Mission-Critical Technologies
Cross-Market Opportunities
Historical Financial Performance
(In thousands, except per share data; unaudited)
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,
Number of registered shareholders
Number of employees
2006
2005
2004
$ 1,282,155
$ 1,130,928
$ 955,039
197,555
80,569
143,871
1.82
6%
8%
188,132
75,280
105,178
1.72
7%
8%
152,026
65,066
105,347
1.51
7%
8%
1,332,982
875,507
1,261,193
805,631
998,936
627,679
$ 330,520
2.1 to 1
1,592,156
762,074
17.31
$
50,791
40,202
44,023
6,762
6,233
$ 268,963
2.2 to 1
1,400,285
638,220
14.68
$ 212,159
2.1 to 1
1,278,440
575,614
13.43
$
47,851
42,444
21,746
7,069
5,892
$
40,742
32,452
21,438
7,460
5,599
Dividends per share
$
0.24
$
0.20
$
0.18
(1)Per share data for all years have been adjusted to reflect a 2-for-1 stock split on April 21, 2006.
Net Sales
Operating Income*
Net Earnings*
$1,500,000
1,200,000
900,000
600,000
300,000
$150,000
120,000
90,000
60,000
30,000
$100,000
80,000
60,000
40,000
20,000
’02 ’03 ’04 ’05 ’06
’02 ’03 ’04 ’05 ’06
’02 ’03 ’04 ’05 ’06
*Normalized to exclude the effect of gains and losses on fixed asset sales and CW Pension Plan expense.
Curtiss-Wright Corporation
Curtiss-Wright and Subsidiaries 1
Cross-Market Opportunities
From the start, Curtiss-Wright has fostered innovation and performance. From the design and
flight of the first aircraft to the advanced technologies that enable subsea operations, our focus
is on advanced technology for critical applications. We employ rigorous engineering, precision
manufacturing and stringent qualification testing to create the most sophisticated products
available. Our performance is evident in the long history of our customer relationships and the
global installed base of our products. Curtiss-Wright’s valves, pumps and generators are integral
components in nuclear submarine propulsion systems and are advancing offshore oil production
systems. Our actuation and electronic systems support the newest commercial airline programs
and are key elements of the F-22 Raptor, the U.S. military’s newest stealth fighter aircraft. Our
metal treatment services enhance the performance of Formula 1 racing cars and increase the
safety and reliability of turbine engines and power generation equipment. In these and countless
other ways, our advanced technologies are in demand wherever customers require solutions that
are innovative, reliable and safe.
Flow Control $548 million
Specialized severe service valves, pumps, generators,
controls and electronics for critical national defense
programs and commercial markets, such as nuclear
power generation, oil and gas processing and general
industrial applications.
Motion Control $509 million
Innovative, highly engineered flight controls, drive
and sensor components and embedded computing
products and subsystems for aerospace, defense and
industrial applications worldwide.
Metal Treatment $225 million
Precision metal finishing services, including shot
peening, shot peen forming, laser peening, heat
treating and specialty coatings for critical components
in the commercial aerospace, automotive, energy
and processing industries.
General Industry
Markets Served
Oil & Gas
Defense
Power Generation
Naval Defense
Commercial Aerospace
Military Aerospace
Ground Defense
Military Aerospace
Ground Defense
Naval Defense
General Industry
Commercial
Oil & Gas
Commercial Aerospace
Power Generation
Commercial Aerospace
Power Generation
Ground Defense
Oil & Gas
Military Aerospace
Naval Defense
General Industry
General Industry
Oil & Gas
Power Generation
Commercial Aerospace
Ground Defense
Military Aerospace
Naval Defense
Curtiss-Wright Corporation
Defense
Maintaining a strong defense
requires innovation and reliability.
Curtiss-Wright has a long history of providing the most
advanced technology available to naval, aerospace, and
ground defense programs. Our products manage the flow
of liquids on nuclear-powered aircraft carriers; control
the lift, flight, and landing of fighter aircraft; stabilize
the weapons system on armored tanks; and enhance
the performance of critical metal parts, such as turbine
engine, structural and landing gear components.
Curtiss-Wright products are onboard every nuclear
submarine and aircraft carrier commissioned by the U.S.
Navy. Over the last several years, our enhanced product
designs have provided more efficient customer solutions,
reducing the number of products and manpower required to
operate the ships’ nuclear propulsion systems. Also, we have
expanded our non-nuclear content with product innovations
such as smart, leakless valves used in jet fuel pumping stations,
launching and arresting gear for tailhook-equipped aircraft,
and advanced electric propulsion motor designs.
For more than 77 years, we have provided mission-critical
components and subsystems on key programs for the U.S. Air
Force. Today we supply systems for nearly every fighter
aircraft program in the sky and in development, as well as the
latest advances in integrated electronics and embedded com-
puting for unmanned aerial vehicles, such as the Global Hawk.
On ground defense programs, we provide ammunition
handling and electronic subsystems for the Future Combat
Curtiss-Wright Corporation
Curtiss-Wright and Subsidiaries
Defense Sales
Growth
Defense Market Growth
$600,000
500,000
400,000
9%
300,000
200,000
100,000
0
’05
’06
System program, electronic upgrades to the current
force, such as Abrams and Bradley Fighting Vehicles,
and aiming and stabilization systems for foreign military
armored vehicles. On military helicopters we provide
embedded computing technology insertions, such as the
advanced radar warning receiver system, which are enabling
fleetwide electronic warfare today. And our shipboard
handling systems enable the safe landing and storage of
helicopters during the most severe marine environments.
We then extend the value of our solutions by leveraging
these advanced technologies in complementary, high-
performance commercial markets.
proven
proven
Curtiss-Wright Corporation
Commercial Aerospace
Commercial aerospace customers benefit
from our proven defense solutions.
Since our founders, the Wright brothers and Glenn
Curtiss, pioneered the early days of aviation, we have
fostered an innovative spirit for advanced technology in
commercial aerospace.
Every day, in every part of the world, thousands of
commercial airliners take off and land safely with the help
of our highly engineered products. We provide the high-
performance actuation systems that operate the aircraft
flight control surfaces and allow an aircraft to take off and
land at lower speeds, increasing passenger safety and
reducing runway lengths. Our sensors and data recording
technologies ensure critical monitoring of flight operations
and communicate vital data on conditions within and
surrounding the aircraft. With advanced metal treatment
services like shot peening, we form the complex aerodynamic
shapes of the wing skins on all Airbus commercial aircraft
and improve the fatigue life of structural, turbine engine
and landing gear components.
Today the commercial aerospace market is benefiting
from healthy demand and investing in future technologies
with innovative, efficient designs. Both Boeing and Airbus
are introducing new platforms for which we are providing
advanced technologies. In addition, we are participating in
the development of very light jets, such as the Eclipse 500.
proven
proven
Curtiss-Wright Corporation
Curtiss-Wright and Subsidiaries 5
One of our newest technologies, the Rotor Ice Protection
System (RIPS), senses and removes icy build-up on
helicopter blades to enable flight during known icing
conditions. Using this system, Sikorsky’s S-92 helicopter
was the first to be certified by the Federal Aviation
Administration (FAA) for all-weather flight safety
standards. Without this technology, the helicopters
would be grounded during icy weather conditions.
Whether it’s a military fighter plane, commercial jet
or helicopter, Curtiss-Wright’s focus on mission-critical
performance provides customers with reliable solutions.
Commercial
Aerospace Sales
Growth
Commercial Aerospace
Market Growth
$250,000
200,000
150,000
19%
100,000
50,000
0
’05
’06
Curtiss-Wright Corporation
Commercial Power
From submarines to power generation,
our nuclear expertise provides innovative solutions.
Nuclear power plants – the second-largest source of electricity
in the United States – supply approximately 20% of the
nation’s electricity needs. They provide the lowest-cost energy
source and minimally impact the environment.
Our valves, pumps, actuators, and electronics control
the flow of liquids, such as water used in the cooling
systems of nuclear reactors. Curtiss-Wright’s broad
range of core competencies in engineering, analysis,
manufacturing, and testing are being applied in the
commercial nuclear power industry to achieve improvements
in operation and maintenance processes and to extend
the life and increase power output of existing plants.
We provide numerous advanced technologies that enable
operators to improve safety and efficiency of plant operations,
such as the integrated assembly of control rod drive
mechanisms outside of the containment vessel. Our
HydraNut bolting solution significantly reduces maintenance
time, cost and personnel exposure to hazardous materials.
In addition, we have some of the most advanced test
equipment available, such as our tri-axle seismic table
which can simulate extreme environmental conditions,
up to 6.5g’s, such as an earthquake.
As demand increases for locally produced,
environmentally friendly energy sources, the recognition
Curtiss-Wright Corporation
Curtiss-Wright and Subsidiaries 7
Evolution of Nuclear Power
Over 50 years of experience:
1950s
Gen I: Prototypes
1970s
Gen II: Commercial Reactors
1990s
Gen III: Advanced Reactors
2010s
Gen III+: Evolutionary Reactors
Preparing for the future:
2030s
Gen IV: New Technology Reactors
of nuclear power as a clean, economic, and independent
energy source is prompting new development. We are at
the forefront of next-generation technology as a critical
supplier for Westinghouse’s AP1000 design which has
been selected internationally and in the U.S. for new
construction projects.
Safety, efficiency, and long-term reliability are vital
to the nuclear power industry. Curtiss-Wright’s highly
engineered solutions support critical nuclear applica-
tions, from propulsion systems for the U.S. Navy to
global power generation.
Power
Generation Sales
Growth
Commercial Power
Market Growth
$150,000
120,000
90,000
14%
30,000
60,000
0
’05
’06
Curtiss-Wright Corporation
Oil & Gas
Applying military efficiency and reliability
to the oil and gas market.
Our products apply the engineering expertise and
rigorous requirements of military and nuclear markets
to critical-function applications in the oil and gas market.
Our advanced, proprietary technologies help ensure
optimal efficiency and flexibility in oil and gas refineries
globally, while greatly improving worker safety by
eliminating potentially deadly hazards.
With more than 60 years of process control experience,
our safety relief valves and control systems have earned
their place as industry standards in major refineries
throughout the world. In addition, shot peening is applied
to exploration and production equipment and is also used
to treat welded structures to prevent premature fatigue
failures in extremely aggressive environments.
We continue to develop innovative solutions for
advanced, secondary processing techniques, such as
delayed coking and catalytic cracking, which enable
processing of heavier grades of crude oil and enhanced
extraction. In addition, we are partnering with industry
leaders like Cameron International and Dresser-Rand
Company to develop advanced systems for exploration
and production. Leveraging our subsea expertise in the
defense market, we are making great technology strides
in the oil and gas market with state-of-the-art subsea
Curtiss-Wright Corporation
Curtiss-Wright and Subsidiaries 9
Oil & Gas Sales
Growth
Oil & Gas Market Growth
$200,000
150,000
100,000
43%
50,000
0
’05
’06
pumping and power-dense motors for compact, integrated
compression systems. And, our recent introduction of a
Digital Valve Controller (DVC) integrates proprietary
control electronics originally developed for military
applications with a need to monitor critical operations
in the processing industry.
At Curtiss-Wright, proven technologies for the
defense market are providing advanced efficiency
and reliability in the oil and gas market.
0 Curtiss-Wright Corporation
General Industry
Extending the value of our solutions
in countless ways.
We have become experts at identifying opportunities for
extending solutions we develop for a specific market into
other areas. Our highly engineered, advanced technologies
have numerous applications in niche industrial markets.
From Formula 1 racing cars to industrial cargo ships,
controllers for cranes, hoists, access platforms and
forklifts, as well as structural monitoring of buildings
and bridges. You’ll even find Curtiss-Wright technology
in computerized ride simulations and in the faders for
music production and professional broadcasting.
our solutions are used across the globe in a variety of
sometimes surprising ways.
For example, Curtiss-Wright’s position sensors are
used in production assembly; in steering, suspension,
gearbox, and accelerator controls; and transit lifts on
buses and municipal vehicles. In the construction, mining,
timber and material handling industries, we provide
From passenger ferries to cruise ships, we provide marine
propulsion technologies and sophisticated electronic moni-
toring systems for early warning maintenance notification.
Our advanced metal treatment technologies provide
superior performance in highly stressed engine, suspension
and transmission components for passenger, off-road and
competitive racing automobiles. These same technologies
Curtiss-Wright Corporation
Curtiss-Wright and Subsidiaries 11
also enhance the durability of metal parts in a wide
array of critical applications, including welded structural
supports of buildings and offshore oil well platforms.
Our engineering and design expertise support numerous
non-military government and commercial development
programs with specialized simulation and test equipment,
mechanical actuation and power systems. From the
heights of the space program to the depths of the ocean
floor, staying at the forefront of mission-critical technologies
affords Curtiss-Wright access to cross-market opportunities.
Curtiss-Wright Corporation
Dear Shareholders
the previous year, and our year-end backlog was
up % to $ million, positioning us well as we
entered 00.
Our % sales growth in the commercial markets
was driven by our oil and gas businesses which
achieved more than 0% growth over the prior
year. Our defense businesses achieved remarkable
growth of %. The combined efforts of our diverse
markets resulted in overall organic sales growth of
% and a segment operating margin of %. This
places Curtiss-Wright in the top of its peer group
for financial performance, and I am extremely
proud of this accomplishment.
Growth across markets
In 00, our market leadership continued to generate
strong orders that provided very profitable returns in
all areas of our business. Additionally, our balanced
defense/commercial markets and broad platform
exposure provide stability for investors, as well as
numerous opportunities for growth. The results we
achieved in 00 reinforced our belief that our
focus on engineering excellence, performance, and
reliability is desirable on any high-performance
platform, from nuclear submarines to commercial
energy, fighter aircraft to very light jets.
Defense
We continue to leverage our advanced technologies
that we have developed over the past 0 years
for critical applications in the defense market.
In 00, we celebrated the successful first flight of
Lockheed Martin’s F- Lightning II Joint Strike
Fighter which is equipped with nearly $00,000
worth of components and systems developed by
Curtiss-Wright. This exciting event dovetails
with our solid position on critical platforms such
as the Navy’s nuclear aircraft carrier and
submarine programs, and the Air Force’s F-
Raptor and V- Osprey which provide a stable of
recurring revenues.
In addition, the strong performance of our embedded
computing group has provided significant increases
for us on ground defense platforms and expanded
Martin R. Benante
Chairman and Chief Executive Officer
It was a year of outstanding growth in all areas of
the company, once again demonstrating the power
of applying our advanced technologies across diverse
markets around the globe. It is also a testament to
the creativity, ingenuity, and hard work of more than
,00 Curtiss-Wright employees, and a reflection
of the unrelenting high quality of our products.
Excellent financial results
Our superb financial performance in 00 was the
result of successful organic growth initiatives com-
bined with efficient acquisition integration execution.
Continued strength in the U.S. economy and the
global commercial aerospace industry provided a
solid foundation on which our commercial businesses
thrived. In addition, U.S. military spending
remained steady, and we successfully enhanced our
position on key programs.
In 00, sales increased % to $. billion,
representing our th consecutive year of sales
growth. Operating income was $ million and
we had net earnings of $ million, or $. per
diluted share, a % increase over 00. New
orders totaled $. billion, an increase of % from
Curtiss-Wright Corporation
Curtiss-Wright and Subsidiaries 1
our content on numerous naval and aerospace
platforms. Last year, we were awarded a prime
contract from General Dynamics to provide the
Servo Motor Controllers (SMC) for the Future
Combat System (FCS) Manned Ground Vehicles
(MGV), which will play a major role in transforming
the U.S. Army for decades to come. In addition,
we were awarded a significant contract for the
U.S. Navy’s P-A Multi-mission Maritime Aircraft
(MMA) program. On the horizon, we are developing
a number of technology advancements, including
aircraft carrier flight arresting gear and launching
systems, destroyer program electrical propulsion
and power systems, and the Electromagnetic (EM)
Gun power supply.
Commercial Aerospace
The commercial aerospace market continues to
provide exciting growth, both in volume and new
platform designs. In 00, we generated nearly
0% growth from our Motion Control and Metal
Treatment segments in this market. In 00, the
Boeing Dreamliner is scheduled to make
its first flight and it will include approximately
$0,000 of content from Curtiss-Wright. And, we
are expanding into the growing regional jet market
with new content on the Embraer and the Eclipse
platforms. We feel there will be tremendous
opportunity in the regional jet market as the industry
continues to develop the “air taxi” concept.
