Curtiss-Wright Annual Report 2003

Plain-text annual report

CURTISS-WRIGHT CORPORATION ANNUAL REPORT 2003 An F/A-22 fighter jet slices across the sky. A nuclear submarine descends far below the ocean’s surface. An oil rig commands the horizon off the coast of Louisiana. A rescue helicopter lands safely at a hospital in Seattle. Curtiss-Wright is there. CONTENTS CONTENTS 2 2 L E T T E R T O S H A R E H O L D E R S 2 2 L E T T E R T O S H A R E H O L D E R S 2 8 2 0 0 3 A C Q U I S I T I O N S 2 8 2 0 0 3 A C Q U I S I T I O N S 2 9 AT A G L A N C E 2 9 AT A G L A N C E 3 0 Q U A RT E R LY R E S U LT S O F O P E R AT I O N S 3 0 Q U A RT E R LY R E S U LT S O F O P E R AT I O N S 3 0 C O N S O L I D AT E D S E L E C T E D F I N A N C I A L D ATA 3 0 C O N S O L I D AT E D S E L E C T E D F I N A N C I A L D ATA 4 2 Q U A N T I TAT I V E A N D Q U A L I TAT I V E 4 2 Q U A N T I TAT I V E A N D Q U A L I TAT I V E D I S C L O S U R E S A B O U T M A R K E T R I S K D I S C L O S U R E S A B O U T M A R K E T R I S K 4 3 R E P O RT O F T H E C O R P O R AT I O N 4 3 R E P O RT O F T H E C O R P O R AT I O N 4 4 R E P O RT O F I N D E P E N D E N T A C C O U N TA N T S 4 4 R E P O RT O F I N D E P E N D E N T A C C O U N TA N T S 4 5 C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 4 5 C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 3 1 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S O F F I N A N C I A L 3 1 M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S O F F I N A N C I A L 4 9 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 4 9 N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S C O N D I T I O N A N D R E S U LT S O F O P E R AT I O N S C O N D I T I O N A N D R E S U LT S O F O P E R AT I O N S 7 2 C O R P O R AT E I N F O R M AT I O N 7 2 C O R P O R AT E I N F O R M AT I O N FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS (In thousands, except per share data; unaudited) (In thousands, except per share data; unaudited) 2003 2003 2002 2002 2001 2001 PERFORMANCE: PERFORMANCE: Net Sales Net Sales Earnings before interest, taxes, depreciation, Earnings before interest, taxes, depreciation, amortization and pension income amortization and pension income Normalized earnings before interest, taxes, Normalized earnings before interest, taxes, depreciation, amortization and pension income depreciation, amortization and pension income Net earnings Net earnings Normalized net earnings(1)(1) Normalized net earnings Free cash flow(4)(4) Free cash flow Normalized free cash flow(4)(4) Normalized free cash flow Diluted earnings per share(3)(3) Diluted earnings per share Normalized diluted earnings per share(3)(3) Normalized diluted earnings per share Return on sales(2)(2) Return on sales Normalized return on sales(2)(2) Normalized return on sales Return on capital(2)(2) Return on capital Normalized return on capital(2)(2) Normalized return on capital New orders New orders Backlog at year-end Backlog at year-end YEAR-END FINANCIAL POSITION YEAR-END FINANCIAL POSITION Working capital Working capital Current ratio Current ratio Total assets Total assets Stockholders’ equity Stockholders’ equity Stockholders’ equity per share(3)(3) Stockholders’ equity per share OTHER YEAR-END DATA OTHER YEAR-END DATA Depreciation and amortization Depreciation and amortization Capital expenditures Capital expenditures $ $ 746,071 746,071 $ $ 513,278 513,278 $ $ 343,167 343,167 119,435 119,435 119,435 119,435 52,268 52,268 52,268 52,268 50,266 50,266 50,266 50,266 2.502.50 2.502.50 6.7%6.7% 6.7%6.7% 7.6%7.6% 7.6%7.6% 743,115 743,115 505,519 505,519 85,030 85,030 80,874 80,874 45,136 45,136 41,642 41,642 28,875 28,875 25,381 25,381 2.16 2.16 2.00 2.00 9.1% 9.1% 8.3% 8.3% 8.3% 8.3% 7.6% 7.6% 478,197 478,197 478,494 478,494 107,069 107,069 68,470 68,470 62,880 62,880 40,633 40,633 58,260 58,260 36,013 36,013 3.07 3.07 1.99 1.99 19.0% 19.0% 12.3% 12.3% 18.3% 18.3% 11.8% 11.8% 326,475 326,475 242,257 242,257 $ $ 238,640 238,640 $ $ 137,237 137,237 $ $ 149,231 149,231 2.8 to 1 2.8 to 1 973,665 973,665 478,881 478,881 23.04 23.04 1.8 to 1 1.8 to 1 810,102 810,102 411,228 411,228 20.02 20.02 3.0 to 1 3.0 to 1 500,428 500,428 349,954 349,954 17.37 17.37 $ $ 31,327 31,327 33,329 33,329 $ $ 18,693 18,693 34,954 34,954 $ $ 14,734 14,734 19,354 19,354 Shares of stock outstanding at December 31(3)(3) Shares of stock outstanding at December 31 20,785,856 20,785,856 20,544,586 20,544,586 20,149,450 20,149,450 Number of registered stockholders Number of registered stockholders Number of employees Number of employees 7,768 7,768 4,655 4,655 8,034 8,034 4,244 4,244 9,898 9,898 2,625 2,625 DIVIDENDS PER SHARE DIVIDENDS PER SHARE $ $ 0.32 0.32 $ $ 0.30 0.30 $ $ 0.27 0.27 (1) Earnings have been adjusted to exclude the effects of environmental insurance settlements, postretirement benefits and postemployment costs, recapitalization costs, gains on sale of real property, net nonrecurring benefit gain, facility consolidation costs, a release of indemnification reserve, and a net legal settlement. (2) The performance ratios for all years have been shown on a pro-forma basis, excluding the results of the acquired companies in those respective years. (3) Share and per share data for all years have been adjusted to reflect the 2-for-1 stock split paid on December 17, 2003. (4) Free cash flow is defined as net earnings plus depreciation and amortization, less capital expenditures. 99 00 01 02 03 800,000 800,000 600,000 600,000 400,000 400,000 200,000 200,000 00 99 00 01 02 03 99 00 01 02 03 NET SALES NET SALES ($000s) ($000s) SALES PER EMPLOYEE ($) SALES PER EMPLOYEE ($) NET SALES $746,071 SALES PER EMPLOYEE $168,654 SALES PER EMPLOYEE $168,654 OPERATING INCOME ($000s) OPERATING INCOME ($000s) REPORTED $89,330 NORMALIZED $89,330 NORMALIZED $89,330 NET EARNINGS ($000s) NET EARNINGS ($000s) REPORTED $52,268 NORMALIZED $52,268 NORMALIZED $52,268 180,000 180,000 160,000 160,000 140,000 140,000 120,000 120,000 100,000 100,000 80,000 80,000 60,000 60,000 40,000 40,000 20,000 20,000 00 80,000 80,000 60,000 60,000 40,000 40,000 20,000 20,000 00 For 75 years, our products have been a critical part of the modern world. We provide essential components to several of the largest, most vital industries in the world, including defense, aerospace and energy. Our highly engineered value-added products are world renowned for their advanced technology and unsurpassed reliability. Whenever a jet lands safely on an aircraft carrier… a bomber door opens with split-second reliability… a high-speed train smoothly executes a hairpin turn along the side of a mountain…it’s a safe bet that Curtiss-Wright is there. An aircraft carrier in the Pacific Ocean. We’re there. We’re there. S NAVY, CURTISS-WRIGHT’S PUMPS, VALVES ON EVERY NUCLEAR-POWERED AIRCRAFT CARRIER COMMISSIONED BY THE US NAVY, CURTISS-WRIGHT’S PUMPS, VALVES ON EVERY NUCLEAR-POWERED AIRCRAFT CARRIER COMMISSIONED BY THE U AND GENERATOR SYSTEMS ENSURE THE RELIABILITY AND SAFETY OF THE PROPULSION SYSTEM. LANDING ON THE RUNWAY AND GENERATOR SYSTEMS ENSURE THE RELIABILITY AND SAFETY OF THE PROPULSION SYSTEM. LANDING ON THE RUNWAY OF A 1,000-FOOT AIRCRAFT CARRIER, AN F-14 IS GUIDED TO SAFETY B Y WING FLAPS CONTROLLED BY CURTISS-WRIGHT’S OF A 1,000-FOOT AIRCRAFT CARRIER, AN F-14 IS GUIDED TO SAFETY BY WING FLAPS CONTROLLED BY CURTISS-WRIGHT’S ACTUATION SYSTEM. AS THE AIRCRAFT IS HARNESSED ON THE RUNWAY AND LAUNCHED BACK INTO THE SKY, THE INTEGRITY ACTUATION SYSTEM. AS THE AIRCRAFT IS HARNESSED ON THE RUNWAY AN D LAUNCHED BACK INTO THE SKY, THE INTEGRITY OF THE CATAPULT SYSTEM IS ENSURED BY CURTISS-WRIGHT’S METAL TRE ATMENT SERVICES. IN MISSION-CRITICAL DEFENSE OF THE CATAPULT SYSTEM IS ENSURED BY CURTISS-WRIGHT’S METAL TREATMENT SERVICES. IN MISSION-CRITICAL DEFENSE APPLICATIONS FOR SEA, AIR AND LAND, CURTISS-WRIGHT IS THERE. APPLICATIONS FOR SEA, AIR AND LAND, CURTISS-WRIGHT IS THERE. WEAPONS BAY DOOR ACTUATION SYSTEMS The F/A-22 Raptor is the US Air Force’s premier next-generation air fighter. The F/A-22 was developed to counter the increased sophistication and threat of hostile air forces and integrated air systems in use around the world. The F/A-22 has unprecedented fighter and attack capabilities with its balanced design of stealth, supercruise speed and extreme agility, along with advanced integrated avionics and a pilot-friendly cockpit. The F/A-22 aircraft gains much of its stealth capability from its smooth, streamlined shape and by storing its weapons internally rather than on external wing pods. A key component of this aircraft is the weapons bay doors, which must open in order to deploy a missile. While the doors are opening and closing, the aircraft’s stealth effect is compromised. Curtiss-Wright’s actuation systems reliably open and close the main and side weapons bay doors in the blink of an eye, thereby maximizing mission effectiveness and pilot safety. Curtiss-Wright also supplies the entire leading-edge slat actuation and drive systems for the F/A-22 program. 4 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S Industry Revenue defense Market Overview: Defense Within the defense market, Curtiss-Wright provides the and aircraft carriers. Curtiss-Wright is extending these most technologically advanced flow control and motion motor and generator technologies to other critical control products, and metal treatment services to naval, applications, including advanced aircraft arresting gear aerospace and ground defense programs. Our products (AAG) and electro-magnetic aircraft launching systems manage the flow of liquids on a nuclear submarine and (EMALS) that capture and relaunch aircraft on the control the lift, flight and landing of aircraft. Our metal next generation of aircraft carriers. treatment services enhance the performance of critical jet engine and aircraft structural components. In military aerospace, Curtiss-Wright is a leading supplier of flight controls, position sensors, control electronics, Our world-class reputation is built on engineering fire detection and power conversion systems. We also excellence, as demonstrated by the technical innovations provide sophisticated aiming, stabilization and suspension we develop to solve customer needs, and our precision systems for ground combat vehicles. manufacturing that ensures the superior performance of our products. As a result, we are the sole-source supplier of hermetically sealed valves, coolant pumps, motors and control systems for the US Navy nuclear submarine and aircraft carrier programs. We are also the designer and sole-source supplier of the largest, quietest and most power-dense generators that power the Navy’s latest classes of nuclear submarines The defense market provides significant growth oppor- tunities for application of Curtiss-Wright technologies, products and services, including new construction of submarines and aircraft carriers, retrofits for aircraft refueling systems, development programs for the F/A-22 and Joint Strike Fighter, and various ground combat vehicle programs. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 5 A tank in the Middle East. We’re there. We’re there. ET ACQUISITION, AIMING AND SITE SELECTION AS A MILITARY TANK CROSSES THE LANDSCAPE, CURTISS-WRIGHT’S TARGET ACQUISITION, AIMING AND SITE SELECTION AS A MILITARY TANK CROSSES THE LANDSCAPE, CURTISS-WRIGHT’S TARG COMPONENTS KEEP ITS WEAPONS ON TARGET AND STABILIZED REGARDLESS OF THE TERRAIN OR SPEED. CURTISS-WRIGHT COMPONENTS KEEP ITS WEAPONS ON TARGET AND STABILIZED REGARDLESS OF THE TERRAIN OR SPEED. CURTISS-WRIGHT ECTRONIC SYSTEMS AND SUBSYSTEMS FOR THE HAS PROVIDED THOUSANDS OF MISSION-CRITICAL, HIGH-PERFORMANCE EL HAS PROVIDED THOUSANDS OF MISSION-CRITICAL, HIGH-PERFORMANCE ELECTRONIC SYSTEMS AND SUBSYSTEMS FOR THE BRADLEY FIGHTING VEHICLE, ABRAMS TANK AND OTHER ARMORED VEHICLES. OPERATING UNDER THE MOST DEMANDING BRADLEY FIGHTING VEHICLE, ABRAMS TANK AND OTHER ARMORED VEHICLE S. OPERATING UNDER THE MOST DEMANDING ZE THE SAFETY AND SUPERIORITY OF COMBAT CONDITIONS, CURTISS-WRIGHT’S EMBEDDED ELECTRONIC SYSTEMS MAXIMI CONDITIONS, CURTISS-WRIGHT’S EMBEDDED ELECTRONIC SYSTEMS MAXIMIZE THE SAFETY AND SUPERIORITY OF COMBAT ER DEVELOPING TECHNOLOGIES FOR TOMORROW’S AND TACTICAL VEHICLES, BOTH IN THE AIR AND ON THE GROUND. WHETHER DEVELOPING TECHNOLOGIES FOR TOMORROW’S AND TACTICAL VEHICLES, BOTH IN THE AIR AND ON THE GROUND. WHETH OGRAMS, CURTISS-WRIGHT IS THERE. FUTURE COMBAT SYSTEMS OR SUPPORTING OUR ARMED FORCES’ LEGACY PROGRAMS, CURTISS-WRIGHT IS THERE. FUTURE COMBAT SYSTEMS OR SUPPORTING OUR ARMED FORCES’ LEGACY PR EMBEDDED COMPUTER SYSTEMS The US Air Force’s Global Hawk is a high-altitude, long-endurance unmanned aerial reconnaissance aircraft designed to provide military field commanders with high-resolution photographs of large geographic areas. Advanced technology sensors, with a range greater than halfway around the world, and extended flight capabilities enable the Global Hawk to provide the military with essential intelligence without risking lives. Considered the future of air defense, the Global Hawk is one of a number of next-generation unmanned aerial vehicles (UAVs) expected to significantly increase the effectiveness and efficiency of combat operations. Its ability to quickly gather and transmit real-time surveillance information dramatically improves the mission safety of military personnel in the air and on the ground. The superior performance of the Global Hawk system is achieved through its high-integrity, embedded computer systems. The Global Hawk’s flight control, sensors, mission operations and navigation are managed by two Curtiss-Wright Integrated Main Mission Management Computers that act essentially as the brain of the aircraft. The speed, reliability and accuracy of the computers allow the Global Hawk to fly for over 30 hours at altitudes greater than 50,000 feet and land on the centerline of its destination runway, all without human intervention. The advanced technological capabilities of the Global Hawk system will significantly enhance the US military’s ability to succeed in all types of operations, from sensitive peace- keeping missions to full-scale combat. 8 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S Industry Revenue defense electronics Market Overview: Defense Electronics As the next generation of military defense equipment is older platforms to advancing military reconnaissance developed, electronic systems will enhance the strategic infrastructure worldwide. Applications include ground mobility of military operations. Conventional combat vehicles, surface and subsurface naval platforms, tactical vehicles are being systematically replaced with lighter, and strategic aircraft, and space vehicles and platforms. more maneuverable models through programs such as the US Army’s Future Combat System (FCS). A highly integrated structure of manned and unmanned air and ground vehicles, FCS will provide an interlinked, wireless network to create a unified combat force. This will enable rapid communication and decisive action across the full spectrum of military operations. Over the next decade, there will be ample opportunities to participate in the growth of the worldwide defense electronics market. Projected to be among the fastest- growing portions of the US defense budget, the electronics market represents just over 20 percent of the budget for 2004. Vehicle electronics (Vetronics) is expected to grow from $318 million in 2002 to over Curtiss-Wright specializes in the design and manufacture $1.9 billion over the next five years, with 70 percent of high-performance, embedded electronic subsystems, coming from new programs such as FCS. employing state-of-the-art real-time technology to perform mission-critical operations and communications functions. Our products enable advanced processing in all facets of the military – from upgrading the performance of C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 9 A commercial jet high above North America. We’re there. We’re there. S DESTINATION, CURTISS-WRIGHT PROVIDES THE WHENEVER A COMMERCIAL AIRPLANE TAKES OFF AND SAFELY LANDS AT ITS DESTINATION, CURTISS-WRIGHT PROVIDES THE WHENEVER A COMMERCIAL AIRPLANE TAKES OFF AND SAFELY LANDS AT IT THAT OPERATE THE AIRCRAFT FLIGHT CONTROL INNOVATIVE TECHNOLOGIES, HIGH-PERFORMANCE PRODUCTS AND SYSTEMS INNOVATIVE TECHNOLOGIES, HIGH-PERFORMANCE PRODUCTS AND SYSTEMS THAT OPERATE THE AIRCRAFT FLIGHT CONTROL AND SURROUNDING THE AIRCRAFT. FROM PASSENGER SURFACES AND COMMUNICATE VITAL DATA ON FLIGHT CONDITIONS WITHIN SURFACES AND COMMUNICATE VITAL DATA ON FLIGHT CONDITIONS WITHIN AND SURROUNDING THE AIRCRAFT. FROM PASSENGER THE FULL SPECTRUM OF AVIATION PLATFORMS. JETS TO RESCUE HELICOPTERS, CURTISS-WRIGHT IS THERE SUPPORTING THE FULL SPECTRUM OF AVIATION PLATFORMS. JETS TO RESCUE HELICOPTERS, CURTISS-WRIGHT IS THERE SUPPORTING LASER PEENING TECHNOLOGY A laser beam impacts the surface of a metal part with the instantaneous power output of a nuclear power plant. The shock wave created by the laser beam compresses the metal’s surface, strengthening its resistance to cracking and corrosion. This is the essence of laser peening technology, which Curtiss-Wright recently commercialized with great success. Hundreds of commercial aircraft are now flying with critical parts of their jet engines laser peened to improve their durability and reliability. Laser peening creates a layer of compressive strength in the areas of the part that are most vulnerable to failure. Estimated maintenance savings for these aircraft are significant. As new aircraft are designed, our laser peening technology will enable engineers to design parts that are safer, lighter and perform more efficiently and economically. In addition to the current applications on jet engine components, future uses for laser peening are projected for components used in aerospace structures, nuclear power generation, hazardous waste disposal, high-performance race cars, medical implants, and oil and gas drilling. Curtiss-Wright developed its laser peening technology in partnership with Lawrence Livermore National Laboratory and retains the exclusive worldwide rights to the intellectual property necessary for its use on commercial components. 1 2 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S Industry Revenue commercial aerospace Market Overview: Commercial Aerospace Every day thousands of commercial airliners around United States, and a greater demand for capacity glob- the world safely take off and land with the help of ally are anticipated to positively impact air travel and Curtiss-Wright. Our flight control actuation devices, lead to an industry recovery. which extend and retract a wing’s leading-edge slats and trailing-edge flaps, allow an airliner to take off and land at lower speeds, thereby increasing passenger safety and reducing runway lengths. Our metal treatment services include precision shaping of a wing’s aero- dynamic curvature, coatings for protecting structural fasteners, and shot peening to strengthen critical components – all of which reduce costs for manufactur- ing, maintenance and repairs. Curtiss-Wright continues to value its long-term commitment to the commercial aerospace market. Our advanced technologies, precision manufacturing capabilities, low-cost structure and long-standing customer relationships have been and will remain a critical element of our success in this market. During the past several years, Curtiss-Wright has aggressively managed its cost base and is well positioned to benefit from the anticipated upturn in new commercial The commercial aerospace market has experienced a aircraft development programs. severe downturn over the past three years. Geopolitical conflict, public health epidemics and economic recession have all negatively impacted the global airline industry. Improvements in the economy, already witnessed in the C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 1 3 A nuclear power plant in Europe. We’re there. We’re there. LAMPS AND MANY OTHER APPLIANCES IN MILLIONS EVERY DAY, THE TELEVISIONS, REFRIGERATORS, COMPUTERS, TOASTERS, LAMPS AND MANY OTHER APPLIANCES IN MILLIONS EVERY DAY, THE TELEVISIONS, REFRIGERATORS, COMPUTERS, TOASTERS, AR POWER PLANTS. CURTISS-WRIGHT PROVIDES OF HOMES ARE POWERED SAFELY USING ELECTRICITY PRODUCED BY NUCLE OF HOMES ARE POWERED SAFELY USING ELECTRICITY PRODUCED BY NUCLEAR POWER PLANTS. CURTISS-WRIGHT PROVIDES HIGHLY ENGINEERED VALVES, PUMPS, INSTRUMENTATION AND SOFTWARE S YSTEMS TO ENSURE THAT NUCLEAR POWER PLANTS HIGHLY ENGINEERED VALVES, PUMPS, INSTRUMENTATION AND SOFTWARE SYSTEMS TO ENSURE THAT NUCLEAR POWER PLANTS OPERATE AT THE ULTIMATE LEVEL OF SAFETY, EFFICIENCY AND ENVIRON MENTAL COMPLIANCE. FROM DAILY PLANT OPERATION OPERATE AT THE ULTIMATE LEVEL OF SAFETY, EFFICIENCY AND ENVIRONMENTAL COMPLIANCE. FROM DAILY PLANT OPERATION TO PLANT UPGRADES AND NEW CONSTRUCTION, CURTISS-WRIGHT IS THERE.. TO PLANT UPGRADES AND NEW CONSTRUCTION, CURTISS-WRIGHT IS THERE ADVANCED PUMP TECHNOLOGY As demand increases for locally produced, environmentally friendly energy sources, the recognition of nuclear power as a clean, economic and independent energy source is attracting new development. Curtiss-Wright is at the forefront in developing advanced products for the nuclear power industry, including pumps, motors, valves, control rod drive mechanisms, and instrumentation and controls for existing and next-generation commercial nuclear power plants. Our technologies provide solutions to obsolescence issues, ensuring continued high levels of plant safety and efficiency. Curtiss-Wright is a leading supplier of reactor coolant pumps and motors for the majority of the commercial nuclear pressurized water reactors worldwide. Curtiss-Wright first introduced these pumps over 50 years ago and continues to be a world leader in reactor coolant pump technology, as well as a major supplier of other critical components to the commercial nuclear power industry. Curtiss-Wright’s broad range of core competencies in engineering, analysis, manufacturing and testing are being applied in the commercial nuclear power industry to achieve improvements in operation and maintenance processes, as well as to address the emerging focus of the industry to extend the life and increase power output of existing plants. Curtiss-Wright also plays a key role in maintaining the supply of critical components to the industry that are no longer available from original equipment manufacturers. 1 6 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S Industry Revenue nuclear power Market Overview: Nuclear Power Today, nuclear power plants – the second largest source Because of its attractiveness as an energy source, of electricity in the United States – supply approximately nuclear power is projected to represent a growing share 20 percent of the nation’s electricity needs. Nuclear of the developing world’s electricity consumption over power plants provide the lowest cost energy source. the next 20 years. License renewal is expected for a They are environmentally friendly and minimally impact majority of the 103 US nuclear power plants and new water, land, habitat, species and air resources. The plant construction is expected to increase nuclear safety of people and the environment is the essence of Curtiss-Wright’s advanced technologies for the capacity globally. We are committed to providing advanced technologies and innovative solutions to meet the unique nuclear regulatory requirements of operating plants, as well as the construction of new power plants internationally. nuclear power industry. Curtiss-Wright’s valves, pumps and actuators control the flow of liquids, such as water used in the cooling systems of nuclear reactors. Curtiss-Wright is the leading source of hermetically sealed valves that meet the US Nuclear Regulatory Commission’s technical specifications for use in nuclear reactors. Curtiss-Wright’s Digital Process Control Technology is helping nuclear power plants address growing concerns over obsolete analog instrumentation. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 1 7 An offshore drilling platform in the North Sea. We’re there. We’re there. NS AND DEEPER WATERS, CURTISS-WRIGHT DESIGNS AS EXPLORATION FOR OIL AND GAS EXPANDS INTO MORE REMOTE LOCATIONS AND DEEPER WATERS, CURTISS-WRIGHT DESIGNS AS EXPLORATION FOR OIL AND GAS EXPANDS INTO MORE REMOTE LOCATIO HIGH-PRESSURE, CORROSIVE ENVIRONMENTS. OUR TECHNOLOGICALLY ADVANCED VALVES TO MEET THE CHALLENGES OF SUCH TECHNOLOGICALLY ADVANCED VALVES TO MEET THE CHALLENGES OF SUCH HIGH-PRESSURE, CORROSIVE ENVIRONMENTS. OUR ITH THE TOLERANCE TO PERFORM IN EXTREMELY ENGINEERING EXPERTISE AND PRECISION PROCESSING PRODUCE VALVES W ENGINEERING EXPERTISE AND PRECISION PROCESSING PRODUCE VALVES WITH THE TOLERANCE TO PERFORM IN EXTREMELY HARSH CONDITIONS SUCH AS THE NORTH ATLANTIC, BERING SEA AND THE EQUATORIAL WATERS OFF THE AFRICAN COAST. IN HARSH CONDITIONS SUCH AS THE NORTH ATLANTIC, BERING SEA AND THE EQUATORIAL WATERS OFF THE AFRICAN COAST. IN ES, CURTISS-WRIGHT IS THERE. EXPLORATION, PRODUCTION AND PROCESSING OF GLOBAL ENERGY RESOURCES, CURTISS-WRIGHT IS THERE. EXPLORATION, PRODUCTION AND PROCESSING OF GLOBAL ENERGY RESOURC DELTAGUARD ® COKE-DRUM UNHEADING DEVICE One primary method of refining crude oil into gasoline, jet fuel and diesel requires a process known as delayed coking. Delayed coking is a thermal cracking process achieved through heating crude oil to an extremely high temperature and pumping it into large pressurized drums. This process breaks the heavy oil into lighter, more valuable fluids which are vaporized and removed, while the solid, unconverted coal-like byproduct called coke remains. Unheading, or opening the drum to remove the coke, exposes the drum contents to the atmosphere. The coke-drum unheading process has the potential to be one of the most dangerous refinery operations and has been the cause of severe accidents. Curtiss-Wright’s advanced technology solution, the DeltaGuard® coke-drum unheading device, provides the first fully automated, inherently safe system and is quickly becoming the global industry standard. By creating a completely sealed connection from the bottom of the coke-drum down through the discharge chute, the DeltaGuard® completely isolates personnel and equipment from exposure to hot coke, water and steam. In addition to safety, the innovative design provides significant economic advantages by minimizing operation and maintenance costs, as well as enabling refiners to process less expensive grades of crude oil. Curtiss-Wright installed the first DeltaGuard® at the Chevron Salt Lake City facility in September 2001 and has since installed units on all 14 Chevron coke-drums in the United States, including the El Segundo Refinery where the above photo was taken. Since its recent introduction, the DeltaGuard® has captured in excess of 10% of the total unheading device market in the United States. Curtiss-Wright is also currently manufacturing unheading devices for numerous inter- national refineries. 2 0 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S Industry Revenue oil + gas Market Overview: Oil and Gas World energy consumption is projected to reach the performance for severe service applications. We equivalent of nearly 300 million barrels of oil per day by continuously bring new products to market, such as 2020, an increase of approximately 40 percent. Oil and our advanced material modulating pilot-operated relief gas will continue to be the primary resource, accounting valve and subsea multiphase pump. And our iPRISM™ for 60 percent of the energy supply worldwide. To meet software is revolutionizing plant management, docu- increasing demand, the oil and gas industry is developing mentation and regulatory compliance. reserves in increasingly harsh environments, such as deep water, and increasing supply from sources such as liquid petroleum gas (LPG). Offshore floating platforms, subsea systems and LPG facilities all operate under extreme conditions that require highly engineered products to optimize performance and mitigate failure from corrosion or pressure. Capital spending by the process industry is projected to increase in the next two to five years to meet increasing demand and environmental regulations. Primarily, expenditures will be made to retrofit existing facilities with improved equipment, materials upgrades and technologies to increase plant flexibility, reliability, production and profitability. Curtiss-Wright’s extensive Curtiss-Wright is one of the world’s leading manu- line of highly engineered, technologically advanced facturers of pressure-relief valves used to prevent valves and related products are well positioned to over-pressurization of vessels, pipelines and other support these future requirements of the oil and gas critical industrial equipment. Our gate, ball and triple and related industries. offset butterfly valves continue to provide the highest C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 2 1 To Our Shareholders: On December 17, 2003, Curtiss-Wright and the world celebrated the 100 th Anniversary of the first flight at Kitty Hawk, North Carolina — a crowning tribute to two of our founding fathers, Orville and Wilbur Wright. 