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SECURITIES and EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2002
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: 5,865,654 shares (as of October 31,
2002). Class B Common Stock, par value $1.00 per share: 4,382,102 shares (as of
October 31 2002).
Page 1 of 34
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 7-17
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-26
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 27
Item 4 - Controls and Procedures 27
Forward-Looking Information 27-28
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 29
Signature 30
Page 2 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
September 30, December 31,
2002 2001(1)
-------- --------
Assets
Current Assets:
Cash and cash equivalents $ 37,486 $ 25,495
Short-term investments 164 41,658
Receivables, net 99,610 86,354
Inventories, net 66,481 57,115
Deferred tax assets, net 8,964 9,565
Other current assets 8,193 5,770
-------- --------
Total current assets 220,898 225,957
Property, plant and equipment, at cost 276,314 226,435
Less: accumulated depreciation 149,430 121,914
-------- --------
Property, plant and equipment, net 126,884 104,521
Prepaid pension costs 75,437 70,796
Goodwill and other intangible assets, net 136,541 92,630
Property held for sale 2,460 2,460
Other assets 3,576 4,064
-------- --------
Total Assets $565,796 $500,428
======== ========
Liabilities
Current Liabilities:
Accounts payable $ 25,427 $ 19,362
Accrued expenses 29,544 23,163
Income taxes payable 7,378 17,704
Other current liabilities 13,725 15,867
-------- --------
Total current liabilities 76,074 76,096
Long-term debt 47,036 21,361
Deferred income taxes, net 28,912 26,043
Accrued postretirement benefit costs 1,635 5,335
Other liabilities 20,834 21,639
-------- --------
Total Liabilities 174,491 150,474
-------- --------
Stockholders' Equity
Common stock, $1 par value 10,618 10,618
Class B common stock, $1 par value 4,382 4,382
Capital surplus 49,796 52,532
Retained earnings 496,146 469,303
Unearned portion of restricted stock (64) (78)
Accumulated other comprehensive income 2,326 (6,831)
-------- --------
563,204 529,926
Less: cost of treasury stock 171,899 179,972
-------- --------
Total Stockholders' Equity 391,305 349,954
-------- --------
Total Liabilities and Stockholders' Equity $565,796 $500,428
======== ========
(1) Certain prior year information has been reclassified to conform to current
presentation.
See notes to consolidated financial statements
Page 3 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(In thousands except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001(1) 2002 2001(1)
--------- --------- --------- ---------
Net Sales $ 119,641 $ 79,420 $ 339,205 $ 245,941
Cost of sales 78,442 49,233 218,152 152,906
--------- --------- --------- ---------
Gross Profit 41,199 30,187 121,053 93,035
Research & development expenses 3,092 1,257 7,604 3,179
Selling expenses 8,245 4,375 21,131 13,455
General and administrative expenses 16,312 13,403 50,529 40,875
Environmental remediation and
administrative expenses, net 999 54 1,246 97
--------- --------- --------- ---------
Operating income 12,551 11,098 40,543 35,429
Investment income 118 834 629 2,327
Rental income 49 461 148 2,471
Pension income, net 2,254 2,864 6,762 7,551
Other income (expense), net 3,641 (234) 3,551 (429)
Interest expense (380) (272) (1,039) (917)
--------- --------- --------- ---------
Earnings before income taxes 18,233 14,751 50,594 46,432
Provision for income taxes 6,921 6,028 19,150 18,025
--------- --------- --------- ---------
Net earnings $ 11,312 $ 8,723 $ 31,444 $ 28,407
========= ========= ========= =========
Basic earnings per share $ 1.10 $ 0.87 $ 3.09 $ 2.82
========= ========= ========= =========
Diluted earnings per share $ 1.08 $ 0.85 $ 3.01 $ 2.78
========= ========= ========= =========
Dividends per share $ 0.15 $ 0.13 $ 0.45 $ 0.39
========= ========= ========= =========
Weighted average shares outstanding:
Basic 10,238 10,073 10,188 10,057
Diluted 10,470 10,224 10,430 10,208
(1) Certain prior year information has been reclassified to conform to current
presentation.
See notes to consolidated financial statements
Page 4 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
September 30,
2002 2001
------- -------
Cash flows from operating activities:
- -------------------------------------
Net earnings $31,444 $28,407
------- -------
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 12,802 11,271
Net losses (gains) on short-term investments 44 (32)
Net (gains) losses on sales of real estate and equipment (661) 2
Non-cash pension income (4,701) (7,551)
Deferred income taxes 3,470 (256)
Changes in operating assets and liabilities, net of businesses
acquired:
Proceeds from sales of short-term investments 77,050 206,037
Purchases of short-term investments (35,600) (205,237)
Decrease (increase) in receivables 1,440 (1,681)
Increase in inventory (3,827) (838)
Increase in progress payments 3,772 3,928
Increase in accounts payable and accrued expenses 340 1,771
(Decrease) increase in income taxes payable (10,356) 5,392
(Increase) decrease in other assets (3,470) 249
Decrease in other liabilities (7,049) (2,432)
Other, net 14 486
------- -------
Total adjustments 33,268 11,109
------- -------
Net cash provided by operating activities 64,712 39,516
------- -------
Cash flows from investing activities:
- -------------------------------------
Proceeds from sales of real estate and equipment 2,492 643
Additions to property, plant and equipment (22,605) (12,591)
Acquisition of new businesses, net of cash (62,122) (1,525)
------- -------
Net cash used for investing activities (82,235) (13,473)
------- -------
Cash flows from financing activities:
- -------------------------------------
Debt repayments (54,036) (7,751)
Dividends paid (3,062) (2,620)
Proceeds from borrowings 78,722 -
Proceeds from exercise of stock options 5,387 1,309
Common stock repurchases (50) (3)
------- -------
Net cash provided by (used for) financing activities 26,961 (9,065)
------- -------
Effect of foreign currency 2,553 (1,675)
------- -------
Net increase in cash and cash equivalents 11,991 15,303
------- -------
Cash and cash equivalents at beginning of period 25,495 8,692
------- -------
Cash and cash equivalents at end of period $37,486 $23,995
======= =======
See notes to consolidated financial statements
Page 5 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
Unearned
Portion of Accumulated
Class B Additional Restricted Other
Common Common Paid Retained Stock Comprehensive Treasury
Stock Stock in Capital Earnings Awards Income Stock
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
December 31, 2000 $15,000 $ - $51,506 $411,866 $(22) $(5,626) $182,500
- ----------------------------------------------------------------------------------------------------------------------
Net earnings - - - 62,880 - -
Translation adjustments, net - - - - - (1,205) -
