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CURTISS-WRIGHT CORPORATION 98
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ANNUAL REPORT
Curtiss-Wright Corporation, headquartered in Lyndhurst, N.J., is a diversified
multinational manufacturing and service concern that designs, manufactures and
overhauls precision components and systems and provides highly engineered
services to the aerospace, defense, automotive, shipbuilding, oil,
petrochemical, agricultural equipment, power generation, railroad, metalworking,
and fire and rescue industries. The Company employs approximately 2,050 people.
Operations are conducted through five manufacturing facilities (four domestic
and one in Switzerland), 36 metal treatment service facilities located in North
America and Europe, and four component overhaul facilities located in Florida,
North Carolina, Denmark and Singapore.
Contents
1 | Industry Focus
2 | Financial Highlights
3 | Letter to Stockholders
6 | Review of Operations
8 | At a Glance
Products
Services
Benefits
10 | Acquisitions
12 | Product Development
14 | New Markets
16 | Quarterly Results of Operations (Unaudited)
16 | Consolidated Selected Financial Data (Unaudited)
16 | Forward-Looking Statements
17 | Management's Discussion and Analysis of Financial
Condition and Results of Operations
21 | Report of the Corporation
21 | Report of Independent Accountants
22 | Consolidated Financial Statements
26 | Notes to Consolidated Financial Statements
38 | Corporate Directory and Information
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INDUSTRY FOCUS
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industry focus
In 1998, the aerospace industry faced record shipments of new commercial
aircraft while struggling to cope with the production strains created by the
rapid ramp-up of production volumes. Looming in the background were order
cancellations and delivery delays resulting from the economic disruptions
occurring in the Pacific Rim that threatened to dampen production levels in the
near future. The current delivery schedule for aircraft with capacities
exceeding 100 seats calls for still higher levels in 1999, with some declines
expected beginning in the year 2000. These out-year deliveries, while lower, are
still expected to be at profitable levels for the industry, and the overall
downturn is not expected to be as severe as the one that began in 1991.
Throughout 1998, the larger airlines continued to leverage their
purchasing power, generating large orders to meet their long-term requirements
at the lowest possible prices from Airbus and Boeing. Driving the industry's
performance continues to be the airlines, which, in general, remain profitable.
The economic outlook appears favorable; the economies of North America and
Europe appear healthy, while the Asian market has suffered a severe downturn.
Some feel that the worst of the Asian crisis is behind us and a recovery, while
gradual, may have begun. The current unknown is the impact of any downturn in
South America that may result from the recent disturbances in Brazil.
While new aircraft production tends to produce demand surges in the
industry, a stabilizing force in the commercial area is the repair and overhaul
market. The total repair market is expected to grow at a long-term rate of 2--3%
per year. This growth reflects the outlook for passenger miles, which drive
maintenance needs. In the short term, repair market growth may exceed this rate
as the average age of aircraft increases; however, as older planes are replaced
for economic, noise and pollution regulation reasons, growth levels will return
to long-term expectations. For third-party maintenance providers such as
Curtiss-Wright, growth should exceed that of the total market as increased
outsourcing by airlines continues. Although airlines still perform most overhaul
and repair activities themselves, many appear to be refocusing their attention
on the basic services they provide and are beginning to accept that third-party
vendors can more effectively meet their maintenance requirements.
Military aircraft production is currently at low levels. Procurement for
existing models is, for the most part, limited to purchases by foreign
governments. Procurement by the United States Air Force is at minimal levels,
with most spending related to development activities. On a positive note,
production of the F-22 (Raptor) and V-22 (Osprey) has been initiated and should
ramp up to higher levels in the foreseeable future.
To summarize the state of the aerospace industry, those markets in which
Curtiss-Wright participates are expected to remain at healthy levels overall.
Commercial business will see some decline but is projected to maintain adequate
levels. Overhaul and repair activities will provide a stable base with growth
opportunities in increased outsourcing, and additional upside benefits are
expected from the increased activity on the military programs.
The stable revenue base that Curtiss-Wright has developed as a supplier of
valves and services to the worldwide nuclear power industry became even more
solid with a 1998 acquisition. It increases our participation in new
construction programs in South Korea and Taiwan, where projects underway have
progressed without disruption. We continue to pursue business in China, where an
aggressive new construction program for nuclear power plants is planned to meet
the current power capacity shortage. Outside the nuclear power market, the
United States proposed build schedule for nuclear submarines and aircraft
carriers, for which we are a valve supplier, is the strongest in recent years.
1 | Curtiss-Wright Corporation and Subsidiaries
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FINANCIAL HIGHLIGHTS
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(In thousands, except per share data) 1998 1997 1996
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Performance:
Sales $249,413 $ 219,395 $ 170,536
Earnings before interest, taxes, depreciation and amortization 57,726 51,383 33,462
Net earnings 29,053 27,885 16,109
Diluted earnings per common share 2.82 2.71 1.58
Return on sales 11.6% 12.7% 9.4%
Return on assets 9.1% 10.1% 6.3%
Return on average stockholders' equity 13.4% 14.4% 9.1%
Research and development costs:
Corporation sponsored 1,346 1,877 997
Customer sponsored 7,669 12,403 15,248
New orders 232,217 259,260 171,649
Backlog at year-end 198,297 149,201 109,336
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Year-End Financial Position:
Working capital $ 130,763 $ 132,751 $ 115,417
Current ratio 2.9 to 1 4.4 to 1 3.7 to 1
Total assets $ 352,740 $ 284,708 $ 267,164
Stockholders' equity $ 229,593 $ 204,853 $ 183,363
Stockholders' equity per common share $ 22.53 $ 20.13 $ 18.04
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Other Year-End Data:
Depreciation and amortization $ 9,661 $ 9,097 $ 8,946
Capital expenditures $ 10,642 $ 11,231 $ 14,156
Shares of common stock outstanding 10,190,790 10,175,140 10,162,206
Number of stockholders 3,926 4,142 4,719
Number of employees 2,052 1,884 1,738
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Dividends per Common Share $ .52 $ .505 $ .50
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[The following table was depicted as a line graph in the printed material.]
Sales/Backlog
(in thousands)
94 95 96 97 98
Sales $249,413
Backlog $198,297
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[The following table was depicted as a line graph in the printed material.]
Operating Income/Net Earnings
(in thousands)
94 95 96 97 98
Operating Income $36,347
Net Earnings $29,053
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[The following table was depicted as a line graph in the printed material.]
Return on Equity
(percentage)
94 95 96 97 98
13.4%
Curtiss-Wright Corporation and Subsidiaries | 2
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LETTERS TO STOCKHOLDERS
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FELLOW STOCKHOLDERS:
In 1998 we continued to implement our strategies for balanced growth that we
outlined in last year's annual report:
| Growing our positions in the aftermarket segments of our businesses
| Increasing our role as a service provider
| Diversifying our customer base
| Diversifying the industries we serve
| Continuing our efforts to globalize the Company
These strategies are designed to enable us to achieve our financial objectives
of 15% average annual revenue growth and 12% average return on capital. While in
1998 Curtiss-Wright posted a 14% increase in sales, for the last two years our
sales increased at a compound annual rate of 21%. Our return on average capital
(excluding cash and short-term investments) in 1998 was 17%. We have set our
growth objectives at what we believe to be realistically attainable levels for
Curtiss-Wright to strive for on a long-term basis while maintaining good profit
margins. Achievement of these objectives will result in growing value for
Curtiss-Wright's stockholders. Throughout 1998, we pursued our strategies
through acquisitions, new product development, and market expansion, each of
which is discussed in greater detail on the following pages.
Our Acquisition Program Moved Ahead in 1998
In 1998, Curtiss-Wright completed three strategic acquisitions, adding to each
of our business operations. Focused acquisitions are an important part of our
strategy for growth. We have established programs for each of our businesses and
are actively pursuing acquisition candidates. An important non-financial
ingredient we look for, not only in our evaluation of acquisition candidates but
also as a parameter in selecting investments for internal development programs,
is that they make us a better competitor and supplier to our customers.
Among the benefits we look for in acquisitions are technologies that will
expand our existing capabilities. In many areas in which we do business we want
to control a broader scope of the systems we supply. We also want to add to our
existing base of products and services to expand the value we can provide
existing customers. Our customer relationships are excellent, and we seek to
build upon this strength.
We completed three acquisitions in 1998, and because of our strong balance
sheet and cash flow, we still ended the year in a solid position to finance
additional acquisitions. Each acquisition is accretive to earnings and will
contribute to our long-term financial growth. With a focus on new products, new
markets and regional expansion, enhanced by our acquisition program, each of our
business segments has entered 1999 better positioned for long-term success.
Growing Our Precision Manufacturing Products & Services Business
Curtiss-Wright has been a provider of shot-peen forming services to put the
curvature in wing skins for most Airbus commercial aircraft. This has resulted
in an 18-year relationship with British Aerospace (BAe), which supplies wings to
the Airbus consortium. This long-standing relationship was continued in 1998
with a long-term contract extension under which we will continue to provide
forming and other services for Airbus aircraft, including the new A340-600. In
order to meet the increased demand for these services, we are in the process of
constructing a new 170,000-square-foot facility on land provided by BAe that is
adjacent to their plant in the United Kingdom. The facility, which will replace
our current, smaller facility, is scheduled to become operational toward the end
of 1999. Current Airbus projections indicate aircraft deliveries increasing in
1999 as well as in the year 2000.
In addition to our new facility, we have been growing our Precision
Manufacturing Products & Services (PMPS) business through the addition of other
new facilities in recent years. Our expansion
3 | Curtiss-Wright Corporation and Subsidiaries
has included three new operations in Europe in the last two years, as well as
another in the United States. In addition, Alpha Heat Treaters, in York,
Pennsylvania, was acquired in April of 1998. Our high level of activity reflects
the growth opportunities we see for this business. We plan to grow not only
through the addition of locations but also by an expansion of the services we
provide.
In 1999, the performance of PMPS will include its newly opened facilities,
expanded production schedules at Airbus, and new contracts to form wing skins on
the Boeing 717 aircraft and a large military transport plane. The segment will
also continue to benefit from acquisitions such as the 1998 purchase of Alpha
Heat Treaters. Alpha gives Curtiss-Wright a presence in an important Northeast
industrial corridor and contributed to our growth in 1998. As a consolidator of
heat-treating facilities in industrial areas around the world, and a greenfield
developer of shot-peening services worldwide, we intend to continue gaining
strategic, local presence in geographically diversified industrial and aerospace
markets.
We Have Reduced Our Exposure to Commercial Aircraft Production Cycles
While Boeing is an important customer and source of business, Curtiss-Wright is
not overly dependent on the company. We have taken actions, including
acquisitions, that continue to grow our actuation and control products segments
beyond servicing Boeing.
During this past year, we signed an agreement with GEC-Marconi to develop
a trailing edge flap drive actuation system for the Ayres Loadmaster LM2000
cargo utility aircraft. We continued production work on the V-22 Vertical
Take-Off and Landing craft, which began initial low-rate production in 1999. We
are preparing for initial production of the F-22 Advanced Tactical Fighter. Of
the three systems we have on the F-22, the leading edge flap system has
completed the development and testing stages. The other programs for the main
and side weapons bay doors are well along in final testing.
Overhaul and repair operations are also poised to grow in 1999. During
1998, we expanded our business with airlines and cargo haulers, which will
contribute to next year's revenues. Additionally, we will be relocating our
overhaul and repair business from our Shelby, North Carolina facility to one
dedicated solely to that operation.
Supplementing our internal growth efforts, the Actuation and Control
Products & Services segment will benefit from the establishment of
Curtiss-Wright Drive Technology (CWDT), which was created with the acquisition
of SIG Drive Technology AG in December. CWDT designs and manufactures drives and
suspension systems for armored military vehicles and tilting systems for
high-speed railway car applications. This new operation, which will remain
headquartered in Neuhausen am Rheinfall, Switzerland, gives us access to
technology that we will adapt to certain of our aerospace products. CWDT does
not currently sell into the North American market. We view this as a longer-term
opportunity to gain acceptance of CWDT's products and technology in the North
American marketplace.
