SECURITIES and EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
Commission File Number 1-134
CURTISS-WRIGHT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-0612970
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Wall Street West
Lyndhurst, New Jersey 07071
--------------------- -----
(Address of principal executive offices) (Zip Code)
(201) 896-8400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $1.00 per share:10,083,237 shares (as of October 29,
1999)
Page 1 of 21
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
TABLE of CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Stockholders' Equity 6
Notes to Consolidated Financial Statements 7 - 11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 17
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 18
Forward-Looking Statements 18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 6 - Exhibits and Reports on Form 8-K 19
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
September 30, December 31,
1999 1998
Assets
Cash and cash equivalents $ 9,904 $5,809
Short-term investments 24,744 66,444
Receivables, net 64,629 60,912
Deferred tax assets 8,410 7,841
Inventories 65,773 54,048
Other current assets 2,657 3,519
--------- ---------
Total current assets 176,117 198,573
--------- ---------
Property, plant and equipment, at cost 270,289 237,215
Accumulated depreciation 166,752 162,704
--------- ---------
Property, plant and equipment, net 103,537 74,511
Prepaid pension costs 47,922 43,822
Goodwill 50,547 30,724
Other assets 5,092 5,110
--------- ---------
Total assets $383,215 $352,740
========= =========
Liabilities
Current portion of long-term debt $ 19,276 $ 20,523
Account payable and accrued expenses 33,182 30,687
Dividends payable 1,318 0
Income taxes payable 7,415 5,052
Other current liabilities 10,319 11,548
--------- ---------
Total current liabilities 71,510 67,810
Long-term debt 20,076 20,162
Deferred income taxes 10,736 9,714
Other liabilities 27,890 25,461
--------- ---------
Total liabilities 130,212 123,147
--------- ---------
Stockholders' equity
Common stock, $1 par value 15,000 15,000
Capital surplus 51,583 51,669
Retained earnings 368,513 342,218
Unearned portion of restricted stock (28) (40)
Accumulated other comprehensive income (1,822) (2,800)
--------- ---------
433,246 406,047
Less: cost of treasury stock 180,243 176,454
--------- ---------
Total stockholders' equity 253,003 229,593
--------- ---------
Total liabilities and stockholders' equity $383,215 $352,740
========= =========
See notes to consolidated financial statements.
3
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of EARNINGS
(UNAUDITED)
(In thousands except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
1999 1998 (1) 1999 1998 (1)
Net sales $209,554 $182,854 $69,009 $62,603
Cost of sales 135,917 122,132 45,128 41,752
-------- -------- ------- --------
Gross margin 73,637 60,722 23,881 20,851
Research & development costs 2,246 934 506 343
Selling expenses 11,740 7,859 3,988 3,003
General and administrative
expenses 30,038 23,901 10,968 8,282
Environmental remediation
and administrative expenses, net
of recovery (11,777) 1,324 (12,331) 446
--------- -------- --------- -------
Operating income 41,390 26,704 20,750 8,777
Investment income, net 1,954 2,311 496 730
Rental income, net 2,856 2,753 554 896
Pension income 3,837 2,968 1,274 1,279
Other income (expense), net (59) (31) 278 (110)
Interest expense 996 292 366 107
--------- --------- -------- -------
Earnings before taxes 48,982 34,413 22,986 11,465
Provision for taxes 18,736 13,349 9,001 4,707
--------- --------- -------- -------
Net earnings $30,246 $21,064 $13,985 $6,758
========= ========= ======== =======
Weight average number
of shares outstanding 10,135 10,193 10,135 10,193
====== ====== ====== ======
Basic earnings per
common share $2.98 $2.07 $1.38 $0.66
====== ====== ====== ======
Diluted earnings per
common share $2.95 $2.04 $1.38 $0.66
====== ====== ====== ======
Dividends per common share $0.39 $0.39 $0.13 $0.13
====== ====== ====== ======
(1)Prior year information has been restated to conform to current presentation.