Dividends paid - - - (5,443) - - -
Restricted stock awards - - 6 - (77) - (72)
Stock options exercised, net - - (730) - - - (2,456)
Amortization of earned portion
of restricted stock awards - - - - 21 - -
Recapitalization (4,382) 4,382 1,750 - - - -
- ----------------------------------------------------------------------------------------------------------------------
December 31, 2001 10,618 4,382 52,532 469,303 (78) (6,831) 179,972
- ----------------------------------------------------------------------------------------------------------------------
Net earnings - - - 31,444 - - -
Translation adjustments, net - - - - - 9,157 -
Dividends paid - - - (4,601) - - -
Stock options exercised, net - - (2,736) - - - (8,073)
Amortization of earned portion
of restricted stock awards - - - - 14 - -
- ----------------------------------------------------------------------------------------------------------------------
September 30, 2002 $10,618 $4,382 $49,796 $496,146 $(64) $2,326 $171,899
======================================================================================================================
See notes to consolidated financial statements
Page 6 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS of PRESENTATION
Curtiss-Wright Corporation and its subsidiaries (the "Corporation") is
a diversified multinational manufacturing and service company that
designs, manufactures and overhauls precision components and systems
and provides highly engineered services to the aerospace, defense,
automotive, shipbuilding, processing, oil, petrochemical, agricultural
equipment, railroad, power generation, security, and metalworking
industries. Operations are conducted through sixteen manufacturing
facilities, forty-four metal treatment service facilities and four
aerospace component overhaul locations.
The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of
America and such preparation has required the use of management's best
estimates and judgments in presenting the consolidated accounts of the
Corporation, after elimination of all significant intercompany
transactions and accounts. Management's best estimates include
assumptions that affect the reported amount of assets, liabilities,
revenue, and expenses in the accompanying financial statements. The
most significant of these estimates include the estimate of costs to
complete long-term contracts under the percentage of completion
accounting method, the determination of the assumptions used in
estimating the future pension liability and other postemployment
benefits, the estimate of purchase price allocations to amortizable
intangibles and the estimate of future environmental costs. Actual
results may differ from these estimates. The unaudited consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Corporation's 2001 Annual Report on Form 10-K. The results of
operations for these interim periods are not necessarily indicative of
the operating results for the full year. Certain prior year information
has been reclassified to conform to current presentation.
Page 7 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
2. ACQUISITIONS
MOTION CONTROL SEGMENT
----------------------
PENNY & GILES/AUTRONICS
On April 1, 2002, the Corporation acquired all of the outstanding
shares of Penny and Giles Controls Ltd., Penny and Giles Controls Inc.,
Penny and Giles Aerospace Ltd., the assets of Penny & Giles
International Plc. devoted to its aerospace component business
(collectively "Penny and Giles"), and substantially all of the assets
of Autronics Corporation ("Autronics") from Spirent Plc. The purchase
price of the acquisition, subject to adjustment as provided for in the
Share and Asset Purchase Agreement, is $60 million in cash and the
assumption of certain liabilities. Approximately $40 million of the
purchase price was funded from credit available under the Corporation's
Revolving Credit facility. This acquisition was accounted for as a
purchase in the second quarter of 2002. As of the date of acquisition,
the excess of the purchase price over the fair value of the net assets
acquired was approximately $39 million. The fair value of the net
assets acquired was based on preliminary estimates and may be revised
at a later date.
Penny and Giles is a leading designer and manufacturer of proprietary
position sensors and control hardware for both military and commercial
aerospace applications and industrial markets. Autronics is a leading
provider of aerospace fire detection and suppression control systems,
power conversion products and control electronics.
The acquired business units, located in Wales, England, Germany and the
United States, operate as part of the Motion Control segment.
Page 8 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
METAL TREATMENT SEGMENT
-----------------------
YTSTRUKTUR ARBODA AB
On April 11, 2002, the Corporation acquired 100% of the stock of
Ytstruktur Arboda AB, a metal treatment business located in Arboda,
Sweden. This business, specializing in controlled shot peening,
non-destructive testing and other metal finishing processes, services
the Scandanavian market.
The purchase price of the acquisition, subject to adjustment as
provided for in the Purchase and Sale Agreement, was $1.0 million,
which approximated the fair value of the net assets acquired. The fair
value of net assets acquired was based on preliminary estimates and may
be revised at a later date. This acquisition was accounted for as a
purchase in the second quarter of 2002.
3. RECEIVABLES
Receivables at September 30, 2002 and December 31, 2001, include
amounts billed to customers and unbilled charges on long-term contracts
consisting of amounts recognized as sales but not billed as of the
dates presented. Substantially all amounts of unbilled receivables are
expected to be billed and collected within a year. The composition of
receivables for these periods is as follows:
(In thousands)
September 30, December 31,
2002 2001
------------- ------------
Billed Receivables:
-------------------
Trade and other receivables $79,320 $70,562
Less: Progress payments applied (4,989) (2,393)
Allowance for doubtful accounts (2,190) (2,117)
-----------------------------------------------------------------------
Billed receivables, net 72,141 66,052
-----------------------------------------------------------------------
Unbilled Receivables:
---------------------
Recoverable costs and estimated earnings
not billed 33,186 24,799
Less: Progress Payments applied (6,719) (8,015)
-----------------------------------------------------------------------
Unbilled receivables, net 26,467 16,784
-----------------------------------------------------------------------
Notes Receivable 1,002 3,518
-----------------------------------------------------------------------
Receivables, net $99,610 $86,354
=======================================================================
The net receivable balance at September 30, 2002 included $12.4 million
related to the Corporation's 2002 acquisitions.
