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 June 30, 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: 5,847,577 shares (as of July 31, 2002).
Class B Common Stock, par value $1.00 per share: 4,382,102 shares (as of July 31
2002).
Page 1 of 27
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 - 17
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 18 - 24
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 25
Forward-Looking Information 25
PART II - OTHER INFORMATION
- ---------------------------
Item 6 - Exhibits and Reports on Form 8-K 26
Signature 27
Page 2 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
June 30, December 31,
2002 2001(1)
Assets
Current Assets:
Cash and cash equivalents $ 23,360 $ 25,495
Short-term investments 422 41,658
Receivables, net 101,662 86,354
Inventories, net 68,706 57,115
Deferred tax assets, net 9,919 9,565
Other current assets 7,937 5,770
-------- --------
Total current assets 212,006 225,957
Property, plant and equipment, at cost 245,859 226,435
Less: accumulated depreciation 128,102 121,914
-------- --------
Property, plant and equipment, net 117,757 104,521
Prepaid pension costs 75,290 70,796
Goodwill and other intangible assets, net 139,020 92,630
Property held for sale 2,460 2,460
Other assets 5,311 4,064
-------- --------
Total Assets $551,844 $500,428
======== ========
Liabilities
Current Liabilities:
Account payable $ 24,038 $ 19,362
Accrued expenses 28,866 23,163
Income taxes payable 6,549 17,704
Other current liabilities 10,694 15,867
-------- --------
Total current liabilities 70,147 76,096
Long-term debt 47,446 21,361
Deferred income taxes, net 26,566 26,043
Accrued postretirement benefit costs 5,335 5,335
Other liabilities 22,877 21,639
-------- --------
Total Liabilities 172,371 150,474
-------- --------
Stockholders' Equity
Common stock, $1 par value 10,618 10,618
Class B common stock, $1 par value 4,382 4,382
Capital surplus 50,048 52,532
Retained earnings 486,382 469,303
Unearned portion of restricted stock (69) (78)
Accumulated other comprehensive income 1,201 (6,831)
-------- --------
552,562 529,926
Less: cost of treasury stock 173,089 179,972
-------- --------
Total Stockholders' Equity 379,473 349,954
-------- --------
Total Liabilities and Stockholders' Equity $551,844 $500,428
======== ========
1) Certain prior year information has been reclassified to conform to current
presentation.
See notes to consolidated financial statements
Page 3 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001(1) 2002 2001(1)
-------- ------- -------- --------
Net Sales $121,777 $86,604 $219,564 $166,521
Cost of sales 78,078 53,767 139,710 103,673
-------- ------- -------- --------
Gross Profit 43,699 32,837 79,854 62,848
Research & development expenses 2,714 1,025 4,025 1,922
Selling expenses 7,144 4,487 12,886 9,080
General and administration expenses 18,718 14,134 34,704 27,472
Environmental remediation and
administrative expenses, net 45 125 247 43
-------- ------- -------- --------
Operating income 15,078 13,066 27,992 24,331
Investment income 380 650 511 1,493
Rental income 50 1,308 99 2,342
Pension income, net 2,254 2,343 4,508 4,687
Other income (expense), net 18 (69) (90) (527)
Interest expense (466) (396) (659) (645)
-------- ------- -------- --------
Earnings before income taxes 17,314 16,902 32,361 31,681
Provision for income taxes 6,498 6,437 12,229 11,997
-------- ------- -------- --------
Net earnings $ 10,816 $10,465 $ 20,132 $ 19,684
======== ======= ======== ========
Basic earnings per share $1.06 $1.04 $1.98 $1.96
Diluted earnings per share $1.03 $1.02 $1.93 $1.92
======== ======= ======== ========
Dividends per share $0.15 $0.13 $0.30 $0.26
======== ======= ======== ========
Weighted average shares outstanding:
Basic 10,203 10,059 10,163 10,049
Diluted 10,511 10,269 10,421 10,259
(1) Certain prior year information has been reclassified to conform to current
presentation.