See notes to consolidated financial statements
4
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
(UNAUDITED)
(In thousands)
Nine months ended
September 30,
1999 1998
---- ----
Cash flows from operating activities:
Net earnings $ 30,246 $ 21,064
--------- ---------
Adjustments to reconcile net earnings to net
cash provide by operating activities
(net of business acquired):
Depreciation and amortization 9,140 7,724
Net losses (gains) on short-term investments 206 (223)
Increase in deferred taxes 453 2,684
Changes in operating assets and liabilities:
Proceeds from sales of trading securities 360,855 274,113
Purchases of trading securities (319,361) (265,069)
Decrease (increase) in receivables 15,248 (3,462)
(Increase) decrease in inventory (2,238) 629
Decrease in progress payments (13,350) (2,078)
(Decrease) increase in accounts payable (1,327) 422
Increase (decrease) in income taxes payable 2,363 (1,368)
Increase in other assets (4,273) (3,145)
Decrease in other liabilities (20) (2,352)
Other, net (226) 265
--------- ---------
Total adjustment 47,470 8,140
--------- ---------
Net cash provided by operating activities 77,716 29,204
--------- ---------
Cash flows from investing activities:
Proceeds from sales of real estate and equipment 29 40
Additions to property, plant and equipment (17,167) (6,981)
Acquisitions of new businesses (49,858) (19,313)
--------- ---------
Net cash used by investing activities (66,996) (26,254)
--------- ---------
Cash flows from financing activities:
Dividends paid (2,633) (2,651)
Common stock repurchase (3,992) 0
--------- ---------
Net cash used by financing activities (6,625) (2,651)
--------- ---------
Net increase in cash and cash equivalents 4,095 299
Cash and cash equivalents at beginning of period 5,809 6,872
--------- ---------
Cash and cash equivalents at end of period $ 9,904 $ 7,171
========= =========
See notes to consolidated financial statements
5
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Accumulated
Unearned Portion Other
Common Capital Retained of Restricted Comprehensive Treasury
Stock Surplus Earnings Stock Awards Income Stock
December 31, 1997 $15,000 $52,010 $318,474 $(342) $(3,289) $177,000
Net earnings 29,053
Common dividends (5,309)
Common stock repurchased 612
Stock options exercised, net (449)
Amortization of earned potion
of restricted stock 108 302 (1,158)
Translation adjustments, net 489
------- -------- --------- ------ -------- ---------
December 31, 1998 15,000 51,669 342,218 (40) (2,800) 176,454
Net earnings 30,246
Common dividends (3,951)
Common stock repurchased 3,992
Stock options exercised, net (86) (203)
Amortization of earned portion
of restricted stock 12
Translation adjustment, net 978
------- -------- --------- ------ ------- ---------
September 30, 1999 $15,000 $51,583 $368,513 $ (28) $(1,822) $180,243
======= ======== ========= ====== ======== =========
See notes to consolidated financial statements.
6
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS of PRESENTATION
Curtiss-Wright Corporation (the "Corporation") is a diversified multi-national
manufacturing and service concern that designs, manufactures and overhauls
precision components and systems and provides highly engineered services to the
aerospace, defense, automotive, shipbuilding, oil, petrochemical, agricultural
equipment, power generation, and metal working industries. The Corporation's
principal operations include, eight manufacturing facilities (seven in Northern
America and one in Switzerland), thirty-seven metal treatment service facilities
located in North America and Europe, and four component overhaul facilities.
The information furnished in this report has been prepared in conformity with
generally accepted accounting principles and as such reflects all adjustments,
consisting primarily of normal recurring accruals, which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. The unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
included in the Corporation's 1998 Annual Report on Form 10-K. The results of
operations for these interim periods are not necessarily indicative of the
operating results for a full year. Certain reclassifications of prior year
amounts have been made in order to conform to the current presentation.
