Curtiss-Wright Corporation — FY 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also reports unaudited fourth-quarter results. Curtiss-Wright is a diversified manufacturer and service provider serving defense, power generation, oil and gas, commercial aerospace, and industrial markets through Flow Control, Motion Control, and Metal Treatment.
Financial performance
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Revenue | $1,893.1 million | $1,809.7 million | +4.6% |
| Gross profit / margin | $621.8 million / 32.8% | $595.5 million / 32.9% | Margin down slightly |
| Operating income / margin | $179.8 million / 9.5% | $169.3 million / 9.4% | +6.2% |
| Net earnings | $106.6 million | $95.2 million | +12.0% |
| Diluted EPS | $2.30 | $2.08 | +10.6% |
| Operating cash flow | $171.7 million | $196.6 million | Down $24.9 million |
| Capital expenditures | $53.0 million | $75.6 million | Down $22.6 million |
Operating cash flow less capital expenditures was approximately $118.7 million, versus $120.9 million in 2009. Cash and equivalents were $68.1 million. Total debt was $396.6 million, down from $465.1 million; net debt was approximately $328.5 million. Working capital was $472.1 million and the current ratio was 2.1, compared with 1.6 in 2009. The revolving credit facility had $258 million of unused availability, and the company reported compliance with its debt covenants.
Fourth-quarter 2010 revenue was $523.4 million, compared with $502.8 million in Q4 2009. Net earnings were $36.6 million versus $34.8 million, and diluted EPS was $0.79 versus $0.76.
Segments and changes from the prior year
- Flow Control: Revenue of $1,024.8 million, up 4.0%; operating income of $104.4 million, up 12.6%. Naval defense and power generation growth outweighed weaker oil-and-gas demand.
- Motion Control: Revenue of $647.0 million, up 4.2%; operating income of $80.4 million, down 0.7%. Commercial aerospace and industrial growth was largely offset by a $49 million decline in ground defense sales.
- Metal Treatment: Revenue of $221.3 million, up 8.7%; operating income of $25.8 million, up 29.9%, reflecting higher volumes and restructuring benefits.
Company-wide growth reflected a $55 million increase in organic sales, $26 million of incremental sales from acquisitions, and $3 million from currency translation. Segment organic operating margin improved to 11.8% from 10.7%, aided by higher volume and cost-reduction programs. Backlog rose 3% to $1.67 billion; new orders increased 11% to $1.92 billion. The 2010 effective tax rate declined to 32.7% from 34.4%, including a $4.2 million tax benefit related to foreign cash repatriation.
Outlook, risks, and notable items
- Management gave qualitative expectations, not a specific company revenue or EPS forecast. It anticipated moderate defense-spending growth or flattening, near-term improvement in commercial aerospace, and continued opportunities in power generation and oil and gas; timing of nuclear construction orders remained uncertain.
- Management cited defense budget reductions, program delays or cancellations, oil-and-gas customer delays and low capital spending, economic uncertainty, fixed-price contract cost overruns, customer concentration, supplier constraints, and foreign exchange as material risks. Government contracts may be terminated or reduced.
- Planned pension funding is significant: approximately $36 million to the principal U.S. pension plan in 2011 and about $195 million cumulatively through 2015. Pension expense for that plan was expected to be approximately $30 million in 2011.
- A new Oil and Gas division restructuring began in Q4 2010. The company recorded about $0.5 million of expense, expected roughly $2.5 million of additional 2011 expense, and estimated annualized savings of $2 million. Earlier restructuring initiatives were expected to yield $20–$25 million of annualized cash savings.
- Goodwill and other intangible assets totaled approximately $934 million, about 42% of assets; annual impairment testing found no impairment. Environmental reserves were $20.8 million. The company had approximately 126 pending asbestos lawsuits and stated it did not expect material liability. A gender-bias lawsuit reserve totaled $10.6 million after a December 2010 state Supreme Court ruling; the company sought reconsideration.
- 2010 acquisitions included Specialist Electronics Services and Hybricon. After year-end, the company acquired Predator Systems for $13.3 million and signed an agreement to acquire BASF’s Surface Technologies business; final terms and subsequent performance merit review.
Most important facts for investors to verify
- Whether backlog converts to revenue as expected, particularly the $1.67 billion total and the longer-dated Flow Control and Motion Control orders.
- Whether margin improvement and cash generation persist as working capital and customer receivables rise; days sales outstanding increased to 49 from 44.
- The pace and financial impact of U.S. defense budget changes, including exposure to naval programs and ground-defense reductions.
- Actual pension contributions, funded status, and expense relative to the company’s stated 2011 and through-2015 expectations.
- Resolution and potential cash exposure from the gender-bias case, environmental remediation, and other contingencies.
- Integration, purchase accounting, and returns from recent and announced acquisitions, plus the refinancing or repayment plan for the $110 million revolving-credit balance due in 2012.
Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting.