<Page>
AT A GLANCE
Curtiss-Wright operates across three business segments giving us diversification
and balance. We provide highly engineered products and services to a number of
global markets and pride ourselves in the strong customer relationships that
have been developed over the years.
- --------------------------------------------------------------------------------
MOTION CONTROL
- --------------------------------------------------------------------------------
Products and Services
Secondary flight control actuation systems and electromechanical
trim actuators
Weapons bay door actuation systems
Integrated mission management and flight control computers
Digital electromechanical aiming and stabilization systems
Hydropneumatic suspension systems
Electromechanical tilting systems for high speed trains
Fire control, sight head, and environmental control processors for military
ground vehicles
Position sensors
Fire detection and suppression control systems
Power conversion products
Control electronics
Component overhaul and logistics support services
Major Markets
Commercial jet transports
Business/regional jets
Military transport and fighter aircraft
Ground defense vehicles
Unmanned aerial vehicles
Automated industrial equipment
High speed trains
Marine propulsion
Space programs
Security systems
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FLOW CONTROL
- --------------------------------------------------------------------------------
Products and Services
Military and commercial nuclear/non-nuclear valves
(globe, gate, control, safety, solenoid, relief)
Steam generator control equipment
Reactor plant control equipment
Advanced hydraulic systems
Air driven fluid pumps
Pumps, turbine motors and generators
Engineering, inspection, and testing services
Major Markets
Navy programs (nuclear and non-nuclear)
Power generation (nuclear and fossil)
Processing industry
Oil and gas refining
Petrochemical/chemical
Natural gas production and transmission
Pharmaceutical
Pulp and paper
Automotive/truck
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METAL TREATMENT
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Products and Services
Shot-peening
Shot-peen forming
Lasershot-peening
Heat treating
Plating
Reed valve manufacturing
Chemical milling
Anodizing
Engineering/test and field services
Major Markets
Commercial jet transports
Business/regional jets
Automotive
Metalworking
Oil and gas exploration
Power generation
Agricultural equipment
Construction and mining equipment
19
<Page>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
==================================================================================================
(In thousands, except per share data) First Second Third Fourth
- --------------------------------------------------------------------------------------------------
2002
Net sales $ 97,787 $ 121,777 $ 119,641 $ 174,073
Gross profit 36,155 43,699 41,199 55,033
Net earnings 9,316 10,816 11,312 13,692
Earnings per share:
Basic earnings per share $ .92 $ 1.06 $ 1.10 $ 1.34
Diluted earnings per share $ .90 $ 1.03 $ 1.08 $ 1.31
Dividends per share $ .15 $ .15 $ .15 $ .15
- --------------------------------------------------------------------------------------------------
2001
Net sales $ 79,917 $ 86,604 $ 79,420 $ 97,226
Gross profit 30,011 32,837 30,187 34,782
Net earnings 9,219 10,465 8,723 34,473
Earnings per share:
Basic earnings per share $ .92 $ 1.04 $ .87 $ 3.42
Diluted earnings per share $ .90 $ 1.02 $ .85 $ 3.37
Dividends per share $ .13 $ .13 $ .13 $ .15
CONSOLIDATED SELECTED FINANCIAL DATA
========================================================================================================
(In thousands, except per share data) 2002 2001 2000 1999 1998
- --------------------------------------------------------------------------------------------------------
Net sales $513,278 $343,167 $329,575 $293,263 $249,413
Net earnings 45,136 62,880 41,074 39,045 29,053
Total assets 812,924 500,428 409,416 387,126 352,740
Long-term debt 119,041 21,361 24,730 34,171 20,162
Basic earnings per share $ 4.43 $ 6.25 $ 4.10 $ 3.86 $ 2.85
Diluted earnings per share $ 4.33 $ 6.14 $ 4.03 $ 3.82 $ 2.82
Cash dividends per share $ .60 $ .54 $ .52 $ .52 $ .52
See notes to consolidated financial statements for additional financial
information.
FORWARD-LOOKING STATEMENTS
This Annual Report contains not only historical information but also
forward-looking statements regarding expectations for future company
performance. Forward-looking statements involve risk and uncertainty. Please
refer to the Corporation's 2002 Annual Report on Form 10-K for a discussion
relating to forward-looking statements contained in this Annual Report and
factors that could cause future results to differ from current expectations.
20 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Curtiss-Wright Corporation recorded consolidated net sales of $513.3 million and
net earnings of $45.1 million, or $4.33 per diluted share, for the year ended
December 31, 2002. Sales for the current year increased 50% over 2001 sales of
$343.2 million, and 56% over 2000 sales of $329.6 million. Net earnings for 2002
decreased 28% from prior year net earnings of $62.9 million, or $6.14 per
diluted share, and increased 10% from net earnings of 2000, which totaled $41.1
million, or $4.03 per diluted share. However, net earnings for all three years
include several items, which the Corporation's management believes are
nonrecurring and impact a year-to-year comparison. The following table depicts
the Corporation's "normalized" results, which the Corporation believes presents
a clearer picture of after-tax performance. The table is not based on accounting
principles generally accepted in the United States of America, but is provided
to explain the impact of certain items in a way that is commonly used by
investors and financial analysts to analyze and compare companies. This schedule
may not be comparable to similarly titled financial measures of other companies,
does not represent alternative measures of the Corporation's cash flows or
operating income, and should not be considered in isolation or as an alternative
for measures of performance presented in accordance with generally accepted
accounting principles.
NORMALIZED NET EARNINGS:
(Unaudited)
===============================================================================
(In thousands, except per share figures) 2002 2001 2000
- -------------------------------------------------------------------------------
GAAP net earnings $ 45,136 $ 62,880 $ 41,074
Postretirement and post-
employment adjustments, net (986) -- (1,336)
IRS refund due (934) -- --
Release of indemnification reserve (801) -- --
Legal settlement (616) -- --
Gain on sale of real property (435) (22,999) (894)
Net nonrecurring benefit gain -- (748) --
Facility consolidation costs 278 -- 50
Recapitalization costs -- 1,500 910
Environmental insurance
settlements, net -- -- (1,894)
Normalized net earnings $ 41,642 $ 40,633 $ 37,910
- -------------------------------------------------------------------------------
Normalized net earnings
per diluted share $ 3.99 $ 3.97 $ 3.72
================================================================================
Postretirement and Postemployment Adjustments
In 2002, the Corporation recognized a net after-tax gain of $1.0 million related
to the reallocation of postretirement medical benefits for certain active
employees to our pension plan. In 2000, the Corporation recognized a reduction
in general and administrative expenses related to the curtailment of
postretirement benefits associated with the closing of the Fairfield, New Jersey
facility, partially offset by the recognition of other postemployment costs.
Further information on retirement plans is contained in Note 17 to the
Consolidated Financial Statements.
IRS Refund
In 2002, the Corporation recognized an IRS refund due of $0.9 million related to
research and development credits from prior years.
Release of Indemnification Reserve
In 2002, the Corporation released a reserve associated with an indemnification
provided to the purchaser of the Corporation's Wood-Ridge Business Complex that
was no longer required.
Legal Settlement
In 2002, the Corporation recorded a net settlement from a lawsuit, whereby the
Corporation was awarded damages associated with our Wood-Ridge Business Complex
facility.
Sale of Real Property
In 2002, the Corporation sold land, which resulted in a net after-tax gain of
$0.3 million, and sold other property, which resulted in a net after-tax gain of
$0.1 million. In 2001, the Corporation sold its Wood-Ridge Business Complex,
which resulted in a net after-tax gain of $23.0 million. In 2000, the
Corporation recorded a net after-tax gain of $0.9 million on the sale of a
nonoperating Metal Treatment facility located in Chester, England.
Net Nonrecurring Benefit Gain
During 2001, the Corporation recorded a pre-tax gain of approximately $3 million
($1.8 million after-tax) resulting from a nonrecurring benefit related issue.
Offsetting this gain were nonrecurring charges for employee benefit related
expenses of $1.8 million pre-tax ($1.1 million after-tax). Further information
on these transactions is contained later in this section--see "Corporate and
Other Expenses."
Facility Consolidation Costs
In 2002, the Corporation incurred costs associated with the relocation of a
Metal Treatment facility.
Recapitalization Costs
During 2000 and 2001, the Corporation incurred costs related to a
recapitalization of its stock. Further information on this transaction is
contained later in this section--see "Recapitalization."
Environmental Insurance Settlements
The Corporation had previously filed lawsuits against several insurance carriers
seeking recovery for environmental costs and reached settlements with the
remaining carriers in 2000. The amount reported above is a recovery, net of
associated expenses and additional expenses related to ongoing environmental
liabilities of the Corporation. Further information on environmental costs is
contained in Note 16 to the Consolidated Financial Statements.
- --------------------------------------------------------------------------------
Excluding these nonrecurring items, "normalized" net earnings for 2002 of $41.6
million, were 2% higher than "normalized" net earnings of $40.6 million for 2001
and 10% higher than "normalized" net earnings of $37.9 million for 2000.
Normalized net earnings per diluted share for 2002 were $3.99, 1% higher than
the $3.97 earnings per diluted share for 2001, and 7% higher than 2000.
Excluding the facility consolidation costs, "normalized" operating income from
the Corporation's three operating segments totaled $65.1 million for 2002, a 32%
increase over "normalized" operating income from the three operating segments of
$49.4 million and $49.2 million in 2001 and 2000, respectively.
The improvement in financial results comparing 2002 to 2001 largely reflects the
contributions of recent acquisitions made by the Corporation. See Note 2 to the
Consolidated Financial Statements for further information regarding
acquisitions. Sales and operating income in 2002 of the businesses acquired in
2002 and the fourth quarter of 2001 were $181.8 million and $19.7 million,
respectively. Including
CURTISS-WRIGHT AND SUBSIDIARIES 21
<Page>
the six businesses acquired in 2002, the Corporation has acquired nineteen new
businesses since 1998. In addition to the contribution of the new acquisitions,
2002 benefited from stronger military aerospace sales and higher sales of flow
control products to the commercial nuclear power generation markets, nuclear
naval programs, and the heavy truck OEM market. These increases were offset by
significant decreases in the sales of commercial aerospace OEM products,
aerospace overhaul and repair services, and shot-peening services.
Foreign currency translation had a favorable impact on sales and operating
income. Comparing this year's results to those of the prior year, the
fluctuation in foreign currency rates positively impacted sales by $3.2 million
and operating income by $0.7 million. In addition, with the implementation of
Statement of Financial Accounting Standards ("SFAS") No. 142, the Corporation
eliminated the amortization of goodwill effective January 1, 2002, which totaled
$1.8 million in both 2001 and 2000. See Note 9 to the Consolidated Financial
Statements for proforma results relative to the effect of goodwill amortization.
Improvements in 2001 from 2000 reflect the contributions of the 2001
acquisitions made by the Corporation. In addition, higher sales of aerospace OEM
products, products to the oil and gas markets, and shot-peening services were
offset by lower volume in our aerospace overhaul and repair services and our
automotive-related businesses.
Backlog at December 31, 2002 is $478.5 million compared with $242.3 million at
December 31, 2001 and $182.6 million at December 31, 2000. Acquisitions made
during 2002 represented $246.9 million of the backlog at December 31, 2002. New
orders received in 2002 totaled $478.2 million, which represents a 46% increase
over 2001 new orders of $326.5 million and a 60% increase over new orders
received in 2000. Acquisitions made during 2002 contributed $67.6 million to new
orders received in 2002. It should be noted that metal treatment services,
repair and overhaul services, and after-market sales, which represent
approximately 27% of the Corporation's total sales for 2002, are sold with very
modest lead times. Accordingly, the backlog for these businesses is less of an
indication of future sales than the backlog of the majority of the products and
services of the Motion Control and Flow Control segments, in which a significant
portion of sales are derived from long-term contracts.
Segment Performance
The Corporation manages and evaluates its operations based on the products and
services it offers and the different markets it serves. Based on this approach,
the Corporation has three reportable segments: Motion Control, Flow Control, and
Metal Treatment. The Motion Control segment primarily designs, develops, and
manufactures high performance mechanical systems, drive systems, and electronic
controls and sensors for the aerospace and defense industries. The Flow Control
segment primarily designs, manufactures, distributes, and services a broad range
of highly engineered flow control products for severe service military and
commercial applications. Metal Treatment provides approximately 50
metal-treating services, with its principal services being "shot-peening" and
"heat-treating." The segment provides these services for a broad spectrum of
customers in various industries, including aerospace, automotive, construction
equipment, oil, petrochemical and metal working. See Note 19 to the Consolidated
Financial Statements for further information.
MOTION CONTROL
The Corporation's Motion Control segment reported sales of $233.4 million for
2002, a 70% increase over 2001 sales of $137.1 million. The higher sales largely
reflect the acquisition of Penny & Giles ("P&G") and Autronics ("Autronics") in
April 2002, and the full year contributions of the November 2001 acquisitions of
Lau Defense Systems ("LDS") and Vista Controls ("Vista"). The 2002 sales
associated with these acquisitions amounted to $110.3 million. Base business
sales declined due to lower volume associated with the overhaul and repair
services provided to the global airline industry, lower commercial aircraft
production by Boeing, and a slight drop in our global ground defense business.
The softening in the demand for the commercial aerospace business and related
services, which began in 2001, has continued through 2002. These declines were
partially offset by stronger military sales resulting from increased shipments
for the F-22 program and F-16 spares. In addition, foreign currency translation
favorably impacted sales in 2002 from 2001. Operating income for 2002 increased
54% over the prior year. Excluding acquisitions, the operating income from the
base businesses increased 2% in 2002 due to the stronger margins from both the
aerospace and land-based defense businesses. These improvements were mostly
offset by declines in our commercial aerospace business. The operating margins
of our overhaul and repair business were flat compared to the prior year,
despite the lower demand from commercial airlines. Foreign currency translation
favorably impacted 2002 operating income by approximately $0.3 million. In
addition, the elimination of goodwill amortization, which totaled $0.6 million
in 2001, also favorably impacted the 2002 results.
Motion Control segment sales for 2001 were 8% above 2000 sales of $126.8
million. The higher sales largely reflect the acquisitions of LDS and Vista and
increased revenue at the segment's land-based defense business in Europe. The
2001 sales from the LDS and Vista acquisitions amounted to $9.6 million. Also
affecting 2001 sales were lower aerospace repair and overhaul services compared
to the prior year. The softening in the demand for these services was
exacerbated by the impact of the events of September 11th. This decline was
offset by higher shipments of 737 and F-22 OEM products and strong growth in the
global ground defense business as compared to the prior year. In addition,
foreign currency translation adversely impacted sales in 2001 from 2000.
Operating income for 2001 increased 25% over the prior year. Excluding
acquisitions, this increase was 20% due mainly
22 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
to profit improvements in aerospace OEM products generated by the consolidation
of production facilities combined with an improved cost structure. These
improvements have more than offset the decline in operating income realized in
the repair and overhaul business resulting primarily from lower sales volume.
Foreign currency translation also had a $0.1 million negative impact on 2001
operating income.
Backlog at December 31, 2002 is $173.2 million compared with $167.5 million at
December 31, 2001 and $129.0 million at December 31, 2000. Acquisitions made
during 2002 represented $35.5 million of the backlog at December 31, 2002. New
orders received in 2002 totaled $203.3 million, which represents a 70% increase
over 2001 new orders of $119.4 million and a 82% increase over new orders
received in 2000. The increase is mainly due to the recent acquisitions.
