form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x Quarterly Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
quarterly period ended June 30, 2009
or
o Transition Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the
transition period from _________ to _______
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.)
|
10
Waterview Boulevard
|
|
|
Parsippany,
New Jersey
|
|
07054
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(973)
541-3700
(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 (or for such shorter period of time that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer x Accelerated
filer o
Non-accelerated
filer o (Do not check
if a smaller reporting company) Smaller
reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
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 45,557,089 shares (as of July 31,
2009).
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
|
|
|
|
|
|
|
|
PART I – FINANCIAL
INFORMATION
|
PAGE
|
|
|
|
|
|
|
|
|
Item
1.
|
Unaudited
Financial Statements:
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Earnings
|
3
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
4
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
5
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Stockholders’ Equity
|
6
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7 -
21
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
22
- 31
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
32
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
PART II – OTHER INFORMATION
|
|
|
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
33
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
33
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
33
|
|
|
|
|
Item
5.
|
Other
Information
|
34
|
|
|
|
|
Item
6.
|
Exhibits
|
34
|
|
|
|
|
Signatures
|
|
35
|
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
|
|
(UNAUDITED)
|
|
(In
thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
447,371 |
|
|
$ |
453,464 |
|
|
$ |
871,163 |
|
|
$ |
886,843 |
|
Cost
of sales
|
|
|
302,789 |
|
|
|
296,230 |
|
|
|
590,821 |
|
|
|
591,140 |
|
Gross profit
|
|
|
144,582 |
|
|
|
157,234 |
|
|
|
280,342 |
|
|
|
295,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development costs
|
|
|
13,200 |
|
|
|
13,017 |
|
|
|
26,324 |
|
|
|
25,853 |
|
Selling
expenses
|
|
|
27,415 |
|
|
|
28,842 |
|
|
|
53,278 |
|
|
|
54,182 |
|
General
and administrative expenses
|
|
|
60,204 |
|
|
|
65,703 |
|
|
|
125,834 |
|
|
|
125,269 |
|
Operating income
|
|
|
43,763 |
|
|
|
49,672 |
|
|
|
74,906 |
|
|
|
90,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
47 |
|
|
|
224 |
|
|
|
348 |
|
|
|
698 |
|
Interest
expense
|
|
|
(6,542 |
) |
|
|
(7,176 |
) |
|
|
(13,482 |
) |
|
|
(14,759 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
37,268 |
|
|
|
42,720 |
|
|
|
61,772 |
|
|
|
76,338 |
|
Provision
for income taxes
|
|
|
12,814 |
|
|
|
15,643 |
|
|
|
21,513 |
|
|
|
27,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
24,454 |
|
|
$ |
27,077 |
|
|
$ |
40,259 |
|
|
$ |
48,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.54 |
|
|
$ |
0.61 |
|
|
$ |
0.89 |
|
|
$ |
1.10 |
|
Diluted
earnings per share
|
|
$ |
0.54 |
|
|
$ |
0.60 |
|
|
$ |
0.88 |
|
|
$ |
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
per share
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,127 |
|
|
|
44,631 |
|
|
|
45,063 |
|
|
|
44,607 |
|
Diluted
|
|
|
45,537 |
|
|
|
45,355 |
|
|
|
45,504 |
|
|
|
45,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to condensed consolidated financial statements
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(UNAUDITED)
|
|
(In
thousands)
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
Assets
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
59,209 |
|
|
$ |
60,705 |
|
Receivables,
net
|
|
|
397,535 |
|
|
|
395,659 |
|
Inventories,
net
|
|
|
305,394 |
|
|
|
281,508 |
|
Deferred
tax assets, net
|
|
|
37,341 |
|
|
|
37,314 |
|
Other
current assets
|
|
|
35,655 |
|
|
|
26,833 |
|
Total
current assets
|
|
|
835,134 |
|
|
|
802,019 |
|
Property,
plant, and equipment, net
|
|
|
389,927 |
|
|
|
364,032 |
|
Goodwill
|
|
|
632,609 |
|
|
|
608,898 |
|
Other
intangible assets, net
|
|
|
243,929 |
|
|
|
234,596 |
|
Deferred
tax assets, net
|
|
|
16,998 |
|
|
|
23,128 |
|
Other
assets
|
|
|
10,177 |
|
|
|
9,357 |
|
Total
Assets
|
|
$ |
2,128,774 |
|
|
$ |
2,042,030 |
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
1,951 |
|
|
$ |
3,249 |
|
Accounts
payable
|
|
|
107,327 |
|
|
|
140,954 |
|
Dividends
payable
|
|
|
3,636 |
|
|
|
- |
|
Accrued
expenses
|
|
|
84,140 |
|
|
|
103,973 |
|
Income
taxes payable
|
|
|
3,498 |
|
|
|
8,213 |
|
Deferred
revenue
|
|
|
162,236 |
|
|
|
138,753 |
|
Other
current liabilities
|
|
|
44,426 |
|
|
|
56,542 |
|
Total current
liabilities
|
|
|
407,214 |
|
|
|
451,684 |
|
Long-term
debt
|
|
|
559,449 |
|
|
|
513,460 |
|
Deferred
tax liabilities, net
|
|
|
26,173 |
|
|
|
26,850 |
|
Accrued
pension and other postretirement benefit costs
|
|
|
134,392 |
|
|
|
125,762 |
|
Long-term
portion of environmental reserves
|
|
|
20,189 |
|
|
|
20,377 |
|
Other
liabilities
|
|
|
45,381 |
|
|
|
37,135 |
|
Total
Liabilities
|
|
|
1,192,798 |
|
|
|
1,175,268 |
|
Contingencies
and Commitments (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock, $1 par value
|
|
|
48,042 |
|
|
|
47,903 |
|
Additional
paid-in capital
|
|
|
99,830 |
|
|
|
94,500 |
|
Retained
earnings
|
|
|
932,934 |
|
|
|
899,928 |
|
Accumulated
other comprehensive loss
|
|
|
(48,337 |
) |
|
|
(72,551 |
) |
|
|
|
1,032,469 |
|
|
|
969,780 |
|
Less: Cost
of treasury stock
|
|
|
(96,493 |
) |
|
|
(103,018 |
) |
Total
Stockholders' Equity
|
|
|
935,976 |
|
|
|
866,762 |
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
2,128,774 |
|
|
$ |
2,042,030 |
|
|
|
|
|
|
|
|
|
|
See
notes to condensed consolidated financial statements
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In
thousands)
|
|
Six
Months Ended
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net earnings
|
|
$ |
40,259 |
|
|
$ |
48,856 |
|
Adjustments to reconcile net
earnings to net cash
provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
38,045 |
|
|
|
37,510 |
|
Net loss on sales and disposals
of long lived assets
|
|
|
644 |
|
|
|
285 |
|
Gain on bargain
purchase
|
|
|
(1,937 |
) |
|
|
- |
|
Deferred income
taxes
|
|
|
2,246 |
|
|
|
127 |
|
Share-based
compensation
|
|
|
6,574 |
|
|
|
5,550 |
|
Changes in operating assets and
liabilities, net of
businesses
acquired:
|
|
|
|
|
|
|
|
|
Decrease in
receivables
|
|
|
13,148 |
|
|
|
7,168 |
|
Increase in
inventories
|
|
|
(13,000 |
) |
|
|
(35,830 |
) |
(Decrease) increase in progress
payments
|
|
|
(5,302 |
) |
|
|
4,755 |
|
Decrease in accounts payable
andaccrued expenses
|
|
|
(57,894 |
) |
|
|
(28,589 |
) |
Increase in deferred
revenue
|
|
|
22,936 |
|
|
|
25,954 |
|
Decrease in income taxes
payable
|
|
|
(9,750 |
) |
|
|
(15,715 |
) |
Increase in net pension and
postretirement liabilities
|
|
|
7,917 |
|
|
|
6,261 |
|
(Increase) decrease in other
current and long-termassets
|
|
|
(1,287 |
) |
|
|
2,075 |
|
(Decrease) increase in other
current and long-termliabilities
|
|
|
(8,334 |
) |
|
|
782 |
|
Total adjustments
|
|
|
(5,994 |
) |
|
|
10,333 |
|
Net cash provided by operating
activities
|
|
|
34,265 |
|
|
|
59,189 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sales and disposals
of long lived assets
|
|
|
2,640 |
|
|
|
7,906 |
|
Acquisitions of intangible
assets
|
|
|
(321 |
) |
|
|
(175 |
) |
Additions to property, plant, and
equipment
|
|
|
(37,528 |
) |
|
|
(46,596 |
) |
Acquisition of new
businesses
|
|
|
(49,726 |
) |
|
|
(886 |
) |
Net cash used for investing
activities
|
|
|
(84,935 |
) |
|
|
(39,751 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Borrowings of
debt
|
|
|
437,880 |
|
|
|
205,500 |
|
Principal payments on
debt
|
|
|
(393,218 |
) |
|
|
(207,531 |
) |
Proceeds from exercise of stock
options
|
|
|
5,315 |
|
|
|
4,039 |
|
Dividends paid
|
|
|
(3,617 |
) |
|
|
(3,589 |
) |
Excess tax benefits from share
based compensation
|
|
|
74 |
|
|
|
360 |
|
Net cash provided by (used for)
financing activities
|
|
|
46,434 |
|
|
|
(1,221 |
) |
Effect
of exchange-rate changes on cash
|
|
|
2,740 |
|
|
|
427 |
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(1,496 |
) |
|
|
18,644 |
|
Cash
and cash equivalents at beginning of period
|
|
|
60,705 |
|
|
|
66,520 |
|
Cash
and cash equivalents at end of period
|
|
$ |
59,209 |
|
|
$ |
85,164 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of investing activities:
|
|
|
|
|
|
|
|
|
Fair value of assets acquired in
current year acquisitions
|
|
$ |
55,504 |
|
|
$ |
3,128 |
|
Additional consideration received
on prior year acquisitions
|
|
|
(870 |
) |
|
|
(1,467 |
) |
Liabilities assumed from current
year acquisitions
|
|
|
(2,969 |
) |
|
|
(775 |
) |
Gain on bargain
purchase
|
|
|
(1,937 |
) |
|
|
- |
|
Cash acquired
|
|
|
(2 |
) |
|
|
- |
|
|
|
$ |
49,726 |
|
|
$ |
886 |
|
See
notes to condensed consolidated financial statements
|
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
(UNAUDITED)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
$ |
47,715 |
|
|
$ |
79,550 |
|
|
$ |
807,413 |
|
|
$ |
93,327 |
|
|
$ |
(113,220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
– |
|
|
|
– |
|
|
|
109,390 |
|
|
|
– |
|
|
|
– |
|
Pension
and postretirement adjustment, net
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(87,313 |
) |
|
|
– |
|
Foreign
currency translation
adjustments,
net
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(78,743 |
) |
|
|
– |
|
Adjustment
for SFAS No. 158 measurement date change, net
|
|
|
– |
|
|
|
– |
|
|
|
(2,494 |
) |
|
|
178 |
|
|
|
– |
|
Dividends
paid
|
|
|
– |
|
|
|
– |
|
|
|
(14,381 |
) |
|
|
– |
|
|
|
– |
|
Stock
options exercised, net
|
|
|
188 |
|
|
|
6,050 |
|
|
|
– |
|
|
|
– |
|
|
|
5,439 |
|
Share-based
compensation
|
|
|
– |
|
|
|
9,278 |
|
|
|
– |
|
|
|
– |
|
|
|
4,385 |
|
Other
|
|
|
– |
|
|
|
(378 |
) |
|
|
– |
|
|
|
– |
|
|
|
378 |
|
December
31, 2008
|
|
|
47,903 |
|
|
|
94,500 |
|
|
|
899,928 |
|
|
|
(72,551 |
) |
|
|
(103,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
– |
|
|
|
– |
|
|
|
40,259 |
|
|
|
– |
|
|
|
– |
|
Pension
and postretirement
adjustments,
net
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(147 |
) |
|
|
– |
|
Foreign
currency translation
adjustments,
net
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
24,361 |
|
|
|
– |
|
Dividends
declared
|
|
|
– |
|
|
|
– |
|
|
|
(7,253 |
) |
|
|
– |
|
|
|
– |
|
Stock
options exercised, net
|
|
|
139 |
|
|
|
2,947 |
|
|
|
– |
|
|
|
– |
|
|
|
2,280 |
|
Share-based
compensation
|
|
|
– |
|
|
|
2,692 |
|
|
|
– |
|
|
|
– |
|
|
|
3,936 |
|
Other
|
|
|
|
|
|
|
(309 |
) |
|
|
|
|
|
|
|
|
|
|
309 |
|
June
30, 2009
|
|
$ |
48,042 |
|
|
$ |
99,830 |
|
|
$ |
932,934 |
|
|
$ |
(48,337 |
) |
|
$ |
(96,493 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to condensed consolidated financial statements
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED 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,
processing, oil, petrochemical, agricultural equipment, railroad, power
generation, security, and metalworking industries. Operations are conducted
through 66 manufacturing facilities and 65 metal treatment service
facilities.
