SECURITIES and EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
Commission File Number 1-134
CURTISS-WRIGHT CORPORATION
--------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-0612970
--------------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Wall Street West
Lyndhurst, New Jersey 07071
- ---------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
(201) 896-8400
---------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $1.00 per share: 5,785,209 shares (as of April 30,
2002). Class B Common Stock, par value $1.00 per share: 4,382,102
shares (as of April 30, 2002).
Page 1 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
TABLE of CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Stockholders' Equity 6
Notes to Consolidated Financial Statements 7 - 14
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 15 - 21
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 22
Forward-Looking Information 22
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 23
Item 6 - Exhibits and Reports on Form 8-K 24
Signatures 24
Page 2 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
March 31, December 31,
2002 2001(1)
----------- ------------
Assets
Current Assets:
Cash and cash equivalents $ 30,115 $ 25,495
Short-term investments 19,260 41,658
Receivables, net 87,842 86,354
Inventories, net 57,042 57,115
Deferred tax assets, net 9,961 9,565
Other current assets 6,018 5,770
-------- --------
Total current assets 210,238 225,957
-------- --------
Property, plant and equipment, at cost 233,282 226,435
Less: accumulated depreciation 124,011 121,914
-------- --------
Property, plant and equipment, net 109,271 104,521
Prepaid pension costs 73,043 70,796
Goodwill and other intangible assets, net 94,977 92,630
Property held for sale 2,460 2,460
Other assets 4,422 4,064
-------- --------
Total Assets $494,411 $500,428
======== ========
Liabilities
Current Liabilities:
Dividends payable $ 1,511 $ -
Account payable 19,474 19,362
Accrued expenses 21,650 23,163
Income taxes payable 7,002 17,704
Other current liabilities 11,258 15,867
-------- --------
Total current liabilities 60,895 76,096
-------- --------
Long-term debt 20,183 21,361
Deferred income taxes, net 26,484 26,043
Accrued postretirement benefit costs 5,321 5,335
Other liabilities 22,789 21,639
-------- --------
Total Liabilities 135,672 150,474
-------- --------
Stockholders' Equity
Common stock, $1 par value 10,618 10,618
Class B common stock, $1 par value 4,382 4,382
Capital surplus 51,098 52,532
Retained earnings 477,108 469,303
Unearned portion of restricted stock (73) (78)
Accumulated other comprehensive income (8,143) (6,831)
-------- --------
534,990 529,926
Less: cost of treasury stock 176,251 179,972
-------- --------
Total Stockholders' Equity 358,739 349,954
-------- --------
Total Liabilities and Stockholders' Equity $494,411 $500,428
======== ========
(1) Certain prior year information has been reclassified to conform to current
presentation.
See notes to consolidated financial statements
Page 3 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except per share data)
Three Months Ended
March 31,
2002 2001(1)
-------- --------
Net sales $ 97,787 $ 79,917
Cost of sales 61,632 49,906
-------- --------
Gross profit 36,155 30,011
Research & development expenses 1,311 897
Selling expenses 5,742 4,593
General and administrative expenses 15,986 13,338
Environmental remediation and administrative
expenses (recoveries), net 202 (82)
-------- --------
Operating income 12,914 11,265
Investment income, net 131 843
Rental income, net 49 1,034
Pension income, net 2,254 2,344
Other expenses, net (108) (458)
Interest expense (193) (249)
-------- --------
Earnings before income taxes 15,047 14,779
Provision for income taxes 5,731 5,560
-------- --------
Net earnings $ 9,316 $ 9,219
======== ========
Basic earnings per share $0.92 $0.92
======== ========
Diluted earnings per share $0.90 $0.90
======== ========
Dividends per share $0.15 $0.13
======== ========
Weighted average common and class B shares outstanding:
Basic 10,123 10,039
Diluted 10,340 10,212
(1) Certain prior year information has been reclassified to conform to current
presentation.
