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, 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: 10,203,582 shares (as of October 15,
1998)
Page 1 of 18
<PAGE>
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 - 10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 15
Forward-Looking Statements 16
PART II - OTHER INFORMATION
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 17
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
September 30, December 31,
1998 1997
Assets:
Cash and cash equivalents $ 7,171 $ 6,872
Short-term investments 54,832 61,883
Receivables, net 51,707 41,590
Deferred tax asset 7,206 8,806
Inventories 53,563 49,723
Other current assets 2,082 2,506
----------- -----------
Total current assets 176,561 171,380
--------- ---------
Property, plant and equipment, at cost 234,650 219,587
Less, accumulated depreciation 163,256 153,704
--------- ---------
Property, plant and equipment, net 71,394 65,883
Prepaid pension costs 41,842 38,674
Goodwill 13,908 3,797
Other assets 4,869 4,974
----------- -----------
Total assets $308,574 $284,708
======== ========
Liabilities:
Accounts payable and accrued expenses $ 27,455 $ 24,540
Dividends payable 1,326
Income taxes payable 3,477 4,845
Other current liabilities 11,855 9,244
---------- -----------
Total current liabilities 44,113 38,629
---------- ----------
Long-term debt 10,347 10,347
Deferred income taxes 9,883 8,799
Other liabilities 22,028 22,080
---------- ----------
Total liabilities 86,371 79,855
---------- ----------
Stockholders' equity:
Common stock, $1 par value 15,000 15,000
Capital surplus 51,241 52,010
Retained earnings 335,561 318,474
Unearned portion of restricted stock (131) (342)
Accumulated other comprehensive
Income (3,778) (3,289)
---------- -----------
397,893 381,853
Less, cost of treasury stock 175,690 177,000
--------- ---------
Total stockholders' equity 222,203 204,853
--------- ---------
Total liabilities and stockholders' equity $308,574 $284,708
======== ========
See notes to consolidated financial
statements.
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<PAGE>
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of EARNINGS
(UNAUDITED)
(In thousands except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------- -------------------
1998 1997(1) 1998 1997(1)
---- ------ ---- ------
<S> <C> <C> <C> <C>
Net sales $182,854 $160,237 $62,603 $52,677
Cost of sales 122,132 105,466 41,752 33,675
-------- --------- -------- --------
Gross margin 60,722 54,771 20,851 19,002
Research and development costs 934 1,441 343 495
Selling expenses 7,859 5,944 3,003 2,008
General and administrative 22,126 23,606 7,412 7,979
--------- --------- --------- ---------
Operating income 29,803 23,780 10,093 8,520
Investment income, net 2,311 2,488 730 640
Rental income, net 2,622 2,195 859 454
Other income (expense), net (31) 2,104 (110) 2,355
Interest expense 292 307 107 118
----------- ---------- ---------- ----------
Earnings before taxes 34,413 30,260 11,465 11,851
Provision for taxes 13,349 10,179 4,707 3,775
--------- --------- --------- ---------
Net earnings $ 21,064 $ 20,081 $ 6,758 $ 8,076
======== ======== ======== ========
Weighted average number of
common shares outstanding 10,193 10,170 10,193 10,170
========== ========= ======== ========
Basic earnings per common share $2.07 $1.97 $0.66 $0.79
===== ===== ===== =====
Diluted earnings per common share $2.04 $1.95 $0.66 $0.78
===== ===== ===== =====
Dividends per common share $0.390 $0.375 $0.130 $0.125
====== ====== ====== ======
</TABLE>
(1) Prior year information has been restated to conform to current presentation.
