SECURITIES and EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
Commission File Number 1-134
CURTISS-WRIGHT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-0612970
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4 Becker Farm Road
Roseland, New Jersey 07068
(Address of principal executive offices) (Zip Code)
(973) 597-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $1.00 per share: 5,911,581 shares (as of April 30,
2003). Class B Common Stock, par value $1.00 per share: 4,382,123 shares (as of
April 30, 2003).
Page 1 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
TABLE of CONTENTS
PAGE
-------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Earnings 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Stockholders' Equity 6
Notes to Consolidated Financial Statements 7 - 18
Item 2. Management's Discussion and Analysis of Financial 19 - 26
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 27
Item 4. Controls and Procedures 27
Forward-Looking Information 27
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 28
Signature 29
Certifications 30 - 32
Page 2 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except per share data)
Three Months Ended
March 31,
--------------------
2003 2002
--------- --------
Net sales $ 179,933 $ 97,787
Cost of sales 120,901 61,632
--------- --------
Gross profit 59,032 36,155
Research and development expenses 5,305 1,311
Selling expenses 8,968 5,742
General and administrative expenses 21,414 15,986
Environmental remediation and
administrative expenses, net -- 202
--------- --------
Operating income 23,345 12,914
Investment income, net 15 131
Pension income, net 525 2,254
Other expenses, net (257) (59)
Interest expense (851) (193)
--------- --------
Earnings before income taxes 22,777 15,047
Provision for income taxes 8,655 5,731
--------- --------
Net earnings $ 14,122 $ 9,316
========= ========
Basic earnings per share $ 1.37 $ 0.92
========= ========
Diluted earnings per share $ 1.36 $ 0.90
========= ========
Dividends per share $ 0.15 $ 0.15
========= ========
Weighted average shares outstanding:
Basic 10,282 10,123
Diluted 10,408 10,340
See notes to consolidated financial statements
Page 3 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
2003 2002
----------- ------------
Assets
Current Assets:
Cash and cash equivalents $ 41,719 $ 47,717
Receivables, net 145,806 143,316
Inventories, net 87,023 79,808
Deferred tax assets, net 21,341 21,840
Other current assets 8,652 9,005
-------- --------
Total current assets 304,541 301,686
-------- --------
Property, plant and equipment, net 226,527 219,049
Prepaid pension costs 76,597 76,072
Goodwill 195,607 181,101
Other intangible assets, net 19,356 21,982
Other assets 12,734 13,034
-------- --------
Total Assets $835,362 $812,924
======== ========
Liabilities
Current Liabilities:
Short-term debt $ 32,874 $ 32,837
Dividends payable 1,544 --
Accounts payable 42,707 41,344
Accrued expenses 29,132 32,446
Income taxes payable 8,203 4,528
Other current liabilities 52,341 53,294
-------- --------
Total current liabilities 166,801 164,449
-------- --------
Long-term debt 123,045 119,041
Deferred tax liabilities, net 8,429 6,605
Accrued pension and other postretirement benefit costs 78,616 77,438
Long-term portion of environmental reserves 22,301 22,585
Other liabilities 11,409 11,578
-------- --------
Total Liabilities 410,601 401,696
-------- --------
Stockholders' Equity
Common stock, $1 par value 10,618 10,618
Class B common stock, $1 par value 4,382 4,382
Additional paid-in capital 52,290 52,200
Retained earnings 520,876 508,298
Unearned portion of restricted stock (55) (60)
Accumulated other comprehensive income 6,711 6,482
-------- --------
594,822 581,920
Less: cost of treasury stock 170,061 170,692
-------- --------
Total Stockholders' Equity 424,761 411,228
-------- --------
Total Liabilities and Stockholders' Equity $835,362 $812,924
======== ========
See notes to consolidated financial statements
Page 4 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
March 31,
-------------------
2003 2002
-------- --------
Cash flows from operating activities:
Net earnings $ 14,122 $ 9,316
-------- --------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 6,820 3,943
Net gains on sales of real estate and equipment -- (106)
Non-cash pension income (525) (2,254)
Deferred income taxes 2,323 45
Changes in operating assets and liabilities, net of
businesses acquired:
Proceeds from sales of short-term investments -- 59,550
Purchases of short-term investments -- (35,600)
Increase in receivables (1,009) (3,750)
Increase in inventories (5,776) (981)
Decrease in accounts payable and accrued
expenses (2,683) (2,312)
Increase (decrease) in income taxes payable 3,675 (10,732)
Decrease (increase) in other assets 1,300 (662)
Decrease in other liabilities (415) (3,837)
-------- --------
Total adjustments 3,710 3,304
-------- --------
Net cash provided by operating activities 17,832 12,620
-------- --------
Cash flows from investing activities:
Proceeds from sales of real estate and equipment -- 142
Additions to property, plant and equipment (9,830) (7,008)
Acquisition of new businesses, net of cash acquired (18,360) (1,272)
-------- --------
Net cash used for investing activities (28,190) (8,138)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt 96,537 --