See notes to consolidated financial statements
Page 4 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
March 31,
2002 2001(1)
--------- -------
Cash flows from operating activities:
Net earnings $ 9,316 $ 9,219
--------- -------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 3,943 3,748
Net gains on short-term investments (5) (63)
Net gains on sales of real estate and equipment (106) -
Noncash pension income (2,254) (2,344)
Deferred income taxes 45 1,254
Changes in operating assets and liabilities, net of businesses acquired:
Proceeds from sales of short-term investments 59,550 105,293
Purchases of short-term investments (35,600) (102,042)
(Increase) decrease in receivables (9,634) 3,356
(Increase) decrease in inventory (5,254) (349)
Increase (decrease) in progress payments 10,157 (648)
(Decrease) in accounts payable and accrued expenses (2,312) (3,249)
(Decrease) increase in income taxes payable (10,732) 236
(Increase) decrease in other assets (662) 1,584
(Decrease) increase in other liabilities (3,837) 102
Other, net 5 633
--------- -------
Total adjustments 3,304 7,511
--------- -------
Net cash provided by operating activities 12,620 16,730
--------- -------
Cash flows from investing activities:
Proceeds from sales of real estate and equipment 142 380
Additions to property, plant and equipment (7,008) (3,322)
Acquisition of new businesses, net of cash (1,272) (2,325)
--------- -------
Net cash used for investing activities (8,138) (5,267)
--------- -------
Cash flows from financing activities:
Principal payments on long-term debt (1,291) (5,089)
Proceeds from exercise of stock options 2,287 -
--------- -------
Net cash provided by (used for) financing activities 996 (5,089)
--------- -------
Effect of foreign currency (858) (2,431)
--------- -------
Net increase in cash and cash equivalents 4,620 3,943
Cash and cash equivalents at beginning of period 25,495 8,692
--------- -------
Cash and cash equivalents at end of period $ 30,115 $12,635
========= =======
(1) Certain prior year information has been reclassified to conform to current
presentation.
See notes to consolidated financial statements
Page 5 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Unearned Accumulated
Class B Additional Portion of Other
Common Common Paid in Retained Restricted Comprehensive Comprehensive Treasury
Stock Stock Capital Earnings Stock Awards Income Income Stock
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 2000 $ 15,000 $ - $ 51,506 $411,866 $ (22) $ (5,626) $ 182,500
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings - - - 62,880 - - $ 62,880 -
Translation adjustments, net - - - - - (1,205) (1,205) -
- ------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - - - - $ 61,675 -
- ------------------------------------------------------------------------------------------------------------------------------
Dividends paid - - - (5,443) - - -
Restricted stock awards - - 6 - (77) - (72)
Stock options exercised, net - - (730) - - - (2,456)
Amortization of earned portion
of restricted stock awards - - - - 21 - -
Recapitalization (4,382) 4,382 1,750 - - - -
- ------------------------------------------------------------------------------------------------------------------------------
December 31, 2001 10,618 4,382 52,532 469,303 (78) (6,831) 179,972
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings - - - 9,316 - - $ 9,316 -
Translation adjustments, net - - - - - (1,312) (1,312) -
- ------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - - - - $ 8,004
- ------------------------------------------------------------------------------------------------------------------------------
Common dividends - - - (1,511) - - -
Stock options exercised, net - - (1,434) - - - (3,721)
Amortization of earned portion
of restricted stock awards - - - - 5 - -
- ------------------------------------------------------------------------------------------------------------------------------
March 31, 2002 $ 10,618 $ 4,382 $ 51,098 $477,108 $ (73) $ (8,143) $ 176,251
==============================================================================================================================
See notes to consolidated financial statements
Page 6 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS of PRESENTATION
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 thirteen manufacturing facilities,
forty-three metal treatment service facilities and four aerospace
component overhaul locations.
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America 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. The unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Corporation's 2001 Annual Report on Form 10-K. The results of operations
for these interim periods are not necessarily indicative of the operating
results for a full year. Certain prior year information has been
reclassified to conform to current presentation.
Page 7 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
2. RECEIVABLES
Receivables at March 31, 2002 and December 31, 2001, include amounts billed
to customers and unbilled charges on long-term contracts consisting of
amounts recognized as sales but not billed as of the dates presented.