See notes to consolidated financial
statements.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
(UNAUDITED)
(In thousands)
Nine Months Ended
September 30
1998 1997
Cash flows from operating activities:
Net earnings $21,064 $20,081
--------- -------
Adjustments to reconcile net earnings to net
cash provided by operating activities
(net of business acquired):
Depreciation and amortization 7,724 7,124
Net gains on short-term investments (223) (1,309)
Net gains on sales of excess property (2,008)
Increase in deferred taxes 2,684 714
Changes in operating assets and liabilities:
Proceeds from sales of trading securities 274,113 190,006
Purchases of trading securities (265,069) (196,079)
Increase in receivables (3,462) (3,141)
Increase in inventory 629 (3,631)
Increase (decrease) in progress payments (2,078) 396
Increase (decrease) in accounts payable and
accrued expenses 422 907
Increase (decrease) in income taxes payable (1,368) 643
Increase in other assets (3,145) (2,421)
Decrease in other liabilities (2,352) (2,568)
Other, net 265 (1,642)
---------- ---------
Total adjustments 8,140 (13,009)
-------- ---------
Net cash provided by operating activities 29,204 7,072
------- ---------
Cash flows from investing activities:
Proceeds from sales of real estate and equipment 40 3,493
Additions to property, plant and equipment (6,981) (8,460)
Acquisition of new businesses (19,313)
-------- --------
Net cash used by investing activities (26,254) (4,967)
-------- --------
Cash flows from financing activities:
Dividends paid (2,651) (2,543)
-------- --------
Net cash used by financing activities (2,651) (2.543)
-------- --------
Net increase (decrease) in cash and cash equivalents 299 (438)
Cash and cash equivalents at beginning of period 6,872 6,317
--------- --------
Cash and cash equivalents at end of period $ 7,171 $ 5,879
======== ========
See notes to consolidated financial
statements.
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<PAGE>
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Equity
Uearned Adjustments
Portion of from Foreign
Common Capital Retained Restricted Currency Treasury
Stock Surplus Earnings Stock Awards Translation 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)
Stock options exercised, net (117) (376)
Amortization of earned 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 21,064
Common dividends (3,977)
Stock options exercised, net (769) (1,310)
Amortization of earned portion
of restricted stock 211
Translation adjustments, net (489)
------- ------- -------- ------ --------- --------
September 30, 1998 $15,000 $51,241 $335,561 $(131) $(3,778) $175,690
======= ======= ======== ====== ======== ========
</TABLE>
See notes to consolidated financial
statements.
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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 four 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. ACQUISITIONS
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 $6.1 million in cash and has
accounted for the acquisition as a purchase. The excess of purchase
price over the fair value of the net assets is approximately $1.0
million and is expected to be amortized over 25 years. The fair value
of the net assets acquired was based on preliminary estimates and may
be revised at a later date.
On July 31, 1998, the Corporation purchased the assets of Enertech, LLC
(Enertech) which distributes, represents and manufactures a number of
products for sale into commercial nuclear power plants, both
domestically and internationally. Enertech also provides a broad range
of overhaul and maintenance services for such plants from its two
principal locations in California and Georgia. Enertech has annual
sales of about $25.0 million. The Corporation acquired the net assets
of Enertech for approximately $15.2 million in cash of which $13.2
million was paid at closing and $2.0 million deferred to a specific
future contract date subject to adjustments as provided in the
agreement. The acquisition was accounted for as a purchase. The excess
of purchase price over the fair value of the net assets is
approximately $9.1 million and is expected to be amortized over 30
years. The fair value of the net assets acquired was based on
preliminary estimates and may be revised at a later date.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
3. RECEIVABLES
Receivables, at September 30, 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)
September 30, December 31,
1998 1997
Accounts receivable, billed $55,609 $49,110
Less: progress payments applied 11,821 10,460
-------- --------
43,788 38,650
-------- --------
Unbilled charges on long-term
contracts 16,208 13,022
Less: progress payments applied 6,310 8,335
-------- --------
9,898 4,687
-------- --------
Allowance for doubtful accounts (1,979) (1,747)
------- --------
Receivables, net $51,707 $41,590
======= ========
4. INVENTORIES
Inventories are valued at the lower of cost (principally average cost)
or market. The composition of inventories at September 30, 1998 and
December 31, 1997 is as follows:
(In thousands)
September 30, December 31,
1998 1997
Raw materials $ 5,206 $ 5,514
Work-in-process 23,145 22,686
Finished goods 24,617 21,782
Inventoried costs related to U.S. Govern-
ment and other long-term contracts 5,272 5,547
--------- ---------
Total inventories 58,240 55,529
Less: progress payments applied,
principally related to long-term
contracts 4,677 5,806
--------- ---------
Net inventories $53,563 $49,723
======= =========
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
5. 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, NJ, Caldwell Trucking Company Superfund
Site, Fairfield, NJ, and Pfohl Brothers Landfill Site, Cheektowaga, NY,
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, NJ, and PJP Landfill,
Jersey City, NJ
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.
