01—Abstract
Summary
Summary of the 10-K filed March 17, 1997. Cited figures are marked; the original filing is the authoritative source.
Curtiss-Wright Corporation's 1996 Form 10-K shows a year of solid top-line growth but weaker profitability.
Sales rose 10.4% to $170.5 milliona, driven by the May 1996 acquisition of Aviall's Accessory Services (Miami overhaul facility, about $16.6 million in cash) and growth in metal treating and overhaul services. Net earnings fell 11% to $16.1 million, or $3.17 per share, from $18.2 million ($3.59). Management attributed the shortfall largely to about $2.5 million ($0.49 per share) of charges, including reserves for engineering cost overruns on military actuation and control development contracts (V-22, F/A-18 E/F, Lockheed Martin ATF) and higher environmental expenses.
Excluding these unusual items, earnings would have been about $18.6 millionb ($3.66 per share), roughly flat with 1995. The balance sheet remained conservative. Stockholders' equity rose to $183.4 million ($36.09 per share), working capital was $115.4 million with a 3.7-to-1 current ratio, and the company carried only $10.3 million of long-term debt (industrial revenue bonds).
Cash and short-term investments totaled $62.0 millionc, down $16.8 million after the acquisition. Operating cash flow improved to $33.2 million from $17.4 million, and capital expenditures doubled to $14.2 million, mainly for the Shelby, North Carolina expansion tied to Boeing 757, 767 and 737-700 programs. The dividend was held at $1.00 per share, and the company had roughly 5.08 million shares outstanding.
Looking ahead, management expects growth from Boeing production ramp-ups, expanded aftermarket overhaul and metal treating operations in Europe and the Pacific Rim, and selective acquisitions. The key risks for investors are completing the testing phase of the loss-making military development programs, reducing manufacturing costs on new Boeing programs, and continued environmental remediation spending, including the Wood-Ridge, New Jersey site. Government sales were 23%d of total sales in 1996, which adds some exposure to defense budget cycles.
02—Key points
Key Highlights
- Sales increased 10.4% to $170.5 million (from $154.4 million), led by the Aerospace & Marine segment, which grew 19% to $109.9 million, largely from the Accessory Services acquisition.
- Net earnings declined 11% to $16.1 million ($3.17 per share) from $18.2 million ($3.59); excluding about $2.5 million of unusual charges, earnings would have been $18.6 million ($3.66 per share).
- Military actuation and control development contracts (V-22, F/A-18 E/F, Lockheed Martin ATF) continued to generate engineering cost overruns, with $3.6 million of product and engineering costs in excess of contract price in 1996.
- Operating cash flow more than doubled to $33.2 million, while capital expenditures rose to $14.2 million, primarily for the Shelby, NC expansion supporting Boeing production.
- Balance sheet remains strong: stockholders' equity of $183.4 million, working capital of $115.4 million, a 3.7-to-1 current ratio, and only $10.3 million of long-term debt.
- Cash and short-term investments declined to $62.0 million from $78.8 million, reflecting the $16.6 million Accessory Services purchase; $22.5 million revolving and $22.5 million short-term credit facilities remain undrawn.
- Dividend held steady at $1.00 per share, and backlog rose to $109.3 million from $103.6 million, with new orders up 14% to $171.6 million.
03—Questions
Frequently Asked Questions
Why did Curtiss-Wright's earnings decline in 1996 even though sales grew?
Sales grew 10% on the Accessory Services acquisition and metal treating growth, but earnings fell 11% to $16.1 million. Key drags included about $2.5 million of charges for engineering cost overruns on military development contracts and environmental reserves, lower investment income (down 28% to $3.0 million) as cash was used for the acquisition, and higher learning costs on new Boeing production programs.
How significant is the Aviall Accessory Services acquisition?
The company paid about $16.6 million in cash in May 1996 for the Miami, Florida overhaul business. Overhaul services rose to roughly 16% of 1996 sales from 7% in 1995, and the acquisition expanded the company's ability to repair and overhaul Boeing, McDonnell Douglas and Airbus components. Management views overhaul as a strategic growth area for global expansion.
How dependent is Curtiss-Wright on government and defense business?
U.S. Government direct and end-use sales were 23% of total sales in 1996, down from 25% in 1995 and 31% in 1994. The Aerospace & Marine segment's military programs and Navy nuclear valve business are subject to contract termination for convenience and to budget cuts. The company also cites reduced military program volumes as a competitive pressure.
What are the main risks in the military development programs?
The company has absorbed engineering cost overruns on firm fixed-price development contracts for the V-22 tilt rotor, F/A-18 E/F and Lockheed Martin Advanced Tactical Fighter. Management expects these programs to substantially complete testing in 1997, with production on V-22 and the other programs scheduled to begin in 1997 and 1999. Continued cost overruns could further pressure earnings.
Is the company's financial position strong enough to fund growth?
Yes. Management states that the company had about $62 million in liquid resources and significant unused borrowing capacity, with total credit facilities of $45 million and no cash borrowings outstanding at year-end 1996. Operating cash flow of $33.2 million covered $14.2 million of capital spending and dividends of $5.1 million, and management says cash generation is adequate for planned capital, environmental and working capital needs.
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