Exhibit 13
Strength in Diversification
[GRAPHIC OMITTED]
CURTISS-WRIGHT CORPORATION ANNUAL REPORT 2001
[The following was represented as a graphic in the printed material.]
Nuclear Power Generation
Navy Programs (Nuclear and Non-Nuclear)
Commercial Jet Transports
Fossil Power Generation
Pulp and Paper
Processing Industry
Petrochemical/Chemical
Military Transport and Fighter Aircraft
Metalworking
Oil and Gas Exploration/Refining
Construction and Mining Equipment
High Speed Trains
Space Programs
Ground Defense Vehicles
Pharmaceutical
Agricultural Equipment
Natural Gas Production and Transmission
Business/Regional Jets
Automotive/Truck
Marine Propulsion
Unmanned Aerial Vehicles
Automated Industrial Equipment
Financial Highlights
(In thousands, except per share data; unaudited) 2001 2000 1999
PERFORMANCE(1):
Net sales $ 343,167 $ 329,575 $ 293,263
Earnings before interest, taxes,
depreciation, amortization and pension income 107,069 74,247 70,888
Net earnings 62,880 41,074 39,045
Normalized net earnings(2) 40,633 37,910 34,042
Diluted earnings per share 6.14 4.03 3.82
Normalized diluted earnings per share 3.97 3.72 3.33
Return on sales 19.0% 12.5% 13.6%
Normalized return on sales 12.3% 11.5% 11.8%
Return on average assets 15.0% 10.3% 10.9%
Normalized return on average assets 9.7% 9.5% 9.5%
Return on average stockholders' equity 21.7% 15.0% 16.4%
Normalized return on average stockholder's equity 14.0% 13.8% 14.3%
New orders 326,475 299,403 295,709
Backlog at year-end 242,257 182,648 212,820
YEAR-END FINANCIAL POSITION:
Working capital $ 149,861 $ 149,779 $ 124,438
Current ratio 3.0 to 1 3.9 to 1 3.2 to 1
Total assets 500,428 409,416 387,126
Stockholders' equity 349,954 290,224 258,355
Stockholders' equity per share 34.73 28.97 25.73
OTHER YEAR-END DATA:
Depreciation and amortization $ 14,734 $ 14,346 $ 12,864
Capital expenditures 19,354 9,506 19,883
Shares of stock outstanding 10,074,725 10,017,280 10,040,250
Number of registered stockholders 9,898 3,602 3,854
Number of employees 2,625 2,286 2,267
DIVIDENDS PER SHARE $ 0.54 $ 0.52 $ 0.52
(1) The performance ratios for 2001 and 1999 have been shown on a pro-forma
basis, excluding the results of the acquired companies in those respective
years. 2000 was not adjusted due to the immaterial impact.
(2) Earnings have been adjusted to exclude the effects of environmental
insurance settlements, postretirement benefits, postemployment costs,
recapitalization costs, a gain on sale of real property, a net
demutualization gain, and facility consolidation costs.
1 STRENGTH IN DIVERSIFICATION
14 LETTER TO SHAREHOLDERS
19 QUARTERLY RESULTS OF OPERATIONS
19 CONSOLIDATED SELECTED FINANCIAL DATA
20 MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
24 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
25 REPORT OF THE CORPORATION
25 REPORT OF INDEPENDENT ACCOUNTANTS
26 CONSOLIDATED FINANCIAL STATEMENTS
30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Contents 45 CORPORATE DIRECTORY AND INFORMATION
[The following was represented by line graphs in the printed material.]
[PLOT POINTS TO COME]
NET SALES ($000s) OPERATING INCOME NET EARNINGS
SALES PER EMPLOYEE ($) ($000s) ($000s)
Sales $343,167 Reported $47,158 Reported $62,880
Sales per employee $146,569 Normalized $47,441 Normalized $40,633
Design: VCG/NewYork City
Selected Photography: John Rae
F-22 Photograph credit: U.S. Air Force
[PHOTOS OMITTED]
Curtiss-Wright Corporation is a diversified, global enterprise delivering highly
engineered, technologically advanced, value-added products and services to a
broad range of industries in the Motion Control, Flow Control and Metal
Treatment market segments. Over the last five years, Curtiss-Wright has achieved
a fundamental balance among its operating units that has effectively limited the
Company's overall dependence on any given industry or market. Corporate growth
and diversification have been achieved through successful application of
Curtiss-Wright's considerable core competencies in engineering and precision
manufacturing; adaptation of existing technologies to new markets through
internal product development; and a disciplined program of strategic
acquisitions of companies having synergistic, market-leading technologies and
products. Solid financial performance in 2001 reflects the Corporation's goal of
achieving balanced growth through the implementation of these strategies.
Curtiss-Wright's future remains promising as it continues the strategic growth
process and strives to set the standard of excellence in the markets it serves.
CURTISS-WRIGHT AND SUBSIDIARIES_1
MOTION CONTROL
REVENUE
($000s)
[GRAPHIC OMITTED]
Products and Services
SECONDARY FLIGHT CONTROL ACTUATION SYSTEMS
AND ELECTROMECHANICAL TRIM ACTUATORS
WEAPONS BAY DOOR ACTUATION SYSTEMS
INTEGRATED MISSION MANAGEMENT
AND FLIGHT CONTROL COMPUTERS
DIGITAL ELECTROMECHANICAL AIMING
AND STABILIZATION SYSTEMS
HYDROPNEUMATIC SUSPENSION SYSTEMS
ELECTROMECHANICAL TILTING SYSTEMS
FOR HIGH SPEED TRAINS
FIRE CONTROL, SIGHT HEAD, AND
ENVIRONMENTAL CONTROL PROCESSORS
FOR MILITARY GROUND VEHICLES
COMPONENT OVERHAUL AND LOGISTICS
SUPPORT SERVICES
[GRAPHIC OMITTED]
Motion Control
Curtiss-Wright's Motion Control business segment is an industry leader in the
design, development, manufacturing and maintenance of sophisticated,
high-performance motion control components and integrated systems for aerospace,
ground defense, and industrial equipment applications. Legacy capabilities in
mechanical and hydromechanical component design and manufacture have been
expanded to include design, analysis, and integration of electromechanical and
electrohydraulic systems, as well as complex electronic systems. Our products
include flight control actuation systems for military and commercial aircraft,
integrated mission management and flight control computers, digital aiming and
stabilization systems, ammunition handling and fire control systems, suspension
systems, perimeter intrusion detection systems, and high response linear
actuators for industrial applications.
CURTISS-WRIGHT AND SUBSIDIARIES_3
COMMERCIAL JET TRANSPORTS
BUSINESS / REGIONAL JETS
MILITARY TRANSPORT AND FIGHTER AIRCRAFT
GROUND DEFENSE VEHICLES
UNMANNED AERIAL VEHICLES
AUTOMATED INDUSTRIAL EQUIPMENT
HIGH SPEED TRAINS
MARINE PROPULSION
SPACE PROGRAMS
SECURITY SYSTEMS
[GRAPHIC OMITTED]
Major Markets
Our formidable capabilities in Motion Control evolved from our base business of
aircraft flight controls and utility actuation components and subsystems. Today,
we are an integrated provider of design and manufacturing solutions to a wide
array of motion control applications and platforms for worldwide aerospace,
defense, and industrial markets. Through our disciplined acquisition program and
forward-thinking internal product development, we have continued to expand our
technical capabilities and are now able to provide complete system-level
solutions. Accordingly, Curtiss-Wright is well positioned to pursue and capture
future military and commercial opportunities.
4_CURTISS-WRIGHT AND SUBSIDIARIES
[PHOTOS OMITTED]
APPLICATIONS OF OUR HIGHLY ENGINEERED AND PRECISION MANUFACTURED MOTION CONTROL
PRODUCTS INCLUDE: (TOP) MISSION CRITICAL ELECTRONIC SYSTEMS FOR GROUND DEFENSE
AND UNMANNED AERIAL VEHICLES; (CENTER) LEADING EDGE SLAT AND TRAILING EDGE FLAP
ACTUATION SYSTEMS FOR COMMERCIAL AND MILITARY AIRCRAFT; (BOTTOM) WEAPONS BAY
DOOR ACTUATION SYSTEMS FOR THE NEXT GENERATION F-22 FIGHTER AIRCRAFT.
METAL TREATMENT
REVENUE
($000s)
[GRAPHIC OMITTED]
Our Metal Treatment business segment continues to extend its leadership position
in shot peening, shot-peen forming, and heat treating. Through a combination of
acquisitions and new plant openings, we continue to increase our network of
regional facilities, which now total 42 in North America and Europe, a number
unmatched by any other supplier of these services. Furthermore, our reed valve
operation continues to expand its business. In addition to broadening the
geographic reach of our services, we have worked to augment our metal treatment
service offerings. To accommodate the requirements of our customers, we remain
on the leading edge of technological advancement in the metal treatment
industry. We are at the forefront of the development of Lasershot'TM'
peening and the design of more efficient robotic equipment.
Metal Treatment
[GRAPHIC OMITTED]
Products and Services
SHOT PEENING
SHOT-PEEN FORMING
LASERSHOT PEENING
HEAT TREATING
PLATING
REED VALVE MANUFACTURING
ENGINEERING/TESTING AND
FIELD SERVICES
CURTISS-WRIGHT AND SUBSIDIARIES_7
While almost half our metal treatment sales derive from various segments of the
aerospace industry, the balance is spread across a number of industrial markets.
The wide range of applications for our metal treatment services is reflected in
a customer base in excess of 5,000. Our Metal Treatment business segment
continues to maintain its leadership position even during downturns in its
served markets. In 2001, we expanded our reach with the opening of a
shot-peening facility in Germany and the acquisition of heat-treating facilities
in Kansas and New Jersey. We will continue to pursue our strategy of expanding
into attractive markets.
Major Markets
[GRAPHIC OMITTED]
COMMERCIAL JET TRANSPORTS
BUSINESS / REGIONAL JETS
AUTOMOTIVE
METALWORKING
OIL AND GAS EXPLORATION
POWER GENERATION
AGRICULTURAL EQUIPMENT
CONSTRUCTION AND MINING EQUIPMENT
8_CURTISS-WRIGHT AND SUBSIDIARIES
[PHOTOS OMITTED]
APPLICATIONS OF OUR METAL TREATMENT PROCESSES INCLUDE: (TOP) HIGH STRESS METAL
COMPONENTS FOR OIL AND GAS EXPLORATION EQUIPMENT; (CENTER) WING FORMING FOR
BUSINESS AND REGIONAL AIRCRAFT; (BOTTOM) HEAVY WEAR COMPONENTS FOR THE TRUCK AND
AUTOMOTIVE INDUSTRY.
FLOW CONTROL
REVENUE
($000s)
[GRAPHIC OMITTED]
Products and Services
MILITARY AND COMMERCIAL NUCLEAR/
NON-NUCLEAR VALVES (GLOBE, GATE, CONTROL,
SAFETY, SOLENOID, RELIEF)
STEAM GENERATOR CONTROL EQUIPMENT
REACTOR PLANT CONTROL EQUIPMENT
ADVANCED HYDRAULIC SYSTEMS
AIR DRIVEN FLUID PUMPS
ENGINEERING, INSPECTION, AND
TESTING SERVICES
[GRAPHIC OMITTED]
Flow Control
Our Flow Control business segment began as a supplier of valves to the U.S. Navy
for use in nuclear propulsion systems on submarines. Today, it designs,
manufactures, distributes, and services a broad range of highly engineered flow
control products for severe service military and commercial applications. We
have expanded our product and service offerings through selective acquisitions
and internal development programs. With the recent addition of Peerless
Instrument, we now have the capability to design and fabricate sophisticated
electronic control systems for flow control applications. Furthermore, the
acquisitions of Solent & Pratt and Deltavalve have broadened our product base
and allow us to better serve severe duty applications for the worldwide oil and
gas markets.
CURTISS-WRIGHT AND SUBSIDIARIES_11
NAVY PROGRAMS
(NUCLEAR AND NON-NUCLEAR)
POWER GENERATION
(NUCLEAR AND FOSSIL)
PROCESSING INDUSTRY
OIL AND GAS REFINING
PETROCHEMICAL/CHEMICAL
NATURAL GAS PRODUCTION
AND TRANSMISSION
PHARMACEUTICAL
PULP AND PAPER
AUTOMOTIVE/TRUCK
[GRAPHIC OMITTED]
Major Markets
Flow Control has achieved rapid and significant growth as it continues to sell
its specialized technologies and capabilities to non-traditional markets. While
the U.S. Navy and commercial nuclear power generation were once its main
markets, Flow Control has expanded its target markets to include petrochemical,
oil and gas, and process industries. We have also improved our capabilities to
service the global marketplace. In addition to participating in new construction
programs, we provide overhaul, repair, and engineering services, as well as
supply replacement spare parts.
12_CURTISS-WRIGHT AND SUBSIDIARIES
[PHOTOS OMITTED]
APPLICATIONS OF OUR HIGHLY ENGINEERED AND PRECISION MANUFACTURED FLOW CONTROL
PRODUCTS INCLUDE: (TOP) NUCLEAR AND NON-NUCLEAR PROGRAMS FOR THE U.S. NAVY;
(CENTER) PROCESS APPLICATIONS IN PETROCHEMICAL/CHEMICAL AND PETROLEUM
PRODUCTION/REFINING MARKETS; (BOTTOM) COMMERCIAL POWER GENERATION (FOSSIL AND
NUCLEAR).
