Curtiss-Wright Corporation — 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. Curtiss-Wright designs, manufactures, and services engineered products for commercial/industrial, defense, and energy markets. Amounts below are in U.S. dollars; financial statements are unaudited.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net sales | $559.5 million | $512.4 million | $1,674.0 million | $1,533.4 million |
| Operating income | $74.1 million | $65.6 million | $207.1 million | $165.0 million |
| Operating margin | 13.3% | 12.8% | 12.4% | 10.8% |
| Continuing-operations earnings | $44.3 million | $37.9 million | $123.6 million | $94.3 million |
| Net earnings, including discontinued operations | $25.0 million | $36.4 million | $96.6 million | $90.7 million |
| Diluted EPS, continuing operations | $0.90 | $0.79 | $2.52 | $1.98 |
| Diluted EPS, total | $0.51 | $0.76 | $1.97 | $1.90 |
Q3 gross profit was $193.4 million, compared with $178.7 million a year earlier; nine-month gross profit was $576.5 million versus $527.0 million. The filing attributes stronger continuing results mainly to higher Commercial/Industrial sales, productivity and margin-improvement efforts. Q3 total net earnings fell despite higher continuing earnings, primarily because discontinued operations recorded a $19.3 million after-tax loss.
Cash, debt, and liquidity
- Nine-month operating cash flow was $153.2 million, up from $134.4 million. Investing activities used $32.7 million, versus $163.9 million in the prior-year period; financing activities used $65.1 million, versus providing $92.2 million.
- Cash and equivalents were $222.5 million at September 30, 2014, compared with $175.3 million at December 31, 2013. Capital expenditures were $54.5 million for the nine months.
- Total debt was approximately $936.6 million, including $936.0 million of long-term debt and $0.6 million current debt. The company had no revolving-credit borrowings and reported $460 million of unused credit availability after letters of credit.
- Management said cash, operating cash flow, credit availability, and access to capital markets were sufficient for short- and long-term needs; it reported compliance with debt covenants.
- Nine-month dividends paid were $12.5 million. The quarterly dividend was raised to $0.13 per share, and the company repurchased about 675,000 shares for $44.6 million during the period.
Material changes and business developments
- Sales rose 9% in both the quarter and year-to-date periods. Nine-month operating income rose 25%, and operating margin increased 160 basis points.
- Commercial/Industrial was the strongest growth segment: nine-month sales increased 16% and operating income 41%. Defense sales increased 1% and operating income 2%; Energy sales increased 8% and operating income 12%.
- Nine-month new orders increased 19% to $1.87 billion, led by Defense orders, including a new turret-drive stabilization systems contract and higher naval-program orders. Energy orders were down 2% to $297.5 million.
- The company reorganized reporting into Commercial/Industrial, Defense, and Energy; prior-period segment information was recast. It also pursued a strategic portfolio review, selling Benshaw, 3D Radar, and Vessels and classifying additional businesses as held for sale.
- Businesses classified as held for sale included upstream and downstream oil and gas operations, engineered packaging, aviation ground support equipment, and two surface-treatment facilities. Held-for-sale assets totaled $316.2 million, with $77.3 million of related liabilities.
Outlook, unusual items, and risks
- The filing provides no quantified earnings or sales guidance. Management discussed operating improvements and order growth but cautioned that forward-looking results are subject to risks and uncertainties.
- Discontinued operations produced a $27.0 million after-tax loss for the nine months, including $17.6 million of impairment charges on held-for-sale businesses and $9.5 million of after-tax losses on business sales. Prior-year results were restated for discontinued-operations presentation.
- Foreign-currency translation reduced other comprehensive income by $47.9 million in Q3 and $40.1 million year to date. Q3 comprehensive loss was $21.8 million.
- A Canadian Natural Resources Limited claim relating to a 2011 refinery fire alleges damages estimated at $1 billion or more. Curtiss-Wright cannot estimate a potential loss, says it has defenses and insurance, and intends to defend the claim; it warns an unfavorable outcome could materially affect results, financial condition, or cash flows.
- For AP1000 reactor-pump contracts, Westinghouse asserted entitlement to about $25 million of maximum liquidated damages under the China contract. Curtiss-Wright reported missed delivery dates on China and U.S. contracts, disputed responsibility, made no accrual, and disclosed a possible loss range of $0–$40 million.
- Environmental reserves were $16.0 million. The company also disclosed asbestos claims, letters of credit and guarantees, and a $52.9 million surety bond for nuclear-facility decommissioning assurance.
Important facts for investors to verify
- Whether held-for-sale businesses are sold on expected terms and whether further impairments or disposal losses arise.
- Progress in resolving the CNRL litigation and AP1000 delivery/liquidated-damages disputes, including any change to the disclosed exposure ranges.
- Whether order growth converts into sales and margins, particularly in Defense and Energy, and whether AP1000 production remains a headwind.
- Cash conversion, pension contributions, debt levels, and use of the announced future share-repurchase authorization of up to approximately $300 million.
- Any subsequent management guidance and the effects of the new revenue-recognition standard, which the company was still evaluating.