2. ACQUISITIONS
On August 27, 1999, the Corporation completed its acquisition of the Farris and
Sprague business units of Teledyne Fluid Systems, an Allegheny Teledyne
Incorporated company. The acquired businesses generated combined sales of $42.8
million in 1998.
Farris is one of the world's leading manufacturers of pressure-relief valves for
use in processing industries, which include refineries, petrochemical/chemical
plants and pharmaceutical manufacturing. Products are manufactured in
Brecksville, Ohio and Brantford, Ontario. A service and distribution center is
located in Edmonton, Alberta. The Sprague business, also located in Brecksville,
Ohio, provides specialty hydraulic and pneumatic valves and air-driven pumps and
gas boosters under the "Sprague" and "PowerStar" trade names for general
industrial applications as well as directional control values for truck
transmissions and car transport carriers.
The Corporation acquired the net assets of the Farris and Sprague businesses for
approximately $44.0 million in cash, subject to adjustment as provided for in
the agreement. This acquisition has been accounted for as a purchase in the
third quarter of 1999. The excess of purchase price over the fair value of the
net assets acquired is approximately $16.8 million and is expected to be
amortized over 30 years. The fair value of the net assets acquired is based on
preliminary estimates and may be revised at a later date.
7
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
On June 30, 1999, the Corporation acquired Metallurgical Processing, Inc. (MPI),
a midwest supplier of commercial heat-treating services, primarily to the
automotive and industrial markets. MPI provides a number of metal-treating
processes including carburizing, hardening, and carbonitriding and services a
broad spectrum of customers from its Fort Wayne, Indiana location.
The Corporation acquired the stock of MPI for approximately $7.4 million in cash
(of which $1.0 million has been deferred for two years) and accounted for the
acquisition as a purchase in the second quarter of 1999. The excess of purchase
price over the fair value of the net assets acquired is approximately $.9
million and is expected to be 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.
The unaudited pro forma consolidated results of operations shown below have been
prepared as if the acquisitions had occurred at the beginning of 1999:
In thousands, except per share data
Nine Months Ended
September 30, 1999
Net sales $242,184
Net earnings $ 32,614
Net earnings per diluted common share $ 3.18
3. RECEIVABLES
Receivables, at September 30, 1999 and December 31, 1998, include amounts billed
to customers and unbilled charges on long-term contracts consisting of amounts
recognized as sales but not billed at the dates presented. Substantially all
amounts of unbilled receivables are expected to be billed and collected within a
year. The composition of receivables for those periods is as follows:
(In thousands)
September 30, December 31,
1999 1998
---- ----
Accounts receivable, billed $57,315 $63,412
Less: progress payments applied 814 11,687
-------- -----------
56,501 51,725
-------- -----------
Unbilled charges on long-term contracts 17,883 17,447
Less: progress payments applied 7,520 6,350
-------- -----------
10,363 11,097
-------- -----------
Allowance for doubtful accounts (2,235) (1,910)
-------- -----------
Receivables, net $64,629 $60,912
======== ===========
8
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
4. INVENTORIES
Inventories are valued at the lower of cost (principally average cost) or
market. The composition of inventories at September 30, 1999 and December 31,
1998 is as follows:
(In thousands)
September 30, December 31,
1999 1998
---- ----
Raw materials $18,613 $ 8,862
Work-in-progress 20,085 27,582
Finished goods 28,954 23,130
------- -------
Total inventories 67,652 59,574
Less: progress payments applied 1,879 5,526
------- -------
Net inventories $65,773 $54,048
======= =======
5. ENVIRONMENTAL MATTERS
The Corporation establishes a reserve for a potential environmental
responsibility when it concludes that a determination of legal liability is
probable, based upon the advice of counsel. Such amounts, if quantified, reflect
the Corporation's estimate of the amount of that liability. If only a range of
potential liability can be estimated, a reserve will be established at the low
end of that range. Such reserves represent today's values of anticipated
remediation not reduced by any potential recovery from insurance carriers or
through contested third-party legal actions, and are not discounted for the time
value of money.