FLOW CONTROL
The Corporation's Flow Control segment reported sales of $172.5 million for
2002, a 76% increase over 2001 sales of $98.3 million. The higher sales largely
reflect the acquisitions of the Electro-Mechanical Division of Westinghouse
Government Services Company ("EMD") and TAPCO International, Inc. ("TAPCO") in
the fourth quarter of 2002 and the full year contributions of the acquisitions
of Solent & Pratt Ltd., Peerless Instruments, Inc. and, Deltavalve USA, LLC
completed in 2001. The 2002 sales from these acquisitions amounted to $72.9
million. The base business also improved largely due to stronger sales of
nuclear products to the U.S. Navy and power generation markets, higher sales to
the heavy truck OEM markets, and solid sales to our European valve markets.
Sales of the valve products to the petrochemical and oil and gas markets were
essentially flat with the prior year. In addition, foreign currency translation
favorably impacted sales in 2002 from 2001. Operating income for the year
increased by 93% over the prior year. Excluding acquisitions, the operating
income from the base business improved 21% due to higher sales volumes, improved
margins on flow control products for nuclear applications and heavy truck OEM
markets, and overall cost reduction programs. Foreign currency translation had a
$0.2 million negative impact on 2002 operating income. In addition, the
elimination of goodwill amortization, which totaled $1.0 million in 2001, also
favorably impacted the 2002 results.
Flow Control segment sales in 2001 were slightly above sales of $97.5 million
for 2000. The 2001 sales included approximately $3.9 million related to three
acquisitions made during 2001. The segment also benefited from higher sales to
the U.S. Navy and strong demand in the petrochemical and oil and gas markets,
primarily for maintenance, repair, and overhaul applications. Offsetting these
gains was the significant downturn in the automotive and heavy truck markets and
the sale of the segment's hydraulic products distribution business in the third
quarter of 2000. Operating income for the year increased by more than 4% even
though sales were essentially flat. Excluding the three 2001 acquisitions, the
segment's improved costs structures and operating efficiencies resulted in an 8%
improvement in 2001 operating income as compared to the prior year. Foreign
currency translation also had a $0.1 million negative impact on 2001 operating
income.
Backlog at December 31, 2002 is $304.3 million compared with $73.5 million at
December 31, 2001 and $52.5 million at December 31, 2000. Acquisitions made
during 2002 represented $211.4 million of the backlog at December 31, 2002. New
orders received in 2002 totaled $167.9 million, which represents a 69% increase
over 2001 new orders of $99.1 million and a 104% increase over new orders
received in 2000. The increase is mainly due to the recent acquisitions.
METAL TREATMENT
The Corporation's Metal Treatment segment reported sales of $107.4 million in
2002, essentially flat with the 2001 sales of $107.8 million. The slight
decrease resulted from lower shot-peening sales, especially at the European
divisions, which were impacted by softness in the aerospace and automotive
markets, partially offset by the contribution from the 2002 acquisition in
Sweden and sales from our new laser-peening technology. The decline in the
shot-peening business was offset by higher heat treating sales resulting from
the full year contributions from the two acquisitions made in the fourth quarter
of 2001. The valve division improved over last year due to higher sales to
automotive and air conditioner compressor customers. In addition, foreign
currency translation favorably impacted sales in 2002 from 2001. Operating
income for 2002 declined 26% from the prior year due to an unfavorable sales
mix, start-up costs at new facilities, and nonrecurring costs associated with
the relocation of a shot-peening facility. Foreign currency translation
favorably impacted 2002 operating income by approximately $0.6 million. In
addition, the elimination of goodwill amortization, which totaled $0.2 million
in 2001, also favorably impacted the 2002 results.
Metal Treatment segment sales for 2001 were 2.4% above sales for 2000 of $105.3
million. The slight improvement in 2001 sales resulted from increases in the
North American and European shot-peening business, which were largely offset by
decreases in the segment's heat-treating operations, particularly those related
to the automotive markets served. In addition, foreign currency translation
adversely impacted sales in 2001 from 2000. In 2001, operating income was 17%
below the prior year due primarily to increased operating costs, which included
facility start-up costs associated with acquisitions occurring in late 2000 and
2001, and higher energy costs. Foreign currency translation also had a $0.9
million negative impact on 2001 operating income. The two acquisitions made in
2001 had minimal effect on the segment's sales and operating income.
Backlog at December 31, 2002 is $1.0 million compared with $1.3 million at
December 31, 2001 and $1.2 million at December 31, 2000. New orders received in
2002 totaled $107.5 million, which represents a slight decrease from 2001 new
orders of $108.2 million and a slight increase over new orders received in 2000.
CURTISS-WRIGHT AND SUBSIDIARIES 23
<Page>
Corporate and Other Expenses
The Corporation had non-segment operating costs of $2.8 million in 2002. The
operating costs consisted mainly of net environmental remediation and
administrative expenses of $1.2 million, post employment expenses of $0.6
million, professional consulting costs associated with the integration of the
recent acquisitions of $0.5 million, commitment fee expenses associated with the
Corporation's prior credit agreements of $0.3 million, insurance costs,
charitable contributions, and other administrative expenses. These expenses were
partially offset by a net legal settlement, which is described in more detail in
the Normalized Net Earnings table.
Included in non-segment operating costs for 2001 is a net nonrecurring benefit
gain of $1.2 million, which consists of an approximate $3.0 million gain
resulting from the demutualization of an insurance company in which the
Corporation was a policyholder, partially offset by $1.8 million of
nonrecurring employee benefit related costs which are included in general and
administrative expenses in the statement of earnings. Operating costs also
include $1.5 million in expenses associated with the Corporation's
Recapitalization (see "Recapitalization" later in this section for more
information).
Included in non-segment operating income for 2000 is a $2.9 million benefit
resulting from the curtailment of postretirement medical coverage for former
employees of the Corporation's Fairfield, NJ plant due to its closure in
December 1999, offset partially by postemployment expenses related to the
retirement of the former Chairman and Chief Executive Officer. Also 2000 results
included administrative expenses of approximately $0.9 million associated with
the Corporation's recapitalization.
Non-operating Revenues/Expenses
The Corporation recorded non-operating net revenues in 2002 of $11.7 million
compared with $56.2 million in 2001 and $15.5 million in 2000. In 2002, the
Corporation recorded nonrecurring items, the net effect of which had a favorable
pre-tax impact in 2002 of $3.6 million. The items are described in more detail
in the Normalized Net Earnings table. Of the $56.2 million generated in 2001,
$38.9 million relates to the pre-tax gain resulting from the sale of the
Wood-Ridge Business Complex, which is more fully described in Note 3 to the
Consolidated Financial Statements.
Net investment income of $0.6 million decreased from the prior year's $2.6
million due to a lower cash position resulting from the funding of acquisitions
and lower interest rates. Net non-cash pension income decreased 35% to $7.2
million for 2002 due primarily to lower investment returns on the Corporation's
pension assets. The amount recorded as pension income reflects the extent to
which the return on plan assets exceeds the cost of providing benefits in the
same year, as detailed further in Note 17 to the Consolidated Financial
Statements. Based upon current market conditions, the Corporation expects lower
pension income in 2003. Rental income in 2002 declined from the previous year
due to the sale of our Wood-Ridge rental property in December 2001. Also in
2000, the Corporation sold a non-operating property in Chester, England
resulting in a net pre-tax gain of approximately $1.4 million.
Changes in Financial Position:
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's working capital was $137.2 million at December 31, 2002, a
decrease of $12.0 million from the working capital at December 31, 2001 of
$149.2 million. The ratio of current assets to current liabilities was 1.8 to 1
at December 31, 2002, compared with a ratio of 3.0 to 1 at December 31, 2001.
Working capital was significantly impacted by the acquisition of six businesses
in 2002, which produced an aggregate cash outflow of $165.8 million. The
Corporation's balance of cash and short-term investments totaled $48.0 million
at December 31, 2002, a decrease of $19.1 million from the balance at December
31, 2001. In addition to the impact of the six acquisitions completed in 2002,
working capital changes were also highlighted by a decrease in income taxes
payable of $11.1 million due to the large tax payment related to the gain on the
sale of the Wood-Ridge business complex. Excluding the effect of the current
year's acquisitions, days sales outstanding at December 31, 2002 decreased to 54
days from 59 days at December 31, 2001 while inventory turnover increased to 5.0
turns at December 31, 2002 versus 4.2 turns at December 31, 2001.
There were a number of transactions, which occurred during 2001 that had a
significant impact on the Corporation's working capital. These transactions
included the sale of the Wood-Ridge Business Complex for $51.0 million, a $1.75
million reimbursement from Unitrin Inc. ("Unitrin") of previously expended
recapitalization costs and the acquisition of seven businesses with an aggregate
cash outflow of $64.1 million. As a result, the Corporation's working capital
remained relatively flat at December 31, 2001, totaling $149.2 million as
compared with $149.8 million at December 31, 2000. The ratio of current assets
to current liabilities declined to 3.0 to 1 at December 31, 2001 compared with
3.9 to 1 at the end of 2000. The Corporation's balance of cash and short-term
investments totaled $67.2 million at December 31, 2001, a decrease of $4.3
million from the balance at December 31, 2000.
In addition to the impact of the seven acquisitions completed in 2001, working
capital changes in 2001 were also highlighted by increases in accounts
receivable of $5.8 million and current liabilities of $4.8 million. The increase
in income taxes payable of $12.7 million is a result of the gain associated with
the sale of the Wood-Ridge Business Complex.
At December 31, 2002, the Corporation had two credit agreements aggregating
$225.0 million with a group of eight banks. The Revolving
24 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
Credit Agreement offers a maximum of $135.0 million over five years to the
Corporation for cash borrowings and letters of credit. The Revolving Credit
Agreement expires May 13, 2007, but may be extended annually for successive
one-year periods with the consent of the bank group. The Corporation also has in
effect a Short-Term Credit Agreement, which allows for cash borrowings up to
$90.0 million. The Short-Term Credit Agreement expires May 9, 2003, but may be
extended, with the consent of the bank group, for additional periods not to
exceed 364 days each. The Corporation expects to extend the Short-Term Agreement
in 2003 with the consent of the bank group, however, there can be no assurances
that the bank group will approve the extension. Borrowings under these
agreements bear interest at a floating rate based on market conditions. In
addition, the Corporation's rate of interest and payment of facility fees are
dependent on certain financial ratios of the Corporation, as defined in the
agreements. As of December 31, 2002, the Corporation pays annual facility fees
on the entire commitments of the Revolving Credit Agreement and Short-Term
Credit Agreement. The Corporation is required under these agreements to maintain
certain financial ratios and meet certain net worth and indebtedness tests. Cash
borrowings (excluding letters of credit) under the two credit agreements at
December 31, 2002 were $137.5 million compared with cash borrowings of $8.0
million at December 31, 2001 under prior agreements. All outstanding borrowings
as of May 13, 2002 under the prior agreements were paid in full through funding
from the new agreements. The unused credit available under these agreements at
December 31, 2002 was $69.6 million.
Industrial revenue bonds, which are collateralized by real estate, were $13.4
million at December 31, 2002 and December 31, 2001. The loans outstanding under
the Revolving Credit Agreement and Industrial Revenue Bonds had variable
interest rates averaging 2.32% for 2002 and 3.23% for 2001.
Capital expenditures were $35.0 million in 2002, as compared to $19.4 million
spent in 2001 and $9.5 million in 2000. Principal expenditures were for
additional facilities and machinery and equipment. Capital expenditures in 2002
included the purchase of a new facility, additional machinery and equipment for
start-up operations, and new Enterprise Resource Planning ("ERP") computer
systems at two facilities. Capital expenditures in 2001 included the purchase of
a new facility and an investment in a new ERP computer system at one of the
Corporation's major facilities.
In 2003, capital expenditures are expected to be approximately $50 million due
to the full year effect of the 2002 acquisitions and the continued expansion of
the segments.
Cash generated from operations and current short-term investment holdings are
considered adequate to meet the Corporation's operating cash requirements for
the upcoming year, including anticipated debt repayments, planned capital
expenditures, dividends, satisfying environmental obligations, and working
capital requirements. Undistributed earnings from the Corporation's foreign
subsidiaries are considered to be permanently reinvested.
The Corporation has acquired nineteen businesses since 1998 and expects to
continue to seek acquisitions that are consistent with its strategy. A
combination of cash resources and funds available under the Corporation's Credit
Agreements were utilized for the funding of these acquisitions. As noted in Note
2 to the Consolidated Financial Statements, certain acquisition agreements
contain contingent purchase price adjustments. Future acquisitions, if any, may
be funded through the use of the Corporation's cash and short-term investments,
or through additional financing available under the credit agreements, or
through new debt facilities.
The following table quantifies our significant future contractual obligations
and commercial commitments as of December 31, 2002:
====================================================================================================
2008 &
(In thousands) Total 2003 2004 2005 2006 2007 Thereafter
- ----------------------------------------------------------------------------------------------------
Debt $151,878 $ 32,837 $ -- $ 83 $ 95 $110,463 $ 8,400
Operating leases 47,901 9,110 7,659 6,769 5,540 4,899 13,924
- ----------------------------------------------------------------------------------------------------
Total $199,779 $ 41,947 $ 7,659 $ 6,852 $ 5,635 $115,362 $ 22,324
====================================================================================================
RECAPITALIZATION
On October 26, 2001, the Corporation's shareholders approved a recapitalization
plan, which enabled Unitrin, Inc. ("Unitrin") to distribute its approximate 44%
equity interest in Curtiss-Wright to its shareholders on a tax-free basis.
Under the recapitalization plan, and in order to meet certain tax requirements,
Unitrin's approximately 4.4 million shares of the Corporation's common stock
were exchanged for an equivalent number of common shares of a new Class B Common
Stock of Curtiss-Wright which are entitled to elect 80% of Curtiss-Wright's
Board of Directors. After such exchange, Unitrin immediately distributed the
Class B shares to its approximately 8,000 registered stockholders in a tax-free
distribution. The holders of the outstanding common shares of Curtiss-Wright are
entitled to elect up to 20% of the Board of Directors after the distribution.
Other than the right to elect Directors, the two classes of stock vote as a
single class (except as required by law) and are equal in all other respects.
The new Class B Common
CURTISS-WRIGHT AND SUBSIDIARIES 25
<Page>
Stock was listed on the New York Stock Exchange, effective November 29, 2001.
Under the terms of the recapitalization agreement reached between Unitrin and
Curtiss-Wright, Unitrin agreed to reimburse the Corporation for certain costs
associated with the recapitalization up to a maximum of $1.75 million. This
amount was received subsequent to the recapitalization.
A more thorough description of the transaction is set forth in the Corporation's
definitive proxy material filed with the U.S. Securities and Exchange Commission
on September 5, 2001.
Critical Accounting Policies
Our consolidated financial statements are based on the selection and application
of significant accounting policies, which require management to make significant
estimates and assumptions. We believe that the following are some of the more
critical judgment areas in the application of our accounting policies that
affect our financial condition and results of operations:
Revenue recognition: The realization of revenue refers to the timing of its
recognition in the accounts of the Corporation and is generally considered
realized or realizable and earned when the earnings process is substantially
complete and all of the following criteria are met: 1) persuasive evidence of an
arrangement exists; 2) delivery has occurred or services have been rendered; 3)
the Corporation's price to its customer is fixed or determinable; and 4)
collectibility is reasonably assured.
The Corporation records sales and related profits on production and service type
contracts as units are shipped or as services are rendered. This method is used
in our Metal Treatment segment and in some of the business units within the
Motion Control and Flow Control segments who serve commercial markets.
