☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2019
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________ to _______
Commission File Number 1-134
CURTISS-WRIGHT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware
13-0612970
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
130 Harbour Place Drive, Suite 300
Davidson,
North Carolina
28036
(Address of principal executive offices)
(Zip Code)
(704) 869-4600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
CW
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period of time that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
(Do not check if a smaller reporting company)
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock, par value $1.00 per share: 42,689,253 shares (as of September 30, 2019).
See notes to condensed consolidated financial statements
Page 4
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2019
2018
2019
2018
Net earnings
$
82,510
$
74,483
$
218,175
$
192,914
Other comprehensive income (loss)
Foreign currency translation adjustments, net of tax (1)
$
(24,734)
$
(2,230)
$
(15,952)
$
(30,590)
Pension and postretirement adjustments, net of tax (2)
1,311
3,458
4,743
9,142
Other comprehensive income (loss), net of tax
(23,423)
1,228
(11,209)
(21,448)
Comprehensive income
$
59,087
$
75,711
$
206,966
$
171,466
(1) The tax benefit included in other comprehensive loss for foreign currency translation adjustments for both the three and nine months ended September 30, 2019 was $0.6 million. The tax benefit included in other comprehensive loss for foreign currency translation adjustments for the three and nine months ended September 30, 2018 was $0.5 million and $1.7 million, respectively.
(2) The tax expense included in other comprehensive income for pension and postretirement adjustments for the three and nine months ended September 30, 2019 was $0.4 million and $1.5 million, respectively. The tax expense included in other comprehensive income for pension and postretirement adjustments for the three and nine months ended September 30, 2018 was $1.1 million and $2.9 million, respectively.
See notes to condensed consolidated financial statements
Page 5
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except per share data)
September 30, 2019
December 31, 2018
Assets
Current assets:
Cash and cash equivalents
$
297,712
$
276,066
Receivables, net
644,150
593,755
Inventories, net
430,086
423,426
Other current assets
44,338
50,719
Total current assets
1,416,286
1,343,966
Property, plant, and equipment, net
373,718
374,660
Goodwill
1,104,796
1,088,032
Other intangible assets, net
420,458
429,567
Operating lease right-of-use assets, net
134,286
—
Other assets
32,765
19,160
Total assets
$
3,482,309
$
3,255,385
Liabilities
Current liabilities:
Current portion of long-term and short-term debt
$
80
$
243
Accounts payable
169,413
232,983
Accrued expenses
140,589
166,954
Income taxes payable
8,347
5,811
Deferred revenue
256,327
236,508
Other current liabilities
73,349
44,829
Total current liabilities
648,105
687,328
Long-term debt
761,057
762,313
Deferred tax liabilities, net
48,809
47,121
Accrued pension and other postretirement benefit costs
94,629
101,227
Long-term operating lease liability
116,652
—
Long-term portion of environmental reserves
15,923
15,777
Other liabilities
95,994
110,838
Total liabilities
1,781,169
1,724,604
Contingencies and commitments (Note 14)
Stockholders’ equity
Common stock, $1 par value,100,000,000 shares authorized as of September 30, 2019 and December 31, 2018; 49,187,378 shares issued as of September 30, 2019 and December 31, 2018; outstanding shares were 42,689,253 as of September 30, 2019 and 42,772,417 as of December 31, 2018
49,187
49,187
Additional paid in capital
120,219
118,234
Retained earnings
2,414,956
2,191,471
Accumulated other comprehensive loss
(325,913)
(288,447)
Common treasury stock, at cost (6,498,125 shares as of September 30, 2019 and 6,414,961 shares as of December 31, 2018)
(557,309)
(539,664)
Total stockholders’ equity
1,701,140
1,530,781
Total liabilities and stockholders’ equity
$
3,482,309
$
3,255,385
See notes to condensed consolidated financial statements
Page 6
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
(In thousands)
2019
2018
Cash flows from operating activities:
Net earnings
$
218,175
$
192,914
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization
76,998
77,146
Gain on divestitures
—
(2,149)
Gain on fixed asset disposals
(6,295)
(531)
Deferred income taxes
652
4,942
Share-based compensation
11,262
11,846
Change in operating assets and liabilities, net of businesses acquired and divested:
Receivables, net
(44,788)
(79,372)
Inventories, net
(8,587)
(50,463)
Progress payments
(4,955)
764
Accounts payable and accrued expenses
(86,900)
(32,389)
Deferred revenue