6. 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 nine months ended September 30, 1998
and 1997 is as follows:
(In thousands)
September 30, September 30,
1998 1997
Net earnings $21,064 $20,081
------- -------
Equity adjustments from foreign
currency translations (489) (2,396)
Less: Proforma tax effects 171 839
--------- --------
Net adjustments (318) (1,557)
--------- --------
Total comprehensive income $20,746 $18,524
========= ========
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
7. 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 third quarters of 1998 and 1997 were 10 and 14,
respectively, and were 138 and 135 for the nine months ended September
30, 1998 and 1997, 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.
8. RECENTLY ISSUED ACCOUNTING STANDARDS
On June 15, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivatives and Hedging Activities" (SFAS No. 133). SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 (January 1, 2000 for the Corporation). SFAS No. 133
requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. Management of
the Corporation anticipates that, due to its limited use of derivative
instruments, the adoption of SFAS No. 133 will not have a significant
effect on its results of operations or its financial position.
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<PAGE>
PART I - ITEM 2
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
RESULTS of OPERATIONS
Operating income for the third quarter of 1998 increased 18% to $10.1
million from $8.5 million for the same period of last year and sales for the
quarter rose 19% to $62.6 million from $52.7 million for the prior year period.
Net income, excluding a 1997 gain on the sale of excess land, rose 11% to $6.8
million or $.66 per diluted share in the 1998 third quarter from 1997 third
quarter net income of $6.1 million or $.60 per share. Including the 1997 gain on
the sale of land of $2.0 million, 1997's third quarter net income was $8.1
million or $.78 per share.
Sales increases were achieved in all of the Corporation's businesses in
the most recent quarter. These increases were augmented by sales from Enertech,
the valve manufacturing, distribution and service concern acquired on July 31,
1998 and sales from Alpa Heat Treaters acquired on April 30, 1998.
New orders received during the 1998 quarter declined from those
received in the same 1997 period, totaling $46.3 million, compared with orders
of $53.6 million received last year. The decline in orders is attributable to an
unusually high level of orders received from Boeing during the 1997 quarter.
Financial results for the first nine months of 1998 mirrored those of
the third quarter with sales, operating income and net income (excluding the
gain on the sale of land) all posting double-digit increases. Sales for the 1998
first nine months of $182.9 million improved 14% over 1997 nine-month sales of
$160.2 million. Operating income jumped 25% to $29.8 million from $23.8 million
for the comparable 1997 period. Net income rose to $21.1 million or $2.04 per
diluted share, a 17% improvement over 1997 nine-month income (excluding the land
sale gain) of $18.1 million or $1.78 per share. Net income for the 1997
nine-month period was $20.1 million or $1.95 per diluted share.
