SECURITIES and EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 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 (I.R.S. Employer incorporation or organization) Identification No.) 1200 Wall Street West Lyndhurst, New Jersey 07071 (Address of principal executive offices) (Zip Code) (201) 896-8400 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No 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: 10,183,077 shares (as of April 30, 1998) Page 1 of 28
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES TABLE of CONTENTS PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements: Consolidated Balance Sheets 3 Consolidated Statements of Earnings 4 Consolidated Statements of Cash Flows 5 Consolidated Statements of Stockholders' Equity 6 Notes to Consolidated Financial Statements 7 - 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 12 Forward-Looking Statements 13 PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 14 Item 6 - Exhibits and Reports on Form 8-K 15 -2-
PART I - FINANCIAL INFORMATION Item 1 - Financial Statements CURTISS-WRIGHT CORPORATION and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands) March 31, December 31, 1998 1997 Assets: Cash and cash equivalents $ 5,328 $ 6,872 Short-term investments 68,554 61,883 Receivables, net 45,708 41,590 Deferred tax assets 8,554 8,806 Inventories 48,166 49,723 Other current assets 2,085 2,506 ----------- ----------- Total current assets 178,395 171,380 --------- --------- Property, plant and equipment, at cost 220,813 219,587 Less, accumulated depreciation 155,792 153,704 --------- --------- Property, plant and equipment, net 65,021 65,883 Prepaid pension costs 39,549 38,674 Other assets 8,711 8,771 ---------- ----------- Total assets $291,676 $284,708 ======== ======== Liabilities: Accounts payable and accrued expenses $ 22,641 $ 24,540 Dividends payable 1,323 Income taxes payable 6,776 4,845 Other current liabilities 8,878 9,244 ----------- ----------- Total current liabilities 39,618 38,629 ---------- ---------- Long-term debt 10,347 10,347 Deferred income taxes 9,055 8,799 Other liabilities 22,145 22,080 ---------- ---------- Total liabilities 81,165 79,855 ---------- ---------- Stockholders' equity: Common stock, $1 par value 15,000 15,000 Capital surplus 51,868 52,010 Retained earnings 323,756 318,474 Unearned portion of restricted stock (266) (342) Accumulated other comprehensive income (3,098) (3,289) ----------- ----------- 387,260 381,853 Less, cost of treasury stock 176,749 177,000 --------- --------- Total stockholders' equity 210,511 204,853 --------- --------- Total liabilities and stockholders' equity $291,676 $284,708 ======== ======== See notes to consolidated financial statements. -3-
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS of EARNINGS (UNAUDITED) (In thousands except per share data) Three Months Ended March 31, 1998 1997 ---- ---- Net sales $60,846 $53,148 Cost of sales 42,724 36,504 -------- -------- Gross margin 18,122 16,644 Research and development costs 305 598 Selling expense 2,305 1,935 General and administrative 6,868 7,881 --------- ---------- Operating income 8,644 6,230 Investment income, net 1,079 638 Rental income, net 913 940 Other income (expense), net 99 (107) Interest expense 89 73 ----------- ----------- Earnings before tax 10,646 7,628 Provision for tax 4,041 2,673 --------- --------- Net earnings $ 6,605 $ 4,955 ======== ======== Weighted average shares outstanding 10,178 10,170 ======== ======== Basic earnings per common share $0.65 $0.49 ===== ===== Diluted earnings per common share $0.64 $0.48 ===== ===== Dividends per common share $0.130 $0.125 ====== ====== See notes to consolidated financial statements. -4-
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS of CASH FLOWS (UNAUDITED) (In thousands) Three Months Ended March 31 1998 1997 ---- ---- Cash flows from operating activities: Net earnings $ 6,605 $ 4,955 -------- -------- Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,432 2,455 Net gains on short-term investments (432) (211) Increase (decrease) in deferred taxes 508 (39) Changes in operating assets and liabilities: Proceeds from sales of trading securities 82,258 67,641 Purchases of trading securities (88,384) (60,425) (Increase) decrease in receivables 747 (4,718) (Increase) decrease in inventory 3,160 (809) Decrease in progress payments (6,468) (2,632) Decease in accounts payable and accrued expenses (1,899) (1,224) Increase in income taxes payable 