Oil & Gas
As oil prices have sustained historically high levels,
the demand for our oil and gas products accelerated
substantially and we achieved organic growth in
excess of 0% in 00. The primary driver of this
market continues to be our coker valve products
which generated significant new orders, particularly
in the international markets. In addition, Farris
pressure relief valves are being installed in every
major oil and gas project underway worldwide,
including South America, the North Sea and the
Middle East. During 00, we secured an order
in excess of $ million for the expansion at Ras
Laffan in Qatar, the largest LNG processing plant
in the world. We also completed the integration of
In 2006, our market leadership
continued to generate strong orders
that provided very profitable
returns in all areas of our business.
Additionally, our balanced defense/
commercial markets and broad
platform exposure provided stability
for investors, as well as numerous
opportunities for growth. The results
we saw in 2006 reinforced our
belief that our focus on engineering
excellence, performance and
reliability is desirable on any
high-performance platform.
our Tapco/Enpro businesses while achieving record
backlog and new orders. With an eye toward the
future, we announced two important partnerships
in 00 that will unite our technical expertise in
creating the world’s most advanced pumps and
valves with market leaders in the global oil and gas
industry. We formed a joint venture with Cameron
International Corporation to market and supply
Subsea Multiphase Pumping Systems to the
international offshore oil industry, and we teamed
with Dresser-Rand Company to design and supply
high speed motors to power Dresser-Rand’s
compact Integrated Compression System (ICS),
a major advancement in compressor system
technology for the oil and gas market. While these
programs have just been launched, we are confident
the continued high demand for natural resource
production should result in significant market
growth for us over the next few years.
Power Generation
The company had % growth in this market in
00, and our outlook continues to be strong. Our
recent growth has come primarily from the U.S.
plant recertification process as most of the 0
operating reactors are in the process of applying
for plant life extensions, as required by current
regulations. In addition to plant recertifications, the
Curtiss-Wright Corporation
14 Curtiss-Wright and Subsidiaries
industry is gearing up
for a resurgence in
new construction, both
domestically and abroad.
In December, the Chinese
government announced its
selection of Westinghouse
Electric for one of the
largest international nuclear
reactor contracts in history.
Initially, Westinghouse will
build four Generation III+
nuclear plants. Curtiss-Wright
should participate in these
new builds as a supplier to
Westinghouse of the reactor
coolant pumps and potentially
other associated hardware.
Comparison of Cumulative Five-Year Total Return
$350
300
250
200
150
100
’01
’02
’03
’04
’05
’06
Curtiss-Wright
S&P 00 Aerospace & Defense
Russell 000
In addition, companies
are pursuing combined
construction and operating
licenses for more than 0
new reactors in the U.S. Westinghouse’s AP000
design has been selected for 0 of those applications,
and our product portfolio will support nearly every
power plant design. Once approvals are in place,
construction is expected to begin around 00 in
the U.S.
Disciplined expansion
In 00, we made some key acquisitions that provide
us with complementary technologies that bolster
the set of solutions we provide to our customers
and fulfill our long-term strategic objectives. While
the aggregate cost was not high, we feel the overall
impact will be significant to investors as these
companies meet our strict acquisition criteria,
including excellent management and operations
that minimize integration costs, and a cultural fit
that provides momentum for global cross-marketing
of technologies and products.
In April we acquired Enpro Systems Ltd., a leader
in the design and manufacture of engineered pressure
vessels, catalytic cracking process equipment, and
S&P SmallCap
critical service valves for the petrochemical,
refining, and utility markets. In September, we
acquired Swantech, a company that has developed
advanced software to monitor, predict, and evaluate
the operating condition of high-performance
critical equipment, primarily in the marine, power,
and process markets. Both companies are now part
of our Flow Control segment.
In May we acquired two business units of Allegheny
Coatings which complement our Metal Treatment
segment’s North American coating services network.
These businesses apply high-performance specialized
coatings primarily to automotive braking and
suspension components and will provide expanded
product offerings to our diversified industrial
customer base.
Enhancing shareholder value
In April, Curtiss-Wright executed a -for- stock
split as a means to provide investors with enhanced
liquidity. This stock split and our stable dividend
are indicative of Curtiss-Wright’s commitment to
increasing shareholder value and our confidence in
Curtiss-Wright Corporation
Curtiss-Wright and Subsidiaries 15
forward to their significant contributions as we
position Curtiss-Wright for the future.
Moving forward
The performance and unrelenting quality of our
highly engineered, technologically innovative
solutions enable us to compete in diverse markets
around the world.
While we continue to evaluate and make targeted
investments in new programs, we remain sharply
focused on extracting full value from our existing
businesses through operational excellence. These
efforts contribute meaningfully to our overall
profitability on an ongoing basis and keep us in the
top tier of our peer group year after year.
Looking forward, we intend to continue to focus
on organic growth in all markets. We expect that
to include developing cutting-edge technologies for
our existing programs, as well as participating in
significant new programs, such as the Boeing
Dreamliner commercial jet, new builds of
Westinghouse’s AP000 power plant, and expanding
offshore exploration and development technologies.
First and foremost, Curtiss-Wright is an engineering
company focused on advanced technologies for high-
performance platforms. But we also never take
our eye off of the bottom line. We are dedicated to
providing investors with solid returns. We expect
our market positions and advanced technologies to
provide many opportunities for growth and excellent
returns for our shareholders in the future.
Martin R. Benante
Chairman and Chief Executive Officer
Revenue
(In millions)
$1,400
1,200
1,000
800
600
400
200
0
’02
’03
’04
’05
’06
Fueled by high demand in commercial markets and
continued strength in the defense market, Curtiss-Wright
experienced superb organic growth in 2006.
the company’s ability to continue to deliver strong
revenue and profitability growth.
Farewell and welcome
Last year we announced the departures of two
valued Board members: David Lasky and J. McLain
“Mac” Stewart. David was the former Chairman
and Chief Executive Officer of Curtiss-Wright, a
company that was home to him for years. Mac
was elected to the position of Director in .
He was a career employee of McKinsey & Company
and was also a member of the U.S. Army Airborne
Infantry and Counter-Intelligence Corps from
to . David and Mac will be sincerely missed as
both respected advisors and endearing colleagues.
In 00, we named Albert E. Smith to our Board.
A former executive vice president and officer of
Lockheed Martin Corporation, Al brings an
impressive array of aerospace industry experience
to the Board of Directors of Curtiss-Wright. And,
in 00, Dr. Allen A. Kozinski was named to the
Board. Allen held executive positions with British
Petroleum, Amoco, and Quaker Oats, and his
wealth of technical and operational expertise will
be of great benefit to the Curtiss-Wright Board of
Directors. We welcome both gentlemen and look
Curtiss-Wright Corporation
Directors and Officers
Directors
Martin R. Benante
Chairman of the Board of Directors
James B. Busey IV
Admiral, U.S. Navy (Ret.)
Former Director, Mitre Corporation
Former Trustee, Texas Instruments Inc.
Former President and
Chief Executive Officer of AFCEA
International Aviation Safety and
Security Consultant
S. Marce Fuller
Former President and Chief Executive Officer
of Mirant Corporation, Inc.
(formerly known as Southern Energy, Inc.)
Director, Earthlink, Inc.
Dr. Allen A. Kozinski
Former Vice President, Global Refining
of British Petroleum PLC
Carl G. Miller
Former Chief Financial Officer of TRW, Inc.
Officers
Martin R. Benante
Chairman and Chief Executive Officer
David C. Adams
Vice President
Edward Bloom
Vice President
David J. Linton
Vice President
Glenn E. Tynan
Vice President
Chief Financial Officer
William B. Mitchell
Trustee, 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
Albert E. Smith
Chairman of Tetra Tech., Inc.
Former Executive Vice President and
Officer of Lockheed Martin Corporation
Michael J. Denton
Vice President
General Counsel and Corporate Secretary
Harry Jakubowitz
Treasurer
Kevin M. McClurg
Corporate Controller
B. Parker Miller III
Sr. Vice President, Government Relations
Curtiss-Wright and Subsidiaries 17
Financial Statements
Quarterly Results of Operations
Consolidated Selected Financial Data
Forward-Looking Statements
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Quantitative and Qualitative
Disclosures about Market Risk
Report of the Corporation
Management’s Annual Report On Internal
Control Over Financial Reporting
Reports of Independent Registered
Public Accounting Firm
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Corporate Information
18
18
18
19
36
37
37
38
40
44
68
18 Curtiss-Wright and Subsidiaries
Quarterly Results of Operations (unaudited)
(In thousands, except per share data)
First
Second
Third
Fourth
2006
Net sales
Gross profit
Net earnings
Earnings per share:
Basic earnings per share
Diluted earnings per share
Dividends per share
2005
Net sales
Gross profit
Net earnings
Earnings per share:
Basic earnings per share
Diluted earnings per share
Dividends per share
See notes to the consolidated financial statements for additional financial information.
Consolidated Selected Financial Data
$282,552
$ 309,635
$311,801
$378,167
92,061
12,278
105,553
21,092
106,018
20,356
127,447
26,843
$
$
$
0.28
0.28
0.06
$
$
$
0.48
0.48
0.06
$
$
$
0.46
0.46
0.06
$
$
$
0.61
0.60
0.06
$258,487
$ 283,193
$271,355
$317,893
85,769
14,523
100,299
17,934
93,515
17,519
110,929
25,304
$
$
$
0.34
0.33
0.05
$
$
$
0.41
0.41
0.05
$
$
$
0.40
0.40
0.05
$
$
$
0.58
0.58
0.06
(In thousands, except per share data)
2006
2005
2004
2003
2002
Net sales
Net earnings
Total assets
Long-term debt
Basic earnings per share
Diluted earnings per share
Cash dividends per share
$ 1,282,155
$ 1,130,928
$ 955,039
$746,071
$ 513,278
80,569
75,280
65,066
1,592,156
1,400,285
1,278,440
359,000
364,017
340,860
$
$
$
1.84
1.82
0.24
$
$
$
1.74
1.72
0.20
$
$
$
1.53
1.51
0.18
52,268
973,665
224,151
$
$
$
1.27
1.25
0.16
45,136
810,102
119,041
$
$
$
1.11
1.08
0.15
All per share amounts have been adjusted to reflect our 2-for-1 stock splits on April 21, 2006 and 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
performance of the Corporation. Forward-looking statements involve risk and uncertainty. Please refer to the Corporation’s 2006 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.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Curtiss-Wright and Subsidiaries 19
2006 Sales by Market
Other
15%
Oil & Gas
14%
Power
Generation
11%
Commercial
Aerospace
18%
2005 Sales by Market
Other
17%
Defense Navy
21%
Other
Oil & Gas
Defense
Aerospace
12%
Defense Ground
9%
Oil & Gas
11%
Power Generation
Commercial Aerospace
Defense Ground
Defense Aerospace
Defense Navy
Power
Generation
11%
Commercial
Aerospace
17%
Defense Navy
22%
Other
Oil & Gas
Power Generation
Commercial Aerospace
Defense Ground
Defense Aerospace
Defense Navy
Defense
Aerospace
14%
Defense Ground
8%
Company Organization
Our Management’s Discussion and Analysis of Financial Condition
and Results of Operations begins with an overview of our company,
followed by economic and industry-wide factors impacting our com-
pany and the markets we serve, a discussion of the overall results of
operations, 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
engineering 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 product 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 45% of our revenues are generated from defense-
related markets.
Economic and Industry-wide Factors
By most measures, 2006 was another good year for Curtiss-Wright.
Our strong financial performance was a result of successful organic
growth combined with efficient acquisition execution. Continued
strength in the U.S. economy provided a solid foundation on which
our commercial business thrived. Many of the key drivers of our busi-
ness, such as the U.S. economy, U.S. Department of Defense (DoD)
funding, global energy demand and the global commercial aerospace
industry, continued to improve. In addition, U.S. military spending
levels remained steady, and our commercial markets strengthened,
particularly in the energy sectors. Overall our sales grew at double
digit pace in 2006. We generated cash flow from operations of over
$140 million, while free cash flow, which is our cash provided by oper-
ating activities less capital expenditures, was over $100 million and
our strong year end backlog should provide us with great momentum
heading into 2007.
Most of our sales growth was organic with solid performance by each
of our segments. From a markets standpoint we experienced very
strong growth in our energy markets, including 43% growth in oil
and gas and 14% growth in commercial nuclear power. Our ground
defense business rose 26% in 2006 fueled primarily by upgrades and
new technology insertions in support of our troops stationed around
the world.
Our solid financial per-
formance was driven by
strong organic growth.
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, see the
inside back cover of this Annual Report. The above charts represent
our sales by market for 2006 and 2005.
Looking forward, we see modest growth in the
U.S. economy in 2007. The overall U.S. defense
spending levels will continue to grow at their cur-
rent moderate pace, and the global commercial
aerospace industry continues to flourish. Energy
markets will remain strong, fueled by increased
demand and limited supply. However, many
factors could impact our future performance,
including the timing and level of future defense
spending in the U.S., volatility of the geopolitical landscape, and the
pace of global economic activity.
20 Curtiss-Wright and Subsidiaries
General Economy
Many of our industrial businesses are driven in large part by global
economic growth, especially in the U.S. In 2006, the U.S. economy
grew modestly, and inflation and interest rates remained fairly stable.
The overall healthy global economic environment in 2006 is sup-
ported by solid overall growth in our commercial markets of 19%.
Based upon certain economic reports, the U.S. economy is expected
to grow at a modest rate in 2007, similar to 2006, assuming that
oil prices and the housing markets stabilize in 2007. Inflation and
interest rates are expected to remain stable in 2007. However, if
these conditions were not to occur, it may prompt the U.S. Federal
Reserve to return to its program of raising interest rates in 2007.
At December 31, 2006 the vast majority of our debt carried fixed
rates. A significant rise in interest rates could result in increased
interest expense to the extent we borrow under our revolving credit
agreement, which carries a floating interest rate. Stabilized interest
rates should lead to increased spending and investment in the busi-
ness sector. Unemployment is expected to remain below 5% in 2007.
Also, global gross domestic product (“GDP”) growth is expected to
be moderate in 2007, primarily because of higher energy prices and
tighter monetary policies.
Strength in the
economy provided
strong growth in our
commercial markets.
Approximately 25%
of our business is
outside the U.S. and
subject to currency
fluctuations in both
transactions in for-
eign currencies as
well as translation
from local country
currencies to the U.S. dollar. In 2006 we were negatively impacted
primarily by the Canadian dollar, as several of our business units have
revenues primarily in U.S. dollars and expenses primarily in Canadian
dollars. We have a global foreign currency hedging program in place,
however although we seek to mitigate these fluctuations through such
hedging programs, 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., 2007 is expected to mark the
sixth consecutive year of economic expansion, fueled primarily by
strong spending in the business sector. We remain cautiously optimistic
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,
particularly our Metal Treatment segment, are well positioned to
benefit from increased economic strength.
Defense
Approximately 45% of our business is in the military sector,
predominantly in the U.S., and characterized by long-term programs
and contracts driven primarily by the U.S. DoD budgets and funding
levels. We supply product to all branches of the U.S. military and also
participate in several non-U.S. military programs, although they do
not represent a significant portion of our military business.
In 2006, we achieved 9% growth in our defense markets overall, includ-
ing strong growth in our ground defense business of 26% and naval
platforms of 9%. The growth in the ground defense business was
driven by strong demand for our embedded computing products. Our
aerospace business was down slightly from the prior year. Our growth
was achieved through a combination of ongoing platforms, develop-
mental programs, and current force repair and upgrades. We expect
our 2007 defense market growth to be in line with the DoD fiscal 2007
budget growth.
Growth in defense
was driven by strong
demand for embedded
computing products.
The DoD fiscal 2007
budget continues
investment in key
programs, funding
in support of trans-
formation
initia-
tives, and increased
spending for the
modernization and
upgrading of our
current fleet as well as the global war on terror (GWOT). 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, and the DDG-1000 destroyer for the U.S. Navy; the U.S.
Coast Guard Deepwater program; the F-16, F-18, F-22, V-22, and
Unmanned Aerial Vehicle programs, such as the Global Hawk for
the U.S. Air Force; and the Abrams Tank, Bradley Fighting Vehicle
and the Stryker Mobile Gun System for the U.S. Army. Our Motion
Control segment also provides a variety of products to non-U.S.
military programs in Europe, the Asia Pacific region, the Middle
East, South America, and Canada. In addition, we are involved in
many of the future military systems that are currently in development,
such as the F-35 Lightning II, the Future Combat System, shipboard
aircraft launching and arresting systems, and the Electromagnetic
(EM) Gun program.
There is the possibility that defense spending may decrease in the future,
which could adversely affect our operations and financial condition. While
DoD funding fluctuates year-by-year and program-by-program, the pri-
mary risk facing us would be the termination of a major program.
