form10q2q07.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
Quarterly
Report Pursuant to Section 13 or 15(d) of the
Securities
and Exchange Act of 1934
FOR
THE
QUARTERLY PERIOD ENDED June 30, 2007
Commission
File Number 1-134
CURTISS-WRIGHT
CORPORATION
(Exact
name of Registrant as specified in its charter)
Delaware
|
|
13-0612970
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
4
Becker Farm Road
|
|
|
Roseland,
New Jersey
|
|
07068
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(973)
597-4700
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months and (2) has been subject to such filing requirements for
the
past 90 days.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer x
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Common
Stock, par value $1.00 per share 44,429,459 shares (as of July 31,
2007).
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
|
|
|
|
|
|
|
|
PART
I – FINANCIAL INFORMATION
|
PAGE
|
|
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|
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|
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|
Item
1.
|
Financial
Statements:
|
|
|
|
|
|
|
|
Consolidated
Statements of Earnings
|
3
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
4
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
5
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
6
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
7
-
15
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|
|
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|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
16 -
24
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|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
25
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|
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|
Item
4.
|
Controls
and Procedures
|
25
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|
PART
II – OTHER INFORMATION
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|
|
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|
Item
1.
|
Legal
Proceedings
|
26
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|
|
|
|
Item
1A.
|
Risk
Factors
|
26
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|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
26
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|
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|
Item
5.
|
Other
Information
|
27
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|
Item
6.
|
Exhibits
|
27
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|
Signature
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|
28
|
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF EARNINGS
|
|
(UNAUDITED)
|
|
(In
thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
365,576
|
|
|
$ |
309,635
|
|
|
$ |
698,185
|
|
|
$ |
592,187
|
|
Cost
of sales
|
|
|
247,553
|
|
|
|
204,082
|
|
|
|
468,775
|
|
|
|
394,573
|
|
Gross
profit
|
|
|
118,023
|
|
|
|
105,553
|
|
|
|
229,410
|
|
|
|
197,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
11,487
|
|
|
|
11,333
|
|
|
|
22,826
|
|
|
|
21,304
|
|
Selling
expenses
|
|
|
22,331
|
|
|
|
19,280
|
|
|
|
42,603
|
|
|
|
37,622
|
|
General
and administrative expenses
|
|
|
45,634
|
|
|
|
41,536
|
|
|
|
90,106
|
|
|
|
80,903
|
|
Environmental
remediation and administrative expenses, net
|
|
|
162
|
|
|
|
327
|
|
|
|
324
|
|
|
|
89
|
|
Operating
income
|
|
|
38,409
|
|
|
|
33,077
|
|
|
|
73,551
|
|
|
|
57,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
466
|
|
|
|
9
|
|
|
|
1,350
|
|
|
|
313
|
|
Interest
expense
|
|
|
(5,704 |
) |
|
|
(5,948 |
) |
|
|
(11,204 |
) |
|
|
(11,382 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
33,171
|
|
|
|
27,138
|
|
|
|
63,697
|
|
|
|
46,627
|
|
Provision
for income taxes
|
|
|
11,781
|
|
|
|
6,046
|
|
|
|
22,804
|
|
|
|
13,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
21,390
|
|
|
$ |
21,092
|
|
|
$ |
40,893
|
|
|
$ |
33,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.48
|
|
|
$ |
0.48
|
|
|
$ |
0.93
|
|
|
$ |
0.76
|
|
Diluted
earnings per share
|
|
$ |
0.48
|
|
|
$ |
0.48
|
|
|
$ |
0.91
|
|
|
$ |
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
per share
|
|
$ |
0.06
|
|
|
$ |
0.06
|
|
|
$ |
0.12
|
|
|
$ |
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
44,256
|
|
|
|
43,807
|
|
|
|
44,200
|
|
|
|
43,714
|
|
Diluted
|
|
|
44,915
|
|
|
|
44,295
|
|
|
|
44,815
|
|
|
|
44,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements
|
|
CONSOLIDATED
BALANCE SHEETS
|
|
(UNAUDITED)
|
|
(In
thousands)
|
|
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
66,777
|
|
|
$ |
124,517
|
|
Receivables,
net
|
|
|
332,107
|
|
|
|
284,774
|
|
Inventories,
net
|
|
|
207,584
|
|
|
|
161,528
|
|
Deferred
tax assets, net
|
|
|
24,834
|
|
|
|
32,485
|
|
Other
current assets
|
|
|
22,086
|
|
|
|
19,341
|
|
Total
current assets
|
|
|
653,388
|
|
|
|
622,645
|
|
Property,
plant and equipment, net
|
|
|
306,257
|
|
|
|
296,652
|
|
Prepaid
pension costs, net
|
|
|
56,646
|
|
|
|
92,262
|
|
Goodwill
|
|
|
507,448
|
|
|
|
411,101
|
|
Other
intangible assets, net
|
|
|
194,937
|
|
|
|
158,080
|
|
Other
assets
|
|
|
14,033
|
|
|
|
11,416
|
|
Total
Assets
|
|
$ |
1,732,709
|
|
|
$ |
1,592,156
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
846
|
|
|
$ |
5,874
|
|
Accounts
payable
|
|
|
108,790
|
|
|
|
96,023
|
|
Dividend
payable
|
|
|
2,663
|
|
|
|
−
|
|
Accrued
expenses
|
|
|
83,513
|
|
|
|
81,532
|
|
Income
taxes payable
|
|
|
8,141
|
|
|
|
23,003
|
|
Deferred
revenue
|
|
|
110,222
|
|
|
|
57,305
|
|
Other
current liabilities
|
|
|
41,547
|
|
|
|
28,388
|
|
Total
current liabilities
|
|
|
355,722
|
|
|
|
292,125
|
|
Long-term
debt
|
|
|
408,991
|
|
|
|
359,000
|
|
Deferred
tax liabilities, net
|
|
|
53,747
|
|
|
|
57,055
|
|
Accrued
pension and other postretirement benefit costs
|
|
|
39,112
|
|
|
|
71,006
|
|
Long-term
portion of environmental reserves
|
|
|
20,921
|
|
|
|
21,220
|
|
Other
liabilities
|
|
|
32,374
|
|
|
|
29,676
|
|
Total
Liabilities
|
|
|
910,867
|
|
|
|
830,082
|
|
Contingencies
and Commitments (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
Common
stock, $1 par value
|
|
|
47,626
|
|
|
|
47,533
|
|
Additional
paid-in capital
|
|
|
74,152
|
|
|
|
69,887
|
|
Retained
earnings
|
|
|
751,099
|
|
|
|
716,030
|
|
Accumulated
other comprehensive income
|
|
|
70,115
|
|
|
|
55,806
|
|
|
|
|
942,992
|
|
|
|
889,256
|
|
Less: Cost
of treasury stock
|
|
|
(121,150 |
) |
|
|
(127,182 |
) |
Total
Stockholders' Equity
|
|
|
821,842
|
|
|
|
762,074
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
1,732,709
|
|
|
$ |
1,592,156
|
|
See
notes to consolidated financial statements
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In
thousands)
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
40,893
|
|
|
$ |
33,370
|
|
Adjustments
to reconcile net
earnings to net cash
provided
by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and
amortization
|
|
|
27,912
|
|
|
|
24,946
|
|
Loss
on sale of fixed
assets
|
|
|
257
|
|
|
|
119
|
|
Deferred
income
taxes
|
|
|
(2,503 |
) |
|
|
(2,368 |
) |
Share-based
compensation
|
|
|
4,273
|
|
|
|
2,929
|
|
Changes
in operating assets and
liabilities, net of
businesses
acquired:
|
|
|
|
|
|
|
|
|
Increase
in
receivables
|
|
|
(25,558 |
) |
|
|
(13,906 |
) |
Increase
in
inventories
|
|
|
(37,623 |
) |
|
|
(25,164 |
) |
Increase
in progress
payments
|
|
|
(3,713 |
) |
|
|
(3,129 |
) |
Increase
(decrease) in accounts
payable and accrued expenses
|
|
|
8
|
|
|
|
(16,747 |
) |
Increase
in deferred
revenue
|
|
|
54,853
|
|
|
|
12,015
|
|
Decrease
in income taxes
payable
|
|
|
(7,141 |
) |
|
|
(15,989 |
) |
Increase
in net pension and
postretirement assets
|
|
|
3,722
|
|
|
|
4,979
|
|
(Increase)
decrease in other
assets
|
|
|
(552 |
) |
|
|
987
|
|
Decrease
in other
liabilities
|
|
|
(1,724 |
) |
|
|
(1,020 |
) |
Total
adjustments
|
|
|
12,211
|
|
|
|
(32,348 |
) |
Net
cash provided by operating
activities
|
|
|
53,104
|
|
|
|
1,022
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sales of
non-operating assets
|
|
|
124
|
|
|
|
387
|
|
Acquisitions
of intangible
assets
|
|
|
(293 |
) |
|
|
(826 |
) |
Additions
to property, plant and
equipment
|
|
|
(23,978 |
) |
|
|
(17,137 |
) |
Net
cash paid for
acquisitions
|
|
|
(136,685 |
) |
|
|
(34,576 |
) |
Net
cash used for investing
activities
|
|
|
(160,832 |
) |
|
|
(52,152 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from revolving credit
agreement
|
|
|
169,000
|
|
|
|
164,500
|
|
Principal
payments on revolving
credit agreement
|
|
|
(124,030 |
) |
|
|
(134,528 |
) |
Proceeds
from exercise of stock
options
|
|
|
4,635
|
|
|
|
4,815
|
|
Dividends
paid
|
|
|
(2,656 |
) |
|
|
(2,627 |
) |
Excess
tax benefits from
share-based compensation
|
|
|
1,209
|
|
|
|
1,329
|
|
Net
cash provided by financing
activities
|
|
|
48,158
|
|
|
|
33,489
|
|
Effect
of foreign currency
|
|
|
1,830
|
|
|
|
1,756
|
|
Net
decrease in cash and cash equivalents
|
|
|
(57,740 |
) |
|
|
(15,885 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
124,517
|
|
|
|
59,021
|
|
Cash
and cash equivalents at end of period
|
|
$ |
66,777
|
|
|
$ |
43,136
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of investing activities:
|
|
|
|
|
|
|
|
|
Fair
value of assets acquired in
current year acquisitions
|
|
$ |
156,835
|
|
|
$ |
38,382
|
|
Additional
consideration paid on
previous years’ acquisitions
|
|
|
3,810
|
|
|
|
3,283
|
|
Liabilities
assumed from current
year acquisitions
|
|
|
(23,958 |
) |
|
|
(7,086 |
) |
Cash
acquired from current year
acquisitions
|
|
|
(2 |
) |
|
|
(3 |
) |
Net
cash paid for
acquisitions
|
|
$ |
136,685
|
|
|
$ |
34,576
|
|
See
notes to consolidated financial statements
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
(UNAUDITED)
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid
in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005
|
|
$ |
25,493
|
|
|
$ |
59,794
|
|
|
$ |
667,892
|
|
|
$ |
20,655
|
|
|
$ |
(135,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