Page 9 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
4. INVENTORIES
Inventories are valued at the lower of cost (principally average cost)
or market. The composition of inventories at September 30, 2002 and
December 31, 2001 is as follows:
(In thousands)
September 30, December 31,
2002 2001
------------- ------------
Raw material $ 41,594 $ 25,761
Work-in-process 26,658 19,079
Finished goods and component parts 34,265 34,853
Inventoried costs related to US government and other long-term
contracts 7,832 7,248
-----------------------------------------------------------------------------------------------
Gross inventories 110,349 86,941
Less: Inventory reserves (21,827) (14,384)
Progress payments applied, principally related to
long-term contracts (22,041) (15,442)
-----------------------------------------------------------------------------------------------
Inventories, net $ 66,481 $ 57,115
===============================================================================================
The net inventory balance at September 30, 2002 included $11.9 million
related to the Corporation's 2002 acquisitions.
Page 10 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
5. GOODWILL and OTHER INTANGIBLE ASSETS, net
Goodwill consists primarily of the excess purchase price of
acquisitions over the fair value of the net assets acquired. Intangible
assets include technical manuals, backlog, trademarks,
patents/technology and licensing agreements. During the second quarter,
the Corporation finalized the allocation of the purchase price,
including goodwill and other intangible assets for the seven businesses
acquired in 2001. However, the purchase price allocation relating to
the businesses acquired in the second quarter of 2002 has not been
finalized. The value and estimated lives of acquired intangibles for
these acquisitions will be adjusted upon finalization of the
valuations, which is expected to be completed in the fourth quarter of
2002. The results for the third quarter and the nine months
year-to-date include amortization expense from the final valuations for
the Corporation's 2001 acquisitions, and an estimate for the 2002
acquired intangibles.
Intangible assets are amortized on a straight-line basis over the
estimated period benefited but not exceeding 30 years. Intangible
assets and accumulated amortization amounted to $22,954,000 and
$2,060,000, respectively, at September 30, 2002, and $11,683,000 and
$841,000, respectively, at December 31, 2001. Amortization of
intangibles for the three months ended September 30, 2002 amounted to a
credit of ($135,000) resulting from the finalization of valuations for
the 2001 acquisitions. Amortization of intangibles for the nine months
ended September 30, 2002 amounted to $1,219,000. For the three and nine
month periods of 2001, amortization of intangibles amounted to $23,000
and $68,000, respectively. See Note 12 "Recently Issued Accounting
Standards", governing the new accounting rules for goodwill and other
intangible assets.
Page 11 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
6. LONG-TERM DEBT AND CREDIT AGREEMENTS
On May 13, 2002, the Corporation entered into two credit agreements
aggregating $225 million with a group of eight banks. The Revolving
Credit Agreement ("Revolving Credit Agreement") offers a maximum
borrowing of $135 million to the Corporation with a limit of $50
million for letters of credit. The Revolving Credit Agreement expires
May 13, 2007, but may be extended annually for successive one-year
periods with the consent of the bank group. The Corporation also
entered into a Short-Term Credit Agreement ("Short-Term Credit
Agreement"), which allows for cash borrowings up to $90 million. The
Short-Term Credit Agreement expires May 9, 2003, but may be extended,
with consent of the bank group, for additional periods not to exceed
364 days each. The outstanding borrowings as of May 13, 2002 under the
prior credit agreements were paid in full by funding from the new 2002
revolving credit agreement. As of September 30, 2002 and December 31,
2001, the balance of long-term debt was $47.0 million and $21.4
million, respectively.
7. ENVIRONMENTAL MATTERS
The Corporation establishes a reserve for a potential environmental
liability when it concludes that a determination of legal liability
is probable based upon the advice of counsel. Such amounts 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 current 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 has continued the operation of the ground water and
soil remediation activities at a previously owned facility located in
Wood-Ridge, New Jersey, which was sold in December 2001. The
Corporation remains responsible for this remediation in accordance with
the sale agreement.
The Corporation is joined with many other corporations and
municipalities as potentially responsible parties in a number of
environmental cleanup sites, which include but are not limited to the
Caldwell Trucking landfill superfund site, Fairfield, New Jersey;
Sharkey landfill superfund site, Parsippany, New Jersey; Pfohl Brothers
landfill site, Cheektowaga, New York; Amenia landfill site, Amenia, New
York; and Chemsol, Inc. superfund site, Piscataway, New Jersey.
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.
Page 12 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
8. SEGMENT INFORMATION
The Company conducts its business operations through three segments:
Motion Control, Metal Treatment and Flow Control.
(In thousands)
Three Months Ended September 30, 2002
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Totals & Other(1) Totals
------- --------- ------- ------ ---------- ------
Revenue from external customers $61,895 $27,067 $30,679 $119,641 $ - $119,641
Intersegment revenues - 136 - 136 (136) -
Operating income 6,325 4,234 3,267 13,826 (1,275) 12,551
(1) Operating income for Corporate includes $1,000 of net environmental
remediation and administrative expenses.
(In thousands)
Three Months Ended September 30, 2001
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Totals & Other Totals
------- --------- ------- ------ ---------- ------
Revenue from external customers $30,006 $26,501 $22,913 $79,420 $ - $79,420
Intersegment revenues - 115 - 115 (115) -
Operating income 4,076 4,605 2,424 11,105 (7) 11,098
Page 13 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
(In thousands)
Nine Months Ended September 30, 2002
Motion Metal Flow Segment Corporate Consolidated
Control Treatment(1) Control Totals & Other(2) Totals
------- ------------ ------- ------ ---------- ------
Revenue from external customers $163,918 $79,738 $95,549 $339,205 $ - $339,205
Intersegment revenues - 364 - 364 (364) -
Operating income 20,439 10,570 11,557 42,566 (2,023) 40,543
Assets 249,748 105,026 116,960 471,734 94,062 565,796
(1) Operating income for Metal Treatment includes non-recurring costs of $451
associated with the relocation of a shot-peening facility.