We are not aware of any potential material program termination
for which we have content. If a material program were to be ter-
minated, the termination process takes several years to wind down,
which should 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 cannot 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 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.
Commercial Aerospace
Approximately 18% of our revenues are derived from the global
commercial aerospace industry. Our primary focus in this market is
original equipment manufacturer (“OEM”) products and services for
commercial jets. However, we have expanded into the regional and
business jet sectors with new content on the Eclipse and Embraer plat-
forms. Our Motion Control segment primarily provides flight actua-
tion control systems,
sensors, and other
electronics to Boeing
as well as electronic
products to Airbus.
Our Metal Treatment
segment forms all of
the wing skins for
Airbus aircraft and
also treats highly stressed components on a variety of turbine engines
and landing gear systems primarily through third party machine shops.
Our commercial aerospace business grew approximately 19% in 2006
and 2005. This growth has come from increased customer produc-
tion levels but also new platforms for both Boeing and Airbus, strong
demand for our overhaul and repair services, as well as introduction
of new products for existing programs.
Commercial aerospace
grew from increased
production rates.
Our commercial aerospace business is expected to remain healthy in
2007 as we are well positioned on a number of commercial aerospace
platforms and should benefit from continued growth in this industry
over the next couple of years. Global airline traffic is one of the pri-
mary drivers for long-term growth in the commercial aerospace indus-
try, and economic growth is one of the primary drivers of global airline
traffic demand. Based on industry reports, global passenger traffic
grew approximately 6% in 2006, which was higher than expected,
fueled mainly by strong traffic growth in Asia
and the Middle East. Global traffic growth
in 2007 is expected to be similar to 2006.
Traffic growth, largely stimulated by the
health of the general economy, and an aging
fleet of existing commercial aircraft contrib-
ute to the need for more aircraft, which has
generated increased new aircraft orders over
the past two years. This healthy backlog of
orders is expected to lead to higher OEM pro-
duction levels, a key driver of our commercial aerospace business. We
expect to see healthy growth in our Boeing business offset somewhat
by lower Airbus business because the delay in the A380 program will
not totally be offset by other Airbus programs.
Curtiss-Wright and Subsidiaries 21
While improved economic conditions have contributed to this indus-
try’s recovery, concerns still exist regarding the financial weakness
of many of the 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.
Oil and Gas
Approximately 14% of our revenues are derived from the oil and gas
industry. We provide primarily critical-function pumps, valves, pro-
cess vessels, and control electronics to this industry through our Flow
Control segment. Our significant portfolio of advanced technologies
for this market resulted in a record 43% sales growth in 2006, driven
mainly by new orders for our revolutionary coker valve product and
incremental sales from the acquisition of Enpro Systems. We expect
continued strong growth in 2007.
The most prevalent driver impacting our market is capital spend-
ing by refiners for maintenance, upgrades, capacity expansion,
safety improvements, and compliance with environmental regula-
tions. Refiner profitability and global crude oil prices in general will
impact their capital spending levels. Refining margins have remained
relatively high despite higher crude oil prices which, combined with
increased global petrochemical production and continued global
economic growth, have generated and should continue to generate
increased investment and capital spending by the refineries in 2007
and beyond. New environmental regulations in the U.S. are prompting
additional spending to comply with more stringent emissions stan-
dards. The proposed 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. Finally, as the world continues to depend on natural resources,
oil exploration deepens, and transport requirements widen, we antici-
pate additional opportunities to provide our flow control products to
meet these challenges. For instance, increased crude oil prices have
increased refinery focus on throughput which has resulted in the delayed
coking and catalytic cracking processes becoming more profitable and
safer, leading to increased demand for our related products, which
are inherently safer than existing products and, because of their
significantly reduced maintenance requirements, increase throughput
for the refinery.
In 2006 we announced two important part-
nerships with industry leaders that will unite
our combined technical expertise in creating
advanced pumps and motors. While these
programs have just been launched, we are
confident the continued high demand for
natural resources production should result in
significant market growth for us over the next
few years. However, we temper our outlook for
the petroleum markets based on a number of
potential and unforeseeable events. Many of
the same factors that drove world oil markets in prior years, such
as low production capacity and rapid demand growth, are expected
to continue to constrain this market in 2007. Other factors, such as
the frequency and intensity of hurricanes, other extreme weather,
Higher oil prices
generated increased
spending for our
advanced technologies.
China has selected the
AP1000 design for
four new reactors.
Longer term, we see excellent growth opportunity due to planned new
plant construction both domestically and internationally. Domestically,
14 energy-related companies have announced their intentions
to apply to the
Nuclear Regulatory
Commission (NRC)
for a combined con-
struction and operat-
ing license (COL) for
new nuclear power
plants in the U.S.
Thus far, the Westinghouse AP1000 reactor design has been selected
for 10 of the potential new reactors. Curtiss-Wright’s Flow Control
segment has significant content on the AP1000 reactor, the only gen-
eration III+ advanced design certified by the NRC. COL application
submittals are expected to begin in the fourth quarter of 2007 and, if
approved, construction could begin as early as 2010. Internationally,
new nuclear plant construction is ongoing. Currently there are 25
new reactors under construction, 18 more planned, and another 51
proposed. In particular, China intends to expand its nuclear power
capabilities significantly through the construction of new nuclear
power plants over the next several years. In December 2006, China
announced its selection of the Westinghouse AP1000 advanced
reactor design for two new power plants. Contract negotiations are
currently underway and are expected to be completed in 2007.
With these developments underway, our Flow Control segment is well
positioned to take advantage of the expansion in this industry over the
next decade. The recent history of plant life extension approvals in
the U.S. and continued strong build programs in Asia are encourag-
ing. However, there is no guarantee that the nuclear alternative will
continue to be fully endorsed in the U.S. and other parts of the world,
or that the NRC will authorize the construction 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.
22 Curtiss-Wright and Subsidiaries
and geopolitical instability, may also continue to affect this market.
While global demand is expected to increase in 2007, primarily from
economic growth in developing Asian countries, global production
capacity is also expected to increase in 2007, which should moder-
ate the global oil price increases experienced over the past two years.
Finally, we cannot predict how long global economic growth can be
sustained, whether proposed environmental and energy legislation will
be enacted, the impact of further geopolitical disruption of energy
supply, or to what extent such factors may impact this industry.
Power Generation
Approximately 11% of our revenues are derived from the commercial
nuclear power market, where we supply a variety of highly engineered
products and services, including reactor coolant pumps, control rod
drive mechanisms, valves, motors, and bolting solutions through our
Flow Control segment. In addition, we are one of a small number
of companies which provides N-stamp quality assurance certifica-
tion necessary for supplying nuclear plant equipment. Many of the
companies that originally participated in nuclear power plant con-
struction have since exited this market.
We experienced 14% growth in this market in 2006 and our outlook
continues to be strong. Our recent growth has come primarily from
the U.S. plant recertification process because most of the 103 existing
nuclear power reactors have applied for or will be applying for plant
life extensions, as required by current regulations. As of December
31, 2006, approximately 47 reactors have received plant life exten-
sions, applications from 8 additional reactors have been submitted
and are pending approval, and letters of intent to apply have been
received from 30 more reactors with expected application submittal
dates from March 2007 through August 2013.
Capacity expansions
should continue to
drive growth in the
energy markets.
In addition to plant
recertifications, there
are several emerging
factors that could
precipitate an expan-
sion in commer-
cial nuclear power
demand over the
next several years.
Continued growth in
global demand for electricity, especially in developing countries with
limited supply, will require increased capacity. The Nuclear Energy
Institute estimates that an average of 34 new reactors would need to
be built every five years over the period 2010 through 2030 to meet
projected demand. Instability in the world petroleum markets, where
we have seen unprecedented historically high oil prices, has fostered
support for seeking alternative fuel sources globally. Nuclear power
is the most economical source for generating electricity. There is also
increased attention to environmental issues, and nuclear power has
proven to have minimal impact on the environment as compared to
the majority of current sources. In addition, the U.S. has indicated
that it wants to decrease its dependence on foreign oil imports, which
account for almost half of its current supply.
Curtiss-Wright and Subsidiaries 23
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. The term “incre-
mental” is used to highlight the impact acquisitions had on the current
year results, for which there was no comparable prior year period.
During 2006, we redefined the method of calculating organic growth
by including the results of operations for acquisitions in the base
business after 12 full months of ownership. This change was made to
conform to more common practice within our industry. Therefore, the
2006 results of operations for acquisitions are “incremental” for the
first 12 months from the date of acquisition. The remaining businesses
are referred to as the “base” businesses, and growth in these base
businesses is referred to as “organic.” As such, for the year ended
December 31, 2006, our organic growth calculations exclude the
operations of the 2006 acquisitions as well as the first two months of
operations during 2006 of Indal Technologies, which was acquired in
March 2005. These excluded results of operations from the organic
calculation are considered “incremental.”
The 2005 results of operation continue to present the results based
upon the 2005 methodology. As such, an acquisition is considered
base when the reporting period includes fully comparable 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 “incremental” 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, 2006 Compared with Year Ended
December 31, 2005
For the year ended December 31, 2006, we recorded consolidated net
sales of $1,282.2 million and net earnings of $80.6 million, or $1.82
per diluted share. Sales for 2006 increased 13% over 2005 sales of
$1,130.9 million. Net earnings for 2006 increased 7% from 2005
net earnings of $75.3 million, or $1.72 per diluted share.
Organic sales growth
in 2006 was 11%.
The increase in rev-
enues was mainly
driven by our base
businesses, which
experienced organic
sales growth of 11%
in 2006, led by the Flow Control segment, which grew organically by
15%. Our Metal Treatment and Motion Control segments experienced
solid organic sales growth of 9% and 8%, respectively. Additionally,
sales in 2006 benefited from an additional two months of revenue
generated from our 2005 acquisition of Indal and the sales contribu-
tion from the 2006 acquisitions of Enpro Systems, Allegheny, and
Swantech, which contributed $27.6 million in incremental sales in
2006. See Note 2 to the Consolidated Financial Statements for fur-
ther information regarding acquisitions.
In our base businesses, all of our segments experienced organic
growth in our defense markets, which increased 2006 sales by $36.9
million over 2005. The increase was due primarily to higher sales to
the ground defense market in support of the war effort in Iraq and
Afghanistan and the timing of long-term Navy procurement programs.
Organic sales to the oil and gas market increased $37.8 million as our
flow control coker valve product continues to gain customer accep-
tance from the performance of initial product installs as they reach the
five years in service
mark. Sales from
our base businesses
to the commercial
aerospace market
increased $34.6 mil-
lion in 2006 because
of the overall growth
of the market, lead-
ing to increased
production requirements from our customers in our Motion Control
and Metal Treatment segments and content on new programs in our
Motion Control segment. In addition, foreign currency translation
had a favorable impact on sales of $5.0 million in 2006 as compared
to 2005.
2006 acquisitions
included Enpro,
Allegheny and
Swantech.
Operating income for 2006 totaled $140.6 million, an increase of 2%
from operating income of $138.0 million in 2005. In the fourth quar-
ter of 2006, we established a reserve in the amount of $6.5 million
to reflect potential liabilities arising from a jury verdict returned
against us in a lawsuit filed by a former employee. Overall organic
operating income growth, which includes non-segment expense, was
3% for 2006, compared to the prior year. Strong segment growth
was driven by our Metal Treatment and Flow Control segments, which
experienced organic growth of 21% and 14%, respectively, from the
prior year. Organic operating income growth in our Motion Control
segment was 11% in 2006. The 2005 and 2006 acquisitions experi-
enced an incremental loss of $1.3 million during 2006 mainly due to
integration costs, lowering the overall operating segment margin in
2006 as compared to 2005.
In our base businesses, the organic operating income growth increase
is primarily attributed to higher sales volume even though gross
margins slipped from 34.5% to 33.7%. The gross margin percent-
age decline occurred in our Flow Control and Motion Control seg-
ments and is mainly due to increased work on development contracts
and new programs, which are priced at lower margins to capture
follow-on long-term production and spares orders, higher material
and other production costs on fixed-price long-term contracts, and
cost overruns on certain new programs and development contracts.
The gross margins from the higher sales volume were further reduced
by higher general and administrative costs, which grew faster than
sales at 20% in 2006 as compared to 2005. The increase in general
and administrative costs is due primarily to the establishment of the
$6.5 million litigation reserve noted above, expensing of stock options
upon the adoption of Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”)
on January 1, 2006, which totaled $4.9 million, and an increase in
24 Curtiss-Wright and Subsidiaries
pension expense of $4.2 million related to the Curtiss-Wright pension
plan due primarily to increased service costs related to head count
and salary increases, special termination benefits, and a lump sum
payment related to the retirement of a key executive. In addition, we
recognized a gain on the sale of property for $2.8 million in 2005,
which did not recur in 2006. Selling expenses increased $6.9 mil-
lion, or 10%, which is slightly behind the sales growth. Research and
development costs declined $0.8 million in 2006 as compared to 2005
as more engineer-
ing effort was put
into development
contracts. These
costs were clas-
sified as cost of
goods sold on
the statement of
income. We also
benefited in 2006 from reimbursements of previously expensed
research and development costs under joint projects with customers.
Foreign currency translation had an unfavorable impact on operating
income of $2.0 million for 2006 as compared to 2005.
New orders received
in 2006 totaled
$1.3 billion.
We incurred higher interest expense in 2006 compared to 2005. The
increase was due to higher interest rates partially offset by lower aver-
age outstanding debt. Our average borrowing rate increased 70 basis
points in 2006 as compared to 2005 while our average outstanding
debt decreased 3% for the comparable periods. Net earnings in 2006
included certain nonrecurring tax benefits totaling $5.1 million.
Backlog at December 31, 2006 remained strong at $875.5 million
compared with $805.6 million at December 31, 2005, and $627.7
million at December 31, 2004. Acquisitions made during 2006 rep-
resented $23.4 million of the backlog at December 31, 2006. New
orders received in 2006 totaled $1,333.0 million, which represents
a 6% increase over 2005 new orders of $1,261.2 million and a 33%
increase over new orders received in 2004. Acquisitions made during
2005 and 2006 contributed $39.8 million in incremental new orders
received in 2006. Record orders for our flow
control coker valve and strong orders for
our motion control electronic and mechani-
cal products drove the new order improve-
ment. Our metal treatment services, repair
and overhaul services, and after-market
sales, which represent approximately 20%
of our total sales for 2006, 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.
Backlog at year-end
totaled $876 million.
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 $1.72
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 $1.51 per diluted share.
The increase in revenues was mainly driven by a complete year
of revenues 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 Financial Statements for further informa-
tion 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 Treatment 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 continued to gain
customer acceptance, which drove 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 aero-
space market of $16.1 million, mainly due to the increased produc-
tion 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 aero-
space 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 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 operat-
ing income of $110.3 million in 2004. The
increase is primarily attributed to higher sales
volume, favorable mix, and previously imple-
mented cost reduction initiatives. Operating
income in 2005 experienced organic growth
of 21% and was driven by our Metal Treatment and Motion Control
segments, which experienced organic growth of 21% and 14%,
respectively, from 2004. Metal Treatment’s organic operating income
growth was mainly the result of higher volume while Motion Control’s
organic growth was due to higher volume, favorable sales mix from
commercial aerospace spares and aftermarket services, and imple-
mented cost control initiatives. Organic operating 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
Curtiss-Wright and Subsidiaries 25
compared to 2004. The operating margins 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 levels 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
products and share technologies across our businesses. Foreign cur-
rency 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 envi-
ronmental remediation costs, which declined $4.5 million, a gain on
the sale of property of $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 in 2005 as compared to 2004
due to higher interest rates, which accounted for approximately 54%
of the increase, and higher debt levels associated with the funding of
our acquisition program. Net earnings 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.