[PHOTO OMITTED] MARTIN R. BENANTE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
...we have the utmost confidence that we will continue to achieve
solid financial results during this challenging economic period as
we build on our carefully constructed foundation, leveraging our
engineering leadership, industry reputation, and leading market
positions.
to our Shareholders
We are proud to report our sixth consecutive year of revenue increases and third
consecutive year of normalized earnings growth in 2001. This was accomplished
despite the worst decline in industrial output since 1981-82, the first economic
recession in a decade, and the economic and social realities of September 11th.
While we are not immune to external market forces, our strategies for producing
balanced growth through diversification will help Curtiss-Wright through these
difficult times. Serious long-term investors will always be attracted to premier
companies with consistent and substantial earnings growth. This is something we
have demonstrated in the past and for which we continue to strive. We move
forward into 2002 confident that our efforts have positioned us well to
capitalize on our strengths and produce superior performance for our
shareholders.
Our success in realizing substantial earnings growth is the result of deliberate
efforts to balance organic and external growth in new products, technologies,
services, and markets. We take great pride in our consistent growth record.
Further, we have the utmost confidence that we will continue to achieve solid
financial results during this challenging economic period as we build on our
carefully constructed foundation, leveraging our engineering leadership,
industry reputation, and leading market positions. Including 2001 acquisitions,
our current annual sales run rate makes us a $400 million company. Our actual
sales have grown from $171 million in 1996 to $343 million in 2001. This
represents a compound annual growth rate of 15%, meeting our long-term financial
objectives. We firmly believe in our ability to sustain or exceed this growth
rate in the future.
Independent recognition of our success is particularly satisfying because it
validates the progress we have made in many key areas. In 2001, for the third
consecutive year, Curtiss-Wright was recognized by Forbes magazine as one of
America's 200 Best Small Companies. Flight International cited us as one of the
most profitable aerospace companies in the world, ranking us 19th in
profitability among our peers. In addition, a Lasershot(SM) marking system
developed by our subsidiary, Metal Improvement Company, working with Lawrence
Livermore National Laboratory, was chosen by R&D Magazine as one of this year's
100 most significant technological advances. These awards speak volumes about
the talent and quality of our employees.
14_CURTISS-WRIGHT AND SUBSIDIARIES
GROWTH THROUGH ACQUISITIONS
Acquisitions play a major role in our balanced growth strategy. In 2001, we
completed seven key acquisitions that strengthened each of our business segments
and enhanced our market positions through the addition of new technologies,
products, and markets.
New Technologies and Products
During 2001, we strengthened our position as a niche leader in industrial
technology. Our acquisitions added sophisticated electronic control component
and systems technologies used in intrusion detection, firing, aiming and
stabilizing systems, and unmanned flight control. We also acquired other
advanced technologies in our Flow Control business segment which enhance and
broaden our offerings in Curtiss-Wright's current markets. These include
proprietary valves for the processing industry and state-of-the-art electronic
controls for flow control systems for the U.S. Navy.
Expanded Market Opportunities
The acquisitions we made in 2001 also improved our position as a global
competitor. Our pursuit of the defense electronics market, for example, is a key
strategic initiative and provides a compelling long-term growth opportunity. Our
acquisitions have materially improved our position within the defense market and
will position us to benefit from the expected growth in defense spending.
The acquisitions of Lau Defense Systems and Vista Controls provide access to
North American military armored vehicle manufacturers and opens the door to
opportunities for other commercial and military applications. Their products and
technology are a perfect complement to the aiming and stabilizing products
available through our European operation. As a result, we can now provide a
complete systems capability that can be cross-marketed to two major military
armored vehicle markets. Lau's antipersonnel sensing systems will also broaden
our reach into new markets by providing stationary and mobile perimeter security
defenses for military and commercial markets.
The addition of Solent & Pratt expands our markets to include the oil and gas
industry in Northern Europe. We will leverage its distribution network and
customer base to cross-sell our existing line of pressure relief valves used in
the North American oil and gas industry.
Another strategic goal has been to continually expand our geographic network of
metal treatment facilities. The addition of two such facilities in Kansas and
New Jersey brings the total facilities serving North America and Europe to 42,
further diversifying our existing markets and customer base.
Looking forward, we intend to expand further into markets we currently serve and
position the Company to exploit niche opportunities as a supplier of high
value-added products and services.
- -----------------------------------------------------------------------------------------------------------------------------
2001 ACQUISITIONS
- -----------------------------------------------------------------------------------------------------------------------------
MOTION CONTROL: FLOW CONTROL: METAL TREATMENT:
- -----------------------------------------------------------------------------------------------------------------------------
Lau Defense Systems Solent & Pratt Engineering Peerless Instrument Co. Bodycote Thermal Processing
and Vista Controls (Wichita)
Designs and manufactures Designs and manufactures
Designs and manufactures metal-seated, sophisticated electronic Heat-treating services
highly engineered high-pressure industrial control systems for flow principally serving
"mission critical" valves for the processing control applications in aerospace and agriculture
defense electronic industry. the nuclear Navy. markets.
controls for aiming and
stabilizing systems; also Deltavalve USA Ironbound Heat
designs and manufactures Treating Company
fixed-perimeter and mobile Designs, manufactures,
intrusion detection systems. and globally distributes Heat-treating services
high-performance for diverse markets
butterfly and sliding including tool and die,
gate valves for the automotive, aerospace,
processing industry. and medical.
- -----------------------------------------------------------------------------------------------------------------------------
CURTISS-WRIGHT AND SUBSIDIARIES_15
- --------------------------------------------------------------------------------
DIVERSIFICATION THROUGH ACQUISITIONS
2001 Sales Distribution (Pro Forma)
- --------------------------------------------------------------------------------
BEFORE ACQUISITIONS
- --------------------------------------------------------------------------------
37.4% Commercial Aerospace
20.5% Military/Defense
13.8% General Industrial
[PIE CHART] 10.5% Power Generation
9.7% Process Industry (Oil & Gas)
8.1% Automotive/Transportation
- --------------------------------------------------------------------------------
AFTER ACQUISITIONS
- --------------------------------------------------------------------------------
30.9% Commercial Aerospace
32.3% Military/Defense
[PIE CHART] 11.9% General Industrial
8.6% Power Generation
9.6% Process Industry (Oil & Gas)
6.7% Automotive/Transportation
- --------------------------------------------------------------------------------
BUSINESS OUTLOOK
We expect 2002 to be another year of growth for Curtiss-Wright despite
anticipated below-average global economic activity and particular weakness in
the commercial aerospace markets. Our diverse business segments, markets served,
recent acquisitions, and internal expansion efforts should fuel our growth in
2002 and beyond.
We are particularly enthusiastic about our improved position in the military
defense industry. We have been seizing opportunities in this market during the
past decade of declining military spending. As U.S. defense programs compensate
for past spending reductions and modernize based on new demands, our diverse
array of established and new products and technologies position us to reap the
benefits of this changing environment.
Our mix of products for aerospace, land-based, and naval defense markets have
never been stronger, enabling meaningful participation in a variety of military
programs. We are well positioned on a balanced blend of projects that will
provide both short- and long-term benefits. For example, we participate in the
retrofit programs for the Abrams tank and Bradley armored personnel carrier, as
well as the F-22 Raptor and V-22 Osprey, which are scheduled for production
ramp-ups over the next several years. We also continue to participate in new
project development programs like Lockheed Martin's F-35 Joint Strike Fighter,
Boeing's Unmanned Combat Aircraft Vehicle, and the Global Hawk unmanned
reconnaissance aircraft that has played a vital role in the current war on
terrorism. Our participation in the U.S. Navy's nuclear submarine and aircraft
carrier production has been significantly enhanced with the recent addition of
Peerless Instrument's electronic flow control products and technology, which
integrate well with our traditional line of leakless valves and other flow
control products. We are also leveraging our strong industry reputation and
relationship with the Navy to expand into non-nuclear applications.
Over the past several years, we have added products and services that expand our
geographic reach and position us in new industrial markets. We will continue
this growth strategy by further extending into related markets and developing
new products and applications for existing technology.
Technology has been, and will continue to be, the cornerstone of
Curtiss-Wright's success. It is the fiber that weaves through and binds together
our diverse business segments, giving us the competitive advantage needed to
sustain growth. Our objective is not only to maintain but also to extend our
technological leadership through a combination of internal development and
16_CURTISS-WRIGHT AND SUBSIDIARIES
...we are committed to creating shareholder value by executing our strategy,
making sound business decisions, and achieving our financial targets. Our
diversification strategy and ongoing emphasis on technology will continue to
bring growth opportunities in each of our three business segments.
acquisitions. For example, we have developed innovative laser and robotic
shot-peening processes that will strengthen our leadership position in
shot-peening services. Our 2001 acquisitions also bring numerous innovative and
promising technologies to our Motion Control and Flow Control business segments.
Curtiss-Wright's exceptionally strong balance sheet will provide the financial
resources necessary to continue internal expansion and make additional prudent,
accretive acquisitions that further strengthen the Company's products,
technology base, and market position. Even with the acquisition activity in
2001, we finished the year with $67 million in cash and $21 million in total
debt. Our business continues to generate strong cash flow from operations, and
we have $76 million available under existing credit facilities.
SALE OF OUR WOOD-RIDGE INDUSTRIAL PROPERTY
In our efforts to focus on core operations and better utilize our resources, we
sold our Wood-Ridge, New Jersey business complex in December 2001. This
transaction will net the Company approximately $33 million in cash. The property
has been subject to environmental clean-up obligations since the early nineties
which, until now, have prevented us from realizing a sale price reflective of
its true value. Although clean-up obligations remain with the Company, we have
been successful in reaching a price representative of its market value. The
proceeds are now available to invest in projects that produce stronger returns
and enhance long-term shareholder value.
OUR SHAREHOLDER BASE HAS BEEN BROADENED
During 2001, we also completed the recapitalization of our common stock. This
transaction allowed Unitrin, Inc., to distribute its 44 percent equity position
in Curtiss-Wright to its approximately 8,000 registered shareholders. We believe
the recapitalization will create long-term shareholder value and represents a
milestone in our efforts to improve our stock's liquidity, broaden our
shareholder base, and attract additional institutional investors. We welcome our
new shareholders and are confident that their direct ownership of Curtiss-Wright
will prove rewarding.
We begin 2002 confident in our ability to build on our solid business foundation
and generate long-term shareholder value. Although 2002 is likely to present a
challenging business environment, we are committed to creating shareholder value
by executing our strategy, making sound business decisions, and achieving our
financial targets. Our diversification strategy and ongoing emphasis on
technology will continue to bring growth opportunities in each of our three
business segments.
A talented and dedicated team of employees is a critical element to any business
success, and we enjoy the benefit of exceptional people. They have been and will
continue to be instrumental in identifying and capitalizing on growth
opportunities. They are a truly invaluable resource for Curtiss-Wright and we
appreciate and commend their hard work and dedication. We would also like to
express our gratitude for the long-term support of our customers, suppliers, and
you, the owners of the Company.
/s/ Martin R. Benante
Martin R. Benante
Chairman and Chief Executive Officer
CURTISS-WRIGHT AND SUBSIDIARIES_17
Financial Statements
18_CURTISS-WRIGHT AND SUBSIDIARIES
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
=====================================================================================
(In thousands, except per share data) First Second Third Fourth
- -------------------------------------------------------------------------------------
2001
Net sales $79,917 $86,604 $79,420 $97,226
Gross profit 30,011 32,837 30,187 34,782
Net earnings 9,219 10,465 8,723 34,473
Earnings per share:
Basic earnings per share $ .92 $ 1.04 $ .87 $ 3.42
Diluted earnings per share $ .90 $ 1.02 $ .85 $ 3.37
Dividends per share $ .13 $ .13 $ .13 $ .15
- -------------------------------------------------------------------------------------
2000
Net sales $82,237 $83,050 $81,878 $82,410
Gross profit 28,929 30,471 30,767 30,803
Net earnings 9,229 10,644 11,079 10,122
Earnings per share:
Basic earnings per share $ .92 $ 1.06 $ 1.11 $ 1.01
Diluted earnings per share $ .91 $ 1.05 $ 1.09 $ .99
Dividends per share $ .13 $ .13 $ .13 $ .13
CONSOLIDATED SELECTED FINANCIAL DATA
=================================================================================================
(In thousands, except per share data) 2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------
Net sales $343,167 $329,575 $293,263 $249,413 $219,395
Net earnings 62,880 41,074 39,045 29,053 27,885
Total assets 500,428 409,416 387,126 352,740 284,708
Long-term debt 21,361 24,730 34,171 20,162 10,347
Basic earnings per share $ 6.25 $ 4.10 $ 3.86 $ 2.85 $ 2.74
Diluted earnings per share $ 6.14 $ 4.03 $ 3.82 $ 2.82 $ 2.71
Cash dividends per share $ .54 $ .52 $ .52 $ .52 $ .50
See notes to consolidated financial statements for additional financial
information.
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. Please
refer to the Company's 2001 Annual Report on Form 10-K for a discussion relating
to forward-looking statements contained in this Annual Report and factors that
could cause future results to differ from current expectations.
