Exhibit (13)
CURTISS-WRIGHT CORPORATION
Annual Report 1993
90 Years of Flight
On December 17, 1903 on the Outer Banks of North Carolina, man's quest to fly
was realized for the first time. Ironically, this milestone, which marked one
of the greatest advancements in the history of man, was witnessed by only a
handful of people. Its full impact has yet to be totally realized, even though
its effect is felt by virtually everyone on earth and its application extends
beyond this planet. We express thanks and gratitude to Orville and Wilbur
Wright, Glenn Curtiss, and the other early pioneers of aviation who took those
first steps.
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CONTENTS
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1. Financial Highlights
2. To Our Shareholders
8. Management's Discussion and Analysis of Financial Condition and Results of
Operations
16. Consolidated Financial Statements
21. Notes to Consolidated Financial Statements
41. Report of the Corporation and Report of Independent Accountants
44. Consolidated Financial Data and Corporate Directory
45. Corporate Information
COVER
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Financial Highlights
($ in thousands except per share data) 1993 1992 1991
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PERFORMANCE
Sales and other revenues $170,264 $193,088 $203,080
Cash flow from operating activities 21,492 32,643 41,105
Net earnings (loss) before accounting changes (2,952) 21,687 21,253
Net earnings (loss) (5,623) 21,687 21,253
Net earnings (loss) per common share before accounting changes (.58) 4.29 4.21
Net earnings (loss) per common share (1.11) 4.29 4.21
Return on average stockholder's equity before accounting changes (2.0)% 14.7% 16.1%
New orders 155,990 191,641 162,569
Backlog at year-end 149,188 152,062 140,158
YEAR-END FINANCIAL POSITION
Current assets in excess of current liabilities $92,712 $86,342 $71,102
Ratio of current assets to current liabilities 3.1 TO 1 3.3 to 1 2.6 to 1
Total assets $236,947 $238,898 $233,226
Stockholders' equity $144,231 $155,204 $140,107
Stockholders' equity per common share $28.50 $30.67 $27.68
OTHER YEAR-END DATA
Depreciation $11,483 $11,919 $12,153
Capital expenditures $4,914 $6,752 $7,529
Shares of common stock outstanding 5,060,743 5,060,743 5,061,193
Number of stockholders 6,881 7,378 8,795
Number of employees 1,565 1,684 1,842
DIVIDENDS PER COMMON SHARE $1.00 $1.00 $1.00
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Curtiss-Wright Corporation and its subsidiaries constitute a diversified
multi-national manufacturing group which produces and markets precision
components and systems and provides highly engineered services to Aerospace,
Industrial, and Flow Control and Marine markets. The company operates four
domestic manufacturing facilities and thirty-three service facilities located
in North America and Europe and employs approximately 1,600 people.
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1.
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Fellow Shareholders:
OVERVIEW
1993 has been one of the most difficult years in the recent history of
Curtiss-Wright. For the first time the company felt the full negative impact of
the extraordinary changes taking place in its traditional aerospace/defense
markets. The effect of those major dislocations proved to be even more severe
than we had initially anticipated. One result was a significant decline in our
operating earnings. Another was our inability to obtain purchase offers for
our Flight Systems and Metal Improvement Company operations at prices we felt
were commensurate with their underlying values. However, at the same time, we
have succeeded in resolving a number of negative situations which threatened
the company and its shareholders. We settled, on an acceptable basis, the
long-standing litigation brought by the U.S. Government against our Target Rock
subsidiary. We also obtained a conditional approval of our Wood-Ridge
environmental remediation plan. In addition, we were able to evaluate and make
appropriate provisions for the clean-up of a number of other environmental
situations having their origin in operations of Curtiss-Wright many years ago.
Finally, and perhaps most important for the long-term, our business units have
been able to attain or solidify positions on promising new programs and to
develop new products to be introduced in 1994. All of these matters are
discussed below.
FINANCIAL RESULTS
Aggregate pre-tax operating earnings from our business segments (exclusive of
certain unusual items listed below) for the year 1993 amounted to $24.3
million, in contrast to comparable earnings of $34.0 million in 1992. Sales in
1993 totaled $158.9 million, as compared to $179.7 million in 1992, which
reflects a decline of 12%.
In total for 1993, Curtiss-Wright posted a net loss of $5.6 million, or $1.11
per share, as compared to net earnings of $21.7 million, or $4.29 per share in
1992. Results in 1993 reflect expenses after tax of $8.6 million, or $1.70 per
share, related to settlement of the U.S. Government suit against Target Rock.
Profitability was also negatively impacted to the extent of an additional $11.1
million after tax, or $2.19 per share, as a result of the following items: an
increase in environmental reserves for various sites of $2.5 million, or $.49
per share; a reduction in net earnings of $6.2 million, or $1.23 per share,
because of new accounting rules; a provision of $1.6 million, or $.31 per
share, on account of the consolidation of Metal Improvement Company facilities
and the closing of its composite operation, and a reserve of $.8 million, or
$.16 per share, for the anticipated sale of the Buffalo Extrusion Facility.
Absent these unusual items, net earnings for the year 1993 would have amounted
to $14.1 million, or $2.78 per share.
TARGET ROCK LITIGATION
In 1993, a settlement of $17.5 million was made on a $114.0 million lawsuit
filed by the U.S. Government against Target Rock in 1990. The suit related to
Government claims in connection with embezzlements from Target Rock by certain
former employees and alleged mischarging of labor hours to Government
subcontracts by those former employees. It involved events occurring seven or
more years ago and was unrelated to the current business and activities of
Target Rock. When Curtiss-Wright discovered the employee misconduct, we
immediately informed the Government and dismissed the employees responsible.
2.
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Management concluded that it was in the best interest of the company to
resolve the lawsuit at this time in order to end management's distraction from
the current business, and to avoid the significant legal and other expenses
which would have been involved in the continued defense of the litigation. The
settlement agreement provides that it is not to be deemed an admission by Target
Rock of any liability. With the resolution of the lawsuit, Target Rock's
management can focus on the business at hand, which is discussed at length
later in this letter.
OPERATIONS
Early last year, the Board of Directors made the decision to explore the
possible sale of our Flight Systems Group and Metal Improvement Company
subsidiary. This program was initiated in response to consolidation activities
that were taking place in the defense industry and to test this alternative
means of enhancing shareholder value. A substantial number of prospective
acquirers were contacted through our investment banking firm, Merrill Lynch. In
our view, prospective purchasers overly discounted the future prospects for
both entities, resulting in offers that, in our opinion, did not reach the
values to shareholders that would be achieved from our continued operation of
the business units.
During our efforts to sell these businesses, we continued to focus on
aggressively defending our position in our markets and on expanding market
share where possible. The company has had some successes in these areas in
1993 and these efforts will be continuing in the future.
While Curtiss-Wright has made significant progress in this regard, the
programs involved are long term in nature and the rewards will not be enjoyed
immediately. The successes achieved on being awarded contracts on new defense
programs will not be fully realized until those programs enter production
phases later in this decade. Although significant revenue associated with
engineering and development activities on these projects will be generated over
the next several years, management expects no better than flat sales in 1994 as
the slow-down in the commercial aerospace industry continues and defense
budgets possibly face further reductions.
The specific factors impacting each of our business units, as well as the
activities that have resulted in strengthening their positions in traditional
markets, will be discussed in the following sections. Also outlined will be
advances that may result in expansion into new markets.
CURTISS-WRIGHT FLIGHT SYSTEMS GROUP
The major factors affecting performance of this business unit in 1993 were
the successive reductions in production levels of commercial aircraft by the
Boeing Commercial Airplane Group, and reduced U.S. Air Force procurement for
the Lockheed F-16 Fighting Falcon.
Flight Systems provides the Leading Edge Flap Rotary Actuators (LEFRA) for
the F-16. Commitments for new F-16 aircraft from Lockheed/Fort Worth Company
for the U.S. Air Force and LEFRAs provided for an Air Force retrofit program
are scheduled to be completed in 1994. Future Government orders for this
aircraft are uncertain and the potential for the F-16 is largely dependent on
Lockheed's foreign sales. In 1993, Flight Systems obtained a sole-source
contract from Lockheed covering its requirements for LEFRA to support such
sales. This potentially significant contract can generate a high volume of
sales but cannot be expected to fully replace the volume that has been
experienced from the U.S. Air Force programs.
3.
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Looking to the future, Flight Systems has become a major supplier on the
Lockheed/Boeing F-22 Advanced Tactical Fighter. It has won contracts for the
actuation systems for the leading edge flap and the main and side weapons bay
doors and, during the past year, has been performing contracts for the
engineering and manufacturing development work on these programs. The
engineering capabilities at Flight Systems have been expanded for this
development activity, which the Group will be engaged in for the next several
years. As a result of this development work and deliveries of pre-production
systems, Flight Systems will be in a favorable position to win the contracts
for full scale production of these systems, currently scheduled to begin in
1998.
Another significant program that has been obtained by Flight Systems is the
Leading Edge Extension Vent Mechanical Drive System for the McDonnell Douglas
Aerospace F/A-18 E/F aircraft. This aircraft is also in the engineering,
development and qualification stage, with actual production several years away.
The development work on these military aircraft programs and three smaller
Boeing 777 airliner projects, will not, in the next few years, fully replace
the revenue levels which had been provided by the F-16. Accordingly, cost
reductions have been implemented and will continue until current development
programs are released to production. Despite lower production levels faced in
the short term, Curtiss-Wright feels Flight Systems has positioned itself well
for participation on those military aircraft programs which have the greatest
future potential.
In addition to efforts to strengthen itself in what have been its
traditional product applications, Flight Systems has also been expanding into
other areas. The Group has had initial successes in the expansion of its
overhaul operation for actuators and related commercial aircraft products.
While sales volume is not yet sizeable, progress has been made in the
establishment of a customer base and growth prospects for this business area
are encouraging. Overhaul activities should provide additional diversification
to the strong sales base already existing in the Flight Systems' Boeing
production programs.
Flight Systems also has been looking toward commercial applications of the
technology it has developed relating to its actuation product line. During the
first half of 1994 it expects to introduce an electro-mechanical rescue tool,
based on its aerospace technology, that will compete with the hydraulic tools
presently being used in the fire and rescue market. A development unit has been
successfully tested, patents applied for and advanced prototypes designed. We
feel that the Curtiss-Wright tool (the Power HawkTM) will provide significant
advantages over the equipment presently available, and should enable us to
penetrate this market.
Flight Systems will be continuing to look for opportunities to expand its
business base by winning new programs as they become available, displacing
incumbents on existing programs and identifying potential growth situations that
have the proper fit with its core expertise.
4.
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METAL IMPROVEMENT COMPANY
In 1993, Metal Improvement was severely affected by the depressed worldwide
aerospace market as well as the general economic slowdown in Europe. Metal
Improvement sales and profitability from European operations were also
adversely impacted by the exchange rate effect of the weak British pound
relative to the U.S. dollar in 1993 as compared to 1992.
Metal Improvement currently operates 33 facilities worldwide with 26 being
located in the United States. Because of marketplace changes, Metal Improvement
is in the process of consolidating some of its facilities. A decision also has
been made to discontinue a small composite repair facility operated near
Dallas, Texas. A provision of $2.4 million was recorded in 1993 to reflect the
estimated expenses of these actions. It is anticipated that the resulting cost
reductions will begin to be realized in 1994.