80,569
|
|
|
|
-
|
|
|
|
-
|
|
Minimum
pension liability adjustment, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,750 |
) |
|
|
-
|
|
Translation
adjustments, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,215
|
|
|
|
-
|
|
Adjustment
for initial application of FAS 158, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,686
|
|
|
|
-
|
|
Dividends
declared
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,538 |
) |
|
|
-
|
|
|
|
-
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
6,480
|
|
|
|
-
|
|
|
|
-
|
|
|
|
141
|
|
Stock
options exercised, net
|
|
|
-
|
|
|
|
(1,521 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
8,021
|
|
Stock
issued under employee stock purchase plan, net
|
|
|
147
|
|
|
|
4,483
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Two-for-one
common stock split effected in the form of a 100% stock
dividend
|
|
|
21,893
|
|
|
|
-
|
|
|
|
(21,893 |
) |
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
651
|
|
|
|
-
|
|
|
|
-
|
|
|
|
270
|
|
December
31, 2006
|
|
$ |
47,533
|
|
|
$ |
69,887
|
|
|
$ |
716,030
|
|
|
$ |
55,806
|
|
|
$ |
(127,182 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
40,893
|
|
|
|
-
|
|
|
|
-
|
|
Translation
adjustments, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,262
|
|
|
|
-
|
|
Defined
benefit pension and postretirement plans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47
|
|
|
|
-
|
|
Dividends
declared
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,319 |
) |
|
|
-
|
|
|
|
-
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
4,161
|
|
|
|
-
|
|
|
|
-
|
|
|
|
112
|
|
Stock
options exercised, net
|
|
|
-
|
|
|
|
(2,054 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
5,619
|
|
Stock
issued under employee stock purchase plan, net
|
|
|
93
|
|
|
|
2,459
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjustment
for initial application of FIN 48
|
|
|
-
|
|
|
|
-
|
|
|
|
(505 |
) |
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
(301 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
301
|
|
June
30, 2007
|
|
$ |
47,626
|
|
|
$ |
74,152
|
|
|
$ |
751,099
|
|
|
$ |
70,115
|
|
|
$ |
(121,150 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Curtiss-Wright
Corporation and its subsidiaries (the “Corporation”) is a diversified
multinational manufacturing and service company that designs, manufactures,
and
overhauls precision components and systems and provides highly engineered
products and services to the aerospace, defense, automotive, shipbuilding,
oil
and gas processing, agricultural equipment, railroad, power generation,
security, and metalworking industries. Operations are conducted through 38
manufacturing facilities, 60 metal treatment service facilities, and 2 aerospace
component overhaul and repair locations.
The
unaudited consolidated financial statements include the accounts of
Curtiss-Wright Corporation and its majority-owned subsidiaries. All
material intercompany transactions and accounts have been
eliminated.
The
unaudited consolidated financial statements of the Corporation have been
prepared in conformity with accounting principles generally accepted in the
United States of America and such preparation requires management to make
estimates and judgments that affect the reported amount of assets, liabilities,
revenue, and expenses and disclosure of contingent assets and liabilities in
the
accompanying financial statements. The most significant of these estimates
include the costs to complete long-term contracts under the percentage of
completion accounting method, the useful lives for property, plant, and
equipment, cash flows used for testing the recoverability of assets, pension
plan and postretirement obligation assumptions, amount of inventory
obsolescence, valuation of intangible assets, warranty reserves, and future
environmental costs. Actual results may differ from these
estimates. In the opinion of management, all adjustments considered
necessary for a fair presentation have been reflected in these financial
statements.
The
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in
the
Corporation’s 2006 Annual Report on Form 10-K. The results of
operations for interim periods are not necessarily indicative of trends or
of
the operating results for a full year.
Implementation
of FIN 48
The
Corporation adopted the provisions of FASB Interpretation No. 48 (“FIN
48”) – Accounting for Uncertainty in Income Taxes – an interpretation of
FASB Statement No. 109, on January 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an entity’s financial
statements in accordance with FASB Statement No. 109 and prescribes a
recognition threshold and measurement attributes for financial statement
disclosure of tax positions taken or expected to be taken on a tax
return. As a result of the implementation of FIN 48, the
Corporation made a comprehensive review of its portfolio of tax positions
in
accordance with recognition standards established by FIN 48. As
a result of this review, the Corporation recognized additional liabilities
totaling $0.5 million through a charge to retained earnings. Upon the
adoption of FIN 48, the estimated value of the Corporation’s uncertain tax
positions is a liability of $3.3 million. The liability for uncertain tax
positions is carried in income tax payable and other liabilities in the
consolidated financial statements as of June 30, 2007, of which
$3.2 million is reported as long-term.
If
the
Corporation’s positions are sustained by the taxing authority in favor of the
Corporation, approximately $1.1 million would be treated as a reduction of
goodwill, and the balance of $2.2 million would reduce the Corporation’s
effective tax rate. The Corporation does not expect any material changes
to the
estimated amount of liability associated with its uncertain tax positions
through January 1, 2008.
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
Corporation recognizes accrued interest expense and penalties related to
uncertain tax positions in interest expense and general and administrative
expenses, respectively. As of January 1, 2007, the Corporation had accrued
approximately $0.4 million for the payment of tax-related interest and
penalties.
The
Corporation files income tax returns in the U.S. federal jurisdiction and
various state and foreign jurisdictions. The Corporation’s federal income tax
returns are open for 2003 through 2006 tax years. The Corporation
files in numerous state and foreign jurisdictions with varying statutes of
limitation. The state and foreign returns are open from 2002 through 2006
depending upon each taxing jurisdiction’s statute of limitation. The
Corporation is currently under audit in Canada for periods 2001, 2002, 2004,
and
2005. The Corporation is also under audit in Germany for periods 2002 through
2005. The Corporation believes that its income tax filing positions
and deductions will be sustained on audit and does not anticipate any
adjustments that will result in a material change to its financial
position.
As
of
June 30, 2007, there have been no material changes to the liability for
uncertain tax positions.
Correction
of Immaterial Error Related to Prior Periods
In
the
second quarter of 2007, the Corporation recorded an adjustment of $2.8 million
to increase its loss reserve associated with certain long-term contracts
within
the Flow Control segment. The Corporation determined that certain
loss contracts were not fully accrued for in the fourth quarter of 2006.
This
error resulted in an understatement of approximately $2.8 million in our
loss
reserves, which are classified in other current liabilities, and cost of
goods
sold at December 31, 2006.
The
Corporation reviewed the impact of this error on prior periods in accordance
with Statement of Financial Accounting Standards No. 154, Accounting for
Changes and Error Corrections, Staff Accounting Bulletin (“SAB”) No. 99,
Materiality, and SAB No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in current Year Financial
Statements and determined that the adjustment was not material
to the Corporations’ financial statements for the year ended December 31,
2006.
2. ACQUISITIONS
The
Corporation acquired two businesses during the six months ended June 30, 2007,
as described in more detail below. The acquisitions have been
accounted for as purchases with the excess of the purchase price over the
estimated fair value of the net tangible and intangible assets acquired recorded
as goodwill. The Corporation makes preliminary estimates of the
purchase price allocations, including the value of identifiable intangibles
with
a finite life, and records amortization based upon the estimated useful lives
of
those intangible assets identified. The Corporation will adjust
these estimates based upon analysis of third party appraisals, when deemed
appropriate, and the determination of fair value when finalized, generally
within twelve months from acquisition.
Please
refer to the Corporation’s 2006 Annual Report on Form 10-K for more detail on
the 2006 acquisitions. The results of the acquired business have been
included in the consolidated financial results of the Corporation from the
date
of acquisition in the segment indicated as follows:
Flow
Control Segment
Valve
Systems and Controls
On
June
1, 2007, the Corporation acquired certain assets and certain liabilities of
Valve Systems and Controls, L.P. (“VSC”). The purchase price of the
acquisition, subject to customary adjustments as provided for in the Asset
Purchase Agreement, was $75.0 million in cash and the assumption of certain
liabilities of VSC. Under the terms of the Asset Purchase Agreement, the
Corporation deposited $3.8 million into escrow as security for potential
indemnification claims against the seller. Any amount of holdback
remaining after the claims for indemnification have been settled will be paid
within 60 days from the acquisition date. Management funded the purchase from
the Corporation’s available cash and revolving credit facility.
