growth
across diverse
markets
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curtiss-wright corporation
4 Becker Farm Road
Roseland, New Jersey 07068
www.curtisswright.com
curtiss-wright
corporation
annual report 2005
growth across diverse markets
Curtiss-Wright is committed to providing highly engineered
solutions for demanding applications. In the defense market,
we have balanced exposure on naval, aerospace and ground
platforms, both on development programs and in support of
current forces in the field. In the commercial markets, our roots
remain firmly planted in the aerospace market. We have also
built significant footholds in power generation and oil and gas
markets through the application of complementary technologies
and our knowledge of critical performance requirements.
Our focus on technical innovation provides access to diverse
markets where customers demand innovative, reliable and
safe solutions.
GENERAL INDUSTRIAL OIL AND GAS FLOW CONTROL METAL TREATMENT LINES OF BUSINESS MARKETS MARKETS MARKETS MARKETS MARKETS MARKETS MARKETS MARKETS MARKETS MARKETS MOTION CONTROL DEFENSE POWER GENERATION COMMERCIAL AEROSPACE
our disciplined approach
is reflected in
our operating results
consolidated
historical performance
$466 million
$465 million
$199 million
Net Sales (000s)
flow control
motion control
$1,200,000
1,000,000
800,000
600,000
400,000
200,000
’01 ’02 ’03 ’04 ’05
Operating Income* (000s)
$150,000
120,000
90,000
60,000
30,000
’01 ’02 ’03 ’04 ’05
Net Earnings* (000s)
$80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
’01 ’02 ’03 ’04 ’05
* Normalized to exclude the effect of gains and losses on
real estate sales and CW Pension Plan income/expense.
Specialized severe service valves, pumps, controls and
electronics for critical national defense programs and
commercial markets such as nuclear power generation,
oil and gas processing and general industry.
Innovative, highly engineered flight controls, drive and
sensor components and integrated subsystems for
aerospace, defense and industrial applications worldwide.
nuclear power generation
n reactor coolant pumps
n motors
n control rod drive mechanisms
n valves
n Solenoid, gate and globe valves
n containment air lock doors
n fasteners
n diamond wire cutting
n engineering inspection, testing
and qualification
n inventory management systems
general industrial
n directional control valves
n pneumatic valves
naval defense
n nuclear propulsion system
components
n Valves (butterfly, globe, gate,
control, safety, relief, solenoid)
n Pumps
n Motors and generators
n Instrumentation and controls
n non-nuclear products
n Smart leakless valves
n Ball valves
n Steam generator control
equipment
n Air-driven fluid pumps
n Engineering, inspection and
testing services
n aircraft carrier launch and
retrieval equipment
n Advanced electromechanical
systems
n instrumentation and
control systems
ground defense
n electromechanical gun
pulsed power supply system
oil and gas processing
n valves
n DeltaGuard® coker valve
n Pressure relief valves
n Safety valves
n Triple offset butterfly valve
n Boltless slide valve
n Fluid catalytic cracking devices
n Solenoid, gate and globe valves
n web-enabled process control
software
keY to lines of Business listings
major markets
n category
n Products and services
naval defense
n shipboard helicopter
landing systems
n Aircraft ship integrated secure
and traverse (ASIST) systems
n Recover, assist, secure and
traverse (RAST) systems
n marine propulsion
n Marine engine diesel valve
injection systems
other military & government
n high performance data
communication products
n Power conversion products
n space programs
n Control electronics
n security systems
n Perimeter intrusion detection
equipment
n faa
n Airport surface detection
equipment radar video processng
general industrial markets
n automated industrial equipment
n Air, sea and ground simulation
n Fractional horse power (HP)
specialty motors
n Force transducers
n Joystick controllers
n Sensors
n Faders
n high speed trains
n Electromechanical tilting systems
for high-speed trains
commercial aerospace
n commercial jets
n Secondary flight control actuation
systems and electromechanical
trim actuators
n Aircraft cargo door and utility
actuation systems
n Fire detection and suppression
control systems
n Automated passenger
bridge systems
n Position sensors
n Business/regional jets
n Throttle quadrants
n helicopters
n Rotor ice protection systems
n repair and overhaul services
n Component overhaul and logistics
support services
military aerospace
n transport and fighter aircraft
n Weapons bay door actuation
systems
n Electromechanical actuators
n helicopters
n Radar warning systems
n Acoustic processing systems
n Flight data recorders
n unmanned aerial vehicles
n Integrated mission management
and flight control computers
ground defense
n tanks and light armored vehicles
n Digital electromechanical aiming
and stabilization systems
n Fire control, sight head and
environmental control processors
n Single board computers for
target acquisition systems
n Hydropneumatic suspension
systems
n Ammunition handling systems
metal treatment
Precision metal finishing services,
including shot peening, shot peen
forming, laser peening, heat treating
and specialty coatings for critical
components in commercial aerospace,
automotive, energy and processing
industries.
commercial aerospace
n shot peen forming
n Wing skins
n shot peening
n Aircraft structural components
n Landing gear components
n Turbine engine rotating
components
n laser peening
n Turbine engine rotating
components
n coatings
n Fasteners
n Sliding components
n heat treating
n Aluminum structural components
automotive
n shot peening
n Engine and transmission
components
n heat treating
n Miscellaneous engine,
transmission and structural
components
n coatings
n Fasteners
n Sliding components
general industrial
n shot peening
n Highly stressed metal components
susceptible to fatigue
n Welded components subject
to distortion
n Architectural structures
n heat treating
n Miscellaneous aluminum and
steel components
n coatings
n Fasteners
n Components subject to
sliding wear
C
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HISTORICAl FINANCIAl PERFORmANCE
(In thousands, except per share data; unaudited)
2005
2004
2003
PERFORMANCE:
Net sales
Earnings before interest, taxes, depreciation,
amortization and pension
Net earnings
Cash flow from operations
Diluted earnings per share(1)
Return on sales
Return on capital
New orders
Backlog at year-end
YEAR-END FINANCIAL POSITION
Working capital
Current ratio
Total assets
Stockholders’ equity
Stockholders’ equity per share(1)
OTHER YEAR-END DATA
Depreciation and amortization
Capital expenditures
Shares of stock outstanding at December 31,(1)
Number of registered stockholders
Number of employees
$ ,30,928
$
955,039
$
746,071
88,32
75,280
05,78
3.44
7%
8%
,26,93
805,63
152,026
65,066
105,347
3.02
7%
8%
998,936
627,679
119,435
52,268
83,524
2.50
7%
8%
743,115
505,519
$ 268,963
2.2 to
,400,285
638,220
29.35
$
212,159
2.1 to 1
1,278,440
575,614
26.85
$
238,640
2.8 to 1
973,665
478,881
23.04
$
47,85
42,444
2,746,362
7,069
5,892
$
40,742
32,452
21,438,158
7,460
5,599
$
31,327
33,329
20,785,856
7,768
4,655
DIVIDENDS PER SHARE
$
0.39
$
0.36
$
0.32
(1) Share and per share data for all years have been adjusted to reflect the 2-for-1 stock split on December 17, 2003.
CURTISS-WRIGHT CORPORATION
FlOW CONTROl:
HIGHlY ENGINEERED SOlUTIONS
FOR DEmANDING mARKETS
20%
sales growth driven
by both military and
commercial markets
Curtiss-Wright’s Flow Control
segment plays a critical role in
the safe and reliable operation
of our military, nuclear power
plants, and oil and gas processing
facilities around the world.
We specialize in the design,
manufacture and distribution of
highly engineered valves, pumps,
sophisticated electronics and
related products that regulate the
flow of liquid, gases and vapors
in severe service environments.
Our innovative, high-performance
products can be found aboard every
nuclear submarine and aircraft
carrier commissioned by the U.S.
Navy. Within the processing industry,
Flow Control’s products help ensure
worker safety by eliminating
potentially deadly hazards, while
greatly improving the operational
efficiency of oil and gas refineries
globally. For the commercial power
industry, Flow Control’s products and
advanced technologies assist in the
safe, reliable and efficient operation
of nuclear power plants throughout
the world.
2
CURTISS-WRIGHT CORPORATION
Smart, leakless valves designed for
the processing industry provide a
cost-effective solution for jet-fuel
pumping on aircraft carriers.
50%
balance between
military and
commercial markets
DeltaValve’s revolutionary
valve has achieved a 20%
worldwide market share.
Flow Control supplies a diverse
set of products and services to
the oil and gas processing market,
including safety relief valves,
specialized pumps, process
safety management software and
accessory and field repair
services. The level of maintenance
capital spending is a key driver
of this market, as well as the need
for technology improvements for
plant flexibility, reliability, production
and compliance with environmental
regulations. In addition, global
demand for fuel is requiring
increased processing capacity.
CURTISS-WRIGHT CORPORATION
3
FLOw CONTROL
DElIVERING mISSION-CRITICAl SOlUTIONS
Advanced Arresting Gear
technology uses a more
efficient electromagnetic
control system to capture
an aircraft on the deck of
an aircraft carrier.
many of our technologies ultimately
have commercial market appeal.
Bridging the chasm between
stringent and unique government
requirements and the cost limitations
of the commercial market is no
small task, but we have successfully
paired our innovative technologies
with competitive commercial
marketing strategies to develop
significant niche positions in the
energy and industrial markets.
17%
growth in military
business driven by
submarine and aircraft
carrier programs
Nearly 50% of Flow Control’s
business is defense, related to the
U.S. Navy’s submarine and aircraft
carrier programs. Our Electro-
mechanical Systems division is a
world leader in the design and
manufacture of the most advanced
critical function pumps, turbine
motors and generators for
nuclear propulsion systems. Our
Control Systems division provides
electronic instrumentation and
control systems. And our Valve
division provides critical function
valves that are innovative, safe
and absolutely reliable.
4
CURTISS-WRIGHT CORPORATION
HydraNut® offers superior
integrity and reduced
maintenance time on all
critical high-temperature
bolting applications.
23%
sales growth in
commercial
technologies
Flow Control has achieved
significant growth in the
commercial nuclear power
market. As demand for energy
continues to increase, more
emphasis on advanced
technologies will continue to
fuel this market. In the United
States, growth will come from
plant life extensions and facility
upgrades to the 103 nuclear
power plants. longer term, the
nuclear power market has
significant growth potential due
to the anticipated construction
of new power plants both
domestically and internationally.
In the commercial power market,
our Electro-mechanical Systems
and Valve divisions are able to
provide critical function pumps,
turbine motors, generators and
valves. Additionally, we continually
focus on new product innovations,
such as the Technofast HydraNut,®
which can improve operational
integrity and reduce overall
maintenance time, resulting in
a considerable cost saving to
the customer.
CURTISS-WRIGHT CORPORATION
5
mOTION CONTROl:
ExPANDING INTO COmPlEmENTARY
mARKETS
20%
sales growth driven
by both military and
commercial markets
From an F-22 to a commercial jet,
Curtiss-Wright’s motion Control
segment provides technology
solutions that enable the most
advanced aircraft around the
world today. On the ground, our
electronic controls and actuation
products increase the capabilities
and extend the life of military
armored vehicles. And on the
high seas, our shipboard recovery
systems assure safe and reliable
helicopter landings and
maneuvering under the most
adverse weather conditions.
Through three divisions, Engineered
Systems, Embedded Computing and
Integrated Sensing, we provide
motion control components and
integrated subsystem solutions for
aerospace, defense and industrial
applications worldwide. Our products
integrate complex elements for
maximum performance and
efficiency, setting industry standards
in the areas of flight control, utility
actuation, sensors and electronic
computing systems. Technical
innovation, superior product quality
and customer satisfaction remain
our core strengths as we meet the
challenges of the future.
6
CURTISS-WRIGHT CORPORATION
Navies around the world rely
on our helicopter recovery
systems that fully integrate all
of the functions required to
safely operate and stow large
shipborne helicopters.
16%
growth in
commercial
aerospace sales
Our helicopter recovery systems
are able to accommodate a wide
range of helicopters and ships,
even in the most demanding
marine environments.
Engineered Systems specializes
in high-end electromechanical and
hydromechanical components and
systems for the aerospace, defense
and industrial markets. Our global
capabilities in flight controls, utility
actuation, repair and overhaul
services, drive technology and
naval aviation handling systems
can be customized as individual
components or fully integrated
systems to meet high-volume
demands or niche requirements.
In 2005, we expanded our market
share on new platforms such as
the Boeing 787, extended existing
customer relationships, and
penetrated new markets in regional/
business jets, helicopters and
ground defense. Additionally, our
acquisition of Indal Technologies
provides us with state-of-the-art
shipboard helicopter landing
systems. These technologies are
highly complementary and provide
strategic access to worldwide
naval customers.
CURTISS-WRIGHT CORPORATION
7
MOTION CONTROL
SOPHISTICATED OPERATIONS: lAND, SEA AND AIR
As military programs require
advanced, rugged electronics,
customized solutions provide
life-cycle extensions to existing
platforms.
Aiming and stabilization
equipment is critical to the
performance of ground
vehicles like the Abrams,
Bradley and Stryker.
45%
sales are for fielded
platforms
Embedded Computing supplies
major systems integrators with
open architecture, commercial and
rugged grade computing solutions
that span board level products to
integrated subsystems. Advanced
technologies include high-speed
I/O, high density computing,
specialized chassis design, custom
and component engineering
services, graphic solutions and full
life-cycle support. With over 300
customers and more than 500
programs, we have a diversified
market base in military aerospace,
land and naval platforms.
We are at the forefront of state-
of-the-art platforms, such as
unmanned aerial vehicles like
the Global Hawk for which we
provide the mission management
computers. On current forces,
modernization through integration
of advanced electronics remains
robust. Providing proprietary
retrofit and upgrade embedded
computing solutions, our products
are enabling advanced electronics
for communication, ordnance and
munitions deployment.
8
CURTISS-WRIGHT CORPORATION
From tractors and forklifts
to structural monitoring of
buildings and bridges, joystick
controllers and position
sensors are used extensively
in the industrial markets.
13%
sales in
industrial equipment
Integrated Sensing
Systems integrators and platform
manufacturers turn to us for
solutions that are as cost effective
as they are cutting edge. Today’s
marketplace demands fewer
suppliers and higher levels of
integration. The ability to offer a
“product suite” has uniquely
positioned Curtiss-Wright to meet
this challenge. Our products and
subsystems are designed for
unsurpassed functionality and
reliability, and manufactured
with precision.
Our advanced technologies are
concentrated on flight controls in the
military and commercial aerospace
markets, and augmented by niche
industrial markets. Rotary and linear
position sensors support automotive
assembly, vehicle performance and
testing. Joysticks and position
sensors control leisure rides and
virtual reality simulators. Our faders
and controllers are the premier
choice for sound and vision console
manufacturers. Where quality,
precision and reliability are critical,
Curtiss-Wright’s success is evident.
CURTISS-WRIGHT CORPORATION
9
mETAl TREATmENT:
ENHANCING PERFORmANCE IN
CRITICAl APPlICATIONS
11%
organic
sales growth
Through a network of 58 facilities
in North America and Europe,
metal Treatment provides four
primary technologies: shot
peening, laser peening, specialty
coatings and heat treating.
The advanced technologies of
Curtiss-Wright’s metal
Treatment segment enhance
the performance and extend the
life of critical components by
helping to prevent fatigue and
corrosion failures. This enables
component designs to achieve
their maximum potential. metal
Treatment is a world leader in
providing these precision metal
surface treatments for aerospace,
automotive, defense, energy
and general industrial markets.
0 CURTISS-WRIGHT CORPORATION
Primary shot peening of
aerospace applications include
turbine engines and highly
stressed structural components
for commercial and military
aircraft.
The new mobile laser enables
field application of the laser
peening technology.
38%
sales in
commercial aerospace
market
laser peening is a state-of-the-art
metal surface treatment developed
internally and in conjunction with
lawrence livermore National
laboratory. During this process,
a laser beam is fired to generate
ultra-high pressure pulses on the
surface of a metal part. These
pulses create shock waves that
travel into the metal and compress
it at the molecular level. multiple
strikes by the laser in a pattern
impart a layer of residual compressive
stress on the surface of the part
that is four times deeper than that
attainable from conventional peening
treatments. These deeper levels of
compressive stress provide greater
protection from fatigue and corrosion
failures, extending the useful life of
the component.
CURTISS-WRIGHT CORPORATION
METAL TREATMENT
ACHIEVING GROWTH IN COmmERCIAl mARKETS
Metal treatment processes
protect critical components
in aerospace and ground
transportation markets.
30%
sales in automotive
market
Shot peening and specialty
coatings are utilized to protect
highly stressed engine and
transmission components in
ground transportation applications,
including passenger automotive
vehicles as well as over-the-road
trucks, construction and
agriculture vehicles. Heat treating
is a precision thermal treatment
process that can control the
ultimate strength and hardness
of a metal and also relieve any
internal stresses in fabricated
metal parts.
2 CURTISS-WRIGHT CORPORATION
21%
growth in
commercial
aerospace market
Precision-formed wing
skins are critical to ensuring
ease of wing assembly and
achieving optimum
aerodynamic performance.
the finished wing skin will have
beneficial compressive stresses over
its entire surface that will inhibit
fatigue and stress corrosion cracking
of the wing.
We shot peen form the wing skins
of all Airbus A320, A330, A340
and A380 aircraft. Small, round
metal “shot” is selectively directed
at appropriate areas of the
aluminum wing skin to impart
compressive stresses that bend,
stretch and shape the wing skins.
Besides having the proper shape
to fit onto the wing assembly,
CURTISS-WRIGHT CORPORATION 3
SHAREHOLDER LETTER
For nearly a century, Curtiss-Wright has set the standard for disciplined corporate
management, even as we have made strategic investments to foster innovation and
support the company’s long-term growth and prosperity.
That tradition continued in 2005, as we reported another year of strong sales and
profitability. It was a landmark year for the company. We exceeded $1 billion in revenue
while maintaining our focus on achieving growth across diverse markets. This impressive
performance is due in large measure to the dedication and commitment of our 6,000
employees, as well as the solid relationships we have forged with our customers by
setting a benchmark for excellence unmatched within the industries we serve.
HEALTHY FINANCIAL RESULTS
By every measure, we enjoyed excellent financial results in 2005, enabling us to strengthen
our balance sheet, return higher dividends to shareholders and still make the necessary
investments in our future to continue offering leading-edge products and services. In a
year with relatively few acquisitions, we achieved sales of $1.13 billion, an increase of
18% over 2004, as operating income increased 25% to $138 million. Our net earnings of
$75 million, or $3.44 per diluted share, rose 16% over 2004. We also received new orders
of $1.26 billion in 2005, an increase of 26% from the previous year, and our year-end
backlog increased 28% to a new record high of $806 million, providing solid momentum
going into 2006.
THE CURTISS-wRIGHT COMMITMENT
• To remain at the forefront
• To attract the best and
of highly engineered,
technological innovations
• To continue to meet the
demands of the defense,
commercial aerospace and
energy markets by delivering
the highest quality products
and most reliable solutions
• To provide the greatest
possible value to our
shareholders
brightest employees and
maintain a culture of
excellence and growth
• To uphold the legacy of
Curtiss-Wright and its
founders by maintaining
world-class performance
across all business
segments
Martin R. Benante
Chairman and
Chief Executive Officer
4 CURTISS-WRIGHT CORPORATION
This performance reflects overall organic sales growth of 8%, supported by strong
showings from each of our segments, as well as the contribution from acquisitions made
in 2004 and 2005. Operating income was driven by overall organic growth of 21%, which
included double-digit organic growth in each segment. Continued strength in the U.S.
economy and the global commercial aerospace industry were key drivers of the positive
results demonstrated within our commercial businesses. In addition, U.S. military
spending remained steady as we successfully solidified our position on key programs.
SHAREHOLDER VALUE
Over the past year, we completed several initiatives designed to benefit our shareholders.
In may 2005, we recapitalized our dual-class stock structure into a single class of common
stock, providing a simplified capital structure and attracting new investors.
In November 2005, the quarterly dividend was increased by 33% to $0.12 per share. most
recently, in February 2006, the Board of Directors authorized a 2-for-1 stock split, doubling
the number of shares outstanding and encouraging increased trading activity. These
actions reflect our confidence in the company’s ability to deliver consistently positive growth
in revenue, profitability and cash flow in the years ahead.
OUR DIVERSE MARKETPLACE
Our business is focused on providing advanced technological solutions across diverse
markets, and much of our success is influenced by broader economic issues including
demand within the commercial aerospace industry, defense spending and worldwide
energy consumption.
Growth in commercial aviation was driven by a surging demand in Asia and the middle
East and a rise in low-cost air carriers worldwide. Curtiss-Wright’s market position
strengthened in alignment with our role as a valued supplier to both Boeing and Airbus
and we believe production will continue to increase for both companies in 2006, even as
the spares, repair and overhaul markets remain extremely healthy.
In the defense sector, the growth in military spending is expected to slow somewhat in
the coming year. Fortunately, our portfolio spans a wide array of critical naval, aerospace
and ground defense programs, and our Flow Control and motion Control segments
remain extremely well-positioned across a range of platforms, including the CVN-21 next-
generation aircraft carrier, the Virginia Class submarine program, the DD(x) Destroyer,
the F-22, the V-22, the Black Hawk Helicopter program, the Bradley Fighting Vehicle, the
Abrams Tank and the Stryker mobile Gun System. We also continue to participate in
development projects such as the F-35 Joint Strike Fighter, the P-8A multi-mission
maritime Aircraft and Unmanned Aerial Vehicle programs.
CURTISS-WRIGHT CORPORATION 5
To better support our efforts in the defense sector, we have established new corporate
offices in Washington, D.C., increasing our visibility of future defense projects and
government-funded research and development. Additionally, we are looking to expand
our own R&D efforts to coordinate programs with university research centers and
private companies.
In the oil and gas processing markets, we continue to expect robust growth, as refiners
increase capital spending for upgrades and maintenance projects while also continuing
to install new technologies designed to improve plant efficiency, safety, and profitability.
Increased demand for oil and natural gas both domestically and internationally, coupled
with a rise in the need for aftermarket services, may also have a positive impact on
this sector.
Demand for our proprietary DeltaGuard® coker valve technology has grown at record
levels, with our DeltaValve business unit receiving orders totaling more than $53 million
in 2005 and continuing at a strong pace in the first part of 2006. Today, we hold a 20% share
of the global market for coker valves and a 42% share in North America.
With nuclear power increasingly viewed as an environmentally friendly fuel source,
we expect to see significant growth within this sector. At year-end 2005, 39 of our nation’s
103 existing nuclear power plants had received 20-year life extensions with similar
applications from additional plants pending.
Curtiss-Wright is well-positioned with products and services that will enable it to take
advantage of this enormous market potential. For example, both Duke Energy and Progress
Energy announced in 2005 that they would seek approvals to build and operate new nuclear
power plants in the U.S., selecting the Westinghouse AP1000 design. Curtiss-Wright,
through our Flow Control segment, is the supplier of a significant number of components
on these reactors. We expect that these developments domestically, combined with new
projects in Asia and around the world, will continue to drive considerable expansion and
growth for us beginning as early as 2010.
DISCIPLINED ACQUISITIONS
In march 2005, we announced the acquisition of Indal Technologies which operates as a
business unit of our motion Control segment. Indal’s superior technologies and long-term
customer relationships with navies worldwide will provide a substantial platform for
expansion into the international defense market.
Although we continually evaluate acquisition opportunities, we will only acquire companies
that meet a series of strict criteria and that will closely complement our existing businesses,
enabling us to meet our long-term strategic objectives.
6 CURTISS-WRIGHT CORPORATION
PASSING THE TORCH
We announced in June the retirement of our long-time colleague and good friend,
George Yohrling, as president of our motion Control segment. During his tenure, George
transformed motion Control into a premier global supplier of electronics and engineering
systems, while continuously growing the company’s revenues and profits.
A long-time veteran of Curtiss-Wright, George began his career with the company as a
manufacturing manager in Fairfield, N.J., and after serving in a variety of management
positions was named general manager of our motion Control facility in Shelby, N.C., in
1985. Under his stewardship, the business grew to serve a wide range of markets within
commercial and military aerospace, ground defense and general industry. We will all
greatly miss George and wish him the best in his next endeavor. Curtiss-Wright will continue
to reap the benefits of his compassion, vision and leadership for many years to come.
STAYING THE COURSE
In December 2005, we successfully completed a $150 million follow-on Senior Note offering
that expands our long-term capital base, enabling us to continue pursuing our corporate
growth strategies. In 2005, free cash flow was $62 million, representing cash conversion of
83%. Our current liquidity provides us with the flexibility to continue our acquisition program
of strategic, niche businesses that broaden our technological capabilities, product offerings
and market penetration.
LOOKING AHEAD
As I look ahead to 2006, I see a company strongly positioned across nearly every segment
of our business—in both defense and commercial markets. The key to our ongoing
success will be our ability to remain strongly focused on the fundamentals that have
brought us to where we are today—strategic growth, operational excellence and market
leadership—while we continue to invest in the people, the technologies and the innovations
that will successfully take us into the future.
On behalf of myself and our Board of Directors, I would like to express my appreciation
to our employees for their loyalty, dedication and hard work; to our customers for their trust
and commitment to being true business partners; and to our shareholders for their
continuing confidence in our business model and management team.
From where I sit, I see nothing but good things ahead for this organization, and I could not
ask for a better team to help bring us to the next level of greatness.
martin R. Benante
Chairman and Chief Executive Officer
CURTISS-WRIGHT CORPORATION 7
DIRECTORS AND OFFICERS
DIRECTORS
Martin R. Benante
Chairman of the Board of Directors
OFFICERS
Martin R. Benante
Chairman and Chief Executive Officer
James B. Busey IV
Admiral, U.S. Navy (Ret.)
Director, Mitre Corporation
Director, Texas Instruments, Inc.
Former President and Chief Executive Officer
of AFCEA
International Aviation Safety and Security Consultant
David C. Adams
Vice President
Edward Bloom
Vice President
David J. Linton
Vice President
Glenn E. Tynan
Vice President — Finance and
Chief Financial Officer
Michael J. Denton
Vice President — Corporate Secretary and
General Counsel
Harry Jakubowitz
Treasurer
Kevin M. McClurg
Corporate Controller
S. Marce Fuller
Former President and Chief Executive Officer
of Mirant Corporation, Inc.
(formerly known as Southern Energy, Inc.)
Director, Earthlink, Inc.
David Lasky
Former Chairman and Chief Executive Officer
of Curtiss-Wright Corporation
Carl G. Miller
Former Chief Financial Officer of TRW, Inc.