19_CURTISS-WRIGHT AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations:
Curtiss-Wright Corporation posted consolidated net sales of $343.2 million and
net earnings of $62.9 million, or $6.14 per diluted share, for the year ended
December 31, 2001. Sales for the current year increased 4% over 2000 sales of
$329.6 million, and 17% over 1999 sales of $293.3 million. Net earnings for 2001
improved 53% over prior year net earnings of $41.1 million, or $4.03 per diluted
share, and 61% over net earnings of 1999, which totaled $39.0 million, or $3.82
per diluted share. Net earnings for all three years include several nonrecurring
items, which impact a year-to-year comparison. The following table depicts the
Corporation's "normalized" results, which should present a clearer picture of
after-tax performance:
Normalized Net Earnings:
===============================================================================
(In thousands, except per share figures) 2001 2000 1999
- -------------------------------------------------------------------------------
Net earnings $ 62,880 $ 41,074 $ 39,045
Gain on sale of real property (22,999) (894) --
Environmental insurance
settlements, net -- (1,894) (7,354)
Postretirement and post-
employment adjustments, net -- (1,336) --
Facility consolidation costs -- 50 2,351
Recapitalization costs 1,500 910 --
Net nonrecurring benefit gain (748) -- --
Normalized net earnings $ 40,633 $ 37,910 $ 34,042
- -------------------------------------------------------------------------------
Normalized net earnings
per diluted share $ 3.97 $ 3.72 $ 3.33
===============================================================================
Sale of Real Property
In December 2001, the Corporation sold its Wood-Ridge Business Complex which
resulted in a net after-tax gain of $23 million. In September 2000, the
Corporation recorded a net after-tax gain of $0.9 million on the sale of a
nonoperating Metal Treatment facility located in Chester, England.
Environmental Insurance Settlements
The Corporation had previously filed lawsuits against several insurance carriers
seeking recovery for environmental costs and reached settlements with two
carriers in 1999 and the remaining carriers in 2000. The amounts reported above
are recoveries, net of associated expenses and additional expenses related to
ongoing environmental liabilities of the Corporation. Further information on
environmental costs is contained in Note 13 to the Consolidated Financial
Statements.
Postretirement and Postemployment Adjustments
In 2000, the Corporation recognized a reduction in general and administrative
expenses related to the curtailment of postretirement benefits associated with
the closing of the Fairfield, New Jersey facility, partially offset by the
recognition of other postemployment costs. Further information on retirement
plans is contained in Note 14 to the Consolidated Financial Statements.
Facility Consolidation Costs
Beginning in 1998, the Corporation incurred costs associated with the
consolidation of manufacturing operations within the Motion Control segment.
These costs include costs relative to the shutdown of the Fairfield, New Jersey
facility, the consolidation of manufacturing operations into an expanded Shelby,
North Carolina facility, and the move of certain overhaul and repair operations
to a new location in Gastonia, North Carolina.
Recapitalization Costs
During 2000 and 2001, the Corporation incurred costs related to a
recapitalization of its stock. Further information on this transaction is
contained later in this section--see "Recapitalization."
Net Nonrecurring Benefit Gain
During 2001, the Corporation recorded a pre-tax gain of approximately $3 million
($1.8 million after-tax) resulting from a nonrecurring benefit related issue.
Offsetting this gain are nonrecurring charges for employee benefit related
expenses of $1.8 million pre-tax ($1.1 million after-tax). Further information
on these transactions are contained later in this section--see "Corporate and
Other Expenses."
Excluding these nonrecurring items, "normalized" net earnings for 2001 of $40.6
million, or $3.97 per diluted share, were 7% higher than "normalized" net
earnings of $37.9 million, or $3.72 per diluted share, for 2000 and 19% higher
than "normalized" net earnings of $34.0 million, or $3.33 per diluted share, for
1999. Excluding the net recoveries from insurance settlements and facility
consolidation costs, "normalized" operating income from the Corporation's three
operating segments totaled $49.4 million for 2001, a slight improvement over
"normalized" operating income of $49.2 million in 2000 but 17% above 1999's
$42.1 million.
The improvement in financial results comparing 2001 to 2000 largely reflects the
contributions of recent acquisitions made by the Corporation. See Note 2 to the
Consolidated Financial Statements for further information regarding
acquisitions. Sales and operating income of the businesses acquired in 2001 were
$13.9 million and $0.5 million, respectively. Including the seven businesses
acquired this year, the Corporation has acquired thirteen new businesses since
1998. In addition to the contribution of the new acquisitions, 2001 benefited
from higher sales of aerospace OEM products, products provided to the oil and
gas markets and shot-peening services. These increases were offset by
significant decreases in our aerospace overhaul and repair services and our
automotive-related businesses.
Also adversely impacting financial results for 2001 was a significant decline in
foreign exchange rates. Comparing this year's results to those of the prior
year, the fluctuation in foreign currency rates negatively impacted sales by
$3.0 million and operating income by $1.1 million.
Improvements in 2000 from 1999 reflect the full year contributions from the 1999
acquisitions of Farris Engineering ("Farris"), Sprague Products ("Sprague") and
Metallurgical Processing, Inc.
New orders received in 2001 totaled $326.5 million, which represents a 9%
increase over 2000 new orders of $299.4 million and a 10% increase over new
orders received in 1999. Backlog at December 31, 2001 stands at $242.3 million
compared with $182.6 at December 31, 2000 and $212.8 million at December 31,
1999. Backlog acquired with the 2001 acquisitions was approximately $76 million.
It should be noted that metal treatment services, repair and overhaul services
and after-market sales, which represent a significant amount of the
20_CURTISS-WRIGHT AND SUBSIDIARIES
Corporation's total sales for 2001, are sold with very modest lead times.
Accordingly, the backlog for these businesses is less of an indication of future
sales than the backlog of the majority of the Motion Control and Flow Control
segments, in which a significant portion of sales are derived from long-term
contracts.
Segment Performance
Motion Control
The Corporation's Motion Control segment posted sales of $137.1 million for
2001, an 8% increase over 2000 sales of $126.8 million. The higher sales largely
reflect the acquisitions of Lau Defense Systems ("LDS") and Vista Controls
("Vista") in November, 2001 and increased revenue recognized under the
percentage of completion method of accounting for long-term contracts at the
segment's Drive Technology business in Europe. The 2001 sales from the LDS and
Vista acquisitions amounted to $9.6 million. Also affecting 2001 sales were
lower aerospace repair and overhaul services compared to the prior year. The
softening in the demand for these services was exacerbated by the impact of the
events of September 11th. This decline was offset by higher shipments of 737 and
F-22 OEM products and strong growth in the global ground defense business as
compared to the prior year. In addition, foreign currency translation adversely
impacted sales in 2001 from 2000. Operating income for 2001 increased 25% over
the prior year. Excluding acquisitions, this increase was 20% due mainly to
profit improvements in aerospace OEM products generated by the consolidation of
production facilities combined with an improved cost structure. These
improvements have more than offset the decline in operating income realized in
the repair and overhaul business resulting primarily from lower sales volume.
Foreign currency translation also had a $0.1 million negative impact on 2001
operating income.
Motion Control segment sales for 2000 were 2% above 1999 sales of $124.2
million. Sales of aerospace overhaul and repair services for 2000 improved over
1999 as did sales relative to the Boeing 757 retrofit program. These increases
were largely offset by lower Boeing commercial production. Sales of Motion
Control products for 2000 also reflected continued growth in the ground defense
aiming and stabilization markets from its Drive Technology business as compared
to the prior year. Operating income for the Motion Control segment showed
substantial improvements in 2000. Included in 1999 results were costs related to
the consolidation of the Fairfield, NJ operation into Motion Control's low-cost,
state-of-the-art facilities in North Carolina. Expenses related to the
consolidation activities totaled approximately $3.8 million in 1999. In 2000,
the Corporation began to realize cost savings relative to the consolidation. The
cost savings realized in 2000 were partially offset by lower operating income in
the overhaul and repair business due to lower gross margins resulting from
softening in many of their served markets.
Metal Treatment
2001 sales for the Corporation's Metal Treatment segment totaled $107.8 million
or 2.4% above sales for 2000 of $105.3 million. The slight improvement in 2001
sales resulted from increases in the North American and European shot-peening
business which were largely offset by decreases in the segment's heat-treating
operations, particularly those related to the automotive markets served. In
addition, foreign currency translation adversely impacted sales in 2001 from
2000. In 2001, operating income was 17.0% below that for the prior year
resulting primarily from increased operating costs which included facility
start-up costs associated with acquisitions occurring in late 2000 and 2001 and
higher energy costs. Foreign currency translation also had a $0.9 million
negative impact on 2001 operating income. The two acquisitions made in 2001 had
minimal effect on the segment's sales and operating income.
Sales improvements in 2000 from the prior year reflect an acquisition, which
occurred in mid-1999, and increased sales volume in the commercial European
aerospace market, which were largely offset by the negative effect of foreign
currency translation versus 1999. Operating income for the Metal Treatment
segment showed a slight decrease when comparing 2000 to 1999. For 2000,
improvements in heat-treating operations were largely offset by lower income at
both European and North American shot-peening operations. During 1999, three of
this segment's operations relocated into larger facilities and incurred higher
operating costs and nonrecurring start-up costs as a result. As with sales,
income from European shot-peening operations were adversely impacted by foreign
currency translation. Foreign currency translation adversely reduced operating
income in 2000 by $1.6 million.
Flow Control
The Corporation's Flow Control segment posted sales of $98.3 million for 2001,
slightly above sales of $97.5 million for 2000. 2001 sales included
approximately $3.9 million related to three acquisitions made during the year.
The segment also benefited from higher sales to the U.S. Navy and strong demand
in the petrochemical and oil and gas markets, primarily for maintenance, repair
and overhaul applications. Offsetting these gains was the impact of the
significant downturn in the automotive and heavy truck markets served and the
sale of the segment's PME distribution business in the third quarter of 2000.
Operating income for the year increased by more than 4% even though sales were
essentially flat. Excluding the three 2001 acquisitions, the segment's improved
costs structures and operating efficiencies resulted in a 7.7% improvement in
2001 operating income as compared to the prior year. Foreign currency
translation also had a $0.1 million negative impact on 2001 operating income.
21_CURTISS-WRIGHT AND SUBSIDIARIES
The Corporation's Flow Control segment reported sales for 2000 which were 50%
above 1999's sales of $65.0 million. Operating income also showed significant
improvement. The significant improvements in both sales and operating income
were largely the result of the acquisition of the Farris and Sprague businesses,
which occurred in August of 1999. Sales and operating income from the
traditional product lines in the Flow Control segment exceeded the levels
achieved in 1999. Sales of marine product lines to the U.S. Navy performed well,
as did sales from retrofit and service programs for domestic nuclear utilities,
and the sale of valves for new foreign nuclear power plant construction
programs. Industrial valve sales also performed well in 2000 notwithstanding
general softness in two primary markets--petrochemical and chemical process
industries.
Corporate and Other Expenses
Included in operating income for 2001 is a net nonrecurring benefit gain of $1.2
million, which consists of an approximate $3.0 million gain resulting from the
demutualization of an insurance company in which the Corporation was a
policyholder, partially offset by $1.8 million of nonrecurring employee benefit
related costs which are included in general and administrative expenses in the
statement of earnings. Operating income also includes $1.5 million in costs
associated with the Corporation's Recapitalization (see "Recapitalization" later
in this section for more information).
Included in nonsegment operating income for 2000 is a $2.9 million benefit
resulting from the curtailment of postretirement medical coverage for former
employees of the Corporation's Fairfield, NJ plant due to its closure in
December 1999, offset partially by post-employment expenses related to the
retirement of the former Chairman and Chief Executive Officer. Also 2000 results
included administrative expenses of approximately $0.9 million associated with
the Corporation's recapitalization.
Operating income for 1999 included income related to the termination of benefits
for former employees of its Buffalo, NY plant.
Other Revenues
The Corporation recorded other nonoperating net revenues for 2001 aggregating
$56.2 million compared with $15.5 million in 2000 and $13.4 million in 1999. Of
the $56.2 million generated in 2001, $38.9 million relates to the pre-tax gain
resulting from the sale of the Wood-Ridge Business Complex, which is more fully
described in Note 3 to the Consolidated Financial Statements. Net investment
income of $2.6 million decreased from the prior year's $2.9 million due to a
lower cash position resulting from the funding of acquisitions and lower
interest rates. Net noncash pension income increased 41% to $11.0 million for
2001 due primarily to the Corporation's overfunded pension plan. The amount
recorded as pension income reflects the extent to which the return on plan
assets exceeds the cost of providing benefits in the same year, as detailed
further in Note 14 to the Consolidated Financial Statements. Rental income in
2000 declined from the previous year largely due to the settlement of a real
estate tax appeal recorded in 1999. Also in 2000, the Corporation sold a
nonoperating property in Chester, England resulting in a net pre-tax gain of
approximately $1.4 million.
Changes in Financial Position:
Liquidity and Capital Resources
There were a number of transactions which occurred during 2001 that had a
significant impact on the Corporation's working capital. These transactions
included the sale of the Wood-Ridge Business Complex for $51.0 million, a $1.75
million reimbursement from Unitrin Inc. ("Unitrin") of previously expended
recapitalization costs and the acquisition of seven businesses with an aggregate
cash outflow of $64.1 million. As a result, the Corporation's working capital
remained flat at December 31, 2001, totaling $149.9 million as compared with
$149.8 million at December 31, 2000. The ratio of current assets to current
liabilities declined to 3.0 to 1 at December 31, 2001 compared with 3.9 to 1 at
the end of 2000. The Corporation's balance of cash and short-term investments
totaled $67.2 million at December 31, 2001, a decrease of $4.3 million from the
balance at December 31, 2000.
Working capital changes were highlighted by increases in accounts receivable of
$18.5 million, inventories of $7.1 million and current liabilities of $23.8
million. With the exception of the income taxes payable component of current
liabilities, these increases are largely due to the seven acquisitions which
occurred during the year. The increase in income taxes payable is a result of
the gain associated with the sale of the Wood-Ridge Business Complex. Excluding
the effect of the current year's acquisitions, days sales outstanding at
December 31, 2001 decreased to 59 days from 62 days at December 31, 2000 while
inventory turnover increased to 4.2 turns versus 3.7 turns at December 31, 2001.
At December 31, 2001, the Corporation had two credit agreements in effect
aggregating $100.0 million with a group of five banks. The Revolving Credit
Agreement commits a maximum of $60.0 million to the Corporation for cash
borrowings and letters of credit. The Corporation also has in effect a
Short-Term Credit Agreement, which allows for cash borrowings of $40.0 million.