For certain contracts that require substantial performance over an extended
period before deliveries begin, sales and estimated profits are recorded by
applying the percentage-of-completion method of accounting. The
percentage-of-completion method of accounting is used primarily on the
Corporation's defense contracts and certain long-term commercial contracts. This
method recognizes revenue as the contracts progress towards completion. For
certain government contracts that contain a significant number of external
performance milestones, as defined by the customer, sales are recorded based
upon achievement of these external performance milestones. The performance
milestone method is an output measure of progress towards completion made in
terms of results achieved. For certain fixed price contracts, where none or a
limited number of external milestones exist, the cost-to-cost method of
accounting is used. Under the cost-to-cost method, sales and profits are
recorded based on the ratio of costs incurred to an estimate of total costs at
completion.
Application of percentage-of-completion methods of revenue recognition requires
the use of reasonable and dependable estimates of the future material, direct
labor and overhead costs that will be incurred. Percentage-of-completion method
of accounting for long-term contracts requires a disciplined cost estimating
system in which all functions of the business are integrally involved. These
estimates are determined based upon the industry knowledge and experience of the
Corporation's engineers, project managers and financial staff. These estimates
are significant and reflect changes in cost and operating performance throughout
the contract and could have a significant impact on operating performance.
Under certain commercial contracts that take less than a year to complete and
where the contract amount is less than one million dollars, the completed
contract method is utilized. Under the completed contract method, revenue and
costs are recognized when the Corporation substantially completes work under the
contract.
Under the percentage-of-completion and completed contract methods, provisions
for estimated losses on uncompleted contracts are recognized in the period in
which the likelihood of such losses are determined. Certain contracts contain
provisions for the redetermination of price and, as such, management defers
revenue from those contracts until such time as the price has been finalized.
Some of the Corporation's customers withhold certain amounts from the billings
they receive. These retainages are generally not due until the project has been
completed and accepted by the customer.
Inventory: Inventory costs include materials, direct labor, and overhead costs,
which are stated at the lower of cost or net realizable value. The Corporation
estimates the net realizable value of its inventories and establishes reserves
to reduce the carrying amount of these inventories to net realizable value, as
necessary. The stated inventory costs are also reflective of the estimates used
in applying the percentage-of-completion revenue recognition method.
The Corporation purchases materials for the manufacture of components for sale.
The decision to purchase a set quantity of a particular item is influenced by
several factors including: current and projected price; future estimated
availability; existing and projected contracts to produce certain items; and the
estimated needs for its businesses.
For certain of its long-term contracts, the Corporation utilizes progress
billings, which represent amounts billed to customers prior to the delivery of
goods and services and are a reduction to inventory and receivables. Progress
billings are generally based on costs incurred, including direct costs,
overhead, and general and administrative costs and are a reduction to inventory.
Pension and other postretirement benefits: The Corporation, in consultation with
its actuary, determines the appropriate assumptions for use in determining the
liability for future pensions and other postemployment benefits. The most
significant of these assumptions include
26 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
the number of employees who will receive benefits along with the tenure and
salary level of those employees, the expected return on plan assets, the
discount rates used on plan obligations, and the trends in health care costs.
Changes in these assumptions in future years will have an effect on the
Corporation's pension and postretirement costs.
In 2002, the Corporation recognized pension income from the Curtiss-Wright
Pension Plan of approximately $7.2 million, as the excess of amounts funded for
the pension plan in prior years provided actual and expected earnings that
exceeded the calculated costs associated with the liability in the current year.
As of December 31, 2002, the Corporation had a prepaid pension asset of
approximately $76.1 million and accrued pension and other postretirement costs
of $2.4 million relating to the Curtiss-Wright Retirement Plan and the
Curtiss-Wright Restoration Plan. As a result of the acquisition of EMD in
October 2002, the Corporation assumed underfunded pension and postretirement
liabilities of $73.7 million.
The timing and amount of future pension income to be recognized each year is
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. Additionally,
the Corporation will experience additional pension and postretirement costs in
the future due to the acquisition of EMD and the assumption of its pension plan.
Environmental reserves: The Corporation provides for environmental reserves
when, in conjunction with internal and external legal 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. In estimating the future liability and continually evaluating
the sufficiency of such liabilities, the Corporation weighs certain factors
including the Corporation's participation percentage due to a settlement by or
bankruptcy of other potentially responsible parties, a change in the
environmental laws requiring more stringent 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. Due to the
acquisition of EMD, the Corporation's reserve for future environmental costs
increased by $13.6 million.
Purchase Accounting: The Corporation applies the purchase method of accounting
to its acquisitions. Under this method, the purchase price, including any
capitalized acquisition costs, is allocated to the underlying tangible and
intangible assets acquired and liabilities assumed based on their respective
fair market values, with any excess recorded as goodwill. The Corporation, with
consultation with third-party valuation advisors, determines the fair values of
such assets and liabilities. During 2002, the fair value of tangible and
intangible assets acquired and liabilities assumed through acquisition were
estimated to be $321.5 million and $155.6 million, respectively. The assigned
initial fair value to these acquisitions are tentative and may be revised prior
to finalization, which is required within one year of acquisition.
Goodwill: As a result of acquisitions made in 2002 and prior years, the
Corporation has approximately $181.1 million in net goodwill as of December 31,
2002. The recoverability of goodwill is subject to an annual impairment test
based on the estimated fair value of the underlying businesses. Additionally,
goodwill is tested for impairment when if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. These estimated fair values are based on estimates of
future cash flows of the businesses. Factors affecting these future cash flows
include the continued market acceptance of the products and services offered by
the businesses, the development of new products and services by the businesses
and the underlying cost of development, the future cost structure of the
businesses, and future technological changes. Estimates are also used for the
Corporation's cost of capital in discounting the projected future cash flows. If
it has been determined that an impairment has occurred, the Corporation may be
required to recognize an impairment of its asset, which would be limited to the
difference between the fair value of the asset and its net book value. Any such
impairment would be recognized in full in the year that it has been identified.
Intangible assets: Intangible assets are the result of acquisitions and consist
primarily of developed technology, backlog, and technology licenses. Intangible
assets are recorded at their fair values as determined through purchase
accounting and are amortized ratably to match their cash flow streams over their
useful lives, which range from 1 to 20 years. The Corporation reviews the
recoverability of intangible assets, including the related useful lives,
whenever events or changes in circumstances indicate that the carrying amount
might not be recoverable. Any impairment would be recorded in the period in
which it has been identified.
Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
143 "Accounting for Asset Retirement Obligations." This statement addresses
financial accounting and reporting obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
statement would require the Corporation to recognize the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred, if a reasonable estimate can be made. Upon initial recognition of such
a liability, if any, the Corporation would capitalize the asset retirement cost
as an asset equal to the fair value of the liability and allocate such cost to
expense systematically over the useful life of the underlying asset. The
estimated future liability would be subject to change, with the effects of such
change affecting the asset retirement cost and the related expense as
appropriate. The provisions of this statement are effective
CURTISS-WRIGHT AND SUBSIDIARIES 27
<Page>
for fiscal years beginning after June 15, 2002. The Corporation has not yet
determined the impact of this pronouncement.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities." This statement applies to costs associated with
exit or disposal activities, whereas liabilities for a cost associated with
these activities shall be recognized and measured initially at its fair value
in the period in which the liability is incurred. The provisions of this
statement shall be effective for exit or disposal activities initiated after
December 31, 2002. The adoption of this statement is anticipated to have no
material effect on the Corporation's results of operation or financial
condition.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation relates to a guarantor's accounting
for, and disclosure of, the issuance of certain types of guarantees. Any
guarantees on the sale of assets, including product warranties, will be
accounted for as a reduction in the sales price, which would impact the
Corporation's reported gross margins. Previously, these expenses had been
recorded primarily as selling expenses in the Corporation's Consolidated
Statements of Earnings. The Corporation is required to apply the interpretation
to all guarantees entered into subsequent to December 31, 2002. The provisions
of this interpretation are effective for fiscal years beginning after December
15, 2002. The Corporation has not yet determined the impact of this
pronouncement.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation--Transition and Disclosure." This statement provides alternate
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, the statement
requires additional disclosures about the methods of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
provisions of this statement shall be effective for fiscal years beginning after
December 15, 2002. The Corporation intends on continuing to account for its
stock options under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and thus, the new standard will have no impact to
the Corporation's results of operation or financial condition.
Recent Developments
On February 28, 2003, the Corporation acquired the assets of Collins
Technologies from G.L. Collins Corporation. The purchase price of the
acquisition, subject to adjustment as provided for in the Asset Purchase
Agreement, was $12.0 million in cash and the assumption of certain liabilities.
Management funded the purchase price from credit available under the
Corporation's Short-Term Credit Agreement. Revenues of the purchased business
totaled approximately $8.3 million for the year ended March 31, 2002.
On March 11, 2003, the Corporation acquired selected assets of Advanced Material
Process Corp., a privately owned company with operations located in Wayne,
Michigan. The purchase price of the acquisition, subject to adjustment as
provided for in the Asset Purchase Agreement, was $5.7 million in cash and the
assumption of certain liabilities. Management funded the purchase price from
credit available under the Corporation's Short-Term Credit Agreement. Annual
revenues of the purchased business are approximately $5.0 million.
On March 19, 2003, the Corporation entered into an agreement to acquire selected
assets of E/M Engineered Coatings Solutions. The purchase price of the
acquisition, subject to adjustment as provided in the Asset Purchase Agreement,
was $16.7 million in cash and the assumption of certain liabilities.
Management's intention is to fund the purchase price from credit available under
the Corporation's Short-Term Credit Agreement. Revenues of the purchased
business totaled approximately $26.0 million for the year ending December 31,
2002.
28 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Corporation is exposed to certain market risks from changes in interest
rates and foreign currency exchange rates as a result of its global operating
and financing activities. Although foreign currency translation had a favorable
impact on sales and operating income in 2002, the Corporation seeks to minimize
any material risks from these interest rate and foreign currency exchange rate
fluctuations through its normal operating and financing activities and, when
deemed appropriate, through the use of derivative financial instruments. The
Corporation did not use such instruments for trading or other speculative
purposes and did not use leveraged derivative financial instruments during the
year ended December 31, 2002. Information regarding the Corporation's accounting
policy on financial instruments is contained in Note 1-L to the Consolidated
Financial Statements.
The Corporation's market risk for a change in interest rates relates primarily
to the debt obligations. Approximately 91% of the Corporation's debt at December
31, 2002 and 37% of the December 31, 2001 debt is LIBOR based or prime rate
based under its revolving credit agreement. As described in Note 13 to the
Consolidated Financial Statements, to mitigate its currency exposure, the
Corporation has outstanding variable rate debt borrowings of 11 million Swiss
Francs as of December 31, 2002 under its revolving credit agreement. If interest
rates changed by one percentage point, the impact on consolidated interest
expense would have been approximately $1.1 million.
Financial instruments expose the Corporation to counter-party credit risk for
non-performance and to market risk for changes in interest and currency rates.
The Corporation manages exposure to counter-party credit risk through specific
minimum credit standards, diversification of counter-parties, and procedures to
monitor concentrations of credit risk. The Corporation monitors the impact of
market risk on the fair value and cash flows of its investments by investing
primarily in investment grade interest bearing securities, which have short-term
maturities. The Corporation attempts to minimize possible changes in interest
rates by limiting the amount of potential interest and currency rate exposures
to amounts that are not material to the Corporation's consolidated results of
operations and cash flows. As debt levels of the Corporation have increased, it
is anticipated that a portion of the Corporation's debt, which has a floating
interest rate and is anticipated to be outstanding for extended periods, may be
changed to a fixed interest rate structure.
Although the majority of the Corporation's sales, expenses, and cash flows are
transacted in U.S. dollars, the Corporation does have some market risk exposure
to changes in foreign currency exchange rates, primarily as it relates to the
value of the U.S. dollar versus the British Pound, the Euro and the Swiss Franc.
If foreign exchange rates were to collectively weaken or strengthen against the
dollar by 10%, net earnings would have been reduced or increased, respectively,
by approximately $1.6 million as it relates exclusively to foreign currency
exchange rate exposures.
CURTISS-WRIGHT AND SUBSIDIARIES 29
<Page>
REPORT OF THE CORPORATION
The consolidated financial statements appearing on pages 31 through 53 of this
Annual Report have been prepared by the Corporation in conformity with
accounting principles generally accepted in the United States of America. The
financial statements necessarily include some amounts that are based on the best
estimates and judgments of the Corporation. Other financial information in the
Annual Report is consistent with that in the financial statements.
The Corporation maintains accounting systems, procedures, and internal
accounting controls designed to provide reasonable assurance that assets are
safeguarded and that transactions are executed in accordance with the
appropriate corporate authorization, and are properly recorded. The accounting
systems and internal accounting controls are augmented by written policies and
procedures; organizational structure providing for a division of
responsibilities; selection and training of qualified personnel and an internal
audit program. The design, monitoring, and revision of internal accounting
control systems involve, among other things, management's judgment with respect
to the relative cost and expected benefits of specific control measures.
PricewaterhouseCoopers LLP, independent accountants, have examined the
Corporation's consolidated financial statements as stated in their report below.
Their examination included a study and evaluation of the Corporation's
accounting systems, procedures, and internal controls, and tests and other
auditing procedures, all of a scope deemed necessary by them to support their
opinion as to the fairness of the financial statements.
The Audit Committee of the Board of Directors, composed entirely of directors
who are independent of the Corporation, among other things, appoints the
independent auditors for ratification by stockholders and considers the scope of
the independent auditors' examination, the audit results and the adequacy of
internal accounting controls of the Corporation. The independent auditors have
direct access to the Audit Committee, and they meet with the committee from time
to time with and without management present, to discuss accounting, auditing,
non-audit consulting services, internal control, and financial reporting
matters.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Curtiss-Wright Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of
Curtiss-Wright Corporation and its subsidiaries at December 31, 2002 and 2001,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Notes 1-K and 9 to the Consolidated Financial Statements,
effective January 1, 2002, Curtiss-Wright Corporation changed its method of
accounting for goodwill and other intangibles.
/s/ PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 12, 2003, except for Note 21 as to which the date is
March 19, 2003.
30 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
CONSOLIDATED STATEMENTS OF EARNINGS
==================================================================================================================
For the years ended December 31, (In thousands, except per share data) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net sales $513,278 $343,167 $329,575
Cost of sales 337,192 215,350 208,605
- ------------------------------------------------------------------------------------------------------------------
Gross profit 176,086 127,817 120,970
Research and development costs 11,624 4,383 3,443
Selling expenses 29,553 18,325 18,591
General and administrative expenses 71,843 60,764 49,792
Gain from insurance company demutualization -- (2,980) --
Environmental remediation and administrative expenses, net of (recoveries) 1,237 167 (3,041)
- ------------------------------------------------------------------------------------------------------------------
Operating income 61,829 47,158 52,185
Investment income, net 591 2,599 2,862
Rental income, net 148 3,585 3,638
Pension income, net 7,208 11,042 7,813
Gain on sale of real property 681 38,882 1,436
Other income (expense), net 3,088 111 (220)
Interest expense (1,810) (1,180) (1,743)
- ------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 71,735 102,197 65,971
Provision for income taxes 26,599 39,317 24,897
- ------------------------------------------------------------------------------------------------------------------
Net earnings $ 45,136 $ 62,880 $ 41,074
==================================================================================================================
NET EARNINGS PER SHARE:
Basic earnings per share $ 4.43 $ 6.25 $ 4.10
==================================================================================================================
Diluted earnings per share $ 4.33 $ 6.14 $ 4.03
==================================================================================================================
See notes to consolidated financial statements.
