Unassociated Document
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 September 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, 45,611,769 shares (as of October 31,
2009).
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
|
|
|
|
PAGE
|
|
|
|
|
|
|
PART I – FINANCIAL
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
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
5.
|
Other
Information
|
33
|
|
|
|
|
|
|
Item
6.
|
Exhibits
|
33
|
|
|
|
|
|
|
Signatures
|
|
34
|
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
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
435,750 |
|
|
$ |
435,699 |
|
|
$ |
1,306,913 |
|
|
$ |
1,322,542 |
|
|
Cost
of sales
|
|
|
293,435 |
|
|
|
287,908 |
|
|
|
884,256 |
|
|
|
879,048 |
|
|
Gross profit
|
|
|
142,315 |
|
|
|
147,791 |
|
|
|
422,657 |
|
|
|
443,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development costs
|
|
|
13,824 |
|
|
|
10,955 |
|
|
|
40,148 |
|
|
|
36,808 |
|
|
Selling
expenses
|
|
|
25,407 |
|
|
|
25,839 |
|
|
|
78,685 |
|
|
|
80,021 |
|
|
General
and administrative expenses
|
|
|
66,866 |
|
|
|
62,807 |
|
|
|
192,700 |
|
|
|
188,076 |
|
|
Operating income
|
|
|
36,218 |
|
|
|
48,190 |
|
|
|
111,124 |
|
|
|
138,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
309 |
|
|
|
371 |
|
|
|
657 |
|
|
|
1,069 |
|
|
Interest
expense
|
|
|
(5,923 |
) |
|
|
(6,611 |
) |
|
|
(19,405 |
) |
|
|
(21,370 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
|
30,604 |
|
|
|
41,950 |
|
|
|
92,376 |
|
|
|
118,288 |
|
|
Provision
for income taxes
|
|
|
10,489 |
|
|
|
14,427 |
|
|
|
32,002 |
|
|
|
41,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
20,115 |
|
|
$ |
27,523 |
|
|
$ |
60,374 |
|
|
$ |
76,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.44 |
|
|
$ |
0.61 |
|
|
$ |
1.34 |
|
|
$ |
1.71 |
|
|
Diluted
earnings per share
|
|
$ |
0.44 |
|
|
$ |
0.60 |
|
|
$ |
1.32 |
|
|
$ |
1.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
per share
|
|
$ |
0.08 |
|
|
$ |
0.08 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
45,356 |
|
|
|
44,779 |
|
|
|
45,165 |
|
|
|
44,672 |
|
|
Diluted
|
|
|
45,828 |
|
|
|
45,505 |
|
|
|
45,617 |
|
|
|
45,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to condensed consolidated financial statements
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
(UNAUDITED)
|
|
|
(In
thousands)
|
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
72,499 |
|
|
$ |
60,705 |
|
|
Receivables,
net
|
|
|
399,547 |
|
|
|
395,659 |
|
|
Inventories,
net
|
|
|
308,181 |
|
|
|
281,508 |
|
|
Deferred
tax assets, net
|
|
|
38,385 |
|
|
|
37,314 |
|
|
Other
current assets
|
|
|
41,663 |
|
|
|
26,833 |
|
|
Total
current assets
|
|
|
860,275 |
|
|
|
802,019 |
|
|
Property,
plant, and equipment, net
|
|
|
400,271 |
|
|
|
364,032 |
|
|
Goodwill
|
|
|
639,375 |
|
|
|
608,898 |
|
|
Other
intangible assets, net
|
|
|
239,232 |
|
|
|
234,596 |
|
|
Deferred
tax assets, net
|
|
|
16,355 |
|
|
|
23,128 |
|
|
Other
assets
|
|
|
10,372 |
|
|
|
9,357 |
|
|
Total
Assets
|
|
$ |
2,165,880 |
|
|
$ |
2,042,030 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
Short-term
debt
|
|
$ |
77,649 |
|
|
$ |
3,249 |
|
|
Accounts
payable
|
|
|
109,147 |
|
|
|
140,954 |
|
|
Dividends
payable
|
|
|
3,653 |
|
|
|
- |
|
|
Accrued
expenses
|
|
|
92,304 |
|
|
|
103,973 |
|
|
Income
taxes payable
|
|
|
4,515 |
|
|
|
8,213 |
|
|
Deferred
revenue
|
|
|
162,925 |
|
|
|
138,753 |
|
|
Other
current liabilities
|
|
|
40,404 |
|
|
|
56,542 |
|
|
Total current
liabilities
|
|
|
490,597 |
|
|
|
451,684 |
|
|
Long-term
debt
|
|
|
470,645 |
|
|
|
513,460 |
|
|
Deferred
tax liabilities, net
|
|
|
27,866 |
|
|
|
26,850 |
|
|
Accrued
pension and other postretirement benefit costs
|
|
|
141,533 |
|
|
|
125,762 |
|
|
Long-term
portion of environmental reserves
|
|
|
18,971 |
|
|
|
20,377 |
|
|
Other
liabilities
|
|
|
45,372 |
|
|
|
37,135 |
|
|
Total
Liabilities
|
|
|
1,194,984 |
|
|
|
1,175,268 |
|
|
Contingencies
and Commitments (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
Common
stock, $1 par value
|
|
|
48,214 |
|
|
|
47,903 |
|
|
Additional
paid-in capital
|
|
|
106,788 |
|
|
|
94,500 |
|
|
Retained
earnings
|
|
|
949,388 |
|
|
|
899,928 |
|
|
Accumulated
other comprehensive loss
|
|
|
(38,135 |
) |
|
|
(72,551 |
) |
|
|
|
|
1,066,255 |
|
|
|
969,780 |
|
|
Less: Cost
of treasury stock
|
|
|
(95,359 |
) |
|
|
(103,018 |
) |
|
Total
Stockholders' Equity
|
|
|
970,896 |
|
|
|
866,762 |
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
2,165,880 |
|
|
$ |
2,042,030 |
|
|
|
|
|
|
|
|
|
|
|
See
notes to condensed consolidated financial statements
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In
thousands)
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
60,374 |
|
|
$ |
76,379 |
|
|
Adjustments to reconcile net
earnings to net cash
provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
57,276 |
|
|
|
56,071 |
|
|
Net loss on sales and disposals
of long lived assets
|
|
|
882 |
|
|
|
259 |
|
|
Gain on bargain
purchase
|
|
|
(1,937 |
) |
|
|
- |
|
|
Deferred income
taxes
|
|
|
808 |
|
|
|
(381 |
) |
|
Share-based
compensation
|
|
|
9,334 |
|
|
|
8,284 |
|
|
Changes in operating assets and
liabilities, net of
businesses
acquired:
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in
receivables
|
|
|
16,563 |
|
|
|
(12,289 |
) |
|
Increase in
inventories
|
|
|
(8,412 |
) |
|
|
(51,995 |
) |
|
(Decrease) increase in progress
payments
|
|
|
(12,750 |
) |
|
|
10,021 |
|
|
Decrease in accounts payable and
accrued expenses
|
|
|
(49,087 |
) |
|
|
(35,258 |
) |
|
Increase in deferred
revenue
|
|
|
23,625 |
|
|
|
24,458 |
|
|
Decrease in income taxes
payable
|
|
|
(16,409 |
) |
|
|
(13,630 |
) |
|
Increase in net pension and
postretirement liabilities
|
|
|
16,245 |
|
|
|
8,906 |
|
|
(Increase) decrease in other
current and long-termassets
|
|
|
(166 |
) |
|
|
1,750 |
|
|
(Decrease) increase in other
current and long-termliabilities
|
|
|
(15,307 |
) |
|
|
2,200 |
|
|
Total adjustments
|
|
|
20,665 |
|
|
|
(1,604 |
) |
|
Net cash provided by operating
activities
|
|
|
81,039 |
|
|
|
74,775 |
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from sales and disposals
of long lived assets
|
|
|
2,933 |
|
|
|
8,000 |
|
|
Acquisitions of intangible
assets
|
|
|
(321 |
) |
|
|
(192 |
) |
|
Additions to property, plant, and
equipment
|
|
|
(61,026 |
) |
|
|
(70,511 |
) |
|
Acquisition of new
businesses
|
|
|
(50,764 |
) |
|
|
(7,731 |
) |
|
Net cash used for investing
activities
|
|
|
(109,178 |
) |
|
|
(70,434 |
) |
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Borrowings of
debt
|
|
|
585,210 |
|
|
|
314,500 |
|
|
Principal payments on
debt
|
|
|
(553,734 |
) |
|
|
(307,046 |
) |
|
Proceeds from exercise of stock
options
|
|
|
10,450 |
|
|
|
9,842 |
|
|
Dividends paid
|
|
|
(7,261 |
) |
|
|
(7,180 |
) |
|
Excess tax benefits from share
based compensation
|
|
|
264 |
|
|
|
1,507 |
|
|
Net cash provided by financing
activities
|
|
|
34,929 |
|
|
|
11,623 |
|
|
Effect
of exchange-rate changes on cash
|
|
|
5,004 |
|
|
|
(5,210 |
) |
|
Net
increase in cash and cash equivalents
|
|
|
11,794 |
|
|
|
10,754 |
|
|
Cash
and cash equivalents at beginning of period
|
|
|
60,705 |
|
|
|
66,520 |
|
|
Cash
and cash equivalents at end of period
|
|
$ |
72,499 |
|
|
$ |
77,274 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of investing activities:
|
|
|
|
|
|
|
|
|
|
Fair value of assets acquired in
current year acquisitions
|
|
$ |
56,749 |
|
|
$ |
10,764 |
|
|
Additional consideration paid
(received) on prior year acquisitions
|
|
|
80 |
|
|
|
(1,474 |
) |
|
Liabilities assumed from current
year acquisitions
|
|
|
(4,125 |
) |
|
|
(1,559 |
) |
|
Gain on bargain
purchase
|
|
|
(1,937 |
) |
|
|
- |
|
|
Cash acquired
|
|
|
(3 |
) |
|
|
- |
|
|
|
|
$ |
50,764 |
|
|
$ |
7,731 |
|
|