Substantially all amounts of unbilled receivables are expected to be billed
and collected within a year. The composition of receivables for those
periods is as follows:
(In thousands)
--------------
March 31, December 31,
2002 2001
--------- ------------
Billed Receivables:
Trade and other receivables $75,376 $ 70,562
Less: Progress payments applied (8,611) (2,393)
Allowance for doubtful accounts (2,222) (2,117)
---------------------------------------------------------------------------
Net billed receivables 64,543 66,052
---------------------------------------------------------------------------
Unbilled Receivables:
Recoverable costs and estimated
earnings not billed 29,976 24,799
Less: Progress payments applied (7,681) (8,015)
---------------------------------------------------------------------------
Net unbilled receivables 22,295 16,784
---------------------------------------------------------------------------
Notes Receivable 1,004 3,518
---------------------------------------------------------------------------
Receivables, net $87,842 $86,354
===========================================================================
Page 8 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
3. INVENTORIES
Inventories are valued at the lower of cost (principally average cost) or
market. The composition of inventories at March 31, 2002 and December 31,
2001 is as follows:
(In thousands)
--------------
March 31, December 31,
2002 2001
--------- ------------
Raw material $ 28,913 $ 25,761
Work-in-process 19,585 19,079
Finished goods and component parts 36,405 34,853
Inventoried costs related to US government
and other long-term contracts 7,377 7,248
---------------------------------------------------------------------------
Gross inventories 92,280 86,941
Less: Inventory reserves (15,524) (14,384)
Progress payments applied,
principally related to long-term
contracts (19,714) (15,442)
---------------------------------------------------------------------------
Inventories, net $ 57,042 $ 57,115
===========================================================================
4. GOODWILL and OTHER INTANGIBLE ASSETS, net
Goodwill consists primarily of the excess purchase price of the
acquisitions over the fair value of the net assets acquired. Intangible
assets include technical manuals, backlog, trademarks, patents/technology
and licensing agreements. The Corporation has not finalized the allocation
of the purchase price to goodwill and other intangible assets for the 2001
acquisitions. The results for the first quarter of 2002 include an estimate
of this allocation and the resultant intangible amortization expenses. The
value and estimated lives of acquired intangibles will be adjusted upon
finalization of purchase accounting, which is expected to be completed in
the second quarter of 2002. Intangible assets are amortized on a
straight-line basis over the estimate period benefited but not exceeding 30
years. Intangible assets and accumulated amortization amounted to
$11,692,000 and $1,468,000 at March 31, 2002 and $11,683,000 and $841,000
at December 31, 2001, respectively. Amortization of intangibles totaled
$627,000 and $23,000 for the quarter ended March 31, 2002 and 2001,
respectively. See Note 10 for Recently Issued Accounting Standards
governing the new accounting rules for goodwill and other intangible
assets.
Page 9 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
5. ENVIRONMENTAL MATTERS
The Corporation establishes a reserve for a potential environmental
responsibility when it concludes that a determination of legal liability is
probable based upon the advice of counsel. Such amounts reflect the
Corporation's estimate of the amount of that liability. If only a range of
potential liability can be estimated, a reserve will be established at the
low end of that range. Such reserves represent current values of
anticipated remediation not reduced by any potential recovery from
insurance carriers or through contested third-party legal actions, and are
not discounted for the time value of money.
The Corporation is joined with many other corporations and municipalities
as potentially responsible parties in a number of environmental cleanup
sites, which include but are not limited to the 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 of any of these matters would not
have a material adverse effect on the Corporation's results of operations
or financial condition.
6. SEGMENT INFORMATION
(In thousands)
Three Months Ended March 31, 2002
---------------------------------
Motion Metal Flow Segment Corporate Consolidated
Control Treatment (1) Control Totals & Other (2) Totals
------- ------------- ------- ------- ----------- ------------
Revenue from external customers $ 42,252 $25,417 $ 30,118 $ 97,787 $ 0 $ 97,787
Intersegment revenues 0 109 0 109 (109) 0
Segment operating income 6,782 2,760 3,656 13,198 (284) 12,914
Segment assets 165,014 99,059 110,781 374,854 119,557 494,411
(1) Operating income for Metal Treatment includes non-recurring costs of $451K
associated with the relocation of a shot-peening facility.
(2) Operating income for Corporate includes $202K of net environmental
remediation and administrative expenses.