The
unaudited condensed consolidated financial statements include the accounts of
Curtiss-Wright Corporation and its majority-owned subsidiaries. All
significant intercompany transactions and accounts have been
eliminated.
The
unaudited condensed consolidated financial statements of the Corporation have
been prepared in conformity with accounting principles generally accepted in the
United States of America, which 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 includes the
estimate of costs to complete long-term contracts under the
percentage-of-completion accounting methods, the estimate of useful lives for
property, plant, and equipment, cash flow estimates used for testing the
recoverability of assets, pension plan and postretirement obligation
assumptions, estimates for inventory obsolescence, estimate for the valuation
and useful lives of intangible assets, estimates for 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 condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Corporation’s 2008 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. In addition, the
financial statements have been adjusted for the transfer of our Indal
Technologies business unit from the Motion Control segment to the Flow Control
segment. Accordingly, all segment data has been
modified.
RECENTLY ISSUED ACCOUNTING
STANDARDS
ADOPTION
OF NEW STANDARDS
In May
2009, FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 165,
Subsequent Events
(“SFAS No. 165”). SFAS No. 165 establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. Specifically, SFAS No. 165 provides the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date. SFAS No. 165 is effective for interim or annual financial
periods ending after June 15, 2009, and shall be applied
prospectively. The adoption of this statement will require the
Corporation to provide additional disclosures if material subsequent events
occur. The Corporation has evaluated the period from June 30, 2009
through August 7, 2009 and has determined that there are no material subsequent
events to disclose.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In April
2009, FASB issued FASB Staff Position (“FSP”) 107-1 and Accounting Principles
Board Opinion (“APB”) 28-1 (“FSP 107-1 and APB 28-1”) Interim Disclosures about Fair Value
of Financial Instruments. FSP 107-1 and APB 28-1 enhance consistency
in financial reporting by increasing the frequency of fair value disclosures.
FSP 107-1 and APB 28-1 relate to fair value disclosures for any financial
instruments that are not currently reflected on a company's balance sheet at
fair value. Prior to the effective date of FSP 107-1 and APB 28-1, fair values
for these assets and liabilities were only disclosed once a
year. FSP 107-1 and APB 28-1 will now require these disclosures on a
quarterly basis, providing qualitative and quantitative information about fair
value estimates for all those financial instruments not measured on the balance
sheet at fair value. The adoption of this statement required the Corporation to
provide additional disclosures, see Note 7.
Effective
January 1, 2008, the Corporation adopted SFAS No. 157, Fair Value Measurements
(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. In accordance with Financial
Accounting Standards Board Staff Position No. FAS 157-2, Effective Date of FASB Statement No.
157, the Corporation adopted fair value accounting and disclosure for all
non-financial assets and non-financial liabilities as of January 1,
2009. SFAS No. 157 enables the reader of the financial statements to
assess the inputs used to develop those measurements by establishing a hierarchy
for ranking the quality and reliability of the information used to determine
fair values. SFAS No. 157 requires that assets and liabilities carried at fair
value be classified and disclosed in one of the following three
categories:
Level 1:
Quoted market prices in active markets for identical assets or
liabilities.
Level 2:
Observable market based inputs or unobservable inputs that are corroborated by
market data.
Level 3:
Unobservable inputs that are not corroborated by market data.
Effective
January 1, 2009, the Corporation adopted SFAS No. 141 (Revised 2007), Business Combinations (“SFAS
No. 141(R)”). SFAS No. 141(R) changed the accounting treatment for certain
specific items, including, but not limited to: acquisition costs are generally
expensed as incurred; non-controlling interests are valued at fair value at the
acquisition date; acquired contingent liabilities are recorded at fair value at
the acquisition date and subsequently measured at either the higher of such
amount or the amount determined under existing guidance for non-acquired
contingencies; in-process research and development are recorded at fair value as
an indefinite-lived intangible asset at the acquisition date; restructuring
costs associated with a business combination are generally expensed subsequent
to the acquisition date; and changes in deferred tax asset valuation allowances
and income tax uncertainties after the acquisition date generally affect income
tax expense. SFAS No. 141(R) also includes several new disclosure requirements.
SFAS No. 141(R) applies prospectively to business combinations for which the
acquisition date was on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, as well as recognizing
adjustments to uncertain tax positions through earnings on all acquisitions
regardless of the acquisition date. The impact of the adoption of this statement
resulted in the gain on a bargain purchase for the acquisition of Nu-Torque of
$1.9 million. See Note 2 for additional information.
Effective
January 1, 2009, the Corporation adopted SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements, an amendment to ARB No. 51 (“SFAS No.
160”). SFAS No. 160 amends the accounting and reporting for
non-controlling interests in a consolidated subsidiary and the deconsolidation
of a subsidiary. Included in this statement is the requirement that
non-controlling interests be reported in the equity section of the balance
sheet. SFAS No. 160 is effective for fiscal years and interim periods
within those fiscal years, beginning on or after December 15,
2008. The adoption of this statement did not have an impact on the
Corporation’s results of operations or financial condition.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Effective
January 1, 2009, the Corporation adopted SFAS No. 161, Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133 (“SFAS No. 161”). SFAS No. 161 requires disclosures of how and
why an entity uses derivative instruments, how derivative instruments and
related hedged items are accounted for, and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. SFAS No. 161 is effective for financial
statements issued after November 15, 2008. The adoption of this
statement required the Corporation to provide additional disclosures, see Note
7.
Effective
January 1, 2009, the Corporation adopted FSP 142-3, Determination of the Useful Life of
the Intangible Assets (“FSP 142-3”). FSP 142-3 amends the
factors an entity should consider in developing renewal or extension assumptions
used in determining the useful life of recognized intangible assets under FASB
Statement No. 142, Goodwill
and Other Intangible Assets. This new guidance applies
prospectively to intangible assets that are acquired individually or with a
group of other assets in business combinations and asset
acquisitions. FSP 142-3 was effective for financial statements issued
for fiscal years and interim periods beginning after December 15,
2008. The adoption of this statement did not have a material impact
on the Corporation’s results of operations or financial condition.
In April
2009, FASB issued FSP 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies
(“FSP 141(R)-1”). FSP 141(R)-1 will amend the provisions related to the
initial recognition and measurement, subsequent measurement and disclosure of
assets and liabilities arising from contingencies in a business combination
under SFAS No. 141(R). FSP 141(R)-1 will carry forward the requirements in SFAS
No. 141(R), Business
Combinations, for acquired contingencies, thereby requiring that such
contingencies be recognized at fair value on the acquisition date if fair value
can be reasonably estimated during the allocation period. Otherwise, entities
would typically account for the acquired contingencies in accordance with SFAS
No. 5, Accounting for
Contingencies. FSP 141(R)-1 will have the same effective date as SFAS No.
141(R), and therefore is effective prospectively to business combinations for
which the acquisition date was on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The adoption of this
statement did not have a material impact on the Corporation’s results of
operations or financial condition.
STANDARDS
ISSUED BUT NOT YET EFFECTIVE
In
December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets (“FSP 132(R)-1”), amending FASB
Statement No. 132(R), Employers’ Disclosures about
Pensions and Other Postretirement Benefits, effective for fiscal years
ending after December 15, 2009. FSP 132(R)-1 requires an employer to
disclose investment policies and strategies, categories, fair value
measurements, and significant concentration risk among its postretirement
benefit plan assets. The adoption of this statement will have an
impact on the Corporation’s disclosure requirements. The Corporation
is currently evaluating the impact of these disclosures on the financial
statements.
2. ACQUISITIONS
AND DISPOSITION OF LONG-LIVED ASSETS
The
Corporation acquired four businesses and disposed of one product line during the
six months ended June 30, 2009. Two of the acquired businesses are
described in more detail below. The two remaining acquisitions had an
aggregate purchase price of $5.5 million and were purchased by our Flow Control
segment. The disposition of a product line in our Flow Control
segment for $2.5 million was not reported as discontinued operations as the
amounts are not considered significant.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
acquisitions have been accounted for as a purchase under the guidance of SFAS
No. 141(R), where the excess of the purchase price over the estimated fair value
of the net tangible and intangible assets acquired is generally recorded as
goodwill. One of the acquisitions resulted in an excess of the fair
value of assets acquired over the purchase price and was accounted for as a gain
in the condensed consolidated statement of earnings under the revised accounting
standard and recorded in general and administrative expenses. The Corporation
has allocated the purchase price, including the value of identifiable
intangibles with a finite life based upon final analysis, including input from
third party appraisals. Purchase price allocations will be finalized no later
than twelve months from acquisition. The results of the acquired
businesses have been included in the consolidated financial results of the
Corporation from the date of acquisition in the segment indicated.