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 pension and postretirement 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
|
|
|
– |
|
|
|
– |
|
|
|
60,374 |
|
|
|
– |
|
|
|
– |
|
|
Pension
and postretirement
adjustments,
net
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
576 |
|
|
|
– |
|
|
Foreign
currency translation
adjustments,
net
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
33,840 |
|
|
|
– |
|
|
Dividends
declared
|
|
|
– |
|
|
|
– |
|
|
|
(10,914 |
) |
|
|
– |
|
|
|
– |
|
|
Stock
options exercised, net
|
|
|
311 |
|
|
|
6,704 |
|
|
|
– |
|
|
|
– |
|
|
|
3,400 |
|
|
Share-based
compensation
|
|
|
– |
|
|
|
5,893 |
|
|
|
– |
|
|
|
– |
|
|
|
3,950 |
|
|
Other
|
|
|
|
|
|
|
(309 |
) |
|
|
|
|
|
|
|
|
|
|
309 |
|
|
September
30, 2009
|
|
$ |
48,214 |
|
|
$ |
106,788 |
|
|
$ |
949,388 |
|
|
$ |
(38,135 |
) |
|
$ |
(95,359 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Correction
of Immaterial Error Related to Prior Periods
In the
third quarter of 2009, the Corporation recorded a pre-tax adjustment of $3.8
million to increase pension expense on the Curtiss-Wright Pension and
Restoration Plans, due to a calculation error made by our external actuary,
affecting both the 2008 and 2009 valuations ($2.0 and $1.8 million,
respectively). This error did not affect the results of operations in any
operating segment as pension expense is recorded within the Corporate &
Other line as disclosed in Note 12 to the Condensed Consolidated Financial
Statements.
The
Corporation concluded that the impact of this error on the current and prior
periods was not material to the Corporation’s 2009 or 2008 consolidated balance
sheets, statements of earnings, statement of cash flows or footnote
disclosures.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
RECENTLY ISSUED ACCOUNTING
STANDARDS
ADOPTION
OF NEW STANDARDS
Subsequent
Events
In May
2009, new guidance was issued on subsequent events, which established 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, it 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. The new
guidance was effective for interim or annual financial periods ending after June
15, 2009. The adoption of this guidance requires the Corporation to
provide additional disclosures if material subsequent events
occur. The Corporation has evaluated the period from September 30,
2009 through November 6, 2009 and has determined that there are no material
subsequent events.
Fair
Value Disclosures and Measurements
In April
2009, new guidance was issued on interim disclosures about fair value
instruments, which enhances consistency in financial reporting by increasing the
frequency of fair value disclosures. The new guidance relates 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 this
new guidance, fair values for these assets and liabilities were only disclosed
once a year. The new guidance requires 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 guidance required the Corporation to
provide additional disclosures, see Note 7 to the Condensed Consolidated
Financial Statements.
Effective
January 1, 2008, the Corporation adopted new accounting guidance on fair value
measurements. The new guidance defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. The new
guidance was effective for the Corporation for all non-financial assets and
non-financial liabilities as of January 1, 2009. It 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 and 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.
Non-controlling
Interests in Consolidated Financial Statements
Effective
January 1, 2009, the Corporation adopted new accounting guidance on
non-controlling interests in consolidated financial statements. The
new guidance amends the accounting and reporting for non-controlling interests
in a consolidated subsidiary and the deconsolidation of a
subsidiary. Included in this guidance is the requirement that
non-controlling interests be reported in the equity section of the balance
sheet. The new guidance is effective for fiscal years and interim
periods within those fiscal years, beginning on or after December 15,
2008. The adoption of this guidance 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)
Disclosures
about Derivative Instruments and Hedging Activities
Effective
January 1, 2009, the Corporation adopted new accounting guidance on disclosures
about derivative instruments and hedging activities. The new guidance
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. The new guidance is
effective for financial statements issued after November 15,
2008. The adoption of this guidance required the Corporation to
provide additional disclosures, see Note 7 to the Condensed Consolidated
Financial Statements.
Determination
of the Useful Life of Intangible Assets
Effective
January 1, 2009, the Corporation adopted new guidance on the determination of
the useful life of intangible assets. The new guidance amends the factors an
entity should consider in developing renewal or extension assumptions used in
determining the useful life of recognized 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. The new guidance was effective for financial statements
issued for fiscal years and interim periods beginning after December 15,
2008. The adoption of this guidance did not have a material impact on
the Corporation’s results of operations or financial condition.
Business
Combinations
Effective
January 1, 2009, the Corporation adopted new accounting guidance on business
combinations. The new guidance 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. The new guidance also includes
several new disclosure requirements and 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 guidance resulted in the gain on a bargain purchase for the acquisition of
Nu-Torque of $1.9 million. See Note 2 to the Condensed Consolidated
Financial Statements for additional information.
In April
2009, new guidance was issued on accounting for assets acquired and liabilities
assumed in a business combination that arise from contingencies, which amends the provisions
related to the initial recognition and measurement, subsequent measurement and
disclosure of assets and liabilities arising from contingencies in a business
combination. The new guidance will carry forward the requirements 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 guidance on accounting for
contingencies. The new guidance applies 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
guidance did not have a material impact on the Corporation’s results of
operations or financial condition.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
STANDARDS
ISSUED BUT NOT YET EFFECTIVE
Employers’
Disclosures about Postretirement Benefit Plan Assets
In
December 2008, new guidance was issued on employers’ disclosures about pension
and other postretirement benefit plan assets and is effective for fiscal years
ending after December 15, 2009. The new guidance 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 guidance 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
nine months ended September 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.
The
acquisitions have been accounted for as a purchase under the guidance for
business combinations, 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 allocated to the net tangible and
intangible assets acquired with the remainder recorded as goodwill on the basis
of estimated fair values, as follows:
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
(In
thousands)
|
|
|
|
|
Accounts
receivable
|
|
$ |
3,369 |
|
|
Inventory
|
|
|
4,119 |
|
|
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
|
|
|
25,937 |
|
|
Purchase
price
|
|
|
40,000 |
|
|
Goodwill
|
|
$ |
14,063 |
|
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.
