form10q3q07v2.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
Quarterly
Report Pursuant to Section 13 or 15(d) of the
Securities
and Exchange Act of 1934
FOR
THE
QUARTERLY PERIOD ENDED September 30, 2007
Commission
File Number 1-134
CURTISS-WRIGHT
CORPORATION
(Exact
name of Registrant as specified in its charter)
Delaware
|
|
13-0612970
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
4
Becker Farm Road
|
|
|
Roseland,
New Jersey
|
|
07068
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(973)
597-4700
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months and (2) has been subject to such filing requirements for
the
past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer x |
Accelerated
filer o |
Non-accelerated
filer o |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Common
Stock, par value $1.00 per share 44,473,024 shares (as of October 31,
2007).
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
|
|
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PAGE
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PART
I – FINANCIAL INFORMATION
|
|
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|
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|
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|
Item
1.
|
Financial
Statements:
|
|
|
|
|
|
|
|
Consolidated
Statements of Earnings
|
3
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
4
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
5
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
6
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|
|
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Notes
to Consolidated Financial Statements
|
7
–
18
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|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19
– 28
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|
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|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
29
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|
|
|
|
Item
4.
|
Controls
and Procedures
|
29
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PART
II – OTHER INFORMATION
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|
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Item
1.
|
Legal
Proceedings
|
30
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|
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|
|
Item
1A.
|
Risk
Factors
|
30
|
|
|
|
|
Item
5.
|
Other
Information
|
30
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|
Item
6.
|
Exhibits
|
30
– 31
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|
Signature
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32
|
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF EARNINGS
|
|
(UNAUDITED)
|
|
(In
thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
396,268
|
|
|
$ |
311,801
|
|
|
$ |
1,094,453
|
|
|
$ |
903,988
|
|
Cost
of sales
|
|
|
266,448
|
|
|
|
205,783
|
|
|
|
735,223
|
|
|
|
600,356
|
|
Gross
profit
|
|
|
129,820
|
|
|
|
106,018
|
|
|
|
359,230
|
|
|
|
303,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
12,655
|
|
|
|
7,227
|
|
|
|
35,481
|
|
|
|
28,531
|
|
Selling
expenses
|
|
|
23,789
|
|
|
|
19,382
|
|
|
|
66,392
|
|
|
|
57,004
|
|
General
and administrative expenses
|
|
|
48,888
|
|
|
|
42,158
|
|
|
|
139,318
|
|
|
|
123,150
|
|
Operating
income
|
|
|
44,488
|
|
|
|
37,251
|
|
|
|
118,039
|
|
|
|
94,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense), net
|
|
|
231
|
|
|
|
(18 |
) |
|
|
1,581
|
|
|
|
295
|
|
Interest
expense
|
|
|
(7,712 |
) |
|
|
(5,721 |
) |
|
|
(18,916 |
) |
|
|
(17,103 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
37,007
|
|
|
|
31,512
|
|
|
|
100,704
|
|
|
|
78,139
|
|
Provision
for income taxes
|
|
|
11,832
|
|
|
|
11,156
|
|
|
|
34,635
|
|
|
|
24,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
25,175
|
|
|
$ |
20,356
|
|
|
$ |
66,069
|
|
|
$ |
53,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.57
|
|
|
$ |
0.46
|
|
|
$ |
1.49
|
|
|
$ |
1.23
|
|
Diluted
earnings per share
|
|
$ |
0.56
|
|
|
$ |
0.46
|
|
|
$ |
1.47
|
|
|
$ |
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
per share
|
|
$ |
0.06
|
|
|
$ |
0.06
|
|
|
$ |
0.18
|
|
|
$ |
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,413
|
|
|
|
43,903
|
|
|
|
44,285
|
|
|
|
43,779
|
|
Diluted
|
|
|
45,102
|
|
|
|
44,338
|
|
|
|
44,925
|
|
|
|
44,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(UNAUDITED)
|
|
(In
thousands)
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
59,347
|
|
|
$ |
124,517
|
|
Receivables,
net
|
|
|
369,838
|
|
|
|
284,774
|
|
Inventories,
net
|
|
|
251,005
|
|
|
|
161,528
|
|
Deferred
tax assets, net
|
|
|
26,863
|
|
|
|
32,485
|
|
Other
current assets
|
|
|
21,779
|
|
|
|
19,341
|
|
Total
current assets
|
|
|
728,832
|
|
|
|
622,645
|
|
Property,
plant and equipment, net
|
|
|
320,818
|
|
|
|
296,652
|
|
Prepaid
pension costs, net
|
|
|
56,113
|
|
|
|
92,262
|
|
Goodwill
|
|
|
587,238
|
|
|
|
411,101
|
|
Other
intangible assets, net
|
|
|
226,317
|
|
|
|
158,080
|
|
Other
assets
|
|
|
15,184
|
|
|
|
11,416
|
|
Total
Assets
|
|
$ |
1,934,502
|
|
|
$ |
1,592,156
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
902
|
|
|
$ |
5,874
|
|
Accounts
payable
|
|
|
105,088
|
|
|
|
96,023
|
|
Dividend
payable
|
|
|
3,562
|
|
|
|
−
|
|
Accrued
expenses
|
|
|
89,584
|
|
|
|
81,532
|
|
Income
taxes payable
|
|
|
4,016
|
|
|
|
23,003
|
|
Deferred
revenue
|
|
|
104,392
|
|
|
|
57,305
|
|
Other
current liabilities
|
|
|
35,830
|
|
|
|
28,388
|
|
Total
current liabilities
|
|
|
343,374
|
|
|
|
292,125
|
|
Long-term
debt
|
|
|
571,986
|
|
|
|
359,000
|
|
Deferred
tax liabilities, net
|
|
|
58,808
|
|
|
|
57,055
|
|
Accrued
pension and other postretirement benefit costs
|
|
|
38,765
|
|
|
|
71,006
|
|
Long-term
portion of environmental reserves
|
|
|
20,444
|
|
|
|
21,220
|
|
Other
liabilities
|
|
|
37,468
|
|
|
|
29,676
|
|
Total
Liabilities
|
|
|
1,070,845
|
|
|
|
830,082
|
|
Contingencies
and Commitments (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock, $1 par value
|
|
|
47,715
|
|
|
|
47,533
|
|
Additional
paid-in capital
|
|
|
78,604
|
|
|
|
69,887
|
|
Retained
earnings
|
|
|
772,710
|
|
|
|
716,030
|
|
Accumulated
other comprehensive income
|
|
|
83,985
|
|
|
|
55,806
|
|
|
|
|
983,014
|
|
|
|
889,256
|
|
Less: Cost
of treasury stock
|
|
|
(119,357 |
) |
|
|
(127,182 |
) |
Total
Stockholders' Equity
|
|
|
863,657
|
|
|
|
762,074
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
1,934,502
|
|
|
$ |
1,592,156
|
|
See
notes to consolidated financial statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In
thousands)
|
|
Nine
Months Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
66,069
|
|
|
$ |
53,726
|
|
Adjustments
to reconcile net
earnings to net cash
provided
by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and
amortization
|
|
|
44,037
|
|
|
|
38,082
|
|
Loss
on sale of fixed
assets
|
|
|
231
|
|
|
|
68
|
|
Deferred
income
taxes
|
|
|
(1,131 |
) |
|
|
1,501
|
|
Share
based
compensation
|
|
|
6,415
|
|
|
|
4,332
|
|
Changes
in operating assets and
liabilities, net of
businesses
acquired:
|
|
|
-
|
|
|
|
|
|
Increase
in
receivables
|
|
|
(39,574 |
) |
|
|
(21,747 |
) |
Increase
in
inventories
|
|
|
(55,418 |
) |
|
|
(30,299 |
) |
Decrease
in progress
payments
|
|
|
(5,626 |
) |
|
|
(53 |
) |
Decrease
in accounts payable and
accrued expenses
|
|
|
(13,543 |
) |
|
|
(16,121 |
) |
Increase
in deferred
revenue
|
|
|
49,023
|
|
|
|
9,233
|
|
Decrease
in income taxes
payable
|
|
|
(10,703 |
) |
|
|
(13,815 |
) |
Decrease
in net pension and
postretirement assets
|
|
|
3,908
|
|
|
|
1,568
|
|
(Increase)
decrease in other
assets
|
|
|
(1,106 |
) |
|
|
8
|
|
Increase
(decrease) in other
liabilities
|
|
|
3,611
|
|
|
|
(1,220 |
) |
Total
adjustments
|
|
|
(19,876 |
) |
|
|
(28,463 |
) |
Net
cash provided by operating
activities
|
|
|
46,193
|
|
|
|
25,263
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sales of
non-operating assets
|
|
|
166
|
|
|
|
669
|
|
Acquisitions
of intangible
assets
|
|
|
(352 |
) |
|
|
(1,616 |
) |
Additions
to property, plant and
equipment
|
|
|
(35,496 |
) |
|
|
(27,926 |
) |
Net
cash paid for
acquisitions
|
|
|
(291,914 |
) |
|
|
(39,405 |
) |
Net
cash used for investing
activities
|
|
|
(327,596 |
) |
|
|
(68,278 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from revolving credit
agreement
|
|
|
615,000
|
|
|
|
214,000
|
|
Principal
payments on revolving
credit agreement
|
|
|
(407,035 |
) |
|
|
(188,043 |
) |
Proceeds
from exercise of stock
options
|
|
|
8,188
|
|
|
|
7,285
|
|
Dividends
paid
|
|
|
(5,322 |
) |
|
|
(5,262 |
) |
Excess
tax benefits from
share-based compensation
|
|
|
1,678
|
|
|
|
1,370
|
|
Net
cash provided by financing
activities
|
|
|
212,509
|
|
|
|
29,350
|
|
Effect
of foreign currency
|
|
|
3,724
|
|
|
|
2,021
|
|
Net
decrease in cash and cash equivalents
|
|
|
(65,170 |
) |
|
|
(11,644 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
124,517
|
|
|
|
59,021
|
|
Cash
and cash equivalents at end of period
|
|
$ |
59,347
|
|
|
$ |
47,377
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of investing activities:
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired in
current year acquisitions
|
|
$ |
311,421
|
|
|
$ |
42,759
|
|
Additional
consideration paid on
previous years’ acquisitions
|
|
|
9,433
|
|
|
|
4,604
|
|
Fair
value of liabilities assumed
from current year acquisitions
|
|
|
(28,719 |
) |
|
|
(7,941 |
) |
Cash
acquired from current year
acquisitions
|
|
|
(221 |
) |
|
|
(17 |
) |
Net
cash paid for
acquisitions
|
|
$ |
291,914
|
|
|
$ |
39,405
|
|
See
notes to consolidated financial statements
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
(UNAUDITED)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid
in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
$ |
25,493
|
|
|
$ |
59,794
|
|
|
$ |
667,892
|
|
|
$ |
20,655
|
|
|
$ |
(135,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
|
|
|
|
|
|
|
|
80,569
|
|
|
|
|
|
|
|
|
|
Minimum
pension liability adjustment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,750 |
) |
|
|
|
|
Translation
adjustments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,215
|
|
|
|
|
|
Adjustment
for initial application of FAS 158, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,686
|
|
|
|
|
|
Dividends
declared
|
|
|
|
|
|
|
|
|
|
|
(10,538 |
) |
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
|
|
|
|
6,480
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
Stock
options exercised, net
|
|
|
|
|
|
|
(1,521 |
) |
|
|
|
|
|
|
|
|
|
|
8,021
|
|
Stock
issued under employee stock purchase plan, net
|
|
|
147
|
|
|
|
4,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two-for-one
common stock split effected in the form of a 100% stock
dividend
|
|
|
21,893
|
|
|
|
|
|
|
|
(21,893 |
) |
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
|
270
|
|
December
31, 2006
|
|
$ |
47,533
|
|
|
$ |
69,887
|
|
|
$ |
716,030
|
|
|
$ |
55,806
|
|
|
$ |
(127,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
|
|
|
|
|
|
|
|
66,069
|
|
|
|
|
|
|
|
|
|
Translation
adjustments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,294
|
|
|
|
|
|
Defined
benefit pension and postretirement plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115 |
) |
|
|
|
|
Dividends
declared
|
|
|
|
|
|
|
|
|
|
|
(8,884 |
) |
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
|
|
|
|
6,303
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
Stock
options exercised, net
|
|
|
|
|
|
|
(2,500 |
) |
|
|
|
|
|
|
|
|
|
|
7,368
|
|
Stock
issued under employee stock purchase plan, net
|
|
|
182
|
|
|
|
5,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment
for initial application of FIN 48
|
|
|
|
|
|
|
|
|
|
|
(505 |
) |
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(345 |
) |
|
|
|
|
|
|
|
|
|
|
345
|
|
September
30, 2007
|
|
$ |
47,715
|
|
|
$ |
78,604
|
|
|
$ |
772,710
|
|
|
$ |
83,985
|
|
|
$ |
(119,357 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Curtiss-Wright
Corporation with 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,
oil
and gas processing, agricultural equipment, transportation, power generation,
security, and metalworking industries. Operations are conducted through 47
manufacturing facilities, 62 metal treatment service facilities, and 2 aerospace
component overhaul and repair locations.
