Curtiss-Wright Corporation — FY2019 Form 10-K
Reporting period: Year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Curtiss-Wright designs, manufactures, and services engineered products for defense, commercial aerospace, general industrial, and power-generation markets through Commercial/Industrial, Defense, and Power segments.
Financial performance and liquidity
Amounts below are in U.S. dollars; annual figures are compared with FY2018 unless stated otherwise.
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Net sales | $2,488 million | $2,412 million | +3% |
| Operating income | $404 million | $374 million | +8% |
| Operating margin | 16.2% | 15.5% | +0.7 percentage point |
| Net earnings | $308 million | $276 million | +12% |
| Diluted EPS | $7.15 | $6.22 | +15% |
| Cash from operations | $421 million | $336 million | +$85 million |
| Capital expenditures | $70 million | $53 million | +$17 million |
| Cash and cash equivalents, year-end | $391 million | $276 million | +$115 million |
| Debt, net, year-end | $761 million | $763 million | −$2 million |
Operating cash flow less capital expenditures was approximately $352 million, versus $283 million in 2018. Management attributed the cash-flow improvement mainly to the absence of a $50 million voluntary pension contribution in the prior year, stronger receivable collections, and lower inventory receipts, partly offset by higher disbursements. The company paid $28 million in dividends and repurchased $51 million of shares in 2019. Its $500 million revolving facility had no borrowings and $467 million of unused capacity at year-end; the company reported compliance with debt covenants. The current ratio was approximately 2.1.
Material changes and segment trends
- Sales and operating income increased, with organic growth contributing 2% and 6%, respectively; acquisitions contributed 2% to sales growth.
- Commercial/Industrial sales rose 3% and operating income rose 8%; margin improved to 15.8%. Aerospace and defense demand and asset-sale gains helped, while industrial weakness and tariffs were offsets.
- Defense sales rose 5%, but operating income increased only 1%; margin declined 0.8 percentage point to 22.4%. Higher defense sales were offset by product mix, higher R&D, and the absence of favorable prior-year contract adjustments.
- Power sales grew 3% and operating income 14%; margin increased to 16.9%. Naval defense growth and the absence of first-year purchase-accounting costs for the 2018 DRG acquisition helped, while lower AP1000 China program sales were a drag.
- Defense end-market sales increased 12%, led by naval (+17%) and aerospace (+11%). Commercial end-market sales declined 3%, including power generation (−9%) and general industrial (−4%).
- New orders increased 6% to $2.58 billion; backlog rose to $2.17 billion. Management expected approximately 92% of backlog to be recognized as sales over the next 12–36 months.
In Q4 2019, sales were $656 million versus $649 million in Q4 2018; net earnings were $89 million versus $83 million, and diluted EPS was $2.08 versus $1.89.
Outlook, risks, and unusual items
- The filing does not provide a clear quantified FY2020 sales or earnings outlook. Management forecast capital expenditures of approximately $65–$75 million and dividends of approximately $28 million for 2020, and said existing cash, operating cash flow, and available borrowing capacity should meet expected needs.
- Management described the outlook for economically sensitive commercial and industrial markets as cautiously optimistic, while noting uncertainty in global economic conditions. The January 2020 coronavirus outbreak in China was identified as a potential risk whose effects were too early to assess.
- Defense demand depends significantly on government funding, procurement, and program timing. Other disclosed risks include contract cost estimates and performance, cancellations or reductions in backlog, tariffs and trade policy, aerospace production cycles, supplier availability, foreign exchange, cyber threats, and environmental and regulatory obligations.
- Potential AP1000 liquidated damages remained unaccrued because responsibility for delays was disputed; the disclosed possible-loss range was $0–$55.5 million. A separate CNRL claim was settled, with Curtiss-Wright’s $6 million share paid in 2020 through insurance and no expected further liability.
- The company made two acquisitions for $185 million in 2019. A $150 million voluntary pension contribution was made in January 2020, after year-end. The annual goodwill impairment test found no impairment.
Investor verification points
- Review the drivers and durability of higher naval-defense orders, backlog conversion, and segment margin performance.
- Assess AP1000 schedule, cost, and litigation exposure, alongside management’s stated $0–$55.5 million possible-loss range.
- Check cash generation and liquidity after the $150 million 2020 pension contribution, planned capital spending, dividends, and acquisition activity.
- Monitor commercial aerospace, industrial, and nuclear power demand, as well as the effects of tariffs and the coronavirus outbreak noted in the filing.
- Evaluate the sensitivity of long-term contract revenue and earnings to estimated costs to complete; over-time revenue recognition represented 49% of FY2019 sales.