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 was $5.3 million in cash after giving effect to
post-closing customary adjustments as provided for in the Asset Purchase
Agreement 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 the guidance for
business combinations. The purchase price of the acquisition has been
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.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. RECEIVABLES
Receivables
at September 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)
|
|
|
|
|
September
30,
2009
|
|
|
December
31, 2008
|
|
|
Billed
Receivables:
|
|
|
|
|
|
|
|
Trade
and other receivables
|
|
$ |
264,700 |
|
|
$ |
286,123 |
|
|
Less: Allowance for doubtful
accounts
|
|
|
(3,768 |
) |
|
|
(4,824 |
) |
|
Net
billed receivables
|
|
|
260,932 |
|
|
|
281,299 |
|
|
Unbilled
Receivables:
|
|
|
|
|
|
|
|
|
|
Recoverable
costs and estimated earnings not billed
|
|
|
151,570 |
|
|
|
135,511 |
|
|
Less: Progress payments
applied
|
|
|
(12,955 |
) |
|
|
(21,151 |
) |
|
Net
unbilled receivables
|
|
|
138,615 |
|
|
|
114,360 |
|
|
Receivables,
net
|
|
$ |
399,547 |
|
|
$ |
395,659 |
|
4. INVENTORIES
Inventoried
costs contain amounts relating to long-term contracts and programs with long
production cycles, a portion of which will not be realized within one
year. Inventories are valued at the lower of cost (principally
average cost) or market. The composition of inventories is as
follows:
|
|
|
(In
thousands)
|
|
|
|
|
September
30,
2009
|
|
|
December
31, 2008
|
|
|
Raw
material
|
|
$ |
144,571 |
|
|
$ |
126,799 |
|
|
Work-in-process
|
|
|
77,649 |
|
|
|
63,195 |
|
|
Finished
goods and component parts
|
|
|
77,069 |
|
|
|
82,652 |
|
|
Inventoried
costs related to U.S. Government and other long-term
contracts
|
|
|
58,632 |
|
|
|
60,721 |
|
|
Gross
inventories
|
|
|
357,921 |
|
|
|
333,367 |
|
|
Less:
Inventory reserves
|
|
|
(36,717 |
) |
|
|
(34,283 |
) |
|
Progress payments applied,
principally related to long-term contracts
|
|
|
(13,023 |
) |
|
|
(17,576 |
) |
|
Inventories,
net
|
|
$ |
308,181 |
|
|
$ |
281,508 |
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. GOODWILL
The
Corporation accounts for acquisitions by assigning the purchase price to
tangible and intangible assets and liabilities. Assets acquired and liabilities
assumed are recorded at their fair values, and the excess of the purchase price
over the amounts assigned is recorded as goodwill.
The
changes in the carrying amount of goodwill for the nine months ended September
30, 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
|
|
|
16,479 |
|
|
|
− |
|
|
|
− |
|
|
|
16,479 |
|
|
Change
in estimate to fair value of net assets acquired in prior
year
|
|
|
(36 |
) |
|
|
(169 |
) |
|
|
− |
|
|
|
(205 |
) |
|
Additional
consideration of prior years’ acquisitions
|
|
|
946 |
|
|
|
− |
|
|
|
3 |
|
|
|
949 |
|
|
Other
adjustments
|
|
|
(457 |
) |
|
|
− |
|
|
|
− |
|
|
|
(457 |
) |
|
Currency
translation adjustment
|
|
|
5,543 |
|
|
|
7,778 |
|
|
|
390 |
|
|
|
13,711 |
|
|
September
30, 2009
|
|
$ |
308,068 |
|
|
$ |
302,444 |
|
|
$ |
28,863 |
|
|
$ |
639,375 |
|
The
purchase price allocations relating to the businesses acquired are initially
based on estimates. The Corporation adjusts these estimates based upon final
analysis including input from third party appraisals, when deemed
appropriate. The determination of fair value is finalized, no later
than twelve months from acquisition.
6. OTHER
INTANGIBLE ASSETS, NET
Intangible
assets are generally the result of acquisitions and consist primarily of
purchased technology, customer related intangibles, and
trademarks. Intangible assets are amortized over useful lives that
range between 1 to 20 years.
The
following tables present the cumulative composition of the Corporation’s
intangible assets and include $9.9 million of indefinite lived intangible assets
within other intangible assets for both periods presented.
|
|
|
(In
thousands)
|
|
|
September 30, 2009
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Technology
|
|
$ |
128,227 |
|
|
$ |
(40,994 |
) |
|
$ |
87,233 |
|
|
Customer
related intangibles
|
|
|
169,335 |
|
|
|
(50,183 |
) |
|
|
119,152 |
|
|
Other
intangible assets
|
|
|
42,301 |
|
|
|
(9,454 |
) |
|
|
32,847 |
|
|
Total
|
|
$ |
339,863 |
|
|
$ |
(100,631 |
) |
|
$ |
239,232 |
|
|
|
|
(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 |
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
following table presents the changes in the net balance of intangibles assets
during the nine months ended September 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
|
|
|
(6,293 |
) |
|
|
(10,536 |
) |
|
|
(3,195 |
) |
|
|
(20,024 |
) |
|
Change
in estimate to fair value of net assets acquired in prior
year
|
|
|
(159 |
) |
|
|
1,308 |
|
|
|
(1,055 |
) |
|
|
94 |
|
|
Net
currency translation adjustment
|
|
|
2,204 |
|
|
|
2,607 |
|
|
|
205 |
|
|
|
5,016 |
|
|
September
30, 2009
|
|
$ |
87,233 |
|
|
$ |
119,152 |
|
|
$ |
32,847 |
|
|
$ |
239,232 |
|
The
purchase price allocations relating to the businesses acquired are initially
based on estimates. The Corporation adjusts these estimates based upon final
analysis including input from third party appraisals, when deemed
appropriate. The determination of fair value is finalized, no later
than twelve months from acquisition.
7. FAIR
VALUE OF FINANCIAL INSTRUMENTS
U.S.