Principal payments on debt (92,554) (1,291)
Proceeds from exercise of stock options 721 2,287
-------- --------
Net cash provided by financing activities 4,704 996
-------- --------
Effect of foreign currency (344) (858)
-------- --------
Net (decrease) increase in cash and cash equivalents (5,998) 4,620
Cash and cash equivalents at beginning of period 47,717 25,495
-------- --------
Cash and cash equivalents at end of period $ 41,719 $ 30,115
======== ========
Supplemental disclosure of non-cash investing activities:
Fair value of assets acquired $ 19,337 $ --
Liabilities assumed (977) --
Less: Cash acquired -- --
-------- --------
Cash paid for acquisitions $ 18,360 $ --
======== ========
See notes to consolidated financial statements
Page 5 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Unearned Accumulated
Class B Additional Portion of Other
Common Common Paid in Retained Restricted Comprehensive Treasury
Stock Stock Capital Earnings Stock Awards Income Stock
------- ------- ---------- -------- ------------ ------------- ---------
December 31, 2001 $10,618 $4,382 $52,532 $469,303 $(78) $(6,831) $179,972
------- ------ ------- -------- ---- ------- --------
Net earnings -- -- -- 45,136 -- -- --
Translation adjustments, net -- -- -- -- -- 13,313 --
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
------- ------ ------- -------- ---- ------- --------
Net earnings -- -- -- 14,122 -- -- --
Translation adjustments, net -- -- -- -- -- 229 --
Dividends -- -- -- (1,544) -- -- --
Stock options exercised, net -- -- 90 -- -- -- (631)
Amortization of earned portion
of restricted stock awards -- -- -- -- 5 -- --
------- ------ ------- -------- ---- ------- --------
March 31, 2003 $10,618 $4,382 $52,290 $520,876 $(55) $ 6,711 $170,061
======= ====== ======= ======== ==== ======= ========
See notes to consolidated financial statements
Page 6 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS of PRESENTATION
Curtiss-Wright Corporation and its subsidiaries (the "Corporation") is a
diversified multinational manufacturing and service company that designs,
manufactures, and overhauls precision components and systems and provides
highly engineered services to the defense, aerospace, power generation,
automotive, shipbuilding, processing, petrochemical, agricultural
equipment, railroad, security, and metalworking industries. Operations are
conducted through twenty manufacturing facilities, forty-five metal
treatment service facilities, and two aerospace component overhaul and
repair locations.
The unaudited consolidated financial statements include the accounts of
Curtiss-Wright and its majority-owned subsidiaries. All material
intercompany transactions and accounts have been eliminated.
The unaudited consolidated 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 estimates of future environmental costs. Actual results may
differ from these estimates. In the opinion of management, all necessary
adjustments for a fair presentation have been reflected in these financial
statements.
The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Corporation's 2002 Annual Report on Form 10-K. The results
of operations for these interim periods are not necessarily indicative of
the operating results for a full year.
Certain prior year information has been reclassified to conform to current
presentation.
Page 7 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
2. ACQUISITIONS
Motion Control Segment
Collins Technologies
On February 28, 2003, the Corporation acquired the assets of Collins
Technologies ("Collins") 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. Included in the purchase price is a holdback of $0.5 million
as security for indemnification. The amount of holdback remaining after
claims for indemnification will be paid one year after the acquisition
date. Management funded the purchase price from credit available under the
Corporation's Short-Term Credit Agreement. Revenues of the purchased
business were approximately $8.3 million for the year ended March 31, 2002.
The excess of the purchase price, excluding the holdback, over the fair
value of the net assets acquired is approximately $9.5 million. The fair
value of the net assets acquired was based on current estimates and may be
revised at a later date.
Collins designs and manufactures Linear Variable Displacement Transducers
(LVDTs), primarily for aerospace flight and engine control applications.
Industrial LVDTs are used mostly in industrial automation and test
applications. Collins' operations are located in Long Beach, California.
Metal Treatment Segment
Advanced Material Process
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. Included in the
purchase price is a holdback of $0.2 million as security for
indemnification. The amount of holdback remaining after claims for
indemnification will be paid one year after the acquisition date. 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 $1.0 million. Management funded the purchase
price from credit available under the Corporation's Short-Term Credit
Agreement. Sales of the purchased business were approximately $5.1 million
for the year ended December 31, 2002. The purchase price approximated the
fair value of the net assets acquired. The fair value of the net assets
acquired was based on current estimates and may be revised at a later date.