2004 marks another major milestone for Curtiss-Wright Corporation as we proudly celebrate our 75th Anniversary. The pioneering spirit of three great inventors gave birth to the aviation industry. Aside from their historic first flight, the Wright brothers and Glenn Curtiss developed aircraft capable of flying around the world. Their legacy companies, Wright Aeronautical and The Curtiss Aeroplane and Motor Company, were merged to form Curtiss-Wright Corporation on July 5, 1929. On August 22, 1929, Curtiss-Wright Corporation was listed on the New York Stock Exchange where it still trades today. Curtiss-Wright’s enduring success is due to an unwavering commitment to innovation, engineering excellence and technological leadership. These principles guided the Wright brothers to achieve the first flight in 1903 and today inspire us to achieve new firsts in flow control and motion control technologies, and metal treatment services. As we celebrate our 75th Anniversary, our goals remain steadfast: Martin R. Benante Chairman and Chief Executive Officer 2 2 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S LETTER TO SHAREHOLDERS (cid:127) Focus on advanced technology and high-performance platforms; As a result of our market leadership and strong performance, (cid:127) Uphold our world-class reputation for engineering excellence and pioneering products; and (cid:127) Maintain a solid capital base while executing a disciplined growth strategy. Curtiss-Wright continues to receive accolades for industry leadership. In 2003, Defense News named Curtiss-Wright to its “Fast Track 50” list of the fastest-growing defense firms in the world, with Curtiss- Wright in the top 15 for both one-year and three-year annual growth. Strong Financial Performance Strategic, Diversified Markets In 2003, we achieved record sales and profitability through a mix of organic growth and successful acquisition integration. Our revenues of $746 million in 2003 increased 45% over 2002, and our operating income in 2003 totaled $89 million, an increase of 42% before pension income. Our net earnings of $52 million, or $2.50 per diluted share, increased 26% over 2002 on a normalized basis. Our strong performance is due to our acquisitions achieving better- than-expected results as well as cross-marketing of our products and new technologies generating growth in each of the markets in which we compete. Our backlog at December 31, 2003 was $506 million compared with $479 million at December 31, 2002. New orders received in 2003 totaled $743 million, which represents a 55% increase over 2002. In support of our significant growth, we strengthened and expanded our capital structure in September with a private placement of $200 million of senior notes. This long-term debt facility provided liquidity and secured attractive long-term fixed interest rates at historically low levels. Our leadership across a broad platform of complementary, strategic niche markets has produced the balance that has allowed us to continue achieving profitable growth during a weak economic cycle and a period of geopolitical uncertainty. While the commercial aerospace market remains soft, the ramp-up of military program initiatives has resulted in strong growth in our defense businesses, including aerospace, naval and land-based programs. In addition, we have built a leading global position in the emerging defense electronics market. Electronics is expected to represent one of the fastest-growing sectors of defense spending as integrated combat systems and unmanned technologies are developed. We believe strong military spending will continue to fuel our defense businesses over the next two years, at which time we believe a stronger US economy will stimulate spending in other sectors in which we hold strong market positions. Primarily, our long-standing presence in commercial aerospace is well positioned to benefit from increases in consumer travel. During the downturn, Curtiss-Wright has continued to develop innovative technologies, such as laser peening, C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 2 3 2003 ACQUISITIONS Collins Technologies Specializes in the manufacture of Linear Variable Displacement Transducers (LVDT’s) for aerospace flight and engine control applications, and industrialmarkets Novatronics Designer and manufacturer of electric motors and position sensors (linear and rotary) for the commercial aerospace, military aerospace andindustrialmarkets Peritek Leading manufacturer of video and graphic display boards for the embedded computing industry, including the aviation, defense and medical markets, as well as products for bomb detectionandindustrialautomation Systran Key supplier of high-performance data communi cations products for real-time computing systems primarily for the aerospace, defense, industrial automation and medical imaging markets E/M Coatings Premier US applicator of solid film lubricant coatings for aerospace, automotive and specialty industrial applications AMP Supplier of commercial shot peening services totheDetroitautomotivemarket while aggressively managing its cost base. As a result, we will con- We have successfully increased our position in the defense electronics tinue to be competitive on new commercial aircraft development pro- market and are a global market leader in the embedded systems grams as well as upgrades and repair and overhaul services. arena. We anticipate that this market will experience extraordinary In addition, each of our business segments continues to contribute important technological advances that have driven product expansion into a multitude of energy and industrial markets. Through our flow control segment, we have experienced solid growth in energy markets, such as nuclear power and in oil and gas, by providing valuable new products in valve technology and software systems. Recent acquisitions of electronics technology by our motion control segment will provide new applications for medical imaging and digital equipment. And, in metal treatment services, our advances in laser peening technology are enabling us to explore new opportunities in energy, environmental and medical applications. Achieving this growth in a sluggish economy reflects our skill in creating customer solutions and developing new markets for our products. Continued Success with Acquisitions Our focus on technology and innovation is greatly enhanced by our successful acquisition strategy. In 2003, we made six acquisitions that have provided us with new products and technological capabilities, primarily within the defense and commercial electronics sectors, and expanded our global reach and market penetration. growth over the next few years as the next generation of military equipment develops. In 2003, we acquired Collins Technologies, Peritek, Systran, Novatronics and, in early 2004, Dy 4, each of which enhances our ability to offer our customers greater electronic subsystem solutions for military aircraft and ground vehicles. These acquisitions complement our existing technologies in flight and engine control applications and provide us with a core competence in defense electronics upon which we expect to generate significant organic growth. Additionally, we significantly expanded our technological capabilities and market penetration in metal treatment services with the acquisitions of E/M Coatings, a leading provider of specialty coatings to the aerospace, automotive, electronics, industrial, medical, military and semiconductor markets, and AMP, which sup- plies commercial shot peening services primarily to the automotive market. These acquisitions improved our position in metallurgical technologies in the US and are complementary to our existing portfo- lio of metal treatment services. Delivering Shareholder Value 2003 represented another year of successful firsts and growth for our company. However, we continue to evaluate our performance 2 4 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S LETTER TO SHAREHOLDERS primarily on our ability to enhance shareholder value. As we grow, we past year, we proudly celebrated our heritage in festivities that were must not only continue to support our current customers and markets, broadcast around the world. As part of our commitment to preserve the but also successfully integrate new members into the Curtiss-Wright legacy of Curtiss-Wright, we contributed financing for the development family and expand into new markets. In doing so, Curtiss-Wright of a replica of the original Curtiss-Wright Flyer, as well as numerous employees continue to set and achieve high standards of productivity, events culminating with the Centennial Celebration on December quality and customer service. Our significant revenue growth is mirrored by solid income and cash flow generation. Our confidence in our ability to sustain this momentum enabled us to approve a 20% dividend increase in November 2003, returning a portion of our strong profitability to our shareholders. Additionally, our strong share price performance provided the impetus 17, 2003, at Kitty Hawk, NC. We donated a complete inventory of aeronautical engine blueprints to the Smithsonian’s National Air and Space Museum in Washington, DC and Wright State University in Dayton, OH. Additionally, Curtiss-Wright endowed scholarships at three leading universities for students pursuing careers in aeronautical engineering in honor of our founding fathers. for a 2-for-1 stock split which was completed in December 2003. We also visited the New York Stock Exchange in December to ring the We believe that with a lower share price resulting from the stock split, closing bell in honor of Curtiss-Wright’s contributions to aviation. I was Curtiss-Wright will be a more attractive investment to a wider audience joined by Curtiss-Wright’s senior management and two US Air Force of investors. Additionally, as our company continues to successfully Reserve officers. These officers recently returned from duty in Iraq grow, we are pleased to provide a greater level of liquidity in the stock flying C-130 cargo aircraft and are two of the thousands of brave and to our shareholders. In June 2003, we elected Carl G. Miller, a veteran of the aerospace and defense industry, to serve on our Board of Directors and as a member of our audit and finance committees. Mr. Miller, proud soldiers, sailors, airmen and marines who depend on the tech- nology and reliability of Curtiss-Wright products. We are thankful for the commitment and sacrifice that all military personnel have made for our country and are privileged to play a part in supporting their efforts. who recently retired from TRW, brings over 30 years of financial We are proud to be celebrating our 75th Anniversary at Curtiss-Wright management and industry leadership, making him an invaluable Corporation in concert with the Centennial of Flight, and we want to resource to Curtiss-Wright. We welcome Mr. Miller’s contributions thank our exceptional employees who made this milestone possible. As a career employee of 25 years, I have truly enjoyed being a part of the Curtiss-Wright legacy and eagerly anticipate the next milestone achievement. M artin R. Benante Chairman and Chief Executive Officer in the years to come. As we strive to achieve superior shareholder value with new technologies and in new markets, our core competence remains in advanced engineering and precision processing. This steadfast focus, combined with the ingenuity of our employees, enables us to maintain a reputation for world-class performance in the markets in which we compete. We are particularly proud to employ many industry veterans who are committed to efficient and effective responsiveness to ever-changing customer needs and market trends. Because of the creativity, energy, discipline and dedication of so many people who work for Curtiss-Wright, we are privileged to enjoy long-term relationships with our customers. Building on a Legacy Committed, visionary employees and long-term relationships with customers have been a hallmark of Curtiss-Wright for three-quarters of a century. It is therefore fitting that our 75th Anniversary coincides with the 100th Anniversary of the Wright brothers’ first flight. During the C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 2 5 1. 2. 3. 5. 7. 4. 6. 8. 9. Board of Directors 1. DAVID LASKY 2. J. M CLAIN STEWART 3. JOHN R. MYERS 4. CARL G. MILLER 5. MARTIN R. BENANTE 6. S. MARCE FULLER 7. WILLIAM B. MITCHELL 8. DR. WILLIAM W. SIHLER 9. ADMIRAL JAMES B. BUSEY IV (RET.) 2 6 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S Financial Statements C U RT I S S - W R I G H T C O R P O R AT I O N Financial Statements C U RT I S S - W R I G H T C O R P O R AT I O N M etal Treatment E/M Engineered Coatings Solutions applies over 1,100 different coat- ings to im part lubrication, corrosion resistance, and certain cosm etic and dielectric properties to selected com ponents. The Corporation acquired six E/M Coatings facilities operating in Chicago, IL; Detroit, M I; M inneapolis, M N ; H artford, CT; and N orth H ollywood and Chatsworth, CA. Com bined, these facilities are one of the leading providers of solid ﬁlm lubricant coatings in the U nited States. Advanced Material Process is a supplier of com m ercial shot-peening services prim arily to the autom otive m arket and is located in Detroit,M ichigan. CURTISS-WRIGHT 2003 ACQUISITIONS M otion Control Novatronics designs and m anufactures electric m otors and position sensors (both linear and rotary) for the com m ercial aerospace, m ili- taryaerospace, and industrial m arkets. N ovatronics has operating facil- ities located in Stratford, Ontario, Canada, and Plainview, N ew York. Systran Corporation is a leading supplier of highly specialized, high perform ance data com m unications products for real-tim e system s, pri- m arily for the aerospace, defense, industrial autom ation, and m ed- ical im aging m arkets. Key applications include sim ulation, process control, advanced digital signal processing, data acquisition, im age processing, and test and m easurem ent. Systran’s operations are located in Dayton, Ohio. Peritek Corporation is a leading supplier of video and graphic display boards for the em bedded com puting industry in a variety of m arkets including aviation, defense, and m edical. Peritek supplies products for bom b detection, industrial autom ation, and m edical im aging applica- tions. Peritek’s operations are located in Oakland, California. Collins Technologies designs and m anufactures Linear Variable Dis- placem ent Transducers (“LVDTs”), prim arily for aerospace ﬂight and engine controlapplications. Industrial LVDTs are used m ostly in indus- trial autom ation and test applications. Collins’ operations are located in Long Beach,California. 2 8 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S AT A GLANCE Curtiss-W right operates across three business segm ents that provide diversiﬁcation and balance. W e provide highly engineered products and services to a num ber of global m arkets and pride ourselves in the strong custom er relationships that have been developed over the years. M otion Control P R O D U C T S A N D S E R V I C E S Secondary ﬂight control actuation system s and electrom echanical trim actuators W eapons bay door actuation system s Aircraft cargo door and utility actuation system s Integrated m ission m anagem ent and ﬂight control com puters Fractional horsepower (H P) specialty m otors Force transducers Fire detection and suppression control system s Digital electrom echanical aim ing and stabilization system s H ydropneum atic suspension system s Electrom echanical tilting system s for high-speed trains Fire control, sight head, and environm ental control processors for m ilitary ground vehicles Position sensors Power conversion products Control electronics H igh perform ance data com m unication products Com ponent overhaul and logistics support services Perim eter Intrusion Detection Equipm ent Flow Control P R O D U C T S A N D S E R V I C E S M ilitary and com m ercial nuclear/non-nuclear valves (butterﬂy, globe, gate, control, safety, relief, solenoid) M ilitary and com m ercial nuclear/non-nuclear pum ps, m otors, generators, instrum entation and controls M ilitary aircraft carrier launch and retrieval equipm ent Steam generator control equipm ent Reactor plant equipm ent and controls Advanced hydraulic system s Air driven ﬂuid pum ps Engineering, inspection and testing services M etal Treatment P R O D U C T S A N D S E R V I C E S Shot peening Shot peen form ing Laser peening H eat treating Specialty coatings Reed valve m anufacturing W et ﬁnishing M A J O R M A R K E T S Com m ercial jet transports Business/regional jets M ilitary transport and ﬁghter aircraft Ground defense vehicles U nm anned aerial vehicles Autom ated industrial equipm ent H igh-speed trains M arine propulsion Space program s Security system s N aval ships H om eland security Air, sea, and ground sim ulation M A J O R M A R K E T S N avy program s (nuclear and non-nuclear) Power generation (nuclear and fossil) Processing industry Oil and gas reﬁning Petrochem ical/chem ical N atural gas production and transm ission Pharm aceutical Pulp and paper Autom otive/truck M A J O R M A R K E T S Com m ercial jet transports Business/regional jets Autom otive M etalworking Oil and gas exploration Power generation Agricultural equipm ent Construction and m ining equipm ent C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 2 9 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (In thousands, except per share data) First Second Third Fourth 2 0 0 3 N et sales Gross proﬁt N et earnings Earnings per share: Basic earnings per share Diluted earnings per share Dividends per share 2 0 0 2 N et sales Gross proﬁt N et earnings Earnings per share: Basic earnings per share Diluted earnings per share Dividends per share $179,933 59,032 14,122 $ 182,857 56,682 10,873 $ 189,618 57,017 12,519 $ 193,663 68,187 14,754 $ $ $ .69 .68 .075 $ $ $ .53 .52 .075 $ $ $ .61 .60 .075 $ $ $ .71 .70 .09 $ 97,787 36,155 9,316 $121,777 43,699 10,816 $119,641 41,199 11,312 $174,073 55,033 13,692 $ $ $ .46 .45 .075 $ $ $ .53 .52 .075 $ $ $ .55 .54 .075 $ $ $ .67 .65 .075 All per share amounts have been adjusted to reflect the Corporation’s 2-for-1 stock split during 2003. See notes to consolidated financial statements for additional financial information. CONSOLIDATED SELECTED FINANCIAL DATA (In thousands, except per share data) 2003 2002 2001 2000 1999 N et sales N et earnings Total assets Long-term debt Basic earnings per share Diluted earnings per share Cash dividends per share $746,071 52,268 973,665 224,151 2.53 2.50 0.32 $ $ $ $513,278 45,136 810,102 119,041 2.21 2.16 0.30 $ $ $ $343,167 62,880 500,428 21,361 3.12 3.07 0.27 $ $ $ $329,575 41,074 409,416 24,730 2.05 2.02 0.26 $ $ $ $293,263 39,045 387,126 34,171 1.93 1.91 0.26 $ $ $ Certain prior year information has been reclassified to conform to current presentation. All per share amounts have been adjusted to reflect the Corporation’s 2-for-1 stock split during 2003. See notes to consolidated financial statements for additional financial information. FORWARD-LOOKING STATEMENTS This Annual Report contains not only historical inform ation but also forward-looking statem ents regarding expectations for future com pany perform ance. Forward-looking statem ents involve risk and uncertainty. Please refer to the Corporation’s 2003 Annual Report on Form 10-K for a discussion relating to forward-looking statem ents contained in this Annual Report and risk factors that could cause future results to differ from current expectations. 3 0 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Curtiss-W right Corporation is a m ultinational provider of highly engi- neered products and services. The m anagem ent strategy is to position the Corporation as a m arket leader across a diversiﬁed array of niche m arkets built upon engineering and technological leadership, low-cost m anufacturing, and strong relationships with our custom ers. The Cor- poration provides products and services to a num ber of global m arkets, such as defense, com m ercial aerospace, nuclear power, oil and gas, autom otive, and general industrial. The Corporation has achieved bal- anced growth through the successful application of its core com pe- tencies in engineering and precision m anufacturing, adapting these com petencies to new m arkets through internal product developm ent and a disciplined program of strategic acquisitions. Approxim ately 50% of revenues are generated from defense-related m arkets. Company Organization The Corporation m anages and evaluates its operations based on the products and services it offers and the different m arkets it serves. Based on this approach, the Corporation has three principal operating segm ents: Flow Control, M otion Control, and M etal Treatm ent. The Flow Control segm ent prim arily designs, m anufactures, distributes, and services a broad range of highly engineered ﬂow-control products for severe-service m ilitary and com m ercial applications. The M otion Control segm ent prim arily designs, develops, and m anufactures high- perform ance m echanical system s, drive system s, and electronic con- trols and sensors for the aerospace and defense industries. M etal Treatm ent provides approxim ately 50 m etallurgical services, princi- pally “shot-peening” and “heat treating.” This segm ent provides these services for a broad spectrum of custom ers in various industries, including aerospace, autom otive, construction equipm ent, oil and gas, petrochem ical, and m etal working. For further inform ation on our prod- ucts and services and the m ajor m arkets served by our three segm ents, see page 29 of this Annual Report. The Corporation records sales and related proﬁts on production and service type contracts as units are shipped or as services are rendered. This m ethod is used in our M etal Treatm ent segm ent and in som e of the business units within the M otion Control and Flow Control seg- m ents, which serve com m ercial m arkets. For certain contracts that require perform ance over an extended period before deliveries begin, sales and estim ated proﬁts are recorded by applying the percentage- of-com pletion m ethod of accounting. Results of Operations F I S C A L Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 3 C O M PA R E D W I T H F I S C A L Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 2 Curtiss-W right Corporation recorded consolidated net sales of $746.1 m illion and net earnings of $52.3 m illion, or $2.50 per diluted share, for the year ended Decem ber 31, 2003. Sales for the current year increased 45% over 2002 sales of $513.3 m illion. N et earnings for 2003 increased 16% from 2002 net earnings of $45.1 m illion, or $2.16 per diluted share. The increase in revenues was m ainly driven by a com plete year of rev- enues generated from the 2002 acquisitions of EM D, Tapco Interna- tional, Penny & Giles, and Autronics and contributions from the 2003 acquisitions, prim arily E/M Coatings and Collins Technologies. See N ote 2 to the Consolidated Financial Statem ents for further inform a- tion regarding acquisitions. Including the six businesses acquired in 2003, the Corporation has acquired twelvenew businesses since 2001. The acquisitions m ade during the last two years contributed $221.8 m illion in increm ental sales during 2003. The rem aining business units experienced organic sales growth of 6% in 2003, led by the Flow Control segm ent, which grew organically by 13% , due to higher valve sales to the nuclear and non-nuclear naval program s and higher sales of new products to the com m ercial nuclear power generation m arket. H igher sales of shot peening services for the aerospace m arket in Europe, sales from our new laser peening technology, and higher sales from our dom estic aerospace and ground defense businesses also con- tributed to the higher sales in 2003. These increases in our base busi- nesses were partially offset by sales declines in com m ercial aerospace com ponent overhaul and repair services and com m ercial aerospace original equipm ent m anufacturers (“OEM ”) products. Foreign currency translation had a favorable im pact on sales of $14.1 m illion for the year. Operating incom e for 2003 totaled $89.3 m illion, an increase of 29% from operating incom e of $69.0 m illion in 2002. The increase is pri- m arily attributed to the contributions of acquisitions m entioned above, which am ounted to $25.1 m illion in increm ental operating incom e. In 2003, we reclassed pension incom e derived from the Curtiss-W right Pension Plan into operating incom e for all periods presented. The 2003 pension incom e decreased $5.6 m illion from 2002 due to lower investm ent returns on the Corporation’s pension assets. The am ount recorded as pension incom e reﬂects the extent to which the return on plan assets exceeds the cost of providing beneﬁts in the sam e year, as detailed further in N ote 16 to the Consolidated Financial Statem ents. Based upon current m arket conditions, the Corporation expects lower net pension incom e derived from the Curtiss-W right Pension Plan in 2004. In addition to the contribution of the new acquisitions, 2003 operating incom e beneﬁted from higher sales to the com m ercial nuclear power generation m arkets, higher sales and m ore favorable sales m ix of products to the m ilitary aerospace, dom estic ground defense, and naval m arkets. These increases were offsetby lower m ar- gins as a result of lower volum e in the com m ercial aerospace OEM and overhaul and repair businesses, and cost overruns and inventory adjustm ents within our Flow Control segm ent. Overall consolidated operating m argins have decreased over the past three years, and this is related to the large num ber of acquisitions m ade since 2001. Although the new acquisitions continue to have a positive effect on operating incom e, the operating m argins of the overall Corporation are lower since the m argins of the acquisitions are below those of our tra- ditional businesses. W e consider this to be a short-term cost that will be m ore than offset by the beneﬁts of diversiﬁcation, the im plem enta- tion of cost control m easures, and increased future proﬁtability. The integration of our recent acquisitions continues to progress as planned. In addition to having im proved operating m argins for alm ost all of our recent acquisitions, we have initiated program s to cross-m arket prod- ucts and share technologies across our businesses. Foreign currency translation had a favorable im pact on operating incom e of $2.7 m il- lion for 2003. The increase in net earnings for 2003 as com pared to 2002 is m ainly due to the higher segm ent operating incom e. The im provem ent in oper- ating incom e was partially offset by lower non-operating other incom e C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 3 1 ating incom e was partially offset by lower non-operating other incom e and higher interest expense associated with higher debt levels. Backlog at Decem ber 31, 2003 was $505.5 m illion com pared with $478.5 m illion atDecem ber 31, 2002 and $242.3 m illion at Decem - ber 31, 2001. Acquisitions m ade during 2003 represented $15.6 m il- lion of the backlog at Decem ber 31, 2003. N ew orders received in 2003 totaled $743.1 m illion, which represents a 55% increase over 2002 new orders of $478.2 m illion and a 128% increase over new orders received in 2001. Acquisitions m ade during 2002 and 2003 con- tributed $208.0 m illion in increm ental new orders received in 2003. It should be noted that m etal treatm ent services, repair and overhaul services, and after-m arket sales, which represent approxim ately 22% of the Corporation’s total sales for 2003, are sold with very m odest lead tim es. Accordingly, the backlog for these businesses is less of an indi- cation of future sales than the backlog of the m ajority of the products and services of the M otion Control and Flow Control segm ents, in which a signiﬁcant portion of sales is derived from long-term contracts. F I S C A L Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 2 C O M PA R E D W I T H F I S C A L Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 1 Curtiss-W right Corporation recorded consolidated net sales of $513.3 m illion and net earnings of $45.1 m illion, or $2.16 per diluted share, for the year ended Decem ber 31, 2002. Sales for 2002 increased 50% over 2001 sales of $343.2 m illion. N et earnings for 2002 decreased 28% from 2001 net earnings of $62.9 m illion, or $3.07 per diluted share. The 2002 sales im provem ent from 2001 largely reﬂected the contributions of acquisitions m ade by the Corporation. See N ote 2 to the Consolidated Financial Statem ents for further inform ation regard- ing acquisitions. Sales and operating incom e in 2002 of the busi- nesses acquired in 2002 and the fourth quarter of 2001 were $181.8 m illion and $19.7 m illion, respectively. The Corporation acquired six new businesses during 2002 and seven new businesses during 2001. In addition to the contribution of the new acquisitions, 2002 beneﬁted from stronger m ilitary aerospace sales and higher sales of ﬂow control products to the com m ercial nuclear power generation m arkets, nuclear naval program s, and the heavy truck OEM m arket. These increases were offset by signiﬁcant decreases in the sales of com m ercial aerospace OEM products, aerospace overhaul and repair services, and shot-peening services. Operating incom e for 2002 totaled $69.0 m illion, an increase of 19% from operating incom e of $58.2 m illion in 2001. The increase was pri- m arily attributed to the contributions of acquisitions m entioned above. Pension incom e decreased $3.8 m illion m ainly due to lower invest- m ent returns on the Corporation’s pension assets. In addition to the contribution of the acquisitions, 2002 operating incom e beneﬁted from higher sales of Flow Control products to the com m ercial nuclear power generation and heavy truck m arkets, higher sales and m ore favorable sales m ix of products to the m ilitary aerospace, international ground defense, and naval m arkets. These increases were offset by lower m argins as a result of lower volum e in the com m ercial aerospace OEM and unfavorable sales m ix, start-up costs at new facilities, and certain nonrecurring costs associated with the relocation of a shot peening facility within our M etal Treatm ent segm ent. Despite lower dem and from com m ercial airlines, the 2002 operating m argins of our aerospace overhaul and repair services business were ﬂat com pared to 2001 due to the successful execution of cost reduction initiatives. 