SECURITIES and EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
Commission File Number 1-134
CURTISS-WRIGHT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-0612970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Wall Street West
Lyndhurst, New Jersey 07071
(Address of principal executive offices) (Zip Code)
(201) 896-8400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $1.00 per share: 10,183,077 shares (as of April 30,
1998)
Page 1 of 28
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
TABLE of CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Stockholders' Equity 6
Notes to Consolidated Financial Statements 7 - 9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 12
Forward-Looking Statements 13
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 14
Item 6 - Exhibits and Reports on Form 8-K 15
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
March 31, December 31,
1998 1997
Assets:
Cash and cash equivalents $ 5,328 $ 6,872
Short-term investments 68,554 61,883
Receivables, net 45,708 41,590
Deferred tax assets 8,554 8,806
Inventories 48,166 49,723
Other current assets 2,085 2,506
----------- -----------
Total current assets 178,395 171,380
--------- ---------
Property, plant and equipment, at cost 220,813 219,587
Less, accumulated depreciation 155,792 153,704
--------- ---------
Property, plant and equipment, net 65,021 65,883
Prepaid pension costs 39,549 38,674
Other assets 8,711 8,771
---------- -----------
Total assets $291,676 $284,708
======== ========
Liabilities:
Accounts payable and accrued expenses $ 22,641 $ 24,540
Dividends payable 1,323
Income taxes payable 6,776 4,845
Other current liabilities 8,878 9,244
----------- -----------
Total current liabilities 39,618 38,629
---------- ----------
Long-term debt 10,347 10,347
Deferred income taxes 9,055 8,799
Other liabilities 22,145 22,080
---------- ----------
Total liabilities 81,165 79,855
---------- ----------
Stockholders' equity:
Common stock, $1 par value 15,000 15,000
Capital surplus 51,868 52,010
Retained earnings 323,756 318,474
Unearned portion of restricted stock (266) (342)
Accumulated other comprehensive income (3,098) (3,289)
----------- -----------
387,260 381,853
Less, cost of treasury stock 176,749 177,000
--------- ---------
Total stockholders' equity 210,511 204,853
--------- ---------
Total liabilities and stockholders' equity $291,676 $284,708
======== ========
See notes to consolidated financial statements.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of EARNINGS
(UNAUDITED)
(In thousands except per share data)
Three Months Ended
March 31,
1998 1997
---- ----
Net sales $60,846 $53,148
Cost of sales 42,724 36,504
-------- --------
Gross margin 18,122 16,644
Research and development costs 305 598
Selling expense 2,305 1,935
General and administrative 6,868 7,881
--------- ----------
Operating income 8,644 6,230
Investment income, net 1,079 638
Rental income, net 913 940
Other income (expense), net 99 (107)
Interest expense 89 73
----------- -----------
Earnings before tax 10,646 7,628
Provision for tax 4,041 2,673
--------- ---------
Net earnings $ 6,605 $ 4,955
======== ========
Weighted average shares outstanding 10,178 10,170
======== ========
Basic earnings per common share $0.65 $0.49
===== =====
Diluted earnings per common share $0.64 $0.48
===== =====
Dividends per common share $0.130 $0.125
====== ======
See notes to consolidated financial statements.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
March 31
1998 1997
---- ----
Cash flows from operating activities:
Net earnings $ 6,605 $ 4,955
-------- --------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 2,432 2,455
Net gains on short-term investments (432) (211)
Increase (decrease) in deferred taxes 508 (39)
Changes in operating assets and liabilities:
Proceeds from sales of trading securities 82,258 67,641
Purchases of trading securities (88,384) (60,425)
(Increase) decrease in receivables 747 (4,718)
(Increase) decrease in inventory 3,160 (809)
Decrease in progress payments (6,468) (2,632)
Decease in accounts payable
and accrued expenses (1,899) (1,224)
Increase in income taxes payable 1,931 1,840
Increase in other assets (559) (797)
Increase (decrease) in other liabilities (414) 392
Other, net 1,398 (1,467)
--------- ---------
Total adjustments (5,722) 6
--------- ---------
Net cash provided by operating activities 883 4,961
--------- ---------
Cash flows from investing activities:
Proceeds from sales of real estate and equipment 20 6
Additions to property, plant and equipment (2,447) (5,142)
--------- ---------
Net cash used by investing activities (2,427) (5,136)
-------- ---------
Net decrease in cash and cash equivalents (1,544) (175)
Cash and cash equivalents at beginning of period 6,872 6,317
--------- ---------
Cash and cash equivalents at end of period $ 5,328 $ 6,142
======== ========
See notes to consolidated financial statements.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Unearned Accumulated
Portion of Other
Common Capital Retained Restricted Comprehensive Treasury
Stock Surplus Earnings Stock Awards Income Stock
December 31, 1996 $10,000 $57,127 $299,740 $ (608) $(1,506) $181,390
Net earnings 27,885
Common dividends (5,137)
Stock dividends (two for one split) 5,000 (5,000) (4,014) (4,014)
Stock options exercised, net (117) (376)
Amortization of earnings portion
of restricted stock 266
Translation adjustments, net (1,783)
------- -------- -------- ------ -------- ---------
December 31, 1997 15,000 52,010 318,474 (342) (3,289) 177,000
Net earnings 6,605
Common dividends (1,323)
Stock options exercised (142)
of restricted stock 76
Translation adjustment, net 191
-------- ------- -------- ------- -------- --------
March 31, 1998 $15,000 $51,868 $323,756 $ (266) (3,098) $176,749
======= ======= ======== ======= ======== ========
See notes to consolidated financial statements.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS of PRESENTATION
Curtiss-Wright Corporation (the "Corporation") 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
Corporation's principal operations include three domestic manufacturing
facilities, thirty-five metal treatment service facilities located in
North America and Europe, and five component overhaul locations.