TARGET ROCK CORPORATION
An objective of Target Rock in 1993 was to further improve its position as
a valve supplier to the U.S Naval Nuclear Program, as well as to expand its
market presence as a valve actuator and controller supplier to that program.
With the reduced ship build levels for nuclear aircraft carriers and
submarines, it was highly desirable that Target Rock improve on what was
already a strong position in this market. It was successful in doing this
through the capture in 1993 of a significant portion of the military valve
business, and all of the available valve actuator orders. The resulting
increase in market share has allowed Target Rock to maintain its level of
business and position itself to continue to compete successfully in this core
market.
While there has not been any construction of new nuclear power plants by
the U.S. utility industry for a number of years, a significant spares market
for existing facilities continues to exist. Sales in this area were down for
1993 as utility companies have been reducing inventory levels. Target Rock is
working closely with these customers to participate in inventory restocking
programs when they occur.
Target Rock has also achieved some initial success in obtaining new orders
for valves in South Korea, which has an extensive program under way for the
construction of new nuclear plants. In 1993, the unit received contracts on the
majority of the projects in that country for which it competed, with several
still to be awarded. The South Korean long-term program is to build two nuclear
facilities every four years over the next twenty years; Target Rock will be
working to build upon the relationships that have now been established in that
country.
5.
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Target Rock has been positioning itself for participation in a new emerging
opportunity created by the Clean Air Act of 1990. The Act requires strict
monitoring and control of hazardous emissions released into the air. Valves
that are currently used in petrochemical processing plants have a tendency to
wear over time and begin to leak, resulting in eventual replacement. Since
1951, Target Rock has been a supplier of fluid control products to satisfy the
severe requirements of nuclear-powered naval vessels. The technology and
experience developed for this purpose have enabled us to design valves that we
believe will meet all the requirements of the Act. In 1993, Target Rock
completed a valve redesign to reduce costs for greater competitiveness in the
petrochemical market. Because the time frame for the phase-in of the new clean
air standards has been extended, our current expectations are that
petrochemical plants will not begin making expenditures related to these new
standards until the 1996/1997 time frame. Target Rock is continuing to work on
positioning itself to capitalize on this new opportunity, but penetration of
this new market, with its existing strong supplier base, will present a
considerable challenge.
Target Rock has experienced a strike by the union representing its
production workers, beginning in May of 1993 and continuing to the present.
While a settlement still has not been reached as of this time, Target Rock has
returned to full production.
WOOD-RIDGE BUSINESS COMPLEX
Rental revenue for 1993 increased from 1992 as occupancy rates improved.
The real estate market in New Jersey has been strengthening and we are looking
for further increases in occupancy levels this year. Environmental cleanup
activities at the location continued and some portions of the program were
completed. The cleanup plan for soil contamination at the site was approved by
the New Jersey Department of Environmental Protection & Energy in 1993. Soil
remediation will begin in 1994 and should continue for approximately five
years.
A groundwater cleanup plan has also been approved subject to the submission
of additional data and an acceptable system design, which are scheduled for
1994. Total cost estimates for the Wood-Ridge cleanup remain within the amount
reserved in 1990, with the bulk of the work and expenditures still to be
incurred.
BUFFALO EXTRUSION FACILITY
An agreement for the sale of this business unit was entered into in 1993.
With the closing expected in the first quarter of 1994, the 1993 financial
statements were prepared to reflect an estimated after tax loss of $800,000.
However, the agreement of sale subsequently expired without the buyers'
obtaining suitable financing. Management is continuing to pursue a possible
sale of this unit.
6.
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OFFICERS AND DIRECTORS
On May 11, 1993, Shirley D. Brinsfield, who had been serving as Chairman of
the Board and President, announced his retirement as an employee of the
company. He has continued to serve as Chairman and the undersigned has
assumed the positions of President and Board member.
On December 18, 1993, Richard Dicker, who served on the Board of Directors
of Curtiss-Wright for 12 years, died at the age of 79. His wise counsel and
active participation will be sorely missed.
IN CLOSING
As we go forward in 1994 we will continue to strive for improved operating
performance, a heightened understanding of the needs of our customers and the
sustained growth of our operations within or peripheral to our existing core
competencies and markets. In pursuing these efforts, we will have the benefit
of our talented and dedicated employees, as well as a position of
substantial liquidity and growing financial strength. With your support we will
continue to pursue our ultimate objective of the creation of increased
long-term values.
David Lasky
David Lasky
President
February 15, 1994
7.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Curtiss-Wright Corporation posted a consolidated net loss for 1993 of $5.6
million, or $1.11 per share, compared to net earnings for 1992 of $21.7
million, or $4.29 per share. Net earnings for 1992 had been slightly above net
earnings of 1991 which were $21.3 million, or $4.21 per share. The net loss
for 1993 reflects the following unusual or infrequently occurring items which
must be taken into account in any comparison with prior years. Excluding the
impact of these items, the Corporation would have achieved net earnings in 1993
of $14.1 million, or $2.78 per share, still a substantial decline from the
reported net earnings of 1992. Generally speaking, this decline is reflective
of the performance of our business segments for 1993 when compared to 1992.
This will be reviewed following a discussion of the unusual or infrequently
occurring items.
The unusual or infrequently occurring items are:
o LITIGATION SETTLEMENT COSTS:
The Corporation recorded a charge against 1993 earnings of $17.5 million
for the settlement of litigation brought by the U. S. Government in 1990
against the Corporation's Target Rock subsidiary. After taking into
account a $3.0 million insurance recovery under a blanket crime policy
and applicable tax benefits, the settlement reduced net earnings for 1993
by $8.6 million, or $1.70 per share. (See Note 10.)
o ENVIRONMENTAL COSTS:
The Corporation recorded charges of $3.8 million for the estimated cost
of future environmental cleanup on a number of sites on which it has been
named as a potentially responsible party ('PRP'). On an after-tax basis,
environmental charges reduced net earnings by $2.5 million, or $.49 per
share in 1993. The Corporation previously recorded environmental charges
in 1992 reducing net earnings of that year by $.7 million, or $.13 per
share. (See Note 13.)
o RESTRUCTURING CHARGES:
The Corporation recorded restructuring charges in 1993 totaling $3.6
million, which reduced net earnings for the year by $2.4 million, or $.47
per share. These charges reflect the anticipated loss on the sale of the
Corporation's Buffalo Extrusion Facility, the consolidation of two Metal
Improvement Company ('MIC') shot peening facilities, and the closing of
MIC's Composites Facility in Texas. (See Note 14.)
o CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES:
Net earnings for 1993 were reduced by the cumulative effect of a change
in accounting for postretirement medical costs under SFAS No. 106. The
Corporation recognized a one-time transition obligation charge of $9.8
million, reducing net earnings by $6.4 million or $1.27 per share. (See
Note 17.)
8.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
In the first quarter of 1993 the Corporation recognized a cumulative
effect for net tax benefits of $3.8 million from a change in accounting
for income taxes under SFAS No. 109. These tax benefits were provided by
the utilization of the Corporation's capital loss carryforward through
the recognition of estimated future capital-gain income deemed likely at
that time. However, given the events and circumstances of 1993,
management has reassessed the likelihood of realization of future
capital-gain income. Included in the provision for income taxes for the
year ended December 31, 1993, is a valuation allowance offsetting $3.6
million of the estimated future tax benefits from the Corporation's
capital loss carryforward. The net income recognized by SFAS No. 109 for
the full year 1993 amounted to $.2 million, or $.04 per share. (See Note
7.)
Total sales for the Corporation were $158.9 million in 1993, a 12% decline
from 1992 sales of $179.7 million, while pre-tax operating profits from our
three business segments totaled $21.9 million in 1993, a decline of 36% from
1992 segment operating profits of $34.0 million. Total sales for the
Corporation were $179.7 million in 1992, a 6% decline from 1991 sales of
$191.3 million. Pre-tax operating income from the Corporation's three
operating segments, totaled $34.0 million for 1992, a slight decrease from
1991 operating income of $35.2 million.
For 1993 the Corporation received new orders of $156.0 million, 19% below
orders received in 1992 and 4% below orders received in 1991. The total backlog
at December 31, 1993, amounted to $149.2 million, slightly below backlog at
December 31, 1992, but a 6% improvement over year-end 1991 backlog. It should
be noted that shot peening, heat treating, peen forming and overhaul
services, which represent approximately 43% of the Corporation's total sales,
are sold with very modest lead times. Accordingly, backlog for these
product lines is less of an indication of future activity.
SEGMENT PERFORMANCE
(1993 COMPARED WITH 1992):
AEROSPACE:
The Aerospace segment reported sales of $96.9 million and pre-tax operating
income of $16.3 million for 1993, declines of 13% and 32%, respectively, from
the sales and operating profits reported in 1992. Overall, these declines
reflect a stretchout of current orders and cutbacks in new aircraft production
from both military and commercial aircraft builders. Sales and operating
profits in 1993 for actuation components, systems and spare parts declined in
comparison with those products' results in 1992. Declines in sales and
profits of commercial actuation products were primarily caused by production
schedule reductions on current programs for Boeing Airplane Company's 737
and 747 aircraft. Declines in sales and profits of military actuation products
reflect reduced pricing arrangements in 1993, as compared to 1992, as well as
the scale back of Air Force requirements, on the F-16 Fighting Falcon program.
Military sales in 1993 were also affected by lower Department of Defense
procurement activity for F-18 production and spares and for F-14 spares. The
Corporation delivered final production orders on F-14 programs in 1991 but
maintained a high level of spares sales in 1992. Aerospace results in 1993 also
reflect a substantial decline in sales and in operating profits of shot peening
9.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
and peen forming services for aerospace customers in comparison with
the 1992 performance. Declines in sales and operating profits for these
services are generally attributed to a stretch out of orders on Airbus and
McDonnell Douglas programs, combined with reduced pricing in some areas.
Operating profits of 1993 were further reduced by provisions established for
the closing of a composites facility in Texas and the consolidation of shot
peening operations which operate principally in the Aerospace market.
AEROSPACE
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PRODUCTS/SERVICES MAJOR MARKETS
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Control & Actuation Components & Systems U.S. Government Agencies
Shot Peening, Peen Forming & Composite Foreign Governments
Repair Services Aerospace Manufacturers
Custom Extruded Shapes Commercial/Military/
Windshield Wiper Systems General Aviation
Helicopter Manufacturers
Commercial Airlines
Missile Manufacturers
INDUSTRIAL:
The Industrial segment reported sales of $37.3 million in 1993, only
slightly below sales of $37.5 million reported in 1992. Operating profits for
1993, however, declined 50% to $2.6 million, compared with $5.2 million in
1992. Sales for 1993 reflected an increase, from 1992 levels, in sales of
extruded commercial tubular products, which was offset by a decline in sales
of Swench products. The Corporation had received a $4.5 million order in
1992 for its Swench manual impact wrench on which final shipments were made in
early 1993. Sales of shot peening services for industrial markets remained
at 1992 levels but generated significantly lower operating profits for 1993.
The decline in profits is due to a reduction in industrial market field work
in 1993 and the continued effects of recession on automotive and non-aerospace
industries, especially in Europe.