The unused credit available under these agreements at December 31, 2001 was
$76.2 million. Cash borrowings under the Revolving Credit Agreement were $8.0
million at December 31, 2001 and were $11.3 million at December 31, 2000. During
2001, the Corporation paid $3.4 million towards its Swiss franc denominated
loan, financed under the Revolving Credit Agreement and paid off two Industrial
Revenue Bond loans totaling approximately $5.3 million.
22_CURTISS-WRIGHT AND SUBSIDIARIES
Capital expenditures were $19.4 million in 2001, as compared to $9.5 million
spent in 2000 and $19.9 million in 1999. Principal expenditures were for
additional facilities and machinery and equipment. Capital expenditures in 2001
included the purchase of a new facility and an investment in a new ERP computer
system at one of the Corporation's major facilities. Capital expenditures in
1999 included construction of a new, state-of-the-art Metal Treatment facility
in Chester, England.
In 2002, capital expenditures are expected to remain consistent with 2001 levels
due to the continued expansion of the segments.
Cash generated from operations and current short-term investment holdings are
considered adequate to meet the Corporation's operating cash requirements for
the upcoming year, including anticipated debt repayments, planned capital
expenditures, dividends, satisfying environmental obligations and working
capital requirements.
The Corporation acquired thirteen businesses since 1998 and expects to continue
to seek acquisitions that are consistent with its strategy. Past acquisitions
have been funded with available cash. As noted in Note 2 to the Consolidated
Financial Statements, certain acquisition agreements contained contingent
purchase price adjustments. Future acquisitions, if any, may be funded by cash,
debt or equity. However, in compliance with certain provisions of the Internal
Revenue Code and recapitalization agreements (see also Recapitalization below),
the Corporation has certain restrictions on the use of its equity, as set forth
in its definitive proxy materials filed with the U.S. Securities and Exchange
Commission on September 5, 2001.
Recapitalization
As previously announced, on October 26, 2001, the Corporation's shareholders
approved a recapitalization plan, which enabled Unitrin to distribute its
approximate 44% equity interest in Curtiss-Wright to its shareholders on a
tax-free basis.
Under the recapitalization plan, and in order to meet certain tax requirements,
Unitrin's approximately 4.4 million shares were exchanged for an equivalent
number of shares of a new Class B Common Stock of Curtiss-Wright which are
entitled to elect 80% of Curtiss-Wright's Board of Directors. After such
exchange, Unitrin immediately distributed the Class B shares to its
approximately 8,000 registered stockholders in a tax-free distribution. The
holders of the outstanding shares of Curtiss-Wright are entitled to elect up to
20% of the Board of Directors after the distribution. Other than the right to
elect Directors, the two classes of stock vote as a class (except as required by
law) and are equal in all other respects. The new Class B Common Stock was
listed on the New York Stock Exchange, effective November 29, 2001.
Under the terms of the recapitalization agreement reached between Unitrin and
Curtiss-Wright, Unitrin agreed to reimburse the Corporation for certain costs
associated with the recapitalization up to a maximum of $1.75 million. This
amount was received subsequent to the recapitalization.
Critical Accounting Policies
Revenue recognition The Corporation uses the percentage-of-completion method for
recognizing revenue for many of its long-term contracts. This method recognizes
revenue as the contracts progress as opposed to the completed contract method
which recognizes revenue when the contract is completed. The
percentage-of-completion method requires the use of estimates as to the future
costs that will be incurred. These costs include material, labor and overhead.
Factors influencing these future costs include the availability of materials and
skilled laborers.
Inventory The Corporation purchases materials for the manufacture of components
for use in its contracts and for use by its repair and overhaul businesses. The
decision to purchase a set quantity of a particular item is influenced by
several factors including: current and projected cost; future estimated
availability; existing and projected contracts to produce certain items; and the
estimated needs for its repair and overhaul business. The Corporation estimates
the net realizable value of its inventories and establishes reserves to reduce
the carrying amount of these inventories as necessary.
Pension assets The Corporation, in consultation with its actuary, determines the
appropriate assumptions for use in determining the liability for future pensions
and other postemployment benefits. In 2001, the Corporation recognized pension
income of approximately $11 million, as amounts funded for the pension plan in
prior years together with earnings on those assets, exceeded the calculated
liability. As of December 31, 2001, the pension trust was in an overfunded
position of approximately $71 million, which will be recognized in income in
future years. The timing and amount to be recognized each year is dependent on
the demographics and earnings of the plan participants, the interest rates in
effect in future years, and the actual investment returns of the assets in the
pension trust.
Environmental reserves The Corporation provides for environmental reserves when,
in conjunction with its internal and external counsel, it determines that a
liability is both probable and estimable. In many cases, the liability is not
fixed or capped when the Corporation first records a liability for a particular
site. Factors that affect the recorded amount of the liability in future years
include: the Corporation's participation percentage due to a settlement by or
bankruptcy of other Potentially Responsible Parties; a change in the
environmental laws requiring more stringent
23_CURTISS-WRIGHT AND SUBSIDIARIES
requirements; a change in the estimate of future costs that will be incurred to
remediate the site; and changes in technology related to environmental
remediation.
Goodwill and other intangible assets At December 31, 2001, the Corporation has
recorded $91 million in net goodwill and other intangible assets related to
acquisitions made in 2001 and prior years. The recoverability of these assets is
subject to an impairment test based on the estimated fair value of the
underlying businesses. These estimated fair values are based on estimates of
future cash flows of the businesses. Factors affecting these future cash flows
include: the continued market acceptance of the products and services offered by
the businesses; the development of new products and services by the businesses
and the underlying cost of development; the future cost structure of the
businesses; and future technological changes.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141, which requires
all business combinations to be accounted for under the purchase method of
accounting, was effective for business combinations initiated after June 30,
2001. Under the new rules of SFAS No. 142, goodwill will no longer be amortized
but will be subject to annual impairment tests in accordance with the statement.
Other intangible assets will continue to be amortized over their useful lives.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001.
Accordingly, the Corporation will apply the new rules on accounting for goodwill
and other intangible assets beginning in 2002. Application of the
nonamortization provisions of the statement is expected to increase operating
income in 2002 by approximately $1.8 million, however, the final allocation of
the purchase price to goodwill and other intangible assets for the 2001
acquisitions could potentially offset this savings. The Corporation has not yet
determined the final goodwill allocation or the effect that these impairment
tests might have on the earnings and financial position of the Corporation. See
Note F to the Consolidated Financial Statements for further discussion on the
intangible assets.
In October, 2001, the Financial Accounting Standards Board issued SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets." This statement
defines the accounting for long-lived assets to be held and used, assets held
for sale and assets to be disposed of by other than sale and is effective for
fiscal years beginning after December 15, 2001. The Corporation has not yet
determined the impact of this pronouncement.
Recent Development
On February 20, 2002, the Corporation entered into an agreement to acquire the
stock of Penny and Giles Controls Ltd., Penny and Giles Controls Inc., and Penny
and Giles Aerospace Ltd., substantially all of the assets of Autronics
Corporation and the assets of Penny & Giles International Plc. devoted to its
aerospace components business from Spirent Plc., a British based company. The
purchase price of the acquisition, subject to adjustment as provided for in the
Share and Asset Purchase Agreement was $60 million in cash and the assumption of
certain liabilities. Management's intention is to fund approximately half of the
purchase price from credit available under the Corporation's Revolving Credit
facility. Revenues of the purchased businesses totaled approximately $62 million
for the year ending December 31, 2001. See Note 18 to the Consolidated Financial
Statements for further information.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation is exposed to certain market risks from changes in interest
rates and foreign currency exchange rates as a result of its global operating
and financing activities. Although foreign currency translation had an adverse
impact on sales and operating income in 2001, the Corporation seeks to minimize
the risks from these interest rate and foreign currency exchange rate
fluctuations through its normal operating and financing activities and, when
deemed appropriate, through the use of derivative financial instruments. The
Corporation did not use such instruments for trading or other speculative
purposes and did not use leveraged derivative financial instruments during the
year ended December 31, 2001. Information regarding the Corporation's accounting
policy on financial instruments is contained in Note G to the Consolidated
Financial Statements.
The Corporation's market risk for a change in interest rates relates primarily
to the debt obligations. Approximately 63% of the Corporation's debt at December
31, 2001 and 62% of the December 31, 2000 debt is comprised of Industrial
Revenue Bond financing. As described in Note 10 to the Consolidated Financial
Statements, to mitigate its currency exposure, the Corporation has outstanding
variable rate debt borrowings of 13,200,000 Swiss Francs as of December 31, 2001
under its revolving credit agreement, arising from the purchase of SIG
Antriebstechnik AG.
Financial instruments expose the Corporation to counter-party credit risk for
nonperformance and to market risk for changes in interest and currency rates.
The Corporation manages exposure to counter-party credit risk through specific
minimum credit standards, diversification of counter-parties and procedures to
monitor concentrations of credit risk. The Corporation monitors the impact of
market risk on the fair value and cash flows of its investments by considering
reasonably possible changes in interest rates and by limiting the amount of
potential interest and currency rate exposures to amounts that are not material
to the Corporation's consolidated results of operations and cash flows.
24_CURTISS-WRIGHT AND SUBSIDIARIES
REPORT OF THE CORPORATION
The consolidated financial statements appearing on pages 26 through 44 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 below. 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, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. 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
auditing standards generally accepted in the United States of America, 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 our opinion.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 1, 2002, except for Note 18 as to which the date is February 22, 2002.
25_CURTISS-WRIGHT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
===================================================================================================================
For the years ended December 31, (In thousands, except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 343,167 $ 329,575 $ 293,263
Cost of sales 215,350 208,605 190,852
- -------------------------------------------------------------------------------------------------------------------
Gross profit 127,817 120,970 102,411
Research and development costs 4,383 3,443 2,801
Selling expenses 18,325 18,591 17,015
General and administrative expenses 60,764 49,792 43,121
Gain from insurance company demutalization (2,980) -- --
Environmental remediation and administrative expenses, net of (recoveries) 167 (3,041) (11,683)
- -------------------------------------------------------------------------------------------------------------------
Operating income 47,158 52,185 51,157
Investment income, net 2,599 2,862 2,295
Rental income, net 3,312 3,638 4,580
Pension income, net 11,042 7,813 6,574
Gain on sale of real property 38,882 1,436 --
Other income (expense), net 384 (220) (8)
Interest expense (1,180) (1,743) (1,289)
- -------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 102,197 65,971 63,309
Provision for income taxes 39,317 24,897 24,264
- -------------------------------------------------------------------------------------------------------------------
Net earnings 62,880 $ 41,074 $ 39,045
===================================================================================================================
Net Earnings per Share:
Basic earnings per share $ 6.25 $ 4.10 $ 3.86
===================================================================================================================
Diluted earnings per share $ 6.14 $ 4.03 $ 3.82
===================================================================================================================
See notes to consolidated financial statements.
26_CURTISS-WRIGHT AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
==============================================================================================================================
At December 31, (In thousands) 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Assets:
Current assets:
Cash and cash equivalents $ 25,495 $ 8,692
Short-term investments 41,658 62,766
Receivables, net 86,354 67,815
Inventories, net 57,115 50,002
Deferred tax assets, net 9,565 9,378
Other current assets 5,770 3,419
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 225,957 202,072
- ------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land 6,201 5,024
Buildings and improvements 55,303 95,965
Machinery, equipment and other 164,931 149,665
- ------------------------------------------------------------------------------------------------------------------------------
226,435 250,654
Less accumulated depreciation 121,914 157,418
- ------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 104,521 93,236
- ------------------------------------------------------------------------------------------------------------------------------
Prepaid pension costs 70,796 59,765
Goodwill and other intangible assets, net 90,914 47,543
Property held for sale 2,460 2,460
Other assets 5,780 4,340
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 500,428 $ 409,416
==============================================================================================================================
Liabilities:
Current liabilities:
Current portion of long-term debt $ -- $ 5,347
Accounts payable 19,362 13,766
Accrued expenses 23,163 19,389
Income taxes payable 17,704 4,157
Other current liabilities 15,867 9,634
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 76,096 52,293
- ------------------------------------------------------------------------------------------------------------------------------
Long-term debt 21,361 24,730
Deferred income taxes, net 26,043 21,689
Accrued postretirement benefit costs 5,335 5,479
Other liabilities 21,639 15,001
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 150,474 119,192
- ------------------------------------------------------------------------------------------------------------------------------
Contingencies and Commitments (Notes 10, 11, 13, 15 & 17)
Stockholders' Equity:
Preferred stock, $1 par value, 650,000 shares authorized, none issued -- --
Common stock, $1 par value, 11,250,000 shares authorized, 10,617,600 shares issued at December 31,
2001 and 15,000,000 issued at December 31, 2000; outstanding shares were 5,692,325 at
December 31, 2001 and 10,017,280 at December 31, 2000 10,618 15,000
Class B common stock, $1 par value, 11,250,000 shares authorized; 4,382,400 shares issued;
outstanding shares were 4,382,400 at December 31, 2001 4,382 --
Additional paid-in capital 52,532 51,506
Retained earnings 469,303 411,866
Unearned portion of restricted stock (78) (22)
Accumulated other comprehensive income (6,831) (5,626)
- ------------------------------------------------------------------------------------------------------------------------------
529,926 472,724
Less: Common treasury stock, at cost (4,925,275 shares at December 31, 2001 and 4,982,720 shares at
December 31, 2000) 179,972 182,500
- ------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 349,954 290,224
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 500,428 $ 409,416
==============================================================================================================================
See notes to consolidated financial statements.