Page 10 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(In thousands)
Three Months Ended March 31, 2001
---------------------------------
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Totals & Other Totals
------- --------- ------- -------- ---------- ------------
Revenue from external customers $29,957 $27,872 $22,088 $ 79,917 $ 0 $ 79,917
Intersegment revenues 0 106 0 106 (106) 0
Segment operating income 4,583 5,463 1,219 11,265 0 11,265
Segment assets 94,957 87,116 86,190 268,263 144,534 412,797
Reconciliation:
(In thousands)
Three months ended
March 31, 2002 March 31, 2001
-------------- --------------
Consolidated operating income $12,914 $11,265
Investment income, net 131 843
Rental income, net 49 1,034
Pension income, net 2,254 2,344
Other expense, net (108) (458)
Interest expense (193) (249)
------- -------
Earnings before income taxes $15,047 $14,779
======= =======
7. COMPREHENSIVE INCOME
Total comprehensive income for the periods ended March 31, 2002 and 2001
are as follows:
(In thousands)
Three months ended
March 31, 2002 March 31, 2001
-------------- --------------
Net earnings $ 9,316 $ 9,219
Equity adjustment from foreign
currency translations (1,312) (2,226)
------- -------
Total comprehensive income $ 8,004 $ 6,993
======= =======
Page 11 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
8. EARNINGS PER SHARE
Diluted earnings per share were computed based on the weighted average
number of shares outstanding plus all potentially dilutive common shares
issuable for the periods. Dilutive common shares for the three months ended
March 31, 2002 and March 31, 2001 were 217,000 and 173,000, respectively.
9. CONTINGENCIES AND COMMITMENTS
The Corporation's Drive Technology (Drive Technology) subsidiary located in
Switzerland entered into sales agreements with two European defense
organizations which contained offset obligations to purchase approximately
42.5 million Swiss francs of product from suppliers of two European
countries over multi-year periods which expire in 2005 and 2007. The
agreements contain a penalty of 5-10% of the unmet obligation at the end of
the term of the agreements. As of March 31, 2002, the Corporation has
accrued approximately 782,000 Swiss francs (approximately $465,000)
included in noncurrent liabilities as a contingency against not achieving
the milestones and/or compliance with the remainder of these agreements.
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.
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141
requires all business combinations to be accounted for under the purchase
method of accounting and is effective for business combinations initiated
after June 30, 2001. In addition, it requires that the cost of an acquired
entity must be allocated to the assets acquired, including identifiable
intangible assets, and liabilities assumed based on their estimated fair
values at the date of acquisition. The Corporation has not yet determined
the final purchase price allocation to goodwill and other intangible assets
for the companies acquired in 2001.
Page 12 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
Under the new rules of SFAS No. 142, goodwill is no longer amortized, but
is subject to annual impairment tests in accordance with the statement.
Certain other intangible assets will continue to be amortized over their
useful lives. Accordingly, the Corporation adopted the new rules on
accounting for goodwill and other intangible assets effective January 1,
2002. The Corporation has not yet determined the effect that these
impairment tests might have on the earnings and financial position of the
Corporation. The Corporation will complete the transitional goodwill
impairment test during the third quarter of 2002.
The following table reflects the pro-forma consolidated results adjusted as
if SFAS Nos. 141 and 142 were adopted as of January 1, 2001.
--------------------------------------------------------------
Three Months Ended
March 31,
(In thousands)
--------------------------------------------------------------
2002 2001
--------------------------------------------------------------
Net Earnings:
As reported $9,316 $9,219
--------------------------------------------------------------
Goodwill amortization - 442
--------------------------------------------------------------
As adjusted $9,316 $9,661
--------------------------------------------------------------
Diluted Earnings Per Share:
As reported $0.90 $0.90
--------------------------------------------------------------
Goodwill amortization - 0.03
--------------------------------------------------------------
As adjusted $0.90 $0.93
--------------------------------------------------------------
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 adoption
of this standard had no material effect on the Corporation's results of
operation or financial condition.