Generally Accepted Accounting Principles require 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. Guidance on accounting for
derivative instruments and hedging activities requires companies to recognize
all of the derivative financial instruments as either assets or liabilities at
fair value in the Condensed Consolidated Balance Sheets based upon quoted market
prices for comparable instruments. In accordance with this guidance,
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 net
fair value of these instruments is $0.05 million at September 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.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
Fair
Values of Derivative Instruments
|
|
|
|
(In
thousands)
|
|
|
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
|
|
September
30, 2009
|
|
September
30, 2009
|
|
| |
Balance
Sheet
Location
|
|
Fair
Value
|
|
Balance
Sheet Location
|
|
Fair
Value
|
|
|
Foreign
exchange contracts:
|
|
|
|
|
|
|
|
|
|
Transactional
|
Other
Current Liabilities
|
|
$ |
- |
|
Other
Current Liabilities
|
|
$ |
155 |
|
|
Forecasted
|
Other
Current Liabilities
|
|
|
209 |
|
Other
Current Liabilities
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$ |
209 |
|
|
|
$ |
155 |
|
|
(In
thousands)
|
|
|
Derivatives
Not Designated as Hedging Instruments
|
Location
of Gain (Loss) Recognized in Income on Derivatives
|
|
Amount
of Gain (Loss) Recognized in Income on Derivatives
|
|
|
|
|
|
Three
Months Ended September 30, 2009
|
|
|
Foreign
exchange contracts:
|
|
|
|
|
|
Transactional
|
General
and Administrative Expenses
|
|
$ |
(2,232 |
) |
|
Forecasted
|
General
and Administrative Expenses
|
|
|
925 |
|
|
Total
|
|
|
$ |
(1,307 |
) |
|
|
|
|
Nine
Months Ended September 30, 2009
|
|
|
Foreign
exchange contracts:
|
|
|
|
|
|
Transactional
|
General
and Administrative Expenses
|
|
$ |
320 |
|
|
Forecasted
|
General
and Administrative Expenses
|
|
|
1,287 |
|
|
Total
|
|
|
$ |
1,607 |
|
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 September 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
September 30, 2009 aggregated $363.5 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.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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:
|
|
|
(In
thousands)
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Warranty
reserves at January 1,
|
|
$ |
10,775 |
|
|
$ |
10,774 |
|
|
Provision
for current year sales
|
|
|
5,850 |
|
|
|
5,232 |
|
|
Increase
due to acquisitions
|
|
|
127 |
|
|
|
- |
|
|
Current
year claims
|
|
|
(2,983 |
) |
|
|
(3,190 |
) |
|
Change
in estimates to pre-existing warranties
|
|
|
(1,477 |
) |
|
|
(1,705 |
) |
|
Foreign
currency translation adjustment
|
|
|
393 |
|
|
|
(305 |
) |
|
Warranty
reserves at September 30,
|
|
$ |
12,685 |
|
|
$ |
10,806 |
|
9. FACILITIES
RELOCATION AND RESTRUCTURING
In
connection with the acquisitions of VMETRO and Mechetronics in 2008, the
Corporation established a restructuring accrual of $7.6 million in accordance
with guidance on the 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 nine months of 2009 for $0.5 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 September 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 fourth 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 in 2009 of $4.1 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 $2.4 million, $1.2 million, $0.4 million and $0.1 million,
respectively. The liability is included in other current
liabilities. As of September 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.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 September 30, 2009 is as
follows:
|
|
|
Severance
and Benefits
|
|
|
Facility
Closing Costs
|
|
|
Relocation
Costs
|
|
|
Total
|
|
|
Flow Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
Provisions
|
|
|
860 |
|
|
|
100 |
|
|
|
306 |
|
|
|
1,266 |
|
|
Payments
|
|
|
(635 |
) |
|
|
(100 |
) |
|
|
(306 |
) |
|
|
(1,041 |
) |
|
Net
currency translation adjustment
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
September
30, 2009
|
|
$ |
225 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expected and incurred to date
|
|
$ |
860 |
|
|
$ |
100 |
|
|
$ |
656 |
|
|
$ |
1,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motion Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
3,616 |
|
|
$ |
1,901 |
|
|
$ |
628 |
|
|
$ |
6,145 |
|
|
Provisions
|
|
|
3,167 |
|
|
|
(144 |
) |
|
|
50 |
|
|
|
3,073 |
|
|
Payments
|
|
|
(3,836 |
) |
|
|
(992 |
) |
|
|
(114 |
) |
|
|
(4,942 |
) |
|
Net
currency translation adjustment
|
|
|
(26 |
) |
|
|
18 |
|
|
|
– |
|
|
|
(8 |
) |
|
September
30, 2009
|
|
$ |
2,921 |
|
|
$ |
783 |
|
|
$ |
564 |
|
|
$ |
4,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expected and incurred to date
|
|
$ |
7,893 |
|
|
$ |
2,071 |
|
|
$ |
678 |
|
|
$ |
10,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal Treatment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
Provisions
|
|
|
282 |
|
|
|
– |
|
|
|
– |
|
|
|
282 |
|
|
Payments
|
|
|
(282 |
) |
|
|
– |
|
|
|
– |
|
|
|
(282 |
) |
|
Net
currency translation adjustment
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
September
30, 2009
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expected and incurred to date
|
|
$ |
282 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Curtiss-Wright
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
3,616 |
|
|
$ |
1,901 |
|
|
$ |
628 |
|
|
$ |
6,145 |
|
|
Provisions
|
|
|
4,309 |
|
|
|
(44 |
) |
|
|
356 |
|
|
|
4,621 |
|
|
Payments
|
|
|
(4,753 |
) |
|
|
(1,092 |
) |
|
|
(420 |
) |
|
|
(6,265 |
) |
|
Net
currency translation adjustment
|
|
|
(26 |
) |
|
|
18 |
|
|
|
– |
|
|
|
(8 |
) |
|
September
30, 2009
|
|
$ |
3,146 |
|
|
$ |
783 |
|
|
$ |
564 |
|
|
$ |
4,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expected and incurred to date
|
|
$ |
9,035 |
|
|
$ |
2,171 |
|
|
$ |
1,334 |
|
|
$ |
12,540 |
|
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 nine months ended
September 30, 2009 and 2008 were:
|
|
|
(In
thousands)
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Service
cost
|
|
$ |
8,510 |
|
|
$ |
5,990 |
|
|
$ |
20,452 |
|
|
$ |
17,480 |
|
|
Interest
cost
|
|
|
6,863 |
|
|
|
5,108 |
|
|
|
18,262 |
|
|
|
15,774 |
|
|
Expected
return on plan assets
|
|
|
(7,280 |
) |
|
|
(7,549 |
) |
|
|
(21,731 |
) |
|
|
(22,667 |
) |
|
Amortization
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service
cost
|
|
|
164 |
|
|
|
217 |
|
|
|
484 |
|
|
|
477 |
|
|
Unrecognized actuarial
loss
|
|
|
1,326 |
|
|
|
246 |
|
|
|
1,785 |
|
|
|
544 |
|
|
Net
periodic benefit cost
|
|
$ |
9,583 |
|
|
$ |
4,012 |
|
|
$ |
19,252 |
|
|
$ |
11,608 |
|
|
Curtailment/Settlement
loss
|
|
|
- |
|
|
|
- |
|
|
|
83 |
|
|
|
- |
|
|
Total
periodic benefit cost
|
|
$ |
9,583 |
|
|
$ |
4,012 |
|
|
$ |
19,335 |
|
|
$ |
11,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost for the three months ended September 30, 2009 includes a
$3.8 million correction of an immaterial error. For more information
regarding the correction, please refer to Note 1 to the Condensed Consolidated
Financial Statements.
During
the nine months ended September 30, 2009, the Corporation made no contributions
to the Curtiss-Wright Pension Plan, and expects to make no contributions in
2009. Due to recent changes to funding regulations, we no longer expect to
make contributions in 2010. However, we do expect to make significant
contributions in the range of $15 to 20 million in 2011. In addition,
contributions of $2.5 million were made to the Corporation’s foreign benefit
plans during the first nine 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
guidance on employers’ accounting for settlements and curtailments of defined
benefit pension plans and termination of benefits. 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.
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 nine months ended September 30,
2009 and 2008 were:
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
(In
thousands)
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Service
cost
|
|
$ |
178 |
|
|
$ |
175 |
|
|
$ |
488 |
|
|
$ |
513 |
|
|
Interest
cost
|
|
|
382 |
|
|
|
429 |
|
|
|
1,219 |
|
|
|
1,333 |
|
|
Amortization
of unrecognized actuarial gain
|
|
|
(235 |
) |
|
|
(172 |
) |
|
|
(617 |
) |
|
|
(431 |
) |
|
Net
periodic benefit cost
|
|
$ |
325 |
|
|
$ |
432 |
|
|
$ |
1,090 |
|
|
$ |
1,415 |
|
During
the nine months ended September 30, 2009, the Corporation has paid $1.3 million
on the postretirement plans. During 2009, the Corporation anticipates
contributing $2.0 million to the postretirement plans.