1,931 1,840 Increase in other assets (559) (797) Increase (decrease) in other liabilities (414) 392 Other, net 1,398 (1,467) --------- --------- Total adjustments (5,722) 6 --------- --------- Net cash provided by operating activities 883 4,961 --------- --------- Cash flows from investing activities: Proceeds from sales of real estate and equipment 20 6 Additions to property, plant and equipment (2,447) (5,142) --------- --------- Net cash used by investing activities (2,427) (5,136) -------- --------- Net decrease in cash and cash equivalents (1,544) (175) Cash and cash equivalents at beginning of period 6,872 6,317 --------- --------- Cash and cash equivalents at end of period $ 5,328 $ 6,142 ======== ======== See notes to consolidated financial statements. -5-
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES CONSOLIDATED STATEMENTS of STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands) <TABLE> <CAPTION> Unearned Accumulated Portion of Other Common Capital Retained Restricted Comprehensive Treasury Stock Surplus Earnings Stock Awards Income Stock <S> <C> <C> <C> <C> <C> <C> December 31, 1996 $10,000 $57,127 $299,740 $ (608) $(1,506) $181,390 Net earnings 27,885 Common dividends (5,137) Stock dividends (two for one split) 5,000 (5,000) (4,014) (4,014) Stock options exercised, net (117) (376) Amortization of earnings portion of restricted stock 266 Translation adjustments, net (1,783) ------- -------- -------- ------ -------- --------- December 31, 1997 15,000 52,010 318,474 (342) (3,289) 177,000 Net earnings 6,605 Common dividends (1,323) Stock options exercised (142) of restricted stock 76 Translation adjustment, net 191 -------- ------- -------- ------- -------- -------- March 31, 1998 $15,000 $51,868 $323,756 $ (266) (3,098) $176,749 ======= ======= ======== ======= ======== ======== </TABLE> See notes to consolidated financial statements. -6-
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS of PRESENTATION Curtiss-Wright Corporation (the "Corporation") is a diversified multi-national manufacturing and service concern that designs, manufactures and overhauls precision components and systems and provides highly engineered services to the aerospace, automotive, shipbuilding, oil, petrochemical, agricultural equipment, power generation, metal working and fire & rescue industries. The Corporation's principal operations include three domestic manufacturing facilities, thirty-five metal treatment service facilities located in North America and Europe, and five component overhaul locations. The information furnished in this report has been prepared in conformity with generally accepted accounting principles and as such reflects all adjustments, consisting primarily of normal recurring accruals, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation's 1997 Annual Report on Form 10-K. The results of operations for these interim periods are not necessarily indicative of the operating results for a full year. Certain reclassifications of prior year amounts have been made in order to conform to the current presentation. 2. RECEIVABLES Receivables, at March 31, 1998 and December 31, 1997, include amounts billed to customers and unbilled charges on long-term contracts consisting of amounts recognized as sales but not billed at the dates presented. Substantially all amounts of unbilled receivables are expected to be billed and collected within a year. The composition of receivables for those periods is as follows: (In thousands) March 31, December 31, 1998 1997 ------------ ----------- Accounts receivable, billed $52,580 $49,110 Less: progress payments applied 10,490 10,460 -------- -------- 42,090 38,650 -------- -------- Unbilled charges on long-term contracts 11,817 13,022 Less: progress payments applied 6,487 8,335 --------- --------- 5,330 4,687 --------- --------- Allowance for doubtful accounts (1,712) (1,747) --------- --------- Receivables, net $45,708 $41,590 ========= ========= -7-