Page 13 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
11. SUBSEQUENT EVENTS
Acquisitions
On April 1, 2002, the Corporation acquired all of the outstanding shares of
Penny and Giles Controls Ltd., Penny and Giles Controls Inc., Penny and
Giles Aerospace Ltd., the assets of Penny & Giles International Plc.
devoted to its aerospace component business (collectively "Penny and
Giles"), and substantially all of the assets of Autronics Corporation
("Autronics") from Spirent Plc. 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. Approximately $40 million of the purchase price was
funded 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. Incorporated by reference is the
Corporation's Form 8-K filed with the Securities and Exchange Commission on
April 1, 2002.
Debt
On May 13, 2002, the Corporation entered into two new credit agreements
aggregating $225 million with a group of eight banks. The Revolving Credit
Agreement ("Revolving Credit Agreement") commits a maximum of $135 million
to the Corporation for cash borrowings and letters of credit. The
commitments made under the Revolving Credit Agreement expire May 13, 2007,
but may be extended annually for successive one-year periods with the
consent of the bank group. The Corporation also entered into a Short-Term
Credit Agreement ("Short-Term Credit Agreement"), which allows for cash
borrowings up to $90 million. The Short-Term Credit Agreement expires May
12, 2003, but may be extended, with the consent of the bank group, for
additional periods not to exceed 364 days. The outstanding borrowings as of
May 13, 2002 under the prior Revolving Credit Agreement and Short-Term
Credit Agreement were paid in full by funding from the new 2002 agreements.
Page 14 of 24
PART I - ITEM 2
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
RESULTS of OPERATIONS
Sales for the first quarter of 2002 totaled $97.8 million, an increase of 22%
from the sales of $79.9 million for the first quarter of 2001. New orders
received for the current quarter of $96.1 million were up 44% over the orders of
$66.9 million for the first quarter of 2001. Sales for the first quarter of 2002
as compared to the same period last year benefited from the acquisitions
completed in 2001, primarily in the fourth quarter. Sales adjusted to exclude
those acquisitions were $81.6 million in the first quarter of 2002, an increase
of 2% over the same period last year. For the quarter, higher sales of aerospace
OEM military products, flow control products for the nuclear naval and
commercial power generation applications slightly more than offset declines in
aerospace component overhaul and repair services, commercial aerospace OEM
products and metal treatment related services.
Operating income for the first quarter of 2002 totaled $12.9 million, an
increase of 15% from operating income of $11.3 million for the same period last
year. Operating income for the first quarter of 2002 benefited from the 2001
acquisitions. Operating income excluding 2001 acquisitions was $12.4 million, a
10% increase over the same period last year. Margin improvements in the Flight
Systems and Flow Control segments and ongoing cost reduction programs have more
than offset the lower margins experienced at the Metal Treatment segment, which
is primarily due to lower volume.
Net earnings for the first quarter of 2002 totaled $9.3 million, or $0.90 per
diluted share, which was essentially flat with the net earnings for the first
quarter of 2001 of $9.2 million, or $0.90 per diluted share. Net earnings for
the first quarter of 2002 included some unusual items, the net effect of which
had an unfavorable impact of $0.3 million. The items included the costs of
relocating a Metal Treatment facility, the loss on securities received from the
demutualization of an insurance company, and the gain on the sale of real
property. Excluding the effect of these items, normalized earnings for the first
quarter of 2002 were $9.6 million, or $0.93 per diluted share, a 4% increase
over 2001.
Page 15 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
Operating Performance:
Motion Control
Sales for the Corporation's Motion Control segment improved 41% to $42.3 million
in the first quarter of 2002, from $30.0 million in the first quarter of 2001,
primarily due to the contribution of the 2001 acquisitions. Acquisitions
contributed $9.3 million to the sales improvement. Excluding the 2001
acquisitions, business improved 10% from the first quarter of 2001 mainly due to
higher defense sales of aerospace and armored vehicle products, partially offset
by the continued softness in the commercial aerospace overhaul and repair
services.
Operating income for the first quarter of 2002 was $6.8 million, an increase of
48% over the same period last year of $4.6 million. The improvement was due to
the higher military sales volumes, stronger margins and improved cost
structures, partially offset by the lower margins within the overhaul and repair
services. The operating income for the first quarter of 2002 includes $0.5
million of estimated intangible asset amortization related to the 2001
acquisitions.