11. EARNINGS
PER SHARE
Diluted
earnings per share were computed based on the weighted average number of shares
outstanding plus all potentially dilutive common shares. A
reconciliation of basic to diluted shares used in the earnings per share
calculation is as follows:
|
|
|
(In
thousands)
|
|
|
|
|
Three
Months Ended
|
Nine
months Ended
|
|
|
|
|
September
30,
|
September
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Basic
weighted-average shares outstanding
|
|
|
45,356 |
|
|
|
44,779 |
|
|
|
45,165 |
|
|
|
44,672 |
|
|
Dilutive
effect of share-based compensation awards and deferred stock
compensation
|
|
|
472 |
|
|
|
726 |
|
|
|
452 |
|
|
|
697 |
|
|
Diluted
weighted-average shares outstanding
|
|
|
45,828 |
|
|
|
45,505 |
|
|
|
45,617 |
|
|
|
45,369 |
|
At
September 30, 2009 and 2008, there were 681,000 and 352,000 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 nine months ended September 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 September 30,
2009
|
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Total
|
|
|
Corporate
& Other (1)
|
|
|
Consolidated
|
|
|
Revenue
from external customers
|
|
$ |
237,931 |
|
|
$ |
148,303 |
|
|
$ |
49,516 |
|
|
$ |
435,750 |
|
|
$ |
− |
|
|
$ |
435,750 |
|
|
Intersegment
revenues
|
|
|
7 |
|
|
|
997 |
|
|
|
193 |
|
|
|
1,197 |
|
|
|
(1,197 |
) |
|
|
− |
|
|
Operating
income (expense)
|
|
|
22,274 |
|
|
|
16,512 |
|
|
|
4,354 |
|
|
|
43,140 |
|
|
|
(6,922 |
) |
|
|
36,218 |
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
(In
thousands)
Three Months Ended September 30,
2008
|
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Total
|
|
|
Corporate
& Other (1)
|
|
|
Consolidated
|
|
|
Revenue
from external customers
|
|
$ |
226,951 |
|
|
$ |
143,148 |
|
|
$ |
65,600 |
|
|
$ |
435,699 |
|
|
$ |
− |
|
|
$ |
435,699 |
|
|
Intersegment
revenues
|
|
|
− |
|
|
|
1,572 |
|
|
|
255 |
|
|
|
1,827 |
|
|
|
(1,827 |
) |
|
|
− |
|
|
Operating
income (expense)
|
|
|
24,260 |
|
|
|
15,002 |
|
|
|
13,407 |
|
|
|
52,669 |
|
|
|
(4,479 |
) |
|
|
48,190 |
|
|
|
|
(In
thousands)
Nine Months Ended September 30,
2009
|
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Total
|
|
|
Corporate
& Other (1)
|
|
|
Consolidated
|
|
|
Revenue
from external customers
|
|
$ |
710,717 |
|
|
$ |
444,760 |
|
|
$ |
151,436 |
|
|
$ |
1,306,913 |
|
|
$ |
− |
|
|
$ |
1,306,913 |
|
|
Intersegment
revenues
|
|
|
29 |
|
|
|
2,805 |
|
|
|
1,156 |
|
|
|
3,990 |
|
|
|
(3,990 |
) |
|
|
− |
|
|
Operating
income (expense)
|
|
|
57,333 |
|
|
|
50,291 |
|
|
|
15,426 |
|
|
|
123,050 |
|
|
|
(11,926 |
) |
|
|
111,124 |
|
|
|
|
(In
thousands)
Nine Months Ended September 30,
2008
|
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Total
|
|
|
Corporate
& Other (1)
|
|
|
Consolidated
|
|
|
Revenue
from external customers
|
|
$ |
684,403 |
|
|
$ |
434,813 |
|
|
$ |
203,326 |
|
|
$ |
1,322,542 |
|
|
$ |
− |
|
|
$ |
1,322,542 |
|
|
Intersegment
revenues
|
|
|
32 |
|
|
|
3,332 |
|
|
|
722 |
|
|
|
4,086 |
|
|
|
(4,086 |
) |
|
|
− |
|
|
Operating
income (expense)
|
|
|
60,386 |
|
|
|
44,084 |
|
|
|
41,436 |
|
|
|
145,906 |
|
|
|
(7,317 |
) |
|
|
138,589 |
|
|
|
|
(In
thousands)
Identifiable Assets
|
|
|
|
|
Flow
Control
|
|
|
Motion
Control
|
|
|
Metal
Treatment
|
|
|
Segment
Total
|
|
|
Corporate
& Other
|
|
|
Consolidated
|
|
|
September
30, 2009
|
|
$ |
1,118,043 |
|
|
$ |
761,041 |
|
|
$ |
227,397 |
|
|
$ |
2,106,481 |
|
|
$ |
59,399 |
|
|
$ |
2,165,880 |
|
|
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
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Total
segment operating income
|
|
$ |
43,140 |
|
|
$ |
52,669 |
|
|
$ |
123,050 |
|
|
$ |
145,906 |
|
|
Corporate
and other
|
|
|
(6,922 |
) |
|
|
(4,479 |
) |
|
|
(11,926 |
) |
|
|
(7,317 |
) |
|
Other
income, net
|
|
|
309 |
|
|
|
371 |
|
|
|
657 |
|
|
|
1,069 |
|
|
Interest
expense
|
|
|
(5,923 |
) |
|
|
(6,611 |
) |
|
|
(19,405 |
) |
|
|
(21,370 |
) |
|
Earnings
before income taxes
|
|
$ |
30,604 |
|
|
$ |
41,950 |
|
|
$ |
92,376 |
|
|
$ |
118,288 |
|
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13. COMPREHENSIVE
INCOME
Total
comprehensive income for the three and nine months ended September 30, 2009 and
2008 are as follows:
|
|
|
(In
thousands)
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Net
earnings
|
|
$ |
20,115 |
|
|
$ |
27,523 |
|
|
$ |
60,374 |
|
|
$ |
76,379 |
|
|
Equity
adjustment from foreign currency translations, net
|
|
|
9,479 |
|
|
|
(31,410 |
) |
|
|
33,840 |
|
|
|
(29,905 |
) |
|
Defined
benefit pension and post-retirement plan, net
|
|
|
723 |
|
|
|
420 |
|
|
|
576 |
|
|
|
635 |
|
|
Total
comprehensive income
|
|
$ |
30,317 |
|
|
$ |
(3,467 |
) |
|
$ |
94,790 |
|
|
$ |
47,109 |
|
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 $20.8
million at September 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 September 30, 2009
and December 31, 2008, the Corporation had contingent liabilities on outstanding
letters of credit of $39.5 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 appealed the verdict. In
August of 2009, the New Jersey Appellate Division reversed in part and affirmed
in part the judgment of the trial court, resulting in the setting aside of the
punitive damage award and the front pay award of the Plaintiff’s compensatory
damages award. The Plaintiff has filed a Petition for Certification
with the Supreme Court of New Jersey requesting review of the Appellate
Division’s decision. Both parties have submitted their required
pleadings, and the Supreme Court of New Jersey is currently deliberating on
whether to accept or decline Plaintiff’s Petition for
Certification.
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”. Effective for the third quarter of 2009, organic will also
exclude the effect of foreign currency translation. We feel this
change will provide greater transparency to the readers of our results of
operations.
Therefore,
for both the three months and nine months ended September 30, 2009, our organic
growth calculations do not include the operating results related to our 2009
acquisitions of Nu-Torque and EST Group, Inc. or our 2008 acquisitions including
VMetro ASA and Mechetronics Holding Limited, as they are considered
incremental. The organic growth calculations for the three months
ended and nine months ended September 30, 2009 exclude approximately two months
and eight months, respectively, of operating results for Parylene Coating
Services as this business was acquired on September 4,
2009. Additionally, on May 9, 2008, we sold our commercial aerospace
repair and overhaul business located in Miami, Florida and 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.
Three months ended September
30, 2009
For the
third quarter of 2009, sales for the Corporation were $436 million or flat as
compared to $436 million during the third quarter of 2008. Incremental sales,
largely driven by our 2008 and 2009 acquisitions and divestitures, were $12
million, or 3%. This increase was partially offset by a decrease in organic
sales of $6 million, or 1%. The decline in organic sales was largely
due to a reduction in our Metal Treatment segment of $14 million, partially
offset by an increase in our Flow Control segment of $8 million. Organic sales
for our Motion Control segment were essentially flat over the prior year
period. The remaining sales decline of $6 million, or 1%, was due to
the unfavorable effects of foreign currency translation.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Across
the Corporation, we experienced significant reductions in organic sales within
our general industrial, oil and gas, and commercial aerospace markets due to
generally weak global economic conditions. 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, we experienced a decline in services sales within
our Metal Treatment segment and, to a lesser extent, delayed orders for
integrated sensing products within our Motion Control segment. While
challenged in several markets, we continue to experience strong organic growth
in our power generation and defense markets which largely offset the
aforementioned decreases. The increase within our power generation
markets, primarily in our Flow Control segment, resulted from higher sales of
valves and engineering services to plant operators, as well as reactor coolant
pumps for the AP1000 nuclear reactors. The increase in our defense
markets was driven by increases in the aerospace and navy markets, within our
Motion Control and Flow Control segments. Most notably, the growth in
our navy and aerospace defense markets was driven by increased sales on the Ford
class aircraft carrier and Global Hawk Unmanned Aerial Vehicle programs,
respectively.