(2) Operating income for Corporate includes $1,247 of net environmental
remediation and administrative expenses.
(In thousands)
Nine Months Ended September 30, 2001
Motion Metal Flow Segment Corporate Consolidated
Control Treatment Control Totals & Other Totals
------- --------- ------- ------ ------- ------
Revenue from external customers $95,691 $81,422 $68,828 $245,941 $ - $245,941
Intersegment revenues - 345 - 345 (345) -
Operating income 14,658 14,985 6,326 35,969 (540) 35,429
Assets 95,203 87,385 90,865 273,453 161,497 434,950
Reconciliation: (In thousands)
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------- ------- ------- -------
Consolidated operating income $12,551 $11,098 $40,543 $35,429
Investment income, net 118 834 629 2,327
Rental income 49 461 148 2,471
Pension income, net 2,254 2,864 6,762 7,551
Other income (expense), net 3,641 (234) 3,551 (429)
Interest expense (380) (272) (1,039) (917)
------- ------- ------- -------
Earnings before income taxes $18,233 $14,751 $50,594 $46,432
======= ======= ======= =======
Page 14 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
9. COMPREHENSIVE INCOME
Total comprehensive income for the periods ended September 30, 2002
and 2001 was as follows:
(In thousands)
Three months ended Nine months ended
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------- -------- ------- -------
Net earnings $11,312 $ 8,723 $31,444 $28,407
Equity adjustment from foreign
currency translation 1,125 1,956 9,157 (1,634)
------- ------- ------- -------
Total comprehensive income $12,437 $10,679 $40,601 $26,773
======= ======= ======= =======
The equity adjustment from foreign currency translation represents the
effect of translating the assets and liabilities of the Company's
non-U.S. entities. This amount is impacted year-over-year by foreign
currency fluctuations and by the acquisitions of foreign entities.
10. EARNINGS PER SHARE
Diluted earnings per share were computed based on the weighted average
number of shares outstanding plus all potentially dilutive shares
issuable for the periods. Potentially diluted shares relate primarily
to stock options granted and exercisable. Dilutive shares for the three
months ended September 30, 2002 and September 30, 2001 were 233,000 and
151,000, respectively. For the nine months ended September 30, 2002 and
September 30, 2001, the dilutive shares were 243,000 and 187,000,
respectively.
11. CONTINGENCIES AND COMMITMENTS
The Corporation's subsidiary located in Switzerland entered into sales
agreements with two European defense organizations which contain offset
obligations to purchase approximately 43.0 million Swiss francs of
product from suppliers of the two European countries over multi-year
periods which expire in 2005 and 2007. The agreements contain a penalty
of 5-10% of the unfulfilled obligation at the end of the term of the
agreements. As of September 30, 2002, the Corporation has accrued
840,000 Swiss francs (approximately $569,000) included in noncurrent
liabilities as a contingency against not achieving compliance with
these agreements.
Consistent with other entities its size, the Corporation is party to
legal actions and claims, none of which individually or in the
aggregate, in the opinion of management, is expected to have a material
adverse effect on the Corporation's results of operations or financial
position.
Page 15 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
12. RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets."
SFAS No. 141 requires all business combinations to be accounted for
under the purchase method of accounting and is effective for business
combinations initiated after June 30, 2001. In addition, it requires
that the cost of an acquired entity be allocated to the assets
acquired, including identifiable intangible assets, and liabilities
assumed based on their estimated fair values at the date of
acquisition. The Corporation has not yet determined the final purchase
price allocation to goodwill and other intangible assets for the
companies acquired in 2002.
Under SFAS No. 142, goodwill is no longer amortized, but is subject to
an annual impairment test. Certain other intangible assets will
continue to be amortized over their useful lives. Accordingly, the
Corporation adopted the new rules on accounting for goodwill and other
intangible assets effective January 1, 2002. In compliance with the
provisions of SFAS No. 142, the Corporation completed its transitional
goodwill impairment test during the second quarter of 2002 and its
annual goodwill impairment test during the third quarter of 2002. The
testing indicated that the recorded carrying value of the Corporation's
goodwill is not impaired as of these assessments.
The following table reflects the pro forma consolidated results
adjusted as if SFAS Nos. 141 and 142 were adopted as of January 1,
2001:
----------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Net Earnings:
----------------------------------------------------------------------------------------------------
As reported $11,312 $8,723 $31,144 $28,407
----------------------------------------------------------------------------------------------------
Goodwill amortization, net of tax - 269 - 816
----------------------------------------------------------------------------------------------------
As adjusted $11,312 $8,992 $31,144 $29,223
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Diluted Earnings Per Share:
----------------------------------------------------------------------------------------------------
As reported $1.08 $0.85 $3.01 $2.78
----------------------------------------------------------------------------------------------------
Goodwill amortization, net of tax - $0.03 - $0.08
----------------------------------------------------------------------------------------------------
As adjusted $1.08 $0.88 $3.01 $2.86
----------------------------------------------------------------------------------------------------
Page 16 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
In October, 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement defines
the accounting for long-lived assets to be held and used, assets held
for sale and assets to be disposed of by other than sale and is
effective for fiscal years beginning after December 15, 2001. The
adoption of this standard had no material effect on the Corporation's
results of operation or financial condition.
In June, 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities". This statement applies to
costs associated with an exit or disposal activities, whereas
liabilities for a cost associated with these activities shall be
recognized and measured initially at its fair value in the period in
which the liability is incurred. The provisions of this statement shall
be effective for exit or disposal activities initiated after December
31, 2002. The adoption of this standard is anticipated to have no
material effect on the Corporation's results of operation or financial
condition.
13. SUBSEQUENT EVENTS
Acquisition
On October 28, 2002, the Corporation acquired the net assets of the
Electro-Mechanical Division ("EMD") of Westinghouse Government
Services Company LLC. The purchase price of the acquisition, subject
to adjustment as provided in the Asset Purchase Agreement, was $80
million in cash and the assumption of certain operating liabilities.
