How did Curtiss-Wright perform financially in 2004?

Net sales increased 28% to $955.0 million and net earnings increased 24% to $65.1 million, or $3.02 per diluted share. Operating income rose 24% to $110.7 million, while operating margin edged down to 11.6% from 12.0% due to lower-margin newly acquired businesses. Cash flow from operations was $105.3 million.

How much of the growth came from acquisitions versus the core business?

Most of the growth was acquisition-driven. Acquisitions from 2003 and 2004 contributed $154.2 million of incremental 2004 sales, about 74% of the total increase. Organic growth in the remaining base businesses was about 7%, led by Metal Treatment (21%), with Flow Control at 5% and Motion Control at 4%.

Is the company's debt load a concern for investors?

Debt increased meaningfully. Long-term debt reached $340.9 million, debt-to-capitalization rose to 37% from 32%, and the company shifted to 65% variable-rate exposure. Management expects $14 million to $16 million in 2005 interest payments and has said a one-point rate increase would raise interest expense by about $2 million. The company has $256.7 million of unused credit and remains in compliance with its covenants.

How dependent is Curtiss-Wright on the U.S. government and defense spending?

Highly dependent. Government-related sales were about 47% of 2004 revenue, and about 50% of revenue is defense-related. The U.S. Navy accounts for roughly 44% of revenue from government sources. Risks include contract termination for convenience, budget shifts, and a proposed F/A-22 production reduction, although management does not expect a material impact from the proposed cuts.

What are the notable developments after year-end 2004?

On March 3, 2005, the company acquired Indal Technologies, Inc. of Toronto for C$78 million (about $63 million), funded from its revolving credit facility, and plans to integrate it into the Motion Control segment. The Board also recommended collapsing the dual-class common stock structure into a single class, to be voted on at the May 19, 2005 annual meeting.

CW 10-K FY2004 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 16, 2005. Cited figures are marked; the original filing is the authoritative source.

Curtiss-Wright Corporation (NYSE: CW, CW.B) reported a strong fiscal 2004, with net sales rising 28% to $955.0 million^a and net earnings up 24% to $65.1 million, or $3.02 per diluted share.

Growth was driven mainly by acquisitions (2004 and 2003 deals contributed $154.2 million^b of incremental sales, roughly 74% of the increase) but organic growth was also solid at about 7% across the base businesses, led by Metal Treatment at 21%. Operating income rose 24% to $110.7 million, though consolidated operating margin slipped to 11.6% from 12.0% as lower-margin acquired businesses were absorbed. Backlog reached a record $627.7 million and new orders grew 34% to $998.9 million, indicating healthy forward visibility.

The balance sheet became more leveraged. Long-term debt rose to $340.9 million^c (debt-to-capitalization 37% versus 32% a year earlier) as the company spent about $247 million on 11 acquisitions and funded them largely through its revolving credit facility, which was expanded to $400 million. Management expects roughly $14 million to $16 million of annual interest payments in 2005, and the company noted that about 65% of its debt is now variable-rate, so a one-point rate move would affect interest expense by roughly $2 million.

Cash flow from operations was $105.3 million^d. Subsequent to year-end, the company acquired Indal Technologies of Canada for about $63 million. The key risks are concentration in U.S. government and defense work (about 47% of revenue, with roughly 44% from the U.S. Navy), exposure to a proposed F/A-22 program cut, and the integration risk of an acquisition-driven growth strategy.

Management highlighted a planned collapse of the dual-class share structure, to be voted on at the May 19, 2005 annual meeting, as a step to improve liquidity and valuation. Legal exposures, including about 100 asbestos-related lawsuits and several superfund sites, are described as not expected to be materially adverse.

02—Key points

Key Highlights

Net sales grew 28% to $955.0 million and diluted EPS rose to $3.02 from $2.50, with net earnings up 24% to $65.1 million.
Record backlog of $627.7 million (up from $505.5 million) and new orders up 34% to $998.9 million support near-term revenue visibility.
Growth was largely acquisition-driven: acquisitions contributed about $154.2 million of incremental sales, while organic growth was roughly 7%, led by Metal Treatment at 21%.
Operating margin fell to 11.6% from 12.0% as lower-margin acquired businesses dilute the consolidated mix, though segment operating income rose 32%.
Leverage increased: long-term debt reached $340.9 million and debt-to-capitalization rose to 37% from 32%, with about 65% of debt now variable-rate.
Heavy government dependence persists, with about 47% of revenue from government sources and roughly 44% from the U.S. Navy, and a proposed F/A-22 production cut is a watch item.
Subsequent event: the $63 million acquisition of Indal Technologies (Canada) closed in March 2005, and a proposal to collapse the dual-class share structure goes to shareholders on May 19, 2005.

03—Questions

Frequently Asked Questions

How did Curtiss-Wright perform financially in 2004?
Net sales increased 28% to $955.0 million and net earnings increased 24% to $65.1 million, or $3.02 per diluted share. Operating income rose 24% to $110.7 million, while operating margin edged down to 11.6% from 12.0% due to lower-margin newly acquired businesses. Cash flow from operations was $105.3 million.
How much of the growth came from acquisitions versus the core business?
Most of the growth was acquisition-driven. Acquisitions from 2003 and 2004 contributed $154.2 million of incremental 2004 sales, about 74% of the total increase. Organic growth in the remaining base businesses was about 7%, led by Metal Treatment (21%), with Flow Control at 5% and Motion Control at 4%.
Is the company's debt load a concern for investors?
Debt increased meaningfully. Long-term debt reached $340.9 million, debt-to-capitalization rose to 37% from 32%, and the company shifted to 65% variable-rate exposure. Management expects $14 million to $16 million in 2005 interest payments and has said a one-point rate increase would raise interest expense by about $2 million. The company has $256.7 million of unused credit and remains in compliance with its covenants.
How dependent is Curtiss-Wright on the U.S. government and defense spending?
Highly dependent. Government-related sales were about 47% of 2004 revenue, and about 50% of revenue is defense-related. The U.S. Navy accounts for roughly 44% of revenue from government sources. Risks include contract termination for convenience, budget shifts, and a proposed F/A-22 production reduction, although management does not expect a material impact from the proposed cuts.
What are the notable developments after year-end 2004?
On March 3, 2005, the company acquired Indal Technologies, Inc. of Toronto for C$78 million (about $63 million), funded from its revolving credit facility, and plans to integrate it into the Motion Control segment. The Board also recommended collapsing the dual-class common stock structure into a single class, to be voted on at the May 19, 2005 annual meeting.

04—Continue

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