INDUSTRIAL
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PRODUCTS/SERVICES MAJOR MARKETS
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Shot Peening and Heat Treating Services Metal Working Industries
Extruded Shapes and Seamless Alloy Pipe Oil/Petrochemical/Chemical
Compressor Valve Reeds Construction
Oil and Gas Drilling/
Exploration
Power Generation
Agricultural Equipment
Automotive and Truck
Manufacturers
10.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
FLOW CONTROL AND MARINE:
The Flow Control and Marine segment reported sales of $24.7 million for
1993, down 19% from sales of $30.3 reported for 1992. Operating profits for
1993 totaled $3.0 million, compared with $4.9 million of operating profit for
1992. Sales for 1993 include $3.2 million related to the termination of valve
orders on the U. S. Navy's Seawolf program. The additional sales reflect
the settlement of Seawolf termination claims and equitable price
adjustments related to the cancellation of contracts. Excluding these
adjustments, sales of valve products for government end use declined $1.9
million for 1993, when compared with 1992. Commercial valve sales also declined
in 1993, primarily due to an improved shipment performance in 1992. Operating
earnings generated by the valve product lines declined overall for 1993, when
compared with 1992, primarily due to overruns on a fixed price commercial valve
contract. Also contributing to the decline in sales and operating profits, when
comparing 1993 with 1992, was a substantial absence, in 1993, of sales of
extruded products for aircraft carrier and submarine usage.
FLOW CONTROL AND MARINE
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PRODUCTS/SERVICES MAJOR MARKETS
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Globe, Gate, Control, Solenoid, Safety Relief U.S. Navy Propulsion Systems
and Severe Nuclear and Fossil Fuel Power
Service Valves Plants
Custom Extruded Shapes and Seamless Alloy Pipe U.S. Navy Shipbuilding
(1992 COMPARED WITH 1991):
AEROSPACE:
The Aerospace segment reported sales of $111.9 million for 1992, a 4%
decline from sales reported in 1991. Declines in military sales were caused by
the scale back of Air Force requirements on the F-16 Fighting Falcon program,
which affected both sales volumes and current pricing arrangements in 1992, as
compared with 1991. Lower sales in 1992 also reflect the lack of production
orders for actuation products on the F-14 program, which was partially offset
by an increase in actuation spares sales for the F-14. Commercial sales of
actuation products in 1992, as compared with 1991, also declined, caused by
reduced demands of Boeing production programs. Lower sales of actuation
products in 1992 were partially offset by higher sales of shot peening and
peen forming services and higher sales of custom tubular products for
Aerospace markets. Operating earnings for the Aerospace segment totaled $23.9
million in 1992, down 12% from earnings levels of 1991. Federal budget cut-
backs, increased competitive conditions and a recessionary economy continued
to impact a substantial number of Aerospace programs. The most substantial
decline in Aerospace earnings was a result of the lower sales volumes and
lower pricing arrangements on actuation products for the Corporation's military
customers.
11.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
INDUSTRIAL:
The Industrial segment reported sales of $37.5 million in 1992, a decline
of 16% from 1991 sales levels. The decline in sales, year to year, primarily
reflects the absence of sales from our Canadian operations. The Corporation
sold its Canadian engine distribution business in late 1991 and ceased
operations of its Canadian air compressor business in April 1992. These
operations had contributed $6.4 million to reported 1991 Industrial segment
sales. Also contributing to the lower sales, when comparing 1992 with 1991, was
a decline in sales of shot peening products. Shot peening sales were
particularly affected by domestic and European economic conditions in 1992,
which resulted in a downturn in automotive and other non-aerospace markets
serviced by this business. The decline in sales for 1992 of this segment, as
compared with 1991, was offset to some extent by a $4.5 million order for
Swench products received in 1992 and by higher sales of commercial stainless
steel pipe products. Pipe product sales had been depressed in 1991 because of
equipment and tooling problems experienced at our extrusion press facility in
Buffalo, New York. Operating earnings reported by our Industrial segment
totaled $5.2 million in 1992, a slight increase over 1991 reported earnings.
Higher earnings were generated by the increased sales of Swench products and
extruded pipe products but were partially offset by lower earnings from shot
peening operations. Operating earnings were also improved from the disposal
of the aforementioned Canadian operations, which had reported
a small operating loss for 1991.
FLOW CONTROL AND MARINE:
The Flow Control and Marine segment reported sales of $30.3 million for
1992, slightly below 1991 reported sales levels. Sales of valve products for
U.S. Government use rose $2.2 million in 1992 as a result of orders received in
1991 for the retrofit of submarine valve actuation devices. Commercial valve
sales declined $2.5 million in 1992 from 1991 levels as a result of lower
spares sales, delays in receiving expected service business for nuclear plant
maintenance and a sizable foreign nuclear valve order filled in 1991. Despite
relatively level sales, 1992 operating earnings for the Flow Control and Marine
segment improved 44% from earnings achieved in 1991. Earnings for 1992
benefitted from an improved product mix, improved overhead absorption and
continued cost containment efforts.
OTHER REVENUES AND COSTS:
Other revenue for 1993 totaled $11.4 million, compared with other revenue
of $13.4 million recorded in 1992. The decline reflects interest income,
amounting to $2.0 million, received during 1992 in connection with refunds of
Federal and State income taxes previously paid on long-term contracts. Other
revenue for 1992 was 13% higher than other revenue reported for 1991, also
reflecting the above mentioned tax refunds received in 1992. Rental income
improved slightly in 1993 after having declined $1.0 million in 1992 compared
with 1991. The decline in rental income, comparing 1992 with 1991, was
primarily due to lower occupancy levels at the Corporation's Wood-Ridge New
Jersey business Complex during the first half of 1992. Occupancy at the
complex returned to 80% of capacity by September 1992, from its low point of
67% in March 1992. Revenue generated by our portfolio of short-term investments
in 1993 maintained levels consistent with 1992 and 1991.
12.
-40-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Product, engineering and selling costs incurred by our operating segments
declined 9% and 6%, respectively, in 1993 and 1992, from costs incurred in the
prior year. The decline in costs generally reflects cost containment efforts
and lower sales volumes. Product and engineering costs reflect charges of $1.6
million and $2.2 million in 1993 and 1992, respectively, for non-recoverable
costs on long-term contracts and associated new program development costs.
General and administrative expenses for 1993 were slightly higher when compared
with 1992, but are 5% lower in comparison to 1991. Included in general and
administrative expenses for 1993 is the effect of net periodic costs related to
new accounting rules for non-pension postretirement benefits. These additional
costs amounted to $1.0 million, compared with actual claims paid in 1992 and
1991 of $.5 million. General and administrative expenses for the Corporation
reflect the benefits derived from its overfunded pension plans, as detailed in
Note 16. Income generated by the overfunded pension plans reduced operating
expenses by $3.0 million in 1993, as compared to $3.7 million and $3.3 million
recognized in 1992 and 1991, respectively. Expenses for 1991 had been reduced
by the recognition of a $2.1 million refund received in connection with
previously satisfied employee life insurance obligations.
The Corporation's provision for income taxes in 1993 includes a valuation
allowance under SFAS No. 109 which added an additional $3.6 million to taxes
for the year, as previously discussed under cumulative effect of accounting
changes. The tax provision in 1993 also includes an adjustment to the
Corporation's deferred tax items in response to the Omnibus Budget
Reconciliation Act of 1993 (OBRA '93). The change to a 35% rate resulted in an
additional charge to earnings of $.5 million for 1993. Taxes applicable to
1992 were based on the prior U. S. Federal statutory rate of 34% and had been
reduced, in comparison to 1991, by tax benefits available from the
utilization of a capital loss carryforward for capital-gain income generated by
sales of short-term investments. Also reducing the Corporation's 1992 tax
provision were tax benefits derived from the income tax refunds received in
1992. These benefits, amounting to $.7 million, were the result of higher
statutory federal income tax rates in effect at the time the taxes were
originally paid.
OUTLOOK:
The Corporation announced on January 21, 1993, its intention to pursue the
sale of its Flight Systems and Metal Improvement Company subsidiaries. On July
28, 1993, the Corporation announced the termination of the process of exploring
the possible sale of its Flight Systems Group, and on October 20, 1993, a
similar announcement was made for the Metal Improvement Company. Offers
received by the Corporation for both business units were, in the opinion of
the Corporation, overly discounted for the anticipated worsening of the
depressed conditions in the commercial and military aerospace markets and the
related disappointing financial performance in 1993. The Corporation believes
that greater value can be obtained by continuing to operate both of these
business units than by selling them.
13.
-41-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
As indicated above, the Corporation is subject to cutbacks in the U. S.
Government's defense budget, a general slow-down in the commercial aerospace
industry and stagnant economic conditions worldwide. All of these factors have
had an adverse impact on the Corporation's 1993 performance, and a substantial
improvement is not expected in the near term.
CHANGES IN FINANCIAL CONDITION:
LIQUIDITY AND CAPITAL RESOURCES:
The Corporation continued to strengthen its financial position in 1993.
Working capital at December 31, 1993, amounted to $92.7 million, a 7% increase
over working capital of $86.3 million at December 31, 1992. However, the ratio
of current assets to current liabilities at December 31, 1993 declined slightly
to 3.1 to 1 from 3.3 to 1 at December 31, 1992.
The increase in working capital is a result of increases in cash and
invested funds generated from operations, which total $75.2 million at December
31, 1993, compared with $67.5 million at December 31, 1992. The 1993 amount was
reduced by $8.9 million early in 1994 as a result of the settlement of the
Target Rock litigation. (See Note 10.)
At December 31, 1993 the Corporation had a current deferred-tax asset of
$8.9 million, $5.4 million higher than at the end of 1992. This increase
reflects the tax benefits expected from the current provisions for
environmental costs, restructuring costs and legal matters established in 1993.
The increase in current deferred taxes was offset partially by a $5.1 million
decrease in taxes payable for 1993 from December 31, 1992, primarily reflecting
the lower level of pre-tax earnings recorded by the Corporation in 1993. Also
impacting working capital at year-end 1993 was a decline in inventory
balances from year-end 1992. The reduction to inventory occurred primarily
in the raw materials and work in process inventories as a result of the
combined effect of lower sales volume and management's emphasis on improving
inventory turnover, cost containment efforts and 'just in time' programs.
During 1993 the Corporation retired outstanding debt of $3.5 million
through the prepayment of industrial revenue bonds and a mortgage note. In 1992
the Corporation repaid $7.5 million in long-term debt through the early
extinguishment of industrial revenue bonds. The Corporation's total outstanding
debt at year-end 1993 represented only 10% of total stockholders equity,
compared with 12% at December 31, 1992.
The Corporation also continues to maintain a $45.0 million revolving credit
agreement established in 1991. During 1993 an $18.8 million standby letter of
credit, which had been issued against this revolving credit agreement in
connection with the continuing Wood-Ridge environmental cleanup program, was
canceled. The Corporation met the prescribed standards of financial
responsibility under a newly enacted New Jersey Industrial Site Recovery Act
and was relieved of the letter-of-credit requirement. The maximum available
credit unused at December 31, 1993, improved to $28.1 million from $17.4
million at December 31, 1992.
14.