The
unaudited consolidated financial statements include the accounts of
Curtiss-Wright Corporation and its majority-owned subsidiaries. All
material intercompany transactions and accounts have been
eliminated.
The
unaudited consolidated financial statements of the Corporation have been
prepared in conformity with accounting principles generally accepted in the
United States of America and such preparation requires management to make
estimates and judgments that affect the reported amount of assets, liabilities,
revenue, and expenses and disclosure of contingent assets and liabilities in
the
accompanying financial statements. The most significant of these estimates
include the costs to complete long-term contracts under the percentage of
completion accounting method, the useful lives for property, plant, and
equipment, cash flows used for testing the recoverability of assets, pension
plan and postretirement obligation assumptions, amount of inventory
obsolescence, valuation of intangible assets, warranty reserves, and future
environmental costs. Actual results may differ from these
estimates. In the opinion of management, all adjustments considered
necessary for a fair presentation have been reflected in these financial
statements.
The
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in
the
Corporation’s 2006 Annual Report on Form 10-K. The results of
operations for interim periods are not necessarily indicative of trends or
of
the operating results for a full year.
Correction
of Immaterial Error Related to Prior Periods
In
the
second quarter of 2007, the Corporation recorded an adjustment of $2.8 million
to increase its loss reserve associated with certain long-term contracts within
the Flow Control segment. The Corporation determined that certain
loss contracts were not fully accrued for in the fourth quarter of 2006. This
error resulted in an understatement of approximately $2.8 million in our loss
reserves, which are classified in other current liabilities, and cost of goods
sold at December 31, 2006.
The
Corporation reviewed the impact of this error on prior periods in accordance
with Statement of Financial Accounting Standards No. 154, Accounting for
Changes and Error Corrections, Staff Accounting Bulletin (“SAB”) No. 99,
Materiality, and SAB No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in current Year Financial
Statements and determined that the adjustment was not material
to the Corporations’ financial statements for the year ended December 31,
2006.
2. ACQUISITIONS
The
Corporation acquired four businesses during the nine months ended September
30,
2007, as described in more detail below. The 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
purchase price allocations, including the value of identifiable intangibles
with
a finite life, and records amortization based upon the estimated useful lives
of
those intangible assets identified. The Corporation will adjust
these estimates based upon analysis of third party appraisals, when deemed
appropriate, and the determination of fair value when finalized, no later than
twelve months from acquisition.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
following unaudited pro forma financial information shows the results of
operations for the three and nine months ended September 30, 2007 and 2006,
as
though the 2007 and 2006 acquisitions had occurred on January 1, 2006. The
unaudited pro forma presentation reflects adjustments for (i) the amortization
of acquired intangible assets, (ii) depreciation of fixed assets at their
acquired fair values, (iii) additional interest expense on acquisition-related
borrowings, (iv) adjustment of excess senior management compensation, and (v)
the income tax effect on the pro forma adjustments, using local statutory rates.
The pro forma adjustments related to certain acquisitions are based on
preliminary purchase price allocations. Differences between the preliminary
and
final purchase price allocations could have a significant impact on the
unaudited pro forma financial information presented. The unaudited pro forma
financial information below is presented for illustrative purposes only and
is
not necessarily indicative of the operating results that would have been
achieved had the acquisition been completed as of the date indicated above
or
the results that may be obtained in the future.
|
|
(In
thousands, except per share data)
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Revenue
|
|
$ |
410,572
|
|
|
$ |
357,799
|
|
|
$ |
1,211,855
|
|
|
$ |
1,050,598
|
|
Net
earnings
|
|
|
26,410
|
|
|
|
21,812
|
|
|
|
71,463
|
|
|
|
62,802
|
|
Diluted
earnings per share
|
|
$ |
0.59
|
|
|
$ |
0.49
|
|
|
$ |
1.59
|
|
|
$ |
1.42
|
|
Please
refer to the Corporation’s 2006 Annual Report on Form 10-K for more detail on
the 2006 acquisitions. The results of the 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 Segment
IMC
Magnetics Corporation
On
September 1, 2007, the Corporation acquired all the issued and outstanding
stock
of IMC Magnetics Corporation (“IMC”). The purchase price of the
acquisition, subject to customary adjustments as provided for in the Stock
Purchase Agreement, was for approximately $37.5 million in cash. Under the
terms
of the Stock Purchase Agreement, the Corporation deposited $3.75 million into
escrow as security for potential indemnification claims against the
seller. Any amount of holdback remaining after the claims for
indemnification have been settled, will be paid as follows: (i) an initial
release of $0.5 million less amounts held in reserve to cover pending claims
for
indemnification in 12 months after the closing date, and (ii) a final release
of
the remaining balance of the holdback less amounts held in reserve to cover
pending claims for indemnification in 24 months after the closing
date. Management funded the acquisition from the Corporation’s
revolving credit facility.
The
purchase price of the acquisition has been preliminarily allocated to the net
tangible and intangible assets acquired, with the remainder recorded as
goodwill, on the basis of estimated fair values. The estimated excess
of the purchase price over the fair value of the net assets acquired is $15.7
million at September 30, 2007. The goodwill is not deductible for tax
purposes.
IMC
produces solenoids, fans, motors and specialized products for numerous
aerospace, commercial, and industrial applications. IMC's products
are used by leading original equipment manufacturers (OEMs) in a variety of
applications such as fuel control systems, engine bleed, landing gear, wheel
brake systems, and aircraft hydraulic directional controls. IMC is
headquartered in Tempe, Arizona, and has a production facility in Nogales,
Mexico. Revenues of the acquired business were $14.4 million for the
year ended December 31, 2006.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Flow
Control Segment
Benshaw,
Inc.
On
July
31, 2007 the Corporation acquired all the issued and outstanding stock of
Benshaw, Inc. (“Benshaw”). The purchase price of the acquisition,
subject to customary adjustments as provided for in the Stock Purchase
Agreement, was for approximately $105.1 million in cash. Under the terms of
the
Stock Purchase Agreement, the Corporation deposited $7.9 million into escrow
as
security for potential indemnification claims against the seller. Any
amount of holdback remaining after the claims for indemnification have been
settled, will be paid as follows: (i) an initial release of one-half of the
holdback less amounts held in reserve to cover pending claims for
indemnification in 12 months after the closing date, and (ii) a final release
of
the remaining balance of the holdback less amounts held in reserve to cover
pending claims for indemnification in 18 months after the closing
date. Furthermore, the Corporation deposited an additional $2.5
million into escrow in consideration for the potential receipt of a material
sales order. This holdback will be released to seller upon receipt of
the material sales order within calendar year 2007. Management
funded the acquisition from the Corporation’s revolving credit
facility.
The
purchase price of the acquisition has been preliminarily allocated to the net
tangible and intangible assets acquired, with the remainder recorded as
goodwill, on the basis of estimated fair values. The estimated excess
of the purchase price over the fair value of the net assets acquired is $52.6
million at September 30, 2007. The Corporation has estimated that the
amount of goodwill allocated to the U.S. entities purchased will be tax
deductible and the Corporation will adjust these estimates based upon final
analysis of third party appraisals.
Benshaw
designs, develops, and manufactures mission critical motor control and
protection product solutions for leading OEMs and industrial customers. Benshaw
provides turnkey motor and machine control and protection solutions for OEM
customers. Benshaw is headquartered in Pittsburgh, Pennsylvania and
has nine facilities in the U.S. and two in Canada. Revenues of the
acquired business were $82.0 million for the year ended December 31,
2006.
Valve
Systems and Controls
On
June
1, 2007, the Corporation acquired certain assets and certain liabilities of
Valve Systems and Controls, L.P. (“VSC”). The purchase price of the
acquisition, subject to customary adjustments as provided for in the Asset
Purchase Agreement, was $78.0 million in cash and the assumption of certain
liabilities of VSC. Under the terms of the Asset Purchase Agreement, the
Corporation deposited $3.8 million into escrow as security for potential
indemnification claims against the seller. Any amount of holdback
remaining after the claims for the indemnification have been settled less
amounts held in reserve to cover pending claims for indemnification will be
paid
in 12 months after the closing date. Management funded the purchase from the
Corporation’s available cash and revolving credit facility.
The
purchase price of the acquisition has been preliminarily allocated to the net
tangible and intangible assets acquired, with the remainder recorded as
goodwill, on the basis of estimated fair values. The estimated excess
of the purchase price over the fair value of the net assets acquired is $50.2
million at September 30, 2007. The Corporation has estimated that the
goodwill will be tax deductible and the Corporation will adjust these estimates
based upon final analysis of third party appraisals.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
VSC,
is a
provider of critical valve, automation, and controls solutions for all facets
of
flow control operations to the oil and gas market. VSC is
headquartered in Houston, Texas, with satellite offices in Baton Rouge,
Louisiana, and Seoul, South Korea. Incremental revenues of the
acquired business were approximately $40.0 million for the year ended December
31, 2006.
Scientech,
LLC
On
May 8,
2007, the Corporation acquired certain assets and certain liabilities of
Scientech, LLC (“Scientech”). The purchase price of the acquisition,
subject to customary adjustments as provided for in the Asset Purchase
Agreement, was $61.9 million in cash and the assumption of certain liabilities
of Scientech. Under the terms of the Asset Purchase Agreement, the Corporation
deposited $5.8 million into escrow as security for potential indemnification
claims against the seller. Any amount of holdback remaining after the
claims for indemnification have been settled will be paid within 18 months
from
the acquisition date. Management funded the purchase from the
Corporation’s available cash and revolving credit facility.
