Curtiss-Wright Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Curtiss-Wright is a diversified manufacturer and service provider reporting through Commercial/Industrial, Defense, and Power segments. Comparative figures have been reclassified for the segment changes and discontinued operations.
Financial results
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Net sales from continuing operations | $546.2 million | $543.0 million | +1% |
| Gross profit / margin | $191.1 million / 35.0% | $184.6 million / 34.0% | Margin +1.0 percentage point |
| Operating income / margin | $72.8 million / 13.3% | $61.0 million / 11.2% | +19% / +2.1 points |
| Continuing operations earnings | $43.2 million | $36.4 million | +19% |
| Net earnings | $16.0 million | $35.2 million | Down, principally due to discontinued operations |
| Diluted EPS: continuing / total | $0.89 / $0.33 | $0.74 / $0.72 | Continuing EPS rose; total EPS fell |
| Operating cash flow | $(171.1) million | $(14.6) million | Greater cash use |
| Cash and cash equivalents | $215.6 million | $450.1 million at Dec. 31, 2014 | Down $234.5 million |
| Total debt | $966.2 million | $954.3 million at Dec. 31, 2014 | Up $11.8 million |
Product sales were $445.7 million, up from $436.2 million; service sales were $100.5 million, down from $106.7 million. The effective tax rate increased to 32.8% from 30.1%. The quarterly dividend remained $0.13 per share.
Segments and orders
- Commercial/Industrial: Sales $297.9 million, down 1%; operating income $43.3 million, up 12%; margin 14.5% versus 12.8%. Organic sales growth and cost initiatives supported results, while currency translation and weaker industrial valve sales weighed on sales.
- Defense: Sales $113.5 million, up 1%; operating income $18.0 million, up 14%; margin 15.9% versus 14.0%. Growth included embedded computing and ground defense demand; favorable currency contributed about $2 million to operating income.
- Power: Sales $134.8 million, up 4%; operating income $19.5 million, up 37%; margin 14.5% versus 11.0%. Results included a one-time benefit from an AP1000 termination change order.
- New orders increased 8% to $628.6 million, with organic growth across all three segments.
Liquidity, cash flow, and debt
- Operating cash use included a voluntary $145.0 million contribution to the Curtiss-Wright Pension Plan, higher tax payments, and working-capital outflows. Cash used for investing was $17.9 million, including $13.2 million for the Bolt’s Metallizing acquisition; financing used $36.0 million, including $47.0 million of share repurchases.
- At quarter-end, the company had no revolving-credit borrowings, $58 million of letters of credit supported by the facility, and $442 million of unused credit available under the facility. Management said cash, operating cash flow, available borrowings, and access to capital markets were sufficient for short- and long-term needs.
- Debt averaged $958 million during the quarter at an average interest rate of 3.4%. The company reported compliance with debt covenants and $984 million of additional borrowing capacity under its debt-to-capitalization covenant.
- The balance sheet showed current assets of $1.34 billion and current liabilities of $483.3 million. Foreign-currency translation reduced other comprehensive income by $56.5 million; comprehensive loss was $38.1 million.
Material changes, outlook, and risks
- Continuing-operations performance improved, but reported net earnings were reduced by a $27.2 million after-tax loss from discontinued operations. The discontinued-operations results included a $40.8 million impairment charge, principally associated with the Downstream Refining business amid continued oil and gas market uncertainty.
- The company had sold its Aviation Ground Support Equipment business during the quarter and continued to classify certain businesses—including Downstream Refining, Engineered Packaging, and surface-treatment facilities—as held for sale. It also realigned its segments, moving certain nuclear businesses into Power and remaining oil and gas businesses into Commercial/Industrial.
- Management reported no formal earnings guidance in the provided filing text. It expected approximately 33% of 2015 revenue to come from defense-related markets. Management cited higher orders and organic growth across segments, while acknowledging exposure to market conditions and foreign exchange.
- Contingencies: A Canadian Natural Resources Limited claim related to a refinery fire alleges damages estimated at $1 billion or more. Curtiss-Wright cannot estimate a loss range; insurance may not be adequate, and an unfavorable outcome could materially affect results, financial condition, or cash flows. The company intends to defend the matter.
- AP1000: Westinghouse asserted entitlement to approximately $25 million in maximum liquidated damages under the China contract. Curtiss-Wright reported possible losses of $0–$41 million across AP1000 contracts, made no accrual, and intends to contest responsibility for delays.
- The filing also notes asbestos litigation, which management does not expect to be material and believes is insured. Goodwill impairment testing following segment realignment identified no impairment.
Investor facts to verify
- Whether the one-time AP1000 termination-change-order benefit is included in reported Power growth and how results perform without it.
- Progress and sale terms for held-for-sale businesses, and whether further impairments or costs arise—particularly in Downstream Refining.
- Developments in the CNRL litigation and AP1000 liquidated-damages disputes, including insurance coverage and any eventual accruals.
- Cash generation after the large pension contribution, continued pension funding needs, and the effect of share repurchases on liquidity and debt.
- Order conversion, segment margins, foreign-exchange effects, and the sustainability of the quarter’s operating-income growth.