What is the recapitalization, and how could it affect shareholders?

Unitrin, which owns about 44% of Curtiss-Wright, plans to distribute its roughly 4.4 million shares to its own stockholders tax-free. To make this possible, Unitrin's shares would convert into a new Class B common stock that carries the right to elect at least 80% of the board. Existing common stockholders keep their shares and retain the right to elect the remaining directors. The company expects the transaction to broaden the shareholder base and increase trading liquidity and analyst coverage, and it will pay a $0.25 special dividend to non-Unitrin holders if the distribution occurs. The transaction still requires IRS approval and a stockholder vote, with completion anticipated in the first half of 2001.

Why did operating cash flow fall so sharply in 2000?

Operating cash flow was $24.1 million in 2000 versus $80.9 million in 1999. The filing shows large swings in trading-securities purchases and sales, along with a $10.1 million reduction in other liabilities, a $7.8 million noncash pension income adjustment, and a $1.6 million decline in progress payments. These offsets were partly countered by lower receivables and inventories, which improved days sales outstanding to 63 from 77 and inventory turnover to 3.8 from 3.2. Investors should review the cash flow statement carefully, since the comparison is distorted by trading-security activity.

How much of the 2000 earnings came from one-time items, and what does normalized earnings show?

Reported net earnings of $41.1 million included several nonrecurring items. These included $1.9 million of net environmental insurance settlements, $1.3 million of postretirement and postemployment benefit gains, a $0.9 million after-tax gain on a property sale, and $0.9 million of recapitalization costs, along with minor facility consolidation costs. Excluding these, normalized net earnings were $37.9 million, or $3.72 per diluted share, up 11% from 1999's normalized $3.33. Investors should note that pension income of $7.8 million is a recurring but noncash contributor to pre-tax earnings.

What are the main risks to Curtiss-Wright's business outlook?

Key risks include exposure to commercial aerospace build rates, since Boeing sales were $41.6 million and the loss of Boeing would be materially adverse to Motion Control. Government dependence is also significant, with about 17% of sales tied to U.S. government direct or end-use business. The Flow Control segment depends heavily on the U.S. Navy and Bechtel, which accounted for 19% of 2000 sales. The company also faces foreign currency translation risk, with weak European currencies hurting results, and environmental remediation exposure, including ongoing superfund site obligations. Management also flagged possible economic downturn effects in some markets in 2001.

CW 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 19, 2001. Cited figures are marked; the original filing is the authoritative source.

Curtiss-Wright Corporation (NYSE: CW) reported a solid fiscal 2000, with net sales up 12% to $329.6 million^a and net earnings up 5% to $41.1 million, or $4.03 per diluted share.

Excluding nonrecurring items (environmental insurance settlements, postretirement benefit gains, facility consolidation costs, a property sale gain, and recapitalization costs), normalized net earnings rose 11% to $37.9 million^b, or $3.72 per diluted share. Normalized operating income for the three operating segments grew 17% to $49.2 million. Growth was driven largely by the full-year contribution of 1999 acquisitions (Farris Engineering, Sprague Products, and Metallurgical Processing), partially offset by a significant foreign exchange headwind, with weak European currencies reducing sales by about $5.2 million and operating income by $1.7 million.

Pension income and investment income also contributed meaningfully to pre-tax earnings. The most important governance item for investors is the proposed recapitalization with Unitrin, Inc., which holds about 44%^c of the company. Unitrin plans to distribute its roughly 4.4 million shares to its own stockholders in a tax-free spin-off, which requires converting those shares into a new Class B common stock that would elect at least 80% of the board.

The transaction is expected to increase the float and analyst coverage, and the company plans a $0.25^d special cash dividend to non-Unitrin holders if the distribution occurs. Completion is expected in the first half of 2001, subject to IRS approval and a stockholder vote. Balance sheet strength improved, with working capital up 20% to $149.8 million, a current ratio of 3.9 to 1, and cash plus short-term investments of $71.5 million.