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued (UNAUDITED) 3. INVENTORIES Inventories are valued at the lower of cost (principally average cost) or market. The composition of inventories at March 31, 1998 and December 31, 1997 is as follows: (In thousands) March 31, December 31, 1998 1997 ------------ ----------- Raw materials $ 5,969 $ 5,514 Work-in-process 21,595 22,686 Finished goods 20,578 21,782 Inventoried costs related to U.S. Government and other long-term contracts 4,227 5,547 --------- --------- Total inventories 52,369 55,529 Less: progress payments applied, principally related to long-term contracts 4,203 5,806 --------- --------- Net inventories $48,166 $49,723 ======= ======= 4. ENVIRONMENTAL MATTERS The Corporation establishes a reserve for a potential environmental responsibility when it concludes that a determination of legal liability is probable. Such amounts, if quantified, reflect the Corporation's estimate of the amount of that liability. If only a range of potential liability can be estimated, a reserve will be established at the low end of that range. Such reserves represent today's values of anticipated remediation not reduced by any potential recovery from insurance carriers or through contested third-party legal actions, and are not discounted for the time value of money. The Corporation is joined with many other corporations and municipalities as potentially responsible parties (PRPs) in a number of environmental cleanup sites, which include the Sharkey Landfill Superfund Site, Parsippany, N. J., Caldwell Trucking Company Superfund Site, Fairfield, N. J., and Pfohl Brothers Landfill Site, Cheektowaga, N. Y., identified to date as the most significant sites. Other environmental sites in which the Corporation is involved include but are not limited to Chemsol, Inc. Superfund Site, Piscataway, N. J., and PJP Landfill, Jersey City, N. J. The Corporation believes that the outcome of any of these matters would not have a material adverse effect on the Corporation's results of operations or financial condition. -8-
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued (UNAUDITED) 5. COMPREHENSIVE INCOME Effective January 1, 1998, the Corporation adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130 establishes standards for reporting and displaying changes in equity from non-owner sources. Total comprehensive income for the three months ended March 31, 1998 and 1997 is as follows: (In thousands) March 31, March 31, 1998 1997 -------- -------- Net earnings $ 6,605 $ 4,955 ------- ------- Equity adjustments from foreign currency translations 191 (1,736) Proforma tax effects 67 (608) --------- -------- Net adjustments 124 (1,128) --------- -------- Total comprehensive income $ 6,729 $ 3,827 ======== ======== 6. EARNINGS PER SHARE The Corporation accounts for its earnings per share (EPS) in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). Diluted earnings per share were computed based on the weighted average number of shares outstanding plus all potentially dilutive common shares issuable for the periods. Dilutive common shares for the three months ended March 31, 1998 and 1997 were 134 and 71, respectively, consisting primarily of outstanding stock options. Prior year earnings per share information has been restated to reflect a 2 for 1 stock split paid December 23, 1997. 7. SUBSEQUENT EVENT On April 30, 1998, the Corporation purchased the Alpha Heat Treaters ("Alpha") division of Alpha-Beta Industries, Inc. Alpha services a broad spectrum of customers from its York, Pennsylvania location and provides a number of metal treating processes including carburizing, surface hardening, stress relieving, induction hardening and black oxide surface treatment services. The Corporation acquired the net assets of Alpha for approximately $6.0 million in cash and will account for the acquisition as a purchase in the second quarter of 1998. -9-
PART I - ITEM 2 CURTISS-WRIGHT CORPORATION and SUBSIDIARIES MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS RESULTS of OPERATIONS Curtiss-Wright Corporation posted net earnings for the first quarter of 1998 more than 30% above the first quarter of 1997. Net earnings totaled $6.6 million, or $.64 per share on a fully diluted basis, which were the highest first quarter earnings since 1992. Net earnings for the same period of 1997 were $5.0 million or $.48 per share on a fully diluted basis. Sales for the first quarter of 1998 increased 14% to $60.8 million compared with $53.1 million for the prior year first quarter. The improvement in performance is attributable to overall favorable results generated by our businesses, and was achieved despite the inventory write-offs and increased provisions for development programs referred to below. Operating income in the aggregate rose 39% to $8.6 million for the first quarter of 1998 as compared with $6.2 million in first quarter of 1997. New orders received also increased, totaling $56.9 