SECURITIES and EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
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: 10,099,611 shares (as of July 30, 1999)
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 - 11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 15
Forward-Looking Statements 16
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
June 30, December 31,
1999 1998
Assets:
Cash and cash equivalents $ 13,379 $ 5,809
Short-term investments 50,581 66,444
Receivables, net 61,432 60,912
Deferred tax asset 7,796 7,841
Inventories 55,953 54,048
Other current assets 2,482 3,519
--------- ---------
Total current assets 191,623 198,573
--------- ---------
Property, plant and equipment, at cost 251,878 237,215
Less, accumulated depreciation 165,342 162,704
--------- ---------
Property, plant and equipment, net 86,536 74,511
Prepaid pension costs 46,555 43,822
Goodwill 31,875 30,724
Other assets 4,993 5,110
--------- ---------
Total assets $361,582 $352,740
========= =========
Liabilities:
Current portion of long-term debt $ 20,523 $ 20,523
Accounts payable and accrued expenses 27,938 30,687
Dividends payable 1,327
Income taxes payable 6,416 5,052
Other current liabilities 11,067 11,548
--------- ----------
Total current liabilities 67,271 67,810
--------- ----------
Long-term debt 20,162 20,162
Deferred income taxes 10,301 9,714
Other liabilities 24,630 25,461
--------- ----------
Total liabilities 122,364 123,147
--------- ----------
Stockholders' equity:
Common stock, $1 par value 15,000 15,000
Capital surplus 51,655 51,669
Retained earnings 355,833 342,218
Unearned portion of restricted stock (32) (40)
Accumulated other comprehensive income (3,388) (2,800)
---------- ----------
419,068 406,047
Less, cost of treasury stock 179,850 176,454
---------- ----------
Total stockholders' equity 239,218 229,593
---------- ----------
Total liabilities and stockholders' equity $361,582 $352,740
========== ==========
See notes to consolidated financial statements.
3
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of EARNINGS
(UNAUDITED)
(In thousands except per share data)
Six Months Ended Three Months Ended
June 30, June 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales $140,545 $120,251 $70,195 $59,405
Cost of sales 90,847 80,380 45,515 37,656
--------- --------- -------- --------
Gross margin 49,698 39,871 24,680 21,749
Research and development costs 1,740 591 592 286
Selling expenses 7,752 4,856 3,721 1,738
General and administrative 19,511 16,403 10,164 9,535
--------- --------- -------- --------
Operating income 20,695 18,021 10,203 10,190
Investment income, net 1,458 1,581 753 502
Rental income, net 2,247 1,763 1,421 850
Pension income 2,563 1,689 1,282 876
Other income (expense), net (337) 79 (252) (20)
Interest expense 630 185 327 96
--------- --------- -------- --------
Earnings before taxes 25,996 22,948 13,080 12,302
Provision for taxes 9,735 8,642 4,801 4,601
--------- --------- -------- --------
Net earnings $ 16,261 $ 14,306 $ 8,279 $ 7,701
========= ========= ======== ========
Weight average number of
shares outstanding 10,143 10,187 10,143 10,187
====== ====== ====== ======
Basic earnings per common share $1.60 $1.40 $0.82 $0.76
===== ===== ===== =====
Diluted earnings per common share $1.57 $1.38 $0.79 $0.75
===== ===== ===== =====
Dividends per common share $0.13 $0.13 $0.13 $0.13
===== ===== ===== =====
See notes to consolidated financial statements.
4
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net earnings $ 16,261 $ 14,306
--------- ---------
Adjustments to reconcile net earnings to net
cash provided by operating activities (net of
businesses acquired)
Depreciation and amortization 5,744 4,881
Net gains on short-term investments (81) (170)
Increase in deferred taxes 632 1,221
Changes in operating assets and liabilities:
Proceeds from sales of trading securities 190,132 197,151
Purchases of trading securities (174,188) (197,895)
(Increase) decrease in receivables 12,257 (2,218)
(Increase) decrease in inventory (476) 86
Decrease in progress payments (13,086) (2,220)
Increase (decease) in accounts payable
and accrued expenses (2,979) 599
Increase in income taxes payable 1,364 71
Increase in other assets (2,749) (3,027)
Decrease in other liabilities (2,532) (1,812)
Other, net (557) 1,381
---------- ---------
Total adjustments 13,481 (1,952)
---------- ---------
Net cash provided by operating activities 29,742 12,354
---------- ---------
Cash flows from investing activities:
Proceeds from sales of real estate and equipment 106 280
Additions to property, plant and equipment (11,573) (2,581)
Acquisitions (5,953) (6,106)
---------- ---------
Net cash used by investing activities (17,420) (8,407)
---------- ---------
Cash flows from financing activities:
Dividends paid (1,319) (1,324)
Common stock repurchased (3,433)
---------- ---------
Net cash used by financing activities (4,752) (1,324)
---------- ---------
Net increase in cash and cash equivalents 7,570 2,623
Cash and cash equivalents at beginning of period 5,809 6,873
---------- ---------
Cash and cash equivalents at end of period $ 13,379 $ 9,495
========== =========
See notes to consolidated financial statements.