In light of the anticipated delivery slowdowns at Boeing, and with our new
military programs not expected to achieve full production levels for a few
years, we were faced with a period where activity was not adequate to support
two manufacturing facilities for our Actuation and Control business. This
resulted in our decision to consolidate the OEM manufacturing operations carried
out at our Fairfield, New Jersey facility into our plant in Shelby, North
Carolina. Restructuring expenses affected our 1998 financial performance by
approximately $500,000 after tax, and additional relocation expenses estimated
at $1,600,000 after tax will be incurred in 1999. The consolidation, expected to
be completed in the third quarter of 1999, will result in longer-term cost
efficiencies as our manufacturing capacity will better match our forecasted
requirements.
Addition of Enertech to Our Flow Control Products & Services Business Segment
Our 1998 acquisition of Enertech fits into our Flow Control Products & Services
group. Enertech, headquartered in Brea, California, expands our product line and
gives us services we are now able to offer to a greater variety of customers.
Enertech will help us diversify our Flow Control operations, not merely beyond
the nuclear containment area of ships and power plants, but further into
commercial
Curtiss-Wright Corporation and Subsidiaries | 4
and industrial applications. We also expect that the combination of Enertech's
sales and marketing organization with our existing personnel will strengthen our
aftermarket products position and result in an invigorated approach to current
and new markets. Finally, we believe Enertech's outstanding service organization
will help us build a presence in the growing on-site service market for
maintenance and nuclear utility repair operations, which are becoming
increasingly important components of the domestic power business.
Internal development programs have opened the door to other new
applications. We will be looking to expand our leakless valve technology and use
alternative materials for nonnuclear Navy and chemical/petrochemical plant
applications. The unique nature of our designs lends itself to extended life
while requiring little maintenance. We have also recently supplied titanium
valves to electrical power plants for seawater applications.
Conclusion
In 1998, we strengthened our Company, further diversified our operations, and
improved our position for long-term growth. As we move forward, we understand
the challenges and tasks we must address to capitalize on 1998's achievements.
We further recognize the market's current valuation of our stock as
disappointing and have initiated a stock repurchase program to demonstrate our
belief that Curtiss-Wright is undervalued. We believe that achieving our goals,
in 1999 and in future years, will result in a growing recognition of the value
of this company and greater value for our stockholders.
Nineteen ninety-nine will mark Curtiss-Wright's 70th year of operation. We
are looking forward to this milestone, and to adding to the Company's
reputation, history and legacy. Still, our work is far from complete. As we
continue this journey we thank our employees and stockholders for their
continued support.
Sincerely,
/s/ David Lasky
David Lasky
Chairman and President
February 2, 1999
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5 | Curtiss-Wright Corporation and Subsidiaries
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REVIEW OF OPERATIONS
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FINANCIAL PERFORMANCE OVERVIEW:
Net income for 1998 of $29.1 million, or $2.82 per diluted share, was 4.2%
greater than 1997 earnings of $27.9 million or $2.71 per share. Included in 1998
results were insurance recoveries as well as the costs of consolidation related
to the moving of manufacturing operations from our facility in Fairfield, New
Jersey to Shelby, North Carolina. The net after-tax impact on 1998 net income of
these items was a benefit of $1.3 million, or $.13 per share. Earnings in 1997
included gains on the sale of property of $2.0 million or $0.20 per share.
Absent these items, earnings in 1998 were $27.8 million or $2.69 per share, an
increase of 7.3% over 1997 earnings of $25.9 million, or $2.51 per share.
Sales in 1998 of $249.4 million represented an increase of 13.7% over 1997
sales of $219.4 million. Sales in 1998 benefited from the acquisitions of Alpha
Heat Treaters on April 30th and Enertech on July 31st. Additionally, greater
production levels for commercial aircraft on the part of our customers increased
the demand for our products and services.
We made significant progress on two of our long-term business initiatives
in 1998. These included the reduction of our reliance on the military as a
source of revenues and the expansion of our service operations. Growth in
commercial operations in 1998, combined with a general decline in military
procurement, resulted in more than 83% of our 1998 revenues coming from
commercial sources and less than 17% from the military. Despite a military
component of our newly acquired Curtiss-Wright Drive Technology and our steady
pursuit of defense business, we expect military sales as a percentage of our
total business to be maintained at a relatively low level. The mix of our sales
in 1998 between service and manufacturing operations maintained about the same
relationship experienced in 1997. Our service operations represented 64% of our
total sales versus 36% for manufacturing.
CURTISS-WRIGHT CORPORATION
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[The following tables were depicted as pie charts in the printed material.]
Sales by Business Segment
Precision Manufacturing 43%
Actuation & Control 42%
Flow Control 15%
Sales by Industry
Commercial Aerospace 56%
Other 10%
Power Generation 10%
Automotive 6%
Marine 6%
Military Aerospace 5%
Transportation 3%
Agriculture 1%
Construction & Mining 1%
Oil & Petroleum 1%
Rescue 1%
Precision Manufacturing Products & Services
Precision Manufacturing Products & Services (PMPS) experienced its fifth
consecutive year of improvements in revenues and operating income. This was
accomplished through gaining new customers, extending the range of products
serviced and geographical expansion. Particular strength in 1998 came from
advanced applications for metal-treating services for aerospace customers
worldwide. We not only provide shot-peen forming services for wings of
commercial, business and military aircraft but also furnish metal-treating
services to jet engine manufacturers which have product going on all new
aircraft being produced. We expect our aerospace-related business in this
segment to continue to increase in 1999 over 1998 levels.
Operating results for 1998 were affected slightly by the start-up costs
associated with four new facilities that opened in 1997 and 1998. These service
locations are now fully operational and are expected to have improved
performance in 1999, as marketing and sales efforts are carried out to increase
their customer base and sales levels.
In order to increase capacity to meet growing regional demands, we will be
relocating three of our operations to larger facilities in 1999. The metal
treatment centers affected are our operations in the Chester, U.K. area,
Belleville, Michigan, which services the Detroit region, and Bayonne, France.
These expansions supplement the relocation in 1998 to larger quarters of our
Lynn, Massachusetts facility. Although the increased capacity will enhance our
ability to meet customer demands and take on additional business, there will be
some expenses incurred in 1999 related to these facility relocations.
Curtiss-Wright Corporation and Subsidiaries |6
Having facilities in North America and Europe and servicing a broad
industrial base, Curtiss-Wright has been able to participate in the general
economic expansions that occurred in those regions. Over the long term there has
been a reduction in the dependency of PMPS on the aerospace sector as new
facilities and customers have been added. This expansion has provided the
opportunity for considerable growth for this segment. Additional markets where
new facilities can be established continue to open up, as the number of
applications for our services and the acceptance of the benefits of our
treatment processes broaden.
Actuation and Control Products & Services
Actuation and Control Products & Services (ACPS) accounted for 42% of total
revenues in 1998 but produced unsatisfactory returns. Throughout the year,
manufacturing activities were driven largely by the continued ramp-up to meet
Boeing's production schedules. We continued to meet our delivery obligations
despite the ramp-up. Although Boeing was a primary growth driver for this
segment, our overall diversification efforts have expanded our other business
areas.
Our aerospace component and overhaul operation continued to generate sales
growth in 1998. We have increased the number of component parts on which we are
qualified, and that number now approximates 9,700, compared to about 7,000 at
the end of 1997. In 1999, as part of our program to improve our manufacturing
efficiencies, we will be moving the repair and overhaul activities performed at
the Shelby, North Carolina facility to its own dedicated location. The new
facility will be near our current location, and the continuity of the labor
force is expected to remain intact.
In the fourth quarter of 1998 we began to consolidate our Fairfield, New
Jersey manufacturing operations into our facility in Shelby, North Carolina.
Administration of our military programs, design engineering functions and
testing will remain in New Jersey. The consolidation was targeted to align our
capacity requirements with manufacturing activity levels. Thus we will improve
our manufacturing efficiencies from current inadequate levels and allow
Curtiss-Wright to be more competitive in obtaining future business. A charge of
$0.5 million after taxes associated with the consolidation was made in the last
quarter of 1998. In addition, relocation expenses are being recognized as they
are incurred during the moving process. In 1999, expenses associated with the
consolidation are expected to total approximately $1.6 million after taxes. The
consolidation is scheduled to be completed in the third quarter of 1999.
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[The following tables were depicted as pie charts in the printed material.]
Actuation and Controls
1998 Sales Balance
Aftermarket 52%
OEM 48%
Flow Control Products & Services
In 1998, commercial revenues in this segment exceeded those from the military
sector. This was largely attributable to the acquisition of Enertech in the
third quarter. Aside from this factor, commercial business increases were
associated with our greater involvement in foreign nuclear plant construction
and higher revenues related to upgrade programs at domestic nuclear power
facilities. Our success in 1998 on upgrade programs reflects our ability to
develop better solutions for our customers. Their decisions to replace already
installed and fully operational valves were driven by the improved efficiencies
that our products provided. Success in this area not only benefits current
performance, but increases the installed base of our valves, leading to future
spare part and replacement sales.
Sales to the nuclear power generation industry in the United States
provides stability to our sales and profits, allowing the Company to address the
new construction market for nuclear plants overseas and the expansion of our
domestic service organization. The combined service offering of Enertech and our
existing services will establish a strong base from which we can increase our
presence in this growing market. Investments have been made both in building our
service organization and in further developing diagnostic systems to provide
engineering, inspection and testing services to the nuclear community.
Military sales were lower in 1998 as compared to the prior year because of
the absence in 1998 of special programs related to improved valve designs and
the utilization of new materials for the U.S. Navy, which benefited sales in
1997. Nevertheless, in 1998 we continued to enjoy considerable success in the
U.S. Navy's nuclear program, as evidenced by winning a significant number of
contract awards. The forecasted build rate for new submarines and aircraft
carriers is encouraging. We expect to be successful in continuing to obtain the
contracts we pursue on these programs, enhancing an already solid business base.
In addition, we intend to build upon our base in naval sales by expanding beyond
products for nuclear applications to become a supplier for other shipboard
requirements where our valve technology and manufacturing capabilities are
applicable.
[GRAPHICS OMITTED]
[The following tables were depicted as pie charts in the printed material.]
Flow Control
1998 Sales Balance
Commercial 62%
Military 38%
7 | Curtiss-Wright Corporation and Subsidiaries
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AT A GLANCE
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Precision Manufacturing Products & Services
Products and Services
Among the approximately 50 services provided are:
| Aluminum/Nonferrous Treating
| Annealing/Stress Relieving
| Austempering/Brazing
| Blast Cleaning
| Carbonitriding/Nitriding
| Carbon Restoration/Carburizing
| Cryogenic Treatments
| Deburring
| Edge, Vibratory & Superfinishing
| Engineering & Field Services
| Fabrication of Machinery, Tooling, Parts & Supplies
| Fatigue & Physical Testing
| Flame, Induction & Precipitation Hardening
| Marquenching/Normalizing
| Nondestructive Testing
| Painting/Plating
| Shot-Peening
| Shot-Peen Forming
| Straightening
| Texturizing
| Vacuum Treatments
| Valve Reed Manufacturing
Major Markets
| Aerospace Manufacturers
| Automotive Manufacturers
| Metalworking Industries
| Oil and Gas Drilling/Exploration
| Power Generation
| Jet Engine Manufacturers
| Agricultural Equipment
| Transportation
| Construction and Mining
Actuation and Control Products & Services
| Control and Actuation
Components and Systems
| Aerospace Overhaul Services
| Hydropneumatic Suspension Systems
| Electromechanical Drives and Systems
| Electrohydraulic Drives and Systems
| Rescue Tools
| Aerospace Manufacturers
| Commercial Airlines
| Military Air Forces
| Military Vehicle Manufacturers
| Railway Car Manufacturers
| Diesel Engine Manufacturers
| Rescue Tool Industry
Flow Control Products & Services
| Military & Commercial Nuclear/Nonnuclear Valves (globe, gate, control,
safety, solenoid and relief)
| Fluid Power Products and Systems
| Valve Overhaul and Repair
| Engineering, Inspection and Testing Services
| U.S. Navy Propulsion Systems
| U.S. Navy Shipbuilding
| Nuclear Power Plants
| Automotive Manufacturers
| Petrochemical/Chemical Industry
| Entertainment Industry
PRODUCTS
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Every product we manufacture at Curtiss-Wright meets with the highest level of
quality and performance requirements. This is demanded by the applications for
which they are used.