18,750
11,643
Income taxes payable
2,676
(7,620)
Pension and postretirement liabilities, net
(928)
(46,320)
Other current and long-term assets and liabilities
(17,045)
18,564
Net cash provided by operating activities
159,015
98,975
Cash flows from investing activities:
Proceeds from sales and disposals of long lived assets
10,099
5,495
Consideration from divestitures
—
(268)
Acquisition of intangible assets
(157)
(1,500)
Additions to property, plant, and equipment
(49,919)
(30,287)
Acquisition of businesses, net of cash acquired
(50,075)
(210,167)
Additional consideration paid on prior year acquisitions
—
(460)
Net cash used for investing activities
(90,052)
(237,187)
Cash flows from financing activities:
Borrowings under revolving credit facility
35,387
370,595
Payment of revolving credit facility
(35,550)
(369,721)
Repurchases of common stock
(37,864)
(78,898)
Proceeds from share-based compensation
10,943
11,135
Dividends paid
(13,683)
(13,223)
Other
(600)
(557)
Net cash used for financing activities
(41,367)
(80,669)
Effect of exchange-rate changes on cash
(5,950)
(10,322)
Net increase (decrease) in cash and cash equivalents
21,646
(229,203)
Cash and cash equivalents at beginning of period
276,066
475,120
Cash and cash equivalents at end of period
$
297,712
$
245,917
Supplemental disclosure of non-cash activities:
Capital expenditures incurred but not yet paid
$
88
$
684
See notes to condensed consolidated financial statements
Page 7
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
For the nine months ended September 30, 2019
Common Stock
Additional Paid in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
December 31, 2018
$
49,187
$
118,234
$
2,191,471
$
(288,447)
$
(539,664)
Cumulative effect from adoption of ASU 2018-02
—
—
26,257
(26,257)
—
Net earnings
—
—
218,175
—
—
Other comprehensive loss, net of tax
—
—
—
(11,209)
—
Dividends declared
—
—
(20,947)
—
—
Restricted stock
—
(5,491)
—
—
5,491
Stock options exercised
—
(2,720)
—
—
13,662
Share-based compensation
—
10,857
—
—
405
Repurchase of common stock
—
—
—
—
(37,864)
Other
—
(661)
—
—
661
September 30, 2019
$
49,187
$
120,219
$
2,414,956
$
(325,913)
$
(557,309)
For the three months ended September 30, 2019
Common Stock
Additional Paid in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
June 30, 2019
$
49,187
$
116,835
$
2,339,703
$
(302,490)
$
(550,939)
Net earnings
—
—
82,510
—
—
Other comprehensive loss, net of tax
—
—
—
(23,423)
—
Dividends declared
—
—
(7,257)
—
—
Stock options exercised
—
(898)
—
—
6,429
Share-based compensation
—
4,282
—
—
—
Repurchase of common stock
—
—
—
—
(12,799)
September 30, 2019
$
49,187
$
120,219
$
2,414,956
$
(325,913)
$
(557,309)
Page 8
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
For the nine months ended September 30, 2018
Common Stock
Additional Paid in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
December 31, 2017
$
49,187
$
120,609
$
1,944,324
$
(216,840)
$
(369,480)
Cumulative effect from adoption of ASC 606
—
—
(2,274)
—
—
Net earnings
—
—
192,914
—
—
Other comprehensive loss, net of tax
—
—
—
(21,448)
—
Dividends declared
—
—
(19,798)
—
—
Restricted stock
—
(7,159)
—
—
7,159
Stock options exercised
—
(1,163)
—
—
12,298
Share-based compensation
—
11,631
—
—
215
Repurchase of common stock
—
—
—
—
(78,898)
Other
—
(725)
—
—
725
September 30, 2018
$
49,187
$
123,193
$
2,115,166
$
(238,288)
$
(427,981)
For the three months ended September 30, 2018
Common Stock
Additional Paid in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
June 30, 2018
$
49,187
$
119,025
$
2,047,250
$
(239,516)
$
(399,850)
Net earnings
—
—
74,483
—
—
Other comprehensive income, net of tax
—
—
—
1,228
—
Dividends declared
—
—
(6,567)
—
—
Restricted stock
—
(236)
—
—
236
Stock options exercised
—
372
—
—
4,402
Share-based compensation
—
4,032
—
—
14
Repurchase of common stock
—
—
—
—
(32,783)
September 30, 2018
$
49,187
$
123,193
$
2,115,166
$
(238,288)
$
(427,981)
See notes to condensed consolidated financial statements
Page 9
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Curtiss-Wright Corporation and its subsidiaries (the "Corporation" or the "Company") is a global, diversified manufacturing and service company that designs, manufactures, and overhauls precision components and provides highly engineered products and services to the aerospace, defense, power generation, and general industrial markets.
The unaudited condensed consolidated financial statements include the accounts of Curtiss-Wright and its majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated.
The unaudited condensed consolidated financial statements of the Corporation have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted as permitted by such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of these financial statements.