-42-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
Capital expenditures were $4.9 million in 1993, down 27% from 1992 levels
and 35% from capital expenditures in 1991. Actual expenditures related
primarily to replacement equipment and building maintenance. Aerospace-
related expenditures accounted for $2.6 million, more than 50% of the total
spent in 1993. The Corporation anticipates increasing capital expenditures
in 1994 to approximately $11.6 million. Projected expenditures for 1994 are
expected to consist primarily of machinery for new and existing programs
within the Aerospace segment. At December 31, 1993, the Corporation had
committed approximately $1.3 million for future expenditures, primarily for
machinery and equipment to be used in its operating segments.
Cash generated from operations is considered to be adequate to meet the
Corporation's overall cash requirements for the coming year, including normal
dividends, planned capital expenditures, expenditures for environmental
programs and other current liabilities.
CHANGES IN ACCOUNTING STANDARDS FOR 1994:
The Financial Accounting Standards Board has issued two new accounting
standards not yet adopted by the Corporation. Statement No. 112, 'Employers'
Accounting for Postemployment Benefits' is discussed in Note 16, and Statement
No. 115, 'Accounting for Certain Investments in Debt and Equity Securities' is
discussed in Note 22. Both of these new standards will be adopted effective
January 1, 1994, but are not expected to have a material effect on the
Corporation's financial condition or results of operations for the coming year.
15.
-43-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
(In thousands except per share data) 1993 1992 1991
REVENUES:
Sales...................................................................... $158,864 $179,737 $191,250
Rentals and gains (losses) on sales of real estate and equipment................. 8,101 7,744 9,082
Interest, dividends and gains (losses) on short-term investments, net............ 2,783 4,291 2,365
Other income, net................................................................ 516 1,316 383
-------- -------- --------
Total revenues.............................................................. 170,264 193,088 203,080
-------- -------- --------
COSTS AND EXPENSES:
Product and engineering.......................................................... 112,552 122,981 130,750
Selling and service.............................................................. 6,055 7,038 7,024
Administrative and general....................................................... 27,784 27,275 29,267
Litigation settlement costs...................................................... 13,915
Environmental remediation costs.................................................. 4,472 1,813 986
Restructuring charges............................................................ 3,626
Interest......................................................................... 530 1,264 1,580
-------- -------- --------
Total costs and expenses.................................................... 168,934 160,371 169,607
-------- -------- --------
Earnings before income taxes and cumulative effect of changes in accounting
principles.......................................................................... 1,330 32,717 33,473
Provision for income taxes............................................................ 4,282 11,030 12,220
-------- -------- --------
Earnings (loss) before cumulative effect of changes in accounting principles.......... (2,952) 21,687 21,253
Cumulative effect of changes in accounting principles (net of applicable taxes)....... (2,671)
-------- -------- --------
Net earnings (loss)......................................................... $ (5,623) $ 21,687 $ 21,253
======== ======== ========
NET EARNINGS PER COMMON SHARE:
Earnings (loss) before cumulative effect of changes in accounting principles..... $ (.58) $4.29 $4.21
Cumulative effect of changes in accounting principles............................ (.53)
-------- -------- --------
Net earnings (loss) per common share............................................. $(1.11) $4.29 $4.21
======== ======== ========
<FN>
See notes to consolidated financial statements.
16.
-44-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
--------------------
(In thousands) 1993 1992
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 20,349 $ 28,134
Short-term investments.......................................... 54,811 39,373
Receivables, net................................................ 27,333 27,327
Income taxes refundable......................................... 255
Deferred tax asset.............................................. 8,882 3,494
Inventories..................................................... 22,455 23,667
Other current assets............................................ 2,142 2,109
-------- --------
Total current assets....................................... 136,227 124,104
-------- --------
Property, plant and equipment, at cost:
Land............................................................ 4,994 4,931
Buildings and improvements...................................... 79,374 78,086
Machinery, equipment and other.................................. 124,423 126,135
-------- --------
208,791 209,152
Less, accumulated depreciation............................. 137,361 129,521
-------- --------
Property, plant and equipment, net................................... 71,430 79,631
Prepaid pension costs................................................ 24,062 20,876
Other assets......................................................... 5,228 14,287
-------- --------
Total assets............................................... $236,947 $238,898
======== ========
17.
-45-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES
Current liabilities:
Current portion of long-term debt.................................. $ 124 $ 2,542
Accounts payable................................................... 3,810 4,276
Accrued expenses................................................... 11,180 12,263
Income taxes payable............................................... 4,870
Other current liabilities.......................................... 28,401 13,811
-------- --------
Total current liabilities.......................................... 43,515 37,762
-------- --------
Long-term debt....................................................... 14,426 16,266
Deferred income taxes................................................ 6,354 9,547
Accrued postretirement benefit costs................................. 10,376
Other liabilities.................................................... 18,045 20,119
-------- --------
Total liabilities.................................................. 92,716 83,694
-------- --------
Contingencies and Commitments (Notes 9, 10, 11 & 19)
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 10,000,000 shares issued
(outstanding shares 5,060,743 for 1993 and 1992..................... 10,000 10,000
Capital surplus...................................................... 57,172 57,062
Retained earnings.................................................... 261,356 272,038
Unearned portion of restricted stock................................. (87) (317)
Equity adjustments from foreign currency translation................. (1,862) (1,231)
-------- --------
326,579 337,552
Less, treasury stock at cost
(4,939,257 shares for 1993 and 1992)........................... 182,348 182,348
-------- --------
Total stockholders' equity......................................... 144,231 155,204
-------- --------
Total liabilities and stockholders' equity......................... $236,947 $238,898
======== ========
<FN>
See notes to consolidated financial statements.
18.
-46-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(In thousands) 1993 1992 1991
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).............................................. $ (5,623) $ 21,687 $ 21,253
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Cumulative effect of changes in accounting principles....... 2,671
Litigation settlement costs................................. 13,915
Depreciation and amortization............................... 11,483 11,919 12,153
Net (gains) losses on sales of real estate and equipment.... 249 265 (87)
Net (gains) losses on short-term investments................ (772) (2,112) (1,354)
Deferred taxes.............................................. (1,502) (3,793) 2,492
Changes in operating assets and liabilities:
Decrease in receivables................................ 1,072 7,006 10,026
(Increase) decrease in non-current retainages.......... 889 (117) (612)
Decrease in inventories................................ 2,526 8,307 7,030
Decrease in progress payments.......................... (2,640) (4,640) (6,584)
Decrease in accounts payable and accrued expenses...... (1,549) (5,135) (67)
Increase (decrease) in income taxes payable............ (5,125) 3,426 998
(Increase) decrease in other assets.................... (2,836) (4,505) 7,814
Increase (decrease) in other liabilities............... 8,224 1,076 (12,504)
Other, net............................................. 510 (741) 547
-------- -------- --------
Total adjustments........................................... 27,115 10,956 19,852
-------- -------- --------
Net cash provided by operating activities................... 21,492 32,643 41,105
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate and equipment.................. 583 2,115 1,024
Additions to property, plant and equipment....................... (4,914) (6,752) (7,529)
Proceeds from sales of short-term investments.................... 140,212 643,951 218,488
Purchases of short-term investments.............................. (155,841) (633,712) (264,500)
-------- -------- --------
Net cash provided (used) by investing activities............ (19,960) 5,602 (52,517)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term borrowings................................ (3,000)
Decrease in non-current restricted cash.......................... 9,412
Proceeds from long-term borrowings............................... 4,047
Principal payments on long-term debt............................. (4,258) (12,540) (1,098)
Dividends paid................................................... (5,059) (5,059) (5,050)
Exercise of stock options........................................ 290
-------- -------- --------
Net cash provided (used) by financing activities............ (9,317) (13,552) 554
-------- -------- --------
Net increase (decrease) in cash and cash equivalents............. (7,785) 24,693 (10,858)
Cash and cash equivalents at beginning of year................... 28,134 3,441 14,299
-------- -------- --------
Cash and cash equivalents at end of year......................... $ 20,349 $ 28,134 $ 3,441
======== ======== ========
<FN>
See notes to consolidated financial statements.
19.
-47-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
EQUITY
COMMON STOCK UNEARNED ADJUSTMENTS TREASURY
------------------ PORTION OF FROM FOREIGN STOCK
SHARES CAPITAL RETAINED RESTRICTED CURRENCY -------------------
(In thousands of dollars) ISSUED AMOUNT SURPLUS EARNINGS STOCK TRANSLATION SHARES AMOUNT
December 31, 1990....................... 10,000,000 $10,000 $57,510 $239,207 $ (1,187) $ 877 4,957,224 $183,174
Net earnings............................. 21,253
Common dividends......................... (5,050)
Exchange of common shares for restricted
stock.................................. 6,543 204
Exercise of restricted stock options..... (420) (398) (25,565) (1,082)
Repurchase of common shares.............. 9 6 605 27
Amortization of earned portion of
restricted stock....................... 724
Translation adjustments, net............. (101)
---------- ------- ------- -------- ---------- ------------ --------- --------
December 31, 1991........................10,000,000 $10,000 $57,099 $255,410 $ (855) $ 776 4,938,807 $182,323
Net earnings............................. 21,687
Common dividends......................... (5,059)
Repurchase of common shares.............. 9 4 450 25
Amortization of earned portion of
restricted stock....................... (46) 534
Translation adjustments, net............. (2,007)
---------- ------- ------- -------- ---------- ------------ --------- --------
December 31, 1992........................10,000,000 $10,000 $57,062 $272,038 $ (317) $ (1,231) 4,939,257 $182,348
Net earnings (loss)...................... (5,623)
Common dividends......................... (5,059)
Amortization of earned portion of
restricted stock....................... 110 230
Translation adjustments, net............. (631)
---------- ------- ------- -------- ---------- ------------ --------- --------
December 31, 1993........................10,000,000 $10,000 $57,172 $261,356 $ (87) $ (1,862) 4,939,257 $182,348
========== ======= ======= ======== ========== ============ ========= ========
<FN>
See notes to consolidated financial statements.
20.
-48-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
- ----------------------------------------------
A. PRINCIPLES OF CONSOLIDATION.
The financial statements present the consolidated accounts of Curtiss-Wright
Corporation and all majority owned subsidiaries (the Corporation), after
elimination of all significant inter-company transactions and accounts.
B. CASH EQUIVALENTS.
Cash equivalents consist of time deposits, certain money market funds,
commercial paper and other investments that are readily convertible into cash,
all with maturity dates of three months or less.
C. PROGRESS PAYMENTS.
Progress payments received under U. S. Government prime contracts and
subcontracts have been deducted from receivables and inventories as disclosed
in the appropriate following notes.
With respect to such contracts, the government has a lien on all materials
and work in process to the extent of progress payments.
D. REVENUE RECOGNITION.
The Corporation records sales and related profits within its Aerospace and
Industrial segments, as units are shipped or as services are rendered. Sales
and estimated profits under long-term military contracts within the Flow
Control and Marine segment are recognized under the percentage of completion
method of accounting. Profits are recorded pro rata, based upon current
estimates of direct and indirect manufacturing and engineering costs to
complete such contracts.
Losses on contracts are provided for in the period in which the loss
becomes determinable. Revisions in profit estimates are reflected on a
cumulative basis in the period in which the basis for such revisions become
known.
