SECURITIES and EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 2001
Commission File Number 1-134
CURTISS-WRIGHT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-0612970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Wall Street West
Lyndhurst, New Jersey 07071
(Address of principal executive offices) (Zip Code)
(201) 896-8400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $1.00 per share: 10,071,840 shares (as of July 13, 2001)
Page 1 of 23
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
TABLE of CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Stockholders' Equity 6
Notes to Consolidated Financial Statements 7 - 13
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 14 - 20
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 21
Forward-Looking Information 21
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 22
Signatures 23
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
June 30, December 31,
2001 2000
------------ ------------
Assets
Current Assets:
Cash and cash equivalents $ 13,288 $ 8,692
Short-term investments 53,866 62,766
Receivables, net 73,492 67,815
Inventories, net 49,462 50,002
Deferred income taxes 9,529 9,378
Other current assets 3,924 3,419
------------ ------------
Total current assets 203,561 202,072
------------ ------------
Property, plant and equipment, at cost 251,797 246,896
Less: Accumulated depreciation 160,070 156,443
------------ ------------
Property, plant and equipment, net 91,727 90,453
Prepaid pension costs 64,447 59,765
Goodwill 46,370 47,543
Other assets 9,038 9,583
------------ ------------
Total Assets $ 415,143 $409,416
============ ============
Liabilities
Current Liabilities:
Current portion of long-term debt $ 0 $ 5,347
Dividends payable 1,302 0
Accounts payable 13,490 13,766
Accrued expenses 15,769 19,389
Income taxes payable 4,519 4,157
Other current liabilities 7,387 9,634
------------ -----------
Total current liabilities 42,467 52,293
Long-term debt 21,208 24,730
Deferred income taxes 24,567 21,689
Other liabilities 22,097 20,480
------------ -----------
Total Liabilities 110,339 119,192
------------ -----------
Stockholders' Equity
Common stock, $1 par value 15,000 15,000
Capital surplus 50,360 51,506
Retained earnings 428,937 411,866
Unearned portion of restricted stock (14) (22)
Accumulated other comprehensive income (9,216) (5,626)
------------ ----------
485,067 472,724
Less: Cost of treasury stock 180,263 182,500
------------ ----------
Total Stockholders' Equity 304,804 290,224
------------ -----------
Total Liabilities and Stockholders'
Equity $ 415,143 $409,416
============= ===========
See notes to consolidated financial statements.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except per share data)
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 (1) 2001 2000 (1)
Net sales $86,604 $83,050 $166,521 $165,287
Cost of sales 53,767 52,579 103,673 105,887
-------- -------- --------- ---------
Gross profit 32,837 30,471 62,848 59,400
Research & development costs 1,025 867 1,922 1,599
Selling expenses 4,487 4,932 9,080 9,688
General and administrative expenses 14,134 12,542 27,472 23,777
Environmental expenses
(recoveries), net 125 (1,899) 43 (1,782)
-------- -------- --------- ---------
Operating income 13,066 14,029 24,331 26,118
Investment income, net 650 514 1,493 1,019
Rental income, net 1,111 890 1,854 2,050
Pension income, net 2,343 2,341 4,687 4,085
Other income (expenses), net 128 (75) (39) (107)
Interest expense (396) (396) (645) (772)
-------- -------- --------- ---------
Earnings before income taxes 16,902 17,303 31,681 32,393
Provision for income taxes 6,437 6,659 11,997 12,520
--------- -------- --------- ---------
Net earnings $10,465 $10,644 $ 19,684 $ 19,873
========= ======== ========= =========
Basic earnings per common share $1.04 $1.06 $1.96 $1.98
========= ======== ========= =========
Diluted earnings per common share $1.02 $1.05 $1.92 $1.96
========= ======== ========= =========
Dividends per common share $0.13 $0.13 $0.26 $0.26
========= ======== ========= =========
Weighted average shares outstanding:
Basic 10,059 10,017 10,049 10,017
Diluted 10,269 10,114 10,259 10,114
See notes to consolidated financial statements.
