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CURTISS
WRIGHT
CURTISS-WRIGHT CORPORATION
4 BECKER FARM ROAD
ROSELAND, NEW JERSEY 07068
WWW.CURTISSWRIGHT.COM
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CW CW.B
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NYSE NYSE 600
CURTISS-WRIGHT CORPORATION ANNUAL REPORT 2003
[GRAPHIC]
An F/A-22 fighter jet slices
across the sky.
--------------------------------
A nuclear submarine
descends far below the
ocean's surface.
--------------------------------
An oil rig commands
the horizon off the coast
of Louisiana.
--------------------------------
A rescue helicopter lands
safely at a hospital in Seattle.
Curtiss-Wright is there.
CONTENTS
22 LETTER TO SHAREHOLDERS
28 2003 ACQUISITIONS
29 AT A GLANCE
30 QUARTERLY RESULTS OF OPERATIONS
30 CONSOLIDATED SELECTED FINANCIAL DATA
31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
42 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
43 REPORT OF THE CORPORATION
44 REPORT OF INDEPENDENT ACCOUNTANTS
45 CONSOLIDATED FINANCIAL STATEMENTS
49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
72 CORPORATE INFORMATION
FINANCIAL HIGHLIGHTS
(In thousands, except per share data; unaudited) 2003 2002 2001
PERFORMANCE:
Net Sales $ 746,071 $ 513,278 $ 343,167
Earnings before interest, taxes, depreciation,
amortization and pension income 119,435 85,030 107,069
Normalized earnings before interest, taxes,
depreciation, amortization and pension income 119,435 80,874 68,470
Net earnings 52,268 45,136 62,880
Normalized net earnings(1) 52,268 41,642 40,633
Free cash flow(4) 50,266 28,875 58,260
Normalized free cash flow(4) 50,266 25,381 36,013
Diluted earnings per share(3) 2.50 2.16 3.07
Normalized diluted earnings per share(3) 2.50 2.00 1.99
Return on sales(2) 6.7% 9.1% 19.0%
Normalized return on sales(2) 6.7% 8.3% 12.3%
Return on capital(2) 7.6% 8.3% 18.3%
Normalized return on capital(2) 7.6% 7.6% 11.8%
New orders 743,115 478,197 326,475
Backlog at year-end 505,519 478,494 242,257
YEAR-END FINANCIAL POSITION
Working capital $ 238,640 $ 137,237 $ 149,231
Current ratio 2.8 to 1 1.8 to 1 3.0 to 1
Total assets 973,665 810,102 500,428
Stockholders' equity 478,881 411,228 349,954
Stockholders' equity per share(3) 23.04 20.02 17.37
OTHER YEAR-END DATA
Depreciation and amortization $ 31,327 $ 18,693 $ 14,734
Capital expenditures 33,329 34,954 19,354
Shares of stock outstanding at December 31(3) 20,785,856 20,544,586 20,149,450
Number of registered stockholders 7,768 8,034 9,898
Number of employees 4,655 4,244 2,625
DIVIDENDS PER SHARE $ 0.32 $ 0.30 $ 0.27
(1) Earnings have been adjusted to exclude the effects of environmental
insurance settlements, postretirement benefits and postemployment costs,
recapitalization costs, gains on sale of real property, net nonrecurring
benefit gain, facility consolidation costs, a release of indemnification
reserve, and a net legal settlement.
(2) The performance ratios for all years have been shown on a pro-forma basis,
excluding the results of the acquired companies in those respective years.
(3) Share and per share data for all years have been adjusted to reflect the
2-for-1 stock split paid on December 17, 2003.
(4) Free cash flow is defined as net earnings plus depreciation and
amortization, less capital expenditures.
[BAR CHART]
NET SALES ($000S)
SALES PER EMPLOYEE ($)
NET SALES $746,071
SALES PER EMPLOYEE $168,654
[BAR CHART]
OPERATING INCOME ($000S)
REPORTED $89,330
NORMALIZED $89,330
[BAR CHART]
NET EARNINGS ($000S)
REPORTED $52,268
NORMALIZED $52,268
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
CARL G. MILLER
Former Chief Financial Officer of TRW, Inc.
WILLIAM B. MITCHELL
Director, Mitre Corporation
Former Vice-Chairman of Texas Instruments Inc.
JOHN R. MYERS
Former 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
EDWARD BLOOM
Vice President
GLENN E. TYNAN
Vice President - Finance, Treasurer and
Chief Financial Officer
MICHAEL J. DENTON
Vice President, Corporate Secretary
and General Counsel
KEVIN M. MCCLURG
Corporate Controller
Design: DeSantis Breindel/NYC
Selected Photography: Philipp Scholz Rittermann, Jan Press
For 75 years, our products have been a critical part of the modern world. We
provide essential components to several of the largest, most vital industries in
the world, including defense, aerospace and energy. Our highly engineered
value-added products are world renowned for their advanced technology and
unsurpassed reliability.
Whenever a jet lands safely on an aircraft carrier...
a bomber door opens with split-second reliability...
a high-speed train smoothly executes a hairpin turn along the side of a
mountain...it's a safe bet that Curtiss-Wright is there.
[GRAPHIC]
An aircraft carrier
in the Pacific Ocean.
[GRAPHIC]
We're there.
ON EVERY NUCLEAR-POWERED AIRCRAFT CARRIER COMMISSIONED BY THE US NAVY,
CURTISS-WRIGHT'S PUMPS, VALVES AND GENERATOR SYSTEMS ENSURE THE RELIABILITY AND
SAFETY OF THE PROPULSION SYSTEM. LANDING ON THE RUNWAY OF A 1,000-FOOT AIRCRAFT
CARRIER, AN F-14 IS GUIDED TO SAFETY BY WING FLAPS CONTROLLED BY
CURTISS-WRIGHT'S ACTUATION SYSTEM. AS THE AIRCRAFT IS HARNESSED ON THE RUNWAY
AND LAUNCHED BACK INTO THE SKY, THE INTEGRITY OF THE CATAPULT SYSTEM IS ENSURED
BY CURTISS-WRIGHT'S METAL TREATMENT SERVICES. IN MISSION-CRITICAL DEFENSE
APPLICATIONS FOR SEA, AIR AND LAND, CURTISS-WRIGHT IS THERE.
[GRAPHIC]
WEAPONS BAY DOOR ACTUATION SYSTEMS
The F/A-22 Raptor is the US Air Force's premier next-generation air fighter. The
F/A-22 was developed to counter the increased sophistication and threat of
hostile air forces and integrated air systems in use around the world. The
F/A-22 has unprecedented fighter and attack capabilities with its balanced
design of stealth, supercruise speed and extreme agility, along with advanced
integrated avionics and a pilot-friendly cockpit.
The F/A-22 aircraft gains much of its stealth capability from its smooth,
streamlined shape and by storing its weapons internally rather than on external
wing pods. A key component of this aircraft is the weapons bay doors, which must
open in order to deploy a missile. While the doors are opening and closing, the
aircraft's stealth effect is compromised. Curtiss-Wright's actuation systems
reliably open and close the main and side weapons bay doors in the blink of an
eye, thereby maximizing mission effectiveness and pilot safety. Curtiss-Wright
also supplies the entire leading-edge slat actuation and drive systems for the
F/A-22 program.
4 CURTISS-WRIGHT AND SUBSIDIARIES
[LINE CHART]
Industry Revenue
DEFENSE
Market Overview: Defense
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Within the defense market, Curtiss-Wright provides the most technologically
advanced flow control and motion control products, and metal treatment services
to naval, aerospace and ground defense programs. Our products manage the flow of
liquids on a nuclear submarine and control the lift, flight and landing of
aircraft. Our metal treatment services enhance the performance of critical jet
engine and aircraft structural components.
Our world-class reputation is built on engineering excellence, as demonstrated
by the technical innovations we develop to solve customer needs, and our
precision manufacturing that ensures the superior performance of our products.
As a result, we are the sole-source supplier of hermetically sealed valves,
coolant pumps, motors and control systems for the US Navy nuclear submarine and
aircraft carrier programs. We are also the designer and sole-source supplier of
the largest, quietest and most power-dense generators that power the Navy's
latest classes of nuclear submarines and aircraft carriers. Curtiss-Wright is
extending these motor and generator technologies to other critical applications,
including advanced aircraft arresting gear (AAG) and electro-magnetic aircraft
launching systems (EMALS) that capture and relaunch aircraft on the
next generation of aircraft carriers.
In military aerospace, Curtiss-Wright is a leading supplier of flight controls,
position sensors, control electronics, fire detection and power conversion
systems. We also provide sophisticated aiming, stabilization and suspension
systems for ground combat vehicles.
The defense market provides significant growth opportunities for application of
Curtiss-Wright technologies, products and services, including new construction
of submarines and aircraft carriers, retrofits for aircraft refueling systems,
development programs for the F/A-22 and Joint Strike Fighter, and various ground
combat vehicle programs.
CURTISS-WRIGHT AND SUBSIDIARIES 5
[GRAPHIC]
A tank in the Middle East.
[GRAPHIC]
We're there.
AS A MILITARY TANK CROSSES THE LANDSCAPE, CURTISS-WRIGHT'S TARGET ACQUISITION,
AIMING AND SITE SELECTION COMPONENTS KEEP ITS WEAPONS ON TARGET AND STABILIZED
REGARDLESS OF THE TERRAIN OR SPEED. CURTISS-WRIGHT HAS PROVIDED THOUSANDS OF
MISSION-CRITICAL, HIGH-PERFORMANCE ELECTRONIC SYSTEMS AND SUBSYSTEMS FOR THE
BRADLEY FIGHTING VEHICLE, ABRAMS TANK AND OTHER ARMORED VEHICLES. OPERATING
UNDER THE MOST DEMANDING CONDITIONS, CURTISS-WRIGHT'S EMBEDDED ELECTRONIC
SYSTEMS MAXIMIZE THE SAFETY AND SUPERIORITY OF COMBAT AND TACTICAL VEHICLES,
BOTH IN THE AIR AND ON THE GROUND. WHETHER DEVELOPING TECHNOLOGIES FOR
TOMORROW'S FUTURE COMBAT SYSTEMS OR SUPPORTING OUR ARMED FORCES' LEGACY
PROGRAMS, CURTISS-WRIGHT IS THERE.
[GRAPHIC]
EMBEDDED COMPUTER SYSTEMS
The US Air Force's Global Hawk is a high-altitude, long-endurance unmanned
aerial reconnaissance aircraft designed to provide military field commanders
with high-resolution photographs of large geographic areas. Advanced technology
sensors, with a range greater than halfway around the world, and extended flight
capabilities enable the Global Hawk to provide the military with essential
intelligence without risking lives. Considered the future of air defense, the
Global Hawk is one of a number of next-generation unmanned aerial vehicles
(UAVs) expected to significantly increase the effectiveness and efficiency of
combat operations. Its ability to quickly gather and transmit real-time
surveillance information dramatically improves the mission safety of military
personnel in the air and on the ground.
The superior performance of the Global Hawk system is achieved through its
high-integrity, embedded computer systems. The Global Hawk's flight control,
sensors, mission operations and navigation are managed by two Curtiss-Wright
Integrated Main Mission Management Computers that act essentially as the brain
of the aircraft. The speed, reliability and accuracy of the computers allow the
Global Hawk to fly for over 30 hours at altitudes greater than 50,000 feet and
land on the centerline of its destination runway, all without human
intervention. The advanced technological capabilities of the Global Hawk system
will significantly enhance the US military's ability to succeed in all types of
operations, from sensitive peace-keeping missions to full-scale combat.
8 CURTISS-WRIGHT AND SUBSIDIARIES
[LINE CHART]
Industry Revenue
DEFENSE ELECTRONICS
Market Overview: Defense Electronics
- --------------------------------------------------------------------------------
As the next generation of military defense equipment is developed, electronic
systems will enhance the strategic mobility of military operations. Conventional
combat vehicles are being systematically replaced with lighter, more
maneuverable models through programs such as the US Army's Future Combat System
(FCS). A highly integrated structure of manned and unmanned air and ground
vehicles, FCS will provide an interlinked, wireless network to create a unified
combat force. This will enable rapid communication and decisive action across
the full spectrum of military operations.
Curtiss-Wright specializes in the design and manufacture of high-performance,
embedded electronic subsystems, employing state-of-the-art real-time technology
to perform mission-critical operations and communications functions. Our
products enable advanced processing in all facets of the military - from
upgrading the performance of older platforms to advancing military
reconnaissance infrastructure worldwide. Applications include ground vehicles,
surface and subsurface naval platforms, tactical and strategic aircraft, and
space vehicles and platforms.
Over the next decade, there will be ample opportunities to participate in the
growth of the worldwide defense electronics market. Projected to be among the
fastest-growing portions of the US defense budget, the electronics market
represents just over 20 percent of the budget for 2004. Vehicle electronics
(Vetronics) is expected to grow from $318 million in 2002 to over $1.9 billion
over the next five years, with 70 percent coming from new programs such as FCS.
CURTISS-WRIGHT AND SUBSIDIARIES 9
[GRAPHIC]
A commercial jet high above North America.
[GRAPHIC]
We're there.
WHENEVER A COMMERCIAL AIRPLANE TAKES OFF AND SAFELY LANDS AT ITS DESTINATION,
CURTISS-WRIGHT PROVIDES THE INNOVATIVE TECHNOLOGIES, HIGH-PERFORMANCE PRODUCTS
AND SYSTEMS THAT OPERATE THE AIRCRAFT FLIGHT CONTROL SURFACES AND COMMUNICATE
VITAL DATA ON FLIGHT CONDITIONS WITHIN AND SURROUNDING THE AIRCRAFT. FROM
PASSENGER JETS TO RESCUE HELICOPTERS, CURTISS-WRIGHT IS THERE SUPPORTING THE
FULL SPECTRUM OF AVIATION PLATFORMS.
[GRAPHIC]
LASER PEENING TECHNOLOGY
A laser beam impacts the surface of a metal part with the instantaneous power
output of a nuclear power plant. The shock wave created by the laser beam
compresses the metal's surface, strengthening its resistance to cracking and
corrosion. This is the essence of laser peening technology, which Curtiss-Wright
recently commercialized with great success.
Hundreds of commercial aircraft are now flying with critical parts of their jet
engines laser peened to improve their durability and reliability. Laser peening
creates a layer of compressive strength in the areas of the part that are most
vulnerable to failure. Estimated maintenance savings for these aircraft are
significant. As new aircraft are designed, our laser peening technology will
enable engineers to design parts that are safer, lighter and perform more
efficiently and economically.
In addition to the current applications on jet engine components, future uses
for laser peening are projected for components used in aerospace structures,
nuclear power generation, hazardous waste disposal, high-performance race cars,
medical implants, and oil and gas drilling. Curtiss-Wright developed its laser
peening technology in partnership with Lawrence Livermore National Laboratory
and retains the exclusive worldwide rights to the intellectual property
necessary for its use on commercial components.
12 CURTISS-WRIGHT AND SUBSIDIARIES
[LINE CHART]
Industry Revenue
COMMERCIAL AEROSPACE
Market Overview: Commercial Aerospace
- --------------------------------------------------------------------------------
Every day thousands of commercial airliners around the world safely take off and
land with the help of Curtiss-Wright. Our flight control actuation devices,
which extend and retract a wing's leading-edge slats and trailing-edge flaps,
allow an airliner to take off and land at lower speeds, thereby increasing
passenger safety and reducing runway lengths. Our metal treatment services
include precision shaping of a wing's aero-dynamic curvature, coatings for
protecting structural fasteners, and shot peening to strengthen critical
components - all of which reduce costs for manufacturing, maintenance and
repairs.
The commercial aerospace market has experienced a severe downturn over the past
three years. Geopolitical conflict, public health epidemics and economic
recession have all negatively impacted the global airline industry. Improvements
in the economy, already witnessed in the United States, and a greater demand for
capacity globally are anticipated to positively impact air travel and lead to an
industry recovery.
Curtiss-Wright continues to value its long-term commitment to the commercial
aerospace market. Our advanced technologies, precision manufacturing
capabilities, low-cost structure and long-standing customer relationships have
been and will remain a critical element of our success in this market. During
the past several years, Curtiss-Wright has aggressively managed its cost base
and is well positioned to benefit from the anticipated upturn in new commercial
aircraft development programs.
CURTISS-WRIGHT AND SUBSIDIARIES 13
[GRAPHIC]
A nuclear power plant in Europe.
[GRAPHIC]
We're there.
EVERY DAY, THE TELEVISIONS, REFRIGERATORS, COMPUTERS, TOASTERS, LAMPS AND MANY
OTHER APPLIANCES IN MILLIONS OF HOMES ARE POWERED SAFELY USING ELECTRICITY
PRODUCED BY NUCLEAR POWER PLANTS. CURTISS-WRIGHT PROVIDES HIGHLY ENGINEERED
VALVES, PUMPS, INSTRUMENTATION AND SOFTWARE SYSTEMS TO ENSURE THAT NUCLEAR POWER
PLANTS OPERATE AT THE ULTIMATE LEVEL OF SAFETY, EFFICIENCY AND ENVIRONMENTAL
COMPLIANCE. FROM DAILY PLANT OPERATION TO PLANT UPGRADES AND NEW CONSTRUCTION,
CURTISS-WRIGHT IS THERE.
[GRAPHIC]
ADVANCED PUMP TECHNOLOGY
As demand increases for locally produced, environmentally friendly energy
sources, the recognition of nuclear power as a clean, economic and independent
energy source is attracting new development. Curtiss-Wright is at the forefront
in developing advanced products for the nuclear power industry, including pumps,
motors, valves, control rod drive mechanisms, and instrumentation and controls
for existing and next-generation commercial nuclear power plants. Our
technologies provide solutions to obsolescence issues, ensuring continued high
levels of plant safety and efficiency.
Curtiss-Wright is a leading supplier of reactor coolant pumps and motors for the
majority of the commercial nuclear pressurized water reactors worldwide.
Curtiss-Wright first introduced these pumps over 50 years ago and continues to
be a world leader in reactor coolant pump technology, as well as a major
supplier of other critical components to the commercial nuclear power industry.
Curtiss-Wright's broad range of core competencies in engineering, analysis,
manufacturing and testing are being applied in the commercial nuclear power
industry to achieve improvements in operation and maintenance processes, as well
as to address the emerging focus of the industry to extend the life and increase
power output of existing plants. Curtiss-Wright also plays a key role in
maintaining the supply of critical components to the industry that are no longer
available from original equipment manufacturers.
16 CURTISS-WRIGHT AND SUBSIDIARIES
[LINE CHART]
Industry Revenue
NUCLEAR POWER
Market Overview: Nuclear Power
- --------------------------------------------------------------------------------
Today, nuclear power plants - the second largest source of electricity in the
United States - supply approximately 20 percent of the nation's electricity
needs. Nuclear power plants provide the lowest cost energy source. They are
environmentally friendly and minimally impact water, land, habitat, species and
air resources. The safety of people and the environment is the essence of
Curtiss-Wright's advanced technologies for the nuclear power industry.
Curtiss-Wright's valves, pumps and actuators control the flow of liquids, such
as water used in the cooling systems of nuclear reactors. Curtiss-Wright is the
leading source of hermetically sealed valves that meet the US Nuclear Regulatory
Commission's technical specifications for use in nuclear reactors.
Curtiss-Wright's Digital Process Control Technology is helping nuclear power
plants address growing concerns over obsolete analog instrumentation.
Because of its attractiveness as an energy source, nuclear power is projected to
represent a growing share of the developing world's electricity consumption over
the next 20 years. License renewal is expected for a majority of the 103 US
nuclear power plants and new plant construction is expected to increase nuclear
capacity globally. We are committed to providing advanced technologies and
innovative solutions to meet the unique nuclear regulatory requirements of
operating plants, as well as the construction of new power plants
internationally.
CURTISS-WRIGHT AND SUBSIDIARIES 17
[GRAPHIC]
An offshore drilling platform
in the North Sea.
[GRAPHIC]
We're there.
AS EXPLORATION FOR OIL AND GAS EXPANDS INTO MORE REMOTE LOCATIONS AND DEEPER
WATERS, CURTISS-WRIGHT DESIGNS TECHNOLOGICALLY ADVANCED VALVES TO MEET THE
CHALLENGES OF SUCH HIGH-PRESSURE, CORROSIVE ENVIRONMENTS. OUR ENGINEERING
EXPERTISE AND PRECISION PROCESSING PRODUCE VALVES WITH THE TOLERANCE TO PERFORM
IN EXTREMELY HARSH CONDITIONS SUCH AS THE NORTH ATLANTIC, BERING SEA AND THE
EQUATORIAL WATERS OFF THE AFRICAN COAST. IN EXPLORATION, PRODUCTION AND
PROCESSING OF GLOBAL ENERGY RESOURCES, CURTISS-WRIGHT IS THERE.
[GRAPHIC]
DELTAGUARD(R) COKE-DRUM UNHEADING DEVICE
One primary method of refining crude oil into gasoline, jet fuel and diesel
requires a process known as delayed coking. Delayed coking is a thermal cracking
process achieved through heating crude oil to an extremely high temperature and
pumping it into large pressurized drums. This process breaks the heavy oil into
lighter, more valuable fluids which are vaporized and removed, while the solid,
unconverted coal-like byproduct called coke remains. Unheading, or opening the
drum to remove the coke, exposes the drum contents to the atmosphere. The
coke-drum unheading process has the potential to be one of the most dangerous
refinery operations and has been the cause of severe accidents.
Curtiss-Wright's advanced technology solution, the DeltaGuard(R) coke-drum
unheading device, provides the first fully automated, inherently safe system and
is quickly becoming the global industry standard. By creating a completely
sealed connection from the bottom of the coke-drum down through the discharge
chute, the DeltaGuard(R) completely isolates personnel and equipment from
exposure to hot coke, water and steam. In addition to safety, the innovative
design provides significant economic advantages by minimizing operation and
maintenance costs, as well as enabling refiners to process less expensive grades
of crude oil.
Curtiss-Wright installed the first DeltaGuard(R) at the Chevron Salt Lake City
facility in September 2001 and has since installed units on all 14 Chevron
coke-drums in the United States, including the El Segundo Refinery where the
above photo was taken. Since its recent introduction, the DeltaGuard(R) has
captured in excess of 10% of the total unheading device market in the United
States. Curtiss-Wright is also currently manufacturing unheading devices for
numerous international refineries.
20 CURTISS-WRIGHT AND SUBSIDIARIES
[LINE CHART]
Industry Revenue
OIL + GAS
Market Overview: Oil and Gas
- --------------------------------------------------------------------------------
World energy consumption is projected to reach the equivalent of nearly 300
million barrels of oil per day by 2020, an increase of approximately 40 percent.
Oil and gas will continue to be the primary resource, accounting for 60 percent
of the energy supply worldwide. To meet increasing demand, the oil and gas
industry is developing reserves in increasingly harsh environments, such as deep
water, and increasing supply from sources such as liquid petroleum gas (LPG).
Offshore floating platforms, subsea systems and LPG facilities all operate under
extreme conditions that require highly engineered products to optimize
performance and mitigate failure from corrosion or pressure.
Curtiss-Wright is one of the world's leading manufacturers of pressure-relief
valves used to prevent over-pressurization of vessels, pipelines and other
critical industrial equipment. Our gate, ball and triple offset butterfly valves
continue to provide the highest performance for severe service applications. We
continuously bring new products to market, such as our advanced material
modulating pilot-operated relief valve and subsea multiphase pump. And our
iPRISM(TM) software is revolutionizing plant management, documentation and
regulatory compliance.
Capital spending by the process industry is projected to increase in the next
two to five years to meet increasing demand and environmental regulations.
Primarily, expenditures will be made to retrofit existing facilities with
improved equipment, materials upgrades and technologies to increase plant
flexibility, reliability, production and profitability. Curtiss-Wright's
extensive line of highly engineered, technologically advanced valves and related
products are well positioned to support these future requirements of the oil and
gas and related industries.
CURTISS-WRIGHT AND SUBSIDIARIES 21
[PHOTO]
Martin R. Benante
Chairman and Chief Executive Officer
To Our Shareholders:
On December 17, 2003, Curtiss-Wright and the world celebrated the 100th
Anniversary of the first flight at Kitty Hawk, North Carolina -- a crowning
tribute to two of our founding fathers, Orville and Wilbur Wright.
2004 marks another major milestone for Curtiss-Wright Corporation as we proudly
celebrate our 75th Anniversary. The pioneering spirit of three great inventors
gave birth to the aviation industry. Aside from their historic first flight, the
Wright brothers and Glenn Curtiss developed aircraft capable of flying around
the world. Their legacy companies, Wright Aeronautical and The Curtiss Aeroplane
and Motor Company, were merged to form Curtiss-Wright Corporation on July 5,
1929. On August 22, 1929, Curtiss-Wright Corporation was listed on the New York
Stock Exchange where it still trades today.
Curtiss-Wright's enduring success is due to an unwavering commitment to
innovation, engineering excellence and technological leadership. These
principles guided the Wright brothers to achieve the first flight in 1903 and
today inspire us to achieve new firsts in flow control and motion control
technologies, and metal treatment services. As we celebrate our 75th
Anniversary, our goals remain steadfast:
22 CURTISS-WRIGHT AND SUBSIDIARIES
o Focus on advanced technology and high-performance platforms;
o Uphold our world-class reputation for engineering excellence and
pioneering products; and
o Maintain a solid capital base while executing a disciplined growth
strategy.
Strong Financial Performance
In 2003, we achieved record sales and profitability through a mix of organic
growth and successful acquisition integration. Our revenues of $746 million in
2003 increased 45% over 2002, and our operating income in 2003 totaled $89
million, an increase of 42% before pension income. Our net earnings of $52
million, or $2.50 per diluted share, increased 26% over 2002 on a normalized
basis. Our strong performance is due to our acquisitions achieving
better-than-expected results as well as cross-marketing of our products and new
technologies generating growth in each of the markets in which we compete.
Our backlog at December 31, 2003 was $506 million compared with $479 million at
December 31, 2002. New orders received in 2003 totaled $743 million, which
represents a 55% increase over 2002.
In support of our significant growth, we strengthened and expanded our capital
structure in September with a private placement of $200 million of senior notes.
This long-term debt facility provided liquidity and secured attractive long-term
fixed interest rates at historically low levels.
As a result of our market leadership and strong performance, Curtiss-Wright
continues to receive accolades for industry leadership. In 2003, Defense News
named Curtiss-Wright to its "Fast Track 50" list of the fastest-growing defense
firms in the world, with Curtiss-Wright in the top 15 for both one-year and
three-year annual growth.
Strategic, Diversified Markets
Our leadership across a broad platform of complementary, strategic niche markets
has produced the balance that has allowed us to continue achieving profitable
growth during a weak economic cycle and a period of geopolitical uncertainty.
While the commercial aerospace market remains soft, the ramp-up of military
program initiatives has resulted in strong growth in our defense businesses,
including aerospace, naval and land-based programs. In addition, we have built a
leading global position in the emerging defense electronics market. Electronics
is expected to represent one of the fastest-growing sectors of defense spending
as integrated combat systems and unmanned technologies are developed.
We believe strong military spending will continue to fuel our defense businesses
over the next two years, at which time we believe a stronger US economy will
stimulate spending in other sectors in which we hold strong market positions.
Primarily, our long-standing presence in commercial aerospace is well positioned
to benefit from increases in consumer travel. During the downturn,
Curtiss-Wright has continued to develop innovative technologies, such as laser
peening,
CURTISS-WRIGHT AND SUBSIDIARIES 23
while aggressively managing its cost base. As a result, we will continue to be
competitive on new commercial aircraft development programs as well as upgrades
and repair and overhaul services.
In addition, each of our business segments continues to contribute important
technological advances that have driven product expansion into a multitude of
energy and industrial markets. Through our flow control segment, we have
experienced solid growth in energy markets, such as nuclear power and in oil and
gas, by providing valuable new products in valve technology and software
systems. Recent acquisitions of electronics technology by our motion control
segment will provide new applications for medical imaging and digital equipment.
And, in metal treatment services, our advances in laser peening technology are
enabling us to explore new opportunities in energy, environmental and medical
applications. Achieving this growth in a sluggish economy reflects our skill in
creating customer solutions and developing new markets for our products.
Continued Success with Acquisitions
Our focus on technology and innovation is greatly enhanced by our successful
acquisition strategy. In 2003, we made six acquisitions that have provided us
with new products and technological capabilities, primarily within the defense
and commercial electronics sectors, and expanded our global reach and market
penetration.
We have successfully increased our position in the defense electronics market
and are a global market leader in the embedded systems arena. We anticipate that
this market will experience extraordinary growth over the next few years as the
next generation of military equipment develops. In 2003, we acquired Collins
Technologies, Peritek, Systran, Novatronics and, in early 2004, Dy 4, each of
which enhances our ability to offer our customers greater electronic subsystem
solutions for military aircraft and ground vehicles. These acquisitions
complement our existing technologies in flight and engine control applications
and provide us with a core competence in defense electronics upon which we
expect to generate significant organic growth. Additionally, we significantly
expanded our technological capabilities and market penetration in metal
treatment services with the acquisitions of E/M Coatings, a leading provider of
specialty coatings to the aerospace, automotive, electronics, industrial,
medical, military and semiconductor markets, and AMP, which supplies commercial
shot peening services primarily to the automotive market. These acquisitions
improved our position in metallurgical technologies in the US and are
complementary to our existing portfolio of metal treatment services.
- --------------------------------------------------------------------------------
2003 Acquisitions
[GRAPHIC]
Collins Technologies
- --------------------------------------------------------------------------------
Specializes in the manufacture of Linear Variable Displacement Transducers
(LVDT's) for aerospace flight and engine control applications, and industrial
markets.
Peritek
- --------------------------------------------------------------------------------
Leading manufacturer of video and graphic display boards for the embedded
computing industry, including the aviation, defense and medical markets, as well
as products for bomb detection and industrial automation.
Systran
- --------------------------------------------------------------------------------
Key supplier of high-performance data communications products for real-time
computing systems, primarily for the aerospace, defense, industrial automation
and medical imaging markets.
Novatronics
- --------------------------------------------------------------------------------
Designer and manufacturer of electric motors and position sensors (linear and
rotary) for the commercial aerospace, military aerospace and industrial markets.
E/M Coatings
- --------------------------------------------------------------------------------
Premier US applicator of solid film lubricant coatings for aerospace, automotive
and specialty industrial applications.
AMP
- --------------------------------------------------------------------------------
Supplier of commercial shot peening services to the Detroit automotive market.
- --------------------------------------------------------------------------------
Delivering Shareholder Value
2003 represented another year of successful firsts and growth for our company.
However, we continue to evaluate our performance
24 CURTISS-WRIGHT AND SUBSIDIARIES
primarily on our ability to enhance shareholder value. As we grow, we must not
only continue to support our current customers and markets, but also
successfully integrate new members into the Curtiss-Wright family and expand
into new markets. In doing so, Curtiss-Wright employees continue to set and
achieve high standards of productivity, quality and customer service.
Our significant revenue growth is mirrored by solid income and cash flow
generation. Our confidence in our ability to sustain this momentum enabled us to
approve a 20% dividend increase in November 2003, returning a portion of our
strong profitability to our shareholders. Additionally, our strong share price
performance provided the impetus for a 2-for-1 stock split which was completed
in December 2003. We believe that with a lower share price resulting from the
stock split, Curtiss-Wright will be a more attractive investment to a wider
audience of investors. Additionally, as our company continues to successfully
grow, we are pleased to provide a greater level of liquidity in the stock to our
shareholders.
In June 2003, we elected Carl G. Miller, a veteran of the aerospace and defense
industry, to serve on our Board of Directors and as a member of our audit and
finance committees. Mr. Miller, who recently retired from TRW, brings over 30
years of financial management and industry leadership, making him an invaluable
resource to Curtiss-Wright. We welcome Mr. Miller's contributions in the years
to come.
As we strive to achieve superior shareholder value with new technologies and in
new markets, our core competence remains in advanced engineering and precision
processing. This steadfast focus, combined with the ingenuity of our employees,
enables us to maintain a reputation for world-class performance in the markets
in which we compete. We are particularly proud to employ many industry veterans
who are committed to efficient and effective responsiveness to ever-changing
customer needs and market trends. Because of the creativity, energy, discipline
and dedication of so many people who work for Curtiss-Wright, we are privileged
to enjoy long-term relationships with our customers.
Building on a Legacy
Committed, visionary employees and long-term relationships with customers have
been a hallmark of Curtiss-Wright for three-quarters of a century. It is
therefore fitting that our 75th Anniversary coincides with the 100th Anniversary
of the Wright brothers' first flight. During the past year, we proudly
celebrated our heritage in festivities that were broadcast around the world. As
part of our commitment to preserve the legacy of Curtiss-Wright, we contributed
financing for the development of a replica of the original Curtiss-Wright Flyer,
as well as numerous events culminating with the Centennial Celebration on
December 17, 2003, at Kitty Hawk, NC. We donated a complete inventory of
aeronautical engine blueprints to the Smithsonian's National Air and Space
Museum in Washington, DC and Wright State University in Dayton, OH.
Additionally, Curtiss-Wright endowed scholarships at three leading universities
for students pursuing careers in aeronautical engineering in honor of our
founding fathers.
We also visited the New York Stock Exchange in December to ring the closing bell
in honor of Curtiss-Wright's contributions to aviation. I was joined by
Curtiss-Wright's senior management and two US Air Force Reserve officers. These
officers recently returned from duty in Iraq flying C-130 cargo aircraft and are
two of the thousands of brave and proud soldiers, sailors, airmen and marines
who depend on the technology and reliability of Curtiss-Wright products. We are
thankful for the commitment and sacrifice that all military personnel have made
for our country and are privileged to play a part in supporting their efforts.
We are proud to be celebrating our 75th Anniversary at Curtiss-Wright
Corporation in concert with the Centennial of Flight, and we want to thank our
exceptional employees who made this milestone possible. As a career employee of
25 years, I have truly enjoyed being a part of the Curtiss-Wright legacy and
eagerly anticipate the next milestone achievement.
/s/ Martin R. Benante
Martin R. Benante
Chairman and Chief Executive Officer
CURTISS-WRIGHT AND SUBSIDIARIES 25
[PHOTO]
Board of Directors
1. DAVID LASKY
2. J. MCLAIN STEWART
3. JOHN R. MYERS
4. CARL G. MILLER
5. MARTIN R. BENANTE
6. S. MARCE FULLER
7. WILLIAM B. MITCHELL
8. DR. WILLIAM W. SIHLER
9. ADMIRAL JAMES B. BUSEY IV (RET.)
26 CURTISS-WRIGHT AND SUBSIDIARIES
Financial Statements CURTISS-WRIGHT CORPORATION
CURTISS-WRIGHT 2003 ACQUISITIONS
Motion Control
Novatronics designs and manufactures electric motors and position sensors (both
linear and rotary) for the commercial aerospace, military aerospace, and
industrial markets. Novatronics has operating facilities located in Stratford,
Ontario, Canada, and Plainview, New York.
Systran Corporation is a leading supplier of highly specialized, high
performance data communications products for real-time systems, primarily for
the aerospace, defense, industrial automation, and medical imaging markets.
Key applications include simulation, process control, advanced digital signal
processing, data acquisition, image processing, and test and measurement.
Systran's operations are located in Dayton, Ohio.
Peritek Corporation is a leading supplier of video and graphic display boards
for the embedded computing industry in a variety of markets including aviation,
defense, and medical. Peritek supplies products for bomb detection, industrial
automation, and medical imaging applications. Peritek's operations are located
in Oakland, California.
Collins Technologies 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
E/M Engineered Coatings Solutions applies over 1,100 different coatings to
impart lubrication, corrosion resistance, and certain cosmetic and dielectric
properties to selected components. 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.
Advanced Material Process is a supplier of commercial shot peening services
primarily to the automotive market and is located in Detroit, Michigan.
28 CURTISS-WRIGHT AND SUBSIDIARIES
AT A GLANCE
- --------------------------------------------------------------------------------
Curtiss-Wright operates across three business segments that provide
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
Aircraft cargo door and utility actuation systems
Integrated mission management and flight control computers
Fractional horsepower (HP) specialty motors
Force transducers
Fire detection and suppression control systems
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
Power conversion products
Control electronics
High performance data communication products
Component overhaul and logistics support services
Perimeter Intrusion Detection Equipment
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
Naval ships
Homeland security
Air, sea, and ground simulation
- --------------------------------------------------------------------------------
Flow Control
PRODUCTS AND SERVICES
Military and commercial nuclear/non-nuclear valves
(butterfly, globe, gate, control, safety, relief, solenoid)
Military and commercial nuclear/non-nuclear pumps, motors,
generators, instrumentation and controls
Military aircraft carrier launch and retrieval equipment
Steam generator control equipment
Reactor plant equipment and controls
Advanced hydraulic systems
Air driven fluid pumps
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
- --------------------------------------------------------------------------------
Metal Treatment
PRODUCTS AND SERVICES
Shot peening
Shot peen forming
Laser peening
Heat treating
Specialty coatings
Reed valve manufacturing
Wet finishing
MAJOR MARKETS
Commercial jet transports
Business/regional jets
Automotive
Metalworking
Oil and gas exploration
Power generation
Agricultural equipment
Construction and mining equipment
- --------------------------------------------------------------------------------
CURTISS-WRIGHT AND SUBSIDIARIES 29
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) First Second Third Fourth
======================================================================================================================
2003
Net sales $ 179,933 $ 182,857 $ 189,618 $ 193,663
Gross profit 59,032 56,682 57,017 68,187
Net earnings 14,122 10,873 12,519 14,754
Earnings per share:
Basic earnings per share $ .69 $ .53 $ .61 $ .71
Diluted earnings per share $ .68 $ .52 $ .60 $ .70
Dividends per share $ .075 $ .075 $ .075 $ .09
- ----------------------------------------------------------------------------------------------------------------------
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 $ .46 $ .53 $ .55 $ .67
Diluted earnings per share $ .45 $ .52 $ .54 $ .65
Dividends per share $ .075 $ .075 $ .075 $ .075
All per share amounts have been adjusted to reflect the Corporation's 2-for-1 stock split during 2003.
See notes to consolidated financial statements for additional financial information.
- ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED SELECTED FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data) 2003 2002 2001 2000 1999
======================================================================================================================
Net sales $746,071 $513,278 $343,167 $329,575 $293,263
Net earnings 52,268 45,136 62,880 41,074 39,045
Total assets 973,665 810,102 500,428 409,416 387,126
Long-term debt 224,151 119,041 21,361 24,730 34,171
Basic earnings per share $ 2.53 $ 2.21 $ 3.12 $ 2.05 $ 1.93
Diluted earnings per share $ 2.50 $ 2.16 $ 3.07 $ 2.02 $ 1.91
Cash dividends per share $ 0.32 $ 0.30 $ 0.27 $ 0.26 $ 0.26
Certain prior year information has been reclassified to conform to current presentation.
All per share amounts have been adjusted to reflect the Corporation's 2-for-1 stock split during 2003.
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 2003 Annual Report on Form 10-K for a discussion
relating to forward-looking statements contained in this Annual Report and risk
factors that could cause future results to differ from current expectations.
30 CURTISS-WRIGHT AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Curtiss-Wright Corporation is a multinational provider of highly engineered
products and services. The management strategy is to position the Corporation as
a market leader across a diversified array of niche markets built upon
engineering and technological leadership, low-cost manufacturing, and strong
relationships with our customers. The Corporation provides products and services
to a number of global markets, such as defense, commercial aerospace, nuclear
power, oil and gas, automotive, and general industrial. The Corporation has
achieved balanced growth through the successful application of its core
competencies in engineering and precision manufacturing, adapting these
competencies to new markets through internal product development and a
disciplined program of strategic acquisitions. Approximately 50% of revenues are
generated from defense-related markets.
Company Organization
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 principal operating segments: Flow Control, Motion
Control, and Metal Treatment. 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.
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. Metal Treatment provides
approximately 50 metallurgical services, principally "shot peening" and "heat
treating." This segment provides these services for a broad spectrum of
customers in various industries, including aerospace, automotive, construction
equipment, oil and gas, petrochemical, and metal working. For further
information on our products and services and the major markets served by our
three segments, see page 29 of this Annual Report.
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, which serve commercial markets. For
certain contracts that require performance over an extended period before
deliveries begin, sales and estimated profits are recorded by applying the
percentage-of-completion method of accounting.