3 2 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S H owever, net earnings in 2002 and 2001 included several item s the Corporation’s m anagem ent believes are nonrecurring and im pact a year-to-year com parison. In 2002, the Corporation recorded net gains related to the sale of rental properties, a net gain relating to the real- location of postretirem ent m edical beneﬁts for certain active em ploy- ees to our pension plan, release of an indem niﬁcation reserve related to the sale of our W ood-Ridge business com plex that was no longer required, a net legal settlem ent, a refund due from the Internal Rev- enue Service relative to a research and developm ent credit, and costs associated with the relocation of a shot-peening facility. The results for 2001 included a gain associated with the sale of our W ood-Ridge busi- ness com plex, recapitalization costs and a net nonrecurring beneﬁt gain. These item s had a net positive im pact on net earnings of $3.5 m illion, or $0.17 per diluted share in 2002, and $22.2 m illion, or $1.09 per diluted share in 2001. Foreign currency translation had a favorable im pact on sales and oper- ating incom e in 2002. Com paring 2002 results to those of 2001, the ﬂuctuation in foreign currency rates positively im pacted sales by $3.2 m illion and operating incom e by $0.7 m illion. In addition, with the im plem entation of Statem ent of Financial Accounting Standards (“SFAS”) N o. 142, the Corporation elim inated the am ortization of goodwill effective January 1, 2002, which totaled $1.8 m illion in 2001. See N ote 8 to the Consolidated Financial Statem ents for pro form a results relative to the effect of goodwill am ortization. Backlog at Decem ber 31, 2002 was $478.5 m illion com pared with $242.3 m illion at Decem ber 31, 2001. Acquisitions m ade during 2002 represented $246.9 m illion of the backlog at Decem ber 31, 2002. N ew orders received in 2002 totaled $478.2 m illion, which represents a 46% increase over 2001 new orders of $326.5 m illion. Acquisitions m ade during 2002 contributed $67.6 m illion to new orders received in 2002. It should be noted that m etal treatm ent services, repair and overhaul services, and after-m arket sales, which represent approxi- m ately 27% of the Corporation’s total sales for 2002, are sold with very m odest lead tim es. Accordingly, the backlog for these businesses is less of an indication of future sales than the backlog of the m ajority of the products and services of the M otion Control and Flow Control seg- m ents, in which a signiﬁcant portion of sales are derived from long- term contracts. Economic and Industry-wide Factors The weak U .S. econom y and the continued slum p in the global com - m ercial aerospace industry has had an adverse im pact on the Corpo- ration, however, increased U .S. m ilitary spending and increased penetration into certain other served m arkets has m ore than offset this im pact. Looking forward, m any factors, including future defense spending in the U .S., the continued im provem ent in global gross dom estic product, the geopolitical situation, and the pace of econom ic recovery could im pact the Corporation’s future perform ance. G E N E R A L E C O N O M Y M any of our industrial businesses are driven in large part by growth of the U .S. Gross Dom estic Product (GDP). Based upon certain econom ic reports, the U .S. econom y’s output (real GDP) had grown at a rate of 6.1% in the second half of 2003 and is expected to continue to grow at a rate of 4.2% through 2004. According to the current econom ic data, interest rates are expected to rise very slowly through 2005, which should encourage econom ic growth. U nem ploym ent is also expected to drop slowly over the next two years, as com panies produce increased output ﬁrst through productivity gains and next through addition of labor. Although it appears that, at least in the U .S., econom ic indicators are showing a possible recovery, we are only cautiously optim istic that this recovery, in fact, will occur. H owever, when it does, our businesses that are largely econom ic driven, such as m etal treatm ent and petrochem ical processing, are well positioned to take advantage of the recovery. D E F E N S E Approxim ately 50% of our business is in the m ilitary sector, predom i- nantly in the U .S., and is characterized by long-term program s and contracts and driven prim arily by the U .S. Departm ent of Defense (“DoD”) budget. The DoD budget reﬂects in part an initiative to transform and m odern- ize U .S. forces. H ighlights of ﬁscal 2004 DoD investm ent funding for key program s supportive of transform ation include m issile defense; CVN -21 aircraft carrier; new ship classes/technologies, including DDX destroyer, littoral com bat ship, and CG(X) cruiser; SSGN conversion; transform ational satellite com m unications; advanced Extrem ely H igh Frequency (EH F) capability; Space Based Radar (SBR); cryptologic m odernization; Future Com bat System s (FCS); and U nm anned Aerial Vehicles (U AV), including the Global H awk U AV, Predator U AV, U nm anned com bat aerial vehicles (U CAVs), and U nm anned undersea vehicles (U U Vs). Other DoD investm ent program s essential to achieving the transform a- tion and m odernization of U .S. forces include: shipbuilding— procure- m ent of seven ships, up sharply from ﬁve ships in ﬁscal 2003; F/A-22— procurem ent of 22 F/A-22s in ﬁscal 2004 to continue the developm ent of the aircraft and to im prove its ground attack system s; F/A-18E/F; Joint Strike Fighter (JSF)— continued system developm ent; V-22; and chem ical-biological defense program s. In addition, we antic- ipate future DoD spending to produce increased investm ent in elec- tronics in m ilitary hardware to upgrade existing platform s and facilitate “network centric warfare” as part of the m ilitary’s transform ation plans. Curtiss-W right’s Flow Control and M otion Control segm ents are well positioned on m any of the aforem entioned platform s, including the next-generation aircraft carrier, nuclear subm arine program , the F/A-22, the V-22, the JSF and the U AV program s. As a result of our reputation and past perform ance, we are involved in m any of the future system s that are currently in various stages of developm ent. H owever, 2004 is an election year in the U .S., which could have an im pact on U .S. DoD budget levels going forward, as could m any other uncertainties such as budget deﬁcit levels. There is the possibility that defense spending m ay decrease in the future, which could adversely affect the Corpora- tion’s operations and ﬁnancial condition. W hile DoD funding ﬂuctuates year-by-year and program -by-program , the biggest risk facing the Cor- poration would be the term ination of a program . There are no such m aterial term inations known at this tim e for program s upon which the Corporation has content. If a m aterial program were to be term inated, the term ination process takes several years to wind down, which would provide the Corporation am ple tim e to reallocate resources. In addition to the above, there are other risks associated with our defense busi- nesses, such as failure of a prim e contractor to perform on a contract, pricing and/or design speciﬁcations which m ay not always be ﬁnalized at the tim e the contract is bid, and the failure and/or inability of cer- tain sole source suppliers to provide product to the Corporation, could have an adverse im pact on the Corporation’s ﬁnancial perform ance. W hile alternatives could be identiﬁed to replace a sole source supplier, a transition could result in increased costs and m anufacturing delays. Our outlook for our defense business looks positive for the near to inter- m ediate term . C O M M E R C I A L A E R O S PA C E Approxim ately 20% of our business serves the global com m ercial aero- space industry. W orld airline trafﬁc is a prim ary driver for long-term growth in the com m ercial aerospace industry. Growth in airline trafﬁc will require increased passenger carrying capacity (“seats”) in the sys- tem , which can be m et by a m ix of large com m ercial aircraft, sm aller regional jets and business jets. Based on m arket data, we anticipate a m ove toward the use of larger aircraft. This m ovem ent will be fueled by airport congestion, as well as by the replacem ent of older aircraft with generally larger airplanes. W e also expect to see growth in aircraft range. Extended-range aircraft have the capability of ﬂying long non-stop ﬂights as well as m ultiple short ﬂights without the need for refueling. Based upon m arket data, we expect the com m ercial aerospace m arket to be ﬂat for 2004. Curtiss-W right’s M otion Control segm ent is a provider of OEM aero- space com ponents and its M etal Treatm ent segm ent provides services to aircraft m anufacturers. Based upon current external estim ates, we anticipate this industry to rem ain ﬂat in the near term . W hile the em er- gence of low cost airlines has contributed to this industry’s growth, con- cerns still exist regarding the ﬁnancial weakness of m any airlines and the threat of another m ajor terrorist attack, which could have an adverse im pact on this industry and the Corporation’s operating results and ﬁnancial position. Over the past several years the Corporation has diversiﬁed itself away from dependence on com m ercial aerospace and has sized its resources to current levels in order to protect proﬁtability and will continue to do so if necessary. The Corporation is well positioned on its com m ercial aerospace applications and will beneﬁt from the recovery in this indus- try, which is expected to occur over the next couple of years. P O W E R G E N E R AT I O N There are several factors that m ight precipitate an expansion in com - m ercial nuclear power, prim arily increasing pressure on environm ental issues. N uclear power has m inim al im pact on the environm ent, is one of the m ost econom ical form s of generating electricity, and does not depend upon foreign oil and gas. W ith respect to existing plants, the U .S. nuclear power industry is expected to grow based on the fact that m ost of the 103 current plants are or will be applying for plant life extensions. This, com bined with new plant construction in the U .S., Far East, and other parts of the world should drive expansion in this industry. Curtiss-W right Flow Control is well positioned to take part in this expansion over the next couple of years. H owever, there is no guar- antee that the U .S. plants will be granted plant life extensions or that the N uclear Regulatory Com m ission will authorize the construction ofnew facilities in the U .S. In addition, the geopolitical clim ate is not certain and is volatile, which could im pact future nuclear plant construction levels around the world. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 3 3 P E T R O C H E M I C A L P R O C E S S I N G Based upon m arket data, capital expenditures in the petroleum indus- tries are expected to increase in the next few years. The long-term global forecast for sales of valves to the petroleum m arket currently anticipates an annual ﬁve percent increase. Due to the fact that capac- ity utilization of existing U .S. reﬁneries rose from 70% to 91% from 1981 to 2000 and worldwide from 70% to 85% over the sam e tim e period, the dem and for valves is expected to be prim arily driven by m aintenance and upgrades. H owever, the proposed and enacted envi- ronm ental regulations in the U .S. and other developed countries could drive the dem and for valves by as m uch as 8 – 13% increases over the next few years. H owever, it is uncertain whether certain econom ic recoveries can be sustained or whether anticipated future environ- m ental regulatory changes will actually occur, and whether such regu- latory changes will have an im pact on this industry. 2003 Segment Performance Curtiss-W right operates in three principal operating segm ents on the basis of products and services offered: Flow Control, M otion Control, and M etal Treatm ent. See N ote 18 to the Consolidated Financial Statem ents for further segm ent ﬁnancial inform ation. The following table sets forth revenues, operating incom e, operating m argin, and the percentage changes on those item s, as com pared with the prior-year periods, by operating segm ent: (Dollars in thousands) SALES: Flow Control Motion Control Metal Treatment Total Curtiss-Wright OPERATING INCOME: Flow Control Motion Control Metal Treatment Total Segments Pension Income Corporate & Other Total Curtiss-Wright OPERATING MARGINS: Flow Control Motion Control Metal Treatment Total Segments Total Curtiss-Wright Year Ended D ecem ber 31, Percent Changes 2003 2002 2001 2003 vs. 2002 2002 vs. 2001 $341,271 265,905 138,895 $172,455 233,437 107,386 $ 98,257 137,103 107,807 $746,071 $513,278 $343,167 $ 39,991 30,350 19,055 $ 20,693 29,579 14,403 $ 10,703 19,219 19,513 89,396 1,611 (1,677) 64,675 7,208 (2,846) 49,435 11,042 (2,277) $ 89,330 $ 69,037 $ 58,200 97.9% 13.9% 29.3% 45.4% 93.3% 2.6% 32.3% 38.2% –77.6% 41.1% 29.4% 75.5% 70.3% –0.4% 49.6% 93.3% 53.9% –26.2% 30.8% –34.7% 25.0% 18.6% 11.7% 11.4% 13.7% 12.0% 12.0% 12.0% 12.7% 13.4% 12.6% 13.5% 10.9% 14.0% 18.1% 14.4% 17.0% F L O W C O N T R O L The Corporation’s Flow Control segm ent reported sales of $341.3 m il- lion for 2003, a 98% increase over 2002 sales of $172.5 m illion. The higher sales largely reﬂect the full year of revenues from the acquisi- tions of EM D and TAPCO International, Inc. com pleted in the fourth quarter of 2002. The 2003 increm ental sales from these acquisitions am ounted to $170.3 m illion, driven m ainly by strong ﬁnancial perfor- m ance from EM D. The rem aining business units of this segm ent pro- duced organic sales growth of 13% , which was driven by higher sales to the com m ercial nuclear power generation m arket, nuclear and non- nuclear naval program s, and dom estic and international oil and gas m arkets. H igher sales to the com m ercial nuclear power generation m arkets were due to the launch of new product lines and the expedited outage service requirem ents by the power generation plants. The non- nuclear naval products sales growth was due to new products, such as ball valves and JP-5 fuel valve system s, and higher electronic sales drove the nuclear naval product growth. Sales of the coker valve products to the petrochem ical and oil and gas m arkets were up due to new orders while the rem aining product lines in those m arkets were essentially ﬂat with the prior year. In addition, foreign currency trans- lation favorably im pacted sales in 2003 from 2002. Operating incom e for the year increased by 93% over the prior year. Acquisitions m ade in the fourth quarter of 2002 generated increm en- tal operating incom e of $21.3 m illion in 2003, while the balance of the segm ent businesses rose 2% over 2002. The organic growth was m ainly driven by higher volum e m entioned above, favorable sales m ix, and im proved productivity gained from the relocation of the electronics unit, offset by slightly lower m argins related to start-up costs on the new prod- uct launches and cost overruns on a safety relief valve project. In addi- tion, unanticipated shipping delays and a delay in launching strategic 3 4 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S plans for im proved operating cost efﬁciencies at our international unit resulted in an operating loss for the year. H owever, in late 2003, a new enterprise resource planning system was installed and various process im provem ents were im plem ented. Foreign currency translation had a $0.2 m illion positive im pact on 2003 operating incom e. Flow Control segm ent sales in 2002 were 76% higher than the sales of $98.3 m illion for 2001. The 2002 sales included $72.9 m illion related to acquisitions m ade during 2002 and 2001. The base busi- ness also im proved largely due to stronger sales of nuclear products to the U .S. N avy and power generation m arkets, higher sales to the heavy truck OEM m arkets, and solid sales to our European valve m arkets. Sales of the valve products to the petrochem ical and oil and gas m ar- kets were essentially ﬂat with 2001. In addition, foreign currency trans- lation favorably im pacted sales in 2002 from 2001. Operating incom e for 2002 increased by 93% over 2001, beneﬁting from the acquisitions and from organic growth. Operating incom e from the rem aining base business units of this segm ent im proved 21% due to higher sales vol- um es, im proved m argins on ﬂow control products for nuclear applica- tions and heavy truck OEM m arkets, and overall cost reduction initiatives. Foreign currency translation also had a $0.2 m illion nega- tive im pact on 2002 operating incom e. In addition, the elim ination of goodwill am ortization, which totaled $1.0 m illion in 2001, also favor- ably im pacted the 2002 results. Backlog at Decem ber 31, 2003 is $317.8 m illion com pared with $304.3 m illion atDecem ber 31, 2002 and $73.5 m illion at Decem ber 31, 2001. N ew orders received in 2003 totaled $353.7 m illion, which represents a 111% increase over 2002 new orders of $167.9 m illion and a 257% increase over new orders received in 2001. The 2003 increase is m ainly due to the full year contributions by the segm ent’s acquisi- tions of 2002 and a large order in the fourth quarter of 2003 from the N avy Surface W arfare Center. M O T I O N C O N T R O L The Corporation’s M otion Control segm ent reported sales of $265.9 m illion for 2003, a 14% increase over 2002 sales of $233.4 m illion. The higher sales largely reﬂect the full year contributions of the April 2002 acquisitions of Penny & Giles (“P&G”) and Autronics (“Autron- ics”) and the contributions of the 2003 acquisitions of Collins Tech- nologies, Peritek, Systran, and N ovatronics. The 2003 increm ental sales associated with these acquisitions am ounted to $28.0 m illion. Sales from the rem aining base businesses were essentially ﬂat. Strong dom estic ground defense sales, prim arily related to the expedited deliveries of spare parts for the Bradley Fighting Vehicle to support the Iraqi war effort, an increase in sales of m ilitary aerospace products, pri- m arily resulting from new orders for F-16 spare parts and the Joint Strike Fighter developm ent, and higher sales of m ilitary electronics for the Global H awk unm anned aerial reconnaissance system were offset by lower volum e associated with the overhaul and repair services pro- vided to the global com m ercial airline industry and lower OEM com - m ercial aircraft production. The softening in the dem and for the com m ercial aerospace business and related services, which began in 2001, has continued through 2003. In addition, foreign currency trans- lation favorably im pacted sales in 2003 from 2002. Operating incom e for 2003 increased 3% over the prior year. Acquisi- tions m ade in 2002 and 2003 generated increm ental operating incom e of $2.3 m illion, while the balance of the segm ent businesses was essentially ﬂat as com pared to 2002. Slightly lower operating incom e from the base businesses was m ainly due to the lower volum e, lower overhead absorption, and the write-off of obsolete inventory at our overhaul and repair services business unit. Operating incom e of our com m ercial aerospace OEM business also declined due to lower volum e. This decline was offset by higher operating incom e for our m ilitary aerospace products, which rose due to volum e and cost im provem ents. H igher operating incom e for our land-based defense businesses was due to higher volum e and m ore favorable sales m ix from the spare parts for the Bradley Fighting Vehicle. Foreign currency translation favorably im pacted 2003 operating incom e by $0.9 m illion. M otion Control segm ent sales for 2002 were 70% above 2001 sales of$137.1 m illion. The higher sales largely reﬂected the contributions from the acquisitions of P&G and Autronics in April 2002 and the full year contributions of the N ovem ber 2001 acquisitions of Lau Defense System s (“LDS”) and Vista Controls (“Vista”). The 2002 sales associated with these acquisitions am ounted to $110.3 m illion. Also affecting 2002 sales were lower aerospace repair and overhaul services com pared to the prior year. The softening in the dem and for these ser- vices was exacerbated by the im pact of the events of Septem ber 11th. This decline was offset by higher shipm ents of 737 and F/A-22 OEM products and strong growth in the global ground defense business as com pared to the prior year. In addition, foreign currency translation favorably im pacted sales in 2002 from 2001. Operating incom e for 2002 increased 54% over 2001 m ainly due to the contributions from the 2002 and 2001 acquisitions. Operating incom e from the rem ain- ing base businesses increased 2% due to the stronger m argins from both the aerospace and land-based defense businesses. These im provem ents were m ostly offset by declines in our com m ercial aero- space business. The operating m argins of our overhaul and repair busi- ness were ﬂat com pared to the prior year, despite the lower dem and from com m ercial airlines. Foreign currency translation favorably im pacted 2002 operating incom e by $0.3 m illion. In addition, the elim ination of goodwill am ortization, which totaled $0.6 m illion in 2001, also favorably im pacted the 2002 results. Backlog at Decem ber 31, 2003 was $186.3 m illion com pared with $173.2 m illion atDecem ber 31, 2002 and $167.5 m illion at Decem ber 31, 2001. Acquisitions m ade during 2003 represents $15.6 m illion of the backlog at Decem ber 31, 2003. N ew orders received in 2003 totaled $250.1 m illion, which represents a 23% increase over 2002 new orders of $203.3 m illion and a 109% increase over new orders received in 2001. The increase is m ainly due to the segm ent’s recent acquisitions. M E TA L T R E AT M E N T The Corporation’s M etal Treatm ent segm ent reported sales of $138.9 m illion in 2003, an increase of 29% over 2002 sales of $107.4 m illion. The higher sales largely reﬂect the contributions from the acquisition of the assets of Advanced M aterial Process (“AM P”) in M arch 2003 and E/M Engineered Coatings Solutions (“E/M Coatings”) in April 2003 and the full year contributions of the 2002 acquisitions of the assets of Brenner Tool & Die, Inc. and Ytstruktur Arboga AB. The 2003 increm ental sales associated with these acquisitions am ounted to $23.5 m illion. Sales from the rem aining base businesses grew 7% m ainly due to dom estic and international sales from our new laser peening technology. Our core shot-peening sales were down slightly in C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 3 5 our N orth Am erican divisions due m ainly to slow downs in the com - m ercial aerospace and autom otive m arkets. The im provem ent in core shot-peening sales from our European divisions was m ainly driven by favorable foreign currency translation. Sales from our heat-treating services were essentially ﬂat year over year, whereas the sales from ourreed valve product line declined due to the softness in the auto- m otive industry. Operating incom e for 2003 increased 32% from the prior year. Acqui- sitions m ade in 2002 and 2003 generated increm ental operating incom e of $1.6 m illion. This increm ental incom e is net of a loss asso- ciated with our ﬁnishing division, which was negatively im pacted by a custom er bankruptcy. The balance of the segm ent businesses rose 22% over 2002. The organic operating incom e growth is due to favor- able sales m ix from our laser peening services, higher volum e, and the beneﬁt from cost reduction initiatives. In 2002, this segm ent incurred higher start-up costs at new facilities and nonrecurring costs associ- ated with the relocation of a shot-peening facility. Foreign currency translation favorably im pacted 2003 operating incom e by $1.6 m illion. M etal Treatm ent segm ent sales for 2002 were $107.4 m illion, essen- tially ﬂat with the 2001 sales. The slight decrease resulted from lower shot peening sales, especially at the European divisions, which were im pacted by softness in the aerospace and autom otive m arkets, par- tially offset by the contribution from the 2002 acquisition in Sweden and sales from our new laser peening technology. The decline in the shot peening business was offset by higher heat treating sales result- ing from the full year contributions from the two acquisitions m ade in the fourth quarter of 2001. The valve division im proved over 2001 due to higher sales to autom otive and air conditioner com pressor cus- tom ers. In addition, foreign currency translation favorably im pacted sales in 2002 from 2001. In 2002, operating incom e was 26% below 2001 due prim arily to an unfavorable sales m ix, start-up costs at new facilities, and nonrecurring costs associated with the relocation of a shot peening facility. Foreign currency translation favorably im pacted 2002 operating incom e by $0.6 m illion. In addition, the elim ination of goodwill am ortization, which totaled $0.2 m illion in 2001, also favor- ably im pacted the 2002 results. Backlog at Decem ber 31, 2003 was $1.4 m illion com pared with $1.0 m illion atDecem ber 31, 2002 and $1.3 m illion at Decem ber 31, 2001. N ew orders received in 2003 totaled $139.9 m illion, which represents a 30% increase from 2002 new orders of $107.5 m illion and a 29% increase over new orders received in 2001. The increase is m ainly due to the segm ent’s recent acquisitions. C O R P O R AT E A N D O T H E R E X P E N S E S The Corporation had non-segm ent operating costs of $1.7 m illion in 2003. The operating costs consisted m ainly of net environm ental rem ediation and adm inistrative expenses, increm ental com pensation cost, additional workers com pensation insurance, director fees associ- ated with additional Board of Directors’ m eetings and a stock award, debt com m itm ent fee expenses, and other adm inistrative expenses. These expenses were partially offset by the collection of interest on a 2002 net legal settlem ent. N on-segm ent operating costs for 2002 were $2.8 m illion, which con- sisted m ainly of net environm ental rem ediation and adm inistrative expenses, post-em ploym ent expenses, professional consulting costs 3 6 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S associated with the integration of the recent acquisitions, debt com - m itm ent fee expenses associated with the Corporation’s prior credit agreem ents, insurance costs, charitable contributions, and other adm inistrative expenses. These expenses were partially offset by a net legal settlem ent. N on-segm ent operating costs for 2001 were $2.3 m illion, and con- sisted m ainly of adm inistrative expenses, $1.5 m illion in expenses associated with the Corporation’s Recapitalization (see “Recapitaliza- tion” later in this section for m ore inform ation), partially offset by a net nonrecurring beneﬁt gain of $1.2 m illion, which consisted of an approx- im ate $3.0 m illion gain resulting from the dem utualization of an insur- ance com pany in which the Corporation was a policyholder, partially offset by $1.8 m illion of nonrecurring em ployee beneﬁt related costs which are included in general and adm inistrative expenses in the state- m ent of earnings. N O N - O P E R AT I N G I N C O M E / E X P E N S E S The Corporation recorded non-operating net revenues (excluding interest expense) in 2003 of $0.4 m illion com pared with $4.5 m illion in 2002. In 2002, the Corporation recorded nonrecurring item s, the net effect of which had a favorable pre-tax im pact in 2002 of $3.6 m illion. Of the $45.2 m illion generated in 2001, $38.9 m illion relates to the pre-tax gain from the sale of the W ood-Ridge Business Com plex, which is m ore fully described in N ote 3 to the Consolidated Financial Statem ents. N et investm ent incom e of $0.3 m illion in 2003, which is included in other non-operating incom e, decreased from the prior year’s $0.6 m il- lion due to a lower cash position resulting from the funding of acquisi- tions and lower interest rates. Rental incom e in 2002 declined from 2001 due to the sale of our W ood-Ridge rental property in Decem ber 2001. The increase in interest expense for 2003 as com pared to 2002 is due to higher debt levels. The higher debt levels are due to the fund- ing of our recent acquisitions. P R O V I S I O N F O R I N C O M E TA X E S The effective tax rates for 2003, 2002, and 2001 are 37.8% , 37.1% , and 38.5% , respectively. The 2003 effective tax rate included the beneﬁt of the restructuring of som e of our European operations. The 2002 effec- tive rate included a one-tim e beneﬁt of 1.3% associated with the recov- ery of research and developm ent tax credits related to earlier years. The reduction in the state and local tax rate from 2002 to 2001 is princi- pally the result of the m ix in earnings derived from particular states. Liquidity and Capital Resources S O U R C E S A N D U S E S O F C A S H The Corporation derives the m ajority of its operating cash inﬂow from receipts on the sale of goods and services and cash outﬂow for the pro- curem ent of m aterials and labor, and is therefore subject to m arket ﬂuc- tuations and conditions. A substantial portion of the Corporation’s business is in the defense sector, which is characterized by long-term contracts. M ost of our long-term contracts allow for several billing points (progress or m ilestones) that provide the Corporation with cash receipts as costs are incurred throughout the project rather than upon contract com pletion, thereby reducing working capital requirem ents. In som e cases, these paym ents can exceed the costs incurred on a project. Prior to 2003, the Corporation had a portfolio of cash and m arketable securities, which provided a steady stream of investm ent incom e. These investm ents have been m onetized and the proceeds used to fund our strategic acquisition program . Thus, the cash ﬂow beneﬁt from these sources no longer exists. O P E R AT I N G A C T I V I T I E S The Corporation’s working capital was $238.6 m illion at Decem ber 31, 2003, an increase of $101.4 m illion from the working capital at Decem - ber 31, 2002 of $137.2 m illion. The ratio of current assets to current liabilities was 2.8 to 1 at Decem ber 31, 2003, com pared with a ratio of 1.8 to 1 at Decem ber 31, 2002. Cash and cash equivalents totaled $98.7 in the aggregate at Decem ber 31, 2003, up 107% from $47.7 m illion at Decem ber 31, 2002. The increase in cash is prim arily due to net proceeds from the $200 m illion Senior N ote offerings com pleted in Septem ber 2003. See below for a further description of the Senior N otes. These proceeds were used to repay the m ajority of the out- standing indebtedness under the existing revolving credit facilities and to fund the acquisitions m ade in Decem ber 2003. Excluding the im pact on cash, working capital increased by $9.2 m illion due to the acquisition of six businesses in 2003. In addition to the im pact of these acquisitions, working capital changes were also highlighted by a decrease in deferred revenue due to a reduction in those contracts whose billings were in excess of incurred costs. Accrued expenses increased m ainly due to higher accrued interest on the Senior N otes. Short-term debt was $1.0 m illion at Decem ber 31, 2003, a decrease of $31.8 m illion from the balance at Decem ber 31, 2002. The decrease in short-term debt is due to repaym ent of the m ajority of outstanding indebtedness under the existing revolving credit facilities. Days sales outstanding at Decem ber 31, 2003 increased to 56 days from 51 days at Decem ber 31, 2002 while inventory turnover increased to 5.5 turns at Decem ber 31, 2003 as com pared to 4.8 turns at Decem ber 31, 2002. The Corporation’s balance of cash and short-term investm ents totaled $48.0 m illion at Decem ber 31, 2002, a decrease of $19.1 m illion from the balance at Decem ber 31, 2001. Excluding the im pact on cash, working capital increased $16.9 m illion due to the acquisition of six businesses in 2002. In addition to the im pact of these acquisitions, working capital changes were also highlighted by a decrease in incom e taxes payable of $11.1 m illion due to the large tax paym ent related to the gain on the sale of the W ood-Ridge business com plex. Days sales outstanding at Decem ber 31, 2002 decreased to 51 days from 59 days at Decem ber 31, 2001 while inventory turnover increased to 4.8 turns at Decem ber 31, 2002 versus 4.4 turns at Decem ber 31, 2001. I N V E S T I N G A C T I V I T I E S The Corporation has acquired twenty-ﬁve businesses since 1998 and expects to continue to seek acquisitions that are consistent with our long-term growth strategy and accretive to earnings. A com bination of cash resources, funds available under the Corporation’s Credit Agree- m ents, and proceeds from the Corporation’s Senior N otes issue were utilized for the funding of these acquisitions, which totaled $71.4 m il- lion and $164.7 m illion in 2003 and 2002, respectively. As noted in N ote 2 to the Consolidated Financial Statem ents, certain acquisition agreem ents contain contingent purchase price adjustm ents. The Cor- poration is also com m itted to potential earn-out paym ents on six of its acquisitions dating back to 2001. The Corporation estim ates these potential payouts to be approxim ately $2 m illion to $3 m illion per year from 2004 through 2007. Additional acquisitions will depend, in part, on the availability of ﬁnancial resources at a cost of capital that m eets our stringent criteria. As such, future acquisitions, if any, m ay be funded through the use of the Corporation’s cash and cash equivalents, or through additional ﬁnancing available under the credit agreem ents, or through new debt facilities or equity offerings. Capital expenditures were $33.3 m illion in 2003, $35.0 m illion in 2002, and $19.4 m illion in 2001. Principal expenditures were for addi- tional facilities and m achinery and equipm ent. Capital expenditures in 2003 included building expansions, a new laser peening facility and