(1) Certain prior year information has been reclassified to conform to current
presentation.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended June 30,
2001 2000 (1)
Cash flows from operating activities:
Net earnings $ 19,684 $19,873
----------- ---------
Adjustments to reconcile net earnings to
net cash provided by operating activities
(net of businesses acquired):
Depreciation and amortization 7,460 7,114
Net gains on short-term investments (50) (66)
Net gain on sale of asset (26) 0
Non-cash pension income (4,687) (4,085)
Increase in deferred taxes, net 2,727 4,080
Changes in operating assets and liabilities:
Proceeds from sales of trading securities 160,389 80,946
Purchases of trading securities (151,439) (92,543)
(Increase) decrease in receivables (5,992) 3,596
Decrease in inventories 1,760 976
Increase in progress payments 767 696
Decrease in accounts payable and accrued expenses (5,712) (247)
Increase (decrease) in income taxes payable 362 (2,179)
(Increase) decrease in other assets (331) 1,113
Decrease in other liabilities (2,104) (7,701)
Other, net 8 52
---------- --------
Total adjustments 3,132 (8,248)
---------- --------
Net cash provided by operating activities 22,816 11,625
---------- --------
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment 468 613
Additions to property, plant and equipment (6,262) (3,265)
Acquisition of new business (1,525) 0
---------- --------
Net cash used in investing activities (7,319) (2,652)
---------- --------
Cash flows from financing activities:
Debt repayments (7,751) (5,782)
Dividends Paid (1,305) (1,305)
Proceeds from the exercise of stock options 1,094 196
Common stock repurchases (3) (1,489)
---------- ---------
Net cash used in financing activities (7,965) (8,380)
---------- ---------
Effect of foreign exchange rate changes (2,936) (1,195)
---------- ---------
Net increase (decrease) in cash and cash equivalents 4,596 (602)
Cash and cash equivalents at beginning of period 8,692 9,547
----------- ---------
Cash and cash equivalents at end of period $ 13,288 $ 8,945
=========== =========
See notes to consolidated financial statements.
(1) Certain prior year information has been reclassified to conform to current
presentation.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Unearned Accumulated
Portion of Other
Common Capital Retained Restricted Comprehensive Treasury
Stock Surplus Earnings Stock Income Stock
December 31, 1999 $15,000 $51,599 $376,006 ($24) ($2,622) $181,604
Net earnings 41,074
Common dividends (5,214)
Restricted Stock Issued 1 (15) (14)
Common stock repurchased 1,489
Stock options exercised, net (94) (579)
Amortization of earned portion
of restricted stock 17
Translation adjustments, net (3,004)
------- -------- --------- ----- ------- ---------
December 31, 2000 15,000 51,506 411,866 (22) (5,626) 182,500
Net earnings 19,684
Common dividends (2,613)
Restricted Stock Issued
Common stock issued
Common stock repurchased 3
Stock options exercised, net (1,146) (2,240)
Amortization of earned 8
portion of
restricted stock
Translation adjustments, net (3,590)
-------- -------- --------- ------ -------- ---------
June 30, 2001 $15,000 $50,360 $428,937 ($14) ($9,216) $180,263
======== ======== ========= ====== ======== =========
See notes to consolidated financial statements.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Curtiss-Wright Corporation and its subsidiaries (the "Corporation") is
a diversified multi-national manufacturing and service concern that
designs, manufactures and repairs precision components and systems and
provides highly engineered services to the aerospace, ground defense,
automotive, shipbuilding, oil, petrochemical, agricultural equipment,
railroad, power generation, metalworking and fire & rescue industries.
Operations are conducted through nine manufacturing facilities,
thirty-nine metal treatment service facilities and four component
repair locations.
The information furnished in this report has been prepared in
conformity with generally accepted accounting principles and as such
reflects all adjustments, consisting primarily of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. The
unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Corporation's 2000 Annual Report on Form 10-K.
The results of operations for these interim periods are not necessarily
indicative of the operating results for a full year. Certain
reclassifications of 2000 amounts have been made in order to conform to
the current presentation.
2. ACQUISITIONS
On March 23, 2001, the Corporation acquired the operating assets of
Solent & Pratt Ltd. Solent & Pratt is a manufacturer of high
performance butterfly valves and has been a global supplier to the
petroleum, petrochemical, chemical and process industries for over 40
years. The operations are located in Bridport, England and will
continue to operate under the Solent & Pratt name.
The Solent & Pratt butterfly valve product line complements products
the Corporation currently offers to its existing markets. The addition
also provides Curtiss-Wright with a European manufacturing presence for
its Flow Control business segment and strengthens its distribution
capabilities in that region.
The Corporation purchased the assets and assumed certain liabilities of
Solent & Pratt for approximately $1.5 million in cash. The acquisition
was accounted for as a purchase in the first quarter of 2001. The
excess of the purchase price over the fair value of the net assets
acquired is currently estimated at $1.2 million and is being amortized
over 30 years.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
3. RECEIVABLES
Receivables at June 30, 2001 and December 31, 2000 include amounts
billed to customers and unbilled charges on long-term contracts
consisting of amounts recognized as sales but not billed as of the
dates presented. Substantially all unbilled receivables are expected to
be billed and collected within a year. The composition of receivables
is as follows:
(in thousands)
----------------------------------
June 30, December 31,
2001 2000
-------- ----------
Accounts receivable, billed $59,544 $60,927
Less: progress payments applied (352) (1,508)
-------- ----------
59,192 59,419
-------- ----------
Unbilled charges on long-term contracts 24,427 18,090
Less: progress payments applied (8,710) (7,040)
-------- ----------
15,717 11,050
-------- ----------
Allowance for doubtful accounts (1,417) (2,654)
-------- ----------
Receivable, net $73,492 $67,815
======== ==========
4. INVENTORIES
Inventories are valued at the lower of cost (principally average cost)
or market. The composition of inventories at June 30, 2001 and December
31, 2000 is as follows:
(In thousands)
----------------------------------
June 30, December 31,
2001 2000
----------- --------------
Raw materials $12,952 $11,955
Work-in-process 2,075 10,815
Finished goods/component parts 2,783 32,621
Inventoried costs related to US government
and other long-term contracts 4,399 5,961
----------- -------------
Gross inventory 62,209 61,352
Less: inventory reserves (11,195) (10,944)
Less: progress payments (1,552) (406)
------------ ------------
Inventories, net $49,462 $50,002
============ ============
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
5. ENVIRONMENTAL MATTERS
The Corporation establishes a reserve for a potential environmental
responsibility when it concludes that a determination of legal
liability is probable, based upon the advice of counsel. Such amounts,
if quantified, reflect the Corporation's estimate of the amount of that
liability. If only a range of potential liability can be estimated, a
reserve will be established at the low end of that range. Such reserves
represent the current value of anticipated remediation not reduced by
any potential recovery from insurance carriers or through contested
third-party legal actions, and are not discounted for the time value of
money.
The Corporation is joined with many other corporations and
municipalities as potentially responsible parties (PRPs) in a number of
environmental cleanup sites, which include but are not limited to the
Sharkey landfill superfund site, Parsippany, New Jersey; Caldwell
Trucking Company superfund site, Fairfield, New Jersey; Pfohl Brothers
landfill site, Cheektowaga, New York; Chemsol, Inc. superfund site,
Piscataway, New Jersey; and Amenia landfill site, Amenia, New York.
The Corporation believes that the outcome of any of these matters would
not have a material adverse effect on the Corporation's results of
operations or financial condition.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
6. SEGMENT INFORMATION
The Corporation conducts its business operations through three
segments: Motion Control, Metal Treatment and Flow Control.
(In thousands)
Three Months Ended June 30, 2001
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Total & Other Total
Revenue from external
customers $35,728 $27,049 $23,827 $86,604 $ 0 $86,604
Intersegment revenues 0 124 0 124 (124) 0
Segment operating Income 5,999 4,917 2,683 13,599 (533) 13,066
(In thousands)
Three Months Ended June 30, 2000
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Total & Other(1) Total
Revenue from external
customers $32,306 $26,477 $24,267 $83,050 $ 0 $83,050
Intersegment revenues 0 143 0 143 (143) 0
Segment operating Income (1) 5,109 5,391 1,900 12,400 1,629 14,029
(1) Operating income for corporate and other includes environmental recoveries
of $1.9 million, net of expenses.
Reconciliation: (In thousands)
Three months ended
June 30, 2001 June 30, 2000
------------- -------------
Total operating income $13,066 $14,029
Investment income, net 650 514
Rental income, net 1,111 890
Pension income, net 2,343 2,341
Other income (expense), net 128 (75)
Interest expense (396) (396)
-------- --------
Earnings before income taxes $16,902 $ 17,303
======== ========
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(In thousands)
Six Months Ended June 30, 2001
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Total & Other Total
Revenue from external
customers $65,685 $54,921 $45,915 $166,521 $ 0 $166,521
Intersegment revenues 0 230 0 230 (230) 0
Segment operating income 10,582 10,380 3,902 24,864 (533) 24,331
Segment assets 98,229 81,607 90,149 269,985 145,158 415,143
(In thousands)
Six Months Ended June 30, 2000
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Total & Other (1) Total
Revenue from external
customers $59,650 $54,701 $50,936 $165,287 $ 0 $165,287
Intersegment revenues 0 301 0 301 (301) 0
Segment operating Income 6,518 12,223 4,445 23,186 2,932 26,118
Segment assets 109,703 82,544 84,107 276,354 113,900 390,254
(1) Operating income for corporate and other includes a $2.8 million gain for
the curtailment of postretirement benefits associated with the closing of the
Fairfield, NJ facility and net environmental recoveries of $1.9 million,
partially offset by accrued post employment costs of $.7 million.
Reconciliation:
(In thousands)
Six months ended
June 30, 2001 June 30, 2000
------------- -------------
Total operating income $24,331 $26,118
Investment income, net 1,493 1,019
Rental income, net 1,854 2,050
Pension income, net 4,687 4,085
Other expense, net (39) (107)
Interest expense (645) (772)
-------- ---------
Earnings before income taxes $31,681 $32,393
======== =========
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
8. COMPREHENSIVE INCOME
Total comprehensive income is as follows:
(In thousands)
Three Months Ended Six Months Ended
----------------------------------- ----------------------------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
Net earnings $10,465 $10,644 $19,684 $19,873
Foreign currency translations (1,364) (479) (3,590) (356)
--------- -------- -------- --------
Total comprehensive income $ 9,101 $10,165 $16,094 $19,517
========= ======== ======== ========
9. EARNINGS PER SHARE
The Corporation accounts for its earnings per share (EPS) in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS No. 128). Diluted earnings per share were computed based
on the weighted average number of shares outstanding plus all
potentially dilutive common shares issuable for the periods. Dilutive
common shares for the three and six months ended June 30, 2001 were
210,000, and for the three and six months ended June 30, 2000 were
97,000.
10. CONTINGENCIES AND COMMITMENTS
The Corporation's Drive Technology subsidiary located in Switzerland
entered into sales agreements with two European defense organizations
which contained offset obligations to purchase approximately 43.0
million Swiss francs of product from suppliers of two European
countries over multi-year periods which expire in 2005 and 2007. The
agreements contain a penalty of 5% of the unmet obligation at the end
of the term of the agreements.
The Corporation expects to fully comply with both obligations under
these agreements.
11. ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
The Corporation adopted Financial Accounting Standard No. 133
"Accounting for Derivatives and Hedging Activities" effective January
1, 2001. The adoption of this standard had no material effect on the
Corporation's results of operation or financial condition due to its
limited use of derivatives.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
12. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 141, which requires all business combinations to be accounted
for under the purchase method of accounting, is effective for business
combinations initiated after June 30, 2001. Under the new rules of SFAS
No. 142, goodwill will no longer be amortized but will be subject to
annual impairment tests in accordance with the statements. Other
intangible assets will continue to be amortized over their useful
lives. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. Accordingly, the Corporation will apply the new
rules on accounting for goodwill and other intangible assets beginning
in the first quarter of 2002. Application of the non-amortization
provisions of the statement is not expected to have a material effect
on the Corporation's financial statements. The Corporation has not yet
determined what the effect of these tests will be on the earnings and
financial position of the Corporation.
PART I - ITEM 2
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
RESULTS of OPERATIONS
Quarter Ended June 30, 2001
Sales for the second quarter of 2001 increased 4% from the prior year
to $86.6 million. New orders in the current quarter increased to $103.9 million,
13% above the prior year quarter, and backlog was 11% lower, at $187.2 million.
The increase in sales in 2001 was attributable to higher demand for our
aerospace OEM and global defense products as well as products provided to the
oil & gas markets, offset partially by softening in automotive-related
businesses, lower demand in the aerospace overhaul and repair services market
and unfavorable foreign exchange rates.
Operating income for the Corporation was $13.1 million in the second
quarter of 2001, 7% lower than operating income of $14.0 million for the second
quarter of 2000. However, during the second quarter of 2000, the Corporation
recorded several unusual items, which added $1.9 million to operating income, as
outlined in the table below. Excluding the effects of these items, normalized
operating income amounted to $12.1 million for the second quarter of 2000. Thus,
the 2001 operating income of $13.1 million, when compared to the normalized
operating income of $12.1 million in 2000, resulted in an 8% improvement
year-to-year. This performance was due to higher margins resulting from a
favorable sales mix and the realization of the benefits of profit
improvement/cost reduction programs, offset partially by unfavorable foreign
exchange rates, higher energy costs and start-up related expenses for new metal
treatment facilities.
Net earnings for the Corporation were $10.5 million, or $1.02 per
diluted share in the second quarter of 2001, slightly lower than net earnings of
$10.6 million, or $1.05 per diluted share for the second quarter of 2000. During
the second quarter of 2000, the Corporation recorded several unusual items as
outlined in the table below, which added $1.2 million, or $0.11 per diluted
share, to net earnings. Excluding the effects of these items, normalized net
earnings amounted to $9.5 million, or $0.94 per diluted share, for the second
quarter of 2000, as compared to $10.5 million, or $1.02 per diluted share in the
second quarter of 2001. Therefore, on a normalized basis, net earnings for the
second quarter of 2001 increased 10% over the same period of 2000.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
RESULTS of OPERATIONS
Six Months Ended June 30, 2001
Sales for the first half of 2001 increased slightly to $166.5 million,
as compared $165.3 million for the same prior year period. New orders totaled
$170.7 million, 5% above the same six-month period of last year. The increase in
sales in 2001 was attributable to higher demand for our aerospace OEM and global
defense products as well as products provided to the oil & gas markets, offset
partially by softening in automotive-related businesses, lower demand in the
aerospace overhaul and repair services market and unfavorable foreign exchange
rates.
Operating income for the Corporation was $24.3 million for the first
six months of 2001, down 7% from operating income of $26.1 million for the same
prior year period. However, during 2000, the Corporation recorded several
unusual items, which added $3.9 million to operating income. Excluding the
effects of these items, normalized operating income amounted to $22.2 million
for the first six months of 2000. Thus, the 2001 operating income of $24.2
million, when compared to the normalized operating income of $22.2 million in
2000, resulted in a 10% improvement year to year. This performance was due to
higher margins resulting from a favorable sales mix and the realization of the
benefits of profit improvement/cost reduction programs, offset partially by
unfavorable foreign exchange rates, higher energy costs and some start-up
related expenses for new metal treatment facilities.
Net earnings for the first six months of 2001 of $19.7 million, or
$1.92 per diluted share, was slightly lower than net earnings of $19.9 million,
or $1.96 per share, for the first six months of 2000. In addition to the unusual
items recorded in the second quarter of 2000, as noted above and in the table
below, results for the first six months of 2000 also benefited from unusual
items recorded in the first quarter of 2000 which added $1.2 million, or $0.12
per diluted share to net earnings. Excluding the effects of these items,
normalized net earnings for the first six months of 2000 amounted to $17.5
million, or $1.73 per diluted share. Therefore, on a normalized basis, net
earnings for the first six months of 2001 increased 13% over the same period of
2000.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
NORMALIZED EARNINGS SUMMARY-QUARTER
Quarter Ended June 30, 2001
---------------------------------------
OPERATING NET DILUTED
INCOME EARNINGS EARNINGS
PER SHARE
As Reported $13,066 $10,465 $1.02
Unusual Items 0 0 0.00
------- ------- ------
Normalized $13,066 $10,465 $1.02
======= ======= ======
Quarter Ended June 30, 2000
---------------------------------------
As Reported $14,029 $10,644 $1.05
Unusual Items:
Insurance settlements, net (3,643) (2,235) (0.22)
Environmental costs 1,747 1,072 0.11
-------- -------- ------
Normalized $12,133 $ 9,481 $0.94
======== ======== ======
NORMALIZED EARNINGS SUMMARY-SIX MONTHS
OPERATING NET DILUTED
INCOME EARNINGS EARNINGS
PER SHARE
Six Months Ended June 30, 2001
-------------------------------------
As Reported $24,331 $19,684 $1.92
Unusual Items 0 0 0.00
------- ------- -----
Normalized $24,331 $19,684 $1.92
======= ======= =====
Six Months Ended June 30, 2000
------------------------------------
As Reported $26,118 $19,873 $1.96
Unusual Items:
Insurance settlements, net (3,643) (2,235) (0.22)
Environmental costs 1,747 1,072 0.11
Postretirement benefits curtailment (2,767) (1,692) (0.17)
Post employment & other costs 720 440 0.05
-------- -------- ------
Normalized $22,175 $17,458 $1.73
======== ======== ======
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
Operating Performance
Motion Control
Sales for the Corporation's Motion Control segment improved 11% to
$35.7 million and 10% to $65.6 million in the second quarter and first six
months of 2001, respectively, from $32.3 million and $59.6 million in the second
quarter and first six months of 2000, respectively. Sales improvements for the
quarter were largely a result of higher sales for the F-22 military aircraft
program and earlier than anticipated shipments on the Boeing 737 program. In
addition, the Drive Technology business showed strong growth in sales as
compared to the second quarter of 2000. Sales of aerospace repair and overhaul
services for the second quarter of 2001 were lower than the second quarter of
2000 due primarily to continued softening in demand for these services.