The purchase price was funded from the credit available from the
Corporation's Revolving Credit Agreement. This acquisition will be
accounted for as a purchase in the fourth quarter of 2002.
EMD is a world leader in the design, development, manufacture and
qualification of the most advanced, proven and reliable critical
function pumps, ship service turbine motors, generators, secondary
propulsion systems, valves, seals, control rod drive mechanisms and
power conditioning electronics. Additionally, EMD designs and
manufactures some of the most power dense electrical rotating
equipment in the world, along with the supporting power electronics.
EMD has 850 employees and is headquartered in Cheswick, (Pittsburgh
area) Pennsylvania. Curtiss-Wright will continue operations at this
facility as part of the Flow Control segment.
Page 17 of 34
PART I - ITEM 2
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
RESULTS of OPERATIONS
Three months ended September 30, 2002
- -------------------------------------
Sales for the third quarter of 2002 totaled $119.6 million, an increase of 51%
from the sales of $79.4 million for the third quarter of 2001. New orders
received for the current quarter of $130.6 million were up 97% over new orders
of $66.4 million for the third quarter of 2001, mainly due to acquisitions.
Sales for the third quarter of 2002 as compared to the same period last year
benefited from the recent acquisitions, which contributed $40.1 million to sales
in the quarter. For the quarter, higher sales of flow control products for the
commercial nuclear power generation and oil and gas markets mostly offset
declines in aerospace component overhaul and repair services, commercial
aerospace OEM products and metal treatment shot-peening services. In addition,
foreign currency translation had a favorable impact on sales of approximately
$1.5 million for the quarter.
Operating income for the third quarter of 2002 totaled $12.6 million, an
increase of 13% from operating income of $11.1 million for the same period last
year. The increase is primarily attributed to the contributions of recent
acquisitions, which amounted to $3.6 million, and organic growth in our base
flow control business. These improvements were offset by lower margins as a
result of lower volume in the commercial aerospace business and lower margins
attributable to unfavorable sales mix within the metal treatment segment and the
oil and gas markets. Other factors contributing to the increase include
favorable foreign currency translation and the implementation of SFAS Nos. 141
and 142, which eliminated the amortization of goodwill effective January 1,
2002.
Net earnings for the third quarter of 2002 totaled $11.3 million, or $1.08 per
diluted share, an increase of 30% from net earnings for the third quarter of
2001 of $8.7 million, or $0.85 per diluted share. Net earnings for the third
quarter of 2002 included other income related to non-recurring non-operating
items, the net effect of which had a favorable impact to pre-tax income of $3.5
million with an after tax impact of $2.2 million or $0.21 per diluted share. The
items included a net gain related to the reallocation of postretirement medical
benefits for certain active employees to our over funded pension plan and a
reserve associated with an indemnification provided to the purchaser of the
Corporation's Wood-Ridge rental property, which was no longer required and
reversed during the quarter. In addition, the Corporation recorded a net gain on
the sale of non-operating property (see table below for normalized net
earnings). The third quarter of 2001 included rental income associated with a
property that was sold in December 2001 and higher investment income generated
from cash resources, which have since been utilized for acquisitions. These
non-operating items contributed to higher net earnings in the third quarter of
2001 of $0.7 million or $0.07 per diluted share.
Page 18 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
RESULTS of OPERATIONS
Nine months ended September 30, 2002
- ------------------------------------
Sales for the first nine months of 2002 increased 38% to $339.2 million, as
compared to $245.9 million for the same period last year. Acquisitions made
during the last fifteen months contributed $92.1 million to sales during the
first nine months of 2002. New orders of $344.5 million were 45% higher than the
first nine months of 2001, again mainly due to the recent acquisitions. Higher
sales of flow control products for the commercial nuclear power generation,
nuclear naval program, oil and gas and heavy truck OEM markets, and higher land
based defense related sales mostly offset declines in aerospace component
overhaul and repair services, commercial aerospace OEM products and metal
treatment related services. In addition, foreign currency translation had a
favorable impact on sales of approximately $1.7 million for the first nine
months of 2002.
Operating income for the first nine months of 2002 totaled $40.5 million, an
increase of 14% from operating income of $35.4 million for the same period last
year. The increase is primarily attributed to the contributions of recent
acquisitions, which amounted to $6.8 million, and strong organic growth in our
base flow control business and land based defense business. These improvements
were offset by lower margins as a result of lower volume in the commercial
aerospace business and lower margins attributable to unfavorable sales mix
within the metal treatment segment and the oil and gas markets. Other factors
contributing to the change include a favorable foreign currency translation and
the implementation of SFAS Nos. 141 and 142, which eliminated the amortization
of goodwill effective January 1, 2002.
Net earnings for the first nine months of 2002 totaled $31.4 million, or $3.01
per diluted share, an increase of 11% from net earnings for the first nine
months of 2001 of $28.4 million, or $2.78 per diluted share. Net earnings for
the first nine months of 2002 included other income related to non-recurring
non-operating items, the net effect of which had a favorable impact to pre-tax
income of $3.1 million with an after tax impact of $1.9 million or $0.18 per
diluted share. The other income included a net gain relating to the reallocation
of postretirement medical benefits for certain active employees to our over
funded pension plan, a reversal of a reserve associated with an indemnification
provided to the purchaser of the Corporation's Wood-Ridge rental property that
was no longer required, and net gains on the sales of non-operating properties.
In addition, the items included costs associated with the relocation of a Metal
Treatment facility (see table below for normalized net earnings). The first nine
months of 2001 included rental income associated with a property that was sold
in December 2001 and higher investment income generated from cash resources,
which have since been utilized for acquisitions. These non-operating items
contributed to higher net earnings in the nine months of 2001 of $2.4 million or
$0.24 per diluted share.