See notes to consolidated financial statements
Page 4 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
June 30,
2002 2001
--------- ----------
Cash flows from operating activities:
- -------------------------------------
Net earnings $ 20,132 $ 19,684
-------- --------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 8,933 7,460
Net gains on short-term investments (7) (50)
Net gains on sales of real estate and equipment (59) (26)
Noncash pension income (4,545) (4,687)
Deferred income taxes 169 2,727
Changes in operating assets and liabilities, net of businesses acquired:
Proceeds from sales of short-term investments 77,050 160,389
Purchases of short-term investments (35,600) (151,439)
Increase in receivables (6,372) (5,992)
(Increase) decrease in inventory (6,480) 1,760
Increase in progress payments 8,133 767
Decrease in accounts payable and accrued expenses (373) (5,712)
(Decrease) increase in income taxes payable (11,566) 362
Increase in other current and noncurrent assets (3,264) (331)
Decrease in other current and noncurrent liabilities (4,329) (2,104)
Other, net 9 8
-------- --------
Total adjustments 21,699 3,132
-------- --------
Net cash provided by operating activities 41,831 22,816
-------- --------
Cash flows from investing activities:
- -------------------------------------
Proceeds from sales of real estate and equipment 275 468
Additions to property, plant and equipment (13,105) (6,262)
Acquisition of new businesses, net of cash (61,789) (1,525)
-------- --------
Net cash used for investing activities (74,619) (7,319)
-------- --------
Cash flows from financing activities:
- -------------------------------------
Principal payments on long-term debt (46,291) (7,751)
Dividends paid (1,526) (1,305)
Proceeds from borrowings 71,374 --
Proceeds from exercise of stock options 4,449 1,094
Common stock repurchases (50) (3)
-------- --------
Net cash provided by (used for) financing activities 27,956 (7,965)
-------- --------
Effect of foreign currency 2,697 (2,936)
-------- --------
Net (decrease) increase in cash and cash equivalents (2,135) 4,596
-------- --------
Cash and cash equivalents at beginning of period 25,495 8,692
-------- --------
Cash and cash equivalents at end of period $ 23,360 $ 13,288
========= =========
See notes to consolidated financial statements
Page 5 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Unearned
Portion of Accumulated
Class B Additional Restricted Other
Common Common Paid in Retained Stock Comprehensive Treasury
Stock Stock Capital Earnings Awards Income Stock
- -----------------------------------------------------------------------------------------------------------------------------
December 31, 2000 $15,000 $ -- $51,506 $411,866 $ (22) $(5,626) $182,500
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- 62,880 -- -- --
Translation adjustments, net -- -- -- -- -- (1,205) --
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
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- 20,132 -- -- --
Translation adjustments, net -- -- -- -- -- 8,023 --
Common dividends -- -- -- (3,053) -- -- --
Stock options exercised, net -- -- (2,484) -- -- -- (6,883)
Amortization of earned portion
of restricted stock awards -- -- -- -- 9 -- --
- -----------------------------------------------------------------------------------------------------------------------------
June 30, 2002 $10,618 $4,382 $50,048 $486,382 $ (69) $ 1,201 $173,089
=============================================================================================================================
See notes to consolidated financial statements
Page 6 of 27
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 sixteen manufacturing
facilities, forty-four 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, the determination of the assumptions used in
estimating the future pension liability and other postemployment
benefits, the estimate of purchase price allocations to amortizable
intangibles 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 the full year. Certain prior year information
has been reclassified to conform to current presentation.
Page 7 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
2. ACQUISITIONS
MOTION CONTROL SEGMENT
----------------------
PENNY & GILES/AUTRONICS
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, 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. This acquisition has been accounted for as a
purchase in the second quarter of 2002. As of the date of acquisition,
the excess of the purchase price over the fair value of the net assets
acquired was approximately $39 million. The fair value of the net
assets acquired was based on preliminary estimates and may be revised
at a later date.
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, operate as part of the Motion Control segment.