New
orders declined by $17 million ($425 million versus $442 million), or 4%, during
the third quarter of 2009, as compared to the same period in
2008. This decrease was mainly due to reductions in the general
industrial and oil and gas markets. Acquisitions, net of
divestitures, contributed $17 million to new orders from the comparable quarter
in 2008.
For the
third quarter of 2009, operating income for the corporation was $36
million. This was a decrease of $12 million, or 25%, from $48 million
during the third quarter of 2008. Organic operating income decreased
by approximately $10 million during the quarter, while our 2008 and 2009
acquisitions had $2 million in incremental losses from the prior year
period. Our Metal Treatment and Flow Control segments’ organic
operating income declined 64% and 7%, respectively, mainly due to
under-absorption of overhead costs resulting from significantly lower volumes in
our general industrial and oil and gas markets, offset partially by cost
reduction programs. The decrease in our Metal Treatment and Flow
Control segment was partially mitigated by an increase in the Motion Control
segment’s organic operating income of 18%, which was mainly due to lower
expenses resulting from cost reduction programs. Non-segment operating expense
increased by $2 million, mainly due to a pension expense error, which was
partially offset by lower compensation and legal expenses. For more
information regarding the pension error correction, please refer to Note 1 to
the Condensed Consolidated Financial Statements. Foreign currency
translation had an additional favorable impact of approximately $1 million on
our results in 2009 versus 2008.
Net
earnings for the third quarter of 2009 totaled $20 million, or $0.44 per diluted
share, a decrease of 27% as compared to $28 million, or $0.60 per diluted share,
in the third quarter of 2008. As compared to the prior year
period, the lower operating income of $12 million noted above was partially
offset by a $1 million decrease in interest expense and a $4 million decrease in
tax expense. Interest expense decreased due to lower average interest rates
partially offset by higher debt levels. Our effective tax rate for the third
quarter of 2009 was 34.3% as compared to 34.4% in the third quarter of
2008.
Nine months ended September
30, 2009
For the
first nine months of 2009, sales for the Corporation were $1,307
million. This was a decrease of $16 million, or 1%, from $1,323
million during the first nine months of 2008. The decrease in sales was largely
driven by a decrease in organic sales of $20 million, or 2%. The
decline in organic sales was driven by a reduction in our Metal Treatment
segment of $41 million and partially offset by an increase in our Flow Control
segment of $20 million. Organic sales for our Motion Control segment increased
$1 million, or less than 1%, over the prior year period. Incremental
sales from our 2008 and 2009 acquisitions and divestitures were $37 million, or
3%. The remaining sales decline of $33 million, or 2%, was due to the
unfavorable effects of foreign currency translation.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Across
the Corporation, we experienced significant reductions in organic sales within
our general industrial, oil and gas, and commercial aerospace markets due to
generally weak global economic conditions. 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, we experienced a decline in services sales within
our Metal Treatment segment and, to a lesser extent, delayed orders for
integrated sensing products within our Motion Control segment. While
challenged in several markets, we continue to experience strong organic growth
in our power generation and defense markets which partially offset the
aforementioned decreases. The increase within our power generation
markets, primarily in our Flow Control segment, resulted from higher sales of
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. Our Motion Control segment had strong growth in
the aerospace, ground and navy defense markets and the Flow Control segments had
strong growth in our naval defense market. Most notably, the growth
in our navy and aerospace defense markets was driven by increased sales on the
Ford class aircraft carrier and Global Hawk Unmanned Aerial Vehicle programs,
respectively. The improvement in the ground defense market was driven
primarily by higher sales of embedded computing products on light armored
vehicle platforms.
New
orders for the first nine months of 2009 declined by $483 million ($1,286
million versus $1,769 million), or 27%. 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. Acquisitions, net of divestitures,
contributed an incremental $40 million to new orders from the comparable period
in 2008. Backlog was $1,683 million at September 30, 2009 and was essentially
unchanged from $1,679 million at December 31, 2008.
For the
first nine months of 2009, operating income for the Corporation was $111
million. This was a decrease of $28 million, or 20%, from $139
million during the first nine months of 2008. Organic operating
income decreased by approximately $31 million during the first nine months,
while our 2008 and 2009 acquisitions had $6 million in incremental losses from
the prior year period. Our Metal Treatment and Flow Controls segments
organic operating income declined 56% and 11%, respectively, mainly due to
under-absorption of overhead costs resulting from significantly lower volumes in
our general industrial and oil and gas markets, offset partially by cost
reduction programs. The decrease in our Metal Treatment and Flow
Control segments was partially offset by an increase in the Motion Control
segment’s organic operating income of 10%, which mainly resulted from realized
savings due to cost reduction programs. Please refer to Note 9 to the Condensed
Consolidated Financial Statements for more information regarding our
restructuring. Foreign currency translation had an additional favorable impact
of $10 million on our results in 2009 versus 2008.
Net
earnings for the first nine months of 2009 totaled $60 million, or $1.32 per
diluted share, a decrease of 21% as compared to $76 million, or $1.68 per
diluted share in the first nine months of 2008. As compared to the
prior year period, the lower operating income noted above was partially offset
by a $2 million decrease in interest expense and a $10 million decrease in tax
expense. Interest expense decreased in the third quarter of 2009, as compared to
the third quarter of 2008, due to lower average interest rates partially offset
by higher debt levels. Our effective tax rate for the third quarter of 2009 was
34.6% as compared to 35.4% in the same period of 2008. The lower
effective tax rate was mainly due to a higher Canadian research and development
tax benefit in 2009.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Segment
Operating Performance:
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
2009
|
|
|
2008
|
|
|
%
|
|
|
2009
|
|
|
2008
|
|
|
%
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
$ |
237,931 |
|
|
$ |
226,951 |
|
|
|
4.8 |
% |
|
$ |
710,717 |
|
|
$ |
684,403 |
|
|
|
3.8 |
% |
|
Motion
Control
|
|
|
148,303 |
|
|
|
143,148 |
|
|
|
3.6 |
% |
|
|
444,760 |
|
|
|
434,813 |
|
|
|
2.3 |
% |
|
Metal
Treatment
|
|
|
49,516 |
|
|
|
65,600 |
|
|
|
(24.5 |
%) |
|
|
151,436 |
|
|
|
203,326 |
|
|
|
(25.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Sales
|
|
$ |
435,750 |
|
|
$ |
435,699 |
|
|
|
0.0 |
% |
|
$ |
1,306,913 |
|
|
$ |
1,322,542 |
|
|
|
(1.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
$ |
22,274 |
|
|
$ |
24,260 |
|
|
|
(8.2 |
%) |
|
$ |
57,333 |
|
|
$ |
60,386 |
|
|
|
(5.1 |
%) |
|
Motion
Control
|
|
|
16,512 |
|
|
|
15,002 |
|
|
|
10.1 |
% |
|
|
50,291 |
|
|
|
44,084 |
|
|
|
14.1 |
% |
|
Metal
Treatment
|
|
|
4,354 |
|
|
|
13,407 |
|
|
|
(67.5 |
%) |
|
|
15,426 |
|
|
|
41,436 |
|
|
|
(62.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segments
|
|
|
43,140 |
|
|
|
52,669 |
|
|
|
(18.1 |
%) |
|
|
123,050 |
|
|
|
145,906 |
|
|
|
(15.7 |
%) |
|
Corporate
& Other
|
|
|
(6,922 |
) |
|
|
(4,479 |
) |
|
|
54.5 |
% |
|
|
(11,926 |
) |
|
|
(7,317 |
) |
|
|
63.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Income
|
|
$ |
36,218 |
|
|
$ |
48,190 |
|
|
|
(24.8 |
%) |
|
$ |
111,124 |
|
|
$ |
138,589 |
|
|
|
(19.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flow
Control
|
|
|
9.4 |
% |
|
|
10.7 |
% |
|
|
|
|
|
|
8.1 |
% |
|
|
8.8 |
% |
|
|
|
|
|
Motion
Control
|
|
|
11.1 |
% |
|
|
10.5 |
% |
|
|
|
|
|
|
11.3 |
% |
|
|
10.1 |
% |
|
|
|
|
|
Metal
Treatment
|
|
|
8.8 |
% |
|
|
20.4 |
% |
|
|
|
|
|
|
10.2 |
% |
|
|
20.4 |
% |
|
|
|
|
|
Total
Curtiss-Wright
|
|
|
8.3 |
% |
|
|
11.1 |
% |
|
|
|
|
|
|
8.5 |
% |
|
|
10.5 |
% |
|
|
|
|
Note: The 2008
segment financial data has been reclassified to conform to our 2009 financial
statement presentation.