Operating cash flow declined sharply to $24.1 million from $80.9 million, however, reflecting the unwinding of trading-securities activity and other working capital changes, and capital expenditures are expected to rise significantly in 2001 to expand the Metal Treatment segment. Management's outlook is cautiously optimistic, citing diversification across aerospace, defense, energy, and industrial markets, while acknowledging that Boeing commercial build rates and some end markets may soften in 2001.

02—Key points

Key Highlights

Net sales grew 12% to $329.6 million in 2000, and diluted EPS rose 5% to $4.03 on a reported basis; normalized diluted EPS was $3.72, up 11% from $3.33.
Normalized operating income for the three segments increased 17% to $49.2 million, aided by full-year contributions from 1999 acquisitions and the mix of Metal Treatment and Flow Control businesses.
Proposed recapitalization lets Unitrin (about 44% holder) spin off its stake tax-free via a new Class B stock that would control at least 80% of board seats; a $0.25 special dividend is planned for non-Unitrin holders if completed.
Foreign currency weakness was a meaningful drag, reducing 2000 sales by $5.2 million and operating income by $1.7 million, highlighting European currency exposure.
Backlog fell to $182.6 million from $212.8 million at year-end 1999, though management notes that over half of sales come from short-lead-time services and aftermarket work.
Operating cash flow dropped to $24.1 million from $80.9 million, while cash and short-term investments rose to $71.5 million and working capital increased 20% to $149.8 million.
Capital expenditures fell to $9.5 million in 2000 but are expected to rise significantly in 2001, driven by Metal Treatment expansion, and the company expects to retire about $5.3 million of industrial revenue bonds.

03—Questions

Frequently Asked Questions

What is the recapitalization, and how could it affect shareholders?
Unitrin, which owns about 44% of Curtiss-Wright, plans to distribute its roughly 4.4 million shares to its own stockholders tax-free. To make this possible, Unitrin's shares would convert into a new Class B common stock that carries the right to elect at least 80% of the board. Existing common stockholders keep their shares and retain the right to elect the remaining directors. The company expects the transaction to broaden the shareholder base and increase trading liquidity and analyst coverage, and it will pay a $0.25 special dividend to non-Unitrin holders if the distribution occurs. The transaction still requires IRS approval and a stockholder vote, with completion anticipated in the first half of 2001.
Why did operating cash flow fall so sharply in 2000?
Operating cash flow was $24.1 million in 2000 versus $80.9 million in 1999. The filing shows large swings in trading-securities purchases and sales, along with a $10.1 million reduction in other liabilities, a $7.8 million noncash pension income adjustment, and a $1.6 million decline in progress payments. These offsets were partly countered by lower receivables and inventories, which improved days sales outstanding to 63 from 77 and inventory turnover to 3.8 from 3.2. Investors should review the cash flow statement carefully, since the comparison is distorted by trading-security activity.
How much of the 2000 earnings came from one-time items, and what does normalized earnings show?
Reported net earnings of $41.1 million included several nonrecurring items. These included $1.9 million of net environmental insurance settlements, $1.3 million of postretirement and postemployment benefit gains, a $0.9 million after-tax gain on a property sale, and $0.9 million of recapitalization costs, along with minor facility consolidation costs. Excluding these, normalized net earnings were $37.9 million, or $3.72 per diluted share, up 11% from 1999's normalized $3.33. Investors should note that pension income of $7.8 million is a recurring but noncash contributor to pre-tax earnings.
What are the main risks to Curtiss-Wright's business outlook?
Key risks include exposure to commercial aerospace build rates, since Boeing sales were $41.6 million and the loss of Boeing would be materially adverse to Motion Control. Government dependence is also significant, with about 17% of sales tied to U.S. government direct or end-use business. The Flow Control segment depends heavily on the U.S. Navy and Bechtel, which accounted for 19% of 2000 sales. The company also faces foreign currency translation risk, with weak European currencies hurting results, and environmental remediation exposure, including ongoing superfund site obligations. Management also flagged possible economic downturn effects in some markets in 2001.

04—Continue

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