Flow Control
Segment
EST
Group, Inc.
On March
5, 2009, the Corporation acquired all the issued and outstanding stock of EST
Group, Inc. (“EST”), and certain assets and liabilities from Township Line
Realty, L.P. for $40.0 million in cash. Under the terms of the Stock
Purchase Agreement, the Corporation deposited $4.2 million into escrow as
security for potential indemnification claims against the seller. The
escrow amount will be held for a period of eighteen months, provided that 50% of
the escrow will be released after twelve months subject to amounts held back for
pending claims. In addition, a separate escrow of $0.9 million was
established to indemnify the Corporation for a pending product warranty claim
outstanding at the time of acquisition. This holdback will be
released to either the Corporation or seller upon resolution of the warranty
claim. Management funded the purchase 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, as follows:
(In
thousands)
|
|
|
|
Accounts
receivable
|
|
$ |
3,369 |
|
Inventory
|
|
|
4,126 |
|
Property,
plant, and equipment
|
|
|
7,332 |
|
Other
current assets
|
|
|
1,168 |
|
Intangible
assets
|
|
|
12,500 |
|
Other
assets
|
|
|
227 |
|
Current
and non-current liabilities
|
|
|
(2,778 |
) |
Net
tangible and intangible assets
|
|
|
25,944 |
|
Purchase
price
|
|
|
40,000 |
|
Goodwill
|
|
$ |
14,056 |
|
The
Corporation has estimated that the goodwill will be tax deductible and the
Corporation will adjust these estimates based upon final analysis including
input from third party appraisals.
EST
provides highly engineered products and comprehensive repair services for heat
management and cooling systems utilized in the energy and defense
markets. EST had 99 employees as of the date of the acquisition and
is headquartered in Hatfield, PA with additional locations in Baytown, TX, Baton
Rouge, LA, and a sales office in the Netherlands. Revenues of the
acquired business were $19.6 million for the fiscal year ended September 30,
2008.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Nu-Torque
On
January 16, 2009, the Corporation acquired certain assets of the Nu-Torque
division (“Nu-Torque”) of Tyco Valves & Controls LP. The purchase
price of the acquisition, subject to customary adjustments as provided for in
the Asset Purchase Agreement, was $5.0 million in cash paid at closing, and the
assumption of certain liabilities of Nu-Torque. Management funded the
purchase from the Corporation’s revolving credit facility.
The
acquisition has been accounted for as a bargain purchase under SFAS No.
141(R). The purchase price of the acquisition has been preliminarily
allocated to the net tangible and intangible assets acquired, with the excess of
the fair value of assets acquired over the purchase price recorded as a gain.
The Corporation has estimated that $0.8 million of the acquired intangible
assets will be tax deductible.
(In
thousands)
|
|
|
|
Accounts
receivable
|
|
$ |
853 |
|
Inventory
|
|
|
4,329 |
|
Property,
plant, and equipment
|
|
|
161 |
|
Other
current assets
|
|
|
47 |
|
Intangible
assets
|
|
|
2,900 |
|
Current
and non-current liabilities
|
|
|
(1,021 |
) |
Net
tangible and intangible assets
|
|
|
7,269 |
|
Purchase
price
|
|
|
5,332 |
|
Gain
on Bargain Purchase
|
|
$ |
1,937 |
|
Nu-Torque
is a designer and manufacturer of electric and hydraulic valve actuation and
control devices primarily for Navy ships. Nu-Torque is located in
Redmond, WA and had 37 employees as of the date of the
acquisition. Revenues of the acquired business were $7.9 million for
the fiscal year ended September 30, 2008.
3. RECEIVABLES
Receivables
at June 30, 2009 and December 31, 2008 include amounts billed to customers,
claims, other receivables, and unbilled charges on long-term contracts
consisting of amounts recognized as sales but not
billed. Substantially all amounts of unbilled receivables are
expected to be billed and collected within one year.
The
composition of receivables for those periods is as follows:
|
|
(In
thousands)
|
|
|
|
June
30,
2009
|
|
|
December
31, 2008
|
|
Billed
Receivables:
|
|
|
|
|
|
|
Trade
and other receivables
|
|
$ |
271,664 |
|
|
$ |
286,123 |
|
Less: Allowance for doubtful
accounts
|
|
|
(3,892 |
) |
|
|
(4,824 |
) |
Net
billed receivables
|
|
|
267,772 |
|
|
|
281,299 |
|
Unbilled
Receivables:
|
|
|
|
|
|
|
|
|
Recoverable
costs and estimated earnings not billed
|
|
|
145,382 |
|
|
|
135,511 |
|
Less: Progress payments
applied
|
|
|
(15,619 |
) |
|
|
(21,151 |
) |
Net
unbilled receivables
|
|
|
129,763 |
|
|
|
114,360 |
|
Receivables,
net
|
|
$ |
397,535 |
|
|
$ |
395,659 |
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED 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)
|
|
|
|
June
30,
2009
|
|
|
December
31, 2008
|
|
Raw
material
|
|
$ |
142,024 |
|
|
$ |
126,799 |
|
Work-in-process
|
|
|
72,354 |
|
|
|
63,195 |
|
Finished
goods and component parts
|
|
|
80,805 |
|
|
|
82,652 |
|
Inventoried
costs related to U.S. Government and other long-term
contracts
|
|
|
63,267 |
|
|
|
60,721 |
|
Gross
inventories
|
|
|
358,450 |
|
|
|
333,367 |
|
Less:
Inventory reserves
|
|
|
(35,249 |
) |
|
|
(34,283 |
) |
Progress payments applied,
principally related to long-term contracts
|
|
|
(17,807 |
) |
|
|
(17,576 |
) |
Inventories,
net
|
|
$ |
305,394 |
|
|
$ |
281,508 |
|
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 six months ended June 30,
2009 are as follows:
|
|
(In
thousands)
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Consolidated
|
|
December
31, 2008
|
|
$ |
285,593 |
|
|
$ |
294,835 |
|
|
$ |
28,470 |
|
|
$ |
608,898 |
|
Goodwill
from 2009 acquisitions
|
|
|
15,232 |
|
|
|
− |
|
|
|
− |
|
|
|
15,232 |
|
Change
in estimate to fair value of net assets acquired in prior
year
|
|
|
− |
|
|
|
349 |
|
|
|
− |
|
|
|
349 |
|
Additional
consideration of prior years’ acquisitions
|
|
|
− |
|
|
|
− |
|
|
|
3 |
|
|
|
3 |
|
Other
adjustments
|
|
|
(457 |
) |
|
|
− |
|
|
|
− |
|
|
|
(457 |
) |
Currency
translation adjustment
|
|
|
2,534 |
|
|
|
5,796 |
|
|
|
254 |
|
|
|
8,584 |
|
June
30, 2009
|
|
$ |
302,902 |
|
|
$ |
300,980 |
|
|
$ |
28,727 |
|
|
$ |
632,609 |
|
The
purchase price allocations relating to the businesses acquired during 2009 and
2008 are based on estimates and have not yet been finalized. The Corporation
will adjust these estimates based upon final analysis including input from 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 CONDENSED 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)
|
|
June 30, 2009
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Technology
|
|
$ |
127,386 |
|
|
$ |
(38,824 |
) |
|
$ |
88,562 |
|
Customer
related intangibles
|
|
|
167,973 |
|
|
|
(46,609 |
) |
|
|
121,364 |
|
Other
intangible assets
|
|
|
42,176 |
|
|
|
(8,173 |
) |
|
|
34,003 |
|
Total
|
|
$ |
337,535 |
|
|
$ |
(93,606 |
) |
|
$ |
243,929 |
|
|
|
(In
thousands)
|
|
December 31, 2008
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Technology
|
|
$ |
121,948 |
|
|
$ |
(33,867 |
) |
|
$ |
88,081 |
|
Customer
related intangibles
|
|
|
153,113 |
|
|
|
(38,440 |
) |
|
|
114,673 |
|
Other
intangible assets
|
|
|
37,965 |
|
|
|
(6,123 |
) |
|
|
31,842 |
|
Total
|
|
$ |
313,026 |
|
|
$ |
(78,430 |
) |
|
$ |
234,596 |
|
The
following table presents the changes in the net balance of intangibles assets
during the six months ended June 30, 2009.
|
|
(In
thousands)
|
|
|
|
|
Technology,
net
|
|
|
Customer
Related Intangibles, net
|
|
|
Other
Intangible Assets, net
|
|
|
Total
|
|
|
December
31, 2008
|
|
$ |
88,081 |
|
|
$ |
114,673 |
|
|
$ |
31,842 |
|
|
$ |
234,596 |
|
Acquired
during 2009
|
|
|
3,400 |
|
|
|
11,100 |
|
|
|
5,050 |
|
|
|
19,550 |
|
Amortization
expense
|
|
|
(4,295 |
) |
|
|
(7,393 |
) |
|
|
(1,954 |
) |
|
|
(13,642 |
) |
Change
in estimate to fair value of net assets acquired in prior
year
|
|
|
(164 |
) |
|
|
1,308 |
|
|
|
(1,055 |
) |
|
|
89 |
|
Net
currency translation adjustment
|
|
|
1,540 |
|
|
|
1,676 |
|
|
|
120 |
|
|
|
3,336 |
|
June
30, 2009
|
|
$ |
88,562 |
|
|
$ |
121,364 |
|
|
$ |
34,003 |
|
|
$ |
243,929 |
|
The
purchase price allocations relating to the businesses acquired during 2009 and
2008 are based on estimates and have not yet been finalized. The Corporation
will adjust these estimates based upon final analysis, including input from
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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. FAIR
VALUE OF FINANCIAL INSTRUMENTS
Statement
of Financial Accounting Standards SFAS No. 107, Disclosure About Fair Value of
Financial Instruments, requires certain disclosures regarding the fair
value of financial instruments. Due to the short maturities of cash and cash
equivalents, accounts receivable, accounts payable, and accrued expenses, the
net book value of these financial instruments is deemed to approximate fair
value.
The
Corporation uses financial instruments, such as forward foreign exchange and
currency option contracts to hedge a portion of existing and anticipated foreign
currency denominated transactions. The purpose of the Corporation’s
foreign currency risk management program is to reduce volatility in earnings
caused by exchange rate fluctuations. Statement of Financial
Accounting Standards No.133, Accounting for Derivative
Instruments and Hedging Activities, (“SFAS No. 133”), requires companies
to recognize all of the derivative financial instruments as either assets or
liabilities at fair value in the Consolidated Balance Sheets based upon quoted
market prices for comparable instruments. In accordance with SFAS No.
133, the Corporation does not elect to receive hedge accounting treatment and
thus records forward foreign exchange and currency option contracts at fair
value, with the gain or loss on these transactions recorded into earnings in the
period in which they occur. The Corporation does not use derivative financial
instruments for trading or speculative purposes.