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
purchase price of the acquisition has been preliminarily allocated to the net
tangible and intangible assets acquired, with the remainder recorded as
goodwill, on the basis of estimated fair values. The estimated excess
of the purchase price over the fair value of the net assets acquired is $50.0
million at June 30, 2007.
VSC,
is a
provider of critical valve, automation, and controls solutions for all facets
of
flow control operations to the oil and gas market. VSC is
headquartered in Houston, Texas, with satellite offices in Baton Rouge,
Louisiana, and Seoul, South Korea. Incremental revenues of the
acquired business were approximately $40.0 million for the year ended December
31, 2006.
Scientech,
LLC
On
May 8,
2007, the Corporation acquired certain assets and certain liabilities of
Scientech, LLC (“Scientech”). The purchase price of the acquisition,
subject to customary adjustments as provided for in the Asset Purchase
Agreement, was $57.8 million in cash and the assumption of certain liabilities
of Scientech. Under the terms of the Asset Purchase Agreement, the Corporation
deposited $5.8 million into escrow as security for potential indemnification
claims against the seller. Any amount of holdback remaining after the
claims for indemnification have been settled will be paid within 30 days
from the acquisition date. Management funded the purchase from the
Corporation’s available cash and revolving credit facility.
The
purchase price of the acquisition has been preliminarily allocated to the net
tangible and intangible assets acquired, with the remainder recorded as
goodwill, on the basis of estimated fair values. The estimated excess
of the purchase price over the fair value of the net assets acquired is $37.5
million at June 30, 2007.
Scientech
is a global provider of commercial nuclear power instrumentation, electrical
components, specialty hardware, process control systems, and proprietary
database solutions which are aimed at improving safety and plant performance,
efficiency, reliability, and reducing costs. Scientech is
headquartered in Idaho Falls, Idaho, and has multiple facilities throughout
the
U.S. Revenues of the acquired business were $45.7 million for the year ended
December 31, 2006.
3. RECEIVABLES
Receivables
at June 30, 2007 and December 31, 2006 include amounts billed to customers
and
unbilled charges on long-term contracts consisting of amounts recognized as
sales but not billed as of the dates presented. Substantially all
amounts of unbilled receivables are expected to be billed and collected within
one year.
The
composition of receivables for those periods is as follows:
|
|
(In
thousands)
|
|
|
|
June
30,
2007
|
|
|
December
31, 2006
|
|
Billed
Receivables:
|
|
|
|
|
|
|
Trade
and other receivables
|
|
$ |
232,890
|
|
|
$ |
199,714
|
|
Less:
Allowance for doubtful
accounts
|
|
|
(5,470 |
) |
|
|
(5,389 |
) |
Net
billed receivables
|
|
|
227,420
|
|
|
|
194,325
|
|
Unbilled
Receivables:
|
|
|
|
|
|
|
|
|
Recoverable
costs and estimated earnings not billed
|
|
|
120,965
|
|
|
|
111,112
|
|
Less:
Progress payments
applied
|
|
|
(16,278 |
) |
|
|
(20,663 |
) |
Net
unbilled receivables
|
|
|
104,687
|
|
|
|
90,449
|
|
Receivables,
net
|
|
$ |
332,107
|
|
|
$ |
284,774
|
|
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
net
receivable balance at June 30, 2007 includes $15.2 million related to the
Corporation’s 2007 acquisitions.
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,
2007
|
|
|
December
31, 2006
|
|
Raw
material
|
|
$ |
79,175
|
|
|
$ |
67,667
|
|
Work-in-process
|
|
|
52,635
|
|
|
|
43,280
|
|
Finished
goods and component parts
|
|
|
61,931
|
|
|
|
58,483
|
|
Inventoried
costs related to U.S. Government and other long-term
contracts
|
|
|
53,967
|
|
|
|
30,361
|
|
Gross
inventories
|
|
|
247,708
|
|
|
|
199,791
|
|
Less:
Inventory reserves
|
|
|
(27,341 |
) |
|
|
(26,152 |
) |
Progress
payments applied,
principally related to long-term contracts
|
|
|
(12,783 |
) |
|
|
(12,111 |
) |
Inventories,
net
|
|
$ |
207,584
|
|
|
$ |
161,528
|
|
The
net
inventory balance at June 30, 2007 includes $8.5 million related to the
Corporation’s 2007 acquisitions.
5. GOODWILL
The
Corporation accounts for acquisitions by assigning the purchase price to
tangible and intangible assets and liabilities. Assets acquired and liabilities
assumed are recorded at their fair values, and the excess of the purchase price
over the amounts assigned is recorded as goodwill.
The
changes in the carrying amount of goodwill for the six months ended June 30,
2007 are as follows:
|
|
(In
thousands)
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Consolidated
|
|
December
31, 2006
|
|
$ |
130,062
|
|
|
$ |
257,156
|
|
|
$ |
23,883
|
|
|
$ |
411,101
|
|
Goodwill
from 2007 acquisitions
|
|
|
87,502
|
|
|
|
−
|
|
|
|
−
|
|
|
|
87,502
|
|
Change
in estimate to fair value of net assets acquired in prior
years
|
|
|
986
|
|
|
|
(1,451 |
) |
|
|
310
|
|
|
|
(155 |
) |
Additional
consideration of prior years’ acquisitions
|
|
|
2,844
|
|
|
|
966
|
|
|
|
2
|
|
|
|
3,812
|
|
Currency
translation adjustment
|
|
|
1,071
|
|
|
|
4,019
|
|
|
|
98
|
|
|
|
5,188
|
|
June
30, 2007
|
|
$ |
222,465
|
|
|
$ |
260,690
|
|
|
$ |
24,293
|
|
|
$ |
507,448
|
|
The
purchase price allocations relating to the businesses acquired during 2007
are
based on estimates and have not yet been finalized.
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. OTHER
INTANGIBLE ASSETS
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, 2007
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Technology
|
|
$ |
100,490
|
|
|
$ |
(22,815 |
) |
|
$ |
77,675
|
|
Customer
related intangibles
|
|
|
115,860
|
|
|
|
(17,797 |
) |
|
|
98,063
|
|
Other
intangible assets
|
|
|
21,218
|
|
|
|
(1,929 |
) |
|
|
19,199
|
|
Total
|
|
$ |
237,478
|
|
|
$ |
(42,541 |
) |
|
$ |
194,937
|
|
|
|
(In
thousands)
|
|
December
31, 2006
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Technology
|
|
$ |
94,611
|
|
|
$ |
(19,403 |
) |
|
$ |
75,208
|
|
Customer
related intangibles
|
|
|
86,205
|
|
|
|
(14,400 |
) |
|
|
71,805
|
|
Other
intangible assets
|
|
|
12,416
|
|
|
|
(1,349 |
) |
|
|
11,067
|
|
Total
|
|
$ |
193,232
|
|
|
$ |
(35,152 |
) |
|
$ |
158,080
|
|
The
following table presents the changes in the net balance of intangibles assets
during the six months ended June 30, 2007.
|
|
(In
thousands)
|
|
|
|
Technology,
net
|
|
|
Customer
Related Intangibles, net
|
|
|
Other
Intangible
Assets,
net
|
|
|
Total
|
|
December
31, 2006
|
|
$ |
75,208
|
|
|
$ |
71,805
|
|
|
$ |
11,067
|
|
|
$ |
158,080
|
|
Acquired
during 2007
|
|
|
4,652
|
|
|
|
28,648
|
|
|
|
8,608
|
|
|
|
41,908
|
|
Amortization
expense
|
|
|
(3,183 |
) |
|
|
(3,120 |
) |
|
|
(536 |
) |
|
|
(6,839 |
) |
Change
in estimate to fair value of net assets acquired in prior
years
|
|
|
(250 |
) |
|
|
(457 |
) |
|
|
−
|
|
|
|
(707 |
) |
Net
currency translation adjustment
|
|
|
1,248
|
|
|
|
1,187
|
|
|
|
60
|
|
|
|
2,495
|
|
June
30, 2007
|
|
$ |
77,675
|
|
|
$ |
98,063
|
|
|
$ |
19,199
|
|
|
$ |
194,937
|
|
7. WARRANTY
RESERVES
The
Corporation provides its customers with warranties on certain commercial and
governmental products. Estimated warranty costs are charged to
expense in the period the related revenue is recognized based on quantitative
historical experience. Estimated warranty costs are reduced as these
costs are incurred and as the warranty period expires and may be otherwise
modified as specific product performance issues are identified and
resolved. Warranty reserves are included within other current
liabilities on the Corporation’s Consolidated Balance Sheets. The
following table presents the changes in the Corporation’s warranty
reserves:
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(In
thousands)
|
|
|
|
2007
|
|
|
2006
|
|
Warranty
reserves at January 1,
|
|
$ |
9,957
|
|
|
$ |
9,850
|
|
Provision
for current year sales
|
|
|
1,837
|
|
|
|
1,609
|
|
Increase
due to acquisitions
|
|
|
177
|
|
|
|
−
|
|
Current
year claims
|
|
|
(1,191 |
) |
|
|
(1,071 |
) |
Change
in estimates to pre-existing warranties
|
|
|
(1,162 |
) |
|
|
(313 |
) |
Foreign
currency translation adjustment
|
|
|
207
|
|
|
|
352
|
|
Warranty
reserves at June 30,
|
|
$ |
9,825
|
|
|
$ |
10,427
|
|
8. PENSION
AND OTHER POSTRETIREMENT BENEFIT PLANS
In
February 2007, a plan amendment was executed with an effective date of January
1, 2007 merging the Curtiss-Wright Electro-Mechanical Corporation (“EMD”)
Pension Plan into the Curtiss-Wright Pension Plan, hereafter named the
Curtiss-Wright Pension Plan. The merger has no effect on the level of
plan benefits provided to participants or the management of plan assets because
the funds for both plans were historically managed under one master
trust. As a result of the merger, the assets and liabilities of the
respective plans have been combined in the consolidated balance sheet, resulting
in a reclassification of accrued EMD pension liability of $32.9 million to
reduce the Curtiss-Wright prepaid pension asset.