Segment Performance
We operate in three principal operating segments on the basis of products and services offered and markets served: Flow Control, Motion
Control, and Metal Treatment. See Note 16 to the Consolidated Financial Statements for further segment financial information. The follow-
ing table sets forth revenues, operating income, operating margin, and the percent changes on those items, for 2006 as compared with the
prior year periods, by operating segment:
(In thousands, except percentages)
2006
2005
2004
Year Ended December 31,
Percent Changes
2006
vs. 2005
2005
vs. 2004
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
17.5%
9.5%
12.9%
13.4%
11.1%
9.4%
23.0%
13.4%
20.2%
19.8%
11.6%
18.4%
22.6%
12.5%
22.6%
18.7%
(79.2%)
25.1%
$
548,121
$ 466,546
$ 388,139
509,462
224,572
465,451
198,931
388,576
178,324
$ 1,282,155
$ 1,130,928
$ 955,039
$
60,542
55,242
42,385
158,169
(17,541)
$
54,509
50,485
34,470
139,464
(1,482)
$ 44,451
44,893
28,111
117,455
(7,114)
1,083.6%
$
140,628
$ 137,982
$ 110,341
1.9%
11.0%
10.8%
18.9%
12.3%
11.0%
11.7%
10.8%
17.3%
12.3%
12.2%
11.5%
11.6%
15.8%
12.3%
11. 6%
26 Curtiss-Wright and Subsidiaries
Flow Control
Our Flow Control segment reported sales of $548.1 million for 2006,
an 18% increase over 2005 sales of $466.5 million. The sales increase
was achieved through organic sales growth of 15% and sales from our
2006 acquisitions of Enpro Systems and Swantech, which contributed
$14.1 million in incremental revenue. The increase in organic sales
was driven by higher sales to the oil and gas market of $33.9 mil-
lion, higher sales to the power generation market of $15.1 million,
and higher sales to the U.S. Navy of $13.1 million. High demand
for our coker valves continued in 2006 as the products continue to
gain greater market acceptance in the industry as our installed base
continues to perform well. Coker valve sales accounted for 71% of
the oil and gas industry sales growth in 2006. Additionally, refiner-
ies continued to invest money to increase capacity and improve plant
efficiencies in 2006. As a result, sales of our other products to the
oil and gas industry were up $10.1 million over the prior period. We
also benefited from additional repair services associated with turn-
around work resulting from the hurricane damage in 2005. Strong
product demand from nuclear power plants drove the increased sales
in the power generation market versus 2005. Demand from nuclear
power plants is driven by the timing of refurbishment cycles and both
scheduled and unscheduled plant outages, which can vary in timing
and cause fluctuations from period to period. In 2006, we expanded
our electro-mechanical product line to include reactor vessel heads,
which supplemented the control rod drive mechanisms sales. Power
generation revenues were driven by sales of valves, spare parts, and
services, which increased by $8.2 million, control rod drive mecha-
nisms to nuclear power plants, and motor remanufactures, which
increased $5.7 million and $5.0 million, respectively, over the prior
year period. These increases to the commercial power generation
were partially offset by a $3.9 million decrease in reactor coolant
pump sales because of the timing of orders. The higher sales to the
U.S. Navy were mainly driven by increased generator, pump, and
valve sales of $23.7 million for use on the CVN aircraft carrier.
Sales to the U.S. Navy were also positively impacted by additional
engineering, analysis, and development work of $5.0 million, higher
sales of electronic power supply products of $2.3 million as we gain
additional market share, and higher electro-mechanical spares of $1.6
million, versus the prior year. Partially offsetting these naval sales
was a $19.4 million decrease in generator, pump, and valve sales for
submarines. Sales to the U.S. Navy are dependant on Navy procure-
ment budgets and are subject to fluctuations due to timing of funding
releases. In addition, foreign currency translation favorably impacted
this segment’s sales by $0.9 million in 2006 compared to 2005.
Operating income for 2006 was $60.5 million, an increase of 11% over
2005 operating income of $54.5 million. The base business operating
income grew a solid 14% organically for the full year ended December
31, 2006, while the 2006 acquisitions negatively impacted operating
income by $1.3 million in 2006 due to business integration costs. The
increase in the operating income from the base businesses resulted
from higher sales volume, particularly from our coker products to the
oil and gas industry. The overall base business operating margin for
this segment decreased 70 basis points in 2006 versus the prior year
period. The lower overall margins resulted from several factors includ-
ing higher material, transportation, and fabrication costs particularly
within fixed-price valve contracts within the oil and gas industry.
Gross margins in 2006 were also impacted by additional testing and
qualification costs on newer products such as the control rod drive
mechanisms in the nuclear power generation market and composite
pumps and trim and drain product to the U.S. Navy. The new product
cost overruns are common when undertaking the design, manufac-
ture, and qualification of technically challenging products for the first
time. Additionally, we experienced cost overruns on our JP-5 and ball
valves servicing U.S. Navy aircraft carriers and submarines, respec-
tively. The cost overruns were associated with improving the design
of the products and higher material costs. Partially offsetting these
impacts was better labor utilization within our electro-mechanical
division and better mix in other product sales to the oil and gas
industry for maintenance, repair, and overhaul services associated
with refinery turnarounds.
Research and development costs increased $1.5 million in 2006 over
2005 as additional investments were made to grow our commercial
power business, partially offset by reimbursements of costs under
joint projects with customers. Selling and administrative costs were
up 21% in 2006 and were driven by increased infrastructure costs
incurred to support our organic growth as well as a $1.5 million
expense associated with the adoption of SFAS 123(R). In addition,
foreign currency translation favorably impacted operating income by
$0.2 million in 2006 as compared to 2005.
Backlog at December 31, 2006 is $434.9 million compared with
$429.3 million at December 31, 2005 and $396.3 million at
December 31, 2004. New orders received in 2006 totaled $545.6
million, a 9% increase over 2005 new orders of $500.1 million and
a 25% increase over new orders received in 2004. The increase is
mainly due to our new acquisitions, which accounted for $29.5 million
in incremental new orders during 2006, and a 40% increase in
new orders for our coker valve products to the oil and gas industry.
Partially offsetting these increases were lower orders from the U.S.
Navy in 2006 compared to 2005.
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,
Groquip, 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
development 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 rev-
enues were higher because of increased maintenance expenditures
by refineries worldwide. 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 in 2005 as compared to 2004. These increased sales to
Curtiss-Wright and Subsidiaries 27
the U.S. Navy were partially offset by anticipated lower revenues from
electro-mechanical products because of timing of major programs.
Revenues from pump production decreased $26.3 million in 2005 as
compared to 2004 due to completion of Los Angeles and Virginia
class submarine production pump contracts and development pro-
totype 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 addition, 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 oper-
ating income grew 10% organically for the full year ended December
31, 2005, while the 2004 acquisitions contributed an additional $3.4
million 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 2005 base
businesses against 2004 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
operating 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 anticipa-
tion of follow-on production orders with the U.S. Army. Higher raw
material costs, such as the cost of steel, and higher administrative
infrastructure 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.
Motion Control
Our Motion Control segment reported sales of $509.5 million for
2006, a 10% increase over 2005 sales of $465.5 million. The sales
increase was achieved mainly through organic sales growth of 8% and
a full year of sales contribution related to our 2005 acquisition, Indal,
which included $5.9 million of incremental revenue. The increase in
organic sales was driven mainly by higher sales to the commercial
aerospace market of $27.6 million and higher sales to the military
markets of $18.9 million, which was partially offset by a decrease in
sales to the general industrial market of $5.7 million. The growth in
the commercial aerospace market was mainly related to an increase of
$20.2 million in commercial aerospace OEM market sales. The OEM
sales were driven largely by increased sales of $9.3 million for content
on the Boeing 700 series platforms, due mainly to an increase in ship-
sets and new programs, and $9.5 million of sensors and components,
due mainly to new customer programs, expansion of existing product
lines, and new products, such as the recently approved Eclipse air-
craft. Commercial aerospace aftermarket sales increased $7.4 million
from prior year, with $4.0 million attributable to the repair and over-
haul business as conditions improve in the industry. The remaining
increase was due to higher spares sales of $3.4 million, mainly related
to improving conditions in the industry. There was also an increase in
sales of sensor products which was mainly related to smoke detection
devices and flight recorders due to improved general economic con-
ditions. Higher sales to the military were driven by a $25.2 million
increase in sales to the defense ground market. Higher sales of our
embedded computing products of $14.9 million used on various ground
defense vehicles were driven by war-related orders of additional spares
and resets for the Bradley Fighting Vehicle, new production orders
for the Armored Security Vehicle, and additional orders from other
military programs. The remaining change was caused by growth in
sales of our ruggedized military ground vehicle subsystems to be used
on the Future Combat System program. These improvements were
partially offset by a $7.5 million reduction in the defense aerospace
market. The decrease is attributable to lower sales of airborne sensor
products of $7.6 million resulting from the completion of contracts
and lower sales for electronic communication devices of $3.5 million
due to reduced customer demand, partially offset by stronger orders
for various helicopter programs, especially for the Blackhawk. The
defense navy market remained relatively flat from 2005, while a $6.9
million reduction to the other government agencies related mainly
to the completion of the manned space flight contracts. Partially
offsetting these improvements were lower sales of other sensor and
controller products to the general industrial market of $5.7 million.
The decrease is primarily due to lower sales of controller products of
$3.1 million to the European market as a primary customer for these
products continued its transition to in-house production.
Operating income for 2006 increased $4.8 million to $55.2 million,
an increase of 9% over 2005 operating income of $50.5 million. The
base business operating income grew 11% organically for the year
ended December 31, 2006, while the 2006 acquisition negatively
impacted operating income by $0.8 million in 2006 due to delays in
timing of their contracts. The improvement in operating income was
driven primarily by the higher sales volume, partially offset by an
unfavorable mix of sales to the aerospace defense markets. The lower
gross margins were associated with increased development work,
which derives lower margins and was performed in anticipation of
follow-on production orders, investments in new programs which were
competitively bid, and slightly higher material costs on the key pro-
grams such as the 737 platform. The segment also experienced cost
overruns on certain development contracts, the bulk of which related
to a fixed price contract for the 767 tanker refueling program. Also
negatively impacting gross margins was unfavorable foreign currency
translation, as described in more detail below.
The lower gross margin percentages did not have as significant an
effect on the overall operating margins of the segment as operat-
ing costs in 2006 remained flat as compared to 2005. Research
and development costs declined $2.9 million because the increased
engineering effort was put into development contracts. As a result,
these costs are classified as cost of goods sold on the statement of
income. Additionally, we are seeing the benefits of integration efforts
as redundant research and development activities are consolidated,
especially in our embedded computing division. Selling, general, and
administrative costs were up 7% over 2005, which includes over-
coming the unfavorable impact of foreign currency translation and
the impact of adopting SFAS 123(R), where the expensing of stock
options increased general and administrative expenses by $1.5 mil-
lion as compared to the prior year period. Operating cost reductions
28 Curtiss-Wright and Subsidiaries
were experienced through business unit integration efforts, as well
as significant cost-cutting initiatives implemented during the cur-
rent year at all facilities. Overall, operating income was negatively
impacted by foreign currency translation of $2.4 million despite the
favorable impact currency translation had on sales. This is primar-
ily due to certain Canadian operations whose sales are primarily
denominated in U.S. dollars, and, thus, changes in the foreign cur-
rency rates directly impact Canadian dollar operating costs with no
offsetting effect on sales.
Backlog at December 31, 2006, was $438.6 million compared
with $374.5 million at December 31, 2005, and $229.6 million at
December 31, 2004. New orders received in 2006 totaled $563.5
million, up slightly over the 2005 new orders of $562.2 million and
a 47% increase over new orders received in 2004. The timing of
strong orders for our embedded computing and sensors and con-
trols products were mostly offset by lower orders for our mechanical
actuator products.
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 aerospace
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 applications,
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
stabilization 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, 12% over 2004.
Operating income in our base businesses increased 14%, driven pri-
marily 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 2005 base businesses
against 2004 include increased sales and margins from commercial
aerospace programs, notably the Boeing 737 and 747 programs, and
favorable 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 2004,
continuing integration efforts in the embedded computing business,
and lower margins associated with development work performed
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 busi-
nesses; however, we expect our integration efforts will improve these
margins in the future. In the current year, our newly acquired busi-
nesses’ operating 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 currency denominated contracts for similar products.
Metal Treatment
Our Metal Treatment segment reported sales of $224.6 million in
2006, an increase of 13% over 2005 sales of $198.9 million. Organic
sales growth of 9% contributed $18.1 million to the increase, while
our 2006 acquisition contributed $7.6 million of incremental rev-
enue. The segment experienced organic sales growth in nearly all
of its markets, led by increased sales to the commercial aerospace
and general industrial markets of $7.0 million and $4.0 million,
respectively. Meanwhile, sales to the defense, power generation, and
oil and gas markets increased $3.7 million, $2.1 million, and $1.9
million, respectively, offset by a slight decline in sales to the automo-
tive market of $0.7 million as compared to 2005. The sales growth
to the commercial aerospace market was driven by customer produc-
tion requirements for shot peen forming services, primarily on wing
components on the Airbus family of aircraft, coatings services for
engine components on Boeing aircraft, and other peening and coat-
ing services on various OEMs. Increased sales of our heat treating
services drove the organic growth in the general industrial market
while sales increases in the defense, power generation, and oil and
gas markets were driven primarily by sales of our shot peening ser-
vices, due primarily to the continued strengthening of the economy.
The slight decline in sales to the automotive market was due to lower
demand of our shot peening services in North America partially off-
set by increased European demand. In addition, foreign currency
translation had a favorable impact on sales of $1.3 million in 2006
compared to 2005.
Operating income for 2006 increased 23% to $42.4 million from
$34.5 million during 2005, mainly due to higher sales volume. The
base businesses increased 21% while the acquisition made in 2006
generated incremental operating income of $0.7 million. Overall,
our operating income margin percentage improved 160 basis points
mainly as a result of improved gross margins from the higher sales
Curtiss-Wright and Subsidiaries 29
2005 compared to 15.8% in 2004. Selling, general, and administra-
tive costs, which are generally fixed in nature, increased only 4% over
2004, contributing to the higher operating income margin percentage.
Foreign currency translation had a nominal impact on operating income
in 2005 compared to 2004.
Corporate and Other Expenses
Non-segment operating costs consist mainly of pension expense associ-
ated with the Curtiss-Wright Pension Plans, environmental remediation
and administrative expenses, and other income and expense not directly
associated with the ongoing performance of the segments. We had
non-segment operating costs of $17.5 million, $1.5 million, and $7.1
million in 2006, 2005, and 2004, respectively.
Pension expense associated with the Curtiss-Wright Pension Plans
was $6.2 million, $2.0 million, and $0.5 million in 2006, 2005, and
2004, respectively. The increase in pension expense in 2006 as com-
pared to 2005 and 2004 is due to a settlement charge resulting from
the retirement of a key executive and his subsequent election to receive
his pension benefit as a single lump sum payout, special termination
benefits offered for a limited period of time to certain employees in the
Motion Control segment who were subject to a reduction in workforce,
increased service costs due to greater headcount, as well as higher
compensation expense, offset by lower interest costs.
Environmental remediation and administration costs represented $0.8
million, $0.8 million, and $5.3 million in 2006, 2005, and 2004,
respectively. The higher expense in 2004 was due to a $4.4 million
increase in remediation reserve requirements related to the Caldwell
Trucking landfill superfund site. In the fourth quarter of 2006, we
established a reserve in the amount of $6.5 million to reflect potential
liabilities arising from a jury verdict returned against us in a lawsuit
filed by a former employee. We also realized a gain of $2.8 million
during 2005 on the sale of a former operating property located in
Fairfield, New Jersey. In addition, higher unallocated medical costs
of $2.0 million associated with the pooling of self-insurance costs
accounted for the remaining difference in 2006 as compared to 2005
and 2004.
Interest Expense
Interest expense increased $2.9 million in 2006 compared to 2005.
The increase was due to higher interest rates partially offset by lower
average outstanding debt. Our average borrowing rate increased 70
basis points in 2006 as compared to 2005 while our average outstand-
ing debt decreased 3% for the comparable periods. Interest expense in
2005 increased $8.0 million from 2004, with higher interest rates
accounting for approximately 54% of the increase. The remaining
increase was due to higher debt levels associated with the funding of
our acquisitions.
volume, particularly in our heat treating division, in addition to cost
overruns on certain shot peening jobs incurred at the end of 2004
and beginning of 2005. The higher gross margins were offset by
increased operating expenses, which in the past have remained rela-
tively flat. Selling, general, and administrative costs of the base busi-
nesses increased 15% over the prior year period, driven primarily by
increased stock-based compensation of $1.1 million associated with
the 2006 implementation of SFAS 123(R), increased research and
development costs of $0.5 million due to continued development of our
laser peening technology, and a normal increase in employee salaries
and other operating costs. Foreign currency translation had a nominal
positive impact on operating income in 2006 compared to 2005.
Backlog at December 31, 2006 was $2.1 million compared with $1.9
million at December 31, 2005. New orders received in 2006 totaled
$225.5 million, a 13% increase from 2005 new orders of $199.0
million and a 26% increase over new orders received in 2004. The
increase is mainly due to the improvement in the global economy,
which positively impacted the core shot peening business, and the
segment’s recent acquisition.
