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Exhibit 13
1996
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CURTISS-WRIGHT CORPORATION
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ANNUAL REPORT
EXPANDING
OUR MARKETS
Page 68
Curtiss-Wright Corporation, headquartered in Lyndhurst, N.J., is a diversified
multi-national manufacturing and service concern that designs, manufactures and
overhauls precision components and systems and provides highly engineered
services to the aerospace, automotive, shipbuilding, oil, petrochemical,
agricultural equipment, power generation, metal working and fire & rescue
industries. The Company employs approximately 1,700 people. Operations are
conducted principally by three wholly-owned subsidiaries: Curtiss-Wright Flight
Systems, Inc., Metal Improvement Company, Inc. and Curtiss-Wright Flow Control
Corporation. The group's principal operations include three domestic
manufacturing facilities, thirty-two Metal Improvement service facilities
located in North America and Europe, and three component overhaul facilities
located in Florida, North Carolina and Denmark.
Contents
Industry Focus 1
Financial Highlights 2
Letter to Stockholders 3
Review of Operations 6
At a Glance 9
Expanding Our Markets 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Report of the Corporation 20
Report of Independent Accountants 20
Consolidated Financial Statements 21
Notes to Consolidated Financial Statements 25
Quarterly Results of Operations and Stock Information (Unaudited) 34
Consolidated Selected Financial Data 34
Corporate Information 35
Corporate Directory 36
Page 69
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INDUSTRY
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FOCUS
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Changes in the aerospace/defense industry in the 1990's required participants
to re-examine how they will conduct business in the future. These changes
started with reduced commercial aircraft production rates which coincided with
lower procurement levels in the defense sector. These factors initiated a
consolidation movement within the industry that is still in progress. While
production rates of commercial aircraft have been increasing, there will be few
new commercial and military aircraft programs. Under these circumstances, the
ability to gain position on these programs becomes increasingly important.
In addition to the reduced level of new projects in the defense sector,
development programs have become more expensive and customers have required
their suppliers to bear substantial portions of the costs involved. The size of
these expenditures, the increasing demands by customers for cost efficiencies
and the increase in the time horizons for these programs to move into
production, have raised the financial risks of investing in these programs.
Companies, such as Curtiss-Wright which operate in niche markets, must
re-examine their positions in order to expand those markets they serve. Their
market positions must be broadened to allow operations to deal with the cyclical
nature of the industry. We have concluded that we must expand not only into the
overhaul and repair of our own aerospace components, but also to other areas of
the aftermarket. With this expansion the customer base changes. The focus shifts
to include the end user of the product: airlines and freight carriers. The
relationship with these new customers requires the establishment of a new and
distinct marketing and distribution organization from those which traditionally
had been in place. In effect, while the product may remain basically the same,
an entirely new business must be established. This is the direction that we have
been following in our aerospace business.
We also have determined that wherever possible we should expand our service
offerings, acting alone or with others whose functions complement our own. This
expansion affects both our aerospace and industrial markets. Finally, we have
been active in the geographic expansion of our markets, both domestically and
overseas.
Curtiss-Wright continues to take an adaptive approach to servicing its
markets. It has expanded its served markets beyond its traditional customers. It
will continue to build "new business" as it expands on its established business
base to broaden the products and services it provides and extends its markets to
new customers and new geographic regions.
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CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data) 1996 1995 1994
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Performance:
Sales $ 170,536 $ 154,446 $ 155,001
Earnings before interest, taxes, depreciation and amortization 33,462 37,553 40,041
Net earnings 16,109 18,169 19,303
Net earnings per common share 3.17 3.59 3.81
Return on sales 9.4% 11.8% 12.5%
Return on assets 6.3% 7.4% 8.1%
Return on average stockholders' equity 9.1% 11.0% 12.7%
Research and development costs: Corporation sponsored 997 1,180 1,196
Customer sponsored 15,248 17,362 9,059
New orders 171,649 150,870 122,367
Backlog at year-end 109,336 103,566 116,554
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Year-End Financial Position:
Working capital $ 115,417 $ 120,571 $ 108,329
Current ratio 3.7 to 1 4.6 to 1 4.0 to 1
Total assets $ 267,164 $ 246,201 $ 238,694
Stockholders' equity $ 183,363 $ 172,179 $ 158,769
Stockholders' equity per common share $ 36.09 $ 33.91 $ 31.37
- ----------------------------------------------------------------------------------------------------
Other Year-End Data:
Depreciation and amortization $ 8,946 $ 9,512 $ 10,883
Capital expenditures $ 14,156 $ 6,985 $ 4,609
Shares of common stock outstanding 5,081,103 5,077,823 5,060,743
Number of stockholders 4,719 5,944 6,409
Number of employees 1,738 1,482 1,496
- ----------------------------------------------------------------------------------------------------
Dividends per Common Share $ 1.00 $ 1.00 $ 1.00
====================================================================================================
[GRAPHS OMITTED]
2 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
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LETTER TO STOCKHOLDERS
----------------------
FELLOW STOCKHOLDERS:
For several years, Curtiss-Wright Corporation has been following a strategy of
developing and maintaining positions in market segments which it believes will
result in substantial profitable growth with a resultant increase in
stockholders' value. In pursuit of these objectives, in the context of the
Industry Focus highlighted earlier in this Annual Report, the Company's focus
has been to expand the products and services it provides, enlarge its customer
base and increase its global presence. This has required a substantial and
continuing investment in both development programs and plant and equipment. Our
progress to date is outlined in the balance of this letter and in the Review of
Operations segment of this Annual Report which follows.
Product and Service Capability Expansion
During 1996, we delivered the initial quantities of trailing edge flap
transmissions to The Boeing Company for its Next-Generation 737 aircraft and
production quantities of trailing edge flap rotary actuators for their 767
airliner. These milestones were reached while we continued to supply components
for Boeing's 737 "classic" and all other aircraft transports they currently have
in production. In recognition of our efforts, we were awarded the Boeing
Commercial Airplane Group's 1996 President's Award for Excellence. This
designation as "Supplier of the Year" in the category of systems and equipment
resulted from our superior service, outstanding products and innovative ideas.
In addition, late in 1996, we received notification that we have been selected
as supplier for trailing edge flap transmissions for Boeing's newly-announced
757-300 airliner. Our expanding market position with Boeing is in addition to
our continuing role as a provider of shot-peen wing forming for Airbus and
McDonnell Douglas commercial jetliners.
We anticipate supplying a trailing edge flap drive flight control system
for a business jet currently under development that will mark our entry as a
manufacturer of actuation and control equipment for this market. It expands the
presence we previously established in the business jet aircraft market with
other manufacturers through our forming of wings utilizing our shot-peening
process.
Curtiss-Wright previously identified the aerospace overhaul market segment
as a strategically important area for participation by the Company. The 1996
acquisition of a repair and overhaul facility in Miami, Florida, from Aviall,
Inc., for approximately $16.6 million, is an important addition to our internal
efforts to expand within this service segment of the industry. It was a good
combination with our existing overhaul business. The customer bases and product
lines were complementary to both organizations. The Miami addition has more than
met our expectations. We will continue to look to the overhaul segment to
globally expand our capabilities through both acquisition and internal
development and growth.
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 3
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In our shot-peening business, we perform a metal-treating process used
primarily to increase the fatigue life of metal parts. We have developed a
computer software program which can provide users of shot-peening a prediction
of the residual stresses which are induced in the component by the process. As a
post shot-peening treatment, Curtiss-Wright is marketing a chemically-assisted
surface enhancement process that we believe is superior to traditional finishing
methods such as honing and polishing. In addition we are offering, in
conjunction with a nationally recognized independent laboratory, an economical
method of measuring resultant residual stress profiles after shot peening. We
have developed a non-destructive method for exposing exfoliation corrosion on
aging airplanes and are providing this service in the field. Again, the
objective is to expand our offerings to the market to enable us to grow.
In Curtiss-Wright's valve business, new product development over the last
five years accounts for 70% of the products we currently sell. This includes new
and improved products for the nuclear electrical utility industry which will
extend our offerings and increase our sales and profitability. Some of these new
valves improve maintenance costs and provide solutions to problems experienced
in nuclear power plants throughout the world.
As a result of the activities described above, we now have achieved a
balance in which we are as much a service organization as a manufacturer of
precision components. This evolution mirrors the trend in American industry and
provides us with broader market opportunities.
If we are to be successful in our expansion efforts, our highly engineered
precision-manufactured products and our technology-based services must meet the
current and anticipated needs of our customers. In order to satisfy ever more
demanding and sophisticated customers, we must be a prime source of technical
innovation, delivering goods and services of the highest quality while
maintaining competitive prices.
Customer Base Growth
In our aerospace business, the Company has now positioned itself as a full range
provider with the ability both to supply products and services to the OEM air
frame assemblers and to participate in the aftermarket by servicing airlines and
air freight haulers. With this positioning, our customer base has increased
dramatically as has our ability to participate both in the increased production
of new aircraft in the coming years and the overhaul requirements of existing
fleets. The Company also can now more effectively take advantage of the
developing trend of major airlines to outsource their maintenance and repair
activities.
Increase in Global Presence
Curtiss-Wright is now a more global company than it was a year ago. Pre-tax
earnings generated outside of North America increased 75% from 1995 and
represented 33.5%
4 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
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LETTER TO STOCKHOLDERS
----------------------
of the Company's total pre-tax profit in 1996 vs. 16.8% last year. Related
foreign sales composed 17.5% of our total revenue in 1996.
The Company has always had a foreign presence due to the international
nature of the aerospace industry. The global airline industry long has been the
end user of the aircraft for which Curtiss-Wright provides OEM products and
services. This limited participation has been expanded upon through the
Company's increased involvement in the aerospace aftermarket where it now deals
directly with airlines and air cargo handlers on an international basis. This
shift to a more global perspective is continuing and is not limited to our
aerospace business.