The information furnished in this report has been prepared in
conformity with generally accepted accounting principles and as such
reflects all adjustments, consisting primarily of normal recurring
accruals, which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented. The
unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Corporation's 1997 Annual Report on Form 10-K.
The results of operations for these interim periods are not necessarily
indicative of the operating results for a full year. Certain
reclassifications of prior year amounts have been made in order to
conform to the current presentation.
2. RECEIVABLES
Receivables, at March 31, 1998 and December 31, 1997, include amounts
billed to customers and unbilled charges on long-term contracts
consisting of amounts recognized as sales but not billed at the dates
presented. Substantially all amounts of unbilled receivables are
expected to be billed and collected within a year. The composition of
receivables for those periods is as follows:
(In thousands)
March 31, December 31,
1998 1997
------------ -----------
Accounts receivable, billed $52,580 $49,110
Less: progress payments applied 10,490 10,460
-------- --------
42,090 38,650
-------- --------
Unbilled charges on long-term
contracts 11,817 13,022
Less: progress payments applied 6,487 8,335
--------- ---------
5,330 4,687
--------- ---------
Allowance for doubtful accounts (1,712) (1,747)
--------- ---------
Receivables, net $45,708 $41,590
========= =========
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
3. INVENTORIES
Inventories are valued at the lower of cost (principally average cost)
or market. The composition of inventories at March 31, 1998 and
December 31, 1997 is as follows:
(In thousands)
March 31, December 31,
1998 1997
------------ -----------
Raw materials $ 5,969 $ 5,514
Work-in-process 21,595 22,686
Finished goods 20,578 21,782
Inventoried costs related to U.S.
Government and other long-term
contracts 4,227 5,547
--------- ---------
Total inventories 52,369 55,529
Less: progress payments applied,
principally related to long-term
contracts 4,203 5,806
--------- ---------
Net inventories $48,166 $49,723
======= =======
4. ENVIRONMENTAL MATTERS
The Corporation establishes a reserve for a potential environmental
responsibility when it concludes that a determination of legal
liability is probable. Such amounts, if quantified, reflect the
Corporation's estimate of the amount of that liability. If only a range
of potential liability can be estimated, a reserve will be established
at the low end of that range. Such reserves represent today's values of
anticipated remediation not reduced by any potential recovery from
insurance carriers or through contested third-party legal actions, and
are not discounted for the time value of money.
The Corporation is joined with many other corporations and
municipalities as potentially responsible parties (PRPs) in a number of
environmental cleanup sites, which include 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 Corporation believes that the outcome of any of these matters would
not have a material adverse effect on the Corporation's results of
operations or financial condition.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
5. COMPREHENSIVE INCOME
Effective January 1, 1998, the Corporation adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS No. 130). SFAS No. 130 establishes standards for
reporting and displaying changes in equity from non-owner sources.
Total comprehensive income for the three months ended March 31, 1998
and 1997 is as follows:
(In thousands)
March 31, March 31,
1998 1997
-------- --------
Net earnings $ 6,605 $ 4,955
------- -------
Equity adjustments from foreign
currency translations 191 (1,736)
Proforma tax effects 67 (608)
--------- --------
Net adjustments 124 (1,128)
--------- --------
Total comprehensive income $ 6,729 $ 3,827
======== ========
6. EARNINGS PER SHARE
The Corporation accounts for its earnings per share (EPS) in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS No. 128). Diluted earnings per share were computed based
on the weighted average number of shares outstanding plus all
potentially dilutive common shares issuable for the periods. Dilutive
common shares for the three months ended March 31, 1998 and 1997 were
134 and 71, respectively, consisting primarily of outstanding stock
options. Prior year earnings per share information has been restated to
reflect a 2 for 1 stock split paid December 23, 1997.