New orders received for the Motion Control segment totaled $29.7 million in the
first quarter of 2002, increasing 58% from orders received in the first quarter
of 2001. The increase in new orders reflects the contribution from the 2001
acquisitions.
Metal Treatment
Sales for the Corporation's Metal Treatment segment totaled $25.4 million for
the first quarter of 2002, down 9% when compared with $27.9 million in the first
quarter of 2001. Overall industrial market softness, slowdowns in the aerospace
markets, power generation and automotive customers and weaknesses in the heat
treating markets contributed to the lower volume. In addition, unfavorable
foreign currency exchange rate movements adversely impacted sales.
Operating income for the first quarter of 2002 declined 49% to $2.8 million from
$5.5 million for the same period last year. The reduction in operating income is
due to reduced volume, start-up costs for three new facilities and the adverse
impact of foreign currency translation. In addition, there were some
non-recurring costs associated with the relocation of one of the segment's
shot-peening facilities.
New orders received for the Metal Treatment segment totaled $25.5 million in the
first quarter of 2002, decreasing 9% from orders received in the first quarter
of 2001.
Page 16 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
Flow Control
The Corporation's Flow Control segment posted sales of $30.1 million for the
first quarter of 2002, an increase of 36% when compared with $22.1 million in
the first quarter of 2001. Acquisitions represented $5.6 million of this
increase, while the balance of the segment business increased $2.4 million, or
11%. Sales benefited from higher shipments of products used for nuclear
applications for the Navy and power generation plants, partially offset by lower
deliveries to the oil and gas and processing industries and products associated
with the automotive and heavy truck markets.
Operating income for the first quarter of 2002 was $3.7 million compared to $1.2
million for the same period last year. The 2001 acquisitions generated operating
profits of $0.4 million, while the balance of the segment business improved $2.0
million, or 157%. The increase was driven by improved operating margins on flow
control products for nuclear applications and overall cost reduction programs.
New orders received for the Flow Control segment totaled $41.0 million in the
first quarter of 2002, increasing 104% from orders received in the first
quarter of 2001. The increase in new orders reflects the contribution from the
2001 acquisitions.
Corporate and Other Expenses
The Corporation had a non-segment operating loss of $0.3 million in the first
quarter of 2002 compared with none in the same period of the prior year. In the
first quarter of 2002, the Corporation recorded $0.2 million of net
environmental remediation and administrative expenses.
Non-Operating Revenues and Costs
For the first quarter of 2002, the Corporation recorded other non-operating net
revenue totaling $2.1 million, compared with $3.5 million for the first quarter
of 2001. The decrease was primarily caused by lower rental income due to the
sale of our Wood-Ridge property and lower investment income due to lower
short-term investment balances, lower interest rates and losses on the sales of
securities received relative to the demutualization of an insurance company.
Page 17 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
CHANGES IN FINANCIAL CONDITION:
Liquidity and Capital Resources:
The Corporation's working capital was $149.3 million at March 31, 2002, a slight
reduction from the working capital at December 31, 2001 of $149.9 million. The
ratio of current assets to current liabilities was 3.5 to 1 at March 31, 2002,
compared with a ratio of 3.0 to 1 at December 31, 2001.
Cash, cash equivalents and short-term investments totaled $49.4 million in the
aggregate at March 31, 2002, down 26% from $67.2 million at the prior year-end.
During the first quarter of 2002, the Corporation made a tax payment of
approximately $13 million related to the gain on the sale of our Wood-Ridge
facility. Cash flow for the first quarter of 2002 also benefited from the
proceeds from the sale of short-term investments. Days sales outstanding at
March 31, 2002 decreased to 63 days from 74 at December 31, 2001.