Page 8 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
METAL TREATMENT SEGMENT
-----------------------
YTSTRUKTUR ARBODA AB
On April 11, 2002, the Corporation acquired 100% of the stock of
Ytstruktur Arboda AB, a metal treatment business located in Arboda,
Sweden. This business, specializing in controlled shot peening,
non-destructive testing and other metal finishing processes, services
the Scandanavian market.
The purchase price of the acquisition, subject to adjustment as
provided for in the Purchase and Sale Agreement, was $1.0 million,
which approximated the fair value of the net assets acquired. The fair
value of net assets acquired was based on preliminary estimates and may
be revised at a later date. This acquisition has been accounted for as
a purchase in the second quarter of 2002.
3. RECEIVABLES
Receivables at June 30, 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 these periods is as follows:
(In thousands)
--------------
June 30, December 31,
2002 2001
------- ------------
Billed Receivables:
-------------------
Trade and other receivables $ 87,023 $70,562
Less: Progress payments applied (5,066) (2,393)
Allowance for doubtful accounts (2,685) (2,117)
--------------------------------------------------------------------------------------------------------
Net billed receivables 79,272 66,052
--------------------------------------------------------------------------------------------------------
Unbilled Receivables:
---------------------
Recoverable costs and estimated earnings not billed 27,679 24,799
Less: Progress payments applied (6,307) (8,015)
--------------------------------------------------------------------------------------------------------
Net unbilled receivables 21,372 16,784
--------------------------------------------------------------------------------------------------------
Notes Receivable 1,018 3,518
--------------------------------------------------------------------------------------------------------
Receivables, net $101,662 $86,354
========================================================================================================
The net receivable balance at June 30, 2002 included $12.9 million
related to the Corporation's 2002 acquisitions.
Page 9 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
4. INVENTORIES
Inventories are valued at the lower of cost (principally average cost)
or market. The composition of inventories at June 30, 2002 and December
31, 2001 is as follows:
(In thousands)
--------------
June 30, December 31,
2002 2001
-------- -----------
Raw material $ 41,198 $ 25,761
Work-in-process 23,994 19,079
Finished goods and component parts 37,846 34,853
Inventoried costs related to US government and other long-term
contracts 7,643 7,248
------------------------------------------------------------------------------------------------------
Gross inventories 110,681 86,941
Less: Inventory reserves (21,072) (14,384)
Progress payments applied, principally related to
long-term contracts (20,903) (15,442)
------------------------------------------------------------------------------------------------------
Inventories, net $ 68,706 $ 57,115
======================================================================================================
Included in the $68.7 million net inventory balance at June 30, 2002
was $11.5 million related to the Corporation's 2002 acquisitions.
Page 10 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
5. GOODWILL and OTHER INTANGIBLE ASSETS, net
Goodwill consists primarily of the excess purchase price of
acquisitions over the fair value of the net assets acquired. Intangible
assets include technical manuals, backlog, trademarks,
patents/technology and licensing agreements. During the second quarter,
the Corporation finalized the allocation of the purchase price,
including goodwill and other intangible assets for the seven businesses
acquired in 2001. However, the allocation relating to the businesses
acquired in the second quarter of 2002 has not been finalized. The
value and estimated lives of acquired intangibles for these
acquisitions will be adjusted upon finalization of the valuations,
which are expected to be completed in the third quarter of 2002. The
results for the second quarter and the six months year-to-date include
amortization expense from the finalization of the valuations for the
Corporation's 2001 acquisitions and an estimate for the 2002
acquisitions.
Intangible assets are amortized on a straight-line basis over the
estimated period benefited but not exceeding 30 years. Intangible
assets and accumulated amortization amounted to $25,885,000 and
$2,160,000 at June 30, 2002 and $11,683,000 and $841,000 at December
31, 2001, respectively. Amortization of intangibles for the three and
six months ending June 30, 2002 amounted to $727,000 and $1,354,000,
respectively. For the comparable periods of 2001 amortization of
intangibles amounted to $23,000 and $45,000, respectively. See Note 12
"Recently Issued Accounting Standards", governing the new accounting
rules for goodwill and other intangible assets.