CURTISS-WRIGHT AND SUBSIDIARIES 31
<Page>
CONSOLIDATED BALANCE SHEETS
==================================================================================================================
At December 31, (In thousands) 2002 2001
- ------------------------------------------------------------------------------------------------------------------
ASSETS:
Current assets:
Cash and cash equivalents $ 47,717 $ 25,495
Short-term investments 330 41,658
Receivables, net 142,800 87,055
Inventories, net 80,166 55,784
Deferred tax assets, net 21,840 9,565
Other current assets 8,833 5,770
- ------------------------------------------------------------------------------------------------------------------
Total current assets 301,686 225,327
- ------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 219,049 105,151
Prepaid pension costs 76,072 70,796
Goodwill, net 181,101 83,585
Other intangible assets, net 21,982 9,045
Other assets 13,034 6,524
- ------------------------------------------------------------------------------------------------------------------
Total assets $812,924 $500,428
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Current liabilities:
Short-term debt $ 32,837 $ --
Accounts payable 41,188 19,362
Accrued expenses 32,321 23,163
Income taxes payable 4,528 17,704
Other current liabilities 53,575 15,867
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 164,449 76,096
- ------------------------------------------------------------------------------------------------------------------
Long-term debt 119,041 21,361
Deferred tax liabilities, net 6,605 26,043
Accrued pension and other postretirement benefit costs 77,438 6,611
Long-term portion of environmental reserves 22,585 9,525
Other liabilities 11,578 10,838
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 401,696 150,474
- ------------------------------------------------------------------------------------------------------------------
CONTINGENCIES AND COMMITMENTS (Notes 13, 16, 18 & 20)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value, 650,000 shares authorized, none issued -- --
Common stock, $1 par value, 11,250,000 shares authorized, 10,617,600 shares
issued at December 31, 2002 and 2001; outstanding shares were 5,890,177 at
December 31, 2002 and 5,692,325 at December 31, 2001 10,618 10,618
Class B common stock, $1 par value, 11,250,000 shares authorized; 4,382,400 shares issued;
outstanding shares were 4,382,116 at December 31, 2002 and 4,382,102 at December 31, 2001 4,382 4,382
Additional paid-in capital 52,200 52,532
Retained earnings 508,298 469,303
Unearned portion of restricted stock (60) (78)
Accumulated other comprehensive income 6,482 (6,831)
- ------------------------------------------------------------------------------------------------------------------
581,920 529,926
Less: Common treasury stock, at cost (4,727,707 shares at December 31, 2002 and 4,925,573
shares at December 31, 2001) 170,692 179,972
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 411,228 349,954
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $812,924 $500,428
==================================================================================================================
See notes to consolidated financial statements.
32 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
CONSOLIDATED STATEMENTS OF CASH FLOWS
==========================================================================================================================
For the years ended December 31, (In thousands) 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 45,136 $ 62,880 $ 41,074
- --------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 18,693 14,734 14,346
Non-cash pension income (7,208) (11,042) (7,813)
Net gains on sales and disposals of real estate and equipment (681) (39,018) (1,390)
Net unrealized losses (gains) on short-term investments 134 (42) (206)
Deferred income taxes 4,011 4,167 6,886
Changes in operating assets and liabilities, net of businesses acquired:
Proceeds from sales of short-term investments 77,050 348,911 523,656
Purchases of short-term investments (35,600) (327,761) (560,656)
Decrease (increase) in receivables 31 (7,203) 3,702
Decrease (increase) in inventories 197 (3,232) 11,534
Increase (decrease) in progress payments 3,464 4,186 (1,552)
(Decrease) increase in accounts payable and accrued expenses (61) (2,831) 338
(Decrease) increase in income taxes payable (11,101) 12,694 (1,046)
(Increase) decrease in other assets (4,077) (2,051) 4,499
(Decrease) increase in other liabilities (664) 6,763 (10,081)
Other, net (362) 105 838
- --------------------------------------------------------------------------------------------------------------------------
Total adjustments 43,826 (1,620) (16,945)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 88,962 61,260 24,129
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and disposals of real estate and equipment 2,447 45,201 3,765
Additions to property, plant and equipment (34,954) (19,354) (9,506)
Acquisition of new businesses, net of cash acquired (164,661) (58,982) (1,961)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (197,168) (33,135) (7,702)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt 221,223 -- --
Principal payments on debt (92,795) (8,228) (7,575)
Reimbursement of recapitalization expenses -- 1,750 --
Proceeds from exercise of stock options 6,226 1,804 --
Common stock repurchases -- -- (1,489)
Dividends paid (6,141) (5,443) (5,214)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 128,513 (10,117) (14,278)
- --------------------------------------------------------------------------------------------------------------------------
Effect of foreign currency 1,915 (1,205) (3,004)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 22,222 16,803 (855)
Cash and cash equivalents at beginning of year 25,495 8,692 9,547
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 47,717 $ 25,495 $ 8,692
- --------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of non-cash investing activities:
Fair value of assets acquired $ 321,450 $ 78,979 $ 2,231
Liabilities assumed (155,623) (14,829) (270)
Less: Cash acquired (1,166) (5,168) --
- --------------------------------------------------------------------------------------------------------------------------
Net cash paid $ 164,661 $ 58,982 $ 1,961
==========================================================================================================================
See notes to consolidated financial statements.
CURTISS-WRIGHT AND SUBSIDIARIES 33
<Page>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
============================================================================================================================
Unearned Accumulated
Class B Additional Portion of Other
Common Common Paid in Retained Restricted Comprehensive Comprehensive Treasury
(In thousands) Stock Stock Capital Earnings Stock Awards Income Income Stock
- ----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 $ 15,000 $ -- $ 51,599 $ 376,006 $(24) $(2,622) $ 181,604
- ----------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 41,074 -- -- $ 41,074 --
Translation
adjustments, net -- -- -- -- -- (3,004) (3,004) --
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive
income $ 38,070
- ----------------------------------------------------------------------------------------------------------------------------
Dividends paid -- -- -- (5,214) -- -- --
Common stock repurchase -- -- -- -- -- -- 1,489
Stock options exercised,
net -- -- (94) -- -- -- (579)
Restricted stock awards -- -- 1 -- (15) -- (14)
Amortization of earned
portion of restricted
stock awards -- -- -- -- 17 -- --
- ----------------------------------------------------------------------------------------------------------------------------
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) -- -- --
Stock options exercised,
net -- -- (730) -- -- -- (2,456)
Restricted stock awards -- -- 6 -- (77) -- (72)
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 -- -- -- 45,136 -- -- $ 45,136 --
Translation
adjustments, net -- -- -- -- -- 13,313 13,313 --
- ----------------------------------------------------------------------------------------------------------------------------
Total comprehensive
income $ 58,449
- ----------------------------------------------------------------------------------------------------------------------------
Dividends paid -- -- -- (6,141) -- -- --
Stock options exercised,
net -- -- (332) -- -- -- (9,280)
Amortization of earned
portion of restricted
stock awards -- -- -- -- 18 -- --
- ----------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2002 $ 10,618 $ 4,382 $ 52,200 $ 508,298 $(60) $ 6,482 $ 170,692
============================================================================================================================
See notes to consolidated financial statements.
34 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Curtiss-Wright Corporation and its subsidiaries (the "Corporation") is a
diversified multinational manufacturing and service company that designs,
manufactures, and overhauls precision components and systems and provides highly
engineered services to the aerospace, defense, automotive, shipbuilding,
processing, oil, petrochemical, agricultural equipment, railroad, power
generation, security, and metalworking industries. Operations are conducted
through 19 manufacturing facilities, 44 metal treatment service facilities and 2
aerospace component overhaul and repair locations.
A. Principles of Consolidation
The consolidated financial statements include the accounts of Curtiss-Wright and
its majority-owned subsidiaries. All material intercompany transactions and
accounts have been eliminated. Certain prior year information has been
reclassified to conform to current presentation.
B. Use of Estimates
The financial statements of the Corporation have been prepared in conformity
with accounting principles generally accepted in the United States of America
and such preparation requires management to make estimates and judgments that
affect the reported amount of assets, liabilities, revenue, and expenses and
disclosure of contingent assets and liabilities 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 estimate of useful lives for property, plant and
equipment, cash flow estimates used for testing the recoverability of assets,
pension plan and postretirement obligation assumptions, estimates for inventory
obsolescence, estimates for the valuation of intangible assets, warranty
reserves, and the estimate of future environmental costs. Actual results may
differ from these estimates.
C. Revenue Recognition
The Corporation records sales and related profits on production and service type
contracts as units are shipped or as services are rendered. Sales and estimated
profits under certain long-term contracts are recognized under the
percentage-of-completion methods of accounting. Generally, profits are recorded
pro rata, based upon current estimates of direct and indirect costs to complete
such contracts. In addition, the Corporation also records sales under certain
long-term government fixed price contracts upon achievement of performance
milestones as specified in the related contracts or under the completed contract
method. Losses on contracts are provided for in the period in which the losses
become determinable. Revisions in profit estimates are reflected on a cumulative
basis in the period in which the basis for such revision becomes known. Deferred
revenue represents the excess of the billings over cost and estimated earnings
on long-term contracts.
D. Cash and Cash Equivalents
Cash equivalents consist of money market funds and commercial paper that are
readily convertible into cash, all with original maturity dates of three months
or less.
E. Short-term Investments
The investments with which the Corporation is involved are primarily of a
traditional nature. The Corporation's short-term investments are comprised of
equity and debt securities, all classified as trading securities, which are
carried at their fair value based upon the quoted market prices of those
investments at period end. Accordingly, net realized and unrealized gains and
losses on trading securities are included in net earnings.
F. Inventory
Inventories are stated at lower of production cost (principally average cost) or
market. Production costs are comprised of direct material and labor and
applicable manufacturing overheads.
G. Progress Payments
Progress payments received under prime contracts and subcontracts have been
deducted from receivables and inventories, as disclosed in Notes 6 and 7.
With respect to government contracts, the government has a lien on all materials
and work-in-process to the extent of progress payments.
H. Property, Plant, and Equipment
Property, plant, and equipment are carried at cost. Major renewals and
betterments are capitalized, while maintenance and repairs that do not improve
or extend the life of the asset are expensed in the period they occur.
Depreciation is computed using the straight-line method based upon the estimated
useful lives of the respective assets.
Average useful lives for property, and equipment are as follows:
Buildings and improvements 5 to 40 years
Machinery, equipment, and other 3 to 15 years
I. Intangible Assets
Intangible assets consist primarily of purchased technology, technology
licenses, and backlog. The Corporation amortizes such assets ratably, to match
their cash flow streams, over their estimated useful lives. Useful lives range
from 1 to 20 years. See Note 10 for further information on other intangible
assets.
J. Impairment of Long-Lived Assets
The Corporation reviews the recoverability of all long-term assets, including
the related useful lives, whenever events or changes in circumstances indicate
that the carrying amount of a long-lived asset might not be recoverable. If
required, the Corporation compares the estimated undiscounted future net cash
flows to the related asset's carrying value to determine whether there has been
an impairment. If an asset is considered impaired, the asset is written down to
fair value, which is based either on discounted cash flows or appraised values.
There were no such write-downs in 2002, 2001, or 2000.
CURTISS-WRIGHT AND SUBSIDIARIES 35
<Page>
K. Goodwill
Goodwill results from business acquisitions. The Corporation accounts for
business acquisitions by assigning the purchase price to tangible and intangible
assets and liabilities. Assets acquired and liabilities assumed are recorded at
their fair values, and the excess of the purchase price over the amounts
assigned is recorded as goodwill.
Upon adoption of Statement of Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets," on January 1, 2002, the Corporation no longer
amortizes goodwill. Additionally, the recoverability of goodwill is subject to
an annual impairment test based on the estimated fair value of the underlying
businesses. See Note 9 for further information on goodwill.
L. Fair Value of Financial Instruments
SFAS No. 107 "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. Due to
the short maturities of cash and cash equivalents, accounts receivable, accounts
payable, and accrued expenses, the net book value of these financial instruments
are deemed to approximate fair value. The carrying amount of long-term debt
approximates fair value because the interest rates are reset periodically to
reflect current market conditions.
M. Research and Development
The Corporation funds research and development programs for commercial products
and independent research and development and bid and proposal work related to
government products. Development costs include engineering and field support for
new customer requirements. Corporation-sponsored research and development costs
are expensed as incurred.
Research and development costs associated with customer-sponsored programs are
charged to inventory and are recorded in cost of sales when products are
delivered or services performed.
N. Environmental Costs
The Corporation establishes a reserve for a potential environmental remediation
liability when it concludes that a determination of legal liability is probable,
based upon the advice of counsel. Such amounts, if quantifiable, reflect the
Corporation's estimate of the amount of that liability. If only a range of
potential liability can be estimated, a reserve will be established at the low
end of that range. Such reserves, which are reviewed quarterly, represent the
current value of anticipated remediation not recognizing any potential recovery
from insurance carriers, or third-party legal actions, and are not discounted.
O. Accounting for Stock-Based Compensation
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Corporation elected to account for its stock-based compensation under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." As
such, the Corporation does not recognize compensation expense on stock options
granted to employees when the exercise price of the options is equal to the
market price of the underlying stock on the date of the grant. The Corporation
receives tax deductions related to the exercise of non-qualified stock options,
the offset of which is recorded in equity. The tax benefit totaled $2.7 million,
$0.5 million, and $0.1 million in 2002, 2001, and 2000, respectively. Further
information concerning options granted under the Corporation's Long-Term
Incentive Plan is provided in Note 15.
P. Capital Stock
In February 2001, the Corporation increased the authorized number of shares for
repurchase under its existing stock repurchase program by 600,000 shares. This
increase was an addition to the previous authorization of 300,000 shares.
Purchases were authorized to be made from time to time in the open market or
privately negotiated transactions, depending on market and other conditions,
whenever management believes that the market price of the stock does not
adequately reflect the true value of the Corporation and, therefore, represented
an attractive investment opportunity. The shares are held at cost and reissuance
is recorded at the weighted average cost. Through December 31, 2002, the
Corporation had repurchased 210,930 shares under this program. There was no
stock repurchased in 2002 and 2001.
Q. Earnings Per Share
The Corporation is required to report both basic earnings per share ("EPS"),
based on the weighted average number of Common and Class B shares outstanding,
and diluted earnings per share based on the basic EPS adjusted for all
potentially dilutive shares issuable. The calculation of EPS is disclosed in
Note 14.
R. Income Taxes
The Corporation applies SFAS No. 109, "Accounting for Income Taxes." Under the
asset and liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. The effect on deferred tax assets and liabilities of
a change in tax laws is recognized in the results of operations in the period
the new laws are enacted. A valuation allowance is recorded to reduce the
carrying amounts of deferred tax assets unless it is more likely than not, that
such assets will be realized.
S. Foreign Currency Translation
For operations outside the United States of America that prepare financial
statements in currencies other than the U.S. dollar, the Corporation translates
assets and liabilities at period end exchange rates and income statement amounts
using weighted average exchange rates for the period. The cumulative effect of
translation adjustments is presented as a component of accumulated other
comprehensive income within stockholders' equity. This balance is affected by
foreign currency exchange rate fluctuations and by the acquisition of foreign
36 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
entities. Gains and losses from foreign currency transactions are included in
results of operations.