5
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS of STOCKHOLDERS' EQUITY
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Unearned Accumulated
Portion of Other
Common Capital Retained Restricted Comprehensive Treasury
Stock Surplus Earnings Stock Awards Income Stock
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997 $15,000 $52,010 $318,474 $(342) $(3,289) $177,000
Net earnings 29,053
Common dividends (5,309)
Common stock repurchased 612
Stock options exercised, net (449)
Amortization of earnings portion
of restricted stock 108 302 (1,158)
Translation adjustments, net 489
-------- -------- --------- ------ -------- ---------
December 31, 1998 15,000 51,669 342,218 (40) (2,800) 176,454
Net earnings 16,261
Common dividends (2,646)
Common stock repurchased 3,433
Stock options exercised, net (14) (37)
Amortization of earned portion
of restricted stock 8
Translation adjustment, net (588)
-------- ------- --------- ------ --------- ---------
June 30, 1999 $15,000 $51,655 $355,833 $ (32) $(3,388) $179,850
======== ======== ========= ====== ========= =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
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, defense,
automotive, shipbuilding, oil, petrochemical, agricultural equipment,
power generation, railroad, metal working and fire & rescue industries.
The Corporation's principal operations include, five manufacturing
facilities (four domestic and one in Switzerland), thirty-seven metal
treatment service facilities located in North America and Europe, and
four component overhaul facilities.
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 1998 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 June 30, 1999, the Corporation acquired Metallurgical Processing,
Inc. (MPI), a midwest supplier of commercial heat-treating services,
primarily to the automotive and industrial markets. MPI provides a
number of metal-treating processes including carburizing, hardening,
and carbonitriding and services a broad spectrum of customers from its
Fort Wayne, Indiana location.
The Corporation acquired the stock of MPI for approximately $7.0
million in cash (of which $1.0 million has been deferred for one year)
and has accounted for the acquisition as a purchase in the second
quarter of 1999. The excess of purchase price over the fair value of
the net assets acquired is not expected to be material, based on
preliminary estimates.
7
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
3. RECEIVABLES
Receivables, at June 30, 1999 and December 31, 1998, 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)
June 30, December 31,
1999 1998
--------- -----------
Accounts receivable, billed $54,605 $63,412
Less: progress payments applied 1,102 11,687
--------- ---------
53,503 51,725
--------- ---------
Unbilled charges on long-term
contracts 15,835 17,447
Less: progress payments applied 5,960 6,350
--------- ---------
9,875 11,097
--------- ---------
Allowance for doubtful accounts (1,946) (1,910)
--------- ---------
Receivables, net $61,432 $60,912
========= =========
4. INVENTORIES
Inventories are valued at the lower of cost (principally average cost)
or market. The composition of inventories at June 30, 1999 and December
31, 1998 is as follows:
(In thousands)
June 30, December 31,
1999 1998
--------- -----------
Raw materials $ 9,500 $ 8,862
Work-in-process 23,422 27,582
Finished goods 26,445 23,130
-------- --------
Total inventories 59,367 59,574
Less: progress payments applied 3,414 5,526
-------- --------
Net inventories $55,953 $54,048
======== ========
8
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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, based upon the advice of counsel. 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, New Jersey, Caldwell Trucking Company
Superfund Site, Fairfield, New Jersey, Pfohl Brothers Landfill Site,
Cheektowaga, New York, and PJP Landfill, Jersey City, New Jersey
identified to date as the most significant sites.
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. SEGMENT INFORMATION
The Corporation conducts its business operations through three
manufacturing segments, Precision Manufacturing Products & Services
(PMPS), Actuation and Control Products & Services (ACPS), and Flow
Control Products & Services (FCPS).