Page 11 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
6. LONG-TERM DEBT AND CREDIT AGREEMENTS
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
borrowing of $135 million to the Corporation with a limit of $50
million for 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 9, 2003, but
may be extended, with consent of the bank group, for additional periods
not to exceed 364 days each. The outstanding borrowings as of May 13,
2002 under the prior credit agreements were paid in full by funding
from the new 2002 revolving credit agreement. As of June 30, 2002 and
December 31, 2001, the balance of long-term debt was $47.4 million and
$21.4 million, respectively.
7. 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.
Page 12 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
8. SEGMENT INFORMATION
The Company conducts its business operations through three segments:
Motion Control, Metal Treatment and Flow Control.
(In thousands)
--------------
Three Months Ended June 30, 2002
---------------------------------
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Totals & Other Totals
------- --------- ------- ------- --------- ------------
Revenue from external customers $59,771 $27,254 $34,752 $121,777 $-- $121,777
Intersegment revenues -- 119 -- 119 (119) --
Segment operating income 7,332 3,576 4,634 15,542 (464) 15,078
(In thousands)
--------------
Three Months Ended June 30, 2001
---------------------------------
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Totals & Other Totals
------- --------- ------- ------- --------- ------------
Revenue from external customers $35,728 $27,049 $23,827 $86,604 $ -- $86,604
Intersegment revenues -- 124 -- 124 (124) --
Segment operating income 5,999 4,917 2,683 13,599 (533) 13,066
Page 13 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(In thousands)
--------------
Six Months Ended June 30, 2002
------------------------------
Motion Metal Flow Segment Corporate Consolidated
Control Treatment(1) Control Totals & Other(2) Totals
------- ------------ ------- ------- ---------- -------------
Revenue from external customers $102,023 $ 52,671 $ 64,870 $219,564 $ - $219,564
Intersegment revenues - 228 - 228 (228) -
Segment operating income 14,114 6,336 8,290 28,740 (748) 27,992
Segment assets 242,975 103,254 113,006 459,235 92,609 551,844
(1) Operating income for Metal Treatment includes non-recurring costs of $451
associated with the relocation of a shot-peening facility.
(2) Operating income for Corporate includes $247 of net environmental
remediation and administrative expenses.
(In thousands)
--------------
Six Months Ended June 30, 2001
------------------------------
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Totals & Other Totals
------- --------- ------- ------ -------- ------
Revenue from external customers $65,685 $54,921 $45,915 $166,521 $ - $166,521
Intersegment revenues - 230 - 230 (230) -
Segment operating income 10,582 10,380 3,902 24,864 (533) 24,331
Segment assets 98,229 81,607 90,149 269,985 145,158 415,143
Reconciliation:
(In thousands)
Three months ended Six months ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------- ------------- ------------- -------------
Consolidated operating income $15,078 $13,066 $27,992 $24,331
Investment income, net 380 650 511 1,493
Rental income 50 1,308 99 2,342
Pension income, net 2,254 2,343 4,508 4,687
Other income (expense), net 18 (69) (90) (527)
Interest expense (466) (396) (659) (645)
------- ------- ------- -------
Earnings before income taxes $17,314 $16,902 $32,361 $31,681
======= ======= ======= =======
Page 14 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
9. COMPREHENSIVE INCOME
Total comprehensive income for the periods ended June 30, 2002 and 2001 was as
follows:
(In thousands)
Three months ended Six months ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
---------------- ---------------- ---------------- ----------------
Net earnings $10,816 $10,465 $20,132 $19,684
Equity adjustment from foreign
currency translations 9,344 (1,364) 8,032 (3,590)
------- ------- ------- -------
Total comprehensive income $20,160 $ 9,101 $28,164 $16,094
======= ======= ======= =======
10. EARNINGS PER SHARE
Diluted earnings per share were computed based on the weighted average
number of shares outstanding plus all potentially dilutive shares
issuable for the periods. Potentially diluted shares relate primarily
to stock options granted. Dilutive shares for the three months ended
June 30, 2002 and June 30, 2001 were 308,000 and 210,000, respectively.
