CW

Curtiss-Wright Corp. Q1 2008 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2008. Curtiss-Wright Corporation is a diversified, multinational manufacturer of precision components and systems serving aerospace, defense, automotive, power generation, and industrial markets. Operations are organized into three segments: Flow Control, Motion Control, and Metal Treatment. Approximately 35% of revenues are derived from defense-related markets.

Key Financial Metrics

Cash Flow: Net cash used for operating activities was $18.6 million, compared to $7.7 million used in Q1 2007. Investing activities used $23.8 million, primarily for capital expenditures ($23.5 million). Financing activities provided $40.3 million, driven by net borrowings of $36.5 million.

Material Changes vs. Prior Period

• Revenue Growth: Sales increased 30% year-over-year. This was driven by $68 million in incremental revenue from 2007 acquisitions and 10% organic growth.
• Segment Performance:
  • Flow Control: Sales up 53% to $211.0 million; Operating income up 40% to $14.0 million. Growth driven by power generation (AP1000 nuclear pumps) and oil & gas markets.
  • Motion Control: Sales up 18% to $154.8 million; Operating income up 7% to $13.9 million. Driven by ground defense (Bradley Fighting Vehicle) and commercial aerospace.
  • Metal Treatment: Sales up 6% to $67.6 million; Operating income flat at $13.1 million. Growth offset by a decline in automotive sales due to UAW strikes and high gas prices.
• Margin Compression: Overall operating margins declined 120 basis points to 9.4%. Organic margins declined 30 basis points due to lower gross margins on early-stage strategic programs (AP1000 and IBAS) and unfavorable foreign currency translation impacts on Canadian operations.
• Interest Expense: Increased to $7.6 million from $5.5 million due to higher average outstanding debt, partially offset by lower interest rates.

Outlook, Risks, and Unusual Items

• Guidance & Outlook: Management expects capital expenditures of approximately $85 million for the remainder of 2008, primarily for the AP1000 program. The company anticipates increasing margins as productivity improves on new programs.
• Subsequent Event: On April 14, 2008, the company agreed to sell its third-party commercial aerospace repair and overhaul business in Miami for $8.2 million. The sale is expected to close in May 2008.
• Legal Contingencies: A $6.5 million reserve exists for a gender bias lawsuit; management believes the punitive damages portion will be reversed on appeal. Environmental obligations remain at $23 million.
• Risks: Key risks include defense budget constraints, supply chain issues, foreign currency fluctuations, and the timing of long-term contract awards. Approximately 40% of the backlog is defense-related.

Investor Verification Checklist

• Verify the sustainability of organic growth in the Flow Control segment, specifically regarding the ramp-up of the AP1000 nuclear reactor program in China.
• Monitor the impact of foreign currency translation on operating income, particularly regarding Canadian operations where costs are in CAD but sales are in USD.
• Assess the timeline and margin recovery for the Bradley Fighting Vehicle (IBAS) and AP1000 programs, which currently have lower margins due to early-stage contract execution.
• Review the status of the gender bias lawsuit appeal and the potential for the reversal of the $6.5 million reserve.
• Confirm the closing of the Miami aerospace repair business sale and the resulting impact on future segment reporting.