27_CURTISS-WRIGHT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
============================================================================================================================
For the years ended December 31, (In thousands) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings $ 62,880 $ 41,074 $ 39,045
- ----------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 14,734 14,346 12,864
Noncash pension income (11,042) (7,813) (6,574)
Net gains on sales and disposals of real estate and equipment (39,018) (1,390) --
Net (gains) losses on short-term investments (42) (206) 340
Deferred income taxes 4,167 6,886 2,300
Changes in operating assets and liabilities, net of businesses acquired:
Proceeds from sales of short-term investments 348,911 523,656 394,355
Purchases of short-term investments (327,761) (560,656) (353,861)
(Increase) decrease in receivables (7,203) 3,702 6,878
(Increase) decrease in inventories (3,232) 11,534 2,830
Increase (decrease) in progress payments 4,186 (1,552) (13,057)
(Decrease) increase in accounts payable and accrued expenses (2,831) 338 (1,734)
Increase (decrease) in income taxes payable 12,694 (1,046) 151
Increase (decrease) in other assets (2,051) 4,499 (1,016)
Increase (decrease) in other liabilities 6,763 (10,081) 241
Other, net 105 838 (1,886)
- ----------------------------------------------------------------------------------------------------------------------------
Total adjustments (1,620) (16,945) 41,831
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 61,260 24,129 80,876
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net proceeds from sales and disposals of real estate and equipment 45,201 3,765 2,586
Additions to property, plant and equipment (19,354) (9,506) (19,883)
Acquisition of new businesses (58,982) (1,961) (49,322)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (33,135) (7,702) (66,619)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (8,228) (7,575) --
Reimbursement of recapitalization expenses 1,750 -- --
Proceeds from exercise of stock options 1,804 -- --
Common stock repurchases -- (1,489) (5,440)
Dividends paid (5,443) (5,214) (5,257)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (10,117) (14,278) (10,697)
- ----------------------------------------------------------------------------------------------------------------------------
Effect of foreign currency (1,205) (3,004) 178
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 16,803 (855) 3,738
Cash and cash equivalents at beginning of year 8,692 9,547 5,809
Cash and cash equivalents at end of year $ 25,495 $ 8,692 $ 9,547
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash investing activities:
Fair value of assets acquired $ 78,979 $ 2,231 $ 54,868
Liabilities assumed (14,829) (270) (5,034)
Less: Cash acquired (5,168) -- (512)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash paid $ 58,982 $ 1,961 $ 49,322
============================================================================================================================
See notes to consolidated financial statements.
28_CURTISS-WRIGHT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
============================================================================================
Class B Additional
Common Common Paid in Retained
(In thousands) Stock Stock Capital Earnings
- --------------------------------------------------------------------------------------------
December 31, 1998 $ 15,000 $ -- $ 51,669 $ 342,218
- --------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 39,045
Translation adjustments, net -- -- -- --
============================================================================================
Total comprehensive income -- -- -- --
============================================================================================
Dividends paid -- -- -- (5,257)
Common stock repurchase -- -- -- --
Stock options exercised, net -- -- (70) --
Amortization of earned
portion of restricted
stock awards -- -- -- --
- --------------------------------------------------------------------------------------------
December 31, 1999 15,000 -- 51,599 376,006
- --------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 41,074
Translation adjustments, net -- -- -- --
- --------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- --
============================================================================================
Dividends paid -- -- -- (5,214)
Common stock repurchase -- -- -- --
Stock options exercised, net -- -- (94) --
Restricted stock awards -- -- 1 --
Amortization of earned
portion of restricted
stock awards -- -- -- --
- --------------------------------------------------------------------------------------------
December 31, 2000 15,000 51,506 411,866
- --------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 62,880
Translation adjustments, net -- -- -- --
============================================================================================
Total comprehensive income -- -- -- --
============================================================================================
Dividends paid -- -- -- (5,443)
Common stock repurchase -- -- -- --
Stock options exercised, net -- -- (730) --
Restricted stock awards -- -- 6 --
Amortization of earned
portion of restricted
stock awards -- -- -- --
Recapitalization (4,382) 4,382 1,750 --
- --------------------------------------------------------------------------------------------
December 31, 2001 $ 10,618 $ 4,382 $ 52,532 $ 469,303
============================================================================================
==============================================================================================
Unearned Accumulated
Portion of Other
Restricted Comprehensive Comprehensive Treasury
(In thousands) Stock Awards Income Income Stock
- ----------------------------------------------------------------------------------------------
December 31, 1998 $ (40) $(2,800) $ 176,454
- ----------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- $39,045 --
Translation adjustments, net -- 178 178 --
==============================================================================================
Total comprehensive income -- -- $39,223 --
==============================================================================================
Dividends paid -- -- --
Common stock repurchase -- -- 5,440
Stock options exercised, net -- -- (290)
Amortization of earned
portion of restricted
stock awards 16 -- --
- ----------------------------------------------------------------------------------------------
December 31, 1999 (24) (2,622) 181,604
- ----------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- $41,074 --
Translation adjustments, net -- (3,004) (3,004) --
- ----------------------------------------------------------------------------------------------
Total comprehensive income -- -- $38,070 --
==============================================================================================
Dividends paid -- -- --
Common stock repurchase -- -- 1,489
Stock options exercised, net -- -- (579)
Restricted stock awards (15) -- (14)
Amortization of earned
portion of restricted
stock awards 17 -- --
- ----------------------------------------------------------------------------------------------
December 31, 2000 (22) (5,626) 182,500
- ----------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- $62,880 --
Translation adjustments, net -- (1,205) (1,205) --
==============================================================================================
Total comprehensive income -- -- $61,675 --
==============================================================================================
Dividends paid -- -- --
Common stock repurchase -- -- --
Stock options exercised, net -- -- (2,456)
Restricted stock awards (77) -- (72)
Amortization of earned
portion of restricted
stock awards 21 -- --
Recapitalization -- -- --
- ----------------------------------------------------------------------------------------------
December 31, 2001 $ (78) $(6,831) $ 179,972
==============================================================================================
See notes to consolidated financial statements.
29_CURTISS-WRIGHT 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 company that designs,
manufactures and overhauls precision components and systems and provides highly
engineered services to the aerospace, defense, automotive, shipbuilding,
processing, oil, petrochemical, agricultural equipment, railroad, power
generation, security, and metalworking industries. Operations are conducted
through 13 manufacturing facilities, 41 metal treatment service facilities and 4
aerospace component overhaul locations.
A. Principles of Consolidation
The financial statements of the Corporation have been prepared in conformity
with accounting principles generally accepted in the United States and such
preparation has required the use of management's best estimates and judgments in
presenting the consolidated accounts of the Corporation, after elimination of
all significant intercompany transactions and accounts. Management's best
estimates include assumptions that affect the reported amount of assets,
liabilities, revenue and expenses in the accompanying financial statements. The
most significant of these estimates include the estimate of costs to complete
long-term contracts under the percentage of completion accounting method and the
estimate of future environmental costs. Actual results may differ from these
estimates. Certain prior year information has been reclassified to conform to
current presentation.
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 prime contracts and subcontracts have been
deducted from receivables and inventories, as disclosed in Notes 6 and 7.
With respect to government 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 or services are rendered. Sales and estimated
profits under certain long-term contracts are recognized under the
percentage-of-completion method of accounting. Profits are recorded pro rata,
based upon current estimates of direct and indirect costs to complete such
contracts.
Losses on contracts are provided for in the period in which the losses become
determinable. Revisions in profit estimates are reflected on a cumulative basis
in the period in which the basis for such revision becomes 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 asset 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 5 to 40 years
Machinery, equipment and other 3 to 15 years
F. Intangible Assets
Intangible assets consist primarily of the excess purchase price of the
acquisitions over the fair value of net assets acquired. The Corporation
amortizes such costs on a straight-line basis over the estimated period
benefited but not exceeding 30 years. Amortization of intangibles, consisting
primarily of goodwill, totaled $3,067,000, $2,561,000 and $1,618,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.
The Corporation reviews the recoverability of all long-term assets, including
the related amortization period, whenever events or changes in circumstances
indicate that the carrying amount of an asset might not be recoverable. The
Corporation determines whether there has been an impairment by comparing the
anticipated undiscounted future net cash flows to the related asset's carrying
value. If an asset is considered impaired, the asset is written down to fair
value which is either determined based on discounted cash flows or appraised
values, depending on the nature of the asset. There were no such write-downs in
2001, 2000, or 1999. In addition, please refer to Note N for information
regarding new rules governing the accounting for goodwill and other intangible
assets.
G. Fair Value of 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 period end.
30_CURTISS-WRIGHT AND SUBSIDIARIES
Accordingly, net realized and unrealized gains and losses on trading securities
are included in net earnings. Due to the short maturities of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses, the net
book value of these financial instruments are deemed to approximate fair value.
The carrying amount of long-term debt approximates fair value because the
interest rates are reset periodically to reflect current market conditions.
H. Research and Development
The Company funds research and development programs for commercial products and
independent research and development and bid and proposal work related to
government products. Development costs include engineering and field support for
new customer requirements. Research and development costs are expensed as
incurred.
I. Environmental Costs
The Corporation establishes a reserve for a potential environmental remediation
liability 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, which are reviewed quarterly, represent the
current value of anticipated remediation not recognizing any recovery from
insurance carriers, or third-party legal actions, and are not discounted.
J. Accounting for Stock-Based Compensation
The Corporation follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB No. 25), in 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 when 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 12.
K. Capital Stock
In February 2001, the Company increased the authorized number of shares for
repurchase under its existing stock buyback program by 600,000 shares. This
increase is an addition to the previous authorization of 300,000 shares.
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 belief of management that the market price of the stock did not
adequately reflect the true value of the Corporation and, therefore, represented
an attractive investment opportunity. The shares are held at cost and reissuance
is recorded at the weighted average cost. Through December 31, 2001, the
Corporation has repurchased 210,930 shares under this program. There was no
stock repurchased in 2001.
L. Earnings Per Share
The Corporation is required to report both basic earnings per share (EPS), based
on the weighted average number of Common and Class B shares outstanding, and
diluted earnings per share based on the basic EPS adjusted for all potentially
dilutive shares issuable. At December 31, 2001, the Corporation had
approximately 119,000 additional stock options outstanding that could
potentially dilute basic EPS in the future. The effect of these options was not
included in the computation of diluted EPS for 2001 because to do so would have
been antidilutive. The Corporation had antidilutive options outstanding of
approximately 124,000 at December 31, 2000 and approximately 334,000 at December
31, 1999. Earnings per share calculations for the years ended December 31, 2001,
2000, and 1999 are as follows:
================================================================================
Weighted
Average
Net Shares Earnings
(In thousands, except per share data) Income Outstanding(1) Per Share
- --------------------------------------------------------------------------------
2001:
Basic earnings per share $62,880 10,061 $6.25
Effect of dilutive securities:
Stock options -- 172
Deferred stock compensation -- 3
- --------------------------------------------------------------------------------
Diluted earnings per share $62,880 10,236 $6.14
================================================================================
2000:
Basic earnings per share $41,074 10,015 $4.10
Effect of dilutive securities:
Stock options -- 176
Deferred stock compensation -- 3
- --------------------------------------------------------------------------------
Diluted earnings per share $41,074 10,194 $4.03
================================================================================
1999:
Basic earnings per share $39,045 10,115 $3.86
Effect of dilutive securities:
Stock options -- 99
Deferred stock compensation -- 1
- --------------------------------------------------------------------------------
Diluted earnings per share $39,045 10,215 $3.82
================================================================================
(1) Shares in 2001 include the Corporation's Common and Class B shares.
31_CURTISS-WRIGHT AND SUBSIDIARIES
M. Accounting for Derivatives and Hedging Activities
The Corporation adopted Statement of Financial Accounting Standard No. 133,
"Accounting for Derivatives and Hedging Activities," effective January 1, 2001.
The adoption of this standard had no material effect on the Corporation's
results of operation or financial condition due to its limited use of
derivatives.
N. Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141, which requires
all business combinations to be accounted for under the purchase method of
accounting, is effective for business combinations initiated after June 30,
2001. Under the new rules of SFAS No. 142, goodwill will no longer be amortized
but will be subject to annual impairment tests in accordance with the
statements. Other intangible assets will continue to be amortized over their
useful lives. SFAS No. 142 is effective for fiscal years beginning after
December 15, 2001. Accordingly, the Corporation will apply the new rules on
accounting for goodwill and other intangible assets beginning in 2002.
Application of the nonamortization provisions of the statement is expected to
increase operating income in 2002 by approximately $1.8 million, however, the
final allocation of the purchase price to goodwill and other intangible assets
for the 2001 acquisitions could potentially offset this savings. The Corporation
has not yet determined the final goodwill allocation or the effect that these
impairment tests might have on the earnings and financial position of the
Corporation. See Note F for further discussion of the intangible assets.
In October, 2001, the Financial Accounting Standards Board issued SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets". This statement
defines the accounting for long-lived assets to be held and used, assets held
for sale and assets to be disposed of by other than sale and is effective for
fiscal years beginning after December 15, 2001. The Corporation has not yet
determined the impact of this pronouncement.
2. Acquisitions
The Corporation acquired seven businesses in 2001, one business in 2000 and
three businesses in 1999, as described below. All acquisitions have been
accounted for as purchases with the excess of the purchase price over the
estimated fair value of the net assets acquired recorded primarily as goodwill.
The Corporation has made a preliminary estimate of the value of identifiable
intangibles with a finite life and recorded amortization in 2001 based upon the
estimated useful life of those intangible assets identified. The Corporation
will adjust these estimates based upon third party appraisals, when finalized.