The
purchase price of the acquisition has been preliminarily allocated to the net
tangible and intangible assets acquired, with the remainder recorded as
goodwill, on the basis of estimated fair values. The estimated excess
of the purchase price over the fair value of the net assets acquired is $37.9
million at September 30, 2007. The Corporation has estimated that the
goodwill will be tax deductible and the Corporation will adjust these estimates
based upon final analysis of third party appraisals.
Scientech
is a global provider of commercial nuclear power instrumentation, electrical
components, specialty hardware, process control systems, and proprietary
database solutions which are aimed at improving safety and plant performance,
efficiency, reliability, and reducing costs. Scientech is
headquartered in Idaho Falls, Idaho, and has multiple facilities throughout
the
U.S. Revenues of the acquired business were $45.7 million for the year ended
December 31, 2006.
3. RECEIVABLES
Receivables
at September 30, 2007 and December 31, 2006 include amounts billed to customers
and unbilled charges on long-term contracts consisting of amounts recognized
as
sales but not billed as of the dates presented. Substantially all
amounts of unbilled receivables are expected to be billed and collected within
one year.
The
composition of receivables is as follows:
|
|
(In
thousands)
|
|
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
Billed
Receivables:
|
|
|
|
|
|
|
Trade
and other receivables
|
|
$ |
264,027
|
|
|
$ |
199,714
|
|
Less:
Allowance for doubtful
accounts
|
|
|
(6,028 |
) |
|
|
(5,389 |
) |
Net
billed receivables
|
|
|
257,999
|
|
|
|
194,325
|
|
Unbilled
Receivables:
|
|
|
|
|
|
|
|
|
Recoverable
costs and estimated earnings not billed
|
|
|
126,465
|
|
|
|
111,112
|
|
Less:
Progress payments
applied
|
|
|
(14,626 |
) |
|
|
(20,663 |
) |
Net
unbilled receivables
|
|
|
111,839
|
|
|
|
90,449
|
|
Receivables,
net
|
|
$ |
369,838
|
|
|
$ |
284,774
|
|
The
net
receivable balance at September 30, 2007 includes $51.6 million related to
the
Corporation’s 2007 acquisitions.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. INVENTORIES
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)
|
|
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
Raw
material
|
|
$ |
93,773
|
|
|
$ |
67,667
|
|
Work-in-process
|
|
|
62,924
|
|
|
|
43,280
|
|
Finished
goods and component parts
|
|
|
65,542
|
|
|
|
58,483
|
|
Inventoried
costs related to U.S. Government and other long-term
contracts
|
|
|
71,222
|
|
|
|
30,361
|
|
Gross
inventories
|
|
|
293,461
|
|
|
|
199,791
|
|
Less:
Inventory reserves
|
|
|
(29,933 |
) |
|
|
(26,152 |
) |
Progress
payments applied,
principally related to long-term contracts
|
|
|
(12,523 |
) |
|
|
(12,111 |
) |
Inventories,
net
|
|
$ |
251,005
|
|
|
$ |
161,528
|
|
The
net
inventory balance at September 30, 2007 includes $34.5 million related to the
Corporation’s 2007 acquisitions.
5. GOODWILL
The
Corporation accounts for acquisitions by assigning the purchase price to
tangible and intangible assets and liabilities. Assets acquired and liabilities
assumed are recorded at their fair values, and the excess of the purchase price
over the amounts assigned is recorded as goodwill.
The
changes in the carrying amount of goodwill for the nine months ended September
30, 2007 are as follows:
|
|
(In
thousands)
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Consolidated
|
|
December
31, 2006
|
|
$ |
130,062
|
|
|
$ |
257,156
|
|
|
$ |
23,883
|
|
|
$ |
411,101
|
|
Goodwill
from 2007 acquisitions
|
|
|
140,693
|
|
|
|
15,707
|
|
|
|
−
|
|
|
|
156,400
|
|
Change
in estimate to fair value of net assets acquired in prior
years
|
|
|
959
|
|
|
|
(1,535 |
) |
|
|
310
|
|
|
|
(266 |
) |
Additional
consideration of prior years’ acquisitions
|
|
|
8,460
|
|
|
|
1,017
|
|
|
|
5
|
|
|
|
9,482
|
|
Currency
translation adjustment
|
|
|
1,950
|
|
|
|
8,293
|
|
|
|
278
|
|
|
|
10,521
|
|
September
30, 2007
|
|
$ |
282,124
|
|
|
$ |
280,638
|
|
|
$ |
24,476
|
|
|
$ |
587,238
|
|
The
purchase price allocations relating to the businesses acquired during 2007
are
based on estimates and have not yet been finalized. The Corporation
will adjust these estimates based upon analysis of third party appraisals,
when
deemed appropriate, and the determination of fair value when finalized, no
later
than twelve months from acquisition.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. OTHER
INTANGIBLE ASSETS, net
Intangible
assets are generally the result of acquisitions and consist primarily of
purchased technology, customer related intangibles, and
trademarks. Intangible assets are amortized over useful lives that
range between 1 to 20 years.
The
following tables present the cumulative composition of the Corporation’s
intangible assets and include $9.9 million of indefinite lived intangible assets
within other intangible assets for both periods presented.
|
|
(In
thousands)
|
|
September
30, 2007
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Technology
|
|
$ |
118,795
|
|
|
$ |
(24,654 |
) |
|
$ |
94,141
|
|
Customer
related intangibles
|
|
|
134,336
|
|
|
|
(20,687 |
) |
|
|
113,649
|
|
Other
intangible assets
|
|
|
21,193
|
|
|
|
(2,666 |
) |
|
|
18,527
|
|
Total
|
|
$ |
274,324
|
|
|
$ |
(48,007 |
) |
|
$ |
226,317
|
|
|
|
(In
thousands)
|
|
December
31, 2006
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Technology
|
|
$ |
94,611
|
|
|
$ |
(19,403 |
) |
|
$ |
75,208
|
|
Customer
related intangibles
|
|
|
86,205
|
|
|
|
(14,400 |
) |
|
|
71,805
|
|
Other
intangible assets
|
|
|
12,416
|
|
|
|
(1,349 |
) |
|
|
11,067
|
|
Total
|
|
$ |
193,232
|
|
|
$ |
(35,152 |
) |
|
$ |
158,080
|
|
The
following table presents the changes in the net balance of intangibles assets
during the nine months ended September 30, 2007.
|
|
(In
thousands)
|
|
|
|
Technology,
net
|
|
|
Customer
Related Intangibles, net
|
|
|
Other
Intangible
Assets,
net
|
|
|
Total
|
|
December
31, 2006
|
|
$ |
75,208
|
|
|
$ |
71,805
|
|
|
$ |
11,067
|
|
|
$ |
158,080
|
|
Acquired
during 2007
|
|
|
21,759
|
|
|
|
45,560
|
|
|
|
8,608
|
|
|
|
75,927
|
|
Amortization
expense
|
|
|
(4,820 |
) |
|
|
(5,693 |
) |
|
|
(1,143 |
) |
|
|
(11,656 |
) |
Change
in estimate to fair value of net assets acquired in prior
years
|
|
|
(250 |
) |
|
|
(259 |
) |
|
|
(90 |
) |
|
|
(599 |
) |
Net
currency translation adjustment
|
|
|
2,243
|
|
|
|
2,237
|
|
|
|
85
|
|
|
|
4,565
|
|
September
30, 2007
|
|
$ |
94,140
|
|
|
$ |
113,650
|
|
|
$ |
18,527
|
|
|
$ |
226,317
|
|
The
purchase price allocations relating to the businesses acquired during 2007
are
based on estimates and have not yet been finalized. The Corporation
will adjust these estimates based upon analysis of third party appraisals,
when
deemed appropriate, and the determination of fair value when finalized, no
later
than twelve months from acquisition.
The
estimated future amortization expense of purchased intangible assets is $19.7
million, $18.2 million, $17.7 million, $17.5 million, and $15.8 million for
2008, 2009, 2010, 2011, and 2012, respectively. The estimated
weighted average life of the purchased intangibles is 13 years for the 2007
acquisitions.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. WARRANTY
RESERVES
The
Corporation provides its customers with warranties on certain commercial and
governmental products. Estimated warranty costs are charged to
expense in the period the related revenue is recognized based on quantitative
historical experience. Estimated warranty costs are reduced as these
costs are incurred and as the warranty period expires and may be otherwise
modified as specific product performance issues are identified and
resolved. Warranty reserves are included within other current
liabilities on the Corporation’s Consolidated Balance Sheets. The
following table presents the changes in the Corporation’s warranty
reserves:
|
|
(In
thousands)
|
|
|
|
2007
|
|
|
2006
|
|
Warranty
reserves at January 1,
|
|
$ |
9,957
|
|
|
$ |
9,850
|
|
Provision
for current year sales
|
|
|
2,597
|
|
|
|
2,539
|
|
Increase
due to acquisitions
|
|
|
811
|
|
|
|
27
|
|
Current
year claims
|
|
|
(1,707 |
) |
|
|
(1,597 |
) |
Change
in estimates to pre-existing warranties
|
|
|
(1,347 |
) |
|
|
(604 |
) |
Currency
translation adjustment
|
|
|
444
|
|
|
|
347
|
|
Warranty
reserves at September 30,
|
|
$ |
10,755
|
|
|
$ |
10,562
|
|
8. INCOME
TAXES
Our
effective tax rate for the third quarter 2007 was 32.0% as compared to 35.4%
for
the third quarter 2006. The third quarter 2007 was lower due to final provision
to return adjustments and enhanced manufacturing deductions.
Our
effective tax rate for the first nine months of 2007 was 34.4% as compared
to
31.2% in 2006. Our
effective tax rate for the first nine months of 2006 was favorably impacted
by a
tax provision to return adjustment of $2.0 million relating to research and
development credits from our Canadian operations and the impact of a Canadian
tax law change enacted during the second quarter of 2006, which resulted in
a
$1.6 million favorable adjustment.
Implementation
of FIN 48
The
Corporation adopted the provisions of FASB Interpretation No. 48 (“FIN
48”) – Accounting for Uncertainty in Income Taxes – an interpretation of
FASB Statement No. 109, on January 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an entity’s financial
statements in accordance with FASB Statement No. 109 and prescribes a
recognition threshold and measurement attributes for financial statement
disclosure of tax positions taken or expected to be taken on a tax
return. As a result of the implementation of FIN 48, the
Corporation made a comprehensive review of its portfolio of tax positions
in
accordance with recognition standards established by FIN 48. As
a result of this review, the Corporation recognized additional liabilities
totaling $0.5 million through a charge to retained earnings. Upon the
adoption of FIN 48, the estimated value of the Corporation’s uncertain tax
positions is a liability of $3.3 million. The liability for uncertain tax
positions is carried in income tax payable and other liabilities in the
consolidated financial statements as of September 30, 2007, of which
$3.2 million is reported as long-term.