AMP is a supplier of commercial shot-peening services primarily to the
automotive market in the Detroit area.
Page 8 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
Brenner Tool & Die
On November 14, 2002, the Corporation acquired selected assets and
liabilities of Brenner Tool and 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
approximated the fair value of the net assets acquired. 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 $10.0 million. The fair value of net assets
acquired was based on preliminary estimates and may be revised at a later
date.
3. RECEIVABLES
Receivables at March 31, 2003 and December 31, 2002 include amounts billed
to customers and unbilled charges on long-term contracts consisting of
amounts recognized as sales but not billed as of the dates presented.
Substantially all amounts of unbilled receivables are expected to be billed
and collected within a year. The composition of receivables for those
periods is as follows:
(In thousands)
March 31, December 31,
2003 2002
--------- ------------
Billed Receivables:
Trade and other receivables $113,102 $ 108,710
Less: Progress payments applied (3,421) (2,480)
Allowance for doubtful accounts (2,799) (2,170)
-------- ---------
Net billed receivables 106,882 104,060
-------- ---------
Unbilled Receivables:
Recoverable costs and estimated
earnings not billed 45,852 44,573
Less: Progress payments applied (6,928) (5,317)
-------- ---------
Net unbilled receivables 38,924 39,256
-------- ---------
Receivables, net $145,806 $ 143,316
======== =========
The net receivable balance at March 31, 2003 included $1.8 million related
to the Corporation's 2003 acquisitions.
Page 9 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
4. INVENTORIES
Inventories are valued at the lower of cost (principally average cost) or
market. The composition of inventories at March 31, 2003 and December 31,
2002 is as follows:
(In thousands)
March 31, December 31,
2003 2002
--------- ------------
Raw material $ 43,552 $ 42,932
Work-in-process 29,191 25,282
Finished goods and component parts 44,456 42,797
Inventoried costs related to US
Government and other long-term
contracts 11,625 14,949
--------- ---------
Gross inventories 128,824 125,960
Less: Inventory reserves (24,581) (24,277)
Progress payments applied,
principally related to
long-term contracts (17,220) (21,875)
--------- ---------
Inventories, net $ 87,023 $ 79,808
========= =========
The net inventory balance at March 31, 2003 included $1.4 million related
to the Corporation's 2003 acquisitions.
5. GOODWILL
Goodwill results from acquisitions. The Corporation accounts for
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.
The changes in the carrying amount of goodwill for the three months ended
March 31, 2003 are as follows:
(In thousands)
Flow Motion Metal
Control Control Treatment Consolidated
------- ------- --------- ------------
December 31, 2002 $95,409 $78,727 $6,965 $181,101
Goodwill from 2003
acquisitions -- 9,466 -- 9,466
Change in previous
estimates of fair value
of net assets acquired 1,283 3,052 13 4,348
Currency translation
adjustment 394 291 7 692
------- ------- ------ --------
March 31, 2003 $97,086 $91,536 $6,985 $195,607
======= ======= ====== ========
Page 10 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
The purchase price allocations relating to businesses acquired in 2003 and
2002 are based on estimates and have not yet been finalized.
6. OTHER INTANGIBLE ASSETS, net
Other intangible assets consist primarily of purchased technology, backlog
and technology licenses. The following tables present the cumulative
composition of the Corporation's intangible assets as of March 31, 2003 and
December 31, 2002.
(In thousands)
Accumulated
March 31, 2003 Gross Amortization Net
-------------- ------- -------------- -------
Developed technology $19,247 $(1,703) $17,544
Other intangible assets 3,407 (1,595) 1,812
------- ------- -------
Total $22,654 $(3,298) $19,356
======= ======= =======
(In thousands)
Accumulated
December 31, 2002 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
======= ======= =======
The following table presents the changes in the net balance of other
intangible assets during the three months ended March 31, 2003.