The results of each operation have been included in the consolidated financial
results of the Corporation from the date of acquisition in the segment indicated
as follows:
Motion Control
Lau Defense Systems and Vista Controls
On November 1, 2001 the Corporation acquired the assets of Lau Defense Systems
("LDS") and the stock of Vista Controls, Inc. ("Vista"). LDS and Vista design
and manufacture "mission-critical" electronic control systems primarily for the
defense market. In addition, an agreement was reached for the negotiation of
licenses for facial recognition products for certain U.S. Government and
industrial markets. The businesses acquired have operating facilities located in
Littleton, Massachusetts and Santa Clarita, California. The purchase price of
the acquisition, subject to adjustment as provided for in the purchase
agreement, was $41 million in cash and the assumption of certain liabilities.
There are provisions in the agreement for additional payments upon the
achievement of certain financial performance criteria over the next five years
up to a maximum additional payment of $22 million. This acquisition was
accounted for as a purchase in the fourth quarter of 2001. The excess of the
purchase price over the fair value of the net assets acquired is approximately
$35.7 million. The fair value of the net assets acquired was based on
preliminary estimates and may be revised at a later date.
Flow Control
Solent & Pratt
On March 23, 2001, the Corporation acquired the operating assets of Solent &
Pratt Ltd. ("Solent & Pratt"). Solent & Pratt is a manufacturer of high
performance butterfly valves and is a global supplier to the petroleum,
petrochemical, chemical and process industries. The operations are located in
Bridport, England and will continue to operate under the Solent & Pratt name.
32_CURTISS-WRIGHT AND SUBSIDIARIES
The Corporation purchased the assets of Solent & Pratt for approximately $1.5
million in cash and assumed certain liabilities. There are provisions in the
agreement for additional payments upon the achievement of certain performance
criteria over the next five years. The acquisition was accounted for as a
purchase in the first quarter of 2001. The excess of the purchase price over the
fair value of the net assets acquired is currently estimated at $2.4 million.
The fair value of the net assets acquired was based on preliminary estimates and
may be revised at a later date.
Peerless Instrument Company
On November 8, 2001, the Corporation acquired the stock of Peerless Instrument
Co., Inc. ("Peerless"). Peerless is an engineering and manufacturing company
that designs and produces custom control components and systems for flow control
applications primarily to the U.S. Nuclear Naval program. The business is
located in Elmhurst, New York. The purchase price of the acquisition, subject to
adjustment as provided for in the purchase agreement, was $7 million plus the
assumption of certain liabilities. This acquisition has been accounted for as a
purchase in the fourth quarter of 2001. The excess of the purchase price over
the fair value of the net assets acquired is approximately $3.3 million. The
fair value of the net assets acquired was based on preliminary estimates and may
be revised at a later date.
Deltavalve
On December 12, 2001, the Corporation acquired the operating assets of
Deltavalve USA, LLC ("Deltavalve"). Deltavalve designs, engineers and
manufactures industrial valves used in high pressure, extreme temperature and
corrosive plant environments. Deltavalve is located in Salt Lake City, Utah with
an assembly and test facility in Calgary, Alberta, Canada.
The Corporation acquired the net assets of Deltavalve for $6.5 million in cash,
subject to adjustment as provided for in the agreement. There are provisions in
the agreement for additional payments upon the achievement of certain financial
performance criteria over the next five years. This acquisition was accounted
for as a purchase in the fourth quarter of 2001. The excess of the purchase
price over the fair value of the net assets acquired was $4.6 million. The fair
value of the net assets acquired was based on preliminary estimates and may be
revised at a later date.
Farris Engineering and Sprague Products
On August 27, 1999, the Corporation completed its acquisition of the Farris
Engineering ("Farris") and Sprague Products ("Sprague") businesses. 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. 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 valves for truck transmissions and
car transport carriers.
The Corporation acquired the net assets of the Farris and Sprague businesses for
$42.9 million in cash. This acquisition was accounted for as a purchase in the
third quarter of 1999. The excess of the purchase price over the fair value of
the net assets acquired was $18.5 million and is being amortized over 30 years.
Metal Treatment
Ironbound Heat Treating Company
On November 6, 2001, the Corporation acquired the commercial heat-treating
assets of Ironbound Heat Treating Company ("Ironbound"). Ironbound provides
heat-treating services to markets that include tool and die, automotive,
aerospace and medical components. The business is located in Roselle, New
Jersey. The purchase price of the acquisition, subject to adjustment as provided
for in the purchase agreement, was $4.5 million in cash and the assumption of
certain liabilities. This acquisition has been accounted for as a purchase in
the fourth quarter of 2001. The excess of the purchase price over the fair value
of the net assets acquired is approximately $1.4 million. The fair value of the
net assets acquired was based on preliminary estimates and may be revised at a
later date.
Bodycote Thermal Processing
On December 19, 2001, the Corporation acquired the Wichita, Kansas Heat Treating
operation of Bodycote Thermal Processing. This operation provides heat treating
services to a number of industries including aerospace and agriculture.
The purchase price of the acquisition was $3.6 million. This acquisition has
been accounted for as a purchase in the fourth quarter of 2001. The preliminary
estimate of the fair value of the assets acquired approximates the purchase
price. However, these estimates may be revised at a later date.
33_CURTISS-WRIGHT AND SUBSIDIARIES
EF Quality Heat Treating Company
On December 14, 2000, the Corporation acquired EF Quality Heat Treating Company
("EF"), a Midwest provider of heat treating services primarily to the automotive
industry. EF provides atmosphere normalizing, annealing and stress relieving
services from its Salem, Ohio location.
The Corporation acquired the net assets of the EF business for approximately
$2.2 million. This acquisition has been accounted for as a purchase in the
fourth quarter of 2000. The excess of the purchase price over the fair value of
the net assets acquired is approximately $1.0 million and is being amortized
over 25 years.
Metallurgical Processing Inc.
On June 30, 1999, the Corporation acquired Metallurgical Processing, Inc.
("MPI"), a supplier of commercial heat-treating services, primarily to the
automotive and industrial markets. MPI provides a number of metal-treatment
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 $7.4 million in cash and accounted
for the acquisition as a purchase in the second quarter of 1999. The excess of
the purchase price over the fair value of the net assets acquired was $2.2
million and is being amortized over 25 years.
3. Divestitures
On December 20, 2001, the Corporation sold its Wood-Ridge Business Complex for
$51 million, which is located in Wood-Ridge, New Jersey. The business complex
comprised approximately 2.3 million square feet of rental space situated on 138
acres of land.
Under the sale agreement, the Corporation will retain the responsibility to
continue the ongoing environmental remediation on the property until such time
that a "no further action" letter and covenant not to sue is obtained from the
New Jersey Department of Environmental Protection. The cost of the remediation
has been previously provided for. Please refer to Note 13 for additional
information.
4. Recapitalization
On October 26, 2001, the Corporation's shareholders approved a recapitalization
plan, which enabled Unitrin Inc. ("Unitrin") to distribute its approximate 44%
equity interest in Curtiss-Wright to its shareholders on a tax-free basis.
Under the recapitalization plan, and in order to meet certain tax requirements,
Unitrin's approximately 4.4 million common shares were exchanged for an
equivalent number of shares of a new Class B Common Stock of Curtiss-Wright,
which are entitled to elect 80 percent of Curtiss-Wright's Board of Directors.
After such exchange, Unitrin immediately distributed the Class B shares to its
approximately 8,000 registered stockholders in a tax-free distribution. The
holders of the outstanding Common shares of Curtiss-Wright are entitled to elect
up to 20% of the Board of Directors after the distribution. Other than the right
to elect Directors, the two classes of stock vote as a class (except as required
by law) and are equal in all other respects. The new Class B Common Stock was
listed on the New York Stock Exchange, effective November 29, 2001.
In November 2000, Curtiss-Wright's Board of Directors had approved an agreement
with Unitrin related to the recapitalization plan. Under this agreement, Unitrin
agreed to reimburse the Corporation for certain costs incurred in connection
with the recapitalization up to a maximum of $1.75 million. The maximum amount
was received subsequent to the recapitalization and is reflected in the
financial statements as Additional Paid-In Capital. Recapitalization costs of
$1.5 million were incurred in 2001 and are included in general and
administrative costs in the statement of earnings.
5. Short-term Investments
The composition of short-term investments is as follows:
================================================================================
December 31, 2001 2000
- --------------------------------------------------------------------------------
(In thousands) Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------
Money market
preferred stocks $11,850 $11,850 $16,700 $16,700
Common and
preferred stocks 104 208 2,104 2,166
Tax exempt
revenue bonds 29,600 29,600 43,900 43,900
- --------------------------------------------------------------------------------
Total short-term
investments $41,554 $41,658 $62,704 $62,766
================================================================================
Investment income for the years ended December 31 consists of:
===============================================================================
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------
Interest and dividend
income, net $2,480 $2,521 $ 2,361
Net realized gains on the sales
of short-term investments 77 135 274
Net unrealized holding
gains (losses) 42 206 (340)
- -------------------------------------------------------------------------------
Investment income, net $2,599 $2,862 $ 2,295
===============================================================================
34_CURTISS-WRIGHT AND SUBSIDIARIES
6. Receivables
Receivables include current notes, amounts billed to customers, claims and other
receivables and unbilled revenue 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 6% of the total outstanding billed
receivables at December 31, 2001 and 7% of the total outstanding billed
receivables at December 31, 2000. This same customer of the Motion Control
segment accounted for 13% of consolidated revenue in 2001, 13% in 2000 and 14%
in 1999. In addition, the Corporation is either a prime or subcontractor of
various agencies of the U.S. Government. Revenues derived directly and
indirectly from government sources (primarily the U.S. Government) totaled
$84,443,000, or 25% of consolidated revenue in 2001, $56,400,000, or 17% in 2000
and $50,116,000, or 17% in 1999.
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 Notes receivable for 2001 includes a $2.5 million receivable from the sale
of the Wood-Ridge property. This amount was subsequently collected in February
2002. See Note 3 for additional information on this divestiture.
The composition of receivables is as follows:
===============================================================================
(In thousands) December 31, 2001 2000
- -------------------------------------------------------------------------------
Billed Receivables:
Trade and other receivables $ 70,562 $ 59,904
Less: Progress payments applied (2,393) (1,508)
Allowance for doubtful accounts (2,117) (2,659)
- -------------------------------------------------------------------------------
Net billed receivables 66,052 55,737
- -------------------------------------------------------------------------------
Unbilled Receivables:
Recoverable costs and estimated earnings
not billed 24,799 18,091
Less: Progress payments applied (8,015) (7,040)
- -------------------------------------------------------------------------------
Net unbilled receivables 16,784 11,051
- -------------------------------------------------------------------------------
Notes Receivable 3,518 1,027
- -------------------------------------------------------------------------------
Receivables, net $ 86,354 $ 67,815
===============================================================================
7. Inventories
Inventories are valued at the lower of cost (principally average cost) or
market. The composition of inventories is as follows:
===============================================================================
(In thousands) December 31, 2001 2000
- -------------------------------------------------------------------------------
Raw material $ 25,761 $ 11,955
Work-in-process 19,079 10,815
Finished goods and component parts 34,853 32,621
Inventoried costs related to
U.S. Government and other
long-term contracts 7,248 5,961
- -------------------------------------------------------------------------------
Gross inventories 86,941 61,352
Less: Inventory reserves (14,384) (10,944)
Progress payments applied,
principally related to
long-term contracts (15,442) (406)
- -------------------------------------------------------------------------------
Inventories, net $ 57,115 $ 50,002
===============================================================================
8. Accrued Expenses and Other Current Liabilities
Accrued expenses consist of the following:
================================================================================
(In thousands) December 31, 2001 2000
- --------------------------------------------------------------------------------
Accrued compensation $11,914 $ 9,117
Accrued taxes other than income taxes 1,591 2,073
Accrued insurance 2,207 1,812
Accrued royalties 1,236 631
Accrued commissions 1,112 2,118
All other 5,103 3,638
- --------------------------------------------------------------------------------
Total accrued expenses $23,163 $19,389
================================================================================
Other current liabilities consist of the following:
================================================================================
(In thousands) December 31, 2001 2000
- --------------------------------------------------------------------------------
Customer advances $ 4,167 $ 3,734
Current portion of environmental reserves 2,129 1,393
Anticipated losses on long-term contracts 1,139 1,322
Estimated warranty costs 1,696 849
Additional amounts due to sellers
on acquisitions 2,540 --
All other 4,196 2,336
- --------------------------------------------------------------------------------
Total other current liabilities $15,867 $ 9,634
================================================================================
35_CURTISS-WRIGHT AND SUBSIDIARIES
9. Income Taxes
Earnings before income taxes for the years ended December 31 consist of:
================================================================================
(In thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Domestic $ 84,018 $48,550 $47,088
Foreign 18,179 17,421 16,221
- --------------------------------------------------------------------------------
Total $102,197 $65,971 $63,309
================================================================================
The provision for income taxes for the years ended December 31 consist of:
================================================================================
(In thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Current:
Federal $ 22,656 $ 9,342 $11,843
State 6,048 2,571 3,619
Foreign 5,829 5,809 6,000
- --------------------------------------------------------------------------------
34,533 17,722 21,462
- --------------------------------------------------------------------------------
Deferred:
Federal 3,763 5,953 2,143
State 505 966 407
Foreign 516 256 252
- --------------------------------------------------------------------------------
4,784 7,175 2,802
- --------------------------------------------------------------------------------
Provision for income taxes $ 39,317 $24,897 $24,264
================================================================================
The effective tax rate varies from the U. S. federal statutory tax rate for the
years ended December 31, principally due to the following:
================================================================================
2001 2000 1999
- --------------------------------------------------------------------------------
U.S. Federal statutory tax rate 35.0% 35.0% 35.0%
Add (deduct):
State and local taxes 4.2 3.5 4.1
Dividends received deduction
and tax exempt income (0.5) (0.8) (0.8)
All other, net (0.2) -- --
- --------------------------------------------------------------------------------
Effective tax rate 38.5% 37.7% 38.3%
================================================================================
The components of the Corporation's deferred tax assets and liabilities at
December 31 are as follows:
===============================================================================
(In thousands) 2001 2000
- -------------------------------------------------------------------------------
Deferred tax assets:
Environmental reserves $ 5,275 $ 5,416
Inventories 4,450 4,440
Postretirement/postemployment
benefits 2,241 2,229
Incentive compensation 2,383 1,737
Accrued vacation pay 1,179 1,159
Other 4,068 1,953
- -------------------------------------------------------------------------------
Total deferred tax assets 19,596 16,934
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Retirement plans 26,882 22,929
Depreciation 5,406 4,270
Other 3,786 2,046
- -------------------------------------------------------------------------------
Total deferred tax liabilities 36,074 29,245
- -------------------------------------------------------------------------------
Net deferred tax liabilities $ 16,478 $ 12,311
===============================================================================
Deferred tax assets and liabilities are reflected on the Corporation's
consolidated balance sheets at December 31 as follows:
===============================================================================
2001 2000
- -------------------------------------------------------------------------------
Current deferred tax assets $ 9,565 $ 9,378
Noncurrent deferred tax liabilities (26,043) (21,689)
- -------------------------------------------------------------------------------
Net deferred tax liabilities $(16,478) $(12,311)
===============================================================================
Income tax payments of $18,869,000 were made in 2001, $15,466,000 in 2000, and
$20,954,000 in 1999.