Page 19 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
- ------------------------------------------------------------------------------------------------
Normalized Net Earnings: Three Months Ended Nine Months Ended
September 30, September 30,
- ------------------------------------------------------------------------------------------------
(In thousands except per share figures) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------
Net earnings $11,312 $8,723 $31,444 $28,407
- ------------------------------------------------------------------------------------------------
Release of indemnification reserve (800) - (800) -
- ------------------------------------------------------------------------------------------------
Postretirement medical benefits, net (984) - (984) -
- ------------------------------------------------------------------------------------------------
Realized loss on demutualization - - 49 -
- ------------------------------------------------------------------------------------------------
Facility relocation costs - - 277 -
- ------------------------------------------------------------------------------------------------
Gain on sale of non-operating property (371) - (435) -
- ------------------------------------------------------------------------------------------------
Normalized net earnings $9,157 $8,723 $29,551 $28,407
- ------------------------------------------------------------------------------------------------
Normalized net earnings per diluted share $0.87 $0.85 $2.83 $2.78
- ------------------------------------------------------------------------------------------------
Operating Performance:
Motion Control
- --------------
Third quarter sales for the Corporation's Motion Control segment improved 106%
to $61.9 million as compared to $30.0 million in the third quarter of 2001.
Acquisitions contributed $33.9 million to sales for the quarter. The decline in
the base business was due to lower volume associated with the overhaul and
repair services provided to the global airline industry and lower commercial
aircraft production by Boeing. These declines were partially offset by stronger
military sales resulting from increased shipments for the F-22 program and F-16
spares. Foreign currency translation favorably impacted sales for the third
quarter by approximately $0.7 million.
Operating income for the third quarter of 2002 was $6.3 million, an increase of
55% over the same period last year of $4.1 million. The improvement was due to
the higher sales volumes, driven mainly by the recent acquisitions, and stronger
margins within the overhaul and repair services resulting from improved cost
structures. The third quarter also benefited from the favorable impact of
foreign currency translation. These improvements were offset by the lower
margins for the commercial OEM products. The operating income for the third
quarter of 2001 included $0.2 million of goodwill amortization.
Sales for the first nine months of 2002 were $163.9 million, an increase of 71%
over the same period last year of $95.7 million. The improvement was largely due
to the recent acquisitions and the strong sales of the defense related products,
partially offset by lower aerospace component overhaul and repair services and
commercial aerospace OEM products. Operating income for the first nine months
Page 20 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
of 2002 was $20.4 million, an increase of 39% over the same period last year of
$14.7 million. The contribution from the recent acquisitions, stronger margins
from the land-based defense business, the favorable impact of foreign currency
translations, and the elimination of goodwill amortization more than offset
the declines from the commercial aerospace business.
New orders received for the Motion Control segment totaled $68.8 million in the
third quarter of 2002 and $158.5 million for the first nine months of 2002,
representing an increase of 88% and 68%, respectively, from the same periods in
2001. New orders from recent acquisitions amounted to $27.9 million and $68.8
million for the quarter and nine months ended September 30, 2002, respectively.
Metal Treatment
- ---------------
Sales for the Corporation's Metal Treatment segment totaled $27.1 million for
the third quarter of 2002, up 2% when compared with $26.5 million in the third
quarter of 2001. The improvement is mainly due to the contribution from the
recent acquisitions and stronger sales to the automotive sector resulting from
the addition of new programs. Overall industrial market softness and slowdowns
in the aerospace markets have partially offset the improvement. In addition,
foreign currency translation favorably impacted sales for the third quarter by
approximately $0.7 million.
Operating income for the third quarter of 2002 declined 8% to $4.2 million from
$4.6 million for the same period last year. The reduction in operating income is
due to the unfavorable sales mix, mainly driven by lower volume related margins
at the European shot-peening business. While profit margins continue to be below
prior year's levels, the third quarter has seen continued improvement from the
first and second quarters of this year. The third quarter also benefited from
the favorable impact of foreign currency translation.
Sales for the first nine months of 2002 were $79.7 million, a decrease of 2%
over the same period last year of $81.4 million. The slight decline was due to
lower shot-peening sales, resulting from slowness in the aerospace and
industrial markets, partially offset by the favorable foreign currency
translation, and higher heat treating and valve sales resulting from the recent
acquisitions and stronger automotive markets. Operating income for the first
nine months of 2002 was $10.6 million, a decrease of 30% over the same period
last year of $15.0 million. The lower operating income is due to reduced volume,
start-up costs at new facilities, and certain non-recurring costs associated
with the relocation of a shot-peening facility. The operating margin for the
first nine months of 2002 benefited from the favorable impact of foreign
currency translation.
Page 21 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
New orders received for the Metal Treatment segment totaled $27.2 million in the
third quarter of 2002 and $80.2 million for the first nine months of 2002 as
compared to $26.5 million and $81.7 million in the respective prior year periods
of 2001.
Flow Control
- ------------
Sales for the Corporation's Flow Control segment totaled $30.7 million for the
third quarter of 2002, an increase of 34% when compared with $22.9 million in
the third quarter of 2001. Excluding the sales contribution from the recent
acquisitions of $5.6 million, the sales for the base business increased 9% for
the third quarter. Higher sales in the commercial nuclear power generation and
oil and gas and heavy truck OEM markets contributed to the strong base segment
business.
Operating income for the third quarter of 2002 was $3.3 million, an increase of
35% over the same period last year of $2.4 million and was mainly driven by
higher sales. For the third quarter of 2002, strong performance in commercial
nuclear power generation, the heavy truck markets, and sales from the recent
acquisitions, offset lower margins from the commercial nuclear and oil and gas
markets, which were negatively impacted by unfavorable sales mix. Operating
income in the third quarter of 2001 included $0.2 million of goodwill
amortization.
Sales for the first nine months of 2002 were $95.5 million, an increase of 39%
over the same period last year of $68.8 million. The improvement was largely due
to the recent acquisitions and strong sales of the base business, including
nuclear products for the navy and power generation plants, and oil and gas and
heavy truck markets. Operating income for the first nine months of 2002 was
$11.6 million, an increase of 83% over the same period last year of $6.3
million. The improvement resulted from the higher sales volumes, improved
margins on flow control products for nuclear applications and heavy truck
markets, overall cost reduction programs, and the elimination of goodwill
amortization.