William B. Mitchell
Director, Mitre Corporation
Former Vice-Chairman of Texas Instruments Inc.
John R. Myers
Former Chairman and Chief Executive Officer
of Tru-Circle Corporation
Management Consultant
Former Chairman of the Board of Garrett
Aviation Services
Dr. William W. Sihler
Ronald E. Trzcinski Professor of
Business Administration
Darden Graduate School of Business Administration
University of Virginia
J. McLain Stewart
Director, McKinsey & Co. Management Consultants
8 CURTISS-WRIGHT CORPORATION
FINANCIAL STATEMENTS
20 Quarterly Results of Operations
20 Consolidated Selected Financial Data
21 Management’s Discussion and Analysis of Financial Condition and
Results of Operations
25 2005 Segment Performance
34 Quantitative and Qualitative Disclosures about Market Risk
35 Report of the Corporation
35 Management’s Annual Report on Internal Control
Over Financial Reporting
36 Report of Independent Registered Public Accounting Firm
37 Report of Independent Registered Public Accounting Firm
38 Consolidated Financial Statements
42 Notes to Consolidated Financial Statements
66 Corporate Information
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
1 9
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data)
First
Second
Third
Fourth
2005
Net sales
Gross profit
Net earnings
Earnings per share:
Basic earnings per share
Diluted earnings per share
Dividends per share
2004
Net sales
Gross profit
Net earnings
Earnings per share:
Basic earnings per share
Diluted earnings per share
Dividends per share
$258,487
85,769
14,523
$
$
$
0.68
0.67
0.09
$214,933
71,595
15,609
$
$
$
0.75
0.74
0.09
$283,193
100,299
17,934
$
$
$
0.83
0.82
0.09
$222,428
76,022
14,324
$
$
$
0.68
0.67
0.09
$271,355
93,515
17,519
$
$
$
0.81
0.80
0.09
$236,574
81,849
14,720
$
$
$
0.69
0.68
0.09
$317,893
110,929
25,304
$
$
$
1.16
1.15
0.12
$281,104
101,037
20,413
$
$
$
0.95
0.94
0.09
See notes to the consolidated financial statements for additional financial information.
CONSOLIDATED SELECTED FINANCIAL DATA
(In thousands, except per share data)
Net sales
Net earnings
Total assets
Long-term debt
Basic earnings per share
Diluted earnings per share
Cash dividends per share
2005
2004
2003
2002
2001
$1,130,928
75,280
1,400,285
364,017
3.48
3.44
0.39
$
$
$
$ 955,039
65,066
1,278,440
340,860
3.07
3.02
0.36
$
$
$
$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
$
$
$
All per share amounts have been adjusted to reflect our 2-for-1 stock split on December 17, 2003.
See notes to the consolidated financial statements for additional financial information.
FORWARD-LOOKING STATEMENTS
This Annual Report contains not only historical information but also
forward-looking statements regarding expectations for future perfor-
mance of the Corporation. Forward-looking statements involve risk
and uncertainty. Please refer to the Corporation’s 2005 Annual Report
on Form 10-K for a discussion relating to forward-looking statements
contained in this Annual Report and risk factors that could cause future
results to differ from current expectations.
2 0
C U R T I SS - 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
Company Organization
Our Management’s Discussion and Analysis of Financial Condition and
Results of Operations begins with an overview of our company, fol-
lowed by economic and industry-wide factors impacting our company
and the markets we serve, a discussion of the overall results of oper-
ations, and finally a more detailed discussion of those results within
each of our reportable operating segments.
Curtiss-Wright Corporation is a diversified, multinational provider of
highly engineered, technologically advanced, value-added products
and services to a broad range of industries in the motion control, flow
control, and metal treatment markets. We are positioned as a market
leader across a diversified array of niche markets through engineer-
ing and technological leadership, precision manufacturing, and strong
relationships with our customers. We provide products and services to
a number of global markets, such as defense, commercial aerospace,
commercial power, oil and gas, automotive, and general industrial. We
have achieved balanced growth through the successful application of
our core competencies in engineering and precision manufacturing,
adapting these competencies to new markets through internal prod-
uct development and a disciplined program of strategic acquisitions.
Our overall strategy is to be a balanced and diversified company, less
vulnerable to cycles or downturns in any one business sector, and to
establish strong positions in profitable niche markets. Approximately
50% of our revenues are generated from defense-related markets.
We manage and evaluate our operations based on the products and
services we offer and the different industries and markets we serve.
Based on this approach, we have three reportable segments: Flow
Control, Motion Control, and Metal Treatment. For further information
on our products and services and the major markets served by our
three segments, please refer to the inside cover of this Annual Report.
The following charts represent our sales by market for 2005 and 2004:
2005 Sales by Market
2004 Sales by Market
ECONOMIC AND INDUSTRY-WIDE FACTORS
Overall, 2005 was a good year for Curtiss-Wright. Many of the key dri-
vers of our business, such as the U.S. economy and the global
commercial aerospace industry, improved. In addition, U.S. military
spending levels remained steady and our commercial markets
strengthened. Looking forward, however, many factors could impact
our future performance, including future defense spending in the U.S.,
changes in global gross domestic product, volatility of the geopolitical
landscape, and the pace of global economic activity.
GENERAL ECONOMY
Many of our industrial businesses are driven in large part by growth of
the U.S. Gross Domestic Product (“GDP”). Based upon certain eco-
nomic reports, the U.S. economy’s output (real GDP) is expected to
grow at a modest rate of approximately 3.3% in 2006, lower than the
4% experienced in 2005. GDP is expected to grow at 3.5% in the first
half and 3.1% in the second half of 2006. This forecast is predicated
on the assumption that oil prices stabilize in 2006. On the positive side,
inflation is expected to moderate in 2006. The consumer price index
(a broad indicator of inflation) is expected to be approximately 2.3% in
2006, down from 3.5% in 2005. If these conditions were to occur, it may
prompt the U.S. Federal Reserve to curtail its current program of
raising interest rates in 2006. According to some economic reports,
interest rates are expected to rise slightly in the beginning of 2006 and
then stabilize. Stabilized interest rates should lead to increased spend-
ing and investment in the business sector. Unemployment is expected
to drop slightly and remain below 5% in 2006, as the business sector
expands after a period of underinvestment in both human and indus-
trial capital. Also, global GDP growth is expected to slow down in 2006,
decreasing from 4.4% in 2005 to approximately 4% in 2006, primarily
due to higher energy prices and tighter monetary polices. Higher
energy costs in 2005 affected all of our operating segments, but they
were more significant within our Metal Treatment segment.
Approximately 25% of our business is outside the U.S. and subject to
currency fluctuations in both transactions in foreign currencies as well
as translation from local country currencies to the U.S. dollar.
Although we seek to mitigate these fluctuations through hedging pro-
grams, there is no guarantee that our hedging efforts will offset the
possible adverse impacts of the currency fluctuations.
It appears that, at least in the U.S., 2006 is expected to mark the fifth
consecutive year of economic expansion, fueled primarily by strong
spending in the business sector; however, we remain cautiously opti-
mistic that this expansion will continue in the near term. To the extent
that it does, our businesses that are largely economic driven, and serve
the commercial aerospace, oil and gas, and general industrial markets,
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
2 1
Defense Aerospace14%Defense Aerospace15%PowerGeneration11%PowerGeneration11%Oil & Gas10%Oil & Gas9%Defense Ground8%Defense Ground9%CommercialAerospace17%CommercialAerospace17%Other16%Other17%Defense Navy24%Defense Navy22%2005Sales byMarket2004Sales byMarket particularly our Metal Treatment segment, are well positioned to ben-
efit from increased economic strength.
DEFENSE
Approximately 50% of our business is in the military sector, predomi-
nantly in the U.S., characterized by long-term programs and contracts
driven primarily by the U.S. Department of Defense (“DoD”) budget. We
also participate in several non-U.S. military programs which, although
not as significant as our domestic military business, are subject to the
uncertainty resulting from the changing geopolitical climate around
the world.
The DoD budget reflects growing cost pressure to support the global
war on terrorism, including supporting the current military operations
in both Iraq and Afghanistan, and initiatives aimed at transforming and
modernizing its current military platforms and capabilities. The war
effort has benefited us again in 2005 with higher spares sales to the
U.S. Army. The fiscal 2006 DoD procurement budget reflects a 4.8%
overall increase over fiscal 2005. The 2006 budget includes continued
investment funding for key programs supportive of transformation ini-
tiatives, but it is balanced with increased spending for modernization
and upgrading of existing equipment in support of current global oper-
ations and requirements. We anticipate future DoD spending to pro-
duce increased investment specifically for unmanned vehicles, to
provide stability to the shipbuilding industry while transforming the
U.S. Navy fleet, and for electronics for military hardware necessary to
upgrade existing platforms and facilitate “network centric warfare”
systems, all as part of the military’s transformation plans. Military
transformation initiatives are providing funding for advanced tech-
nologies to support new and enhanced military platforms. We are
involved in several major developmental contracts for our advanced
technologies, which support potential future military programs.
Our Flow Control and Motion Control segments are well positioned on
many high performance defense platforms, including the CVN-21
next-generation aircraft carrier, the Virginia Class nuclear submarine
program, the DD(X) Destroyer, the F-22, the V-22, the JSF and
Unmanned Aerial Vehicle programs, such as the Global Hawk. Based
on our reputation and past performance, we are involved in many of the
future military systems that are currently in development. However,
continued cost concerns could lead to extensive review of critical
defense programs, which may have an impact on DoD budget levels
going forward, as could many other factors such as overall budget
deficit levels and geopolitical uncertainty.
There is the possibility that defense spending may decrease in the
future, which could adversely affect our operations and financial con-
dition. While DoD funding fluctuates year-by-year and program-by-
program, the primary risk facing us would be the termination of a
major program. Other than the possible reduction in the F-22 program,
which is not considered material to us as a whole, we are not aware of
any potential material program termination for which we have content.
If a material program were to be terminated, the termination process
takes several years to wind down, which may provide us ample time to
react before any potential impact occurs. Although we monitor the
budget process as it relates to programs in which we participate, we
can not predict the ultimate impact of future DoD budgets on us. In
addition, there are other risks associated with our defense businesses,
such as failure of a prime contractor customer to perform on a
contract, pricing and/or design specifications that may not always be
2 2
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
finalized at the time the contract is bid, and the failure and/or inability
of certain sole source suppliers to provide us product, any of which
could have an adverse impact on our financial performance. While
alternatives could be identified to replace a sole source supplier, a
transition could result in increased costs and manufacturing delays.
Our outlook for our defense business remains positive for the near to
intermediate term.
COMMERCIAL AEROSPACE
Approximately 17% of our business serves the global commercial
aerospace industry. Global airline traffic is one of the primary drivers
for long-term growth in the commercial aerospace industry, and eco-
nomic growth is one of the primary drivers of global airline traffic
demand. Based on industry reports, global passenger traffic grew
approximately 7% in 2005 and is expected to grow less than 5% in 2006.
High fuel costs, security concerns, and stiff competition, especially
from low-cost airlines, have continued to place profitability pressure
on airlines, which continues to slow procurement of new aircraft and
extend maintenance schedules. Fuel prices are expected to stabilize in
2006, which, combined with continued global economic growth, should
stimulate procurement of new aircraft, a key driver of our commercial
aerospace business. In fact, the two major global aircraft manufactur-
ers experienced record order and backlog levels in 2005 and are pro-
jecting a healthy 20% increase in deliveries in 2006. The impact to our
commercial aerospace business is determined by production levels
which, based upon the above and other market data, should be healthy
in 2006. Our Motion Control segment is a provider of OEM aerospace
components and systems, and repair and overhaul services, while our
Metal Treatment segment provides services to aircraft manufacturers.
Both segments experienced solid sales growth in 2005 to this market.
While the emergence of low cost carriers and improved economic con-
ditions have contributed to this industry’s recovery, concerns still exist
regarding the financial weakness of many airlines, continued high fuel
prices, and the threat of another major terrorist attack, any of which
could have an adverse impact on this industry and our operating
results and financial position.
We anticipate continued improvement in the commercial aerospace
market in 2006. We are well positioned on a number of commercial
aerospace platforms and should benefit from improvement in this
industry, which is expected to occur over the next couple of years.
POWER GENERATION
There are several factors that might precipitate an expansion in com-
mercial nuclear power, including increasing attention to environmen-
tal issues, a pro-nuclear U.S. political leadership, and continued
growth in global demand for power. Nuclear power has minimal impact
on the environment, is one of the most economical forms of generat-
ing electricity, and decreases dependence on oil and gas imports. The
U.S. depends on foreign sources for about half of its total energy needs.
Because of increased demand for and limited supply of energy in the
U.S., we anticipate that the nuclear power industry will continue to
expand in the coming years.
The U.S. nuclear power industry is expected to grow primarily because
most of the 103 existing nuclear power plants have applied for or will
be applying for plant life extensions, as required by current regula-
tions. As of December 31, 2005, approximately 39 plants have received
20 year life extensions, applications from 10 additional plants have
been submitted and are pending approval, and letters of intent to apply
have been received from 27 more plants. In addition, Duke Energy and
Progress Energy each announced in 2005 that they intend to apply to
the Nuclear Regulatory Commission for a combined construction and
operating license (COL) for new nuclear power generation in the U.S.
Both companies have selected the Westinghouse AP1000 reactor
design for their new power plant construction. Curtiss-Wright, through
its Flow Control segment, has significant content on the AP1000 reac-
tor. If approved, construction could begin as early as 2010. Internation-
ally, China intends to expand its nuclear power capabilities significantly
through the construction of new nuclear power plants over the next
several years. It is currently in the process of selecting a reactor design,
which has been narrowed down to the Westinghouse AP1000 and Areva
EPR designs. A decision is expected in 2006. These developments, com-
bined with new plant construction in other parts of Asia and rest of the
world, are expected to drive expansion in this industry.
Our Flow Control segment is well positioned to take advantage of this
expansion. The recent history of plant life extension approvals in the
U.S. and continued strong build programs in Asia are encouraging.
However, there is no guarantee that the nuclear alternative will con-
tinue to be fully endorsed in the U.S. and other parts of the world, or
that the Nuclear Regulatory Commission will authorize the construc-
tion of new facilities in the U.S. In addition, the geopolitical climate is
volatile and could impact future nuclear plant construction levels
around the world.
OIL AND GAS
The most prevalent drivers that impact this market include capital
spending for new construction and upgrades to comply with environ-
mental regulations and maintenance spending to retrofit existing
facilities with improved equipment and technologies to increase
plant flexibility, reliability, production, safety, and profitability. Addi-
tionally, increased demand for oil and natural gas, both domestically
and internationally from emerging economies, and increased demand
for aftermarket services may also positively impact this market going
forward. We experienced strong sales growth to this market, driven
mainly by record orders for our coker valve product.
The current outlook for the petroleum markets is tempered. Accord-
ing to market data, the recent steady increase in crude oil and petro-
leum product prices is expected to slow and possibly decline slightly.
Many of the same factors that drove world oil markets in 2005, such as
low production capacity and rapid demand growth, are expected to
continue to affect markets in 2006. Other factors, such as the frequency
and intensity of hurricanes, other extreme weather, and geopolitical
instability may also continue to affect this market. Global demand is
expected to increase in 2006, primarily due to an increase in the U.S.
from a net decline in 2005 as well as economic growth in developing
Asian countries. Global production capacity is expected to increase in
2006 and 2007, which should moderate the global oil price increases
experienced over the past two years. U.S. production in 2005 was down
due to the impact of the severe hurricane season. Refining margins
have remained relatively high despite higher crude oil prices, which
combined with increased global petrochemical production and contin-
ued global economic growth, should lead to increased investment and
capital spending by the refineries in 2006 and beyond.
Based upon market data, capital expenditures in the processing indus-
tries are expected to increase over the next few years. Long-term
global forecasts project a solid increase in sales of flow control prod-
ucts (valves, pumps, motors) to the processing industries. As the world
continues to depend on natural resources, oil exploration deepens, and
transport requirements widen, we anticipate additional opportunities
to provide our flow control products to meet these challenges. The pro-
posed and enacted environmental regulations in the U.S. and other
developed countries could drive increased demand for flow control
products by as much as 8 to 10% over the next few years. However, we
cannot predict whether certain economic recoveries can be sustained,
whether anticipated future environmental regulatory changes will be
enacted, or how such regulatory changes may impact this industry.
Results of Operations
ANALYTICAL DEFINITIONS
Throughout management’s discussion and analysis of financial condi-
tion and results of operations, the terms “incremental” and “base” are
used to explain changes from period to period. For full year reporting
purposes, acquisitions remain segregated for two calendar years. The
remaining businesses are referred to as the “base” businesses, and
growth in these base businesses is referred to as “organic.” An acqui-
sition is considered base when the reporting year includes fully com-
parable current and prior-year data. Therefore, for the year ended
December 31, 2005, our organic growth of the base businesses
excludes all acquisitions since January 1, 2004. The term “incremen-
tal” is used to highlight the impact acquisitions had on the current year
results, for which there was no comparable prior-year period.
YEAR ENDED DECEMBER 31, 2005 COMPARED WITH YEAR ENDED
DECEMBER 31, 2004
For the year ended December 31, 2005, we recorded consolidated net
sales of $1,130.9 million and net earnings of $75.3 million, or $3.44 per
diluted share. Sales for 2005 increased 18% over 2004 sales of $955.0
million. Net earnings for 2005 increased 16% from 2004 net earnings
of $65.1 million, or $3.02 per diluted share.
The increase in revenues was mainly driven by a complete year of rev-
enues generated from our 2004 acquisitions, primarily Dy 4 Systems,
Primagraphics, Nova Machine, Trentec, Groquip, Synergy, and EPD,
and the 2005 acquisition of Indal. See Note 2 to the Consolidated Finan-
cial Statements for further information regarding acquisitions. These
acquisitions contributed $100.5 million in incremental sales in 2005
(or 57% of the total sales increase from 2004). Our base businesses
experienced organic sales growth of 8% in 2005, led by the Metal Treat-
ment segment, which grew organically by 11%. Our Flow Control and
Motion Control segments experienced solid organic sales growth of
8% and 7%, respectively.
In our base businesses, our coker valve products continue to gain
customer acceptance, which has driven the Flow Control organic sales
increase of $22.6 million to the oil and gas market. The Motion Control
segment experienced higher sales of our OEM and spares products
and repair and overhaul services to the commercial aerospace market
of $16.1 million, mainly due to the increased production requirements
and the continued improvement in the commercial aerospace market.
Metal treatment sales of our global shot peening services increased
$13.5 million, primarily in the commercial aerospace and automotive
markets, due mainly to the continuing recovery of the global economy
and customer production requirements. In addition, we experienced
organic growth in our defense markets in both our Motion Control and
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
2 3
Flow Control segments, which increased 2005 sales by $7.4 million
and $3.6 million, respectively, over 2004. Foreign currency translation
had a favorable impact on sales of $1.2 million in 2005 as compared
to 2004.
Operating income for 2005 totaled $138.0 million, an increase of 25%
from operating income of $110.3 million in 2004. The increase is pri-
marily attributed to higher sales volume, favorable mix, and previously
implemented cost reduction initiatives. Operating income in 2005
experienced organic growth of 21% and was driven by our Metal Treat-
ment and Motion Control segments, which experienced organic growth
of 21% and 14%, respectively, from the prior year. Metal Treatment’s
organic operating income growth was mainly the result of higher vol-
ume while Motion Control’s organic growth was due to higher volume,
favorable sales mix from commercial aerospace spares and aftermar-
ket services, and implemented cost control initiatives. Organic operat-
ing income growth in our Flow Control segment was 10% in 2005, due
to higher volume. The contributions of the 2004 and 2005 acquisitions
amounted to $0.6 million in incremental operating income in 2005
compared to 2004, keeping the overall operating segment margin flat
in 2005 compared to 2004. The operating margin of our segments have
been somewhat lower than historical levels in recent years, principally
related to the large number of acquisitions made since 2002. Although
the new acquisitions continue to have a positive effect on operating
income, the operating margin of the overall Corporation is lower since
the margin level of the newly acquired companies are below those of
our base businesses. We consider this to be a temporary issue that
should be more than offset by the benefits of diversification, the imple-
mentation of cost control measures, and increased future profitability.
The integration of our acquisitions continues to progress as planned.
In addition to having improved operating margins for almost all of our
recent acquisitions, we have initiated programs to cross-market prod-
ucts and share technologies across our businesses. Foreign currency
translation had a favorable impact on operating income of $0.2 million
for 2005 as compared to 2004.
In addition to the strong organic growth of the segments, we experi-
enced favorable results in 2005 compared to 2004 from lower environ-
mental remediation costs, which declined $4.5 million, a gain on the
sale of property for $2.8 million, and lower costs associated with
Sarbanes-Oxley Section 404 compliance of $1.2 million. These favor-
able impacts were offset by higher research and development, selling,
general, and administrative expenses, mainly due to the 2004 and 2005
acquisitions. In addition, we incurred additional infrastructure costs to
support our business growth and higher pension expense.
We incurred higher interest expense due to higher interest rates, which
accounted for approximately 54% of the increase, and higher debt lev-
els associated with the funding of our acquisition program. Net earn-
ings in 2004 included certain one-time tax benefits of $3.4 million,
which primarily resulted from the change in legal structure of one of
our subsidiaries and a favorable IRS Appeals settlement.
Backlog at December 31, 2005 was $805.6 million compared with
$627.7 million at December 31, 2004 and $505.5 million at December
31, 2003. Acquisitions made during 2005 represented $51.9 million of
the backlog at December 31, 2005. New orders received in 2005 totaled
$1,261.2 million, which represents a 26% increase over 2004 new
orders of $998.9 million and a 70% increase over new orders received
in 2003. Acquisitions made during 2004 and 2005 contributed $115.0
2 4
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
million in incremental new orders received in 2005. Record orders for
our flow control coker valve and strong orders for our motion control
electronic and mechanical products drove the new order improve-
ment. Our metal treatment services, repair and overhaul services, and
after-market sales, which represent approximately 25% of our total
sales for 2005, are sold with very modest lead times. Accordingly, the
backlog for these businesses is less of an indication of future sales than
the backlog of the majority of the products and services of our Motion
Control and Flow Control segments, in which a significant portion of
sales is derived from long-term contracts.
YEAR ENDED DECEMBER 31, 2004 COMPARED WITH YEAR ENDED
DECEMBER 31, 2003
We recorded consolidated net sales of $955.0 million and net earnings
of $65.1 million, or $3.02 per diluted share, for the year ended Decem-
ber 31, 2004. Sales for 2004 increased 28% over 2003 sales of $746.1
million. Net earnings for 2004 increased 24% from 2003 net earnings
of $52.3 million, or $2.50 per diluted share.
The increase in revenues was mainly driven by a complete year of rev-
enues generated from our 2003 acquisitions of Systran, Novatronics/
Pickering, E/M Engineered Coatings Solutions, Advanced Materials
Process, and Collins Technology and contributions from our 2004
acquisitions, primarily Dy 4 Systems, Primagraphics, Nova Machine,
Trentec, Groquip, Synergy, and EPD. See Note 2 to the Consolidated
Financial Statements for further information regarding acquisitions.
These acquisitions made in 2004 and 2003 contributed $154.2 million
in incremental sales in 2004 (or 74% of the total sales increase from
2003). Our remaining base business units experienced organic sales
growth of 7% in 2004, led by the Metal Treatment segment, which
grew organically by 21%. The Flow Control and Motion Control seg-
ments experienced solid organic sales growth of 5% and 4%, respec-
tively. The organic growth in the Flow Control segment was achieved in
2004 despite a decrease in overall revenue from the U.S. Navy of
approximately $9 million.
In our base businesses, higher Metal Treatment sales of our global
shot peening, laser peening, and heat treating services of $21.8 mil-
lion, higher sales of certain Flow Control products to the power gener-
ation market of $15.0 million, the oil and gas industry of $6.4 million,
and the defense electronics markets of $5.7 million, and higher sales
of our Motion Control products to the military aerospace market of
$14.7 million and commercial aerospace aftermarket services of $5.9
million all contributed to the organic sales growth for 2004 compared
to 2003. These increases in our base businesses were partially offset
by lower sales of certain Flow Control products to the U.S. Navy due to
timing of contractual revenues, a decrease of $14.5 million, and lower
sales of motion control electronic products of $10.6 million for use in
global ground defense markets because of the wind down on certain
production projects. Favorable foreign currency translation had a
favorable impact on sales of $15.8 million for 2004 compared to 2003.
Operating income for 2004 totaled $110.3 million, an increase of
24% from operating income of $89.0 million in 2003. The increase is
primarily attributed to higher sales volume, favorable mix, and
previously implemented cost reduction initiatives. The contributions of
our 2003 and 2004 acquisitions amounted to $11.0 million in incre-
mental operating income in 2004 compared to 2003. In addition to the
contribution of these acquisitions, 2004 operating income benefited
from organic growth in our remaining base businesses, which
improved 13% overall and was driven by strong organic growth in our
Metal Treatment and Motion Control segments of 55% and 22%,
respectively, from 2003. The improvement in Metal Treatment’s base
businesses’ operating income was the result of higher volume and
favorable sales mix due to the higher laser peening sales. The
improvement in Motion Control’s base businesses’ operating income
came from higher volume, reductions in certain reserve requirements,
favorable sales mix from commercial aerospace aftermarket services
and spares, and implemented cost control initiatives. Operating
income from the base businesses within our Flow Control segment
increased 9% in 2004 over 2003, due to higher volume, contract cost
overruns and inventory write-offs in 2003 that did not reoccur in 2004,
and a stronger sales mix for our power generation products. The
increase was partially offset by the lower overall volume to the U.S.
Navy, driven by the profit impact related to the two large higher
margin contracts in 2003 that did not reoccur in 2004. Additionally, we
increased our reserves for environmental remediation during 2004,
resulting in a $3.9 million increase in environmental remediation and
administrative expenses over 2003. Foreign currency translation had a
favorable impact on operating income of $2.9 million for 2004 as
compared to 2003.
Overall consolidated operating margins were down slightly in 2004
compared to 2003. Strong margins within our business segments were
achieved despite the absorption of $5.3 million of environmental costs,
$2.5 million in costs associated with Sarbanes-Oxley Section 404
compliance, and lower pension income of $2.1 million in 2004, due to
additional costs resulting from the acquisitions and slightly lower
investment returns.
The increase in net earnings for 2004 compared to 2003 is mainly due
to higher segment operating income. The improvement in operating
income in 2004 was partially offset by higher interest expense caused
by higher debt levels associated with the funding of our acquisition pro-
gram, which accounted for approximately 60% of the increase, and
higher interest rates. Net earnings for 2004 included certain one-time
tax benefits of $3.4 million. The tax benefits primarily resulted from the
change in legal structure of one of our subsidiaries and a favorable IRS
appeals settlement relating to the 1993 tax year.
