01—Abstract
Summary
Summary of the 10-K filed March 22, 1996. Cited figures are marked; the original filing is the authoritative source.
Curtiss-Wright Corporation's 1995 10-K shows a year of mixed results: consolidated sales were essentially flat at $154.4 milliona (vs. $155.0 million in 1994), and net earnings fell 6% to $18.2 million, or $3.59 per share, from $19.3 million, or $3.81 per share.
The decline was driven by the Aerospace & Marine segment, where sales dropped 8% to $92.4 millionb and segment operating income fell 38% to $11.7 million. The company cited non-reimbursed engineering costs on the F-22, V-22 and F/A-18 E/F programs and start-up costs at its European facility. The Industrial segment offset part of this weakness, with sales up 13% to $62.0 million and operating income up 47% to $11.5 million, largely on higher shot-peening and heat-treating volume from automotive customers.
Orders and backlog improved on the aerospace side. New orders rose 23% to $150.9 millionc, mainly from actuation and control contracts on new commercial aircraft (Boeing 757, 767 and 737). Year-end backlog nonetheless declined 11% to $103.6 million.
Management noted that shot-peening, heat-treating, overhaul and spare-parts work, which exceeds 50% of sales, carries short lead times, so backlog is a less reliable guide to near-term revenue than it would be for long-term contracts. The balance sheet remains very conservative. Working capital rose to $120.6 milliond, the current ratio improved to 4.6:1, cash and short-term investments totaled $78.8 million, and long-term debt was only $10.3 million.
Stockholders' equity reached $172.2 million ($33.91 per share), and the $1.00 annual dividend was maintained. Management expects 1996 capital spending to rise to about $18.8 million, mainly for Aerospace & Marine facility expansion, and expects military sales to benefit from F-16 foreign orders. Government-related business accounted for 39% of 1995 sales, and the company faces ongoing exposure to a New Jersey Superfund-related matter and environmental remediation at its Wood-Ridge site.
02—Key points
Key Highlights
- Sales of $154.4 million were roughly flat versus 1994, with Aerospace & Marine down 8% to $92.4 million and Industrial up 13% to $62.0 million.
- Net earnings of $18.2 million ($3.59 per share) declined 6% from 1994, with a 11.8% return on sales and 11.0% return on equity.
- New orders rose 23% to $150.9 million on new commercial aircraft contracts, but year-end backlog fell 11% to $103.6 million.
- Aerospace & Marine operating income fell 38% to $11.7 million, weighed down by non-reimbursed development costs on F-22, V-22 and F/A-18 E/F programs.
- Industrial segment operating income rose 47% to $11.5 million, driven by shot-peening and heat-treating services to automotive customers.
- Balance sheet is very strong: working capital of $120.6 million, a 4.6:1 current ratio, $78.8 million in cash and short-term investments, and only $10.3 million of long-term debt.
- The $1.00 annual dividend was maintained, and capital expenditures are projected to more than double to about $18.8 million in 1996.
03—Questions
Frequently Asked Questions
Why did Curtiss-Wright's earnings decline in 1995 even though sales were stable?
Sales held near 1994 levels, but the mix shifted. Aerospace & Marine sales fell 8% as F-16 actuation shipments declined from the prior year's retrofit peak, and the segment absorbed significant non-reimbursed engineering costs on the F-22, V-22 and F/A-18 E/F development contracts. Those costs, plus start-up expenses at the European facility, reduced segment operating income by 38%. The Industrial segment's 47% operating income gain offset part of the decline, but not all of it.
Is the 11% decline in backlog a concern for investors?
Less than it might appear. Management notes that more than 50% of 1995 sales came from shot-peening, heat-treating, overhaul and spare-parts services, which have very short lead times, so backlog is a weak predictor of their revenue. Total new orders rose 23% to $150.9 million, which points to improving demand. Investors should still watch whether long-term aerospace orders convert into a sustained backlog build in 1996.
How strong is Curtiss-Wright's financial position?
Very strong for a company of its size. It ended 1995 with $78.8 million in cash and short-term investments against only $10.3 million of long-term debt, a current ratio of 4.6:1, and stockholders' equity of $172.2 million, or $33.91 per share. Unused revolving and short-term credit capacity was also substantial, and no cash borrowings were outstanding.
How dependent is the company on government and defense business?
Heavily. Direct and end-use government sales were 39% of 1995 total sales, up from 31% in 1994. Several major aerospace customers, including Lockheed Martin for F-22 work and Westinghouse for U.S. Navy valve business, are material. Government contracts can be terminated for convenience, and management acknowledges the risk of further defense spending reductions. Progress payments are also secured by government liens on work in process.
What are the main growth prospects and risks for 1996?
Management expects higher commercial aircraft production rates from Boeing in 1996 (the 757, 767 and redesigned 737 programs run through 2002) and more F-16 foreign military sales. Risks include a temporary Boeing production dip from its late-1995 strike, continued non-reimbursed development costs on F-22, V-22 and F/A-18 E/F programs, and the lengthy timeline before those programs reach production, which the company places around the turn of the century. Environmental remediation at Wood-Ridge, New Jersey, and the Sharkey Landfill matter also remain open items.
04—Continue