Operating income for the Motion Control segment of $6.0 million and
$10.6 million for the second quarter and first half of 2001, respectively,
showed improvements from the same periods of last year. Operating income for the
second quarter of 2001 improved 17% and for the first half of 2001 by 62% from
the same periods in 2000. The 2001 performance was due mainly to the realization
of the benefits resulting from facility consolidations, increased shipments of
higher margin OEM products, offset partially by softened demand in the component
overhaul and repair business.
Metal Treatment
Sales for the Corporation's Metal Treatment segment totaled $27.0
million and $54.9 million for the second quarter and first six months of 2001,
respectively, improving slightly when compared with sales of $26.5 million and
$54.7 million for the respective periods of 2000. Year-to-date sales were
slightly higher than the prior year despite the negative impact of foreign
currency translation. Sales of shot-peening services increased slightly due to
improvements in the aerospace and oil & gas markets, which were offset by
softness in automotive markets.
Operating income for the Metal Treatment segment of $4.9 million for
the second quarter of 2001 showed a 9% decline from the same prior year period.
For the first six months of 2001, operating income of $10.4 million was down 15%
from the comparable period of 2000. For the six months ended June 30, 2001,
slight improvements in valve operations were offset by lower income at both
shot-peening and heat treating operations. For the second quarter and first
half, operating income was adversely affected by foreign currency translation by
$0.5 million and $0.8 million, respectively, when compared to rates that existed
in the same periods of 2000. Start up costs associated with a new facility and
an acquisition completed in December of last year, softness in the automotive
sector and higher energy costs also negatively affected operating income.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
Flow Control
The Corporation's Flow Control segment posted sales of $23.8 million
for the second quarter and $45.9 million for the first half of 2001, compared
with sales of $24.3 million and $50.9 million reported in the respective periods
of 2000. Lower sales during the second quarter and the first half of 2001 were
primarily the result of the slowdown in the automotive and heavy truck markets
and the sale of a distributor operation that was formerly part of this business
segment. This was offset partially by the strong demand in the petrochemical and
oil & gas markets, primarily for maintenance, repair and overhaul applications.
Military sales were essentially level with the respective prior year periods.
Operating income in the second quarter of 2001 was $0.8 million or 41%
higher than the same period of 2000. Higher margins on parts sales for the
petrochemical and oil & gas markets, the elimination of overhead costs
associated with the disposal of a distribution operation and stringent cost
containment efforts, were partially offset by lower volume and margins in the
automotive and heavy truck markets. Operating income for the first six months of
2001 was 12% lower than the same period of 2000.
Corporate and Other
The Corporation had a non-segment operating loss of $0.5 million during
the second quarter 2001 as compared to $1.6 million of non-segment operating
income in the same period of the prior year. During the second quarter 2001, the
Corporation incurred costs in connection with the proposed re-capitalization,
which were partially offset by a small environmental insurance settlement. In
the second quarter 2000, the Corporation recognized operating income of $1.6
million, of which $1.9 million was due to the recognition of a curtailment of
postretirement benefits partially offset by non-recurring post-employment
expenses (see table above).
Results for the first half of 2001 also reflect the incurrence of
re-capitalization costs, offset partially by a small environmental insurance
settlement. Results for the first half of 2000 included $3.9 million reflecting
the recognition of the curtailment of postretirement benefits associated with
the closing of the Fairfield, New Jersey facility, and net environmental
insurance settlements, offset by non-recurring post-employment expenses and
environmental costs.