If
the
Corporation’s positions are sustained by the taxing authority in favor of the
Corporation, approximately $1.1 million would be treated as a reduction of
goodwill, and the balance of $2.2 million would reduce the Corporation’s
effective tax rate. The Corporation does not expect any material changes
to the
estimated amount of liability associated with its uncertain tax positions
through the next twelve months.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
Corporation recognizes accrued interest expense and penalties related to
uncertain tax positions in interest expense and general and administrative
expenses, respectively. As of January 1, 2007, the Corporation had accrued
approximately $0.4 million for the payment of tax-related interest and
penalties.
The
Corporation files income tax returns in the U.S. federal jurisdiction and
various state and foreign jurisdictions. The Corporation’s federal income tax
returns are open for 2003 through 2006 tax years. The Corporation
files in numerous state and foreign jurisdictions with varying statutes of
limitation. The state and foreign returns are open from 2002 through 2006
depending upon each taxing jurisdiction’s statute of limitation. The
Corporation is currently under audit in Canada for periods 2001, 2002, 2004,
and
2005. The Corporation is also under audit in Germany for periods 2002 through
2004. The Corporation believes that its income tax filing positions
and deductions will be sustained on audit and does not anticipate any
adjustments that will result in a material change to its financial
position.
As
of
September 30, 2007, there have been no material changes to the liability for
uncertain tax positions.
9. DEBT
During
the first nine months of 2007, we used $213.0 million in available credit under
the Revolving Credit Agreement to fund investing activities. The unused credit
available under the Revolving Credit Agreement at September 30, 2007 was $164.2
million. The loans outstanding under the 2003 and 2005 Senior Notes,
Revolving Credit Agreement, and Industrial Revenue Bonds had fixed and variable
interest rates averaging 5.6% during the third quarter of 2007 and 5.4% for
the
comparable prior year period.
On
August
10, 2007, the Corporation and certain of its subsidiaries refinanced its
existing credit facility and entered into a Second Amended and Restated Credit
Agreement (“Credit Agreement”). The proceeds available under the Credit
Agreement are to be used for working capital, internal growth initiatives,
funding of future acquisitions, and general corporate purposes. The
Corporation’s available credit under the credit facility increased from $400.0
million to $425.0 million from a syndicate of banks, led by Bank of America,
N.A. as the agent bank, with an accordion feature to expand the overall credit
line to a maximum aggregate amount of $600.0 million. The consortium
has remained relatively the same. The Credit Agreement extends the
maturity from July 23, 2009 to August 10, 2012, at which time all amounts then
outstanding under the Credit Agreement will be due and payable. In
addition, the Credit Agreement provides for improved pricing and more favorable
covenant terms, reduced facility fees, and increased availability of the
facility for letters of credit.
10. PENSION
AND OTHER POSTRETIREMENT BENEFIT PLANS
In
February 2007, a plan amendment was executed with an effective date of January
1, 2007 merging the Curtiss-Wright Electro-Mechanical Corporation (“EMD”)
Pension Plan into the Curtiss-Wright Pension Plan, hereafter named the
Curtiss-Wright Pension Plan. The merger has no effect on the level of
plan benefits provided to participants or the management of plan assets since
the funds for both plans was historically managed under one master
trust. As a result of the merger, the assets and liabilities of the
respective plans have been combined in the consolidated balance sheet, resulting
in a reclassification of accrued EMD pension liability of $32.9 million to
reduce the Curtiss-Wright long-term prepaid pension asset.
The
following tables are consolidated disclosures of all domestic and foreign
pension plans as described in the Corporation’s 2006 Annual Report of Form
10-K. The postretirement benefits information includes the domestic
Curtiss-Wright Corporation and EMD postretirement benefit plans, as there are
no
foreign postretirement benefit plans.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Pension
Plans
The
components of net periodic pension cost for the three and nine months ended
September 30, 2007 and 2006 were:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
cost
|
|
$ |
5,066
|
|
|
$ |
4,969
|
|
|
$ |
15,160
|
|
|
$ |
14,484
|
|
Interest
cost
|
|
|
4,776
|
|
|
|
4,274
|
|
|
|
14,303
|
|
|
|
13,431
|
|
Expected
return on plan assets
|
|
|
(7,058 |
) |
|
|
(6,617 |
) |
|
|
(21,145 |
) |
|
|
(19,957 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition
asset/obligation
|
|
|
−
|
|
|
|
(1 |
) |
|
|
−
|
|
|
|
(3 |
) |
Prior
service cost
|
|
|
120
|
|
|
|
159
|
|
|
|
360
|
|
|
|
292
|
|
Unrecognized
actuarial loss
|
|
|
129
|
|
|
|
135
|
|
|
|
383
|
|
|
|
375
|
|
Periodic
benefit cost
|
|
$ |
3,033
|
|
|
$ |
2,919
|
|
|
$ |
9,061
|
|
|
$ |
8,622
|
|
Special
termination benefits
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
1,555
|
|
Net
periodic benefit cost
|
|
$ |
3,033
|
|
|
$ |
2,919
|
|
|
$ |
9,061
|
|
|
$ |
10,177
|
|
During
the nine months ended September 30, 2007, the Corporation made contributions
of
$3.2 million for the 2006 plan year to the EMD Pension Plan. No further
contributions to the EMD Pension Plan for the 2006 plan year are expected in
2007. In addition, contributions of $2.1 million were made to the
Corporation’s foreign benefit plans during the first nine months of
2007. Contributions to the foreign plans are expected to be $2.6
million in 2007.
Other
Postretirement Benefit Plans
The
components of the net postretirement benefit cost for the three and nine months
ended September 30, 2007 and 2006 were:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
cost
|
|
$ |
132
|
|
|
$ |
132
|
|
|
$ |
397
|
|
|
$ |
397
|
|
Interest
cost
|
|
|
428
|
|
|
|
412
|
|
|
|
1,283
|
|
|
|
1,234
|
|
Amortization
of net gain
|
|
|
(133 |
) |
|
|
(134 |
) |
|
|
(400 |
) |
|
|
(400 |
) |
Net
periodic benefit cost
|
|
$ |
427
|
|
|
$ |
410
|
|
|
$ |
1,280
|
|
|
$ |
1,231
|
|
During
the nine months ended September 30, 2007, the Corporation has paid $1.2 million
on the postretirement plans. During 2007, the Corporation anticipates
contributing $2.1 million to the postretirement plans.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. EARNINGS
PER SHARE
Diluted
earnings per share were computed based on the weighted average number of shares
outstanding plus all potentially dilutive common shares. A
reconciliation of basic to diluted shares used in the earnings per share
calculation is as follows:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Basic
weighted average shares outstanding
|
|
|
44,413
|
|
|
|
43,903
|
|
|
|
44,285
|
|
|
|
43,779
|
|
Dilutive
effect of stock options and deferred stock compensation
|
|
|
689
|
|
|
|
435
|
|
|
|
640
|
|
|
|
475
|
|
Diluted
weighted average shares outstanding
|
|
|
45,102
|
|
|
|
44,338
|
|
|
|
44,925
|
|
|
|
44,254
|
|
There
were no antidilutive shares for the three and nine months ended September 30,
2007 and 2006.
12. SEGMENT
INFORMATION
The
Corporation manages and evaluates its operations based on the products and
services it offers and the different markets it serves. Based on this
approach, the Corporation has three reportable segments: Flow Control, Motion
Control, and Metal Treatment.
|
|
(In
thousands)
Three
Months Ended September 30, 2007
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Totals
|
|
|
Corporate
& Other
|
|
|
Consolidated
Totals
|
|
Revenue
from external customers
|
|
$ |
190,811
|
|
|
$ |
142,524
|
|
|
$ |
62,933
|
|
|
$ |
396,268
|
|
|
$ |
−
|
|
|
$ |
396,268
|
|
Intersegment
revenues
|
|
|
−
|
|
|
|
48
|
|
|
|
266
|
|
|
|
314
|
|
|
|
(314 |
) |
|
|
−
|
|
Operating
income
|
|
|
18,733
|
|
|
|
14,756
|
|
|
|
12,597
|
|
|
|
46,086
|
|
|
|
(1,598 |
) |
|
|
44,488
|
|
|
|
(In
thousands)
Three
Months Ended September 30, 2006
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Totals
|
|
|
Corporate
& Other
|
|
|
Consolidated
Totals
|
|
Revenue
from external customers
|
|
$ |
129,819
|
|
|
$ |
125,639
|
|
|
$ |
56,343
|
|
|
$ |
311,801
|
|
|
$ |
−
|
|
|
$ |
311,801
|
|
Intersegment
revenues
|
|
|
−
|
|
|
|
584
|
|
|
|
236
|
|
|
|
820
|
|
|
|
(820 |
) |
|
|
−
|
|
Operating
income
|
|
|
14,014
|
|
|
|
15,310
|
|
|
|
10,448
|
|
|
|
39,772
|
|
|
|
(2,521 |
) |
|
|
37,251
|
|
|
|
(In
thousands)
Nine
Months Ended September 30, 2007
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Totals
|
|
|
Corporate
& Other
|
|
|
Consolidated
Totals
|
|
Revenue
from external customers
|
|
$ |
491,702
|
|
|
$ |
412,730
|
|
|
$ |
190,021
|
|
|
$ |
1,094,453
|
|
|
$ |
−
|
|
|
$ |
1,094,453
|
|
Intersegment
revenues
|
|
|
−
|
|
|
|
625
|
|
|
|
779
|
|
|
|
1,404
|
|
|
|
(1,404 |
) |
|
|
−
|
|
Operating
income
|
|
|
38,758
|
|
|
|
43,626
|
|
|
|
38,554
|
|
|
|
120,938
|
|
|
|
(2,899 |
) |
|
|
118,039
|
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(In
thousands)
Nine
Months Ended September 30, 2006
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Totals
|
|
|
Corporate
& Other
|
|
|
Consolidated
Totals
|
|
Revenue
from external customers
|
|
$ |
380,277
|
|
|
$ |
356,496
|
|
|
$ |
167,215
|
|
|
$ |
903,988
|
|
|
$ |
−
|
|
|
$ |
903,988
|
|
Intersegment
revenues
|
|
|
−
|
|
|
|
951
|
|
|
|
601
|
|
|
|
1,552
|
|
|
|
(1,552 |
) |
|
|
−
|
|
Operating
income
|
|
|
36,901
|
|
|
|
33,436
|
|
|
|
31,630
|
|
|
|
101,967
|
|
|
|
(7,020 |
) |
|
|
94,947
|
|
|
|
(In
thousands)
Identifiable
Assets
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Totals
|
|
|
Corporate
& Other
|
|
|
Consolidated
Totals
|
|
September
30, 2007
|
|
$ |
842,080
|
|
|
$ |
778,233
|
|
|
$ |
224,191
|
|
|
$ |
1,844,504
|
|
|
$ |
88,331
|
|
|
$ |
1,932,835
|
|
December
31, 2006
|
|
|
495,000
|
|
|
|
695,219
|
|
|
|
222,745
|
|
|
|
1,412,964
|
|
|
|
179,192
|
|
|
|
1,592,156
|
|
Adjustments
to reconcile to earnings
before income taxes:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Total
segment operating income
|
|
$ |
46,086
|
|
|
$ |
39,772
|
|
|
$ |
120,938
|
|
|
$ |
101,967
|
|
Corporate
and administrative
|
|
|
(1,598 |
) |
|
|
(2,521 |
) |
|
|
(2,899 |
) |
|
|
(7,020 |
) |
Other
income (expense), net
|
|
|
231
|
|
|
|
(18 |
) |
|
|
1,581
|
|
|
|
295
|
|
Interest
expense
|
|
|
(7,712 |
) |
|
|
(5,721 |
) |
|
|
(18,916 |
) |
|
|
(17,103 |
) |
Earnings
before income taxes
|
|
$ |
37,007
|
|
|
$ |
31,512
|
|
|
$ |
100,704
|
|
|
$ |
78,139
|
|
13. COMPREHENSIVE
INCOME
Total
comprehensive income for the three and nine months ended September 30, 2007
and
2006 is as follows:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
earnings
|
|
$ |
25,175
|
|
|
$ |
20,356
|
|
|
$ |
66,069
|
|
|
$ |
53,726
|
|
Defined
benefit pension and post-retirement plan
|
|
|
(162 |
) |
|
|
-
|
|
|
|
(115 |
) |
|
|
-
|
|
Equity
adjustment from foreign currency translations, net
|
|
|
14,032
|
|
|
|
473
|
|
|
|
28,294
|
|
|
|
16,667
|
|
Total
comprehensive income
|
|
$ |
39,045
|
|
|
$ |
20,829
|
|
|
$ |
94,248
|
|
|
$ |
70,393
|
|
The
equity adjustment from foreign currency translation represents the effect of
translating the assets and liabilities of the Corporation’s non-U.S.
