Curtiss-Wright Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. 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.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $2.391 billion | $2.488 billion | -4% |
| Gross profit / margin | $841 million / 35.2% | $899 million / 36.1% | Margin down 0.9 percentage points |
| Operating income / margin | $289 million / 12.1% | $404 million / 16.2% | Income down 28%; margin down 4.1 points |
| Net earnings | $201 million | $308 million | -35% |
| Diluted EPS | $4.80 | $7.15 | -33% |
| Operating cash flow | $261 million | $421 million | Down $160 million |
| Capital expenditures | $47 million | $70 million | |
| Cash and cash equivalents | $198 million | $391 million | |
| Total debt, net | $1.058 billion | $761 million | |
| Orders / year-end backlog | $2.321 billion / $2.164 billion | $2.580 billion / $2.167 billion | Orders down 10%; backlog broadly flat |
Operating cash flow less capital expenditures was approximately $214 million, compared with $352 million in 2019. Cash flow was reduced primarily by a discretionary $150 million pension contribution and timing of advance receipts. The company reported $479 million of unused revolving credit capacity, no revolver borrowings at year-end, and compliance with debt covenants. The current portion of debt was $100 million.
Material changes and segment results
- Commercial/Industrial: Sales fell 17% to $950 million; operating income fell 55% to $82 million and margin declined to 8.6%. COVID-19-related weakness in commercial aerospace and general industrial markets, lower overhead absorption, restructuring, and a German industrial-valve business impairment drove the decline.
- Defense: Sales rose 17% to $734 million, supported by naval and aerospace defense demand and acquisitions. Operating income increased 2% to $140 million, while margin decreased to 19.1%.
- Power: Sales declined 2% to $708 million and operating income declined 14% to $105 million. Lower commercial power-generation sales and restructuring costs weighed on results.
- Defense-market sales increased 17% to $1.263 billion; commercial-market sales decreased 20% to $1.128 billion. U.S. Government-related sales were 47% of total sales, versus 38% in 2019.
- The company acquired three businesses for an aggregate purchase price of approximately $496 million, including PacStar, and repurchased about 2.0 million shares for $200 million. Dividends were $0.68 per share, up from $0.66.
Outlook, risks, and unusual items
- Management described recovery in commercial aerospace and industrial markets as uncertain and dependent on the course of the pandemic and broader economic recovery. The filing provides no specific consolidated revenue or earnings guidance.
- Management anticipated 2021 capital expenditures of $50–$60 million and dividend payments of approximately $28 million. Restructuring actions, substantially completed by year-end, are expected to yield approximately $40 million in annual savings.
- FY2020 included a $33 million impairment charge after the company committed to sell its German industrial-valve business, and $42.7 million of total restructuring charges. These items, along with lower sales and overhead absorption, materially reduced operating profit.
- Commercial aerospace and general industrial demand were adversely affected by COVID-19; the company also reported temporary facility suspensions, supply-chain and production disruption, and uncertainty about future restrictions and customer demand.
- AP1000 contract delivery disputes with Westinghouse are in non-binding mediation. The disclosed possible loss range was $0–$55.5 million; management did not expect a material impact. Government contracts may be terminated, and backlog may be reduced or cancelled.
- Other key exposures include government budget changes, supplier performance, product liability and warranties, environmental remediation, foreign exchange, pension assumptions, cybersecurity, and goodwill or intangible-asset impairment. Goodwill and other intangible assets totaled approximately $2.065 billion, about 51% of assets.
- Leadership changed on January 1, 2021: Lynn Bamford became President and CEO, and David Adams became Executive Chairman. Beginning in 2021, segments were renamed Aerospace & Industrial, Defense Electronics, and Naval & Power, with business-unit transfers.
Most important facts for investors to verify
- Whether commercial aerospace and general industrial sales recover, and whether margins improve after the FY2020 downturn and restructuring.
- Whether anticipated $40 million annual restructuring savings are realized and whether further charges arise.
- Cash generation and liquidity following the $150 million pension contribution, acquisitions, and share repurchases; monitor debt repayment and the 2021 maturity.
- Progress on the German valve-business sale, including proceeds and any additional tax or impairment effects.
- Resolution and potential financial exposure from the AP1000 disputes, alongside government-contract funding and backlog conversion.
- Acquisition integration and performance, particularly the businesses acquired in 2020 and their contribution to earnings and cash flow.