7. SUBSEQUENT EVENT
On April 30, 1998, the Corporation purchased the Alpha Heat Treaters
("Alpha") division of Alpha-Beta Industries, Inc. Alpha services a
broad spectrum of customers from its York, Pennsylvania location and
provides a number of metal treating processes including carburizing,
surface hardening, stress relieving, induction hardening and black
oxide surface treatment services. The Corporation acquired the net
assets of Alpha for approximately $6.0 million in cash and will account
for the acquisition as a purchase in the second quarter of 1998.
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PART I - ITEM 2
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
RESULTS of OPERATIONS
Curtiss-Wright Corporation posted net earnings for the first quarter of
1998 more than 30% above the first quarter of 1997. Net earnings totaled $6.6
million, or $.64 per share on a fully diluted basis, which were the highest
first quarter earnings since 1992. Net earnings for the same period of 1997 were
$5.0 million or $.48 per share on a fully diluted basis. Sales for the first
quarter of 1998 increased 14% to $60.8 million compared with $53.1 million for
the prior year first quarter. The improvement in performance is attributable to
overall favorable results generated by our businesses, and was achieved despite
the inventory write-offs and increased provisions for development programs
referred to below. Operating income in the aggregate rose 39% to $8.6 million
for the first quarter of 1998 as compared with $6.2 million in first quarter of
1997. New orders received also increased, totaling $56.9 million, 25% above
orders of $45.6 million received in the prior year period.
Operating Performance
Substantial improvements in sales of services were achieved by both the
Corporation's metal treating business and its overhaul and repair business.
Worldwide, the sales improvements in the metal treatment area were largely due
to increased applications for those services. In addition, operating income
improved over the prior year first quarter in most markets served. The
Corporation also recently opened a fourth metal treatment facility in the United
Kingdom. With the addition of its acquired facility in Pennsylvania (Alpha Heat
Treaters), as discussed in Note 7, the Corporation now operates 35 metal
treatment facilities in North America and Europe. The U. S. overhaul and repair
business produced strong domestic sales and improved operating earnings before
recognition of inventory book-to-physical and valuation adjustments totaling
approximately $.8 million after taxes.
The Corporation's manufacturing operations also enjoyed substantially
higher volume in the first quarter. Sales of actuation components and systems
for commercial customers reflected significant increases. Sales of original
equipment manufactured (OEM) products for the Boeing Company continue to
increase in response to Boeing's high production rates while sales of commercial
spare parts for actuation systems also showed large improvements over the prior
year's first quarter. Operating income in this product area increased despite
inefficiencies and higher-than-expected manufacturing costs associated with the
ramp up of production, as well as net adjustments principally on account of
inventory write-offs. Sales of military actuation products benefited from the
completion of safety of flight testing for the F-22 side bay door components.
However, operating income was adversely affected by a provision of about $1.0
million after tax for higher anticipated costs related to F-22 development
programs. Higher sales on the F-22 program were also largely offset by a decline
in sales of F-16 hardware.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
The valve product lines produced higher operating income despite lower
sales when comparing the first quarter of 1998 with the same period of 1997.
Sales of military valve products declined on a comparative basis due, in part,
to a test program during the first quarter of 1997 which did not recur in 1998.
Increased sales of commercial valve products largely offset the declines in
military products. During the first quarter of 1998, Curtiss-Wright received new
orders of more than $11 million for its valve products, an increase of more than
three times those of the first quarter of 1997. Orders received include a
substantial upgrade for safety relief valves from the Philadelphia Electric
Company and products for nuclear power plant construction being carried out in
Taiwan.
Non-Operating Revenues and Costs
Administrative expenses for the first quarters of 1998 and 1997 were
reduced by accrued income generated from the Corporation's over funded pension
plan. Net pension income decreased slightly, totaling $.8 million for the first
quarter of 1998, compared with $.9 million for the first quarter of 1997. For
the first quarter of 1998, the Corporation recorded other non-operating net
revenue totaling $2.1 million, compared with $1.5 million for the first quarter
of 1997, primarily due to higher levels of investment income.