(In thousands)
Developed Other
Technology, Intangible
net Assets, net Total
----------- ----------- --------
December 31, 2002 $19,919 $2,063 $21,982
Amortization expense (263) (250) (513)
Change in estimate of fair value (1,771) -- (1,771)
Net currency translation
adjustment (341) (1) (342)
------- ------ --------
March 31, 2003 $17,544 $1,812 $19,356
======= ====== =======
Page 11 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
7. WARRANTY RESERVES
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. Warranty
reserves are included within accrued expenses on the Corporation's
Consolidated Balance Sheet. In accordance with Financial Accounting
Standards Board ("FASB") Interpretation No. 45, the following table
presents the changes in the Corporation's warranty reserves:
(In thousands)
--------------
Warranty reserves at January 1, 2003 $9,892
Provision for current year sales 182
Change in estimates to pre-existing warranties (189)
Current year claims (492)
Translation adjustment 15
------
Warranty reserves at March 31, 2003 $9,408
======
8. EARNINGS PER SHARE
Diluted earnings per share were computed based on the weighted average
number of shares outstanding plus all potentially dilutive common shares
issuable for the periods. A reconciliation of basic to diluted shares used
in the earnings per share calculation is as follows:
(In thousands)
---------------------
March 31, March 31,
2003 2002
--------- ---------
Basic weighted average shares outstanding 10,282 10,123
Dilutive effect of stock options and deferred stock
compensation 126 217
------ ------
Diluted weighted average shares outstanding 10,408 10,340
====== ======
The Corporation had antidilutive options outstanding of approximately
81,000 at March 31, 2003. As of March 31, 2002, there were no antidilutive
options outstanding.
9. STOCK COMPENSATION PLANS
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.
Page 12 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
Pro forma information regarding net earnings and earnings per share is
required by SFAS No. 123, as amended, 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 regarding the
number of options granted, market price of the grants, vesting
requirements, and the maximum term of the options granted by plan type is
included in the Corporation's 2002 Annual Report on Form 10-K.
The Corporation's pro forma results for the three months ended March 31,
2003 and 2002 are as follows:
(In thousands, except per share data) 2003 2002
------- -------
Net earnings:
As reported $14,122 $9,316
Pro forma expense (178) (205)
------- ------
Pro forma $13,944 $9,111
======= ======
Net earnings per share:
As reported:
Basic $ 1.37 $ 0.92
Diluted $ 1.36 $ 0.90
Pro forma:
Basic $ 1.36 $ 0.90
Diluted $ 1.34 $ 0.88
10. ENVIRONMENTAL MATTERS
The Corporation establishes a reserve for a potential environmental
liability when it concludes that a determination of legal liability is
probable based upon the advice of counsel. Such amounts reflect the
Corporation's estimate of the amount of that liability. If only a range of
potential liability can be estimated, a reserve will be established at the
low end of that range. Such reserves represent current values of
anticipated remediation not reduced by any potential recovery from
insurance carriers or through contested third-party legal actions and are
not discounted for the time value of money.
The Corporation has continued the operation of the ground water and soil
remediation activities at a previously owned facility located in
Wood-Ridge, New Jersey, which was sold in December 2001. The Corporation
remains responsible for this remediation in accordance with the sale
agreement.
The Corporation is joined with many other corporations and municipalities
as potentially responsible parties in a number of environmental cleanup
sites, which include but are not limited to the Caldwell Trucking landfill
superfund site, Fairfield, New Jersey; Sharkey landfill superfund site,
Parsippany, New Jersey;
Page 13 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
Pfohl Brothers landfill site, Cheektowaga, New York; Amenia landfill site,
Amenia, New York; and Chemsol, Inc. superfund site, Piscataway, New Jersey.
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. 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 that are
pre-existing and unknown.
The Corporation believes that the outcome of any of these matters would not
have a material adverse effect on the Corporation's results of operations
or financial condition.
11. SEGMENT INFORMATION
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: Flow Control,
Motion Control, and Metal Treatment.
(In thousands)
-------------------------------------------------------------------
Three Months Ended March 31, 2003
-------------------------------------------------------------------
Flow Motion Metal Segment Corporate Consolidated
Control Control Treatment Totals & Other Totals
------- ------- --------- -------- --------- ------------
Revenue from external customers $93,341 $57,040 $29,552 $179,933 $ -- $179,933
Intersegment revenues -- -- 132 132 (132) --
Operating income 14,318 5,090 3,751 23,159 186 23,345
(In thousands)
------------------------------------------------------------------------
Three Months Ended March 31, 2002
------------------------------------------------------------------------
Flow Motion Metal Segment Corporate Consolidated
Control Control Treatment (1) Totals & Other (2) Totals
------- ------- ------------- ------- ----------- ------------
Revenue from external customers $30,118 $42,252 $25,417 $97,787 $ -- $97,787
Intersegment revenues -- -- 109 109 (109) --
Operating income 3,656 6,782 2,760 13,198 (284) 12,914
(1) 2002 operating income for Metal Treatment includes non-recurring costs of
$451K associated with the relocation of a shot-peening facility.
(2) 2002 operating income for Corporate includes $202K of net environmental
remediation and administrative expenses.