Currently, we are establishing a shot-peening facility in Belgium, and a
second one is being opened to service the south German market. As a result we
will be operating at least eight facilities in Europe in 1997. A presence in the
Pacific Rim for our aerospace overhaul operations is also planned for 1997. In
addition, we participate as a supplier of nuclear valves to the expanding
electrical utility markets in South Korea and Taiwan and are focusing now on
gaining a foothold in select European markets and China for our valve products.
Outlook
We expect 1997 to be a year which will be filled with opportunities and
challenges for our organization. Curtiss-Wright will be aggressively looking for
growth situations both internally and through selective acquisition and teaming
arrangements. In addition, our operations will be working to meet the increased
delivery schedules for Boeing and Airbus, while improving productivity and
lowering costs. At the same time we must complete the development and testing
programs relating to military actuation and control equipment projects which
have significantly penalized our earnings over the past few years. The
successful accomplishment of these activities will require the continued
dedication of our employees. For their efforts we are most appreciative.
/s/ David Lasky
David Lasky
Chairman and President
January 30, 1997
[Photo of David Lasky]
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 5
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REVIEW OF OPERATIONS
Financial Performance Overview
The financial performance of the Corporation in 1996 did not measure up to the
levels which we have come to expect, based on our results in recent years. Net
earnings in 1996 of $16.1 million, or $3.17 per share, were $2.1 million, or
$.42 per share less than earnings in 1995. This shortfall is attributable to a
number of unusual items. Net earnings in 1996 were reduced by $2.5 million, or
$.49 per share, due to additional reserves for engineering cost overruns on
military actuation and control development contracts, and additional
environmental reserves and related legal and administrative costs and other
unusual items.
Absent these unusual items, 1996 net earnings would have been $18.6
million, or $3.66 per share, as compared with 1995 earnings of $18.2 million, or
$3.59 per share.
Sales in 1996 of $170.5 million increased 10.4% over sales in 1995. The
improved earnings produced by the increased sales were offset by the engineering
cost overruns on the actuation and control equipment development programs
(including the reserves referred to above) and by learning and other costs
associated with the start-up of production on new Boeing commercial aircraft
programs. In 1997, we plan to make significant progress in reducing our
manufacturing costs on these programs. Also in 1997, we are scheduled to have
substantially completed the testing phase of the development programs.
Our financial position was strong enough to readily absorb over $30 million
of expenditures for capital equipment and the acquisition of the repair and
overhaul business in Miami. We are well positioned to take advantage of internal
and external growth opportunities as we move into 1997, with some $62 million in
liquid resources and significant unused borrowing capacity.
Aerospace Component and Overhaul
Our Shelby, North Carolina, operation has completed a building addition that has
doubled the physical size of that facility. The total investment which will be
made in that location when all of the machinery and equipment has been put in
place will exceed $15,000,000. The need for this expansion is due to several
factors, the most significant of which are the production requirements of the
plant's major customer, The Boeing Airplane Company. Sales to Boeing are
expected to more than double in the next few years as a result of increases in
Boeing's production rates. The products covered by new contracts with Boeing are
the trailing edge flap transmissions for the 757 commercial transport, the
trailing edge flap rotary actuators for the 767 airliners and trailing edge flap
transmissions for the new Boeing 737-700 aircraft. In addition to the increased
Boeing requirements the growth that has occurred in the overhaul and repair
business performed at that location has created additional capacity demands.
6 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
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REVIEW OF OPERATIONS
--------------------
The Company had identified the overhaul and repair business as an area in
which it wanted to expand its involvement. It did so in 1996 with the
acquisition from Aviall, Inc. of its component overhaul facility located in
Miami, Florida. This was an addition to the overhaul operations Curtiss-Wright
already had in place in Shelby and an 80%-owned joint venture located in Karup,
Denmark, which opened in 1995. In 1997, we plan to establish a location in the
Pacific Rim to better support the customer base located in that growing market.
Our participation in the overhaul and repair sector has grown from minor amounts
six years ago to sales of approximately $27,000,000 in 1996. We now have the
capabilities to repair and overhaul more than 6,500 types of hydraulic,
pneumatic, electrical and electronic aircraft accessories. Curtiss-Wright has
moved beyond merely servicing the components it manufactures as an OEM supplier.
We can fulfill the desire of an increasing number of airlines to have suppliers
provide a broad range of overhaul and repair services, regardless of the
original source of such accessories and components.
Curtiss-Wright's involvement with military aerospace programs is focused on
the development and testing phases of three projects. The programs to which we
will be supplying actuation and control equipment are the F-22, V-22 and F/A-18
E/F aircraft. The V-22 program is to enter low rate production levels in 1997
with the other two projects scheduled for 1999. If these programs reach
currently projected build rates, sales in the military sector will exceed that
volume which we have historically realized for our actuation and control
equipment.
Metal Treatment Services
Curtiss-Wright's metal treatment services (shot-peening and heat-treating)
produced profitable growth in 1996. Its facilities operate in North America and
Western Europe. In addition to the new shot-peening facilities referred to in
the Letter to Stockholders, the Company has relocated our shot-peening operation
in Charlotte, North Carolina to a larger facility to service the expanding
market in the Carolinas.
We also plan to expand from our current base of three heat-treating
operations by acquisition of other established facilities. The heat-treating
industry is currently going through a consolidation process and we are actively
seeking to expand our operations geographically to establish a network which can
effectively compete nationally as does our shot-peening business which has 21
facilities in North America. Through operations in Columbus, Ohio, Wichita,
Kansas and Lafayette, Louisiana, Curtiss-Wright's heat treating business
addresses automobile, agricultural, construction, oil and gas, aircraft and
other industries. This business has grown by more than a third in the last four
years. Curtiss-Wright's shot-peening business has also recorded substantial
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 7
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growth in sales over the period. It primarily services aerospace,
transportation, automobile and general industrial markets. It is supplemented by
an operation which is engaged in the business of the precision stamping and
finishing of high strength steel reed valves used by manufacturers of products
such as refrigerators, air compressors and small engines.
It should be noted that the significant growth that we have achieved in our
metal-treating businesses has more than met our criteria for profitability.
Curtiss-Wright continues to see global opportunities for expansion of its
shot-peening and heat-treating operations. The opportunities will be realized
from both the start-up of new facilities and the acquisition of established
operations. Both of these alternatives are currently being actively pursued.
Valves
In our valve business the Company has been able to supplant both military and
commercial competitors through technological innovations, accelerated deliveries
and improved quality.
An objective of the Company has been to become the dominant valve supplier
for the U.S. Naval Nuclear Program. This position was further solidified in 1996
with the receipt of contracts to supply valves beyond those we have
traditionally supplied to the Navy. It is anticipated that 30% of our sales to
the Navy will be composed of products for applications that Curtiss-Wright has
not previously provided. The Company is also working with the Navy in the
redesign of nuclear valves and the utilization of new materials to better deal
with the hazardous environment to which they are exposed. While the shipbuilding
rates for nuclear submarines and aircraft carriers are expected to continue at
the current reduced levels, it still will provide an adequate core business base
for us.
The second major market for our valves is the nuclear utility industry.
Domestically, activity is limited to replacement valves, components, repair and
service. There are, however, active construction programs for new nuclear plants
in Korea, Taiwan and China. Curtiss-Wright has been building relationships in
Korea and Taiwan and continues to participate in projects underway in those
countries. Activities are now being conducted to establish a distribution system
or other teaming arrangements to address the aftermarket which exists in Europe.
8 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
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AT A GLANCE
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Aerospace & Marine
Control and Actuation Components and Systems
Shot-peening and Peen-forming Services
Aerospace Overhaul Services
Military Nuclear / Non-nuclear Valves (globe, gate, control, safety, solenoid
and relief)
U.S. Government Agencies
Foreign Governments
Commercial Airlines / Military / General Aviation
Aerospace Manufacturers
Helicopter Manufacturers
Missile Manufacturers
U.S. Navy Propulsion Systems
U.S. Navy Shipbuilding
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Industrial
Shot-peening and Heat-treating Services
Compressor Valve Reeds
Commercial Nuclear / Non-nuclear Valves (globe, gate, control, safety,
solenoid and relief)
Rescue Tools
Metal Working Industries
Oil / Petrochemical / Chemical Construction
Oil and Gas Drilling / Exploration
Power Generation
Nuclear and Fossil Fuel Power Plants
Agricultural Equipment
Automotive and Truck Manufacturers
Rescue Tool Industry
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[GRAPHIC OMITTED] Curtiss-Wright's Flight Systems was one of five suppliers to
receive Boeing's 1996 President's Award for Excellence as a
result of their superior service, outstanding products and
innovative ideas.
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 9
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EXPANDING OUR MARKETS
- ---------------------
[GRAPH OMITTED]
The chart illustrates historical
shipments and the projected
increase in delivery of commercial
aircraft transports.
Source: Lehman Brothers
- --------------------------------------------------------------------------------
AEROSPACE
Commercial Aerospace
Curtiss-Wright provides products or services to Boeing, McDonnell Douglas and
Airbus, the three largest commercial airframe assemblers. We participate on
every model they currently have in production. This industry sector will be
experiencing significantly higher aircraft build rates in the coming years.
Curtiss-Wright is looking forward to its involvement in this ramp-up. This
increased activity for the industry, and additional work on the Boeing 757, 767
and redesigned 737 models has led to the expansion of our Shelby, North
Carolina, plant. Additions there have doubled the capacity of that facility.
Military Aerospace
Curtiss-Wright's concentration is on the development and testing of actuation
and control equipment for the F-22, V-22 and F/A18 E/F aircraft programs. Our
customers include Lockheed-Martin, Boeing, Textron and McDonnell Douglas. By
positioning itself on these major projects, the Company expects its long-term
future performance in the military sector to exceed that which it has enjoyed in
its recent history.