entities. This amount is impacted year-over-year by foreign currency
fluctuations and by the acquisitions of foreign entities.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
14. CONTINGENCIES
AND COMMITMENTS
The
Corporation, through its Flow Control segment, has several Nuclear Regulatory
Commission (NRC) licenses necessary for the continued operation of its
commercial nuclear operations. 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 planned for 2017, is $4.0 million.
The
Corporation recorded a receivable of $1.7 million for the recovery from the
U.S.
Government, which is based on a pending settlement, for environmental
remediation costs associated with our EMD facility in Cheswick, Pennsylvania.
The Corporation deemed the recovery probable per SOP 96-1 "Environmental
Remediation Liabilities".
The
Corporation enters into standby letters of credit agreements with financial
institutions and customers primarily relating to guarantees of repayment on
certain Industrial Revenue Bonds, future performance on certain contracts to
provide products and services, and to secure advance payments the Corporation
has received from certain international customers. At September 30,
2007, and December 31, 2006 the Corporation had contingent liabilities on
outstanding letters of credit of $55.0 million and $37.8 million,
respectively.
The
Corporation is party to a number of 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.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
PART
I - ITEM 2
MANAGEMENT’S
DISCUSSION and ANALYSIS of
FINANCIAL
CONDITION and RESULTS of OPERATIONS
FORWARD-LOOKING
INFORMATION
Except
for historical information, this Quarterly Report on Form 10-Q may be deemed
to
contain "forward-looking" information. Examples of forward-looking information
include, but are not limited to, (a) projections of or statements regarding
return on investment, future earnings, interest income, other income, earnings
or loss per share, growth prospects, capital structure, and other financial
terms, (b) statements of plans and objectives of management, (c) statements
of
future economic performance, and (d) statements of assumptions, such as economic
conditions underlying other statements. Such forward-looking information can
be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "anticipates," or the negative of any of
the
foregoing or other variations or comparable terminology, or by discussion of
strategy. No assurance can be given that the future results described by the
forward-looking information will be achieved. Such statements are subject to
risks, uncertainties, and other factors, which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking information. Such statements in this Quarterly Report on Form
10-Q include, without limitation, those contained in (a) Item 1. Financial
Statements and (b) Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. Important factors that could cause the
actual results to differ materially from those in these forward-looking
statements include, among other items, the Corporation's successful execution
of
internal performance plans; performance issues with key suppliers,
subcontractors, and business partners; the ability to negotiate financing
arrangements with lenders; legal proceedings; changes in the need for additional
machinery and equipment and/or in the cost for the expansion of the
Corporation's operations; ability of outside third parties to comply with their
commitments; adverse labor actions involving key customers or suppliers; product
demand and market acceptance risks; the effect of economic conditions and
fluctuations in foreign currency exchange rates; the impact of competitive
products and pricing; product development, commercialization, and technological
difficulties; social and economic conditions and local regulations in the
countries in which the Corporation conducts its businesses; unanticipated
environmental remediation expenses or claims; capacity and supply constraints
or
difficulties; an inability to perform customer contracts at anticipated cost
levels; changing priorities or reductions in the U.S. Government defense budget;
contract continuation and future contract awards; U.S. and international
military budget constraints and determinations; the factors discussed under
the
caption “Risk Factors” in the Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2006; and other factors that generally affect the
business of companies operating in the Corporation's markets and/or
industries.
The
Corporation assumes no obligation to update forward-looking statements to
reflect actual results or changes in or additions to the factors affecting
such
forward-looking statements.
COMPANY
ORGANIZATION
We
are a
diversified, multinational provider of highly engineered, technologically
advanced, value-added products and services to a broad range of industries
in
the flow control, motion control, and metal treatment markets. We are
positioned as a market leader across a diversified array of niche markets
through engineering and technological leadership, precision manufacturing,
and
strong relationships with our customers. We provide products and services to
a
number of global markets, such as defense, commercial aerospace, commercial
nuclear power, oil and gas, automotive, and general industrial. We have achieved
balanced growth through the successful application of our core competencies
in
engineering and precision manufacturing, adapting these competencies to new
markets through internal product development and a disciplined program of
strategic acquisitions. Our overall strategy is to be a balanced and diversified
company, less vulnerable to cycles or downturns in any one business sector,
and
to maintain strong positions in profitable niche
markets. Approximately 40% of our revenues are generated from
defense-related markets.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
MANAGEMENT’S
DISCUSSION and ANALYSIS of
FINANCIAL
CONDITION and RESULTS of OPERATIONS, continued
We
manage
and evaluate our operations based on the products and services we offer and
the
different industries and markets we serve. Based on this approach, we have
three
reportable segments: Flow Control, Motion Control, and Metal
Treatment. For further information on our products and services and
the
major
markets served by our three segments, please refer to our Annual Report on
Form
10-K for the year ended December 31, 2006.
RESULTS
of OPERATIONS
Analytical
definitions
Throughout
management’s discussion and analysis of financial condition and results of
operations, the terms “incremental” and “base” are used to explain changes from
period to period. The term “incremental” is used to highlight the impact
acquisitions had on the current year results, for which there was no comparable
prior-year period. Therefore, the results of operations for acquisitions are
“incremental” for the first twelve months from the date of
acquisition. The remaining businesses are referred to as the “base”
businesses, and growth in these base businesses is referred to as
“organic”.
Therefore,
for the three months ended September 30, 2007, our organic growth does not
include operating results related to our 2007 acquisitions, and two months
of
operating results of Swantech, which are considered
“incremental”. Similarly, our organic growth calculation for the nine
months ended September 30, 2007 excludes the results of operations for our
2007
acquisitions, four months of operating results of Allegheny Coatings and Enpro
Systems, Ltd., and eight months of operating results of Swantech.
Three
months ended September 30, 2007
Sales
for
the third quarter of 2007 totaled $396.3 million, an increase of 27% from sales
of $311.8 million for the third quarter of 2006. New orders received
for the current quarter of $675.7 million increased 109% from new orders of
$324.1 million for the third quarter of 2006. Approximately $245
million or 70% of the increase in new orders is a result of the award of the
reactor coolant pump contracts with China’s State Nuclear Power Technology
Corporation (SNPTC) and Westinghouse Electric Company (Westinghouse) for four
new AP1000 reactors. The acquisitions made in 2006 and 2007 contributed $35.2
million in incremental new orders received in the third quarter of 2007. Backlog
increased 57% to $1,376.8 million at September 30, 2007 from $875.5 million
at
December 31, 2006. The acquisitions made during 2007 represented
$150.0 million of the backlog at September 30, 2007. Approximately
40% of our backlog is defense-related.
Sales
growth for the third quarter of 2007, as compared to the same period last year,
was due to strong organic growth of 12% and incremental sales from our 2006
and
2007 acquisitions of $48.1 million. Our organic sales growth was
driven by balanced contributions from all three segments.
In
our
base businesses, higher sales to the oil and gas and commercial aerospace
markets drove our organic sales growth. Our Flow Control segment’s coker valve
products continue to penetrate the oil and gas market, and contributed
significantly to our $20.5 million organic increase in this market. The
remaining change resulted from strong sales of other valves, engineering
services, and field service work as the oil and gas market continues its
increased capital spending. Global commercial aerospace original equipment
manufacturer (OEM) revenues were up in our Motion Control and Metal Treatment
segments, the main contributors to the $8.3 million increase in this market.
The
improvement in this market was led by increased production requirements from
our
customers as well as content on new programs. In addition, foreign currency
translation favorably impacted sales by $4.1 million for the quarter ended
September 30, 2007 compared to the prior year period.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
MANAGEMENT’S
DISCUSSION and ANALYSIS of
FINANCIAL
CONDITION and RESULTS of OPERATIONS, continued
Operating
income for the third quarter of 2007 totaled $44.5 million, a 19% increase
over
the same period last year of $37.3 million. Overall organic operating income
increased 8% due primarily to the higher sales noted above and previously
implemented cost reduction initiatives. The strong organic operating income
growth was driven primarily by our Metal Treatment segment, which experienced
organic operating
income growth of 21% over the comparable prior year period. Our Flow
Control segment’s organic operating income improved 3% and our Motion Control
segment declined 4% compared to the prior year period. The decline in
Motion Control’s operating income was mainly due to less favorable sales mix
resulting from reduced spares sales and increased development work.
Additionally, our 2006 and 2007 acquisitions contributed $4.4 million in
incremental operating income in the third quarter of 2007 as compared to the
prior year period. Foreign currency translation had an unfavorable impact of
$0.2 million on operating income for the third quarter of 2007, as compared
to
the prior year period.
Despite
the increase in operating income, our operating margin declined 70 basis points,
as productivity gains on the higher sales at our Metal Treatment segment were
more than offset by less favorable sales mix mainly in our Motion Control
segment, increased research and development expenses, and continued investments
in both commercial and military development programs which have an adverse
impact on the margins in the short-term. In addition, our acquisitions which
typically have lower margins initially than our base businesses, accounted
for
30 of the 70 basis point decline in operating margins.
Net
earnings for the third quarter of 2007 totaled $25.2 million, or $0.56 per
diluted share, an increase of 24% as compared to net earnings for the third
quarter of 2006 of $20.4 million, or $0.46 per diluted share. Our effective
tax
rate for the third quarter 2007 was 32.0% as compared to 35.4% for the third
quarter 2006. The third quarter 2007 was lower due to final provision to return
adjustments and enhanced manufacturing deductions. Interest expense for third
quarter of 2007 increased mainly due to higher debt levels resulting from our
recent acquisitions, and to a lesser extent, the slightly higher interest rates,
as compared to the prior year.