The fair
value of these instruments is $(0.6) million at June 30, 2009. These instruments
are classified as other current liabilities and other current assets. The
Corporation utilizes the bid ask pricing that is common in the dealer
markets. The dealers are ready to transact at these prices which use
the mid-market pricing convention and are considered to be at fair market
value. Based upon the fair value hierarchy, all of our foreign
exchange derivative forwards are valued at a Level 2. See tables
below for information on the location and amounts of derivative fair values in
the Condensed Consolidated Balance Sheets and derivative gains and losses in the
Condensed Consolidated Statements of Earnings.
|
Fair
Values of Derivative Instruments
|
|
|
(In
thousands)
|
|
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
|
June
30, 2009
|
|
June
30, 2009
|
|
|
Balance
Sheet Location
|
|
Fair
Value
|
|
Balance
Sheet Location
|
|
Fair
Value
|
|
Foreign
exchange contracts:
|
|
|
|
|
|
|
|
|
Transactional
|
Other
Current Liabilities
|
|
$ |
– |
|
Other
Current Liabilities
|
|
$ |
357 |
|
Forecasted
|
Other
Current Liabilities
|
|
|
– |
|
Other
Current Liabilities
|
|
|
258 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$ |
– |
|
|
|
$ |
615 |
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In
thousands)
|
|
Derivatives
Not Designated as Hedging Instruments under SFAS 133
|
Location
of Gain Recognized in Income on Derivatives
|
|
Amount
of Gain Recognized in Income on Derivatives
|
|
|
|
|
Three
Months Ended June 30, 2009
|
|
Foreign
exchange contracts:
|
|
|
|
|
Transactional
|
General
and Administrative Expenses
|
|
$ |
4,658 |
|
Forecasted
|
General
and Administrative Expenses
|
|
|
1,015 |
|
Total
|
|
|
$ |
5,673 |
|
|
|
|
Six
Months Ended June 30, 2009
|
|
Foreign
exchange contracts:
|
|
|
|
|
Transactional
|
General
and Administrative Expenses
|
|
$ |
2,552 |
|
Forecasted
|
General
and Administrative Expenses
|
|
|
362 |
|
Total
|
|
|
$ |
2,914 |
|
The
estimated fair value amounts were determined by the Corporation using available
market information which is primarily based on quoted market prices for the same
or similar issues as of June 30, 2009. Based upon the fair value
hierarchy, all of our fixed rate debt is valued at a Level 2. The
estimated fair values of the Corporation’s fixed rate debt instruments at June
30, 2009 aggregated $333.9 million compared to a carrying value of $350.0
million. The carrying amount of the variable interest rate debt
approximates fair value because the interest rates are reset periodically to
reflect current market conditions.
The fair
values described above may not be indicative of net realizable value or
reflective of future fair values. Furthermore, the use of different
methodologies to determine the fair value of certain financial instruments could
result in a different estimate of fair value at the reporting date.
8. 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 or 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 Condensed Consolidated Balance
Sheets. The following table presents the changes in the Corporation’s
warranty reserves:
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(In
thousands)
|
|
|
|
2009
|
|
|
2008
|
|
Warranty
reserves at January 1,
|
|
$ |
10,775 |
|
|
$ |
10,774 |
|
Provision
for current year sales
|
|
|
4,634 |
|
|
|
3,816 |
|
Increase
due to acquisitions
|
|
|
127 |
|
|
|
– |
|
Current
year claims
|
|
|
(2,004 |
) |
|
|
(1,665 |
) |
Change
in estimates to pre-existing warranties
|
|
|
(1,224 |
) |
|
|
(1,451 |
) |
Foreign
currency translation adjustment
|
|
|
207 |
|
|
|
78 |
|
Warranty
reserves at June 30,
|
|
$ |
12,515 |
|
|
$ |
11,552 |
|
9. FACILITIES
RELOCATION AND RESTRUCTURING
In
connection with the acquisitions of VMETRO and Mechetronics in 2008, the
Corporation established a restructuring accrual of $7.9 million in accordance
with EITF No. 95-3 Recognition
of Liabilities in Connection with a Purchase Business
Combination. These acquisitions are consolidated into the
Motion Control segment. The accrual was established in the fourth
quarter of 2008 for $7.1 million, while the remaining balance was recorded in
the first six months of 2009 for $0.8 million based upon further analysis of the
restructuring activities. The restructuring accrual consists of costs
to exit the activities of certain facilities, including lease cancellation costs
and external legal and consulting fees, as well as costs to relocate or
involuntarily terminate certain employees of the acquired
business. As of June 30, 2009, the Corporation has not completed its
plans associated with the restructuring and has estimated the costs noted
above. These costs are subject to adjustment upon finalization of the
plan, and will be accounted for as an adjustment to the purchase price of the
acquisition. The Corporation intends to complete the majority of
these activities by the third quarter of 2009.
In the
first quarter of 2009, the Corporation committed to a plan to consolidate
existing operations through reductions in force and consolidation of operating
locations both domestically and internationally. This plan will
impact our Flow Control, Motion Control, and Metal Treatment
segments. The decision was based on a review of various cost saving
programs undertaken in connection with the development of the Corporation’s
budget and operating plan for the current year. The Corporation
incurred business consolidation costs of $3.3 million, consisting of severance
costs to involuntarily terminate certain employees, relocation costs, exit
activities of certain facilities, including lease cancellation costs and
external legal and consulting fees. These costs were recorded in the
Statement of Earnings with the majority of the costs affecting the cost of
sales, general and administrative expenses, selling and research and development
costs for $2.1 million, $0.8 million, $0.2 million and $0.2 million,
respectively. The liability is included in other current
liabilities. As of June 30, 2009, the Corporation has not completed
its plans associated with the restructuring and expects to complete the majority
of these activities by December 31, 2009.
A summary
by segment of the components of facilities relocation and corporate
restructuring charges for acquisitions and ongoing operations and an analysis of
related activity in the accrual as of June 30, 2009 is as
follows:
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
Severance
and Benefits
|
|
|
Facility
Closing Costs
|
|
|
Relocation
Costs
|
|
|
Total
|
|
Flow Control
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
Provisions
|
|
|
740 |
|
|
|
100 |
|
|
|
– |
|
|
|
840 |
|
Payments
|
|
|
(402 |
) |
|
|
(97 |
) |
|
|
– |
|
|
|
(499 |
) |
Net
currency translation adjustment
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
June
30, 2009
|
|
$ |
338 |
|
|
$ |
3 |
|
|
$ |
– |
|
|
$ |
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expected and incurred to date
|
|
$ |
795 |
|
|
$ |
100 |
|
|
$ |
400 |
|
|
$ |
1,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
3,616 |
|
|
$ |
1,902 |
|
|
$ |
628 |
|
|
$ |
6,146 |
|
Provisions
|
|
|
2,981 |
|
|
|
(2 |
) |
|
|
133 |
|
|
|
3,112 |
|
Payments
|
|
|
(2,395 |
) |
|
|
(395 |
) |
|
|
(52 |
) |
|
|
(2,842 |
) |
Net
currency translation adjustment
|
|
|
43 |
|
|
|
71 |
|
|
|
– |
|
|
|
114 |
|
June
30, 2009
|
|
$ |
4,245 |
|
|
$ |
1,576 |
|
|
$ |
709 |
|
|
$ |
6,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expected and incurred to date
|
|
$ |
8,329 |
|
|
$ |
2,036 |
|
|
$ |
761 |
|
|
$ |
11,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal Treatment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
Provisions
|
|
|
186 |
|
|
|
– |
|
|
|
– |
|
|
|
186 |
|
Payments
|
|
|
(186 |
) |
|
|
– |
|
|
|
– |
|
|
|
(186 |
) |
Net
currency translation adjustment
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
June
30, 2009
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expected and incurred to date
|
|
$ |
186 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Curtiss-Wright
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
3,616 |
|
|
$ |
1,902 |
|
|
$ |
628 |
|
|
$ |
6,146 |
|
Provisions
|
|
|
3,907 |
|
|
|
98 |
|
|
|
133 |
|
|
|
4,138 |
|
Payments
|
|
|
(2,983 |
) |
|
|
(492 |
) |
|
|
(52 |
) |
|
|
(3,527 |
) |
Net
currency translation adjustment
|
|
|
43 |
|
|
|
71 |
|
|
|
– |
|
|
|
114 |
|
June
30, 2009
|
|
$ |
4,583 |
|
|
$ |
1,579 |
|
|
$ |
709 |
|
|
$ |
6,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expected and incurred to date
|
|
$ |
9,310 |
|
|
$ |
2,136 |
|
|
$ |
1,161 |
|
|
$ |
12,607 |
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. PENSION
AND OTHER POSTRETIREMENT BENEFIT PLANS
The
following tables are consolidated disclosures of all domestic and foreign
defined pension plans as described in the Corporation’s 2008 Annual Report on
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.
Pension
Plans
The
components of net periodic pension cost for the three and six months ended June
30, 2009 and 2008 were:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$ |
6,196 |
|
|
$ |
5,746 |
|
|
$ |
11,942 |
|
|
$ |
11,490 |
|
Interest
cost
|
|
|
5,881 |
|
|
|
5,334 |
|
|
|
11,399 |
|
|
|
10,666 |
|
Expected
return on plan assets
|
|
|
(7,193 |
) |
|
|
(7,560 |
) |
|
|
(14,451 |
) |
|
|
(15,118 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service
cost
|
|
|
162 |
|
|
|
130 |
|
|
|
320 |
|
|
|
260 |
|
Unrecognized actuarial
loss
|
|
|
331 |
|
|
|
149 |
|
|
|
459 |
|
|
|
298 |
|
Net
periodic benefit cost
|
|
$ |
5,377 |
|
|
$ |
3,799 |
|
|
$ |
9,669 |
|
|
$ |
7,596 |
|
Curtailment/Settlement
loss
|
|
|
- |
|
|
|
- |
|
|
|
83 |
|
|
|
- |
|
Total
periodic benefit cost
|
|
$ |
5,377 |
|
|
$ |
3,799 |
|
|
$ |
9,752 |
|
|
$ |
7,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the six months ended June 30, 2009, the Corporation made no contributions to the
Curtiss-Wright Pension Plan, and expects to make no contributions in
2009. In addition, contributions of $1.7 million were made to the
Corporation’s foreign benefit plans during the first six months of
2009. Contributions to the foreign plans are expected to be $3.7
million in 2009.
The
curtailment charge indicated above represents an event accounted for under SFAS
No. 88, Employers' Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits (“SFAS No. 88”). In response to softening
demand in commercial aerospace, the Motion Control segment implemented a
reduction in workforce at a subsidiary in Mexico to align staffing with
anticipated volume. Payments for the dismissal of employees are
required under Federal Labor Law in Mexico and are accounted for as a defined
benefit under SFAS No. 88.