10 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
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MARKETS
-------
[GRAPH OMITTED]
AEROSPACE
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 11
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[GRAPHIC OMITTED] Pictured are actuation and control components similar to what
will be used on the F-22, the next generation air superiority
fighter.
Overhaul & Repair
The acquisition of the Miami overhaul facility in 1996 expanded Curtiss-Wright's
base in the overhaul and repair market. The Company now has the capabilities to
overhaul Boeing, McDonnell Douglas and Airbus aircraft components. The
acquisition, in conjunction with the establishment of a joint venture in Denmark
in 1995, expands Curtiss-Wright's global capabilities. Airlines, freight
carriers and other customers which are served by our overhaul operations
numbered approximately 385 in 1996. They are worldwide and provide opportunities
on which the Company has only started to capitalize.
[GRAPHIC OMITTED]
12 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
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MARKETS
-------
[GRAPHIC OMITTED]
INDUSTRIAL
Our participation in the industrial market provides diversification beyond the
aerospace/defense markets. The Company intends to increase activity in this area
through selective acquisitions and applications of existing technology to
products that will provide competitive advantages. An example of this is the
aerospace gear technology utilized in the development of the "Power Hawk" rescue
tool. Other industrial sectors in which Curtiss-Wright participates include:
agricultural equipment, electrical power plants, petrochemical, and oil and gas
exploration. The Company continually identifies applications for shot peening in
the non-aerospace metal working markets and expands its activities in those
areas.
[GRAPHIC OMITTED] Curtiss-Wright's aerospace gear technology was applied to
the "Power Hawk" rescue tool used for extrication of auto
accident victims.
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 13
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EXPANDING OUR MARKETS
- ---------------------
[GRAPHIC OMITTED]
Our shot-peening technology is applied to a wide assortment of component parts
to increase fatigue strength.
- --------------------------------------------------------------------------------
MARINE
Curtiss-Wright has been a supplier of valves to the United States Navy nuclear
submarine and aircraft carrier fleets since their inception. In the 90's,
submarine build rates have been reduced significantly as a result of budget
considerations and reduced threats of large scale conflicts. While procurement
levels will not equal those of the prior years, a slight increase is expected
for the new Centurion Class boat to maintain requirements at a redefined lower
level and retain submarine production capabilities. We have been able to capture
additional valve applications for both submarine and aircraft carrier
requirements and have established a sufficient base of business to profitably
participate in the marine market.
AUTOMOTIVE
Curtiss-Wright has increased its participation in the automotive industry in
recent years. In 1992 sales of services into this sector approximated
$4,000,000. In 1996 revenues exceeded $15,000,000 with our customer base
including (either directly or through intermediate suppliers) every automotive
manufacturing company operating in North America and Western Europe. The Company
has expanded our valve manufacturing capabilities as a result of improving our
position as a supplier of flapper valves for compressors used in
air-conditioning systems.
14 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
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MARKETS
-------
[GRAPHIC OMITTED]
INDUSTRIAL, MARINE AND AUTOMOTIVE
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 15
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CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Curtiss-Wright Corporation posted consolidated net earnings for 1996 totaling
$16.1 million or $3.17 per share, a decline of 11% when compared with
consolidated net earnings of 1995, which totaled $18.2 million or $3.59 per
share. Consolidated net earnings for 1995 were 6% lower than consolidated net
earnings for 1994 of $19.3 million, or $3.81 per share.
The decline in net earnings for the Corporation primarily reflects lower levels
of non-operating revenue and a high level of environmental related expenditures
in 1996. In the aggregate, pre-tax earnings from the Corporation's business
segments declined 2% and 13%, respectively, when comparing 1996 to 1995, and
1995 to 1994. Losses on current development contracts, caused by the
continuation of significant engineering cost overruns associated with military
aerospace development contracts, substantially offset improvements in sales and
earnings of metal treating operations in 1996. Sales and earnings for the
current year also benefitted from the acquisition of the Miami overhaul facility
in May 1996, as well as the overall growth of our component repair and overhaul
business, as discussed further under the Segment Performance section of this
report.
Sales for the Corporation increased to $170.5 million in 1996, a 10% increase
over sales totals for 1995. When comparing 1996 with the prior year, Aerospace &
Marine segment sales increased 19%, largely due to the acquisition of the
Accessory Services business in Miami, Florida and improvements in metal treating
operations, while sales for the Industrial segment fell 2%, reflecting the
divestiture of the Corporation's Buffalo Extrusion Facility in June 1995. Sales
of $154.4 million in 1995 were only slightly below sales of $155.0 million for
1994, as an 8% decline in sales for the Aerospace & Marine segment was virtually
offset by a 13% improvement in Industrial segment sales, comparing 1995 with the
prior year.
New orders received in 1996 increased 14% to $171.6 million, from orders of
$150.9 million received in 1995. Increased orders generally reflect improvements
in the Corporation's component overhaul and metal treating businesses. New
orders received in 1995 were 23% above 1994 orders. Orders for 1995 reflected
contracts for actuation and control systems on three new Boeing commercial
aircraft, while 1994 orders were hindered by a general decline in the
availability of new aerospace and military shipbuilding production programs
which largely accounted for an 11% decline in the total backlog of unshipped
orders at December 31, 1995, as compared with December 31, 1994 of $116.6
million. Backlog levels at December 31, 1996 have improved to $109.3 million. It
should be noted that metal treating and overhaul services, which account for 62%
and 53% of sales for 1996 and 1995, respectively, are sold with very modest lead
times. Accordingly, backlog for these product lines is less of an indication of
future sales activity than the Corporation's backlog of long-term Aerospace &
Marine contracts.
16 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Segment Performance
Aerospace & Marine
The Corporation's Aerospace & Marine segment posted substantially improved sales
for 1996, totaling $109.9 million compared with $92.4 million for 1995. The
improvements in 1996 largely reflect the growth of the Corporation's component
overhaul and repair business which was augmented by the acquisition of Accessory
Services. The Corporation's overhaul operations accounted for 24% of the
Aerospace & Marine segment sales in 1996, compared with 11% in 1995 and 8% in
1994. Sales of metal treating services also showed large improvements over prior
year levels, particularly within foreign aerospace markets. The Aerospace &
Marine segment's results for 1996, as compared with 1995, included higher
military sales of actuation components for the Corporation's F-16 program in
support of foreign military sales and the initial deliveries under a related Air
Force retrofit contract. Sales levels for commercial actuation and control
programs also improved from 1995 under both production and development programs
for every Boeing jetliner currently in production. The Corporation completed the
design phase of the Lockheed/Martin F-22 development program and began to
deliver development and test hardware, and to conduct tests of that hardware,
resulting in a shortfall in sales recorded in 1996 as compared with 1995.
Operating income for the Aerospace & Marine segment improved 7% in 1996,
totaling $12.5 million, compared with $11.7 million in 1995. Improvements in
operating income were generated by the Accessory Services acquisition and by
higher sales of metal treating and component overhaul services, when comparing
1996 with the prior year. Operating income for 1996 was partially offset by cost
overruns associated with its military actuation and control developmental
contracts relating to the F-22, the V-22 Osprey and the F/A-18 E/F aircraft.
Product and engineering costs in excess of contract price under these firm fixed
price contracts totaled $3.6 million in 1996, compared with $3.3 million in 1995
and $.2 million in 1994. In addition, the Corporation is experiencing higher
than anticipated learning and other costs during the start-up phase of its new
commercial actuation and control production programs.
The Corporation's Aerospace & Marine segment had posted sales of $92.4 million
in 1995, compared with sales of $100.3 million for 1994. Sales reductions
reflect the absence in 1995 of significant actuation production programs
primarily for military customers that characterized earlier years, specifically
sales of actuation and control systems for the F-16 program, a retrofit portion
of which was completed late in 1994. Sales of metal treating services to
aerospace customers also declined, as did the volume of shipments for military
valve products, when comparing 1995 with the prior year. The Aerospace & Marine
segment showed substantial improvements during the second half of 1995,
primarily from the growth of our commercial domestic component overhaul
services. Overhaul service sales were also strengthened by the addition of
Curtiss-Wright Flight Systems/Europe, which began its operations during the
second quarter of 1995. A decline in volume for military valve products, when
comparing 1995 with 1994, was partially offset by revenue from the settlement of
a termination claim in 1995, relating to part of a military valve actuation
contract.
Operating income for the Aerospace & Marine segment totaled $11.7 million in
1995, 38% below operating income of $18.7 million for 1994. In addition to the
impact of lower sales levels, operating income for 1995 was further impaired by
significant engineering cost overruns on the aforementioned military actuation
and control developmental contracts and start-up costs at the Corporation's
European overhaul facility.
New orders received by the Aerospace & Marine segment totaled $112.4 million for
1996, 30% above orders received in 1995. During 1996, the Corporation received
$9.2 million in follow-on orders from Boeing for actuation components on its
long-standing 737-400 program. These orders are scheduled to ship throughout
1997 and into the first quarter of 1998. In addition, the increase in new orders
received in 1996 reflects higher levels of overhaul services, particularly as a
result of the Accessory Services acquisition, as well as an increase in F-16
foreign military orders, increased sales of metal treating services and an
increase in orders for military valve products for use by the U.S. Nuclear Navy.
In 1995, the Corporation had received significant orders from The Boeing
Commercial Airplane Group for actuation equipment for the new 737-700 and the
757 and 767 airliners.
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 17
Page 86
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Industrial
The Corporation's Industrial segment posted sales of $60.6 million for 1996,
slightly below sales of $62.0 million posted in 1995. The decline in sales
reflects the absence of the Corporation's Buffalo Extrusion Facility which was
sold in June 1995. After excluding those 1995 sales related to the Buffalo
facility from the segment total, sales for 1996 were 7% above the adjusted 1995
total. Improvements in sales of the continuing operations of the Industrial
segment primarily reflect a higher volume of metal treating services for its oil
tool, agriculture, petrochemical and other customers in 1996. The Corporation
also began to receive sales in 1996 for its internally developed rescue tool,
the "Power Hawk." Sales of commercial valve products for 1996 were slightly
below 1995 totals due to declines in original equipment and spare parts sales
more than offsetting increased sales of nuclear valve product remakes and
upgrades for power industry customers.