Nine
months ended September 30, 2007
Sales
for
the first nine months of 2007 totaled $1,094.5 million, an increase of 21%
from
sales of $904.0 million for same period last year. New orders
received for the first nine months of 2007 of $1,433.9 million were up 47%
over
the new orders of $976.3 million for the first nine months of 2006.
Approximately $293 million of the increase in new orders is a result of the
awards of the reactor coolant pump contracts with SNPTC and Westinghouse for
four new AP1000 reactors. The acquisitions made in 2006 and 2007 contributed
$65.3 million in incremental new orders received in the first nine months of
2007.
Organic
sales growth of 13% for the first nine months of 2007, as compared to the same
period last year, was driven by all three operating segments, led by 15% organic
growth in our Motion Control segment and 11% organic growth in our Flow Control
and Metal Treatment segments during the first nine months of 2007 as compared
to
the prior year period. Sales for the first nine months of 2007 also benefited
from the 2006 and 2007 acquisitions which contributed $75.3 million in
incremental sales.
In
our
base businesses, higher sales to the oil and gas, commercial aerospace, and
ground defense markets drove our organic sales growth. Our Flow Control
segment’s coker valve products and other valve and field service sales
contributed significantly to our $51.2 million organic increase in the oil
and
gas market. Global commercial aerospace OEM products revenues were up in both
our Motion Control and Metal Treatment segments, resulting in a $27.0 million
increase in this market. Improvements in both of these markets are
essentially the same as those stated in the quarterly results. Sales of our
Motion Control segment’s actuator and embedded computing products provided the
majority of the $10.8 million improvement in the aerospace defense market,
driven mainly by increased customer orders and the timing of shipments. Growth
in the defense market sales of our Motion Control segment’s embedded computing
products for the Future Combat System were mostly offset by lower Flow Control
segment pump and generator sales to the U.S. Navy due to the timing of their
procurement cycles. In addition, foreign currency translation favorably impacted
sales by $12.2 million for the first nine months of 2007, compared to the prior
year period.
Operating
income for the first nine months of 2007 totaled $118.0 million, up 24% over
the
$94.9 million from the same period last year. Overall organic operating income
increased 19% over the comparable period as the benefits from the higher sales
volumes and previously implemented cost reduction
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
MANAGEMENT’S
DISCUSSION and ANALYSIS of
FINANCIAL
CONDITION and RESULTS of OPERATIONS, continued
initiatives
were partially offset by cost overruns of approximately $3.5 million on fixed
price development contracts for the U.S. Navy and business consolidation costs
and related labor inefficiencies in our Flow Control segment. Our organic
operating income growth was driven primarily by our Motion Control segment,
which experienced organic operating income growth of 30% due primarily to higher
sales volumes and cost reduction efforts, while our Metal Treatment segment
experienced organic operating income growth of 20% mainly due to the higher
sales. Offsetting these increases was a decline in organic operating income
within our Flow Control segment of 7% as compared to the prior year, due to
the
items mentioned above, and increased investment in new commercial programs
and
higher research and development expenses. Our 2006 and 2007
acquisitions contributed $5.0 million in incremental operating income during
the
first nine months of 2007. The lower operating income margin of our
acquisitions is due to purchase accounting adjustments, business consolidation
costs, and start-up costs in our Flow Control and Motion Control
segments. Foreign currency translation favorably impacted operating
income by $0.9 million for the first nine months of 2007, as compared to the
prior year period.
Net
earnings for the first nine months of 2007 totaled $66.1 million, or $1.47
per
diluted share, an increase of 23% as compared to the net earnings for the first
nine months of 2006 of $53.7 million, or $1.21 per diluted share. Our effective
tax rate for the first nine months of 2007 was 34.4% as compared to 31.2% in
2006. Our effective tax rate for the first nine months of 2006 was
favorably impacted by a tax provision to return adjustment of $2.0 million
relating to research and development credits from our Canadian operations and
the impact of a Canadian tax law change enacted during the second quarter of
2006, which resulted in a $1.6 million favorable adjustment. Interest expense
for the first nine months of 2007 increased mainly due to higher debt levels
resulting from our recent acquisitions, and to a lesser extent, the slightly
higher interest rates, as compared to the prior year. Higher non-operating
other
income is mainly due to increased investment income.
Segment
Operating Performance:
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
$ |
190,811
|
|
|
$ |
129,819
|
|
|
|
47.0 |
% |
|
$ |
491,702
|
|
|
$ |
380,277
|
|
|
|
29.3 |
% |
Motion
Control
|
|
|
142,524
|
|
|
|
125,639
|
|
|
|
13.4 |
% |
|
|
412,730
|
|
|
|
356,496
|
|
|
|
15.8 |
% |
Metal
Treatment
|
|
|
62,933
|
|
|
|
56,343
|
|
|
|
11.7 |
% |
|
|
190,021
|
|
|
|
167,215
|
|
|
|
13.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Sales
|
|
$ |
396,268
|
|
|
$ |
311,801
|
|
|
|
27.1 |
% |
|
$ |
1,094,453
|
|
|
$ |
903,988
|
|
|
|
21.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
$ |
18,733
|
|
|
$ |
14,014
|
|
|
|
33.7 |
% |
|
$ |
38,758
|
|
|
$ |
36,901
|
|
|
|
5.0 |
% |
Motion
Control
|
|
|
14,756
|
|
|
|
15,310
|
|
|
|
(3.6 |
%) |
|
|
43,626
|
|
|
|
33,436
|
|
|
|
30.5 |
% |
Metal
Treatment
|
|
|
12,597
|
|
|
|
10,448
|
|
|
|
20.6 |
% |
|
|
38,554
|
|
|
|
31,630
|
|
|
|
21.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segments
|
|
|
46,086
|
|
|
|
39,772
|
|
|
|
15.9 |
% |
|
$ |
120,938
|
|
|
$ |
101,967
|
|
|
|
18.6 |
% |
Corporate
& Other
|
|
|
(1,598 |
) |
|
|
(2,521 |
) |
|
|
(36.6 |
%) |
|
|
(2,899 |
) |
|
|
(7,020 |
) |
|
|
(58.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Income
|
|
$ |
44,488
|
|
|
$ |
37,251
|
|
|
|
19.4 |
% |
|
$ |
118,039
|
|
|
$ |
94,947
|
|
|
|
24.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
|
9.8 |
% |
|
|
10.8 |
% |
|
|
|
|
|
|
7.9 |
% |
|
|
9.7 |
% |
|
|
|
|
Motion
Control
|
|
|
10.4 |
% |
|
|
12.2 |
% |
|
|
|
|
|
|
10.6 |
% |
|
|
9.4 |
% |
|
|
|
|
Metal
Treatment
|
|
|
20.0 |
% |
|
|
18.5 |
% |
|
|
|
|
|
|
20.3 |
% |
|
|
18.9 |
% |
|
|
|
|
Total
Curtiss-Wright:
|
|
|
11.2 |
% |
|
|
11.9 |
% |
|
|
|
|
|
|
10.8 |
% |
|
|
10.5 |
% |
|
|
|
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
MANAGEMENT’S
DISCUSSION and ANALYSIS of
FINANCIAL
CONDITION and RESULTS of OPERATIONS, continued
Flow
Control
Sales
for
the Corporation’s Flow Control segment increased 47% to $190.8 million for the
third quarter of 2007 from $129.8 million in the third quarter of 2006. The
increase in sales was driven by strong organic sales growth of 12% and
contributions from our 2006 and 2007 acquisitions of $45.7 million. The organic
sales
growth was driven by a $20.2 million increase in sales to the oil and gas market
which equates to a 51% organic growth over the same period of 2006. Sales to
remaining commercial markets were up slightly year-over-year. These improvements
were partially offset by a decline in sales to the U.S. Navy of $5.4 million
in
the third quarter of 2007 as compared to the prior year period.
Strong
demand continued for our coker valve products as they gain greater market
acceptance and our installed base continues to perform well. The higher sales
of
the coker valve products accounted for approximately 40% of the oil and gas
market increase. The remaining increase is due to higher sales of other valves,
engineering services, and field work as worldwide refineries continue to
increase capital spending and maintenance expenditures as they invest money
to
increase capacity and improve plant efficiencies as well as support new refinery
construction in Europe and the Middle East. The decline in sales to the U.S.
Navy were mainly due to lower sales of electromechanical pumps and generators
of
$10.2 million used on the aircraft carriers and submarines resulting from the
timing of the procurement cycle for those programs. The decline in
our traditional U.S. Navy business was partially offset by increased development
work on naval surface ships and higher production work on the electro magnetic
advanced landing system (EMALS) for the aircraft carrier program. Foreign
currency translation favorably impacted this segment’s sales for the third
quarter of 2007 by $0.3 million as compared to the prior year
period.
Operating
income for the third quarter of 2007 was $18.7 million, an increase of 34%
as
compared to $14.0 million for the same period last year. This
segment’s organic operating income was 3% higher than the comparable prior year
period due to higher sales volume and improved operating performance in our
consolidated TapcoEnpro business unit which began its consolidation process
in
2006. This segment also received $1.7 million of recovery from the U.S.
Government in the third quarter of 2007 for environmental remediation costs.
Additionally, our 2006 and 2007 acquisitions contributed $4.3 million in
incremental operating income in the third quarter of 2007 as compared to the
prior year period. The operating margin for Flow Control declined 100 basis
points primarily due to continued investment in development programs for the
naval defense, oil and gas, and power generation markets, and increased research
and development costs, mainly in our commercial nuclear market. Foreign currency
translation had an unfavorable impact of $0.1 million on this segment’s
operating income in the third quarter of 2007 as compared to the prior year
period.
Sales
for
the first nine months of 2007 were $491.7 million, an increase of 29% over
the
same period last year of $380.3 million. The increase in year-to-date sales
was
driven by strong organic sales growth of 11% and incremental contributions
from
our 2006 and 2007 acquisitions of $68.6 million. The organic sales growth in
the
first nine months of 2007 resulted from higher sales to the oil and gas market
of $49.8 million and higher sales to the commercial nuclear power generation
market of $2.8 million. Partially offsetting these improvements were lower
sales
to the U.S. Navy of $12.9 million.
Sales
to
the oil and gas market were driven by our coker valve which accounted for
approximately 50% of the sales improvement in the first nine months of 2007
versus the prior year, as our products continue to gain greater market
acceptance and our installed base continues to perform well. Sales of
other valves, engineering services, and field service work also contributed
to
the increase in the oil and gas market as increased capital spending and repair
and maintenance expenditures by refineries worldwide continues as they invest
money to increase capacity and improve plant efficiencies. Sales to the
commercial nuclear power generation market, which is driven by customer
maintenance schedules and often vary in timing, had higher engineering and
design support services and valve sales for power plants as well as the addition
of new teaming partners. The lower sales to the U.S. Navy was mainly driven
by
decreased electromechanical generator and pump sales of $20.4 million resulting
from the timing of funded contracts for the aircraft carrier and submarines.
Lower sales of our JP-5 jet fuel transfer valves used on Nimitz-class aircraft
carriers of $2.6 million and ball valves used on Virginia-class submarines
of
$2.1 million also negatively impacted sales to the U.S.