Operating Performance
The Corporation's metal-treating business continues to achieve
substantial increases in sales for 1998, as compared with the prior year. Sales
improved 14% for the third quarter of 1998, reflecting increases in
applications, particularly in aerospace, oil tool, petro-chemical and other
industrial markets, worldwide. In addition, sales for the third quarter of 1998
benefited from contributions of an additional heat treating facility in York,
Pennsylvania acquired in April 1998. For the first nine months of 1998, sales
improvements also reflect newly opened facilities in Germany, England and
Kansas. Operating income of this business also improved over the prior year for
both the third quarter and first nine months of 1998, reflecting improved sales
in traditional markets, growth in servicing flapper valve components, lower
overhead costs and a reduction in start-up costs from new facilities.
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
The Company's flow control product lines posted increases in sales and
operating income when comparing the third quarter and first nine-month periods
of 1998 with those of 1997. These sales increases largely reflect the July 1998
acquisition of Enertech, LLC. Enertech manufactures, distributes and represents
a number of products for sale into commercial nuclear power plants, both
domestically and internationally, and provides a broad range of overhaul and
maintenance services for such plants. In 1998, sales of commercial valve
products increased reflecting work performed for a foreign nuclear power plant
under a contract received in late 1997. Operating earnings for the nine-month
period also benefited from improved cost performance on valve remakes and
upgrade programs. While the Asian financial situation has not had an adverse
effect on this business, the Corporation anticipates some slow-downs or
stretch-outs in orders from this area in the future.
Sales generated from our aerospace product lines posted increases in
the third quarter of 1998, as compared with the third quarter of 1997, primarily
reflecting the continued high level of original equipment manufactured (OEM)
products for Boeing. Sales of actuation components and systems for commercial
customers increased in the nine-month 1998 period for the same reason and
operating income attributable to this commercial business increased in
conjunction with these sales increases. However, as we approach the projected
peak of the jetliner production cycle, we continue to experience a number of
cost and efficiency issues in this business. Sales of military actuation
products improved slightly in the third quarter of 1998, as increased sales
generated by the initial lot for the F-18 LEX program were largely offset by
declines in revenue from the F-22 and F-16 programs. Sales of military actuation
products for the first nine months of 1998 were slightly below those of 1997, as
sales benefits from the completion of "safety of flight testing" on F-22
components early in 1998 were offset by the end of an F-16 retrofit shaft
contract and lower foreign military sale procurements. During this nine-month
period the Corporation's military OEM production programs have experienced
inefficiencies, higher- than-expected manufacturing costs and provisions for
higher anticipated costs related to development program test efforts. Sales of
aerospace component overhaul services to foreign regions, while slightly below
expectations, have been steady in 1998 and are above 1997 levels for the third
quarter and first nine-month periods. The economic problems of foreign regions,
including Asia, have not had an adverse impact on current performance. Over the
first nine-months period of 1998, the Company's sales of overhaul and repair
services in the aggregate have improved 8% compared with the prior year period.
Non-Operating Revenues and Costs
Non-operating revenues for the first nine months of 1998 totaled $4.9
million compared to $6.8 million for the same period 1997. In the third quarter
of 1998 such revenues totaled $1.3 million against $3.4 million in the 1997
quarter. In the third quarter of 1997 Curtiss-Wright sold 688 acres of excess
property at two locations. The gain from the sale of those two parcels of
property net of tax was approximately $2.0 million or $.20 per share (adjusting
for the stock split).
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<PAGE>
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
Curtiss-Wright's performance for the third quarter and nine-month
periods of 1998 and 1997 has been hampered by significantly higher
administrative costs related to a lawsuit the Company has been pursuing. The
goal of this litigation is to obtain insurance reimbursement of a substantial
portion of the environmental expenses the Corporation has incurred over the past
decade and a half. All pre-trial discovery in this matter has now been
completed, and the Company is seeking to move it to the trial stage.
The Corporation's administrative costs in the first nine months of 1998
were reduced $3.2 million by accrued income generated from the Corporation's
over funded Pension Plan. In that period of 1997, accrued income from the Plan
totaled $2.6 million.
CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
The Corporation's working capital declined during the third quarter
from the June total of $139.6 million to $132.4 million, approximately the same
level as the December 1997 year-end amount of $132.8 million. The current ratio
at September 30, 1998 of 4.0 to 1 was reduced from the June 30, 1998 ratio of
4.4 to 1.
The change in working capital for the nine months 1998 period includes
a $6.8 million decrease in cash, cash equivalents and short-term investments
reflecting the $13.2 million expended in account of the acquisition of Enertech
and the $6.1 million spent in connection with Alpha Heat Treaters. Net billed
and unbilled receivables increased due to lower progress payments received and
higher sales for the quarter, in part from the Enertech acquisiton. The increase
in inventory is attributable primarily to Enertech also.
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 September 30, 1998,
encompasses various letters of credit issued primarily in connection with
outstanding industrial revenue bonds. There were no cash borrowings during the
first nine months of 1998 and no outstanding balances for borrowed funds under
the agreement at September 30, 1998.
During the first nine months of 1998, internally generated funds were
adequate to meet capital expenditures of $7.0 million. Expenditures were
primarily for machinery and equipment needed for the expansion of our metal
treating operations. Internally generated funds were also used for the April
1998 purchase of Alpha Heat Treaters, and the July 1998 purchase of Enertech.
Approximately $5 million of capital expenditures are anticipated for the balance
of the year to be used primarily for purchasing machinery and equipment for our
operations. An additional $.5 million of expenditures connected with
environmental remediation programs at the Corporation's Wood-Ridge, New Jersey
Business Complex are anticipated for the balance of 1998.
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<PAGE>
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
Recently Issued Accounting Standards
As discussed in Note 7 to the Consolidated Financial Statements, the
Corporation is reviewing the requirements for the adoption of Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging
Activities." It is anticipated that the Statement will not have a material
effect on the Corporation's results of operations or financial condition due to
Curtiss-Wright's limited use of derivative instruments. The Statement is
effective for the Corporation beginning January 1, 2000.
Year 2000
As many computer systems and other equipment with embedded chips or
processors (collectively, "Business Systems") use only two digits to represent
the year, they may be unable to process accurately certain data before, during
or after the year 2000. As a result, business and governmental entities are at
risk for possible miscalculations or systems failures causing disruptions in
their business operations. This is commonly known as the Year 2000 ("Y2K")
issue. The Y2K issue can arise at any point in the Company's supply,
manufacturing, processing, distribution and financial chains.
The Company and each of its operating units are in the process of
implementing a Y2K program with the objective of having all of their business
systems, including those that affect facilities and manufacturing activities,
functioning properly with respect to the Y2K issue before January 1,2000. Each
operating entity of the company is in a different stage of readiness. The scope
of work includes ensuring the compliance of all applications, operating systems
and hardware on mainframe, PC and LAN platforms, non- information technology
software and equipment and addressing key suppliers and customers.
The first component of the readiness program was to identify the
internal business systems of the Company that are susceptible to system failures
or processing errors as a result of the Y2K issue. This effort is substantially
complete.
The second component of the Y2K readiness program involves the actual
remediation and replacement of business systems. The Company is using both
internal and external resources to identify Y2K non-compliance problems, modify
code and test the modification. Those business systems considered most critical
to continuing operations are being given the highest priority. In some cases,
non-compliant software and hardware will be replaced. Based on the current
schedule, the Company expects to be in full compliance with its internal
business systems during 1999.
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<PAGE>
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
As part of the Y2K readiness program, significant service providers,
vendors, suppliers and customers that are believed to be critical to on-going
business operations have been identified and contacted in an attempt to
ascertain their stage of readiness through questionnaires and other available
means. To the extent that responses to Y2K readiness are unsatisfactory, the
Company intends to seek alternative suppliers, service providers or contractors
who have demonstrated Y2K readiness. In the event that any of the Company's
significant customers and suppliers do not successfully and timely achieve Y2K
compliance, and the Company is unable to replace them with new customers or
alternate suppliers, the Company's business or operations could be adversely
affected.
