failure to comply with such laws and regulations could harm our operating results and prospects.

We estimate that approximately 18% of our sales in fiscal 2014 were attributable to contracts in which we were either the prime contractor to, or a subcontractor to a prime contractor to, the U.S. government.  As a contractor and subcontractor to the U.S. government, we must comply with laws and regulations relating to the formation, administration and performance of federal government contracts that affect how we do business with our customers and may impose added costs to our business.  For example, these regulations and laws include provisions that contracts we have been awarded are subject to:

The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for the U.S. government under both cost-plus and fixed-price contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the U.S. Department of Defense.  Responding to governmental audits, inquiries or investigations may involve significant expense and divert management attention.  Our failure to comply with these or other laws and regulations could result in contract termination, suspension or debarment from contracting with the federal government, civil fines and damages, and criminal prosecution and penalties, any of which could have a material adverse effect on our operating results.

A significant portion of our business depends on U.S. government contracts, which are often subject to competitive bidding, and a failure to compete effectively or accurately anticipate the success of future projects could adversely affect our business.

We obtain many of our U.S. government contracts through a competitive bidding process that subjects us to risks associated with:

In addition, in order to win the award of developmental programs, we must be able to align our research and development and product offerings with the government’s changing concepts of national defense and defense systems.  The government’s termination of, or failure to fully fund, one or more of the contracts for our programs would have a negative impact on our operating results and financial condition.  Furthermore, we serve as a subcontractor on several military programs that, in large part, involve the same risks as prime contracts.

Overall, we rely on key contracts with U.S. government entities for a significant portion of our sales and business.  A substantial reduction in these contracts would materially adversely affect our operating results and financial position.

The market for our products may be affected by our ability to adapt to technological change.

The rapid change of technology is a key feature of all of the markets in which our businesses operate.  To succeed in the future, we will need to design, develop, manufacture, assemble, test, market, and support new products and enhancements to our existing products in a timely and cost-effective manner.  Historically, our technology has been developed through internal research and development expenditures, as well as customer-sponsored research and development programs.  There is no guarantee that we will continue to maintain, or benefit from, comparable levels of research and development in the future.  In addition, our competitors may develop technologies and products that are more effective than those we develop or that render our technology and products obsolete or noncompetitive.  Furthermore, our products could become unmarketable if new industry standards emerge.  We cannot assure that our existing products will not require significant modifications in the future to remain competitive or that new products we introduce will be accepted by our customers, nor can we assure that we will

successfully identify new opportunities and continue to have the needed financial resources to develop new products in a timely or cost-effective manner.

Our business is subject to government contracting regulations, and our failure to comply with such laws and regulations could harm our operating results and prospects.

We estimate that approximately 26% of our sales in fiscal 2012 were attributable to contracts in which we were either the prime contractor to, or a subcontractor to a prime contractor to, the U.S. government. As a contractor and subcontractor to the U.S. government, we must comply with laws and regulations relating to the formation, administration and performance of federal government contracts that affect how we do business with our customers and may impose added costs to our business. For example, these regulations and laws include provisions that contracts we have been awarded are subject to:

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The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for the U.S. government under both cost-plus and fixed-price contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the U.S. Department of Defense. Responding to governmental audits, inquiries or investigations may involve significant expense and divert management attention. Our failure to comply with these or other laws and regulations could result in contract termination, suspension or debarment from contracting with the federal government, civil fines and damages, and criminal prosecution and penalties, any of which could have a material adverse effect on our operating results.

A significant portion of our business depends on U.S. government contracts, which are often subject to competitive bidding, and a failure to compete effectively or accurately anticipate the success of future projects could adversely affect our business.

We obtain many of our U.S. government contracts through a competitive bidding process that subjects us to risks associated with:

In addition, in order to win the award of developmental programs, we must be able to align our research and development and product offerings with the government’s changing concepts of national defense and defense systems. The government’s termination of, or failure to fully fund, one or more of the contracts for our programs would have a negative impact on our operating results and financial condition. Furthermore, we serve as a subcontractor on several military programs that, in large part, involve the same risks as prime contracts.

Overall, we rely on key contracts with U.S. government entities for a significant portion of our sales and business. A substantial reduction in these contracts would materially adversely affect our operating results and financial position.

The airline industry is heavily regulated and if we fail to comply with applicable requirements, our results of operations could suffer.

Governmental agencies throughout the world, including the U.S. Federal Aviation Administration or the FAA,(FAA), prescribe standards and qualification requirements for aircraft components, including virtually all commercial airline and general aviation products, as well as regulations regarding the repair and overhaul of aircraft engines.  Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies regulatory requirements in other countries.  We include, with the replacement parts that we sell to our customers, documentation certifying that each part complies with applicable regulatory requirements and meets applicable standards of airworthiness established by the FAA or the equivalent regulatory agencies in other countries.  In order to sell our products, we and the products we manufacture must also be certified by our individual OEM customers.  If any of the material authorizations or approvals qualifying us to supply our products is revoked or suspended, then the sale of the subject product would be prohibited by law, which would have an adverse effect on our business, financial condition and results of operations.

From time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to existing regulations, which are usually more stringent than existing regulations.  If these proposed regulations are adopted and enacted, we may incur significant additional costs to achieve compliance, which could have a material adverse effect on our business, financial condition and results of operations.

We depend on the continued contributions of our executive officers and other key management, each of whom would be difficult to replace.

Our future success depends to a significant degree upon the continued contributions of our senior management and our ability to attract and retain other highly qualified management personnel.  We face competition for management from other companies and organizations.  Therefore, we may not be able to retain our existing management personnel or fill new management positions or vacancies created by expansion or turnover at our existing compensation levels.  Although we have entered into change of control agreements with members of senior management, we do not have employment contracts with our key executives, nor have we purchased “key-person” insurance on the lives of any of our key officers or management personnel to reduce the impact to our company that the loss of any of them would cause.  Specifically, the loss of any of our executive officers would disrupt our operations and divert the time and attention of our remaining officers.  Additionally, failure to attract and retain highly qualified management personnel would damage our business prospects.

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If we are unable to protect our intellectual property rights adequately, the value of our products could be diminished.

Our success is dependent in part on obtaining, maintaining and enforcing our proprietary rights and our ability to avoid infringing on the proprietary rights of others.  While we take precautionary steps to protect our technological advantages and intellectual property and rely in part on patent, trademark, trade secret and copyright laws, we cannot assure that the precautionary steps we have taken will completely protect our intellectual property rights.  Because patent applications in the United States are maintained in secrecy until either the patent application is published or a patent is issued, we may not be aware of third-party patents, patent applications and other intellectual property relevant to our products that may block our use of our intellectual property or may be used in third-party products that compete with our products and processes.  In the event a competitor successfully challenges our products, processes, patents or licenses or claims that we have infringed upon their intellectual property, we could incur substantial litigation costs defending against such claims, be required to pay royalties, license fees or other damages or be barred from using the intellectual property at issue, any of which could have a material adverse effect on our business, operating results and financial condition.

In addition to our patent rights, we also rely on unpatented technology, trade secrets and confidential information.  Others may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our technology.  We may not be able to protect our rights in unpatented technology, trade secrets and confidential information effectively.  We require each of our employees and consultants to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us.  However, these agreements may not provide effective protection of our information or, in the event of unauthorized use of disclosure, they may not provide adequate remedies.

Future asbestos claims could harm our business.

We are subject to potential liabilities relating to certain products we manufactured containing asbestos.  To date, our insurance has covered claims against us relating to those products.  Commencing November 1, 2003, insurance coverage for asbestos

claims has been unavailable.  However, we continue to have some insurance coverage for exposure to asbestos contained in our products prior to that date.

As a result of the termination of the NASA Space Shuttle program, manufacturing of rocket engine insulation material containing asbestos ceased in July 2010.  In December 2011, we dismantled our facility used to manufacture the asbestos-based insulation for the Space Shuttle program.  We have an agreement with the customer for indemnification for certain losses we may incur as a result of asbestos claims relating to a product we previously manufactured, but we cannot assure that this indemnification agreement will fully protect us from losses arising from asbestos claims.

To the extent we are not insured or indemnified for losses from asbestos claims relating to our products, asbestos claims could adversely affect our operating results and our financial condition.

Environmental laws and regulations may subject us to significant liability.

Our business and our facilities are subject to a number of federal, state, local and foreign laws, regulations and ordinances governing, among other things, the use, manufacture, storage, handling and disposal of hazardous materials and certain waste products.  Among these environmental laws are rules by which a current or previous owner or operator of land may be liable for the costs of investigation, removal or remediation of hazardous materials at such property.  In addition, these laws typically impose liability regardless of whether the owner or operator knew of, or was responsible for, the presence of any hazardous materials.  Persons who arrange for the disposal or treatment of hazardous materials may be liable for the costs of investigation, removal or remediation of such substances at the disposal or treatment site, regardless of whether the affected site is owned or operated by them.

Because we own and operate, and previously owned and operated, a number of facilities that use, manufacture, store, handle or arrange for the disposal of various hazardous materials, we may incur costs for investigation, removal and remediation, as well as capital costs, associated with compliance with environmental laws.  At the time of our asset acquisition of the Electronic Warfare Passive Expendables Division of BAE Systems North America (BAE), certain environmental remedial activities were required under a Part B Permit issued to the infrared decoy flare facility by the Arkansas Department of Environmental Quality under the Federal Resource Conservation and Recovery Act. The Part B Permit was transferred to our subsidiary, Armtec, along with the remedial obligations.  Under the terms of the asset purchase agreement, BAE Systems agreed to perform and

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pay for these remedial obligations at the infrared decoy flare facility up to a maximum amount of $25.0 million.  BAE is currently conducting monitoring activities as required under the asset purchase agreement.  Although environmental costs have not been material in the past, we cannot assure that these matters, or any similar liabilities that arise in the future, will not exceed our resources, nor can we completely eliminate the risk of accidental contamination or injury from these materials.

An accident at our combustible ordnance or flare countermeasure operations could harm our business.

We are subject to potential liabilities in the event of an accident at our combustible ordnance and flare countermeasure operations.  Our products are highly flammable during certain phases of the manufacturing process.  Accordingly, our facilities are designed to isolate these operations from direct contact with employees.  Our overall safety infrastructure is compliant with regulatory guidelines.  In addition, we utilize hazard detection and intervention systems.  Our employees receive safety training and participate in internal safety demonstrations.  We continuously track safety effectiveness in relation to the U.S. Bureau of Labor Statistics, OSHA, and the HSE in the U.K. to help ensure performance is within industry standards.  In addition, we perform on-going process safety hazard analyses, which are conducted by trained safety teams to identify risk areas that arise.  We monitor progress through review of safety action reports that are produced as part of our operations.  Although we believe our safety programs are robust and our compliance with our programs is high, it is possible for an accident to occur.  For example, an explosion occurred in 2006 at our Wallop facility in the U.K. (causing a fatality, several minor injuries, and extensive damage to the facility).  An accident also occurred at our Arkansas plant in 2014 causing one serious injury.  We are insured in excess of our deductible on losses from property, loss of business, and for personal liability claims from an accident; however, we may not be able to maintain insurance coverage in the future at an acceptable cost.  Significant losses not covered by insurance could have a material adverse effect on our business, financial condition, and results of operations.

We may be required to defend lawsuits or pay damages in connection with the alleged or actual harm caused by our products.

We face an inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in harm to others or to property.  For example, our operations expose us to potential liabilities for personal injury or death as a result of the failure of an aircraft component that has been designed, manufactured or serviced by us.  We may incur significant liability if product liability lawsuits against us are successful.  While we believe our current general liability and product liability insurance is adequate to protect us from future product liability claims, we cannot assure that coverage will be adequate to cover all claims that may arise.  Additionally, we may not be able to maintain insurance coverage in the

future at an acceptable cost.  Significant losses not covered by insurance or for which third-party indemnification is not available could have a material adverse effect on our business, financial condition and results of operations.

Our financial performance may be adversely affected by information technology business disruptions.

Our business may be impacted by information technology attacks or failures.  Cybersecurity attacks, in particular, are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data.  We have experienced cybersecurity attacks in the past and may experience them in the future, potentially with more frequency.  We have taken measures to mitigate potential risks to our technology and our operations from these information technology-related potential disruptions.  For example, we utilize third-party software and tools at many domestic operating locations to scan incoming e-mail for viruses and other harmful content and to scan networks maintained by certain of our domestic operating units that exclusively perform U.S. defense work.  However, given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to production downtimes, operational delays, other detrimental impacts on our operations or ability to provide products and services to our customers, the compromising of confidential or otherwise protected information, destruction or corruption of data, security breaches, or other manipulation or improper use of our systems or networks.  We may also experience financial losses from remedial actions, loss of business or potential liability under contracts or pursuant to regulations that require us to maintain confidential and other data securely, and/or damage to our reputation.  Any of these consequences could have a material adverse effect on our competitive position, results of operations, cash flows or financial condition.

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Item 2.  Properties

The following table summarizes our properties that are greater than 100,000 square feet or related to a principal operation, including identification of the business segment, as of October 26, 2012:31, 2014:

*  The building is located on a parcel of land covering 16.1 acres that is leased by the Company.

In total, we own approximately 2,300,000 square feet and lease approximately 2,000,0002,300,000 square feet of manufacturing facilities and properties.

Item 3.  Legal Proceedings

From time to time we are involved in legal proceedings arising in the ordinary course of our business.  We believe we have adequately reservedthat 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 11 to the consolidated financial statements included in Part 1, Item 4. Submission8 of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended October 26, 2012.

18Item 4.  Mine Safety Disclosures

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of Esterline Common Stock

In Dollars

Principal Market – New York Stock Exchange

At the end of fiscal 2012,2014, there were approximately 327277 holders of record of the Company’s common stock.  On December 18, 2012,17, 2014, there were 325277 holders of record of our common stock.

On June 19, 2014, our board of directors approved the share repurchase program.  Under the program, we are authorized to repurchase up to $200 million of outstanding shares of common stock from time to time, depending on market conditions, share price and other factors.  All of the repurchases detailed in the table below were made through that program.

No cash dividends were paid during fiscal 20122014 and 2011. We are restricted from paying dividends under our2013.  Our current secured credit facility andrestricts the amount of dividends we can pay.  We do not anticipate paying any dividends in the foreseeable future.

The following graph shows the performance of the Company’s common stock compared to the S&P 500 Index, the S&P MidCap 400 Index, and the S&P 400 Aerospace & Defense Index for a $100 investment made on October 26, 2007.30, 2009.

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Item 6.  Selected Financial Data

Selected Financial Data

In Thousands, Except Per Share Amounts

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Selected Financial Data

In Thousands, Except Per Share Amounts

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes in Item 8 of this report.  This discussion and analysis contains forward-looking statements and estimates that involve risks, uncertainties and assumptions.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those discussed in the “Forward-Looking Statements” section in Item 1 of this report and the “Risk Factors” section in Item 1A of this report.

OVERVIEW

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

The Avionics & Controls segment includes avionics systems, control systems, interface technologies and communication systems, and interface technologies capabilities.  Avionics systems designs and develops cockpit systems integration and avionics solutions for commercial and military applications.  Control and communication systems designs and manufactures technology interface systems for military and commercial aircraft and land- and sea-based military vehicles.  Additionally, control and communication systems designs and manufactures military audio and data products for severe battlefield environments and communication control systems to enhance security and aural clarity in military applications.  Interface technologies manufactures and develops custom control panels and input systems for medical, industrial, military and casino gaming industries. Communication systems designs and manufactures military audio and data products for severe battlefield environments, embedded communication intercept receivers for signal intelligence applications, as well as communication control systems to enhance security and aural clarity in military applications.

The Sensors & Systems segment includes power systems, connection technologies and advanced sensors capabilities.  Power systems develops and manufactures electrical power switching and other related systems, principally for aerospace and defense customers.  Connection technologies develops and manufactures highly engineered connectors for harsh environments and serves the aerospace, defense & space, power generation, rail and industrial equipment markets.  Advanced sensors develops and manufactures high precision temperature and pressure sensors for aerospace and defense customers.

The Advanced Materials segment includes engineered materials and defense technologies capabilities.  Engineered materials develops and manufactures thermally engineered components and high-performance elastomer products used in a wide range of commercial aerospace and military applications.  Defense technologies develops and manufactures combustible ordnance components and warfare countermeasure devices for military customers.

Our current business and strategic plan focuses on the continued development of our products principally for aerospace and defense markets.  We are concentrating our efforts to expand our capabilities in these markets and to anticipate the global needs of our customers and respond to such needs with comprehensive solutions.  These efforts focus on continuous research and new product development, acquisitions and strategic realignments of operations to expand our capabilities as a more comprehensive supplier to our customers across our entire product offering.

On July 26, 2011,Our business has been impacted by reductions in defense spending mainly due to the continued uncertainty of U.S. congressional budget cuts, or sequestration, on defense spending.  The impact of sequestration is yet to be fully determined, and additional reductions in defense spending over the next decade could occur.

In September 2014, we acquiredagreed to acquire the Souriau Group (Souriau). Souriauaerospace and defense display businesses of Barco N.V. The business designs and manufactures high-technology, harsh-environment displays and visualization solutions, holding positions in avionics, defense, air traffic control, and training and simulation markets.  The transaction is a leading global supplierexpected to close in January 2015, contingent upon completion of highly engineered connection technologies for harsh environments. Souriau iscertain French regulatory procedures, and other customary closing conditions. The acquisition purchase price of €150 million, or approximately $187 million, will be funded primarily by international cash reserves.  The business will be included in our SensorsAvionics & SystemsControls segment.

On December 30, 2010, we acquiredIn September 2014, our board of directors approved the plan to sell certain non-core business units including Eclipse Electronic Systems, Inc. (Eclipse). Eclipse is, a designer and manufacturer of embedded communication intercept receivers for signal intelligence applications. Eclipseapplications; Wallop Defence Systems, Ltd. (Wallop), a manufacturer of flare countermeasure devices; Pacific Aerospace and Electronics Inc. (PA&E), a manufacturer of hermetically sealed electrical connectors; and a small distribution business. These businesses are reported as discontinued operations for all periods presented.  Based upon the estimated fair values, we incurred an estimated after-tax loss of $49.5 million in the fourth fiscal quarter of 2014 on the assets held for sale in discontinued operations.

On June 19, 2014, our board of directors approved a share repurchase program.  Under the program, we are authorized to repurchase up to $200 million of outstanding shares of common stock from time to time, depending on market conditions,

share price and other factors. During fiscal 2014, we repurchased 269,228 shares under this program at an average price paid per share of $112.40, for an aggregate purchase price of $30.3 million.

In March 2014, we entered into a Consent Agreement with the U.S. Department of State’s Directorate of Defense Trade Controls Office of Defense Trade Controls Compliance (DDTC) to resolve alleged International Traffic in Arms Regulations (ITAR) civil violations.  Among other things, the Consent Agreement requires us to pay a $20 million penalty, of which $10 million was suspended and eligible for offset credit based upon verified expenditures for past and future remedial actions, and to continue to implement ongoing compliance remedial measures and to implement additional remedial measures related to ITAR compliance activities.  Due to these requirements, in fiscal 2014 we incurred $9 million in incremental compliance costs and expect to incur about $7 million in incremental costs in fiscal 2015.  More information about the Consent Agreement is set forth under U.S. Government Contracts and Subcontracts in Part I, Item 1 of this report.

In December 2013, we acquired the Sunbank Family of Companies, LLC (Sunbank) for $51.7 million.  The purchase price included $5 million in additional contingent consideration based upon achievement of certain sales levels over a two-year period.  Sunbank is a manufacturer of electrical cable accessories, connectors, and flexible conduit systems.  Sunbank is included in the Sensors & Systems segment.

On December 5, 2013, we announced the acceleration of our plans to consolidate certain facilities and create cost efficiencies through shared services in sales, general and administrative and support functions.  Our integration activities are expected to result in charges and expenses for a total of $35 million in fiscal 2014 and fiscal 2015.  Total restructuring expenses were $6.1 million, or 1.1% of sales, in the fourth fiscal quarter of 2014, of which $3.4 million is reported separately as restructuring expenses and $2.7 million is included in cost of goods sold.  Restructuring expenses were mainly comprised of $5.0 million of exit and relocation of facilities expenses and $0.8 million in severance.  Total restructuring expenses were $20.3 million, or 1.0% of sales, in fiscal 2014, of which $13.6 million is reported separately as restructuring expenses and $6.7 million is included in cost of goods sold.  Restructuring expenses were mainly comprised of $5.7 million in severance, $11.8 million in exit and relocation of facilities expenses, and a $2.8 million loss on the write off of certain property, plant and equipment.  Expense savings on short-cycle activities commenced in fiscal 2014, with substantially more savings projected in fiscal 2015.

On February 4, 2013, we acquired the Gamesman Group (Gamesman).  Gamesman is a global supplier of input devices principally serving the gaming industry.  Gamesman is included in the Avionics & Controls segment.

Sales during the fourth fiscal quarter of 2014 were $548.1 million compared with $513.7 million in the prior-year period, reflecting increased sales in our Sensors & Systems and Advanced Materials segments, partially offset by lower sales in our Avionics & Controls segment.

On September 8, 2010, we sold Pressure Systems, Inc. for approximately $25.0 million, which was included  Gross margin in our Sensors & Systems segment.

During the fourth fiscal quarter of 2012, net income2014 was $61.7 million, or $1.97 per diluted share,35.3% of sales compared with $19.4 million, or $0.62 per diluted share,38.9% in the prior-year period. period, mainly reflecting weaker gross margin at our Avionics & Controls and Sensors & Systems segments.  Research, development and engineering increased $2.0 million during the fourth fiscal quarter of 2014 to 4.3% of sales.  Selling, general and administrative expense increased $6.9 million during the fourth fiscal quarter of 2014 to 17.2% of sales, mainly reflecting higher corporate expenses supporting export compliance initiatives.

Segment earnings (operating earnings excluding corporate expenses and other income or expense) totaled $90.3$92.4 million, or 17.0%16.9% of sales, compared with $45.1$102.3 million, or 9%19.9% of sales, in the prior-year period. The increase in segmentperiod, reflecting decreased earnings reflected improved operating earnings from Avionics & Controls and Advanced Materials. Operating earnings of Sensors & Systems increasedacross all our segments due to incremental earnings from the Souriau acquisition and the fiscal 2011 effect of acquisition-relatedrestructuring expenses incurred, as well as improved results of advanced sensors and a recovery of non-recurring engineering expenses from a customer in fiscal 2012. Avionics & Controls results benefited from solid earnings from our avionics software testing business compared to an

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operating loss in the prior-year period. Avionics & Controls results also benefited from foreign currency exchange gains on embedded derivatives and monetary assets and lower research, development and engineering for avionics systems. Advanced Materials benefited from shipping previously delayed international shipments of flare countermeasure devices in the fourth quarter. gross margin.