Page 14 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(In thousands)
---------------------------------------------------------------------
Identifiable Assets
---------------------------------------------------------------------
Flow Motion Metal Segment Corporate Consolidated
Control Control Treatment Totals & Other Totals
-------- -------- --------- -------- --------- ------------
March 31, 2003 $322,548 $269,825 $136,593 $728,966 $106,396 $835,362
December 31, 2002 319,272 260,984 125,642 705,898 107,026 812,924
Reconciliation:
(In thousands)
---------------------
March 31, March 31,
2003 2002
--------- ---------
Total segment operating income $23,159 $13,198
Corporate and Administrative 186 (284)
Investment income, net 15 131
Pension income, net 525 2,254
Other expense, net (257) (59)
Interest expense (851) (193)
------- -------
Earnings before income taxes $22,777 $15,047
======= =======
12. COMPREHENSIVE INCOME
Total comprehensive income for the three-month periods ended March 31, 2003
and 2002 is as follows:
(In thousands)
---------------------
March 31, March 31,
2003 2002
--------- ---------
Net earnings $14,122 $ 9,316
Equity adjustment from foreign currency translations 229 (1,312)
------- -------
Total comprehensive income $14,351 $ 8,004
======= =======
The equity adjustment from foreign currency translation represents the
effect of translating the assets and liabilities of the Company's non-U.S.
entities. This amount is impacted year-over-year by foreign currency
fluctuations and by the acquisitions of foreign entities.
13. CONTINGENCIES AND COMMITMENTS
The Corporation's subsidiary located in Switzerland entered into sales
agreements with two European defense organizations which contain offset
obligations to purchase approximately 43.0 million Swiss francs of product
from suppliers of the two European countries over multi-year periods which
expire in 2005 and 2007. The agreements contain a penalty of 5-10% of the
unfulfilled
Page 15 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
obligation at the end of the term of the agreements. As of March 31, 2003,
the Corporation has accrued $0.6 million Swiss francs (approximately $0.4
million) included in current liabilities as a contingency against not
achieving compliance with these agreements.
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 $4.4 million) for the
issue of performance guarantees related to a long-term contract. As of
March 31, 2003, the amount of restricted cash under this facility was $2.9
million, of which $0.8 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.
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.
14. 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 adoption of
this statement did not have a material impact on the Corporation's results
of operation or financial condition.
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
Page 16 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
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 did not have a
material impact 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. This interpretation requires the issuer of a guarantee
to recognize a liability at the inception of that guarantee. The
Corporation is required to apply the interpretation to all guarantees
issued or modified after December 31, 2002. The disclosure requirements of
this interpretation are effective for financial statements of interim and
annual periods ending after December 15, 2002. The adoption of this
statement did not have a material impact on the Corporation's results of
operation or financial condition.
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 adoption of the new standard did not have a
material impact on the Corporation's results of operation or financial
condition.
15. SUBSEQUENT EVENTS
Acquisition
E/M Coatings
On April 2, 2003, the Corporation purchased 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. The purchase price was funded from credit available under the
Corporation's Short-Term Credit Agreement. Revenues of the purchased
business were approximately $26.0 million for the year ended December 31,
2002.
Page 17 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
The Corporation acquired six E/M Coatings facilities operating in Chicago,
IL; Detroit, MI; Minneapolis, MN; Hartford, CT; and North Hollywood and
Chatsworth, CA. Combined, these facilities are one of the leading providers
of solid film lubricant coatings in the United States. The E/M Coatings
facilities have the capability of applying over 1,100 different coatings to
impart lubrication, corrosion resistance, and certain cosmetic and
dielectric properties to selected components. Management intends to
incorporate the operations of E/M Coatings into the Corporation's Metal
Treatment Segment.
Debt
On May 1, 2003, the Corporation entered into an agreement with the bank
group to extend the expiration date of its Short-Term Credit Agreement from
May 9, 2003 to May 7, 2004.
Page 18 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 2
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
RESULTS of OPERATIONS
Sales for the first quarter of 2003 totaled $179.9 million, an increase of
84% from sales of $97.8 million for the first quarter of 2002. New orders
received for the current quarter of $206.0 million were up 114% over the orders
of $96.1 million for the first quarter of 2002. Backlog increased 6% to a new
record high of $509.3 million from $478.5 million at December 31, 2002. Sales
for the first quarter of 2003 as compared to the same period last year benefited
from the acquisitions completed in 2002 and 2003, which contributed $75.3
million to sales in the quarter. Sales adjusted to exclude those acquisitions
were $104.6 million in the first quarter of 2003, an increase of 7% over the
same period last year. Higher sales of flow control products to the nuclear
navy, the nuclear power generation, oil and gas, and European valve markets,
higher sales from our domestic ground defense business and from our shot peening
services, all contributed to the growth in base businesses. Sales to the
commercial aerospace OEM market were down for the quarter. Foreign exchange
translation also had a favorable impact on sales, contributing approximately 3%
to the sales increase from the prior year.