The Corporation is joined with many other corporations and municipalities as
potentially responsible parties (PRPs) in a number of environmental cleanup
sites, which include the Sharkey Landfill Superfund Site, Parsippany, New
Jersey, Caldwell Trucking Company Superfund Site, Fairfield, New Jersey, Pfohl
Brothers Landfill Site, Cheektowaga, New York, and PJP Landfill, Jersey City,
New Jersey identified to date as the most significant sites.
The Corporation believes that the outcome of any of these matters would not have
a material adverse effect on the Corporation's results of operations or
financial condition.
During the third quarter of 1999 the Corporation settled litigation against an
insurance carrier to recover environmental remediation costs. The settlement,
net of associated litigation expenses and amounts reserved for additional
related environmental costs, provided additional operating earnings for the
period of $12,373,000. Additional details on this settlement are provided in the
Management's Discussion and Analysis section of this Form 10-Q under the heading
"Insurance Recovery".
9
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
6. SEGMENT INFORMATION
The Corporation conducts its business operations through three operating
segments, Precision Manufacturing Products & Services (PMPS), Actuation and
Control Products & Services (ACPS), and Flow Control Products & Services (FCPS).
(In thousands) Three months ended Three months ended
September 30, 1999 September 30, 1998
------------------------------------ --------------------------------------
PMPS ACPS(1) FCPS PMPS ACPS FCPS
Revenue from external
customers $26,048 $28,074 $14,887 $26,945 $25,663 $10,025
Intersegment revenues 77 0 0 114 0 0
Interest expense 29 133 94 23 34 55
Depreciation and
amortization 1,168 1,372 639 988 1,349 325
Income tax expense 2,072 34 438 2,825 278 355
Segment net income(1) 3,314 1,289 687 4,463 219 573
Segment assets 82,196 116,137 86,919 65,457 90,370 37,062
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
------------------------------------ -------------------------------------
PMPS ACPS(1) FCPS PMPS ACPS FCPS
Revenue from external
customers $78,066 $88,912 $42,576 $80,076 $79,952 $22,826
Intersegment revenues 249 0 0 420 0 0
Interest expense 68 339 266 52 102 138
Depreciation and
amortization 3,180 3,782 1,472 2,848 3,064 845
Income tax expense 6,781 1,250 1,634 8,951 278 1,216
Segment net income(1) 10,847 3,341 2,565 14,285 38 1,921
<FN>
(1) The ACPS segment includes consolidation costs, net of tax benefits, for the
relocation of operations in the amounts of $.7 million and $1.9 million for the
third quarter and first nine months of 1999, respectively.
</FN>
Reconciliation
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
-------- ------- ------ -------
Total segment net income $ 5,290 $5,255 $16,753 $16,244
Insurance settlement, net 7,319 0 7,319 0
Rental income, net 518 440 1,700 1,278
Investment income, net 390 432 1,609 1,757
Pension income 754 720 2,270 1,756
Corporate and other (286) (89) 595 29
-------- ------- ------- -------
Consolidated net income $13,985 $6,758 $30,246 $21,064
======== ======= ======= =======
10
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
7. 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 third quarter
and first nine-month periods ended September 30, 1999 and 1998 are as follows:
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Net earnings $13,985 $6,758 $30,246 $21,064
Equity adjustment from Foreign
currency translations 1,263 (401) 978 (489)
------- ------- -------- --------
Total comprehensive income $15,248 $6,357 $31,224 $20,575
======= ======= ======== ========
8. EARNINGS PER SHARE
The Corporation accounts for its earnings per share (EPS) in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
No. 128). Diluted earnings per share were computed based on the weighted average
number of shares outstanding plus all potentially dilutive common shares
issuable for the periods. Dilutive common shares for the three and nine months
ended September 30, 1999 were 134,000 and 138,000, respectively and 49,000 and
110,000 for the three and nine months ended September 30, 1998.
9. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued Statement No. 137
deferring the effective date of Statement No. 133, "Accounting for Derivatives
and Hedging Activities" (SFAS No. 133). SFAS No. 133 is now effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1,
2001 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 are 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. Management 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.
11
PART I - ITEM 2
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
The following should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Corporation's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 and its Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 and June 30, 1999.
RESULTS of OPERATIONS
The Corporation reported net earnings for the third quarter of 1999 totaling
$14.0 million or $1.38 per diluted share, as compared with $6.8 million or $.66
per diluted share, for the third quarter of the prior year. The 1999 period
benefited from a settlement of litigation against an insurance carrier, for
recovery of environmental remediation costs. The settlement, net of associated
litigation expenses and amounts recognized for additional related environmental
costs, added $7.3 million or $.72 per diluted share to net earnings for the
third quarter of 1999. Also impacting third quarter 1999 earnings were costs
associated with the consolidation of operations within our Actuation and Control
business segment, which reduced net earnings by $.7 million or $.07 per diluted
share. Absent the settlement and consolidation costs, net earnings for the 1999
third quarter were $7.4 million or $.73 per diluted share, 9% above those of the
same period last year.
Sales increased 10% in the third quarter of 1999, to $69.0 million from $62.6
million, while operating income, absent the unusual items mentioned above,
totaled $9.5 million, an increase of 9% over the third quarter of 1998. Also
increasing on a quarter to quarter basis were new orders, which improved 71% to
$72.3 million and backlog which at September 30, 1999 was $184.6 million, an
increase of 30% above that on the same date last year.
For the first nine months of 1999, sales improved 15% to $209.6 million from
1998's nine-month sales of $182.9 million. Operating income increased to $41.4
million versus $26.7 million for the comparable 1998 period, while net earnings
rose to $30.2 million, or $2.95 per diluted share, as compared with nine-month
earnings of $21.1 million, or $2.04 per share, last year. Excluding the
aforementioned unusual items for the first nine months, net earnings would have
been $24.8 million, or $2.41 per diluted share, an 18% increase over the
comparable 1998 period. Increases in normalized operating income and net
earnings, sales, new orders and backlog for both the nine-month and third
quarter 1999 periods, largely reflect the recent acquisitions made by the
Corporation. Since April 1998, the Corporation has acquired six new companies;
Alpha Heat Treaters, Enertech, Drive Technology, Metallurgical Processing,
Farris Engineering and Sprague Products. The latter three are discussed further
in Note 2 to the Consolidated Financial Statements, and in the Acquisitions
section below.
Insurance Recovery
During the third quarter of 1999 the Corporation settled litigation against an
insurance carrier to recover environmental remediation costs. The settlement,
12
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
net of associated litigation expenses and amounts reserved for additional
related environmental costs, provided additional earnings for the period and
first nine months of the year, as previously detailed.
The settled litigation had been pending for a number of years and was nearing
trial. In late 1998, claims against another insurance carrier were also
resolved. Although the Corporation has recouped a significant portion of its
remedial costs by virtue of these two settlements, litigation continues against
the remaining insurers to recover additional remedial costs. Trial against the
remaining insurance companies is scheduled for early next year.
Operating Performance
The Corporation's Precision Manufacturing Products & Services (PMPS) segment
reported slightly lower sales in the third quarter and first nine months of 1999
than in the same periods of 1998. PMPS had record sales for metal-treatment
services in 1998, but so far in 1999, this segment has felt several of its
primary markets soften. Services for industrial, agricultural and certain
aerospace customers have declined in comparison with the prior year, primarily
in North American operations. Sales of heat treating services also declined
despite the acquisition of Metallurgical Processing in Ft. Wayne, Indiana in
June 1999. Declines in this product line are largely due to the continued
decline in oil tool markets.
Net earnings for the 1999 periods were significantly below those of 1998,
reflecting lower margins and increased operating expenses for the PMPS segment.
Operating expenses for 1999 included costs for new facilities in both North
America and Europe. Currently two of this segment's operations are relocating
and in the interim are running at dual locations, and are incurring higher
operating costs as a result.