Other
Postretirement Benefit Plans
The
components of the net postretirement benefit cost for the Curtiss-Wright and EMD
postretirement benefit plans for the three and six months ended June 30, 2009
and 2008 were:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$ |
155 |
|
|
$ |
169 |
|
|
$ |
310 |
|
|
$ |
338 |
|
Interest
cost
|
|
|
419 |
|
|
|
452 |
|
|
|
837 |
|
|
|
904 |
|
Amortization
of unrecognized actuarial gain
|
|
|
(191 |
) |
|
|
(130 |
) |
|
|
(382 |
) |
|
|
(259 |
) |
Net
periodic benefit cost
|
|
$ |
383 |
|
|
$ |
491 |
|
|
$ |
765 |
|
|
$ |
983 |
|
During
the six months ended June 30, 2009, the Corporation has paid $0.9 million on the
postretirement plans. During 2009, the Corporation anticipates
contributing $2.0 million to the postretirement plans.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED 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
|
Six
Months Ended
|
|
|
|
June
30,
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Basic
weighted-average shares outstanding
|
|
|
45,127 |
|
|
|
44,631 |
|
|
|
45,063 |
|
|
|
44,607 |
|
Dilutive
effect of share-based compensation awards and deferred stock
compensation
|
|
|
410 |
|
|
|
724 |
|
|
|
441 |
|
|
|
683 |
|
Diluted
weighted-average shares outstanding
|
|
|
45,537 |
|
|
|
45,355 |
|
|
|
45,504 |
|
|
|
45,290 |
|
At June
30, 2009 and 2008, there were 1,058,000 and 355,000 stock options outstanding,
respectively, that could potentially dilute earnings per share in the future,
and were excluded from the computation of diluted earnings per share for the
three and six months ended June 30, 2009 and 2008 as they would have been
anti-dilutive for those periods.
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 June 30,
2009
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Total
|
|
|
Corporate
& Other (1)
|
|
|
Consolidated
|
|
Revenue
from external customers
|
|
$ |
242,414 |
|
|
$ |
155,748 |
|
|
$ |
49,209 |
|
|
$ |
447,371 |
|
|
$ |
− |
|
|
$ |
447,371 |
|
Intersegment
revenues
|
|
|
− |
|
|
|
226 |
|
|
|
590 |
|
|
|
816 |
|
|
|
(816 |
) |
|
|
− |
|
Operating
income (expense)
|
|
|
21,728 |
|
|
|
19,513 |
|
|
|
4,458 |
|
|
|
45,699 |
|
|
|
(1,936 |
) |
|
|
43,763 |
|
|
|
(In
thousands)
Three Months Ended June 30,
2008
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Total
|
|
|
Corporate
& Other (1)
|
|
|
Consolidated
|
|
Revenue
from external customers
|
|
$ |
237,133 |
|
|
$ |
146,190 |
|
|
$ |
70,141 |
|
|
$ |
453,464 |
|
|
$ |
− |
|
|
$ |
453,464 |
|
Intersegment
revenues
|
|
|
− |
|
|
|
1,660 |
|
|
|
226 |
|
|
|
1,886 |
|
|
|
(1,886 |
) |
|
|
− |
|
Operating
income (expense)
|
|
|
21,904 |
|
|
|
15,375 |
|
|
|
14,929 |
|
|
|
52,208 |
|
|
|
(2,536 |
) |
|
|
49,672 |
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(In
thousands)
Six Months Ended June 30,
2009
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Total
|
|
|
Corporate
& Other (1)
|
|
|
Consolidated
|
|
Revenue
from external customers
|
|
$ |
472,786 |
|
|
$ |
296,457 |
|
|
$ |
101,920 |
|
|
$ |
871,163 |
|
|
$ |
− |
|
|
$ |
871,163 |
|
Intersegment
revenues
|
|
|
22 |
|
|
|
1,808 |
|
|
|
963 |
|
|
|
2,793 |
|
|
|
(2,793 |
) |
|
|
− |
|
Operating
income (expense)
|
|
|
35,059 |
|
|
|
33,779 |
|
|
|
11,072 |
|
|
|
79,910 |
|
|
|
(5,004 |
) |
|
|
74,906 |
|
|
|
(In
thousands)
Six Months Ended June 30,
2008
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Total
|
|
|
Corporate
& Other (1)
|
|
|
Consolidated
|
|
Revenue
from external customers
|
|
$ |
457,452 |
|
|
$ |
291,665 |
|
|
$ |
137,726 |
|
|
$ |
886,843 |
|
|
$ |
− |
|
|
$ |
886,843 |
|
Intersegment
revenues
|
|
|
32 |
|
|
|
1,761 |
|
|
|
466 |
|
|
|
2,259 |
|
|
|
(2,259 |
) |
|
|
− |
|
Operating
income (expense)
|
|
|
36,126 |
|
|
|
29,082 |
|
|
|
28,029 |
|
|
|
93,237 |
|
|
|
(2,838 |
) |
|
|
90,399 |
|
|
|
(In
thousands)
Identifiable Assets
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Total
|
|
|
Corporate
& Other
|
|
|
Consolidated
|
|
June
30, 2009
|
|
$ |
1,080,524 |
|
|
$ |
771,430 |
|
|
$ |
227,505 |
|
|
$ |
2,079,459 |
|
|
$ |
49,315 |
|
|
$ |
2,128,774 |
|
December
31, 2008
|
|
|
979,097 |
|
|
|
778,331 |
|
|
|
235,413 |
|
|
|
1,992,841 |
|
|
|
49,189 |
|
|
|
2,042,030 |
|
|
(1) Operating expense
for Corporate and Other includes pension expense, environmental
remediation and administrative, legal, and other
expenses.
|
Adjustments
to reconcile to earnings before income taxes:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Total
segment operating income
|
|
$ |
45,699 |
|
|
$ |
52,208 |
|
|
$ |
79,910 |
|
|
$ |
93,237 |
|
Corporate
and other
|
|
|
(1,936 |
) |
|
|
(2,536 |
) |
|
|
(5,004 |
) |
|
|
(2,838 |
) |
Other
income, net
|
|
|
47 |
|
|
|
224 |
|
|
|
348 |
|
|
|
698 |
|
Interest
expense
|
|
|
(6,542 |
) |
|
|
(7,176 |
) |
|
|
(13,482 |
) |
|
|
(14,759 |
) |
Earnings
before income taxes
|
|
$ |
37,268 |
|
|
$ |
42,720 |
|
|
$ |
61,772 |
|
|
$ |
76,338 |
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13. COMPREHENSIVE
INCOME
Total
comprehensive income for the three and six months ended June 30, 2009 and 2008
are as follows:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Net
earnings
|
|
$ |
24,454 |
|
|
$ |
27,077 |
|
|
$ |
40,259 |
|
|
$ |
48,856 |
|
Equity
adjustment from foreign currency translations, net
|
|
|
37,337 |
|
|
|
716 |
|
|
|
24,361 |
|
|
|
1,505 |
|
Defined
benefit pension and post-retirement plan, net
|
|
|
(324 |
) |
|
|
88 |
|
|
|
(147 |
) |
|
|
215 |
|
Total
comprehensive income
|
|
$ |
61,467 |
|
|
$ |
27,881 |
|
|
$ |
64,473 |
|
|
$ |
50,576 |
|
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.
14. CONTINGENCIES
AND COMMITMENTS
The
Corporation’s environmental obligations have not changed significantly from
December 31, 2008. The aggregate environmental obligation was $21.7
million at June 30, 2009 and $22.2 million at December 31, 2008. All
environmental reserves exclude any potential recovery from insurance carriers or
third-party legal actions.
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
requires 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 cost to decommission the refurbishment facility,
which is planned for 2017, is $4.3 million and is included in our environmental
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 June 30, 2009 and
December 31, 2008, the Corporation had contingent liabilities on outstanding
letters of credit of $46.8 million and $54.0 million, respectively.
In
January of 2007, a former executive was awarded approximately $9.0 million in
punitive and compensatory damages related to a gender bias lawsuit filed in
2003. The Corporation has recorded a $6.5 million reserve related to
the lawsuit, including legal fees, and has filed an appeal to the
verdict. The Corporation has determined that it is probable that the
punitive damages verdict will be reversed on appeal; therefore, no reserve has
been recorded for that portion.
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
Except
for historical information, this Quarterly Report on Form 10-Q may be deemed to
contain "forward-looking” statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Examples of forward-looking statements
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 statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," “could,” "anticipates," as well as the
negative of any of the foregoing or variations of such terms or comparable
terminology, or by discussion of strategy. No assurance may be given that the
future results described by the forward-looking statements 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 statements. Such statements in this Quarterly
Report on Form 10-Q include, without limitation, those contained in Item 1.
Financial Statements and 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 and
performance in accordance with estimates to
complete;
|
·
|
performance
issues with key suppliers, subcontractors, and business
partners;
|
·
|
the
ability to negotiate financing arrangements with
lenders;
|
·
|
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;
|
·
|
product
demand and market acceptance risks;
|
·
|
the
effect of economic conditions;
|
·
|
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. and Foreign Government defense
budgets;
|
·
|
contract
continuation and future contract
awards;
|
·
|
the
other factors discussed under the caption “Risk Factors” in the
Corporation’s 2008 Annual Report on Form 10-K;
and
|
·
|
other
factors that generally affect the business of companies operating in the
Corporation's markets and/or
industries.
|
These
forward-looking statements speak only as of the date they were made and 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.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
COMPANY
ORGANIZATION
Curtiss-Wright
Corporation is a diversified, multinational provider of highly engineered,
technologically advanced products and services for critical high performance
markets. We are positioned as a leader in our 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, power generation, oil
and gas, 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 market, and to establish strong positions in
profitable niche markets. Approximately 40% of our revenues are
generated from defense-related markets.
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 2008 Annual
Report on Form 10-K.
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”. Additionally, on May 9, 2008, we sold our commercial
aerospace repair and overhaul business located in Miami,
Florida. Also, on May 6, 2009, we sold our Eaton product line located
in Brecksville, Ohio. The results of operations for these businesses
have been removed from the comparable prior year periods for purposes of
calculating organic growth figures and are included as a reduction of our
incremental results of operations from our acquisitions.
Therefore,
for both the three months and six months ended June 30, 2009, our organic growth
calculations do not include the operating results related to our 2009
acquisitions of Nu-Torque and EST Group, Inc. Similarly, for both the
three months and six months ended June 30, 2009, our organic growth calculations
exclude the operating results of our 2008 acquisitions including VMETRO ASA,
Mechetronics Holding Limited, and Parylene Coating Services, as they are
considered incremental. Additionally, the organic growth calculations
exclude the operating results from our divestitures, as noted above, and the
amounts are included as a reduction of our incremental results of
operations.