New orders received for the Flow Control segment totaled $34.8 million in the
third quarter of 2002 and $106.3 million for the first nine months of 2002,
representing an increase of 59% and 74%, respectively, from the same periods in
2001. New orders from recent acquisitions amounted to $6.2 million and $18.6
million for the quarter and nine months ended September 30, 2002, respectively.
Page 22 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
Corporate and Other Expenses
- ----------------------------
The Corporation had a non-segment operating loss of $1.3 million in the third
quarter of 2002 compared with none in the same period of the prior year. The
third quarter of 2002 included $1.0 million of net environmental remediation and
administrative expenses.
The non-segment operating loss for the first nine months of 2002 of $2.0 million
included net environmental remediation and administrative expenses,
non-recurring commitment fee expenses associated with the Corporation's prior
credit agreements and other administrative expenses.
Non-Operating Revenues and Costs
- --------------------------------
For the third quarter of 2002, the Corporation recorded other non-operating net
revenue totaling $5.7 million, compared with $3.7 million for the third quarter
of 2001. The increase is primarily due to non-recurring items, the net effect of
which had a favorable impact in 2002 of $3.5 million. The items included a net
gain relating to the reallocation of postretirement medical benefits for certain
active employees to our over funded pension plan and a reserve associated with
an indemnification provided to the purchaser of the Corporation's Wood-Ridge
rental property was no longer required and reversed during the quarter. In
addition, the Corporation recorded a net gain on the sale of non-operating
property. These non-recurring items were partially offset by lower rental income
due to the sale of our Wood-Ridge property, lower investment income due to lower
short-term investment balances, and lower net pension income.
The non-operating net revenue for the first nine months of 2002 was $10.1
million, compared with $11.0 million for the same period last year. The decrease
was primarily caused by lower rental income, lower investment income, and lower
pension income.
CHANGES IN FINANCIAL CONDITION:
Liquidity and Capital Resources:
The Corporation's working capital was $144.8 million at September 30, 2002, a
decrease from the working capital at December 31, 2001 of $149.9 million. The
ratio of current assets to current liabilities was 2.9 to 1 at September 30,
2002, compared with a ratio of 3.0 to 1 at December 31, 2001.
Cash, cash equivalents and short-term investments totaled $37.7 million at
September 30, 2002, down 44% from $67.2 million at the prior year-end. Days
sales outstanding at September 30, 2002 decreased to 56 days from 59 at
Page 23 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
December 31, 2001. Inventory turnover improved to 4.5 at September 30, 2002
from 3.8 at the prior year-end.
Items affecting the Corporation's cash flow during the nine months ended
September 30, 2002 included a large tax payment related to the gain on the sale
of our Wood-Ridge facility and proceeds from the sale of short-term investments
and issuance of long-term debt, mainly to finance acquisitions of $62.1 million.
As of September 30, 2002, the Corporation had two credit agreements aggregating
$225 million with a group of eight banks. The Revolving Credit Agreement
("Revolving Credit Agreement") offers a maximum of $135 million over five years
to the Corporation for cash borrowings and letters of credit. The Revolving
Credit Agreement expires May 13, 2007, but may be extended annually for
successive one-year periods with the consent of the bank group. The Corporation
also has in effect a Short-Term Credit Agreement ("Short-Term Credit
Agreement"), which allows for cash borrowings up to $90 million. The Short-Term
Credit Agreement expires May 9, 2003, but may be extended, with consent of the
bank group, for additional periods not to exceed 364 days each. Cash borrowings
(excluding letters of credit) under the two credit agreements at September 30,
2002 were $33.4 million compared with cash borrowings of $8.0 million at
December 31, 2001 under the prior credit agreements. All outstanding borrowings
under the prior agreements were paid in full through funding from the new
agreements. The unused credit available under the existing agreements at
September 30, 2002 was $172.5 million.
Industrial revenue bonds, which are collateralized by real estate, were $13.7
million at September 30, 2002 and December 31, 2001. The loans outstanding under
the Revolving Credit Agreement and Industrial Revenue Bonds had variable
interest rates averaging 2.36% for the third quarter of 2002 and 3.23% for 2001.
For the first nine months of 2002, internally available funds were adequate to
meet capital expenditures of $22.6 million. Expenditures incurred during the
first nine months were primarily for new and replacement machinery and equipment
within the operating segments. The Corporation is expected to make additional
capital expenditures of approximately $10 million during the balance of the
year, primarily for machinery and equipment for the operating segments. Funds
from internal sources are expected to be adequate to meet planned capital
expenditures, environmental and other obligations for the remainder of the year.
A combination of cash resources and $40 million in funds available under the
Corporation's Revolving Credit Agreement were utilized for the funding of
acquisitions during the first nine months of 2002. Of the $40 million initially
borrowed, $14 million has been repaid by internally generated funds. As
discussed in the Recent Development section below and in Note 13 to the
Consolidated Financial Statements, the purchase price for the acquisition of the
Electro-Mechanical Division of Westinghouse Government Services Company LLC was
entirely funded from the credit available from the Corporation's Revolving
Credit Agreement, which will reduce the unused credit available under the
existing agreements at September 30, 2002 on a pro forma basis to $92.5 million.
Page 24 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
CRITICAL ACCOUNTING POLICIES
Revenue recognition. The Corporation uses the percentage-of-completion method
for recognizing revenue for many of its long-term contracts. This method
recognizes revenue as the contracts progress as opposed to the completed
contract method which recognizes revenue when the contract is completed. The
percentage-of-completion method requires the use of estimates as to the future
costs that will be incurred. These costs include material, labor and overhead.
Factors influencing these future costs include the availability of materials and
skilled laborers.
Inventory. The Corporation purchases materials for the manufacture of components
for use in its contracts and for use by its repair and overhaul business. The
decision to purchase a set quantity of a particular item is influenced by
several factors including: current and projected cost; future estimated
availability; existing and projected contracts to produce certain items; and the
estimated needs for its repair and overhaul business. The Corporation estimates
the net realizable value of its inventories and establishes reserves to reduce
the carrying amount of these inventories to net realizable value, as necessary.