The Flow Control Products & Services (FCPS) segment produced substantially
higher sales and improved earnings in the third quarter and first nine months of
1999. Sales improvements for both 1999 periods were driven largely by the
acquisitions of Enertech in July 1998 and the Farris and Sprague business units
in August 1999. Sales improvements for the nine-month period also reflect
additional U.S. Navy business.
The Corporation's Actuation and Control Products & Services (ACPS) segment had,
for both the third quarter and first nine months of 1999, higher sales and
earnings which largely reflect the acquisition of its Drive Technology business
on December 31, 1998. Sales of commercial aircraft actuation products also
improved in the same period reflecting a contract extension with Boeing signed
in the first quarter of 1999. Earnings also benefited from cost and performance
improvements for these programs. In the third quarter, this segment's aircraft
component overhaul and repair business reported level sales but improved margins
in comparison with the last year period. Sales of military aircraft actuation
products continued to decline.
13
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
Public information indicates that Boeing's scheduled delivery rate of commercial
aircraft will be down significantly in the year 2000. Estimates are for
deliveries of 480 aircraft, which would represent a decline in excess of 22%
from forecast levels for 1999. While Boeing is an important and valued customer,
the acquisitions and internal development activities of the Corporation over the
past several years in other business areas have reduced the potential impact of
the production cycles of the commercial aircraft market on our overall sales.
Additionally, in 1999 the Corporation was awarded a new Boeing contract for the
retrofit of Boeing 757 aircraft torque limiters which is expected to generate
product sales of approximately $8 million over the next three years. The
potential for generating additional revenue also exists to the extent the
Corporation provides the associated installation service through its
maintenance, repair and overhaul operations. Taking only these additional
retrofit production sales into consideration, it is estimated that the reduction
in sales to Boeing of original equipment will represent less than 2% of the
Corporation's total sales in 2000.
The ACPS segment continues to incur substantial one-time costs associated with
the consolidation of its manufacturing operations into its expanded Shelby,
N.C., facility and with the move of certain overhaul and repair services to a
new location in Gastonia, N.C. Expenses related to the consolidation activities,
including costs related to the previously announced shutdown of our Fairfield,
NJ, facility, totaled approximately $1.2 million during the third quarter and
$3.0 million for the first nine months of 1999. Additional expenses associated
with the consolidation activities are expected to be incurred through out the
remainder of 1999.
Acquisitions
As discussed in Note 2 to the Consolidated Financial Statements of this Form
10-Q Report, the Corporation acquired the Farris and Sprague business units of
Teledyne Fluid Systems, an Allegheny Teledyne Incorporated company, for $44.0
million in cash on August 27, 1999. Farris is one of the world's leading
manufacturers of pressure-relief valves for use in processing industries, which
include refineries, petrochemical/chemical plants and pharmaceutical
manufacturing. The Sprague business provides specialty hydraulic and pneumatic
valves and air-driven pumps and gas boosters for general industrial applications
as well as directional control valves for truck transmissions and car transport
carriers. The strengths of these businesses' products in industrial markets
complements FCPS's established position in the nuclear area to form a combined
business that can better serve its markets on a global basis with a broader
complementary product line, an improved distribution system and enhanced
engineering capabilities.
The Corporation also acquired Metallurgical Processing, Inc. (MPI) on June 30,
1999. The purchase of MPI supports the Corporation's strategy of growing the
heat-treating business of the PMPS segment into new geographic markets through
acquisition. MPI adds an established market presence in an attractive industrial
area.
14
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
Other Developments
The Corporation has recently has been awarded a contract to supply concept
demonstrator hardware to the Boeing "Phantom Works" for the advanced Unmanned
Combat Air Vehicle (UCAV) program.