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 peen-
ing services, which contributed $13.5 million of additional sales
mainly in the European commercial aerospace and global automo-
tive markets. Increases in shot peen forming services, primarily on
wing components 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 automotive industry increased in both Europe and North America
by $2.7 million and $1.1 million, respectively, due to favorable over-
lap of existing and new programs in the first half of 2005, partially
offset by decreased volumes from General Motors and Ford in the
second half of 2005. Sales of our heat treating and coatings divi-
sions were up $2.1 million and $1.9 million, respectively, over 2004.
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 in 2005 was due to contributions from our
2004 acquisitions, which contributed $1.7 million of incremental
sales during 2005. Foreign currency translation had a nominal posi-
tive 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
significantly on operating income, which had margins of 17.3% in
30 Curtiss-Wright and Subsidiaries
Provision for Income Taxes
Our effective tax rates for 2006, 2005, and 2004, are 31.5%, 36.4%,
and 34.1%, respectively. Our 2006 effective tax rate included tax
benefits of $2.0 million relating to research and development credits
from our Canadian operations, the impact of a Canadian tax law
change enacted during the second quarter of 2006, which resulted in
a $1.6 million favorable adjustment, and the release of a tax reserve
associated with the sale of a former facility following the expiration
of the statute of limitations, which resulted in a $1.5 million favorable
adjustment, net of tax. Our 2005 effective tax rate included a charge
of $0.3 million from the repatriation of foreign earnings under the
American Jobs Creation Act of 2004. Our 2004 effective tax rate
included nonrecurring benefits totaling $3.4 million resulting primar-
ily from the change in legal structure of one of our subsidiaries and
a favorable IRS appeals settlement.
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; cash flow is therefore subject to market fluctua-
tions 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 payments
can exceed the costs incurred on a project.
Operating Activities
Our working capital was $330.5 million at December 31, 2006, an
increase of $61.5 million from the working capital at December 31,
2005 of $269.0 million. Our ratio of current assets to current liabili-
ties was 2.1 to 1 at December 31, 2006 and 2.2 to 1 at December
31, 2005. Cash and cash equivalents totaled $124.5 million in the
aggregate at December 31, 2006, up from $59.0 million at December
31, 2005. Excluding the impact on cash, working capital decreased
$4.0 million, partially due to 2006 acquisitions. Inventory balances
rose primarily as a result of a build up for expected increases in
sales in 2007 and strategic initiatives to lower turn-around time for
deliveries. We also procured additional material to hedge against
rising steel prices and the stocking of long lead time materials for
new programs. Accounts receivable increased due to higher sales
volume as sales in December 2006 were 13% higher than December
2005 offset by strong collection efforts of receivables from certain
large projects. Unbilled receivables increased due to an increase in
long-term contracts accounted for under the percentage-of-completion
method as well as increased contracts for which progress billings do
not apply. These increases to inventory and receivables were offset
by an increase in deferred revenue resulting from higher advance
payments from our customers. We also experienced an increase in
accounts payable and accrued expenses associated with the build up
of inventories and higher accrued compensation.
Our short-term debt was $5.9 million at December 31, 2006 and
$0.9 million at December 31, 2005. Our long-term debt was $359.0
million at December 31, 2006, a decrease of $5.0 million from the
balance at December 31, 2005. The decrease is a result of a shift
in the classification of one of our Industrial Revenue Bonds from
long-term debt to short-term debt; the Industrial Revenue Bond was
paid on February 1, 2007. Days sales outstanding at December 31,
2006 increased to 48 days from 43 days at December 31, 2005 while
inventory turnover decreased to 5.5 turns at December 31, 2006 as
compared to 5.6 turns at December 31, 2005.
Cash and cash equivalents totaled $59.0 million in the aggregate at
December 31, 2005, up from $41.0 million at December 31, 2004.
The increase was primarily due to an increase in cash and cash equiv-
alents following the 2005 Senior Note offering and subsequent 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 receivable 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.
Investing Activities
We have acquired 28 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 $39.5 million
and $73.1 million in 2006 and 2005, 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 2006, we made approximately $4.4 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 $40.2 million in 2006, $42.4 million
in 2005, and $32.5 million in 2004. Capital expenditures relate
primarily to new and replacement machinery and equipment and
the expansion of new product lines within the business segments.
During 2006, we also expanded the reach of our metal treatment
services by adding one new plant in Europe, while in 2005 we
relocated one of our flow control facilities to a new and more efficient
manufacturing facility.
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 connection with our 2005 Notes, we
paid customary fees that have been deferred and are being 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, 2006, 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
originally 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
amortized over the remaining term of the underlying debt.
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 pay-
ment 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 connection with our 2003 Notes, we paid customary fees that have
been deferred and are being amortized over the terms of the 2003
Notes. We are required under the Note Purchase Agreement to main-
tain 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, 2006, we were in
compliance with all covenants.
Curtiss-Wright and Subsidiaries 31
At December 31, 2006, we had a $400 million revolving credit agree-
ment (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 commitments 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 financial tests, the most restrictive of which
is a debt to capitalization limit of 55% and a cross default provision
with our other senior indebtedness. The Agreement does not con-
tain any subjective acceleration clauses. As of December 31, 2006,
we were in compliance with all covenants and had the flexibility to
issue additional debt of approximately $542 million without exceed-
ing the covenant limit defined in the Agreement. We would consider
other financing alternatives to maintain capital structure 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, 2006 and December 31, 2005. The
unused credit available under the Agreement at December 31, 2006
was $362.2 million.
Our industrial revenue bonds, which are collateralized by real estate,
were $14.2 million at December 31, 2006 and December 31, 2005.
The loans outstanding under the 2003 and 2005 Notes, Interest Rate
Swaps, Revolving Credit Agreement, and Industrial Revenue Bonds
had variable interest rates averaging 5.38% for 2006 and 4.67%
for 2005.
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 to $60 million,
interest payments of approximately $22 million to $24 million, esti-
mated income tax payments of approximately $50 million to $60
million, dividends of approximately $11 million, pension funding of
approximately $5 million to $6 million, and additional working capi-
tal requirements. We have approximately $3 million in short-term
environmental liabilities, which is management’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 $14 million and
$16 million in 2007. 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 operating require-
ments and investing activities, we may be required to reduce capi-
tal expenditures, refinance a portion of our existing debt, or obtain
additional financing.
In 2007, our capital expenditures are expected to include the
construction of new facilities, expansion of facilities to accommodate
new product lines, and new machinery and equipment, such as addi-
tional investment in our laser peening technology.
32 Curtiss-Wright and Subsidiaries
The following table quantifies our significant future contractual
obligations and commercial commitments as of December 31, 2006:
Interest
Debt Payments
2007
2008
2009
2010
2011
Thereafter
Total
Principal
Repayments(1) Rate Debt
$19,288
$5,874
19,288
62
19,288
64
18,254
75,066
15,440
68
61,312
283,860
$364,994 $152,870
on Fixed Operating
Total
Leases
$42,057
$16,895
34,502
15,152
31,969
12,617
103,267
9,947
23,011
7,503
362,738
17,566
$79,680 $597,544
(1) Amounts exclude a $0.1 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
institutions and customers primarily relating to guarantees of repay-
ment 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, 2006, we had contingent liabilities on outstanding
letters of credit due as follows:
(In thousands)
2007
2008
2009
2010
2011
Thereafter
Total
Letters of Credit
$ 14,059
20,723
2,439
–
–
593
$ 37,814
(2) Amounts indicated as thereafter are letters of credit which expire in 2009 under our revolver,
but will automatically renew on the date of expiration.
Critical Accounting Estimates and Policies
Our consolidated financial statements and accompanying notes are
prepared in accordance with generally accepted accounting prin-
ciples in the United States of America. Preparing consolidated
financial statements requires us to make estimates and assump-
tions that affect the reported amounts of assets, liabilities, rev-
enues, 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 inher-
ently 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 accounting 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 completion. For
certain contracts that contain a significant number of performance
milestones, as defined by the customer, sales are recorded based upon
achievement of these performance milestones. The performance mile-
stone 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 com-
pletion. 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 account-
ing, a single estimated total profit margin is used to recognize 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 per-
formance. Adjustments to original estimates for contract revenue,
estimated 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.
Curtiss-Wright and Subsidiaries 33
The discount rate used to determine the benefit obligations of the plans
as of December 31, 2006, and the annual periodic costs for 2007 was
increased in 2006 to 6.0% for all the U.S. pension plans and the EMD
postretirement benefit plan to better reflect current economic condi-
tions. The rate was based on current and future economic indicators.
The increase in the discount rate decreased the benefit obligation of
the plans. The discount rate for the Curtiss-Wright postretirement
benefit plan remained at 5.5% in 2006. The lower rate in comparison
to the other plans is because the plan is closed to new entrants, and the
expected payouts are shorter in duration than the other plans. We also
updated the rate of compensation increase for the pension plans to
better reflect the experience over the past years and the Corporation’s
expectation of future salary increases. This change caused an increase
to the benefit obligation.
The overall expected return on assets assumption is based on a combi-
nation of historical performance of the pension fund and expectations
of future performance. The historical returns are determined using
the market-related value of assets, which is the same value used in
the calculation 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. Over the last 10 years the market-related value
of assets had an average annual yield of 10.2%, whereas the actual
returns averaged 9.5% during the same period. We have consistently
used the 8.5% rate as a long-term overall average return. Given the
uncertainties 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.
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 expectations 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
recognized 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.
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 realiza-
tion is reasonably assured. Certain contracts contain provisions for
the redetermination of price and, as such, management defers a por-
tion 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
realizable 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 con-
tractual 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
In consultation with our actuaries, we determine the appropriate
assumptions for use in determining the liability for future pension
and other postretirement benefits. The most significant of these
assumptions include the number of employees who will receive
benefits, their tenure, their salary levels, 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 post-
retirement assets and liabilities, and our annual cash requirements to
fund these plans.
34 Curtiss-Wright and Subsidiaries
The following table reflects the impact of changes in selected assump-
tions used to determine the funded status of the Corporation’s pension
plans as of December 31, 2006:
Assumption
Discount rate
Rate of compensation increase
Expected return on assets
Percentage
Point Change
(0.25%)
0.25%
(0.25%)
Increase in
Benefit
Obligation
$10,361
2,420
–
Increase in
Expense
$889
566
853
See Note 14 to the Consolidated Financial Statements for further
information on our pension and postretirement plans, including an
estimate of future cash contributions.
As of December 31, 2006, our environmental reserves totaled $23.7
million, the majority of which is long term. Approximately 75% of
the environmental reserves represent the current value of our antici-
pated 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.
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
liability 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 established at the low end of that range. At sites involv-
ing 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 because of, among other
factors, difficulties in assessing the extent and type of environmental
remediation to be performed, the impact of complex environmental
regulations and remediation technologies, and agreements between
potentially responsible parties to share in the cost of remediation.
In estimating the future liability and continually evaluating the suf-
ficiency of such liabilities, we weigh certain 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 remediate the site, and changes in
technology related to environmental remediation. We do not believe
that continued compliance with environmental laws applicable to
our operations will have a material adverse effect on our financial
condition or results of operation. However, given the level of judg-
ment and estimation used in the recording of environmental reserves,
it is reasonably possible that materially different amounts could be
recorded if different assumptions were used or if circumstances
were to change, such as environmental regulations or remediation
solution remedies.
Purchase Accounting
We apply the purchase method of accounting to our acquisitions.
Under this method, the purchase price, including any capitalized acqui-
sition 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 consulta-
tion with third-party valuation advisors. Such fair value assessments
require significant judgments and estimates such as projected cash
flows, discount rates, royalty rates, and remaining useful lives that
can differ materially from actual results. The fair value of assets
acquired (net of cash) and liabilities assumed of our 2006 acquisitions
were estimated to be $42.4 million and $7.4 million, respectively.
The initial fair values assigned to certain of these acquisitions are
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 $411.1 million in goodwill as of December 31, 2006. The
recoverability 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
acceptance 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.
Curtiss-Wright and Subsidiaries 35
In September 2006, the FASB issued SFAS No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans (“SFAS No. 158”). This statement requires companies to
recognize a net liability or asset to report the funded status of their
defined benefit pension and other postretirement benefit plans (“the
Plans”). The recognition of a net asset or liability will require an
offsetting adjustment to accumulated other comprehensive income
(“AOCI”) in shareholders’ equity. SFAS No. 158 will not change
how the Plans are accounted for and reported in the income state-
ment. Therefore, the amounts to be recognized in AOCI will be the
unrecognized gains/losses, prior service costs/credits, and transition
assets/obligations, which will continue to be amortized under the
existing guidance as net periodic pension cost in the income statement.
Companies are required to initially recognize the funded status and
provide the required disclosures beginning for fiscal year ends after
December 15, 2006. The net impact on the December 31, 2006
balance sheet is to increase prepaid pension costs by $21.1 million,
increase other current liabilities $2.3 million, reduce accrued pension
and postretirement benefit costs by $4.9 million, increase deferred
tax liabilities by $9.0 million, with the offset increasing stockholders’
equity by $14.7 million. Additionally, for fiscal years ending after
December 15, 2008, SFAS 158 will require companies to measure the
plan assets and obligations as of the date of the employer’s fiscal year
end, however earlier adoption of the measurement date provisions is
encouraged. The Corporation currently utilizes measurement dates of
September 30 and October 31 for its various Plans. The Corporation
does not anticipate the change in the fiscal year end measurement date
to have a material impact on the Corporation’s results of operation
or financial condition.
Other Intangible Assets
Other intangible assets are generally the result of acquisitions and
consist primarily of purchased technology, customer related intan-
gibles, and trademarks. Intangible 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 annu-
ally 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 circumstances indicate that the
carrying amount might not be recoverable. We would record any
impairment in the reporting period in which it has been identified.
Recently Issued Accounting Standards
In February 2006, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting Standards
No. 155, Accounting for Certain Hybrid Financial Instruments—an
amendment of FASB Statements No. 133 and 140 (“SFAS No.
155”). SFAS No. 155 permits a fair value remeasurement for any
hybrid financial instrument that contains an embedded derivative that
would otherwise require bifurcation. This accounting standard is effec-
tive as of the beginning of fiscal years beginning after September 15,
2006. The Corporation does not anticipate that the adoption of this
statement will have a material impact on the Corporation’s results
of operation or financial condition.
In March 2006, the FASB issued SFAS No. 156, Accounting for
Servicing of Financial Assets, an amendment of FASB Statement
No. 140 (“SFAS No. 156”). SFAS No. 156 requires that servicing
assets and servicing liabilities be recognized at fair value, if practi-
cable, when the Corporation enters into a servicing agreement and
allows two alternatives, the amortization and fair value measurement
methods, as subsequent measurement methods. This accounting
standard is effective for all new transactions occurring as of the
beginning of fiscal years beginning after September 15, 2006. The
Corporation does not anticipate that the adoption of this statement
will have a material impact on the Corporation’s results of operation or
financial condition.
In June 2006, the FASB issued Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, an interpretation of FAS 109,
Accounting for Income Taxes (“FIN 48”), to create a single model
to address accounting for uncertainty in tax positions. FIN 48 clarifies
the accounting for income taxes, by prescribing a minimum recognition
threshold a tax position is required to meet before being recognized in
the financial statements. FIN 48 also provides guidance on derecogni-
tion, measurement, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Corporation will
adopt FIN 48 as of January 1, 2007, as required. We are evaluating
our tax positions and anticipate that the adoption of FIN 48 will not
have a significant impact on our results of operations.
36 Curtiss-Wright and Subsidiaries
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 operat-
ing and financing activities. We seek to minimize any material risks from foreign currency exchange rate fluctuations through our normal
operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We do not use such
instruments for trading or other speculative purposes. We used forward foreign currency contracts to manage our currency rate exposures
during the year ended December 31, 2006. Information 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. Our interest rate exposure was 96% fixed at December
31, 2006 and December 31, 2005. The variable rates on the Industrial Revenue Bonds are based on market rates. As of December 31,
2006, 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 currency
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 primar-
ily 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
foreign 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
currency 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 successful. 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 $5 million as it relates exclusively
to foreign currency exchange rate exposures.
Report of the Corporation
Curtiss-Wright and Subsidiaries 37
The consolidated financial statements appearing on pages 40 through 43 of this Annual Report have been prepared by the Corporation in
conformity 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 this Annual Report is
consistent with that in the financial statements.
The Corporation maintains accounting systems, procedures, and internal accounting controls designed to provide reasonable assurance 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; organizational 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 assessment of the Corporation’s internal
controls over financial reporting and has included “Management’s 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 financial reporting as well as the effectiveness of such controls for the year
ended December 31, 2006. 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 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, 2006.
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 committee 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.
The Corporation’s management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31,
2006. In making this assessment, the Corporation’s management used the criteria established by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control—Integrated Framework.