For the six months ended June 30, 2002 and June 30, 2001, the dilutive
shares were 258,000 and 210,000 respectively.
11. 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 43.0 million Swiss francs of product from suppliers of
the two European countries over multi-year periods which expire in 2005
and 2007. The agreements contain a penalty of 5-10% of the unfulfilled
obligation at the end of the term of the agreements. As of June 30,
2002, the Corporation has accrued 811,000 Swiss francs (approximately
$550,000) included in noncurrent liabilities as a contingency against
not achieving compliance with these agreements.
Consistent with other entities its size, the Corporation is party to
legal actions and claims, none of which individually or in the
aggregate, in the opinion of management, is expected to have a material
adverse effect on the Corporation's results of operations or financial
position.
Page 15 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
12. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") 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 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 2002.
Under the new rules of SFAS No. 142, goodwill is no longer amortized,
but is subject to an annual impairment test 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. In compliance with the provisions of SFAS
No. 142, the Corporation completed its transitional goodwill impairment
test during the second quarter of 2002. The testing indicated that the
recorded carrying value of the Corporation's goodwill is not impaired
as of the January 1, 2002 assessment. The Corporation will complete its
annual 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 Six Months Ended
June 30, June 30,
----------------------- -----------------------
2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Net Earnings:
---------------------------------------------------------------------------------------------------------
As reported $10,816 $10,465 $20,132 $19,684
---------------------------------------------------------------------------------------------------------
Goodwill amortization, net of tax - 274 - 547
---------------------------------------------------------------------------------------------------------
As adjusted $10,816 $10,739 $20,132 $20,231
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share:
---------------------------------------------------------------------------------------------------------
As reported $1.03 $1.02 $1.93 $1.92
---------------------------------------------------------------------------------------------------------
Goodwill amortization, net of tax - $0.03 - $0.05
---------------------------------------------------------------------------------------------------------
As adjusted $1.03 $1.05 $1.93 $1.97
---------------------------------------------------------------------------------------------------------
Page 16 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
In October, 2001, the FASB 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 17 of 27
PART I - ITEM 2
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
RESULTS of OPERATIONS
Three months ended June 30, 2002
- --------------------------------
Sales for the second quarter of 2002 totaled $121.8 million, an increase of 41%
from the sales of $86.6 million for the second quarter of 2001. Orders received
for the current quarter of $117.8 million were up 13% over the orders of $104.2
million for the second quarter of 2001. Sales for the second quarter of 2002, as
compared to the same period last year, benefited from the recent acquisitions.
Approximately $38.0 million of second quarter sales were the result of
acquisitions completed in 2001 and 2002. Excluding acquisitions, 2002 sales are
near prior year levels despite a significant reduction in production schedules
of commercial aircraft and a sharp decline in the overhaul and repair services
provided to the global airline industry. In contrast, the quarter benefited from
higher sales of nuclear products to both the commercial and naval markets and
strong growth in aerospace and land based defense related sales.
Operating income for the second quarter of 2002 totaled $15.1 million, an
increase of 15% from operating income of $13.1 million for the same period last
year. The increase is primarily attributed to the contributions of our recent
acquisitions, which amounted to $3.3 million, and strong organic growth in our
base flow control business. Other factors contributing to this increase include
favorable foreign currency translation in the amount of $0.4 million and the
implementation of SFAS Nos. 141 and 142, which eliminated the amortization of
goodwill effective January 1, 2002. The prior year's second quarter included
goodwill amortization of $0.4 million. These improvements were partially offset
by lower margins as a result of lower volume in the commercial aerospace and
overhaul and repair service businesses combined with increased operating costs
associated with the start-up of several facilities within our Metal Treatment
segment.
Net earnings for the second quarter of 2002 totaled $10.8 million, or $1.03 per
diluted share, an increase of 1% from net earnings for the second quarter of
2001 of $10.5 million, or $1.02 per diluted share. The second quarter of 2002
benefited from the contributions of our recent acquisitions, organic growth in
our base flow control business and the elimination of goodwill amortization as
referred to above and discussed in Note 12. The 2001 second quarter included
higher net earnings of $1.0 million or $0.09 per diluted share from the
combination of rental income associated with a property which was sold in
December 2001 and higher investment income generated from cash resources which
have since been utilized for acquisitions.