Results of Operations
FISCAL YEAR ENDED DECEMBER 31, 2003 COMPARED WITH FISCAL YEAR ENDED
DECEMBER 31, 2002
Curtiss-Wright Corporation recorded consolidated net sales of $746.1 million and
net earnings of $52.3 million, or $2.50 per diluted share, for the year ended
December 31, 2003. Sales for the current year increased 45% over 2002 sales of
$513.3 million. Net earnings for 2003 increased 16% from 2002 net earnings of
$45.1 million, or $2.16 per diluted share.
The increase in revenues was mainly driven by a complete year of revenues
generated from the 2002 acquisitions of EMD, Tapco International, Penny & Giles,
and Autronics and contributions from the 2003 acquisitions, primarily E/M
Coatings and Collins Technologies. See Note 2 to the Consolidated Financial
Statements for further information regarding acquisitions. Including the six
businesses acquired in 2003, the Corporation has acquired twelve new businesses
since 2001. The acquisitions made during the last two years contributed $221.8
million in incremental sales during 2003. The remaining business units
experienced organic sales growth of 6% in 2003, led by the Flow Control segment,
which grew organically by 13%, due to higher valve sales to the nuclear and
non-nuclear naval programs and higher sales of new products to the commercial
nuclear power generation market. Higher sales of shot peening services for the
aerospace market in Europe, sales from our new laser peening technology, and
higher sales from our domestic aerospace and ground defense businesses also
contributed to the higher sales in 2003. These increases in our base businesses
were partially offset by sales declines in commercial aerospace component
overhaul and repair services and commercial aerospace original equipment
manufacturers ("OEM") products. Foreign currency translation had a favorable
impact on sales of $14.1 million for the year.
Operating income for 2003 totaled $89.3 million, an increase of 29% from
operating income of $69.0 million in 2002. The increase is primarily attributed
to the contributions of acquisitions mentioned above, which amounted to $25.1
million in incremental operating income. In 2003, we reclassed pension income
derived from the Curtiss-Wright Pension Plan into operating income for all
periods presented. The 2003 pension income decreased $5.6 million from 2002 due
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 16 to the Consolidated Financial Statements. Based upon current
market conditions, the Corporation expects lower net pension income derived from
the Curtiss-Wright Pension Plan in 2004. In addition to the contribution of the
new acquisitions, 2003 operating income benefited from higher sales to the
commercial nuclear power generation markets, higher sales and more favorable
sales mix of products to the military aerospace, domestic ground defense, and
naval markets. These increases were offset by lower margins as a result of lower
volume in the commercial aerospace OEM and overhaul and repair businesses, and
cost overruns and inventory adjustments within our Flow Control segment. Overall
consolidated operating margins have decreased over the past three years, and
this is related to the large number of acquisitions made since 2001. Although
the new acquisitions continue to have a positive effect on operating income, the
operating margins of the overall Corporation are lower since the margins of the
acquisitions are below those of our traditional businesses. We consider this to
be a short-term cost that will be more than offset by the benefits of
diversification, the implementation of cost control measures, and increased
future profitability. The integration of our recent acquisitions continues to
progress as planned. In addition to having improved operating margins for almost
all of our recent acquisitions, we have initiated programs to cross-market
products and share technologies across our businesses. Foreign currency
translation had a favorable impact on operating income of $2.7 million for
2003.
The increase in net earnings for 2003 as compared to 2002 is mainly due to the
higher segment operating income. The improvement in oper-
CURTISS-WRIGHT AND SUBSIDIARIES 31
ating income was partially offset by lower non-operating other income and higher
interest expense associated with higher debt levels.
Backlog at December 31, 2003 was $505.5 million compared with $478.5 million at
December 31, 2002 and $242.3 million at December 31, 2001. Acquisitions made
during 2003 represented $15.6 million of the backlog at December 31, 2003. New
orders received in 2003 totaled $743.1 million, which represents a 55% increase
over 2002 new orders of $478.2 million and a 128% increase over new orders
received in 2001. Acquisitions made during 2002 and 2003 contributed $208.0
million in incremental new orders received in 2003. It should be noted that
metal treatment services, repair and overhaul services, and after-market sales,
which represent approximately 22% of the Corporation's total sales for 2003, 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 is derived from long-term contracts.
FISCAL YEAR ENDED DECEMBER 31, 2002 COMPARED WITH FISCAL YEAR ENDED
DECEMBER 31, 2001
Curtiss-Wright Corporation recorded consolidated net sales of $513.3 million and
net earnings of $45.1 million, or $2.16 per diluted share, for the year ended
December 31, 2002. Sales for 2002 increased 50% over 2001 sales of $343.2
million. Net earnings for 2002 decreased 28% from 2001 net earnings of $62.9
million, or $3.07 per diluted share. The 2002 sales improvement from 2001
largely reflected the contributions of 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. The Corporation acquired six new businesses during 2002
and seven new businesses during 2001. 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.
Operating income for 2002 totaled $69.0 million, an increase of 19% from
operating income of $58.2 million in 2001. The increase was primarily attributed
to the contributions of acquisitions mentioned above. Pension income decreased
$3.8 million mainly due to lower investment returns on the Corporation's pension
assets. In addition to the contribution of the acquisitions, 2002 operating
income benefited from higher sales of Flow Control products to the commercial
nuclear power generation and heavy truck markets, higher sales and more
favorable sales mix of products to the military aerospace, international ground
defense, and naval markets. These increases were offset by lower margins as a
result of lower volume in the commercial aerospace OEM and unfavorable sales
mix, start-up costs at new facilities, and certain nonrecurring costs associated
with the relocation of a shot peening facility within our Metal Treatment
segment. Despite lower demand from commercial airlines, the 2002 operating
margins of our aerospace overhaul and repair services business were flat
compared to 2001 due to the successful execution of cost reduction initiatives.
However, net earnings in 2002 and 2001 included several items the Corporation's
management believes are nonrecurring and impact a year-to-year comparison. In
2002, the Corporation recorded net gains related to the sale of rental
properties, a net gain relating to the reallocation of postretirement medical
benefits for certain active employees to our pension plan, release of an
indemnification reserve related to the sale of our Wood-Ridge business complex
that was no longer required, a net legal settlement, a refund due from the
Internal Revenue Service relative to a research and development credit, and
costs associated with the relocation of a shot peening facility. The results for
2001 included a gain associated with the sale of our Wood-Ridge business
complex, recapitalization costs and a net nonrecurring benefit gain. These items
had a net positive impact on net earnings of $3.5 million, or $0.17 per diluted
share in 2002, and $22.2 million, or $1.09 per diluted share in 2001.
Foreign currency translation had a favorable impact on sales and operating
income in 2002. Comparing 2002 results to those of 2001, 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 2001. See Note 8 to the Consolidated Financial Statements for pro forma
results relative to the effect of goodwill amortization.
Backlog at December 31, 2002 was $478.5 million compared with $242.3 million at
December 31, 2001. 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.
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.
Economic and Industry-wide Factors
The weak U.S. economy and the continued slump in the global commercial aerospace
industry has had an adverse impact on the Corporation, however, increased U.S.
military spending and increased penetration into certain other served markets
has more than offset this impact. Looking forward, many factors, including
future defense spending in the U.S., the continued improvement in global gross
domestic product, the geopolitical situation, and the pace of economic recovery
could impact the Corporation's future performance.
GENERAL ECONOMY
Many of our industrial businesses are driven in large part by growth of the U.S.
Gross Domestic Product (GDP). Based upon certain economic reports, the U.S.
economy's output (real GDP) had grown at a rate of 6.1% in the second half of
2003 and is expected to continue to grow at a rate of 4.2% through 2004.
According to the current economic data, interest rates are expected to rise very
slowly through 2005,
32 CURTISS-WRIGHT AND SUBSIDIARIES
which should encourage economic growth. Unemployment is also expected to drop
slowly over the next two years, as companies produce increased output first
through productivity gains and next through addition of labor.
Although it appears that, at least in the U.S., economic indicators are showing
a possible recovery, we are only cautiously optimistic that this recovery, in
fact, will occur. However, when it does, our businesses that are largely
economic driven, such as metal treatment and petrochemical processing, are well
positioned to take advantage of the recovery.
DEFENSE
Approximately 50% of our business is in the military sector, predominantly in
the U.S., and is characterized by long-term programs and contracts and driven
primarily by the U.S. Department of Defense ("DoD") budget.
The DoD budget reflects in part an initiative to transform and modernize U.S.
forces. Highlights of fiscal 2004 DoD investment funding for key programs
supportive of transformation include missile defense; CVN-21 aircraft carrier;
new ship classes/technologies, including DDX destroyer, littoral combat ship,
and CG(X) cruiser; SSGN conversion; transformational satellite communications;
advanced Extremely High Frequency (EHF) capability; Space Based Radar (SBR);
cryptologic modernization; Future Combat Systems (FCS); and Unmanned Aerial
Vehicles (UAV), including the Global Hawk UAV, Predator UAV, Unmanned combat
aerial vehicles (UCAVs), and Unmanned undersea vehicles (UUVs).
Other DoD investment programs essential to achieving the transformation and
modernization of U.S. forces include: shipbuilding--procurement of seven ships,
up sharply from five ships in fiscal 2003; F/A-22--procurement of 22 F/A-22s in
fiscal 2004 to continue the development of the aircraft and to improve its
ground attack systems; F/A-18E/F; Joint Strike Fighter (JSF)--continued system
development; V-22; and chemical-biological defense programs. In addition, we
anticipate future DoD spending to produce increased investment in electronics in
military hardware to upgrade existing platforms and facilitate "network centric
warfare" as part of the military's transformation plans.
Curtiss-Wright's Flow Control and Motion Control segments are well positioned
on many of the aforementioned platforms, including the next-generation aircraft
carrier, nuclear submarine program, the F/A-22, the V-22, the JSF and the UAV
programs. As a result of our reputation and past performance, we are involved in
many of the future systems that are currently in various stages of development.
However, 2004 is an election year in the U.S., which could have an impact on
U.S. DoD budget levels going forward, as could many other uncertainties such as
budget deficit levels. There is the possibility that defense spending may
decrease in the future, which could adversely affect the Corporation's
operations and financial condition. While DoD funding fluctuates year-by-year
and program-by-program, the biggest risk facing the Corporation would be the
termination of a program. There are no such material terminations known at this
time for programs upon which the Corporation has content. If a material program
were to be terminated, the termination process takes several years to wind down,
which would provide the Corporation ample time to reallocate resources. In
addition to the above, there are other risks associated with our defense
businesses, such as failure of a prime contractor to perform on a contract,
pricing and/or design specifications which may not always be finalized at the
time the contract is bid, and the failure and/or inability of certain sole
source suppliers to provide product to the Corporation, could have an adverse
impact on the Corporation's financial performance. While alternatives could be
identified to replace a sole source supplier, a transition could result in
increased costs and manufacturing delays. Our outlook for our defense business
looks positive for the near to intermediate term.
COMMERCIAL AEROSPACE
Approximately 20% of our business serves the global commercial aerospace
industry. World airline traffic is a primary driver for long-term growth in the
commercial aerospace industry. Growth in airline traffic will require increased
passenger carrying capacity ("seats") in the system, which can be met by a mix
of large commercial aircraft, smaller regional jets and business jets. Based on
market data, we anticipate a move toward the use of larger aircraft. This
movement will be fueled by airport congestion, as well as by the replacement of
older aircraft with generally larger airplanes. We also expect to see growth in
aircraft range. Extended-range aircraft have the capability of flying long
non-stop flights as well as multiple short flights without the need for
refueling.
Based upon market data, we expect the commercial aerospace market to be flat for
2004.
Curtiss-Wright's Motion Control segment is a provider of OEM aerospace
components and its Metal Treatment segment provides services to aircraft
manufacturers. Based upon current external estimates, we anticipate this
industry to remain flat in the near term. While the emergence of low cost
airlines has contributed to this industry's growth, concerns still exist
regarding the financial weakness of many airlines and the threat of another
major terrorist attack, which could have an adverse impact on this industry and
the Corporation's operating results and financial position.
Over the past several years the Corporation has diversified itself away from
dependence on commercial aerospace and has sized its resources to current levels
in order to protect profitability and will continue to do so if necessary. The
Corporation is well positioned on its commercial aerospace applications and will
benefit from the recovery in this industry, which is expected to occur over the
next couple of years.
POWER GENERATION
There are several factors that might precipitate an expansion in commercial
nuclear power, primarily increasing pressure on environmental issues. Nuclear
power has minimal impact on the environment, is one of the most economical forms
of generating electricity, and does not depend upon foreign oil and gas. With
respect to existing plants, the U.S. nuclear power industry is expected to grow
based on the fact that most of the 103 current plants are or will be applying
for plant life extensions. This, combined with new plant construction in the
U.S., Far East, and other parts of the world should drive expansion in this
industry. Curtiss-Wright Flow Control is well positioned to take part in this
expansion over the next couple of years. However, there is no guarantee that the
U.S. plants will be granted plant life extensions or that the Nuclear Regulatory
Commission will authorize the construction of new facilities in the U.S. In
addition, the geopolitical climate is not certain and is volatile, which could
impact future nuclear plant construction levels around the world.
CURTISS-WRIGHT AND SUBSIDIARIES 33
PETROCHEMICAL PROCESSING
Based upon market data, capital expenditures in the petroleum industries are
expected to increase in the next few years. The long-term global forecast for
sales of valves to the petroleum market currently anticipates an annual five
percent increase. Due to the fact that capacity utilization of existing U.S.
refineries rose from 70% to 91% from 1981 to 2000 and worldwide from 70% to 85%
over the same time period, the demand for valves is expected to be primarily
driven by maintenance and upgrades. However, the proposed and enacted
environmental regulations in the U.S. and other developed countries could drive
the demand for valves by as much as 8 - 13% increases over the next few years.
However, it is uncertain whether certain economic recoveries can be sustained or
whether anticipated future environmental regulatory changes will actually occur,
and whether such regulatory changes will have an impact on this industry.
2003 Segment Performance
Curtiss-Wright operates in three principal operating segments on the basis of
products and services offered: Flow Control, Motion Control, and Metal
Treatment. See Note 18 to the Consolidated Financial Statements for further
segment financial information. The following table sets forth revenues,
operating income, operating margin, and the percentage changes on those items,
as compared with the prior-year periods, by operating segment:
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, Percent Changes
---------------------------------- ---------------------
2003 vs. 2002 vs.
(Dollars in thousands) 2003 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
SALES:
Flow Control $341,271 $172,455 $ 98,257 97.9% 75.5%
Motion Control 265,905 233,437 137,103 13.9% 70.3%
Metal Treatment 138,895 107,386 107,807 29.3% -0.4%
- ----------------------------------------------------------------------------------------------------------------------------
Total Curtiss-Wright $746,071 $513,278 $343,167 45.4% 49.6%
============================================================================================================================
OPERATING INCOME:
Flow Control $ 39,991 $ 20,693 $ 10,703 93.3% 93.3%
Motion Control 30,350 29,579 19,219 2.6% 53.9%
Metal Treatment 19,055 14,403 19,513 32.3% -26.2%
- ----------------------------------------------------------------------------------------------------------------------------
Total Segments 89,396 64,675 49,435 38.2% 30.8%
Pension Income 1,611 7,208 11,042 -77.6% -34.7%
Corporate & Other (1,677) (2,846) (2,277) 41.1% 25.0%
- ----------------------------------------------------------------------------------------------------------------------------
Total Curtiss-Wright $ 89,330 $ 69,037 $ 58,200 29.4% 18.6%
============================================================================================================================
OPERATING MARGINS:
Flow Control 11.7% 12.0% 10.9%
Motion Control 11.4% 12.7% 14.0%
Metal Treatment 13.7% 13.4% 18.1%
- ----------------------------------------------------------------------------------------------------------------------------
Total Segments 12.0% 12.6% 14.4%
Total Curtiss-Wright 12.0% 13.5% 17.0%
============================================================================================================================
- ----------------------------------------------------------------------------------------------------------------------------
FLOW CONTROL
The Corporation's Flow Control segment reported sales of $341.3 million for
2003, a 98% increase over 2002 sales of $172.5 million. The higher sales largely
reflect the full year of revenues from the acquisitions of EMD and TAPCO
International, Inc. completed in the fourth quarter of 2002. The 2003
incremental sales from these acquisitions amounted to $170.3 million, driven
mainly by strong financial performance from EMD. The remaining business units of
this segment produced organic sales growth of 13%, which was driven by higher
sales to the commercial nuclear power generation market, nuclear and non-nuclear
naval programs, and domestic and international oil and gas markets. Higher sales
to the commercial nuclear power generation markets were due to the launch of new
product lines and the expedited outage service requirements by the power
generation plants. The non-nuclear naval products sales growth was due to new
products, such as ball valves and JP-5 fuel valve systems, and higher electronic
sales drove the nuclear naval product growth. Sales of the coker valve products
to the petrochemical and oil and gas markets were up due to new orders while the
remaining product lines in those markets were essentially flat with the prior
year. In addition, foreign currency translation favorably impacted sales in 2003
from 2002.
Operating income for the year increased by 93% over the prior year. Acquisitions
made in the fourth quarter of 2002 generated incremental operating income of
$21.3 million in 2003, while the balance of the segment businesses rose 2% over
2002. The organic growth was mainly driven by higher volume mentioned above,
favorable sales mix, and improved productivity gained from the relocation of the
electronics unit, offset by slightly lower margins related to start-up costs on
the new product launches and cost overruns on a safety relief valve project. In
addition, unanticipated shipping delays and a delay in launching strategic
34 CURTISS-WRIGHT AND SUBSIDIARIES
plans for improved operating cost efficiencies at our international unit
resulted in an operating loss for the year. However, in late 2003, a new
enterprise resource planning system was installed and various process
improvements were implemented. Foreign currency translation had a $0.2 million
positive impact on 2003 operating income.
Flow Control segment sales in 2002 were 76% higher than the sales of $98.3
million for 2001. The 2002 sales included $72.9 million related to acquisitions
made during 2002 and 2001. 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 2001. In addition, foreign currency
translation favorably impacted sales in 2002 from 2001. Operating income for
2002 increased by 93% over 2001, benefiting from the acquisitions and from
organic growth. Operating income from the remaining base business units of this
segment 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 initiatives. Foreign currency translation also 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.
Backlog at December 31, 2003 is $317.8 million compared with $304.3 million at
December 31, 2002 and $73.5 million at December 31, 2001. New orders received in
2003 totaled $353.7 million, which represents a 111% increase over 2002 new
orders of $167.9 million and a 257% increase over new orders received in 2001.
The 2003 increase is mainly due to the full year contributions by the segment's
acquisitions of 2002 and a large order in the fourth quarter of 2003 from the
Navy Surface Warfare Center.
MOTION CONTROL
The Corporation's Motion Control segment reported sales of $265.9 million for
2003, a 14% increase over 2002 sales of $233.4 million. The higher sales largely
reflect the full year contributions of the April 2002 acquisitions of Penny &
Giles ("P&G") and Autronics ("Autronics") and the contributions of the 2003
acquisitions of Collins Technologies, Peritek, Systran, and Novatronics. The
2003 incremental sales associated with these acquisitions amounted to $28.0
million. Sales from the remaining base businesses were essentially flat. Strong
domestic ground defense sales, primarily related to the expedited deliveries of
spare parts for the Bradley Fighting Vehicle to support the Iraqi war effort, an
increase in sales of military aerospace products, primarily resulting from new
orders for F-16 spare parts and the Joint Strike Fighter development, and higher
sales of military electronics for the Global Hawk unmanned aerial reconnaissance
system were offset by lower volume associated with the overhaul and repair
services provided to the global commercial airline industry and lower OEM
commercial aircraft production. The softening in the demand for the commercial
aerospace business and related services, which began in 2001, has continued
through 2003. In addition, foreign currency translation favorably impacted sales
in 2003 from 2002.
Operating income for 2003 increased 3% over the prior year. Acquisitions made in
2002 and 2003 generated incremental operating income of $2.3 million, while the
balance of the segment businesses was essentially flat as compared to 2002.
Slightly lower operating income from the base businesses was mainly due to the
lower volume, lower overhead absorption, and the write-off of obsolete inventory
at our overhaul and repair services business unit. Operating income of our
commercial aerospace OEM business also declined due to lower volume. This
decline was offset by higher operating income for our military aerospace
products, which rose due to volume and cost improvements. Higher operating
income for our land-based defense businesses was due to higher volume and more
favorable sales mix from the spare parts for the Bradley Fighting Vehicle.