Through its ACPS segment the Corporation will supply a Weapons Bay Door Drive
system utilizing its proven rotary actuation technology combined with an
electrically driven and controlled power drive unit for two Concept Demonstrator
aircraft. While this is a small contract in dollar terms, it represents the
Corporation's first Unmanned Combat Air Vehicle opportunity and strengthens our
longstanding relationship with the Boeing Phantom Works.
CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
The Corporation's working capital was $104.6 million at September 30, 1999 as
compared to working capital at December 31, 1998 of $130.8 million. The ratio of
current assets to current liabilities was 2.46 to 1 at September 30, 1999,
compared with a current ratio of 2.93 to 1 at December 31, 1998. Cash, cash
equivalents and short-term investments totaled $34.6 million in aggregate at
September 30, 1999, decreasing 52% from $72.3 million at the prior year-end. The
decline in cash and short-term investments largely reflects the MPI, Farris and
Sprague acquisitions made during 1999.
Increases in net receivables and inventories are principally attributed to the
acquisitions of Farris and Sprague during the third quarter of 1999. These
increases were partially offset by increased accounts payable and accrued
expenses, an increase in income taxes payable, and accrued dividends payable for
the third quarter of 1999.
The Corporation has two credit agreements, a Revolving Credit Agreement and a
Short-Term Credit Agreement, aggregating $45.0 million, with a group of three
banks. The credit agreements allow for borrowings to take place in US or certain
foreign currencies. The Revolving Credit Agreement commits a maximum of $22.5
million to the Corporation for cash borrowings and letters of credit. The unused
credit available under this facility at September 30, 1999 was $.4 million. 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 Short-Term Credit Agreement allows for cash borrowings of
$22.5 million, of which $3.0 million was available at September 30, 1999. The
Short-Term Credit Agreement was to expire on October 22, 1999 but has been
extended until January 31, 2000. The Corporation is currently seeking to
increase its available lines of credit through the bank group. Negotiations are
expected to be complete and new credit lines established before December 31,
1999.
15
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
Cash borrowings under the two credit agreements were at a US Dollar equivalent
totaling $20.7 million on September 30, 1999. The loans had variable interest
rates averaging 2.0% for the first nine months of 1999. No cash borrowings were
outstanding at September 30, 1998. As discussed in Note 9 in the Consolidated
Financial Statements to the Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, these credit agreements were used to
finance the Drive Technology acquisition at December 31, 1998.
During the first nine months of 1999, internally generated funds were adequate
to meet the needs of the Corporation. Capital expenditures totaled $17.2 million
during the first nine months of 1999 and consisted primarily of machinery and
equipment needed for the PMPS segment and the purchase of a 53,000-square-foot
building in Gastonia, North Carolina. The new building provided for the
relocation of a portion of the ACPS segment's commercial aircraft component
repair and overhaul operations. Internally generated funds were also used for
the acquisitions of MPI, Farris and Sprague, which totaled $48.8 million.
Additional funds generated by the Corporation were used to repurchase 111,350
shares of its common stock, at a cost of $4.0 million during the first nine
months of 1999.
An additional $3.7 million of capital expenditures is anticipated for the
balance of the year, primarily for capital equipment and facility expansions.
The Corporation believes its cash on hand, cash flows from operations and
available borrowings under short and long-term lines of credit, will continue to
be sufficient to meet its operating needs.
Year 2000
As is more fully described under the subheading "Year 2000" under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", as referenced in the Corporation's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, the Corporation was modifying or
replacing portions of its software as well as certain hardware to permit
continued operations beyond December 31, 1999 without systems failures or
processing errors that might arise as a result of the so-called Year 2000 (Y2K)
issue.
The Corporation has completed the remediation and testing phases of all critical
applications identified in its initial and ongoing assessments of Y2K risks.
The Corporation is currently making final assessments of its vendors and
customers Y2K compliance and anticipates these activities will be ongoing for
the balance of 1999. The Corporation has communicated with significant vendors,
customers and other third party service providers to evaluate whether they are
making adequate efforts to achieve Y2K compliance and to obtain Y2K readiness
statements. To date, the Corporation is not aware of any third parties with a
Y2K issue that would materially impact the Corporation.