T. Recently Issued Accounting Standards
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and reporting
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The statement would require the Corporation
to recognize the fair value of a liability for an asset retirement obligation in
the period in which it is incurred, if a reasonable estimate can be made. Upon
initial recognition of such a liability, if any, the Corporation would
capitalize the asset retirement cost as an asset equal to the fair value of the
liability and allocate such cost to expense systematically over the useful life
of the underlying asset. The estimated future liability would be subject to
change, with the effects of such change affecting the asset retirement cost and
the related expense as appropriate. The provisions of this statement are
effective for fiscal years beginning after June 15, 2002. The Corporation has
not yet determined the impact of this pronouncement.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities." This statement applies to costs associated with
exit or disposal activities, whereas liabilities for a cost associated with
these activities shall be recognized and measured initially at its fair value in
the period in which the liability is incurred. The provisions of this statement
shall be effective for exit or disposal activities initiated after December 31,
2002. The adoption of this standard is not expected to have a material effect on
the Corporation's results of operation or financial condition.
In November 2002, the FASB issued Interpretation No. 45 "Guarantor's Accounting
and disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation relates to a guarantor's accounting
for, and disclosure of, the issuance of certain types of guarantees. Any
guarantees on the sale of assets, including product warranties, will be
accounted for as a reduction in the sales price, which would impact the
Corporation's reported gross margins, as previously, these expenses had been
recorded primarily as selling expenses in the Corporation's Consolidated
Statements of Earnings. The Corporation is required to apply the interpretation
to all guarantees entered into subsequent to December 31, 2002. The provisions
of this interpretation are effective for fiscal years beginning after December
15, 2002. The Corporation has not yet determined the impact of this
pronouncement.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation--Transition and Disclosure." This statement provides alternate
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, the statement
requires additional disclosures about the methods of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
provisions of this statement shall be effective for fiscal years beginning after
December 15, 2002. The Corporation intends on continuing to account for its
stock options under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and thus, the new standard will have no impact to
the Corporation's results of operation or financial condition.
2. Acquisitions
The Corporation acquired six businesses in 2002, seven businesses in 2001, and
one business in 2000 as described below. All acquisitions have been accounted
for as purchases with the excess of the purchase price over the estimated fair
value of the net tangible and intangible assets acquired recorded as goodwill.
The Corporation makes preliminary estimates of the value of identifiable
intangibles with a finite life and records amortization based upon the estimated
useful life of those intangible assets identified. The Corporation will adjust
these estimates based upon analysis of third party appraisals, and the
determination of fair value when finalized. The results of each acquired
business have been included in the consolidated financial results of the
Corporation from the date of acquisition in the segment indicated as follows:
Motion Control
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, was $59.5 million in cash and the assumption
of certain liabilities. Approximately $40.0 million of the purchase price was
funded from the Corporation's Revolving Credit facility. The excess of the
purchase price over the fair value of the net assets acquired is approximately
$22.3 million. The fair value of the net assets acquired was based on current
estimates and may be revised at a later date.
Penny and Giles is a 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 are located in Wales, England, Germany,
and the United States of America.
CURTISS-WRIGHT AND SUBSIDIARIES 37
<Page>
LAU DEFENSE SYSTEMS/VISTA CONTROLS
On November 1, 2001 the Corporation acquired the assets of Lau Defense Systems
("LDS") and the stock of Vista Controls, Inc. ("Vista"). LDS and Vista design
and manufacture "mission-critical" electronic control systems primarily for the
defense market. In addition, an agreement was reached for the negotiation of
licenses for facial recognition products for certain U.S. Government and
industrial markets. The businesses acquired have operating facilities located in
Littleton, Massachusetts and Santa Clarita, California.
The purchase price of the acquisition was approximately $43.6 million in cash
and the assumption of certain liabilities. There are provisions in the agreement
for additional payments upon the achievement of certain financial performance
criteria over the next five years up to a maximum additional payment of $22.0
million. During 2002, the Corporation had accrued $1.8 million related to these
provisions, which have been reflected in the purchase price above. Additionally,
the Corporation adjusted its initial fair value estimates in 2002 of the net
assets acquired, resulting in additional goodwill of approximately $2.8 million.
This acquisition was accounted for as a purchase in the fourth quarter of 2001.
The excess of the purchase price over the fair value of the net assets acquired
was $35.2 million.
Flow Control
TAPCO INTERNATIONAL
On December 3, 2002, the Corporation acquired the assets of TAPCO International,
Inc., ("TAPCO") for $10.5 million in cash and the assumption of certain
liabilities. The acquisition was accounted for as a purchase in the fourth
quarter of 2002 and was funded from the Corporation's revolving credit
facilities. As of the date of acquisition, the excess of the purchase price over
the fair value of the net assets acquired was approximately $7.4 million. The
fair value of net assets acquired was based on preliminary estimates and may be
revised at a later date.
TAPCO designs, engineers, and manufactures high-performance metal seated
industrial gate valves, butterfly valves, flapper valves, actuators, and
internal components used in high-temperature, highly abrasive, and highly
corrosive environments in the petrochemical refining industry. Operations are
located in Houston, Texas with a minor operation in the UK to serve the European
market.
ELECTRO-MECHANICAL DIVISION
On October 28, 2002, the Corporation acquired the net assets of the Electro
Mechanical Division ("EMD") of Westinghouse Government Services Company LLC
("Westinghouse"), a wholly-owned subsidiary of Washington Group International.
The purchase price of the acquisition, subject to adjustment as provided for in
the Asset Purchase Agreement, was $80.0 million in cash and the assumption of
certain liabilities. The acquisition was accounted for as a purchase in the
fourth quarter of 2002 and was funded from the Corporation's revolving credit
facilities. As of the date of acquisition, the excess of the purchase price over
the fair value of the net assets acquired was approximately $54.1 million. The
fair value of the net assets acquired was based on preliminary estimates and may
be revised a later date.
The purchase price, which includes capitalized acquisition costs, has been
allocated to the net tangible and intangible assets acquired, with the remainder
recorded as goodwill, on the basis of estimated fair values, as follows:
===============================================================================
(In thousands)
- -------------------------------------------------------------------------------
Net working capital $ 455
Property, plant and equipment 70,551
Other assets 43,157
Postretirement benefit obligation (36,344)
Pension benefit obligation (37,397)
Other noncurrent liabilities (13,881)
Intangible assets 370
- -------------------------------------------------------------------------------
Net tangible and intangible assets $ 26,911
Purchase price $ 80,973
- -------------------------------------------------------------------------------
Goodwill $ 54,062
===============================================================================
EMD is a designer and manufacturer of highly engineered critical function
electro-mechanical solutions for the U.S. Navy, commercial nuclear power
utilities, petrochemical, and hazardous waste industries. Operations are located
in Cheswick, Pennsylvania.
DELTAVALVE
On December 12, 2001, the Corporation acquired the operating assets of
Deltavalve USA, LLC ("Deltavalve"). Deltavalve designs, engineers, and
manufactures industrial valves used in high pressure, extreme temperature, and
corrosive plant environments. Deltavalve is located in Salt Lake City, Utah with
an assembly and test facility in Calgary, Alberta, Canada.
The Corporation acquired the net assets of Deltavalve for approximately $6.5
million in cash, plus the assumption of certain liabilities. There are
provisions in the agreement for additional payments upon the achievement of
certain financial performance criteria over the next five years. This
acquisition was accounted for as a purchase in the fourth quarter of 2001. The
excess of the purchase price over the fair value of the net assets acquired was
$3.9 million.
PEERLESS INSTRUMENT COMPANY
On November 8, 2001, the Corporation acquired the stock of Peerless Instrument
Co., Inc. ("Peerless"). Peerless is an engineering and manufacturing company
that designs and produces custom control components and systems for flow control
applications primarily to the U.S. Nuclear Naval program. The business is
located in Elmhurst, New
38 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
York. The purchase price of the acquisition was approximately $7.0 million in
cash plus the assumption of certain liabilities. This acquisition was accounted
for as a purchase in the fourth quarter of 2001. The excess of the purchase
price over the fair value of the net assets acquired was $2.0 million.
SOLENT & PRATT
On March 23, 2001, the Corporation acquired the operating assets of Solent &
Pratt Ltd. ("Solent & Pratt"). Solent & Pratt is a manufacturer of high
performance butterfly valves and is a global supplier to the petroleum,
petrochemical, chemical, and process industries. The operations are located in
Bridport, England.
The Corporation purchased the assets of Solent & Pratt for approximately $1.5
million in cash and the assumption of certain liabilities. There are provisions
in the agreement for additional payments upon the achievement of certain
performance criteria over the next five years. The acquisition was accounted for
as a purchase in the first quarter of 2001. The excess of the purchase price
over the fair value of the net assets acquired was $2.3 million.
Metal Treatment
BRENNER TOOL & DIE
On November 14, 2002, the Corporation acquired selected assets of Brenner Tool &
Die, Inc. ("Brenner") relating to Brenner's metal finishing operations in
Bensalem, Pennsylvania. Brenner provides non-destructive testing, chemical
milling, chromic and phosphoric anodizing, and painting services.
The purchase price of the acquisition, subject to adjustment as provided for in
the Asset Purchase Agreement, was $10.0 million in cash, which approximates 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.
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 Scandinavian market.
The purchase price of the acquisition, subject to adjustment as provided for in
the Purchase and Sale Agreement, was $1.2 million. The excess of the purchase
price over the fair value of the net assets acquired is currently $1.1 million.
The fair value of net assets acquired is based on current estimates and may be
revised at a later date.
BODYCOTE THERMAL PROCESSING
On December 19, 2001, the Corporation acquired the Wichita, Kansas Heat Treating
operation of Bodycote Thermal Processing. This operation provides heat-treating
services to a number of industries including aerospace and agriculture.
The purchase price of the acquisition was $3.6 million. This acquisition has
been accounted for as a purchase in the fourth quarter of 2001. The excess of
the purchase price over the fair value of the net assets acquired was $2.0
million.
IRONBOUND HEAT TREATING COMPANY
On November 6, 2001, the Corporation acquired the commercial heat-treating
assets of Ironbound Heat Treating Company ("Ironbound"). Ironbound provides
heat-treating services to markets that include tool and die, automotive,
aerospace, and medical components. The business is located in Roselle, New
Jersey.
The purchase price of the acquisition was approximately $4.5 million in cash and
the assumption of certain liabilities. This acquisition has been accounted for
as a purchase in the fourth quarter of 2001. The excess of the purchase price
over the fair value of the net assets acquired was approximately $0.7 million.
EF QUALITY HEAT TREATING COMPANY
On December 14, 2000, the Corporation acquired EF Quality Heat Treating Company
("EF"), a Midwest provider of heat-treating services primarily to the automotive
industry. EF provides atmosphere normalizing, annealing, and stress relieving
services from its Salem, Ohio location.
The Corporation acquired the net assets of the EF business for approximately
$2.2 million. This acquisition has been accounted for as a purchase in the
fourth quarter of 2000. The excess of the purchase price over the fair value of
the net assets acquired was $1.0 million.
3. Divestitures
On December 20, 2001, the Corporation sold its Wood-Ridge, New Jersey Business
Complex for $51.0 million. The business complex comprised approximately 2.3
million square feet of rental space situated on 138 acres of land. As a result
of the sale, the Corporation recognized a net after-tax gain of $23.0 million
during 2001.
Under the sale agreement, the Corporation will retain the responsibility to
continue the ongoing environmental remediation on the property until such time
that a "no further action" letter and covenant not to sue is obtained from the
New Jersey Department of Environmental Protection. The cost of the remediation
has been previously accrued. Please refer to Note 16 for additional information
regarding environmental matters.
CURTISS-WRIGHT AND SUBSIDIARIES 39
<Page>
4. Recapitalization
On October 26, 2001, the Corporation's shareholders approved a recapitalization
plan, which enabled Unitrin Inc. ("Unitrin") to distribute its approximate 44%
equity interest in Curtiss-Wright to its shareholders on a tax-free basis.
Under the recapitalization plan, and in order to meet certain tax requirements,
Unitrin's approximately 4.4 million shares of the Corporation's common stock
were exchanged for an equivalent number of shares of a new Class B Common Stock
of Curtiss-Wright, which are entitled to elect 80 percent of Curtiss-Wright's
Board of Directors. After such exchange, Unitrin immediately distributed the
Class B shares to its approximately 8,000 registered stockholders in a tax-free
distribution. The holders of the outstanding Common shares of Curtiss-Wright are
entitled to elect up to 20% of the Board of Directors after the distribution.
Other than the right to elect Directors, the two classes of stock vote as a
single class (except as required by law) and are equal in all other respects.
The new Class B Common Stock was listed on the New York Stock Exchange,
effective November 29, 2001.
In November 2000, Curtiss-Wright's Board of Directors had approved an agreement
with Unitrin related to the recapitalization plan. Under this agreement, Unitrin
agreed to reimburse the Corporation for certain costs incurred in connection
with the recapitalization up to a maximum of $1.75 million. The maximum amount
was received subsequent to the recapitalization and is reflected in the
financial statements as Additional Paid-In Capital. Recapitalization costs of
$1.5 million and $0.9 million were incurred in 2001 and 2000, respectively, and
are included in general and administrative costs in the statement of earnings.
5. Short-term Investments
The composition of short-term investments is as follows:
================================================================================
December 31, 2002 2001
- --------------------------------------------------------------------------------
(In thousands) Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------
Money market
preferred stocks $ -- $ -- $11,850 $11,850
Common and
preferred stocks 104 155 104 208
Tax exempt
revenue bonds -- -- 29,600 29,600
Capital insurance
funds 256 175 -- --
- --------------------------------------------------------------------------------
Total short-term
investments $ 360 $ 330 $41,554 $41,658
================================================================================
Investment income derived from short-term investments and cash equivalents
consists of:
================================================================================
(In thousands) December 31, 2002 2001 2000
- --------------------------------------------------------------------------------
Interest and dividend
income, net $ 725 $2,480 $2,521
Net realized gains on the sales
of short-term investments -- 77 135
Net unrealized holding
(losses) gains (134) 42 206
- --------------------------------------------------------------------------------
Investment income, net $ 591 $2,599 $2,862
================================================================================
6. Receivables
Receivables include current notes, amounts billed to customers, claims and other
receivables, and unbilled revenue on long-term contracts, consisting of amounts
recognized as sales but not billed. Substantially all amounts of unbilled
receivables are expected to be billed and collected in the subsequent year.
Credit risk is generally diversified due to the large number of entities
comprising the Corporation's customer base and their geographic dispersion. Due
to the increased diversification of the Corporation's customer base resulting
from its recent acquisitions, no one customer represents a significant
concentration of credit risk at December 31, 2002. At December 31, 2001, the
largest single customer represented 6% of the total outstanding billed
receivables. This same customer of the Motion Control segment accounted for 13%
of consolidated revenue in 2001 and 13% in 2000. The Corporation is either a
prime or subcontractor of various agencies of the U.S. Government. Revenues
derived directly and indirectly from government sources (primarily the U.S.
Government) totaled $201.8 million, or 39% of consolidated revenue in 2002,
$84.4 million, or 25% in 2001, and $56.4 million, or 17% in 2000.
The Corporation performs ongoing credit evaluations of its customers and
establishes appropriate allowances for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.
Notes Receivable at December 31, 2001 includes a $2.5 million receivable from
the sale of the Wood-Ridge Business Complex. This amount was subsequently
collected in February 2002. See Note 3 for additional information on this
divestiture.