Foreign currency translation favorably impacted 2003 operating income by $0.9
million.
Motion Control segment sales for 2002 were 70% above 2001 sales of $137.1
million. The higher sales largely reflected the contributions from the
acquisitions of P&G and 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. Also affecting 2002 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/A-22 OEM products and
strong growth in the global ground defense business as compared to the prior
year. In addition, foreign currency translation favorably impacted sales in 2002
from 2001. Operating income for 2002 increased 54% over 2001 mainly due to the
contributions from the 2002 and 2001 acquisitions. Operating income from the
remaining base businesses increased 2% 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 $0.3 million. In addition, the
elimination of goodwill amortization, which totaled $0.6 million in 2001, also
favorably impacted the 2002 results.
Backlog at December 31, 2003 was $186.3 million compared with $173.2 million at
December 31, 2002 and $167.5 million at December 31, 2001. Acquisitions made
during 2003 represents $15.6 million of the backlog at December 31, 2003. New
orders received in 2003 totaled $250.1 million, which represents a 23% increase
over 2002 new orders of $203.3 million and a 109% increase over new orders
received in 2001. The increase is mainly due to the segment's recent
acquisitions.
METAL TREATMENT
The Corporation's Metal Treatment segment reported sales of $138.9 million in
2003, an increase of 29% over 2002 sales of $107.4 million. The higher sales
largely reflect the contributions from the acquisition of the assets of Advanced
Material Process ("AMP") in March 2003 and E/M Engineered Coatings Solutions
("E/M Coatings") in April 2003 and the full year contributions of the 2002
acquisitions of the assets of Brenner Tool & Die, Inc. and Ytstruktur Arboga AB.
The 2003 incremental sales associated with these acquisitions amounted to $23.5
million. Sales from the remaining base businesses grew 7% mainly due to domestic
and international sales from our new laser peening technology. Our core
shot peening sales were down slightly in
CURTISS-WRIGHT AND SUBSIDIARIES 35
our North American divisions due mainly to slow downs in the commercial
aerospace and automotive markets. The improvement in core shot peening sales
from our European divisions was mainly driven by favorable foreign currency
translation. Sales from our heat treating services were essentially flat year
over year, whereas the sales from our reed valve product line declined due to
the softness in the automotive industry.
Operating income for 2003 increased 32% from the prior year. Acquisitions made
in 2002 and 2003 generated incremental operating income of $1.6 million. This
incremental income is net of a loss associated with our finishing division,
which was negatively impacted by a customer bankruptcy. The balance of the
segment businesses rose 22% over 2002. The organic operating income growth is
due to favorable sales mix from our laser peening services, higher volume, and
the benefit from cost reduction initiatives. In 2002, this segment incurred
higher start-up costs at new facilities and nonrecurring costs associated with
the relocation of a shot peening facility. Foreign currency translation
favorably impacted 2003 operating income by $1.6 million.
Metal Treatment segment sales for 2002 were $107.4 million, essentially flat
with the 2001 sales. 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 2001 due to higher
sales to automotive and air conditioner compressor customers. In addition,
foreign currency translation favorably impacted sales in 2002 from 2001. In
2002, operating income was 26% below 2001 due primarily 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 $0.6 million. In addition, the
elimination of goodwill amortization, which totaled $0.2 million in 2001, also
favorably impacted the 2002 results.
Backlog at December 31, 2003 was $1.4 million compared with $1.0 million at
December 31, 2002 and $1.3 million at December 31, 2001. New orders received in
2003 totaled $139.9 million, which represents a 30% increase from 2002 new
orders of $107.5 million and a 29% increase over new orders received in 2001.
The increase is mainly due to the segment's recent acquisitions.
CORPORATE AND OTHER EXPENSES
The Corporation had non-segment operating costs of $1.7 million in 2003. The
operating costs consisted mainly of net environmental remediation and
administrative expenses, incremental compensation cost, additional workers
compensation insurance, director fees associated with additional Board of
Directors' meetings and a stock award, debt commitment fee expenses, and other
administrative expenses. These expenses were partially offset by the collection
of interest on a 2002 net legal settlement.
Non-segment operating costs for 2002 were $2.8 million, which consisted mainly
of net environmental remediation and administrative expenses, post-employment
expenses, professional consulting costs associated with the integration of the
recent acquisitions, debt commitment fee expenses associated with the
Corporation's prior credit agreements, insurance costs, charitable
contributions, and other administrative expenses. These expenses were partially
offset by a net legal settlement.
Non-segment operating costs for 2001 were $2.3 million, and consisted mainly of
administrative expenses, $1.5 million in expenses associated with the
Corporation's Recapitalization (see "Recapitalization" later in this section for
more information), partially offset by a net nonrecurring benefit gain of $1.2
million, which consisted 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.
NON-OPERATING INCOME/EXPENSES
The Corporation recorded non-operating net revenues (excluding interest expense)
in 2003 of $0.4 million compared with $4.5 million in 2002. In 2002, the
Corporation recorded nonrecurring items, the net effect of which had a favorable
pre-tax impact in 2002 of $3.6 million. Of the $45.2 million generated in 2001,
$38.9 million relates to the pre-tax gain 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 $0.3 million in 2003, which is included in other
non-operating income, decreased from the prior year's $0.6 million due to a
lower cash position resulting from the funding of acquisitions and lower
interest rates. Rental income in 2002 declined from 2001 due to the sale of our
Wood-Ridge rental property in December 2001. The increase in interest expense
for 2003 as compared to 2002 is due to higher debt levels. The higher debt
levels are due to the funding of our recent acquisitions.
PROVISION FOR INCOME TAXES
The effective tax rates for 2003, 2002, and 2001 are 37.8%, 37.1%, and 38.5%,
respectively. The 2003 effective tax rate included the benefit of the
restructuring of some of our European operations. The 2002 effective rate
included a one-time benefit of 1.3% associated with the recovery of research and
development tax credits related to earlier years. The reduction in the state and
local tax rate from 2002 to 2001 is principally the result of the mix in
earnings derived from particular states.
Liquidity and Capital Resources
SOURCES AND USES OF CASH
The Corporation derives the majority of its operating cash inflow from receipts
on the sale of goods and services and cash outflow for the procurement of
materials and labor, and is therefore subject to market fluctuations and
conditions. A substantial portion of the Corporation's business is in the
defense sector, which is characterized by long-term contracts. Most of our
long-term contracts allow for several billing points (progress or milestones)
that provide the Corporation with cash receipts as costs are incurred throughout
the project rather than upon contract completion, thereby reducing working
capital requirements. In some cases, these payments can exceed the costs
incurred on a project.
36 CURTISS-WRIGHT AND SUBSIDIARIES
Prior to 2003, the Corporation had a portfolio of cash and marketable
securities, which provided a steady stream of investment income. These
investments have been monetized and the proceeds used to fund our strategic
acquisition program. Thus, the cash flow benefit from these sources no longer
exists.
OPERATING ACTIVITIES
The Corporation's working capital was $238.6 million at December 31, 2003, an
increase of $101.4 million from the working capital at December 31, 2002 of
$137.2 million. The ratio of current assets to current liabilities was 2.8 to 1
at December 31, 2003, compared with a ratio of 1.8 to 1 at December 31, 2002.
Cash and cash equivalents totaled $98.7 in the aggregate at December 31, 2003,
up 107% from $47.7 million at December 31, 2002. The increase in cash is
primarily due to net proceeds from the $200 million Senior Note offerings
completed in September 2003. See below for a further description of the Senior
Notes. These proceeds were used to repay the majority of the outstanding
indebtedness under the existing revolving credit facilities and to fund the
acquisitions made in December 2003. Excluding the impact on cash, working
capital increased by $9.2 million due to the acquisition of six businesses in
2003. In addition to the impact of these acquisitions, working capital changes
were also highlighted by a decrease in deferred revenue due to a reduction in
those contracts whose billings were in excess of incurred costs. Accrued
expenses increased mainly due to higher accrued interest on the Senior Notes.
Short-term debt was $1.0 million at December 31, 2003, a decrease of $31.8
million from the balance at December 31, 2002. The decrease in short-term debt
is due to repayment of the majority of outstanding indebtedness under the
existing revolving credit facilities. Days sales outstanding at December 31,
2003 increased to 56 days from 51 days at December 31, 2002 while inventory
turnover increased to 5.5 turns at December 31, 2003 as compared to 4.8 turns at
December 31, 2002.
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. Excluding the impact on cash, working capital increased $16.9
million due to the acquisition of six businesses in 2002. In addition to the
impact of these acquisitions, 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. Days sales
outstanding at December 31, 2002 decreased to 51 days from 59 days at December
31, 2001 while inventory turnover increased to 4.8 turns at December 31, 2002
versus 4.4 turns at December 31, 2001.
INVESTING ACTIVITIES
The Corporation has acquired twenty-five businesses since 1998 and expects to
continue to seek acquisitions that are consistent with our long-term growth
strategy and accretive to earnings. A combination of cash resources, funds
available under the Corporation's Credit Agreements, and proceeds from the
Corporation's Senior Notes issue were utilized for the funding of these
acquisitions, which totaled $71.4 million and $164.7 million in 2003 and 2002,
respectively. As noted in Note 2 to the Consolidated Financial Statements,
certain acquisition agreements contain contingent purchase price adjustments.
The Corporation is also committed to potential earn-out payments on six of its
acquisitions dating back to 2001. The Corporation estimates these potential
payouts to be approximately $2 million to $3 million per year from 2004 through
2007. Additional acquisitions will depend, in part, on the availability of
financial resources at a cost of capital that meets our stringent criteria. As
such, future acquisitions, if any, may be funded through the use of the
Corporation's cash and cash equivalents, or through additional financing
available under the credit agreements, or through new debt facilities or equity
offerings.
Capital expenditures were $33.3 million in 2003, $35.0 million in 2002, and
$19.4 million in 2001. Principal expenditures were for additional facilities and
machinery and equipment. Capital expenditures in 2003 included building
expansions, a new laser peening facility and associated laser machinery, and
various other machinery and equipment. Capital expenditures in 2002 included the
construction 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 construction of a new
facility and an investment in a new ERP computer system at one of the
Corporation's facilities.
FINANCING ACTIVITIES
On September 25, 2003 the Corporation issued $200.0 million of Senior Notes (the
"Notes"). The Notes consist of $75.0 million of 5.13% Senior Notes that mature
on September 25, 2010 and $125.0 million of 5.74% Senior Notes that mature on
September 25, 2013. The Corporation used the net proceeds of the Notes to repay
the majority of the outstanding indebtedness under the existing revolving credit
facilities. The Notes are senior unsecured obligations and are equal in right of
payment to the Corporation's existing senior indebtedness. The Corporation, at
its option, can prepay at any time, all or from time to time any part of, the
Notes, subject to a make-whole amount in accordance with the terms of the Note
Purchase Agreement. The Corporation paid customary fees that have been deferred
and will be amortized over the terms of the Notes. The Corporation is required
under the Note Purchase Agreement to maintain certain financial ratios and meet
certain net worth and indebtedness tests, of which the Corporation is in
compliance at December 31, 2003.
On November 6, 2003 the Corporation entered into two interest rate swap
agreements with notional amounts of $20 million and $60 million to effectively
convert the fixed interest on the $75 million 5.13% Senior Notes and $125
million 5.74% Senior Notes, respectively, to variable rates based on specified
spreads over six-month LIBOR. In the short-term, the swaps are expected to
provide the Corporation with a lower level of interest expense related to the
Notes.
At December 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 7, 2004, 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 2004 with the
consent of the bank group; however, there can be no assurances that the bank
group will approve the extension. In the event the bank group does not renew the
Short-Term Credit Agreement, the Corporation
CURTISS-WRIGHT AND SUBSIDIARIES 37
should have sufficient cash flow to meet its cash requirements. 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, 2003, the Corporation pays annual facility fees
on the aggregate commitment 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 as
detailed in the agreements, the most restrictive of which is a Debt to EBITDA
limit of 3 to 1. At December 31, 2003, the Corporation is in compliance with
these covenants. The Corporation would consider other financing alternatives to
maintain balance of capital structure and ensure compliance with all debt
covenants. Cash borrowings (excluding letters of credit) under the two credit
agreements at December 31, 2003 were $8.9 million compared with cash borrowings
of $137.5 million at December 31, 2002. The unused credit available under these
agreements at December 31, 2003 was $197.1 million.
Industrial revenue bonds, which are collateralized by real estate, were $14.3
million and $13.4 million at December 31, 2003 and December 31, 2002,
respectively. The loans outstanding under the Senior Notes, Interest Rate Swaps,
Revolving Credit Agreement, and Industrial Revenue Bonds had variable interest
rates averaging 2.88% for 2003; 2002 loans outstanding under the Revolving
Credit Agreements and Industrial Revenue Bonds had variable interest rates
averaging 2.32%.
FUTURE COMMITMENTS
Cash generated from operations are considered adequate to meet the Corporation's
operating cash requirements for the upcoming year, including planned capital
expenditures of approximately $40 million, interest payments of approximately $8
million to $10 million, estimated income tax payments of approximately $27
million to $30 million, dividends of approximately $8 million, pension funding
related to the EMD pension and postretirement plans of approximately $6 million,
and additional working capital requirements. The Corporation has approximately
$3 million in short-term environmental liabilities, which is management's
estimation of cash requirements for 2004. There can be no assurance, however,
that the Corporation will continue to generate cash flow at the current level.
If cash generated from operations is not sufficient to support these
requirements and investing activities, the Corporation may be required to reduce
capital expenditures, refinance a portion of its existing debt, or obtain
additional financing.
In 2004, capital expenditures are expected to be approximately $40 million due
to the full-year effect of the 2003 acquisitions and the continued expansion of
the segments. These expenditures will include construction of new facilities,
expansion of facilities to accommodate new product lines, and new machinery and
equipment, such as additional investment in our laser peening technology.
The following table quantifies our significant future contractual obligations
and commercial commitments as of December 31, 2003:
- --------------------------------------------------------------------------------
Debt Principal Operating
(In thousands) Repayments(1) Leases Total
- --------------------------------------------------------------------------------
2004 $ 997 $10,430 $ 11,427
2005 79 8,925 9,004
2006 59 7,908 7,967
2007 13,929 7,145 21,074
2008 62 5,748 5,810
Thereafter 209,058 14,991 224,049
- --------------------------------------------------------------------------------
Total $224,184 $55,147 $279,331
================================================================================
(1) Amounts exclude a $1.0 million adjustment to the fair value of long-term
debt relating to the Corporation's interest rate swap agreements that will
not be settled in cash.
- --------------------------------------------------------------------------------
The Corporation does not have material purchase obligations. Most of our raw
material purchase commitments are made directly pursuant to specific contract
requirements.
Undistributed earnings of $16.7 million from the Corporation's foreign
subsidiaries are considered permanently reinvested.
On January 31, 2004, the Corporation completed the acquisition of Dy4 Systems,
Inc. The purchase price of $110.0 million was funded with approximately $70
million in cash and $40 million from the revolving credit facilities. See Recent
Development for more information on this acquisition.
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 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 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 $1.8 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.
38 CURTISS-WRIGHT AND SUBSIDIARIES
Critical Accounting Policies
Our consolidated financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States of
America. Preparing consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. These estimates and assumptions are
affected by the application of our accounting policies. Critical accounting
policies are those that require application of management's most difficult,
subjective, or complex judgments, often as a result of the need to make
estimates about the effects of matters that are inherently uncertain and may
change in subsequent periods. 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
that serve commercial markets.
For certain contracts in our Flow Control and Motion Control segments that
require 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 for the Corporation's defense contracts and certain long-term
commercial contracts. This method recognizes revenue and profit as the contracts
progress towards completion. For certain contracts that contain a significant
number of performance milestones, as defined by the customer, sales are recorded
based upon achievement of these 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 milestones exist, the cost-to-cost method is used, which is an
input measure of progress towards completion. Under the cost-to-cost input
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, labor,
and overhead costs that will be incurred. The 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.
Adjustments to original estimates for contract revenue, estimated costs at
completion, and the estimated total profit are often required as work progresses
throughout the contract and as experience and more information is obtained, even
though the scope of work under the contract may not change. These changes are
recorded on a cumulative retroactive basis in the period they are determined to
be necessary.
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 is determined. Certain contracts contain
provisions for the redetermination of price and, as such, management defers a
portion of the 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 manufacturing overhead
costs, which are stated at the lower of cost or market, where market is limited
to the 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. We continually evaluate
the adequacy of the inventory reserves by reviewing historical scrap rates,
on-hand quantities, as compared with historical and projected usage levels and
other anticipated contractual requirements. 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 recorded as billed to customers prior to the
delivery of goods and services and are recorded as a reduction to inventory and
receivables. Progress billings are generally based on costs incurred, including
direct costs, overhead, and general and administrative costs.
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Corporation, in consultation with its actuaries, determines the appropriate
assumptions for use in determining the liability for future pension and other
postretirement 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 and associated pension and postretirement assets and
liabilities.
The discount rates and compensation rates increases used to determine the
benefit obligations of the plans as of December 31, 2003 and the annual periodic
costs for 2004 were lowered in 2003 to better
CURTISS-WRIGHT AND SUBSIDIARIES 39
reflect current economic conditions. The reduction in the discount rates
increased the benefit obligation on the plans. A corresponding decrease in
future compensation costs, which occurred due to the impact of lower
inflationary effects, had an offsetting decrease to the benefit obligation. The
change in these two assumptions were based upon current and future economic
indicators.
The overall expected return on assets assumption is based on a combination of
historical performance of the pension fund and expectations of future
performance. The historical returns are determined using the market-related
value of assets, which is the same value used in the calculation of annual net
periodic benefit cost. The market-related value of assets includes the
recognition of realized and unrealized gains and losses over a five-year period,
which effectively averages the volatility associated with the actual performance
of the plan's assets from year to year. Although over the last ten years the
market-related value of assets had an average annual yield of 11.6%, the actual
returns averaged 8.5% during the same period. The Corporation has consistently
used the 8.5% rate as a long-term overall average return. Given the
uncertainties of the current economic and geopolitical landscapes, we consider
the 8.5% to be a reasonable assumption of the future long-term investment
returns.
The long-term medical trend assumptions starts with a current rate that is in
line with expectations for the near future, and then grade the rate down over
time until it reaches an ultimate rate that is close to expectations for growth
in GDP. The reasoning is that medical trends cannot continue to be higher than
the rate of GDP growth in the long term. Any change in the expectation of these
rates to return to a normal level will have an impact on the Corporation.
In 2003, the Corporation recognized non-cash pension income from the
Curtiss-Wright Pension Plan of $1.6 million as the excess of amounts funded for
the pension plan in prior years yields returns that exceed the calculated costs
associated with the liability in the current year. As of December 31, 2003, the
Corporation had a prepaid pension asset of $77.9 million relating to the
Curtiss-Wright Retirement Plan and accrued pension and other postretirement
costs of $0.8 million related to the Curtiss-Wright Restoration Plan. The timing
and amount of future pension income or expense 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.
As a result of the acquisition of EMD in October 2002, the Corporation assumed
underfunded pension and postretirement liabilities of $75.0 million. Expenses
incurred during 2003 related to the EMD plans were $5.6 million. Additionally,
the Corporation has made $5.7 million in cash contributions to the EMD Pension
Plan during 2003.
See Note 16 for further information on the Corporation's pension and
postretirement plans, including an estimate of future cash contributions.
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.
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, usually in consultation with
third-party valuation advisors, determines the fair values of such assets and
liabilities. During 2003, the fair value of assets acquired, net of cash, and
liabilities assumed through acquisitions were estimated to be $84.8 million and
$13.4 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
The Corporation has $220.1 million in goodwill as of December 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. The Corporation
utilizes an independent third party cost of capital analysis in determination of
its estimates. 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
in which it has been identified.
OTHER INTANGIBLE ASSETS
Other intangible assets are generally the result of acquisitions and consist
primarily of purchased technology, customer related intangibles, trademarks and
service marks, 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 reporting period in which it has been
identified.