We supply the actuators for controlling wing flaps on commercial and
military aircraft where dependability in harsh weather conditions and
temperature ranges is a necessity. We will be providing the systems for
operating the side and main bay weapons doors on the F-22 Raptor, which in order
to maintain its stealth qualities must open, deploy weapons and close in a time
requirement measured in seconds. This must all be accomplished under the
stresses generated in high-speed flight.
Our flow control valves are used in nuclear environments where the
integrity of performance of the product must be unquestioned. As with valves
used in other applications, performance in controlling and monitoring flows is
important. In addition, our products must be able to operate with absolutely no
tolerance for leakage. Our technology and designs fulfill these requirements.
The quality and performance requirements of our products reflect the
engineering and manufacturing capabilities of Curtiss-Wright. Our development,
design and testing capabilities and ability to manufacture to exact
specifications with very narrow tolerances allow us to maintain the high
standards demanded and required by our customers.
SERVICES
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Services represent an increasing proportion of our total operations and provide
fertile opportunities for future growth for the Company.
Our metal treatment operation is the largest service business in which we
are involved. We provide a broad variety of metal treating services. Our success
in this business is attributable to processes that improve our customers'
products and are delivered at a reasonable cost. Working with our customers, we
identify areas where our processes can enhance their products or provide
solutions to existing problems. Our ability to maintain these services is
demonstrated by the fact that we have a satisfied customer base numbering in
excess of 5,000.
In 1992 we began to expand our manufacturing of actuation components and
systems for aerospace OEM customers to provide maintenance, repair and overhaul
(MRO) services on not only our products, but also those produced by others. We
have continuously expanded our capabilities and today MRO sales volume equals
that of products we manufacture. We have recently established an MRO base for
our flow control business and we seek to be as successful in growing this
segment as we have our other service areas.
In order not to disrupt customers' manufacturing processes our metal
treatment operations must be able to meet strict time requirements as well as
performance and quality standards. We have accomplished this by establishing a
network of regional facilities that allows us to be close to our customers.
Quick turnaround time is also a major concern for our aerospace overhaul and
repair customers to minimize downtime of aircraft being serviced. We established
a new standard when we provided seven-day turnaround on repair and overhaul for
products that were originally manufactured by Curtiss-Wright.
BENEFITS
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Curtiss-Wright plays an important role in thousands of products that touch
people every day, in many ways. As an example, most cars contain component parts
that we have metal-treated. Almost every large commercial aircraft has wing
flaps operated by our actuation systems or wing skins that were formed by our
processes. Electricity is generated by nuclear plants that use Curtiss-Wright
valves.
Curtiss-Wright Corporation and Subsidiaries | 8 & 9
[PHOTO OMITTED]
| Focused acquisitions are an
important part of our strategy for growth.
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ACQUISITIONS
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In 1998, we used our strong balance sheet to finance a measured acquisition
strategy. Through acquisitions, we sought to increase the breadth of our product
lines, and to identify related markets for our technologies. We looked to expand
our network of services to make Curtiss-Wright more of a full-service provider
in specific markets. We sought to increase our technological expertise and to
expand the markets we serve.
The acquisitions of Enertech, Alpha Heat Treaters, and Curtiss-Wright
Drive Technology are excellent strategic fits for Curtiss-Wright. The
capabilities they bring offer opportunities to continue to meet our growth
objectives and grow stockholder value.
Enertech is a provider of advanced valves, engineering programs and
services to the nuclear power industry. The company also designs and
manufactures hydraulic systems for the automotive and entertainment industries.
Enertech offers diagnostic testing, predictive maintenance, parts repair and
rebuilding, training, engineering and staff augmentation in technical areas.
Enertech continues to operate with its original management from its facilities
in Brea, California, and Suwanee, Georgia.
Enertech, with annual revenues of approximately $25 million, significantly
strengthens our presence in the nuclear power market. Most importantly, Enertech
broadens Curtiss-Wright's product line and expands what we can do for the
customer. Enertech also enhances our service offerings to include engineering,
inspection and diagnostic services.
The acquisition of Alpha Heat Treaters expands our network of
heat-treating facilities by providing a strong regional presence and a solid
reputation in York, Pennsylvania, a highly industrialized area. Alpha provides
carburizing, surface hardening, stress relieving, induction hardening and black
oxide surface treatment services. These processes extend the life of industrial
components and prevent metal fatigue from causing component failures and lost
productivity.
Curtiss-Wright Drive Technology (CWDT) was established via the acquisition
of a subsidiary of SIG Swiss Industrial Company Holding LTD that closed on
December 31, 1998. CWDT is a leading provider of high-technology solutions for
drive technology applications to military tracked and wheeled vehicles, railroad
car leveling systems and marine propulsion. This Swiss-based operation serves a
growing customer base in Europe and Asia. Its addition not only introduces us
into these new markets served by CWDT, but also provides us with hydraulic and
electronic capabilities that we can apply to our aerospace product lines. This
expands our in-house systems integration capabilities as a provider of aerospace
actuation systems.
- ------------
acquisitions
- ------------
Through acquisitions we plan to build a network of heat-treating facilities.
[PHOTO OMITTED]
Enertech increased our capabilities for servicing the nuclear power industry.
[PHOTO OMITTED]
Technology applied to other markets can be integrated into our aerospace
systems.
[PHOTO OMITTED]
[GRAPHIC OMITTED]
Curtiss-Wright Corporation and Subsidiaries | 10 & 11
[PHOTO OMITTED]
| Internal development programs have
opened the door to other new applications.
- -------------------
PRODUCT DEVELOPMENT
- -------------------
Our internal growth strategies include the development of new products. New
product development must accomplish one of three objectives for Curtiss-Wright:
expand a product or service line currently provided to satisfy a need in a
market we currently serve; reduce the costs of servicing our customers; or apply
an existing or modified product or technology to a new market.
We currently have a number of initiatives underway to expand our product
lines and increase the service offerings we provide in many of our markets.
Curtiss-Wright has been developing wing flap actuation systems for applications
to types of aircraft with which we have not previously been associated. This
would include business jets and cargo/utility aircraft. In the aerospace
component overhaul and repair areas, we have expanded the number of parts we are
certified to repair to 9,700.
In Precision Manufacturing Products & Services, we are developing a new
laser metal-treating technology called Lasershot(TM) Peening. This process will
be used in lieu of traditional shot-peening for selected areas where increased
compressive stresses are required. Lasershot(TM) Peening extends the benefits of
compressive stresses much deeper into the surface of metal than controlled
shot-peening.
Within our Flow Control Products & Services segment, we are developing
products that apply our valve technology to areas beyond our traditional
applications. We believe that opportunities exist in all of our current markets:
the nuclear navy, power generation and process industries. An example of such an
opportunity relates to naval ships. We want to expand our valve applications
beyond the nuclear containment areas. We are working to respond to two specific
needs of the United States Navy. The first is a requirement to lower shipboard
manning levels. Through the development of "smart valves," which are
self-monitoring and regulating, manual requirements can be significantly
reduced. We are developing such products through the use of both internal
resources and teaming arrangements where appropriate. We are also responding to
another need, which is to provide titanium valves that have greater resistance
to salt water corrosion and are made of materials more compatible with on-board
piping systems. Success in these areas would expand our opportunities with a
customer with whom we have had a long-term relationship.
Flow Control Products & Services also has developed a Risk-Informed
Program that has been submitted to the Nuclear Regulatory Commission for review
and approval. It is a program designed to improve the inspection process for
welded joints at nuclear power plants resulting in reduced costs to electrical
utilities. If we are successful in obtaining the Commission's approval, we feel
that it has outstanding potential as an additional service that Curtiss-Wright
can provide to our customers.
An example of expanding our existing technologies to new products and
markets has been the application of our aerospace actuator gear technology to
the rescue market, which resulted in the Curtiss-Wright PowerHawk(R) Rescue
Tool--a product we feel has significant advantages over competitive
alternatives. In 1998, we continued to expand the line of accessories that can
be used in conjunction with the tool. Our line of PowerHawk(R) products now
includes a power pusher ram for vehicle extraction and building collapse
situations, a turboventilator/portable blower, and a portable winch. Although
sales of our PowerHawk(R) line of products have not grown as fast as originally
anticipated, based upon customer feedback, we continue to believe that through
persistence and market education, the significant advantages of our patented
technology will make themselves apparent.
- -------------------
product development
- -------------------
New flow control products can expand our business with the U.S. Navy.
[PHOTO OMITTED]
Our valve technology can be applied to new products for use outside the nuclear
power industry.
[PHOTO OMITTED]
Our development work on laser technology illustrates why we are considered a
technological leader for metal-treating applications.
[PHOTO OMITTED]
[GRAPHIC OMITTED]
Curtiss-Wright Corporation and Subsidiaries | 12 & 13
[PHOTO OMITTED]
| We will continue to enter new
global markets and expand the applications of our
products, technologies and services.
- -----------
NEW MARKETS
- -----------
Curtiss-Wright has been involved in the aviation industry since each of the
original companies, the Wright Company and the Curtiss Aeroplane and Motor
Corporation, began operations. Throughout Curtiss-Wright's 69-year history, we
have been a major force in aviation and much of our prosperity has resulted from
the strength of the commercial aviation market.
Many industry analysts are projecting a slowdown in the aerospace
industry. As we look to the future, we are seeking to continue to expand our
diversified base to new markets for added balance to our growth and to offset
the effect the aviation industry's cyclical nature has had on our financial
performance. In diversifying, we seek to expand our current capabilities in
metal treatment and flow control and in applying aviation technology to other
industries, to increase our market share in our existing product lines, and to
stretch our geographic reach. The acquisitions we made in 1998 were steps toward
more diversified growth.
The acquisition of Enertech gives Curtiss-Wright access to new markets--we
move outside the nuclear containment area into the entire plant and increase our
service capabilities. These opportunities will broaden our exposure to the
entire nuclear power industry. Our Flow Control Products & Services business was
also enhanced with the award of contracts to supply valves for nuclear power
plant construction in Eastern Asia. This success reflects the design
capabilities of Curtiss-Wright and gives us the ability to participate in new
nuclear plant construction in Asian markets.
Enertech also provides us with a presence in the design, manufacture and
distribution of fluid power products and systems. Enertech currently conducts
activities in the automotive and entertainment industries and looks to
potentially expand its applications to serve existing needs in other markets.
In our Precision Manufacturing Products & Services operation, we see
significant opportunities for new market development. First, the high cost of
shipping parts for metal treating and short turnaround requirements create
pressures to locate facilities near the original manufacturing sites. To date,
we have established 36 facilities around the world, and we intend to continue
increasing that number. We seek to establish a network of heat-treating
facilities, while expanding the number of shot-peening operations. In 1998, we
added Alpha Heat Treaters in York, Pennsylvania. We have also opened three
facilities in Europe in the last two years. Geographical expansion is an
emphasis for these businesses as there are a number of attractive markets where
we have yet to establish a presence.
New market opportunities resulted from the acquisition of Curtiss-Wright
Drive Technology (CWDT). CWDT takes us into military vehicle and railway
markets. These markets are not tied to the commercial aircraft build cycle and
should help us dampen the effect of downturns in that market on the Company's
performance.
- -----------
new markets
- -----------
Global expansion will provide new opportunities as we continue to enter new
markets overseas.
[PHOTO OMITTED]
We will be increasing our presence in the growing market for maintenance, repair
and overhaul services at electrical power plants.
[PHOTO OMITTED]
A benefit of a 1998 acquisition is that we now have military vehicles and
railway cars as new markets in which to participate.
