10-QPeriod: Q3 FY2012

CURTISS WRIGHT CORP Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 9, 2012For Securities:CW

Summary

Curtiss-Wright Corporation's (CW) Q3 2012 results show a notable decline in net sales for the quarter, primarily driven by a significant decrease in the Flow Control segment due to a labor strike that temporarily suspended production. While year-to-date sales saw a modest increase, this was largely attributed to acquisitions, as organic sales faced headwinds. Operating income experienced a substantial decline in both the quarter and year-to-date periods. The Flow Control segment was particularly impacted by the strike, additional costs related to the AP1000 nuclear reactor program, and underabsorption of overhead. Despite these challenges, the Motion Control segment demonstrated strong operating income growth, and the Metal Treatment segment showed stable performance. The company also refinanced its credit facility and completed several strategic acquisitions in the latter part of the quarter, positioning it for future growth.

Financial Highlights

56 data points
Beta

Revenue

$479.22M

29.5% Gross Margin

Net Income

$11.30M

2.4% Net Margin

EPS (Diluted)

$0.24

Total Assets

$2.71B

Cash & Equivalents

$239.55M

Free Cash Flow

$20.37M

Financial Statements
Beta
Revenue$479.22M
Cost of Revenue$337.81M
Gross Profit$141.42M
R&D Expenses$13.27M
Operating Income$23.37M
Interest Expense$6.65M
Net Income$11.30M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)46.88M
Shares Outstanding (Diluted)47.41M

Key Highlights

  • 1Net sales decreased by 6% for the third quarter to $479.2 million, and increased by 3% for the nine-month period to $1.51 billion, largely influenced by acquisitions and divestitures.
  • 2Operating income for the third quarter decreased by 49% to $23.4 million, and for the nine-month period by 24% to $99.5 million, significantly impacted by issues in the Flow Control segment.
  • 3The Flow Control segment experienced an 11% sales decline in the quarter and a 45% operating income decrease, heavily affected by a labor strike and additional costs for the AP1000 program.
  • 4The Motion Control segment showed resilience, with a 19% operating income increase in the quarter and a 17% increase year-to-date, driven by cost containment and acquisition integration.
  • 5The company completed three strategic acquisitions in early November 2012 (Williams Controls, PG Drives Technology, and AP Services), adding to its Motion Control and Flow Control segments.
  • 6Curtiss-Wright refinanced its credit facility in August 2012, establishing a $500 million revolving credit line with an accordion feature for an additional $100 million, indicating a focus on liquidity and future growth.
  • 7A previously disclosed error in long-term contract accounting was identified and corrected, leading to restatements of prior period financial statements, impacting retained earnings and reported net earnings for certain periods.

Frequently Asked Questions

The primary drivers for the decline in net sales and operating income in the third quarter were a labor strike at the Electronic Mechanical Division (EMD) which suspended production and resulted in underabsorbed overhead costs and a shift of contract milestones. Additionally, unanticipated costs related to the assembly and preparation for shipment of reactor coolant pumps for the AP1000 nuclear power program in the Flow Control segment also significantly impacted profitability.

The acquisitions of Williams Controls and PG Drives Technology will enhance the Motion Control segment, while AP Services will strengthen the Flow Control segment. These acquisitions are expected to contribute to revenue and expand the company's offerings in their respective markets.

Curtiss-Wright refinanced its credit facility in August 2012, securing a $500 million revolving credit line. As of September 30, 2012, there were no borrowings under this facility, and the company had $39 million in letters of credit. Management believes that current cash, operating cash flow, and available borrowings are sufficient to meet short-term and long-term capital needs, including share repurchases, dividends, and acquisitions.

The restatement corrected errors related to long-term contract accounting, primarily impacting retained earnings by $23 million and resulting in a cumulative overstatement of $24 million in retained earnings as of December 31, 2011. While not material to previously filed reports, it led to adjustments in previously reported net sales, cost of sales, and earnings for the periods presented in this filing, primarily affecting the prior year's comparative results.