Navy. Partially offsetting these declines in the first nine months of
2007 were higher development work for naval surface ships and aircraft carriers
and higher production work on the EMALS program of $16.0 million. Foreign
currency translation favorably impacted this segment’s sales by $0.7 million for
the first nine months of 2007, as compared to the same period last
year.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
MANAGEMENT’S
DISCUSSION and ANALYSIS of
FINANCIAL
CONDITION and RESULTS of OPERATIONS, continued
Operating
income for the first nine months of 2007 was $38.8 million, an increase of
5% as
compared to $36.9 million for the same period last year. The 2007 and 2006
acquisitions contributed $4.3 million in incremental operating income in the
first nine months of 2007. Organic operating income declined 7% for
the first nine months of 2007 as compared to the prior year period as higher
sales volume was offset by additional development work and cost overruns on
certain contracts within our naval business, business consolidation costs and
related labor inefficiencies, higher material costs within our oil and gas
market, and less favorable mix in our commercial power generation market.
Additionally, this
segment’s operating income margin was impacted by the continued
investment in the development of new commercial and military technologies and
applications, and higher research and development costs, mainly within our
commercial power and oil and gas markets. Foreign currency translation
unfavorably impacted this segment’s operating income by $0.2 million in the
first nine months of 2007 as compared to the prior year.
New
orders received for the Flow Control segment totaled $455.2 million in the
third
quarter of 2007 and $774.7 million for the first nine months of 2007,
representing an increase of 314% and 91%, respectively, over the same periods
in
2006. The acquisitions made in 2006 and 2007 contributed $51.8 million and
$75.4
million in incremental new orders received in the third quarter and first nine
months of 2007, respectively. Approximately $245 million and $293 million of
the
increase in new orders for the third quarter and first nine months of 2007,
respectively, is a result of the awards of the reactor coolant pump contracts
with SNPTC and Westinghouse for four new AP1000 reactors. Continued strong
demand in the oil and gas market for our products also contributed to the
increase. Backlog increased 93% to $840.7 million at September 30, 2007 from
$434.9 million at December 31, 2006. The acquisitions made during 2007
represented $127.5 million of the backlog at September 30, 2007.
Motion
Control
Sales
for
our Motion Control segment increased 13% to $142.5 million in the third quarter
of 2007 from $125.6 million in the third quarter of 2006. The increase in sales
was driven by strong organic sales growth of 12% and an incremental contribution
from our IMC Magnetics acquisition of $2.4 million. The organic sales
growth was primarily due to higher sales of $4.8 million to the commercial
aerospace market, higher sales of $4.5 million to the naval defense market,
and
higher sales of $2.3 million to the defense aerospace market.
The
improvement in the commercial aerospace market was largely due to our OEM
content on the Boeing 700 series platform, which benefited from their increasing
order base and new programs. This represented approximately 40% of
the market increase. The remaining improvement was mainly due to higher flight
data recorders and other sensor sales for OEM customers, and higher sales of
our
new Rotor Ice Protection Systems (RIPS) for helicopter
manufacturers. Partially offsetting these increases are lower
shipments of controller products to Airbus, and lower repair and overhaul
services due to the timing of aircraft maintenance schedules. Increases in
the
naval defense market are due to higher sales of embedded computing boards and
subsystems to international navies resulting from higher new orders. The timing
of funding for our helicopter landing systems used on the DDG destroyer programs
also contributed to this market improvement. The defense aerospace market
improvement was highlighted by higher sales of embedded computing products
resulting from accelerated program activity on the Global Hawk unmanned aircraft
system, as well as higher sales of actuation systems due to additional F-22
shipset units. Foreign currency translation favorably impacted sales for the
third quarter of 2007 by $1.9 million as compared to the prior year
period.
Operating
income for the third quarter of 2007 was $14.8 million, a decrease of 4% over
the same period last year of $15.3 million. The impact of the higher
volume was more than offset by less favorable sales mix. The reduction in
operating margin was driven primarily by lower margin new business and
development work within our commercial aerospace and defense markets, the timing
of lower sales of higher margin military and commercial spares, and higher
research and development costs within our embedded computing business. As the
acquisition of IMC Magnetics closed in early September 2007, there was just
a
minimal contribution to operating income for the third quarter of 2007. Foreign
currency translation had an unfavorable impact of $0.8 million on operating
income in the third quarter of 2007, as compared to the prior year
period.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
MANAGEMENT’S
DISCUSSION and ANALYSIS of
FINANCIAL
CONDITION and RESULTS of OPERATIONS, continued
Sales
for
the first nine months of 2007 were $412.7 million, an increase of 16% from
sales
of $356.5 million during the first nine months of 2006. The increase in sales
was driven by strong organic sales growth of 15% and the incremental
contribution of $2.4 million from our IMC Magnetics acquisition. Organic sales
growth in the first nine months of 2007 was mainly due to higher sales to the
commercial aerospace market of $19.5 million, higher sales to the defense
markets, including aerospace defense of $11.0 million, ground defense of $10.2
million, and the naval defense market of $6.8 million.
The
improvement in the commercial aerospace market was mainly due to increased
sales
of various actuation and sensor products to aerospace OEMs resulting from
additional ship set requirements of 737 and 747 actuation systems, the start-up
of the 787 program, and other new opportunities with Boeing. These various
Boeing programs contributed 40% of the market improvement. The remaining
increase in the market was driven by strong international orders for our flight
data recorders and other integrated sensing products. Additionally, higher
smoke
detection sensor sales due to the start-up of the Eclipse platform in the
regional jet segment and higher sales of RIPS for helicopters contributed to
the
market improvement. The increase in sales to the aerospace defense
market was due to higher sales of actuator products resulting from additional
Black Hawk production orders, increased F-22 production as the U.S. Air Force
increases procurement efforts, and higher shipments for the V-22 program. The
remaining increase in this market was driven by strong demand for our embedded
computing products used on various U.S. Army and Air Force programs. Sales
of
embedded computing products to the ground defense market increased primarily
due
to additional orders for the U.S. Army Future Combat System. This
improvement was partially offset by lower spares orders for the Bradley Fighting
Vehicle and delayed production orders for the Armored Security
Vehicle. The improvement in the naval defense market was mainly due
to higher international sales of our embedded computing and marine defense
products. Foreign currency translation favorably impacted sales for the first
nine months of 2007 by $5.5 million as compared to the prior year
period.
Operating
income for the first nine months of 2007 was $43.6 million, an increase of
31%
over the same period last year of $33.4 million. The benefit of the
higher sales volume and operating cost reduction initiatives, mainly within
our
embedded computing business, were the main contributing factors for the
operating margin improvement. We also experienced an improvement in our naval
defense landing systems business, which was acquired in 2005, due to favorable
sales mix, production efficiencies, and cost reduction efforts. These
improvements were partially offset by less favorable sales mix resulting from
less high margin spares sales and the investment in new business and development
work which initially has lower margins. In addition, higher research
and development costs were driven by additional headcount and work within our
embedded computing business. Foreign currency translation had an unfavorable
impact of $1.0 million on operating income in the first nine months of 2007,
as
compared to the prior year period.
New
orders received for the Motion Control segment totaled $157.6 million in the
third quarter of 2007, essentially flat with the same period last year of $158.0
million, and $468.7 million for the first nine months of 2007, representing
an
increase of 16% from 2006. The increase in new orders for the first
nine months of 2007 was mainly due to contract wins for commercial aerospace
actuation systems, naval defense landing systems, and ground defense embedded
computing systems. Total backlog increased 22% to $533.5 million at September
30, 2007 from $438.6 million at December 31, 2006. The IMC Magnetics acquisition
made during 2007 represented $22.6 million of the backlog at September 30,
2007.
Metal
Treatment
Sales
for
the Corporation’s Metal Treatment segment totaled $62.9 million for the third
quarter of 2007, up 12% when compared with $56.3 million in the third quarter
of
2006, all growth being organic. The organic sales growth was primarily due
to
increased sales to the commercial aerospace market of $4.4 million with the
remaining growth equally split between the automotive and power generation
markets.
The
organic sales improvement in the commercial aerospace market is mainly due
to
higher shot peening services to our global customers resulting from increased
build rates and higher wing forming services in the commercial aerospace OEM
market. Higher specialty coating and heat treating services
also
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
MANAGEMENT’S
DISCUSSION and ANALYSIS of
FINANCIAL
CONDITION and RESULTS of OPERATIONS, continued
contributed
to the gain in this market resulting from improving economic conditions. Sales
were higher in the automotive market driven by strong demand for our global
specialty coating services and shot peening services to the European market,
partially offset by lower sales in the North American automotive market. The
growth in our power generation market was due to higher shot peening services
on
non-nuclear turbines. Foreign currency translation favorably impacted
sales for the third quarter of 2007 by $1.9 million as compared to the prior
year period.
Operating
income for the third quarter of 2007 increased 21% to $12.6 million from $10.4
million for the same period last year, all growth being organic. The
organic operating income growth for the third quarter of 2007 was due mainly
to
the higher sales volume, primarily in our European shot peening and specialty
coatings divisions, which also benefited from increased
productivity. This margin improvement was partially offset by
expenses related to start up operations in the United Kingdom and
Sweden. Foreign currency translation had a favorable impact on
this segment’s operating income of $0.7 million for the third quarter of 2007 as
compared to the prior year period.
Sales
for
the Corporation’s Metal Treatment segment totaled $190.0 million for the first
nine months of 2007, up 14% when compared with $167.2 million for the comparable
period of 2006. Our 2006 acquisition contributed $4.3 million of incremental
sales in the first nine months of 2007 while organic sales growth was 11%.
The
organic sales growth was primarily due to increased sales to the commercial
aerospace market of $10.0 million, higher sales to the automotive, oil and
gas,
power generation, and defense markets, which each grew approximately $2.0
million as compared to the prior year period.
The
organic growth in our commercial aerospace market was due to strong sales from
our global shot peening and specialty coating services resulting from increased
build rates, new programs, and increased wing skin forming services all to
the
commercial aerospace market. Increased heat treating services
resulting from higher orders from large OEM and regional jet suppliers also
contributed to the growth in this market. Sales growth in the automotive market
was driven by strong demand for our global specialty coating services and shot
peening services to the European market, partially offset by the lower sales
in
the North American automotive market. The improvement in the oil and gas market
was driven by solid demand for all of our global shot peening and heat treating
services. Growth in the commercial power market was mainly driven by
increased demand for our shot peening services. The defense market growth was
due to increased shot peening services for military helicopters and ground
vehicles. In addition, foreign currency translation favorably impacted sales
for
the first nine months of 2007 by $5.9 million, as compared to the prior year
period.
Operating
income for the first nine months of 2007 increased 22% to $38.5 million from
$31.6 million for the same period last year. Organic operating income
growth for the first nine months of 2007 was 21% over the same period in 2006,
while the 2006 acquisition contributed $0.6 million of incremental operating
income to the first nine months of 2007. The operating income growth
was primarily due to the incremental contribution to gross margins of the higher
volumes noted above. This growth was partially offset by an increase
in expenses related to start up operations in the United Kingdom and
Sweden. Foreign currency translation had a favorable
impact on this segment’s operating income of $2.1 million for the first nine
months of 2007 as compared to the prior year period.