<TABLE>
<CAPTION>
(In thousands) Three Months Ended June 30, 1999 Three Months Ended June 30, 1998
-------------------------------- --------------------------------
PMPS ACPS (1) FCPS PMPS ACPS FCPS
---- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenue from external $26,016 $30,529 $13,650 $27,263 $25,957 $ 6,185
customers
Intersegment revenues 53 0 0 151 0 0
Segment net income 3,702 1,129 746 5,212 670 466
Segment assets 80,773 116,104 42,596 65,457 89,277 15,721
Six Months Ended June 30, 1999 Six Months Ended June 30, 1998
------------------------------ ------------------------------
PMPS ACPS (1) FCPS PMPS ACPS FCPS
---- -------- ---- ---- ---- ----
Revenue from external $52,018 $60,838 $27,689 $53,131 $54,319 $12,801
customers
Intersegment revenues 172 306
Segment net income 7,533 2,052 1,878 9,822 (181) 1,348
<FN>
(1) Includes consolidation costs, net of tax benefits for the relocation of
operations in the amounts of $.8 million and $1.1 million for the second quarter
and first half of 1999, respectively.
</FN>
</TABLE>
9
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
Reconciliation Three months ended Six months ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
Total segment net income $5,577 $6,348 $11,463 $10,989
Rental income, net 738 415 1,182 838
Investment income, net 744 483 1,219 1,325
Pension income 758 548 1,516 1,036
Corporate and other 462 (93) 881 118
------ ------- ------- -------
Consolidated net income $8,279 $7,701 $16,261 $14,306
====== ======= ======= =======
7. 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 second quarter and first six-month
periods ended June 30, 1999 and 1998 are as follows:
(In thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Net earnings $8,279 $7,701 $16,261 $14,306
Equity adjustment from Foreign
currency translations 861 (279) (285) (88)
------ ------- -------- --------
Total comprehensive income $9,140 $7,422 $15,976 $14,218
====== ======= ======== =======
8. EARNINGS PER SHARE
The Corporation accounts for its earnings per share (EPS) in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS No. 128). Diluted earnings per share were computed based
on the weighted average number of shares outstanding plus all
potentially dilutive common shares issuable for the periods. Dilutive
common shares for the three and six months ended June 30, 1999 were
65,000 and 183,000, respectively and 14,000 and 148,000 for the three
and six months ended June 30, 1998.
9. SUBSEQUENT EVENT
On July 28, 1999, Curtiss-Wright Corporation announced that it had
entered into an agreement to acquire the Pressure Relief Valve (PRV)
and Vehicle Control Valve and Pump (VCP) businesses of Teledyne Fluid
Systems, an Allegheny Teledyne Incorporated company.
10
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
PRV operates under the "Farris Engineering" trade name and is one of
the world's leading manufacturers of spring loaded and pilot-operated
pressure-relief valves for use in processing industries that include
refineries, petrochemical/chemical plants and pharmaceutical
manufacturing. The VCP business being acquired provides specialty
hydraulic and pneumatic valves and air-driven pumps and gas boosters
sold under the "Sprague" and "PowerStar" trade names for general
industrial applications. VCP also manufactures certain directional
control valve products for truck transmissions and car transport
carriers.
The products of the businesses to be acquired are manufactured in
Brecksville, Ohio and Brantford, Ontario. A service and distribution
center is located in Edmonton, Alberta. The Corporation plans to
continue the PRV and VCP businesses in their current locations with the
current team of employees.
The combined sales of the businesses being acquired were approximately
$42.8 million in 1998. Curtiss-Wright has contracted to purchase the
assets of the businesses for approximately $44 million in cash.
The consummation of the transaction is subject to customary government
approvals pursuant to the Hart-Scott-Rodino Act, completion of a review
of the businesses of PRV and VCP, and certain closing conditions being
met by the parties including the execution of a Transition Services
Agreement. The transaction is expected to be completed in the third
quarter of 1999.
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board issued Statement
No. 137 deferring the effective date of Statement No. 133, "Accounting
for Derivatives and Hedging Activities" (SFAS No. 133). SFAS No. 133 is
now effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000 (January 1, 2001 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.
11
<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
Net earnings for the Corporation rose 8% to $8.3 million, or $.79 per
diluted share, from $7.7 million or $.75 per diluted share for the second
quarter of 1998. Sales increased 18% to $70.2 million from $59.4 million a year
ago. Operating earnings of $10.2 million were essentially the same as they were
for the same quarter of last year. While new orders for the second quarter
increased only slightly to $60.9 million, backlog was 30% higher, at $189.4
million.