million, 25% above orders of $45.6 million received in the prior year period. Operating Performance Substantial improvements in sales of services were achieved by both the Corporation's metal treating business and its overhaul and repair business. Worldwide, the sales improvements in the metal treatment area were largely due to increased applications for those services. In addition, operating income improved over the prior year first quarter in most markets served. The Corporation also recently opened a fourth metal treatment facility in the United Kingdom. With the addition of its acquired facility in Pennsylvania (Alpha Heat Treaters), as discussed in Note 7, the Corporation now operates 35 metal treatment facilities in North America and Europe. The U. S. overhaul and repair business produced strong domestic sales and improved operating earnings before recognition of inventory book-to-physical and valuation adjustments totaling approximately $.8 million after taxes. The Corporation's manufacturing operations also enjoyed substantially higher volume in the first quarter. Sales of actuation components and systems for commercial customers reflected significant increases. Sales of original equipment manufactured (OEM) products for the Boeing Company continue to increase in response to Boeing's high production rates while sales of commercial spare parts for actuation systems also showed large improvements over the prior year's first quarter. Operating income in this product area increased despite inefficiencies and higher-than-expected manufacturing costs associated with the ramp up of production, as well as net adjustments principally on account of inventory write-offs. Sales of military actuation products benefited from the completion of safety of flight testing for the F-22 side bay door components. However, operating income was adversely affected by a provision of about $1.0 million after tax for higher anticipated costs related to F-22 development programs. Higher sales on the F-22 program were also largely offset by a decline in sales of F-16 hardware. -10-
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued The valve product lines produced higher operating income despite lower sales when comparing the first quarter of 1998 with the same period of 1997. Sales of military valve products declined on a comparative basis due, in part, to a test program during the first quarter of 1997 which did not recur in 1998. Increased sales of commercial valve products largely offset the declines in military products. During the first quarter of 1998, Curtiss-Wright received new orders of more than $11 million for its valve products, an increase of more than three times those of the first quarter of 1997. Orders received include a substantial upgrade for safety relief valves from the Philadelphia Electric Company and products for nuclear power plant construction being carried out in Taiwan. Non-Operating Revenues and Costs Administrative expenses for the first quarters of 1998 and 1997 were reduced by accrued income generated from the Corporation's over funded pension plan. Net pension income decreased slightly, totaling $.8 million for the first quarter of 1998, compared with $.9 million for the first quarter of 1997. For the first quarter of 1998, the Corporation recorded other non-operating net revenue totaling $2.1 million, compared with $1.5 million for the first quarter of 1997, primarily due to higher levels of investment income. CHANGES IN FINANCIAL CONDITION: Liquidity and Capital Resources: The Corporation's working capital was $138.8 million at March 31, 1998, 5% above working capital at December 31, 1997 of $132.8 million. The ratio of current assets to current liabilities was 4.5 to 1 at March 31, 1998, compared with a current ratio of 4.4 to 1 at December 31, 1997. Cash, cash equivalents and short-term investments totaled $73.9 million in aggregate at March 31, 1997, increasing from $68.8 million at the prior year end. Changes in working capital reflect a substantial increase in accounts receivable from trade customers largely due to the increase in sales for the first quarter of 1998, as compared with sales for the fourth quarter of 1997. Also improving working capital for the first quarter of 1998 was a reduction in accounts payable and accrued expenses at March 31, 1998, compared with those amounts at December 31, 1998. Gross inventory decreased due to book to physical and valuation adjustments recorded in the first quarter of 1998. Working capital was further reduced by an increase in income taxes payable at March 31, 1998, from December 31, 1997 and accrued dividends payable for the first quarter of 1998. -11-