No provision has been made for U.S. federal or foreign taxes on that portion of
certain foreign subsidiaries' undistributed earnings ($5,250,564 at December 31,
2001) considered to be permanently reinvested. It is not practicable to estimate
the amount of tax that would be payable if these amounts were repatriated to the
Company, however, it is expected that there would be minimal or no additional
tax because of the availability of foreign tax credits.
36_CURTISS-WRIGHT AND SUBSIDIARIES
10. Long-term Debt
Long-term debt at December 31 consists of the following:
===============================================================================
(In thousands) 2001 2000
- -------------------------------------------------------------------------------
Industrial Revenue Bonds, due from 2007
to 2028. Weighted average interest
rate is 2.99% and 4.07% per annum
for 2001 and 2000, respectively $ 13,400 $ 18,747
- -------------------------------------------------------------------------------
Revolving Credit Agreement Borrowing,
due 2004. Weighted average interest rate
is 3.88% for 2001 and 3.49% for 2000 7,961 11,330
- -------------------------------------------------------------------------------
Total debt 21,361 30,077
- -------------------------------------------------------------------------------
Less: Current portion -- (5,347)
- -------------------------------------------------------------------------------
Total Long-term debt $ 21,361 $ 24,730
===============================================================================
Debt under the Corporation's revolving credit agreement is denominated in Swiss
francs. Actual borrowings were 13,200,000 and 18,250,000 Swiss francs at
December 31, 2001 and 2000, respectively. The carrying amount of long-term debt
approximates fair value because the interest rates are reset periodically to
reflect market conditions and rates.
Aggregate maturities of debt are as follows:
================================================================================
(In thousands)
- --------------------------------------------------------------------------------
2002 $ --
2003 --
2004 7,961
2005 --
2006 --
2007 and beyond 13,400
- --------------------------------------------------------------------------------
$21,361
================================================================================
Interest payments of approximately $826,000, $1,006,000 and $818,000 were made
in 2001, 2000 and 1999, respectively.
11. Credit Agreements
The Corporation has two credit agreements in effect aggregating $100,000,000
with a group of five banks. The credit agreements allow for borrowings to be
denominated in a number of foreign currencies. The Revolving Credit Agreement
commits a maximum of $60,000,000 to the Corporation for cash borrowings and
letters of credit. The unused credit available under this facility at December
31, 2001 was $36,203,000 and was $27,086,000 at December 31, 2000. Cash
borrowings under the Revolving Credit Agreement at December 31, 2001 were
$7,961,000 with a weighted average interest rate during 2001 of 3.88%. Cash
borrowings at December 31, 2000 were $11,330,000 with a weighted average
interest rate during 2000 of 3.49%. The commitment made under the Revolving
Credit Agreement expires December 20, 2004, 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 $40,000,000, all of which was available at December 31, 2001 and
December 31, 2000. The Short-Term Credit Agreement expires December 13, 2002.
The Short-Term Credit Agreement may be extended for additional periods, with the
consent of the bank group, for additional periods not to exceed 364 days each.
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.
At December 31, 2001, substantially all of the industrial revenue bond issues
are collateralized by real estate, machinery and equipment. Certain of these
issues are supported by letters of credit, which total approximately
$13,666,000. The Corporation has various other letters of credit totaling
approximately $2,300,000, most of which are now included under the Revolving
Credit Agreement.
37_CURTISS-WRIGHT AND SUBSIDIARIES
12. 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 2001, 2000 and 1999 employee stock option
grants under the fair value method of that Statement. Information with regard 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:
================================================================================
2001 2000 1999
- --------------------------------------------------------------------------------
Risk-free interest rate 4.66% 5.87% 6.09%
Expected volatility 24.18% 23.96% 25.06%
Expected dividend yield 1.37% 1.09% 1.37%
Weighted average option life 7 years 7 years 7 years
================================================================================
The estimated fair value of the option grants are amortized to expense over the
options' vesting period beginning January 1 of the following year, due to the
timing of the grants. The Corporation's pro forma information for the
years ended December 31, 2001, 2000 and 1999 is as follows:
================================================================================
(In thousands, except per share data) 2001 2000 1999
- --------------------------------------------------------------------------------
Net earnings:
As reported $62,880 $41,074 $39,045
Pro forma $61,683 $40,074 $38,430
Net earnings per share:
As reported:
Basic $ 6.25 $ 4.10 $ 3.86
Diluted $ 6.14 $ 4.03 $ 3.82
Pro forma:
Basic $ 6.13 $ 4.00 $ 3.80
Diluted $ 6.03 $ 3.93 $ 3.76
================================================================================
Long-Term Incentive Plan: Under a Long-Term Incentive Plan ("LTI Plan") approved
by stockholders in 1995, an aggregate total of 1,000,000 shares of common stock
were reserved for issuance under said LTI Plan. No more than 50,000 shares of
common stock subject to the LTI Plan may be awarded in any year to any one
participant in the LTI Plan.
Under this LTI Plan, the Corporation awarded 2,439,805 performance units in
2001, 1,604,825 in 2000 and 1,539,778 in 1999 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.
Under this LTI Plan, the Corporation has granted nonqualified stock options in
2001, 2000, and 1999 to key employees. Stock options granted under this LTI Plan
expire ten years after the date of the grant and are usually 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:
================================================================================
Weighted
Average
Exercise Options
Shares Price Exercisable
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1998 436,501 $28.63 242,071
Granted 147,551 37.82
Exercised (6,155) 21.01
Forfeited (20,276) 34.78
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1999 557,621 30.92 310,586
Granted 124,398 47.72
Exercised (16,080) 22.93
Forfeited (13,225) 37.18
- --------------------------------------------------------------------------------
Outstanding at
December 31, 2000 652,714 34.19 396,049
Granted 206,762 43.70
Exercised (53,832) 22.02
Forfeited (10,687) 43.96
- --------------------------------------------------------------------------------
Outstanding at
December 31, 2001 794,957 $37.65 468,074
================================================================================
38_CURTISS-WRIGHT AND SUBSIDIARIES
Stock Plan for Non-Employee Directors: The Stock Plan for Non-Employee Directors
("Stock Plan"), 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. Pursuant
to the terms of the Stock Plan, on the fifth anniversary of the initial grant,
those non-employee directors who still remain as a non-employee director, shall
receive an additional grant equal to the product of increasing $13,300 at an
annual rate of 2.96%, compounded monthly from the effective date of the Stock
Plan. The amount of that per director grant was determined to be $15,419
representing a total additional grant of 1,555 shares. The cost of the
restricted stock awards is being amortized over a five-year restriction period
from the date of grant. At December 31, 2001, the Corporation had provided for
an aggregate additional 11,630 shares, at an average price of $36.41, for its
non-employee directors pursuant to election by directors to receive such shares
in lieu of payment for earned compensation under the Stock Plan. Depending on
the extent to which the non-employee directors elect to receive future
compensation in shares, total awards under this Stock Plan could reach or exceed
16,000 shares by April 12, 2006, the termination date of the Stock Plan.
Pursuant to elections, 2,442 shares were issued as compensation in 2001 under
the Stock Plan.
13. Environmental Costs
The Corporation has continued the operation of the ground water and soil
remediation activities at the Wood-Ridge, New Jersey site through 2001. The cost
of constructing and operating this site was provided for in 1990 when the
Corporation established a $21,000,000 reserve to remediate the property. Costs
for operating and maintaining this site totaled $546,000 in 2001, $490,000 in
2000 and $563,000 in 1999, all of which have been charged against the previously
established reserve. Even though this property was sold in December 2001 (see
Note 3), the Corporation remains responsible for the completion of this on-going
remediation post-sale.
The Corporation has previously filed lawsuits against several insurance carriers
seeking recovery for environmental costs. The Corporation settled with one
carrier in 1998 and two carriers in 1999. During 2000, the Corporation settled
with the remaining carriers.
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. The Corporation continues to make progress in resolving these claims
through settlement discussions and payments from established reserves.
Significant sites remaining open at the end of the year are: Caldwell Trucking
landfill superfund site, Fairfield, New Jersey; Sharkey landfill superfund site,
Parsippany, New Jersey; Pfohl Brothers landfill site, Cheektowaga, New York;
Amenia landfill site, Amenia, New York; and Chemsol, Inc. superfund site,
Piscataway, New Jersey. The Corporation believes that the outcome for any
of these remaining sites will not have a materially adverse effect on the
Corporation's results of operations or financial condition.
The noncurrent environmental obligation at December 31, 2001 was $9,525,000
compared to $9,925,000 at December 31, 2000 and is included in other liabilities
on the Consolidated Balance Sheet.
14. Pension and Other Postretirement Benefit Plans
The Corporation maintains a noncontributory defined benefit pension plan
covering substantially all employees. The Curtiss-Wright Retirement Plan
("Plan") formula for nonunion employees 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, 2001 and December 31, 2000, the Corporation had prepaid pension
costs of $70,796,000 and $59,765,000, respectively, under this Plan. At December
31, 2001, approximately 36% of the Plan's assets are invested in debt
securities, including a portion in U.S. Government issues. Approximately 64% of
Plan assets are invested in equity securities.
The Corporation also maintains a nonqualified 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 $1,139,000 and $1,226,000 at December 31,
2001 and 2000, respectively. In addition, the Corporation had foreign pension
costs under retirement plans of $975,000, $864,000 and $734,000 in 2001,
2000 and 1999, respectively.
The Corporation also provides postretirement health benefits to certain
employees.
39_CURTISS-WRIGHT AND SUBSIDIARIES
=====================================================================================================
Pension Benefits Postretirement Benefits
- -----------------------------------------------------------------------------------------------------
(In thousands) 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------
Change in Benefit Obligation:
Benefit obligation at beginning of year $ 103,427 $ 106,965 $ 2,027 $ 3,955
Service cost 4,740 4,803 112 118
Interest cost 7,113 7,256 126 181
Plan participants' contributions -- -- 33 158
Actuarial (gain) loss (4) 2,022 (217) (168)
Benefits paid (11,932) (17,619) (91) (280)
Change due to curtailment of benefits -- -- -- (1,937)
- -----------------------------------------------------------------------------------------------------
Benefit obligation at end of year 103,344 103,427 1,990 2,027
=====================================================================================================
Change in Plan Assets:
Fair value of plan assets at beginning of year 252,682 237,813 -- --
Actual return on plan assets (23,882) 30,107 -- --
Employer contribution 76 2,381 58 122
Plan participants' contribution -- -- 34 158
Benefits paid (11,932) (17,619) (92) (280)
- -----------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 216,944 252,682 -- --
=====================================================================================================
Funded status 113,601 149,255 (1,990) (2,027)
Unrecognized net actuarial gain (44,220) (88,765) (2,548) (2,532)
Unrecognized transition obligation (18) (2,206) -- --
Unrecognized prior service costs 294 255 (797) (920)
- -----------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit costs $ 69,657 $ 58,539 $(5,335) $(5,479)
=====================================================================================================
Components of Net Periodic
Benefit Cost (Revenue):
Service cost $ 4,740 $ 4,803 $ 112 $ 118
Interest cost 7,113 7,256 126 181
Expected return on plan assets (18,089) (16,973) -- --
Amortization of prior service cost (40) (36) (123) (123)
Amortization of transition obligation (2,188) (2,188) -- --
Recognized net actuarial gain (2,578) (2,090) (200) (200)
Benefit cost reduction due to curtailment -- -- -- (2,890)
Cost of settlement -- 1,415 -- --
- -----------------------------------------------------------------------------------------------------
Net periodic benefit revenue $ (11,042) $ (7,813) $ (85) $(2,914)
=====================================================================================================
Weighted-average assumptions as of December 31:
Discount rate 7.00% 7.00% 7.00% 7.00%
Expected return on plan assets 8.50% 8.50% -- --
Rate of compensation increase 4.50% 4.50% -- --
=====================================================================================================
40_CURTISS-WRIGHT AND SUBSIDIARIES
For measurement purposes, a 7.46% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2001. The rate was assumed to
decrease gradually to 5.50% over the next seven years and remaining at that
level thereafter.