Three months ended June 30,
2009
Sales for
the second quarter of 2009 totaled $447 million, a decrease of 1% from sales of
$453 million for the second quarter of 2008. New orders received for
the current quarter of $404 million, decreased 54% from new orders of $877
million for the second quarter of 2008. The majority of the decrease
in new orders in the second quarter of 2009 from the prior year period is due to
a large order in excess of $300 million from Westinghouse to supply reactor
coolant pumps for the domestic AP1000 nuclear power plants that was received in
the second quarter of 2008 and did not recur.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
The
decline in sales was largely driven by an organic sales decrease of 5% for the
second quarter of 2009 from the prior year period. This decrease in
organic sales was largely offset by incremental sales of $17 million. The
decline in organic sales was largely within our Metal Treatment segment which
experienced a 31% decrease in sales from the prior year period. During the same
period our Motion Control segment experienced a slight organic sales increase of
1% while our Flow Control segment experienced a 1% decrease as compared to the
prior year period. Foreign currency translation negatively
impacted organic sales for the second quarter of 2009 by $13 million as compared
to the prior year period.
For the
second quarter of 2009, approximately 56% of the decrease in organic sales was
driven by unfavorable foreign currency translation as compared to the prior year
period. The negative effect of foreign currency translation was
mainly related to our European operations as the U.S. dollar strengthened
against their local currencies. Excluding the negative effect of
foreign currency translation, our organic sales decrease was
2%. Reduced organic sales in our general industrial, oil and gas, and
commercial aerospace markets, were attributable to weak economic conditions, and
were largely offset by increases within the power generation and defense
markets. The decline in sales to the general industrial market is attributed to
depressed sales for our automotive, industrial control products, and services
across all of our segments. Economic pressures on our customers in
the oil and gas market caused
delays for new order placement for our coker valve products as well as other
valves and services within our Flow Control segment. Similarly in our
commercial aerospace market, although to a lesser extent, we experienced delayed
orders for sensors and controls products within our Motion Control segment, as
well as our services within our Metal Treatment segment. The
increase in our power generation market, primarily in our Flow Control segment,
resulted from higher sales of our valves and engineering services to plant
operators, as well as reactor coolant pumps for the AP1000 nuclear
reactors. An increase was realized across all our defense markets,
aerospace, ground and navy, within our Motion Control and Flow Control
segments. Most notably, the growth in our naval and ground defense
markets was driven by increased sales on the Ford class aircraft carrier program
and Bradley Fighting Vehicle, respectively.
Operating
income for the second quarter of 2009 totaled $44 million, a decrease of 12%
from $50 million in the same period last year. The decrease in operating income
was largely driven by an 8% decline in organic operating income for the second
quarter of 2009, while our 2008 and 2009 acquisitions had $2 million in
incremental losses from the prior year period. The decline in organic
operating income was primarily driven by our Metal Treatment segment, which
experienced an organic operating income decrease of 71% from the comparable
prior year period that was primarily due to the under-absorption of overhead
costs as a result of the sharp decline in sales. The reduction in the Metal
Treatment segment’s organic operating income was partially offset by increases
in the Motion Control and Flow Control segments of 36% and 1%,
respectively. Foreign currency translation had a favorable impact on
operating income of $5 million, or 130 basis points, for the second quarter of
2009 as compared to the prior year period. Although foreign currency
translation had an unfavorable impact on sales, the net impact on operating
income was favorable mainly due to the Canadian operations having significant
amount of sales denominated in U.S. dollars and operating costs in Canadian
dollars. Thus, changes in the foreign currency rates directly
impacted the operating costs with no offsetting impact on
sales. Organic research and development, selling, general, and
administrative costs remained essentially flat as a percentage of sales over the
period as we have initiated cost reduction programs in addition to our business
restructuring plans. See Note 9 for further information on
restructuring costs.
Net
earnings for the second quarter of 2009 totaled $24 million, or $0.54 per
diluted share, a decrease of 10% as compared to the net earnings in the second
quarter of 2008 of $27 million, or $0.60 per diluted share. As
compared to the prior year period, the lower operating income noted above was
partially offset by a $1 million decrease in interest expense and a $3 million
decrease in tax expense. Interest expense decreased in the second quarter of
2009, as compared to the second quarter of 2008, due to lower average interest
rates partially offset by higher debt levels. Our effective tax rate for the
second quarter of 2009 was 34.4% as compared to 36.6% in the same period of
2008. The lower effective tax rate was mainly due to a Canadian
research and development tax benefit.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Six months ended June 30,
2009
Sales for
the first six months of 2009 totaled $871 million, a decrease of 2% from sales
of $887 million in the first six months of 2008. New orders received
for the first six months of 2009 of $862 million were down 35% from the new
orders of $1,327 million for the first six months of 2008. Backlog
increased slightly to $1,685 million at June 30, 2009 from $1,679 million at
December 31, 2008. Approximately 40% of our backlog is
defense-related.
The
decrease in sales was primarily driven by a 5% organic sales decrease for the
first six months of 2009 as compared to the first six months of
2008. The decrease in organic sales was largely offset by incremental
sales of $25 million. The decline in organic sales was largely driven by our
Metal Treatment segment which experienced a 27% decrease in sales from the first
six months of 2008. During the same period, organic sales within our Motion
Control segment decreased by 3% which was partially offset by a 1% increase in
our Flow Control segment. Foreign currency translation negatively impacted sales
for the first six month of 2009 by $28 million as compared to the prior year
period.
For the
first six months of 2009, approximately 70% of the decrease in organic sales was
driven by unfavorable foreign currency translation as compared to the prior year
period. The negative effect of foreign currency translation was
primarily related to European operations as the U.S. dollar strengthened against
their local currencies. Excluding the negative effect of foreign
currency translation, our organic sales decrease was 1%. Lower
organic sales in our general industrial, oil and gas, and commercial aerospace
markets, was attributable to general economic conditions, and was largely offset
by increases within the power generation and defense markets. The decline in
sales to the general industrial market is attributed to depressed sales for our
automotive, industrial control products, and services across all of our
segments. Economic pressures on our customers in the oil and gas
market caused delays for new order placement for our coker valve products as
well as other valves and services within our Flow Control
segment. Similarly, in our commercial aerospace market, although to a
lesser extent, we experienced delayed orders for sensors and controls products
within our Motion Control segment, as well as our services within our Metal
Treatment segment. The increase in our power generation market,
primarily in our Flow Control segment, resulted from increased sales of our
valves and engineering services to plant operators, as well as reactor coolant
pumps for the AP1000 nuclear reactors. An increase was realized
across all our defense markets, aerospace, ground and navy within our Motion
Control and Flow Control segments. Most notably, the growth in our
naval and ground defense markets were driven by increased sales on the Ford
class aircraft carrier program and Bradley Fighting Vehicle,
respectively.
Operating
income for the first six months of 2009 totaled $75 million, down 17% from $90
million in the first six months of 2008. The decrease in operating income was
largely driven by a 13% decline in organic operating income for the first six
months of 2009, while our 2008 and 2009 acquisitions had incremental losses of
$2 million from the prior year period. The decline in organic
operating income was primarily driven by our Metal Treatment segment, which
experienced an organic operating income decrease of 61% from the first six
months of 2008, primarily due to the under-absorption of overhead costs as a
result of the sharp decline in sales. Additionally, the Flow Control segment had
an organic decrease of 6% on relatively flat sales due to a combination of lower margin
product demand and under-absorption of overhead costs. The
decrease in our Metal Treatment and Flow Control segments organic operating
income was partially offset by an increase in the Motion Control segment’s
organic operating income of 34%, which resulted from foreign currency
translation and realized savings from cost reduction programs. Foreign currency
translation had a favorable impact of $10 million on operating income for the
first six months of 2009, as compared to the first six months of
2008. Although foreign currency translation had an unfavorable impact
on sales, the net impact on operating income was favorable mainly due to the
Canadian operations having significant amount of sales denominated in U.S.
dollars and operating costs in Canadian dollars. Thus, changes in the
foreign currency rates directly impacted the operating costs with no offsetting
impact on sales. Organic research and development, selling, general,
and administrative costs remained essentially flat as a percentage of sales over
the period due to cost reduction programs in addition to our business
restructuring plans. See Note 9 for further information on
restructuring costs.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Net
earnings for the first six months of 2009 totaled $40 million, or $0.88 per
diluted share, a decrease of 18% as compared to the net earnings of the first
six months of 2008 of $49 million, or $1.08 per diluted share. As
compared to the prior year period, the lower operating income noted above was
partially offset by a $1 million decrease in interest expense and a $6 million
decrease in tax expense. Interest expense decreased in the first six months of
2009, as compared to the first six months of 2008, due to lower average interest
rates partially offset by higher debt levels. Our effective tax rate for the
first six months of 2009 was 34.8%, as compared to 36.0% in the same period of
2008, mainly due to a Canadian research and development tax
benefit.
Segment
Operating Performance:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
%
|
|
|
2009
|
|
|
2008
|
|
|
%
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
$ |
242,414 |
|
|
$ |
237,133 |
|
|
|
2.2 |
% |
|
$ |
472,786 |
|
|
$ |
457,452 |
|
|
|
3.4 |
% |
Motion
Control
|
|
|
155,748 |
|
|
|
146,190 |
|
|
|
6.5 |
% |
|
|
296,457 |
|
|
|
291,665 |
|
|
|
1.6 |
% |
Metal
Treatment
|
|
|
49,209 |
|
|
|
70,141 |
|
|
|
(29.8 |
%) |
|
|
101,920 |
|
|
|
137,726 |
|
|
|
(26.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Sales
|
|
$ |
447,371 |
|
|
$ |
453,464 |
|
|
|
(1.3 |
%) |
|
$ |
871,163 |
|
|
$ |
886,843 |
|
|
|
(1.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
$ |
21,728 |
|
|
$ |
21,904 |
|
|
|
(0.8 |
%) |
|
$ |
35,059 |
|
|
$ |
36,126 |
|
|
|
(3.0 |
%) |
Motion
Control
|
|
|
19,513 |
|
|
|
15,375 |
|
|
|
26.9 |
% |
|
|
33,779 |
|
|
|
29,082 |
|
|
|
16.2 |
% |
Metal
Treatment
|
|
|
4,458 |
|
|
|
14,929 |
|
|
|
(70.1 |
%) |
|
|
11,072 |
|
|
|
28,029 |
|
|
|
(60.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segments
|
|
|
45,699 |
|
|
|
52,208 |
|
|
|
(12.5 |
%) |
|
|
79,910 |
|
|
|
93,237 |
|
|
|
(14.3 |
%) |
Corporate
& Other
|
|
|
(1,936 |
) |
|
|
(2,536 |
) |
|
|
(23.7 |
%) |
|
|
(5,004 |
) |
|
|
(2,838 |
) |
|
|
76.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Income
|
|
$ |
43,763 |
|
|
$ |
49,672 |
|
|
|
(11.9 |
%) |
|
$ |
74,906 |
|
|
$ |
90,399 |
|
|
|
(17.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
|
9.0 |
% |
|
|
9.2 |
% |
|
|
|
|
|
|
7.4 |
% |
|
|
7.9 |
% |
|
|
|
|
Motion
Control
|
|
|
12.5 |
% |
|
|
10.5 |
% |
|
|
|
|
|
|
11.4 |
% |
|
|
10.0 |
% |
|
|
|
|
Metal
Treatment
|
|
|
9.1 |
% |
|
|
21.3 |
% |
|
|
|
|
|
|
10.9 |
% |
|
|
20.4 |
% |
|
|
|
|
Total
Curtiss-Wright
|
|
|
9.8 |
% |
|
|
11.0 |
% |
|
|
|
|
|
|
8.6 |
% |
|
|
10.2 |
% |
|
|
|
|
Note: The 2008
segment financial data has been reclassified to conform to our 2009 financial
statement presentation.