The
following tables are consolidated disclosures of all domestic and foreign
pension plans as described on the Corporation’s 2006 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 months and six months
ended June 30, 2007 and 2006 were:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
cost
|
|
$ |
4,878
|
|
|
$ |
4,693
|
|
|
$ |
10,053
|
|
|
$ |
9,365
|
|
Interest
cost
|
|
|
4,828
|
|
|
|
4,557
|
|
|
|
9,527
|
|
|
|
9,101
|
|
Expected
return on plan assets
|
|
|
(7,036 |
) |
|
|
(6,586 |
) |
|
|
(14,087 |
) |
|
|
(13,161 |
) |
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transition
asset/obligation
|
|
|
−
|
|
|
|
(1 |
) |
|
|
−
|
|
|
|
(2 |
) |
Prior
service cost
|
|
|
127
|
|
|
|
66
|
|
|
|
240
|
|
|
|
133
|
|
Unrecognized
actuarial loss
|
|
|
149
|
|
|
|
142
|
|
|
|
254
|
|
|
|
280
|
|
Periodic
benefit cost
|
|
|
2,946
|
|
|
|
2,871
|
|
|
|
5,987
|
|
|
|
5,716
|
|
FAS
88 recognition
|
|
|
−
|
|
|
|
1,288
|
|
|
|
−
|
|
|
|
1,555
|
|
Net
periodic benefit cost
|
|
$ |
2,946
|
|
|
$ |
4,159
|
|
|
$ |
5,987
|
|
|
$ |
7,271
|
|
During
the six months ended June 30, 2007, the Corporation made contributions of $1.7
million for the 2006 plan year to the EMD Pension Plan. Contributions to the
EMD
Pension Plan for the 2006 plan year are expected to be $3.2 million in
2007. In addition, contributions of $1.3 million were made to the
Corporation’s foreign benefit plans during the first six months of
2007. Contributions to the foreign plans are expected to be $2.6
million in 2007.
Other
Postretirement Benefit Plans
The
components of the net postretirement benefit cost for the three and six months
ended June 30, 2007 and 2006 were:
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Service
cost
|
|
$ |
132
|
|
|
$ |
140
|
|
|
$ |
264
|
|
|
$ |
280
|
|
Interest
cost
|
|
|
428
|
|
|
|
427
|
|
|
|
856
|
|
|
|
854
|
|
Amortization
of net gain
|
|
|
(133 |
) |
|
|
(117 |
) |
|
|
(266 |
) |
|
|
(234 |
) |
Net
periodic benefit cost
|
|
$ |
427
|
|
|
$ |
450
|
|
|
$ |
854
|
|
|
$ |
900
|
|
During
the six months ended June 30, 2007, the Corporation has paid $0.8 million on
the
postretirement plans. During 2007, the Corporation anticipates
contributing $2.1 million to the postretirement plans.
9. 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,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Basic
weighted average shares outstanding
|
|
|
44,256
|
|
|
|
43,807
|
|
|
|
44,200
|
|
|
|
43,714
|
|
Dilutive
effect of stock options and deferred stock compensation
|
|
|
659
|
|
|
|
488
|
|
|
|
615
|
|
|
|
494
|
|
Diluted
weighted average shares outstanding
|
|
|
44,915
|
|
|
|
44,295
|
|
|
|
44,815
|
|
|
|
44,208
|
|
There
were no antidilutive shares for the three and six months ended June 30,
2006. At June 30, 2007, there were 870 stock options outstanding 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, 2007 as they would have been antidilutive for those
periods.
10. 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, 2007
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Totals
|
|
|
Corporate
& Other
|
|
|
Consolidated
Totals
|
|
Revenue
from external customers
|
|
$ |
163,198
|
|
|
$ |
138,949
|
|
|
$ |
63,429
|
|
|
$ |
365,576
|
|
|
$ |
−
|
|
|
$ |
365,576
|
|
Intersegment
revenues
|
|
|
−
|
|
|
|
24
|
|
|
|
237
|
|
|
|
261
|
|
|
|
(261 |
) |
|
|
−
|
|
Operating
income
|
|
|
10,030
|
|
|
|
15,585
|
|
|
|
12,987
|
|
|
|
38,602
|
|
|
|
(193 |
) |
|
|
38,409
|
|
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(In
thousands)
Three
Months Ended June 30, 2006
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Totals
|
|
|
Corporate
& Other
|
|
|
Consolidated
Totals
|
|
Revenue
from external customers
|
|
$ |
129,291
|
|
|
$ |
123,111
|
|
|
$ |
57,233
|
|
|
$ |
309,635
|
|
|
$ |
−
|
|
|
$ |
309,635
|
|
Intersegment
revenues
|
|
|
−
|
|
|
|
308
|
|
|
|
194
|
|
|
|
502
|
|
|
|
(502 |
) |
|
|
−
|
|
Operating
income
|
|
|
12,021
|
|
|
|
13,071
|
|
|
|
11,602
|
|
|
|
36,694
|
|
|
|
(3,617 |
) |
|
|
33,077
|
|
|
|
(In
thousands)
Six
Months Ended June 30, 2007
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Totals
|
|
|
Corporate
& Other
|
|
|
Consolidated
Totals
|
|
Revenue
from external customers
|
|
$ |
300,891
|
|
|
$ |
270,206
|
|
|
$ |
127,088
|
|
|
$ |
698,185
|
|
|
$ |
−
|
|
|
$ |
698,185
|
|
Intersegment
revenues
|
|
|
−
|
|
|
|
577
|
|
|
|
513
|
|
|
|
1,090
|
|
|
|
(1,090 |
) |
|
|
−
|
|
Operating
income
|
|
|
20,025
|
|
|
|
28,870
|
|
|
|
25,957
|
|
|
|
74,852
|
|
|
|
(1,301 |
) |
|
|
73,551
|
|
|
|
(In
thousands)
Six
Months Ended June 30, 2006
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Totals
|
|
|
Corporate
& Other
|
|
|
Consolidated
Totals
|
|
Revenue
from external customers
|
|
$ |
250,458
|
|
|
$ |
230,857
|
|
|
$ |
110,872
|
|
|
$ |
592,187
|
|
|
$ |
−
|
|
|
$ |
592,187
|
|
Intersegment
revenues
|
|
|
−
|
|
|
|
367
|
|
|
|
365
|
|
|
|
732
|
|
|
|
(732 |
) |
|
|
−
|
|
Operating
income
|
|
|
22,887
|
|
|
|
18,126
|
|
|
|
21,182
|
|
|
|
62,195
|
|
|
|
(4,499 |
) |
|
|
57,696
|
|
|
|
(In
thousands)
Identifiable
Assets
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Totals
|
|
|
Corporate
& Other
|
|
|
Consolidated
Totals
|
|
June
30, 2007
|
|
$ |
709,191
|
|
|
$ |
712,709
|
|
|
$ |
221,518
|
|
|
$ |
1,643,418
|
|
|
$ |
89,291
|
|
|
$ |
1,732,709
|
|
December
31, 2006
|
|
|
495,000
|
|
|
|
695,219
|
|
|
|
222,745
|
|
|
|
1,412,964
|
|
|
|
179,192
|
|
|
|
1,592,156
|
|
Adjustments
to reconcile to earnings before income taxes:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Total
segment operating income
|
|
$ |
38,602
|
|
|
$ |
36,694
|
|
|
$ |
74,852
|
|
|
$ |
62,195
|
|
Corporate
and administrative
|
|
|
(193 |
) |
|
|
(3,617 |
) |
|
|
(1,301 |
) |
|
|
(4,499 |
) |
Other
income (expense), net
|
|
|
466
|
|
|
|
9
|
|
|
|
1,350
|
|
|
|
313
|
|
Interest
expense
|
|
|
(5,704 |
) |
|
|
(5,948 |
) |
|
|
(11,204 |
) |
|
|
(11,382 |
) |
Earnings
before income taxes
|
|
$ |
33,171
|
|
|
$ |
27,138
|
|
|
$ |
63,697
|
|
|
$ |
46,627
|
|
11. COMPREHENSIVE
INCOME
Total
comprehensive income for the three and six months ended June 30, 2007 and 2006
are as follows:
|
|
(In
thousands)
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Net
earnings
|
|
$ |
21,390
|
|
|
$ |
21,092
|
|
|
$ |
40,893
|
|
|
$ |
33,370
|
|
Equity
adjustment from foreign currency translations
|
|
|
13,013
|
|
|
|
14,740
|
|
|
|
14,262
|
|
|
|
16,194
|
|
Defined
benefit pension and post-retirement plan
|
|
|
230
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
Total
comprehensive income
|
|
$ |
34,633
|
|
|
$ |
35,832
|
|
|
$ |
55,202
|
|
|
$ |
49,564
|
|
NOTES
to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
12. CONTINGENCIES
AND COMMITMENTS
The
Corporation, through its Flow Control segment, has several NRC licenses
necessary for the continued operation of its commercial nuclear operations.