Operating income for 1996 declined 10% from 1995 levels, largely due to
development costs associated with the Corporation's new rescue tool product
line. Operating income from metal treating services also declined in 1996 as a
result of lower heat-treating sales and major expenditures needed to meet
automotive customer quality requirements. The Buffalo facility did not have a
material impact on operating income for 1995.
The Corporation's Industrial segment had shown substantial improvements in both
sales and operating income when comparing 1995 with 1994. Sales for the
Industrial segment totaled $62.0 million for 1995, compared with sales of $54.7
million for 1994. The segment benefited from substantial increases in sales of
shot-peening services throughout North America and Europe and in all sectors of
its industrial markets during 1995. Sales of the segment increased 13% despite
the absence of sales in the second half of the year from the Buffalo Extrusion
Facility. Excluding results generated by the Buffalo facility from both years,
sales of this segment for 1995 were 24% higher than those of 1994. Sales of
commercial valve products also improved for 1995, as compared with 1994 sales,
primarily due to an increase in shipments for foreign nuclear construction.
Operating income for the Industrial segment totaled $11.5 million for 1995, an
improvement of 47% from operating income of $7.8 million for 1994. Improvements
in the Industrial segment's operating income are largely reflective of higher
sales of shot-peening and heat-treating services to automotive and other
customers. Despite higher sales, operating income from commercial valve products
for 1995 was lower than that of the prior year, due to cost overruns on foreign
nuclear contracts and lower sales of commercial valve spare parts.
Corporate and Other Expenses
The Corporation recorded a significantly higher level of costs associated with
its environmental obligations in 1996. Environmental expenditures in excess of
amounts previously reserved, inclusive of remediation efforts and administrative
costs, totaled $2.4 million in 1996, compared with $.8 million in both 1995 and
1994. The increase in expenditures relates primarily to legal services provided
for the defense or pursuit of environmental and related claims. The Corporation
also incurred higher expenses related to its strategic endeavors when comparing
1996 with the prior year.
Offsetting general and administrative expenses for the Corporation is non-cash
pension income which results from the amortization into income of the excess of
the retirement plan's assets over the estimated obligations under the plan.
Pension income amounted to $3.9 million in 1996, as compared with $3.0 million
in 1995 and $4.0 million recognized in 1994. The amount recorded reflects the
extent to which this income exceeds the net cost of providing benefits in the
same year, as detailed in Note 13 to consolidated financial statements.
18 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
Page 87
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Other Revenue and Costs
The Corporation recorded other non-operating net revenue for 1996 aggregating
$5.3 million, compared with $7.4 million for 1995. The decline in other revenue
largely reflects reduced overall investment income as a result of lower levels
of available cash and short-term investments due to the Accessory Services
acquisition. Investment income totaled $3.0 million for 1996, a 28% decline from
investment income of $4.1 million recorded in 1995. The Corporation also
recorded losses on write-offs of fixed assets in 1996, compared with
non-recurring gains from sales of machinery and equipment recorded in the prior
year, adding to the decline in other revenue when comparing 1996 with 1995.
Non-operating net revenue for 1995 had increased 41% over the $5.3 million
recorded in 1994 attributable, in part, to the aforementioned net gains on sales
of real estate and equipment, as compared with net losses of $.9 million
recorded in 1994. Revenue generated by the Corporation's short-term investments
increased by $1.1 million, or 36% for 1995, when compared to 1994.
CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
The Corporation's working capital was $115.4 million at December 31, 1996, a 4%
decrease from working capital at December 31, 1995 of $120.6 million. The ratio
of current assets to current liabilities was 3.7 to 1 at December 31, 1996,
compared with a current ratio of 4.6 to 1 at December 31, 1995. The decline in
working capital and its associated ratio primarily reflect the fixed assets
purchased and goodwill recorded as a result of the Accessory Services
acquisition, as discussed in Note 2 to consolidated financial statements. The
Corporation's balance of cash and short-term investments totaled $62.0 million
at December 31, a decline of $16.8 million from balances at the prior year-end,
again, primarily reflecting the acquisition cost of the Accessory Services
business.
Inventories and net billed receivables at December 31, 1996 have increased
substantially compared with their levels at December 31, 1995, primarily
reflecting an $8.3 million increase in inventory due to the acquisition of
Accessory Services. Current inventory levels also reflect an increase associated
with aerospace development contracts, inventory needed to support the ramp-up of
production on the new actuation production programs for Boeing, as well as
inventory to support the growth in overhaul services.
The Corporation continues to maintain its $22.5 million revolving credit lending
facility and its $22.5 million short-term credit agreement, which provide
additional sources of capital to the Corporation. The revolving credit
agreement, of which $7.8 million remains unused at December 31, encompasses
various letters of credit issued primarily in connection with outstanding
industrial revenue bonds. The maximum available credit unused at December 31,
1996, was $30.3 million. There were no cash borrowings made on the credit
agreements during 1996 or 1995.
Capital expenditures were $14.2 million in 1996, more than double those of 1995
and $9.5 million more than capital expenditures in 1994. Actual expenditures
related primarily to the building expansion of our Shelby, North Carolina
facility, which was necessary to meet the demands of the new Boeing contracts
and the growth experienced in overhaul services. Aerospace-related expenditures
accounted for $9.8 million, or approximately 69%, of the total spent in 1996.
The Corporation also increased its fixed asset base through the acquisition of
Accessory Services in 1996. A projected increase in expenditures for 1997
primarily represents expected machinery and equipment purchases within the
Aerospace & Marine segment, including the expansion of metal treating operations
in Europe. At December 31, 1996, the Corporation had committed approximately
$3.9 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 working capital requirements.
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 19
Page 88
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
REPORT OF THE CORPORATION
The consolidated financial statements appearing on pages 21 through 34 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 LLP, independent certified public 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 auditors for appointment by
stockholders and considers the scope of the independent auditors' examination,
the audit results and the adequacy of internal accounting controls of the
Corporation. The independent auditors 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.
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, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, 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.
/s/ Price Waterhouse LLP
Morristown, New Jersey
January 30, 1997
20 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
Page 89
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data) For the years ended December 31, 1996 1995(1) 1994(1)
- ---------------------------------------------------------------------------------------------------------------------
Net sales $ 170,536 $154,446 $ 155,001
Cost of sales 117,067 104,178 105,128
- ---------------------------------------------------------------------------------------------------------------------
Gross margin 53,469 50,268 49,873
Research and development costs 997 1,180 1,196
Selling expenses 6,337 6,092 5,368
General and administrative expenses 24,556 21,548 18,666
Environmental remediation and administrative expenses 2,397 835 753
- ---------------------------------------------------------------------------------------------------------------------
Operating income 19,182 20,613 23,890
Investment income, net 2,968 4,147 3,040
Rental income, net 2,816 2,862 2,811
Other income (expense), net (450) 419 (583)
Interest expense 387 549 401
- ---------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect of change in accounting principle 24,129 27,492 28,757
Provision for income taxes 8,020 9,323 9,210
- ---------------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of change in accounting principle 16,109 18,169 19,547
Cumulative effect of change in accounting principle (net of applicable taxes) (244)
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 16,109 $ 18,169 $ 19,303
Net Earnings per Common Share:
Earnings before cumulative effect of change in accounting principle $ 3.17 $ 3.59 $ 3.86
Cumulative effect of change in accounting principle (net of applicable taxes) (.05)
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 3.17 $ 3.59 $ 3.81
=====================================================================================================================
See notes to consolidated financial statements
(1) Prior year information has been restated to conform to current
presentation.
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 21
Page 90
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands) December 31, 1996 1995
- -------------------------------------------------------------------------------------------------------------
Assets:
Current assets:
Cash and cash equivalents $ 6,317 $ 8,865
Short-term investments 55,674 69,898
Receivables, net 37,708 36,277
Deferred tax assets 8,769 7,149
Inventories 46,987 29,111
Other current assets 2,378 2,325
- -------------------------------------------------------------------------------------------------------------
Total current assets 157,833 153,625
- -------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land 4,613 4,504
Buildings and improvements 84,762 79,352
Machinery, equipment and other 120,855 114,195
- -------------------------------------------------------------------------------------------------------------
210,230 198,051
Less, accumulated depreciation 146,268 141,782
- -------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 63,962 56,269
Prepaid pension costs 35,016 31,128
Other assets 10,353 5,179
- -------------------------------------------------------------------------------------------------------------
Total assets $ 267,164 $ 246,201
=============================================================================================================
Liabilities:
Current liabilities:
Accounts payable $ 13,144 $ 6,286
Accrued expenses 12,062 10,958
Income taxes payable 3,189 2,000
Other current liabilities 14,021 13,810
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 42,416 33,054
- -------------------------------------------------------------------------------------------------------------
Long-term debt 10,347 10,347
Deferred income taxes 8,686 7,447
Accrued postretirement benefit costs 10,302 10,488
Other liabilities 12,050 12,686
- -------------------------------------------------------------------------------------------------------------
Total liabilities 83,801 74,022
- -------------------------------------------------------------------------------------------------------------
Contingencies and Commitments (Notes 9 and 14)
Stockholders' Equity:
Preferred stock, $1 par value, 650,000 authorized, none issued
Common stock, $1 par value, 12,500,000 authorized, 10,000,000 shares issued
(outstanding shares 5,081,103 for 1996 and 5,077,823 for 1995) 10,000 10,000
Capital surplus 57,127 57,141
Retained earnings 299,740 288,710
Unearned portion of restricted stock (608) (780)
Equity adjustments from foreign currency translation (1,506) (1,330)
- -------------------------------------------------------------------------------------------------------------
364,753 353,741
Less, treasury stock at cost (4,918,897 shares for 1996 and 4,922,177 shares for 1995) 181,390 181,562
- -------------------------------------------------------------------------------------------------------------
Total stockholders' equity 183,363 172,179
- -------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 267,164 $ 246,201
=============================================================================================================
See notes to consolidated financial statements.