Operating income for the first quarter of 2003 totaled $23.3 million, an
increase of 81% from operating income of $12.9 million for the same period last
year. The increase is primarily attributable to the contributions of recent
acquisitions, which amounted to $10.0 million, and organic growth in some of our
base business. Operating income excluding 2002 acquisitions was $13.3 million, a
3% increase over the same period last year. Margin improvements in the Flow
Control and Metal Treatment segments and ongoing cost reduction programs have
more than offset the lower margins experienced in the Motion Control segment,
which were primarily due to lower sales volume and unfavorable sales mix.
Net earnings for the first quarter of 2003 totaled $14.1 million, or $1.36 per
diluted share, which represents an increase of 52% over the net earnings for the
first quarter of 2002 of $9.3 million, or $0.90 per diluted share.
Operating Performance:
Flow Control
The Corporation's Flow Control segment posted sales of $93.3 million for the
first quarter of 2003, an increase of 210% when compared with $30.1 million in
the first quarter of 2002. Acquisitions represented $56.3 million of this
increase, while the balance of the segment's businesses increased $6.9 million,
or 23%. The organic growth was driven by stronger sales of products for both the
traditional and non-traditional naval markets, gas and oil and commercial power
generation markets, and higher valve sales in Europe.
Page 19 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
Operating income for the first quarter of 2003 was $14.3 million compared to
$3.7 million for the same period last year. Acquisitions made in 2002 generated
operating income of $9.2 million, while the balance of the segment businesses
improved $1.4 million, or 39%, over the comparable period last year. Margin
improvements on flow control products for commercial nuclear applications,
European valve, gas and oil, and heavy truck markets, as well as overall cost
reduction programs, contributed to the favorable operating income performance.
New orders received for the Flow Control segment totaled $124.2 million in the
first quarter of 2003, representing an increase of 203% from orders received in
the first quarter of 2002. Approximately 75% of the new orders received reflect
the contributions from the 2002 acquisitions. Backlog increased 10% to $335.1
million from $304.3 million at December 31, 2002.
Motion Control
Sales for the Corporation's Motion Control segment improved 35% to $57.0 million
in the first quarter of 2003, from $42.3 million in the first quarter of 2002,
primarily due to the contribution of the acquisitions of Collins Technologies in
February 2003 and Penny and Giles and Autronics in April 2002. Acquisitions
contributed $18.1 million to the sales improvement. Excluding the acquisitions,
the base business experienced a decline of 8% from the first quarter of 2002
mainly due to the reduction in commercial aircraft production and a slight drop
in the European ground defense business. These lower sales were partially offset
by stronger domestic ground defense sales primarily related to the expedited
deliveries of the Bradley fighting vehicle and an increase in sales of military
aerospace products for both OEM and spare parts.
Operating income for the first quarter of 2003 was $5.1 million, a decrease of
25% from the same period last year of $6.8 million. Lower margins were driven by
lower sales volume as mentioned above, unfavorable sales mix, and higher than
planned research development costs for our European ground defense business and
a portion of our electronics businesses. The contributions from our acquisitions
of $1.3 million partially offset these declines. The business segment also
benefited from favorable currency translation of approximately $0.3 million as
compared to the first quarter of 2002.
New orders received for the Motion Control segment totaled $51.9 million in the
first quarter of 2003, an increase of 75% from orders received in the first
quarter of 2002. Approximately 27% of the new orders received reflect the
contributions from the 2002 and 2003 acquisitions. Backlog decreased slightly to
$172.9 million at March 31, 2003 from $173.2 million at December 31, 2002.
Page 20 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
Metal Treatment
Sales for the Corporation's Metal Treatment segment totaled $29.6 million for
the first quarter of 2003, up 16% when compared with $25.4 million in the first
quarter of 2002. The improvement was mainly due to higher sales of shot peening
services, especially in Europe, which primarily services the aerospace and
automotive industries, and from the contributions from the 2002 and 2003
acquisitions. In addition, sales from our new laser peening technology also
contributed to the higher sales for the quarter. Foreign exchange translation
had a favorable impact on sales.
Operating income for the first quarter of 2003 increased 36% to $3.8 million
from $2.8 million for the same period last year. The increase was due to higher
sales volumes as well as an overall improvement in the operating margins. Margin
improvements were experienced in North America for shot-peening and
heat-treating operations. Margins for the quarter also benefited from favorable
currency translation of approximately $0.5 million.
New orders received for the Metal Treatment segment totaled $30.0 million in the
first quarter of 2003, increasing 18% from orders received in the first quarter
of 2002. Backlog increased 29% to $1.2 million from $1.0 million at December 31,
2002.