In accordance with industry practice, inventoried costs contain amounts
relating to contracts and programs with long production cycles, a portion of
which will not be realized within one year.
E. PROPERTY, PLANT AND EQUIPMENT.
Property, plant and equipment are carried at cost. Major renewals and
betterments are added to the fixed asset accounts while replacements,
maintenance and repairs that do not improve or extend the life of the assets
are expensed in the period they occur. Depreciation and amortization are
computed using principally the straight-line method based upon the estimated
useful lives of the respective assets.
F. INCOME TAXES.
Current provisions for income taxes consist of federal, foreign, state and
local income taxes and include deferred tax provisions and the benefits of loss
carryforwards, where applicable.
The Corporation currently accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes'(SFAS No. 109), which was adopted on January 1, 1993. Information related
to this adoption appears in Note 7. For years prior to 1993, income taxes were
accounted for in accordance with Statement of Financial Accounting Standards
No. 96, 'Accounting for Income Taxes.'
21.
-49-
G. FINANCIAL INSTRUMENTS AND CREDIT RISK.
Financial Instruments.
The financial instruments with which the Corporation is involved are
primarily of a traditional nature. The Corporation's cash equivalents are
invested in high quality commercial paper, certificates of deposit and money
market mutual funds. Short-term investments are invested in money market
preferred stocks, common equity securities and investment grade debt
instruments. The Corporation also periodically enters into futures and option
contracts to hedge its exposure to foreign currency fluctuations on firm
commitments relating to operating activities. Recognized gains and losses on
hedge contracts are reported as a component of the related transaction.
Information on fair values is presented for short-term investments and
long-term debt in the associated notes which follow.
Credit Risk.
Credit risk is generally diversified due to the large number of entities
comprising the Corporation's customer base and their geographic dispersion. The
largest single customer represents 10% of the total outstanding billed
receivables at December 31, 1993. The Corporation performs ongoing credit
evaluation of its customers and establishes appropriate allowances for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends, and other information.
H. EARNINGS PER SHARE.
Earnings per share were computed by dividing the applicable amount of
earnings by the weighted average number of common shares outstanding during
each year (5,061,000 shares in 1993 and 1992, and 5,047,000 shares in 1991).
The assumed exercise of outstanding stock options for 1993 is not presented due
to its anti-dilutive effect.
2. SHORT-TERM INVESTMENTS.
- --------------------------
Short-term investments consist of marketable equity and non-equity
securities carried at the aggregate of lower of cost or market value.
The market values of all investments are based on quoted market prices for
these investments. Net realized gains and losses are determined on the specific
identification cost basis. The net change in the investment valuation allowance
used in the determination of net earnings is the result of changes in the
difference between aggregate cost and market value of items still held as
marketable securities at December 31 of the respective periods.
1993 1992
------------------- --------------------
(In thousands) COST MARKET COST MARKET
Marketable securities $54,811 $54,869 $39,373 $ 40,172
======= ======= ======= ========
Investment Income consists of: 1993 1992 1991
Net realized gains on the sale ------ ------ ------
of marketable securities $ 772 $2,112 $1,289
Interest & dividend income, net 2,011 206 1,011
Net change in investment valuation allowance
used in the determination of net earnings 65
------ ------ ------
Total investment income, net 2,783 2,318 2,365
Interest on tax refunds 1,973
------ ------ ------
Interest, dividends and gains/(losses) on
sales of short-term investments, net $2,783 $4,291 $2,365
====== ====== ======
22.
-50-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. RECEIVABLES.
- ---------------
Receivables at December 31 include amounts billed to customers and unbilled
charges on long-term contracts consisting of amounts recognized as sales but
not billed. Substantially all amounts of unbilled receivables are expected to
be billed and collected in the subsequent year. The composition of receivables
is as follows:
(In thousands) 1993 1992
------- -------
U.S. Government receivables $ 4,581 $ 5,869
Less: progress payments applied 4,108 3,749
------- -------
Net U. S. Government receivables 473 2,120
------- -------
Recoverable costs and estimated earnings not billed 20,265 21,467
Less: progress payments applied 12,935 14,619
------- -------
Unbilled charges on long-term contracts 7,330 6,848
------- -------
Commercial and other receivables 20,423 19,337
Allowance for doubtful accounts (893) (978)
------- -------
Net receivables $27,333 $27,327
======= =======
4. INVENTORIES.
- ---------------
Inventories are valued at the lower of cost (principally average cost) or
market. The composition of inventories is as follows:
(In thousands) 1993 1992
------- -------
Raw material $ 5,626 $ 6,688
Work-in-process 7,905 9,925
Finished goods 2,385 2,354
Inventoried costs related to U. S. Government and
other long-term contracts 9,224 8,699
------- -------
Gross inventories 25,140 27,666
Less: progress payments applied, principally related
to long-term contracts 2,685 3,999
------- -------
Net inventories $22,455 $23,667
======= =======
23.
-51-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. OTHER ASSETS.
- ----------------
Included in other assets at December 31, 1992, were retainages of
$8,191,000 being withheld by customers in connection with a pending litigation,
of which $8,035,000 have been used to offset an agreed settlement as discussed
in Note 10. Other retainages held by customers until work is complete and
customer acceptance is obtained have been reclassified to current receivables.
Other assets at December 31 consist of the following:
(In thousands) 1993 1992
------ ------
Retainages $ 8,924
Property not used in operations, net $ 4,432 4,523
All other 796 840
------- ------
Total other assets $ 5,228 $14,287
======= ======
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES.
- --------------------------------------------------
Accrued expenses at December 31 consist of the following:
(In thousands) 1993 1992
------- -------
Accrued compensation $ 3,275 $ 3,189
Accrued taxes other than income taxes 738 624
Accrued insurance 1,860 2,648
All other 5,307 5,802
------- -------
Total accrued expenses $11,180 $12,263
======== =======
Other current liabilities at December 31 consist of the following:
(In thousands) 1993 1992
------ ------
Current portion of environmental reserves $ 6,980 $ 4,995
Anticipated losses on long-term contracts 2,878 2,173
Litigation settlement 8,880
Other litigation reserves 3,254 3,050
Plant shutdown reserves 4,043 438
All other 2,366 3,155
------- -------
Total other current liabilities $28,401 $13,811
======= =======
24.
-52-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES.
- ----------------
Effective January 1, 1993, the Corporation adopted the provisions of SFAS
No. 109, 'Accounting for Income Taxes,' which requires the use of the liability
method of accounting for deferred taxes. This adoption resulted in the
recognition, in the first quarter, of a cumulative net tax benefit of $3,764,000
or $.74 per share, primarily from the utilization of its capital loss
carryforward. As permitted under the new rules, prior years' financial
statements have not been restated. Accordingly, amounts shown in 1992 and 1991
reflect income tax accounting under SFAS No. 96.
In the fourth quarter, and given the events and circumstances of 1993,
management has reassessed the likelihood of realization of future capital gain
income and recorded a valuation allowance of $5,861,000 to offset the existing
deferred tax asset, including $2,275,000 for the deferred tax benefit of
additional capital loss carryforwards identified in the fourth quarter. For tax
purposes the Corporation had available, at December 31, 1993, net capital loss
carryforwards of $12,806,000 and $3,940,000 that will expire on December 31,
1995 and December 31, 1997, respectively, if not used.
Earnings before income taxes for domestic and foreign operations are:
(In thousands) 1993 1992 1991
------- ------- -------
Domestic $(1,639) $28,246 $26,899
Foreign 2,969 4,471 6,574
------- ------- -------
Total $ 1,330 $32,717 $33,473
======= ======= =======
The provisions for taxes on earnings before cumulative effect of changes in
accounting principles consist of:
(In thousands) 1993 1992 1991
------- ------- -------
Federal income taxes currently payable $ 3,100 $11,367 $ 5,576
Foreign income taxes currently payable 1,035 1,531 2,649
St. & local income taxes currently payable 1,411 1,925 1,503
Deferred income taxes (5,303) (3,130) 2,492
Adj. for deferred tax liability rate change 453 (663)
Federal income tax on net capital gains 367 998 472
Utilization of capital loss carryforward (367) (998) (472)
Valuation allowance 3,586
------- ------- -------
$ 4,282 $11,030 $12,220
======= ======= =======
25.
-53-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The rates used in computing the provision for federal income taxes vary from
the U. S. Federal statutory tax rate principally due to the following:
1993 1992 1991
------- ------- -------
U. S. Federal statutory tax rate 35.0% 34.0% 34.0%
Add (deduct):
Utilization of capital loss carryforward (78.8) (3.6) (1.4)
Dividends received deduction (85.9) (.3)
Increase (decrease) in deferred tax liability
for change in tax rate 34.0 (2.0)
State and local taxes 106.1 5.9 3.0
All other 41.9 (.3) .9
Valuation allowance 269.7
------- ---- -------
322.0% 33.7% 36.5%
======= ====== =======
The components of the Corporation's deferred tax assets and liabilities at
December 31 are as follows:
(In thousands) 1993 1992
Deferred tax assets: ------- -------
Environmental cleanup $ 8,688 $ 6,392
Post retirement benefits 3,632
Inventory 1,665 1,412
Facility closing costs 1,290 78
Legal matters 1,190 1,530
Insurance refund 1,020
Other 4,460 5,330
Net capital losses and tax carryforward 5,861
------- -------
Total deferred tax assets 26,786 15,762
------- -------
Deferred tax liabilities:
Depreciation 7,733 8,567
Pension 8,414 7,090
U.S. Government holdbacks 3,210
Contracts in progress 1,030 1,517
Other 1,220 1,431
------- -------
Total deferred tax liabilities 18,397 21,815
------- -------
Deferred tax asset valuation allowance (5,861)
------- -------
Net deferred tax liabilities (assets) $(2,528) $ 6,053
======= =======
Deferred tax assets and liabilities are reflected on the Corporation's
consolidated balance sheets as follows:
(In thousands) 1993 1992
Current deferred taxes $(8,882) $(3,494)
Non-current deferred taxes 6,354 9,547
------- -------
$(2,528) $ 6,053
======= =======
26.
-54-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax payments of $10,491,000 were made in 1993, $18,100,000 in 1992,
and $8,800,000 in 1991.
At December 31, 1993, the balance of undistributed earnings of foreign
subsidiaries was $598,842. It is presumed that ultimately these earnings will
be distributed to the Corporation. The tax effect of this presumption was
determined by assuming that these earnings were remitted to the Corporation in
the current period and that the Corporation received the benefit of all
available tax planning alternatives and available tax credits and deductions.
Under these two assumptions, no Federal income tax provision was required.
8. LONG-TERM DEBT
- -----------------
(In thousands) 1993 1992
------- -------
Industrial Revenue Bonds and Notes-principal and
interest payments due from 1994 to 2007.
Weighted average interest rate is 2.52% and 4.4%
per annum for 1993 and 1992, respectively $14,550 $18,003
Mortgage Note without recourse to the Corporation.