Segment Performance
We operate in three principal operating segments on the basis of prod-
ucts and services offered and markets served: Flow Control, Motion
Control, and Metal Treatment. See Note 16 to the Consolidated Finan-
cial Statements for further segment financial information. The follow-
ing table sets forth revenues, operating income, operating margin, and
the percentage changes on those items, for 2005 as compared with the
prior year periods, by operating segment:
(In thousands, except percentages)
SALES:
Flow Control
Motion Control
Metal Treatment
Total Curtiss-Wright
OPERATING INCOME:
Flow Control
Motion Control
Metal Treatment
Total Segments
Corporate & Other
Total Curtiss-Wright
OPERATING MARGINS:
Flow Control
Motion Control
Metal Treatment
Total Segments
Total Curtiss-Wright
Year Ended December 31,
Percent Changes
2005
2004
2003
2005
vs. 2004
2004
vs. 2003
$ 466,546
465,451
198,931
$388,139
388,576
178,324
$341,271
265,905
138,895
$1,130,928
$955,039
$746,071
$
54,509
50,485
34,470
139,464
(1,482)
$ 44,451
44,893
28,111
117,455
(7,114)
$ 39,980
30,321
18,742
89,043
(72)
$ 137,982
$110,341
$ 88,971
20.2%
19.8%
11.6%
18.4%
22.6%
12.5%
22.6%
18.7%
–79.2%
25.1%
13.7%
46.1%
28.4%
28.0%
11.2%
48.1%
50.0%
31.9%
N/A
24.0%
11.7%
10.8%
17.3%
12.3%
12.2%
11.5%
11.6%
15.8%
12.3%
11.6%
11.7%
11.4%
13.5%
11.9%
11.9%
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
2 5
FLOW CONTROL
Our Flow Control segment reported sales of $466.5 million for 2005, a
20% increase over 2004 sales of $388.1 million. The sales increase was
achieved through organic sales growth of 8% and full year sales
contribution of our 2004 acquisitions of Nova Machine, Trentec, Gro-
quip, and EPD, which contributed $49.0 million in incremental revenue.
The organic growth in sales was driven by higher sales to the oil and
gas industry of $22.6 million and higher product sales and develop-
ment work to the defense market of $3.6 million. Coker valve products
accounted for approximately 80% of the increased oil and gas market
sales due to greater customer acceptance and increased installations,
while our other oil and gas valve and field service revenues were higher
because of increased maintenance expenditures by refineries world-
wide. Higher valve sales to the U.S. Navy of $8.3 million were driven by
strong demand for our JP-5 jet fuel transfer valves and ball valves used
on Nimitz-class aircraft carriers and Virginia-class submarines,
respectively. Electronic instrumentation and digital signal processing
card sales on naval platforms increased $7.4 million as compared to
the prior year. These increased sales to the U.S. Navy were partially
offset by anticipated lower revenues from electromechanical products
because of timing of major programs. Revenues from pump produc-
tion decreased $26.3 million compared to the prior year due to com-
pletion of Los Angeles and Virginia-class submarine production pump
contracts and development prototype programs, such as for the CVN-
21 aircraft carrier, and were partially offset by sales for development
work on the U.S. Army’s electromagnetic gun, which increased $10.7
million, and sales of generators which increased $4.8 million. In addi-
tion, foreign currency translation favorably impacted this segment’s
sales by $1.2 million in 2005 compared to 2004.
Operating income for 2005 was $54.5 million, an increase of 23% over
2004 operating income of $44.5 million. The base business operating
income grew 10% organically for the full year ended December 31,
2005, while the 2004 acquisitions contributed an additional $3.4 mil-
lion of incremental operating income in 2005. The improvement in
operating income of base businesses was driven primarily by higher
sales volume. Factors impacting the comparison of the base busi-
nesses to the prior year include increased sales and margins from our
oil and gas products, notably record orders for our coker valves and the
higher margin field service and repairs business. In addition, the oper-
ating income benefit from the higher overall volume to the U.S. Navy
was partially offset by unfavorable mix within our electronic products
and lower margin development work performed in anticipation of fol-
low-on production orders with the U.S. Army. Higher raw material
costs, such as the cost of steel, and higher administrative infrastruc-
ture costs have adversely impacted our operating margins. In addition,
foreign currency translation favorably impacted operating income by
$0.2 million in 2005 as compared to 2004.
Backlog at December 31, 2005 is $429.3 million compared with $396.3
million at December 31, 2004 and $317.8 million at December 31, 2003.
New orders received in 2005 totaled $500.1 million, which represents
a 15% increase over 2004 new orders of $436.7 million and a 41%
increase over new orders received in 2003. The increase is mainly due
to our new acquisitions, which accounted for $64.0 million in incre-
mental new orders during 2005. Record new orders for our coker valve
products to the oil and gas industry were offset by lower funding
received from the U.S. Navy for our electromechanical products in 2005
compared to 2004.
2 6
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
Our Flow Control segment reported sales of $388.1 million for 2004, a
14% increase over 2003 sales of $341.3 million. The higher sales were
primarily due to the contributions of our 2004 acquisitions of Nova
Machine, Trentec, Groquip, and EPD. The 2004 incremental sales from
these acquisitions amounted to $30.7 million. The remaining business
units of this segment produced organic sales growth of 5%. The solid
organic growth was lead by stronger sales of valves, pumps, other
electro-mechanical products, and field services to the power genera-
tion market, which increased $15.0 million due to additional orders,
new teaming arrangements, and expedited plant outage service
requirements. Increased demand helped drive record new orders of
our coker valves for the oil and gas industry, which positively impacted
sales by $9.2 million, and higher sales of our electronic products to the
U.S. Navy, which increased $5.7 million and also contributed to the
organic growth. This increase was partially offset by lower sales of flow
control products to the U.S. Navy of $14.5 million due to the timing of
contractual revenues. In 2003, the Flow Control segment completed
the shipment of two large projects to the U.S. Navy, which generated
approximately $25 million in sales. We were able to partially offset the
impact of these completed naval projects with higher sales of pumps
and other generators for aircraft carriers and submarines and
increased demand for the non-nuclear ball valves to the U.S. Navy.
Sales of the remaining valve product lines to the oil and gas industry
were down in 2004 compared to the prior year. In addition, foreign
currency translation favorably impacted sales by $2.3 million in 2004
compared to 2003.
Operating income in 2004 increased by 11% over 2003. The increase
was mainly due to solid organic growth of 9% and the contributions
from the 2004 acquisitions, which generated operating income of $1.0
million in 2004. The increase in organic operating income was mainly
due to contract cost overruns on a safety relief valve project and inven-
tory write-offs of approximately $2.9 million in 2003 that did not reoc-
cur in 2004, higher volume and a stronger sales mix within our power
generation products, and higher overall volumes for our valve products
to the oil and gas industry and electronic products to the U.S. Navy. The
increase was partially offset by the lower volume to the U.S. Navy, dri-
ven by the profit impact related to the two large higher margin con-
tracts in 2003 that did not reoccur in 2004. These projects contributed
approximately $9.7 million in operating income in 2003. Foreign cur-
rency translation had a $0.2 million positive impact on 2004 operating
income compared to 2003.
MOTION CONTROL
Our Motion Control segment reported sales of $465.5 million for 2005,
a 20% increase over 2004 sales of $388.6 million. The higher sales
largely reflect the contributions of our 2005 acquisition of Indal,
and the full year contributions of our 2004 acquisitions of Dy 4, Synergy,
and Primagraphics. The 2005 incremental sales associated with these
acquisitions amounted to $49.9 million. Organic sales increased 7%.
Sales in the base business were driven by several factors, including a
$7.4 million increase in commercial aerospace OEM market sales.
Commercial aerospace OEM sales were driven largely by increased
demand for our actuation systems content on the Boeing 737 platform
and increased sales of sensors and components. Commercial aero-
space aftermarket sales increased $8.8 million during the period, with
$4.3 million of that increase in our repair and overhaul business, driven
by improving conditions in the commercial airline industry, while
spares sales contributed an additional $4.0 million. The remaining
change in our commercial markets was highlighted by $3.4 million of
higher controller product sales for use in general industrial applica-
tions, which was partially offset by the expiration of a tilting train drive
systems project in Europe, which contributed $3.7 million in sales in
2004. We also experienced a $3.2 million sales increase in the defense
aerospace market, driven by production work on the new AN-APR39
radar warning system for use on various helicopter programs, along
with strong sales increases in ruggedized embedded computing.
Remaining sales to the military aerospace market were essentially flat
as increased ship set production of our actuation systems on the F-22
aircraft were offset by lower sales of F-16 spares. Sales to the ground
defense market were up $1.6 million, as higher turret drive stabiliza-
tion systems and mobile gun systems sales were largely offset by
lower spares sales for the Bradley Fighting Vehicle. In addition, foreign
currency translation negatively impacted sales by $0.1 million in 2005
as compared to 2004.
Operating income for 2005 increased $5.6 million, or 12% over 2004.
Operating income in our base businesses increased 14% driven
primarily by higher sales volume and related improvements in gross
margin. The operating margins in 2005 decreased 80 basis points to
10.8%. Factors impacting the comparison of the base businesses to the
prior year include increased sales and margins from commercial aero-
space programs, notably the Boeing 737 and 747 programs, and favor-
able industry trends in the markets for commercial aftermarket
services and spares leading to higher sales and margins, and cost
reduction initiatives. Offsetting these increases are the completion of
a tilting train drive systems project in Europe and lower F-16 spares
orders, both high margin products that contributed favorably in the
prior year, continuing integration efforts in the embedded computing
business, and lower margins associated with development work per-
formed in anticipation of follow-on production orders, the bulk of which
related to cost overruns on a fixed price contract for the 767 tanker
refueling program.
The 2005 operating margin associated with businesses acquired in
2004 and 2005 was 6.1%, significantly lower than the base businesses;
however, we expect our integration efforts will improve these margins
in the future. In the current year, our newly acquired businesses’ oper-
ating income was impacted by the delay of orders for our naval systems
products, which was anticipated to be realized in 2005, the ongoing
integration efforts in the embedded computing business, and margin
erosion from changes in foreign exchange rates on certain foreign cur-
rency denominated contracts for similar products.
Backlog at December 31, 2005 was $374.5 million compared with
$229.6 million at December 31, 2004 and $186.3 million at December
31, 2003. Acquisitions made during 2005 represent $51.9 million of the
backlog at December 31, 2005. New orders received in 2005 totaled
$562.2 million, which represents a 47% increase over 2004 new orders
of $383.5 million and a 125% increase over new orders received in
2003. The increase is mainly due to strong orders for our mechanical
actuator and embedded computing products. The segment’s 2005 and
2004 acquisitions accounted for $49.4 million in incremental new
orders in 2005 versus 2004.
Motion Control segment sales in 2004 were $388.6 million, a 46%
increase over 2003 sales of $265.9 million. The higher sales largely
reflect the contributions of our 2004 acquisitions of Dy 4, Primagraph-
ics, and Synergy, and the full year contributions of our December 2003
acquisitions of Systran, Novatronics, and Pickering. The 2004 incre-
mental sales associated with these acquisitions amounted to $110.8
million. Sales from the remaining base businesses grew 4% organi-
cally. Improvement in commercial aerospace aftermarket sales con-
tributed $5.9 million to the growth, $2.8 million of which came from our
repair and overhaul business, with the remainder attributable mainly
to increased sensors and controls sales. Drive system sales to the
European ground defense market declined by $2.9 million as expe-
dited customer delivery requirements shifted production from the
beginning of 2004 into 2003. Domestic electro-mechanical systems
production experienced a slight increase in domestic military aero-
space sales, with F-22 production and spares revenue replacing F-16
spares sales, which had ramped up at the end of 2003. The base
embedded computing businesses were essentially flat, with increased
sales to the domestic military aerospace market of $10.1 million dri-
ven by new contract wins including the start of full scale production of
radar warning systems for the U.S. Army’s helicopter programs and
the design, development, and integration of the actuators for the 767
refueling program. These wins were offset by declines to the domes-
tic ground defense market of $10.6 million, mainly from scheduled
production declines on the Abrams tank and the Bradley Fighting Vehi-
cle, while Bradley spares revenue remained strong through 2004 due
to the support of the Iraqi war effort. Additionally, foreign currency
translation favorably impacted sales in 2004 by $7.7 million compared
to 2003.
Operating income for this segment in 2004 increased 48% over 2003.
Acquisitions made in 2003 and 2004 generated incremental operating
income of $8.9 million, while the base businesses increased 22%. The
improvement was driven by the higher sales volume, favorable sales
mix from commercial aerospace aftermarket services and spares, and
implemented cost control initiatives, offset by lower margin develop-
ment work performed in anticipation of follow on production orders.
The segment benefited from reductions in reserve requirements at its
European sensors business totaling $1.7 million during 2004, result-
ing in a $2.5 million variance in a year over year comparison, since the
majority of the reserves were recorded in 2003. Foreign currency
translation had a $1.2 million positive impact on 2004 operating
income compared to 2003.
METAL TREATMENT
Our Metal Treatment segment reported sales of $198.9 million in 2005,
an increase of 12% over 2004 sales of $178.3 million. Organic sales
growth of 11% contributed $18.2 million to the increase. The organic
growth was due to solid performance in our global shot peening ser-
vices, which contributed $13.5 million of additional sales mainly in the
European commercial aerospace and global automotive markets.
Increases in shot peen forming services, primarily on wing compo-
nents on the Airbus family of aircraft including the A380, and shot
peening services on aircraft engines were both driven by customer
production requirements. Sales of shot peening services for the auto-
motive industry increased in both Europe and North America by
$2.7 million and $1.1 million, respectively, due to favorable overlap of
existing and new programs in the first half of the year, partially offset
by decreased volumes from General Motors and Ford in the second
half of the year. Sale of our heat treating and coatings divisions were up
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
2 7
$2.1 million and $1.9 million, respectively, over the prior year period.
The increases were derived primarily from the commercial aerospace
market, as customer demand for these services on aircraft component
parts increased with the continuing recovery of the aerospace market.
In 2005, laser peening sales were essentially flat compared to 2004, as
we continue to develop applications for this new technology to be used
on highly stressed critical components in the turbine engine, aircraft
structures, medical implant, and oil and gas markets. The remaining
sales increase was due to contributions from our 2004 acquisitions,
which contributed $1.7 million of incremental sales during 2005. For-
eign currency translation had a nominal positive impact on sales in
2005 compared to 2004.
Operating income for 2005 increased 23% to $34.5 million from $28.1
million during 2004, mainly due to higher sales volume. Gross margins
improved slightly on the higher sales volume, partially offset by higher
energy costs of $2.3 million, primarily in our heat treating division.
However, the impact of the greater sales volume was felt most signif-
icantly on operating income, which had margins of 17.3% in 2005 com-
pared to 15.8% in 2004. Selling, general, and administrative costs,
which are generally fixed in nature, increased only 4% over the prior
year period, contributing to the higher operating income margin per-
centage. Foreign currency translation had a nominal negative impact
on operating income in 2005 compared to 2004.
Backlog at December 31, 2005 and 2004 was $1.9 million compared
with $1.4 million at December 31, 2003. New orders received in 2005
totaled $199.0 million, which represents an 11% increase from 2004
new orders of $178.7 million and a 43% increase over new orders
received in 2003. The increase is mainly due to the improvement in the
global economy, which positively impacted the core shot peening busi-
ness and the segment’s recent acquisitions.
Metal Treatment sales were $178.3 million in 2004, an increase of 28%
over 2003 sales of $138.9 million. Organic sales growth of 21% con-
tributed $24.7 million to the increase. The organic growth was due to
strong sales growth from our new laser peening technology, which
contributed $4.8 million in incremental sales, as well as solid growth
in our global shot peening services, which contributed $14.2 million
of incremental sales mainly in the German automotive, European
commercial aerospace, and North American commercial and military
aerospace markets. Sales from our heat treating division were up $2.8
million over the prior year period mainly due to overflow from a com-
petitor and to the segment’s new aluminum treatment capabilities for
the aerospace industry. The remaining sales increase came from our
2003 and 2004 acquisitions, which contributed $12.7 million of incre-
mental sales during 2004. The main contributor to this increase
was our E/M Engineered Coatings Solutions businesses, which
were acquired in April 2003. In addition, foreign currency translation
favorably impacted sales by $5.8 million compared to 2003.
Operating income for 2004 increased 50% to $28.1 million from $18.7
million during 2003. Margin improvement was due to higher sales vol-
ume, favorable sales mix due to higher laser peening sales, and imple-
mented cost reduction initiatives. Offsetting our margin improvements
were increased medical costs and higher energy costs as compared to
the prior year period. Foreign currency translation had a $1.5 million
positive impact on 2004 operating income as compared to 2003.
2 8
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
CORPORATE AND OTHER EXPENSES
Non-segment operating costs consist mainly of environmental reme-
diation and administrative expenses, pension expense/income associ-
ated with the Curtiss-Wright pension plan, and other income and
expense not directly associated with the ongoing performance of the
segments. We had non-segment operating costs of $1.5 million, $7.1
million and $0.1 million in 2005, 2004, and 2003, respectively. Environ-
mental remediation and administration costs represented $0.8 mil-
lion, $5.3 million, and $1.4 million in 2005, 2004, and 2003, respectively.
The increase in 2004 was due to a $4.4 million increase in remediation
reserve requirements related to the Caldwell Trucking landfill super-
fund site. Pension expense associated with the Curtiss-Wright Pension
Plan was $2.0 million and $0.5 million in 2005 and 2004, respectively,
while 2003 experienced income of $1.6 million. The increase in pension
expense is due to increased service costs and lower returns on plan
assets. We also realized a gain of $2.8 million during 2005 on the sale
of a former operating property located in Fairfield, New Jersey. Higher
consulting fees associated with Sarbanes-Oxley Section 404 com-
pliance in 2005 and 2004 accounted for the remaining difference as
compared to 2003.
INTEREST EXPENSE
Interest expense increased $8.0 million in 2005 compared to 2004.
Higher interest rates accounted for approximately 54% of the increase,
and the remaining increase was due to higher debt levels associated
with the funding of our acquisitions. Interest expense in 2004 increased
$6.4 million from 2003, with higher debt levels associated with
the funding of our acquisitions accounting for 60% of the increase.
The remaining increase in 2004 versus 2003 was caused by higher
interest rates.
PROVISION FOR INCOME TAXES
Our effective tax rates for 2005, 2004, and 2003 are 36.4%, 34.1%, and
37.8%, respectively. Our 2005 effective tax rate included a charge of
$0.3 million from the repatriation of foreign earnings under the Amer-
ican Jobs Creation Act of 2004. Our 2004 effective tax rate included
nonrecurring benefits totaling $3.4 million resulting primarily from the
change in legal structure of one of our subsidiaries and a favorable IRS
appeals settlement. Our 2003 effective tax rate included the benefit of
the restructuring of some of our European operations.
Liquidity and Capital Resources
SOURCES AND USES OF CASH
We derive the majority of our operating cash inflow from receipts on
the sale of goods and services and cash outflow for the procurement of
materials and labor and cash flow is therefore subject to market fluc-
tuations and conditions. A substantial portion of our business is in the
defense sector, which is characterized by long-term contracts. Most of
our long-term contracts allow for several billing points (progress or
milestone) that provide us with cash receipts as costs are incurred
throughout the project rather than upon contract completion, thereby
reducing working capital requirements. In some cases, these pay-
ments can exceed the costs incurred on a project.
OPERATING ACTIVITIES
Our working capital was $269.0 million at December 31, 2005, an
increase of $56.8 million from the working capital at December 31,
2004 of $212.2 million. Our ratio of current assets to current liabilities
was 2.2 to 1 at December 31, 2005, compared with a ratio of 2.1 to 1 at
December 31, 2004. Cash and cash equivalents totaled $59.0 million in
the aggregate at December 31, 2005, up from $41.0 million at Decem-
ber 31, 2004. The increase is primarily due to an increase in cash and
cash equivalents following the 2005 Senior Note offering and subse-
quent pay down of our outstanding debt under our revolving credit
facilities. Excluding the impact on cash, working capital increased
$38.8 million partially due to our Indal acquisition made in the first
quarter of 2005. The remainder of the increase was driven mainly by
increases in inventory of $26.9 million and accounts receivables of
$21.6 million. Inventory balances rose primarily as a result of build up
for expected increases in sales in 2006 and strategic initiatives to lower
turn-around time for deliveries. Accounts receivable increased due to
the timing of contractual billings and industry cycles, partially offset by
collection of receivables from certain large projects outstanding at
December 31, 2004. Unbilled receivables increased substantially due
to funding and other operational delays by certain customers as well
as increased contracts for which progress billings do not apply.
Partially offsetting these increases in working capital requirements
was an increase in accounts payable and accrued expenses associated
with the build up of inventories and higher accrued compensation.
Our short-term debt was $0.9 million at December 31, 2005 and $1.6
million at December 31, 2004. Our long-term debt was $364.0 million
at December 31, 2005, an increase of $23.2 million from the balance at
December 31, 2004. The increase in long-term debt is primarily due to
funds borrowed to purchase Indal offset by cash generation during
2005. Days sales outstanding at December 31, 2005 decreased to 43
days from 47 days at December 31, 2004 while inventory turnover
decreased to 5.6 turns at December 31, 2005 as compared to 5.8 turns
at December 31, 2004.
Our balance of cash and cash equivalents totaled $41.0 million at
December 31, 2004, down from $98.7 million at December 31, 2003.
The decrease was primarily due to the use of available cash to fund our
acquisition of Dy 4 Systems, Inc. on January 31, 2004. Excluding the
impact on cash, working capital increased $33.1 million due to our
acquiring eleven businesses in 2004. In addition to the impact of these
acquisitions, working capital changes were highlighted by an increase
in receivables of $39.9 million and an increase in accounts payable
and accrued expenses of $19.8 million. Unbilled receivables increased
substantially due to funding and other operational delays by certain
customers as well as increased contracts for which progress billings
do not apply. The increase in accounts payable and accrued expenses
is due to the timing of year-end payments and higher accrued com-
pensation. Our short-term debt was $1.6 million at December 31, 2004
and $1.0 million at December 31, 2003. Our long-term debt was $340.9
million at December 31, 2004, an increase of $116.7 million from the
balance at December 31, 2003. The increase in long-term debt was
the result of additional funds borrowed to acquire eleven businesses
in 2004. Days sales outstanding at December 31, 2004 decreased to
47 days from 56 days at December 31, 2003 while inventory turnover
increased to 5.8 turns at December 31, 2004 as compared to 5.5 turns
at December 31, 2003.
INVESTING ACTIVITIES
We have acquired twenty-five businesses since 2001 and expect to con-
tinue to seek acquisitions that are consistent with our long-term
growth strategy. A combination of cash resources, funds available
under our credit agreement, and proceeds from our Senior Notes were
utilized to fund our acquisitions, which totaled $73.1 million and
$247.4 million in 2005 and 2004, respectively. As indicated in Note 2
to the Consolidated Financial Statements, some of our acquisition
agreements contain purchase price adjustments, such as potential
earn-out payments and working capital adjustments. During 2005, we
made approximately $8.6 million in such payments relative to prior
period acquisitions. Additional acquisitions will depend, in part, on the
availability of financial resources at a cost of capital that meets our
stringent criteria. As such, future acquisitions, if any, may be funded
through the use of our cash and cash equivalents, through additional
financing available under the credit agreement, or through new
financing alternatives.
Our capital expenditures were $42.4 million in 2005, $32.5 million in
2004, and $33.3 million in 2003. In 2005 and 2004, principal capital
expenditures included a move to a new flow control facility, new and
replacement machinery and equipment within the business segments
and for the expansion of new product lines and facilities. Our capital
expenditures in 2003 included building expansions, a new laser peening
facility and associated laser machinery, and various other machinery
and equipment.
FINANCING ACTIVITIES
On December 1, 2005, we issued $150.0 million of 5.51% Senior Series
Notes (the “2005 Notes”). Our 2005 Notes mature on December 1, 2017
and are senior unsecured obligations, equal in right of payment to our
existing senior indebtedness. We, at our option, can prepay at any time
all or any part of our 2005 Notes, subject to a make-whole payment in
accordance with the terms of the Note Purchase Agreement. In con-
nection with our 2005 Notes, we paid customary fees that have been
deferred and will be amortized over the term of our 2005 Notes. We are
required under the Note Purchase Agreement to maintain certain
financial ratios, the most restrictive of which is a debt to capitalization
limit of 60%, and a cross default provision with our other senior
indebtedness. As of December 31, 2005, we were in compliance with
all covenants.
In November 2005, we unwound our interest rate swap agreements
with notional amounts of $20 million and $60 million which were orig-
inally put in place to convert a portion of our fixed interest on the $75
million 5.13% Senior Notes and $125 million 5.74% Senior Notes,
respectively, to variable rates based on specified spreads over six-
month LIBOR. The unwinding of these swap agreements resulted in a
net loss of $0.2 million, which has been deferred and is being amor-
tized over the remaining term of the underlying debt.
At December 31, 2005, we had a $400 million revolving credit agreement
(the “Agreement”) with a group of ten banks. The agreement expires in
2009. Borrowings under the Agreement bear interest at a floating rate
based on market conditions. In addition, our interest rate and level of
facility fees are dependent on certain financial ratio levels, as defined in
the Agreement. We are subject to annual facility fees on the commit-
ments under the Agreement. In connection with the Agreement, we
paid customary transaction fees that have been deferred and are being
amortized over the term of the Agreement. We are required under the
Agreement to maintain certain financial ratios and meet certain finan-
cial tests, the most restrictive of which is a debt to capitalization limit of
55% and a cross default provision with our other senior indebtedness.
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
2 9
The Agreement does not contain any subjective acceleration clauses.
As of December 31, 2005, we were in compliance with all covenants and
had the flexibility to issue additional debt of approximately $400 million
without exceeding the covenant limit defined in the Agreement. We
would consider other financing alternatives to maintain capital struc-
ture balance and ensure compliance with all debt covenants. We did
not have any cash borrowings outstanding (excluding letters of credit)
under the Agreement at December 31, 2005 compared to $124.5 mil-
lion of cash borrowings outstanding at December 31, 2004. The unused
credit available under the agreement at December 31, 2005 was
$367.9 million.