40 CURTISS-WRIGHT AND SUBSIDIARIES
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 requires 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
exit or disposal activities and requires that liabilities for costs associated
with these activities be recognized and measured initially at its fair value in
the period in which the liability is incurred. The provisions of this statement
are 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 are effective for fiscal years beginning after
December 15, 2002. The Corporation has continued 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.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities ("VIE"s)" ("FIN 46"). This interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
addresses when a company should include in its financial statements the assets
and liabilities of unconsolidated VIEs. FIN 46 was effective for VIEs created or
acquired after January 31, 2003. The Corporation is not party to any contractual
arrangements with VIEs and thus the adoption of this statement did not have a
material impact on the Corporation's results of operation or financial
condition.
In December 2003, the FASB completed deliberations of proposed modifications to
FIN 46 ("Revised Interpretations") resulting in multiple effective dates based
on the nature as well as the creation date of the VIE. The Corporation does not
anticipate that the adoption of this statement will have a material impact on
the Corporation's results of operation or financial condition.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). The Statement is effective
for financial instruments entered into or modified after May 31, 2003. It
applies in the first interim period beginning after June 15, 2003, to entities
with financial instruments acquired before May 31, 2003. The adoption of this
statement did not have a material impact on the Corporation's results of
operation or financial condition.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This Statement
retains the disclosure requirements contained in the original FASB Statement No.
132, "Employers' Disclosures about Pensions and Other Post retirement Benefits,"
which it replaces and requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. It does not change
the measurement of recognition of those plans required by FASB Statements No.
87, "Employers' Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Statement is effective for annual and interim
periods with fiscal years ending after December 15, 2003. The adoption of this
statement did not have a material impact on the Corporation's results of
operation or financial condition.
Recent Development
On January 31, 2004, the Corporation completed the acquisition of all of the
outstanding shares of Dy 4 Systems, Inc. ("Dy 4") from Solectron Corporation.
The purchase price of the acquisition, subject to customary adjustments as
provided for in the Stock Purchase Agreement, was $110 million in cash.
Management funded the purchase with cash on hand and from the Corporation's
revolving credit facilities. Revenues of the purchased business were $72 million
for the year ended August 29, 2003. Dy 4 is based in Ottawa, Canada, and has
additional operations located in the United States and the United Kingdom.
Management intends to incorporate the operations of Dy 4 into the Corporation's
Motion Control segment.
CURTISS-WRIGHT AND SUBSIDIARIES 41
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 2003, the Corporation seeks to minimize
any material risks from 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. The Corporation used
interest rate swaps to manage interest rate exposures during the year ended
December 31, 2003. Information regarding the Corporation's accounting policy on
financial instruments is contained in Note 1-K to the Consolidated Financial
Statements.
The Corporation's market risk for a change in interest rates relates primarily
to the debt obligations. As a result of the September 25, 2003 Senior Notes
issue and subsequent two interest rate swap agreements dated November 10, 2003,
the Corporation shifted its interest rate exposure from 100% variable to 46%
variable as of December 31, 2003. The net proceeds of the Senior Notes allowed
the Corporation to pay down the majority of its outstanding debt under its
credit facilities. This blended rate strategy for debt borrowings reduces the
uncertainty of shifts in future interest rates. The variable rate on both the
revolving credit agreements and the interest rate swap agreements are based on
market rates. If interest rates changed by one percentage point, the impact on
consolidated interest expense would have been approximately $1 million.
Information regarding the Corporation's Senior Notes, Revolving Credit
Agreement, and Interest Rates Swaps is contained in Note 12 to the Consolidated
Financial Statements.
Financial instruments expose the Corporation to counter-party credit risk for
non-performance and to market risk for changes in interest and foreign 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.
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, the Canadian
Dollar, 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 $2 million as it relates
exclusively to foreign currency exchange rate exposures.
42 CURTISS-WRIGHT AND SUBSIDIARIES
REPORT OF THE CORPORATION
The consolidated financial statements appearing on pages 45 through 71 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.
Deloitte & Touche LLP, independent auditors, performed an audit that included
obtaining an understanding of internal controls the sufficient to plan the audit
and to determine the nature, timing, and extent of audit procedures to be
performed. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
The objective of their audit is the expression of an opinion on the fairness of
the presentation of the Corporation's financial statements in conformity with
accounting principles generally accepted in the United States of America, in all
material respects.
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.
CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
On March 21, 2003, Curtiss-Wright Corporation replaced PricewaterhouseCoopers
LLP ("PwC") as the Corporation's principal accountants. The decision to change
principal accountants was approved by the Audit Committee of the Board of
Directors.
In connection with the audits of the two fiscal years ended December 31, 2002
and 2001 and to the date of change, there were no disagreements with PwC on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreement, if not resolved to PwC's
satisfaction, would have caused PwC to make reference to the subject matter of
the disagreement in connection with its reports.
The audit reports of PwC on the financial statements of the Corporation as of
and for the years ended December 31, 2002 and 2001 did not contain an adverse
opinion or disclaimer of opinion, nor were the reports qualified or modified as
to audit scope or accounting principles.
During the two most recent fiscal years and through the date of change, there
were no reportable events (as defined in Regulation S-K Item 304(a)(1)(v)).
The Corporation requested that PwC furnish it with a letter addressed to the
United States Securities and Exchange Commission stating whether or not it
agreed with the above statements. A copy of such letter, dated March 25, 2003 is
filed as Exhibit 16.1 to the Corporation's Form 8-K filed with the SEC on March
26, 2003.
On March 21, 2003, the Corporation appointed Deloitte & Touche, LLP as the
Corporation's new principal accountants for the fiscal year 2003 subject to
their normal new client acceptance procedures. Prior to its appointment, the
Corporation did not consult with Deloitte & Touche, LLP regarding any matters or
events set forth in Items 304 (a)(2)(i) and (ii) of Regulation S-K of the
Securities Exchange Act of 1934.
CURTISS-WRIGHT AND SUBSIDIARIES 43
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Curtiss-Wright Corporation, Roseland, New Jersey
We have audited the accompanying consolidated balance sheet of Curtiss-Wright
Corporation and subsidiaries as of December 31, 2003, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2003, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Parsippany, New Jersey
February 20, 2004
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Curtiss-Wright Corporation
In our opinion, the accompanying consolidated balance sheet as of December 31,
2002 and the related consolidated statements of earnings, stockholders' equity
and of cash flows for each of the two years in the period ended December 31,
2002, present fairly, in all material respects, the financial position, results
of operations and cash flows of Curtiss-Wright Corporation and its subsidiaries
at December 31, 2002 and for each of the two 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-J and 8 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
PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 12, 2003
44 CURTISS-WRIGHT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
- ---------------------------------------------------------------------------------------------------------------
For the years ended December 31, (In thousands, except per share data) 2003 2002 2001
===============================================================================================================
Net sales $ 746,071 $ 513,278 $ 343,167
Cost of sales 505,153 337,192 215,350
- ---------------------------------------------------------------------------------------------------------------
Gross profit 240,918 176,086 127,817
Research and development costs (22,111) (11,624) (4,383)
Selling expenses (38,816) (29,553) (18,325)
General and administrative expenses (90,849) (71,843) (60,764)
Pension income, net 1,611 7,208 11,042
Gain from insurance company demutualization -- -- 2,980
Environmental remediation and administrative expenses, net (1,423) (1,237) (167)
- ---------------------------------------------------------------------------------------------------------------
Operating income 89,330 69,037 58,200
Interest expense (5,663) (1,810) (1,180)
Gain on sale of real property -- 681 38,882
Rental income, net -- 148 3,585
Other income, net 389 3,679 2,710
- ---------------------------------------------------------------------------------------------------------------
Earnings before income taxes 84,056 71,735 102,197
Provision for income taxes (31,788) (26,599) (39,317)
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 52,268 $ 45,136 $ 62,880
===============================================================================================================
NET EARNINGS PER SHARE:
Basic earnings per share $ 2.53 $ 2.21 $ 3.12
===============================================================================================================
Diluted earnings per share $ 2.50 $ 2.16 $ 3.07
===============================================================================================================
See notes to consolidated financial statements.
- ---------------------------------------------------------------------------------------------------------------
CURTISS-WRIGHT AND SUBSIDIARIES 45
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------
At December 31, (In thousands) 2003 2002
============================================================================================================================
ASSETS:
Current assets:
Cash and cash equivalents $ 98,672 $ 47,717
Receivables, net 143,362 135,734
Inventories, net 97,880 84,568
Deferred tax assets, net 23,630 21,840
Other current assets 10,979 9,005
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 374,523 298,864
- ----------------------------------------------------------------------------------------------------------------------------
Property, plant, and equipment, net 238,139 219,049
Prepaid pension costs 77,877 76,072
Goodwill 220,058 181,101
Other intangible assets, net 48,268 21,982
Other assets 14,800 13,034
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $973,665 $810,102
============================================================================================================================
LIABILITIES:
Current liabilities:
Short-term debt $ 997 $ 32,837
Accounts payable 43,776 41,344
Accrued expenses 44,938 32,446
Income taxes payable 6,748 4,528
Other current liabilities 39,424 50,472
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 135,883 161,627
- ----------------------------------------------------------------------------------------------------------------------------
Long-term debt 224,151 119,041
Deferred tax liabilities, net 21,798 6,605
Accrued pension and other postretirement benefit costs 75,633 77,438
Long-term portion of environmental reserves 21,083 22,585
Other liabilities 16,236 11,578
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 494,784 398,874
- ----------------------------------------------------------------------------------------------------------------------------
CONTINGENCIES AND COMMITMENTS (Notes 12, 15, 17 & 19)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value, 650,000 shares authorized, none issued -- --
Common stock, $1 par value, 33,750,000 and 11,250,000 shares authorized at December 31, 2003
and 2002, respectively, 16,611,464 and 10,617,600 shares issued at December 31, 2003 and 2002,
respectively; outstanding shares were 12,021,610 at December 31, 2003 and 5,890,177 at
December 31, 2002 16,611 10,618
Class B common stock, $1 par value, 11,250,000 shares authorized; 8,764,800 and 4,382,400
shares issued at December 31, 2003 and 2002, respectively; outstanding shares were
8,764,246 at December 31, 2003 and 4,382,116 at December 31, 2002 8,765 4,382
Additional paid-in capital 52,998 52,200
Retained earnings 543,670 508,298
Unearned portion of restricted stock (55) (60)
Accumulated other comprehensive income 22,634 6,482
- ----------------------------------------------------------------------------------------------------------------------------
644,623 581,920
Less: Common treasury stock, at cost (4,590,408 shares at December 31, 2003 and 4,727,707 shares
at December 31, 2002) (165,742) (170,692)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 478,881 411,228
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $973,665 $810,102
============================================================================================================================
See notes to consolidated financial statements.
- ----------------------------------------------------------------------------------------------------------------------------
46 CURTISS-WRIGHT AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, (In thousands) 2003 2002 2001
============================================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 52,268 $ 45,136 $ 62,880
- ----------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 31,327 18,693 14,734
Non-cash pension income (1,611) (7,208) (11,042)
Net loss (gain) on sales and disposals of real estate and equipment 359 (681) (39,018)
Deferred income taxes 6,035 4,011 4,167
Changes in operating assets and liabilities, net of businesses acquired:
Proceeds from sales of short-term investments -- 77,050 348,911
Purchases of short-term investments -- (35,600) (327,761)
(Increase) decrease in receivables (5,958) 31 (7,203)
Decrease (increase) in inventories 1,893 197 (3,232)
Increase in progress payments 1,967 3,464 4,186
Increase (decrease) in accounts payable and accrued expenses 9,343 (61) (2,831)
Decrease in deferred revenue (10,070) (2,820) (422)
Increase (decrease) in income taxes payable 3,240 (11,101) 12,694
Pension contributions (5,729) -- --
Increase in other current and long-term assets (963) (3,254) (2,051)
Increase in other current and long-term liabilities 995 2,156 7,185
Other, net 428 (228) 63
- ----------------------------------------------------------------------------------------------------------------------------
Total adjustments 31,256 44,649 (1,620)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 83,524 89,785 61,620
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and disposals of real estate and equipment 1,132 2,447 45,201
Additions to property, plant, and equipment (33,329) (34,954) (19,354)
Acquisition of new businesses, net of cash acquired (71,368) (164,661) (58,982)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (103,565) (197,168) (33,135)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt 384,712 220,400 --
Principal payments on debt (314,204) (92,795) (8,228)
Reimbursement of recapitalization expenses -- -- 1,750
Proceeds from exercise of stock options 3,868 6,226 1,804
Dividends paid (6,520) (6,141) (5,443)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 67,856 127,690 (10,117)
- ----------------------------------------------------------------------------------------------------------------------------
Effect of foreign currency 3,140 1,915 (1,205)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 50,955 22,222 16,803
Cash and cash equivalents at beginning of year 47,717 25,495 8,692
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 98,672 $ 47,717 $ 25,495
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of non-cash investing activities:
Fair value of assets acquired $ 85,578 $321,450 $ 78,979
Liabilities assumed (13,375) (155,623) (14,829)
Less: Cash acquired (835) (1,166) (5,168)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash paid $ 71,368 $164,661 $ 58,982
============================================================================================================================
See notes to consolidated financial statements.
- ----------------------------------------------------------------------------------------------------------------------------
CURTISS-WRIGHT AND SUBSIDIARIES 47
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
Unearned Accumulated
Class B Additional Portion of Other
Common Common Paid in Retained Restricted Comprehensive
(In thousands) Stock Stock Capital Earnings Stock Awards Income (Loss)
===================================================================================================================
JANUARY 1, 2001 $15,000 $ -- $51,506 $411,866 $(22) $(5,626)
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 62,880 -- --
Translation adjustments, net -- -- -- -- -- (1,205)
===================================================================================================================
Total comprehensive income
===================================================================================================================
Dividends paid -- -- -- (5,443) -- --
Stock options exercised, net -- -- (730) -- -- --
Restricted stock awards -- -- 6 -- (77) --
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)
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 45,136 -- --
Translation adjustments, net -- -- -- -- -- 13,313
===================================================================================================================
Total comprehensive income
===================================================================================================================
Dividends paid -- -- -- (6,141) -- --
Stock options exercised, net -- -- (332) -- -- --
Amortization of earned
portion of restricted
stock awards -- -- -- -- 18 --
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2002 10,618 4,382 52,200 508,298 (60) 6,482
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 52,268 -- --
Translation adjustments, net -- -- -- -- -- 16,152
===================================================================================================================
Total comprehensive income
===================================================================================================================
Dividends paid -- -- -- (6,520) -- --
Stock options exercised, net -- -- 741 -- -- --
Other -- -- 57 -- 5 --
Two-for-one common stock split
effected in the form of a 100%
stock dividend 5,993 4,383 -- (10,376) -- --
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2003 $16,611 $8,765 $52,998 $543,670 $(55) $22,634
===================================================================================================================
See notes to consolidated financial statements.
- -------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------
Comprehensive Treasury
(In thousands) Income Stock
=====================================================================
JANUARY 1, 2001 $(182,500)
- ---------------------------------------------------------------------
Comprehensive income:
Net earnings $62,880 --
Translation adjustments, net (1,205) --
=====================================================================
Total comprehensive income $61,675
=====================================================================
Dividends paid --
Stock options exercised, net 2,456
Restricted stock awards 72
Amortization of earned
portion of restricted
stock awards --
Recapitalization --
- ---------------------------------------------------------------------
DECEMBER 31, 2001 (179,972)
- ---------------------------------------------------------------------
Comprehensive income:
Net earnings $45,136 --
Translation adjustments, net 13,313 --
=====================================================================
Total comprehensive income $58,449
=====================================================================
Dividends paid --
Stock options exercised, net 9,280
Amortization of earned
portion of restricted
stock awards --
- ---------------------------------------------------------------------
DECEMBER 31, 2002 (170,692)
- ---------------------------------------------------------------------
Comprehensive income:
Net earnings $52,268 --
Translation adjustments, net 16,152 --
=====================================================================
Total comprehensive income $68,420
=====================================================================
Dividends paid --
Stock options exercised, net 4,812
Other 138
Two-for-one common stock split
effected in the form of a 100%
stock dividend --
- ---------------------------------------------------------------------
DECEMBER 31, 2003 $(165,742)
=====================================================================
- ---------------------------------------------------------------------
48 CURTISS-WRIGHT AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Curtiss-Wright Corporation and its subsidiaries (the "Corporation") is a
diversified multinational manufacturing and service company that designs,
manufactures, and overhauls precision components and systems and provides highly
engineered products and services to the aerospace, defense, automotive,
shipbuilding, processing, oil, petrochemical, agricultural equipment, railroad,
power generation, security, and metalworking industries. Operations are
conducted through 24 manufacturing facilities, 53 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 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, net of estimated returns and allowances. Sales and
estimated profits under certain long-term contracts are recognized under the
percentage-of-completion methods of accounting, whereby 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. 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 overhead.
F. Progress Payments
Certain long-term contracts provide for the interim billings as costs are
incurred on the respective contracts. Pursuant to contract provisions, agencies
of the U.S. government and other customers are granted title or a secured
interest in the unbilled costs included in unbilled receivables, and materials
and work-in-process included in inventory to the extent of progress payments.
Accordingly, these progress payments received have been reported as a reduction
of unbilled receivables and inventories, as presented in Notes 5 and 6.
G. Property, Plant, and Equipment
Property, plant, and equipment are carried at cost less accumulated
depreciation. 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 are incurred. Depreciation is computed using the straight-line
method based upon the estimated useful lives of the respective assets.
Average useful lives for property, plant, and equipment are as follows:
Buildings and improvements 5 to 40 years
Machinery, equipment, and other 3 to 15 years
H. Intangible Assets
Intangible assets are generally the result of acquisitions and consist primarily
of purchased technology, customer related intangibles, trademarks and service
marks, and technology licenses. 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 9 for further information on other
intangible assets.
CURTISS-WRIGHT AND SUBSIDIARIES 49
I. 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
in the period the impairment becomes known. There were no such write-downs in
2003, 2002, or 2001.
J. Goodwill
Goodwill results from business acquisitions. The Corporation accounts for
business acquisitions by allocating 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 allocated is recorded as goodwill.
Upon adoption of Statement of Financial 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, or whenever an event occurs or
circumstances change that would more likely than not result in an impairment.
The impairment test is based on the estimated fair value of the underlying
businesses. See Note 8 for further information on goodwill.
K. 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 estimated fair values of the Corporation's long-term debt instruments at
December 31, 2003 aggregated $226.6 million compared to a carrying value of
$225.1 million. The carrying amount of the variable interest rate long-term debt
approximates fair value because the interest rates are reset periodically to
reflect current market conditions. Fair values for the Corporation's fixed rate
debt were estimated based on valuations provided by third parties in accordance
with their proprietary models.
The carrying amount of the interest rate swaps reflects their fair value as
provided by third parties in accordance with their proprietary models.
The fair values described above may not be indicative of net realizable value or
reflective of future fair values. Furthermore, the use of different
methodologies to determine the fair value of certain financial instruments could
result in a different estimate of fair value at the reporting date.
L. 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 contracts. 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.
M. 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 anticip ated remediation costs, not recognizing any potential
recovery from insurance carriers or third-party legal actions, and are not
discounted.
N. 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 using the
intrinsic value method under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." As such, the Corporation does not
recognize compensation expense on non-qualified 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.
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:
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Risk-free interest rate 3.68% 3.61% 4.66%
Expected volatility 31.68% 31.33% 24.18%
Expected dividend yield 0.94% 0.92% 1.37%
Weighted-average option life 7 years 7 years 7 years
Weighted-average grant-date
fair value of options $13.97 $11.81 $6.79
================================================================================
- --------------------------------------------------------------------------------
50 CURTISS-WRIGHT AND SUBSIDIARIES
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, 2003, 2002, and 2001 is as follows:
- --------------------------------------------------------------------------------
(In thousands, except per share data) 2003 2002 2001
- -------------------------------------------------------------------------------
NET EARNINGS: AS REPORTED $ 52,268 $ 45,136 $ 62,880
Deduct:
Total stock-based employee
compensation expense
determined under fair value
based method for all awards,
net of related tax effects (1,261) (1,524) (1,197)
Pro forma $ 51,007 $ 43,612 $ 61,683
NET EARNINGS PER SHARE:
As reported:
Basic $ 2.53 $ 2.21 $ 3.12
Diluted $ 2.50 $ 2.16 $ 3.07
Pro forma:
Basic $ 2.47 $ 2.14 $ 3.07
Diluted $ 2.44 $ 2.09 $ 3.01
===============================================================================
- --------------------------------------------------------------------------------
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 $1.7 million, $2.7 million, and $0.5 million in 2003, 2002, and 2001,
respectively. Further information concerning options granted under the
Corporation's Long-Term Incentive Plan is provided in Note 14.