Flow
Control
For the
third quarter of 2009, sales for our Flow Control segment were $238
million. This was an increase of $11 million, or 5%, from $227
million during the third quarter of 2008. Organic sales increased $8
million, or 4%, over the same period from the prior year; however, strong
increases in both the defense market of $15 million and the power generation
market of $12 million were partially offset by decreases in the general
industrial and oil and gas markets of $9 million and $10 million, respectively.
In addition, our 2009 acquisitions of EST and Nu-Torque, net of divestitures,
contributed $5 million in incremental sales. The remaining sales
decline of $2 million was due to the unfavorable effect of foreign currency
translation.
The
increase in organic sales to our defense market was mainly due to increased
production on the Virginia class submarines and the Ford class aircraft carrier
program as well as sales of motors, generators and helicopter handling products
for naval applications. Our commercial power generation market also
generated strong organic growth due to increased demand for our upgrades and
plant maintenance, as well as higher sales of our next-generation reactor
coolant pumps for the AP1000 nuclear reactors being constructed in the United
States. In addition, we had increased demand for upgrades and
maintenance projects for nuclear power plants, driven by timing of refurbishment
cycles, which can vary from period to period. Mainly offsetting these
increases was a decline in the oil and gas market organic sales due to delays in
timing of new order placement for our coker valve products resulting from the
tightening of the financial markets, reduced energy demand, and weak economic
conditions globally. Traditional oil and gas valve products also
generated lower sales due to a downturn in capital spending and maintenance
expenditures by our customers. Organic sales to our general
industrial market declined due to lower demand for our industrial control
products and automotive products resulting from depressed economic
conditions.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
New
orders increased by $30 million ($262 million versus $232 million), or 13%,
during the third quarter of 2009, as compared to the same period in
2008. The increase in new orders was driven primarily by increases
for both the Virginia class submarine and the Ford class aircraft carrier
programs, partially offset by declines in orders for coker valve
products. Acquisitions, net of divestitures, contributed $4 million
to incremental new orders from the comparable quarter in 2008.
For the
third quarter of 2009, operating income for our Flow Control segment was $22
million. This was a decrease of $2 million, or 8%, from $24 million
during the third quarter of 2008. Organic operating income decreased
by approximately $2 million from the prior year period, while incremental
operating income and foreign currency translation were both flat. Our
organic operating income was mainly impacted by the under-absorption of overhead
costs resulting from significantly lower volumes in the oil and gas and general
industrial markets. These declines were partially offset by higher
operating income due to increased volumes in our commercial nuclear power market
and lower expenses due to cost reduction programs.
For the
first nine months of 2009, sales for our Flow Control segment were $711
million. This was an increase of $26 million, or 4%, from $684
million during the first nine months of 2008. Organic sales increased
$20 million, or 3%, over the same period from the prior year; however, strong
increases in both the power generation market of $58 million and the defense
market of $28 million were partially offset by decreases in the oil and gas of
$41 million and general industrial markets of $25 million. In addition, our 2009
acquisitions of EST and Nu-Torque, net of divestitures, contributed $15 million
in incremental sales. The remaining sales decline of $8 million was
due to the unfavorable effect of foreign currency translation.
The
increase in organic sales to the power generation market was due to increased
demand for our upgrades and plant maintenance, as well as 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 upgrades and maintenance projects for nuclear power plants,
driven by timing of refurbishment cycles, which can vary from period to
period. The increase in organic sales to the defense market was
mainly due to increased production on both the Virginia class submarine and the
Ford class aircraft carrier programs which were partially offset by lower sales
of spare parts. In addition, we had increased sales of motors,
generators and helicopter handling products for naval
applications. Offsetting these increases was a decline in the oil and
gas market organic 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. Traditional oil
and gas valve products also generated lower sales due to a downturn in capital
spending and maintenance expenditures by our customers. Organic sales
to our general industrial market declined due to lower demand for our industrial
control products and automotive products resulting from depressed economic
conditions.
New
orders for the first nine months of 2009 declined by $344 million ($738 million
versus $1,082 million), or 32%. 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. Acquisitions, net of divestitures, contributed an
incremental $12 million to new orders from the comparable period in 2008.
Backlog increased 4% to $1,215 million at September 30, 2009 from $1,167 million
at December 31, 2008.
For the
first nine months of 2009, operating income for our Flow Control segment was $57
million. This was a decrease of $3 million, or 5%, from $60 million
during the first nine months of 2008. Organic operating income
decreased by $7 million, or 11%, over the prior year period. Our organic
operating income was primarily impacted by the under-absorption of overhead
costs resulting from significantly lower volumes in the oil and gas and general
industrial markets. These declines were partially offset by higher
operating income due to increased volumes in our commercial nuclear power market
and lower expenses due to cost reduction programs. Our 2009
acquisitions contributed $1 million of incremental operating income in the first
nine 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
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
losses on
our 2009 acquisitions, primarily due to amortization expense, which generally
runs higher in the early period of ownership. Foreign currency
translation had an additional favorable impact of $3 million on our results in
2009 versus 2008.
Motion
Control
For the
third quarter of 2009, sales for our Motion Control segment were $148
million. This was an increase of $5 million, or 4%, from $143 million
during the third quarter of 2008. This increase was mainly due to our
2008 acquisitions of VMetro ASA and Mechetronics Holdings Limited, which had
incremental sales of $7 million, or 5% of sales growth for the quarter. Organic
sales were flat over the same period from the prior year; however, a strong
increase in the defense market of $5 million was fully offset by decreases in
the commercial aerospace of $3 million and general industrial markets of $2
million due to the economic slowdown. The remaining sales decline of
$2 million was due to the unfavorable effect of foreign currency
translation.
Organic
sales growth was realized in most of our major defense
markets. Organic sales increased in the aerospace and naval defense
markets by $4 million and $3 million, respectively. However, these
increases were partially offset by a decline in the ground defense market of $4
million. The increase in the aerospace defense market was driven primarily by
higher sales for our embedded computing products on the Northrop Grumman Global
Hawk Program as well as various integrated sensing products on both domestic and
international helicopter programs. The increase in the naval defense
market was driven by our embedded computing products, as demand for our
commercial off-the-shelf (“COTS”) products supporting radar tracking systems
continues to be strong. The decrease in the ground defense market was driven
primarily by the cancellation of the Army’s Future Combat Systems – Manned
Ground Vehicle program as well as lower sales of embedded computing products for
tanks and light armored vehicles, such as the Bradley Fighting
Vehicle. Fully offsetting the positive net impact of our defense
markets was a decline in organic sales in the commercial aerospace and general
industrial markets. The commercial aerospace market declined as
higher sales to Boeing, primarily the 737 series, were more than offset by
declines in our integrated sensing products in the regional jet markets. In our
general industrial market, we experienced a downturn in demand for our sensor
and controllers products due to weak economic conditions globally.
New
orders declined by $31 million ($113 million versus $144 million), or 21%,
during the third quarter of 2009, as compared to the same period in
2008. This was due to general reductions in commercial and general
industrial markets. Acquisitions contributed $12 million to new
orders from the comparable quarter in 2008.