16
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
It is currently estimated that the incremental costs of the Corporation's Y2K
remediation efforts through September 30, 1999 was approximately $.5 million.
Remediation costs are expensed as they are incurred. The costs associated with
the replacement of computerized systems and hardware are currently estimated to
be $.3 million, which amount is being capitalized. These amounts do not include
any costs associated with the implementation of contingency plans.
Contingency plans have been developed in the event any of its internal systems
or service providers should incur Y2K failures. This evaluation included
contingency planning in the event of disruption to utility, communications or
transportation services, in addition to Y2K system failures by key vendors and
service providers. The Corporation believes that the most reasonably likely
worst-case Y2K scenario would relate to problems with such systems and services
of third parties rather than with the Corporation's internal systems. While the
Corporation cannot identify all possible disruption scenarios, the Corporation
has prepared contingency plans specifying actions if failures occur in key
internal systems and or critical third party systems and services. Throughout
the remainder of the calendar year these plans will be continually reviewed and
modified as needed as the Corporation learns more about the potential exposure
of third parties to Y2K disruptions. Due to the large variables involved, the
Corporation can not provide a reasonable estimate of loss, if any, in the event
of a Y2K disruption.
17
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Corporation's Market Risk during the
nine months ended September 30, 1999. Information regarding Market Risk and
Market Risk Management policies is more fully described in item 7A.
"Quantitative and Qualitative Disclosures about Market Risk" of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1998.
FORWARD-LOOKING INFORMATION
Except for historical information, this Quarterly Report on Form 10-Q contains
"forward looking" information. Examples of forward looking information include,
but are not limited to, (a) projections of or statements regarding return on
investment, future sales and earnings, interest income, other income, earnings
or loss per share, investment mix and quality, growth prospects, capital
structure and other financial terms; (b) statements of plans and objectives of
management; (c) statements of future economic performance; and (d) statements of
assumptions, such as economic conditions underlying other statements. Such
forward looking information can be identified by the use of forward looking
terminology such as "believes," "expects," "may," "will," "should,"
"anticipates," or the negative of any of the foregoing or other variations
thereon or comparable terminology, or by discussion of strategy. No assurance
can be given that the future results described by the forward looking
information will be achieved. Such statements are subject to risks,
uncertainties, and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward looking
information. Such statements in this Report include, without limitation, those
contained in Part I, Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Notes to the Consolidated Financial
Statements including, without limitation, the Environmental Matters Note.
Important factors that could cause the actual results to differ materially from
those in these forward-looking statements include, among other items, (i) a
reduction in anticipated orders; (ii) an economic downturn; (iii) unanticipated
environmental remediation expenses or claims; (iv) changes in the need for
additional machinery and equipment and/or in the cost for the expansion of the
Corporation's operations; (v) changes in the competitive marketplace and/or
customer requirements; (vi) an inability to perform customer contracts at
anticipated cost levels; (vii) changes in the Corporation's labor relations;
(viii) Year 2000 non-compliance of the Corporation's systems or its suppliers
and customers; and (ix) other factors that generally affect the business of
companies operating in the Corporation's Segments.
18
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The information required herein is incorporated by reference to the information
appearing under the caption "Insurance Recovery" in Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS and REPORTS on FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (Page 21)
(b) Reports on Form 8-K
The Company filed two Current Reports on Form 8-K during the
quarter ended September 30, 1999 as follows:
1. Form 8-K Report dated August 2, 1999 with respect to Item
5 of such Report.
2. Form 8-K Report dated September 10, 1999 with respect to
Item 2 of such Report.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CURTISS-WRIGHT CORPORATION
(Registrant)
By: /s/ Robert A. Bosi
---------------------
Robert A. Bosi
Vice President - Finance
By: /s/ Kenneth P. Slezak
---------------------
Kenneth P. Slezak
Controller
Dated: November 15, 1999
20