The income tax rate for the fourth fiscal quarter of 20122014 was 13.0%19.9% compared to 11.8%with 20.5% in the prior-year period. Our income tax rate in

During the fourth fiscal quarter was favorably impacted by a $1.4 million release of valuation allowance related to foreign tax credits as a result of a tax examination.

During fiscal 2012, net income was $112.52014, earnings from continuing operations were $51.6 million, or $3.60$1.62 per diluted share, compared with $133.0$66.8 million, or $4.27$2.09 per diluted share, in the prior-year period.

Loss from discontinued operations for the fourth fiscal quarter of 2014 was $55.1 million, or $1.73 per diluted share.  The loss from discontinued operations consisted of a loss on long-lived assets held for sale of $49.5 million, net of income tax and operating losses of $5.6 million, net of income taxes.  Loss from discontinued operations for the fourth fiscal quarter of 2013 was $1.0 million, or $0.03 per diluted share.

Net income (loss) for the fourth fiscal quarter of 2014 was $(3.5) million, or $(0.11) per diluted share, compared with $65.9 million, or $2.06 per diluted share, in the fourth fiscal quarter of 2013.

During fiscal 2014, sales increased 8.6% to $2.1 billion, compared with $1.9 billion in the prior-year period.  The increase in sales reflected increased sales across all segments.

Gross margin decreased to 35.1% from 37.3% in the prior-year period, mainly reflecting weaker gross margin at our Avionics & Controls and Sensors & Systems segments.  Research, development and engineering increased $8.7 million across all segments to 4.8% of sales.  Selling, general and administrative expense decreased $2.4 million to 17.8% of sales, mainly due to the $10.0 million charge for the DDTC matter in the prior-year period, partially offset by higher corporate expenses incurred in fiscal 2014 supporting our export compliance initiatives.

The income tax rate for fiscal 2014 was 21.0% compared with 16.4% for fiscal 2013.  In fiscal 2014 and 2013, we recognized $1.6 million and $11.6 million, respectively, in discrete income tax benefits.

During fiscal 2014 earnings from continuing operations was $166.0 million, or $5.12 per diluted share, compared with $171.0 million, or $5.39 per diluted share, during fiscal 2011. The decrease in net income reflected2013.  In fiscal 2013 we recorded a $52.2$3.5 million, or $1.67$0.11 per diluted share, impairment charge against goodwill of Racal Acoustics, our military headset business, which is included in our Avionics & Controls segment.Inc (Racal Acoustics).

Excluding the impairment charge, segment earnings totaled $271.5Loss from discontinued operations for fiscal 2014 was $63.6 million or 13.6% of sales, in$1.96 per diluted share.  Loss from discontinued operations for fiscal 20122013 was $6.3 million, or $0.20 per diluted share.

Net income for fiscal 2014 was $102.4 million, or $3.16 per diluted share, compared with $240.0$164.7 million, or 14% of sales, in fiscal 2011, reflecting weaker sales and earnings from Avionics & Controls and strong results from Sensors & Systems and Advanced Materials. Sales and earnings in the fourth quarter increased over the fourth quarter of the prior year. This compared with weaker sales and earnings in each of the first, second and third quarters of fiscal 2012 against the respective corresponding quarters in 2011. Avionics & Controls full year results were impacted by lower sales and earnings of the T-6B military trainer and retrofits of military transport aircraft. Sensors & Systems sales and earnings benefited principally due to the inclusion of full-year results from Souriau. This business was acquired in July 2011, and the inventory fair value adjustment was principally recorded in the prior-year period. Sensors & Systems sales and earnings also benefited from improved sales and earnings of advanced sensors and power systems. The increase in Advanced Materials mainly reflected strong sales and earnings from higher sales of engineered materials.

The income tax rate$5.19 per diluted share, for fiscal 2012 was 20.9% compared with 15.7% for fiscal 2011.2013.

Cash flows from operating activities were $194.2$219.3 million in fiscal 20122014 compared to $192.4with $250.8 million in the prior-year period. We paid down our revolving credit facility and Euro Term Loan by $193.1 million during fiscal 2012.

Results of Operations

Fiscal 20122014 Compared with Fiscal 20112013

Sales for fiscal 20122014 increased 16.0%8.6% over the prior year.  Sales by segment were as follows:

The $51.9 million, or (6.2)% decrease,6.6% increase in Avionics & Controls sales mainly reflected decreased sales volumes of avionics systems of $64 million and communication systems offset by an increase inincreased sales volumes of control systems. The decrease in avionicsand communication systems was principally due to lower cockpit integration sales volumes for the T-6B military trainerof $22 million and retrofits for military transport aircraft. The decrease in sales for the T-6B was due the bankruptcy filinginterface technologies of Hawker Beechcraft. The decrease in segment sales also reflected a $16 million decrease in sales of hearing protection headsets due to reduced demand and order delays, of which about 50% was offset by higher sales of communication intercept receivers for signal intelligence applications.$30 million.  The increase in control and communication systems sales was mainly due toreflected increased sales volumes of control panels and switches of $15 million for OEM commercial aviation applications.  Additionally, the increase reflected higher sales volumes of communication systems to OEM customers.enhance security and aural clarity in military communication applications of $10 million.  The prior-year period benefited from a $4.4 million retroactive price settlement due to product scope changes.increase in interface technologies sales reflected higher gaming sales.