[PHOTO OMITTED]
[GRAPHIC OMITTED]
Curtiss-Wright Corporation and Subsidiaries | 14 & 15
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
(In thousands except per share amounts) First Second Third Fourth
===================================================
1998 Quarters:
Sales $ 60,846 $ 59,405 $ 62,603 $ 66,559
Gross profit 18,122 21,749 20,851 21,292
Net earnings 6,605 7,701 6,758 7,989
Earnings per share:
Basic earnings per common share $ .65 $ .76 $ .66 $ .78
Dividends per common share $ .13 $ .13 $ .13 $ .13
---------------------------------------------------
1997 Quarters:
Sales $53,148 $ 54,412 $ 52,677 $ 59,158
Gross profit 16,644 19,125 19,002 20,918
Net earnings 4,955 7,050 8,076 7,804
Earnings per share:
Basic earnings per common share .49 .69 .79 .77
Dividends per common share .125 .125 .125 .13
---------------------------------------------------
CONSOLIDATED SELECTED FINANCIAL DATA (Unaudited)
(In thousands except per share data) 1998 1997 1996 1995 1994
=================================================================
Sales $249,413 $219,395 $170,536 $154,446 $155,001
Earnings before changes in accounting
principles 29,053 27,885 16,109 18,169 19,547
Net earnings 29,053 27,885 16,109 18,169 19,303
Total assets 352,740 284,708 267,164 246,201 238,694
Long-term debt 20,162 10,347 10,347 10,347 9,047
Basic earnings per common share:
Earnings before changes in accounting
principles $ 2.85 $ 2.74 $ 1.59 $ 1.79 $ 1.93
Net earnings $ 2.85 $ 2.74 $ 1.59 $ 1.79 $ 1.91
Cash dividends $ .52 $ .505 $ .50 $ .50 $ .50
-----------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This annual report contains not only historical information but also
forward-looking statements regarding expectations for future company
performance. Forward-looking statements involve risk and uncertainty. See the
Company's 1998 Annual Report on Form 10-K for a discussion of factors which
could cause future results to differ from current expectations.
Curtiss-Wright Corporation and Subsidiaries | 16
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Curtiss-Wright Corporation continued to post improved sales and operating
performance in 1998. Sales for the year totaled $249.4 million reflecting a 14%
increase over 1997 sales of $219.4 million and 46% above 1996 sales of $170.5
million. Operating income increased 21% from $30.0 million in 1997 to $36.3
million in 1998 and more than doubled operating income of $15.5 million from
1996. For the year, the Corporation posted consolidated net earnings of $29.1
million or $2.82 per diluted share, 4% above 1997 net earnings of $27.9 million
or $2.71 per diluted share and 80% above the net earnings of $16.1 million
posted in 1996.
Sales increases for 1998, as compared with 1997, were achieved in all of
the Corporation's business operating segments. Sales from Enertech, a valve
manufacturing and service concern acquired on July 31, 1998, sales from Alpha
Heat Treaters acquired on April 30, 1998 and an expansion of Precision
Manufacturing Products & Services ("PMPS") operations, which added three
additional facilities, augmented this increase. 1997 was also the first full
year of operations for the overhaul and repair facility in Miami that was
acquired in mid-year 1996. In the aggregate, acquisitions and business
expansions have added sales of $42.3 million to the Corporation's 1998 total.
Net earnings for 1998 were, however, impaired by the high level of
additional charges for anticipated losses on Actuation and Control Products &
Services ("ACPS") segment military development programs, inventory adjustments
and costs related to the consolidation of its manufacturing operations referred
to below. In the aggregate, 1998 net earnings were lowered by $3.9 million or
$.38 per share as a result these charges. Partially offsetting those charges was
the recognition in 1998 of insurance claims proceeds. The 1997 earnings results
included a one-time gain from the sale of excess real estate which, after the
benefit of a capital-loss carry-forward, added $2.0 million or $.20 per share.
Net earnings for both 1997 and 1996 had also been impacted by losses caused by
significant overruns on military actuation development contracts. In 1996 there
were lower levels of non-operating revenue in comparison to 1997 and 1998.
New orders recorded in 1998 totaled $232.2 million with an ending backlog
of $198.3 million. This represents a $49 million increase in backlog compared to
the $149.2 million backlog at the end of 1997 substantially due to the
acquisition of SIG Drive Technology Limited ("SDT") on December 31, 1998. It
should be noted that sales in the PMPS segment 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-lead Actuation and
Control and Flow Control segment products.
SEGMENT PERFORMANCE
Precision Manufacturing Products & Services
The Corporation's PMPS business continues to achieve substantial increases in
sales for 1998 as compared with the prior year. Sales improved 11% for 1998,
reflecting increases in applications, particularly in aerospace, oil tool,
petrochemical and other industrial markets, worldwide. In addition, 1998 sales
benefited from contributions of an additional heat-treating facility in York,
Pennsylvania acquired in April 1998. Sales improvements also reflect newly
opened facilities in Belgium, Germany, England and Kansas. 1998 net income for
the segment increased from 1997 by $3.3 million or 22% to $18.2 million. This
increase reflected improved sales in traditional markets, growth in producing
flapper valve components, lower overhead costs and a reduction in start-up costs
from new facilities.
Sales and net earnings for 1997 had shown substantial improvements over
1996 results as well. 1997 sales and net earnings were 15% and 67%,
respectively, above sales of $82.6 million and net earnings of $9.0 million
posted in 1996. When comparing 1997 to 1996, increases were largely the result
of a worldwide improvement in aerospace applications and reflected the
diversification of products serviced by this segment, including services to form
wingskins of commercial, regional and business aircraft and services on engine
components and other aircraft parts.
Flow Control Products & Services
The Corporation's Flow Control Products & Services ("FCPS") segment posted
increases in sales and net earnings of 43% and 39% from 1997 to 1998. These
sales increases largely reflect the July 31, 1998 acquisition of Enertech, LLC.
Enertech manufactures, distributes and represents a number of products for sale
into commercial nuclear power plants, both domestically and internationally, and
provides a broad range of overhaul and maintenance services to such plants. In
1998, sales of commercial valve products increased reflecting work performed for
a foreign nuclear power plant under a contract received in late 1997. Net income
for the year also bene-fited from improved cost performance on valve remakes and
upgrade programs. While the Asian financial situation has not had an adverse
effect on this business, the Corporation anticipates some slow-downs or
stretch-outs in orders from this area in the future.
Sales for 1997 were 14% above those of 1996, while net income decreased by
3% in the comparable periods. Two U.S. Navy military valve programs and a high
level of commercial field service and spare parts sales accounted for the sales
improvements. Net earnings for 1997, as compared to 1996, were slightly impaired
by higher administrative costs and expenses relating to a commercial royalty
agreement.
- --------------------------------------------------------------------------------
17 Curtiss-Wright Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Actuation and Control Products & Services
The ACPS segment posted a sales increase of 8% for 1998 when compared with those
of 1997 primarily reflecting the continued high level of original equipment
manufactured (OEM) products for Boeing. However, as the market approaches the
projected peak of the jetliner production cycle, this segment continues to
experience a number of cost and efficiency issues. In addition, inventory
write-offs, book to physical and valuation adjustments severely impacted profits
for this segment. In the aggregate, accounting adjustments, cost overruns on
military development contracts and costs related to the consolidation of
manufacturing operations resulted in a charge to net earnings of $3.9 million or
$.38 per share in 1998.
Sales of military actuation products were slightly below those of 1997 as
sales resulting from the completion of "safety of flight" testing on F-22
components early in 1998 were offset by the end of an F-16 shaft retrofit
contract and lower foreign military sales. Sales of component overhaul services
to foreign regions, while slightly below expectations, have been steady in 1998
and are above 1997 levels. The economic problems of foreign regions, including
Asia, have not had an adverse impact on current performance. During 1998, the
Corporation's sales of component overhaul and repair services in the aggregate
have improved 7% compared with the prior year.
In the fourth quarter of 1998, the Corporation announced its plans to move
the manufacturing operations of its Fairfield, New Jersey facility to its
Shelby, North Carolina facility to reduce its operating costs. The Corporation
recorded a charge of $.5 million after taxes for severance and other
employee-related costs and anticipates expenditures of $1.6 million after taxes,
in transportation and plant rearrangement costs in 1999.
Sales of this segment improved 51% in 1997 over 1996 and the segment
reported net earnings of $2.1 million as compared to a net loss of $1.0 million
in 1996. OEM sales of commercial aircraft components more than doubled those of
1996, reflecting increased Boeing requirements for actuation and control
equipment. The Corporation participates on every Boeing commercial aircraft
currently flying and production levels were at a record high at the end of 1997.
Sales of overhaul and repair services increased 53% when comparing 1997 to 1996.
Sales improvements were primarily reflective of a full year's operation from the
Miami-based location, which had been acquired in May 1996. The net loss for this
segment reported in 1996 was the combined result of additions to the workforce,
associated training and other costs incurred during the start-up phase of new
Boeing production programs. Costs were further increased by the timing and
magnitude of increased production work stemming from Boeing's aggressive
ramp-up.
CORPORATE AND OTHER EXPENSES
These costs include administrative expenses, recognition of remediation costs,
costs for legal services to pursue claims against related parties and related
recoveries of such claims.
OTHER REVENUES
The Corporation recorded other non-operating net revenues for 1998 aggregating
$11.7 million compared with $12.3 million in 1997 and $9.0 million in 1996. In
1997, the Corporation sold two parcels of undeveloped land generating the
significant increase in other revenues for 1997, as compared with 1996. The
Corporation recognized net earnings of $2.0 million or $.20 per share, which
reflects tax benefits from the application of a capital-loss carry-forward to
the gains realized on the sales. Other revenues generated by investments and
rental properties have been relatively consistent over the last three years.
Included in other revenues for the Corporation is pension income resulting
from the amortization into income of the excess of the retirement plan's assets
over the estimated obligations under the plan. On an after-tax basis, pension
income amounted to $3.2 million in 1998 as compared with $2.2 million in 1997
and $2.3 million in 1996. The amount recorded largely reflects the extent to
which the expected return on plan assets exceeds the service and interest costs
of providing benefits, as detailed in Note 12 to Consolidated Financial
Statements.
- --------------------------------------------------------------------------------
Curtiss-Wright Corporation and Subsidiaries 18
- --------------------------------------------------------------------------------
CHANGES IN FINANCIAL POSITION
Liquidity and Capital Resources
The Corporation's working capital decreased slightly at December 31, 1998,
totaling $130.8 million as compared with $132.8 million at December 31, 1997.
The ratio of current assets to current liabilities was 2.9 to 1 at December 31,
1998 compared with 4.4 to 1 at the end of 1997. The Corporation's balance of
cash and short-term investments totaled $72.3 million at December 31, 1998
increasing $3.5 million over balances at December 31, 1997.
Working capital changes were highlighted by an increase in accounts
receivable of $19.3 million and inventories of $4.3 million during the year.
These increases are largely due to the acquisitions of Alpha, Enertech and SDT
during 1998. Current liabilities increased $29.2 million at December 31, 1998,
compared with the prior year end, largely due to borrowings under the
Corporation's short-term credit agreement used to fund the SDT acquisition.
At December 31, 1998, the Corporation's balance sheet was dramatically
different than its balance sheet at December 31, 1997. The changes reflect the
acquisition of three companies in 1998, two of which involved aggregated cash
outflows of $19.3 million, while the third added $21.9 million of debt to the
year-end financial position. Acquisitions in 1998 also added $27.0 million of
goodwill to the balance sheet for the excess of the purchase prices over the
combined fair value of the net assets acquired. In addition, the Corporation
completed an industrial revenue bond (IRB) financing in 1998. The additional
$8.4 million of debt provided for the plant expansion of the Shelby, North
Carolina facility and related equipment purchases necessary to meet the demands
of the new Boeing contracts and the growth of the overhaul service business.
The Corporation continues to maintain its $22.5 million revolving credit
lending facility and its $22.5 million short-term credit agreement. As discussed
above and in Note 9 to Consolidated Financial Statements, these credit
agreements were used to finance the SDT acquisition at December 31, 1998. The
revolving credit agreement also encompasses various letters of credit issued
primarily in connection with outstanding industrial revenue bonds. The combined
maximum available credit unused under these agreements at December 31, 1998 was
$3.0 million. Borrowings under the short-term credit agreement total $20.5
million and are payable at the expiration of the agreement on October 22, 1999.
However, the Corporation intends to seek an extension of this agreement in
advance of its expiration or explore other financing vehicles as necessary to
extend the payment of this debt beyond 1999.