Weighted average interest rate was 9.4% per annum
for 1992 805
------- -------
14,550 18,808
Less, portion due within one year 124 2,542
------- -------
$14,426 $16,266
======= =======
Aggregate maturities of long-term debt are as follows:
(In thousands)
1994 $ 124
1995 5,379
1996 0
1997 0
1998 0
1999 and subsequent 9,047
The Corporation retired approximately $2,686,000 in industrial revenue bonds
and a mortgage note of $805,000 in 1993. The Corporation had redeemed
approximately $7,500,000 in industrial revenue bonds in 1992. The fair value of
the Corporation's long-term debt approximates its carrying value at
December 31, 1993. Interest payments of approximately $573,000, $1,429,000 and
$1,623,000 were made in 1993, 1992 and 1991, respectively.
27.
-55-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. CREDIT AGREEMENTS.
- ---------------------
On October 29, 1991 the Corporation entered into a Revolving Credit
Agreement, under the terms of which four banks committed a maximum of
$45,000,000 to the Corporation for cash borrowings and letters of credit. The
unused credit available under this facility at December 31, 1993 was
$28,100,000. No cash borrowings were outstanding at December 31, 1993 or
December 31, 1992. The commitments made under the Revolving Credit Agreement
expire in October 1995, but may be extended annually for successive one year
periods with the consent of the banks. The Corporation is required under this
Agreement to maintain certain financial ratios, and meet certain net worth and
indebtedness tests for which the Corporation is in compliance. Under the
provisions of the Revolving Credit Agreement, retained earnings of $36,103,000
were available for cash dividends and stock acquisitions at December 31, 1993.
At December 31, 1993 substantially all of the industrial revenue bond issues
are collateralized by real estate, machinery and equipment. Certain of these
issues are supported by letters of credit which total approximately
$13,400,000. The Corporation has various other letters of credit outside the
Revolving Credit Agreement totaling approximately $437,000.
10. LEGAL MATTERS.
- ------------------
On January 14, 1994 Curtiss-Wright announced that its wholly-owned
subsidiary, Target Rock Corporation, had agreed to pay (and subsequently has
paid) $17,500,000 to settle a 1990 law suit initiated by the U.S. Government in
the U.S. District Court for the Eastern District of New York. The suit asserted
claims totalling approximately $114,000,000 under the False Claims Act and at
common law in connection with embezzlements from Target Rock by certain former
employees and alleged mischarging of labor hours to Government subcontracts by
those former employees.
The sum to be paid to the Government was offset by $8,035,000 of Target Rock
receivables, the payment of which had been withheld by a customer at the
direction of the Government. These retainages had been carried on
Curtiss-Wright's consolidated balance sheet as 'other assets.' (See Note 5.)
The cash portion of the settlement amounted to $8,880,000 and is included in
'other current liabilities' at December 31, 1993. (See Note 6.) The settlement,
net of a small credit previously applied and applicable tax benefits, reduced
consolidated net earnings for the fourth quarter and the full year of 1993 by
$8,600,00 or $1.70 per share.
28.
-56-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. CONTINGENCIES.
- ------------------
The Corporation is defending a class action instituted in the United States
District Court for the District of New Jersey by the International Union,
United Automobile, Aerospace and Agricultural Implement Workers of America and
its Locals 300 and 699 (collectively the 'Union'), and five former employees of
the Corporation. The Union alleges that the Corporation's termination of
medical benefits to retirees of the Wood-Ridge facility constituted a breach of
its collective bargaining agreement. The individual plaintiffs, representing
union employees as a class, allege that the termination of their benefits was
contrary to the terms of the plan and in breach of alleged written and oral
promises to provide them with benefits for life. The Corporation denies the
substantive allegations of plaintiffs' claims. Summary judgment motions by both
parties have been denied and the case is scheduled for trial on April 12, 1994.
Management believes, based upon the advice of counsel, that the ultimate
resolution of this matter will not have a material adverse effect on the
Corporation's results of operations or financial position.
12. CAPITAL STOCK AND STOCK OPTIONS.
- ------------------------------------
The Corporation has authorized 650,000 shares of $1 par value preferred
stock (none issued), and 12,500,000 shares of $1 par value common stock.
Restricted Stock Purchase Plan: Under a Restricted Stock Purchase Plan
approved by the stockholders in 1989, 400,000 shares of common stock were
reserved for sale until December 31, 1998 to selected key employees. No options
were granted under this Plan in 1993 or 1992. Information regarding this Plan
is as follows:
(Number of shares) 1993 1992 1991
------- ------- -------
Shares available beginning of year 331,835 331,385 351,345
Options:
Outstanding -- January 1
Granted 22,750
Exercised 20,565
Expired unexercised 2,185
Outstanding, December 31
Exercisable, December 31
Shares repurchased 450 605
Shares available end of year 331,835 331,835 331,385
Options were granted in 1991 at $15.56 per share representing 50% of the
market value on the date of grant.
29.
-57-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other Restricted Stock: During 1991, the Corporation issued options to
purchase 5,000 shares of restricted common stock at a price of $15.56 per share
(50% of the market value at the date of grant), to its Chairman and former
President, Shirley D. Brinsfield, all of which were exercised.
Stock Option Plan: Under the 1985 Stock Option Plan as amended November 16,
1993, there are 175,000 shares of common stock reserved in treasury, until
February 13, 1995, for issuance to key employees. The Corporation granted
non-qualified stock options in 1993 to certain key employees to purchase 43,400
shares of common stock at a price of $32.44 per share, the market price on the
date of grant. The options expire ten years after the date of grant, and are
exercisable as follows:
Up to one-third of the grant after one full year, up to two-thirds of the
grant after two full years and in full three years from the date of grant. As
of December 31, 1993, all options were outstanding but not exercisable under
the terms of the current plan.
13. ENVIRONMENTAL COSTS.
- ------------------------
In 1990 the Corporation recorded a provision of $21,000,000 for the
estimated future costs of an environmental cleanup at its Wood-Ridge, New
Jersey property. During 1993 cleanup activities at the location continued with
a number of areas and tasks being completed. The final cleanup plan for the
soil contamination at the site was approved by the New Jersey Department
of Environmental Protection and Energy (NJDEPE). Remediation of the soil will
begin in 1994 and should continue for approximately 5 years. The NJDEPE has
also approved the plan submitted for the groundwater cleanup conditional on
submission of an acceptable system design. The remaining accrued cost of the
Wood-Ridge cleanup is $19,626,000 at December 31, 1993, with $3,000,000 in
expected expenditures for 1994. The Corporation during 1993 incurred expenses
of $356,000, and $622,000 and $719,000, respectively, in 1992 and 1991 for
engineering, evaluation and consulting efforts on this site.
The Corporation is subject to federal, state and local laws and regulations
concerning the environment and is currently participating in administrative or
court proceedings involving a number of other sites under these laws, usually
as a participant in an industry group of Potentially Responsible Parties
('PRP'). A few of these proceedings are at an early stage, where it is
impossible to estimate with any certainty the total cost of remediation, the
timing and extent of remedial actions which may be required by governmental
authorities and the amount of the liability, if any, of the Corporation alone
or in relation to that of any other PRP. When it is possible to make a
reasonable estimate of the Corporation's liability with respect to such a
matter, a provision is made as appropriate. The Corporation also has been
seeking to establish insurance coverage with respect to many of these matters,
in some cases through litigation initiated against certain insurance carriers.
During 1993 the events described in the following paragraphs brought the
Corporation to the decision to record additional provisions for the
environmental sites referred to. In each of these matters, the Corporation's
involvement relates to activity decades ago that was in conformity with the
laws then in effect.
30.
-58-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation and a group of other PRP associated with the Sharkey
Landfill Superfund Site in Parsippany, New Jersey completed an allocation
process, have negotiated a tentative settlement of litigation pertaining to
that site and expect shortly to enter into an Order on Consent documenting
that settlement.
The Corporation is one of a number of PRP who had been named as Respondents
and one of eight such PRP that have agreed to comply with two 1993 Unilateral
Administrative Orders that the Environmental Protection Agency issued, in
connection with the Caldwell Trucking Company Superfund Site, Fairfield, Essex
County, New Jersey.
The Corporation and a group of other PRP associated with the Pfohl Brothers
Landfill Site, Cheektowaga, Erie County, New York, entered into a Consent Order
with the New York State Department of Environmental Conservation ('NYDEC')
under the terms of this Order the PRP agreed to reimburse the NYDEC for a
portion of its past costs, to undertake certain interim remedial measures
and to relocate a number of residents in the immediate vicinity of the
Landfill.
The Corporation and a group of other PRP associated with the Chemsol, Inc.
Superfund Site, Piscataway, Middlesex County, New Jersey, completed an interim,
non-binding allocation of the costs of remediation and related expenses.
Provisions of $3,787,000 and $1,000,000 were recorded for estimated future
environmental costs in connection with these four matters for 1993 and 1992,
respectively. In addition, the Corporation also incurred other remediation
costs of $329,000, $177,000 and $267,000 in 1993, 1992 and 1991 respectively.
Actual costs incurred in future periods may vary from these estimates.
Based on the facts presently known to the Corporation, management does not
believe that the outcome of any one of these matters, if in excess of the
amounts provided, will have a material adverse effect on the Corporation's
results of operations or financial condition.
14. RESTRUCTURING CHARGES.
- --------------------------
In the fourth quarter of 1993, the Corporation recorded restructuring
charges of $3,626,000. Included in the provision is an anticipated loss of
$1,182,000 on the sale of the Corporation's Buffalo Extrusion facility in New
York. The agreement under which the sale was to have occurred expired without
the buyers' obtaining suitable financing, and hence without the sale being
consummated. However, the Corporation is continuing to pursue a possible sale
of this unit. The Corporation has also provided for the costs of closing its
Metal Improvement Company's Composites facility in Texas and for the
consolidation of two East Coast shot peening facilities. The costs provided
include employee separations, asset retirements and other related costs.
31.
-59-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. RESEARCH AND DEVELOPMENT COSTS.
- -----------------------------------
Research and development expenditures of the Corporation amounted to
approximately $1,420,000, $1,626,000 and $2,354,000 in 1993, 1992 and 1991,
respectively. These expenditures were primarily for Corporation-sponsored
activities.
16. POSTEMPLOYMENT BENEFITS.
- ----------------------------
In November 1992, the Financial Accounting Standards Board issued Statement
No. 112, 'Employers' Accounting for Postemployment Benefits' (SFAS No. 112).
This statement establishes accounting standards for all types of benefits to
former or inactive employees after employment but before retirement. Those
benefits include such items as salary continuation, severance benefits and
disability-related benefits. The Corporation will be required to recognize an
obligation for these benefits under specific conditions concerning employees'
services or when it is probable that an obligation has been incurred and the
amount can be reasonably estimated. The impact of this statement is not
expected to have a material effect on the Corporation's financial condition or
results of operations upon its adoption, January 1, 1994.
17. POSTRETIREMENT BENEFITS.
- ----------------------------
Effective January 1, 1993, the Corporation adopted the Statement of
Financial Accounting Standards No. 106, 'Employers' Accounting for
Postretirement Benefits Other than Pensions' (SFAS No. 106), which changed the
Corporation's method of accounting for retiree health-care. The new standard
requires benefits to be accrued over the employee's service period until the
employee becomes fully eligible to receive benefits, assuming that the
Corporation will continue these benefits indefinitely.