Management believes that, as of December 31, 2006, 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, 2006 has been audited by Deloitte
& Touche LLP, an independent registered public accounting firm, and their report thereon is included on page 39 of this Annual Report.
38 Curtiss-Wright and Subsidiaries
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, 2006 and 2005, and the related consolidated statements of earnings, stockholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2006. These financial statements 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 Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstate-
ment. 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 principles 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, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31,
2006, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006 the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 123(R) Share-Based Payment. Also as discussed in Note 1 to the consolidated financial statements, the
Company adopted SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an Amendment of
FASB Statements No. 87, 88, 106 and 132(R) as of December 31, 2006.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February
26, 2007 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 Company’s internal control over financial reporting.
Deloitte & Touche LLP
Parsippany, New Jersey
February 26, 2007
Report of Independent Registered Public Accounting Firm
Curtiss-Wright and Subsidiaries 39
To the Board of Directors and Stockholders of
Curtiss-Wright Corporation
Roseland, New Jersey
We have audited management’s assessment, included in the accompanying Management’s Annual Report On Internal Control Over Financial
Reporting, that Curtiss-Wright Corporation and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of
December 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. 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 responsibility 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 assurance 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,
evaluating 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 executive
and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management,
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) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the trans-
actions 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 management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evalua-
tion 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 maintained effective internal control over financial reporting as of December
31, 2006, 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, 2006, 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 as of and for the year ended December 31, 2006 of the Company and our report dated February 26, 2007 expressed
an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of Statement of
Financial Accounting Standard (SFAS) No. 123(R) Share-Based Payment on January 1, 2006 and SFAS No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106 and 132(R) as of December
31, 2006.
Deloitte & Touche LLP
Parsippany, New Jersey
February 26, 2007
40 Curtiss-Wright and Subsidiaries
Consolidated Statements of Earnings
For the years ended December 31, (In thousands, except per share data)
2006
2005
2004
Net sales
Cost of sales
Gross profit
Research and development costs
Selling expenses
General and administrative expenses
Environmental remediation and administrative expenses
(Loss) gain on sale of real estate and fixed assets
Operating income
Interest expense
Other (expense) income, net
Earnings before income taxes
Provision for income taxes
Net earnings
Net earnings per share:
Basic earnings per share
Diluted earnings per share
$ 1,282,155
$1,130,928
$ 955,039
851,076
431,079
(38,841)
(76,547)
740,416
390,512
(39,681)
(69,687)
624,536
330,503
(33,825)
(61,648)
(173,734)
(144,982)
(118,270)
(843)
(486)
140,628
(22,894)
(112)
117,622
(37,053)
80,569
1.84
1.82
$
$
$
(818)
2,638
137,982
(19,983)
299
118,298
(43,018)
75,280
(5,285)
(1,134)
110,341
(12,031)
443
98,753
(33,687)
$ 65,066
1.74
1.72
$
$
1.53
1.51
$
$
$
Shares and per share amounts have been adjusted on a pro forma basis for the April 21, 2006 2-for-1 stock split as further described in Note 1 to the consolidated financial statements.
See notes to consolidated financial statements.
Consolidated Balance Sheets
Curtiss-Wright and Subsidiaries 41
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
Deferred revenue
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:
Common stock, $1 par value, 100,000,000 shares authorized at
December 31, 2006 and 2005; 47,533,294 and 25,493,442 shares issued
at December 31, 2006 and 2005, respectively; outstanding shares were
44,023,410 at December 31, 2006 and 21,746,362 at December 31, 2005
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Less: Common treasury stock, at cost (3,509,884 shares at December 31, 2006 and 3,747,080 shares at
December 31, 2005)
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
2006
2005
$ 124,517
$
59,021
284,774
161,528
32,485
19,341
622,645
296,652
92,262
411,101
158,080
11,416
244,689
146,297
28,844
11,615
490,466
274,821
76,002
388,158
158,267
12,571
$ 1,592,156
$1,400,285
$
5,874
$
885
96,023
81,532
23,003
57,305
28,388
292,125
359,000
57,055
71,006
21,220
29,676
80,460
74,252
22,855
21,634
21,417
221,503
364,017
53,570
74,999
22,645
25,331
830,082
762,065
47,533
69,887
716,030
55,806
889,256
25,493
59,794
667,892
20,655
773,834
(127,182)
762,074
(135,614)
638,220
$ 1,592,156
$1,400,285
42 Curtiss-Wright and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, (In thousands)
2006
2005
2004
Cash flows from operating activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization
Net loss (gain) on sales and disposals of real estate and equipment
Deferred income taxes
Stock based compensation
Changes in operating assets and liabilities, net of businesses acquired:
Increase in receivables
(Increase) decrease in inventories
(Decrease) increase in progress payments
Increase in accounts payable and accrued expenses
Increase (decrease) in deferred revenue
Increase in income taxes payable
(Increase) decrease in net pension and postretirement assets
Increase in other current and long-term assets
Increase 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
Excess tax benefits from share-based compensation
Net cash (used for) 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
Cash and cash equivalents at end of year
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.
$ 80,569
$
75,280
$
65,066
50,791
486
(11,419)
6,621
(20,489)
(11,245)
(7,024)
15,643
32,647
1,207
2,982
(2,667)
5,769
63,302
143,871
776
(1,664)
(40,202)
(39,522)
(80,612)
240,000
(240,058)
8,616
(10,538)
1,885
(95)
2,332
65,496
59,021
$ 124,517
$ 42,417
4,546
–
(7,424)
(17)
$ 39,522
47,851
(2,638)
141
–
(21,558)
(26,908)
9,815
22,976
(8,049)
11,266
(3,813)
(912)
1,727
29,898
105,178
11,268
(5,086)
(42,444)
(73,111)
(109,373)
655,000
(630,327)
8,492
(8,458)
–
24,707
(2,529)
17,983
41,038
59,021
88,578
8,618
–
(23,863)
(222)
73,111
$
$
$
40,742
1,134
(3,500)
–
(39,875)
7,578
(4,338)
19,785
4,849
8,403
5,054
(1,830)
2,279
40,281
105,347
1,192
(2,100)
(32,452)
(247,402)
(280,762)
624,106
(508,025)
7,458
(7,666)
–
115,873
1,908
(57,634)
98,672
41,038
$
$ 303,041
3,027
(14,000)
(42,331)
(2,335)
$ 247,402
Consolidated Statements of Stockholders’ Equity
Curtiss-Wright and Subsidiaries 43
(In thousands)
January 1, 2004
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
December 31, 2004
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
December 31, 2005
Comprehensive income:
Net earnings
Minimum pension liability
adjustment, net
Translation adjustments, net
Total comprehensive income
Adjustment for initial application of
FAS 158, net
Dividends paid
Stock options exercised, net
Stock issued under employee stock purchase
plan, net
Two-for-one common stock split effected in the
form of a 100% stock dividend
Stock based compensation
Other
December 31, 2006
See notes to consolidated financial statements.
Common
Stock
Class B
Common
Stock
Additional
Paid in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
$ 16,611 $ 8,765
$ 52,943
$ 543,670
$ 22,634
Comprehensive
Income
Treasury
Stock
$ (165,742)
–
–
–
–
35
–
–
–
–
–
–
–
–
–
–
–
–
(1,748)
1,358
3,259
39
65,066
–
$ 65,066
–
14,163
14,163
$ 79,229
(7,666)
–
–
–
–
–
–
–
–
–
–
–
–
11,345
–
10,741
141
$ 16,646 $ 8,765
$ 55,851
$ 601,070
$ 36,797
$ (143,515)
–
–
–
–
82
–
–
–
–
–
8,765
(8,765)
–
$ 25,493
–
–
–
–
–
–
147
21,893
–
–
$ 47,533
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42
3,863
–
38
75,280
–
$ 75,280
–
(16,142)
(16,142)
$ 59,138
(8,458)
–
–
–
–
–
–
–
–
–
–
–
–
7,721
–
–
180
$ 59,794
$ 667,892
$ 20,655
$ (135,614)
80,569
–
$ 80,569
–
–
–
–
–
(1,521)
4,483
–
–
–
(10,538)
–
–
–
(21,893)
6,480
651
–
–
(1,750)
22,215
$ 101,034
(1,750)
22,215
14,686
–
–
–
–
–
–
–
–
–
–
–
8,021
–
–
141
270
$ 69,887
$ 716,030
$ 55,806
$ (127,182)
44 Curtiss-Wright and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Curtiss-Wright Corporation and its subsidiaries (the “Corporation”)
is a diversified multinational manufacturing and service company
that designs, manufactures, and overhauls precision components
and systems and provides highly engineered products and services
to the aerospace, defense, automotive, shipbuilding, processing, oil,
petrochemical, agricultural equipment, railroad, power generation,
security, and metalworking industries. Operations are conducted
through 35 manufacturing facilities, 59 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.
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 liabili-
ties 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 inventory
obsolescence, estimates for the valuation and useful lives of intangible
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
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) the Corporation’s price to its customer is fixed
or determinable; 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 methods
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. The excess of the billings over cost and estimated earnings on
long-term contracts is included in deferred revenue.
D. Cash and Cash Equivalents
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 the 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
provisions, 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 prog-
ress 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 con-
sist 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.
Indefinite lived intangible assets are reviewed for impairment annu-
ally based on the discounted future cash flows. See Note 7 for further
information 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
circumstances 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
Curtiss-Wright and Subsidiaries 45
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 lia-
bility 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
liability can be estimated and no amount within the range is more
probable 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 assessment and remediation efforts progress or as
additional information becomes available. Approximately 75% of the
Corporation’s environmental reserves as of December 31, 2006 rep-
resent the current value of 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 reliably determinable. All environmental reserves
exclude any potential recovery from insurance carriers or third-party
legal actions.
N. Accounting for Stock-Based Compensation
Prior to January 1, 2006, the Corporation applied the intrinsic value
method of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in
accounting for stock-based employee awards as allowed under SFAS
No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”).
Accordingly, the Corporation did not recognize compensation expense
for the issuance of non-qualified share options with an exercise price
equal to the market value of the underlying common stock on the date
of grant or for options granted under the employee stock purchase
plan. As the requisite service period for performance shares, restricted
stock units, and performance restricted shares did not begin until
after January 1, 2006, no compensation cost was recorded in prior
periods. Effective January 1, 2006, the Corporation adopted SFAS
No. 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”)
using the modified prospective transition method and therefore has not
restated prior periods. Under this transition method, compensation cost
associated with employee stock options recognized in 2006 includes
compensation expense related to the remaining unvested portion of
non-qualified share options granted prior to January 1, 2006. See
Note 12 for further information on this standard.
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 2006, 2005, or 2004.
J. Goodwill
Goodwill results from business acquisitions. The Corporation accounts
for business acquisitions by allocating the purchase price to tangible
and intangible assets and liabilities. Assets acquired and liabilities
assumed are recorded at their fair values, and the excess of the pur-
chase 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.
Goodwill impairment tests performed as of October 31, 2006 and July
31, 2006, 2005, and 2004 concluded that no impairment charges
were required as of those dates. See Note 6 for further information
on goodwill.
K. Fair Value of Financial Instruments
Statement of Financial Accounting Standards (“SFAS”) No. 107,
Disclosure About Fair Value of Financial Instruments, requires certain
disclosures regarding the fair value of financial instruments. 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 is deemed to approximate fair value.
The estimated fair values of the Corporation’s fixed rate debt instru-
ments at December 31, 2006 aggregated $350.8 million compared
to a carrying value of $349.9 million. The carrying amount of the
variable interest rate debt approximates fair value because the inter-
est 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 dif-
ferent 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
commercial 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 requirements.
Corporation-sponsored research and development costs are expensed
as incurred.
Research and development costs associated with customer-sponsored
programs are charged to inventory and are recorded in cost of sales
when products are delivered or services performed. Funds received
under shared development contracts are a reduction of the total devel-
opment expenditures under the shared contract and are shown net as
research and development costs.
46 Curtiss-Wright and Subsidiaries
O. Capital Stock
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
was payable on April 21, 2006. To effectuate the stock split, the
Corporation issued 21.9 million shares of Common stock, at $1.00 par
value from capital surplus, with a corresponding reduction in retained
earnings of $21.9 million. Accordingly, all references throughout this
Annual Report on Form 10-K to number of shares, per share amounts,
stock options data, and market prices of the Corporation’s common
stock have been adjusted to reflect the effect of the stock split for all
periods presented, where applicable.
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 relative
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 of shares of Common stock autho-
rized for issuance from 45 million shares to 100 million shares.
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
adequately reflect the true value of the Corporation and, therefore,
represents an attractive investment opportunity. The shares are held at
cost and reissuance is recorded at the weighted-average cost. Through
December 31, 2006, the Corporation had repurchased 210,930 shares
under this program. There was no stock repurchased during 2006,
2005, and 2004.
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,
(“SFAS No. 109”). 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 carrying amounts of deferred tax assets unless it is more
likely than not that such assets will be realized.
The Corporation will also apply FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes—an Interpretation of
FASB Statement No. 109 (“FIN 48”). FIN 48 provides guidance on
the recognition, measurement, accounting, and disclosure of uncertain
tax positions. This Interpretation is effective as of January 1, 2007.
See Note 9 for additional information on the effect of FIN 48 on
the Corporation.
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
Corporation 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 for-
eign 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
currency 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. In November 2005, the Corporation unwound
the interest rate swap agreements. While the interest rate swap agree-
ments were in effect, they were 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. Additionally, the carrying amount of the associ-
ated debt was adjusted through earnings for changes in fair value due
to change in interest rates. Ineffectiveness was to be recognized to the
extent that these two adjustments 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 presented in Note 10.
T. Recently Issued Accounting Standards
In February 2006, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments—an amendment of FASB Statements No. 133
and 140 (“SFAS No. 155”). SFAS No. 155 permits a fair value
remeasurement for any hybrid financial instrument that contains an
embedded derivative that would otherwise require bifurcation. This
accounting standard is effective as of the beginning of fiscal years
beginning after September 15, 2006. The Corporation does not antici-
pate that the adoption of this statement will have a material impact
on the Corporation’s results of operation or financial condition.
Curtiss-Wright and Subsidiaries 47
In March 2006, the FASB issued SFAS No. 156, Accounting for
Servicing of Financial Assets, an amendment of FASB Statements
No. 140 (“SFAS No. 156”). SFAS No. 156 requires that servicing
assets and servicing liabilities be recognized at fair value, if practi-
cable, when the Corporation enters into a servicing agreement and
allows two alternatives, the amortization and fair value measurement
methods, as subsequent measurement methods. This accounting
standard is effective for all new transactions occurring as of the
beginning of fiscal years beginning after September 15, 2006. The
Corporation does not anticipate that the adoption of this statement
will have a material impact on the Corporation’s results of operation or
financial condition.
In June 2006, the FASB issued FIN 48, to create a single model to
address accounting for uncertainty in tax positions. FIN 48 clarifies
the accounting for income taxes by prescribing a minimum recognition
threshold a tax position is required to meet before being recognized in
the financial statements. FIN 48 also provides guidance on derecogni-
tion, measurement, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006. The Corporation will
adopt FIN 48 as of January 1, 2007, as required. The cumulative
effect of adopting FIN 48 will be recorded in retained earnings and
other accounts as applicable. The Corporation is evaluating its tax
positions and anticipates that the adoption of FIN 48 will not have a
significant impact on its results of operations.
In September 2006, the FASB issued SFAS No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans (“SFAS No. 158”). This statement requires companies to rec-
ognize a net liability or asset to report the funded status of their
defined benefit pension and other postretirement benefit plans (“the
Plans”). The recognition of a net asset or liability will require an
offsetting adjustment to accumulated other comprehensive income
(“AOCI”) in shareholders’ equity. SFAS No. 158 will not change
how the Plans are accounted for and reported in the income state-
ment. Therefore, the amounts to be recognized in AOCI will be the
unrecognized gains/losses, prior service costs/credits, and transition
assets/obligations, which will continue to be amortized under the
existing guidance as net periodic pension cost in the income statement.
Companies are required to initially recognize the funded status and
provide the required disclosures beginning for fiscal year ends after
December 15, 2006. The net impact on the December 31, 2006
balance sheet is to increase prepaid pension costs by $21.1 million,
increase other current liabilities $2.3 million, reduce accrued pension
and postretirement benefit costs by $4.9 million, increase deferred
tax liabilities by $9.0 million, with the offset increasing stockholders’
equity by $14.7 million. Additionally, for fiscal years ending after
December 15, 2008, SFAS 158 will require companies to measure the
plan assets and obligations as of the date of the employer’s fiscal year
end. However, earlier adoption of the measurement date provisions is
encouraged. The Corporation currently utilizes measurement dates of
September 30 and October 31 for its various Plans. The Corporation
does not anticipate the change in the fiscal year end measurement date
to have a material impact on the Corporation’s results of operation
or financial condition. See Note 14 for additional information on the
effect of FAS 158 on the Corporation.