associated laser m achinery, and various other m achinery and equip- m ent. Capital expenditures in 2002 included the construction of a new facility, additional m achinery and equipm ent for start-up operations, and new Enterprise Resource Planning (“ERP”) com puter system s at two facilities. Capital expenditures in 2001 included the construction of a new facility and an investm ent in a new ERP com puter system at one of the Corporation’s facilities. F I N A N C I N G A C T I V I T I E S On Septem ber 25, 2003 the Corporation issued $200.0 m illion of Senior N otes (the “N otes”). The N otes consist of $75.0 m illion of 5.13% Senior N otes that m ature on Septem ber 25, 2010 and $125.0 m illion of 5.74% Senior N otes that m ature on Septem ber 25, 2013. The Corporation used the net proceeds of the N otes to repay the m ajority of the outstanding indebtedness under the existing revolving credit facilities. The N otes are senior unsecured obligations and are equal in right of paym ent to the Corporation’s existing senior indebtedness. The Corporation, at its option, can prepay at any tim e, all or from tim e to tim e any part of, the N otes, subject to a m ake-whole am ount in accor- dance with the term s of the N ote Purchase Agreem ent. The Corpora- tion paid custom ary fees that have been deferred and will be am ortized over the term s of the N otes. The Corporation is required under the N ote Purchase Agreem ent to m aintain certain ﬁnancial ratios and m eet certain net worth and indebtedness tests, of which the Corporation is in com pliance at Decem ber 31, 2003. On N ovem ber 6, 2003 the Corporation entered into two interest rate swap agreem ents with notional am ounts of $20 m illion and $60 m il- lion to effectively convert the ﬁxed interest on the $75 m illion 5.13% Senior N otes and $125 m illion 5.74% Senior N otes, respectively, to variable rates based on speciﬁed spreads over six-m onth LIBOR. In the short-term , the swaps are expected to provide the Corporation with a lower level of interest expense related to the N otes. At Decem ber 31, 2003, the Corporation had two credit agreem ents aggregating $225.0 m illion with a group of eight banks. The Revolving Credit Agreem ent offers a m axim um of $135.0 m illion over ﬁve years to the Corporation for cash borrowings and letters of credit. The Revolving Credit Agreem ent expires M ay 13, 2007, but m ay be extended annually for successive one-year periods with the consent of the bank group. The Corporation also has in effect a Short-Term Credit Agreem ent, which allows for cash borrowings up to $90.0 m illion. The Short-Term Credit Agreem ent expires M ay 7, 2004, but m ay be extended, with the consent of the bank group, for additional periods not to exceed 364 days each. The Corporation expects to extend the Short-Term Agreem ent in 2004 with the consent of the bank group; however, there can be no assurances that the bank group will approve the extension. In the event the bank group does not renew the Short-Term Credit Agreem ent, the Corporation C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 3 7 should have sufﬁcient cash ﬂow to m eet its cash requirem ents. Bor- rowings under these agreem ents bear interest at a ﬂoating rate based on m arket conditions. In addition, the Corporation’s rate of interest and paym ent of facility fees are dependent on certain ﬁnancial ratios of the Corporation, as deﬁned in the agreem ents. As of Decem ber 31, 2003, the Corporation pays annual facility fees on the aggregate com m itm ent of the Revolving Credit Agreem ent and Short-Term Credit Agreem ent. The Corporation is required under these agreem ents to m aintain certain ﬁnancial ratios and m eet certain net worth and indebtedness tests as detailed in the agreem ents, the m ost restrictive of which is a Debt to EBITDA lim it of 3 to 1. At Decem ber 31, 2003, the Corporation is in com pliance with these covenants. The Corporation would consider other ﬁnancing alternatives to m aintain balance of capital structure and ensure com pliance with all debt covenants. Cash borrowings (excluding letters of credit) under the two credit agreem ents at Decem ber 31, 2003 were $8.9 m illion com pared with cash borrowings of $137.5 m illion at Decem ber 31, 2002. The unused credit available under these agree- m ents at Decem ber 31, 2003 was $197.1 m illion. Industrial revenue bonds, which are collateralized by real estate, were $14.3 m illion and $13.4 m illion at Decem ber 31, 2003 and Decem ber 31, 2002, respectively. The loans outstanding under the Senior N otes, Interest Rate Swaps, Revolving Credit Agreem ent, and Industrial Rev- enue Bonds had variable interest rates averaging 2.88% for 2003; 2002 loans outstanding under the Revolving Credit Agreem ents and Industrial Revenue Bonds had variable interest rates averaging 2.32% . F U T U R E C O M M I T M E N T S Cash generated from operations are considered adequate to m eet the Corporation’s operating cash requirem ents for the upcom ing year,including planned capital expenditures of approxim ately $40 m il- lion, interest paym ents of approxim ately $8 m illion to $10 m illion, esti- m ated incom e tax paym ents of approxim ately $27 m illion to $30 m illion, dividends of approxim ately $8 m illion, pension funding related to the EM D pension and postretirem ent plansof approxim ately $6 m illion, and additional working capital requirem ents. The Corpora- tion has approxim ately $3 m illion in short-term environm ental liabili- ties, which is m anagem ent’s estim ation of cash requirem ents for 2004. There can be no assurance, however, that the Corporation willcontinue to generate cash ﬂow at the current level. If cash generated from operations is not sufﬁcient to support these requirem ents and invest- ing activities, the Corporation m ay be required to reduce capital expen- ditures, reﬁnance a portion of its existing debt, or obtain additional ﬁnancing. In 2004, capital expenditures are expected to be approxim ately $40 m illion due to the full-year effect of the 2003 acquisitions and the con- tinued expansion of the segm ents. These expenditures will include construction of new facilities, expansion of facilities to accom m odate new product lines, and new m achinery and equipm ent, such as addi- tional investm ent in our laser peening technology. 3 8 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S The following table quantiﬁes our signiﬁcant future contractual oblig- ations and com m ercial com m itm ents as of Decem ber 31, 2003: (In thousands) 2004 2005 2006 2007 2008 Thereafter Total D ebt Principal O perating Leases Repaym ents(1) Total $ 997 $10,430 $ 11,427 9,004 8,925 7,967 7,908 21,074 7,145 5,810 5,748 14,991 224,049 79 59 13,929 62 209,058 $224,184 $55,147 $279,331 (1)Amounts exclude a $1.0 million adjustment to the fair valueof long- term debt relating to the Corporation’s interest rate swap agreements that will not be settled in cash The Corporation does not have m aterial purchase obligations. M ost of our raw m aterial purchase com m itm ents are m ade directly pursuant to speciﬁc contract requirem ents. U ndistributed earnings of $16.7 m illion from the Corporation’s foreign subsidiaries are considered perm anently reinvested. On January 31, 2004, the Corporation com pleted the acquisition of Dy4 System s, Inc. The purchase price of $110.0 m illion was funded with approxim ately $70 m illion in cash and $40 m illion from the revolving credit facilities. See Recent Developm ent for m ore inform a- tion on this acquisition. R E C A P I TA L I Z AT I O N On October 26, 2001, the Corporation’s shareholders approved a recap- italization plan, which enabled U nitrin, Inc. (“U nitrin”) to distribute its approxim ate 44% equity interest in Curtiss-W right to its sharehold- ers on a tax-free basis. U nder the recapitalization plan and in order to m eet certain tax requirem ents, U nitrin’s 4.4 m illion shares of the Corporation’s com m on stock were exchanged for an equivalent num ber of com m on shares of a new Class B Com m on Stock of Curtiss-W right which are entitled to elect 80% of Curtiss-W right’s Board of Directors. After such exchange, U nitrin im m ediately distributed the Class B shares to its approxim ately 8,000 registered stockholders in a tax-free distribution. The holders of the outstanding com m on shares of Curtiss-W right are entitled to elect up to 20% of the Board of Directors after the distribution. Other than the right to elect Directors, the two classes of stock vote as a single class (except as required by law) and are equal in all other respects. The new Class B Com m on Stock was listed on the N ew York Stock Exchange, effective N ovem ber 29, 2001. U nder the term s of the recapitalization agreem ent reached between U nitrin and Curtiss-W right, U nitrin agreed to reim burse the Corpora- tion for certain costs associated with the recapitalization up to a m ax- im um of $1.8 m illion. This am ount was received subsequent to the recapitalization. A m ore thorough description of the transaction is set forth in the Cor- poration’s deﬁnitive proxy m aterial ﬁled with the U .S. Securities and Exchange Com m ission on Septem ber 5, 2001. Critical Accounting Policies Our consolidated ﬁnancial statem ents and accom panying notes are prepared in accordance with generally accepted accounting principles in the U nited States of Am erica. Preparing consolidated ﬁnancial statem ents requires us to m ake estim ates and assum ptions that affect the reported am ounts of assets, liabilities, revenues, and expenses. These estim ates and assum ptions are affected by the application of our accounting policies. Critical accounting policies are those that require application of m anagem ent’s m ost difﬁcult, subjective, or com plex judgm ents, often as a result of the need to m ake estim ates about the effects of m atters that are inherently uncertain and m ay change in sub- sequent periods. W e believe that the following are som e of the m ore critical judgm ent areas in the application of our accounting policies that affect our ﬁnancial condition and results of operations: R E V E N U E R E C O G N I T I O N The realization of revenue refers to the tim ing of its recognition in the accounts of the Corporation and is generally considered realized or realizable and earned when the earnings process is substantially com - plete and all of the following criteria are m et: 1) persuasive evidence of an arrangem ent exists; 2) delivery has occurred or services have been rendered; 3) the Corporation’s price to its custom er is ﬁxed or determ inable; and 4) collectibility is reasonably assured. The Corporation records sales and related proﬁts on production and ser- vice type contracts as units are shipped and title and risk of loss have transferred or as services are rendered. This m ethod is used in our M etal Treatm ent segm ent and in som e of the business units within the M otion Control and Flow Control segm ents that serve com m ercial m arkets. For certain contracts in our Flow Control and M otion Control segm ents that require perform ance over an extended period before deliveries begin, sales and estim ated proﬁts are recorded by applying the per- centage-of-com pletion m ethod of accounting. The percentage-of-com - pletion m ethod of accounting is used prim arily for the Corporation’s defense contracts and certain long-term com m ercial contracts. This m ethod recognizes revenue and proﬁt as the contracts progress towards com pletion. For certain contracts that contain a signiﬁcant num ber of perform ance m ilestones, as deﬁned by the custom er, sales are recorded based upon achievem ent of these perform ance m ile- stones. The perform ance m ilestone m ethod is an output m easure of progress towards com pletion m ade in term s of results achieved. For certain ﬁxed price contracts, where none or a lim ited num ber of m ile- stones exist, the cost-to-cost m ethod is used, which is an input m ea- sure of progress towards com pletion. U nder the cost-to-cost input m ethod, sales and proﬁts are recorded based on the ratio of costs incurred to an estim ate of total costs at com pletion. Application of percentage-of-com pletion m ethods of revenue recogni- tion requires the use of reasonable and dependable estim ates of the future m aterial, labor, and overhead costs that will be incurred. The percentage-of-com pletion m ethod of accounting for long-term con- tracts requires a disciplined cost estim ating system in which all func- tions of the business are integrally involved. These estim ates are determ ined based upon the industry knowledge and experience of the Corporation’s engineers, project m anagers, and ﬁnancial staff. These estim ates are signiﬁcant and reﬂect changes in cost and operating per- form ance throughout the contract and could have a signiﬁcant im pact on operating perform ance. Adjustm ents to original estim ates for con- tract revenue, estim ated costs at com pletion, and the estim ated total proﬁt are often required as work progresses throughout the contract and as experience and m ore inform ation is obtained, even though the scope of work under the contract m ay not change. These changes are recorded on a cum ulative retroactive basis in the period they are deter- m ined to be necessary. U nder the percentage-of-com pletion and com pleted contract m ethods, provisions for estim ated losses on uncom pleted contracts are recog- nized in the period in which the likelihood of such losses is determ ined. Certain contracts contain provisions for the redeterm ination of price and, as such, m anagem ent defers a portion of the revenue from those contracts until such tim e as the price has been ﬁnalized. Som e of the Corporation’s custom ers withhold certain am ounts from the billings they receive. These retainages are generally not due until the project has been com pleted and accepted by the custom er. I N V E N T O R Y Inventory costs include m aterials, direct labor, and m anufacturing overhead costs, which are stated at the lower of cost or m arket, where m arket is lim ited to the net realizable value. The Corporation estim ates the net realizable value of its inventories and establishes reserves to reduce the carrying am ount of these inventories to net realizable value, as necessary. W e continually evaluate the adequacy of the inventory reserves by reviewing historical scrap rates, on-hand quantities, as com pared with historical and projected usage levels and other antici- pated contractual requirem ents. The stated inventory costs are also reﬂective of the estim ates used in applying the percentage-of-com ple- tion revenue recognition m ethod. The Corporation purchases m aterials for the m anufacture of com po- nents for sale. The decision to purchase a set quantity of a particular item is inﬂuenced by several factors including: current and projected price, future estim ated availability, existing and projected contracts to produce certain item s, and the estim ated needs for its businesses. For certain of its long-term contracts, the Corporation utilizes progress billings, which represent am ounts recorded as billed to custom ers prior to the delivery of goods and services and are recorded as a reduction to inventory and receivables. Progress billings are generally based on costs incurred, including direct costs, overhead, and general and adm inistrative costs. P E N S I O N A N D O T H E R P O S T R E T I R E M E N T B E N E F I T S The Corporation, in consultation with its actuaries, determ ines the appropriate assum ptions for use in determ ining the liability for future pension and other postretirem ent beneﬁts. The m ost signiﬁcant of these assum ptions include the num ber of em ployees who will receive beneﬁts along with the tenure and salary level of those em ployees, the expected return on plan assets, the discount rates used on plan oblig- ations, and the trends in health care costs. Changes in these assum p- tions in future years will have an effect on the Corporation’s pension and postretirem ent costs and associated pension and postretirem ent assets and liabilities. The discount rates and com pensation rates increases used to deter- m ine the beneﬁt obligations of the plans as of Decem ber 31, 2003 and the annual periodic costs for 2004 were lowered in 2003 to better C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 3 9 reﬂect current econom ic conditions. The reduction in the discount rates increased the beneﬁt obligation on the plans. A corresponding decrease in future com pensation costs, which occurred due to the im pact of lower inﬂationary effects, had an offsetting decrease to the beneﬁt obligation. The change in these two assum ptions were based upon current and future econom ic indicators. The overall expected return on assets assum ption is based on a com - bination of historical perform ance of the pension fund and expecta- tions of future perform ance. The historical returns are determ ined using the m arket-related value of assets, which is the sam e value used in the calculation of annual net periodic beneﬁt cost. The m arket- related value of assets includes the recognition of realized and unreal- ized gains and losses over a ﬁve-year period, which effectively averages the volatility associated with the actual perform ance of the plan’s assets from year to year. Although over the last ten years the m arket- related value of assets had an average annual yield of 11.6% , the actual returns averaged 8.5% during the sam e period. The Corporation has consistently used the 8.5% rate as a long-term overall average return. Given the uncertainties of the current econom ic and geopolitical land- scapes, we consider the 8.5% to be a reasonable assum ption of the future long-term investm ent returns. The long-term m edical trend assum ptions starts with a current rate that is in line with expectations for the near future, and then grade the rate down over tim e until it reaches an ultim ate rate that is close to expec- tations for growth in GDP. The reasoning is that m edical trends cannot continue to be higher than the rate of GDP growth in the long term . Any change in the expectation of these rates to return to a norm al level will have an im pact on the Corporation. In 2003, the Corporation recognized non-cash pension incom e from the Curtiss-W right Pension Plan of $1.6 m illion as the excess of am ounts funded for the pension plan in prior years yields returns that exceed the calculated costs associated with the liability in the current year. As of Decem ber 31, 2003, the Corporation had a prepaid pension asset of $77.9 m illion relating to the Curtiss-W right Retirem ent Plan and accrued pension and other postretirem ent costs of $0.8 m illion related to the Curtiss-W right Restoration Plan. The tim ing and am ount of future pension incom e or expense to be recognized each year is dependent on the dem ographics and expected earnings of the plan participants, the expected interest rates in effect in future years, and the actual and expected investm ent returns of the assets in the pension trust. As a result of the acquisition of EM D in October 2002, the Corporation assum ed underfunded pension and postretirem ent liabilities of $75.0 m illion. Expenses incurred during 2003 related to the EM D plans were $5.6 m illion. Additionally, the Corporation has m ade $5.7 m illion in cash contributions to the EM D Pension Plan during 2003. See N ote 16 for further inform ation on the Corporation’s pension and postretirem ent plans, including an estim ate of future cash contributions. E N V I R O N M E N TA L R E S E R V E S The Corporation provides for environm ental reserves when, in con- junction with internal and external legal counsel, it is determ ined that a liability is both probable and estim able. In m any cases, the liability is not ﬁxed or capped when the Corporation ﬁrst records a liability for a particular site. In estim ating the future liability and continually eval- 4 0 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S uating the sufﬁciency of such liabilities, the Corporation weighs cer- tain factors including the Corporation’s participation percentage due to a settlem ent by or bankruptcy of other potentially responsible par- ties, a change in the environm ental laws requiring m ore stringent requirem ents, a change in the estim ate of future costs that will be incurred to rem ediate the site, and changes in technology related to environm ental rem ediation. P U R C H A S E A C C O U N T I N G The Corporation applies the purchase m ethod of accounting to its acquisitions. U nder this m ethod, the purchase price, including any capitalized acquisition costs, is allocated to the underlying tangible and intangible assets acquired and liabilities assum ed based on their respective fair m arket values, with any excess recorded as goodwill. The Corporation, usually in consultation with third-party valuation advisors, determ ines the fair values of such assets and liabilities. Dur- ing 2003, the fair value of assets acquired, net of cash, and liabilities assum ed through acquisitions were estim ated to be $84.8 m illion and $13.4 m illion, respectively. The assigned initial fair value to these acquisitions are tentative and m ay be revised prior to ﬁnalization, which is to be com pleted within a reasonable period, generally within one year of acquisition. G O O D W I L L The Corporation has $220.1 m illion in goodwill as of Decem ber 31, 2003. The recoverability of goodwill is subject to an annual im pairm ent test based on the estim ated fair value of the underlying businesses. Additionally, goodwill is tested for im pairm ent when an event occurs or if circum stances change that would m ore likely than not reduce the fair value of a reporting unit below its carrying am ount. These estim ated fair values are based on estim ates of future cash ﬂows of the busi- nesses. Factors affecting these future cash ﬂows include the continued m arket acceptance of the products and services offered by the busi- nesses, the developm ent of new products and services by the busi- nesses and the underlying cost of developm ent, the future cost structure of the businesses, and future technological changes. Esti- m ates are also used for the Corporation’s cost of capital in discounting the projected future cash ﬂows. The Corporation utilizes an indepen- dent third party cost of capital analysis in determ ination of its esti- m ates. If it has been determ ined that an im pairm ent has occurred, the Corporation m ay be required to recognize an im pairm ent of its asset, which would be lim ited to the difference between the book value of the asset and its fair value. Any such im pairm ent would be recognized in full in the reporting period in which it has been identiﬁed. O T H E R I N TA N G I B L E A S S E T S Other intangible assets are generally the result of acquisitions and con- sist prim arily of purchased technology, custom er related intangibles, tradem arks and service m arks, and technology licenses. Intangible assets are recorded at their fair values as determ ined through purchase accounting and are am ortized ratably to m atch their cash ﬂow stream s over their estim ated useful lives, which range from 1 to 20 years. The Corporation reviews the recoverability of intangible assets, including the related useful lives, whenever events or changes in circum stances indicate that the carrying am ount m ight not be recoverable. Any im pairm ent would be recorded in the reporting period in which it has been identiﬁed. R E C E N T LY I S S U E D A C C O U N T I N G S TA N D A R D S In June 2001, the FASB issued SFAS N o. 143 “Accounting for Asset Retirem ent Obligations.” This statem ent addresses ﬁnancial account- ing and reporting obligations associated with the retirem ent of tangi- ble long-lived assets and the associated asset retirem ent costs. The statem ent requires the Corporation to recognize the fair value of a lia- bility for an asset retirem ent obligation in the period in which it is incurred, if a reasonable estim ate can be m ade. U pon initial recogni- tion of such a liability, if any, the Corporation would capitalize the asset retirem ent cost as an asset equal to the fair value of the liability and allocate such cost to expense system atically over the useful life of the underlying asset. The estim ated future liability would be subject to change, with the effects of such change affecting the asset retirem ent cost and the related expense as appropriate. The provisions of this statem ent are effective for ﬁscal years beginning after June 15, 2002. The adoption of this statem ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In June 2002, the FASB issued SFAS N o. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” This statem ent applies to costs associated with exit or disposal activities and requires that lia- bilities for costs associated with these activities be recognized and m easured initially at its fair value in the period in which the liability is incurred. The provisions of this statem ent are effective for exit or dis- posal activities initiated after Decem ber 31, 2002. The adoption of this statem ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In N ovem ber 2002, the FASB issued Interpretation N o. 45 “Guaran- tor’s Accounting and Disclosure Requirem ents for Guarantees, Includ- ing Indirect Guarantees of Indebtedness of Others.” This interpretation relates to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. This interpretation requires the issuer of a guarantee to recognize a liability at the inception of that guaran- tee. The Corporation is required to apply the interpretation to all guar- antees issued or m odiﬁed after Decem ber 31, 2002. The disclosure requirem ents of this interpretation are effective for ﬁnancial state- m ents of interim and annual periods ending after Decem ber 15, 2002. The adoption of this statem ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In Decem ber 2002, the FASB issued SFAS N o. 148 “Accounting for Stock-Based Com pensation— Transition and Disclosure.” This state- m ent provides alternate m ethods of transition for a voluntary change to the fair value based m ethod of accounting for stock-based em ployee com pensation. In addition, the statem ent requires additional disclo- sures about the m ethods of accounting for stock-based em ployee com - pensation and the effect of the m ethod used on reported results. The provisions of this statem ent are effective for ﬁscal years beginning after Decem ber 15, 2002. The Corporation has continued to account for its stock options under Accounting Principles Board Opinion N o. 25, “Accounting for Stock Issued to Em ployees,” and thus the adoption of the new standard did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In January 2003, the FASB issued Interpretation N o. 46, “Consolida- tion of Variable Interest Entities (“VIE”s)” (“FIN 46”). This interpreta- tion of Accounting Research Bulletin N o. 51, “Consolidated Financial Statem ents,” addresses when a com pany should include in its ﬁnancial statem ents the assets and liabilities of unconsolidated VIEs. FIN 46 was effective for VIEs created or acquired after January 31, 2003. The Cor- poration is not party to any contractual arrangem ents with VIEs and thus the adoption of this statem ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In Decem ber 2003, the FASB com pleted deliberations of proposed m odiﬁcations to FIN 46 (“Revised Interpretations”) resulting in m ul- tiple effective dates based on the nature as well as the creation date of the VIE. The Corporation does not anticipate that the adoption of this statem ent will have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In M ay 2003, the FASB issued SFAS N o. 150, “Accounting for Certain Financial Instrum ents with Characteristics of both Liabilities and Equity.” This Statem ent establishes standards for how an issuer clas- siﬁes and m easures certain ﬁnancial instrum ents with characteristics of both liabilities and equity. It requires that an issuer classify a ﬁnan- cial instrum ent that is within its scope as a liability (or an asset in som e circum stances). The Statem ent is effective for ﬁnancial instrum ents entered into or m odiﬁed after M ay 31, 2003. It applies in the ﬁrst interim period beginning after June 15, 2003, to entities with ﬁnancial instrum ents acquired before M ay 31, 2003. The adoption of this state- m ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In Decem ber 2003, the FASB issued SFAS N o. 132 (revised 2003), “Em ployers’ Disclosures about Pensions and Other Postretirem ent Beneﬁts.” This Statem ent retains the disclosure requirem ents con- tained in the original FASB Statem ent N o. 132, “Em ployers’ Disclosures about Pensions and Other Postretirem ent Beneﬁts,” which it replaces and requires additional disclosures about the assets, obligations, cash ﬂows, and net periodic beneﬁt cost of deﬁned beneﬁt pension plans and other deﬁned beneﬁt postretirem ent plans. It does not change the m ea- surem ent of recognition of those plans required by FASB Statem ents N o. 87, “Em ployers’ Accounting for Pensions,” N o. 88, “Em ployers’ Accounting for Settlem ents and Curtailm ents of Deﬁned Beneﬁt Pen- sion Plans and for Term ination Beneﬁts,” and N o. 106, “Em ployers’ Accounting for Postretirem ent Beneﬁts Other Than Pensions.” The Statem ent is effective for annual and interim periods with ﬁscal years ending after Decem ber 15, 2003. The adoption of this statem ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnan- cial condition. Recent Development On January 31, 2004, the Corporation com pleted the acquisition of all of the outstanding shares of Dy 4 System s, Inc. (“Dy 4”) from Solec- tron Corporation. The purchase price of the acquisition, subject to cus- tom ary adjustm ents as provided for in the Stock Purchase Agreem ent, was $110 m illion in cash. M anagem ent funded the purchase with cash on hand and from the Corporation’s revolving credit facilities. Rev- enues of the purchased business were $72 m illion for the year ended August 29, 2003. Dy 4 is based in Ottawa, Canada, and has additional operations located in the U nited States and the U nited Kingdom . M an- agem ent intends to incorporate the operations of Dy 4 into the Corporation’s M otion Control segm ent. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 4 1 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Corporation is exposed to certain m arket risks from changes in interest rates and foreign currency exchange rates as a result of its global operating and ﬁnancing activities. Although foreign currency translation had a favorable im pact on sales and operating incom e in 2003, the Corporation seeks to m inim ize any m aterial risks from for- eign currency exchange rate ﬂuctuations through its norm al operating and ﬁnancing activities and, when deem ed appropriate, through the use of derivative ﬁnancial instrum ents. The Corporation did not use such instrum ents for trading or other speculative purposes. The Cor- poration used interest rate swaps to m anage interest rate exposures during the year ended Decem ber 31, 2003. Inform ation regarding the Corporation’s accounting policy on ﬁnancial instrum ents is contained in N ote 1-K to the Consolidated Financial Statem ents. The Corporation’s m arket risk for a change in interest rates relates pri- m arily to the debt obligations. As a result of the Septem ber 25, 2003 Senior N otes issue and subsequent two interest rate swap agreem ents dated N ovem ber 10, 2003, the Corporation shifted its interest rate exposure from 100% variable to 46% variable as of Decem ber 31, 2003. The net proceeds of the Senior N otes allowed the Corporation to pay down the m ajority of its outstanding debt under its credit facilities. This blended rate strategy for debt borrowings reduces the uncertainty of shifts in future interest rates. The variable rate on both the revolving credit agreem ents and the interest rate swap agreem ents are based on m arket rates. If interest rates changed by one percentage point, the im pact on consolidated interest expense would have been approxi- m ately $1 m illion. Inform ation regarding the Corporation’s Senior N otes, Revolving Credit Agreem ent, and Interest Rates Swaps is con- tained in N ote 12 to the Consolidated Financial Statem ents. Financial instrum ents expose the Corporation to counter-party credit risk for non-perform ance and to m arket risk for changes in interest and foreign currency rates. The Corporation m anages exposure to counter- party credit risk through speciﬁc m inim um credit standards, diversiﬁ- cation of counter-parties, and procedures to m onitor concentrations of credit risk. The Corporation m onitors the im pact of m arket risk on the fair value and cash ﬂows of its investm ents by investing prim arily in investm ent grade interest bearing securities, which have short-term m aturities. The Corporation attem pts to m inim ize possible changes in interest rates by lim iting the am ount of potential interest and currency rate exposures to am ounts that are not m aterial to the Corporation’s consolidated results of operations and cash ﬂows. Although the m ajority of the Corporation’s sales, expenses, and cash ﬂows are transacted in U .S. dollars, the Corporation does have som e m arket risk exposure to changes in foreign currency exchange rates, prim arily as it relates to the value of the U .S. dollar versus the British Pound, the Euro, the Canadian Dollar, and the Swiss Franc. If foreign exchange rates were to collectively weaken or strengthen against the dollar by 10% , net earnings would have been reduced or increased, respectively, by approxim ately $2 m illion as it relates exclusively to for- eign currency exchange rate exposures. 4 2 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S REPORT OF THE CORPORATION The consolidated ﬁnancial statem ents appearing on pages 45 through 71 of this Annual Report have been prepared by the Corporation in con- form ity with accounting principles generally accepted in the U nited States of Am erica. The ﬁnancial statem ents necessarily include som e am ounts that are based on the best estim ates and judgm ents of the Corporation. Other ﬁnancial inform ation in the Annual Report is con- sistent with that in the ﬁnancial statem ents. The Corporation m aintains accounting system s, procedures, and inter- nal accounting controls designed to provide reasonable assurance that assets are safeguarded and that transactions are executed in accor- dance with the appropriate corporate authorization and are properly recorded. The accounting system s and internal accounting controls are augm ented by written policies and procedures; organizational struc- ture providing for a division ofresponsibilities; selection and training of qualiﬁed personnel and an internal audit program . The design, m on- itoring, and revision of internal accounting control system s involve, am ong other things, m anagem ent’s judgm ent with respect to the rela- tive cost and expected beneﬁts of speciﬁc control m easures. Deloitte & Touche LLP, independent auditors, perform ed an audit that included obtaining an understanding of internal controls the sufﬁcient to plan the audit and to determ ine the nature, tim ing, and extent of audit procedures to be perform ed. An audit includes exam ining, on a test basis, evidence supporting the am ounts and disclosures in the ﬁnancial statem ents. An audit also includes assessing the accounting principles used and signiﬁcant estim ates m ade by m anagem ent, as well as evaluating the overall ﬁnancial statem ent presentation. The objective of their audit is the expression of an opinion on the fairness of the presentation of the Corporation’s ﬁnancial statem ents in confor- m ity with accounting principles generally accepted in the U nited States of Am erica, in all m aterial respects. The Audit Com m ittee of the Board of Directors, com posed entirely of directors who are independent of the Corporation, am ong otherthings, appoints the independent auditors for ratiﬁcation by stockholders and considers the scope of the independent auditors’ exam ination, the audit results and the adequacy of internal accounting controls of the Corpora- tion. The independent auditorshave direct access to the Audit Com m it- tee, and they m eet with the com m ittee from tim e to tim e, with and without m anagem ent present, to discuss accounting, auditing, non-audit consulting services, internal control, and ﬁnancial reporting m atters. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT On M arch 21, 2003, Curtiss-W right Corporation replaced Pricewater- houseCoopers LLP (“PwC”) as the Corporation’s principal accountants. The decision to change principal accountants was approved by the Audit Com m ittee of the Board of Directors. In connection with the audits of the two ﬁscal years ended Decem ber 31, 2002 and 2001 and to the date of change, there were no dis- agreem ents with PwC on any m atter of accounting principles or prac- tices, ﬁnancial statem ent disclosure, or auditing scope or procedure, which disagreem ent, if not resolved to PwC’s satisfaction, would have caused PwC to m ake reference to the subject m atter of the disagree- m ent in connection with its reports. The audit reports of PwC on the ﬁnancial statem ents of the Corpora- tion as of and for the years ended Decem ber 31, 2002 and 2001 did not contain an adverse opinion or disclaim er of opinion, nor were the reports qualiﬁed or m odiﬁed as to audit scope or accounting principles. During the two m ost recent ﬁscal years and through the date of change, there were no reportable events (as deﬁned in Regulation S-K Item 304(a)(1)(v)). The Corporation requested that PwC furnish it with a letter addressed to the U nited States Securities and Exchange Com m ission stating whether or not it agreed with the above statem ents. A copy of such let- ter, dated M arch 25, 2003 is ﬁled as Exhibit 16.1 to the Corporation’s Form 8-K ﬁled with the SEC on M arch 26, 2003. On M arch 21, 2003, the Corporation appointed Deloitte & Touche, LLP as the Corporation’s new principal accountants for the ﬁscal year 2003 subject to their norm al new client acceptance procedures. Prior to its appointm ent, the Corporation did not consult with Deloitte & Touche, LLP regarding any m atters or events set forth in Item s 304 (a)(2)(i) and (ii) of Regulation S-K of the Securities Exchange Act of 1934. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 4 3 INDEPENDENT AUDITORS’ REPORT To the Board of Directors and Stockholders of Curtiss-Wright Corporation, Roseland, New Jersey W e have audited the accom panying consolidated balance sheet of Curtiss-W right Corporation and subsidiaries as of Decem ber 31, 2003, and the related consolidated statem ents of earnings, stockholders’ equity, and cash ﬂows for the year then ended. These ﬁnancial state- m ents are the responsibility of the Com pany’s m anagem ent. Our responsibility is to express an opinion on these ﬁnancial statem ents based on our audit. W e conducted our audit in accordance with auditing standards gener- ally accepted in the U nited States of Am erica. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statem ents are free of m aterial m isstate- m ent. An audit includes exam ining, on a test basis, evidence support- ing the am ounts and disclosures in the ﬁnancial statem ents. An audit also includes assessing the accounting principles used and signiﬁcant estim ates m ade by m anagem ent, as well as evaluating the overall ﬁnancial statem ent presentation. W e believe that our audit provides a reasonable basis for our opinion. In our opinion, such ﬁnancial statem ents present fairly, in all m aterial respects, the ﬁnancial position of the Com pany at Decem ber 31, 2003, and the results of its operations and its cash ﬂows for the year then ended in conform ity with accounting principles generally accepted in the U nited States of Am erica. Deloitte & Touche LLP Parsippany, N ew Jersey February 20, 2004 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Curtiss-Wright Corporation In our opinion, the accom panying consolidated balance sheet as of Decem ber 31, 2002 and the related consolidated statem ents of earn- ings, stockholders’ equity and of cash ﬂows for each of the two years in the period ended Decem ber 31, 2002, present fairly, in all m aterial respects, the ﬁnancial position, results of operations and cash ﬂows of Curtiss-W right Corporation and its subsidiaries at Decem ber 31, 2002 and for each of the two years in the period ended Decem ber 31, 2002, in conform ity with accounting principles generally accepted in the U nited States of Am erica. These ﬁnancial statem ents are the responsi- bility of the Com pany’s m anagem ent; our responsibility is to express an opinion on these ﬁnancial statem ents based on our audits. W e con- ducted our audits of these statem ents in accordance with auditing stan- dards generally accepted in the U nited States of Am erica, which require that weplan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statem ents are free of m aterial m isstatem ent. An audit includes exam ining, on a test basis, evidence supporting the am ounts and disclosures in the ﬁnancial statem ents, assessing the accounting principles used and signiﬁcant estim ates m ade by m an- agem ent, and evaluating the overall ﬁnancial statem ent presentation. W e believe that our audits provide a reasonable basis forour opinion. As discussed in N otes 1-J and 8 to the Consolidated Financial State- m ents, effective January 1, 2002, Curtiss-W right Corporation changed its m ethod of accounting for goodwill and other intangibles. PricewaterhouseCoopers LLP Florham Park, N ew Jersey M arch 12, 2003 4 4 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S CONSOLIDATED STATEMENTS OF EARNINGS For the years ended December 31, (In thousands, except per share data) 2003 2002 2001 N et sales Cost of sales Gross proﬁt Research and developm ent costs Selling expenses General and adm inistrative expenses Pension incom e, net Gain from insurance com pany dem utualization Environm ental rem ediation and adm inistrative expenses, net Operating incom e Interest expense Gain on sale of real property Rental incom e, net Other incom e, net Earnings before incom e taxes Provision for incom e taxes N et earnings N E T E A R N I N G S P E R S H A R E : Basic earnings per share Diluted earnings per share See notes to consolidated financial statements. $746,071 505,153 $513,278 337,192 $343,167 215,350 240,918 (22,111) (38,816) (90,849) 1,611 — (1,423) 89,330 (5,663) — — 389 84,056 (31,788) 176,086 (11,624) (29,553) (71,843) 7,208 — (1,237) 69,037 (1,810) 681 148 3,679 71,735 (26,599) 127,817 (4,383) (18,325) (60,764) 11,042 2,980 (167) 58,200 (1,180) 38,882 3,585 2,710 102,197 (39,317) $ 52,268 $ 45,136 $ 62,880 $ $ 2.53 2.50 $ $ 2.21 2.16 $ $ 3.12 3.07 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 4 5 CONSOLIDATED BALANCE SHEETS At December 31, (In thousands) A S S E T S : Current assets: Cash and cash equivalents Receivables, net Inventories, net Deferred tax assets, net Other current assets Total current assets Property, plant, and equipm ent, net Prepaid pension costs Goodwill Other intangible assets, net Other assets Total assets L I A B I L I T I E S : Current liabilities: Short-term debt Accounts payable Accrued expenses Incom e taxes payable Other current liabilities Total current liabilities Long-term debt Deferred tax liabilities, net Accrued pension and other postretirem ent beneﬁt costs Long-term portion of environm ental reserves Other liabilities Total liabilities C O N T I N G E N C I E S A N D C O M M I T M E N T S (N otes 12, 15, 17 & 19) S T O C K H O L D E R S ’ E Q U I T Y: Preferred stock, $1 par value, 650,000 shares authorized, none issued Com m on stock, $1 par value, 33,750,000 and 11,250,000 shares authorized at Decem ber 31, 2003 and 2002, respectively, 16,611,464 and 10,617,600 shares issued at Decem ber 31, 2003 and 2002, respectively; outstanding shares were 12,021,610 at Decem ber 31, 2003 and 5,890,177 at Decem ber 31, 2002 Class B com m on stock, $1 par value, 11,250,000 shares authorized; 8,764,800 and 4,382,400 shares issued at Decem ber 31, 2003 and 2002, respectively; outstanding shares were 8,764,246 at Decem ber 31, 2003 and 4,382,116 at Decem ber 31, 2002 Additional paid-in capital Retained earnings U nearned portion of restricted stock Accum ulated other com prehensive incom e Less: Com m on treasury stock, at cost (4,590,408 shares at Decem ber 31, 2003 and 4,727,707 shares at Decem ber 31, 2002) Total stockholders’ equity Total liabilities and stockholders’ equity See notes to consolidated financial statements. 4 6 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 2003 2002 $ 98,672 143,362 97,880 23,630 10,979 374,523 238,139 77,877 220,058 48,268 14,800 $ 47,717 135,734 84,568 21,840 9,005 298,864 219,049 76,072 181,101 21,982 13,034 $973,665 $810,102 $ 997 43,776 44,938 6,748 39,424 135,883 224,151 21,798 75,633 21,083 16,236 494,784 $ 32,837 41,344 32,446 4,528 50,472 161,627 119,041 6,605 77,438 22,585 11,578 398,874 — — 16,611 10,618 8,765 52,998 543,670 (55) 22,634 4,382 52,200 508,298 (60) 6,482 644,623 581,920 (165,742) (170,692) 478,881 411,228 $973,665 $810,102 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, (In thousands) 2003 2002 2001 C A S H F L O W S F R O M O P E R AT I N G A C T I V I T I E S : N et earnings Adjustm ents to reconcile net earnings to net cash provided by operating activities: Depreciation and am ortization N on-cash pension incom e N et loss (gain) on sales and disposals of real estate and equipm ent Deferred incom e taxes Changes in operating assets and liabilities, net of businesses acquired: Proceeds from sales of short-term investm ents Purchases of short-term investm ents (Increase) decrease in receivables Decrease (increase) in inventories Increase in progress paym ents Increase (decrease) in accounts payable and accrued expenses Decrease in deferred revenue Increase (decrease) in incom e taxes payable Pension contributions Increase in other current and long-term assets Increase in other current and long-term liabilities Other, net Total adjustm ents N et cash provided by operating activities C A S H F L O W S F R O M I N V E S T I N G A C T I V I T I E S : Proceeds from sales and disposals of real estate and equipm ent Additions to property, plant, and equipm ent Acquisition of new businesses, net of cash acquired N et cash used for investing activities C A S H F L O W S F R O M F I N A N C I N G A C T I V I T I E S : Borrowings of debt Principal paym ents on debt Reim bursem ent of recapitalization expenses Proceeds from exercise of stock options Dividends paid N et cash provided by (used for) ﬁnancing activities Effect of foreign currency N et increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplem ental disclosure of non-cash investing activities: Fair value of assets acquired Liabilities assum ed Less: Cash acquired N et cash paid See notes to consolidated financial statements. $ 52,268 $ 45,136 $ 62,880 31,327 (1,611) 359 6,035 — — (5,958) 1,893 1,967 9,343 (10,070) 3,240 (5,729) (963) 995 428 31,256 83,524 18,693 (7,208) (681) 4,011 77,050 (35,600) 31 197 3,464 (61) (2,820) (11,101) — (3,254) 2,156 (228) 44,649 89,785 1,132 (33,329) (71,368) 2,447 (34,954) (164,661) (103,565) (197,168) 384,712 (314,204) — 3,868 (6,520) 67,856 3,140 50,955 47,717 220,400 (92,795) — 6,226 (6,141) 127,690 1,915 22,222 25,495 14,734 (11,042) (39,018) 4,167 348,911 (327,761) (7,203) (3,232) 4,186 (2,831) (422) 12,694 — (2,051) 7,185 63 (1,620) 61,620 45,201 (19,354) (58,982) (33,135) — (8,228) 1,750 1,804 (5,443) (10,117) (1,205) 16,803 8,692 $ 98,672 $ 47,717 $ 25,495 $ 85,578 (13,375) (835) $321,450 (155,623) (1,166) $ 78,979 (14,829) (5,168) $ 71,368 $164,661 $ 58,982 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 4 7 Class B Com m on Com m on Stock Stock Additional Paid in Capital Retained Earnings U nearned Portion of Restricted Stock Awards Accum ulated O ther Com prehensive Incom e (Loss) Com prehensive Incom e Treasury Stock $15,000 $ — $51,506 $411,866 $(22) $(5,626) $(182,500) CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) J A N U A R Y 1 , 2 0 0 1 Com prehensive incom e: N et earnings Translation adjustm ents, net Total com prehensive incom e Dividends paid Stock options exercised, net Restricted stock awards Am ortization of earned portion of restricted stock awards Recapitalization D E C E M B E R 3 1 , 2 0 0 1 Com prehensive incom e: N et earnings Translation adjustm ents, net Total com prehensive incom e Dividends paid Stock options exercised, net Am ortization of earned portion of restricted stock awards D E C E M B E R 3 1 , 2 0 0 2 Com prehensive incom e: N et earnings Translation adjustm ents, net Total com prehensive incom e Dividends paid Stock options exercised, net Other Two-for-one com m on stock split effected in the form of a 100% stock dividend — — — — — — — — — — — — 62,880 — — (730) 6 (5,443) — — — — (4,382) 4,382 — 1,750 — — 10,618 4,382 52,532 469,303 — — — — — — — — — — — — 45,136 — — (332) (6,141) — — — 10,618 4,382 52,200 508,298 — — — — — — — — — — — — — 741 57 52,268 — (6,520) — — 5,993 4,383 — (10,376) D E C E M B E R 3 1 , 2 0 0 3 See notes to consolidated financial statements. $16,611 $8,765 $52,998 $543,670 4 8 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S — — — — (77) 21 — (78) — — — — 18 (60) — — — — 5 — $(55) — (1,205) $62,880 (1,205) $61,675 — — — — — — — — 2,456 72 — — (6,831) (179,972) — 13,313 — — — 6,482 — 16,152 — — — — $22,634 $45,136 13,313 $58,449 $52,268 16,152 $68,420 — — — 9,280 — (170,692) — — — 4,812 138 — $(165,742) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Curtiss-W right Corporation and its subsidiaries (the “Corporation”) is a diversiﬁed m ultinational m anufacturing and service com pany that designs, m anufactures, and overhauls precision com ponents and system s and provides highly engineered products and services to the aerospace, defense, autom otive, shipbuilding, processing, oil, petro- chem ical, agricultural equipm ent, railroad, power generation, security, and m etalworking industries. Operations are conducted through 24 m anufacturing facilities, 53 m etal treatm ent service facilities, and 2 aerospace com ponent overhaul and repair locations. A. Principles of Consolidation The consolidated ﬁnancial statem ents include the accounts of Curtiss- W right and its m ajority-owned subsidiaries. All m aterial intercom pany transactions and accounts have been elim inated. Certain prior year inform ation has been reclassiﬁed to conform to current presentation. B. Use of Estimates The ﬁnancial statem ents of the Corporation have been prepared in con- form ity with accounting principles generally accepted in the U nited States of Am erica and such preparation requires m anagem ent to m ake estim ates and judgm ents that affect the reported am ount of assets, lia- bilities, revenue, and expenses and disclosure of contingent assets and liabilities in the accom panying ﬁnancial statem ents. The m ost signiﬁ- cant of these estim ates include the estim ate of costs to com plete long- term contracts under the percentage-of-com pletion accounting m ethod, the estim ate of useful lives for property, plant, and equipm ent, cash ﬂow estim ates used for testing the recoverability of assets, pen- sion plan and postretirem ent obligation assum ptions, estim ates for inventory obsolescence, estim ates for the valuation of intangible assets, warranty reserves, and the estim ate of future environm ental costs. Actual results m ay differ from these estim ates. C. Revenue Recognition The realization of revenue refers to the tim ing of its recognition in the accounts of the Corporation and is generally considered realized or realizable and earned when the earnings process is substantially com - plete and all of the following criteria are m et: 1) persuasive evidence of an arrangem ent exists; 2) delivery has occurred or services have been rendered; 3) the Corporation’s price to its custom er is ﬁxed or determ inable; and 4) collectibility is reasonably assured. The Corporation records sales and related proﬁts on production and service type contracts as units are shipped and title and risk of loss have transferred or as services are rendered, net of estim ated returns and allowances. Sales and estim ated proﬁts under certain long-term contracts are recognized under the percentage-of-com pletion m ethods of accounting, whereby proﬁts are recorded pro rata, based upon cur- rent estim ates of direct and indirect costs to com plete such contracts. In addition, the Corporation also records sales under certain long-term governm ent ﬁxed price contracts upon achievem ent of perform ance m ilestones as speciﬁed in the related contracts or under the com pleted contract m ethod. Losses on contracts are provided for in the period in which the losses becom e determ inable. Revisions in proﬁt estim ates are reﬂected on a cum ulative basis in the period in which the basis for such revision becom es known. Deferred revenue represents the excess of the billings over cost and estim ated earnings on long-term contracts. D. Cash and Cash Equivalents Cash equivalents consist of m oney m arket funds and com m ercial paper that are readily convertible into cash, all with original m aturity dates of three m onths or less. E. Inventory Inventories are stated at lower of production cost (principally average cost) or m arket. Production costs are com prised of direct m aterial and labor and applicable m anufacturing overhead. F. Progress Payments Certain long-term contracts provide for the interim billings as costs are incurred on the respective contracts. Pursuant to contract provisions, agencies of the U .S. governm ent and other custom ers are granted title or a secured interest in the unbilled costs included in unbilled receiv- ables, and m aterials and work-in-process included in inventory to the extent of progress paym ents. Accordingly, these progress paym ents received have been reported as a reduction of unbilled receivables and inventories, as presented in N otes 5 and 6. G. Property, Plant, and Equipment Property, plant, and equipm ent are carried at cost less accum ulated depreciation. M ajor renewals and betterm ents are capitalized, while m aintenance and repairs that do not im prove or extend the life of the asset are expensed in the period they are incurred. Depreciation is com puted using the straight-line m ethod based upon the estim ated useful lives of the respective assets. Average useful lives for property, plant, and equipm ent are as follows: Buildings and im provem ents M achinery, equipm ent, and other 5 to 40 years 3 to 15 years H. Intangible Assets Intangible assets are generally the result of acquisitions and consist prim arily of purchased technology, custom er related intangibles, trade- m arks and service m arks, and technology licenses. The Corporation am ortizes such assets ratably, to m atch their cash ﬂow stream s, over their estim ated useful lives. U seful lives range from 1 to 20 years. See N ote 9 for further inform ation on other intangible assets. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 4 9 L. Research and Development The Corporation funds research and developm ent program s for com - m ercial products and independent research and developm ent and bid and proposal work related to governm ent contracts. Developm ent costs include engineering and ﬁeld support for new custom er requirem ents. Corporation-sponsored research and developm ent costs are expensed as incurred. Research and developm ent costs associated with custom er-sponsored program s are charged to inventory and are recorded in cost of sales when products are delivered or services perform ed. M . Environmental Costs The Corporation establishes a reserve for a potential environm ental rem ediation liability when it concludes that a determ ination of legal liability is probable, based upon the advice of counsel. Such am ounts, if quantiﬁable, reﬂect the Corporation’s estim ate of the am ount of that liability. If only a range of potential liability can be estim ated, a reserve will be established at the low end of that range. Such reserves, which are reviewed quarterly, represent the current value of anticipated rem e- diation costs, not recognizing any potential recovery from insurance carriers or third-party legal actions, and are not discounted. N. Accounting for Stock-Based Compensation In accordance with SFAS N o. 123, “Accounting for Stock-Based Com - pensation,” the Corporation elected to account for its stock-based com - pensation using the intrinsic value m ethod under Accounting Principles Board Opinion N o. 25, “Accounting for Stock Issued to Em ployees.” As such, the Corporation does not recognize com pensa- tion expense on non-qualiﬁed stock options granted to em ployees when the exercise price of the options is equal to the m arket price of the underlying stock on the date of the grant. Pro form a inform ation regarding net earnings and earnings per share is required by SFAS N o. 123 and has been determ ined as if the Corpora- tion had accounted for its em ployee stock option grants under the fair value m ethod prescribed by that Statem ent. Inform ation with regard to the num ber of options granted, m arket price of the grants, vesting requirem ents, and the m axim um term of the options granted appears by plan type in the sections below. The fair value of these options was estim ated at the date of grant using a Black-Scholes option pricing m odel with the following weighted average assum ptions: 2003 2002 2001 Risk-free interest rate Expected volatility Expected dividend yield W eighted-average option life W eighted-average grant-date fair value of options 3.68% 4.66% 3.61% 31.68% 31.33% 24.18% 1.37% 0.92% 7 years 7 years 0.94% 7 years $13.97 $11.81 $6.79 I. Impairment of Long-Lived Assets The Corporation reviews the recoverability of all long-term assets, including the related useful lives, whenever events or changes in cir- cum stances indicate that the carrying am ount of a long-lived asset m ight not be recoverable. If required, the Corporation com pares the estim ated undiscounted future net cash ﬂows to the related asset’s car- rying value to determ ine whether there has been an im pairm ent. If an asset is considered im paired, the asset is written down to fair value, which is based either on discounted cash ﬂows or appraised values in the period the im pairm ent becom es known. There were no such write- downs in 2003, 2002, or 2001. J. Goodwill Goodwill results from business acquisitions. The Corporation accounts for business acquisitions by allocating the purchase price to tangible and intangible assets and liabilities. Assets acquired and liabilities assum ed are recorded at their fair values, and the excess of the pur- chase price over the am ounts allocated is recorded as goodwill. U pon adoption of Statem ent of Financial Accounting Standards (“SFAS”) N o. 142, “Goodwill and Other Intangible Assets,” on January 1, 2002, the Corporation no longer am ortizes goodwill. Additionally, the recoverability of goodwill is subject to an annual im pairm ent test, or whenever an event occurs or circum stances change that would m ore likely than not result in an im pairm ent. The im pairm ent test is based on the estim ated fair value of the underlying businesses. See N ote 8 for further inform ation on goodwill. K. Fair Value of Financial Instruments SFAS N o. 107, “Disclosure About Fair Value of Financial Instrum ents,” requires certain disclosures regarding the fair value of ﬁnancial instru- m ents. Due to the short m aturities of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, the net book value of these ﬁnancial instrum ents are deem ed to approxim ate fair value. The estim ated fair values of the Corporation’s long-term debt instru- m ents at Decem ber 31, 2003 aggregated $226.6 m illion com pared to a carrying value of $225.1 m illion. The carrying am ount of the variable interest rate long-term debt approxim ates fair value because the interest rates are reset periodically to reﬂect current m arket condi- tions. Fair values for the Corporation’s ﬁxed rate debt were estim ated based on valuations provided by third parties in accordance with their proprietary m odels. The carrying am ount of the interest rate swaps reﬂects their fair value as provided by third parties in accordance with their proprietary m odels. The fair values described above m ay not be indicative of net realizable value or reﬂective of future fair values. Furtherm ore, the use of differ- ent m ethodologies to determ ine the fair value of certain ﬁnancial instrum ents could result in a different estim ate of fair value at the reporting date. 5 0 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S The estim ated fair value of the option grants are am ortized to expense over the options’ vesting period beginning January 1 of the following year, due to the tim ing of the grants. The Corporation’s pro form a infor- m ation for the years ended Decem ber 31, 2003, 2002, and 2001 is as follows: (In thousands, except per share data) 2003 2002 2001 NET EARNINGS: AS REPORTED Deduct: Total stock-based em ployee com pensation expense determ ined under fair value based m ethod for all awards, net of related tax effects Pro form a NET EARNINGS PER SHARE: As reported: Basic Diluted Pro form a: Basic Diluted $52,268 $45,136 $62,880 (1,261) (1,197) (1,524) $51,007 $43,612 $61,683 $ 2.53 $ 2.21 $ 3.12 $ 2.50 $ 2.16 $ 3.07 $ 2.47 $ 2.14 $ 3.07 $ 2.44 $ 2.09 $ 3.01 The Corporation receives tax deductions related to the exercise of non- qualiﬁed stock options, the offset of which is recorded in equity. The tax beneﬁt totaled $1.7 m illion, $2.7 m illion, and $0.5 m illion in 2003, 2002, and 2001, respectively. Further inform ation concerning options granted under the Corporation’s Long-Term Incentive Plan is provided in N ote 14. O. Capital Stock On M ay 23, 2003, the stockholders approved an increase in the num - ber of authorized shares of the Corporation’s Com m on Stock from 11,250,000 to 33,750,000. On N ovem ber 18, 2003, the Board of Directors declared a 2-for-1 stock split in the form of a 100% stock div- idend. The split, in the form of 1 share of Com m on Stock for each share of Com m on Stock outstanding and 1 share of Class B Com m on Stock for each share of Class B Com m on Stock outstanding, was payable on Decem ber 17, 2003. To effectuate the stock split, the Corporation issued 5,993,864 original shares of Com m on Stock and 4,382,400 original shares of Class B Com m on Stock, at $1.00 par value from cap- ital surplus, with a corresponding reduction in retained earnings of $10.4 m illion. Accordingly, all references throughout this annual report to num ber of shares, per share am ounts, stock options data and m ar- ket prices of the Corporation’s two classes of com m on stock have been adjusted to reﬂect the effect of the stock split for all periods presented, where applicable. In February 2001, the Corporation increased the authorized num ber of shares for repurchase under its existing stock repurchase program by 600,000 shares. This increase was an addition to the previous authorization of 300,000 shares. Purchases were authorized to be m ade from tim e to tim e in the open m arket or privately negotiated transactions, depending on m arket and other conditions, whenever m anagem ent believes that the m arket price of the stock does not ade- quately reﬂect the true value of the Corporation and, therefore, repre- sented an attractive investm ent opportunity. The shares are held at cost and reissuance is recorded at the weighted average cost. Through Decem ber 31, 2003, the Corporation had repurchased 210,930 shares under this program . There was no stock repurchased during 2003 and 2002. P. Earnings Per Share The Corporation is required to report both basic earnings per share (“EPS”), based on the weighted average num ber of Com m on and Class B shares outstanding, and diluted earnings per share, based on the basic EPS adjusted for all potentially dilutive shares issuable. The cal- culation of EPS is disclosed in N ote 13. Q. Income Taxes The Corporation applies SFAS N o. 109, “Accounting for Incom e Taxes.” U nder the asset and liability m ethod of SFAS N o. 109, deferred tax assets and liabilities are recognized for future tax consequences attrib- utable to differences between the ﬁnancial statem ent carrying am ounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the results of operations in the period the new laws are enacted. A valuation allowance is recorded to reduce the carrying am ounts of deferred tax assets unless it is m ore likely than not that such assets will be realized. R. Foreign Currency Translation For operations outside the U nited States of Am erica that prepare ﬁnan- cial statem ents in currencies other than the U .S. dollar, the Corpora- tion translates assets and liabilities at period-end exchange rates and incom e statem ent am ounts using weighted average exchange rates for the period. The cum ulative effect of translation adjustm ents is pre- sented as a com ponent of accum ulated other com prehensive incom e within stockholders’ equity. This balance is affected by foreign cur- rency exchange rate ﬂuctuations and by the acquisition of foreign enti- ties. Gains and losses from foreign currency transactions are included in results of operations. S. Derivatives The Corporation uses interest rate swaps to m anage its exposure to ﬂuc- tuations in interest rates on a portion of its ﬁxed rate debt instrum ents. The interest rate swap agreem ents are accounted for as fair value hedges. The derivatives have been recorded at fair value on the balance sheet within other non-current assets with changes in fair value recorded currently in earnings. Additionally, the carrying am ount of the associated debt is adjusted through earnings for changes in fair value due to changes in interest rates. Ineffectiveness is recognized to the extent that these two adjustm ents do not offset. For the year ended Decem ber 31, 2003, the derivatives were assum ed to be perfectly effective under the “short-cut m ethod” of SFAS 133. The differential to be paid or received based on changes in interest rates is recorded as an adjustm ent to interest expense in the statem ent of earnings. Addi- tional inform ation on these swap agreem ents is presented in N ote 12. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 5 1 T. Recently Issued Accounting Standards In June 2001, the FASB issued SFAS N o. 143 “Accounting for Asset Retirem ent Obligations.” This statem ent addresses ﬁnancial account- ing and reporting obligations associated with the retirem ent of tangi- ble long-lived assets and the associated asset retirem ent costs. The statem ent requires the Corporation to recognize the fair value of a lia- bility for an asset retirem ent obligation in the period in which it is incurred, if a reasonable estim ate can be m ade. U pon initial recogni- tion of such a liability, if any, the Corporation would capitalize the asset retirem ent cost as an asset equal to the fair value of the liability and allocate such cost to expense system atically over the useful life of the underlying asset. The estim ated future liability would be subject to change, with the effects of such change affecting the asset retirem ent cost and the related expense as appropriate. The provisions of this statem ent are effective for ﬁscal years beginning after June 15, 2002. The adoption of this statem ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In June 2002, the FASB issued SFAS N o. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” This statem ent applies to costs associated with exit or disposal activities and requires that lia- bilities for costs associated with these activities be recognized and m easured initially at its fair value in the period in which the liability is incurred. The provisions of this statem ent are effective for exit or dis- posal activities initiated after Decem ber 31, 2002. The adoption of this statem ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In N ovem ber 2002, the FASB issued Interpretation N o. 45 “Guaran- tor’s Accounting and Disclosure Requirem ents for Guarantees, Includ- ing Indirect Guarantees of Indebtedness of Others.” This interpretation relates to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. This interpretation requires the issuer of a guarantee to recognize a liability at the inception of that guaran- tee. The Corporation is required to apply the interpretation to all guar- antees issued or m odiﬁed after Decem ber 31, 2002. The disclosure requirem ents of this interpretation are effective for ﬁnancial state- m ents of interim and annual periods ending after Decem ber 15, 2002. The adoption of this statem ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In Decem ber 2002, the FASB issued SFAS N o. 148 “Accounting for Stock-Based Com pensation— Transition and Disclosure.” This state- m ent provides alternate m ethods of transition for a voluntary change to the fair value based m ethod of accounting for stock-based em ployee com pensation. In addition, the statem ent requires additional disclo- sures about the m ethods of accounting for stock-based em ployee com - pensation and the effect of the m ethod used on reported results. The provisions of this statem ent are effective for ﬁscal years beginning after Decem ber 15, 2002. The Corporation intends on continuing to account for its stock options under Accounting Principles Board Opinion N o. 25, “Accounting for Stock Issued to Em ployees,” and thus the adoption of the new standard did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. 5 2 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S In January 2003, the FASB issued Interpretation N o. 46, “Consolida- tion of Variable Interest Entities (“VIE”s)” (“FIN 46”). This interpreta- tion of Accounting Research Bulletin N o. 51, “Consolidated Financial Statem ents,” addresses when a com pany should include in its ﬁnan- cial statem ents the assets and liabilities of unconsolidated VIEs. FIN 46 was effective for VIEs created or acquired after January 31, 2003. The Corporation is not party to any contractual arrangem ents with VIEs and thus the adoption of this statem ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In Decem ber 2003, the FASB com pleted deliberations of proposed m odiﬁcations to FIN 46 (“Revised Interpretations”) resulting in m ul- tiple effective dates based on the nature as well as the creation date of the VIE. The Corporation does not anticipate that the adoption of this statem ent will have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In M ay 2003, the FASB issued SFAS N o. 150, “Accounting for Certain Financial Instrum ents with Characteristics of both Liabilities and Equity.” This Statem ent establishes standards for how an issuer clas- siﬁes and m easures certain ﬁnancial instrum ents with characteristics of both liabilities and equity. It requires that an issuer classify a ﬁnan- cial instrum ent that is within its scope as a liability (or an asset in som e circum stances). The Statem ent is effective for ﬁnancial instrum ents entered into or m odiﬁed after M ay 31, 2003. It applies in the ﬁrst interim period beginning after June 15, 2003, to entities with ﬁnancial instrum ents acquired before M ay 31, 2003. The adoption of this state- m ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. In Decem ber 2003, the FASB issued SFAS N o. 132 (revised 2003), “Em ployers’ Disclosures about Pensions and Other Postretirem ent Beneﬁts.” This Statem ent retains the disclosure requirem ents con- tained in the original FASB Statem ent N o. 132, “Em ployers’ Disclo- sures about Pensions and Other Postretirem ent Beneﬁts,” which it replaces and requires additional disclosures about the assets, obliga- tions, cash ﬂows, and net periodic beneﬁt cost of deﬁned beneﬁt pen- sion plans and other deﬁned beneﬁt postretirem ent plans. It does not change the m easurem ent of recognition of those plans required by FASB Statem ents N o. 87, “Em ployers’ Accounting for Pensions,” N o. 88, “Em ployers’ Accounting for Settlem ents and Curtailm ents of Deﬁned Beneﬁt Pension Plans and for Term ination Beneﬁts,” and N o. 106, “Em ployers’ Accounting for Postretirem ent Beneﬁts Other Than Pensions.” The Statem ent is effective for annual and interim periods with ﬁscal years ending after Decem ber 15, 2003. The adoption of this statem ent did not have a m aterial im pact on the Corporation’s results of operation or ﬁnancial condition. 2. Acquisitions The Corporation acquired six businesses in 2003, six businesses in 2002, and seven businesses in 2001 as described below. All acquisi- tions have been accounted for as purchases with the excess of the pur- chase price over the estim ated fair value of the net tangible and intangible assets acquired recorded as goodwill. The Corporation m akes prelim inary estim ates of the value of identiﬁable intangibles with a ﬁnite life and records am ortization based upon the estim ated useful life of those intangible assets identiﬁed. W ithin one year of acquisition, the Corporation will adjust these estim ates based upon P E R I T E K C O R P O R AT I O N On August 1, 2003, the Corporation acquired the assets and certain liabilities of Peritek Corporation (“Peritek”). The purchase price of the acquisition was $3.2 m illion in cash and the assum ption of certain lia- bilities. The Corporation paid $1.5 m illion at closing, which was funded from cash available from operations, and will pay the rem aining pur- chase price subject to a prom issory note of $1.2 m illion and settlem ent of a holdback provision of $0.3 m illion. The holdback am ount is held as security for potential indem niﬁcation claim s. Any am ount of hold- back rem aining after claim s for indem niﬁcation have been settled will be paid nineteen m onths after the acquisition date. The purchase price of the acquisition approxim ates the fair value of the net assets acquired as of Decem ber 31, 2003, which includes developed technology of approxim ately $2.6 m illion. Revenues of the purchased business for the ﬁscal year ending M arch 31, 2003 were $2.7 m illion. Peritek is a leading supplier of video and graphic display boards for the em bedded com puting industry and supplies a variety of industries including aviation, defense, and m edical. In addition, Peritek supplies products for bom b detection, industrial autom ation, and m edical im ag- ing applications. Peritek’s operations are located in Oakland, California. C O L L I N S T E C H N O L O G I E S On February 28, 2003, the Corporation acquired the assets of Collins Technologies (“Collins”) from G.L. Collins Corporation. The purchase price of the acquisition was $11.8 m illion in cash and the assum ption of certain liabilities. Included in the purchase price is $0.5 m illion held as security for potential indem niﬁcation claim s. Any am ount of hold- back rem aining after claim s for indem niﬁcation have been settled will be paid one year after the acquisition date. M anagem ent funded the purchase price from credit available under the Corporation’s Short- Term Credit Agreem ent. The excess of the purchase price, excluding the holdback, over the fair value of the net assets acquired as of Decem ber 31, 2003 is $6.8 m illion. The fair value of the net assets acquired was based on current estim ates. The Corporation m ay adjust these estim ates based upon analysis of third party appraisals and the ﬁnal determ ination of fair value. Revenues of the purchased business were $8.3 m illion for the year ended M arch 31, 2002. Collins designs and m anufactures Linear Variable Displacem ent Transducers (“LVDTs”), prim arily for aerospace ﬂight and engine con- trol applications. Industrial LVDTs are used m ostly in industrial autom ation and test applications. Collins’ operations are located in Long Beach, California. analysis of third party appraisals and the determ ination of fair value when ﬁnalized. The Corporation does not consider the 2003 acquisi- tions to be m aterial, individually or in the aggregate, to its ﬁnancial position, liquidity, or results of operations, and therefore no pro form a ﬁnancial statem ents are provided. The results of each acquired busi- ness have been included in the consolidated ﬁnancial results of the Corporation from the date of acquisition in the segm ent indicated as follows: M otion Control N O VAT R O N I C S / P I C K E R I N G On Decem ber 4, 2003, the Corporation acquired all of the outstanding shares of N ovatronics Inc. (“N ovatronics”) and Pickering Controls Inc. (“Pickering”) in a single transaction. The purchase price of the acqui- sition, subject to a working capital adjustm ent and other custom ary adjustm ents as provided in the Stock Purchase Agreem ent, was $13.6 m illion in cash and the assum ption of certain liabilities. There are pro- visions in the agreem ent for an additional paym ent in 2006 upon the achievem ent of certain ﬁnancial perform ance criteria up to a m axim um of $2.3 m illion. M anagem ent funded the purchase price with proceeds from the Senior N otes issued in Septem ber 2003. The excess of the purchase price over the fair value of the net assets acquired as of Decem ber 31, 2003 is $5.3 m illion. The fair value of the net assets acquired was based on current estim ates. The Corporation m ay adjust these estim ates based upon analysis of third party appraisals and the ﬁnal determ ination of fair value. Revenues of the purchased business were $12.0 m illion for the year ended Decem ber 31, 2002. N ovatronics and Pickering design and m anufacture electric m otors and position sensors (both linear and rotary) for the com m ercial aerospace, m ilitary aerospace, and industrial m arkets. N ovatronics has operating facilities located in Stratford, Ontario, Canada, while Pickering is located in Plainview, N ew York. S Y S T R A N C O R P O R AT I O N On Decem ber 1, 2003, the Corporation acquired all of the outstanding shares of Systran Corporation (“Systran”). The purchase price of the acquisition, subject to a working capital adjustm ent and other custom - ary adjustm ents as provided for in the Stock Purchase Agreem ent, was $18.0 m illion in cash and the assum ption of certain liabilities. M anage- m ent funded the purchase price with proceeds from the Senior N otes issued in Septem ber 2003. The excess of the purchase price over the fair value of the net assets acquired as of Decem ber 31, 2003 is $9.3 m il- lion. The fair value of the net assets acquired was based on current esti- m ates. The Corporation m ay adjust these estim ates based upon analysis of third party appraisals and the ﬁnal determ ination of fair value. Revenues of the purchased business were $15.1 m illion for the year ended Septem ber 30, 2003. Systran is a leading supplier of highly specialized, high perform ance data com m unications products for real-tim e system s, prim arily for the aerospace and defense, industrial autom ation, and m edical im aging m arkets. Key applications include sim ulation, process control, advanced digital signal processing, data acquisition, im age process- ing, and test and m easurem ent. Systran’s operations are located in Dayton, Ohio. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 5 3 TAPCO designs, engineers, and m anufactures high-perform ance m etal seated industrial gate valves, butterﬂy valves, ﬂapper valves, actuators, and internal com ponents used in high-tem perature, highly abrasive, and highly corrosive environm ents in the petrochem ical reﬁning indus- try. Operations are located in H ouston, Texas with a m inor operation in the U K to serve the European m arket. E L E C T R O - M E C H A N I C A L D I V I S I O N On October 28, 2002, the Corporation acquired the net assets of the Electro M echanical Division (“EM D”) of W estinghouse Governm ent Services Com pany LLC, a wholly-owned subsidiary of W ashington Group International. The purchase price of the acquisition, which includes capitalized acquisition costs, was $79.9 m illion in cash and the assum ption of certain liabilities and is subject to a working capital adjustm ent and other custom ary adjustm ents as provided for in the Asset Purchase Agreem ent. The acquisition was accounted for as a pur- chase in the fourth quarter of 2002 and was funded from the Corpora- tion’s revolving credit facilities. The purchase price has been allocated to the net tangible and intangible assets acquired as of Decem ber 31,2003, with the rem ainder recorded as goodwill, on the basis of estim ated fair values, as follows: (In thousands) N et working capital Property, plant and equipm ent Other assets Postretirem ent beneﬁt obligation Pension beneﬁt obligation Other noncurrent liabilities Intangible assets N et tangible and intangible assets Purchase price Goodwill $ 455 70,474 40,423 (36,344) (38,626) (13,881) 6,970 $ 29,471 79,858 $ 50,387 EM D is a designer and m anufacturer of highly engineered critical func- tion electro-m echanical solutions for the U .S. N avy, com m ercial nuclear power utilities, petrochem ical, and hazardous waste industries. Opera- tions are located in Cheswick, Pennsylvania. P E N N Y & G I L E S / A U T R O N I C S On April 1, 2002, the Corporation acquired all of the outstanding shares of Penny and Giles Controls Ltd., Penny and Giles Controls Inc., Penny and Giles Aerospace Ltd., the assets of Penny & Giles Interna- tional Plc. devoted to its aerospace com ponent business (collectively “Penny and Giles”), and substantially all of the assets of Autronics Cor- poration (“Autronics”) from Spirent Plc. The purchase price of the acquisition was $59.5 m illion in cash and the assum ption of certain liabilities. Approxim ately $40 m illion of the purchase price was funded from the Corporation’s Revolving Credit facility. The excess of the pur- chase price over the fair value of the net assets acquired as of Decem - ber 31, 2003 is $32.5 m illion, including foreign currency translation adjustm ent gains of $4.8 m illion. Penny and Giles is a designer and m anufacturer of proprietary position sensors and control hardware for both m ilitary and com m ercial aero- space applications and industrial m arkets. Autronics is a leading provider of aerospace ﬁre detection and suppression control system s, power conversion products, and control electronics. The acquired busi- ness units are located in W ales, England, Germ any, and the U nited States of Am erica. L A U D E F E N S E S Y S T E M S / V I S TA C O N T R O L S On N ovem ber 1, 2001 the Corporation acquired the assets of Lau Defense System s (“LDS”) and the stock of Vista Controls, Inc. (“Vista”). LDS and Vista design and m anufacture “m ission-critical” electronic control system s prim arily for the defense m arket. In addi- tion, an agreem ent was reached for the negotiation of licenses for facial recognition products for certain U .S. Governm ent and industrial m ar- kets. The businesses acquired have operating facilities located in Lit- tleton, M assachusetts and Santa Clarita, California. The purchase price of the acquisition was $44.8 m illion in cash and the assum ption of certain liabilities. There are provisions in the agreem ent for additional paym ents upon the achievem ent of certain ﬁnancial per- form ance criteria through 2006 up to a m axim um additional paym ent of $22.0 m illion. During 2003, the Corporation had paid $1.8 m illion in cash and accrued an additional $1.2 m illion related to these provi- sions, which have been reﬂected in the purchase price above. This acquisition was accounted for as a purchase in the fourth quarter of 2001. The excess of the purchase price over the fair value of the net assets acquired as of Decem ber 31, 2003 is $35.8 m illion. Flow Control TA P C O I N T E R N AT I O N A L On Decem ber 3, 2002, the Corporation acquired the assets of TAPCO International, Inc., (“TAPCO”) for $12.0 m illion in cash and the assum ption of certain liabilities. The acquisition was accounted for as a purchase in the fourth quarter of 2002 and was funded from the Cor- poration’s revolving credit facilities. The excess of the purchase price over the fair value of the net assets acquired as of Decem ber 31, 2003 is $6.4 m illion. 5 4 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S D E LTAVA LV E On Decem ber 12, 2001, the Corporation acquired the operating assets of Deltavalve U SA, LLC (“Deltavalve”). Deltavalve designs, engineers, and m anufactures industrial valves used in high pressure, extrem e tem perature, and corrosive plant environm ents. Deltavalve is located in Salt Lake City, U tah with an assem bly and test facility in Calgary, Alberta, Canada. The Corporation acquired the net assets of Deltavalve for $6.5 m illion in cash, plus the assum ption of certain liabilities. There are provisions in the agreem ent for additional paym ents upon the achievem ent of cer- tain ﬁnancial perform ance criteria through 2006. This acquisition was accounted for as a purchase in the fourth quarter of 2001. The excess of the purchase price over the fair value of the net assets acquired as of Decem ber 31, 2003 is $3.9 m illion. P E E R L E S S I N S T R U M E N T C O M PA N Y On N ovem ber 8, 2001, the Corporation acquired the stock of Peerless Instrum ent Co., Inc. (“Peerless”). Peerless is an engineering and m an- ufacturing com pany that designs and produces custom control com - ponents and system s for ﬂow control applications prim arily for the U .S. N uclear N aval program . The purchased business was located in Elm hurst, N ew York, but has subsequently been relocated to the Cor- poration’s facility in East Farm ingdale, N ew York. The purchase price of the acquisition was $7.0 m illion in cash plus the assum ption of certain liabilities. This acquisition was accounted for as a purchase in the fourth quarter of 2001. The excess of the purchase price over the fair value of the net assets acquired as of Decem ber 31, 2003 is $2.0 m illion. S O L E N T & P R AT T On M arch 23, 2001, the Corporation acquired the operating assets of Solent & Pratt Ltd. (“Solent & Pratt”). Solent & Pratt is a m anufacturer of high perform ance butterﬂy valves and is a global supplier to the petroleum , petrochem ical, chem ical, and process industries. The oper- ations are located in Bridport, England. The Corporation purchased the assets of Solent & Pratt for $2.4 m il- lion in cash and the assum ption of certain liabilities. There are provi- sions in the agreem ent for additional paym ents upon the achievem ent of certain perform ance criteria through 2006. During 2003, the Cor- poration had paid $0.9 m illion related to these provisions, which have been reﬂected in the purchase price above. The acquisition was accounted for as a purchase in the ﬁrst quarter of 2001. The excess ofthe purchase price over the fair value of the net assets acquired as of Decem ber 31, 2003 is $3.8 m illion, including foreign currency translation gains of $0.8 m illion. M etal Treatment E / M E N G I N E E R E D C O AT I N G S S O L U T I O N S On April 2, 2003, the Corporation purchased selected assets of E/M Engineered Coatings Solutions (“E/M Coatings”). The purchase price of the acquisition was $16.8 m illion in cash and the assum ption of certain liabilities. The purchase price was funded from credit available under the Corporation’s Short-Term Credit Agreem ent. The excess of the pur- chase price over the fair value of the net assets acquired as of Decem - ber 31, 2003 is $5.8 m illion. The fair value of the net assets acquired was based on current estim ates. The Corporation m ay adjust these esti- m ates based upon analysis of third party appraisals and the ﬁnal deter- m ination of fair value. Revenues of the purchased business were approxim ately $26 m illion for the year ended Decem ber 31, 2002. The Corporation acquired six E/M Coatings facilities operating in Chicago, IL; Detroit, M I; M inneapolis, M N ; H artford, CT; and N orth H ollywood and Chatsworth, CA. Com bined, these facilities are one of the leading providers of solid ﬁlm lubricant coatings in the U nited States. The E/M Coatings facilities have the capability of applying over 1,100 different coatings to im part lubrication, corrosion resistance, and certain cosm etic and dielectric properties to selected com ponents. A D VA N C E D M AT E R I A L P R O C E S S On M arch 11, 2003, the Corporation acquired selected net assets of Advanced M aterial Process Corp. (“AM P”), a private com pany with operations located in W ayne, M ichigan. The purchase price of the acquisition was $5.9 m illion in cash and the assum ption of certain lia- bilities. Included in the purchase price is $0.2 m illion held as security for potential indem niﬁcation claim s. Any am ount of holdback rem ain- ing after claim s for indem niﬁcation have been settled will be paid one year after the acquisition date. There are provisions in the agreem ent for additional paym ents upon the achievem ent of certain ﬁnancial per- form ance criteria through 2008 up to a m axim um additional paym ent of $1.0 m illion. M anagem ent funded the purchase from credit avail- able under the Corporation’s Short-Term Credit Agreem ent. The excess of the purchase price over the fair value of the net assets acquired as of Decem ber 31, 2003 is $2.8 m illion. The fair value of the net assets acquired was based on current estim ates. The Corporation m ay adjust these estim ates based upon analysis of third party appraisals and the ﬁnal determ ination of fair value. Revenues of the purchased business were $5.1 m illion for the year ended Decem ber 31, 2002. AM P is a supplier of com m ercial shot peening services prim arily to the autom otive m arket in the Detroit area. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 5 5 B R E N N E R T O O L & D I E On N ovem ber 14, 2002, the Corporation acquired selected assets and liabilities of Brenner Tool and Die, Inc. (“Brenner”) relating to Bren- ner’s m etal ﬁnishing operations in Bensalem , Pennsylvania. Brenner provides non-destructive testing, chem ical m illing, chrom ic and phos- phoric anodizing, and painting services. The purchase price of the acquisition was $10.0 m illion in cash, which approxim ated the fair value of the net assets acquired as of Decem ber 31, 2003. There are provisions in the agreem ent for additional pay- m ents upon the achievem ent of certain ﬁnancial perform ance criteria through 2007 up to a m axim um additional paym ent of $10.0 m illion. Y T S T R U K T U R A R B O G A A B On April 11, 2002, the Corporation acquired 100% of the stock of Ytstruktur Arboga AB, a m etal treatm ent business located in Arboga, Sweden. This business, specializing in controlled shot peening, non- destructive testing, and other m etal ﬁnishing processes, services the Scandinavian m arket. The purchase price of the acquisition was $1.2 m illion. The excess of the purchase price over the fair value of the net assets acquired as of Decem ber 31, 2003 is $1.5 m illion, including $0.5 m illion of foreign currency translation gains. B O D Y C O T E T H E R M A L P R O C E S S I N G On Decem ber 19, 2001, the Corporation acquired the W ichita, Kansas heat treating operation of Bodycote Therm al Processing. This opera- tion provides heat treating services to a num ber of industries includ- ing aerospace and agriculture. The purchase price of the acquisition was $3.6 m illion. This acquisi- tion has been accounted for as a purchase in the fourth quarter of 2001. The excess of the purchase price over the fair value of the net assets acquired was $2.0 m illion. I R O N B O U N D H E AT T R E AT I N G C O M PA N Y On N ovem ber 6, 2001, the Corporation acquired the com m ercial heat treating assets of Ironbound H eat Treating Com pany (“Ironbound”). Ironbound provides heat treating services to m arkets that include tool and die, autom otive, aerospace, and m edical com ponents. The busi- ness is located in Roselle, N ew Jersey. The purchase price of the acquisition was $4.5 m illion in cash and the assum ption of certain liabilities. This acquisition has been accounted for as a purchase in the fourth quarter of 2001. The excess of the purchase price over the fair value of the net assets acquired was $0.8 m illion. 3. Divestitures On Decem ber 20, 2001, the Corporation sold its W ood-Ridge, N ew Jer- sey Business Com plex for $51.0 m illion. The business com plex com - prised 2.3 m illion square feet of rental space situated on 138 acres of land. As a result of the sale, the Corporation recognized a net after-tax gain of $23.0 m illion during 2001. U nder the sale agreem ent, the Corporation will retain the responsibil- ity to continue the ongoing environm ental rem ediation on the property until such tim e that a “no further action” letter and covenant not to sue is obtained from the N ew Jersey Departm ent of Environm ental Pro- tection. The cost of the rem ediation has been previously accrued. Please refer to N ote 15 for additional inform ation regarding environ- m ental m atters. 