Net earnings for the first six months of 1999 increased 14% to $16.3
million, or $1.57 per diluted share, from $14.3 million, or $1.38 per share, for
the first six months of 1998. Sales for the 1999 first half rose 17% to $140.5
million, from $120.3 million a year ago. Operating income was 15% higher at
$20.7 million for the first half of 1999, compared with the first half of 1998.
New orders in the 1999 first half totaled $131.7 million, 13% above their
year-ago level. These increases in sales, earnings and orders largely reflect
the three acquisitions made in 1998: Alpha Heat Treaters, Enertech and
Curtiss-Wright Drive Technology.
Operating Performance
The Corporation's Precision Manufacturing Products & Services (PMPS)
segment reported slightly lower sales in the second quarter and first six months
of 1999 than in the same periods of 1998. PMPS had record sales for
metal-treatment services in 1998, but so far in 1999 has felt several of its
primary markets soften: Services for oil tool, agricultural and certain
aerospace customers have declined in comparison with the prior year. Net
earnings for the 1999 periods were significantly below those of 1998, reflecting
lower margins on slightly lower sales and increased operating expenses.
Operating expenses for 1999 included costs for facility expansions, taking place
both domestically and in Europe.
The Corporation's Actuation and Control Products & Services (ACPS)
segment, for both the second quarter and first six months of 1999, had higher
sales and earnings largely reflecting the acquisition ofCurtiss-Wright Drive
Technology on December 31, 1998. Sales of commercial aircraft actuation products
also improved period to period largely as a result of orders under the contract
extension with Boeing signed in the first quarter of 1999. Earnings also
benefited from cost and performance enhancements for these programs. In the
second quarter, the sales of aircraft component overhaul and repair services
were slightly higher in comparison with the last year period, while sales of
military aircraft actuation products continued to decline.
12
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
The ACPS segment continues to incur substantial one-time costs
associated with the consolidation of its manufacturing operations into its
expanded Shelby, NC, facility and with the move of certain overhaul and repair
services to a new location in Gastonia, NC. Expenses related to the
consolidation activities, including costs related to the previously announced
shut-down of the Fairfield, NJ, facility, totaled approximately $1.3 million
during the second quarter and $1.8 million for the first six months of 1999.
Additional expenses associated with the consolidation activities are expected to
be incurred during the second half of 1999.
The Corporation's Flow Control Products & Services (FCPS) segment
produced substantially higher sales and improved earnings in the second quarter
and first half of 1999. Sales improvements for both 1999 periods were driven
largely by the acquisition of Enertech in July 1998 and by additional U.S. Navy
business.
Other Developments
As discussed in Note 2 to the Consolidated Financial Statements of this
Form 10-Q Report, the Corporation acquired Metallurgical Processing, Inc. (MPI)
on June 30, 1999. The purchase of MPI supports the Corporation's strategy of
growing the heat-treating business of the PMPS segment into new geographic
markets through acquisition. MPI adds an established market presence in an
attractive industrial area.
As discussed in Note 9 to the Consolidated Financial Statements of this
Form 10-Q Report, the Corporation entered into an agreement on July 28, 1999, to
acquire the Pressure Relief Valve (PRV) and Vehicle Control Valve and Pump (VCP)
businesses of Teledyne Fluid Systems.
CHANGES IN FINANCIAL CONDITION
Liquidity and Capital Resources
The Corporation's working capital was $124.4 million at June 30, 1999,
5% below working capital at December 31, 1998 of $130.8 million. The ratio of
current assets to current liabilities was 2.85 to 1 at June 30, 1999, compared
with a current ratio of 2.93 to 1 at December 31, 1998. Cash, cash equivalents
and short-term investments totaled $63.9 million in aggregate at June 30, 1999,
also decreasing slightly from $72.3 million at the prior year-end. The decline
in cash and short-term investments largely reflects the MPI acquisition of June
30, 1999.
Changes in working capital reflect slight increases in net receivables
and net inventories at June 30, 1999, from December 31, 1998. Working capital
also benefited from reduced accounts payable and accrued expenses, which was
largely offset by an increase in income taxes payable at June 30, 1999 and
accrued dividends payable for the second quarter of 1999.