RESULTS of OPERATIONS
Six Months Ended June 30, 2002
- ------------------------------
Sales for the first half of 2002 increased 32% to $219.6 million, as compared
with $166.5 million for the same prior year period. New orders totaled $213.9
million, 25%
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
above the same six-month period of last year. These improvements were due
principally to the acquisitions made during 2001 and 2002.
Operating income for the first six months of 2002 was $28.0 million, a 15%
increase over the $24.3 million for the six months of 2001. This improvement was
primarily the result of the Corporation's recent acquisitions amounting to $3.8
million. The 2001 results included $0.9 million of goodwill amortization
compared with no goodwill amortization in 2002 as a result of the implementation
of SFAS Nos. 141 and 142. The favorable foreign currency translation impact on
operating income in the second quarter of 2002 in the amount of $0.4 million
offset the unfavorable impact from the first quarter resulting in an
insignificant year-to-date impact.
Net earnings for the first six months of 2002 were $20.1 million, or $1.93 per
diluted share, as compared to $19.7 million, or $1.92 per diluted share, for the
six months ended June 30, 2001. This increase reflects the contributions from
our recent acquisitions and the elimination of goodwill amortization, offset by
decreases in investment income of $0.6 million resulting from cash resources
having been utilized for acquisitions and rental income of $1.4 million
resulting from the sale of the Wood-Ridge business complex in December 2001.
Also affecting net earnings for the six months ended June 30, 2002 were some
unusual items, the net effect of which had an unfavorable impact of $0.3
million. These items included costs associated with the relocation of 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.
Page 19 of 27
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 were $59.8 million for the
second quarter and $102.0 million for the first six months of 2002,
respectively. This represents a 67% increase over second quarter 2001 sales of
$35.7 million and a 55% increase over sales of $65.7 million for the six months
ended June 30, 2001. These improvements were largely the result of acquisitions,
which amounted to $28.6 million and $38.0 million for the quarter and six months
ended June 30, 2002, respectively, partially offset by lower sales in base
businesses. The decline in the base business was due to reduced volume
associated with the overhaul and repair services provided to the global airline
industry and lower commercial aircraft production by our major customers. Sales
increased in the second quarter for defense related products compared to the
second quarter last year.
The segment's second quarter operating income of $7.3 million represents a 22%
increase over second quarter 2001 operating income of $6.0 million. For the six
months ended June 30, 2002, the segment's operating income was $14.1 million,
which represented a 33% increase over the $10.6 million for the comparable
period last year. Operating income for the second quarter benefited from the
segment's recent acquisitions, stronger margins from aerospace defense related
sales, continued margin improvement at our Swiss-based business providing aiming
and stabilizing systems for land-based military vehicles, the favorable impact
of foreign currency translation and the elimination of goodwill amortization.
While cost reductions improved the profitability in overhaul and repair
services, profits were below those experienced in the second quarter of 2001
because of the lower sales levels.
New orders received for the Motion Control segment totaled $60.0 million in the
second quarter of 2002 and $89.7 million for the first half of 2002,
representing an increase of 3% and 17%, respectively, from the same periods in
2001. New orders from recent acquisitions amounted to $28.8 million and $43.2
million for the quarter and six months ended June 30, 2002.
Metal Treatment
- ---------------
Sales for the Corporation's Metal Treatment segment totaled $27.3 million for
the second quarter of 2002 which is slightly above the 2001 second quarter sales
of $27.0 million. For the six months ended June 30, 2002, sales were $52.7
million, which represented a 4% decline from the $54.9 million for the six
months ended June 30, 2001. Both the quarter and six months ended June 30, 2002
included sales from recent acquisitions in the amount of $1.5 million and $2.6
million, respectively. Overall industrial market softness, slowdowns in the
commercial aerospace markets, and weakness in the heat treating markets
contributed to the lower volume for the six months ended June 30, 2002. However,
when compared to the first quarter of 2002,
Page 20 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
second quarter sales increased 7% resulting from an increase in shot-peening
sales in both North America and Europe.