Capital expenditures were $10.6 million in 1998, decreasing from $11.2
million spent in 1997 and well below capital expenditures of $14.1 million in
1996. Principal expenditures were for the expansion of PMPS facilities, which is
relocating three sites to larger, more efficient facilities, and purchased
additional equipment to service those facilities. Strategic purchases for the
FCPS segment include procuring state-of-the-art welding capabilities to service
nuclear customer requirements and additional machining capabilities for large
valve components. ACPS segment capital costs in 1998 were predominantly to
replace older equipment to maintain the segment's manufacturing capabilities.
In 1999, capital expenditures are expected to increase significantly due
to the continued expansion of the PMPS and the relocation of the ACPS segment's
overhaul business to a second North Carolina facility. In addition, expenditures
for OEM equipment in both the ACPS and FCPS segments are expected. At December
31, 1998, the Corporation had commitments of $7.5 million primarily for the
relocation of the PMPS segment's United Kingdom facility and to purchase capital
equipment in 1999.
Cash generated from operations and current short-term investment holdings
are considered adequate to meet the Corporation's overall cash requirements for
the upcoming year, absent the debt repayments as discussed above. This includes
planned capital expenditures, normal dividends, satisfying environmental
obligations and working capital requirements.
Year 2000
As many computer systems and other equipment with embedded chips or processors
(collectively, "Business Systems") use only two digits to represent the year,
they may be unable to process accurately certain data before, during or after
the year 2000. As a result, business and governmental entities are at risk for
possible miscalculations or systems failures causing disruptions in their
business operations. This is commonly known as the "Y2K" issue. The Y2K issue
can arise at any point in the Corporation's supply, manufacturing, processing,
distribution and financial chains.
The Corporation and each of its operating units are in the process of
implementing a Y2K program with the objective of having all of their business
systems, including those that affect facilities and manufacturing activities,
functioning properly with respect to the Y2K issue before January 1, 2000. Each
operating entity of the Company is in a different stage of readiness. The scope
of work includes ensuring the compliance of all applications, operating systems
and hardware on mainframe, PC and LAN platforms, non-information technology
software and equipment and addressing key suppliers and customers.
- --------------------------------------------------------------------------------
19 Curtiss-Wright Corporation and Subsidiaries
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The first component of the readiness program was to identify the internal
business systems of the Corporation that are susceptible to system failures or
processing errors as a result of the Y2K issue. This effort is substantially
complete for existing sites and is being expanded to include the SDT
acquisition.
The second component of the Y2K readiness program involves the actual
remediation and replacement of business systems. The Corporation is using both
internal and external resources to identify Y2K non-compliance problems, modify
code and test the resulting modifications. Those business systems considered
most critical to continuing operations are being given the highest priority. In
some cases, non-compliant software and hardware will be replaced. Based on the
current schedule, the Corporation expects to be in full compliance with its
internal business systems during 1999.
As part of the Y2K readiness program, significant service providers,
vendors, suppliers and customers that are believed to be critical to on-going
business operations have been identified and contacted in an attempt to
ascertain their stage of readiness through questionnaires and other available
means. To the extent that responses to Y2K readiness are unsatisfactory, the
Corporation intends to seek alternative suppliers, service providers or
contractors who have demonstrated Y2K readiness. In the event that any of the
Corporation's significant customers and suppliers do not successfully and timely
achieve Y2K compliance, and the Corporation is unable to replace them with new
customers or alternate suppliers, the Corporation's business or operations could
be adversely affected.
Concurrently, with the Y2K readiness measures described above, the
Corporation and its operating units are developing contingency plans intended to
mitigate the possible disruption in business operations that may result from the
Y2K issue and are developing cost estimates for such plans.
It is currently estimated that the incremental costs of the Corporation's
Y2K remediation efforts will be approximately $.5 million of which approximately
$.2 million has been spent. These costs are being expensed as they are incurred.
The costs associated with the replacement of computerized systems and hardware
are currently estimated to be $.3 million, which would be capitalized. These
amounts do not include any costs associated with the implementation of
contingency plans that are in the process of being developed.
The Corporation's Y2K readiness program is an on-going process and the
estimates of costs and completion dates are subject to change.
Euro Conversion
Curtiss-Wright operates in Europe through PMPS and ACPS segment facilities
located in the United Kingdom, France, Germany, Belgium, Denmark and
Switzerland. On January 1, 1999, eleven participating members of the European
Monetary Union established fixed conversion rates between their existing
currencies and the Euro. Existing currencies will continue to be used as legal
tender through January 1, 2002. Thereafter, those currencies will be canceled
and replaced solely by Euro notes and coinage. At this time the United Kingdom,
the source of most of the Corporation's European sales, is not participating in
this change. The Corporation anticipates that the Euro conversion will not have
a material adverse impact on its financial condition, results of operations or
liquidity.
Recently Issued Accounting Standards
As discussed in Note 1 to the Consolidated Financial Statements, the Corporation
has reviewed Statement of Financial Accounting Standards No. 133, "Accounting
for Derivatives and Hedging Activities". Due to the limited use of derivative
instruments by the Corporation, this statement will not have a material effect
on the Corporation's results of operations or financial condition. The statement
is effective for the Corporation beginning January 1, 2000.
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Curtiss-Wright Corporation and Subsidiaries 20
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REPORT OF THE CORPORATION
The consolidated financial statements appearing on pages 22 through 37 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.
PricewaterhouseCoopers 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 and stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of
Curtiss-Wright Corporation and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, 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.
Florham Park, New Jersey
February 1, 1999
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21 Curtiss-Wright Corporation and Subsidiaries
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CONSOLIDATED STATEMENTS OF EARNINGS
--------------------------------
(In thousands except per share data) For the years ended December 31, 1998 1997(1) 1996(1)
========------------------------
Net sales $249,413 $219,395 $170,536
Cost of sales 167,399 143,706 117,067
--------------------------------
Gross profit 82,014 75,689 53,469
Research and development costs 1,346 1,877 997
Selling expenses 11,606 7,979 6,337
General and administrative expenses 34,277 32,694 28,207
Environmental remediation and administrative expenses,
net of recovery (1,562) 3,132 2,397
--------------------------------
Operating income 36,347 30,007 15,531
Investment income, net 3,206 3,432 2,968
Rental income, net 3,299 3,342 2,816
Pension income, net 5,126 3,312 3,651
Other income (expense), net 87 2,193 (450)
Interest expense 485 387 387
--------------------------------
Earnings before income taxes 47,580 41,899 24,129
Provision for income taxes 18,527 14,014 8,020
--------------------------------
Net earnings $ 29,053 $ 27,885 $ 16,109
================================
Net Earnings per Common Share:
Basic earnings per share $ 2.85 $ 2.74 $ 1.59
================================
Diluted earnings per share $ 2.82 $ 2.71 $ 1.58
================================
(1) Prior year information has been restated to conform to current
presentation.
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
Curtiss-Wright Corporation and Subsidiaries 22
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
----------------------
(In thousands) December 31, 1998 1997
=========-------------
Assets:
Current assets:
Cash and cash equivalents $ 5,809 $ 6,872
Short-term investments 66,444 61,883
Receivables, net 60,912 41,590
Deferred tax assets 7,841 8,806
Inventories 54,048 49,723
Other current assets 3,519 2,506
----------------------
Total current assets 198,573 171,380
----------------------
Property, plant and equipment, at cost:
Land 4,645 4,486
Buildings and improvements 91,325 89,096
Machinery, equipment and other 141,245 126,005
----------------------
237,215 219,587
Less, accumulated depreciation 162,704 153,704
----------------------
Property, plant and equipment, net 74,511 65,883
Prepaid pension costs 43,822 38,674
Goodwill 30,724 3,797
Other assets 5,110 4,974
----------------------
Total assets $ 352,740 $ 284,708
======================
Liabilities:
Current liabilities:
Current portion of long-term debt $ 20,523 $ --
Accounts payable 13,433 9,900
Accrued expenses 17,254 14,640
Income taxes payable 5,052 4,845
Other current liabilities 11,548 9,244
----------------------
Total current liabilities 67,810 38,629
----------------------
Long-term debt 20,162 10,347
Deferred income taxes 9,714 8,799
Accrued postretirement benefit costs 9,575 9,850
Other liabilities 15,886 12,230
----------------------
Total liabilities 123,147 79,855
----------------------
Contingencies and Commitments (Notes 9 and 14)
Stockholders' Equity:
Preferred stock, $1 par value, 650,000 authorized, none issued
Common stock, $1 par value, 22,500,000 authorized, 15,000,000 shares issued
(outstanding shares 10,190,790 for 1998 and 10,175,140 for 1997) 15,000 15,000
Additional paid in capital 51,669 52,010
Retained earnings 342,218 318,474
Unearned portion of restricted stock (40) (342)
Accumulated other comprehensive income (2,800) (3,289)
----------------------
406,047 381,853
Less, treasury stock at cost (4,809,210 shares for 1998 and 4,824,860
shares for 1997) 176,454 177,000
----------------------
Total stockholders' equity 229,593 204,853
----------------------
Total liabilities and stockholders' equity $ 352,740 $ 284,708
======================
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
23 Curtiss-Wright Corporation and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------
(In thousands) For the years ended December 31, 1998 1997 1996
=========--------------------------
Cash flows from operating activities:
Net earnings $ 29,053 $ 27,885 $ 16,109
-----------------------------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 9,661 9,097 8,946
Net (gains) losses on sales and disposals of real estate
and equipment 94 (1,968) 473
Net gains on short-term investments (266) (1,717) (1,014)
Deferred taxes 1,494 76 (168)
Changes in operating assets and liabilities, net of business
acquired:
Proceeds from sales of trading securities 374,802 342,416 333,577
Purchases of trading securities (379,097) (349,500) (323,172)
(Increase) decrease in receivables (7,181) (4,929) 5,500
(Increase) decrease in inventories 734 (3,624) (12,057)
Increase (decrease) in progress payments (1,248) 1,934 (2,622)
Increase (decrease) in accounts payable and
accrued expenses 2,470 (666) 6,810
Increase in income taxes payable 207 1,656 1,189
Increase in other assets (5,446) (3,860) (4,705)
Increase (decrease) in other liabilities (236) (2,458) 4,222
Other, net 881 (879) 143
Total adjustments (3,131) (14,422) 17,122
-----------------------------------
Net cash provided by operating activities 25,922 13,463 33,231
-----------------------------------
Cash flows from investing activities:
Proceeds from sales and disposals of real estate and equipment 950 3,460 96
Additions to property, plant and equipment (10,642) (11,231) (14,156)
Acquisition of new businesses (41,711) (16,640)
-----------------------------------
Net cash used for investing activities (51,403) (7,771) (30,700)
-----------------------------------
Cash flows from financing activities:
Proceeds from short-term borrowing 20,523 -- --
Proceeds from long-term borrowing 9,815 -- --
Common stock repurchase (611) -- --
Dividends paid (5,309) (5,137) (5,079)
-----------------------------------
Net cash (used for) provided by financing activities 24,418 (5,137) (5,079)
-----------------------------------
Net increase (decrease) in cash and cash equivalents (1,063) 555 (2,548)
Cash and cash equivalents at beginning of year 6,872 6,317 8,865
-----------------------------------
Cash and cash equivalents at end of year $ 5,809 $ 6,872 $ 6,317
===================================
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
Curtiss-Wright Corporation and Subsidiaries 24
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------
Unearned Accumulated
Additional Portion of Other
Common Paid in Retained Restricted Comprehensive Comprehensive Treasury
(In thousands) Stock Capital Earnings Stock Awards Income Income Stock
==========================================================================================
December 31, 1995 $10,000 $57,141 $288,710 $(780) $(1,330) $181,562
------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 16,109 $16,109
Translation adjustments, net (176) (176)
------------------------------------------------------------------------------------------
Total comprehensive income $15,933
==========================================================================================
Common dividends (5,079)
Stock awards issued 10 (93) (83)
Stock options exercised, net (24) (89)
Amortization of earned portion of
restricted stock awards 265
------------------------------------------------------------------------------------------
December 31, 1996 10,000 57,127 299,740 (608) (1,506) 181,390
------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 27,885 $27,885
Translation adjustments, net (1,783) (1,783)
------------------------------------------------------------------------------------------
Total comprehensive income $26,102
==========================================================================================
Common dividends (5,137)
Stock options exercised, net (117) (376)
Amortization of earned portion of
restricted stock awards 266
Two-for-one stock split 5,000 (5,000) (4,014) (4,014)
------------------------------------------------------------------------------------------
December 31, 1997 15,000 52,010 318,474 (342) (3,289) 177,000
------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 29,053 $29,053
Translation adjustments, net 489 489
------------------------------------------------------------------------------------------
Total comprehensive income $29,542
==========================================================================================
Common dividends (5,309) 612
Common stock repurchase
Stock options exercised, net (449)
Amortization of earned portion of
restricted stock awards 108 302 (1,158)
------------------------------------------------------------------------------------------
December 31, 1998 $15,000 $51,669 $342,218 $(40) $(2,800) $176,454
==========================================================================================
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
25 Curtiss-Wright Corporation and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Curtiss-Wright Corporation and its subsidiaries (the "Corporation") is a
diversified multinational manufacturing and service concern that designs,
manufactures and overhauls precision components and systems and provides highly
engineered services to the aerospace, defense, automotive, shipbuilding, oil,
petrochemical, agricultural equipment, power generation, railroad, metalworking,
and fire and rescue industries. Operations are conducted through five
manufacturing facilities, thirty-six metal treatment service facilities and four
component overhaul locations.