On April 2, 2003, the Metal Treatment segment purchased selected assets of E/M
Engineered Coatings Solutions ("E/M Coatings"). E/M Coatings is one of the
leading providers of solid film lubricant coatings in the United States with
revenues of approximately $26.0 million for the year ended December 31, 2002.
The E/M Coatings facilities have the capability of applying over 1,100 different
coatings to impart lubrication, corrosion resistance, and certain cosmetic and
dielectric properties to selected components.
Corporate and Other Expenses
The Corporation had non-segment operating income of $0.2 million in the first
quarter of 2003 compared with a non-segment operating loss of $0.3 in the same
period of the prior year. Operating income in 2003 was derived mainly from
collections on a settlement from a 2002 lawsuit, whereby the Corporation was
awarded damages associated with our Wood-Ridge Business Complex facility, which
were deemed uncollectible at the time of the settlement.
Non-Operating Revenues/Expense
For the first quarter of 2003, the Corporation recorded other non-operating net
revenues totaling $0.3 million, compared with $2.3 million for the first quarter
of 2002. The decrease was primarily caused by lower pension income, primarily
due to lower investment returns on the Corporation's pension assets and lower
interest rates. The Corporation expects this trend to continue during the
remainder of 2003.
Page 21 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
CHANGES IN FINANCIAL CONDITION:
Liquidity and Capital Resources:
The Corporation's working capital was $137.7 million at March 31, 2003, a slight
increase from the working capital at December 31, 2002 of $137.2 million. The
ratio of current assets to current liabilities was 1.8 to 1 at March 31, 2003
and December 31, 2002.
Cash and cash equivalents totaled $41.7 million in the aggregate at March 31,
2003, down 13% from $47.7 million at the prior year-end. In addition to the
impact of the two acquisitions completed during the first quarter of 2003,
working capital changes were highlighted by a net increase to accounts
receivables and inventory of $6.8 million due to higher actual and forecasted
sales, offset by an increase to income taxes payable of $3.7 million due to the
timing of income tax payments. Days sales outstanding at March 31, 2003 was
unchanged at 54 days as compared to December 31, 2002. Inventory turns were 5.8
for the three-months ended March 31, 2003 as compared to 4.3 during the same
period a year ago.
At March 31, 2003, the Corporation had two credit agreements aggregating $225.0
million with a group of eight banks. The Revolving 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, and 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 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 March 31, 2003, 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 March 31, 2003 were $140.6 million compared with cash
borrowings of $6.5 million at March 31, 2002 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 March 31, 2003 was $64.4 million. Please see Note 15
to the Corporation's Consolidated Financial Statements included in Part 1, Item
1 of this quarterly report for information regarding the extension of the
Short-Term Credit Agreement.
Page 22 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
Industrial revenue bonds, which are collateralized by real estate, machinery,
and equipment, were $14.4 million at March 31, 2003 and $13.4 million at March
31, 2002. The loans outstanding under the Revolving Credit Agreement and
Industrial Revenue Bonds had variable interest rates averaging 2.1% and 1.8% for
the first quarter of 2003 and 2002, respectively.
During the first quarter of 2003, internally available funds were adequate to
meet capital expenditures of $9.8 million. Capital expenditures incurred during
the first quarter were for new and replacement machinery and equipment within
the business segments and for the expansion of new product lines. The
Corporation is expected to make additional capital expenditures of approximately
$40 million during the balance of the year on machinery and equipment for
ongoing operations at the business segments, expansion of existing facilities,
and investments in new product lines and facilities. Included in the capital
expenditures during the first quarter of 2003 was $1.9 million from the newly
acquired businesses in 2003 and 2002.
Cash generated from operations is considered adequate to meet the Corporation's
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.
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 and title and risk of loss have transferred 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
which 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
Page 23 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
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
Page 24 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
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 pension and other postemployment benefits. The most
significant of these assumptions include 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.
For the three months ended March 31, 2003, the Corporation recognized pension
income from the Curtiss-Wright Pension Plan of approximately $0.5 million
because 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 March 31, 2003, the
Corporation had a prepaid pension asset of approximately $76.6 million and
accrued pension and other postretirement costs of $2.2 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. Expenses
incurred in the first quarter of 2003 related to the EMD plans were
approximately $1.8 million. Additionally, the Corporation made a $2.5 million
contribution to the EMD Pension Plan on April 15, 2003.
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
Page 25 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
will be incurred to remediate the site, and changes in technology related to
environmental remediation.
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 2003, the fair value of assets acquired and
liabilities assumed through acquisitions were estimated to be $19.3 million and
$1.0 million, respectively. The assigned initial fair value to these
acquisitions are tentative and may be revised prior to finalization, which is to
be completed within a reasonable period, generally within one year of
acquisition.