The Corporation provides postretirement benefits, consisting only of
health-care benefits, covering the majority of its employees. However, the
benefits are not vested and as such are subject to modification or termination
in whole or in part. The Corporation does not prefund its postretirement
health-care benefits and expects to continue to fund these benefits on a
pay-as-you-go basis. Previously, these benefits were expensed when cash
payments were made. The actual payments made to provide certain non-vested
health-care benefits for specific groups of retired employees totaled $358,000,
$450,000 and $455,000 in 1993, 1992 and 1991, respectively.
The effect of the adoption of SFAS No. 106 was a one-time recognition of
the transition obligation of $9,750,000. Net expenses for the retiree health-
benefit plans for 1993 included the following components:
32.
-60-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(In thousands)
Service cost - benefits attributed to service during the period $ 282
Interest cost on accumulated postretirement-benefit obligation 702
Full transition obligation 9,750
-------
Net periodic postretirement-benefit cost $10,734
=======
The following table sets forth the actuarial present value of benefit
obligations and funded status at December 31, 1993, for the Corporation's
domestic plans:
(In thousands)
Actuarial present value of benefit obligations:
Retirees $ 6,929
Actives fully eligible 1,253
Other active 1,863
-------
Accumulated postretirement-benefit obligation 10,045
Unrecognized net gain from past experience different from that
assumed and from changes in assumptions 331
-------
Accrued postretirement-benefit cost $10,376
=======
The health-care cost trend used in determining the accumulated
postretirement-benefit obligation was 11% grading down to 5.5% over 14 years.
That assumption has a significant effect on the amounts reported. The effect of
a 1% increase in health-care cost trends would result in an increase to the
accumulated postretirement-benefit obligation as of December 31, 1993 of
$1,034,000 and the service and its interest cost components of net periodic
postretirement-benefit cost for the year then ended of $126,000.
The weighted average discount rate used to develop domestic net periodic
postretirement-benefit cost and the actuarial present value of accumulated
benefit obligations was 6.5%.
33.
-61-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. PENSION AND RETIREMENT PLANS.
- ---------------------------------
The Corporation and its U. S. subsidiaries have contributory and
noncontributory defined-benefit pension and retirement plans covering
substantially all employees. Employees of foreign operations participate in
various local plans.
The contributory plans' benefits are generally based on length of service
and on the highest five consecutive years' compensation during the last ten
years of service prior to retirement. Benefit payments for employees covered
under non-contributory provisions of the plans are based on fixed amounts for
each year of service. Employees are eligible to participate in domestic plans
at the time of employment and are vested after five years of service.
The Corporation's funding policy is to provide stable contributions within
the limits of deductibility under current tax regulations, thereby accumulating
funds adequate to provide for all accrued benefits. At December 31, 1993 and
1992, all domestic plans are overfunded so that plan assets exceed accumulated
benefit obligations.
The Corporation had pension credits in 1993, 1992 and 1991 of $3,020,000,
$3,738,000 and $3,287,000, respectively, for domestic plans and had foreign
pension costs in 1993, 1992 and 1991 under defined contribution retirement
plans of $170,000, $181,000 and $150,000, respectively. The funded status of
the Corporation's domestic plans at December 31, 1993, and at December 31,
1992, are set forth in the following table:
(In thousands) 1993 1992
Actuarial present value of benefit
obligations:
Vested $120,718 $113,352
Nonvested 1,662 1,793
-------- --------
Accumulated benefit obligation 122,380 115,145
Impact of future salary increases 2,194 1,947
-------- --------
Projected benefit obligation 124,574 117,092
Plan assets at fair value 187,462 181,074
-------- --------
Plan assets in excess of projected benefit obligation 62,888 63,982
Unrecognized net gain (26,501) (29,702)
Unrecognized prior service cost 40 91
Unrecognized net transition asset (12,365) (13,495)
-------- --------
Prepaid pension cost $ 24,062 $ 20,876
======== ========
34.
-62-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1993, approximately 54% of the plans' assets are invested in
debt securities, including a small portion in U. S. Government issues. Other
plan assets are invested in equity securities comprising approximately 40% with
the remainder of the assets in cash equivalents.
Included as a component of net earnings is a net periodic pension credit for
1993, 1992 and 1991 comprised of the following:
(In thousands) 1993 1992 1991
Service costs - benefits earned during the period $ 1,445 $ 1,122 $ 1,125
Interest cost on projected benefit obligations 7,910 7,452 7,644
Actual return on plan assets (17,762) (8,511) (19,515)
Net amortization and deferral 5,378 (3,801) 7,459
------- ------- -------
Net periodic pension credit $(3,029) $(3,738) $(3,287)
======= ======= =======
The discount rate and rate of increase in future compensation levels used in
determining the projected benefit obligation were 6.5% and 4.5%, respectively,
for each reported period. The expected long-term rate of return on plan assets
used in each year was 7.0%.
19. LEASES.
- -----------
Buildings and Improvements Leased to Others. The Corporation leases certain
of its buildings and related improvements to outside parties under
noncancellable operating leases. Cost and accumulated depreciation of the
leased buildings and improvements at December 31, 1993, were $49,576,000
and $41,734,000, respectively, and at December 31, 1992, were $48,442,000 and
$40,810,000, respectively.
Facilities Leased from Others. The Corporation conducts a portion of its
operations from leased facilities, which include manufacturing plants,
administrative offices and warehouses. In addition, the Corporation leases
automobiles and office equipment under operating leases. Rental expenses for
all operating leases amounted to approximately $1,815,000 in 1993, $2,102,000
in 1992 and $2,303,000 in 1991.
At December 31, 1993, the approximate future minimum rental income and
commitment under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year are as follows:
RENTAL RENTAL
(In thousands) INCOME COMMITMENT
1994 $ 5,349 $ 922
1995 3,689 639
1996 2,345 417
1997 1,498 285
1998 1,118 224
1999 and beyond 10,475 384
------- ------
$24,474 $2,871
======= ======
35.
-63-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED).
- ------------------------------------------------
(In thousands except
per share amounts) FIRST SECOND THIRD FOURTH
1993 QUARTERS:
Sales $40,727 $40,909 $36,296 $40,932
Other revenues 3,256 2,699 2,508 2,937
Gross profit 12,251 14,123 10,850 12,286
Earnings (loss) before cumulative
effect in accounting principles 3,807 4,333 2,672 (13,764)
Cumulative effect of changes in
accounting principles (2,671)
Net earnings (loss) 1,136 4,333 2,672 (13,764)
Earnings per share:
Earnings (loss) before cumulative
effect in accounting principles .75 .86 .53 (2.72)
Cumulative effect of changes in
accounting principles (.53)
Net earnings (loss) / common share .22 .86 .53 (2.72)
1992 QUARTERS:
Sales $46,699 $45,525 $44,557 $42,956
Other revenues 4,544 3,021 3,031 2,755
Gross profit 15,724 16,621 14,892 13,843
Net earnings 6,850 5,593 4,752 4,492
Net earnings per common share 1.35 1.11 .94 .89
1993: Earnings for the fourth quarter of 1993 were reduced by a provision
for the settlement of litigation against the Corporation's Target Rock
subsidiary (see Note 10). This settlement reduced net earnings for the fourth
quarter by $8,600,000, or $1.70 per share. The Corporation also established
provisions in the fourth quarter of 1993 for restructuring costs, which reduced
net earnings for the quarter by $2,357,000 or $.47 per share (see Note 14),
and for anticipated environmental costs (see Note 12), which reduced net
earnings for the quarter by $1,325,000 or $.26 per share.
Further reducing net earnings for the fourth quarter of 1993 was a change in
the estimated realization of deferred tax assets as recorded by the adoption of
SFAS No. 109 (see Note 7). The estimated valuation allowance against future
capital gains income, considered unlikely to be realized, reduced fourth
quarter net earnings by $3,586,000 or $.71 per share. This valuation allowance
reduced the impact of tax benefits recognized in the first quarter of 1993, as
described below, thereby resulting in a net tax benefit for the full year 1993
of $178,000 or $.04 per share.
Net earnings in the first quarter of 1993 were reduced by $2,671,000 or $.53
per share for the net cumulative effect of changes in two accounting
principles.
The adoption of new accounting rules for postretirement benefit costs resulted
in a charge of $9,750,000 (see Note 15), which reduced net earnings by
$6,435,000 or $1.27 per share. This charge was partially offset by a
nonrecurring benefit from new accounting rules for deferred income taxes (see
Note 7), which added $3,764,000 or $.74 per share to net earnings for the
period.
36.
-64-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1992: Net earnings in the first quarter of 1992 were positively affected by
the receipt of a federal income tax refund in connection with taxes previously
paid on long-term contracts. The refund added additional net earnings of
$1,813,000 or $.36 per share primarily through interest income received.
21. INDUSTRY SEGMENTS.
- ----------------------
The Corporation operates principally in three industry segments as described
on pages 7 through 9.
Consolidated Industry Segment Information:
(In millions) 1993 1992 1991
SALES AND OTHER REVENUES:
Aerospace $ 96.9 $111.9 $116.2
Industrial 37.3 37.5 44.4
Flow Control and Marine 24.7 30.3 30.6
------ ------ ------
Total segments 158.9 179.7 191.2
Rental revenues 8.2 8.0 9.0
Other revenues 3.2 5.4 2.9
------ ------ ------
Total sales and other revenues $170.3 $193.1 $203.1
====== ====== ======
PRE-TAX EARNINGS FROM OPERATIONS:
Aerospace $ 16.3 $ 23.9 $ 27.2
Industrial 2.6 5.2 4.6
Flow Control and Marine 3.0 4.9 3.4
------ ------ ------
Total segments 21.9 34.0 35.2
Provision for legal settlement (13.9)
Rental earnings 2.8 1.7 2.0
Other earnings 1.1 4.3 2.5
Other expenses (10.1) (6.0) (4.6)
Interest expense (.5) (1.3) (1.6)
------ ------ ------
Total pre-tax earnings $ 1.3 $ 32.7 $ 33.5
====== ====== ======
IDENTIFIABLE ASSETS:
Aerospace $ 63.8 $ 74.9 $ 84.2
Industrial 31.1 30.8 36.2
Flow Control and Marine 25.1 30.7 34.0
------ ------ ------
Total segments 120.0 136.4 154.4
Cash and short-term investments 75.2 67.5 50.9
Other general and corporate 41.7 35.0 27.9
------ ------ ------
Total assets at December 31 $236.9 $238.9 $233.2
====== ====== ======
37.
-65-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993 1992 1991
CAPITAL EXPENDITURES:
Aerospace $ 2.6 $ 3.2 $ 4.5
Industrial .6 1.4 2.1
Flow Control and Marine .8 1.2 .4
------ ------ ------
Total segments 4.0 5.8 7.0
General and corporate .9 1.0 .5
------ ------ ------
Total capital expenditures $ 4.9 $ 6.8 $ 7.5
====== ====== ======
DEPRECIATION:
Aerospace $ 6.3 $ 6.5 $ 6.5
Industrial 2.6 2.4 2.6
Flow Control and Marine 1.5 1.8 1.8
------ ------ ------
Total segments 10.4 10.7 10.9
General and corporate 1.0 1.2 1.2
------ ------ ------
Total depreciation $ 11.4 $ 11.9 $ 12.1
====== ====== ======
Aerospace revenues include one customer that accounted for 11%, 12% and 12%
of total revenues in 1993, 1992 and 1991, respectively, and Flow Control and
Marine revenues included one customer that accounted for 10%, 8% and 6% in
those respective periods. Industrial revenues did not include any customer that
accounted for more than 10% of total revenues in those respective periods.