In
connection with these licenses, the NRC required financial assurance from the
Corporation in the form of a parent company guarantee, representing estimated
environmental decommissioning and remediation costs associated with the
commercial operations covered by the licenses. The guarantee for the
decommissioning costs of the refurbishment facility, which is planned for 2017,
is $3.1 million.
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, 2007,
and December 31, 2006 the Corporation had contingent liabilities on outstanding
letters of credit of $45.1 million and $37.8 million, respectively.
The
Corporation is party to a number of legal actions and claims, none of which
individually or in the aggregate, in the opinion of management, are expected
to
have a material adverse effect on the Corporation’s results of operations or
financial position.
13. SUBSEQUENT
EVENTS
On
July
31, 2007, the Corporation acquired all of the issued and outstanding stock
of
Benshaw Inc. (“Benshaw”). The purchase price of the acquisition, subject to
customary adjustments as provided in the Share Purchase Agreement, was
approximately $102.0 million in cash. Under the terms of the Share
Purchase Agreement, the Corporation deposited $7.7 million into escrow as
security for potential indemnification claims against the
sellers. Management funded the acquisition from the Corporation’s
revolving credit facility. Revenues of the purchased business were $82.0 million
for the period ended December 31, 2006. Benshaw is a market leader in the
design, development, and manufacture of mission critical motor control and
protection product solutions for leading original equipment manufacturers and
industrial customers. Benshaw is headquartered in Pittsburgh, PA and
has 9 facilities in the U.S. and two in Canada. Management intends to
incorporate the operations of Benshaw into the Flow Control
segment.
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" information. Examples of forward-looking information
include, but are not limited to, (a) projections of or statements regarding
return on investment, future earnings, interest income, other income, earnings
or loss per share, growth prospects, capital structure, and other financial
terms, (b) statements of plans and objectives of management, (c) statements
of
future economic performance, and (d) statements of assumptions, such as economic
conditions underlying other statements. Such forward-looking information can
be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "anticipates," or the negative of any of
the
foregoing or other variations or comparable terminology, or by discussion of
strategy. No assurance can be given that the future results described by the
forward-looking information will be achieved. Such statements are subject to
risks, uncertainties, and other factors, which could cause actual results to
differ materially from future results expressed or implied by such
forward-looking information. Such statements in this Quarterly Report on Form
10-Q include, without limitation, those contained in (a) Item 1. Financial
Statements and (b) Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. Important factors that could cause the
actual results to differ materially from those in these forward-looking
statements include, among other items, the Corporation's successful execution
of
internal performance plans; performance issues with key suppliers,
subcontractors, and business partners; the ability to negotiate financing
arrangements with lenders; legal proceedings; changes in the need for additional
machinery and equipment and/or in the cost for the expansion of the
Corporation's operations; ability of outside third parties to comply with their
commitments; adverse labor actions involving key customers or suppliers; product
demand and market acceptance risks; the effect of economic conditions and
fluctuations in foreign currency exchange rates; the impact of competitive
products and pricing; product development, commercialization, and technological
difficulties; social and economic conditions and local regulations in the
countries in which the Corporation conducts its businesses; unanticipated
environmental remediation expenses or claims; capacity and supply constraints
or
difficulties; an inability to perform customer contracts at anticipated cost
levels; changing priorities or reductions in the U.S. Government defense budget;
contract continuation and future contract awards; U.S. and international
military budget constraints and determinations; the factors discussed under
the
caption “Risk Factors” in the Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2006; and other factors that generally affect the
business of companies operating in the Corporation's markets and/or
industries.
The
Corporation assumes no obligation to update forward-looking statements to
reflect actual results or changes in or additions to the factors affecting
such
forward-looking statements.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
COMPANY
ORGANIZATION
We
are a
diversified, multinational provider of highly engineered, technologically
advanced, value-added products and services to a broad range of industries
in
the motion control, flow control, and metal treatment markets. We are
positioned as a market leader across a diversified array of niche markets
through engineering and technological leadership, precision manufacturing,
and
strong relationships with our customers. We provide products and services to
a
number of global markets, such as defense, commercial aerospace, commercial
nuclear power, oil and gas, automotive, and general industrial. We have achieved
balanced growth through the successful application of our core competencies
in
engineering and precision manufacturing, adapting these competencies to new
markets through internal product development and a disciplined program of
strategic acquisitions. Our overall strategy is to be a balanced and diversified
company, less vulnerable to cycles or downturns in any one business sector,
and
to maintain strong positions in profitable niche
markets. Approximately 40% of our revenues are generated from
defense-related markets.
We
manage
and evaluate our operations based on the products and services we offer and
the
different industries and markets we serve. Based on this approach, we have
three
reportable segments: Flow Control, Motion Control, and Metal
Treatment. For further information on our products and services and
the major markets served by our three segments, please refer to our Annual
Report on Form 10-K for the year ended December 31, 2006.
RESULTS
of OPERATIONS
Analytical
definitions
Throughout
management’s discussion and analysis of financial condition and results of
operations, the terms “incremental” and “base” are used to explain changes from
period to period. The term “incremental” is used to highlight the impact
acquisitions had on the current year results, for which there was no comparable
prior-year period. Therefore, the results of operations for acquisitions are
“incremental” for the first twelve months from the date of
acquisition. The remaining businesses are referred to as the “base”
businesses, and growth in these base businesses is referred to as
“organic”.
Therefore,
for the three months ended June 30, 2007, our organic growth does not include
operating results related to our 2007 acquisitions, our 2006 acquisition of
Swantech, and one month of operating results for Allegheny Coatings and Enpro
Systems, Ltd., which is considered “incremental”. Similarly, our
organic growth calculation for the six months ended June 30, 2007 excludes
the
results of operations for our 2007 acquisitions, our 2006 acquisition of
Swantech, and four months of operating results of Allegheny Coatings and Enpro
Systems, Ltd.
Three
months ended June 30, 2007
Sales
for
the second quarter of 2007 totaled $365.6 million, an increase of 18% from
sales
of $309.6 million for the second quarter of 2006. New orders received
for the current quarter of $365.5 million increased 38% from new orders of
$264.1 million for the second quarter of 2006. The acquisitions made
in 2006 and 2007 contributed $20.4 million in incremental new orders received
in
the second quarter of 2007. Backlog increased 19% to $1,042.0 million at June
30, 2007 from $875.5 million at December 31, 2006. The acquisitions
made during 2007 represented $98.6 million of the backlog at June 30,
2007. Approximately 50% of our backlog is
defense-related.
Sales
growth for the second quarter of 2007, as compared to the same period last
year,
was due to strong organic growth of 12% and incremental sales from our 2006
and
2007 acquisitions of $17.6 million. Our Flow Control and Motion
Control segments experienced organic growth of 14% and 13%, respectively,
compared to the prior year period, while our Metal Treatment segment’s organic
sales increased 9% in the second quarter of 2007 as compared to the prior year
period.
In
our
base businesses, higher sales to the oil and gas and commercial aerospace
markets drove our organic sales growth.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Our
Flow
Control segment’s coker valve products continue to penetrate the oil and gas
market, and contributed significantly to our $19.7 million organic increase
in
this market. The remaining change resulted from strong sales of other valves,
engineering services, and field service work as the oil and gas market continues
its increased capital spending. Global commercial aerospace original equipment
manufacturer (“OEM”) revenues were up in our Motion Control and Metal Treatment
segments, the main contributor to the $10.8 million increase in this market.
The
improvement in this market was led by increased production requirements from
our
customers as well as content on new programs. In addition, foreign currency
translation favorably impacted sales by $4.0 million for the quarter ended
June
30, 2007 compared to the prior year period.
Operating
income for the second quarter of 2007 totaled $38.4 million, a 16% increase
over
the same period last year of $33.1 million. Overall organic operating income
increased 13% due primarily to the higher sales noted above and previously
implemented cost reduction initiatives. The strong organic operating income
growth was driven primarily by our Motion Control and Metal Treatment segments,
which experienced organic operating income growth of 19% and 11%, respectively,
over the comparable prior year period. Our Flow Control segment’s
organic operating income declined 25% compared to the prior year
period. Additionally, our 2006 and 2007 acquisitions contributed $1.2
million in incremental operating income in the second quarter of 2007 as
compared to the prior year period. Foreign exchange translation had a favorable
impact of $0.4 million on operating income for the second quarter of 2007,
as
compared to the prior year period.
Operating
margin declined 20 basis points, as productivity gains on the higher sales
at
our Motion Control and Metal Treatment segments were more than offset by cost
overruns on fixed price development contracts for the U.S. Navy and business
consolidation costs and related labor inefficiencies in our Flow Control
segment. In addition, the Flow Control segment continues to invest in
development on certain defense and commercial programs, which have had an
adverse impact on the margins in the short-term.
Net
earnings for the second quarter of 2007 totaled $21.4 million, or $0.48 per
diluted share, essentially flat compared to the prior year period, as higher
operating income noted above was offset by a $5.7 million increase in tax
expense. Our effective tax rate for the second quarter of 2007 was 35.5% as
compared to 22.2% during the second quarter of 2006. Our effective
tax rate for the second quarter of 2006 was favorably impacted by a tax
provision to return adjustment of $2.0 million related to research and
development credits from our Canadian operations and the impact of a Canadian
tax law change enacted during the second quarter of 2006, which resulted in
a
$1.6 million favorable adjustment. These adjustments did not recur in
2007. Interest expense declined slightly on lower average debt levels
offset by higher interest rates.