13
<PAGE>
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
The Corporation has two credit agreements, a Revolving Credit Agreement
and a Short-Term Credit Agreement, in effect aggregating $45.0 million with a
group of three banks. The credit agreements allow for borrowings to take place
in US or certain foreign currencies. The Revolving Credit Agreement commits a
maximum of $22.5 million to the Corporation for cash borrowings and letters of
credit. The unused credit available under this facility at June 30, 1999 was
$1.1 million. The commitments made under the Revolving Credit Agreement expire
October 29, 2001, 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 which allows for cash borrowings of $22.5 million,
of which $2.0 million was available at June 30, 1999. The Short-Term Credit
Agreement expires October 22, 1999, and it is anticipated that it will be
extended, with the consent of the bank group, for an additional period not to
exceed 364 days. Cash borrowings under the two credit agreements at June 30,
1999 were at a US Dollar equivalent of $21.9 million. The loans had variable
interest rates averaging 2.03% for the first half of 1999. No cash borrowings
were outstanding at June 30, 1998.
During the first half of 1999, internally generated funds were adequate
to meet the investing and financing needs of the Corporation. Capital
expenditures totaled $11.6 million during the first half and were primarily for
machinery and equipment needed for the PMPS segment. Internally generated funds
were also used for the June 30, 1999 acquisition of Metallurgical Processing Inc
and the purchase of a 53,000-square-foot building in Gastonia, North Carolina
for a portion of its commercial aircraft component repair and overhaul
operations, made during the first quarter of 1999. Additional funds generated by
the Corporation were used to repurchase 94,750 shares of its common stock, at a
cost of $3.4 million during the first half of 1999.
Cash and short-term investment holdings of the Corporation are expected
to be adequate to cover the cost of the acquisition of the Pressure Relief Valve
and Vehicle Control Valve and Pump business units of Teledyne Fluid Systems, as
discussed in Note 9 to Consolidated Financial Statements. The cost of the
acquisition is approximately $44.0 million.
An additional $8.5 million of capital expenditures is anticipated for the
balance of the year, primarily for capital equipment and facility expansions. It
is anticipated that these expenditures will be met without further borrowings.
YEAR 2000
As is more fully described under the subheading "Year 2000" under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations," as referenced in the Corporation's annual report on Form 10-K
for the fiscal year ended December 31, 1998, the Corporation is modifying or
replacing portions of its software as well as certain hardware to permit
14
<PAGE>
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, Continued
continued operations beyond December 31, 1999 without systems failures or
processing errors that might arise as a result of the so-called Year 2000 (Y2K)
issue.
Each operating entity of the Corporation is at a different stage of
readiness. Identification of the internal business systems of the Corporation
that are susceptible to system failures or processing errors as a result of the
Y2K issue is substantially complete. The Corporation is using both internal and
external resources for its remediation efforts, including the modification of
code and test of the resulting modifications. Based on the current schedule, the
Corporation expects its internal business systems to be functioning properly
with respect to the Y2K issue before January 1, 2000.
Additionally, 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. Where necessary, the Corporation intends to seek alternative
suppliers, service providers or contractors who have demonstrated Y2K readiness.
Concurrently, with the Y2K readiness measures described above, the Corporation
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. Based on the current
schedule, the Corporation expects such plans to be in place by the end of the
third quarter of 1999.
It is currently estimated that the incremental costs of the
Corporation's Y2K remediation efforts will be approximately $.5 million of which
approximately $.3 million has been spent. Remediation 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 amount is
being capitalized. These amounts do not include any costs associated with the
implementation of contingency plans that are in the process of being developed.
The Corporation's Y2K readiness program is an on-going process and the
estimates of costs and completion dates are subject to change.
15
<PAGE>
FORWARD-LOOKING INFORMATION
Except for historical information, this Quarterly Report on Form 10-Q may be
deemed to contain "forward looking" information. Examples of forward looking
information include, but are not limited to, (a) projections of or statements
regarding return on investment, future earnings, interest income, other income,
earnings or loss per share, 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 could cause actual results to differ
materially from future results expressed or implied by such forward looking
information. Such statements 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) an economic downturn; (iii) unanticipated
environmental remediation expenses or claims; (iv) changes in the need for
additional machinery and equipment and/or in the cost for the expansion of the
Corporation's operations; (v) changes in the competitive marketplace 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 companies operating in the Corporation's Segments.
16
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS and REPORTS on FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedules (Page 18)
(b) Reports on Form 8-K
The Registrant did not file any report on Form 8-K during the
quarter ended June 30, 1999.
On August 2, 1999, the Registrant filed a Form 8-K regarding
the signing of a definitive asset purchase agreement to
acquire the Pressure Relief Valve (PRV) and Vehicle Control
Valve and Pump (VCP) business units of Teledyne Fluid Systems,
an Allegheny Teledyne Incorporated company, for a purchase
price of approximately $44 million.
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
undersigned 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: August 4, 1999
17
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