As of March 31, 2002, the Corporation had two credit agreements, a Revolving
Credit Agreement and a Short-Term Credit Agreement, aggregating $100.0 million
with a group of five banks. The credit agreements allowed for borrowings to take
place in U.S. or certain foreign currencies. The Revolving Credit Agreement
committed a maximum of $60.0 million to the Corporation for cash borrowings and
letters of credit. The unused credit available under this facility at March 31,
2002 was $34.6 million. The commitments made under the Revolving Credit
Agreement expire December 17, 2004, but may be extended annually for successive
one-year periods with the consent of the bank group. The Corporation also had in
effect a Short-Term Credit Agreement, which allowed for cash borrowings of $40.0
million, all of which was available at March 31, 2002. The Short-Term Credit
Agreement expires on December 13, 2002 and may be extended, with the consent of
the bank group, for additional periods not to exceed 364 days. Cash borrowings
(excluding letters of credit) under the two credit agreements at March 31, 2002
were at a US Dollar equivalent of $6.5 million, compared with cash borrowings of
$9.4 million at March 31, 2001. Borrowings under these agreements were used to
finance the acquisition of Drive Technology in 1998 and have a remaining balance
of 11.0 million Swiss francs. The loans outstanding under the Revolving Credit
Agreement and Industrial Revenue Bonds totaling $13,400,000 at March 31, 2002
and $18,747,000 at March 31, 2001 had variable interest rates averaging 1.80%
for the first quarter of 2002 and variable interest rates averaging 3.75% for
the first quarter of 2001. See Recent Developments for discussion of the new
credit agreements and the status of current borrowings under the old agreements
resulting from the Corporation's recent acquisition on April 1, 2002.
Page 18 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
During the first quarter of 2002, internally available funds were adequate to
meet capital expenditures of $7.0 million. Expenditures incurred during the
first quarter were primarily for new and replacement machinery and
equipment within the operating segments. The Corporation is expected to make
additional capital expenditures of approximately $20 million during the balance
of the year, primarily for machinery and equipment for the business segments.
The Corporation also incurred $1.3 million related to the acquisition of new
businesses, primarily the finalization of purchase price adjustments on the 2001
acquisitions. Funds from internal sources are expected to be adequate to meet
planned capital expenditures, environmental and other obligations for the
remainder of the year.
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 the first quarter of 2002, the
Corporation recognized pension income of $2.3 million as amounts funded for the
pension plan in prior years together with earnings on those assets, exceeded
the calculated liability. As of March 31, 2002, the pension trust was in an
overfunded position of approximately $73 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.
Page 19 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
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 the
settlement by or bankruptcy of other Potentially Responsible Parties; a change
in the environmental laws requiring more stringent 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 March 31, 2002, the Corporation has $95
million in 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 the 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.
Recent Developments
Acquisition
As discussed in Note 11 to the Consolidated Financial Statements, on April 1,
2002 the Corporation acquired all of the outstanding shares of Penny and Giles
Controls Ltd., Penny and Giles Controls Inc., Penny and Giles Aerospace Ltd. and
the assets of Penny & Giles International Plc. devoted to its aerospace
component business (collectively "Penny and Giles"), and substantially all of
the assets of Autronics Corporation ("Autronics") from Spirent Plc. 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. Approximately $40 million of the purchase price was funded from
credit available under the Corporation's Revolving Credit facility. See Note 11
to the Consolidated Financial Statements for further information.
Page 20 of 24
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
Debt
On May 13, 2002, the Corporation entered into two new credit agreements
aggregating $225 million with a group of eight banks. The Revolving Credit
Agreement ("Revolving Credit Agreement") commits a maximum of $135 million to
the Corporation for cash borrowings and letters of credit. The commitments made
under the Revolving Credit Agreement expire May 13, 2007, but may be extended
annually for successive one-year periods with the consent of the bank group. The
Corporation also entered into a Short-Term Credit Agreement ("Short-Term Credit
Agreement"), which allows for cash borrowings of $90 million. The Short-Term
Credit Agreement expires May 12, 2003, but may be extended, with the consent of
the bank group, for additional periods not to exceed 364 days. The outstanding
borrowings as of May 13, 2002 under the prior Revolving Credit Agreement and
Short-Term Credit Agreement were paid in full by funding from the new 2002
agreements.