O. Capital Stock
On May 23, 2003, the stockholders approved an increase in the number of
authorized shares of the Corporation's Common Stock from 11,250,000 to
33,750,000. On November 18, 2003, the Board of Directors declared a 2-for-1
stock split in the form of a 100% stock dividend. The split, in the form of 1
share of Common Stock for each share of Common Stock outstanding and 1 share of
Class B Common Stock for each share of Class B Common Stock outstanding, was
payable on December 17, 2003. To effectuate the stock split, the Corporation
issued 5,993,864 original shares of Common Stock and 4,382,400 original shares
of Class B Common Stock, at $1.00 par value from capital surplus, with a
corresponding reduction in retained earnings of $10.4 million. Accordingly, all
references throughout this annual report to number of shares, per share amounts,
stock options data and market prices of the Corporation's two classes of common
stock have been adjusted to reflect the effect of the stock split for all
periods presented, where applicable.
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, 2003, the
Corporation had repurchased 210,930 shares under this program. There was no
stock repurchased during 2003 and 2002.
P. 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 13.
Q. 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.
R. 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
entities. Gains and losses from foreign currency transactions are included in
results of operations.
S. Derivatives
The Corporation uses interest rate swaps to manage its exposure to fluctuations
in interest rates on a portion of its fixed rate debt instruments. The interest
rate swap agreements are accounted for as fair value hedges. The derivatives
have been recorded at fair value on the balance sheet within other non-current
assets with changes in fair value recorded currently in earnings. Additionally,
the carrying amount of the associated debt is adjusted through earnings for
changes in fair value due to changes in interest rates. Ineffectiveness is
recognized to the extent that these two adjustments do not offset. For the year
ended December 31, 2003, the derivatives were assumed to be perfectly effective
under the "short-cut method" of SFAS 133. The differential to be paid or
received based on changes in interest rates is recorded as an adjustment to
interest expense in the statement of earnings. Additional information on these
swap agreements is presented in Note 12.
CURTISS-WRIGHT AND SUBSIDIARIES 51
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 requires 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
exit or disposal activities and requires that liabilities for costs associated
with these activities be recognized and measured initially at its fair value in
the period in which the liability is incurred. The provisions of this statement
are 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 are 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.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities ("VIE"s)" ("FIN 46"). This interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
addresses when a company should include in its financial statements the assets
and liabilities of unconsolidated VIEs. FIN 46 was effective for VIEs created or
acquired after January 31, 2003. The Corporation is not party to any contractual
arrangements with VIEs and thus the adoption of this statement did not have a
material impact on the Corporation's results of operation or financial
condition.
In December 2003, the FASB completed deliberations of proposed modifications to
FIN 46 ("Revised Interpretations") resulting in multiple effective dates based
on the nature as well as the creation date of the VIE. The Corporation does not
anticipate that the adoption of this statement will have a material impact on
the Corporation's results of operation or financial condition.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). The Statement is effective
for financial instruments entered into or modified after May 31, 2003. It
applies in the first interim period beginning after June 15, 2003, to entities
with financial instruments acquired before May 31, 2003. The adoption of this
statement did not have a material impact on the Corporation's results of
operation or financial condition.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This Statement
retains the disclosure requirements contained in the original FASB Statement No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits,"
which it replaces and requires additional disclosures about the assets,
obligations, cash flows, and net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans. It does not change
the measurement of recognition of those plans required by FASB Statements No.
87, "Employers' Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Statement is effective for annual and interim
periods with fiscal years ending after December 15, 2003. The adoption of this
statement did not have a material impact on the Corporation's results of
operation or financial condition.
2. Acquisitions
The Corporation acquired six businesses in 2003, six businesses in 2002, and
seven businesses in 2001 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. Within one year
of acquisition, the Corporation will adjust these estimates based upon
52 CURTISS-WRIGHT AND SUBSIDIARIES
analysis of third party appraisals and the determination of fair value when
finalized. The Corporation does not consider the 2003 acquisitions to be
material, individually or in the aggregate, to its financial position,
liquidity, or results of operations, and therefore no pro forma financial
statements are provided. 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
NOVATRONICS/PICKERING
On December 4, 2003, the Corporation acquired all of the outstanding shares of
Novatronics Inc. ("Novatronics") and Pickering Controls Inc. ("Pickering") in a
single transaction. The purchase price of the acquisition, subject to a working
capital adjustment and other customary adjustments as provided in the Stock
Purchase Agreement, was $13.6 million in cash and the assumption of certain
liabilities. There are provisions in the agreement for an additional payment in
2006 upon the achievement of certain financial performance criteria up to a
maximum of $2.3 million. Management funded the purchase price with proceeds from
the Senior Notes issued in September 2003. The excess of the purchase price over
the fair value of the net assets acquired as of December 31, 2003 is $5.3
million. The fair value of the net assets acquired was based on current
estimates. The Corporation may adjust these estimates based upon analysis of
third party appraisals and the final determination of fair value. Revenues of
the purchased business were $12.0 million for the year ended December 31, 2002.
Novatronics and Pickering design and manufacture electric motors and position
sensors (both linear and rotary) for the commercial aerospace, military
aerospace, and industrial markets. Novatronics has operating facilities located
in Stratford, Ontario, Canada, while Pickering is located in Plainview, New
York.
SYSTRAN CORPORATION
On December 1, 2003, the Corporation acquired all of the outstanding shares of
Systran Corporation ("Systran"). The purchase price of the acquisition, subject
to a working capital adjustment and other customary adjustments as provided for
in the Stock Purchase Agreement, was $18.0 million in cash and the assumption of
certain liabilities. Management funded the purchase price with proceeds from the
Senior Notes issued in September 2003. The excess of the purchase price over the
fair value of the net assets acquired as of December 31, 2003 is $9.3 million.
The fair value of the net assets acquired was based on current estimates. The
Corporation may adjust these estimates based upon analysis of third party
appraisals and the final determination of fair value. Revenues of the purchased
business were $15.1 million for the year ended September 30, 2003.
Systran is a leading supplier of highly specialized, high performance data
communications products for real-time systems, primarily for the aerospace and
defense, industrial automation, and medical imaging markets. Key applications
include simulation, process control, advanced digital signal processing, data
acquisition, image processing, and test and measurement. Systran's operations
are located in Dayton, Ohio.
PERITEK CORPORATION
On August 1, 2003, the Corporation acquired the assets and certain liabilities
of Peritek Corporation ("Peritek"). The purchase price of the acquisition was
$3.2 million in cash and the assumption of certain liabilities. The Corporation
paid $1.5 million at closing, which was funded from cash available from
operations, and will pay the remaining purchase price subject to a promissory
note of $1.2 million and settlement of a holdback provision of $0.3 million. The
holdback amount is held as security for potential indemnification claims. Any
amount of holdback remaining after claims for indemnification have been settled
will be paid nineteen months after the acquisition date. The purchase price of
the acquisition approximates the fair value of the net assets acquired as of
December 31, 2003, which includes developed technology of approximately $2.6
million. Revenues of the purchased business for the fiscal year ending March 31,
2003 were $2.7 million.
Peritek is a leading supplier of video and graphic display boards for the
embedded computing industry and supplies a variety of industries including
aviation, defense, and medical. In addition, Peritek supplies products for bomb
detection, industrial automation, and medical imaging applications. Peritek's
operations are located in Oakland, California.
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 was $11.8 million in cash and the assumption of certain
liabilities. Included in the purchase price is $0.5 million held as security for
potential indemnification claims. Any amount of holdback remaining after claims
for indemnification have been settled 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. The excess of the purchase
price, excluding the holdback, over the fair value of the net assets acquired as
of December 31, 2003 is $6.8 million. The fair value of the net assets acquired
was based on current estimates. The Corporation may adjust these estimates based
upon analysis of third party appraisals and the final determination of fair
value. Revenues of the purchased business were $8.3 million for the year ended
March 31, 2002.
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.
CURTISS-WRIGHT AND SUBSIDIARIES 53
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 was $59.5 million in cash and the assumption
of certain liabilities. Approximately $40 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 as of December 31,
2003 is $32.5 million, including foreign currency translation adjustment gains
of $4.8 million.
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.
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 $44.8 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 through 2006 up to a maximum additional payment of $22.0 million.
During 2003, the Corporation had paid $1.8 million in cash and accrued an
additional $1.2 million related to these provisions, which have been reflected
in the purchase price above. 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 as of December 31, 2003 is $35.8 million.
Flow Control
TAPCO INTERNATIONAL
On December 3, 2002, the Corporation acquired the assets of TAPCO International,
Inc., ("TAPCO") for $12.0 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. The excess of the purchase price over the fair value of the net
assets acquired as of December 31, 2003 is $6.4 million.
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, a
wholly-owned subsidiary of Washington Group International. The purchase price of
the acquisition, which includes capitalized acquisition costs, was $79.9 million
in cash and the assumption of certain liabilities and is subject to a working
capital adjustment and other customary adjustments as provided for in the Asset
Purchase Agreement. The acquisition was accounted for as a purchase in the
fourth quarter of 2002 and was funded from the Corporation's revolving credit
facilities. The purchase price has been allocated to the net tangible and
intangible assets acquired as of December 31, 2003, 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 70,474
Other assets 40,423
Postretirement benefit obligation (36,344)
Pension benefit obligation (38,626)
Other noncurrent liabilities (13,881)
Intangible assets 6,970
- -------------------------------------------------------------------------------
Net tangible and intangible assets $ 29,471
Purchase price 79,858
- -------------------------------------------------------------------------------
Goodwill $ 50,387
================================================================================
- --------------------------------------------------------------------------------
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.
54 CURTISS-WRIGHT AND SUBSIDIARIES
DELTAVALVE
On December 12, 2001, the Corporation acquired the operating assets of
Deltavalve USA, LLC ("Deltavalve"). Deltavalve designs, engineers, and
manufactures industrial valves used in high pressure, extreme temperature, and
corrosive plant environments. Deltavalve is located in Salt Lake City, Utah with
an assembly and test facility in Calgary, Alberta, Canada.
The Corporation acquired the net assets of Deltavalve for $6.5 million in cash,
plus the assumption of certain liabilities. There are provisions in the
agreement for additional payments upon the achievement of certain financial
performance criteria through 2006. 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 as of December 31, 2003 is $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 for the U.S. Nuclear Naval program. The purchased
business was located in Elmhurst, New York, but has subsequently been relocated
to the Corporation's facility in East Farmingdale, New York. The purchase price
of the acquisition was $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 as of December 31, 2003 is $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 $2.4 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
through 2006. During 2003, the Corporation had paid $0.9 million related to
these provisions, which have been reflected in the purchase price above. 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 as
of December 31, 2003 is $3.8 million, including foreign currency translation
gains of $0.8 million.
Metal Treatment
E/M ENGINEERED COATINGS SOLUTIONS
On April 2, 2003, the Corporation purchased selected assets of E/M Engineered
Coatings Solutions ("E/M Coatings"). The purchase price of the acquisition was
$16.8 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. The excess of the purchase price over the fair value of the net
assets acquired as of December 31, 2003 is $5.8 million. The fair value of the
net assets acquired was based on current estimates. The Corporation may adjust
these estimates based upon analysis of third party appraisals and the final
determination of fair value. Revenues of the purchased business were
approximately $26 million for the year ended December 31, 2002.
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.
ADVANCED MATERIAL PROCESS
On March 11, 2003, the Corporation acquired selected net assets of Advanced
Material Process Corp. ("AMP"), a private company with operations located in
Wayne, Michigan. The purchase price of the acquisition was $5.9 million in cash
and the assumption of certain liabilities. Included in the purchase price is
$0.2 million held as security for potential indemnification claims. Any amount
of holdback remaining after claims for indemnification have been settled 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 through 2008 up to a maximum additional payment of $1.0 million.
Management funded the purchase from credit available under the Corporation's
Short-Term Credit Agreement. The excess of the purchase price over the fair
value of the net assets acquired as of December 31, 2003 is $2.8 million. The
fair value of the net assets acquired was based on current estimates. The
Corporation may adjust these estimates based upon analysis of third party
appraisals and the final determination of fair value. Revenues of the purchased
business were $5.1 million for the year ended December 31, 2002.
AMP is a supplier of commercial shot peening services primarily to the
automotive market in the Detroit area.
CURTISS-WRIGHT AND SUBSIDIARIES 55
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 was $10.0 million in cash, which
approximated the fair value of the net assets acquired as of December 31, 2003.
There are provisions in the agreement for additional payments upon the
achievement of certain financial performance criteria through 2007 up to a
maximum additional payment of $10.0 million.
YTSTRUKTUR ARBOGA AB
On April 11, 2002, the Corporation acquired 100% of the stock of Ytstruktur
Arboga AB, a metal treatment business located in Arboga, 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 was $1.2 million. The excess of the
purchase price over the fair value of the net assets acquired as of December 31,
2003 is $1.5 million, including $0.5 million of foreign currency translation
gains.
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 $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 $0.8 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 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 15 for additional information
regarding environmental matters.
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 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% 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.
56 CURTISS-WRIGHT AND SUBSIDIARIES
5. Receivables
Receivables include current notes, amounts billed to customers, claims and other
receivables, and unbilled revenue on long-term contracts, consisting of amounts
recognized as sales but not billed. Substantially all amounts of unbilled
receivables are expected to be billed and collected in the subsequent year.
Credit risk is generally diversified due to the large number of entities
comprising the Corporation's customer base and their geographic dispersion. The
Corporation is either a prime contractor or subcontractor of various agencies of
the U.S. Government. Revenues derived directly and indirectly from government
sources (primarily the U.S. Government) were 46%, 41% and 25% of consolidated
revenues in 2003, 2002, and 2001, respectively. As of December 31, 2003 and
2002, accounts receivable due directly or indirectly from these government
sources represented 34% and 36% of net receivables, respectively. Sales to one
customer through which the Corporation is a subcontractor to the U.S. Government
were 16% of consolidated revenues in 2003, 10% in 2002, and 6% in 2001. Accounts
receivables due from this same customer were 14% of net receivables at December
31, 2003 and 15% as of December 31, 2002. Due to the increased diversification
of the Corporation's customer base resulting from our recent acquisitions, no
one commercial customer represents a significant concentration of credit risk at
December 31, 2003 and 2002.
The Corporation performs ongoing credit evaluations of its customers and
establishes appropriate allowances for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and other
information.
The composition of receivables is as follows:
- --------------------------------------------------------------------------------
(In thousands) December 31, 2003 2002
- -------------------------------------------------------------------------------
BILLED RECEIVABLES:
Trade and other receivables $ 111,068 $ 106,946
Less: Allowance for
doubtful accounts (3,449) (3,244)
- -------------------------------------------------------------------------------
Net billed receivables 107,619 103,702
- -------------------------------------------------------------------------------
UNBILLED RECEIVABLES:
Recoverable costs and estimated
earnings not billed 56,070 45,997
Less: Progress payments applied (20,327) (13,965)
- -------------------------------------------------------------------------------
Net unbilled receivables 35,743 32,032
- -------------------------------------------------------------------------------
Receivables, net $ 143,362 $ 135,734
===============================================================================
- --------------------------------------------------------------------------------
The net receivable balance at December 31, 2003 included $10.5 million related
to the Corporation's 2003 acquisitions.
6. 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, 2003 2002
- -------------------------------------------------------------------------------
Raw material $ 40,624 $ 34,365
Work-in-process 26,409 26,069
Finished goods and component parts 46,575 45,682
Inventoried costs related to
U.S. Government and other
long-term contracts 20,544 22,743
- -------------------------------------------------------------------------------
Gross inventories 134,152 128,859
- -------------------------------------------------------------------------------
Less: Inventory reserves (22,278) (23,548)
Progress payments applied,
principally related to
long-term contracts (13,994) (20,743)
- -------------------------------------------------------------------------------
Inventories, net $ 97,880 $ 84,568
===============================================================================
- --------------------------------------------------------------------------------
The net inventory balance at December 31, 2003 included $9.0 million related to
the Corporation's 2003 acquisitions.
7. Property, Plant, and Equipment
The composition of property, plant, and equipment is as follows:
- --------------------------------------------------------------------------------
(In thousands) December 31, 2003 2002
- -------------------------------------------------------------------------------
Land $ 12,206 $ 11,677
Buildings and improvements 93,058 80,652
Machinery, equipment, and other 294,744 262,661
- -------------------------------------------------------------------------------
Property, plant, and equipment, at cost 400,008 354,990
Less: Accumulated depreciation (161,869) (135,941)
- -------------------------------------------------------------------------------
Property, plant, and equipment, net $ 238,139 $ 219,049
===============================================================================
- --------------------------------------------------------------------------------
Depreciation expense for the years ended December 31, 2003, 2002, and 2001 was
$27.7 million, $16.7 million, and $12.4 million, respectively. The net property,
plant, and equipment balance at December 31, 2003 included $3.1 million related
to the Corporation's 2003 acquisitions.
CURTISS-WRIGHT AND SUBSIDIARIES 57
8. Goodwill
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 2003 and 2002 are as follows:
- --------------------------------------------------------------------------------
Motion Flow Metal
(In thousands) Control Control Treatment Consolidated
- --------------------------------------------------------------------------------
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
Foreign currency
translation
adjustment 4,594 395 165 5,154
- --------------------------------------------------------------------------------
December 31, 2002 78,727 95,409 6,965 181,101
================================================================================
Goodwill from 2003
acquisitions 21,369 -- 8,581 29,950
Change in estimate to
fair value of net
assets acquired
in 2002 6,081 (3,977) 13 2,117
Foreign currency
translation
adjustment 4,673 1,986 231 6,890
- --------------------------------------------------------------------------------
December 31, 2003 $110,850 $ 93,418 $ 15,790 $220,058
================================================================================
- --------------------------------------------------------------------------------
During 2003, the Corporation finalized the allocation of the purchase price for
the six businesses acquired in 2002. The purchase price allocations relating to
businesses acquired in 2003 are based on estimates and have not yet been
finalized. Approximately $15 million and $18 million of the goodwill acquired
during 2003 and 2002, respectively, is deductible for tax purposes.
In accordance with SFAS No. 142, the Corporation completed its annual impairment
test of goodwill during the third quarter of 2003 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, 2001:
- --------------------------------------------------------------------------------
(In thousands) December 31, 2003 2002 2001
- --------------------------------------------------------------------------------
NET EARNINGS:
As reported $ 52,268 $ 45,136 $ 62,880
Goodwill amortization,
net of tax -- -- 1,136
- --------------------------------------------------------------------------------
As adjusted $ 52,268 $ 45,136 $ 64,016
- --------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
As reported $ 2.50 $ 2.16 $ 3.07
Goodwill amortization,
net of tax -- -- 0.06
- --------------------------------------------------------------------------------
As adjusted $ 2.50 $ 2.16 $ 3.13
================================================================================
- --------------------------------------------------------------------------------
9. Other Intangible Assets, net
Intangible assets are generally the result of acquisitions and consist primarily
of purchased technology, customer related intangibles, trademarks and service
marks, 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 2003 and 2002. The 2002
amounts have been adjusted to reflect the change in estimates of fair values
made in 2003 and exclude $1.0 million of indefinite lived intangible assets
included in Other intangible assets.