On September 25, 2003 we issued $200.0 million of Senior Notes (the
“2003 Notes”). The 2003 Notes consist of $75.0 million of 5.13% Senior
Notes that mature on September 25, 2010 and $125.0 million of 5.74%
Senior Notes that mature on September 25, 2013. Our 2003 Notes are
senior unsecured obligations and are equal in right of payment to our
existing senior indebtedness. We, at our option, can prepay at any time
all or any part of our 2003 Notes, subject to a make-whole payment in
accordance with the terms of the Note Purchase Agreement. In con-
nection with our 2003 Notes, we paid customary fees that have been
deferred and will be amortized over the terms of the 2003 Notes. We
are required under the Note Purchase Agreement to maintain certain
financial ratios, the most restrictive of which is a debt to capitalization
limit of 60% and a cross default provision with our other senior indebt-
edness. As of December 31, 2005, we were in compliance with
all covenants.
Our industrial revenue bonds, which are collateralized by real estate,
were $14.2 million at December 31, 2005 and $14.3 million at Decem-
ber 31, 2004. The loans outstanding under the 2003 and 2005 Notes,
Interest Rate Swaps, Revolving Credit Agreement, and Industrial Rev-
enue Bonds had variable interest rates averaging 4.67% for 2005 and
3.65% for 2004.
FUTURE COMMITMENTS
Cash generated from operations is considered adequate to meet our
operating cash requirements for the upcoming year, including planned
capital expenditures of approximately $50 million, interest payments
of approximately $20 million to $22 million, estimated income tax pay-
ments of approximately $40 million to $50 million, dividends of approx-
imately $11 million, pension funding of approximately $7 million, and
additional working capital requirements. We have approximately $3
million in short-term environmental liabilities, which is manage-
ment’s estimation of cash requirements for 2006. Additionally, we are
committed to potential earn-out payments on seven of our acquisitions
dating back to 2001, which are estimated to be between approximately
$9 million to $11 million in 2006. There can be no assurance, however,
that we will continue to generate cash flow at the current level. If cash
generated from operations is not sufficient to support these require-
ments and investing activities, we may be required to reduce capital
expenditures, refinance a portion of our existing debt, or obtain addi-
tional financing.
In 2006, our capital expenditures are expected to be approximately $50
million due to the construction of new facilities, expansion of facilities
to accommodate new product lines, and new machinery and equip-
ment, such as additional investment in our laser peening technology.
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C U R T I SS - 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 commercial commitments as of December 31, 2005:
Interest
Debt Payments
(In thousands)
2006
2007
2008
2009
20010
Thereafter
Principal
Repayments(1) Rate Debt
on Fixed Operating
Leases
$
885
5,060
62
64
125,066
233,928
$ 19,288
19,288
19,288
19,288
18,254
76,752
$15,471
13,600
11,423
8,679
5,763
16,402
Total
$ 35,644
37,948
30,773
28,031
149,083
327,082
Total
$365,065
$172,158
$71,338
$608,561
(1) Amounts exclude a $0.2 million adjustment to the fair value of long-term debt
relating to the Corporation’s interest rate swap agreements that were settled in
cash during 2005.
We do not have material purchase obligations. Most of our raw mate-
rial purchase commitments are made directly pursuant to specific
contract requirements.
We enter into standby letters of credit agreements with financial insti-
tutions and customers primarily relating to guarantees of repayment
on our Industrial Revenue Bonds, future performance on certain
contracts to provide products and services, and to secure advance
payments we have received from certain international customers.
At December 31, 2005, we had contingent liabilities on outstanding
letters of credit due as follows:
(In thousands)
2006
2007
2008
2009
2010
Thereafter
Total
Letters
of Credit
$ 7,568
7,256
16,052
24
—
1,387
$32,287
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements and accompanying notes are
prepared in accordance with generally accepted accounting principles
in the United States of America. Preparing consolidated financial
statements requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues, and expenses.
These estimates and assumptions are affected by the application
of our accounting policies. Critical accounting policies are those that
require application of management’s most difficult, subjective, or
complex judgments, often as a result of the need to make estimates
about the effects of matters that are inherently uncertain and may
change in subsequent periods. We believe that the following are some
of the more critical judgment areas in the application of our account-
ing policies that affect our financial condition and results of operations:
REVENUE RECOGNITION
The realization of revenue refers to the timing of its recognition in our
accounts and is generally considered realized or realizable and earned
when the earnings process is substantially complete and all of the
following criteria are met: 1) persuasive evidence of an arrangement
exists; 2) delivery has occurred or services have been rendered; 3) our
price to our customer is fixed or determinable; and 4) collectibility is
reasonably assured.
We record sales and related profits on production and service type con-
tracts as units are shipped and title and risk of loss have transferred or
as services are rendered. This method is used in our Metal Treatment
segment and in some of the business units within the Motion Control
and Flow Control segments that serve non-military markets.
For certain contracts in our Flow Control and Motion Control segments
that require performance over an extended period before deliveries
begin, sales and estimated profits are recorded by applying the
percentage-of-completion method of accounting. The percentage-of-
completion method of accounting is used primarily for our defense
contracts and certain long-term commercial contracts. This method
recognizes revenue and profit as the contracts progress towards com-
pletion. For certain contracts that contain a significant number of per-
formance milestones, as defined by the customer, sales are recorded
based upon achievement of these performance milestones. The per-
formance milestone method is an output measure of progress towards
completion made in terms of results achieved. For certain fixed price
contracts, where none or a limited number of milestones exist, the
cost-to-cost method is used, which is an input measure of progress
toward completion. Under the cost-to-cost input method, sales and
profits are recorded based on the ratio of costs incurred to an estimate
of costs at completion. Under our percentage-of-completion methods
of accounting, a single estimated total profit margin is used to recog-
nize profit for each contract over its entire period of performance.
Application of percentage-of-completion methods of revenue recogni-
tion requires the use of reasonable and dependable estimates of the
future material, labor, and overhead costs that will be incurred and a
disciplined cost estimating system in which all functions of the busi-
ness are integrally involved. These estimates are determined based
upon industry knowledge and experience of our engineers, project
managers, and financial staff. These estimates are significant and
reflect changes in cost and operating performance throughout the
contract and could have a significant impact on our operating perfor-
mance. Adjustments to original estimates for contract revenue, esti-
mated costs at completion, and the estimated total profit are often
required as work progresses throughout the contract and as experi-
ence and more information is obtained, even though the scope of work
under the contract may not change. These changes are recorded on a
cumulative basis in the period they are determined to be necessary.
Under the percentage-of-completion method of accounting, provisions
for estimated losses on uncompleted contracts are recognized in the
period in which the likelihood of such losses are determined. Amounts
representing contract change orders are included in revenue only when
they can be estimated reliably and their realization is reasonably
assured. Certain contracts contain provisions for the redetermination
of price and, as such, management defers a portion of the revenue from
those contracts until such time as the price has been finalized.
Some of our customers withhold certain amounts from the billings
they receive. These retainages are generally not due until the project
has been completed and accepted by the customer.
INVENTORY
Inventory costs include materials, direct labor, and manufacturing
overhead costs, which are stated at the lower of cost or market, where
market is limited to the net realizable value. We estimate the net real-
izable value of our inventories and establish reserves to reduce the
carrying amount of these inventories to net realizable value, as neces-
sary. We continually evaluate the adequacy of the inventory reserves by
reviewing historical scrap rates, on-hand quantities, as compared with
historical and projected usage levels and other anticipated contractual
requirements. The stated inventory costs are also reflective of the
estimates used in applying the percentage-of-completion revenue
recognition method.
We purchase materials for the manufacture of components for sale.
The decision to purchase a set quantity of a particular item is influ-
enced by several factors including: current and projected price, future
estimated availability, existing and projected contracts to produce
certain items, and the estimated needs for our businesses.
For certain of our long-term contracts, we utilize progress billings,
which represent amounts billed to customers 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 administrative costs.
PENSION AND OTHER POSTRETIREMENT BENEFITS
We, in consultation with our actuaries, determine the appropriate
assumptions for use in determining the liability for future pension and
other postretirement benefits. The most significant of these assump-
tions include the number of employees who will receive benefits along
with the tenure and salary level of those employees, the expected return
on plan assets, the discount rates used to determine plan obligations,
and the trends in the costs of medical and other health care benefits in
the case of the postretirement benefit obligations. Changes in these
assumptions, if significant in future years, may have an effect on our
pension and postretirement expense, associated pension and postre-
tirement assets and liabilities, and our annual cash requirements to
fund these plans.
The discount rate used to determine the benefit obligations of the plans
as of December 31, 2005 and the annual periodic costs for 2006 was
lowered in 2005 to 5.75% for both the EMD and Curtiss-Wright Pension
Plans and the EMD Postretirement Benefit Plan to better reflect
current economic conditions. The rate was based on current and future
economic indicators. The reduction in the discount rate increased the
benefit obligation of the plans. A quarter of one percentage point
decrease in the discount rate would have the effect of increasing the
annual pension expense by $0.5 million and the pension benefit oblig-
ation by $8.1 million. We also updated the mortality tables for the pen-
sion and postretirement benefit plans to the RP 2000 Mortality Table
to better reflect the general improvements in mortality experienced
over the past years. This change caused an additional increase to the
benefit obligation.
The overall expected return on assets assumption is based on a com-
bination of historical performance of the pension fund and expectations
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
3 1
of future performance. The historical returns are determined using the
market–related value of assets, which is the same value used in the cal-
culation of annual net periodic benefit cost. The market-related value
of assets includes the recognition of realized and unrealized gains and
losses over a five-year period, which effectively averages the volatility
associated with the actual performance of the plan’s assets from year
to year. Although over the last ten years the market related value of
assets had an average annual yield of 10.6%, the actual returns aver-
aged 11.3% during the same period. We have consistently used the
8.5% rate as a long-term overall average return. Given the uncertain-
ties of the current economic and geopolitical landscapes, we consider
the 8.5% rate to be a reasonable assumption of the future long-term
investment returns. A quarter of one percentage point decrease in the
expected return on assets would have the effect of increasing our
annual pension expense by $0.7 million.
The long-term medical trend assumptions start with a current rate that
is in line with expectations for the near future, and then grades the rates
down over time until it reaches an ultimate rate that is close to expec-
tations for growth in GDP. The reasoning is that medical 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 normal level
should have an impact on the amount of expense we recognize.
The timing and amount of future pension income or expense to be rec-
ognized each year is dependent on the demographics and expected
earnings of the plan participants, the expected interest rates in effect
in future years, and the actual and expected investment returns of the
assets in the pension trust.
See Note 14 for further information on our pension and postretirement
plans, including an estimate of future cash contributions.
ENVIRONMENTAL RESERVES
We provide for environmental reserves on a site by site basis when, in
conjunction with internal and external legal counsel, it is determined
that a liability is both probable and estimable. In many cases, the liabil-
ity is not fixed or capped when we first record a liability for a particular
site. If only a range of potential liability can be estimated and no amount
within the range is more probable than another, a reserve will be estab-
lished at the low end of that range. At sites involving multiple parties,
we accrue environmental liabilities based upon our expected share of
the liability, taking into account the financial viability of our other jointly
liable partners. Judgment is required when we make assumptions and
estimate costs expected to be incurred for environmental remediation
activities due to, among other factors, difficulties in assessing the
extent and type of environmental remediation to be performed, the
impact of complex environmental regulations and remediation tech-
nologies, and agreements between potentially responsible parties to
share in the cost of remediation. In estimating the future liability and
continually evaluating the sufficiency of such liabilities, we weigh cer-
tain factors including our participation percentage due to a settlement
by or bankruptcy of other potentially responsible parties, a change in
the environmental laws requiring more stringent requirements, an
increase or decrease in the estimated time required to remediate, a
change in the estimate of future costs that will be incurred to remedi-
ate the site, and changes in technology related to environmental
remediation. We do not believe that continued compliance with envi-
ronmental laws applicable to our operations will have a material
adverse effect on our financial condition or results of operation. How-
3 2
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
ever, given the level of judgment and estimation used in the recording
of environmental reserves, it is reasonably possible that materially dif-
ferent amounts could be recorded if different assumptions were used
or if circumstances were to change, such as environmental regulations
or remediation solution remedies.
As of December 31, 2005, our environmental reserves totaled $25.3
million, the majority of which is long-term. Approximately 80% of the
environmental reserves represent the current value of our anticipated
remediation costs and are not discounted primarily due to the
uncertainty of timing of expenditures. The remaining environmental
reserves are discounted to reflect the time value of money since the
amount and timing of cash payments for the liability are reasonably
determinable. We use a discount rate of 4%, which approximates an
amount at which the environmental liability could be settled in an
arm’s length transaction with a third party. All environmental reserves
exclude any potential recovery from insurance carriers or third-party
legal actions.
PURCHASE ACCOUNTING
We apply the purchase method of accounting to our acquisitions. Under
this method, the purchase price, including any capitalized acquisition
costs, is allocated to the underlying tangible and intangible assets
acquired and liabilities assumed based on their respective fair market
values, with any excess recorded as goodwill. We determine the fair
values of such assets and liabilities, generally in consultation with
third-party valuation advisors. The fair value of assets acquired (net of
cash) and liabilities assumed of our one 2005 acquisition were esti-
mated to be $88.4 million and $23.9 million, respectively. The initial fair
value assigned to this acquisition is preliminary and may be revised
prior to finalization, which is to be completed within a reasonable
period, generally within one year of acquisition.
GOODWILL
We have $388.2 million in goodwill as of December 31, 2005. The recov-
erability of goodwill is subject to an annual impairment test based
on the estimated fair value of the underlying businesses. Additionally,
goodwill is tested for impairment when an event occurs or if circum-
stances change that would more likely than not reduce the fair value of
a reporting unit below its carrying amount. These estimated fair values
are based on estimates of future cash flows of the businesses. Factors
affecting these future cash flows include the continued market accep-
tance of the products and services offered by the businesses, the
development of new products and services by the businesses and the
underlying cost of development, the future cost structure of the busi-
nesses, and future technological changes. Estimates are also used for
the Corporation’s cost of capital in discounting the projected future
cash flows. If it has been determined that impairment has occurred, we
may be required to recognize an impairment of our asset, which would
be limited to the difference between the book value of the asset and its
fair value. Any such impairment would be recognized in full in the
reporting period in which it has been identified.
OTHER INTANGIBLE ASSETS
Other intangible assets are generally the result of acquisitions and
consist primarily of purchased technology, customer related intangi-
bles, trademarks and service marks, and technology licenses. Intan-
gible assets are recorded at their fair values as determined through
purchase accounting. Definite lived intangible assets are amortized
ratably to match their cash flow streams over their estimated useful
lives, which range from 1 to 20 years, while indefinite lived intangible
assets are not amortized. Indefinite lived intangible assets are
reviewed for impairment annually based on the discounted future cash
flows. Additionally, we review the recoverability of all intangible assets,
including the related useful lives, whenever events or changes in cir-
cumstances indicate that the carrying amount might not be recover-
able. We would record any impairment in the reporting period in which
it has been identified.
Recently Issued Accounting Standards
In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and
Error Corrections – A Replacement of APB Opinion No. 20 and FASB
Statement No. 3” (“FAS 154”). This Statement requires that a voluntary
change in accounting principle be applied retrospectively with all prior
period financial statements presented on the basis of the new account-
ing principle, unless it is impracticable to do so. FAS 154 also provides
that (1) a change in method of depreciating or amortizing a long-lived
nonfinancial asset be accounted for as a change in estimate (prospec-
tively) that was effected by a change in accounting principle, and (2)
correction of errors in previously issued financial statements should
be termed a “restatement.” The new standard is effective for account-
ing changes and correction of errors made in fiscal years beginning
after December 15, 2005. Early adoption of this standard is permitted
for accounting changes and correction of errors made in fiscal years
beginning after June 1, 2005. We do not anticipate that the adoption of
this statement will have a material impact on our results of operation
or financial condition.
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
“Accounting for Stock-Based Compensation” (“FAS 123(R)”). This
Statement requires a public entity to measure the cost of employee
services received in exchange for an award of equity instruments
based on the grant-date fair value of the award (with limited excep-
tions). That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award—
the requisite service period (usually the vesting period). No compen-
sation cost is recognized for equity instruments for which employees
do not render the requisite service. Employee share purchase plans
will not result in recognition of compensation cost if certain conditions
are met; those conditions are much the same as the related conditions
in FAS 123. This Statement is effective as of the beginning of the first
interim or annual reporting period that begins after June 15, 2005. On
April 14, 2005 the SEC announced a deferral of the effective date of FAS
123(R) for calendar year companies until January 1, 2006. We expect
the adoption of this statement to have a pre-tax expense of approxi-
mately $5 million on operating income in 2006.
In March of 2005, the FASB issued FIN No. 47, “Accounting for Condi-
tional Asset Retirement Obligations—an interpretation of FASB State-
ment No. 143” (“FAS 143”). This Interpretation clarifies that the term
“conditional asset retirement obligation” as used in FAS 143, “Account-
ing for Asset Retirement Obligations,” refers to a legal obligation to
perform an asset retirement activity in which the timing and (or)
method of settlement are conditional on a future event that may or may
not be within the control of the entity. The obligation to perform the
asset retirement activity is unconditional even though uncertainty
exists about the timing and (or) method of settlement. Thus, the tim-
ing and (or) method of settlement may be conditional on a future event.
Accordingly, an entity is required to recognize a liability for the fair
value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. The fair value of a liability for the
conditional asset retirement obligation should be recognized when
incurred—generally upon acquisition, construction, or development
and (or) through the normal operation of the asset. Uncertainty about
the timing and (or) method of settlement of a conditional asset retire-
ment obligation should be factored into the measurement of the liabil-
ity when sufficient information exists. FAS 143 acknowledges that in
some cases, sufficient information may not be available to reasonably
estimate the fair value of an asset retirement obligation. This Inter-
pretation also clarifies when an entity would have sufficient informa-
tion to reasonably estimate the fair value of an asset retirement
obligation. The adoption of this interpretation did not have a material
impact on our results of operation or financial condition.
Recent Development
On February 7, 2006, the Board of Directors declared a 2-for-1 stock
split in the form of a 100% stock dividend. The split, in the form of 1
share of Common stock for each share of Common stock outstanding,
is payable on April 7, 2006. As the market price of the shares does not
reflect the stock split as of the date of this Annual Report, all references
throughout this Annual Report to number of shares, per share
amounts, stock options data, and market prices of the Corporation’s
Common stock have not been adjusted to reflect the effect of this
stock split.
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
3 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
We are exposed to certain market risks from changes in interest rates
and foreign currency exchange rates as a result of our global operating
and financing activities. We seek to minimize any material risks from
foreign currency exchange rate fluctuations through our normal oper-
ating and financing activities and, when deemed appropriate, through
the use of derivative financial instruments. We do not use such instru-
ments for trading or other speculative purposes. We used interest rate
swaps and forward foreign currency contracts to manage our interest
rate and currency rate exposures during the year ended December 31,
2005. We unwound our interest rate swaps in November 2005. Infor-
mation regarding our accounting policy on financial instruments is
contained in Note 1-K to the Consolidated Financial Statements.
The market risk for a change in interest rates relates primarily to our
debt obligations. We shifted our interest rate exposure from 65% vari-
able at December 31, 2004 to 96% fixed at December 31, 2005. The net
proceeds of the new $150 million 2005 Notes offering principally con-
tributed to our ability to pay down our outstanding debt under our
revolving credit facility at December 31, 2005. The variable rates on the
Industrial Revenue Bonds are based on market rates. A change in
interest rates of 1% would have an impact on consolidated interest
expense of approximately $0.1 million. Information regarding our 2005
and 2003 Notes, Revolving Credit Agreement, and Interest Rates Swaps
is contained in Note 10 to the Consolidated Financial Statements.
Financial instruments expose us to counter-party credit risk for non-
performance and to market risk for changes in interest and foreign cur-
rency rates. We manage exposure to counter-party credit risk through
specific minimum credit standards, diversification of counter-parties,
and procedures to monitor concentrations of credit risk. We monitor the
impact of market risk on the fair value and cash flows of our investments
by investing primarily in investment grade interest bearing securities,
which have short-term maturities. We attempt to minimize possible
changes in interest and currency exchange rates to amounts that are not
material to our consolidated results of operations and cash flows.
Our acquisitions of Indal, Dy 4 and Novatronics have increased our
exposure to foreign currency exchange rate fluctuations related pri-
marily to the Canadian dollar. We currently have a hedging program in
place to mitigate the Canadian dollar foreign currency risk. Although
the majority of our sales, expenses, and cash flows are transacted in
U.S. dollars, we do have some market risk exposure to changes in for-
eign currency exchange rates, primarily as it relates to the value of the
U.S. dollar versus the Canadian dollar, the British pound, the euro, and
the Swiss franc. Any significant change in the value of the currencies
of those countries in which we do business against the U.S. dollar could
have an adverse effect on our business, financial condition, and results
of operations. We seek to minimize the risk from these foreign cur-
rency fluctuations principally through invoicing our customers in the
same currency as the functional currency of the revenue producing
entity. However, our efforts to minimize these risks may not be suc-
cessful. 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 approximately $3 million as it
relates exclusively to foreign currency exchange rate exposures.
3 4
C U R T I SS - 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 statements appearing on pages 38 through
41 of this Annual Report have been prepared by the Corporation in con-
formity with accounting principles generally accepted in the United
States of America. The financial statements necessarily include some
amounts that are based on the best estimates and judgments of
the Corporation. Other financial information in the Annual Report is
consistent with that in the financial statements.
The Corporation maintains accounting systems, procedures, and
internal accounting controls designed to provide reasonable assur-
ance that assets are safeguarded and that transactions are executed
in accordance with the appropriate corporate authorization and are
properly recorded. The accounting systems and internal accounting
controls are augmented by written policies and procedures; organiza-
tional structure providing for a division of responsibilities; selection
and training of qualified personnel; and an internal audit program.
The design, monitoring, and revision of internal accounting control
systems involve, among other things, management’s judgment with
respect to the relative cost and expected benefits of specific control
measures. Management of the Corporation has completed an assess-
ment of the Corporation’s internal controls over financial reporting and
has included “Managements’ Annual Report On Internal Control Over
Financial Reporting” below.
Deloitte & Touche LLP, independent auditors, performed an audit of
the Corporation’s financial statements that also included forming an
opinion on management’s assessment of internal controls over finan-
cial reporting as well as the effectiveness of such controls for the year
ended December 31, 2005. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial state-
ments. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating
the overall financial statement presentation. The objective of their audit
is the expression of an opinion on the fairness of the presentation of the
Corporation’s financial statements in conformity with accounting
principles generally accepted in the United States of America, in all
material respects, on management’s assessment of the effectiveness
of internal controls over financial reporting, and on the effectiveness of
internal controls over financial reporting as of December 31, 2005.
The Audit Committee of the Board of Directors, composed entirely of
directors who are independent of the Corporation, appoints the inde-
pendent auditors for ratification by stockholders and, among other
things, considers the scope of the independent auditors’ examination,
the audit results and the adequacy of internal accounting controls of the
Corporation. The independent auditors and the internal auditor have
direct access to the Audit Committee, and they meet with the commit-
tee from time to time, with and without management present, to
discuss accounting, auditing, non-audit consulting services, internal
control, and financial reporting matters.
MANAGEMENT’S ANNUAL REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
The Corporation’s management is responsible for establishing and
maintaining adequate internal control over financial reporting, as
defined in Rules 13a-15 (f) and 15d-15 (f) under the Securities
Exchange Act of 1934, as amended.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections
of the future effectiveness of controls currently deemed effective are
subject to the risk that controls may become inadequate because of
changes in conditions or deterioration in the degree of compliance with
the policies or procedures.
As discussed in Note 2 to the Consolidated Financial Statements, the
Corporation acquired Indal Technologies, Inc. during the year ended
December 31, 2005. This acquisition with assets at December 31, 2005
and current year revenues representing 6.5% and 2.7%, respectively,
of the consolidated amounts, have been excluded from management’s
assessment of internal control over financial reporting.
The Corporation’s management assessed the effectiveness of the
Corporation’s internal control over financial reporting as of December
31, 2005. In making this assessment, the Corporation’s management
used the criteria established by the Committee of Sponsoring Organi-
zations of the Treadway Commission in Internal Control-Integrated
Framework.
Based on management’s assessment, excluding the acquired com-
pany referred to in the third paragraph, management believes that, as
of December 31, 2005, the Corporation’s internal control over financial
reporting is effective based on the established criteria.
The Corporation’s assessment of the effectiveness of internal controls
over financial reporting as of December 31, 2005 has been audited
by Deloitte & Touche LLP, an independent registered public account-
ing firm, and their report thereon is included on page 37 of this
Annual Report.
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
3 5
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Curtiss-Wright Corporation
Roseland, New Jersey
We have audited the accompanying consolidated balance sheets of
Curtiss-Wright Corporation and subsidiaries (the “Company”) as of
December 31, 2005 and 2004, and the related consolidated statements
of earnings, stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2005. These financial state-
ments are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Pub-
lic Company Accounting Oversight Board (United States). Those stan-
dards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of mater-
ial misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company at
December 31, 2005 and 2004, and the results of its operations and its
cash flows for each of the three years in the period ended December
31, 2005 in conformity with accounting principles generally accepted in
the United States of America.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effective-
ness of the Company’s internal control over financial reporting as of
December 31, 2005, based on the criteria established in Internal Control
— Integrated Framework issued by the Committee of Sponsoring Orga-
nizations of the Treadway Commission and our report dated March 3,
2006 expressed an unqualified opinion on management’s assessment
of the effectiveness of the Company’s internal control over financial
reporting and an unqualified opinion on the effectiveness of the Com-
pany’s internal control over financial reporting.
Deloitte & Touche LLP
Parsippany, New Jersey
March 3, 2006
3 6
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Curtiss-Wright Corporation
Roseland, New Jersey
We have audited management’s assessment, included in the accom-
panying Management’s Annual Report On Internal Control Over Finan-
cial Reporting, that Curtiss-Wright Corporation and subsidiaries
(the “Company”) maintained effective internal control over financial
reporting as of December 31, 2005, based on the criteria established
in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. As described
in Management’s Annual Report On Internal Control Over Financial
Reporting, management excluded from their assessment the internal
control over financial reporting at Indal Technologies, Inc., which was
acquired on March 1, 2005 and whose financial statements reflect total
assets and revenues constituting 6.5 and 2.7 percent, respectively, of
the related consolidated financial statement amounts as of and for the
year ended December 31, 2005. Accordingly, our audit did not include
the internal control over financial reporting at Indal Technologies, Inc.