Effect of change in health care cost trend on:
===============================================================================
(In thousands) 1% Increase 1% Decrease
- -------------------------------------------------------------------------------
Total service and interest
cost components $ 37 $ (31)
Postretirement benefit obligation $259 $(218)
===============================================================================
The Corporation discontinued postretirement medical coverage for former
employees of its Fairfield, NJ plant due to its closure, which resulted
in income of $2,890,000 in 2000.
15. 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, 2001, were $7,301,000 and $4,989,000, respectively,
and at December 31, 2000, were $49,575,000 and $44,166,000, respectively. On
December 20, 2001, the Corporation sold its Wood-Ridge Business Complex (see
Note 3). As a result of this sale, the Corporation will no longer report net
rental income from this property, which amounted to approximately $3,400,000 in
2001.
Facilities and Equipment 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
$4,908,000 in 2001, $4,273,000 in 2000 and $2,770,000 in 1999.
At December 31, 2001, the approximate future minimum rental income and
commitments 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
- --------------------------------------------------------------------------------
2002 $ 220 $ 6,223
2003 120 5,565
2004 120 3,803
2005 120 2,583
2006 120 1,465
2007 and beyond 8,400 1,839
- --------------------------------------------------------------------------------
$ 9,100 $21,478
================================================================================
16. Industry Segments
The Corporation manages and evaluates its operations in three reportable
segments: Motion Control, Metal Treatment and Flow Control. The operating
segments are managed separately because each offers different products and
serves different markets. The principal products and major markets of the three
operating segments are described in the beginning 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. Interest expense and income taxes are also not reported on
an operating segment basis because they are not considered in the performance
evaluation by the Corporation's chief operating decision-maker, its Chairman and
CEO.
The Corporation had one commercial customer in the Motion Control segment that
accounted for 13% of consolidated revenue in 2001, 13% in 2000 and 14% in 1999.
41_CURTISS-WRIGHT AND SUBSIDIARIES
Consolidated Industry Segment Information:
============================================================================================================================
Motion Metal Flow Segment Corporate Consolidated
(In thousands) Control(1) Treatment Control Total & Other(2) Total
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2001:
Revenue from external customers $137,103 $107,807 $ 98,257 $343,167 $ -- $343,167
Intersegment revenues -- 446 -- 446 -- 446
Operating income 19,219 19,513 10,703 49,435 (2,277) 47,158
Depreciation and amortization expense 4,270 5,519 4,279 14,068 666 14,734
Segment assets 152,962 95,945 108,689 357,596 142,832 500,428
Expenditures for long-lived assets 6,306 10,856 1,943 19,105 249 19,354
============================================================================================================================
Year Ended December 31, 2000:
Revenue from external customers $126,771 $105,318 $ 97,486 $329,575 $ -- $329,575
Intersegment revenues -- 508 -- 508 -- 508
Operating income 15,383 23,502 10,276 49,161 3,024 52,185
Depreciation and amortization expense 4,086 5,031 4,124 13,241 1,105 14,346
Segment assets 96,955 84,538 82,670 264,163 145,253 409,416
Expenditures for long-lived assets 1,776 5,451 1,826 9,053 453 9,506
============================================================================================================================
Year Ended December 31, 1999:
Revenue from external customers $124,155 $104,143 $ 64,965 $293,263 $ -- $293,263
Intersegment revenues -- 337 -- 337 -- 337
Operating income 8,667 23,551 6,082 38,300 12,857 51,157
Depreciation and amortization expense 5,056 4,407 2,355 11,818 1,046 12,864
Segment assets 112,943 83,350 95,214 291,507 95,619 387,126
Expenditures for long-lived assets 3,433 14,530 1,543 19,506 377 19,883
============================================================================================================================
(1) Operating income for the Motion Control segment includes consolidation
costs for the relocation of operations in the amount of $3.8 million for
1999.
(2) Operating (loss) income for Corporate and other includes $1.5 million for
recapitalization costs and $0.2 million for environmental costs in 2001;
$2.8 million gain for the curtailment of postretirement benefits and $1.9
million net environmental recoveries, offset by accrued postemployment
cost of $0.7 million in 2000; and $12.4 million in insurance settlements,
net of related expenses in 1999.
42_CURTISS-WRIGHT AND SUBSIDIARIES
Reconciliations:
========================================================================================
For the years ended December 31, (In thousands) 2001 2000 1999
- ----------------------------------------------------------------------------------------
Revenues:
Total segment revenue $ 343,167 $ 329,575 $ 293,263
Intersegment revenue 446 508 337
Elimination of intersegment revenue (446) (508) (337)
- ----------------------------------------------------------------------------------------
Total consolidated revenues $ 343,167 $ 329,575 $ 293,263
========================================================================================
Earnings before taxes:
Total segment operating income $ 49,435 $ 49,161 $ 38,300
Insurance settlements, net -- 3,041 11,683
Corporate and other (2,277) (17) 1,174
Investment income, net 2,599 2,862 2,295
Rental income, net 3,312 3,638 4,580
Pension income, net 11,042 7,813 6,574
Other income (expense), net 39,266 1,216 (8)
Interest expense (1,180) (1,743) (1,289)
- ----------------------------------------------------------------------------------------
Total consolidated earnings before tax $ 102,197 $ 65,971 $ 63,309
========================================================================================
Assets:
Total assets for reportable segments $ 357,596 $ 264,163 $ 291,507
Short-term investments 41,658 62,766 25,560
Pension assets 70,796 59,765 50,447
Other assets 30,418 22,801 19,652
Elimination of intersegment receivables (40) (79) (40)
- ----------------------------------------------------------------------------------------
Total consolidated assets $ 500,428 $ 409,416 $ 387,126
========================================================================================
=======================================================================================================================
December 31, (In thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Long-Lived Long-Lived Long-Lived
Revenues(1) Assets Revenues(1) Assets Revenues(1) Assets
- -----------------------------------------------------------------------------------------------------------------------
Geographic Information:
United States $257,208 $189,508 $213,343 $214,250 $200,253 $209,370
United Kingdom 31,340 23,047 32,133 22,666 29,762 20,986
Other foreign countries 54,619 13,880 84,099 13,738 63,248 11,644
- -----------------------------------------------------------------------------------------------------------------------
Consolidated total $343,167 $226,435 $329,575 $250,654 $293,263 $242,000
=======================================================================================================================
(1) Revenues are attributed to countries based on the location of the
customer.
43_CURTISS-WRIGHT AND SUBSIDIARIES
17. Contingencies and Commitments
The Corporation's Drive Technology (Drive Technology) subsidiary located in
Switzerland entered into a sales agreement with the Spanish Ministry of Defense
which contained an offset obligation for the purchase of approximately 24
million Swiss francs of product from Spanish suppliers over a seven-year period
which began in 1999. The offset obligation contains two interim milestones,
which if not met, could increase the total obligation by 10% per milestone. The
first milestone occurred in February 2001 and was met. The next milestone occurs
in February 2003. During 2001, the Corporation accrued 600,000 Swiss francs
(approximately $361,000) in noncurrent liabilities as a contingency against not
achieving this milestone and/or compliance with the remainder of this agreement.
Drive Technology also entered into a sales agreement with the Austrian Defense
Ministry which contained an offset obligation for the purchase of approximately
18.5 million Swiss francs of product from Austrian suppliers through May 2007.
This agreement contains no milestones but there are penalty provisions for up to
5% of the unfulfilled amount. During 2001, the Corporation has accrued
approximately 154,000 Swiss francs ($93,000) in noncurrent liabilities as a
contingency against noncompliance with the purchase obligations of this
agreement.
Consistent with other entities its size, the Corporation is party to
several legal actions and claims, none of which individually or in the
aggregate, in the opinion of management, are expected to have a material adverse
effect on the Corporation's results of operations or financial position.
18. Subsequent Events
Acquisitions
On February 20, 2002, the Corporation entered into an agreement with Spirent
Plc. ("Spirent") to acquire all of the outstanding shares of Penny and Giles
Controls Ltd., Penny and Giles Controls Inc., Penny and Giles Aerospace Ltd.
(collectively "Penny and Giles"), substantially all of the assets of Autronics
Corporation ("Autronics"), and the assets of Penny & Giles International Plc.
devoted to its aerospace component business. The purchase price of the
acquisition, subject to adjustment as provided for in the Share and Asset
Purchase Agreement (the "Agreement"), is $60 million in cash and the assumption
of certain liabilities. The purchase price was determined as a result of arm's
length negotiations between senior management of the Corporation and Spirent.
Management's intention is to fund approximately half of the purchase price from
credit available under the Corporation's Revolving Credit facility.
Penny and Giles is a leading designer and manufacturer of proprietary position
sensors and control hardware for both military and commercial aerospace
applications and industrial markets. Autronics is a leading provider of
aerospace fire detection and suppression control systems, power conversion
products and control electronics.
The acquired business units, located in Wales, England, Germany and the United
States, are intended to operate as part of the motion control segment within
Curtiss-Wright Flight Systems, Inc., a wholly-owned subsidiary of the
Corporation. All of the acquired business units will operate in their existing
location, with their existing management team and current employee workforce.
Certain of the assets acquired constitute equipment and other physical property,
particularly furniture, fixtures and leasehold improvements. The Corporation
intends to continue the use of these assets in substantially the same manner as
previously conducted.
44_CURTISS-WRIGHT AND SUBSIDIARIES
CORPORATE DIRECTORY
Directors
Martin R. Benante
Chairman and Chief Executive Officer
Admiral James B. Busey IV
Admiral, U.S. Navy (Ret.)
Director, Mitre Corporation
Director, Texas Instruments, Inc.
Former President and Chief Executive Officer of AFCEA International Aviation
Safety and Security Consultant
S. Marce Fuller
President and Chief Executive Officer of Mirant Corporation, Inc. (formerly
known as Southern Energy, Inc.)
David Lasky
Former Chairman and Chief Executive Officer of Curtiss-Wright Corporation
William B. Mitchell
Director, Mitre Corporation
Former Vice-Chairman of Texas Instruments Inc.
John R. Meyers
Chairman of Tru-Circle Corporation
Director, Iomega Corporation
Management Consultant
Former Chairman of the Board of 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
Martin R. Benante
Chairman and Chief Executive Officer
Gerald Nachman
Executive Vice President
Joseph Napoleon
Executive Vice President
George J. Yohrling
Executive Vice President
Michael J. Denton
Secretary and General Counsel
Gary J. Benschip
Treasurer
Glenn E. Tynan
Controller
Paul J. Ferdenzi
Assistant Secretary
Kevin M. McClurg
Acting Assistant Controller
45_CURTISS-WRIGHT AND SUBSIDIARIES
CORPORATE INFORMATION
Corporate Headquarters
1200 Wall Street West, Lyndhurst, New Jersey 07071
tel (201) 896-8400 fax (201) 438-5680
Annual Meeting
The 2002 annual meeting of stockholders will be held on April 26, 2002, at 2:00
p.m., at the Renaissance Meadowlands Hotel, 801 Rutherford Avenue, Rutherford,
New Jersey.
Stock Exchange Listing
The Corporation's common and Class B stock is listed and traded on the New York
Stock Exchange. The stock transfer symbol for the common stock is CW, the symbol
for the Class B is CW.B.
Common Shareholders
As of December 31, 2001, the approximate number of holders of record of common
stock, par value $1.00 per share, of the Corporation was 3,395. The approximate
number of holders of record of Class B stock, par value $1.00 per share, of the
Corporation was 6,503.
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 American Stock Transfer & Trust Company at 59 Maiden
Lane, New York, New York 10038.
Please include your name, address, and telephone number with all correspondence.
Telephone inquiries may be made to (800) 416-3743. Foreign (212) 936-5100.
Internet inquiries should be addressed to http://www.amstock.com.
Hearing-impaired shareholders are invited to log on to the website and select
the Live Chat option.
Direct Stock Purchase Plan/Dividend Reinvestment Plan
A plan is available to purchase or sell shares of Curtiss-Wright that 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, American Stock
Transfer & Trust Company toll-free at (877) 854-0844.
Investor Information
Investors, stockbrokers, security analysts, and others seeking information about
Curtiss-Wright Corporation should contact 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.
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.
Stock Price Range
================================================================================
2001 2000
- --------------------------------------------------------------------------------
Common High Low High Low
- --------------------------------------------------------------------------------
First Quarter $51.6250 $45.6000 $40.3125 $35.0000
Second Quarter 53.7000 44.6500 39.8750 33.4375
Third Quarter 52.9500 39.8200 48.3750 36.5000
Fourth Quarter 50.7000 41.1000 51.1250 43.3750
================================================================================
2001 2000
- --------------------------------------------------------------------------------
Class B High Low High Low
- --------------------------------------------------------------------------------
First Quarter -- -- -- --
Second Quarter -- -- -- --
Third Quarter -- -- -- --
Fourth Quarter $46.4000 $39.6000 -- --
- --------------------------------------------------------------------------------
Dividends
================================================================================
Common 2001 2000
- --------------------------------------------------------------------------------
First Quarter $0.1300 $0.1300
Second Quarter 0.1300 $0.1300
Third Quarter 0.1300 $0.1300
Fourth Quarter 0.1500 $0.1300
================================================================================
Class B 2001 2000
- --------------------------------------------------------------------------------
First Quarter -- --
Second Quarter -- --
Third Quarter -- --
Fourth Quarter $0.1500 --
================================================================================
46_CURTISS-WRIGHT AND SUBSIDIARIES
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CURTISS
WRIGHT
Curtiss-Wright Corporation
1200 Wall Street West
Lyndhurst, New Jersey 07071
www.curtisswright.com
CW
Listed
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THE NEW YORK STOCK EXCHANGE