22 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
Page 91
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) For the years ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 16,109 $ 18,169 $ 19,303
- ----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by operating activities:
Cumulative effect of change in accounting principle 244
Depreciation and amortization 8,946 9,512 10,883
Net (gains) losses on sales and disposals of real estate and equipment 473 (219) 855
Net gains on short-term investments (1,014) (1,134) (1,013)
Deferred taxes (168) 2,056 901
Changes in operating assets and liabilities, net of business acquired:
Proceeds from sales of trading securities 333,577 270,923 216,992
Purchases of trading securities (323,172) (271,833) (231,145)
(Increase) decrease in receivables 5,500 (2,093) (10,135)
Increase in inventories (12,057) (6,533) (2,400)
Increase (decrease) in progress payments (2,622) 594 4,967
Increase in accounts payable and accrued expenses 6,810 1,994 260
Increase (decrease) in income taxes payable 1,189 (105) 2,360
Increase in other assets (4,705) (2,380) (2,922)
Increase (decrease) in other liabilities 4,222 (393) (5,562)
Litigation settlement (8,880)
Other, net 143 (1,130) (2,321)
- ----------------------------------------------------------------------------------------------------------------------
Total adjustments 17,122 (741) (26,916)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 33,231 17,428 (7,613)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales and disposals of real estate and equipment 96 3,290 1,326
Additions to property, plant and equipment (14,156) (6,985) (4,609)
Acquisition of Accessory Services business (16,640)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (30,700) (3,695) (3,283)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (4,054) (149)
Dividends paid (5,079) (5,059) (5,059)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (5,079) (9,113) (5,208)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,548) 4,620 (16,104)
Cash and cash equivalents at beginning of year 8,865 4,245 20,349
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 6,317 $ 8,865 $ 4,245
======================================================================================================================
See notes to consolidated financial statements.
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 23
Page 92
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Equity
Unearned Adjustments
Portion of from
Restricted Foreign
Common Capital Retained Stock Currency Treasury
(In thousands) Stock Surplus Earnings Awards Translation Stock
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1993 $ 10,000 $ 57,172 $ 261,356 $ (87) $(1,862) $ 182,348
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings 19,303
Common dividends (5,059)
Amortization of earned portion of restricted stock (33) 87
Translation adjustments, net 240
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1994 10,000 57,139 275,600 -- (1,622) 182,348
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings 18,169
Common dividends (5,059)
Exchange of common shares for the exercise of stock options 71
Stock options exercised (31) (110)
Stock awards issued 33 (780) (747)
Translation adjustments, net 292
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1995 10,000 57,141 288,710 (780) (1,330) 181,562
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings 16,109
Common dividends (5,079)
Stock awards issued 10 (93) (83)
Stock options exercised (24) (89)
Amortization of earned portion of restricted stock awards 265
Translation adjustments, net (176)
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1996 $ 10,000 $ 57,127 $ 299,740 $(608) $(1,506) $ 181,390
============================================================================================================================
See notes to consolidated financial statements.
24 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
Page 93
- --------------------------------------------------------------------------------
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Curtiss-Wright Corporation is a diversified multi-national manufacturing and
service concern which designs, manufactures and overhauls precision components
and systems and provides highly engineered services to aerospace, automotive,
shipbuilding, oil, petrochemical, agricultural equipment, power generation,
metal working and fire and rescue industries.
A. Principles of Consolidation
The financial statements of the Corporation have been prepared in conformity
with generally accepted accounting principles and such preparation has required
the use of management's estimates in presenting 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 money market funds and commercial paper that are
readily convertible into cash, all with original 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 for the majority of its
operations as units are shipped, services are rendered, or as engineering
milestones are achieved. Sales and estimated profits under long-term military
valve contracts 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 capitalized, while maintenance and repairs that do not improve
or extend the life of the assets are expensed in the period they occur.
Depreciation is computed using the straight-line method based upon the estimated
useful lives of the respective assets.
F. Intangible Assets
Intangible assets consist primarily of the excess purchase price of the
acquisition over the fair value of net tangible assets acquired. The Corporation
amortizes such costs on a straight-line basis over the estimated period
benefited but not exceeding 30 years.
G. Financial Instruments
The financial instruments with which the Corporation is involved are primarily
of a traditional nature. The Corporation's short-term investments are comprised
of equity and debt securities, all classified as trading securities, which are
carried at their fair value based upon the quoted market prices of those
investments at December 31, 1996 and 1995. Accordingly, net realized and
unrealized gains and losses on trading securities are included in net earnings.
The Corporation also, where circumstances warrant, participates in derivative
financial instruments, as defined under Statement of Financial Accounting
Standards No. 119, "Disclosures about Derivative Financial Instruments and Fair
Value of Financial Instruments," consisting of forward currency exchange
contracts and commitments to purchase stock. Derivative financial instruments
are included as short-term investments in the Corporation's balance sheets and
are carried at their fair market value, information on which appears in Note 3.
H. Environmental Costs
The Corporation establishes a reserve for a potential environmental
responsibility when it concludes that a determination of legal liability is
probable, based upon the advice of counsel. Such amounts, if quantified, reflect
the Corporation's estimate
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 25
Page 94
of the amount of that liability. If only a range of potential liability can be
estimated, a reserve will be established at the low end of that range. Such
reserves represent today's values of anticipated remediation not recognizing any
recovery from insurance carriers, or third-party legal actions, and are not
discounted.
I. Earnings per Share
Earnings per share are computed by dividing the applicable amount of earnings by
the weighted average number of common shares outstanding during each year
(5,079,000 shares for 1996, 5,062,000 shares for 1995 and 5,061,000 shares for
1994). The Corporation has outstanding stock options for each of the three years
presented, as reported in Note 10. The assumed exercise of these stock options
had an immaterial dilutive effect on earnings per share for each year presented.
J. Accounting for Stock-Based Compensation
The Corporation has elected to continue following Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), in
accounting for its employee stock options, rather than adopt the alternative
method of accounting provided under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). Under APB 25,
the Corporation does not recognize compensation expense on stock options granted
to employees because the exercise price of the options is equal to the market
price of the underlying stock on the date of the grant. Further information
concerning options granted under the Corporation's Long-Term Incentive Plan and
a prior Stock Option Plan is provided in Note 10.
2. Acquisition
On May 20, 1996, the Corporation completed the purchase of the Miami, Florida
based Accessory Services unit of Aviall, Inc. ("Accessory Services").
The Corporation acquired the net assets of Accessory Services for $16.6 million
in cash and has accounted for the acquisition as a purchase. The excess of
purchase price over the estimated fair value of the net assets acquired amounted
to approximately $4.0 million and is being amortized on a straight-line basis
over 30 years. The results of operations of Accessory Services have been
included in the consolidated financial statements of the Corporation from the
date of acquisition.
The unaudited pro forma consolidated results of operations shown below have been
prepared as if the acquisition had occurred at the beginning of 1996:
(In thousands, except per share data) 1996
- --------------------------------------------------------------------------------
Net sales $178,816
Net earnings 16,437
Net earnings per common share 3.24
- --------------------------------------------------------------------------------
3. Short-Term Investments
The composition of short-term investments at December 31 is as follows:
(In thousands) 1996 1995
- ----------------------------------------------------------------------------------
Cost Fair Value Cost Fair Value
- ----------------------------------------------------------------------------------
Money market preferred stock $ 19,000 $ 19,000 $ 41,999 $ 41,999
Tax-exempt money market preferred stock 25,322 25,322 12,874 12,874
Common and preferred stocks 1,135 1,167 1,135 1,064
Utility common stocks purchased 22,678 22,539 22,694 22,452
Utility common stocks sold short (12,250) (12,354) (11,599) (11,985)
Treasury bills 3,494 3,494
- ----------------------------------------------------------------------------------
Total short-term investments $ 55,885 $ 55,674 $ 70,597 $ 69,898
==================================================================================
Investment income for the years ended December 31 consists of:
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
Net realized gains on the sale of trading securities $ 527 $ 1,282 $ 1,563
Interest and dividend income, net 1,954 3,014 2,027
Net unrealized holding gains (losses) 487 (149) (550)
- -------------------------------------------------------------------------------
Investment income, net $2,968 $ 4,147 $ 3,040
===============================================================================
The Corporation had no forward currency exchange contracts outstanding at
December 31, 1996 and one contract outstanding at December 31, 1995 which
expired in August 1996. The forward currency exchange contract was used to hedge
the Corporation's exposure to foreign currency fluctuations on short-term
Canadian securities. The carrying values of the asset and related forward
contract were $3,377,000 and $3,613,000, respectively, at December 31, 1995.
4. Receivables
Receivables 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.
26 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
Page 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 represented 5% of the total outstanding billed
receivables at December 31, 1996 and 4% of the total outstanding billed
receivables at December 31, 1995. The Corporation performs ongoing credit
evaluations 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.