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 the
Corporation, after elimination of all significant intercompany transactions and
accounts. Management's estimates include assumptions that affect the reported
amount of assets, liabilities, revenue and expenses in the accompanying
financial statements. Actual results may differ from these estimates.
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 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.
Average useful lives for property and equipment are as follows:
- --------------------------------------------------------------------------------
Buildings and improvements 10 to 40 years
Machinery and equipment 4 to 15 years
Office furniture and equipment 3 to 10 years
- --------------------------------------------------------------------------------
F. Intangible Assets
Intangible assets consist primarily of the excess purchase price of the
acquisitions 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, 1998 and 1997. 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 consisting primarily of 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 quantifiable,
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 recognizing any recovery from insurance carriers, or third-party
legal actions, and are not discounted.
I. Accounting for Stock-Based Compensation
The Corporation follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB No. 25), in
- --------------------------------------------------------------------------------
Curtiss-Wright Corporation and Subsidiaries 26
- --------------------------------------------------------------------------------
accounting for its employee stock options, rather than the alternative method of
accounting provided under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123). Under APB No. 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 is provided in
Note 10.
J. Capital Stock
On April 11, 1997, the stockholders approved an increase in the number of
authorized common shares from 12,500,000 to 22,500,000. On November 17, 1997,
the Board of Directors declared a two-for-one stock split in the form of a 100%
stock dividend. The split, in the form of 1 share of common stock for each share
outstanding, was payable on December 23,1997. To effectuate the stock split, the
Corporation issued 5,000,000 original shares at $1.00 par value from capital
surplus and the remaining 87,271 shares from its treasury account at cost, with
a corresponding reduction in retained earnings of $4,014,000. Accordingly, all
references throughout this annual report to number of shares, per share amounts,
stock option data and market prices of the Corporation's common stock have been
restated to reflect the effect of the split for all periods presented.
In October 1998 the Corporation initiated a stock repurchase program,
approved by its Board of Directors, under which the Company is authorized to
purchase up to 300,000 shares or approximately 3% of its outstanding common
stock. Purchases were authorized to be made from time to time in the open market
or privately negotiated transactions, depending on market and other conditions,
based upon the view of the Corporation that recent market prices of the stock
did not adequately reflect the true value of the Corporation. Accordingly, it
represented an attractive investment opportunity for the Corporation.
K. 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 years ended
December 31, 1998, 1997 and 1996 is shown in the Statements of Stockholders'
Equity.
L. Earnings per Share
Effective for the fiscal year ended December 31, 1997, 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). Under SFAS
No. 128, the Corporation is required to report both basic earnings per share as
based on the weighted average number of common shares outstanding and diluted
earnings per share as based on the weighted average number of common shares
outstanding plus all potentially dilutive common shares issuable. In accordance
with SFAS No. 128, all prior period earnings per share data have been restated.
Earnings per share calculations for the years ended December 31, 1998, 1997 and
1996 are as follows:
--------------------------------------
Weighted
Average
Net Shares Per Share
(In thousands, except per share data) Income Outstanding Amount
=======================================
1998
Basic earnings per share $29,053 10,194 $2.85
Effect of dilutive securities:
Stock options 109
Deferred stock compensation 2
--------------------------------------
Diluted earnings per share $29,053 10,305 $2.82
======================================
1997
Basic earnings per share $27,885 10,172 $2.74
Effect of dilutive securities:
Stock options 118
Deferred stock compensation 1
--------------------------------------
Diluted earnings per share $27,885 10,291 $2.71
======================================
1996
Basic earnings per share $16,109 10,158 $1.59
Effect of dilutive securities:
Stock options 59
--------------------------------------
Diluted earnings per share $16,109 10,217 $1.58
======================================
M. Newly Issued Accounting Pronouncements
On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities" (SFAS No. 133). SFAS No. 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999 (January 1, 2000 for the
Corporation). SFAS No. 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives will be recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. Manage-
- --------------------------------------------------------------------------------
27 Curtiss-Wright Corporation and Subsidiaries
- --------------------------------------------------------------------------------
ment of the Corporation anticipates that, due to its limited use of derivative
instruments, the adoption of SFAS No. 133 will not have a significant effect on
its results of operations or its financial position.
2. Acquisitions
The Corporation acquired three companies in 1998 and one company in 1996, as
described below. All companies acquired have been accounted for as purchases
with the excess of the purchase price over the estimated fair value of the net
assets acquired recorded as goodwill. The results of each operation have been
included in the consolidated financial results of the Corporation from the date
of acquisition.
SIG-Antriebstechnik AG
On December 31, 1998, the Corporation completed the acquisition of the shares of
SIG-Antriebstechnik AG, a unit of SIG Swiss Industrial Company Holding Ltd., for
approximately $22.0 million in cash, subject to adjustments as provided in the
agreement. The acquired company, to be renamed Curtiss-Wright Antriebstechnik
GmbH (Curtiss-Wright Drive Technology, Ltd.), is a leading provider of
high-technology drive solutions for three principal markets: military tracked
and wheeled vehicles, high-speed railroad trains, and commercial marine
propulsion. The Company's drive system solutions involve electromechanical and
electrohydraulic actuation components and systems including electronic controls.
Drive Technology's sales were approximately $17 million in 1998 with a year-end
backlog of approximately $53 million. The excess of purchase price over the fair
value of the net assets is approximately $17 million. The fair value of the net
assets acquired was based on preliminary estimates and may be revised at a later
date.
Enertech
On July 31, 1998, the Corporation purchased the assets of Enertech, LLC
(Enertech) which distributes, represents and manufactures a number of products
for sale into commercial nuclear power plants, both domestically and
internationally. Enertech also provides a broad range of overhaul and
maintenance services for such plants from its two principal locations in
California and Georgia. The Corporation acquired the net assets of Enertech for
approximately $15.2 million in cash of which $13.2 million was paid at closing
and $2.0 million deferred to a specific future contract date subject to
adjustments as provided in the agreement. The excess of purchase price over the
fair value of the net assets is approximately $9.0 million and is being
amortized over 30 years. The fair value of the net assets acquired was based on
preliminary estimates and may be revised at a later date.
Alpha Heat Treaters
The Corporation purchased the assets of the Alpha Heat Treaters ("Alpha")
division of Alpha-Beta Industries, Inc. on April 30, 1998. 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
$6.1 million in cash. The excess of purchase price over the fair value of the
net assets is approximately $1.0 million, which is being amortized over 25
years. The fair value of the net assets acquired was based on preliminary
estimates and may be revised at a later date.
Accessory Services
The Corporation purchased the Miami, Florida-based Accessory Services unit of
Aviall, Inc. ("Accessory Services") on May 20, 1996 acquiring the net assets of
Accessory Services for $16.6 million in cash. 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 unaudited pro forma consolidated results of operations shown below
have been prepared as if the above acquisitions had occurred at the beginning of
1998 and 1996, respectively:
--------------------------
(In thousands, except per share data) 1998 1996
========------------------
Net sales $277,945 $178,816
Net earnings 30,280 16,437
Diluted earnings per common share 2.94 1.61
--------------------------
- --------------------------------------------------------------------------------
Curtiss-Wright Corporation and Subsidiaries 28
- --------------------------------------------------------------------------------
3. Short-Term Investments
The composition of short-term investments at December 31 is as follows:
-----------------------------------------------
(In thousands) 1998 1997
====================---------------------------
Cost Fair Value Cost Fair Value
-----------------------------------------------
Money market
preferred stock $54,797 $54,797 $45,697 $45,697
Tax-exempt money
market preferred
stock 2,995 2,995 -- --
Common and
preferred stocks 6,007 6,203 3,090 3,205
Utility common stocks
purchased -- -- 20,268 20,308
Utility common stocks
sold short -- -- (11,033) (11,121)
Options 49 49 -- --
Tax exempt revenue
bonds 2,400 2,400 3,790 3,794
-----------------------------------------------
Total short-term
investments $66,248 $66,444 $61,812 $61,883
===============================================
Investment income for the years ended December 31 consists of:
--------------------------------
(In thousands) 1998 1997 1996
======--------------------------
Net realized gains on the sale of
trading securities $ 141 $1,435 $ 527
Interest and dividend income, net 2,940 1,715 1,954
Net unrealized holding gains 125 282 487
--------------------------------
Investment income, net $3,206 $3,432 $2,968
================================
4. Receivables
Receivables include amounts billed to customers, claims and other receivables
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.
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 7% of the total outstanding billed
receivables at December 31, 1998 and 12% of the total outstanding billed
receivables at December 31, 1997. 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) 1998 1997
=======--------------
Billed Receivables:
Trade and other receivables $63,412 $49,110
Less: progress payments applied 11,687 10,460
Allowance for doubtful accounts 1,910 1,747
---------------------
Net billed receivables 49,815 36,903
---------------------
Unbilled Receivables:
Recoverable costs and estimated earnings
not billed 17,447 13,022
Less: progress payments applied 6,350 8,335
---------------------
Net unbilled receivables 11,097 4,687
---------------------
Total receivables, net $60,912 $41,590
=====================
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) 1998 1997
=======--------------
Raw material $ 8,862 $ 5,514
Work-in-process 22,802 22,686
Finished goods/component parts 23,130 21,782
Inventoried costs related to U.S. Government
and other long-term contracts 4,780 5,547
---------------------
Inventories 59,574 55,529
Less: progress payments applied,
principally related to
long-term contracts 5,526 5,806
---------------------
Net inventories $54,048 $49,723
=====================
6. Accrued Expenses and Other Current Liabilities
Accrued expenses at December 31 consist of the following:
-----------------------
(In thousands) 1998 1997
=======----------------
Accrued compensation $ 5,967 $ 5,878
Accrued taxes other than income taxes 1,108 1,357
Accrued insurance 1,662 1,659
All other 8,517 5,746
-----------------------
Total accrued expenses $17,254 $14,640
=======================
- --------------------------------------------------------------------------------
29 Curtiss-Wright Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Other current liabilities at December 31 consist of the following:
----------------------
(In thousands) 1998 1997
=======---------------
Customer advances $ 4,655 $ 66
Current portion of environmental reserves 1,881 3,036
Anticipated losses on long-term contracts 1,878 1,305
Litigation reserves 298 3,101
All other 2,836 1,736
----------------------
Total other current liabilities $11,548 $9,244
======================
7. Income Taxes
There was no valuation allowance recorded in 1998 because it is more likely than
not that all deferred tax assets will be realized. During 1997, the Corporation
fully utilized its capital loss carry-forward of $3,252,000 that would have
expired on December 31, 1997. In 1997, the valuation allowance that was
established to offset this deferred tax asset was reversed. The net change to
the valuation allowance for deferred tax assets was a decrease of $1,212,000 in
1997 from the utilization of all remaining loss carry-forwards.