4. Recapitalization On October 26, 2001, the Corporation’s shareholders approved a recap- italization plan, which enabled U nitrin Inc. (“U nitrin”) to distribute its approxim ate 44% equity interest in Curtiss-W right to its shareholders on a tax-free basis. U nder the recapitalization plan, and in order to m eet certain tax requirem ents, U nitrin’s 4.4 m illion shares of the Corporation’s com m on stock were exchanged for an equivalent num ber of shares of a new Class B Com m on Stock of Curtiss-W right, which are entitled to elect80% of Curtiss-W right’s Board of Directors. After such exchange, U nitrin im m ediately distributed the Class B shares to itsapproxim ately 8,000 registered stockholders in a tax-free distribution. The holders of the outstanding Com m on shares of Curtiss-W right are entitled to elect up to 20% of the Board of Directors after the distribution. Other than the right to elect Directors, the two classes of stock vote as a single class (except as required by law) and are equal in all other respects. The new Class B Com m on Stock was listed on the N ew York Stock Exchange, effective N ovem ber 29, 2001. In N ovem ber 2000, Curtiss-W right’s Board of Directors had approved an agreem ent with U nitrin related to the recapitalization plan. U nder this agreem ent, U nitrin agreed to reim burse the Corporation for certain costs incurred in connection with the recapitalization up to a m axim um of $1.75 m illion. The m axim um am ount was received subsequent to the recapitalization and is reﬂected in the ﬁnancial statem ents as Addi- tional Paid-In Capital. Recapitalization costs of $1.5 m illion and $0.9 m illion were incurred in 2001 and 2000, respectively, and are included in general and adm inistrative costs in the statem ent of earnings. 5 6 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 5. Receivables Receivables include current notes, am ounts billed to custom ers, claim s and other receivables, and unbilled revenue on long-term con- tracts, consisting of am ounts recognized as sales but not billed. Sub- stantially all am ounts of unbilled receivables are expected to be billed and collected in the subsequent year. 6. Inventories In accordance with industry practice, inventoried costs contain am ounts relating to long-term contracts and program s with long pro- duction cycles, a portion of which will not be realized within one year. Inventories are valued at the lower of cost (principally average cost) or m arket. The com position of inventories is as follows: Credit risk is generally diversiﬁed due to the large num ber of entities com prising the Corporation’s custom er base and their geographic dis- persion. The Corporation is either a prim e contractor or subcontractor of various agencies of the U .S. Governm ent. Revenues derived directly and indirectly from governm ent sources (prim arily the U .S. Govern- m ent) were 46% , 41% and 25% of consolidated revenues in 2003, 2002, and 2001, respectively. As of Decem ber 31, 2003 and 2002, accounts receivable due directly or indirectly from these governm ent sources represented 34% and 36% of net receivables, respectively. Sales to one custom er through which the Corporation is a subcontrac- tor to the U .S. Governm ent were 16% of consolidated revenues in 2003, 10% in 2002, and 6% in 2001. Accounts receivables due from this sam e custom er were 14% of net receivables at Decem ber 31, 2003 and 15% as of Decem ber 31, 2002. Due to the increased diversiﬁca- tion of the Corporation’s custom er base resulting from our recent acquisitions, no one com m ercial custom er represents a signiﬁcant concentration of credit risk at Decem ber 31, 2003 and 2002. The Corporation perform s ongoing credit evaluations of its custom ers and establishes appropriate allowances for doubtful accounts based upon factors surrounding the credit risk of speciﬁc custom ers, histori- cal trends, and other inform ation. The com position of receivables is as follows: (In thousands) December 31, 2003 2002 BILLED RECEIVABLES: Trade and other receivables Less: Allowance for doubtful accounts N et billed receivables UNBILLED RECEIVABLES: Recoverable costs and estim ated earnings not billed Less: Progress paym ents applied N et unbilled receivables $111,068 $106,946 (3,449) (3,244) 107,619 103,702 56,070 (20,327) 45,997 (13,965) 35,743 32,032 Receivables, net $143,362 $135,734 The net receivable balance at Decem ber 31, 2003 included $10.5 m il- lion related to the Corporation’s 2003 acquisitions. (In thousands) December 31, Raw m aterial W ork-in-process Finished goods and com ponent parts Inventoried costs related to U .S. Governm ent and other long-term contracts Gross inventories Less: Inventory reserves Progress paym ents applied, principally related to long-term contracts Inventories, net 2003 2002 $ 40,624 $ 34,365 26,069 45,682 26,409 46,575 20,544 22,743 134,152 128,859 (22,278) (23,548) (13,994) (20,743) $ 97,880 $ 84,568 The net inventory balance at Decem ber 31, 2003 included $9.0 m il- lion related to the Corporation’s 2003 acquisitions. 7. Property, Plant, and Equipment The com position of property, plant, and equipm ent is as follows: (In thousands) December 31, 2003 2002 Land Buildings and im provem ents M achinery, equipm ent, and other $ 12,206 $ 11,677 80,652 262,661 93,058 294,744 Property, plant, and equipm ent, at cost Less: Accum ulated depreciation 400,008 (161,869) 354,990 (135,941) Property, plant, and equipm ent, net $ 238,139 $ 219,049 Depreciation expense for the years ended Decem ber 31, 2003, 2002, and 2001 was $27.7 m illion, $16.7 m illion, and $12.4 m illion, respectively. The net property, plant, and equipm ent balance at Decem ber 31, 2003 included $3.1 m illion related to the Corporation’s 2003 acquisitions. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 5 7 (In thousands) December 31, 2003 2002 2001 NET EARNINGS: As reported Goodwill am ortization, net of tax As adjusted DILUTED EARNINGS PER SHARE: As reported Goodwill am ortization, net of tax As adjusted $52,268 $45,136 $62,880 — — 1,136 $52,268 $45,136 $64,016 $ 2.50 $ 2.16 $ 3.07 — — 0.06 $ 2.50 $ 2.16 $ 3.13 9. Other Intangible Assets, net Intangible assets are generally the result of acquisitions and consist prim arily of purchased technology, custom er related intangibles, trade- m arks and service m arks, and technology licenses. Intangible assets are am ortized over useful lives that range between 1 and 20 years. The following table sum m arizes the intangible assets acquired (includ- ing their weighted average useful lives) by the Corporation during 2003 and 2002. The 2002 am ounts have been adjusted to reﬂect the change in estim ates of fair values m ade in 2003 and exclude $1.0 m illion of indeﬁnite lived intangible assets included in Other intangible assets. (In thousands, except years data) 2003 2002 Developed technology Custom er related intangibles Other intangible assets Am ount Years Am ount Years $12,453 8.0 $11,012 14.3 7,426 2,519 11.6 10.5 8,035 13.4 244 14.4 Total $22,398 9.5 $19,291 13.9 8. Goodwill Goodwill consists prim arily of the excess purchase price of acquisitions over the fair value of the net assets acquired. The changes in the carrying am ount of goodwill for 2003 and 2002 are as follows: (In thousands) Decem ber 31, 2001 Goodwill from 2002 M otion Control Flow M etal Control Treatm ent Consolidated $ 46,453 $33,075 $ 4,057 $ 83,585 acquisitions 22,263 62,122 1,077 85,462 Change in estim ate to fair value of net assets acquired in 2001 Foreign currency translation adjustm ent 5,417 (183) 1,666 6,900 4,594 395 165 5,154 Decem ber 31, 2002 78,727 95,409 6,965 181,101 Goodwill from 2003 acquisitions 21,369 — 8,581 29,950 Change in estim ate to fair value of net assets acquired in 2002 Foreign currency translation adjustm ent 6,081 (3,977) 13 2,117 4,673 1,986 231 6,890 Decem ber 31, 2003 $110,850 $ 93,418 $15,790 $220,058 During 2003, the Corporation ﬁnalized the allocation of the purchase price for the six businesses acquired in 2002. The purchase price allo- cations relating to businesses acquired in 2003 are based on estim ates and have not yet been ﬁnalized. Approxim ately $15 m illion and $18 m illion of the goodwill acquired during 2003 and 2002, respec- tively, is deductible for tax purposes. In accordance with SFAS N o. 142, the Corporation com pleted its annual im pairm ent test of goodwill during the third quarter of 2003 and concluded there was no im pairm ent of goodwill. The following table reﬂects the pro form a consolidated results adjusted as if SFAS N o. 142 were adopted as of January 1, 2001: 5 8 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S The following tables present the cum ulative com position of the Corpo- ration’s acquired intangible assets as of Decem ber 31: (In thousands) 2003 G ross Accum ulated Am ortization N et Developed technology Custom er related intangibles Other intangible assets $32,892 14,469 5,902 $(2,966) (863) (1,166) $29,926 13,606 4,736 Total 2002 2002 $53,263 $(4,995) $48,268 G ross Accum ulated Am ortization N et Developed technology Custom er related intangibles Other intangible assets $21,371 1,268 2,143 $(1,452) $19,919 667 1,396 (601) (747) Total $24,782 $(2,800) $21,982 The following table presents the changes in the net balance of other intangibles assets during 2003: D eveloped Technology $19,919 12,453 (1,408) Custom er O ther Related Intangible Assets Intangibles Total $ 667 7,426 (1,744) $1,396 $21,982 22,398 (3,575) 2,519 (423) (In thousands) Decem ber 31, 2002 Acquired during 2003 Am ortization expense Change in estim ate of fair value related to purchase price allocations N et foreign currency translation adjustm ent Decem ber 31, 2003 Total 733 27 — 760 $29,926 $13,606 $4,736 $48,268 During 2003, the Corporation rem oved $1.5 m illion of fully am ortized intangible assets from the gross and accum ulated am ortization of cus- tom er related intangibles, respectively. Am ortization expense for the years ended Decem ber 31, 2002 and 2001 was $1.9 m illion and $0.4 m illion, respectively. The estim ated future am ortization expense of purchased intangible assets is as fol- lows: (In thousands) 2004 2005 2006 2007 2008 2009 and thereafter Total am ortization expense $ 4,641 4,581 4,581 4,581 4,391 25,493 $48,268 10. Accrued Expenses and Other Current Liabilities Accrued expenses consist of the following: (In thousands) December 31, Accrued com pensation Accrued interest Accrued insurance Accrued taxes other than incom e taxes Accrued com m issions Other Total accrued expenses 2003 2002 $26,331 $19,667 216 3,253 2,044 1,137 6,129 3,264 3,957 3,050 1,593 6,743 $44,938 $32,446 (In thousands) December 31, Deferred revenue W arranty reserves Current portion of environm ental reserves Additional am ounts due to sellers on acquisitions Other 2003 2002 $21,726 $31,796 9,504 2,177 10,011 2,178 2,154 3,355 2,120 4,875 Total other current liabilities $39,424 $50,472 The accrued expenses and other current liabilities at Decem ber 31, 2003 included $2.2 m illion and $1.5 m illion, respectively, related to the Corporation’s 2003 acquisitions. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 5 9 (1,771) 7,230 1,244 6,703 Other current liabilities consist of the following: The Corporation provides its custom ers with warranties on certain com m ercial and governm ental products. Estim ated warranty costs are charged to expense in the period the related revenue is recognized based on quantitative historical experience. These estim ates are adjusted in the period in which actual results are ﬁnalized or better inform ation is obtained. The following table presents the changes in the Corporation’s warranty reserves: (In thousands) W arranty reserves at January 1, Increase due to acquisitions Provision for current year sales Change in estim ates to pre-existing warranties Current year claim s Foreign currency translation adjustm ent 2003 2002 $ 9,504 612 1,650 $ 3,162 4,249 1,648 (389) (1,930) 564 1,227 (1,424) 642 All other, net Effective tax rate The effective tax rate varies from the U .S. federal statutory tax rate for the years ended Decem ber 31, principally due to the following: U .S. Federal statutory tax rate Add (deduct): State and local taxes Recovery of research & developm ent credits from prior years Dividends received deduction and tax exem pt incom e 2003 2002 2001 35.0% 35.0% 35.0% 3.5 3.6 4.2 — (1.3) — — (0.7) (0.1) (0.1) (0.5) (0.2) 37.8% 37.1% 38.5% W arranty reserves at Decem ber 31, $10,011 $ 9,504 11. Income Taxes Earnings before incom e taxes for the years ended Decem ber 31 consistof: (In thousands) Dom estic Foreign Total 2003 2002 2001 $67,429 $55,314 $ 84,018 18,179 16,421 16,627 $84,056 $71,735 $102,197 The com ponents of the Corporation’s deferred tax assets and liabilities at Decem ber 31 are as follows: (In thousands) Deferred tax assets: Environm ental reserves Inventories Postretirem ent/postem ploym ent beneﬁts Incentive com pensation Accrued vacation pay W arranty reserve Other 2003 2002 $ 9,318 $10,127 9,974 8,992 15,601 5,383 3,806 1,686 4,446 15,002 3,406 3,535 2,014 4,076 The provision for incom e taxes for the years ended Decem ber 31 consistof: Total deferred tax assets 49,232 48,134 Deferred tax liabilities: Retirem ent plans Depreciation Goodwill am ortization Other intangible am ortization Other Total deferred tax liabilities N et deferred tax assets 13,692 16,416 4,936 9,285 3,071 12,785 13,875 2,841 1,773 1,625 47,400 32,899 $ 1,832 $15,235 (In thousands) Current: Federal State Foreign Deferred: Federal State Foreign 2003 2002 2001 $17,018 $13,582 $22,656 6,048 3,648 5,829 5,255 4,103 5,050 26,171 22,485 34,533 5,032 426 159 5,617 3,664 296 154 3,763 505 516 4,114 4,784 Provision for incom e taxes $31,788 $26,599 $39,317 6 0 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S Deferred tax assets and liabilities are reﬂected on the Corporation’s consolidated balance sheet at Decem ber 31 as follows: The carrying am ount of the interest rate swaps reﬂects their fair value as provided by third parties in accordance with their proprietary m odels. (In thousands) Current deferred tax assets N oncurrent deferred tax liabilities N et deferred tax assets 2003 2002 $ 23,630 $21,840 (6,605) (21,798) $ 1,832 $15,235 The fair values described above m ay not be indicative of net realizable value or reﬂective of future fair values. Furtherm ore, the use of differ- ent m ethodologies to determ ine the fair value of certain ﬁnancial instrum ents could result in a different estim ate of fair value at the reporting date. Aggregate m aturities of debt are as follows: Incom e tax paym ents of $22.8 m illion were m ade in 2003, $34.6 m il- lion in 2002, and $18.9 m illion in 2001. N o provision has been m ade for U .S. federal or foreign taxes on that portion of certain foreign subsidiaries’ undistributed earnings $16.7 m illion at Decem ber 31, 2003 considered to be perm anently rein- vested. It is not practicable to estim ate the am ount of tax that would be payable if these am ounts were repatriated to the U .S.; however, it is expected that there would be m inim al or no additional tax because of the availability of foreign tax credits. (In thousands) 2004 2005 2006 2007 2008 Thereafter Total $ 997 79 59 13,929 62 209,058 $224,184 12. Debt Debt at Decem ber 31 consists of the following: Amounts exclude a $1.0 million adjustment to the fair value of long-term debt relating to the Corporation’s interest rate swap agreements that will not be settled in cash. (In thousands) 2003 2002 Industrial Revenue Bonds, due from 2007 to 2028. W eighted average interest rate is 1.24% and 1.51% for 2003 and 2002, respectively Revolving Credit Agreem ent Borrowing, due 2007. W eighted average interest rate is 1.97% for 2003 and 2.55% for 2002 Short-Term Credit Agreem ent Borrowing, due 2004. W eighted average interest rate is 2.27% for 2003 5.13% Senior N otes due 2010 5.74% Senior N otes due 2013 Other debt Total debt Less: Short-term debt Total Long-term debt $ 14,296 $ 13,400 8,868 105,463 — 32,000 — — 1,015 75,217 125,747 1,020 225,148 151,878 997 32,837 $224,151 $119,041 The debt under the Corporation’s revolving credit agreem ent includes am ounts denom inated in Swiss francs, which were 11.0 m illion Swiss francs at Decem ber 31, 2003 and Decem ber 31, 2002. The estim ated fair values of the Corporation’s long-term debt instrum ents at Decem ber 31, 2003 aggregated $226.6 m illion com pared to a carry- ing value of $225.1 m illion. The carrying am ount of the variable interest rate long-term debt approxim ates fair value because the interest rates are reset periodically to reﬂect current m arket conditions. Fair values for the Corporation’s ﬁxed rate debt were estim ated based on valuations provided by third parties in accordance with their proprietary m odels. Interest paym ents of $2.3 m illion, $1.6 m illion, and $0.8 m illion were m ade in 2003, 2002, and 2001, respectively. On Septem ber 25, 2003 the Corporation issued $200.0 m illion of Senior N otes (the “N otes”). The N otes consist of $75.0 m illion of 5.13% Senior N otes that m ature on Septem ber 25, 2010 and $125.0 m illion of 5.74% Senior N otes that m ature on Septem ber 25, 2013. The Corporation used the net proceeds of the N otes to repay the m ajority of the outstanding indebtedness under the existing revolving credit facilities. The N otes are senior unsecured obligations and are equal in right of paym ent to the Corporation’s existing senior indebt- edness. The Corporation, at its option, can prepay at any tim e, all or from tim e to tim e any part of, the N otes, subject to a m ake-whole am ount in accordance with the N ote Purchase Agreem ent. The Corpo- ration paid custom ary fees that have been deferred and will be am or- tized over the term s of the N otes. The Corporation is required under the N ote Purchase Agreem ent to m aintain certain ﬁnancial ratios and m eet certain net worth and indebtedness tests, of which the Corporation is in com pliance. The Corporation attem pts to lim it its exposure to interest rate risk by m anaging the m ix of its long-term ﬁxed rate borrowings and short-term borrowings under its bank credit facilities. As noted below, the Corpo- ration entered into interest rate swap agreem ents designated as fairvalue hedges on a portion of its $75 m illion of ﬁxed rate debt due in 2010 and its $125 m illion of ﬁxed rate debt due in 2013. Giving effect to these agreem ents, the Corporation’s ﬁxed rate borrowings represented 54% of total borrowings at Decem ber 31, 2003. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 6 1 The Corporation has two credit agreem ents aggregating $225.0 m illion with a group of eight banks. The Revolving Credit Agreem ent allows for cash borrowings up to a m axim um of $135.0 m illion with a lim it of $50.0 m illion for letters of credit. The Revolving Credit Agreem ent expires M ay 13, 2007, but m ay be extended annually for successive one-year periods with the consent of the bank group. The Short-Term Credit Agreem ent allows for cash borrowings up to a m axim um of $90.0 m illion. The Short-Term Credit Agreem ent expires M ay 7, 2004, but m ay be extended annually with the consent of the bank group for additional periods not to exceed 364 days each. The Corporation expects to extend the Short-Term Agreem ent in 2004; however, there can be no assurances that the bank group will approve the extension. In the event the bank group does not renew the Short-Term Credit Agreem ent, the Corporation should have sufﬁcient cash ﬂow to m eet its cash requirem ents. Borrowings under these credit agreem ents bear interest at a ﬂoating rate based on m arket conditions. Additionally, the Corporation’s rate of interest and paym ent of facility fees are depen- dent on certain ﬁnancial ratios of the Corporation, as deﬁned in the agreem ents. As of Decem ber 31, 2003, the Corporation pays quarterly facility fees on the entire com m itm ent of the Revolving Credit Agree- m ent and the Short-Term Credit Agreem ent. The Corporation is required under these agreem ents to m aintain certain ﬁnancial ratios and m eet certain net worth and indebtedness tests, of which the Cor- poration is in com pliance. The unused credit available under the Revolving Credit Agreem ent and the Short-Term Credit Agreem ent at Decem ber 31, 2003 was $107.1 m illion and $90.0 m illion, respectively. In the fourth quarter of 2003, the Corporation entered into two interest rate swap agreem ents, designated as fair value hedges, which effec- tively convert $80 m illion of the Corporation’s $200 m illion Senior N ote ﬁxed rate debt to ﬂoating rate debt. U nder the term s of these agree- m ents, the Corporation m akes paym ents based on speciﬁed spreads over six-m onth LIBOR and receives paym ents equal to the interest pay- m ents due on the ﬁxed rate debt. The differential between the paym ents is recognized as interest expense. The interest rate swap agreem ents qualify for the “shortcut m ethod” under SFAS N o. 133, which allows for an assum ption of no ineffectiveness in the hedging relationship. As such, there is no incom e statem ent im pact from changes in the fair value of the hedging instrum ents. Instead, the fair value of the instru- m ents is recorded as an asset or liability on the Corporation’s balance sheet, with an offsetting adjustm ent to the carrying value of the related debt. Other long-term assets in the accom panying Decem ber 31, 2003 consolidated balance sheet includes $1.0 m illion representing the fair value of the interest rate swap agreem ents at that date, with a corre- sponding aggregate increase in the carrying value of the Corporation’s long-term debt. At Decem ber 31, 2003, substantially all of the industrial revenue bond issues are collateralized by real estate, m achinery, and equip- m ent. Certain of these issues are supported by letters of credit, which total $13.7 m illion. The Corporation has various other letters of credit totaling $5.8 m illion, m ost of which are included under the Revolving Credit Agreem ent. 13. Earnings Per Share The Corporation is required to report both basic earnings per share (“EPS”), based on the weighted average num ber of Com m on and Class B com m on shares outstanding, and diluted earnings per share, based on the basic EPS adjusted for all potentially dilutive shares issuable. Share and per share am ounts presented below have been adjusted on a pro form a basis for the stock split. See N ote 1-O for further inform a- tion regarding the stock split. At Decem ber 31, 2003, the Corporation had stock options outstanding for 148,052 shares that could potentially dilute basic EPS in the future. The effect of these options was not included in the com puta- tion of diluted EPS for 2003 because to do so would have been antidi- lutive. The Corporation had antidilutive options outstanding of 162,530 at Decem ber 31, 2002 and 238,000 at Decem ber 31, 2001. Earnings per share calculations for the years ended Decem ber 31, 2003, 2002, and 2001 are as follows: (In thousands, except per share data) 2003: Basic earnings per share Effect of dilutive securities: Stock options Deferred stock com pensation W eighted- Average Shares N et Incom e O utstanding(1) Earnings Per Share $ 52,268 20,640 $ 2.53 222 25 Diluted earnings per share $ 52,268 20,887 $ 2.50 2002: Basic earnings per share Effect of dilutive securities: Stock options Deferred stock com pensation $45,136 20,398 $2.21 446 24 Diluted earnings per share $45,136 20,868 $2.16 2001: Basic earnings per share Effect of dilutive securities: Stock options Deferred stock com pensation $62,880 20,122 $3.12 344 6 Diluted earnings per share $62,880 20,472 $3.07 (1)Shares in 2003, 2002, and 2001 include the Corporation’s Common and Class B common shares. 6 2 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 14. Stock Compensation Plans 1985 Stock Option Plan: The Corporation’s 1985 Stock Option Plan, which was approved by stockholders and as am ended N ovem ber 16, 1993, expired on February 13, 1995. U nder this plan, 350,000 shares of com m on stock had been reserved in treasury for issuance to key em ployees. During the life of the plan, 190,050 options had been issued. W ith the expiration of the plan, the rem aining 159,950 shares of com m on stock are no longer reserved for issuance. As of Decem ber 31, 2003 there were options representing a total of 33,156 shares out- standing under the 1985 Stock Option Plan. 1995 Long-Term Incentive Plan: U nder a Long-Term Incentive Plan (“LTI Plan”) approved by stockholders in 1995 and as am ended in 2002, an aggregate total of 3,000,000 shares of com m on stock were reserved for issuance under the LTI Plan. N o m ore than 50,000 shares of com m on stock m ay be awarded in any year to any one participant in the LTI Plan. The LTI Plan currently has two com ponents— perfor- m ance units (cash) and non-qualiﬁed stock options. U nder the LTI Plan, the Corporation awarded perform ance units of 4,805,783 in 2003, 4,519,906 in 2002, and 2,339,812 in 2001 to cer- tain key em ployees. The perform ance units are denom inated in dollars and are contingent upon the satisfaction of perform ance objectives keyed to achieving proﬁtable growth over a period of three ﬁscal years com m encing with the ﬁscal year following such awards. The antici- pated cost of such awards is expensed over the three-year perform ance period, which am ounted to $3.3 m illion, $1.8 m illion, and $1.2 m illion in 2003, 2002, and 2001, respectively. The actual cost of the perfor- m ance units m ay vary from the total value of the awards depending upon the degree to which the key perform ance objectives are m et. U nder the LTI Plan, the Corporation has granted non-qualiﬁed stock options in 2003, 2002, and 2001 to key em ployees. Stock options granted under this LTI Plan expire ten years after the date of the grant and are usually exercisable as follows: up to one-third of the grant after one full year, up to two-thirds of the grant after two full years, and in full three years from the date of grant. The rem aining allowable shares for issuance under the 1995 LTI Plan as of Decem ber 31, 2003 is 2,445,114. Stock option activity during the periods for both plans is indicated as follows: W eighted- Average Exercise Price Shares O ptions Exercisable W eighted- Average Exercise Price Outstanding at January 1, 2001 Granted Exercised Forfeited Outstanding at Decem ber 31, 2001 Granted Exercised Forfeited Outstanding at Decem ber 31, 2002 Granted Exercised Forfeited Outstanding at Decem ber 31, 2003 792,098 $14.44 936,148 16.41 837,024 18.48 1,305,428 413,524 (107,664) (21,374) $17.10 21.86 11.01 21.98 1,589,914 162,530 (392,160) (19,980) 18.83 32.56 15.79 21.95 1,340,304 148,052 (233,708) (16,926) 21.16 38.16 16.57 24.39 1,237,722 $24.01 855,676 $20.83 The following table sum m arizes inform ation about stock options outstanding at Decem ber 31, 2003: Range of Exercise Prices $ 7.63 – $11.45 $11.46 – $15.26 $15.27 – $19.08 $19.09 – $22.90 $22.91 – $26.71 $26.72 – $34.34 $34.35 – $38.16 O ptions O utstanding O ptions Exercisable W eighted-Average Rem aining Contractual Life in Years W eighted- Average Exercise Price W eighted- Average Exercise Price Shares 0.9 2.6 5.2 7.9 6.9 8.9 9.9 7.0 $ 9.00 12.40 18.91 21.85 23.86 32.56 38.16 $24.01 29,024 59,252 297,088 231,858 186,248 52,206 — 855,676 $ 9.00 12.40 18.91 21.85 23.86 32.56 — $20.83 Shares 29,024 59,252 297,088 359,592 186,248 158,466 148,052 1,237,722 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 6 3 In October 2002 the Corporation acquired the Electro-M echanical Division (“EM D”) facility from W estinghouse Governm ent Services LLC (“Seller”). Included in the purchase was the assum ption of several N uclear Regulatory Com m ission (“N RC”) licenses, necessary for the continued operation of the business. In connection with these licenses, the N RC required ﬁnancial assurance from the Corporation (in the form of a parent com pany guarantee), representing estim ated environm en- tal decom m issioning and rem ediation costs associated with the com - m ercial operations covered by the licenses. In addition, the Corporation has assum ed obligations for additional environm ental rem ediation costs. Rem ediation and investigation of the EM D facility are ongoing. As of Decem ber 31, 2003 the balance in this reserve is $13.1 m illion. The Corporation obtained partial environm ental insur- ance coverage speciﬁcally for the EM D facility. The policy provides cov- erage for losses due to on or off-site pollution conditions, which are pre-existing and unknown. The environm ental obligation at Decem ber 31, 2003 was $23.3 m il- lion com pared to $24.8 m illion at Decem ber 31, 2002. 16. Pension and Other Postretirement Benefit Plans The Corporation m aintains six separate and distinct pension and other postretirem ent beneﬁt plans, as described in further detail below. Prior to the acquisition of EM D in October 2002, the Corporation m aintained a qualiﬁed pension plan, a non-qualiﬁed pension plan, and a post- retirem ent health beneﬁts plan (the “Curtiss-W right Plans”). As a result of the acquisition, the Corporation obtained three unfunded pension and postretirem ent beneﬁt plans (the “EM D Plans”), sim ilar in nature to those listed above. The unfunded status of the acquired EM D Plans was recorded as a liability at the date of acquisition. During 2003, the funds associated with the qualiﬁed pension plans of both the Curtiss- W right Plans and EM D Plans were com m ingled into one fund. The Curtiss-Wright Plans The Corporation m aintains a non-contributory deﬁned beneﬁt pension plan covering substantially all em ployees other than those em ployees covered by the EM D Pension Plan described below. The Curtiss-W right Retirem ent Plan (the “CW Pension Plan”) form ula for non-union em ployees is based on years of credited service and the ﬁve highest consecutive years’ com pensation during the last ten years of service and a “cash balance” beneﬁt. U nion em ployees who have negotiated a beneﬁt under the CW Pension Plan are entitled to a beneﬁt based on years of service m ultiplied by a m onthly pension rate. Em ployees are eligible to participate in the CW Pension Plan after one year of service and are vested after ﬁve years of service. At Decem ber 31, 2003 and Decem ber 31, 2002, the Corporation had prepaid pension costs of $77.9 m illion and $76.1 m illion, respectively, under the CW Pension Plan. Due to the funded status, the Corporation does not expect to con- tribute funds to the CW Pension Plan during the next ﬁscal year. Stock Plan for Non-Employee Directors: The Stock Plan for N on- Em ployee Directors (“Stock Plan”), approved by the stockholders in 1996, authorized the grant of restricted stock awards and, at the option of the Directors, the deferred paym ent of regular stipulated com pen- sation and m eeting fees in equivalent shares. Pursuant to the term s of the Stock Plan, the non-em ployee directors received an initial grant of 3,612 shares in 1996, which becam e unrestricted in 2001. Addition- ally, on the ﬁfth anniversary of the initial grant, those non-em ployee directors who rem ained a non-em ployee director, received an addi- tional grant equal to the product of increasing $13,300 at an annual rate of 2.96% , com pounded m onthly from the effective date of the Stock Plan. In 2001, the am ount per director was calculated to be $15,419, representing a total additional grant of 1,555 restricted shares. The cost of the restricted stock awards is being am ortized over the ﬁve-year restriction period from the date of grant. N ewly elected non-em ployee directors receive sim ilar com pensation under the term s of the Stock Plan upon their election to the Board. Pursuant to election by non-em ployee directors to receive shares in lieu of paym ent for earned and deferred com pensation under the Stock Plan, the Corporation had provided for an aggregate additional 25,261 shares, at an average price of $22.97 as of Decem ber 31, 2003. Dur- ing 2003, the Corporation issued 1,657 shares in deferred com pensa- tion pursuant to such elections, prior to the recent stock split. Depending on the extent to which the non-em ployee directors elect to receive future com pensation in shares, total awards issued under this Stock Plan could exceed the 32,000 registered shares by April 12, 2006, the term ination date of the Stock Plan. 15. Environmental Costs The Corporation has continued the operation of the ground water and soil rem ediation activities at the W ood-Ridge, N ew Jersey site through 2003. The cost of constructing and operating this site was provided for in 1990 when the Corporation established a reserve to rem ediate the property. Costs for operating and m aintaining this site totaled $0.6 m il- lion in 2003, and $0.5 m illion in 2002 and 2001, all of which have been charged against the previously established reserve. In 2002, the Corpo- ration increased the rem ediation reserve by $1.0 m illion based upon revised operating projections. The reserve balance as of Decem ber 31, 2003 was $8.4 m illion. Even though this property was sold in Decem ber 2001 (see N ote 3), the Corporation retained the responsibility for this rem ediation in accordance with the sale agreem ent. The Corporation has been nam ed as a potentially responsible party, as have m any other corporations and m unicipalities, in a num ber of envi- ronm ental clean-up sites. The Corporation continues to m ake progress in resolving these claim s through settlem ent discussions and paym ents from established reserves. Signiﬁcant sites rem aining open at the end of the year are: Caldwell Trucking landﬁll superfund site, Fairﬁeld, N ew Jersey; Sharkey landﬁll superfund site, Parsippany, N ew Jersey; Am e- nia landﬁll site, Am enia, N ew York; and Chem sol, Inc. superfund site, Piscataway, N ew Jersey. The Corporation believes that the outcom e for any of these rem aining sites will not have a m aterially adverse effect on the Corporation’s results of operations or ﬁnancial condition. 