40 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
The composition of receivables is as follows:
================================================================================
(In thousands) December 31, 2002 2001
- --------------------------------------------------------------------------------
BILLED RECEIVABLES:
Trade and other receivables $ 108,391 $ 70,562
Less: Progress payments applied (2,838) (2,393)
Allowance for doubtful accounts (2,170) (2,117)
- --------------------------------------------------------------------------------
Net billed receivables 103,383 66,052
- --------------------------------------------------------------------------------
UNBILLED RECEIVABLES:
Recoverable costs and estimated earnings
not billed 44,573 25,500
Less: Progress payments applied (5,317) (8,015)
- --------------------------------------------------------------------------------
Net unbilled receivables 39,256 17,485
Notes receivable 161 3,518
- --------------------------------------------------------------------------------
Receivables, net $ 142,800 $ 87,055
================================================================================
The net receivable balance at December 31, 2002 included $43.8 million related
to the Corporation's 2002 acquisitions.
7. Inventories
In accordance with industry practice, inventoried costs contain amounts relating
to long-term contracts and programs with long production cycles, a portion of
which will not be realized within one year. Inventories are valued at the lower
of cost (principally average cost) or market. The composition of inventories is
as follows:
================================================================================
(In thousands) December 31, 2002 2001
- --------------------------------------------------------------------------------
Raw material $ 42,932 $ 25,131
Work-in-process 25,282 18,378
Finished goods and component parts 42,797 34,853
Inventoried costs related to
U.S. Government and other
long-term contracts 14,949 7,248
- --------------------------------------------------------------------------------
Gross inventories 125,960 85,610
Less: Inventory reserves (24,277) (14,384)
Progress payments applied,
principally related to
long-term contracts (21,517) (15,442)
- --------------------------------------------------------------------------------
Inventories, net $ 80,166 $ 55,784
================================================================================
The net inventory balance at December 31, 2002 included $28.6 million related to
the Corporation's 2002 acquisitions.
8. Property, Plant, and Equipment
The composition of property, plant, and equipment is as follows:
================================================================================
(In thousands) December 31, 2002 2001
- --------------------------------------------------------------------------------
Land $ 11,677 $ 6,201
Buildings and improvements 80,652 55,303
Machinery, equipment, and other 262,661 165,596
- --------------------------------------------------------------------------------
Property, plant and equipment, at cost 354,990 227,100
Less: Accumulated depreciation (135,941) (121,949)
- --------------------------------------------------------------------------------
Property, plant and equipment, net $ 219,049 $ 105,151
================================================================================
Depreciation expense for the years ending December 31, 2002, 2001, and 2000 was
$16.7 million, $12.4 million, and $11.4 million, respectively. The net property,
plant, and equipment balance at December 31, 2002 included $94.7 million related
to the Corporation's 2002 acquisitions.
9. Goodwill, net
Goodwill consists primarily of the excess purchase price of acquisitions over
the fair value of the net assets acquired.
The changes in the carrying amount of goodwill for 2002 and 2001 are as follows:
===============================================================================
Motion Flow Metal
(In thousands) Control Control Treatment Consolidated
- -------------------------------------------------------------------------------
December 31, 2000 $ 17,375 $ 25,968 $ 3,861 $ 47,204
Goodwill from 2001
acquisitions 29,596 8,085 418 38,099
Currency translation
adjustment 103 26 -- 129
Amortization (621) (1,004) (222) (1,847)
- -------------------------------------------------------------------------------
December 31, 2001 46,453 33,075 4,057 83,585
===============================================================================
Goodwill from 2002
acquisitions 22,263 62,122 1,077 85,462
Change in estimate to
fair value of net
assets acquired
in 2001 5,417 (183) 1,666 6,900
Currency translation
adjustment 4,594 395 165 5,154
- -------------------------------------------------------------------------------
December 31, 2002 $ 78,727 $ 95,409 $ 6,965 $ 181,101
===============================================================================
During 2002, the Corporation finalized the allocation of the purchase price for
the seven businesses acquired in 2001. The purchase price allocations relating
to businesses acquired in 2002 are based on
CURTISS-WRIGHT AND SUBSIDIARIES 41
<Page>
estimates and have not yet been finalized. Approximately $17.8 million and $26.9
million of the goodwill acquired during 2002 and 2001, respectively, is
deductible for tax purposes.
In accordance with SFAS No. 142, the Corporation completed its annual impairment
test of all goodwill and concluded there was no impairment of goodwill.
The following table reflects the pro forma consolidated results adjusted as if
SFAS No. 142 were adopted as of January 1, 2000:
================================================================================
(In thousands) December 31, 2002 2001 2000
- --------------------------------------------------------------------------------
NET EARNINGS:
As reported $45,136 $62,880 $41,074
Goodwill amortization, net of tax -- 1,136 1,097
- --------------------------------------------------------------------------------
As adjusted $45,136 $64,016 $42,171
- --------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
As reported $4.33 $6.14 $4.03
Goodwill amortization, net of tax -- 0.11 0.11
- --------------------------------------------------------------------------------
As adjusted $4.33 $6.25 $4.14
================================================================================
10. Other Intangible Assets, net
Intangible assets include primarily developed technology, backlog, and
technology licenses. Intangible assets are amortized over useful lives that
range between 1 and 20 years.
The following table summarizes the intangible assets acquired (including their
weighted average useful lives) by the Corporation during 2002 and 2001:
================================================================================
(In thousands, except years data) 2002 2001
- --------------------------------------------------------------------------------
Amount Years Amount Years
- --------------------------------------------------------------------------------
Developed Technology $12,783 14.3 $ 7,286 14.4
Other 805 1.7 1,866 7.8
- --------------------------------------------------------------------------------
Total $13,588 13.5 $ 9,152 13.0
================================================================================
In addition to the acquisitions noted above, intangible assets increased by $1.3
million in 2002 due to currency translation adjustments. The following tables
present the cumulative composition of the Corporation's acquired intangible
assets for the years ended December 31:
================================================================================
2002 Accumulated
(In thousands) Gross Amortization Net
- --------------------------------------------------------------------------------
Developed technology $21,371 $(1,452) $19,919
Other intangible assets 3,411 (1,348) 2,063
- --------------------------------------------------------------------------------
Total $24,782 $(2,800) $21,982
- --------------------------------------------------------------------------------
================================================================================
2001 Accumulated
(In thousands) Gross Amortization Net
- --------------------------------------------------------------------------------
Developed technology $7,286 $ (109) $7,177
Other intangible assets 2,593 (725) 1,868
- --------------------------------------------------------------------------------
Total $9,879 $ (834) $9,045
================================================================================
Amortization expense amounted to $1.9 million in 2002, $0.4 million in 2001, and
$0.1 million in 2000. The estimated future amortization expense of purchased
intangible assets is as follows:
================================================================================
(In thousands)
- --------------------------------------------------------------------------------
2003 $2,277
2004 1,881
2005 1,658
2006 1,658
2007 1,658
================================================================================
11. Accrued Expenses and Other Current Liabilities
Accrued expenses consist of the following:
================================================================================
(In thousands) December 31, 2002 2001
- --------------------------------------------------------------------------------
Accrued compensation $19,667 $12,468
Accrued insurance 3,175 2,207
Accrued taxes other than income taxes 2,027 1,591
Accrued commissions 1,137 1,112
Accrued royalties 440 1,236
Other 5,875 4,549
- --------------------------------------------------------------------------------
Total accrued expenses $32,321 $23,163
================================================================================
42 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
Other current liabilities consist of the following:
================================================================================
(In thousands) December 31, 2002 2001
- --------------------------------------------------------------------------------
Deferred revenue $31,176 $ --
Warranty reserves 9,892 3,550
Customer advances 3,099 4,167
Current portion of environmental reserves 2,177 2,129
Anticipated losses on long-term contracts 1,258 1,139
Additional amounts due to sellers
on acquisitions 2,120 2,540
Other 3,853 2,342
- --------------------------------------------------------------------------------
Total other current liabilities $53,575 $15,867
================================================================================
The accrued expenses and other current liabilities at December 31, 2002 included
$7.4 million and $37.4 million, respectively, related to the Corporation's 2002
acquisitions. The increase in deferred revenue is due to the acquisition of EMD.
The Corporation provides its customers with warranties on certain commercial and
governmental products. Estimated warranty costs are charged to expense in the
period the related revenue is recognized based on quantitative historical
experience. These estimates are adjusted in the period in which actual results
or better information is obtained. The following table presents the changes in
the Corporation's warranty reserves:
===============================================================================
(In thousands) 2002
- -------------------------------------------------------------------------------
Warranty reserves at January 1, $ 3,550
Increase due to acquisitions 4,249
Provision for current year sales 1,648
Change in estimates to pre-existing warranties 1,227
Current year claims (1,424)
Translation adjustment 642
- -------------------------------------------------------------------------------
Warranty reserves at December 31, $ 9,892
===============================================================================
12. Income Taxes
Earnings before income taxes for the years ended December 31 consist of:
================================================================================
(In thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
Domestic $ 55,314 $ 84,018 $ 48,550
Foreign 16,421 18,179 17,421
- --------------------------------------------------------------------------------
Total $ 71,735 $102,197 $ 65,971
================================================================================
The provision for income taxes for the years ended December 31 consist of:
================================================================================
(In thousands) 2002 2001 2000
- --------------------------------------------------------------------------------
Current:
Federal $13,582 $22,656 $ 9,342
State 3,648 6,048 2,571
Foreign 5,255 5,829 5,809
- --------------------------------------------------------------------------------
22,485 34,533 17,722
- --------------------------------------------------------------------------------
Deferred:
Federal 3,664 3,763 5,953
State 296 505 966
Foreign 154 516 256
- --------------------------------------------------------------------------------
4,114 4,784 7,175
- --------------------------------------------------------------------------------
Provision for income taxes $26,599 $39,317 $24,897
================================================================================
The effective tax rate varies from the U.S. federal statutory tax rate for the
years ended December 31, principally due to the following:
==============================================================================
2002 2001 2000
- ------------------------------------------------------------------------------
U.S. Federal statutory tax rate 35.0% 35.0% 35.0%
Add (deduct):
State and local taxes 3.6 4.2 3.5
Recovery of research & development
credits from prior years (1.3) -- --
Dividends received deduction
and tax exempt income (0.1) (0.5) (0.8)
All other, net (0.1) (0.2) --
- ------------------------------------------------------------------------------
Effective tax rate 37.1% 38.5% 37.7%
==============================================================================
CURTISS-WRIGHT AND SUBSIDIARIES 43
<Page>
The components of the Corporation's deferred tax assets and liabilities at
December 31 are as follows:
===============================================================================
(In thousands) 2002 2001
- -------------------------------------------------------------------------------
Deferred tax assets:
Environmental reserves $ 10,127 $ 5,275
Inventories 9,974 4,450
Postretirement/postemployment benefits 15,002 2,241
Incentive compensation 3,406 2,383
Accrued vacation pay 3,535 1,179
Warranty reserve 2,014 183
Other 4,076 3,885
- -------------------------------------------------------------------------------
Total deferred tax assets 48,134 19,596
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Retirement plans 12,785 26,882
Depreciation 13,875 5,406
Goodwill amortization 2,841 1,110
Other intangible amortization 1,773 137
Other 1,625 2,539
- -------------------------------------------------------------------------------
Total deferred tax liabilities 32,899 36,074
- -------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 15,235 $(16,478)
===============================================================================
Deferred tax assets and liabilities are reflected on the Corporation's
consolidated balance sheet at December 31 as follows:
===============================================================================
2002 2001
- -------------------------------------------------------------------------------
Current deferred tax assets $ 21,840 $ 9,565
Noncurrent deferred tax liabilities (6,605) (26,043)
- -------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 15,235 $(16,478)
===============================================================================
Income tax payments of $34.6 million were made in 2002, $18.9 million in 2001,
and $15.5 million in 2000.
No provision has been made for U.S. federal or foreign taxes on that portion of
certain foreign subsidiaries' undistributed earnings ($9.1 million at December
31, 2002) considered to be permanently reinvested. It is not practicable to
estimate the amount of tax that would be payable if these amounts were
repatriated to the U.S.; however, it is expected that there would be minimal or
no additional tax because of the availability of foreign tax credits.
13. Debt
Debt at December 31 consists of the following:
================================================================================
(In thousands) 2002 2001
- --------------------------------------------------------------------------------
Industrial Revenue Bonds, due from 2007
to 2028. Weighted average interest
rate is 1.51% and 2.99% per annum
for 2002 and 2001, respectively $ 13,400 $ 13,400
Revolving Credit Agreement Borrowing,
due 2007. Weighted average interest rate
is 2.55% for 2002 and 3.88% for 2001 105,463 7,961
Short-Term Credit Agreement Borrowing,
due 2003. Weighted average interest rate
is 3.21% for 2002 32,000 --
Other debt 1,015 --
- --------------------------------------------------------------------------------
Total debt 151,878 21,361
- --------------------------------------------------------------------------------
Less: Short-term debt 32,837 --
Total Long-term debt $119,041 $ 21,361
================================================================================
A portion of the debt under the Corporation's revolving credit agreement is
denominated in Swiss francs. Actual borrowings under this portion were 11.0
million and 13.2 million Swiss francs at December 31, 2002 and 2001,
respectively. The carrying amount of long-term debt approximates fair value
because the interest rates are reset periodically to reflect market conditions
and rates.
Aggregate maturities of debt are as follows:
================================================================================
(In thousands)
- --------------------------------------------------------------------------------
2003 $ 32,837
2004 --
2005 83
2006 95
2007 110,463
2008 and beyond 8,400
- --------------------------------------------------------------------------------
$151,878
================================================================================
Interest payments of approximately $1.6 million, $0.8 million, and $1.0 million
were made in 2002, 2001, and 2000, respectively.
44 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
On May 13, 2002, the Corporation entered into two credit agreements aggregating
$225.0 million with a group of eight banks. The Revolving Credit Agreement
allows for cash borrowings up to a maximum borrowing of $135.0 million with a
limit of $50.0 million for letters of credit. The Revolving Credit Agreement
expires 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, which allows for cash borrowings up to $90.0
million. The Short-Term Credit Agreement expires May 9, 2003, but may be
extended, with the consent of the bank group, for additional periods not to
exceed 364 days each. The Corporation expects to extend the Short-Term Agreement
in 2003 with the consent of the bank group, however, there can be no assurances
that the bank group will approve the extension. Borrowings under these credit
agreements bear interest at a floating rate based on market conditions.
Additionally, the Corporation's rate of interest and payment of facility fees
are dependent on certain financial ratios of the Corporation, as defined in the
agreements. As of December 31, 2002, the Corporation pays quarterly facility
fees on the entire commitment of the Revolving Credit Agreement and the Short
Term Credit Agreement. The Corporation is required under these agreements to
maintain certain financial ratios, and meet certain net worth and indebtedness
tests. The outstanding borrowings as of May 12, 2002 under prior credit
agreements were paid in full by funding from the new 2002 revolving credit
agreement. The unused credit available under the Revolving Credit Agreement and
the Short-Term Credit Agreement at December 31, 2002 was $11.6 million and $58.0
million, respectively.
At December 31, 2002, substantially all of the industrial revenue bond issues
are collateralized by real estate, machinery, and equipment. Certain of these
issues are supported by letters of credit, which total approximately $13.7
million. The Corporation has various other letters of credit totaling
approximately $4.5 million, most of which are included under the Revolving
Credit Agreement.