The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our respon-
sibility is to express an opinion on management’s assessment and an
opinion on the effectiveness of the Company’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assur-
ance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, evaluat-
ing management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process
designed by, or under the supervision of, the company’s principal exec-
utive and principal financial officers, or persons performing similar
functions, and effected by the company’s board of directors, manage-
ment, and other personnel to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) per-
tain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper manage-
ment override of controls, material misstatements due to error or fraud
may not be prevented or detected on a timely basis. Also, projections of
any evaluation of the effectiveness of the internal control over financial
reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company main-
tained effective internal control over financial reporting as of December
31, 2005, is fairly stated, in all material respects, based on the criteria
established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31,
2005, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated
financial statements and financial statement schedule as of and for the
year ended December 31, 2005 of the Company and our report dated
March 3, 2006 expressed an unqualified opinion on those financial
statements and financial statement schedule.
Deloitte & Touche LLP
Parsippany, New Jersey
March 3, 2006
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
3 7
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended December 31, (In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Research and development costs
Selling expenses
General and administrative expenses
Environmental remediation and administrative expenses
Gain (loss) on sale of real estate and fixed assets
Operating income
Interest expense
Other income, net
Earnings before income taxes
Provision for income taxes
Net earnings
NET EARNINGS PER SHARE:
Basic earnings per share
Diluted earnings per share
See notes to consolidated financial statements.
2005
2004
2003
$1,130,928
740,416
$ 955,039
624,536
$746,071
505,153
390,512
(39,681)
(69,687)
(144,982)
(818)
2,638
137,982
(19,983)
299
118,298
(43,018)
330,503
(33,825)
(61,648)
(118,270)
(5,285)
(1,134)
110,341
(12,031)
443
98,753
(33,687)
240,918
(22,111)
(38,816)
(89,238)
(1,423)
(359)
88,971
(5,663)
748
84,056
(31,788)
$
75,280
$ 65,066
$ 52,268
$
$
3.48
3.44
$
$
3.07
3.02
$
$
2.53
2.50
3 8
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
CONSOLIDATED BALANCE SHEETS
At December 31, (In thousands)
ASSETS:
Current assets:
Cash and cash equivalents
Receivables, net
Inventories, net
Deferred tax assets, net
Other current assets
Total current assets
Property, plant, and equipment, net
Prepaid pension costs
Goodwill
Other intangible assets, net
Other assets
Total assets
LIABILITIES:
Current liabilities:
Short-term debt
Accounts payable
Accrued expenses
Income taxes payable
Other current liabilities
Total current liabilities
Long-term debt
Deferred tax liabilities, net
Accrued pension and other postretirement benefit costs
Long-term portion of environmental reserves
Other liabilities
Total liabilities
CONTINGENCIES AND COMMITMENTS (Notes 10, 13, 15 & 17)
STOCKHOLDERS’ EQUITY:
Preferred stock, $1 par value, 650,000 shares authorized, none issued
Common stock, $1 par value, 100,000,000 and 33,750,000 shares authorized at
December 31, 2005 and 2004, respectively; 25,493,442 and 16,646,359 shares issued
at December 31, 2005 and 2004, respectively; outstanding shares were 21,746,362
at December 31, 2005 and 12,673,912 at December 31, 2004
Class B common stock, $1 par value, 11,250,000 shares authorized, 8,764,800 shares
issued and 8,764,246 shares outstanding at December 31, 2004
Additional paid-in capital
Retained earnings
Unearned portion of restricted stock
Accumulated other comprehensive income
Less: Common treasury stock, at cost (3,747,080 shares at December 31, 2005 and
3,973,001 shares at December 31, 2004)
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
2005
2004
$
59,021
244,689
146,297
28,844
11,615
490,466
274,821
76,002
388,158
158,267
12,571
$
41,038
214,084
115,979
25,693
12,460
409,254
265,243
77,802
364,313
140,369
21,459
$1,400,285
$1,278,440
$
885
80,460
74,252
22,855
43,051
221,503
364,017
53,570
74,999
22,645
25,331
762,065
$
1,630
65,364
63,413
13,895
52,793
197,095
340,860
40,043
80,612
23,356
20,860
702,826
—
—
25,493
16,646
—
59,806
667,892
(12)
20,655
8,765
55,885
601,070
(34)
36,797
773,834
719,129
(135,614)
(143,515)
638,220
575,614
$1,400,285
$1,278,440
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
3 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
Net (gain) loss on sales and disposals of real estate and equipment
Deferred income taxes
Changes in operating assets and liabilities, net of businesses acquired:
Increase in receivables
(Increase) decrease in inventories
Increase (decrease) in progress payments
Increase in accounts payable and accrued expenses
(Decrease) increase in deferred revenue
Increase in income taxes payable
(Decrease) increase in net pension and postretirement liabilities
Increase in other current and long-term assets
Increase (decrease) in other current and long-term liabilities
Total adjustments
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and disposals of real estate and equipment
Acquisition of intangible assets
Additions to property, plant, and equipment
Acquisition of new businesses, net of cash acquired
Net cash used for investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of debt
Principal payments on debt
Proceeds from exercise of stock options
Dividends paid
Net cash provided by financing activities
Effect of exchange-rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
2005
2004
2003
$ 75,280
$ 65,066
$ 52,268
47,851
(2,638)
141
(21,558)
(26,908)
9,815
22,976
(8,049)
11,266
(3,813)
(912)
1,727
40,742
1,134
(3,500)
(39,875)
7,578
(4,338)
19,785
4,849
8,403
5,054
(1,830)
2,279
29,898
40,281
105,178
105,347
11,268
(5,086)
(42,444)
(73,111)
1,192
(2,100)
(32,452)
(247,402)
31,327
359
6,035
(5,958)
1,893
1,967
9,343
(10,070)
3,240
(5,872)
(963)
(45)
31,256
83,524
1,132
(1,575)
(33,329)
(69,793)
(109,373)
(280,762)
(103,565)
655,000
(630,327)
8,492
(8,458)
624,106
(508,025)
7,458
(7,666)
24,707
115,873
(2,529)
1,908
17,983
41,038
(57,634)
98,672
384,712
(314,204)
3,868
(6,520)
67,856
3,140
50,955
47,717
Cash and cash equivalents at end of year
$ 59,021
$ 41,038
$ 98,672
Supplemental disclosure of non-cash investing activities:
Fair value of assets acquired from current year acquisitions
Additional consideration on prior year acquisitions
Fair value of Common Stock issued as consideration for acquisitions
Liabilities assumed from current year acquisitions
Cash acquired
Acquisition of new businesses, net of cash acquired
See notes to consolidated financial statements.
$ 88,578
8,618
—
(23,863)
(222)
$ 303,041
3,027
(14,000)
(42,331)
(2,335)
$ 78,231
3,147
—
(10,750)
(835)
$ 73,111
$ 247,402
$ 69,793
4 0
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Common
Stock
Class B
Common
Stock
Additional
Paid in
Capital
Retained
Earnings
Accumulated
Unearned
Portion of
Other
Restricted Comprehensive
Income (Loss)
Stock Awards
Comprehensive
Income
Treasury
Stock
JANUARY 1, 2003
$10,618
$4,382
$52,200
$508,298
$(60)
$ 6,482
$(170,692)
Comprehensive income:
Net earnings
Translation adjustments, net
Total comprehensive income
Dividends paid
Stock options exercised, net
Other
Two-for-one common stock split
effected in the form of a 100%
stock dividend
DECEMBER 31, 2003
Comprehensive income:
Net earnings
Translation adjustments, net
Total comprehensive income
Dividends paid
Stock options exercised, net
Stock issued under employee
stock purchase plan, net
Equity issued in connection
with acquisitions
Other
—
—
—
—
—
—
—
—
—
—
—
—
—
741
57
52,268
—
(6,520)
—
—
5,993
16,611
4,383
8,765
—
(10,376)
52,998
543,670
—
—
—
—
35
—
—
—
—
—
—
—
—
—
—
—
65,066
—
—
(1,748)
(7,666)
—
1,358
3,259
18
—
—
—
—
—
—
—
5
—
(55)
—
—
—
—
—
—
21
—
16,152
—
—
—
—
22,634
—
14,163
—
—
—
—
—
$ 52,268
16,152
$ 68,420
$ 65,066
14,163
$ 79,229
—
—
—
4,812
138
—
(165,742)
—
—
—
11,345
—
10,741
141
DECEMBER 31, 2004
$16,646
$8,765
$55,885
$601,070
$(34)
$ 36,797
$(143,515)
Comprehensive income:
Net earnings
Translation adjustments, net
Total comprehensive income
Dividends paid
Stock options exercised, net
Stock issued under employee
stock purchase plan, net
Recapitalization
Other
—
—
—
—
—
—
—
—
—
—
—
42
82
8,765
—
—
(8,765)
—
3,863
—
16
75,280
—
(8,458)
—
—
—
—
—
—
—
—
—
—
22
—
(16,142)
$ 75,280
(16,142)
$ 59,138
—
—
—
—
—
—
—
—
7,721
—
—
180
DECEMBER 31, 2005
$25,493
— $59,806
$667,892
$(12)
$ 20,655
$(135,614)
See notes to consolidated financial statements.
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
4 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
D. Cash and Cash Equivalents
Curtiss-Wright Corporation and its subsidiaries (the “Corporation”) is
a diversified multinational manufacturing and service company that
designs, manufactures, and overhauls precision components and sys-
tems and provides highly engineered products and services to the
aerospace, defense, automotive, shipbuilding, processing, oil, petro-
chemical, agricultural equipment, railroad, power generation, secu-
rity, and metalworking industries. Operations are conducted through
33 manufacturing facilities, 56 metal treatment service facilities, and
2 aerospace component overhaul and repair locations.
A. Principles of Consolidation
The consolidated financial statements include the accounts of Curtiss-
Wright and its majority-owned subsidiaries. All material intercompany
transactions and accounts have been eliminated. Certain prior year
information has been reclassified to conform to current presentation.
B. Use of Estimates
The financial statements of the Corporation have been prepared in
conformity with accounting principles generally accepted in the United
States of America, which requires management to make estimates
and judgments that affect the reported amount of assets, liabilities,
revenue, and expenses and disclosure of contingent assets and liabil-
ities in the accompanying financial statements. The most significant of
these estimates include the estimate of costs to complete long-term
contracts under the percentage-of-completion accounting methods,
the estimate of useful lives for property, plant, and equipment, cash
flow estimates used for testing the recoverability of assets, pension
plan and postretirement obligation assumptions, estimates for inven-
tory obsolescence, estimates for the valuation and useful lives of intan-
gible assets, warranty reserves, and the estimate of future
environmental costs. Actual results may differ from these estimates.
C. Revenue Recognition
The realization of revenue refers to the timing 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 met: 1) persuasive evidence of
an arrangement exists; 2) delivery has occurred or services have been
rendered; 3) the Corporation’s price to its customer is fixed or deter-
minable; 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 estimated returns
and allowances. Sales and estimated profits under certain long-term
contracts are recognized under the percentage-of-completion meth-
ods of accounting, whereby profits are recorded pro rata, based upon
current estimates of direct and indirect costs to complete such con-
tracts. In addition, the Corporation also records sales under certain
long-term government fixed price contracts upon achievement of per-
formance milestones as specified in the related contracts. Losses on
contracts are provided for in the period in which the losses become
determinable. Revisions in profit estimates are reflected on a cumula-
tive basis in the period in which the basis for such revision becomes
known. Deferred revenue represents the excess of the billings over
cost and estimated earnings on long-term contracts.
4 2
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
Cash equivalents consist of money market funds and commercial
paper that are readily convertible into cash, all with original maturity
dates of three months or less.
E. Inventory
Inventories are stated at lower of production cost (principally average
cost) or market. Production costs are comprised of direct material and
labor and applicable manufacturing overhead.
F. Progress Payments
Certain long-term contracts provide for the interim billings as costs
are incurred on the respective contracts. Pursuant to contract provi-
sions, agencies of the U.S. government and other customers are
granted title or a secured interest in the unbilled costs included in
unbilled receivables and materials and work-in-process included in
inventory to the extent of progress payments. Accordingly, these
progress payments received have been reported as a reduction of
unbilled receivables and inventories, as presented in Notes 3 and 4.
G. Property, Plant, and Equipment
Property, plant, and equipment are carried at cost less accumulated
depreciation. Major renewals and betterments are capitalized, while
maintenance and repairs that do not improve or extend the life of the
asset are expensed in the period they are incurred. Depreciation is
computed using the straight-line method based upon the estimated
useful lives of the respective assets.
Average useful lives for property, plant and equipment are as follows:
Buildings and improvements
Machinery, equipment, and other
5 to 40 years
3 to 15 years
H. Intangible Assets
Intangible assets are generally the result of acquisitions and consist
primarily of purchased technology, customer related intangibles,
trademarks and service marks, and technology licenses. Definite lived
intangible assets are amortized ratably to match their cash flow
streams over their estimated useful lives, which range from 1 to 20
years, while indefinite lived intangible assets are not amortized. Indef-
inite lived intangible assets are reviewed for impairment annually
based on the discounted future cash flows. See Note 7 for further infor-
mation on other intangible assets.
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-
cumstances indicate that the carrying amount of a long-lived asset
might not be recoverable. If required, the Corporation compares the
estimated undiscounted future net cash flows to the related asset’s
carrying value to determine whether there has been an impairment. If
an asset is considered impaired, the asset is written down to fair value,
which is based either on discounted cash flows or appraised values in
the period the impairment becomes known. There were no such write-
downs in 2005, 2004, or 2003.
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 lia-
bilities assumed are recorded at their fair values, and the excess of the
purchase price over the amounts allocated is recorded as goodwill. The
recoverability of goodwill is subject to an annual impairment test, or
whenever an event occurs or circumstances change that would more
likely than not result in an impairment. The impairment test is based
on the estimated fair value of the underlying businesses. See Note 6 for
further information on goodwill.
K. Fair Value of Financial Instruments
SFAS No. 107, “Disclosure About Fair Value of Financial Instruments,”
requires certain disclosures regarding the fair value of financial instru-
ments. Due to the short maturities of cash and cash equivalents,
accounts receivable, accounts payable, and accrued expenses, the net
book value of these financial instruments are deemed to approximate
fair value.
The estimated fair values of the Corporation’s fixed rate debt instru-
ments at December 31, 2005 aggregated $357.9 million compared to a
carrying value of $349.8 million. The carrying amount of the variable
interest rate debt approximates fair value because the interest rates
are reset periodically to reflect current market conditions. Fair values
for the Corporation’s fixed rate debt were estimated by management.
The fair values described above may not be indicative of net realizable
value or reflective of future fair values. Furthermore, the use of differ-
ent methodologies to determine the fair value of certain financial
instruments could result in a different estimate of fair value at the
reporting date.
L. Research and Development
The Corporation funds research and development programs for com-
mercial products and independent research and development and bid
and proposal work related to government contracts. Development
costs include engineering and field support for new customer require-
ments. Corporation-sponsored research and development costs are
expensed as incurred.
Research and development costs associated with customer-spon-
sored programs are charged to inventory and are recorded in cost of
sales when products are delivered or services performed.
M. Environmental Costs
The Corporation establishes a reserve for a potential environmental
remediation liability on a site by site basis when it concludes that a
determination of legal liability is probable and the amount of the liabil-
ity can be reasonably estimated based on current law and existing
technologies. Such amounts, if quantifiable, reflect the Corporation’s
estimate of the amount of that liability. If only a range of potential lia-
bility can be estimated and no amount within the range is more prob-
able than another, a reserve will be established at the low end of that
range. At sites involving multiple parties, the Corporation accrues
environmental liabilities based upon its expected share of the liability,
taking into account the financial viability of other jointly liable partners.
Such reserves, which are reviewed quarterly, are adjusted as assess-
ment and remediation efforts progress or as additional information
becomes available. Approximately 80% of the Corporation’s environ-
mental reserves as of December 31, 2005 represent the current value
of anticipated remediation costs and are not discounted primarily due
to the uncertainty of timing of expenditures. The remaining environ-
mental reserves are discounted to reflect the time value of money
since the amount and timing of cash payments for the liability are reli-
ably determinable. All environmental reserves exclude any potential
recovery from insurance carriers or third-party legal actions.
N. Accounting for Stock-Based Compensation
In accordance with SFAS No. 123, “Accounting for Stock-Based Com-
pensation” (“FAS 123”), the Corporation elected to account for its
stock-based compensation using the intrinsic value method under
Accounting Principles Board Opinion No. 25, “Accounting for Stock
Issued to Employees”. As such, the Corporation does not recognize
compensation expense on non-qualified stock options granted to
employees under the Corporation’s 1995 or 2005 Long-Term Incentive
Plan (the “1995 LTI Plan” or the “2005 LTI Plan” respectively), when
the exercise price of the options is equal to the market price of the
underlying stock on the date of the grant, or on non-qualified stock
options granted under the Corporation’s Employee Stock Purchase
Plan (“ESPP”). In December 2004, the FASB issued FAS 123 (revised
2004)(“FAS 123R”), under which, the Corporation will begin to
expense stock option grants beginning in the first quarter 2006.
Please see Recently Issued Accounting Standards for further information
on this standard.
Pro forma information regarding net earnings and earnings per share
is required by FAS 123 and has been determined as if the Corporation
had accounted for its employee stock option grants under the fair value
method prescribed by that Statement. Information with regard to the
number of options granted, market price of the grants, vesting require-
ments, and the maximum term of the options granted appears by plan
type in Note 12. The fair value of the LTI Plan options was estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions:
Risk-free interest rate
Expected volatility
Expected dividend yield
Weighted-average option life
Weighted-average grant-date
2005
2004
2003
4.52%
23.21%
0.86%
7 years
3.89%
31.37%
0.64%
7 years
3.68%
31.68%
0.94%
7 years
fair value of options
$18.12
$21.43
$13.97
The fair value of the ESPP options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
weighted-average assumptions:
Risk-free interest rate
Expected volatility
Expected dividend yield
Weighted-average option life
Weighted-average grant-date
fair value of options
2005
2004
2.86%
30.98%
0.33%
0.5 years
1.33%
23.99%
0.35%
0.5 years
$13.35
$11.21
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
4 3
The Corporation’s pro forma information for the years ended Decem-
ber 31, 2005, 2004, and 2003 is as follows:
(In thousands, except per share data)
2005
2004
2003
NET EARNINGS:
AS REPORTED
Deduct:
Total stock-based
employee compensation
expense determined
under fair value based
method for all awards,
net of related tax effects
Pro forma
NET EARNINGS
PER SHARE:
As reported:
Basic
Diluted
Pro forma:
Basic
Diluted
$75,280
$65,066
$52,268
(2,565)
$72,715
(1,862)
$63,204
(1,261)
$51,007
$ 3.48
$ 3.44
$ 3.07
$ 3.02
$ 2.53
$ 2.50
$ 3.36
$ 3.32
$ 2.98
$ 2.93
$ 2.47
$ 2.44
The Corporation receives tax deductions related to the exercise of non-
qualified LTI Plan options and disqualifying dispositions of stock
granted under the ESPP, the offset of which is recorded in equity. The
tax benefit of these deductions totaled $3.2 million, $3.5 million, and
$1.7 million in 2005, 2004, and 2003, respectively.
O. Capital Stock
On May 24, 2005, the Corporation completed a recapitalization that
resulted in the combination of the Corporation’s two classes of com-
mon stock into a single new class by converting all outstanding shares
of Common stock and Class B common stock into a single new class of
common stock. The recapitalization was accomplished through a
merger of a wholly owned subsidiary into the Corporation, in which the
outstanding shares of Common stock and Class B common stock were
exchanged for shares of the single class of Common stock. The rela-
tive ownership of the Corporation’s new class of Common stock was
the same immediately after the merger as it was immediately prior.
In addition to the recapitalization, in May 2005, shareholders approved
a proposal to increase the number shares of Common stock autho-
rized for issuance from 45 million shares to 100 million shares.
On May 23, 2003, the stockholders approved an increase in the num-
ber of authorized shares of the Corporation’s Common stock from
11,250,000 to 33,750,000. On November 18, 2003, the Board of Direc-
tors declared a 2-for-1 stock split in the form of a 100% stock dividend.
The split, in the form of 1 share of Common stock for each share of
Common stock outstanding and 1 share of Class B common stock for
each share of Class B common stock outstanding, was payable on
December 17, 2003. To effectuate the stock split, the Corporation
issued 5,993,864 original shares of Common stock and 4,382,400 orig-
inal shares of Class B common stock, at $1.00 par value from capital
surplus, with a corresponding reduction in retained earnings of $10.4
million. Accordingly, all references throughout this Annual Report to
4 4
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
number of shares, per share amounts, stock options data, and market
prices of the Corporation’s two classes of common stock have been
adjusted to reflect the effect of the stock split for all periods presented,
where applicable. On February 7, 2006, the Board of Directors declared
a 2-for1 stock split in the form of a 100% stock dividend. Further infor-
mation of the Corporation’s recently announced stock split is disclosed
in Note 19.
The Corporation is authorized to repurchase 900,000 shares under its
existing stock repurchase program. Purchases are authorized to be
made from time to time in the open market or privately negotiated
transactions, depending on market and other conditions, whenever
management believes that the market price of the stock does not ade-
quately reflect the true value of the Corporation and, therefore, repre-
sented an attractive investment opportunity. The shares are held at
cost and reissuance is recorded at the weighted-average cost. Through
December 31, 2005, the Corporation had repurchased 210,930 shares
under this program. There was no stock repurchased during 2005,
2004, and 2003.
P. Earnings Per Share
The Corporation is required to report both basic earnings per share
(“EPS”), based on the weighted-average number of Common and
Class B shares outstanding, and diluted earnings per share, based on
the basic EPS adjusted for all potentially dilutive shares issuable. The
calculation of EPS is disclosed in Note 11.
Q. Income Taxes
The Corporation applies SFAS No. 109, “Accounting for Income Taxes.”
Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying
amounts 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 car-
rying amounts of deferred tax assets unless it is more likely than not
that such assets will be realized.
R. Foreign Currency Translation
For operations outside the United States of America that prepare
financial statements in currencies other than the U.S. dollar, the Cor-
poration translates assets and liabilities at period-end exchange rates
and income statement amounts using weighted-average exchange
rates for the period. The cumulative effect of translation adjustments
is presented as a component of accumulated other comprehensive
income within stockholders’ equity. This balance is affected by foreign
currency exchange rate fluctuations and by the acquisition of foreign
entities. Gains and losses from foreign currency transactions are
included in results of operations.
S. Derivatives
The Corporation has used interest rate swaps and forward foreign cur-
rency contracts to manage its exposure to fluctuations in interest rates
on a portion of its fixed rate debt instruments and foreign currency
rates at its foreign subsidiaries. The foreign currency contracts are
marked to market with changes in the fair value reported in income in
the period of change. The interest rate swap agreements have been
accounted for as fair value hedges. The interest rate swaps were
recorded at fair value on the balance sheet within other non-current
assets with changes in fair value recorded currently in earnings. Addi-
tionally, the carrying amount of the associated debt was adjusted
through earnings for changes in fair value due to change in interest
rates. Ineffectiveness is recognized to the extent that these two adjust-
ments do not offset. The interest rate swap agreements were assumed
to be perfectly effective under the ‘short cut method’ of SFAS 133. The
differential to be paid or received based on changes in interest rates
was recorded as an adjustment to interest expense in the statement of
earnings. Additional information on these swap agreements is pre-
sented in Note 10.
T. Recently Issued Accounting Standards
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
“Accounting for Stock-Based Compensation.” This Statement requires
a public entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be rec-
ognized over the period during which an employee is required to pro-
vide service in exchange for the award — the requisite service period
(usually the vesting period). No compensation cost is recognized for
equity instruments for which employees do not render the requisite
service. Employee share purchase plans will not result in recognition
of compensation cost if certain conditions are met; those conditions
are much the same as the related conditions in Statement 123. This
Statement is effective as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. The Corporation
expects the adoption of this statement to have a pre-tax expense of
approximately $5 million on operating income in 2006.
In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and
Error Corrections—A Replacement of APB Opinion No. 20 and FASB
Statement No. 3” (“FAS 154”). This Statement requires that a voluntary
change in accounting principle be applied retrospectively with all prior
period financial statements presented on the basis of the new account-
ing principle, unless it is impracticable to do so. FAS 154 also provides
that (1) a change in method of depreciating or amortizing a long-lived
nonfinancial asset be accounted for as a change in estimate (prospec-
tively) that was effected by a change in accounting principle, and (2)
correction of errors in previously issued financial statements should
be termed a “restatement.” The new standard is effective for account-
ing changes and correction of errors made in fiscal years beginning
after December 15, 2005. Early adoption of this standard is permitted
for accounting changes and correction of errors made in fiscal years
beginning after June 1, 2005. The Corporation does not anticipate that
the adoption of this statement will have a material impact on the Cor-
poration’s results of operation or financial condition.
In March of 2005, the FASB issued FIN No. 47, “Accounting for Condi-
tional Asset Retirement Obligations—an interpretation of FASB State-
ment No. 143.” This Interpretation clarifies that the term “conditional
asset retirement obligation” as used in FASB Statement No. 143,
“Accounting for Asset Retirement Obligations,” refers to a legal oblig-
ation to perform an asset retirement activity in which the timing and
(or) method of settlement are conditional on a future event that may or
may not be within the control of the entity. The obligation to perform
the asset retirement activity is unconditional even though uncertainty
exists about the timing and (or) method of settlement. Thus, the tim-
ing and (or) method of settlement may be conditional on a future event.
Accordingly, an entity is required to recognize a liability for the fair
value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. The fair value of a liability for the
conditional asset retirement obligation should be recognized when
incurred—generally upon acquisition, construction, or development
and (or) through the normal operation of the asset. Uncertainty about
the timing and (or) method of settlement of a conditional asset retire-
ment obligation should be factored into the measurement of the liabil-
ity when sufficient information exists. Statement 143 acknowledges
that in some cases, sufficient information may not be available to rea-
sonably estimate the fair value of an asset retirement obligation. This
Interpretation also clarifies when an entity would have sufficient infor-
mation to reasonably estimate the fair value of an asset retirement
obligation. The adoption of this interpretation did not have a material
impact on the Corporation’s results of operation or financial condition.
2. Acquisitions
The Corporation acquired one business in 2005, as described below. In
addition, the Corporation purchased eleven businesses in 2004 and
seven businesses in 2003. The 2003 purchases, as well as nine of the
2004 purchases, are described in more detail below. The remaining
two businesses acquired in 2004 had an aggregate purchase price of
$1.1 million and are not considered material. All acquisitions have
been accounted for as purchases with the excess of the purchase
price over the estimated fair value of the net tangible and intangible
assets acquired recorded as goodwill. The Corporation makes pre-
liminary estimates of the purchase price allocations, including the
value of identifiable intangibles with a finite life, and records amortiza-
tion based upon the estimated useful life of those intangible assets
identified. The Corporation will adjust these estimates based upon
analysis of third party appraisals, when deemed appropriate, and
the determination of fair value, when finalized, within twelve months
from acquisition.