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued The Corporation continues to maintain its $22.5 million revolving credit lending facility and its $22.5 million short-term credit agreement, which provide additional sources of capital to the Corporation. The revolving credit agreement, of which $11.0 million remains unused at March 31, 1998, encompasses various letters of credit issued primarily in connection with outstanding industrial revenue bonds. There were no cash borrowings during the first quarter of 1998 and no outstanding balances for borrowed funds under the agreement at March 31, 1998. During the first quarter of 1998, internally generated funds were adequate to meet capital expenditures of $2.4 million. Expenditures incurred during the first quarter were primarily for machinery and equipment needed for the expansion of our metal treating operations. Internally generated funds of approximately $6.0 million were used to purchase the Alpha Heat Treaters division of Alpha-Beta Industries, Inc. on April 30, 1998, as detailed in Note 7. An additional $10 million of capital expenditures is anticipated for the balance of the year along with $1.0 million of anticipated expenditures connected with environmental remediation programs at the Corporation's Wood-Ridge, New Jersey Business Complex. -12-
FORWARD-LOOKING STATEMENTS Because forward-looking statements involve risks and uncertainties, actual results may differ materially from those which are expressed or implied. Such statements in this report include those contained in (a) the Environmental Matters note to the Consolidated Financial Statements, (b) projections regarding sales in the Results of Operations portion of the Management Discussion and Analysis ("MD&A") section hereof and (c) information relating to future capital expenditures contained in the Changes in Financial Condition portion of the MD&A section hereof. Important factors that could cause the actual results to differ materially from those in these forward- looking statements include, among other items, (i) a reduction in the current order backlog; (ii) an economic downturn in the airline industry; (iii) unanticipated environmental remediation expenses or claims; (iv) changes in the need for additional machinery and equipment and/or in the cost for the expansion of the Corporation's operations; (v) changes in the competitive marketplace that could affect the company's revenue and/or cost basis; (vi) changes in customer requirements and (vii) other factors that generally affect the business of aerospace and industrial companies. -13-
PART II - OTHER INFORMATION Item 4. SUBMISSION of MATTERS to a VOTE of SECURITY HOLDERS On April 24, 1998, the Registrant held its annual meeting of stockholders. The matters submitted to a vote by the stockholders were the election of directors and the retention of independent accountants for the Registrant. The vote received by the director nominees was as follows: For Withheld Thomas R. Berner 8,872,535 9,872 James B. Busey IV 8,872,398 10,009 David Lasky 8,872,142 10,265 William B. Mitchell 8,871.365 11,042 John R. Myers 8,872,139 10,268 William W. Sihler 8,872,477 9,930 J. McLain Stewart 8,870,116 12,291 The foregoing represent all of the Registrant's directors. There were no votes against or broker non-votes. The stockholders approved the retention of Price Waterhouse LLP, independent accountants for the Registrant. The holders of 8,872,927 shares voted in favor; 9,480 voted against. There were no broker non-votes. -14-
Item 6. EXHIBITS and REPORTS on FORM 8-K (a) Exhibits Exhibit 10(a) - Trust Agreement approved April 17, 1998, dated as of January 30, 1998 by and between Curtiss-Wright Corporation and PNC Bank, National Association (Page 16) Exhibit 27 - Financial Data Schedules (Page 28) (b) Reports on Form 8-K The Registrant did not file any report on Form 8-K during the quarter ended March 31, 1998. SIGNATURES 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 undesigned thereunto duly authorized. CURTISS-WRIGHT CORPORATION (Registrant) By: /s/ Robert A. Bosi ------------------------- Robert A. Bosi Vice President - Finance By: /s/ Kenneth P. Slezak ------------------------- Kenneth P. Slezak Controller Dated: May 13, 1998 -15-