14. Earnings Per Share
The Corporation is required to report both basic earnings per share ("EPS"),
based on the weighted average number of Common and Class B common shares
outstanding, and diluted earnings per share based on the basic EPS adjusted for
all potentially dilutive shares issuable. At December 31, 2002, the Corporation
had approximately 81,265 stock options outstanding that could potentially dilute
basic EPS in the future. The effect of these options was not included in the
computation of diluted EPS for 2002 because to do so would have been
antidilutive. The Corporation had antidilutive options outstanding of
approximately 119,000 at December 31, 2001 and approximately 124,000 at December
31, 2000. Earnings per share calculations for the years ended December 31, 2002,
2001, and 2000 are as follows:
================================================================================
Weighted
Average
Net Shares Earnings
(In thousands, except per share data) Income Outstanding(1) Per Share
- --------------------------------------------------------------------------------
2002:
Basic earnings per share $45,136 10,199 $4.43
Effect of dilutive securities:
Stock options -- 223
Deferred stock compensation -- 12
- --------------------------------------------------------------------------------
Diluted earnings per share $45,136 10,434 $4.33
- --------------------------------------------------------------------------------
2001:
Basic earnings per share $62,880 10,061 $6.25
Effect of dilutive securities:
Stock options -- 172
Deferred stock compensation -- 3
- --------------------------------------------------------------------------------
Diluted earnings per share $62,880 10,236 $6.14
- --------------------------------------------------------------------------------
2000:
Basic earnings per share $41,074 10,015 $4.10
Effect of dilutive securities:
Stock options -- 176
Deferred stock compensation -- 3
- --------------------------------------------------------------------------------
Diluted earnings per share $41,074 10,194 $4.03
================================================================================
(1) Shares in 2002 and 2001 include the Corporation's Common and Class B
common shares.
CURTISS-WRIGHT AND SUBSIDIARIES 45
<Page>
15. Stock Compensation Plans
Stock-Based Compensation: Pro forma information regarding net earnings and
earnings per share is required by SFAS No. 123 and has been determined as if the
Corporation had accounted for its employee stock option grants under the fair
value method prescribed by that Statement. Information with regard to the number
of options granted, market price of the grants, vesting requirements, and the
maximum term of the options granted appears by plan type in the sections below.
The fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:
================================================================================
2002 2001 2000
- --------------------------------------------------------------------------------
Risk-free interest rate 3.61% 4.66% 5.87%
Expected volatility 31.33% 24.18% 23.96%
Expected dividend yield 0.92% 1.37% 1.09%
Weighted average option life 7 years 7 years 7 years
================================================================================
The estimated fair value of the option grants are amortized to expense over the
options' vesting period beginning January 1 of the following year, due to the
timing of the grants. The Corporation's pro forma information for the years
ended December 31, 2002, 2001, and 2000 is as follows:
================================================================================
(In thousands, except per share data) 2002 2001 2000
- --------------------------------------------------------------------------------
Net earnings:
As reported $ 45,136 $ 62,880 $ 41,074
Pro forma $ 43,612 $ 61,683 $ 40,074
Net earnings per share:
As reported:
Basic $ 4.43 $ 6.25 $ 4.10
Diluted $ 4.33 $ 6.14 $ 4.03
Pro forma:
Basic $ 4.28 $ 6.13 $ 4.00
Diluted $ 4.18 $ 6.03 $ 3.93
================================================================================
1985 Stock Option Plan: The Corporation's 1985 Stock Option Plan, which was
approved by stockholders and as amended November 16, 1993, expired on February
13, 1995. Under this plan, 350,000 shares of common stock had been reserved in
treasury for issuance to key employees. During the life of the plan, 190,050
options had been issued, and with the expiration of the plan, the remaining
159,950 shares of common stock are no longer reserved for issuance.
1995 Long-Term Incentive Plan: Under a Long-Term Incentive Plan ("LTI Plan")
approved by stockholders in 1995 and as amended in 2002, an aggregate total of
1,500,000 shares of common stock were reserved for issuance under the LTI Plan.
No more than 50,000 shares of common stock may be awarded in any year to any one
participant in the LTI Plan. The LTI Plan currently has two
components--performance units (cash) and non-qualified stock options.
Under the LTI Plan, the Corporation awarded performance units of 4,519,906 in
2002, 2,339,812 in 2001, and 1,604,825 in 2000 to certain key employees. The
performance units are denominated in dollars and are contingent upon the
satisfaction of performance objectives keyed to achieving profitable growth over
a period of three fiscal years commencing with the fiscal year following such
awards. The anticipated cost of such awards is expensed over the three-year
performance period. The actual cost of the performance units may vary from the
total value of the awards depending upon the degree to which the key performance
objectives are met.
Under the LTI Plan, the Corporation has granted non-qualified stock options in
2002, 2001, and 2000 to key employees. Stock options granted under this LTI Plan
expire ten years after the date of the grant and are usually exercisable as
follows: up to one-third of the grant after one full year, up to two-thirds of
the grant after two full years, and in full three years from the date of grant.
The remaining allowable shares for issuance under both plans as of December 31,
2002 is 1,339,148.
Stock option activity during the periods for both plans is indicated as follows:
================================================================================
Weighted-
Average
Excercise Options
Shares Price Exercisable
- --------------------------------------------------------------------------------
Outstanding at
December 31, 1999 557,621 $ 30.92 310,586
Granted 124,398 47.72
Exercised (16,080) 22.93
Forfeited (13,225) 37.18
- --------------------------------------------------------------------------------
Outstanding at
December 31, 2000 652,714 34.19 396,049
Granted 206,762 43.70
Exercised (53,832) 22.02
Forfeited (10,687) 43.96
- --------------------------------------------------------------------------------
Outstanding at
December 31, 2001 794,957 37.65 468,074
Granted 81,265 65.11
Exercised (196,080) 31.57
Forfeited (9,990) 43.89
- --------------------------------------------------------------------------------
Outstanding at
December 31, 2002 670,152 $ 42.32 418,512
================================================================================
46 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
The following table summarizes information about stock options outstanding at
December 31, 2002:
===========================================================================================================
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted-Average
Remaining Weighted- Weighted-
Contractual Average Average
Range of Exercise Prices Shares Life in Years Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------
$13.02-$19.53 41,278 1.7 $ 17.60 41,278 $ 17.60
$19.54-$26.04 46,664 3.5 24.69 46,664 24.69
$26.05-$39.07 194,221 6.3 37.81 194,221 37.81
$39.08-$45.58 197,125 8.9 43.70 65,513 43.70
$45.59-$52.09 109,599 7.9 47.72 70,836 47.72
$52.10-$65.11 81,265 9.9 65.11 -- --
- -----------------------------------------------------------------------------------------------------------
670,152 7.3 $ 42.32 418,512 $ 36.95
===========================================================================================================
Stock Plan for Non-Employee Directors: The Stock Plan for Non-Employee Directors
("Stock Plan"), approved by the stockholders in 1996, authorized the grant of
restricted stock awards and, at the option of the Directors, the deferred
payment of regular stipulated compensation and meeting fees in equivalent
shares. Pursuant to the terms of the Stock Plan, the non-employee directors
received an initial grant of 3,612 shares in 1996, which became unrestricted in
2001. Additionally, on the fifth anniversary of the initial grant, those
non-employee directors who remained a non-employee director, received an
additional grant equal to the product of increasing $13,300 at an annual rate of
2.96%, compounded monthly from the effective date of the Stock Plan. In 2001,
the amount per director was calculated to be $15,419, representing a total
additional grant of 1,555 restricted shares. The cost of the restricted stock
awards is being amortized over the five-year restriction period from the date of
grant. Newly elected non-employee directors receive similar compensation under
the terms of the Stock Plan upon their election to the Board.
Pursuant to election by non-employee directors to receive shares in lieu of
payment for earned and deferred compensation under the Stock Plan, the
Corporation had provided for an aggregate additional 11,476 shares, at an
average price of $41.14 as of December 31, 2002. During 2002, the Corporation
issued 2,455 shares in deferred compensation pursuant to such elections.
Depending on the extent to which the non-employee directors elect to receive
future compensation in shares, total awards issued under this Stock Plan could
exceed the 16,000 registered shares by April 12, 2006, the termination date of
the Stock Plan.
16. Environmental Costs
The Corporation has continued the operation of the ground water and soil
remediation activities at the Wood-Ridge, New Jersey site through 2002. The cost
of constructing and operating this site was provided for in 1990 when the
Corporation established a $21.0 million reserve to remediate the property. Costs
for operating and maintaining this site totaled $0.5 in 2002, 2001, and 2000,
all of which have been charged against the previously established reserve. In
2002, the Corporation increased the remediation reserve by $1.0 million based
upon revised operating projections. Even though this property was sold in
December 2001 (see Note 3), the Corporation retained the responsibility for this
remediation in accordance with the sale agreement.
The Corporation has previously filed lawsuits against several insurance carriers
seeking recovery for environmental costs. The Corporation settled with one
carrier in 1998 and two carriers in 1999. During 2000, the Corporation settled
with the remaining carriers.
The Corporation has been named as a potentially responsible party, as have many
other corporations and municipalities, in a number of environmental clean-up
sites. The Corporation continues to make progress in resolving these claims
through settlement discussions and payments from established reserves.
Significant sites remaining open at the end of the year are: Caldwell Trucking
landfill superfund site, Fairfield, New Jersey; Sharkey landfill superfund site,
Parsippany, New Jersey; Amenia landfill site, Amenia, New York; and Chemsol,
Inc. superfund site, Piscataway, New Jersey. The Corporation believes that the
outcome for any of these remaining sites will not have a materially adverse
effect on the Corporation's results of operations or financial condition.
CURTISS-WRIGHT AND SUBSIDIARIES 47
<Page>
In October 2002 the Corporation acquired the Electro-Mechanical Division ("EMD")
facility from Westinghouse Government Services LLC ("Seller"). Included in the
purchase was the assumption of several Nuclear Regulatory Commission ("NRC")
licenses, necessary for the continued operation of the business. In connection
with these licenses, the NRC required financial assurance from the Corporation
(in the form of a parent company guarantee), representing estimated
environmental decommissioning and remediation costs associated with the
commercial operations covered by the licenses. In addition, the Corporation has
established reserves for additional potential environmental remediation costs.
Remediation and investigation of the EMD facility are ongoing. As of December
31, 2002 the balance in this reserve is $13.6 million. The Corporation obtained
partial environmental insurance coverage specifically for the EMD facility. The
policy provides coverage for losses due to on or off-site pollution conditions,
which are pre-existing and unknown.
The noncurrent environmental obligation at December 31, 2002 was $22.6 million
compared to $9.5 million at December 31, 2001.
17. Pension and Other Postretirement Benefit Plans
The Corporation maintains a non-contributory defined benefit pension plan
covering substantially all employees other than those employees covered by the
EMD Pension Plan described below. The Curtiss-Wright Retirement Plan (the "CW
Pension Plan") formula for non-union employees is based on years of credited
service and the five highest consecutive years' compensation during the last ten
years of service and a "cash balance" benefit. Union employees who have
negotiated a benefit under the CW Pension Plan are entitled to a benefit based
on years of service multiplied by a monthly pension rate. Employees are eligible
to participate in the CW Pension Plan after one year of service and are vested
after five years of service. At December 31, 2002 and December 31, 2001, the
Corporation had prepaid pension costs of $76.1 million and $70.8 million,
respectively, under the CW Pension Plan. At December 31, 2002, approximately 40%
of CW Pension Plan assets are invested in debt securities, including a portion
in U.S. Government issues. Approximately 60% of CW Pension Plan assets are
invested in equity securities.
The Corporation also maintains a non-qualified Restoration Plan covering those
employees whose compensation or benefits exceed the IRS limitation for pension
benefits. Benefits under the Restoration Plan are not funded, and as such, the
Corporation had an accrued pension liability of $1.1 million at December 31,
2002 and 2001.
The Corporation also provides post-retirement health benefits to certain
employees (the "CW Retirement Plan"). In 2002, the Corporation restructured the
post-retirement medical benefits for certain active employees whereby this
obligation was transferred to the CW Pension Plan.
As a result of the EMD acquisition in October 2002, the Corporation maintains
three additional types of postretirement benefit plans, as described below.
Prior to the acquisition, EMD employees participated in similar plans sponsored
by the prior owner. The unfunded status of the plans was recorded as a liability
at the date of acquisition.
The Corporation maintains the Curtiss-Wright Electro-Mechanical Division Pension
Plan (the "EMD Pension Plan"), a qualified contributory defined benefit pension
plan, which covers all of the EMD employees. The EMD Pension Plan covers both
union and non-union employees and is designed to satisfy the requirements of
relevant collective bargaining agreements. Employee contributions are withheld
semi-monthly equal to 1.5% of salary. The benefits under the EMD Pension Plan
are based on years of service and compensation. As of December 31, 2002, the EMD
Pension Plan was still transitioning funds from the former Westinghouse plan. As
such, approximately 76% of EMD Pension Plan assets were held in cash and
approximately 24% were held as a receivable from the Westinghouse plan. At
December 31, 2002, the Corporation had an accrued pension liability of $35.6
million related to the EMD Pension Plan.
The Corporation maintains the Curtiss-Wright Electro-Mechanical Division
Non-Qualified Plan (the "EMD Supplemental Plan"), a non-qualified
non-contributory unfunded supplemental retirement plan for eligible EMD key
executives. The EMD Supplemental Plan provides for periodic payments upon
retirement that are based on total compensation (including amounts in excess of
qualified plan limits) and years of service, and are reduced by benefits earned
from certain other pension plans in which the executives participate. At
December 31, 2002, the Corporation had an accrued pension liability of $2.4
million related to the EMD Supplemental Plan.
The Corporation, through an administration agreement with Westinghouse,
maintains the Westinghouse Government Services Group Welfare Benefits Plan (the
"EMD Retirement Plan"), a retiree health and life insurance plan for
substantially all of the EMD employees. The EMD Retirement Plan provides basic
coverage on a non-contributory basis. Benefits are based on years of service. At
December 31, 2002, the Corporation had an accrued postretirement benefit
liability of $36.3 million related to the EMD Retirement Plan. Other assets
include a $6.5 million discounted receivable from Washington Group International
to reimburse the Corporation for a portion of postretirement benefit costs
pursuant to the Asset Purchase Agreement.