Pension asset. The Corporation, upon advice from its actuary, determines the
appropriate assumptions for use in determining the liability for future pensions
and other postretirement benefits. For the quarter and nine months ended
September 30, 2002, the Corporation recognized pension income of $2.3 million
and $6.8 million, respectively, as the excess of amounts funded for the pension
plan in prior years together with actual and expected earnings on those assets,
over the calculated liability. As of September 30, 2002, the prepaid pension
asset was $75.4 million. The timing and amount of future pension income to be
recognized each year will be dependent on the demographics and expected earnings
of the plan participants, the expected interest rates in effect in future years,
and the actual and expected investment returns of the assets in the pension
trust.
Environmental reserves. The Corporation provides for environmental reserves
when, in conjunction with its counsel, it is determined that a liability is both
probable and estimable. In many cases, the liability is not fixed or capped when
the Corporation first records a liability for a particular site. Factors that
affect the recorded amount of the liability in future years include: the
Corporation's participation percentage due to the settlement by or bankruptcy of
other Potentially Responsible Parties; a change in the environmental laws with
more stringent requirements; a change in the estimate of future costs that will
be incurred to remediate the site; and changes in technology related to
environmental remediation.
Page 25 of 34
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued
Goodwill and other intangible assets. At September 30, 2002, the Corporation had
$136.5 million in goodwill and other intangible assets related to acquisitions
made in 2002 and prior years. The recoverability of these assets is subject to
an impairment test based on the estimated fair value of the underlying
businesses. These estimated fair values are based on estimates of the future
cash flows of the underlying businesses. Factors affecting these future cash
flows include: the continued market acceptance of the products and services
offered by the businesses; the development of new products and services by the
businesses and the underlying cost of development; the future cost structure of
the businesses; and future technological changes.
RECENT DEVELOPMENT
Acquisition
- -----------
As discussed in Note 13 to the Consolidated Financial Statements, on October 28,
2002 the Corporation acquired the assets of the Electro-Mechanical Division
("EMD") of Westinghouse Government Services Company LLC. The purchase price of
the acquisition, subject to adjustment as provided for in the Asset Purchase
Agreement, was $80 million in cash and the assumption of certain operating
liabilities. The purchase price was funded from the credit available from the
Corporation's Revolving Credit Agreement. This acquisition will be accounted for
as a purchase in the fourth quarter of 2002. See Note 13 to the Consolidated
Financial Statements for further information.
Page 26 of 34
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Corporation's market risk during the
nine months ended September 30, 2002. Information regarding market risk and
market risk management policies is more fully described in item 7A.
"Quantitative and Qualitative Disclosures about Market Risk" of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2001.
PART I - ITEM 4
CONTROLS AND PROCEDURES
During the 90-day period prior to the filing date of this report, management,
including the Company's Principal Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon, and as of the date of that
evaluation, the Principal Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures were effective, in all
material respects, to ensure that information required to be disclosed in the
reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls, subsequent to
the date the Chief Executive Officer and Chief Financial Officer completed their
evaluation.
FORWARD-LOOKING INFORMATION
Except for historical information contained herein, this Quarterly Report on
Form 10-Q does contain "forward-looking" information within the meaning of
Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act
of 1934. Examples of forward-looking information include, but are not limited
to, (a) projections of or statements regarding return on investment, future
earnings, interest income, other income, earnings or loss per share, investment
mix and quality, growth prospects, capital structure and other financial terms,
(b) statements of plans and objectives of management, (c) statements of future
economic performance, and (d) statements of assumptions, such as economic
conditions underlying other statements. Such forward-looking information can be
identified by the use of forward looking terminology such as "believes,"
"expects," "may," "will," "should," "anticipates," or the negative of any of the
foregoing or other variations thereon or comparable terminology, or by
discussion of strategy. No assurance can be given that the future results
described by the forward-looking information will be achieved. Such statements
are subject to risks, uncertainties, and other factors which are outside our
control that could cause actual results to differ materially from future results
expressed or implied by such forward- looking information. Readers are cautioned
not to put undue reliance on such forward-looking information. Such statements
Page 27 of 34
in this Report include, without limitation, those contained in Part I, Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Notes to the Consolidated Financial Statements including,
without limitation, the Environmental Matters Note. 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
anticipated orders; (ii) change in government spending; (iii) an economic
downturn; (iv) unanticipated environmental remediation expenses or claims;
(v) changes in the need for additional machinery and equipment and/or in
the cost for the expansion of the Corporation's operations; (vi) changes in the
competitive marketplace and/or customer requirements; (vii) an inability to
perform customer contracts at anticipated cost levels and (viii) other factors
that generally affect the business of companies operating in the Corporation's
Segments.
Page 28 of 34
PART II - OTHER INFORMATION
Item 6. EXHIBITS and REPORTS on FORM 8-K
(a) Exhibits
Exhibit 99.1 Certification of Martin R. Benante, Chairman
and CEO, Pursuant to 18 U.S.C. Section 1350
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith
Exhibit 99.2 Certification of Glenn E. Tynan, Chief
Financial Officer, Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, filed
herewith
(b) Reports on Form 8-K
On August 14, 2002, the Company filed a report on Form 8-K
reporting under Item 5 announcing voluntary compliance with
Securities and Exchange Commission's June 27, 2002 Order
requiring the filing of sworn statements pursuant to Section
21(a)(1) of the Securities and Exchange Act of 1934.
Page 29 of 34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CURTISS-WRIGHT CORPORATION
--------------------------
(Registrant)
By: /s/ Glenn E. Tynan
-----------------------
Glenn E. Tynan
Vice President Finance
Chief Financial Officer
Dated: November 14, 2002
Page 30 of 34
CERTIFICATIONS
I, Martin R. Benante, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Curtiss-Wright
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant 's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant 's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Martin R. Benante
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Chief Executive Officer
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I, Glenn E. Tynan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Curtiss-Wright
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant , including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Glenn E. Tynan
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Chief Financial Officer
Page 34 of 34