Earnings before income taxes for the years ended December 31 are:
-----------------------------------------
(In thousands) 1998 1997 1996
=======----------------------------------
Domestic $33,320 $29,965 $15,195
Foreign 14,260 11,934 8,934
-----------------------------------------
Total $47,580 $41,899 $24,129
=========================================
The provisions (benefits) for taxes on earnings for the years ended December 31
consist of:
--------------------------------------
(In thousands) 1998 1997 1996
=======-------------------------------
Current:
Federal $ 8,835 $ 7,523 $4,041
State 3,045 4,197 3,388
Foreign 5,019 1,910 995
--------------------------------------
16,899 13,630 8,424
======================================
Deferred:
Federal 1,231 332 3
State 397 126 (236)
--------------------------------------
1,628 458 (233)
======================================
Federal income tax on
net capital gains -- 1,135 184
Utilization of capital
loss carry-forwards -- (1,135) (184)
Valuation allowance -- (74) (171)
--------------------------------------
Provision for income tax $18,527 $14,014 $8,020
======================================
The effective tax rate varies from the U.S. Federal statutory tax rate for the
years ended December 31 principally due to the following:
------------------------------
1998 1997 1996
====--------------------------
U.S. Federal statutory tax rate 35.0% 35.0% 35.0%
Add (deduct):
Utilization of capital loss
carry-forward -- (2.7) (.8)
Dividends received deduction
and tax exempt income (1.4) (1.2) (2.3)
State and local taxes 4.7 3.3 1.7
Valuation allowance (.2) (.7)
All other .6 (.8) .3
------------------------------
Effective tax rate 38.9% 33.4% 33.2%
==============================
- --------------------------------------------------------------------------------
Curtiss-Wright Corporation and Subsidiaries 30
- --------------------------------------------------------------------------------
The components of the Corporation's deferred tax assets and liabilities at
December 31 are as follows; however, 1997 figures have been reclassified for
reporting purposes.
------------------------
(In thousands) 1998 1997
=======-----------------
Deferred tax assets:
Environmental cleanup $ 6,428 $ 6,838
Postretirement/employment benefits 4,065 4,177
Inventories 3,805 3,674
Supplemental retirement plans 1,000 869
Vacation pay 932 816
Legal matters 754 1,356
Other 4,002 3,314
------------------------
Total deferred tax assets 20,986 21,044
------------------------
Deferred tax liabilities:
Pension 17,901 15,798
Depreciation 3,773 4,225
Gain on sale of properties 750 753
Other 435 261
------------------------
Total deferred tax liabilities 22,859 21,037
------------------------
Deferred tax asset valuation allowance -- --
------------------------
Net deferred tax assets (liabilities) $(1,873) $ 7
========================
Deferred tax assets and liabilities are reflected on the Corporation's
consolidated balance sheets at December 31 as follows:
-----------------------
(In thousands) 1998 1997
=======----------------
Current deferred tax assets $ 7,841 $ 8,806
Non-current deferred tax liabilities (9,714) (8,799)
-----------------------
Net deferred tax assets (liabilities) $(1,873) $ 7
=======================
Income tax payments of $16,321,000 were made in 1998, $12,432,000 in 1997, and
$8,553,000 in 1996.
8. Long-Term Debt
Long-term debt at December 31 consists of the following:
---------------------
(In thousands) 1998 1997
=======--------------
Short-term credit agreement borrowing,
due 1999. Interest rate is 2.31% for 1998 $20,523 --
Industrial Revenue Bonds, due from 2001
to 2023. Weighted average interest
rate is 2.52% and 3.70% per annum
for 1998 and 1997, respectively $18,747 $10,347
---------------------
Revolving credit agreement borrowing,
due 2001. Interest rate is 2.31% for 1998 1,415 --
---------------------
Total debt 40,685 10,347
=====================
Less: Portion due within one year 20,523 --
=====================
Total long-term debt $20,162 $10,347
=====================
Debts under the Corporation's short-term credit agreement and revolving credit
agreement are denominated in Swiss francs. Actual borrowings at December 31,
1998 total 31,000,000 Swiss francs.
Aggregate maturities of debt are as follows:
(In thousands)
=======
1999 $20,523
2000 --
2001 2,715
2002 4,047
2003 --
2004 and beyond 13,400
=======
Interest payments of approximately $470,394, $347,000 and $383,000 were made in
1998, 1997 and 1996, respectively.
- --------------------------------------------------------------------------------
31 Curtiss-Wright Corporation and Subsidiaries
- --------------------------------------------------------------------------------
9. Credit Agreements
The Corporation has two credit agreements in effect aggregating $45,000,000 with
a group of three banks. The credit agreements allow for borrowings to take place
in certain foreign currencies. 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, 1998 was $1,060,000.
The commitments made under the Revolving Credit Agreement expire October 29,
2001, 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, of which
$1,977,000 was available at December 31, 1998. The Short-Term Credit Agreement
expires October 22, 1999. The Short-Term Credit Agreement may be extended, with
the consent of the bank group, for an additional period not to exceed 364 days.
Cash borrowings under the two credit agreements at December 31, 1998 were at a
U.S. Dollar equivalent of $21,938,000. The loans have an interest rate of
2.3125% which will be effective until February 1, 1999. No cash borrowings were
outstanding at December 31, 1997. 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 $36,498,000 were available
for cash dividends and stock repurchases at December 31, 1998.
At December 31, 1998, 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
$17,793,000. The Corporation has various other letters of credit outside the
Revolving Credit Agreement totaling approximately $1,010,000.
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 1998, 1997 and 1996 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 1998, 1997 and 1996, respectively: a risk-free interest
rate of 4.80%, 5.88% and 6.6%; an expected volatility of 18.80%, 18.18% and
24.38%; an expected dividend yield of 1.38%, 1.37% and 2.0%; and a weighted
average expected life of the option of 7 years for 1998 and 1997 and 10 years
for 1996. For purposes of pro forma disclosures, no expense was recognized on
the 1998 options due to the timing of the grant. The estimated fair value of the
1997 and 1996 option grants are presented as amortized to expense over the
options' vesting period beginning January 1, 1996. The Corporation's pro forma
information for the years ended December 31, 1998, 1997 and 1996 are as follows:
----------------------------------
(In thousands, except per share data) 1998 1997 1996
========--------------------------
Net earnings:
As reported $ 29,053 $ 27,885 $ 16,109
Pro forma $ 28,509 $ 27,570 $ 15,954
Net earnings per common share:
As reported:
Basic $ 2.85 $ 2.74 $ 1.59
Diluted $ 2.82 $ 2.71 $ 1.58
Pro forma:
Basic $ 2.80 $ 2.71 $ 1.57
Diluted $ 2.77 $ 2.68 $ 1.56
==================================
Long-Term Incentive Plan: Under a Long-Term Incentive Plan approved by
stockholders in 1995, an aggregate total of 1,000,000 shares of common stock
were reserved for issuance under said Plan. 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 50,000
shares of common stock subject to the plan may be awarded in any year to any one
participant in the plan.
Under this plan, the Corporation awarded 1,184,604 performance units in
1998, 997,841 in 1997 and 734,654 in 1996 to certain key employees. The
performance units are denominated in dollars and are contingent upon the
satisfaction of performance objectives keyed to profitable growth over a period
of three fiscal years commencing with the fiscal year following such awards. The
anticipated cost of such awards is expensed over the three-year performance
period. 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 in 1998, 1997 and 1996 to key employees. 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 three years from the date of grant.
Stock option activity during the periods is indicated as follows:
- --------------------------------------------------------------------------------
Curtiss-Wright Corporation and Subsidiaries 32
- --------------------------------------------------------------------------------
------------------------------------
Weighted
Average
Exercise Options
Shares Price Exercisable
====================================
Outstanding at January 1, 1996 248,384 $18.98 88,618
Granted 69,298 25.19
Exercised (4,054) 17.19
Forfeited (4,908) 20.07
------------------------------------
Outstanding at December 31, 1996 308,720 20.38 165,360
Granted 89,286 38.00
Exercised (19,302) 17.08
Forfeited (8,878) 22.33
------------------------------------
Outstanding at December 31, 1997 369,826 24.76 216,398
Granted 118,886 37.66
Exercised (31,554) 19.13
Forfeited (20,657) 30.59
------------------------------------
Outstanding at December 31, 1998 436,501 28.63 242,071
====================================
Stock Plan for Non-Employee Directors: The Stock Plan for Non-Employee
Directors, approved by stockholders in 1996, authorized the grant of restricted
stock awards and, at the option of the directors, the payment of regular
stipulated compensation and meeting fees in equivalent shares. In June 1996,
pursuant to the plan 3,612 shares of restricted stock were issued to
non-employee directors, at no cost to them. The shares have been valued at a
price of $25.78 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, 1997, the Corporation had deferred an
additional 4,468 shares, at an average market value of $27.45, for its
non-employee directors pursuant to election by directors to receive such shares
in lieu of payment for earned compensation under the plan. Depending on the
extent to which the non-employee directors elect to receive future compensation
in shares, total awards under this plan could reach or exceed 16,000 shares by
April 12, 2006, the termination date of the plan.
11. Environmental Costs
In 1998, the Corporation successfully resolved some environmental issues and
significant progress was achieved in other issues. Included in environmental
expenses in 1998 are costs for the Corporation's lawsuit against a number of its
insurance carriers with respect to the Corporation's environmental liabilities.
The non-current environmental obligation on the books at December 31, 1998 was
$10,469,000 compared to $9,346,000 in December 1997.
In 1998, the Corporation's Wood-Ridge, New Jersey site began operations to
remediate soil and groundwater at the site. Costs to complete construction and
begin the operation and maintenance of the system totaled $854,000 in 1998. The
cost of constructing and operating this site was provided in 1990 as part of a
$21,000,000 reserve established to remediate the property.
The Corporation has been named as a potentially responsible party, as have
many other corporations and municipalities, in a number of environmental
clean-up sites. Significant sites include Sharkey landfill superfund site,
Parsippany, New Jersey; the Chemsol, Inc. superfund site, Piscataway, New
Jersey; Pfohl Brothers landfill site, Cheektowaga, New York and PJP landfill,
Jersey City, New Jersey. The Malta test station and Buffalo Airport sites were
resolved in 1998.
The Corporation believes the outcome for any of the remaining sites will
not have a materially adverse effect on the Corporation's results of operations
or financial condition. The lawsuit by the Corporation against its insurance
carriers is being contested, and no financial future recovery from this lawsuit
has been recorded to reduce the Corporation's environmental costs.
12. Pension and Other Postretirement Benefit Plans
The Corporation maintains a non-contributory defined benefit pension plan
covering substantially all employees. The Curtiss-Wright 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. Employees are eligible to participate in this plan after one year
of service and are vested after five years of service. At December 31, 1998 and
December 31, 1997, the Corporation had prepaid pension costs of $43,822,000 and
$38,674,000, respectively, under this plan. The Corporation also maintains a
non-qualified Restoration Plan covering those employees whose compensation or
benefits exceeds the IRS limitation for pension benefits. Benefits under this
plan are not funded and as such, the Corporation had an accrued pension
liability of $2,142,000 and $2,195,000 at December 31, 1998 and 1997,
respectively. Disclosures made below are aggregated in accordance with Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits."
- --------------------------------------------------------------------------------
33 Curtiss-Wright Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Pension Benefits Other Benefits
-----------------------------------------------------
1998 1997 1998 1997
========-----------------------=======---------------
Change in Benefit Obligation:
Benefit obligation at beginning of year $113,718 $112,722 $ 4,125 $ 6,516
Service cost 3,770 3,738 177 146
Interest cost 7,399 7,680 335 295
Plan participants' contributions
Amendments (1,742)
Actuarial gain (1,805) 3,521 999 (576)
Benefits paid (13,595) (13,943) (449) (514)
-----------------------------------------------------
Benefit obligation at end of year 109,487 113,718 5,187 4,125
=====================================================
Change in Plan Assets:
Fair value of plan assets at beginning of year 230,743 192,599
Actual return on plan assets (343) 52,011
Employer contribution 77 76 449 514
Plan participants' contribution
Benefits paid (13,595) (13,943) (449) (514)
-----------------------------------------------------
Fair value of plan assets at end of year 216,882 230,743
=====================================================
Funded status 107,395 117,025 (5,187) (4,125)
Unrecognized net actuarial loss (gain) (59,314) (72,951) (2,560) (3,703)
Unrecognized transition obligation (6,582) (7,739)
Unrecognized prior service costs 181 144 (1,828) (2,022)
-----------------------------------------------------
Prepaid (accrued) benefit cost $41,680 $36,479 $(9,575) $(9,850)
=====================================================
Weighted-average assumptions as of December 31:
Discount rate 6.75% 7.00% 6.75% 7.00%
Expected return on plan assets 8.50% 8.50%
Rate of compensation increase 4.50% 4.50%
=====================================================
For measurement purposes, an 8.18% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998. The rate was assumed
to decrease gradually to 5.5% for 2007 and remain at that level thereafter.