Other Revenues and Costs
For the second quarter of 2001, the Corporation recorded net
non-operating income of $4.2 million compared to $3.7 million in the second
quarter of 2000. Higher net rental income and higher net investment income
contributed to the increase. For the first six months of 2001 net non-operating
income totaled $8.0 million as compared to $7.0 million in the same period of
2000. Contributing to this increase was higher pension income, reflecting the
higher overfunded status of the Corporation's pension plan and higher net
investment income, offset partially by lower net rental income.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
CHANGES IN FINANCIAL CONDITION:
Liquidity and Capital Resources:
The Corporation's working capital was $161.1 million at June 30, 2001,
8% above working capital at December 31, 2000 of $149.8 million. The ratio of
current assets to current liabilities improved to 4.79 to 1 at June 30, 2001,
compared with a ratio of 3.86 to 1 at December 31, 2000.
Cash, cash equivalents and short-term investments totaled $67.2 million
in aggregate at June 30, 2001, a 6% decrease from $71.5 million at the prior
year-end. During the first six months of 2001, the Corporation repaid two
industrial revenue bonds which matured totaling $5.3 million and paid down
approximately $2.4 million of its long-term Swiss debt. In addition, during the
first quarter of 2001, the Corporation acquired the net assets of Solent & Pratt
Ltd. for cash, as discussed in Note 2 to the Consolidated Financial Statements.
Cash flow for the Corporation benefited from a slight decline in
inventories despite higher sales, as the Corporation continued with its programs
for improving inventory turnover. Inventory turnover improved to 4.20 at June
30, 2001 from 3.77 at the prior year-end.
The Corporation has two credit agreements in effect, a Revolving Credit
Agreement and a Short-Term Credit Agreement, aggregating $100.0 million with a
group of five banks. The credit agreements allow for borrowings to take place in
U. S. or certain foreign currencies. The Revolving Credit Agreement commits a
maximum of $60.0 million to the Corporation for cash borrowings and letters of
credit. The unused credit available under this facility at June 30, 2001 was
$35.3 million. The commitments made under the Revolving Credit Agreement expire
December 17, 2004, but may be extended annually for successive one-year periods
with the consent of the bank group. The Short-Term Credit Agreement allows for
cash borrowings of $40.0 million, all of which was available at June 30, 2001.
The Short-Term Credit Agreement expires on December 14, 2001 and may be
extended, with the consent of the bank group, for an additional period not to
exceed 364 days. Cash borrowings (excluding letters of credit) under the two
credit agreements at June 30, 2001 were at a US Dollar equivalent of $7.8
million, compared with cash borrowing of $12.6 million at June 30, 2000. The
initial borrowings under these agreements were used to finance the Drive
Technology acquisition in December 1998 and have a remaining balance of 14
million francs as of June 30, 2001. The loans had variable interest rates
averaging 4.2% for the first six months of 2001 and variable interest rates
averaging 3.2% for the first six months of 2000.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
During the first half of 2001, internally available funds were adequate
to meet capital expenditures of $7.6 million. Expenditures incurred during the
first half were generally for new and replacement machinery and
equipment needed for the operating segments. During the first six months of
2001, capital expenditures amounted to $2.7 million, $2.6 million and $2.1
million for the Metal Treatment, Motion Control and Flow Control segments,
respectively.
The Corporation is expected to make capital expenditures of an
additional $10.0 million during the balance of the year, primarily for machinery
and equipment for the operating segments. Funds from internal sources are
expected to be adequate to meet planned capital expenditures, environmental and
other obligations for the remainder of the year.
RECENTLY ISSUED ACCOUNTING STANDARDS
As discussed in Note 11 to the Consolidated Financial Statements, in
July 2001 the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 141 "Business combinations" and No. 142 "Goodwill and
Other Intangible Assets". Generally, the new rules eliminate the use of the
"pooling of interests" method of accounting for a business combination effective
for acquisitions initiated after June 30, 2001. In addition, the new rules
eliminate the amortization of goodwill effective for years beginning after
December 15, 2001 but subjects goodwill to an annual impairment test in
accordance with the new rules. Application of the non-amortization provisions of
the statement is not expected to have a material effect on the Corporation's
financial statements. The Corporation has not yet determined what the effect of
these tests will be on the earnings and financial position of the Corporation.