2. Acquisitions
The Corporation acquired three businesses in 2006, as described
below. In addition, the Corporation purchased one business in 2005
and 11 businesses in 2004. The 2006 and 2005 acquisitions, as well
as nine of the 2004 acquisitions, 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 preliminary estimates of the purchase price allocations, includ-
ing the value of identifiable intangibles with a finite life, and records
amortization 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, generally within
12 months from acquisition.
The results of each acquired business have been included in the
consolidated financial results of the Corporation from the date of
acquisition in the segment indicated as follows:
FLOW CONTROL
Techswan, Inc.
On September 1, 2006, the Corporation acquired certain assets
and liabilities of Techswan, Inc., which business is now operated as
Swantech (Swantech). The purchase price, subject to customary adjust-
ments provided for in the Asset Purchase Agreement, was $3.6 million
in cash and the assumption of certain liabilities to acquire the intel-
lectual property and assets of Swantech. The purchase price was funded
from credit available under the Corporation’s revolving credit line.
The excess of the purchase price over the fair value of the net assets
acquired is $2.9 million at December 31, 2006. Revenues of the
purchased business were $1.1 million for the year ended December
31, 2005.
Swantech is a designer and manufacturer of highly advanced health
monitoring and prognostics systems and software for critical-service
machinery. Swantech is the technology leader in state-of-the-art stress
wave analysis based prognostics systems, with the capability to predict
critical machinery failure far in advance of conventional vibration
and temperature based monitoring systems. The core technology is
fully developed, and Swantech is building its applications’ base and
channels to market in the commercial maritime, power, oil and gas,
and defense and aerospace markets. Swantech has significant and
growing penetration in monitoring luxury cruise liner critical systems.
Swantech is located in Ft. Lauderdale, Florida.
Enpro Systems, Ltd.
On April 17, 2006, the Corporation acquired certain assets and
liabilities of Enpro Systems, Ltd. (Enpro), which has subsequently
been merged with Tapco International. The combined business operates
48 Curtiss-Wright and Subsidiaries
as TapcoEnpro International. The purchase price, subject to customary
adjustments provided for in the Asset Purchase Agreement, was $17.5
million in cash and the assumption of certain liabilities to acquire
the assets of Enpro. The purchase price was funded from credit avail-
able under the Corporation’s revolving credit line. The excess of the
purchase price over the fair value of the net assets acquired is $6.0
million at December 31, 2006. Revenues of the purchased business
were $35.9 million for the year ended December 31, 2005.
Enpro is a designer and manufacturer of highly engineered sliding gate,
plug, block, butterfly, diverter, and variable orifice flue gas valves.
Enpro also manufactures, repairs, and modifies ASME code pressure
vessels, primarily for the petrochemical, refining, and utility markets.
Enpro provides engineering services, subcontract manufacturing ser-
vices, shop repairs, and field services to support customers’ operations.
Enpro is headquartered in Channelview, Texas.
Engineered Pump Division
On November 10, 2004, the Corporation acquired certain assets
and liabilities 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 Purchase 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 $8.0 million at December 31, 2006.
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
aircraft carrier programs and non-nuclear surface ships. EPD is the
sole source supplier of main and auxiliary seawater, fresh water, and
cooling pumps, coolant purification pumps, injection, chilled water,
and other critical pumps. The business supports nuclear programs, and
non-nuclear naval surface programs. In addition, EPD has a strong
and growing aftermarket business for repairs, refurbishments, and
parts. 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 Purchase Agreement, was $4.5 million payable
in approximately 18,000 shares of the Corporation’s restricted
Common stock valued at $1.0 million, cash of $3.5 million, and the
assumption of certain liabilities. The cash portion of the purchase
price was funded from credit available under the Corporation’s revolv-
ing credit facilities. The purchase price approximated the fair value
of the net assets acquired as of December 31, 2006.
compliance. Groquip is a manufacturer’s sales representative for
rupture 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 headquartered 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 12 months ended June 30, 2004.
NOVA
On May 24, 2004, the Corporation acquired certain assets of NOVA
Machine Products Corporation (“NOVA”). The purchase price, sub-
ject to customary adjustments provided for in the Asset Purchase
Agreement, was $20.0 million in cash and the assumption of certain
liabilities. The purchase price was funded from credit available under
the Corporation’s revolving credit facilities. There are provisions in
the agreement for additional payments upon the achievement of cer-
tain financial performance criteria through 2009 up to a maximum
additional payment of $9.2 million. Through December 31, 2006, 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, 2006.
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 products
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. Revenues
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
(“Technofast”). The acquisition of this product line replaced a licens-
ing agreement 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 liability 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
million and has recorded a liability. As of December 31, 2006, the
remaining balance on the liability, including accrued interest, was
$2.6 million. The intangible asset was capitalized as technology in
the amount of $7.5 million and will be amortized over its 20 year
useful life.
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
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.
Curtiss-Wright and Subsidiaries 49
Synergy specializes in the design, manufacture, and integration of
single- and multi-processor single-board computers for VME and
CompactPCI systems to meet the needs of demanding real-time appli-
cations in military, aerospace, industrial, and commercial markets.
Synergy is headquartered in San Diego, California. 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 pur-
chase price, subject to customary adjustments provided for in the
Stock Purchase Agreement, was £12.5 million ($22.4 million) in
cash. 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 $15.4
million at December 31, 2006, including foreign currency translation
adjustment gains of $1.3 million.
Primagraphics is a market leader in the development of radar processing
and graphic display systems used throughout the world for military
and commercial applications, such as ship and airborne command and
control consoles, vessel tracking, air traffic control, and air defense
systems. Primagraphics’ products include graphics and imaging tech-
nologies, 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 Cambridge in the
United Kingdom, with 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 purchase 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 excess of the purchase price over the fair value of the net assets
acquired as of December 31, 2006, is $63.2 million.
Dy 4 is considered a market leader in ruggedized embedded computing
solutions for the defense and aerospace industries. Using standard,
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
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.
Trentec
On May 24, 2004, the Corporation acquired certain assets of Trentec,
Inc. (“Trentec”). The purchase price, subject to customary adjust-
ments 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, 2006.
In August 2005, the Corporation completed negotiations with the
sellers 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
purchase price was 80.3 million Canadian dollars ($64.7 million) in
cash and 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 $27.2 million at
December 31, 2006, including foreign currency translation adjust-
ment gains of $1.7 million.
Indal provides shipboard helicopter handling systems for naval
applications with a global installed base on over 200 ships, including
more than 100 systems deployed in the U.S. Navy. Indal’s highly engi-
neered, proprietary products enable helicopters to land aboard naval
vessels in rough sea conditions. Indal also designs and manufactures
specialized telescopic hangars that provide protection for helicopters
aboard ships and cable handling systems for naval sonar applications.
Indal is headquartered in Mississauga, 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
Corporation’s revolving credit facilities. The excess of the purchase
price over the fair value of the net assets acquired is $31.3 million
at December 31, 2006.
50 Curtiss-Wright and Subsidiaries
METAL TREATMENT
Allegheny
On May 9, 2006, the Corporation purchased the assets and certain
liabilities of two units of Diversified Coatings, Inc. (“Allegheny”).
The purchase price was $14.9 million in cash and the assumption of
certain liabilities. The purchase price was funded from credit avail-
able under the Corporation’s revolving credit facilities. The estimated
excess of the purchase price over the fair value of the net assets
acquired is $4.6 million at December 31, 2006.
Allegheny’s services include the spray application of a variety of high
performance coatings to automotive metal braking components. There
are numerous specialty high performance coatings available on the
market, which are specified on a part-by-part basis by the automo-
tive OEMs. These high performance coatings are typically licensed by
the coating material manufacturer to qualified applicators on a geo-
graphic basis. Allegheny is located in Fremont, Indiana, and Ingersoll,
Canada. Revenues of the acquired businesses were $12.7 million for
the year ended December 31, 2005.
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
$2.0 million at December 31, 2006.
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
Evesham 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 liabili-
ties. 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 $2.2 million at
December 31, 2006, including foreign currency translation adjustment
gains of $0.1 million.
Evesham manufactures and applies an extensive range of SFL coatings,
which provide lubrication, corrosion resistance, and enhanced engi-
neering performance. Revenues of the acquired business were £2.6
million ($4.2 million) for the year ended December 31, 2003.
3. Receivables
Receivables include current notes, amounts billed to customers, claims,
other receivables, and unbilled revenue on long-term contracts, con-
sisting of amounts recognized as sales but not billed. Substantially 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 enti-
ties comprising the Corporation’s customer base and their geographic
dispersion. 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 45%, 48%, and 47% of consolidated revenues
in 2006, 2005, and 2004, respectively. As of December 31, 2006
and 2005, accounts receivable due directly or indirectly from these
government sources represented 43% and 52% of net receivables,
respectively. Sales to one customer through which the Corporation
is a subcontractor to the U.S. Government were 9% of consolidated
revenues in 2006, 10% in 2005, and 13% in 2004. No single
customer accounted for more than 10% of the Corporation’s net
receivables as of December 31, 2006 and 2005.
The Corporation performs ongoing credit evaluations of its custom-
ers and establishes appropriate allowances for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical 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
2006
2005
$ 199,714
$ 171,203
(5,389)
194,325
(5,453)
165,750
111,112
107,618
(20,663)
90,449
$ 284,774
(28,679)
78,939
$ 244,689
The net receivable balance at December 31, 2006, included $7.3
million related to the Corporation’s 2006 acquisitions.
Curtiss-Wright and Subsidiaries 51
4. Inventories
Inventoried costs contain amounts relating to long-term contracts and
programs with long production 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
Less: Inventory reserves
Progress payments applied,
principally related to
long-term contracts
Inventories, net
2006
$ 67,667
43,280
2005
$ 59,336
43,099
58,483
52,825
30,361
199,791
(26,152)
27,533
182,793
(25,377)
(12,111)
$ 161,528
(11,119)
$ 146,297
The net inventory balance at December 31, 2006, included, $0.9 million
related to the Corporation’s 2006 acquisitions.
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
Property, plant, and equipment,
at cost
Less: Accumulated depreciation
Property, plant, and
equipment, net
2006
$ 19,086
125,431
403,125
2005
$ 16,825
111,409
362,018
547,642
(250,990)
490,252
(215,431)
$ 296,652
$ 274,821
Depreciation expense for the years ended December 31, 2006,
2005, and 2004 was $38.8 million, $36.0 million, and $32.4 million,
respectively. The net property, plant, and equipment balance at
December 31, 2006, included $13.1 million related to the Corporation’s
2006 acquisitions.
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 2006 and 2005 are as follows:
(In thousands)
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
December 31, 2005
Goodwill from 2006 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, 2006
Flow
Control
$ 115,202
–
1,070
1,241
(344)
$ 117,169
8,910
411
2,722
850
$ 130,062
Motion
Control
$ 228,579
27,034
(536)
629
(4,810)
$ 250,896
–
(1,453)
1,629
6,084
$ 257,156
Metal
Treatment
$ 20,532
–
–
60
(499)
$ 20,093
4,598
(1,289)
13
468
$ 23,883
Consolidated
$ 364,313
27,034
534
1,930
(5,653)
$ 388,158
13,508
(2,331)
4,364
7,402
$ 411,101
Additional consideration of prior years’ acquisitions includes accruals of $0.4 million for the year ended December 31, 2005, related to earn
out and other required contractual payments. These amounts are classified in other current liabilities as additional amounts due to sellers.
During 2006, the Corporation finalized the allocation of the purchase price for all businesses acquired prior to 2006. Approximately $13 million
of the goodwill on acquisitions made during 2006 is deductible for tax purposes. None of the goodwill on the 2005 acquisition was deductible for
tax purposes.
In accordance with SFAS No. 142, the Corporation completed its annual goodwill impairment testing as of July 31, 2006, 2005 and
2004. During the quarter ended December 31, 2006, the Corporation changed the date of its annual goodwill impairment testing to October
31 in order to better align with the Corporation’s normal business process for updating the Corporation’s strategic plan and forecasts. The
Corporation believes that the resulting change in accounting principle related to the annual testing date will not delay, accelerate, or avoid
an impairment charge. Goodwill impairment tests performed as of October 31, 2006 and July 31, 2006, 2005, and 2004 concluded that
no impairment charges were required as of those dates. The Corporation determined that the change in accounting principle related to the
annual testing date is preferable under the circumstances and does not result in adjustments to the Corporation’s financial statements when
applied retrospectively.
52 Curtiss-Wright and Subsidiaries
7. Other Intangible Assets, Net
Intangible assets are generally the result of acquisitions and consist
primarily of purchased technology, customer related intangibles, and
trademarks. 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
during 2006 and 2005. No indefinite lived intangible assets were
purchased in 2006 or 2005.
(In thousands,
except years data)
Technology
Customer related
intangibles
Total
2006
2005
Amount
$ 2,390
Years
12.1
Amount
$ 18,710
Years
19.7
6,330
$ 8,720
8.7
9.7
11,107
$ 29,817
17.7
19.0
The following tables present the cumulative composition of the
Corporation’s acquired intangible assets as of December 31:
Accumulated
Gross Amortization
$ (19,403)
$ 94,611
Net
$ 75,208
The following table presents the changes in the net balance of other
intangible assets during 2006:
Customer
Other
Related Intangible
Assets
Technology Intangibles
$68,627
6,330
$78,138
2,390
Total
$11,502 $158,267
8,720
–
(In thousands)
December 31, 2005
Acquired during 2006
Change in estimate of fair
value related to purchase
price allocation
Amortization expense
Net foreign currency
translation adjustment
Total
–
(6,394)
1,260
(5,206)
29
(415)
1,289
(12,015)
1,074
$75,208
794
1,819
$71,805 $11,067 $158,080
(49)
Included in other intangible assets at December 31, 2006 and 2005,
are $9.9 million of intangible assets not subject to amortization.
In accordance with SFAS No. 142, the Corporation completed its
annual test of impairment of indefinite lived intangible assets during
the fourth quarter of each year and concluded there was no impair-
ment of value.
Amortization expense for the years ended December 31, 2005 and
2004 was $11.9 million and $8.3 million, respectively. The esti-
mated future amortization expense of purchased intangible assets
is as follows:
(In thousands)
2006
Technology
Customer related
intangibles
Other intangible assets
Total
(In thousands)
2005(1)
Technology
Customer related
intangibles
Other intangible assets
Total
86,205
12,416
$ 193,232
(14,400)
(1,349)
$ (35,152)
71,805
11,067
$ 158,080
Accumulated
Gross Amortization
$ (13,445)
$ 91,583
Net
$ 78,138
(In thousands)
2007
2008
2009
2010
2011
79,342
12,415
$ 183,340
(10,715)
(913)
$ (25,073)
68,627
11,502
$ 158,267
$ 12,362
12,302
11,280
10,801
10,584
(1)Certain prior year information has been reclassified to conform to current presentation.
Curtiss-Wright and Subsidiaries 53
9. Income Taxes
Earnings before income taxes for the years ended December 31
consist of:
(In thousands)
Domestic
Foreign
Total
2006
$ 74,275
43,347
$ 117,622
2005
$ 77,440
40,858
$ 118,298
2004
$ 65,963
32,790
$ 98,753
The provision for income taxes for the years ended December 31
consist of:
(In thousands)
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2006
2005
2004
$ 29,640
4,726
14,106
48,472
(5,397)
(930)
(5,092)
(11,419)
$ 25,362
6,028
12,791
44,181
(674)
472
(961)
(1,163)
$ 21,158
5,481
10,548
37,187
(878)
(1,969)
(653)
(3,500)
Provision for income
taxes
$ 37,053
$ 43,018
$ 33,687
The effective tax rate varies from the U.S. federal statutory tax rate
for the years ended December 31, principally:
U.S. federal statutory
tax rate
Add (deduct):
State and local taxes,
net of federal benefit
Enacted future
rate changes
R&D tax credits
Foreign rate
differential
All other, net
Effective tax rate
2006
2005
2004
35.0%
35.0%
35.0%
2.0
3.4
(1.4)
(3.0)
(0.8)
(0.3)
31.5%
–
(0.4)
(1.2)
(0.4)
36.4%
1.6
–
(0.1)
(1.1)
(1.3)
34.1%
8. Accrued Expenses And Other
Current Liabilities
Accrued expenses consist of the following:
(In thousands) December 31,
Accrued compensation
Accrued commissions
Accrued taxes other than
income taxes
Accrued insurance
Accrued interest
Other
Total accrued expenses
2006
$ 50,941
5,852
3,989
4,116
3,687
12,947
$ 81,532
2005
$ 45,270
5,819
4,048
4,053
3,842
11,220
$ 74,252
Other current liabilities consist of the following:
(In thousands) December 31,
Warranty reserves
Litigation reserves
Additional amounts due to sellers
on acquisitions
Current portion of environmental
reserves
Other
Total other current liabilities
2006
$ 9,957
6,512
2005
$ 9,850
713
4,678
3,274
2,441
4,800
$ 28,388
2,677
4,903
$ 21,417
The accrued expenses and other current liabilities at December 31,
2006, included $1.5 million and $2.7 million, respectively, related
to the Corporation’s 2006 acquisitions.