Flow
Control
Sales for
our Flow Control segment increased 2% to $242 million for the second quarter of
2009 from $237 million in the second quarter of 2008. The increase in
sales was due to our 2009 acquisitions of EST and Nu-Torque, which had
incremental sales of $7 million. Organic sales were essentially flat in the
second quarter, excluding foreign currency translation which had an unfavorable
impact of $3 million as compared to the prior year period. Although
our organic sales were essentially flat, we experienced shifts within the
markets as compared to the prior year period. The power generation
and naval defense markets increased by $25 million and $8 million, respectively,
and were partially offset by decreases in the oil and gas and general industrial
markets of $20 million and $9 million, respectively.
The
increase in organic sales to the power generation market was attributed to
higher sales of our next-generation reactor coolant pumps for the AP1000 nuclear
reactors being constructed in China and the United States. In
addition, we had increased demand for maintenance projects for nuclear power
plants. The demand was driven by timing of refurbishment cycles,
which can vary in timing from period to period. The increase in the
naval defense market was mainly due to increased production on the Ford class
aircraft carrier program, which was partially offset by lower sales of spare
parts. In addition, we had increased sales to both domestic and
international militaries primarily for helicopter handling
products. Mainly offsetting these increases was a decline in the oil
and gas market sales due to delays in timing of
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
new order
placement for our coker valve products resulting from the tightening of the
financial markets, reduced energy demand, and weak economic conditions
globally. Our traditional oil and gas valve products generated lower
sales due to a downturn in capital spending and maintenance expenditures by our
customers. Additionally, our general industrial market declined due
to lower demand for our industrial control products and automotive products
resulting from depressed economic conditions. Foreign currency
translation unfavorably impacted organic sales for the second quarter of 2009 by
$3 million as compared to the prior year period.
Operating
income for the second quarter of 2009 was $22 million, which was essentially
flat as compared to the prior year period. The 2009 acquisitions
decreased our operating income slightly in the second quarter of 2009 primarily
due to amortization expense, which generally runs higher in the early period of
ownership. This segment’s organic operating income grew 1%, driven by
favorable foreign currency translation, which contributed $1
million. Although foreign currency translation had an unfavorable
impact on sales for this segment, the net impact on operating income was
favorable mainly due to the Canadian operations having significant amount of
sales denominated in U.S. dollars and operating costs in Canadian
dollars. Thus, changes in the foreign currency rates directly
impacted the operating costs with no offsetting impact on sales. Our
organic operating income was impacted by lower volumes, under-absorption of
overhead costs in the oil and gas and general industrial markets, and cost
growth on certain fixed-price contracts, partially offset by improved
profitability in certain long-term contracts and lower expenses due to cost
reduction programs.
Sales for
the first six months of 2009 were $473 million, an increase of 3% over the same
period last year of $457 million. The sales improvement was due to
organic growth of 1% and the contribution of our 2009 acquisitions, which
contributed incremental sales of $10 million during the first six months of
2009. Our base businesses experienced higher sales to the power
generation market and naval defense market of $46 million and $14 million,
respectively. These sales were partially offset by decreased sales to
our oil and gas and our general industrial markets of $27 million and $16
million, respectively.
The
increase in organic sales to the power generation market was due to increased
demand for maintenance projects for nuclear power plants. This is
driven by timing of refurbishment cycles, which can vary in timing from period
to period. In addition, we had increased sales for our
next-generation reactor coolant pumps for the AP1000 nuclear reactors being
constructed in China and the United States. The increase in the naval
defense market was mainly due to increased production on the Ford class aircraft
carrier program which was partially offset by lower sales of spare
parts. In addition, we had increased sales to both domestic and
international militaries primarily for helicopter handling
products. Mainly offsetting these increases was a decline in the oil
and gas market sales due to delays in timing of new order placement for coker
valve products resulting from more restrictive financial markets, reduced energy
demand, and weak economic conditions globally. In addition, our
traditional valves products generated lower sales due to a downturn in our
customers’ capital spending and maintenance
expenditures. Additionally, our general industrial market declined
due to lower demand for our industrial control products and automotive
products resulting from depressed economic conditions. Foreign
currency translation unfavorably impacted this segment's sales for the first six
months of 2009 by $7 million as compared to the prior year period.
Operating
income for the first six months of 2009 was $35 million, a decrease of 3% from
the same period last year of $36 million. Our 2009 acquisitions
contributed $1 million of incremental operating income in the first six months
of 2009. This was primarily due to a gain of $2 million recognized on
the acquisition of Nu-Torque, which was accounted for as a bargain purchase
under acquisition accounting that became effective January 1,
2009. This gain was partially offset by operating losses on our 2009
acquisitions, primarily due to amortization expense, which generally runs higher
in the early period of ownership. Our organic operating income
declined by 6%, primarily due to a reduction in sales volume, under-absorption
of overhead costs in the oil and gas and general industrial markets, and a shift
to lower margin products, partially offset by lower expenses due to cost
reduction programs. Foreign currency translation had a favorable
impact on operating income for the first six months of 2009 by $3 million as
compared to the prior period.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
New
orders for the Flow Control segment totaled $208 million in the second quarter
of 2009 and $476 million for the first six months of 2009, representing a
decrease of 66% and 44%, respectively, from the same period in
2008. This decrease was a result of a large order in excess of $300
million in the prior year related to our next-generation reactor coolant pumps
for the AP1000 nuclear power plants that did not recur in the current
year. The 2009 acquisitions contributed $6 million and $9 million in
incremental new orders received in the second quarter and first six months of
2009 respectively. Backlog increased 1% to $1,184 million at June 30,
2009 from $1,167 million at December 31, 2008.
Motion
Control
Sales for
our Motion Control segment increased 7% to $156 million in the second quarter of
2009 from $146 million in the second quarter of 2008. The increase in
sales is primarily due to our 2008 acquisitions of Mechetronics and VMETRO,
which had incremental sales of $9 million, coupled with organic sales growth of
4%, excluding the negative impact of foreign currency
translation. Our base businesses experienced a strong sales increase
in the defense markets of $22 million, partially offset by decreases in the
general industrial and commercial aerospace markets of $7 and $6 million,
respectively. Foreign currency translation negatively impacted sales
for the second quarter by $5 million as compared to the prior year
period.
Organic
sales growth was realized across all of our major defense markets. We
experienced an increase in our ground, aerospace, and naval defense markets of
$9 million, $6 million, and $5 million, respectively. The increase in
the ground defense market was driven primarily by higher sales of embedded
computing products for tanks and light armored vehicles, such as the Bradley
Fighting Vehicle and the Expeditionary Fighting Vehicle. The
improvement in the aerospace defense market was mainly due to increased demand
for our integrated sensing products on various helicopter programs related to
upgrades on both domestic and international military programs. Our
embedded computing products accounted for the remaining increase in our
aerospace defense markets as well as the increase in our naval defense market,
as demand for our commercial off-the-shelf (“COTS”) products continues to
be strong coupled with our ability to offer a complete embedded computing
subsystem solution. Partially offsetting the positive impact of our
defense markets was a decline in sales in the general industrial and commercial
aerospace markets. In our general industrial market, we experienced a
downturn in demand for our sensor and controllers products due to weak economic
conditions globally. Declines in the commercial aerospace market were
primarily due to delayed sales to original equipment manufacturers on the Boeing
700 series platforms as well as declines in our integrated sensing
products. Foreign currency translation negatively impacted organic
sales for the second quarter of 2009 by $5 million as compared to the prior year
period.
Operating
income for the second quarter of 2009 was $20 million, a 27% increase over the
prior year period. This segment realized incremental losses of $2
million in the second quarter of 2009 primarily due to amortization expense,
which generally runs higher in the early period of ownership. Organic
operating income growth of 36%, was largely related to favorable foreign
currency translation, which contributed $3 million. Although foreign
currency translation had an unfavorable impact on sales for this segment, the
net impact on operating income was favorable mainly due to the Canadian
operations having significant amount of sales denominated in U.S. dollars and
operating costs in Canadian dollars. Thus, changes in the foreign
currency rates directly impacted the operating costs with no offsetting impact
on sales. We experienced an increase of 16% in organic operating
income excluding foreign currency, as we realized both an increase in margins on
contracts related to a favorable mix in programs and lower organic operating
expenses as a percentage of sales due to various cost reduction
programs.
Sales for
the first six months of 2009 increased 2% to $297 million from $292 million
during the first six months of 2008. This increase in sales is
related to our 2008 acquisitions of Mechetronics and VMETRO which had sales of
$20 million. The increase was partially offset by our 2008
divestiture and a 3% decrease in organic sales. The decrease in
organic sales was driven by unfavorable foreign currency translation of $11
million. Excluding the negative impact of foreign currency
translation, organic sales grew 1%. We experienced higher sales to
our defense markets of $28 million, which were partially offset by decreases in
the commercial aerospace and general industrial markets of $11 million and $10
million, respectively.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Organic
sales growth was realized across all of our major defense markets. We
experienced an increase in our ground, aerospace, and naval defense markets of
$15 million, $9 million, and $4 million, respectively. The increase
in the ground defense market was driven primarily by higher sales of embedded
computing products on light armored vehicle platforms. Increased production
and development accounted for the majority of the sales increase in the Stryker,
Expeditionary Fighting Vehicle, and Future Combat System
platforms. The improvement in the aerospace defense market was mainly
due to increased demand for our integrated sensing and embedded computing
products on domestic and international military programs, such as the F-22
Raptor, F-35 JSF, and various helicopter programs. The increase in
sales to our naval defense market is related to demand for our COTS products,
which continues to be strong as we have the ability to offer a complete embedded
computing subsystem solution. Partially offsetting the positive
impact of the defense markets was a decline in sales for the commercial
aerospace market related to delayed sales on original equipment manufacturers on
the Boeing 700 series platforms and reduced demand for our integrated sensing
products. In addition, the decline in sales to the general industrial
market is primarily related to weak economic conditions globally, which have
caused a downturn in demand for our sensor and controllers
products. Foreign currency translation negatively impacted organic
sales for the first six months of 2009 by $11 million as compared to the prior
year period.