Operating income for the second quarter of 2002 declined 27% to $3.6 million
from $4.9 million for the same period last year. This decline is primarily the
result of unfavorable sales mix in the second quarter of 2002, which yielded
lower gross margins than in the comparable 2001 period, combined with start-up
costs at three new facilities. Comparing 2002 six months year to date to the
prior year, operating income decreased 39% from $10.4 million in 2001 to $6.3
million in 2002. The year-to-date reduction in operating income is due to
reduced volume, start-up costs at new facilities, and certain non-recurring
costs associated with the relocation of one of the segment's shot peening
facilities. However, operating margins have increased in the second quarter over
this year's first quarter even after adjusting for the non-recurring costs noted
above.
New orders received for the Metal Treatment segment totaled $27.5 million in the
second quarter of 2002, and $53.0 million for the first half of 2002 as compared
to $27.1 million and $55.2 million in the respective prior year periods.
Flow Control
- ------------
The Corporation's Flow Control segment sales of $34.8 million for the second
quarter of 2002 represented a 46% increase over second quarter 2001 sales of
$23.8 million. For the six months ended June 30, 2002, sales were $64.9 million,
an increase of 41% over sales for the comparable prior year period. The
contribution from recent acquisitions amounted to $7.9 million and $13.5 million
for the quarter and six months ended June 30, 2002, respectively. In addition,
higher sales in the base businesses, including nuclear products for the navy and
power generation plants, as well as increased sales to non-nuclear commercial
markets also contributed to this improvement. Excluding acquisitions, sales for
the base business increased 15% for the quarter and 13% for the six months ended
June 30, 2002.
Operating income for the second quarter of 2002 increased 73% to $4.6 million as
compared to $2.7 million for the second quarter of 2001. For the six months
ended June 30, 2002, operating profit of $8.3 million represented a 113%
increase over the $3.9 million for the comparable year period. These
improvements resulted from the higher sales volumes, improved margins on flow
control products for nuclear applications, overall cost reduction programs and
the elimination of goodwill amortization. Operating income from recent
acquisitions for the three and six months ended June 30, 2002 amounted to $0.7
million and $1.1 million, respectively.
New orders received for the Flow Control segment totaled $30.5 million in the
second quarter of 2002 and $71.5 million for the first half of 2002,
representing an increase of
Page 21 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
59% and 82%, respectively. The increase in new orders includes the contribution
from recent acquisitions, which amounted to $8.9 million for the second quarter
of 2002 and $15.7 million for the six months ended June 30, 2002.
Corporate and Other Expenses
- ----------------------------
The Corporation had a non-segment operating loss of $0.5 million in both the
second quarter of 2002 and 2001. The 2002 quarter included non-recurring
commitment fee expenses associated with the Corporation's prior credit
agreements and certain system software costs. During the second quarter of 2001,
the Corporation incurred costs in connection with its recapitalization plan,
which were partially offset by net proceeds from a small environmental insurance
settlement.
The non-segment operating loss for the first half of 2002 also included net
environmental remediation costs associated with a facility the Corporation sold
years ago.
Non-Operating Revenues and Costs
- --------------------------------
For the second quarter of 2002, the Corporation recorded other non-operating net
revenue totaling $2.2 million, compared with $3.8 million for the second quarter
of 2001. The decrease was caused primarily by lower rental income due to the
sale of our Wood-Ridge property and lower investment income due to lower
short-term investment balances which were utilized to fund acquisitions, and
lower interest rates. The six months ended June 30, 2002 also included losses on
the sales of securities received relative to the demutualization of an insurance
company.
CHANGES IN FINANCIAL CONDITION:
Liquidity and Capital Resources:
The Corporation's working capital was $141.9 million at June 30, 2002, a
decrease of 5% from the working capital at December 31, 2001 of $149.9 million.