48 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
Curtiss-Wright EMD
- ------------------------------------------------------------------------------------------- -------------------------
Pension Postretirement
Pension Benefits Postretirement Benefits Benefits Benefits
- ------------------------------------------------------------------------------------------- -------------------------
(In thousands) 2002 2001 2002 2001 2002 2002
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 103,344 $ 103,427 $ 1,990 $ 2,027 $ -- $ --
Effect of EMD acquisition -- -- -- -- 111,642 36,344
Service cost 6,015 4,740 129 112 424 --
Interest cost 7,650 7,113 148 126 1,278 --
Plan participants' contributions -- -- 20 34 -- --
Amendments 829 -- -- -- -- --
Actuarial loss (gain) 7,376 (4) 159 (217) -- --
Benefits paid (15,298) (11,932) (90) (92) (902) --
Curtailment of benefits 1,911 -- (1,844) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 111,827 103,344 512 1,990 112,442 36,344
========================================================================================================================
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning
of year 216,944 252,682 -- -- -- --
Effect of EMD acquisition -- -- -- -- 74,245 --
Actual return on plan assets (13,761) (23,882) -- -- 992 --
Employer contribution 84 76 70 58 -- --
Plan participants' contribution -- -- 20 34 -- --
Benefits paid (15,298) (11,932) (90) (92) (902) --
- ------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 187,969 216,944 -- -- 74,335 --
========================================================================================================================
Funded status 76,141 113,601 (512) (1,990) (38,107) (36,344)
Unrecognized net actuarial gain (2,179) (44,220) (879) (2,548) 100 --
Unrecognized transition obligation (14) (18) -- -- -- --
Unrecognized prior service costs 1,092 294 -- (797) -- --
- ------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit costs $ 75,040 $ 69,657 $ (1,391) $ (5,335) $ (38,007) $ (36,344)
========================================================================================================================
COMPONENTS OF NET PERIODIC BENEFIT
(REVENUE) COST:
Service cost $ 6,015 $ 4,740 $ 129 $ 112 $ 424 $ --
Interest cost 7,650 7,113 148 126 1,278 --
Expected return on plan assets (18,705) (18,089) -- -- (1,092) --
Amortization of prior service cost 26 (40) (123) (123) -- --
Amortization of transition obligation (4) (2,188) -- -- -- --
Recognized net actuarial (gain) loss (2,191) (2,578) (179) (200) -- --
Cost of settlement 1,911 -- (3,849) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net periodic benefit (revenue) expense $ (5,298) $ (11,042) $ (3,874) $ (85) $ 610 $ --
========================================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31:
Discount rate 6.75% 7.00% 6.75% 7.00% 7.00% 6.75%
Expected return on plan assets 8.50% 8.50% -- -- 8.88% --
Rate of compensation increase 4.25% 4.50% -- -- 4.00% 4.00%
CURTISS-WRIGHT AND SUBSIDIARIES 49
<Page>
For measurement purposes, a 12.00% and an 11.10% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2002 for the CW
Retirement Plan and the EMD Retirement Plan, respectively. The rate was assumed
to decrease gradually to 5.50% over the next six years and remain at that level
thereafter.
The Corporation offers all of its domestic employees the opportunity to
participate in a defined contribution plan. Costs incurred by the Corporation in
the administration of the defined contribution plan are not material.
In addition, the Corporation had foreign pension costs under various retirement
plans of $1.6 million, $1.0 million, and $0.9 million in 2002, 2001, and 2000,
respectively.
Effect of change in health care cost trend on:
================================================================================
CW EMD
Retirement Plan Retirement Plan
- --------------------------------------------------------------------------------
1% 1% 1% 1%
(In thousands) Increase Decrease Increase Decrease
- --------------------------------------------------------------------------------
Total service and interest
cost components $ 42 $ (35) $ -- $ --
Postretirement
benefit obligation $ 31 $ (29) $ 2,486 $(2,595)
================================================================================
The Corporation discontinued postretirement medical coverage for former
employees of its Fairfield, NJ plant due to its closure, which resulted in
income of $2.9 million in 2000.
18. Leases
Buildings and Improvements Leased to Others. The Corporation previously leased
certain of its buildings and related improvements to outside parties under
non-cancelable operating leases. The Corporation sold one of its two remaining
rental properties in 2002, and vacated the other in preparation for sale. Cost
and accumulated depreciation of the buildings and improvements at December 31,
2002 and December 31, 2001 were $7.3 million and $5.0 million, respectively. On
December 20, 2001, the Corporation sold its Wood-Ridge Business Complex. As a
result of the above, the Corporation will no longer report net rental income.
Facilities and Equipment Leased from Others. The Corporation conducts a portion
of its operations from leased facilities, which include manufacturing and
service facilities, administrative offices, and warehouses. In addition, the
Corporation leases automobiles, machinery, and office equipment under operating
leases. Rental expenses for all operating leases amounted to approximately $8.2
million in 2002, $4.9 million in 2001, and $4.3 million in 2000.
At December 31, 2002, the approximate future minimum rental commitments under
operating leases that have initial or remaining non-cancelable lease terms in
excess of one year are as follows:
================================================================================
Rental
(In thousands) Commitment
- --------------------------------------------------------------------------------
2003 $ 9,110
2004 7,659
2005 6,769
2006 5,550
2007 4,899
2008 and beyond 13,924
- --------------------------------------------------------------------------------
$47,911
================================================================================
19. Industry Segments
The Corporation manages and evaluates its operations based on the products and
services it offers and the different markets it serves. Based on this approach,
the Corporation has three reportable segments: Motion Control, Flow Control, and
Metal Treatment. The Motion Control segment primarily designs, develops, and
manufactures mechanical systems, drive systems, and electronic controls and
sensors for the aerospace and defense industries. The Flow Control segment
primarily designs, manufactures, distributes, and services a broad range of
highly engineered flow control products for severe service military and
commercial applications. Metal Treatment provides approximately 50
metal-treating services, with its principal services being "shot-peening" and
"heat-treating." The segment provides these services to a broad spectrum of
customers in various industries, including aerospace, automotive, construction
equipment, oil, petrochemical and metal working.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. Interest expense
and income taxes are not reported on an operating segment basis because they are
not considered in the performance evaluation by the Corporation's chief
operating decision-maker, its Chairman and CEO.
The Corporation had one commercial customer in the Motion Control segment that
accounted for 13% of its consolidated revenue in 2001 and 13% in 2000. During
2002, the Corporation had no commercial customer representing more than 10% of
consolidated revenue.
50 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
Consolidated Industry Segment Information:
=================================================================================================================
Motion Flow Metal Segment Corporate Consolidated
(In thousands) Control Control Treatment(1) Total & Other(2) Total
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2002:
Revenue from external customers $ 233,437 $ 172,455 $ 107,386 $ 513,278 $ -- $ 513,278
Intersegment revenues -- -- 491 491 -- 491
Operating income (costs) 29,579 20,693 14,403 64,675 (2,846) 61,829
Depreciation and amortization expense 7,394 5,059 6,063 18,516 177 18,693
Segment assets 260,984 319,272 124,546 704,802 108,122 812,924
Capital Expenditures 8,243 10,787 15,873 34,903 51 34,954
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2001:
Revenue from external customers $ 137,103 $ 98,257 $ 107,807 $ 343,167 $ -- $ 343,167
Intersegment revenues -- -- 446 446 -- 446
Operating income (costs) 19,219 10,703 19,513 49,435 (2,277) 47,158
Depreciation and amortization expense 4,270 4,279 5,519 14,068 666 14,734
Segment assets 152,962 108,689 95,945 357,596 142,832 500,428
Capital Expenditures 6,306 1,943 10,856 19,105 249 19,354
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000:
Revenue from external customers $ 126,771 $ 97,486 $ 105,318 $ 329,575 $ -- $ 329,575
Intersegment revenues -- -- 508 508 -- 508
Operating income 15,383 10,276 23,502 49,161 3,024 52,185
Depreciation and amortization expense 4,086 4,124 5,031 13,241 1,105 14,346
Segment assets 96,955 82,670 84,538 264,163 145,253 409,416
Capital Expenditures 1,776 1,826 5,451 9,053 453 9,506
- -----------------------------------------------------------------------------------------------------------------
(1) Operating income for the Metal Treatment segment includes nonrecurring
costs of $0.5 million associated with the relocation of a shot-peening
facility in 2002.
(2) Operating income (costs) for Corporate and other includes $1.2 million of
net environmental remediation and administrative expenses, $0.6 of post
employment expenses, $0.5 million of professional consulting fees
associated with the integration of recent acquisitions, and other expenses
in 2002; $1.5 million for recapitalization costs and $0.2 million for
environmental costs in 2001; $2.8 million gain for the curtailment of
postretirement benefits and $1.9 million net environmental recoveries,
offset by accrued post employment cost of $0.7 million in 2000.
CURTISS-WRIGHT AND SUBSIDIARIES 51
<Page>
Reconciliations:
========================================================================================================
For the years ended December 31, (In thousands) 2002 2001 2000
- --------------------------------------------------------------------------------------------------------
REVENUES:
Total segment revenue $513,278 $343,167 $329,575
Intersegment revenue 491 446 508
Elimination of intersegment revenue (491) (446) (508)
- --------------------------------------------------------------------------------------------------------
Total consolidated revenues $513,278 $343,167 $329,575
- --------------------------------------------------------------------------------------------------------
EARNINGS BEFORE TAXES:
Total segment operating income $ 64,675 $ 49,435 $ 49,161
Insurance settlements, net -- -- 3,041
Corporate and administrative (2,846) (2,277) (17)
Investment income, net 591 2,599 2,862
Rental income, net 148 3,585 3,638
Pension income, net 7,208 11,042 7,813
Other income, net 3,769 38,993 1,216
Interest expense (1,810) (1,180) (1,743)
- --------------------------------------------------------------------------------------------------------
Total consolidated earnings before tax $ 71,735 $102,197 $ 65,971
- --------------------------------------------------------------------------------------------------------
ASSETS:
Total assets for reportable segments $704,802 $357,596 $264,163
Short-term investments 330 41,658 62,766
Pension assets 76,072 70,796 59,765
Other assets 31,764 30,418 22,801
Elimination of intersegment receivables (44) (40) (79)
- --------------------------------------------------------------------------------------------------------
Total consolidated assets $812,924 $500,428 $409,416
- --------------------------------------------------------------------------------------------------------
==================================================================================================================
December 31, (In thousands) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Long-Lived Long-Lived Long-Lived
Revenues(1) Assets Revenues(1) Assets Revenues(1) Assets
- ------------------------------------------------------------------------------------------------------------------
Geographic Information:
North America $401,466 $165,208 $257,208 $ 71,501 $213,343 $60,141
United Kingdom 49,519 38,235 31,340 22,961 32,133 22,666
Other foreign countries 62,293 15,606 54,619 10,689 84,099 10,429
- ------------------------------------------------------------------------------------------------------------------
Consolidated total $513,278 $219,049 $343,167 $105,151 $329,575 $93,236
==================================================================================================================
(1) Revenues are attributed to countries based on the location of the
customer.
52 CURTISS-WRIGHT AND SUBSIDIARIES
<Page>
20. Contingencies and Commitments
The Corporation's subsidiary located in Switzerland entered into a sales
agreement with the Spanish Ministry of Defense which contained an offset
obligation for the purchase of approximately 24.0 million Swiss francs of
product from Spanish suppliers over a seven-year period which began in 1999. The
offset obligation contains two interim milestones, which if not met, could
increase the total obligation by 10% per milestone. The first milestone occurred
in February 2001 and was met. The next milestone occurs in 2003. As of December
31, 2002, the Corporation has accrued 0.6 million Swiss francs (approximately
$0.4 million) included in other current liabilities as a contingency against not
achieving this milestone and/or compliance with the remainder of this agreement.
The same subsidiary also entered into a sales agreement with the Austrian
Defense Ministry which contained an offset obligation for the purchase of
approximately 18.5 million Swiss francs of product from Austrian suppliers
through May 2007. This agreement contains no milestones but there are penalty
provisions for up to 5% of the unfulfilled amount. As of December 31, 2002, the
Corporation has accrued approximately 0.3 million Swiss francs (approximately
$0.2 million) included in other current liabilities as a contingency against
non-compliance with the purchase obligations of this agreement.
The Corporation, through its subsidiary located in Switzerland, entered into a
credit agreement with UBS AG ("UBS") for a credit facility in the amount of 6.0
million Swiss francs (approximately $4.3 million) for the issue of performance
guarantees related to a long-term contract. The Corporation received prepayments
on this contract, which are being used as collateral against the credit
facility. The customer can draw down on the line of credit for nonperformance up
to the amount of pledged collateral, which is released from restriction over
time as the Corporation meets its obligations under the long-term contract.
Under the terms of this credit facility agreement, the Corporation is not
permitted to borrow against the line of credit. The Corporation is charged a
commitment fee on the outstanding balance of the collateralized cash. As of
December 31, 2002, the amount of restricted cash under this facility was $3.3
million, of which $1.1 million is expected to be released from restriction after
one year.
In October 2002, the Corporation acquired EMD. Included in the purchase was the
assumption of several NRC licenses, necessary for the continued operation of the
business. In connection with these licenses, the NRC required financial
assurance from the Corporation (in the form of a parent company guarantee),
representing estimated environmental decommissioning and remediation costs
associated with the commercial operations covered by the licenses. The guarantee
for the decommissioning costs of the refurbishment facility, which is estimated
for 2017, is $2.8 million. See note 16 for further information.
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.
21. Subsequent Events
Acquisitions
On February 28, 2003, the Corporation acquired the assets of Collins
Technologies from G.L Collins Corporation. The purchase price of the
acquisition, subject to adjustment as provided for in the Asset Purchase
Agreement, was $12.0 million in cash and the assumption of certain liabilities.
Management funded the purchase price from credit available under the
Corporation's Short-Term Credit Agreement. Revenues of the purchased business
totaled approximately $8.3 million for the year ending March 31, 2002.
Management intends to incorporate the operations of G.L. Collins Corporation
into the Corporation's Motion Control Segment.
On March 11, 2003, the Corporation acquired selected assets of Advanced Material
Process Corp. ("AMP"), a private company with operations located in Wayne,
Michigan. The purchase price of the acquisition, subject to adjustment as
provided for in the Asset Purchase Agreement, was $5.7 million in cash and the
assumption of certain liabilities. Management funded the purchase price from
credit available under the Corporation's Short-Term Credit Agreement. Annual
sales of the purchased business are approximately $5.0 million. Management
intends to incorporate the operations of AMP into the Corporation's Metal
Treatment Segment.
On March 19, 2003, the Corporation entered into an agreement to acquire selected
assets of E/M Engineered Coatings Solutions ("E/M Coatings"). The purchase price
of the acquisition, subject to adjustment as provided in the Asset Purchase
Agreement, was $16.7 million in cash and the assumption of certain liabilities.
Management's intention is to fund the purchase price from credit available under
the Corporation's Short-Term Credit Agreement. Revenues of the purchased
business totaled approximately $26.0 million for the year ending December 31,
2002. Management intends to incorporate the operations of E/M Coatings into the
Corporation's Metal Treatment Segment.
CURTISS-WRIGHT AND SUBSIDIARIES 53
<Page>
CORPORATE DIRECTORY
Directors
MARTIN R. BENANTE
Chairman of the Board of Directors
ADMIRAL JAMES B. BUSEY IV
Admiral, U.S. Navy (Ret.)
Director, Mitre Corporation
Director, Texas Instruments, Inc.
Former President and Chief Executive Officer of AFCEA
International Aviation Safety and Security Consultant
S. MARCE FULLER
President and Chief Executive Officer of Mirant Corporation, Inc.
(formerly known as Southern Energy, Inc.)
Director, Earthlink, Inc.
DAVID LASKY
Former Chairman and Chief Executive Officer of
Curtiss-Wright Corporation
WILLIAM B. MITCHELL
Director, Mitre Corporation
Former Vice-Chairman of Texas Instruments Inc.
JOHN R. MYERS
Chairman and Chief Executive Officer of Tru-Circle Corporation
Management Consultant
Former Chairman of the Board of Garrett Aviation Services
DR. WILLIAM W. SIHLER
Ronald E. Trzcinski Professor of Business Administration
Darden Graduate School of Business Administration
University of Virginia
J. McLAIN STEWART
Director, McKinsey & Co. Management Consultants
Officers
MARTIN R. BENANTE
Chairman and Chief Executive Officer
GEORGE J. YOHRLING
Executive Vice President
JOSEPH NAPOLEON
Executive Vice President
EDWARD BLOOM
Vice President
GLENN E. TYNAN
Vice President--Finance
Chief Financial Officer
MICHAEL J. DENTON
Vice President, Corporate Secretary, and
General Counsel
GARY J. BENSCHIP
Treasurer
KEVIN M. McCLURG
Corporate Controller
54 CURTISS-WRIGHT AND SUBSIDIARIES