Page 21 of 24
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Corporation's market risk during the
three months ended March 31, 2002. Information regarding market risk and market
risk management policies is more fully described in item 7A. "Quantitative and
Qualitative Disclosures about Market Risk" of the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2001.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, this Quarterly Report on
Form 10-Q does contain "forward-looking" information within the meaning of
Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act
of 1934. Examples of forward-looking information include, but are not limited
to, (a) projections of or statements regarding return on investment, future
earnings, interest income, other income, earnings or loss per share, investment
mix and quality, growth prospects, capital structure and other financial terms,
(b) statements of plans and objectives of management, (c) statements of future
economic performance, and (d) statements of assumptions, such as economic
conditions underlying other statements. Such forward-looking information can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "anticipates," or the negative of any of the
foregoing or other variations thereon or comparable terminology, or by
discussion of strategy. No assurance can be given that the future results
described by the forward-looking information will be achieved. Such statements
are subject to risks, uncertainties, and other factors which are outside our
control that could cause actual results to differ materially from future results
expressed or implied by such forward-looking information. Readers are cautioned
not to put undue reliance on such forward-looking information. Such statements
in this Report include, without limitation, those contained in Part I, Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Notes to the Consolidated Financial Statements including,
without limitation, the Environmental Matters Note. Important factors that could
cause the actual results to differ materially from those in these
forward-looking statements include, among other items, (i) a reduction in
anticipated orders; (ii) an economic downturn; (iii) unanticipated environmental
remediation expenses or claims; (iv) changes in the need for additional
machinery and equipment and/or in the cost for the expansion of the
Corporation's operations; (v) changes in the competitive marketplace and/or
customer requirements; (vi) an inability to perform customer contracts at
anticipated cost levels and (vii) other factors that generally affect the
business of companies operating in the Corporation's Segments.
Page 22 of 24
PART II - OTHER INFORMATION
Item 4. SUBMISSION of MATTERS to a VOTE of SECURITY HOLDERS
On April 26, 2002, the Registrant held its annual meeting of
stockholders. The matters submitted to a vote by the stockholders were
the election of directors, the amendment of the 1995 Long-Term
Incentive Plan and the retention of independent accountants for the
Registrant.
The vote received by the director nominees was as follows:
For Withheld
Class B common:
--------------
Martin R. Benante 3,749,219 40,522
James B. Busey IV 3,749,155 40,586
Dave Lasky 3,748,631 41,110
William B. Mitchell 3,748,898 40,843
John Myers 3,748,699 41,042
William W. Sihler 3,748,698 41,043
J. McLain Stewart 3,748,449 41,292
Common:
------
S. Marce Fuller 4,468,121 354,016
There were no votes against or broker non-votes.
The stockholders voting as a single class approved the amendment to the 1995
Long-Term Incentive Plan to increase the number of shares reserved for issuance
by 500,000 shares. The holders of 5,646,836 shares voted in favor; 2,053,016
voted against and 912,019 abstained. There were no broker non-votes.
The stockholders approved the retention of PricewaterhouseCoopers LLP,
independent accountants for the Registrant. The holders of 8,542,553 shares
voted in favor; 52,992 voted against and 16,327 abstained. There were no broker
non-votes.
Page 23 of 24
Item 6. EXHIBITS and REPORTS on FORM 8-K
(a) Exhibits
Exhibit 4.1 Revolving Credit Agreement dated May 13, 2002,
between Registrant, the Lender parties thereto
from time to time, the Issuing Banks referred to
therein, and The Bank of Nova Scotia, as Agent.
Exhibit 4.2 Short-Term Credit Agreement dated May 13, 2002,
between Registrant, the Lender parties thereto
from time to time, the Issuing Banks referred to
therein, and The Bank of Nova Scotia, as Agent.
(b) Reports on Form 8-K
1. On January 4, 2002, the Company filed a report on Form 8-K
reporting under Item 2, the December 20, 2001 sale of the
Registrant's Wood-Ridge Industrial Complex located in
Wood-Ridge, New Jersey.
2. On April 15, 2002, the Company filed a report on Form 8-K
reporting under Item 2, the April 1, 2002 purchase of certain
assets and stock from Spirent Plc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CURTISS-WRIGHT CORPORATION
--------------------------
(Registrant)
By: /s/ Glenn E. Tynan
----------------------
Glenn E. Tynan
Corporate Controller
(Chief Accounting and Financial Officer)
Dated: May 15, 2002
Page 24 of 24
STATEMENT OF DIFFERENCES
The less-than-or-equal-to sign shall be expressed as.................... <=