- --------------------------------------------------------------------------------
(In thousands, except years data) 2003 2002
- --------------------------------------------------------------------------------
Amount Years Amount Years
- --------------------------------------------------------------------------------
Developed technology $12,453 8.0 $11,012 14.3
Customer related
intangibles 7,426 11.6 8,035 13.4
Other intangible assets 2,519 10.5 244 14.4
- --------------------------------------------------------------------------------
Total $22,398 9.5 $19,291 13.9
================================================================================
- --------------------------------------------------------------------------------
58 CURTISS-WRIGHT AND SUBSIDIARIES
The following tables present the cumulative composition of the Corporation's
acquired intangible assets as of December 31:
- --------------------------------------------------------------------------------
(In thousands) Accumulated
2003 Gross Amortization Net
- --------------------------------------------------------------------------------
Developed technology $32,892 $(2,966) $29,926
Customer related intangibles 14,469 (863) 13,606
Other intangible assets 5,902 (1,166) 4,736
- --------------------------------------------------------------------------------
Total $53,263 $(4,995) $48,268
================================================================================
Accumulated
2002 Gross Amortization Net
- --------------------------------------------------------------------------------
Developed technology $21,371 $(1,452) $19,919
Customer related intangibles 1,268 (601) 667
Other intangible assets 2,143 (747) 1,396
- --------------------------------------------------------------------------------
Total $24,782 $(2,800) $21,982
================================================================================
- --------------------------------------------------------------------------------
The following table presents the changes in the net balance of other intangibles
assets during 2003:
- --------------------------------------------------------------------------------
Customer Other
Developed Related Intangible
(In thousands) Technology Intangibles Assets Total
- -------------------------------------------------------------------------------
December 31, 2002 $19,919 $ 667 $1,396 $21,982
Acquired during 2003 12,453 7,426 2,519 22,398
Amortization expense (1,408) (1,744) (423) (3,575)
Change in estimate of
fair value related
to purchase price
allocations (1,771) 7,230 1,244 6,703
Net foreign currency
translation
adjustment 733 27 -- 760
- -------------------------------------------------------------------------------
December 31, 2003
Total $29,926 $13,606 $4,736 $48,268
================================================================================
- --------------------------------------------------------------------------------
During 2003, the Corporation removed $1.5 million of fully amortized intangible
assets from the gross and accumulated amortization of customer related
intangibles, respectively.
Amortization expense for the years ended December 31, 2002 and 2001 was $1.9
million and $0.4 million, respectively. The estimated future amortization
expense of purchased intangible assets is as follows:
- --------------------------------------------------------------------------------
(In thousands)
- --------------------------------------------------------------------------------
2004 $ 4,641
2005 4,581
2006 4,581
2007 4,581
2008 4,391
2009 and thereafter 25,493
- --------------------------------------------------------------------------------
Total amortization expense $48,268
================================================================================
- --------------------------------------------------------------------------------
10. Accrued Expenses and Other Current Liabilities
Accrued expenses consist of the following:
- --------------------------------------------------------------------------------
(In thousands) December 31, 2003 2002
- -------------------------------------------------------------------------------
Accrued compensation $ 26,331 $ 19,667
Accrued interest 3,264 216
Accrued insurance 3,957 3,253
Accrued taxes other than income taxes 3,050 2,044
Accrued commissions 1,593 1,137
Other 6,743 6,129
- -------------------------------------------------------------------------------
Total accrued expenses $ 44,938 $ 32,446
================================================================================
- -------------------------------------------------------------------------------
Other current liabilities consist of the following:
- -------------------------------------------------------------------------------
(In thousands) December 31, 2003 2002
- -------------------------------------------------------------------------------
Deferred revenue $ 21,726 $ 31,796
Warranty reserves 10,011 9,504
Current portion of environmental reserves 2,178 2,177
Additional amounts due to sellers
on acquisitions 2,154 2,120
Other 3,355 4,875
- -------------------------------------------------------------------------------
Total other current liabilities $ 39,424 $ 50,472
================================================================================
- -------------------------------------------------------------------------------
The accrued expenses and other current liabilities at December 31, 2003 included
$2.2 million and $1.5 million, respectively, related to the Corporation's 2003
acquisitions.
CURTISS-WRIGHT AND SUBSIDIARIES 59
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
are finalized or better information is obtained. The following table presents
the changes in the Corporation's warranty reserves:
- --------------------------------------------------------------------------------
(In thousands) 2003 2002
- -------------------------------------------------------------------------------
Warranty reserves at January 1, $ 9,504 $ 3,162
Increase due to acquisitions 612 4,249
Provision for current year sales 1,650 1,648
Change in estimates to
pre-existing warranties (389) 1,227
Current year claims (1,930) (1,424)
Foreign currency translation adjustment 564 642
- -------------------------------------------------------------------------------
Warranty reserves at December 31, $ 10,011 $ 9,504
================================================================================
- --------------------------------------------------------------------------------
11. Income Taxes
Earnings before income taxes for the years ended December 31 consist of:
- --------------------------------------------------------------------------------
(In thousands) 2003 2002 2001
- --------------------------------------------------------------------------------
Domestic $67,429 $55,314 $ 84,018
Foreign 16,627 16,421 18,179
- --------------------------------------------------------------------------------
Total $84,056 $71,735 $102,197
================================================================================
- --------------------------------------------------------------------------------
The provision for income taxes for the years ended December 31 consist of:
- --------------------------------------------------------------------------------
(In thousands) 2003 2002 2001
- --------------------------------------------------------------------------------
Current:
Federal $17,018 $13,582 $22,656
State 4,103 3,648 6,048
Foreign 5,050 5,255 5,829
- --------------------------------------------------------------------------------
26,171 22,485 34,533
- --------------------------------------------------------------------------------
Deferred:
Federal 5,032 3,664 3,763
State 426 296 505
Foreign 159 154 516
- --------------------------------------------------------------------------------
5,617 4,114 4,784
- --------------------------------------------------------------------------------
Provision for income taxes $31,788 $26,599 $39,317
================================================================================
- --------------------------------------------------------------------------------
The effective tax rate varies from the U.S. federal statutory tax rate for the
years ended December 31, principally due to the following:
- --------------------------------------------------------------------------------
2003 2002 2001
- -------------------------------------------------------------------------------
U.S. Federal statutory tax rate 35.0% 35.0% 35.0%
Add (deduct):
State and local taxes 3.5 3.6 4.2
Recovery of research &
development credits
from prior years -- (1.3) --
Dividends received
deduction and tax
exempt income -- (0.1) (0.5)
All other, net (0.7) (0.1) (0.2)
- -------------------------------------------------------------------------------
Effective tax rate 37.8% 37.1% 38.5%
===============================================================================
- --------------------------------------------------------------------------------
The components of the Corporation's deferred tax assets and liabilities at
December 31 are as follows:
- --------------------------------------------------------------------------------
(In thousands) 2003 2002
- -------------------------------------------------------------------------------
Deferred tax assets:
Environmental reserves $ 9,318 $ 10,127
Inventories 8,992 9,974
Postretirement/postemployment
benefits 15,601 15,002
Incentive compensation 5,383 3,406
Accrued vacation pay 3,806 3,535
Warranty reserve 1,686 2,014
Other 4,446 4,076
- -------------------------------------------------------------------------------
Total deferred tax assets 49,232 48,134
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Retirement plans 13,692 12,785
Depreciation 16,416 13,875
Goodwill amortization 4,936 2,841
Other intangible amortization 9,285 1,773
Other 3,071 1,625
- -------------------------------------------------------------------------------
Total deferred tax liabilities 47,400 32,899
- -------------------------------------------------------------------------------
Net deferred tax assets $ 1,832 $ 15,235
===============================================================================
- --------------------------------------------------------------------------------
60 CURTISS-WRIGHT AND SUBSIDIARIES
Deferred tax assets and liabilities are reflected on the Corporation's
consolidated balance sheet at December 31 as follows:
- --------------------------------------------------------------------------------
(In thousands) 2003 2002
- -------------------------------------------------------------------------------
Current deferred tax assets $ 23,630 $ 21,840
Noncurrent deferred tax liabilities (21,798) (6,605)
- -------------------------------------------------------------------------------
Net deferred tax assets $ 1,832 $ 15,235
===============================================================================
- --------------------------------------------------------------------------------
Income tax payments of $22.8 million were made in 2003, $34.6 million in 2002,
and $18.9 million in 2001.
No provision has been made for U.S. federal or foreign taxes on that portion of
certain foreign subsidiaries' undistributed earnings $16.7 million at December
31, 2003 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.
12. Debt
Debt at December 31 consists of the following:
- --------------------------------------------------------------------------------
(In thousands) 2003 2002
- -------------------------------------------------------------------------------
Industrial Revenue Bonds, due from
2007 to 2028. Weighted average
interest rate is 1.24% and 1.51%
for 2003 and 2002, respectively $ 14,296 $ 13,400
Revolving Credit Agreement Borrowing,
due 2007. Weighted average interest
rate is 1.97% for 2003 and 2.55%
for 2002 8,868 105,463
Short-Term Credit Agreement Borrowing,
due 2004. Weighted average interest
rate is 2.27% for 2003 -- 32,000
5.13% Senior Notes due 2010 75,217 --
5.74% Senior Notes due 2013 125,747 --
Other debt 1,020 1,015
- -------------------------------------------------------------------------------
Total debt 225,148 151,878
- -------------------------------------------------------------------------------
Less: Short-term debt 997 32,837
Total Long-term debt $ 224,151 $ 119,041
================================================================================
- --------------------------------------------------------------------------------
The debt under the Corporation's revolving credit agreement includes amounts
denominated in Swiss francs, which were 11.0 million Swiss francs at December
31, 2003 and December 31, 2002.
The estimated fair values of the Corporation's long-term debt instruments at
December 31, 2003 aggregated $226.6 million compared to a carrying value of
$225.1 million. The carrying amount of the variable interest rate long-term debt
approximates fair value because the interest rates are reset periodically to
reflect current market conditions. Fair values for the Corporation's fixed rate
debt were estimated based on valuations provided by third parties in accordance
with their proprietary models.
The carrying amount of the interest rate swaps reflects their fair value as
provided by third parties in accordance with their proprietary models.
The fair values described above may not be indicative of net realizable value or
reflective of future fair values. Furthermore, the use of different
methodologies to determine the fair value of certain financial instruments could
result in a different estimate of fair value at the reporting date.
Aggregate maturities of debt are as follows:
- --------------------------------------------------------------------------------
(In thousands)
- --------------------------------------------------------------------------------
2004 $ 997
2005 79
2006 59
2007 13,929
2008 62
Thereafter 209,058
- --------------------------------------------------------------------------------
Total $224,184
================================================================================
Amounts exclude a $1.0 million adjustment to the fair value of long-term debt
relating to the Corporation's interest rate swap agreements that will not be
settled in cash.
- --------------------------------------------------------------------------------
Interest payments of $2.3 million, $1.6 million, and $0.8 million were made in
2003, 2002, and 2001, respectively.
On September 25, 2003 the Corporation issued $200.0 million of Senior Notes (the
"Notes"). The Notes consist of $75.0 million of 5.13% Senior Notes that mature
on September 25, 2010 and $125.0 million of 5.74% Senior Notes that mature on
September 25, 2013. The Corporation used the net proceeds of the Notes to repay
the majority of the outstanding indebtedness under the existing revolving credit
facilities. The Notes are senior unsecured obligations and are equal in right of
payment to the Corporation's existing senior indebtedness. The Corporation, at
its option, can prepay at any time, all or from time to time any part of, the
Notes, subject to a make-whole amount in accordance with the Note Purchase
Agreement. The Corporation paid customary fees that have been deferred and will
be amortized over the terms of the Notes. The Corporation is required under the
Note Purchase Agreement to maintain certain financial ratios and meet certain
net worth and indebtedness tests, of which the Corporation is in compliance.
The Corporation attempts to limit its exposure to interest rate risk by managing
the mix of its long-term fixed rate borrowings and short-term borrowings under
its bank credit facilities. As noted below, the Corporation entered into
interest rate swap agreements designated as fair value hedges on a portion of
its $75 million of fixed rate debt due in 2010 and its $125 million of fixed
rate debt due in 2013. Giving effect to these agreements, the Corporation's
fixed rate borrowings represented 54% of total borrowings at December 31, 2003.
CURTISS-WRIGHT AND SUBSIDIARIES 61
The Corporation has 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 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
Short-Term Credit Agreement allows for cash borrowings up to a maximum of $90.0
million. The Short-Term Credit Agreement expires May 7, 2004, but may be
extended annually 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 2004; however, there can be no assurances that the bank group will
approve the extension. In the event the bank group does not renew the Short-Term
Credit Agreement, the Corporation should have sufficient cash flow to meet its
cash requirements. 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,
2003, 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, of which the
Corporation is in compliance. The unused credit available under the Revolving
Credit Agreement and the Short-Term Credit Agreement at December 31, 2003 was
$107.1 million and $90.0 million, respectively.
In the fourth quarter of 2003, the Corporation entered into two interest rate
swap agreements, designated as fair value hedges, which effectively convert $80
million of the Corporation's $200 million Senior Note fixed rate debt to
floating rate debt. Under the terms of these agreements, the Corporation makes
payments based on specified spreads over six-month LIBOR and receives payments
equal to the interest payments due on the fixed rate debt. The differential
between the payments is recognized as interest expense. The interest rate swap
agreements qualify for the "shortcut method" under SFAS No. 133, which allows
for an assumption of no ineffectiveness in the hedging relationship. As such,
there is no income statement impact from changes in the fair value of the
hedging instruments. Instead, the fair value of the instruments is recorded as
an asset or liability on the Corporation's balance sheet, with an offsetting
adjustment to the carrying value of the related debt. Other long-term assets in
the accompanying December 31, 2003 consolidated balance sheet includes $1.0
million representing the fair value of the interest rate swap agreements at that
date, with a corresponding aggregate increase in the carrying value of the
Corporation's long-term debt.
At December 31, 2003, 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 $13.7 million. The
Corporation has various other letters of credit totaling $5.8 million, most of
which are included under the Revolving Credit Agreement.
13. 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. Share and per share amounts presented
below have been adjusted on a pro forma basis for the stock split. See Note 1-O
for further information regarding the stock split.
At December 31, 2003, the Corporation had stock options outstanding for 148,052
shares that could potentially dilute basic EPS in the future. The effect of
these options was not included in the computation of diluted EPS for 2003
because to do so would have been antidilutive. The Corporation had antidilutive
options outstanding of 162,530 at December 31, 2002 and 238,000 at December 31,
2001. Earnings per share calculations for the years ended December 31, 2003,
2002, and 2001 are as follows:
- --------------------------------------------------------------------------------
Weighted-
Average
Net Shares Earnings
(In thousands, except per share data) Income Outstanding(1) Per Share
- --------------------------------------------------------------------------------
2003:
Basic earnings per share $52,268 20,640 $2.53
Effect of dilutive securities:
Stock options 222
Deferred stock
compensation 25
- --------------------------------------------------------------------------------
Diluted earnings per share $52,268 20,887 $2.50
- --------------------------------------------------------------------------------
2002:
Basic earnings per share $45,136 20,398 $2.21
Effect of dilutive securities:
Stock options 446
Deferred stock
compensation 24
- --------------------------------------------------------------------------------
Diluted earnings per share $45,136 20,868 $2.16
- --------------------------------------------------------------------------------
2001:
Basic earnings per share $62,880 20,122 $3.12
Effect of dilutive securities:
Stock options 344
Deferred stock
compensation 6
- --------------------------------------------------------------------------------
Diluted earnings per share $62,880 20,472 $3.07
================================================================================
(1) Shares in 2003, 2002, and 2001 include the Corporation's Common and Class
B common shares.
- --------------------------------------------------------------------------------
62 CURTISS-WRIGHT AND SUBSIDIARIES
14. Stock Compensation Plans
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. With the expiration of the plan, the remaining 159,950
shares of common stock are no longer reserved for issuance. As of December 31,
2003 there were options representing a total of 33,156 shares outstanding under
the 1985 Stock Option Plan.
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
3,000,000 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 4,805,783 in
2003, 4,519,906 in 2002, and 2,339,812 in 2001 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, which amounted to $3.3 million, $1.8 million, and $1.2
million in 2003, 2002, and 2001, respectively. 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
2003, 2002, and 2001 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 the 1995 LTI Plan as of
December 31, 2003 is 2,445,114.
Stock option activity during the periods for both plans is indicated as follows:
- --------------------------------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Options Exercise
Shares Price Exercisable Price
- --------------------------------------------------------------------------------
Outstanding at
January 1,
2001 1,305,428 $17.10 792,098 $14.44
Granted 413,524 21.86
Exercised (107,664) 11.01
Forfeited (21,374) 21.98
- --------------------------------------------------------------------------------
Outstanding at
December 31,
2001 1,589,914 18.83 936,148 16.41
Granted 162,530 32.56
Exercised (392,160) 15.79
Forfeited (19,980) 21.95
- --------------------------------------------------------------------------------
Outstanding at
December 31,
2002 1,340,304 21.16 837,024 18.48
Granted 148,052 38.16
Exercised (233,708) 16.57
Forfeited (16,926) 24.39
- --------------------------------------------------------------------------------
Outstanding at
December 31,
2003 1,237,722 $24.01 855,676 $20.83
================================================================================
- --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 2003:
- --------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------
$ 7.63 - $11.45 29,024 0.9 $ 9.00 29,024 $ 9.00
$11.46 - $15.26 59,252 2.6 12.40 59,252 12.40
$15.27 - $19.08 297,088 5.2 18.91 297,088 18.91
$19.09 - $22.90 359,592 7.9 21.85 231,858 21.85
$22.91 - $26.71 186,248 6.9 23.86 186,248 23.86
$26.72 - $34.34 158,466 8.9 32.56 52,206 32.56
$34.35 - $38.16 148,052 9.9 38.16 -- --
- --------------------------------------------------------------------------------------------------------------------------
1,237,722 7.0 $24.01 855,676 $20.83
==========================================================================================================================
- --------------------------------------------------------------------------------------------------------------------------
CURTISS-WRIGHT AND SUBSIDIARIES 63
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 25,261 shares, at an
average price of $22.97 as of December 31, 2003. During 2003, the Corporation
issued 1,657 shares in deferred compensation pursuant to such elections, prior
to the recent stock split.
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 32,000 registered shares by April 12, 2006, the termination date of
the Stock Plan.
15. Environmental Costs
The Corporation has continued the operation of the ground water and soil
remediation activities at the Wood-Ridge, New Jersey site through 2003. The cost
of constructing and operating this site was provided for in 1990 when the
Corporation established a reserve to remediate the property. Costs for operating
and maintaining this site totaled $0.6 million in 2003, and $0.5 million in 2002
and 2001, 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. The reserve balance as of
December 31, 2003 was $8.4 million. 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 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.
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
assumed obligations for additional environmental remediation costs. Remediation
and investigation of the EMD facility are ongoing. As of December 31, 2003 the
balance in this reserve is $13.1 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 environmental obligation at December 31, 2003 was $23.3 million compared to
$24.8 million at December 31, 2002.
16. Pension and Other Postretirement Benefit Plans
The Corporation maintains six separate and distinct pension and other
postretirement benefit plans, as described in further detail below. Prior to the
acquisition of EMD in October 2002, the Corporation maintained a qualified
pension plan, a non-qualified pension plan, and a post-retirement health
benefits plan (the "Curtiss-Wright Plans"). As a result of the acquisition, the
Corporation obtained three unfunded pension and postretirement benefit plans
(the "EMD Plans"), similar in nature to those listed above. The unfunded status
of the acquired EMD Plans was recorded as a liability at the date of
acquisition. During 2003, the funds associated with the qualified pension plans
of both the Curtiss-Wright Plans and EMD Plans were commingled into one fund.
The Curtiss-Wright 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, 2003 and December 31, 2002, the
Corporation had prepaid pension costs of $77.9 million and $76.1 million,
respectively, under the CW Pension Plan. Due to the funded status, the
Corporation does not expect to contribute funds to the CW Pension Plan during
the next fiscal year.
64 CURTISS-WRIGHT AND SUBSIDIARIES
The Corporation also maintains a non-qualified restoration plan (the "CW
Restoration Plan") covering those employees whose compensation or benefits
exceed the IRS limitation for pension benefits. Benefits under the CW
Restoration Plan are not funded, and, as such, the Corporation had an accrued
pension liability of $0.8 million and $1.1 million at December 31, 2003 and
2002, respectively.
The Corporation provides postretirement health benefits to certain employees
(the "CW Retirement Plan"). In 2002, the Corporation restructured the
postretirement medical benefits for certain active employees, effectively
freezing the plan. The obligation associated with these active employees was
transferred to the CW Pension Plan. The plan continues to be maintained for
retired employees. As of December 31, 2003 and 2002, the Corporation had an
accrued postretirement benefit liability of $1.3 million and $1.4 million,
respectively, as benefits under the plan are not funded.