Operating
income for the first six months of 2009 was $34 million, a 16% increase from the
prior year period. This segment realized incremental losses of $4
million for the first six months of 2009 primarily due to amortization expense,
which generally runs higher in the early period of ownership. This segment’s
organic operating income growth was 34%, which was driven largely by favorable
foreign currency translation of $9 million. Although foreign currency
translation had an unfavorable impact on sales for this segment, the net impact
on operating income was favorable mainly due to the Canadian operations having
significant amount of sales denominated in U.S. dollars and operating costs in
Canadian dollars. Thus, changes in the foreign currency rates
directly impact the operating costs with no offsetting impact on
sales. The organic operating margin increased by 4% excluding the
favorable impact of foreign currency translation, which is primarily due to
cost reduction programs.
New
orders for the Motion Control segment totaled $147 million in the second quarter
of 2009 and $284 million for the first six months of 2009, representing a
decrease of 22% and 16%, respectively, over the same period in
2008. The 2009 acquisitions contributed $13 million and $14 million
in incremental new orders received in the second quarter and first six months of
2009, respectively, over the prior year periods. Backlog decreased 2%
to $499 million at June 30, 2009 from $510 million at December 31,
2008.
Metal
Treatment
Sales for
our Metal Treatment segment decreased 30% to $49 million in the second quarter
of 2009 from $70 million in the second quarter of 2008. Organic sales
declined 24%, when excluding the unfavorable effect of foreign currency
translation and our 2008 acquisition which contributed $1 million in sales. The
decrease in organic sales for the period was primarily driven by reductions in
the general industrial and commercial aerospace markets of $13 million and
$6 million, respectively. The decline in sales was due to the weak
global economic environment, as there was a reduction in demand across all
primary service offerings with our heaviest decline in shot peening
services. Foreign currency translation negatively impacted organic
sales for the second quarter of 2009 by $5 million as compared to the prior year
period.
Operating
income for the second quarter of 2009 was $5 million, a 70% decrease from the
prior year period of $15 million. The reduction from the prior year
period was primarily due to lower volumes and the under-absorption of overhead
costs as a result of the rapid decline in sales. The impact of this
decline was partially offset by lower expenses resulting from cost containment
efforts. Foreign currency translation negatively impacted operating income for
the second quarter of 2009 by $1 million as compared to the prior year
period.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Sales for
the first six months of 2009 decreased 26% to $102 million from $138 million
during the first six months of 2008. Organic sales declined 19%,
excluding the effect of unfavorable foreign currency translation. Our
2008 acquisition contributed $1 million in sales. The decline in
organic sales for the period was primarily driven by reductions in our general
industrial and commercial aerospace markets of $26 million and $9 million,
respectively. We experienced declines in all major markets with our
strongest declines in the automotive market, which represented roughly 50% of
the decline. Additionally, we had reductions in demand across all
primary service offerings with the heaviest declines in shot peening, coatings,
and heat treating services. Foreign currency translation negatively
impact sales for the first half of 2009 by $10 million as compared to the prior
year period.
Operating
income for the first six months of 2009 was $11 million. This
represented a 60% decrease from the first six months of 2008 at $28
million. The reduction in the prior year period was primarily due to
lower volumes and the under-absorption of overhead costs as a result of the
rapid decline in sales. The impact of this decline was partially
offset by lower expenses resulting from cost containment efforts. Foreign
currency translation had an unfavorable impact on operating income by $2 million
as compared to the prior year period.
Corporate and
Other
Non-segment
operating expense decreased $1 million for the second quarter of 2009, while the
first six months of 2009 increased by $2 million versus the comparable prior
year periods. The decrease for the second quarter of 2009 was
primarily due to foreign currency and exchange gains and lower legal costs
partially offset by higher pension and medical expenses. The increase
for the first six months of 2009 was primarily due to increases in foreign
currency and exchange losses, higher medical expenses, and higher pension costs
partially offset by lower legal costs.
Interest
Expense
Interest
expense decreased $1 million for the second quarter and first six months of 2009
versus the comparable prior year periods. The decreases were due to
lower average interest rates partially offset by higher debt
levels. Our average outstanding debt increased 9% for the three
months and six months ended June 30, 2009, while our average rate of borrowing
decreased 17% for the second quarter of 2009 and 16% for the first six months of
2009, as compared to the comparable prior year periods.
LIQUIDITY
AND CAPITAL RESOURCES
Sources
and Use of Cash
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; cash flow
is therefore subject to market fluctuations and conditions. A substantial
portion of our business is in the defense sector, which is characterized by
long-term contracts. Most of our long-term contracts allow for
several billing points (progress or milestone) 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 $428 million at June 30, 2009, an increase of $78 million
from the working capital at December 31, 2008 of $350 million. The
ratio of current assets to current liabilities was 2.1 to 1.0 at June 30, 2009
versus 1.8 to 1.0 at December 31, 2008. Cash and cash equivalents
totaled $59 million at June 30, 2009, down from $61 million at December 31,
2008. Days sales outstanding at June 30, 2009 were 54 days as
compared to 49 days at December 31, 2008. Inventory turns were 4.0
for the six months ended June 30, 2009, as compared to 4.6 at December 31,
2008.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Excluding
cash, working capital increased $79 million from December 31,
2008. Working capital changes were primarily affected by an increase
in inventory of $24 million due to a build up for future sales, stocking of new
programs, purchase of long-lead time materials, and a decrease in accounts
payable and
accrued expenses of $53 million due
primarily to the payments of annual incentive plans and lower days payable
outstanding. Offsetting these working capital increases was an
increase in deferred revenue of $23 million due primarily to advance payments
related mainly to the domestic AP1000 project and a decrease in receivables due
to lower sales volume in the second quarter of 2009 versus the fourth quarter of
2008. We do not expect to make contributions in 2009 to the
Curtiss-Wright Pension Plan, however, we expect to make significant
contributions beginning in 2010. Please refer to our 2008 Annual
Report on Form 10-K for further information.
During
the first six months of 2009 we incurred additional liabilities of $4 million
related to business consolidation costs based on a review of various cost saving
initiatives undertaken in connection with the development of the Corporation’s
budget and operating plan for the current year. These costs were in
addition to the $7 million established in 2008. We expect to incur a
total of $13 million related to these activities, inclusive of the above
amounts. A portion of these liabilities have been paid and remaining
payments are expected to occur in 2009 and will be funded through normal
operations. We estimate annualized cash savings from these
initiatives to be approximately $10 million after the completion of the
restructuring activities. See Note 9 for further information on these
activities.
Investing
Activities
Capital
expenditures were $37 million in the first six months of 2009. Principal capital
expenditures included new and replacement machinery and equipment and the
expansion of new product lines within the business segments, specifically the
AP1000 program, which accounted for approximately $9 million in the first six
months of 2009. We expect to make additional capital expenditures of
approximately $50 million during the remainder of 2009 on machinery and
equipment for ongoing operations at the business segments, expansion of existing
facilities, and investments in new product lines and facilities.
Financing
Activities
During
the first six months of 2009, we used $201 million in available credit under the
2007 Senior Unsecured Revolving Credit Agreement to fund operating and investing
activities. The unused credit available under this Revolving Credit Agreement at
June 30, 2009 was $168 million. The Revolving Credit Agreement expires in August
2012. The loans outstanding under the 2003 and 2005 Senior Notes,
Revolving Credit Agreement, and Industrial Revenue Bonds had fixed and variable
interest rates averaging 3.9% during the second quarter of 2009 and 4.6% for the
comparable prior year period.
CRITICAL
ACCOUNTING POLICIES
Our
condensed 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 2008 Annual Report on Form 10-K,
filed with the U.S. Securities and Exchange Commission on March 2, 2009, 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.
Recently issued accounting
standards:
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Item
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has
been no material changes in the Corporation’s market risk during the six months
ended June 30, 2009. 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 2008 Annual Report on Form 10-K.
As of
June 30, 2009, 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 June 30, 2009 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, we and our subsidiaries are subject to various
pending claims, lawsuits, and contingent liabilities. We do not believe that the
disposition of any of these matters, individually or in the aggregate, will have
a material adverse effect on our consolidated financial position or results of
operations.
We or our
subsidiaries have been named in a number of lawsuits that allege injury from
exposure to asbestos. To date, neither us nor our subsidiaries have
been found liable or paid any material sum of money in settlement in any
case. We believe that the minimal use of asbestos in our past and
current operations and the relatively non-friable condition of asbestos in our
products makes it unlikely that we will face material liability in any asbestos
litigation, whether individually or in the aggregate. We do maintain
insurance coverage for these potential liabilities and we believe adequate
coverage exists to cover any unanticipated asbestos liability.
Item
1A. RISK FACTORS
There has
been no material changes in our Risk Factors during the six months ended June
30, 2009. Information regarding our Risk Factors is more fully
described in Item “1A. Risk Factors” of the Corporation’s 2008 Annual Report on
Form 10-K.
Item
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The votes
received by the director nominees were as follows:
|
|
For
|
|
Withheld
|
|
|
|
|
|
Martin
R. Benante
|
|
40,776,504
|
|
855,809
|
|
|
|
|
|
S.
Marce Fuller
|
|
38,704,726
|
|
2,927,587
|
|
|
|
|
|
Allen
A. Kozinski
|
|
40,950,960
|
|
681,353
|
|
|
|
|
|
Carl
G. Miller
|
|
41,355,767
|
|
276,546
|
|
|
|
|
|
William
B. Mitchell
|
|
40,565,394
|
|
1,066,919
|
|
|
|
|
|
John
R. Myers
|
|
37,804,971
|
|
3,827,342
|
|
|
|
|
|
John
B. Nathman
|
|
41,265,483
|
|
366,830
|
|
|
|
|
|
William
W. Sihler
|
|
40,881,414
|
|
750,899
|
|
|
|
|
|
Albert
E. Smith
|
|
41,358,731
|
|
273,582
|
There
were no broker non-votes or votes against any director.
The
stockholders approved the appointment of Deloitte & Touche LLP, independent
accountants for the Corporation. The holders of 41,426,430 shares of Common
Stock voted in favor; 184,107 voted against and 21,776 abstained. There were no
broker non-votes.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
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 six months ended
June 30, 2009. 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 2009 Proxy Statement on Schedule 14A, which is
incorporated by reference to the Corporation’s 2008 Annual Report on Form
10-K.
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 Form
8-K filed November 17, 2008)
|
|
Exhibit
31.1
|
Certification
of Martin R. Benante, Chairman and CEO, Pursuant to Rules 13a – 14(a) and
15d-14(a) under the Securities Exchange Act of 1934, as amended (filed
herewith)
|
|
Exhibit
31.2
|
Certification
of Glenn E. Tynan, Chief Financial Officer, Pursuant to Rules 13a – 14(a)
and 15d-14(a) under the Securities Exchange Act of 1934, as amended (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)
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
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: August
7, 2009