Revenues from major product lines consist of:
1993 1992 1991
Actuation and control systems and components 37 % 36 % 37 %
Shot peening and shot peen forming 27 28 29
Valves 14 13 12
All others 22 23 22
----- ----- -----
100 % 100 % 100 %
===== ===== =====
Direct sales to the U.S. Government and sales for U.S. and Foreign
government end use accounted for 34%, 36% and 34% of total sales in 1993, 1992
and 1991, respectively, and were included in all segments as follows:
(In thousands) 1993 1992 1991
Aerospace $35,500 $41,700 $47,200
Flow Control and Marine 16,900 20,600 18,500
Industrial 2,000 3,300 300
------- ------- -------
Total military sales $54,400 $65,600 $66,000
======= ======= =======
38.
-66-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Geographic revenues and earnings are as follows:
(In thousands) 1993 1992 1991
Revenues:
United States $148,422 $164,917 $164,402
Europe 18,004 22,731 25,960
Canada 3,838 5,440 12,718
-------- -------- --------
Total $170,264 $193,088 $203,080
======== ======== ========
Pre-Tax Earnings:
United States $ (1,639) $ 28,246 $ 26,899
Europe 2,260 3,683 6,794
Canada 709 788 (220)
-------- -------- --------
Total $ 1,330 $ 32,717 $ 33,473
======== ======== ========
Geographic assets outside the United States were less than 10% of total
assets in each period reported.
Export sales were less than 10% of total sales in each period reported.
Intersegment sales, the amount of which are insignificant, are accounted
for on substantially the same basis as sales to unaffiliated customers and have
been eliminated.
Identifiable assets by segments are those assets that are used in the
Corporation's operations included in that segment.
22. ACCOUNTING FOR INVESTMENTS.
- -------------------------------
In May 1993, the Financial Accounting Standards Board issued Statement No.
115, 'Accounting for Certain Investments in Debt and Equity Securities', which
addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. This statement, to be adopted on January 1, 1994, will require that
the Corporation's short-term investments in equity securities be classified as
'trading securities' or 'available for sale securities.'
Changes in fair value of trading securities will be reflected in earnings.
However, to the extent that the Corporation's short-term investments are
classified as 'available for sale,' unrealized holding gains or losses will be
excluded from net earnings and reported as a net amount in a separate component
of shareholders' equity until realized.
Since substantially all of the Corporation's short-term investments are
expected to be classified as 'trading securities,' adoption of the new standard
will not have a material effect on the Corporation's results of operations or
financial condition.
39.
-67-
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
Report of the Corporation
The consolidated financial statements, and notes thereto, appearing on pages 16
through 39 of this Annual Report have been prepared by the Corporation in
conformity with generally accepted accounting principles. The financial
statements necessarily include some amounts that are based on the best
estimates and judgments of the Corporation. Other financial information in the
Annual Report is consistent with that in the financial statements.
The Corporation maintains accounting systems, procedures and internal
accounting controls designed to provide reasonable assurance that assets are
safeguarded and that transactions are executed in accordance with the
appropriate corporate authorization and are properly recorded. The accounting
systems and internal accounting controls are augmented by: written policies and
procedures; organizational structure providing for a division of
responsibilities; selection and training of qualified personnel and an internal
audit program. The design, monitoring, and revision of internal accounting
control systems involve, among other things, management's judgment with respect
to the relative cost and expected benefits of specific control measures.
Price Waterhouse, independent accountants, have examined the Corporation's
consolidated financial statements as stated in their report. Their examination
included a study and evaluation of the Corporation's accounting systems,
procedures and internal controls, and tests and other auditing procedures, all
of a scope deemed necessary by them to support their opinion as to the fairness
of the financial statements.
The Audit Committee of the Board of Directors, composed entirely of
Directors from outside the Corporation, among other things, makes
recommendations to the Board as to the nomination of independent accountants
for appointment by stockholders and considers the scope of the independent
accountants' examination, the audit results and the adequacy of internal
accounting controls of the Corporation. The independent accountants have direct
access to the Audit Committee, and they meet with the Committee from time to
time with and without management present, to discuss accounting, auditing,
internal control and financial reporting matters.
40.
-68-
Report of Independent Accountants
To the Board of Directors and
Shareholders of Curtiss-Wright Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, cash flows and stockholders'
equity present fairly, in all material respects, the financial position of
Curtiss-Wright Corporation and its subsidiaries at December 31, 1993 and 1992,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. The financial statements of Curtiss-Wright Corporation
and its subsidiaries for the year ended December 31, 1991 were audited by
other independent accountants whose report dated February 10, 1992 on those
statements included an explanatory paragraph that described the litigation
discussed in the first and second paragraphs of Note 10 to the financial
statements.
As described in Notes 7 and 17 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" and Statement of Financial Accounting Standards
No. 106, "Employer's Accounting for Postretirement Benefits Other Than
Pensions," effective January 1, 1993.
PRICE WATERHOUSE
PRICE WATERHOUSE
Hackensack, N.J.
February 14, 1994
41.
-69-
Consolidated Selected Financial Data
(In thousands except per share data) 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------------------------
Sales $158,864 $179,737 $191,250 $198,884 $187,083
Other revenues 11,400 13,351 11,830 13,969 24,576
Earnings (loss) before changes in accounting
principles (2,952)(A) 21,687 21,253 6,884(C) 29,176(D)
Net earnings (loss) (5,623)(B) 21,687 21,253 6,884 30,413(E)
Total assets 236,947 238,898 233,226 229,726 352,552
Long-term debt 14,426 16,266 22,261 27,301 28,397
Per common share:
Earnings (loss) before changes in accounting
principles (.58) 4.29 4.21 1.37 6.09
Net earnings (loss) (1.11) 4.29 4.21 1.37 6.09
Cash dividends 1.00 1.00 1.00 31.30(F) 1.60
- -------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements for additional financial
information.
(A) Includes after-tax charges for: a litigation settlement of $8,600,000,
environmental remediation costs of $2,462,000, restructuring charges of
$2,357,000 and a deferred tax asset valuation allowance under SFAS No. 109
of $3,586,000.
(B) Includes an after-tax charge of $6,435,000 from the cumulative effect of a
change in accounting principles for the adoption of SFAS No. 106
'Employers' Accounting for Postretirement Benefits' and an after-tax
benefit of $3,764,000 from the adoption of SFAS No. 109 'Accounting for
Income Taxes.'
(C) Includes the after tax charge of $13,860,000 from a provision for an
environmental clean-up program.
(D) Includes a tax benefit of $6,975,000 from the utilization of a capital
loss carryforward.
(E) Includes an after tax benefit of $1,237,000 from the adoption of SFAS No.
96 'Accounting for Income Taxes.'
(F) Reflects a special cash dividend of $30.00 per common share paid in 1990.
42.
-70-
Common Stock:
Common Stock Price Range
------------------------------------------------------------
1993 1992 Dividends
------------------------- -------------------------- --------------------
High Low High Low 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
First Quarter $40.250 $31.125 $34.000 $29.000 $.25 $.25
Second Quarter 38.625 35.250 33.000 29.125 .25 .25
Third Quarter 32.625 31.875 30.500 27.375 .25 .25
Fourth Quarter 36.000 31.500 31.125 27.125 .25 .25
- --------------------------------------------------------------------------------------------------------------------------
43.
-71-
Corporate Directory
DIRECTORS
=========
Thomas R. Berner
Partner, Law firm of Berner & Berner, P.C.
S. D. Brinsfield
Chairman of the Board
John S. Bull
Former Director, Moran Towing & Transportation Co., Inc.;
Marine transportation company
David Lasky
President
John B. Morris
Former Chairman & President, Lynch Corporation; Diversified manufacturing,
communications, and services company
Dr. William W. Sihler
Ronald E. Trzcinski Professor of Business Administration, Darden Graduate
School of Business Administration, University of Virginia
J. McLain Stewart
Director, McKinsey & Co.; Management consultants
OFFICERS
========
David Lasky President
Robert E. Mutch Executive Vice President
Gerald Nachman Executive Vice President
Robert A. Bosi Vice President -- Finance
George J. Yohrling Vice President
Dana M. Taylor General Counsel and Secretary
Kenneth P. Slezak Controller
Gary J. Benschip Treasurer
44.
-72-
Corporate Information
CORPORATE HEADQUARTERS:
=======================
1200 Wall Street West
Lyndhurst, New Jersey 07071-0635
Tel. (201) 896-8400
Fax (201) 438-5680
ANNUAL MEETING:
===============
The 1994 Annual Meeting of Shareholders will be held on May 6, 1994 at
2:00 p.m. at the Novotel Meadowlands Hotel, One Polito Avenue, Lyndhurst,
New Jersey 07071.
STOCK EXCHANGE LISTING:
=======================
The Corporation's common stock is listed and traded on the New York Stock
Exchange. The stock transfer symbol is CW.
COMMON STOCKHOLDERS:
====================
As of December 31, 1993, the approximate number of holders of record of common
stock, par value $1.00 per share, of the Corporation was 6,900.
STOCK TRANSFER AGENT AND REGISTRAR:
===================================
For services such as changes of address, replacement of lost certificates or
dividend checks, and changes in registered ownership, or for inquiries as to
account status, write to:
Chemical Bank
Company Items Department
450 West 33rd Street - 15th Floor
New York, New York 10001
Please include your name, address, and telephone number with all
correspondence.
Telephone inquiries may be made to (212) 613-7139.
INVESTOR INFORMATION:
=====================
Investors, stockbrokers, security analysts, and others seeking information
about Curtiss-Wright Corporation, should contact Robert A. Bosi,
Vice President-Finance, or Gary Benschip, Treasurer, at the Corporate
Headquarters, telephone (201) 896-1751.
45.
-73-
FINANCIAL REPORTS:
==================
This Annual Report includes most of the periodic financial information required
to be on file with the Securities and Exchange Commission. The company also
files an Annual Report on Form 10-K, a copy of which may be obtained free of
charge. These reports, as well as additional financial documents such as
quarterly shareholder reports, proxy statements, and quarterly reports on Form
10-Q, may be received by written request to Gary J. Benschip, Treasurer, at the
Corporate Headquarters.
BUFFALO EXTRUSION FACILITY
Donald H. Osborn, General Manager
60 Grider Street
Buffalo, New York 14215-4095
CURTISS-WRIGHT FLIGHT SYSTEMS, INC.
Robert E. Mutch, President
300 Fairfield Road
Fairfield, New Jersey 07004-1962
CURTISS-WRIGHT FLIGHT SYSTEMS/SHELBY, INC.
George J. Yohrling, Senior Vice President & General Manager
201 Old Boiling Springs Road
Shelby, North Carolina 28152-8008
METAL IMPROVEMENT COMPANY, INC.
Gerald Nachman, President
10 Forest Avenue
Paramus, New Jersey 07652-5214
TARGET ROCK CORPORATION
Martin R. Benante, Vice President & General Manager
1966 East Broadhollow Road
East Farmingdale, New York 11735-1768
46.
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