- ---------------------------------------------------------------------------------------------------------------------------------
The Curtiss-Wright Plans
- ---------------------------------------------------------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands) 2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $111,827 $103,344 $ 512 $ 1,990
Service cost 8,899 6,015 -- 129
Interest cost 7,982 7,650 39 148
Plan participants' contributions -- -- 19 20
Amendments 328 829 -- --
Actuarial loss (gain) 16,652 7,376 144 159
Benefits paid (19,165) (15,298) (86) (90)
Curtailment of benefits -- 1,911 -- (1,844)
- ---------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 126,523 111,827 628 512
=================================================================================================================================
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 187,969 216,944 -- --
Actual return on plan assets 29,834 (13,761) -- --
Employer contribution 375 84 67 70
Plan participants' contribution -- -- 19 20
Benefits paid (19,165) (15,298) (86) (90)
- ---------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 199,013 187,969 -- --
=================================================================================================================================
Funded status 72,490 76,141 (628) (512)
Unrecognized net actuarial gain 3,184 (2,179) (662) (879)
Unrecognized transition obligation (11) (14) -- --
Unrecognized prior service costs 1,426 1,092 -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit costs $ 77,089 $ 75,040 $(1,290) $(1,391)
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED BENEFIT OBLIGATION $114,740 $101,635 N/A N/A
=================================================================================================================================
In determination of benefit obligation:
Discount rate 6.00% 6.75% 5.30% 6.75%
Rate of compensation increase 3.50% 4.25% -- --
Measurement date September 30 September 30 October 31 October 31
- ---------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE COST TRENDS
Rate assumed for subsequent year -- -- 9.40% 11.70%
Ultimate rate reached in 2007 -- -- 5.50% 5.50%
=================================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
CURTISS-WRIGHT AND SUBSIDIARIES 65
The following table details the components of net periodic pension income for
the CW Pension Plan and CW Restoration Plan:
- --------------------------------------------------------------------------------
Components of Net Periodic
Benefit Income:
(In thousands) 2003 2002 2001
- -------------------------------------------------------------------------------
Service cost $ 8,899 $ 6,015 $ 4,740
Interest cost 7,982 7,650 7,113
Expected return on plan assets (18,081) (18,705) (18,089)
Amortization of prior service cost 58 26 (40)
Amortization of transition
obligation (3) (4) (2,188)
Recognized net actuarial
(gain) loss (587) (2,191) (2,578)
Cost of settlement 121 1,911 --
- -------------------------------------------------------------------------------
Net periodic benefit income $ (1,611) $ (5,298) $(11,042)
===============================================================================
Weighted-average assumptions
in determination of net
periodic benefit cost:
Discount rate 6.75% 7.00% 7.00%
Expected return on
plan assets 8.50% 8.50% 8.50%
Rate of compensation
increase 4.25% 4.25% 4.25%
===============================================================================
- --------------------------------------------------------------------------------
The following table details the components of net periodic pension income for
the CW Retirement Plan:
- --------------------------------------------------------------------------------
Components of Net Periodic
Benefit Income:
(In thousands) 2003 2002 2001
- -------------------------------------------------------------------------------
Service cost $ -- $ 129 $ 112
Interest cost 39 148 126
Amortization of prior service cost -- (123) (123)
Recognized net actuarial
(gain) loss (73) (179) (200)
Cost of settlement -- (3,849) --
- -------------------------------------------------------------------------------
Net periodic benefit income $ (34) $(3,874) $ (85)
===============================================================================
Weighted-average assumptions
in determination of net
periodic benefit cost:
Discount rate 6.75% 7.00% 7.00%
===============================================================================
- --------------------------------------------------------------------------------
The effect on the CW Retirement Plan of a 1% change in the health care cost
trend is as follows:
- -------------------------------------------------------------------------------
1% 1%
(In thousands) Increase Decrease
- -------------------------------------------------------------------------------
Total service and interest
cost components $ 2 $ (2)
Postretirement
benefit obligation $42 $(38)
================================================================================
- -------------------------------------------------------------------------------
The EMD Plans
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. At December 31, 2003 and 2002,
the Corporation had an accrued pension liability of $33.5 million and $35.6
million, respectively, related to the EMD Pension Plan. The Corporation expects
to contribute $2.5 million, the estimated minimum required amount, to the EMD
Pension Plan during the next fiscal year.
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, 2003 and 2002, the Corporation had an accrued pension liability of
$2.4 million, respectively, 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.
The Corporation had an accrued postretirement benefit liability of $37.5 million
and $36.3 million related to the EMD Retirement Plan at December 31, 2003 and
2002, respectively. Pursuant to the Asset Purchase Agreement, the Corporation
has a discounted receivable from Washington Group International to reimburse the
Corporation for a portion of these postretirement benefit costs. At December 31,
2003 and 2002, the discounted receivable included in other assets was $5.9
million and $6.5 million, respectively.
66 CURTISS-WRIGHT AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------
The EMD Plans
- ----------------------------------------------------------------------------------------------------------
Pension Benefits Postretirement Benefits
- ----------------------------------------------------------------------------------------------------------
(In thousands) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 112,442 $ -- $ 36,344 $ --
Effect of EMD acquisition -- 111,642 -- 36,344
Service cost 2,032 424 705 --
Interest cost 5,890 1,278 2,388 --
Plan participants' contributions 597 -- -- --
Actuarial loss (gain) 11,137 -- 3,593 --
Benefits paid (3,811) (902) (1,924) --
- ----------------------------------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR 128,287 112,442 41,106 36,344
==========================================================================================================
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 74,335 -- -- --
Effect of EMD acquisition -- 74,245 -- --
Actual return on plan assets 8,009 992 -- --
Employer contribution 4,607 -- 1,924 --
Plan participants' contribution 597 -- -- --
Benefits paid (3,811) (902) (1,924) --
==========================================================================================================
FAIR VALUE OF PLAN ASSETS AT END OF YEAR 83,737 74,335 --
==========================================================================================================
Funded status (44,550) (38,107) (41,107) (36,344)
Unrecognized net actuarial gain 8,635 100 3,593 --
Unrecognized transition obligation -- -- -- --
Unrecognized prior service costs -- -- -- --
==========================================================================================================
PREPAID (ACCRUED) BENEFIT COSTS $ (35,915) $ (38,007) $ (37,514) $ (36,344)
==========================================================================================================
ACCUMULATED BENEFIT OBLIGATION $ 115,527 $ 100,141 N/A N/A
==========================================================================================================
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 2,709 $ 424 $ 705 $ --
Interest cost 7,854 1,278 2,388 --
Expected return on plan assets (7,618) (1,092) -- --
Recognized net actuarial (gain) loss (394) -- -- --
==========================================================================================================
NET PERIODIC BENEFIT COST $ 2,551 $ 610 $ 3,093 $ --
==========================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31:
In determination of net periodic benefit cost:
Discount rate 7.00% 7.00% 6.75% 7.00%
Expected return on plan assets 8.50% 8.88% -- --
Rate of compensation increase 4.00% 4.00% 4.00% 4.00%
In determination of benefit obligation:
Discount rate 6.25% 7.00% 6.25% 6.75%
Rate of compensation increase 3.25% 4.00% 4.00% 4.00%
Measurement date September 30 September 30 October 31 October 31
==========================================================================================================
HEALTH CARE COST TRENDS
Rate assumed for subsequent year -- -- 9.70% 11.10%
Ultimate rate reached in 2007 -- -- 5.50% 5.50%
==========================================================================================================
- ----------------------------------------------------------------------------------------------------------
CURTISS-WRIGHT AND SUBSIDIARIES 67
The effect on the EMD Retirement Plan of a 1% change in the health care cost
trend is as follows:
- -------------------------------------------------------------------------------
1% 1%
(In thousands) Increase Decrease
- -------------------------------------------------------------------------------
Total service and interest
cost components $ 241 $ (252)
Postretirement
benefit obligation $2,977 $(3,108)
===============================================================================
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Pension Plan Assets
The Corporation maintains the Funds of the CW Pension Plan and the EMD Pension
Plan under one master trust. The Corporation's Retirement Plans are diversified
across investment classes and among investment managers in order to achieve an
optimal balance between risk and return. In accordance with this policy, the
Corporation has established target allocations for each asset class and ranges
of expected exposure. The Corporation's retirement assets are invested within
this allocation structure in three major categories; these include domestic
equity securities, international equity securities and debt securities. Below
are the Corporation's actual and established target allocations:
- --------------------------------------------------------------------------------
As of Target
Asset Class December 31, 2003 Exposure Expected Range
- --------------------------------------------------------------------------------
Domestic Equities 51% 50% 40% - 60%
International Equities 15% 15% 10% - 20%
Total Equity 66% 65% 55% - 75%
Fixed Income 34% 35% 25% - 45%
Cash 0% 0% 0% - 10%
================================================================================
- --------------------------------------------------------------------------------
The Corporation may from time to time require the reallocation of assets in
order to bring the retirement plans into conformity with these ranges. The
Corporation may also authorize alterations or deviations from these ranges where
appropriate for achieving the objectives of the retirement plans.
The long-term investment objective of the Retirement Plans is to achieve a total
rate of return, net of fees, which exceeds the actuarial overall expected return
on assets assumption of 8.50% used for funding purposes and which provides an
appropriate premium over inflation.
The intermediate-term objective of the Retirement Plans, defined as three to
five years, is to outperform each of the capital markets in which assets are
invested, net of fees. During periods of extreme market volatility, preservation
of capital takes a higher precedence than out performing the capital markets.
The overall expected return on assets assumption used in the calculation of
annual net periodic benefit cost is based on a combination of the historical
performance of the pension fund and expectations of future performance. The
historical returns are determined using the market-related value of assets,
includes the recognition of realized and unrealized gains and losses over a
five-year period. Although over the last ten years the market-related value of
assets had an average annual yield of 11.6%, the actual returns averaged 8.5%
during the same period. Given the uncertainties of the current economic and
geopolitical landscape, the Corporation considers 8.5% to be a reasonable
assumption of future long-term investment returns. While the Corporation takes
into account historical performance, its assumptions also consider the
forward-looking long-term outlook for the capital markets.
Other Pension and Postretirement Plans
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 $1.9 million, $1.6 million, and $1.0 million in 2003, 2002, and 2001,
respectively.
17. 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 were $7.3 million
and $4.9 million, respectively, at December 31, 2003 and 2002. 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 $10.5 million in
2003, $8.2 million in 2002, and $4.9 million in 2001.
At December 31, 2003, 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
- --------------------------------------------------------------------------------
2004 $10,430
2005 8,925
2006 7,908
2007 7,145
2008 5,748
Thereafter 14,991
- --------------------------------------------------------------------------------
Total $55,147
================================================================================
- --------------------------------------------------------------------------------
68 CURTISS-WRIGHT AND SUBSIDIARIES
18. 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: Flow Control, Motion Control, and
Metal Treatment. 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. The Motion
Control segment primarily designs, develops, and manufactures mechanical
systems, drive systems, and electronic controls and sensors for the aerospace
and defense industries. Metal Treatment provides approximately 50 metallurgical
services, principally "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 and gas, 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.
Sales to one customer through which the Corporation is a subcontractor to the
U.S. Government were 16% of consolidated revenues in 2003, 10% in 2002, and 6%
in 2001. During 2003 and 2002, the Corporation had no commercial customer
representing more than 10% of consolidated revenue. The Corporation had one
commercial customer in the Motion Control segment that accounted for 13% of its
consolidated revenue in 2001.
- --------------------------------------------------------------------------------------------------------------------------------
Consolidated Industry Segment Information:
Flow Motion Metal Segment Corporate Consolidated
(In thousands) Control Control Treatment(1) Total & Other(2) Total
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2003:
Revenue from external customers $ 341,271 $ 265,905 $ 138,895 $ 746,071 $ -- $ 746,071
Intersegment revenues -- -- 544 544 -- 544
Operating income (costs) 39,991 30,350 19,055 89,396 (66) 89,330
Depreciation and amortization expense 14,458 7,983 8,685 31,126 201 31,327
Segment assets 323,689 317,631 170,547 811,867 161,798 973,665
Capital expenditures 12,417 4,791 15,727 32,935 394 33,329
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2002:
Revenue from external customers $ 172,455 $ 233,437 $ 107,386 $ 513,278 $ -- $ 513,278
Intersegment revenues -- -- 491 491 -- 491
Operating income (costs) 20,693 29,579 14,403 64,675 4,362 69,037
Depreciation and amortization expense 5,059 7,394 6,063 18,516 177 18,693
Segment assets 328,221 267,244 127,125 722,590 87,512 810,102
Capital expenditures 10,787 8,243 15,873 34,903 51 34,954
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2001:
Revenue from external customers $ 98,257 $ 137,103 $ 107,807 $ 343,167 $ -- $ 343,167
Intersegment revenues -- -- 446 446 -- 446
Operating income (costs) 10,703 19,219 19,513 49,435 8,765 58,200
Depreciation and amortization expense 4,279 4,270 5,519 14,068 666 14,734
Segment assets 111,084 157,094 97,217 365,395 135,033 500,428
Capital expenditures 1,943 6,306 10,856 19,105 249 19,354
================================================================================================================================
(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 pension income, net environmental remediation and administrative
expenses, and other expenses.
- --------------------------------------------------------------------------------------------------------------------------------
CURTISS-WRIGHT AND SUBSIDIARIES 69
- ---------------------------------------------------------------------------------------------------------------------------------
Reconciliations:
For the years ended December 31, (In thousands) 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
REVENUES:
Total segment revenue $746,071 $513,278 $343,167
Intersegment revenue 544 491 446
Elimination of intersegment revenue (544) (491) (446)
- ---------------------------------------------------------------------------------------------------------------------------------
Total consolidated revenues $746,071 $513,278 $343,167
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE TAXES:
Total segment operating income $ 89,396 $ 64,675 $ 49,435
Corporate and administrative (1,677) (2,846) (2,277)
Investment income, net 281 591 2,599
Rental income, net -- 148 3,585
Pension income, net 1,611 7,208 11,042
Other income, net 108 3,769 38,993
Interest expense (5,663) (1,810) (1,180)
- ---------------------------------------------------------------------------------------------------------------------------------
Total consolidated earnings before tax $ 84,056 $ 71,735 $102,197
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Total assets for reportable segments $811,867 $722,590 $365,395
Non-segment short-term investments -- 154 41,658
Pension assets 77,877 76,072 70,796
Non-segment cash 72,582 4,875 12,939
Other assets 11,384 6,455 9,680
Elimination of intersegment receivables (45) (44) (40)
- ---------------------------------------------------------------------------------------------------------------------------------
Total consolidated assets $973,665 $810,102 $500,428
=================================================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
December 31, (In thousands) 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Long-Lived Long-Lived Long-Lived
Revenues(1) Assets Revenues(1) Assets Revenues(1) Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Geographic Information:
North America $591,479 $183,263 $401,466 $165,208 $257,208 $ 71,501
United Kingdom 66,210 40,614 49,519 38,235 31,340 22,961
Other foreign countries 88,382 14,262 62,293 15,606 54,619 10,689
- ---------------------------------------------------------------------------------------------------------------------------------
Consolidated total $746,071 $238,139 $513,278 $219,049 $343,167 $105,151
=================================================================================================================================
(1) Revenues are attributed to countries based on the location of the customer.
- ---------------------------------------------------------------------------------------------------------------------------------
70 CURTISS-WRIGHT AND SUBSIDIARIES
19. Contingencies and Commitments
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 ($4.8 million) for the issue of performance guarantees
related to long-term contracts. The Corporation received prepayments on these
contracts, which are being used as collateral against the credit facility. The
customers 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 contracts. 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, 2003,
the amount of restricted cash under this facility was $1.8 million, all of which
is expected to be released from restriction within 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 15 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.
20. Subsequent Event
On January 31, 2004, the Corporation completed the acquisition of all of the
outstanding shares of Dy 4 Systems, Inc. ("Dy 4") from Solectron Corporation.
The purchase price of the acquisition, subject to customary adjustments as
provided for in the Stock Purchase Agreement, was $110 million in cash.
Management funded the purchase with cash on hand and from the Corporation's
revolving credit facilities. Revenues of the purchased business were $72 million
for the year ended August 29, 2003. Dy 4 is based in Ottawa, Canada, and has
additional operations located in the United States and the United Kingdom.
Management intends to incorporate the operations of Dy 4 into the Corporation's
Motion Control segment.
CURTISS-WRIGHT AND SUBSIDIARIES 71
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
4 Becker Farm Road, 3rd Floor
Roseland, NJ 07068
(973) 597-4700
www.curtisswright.com
ANNUAL MEETING
The 2004 annual meeting of stockholders will be held on April 23, 2004, at 2:00
pm at the Sheraton Parsippany Hotel, 199 Smith Road, Parsippany, New Jersey.
STOCK EXCHANGE LISTING
The Corporation's Common and Class B common stock are listed and traded on the
New York Stock Exchange under the symbols CW and CW.B.
COMMON SHAREHOLDERS
As of December 31, 2003, the approximate number of holders of record of Common
stock, par value of $1.00 per share, and Class B common stock, par value $1.00
per share of the Corporation was 2,952 and 4,803, respectively.
STOCK TRANSFER AGENT AND REGISTRAR
For services such as changes of address, replacement of lost certificates or
dividend checks, and changes in registered ownership, or for inquiries as to
account status, write to American Stock Transfer & Trust Company at 59 Maiden
Lane, New York, New York 10038.
Please include your name, address, and telephone number with all correspondence.
Telephone inquiries may be made to (800) 937-5449. Foreign (212) 936-5100.
Internet inquiries should be addressed to http://www.amstock.com.
Hearing-impaired shareholders are invited to log on to the website and select
the Live Chat option.
DIRECT STOCK PURCHASE PLAN/DIVIDEND REINVESTMENT PLAN
A plan is available to purchase or sell shares of Curtiss-Wright Common stock
and Class B common stock. The plan provides a low cost alternative to the
traditional methods of buying, holding and selling stock. The plan also provides
for the automatic reinvestment of Curtiss-Wright dividends. For more
information, contact our transfer agent, American Stock Transfer & Trust Company
toll-free at (877) 854-0844.
INVESTOR INFORMATION
Investors, stockbrokers, security analysts, and others seeking information about
Curtiss-Wright Corporation should contact Alexandra Magnuson, Director of
Investor Relations, at the Corporate Headquarters listed above.
STOCKHOLDER COMMUNICATIONS
Any stockholder wishing to communicate directly with our Board of Directors
should write to Dr. William W. Sihler at Southeastern Consultants Group, LTD,
P.O. Box 5645, Charlottesville, VA 22905.
FINANCIAL REPORTS
This Annual Report includes most of the periodic financial information required
to be on file with the Securities and Exchange Commission. The Corporation also
files an Annual Report on Form 10-K, a copy of which may be obtained free of
charge. These reports, as well as additional financial documents such as
quarterly shareholder reports, proxy statements, and quarterly reports on Form
10-Q, may be obtained by written request to Alexandra Magnuson, Director of
Investor Relations, at the Corporate Headquarters.
STOCK PRICE RANGE
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Common High Low High Low
- --------------------------------------------------------------------------------
First Quarter $33.54 $26.04 $33.85 $22.55
Second Quarter 33.13 26.97 40.00 33.13
Third Quarter 35.94 30.42 40.10 26.75
Fourth Quarter 47.25 35.03 35.37 26.09
================================================================================
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Class B High Low High Low
- --------------------------------------------------------------------------------
First Quarter $32.50 $25.20 $33.13 $21.88
Second Quarter 32.68 26.00 39.20 32.38
Third Quarter 35.90 30.56 38.00 26.18
Fourth Quarter 46.71 34.88 34.37 25.60
================================================================================
Note: All prices adjusted for the 2-for-1 stock split on December 17, 2003.
- --------------------------------------------------------------------------------
DIVIDENDS
- --------------------------------------------------------------------------------
Common 2003 2002
- --------------------------------------------------------------------------------
First Quarter $0.08 $0.08
Second Quarter 0.08 0.08
Third Quarter 0.08 0.08
Fourth Quarter 0.09 0.08
================================================================================
Class B 2003 2002
- --------------------------------------------------------------------------------
First Quarter $0.08 $0.08
Second Quarter 0.08 0.08
Third Quarter 0.08 0.08
Fourth Quarter 0.09 0.08
================================================================================
Note: All dividends adjusted for the 2-for-1 stock split on December 17, 2003.
- --------------------------------------------------------------------------------
72 CURTISS-WRIGHT AND SUBSIDIARIES