Six
months ended June 30, 2007
Sales
for
the first six months of 2007 totaled $698.2 million, an increase of 18% from
sales of $592.2 million for same period last year. New orders
received for the first six months of 2007 of $758.3 million were up 16% over
the
new orders of $652.1 million for the first six months of 2006. The
acquisitions made in 2006 and 2007 contributed $30.1 million in incremental
new
orders received in the first six months of 2007.
Organic
sales growth of 13% for the first six months of 2007, as compared to the same
period last year, was driven by 17% organic growth in our Motion Control
segment, at 17%. Our Flow Control and Metal Treatment segments each increased
organic sales 11% in the first six months of 2007 as compared to the prior
year
period. Sales for the first six months of 2007 also benefited from the 2006
and
2007 acquisitions which contributed $27.2 million in incremental
sales.
In
our
base businesses, higher sales to the oil and gas, commercial aerospace, and
ground defense markets drove our organic sales growth. Our Flow Control
segment’s coker valve products and other valve and field service sales
contributed significantly to our $32.8 million organic increase in the oil
and
gas market. Global commercial aerospace OEM products’ revenues were up in both
our Motion Control and Metal Treatment segments, leading to a $19.1 million
increase in this market. The reasons for the improvements in both of these
markets are essentially the same as those stated in the quarterly results.
Sales
of our Motion Control segment’s embedded computing products provided the
majority of the $10.9 million improvement in the ground defense market, driven
mainly by orders to support the Future Combat System program. In addition,
foreign currency translation favorably impacted sales by $8.8 million for the
first six months of 2007, compared to the prior year period.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Operating
income for the first six months of 2007 totaled $73.6 million, up 27% over
the
$57.7 million from the same period last year. Overall organic operating income
increased 26% over the comparable period as the benefits from the higher sales
volumes and previously implemented cost reduction initiatives were partially
offset by cost overruns on fixed price development contracts for the U.S. Navy
and business consolidation costs and related labor inefficiencies in our Flow
Control segment. Our organic operating income growth was driven primarily by
our
Motion Control segment, which experienced organic operating income growth of
59%
due primarily to higher sales volumes and cost reduction efforts, while our
Metal Treatment segment experienced organic operating income growth of 20%
mainly due to the higher sales. Offsetting these increases was a decline in
organic operating income within our Flow Control segment of 12% as compared
to
the prior year, due to the items mentioned above and increased investment in
new
commercial programs. Our 2006 and 2007 acquisitions contributed $0.6
million in incremental operating income during the first six months of
2007. The lower operating income margin of our acquisitions is due to
business consolidation costs and start-up costs in our Flow Control
segment. Foreign exchange translation favorably impacted operating
income by $1.2 million for the first six months of 2007, as compared to the
prior year period.
Net
earnings for the first six months of 2007 totaled $40.9 million, or $0.91 per
diluted share, an increase of 23% as compared to the net earnings for the first
six months of 2006 of $33.4 million, or $0.75 per diluted share. Our effective
tax rate for the first six months of 2007 was 35.8% as compared to 28.4% in
2006. Our effective tax rate for the first six months of 2006 was
favorably impacted by a tax provision to return adjustment of $2.0 million
relating to research and development credits from our Canadian operations and
the impact of a Canadian tax law change enacted during the second quarter of
2006, which resulted in a $1.6 million favorable adjustment. Interest
expense declined slightly on lower average debt levels offset by higher interest
rates.
Segment
Operating Performance:
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
$ |
163,198
|
|
|
$ |
129,291
|
|
|
|
26.2 |
% |
|
$ |
300,891
|
|
|
$ |
250,458
|
|
|
|
20.1 |
% |
Motion
Control
|
|
|
138,949
|
|
|
|
123,111
|
|
|
|
12.9 |
% |
|
|
270,206
|
|
|
|
230,857
|
|
|
|
17.0 |
% |
Metal
Treatment
|
|
|
63,429
|
|
|
|
57,233
|
|
|
|
10.8 |
% |
|
|
127,088
|
|
|
|
110,872
|
|
|
|
14.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Sales
|
|
$ |
365,576
|
|
|
$ |
309,635
|
|
|
|
18.1 |
% |
|
$ |
698,185
|
|
|
$ |
592,187
|
|
|
|
17.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
$ |
10,030
|
|
|
$ |
12,021
|
|
|
|
-16.6 |
% |
|
$ |
20,025
|
|
|
$ |
22,887
|
|
|
|
-12.5 |
% |
Motion
Control
|
|
|
15,585
|
|
|
|
13,071
|
|
|
|
19.2 |
% |
|
|
28,870
|
|
|
|
18,126
|
|
|
|
59.3 |
% |
Metal
Treatment
|
|
|
12,987
|
|
|
|
11,602
|
|
|
|
11.9 |
% |
|
|
25,957
|
|
|
|
21,182
|
|
|
|
22.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segments
|
|
|
38,602
|
|
|
|
36,694
|
|
|
|
5.2 |
% |
|
|
74,852
|
|
|
|
62,195
|
|
|
|
20.4 |
% |
Corporate
& Other
|
|
|
(193 |
) |
|
|
(3,617 |
) |
|
|
-94.7 |
% |
|
|
(1,301 |
) |
|
|
(4,499 |
) |
|
|
-71.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Income
|
|
$ |
38,409
|
|
|
$ |
33,077
|
|
|
|
16.1 |
% |
|
$ |
73,551
|
|
|
$ |
57,696
|
|
|
|
27.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
|
6.1 |
% |
|
|
9.3 |
% |
|
|
|
|
|
|
6.7 |
% |
|
|
9.1 |
% |
|
|
|
|
Motion
Control
|
|
|
11.2 |
% |
|
|
10.6 |
% |
|
|
|
|
|
|
10.7 |
% |
|
|
7.9 |
% |
|
|
|
|
Metal
Treatment
|
|
|
20.5 |
% |
|
|
20.3 |
% |
|
|
|
|
|
|
20.4 |
% |
|
|
19.1 |
% |
|
|
|
|
Total
Curtiss-Wright:
|
|
|
10.5 |
% |
|
|
10.7 |
% |
|
|
|
|
|
|
10.5 |
% |
|
|
9.7 |
% |
|
|
|
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Flow
Control
Sales
for
the Corporation’s Flow Control segment increased 26% to $163.2 million for the
second quarter of 2007 from $129.3 million in the second quarter of 2006. The
increase in sales was driven by strong organic sales growth of 14% and
contributions from our 2006 and 2007 acquisitions of $16.4 million. The organic
sales growth was driven by an $18.1 million increase in sales to the oil and
gas
market, which equated to a 50% organic increase over the same period of 2006.
Sales to remaining commercial markets and to the defense markets were
essentially flat year-over-year. Increased sales to the commercial nuclear
power
generation market of $1.0 million were offset by a sales decline in the ground
defense market of $1.3 million.
Strong
demand continued for our coker valve products as they gain greater market
acceptance and our installed base continues to perform well. The higher sales
of
the coker valve products accounted for approximately half of the market
increase. The remaining increase is due to higher sales of other valves,
engineering services, and field work as worldwide refineries continue to
increase capital spending and repair maintenance expenditures as they invest
money to increase capacity and improve plant efficiencies as well as support
new
refinery construction in Europe and the Middle East. Sales to the commercial
nuclear power generation market were up over the prior year period due to
increased maintenance activity partially offset by less motor remanufacturing,
along with lower control rod drive mechanism and reactor cooling pump component
sales. The decrease in the ground defense market over the prior year
was the result of the timing of development work on the U.S. Army’s
electromagnetic (“EM”) gun program. Foreign currency translation favorably
impacted this segment’s sales for the second quarter of 2007 by $0.5 million as
compared to the prior year period.
Operating
income for the second quarter of 2007 was $10.0 million, a decrease of 17%
as
compared to $12.0 million for the same period last year. This
segment’s organic operating income was 25% lower than the comparable prior year
period due to cost overruns on fixed priced U.S. Navy development contracts
and
business consolidation costs and related labor inefficiencies associated with
integrating our Tapco and Enpro business units. In addition, this segment
experienced unprotected material cost increases within fixed price contracts
due
to design changes to our coker valve bonnets and had also made additional
investments in new programs for the oil and gas, naval defense, and power
generation markets. These adverse items were partially offset
by overall higher sales volumes and a $1.0 million contribution to operating
income from our 2006 and 2007 acquisitions. The results of our recent
acquisitions were impacted by labor inefficiencies associated with our
continuing business consolidation process and start up costs associated with
our
Swantech operation. Foreign currency translation minimally impacted this
segment’s operating income in the second quarter of 2007 as compared to the
prior year.
Sales
for
the first six months of 2007 were $300.9 million, an increase of 20% over the
same period last year of $250.5 million. Acquisitions contributed $22.9 million
to this segment’s sales during the first six months of 2007. The segment also
experienced organic sales growth of 11% in the first six months of 2007 as
compared to the prior year period primarily resulting from higher sales to
the
oil and gas market of $30.1 million and higher sales to the commercial nuclear
power generation market of $2.7 million. Partially offsetting these improvements
were lower sales to the U.S. Navy of $7.5 million.