The following unaudited pro forma financial information shows the
results of operations for the years ended December 31, 2005 and 2004,
as though the 2005 and 2004 acquisitions had occurred on January 1,
2004. The unaudited pro forma presentation reflects adjustments for
(i) the amortization of acquired intangible assets, (ii) depreciation of
fixed assets at their acquired fair values, (iii) additional interest
expense on acquisition-related borrowings, (iv) the issuance of stock
as consideration, and (v) the income tax effect on the pro forma adjust-
ments, using local statutory rates. The pro forma adjustments related
to certain acquisitions are based on preliminary purchase price allo-
cations. Differences between the preliminary and final purchase price
allocations could have a significant impact on the unaudited pro forma
financial information presented. The unaudited pro forma financial
information below is presented for illustrative purposes only and is not
necessarily indicative of the operating results that would have been
achieved had the acquisition been completed as of the date indicated
above or the results that may be obtained in the future.
Unaudited (In thousands)
Revenue
Net earnings
Diluted earnings per share
2005
2004
$1,135,379
74,824
$
3.41
$
$1,060,786
68,283
$
3.15
$
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
4 5
The results of each acquired business have been included in the con-
solidated financial results of the Corporation from the date of acquisi-
tion in the segment indicated as follows:
FLOW CONTROL
ENGINEERED PUMP DIVISION
On November 10, 2004, the Corporation acquired certain assets of the
Government Marine Business Unit division of Flowserve Corporation,
subsequently renamed the Engineered Pump Division (“EPD”). The
effective date of the acquisition was November 1, 2004. The purchase
price, subject to customary adjustments provided for in the Asset Pur-
chase Agreement, was $28.1 million in cash and the assumption of
certain liabilities. The purchase price was funded from credit available
under the Corporation’s revolving credit facilities. The excess of the
purchase price over the fair value of the net assets acquired is $7.6 mil-
lion at December 31, 2005. Revenues of the purchased business were
$26.4 million for the year ended December 31, 2003.
EPD is a leading designer and manufacturer of highly engineered,
critical function pumps for the U.S. Navy nuclear submarine and air-
craft carrier programs and non-nuclear surface ships. EPD is the sole
source supplier of main and auxiliary seawater, fresh water, and cool-
ing pumps, coolant purification pumps, injection, chilled water, and
other critical pumps. Approximately 85% of this business supports
nuclear programs, and 15% supports non-nuclear naval surface
programs. EPD has a strong and growing aftermarket business
for repairs, refurbishments, and parts, which constitutes approxi-
mately 45% of total sales. EPD’s operations are located in Phillipsburg,
New Jersey.
GROQUIP
On July 12, 2004, the Corporation acquired the outstanding stock of
Groth Equipment Corporation of Louisiana (“Groquip”). The purchase
price, subject to customary adjustments provided for in the Stock Pur-
chase Agreement, was $4.5 million payable in approximately 18,000
shares of the Corporation’s restricted Common stock valued at $1.0
million and cash of $3.5 million, and the assumption of certain liabili-
ties. The cash portion of the purchase price was funded from credit
available under the Corporation’s revolving credit facilities. The pur-
chase price approximated the fair value of the net assets acquired as
of December 31, 2005.
Groquip is a market leader in the hydrocarbon and chemical process-
ing industries. Groquip provides products and services for various
pressure-related processes that ensure safe operation and regulatory
compliance. Groquip is a manufacturer’s sales representative for rup-
ture discs, conservation vents, fire and gas detectors, and pressure
relief valves. They also provide field and in-shop service and repairs for
pressure relief valves and a variety of specialty valves. Groquip is head-
quartered in Geismar, Louisiana and has a sales and service center
located in Sulphur, Louisiana. Revenues of the acquired business were
$10.1 million for the twelve months ended June 30, 2004.
NOVA
On May 24, 2004, the Corporation acquired certain assets of NOVA
Machine Products Corporation (“NOVA”). The purchase price was
$20.0 million in cash and the assumption of certain liabilities. The pur-
chase price was funded from credit available under the Corporation’s
revolving credit facilities. There are provisions in the agreement for
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C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
additional payments upon the achievement of certain financial perfor-
mance criteria through 2009 up to a maximum additional payment of
$9.2 million. Through December 31, 2005, the Corporation has made
no payments of additional consideration under these provisions. The
excess of the purchase price over the fair value of the net assets
acquired is $5.0 million at December 31, 2005.
NOVA is one of the largest suppliers of safety-related fasteners to
the U.S. nuclear power industry and the Department of Energy and
also provides a wide range of manufactured and distributed prod-
ucts and related services. NOVA is headquartered in Middleburg
Heights, Ohio, with distribution centers in Glendale Heights, Illinois,
and Decatur, Alabama, and five sales offices throughout the U.S. Rev-
enues of the acquired business were $17.1 million for the year ended
December 31, 2003.
On September 1, 2005, NOVA acquired the HydraNut product line and
related intellectual property of Technofast International, a wholly
owned subsidiary of Tech Novus Pty. Ltd of Brisbane, Australia (“Tech-
nofast”). The acquisition of this product line replaced a licensing agree-
ment between NOVA and Technofast, which was part of the acquired
assets of the Corporation’s acquisition of NOVA in 2004.
The purchase price of $8.0 million included an initial cash payment of
$4.5 million and will require quarterly cash payments calculated as a
percentage of sales of the product line, not to exceed $3.5 million over
an eight year period. Any remaining purchase price unpaid at the end
of eight years will expire unpaid. The Corporation estimates this liabil-
ity will be paid down within five years.
The acquisition of this technology was accounted for as an acquisition
of intangible assets. As such, the Corporation has estimated the fair
value of the future payments as of September 1, 2005 to be $3.0 mil-
lion and has recorded a liability. The intangible asset was capitalized as
developed technology in the amount of $7.5 million and will be amor-
tized over its 20 year useful life.
The HydraNut fastener provides simple and accurate tensioning in
safety risk situations and hard to access areas for customers in nuclear
power generation, industrial, and other energy markets.
TRENTEC
On May 24, 2004, the Corporation acquired certain assets of Trentec,
Inc. (“Trentec”). The purchase price, subject to customary adjustments
provided for in the Asset Purchase Agreement, was $13.9 million,
payable in approximately 280,000 shares of the Corporation’s
restricted Common stock valued at $13.0 million, cash of $0.9 million,
and the assumption of certain liabilities. The excess of the purchase
price over the fair value of the net assets acquired is $5.3 million at
December 31, 2005.
In August 2005, the Corporation completed negotiations with the sell-
ers of Trentec regarding a post-closing dispute. The settlement
resulted in $0.9 million of recovery, which is included in operating
income for 2005, and $0.1 million of additional consideration paid
under the working capital adjustment, which increased the purchase
price of the acquired business. The effect of the settlement was treated
as a non-cash transaction for purposes of preparing the statement of
cash flows as the net settlement of $0.8 million was effectuated
through the forfeiture of the cash holdback in the same amount.
Trentec’s services include specialty equipment fabrication, diamond
wiresaw cutting, nuclear power plant equipment qualification, and
third-party dedication and supply of nuclear components. Trentec’s
operations are located in Cincinnati, Ohio. Revenues of the acquired
business were $13.5 million for the year ended December 31, 2003.
MOTION CONTROL
INDAL TECHNOLOGIES, INC.
On March 1, 2005, the Corporation acquired the outstanding stock of
the parent corporation of Indal Technologies, Inc. (“Indal”). The pur-
chase price was 80.3 million Canadian dollars ($64.7 million) in cash
and was funded from credit available under the Corporation’s revolv-
ing credit facilities.
The purchase price of the acquisition has been preliminarily allocated
to the net tangible and intangible assets acquired, with the remainder
recorded as goodwill, on the basis of estimated fair values as of
December 31, 2005, as follows:
(In thousands)
Net working capital
Property, plant, and equipment
Intangible assets
Deferred income tax liabilities
Net tangible and intangible assets
Purchase price, including capitalized acquisition costs
Goodwill
$ 16,216
11,324
21,456
(11,315)
37,681
64,715
$ 27,034
The estimated excess of the purchase price over the fair value of the
net assets acquired is $28.8 million at December 31, 2005, including
foreign currency translation adjustment gains of $1.8 million. The fair
value of the net assets acquired was based on current estimates. The
Corporation may adjust these estimates based upon analysis of third
party appraisals and the final determination of fair value.
Indal provides shipboard helicopter handling systems for naval appli-
cations with a global installed base on over 200 ships, including more
than 100 systems deployed in the U.S. Navy. Indal’s highly engineered,
proprietary products enable helicopters to land aboard naval vessels
in rough sea conditions. Indal also designs and manufactures special-
ized telescopic hangars that provide protection for helicopters aboard
ships and cable handling systems for naval sonar applications. Indal is
headquartered near Toronto, Ontario, Canada. Revenues of the
acquired business were 49.4 million Canadian dollars ($38.2 million)
for the year ended December 31, 2004.
SYNERGY
On August 31, 2004, the Corporation acquired the outstanding stock of
Synergy Microsystems, Inc (“Synergy”). The purchase price was $49.1
million in cash and was funded from credit available under the Corpo-
ration’s revolving credit facilities. Under the terms of the agreement,
the Corporation deposited $2.5 million into escrow as security for
potential indemnification claims against the seller. Any escrow
remaining after claims for indemnification have been settled will be
paid to the seller 18 months from the acquisition date by the escrow
agent. The excess of the purchase price over the fair value of the net
assets acquired is $31.3 million at December 31, 2005.
Synergy specializes in the design, manufacture and integration of sin-
gle- and multi-processor, single-board computers for VME and Com-
pactPCI systems to meet the needs of demanding real-time
applications in military, aerospace, industrial and commercial mar-
kets. Synergy is headquartered in San Diego, California and has a facil-
ity in Tucson, Arizona. Revenues of the acquired business were $17.5
million for the year ended December 31, 2003.
PRIMAGRAPHICS
On May 28, 2004, the Corporation acquired the outstanding stock of
Primagraphics Holdings Limited (“Primagraphics”). The purchase
price, subject to customary adjustments provided for in the Stock Pur-
chase Agreement, was £12.5 million ($22.4 million) in cash. The pur-
chase price was funded from credit available under the Corporation’s
revolving credit facilities. The estimated excess of the purchase price
over the fair value of the net assets acquired is $13.7 million at Decem-
ber 31, 2005, including foreign currency translation adjustment losses
of $0.6 million.
Primagraphics is a market leader in the development of radar pro-
cessing and graphic display systems used throughout the world for
military and commercial applications, such as ship and airborne com-
mand and control consoles, vessel tracking, air traffic control, and air
defense systems. Primagraphics’ products include graphics and
imaging technologies, video and sensor processing hardware, and
software that can be readily engineered to provide vital components for
a wide variety of systems. Primagraphics is headquartered near Cam-
bridge in the United Kingdom, with an additional facility in Char-
lottesville, Virginia, and a worldwide network of dealers and
distributors. Revenues of the acquired business were £6.8 million
($10.9 million) for the fiscal year ended June 30, 2003.
Dy 4
On January 31, 2004, the Corporation acquired the outstanding stock
of Dy 4 Systems, Inc. and Dy 4 (U.S.) Inc. (collectively “Dy 4”). The pur-
chase price was $110.4 million in cash and the assumption of certain
liabilities. Management funded the purchase price with cash on hand
and from the Corporation’s revolving credit facilities. The purchase
price has been allocated to the net tangible and intangible assets
acquired, with the remainder recorded as goodwill, on the basis of fair
values as of December 31, 2005, as follows:
(In thousands)
Net working capital
Property, plant, and equipment
Deferred tax liabilities
Intangible assets
Net tangible and intangible assets
Purchase price, including capitalized acquisition costs
Goodwill
$ 10,665
6,238
(9,840)
40,549
$ 47,612
110,376
$ 62,764
Dy 4 is considered a market leader in ruggedized embedded comput-
ing solutions for the defense and aerospace industries. Using stan-
dard, commercially available computing technologies, referred to as
commercial-off-the-shelf, Dy 4 customizes the products to perform
reliably in rugged conditions, such as extreme temperature, terrain,
and speed. The acquisition was made primarily to complement the
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
4 7
Corporation’s existing businesses that serve the embedded comput-
ing market. Based in Ottawa, Canada, Dy 4 also has a facility in Virginia
and a sales office in the United Kingdom. Revenues of the purchased
business for the fiscal year ending August 29, 2003 were $72.4 million.
NOVATRONICS/PICKERING
On December 4, 2003, the Corporation acquired all of the outstanding
stock of Novatronics Inc. (“Novatronics”) and Pickering Controls Inc.
(“Pickering”). The purchase price was $13.6 million in cash and the
assumption of certain liabilities and was funded with proceeds from
the Senior Notes issued in September 2003. The excess of the pur-
chase price over the fair value of the net assets acquired as of Decem-
ber 31, 2005 is $6.4 million, including foreign currency translation
adjustment gains of $0.3 million.
Novatronics and Pickering design and manufacture electric motors
and position sensors (both linear and rotary) for the commercial aero-
space, military aerospace, and industrial markets. Novatronics has
operating facilities located in Stratford, Ontario, Canada, while Picker-
ing is located in Plainview, NY. Revenues of the purchased business
were $12.0 million for the year ended December 31, 2002.
SYSTRAN CORPORATION
On December 1, 2003, the Corporation acquired all of the outstanding
shares of Systran Corporation (“Systran”). The purchase price was
$18.3 million in cash and the assumption of certain liabilities and was
funded with proceeds from the Senior Notes issued in September
2003. The excess of the purchase price over the fair value of the net
assets acquired as of December 31, 2005 is $9.2 million.
Systran is a leading supplier of highly specialized, high performance
data communications products for real-time systems, primarily for the
aerospace and defense, industrial automation, and medical imaging
markets. Key applications include simulation, process control,
advanced digital signal processing, data acquisition, image process-
ing, and test and measurement. Systran’s operations are located in
Dayton, Ohio. Revenues of the purchased business were $15.1 million
for the year ended September 30, 2003.
PERITEK CORPORATION
On August 1, 2003, the Corporation acquired the assets and certain lia-
bilities of Peritek Corporation (“Peritek”). The purchase price was $3.2
million in cash and the assumption of certain liabilities. The purchase
price of the acquisition approximates the fair value of the net assets
acquired as of December 31, 2005, which includes developed technol-
ogy of approximately $2.6 million.
Peritek is a leading supplier of video and graphic display boards for the
embedded computing industry and supplies a variety of industries
including aviation, defense, and medical. In addition, Peritek supplies
products for bomb detection, industrial automation, and medical
imaging applications. Peritek’s operations are located in Oakland, Cal-
ifornia. Revenues of the purchased business for the fiscal year ending
March 31, 2003 were $2.7 million.
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COLLINS TECHNOLOGIES
On February 28, 2003, the Corporation acquired the assets of Collins
Technologies (“Collins”). The purchase price was $11.8 million in cash
and the assumption of certain liabilities. Management funded the pur-
chase price from credit available under the Corporation’s Short-Term
Credit Agreement. The excess of the purchase price over the fair value
of the net assets acquired as of December 31, 2005 is $6.2 million.
Collins designs and manufactures linear variable displacement trans-
ducers (“LVDTs”) primarily for aerospace flight and engine control
applications. Industrial LVDTs are used mostly in industrial automation
and test applications. Collins’ operations are located in Long Beach,
California. Revenues of the purchased business were $8.3 million for
the year ended March 31, 2002.
METAL TREATMENT
EVERLUBE
On April 2, 2004, the Corporation purchased the assets of the Everlube
Products division (“Everlube”) of Morgan Advanced Ceramics, Inc. The
purchase price was $6.5 million in cash and the assumption of certain
liabilities. The purchase price was funded from credit available under
the Corporation’s revolving credit facilities. The estimated excess of
the purchase price over the fair value of the net assets acquired is $3.3
million at December 31, 2005.
Everlube is a pioneer and leader in manufacturing solid film lubricant
(“SFL”) and other specialty engineered coatings with more than 180
formulations available. Everlube’s engineered coatings improve the
functional performance of metal components in lubrication, tempera-
ture, and corrosion resistance. Everlube is located in Peachtree City,
Georgia. Revenues of the acquired business were $3.9 million for the
year ended December 31, 2003.
EVESHAM
On February 24, 2004, the Corporation purchased the assets of the Eve-
sham coatings business located in the United Kingdom (“Evesham”)
from Morgan Advanced Ceramics, Ltd. The purchase price was £3.5
million ($6.5 million) in cash and the assumption of certain liabilities.
The purchase price was funded from credit available under the Corpo-
ration’s revolving credit facilities. The excess of the purchase price over
the fair value of the net assets acquired is $2.0 million at December 31,
2005, including foreign currency translation adjustment losses of $0.2
million.
Evesham manufactures and applies an extensive range of SFL coat-
ings, which provide lubrication, corrosion resistance, and enhanced
engineering performance. Revenues of the acquired business were
£2.6 million ($4.2 million) for the year ended December 31, 2003.
E/M ENGINEERED COATINGS SOLUTIONS
On April 2, 2003, the Corporation purchased selected assets of E/M
Engineered Coatings Solutions (“E/M Coatings”). The purchase price
was $16.8 million in cash and the assumption of certain liabilities. The
purchase price was funded from credit available under the Corpora-
tion’s Short-Term Credit Agreement. The excess of the purchase price
over the fair value of the net assets acquired as of December 31, 2005
is $6.4 million.
The Corporation acquired six E/M Coatings facilities operating in
Chicago, Illinois; Detroit, Michigan; Minneapolis, Minnesota; Hartford,
Connecticut; and North Hollywood and Chatsworth, California. Com-
bined, these facilities are one of the leading providers of SFL coatings
in the United States. The E/M Coatings facilities have the capability of
applying over 1,100 different coatings to impart lubrication, corrosion
resistance, and certain cosmetic and dielectric properties to selected
components. Revenues of the purchased business were approximately
$26 million for the year ended December 31, 2002.
ADVANCED MATERIAL PROCESS
On March 11, 2003, the Corporation acquired selected net assets of
Advanced Material Process Corp. (“AMP”), a private company with
operations located in Wayne, Michigan. The purchase price was $6.0
million in cash and the assumption of certain liabilities. There are pro-
visions in the agreement for additional payments upon the achieve-
ment of certain financial performance criteria through 2008 up to a
maximum additional payment of $1.0 million. As of December 31,
2005, the Corporation has paid $0.1 million in such additional consid-
eration. Management funded the purchase from credit available under
the Corporation’s Short-Term Credit Agreement. The excess of the
purchase price over the fair value of the net assets acquired as of
December 31, 2005 is $1.4 million.
AMP is a supplier of commercial shot peening services primarily to the
automotive market in the Detroit area. Revenues of the purchased
business were $5.1 million for the year ended December 31, 2002.
3. Receivables
Receivables include current notes, amounts billed to customers,
claims and other receivables, and unbilled revenue on long-term con-
tracts, consisting of amounts recognized as sales but not billed. Sub-
stantially all amounts of unbilled receivables are expected to be billed
and collected in the subsequent year.
Credit risk is generally diversified due to the large number of entities
comprising the Corporation’s customer base and their geographic dis-
persion. The Corporation is either a prime contractor or subcontrac-
tor of various agencies of the U.S. Government. Revenues derived
directly and indirectly from government sources (primarily the U.S.
Government) were 48%, 47%, and 46% of consolidated revenues in
2005, 2004, and 2003, respectively. As of December 31, 2005 and 2004,
accounts receivable due directly or indirectly from these government
sources represented 52% and 42% of net receivables, respectively.
Sales to one customer through which the Corporation is a subcontrac-
tor to the U.S. Government were 10% of consolidated revenues in 2005,
13% in 2004, and 16% in 2003. No single customer accounted for more
than 10% of the Corporation’s net receivables as of December 31, 2005
and 2004.
The Corporation performs ongoing credit evaluations of its customers
and establishes appropriate allowances for doubtful accounts based
upon factors surrounding the credit risk of specific customers, histor-
ical trends, and other information.
The composition of receivables is as follows:
(In thousands) December 31,
BILLED RECEIVABLES:
Trade and other receivables
Less: Allowance for
doubtful accounts
Net billed receivables
UNBILLED RECEIVABLES:
Recoverable costs and estimated
earnings not billed
Less: Progress payments applied
Net unbilled receivables
Receivables, net
2005
2004
$171,203
$156,891
(5,453)
(4,011)
165,750
152,880
107,618
(28,679)
79,156
(17,952)
78,939
61,204
$244,689
$214,084
The net receivable balance at December 31, 2005 included $18.4 mil-
lion related to the Corporation’s 2005 acquisition.
4. Inventories
In accordance with industry practice, inventoried costs contain
amounts relating to long-term contracts and programs 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
market. The composition of inventories is as follows:
(In thousands) December 31,
Raw material
Work-in-process
Finished goods and component parts
Inventoried costs related to
U.S. Government and other
long-term contracts
Gross inventories
2005
2004
$ 59,336
43,099
52,825
$ 49,616
35,157
50,117
27,533
19,396
182,793
154,286
Less: Inventory reserves
(25,377)
(26,276)
Progress payments applied,
principally related to
long-term contracts
Inventories, net
(11,119)
(12,031)
$146,297
$115,979
The net inventory balance at December 31, 2005 included $5.0 million
related to the Corporation’s 2005 acquisition.
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
4 9
5. Property, Plant, and Equipment
The composition of property, plant, and equipment is as follows:
(In thousands) December 31,
Land
Buildings and improvements
Machinery, equipment, and other
2005
2004
$ 16,825
111,409
362,018
$ 12,563
101,476
340,363
Property, plant, and equipment, at cost
Less: Accumulated depreciation
490,252
(215,431)
454,402
(189,159)
Property, plant, and equipment, net
$ 274,821
$ 265,243
Depreciation expense for the years ended December 31, 2005, 2004,
and 2003 was $36.0 million, $32.4 million, and $27.7 million, respec-
tively. The net property, plant, and equipment balance at December
31, 2005 included $11.6 million related to the Corporation’s 2005
acquisition.
6. Goodwill
Goodwill consists primarily of the excess purchase price of acquisitions over the fair value of the net assets acquired.
The changes in the carrying amount of goodwill for 2005 and 2004 are as follows:
(In thousands)
December 31, 2003
Goodwill from 2004 acquisitions
Change in estimate to fair value of net assets acquired in prior years
Additional consideration of prior years’ acquisitions
Foreign currency translation adjustment
December 31, 2004
Goodwill from 2005 acquisitions
Change in estimate to fair value of net assets acquired in prior years
Additional consideration of prior years’ acquisitions
Foreign currency translation adjustment
Flow
Control
$ 93,418
17,070
(2,260)
5,777
1,197
Motion
Control
Metal
Treatment
Consolidated
$110,850
109,207
34
4,024
4,464
$15,790
5,411
(871)
20
182
$220,058
131,688
(3,097)
9,821
5,843
$115,202
$228,579
$20,532
$364,313
—
1,070
1,241
(344)
27,034
(536)
629
(4,810)
—
—
60
(499)
27,034
534
1,930
(5,653)
December 31, 2005
$117,169
$250,896
$20,093
$388,158
Additional consideration of prior years’ acquisitions includes accruals
of $0.4 million and $8.5 million for the years ended December 31, 2005
and 2004, respectively, related to earn out and other required contrac-
tual payments. These amounts are classified in other current liabili-
ties as additional amounts due to sellers.
During 2005, the Corporation finalized the allocation of the purchase
price for all businesses acquired prior to 2005. None of the goodwill on
the 2005 acquisition is deductible for tax purposes, while approxi-
mately $29 million of the goodwill on acquisitions made during 2004 is
deductible for tax purposes.
In accordance with SFAS No. 142, the Corporation completed its annual
impairment test of goodwill in 2005 and concluded there was no
impairment of goodwill.
7. Other Intangible Assets, Net
Intangible assets are generally the result of acquisitions and consist
primarily of purchased technology, customer related intangibles, trade-
marks and service marks, and technology licenses. Intangible assets
are amortized over useful lives that range between 1 and 20 years.
The following table summarizes the intangible assets acquired
(including their weighted-average useful lives) by the Corporation dur-
ing 2005 and 2004. Indefinite lived intangible assets of $8.0 million are
excluded from the data in the 2004 table. No indefinite lived intangible
assets were purchased in 2005.
(In thousands, except years data)
2005
2004
Developed technology
Customer related
intangibles
Other intangible assets
Amount
Years
Amount
Years
$17,892
20.0
$46,858
17.6
11,107
818
17.7
13.9
39,961
1,391
18.7
8.2
Total
$29,817
19.0
$88,210
17.9
5 0
C U R T I SS - 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 cumulative composition of the Corpo-
ration’s acquired intangible assets as of December 31:
8. Accrued Expenses and Other Current Liabilities
Accrued expenses consist of the following:
Gross
Accumulated
Amortization
Net
(In thousands) December 31,
$ 92,580
$(13,510)
$ 79,070
74,063
16,697
(8,960)
(2,603)
65,103
14,094
$183,340
$(25,073)
$158,267
Accrued compensation
Accrued commissions
Accrued taxes other than income taxes
Accrued insurance
Accrued interest
Other
Gross
Accumulated
Amortization
Net
Total accrued expenses
2005
2004
$45,270
5,819
4,048
4,053
3,842
11,220
$36,520
3,857
3,642
3,179
3,170
13,045
$74,252
$63,413
$ 75,970
$ (7,436)
$ 68,534
Other current liabilities consist of the following:
(In thousands)
2005
Developed technology
Customer related
intangibles
Other intangible assets
Total
(In thousands)
2004
Developed technology
Customer related
intangibles
Other intangible assets
(In thousands) December 31,
Deferred revenue
Warranty reserves
Additional amounts due to sellers
on acquisitions
Current portion of environmental reserves
Other
2005
2004
$21,634
9,850
$26,575
9,667
3,274
2,677
5,616
10,899
1,843
3,809
Total other current liabilities
$43,051
$52,793
Total
62,049
15,952
(4,282)
(1,884)
57,767
14,068
Total
$153,971
$(13,602)
$140,369
The following table presents the changes in the net balance of other
intangibles assets during 2005:
Developed
Technology Intangibles
Customer
Other
Related Intangible
Assets
(In thousands)
December 31, 2004
Acquired during 2005
Amortization expense
Net foreign currency
translation
adjustment
$68,534
17,892
(6,475)
$57,767 $14,068 $140,369
29,817
(11,883)
11,107
(4,682)
818
(726)
(881)
911
(66)
(36)
Total
$79,070
$65,103 $14,094 $158,267
Included in other intangible assets at December 31, 2005 and 2004 are
$9.9 million of intangible assets not subject to amortization. In accor-
dance with SFAS No. 142, the Corporation completed its annual test of
impairment of indefinite lived intangible assets, and concluded there
was no impairment of value.