6 4 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S The Corporation also m aintains a non-qualiﬁed restoration plan (the “CW Restoration Plan”) covering those em ployees whose com pensa- tion or beneﬁts exceed the IRS lim itation for pension beneﬁts. Bene- ﬁts under the CW Restoration Plan are not funded, and, as such, the Corporation had an accrued pension liability of $0.8 m illion and $1.1 m illion at Decem ber 31, 2003 and 2002, respectively. The Corporation provides postretirem ent health beneﬁts to certain em ployees (the “CW Retirem ent Plan”). In 2002, the Corporation restructured the postretirem ent m edical beneﬁts for certain active em ployees, effectively freezing the plan. The obligation associated with these active em ployees was transferred to the CW Pension Plan. The plan continues to be m aintained for retired em ployees. As of Decem ber 31, 2003 and 2002, the Corporation had an accrued postre- tirem ent beneﬁt liability of $1.3 m illion and $1.4 m illion, respectively, as beneﬁts under the plan are not funded. (In thousands) C H A N G E I N B E N E F I T O B L I G AT I O N : Beneﬁt obligation at beginning of year Service cost Interest cost Plan participants’ contributions Am endm ents Actuarial loss (gain) Beneﬁts paid Curtailm ent of beneﬁts Beneﬁt obligation at end of year C H A N G E I N P L A N A S S E T S : Fair value of plan assets at beginning of year Actual return on plan assets Em ployer contribution Plan participants’ contribution Beneﬁts paid Fair value of plan assets at end of year Funded status U nrecognized net actuarial gain U nrecognized transition obligation U nrecognized prior service costs Prepaid (accrued) beneﬁt costs A C C U M U L AT E D B E N E F I T O B L I G AT I O N In determ ination of beneﬁt obligation: Discount rate Rate of com pensation increase M easurem ent date H E A LT H C A R E C O S T T R E N D S Rate assum ed for subsequent year U ltim ate rate reached in 2007 The Curtiss-W right Plans Pension Benefits Postretirem ent Benefits 2003 2002 2003 2002 $111,827 8,899 7,982 — 328 16,652 (19,165) — 126,523 187,969 29,834 375 — (19,165) 199,013 72,490 3,184 (11) 1,426 $103,344 6,015 7,650 — 829 7,376 (15,298) 1,911 111,827 216,944 (13,761) 84 — (15,298) 187,969 76,141 (2,179) (14) 1,092 $ 512 — 39 19 — 144 (86) — 628 — — 67 19 (86) — (628) (662) — — $ 1,990 129 148 20 — 159 (90) (1,844) 512 — — 70 20 (90) — (512) (879) — — $ 77,089 $114,740 $ 75,040 $101,635 $(1,290) $(1,391) N/A N/A 6.00% 3.50% September 30 6.75% 4.25% Septem ber30 5.30% — October 31 6.75% — October31 — — — — 9.40% 5.50% 11.70% 5.50% C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 6 5 The following table details the com ponents of net periodic pension incom e for the CW Pension Plan and CW Restoration Plan: The effect on the CW Retirem ent Plan of a 1% change in the health care cost trend is as follows: (In thousands) Total service and interest cost com ponents Postretirem ent beneﬁt obligation 1% Increase 1% D ecrease $ 2 $ (2) $42 $(38) The EM D Plans The Corporation m aintains the Curtiss-W right Electro-M echanical Divi- sion Pension Plan (the “EM D Pension Plan”), a qualiﬁed contributory deﬁned beneﬁt pension plan, which covers all of the EM D em ployees. The EM D Pension Plan covers both union and non-union em ployees and is designed to satisfy the requirem ents of relevant collective bar- gaining agreem ents. Em ployee contributions are withheld sem i- m onthly equal to 1.5% of salary. The beneﬁts under the EM D Pension Plan are based on years of service and com pensation. At Decem ber 31, 2003 and 2002, the Corporation had an accrued pension liability of $33.5 m illion and $35.6 m illion, respectively, related to the EM D Pen- sion Plan. The Corporation expects to contribute $2.5 m illion, the esti- m ated m inim um required am ount, to the EM D Pension Plan during the next ﬁscal year. The Corporation m aintains the Curtiss-W right Electro-M echanical Divi- sion N on-Qualiﬁed Plan (the “EM D Supplem ental Plan”), a non-qual- iﬁed non-contributory unfunded supplem ental retirem ent plan for eligible EM D key executives. The EM D Supplem ental Plan provides for periodic paym ents upon retirem ent that are based on total com pensa- tion (including am ounts in excess of qualiﬁed plan lim its) and years of service, and are reduced by beneﬁts earned from certain other pension plans in which the executives participate. At Decem ber 31, 2003 and 2002, the Corporation had an accrued pension liability of $2.4 m illion, respectively, related to the EM D Supplem ental Plan. The Corporation, through an adm inistration agreem ent with W esting- house, m aintains the W estinghouse Governm ent Services Group W el- fare Beneﬁts Plan (the “EM D Retirem ent Plan”), a retiree health and life insurance plan for substantially all of the EM D em ployees. The EM D Retirem ent Plan provides basic coverage on a non-contributory basis. Beneﬁts are based on years of service. The Corporation had an accrued postretirem ent beneﬁt liability of $37.5 m illion and $36.3 m il- lion related to the EM D Retirem ent Plan at Decem ber 31, 2003 and 2002, respectively. Pursuant to the Asset Purchase Agreem ent, the Corporation has a discounted receivable from W ashington Group International to reim burse the Corporation for a portion of these postretirem ent beneﬁt costs. At Decem ber 31, 2003 and 2002, the discounted receivable included in other assets was $5.9 m illion and $6.5 m illion, respectively. Com ponents of N et Periodic Benefit Incom e: (In thousands) 2003 2002 2001 Service cost Interest cost Expected return on plan assets Am ortization of prior service cost Am ortization of transition $ 8,899 $ 6,015 $ 4,740 7,113 (18,089) (40) 7,650 (18,705) 26 7,982 (18,081) 58 obligation (3) (4) (2,188) Recognized net actuarial (gain) loss Cost of settlem ent (587) 121 (2,191) 1,911 (2,578) — N et periodic beneﬁt incom e $ (1,611) $ (5,298) $(11,042) W eighted-average assum ptions in determ ination of net periodic beneﬁt cost: Discount rate Expected return on 6.75% 7.00% 7.00% plan assets 8.50% 8.50% 8.50% Rate of com pensation increase 4.25% 4.25% 4.25% The following table details the com ponents of net periodic pension incom e for the CW Retirem ent Plan: Com ponents of N et Periodic Benefit Incom e: (In thousands) Service cost Interest cost Am ortization of prior service cost Recognized net actuarial (gain) loss Cost of settlem ent 2003 2002 2001 $ — $ 39 — 129 148 (123) $ 112 126 (123) (73) — (179) (3,849) (200) — N et periodic beneﬁt incom e $(34) $(3,874) $ (85) W eighted-average assum ptions in determ ination of net periodic beneﬁt cost: Discount rate 6.75% 7.00% 7.00% 6 6 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S (In thousands) C H A N G E I N B E N E F I T O B L I G AT I O N : Beneﬁt obligation at beginning of year Effect of EM D acquisition Service cost Interest cost Plan participants’ contributions Actuarial loss (gain) Beneﬁts paid B E N E F I T O B L I G AT I O N AT E N D O F Y E A R C H A N G E I N P L A N A S S E T S : Fair value of plan assets at beginning of year Effect of EM D acquisition Actual return on plan assets Em ployer contribution Plan participants’ contribution Beneﬁts paid FA I R VA L U E O F P L A N A S S E T S AT E N D O F Y E A R Funded status U nrecognized net actuarial gain U nrecognized transition obligation U nrecognized prior service costs P R E PA I D ( A C C R U E D ) B E N E F I T C O S T S A C C U M U L AT E D B E N E F I T O B L I G AT I O N C O M P O N E N T S O F N E T P E R I O D I C B E N E F I T C O S T: Service cost Interest cost Expected return on plan assets Recognized net actuarial (gain) loss N E T P E R I O D I C B E N E F I T C O S T The EM D Plans Pension Benefits Postretirem ent Benefits 2003 2002 2003 2002 $112,442 — 2,032 5,890 597 11,137 (3,811) 128,287 74,335 — 8,009 4,607 597 (3,811) 83,737 (44,550) 8,635 — — $ — 111,642 424 1,278 — — (902) 112,442 — 74,245 992 — — (902) 74,335 (38,107) 100 — — $ 36,344 — 705 2,388 — 3,593 (1,924) 41,106 — — — 1,924 — (1,924) — (41,107) 3,593 — — $ — 36,344 — — — — — 36,344 — — — — — — — (36,344) — — — $ (35,915) $ (38,007) $(37,514) $(36,344) $115,527 $100,141 N/A N/A $ 2,709 7,854 (7,618) (394) $ 2,551 $ $ 424 1,278 (1,092) — 610 $ $ 705 2,388 — — $ 3,093 $ — — — — — W E I G H T E D - AV E R A G E A S S U M P T I O N S A S O F D E C E M B E R 3 1 : In determ ination of net periodic beneﬁt cost: Discount rate Expected return on plan assets Rate of com pensation increase In determ ination of beneﬁt obligation: Discount rate Rate of com pensation increase M easurem ent date H E A LT H C A R E C O S T T R E N D S Rate assum ed for subsequent year U ltim ate rate reached in 2007 7.00% 8.50% 4.00% 7.00% 8.88% 4.00% 6.75% — 4.00% 7.00% — 4.00% 6.25% 3.25% September 30 7.00% 4.00% Septem ber30 6.25% 4.00% October 31 6.75% 4.00% October31 — — — — 9.70% 5.50% 11.10% 5.50% C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 6 7 last ten years the m arket-related value of assets had an average annual yield of 11.6% , the actual returns averaged 8.5% during the sam e period. Given the uncertainties of the current econom ic and geopoliti- cal landscape, the Corporation considers 8.5% to be a reasonable assum ption offuture long-term investm ent returns. W hile the Corpo- ration takes into account historical perform ance, its assum ptions also consider the forward-looking long-term outlook for the capital m arkets. Other Pension and Postretirement Plans The Corporation offers all of its dom estic em ployees the opportunity to participate in a deﬁned contribution plan. Costs incurred by the Cor- poration in the adm inistration of the deﬁned contribution plan are notm aterial. In addition, the Corporation had foreign pension costs under various retirem ent plans of $1.9 m illion, $1.6 m illion, and $1.0 m illion in 2003, 2002, and 2001, respectively. 17. Leases Buildings and Improvements Leased to Others. The Corporation previ- ously leased certain of its buildings and related im provem ents to out- side parties under non-cancelable operating leases. The Corporation sold one of its two rem aining rental properties in 2002, and vacated the other in preparation for sale. Cost and accum ulated depreciation of the buildings and im provem ents were $7.3 m illion and $4.9 m illion, respectively, at Decem ber 31, 2003 and 2002. On Decem ber 20, 2001, the Corporation sold its W ood-Ridge Business Com plex. As a result of the above, the Corporation will no longer report net rental incom e. Facilities and Equipment Leased from Others. The Corporation con- ducts a portion of its operations from leased facilities, which include m anufacturing and service facilities, adm inistrative ofﬁces, and ware- houses. In addition, the Corporation leases autom obiles, m achinery, and ofﬁce equipm ent under operating leases. Rental expenses for all operating leases am ounted to $10.5 m illion in 2003, $8.2 m illion in 2002, and $4.9 m illion in 2001. At Decem ber 31, 2003, the approxim ate future m inim um rental com - m itm ents under operating leases that have initial or rem aining non- cancelable lease term s in excess of one year are as follows: (In thousands) 2004 2005 2006 2007 2008 Thereafter Total Rental Com m itm ent $10,430 8,925 7,908 7,145 5,748 14,991 $55,147 The effect on the EM D Retirem ent Plan of a 1% change in the health care cost trend is as follows: (In thousands) Total service and interest cost com ponents Postretirem ent beneﬁt obligation 1% Increase 1% D ecrease $ 241 $ (252) $2,977 $(3,108) Pension Plan Assets The Corporation m aintains the Funds of the CW Pension Plan and the EM D Pension Plan under one m aster trust. The Corporation’s Retire- m ent Plans are diversiﬁed across investm ent classes and am ong investm ent m anagers in order to achieve an optim al balance between risk and return. In accordance with this policy, the Corporation has established target allocations for each asset class and ranges of expected exposure. The Corporation’s retirem ent assets are invested within this allocation structure in three m ajor categories; these include dom estic equity securities, international equity securities and debt securities. Below are the Corporation’s actual and established target allocations: Asset Class As of D ecem ber 31, 2003 Target Exposure Expected Range Dom estic Equities International Equities Total Equity Fixed Incom e Cash 51% 15% 66% 34% 0% 50% 40% – 60% 15% 10% – 20% 65% 55% – 75% 35% 25% – 45% 0% – 10% 0% The Corporation m ay from tim e to tim e require the reallocation of assets in order to bring the retirem ent plans into conform ity with these ranges. The Corporation m ay also authorize alterations or deviations from these ranges where appropriate for achieving the objectives of the retirem ent plans. The long-term investm ent objective of the Retirem ent Plans is to achieve a total rate of return, net of fees, which exceeds the actuarial overall expected return on assets assum ption of 8.50% used for fund- ing purposes and which provides an appropriate prem ium over inﬂation. The interm ediate-term objective of the Retirem ent Plans, deﬁned as three to ﬁve years, is to outperform each of the capital m arkets in which assets are invested, net of fees. During periods of extrem e m arket volatility, preservation of capital takes a higher precedence than out perform ing the capital m arkets. The overall expected return on assets assum ption used in the calcula- tion of annual net periodic beneﬁt cost is based on a com bination of the historical perform ance of the pension fund and expectations of future perform ance. The historical returns are determ ined using the m arket-related value of assets, includes the recognition of realized and unrealized gains and losses over a ﬁve-year period. Although over the 6 8 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 18. Industry Segments The Corporation m anages and evaluates its operations based on the products and services it offers and the different m arkets it serves. Based on this approach, the Corporation has three reportable seg- m ents: Flow Control, M otion Control, and M etal Treatm ent. The Flow Control segm ent prim arily designs, m anufactures, distributes, and ser- vices a broad range of highly engineered ﬂow control products for severe service m ilitary and com m ercial applications. The M otion Con- trol segm ent prim arily designs, develops, and m anufactures m echani- cal system s, drive system s, and electronic controls and sensors for the aerospace and defense industries. M etal Treatm ent provides approxi- m ately 50 m etallurgical services, principally “shot peening” and “heat treating.” The segm ent provides these services to a broad spec- trum of custom ers in various industries, including aerospace, autom o- tive, construction equipm ent, oil and gas, petrochem ical, and m etal working. Consolidated Industry Segment Information: The accounting policies of the operating segm ents are the sam e as those described in the sum m ary of signiﬁcant accounting policies. Interest expense and incom e taxes are not reported on an operating segm ent basis because they are not considered in the perform ance evaluation by the Corporation’s chief operating decision-m aker, its Chairm an and CEO. Sales to one custom er through which the Corporation is a subcontrac- tor to the U .S. Governm ent were 16% of consolidated revenues in 2003, 10% in 2002, and 6% in 2001. During 2003 and 2002, the Cor- poration had no com m ercial custom er representing m ore than 10% of consolidated revenue. The Corporation had one com m ercial custom er in the M otion Control segm ent that accounted for 13% of its consoli- dated revenue in 2001. (In thousands) Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 3 : Revenue from external custom ers Intersegm ent revenues Operating incom e (costs) Depreciation and am ortization expense Segm ent assets Capital expenditures Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 2 : Revenue from external custom ers Intersegm ent revenues Operating incom e (costs) Depreciation and am ortization expense Segm ent assets Capital expenditures Y E A R E N D E D D E C E M B E R 3 1 , 2 0 0 1 : Flow Control M otion Control M etal Treatm ent(1) Segm ent Total Corporate & O ther(2) Consolidated Total $ 341,271 $ 265,905 $ 138,895 $ 746,071 $ — $ 746,071 — 39,991 14,458 323,689 12,417 — 30,350 7,983 317,631 4,791 544 19,055 8,685 170,547 15,727 544 89,396 31,126 811,867 32,935 — (66) 201 161,798 394 544 89,330 31,327 973,665 33,329 $172,455 — 20,693 5,059 328,221 10,787 $233,437 — 29,579 7,394 267,244 8,243 $107,386 491 14,403 6,063 127,125 15,873 $513,278 491 64,675 18,516 722,590 34,903 $ — $513,278 491 — 69,037 4,362 18,693 177 810,102 87,512 34,954 51 Revenue from external custom ers Intersegm ent revenues Operating incom e (costs) Depreciation and am ortization expense Segm ent assets Capital expenditures (1) Operating income for the M etal Treatment segment includes nonrecurring costs of $0.5 million associated with the relocation of a shot peening facility — $343,167 446 — 58,200 8,765 14,734 666 500,428 135,033 19,354 249 $137,103 — 19,219 4,270 157,094 6,306 $ 98,257 — 10,703 4,279 111,084 1,943 $107,807 446 19,513 5,519 97,217 10,856 $343,167 446 49,435 14,068 365,395 19,105 $ in2002. (2) Operating income (costs) for Corporate and Other includes pension income, net environmental remediation and administrative expenses, and other expenses. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 6 9 Reconciliations: For the years ended December 31, (In thousands) R E V E N U E S : Total segm ent revenue Intersegm ent revenue Elim ination of intersegm ent revenue Total consolidated revenues E A R N I N G S B E F O R E TA X E S : Total segm ent operating incom e Corporate and adm inistrative Investm ent incom e, net Rental incom e, net Pension incom e, net Other incom e, net Interest expense Total consolidated earnings before tax A S S E T S : Total assets for reportable segm ents N on-segm ent short-term investm ents Pension assets N on-segm ent cash Other assets Elim ination of intersegm ent receivables Total consolidated assets 2003 2002 2001 $746,071 544 (544) $513,278 491 (491) $343,167 446 (446) $746,071 $513,278 $343,167 $ 89,396 (1,677) 281 — 1,611 108 (5,663) $ 64,675 (2,846) 591 148 7,208 3,769 (1,810) $ 49,435 (2,277) 2,599 3,585 11,042 38,993 (1,180) $ 84,056 $ 71,735 $102,197 $811,867 — 77,877 72,582 11,384 (45) $722,590 154 76,072 4,875 6,455 (44) $365,395 41,658 70,796 12,939 9,680 (40) $973,665 $810,102 $500,428 December 31, (In thousands) 2003 2002 2001 Geographic Inform ation: N orth Am erica U nited Kingdom Other foreign countries Revenues(1) Long-Lived Assets Revenues(1) Long-Lived Assets Revenues(1) Long-Lived Assets $591,479 66,210 88,382 $183,263 40,614 14,262 $401,466 49,519 62,293 $165,208 38,235 15,606 $257,208 31,340 54,619 $ 71,501 22,961 10,689 Consolidated total (1) Revenues are attributed to countries based on the location of the customer. $746,071 $238,139 $513,278 $219,049 $343,167 $105,151 7 0 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 20. Subsequent Event On January 31, 2004, the Corporation com pleted the acquisition of all of the outstanding shares of Dy 4 System s, Inc. (“Dy 4”) from Solec- tron Corporation. The purchase price of the acquisition, subject to cus- tom ary adjustm ents as provided for in the Stock Purchase Agreem ent, was $110 m illion in cash. M anagem ent funded the purchase with cash on hand and from the Corporation’s revolving credit facilities. Rev- enues of the purchased business were $72 m illion for the year ended August 29, 2003. Dy 4 is based in Ottawa, Canada, and has additional operations located in the U nited States and the U nited Kingdom . M an- agem ent intends to incorporate the operations of Dy 4 into the Corpo- ration’s M otion Control segm ent. 19. Contingencies and Commitments The Corporation, through its subsidiary located in Switzerland, entered into a credit agreem ent with U BS AG (“U BS”) for a credit facility in the am ount of 6.0 m illion Swiss francs ($4.8 m illion) for the issue of per- form ance guarantees related to long-term contracts. The Corporation received prepaym ents on these contracts, which are being used as col- lateral against the credit facility. The custom ers can draw down on the line of credit for nonperform ance up to the am ount of pledged collat- eral, which is released from restriction over tim e as the Corporation m eets its obligations under the long-term contracts. U nder the term s of this credit facility agreem ent, the Corporation is not perm itted to bor- row against the line of credit. The Corporation is charged a com m it- m ent fee on the outstanding balance of the collateralized cash. As of Decem ber 31, 2003, the am ount of restricted cash under this facility was $1.8 m illion, all of which is expected to be released from restric- tion within one year. In October 2002, the Corporation acquired EM D. Included in the pur- chase was the assum ption of several N RC licenses, necessary for the continued operation of the business. In connection with these licenses, the N RC required ﬁnancial assurance from the Corporation (in the form of a parent com pany guarantee) representing estim ated environm ental decom m issioning and rem ediation costs associated with the com m er- cial operations covered by the licenses. The guarantee for the decom - m issioning costs of the refurbishm ent facility, which is estim ated for 2017, is $2.8 m illion. See N ote 15 for further inform ation. Consistent with other entities its size, the Corporation is party to several legal actions and claim s, none of which individually or in the aggregate, in the opinion of m anagem ent, are expected to have a m aterial adverse effect on the Corporation’s results of operations orﬁnancial position. C U RT I S S - W R I G H T A N D S U B S I D I A R I E S 7 1 CORPORATE INFORMATION C O R P O R AT E H E A D Q U A R T E R S 4 Becker Farm Road, 3rd Floor Roseland, N J 07068 (973) 597-4700 www.curtisswright.com A N N U A L M E E T I N G The 2004 annual m eeting of stockholders will be held on April 23, 2004, at 2:00 pm at the Sheraton Parsippany H otel, 199 Sm ith Road, Parsippany, N ew Jersey. S T O C K E X C H A N G E L I S T I N G The Corporation’s Com m on and Class B com m on stock are listed and traded on the N ew York Stock Exchange under the sym bols CW and CW .B. C O M M O N S H A R E H O L D E R S As of Decem ber 31, 2003, the approxim ate num ber of holders of record of Com m on stock, par value of $1.00 per share, and Class B com m on stock, par value $1.00 per share of the Corporation was 2,952 and 4,803, respectively. S T O C K T R A N S F E R A G E N T A N D R E G I S T R A R For services such as changes of address, replacem ent of lost certiﬁ- cates or dividend checks, and changes in registered ownership, or for inquiries as to account status, write to Am erican Stock Transfer & Trust Com pany at 59 M aiden Lane, N ew York, N ew York 10038. Please include your nam e, address, and telephone num ber with all cor- respondence. Telephone inquiries m ay be m ade to (800) 937-5449. Foreign (212) 936-5100. Internet inquiries should be addressed to http://www.am stock.com . H earing-im paired shareholders are invited to log on to the website and select the Live Chat option. D I R E C T S T O C K P U R C H A S E P L A N / D I V I D E N D R E I N V E S T M E N T P L A N A plan is available to purchase or sell shares of Curtiss-W right Com m on stock and Class B com m on stock. The plan provides a low cost alter- native to the traditional m ethods of buying, holding and selling stock. The plan also provides for the autom atic reinvestm ent of Curtiss-W right dividends. For m ore inform ation, contact our transfer agent, Am erican Stock Transfer & Trust Com pany toll-free at (877) 854-0844. I N V E S T O R I N F O R M AT I O N Investors, stockbrokers, security analysts, and others seeking inform a- tion about Curtiss-W right Corporation should contact Alexandra M agnuson, Director of Investor Relations, at the Corporate H eadquar- ters listed above. S T O C K H O L D E R C O M M U N I C AT I O N S Any stockholder wishing to com m unicate directly with our Board of Directors should write to Dr. W illiam W . Sihler at Southeastern Consul- tants Group, LTD, P.O. Box 5645, Charlottesville, VA 22905. F I N A N C I A L R E P O R T S This Annual Report includes m ost of the periodic ﬁnancial inform ation required to be on ﬁle with the Securities and Exchange Com m ission. The Corporation also ﬁles an Annual Report on Form 10-K, a copy of which m ay be obtained free of charge. These reports, as well as addi- tional ﬁnancial docum ents such as quarterly shareholder reports, proxy statem ents, and quarterly reports on Form 10-Q, m ay be obtained by written request to Alexandra M agnuson, Director of Investor Relations, at the Corporate H eadquarters. S T O C K P R I C E R A N G E 2003 2002 Com m on H igh Low H igh Low First Quarter Second Quarter Third Quarter Fourth Quarter $33.54 33.13 35.94 47.25 $26.04 26.97 30.42 35.03 $33.85 40.00 40.10 35.37 $22.55 33.13 26.75 26.09 2003 2002 Class B H igh Low H igh Low First Quarter Second Quarter Third Quarter Fourth Quarter $32.50 32.68 35.90 46.71 $25.20 26.00 30.56 34.88 $33.13 39.20 38.00 34.37 $21.88 32.38 26.18 25.60 Note: All prices adjusted for the 2-for-1 stock split on December 17, 2003. D I V I D E N D S C om m on First Quarter Second Quarter Third Quarter Fourth Quarter C lass B First Quarter Second Quarter Third Quarter Fourth Quarter 2003 2002 $0.08 0.08 0.08 0.09 $0.08 0.08 0.08 0.08 2003 2002 $0.08 0.08 0.08 0.09 $0.08 0.08 0.08 0.08 Note: All dividends adjusted for the 2-for-1 stock split on December 17, 2003. 7 2 C U RT I S S - W R I G H T A N D S U B S I D I A R I E S DIRECTORS DIRECTORS OFFICERS OFFICERS M A RT I N R . B E N A N T E M A RT I N R . B E N A N T E Chairman of the Board of Directors Chairman of the Board of Directors M A RT I N R . B E N A N T E M A RT I N R . B E N A N T E Chairman and Chief Executive Officer Chairman and Chief Executive Officer G E O R G E J . Y O H R L I N G G E O R G E J . Y O H R L I N G Executive Vice President Executive Vice President E D WA R D B L O O M E D WA R D B L O O M Vice President Vice President G L E N N E . T Y N A N G L E N N E . T Y N A N Vice President – Finance, Treasurer and Vice President – Finance, Treasurer and Chief Financial Officer Chief Financial Officer M I C H A E L J . D E N T O N M I C H A E L J . D E N T O N Vice President, Corporate Secretary Vice President, Corporate Secretary and General Counsel and General Counsel K E V I N M . M c C L U R G K E V I N M . M c C L U R G Corporate Controller Corporate Controller A D M I R A L J A M E S B . B U S E Y I V A D M I R A L J A M E S B . B U S E Y I V Admiral, U.S. Navy (Ret.) Admiral, U.S. Navy (Ret.) Director, Mitre Corporation Director, Mitre Corporation Director, Texas Instruments, Inc. Director, Texas Instruments, Inc. Former President and Chief Executive Officer of AFCEA Former President and Chief Executive Officer of AFCEA International Aviation Safety and Security Consultant International Aviation Safety and Security Consultant S . M A R C E F U L L E R S . M A R C E F U L L E R President and Chief Executive Officer of Mirant Corporation, In President and Chief Executive Officer of Mirant Corporation, Inc.c. (formerly known as Southern Energy, Inc.) (formerly known as Southern Energy, Inc.) Director, Earthlink, Inc. Director, Earthlink, Inc. D AV I D L A S K Y D AV I D L A S K Y orporation Former Chairman and Chief Executive Officer of Curtiss-Wright Corporation Former Chairman and Chief Executive Officer of Curtiss-Wright C C A R L G . M I L L E R C A R L G . M I L L E R Former Chief Financial Officer of TRW, Inc. Former Chief Financial Officer of TRW, Inc. W I L L I A M B . M I T C H E L L W I L L I A M B . M I T C H E L L Director, Mitre Corporation Director, Mitre Corporation Former Vice-Chairman of Texas Instruments Inc. Former Vice-Chairman of Texas Instruments Inc. J O H N R . M Y E R S J O H N R . M Y E R S Former Chairman and Chief Executive Officer of Tru-Circle Corpo ration Former Chairman and Chief Executive Officer of Tru-Circle Corporation Management Consultant Management Consultant Former Chairman of the Board of Garrett Aviation Services Former Chairman of the Board of Garrett Aviation Services D R . W I L L I A M W. S I H L E R D R . W I L L I A M W. S I H L E R Ronald E. Trzcinski Professor of Business Administration Ronald E. Trzcinski Professor of Business Administration Darden Graduate School of Business Administration Darden Graduate School of Business Administration University of Virginia University of Virginia J . M c L A I N S T E WA RT J . M c L A I N S T E WA RT Director, McKinsey & Co. Management Consultants Director, McKinsey & Co. Management Consultants s s s s e e r r P P n n a a J J , , n n n n a a m m r r e e t t t t i i R R z z l l o o h h c c S S p p i l i h P : y h p a r g o t o h P d e t c e l e S C Y N / l e d n i e r B s i t n a S e D : n g i s e D CURTISS-WRIGHT CORPORATION CURTISS-WRIGHT CORPORATION 4 BECKER FARM ROAD 4 BECKER FARM ROAD ROSELAND, NEW JERSEY 07068 ROSELAND, NEW JERSEY 07068 WWW.CURTISSWRIGHT.COM WWW.CURTISSWRIGHT.COM

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