Revenues
derived from the oil and gas industry were driven by our coker valve sales
which
accounted for approximately 54% of the sales improvement in the first six months
of 2007 versus the prior year, as the products continue to gain greater market
acceptance in the industry and our installed base continues to perform
well. Sales of other valves, engineering services, and field service
work contributed to the remaining increase to the oil and gas market over the
same period in 2006 as increased capital spending and repair and maintenance
expenditures by refineries worldwide continues as they invest money to increase
capacity and improve plant efficiencies. Sales to the commercial nuclear power
generation business, which is driven by customer maintenance schedules and
often
vary in timing, had higher engineering and design support services for power
plants. The lower sales to the U.S. Navy was mainly driven by decreased
generator and pump sales of $11.9 million resulting from the wind down of funded
contracts for the CVN aircraft carrier and Virginia-class submarines. Lower
sales of our JP-5 jet fuel transfer valves used on Nimitz-class aircraft
carriers of $2.0 million and ball valves that are used on Virginia-class
submarines of $2.1 million also negatively impacted sales to the U.S. Navy.
Partially offsetting these declines in the first half of 2007 were higher
development work for naval surface ships and aircraft carriers of $8.0 million.
Foreign currency translation favorably impacted this segment’s sales by $1.0
million in the first half of 2007, as compared to the same period last
year.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Operating
income for the first six months of 2007 was $20.0 million, a decrease of 13%
as
compared to $22.9 million for the same period last year. Acquisitions had a
minimal impact on operating income in the first six months of
2007. Organic operating income declined 12% for the first six months
of 2007 as compared to the prior year period as higher sales volume were offset
by additional development work and cost overruns on certain contracts
within our naval business, business consolidation cost and related labor
inefficiencies, higher material costs within our oil and gas
market, and less favorable mix in our commercial power generation
market. Additionally, this segment continued to invest in developing new
commercial technologies and applications, and incurred higher administrative
costs in order to support our infrastructure growth. Foreign currency
translation minimally impacted this segment’s operating income in the first six
months of 2007 as compared to the prior year.
New
orders received for the Flow Control segment totaled $130.1 million in the
second quarter of 2007 and $319.5 million for the first six months of 2007,
representing an increase of 43% and 8%, respectively, over the same periods
in
2006. The acquisitions made in 2006 and 2007 contributed $17.1 million in
incremental new orders received in the second quarter of 2007. The increase
of
new orders in the second quarter of 2007 was driven by continued strong demand
in the oil and gas and naval defense markets. Backlog increased 27% to $552.2
million at June 30, 2007 from $434.9 million at December 31, 2006. The
acquisitions made during 2007 represented $98.6 million of the backlog at June
30, 2007.
Motion
Control
Sales
for
our Motion Control segment increased 13% to $138.9 million in the second quarter
of 2007 from $123.1 million in the second quarter of 2006, all organic sales
growth. The organic growth was primarily due to higher sales of $7.4
million to the commercial aerospace market and higher sales of $6.0 million
to
the ground defense market, partially offset by lower sales of $2.0 million
to
other governmental agencies, particularly for space exploration.
The
improvement in the commercial aerospace market was largely due to our OEM
content on the Boeing 700 series platform, which benefited from the increasing
order base and new programs and represented approximately half of the market
increase. The remaining improvement was mainly due to higher smoke detection,
flight data recorders, and other sensor sales, mainly for regional jet and
helicopter manufacturers. Partially offsetting these increases are
lower shipments of sensor products to Airbus. Ground defense sales increased
due
to higher shipments of embedded computing products for the Future Combat System,
while revenue has fallen on the Bradley Fighting and Armored Security Vehicle
platforms as orders are delayed due to the current war efforts. The
aerospace defense market remained relatively flat overall with declines
recognized in the air vehicles sensor business, as well as lower production
deliveries on the Global Hawk and JSF programs. This was offset by steady orders
on the BlackHawk helicopter, F-22, V-22, and F-16 programs. The decrease in
sales to other government agencies was a result of the wind down on an embedded
computing product contracts, mainly for space exploration. Foreign currency
translation favorably impacted sales for the second quarter of 2007 by $1.6
million as compared to the prior year period.
Operating
income for the second quarter of 2007 was $15.6 million, an increase of 19%
over
the same period last year of $13.1 million. The improvement in
operating income was driven primarily by higher sales volume noted above and
post integration efficiency benefits in our embedded computing group. We
experienced an improvement in our naval defense business, which was acquired
in
2005, due to favorable sales mix, production efficiencies, and cost reduction
efforts. Lastly, favorable mix for some of our actuator products used in the
commercial aerospace market were partially offset by lower sales of higher
margin programs, increased material costs, and production start up costs
associated with new commercial programs. Foreign currency translation
had a minimal adverse impact on operating income in the second quarter of 2007,
as compared to the second quarter of 2006.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Sales
for
the first six months of 2007 were $270.2 million, an increase of 17% from sales
of $230.9 million during the first six months of 2006, all due to organic
growth. Sales growth in the first six months of 2007 was mainly due to higher
sales to the commercial aerospace market of $13.6 million, the ground defense
market of $10.7 million, and the aerospace defense market of $6.4
million.
The
improvement in the commercial aerospace market was mainly due to increased
sales
of various actuation and sensor products to aerospace OEMs resulting from
additional ship set requirements of 737 and 747 actuation systems, the start-up
of the 787 program, and other new opportunities with Boeing. Additionally,
smoke
detection sales increased due to the start-up of the Eclipse platform in the
regional jet segment. The remaining increase was due to higher repair
and overhaul services due to the continuing recovery of the commercial aerospace
industry. Sales of embedded computing products to the ground defense
market increased primarily due to additional orders for the U.S. Army Future
Combat System. This improvement was partially offset by lower spares
orders for the Bradley Fighting Vehicle and delayed production orders for the
Armored Security Vehicle. Foreign currency translation favorably
impacted sales for the first six months of 2007 by $3.8 million as compared
to
the prior year period.
Operating
income for the first six months of 2007 was $28.9 million, an increase of 59%
over the same period last year of $18.1 million. The benefit of the
higher sales volume and operating cost reduction initiatives were the main
contributing factors for the operating margin improvement, similar in nature
to
the quarterly explanation. We also experienced an improvement in our naval
defense business, which was acquired in 2005, due to favorable sales mix,
production efficiencies, and cost reduction efforts. Foreign currency
translation had a minimal adverse impact on operating income in the first six
months of 2007, as compared to the prior year period.
New
orders received for the Motion Control segment totaled $172.1 million in the
second quarter of 2007, an increase of 48% over the same period last year of
$116 million, and $311.1 million for the first six months of 2007, representing
an increase of 27% from 2006. The increase in new orders for the
second quarter of 2007 was mainly due to significant contract wins for
commercial aerospace actuation systems, naval defense systems, and ground
defense embedded computing systems. Total backlog increased 11% to $487.4
million at June 30, 2007 from $438.6 million at December 31, 2006.
Metal
Treatment
Sales
for
the Corporation’s Metal Treatment segment totaled $63.4 million for the second
quarter of 2007, up 11% when compared with $57.2 million in the second quarter
of 2006. The 2006 acquisition contributed $1.2 million of incremental sales
during the second quarter of 2007, while organic sales growth was 9%. The
organic sales growth was driven primarily by increased sales to the commercial
aerospace market of $2.6 million followed by modest gains in sales to the
general industrial, oil and gas, and power generation markets. All of
this segment’s major product lines contributed to the organic growth as the
general economy continues to improve. In addition, foreign currency translation
favorably impacted sales for the second quarter of 2007 by $1.8 million compared
to the prior year period.
Operating
income for the second quarter of 2007 increased 12% to $13.0 million from $11.6
million for the same period last year. Organic operating income growth for
the
second quarter of 2007 was 11% over the same period in 2006, while the 2006
acquisition contributed $0.2 million of incremental operating income to the
second quarter of 2007. The growth in operating income is due
primarily to the increase in sales, as operating income margins improved 20
basis points to 20.5% from 20.3%. Gross margins remained relatively
flat as a percentage of sales as productivity gains on the higher revenue were
offset by start-up costs from a new shot peening facility in Europe. Operating
expenses increased 9% due to the growth in the business and other normal
increases, but at a slower rate than sales, leading to the improved operating
income margins. Operating income of this segment was favorably
affected by foreign currency translation of $0.6 million in the second quarter
of 2007 compared to the prior year period.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Sales
for
the Corporation’s Metal Treatment segment totaled $127.1 million for the first
six months of 2007, up 15% when compared with $110.9 million for the comparable
period of 2006. The 2006 acquisition contributed $4.3 million of incremental
sales in the first six months of 2007, while organic sales growth was 11%.
This
segment has experienced organic growth across all of its markets served and
for
all of its product lines during the first half of 2007 as compared to
2006. The largest gains have come from sales to the commercial
aerospace market, which increased $3.4 million, followed by higher sales to
the
general industrial market of $1.7 million. In addition, foreign currency
translation favorably impacted sales for the first six months of 2007 by $4.1
million, as compared to the prior year period.
Operating
income for the first six months of 2007 increased 23% to $26.0 million from
$21.2 million for the same period last year. Organic operating income
growth for the first six months of 2007 was 20% over the same period in 2006,
while the 2006 acquisition contributed $0.6 million of incremental operating
income to the first six months of 2007. The growth in operating
income is due primarily to the increase in sales, as operating income margins
improved 130 basis points to 20.4% from 19.1%. The higher sales
volume and its associated impact on fixed costs absorption were the main drivers
for the margin improvement as gross margin percentages increased 120 basis
points. Operating expenses increased 14% due to the growth in the
business and other normal increases. Operating income of this segment
was favorably impacted by foreign currency translation of $1.4 million during
the first six months of 2007 compared to the prior year period.