RECAPITALIZATION UPDATE
The projected date of June 30, 2001 to complete its proposed
re-capitalization has passed. The Corporation and Unitrin are continuing to work
to complete the re-capitalization and we expect to bring the matter to a
shareholder vote in the fourth quarter of this year.
RECENT DEVELOPMENTS
On July 9, 2001, the Corporation announced that it is pursuing the sale
of its industrial park located in Wood-Ridge, New Jersey. On August 2, 2001, the
Corporation entered into an agreement to sell the property with a prospective
purchaser. The agreement is subject to cancellation until the purchaser
completes its due diligence review of the property. This property, which is the
primary source of the Corporation's rental income, is not part of the
Corporation's core business or strategic focus and the disposal will enable the
Corporation to re-deploy the capital in order to pursue other strategic
initiatives. The disposal of this property is expected to generate a gain, the
final amount of which has not yet been determined.
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation is exposed to certain market risks from changes in
interest rates and foreign currency exchange rates as a result of its global
operating and financing activities. Although foreign currency translation had an
unusually adverse impact on sales and operating income in 2000 and the first
half of 2001, the Corporation seeks to minimize the risks from these interest
rate and foreign currency exchange rate fluctuations through its normal
operating and financing activities and, when deemed appropriate, through the use
of derivative financial instruments. The Corporation did not use such
instruments for trading or other speculative purposes and did not use leveraged
derivative financial instruments during the first half of year 2001. Information
regarding the Corporation's market risk and market risk management polices is
more fully described in Item 7A. "Quantitative and Qualitative Disclosures about
Market Risk" of the Corporation Annual Report on Form 10-K for year ended
December 31, 2000.
Forward-Looking Information
Except for historical information contained herein, this Quarterly
Report on Form 10-Q does contain "forward looking" information within the
meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934. Examples of forward looking information include, but are
not limited to, (a) projections of or statements regarding return on investment,
future earnings, interest income, other income, earnings or loss per share,
investment mix and quality, growth prospects, capital structure and other
financial terms, (b) statements of plans and objectives of management, (c)
statements of future economic performance, and (d) statements of assumptions,
such as economic conditions underlying other statements. Such forward looking
information can be identified by the use of forward looking terminology such as
"believes," "expects," "may," "will," "should," "anticipates," or the negative
of any of the foregoing or other variations thereon or comparable terminology,
or by discussion of strategy. No assurance can be given that the future results
described by the forward-looking information will be achieved. Such statements
are subject to risks, uncertainties, and other factors which are outside our
control that could cause actual results to differ materially from future results
expressed or implied by such forward looking information. Readers are cautioned
not to put undue reliance on such forward-looking information. Such statements
in this Report include, without limitation, those contained in Part I, Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Notes to the Consolidated Financial Statements including,
without limitation, the Environmental Matters Note. Important factors that could
cause the actual results to differ materially from those in these
forward-looking statements include, among other items, (i) a reduction in
anticipated orders; (ii) an economic downturn; (iii) unanticipated environmental
remediation expenses or claims; (iv) changes in the need for additional
machinery and equipment and/or in the cost for the expansion of the
Corporation's operations; (v) changes in the competitive marketplace and/or
customer requirements; (vi) an inability to perform customer contracts at
anticipated cost levels and (vii) other factors that generally affect the
business of companies operating in the Corporation's Segments.
PART II - OTHER INFORMATION
Item 6. EXHIBITS and REPORTS on FORM 8-K
(a) Exhibits
(3) By-laws as amended through June 26, 2001,
filed herewith.
(10) Revised Standard Employment Severance Agreement with
Certain Management of Curtiss-Wright, which
replaces and supersedes Standard Severance
Agreement with Officers of Curtiss-Wright
incorporated by reference to Exhibit 10(iv)
to Registrant's Annual Report on Form 10-K
or the year ended December 31, 1991.
(b) Reports on Form 8-K
The Registrant did not file any report on Form 8-K during the
quarter ended June 30, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CURTISS-WRIGHT CORPORATION
(Registrant)
By: /s/ Robert A. Bosi
------------------------
Robert A. Bosi
Vice President - Finance
(Chief Financial Officer)
By: /s/ Glenn E. Tynan
------------------------
Glenn E. Tynan
Corporate Controller
(Chief Accounting Officer)
Dated: August 14, 2001