Goodwill: As a result of acquisitions made, the Corporation has approximately
$195.6 million in goodwill as of March 31, 2003. 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 an
event occurs or if 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 book value of the asset and its fair value. Any such impairment
would be recognized in full in the reporting period that it has been identified.
Other intangible assets: Other intangible assets are the result of acquisitions
and consist primarily of purchased 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 estimated 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.
Recent Developments
Please refer to Note 15 of the Corporation's Consolidated Financial Statements
in Part 1, Item 1 of this quarterly report.
Page 26 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Corporation's market risk during the
three months ended March 31, 2003. Information regarding market risk and market
risk management policies is more fully described in item "7A. Quantitative and
Qualitative Disclosures about Market Risk" of the Corporation's Annual Report on
Form 10-K for the year ended December 31, 2002.
PART I - ITEM 4
CONTROLS AND PROCEDURES
During the 90-day period prior to the filing date of this report, management,
including the Company's Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon, and as of the date of that
evaluation, the Principal Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were effective, in all
material respects, to ensure that information required to be disclosed in the
reports the Company files and submits under the Exchange Act is recorded,
processed, summarized, and reported as and when required.
There have been no significant changes in the Company's internal controls, or in
other factors that could significantly affect internal controls, subsequent to
the date the Chief Executive Officer and Chief Financial Officer completed their
evaluation.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, this Quarterly Report on
Form 10-Q does contain "forward-looking" information within the meaning of
Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act
of 1934. Examples of forward-looking information include, but are not limited
to, (a) projections of or statements regarding return on investment, future
earnings, interest income, other income, earnings or loss per share, investment
mix and quality, growth prospects, capital structure, and other financial terms,
(b) statements of plans and objectives of management, (c) statements of future
economic performance, and (d) statements of assumptions, such as economic
conditions underlying other statements. Such forward- looking information can be
identified by the use of forward looking terminology such as "believes,"
"expects," "may," "will," "should," "anticipates," or the negative of any of the
foregoing or other variations thereon or comparable terminology, or by
discussion of strategy. No assurance can be given that the future results
described by the forward-looking information will be achieved. Such statements
are subject to risks, uncertainties, and other factors which are outside our
control that could cause actual results to differ materially from future results
expressed or implied by such forward- looking information. Readers are cautioned
not to put undue reliance on such forward-looking information. Such statements
in this Report include, without limitation, those contained in Part I, Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Notes to the Consolidated Financial
Page 27 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
Statements including, without limitation, the Environmental Matters Note.
Important factors that could cause the actual results to differ materially from
those in these forward-looking statements include, among other items, (i) a
reduction in anticipated orders, (ii) change in governmental spending, (iii) an
economic downturn, (iv) unanticipated environmental remediation expenses or
claims, (v) changes in the need for additional machinery and equipment and/or in
the cost for the expansion of the Corporation's operations, (vi) changes in the
competitive marketplace and/or customer requirements, (vii) an inability to
perform customer contracts at anticipated cost levels, and (viii) other factors
that generally affect the business of companies operating in the Corporation's
Segments.
PART II - OTHER INFORMATION
Item 6. EXHIBITS and REPORTS on FORM 8-K
(a) Exhibits
Exhibit 4.1 Extension of Short-Term Credit Agreement dated May
1, 2003 between Registrant, the Lender Parties
thereto from time to time, the Issuing Banks
referred to herein, and The Bank of Nova Scotia.
Exhibit 99.1 Certification of Martin R. Benante, Chairman and
CEO, Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, filed herewith
Exhibit 99.2 Certification of Glenn E. Tynan, Chief Financial
Officer, Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith
(b) Reports on Form 8-K
1. On March 26, 2003, the Company filed a report on Form
8-K reporting under Item 4, the Change of the
Corporation's certifying accountants.
2. On May 1, 2003 filed a Current Report on Form 8-K,
dated April 30, 2003, (a) reporting under Item 12
thereof (but provided under Item 9 pursuant to SEC
interim filing guidance for Item 12) the results of the
Company's operations for the quarter ended March 31,
2003, and (b) filing under Item 7 thereof the related
press release.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CURTISS-WRIGHT CORPORATION
------------------------------------
(Registrant)
By: /s/ Glenn E. Tynan
---------------------------------
Glenn E. Tynan
Vice President Finance / C.F.O.
Dated: May 14, 2003
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CERTIFICATIONS
I, Martin R. Benante, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Curtiss-Wright
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant 's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most
Page 30 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Martin R. Benante
- -----------------------
Chief Executive Officer
I, Glenn E. Tynan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Curtiss-Wright
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant , including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and
Page 31 of 32
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Glenn E. Tynan
- -----------------------
Chief Financial Officer
Page 32 of 32