Management is required to make estimates and judgments that affect the reported amount of assets, liabilities, revenue, and expenses and disclosure of contingent assets and liabilities in the accompanying financial statements. Actual results may differ from these estimates. The most significant of these estimates includes the estimate of costs to complete using the over-time revenue recognition accounting method, the estimate of useful lives for property, plant, and equipment, cash flow estimates used for testing the recoverability of assets, pension plan and postretirement obligation assumptions, estimates for inventory obsolescence, fair value estimates around assets and assumed liabilities from acquisitions, estimates for the valuation and useful lives of intangible assets, legal reserves, and the estimate of future environmental costs. Changes in estimates of contract sales, costs, and profits are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current and prior periods. Accordingly, the effect of the changes on future periods of contract performance is recognized as if the revised estimate had been the original estimate. During the three and nine months ended September 30, 2019 and 2018, there were no significant changes in estimated contract costs. In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in these financial statements.
The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2018 Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of trends or of the operating results for a full year.
Recent accounting pronouncements adopted
ASU 2016-02 - Leases - On January 1, 2019, the Corporation adopted ASC 842, Leases, using the optional transition method of adoption which permits the entity to continue presenting all periods prior to January 1, 2019 under previous lease accounting guidance. In conjunction with the adoption, the Corporation elected the package of practical expedients which permits the entity to forgo reassessment of conclusions reached regarding lease existence and lease classification under previous guidance, as well as the practical expedient to not separate non-lease components. Further, the Corporation made an accounting policy election to account for short-term leases in a manner consistent with the methodology applied under previous guidance. The adoption of this standard resulted in an increase of approximately $151 million in both total assets and total liabilities in the Corporation’s Condensed Consolidated Balance Sheet as of January 1, 2019.
ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income - On January 1, 2019, the Corporation adopted ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits the reclassification of tax effects stranded in accumulated other comprehensive income to retained earnings as a result of the 2017 Tax Cuts and Jobs Act (the Tax Act). The adoption of this standard resulted in a reclassification of $26 million from accumulated other comprehensive loss to retained earnings in the Corporation’s Condensed Consolidated Balance Sheet as of January 1, 2019.
2. REVENUE
The Corporation recognizes revenue when control of a promised good and/or service is transferred to a customer in an amount that reflects the consideration that the Corporation expects to be entitled to in exchange for that good and/or service.
Performance Obligations
Page 10
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Corporation identifies a performance obligation for each promise in a contract to transfer a distinct good or service to the customer. As part of its assessment, the Corporation considers all goods and/or services promised in the contract, regardless of whether they are explicitly stated or implied by customary business practices. The Corporation’s contracts may contain either a single performance obligation, including the promise to transfer individual goods or services that are not separately distinct within the context of the respective contracts, or multiple performance obligations. For contracts with multiple performance obligations, the Corporation allocates the overall transaction price to each performance obligation using standalone selling prices, where available, or utilizes estimates for each distinct good or service in the contract where standalone prices are not available.
The Corporation’s performance obligations are satisfied either at a point-in-time or on an over-time basis. Revenue recognized on an over-time basis for the three months and nine months ended September 30, 2019 accounted for approximately 47% and 48%, respectively, of total net sales. Revenue recognized on an over-time basis for the three months and nine months ended September 30, 2018 accounted for approximately 49% and 46%, respectively, of total net sales. Typically, over-time revenue recognition is based on the utilization of an input measure used to measure progress, such as costs incurred to date relative to total estimated costs. Revenue recognized at a point-in-time for the three months and nine months ended September 30, 2019 accounted for approximately 53% and 52%, respectively, of total net sales. Revenue recognized at a point-in-time for the three months and nine months ended September 30, 2018 accounted for approximately 51% and 54%, respectively, of total net sales. Revenue for these types of arrangements is recognized at the point in time in which control is transferred to the customer, typically based upon the terms of delivery.
Contract backlog represents the remaining performance obligations that have not yet been recognized as revenue. Backlog includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Total backlog was approximately $2.2 billion as of September 30, 2019, of which the Corporation expects to recognize approximately 92% as net sales over the next 12-36 months. The remainder will be recognized thereafter.
Disaggregation of Revenue
The following table presents the Corporation’s total net sales disaggregated by end market and customer type:
Total Net Sales by End Market and Customer Type
Three Months Ended
Nine Months Ended
September 30,
September 30,
(In thousands)
2019
2018
2019
2018
Defense
Aerospace
$
110,742
$
94,002
$
293,955
$
272,809
Ground
22,231
25,167
69,383
68,463
Naval
143,430
116,620
424,371
352,456
Total Defense Customers
$
276,403
$
235,789
$
787,709
$
693,728
Commercial
Aerospace
$
109,015
$
101,872
$
320,237
$
305,893
Power Generation
88,543
106,842
278,194
307,477
General Industrial
140,919
150,890
446,050
456,115
Total Commercial Customers
$
338,477
$
359,604
$
1,044,481
$
1,069,485
Total
$
614,880
$
595,393
$
1,832,190
$
1,763,213
Note: Certain amounts in the prior year have been reclassed to conform to the current year presentation.