The $287.8 million, or 69.4%14.1% increase in sales of Sensors & Systems principally reflected increased sales of connection technologies of $60 million and power systems of $23 million.  The increase in connection technologies reflected incremental sales from the SouriauSunbank acquisition of $250$33 million and increasedhigher sales volumevolumes of advanced sensorsconnection technologies for commercial aviation and power systems of $36 million. About 60% of theindustrial applications.  The increase in advanced sensors and power systems sales reflected increased sales of power systems due to higher demand for commercial aviation products. The increase in advanced sensorsmainly reflected higher OEM sales for commercial aviation applications.  Advanced sensors sales increased $12 million on improved OEM sales partially offset by lower aftermarket sales.  For fiscal 2014, segment sales also benefited from a stronger euro and strong aftermarket demand for aerospace and industrial customers. Sales in fiscal 2012 reflected a weaker euroU.K. pound relative to the U.S. dollar compared with the prior-year period.  During the fourth quarter of fiscal 2014, the euro and U.K. pound weakened relative to the U.S. dollar.

The $38.5 million, or 8.3%3.9% increase in sales of Advanced Materials principally reflected increased sales volumes of engineered materials for defense and commercial aviation applications of $40$43 million, partially offset by decreasedlower sales volumes of defense technologies. The increase in engineered materials primarily reflected strong demand for elastomer and insulation materials for commercial aviation products. The decrease in defense technologies principally reflected a decrease inof $25 million due to lower sales of non-U.S. countermeasure flares due to reduced demandcountermeasures and order delays as well as lower demand for combustible ordnance.

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Foreign sales originating from non-U.S. locations, including export sales by domestic operations, totaled $1.2$1.3 billion and $971.0 million,$1.1 billion in fiscal 2014 and 2013, respectively, and accounted for 59.2%61.9% and 56.5%60.0% of our sales in fiscal 20122014 and 2011,2013, respectively.

Overall, gross margin as a percentage of sales was 36.1%35.1% and 34.3%37.3% in fiscal 20122014 and 2011,2013, respectively.  Gross profit was $719.0$720.6 million and $589.7$704.7 million in fiscal 20122014 and 2011,2013, respectively.  Gross margin was impacted by restructuring expense of $6.7 million, or 0.3%, of sales in fiscal 2014.

Avionics & Controls segment gross margin was 39.5%37.0% and 38.8%38.6% for fiscal 20122014 and 2011,2013, respectively.  Segment gross profit was $311.7$292.0 million compared to $326.5with $285.9 million in the prior-year period. The increase reflected increased gross profit on higher gaming sales.  The decrease in segment gross profit was mainlymargin as a percentage of sales reflected lower margins on sales of control panels, displays and cockpit control devices due to lower spare sales, product mix and a decreased recovery of fixed overhead due to lower sales volumes for the T-6B military trainerof cockpit and retrofits of military aircraft, partially offset by increased gross profit of our avionics software testing business.control devices.

Sensors & Systems segment gross margin was 34.8%34.0% and 28.3%37.6% for fiscal 20122014 and 2011,2013, respectively.  Segment gross profit was $244.6$262.3 million and $117.4$254.4 million for fiscal 20122014 and 2011,2013, respectively. Approximately 10% of theThe increase in gross profit mainly reflected strong demand for power systems for commercial aviation applications. Approximately 85% of the increase in gross profit was due to incremental gross profit from the Souriau acquisition. Souriau’sSunbank acquisition of $4 million and increased gross profit was impacted byon higher sales of power systems for commercial aviation. The decrease in segment gross margin as a $12 million chargepercentage of sales principally reflected lower margins on sales of connection technologies and advanced sensors.  The decrease in the first fiscal quarter of 2012gross margin on connection technologies was due to recording Souriau’s acquired inventory at its fair value. The prior-year period included a $27.9$1.4 million inventory fair value of inventory adjustment recognized principallyresulting from the Sunbank acquisition and Sunbank’s current gross margin being lower than segment gross margin.  In addition, connection technologies had lower defense sales and lower recovery of fixed overhead.  The decrease in the fourth fiscal quarter of 2011.advanced sensors gross margin reflected lower aftermarket sales and higher operating expenses.

Advanced Materials segment gross margin was 32.5%33.9% and 31.6%34.8% for fiscal 20122014 and 2011,2013, respectively.  Segment gross profit was $162.7$166.4 million and $145.8$164.4 million for fiscal 20122014 and 2011,2013, respectively.  The increase in gross profit was principally due to higher sales of elastomer materials and insulation materials primarily for commercial aviation applications. Gross profit on defense technologies increased slightly, principally reflecting an increase in gross profit and margin on flare countermeasures,applications, partially offset by lowera $19 million reduction gross profit on sales of defense technologies.  The decrease in defense technologies gross profit reflected lower sales of combustible ordnance and flare countermeasures.  The decrease in gross margin as a percent of sales was mainly due to decreased sales volumes.lower first pass yields on the production of flare countermeasure devices.

Selling, general and administrative expenses (which include corporate expenses) increaseddecreased to $382.9$364.3 million, or 19.2%17.8% of sales, in fiscal 20122014 compared with $304.2$366.6 million, or 17.7%19.4% of sales, in fiscal 2011.2013.  The increase$2.4 million decrease in selling, general and administrative expenses mainly reflects a $7.7 million decrease in segment expense principally reflected(excluding $12.8 million in restructuring expense), partially offset by a $65.1$5.3 million increase in selling, general and administrativecorporate expense.   The decrease in segment expense at our Sensors & Systems segment due toprincipally reflects a $10.9 million decrease in pension expense, partially offset by incremental selling, general and administrative expense from the Souriau acquisition. Selling, general and administrative expense increased $19.4 million at Avionics & Controls and Advanced Materials. This increase reflects a $2.8 millionacquisition of Sunbank.  The increase in bad debt due tocorporate expense reflects higher compliance expense and acquisition expense, partially offset by the bankruptcy filing of Hawker Beechcraft, $5$10 million charge for the DDTC matter in incremental selling, general and administrative expense from the Eclipse acquisition, and $4.3 million in severance costs. Corporate expense decreased $5.8 million from fiscal 2011, principally reflecting lower acquisition-related expenses.prior-year period.

Research, development and related engineering spending increased to $107.7$98.9 million, or 5.4%4.8% of sales, in fiscal 20122014 compared with $94.5$90.2 million, or 5.5%4.8% of sales, in fiscal 2011.2013.  The $13.2 million increase in research, development and related engineering expensespending principally reflects the incrementalhigher spending of $9 million on connection technologies reflecting a full-year impact due to the acquisition of Souriauavionics systems, power systems and $6 million on power systems.advanced sensors.

Segment earnings for fiscal 20122014 were $219.4$312.1 million, or 11.0%15.2% of sales, compared with $240.0$308.8 million, or 14.0%16.4% of sales, for fiscal 2011. The decrease in2013.  Excluding restructuring expenses of $20.4 million, segment earnings reflectswere $332.5 million, or 16.2% of sales, for fiscal 2014.  Segment earnings in fiscal 2013 were impacted by the $52.2$3.5 million impairment charge against goodwill of Racal Acoustics. If the impairment charge is excluded, segment earnings totaled $271.5 million, or 13.6% of sales, for fiscal 2012.

Avionics & Controls segment earnings were $54.9$121.2 million, or 7.0%15.4% of sales, in fiscal 20122014 compared with $135.2$111.1 million, or 16.1%15.0% of sales, in fiscal 2011. Excluding the $52.22013.  The $10.1 million impairment charge, segment earnings were $107.1 million, or 13.6% of sales, in fiscal 2012. The decreaseincrease in segment earnings from thereflected an $8 million increase in control and communication earnings.  The increase in control and communication earnings was due to a $3 million improvement in operating results on sales of communication systems to enhance security and aural clarity in military communication applications and increased earnings on sales of secure communication devices.  The prior-year period reflectswas impacted by a $22$3.5 million goodwill impairment of Racal Acoustics, which was substantially offset by a $2.3 million gain on the sale of a product line and certain contractual recoveries of non-recurring engineering expense.  In addition, earnings from sales of interface technologies increased $4 million on higher gaming sales.  Segment earnings were partially offset by a $2 million decrease in earnings on sales of avionics systems earnings and a $5 million decrease in control systems earnings.systems.  Avionics systems earnings were impacted by decreased gross profit$4 million in restructuring charges, net of $1 million in savings, a $5 million increase in the estimate at completion expense for certain long-term contracts, and a $2.3$4 million bad debt expense due to the bankruptcy of Hawker Beechcraft, partially offset by a decrease in spending on research, development and engineering. Control systems earnings were impacted by an increase in research, development and engineering, expense. Additionally, the second fiscal quarterall of 2011 benefited from a $1.1 million recovery of non-recurring engineering expense upon settlement with a customer of control systems.which was partially offset by favorable foreign currency exchange gains and government development credits.