Amortization expense for the years ended December 31, 2004 and 2003
was $8.3 million and $3.6 million, respectively. The estimated future
amortization expense of purchased intangible assets is as follows:
(In thousands)
2006
2007
2008
2009
2010
$10,988
10,988
10,935
9,846
9,342
The accrued expenses and other current liabilities at December 31,
2005 included $2.1 million and $5.3 million, respectively, related to the
Corporation’s 2005 acquisition.
The Corporation provides its customers with warranties on certain
commercial and governmental products. Estimated warranty costs
are charged to expense in the period the related revenue is recognized
based on the terms of the product warranty, the related estimated
costs, and quantitative historical claims experience. These estimates
are adjusted in the period in which actual results are finalized or addi-
tional information is obtained. The following table presents the
changes in the Corporation’s warranty reserves:
(In thousands)
Warranty reserves at January 1,
Provision for current year sales
Current year claims
Change in estimates to
2005
2004
$ 9,667
3,188
(2,534)
$10,011
3,275
(2,334)
pre-existing warranties
Increase due to acquisitions
Foreign currency translation adjustment
(1,700)
1,618
(389)
(2,856)
1,135
436
Warranty reserves at December 31,
$ 9,850
$ 9,667
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
5 1
9. Income Taxes
Earnings before income taxes for the years ended December 31 con-
sist of:
The components of the Corporation’s deferred tax assets and liabilities
at December 31 are as follows:
(In thousands)
2005
2004
(In thousands)
Domestic
Foreign
Total
2005
2004
2003
Deferred tax assets:
$ 77,440
40,858
$65,963
32,790
$67,429
16,627
$118,298
$98,753
$84,056
The effective tax rate varies from the U.S. federal statutory tax rate for
the years ended December 31, principally as follows:
(In thousands)
2005
2004
2003
Current deferred tax assets
Noncurrent deferred tax liabilities
35.0%
35.0%
35.0%
Net deferred tax liabilities
2005
2004
$ 28,843
(53,570)
$ 25,693
(40,043)
$(24,727)
$(14,350)
Environmental reserves
Inventories
Postretirement/postemployment
$ 9,946
8,353
$ 9,141
10,730
benefits
Incentive compensation
Accrued vacation pay
Warranty reserve
Other
Total deferred tax assets
Deferred tax liabilities:
Retirement plans
Depreciation
Goodwill amortization
Other intangible amortization
Other
Total deferred tax liabilities
16,453
9,203
4,570
2,363
7,607
58,495
10,376
21,054
19,044
28,332
4,416
83,222
16,204
7,086
4,229
1,950
5,164
54,504
9,447
17,607
20,974
19,078
1,748
68,854
Net deferred tax liabilities
$(24,727)
$(14,350)
Deferred tax assets and liabilities are reflected on the Corporation’s
consolidated balance sheet at December 31 as follows:
As of December 31, 2005, the Corporation had state and foreign net
operating loss carryforwards of $0.5 million, after tax. The state net
operating loss carryforwards expire through the year 2023. The foreign
net operating loss carryforwards have no expiration date.
Income tax payments of $32.3 million were made in 2005, $28.8 mil-
lion in 2004, and $22.8 million in 2003.
No provision has been made for U.S. federal or foreign taxes on that
portion of certain foreign subsidiaries’ undistributed earnings consid-
ered to be permanently reinvested, which at December 31, 2005 was
$28.0 million. It is not practicable to estimate the amount of tax that
would be payable if these amounts were repatriated to the U.S.; how-
ever, it is expected there would be minimal or no additional tax because
of the availability of foreign tax credits.
The provision for income taxes for the years ended December 31
consist of:
(In thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2005
2004
2003
$25,362
6,028
12,791
$21,158
5,481
10,548
$17,018
4,103
5,050
44,181
37,187
26,171
(674)
472
(961)
(1,163)
(878)
(1,969)
(653)
(3,500)
5,032
426
159
5,617
Provision for income taxes
$43,018
$33,687
$31,788
U.S. Federal statutory tax rate
Add (deduct):
State and local taxes,
net of federal benefit
All other, net
3.4
(2.0)
1.6
(2.5)
3.5
(0.7)
Effective tax rate
36.4%
34.1%
37.8%
The 2004 effective tax rate included nonrecurring benefits totaling $3.4
million, primarily resulting from the change in legal structure of one of
our subsidiaries and a favorable IRS appeals settlement.
5 2
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
On October 22, 2004 the American Jobs Creation Act of 2004 (the “ACT”)
was signed into law. The ACT includes a one time opportunity for a
deduction of 85% of certain foreign dividends that are repatriated, as
defined in the ACT. Pursuant to this provision of the ACT, the Corpora-
tion has repatriated $9.3 million in the fourth quarter of 2005 with a
tax cost of $0.3 million. This tax cost was net of foreign tax credits
which were not previously provided. The Corporation should be con-
sidered to have satisfied the Section 8.03 “safe harbor” contained in
Notice 2005-10 since 100% of the required investments pursuant to the
Section 965 dividend reinvestment plan have been made by the end of
the 2005 tax year.
10. Debt
Debt consists of the following:
(In thousands) December 31,
2005
2004
Industrial Revenue Bonds, due from 2007
through 2028
Revolving Credit Agreement, due 2009
5.13% Senior Notes due 2010
5.74% Senior Notes due 2013
5.51% Senior Notes due 2017
Other debt
Total debt
Less: Short-term debt
Total Long-term debt
$ 14,239
—
74,729
125,108
150,000
826
394,902
885
$ 14,296
124,500
75,329
126,793
—
1,572
342,490
1,630
$364,017
$340,860
The weighted-average interest rate of the Corporation’s Industrial
Revenue Bonds was 2.54% and 1.39% in 2005 and 2004, respectively.
The weighted-average interest rate of the Corporation’s Revolving
Credit Agreement was 3.97% and 2.56% in 2005 and 2004, respectively.
The carrying amount of the Industrial Revenue Bonds approximates
fair value as the interest rates on variable debt are reset periodically to
reflect market conditions and rates. Fair values for the Corporation’s
fixed rate debt totaled $357.9 million and $205.3 million at December
31, 2005 and 2004, respectively. These fair values were estimated by
management. The fair values described above may not be indicative of
net realizable value or reflective of future fair values. Furthermore, the
use of different methodologies to determine the fair value of certain
financial instruments could result in a different estimate of fair value
at the reporting date.
Aggregate maturities of debt are as follows(1):
(In thousands)
2006
2007
2008
2009
2010
Thereafter
Total
$
885
5,060
62
64
125,066
233,928
$365,065
(1) Amounts exclude a $0.2 million adjustment to the fair value of long-term debt
relating to the Corporation’s interest rate swap agreements that were settled in
cash during 2005.
Interest payments of $18.3 million, $12.1 million, and $2.6 million
were made in 2005, 2004, and 2003, respectively.
On December 1, 2005, the Corporation issued $150.0 million of 5.51%
Senior Notes (the “2005 Notes”). The 2005 Notes mature on December
1, 2017. The Notes are senior unsecured obligations and are equal in
right of payment to the Corporation’s existing senior indebtedness. The
Corporation, at its option, can prepay at any time all or any part of the
2005 Notes, subject to a make-whole amount in accordance with the
terms of the Note Purchase Agreement. In connection with the 2005
Notes, the Corporation paid customary fees that have been deferred
and will be amortized over the terms of the Notes. The Corporation is
required under the Note Purchase Agreement to maintain certain
financial ratios, the most restrictive of which is a debt to capitalization
limit of 60% and a cross default provision with the Corporation’s other
senior indebtedness. As of December 31, 2005, the Corporation was in
compliance with all covenants.
In November 2005, the Corporation unwound its interest rate swap
agreements with notional amounts of $20 million and $60 million
which were originally put in place to convert a portion of the fixed inter-
est on the $75 million 5.13% Senior Notes and $125 million 5.74%
Senior Notes, respectively, to variable rates based on specified
spreads over six-month LIBOR. The unwind of these swap agreements
resulted in a net loss of $0.2 million, which has been deferred and is
being amortized over the remaining term of the underlying debt.
On July 23, 2004, the Corporation amended its existing credit facility,
increasing the available line of credit from $225 million to $400 million
with a group of ten banks. The Corporation plans to use the credit line
for working capital purposes, internal growth initiatives, funding of
future acquisitions, and other general corporate purposes. The credit
agreement expires in 2009. Borrowings under the agreement bear
interest at a floating rate based on market conditions. In addition, the
Corporation’s interest rate and level of facility fees depend on main-
taining certain financial ratios defined in the agreement. The Corpora-
tion is subject to annual facility fees on the commitments under the
Revolving Credit Agreement. In connection with the Revolving Credit
Agreement, the Corporation paid customary transaction fees that have
been deferred and are being amortized over the term of the agree-
ment. The Corporation is required under the agreement to maintain
certain financial ratios and meet certain financial tests as detailed in
the agreement, of which the Corporation is in compliance at Decem-
ber 31, 2005. The unused credit available under the Revolving Credit
Agreement at December 31, 2005 and 2004 was $367.9 million and
$256.7 million, respectively.
On September 25, 2003, the Corporation issued $200.0 million of
Senior Notes (the “2003 Notes”). The 2003 Notes consist of $75.0 mil-
lion of 5.13% Senior Notes that mature on September 25, 2010 and
$125.0 million of 5.74% Senior Notes that mature on September 25,
2013. The 2003 Notes are senior unsecured obligations and are equal
in right of payment to the Corporation’s existing senior indebtedness.
The Corporation, at its option, can prepay at any time all or any part of
the 2003 Notes, subject to a make-whole amount in accordance with
the Note Purchase Agreement. The Corporation paid customary fees
that have been deferred and will be amortized over the terms of the
2003 Notes. The Corporation is required under the Note Purchase
Agreement to maintain certain financial ratios, the most restrictive of
which is a debt to capitalization limit of 60% and a cross default provi-
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
5 3
12. Stock Compensation Plans
2005 Long-Term Incentive Plan: Under the 2005 LTI Plan approved by
stockholders in 2005 and effective as of May 19, 2005, an aggregate
total of 2,500,000 shares of Common stock were reserved for issuance.
The Common stock to be used to satisfy employee option exercises
will be from the Corporation’s treasury stock. The Corporation does
not expect to repurchase any shares in 2006 to replenish treasury
stock for issuances made to satisfy stock option exercises. No more
than 200,000 shares of Common stock or 100,000 shares of restricted
stock may be awarded in any year to any one participant in the 2005
LTI Plan. Awards under the 2005 LTI Plan currently consist of three
components—performance units (cash), non-qualified stock options,
and contingent restricted stock.
Under the 2005 LTI Plan, the Corporation awarded performance units
of 8.0 million in 2005 to certain key employees. The performance units
are denominated in dollars and are contingent upon the satisfaction of
performance objectives keyed to achieving profitable growth over a
period of three fiscal years commencing with the fiscal year following
such awards. The anticipated cost of such awards is expensed over the
three-year performance period, which for the 2005 awards will begin
in 2006. The actual cost of the performance units may vary from the
total value of the awards depending upon the degree to which the key
performance objectives are met.
Under the 2005 LTI Plan, the Corporation has granted non-qualified
stock options in 2005 to key employees. Grants under the 2005 LTI Plan
were made in the fourth quarter. Stock options granted under the 2005
LTI Plan expire ten years after the date of the grant and are generally
exercisable as follows: up to one-third of the grant after one year, up to
two-thirds of the grant after two years, and in full three years from the
date of grant.
Under the 2005 LTI Plan, the Corporation has granted 54,336 contin-
gent restricted stock units in 2005 to certain of the Corporation’s offi-
cers. The contingent restricted stock granted under this LTI Plan are
denominated in shares based on the fair market value of the Corpora-
tion’s stock on the day of the grant, and are contingent upon the satis-
faction of performance objectives keyed to achieving profitable growth
over a period of three fiscal years commencing with the fiscal year fol-
lowing such award. The anticipated cost of such award is expensed
over the three-year performance period. The actual cost of the contin-
gent restricted stock may vary from the total value of the awards
depending upon the degree to which the key performance objectives
are met.
The remaining allowable shares for issuance under the 2005 LTI Plan
as of December 31, 2005 is 2,257,582.
sion with the Corporation’s other senior indebtedness. As of Decem-
ber 31, 2005, the Corporation was in compliance with all covenants.
At December 31, 2005, substantially all of the industrial revenue bond
issues are collateralized by real estate, machinery, and equipment.
Certain of these issues are supported by letters of credit, which total
$13.7 million. The Corporation had various other letters of credit total-
ing $18.6 million. Substantially all letters of credit are included under
the Revolving Credit Agreement.
11. Earnings Per Share
The Corporation is required to report both basic earnings per share
(“EPS”), based on the weighted-average number of Common and
Class B common shares outstanding, and diluted earnings per share,
based on the basic EPS adjusted for all potentially dilutive shares
issuable. Share and per share amounts presented below have been
adjusted on a pro forma basis for the December 17, 2003 stock split.
See Note 1-O for further information regarding the stock split.
The Corporation had no antidilutive options outstanding at December
31, 2005 or December 31, 2004. At December 31, 2003, the Corporation
had stock options outstanding of 148,052 shares that were not included
in the computation of diluted EPS, because to do so would have been
antidilutive. Earnings per share calculations for the years ended
December 31, 2005, 2004, and 2003 are as follows:
(In thousands, except
per share data)
2005:
Basic earnings per share
Effect of dilutive securities:
Stock options
Deferred stock
compensation
Weighted-
Average
Shares
Outstanding
Net
Income
Earnings
Per Share
$75,280
21,635
$3.48
250
29
Diluted earnings per share
$75,280
21,914
$3.44
2004:
Basic earnings per share
Effect of dilutive securities:
Stock options
Deferred stock
compensation
$65,066
21,196
$3.07
324
27
Diluted earnings per share
$65,066
21,547
$3.02
2003:
Basic earnings per share
Effect of dilutive securities:
Stock options
Deferred stock
compensation
$52,268
20,640
$2.53
222
25
Diluted earnings per share
$52,268
20,887
$2.50
5 4
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
1995 Long-Term Incentive Plan: Under the 1995 LTI Plan approved by
stockholders in 1995 and as amended in 2002 and 2003, an aggregate
total of 3,000,000 shares of Common stock were reserved for issuance.
The Common stock used to satisfy employee option exercises will be
from the Corporation’s treasury stock. The Corporation does not
expect to repurchase any shares in 2006 to replenish treasury stock for
issuances made to satisfy stock option exercise. No more than 50,000
shares of Common stock may be awarded in any year to any one par-
ticipant in the 1995 LTI Plan. Awards under the 1995 LTI Plan consisted
of three components—performance units (cash), non-qualified stock
options, and non-employee director grants.
Under the 1995 LTI Plan, the Corporation awarded performance units
of 6.3 million in 2004 and 4.8 million in 2003 to certain key employees.
The performance units are denominated in dollars and are contingent
upon the satisfaction of performance objectives keyed to achieving
profitable growth over a period of three fiscal years commencing with
the fiscal year following such awards. The anticipated cost of such
awards is expensed over the three-year performance period, which
amounted to $5.3 million, $4.3 million, and $3.3 million in 2005, 2004,
and 2003, respectively. The actual cost of the performance units may
vary from the total value of the awards depending upon the degree to
which the key performance objectives are met.
Under the 1995 LTI Plan, the Corporation granted non-qualified stock
options in 2004 and 2003 to key employees. Grants under the 1995 LTI
Plan were made in the fourth quarter of both years. Stock options
granted under the 1995 LTI Plan expire ten years after the date of the
grant and are generally exercisable as follows: up to one-third of the
grant after one year, up to two-thirds of the grant after two years, and
in full three years from the date of grant.
In May 2003, the Corporation’s Board of Directors and stockholders
approved an amendment to the 1995 LTI Plan to authorize non-
employee directors to participate under the plan. The amendment pro-
vided that each non-employee director could receive the equivalent of
$15,000 of the Corporation’s Common stock per year. The Board of
Directors approved and issued stock grants of 277 shares, 268 shares,
and 480 shares in 2005, 2004, and 2003, respectively, of the Corpora-
tion’s Common stock to each of the eight non-employee directors. The
stock grants were valued at $15,000 based on the market price of the
Corporation’s Common stock on the grant date and were expensed at
the time of issuance.
1995 LTI Plan was superseded by the 2005 LTI Plan so there are no
remaining allowable shares for future awards under the 1995 LTI Plan.
As of December 31, 2005 there were options representing a total of
769,936 shares outstanding under the 1995 plan.
Employee Stock Purchase Plan: In May 2003, the Corporation’s Board of
Directors and stockholders approved the 2003 Employee Stock Pur-
chase Plan (the “ESPP”) under which eligible employees may pur-
chase the Corporation’s Common stock at a price per share equal to
85% of the lower of the fair market value of the Common stock at the
beginning or end of each offering period. Each offering period of the
ESPP lasts six months, with the first offering period commencing on
January 1, 2004. Participation in the offering is limited to 10% of an
employee’s base salary (not to exceed amounts allowed under Section
423 of the Internal Revenue Code), may be terminated at any time by
the employee, and automatically ends on termination of employment
with the Corporation. A total of 1,000,000 shares of Common stock have
been reserved for issuance under the ESPP. The Common stock to sat-
isfy the stock purchases under the ESPP will be newly issued shares
of Common stock. During 2005, 82,283 shares were purchased under
the ESPP. As of December 31, 2005, there were 882,822 shares avail-
able for future offerings, and the corporation has withheld $2.2 million
from employees, the equivalent of 48,605 shares.
Stock option activity during the periods for both plans is indicated
as follows:
Weighted-
Average
Exercise
Options
Price Exercisable
Weighted-
Average
Exercise
Price
Shares
837,024
$18.48
1,340,304
148,052
(233,708)
(16,926)
$21.16
38.16
16.57
24.39
Outstanding at
January 1, 2003
Granted
Exercised
Forfeited
Outstanding at
December 31, 2003
Granted
Exercised
Forfeited
1,237,722
126,336
(315,517)
(50,385)
Outstanding at
December 31, 2004
Granted
Exercised
Forfeited
998,156
189,278
(219,696)
(9,720)
24.01
55.91
19.37
25.68
29.43
55.84
21.11
42.82
Outstanding at
855,676
20.83
729,690
23.51
December 31, 2005
958,018
$36.42
641,549
$28.08
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
5 5
The following table summarizes information about stock options outstanding at December 31, 2005:
Options Outstanding
Options Exercisable
Range of Exercise Prices
Less than $20.00
$20.00 – $29.99
$30.00 – $40.00
Greater than $40.00
Weighted-Average
Remaining
Contractual
Life in Years
Weighted-
Average
Exercise Price
3.2
5.5
7.4
9.5
7.1
$18.73
22.59
35.45
55.87
$36.42
Shares
100,862
291,993
253,282
311,881
958,018
Weighted-Average
Remaining
Contractual
Life in Years
Weighted-
Average
Exercise Price
3.2
5.5
7.3
8.9
5.9
$18.73
22.59
34.86
55.91
$28.08
Shares
100,862
291,993
207,667
41,027
641,549
2005 Stock Plan for Non-Employee Directors: The Stock Plan for Non-
Employee Directors (“2005 Stock Plan”), approved by the stockholders
in 2005 authorized the grant of stock awards and, at the option of the
non-employee directors, the deferred payment of regular stipulated
compensation and meeting fees in equivalent shares. Pursuant to the
terms of the 2005 Stock Plan, the Corporation’s non-employee direc-
tors each receive annual restricted stock awards valued at $50,000,
which are subject to a three year restriction period commencing on the
date of the grant. These restricted stock awards are subject to forfei-
ture if the non-employee director resigns or retires by reason of his or
her decision not to stand for re-election prior to the lapsing of all
restrictions, unless the restrictions are otherwise removed by the
Committee on Directors and Governance. The cost of the restricted
stock awards will be amortized over the three year restriction period
from the date of grant. Newly elected non-employee directors receive
a one-time restricted stock award valued at $25,000. The total number
of shares of Common stock available for grant under the 2005 Stock
Plan may not exceed 50,000 shares. During 2005, no grants of
restricted stock were awarded under the 2005 Stock Plan.
1996 Stock Plan for Non-Employee Directors: The Stock Plan for Non-
Employee Directors (“1996 Stock Plan”), approved by the stockholders
in 1996, authorized the grant of restricted stock awards and, at the
option of the non-employee directors, the deferred payment of regular
stipulated compensation and meeting fees in equivalent shares. Pur-
suant to the terms of the 1996 Stock Plan, non-employee directors
received an initial restricted stock grant of 3,612 shares in 1996, which
became unrestricted in 2001. Additionally, on the fifth anniversary of
the initial grant, those non-employee directors who remained a non-
employee director, received an additional restricted stock grant equal
to the product of increasing $13,300 at an annual rate of 2.96%, com-
pounded monthly from the effective date of the 1996 Stock Plan. In
2001, the amount per director was calculated to be $15,419, repre-
senting a total additional grant of 1,555 restricted shares. The cost of
the restricted stock awards is being amortized over the five-year
restriction period from the date of grant. Prior to the effective date of
the 2005 Stock Plan, newly elected non-employee directors received
similar compensation under the terms of the 1996 Stock Plan upon
their election to the Board.
Pursuant to election by non-employee directors to receive shares in
lieu of payment for earned and deferred compensation under the 1996
Stock Plan, the Corporation had provided for an aggregate additional
29,027 shares, at an average price of $32.76 as of December 31, 2005.
5 6
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
During 2005, the Corporation issued 2,802 shares in deferred com-
pensation pursuant to such elections.
13. Environmental Costs
The Corporation has continued the operation of the ground water and
soil remediation activities at the Wood-Ridge, New Jersey site through
2005. The cost of constructing and operating this site was provided for
in 1990 when the Corporation established a reserve to remediate the
property. Costs for operating and maintaining this site totaled $0.8 mil-
lion in 2005, $1.5 million in 2004, and $0.6 million in 2003, all of which
have been charged against the previously established reserve. The
Corporation increased the remediation reserve by $0.2 million and
$0.3 million in 2005 and 2004, respectively, based upon revised oper-
ating projections. The reserve balance as of December 31, 2005 was
$6.5 million. Even though this property was sold in December 2001, the
Corporation retained the responsibility for this remediation in accor-
dance with the sale agreement.
The Corporation has been named as a potentially responsible party
(“PRP”), as have many other corporations and municipalities, in a
number of environmental clean-up sites. The Corporation continues to
make progress in resolving these claims through settlement discus-
sions and payments from established reserves. Significant sites
remaining open at the end of the year are: Caldwell Trucking landfill
superfund site, Fairfield, New Jersey; Sharkey landfill superfund site,
Parsippany, New Jersey; Amenia landfill site, Amenia, New York; and
Chemsol, Inc. superfund site, Piscataway, New Jersey. The Corpora-
tion believes that the outcome for any of these remaining sites will not
have a materially adverse effect on the Corporation’s results of opera-
tions or financial condition.
In the first quarter of 2005, the Corporation sold its Fairfield, New Jer-
sey property, which was formerly an operating facility for the Corpora-
tion’s Motion Control segment. Under the sale agreement, the
Corporation has retained the responsibility to continue the ongoing
environmental remediation on the property. At the date of the sale,
remediation costs associated with the Fairfield site were anticipated to
be incurred over three to five years with an estimated cost of $1.5 mil-
lion. As of December 31, 2005, $0.4 million of costs have been incurred.
In the fourth quarter of 2004, the Corporation increased the remedia-
tion reserve related to the Caldwell Trucking landfill superfund site by
$4.4 million. The increase related to the estimated groundwater reme-
diation for this site, which could span over 30 years. Through 2005, the
majority of the costs for this site have been for the soil remediation.
The Curtiss-Wright Plans
The Corporation maintains a non-contributory defined benefit pension
plan covering substantially all employees other than those employees
covered by the EMD Pension Plan described below. The Curtiss-Wright
Retirement Plan (the “CW Pension Plan”) formula for non-union
employees is based on years of credited service and the five highest
consecutive years’ compensation during the last ten years of service
and a “cash balance” benefit. Union employees who have negotiated a
benefit under the CW Pension Plan are entitled to a benefit based on
years of service multiplied by a monthly pension rate. Employees
become participants under the CW Pension Plan after one year of ser-
vice and are vested after five years of service. At December 31, 2005
and December 31, 2004, the Corporation had prepaid pension costs of
$76.0 million and $77.8 million, 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 in 2006.
The Corporation also maintains a non-qualified restoration plan (the
“CW Restoration Plan”) covering those employees whose compensa-
tion or benefits exceed the IRS limitation for pension benefits. Benefits
under the CW Restoration Plan are not funded, and, as such, the Cor-
poration had an accrued pension liability of $0.7 million at December
31, 2005 and 2004. The Corporation’s contributions to the CW Restora-
tion Plan are not expected to be material in 2006.
The Corporation provides postretirement health benefits to certain
employees (the “CW Retirement Plan”). In 2002, the Corporation
restructured the postretirement medical benefits for certain active
employees, effectively freezing the plan. The obligation associated with
these active employees was transferred to the CW Pension Plan. The
plan continues to be maintained for retired employees. As of Decem-
ber 31, 2005 and 2004, the Corporation had an accrued postretirement
benefit liability of $1.0 million and $1.2 million, respectively, as bene-
fits under the plan are not funded. The Corporation’s contributions to
the CW Retirement Plan are not expected to be material in 2006.
In 2003, the Corporation responded to a U.S.E.P.A. Request For Infor-
mation concerning the Lower Passaic River site. The Corporation sub-
sequently joined a cooperating parties group to share costs relating to
the site and in 2004 signed an agreement with the other group mem-
bers providing for an EPA study of the site. As of December 31, 2005,
the Corporation estimates the costs associated with this study will not
have a materially adverse effect on the Corporation’s results of opera-
tion or financial condition.