Contract Balances
Timing of revenue recognition and cash collection may result in billed receivables, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the Condensed Consolidated Balance Sheet. The Corporation’s contract assets primarily relate to its rights to consideration for work completed but not billed as of the reporting date. Contract assets are
Page 11
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
transferred to billed receivables when the rights to consideration become unconditional. This is typical in situations where amounts are billed as work progresses in accordance with agreed-upon contractual terms or upon achievement of contractual milestones. The Corporation’s contract liabilities primarily consist of customer advances received prior to revenue being earned. Revenue recognized during the three and nine months ended September 30, 2019 and 2018 included in the contract liabilities balance at the beginning of the year was approximately $26 million and $159 million, respectively, and $30 million and $144 million, respectively. Contract assets and contract liabilities are reported in the "Receivables, net" and "Deferred revenue" lines, respectively, within the Condensed Consolidated Balance Sheet.
3. ACQUISITIONS
The Corporation continually evaluates potential acquisitions that either strategically fit within the Corporation’s existing portfolio or expand the Corporation’s portfolio into new product lines or adjacent markets. The Corporation has completed a number of acquisitions that have been accounted for as business combinations and have resulted in the recognition of goodwill in the Corporation's financial statements. This goodwill arises because the acquisition purchase price reflects the future earnings and cash flow potential in excess of the earnings and cash flows attributable to the current product and customer set at the time of acquisition. Thus, goodwill inherently includes the know-how of the assembled workforce, the ability of the workforce to further improve the technology and product offerings, and the expected cash flows resulting from these efforts. Goodwill may also include expected synergies resulting from the complementary strategic fit these businesses bring to existing operations.
The Corporation allocates the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. In the months after closing, as the Corporation obtains additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and as the Corporation learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Corporation will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.
During the nine months ended September 30, 2019, the Corporation acquired one business for an aggregate purchase price of $50 million, which is described in more detail below. During the nine months ended September 30, 2018, the Corporation acquired one business for an aggregate purchase price of $210 million, which is described in more detail below.
The Condensed Consolidated Statement of Earnings for the nine months ended September 30, 2019 includes $8 million of total net sales and immaterial net earnings from the Corporation's 2019 acquisition. The Condensed Consolidated Statement of Earnings for the nine months ended September 30, 2018 includes $41 million of total net sales and $2 million of net losses from the Corporation's 2018 acquisition.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions consummated during the nine months ended September 30, 2019 and 2018.
(In thousands)
2019
2018
Accounts receivable
$
2,300
$
24,385
Inventory
322
31,875
Property, plant, and equipment
648
3,206
Other current and non-current assets
479
47
Intangible assets
26,000
146,100
Operating lease right-of-use assets, net
1,393
—
Current and non-current liabilities
(3,252)
(5,374)
Net tangible and intangible assets
27,890
200,239
Purchase price, net of cash acquired
50,075
210,167
Goodwill
$
22,185
$
9,928
Goodwill deductible for tax purposes
$
22,635
$
15,108
2019 Acquisition
Page 12
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Tactical Communications Group (TCG)
On March 15, 2019, the Corporation acquired 100% of the membership interest of TCG for $50.1 million, net of cash acquired. The Purchase Agreement contains a purchase price adjustment mechanism and representations and warranties customary for a transaction of this type, including a portion of the purchase price deposited in escrow as security for potential indemnification claims against the seller. TCG is a designer and manufacturer of tactical data link software solutions for critical military communications systems. The acquired business operates within the Defense segment. The acquisition is subject to post-closing adjustments with the purchase price allocation not yet complete.
2018 Acquisition
Dresser-Rand Government Business (DRG)
On April 2, 2018, the Corporation acquired certain assets and assumed certain liabilities of DRG for $210.2 million in cash after giving effect to certain post-closing adjustments pursuant to the Asset Purchase Agreement. The Asset Purchase Agreement contains representations and warranties customary for a transaction of this type. DRG is a designer and manufacturer of mission-critical, high-speed rotating equipment solutions and also acts as the sole supplier of steam turbines and main engine guard valves on all aircraft carrier programs. The acquired business operates within the Corporation's Power segment.
4. RECEIVABLES
Receivables primarily include amounts billed to customers, unbilled charges on long-term contracts consisting of amounts recognized as sales but not billed, and other receivables. Substantially all amounts of unbilled receivables are expected to be billed and collected within one year. An immaterial amount of unbilled receivables are subject to retainage provisions. The amount of claims and unapproved change orders within our receivables balances are immaterial.