The composition of receivables at December 31 is as follows:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Billed Receivables:
Trade and other receivables $37,253 $32,236
Less: progress payments applied 5,701 4,339
Allowance for doubtful accounts 1,557 760
- --------------------------------------------------------------------------------
Net billed receivables 29,995 27,137
- --------------------------------------------------------------------------------
Unbilled Receivables:
Recoverable costs and estimated earnings not billed 19,761 25,128
Less: progress payments applied 12,048 15,988
- --------------------------------------------------------------------------------
Net unbilled receivables 7,713 9,140
- --------------------------------------------------------------------------------
Total receivables, net $37,708 $36,277
================================================================================
5. Inventories
Inventories are valued at the lower of cost (principally average cost) or
market. The composition of inventories at December 31 is as follows:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Raw material $ 4,653 $ 3,757
Work-in-process 25,128 14,489
Finished goods/component parts 15,817 4,353
Inventoried costs related to U.S. Government and
other long-term contracts 6,307 11,474
- --------------------------------------------------------------------------------
Gross inventories 51,905 34,073
Less: progress payments applied, principally related
to long-term contracts 4,918 4,962
- --------------------------------------------------------------------------------
Net inventories $46,987 $29,111
================================================================================
6. Accrued Expenses and Other Current Liabilities
Accrued expenses at December 31 consist of the following:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Accrued compensation $ 4,866 $ 3,832
Accrued taxes other than income taxes 1,478 1,355
Accrued insurance 1,462 2,177
All other 4,256 3,594
- --------------------------------------------------------------------------------
Total accrued expenses $12,062 $10,958
================================================================================
Other current liabilities at December 31 consist of the following:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Current portion of environmental reserves $ 5,553 $ 6,236
Anticipated losses on long-term contracts 3,078 905
Litigation reserves 3,101 3,101
All other 2,289 3,568
- --------------------------------------------------------------------------------
Total other current liabilities $14,021 $13,810
================================================================================
7. Income Taxes
The Corporation had available at December 31, 1996, a capital loss carryforward
of $3,252,000 that will expire on December 31, 1997. A valuation allowance was
established to offset this deferred tax asset, based on management's assessment
of the likely realization of future capital gain income.
The net change in the valuation allowance for deferred tax assets was an
increase of $118,000 in 1996 as a result of an increase in the capital loss
carryforward of $289,000 offset by unrealized gains on securities of $171,000.
During 1995, the valuation allowance decreased by $4,366,000 due to the
expiration of a capital loss carryforward of $3,058,000, realized net capital
gains of $1,360,000 offset by $52,000 of net unrealized losses on securities.
Earnings before income taxes and the cumulative effect of a change in accounting
principle for the years ended December 31 are:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Domestic $15,195 $21,861 $24,009
Foreign 8,934 5,631 4,748
- --------------------------------------------------------------------------------
Total $24,129 $27,492 $28,757
================================================================================
The provisions for taxes on earnings before the cumulative effect of a change in
accounting principle for the years ended December 31 consist of:
(In thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
Federal income taxes currently payable $ 4,041 $ 3,715 $ 4,755
Foreign income taxes currently payable 3,388 1,963 1,991
State and local income taxes currently payable 995 1,311 668
Deferred income taxes (233) 2,282 1,603
Federal income tax on net capital gains 184 698 594
Utilization of capital loss carryforwards (184) (698) (594)
Valuation allowance (171) 52 193
- -------------------------------------------------------------------------------
Provision for income tax $ 8,020 $ 9,323 $ 9,210
===============================================================================
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 27
Page 96
The effective tax rate varies from the U.S. Federal statutory tax rate for the
years ended December 31 principally due to the following:
1996 1995 1994
- -------------------------------------------------------------------------------
U.S. Federal statutory tax rate 35.0% 35.0% 35.0%
Add (deduct):
Utilization of capital loss carryforward (.8) (2.5) (2.1)
Dividends received deduction and tax exempt
dividends (2.3) (2.5) (1.9)
State and local taxes 1.7 4.7 2.3
Valuation allowance (.7) .2 .7
All other .3 (1.0) (2.0)
- -------------------------------------------------------------------------------
Effective tax rate 33.2% 33.9% 32.0%
===============================================================================
The components of the Corporation's deferred tax assets and liabilities at
December 31 are as follows:
(In thousands) 1996 1995
- -------------------------------------------------------------------------------
Deferred tax assets:
Environmental clean-up $ 6,142 $ 6,453
Postretirement/employment benefits 3,737 3,801
Inventories 2,661 2,195
Legal matters 1,181 1,162
Net capital loss carryforwards 1,212 1,094
Other 3,941 3,370
- -------------------------------------------------------------------------------
Total deferred tax assets 18,874 18,075
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Pension 12,247 10,888
Depreciation 4,425 5,041
Other 907 1,350
- -------------------------------------------------------------------------------
Total deferred tax liabilities 17,579 17,279
- -------------------------------------------------------------------------------
Deferred tax asset valuation allowance (1,212) (1,094)
- -------------------------------------------------------------------------------
Net deferred tax liabilities/(assets) $ (83) $ 298
===============================================================================
Deferred tax assets and liabilities are reflected on the Corporation's
consolidated balance sheets at December 31 as follows:
(In thousands) 1996 1995
- -------------------------------------------------------------------------------
Current deferred tax assets $(8,769) $(7,149)
Non-current deferred tax liabilities 8,686 7,447
- -------------------------------------------------------------------------------
Net deferred tax liabilities/(assets) $ (83) $ 298
===============================================================================
Income tax payments of $8,553,000 were made in 1996, $8,114,000 in 1995, and
$7,586,000 in 1994.
8. Long-Term Debt
Long-term debt at December 31 consists of the following:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Industrial Revenue Bonds due from 2001 to 2007
Weighted average interest rate is 3.70% and 3.94% per
annum for 1996 and 1995, respectively $10,347 $10,347
- --------------------------------------------------------------------------------
Total long-term debt $10,347 $10,347
================================================================================
Aggregate maturities of long-term debt are as follows:
(In thousands)
- --------------------------------------------------------------------------------
2001 $ 1,300
2002 4,047
2007 5,000
================================================================================
Interest payments of approximately $383,000, $684,000 and $294,000 were made in
1996, 1995 and 1994, respectively.
9. Credit Agreements
The Corporation has two credit agreements in effect aggregating $45,000,000 with
a group of three banks. The Revolving Credit Agreement commits a maximum of
$22,500,000 to the Corporation for cash borrowings and letters of credit. The
unused credit available under this facility at December 31, 1996 was $7,753,000.
The commitments made under the Revolving Credit Agreement expire October 29,
1999, but may be extended annually for successive one year periods with the
consent of the bank group. The Corporation also has in effect a Short-Term
Credit Agreement which allows for cash borrowings of $22,500,000, all of which
was available at December 31, 1996. The Short-Term Credit Agreement expires
October 25, 1997. At expiration, the Short-Term Credit Agreement may be
extended, with the consent of the bank group, for an additional period not to
exceed 300 days. No cash borrowings were outstanding at December 31, 1996 or
December 31, 1995. The Corporation is required under these Agreements 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
Agreements, retained earnings of $34,052,000 were available for cash dividends
and stock repurchases at December 31, 1996.
At December 31, 1996, 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 $9,300,000.
The Corporation has various other letters of credit outside the Revolving Credit
Agreement totaling approximately $608,000.
28 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
Page 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Stock Compensation Plans
Stock-Based Compensation:
Pro Forma information regarding net earnings and earnings per share is required
by SFAS No. 123 and has been determined as if the Corporation had accounted for
its 1996 and 1995 employee stock option grants under the fair value method of
that Statement. Information with regards to the number of options granted,
market price of the grants, vesting requirements and the maximum term of the
options granted appears by plan type in the sections below. The fair value for
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions for 1995 and 1996,
respectively: a risk-free interest rate of 5.8% and 6.6%; an expected volatility
of 33.21% and 24.38%; an expected dividend yield of 2.1% and 2.0%; and a
weighted average expected life of the option of 10 years for both periods.
For purposes of pro forma disclosures, no expense was recognized on the 1996
options due to the timing of the grant. The estimated fair value of the 1995
option grant is presented as amortized to expense over the options' vesting
period beginning January 1, 1996. No compensation expense is recognized for 1995
due to the timing of the grant. The Corporation's pro forma information for the
year ended December 31, 1996 is as follows:
(In thousands, except per share data) 1996
- --------------------------------------------------------------------------------
Net earnings:
As reported $ 16,109
Pro forma $ 15,870
Net earnings per common share:
As reported $ 3.17
Pro forma $ 3.12
================================================================================
Long-Term Incentive Plan:
Under a Long-Term Incentive Plan approved by stockholders in 1995, 500,000
shares of common stock were reserved in the aggregate for the grant of stock
options, stock appreciation rights, limited stock appreciation rights,
restricted stock awards, performance shares and/or performance units until May
5, 2005. The total number of shares available for a grant to key employees in
each year will be one percent of the shares outstanding at the beginning of that
year, although that number may be increased by the number of shares available
but unused in prior years and by the number of shares covered by previously
terminated or forfeited awards. No more than 25,000 shares of common stock
subject to the plan may be awarded in any year to any one participant in the
plan.
In December 1996, the Corporation awarded 734,654 performance units under this
plan to certain key employees. The performance units are denominated in dollars
and payable early in the year 2000, contingent upon continued employment and the
satisfaction of company performance objectives keyed to profitable growth over a
period of three years ending on December 31, 1999. The anticipated cost of such
awards will be expensed over the three year period beginning January 1, 1997.
However, the actual cost of the performance units may vary from total value of
the awards depending upon the degree to which the key performance objectives are
met. In addition, the Corporation granted non-qualified stock options to certain
key employees to purchase 34,649 shares of common stock at a price of $50.38 per
share, the market price on the date of the grant. In December 1995, the
Corporation granted non-qualified stock options under this plan to certain key
employees to purchase 32,365 shares of common stock at a price of $48.00 per
share, the market price on the date of the grant. Stock options granted under
this plan expire ten years after the date of the 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 after three years from the date of
grant. Also in 1995, the Corporation awarded 16,180 shares of restricted common
stock under this plan to certain key employees at no cost to the employees. The
shares have been valued at a price of $48.00 per share, the market price on the
date of the award, and the cost of the issue is being amortized over their
three-year restriction period.
Stock Option Plan:
The Corporation's 1985 Stock Option Plan, as amended on November 16, 1993,
expired on February 13, 1995. Under this plan, 175,000 shares of common stock
had been reserved in treasury for issuance to key employees. With the expiration
of the plan, the remaining 79,975 shares of common stock are no longer reserved
for issuance.