In October 2002 the Corporation acquired the Electro-Mechanical Divi-
sion (“EMD”) facility from Westinghouse Government Services LLC
(“Seller”). Included in the purchase was the assumption of several
Nuclear Regulatory Commission (“NRC”) licenses, necessary for the
continued operation of the business. In connection with these licenses,
the NRC required financial assurance from the Corporation (in the
form of a parent company guarantee) representing estimated environ-
mental decommissioning and remediation costs associated with the
commercial operations covered by the licenses. In addition, the Cor-
poration has assumed obligations for additional environmental reme-
diation costs. Remediation and investigation of the EMD facility are
ongoing. As of December 31, 2005, the balance in this reserve is $11.8
million. The Corporation obtained partial environmental insurance
coverage specifically for the EMD facility. The policy provides coverage
for losses due to on or off-site pollution conditions, which are pre-
existing and unknown.
The Corporation’s aggregate environmental obligation at December
31, 2005 was $25.3 million compared to $25.2 million at December 31,
2004. Approximately 80% of the Corporation’s environmental reserves
as of December 31, 2005 represent the current value of anticipated
remediation costs and are not discounted primarily due to the uncer-
tainty of timing of expenditures. The remaining environmental
reserves are discounted using a rate of 4% to reflect the time value of
money since the amount and timing of cash payments for the liability
are reliably determinable. All environmental reserves exclude any
potential recovery from insurance carriers or third-party legal actions.
As of December 31, 2005, the undiscounted cash flows associated with
the discounted reserves were $9.3 million and are anticipated to be
paid over the next 30 years.
14. Pension and Other Postretirement Benefit Plans
The Corporation maintains six separate and distinct domestic pension
and other postretirement benefit plans, as described in further detail
below. Prior to the acquisition of EMD in October 2002, the Corporation
maintained a qualified pension plan, a non-qualified pension plan, and
a postretirement health benefits plan (the “Curtiss-Wright Plans”). As
a result of the acquisition, the Corporation obtained three unfunded
pension and postretirement benefit plans (the “EMD Plans”), similar in
nature to those listed above. The unfunded status of the acquired EMD
Plans was recorded as a liability at the date of acquisition. During 2003,
the funds associated with the qualified pension plans of both the Cur-
tiss-Wright Plans and EMD Plans were placed under a master trust
fund, from which the Corporation directs the investment strategy for
both plans.
C U R T I SS - 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)
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Amendments
Actuarial loss (gain)
Benefits paid
Benefit obligation at end of year
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Plan participants’ contribution
Benefits paid
Fair value of plan assets at end of year
Funded status
Unrecognized net actuarial gain
Unrecognized transition obligation
Unrecognized prior service costs
Prepaid (accrued) benefit costs
The Curtiss-Wright Plans
Pension Benefits
Postretirement Benefits
2005
2004
2005
2004
$124,784
10,315
8,097
—
273
7,181
(13,152)
$126,523
9,838
7,540
—
303
(5,575)
(13,845)
137,498
124,784
211,593
30,527
127
—
(13,152)
229,095
91,597
(18,031)
(3)
1,705
199,013
25,832
593
—
(13,845)
211,593
86,809
(11,238)
(7)
1,554
$ 580
—
35
8
—
217
(112)
728
—
—
104
8
(112)
—
(728)
(315)
—
—
$ 628
—
29
—
—
19
(96)
580
—
—
96
—
(96)
—
(580)
(570)
—
—
$ 75,268
$ 77,118
$(1,043)
$(1,150)
ACCUMULATED BENEFIT OBLIGATION
$120,888
$110,112
N/A
N/A
WEIGHTED-AVERAGE ASSUMPTIONS
IN DETERMINATION OF
BENEFIT OBLIGATION:
Discount rate
Rate of compensation increase
Health care cost trends:
5.75%
3.50%
6.00%
3.50%
5.50%
—
5.00%
—
Rate assumed for subsequent year
Ultimate rate reached in 2011 and 2010, respectively
Measurement date
—
—
September 30
—
—
September 30
13.00%
5.50%
October 31
10.50%
5.50%
October 31
5 8
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
The following table details the components of net periodic pension
expense (income) for the CW Pension Plan and CW Restoration Plan:
The effect on the CW Retirement Plan of a 1% change in the health care
cost trend is as follows:
(In thousands)
Service cost
Interest cost
Expected return on
plan assets
Amortization of prior
service cost
Amortization of transition
obligation
Recognized net actuarial
loss (gain)
Cost of settlement
Net periodic benefit
expense (income)
Weighted-average
assumptions in
determination of net
periodic benefit cost:
Discount rate
Expected return on
plan assets
2005
2004
2003
$ 10,315
8,169
$ 9,838
7,540
$ 8,899
7,982
(16,656)
(17,276)
(18,081)
145
112
(4)
31
—
(4)
33
257
58
(3)
(587)
121
$ 2,000
$
500
$ (1,611)
6.00%
6.00%
6.75%
8.50%
8.50%
8.50%
Rate of compensation
increase
3.50%
3.50%
4.25%
The following table details the components of net periodic pension
income for the CW Retirement Plan:
(In thousands)
Interest cost
Recognized net actuarial gain
Net periodic benefit income
2005
$ 35
(38)
$ (3)
2004
$ 29
(73)
$(44)
2003
$ 39
(73)
$(34)
Weighted-average
assumptions in
determination of net
periodic benefit cost:
Discount rate
Health care
cost trends:
Current year rate
Ultimate rate
reached in 2010,
2007, and 2007,
respectively
5.00%
5.30%
6.75%
10.50%
9.40%
10.70%
5.50%
5.50%
5.50%
(In thousands)
Total service and interest
cost components
Postretirement
benefit obligation
1%
Increase
1%
Decrease
$ 2
$49
$ (2)
$(44)
The EMD Plans
The Corporation maintains the Curtiss-Wright Electro-Mechanical
Corporation Pension Plan (the “EMD Pension Plan”), a qualified con-
tributory defined benefit pension plan that covers all Curtiss-Wright
Electro-Mechanical Corporation employees. The EMD Pension Plan
covers both union and non-union employees and is designed to satisfy
the requirements of relevant collective bargaining agreements.
Employee contributions are withheld each pay period and are equal to
1.5% of salary. The benefits under the EMD Pension Plan are based on
years of service and compensation. At December 31, 2005 and 2004,
the Corporation had an accrued pension liability of $30.5 million and
$37.1 million, respectively, related to the EMD Pension Plan. The Cor-
poration expects to contribute $6.8 million, the estimated minimum
required amount, to the EMD Pension Plan in 2006.
The Corporation maintains the Curtiss-Wright Electro-Mechanical
Corporation Non-Qualified Plan (the “EMD Supplemental Plan”), a
non-qualified non-contributory non-funded supplemental retirement
plan for eligible EMD key executives. The EMD Supplemental Plan pro-
vides for periodic payments upon retirement that are based on total
compensation (including amounts in excess of qualified plan limits)
and years of service and are reduced by benefits earned from certain
other pension plans in which the executives participate. At December
31, 2005 and 2004, the Corporation had an accrued pension liability of
$2.5 million related to the EMD Supplemental Plan. The Corporation’s
contributions to the EMD Supplemental Plan are not expected to be
material in 2006.
The Corporation, through an administration agreement with Westing-
house, maintains the Westinghouse Government Services Group Wel-
fare Benefits Plan (the “EMD Retirement Plan”), a retiree health and
life insurance plan for substantially all of the Curtiss-Wright Electro-
Mechanical Corporation employees. The EMD Retirement Plan pro-
vides basic health and welfare coverage on a non-contributory basis.
Benefits are based on years of service and are subject to certain caps.
The Corporation had an accrued postretirement benefit liability of
$39.5 million and $39.1 million related to the EMD Retirement Plan at
December 31, 2005 and 2004, respectively. Pursuant to the Asset Pur-
chase Agreement, the Corporation has a discounted receivable from
Washington Group International to reimburse the Corporation for a
portion of these postretirement benefit costs. At December 31, 2005
and 2004, the discounted receivable included in other assets was $4.9
million and $5.5 million, respectively. The Corporation expects to con-
tribute $1.9 million to the EMD Retirement Plan during 2006.
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
5 9
(In thousands)
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Amendments
Actuarial loss (gain)
Benefits paid
Benefit obligation at end of year
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Plan participants’ contribution
Benefits paid
Fair value of plan assets at end of year
Funded status
Unrecognized net actuarial loss (gain)
Unrecognized prior service costs
Accrued benefit costs
The EMD Plans
Pension Benefits
Postretirement Benefits
2005
2004
2005
2004
$137,623
3,899
8,364
774
70
941
(6,832)
$128,287
3,249
8,080
804
—
3,503
(6,300)
$ 37,740
570
1,781
181
—
(8,548)
(1,772)
$ 41,106
789
2,366
—
—
(4,918)
(1,603)
144,839
137,623
29,952
37,740
88,436
12,444
10,822
744
(6,832)
105,644
(39,195)
6,160
64
83,737
10,052
143
804
(6,300)
88,436
(49,187)
9,700
—
—
—
1,591
181
(1,772)
—
(29,952)
(9,514)
—
—
—
1,603
—
(1,603)
—
(37,740)
(1,326)
—
$ (32,971)
$ (39,487)
$(39,466)
$(39,066)
ACCUMULATED BENEFIT OBLIGATION
$131,505
$124,793
N/A
N/A
WEIGHTED-AVERAGE ASSUMPTIONS
IN DETERMINATION OF
BENEFIT OBLIGATION:
Discount rate
Rate of compensation increase
Health care cost trends:
Rate assumed for subsequent year — Pre-65
Rate assumed for subsequent year — Post-65
Ultimate rate reached in 2010 — Pre-65
Ultimate rate reached in 2011 and 2010,
5.75%
3.50%
6.00%
3.50%
—
—
—
—
—
—
5.75%
—
9.50%
13.00%
5.50%
6.00%
—
10.50%
13.00%
5.50%
respectively — Post-65
Measurement date
—
September 30
—
September 30
5.50%
October 31
5.50%
October 31
6 0
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
The following table details the components of net periodic pension
expense for the EMD Pension Plan and EMD Supplemental Plan:
The effect on the EMD Retirement Plan of a 1% change in the health
care cost trend is as follows:
(In thousands)
Service cost
Interest cost
Expected return on plan assets
Recognized net actuarial
2005
2004
2003
(In thousands)
$ 3,899
8,320
(7,919)
$3,248
8,080
(7,613)
$2,709
7,854
(7,618)
Total service and interest
cost components
Postretirement
benefit obligation
1%
Increase
1%
Decrease
$ 370
$ (295)
$3,421
$(3,613)
The Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (the “Act”) was signed into law on December 8, 2003. In accor-
dance with FASB Staff Position FAS 106-1, the Corporation made a
one-time election to defer recognition of the effects of the law in the
accounting for its plan under FAS 106 and in providing disclosures
related to the plan until authoritative guidance on the accounting for
the federal prescription drug subsidy is issued. Final regulations
regarding the implementation of the Act were issued in February 2005.
During the fourth quarter of 2005, the Corporation decided to apply for
the Medicare Part D subsidy under this Act. An attestation of actuarial
equivalence was submitted on October 31, 2005 with the understand-
ing that in 2006, the prescription drug plan would be enriched to a
design that is actuarially equivalent. The effect of the anticipated sub-
sidy is a $2.7 million reduction in the balance of the Accumulated Pen-
sion Benefit Obligation disclosed as of December 31, 2005. The
reduction is treated as an actuarial gain in accordance with FSP FAS
106-2 and is included in the gain in the reconciliation above.
loss (gain)
7
—
(394)
Net periodic benefit expense
$ 4,307
$3,715
$2,551
Weighted-average assumptions
in determination of net
periodic benefit cost:
Discount rate
Expected return on
plan assets
Rate of compensation
6.00%
6.25%
7.00%
8.50%
8.50%
8.50%
increase
3.50%
3.25%
4.00%
The following table details the components of net periodic pension
expense for the EMD Retirement Plan:
(In thousands)
Service cost
Interest cost
Recognized net actuarial gain
2005
$ 570
1,781
(360)
Net periodic benefit expense
$1,991
2004
$ 789
2,366
—
$3,155
2003
$ 705
2,388
—
$3,093
Weighted-average assumptions
in determination of net
periodic benefit cost:
Discount rate
Health care cost trends:
Current year rate —
6.00%
6.25%
6.75%
Pre-65
10.50%
9.70%
11.10%
Current year rate —
Post-65
13.00%
15.70%
18.00%
Ultimate rate reached
in 2007 — Pre-65
Ultimate rate reached
in 2010, 2007, and
2007, respectively—
Post-65
5.50%
5.50%
5.50%
5.50%
6.50%
6.50%
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
6 1
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid from the plans:
(In thousands)
2006
2007
2008
2009
2010
2011 – 2015
CW
CW
Pension Retirement
Plan
Plans
EMD
EMD
Pension Retirement
Plan
Plans
$10,480
10,110
10,277
10,541
13,356
55,329
$ 96
88
82
75
66
262
$ 8,586
8,902
9,279
9,622
9,989
55,789
$ 2,023
2,050
2,077
2,002
2,077
10,513
EMD
Subsidy
Receipts
$ (83)
(94)
(104)
(115)
(125)
(744)
Total
$ 21,102
21,056
21,611
22,125
25,363
121,149
Pension Plan Assets
The Corporation maintains the funds of the CW Pension Plan and the
EMD Pension Plan under one master trust. The Corporation’s Retire-
ment Plans are diversified across investment classes and among
investment managers in order to achieve an optimal 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 retirement assets are invested
within this allocation structure in three major categories: domestic
equity securities, international equity securities, and debt securities.
Below are the Corporation’s actual and established target allocations:
Asset class
Domestic Equities
International Equities
Total Equity
Fixed Income
Cash
As of December 31,
2004
2005
Target
Exposure
Expected
Range
54%
15%
69%
31%
0%
54%
15%
69%
31%
0%
50% 40% – 60%
15% 10% – 20%
65% 55% – 75%
35% 25% – 45%
0% – 10%
0%
The Corporation may from time to time require the reallocation of
assets in order to bring the retirement plans into conformity with these
ranges. The Corporation may also authorize alterations or deviations
from these ranges where appropriate for achieving the objectives of
the retirement plans. The Corporation’s investment policy does not
permit its investment manager to invest plan funds in the Corpora-
tion’s stock.
The long-term investment objective of the Retirement Plans is to
achieve a total rate of return, net of fees, which exceeds the actuarial
overall expected return on assets assumption of 8.50% used for fund-
ing purposes and which provides an appropriate premium over infla-
tion. The intermediate-term objective of the Retirement Plans, defined
as three to five years, is to outperform each of the capital markets in
which assets are invested, net of fees. During periods of extreme mar-
ket volatility, preservation of capital takes a higher precedence than
out performing the capital markets.
The overall expected return on assets assumption used in the calcu-
lation of annual net periodic benefit cost is based on a combination of
the historical performance of the pension fund and expectations of
future performance. The historical returns are determined using the
market-related value of assets, includes the recognition of realized
and unrealized gains and losses over a five-year period. Although over
the last ten years the market-related value of assets had an average
annual yield of 10.6%, the actual returns averaged 11.3% during the
same period. Given the uncertainties of the current economic and
geopolitical landscape, the Corporation considers 8.5% to be a rea-
sonable assumption of future long-term investment returns. While
the Corporation takes into account historical performance, its
assumptions also consider the forward-looking long-term outlook
for the capital markets.
6 2
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
Other Pension and Postretirement Plans
The Corporation offers all of its domestic employees the opportunity to
participate in a defined contribution plan. Costs incurred by the Cor-
poration in the administration and record keeping of the defined con-
tribution plan are paid for by the Corporation and are not considered
material.
In addition, the Corporation had foreign pension costs under various
retirement plans of $3.6 million, $3.5 million, and $1.9 million in 2005,
2004, and 2003, respectively.
15. Leases
The Corporation conducts a portion of its operations from leased facil-
ities, which include manufacturing and service facilities, administra-
tive offices, and warehouses. In addition, the Corporation leases
automobiles, machinery, and office equipment under operating
leases. The leases expire at various dates and may include renewals
and escalations. Rental expenses for all operating leases amounted to
$21.9 million in 2005, $18.5 million in 2004, and $10.5 million in 2003.
At December 31, 2005, the approximate future minimum rental com-
mitments under operating leases that have initial or remaining non-
cancelable lease terms in excess of one year are as follows:
(In thousands)
2006
2007
2008
2009
2010
Thereafter
Total
Rental
Commitment
$15,471
13,600
11,423
8,679
5,763
16,402
$71,338
16. Industry Segments
The Corporation manages and evaluates its operations based on the
products and services it offers and the different markets it serves.
Based on this approach, the Corporation has three reportable seg-
ments: Flow Control, Motion Control, and Metal Treatment. The Flow
Control segment primarily designs, manufactures, distributes, and
services a broad range of highly engineered flow control products for
severe service military and commercial applications. The Motion Con-
trol segment primarily designs, develops, and manufactures mechan-
ical systems, drive systems, and electronic controls and sensors for
the aerospace and defense industries. Metal Treatment provides
various metallurgical services, principally shot peening, coatings,
and heat treating. The segment provides these services to a broad
spectrum of customers in various industries, including aerospace,
automotive, construction equipment, oil and gas, petrochemical, and
metal working.
The accounting policies of the operating segments are the same as
those described in the summary of significant accounting policies.
Interest expense and income taxes are not reported on an operating
segment basis because they are not considered in the performance
evaluation by the Corporation’s chief operating decision-maker, its
Chairman and CEO.
Sales to one customer of the Flow Control segment through which the
Corporation is a subcontractor to the U.S. Government were 10% of
consolidated revenues in 2005, 13% in 2004, and 16% in 2003. During
2005, 2004, and 2003, the Corporation had no commercial customer
representing more than 10% of consolidated revenue.
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
6 3
Consolidated Industry Segment Information:
(In thousands)
YEAR ENDED DECEMBER 31, 2005:
Revenue from external customers
Intersegment revenues
Operating income (expense)
Depreciation and amortization expense
Segment assets
Capital expenditures
YEAR ENDED DECEMBER 31, 2004:
Revenue from external customers
Intersegment revenues
Operating income (expense)
Depreciation and amortization expense
Segment assets
Capital expenditures
YEAR ENDED DECEMBER 31, 2003:
Revenue from external customers
Intersegment revenues
Operating income (expense)
Depreciation and amortization expense
Segment assets
Capital expenditures
Flow
Control
Motion
Control
Metal
Treatment
Segment
Total
Corporate
& Other(1)
Consolidated
Total
$466,546
—
54,509
17,307
440,550
16,459
$388,139
—
44,451
15,884
415,504
10,420
$341,271
—
39,980
14,458
323,689
12,417
$465,451
548
50,485
19,572
653,037
12,966
$388,576
144
44,893
14,214
576,275
10,171
$265,905
—
30,321
7,983
317,631
4,791
$198,931
545
34,470
10,836
194,316
12,919
$178,324
555
28,111
10,381
194,783
11,728
$138,895
544
18,742
8,685
170,547
15,727
$1,130,928
1,093
139,464
47,715
1,287,903
42,344
$ 955,039
699
117,455
40,479
1,186,562
32,319
$ 746,071
544
89,043
31,126
811,867
32,935
$
—
(1,093)
(1,482)
136
112,382
100
$
—
(699)
(7,114)
263
91,878
133
$
—
(544)
(72)
201
161,798
394
$1,130,928
—
137,982
47,851
1,400,285
42,444
$ 955,039
—
110,341
40,742
1,278,440
32,452
$ 746,071
—
88,971
31,327
973,665
33,329
(1) Operating income (expense) for Corporate and Other includes pension (expense) income, environmental remediation and administrative expenses, and other expenses.
Reconciliations:
For the years ended December 31, (In thousands)
REVENUES:
Total segment revenue
Intersegment revenue
Elimination of intersegment revenue
Total consolidated revenues
EARNINGS BEFORE TAXES:
Total segment operating income
Corporate and administrative
Other income, net
Interest expense
Total consolidated earnings before tax
ASSETS:
Total assets for reportable segments
Pension assets
Non-segment cash
Other assets
Elimination of intersegment receivables
Total consolidated assets
6 4
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
2005
2004
2003
$1,130,928
1,093
(1,093)
$ 955,039
699
(699)
$746,071
544
(544)
$1,130,928
$ 955,039
$746,071
$ 139,464
(1,482)
299
(19,983)
$ 117,455
(7,114)
443
(12,031)
$ 89,043
(72)
748
(5,663)
$ 118,298
$
98,753
$ 84,056
$1,287,903
76,002
24,995
11,422
(37)
$1,186,562
77,802
545
13,608
(77)
$811,867
77,877
72,582
11,384
(45)
$1,400,285
$1,278,440
$973,665
The following table presents geographical information of the Corporation’s revenues and property, plant, and equipment based on the location of
the customer and the assets, respectively:
December 31, (In thousands)
2005
2004
2003
Geographic Information:
United States of America
United Kingdom
Canada
Other foreign countries
Consolidated total
Revenues
Long-Lived
Assets
Revenues
Long-Lived
Assets
Revenues
Long-Lived
Assets
$ 864,465
109,659
38,595
118,209
$182,277
49,796
26,286
16,462
$735,356
92,541
20,675
106,467
$181,708
52,568
14,136
16,831
$574,427
66,210
17,052
88,382
$176,273
40,614
6,528
14,724
$1,130,928
$274,821
$955,039
$265,243
$746,071
$238,139
17. Contingencies and Commitments
18. Gain on the Sale of Real Estate
The Corporation, through its Flow Control segment, has several NRC
licenses necessary for the continued operation of its commercial
nuclear operations. In connection with these licenses, the NRC
required financial assurance from the Corporation in the form of a par-
ent company guarantee, representing estimated environmental
decommissioning and remediation costs associated with the com-
mercial operations covered by the licenses. The guarantee for the
decommissioning costs of the refurbishment facility, which is esti-
mated for 2017, is $3.1 million. See Note 13 for further information.
The Corporation enters into standby letters of credit agreements with
financial institutions and customers primarily relating to guarantees
of repayment on certain Industrial Revenue Bonds, future perfor-
mance on certain contracts to provide products and services, and to
secure advance payments the Corporation has received from certain
international customers. At December 31, 2005, 2004, and 2003, the
Corporation had contingent liabilities on outstanding letters of credit
of $32.3 million, $19.4 million, and $19.5 million, respectively.
Consistent with other entities its size, the Corporation is party to a
number of legal actions and claims, none of which individually or in the
aggregate, in the opinion of management, are expected to have a mate-
rial adverse effect on the Corporation’s results of operations or finan-
cial position.
On March 17, 2005, the Corporation completed the sale of its Fairfield,
New Jersey property, a former operating property, for $10.5 million.
The property encompasses approximately 39 acres and was formerly
an operating facility for the Corporation’s Motion Control segment now
located in Shelby, North Carolina. As a result of the sale, the Corpora-
tion recognized a pre-tax gain of $2.8 million in the first quarter of 2005,
which is recorded in operating income in the Corporation’s Consoli-
dated Statements of Earnings.
19. Subsequent Event
On February 7, 2006, the Board of Directors declared a 2-for-1 stock
split in the form of a 100% stock dividend. The split, in the form of 1
share of Common stock for each share of Common stock outstand-
ing, is payable on April 7, 2006. As the market price of the shares does
not reflect the stock split as of the date of this Annual Report, all ref-
erences throughout this Annual Report to number of shares, per share
amounts, stock options data, and market prices of the Corporation’s
Common stock have not been adjusted to reflect the effect of this
stock split.
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
6 5
CORPORATE INFORMATION
Corporate Headquarters
4 Becker Farm Road, 3rd Floor
Roseland, NJ 07068
www.curtisswright.com
Annual Meeting
The 2006 annual meeting of stockholders will be held on May 5,
2006, at 2:00 pm at the Wilshire Grand Hotel, 350 Pleasant Valley
Way, West Orange, NJ 07052.
Stock Exchange Listing
The Corporation's Common stock is listed and traded on the New
York Stock Exchange under the symbol CW.
Common Shareholders
As of December 31, 2005, the approximate number of holders of
record of Common stock, par value of $1.00 per share of the
Corporation was 7,100.
Stock Transfer Agent And Registrar
For services such as changes of address, replacement of lost
certificates or dividend checks, and changes in registered
ownership, or for inquiries as to account status, write to American
Stock Transfer & Trust Company at 59 Maiden Lane, New York,
New York 10038.
Please include your name, address, and telephone number with
all correspondence. Telephone inquiries may be made to
(800) 937-5449. Foreign (212) 936-5100. Internet inquiries should
be addressed to http://www.amstock.com. Hearing-impaired
shareholders are invited to log on to the website and select the
Live Chat option.
Direct Stock Purchase Plan/Dividend
Reinvestment Plan
A plan is available to purchase or sell shares of Curtiss-Wright
Common stock. The plan provides a low cost alternative to the
traditional methods of buying, holding and selling stock. The plan
also provides for the automatic reinvestment of Curtiss-Wright
dividends. For more information, contact our transfer agent,
American Stock Transfer & Trust Company toll-free at
(877) 854-0844.
Investor Information
Investors, stockbrokers, security analysts, and others seeking
information about Curtiss-Wright Corporation should contact
Alexandra M. Deignan, Director of Investor Relations, at the
Corporate Headquarters listed above.
6 6
C U R T I SS - W R I G H T A N D S U B S I D I A R I E S
Stockholder Communications
Any stockholder wishing to communicate directly with our Board of
Directors should write to Dr. William W. Sihler at Southeastern
Consultants Group, LTD, P.O. Box 5645, Charlottesville, VA 22905.
Financial Reports
This Annual Report includes most of the periodic financial
information required to be on file with the Securities and Exchange
Commission. The Corporation also files an Annual Report on
Form 10-K, a copy of which may be obtained free of charge. These
reports, as well as additional financial documents such as
quarterly shareholder reports, proxy statements, and quarterly
reports on Form 10-Q, may be obtained by written request to
Alexandra M. Deignan, Director of Investor Relations, at the
Corporate Headquarters, or at the Corporation’s website
www.curtisswright.com.
Stock Price Range
Common
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Class B
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2005
2004
High
$59.85
62.67
67.40
63.88
Low
$48.81
50.14
52.35
54.15
High
$48.70
56.19
58.28
60.00
2005
2004
High
$58.65
62.22
—
—
Low
$48.23
53.41
—
—
High
$47.50
53.77
54.99
58.32
Low
$44.20
45.74
51.10
52.65
Low
$43.00
43.50
49.29
50.00
Note: Class B shares converted to Common shares on May 24, 2005.
Dividends
Common
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Class B
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2005
$0.09
0.09
0.09
0.12
2005
$0.09
0.08
—
—
2004
$0.09
0.09
0.09
0.09
2004
$0.09
0.09
0.09
0.09
Note: Class B shares converted to Common shares on May 24, 2005.