New
orders received for the Metal Treatment segment totaled $63.3 million in the
second quarter of 2007 and $127.7 million for the first six months of 2007,
representing an increase of 10% and 15% from the same periods in 2006,
respectively. Acquisitions made in 2006 contributed $4.3 million in
incremental new orders received in the first six months of 2007. Backlog
increased 29% to $2.6 million at June 30, 2007 from $2.1 million at December
31,
2006.
Corporate
and Other
Non-segment
operating expense improved for both the second quarter and first six months
of
2007 versus the comparable prior year periods, by $3.4 million and $3.2 million,
respectively. The improvement was primarily due to lower unallocated
medical costs under the Corporation’s self-insured medical insurance plan and
lower pension expense.
Interest
Expense
Interest
expense decreased $0.2 million for each of the second quarter and first six
months of 2007 versus the comparable prior year periods. The
decreases were due to lower average outstanding debt partially offset by higher
interest rates. Our average rate of borrowing increased by less than
20 basis points for both periods, while our average outstanding debt decreased
7% and 6% for the three months and six months ended June 30, 2007, respectively,
as compared to the comparable prior year periods.
CHANGES
IN FINANCIAL CONDITION
Liquidity
and Capital Resources
We
derive
the majority of our operating cash inflow from receipts on the sale of goods
and
services and cash outflow for the procurement of materials and labor and is
therefore subject to market fluctuations and conditions. A substantial portion
of our business is in the defense market, which is characterized predominantly
by long-term contracts. Most of our long-term contracts allow for
several billing points (progress or milestones) that provide us with cash
receipts as costs are incurred throughout the project rather than upon contract
completion, thereby reducing working capital requirements. In some
cases, these payments can exceed the costs incurred on a project.
Operating
Activities
Our
working capital was $297.7 million at June 30, 2007, a decrease of $32.8 million
from the working capital at December 31, 2006 of $330.5 million. The
ratio of current assets to current liabilities was 1.8 to 1 at June 30, 2007
versus 2.1 to 1 at December 31, 2006. Cash and cash equivalents
totaled $66.8 million at June 30, 2007, down from $124.5 million at December
31,
2006. Days sales outstanding at June 30, 2007 were 56 days as
compared to 48 days at December 31, 2006. Inventory turns were 5.1
for the six months ended June 30, 2007 as compared to 5.5 at December 31,
2006.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Excluding
cash, working capital increased $24.9 million from December 31, 2006 partially
due to the 2007 acquisitions. The remainder of the increase was driven primarily
by an increase of $37.6 million increase in inventories, $25.6 million in
receivables, and a $7.1 million decrease in income taxes payable. The
increase in receivables can be attributed to the timing of milestone billings,
an increase in the DSO along with higher sales volume, particularly late
in the
second quarter, and strong collections in the fourth quarter of 2006. The
increase in inventories relates to a build up for future sales and the stocking
of material for new programs, delayed customer shipments and milestone billings,
and increased material costs. These increases in working capital were
mostly offset by an increase in deferred revenue of $54.9
million. The significant increase in deferred revenue relates
primarily to the advance funding received from Westinghouse related to the
AP1000 program and higher advance payments from our oil and gas
customers.
Investing
Activities
The
Corporation acquired two businesses in the first six months of
2007. Funds available under the Corporation’s credit agreement were
utilized for funding the purchase price of the acquisitions, which totaled
$132.8 million. Additional acquisitions will depend, in part, on the
availability of financial resources at a cost of capital that meets stringent
criteria. As such, future acquisitions, if any, may be funded through
the use of the Corporation’s cash and cash equivalents, through additional
financing available under the credit agreement, or through new financing
alternatives. As indicated in Note 2 to the Consolidated Financial
Statements of our 2006 Annual Report on Form 10-K, certain acquisition
agreements contain contingent purchase price adjustments, such as potential
earn-out payments. During the first six months of 2007, the Corporation made
$3.8 million in earn-out payments.
Capital
expenditures were $24.0 million in the first six months of 2007. Principal
expenditures included new and replacement machinery and equipment and the
expansion of new product lines within the business segments. We
expect to make additional capital expenditures of approximately $35.0 million
during the remainder of 2007 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 2007, we used $50.0 million in available credit under
the Revolving Credit Agreement to fund investing activities. The unused credit
available under the Revolving Credit Agreement at June 30, 2007 was $306.4
million. The Revolving Credit Agreement expires in July 2009. The
loans outstanding under the 2003 and 2005 Senior Notes, Revolving Credit
Agreement, and Industrial Revenue Bonds had fixed and variable interest rates
averaging 5.6% during the second quarter of 2007 and 5.4% for the comparable
prior year period.
CRITICAL
ACCOUNTING POLICIES
Our
consolidated financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States
of
America. Preparation of these statements requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
and expenses. These estimates and assumptions are affected by the application
of
our accounting policies. Critical accounting policies are those that require
application of management’s most difficult, subjective, or complex judgments,
often as a result of the need to make estimates about the effects of matters
that are inherently uncertain and may change in subsequent periods. A summary
of
significant accounting policies and a description of accounting policies that
are considered critical may be found in our 2006 Annual Report on Form 10-K,
filed with the U.S. Securities and Exchange Commission on February 26, 2007,
in
the Notes to the Consolidated Financial Statements, Note 1, and the Critical
Accounting Policies section of Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
There
have been no material changes in the Corporation’s market risk during the six
months ended June 30, 2007. Information regarding market risk and
market risk management policies is more fully described in item “7A.
Quantitative and Qualitative Disclosures about Market Risk” of the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2006.
As
of
June 30, 2007, the Corporation’s management, including the Corporation’s Chief
Executive Officer and Chief Financial Officer, conducted an evaluation of the
Corporation’s disclosure controls and procedures, as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Based on such evaluation, the Corporation’s Chief
Executive Officer and Chief Financial Officer concluded that the Corporation’s
disclosure controls and procedures are effective, in all material respects,
to
ensure that information required to be disclosed in the reports the Corporation
files and submits under the Exchange Act is recorded, processed, summarized,
and
reported as and when required.
There
have not been any changes in the Corporation’s internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the quarter ended June 30, 2007 that have materially
affected, or are reasonably likely to materially affect, the Corporation’s
internal control over financial reporting.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
PART
II - OTHER INFORMATION
In
the
ordinary course of business, the Corporation and its subsidiaries are subject
to
various pending claims, lawsuits, and contingent liabilities. The Corporation
does not believe that the disposition of any of these matters, individually
or
in the aggregate, will have a material adverse effect on the Corporation's
consolidated financial position or results of operations.
The
Corporation or its subsidiaries have been named in a number of lawsuits that
allege injury from exposure to asbestos. To date, the Corporation has
not been found liable or paid any material sum of money in settlement in any
case. The Corporation believes that the minimal use of asbestos in
its operations and the relatively non-friable condition of asbestos in its
products makes it unlikely that it will face material liability in any asbestos
litigation, whether individually or in the aggregate. The Corporation
does maintain insurance coverage for these potential liabilities and it believes
adequate coverage exists to cover any unanticipated asbestos
liability.
Item
1A. RISK FACTORS
There
have been no material changes in our Risk Factors during the three and six
months ended June 30, 2007. Information regarding the Risk Factors is
more fully described in Item “1A. Risk Factors” of the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2006.
Item
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
|
40,727,840
|
866,968
|
|
|
|
James
B. Busey IV
|
38,301,037
|
3,293,771
|
|
|
|
S.
Marce Fuller
|
40,913,095
|
681,714
|
|
|
|
Allen
A. Kozinski
|
41,325,237
|
269,571
|
|
|
|
Carl
G. Miller
|
40,792,886
|
801,922
|
|
|
|
William
B. Mitchell
|
41,150,497
|
444,311
|
|
|
|
John
R. Myers
|
41,149,765
|
445,043
|
|
|
|
William
W. Sihler
|
41,021,064
|
573,745
|
|
|
|
Albert
E. Smith
|
41,196,074
|
398,735
|
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 41,225,779 shares of Common
Stock voted in favor; 318,097 voted against and 50,931 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 three and six months
ended June 30, 2007. Information regarding security holder
recommendations and nominations for directors is more fully described in the
section entitled “Stockholder Recommendations and Nominations for
Director” of the Corporation’s 2007 Proxy Statement on Schedule 14A, which is
incorporated by reference to the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2006.
Item
6. EXHIBITS
|
Exhibit
3.1
|
Amended
and Restated Certificate of Incorporation of the Registrant (incorporated
by reference to the Registrant’s Registration Statement on Form 8-A/A
filed May 24, 2005)
|
|
Exhibit
3.2
|
Amended
and Restated Bylaws of the Registrant (incorporated by reference
to the
Registrant’s Registration Statement on Form 8-A/A filed May 24,
2005)
|
|
Exhibit
31.1
|
Certification
of Martin R. Benante, Chairman and CEO, Pursuant to Rule 13a – 14(a)
(filed herewith)
|
|
Exhibit
31.2
|
Certification
of Glenn E. Tynan, Chief Financial Officer, Pursuant to Rule 13a
– 14(a)
(filed herewith)
|
|
Exhibit
32
|
Certification
of Martin R. Benante, Chairman and CEO, and Glenn E. Tynan, Chief
Financial Officer, Pursuant to 18 U.S.C. Section 1350 (filed
herewith)
|
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
8, 2007