CHANGES IN FINANCIAL CONDITION:
Liquidity and Capital Resources:
The Corporation's working capital was $138.8 million at March 31, 1998,
5% above working capital at December 31, 1997 of $132.8 million. The ratio of
current assets to current liabilities was 4.5 to 1 at March 31, 1998, compared
with a current ratio of 4.4 to 1 at December 31, 1997. Cash, cash equivalents
and short-term investments totaled $73.9 million in aggregate at March 31, 1997,
increasing from $68.8 million at the prior year end.
Changes in working capital reflect a substantial increase in accounts
receivable from trade customers largely due to the increase in sales for the
first quarter of 1998, as compared with sales for the fourth quarter of 1997.
Also improving working capital for the first quarter of 1998 was a reduction in
accounts payable and accrued expenses at March 31, 1998, compared with those
amounts at December 31, 1998. Gross inventory decreased due to book to physical
and valuation adjustments recorded in the first quarter of 1998. Working capital
was further reduced by an increase in income taxes payable at March 31, 1998,
from December 31, 1997 and accrued dividends payable for the first quarter of
1998.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
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 $11.0 million remains unused at March 31, 1998, encompasses
various letters of credit issued primarily in connection with outstanding
industrial revenue bonds. There were no cash borrowings during the first quarter
of 1998 and no outstanding balances for borrowed funds under the agreement at
March 31, 1998.
During the first quarter of 1998, internally generated funds were
adequate to meet capital expenditures of $2.4 million. Expenditures incurred
during the first quarter were primarily for machinery and equipment needed for
the expansion of our metal treating operations. Internally generated funds of
approximately $6.0 million were used to purchase the Alpha Heat Treaters
division of Alpha-Beta Industries, Inc. on April 30, 1998, as detailed in Note
7. An additional $10 million of capital expenditures is anticipated for the
balance of the year along with $1.0 million of anticipated expenditures
connected with environmental remediation programs at the Corporation's
Wood-Ridge, New Jersey Business Complex.
-12-
FORWARD-LOOKING STATEMENTS
Because forward-looking statements involve risks and uncertainties,
actual results may differ materially from those which are expressed or implied.
Such statements in this report include those contained in (a) the Environmental
Matters note to the Consolidated Financial Statements, (b) projections regarding
sales in the Results of Operations portion of the Management Discussion and
Analysis ("MD&A") section hereof and (c) information relating to future capital
expenditures contained in the Changes in Financial Condition portion of the MD&A
section hereof. Important factors that could cause the actual results to differ
materially from those in these forward- looking statements include, among other
items, (i) a reduction in the current order backlog; (ii) an economic downturn
in the airline industry; (iii) unanticipated environmental remediation expenses
or claims; (iv) changes in the need for additional machinery and equipment
and/or in the cost for the expansion of the Corporation's operations; (v)
changes in the competitive marketplace that could affect the company's revenue
and/or cost basis; (vi) changes in customer requirements and (vii) other factors
that generally affect the business of aerospace and industrial companies.
-13-
PART II - OTHER INFORMATION
Item 4. SUBMISSION of MATTERS to a VOTE of SECURITY HOLDERS
On April 24, 1998, the Registrant held its annual meeting of
stockholders. The matters submitted to a vote by the stockholders were
the election of directors and the retention of independent accountants
for the Registrant.
The vote received by the director nominees was as follows:
For Withheld
Thomas R. Berner 8,872,535 9,872
James B. Busey IV 8,872,398 10,009
David Lasky 8,872,142 10,265
William B. Mitchell 8,871.365 11,042
John R. Myers 8,872,139 10,268
William W. Sihler 8,872,477 9,930
J. McLain Stewart 8,870,116 12,291
The foregoing represent all of the Registrant's directors.
There were no votes against or broker non-votes.
The stockholders approved the retention of Price Waterhouse LLP,
independent accountants for the Registrant. The holders of 8,872,927
shares voted in favor; 9,480 voted against. There were no broker
non-votes.
-14-
Item 6. EXHIBITS and REPORTS on FORM 8-K
(a) Exhibits
Exhibit 10(a) - Trust Agreement approved April 17, 1998, dated
as of January 30, 1998 by and between Curtiss-Wright
Corporation and PNC Bank, National Association (Page 16)
Exhibit 27 - Financial Data Schedules (Page 28)
(b) Reports on Form 8-K
The Registrant did not file any report on Form 8-K during the
quarter ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undesigned thereunto duly authorized.
CURTISS-WRIGHT CORPORATION
(Registrant)
By: /s/ Robert A. Bosi
-------------------------
Robert A. Bosi
Vice President - Finance
By: /s/ Kenneth P. Slezak
-------------------------
Kenneth P. Slezak
Controller
Dated: May 13, 1998
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