New
orders received for the Metal Treatment segment totaled $62.8 million in the
third quarter of 2007 and $190.5 million for the first nine months of 2007,
representing an increase of 12% and 14% from the same periods in 2006,
respectively. The acquisition made in 2006 contributed $6.5 million
in incremental new orders received in the first nine months of 2007. Backlog
increased 24% to $2.5 million at September 30, 2007 from $2.1 million at
December 31, 2006.
Corporate
and Other
Non-segment
operating expense improved for both the third quarter and first nine months
of
2007 versus the comparable prior year periods, by $1.0 million and $4.1 million,
respectively. The improvement was primarily due to lower unallocated
medical costs under the Corporation’s self-insured medical insurance plan and
lower pension expense.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
MANAGEMENT’S
DISCUSSION and ANALYSIS of
FINANCIAL
CONDITION and RESULTS of OPERATIONS, continued
Interest
Expense
Interest
expense increased $2.0 million for the third quarter of 2007 and $1.8 million
for the first nine months of 2007 versus the comparable prior year
periods. The increases were mainly due to higher average outstanding
debt associated with the funding of our acquisitions and accounted for 80%
of
the increase. The remaining change was due to slightly higher interest
rates. Our average outstanding debt increased by 26% and 5% for the
three and nine months ended September 30, 2007, respectively, as compared to
the
comparable prior year periods. Our average rate of borrowing increased by 28
and
20 basis points for the three and nine months ended September 30, 2007,
respectively.
CHANGES
IN FINANCIAL CONDITION
Liquidity
and Capital Resources
We
derive
the majority of our 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 our business is in the defense market, which is characterized predominantly
by long-term contracts. In addition, some of our commercial business
have long-term contracts. Most of our long-term contracts allow for
several billing points (progress or milestones) that provide us 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.
Operating
Activities
Our
working capital was $385.5 million at September 30, 2007, an increase of $54.9
million from the working capital at December 31, 2006 of $330.5
million. The ratio of current assets to current liabilities was 2.1
to 1 at both September 30, 2007 and December 31, 2006. Cash and cash
equivalents totaled $59.3 million at September 30, 2007, down from $124.5
million at December 31, 2006. Days sales outstanding (DSO) at
September 30, 2007 were 53 days as compared to 48 days at December 31,
2006. Inventory turns were 4.8 for the nine months ended September
30, 2007 as compared to 5.5 at December 31, 2006.
Excluding
cash, working capital increased $120.1 million from December 31, 2006 partially
due to the 2007 acquisitions. The remainder of the increase was driven primarily
by an increase of $55.4 million in inventories, $39.6 million in receivables,
a
$13.5 million decrease in accounts payable, and a $10.7 million increase in
income taxes payable. The increase in receivables can be attributed
to the timing of milestone billings, an increase in the DSO along with higher
sales volume, and strong collections in the fourth quarter of
2006. The increase in inventories relates to a build up for future
sales and the stocking of material for new programs, delayed customer shipments
and milestone billings, and increased material costs. We also
procured additional material to hedge against rising steel prices and the
stocking of long lead materials for our long-term contracts and new
programs. These increases in working capital were mostly offset by an
increase in deferred revenue of $49.0 million. The significant
increase in deferred revenue relates primarily to the advance funding received
from Westinghouse related to the AP1000 program and higher advance payments
from
our oil and gas customers.
Investing
Activities
The
Corporation acquired four businesses in the first nine months of
2007. Funds available under the Corporation’s credit agreement were
utilized for funding the purchase price of the acquisitions, which totaled
$282.5 million. Additional acquisitions will depend, in part, on the
availability of financial resources at a cost of capital that meets stringent
criteria. As such, future acquisitions, if any, may be funded through
the use of the Corporation’s cash and cash equivalents, through additional
financing available under the credit agreement, or through new financing
alternatives. As indicated in Note 2 to the Consolidated Financial
Statements of our 2006 Annual Report on Form 10-K, certain acquisition
agreements
contain contingent purchase price adjustments, such as potential earn-out
payments. During the first nine months of 2007, the Corporation made $9.4
million in earn-out payments.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
MANAGEMENT’S
DISCUSSION and ANALYSIS of
FINANCIAL
CONDITION and RESULTS of OPERATIONS, continued
Capital
expenditures were $35.5 million in the first nine months of 2007. Principal
expenditures included new and replacement machinery and equipment and the
expansion of new product lines within the business segments. We
expect to make additional capital expenditures of approximately $30.0 million
during the remainder of 2007 on machinery and equipment for ongoing operations
at the business segments, expansion of existing facilities mainly to support
the
new AP1000 reactor program, and investments in new product lines and
facilities.
Financing
Activities
During
the first nine months of 2007, we used $213.0 million in available credit under
the Revolving Credit Agreement to fund investing activities. The unused credit
available under the Revolving Credit Agreement at September 30, 2007 was $164.2
million. The loans outstanding under the 2003 and 2005 Senior Notes,
Revolving Credit Agreement, and Industrial Revenue Bonds had fixed and variable
interest rates averaging 5.6% during the third quarter of 2007 and 5.4% for
the
comparable prior year period.
On
August
10, 2007, the Corporation and certain of its subsidiaries refinanced its
existing credit facility and entered into a Second Amended and Restated Credit
Agreement (“Credit Agreement”). The proceeds available under the Credit
Agreement are to be used for working capital, internal growth initiatives,
funding of future acquisitions, and general corporate purposes. The
Corporation’s available credit under the credit facility increased from $400.0
million to $425.0 million from a syndicate of banks, led by Bank of America,
N.A. as the agent bank, with an accordion feature to expand the overall credit
line to a maximum aggregate amount of $600.0 million. The consortium
has remained relatively the same. The Credit Agreement extends the
maturity from July 23, 2009 to August 10, 2012, at which time all amounts then
outstanding under the Credit Agreement will be due and payable. In
addition, the Credit Agreement provides for improved pricing and more favorable
covenant terms, reduced facility fees, and increased availability of the
facility for letters of credit.
CRITICAL
ACCOUNTING POLICIES
Our
consolidated financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States
of
America. Preparation of these 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. A summary
of
significant accounting policies and a description of accounting policies that
are considered critical may be found in our 2006 Annual Report on Form 10-K,
filed with the U.S. Securities and Exchange Commission on February 26, 2007,
in
the Notes to the Consolidated Financial Statements, Note 1, and the Critical
Accounting Policies section of Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
CURTISS-WRIGHT
CORPORATION and
SUBSIDIARIES
Item
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There
have been no material changes in the Corporation’s market risk during the nine
months ended September 30, 2007. Information regarding market risk
and market risk management policies is more fully described in item “7A.
Quantitative and Qualitative Disclosures about Market Risk” of the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2006.
As
of
September 30, 2007, the Corporation’s management, including the Corporation’s
Chief Executive Officer and Chief Financial Officer, conducted an evaluation
of
the Corporation’s disclosure controls and procedures, as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Based on such evaluation, the Corporation’s Chief
Executive Officer and Chief Financial Officer concluded that the Corporation’s
disclosure controls and procedures are effective, in all material respects,
to
ensure that information required to be disclosed in the reports the Corporation
files and submits under the Exchange Act is recorded, processed, summarized,
and
reported as and when required.
There
have not been any changes in the Corporation’s internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the quarter ended September 30, 2007 that have materially
affected, or are reasonably likely to materially affect, the Corporation’s
internal control over financial reporting.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
PART
II - OTHER INFORMATION
In
the
ordinary course of business, the Corporation and its subsidiaries are subject
to
various pending claims, lawsuits, and contingent liabilities. The Corporation
does not believe that the disposition of any of these matters, individually
or
in the aggregate, will have a material adverse effect on the Corporation's
consolidated financial position or results of operations.
The
Corporation or its subsidiaries have been named in a number of lawsuits that
allege injury from exposure to asbestos. To date, the Corporation has
not been found liable or paid any material sum of money in settlement in any
case. The Corporation believes that the minimal use of asbestos in
its operations and the relatively non-friable condition of asbestos in its
products makes it unlikely that it will face material liability in any asbestos
litigation, whether individually or in the aggregate. The Corporation
does maintain insurance coverage for these potential liabilities and it believes
adequate coverage exists to cover any unanticipated asbestos
liability.
Item
1A. RISK
FACTORS
There
have been no material changes in our Risk Factors during the three and nine
months ended September 30, 2007. Information regarding our Risk
Factors is more fully described in item “1A. Risk Factors” of the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2006.
Item
5. OTHER INFORMATION
There
have been no material changes in our procedures by which our security holders
may recommend nominees to our board of directors during the three and nine
months ended September 30, 2007. Information regarding security
holder recommendations and nominations for directors is more fully described
in
the section entitled “Stockholder Recommendations and Nominations for
Director” of the Corporation’s 2007 Proxy Statement on Schedule 14A, which is
incorporated by reference to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2006.
Item
6. EXHIBITS
|
Exhibit
3.1
|
Amended
and Restated Certificate of Incorporation of the Registrant (incorporated
by reference to the Registrant’s Registration Statement on Form 8-A/A
filed May 24, 2005)
|
|
Exhibit
3.2
|
Amended
and Restated Bylaws of the Registrant (incorporated by reference
to the
Registrant’s Registration Statement on Form 8-A/A filed May 24,
2005)
|
|
Exhibit
10.1
|
Second
Amended and Restated Credit Agreement dated as of August 10, 2007
among
the Registrant, and Certain Subsidiaries as Borrowers; the Lenders
parties
thereto; Bank of America, N.A., as Administrative Agent; Swingline
Lender,
and L/C Issuer; J.P. Morgan Chase Bank, N.A., as Syndication Agent;
and
Sun Trust Bank and Citibank N.A., as Co-Documentation Agents (incorporated
by reference to Exhibit 10.1 to Form 8-K filed August 14,
2007)
|
|
Exhibit
10.2
|
Instrument
of Amendment No. 12 to the Curtiss-Wright Corporation Retirement
Plan as
amended and restated effective January 1, 2001 (filed
herewith)*
|
|
Exhibit
10.3
|
Restricted
Stock Unit Agreement, dated as of October 23, 2007, by and between
the
Registrant and David Adams (incorporated by reference to Exhibit
10.1 to
Form 8-K filed October 25, 2007) *
|
CURTISS-WRIGHT
CORPORATION and
SUBSIDIARIES
|
Exhibit
10.4
|
Restricted
Stock Unit Agreement, dated as of October 23, 2007, by and between
the
Registrant and David Linton (incorporated by reference to Exhibit
10.2 to
Form 8-K filed October 25, 2007)*1
|
|
Exhibit
31.1
|
Certification
of Martin R. Benante, Chairman and CEO, Pursuant to Rule 13a – 14(a)
(filed herewith)
|
|
Exhibit
31.2
|
Certification
of Glenn E. Tynan, Chief Financial Officer, Pursuant to Rule 13a
– 14(a)
(filed herewith)
|
|
Exhibit
32
|
Certification
of Martin R. Benante, Chairman and CEO, and Glenn E. Tynan, Chief
Financial Officer, Pursuant to 18 U.S.C. Section 1350 (filed
herewith)
|
1 Indicates contract or compensatory plan or
arrangement
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
CURTISS-WRIGHT
CORPORATION
(Registrant)
By:_/s/
Glenn E. Tynan___________
Glenn
E. Tynan
Vice
President Finance / C.F.O.
Dated: November
8, 2007