For the
third quarter of 2009, operating income for our Motion Control segment was $17
million. This was an increase of $2 million, or 10%, from $15 million
during the third quarter of 2008. Organic operating income increased
by approximately $3 million during the quarter, while incremental operating
income decreased by $2 million. The organic operating income increase
was due to lower expenses resulting from cost containment
efforts. Incremental operating income was unfavorable, primarily due
to higher amortization expense which generally runs higher in the early period
of ownership. Foreign currency translation had an additional
favorable impact of $1 million on our results in 2009 versus 2008.
For the
first nine months of 2009, sales for our Motion Control segment were $445
million. This was an increase of approximately $10 million, or 2%,
from $435 million during the first nine months of 2008. This increase
was mainly due to our 2008 acquisitions of VMetro ASA and Mechetronics Holdings
Limited, partially offset by our 2008 divestiture, which generated $21 million
or 5% in incremental sales. Organic sales increased by $1 million, or less than
1%, over the same period from the prior year; however, a strong increase in the
defense markets of $30 million was largely offset by decreases in the commercial
aerospace of $17 million and general industrial markets of $13 million due to
the economic slowdown. The remaining sales decline of $12 million was due to the
unfavorable effects of foreign currency translation.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
Organic
sales growth was realized across all of our major defense markets. We
experienced an increase in our aerospace, ground, and naval defense markets of
$11 million, $11 million, and $6 million, respectively. The increase
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 Northrop Grumman Global Hawk, F-22 Raptor, F-35
JSF, and various helicopter programs. The improvement 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
Expeditionary Fighting Vehicle, Stryker, and Bradley Fighting Vehicle
platforms. The increase in sales to our naval defense market is
mainly due to our embedded computing COTS products, as demand continues to be
strong for complete embedded computing subsystem solutions. Fully
offsetting the increase in our defense markets was a decline in organic sales in
the commercial aerospace and general industrial markets. The decrease
in the commercial aerospace market was mainly due to a reduction in sales to
original equipment manufacturers on the Boeing 700 series
platforms. In addition, the decline in sales to the general
industrial market is primarily related to weak global economic conditions, which
have caused a downturn in demand for our sensor and controllers
products.
New
orders for the first nine months of 2009 declined by $86 million ($397 million
versus $483 million), or 18%, as compared to the same period in
2008. This decline in orders is mainly due to our commercial
aerospace and general industrial markets. Acquisitions, net of
divestitures, contributed an incremental $26 million to new orders from the
comparable period in 2008. Backlog decreased 9% to $466 million at September 30,
2009 from $510 million at December 31, 2008.
For the
first nine months of 2009, operating income for our Motion Control segment was
$50 million. This was an increase of $6 million, or 14%, from $44
million during the first nine months of 2008. The segment realized
incremental losses of approximately $7 million during the first nine months of
2009, while organic operating income increased by $5 million. The
organic operating income favorability was due to lower expenses resulting from
cost containment efforts. Foreign currency translation had an
additional favorable impact of $9 million on our results in 2009 versus
2008.
Metal
Treatment
For the
third quarter of 2009, sales for our Metal Treatment segment were $50
million. This was a decrease of $16 million, or 25%, from $66 million
during the third quarter of 2008. Organic sales decreased $14
million, or 22%, over the same period from the prior year. Organic sales
decreases in the commercial aerospace market of $5 million, the oil and gas
market of $3 million and general industrial market of $8 million were partially
offset by an increase in the defense market of $2 million. 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. The decrease in organic sales was partially offset by our 2008
acquisition which contributed $1 million in sales. The remaining sales decline
of $2 million was due to the unfavorable effect of foreign currency
translation.
For the
third quarter of 2009, operating income for our Metal Treatment segment was $4
million. This was a decrease of $9 million, or 68%, from $13 million
during the third quarter of 2008. Organic operating income decreased
by approximately $9 million during the quarter, while incremental operating
income and foreign currency translation were both flat. Organic
operating income declined, 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.
For the
first nine months of 2009, sales for our Metal Treatment segment were $151
million. This was a decrease of $52 million, or 26%, from $203
million during the first nine months of 2008. Organic sales decreased
$41 million over the same period from the prior year. Organic sales decreases in
the general industrial market of $31 million, the commercial aerospace market of
$8 million, and oil and gas market of $4 million were partially offset by an
increase in the defense market of $2 million. 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. The decrease in organic sales was partially offset by our 2008
acquisition which contributed $2 million in sales. The remaining sales decline
of $12 million was due to the unfavorable effect of foreign currency
translation.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
For the
first nine months of 2009, operating income for our Metal Treatment segment was
$15 million. This was a decrease of $26 million, or 63%, from $41
million during the first nine months of 2008. Organic operating
income decreased by approximately $23 million during the quarter, while
incremental operating income was flat. Organic operating income
declined, 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 first nine months by $3 million as compared to the first nine
months of 2008.
Corporate and
Other
Non-segment
operating expense increased $2 million for the third quarter of 2009 and $5
million for the first nine months of 2009, versus the comparable prior year
periods. The increase for the third quarter of 2009 was primarily due
to the correction of a pension error and higher medical expenses. The
increase for the first nine months of 2009 was primarily due to the correction
of a pension error and higher medical expenses partially offset by lower legal
and compensation expenses.
Interest
Expense
Interest
expense decreased by less than $1 million for the third quarter of 2009 and $2
million for the first nine 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 15% for the third quarter of 2009 and 11% for the first nine months of
2009, as compared to the prior year periods. Our average rate of
borrowing decreased 22% for the third quarter of 2009 and 18% for the first nine
months of 2009, as compared to the 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 $370 million at September 30, 2009, an increase of $20
million from the working capital at December 31, 2008 of $350
million. The ratio of current assets to current liabilities was 1.8
to 1.0 at both September 30, 2009 and December 31, 2008. Cash and
cash equivalents totaled $72 million at September 30, 2009, up from $61 million
at December 31, 2008. Days sales outstanding at September 30, 2009
was 53 days as compared to 49 days at December 31, 2008. Inventory
turns were 4.0 for the nine months ended September 30, 2009, as compared to 4.6
at December 31, 2008.
Excluding
cash, working capital increased $8 million from December 31,
2008. Working capital changes were primarily affected by an increase
in inventory of $27 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 of $32 million due primarily to lower days payable
outstanding. Offsetting these working capital increases was an
increase in short term debt of $75 million due to private placement debt
maturing in September of 2010 (reference the Financing Activities section below
for more information) and an increase in deferred revenue of $24 million due
primarily to advance payments related mainly to the domestic AP1000
project. We do not expect to make contributions in 2009 to the
Curtiss-Wright Pension Plan, and due to recent changes to funding regulations we
no longer expect to make contributions in 2010. However, we do expect
to make significant contributions in the range of $15 to 20 million in
2011.
CURTISS-WRIGHT
CORPORATION and SUBSIDIARIES
During
the first nine months of 2009 we incurred additional liabilities of $5 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 – 15 million after the completion of the
restructuring activities. Please refer to Note 9 to the Condensed
Consolidated Financial Statements for more information regarding our
restructuring.
Investing
Activities
Capital
expenditures were $59 million in the first nine 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 $14 million in the first
nine months of 2009. We expect to make additional capital
expenditures of approximately $25 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 nine months of 2009, we used $187 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 September 30, 2009 was $189 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 3.7% during the third quarter of 2009 and
4.7% for the comparable prior year period.
As
mentioned in the Operating Activities section above, the company reclassified
$75 million from long-term to short-term debt in September of 2009, due to
private placement debt maturing in September of 2010. The company
believes it has sufficient cash, cash flows, and available borrowings under its
revolving lines of credit to satisfy this obligation; however, it is reviewing
other financing alternatives including a new senior note
issuance.
While all
companies are subject to economic risk, we believe that our cash and cash
equivalents, cash flow from operations, and available borrowings are sufficient
to meet both the short-term and long-term capital needs of the
organization.
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 nine months
ended September 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
September 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 September 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
Item
1. LEGAL
PROCEEDINGS
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 nine months ended
September 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.
There
have been no material changes in our procedures by which our security holders
may recommend nominees to our board of directors during the nine months ended
September 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: November
6, 2009