During 1994, the Corporation granted nonqualified stock options under this plan
to certain key employees to purchase 51,625 shares of common stock at a price of
$36.00 per share, the market price on the date of the grant. The options expire
ten years after the date of the 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 the grant. No options
were granted in 1995 under this plan prior to its expiration.
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 29
Page 98
The Corporation issued 2,027 and 2,346 shares of common stock from the exercise
of stock options during 1996 and 1995, respectively. As of December 31, 1996,
options to purchase 153,914 shares of common stock remain unexercised, with
options to purchase 3,885 shares having been forfeited.
Stock Plan for Non-Employee Directors: Under a Stock Plan for Non-Employee
Directors, approved by stockholders in 1996, 8,000 shares of common stock were
reserved until April 12, 2006, for the grant of restricted stock awards and, at
the option of the Directors, for payment of regular stipulated compensation and
meeting fees in equivalent shares. In June 1996, pursuant to the plan 1,806
shares of restricted stock were issued to non-employee directors, at no cost to
the directors. The shares have been valued at a price of $51.56 per share, the
fair market price on the date of the award. The cost of the restricted stock
awards is being amortized over their five year restriction period. At December
31, 1996, the Corporation had deferred an additional 238 shares, at an average
market value of $46.40, for its non-employee directors pursuant to election by
directors to receive such shares in lieu of payment for earned compensation
under the plan.
11. Environmental Costs
The Corporation has other non-current liabilities consisting primarily of
environmental obligations which totaled $9,798,000 at December 31, 1996 and
$10,806,000 at December 31, 1995.
In 1996, remediation costs paid for the Corporation's Wood-Ridge, New Jersey,
property totaled $2,453,000. This expense had previously been provided in 1990
as part of the $21,000,000 reserve established to remediate the property. The
Corporation has received approval by the State of New Jersey Department of
Environmental Protection to begin actual remediation of the groundwater and
soil. The approved clean-up methods selected are in various stages of
installation.
During 1996, the Corporation incurred expenses of $2,397,000 relating to the
remediation, engineering and professional services for other environmental
obligations and related litigation matters. In 1995 and 1994, the Corporation
recognized costs of $835,000 and $753,000, respectively, for these purposes.
The Corporation is joined with many other corporations and municipalities as
potentially responsible parties (PRPs) in a number of environmental clean-up
sites, which include the Sharkey Landfill Superfund Site, Parsippany, N.J.,
Caldwell Trucking Company Superfund Site, Fairfield, N.J., and Pfohl Brothers
Landfill Site, Cheektowaga, N.Y., identified to date as the most significant
sites. Other environmental sites in which the Corporation is involved include
but are not limited to Chemsol Inc. Superfund Site, Piscataway, N.J., and PJP
Landfill, Jersey City, N.J. The environmental problems at the above sites are
related to events which occurred decades ago.
The Corporation believes that the outcome of any of these matters would not have
a materially adverse effect on the Corporation's results of operations or
financial condition.
In 1992 the Corporation initiated a lawsuit against a number of its insurers,
alleging that it is entitled to indemnification with respect to certain of the
environmental liabilities referred to above. Since the liability of the insurers
is contested, the possibility of any financial recovery from the lawsuit has
been disregarded in the calculation of the environmental reserves referred to
above.
12. Postretirement Benefits
The Corporation provides postretirement benefits, consisting only of health-care
benefits, covering eligible retirees. 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. The actual payments
made to provide certain nonvested health-care benefits for specific groups of
retired employees totaled $660,000, $696,000 and $491,000 in 1996, 1995 and
1994, respectively.
Net expenses for the retiree health-benefit plans for the years ended December
31 included the following components:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Service cost--benefits attributed to service
during the period $ 214 $ 180 $328
Interest cost on accumulated postretirement benefits 448 494 589
Net amortization and deferral (187) (292)
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 475 $ 382 $917
================================================================================
30 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
Page 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the actuarial present value of benefits and the
funded status at December 31 for the Corporation's domestic plans:
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Actuarial present value of benefits:
Retired employees $ 4,165 $ 4,575
Active employees--fully eligible 530 712
Other active employees 1,821 1,869
- --------------------------------------------------------------------------------
Accumulated postretirement benefits 6,516 7,156
Unrecognized net gain from past experience different
from that assumed and from
changes in assumptions 3,340 3,332
Unrecognized prior service costs 446
- --------------------------------------------------------------------------------
Accrued postretirement benefit cost $10,302 $10,488
================================================================================
The weighted average discount and health-care cost trend rates used in
determining the accumulated postretirement benefits and periodic postretirement
benefit cost are as follows:
1996 1995
- -------------------------------------------------------------------------------
Weighted average discount rate 7.00% 7.00%
Assumed health care cost trend rates:
Current 9.43% 9.83%
Ultimate 5.50% 5.50%
Years to ultimate 11 12
===============================================================================
A 1% increase in health-care cost trends would result in an increase to the
accumulated postretirement benefits as of December 31, 1996 of $696,000 and an
increase in the net periodic postretirement benefit cost for the year then ended
of $90,000.
Subsequent Event: Effective January 1, 1997, the Corporation has amended its
postretirement health-care coverage to significantly reduce the cost of
providing such benefits. Current retirees receiving health benefits have begun
contributing toward their postretirement medical coverage and reimbursement
levels have been reduced to 80%, from the 100% coverage level effective through
December 31, 1996. The Corporation has also provided an alternative Medicare
Risk HMO which provides a more comprehensive level of coverage at no cost to its
retiree groups. The amended plan also eliminates all Corporation-subsidized
postretirement benefits for non-union employees hired after December 31, 1996.
These plan amendments are expected to reduce the Corporation's net periodic
postretirement cost by approximately $388,000 for the fiscal year ending
December 31, 1997.
13. Retirement Plans
The Corporation maintains a non-contributory defined benefit pension plan
covering substantially all employees. The Curtiss-Wright Corporation Retirement
Plan non-union formula is based on years of credited service and the five
highest consecutive years' compensation during the last ten years of service and
a "cash balance" benefit; union employees who have negotiated a benefit under
this plan are entitled to a benefit based on years of service multiplied by a
monthly pension rate(s). Accrued benefits as of August 31, 1994, for non-union
employees are adjusted upward based upon salary growth to date of termination.
Employees are eligible to participate in this plan after one year of service and
are vested in the formula benefit after five years of service. Vesting in the
"cash balance" portion occurs at 20% per year, reaching 100% vesting at five
years of service.
The Corporation's funding policy is to provide contributions within the limits
of deductibility under current tax regulations, thereby accumulating funds
adequate to provide for all accrued benefits. At December 31, 1996, and December
31, 1995, the retirement plan was overfunded (i.e., plan assets exceed
accumulated benefit obligations).
The Corporation had pension credits in 1996, 1995 and 1994 of $3,888,000,
$3,036,000 and $4,016,000, respectively, for domestic plans and had foreign
pension costs in 1996, 1995 and 1994 under defined contribution retirement plans
of $249,000, $208,000 and $188,000, respectively. The funded status of the
Corporation's domestic plans at December 31 are set forth in the following
table:
(In thousands) 1996 1995
- -------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ 103,581 $ 110,851
Nonvested 2,527 2,832
- -------------------------------------------------------------------------------
Accumulated benefit obligation 106,108 113,683
Impact of future salary increases 4,411 3,271
- -------------------------------------------------------------------------------
Projected benefit obligation 110,519 116,954
Plan assets at fair value 192,599 183,497
- -------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 82,080 66,543
Unrecognized net gain (38,534) (25,763)
Unrecognized prior service cost 365 400
Unrecognized net transition asset (8,895) (10,052)
- -------------------------------------------------------------------------------
Prepaid pension cost $ 35,016 $ 31,128
===============================================================================
At December 31, 1996, approximately 34% of the plans' assets are invested in
debt securities, including a small portion in U.S. Government issues.
Approximately 66% of plan assets are invested in equity securities.
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 31
Page 100
Included in earnings is net pension income for 1996, 1995 and 1994, comprised of
the following:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Service costs--benefits earned during the period $ 3,287 $ 3,119 $ 2,623
Interest cost on projected benefit obligations 7,548 8,457 7,706
Actual return on plan assets (16,749) (32,358) 3,301
Net amortization and deferral 2,026 17,746 (17,646)
- --------------------------------------------------------------------------------
Net pension income $ (3,888) $ (3,036) $ (4,016)
================================================================================
The major assumptions used in accounting for the Corporation's defined-benefit
pension and retirement plans at December 31 are as follows:
1996 1995
- -------------------------------------------------------------------------------
Discount rate 7.0% 7.0%
Rate of increase in future compensation levels 4.5% 4.5%
Expected long-term rate of return on plan assets 8.5% 8.5%
================================================================================
The net periodic pension credit is determined using the assumptions as of the
beginning of the year. The funded status is determined using the assumptions as
of the end of the year.
14. Leases
Buildings and Improvements Leased to Others. The Corporation leases certain of
its buildings and related improvements to outside parties under noncancelable
operating leases. Cost and accumulated depreciation of the leased buildings and
improvements at December 31, 1996, were $53,686,000 and $44,690,000,
respectively, and at December 31, 1995, were $51,501,000 and $43,674,000,
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 $2,283,000 in 1996, $1,857,000 in
1995 and $1,840,000 in 1994.
At December 31, 1996, the approximate future minimum rental income and
commitment under operating leases that have initial or remaining noncancelable
lease terms in excess of one year are as follows:
(In thousands)
Rental Rental
Income Commitment
- --------------------------------------------------------------------------------
1997 $ 5,066 $1,914
1998 5,176 1,947
1999 4,053 1,378
2000 3,486 609
2001 2,868 351
2002 and beyond 14,640 1,194
- --------------------------------------------------------------------------------
Total $35,289 $7,393
================================================================================
15. Industry Segments
The principal products and services and major markets of the two industry
segments are described on page 9.