Concurrently, with the Y2K readiness measures described above, the
Company and its operating units are developing contingency plans intended to
mitigate the possible disruption in business operations that may result from the
Y2K issue and are developing cost estimates for such plans.
It is currently estimated that the incremental costs of the Company's
Y2K remediation efforts will be approximately $.3 million of which approximately
$.1 million has been spent. These costs are being expensed as they are incurred.
The costs associated with the replacement of computerized systems and hardware
are currently estimated to be $.3 million, which would be capitalized. These
amounts do not include any costs associated with the implementation of
contingency plans which are in the process of being developed.
The Company's Y2K readiness program is an on-going process and the
estimates of costs and completion dates are subject to change.
Euro Conversion
Curtiss-Wright operates in Europe through metal treatment and overhaul
and repair service facilities located in the United Kingdom, France, Germany,
Belgium and Denmark. On January 1, 1999, eleven participating members of the
European Monetary Union will establish fixed conversion rates between their
exisiting currencies and the Euro. Existing currencies will continue to be used
as legal tender through January 1, 2002. Thereafter, those currencies will be
cancelled and replaced solely by Euro notes and coinage. At this time the United
Kingdom, the source of most of the Corporation's european sales, is not
participating in this change. The Corporation anticipates that the Euro
conversion will not have a material adverse impact on its financial condition,
results of operations or liquidity.
-15-
<PAGE>
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) environmental
costs referred to in the Environmental Matters note to the Consolidated
Financial Statements and in the Results of Operations portion of the Management
Discussion and Analysis ("MD&A") section hereof, (b) projections relative to the
costs of compliance with SFAS No. 133, referred to in a note to the Consolidated
Financial Statements and in the Results of Operations portion of the MD&A
section hereof, (c) information relating to future capital expenditures
contained in the Changes in Financial Condition portion of the MD&A section
hereof, (d) comments regarding the impact of the financial situation in Asia
referred to in the Results of Operations portion of the MD&A section hereof, (e)
projections relative to the cost of compliance with Year 2000 issues in the MD&A
section hereof and (f) projection relative to the cost of Euro conversion in 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) unanticipated environmental remediation expenses or claims;
(ii) a reduction in anticipated orders; (iii) an economic downturn; (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 and/or customer requirements; (vi) an inability to perform customer
contracts at anticipated cost levels and (vii) other factors that generally
affect the business of aerospace and industrial companies.
-16-
<PAGE>
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
(a) On October 26, 1998, the Board of Directors of Curtiss-Wright
Corporation approved a stock repurchase program. Under this
program the Company is authorized to purchase up to 300,000
shares or approximately 3% of its common stock outstanding.
Purchases were authorized to be made from time to time in the
open market or privately negotiated transactions, depending on
market or other conditions.
(b) On November 2, 1998, Curtiss-Wright announced it had reached a
definitive agreement to acquire 100% of the shares of SIG
Drives Technology Ltd., a unit of SIG Swiss Industrial Company
Group (SIG). The transaction is expected to close on or about
December 31, 1998.
SIG Drive Technology (SDT), headquartered in Neuhausen am
Rheinfall, Switzerland, is a leading provider of
high-technology drive solutions for three principal markets;
commercial marine propulsion, train and military vehicles.
SDT's overall sales are expected to exceed $20 million in 1999
with a current backlog of over $40 million. SDT provides
electrohydraulic actuation. SDT also provides an array of
proprietary drive system technologies and system integration
capabilities the Corporation can supply to existing customers
and introduce us to new markets world-wide.
Item 6. EXHIBITS and REPORTS on FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedules (Page 19)
(b) Reports on Form 8-K
The Registrant did not file any report on Form 8-K during the
quarter ended September 30, 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: November 12, 1998
-17-
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