The ratio of current assets to current liabilities remained constant at 3.0 at
June 30, 2002 and December 31, 2001.
Cash, cash equivalents and short-term investments totaled $23.8 million in the
aggregate at June 30, 2002, down 65% from $67.2 million at the prior year-end.
Days sales outstanding at June 30, 2002 increased to 62 days from 59 at December
31, 2001.
Items affecting the Corporation's cash flow during the six months ended June 30,
2002 included a large tax payment related to the gain on the sale of our
Wood-Ridge facility and $61.8 million related to the acquisitions of new
businesses.
Page 22 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
As of June 30, 2002, the Corporation had two credit agreements aggregating $225
million with a group of eight banks. The Revolving Credit Agreement ("Revolving
Credit Agreement") commits a maximum of $135 million over five years 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 had in effect a Short-Term credit Agreement ("Short-Term Credit
Agreement"), which allows for cash borrowings up to $90 million. The Short-Term
Agreement expires May 9, 2003, but may be extended, with 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 June 30, 2002 were $33.4
million compared with cash borrowings of $8.0 million at December 31, 2001 under
the prior credit agreements. All outstanding borrowings under the prior
agreements were paid in full through funding from the new agreements. The unused
credit available under the existing agreements at June 30, 2002 was $172.7
million.
The loans outstanding under the Revolving Credit Agreement and Industrial
Revenue Bonds totaling $13.4 million at June 30, 2002 and December 31, 2001 had
variable interest rates averaging 2.38% for the second quarter of 2002 and 3.23%
for 2001.
For the first six months of 2002, internally available funds were adequate to
meet capital expenditures of $13.1 million. Expenditures incurred during the
first six months were primarily for new and replacement machinery and equipment
within the operating segments. The Corporation is expected to make additional
capital expenditures of approximately $21.4 million during the balance of the
year, primarily for machinery and equipment for the operating segments. Funds
from internal sources are expected to be adequate to meet planned capital
expenditures, environmental and other obligations for the remainder of the year.
A combination of cash resources and $40 million in funds available under the
Corporation's Revolving Credit Agreement were utilized for the funding of
acquisitions during the first six months of 2002. Of the $40 million initially
borrowed, $14 million has been repaid with the use of internally generated
funds.
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.
Page 23 of 27
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
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 asset. The Corporation, in consultation with its actuary, determines the
appropriate assumptions for use in determining the liability for future pensions
and other postretirement benefits. For the quarter and six months ended June 30,
2002, the Corporation recognized pension income of $2.3 million and $4.5
million, respectively, as the excess of amounts funded for the pension plan in
prior years together with actual and expected earnings on those assets, over the
calculated liability. As of June 30, 2002, the prepaid pension cost was $75.3
million. The timing and amount of future pension income to be recognized each
year will be dependent on the demographics and expected earnings of the plan
participants, the expected interest rates in effect in future years, and the
actual and expected investment returns of the assets in the pension trust.
Environmental reserves. The Corporation provides for environmental reserves
when, in conjunction with its counsel, it is determined 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 with
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 June 30, 2002, the Corporation had $139
million in goodwill and other intangible assets related to acquisitions made in
2002 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.
Page 24 of 27
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
six months ended June 30, 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 25 of 27
PART II - OTHER INFORMATION
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
(incorporated by reference to exhibit 4.1 of the Corporation's Form
10-Q for the quarterly period ended March 31, 2002.)
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
(incorporated by reference to exhibit 4.1 of the Corporation's Form
10-Q for the quarterly period ended March 31, 2002.)
Exhibit 10.1 Consulting Agreement dated June 18, 2002 between Registrant and
Gerald Nachman, filed herewith
Exhibit 99.1 Certification of Martin R. Benante, Chairman and CEO, Pursuant to 18
U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith
Exhibit 99.2 Certification of Glenn E. Tynan, Chief Financial Officer, Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith
(b) Reports on Form 8-K
1. 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.
Page 26 of 27
SIGNATURE
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
Vice President Finance
Chief Financial Officer
Dated: August 14, 2002
Page 27 of 27