Consolidated Industry Segment Information:
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------
Sales:
Aerospace & Marine $ 109.9 $ 92.4 $ 100.3
Industrial 60.6 62.0 54.7
- -------------------------------------------------------------------------------
Total sales $ 170.5 $ 154.4 $ 155.0
===============================================================================
Pre-tax Earnings from Operations:
Aerospace & Marine $ 12.5 $ 11.7 $ 18.7
Industrial 10.4 11.5 7.8
- -------------------------------------------------------------------------------
Total segments 22.9 23.2 26.5
Net pension income 3.9 3.0 4.0
Corporate expense (7.6) (5.6) (6.6)
- -------------------------------------------------------------------------------
Total operating income 19.2 20.6 23.9
Investment income 3.0 4.1 3.0
Rental earnings, net 2.8 2.9 2.8
Other income (expense), net (.5) .4 (.5)
Interest expense (.4) (.5) (.4)
- -------------------------------------------------------------------------------
Total pre-tax earnings $ 24.1 $ 27.5 $ 28.8
===============================================================================
32 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
Page 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------
Identifiable Assets:
Aerospace & Marine $102.6 $ 74.6 $ 71.9
Industrial 65.2 56.7 42.6
- -------------------------------------------------------------------------------
Total segments 167.8 131.3 114.5
Cash and short-term investments 62.0 78.8 76.4
Other general and corporate 37.4 36.1 47.8
- -------------------------------------------------------------------------------
Total assets at December 31 $267.2 $246.2 $238.7
===============================================================================
Capital Expenditures:
Aerospace & Marine $ 9.8 $ 5.7 $ 2.7
Industrial 2.3 .7 .9
- -------------------------------------------------------------------------------
Total segments 12.1 6.4 3.6
General and corporate 2.1 .6 1.0
- -------------------------------------------------------------------------------
Total capital expenditures $ 14.2 $ 7.0 $ 4.6
===============================================================================
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------
Depreciation:
Aerospace & Marine $ 5.4 $ 5.4 $ 6.6
Industrial 2.4 3.1 3.3
- -------------------------------------------------------------------------------
Total segments 7.8 8.5 9.9
General and corporate 1.0 1.0 1.0
- -------------------------------------------------------------------------------
Total depreciation $ 8.8 $ 9.5 $ 10.9
===============================================================================
Aerospace & Marine sales had no single customer that accounted for 10% or more
of total sales in 1996 and 1995. However, the segment had one customer that
accounted for 10% of sales in 1994. The Industrial segment did not include any
customers exceeding 10% of total revenue.
Revenues from major product lines consist of:
1996% 1995% 1994
- -------------------------------------------------------------------------------
Actuation and control systems and components 21% 26% 30%
Metal treating services 46 46 40
Overhaul services 16 7 5
Valves 16 18 19
All others 1 3 6
- -------------------------------------------------------------------------------
100% 100% 100%
===============================================================================
Direct sales to the U.S. Government and sales for U.S. and Foreign government
end use accounted for 23%, 25% and 31% of total sales in 1996, 1995 and 1994,
respectively, and were included in all segments as follows:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Aerospace & Marine $37,400 $38,000 $44,000
Industrial 2,500 900 3,700
- --------------------------------------------------------------------------------
Total military sales $39,900 $38,900 $47,700
================================================================================
Geographic revenues and earnings are as follows:
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Sales:
United States $135,422 $127,304 $132,952
Europe 29,865 23,096 18,486
Canada 5,249 4,046 3,563
- --------------------------------------------------------------------------------
Total $170,536 $154,446 $155,001
================================================================================
Pre-Tax Earnings:
United States $15,195 $21,861 $24,009
Europe 8,076 4,624 4,273
Canada 858 1,007 475
- --------------------------------------------------------------------------------
Total $24,129 $27,492 $28,757
================================================================================
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.
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 33
Page 102
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
QUARTERLY RESULTS OF OPERATIONS AND STOCK
INFORMATION (UNAUDITED)
(In thousands except per share amounts) First Second Third Fourth
- --------------------------------------------------------------------------------
1996 Quarters:
Sales $36,316 $43,243 $44,881 $46,096
Gross profit 12,243 14,154 14,381 12,691
Net earnings 3,315 5,202 4,444 3,148
Earnings per share:
Net earnings per common share .65 1.02 .87 .62
Dividends per common share .25 .25 .25 .25
- --------------------------------------------------------------------------------
1995 Quarters:
Sales $37,543 $36,916 $35,929 $44,058
Gross profit 12,115 11,649 11,998 14,506
Net earnings 4,012 4,225 4,966 4,966
Earnings per share:
Net earnings per common share .79 .83 .98 .98
Dividends per common share .25 .25 .25 .25
================================================================================
CONSOLIDATED SELECTED FINANCIAL DATA
(In thousands except per share data) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
Sales $170,536 $154,446 $155,001 $ 158,864 $179,737
Earnings (loss) before changes in accounting principles 16,109 18,169 19,547 (2,952)(1) 21,687
Net earnings (loss) 16,109 18,169 19,303 (5,623)(2) 21,687
Total assets 267,164 246,201 238,694 236,947 238,898
Long-term debt 10,347 10,347 9,047 14,426 16,266
Per common share:
Earnings (loss) before changes in accounting principles 3.17 3.59 3.86 (.58) 4.29
Net earnings (loss) 3.17 3.59 3.81 (1.11) 4.29
Cash dividends 1.00 1.00 1.00 1.00 1.00
==============================================================================================================
See notes to consolidated financial statements for additional financial
information.
(1) 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.
(2) 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."
34 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
Page 103
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CORPORATE INFORMATION
Corporate Headquarters
1200 Wall Street West
Lyndhurst, New Jersey 07071
Tel. (201) 896-8400
Fax (201) 438-5680
- --------------------------------------------------------------------------------
Annual Meeting
The 1997 Annual Meeting of Shareholders will be held on April 11, 1997 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, 1996, the approximate number of holders of record of common
stock, par value $1.00 per share, of the Corporation was 4,500.
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 ChaseMellon Shareholder Services, L.L.C. at the
following addresses:
Shareholder inquiries/address changes/consolidations: P.O. Box 590, Ridgefield
Park, NJ 07660
Direct Stock Purchase Plan
A plan administered by the Chase Manhattan Bank is available to purchase or sell
shares of Curtiss-Wright which provides a low-cost alternative to the
traditional methods of buying, holding and selling stock. The plan also provides
for the automatic reinvestment of Curtiss-Wright dividends. For more information
contact our transfer agent, ChaseMellon Shareholder Services, L.L.C. toll free
at (888) 266-6793. Lost certificates/certificate replacement
Estoppel Department, P.O. Box 467,
Washington Bridge Station, New York, NY 10033
Certificate transfers
Stock Transfer Department, P.O. Box 469,
Washington Bridge Station, New York, NY 10033
Please include your name, address, and telephone number with all correspondence.
Telephone inquiries may be made to (800) 416-3743. Internet inquiries should be
addressed to http://www.cmssonline.com
Investor Information
Investors, stockbrokers, security analysts, and others seeking information about
Curtiss-Wright Corporation, should contact Robert A. Bosi, Vice
President-Finance, or Gary J. Benschip, Treasurer, at the Corporate
Headquarters, telephone (201) 896-1751.
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.
Common Stock Price Range
1996 1995
- --------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------
First Quarter $55.250 $50.250 $38.250 $35.125
Second Quarter 54.000 50.875 45.250 36.875
Third Quarter 54.625 50.750 45.500 43.500
Fourth Quarter 55.000 49.625 53.750 43.625
================================================================================
Dividends
1996 1995
- --------------------------------------------------------------------------------
First Quarter $.25 $.25
Second Quarter .25 .25
Third Quarter .25 .25
Fourth Quarter .25 .25
================================================================================
CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT 35
Page 104
CURTISS-WRIGHT CORPORATION AND SUBSIDIARIES
CORPORATE DIRECTORY
DIRECTORS
Thomas R. Berner
Partner
Law firm of Berner & Berner, P.C.
Admiral James B. Busey IV
Admiral, U.S. Navy (Ret.)
Former President and Chief Executive Officer
AFCEA International
David Lasky
Chairman and President
William B. Mitchell
Former Vice Chairman
Texas Instruments Inc.
John R. Myers
Management Consultant
Former Chairman of the Board
Garrett Aviation Services
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
Chairman and President
Robert E. Mutch
Executive Vice President
Gerald Nachman
Executive Vice President
George J. Yohrling
Vice President
Martin R. Benante
Vice President
Robert A. Bosi
Vice President-Finance
Dana M. Taylor
General Counsel and Secretary
Kenneth P. Slezak
Controller
Gary J. Benschip
Treasurer
Curtiss-Wright Flight Systems, Inc.
Robert E. Mutch
President
300 Fairfield Road
Fairfield, New Jersey 07004-1962
Curtiss-Wright Flight Systems/
Europe A/S
Steve Collins
General Manager
Karup Air Base
Karup, Denmark
Metal Improvement Company, Inc.
Gerald Nachman
President
10 Forest Avenue
Paramus, New Jersey 07652-5214
Curtiss-Wright Flow Control
Corporation (Formerly Target
Rock Corporation)
Martin R. Benante
President and General Manager
1966E Broadhollow Road
East Farmingdale, New York
11735-1768
Directors (left to right):
William B. Mitchell, Thomas R. [Photo of Directors]
Berner, J. McLain Stewart (seated),
Dr. William W. Sihler, David Lasky
(seated), John R. Myers, Admiral
James B. Busey IV
36 CURTISS-WRIGHT CORPORATION 1996 ANNUAL REPORT
Page 105
Waters Design Associates, Inc. New York City
Page 106
[Logo]
Curtiss-Wright Corporation
1200 Wall Street West
Lyndhurst, New Jersey 07071
CW
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Listed
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NYSE
This annual report was printed on recycled [Logo] paper.