- --------------------------------------------------------------------------------
Curtiss-Wright Corporation and Subsidiaries 34
- --------------------------------------------------------------------------------
Pension Benefits Other Benefits
------------------------------------------------
1998 1997 1998 1997
=======-----------------------====--------------
Components of Net Periodic Benefit Cost (Revenue):
Service cost $ 3,770 $ 3,738 $177 $146
Interest cost 7,399 7,679 335 296
Expected return on plan assets (14,562) (13,681)
Amortization of prior service cost (37) 3 (193) (167)
Amortization of transition obligation (1,157) (1,157)
Recognized net actuarial loss (539) 106 (145) (213)
------------------------------------------------
Net periodic benefit cost (revenue) $(5,126) $ (3,312) $174 $ 62
================================================
1% 1%
Increase Decrease
================================================
Effect on total of services and interest cost components $ 68 $ (57)
Effect on postretirement benefit obligation $556 $(476)
================================================
The Corporation had foreign pension costs in 1998, 1997 and 1996 under
retirement plans of $367,000, $312,000 and $249,000, respectively. At December
31, 1998, approximately 33% of the plan's assets are invested in debt
securities, including a portion in U.S. Government issues. Approximately 67% of
plan assets are invested in equity securities.
13. 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, 1998, were $50,816,000 and $44,559,000,
respectively, and at December 31, 1997, were $50,572,000 and $43,692,000,
respectively.
At December 31, 1998, 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:
Rental Rental
(In thousands) Income Commitment
================================================================================
1999 $ 4,781 $2,729
2000 4,459 1,914
2001 4,218 1,470
2002 2,558 1,287
2003 1,379 1,154
2004 and beyond 11,571 1,866
================================================================================
Facilities Leased from Others. The Corporation conducts a portion of its
operations from leased facilities, which include manufacturing and service
facilities, administrative offices and warehouses. In addition, the Corporation
leases automobiles, machinery and office equipment under operating leases.
Rental expenses for all operating leases amounted to approximately $2,586,000 in
1998, $2,239,000 in 1997 and $2,283,000 in 1996.
14. Industry Segments
The Corporation has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 establishes new standards for reporting information about
operating segments
- --------------------------------------------------------------------------------
35 Curtiss-Wright Corporation and Subsidiaries
- --------------------------------------------------------------------------------
and related disclosures about products and services and geographic areas.
Operating segments are defined as components of an enterprise about which
separate financial information is available, such that it is evaluated regularly
by the chief operating decision maker in assessing performance and allocating
resources. The Corporation's chief operating decision maker is its Chairman and
President. The operating segments are managed separately because each offers
different products and serves different markets. The principle products and
major markets of the three operating segments are described in the At a Glance
section of this Annual Report.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. Interest income is
not reported on an operating segment basis because short-term investments and
returns on those investments are aggregated and evaluated separately from
business operations.
The Corporation had one customer in the Actuation and Control Products &
Services ("ACPS") segment which accounted for 16% of consolidated revenue in
1998 and 15% in 1997, but no customers which provided more than 10% of total
sales in 1996.
CONSOLIDATED INDUSTRY SEGMENT INFORMATION
-------------------------------------------------------------------------------------
Actuation
Precision Mfg. and Control Flow Control
Products & Products & Products & Segment Corporate Consolidated
Services Services Services Total & Other Total
=====================================================================================
Year Ended December 31, 1998:
Revenue from external customers $105,999 $105,400 $38,014 $249,413 $249,413
Intersegment revenues 554 554 554
Interest expense 78 148 253 479 $ 6 485
Depreciation and amortization expense 3,792 3,608 1,246 8,646 1,015 9,661
Income tax expense (benefit) 11,671 (240) 1,997 13,428 5,099 18,527
Segment net income (loss) 18,213 (1,033) 3,010 20,190 8,863 29,053
Segment assets 68,198 119,351 40,080 227,629 125,111 352,740
Expenditures for long-lived assets 6,053 2,111 2,180 10,344 298 10,642
=====================================================================================
Year Ended December 31, 1997:
Revenue from external customers 95,362 97,369 26,664 219,395 219,395
Intersegment revenues 691 691 691
Interest expense 78 138 171 387 387
Depreciation and amortization expense 3,656 3,455 1,005 8,116 981 9,097
Income tax expense 9,328 805 1,409 11,542 2,472 14,014
Segment net income 14,932 2,116 2,161 19,209 8,676 27,885
Segment assets 56,254 94,473 15,986 166,713 117,995 284,708
Expenditures for long-lived assets 4,838 4,675 1,244 10,757 474 11,231
=====================================================================================
Year Ended December 31, 1996:
Revenue from external customers 82,615 64,623 23,298 170,536 170,536
Intersegment revenues 477 477 477
Interest expense 78 134 167 379 8 387
Depreciation and amortization expense 3,533 2,956 1,037 7,526 1,420 8,946
Income tax expense (benefit) 5,586 (565) 1,254 6,275 1,745 8,020
Segment net income (loss) 8,958 (982) 2,234 10,210 5,899 16,109
Segment assets 54,340 86,575 17,977 158,892 108,272 267,164
Expenditures for long-lived assets 3,573 7,571 382 11,526 2,630 14,156
=====================================================================================
- --------------------------------------------------------------------------------
Curtiss-Wright Corporation and Subsidiaries 36
- --------------------------------------------------------------------------------
Reconciliations: December 31,
-----------------------------------
1998 1997 1996
========---------------------------
Revenues:
Total segment revenue $249,413 $219,395 $170,536
Intersegment revenue 554 691 477
Elimination of intersegment revenue (554) (691) (477)
-----------------------------------
Total consolidated revenues $249,413 $219,395 $170,536
===================================
Net Income:
Total segment net income $20,190 $ 19,209 $ 10,210
Rental income, net 1,873 2,634 1,393
Investment income 2,581 3,181 2,712
Pension income 3,131 2,164 2,333
Corporate and other 1,278 697 (539)
-----------------------------------
Total consolidated profit or loss $ 29,053 $ 27,885 $ 16,109
-----------------------------------
Assets:
Total assets for reportable segments $227,629 $166,713 $158,892
Short-term investments 66,444 61,883 55,674
Pension assets 43,822 38,674 35,016
Other assets 14,914 17,528 17,682
Elimination of intersegment receivables (69) (90) (100)
-----------------------------------
Total consolidated assets $352,740 $284,708 $267,164
===================================
December 31, 1998 December 31, 1997 December 31, 1996
-------------------------------------------------------------------------------
Long-Lived Long-Lived Long-Lived
Revenues(1) Assets Revenues(1) Assets Revenues(1) Assets
=======================--------------------------------------------------------
Geographic Information:
United States $165,567 $217,668 $155,279 $201,718 $124,198 $192,405
United Kingdom 32,320 11,454 22,842 7,405 17,631 7,654
Other foreign countries 51,526 8,093 41,274 10,464 28,707 10,171
-------------------------------------------------------------------------------
Consolidated total $249,413 $237,215 $219,395 $219,587 $170,536 $210,230
===============================================================================
(1) Revenues are attributed to countries based on the location of the customer.
- --------------------------------------------------------------------------------
37 Curtiss-Wright Corporation and Subsidiaries
- --------------------------------------------------------------------------------
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
--------------------------------------------
(In thousands except per share amounts) First Second Third Fourth
============================================
1998 Quarters:
Sales $ 60,846 $ 59,405 $ 62,603 $ 66,559
Gross profit 18,122 21,749 20,851 21,292
Net earnings 6,605 7,701 6,758 7,989
Earnings per share:
Basic earnings per common share $ .65 $ .76 $ .66 $ .78
Dividends per common share $ .13 $ .13 $ .13 $ .13
--------------------------------------------
1997 Quarters:
Sales $ 53,148 $ 54,412 $ 52,677 $ 59,158
Gross profit 16,644 19,125 19,002 20,918
Net earnings 4,955 7,050 8,076 7,804
Earnings per share:
Basic earnings per common share $ .49 $ .69 $ .79 $ .77
Dividends per common share $ .125 $ .125 $ .125 $ .13
============================================
CONSOLIDATED SELECTED FINANCIAL DATA (Unaudited)
---------------------------------------------------------
(In thousands except per share data) 1998 1997 1996 1995 1994
========-------------------------------------------------
Sales $249,413 $219,395 $170,536 $154,446 $155,001
Earnings before changes in accounting
principles 29,053 27,885 16,109 18,169 19,547
Net earnings 29,053 27,885 16,109 18,169 19,303
Total assets 354,449 284,708 267,164 246,201 238,694
Long-term debt 20,162 10,347 10,347 10,347 9,047
Basic earnings per common share:
Earnings before changes in accounting
principles $ 2.85 $ 2.74 $ 1.59 $ 1.79 $ 1.93
Net earnings $ 2.85 $ 2.74 $ 1.59 $ 1.79 $ 1.91
Cash dividends $ .52 $ .505 $ .50 $ .50 $ .50
=========================================================
See notes to consolidated financial statements for additional financial
information.
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
Gerald Nachman
Executive Vice President
Martin R. Benante
Vice President
George J. Yohrling
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 Corporation and Subsidiaries | 38
- ---------------------
CORPORATE INFORMATION
- ---------------------
Corporate Headquarters
1200 Wall Street West
Lyndhurst, New Jersey 07071
Tel. (201) 896-8400
Fax (201) 438-5680
Annual Meeting
The 1999 Annual Meeting of Stockholders will be held on April 23, 1999 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, 1998, the approximate number of holders of record of common
stock, par value $1.00 per share, of the Corporation was 3,926.
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:
Stockholder Inquiries/Address Changes/Consolidations
P.O. Box 3315, South Hackensack, NJ 07606
Duplicate Mailings
If you receive duplicate mailings because of slight differences in the
registration of your accounts and wish to eliminate the duplication,
please call ChaseMellon's toll free number, (800) 416-3743, or write to
ChaseMellon Shareholder Services, L.L.C., 85 Challenger Road, Ridgefield
Park, NJ 07660 for instructions on combining your accounts.
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 3317,
South Hackensack, NJ 07606
Certificate Transfers
Stock Transfer Department, P. O. Box 3312,
South Hackensack, NJ 07606
Please include your name, address, and telephone number with all correspondence.
Telephone inquiries may be made to (800) 416-3743. Foreign (201) 329-8660.
Hearing impaired (800) 231-5469. Internet inquiries should be addressed to
http://www.chasemellon.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.
Internet Address
Use http://www.curtisswright.com to reach the Curtiss-Wright home page for
information about Curtiss-Wright on the World Wide Web.
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 obtained by written request to Gary J. Benschip, Treasurer, at
Corporate Headquarters.
Common Stock Price Range
--------------------------------------------------
1998 1997
==================================================
High Low High Low
--------------------------------------------------
First Quarter $39.1875 $33.8125 $28.1875 $24.7500
Second Quarter 41.8750 38.1250 31.1250 26.7500
Third Quarter 48.3750 39.1875 39.8750 29.0938
Fourth Quarter 39.5000 33.0625 39.2500 36.1250
--------------------------------------------------
Dividends
--------------------------------------------------
1998 1997
==================================================
First Quarter $ 0.130 $ 0.125
Second Quarter $ 0.130 $ 0.125
Third Quarter $ 0.130 $ 0.125
Fourth Quarter $ 0.130 $ 0.130
--------------------------------------------------
Design: Waters Design Associates, Inc. New York City
[LOGO]
CURTISS-WRIGHT CORPORATION
1200 Wall Street West
Lyndhurst, New Jersey 07071
CW
Listed
NYSE
THE NEW YORK STOCK EXCHANGE