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
additional 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
pre-existing warranties
Increase due to acquisitions
Foreign currency
translation adjustment
Warranty reserves at December 31,
2006
$ 9,850
3,208
(2,045)
(1,497)
27
414
$ 9,957
2005
$ 9,667
3,188
(2,534)
(1,700)
1,618
(389)
$ 9,850
54 Curtiss-Wright and Subsidiaries
The components of the Corporation’s deferred tax assets and liabilities
at December 31 are as follows:
(In thousands)
Deferred tax assets:
Environmental reserves
Inventories
Postretirement/postemployment
benefits
Incentive compensation
Accrued vacation pay
Warranty reserve
Other
Total deferred tax assets
Deferred tax liabilities:
Retirement plans
Depreciation
Goodwill amortization
Other intangible amortization
Cumulative translation
adjustment
Other
Total deferred tax liabilities
Net deferred tax liabilities
2006
2005
$ 9,719
8,261
$ 9,946
8,353
16,488
10,790
4,928
2,278
9,636
62,100
15,153
19,350
15,194
32,202
16,453
9,203
4,570
2,363
7,607
58,495
10,376
21,054
19,044
28,332
2,385
2,386
86,670
$ (24,570)
–
4,416
83,222
$ (24,727)
Deferred tax assets and liabilities are reflected on the Corporation’s
consolidated balance sheet at December 31 as follows:
In June 2006, the FASB issued FIN 48 to create a single model to
address accounting for uncertainty in tax positions. FIN 48 clarifies
the accounting for income taxes, by prescribing a minimum recogni-
tion threshold a tax position is required to meet before being recog-
nized in the financial statements. FIN 48 also provides guidance on
derecognition, measurement, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The
Corporation will adopt FIN 48 as of January 1, 2007, as required.
The cumulative effect of adopting FIN 48 will be recorded in retained
earnings and other accounts as applicable. The Corporation is evaluat-
ing its tax position and anticipates that the adoption of FIN 48 will
not have a significant impact on its results of operations.
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 repatri-
ated, as defined in the Act. Pursuant to this provision of the Act, the
Corporation 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
considered 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.
(In thousands)
Current deferred tax assets
Noncurrent deferred tax liabilities
Net deferred tax liabilities
2006
$ 32,485
(57,055)
$ (24,570)
2005
$ 28,843
(53,570)
$ (24,727)
10. Debt
Debt consists of the following:
(In thousands) December 31,
Industrial Revenue Bonds,
2006
2005
As of December 31, 2006, 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 $45.4 million were made in 2006, $32.3
million in 2005, and $28.8 million in 2004.
No provision has been made for U.S. federal or foreign taxes on
that portion of certain foreign subsidiaries’ undistributed earnings
considered to be permanently reinvested, which at December 31,
2006, was $45.3 million. It is not practicable to estimate the amount
of tax that would be payable if these amounts were repatriated to the
U.S.; however, it is expected there would be minimal or no additional
tax because of the availability of foreign tax credits.
due from 2007 through 2028
$ 14,180
$ 14,239
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
–
74,786
125,094
150,000
814
364,874
5,874
$ 359,000
–
74,729
125,108
150,000
826
364,902
885
$ 364,017
The weighted-average interest rate of the Corporation’s Industrial
Revenue Bonds was 3.45% and 2.54% in 2006 and 2005, respec-
tively. The weighted-average interest rate of the Corporation’s
Revolving Credit Agreement was 6.22% and 3.97% in 2006 and
2005, respectively.
The carrying amount of the Industrial Revenue Bonds approximates
fair value as the interest rates on this variable debt are reset peri-
odically to reflect market conditions and rates. Fair values for the
Corporation’s fixed rate debt totaled $350.8 million and $357.9 million
at December 31, 2006 and 2005, 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
Curtiss-Wright and Subsidiaries 55
financial tests as detailed in the agreement, of which the Corporation
is in compliance at December 31, 2006. The unused credit available
under the Revolving Credit Agreement at December 31, 2006 and
2005, was $362.2 million and $367.9 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
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. The 2003 Notes are senior unsecured obligations and are
equal in right of payment to the Corporation’s existing senior indebt-
edness. 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 provision with the Corporation’s other senior indebted-
ness. As of December 31, 2006, the Corporation was in compliance
with all covenants.
At December 31, 2006, substantially all of the industrial revenue
bond issues are collateralized by real estate, machinery, and equip-
ment. Certain of these issues are supported by letters of credit, which
total $13.7 million. The Corporation had various other letters of credit
totaling $24.1 million. Substantially all letters of credit are included
under the Revolving Credit Agreement.
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)
2007
2008
2009
2010
2011
Thereafter
Total
$ 5,874
62
64
75,066
68
283,860
$ 364,994
(1) Amounts exclude a $0.1 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 $21.3 million, $18.3 million, and $12.1 million
were made in 2006, 2005, and 2004, 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 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,
2006, 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
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 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 facil-
ity, 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 agree-
ment bear interest at a floating rate based on market conditions.
In addition, the Corporation’s interest rate and level of facility
fees depend on maintaining certain financial ratios defined in the
agreement. The Corporation is subject to annual facility fees on the
commitments under the Revolving Credit Agreement. In connection
with the Revolving Credit Agreement, the Corporation paid custom-
ary transaction fees that have been deferred and are being amortized
over the term of the agreement. The Corporation is required under
the agreement to maintain certain financial ratios and meet certain
56 Curtiss-Wright and Subsidiaries
11. Earnings Per Share
The Corporation is required to report both basic earnings per share
(“EPS”), based on the weighted-average number of 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 April 21, 2006 stock split. See Note 1-O for further
information regarding the stock split.
At December 31, 2006, the Corporation had stock options outstanding
of 380,723 shares that were not included in the computation of diluted
EPS because to do so would have been antidilutive. There were no anti-
dilutive options outstanding at December 31, 2005 or December 31,
2004. Earnings per share calculations for the years ended December
31, 2006, 2005, and 2004, are as follows:
(In thousands,
except per share data)
2006:
Basic earnings per share
Effect of dilutive securities:
Stock options
Deferred stock
compensation
Diluted earnings per share
2005:
Basic earnings per share
Effect of dilutive securities:
Stock options
Deferred stock
compensation
Diluted earnings per share
2004:
Basic earnings per share
Effect of dilutive securities:
Stock options
Deferred stock
compensation
Weighted-
Average
Shares
Outstanding
Net
Income
Earnings
Per Share
$ 80,569
43,826
$ 1.84
445
63
44,334
$ 80,569
$ 1.82
$ 75,280
43,270
$ 1.74
500
58
43,828
$ 75,280
$ 1.72
$ 65,066
42,392
$ 1.53
648
54
43,094
$ 1.51
Diluted earnings per share
$ 65,066
12. Stock Compensation Plans
The Corporation maintains three share-based compensation plans
under which it utilizes six different forms of employee and non-
employee share-based compensation awards, as explained in further
detail below, which include non-qualified share options, employee stock
purchase plan options, performance shares, performance restricted
shares, restricted stock, and restricted stock units. Certain awards
provide for accelerated vesting if there is a change in control. Prior to
January 1, 2006, the Corporation applied the intrinsic value method
of Accounting Principles Board Opinion No. 25, “Accounting for
Stock Issued to Employees,” and related interpretations in accounting
for stock-based employee awards. Accordingly, the Corporation did
not recognize compensation expense for the issuance of non-qualified
share options with an exercise price equal to the market value of the
underlying common stock on the date of grant or for options granted
under the employee stock purchase plan. Effective January 1, 2006,
the Corporation adopted SFAS 123(R) using the modified prospec-
tive transition method and therefore has not restated prior periods.
Under this transition method, compensation cost associated with
employee stock options recognized in 2006 includes compensation
expense related to the remaining unvested portion of non-qualified
share options granted prior to January 1, 2006. The effect of the
change in 2006 from applying the original provisions of SFAS 123
on income from continuing operations was $4.9 million, on income
before income taxes was $4.9 million, on net income was $3.6 million,
and basic and diluted earnings per share was $0.08. As the requisite
service period for performance shares, restricted stock units, and per-
formance restricted shares did not begin until after January 1, 2006,
no compensation cost was recorded in prior periods. Additionally,
SFAS 123(R) requires that cash flows resulting from tax deductions
in excess of compensation cost that had been reflected as operating
cash flows be reflected as financing cash flows, which amounted to
$1.9 million in 2006.
The compensation cost charged against income for employee share-
based compensation programs during 2006 is as follows:
(In thousands)
Non-qualified share options
Employee stock purchase options
Performance shares
Performance restricted shares
Restricted stock units
Other share-based payments
Total share-based compensation expense
before income taxes
Income tax benefit
Net income impact
EPS Impact:
Basic
Diluted
2006
$ 3,558
1,387
1,011
260
56
349
6,621
1,989
$ 4,632
$ 0.11
$ 0.10
Curtiss-Wright and Subsidiaries 57
Other share-based payments include unrestricted share awards to
employees and restricted stock awards to non-employee directors,
who are treated as employees as prescribed by SFAS 123(R). The
compensation cost recognized follows the cost of the employee,
which is primarily reflected as general and administrative expenses
in the consolidated statements of earnings. No cost was capitalized
during 2006.
Pro forma information regarding net earnings and earnings per
share is required by SFAS 123(R), and has been determined as if
the Corporation had accounted for its employee non-qualified share
options and employee stock purchase plan option grants under the
fair value method in prior periods. The Corporation’s pro forma
information for the years ended December 31, 2005, and 2004 is
as follows:
(In thousands, except per share data)
Net earnings: As reported
Add: Total share-based employee compensation cost, net of related tax effects,
included in net income 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
2005
$ 75,280
2004
$ 65,066
–
–
(2,565)
$ 72,715
(1,862)
$ 63,204
$ 1.74
$ 1.72
$ 1.68
$ 1.66
$
$
$
$
1.53
1.51
1.49
1.47
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.
Under the LTI Plans, the Corporation awarded performance units of
8.5 million, 8.0 million, and 6.3 million in 2006, 2005, and 2004,
respectively, 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 $7.7 million, $5.3
million, and $4.3 million in 2006, 2005, and 2004, 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 LTI Plans, the Corporation grants non-qualified stock
options to key employees in the fourth quarter of each year. Stock
options granted under the LTI Plans expire 10 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.
1995 Long-Term Incentive Plan and
2005 Long-Term Incentive Plan
Awards under the 1995 Long-Term Incentive Plan (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 approved by stockholders in 1995 and as amended in
2002 and 2003, an aggregate total of 4,000,000 shares of Common
stock were approved for issuance. Issuances of Common stock to
satisfy employee option exercises will be made from the Corporation’s
treasury stock. The Corporation does not expect to repurchase any
shares in 2007 to replenish treasury stock for issuances made to
satisfy stock option exercises.
Effective May 19, 2005, stockholders approved the 2005 Long-Term
Incentive Plan (the “2005 LTI Plan”) (collectively with the 1995 LTI
Plan, the “LTI Plans”), which superseded the 1995 LTI Plan. The
shares that were registered and not yet issued under the 1995 LTI
Plan were deregistered and then registered under the 2005 LTI Plan.
There are no new awards being granted under the 1995 LTI Plan and
no remaining allowable shares for future awards under the 1995 LTI
Plan. As of December 31, 2006 there were options representing a
total of 1.2 million shares outstanding under the 1995 plan.
Awards under the 2005 LTI Plan consist of six components—
performance units (cash), non-qualified stock options, perfor-
mance shares, performance restricted shares, restricted stock, and
restricted stock units. Under the 2005 LTI Plan, an aggregate total
of 5,000,000 shares of Common stock were registered. Issuances of
Common stock to satisfy employee option exercises will be made from
the Corporation’s treasury stock. The Corporation does not expect to
repurchase any shares in 2007 to replenish treasury stock for issu-
ances made to satisfy stock option exercises. No more than 200,000
58 Curtiss-Wright and Subsidiaries
Under the 2005 LTI Plan, the Corporation granted performance
shares, performance restricted shares, restricted stock, and restricted
stock units to certain of the Corporation’s key executives, which
are denominated in shares based on the fair market value of the
Corporation’s Common stock on the date of grant. The performance
shares were granted to certain officers of the Corporation in the fourth
quarter of 2006 and 2005 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 follow-
ing such award. The performance restricted shares were granted to
certain key employees in the first quarter of 2006 and were contingent
upon the satisfaction of performance objectives keyed to achieving
certain operating income statistics in 2006. For those objectives that
were satisfied, the performance restricted shares are restricted for an
additional two years. The Corporation granted restricted stock units
to two key executives in September 2006 and restricted stock and
restricted stock units to certain key executives in November 2006,
which, under the terms of the agreements, will vest in 2016 and
2009, respectively.
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 in 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 554 shares and 536
shares in 2005 and 2004, respectively, of the Corporation’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.
As of December 31, 2006, there are 3.8 million remaining allowable
shares for issuance under the 2005 LTI Plan.
Non-Qualified Share Options
The fair value of the non-qualified share options was estimated at the
date of grant using a Black-Scholes option pricing model with the
assumptions noted in the following table. Expected volatilities are
based on historical volatility of the Corporation’s stock and other
factors. The Corporation uses historical data to estimate the expected
term of options granted. The risk-free rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve
in effect at the time of grant.
Risk-free rate
Expected volatility
Expected dividends
Expected term (in years)
Weighted-average
grant-date fair value
of options
2006
4.59%
22.15%
0.65%
7
2005
4.52%
23.21%
0.86%
7
2004
3.89%
31.37%
0.64%
7
$12.08
$9.06
$10.72
A summary of employee stock option activity under the 2005 and
1995 LTI Plans is as follows:
Weighted-Average
Shares Exercise
Price
(thousands)
Weighted-Average Aggregate
Intrinsic
Value
Term in Years (thousands)
Remaining
Contractual
Outstanding at
December 31, 2005
Granted
Exercised
Forfeited
Outstanding at
1,916 $18.21
36.73
12.82
24.06
381
(315)
(33)
December 31, 2006
1,949 $22.60
7.1
$28,229
Exercisable at
December 31, 2006
1,249 $16.92
5.8
$25,171
The total intrinsic value of stock options exercised during 2006,
2005, and 2004 was $6.4 million, $8.2 million, and $9.6 million,
respectively. The table above represents the Corporation’s estimate
of options fully vested and/or expected to vest as expected forfeitures
are not material to the Corporation, and therefore are not reflected
in the table above.
As noted above, non-qualified stock option awards have a graded
vesting schedule. Compensation cost is recognized on a straight-line
basis over the requisite service period for each separately vesting
portion of each award as if each award was, in substance, multiple
awards. During 2006, compensation cost associated with non-qualified
stock options of $3.6 million was charged to expense. The Corporation
has applied a forfeiture assumption of 7% in the calculation of such
expense. As of December 31, 2006, there was approximately $4.6
million of unrecognized compensation cost related to nonvested stock
options, which is expected to be recognized over a weighted-average
period of 0.9 years.
Cash received from option exercises during 2006, 2005, and 2004
was $4.1 million, $4.7 million, and $6.1 million, respectively. The
total tax benefit generated from options granted prior to December
31, 2006, which were exercised during 2006, 2005, and 2004 was
$2.4 million, $3.2 million, and $3.5 million, respectively. During
2006, tax benefits received on exercised options which were subject
to expenditure under SFAS 123(R) have been credited to deferred
taxes up to the amount of benefit recorded in the income state-
ment, with the difference charged to additional paid in capital, while
tax benefits received on exercised options that were not subject to
expenditure have been credited to additional paid in capital. All
of the 2005 and 2004 tax benefits were credited to additional paid
in capital.
Performance Shares, Performance Restricted Shares,
Restricted Stock, and Restricted Stock Units
Since 2005, the Corporation granted performance shares and per-
formance restricted shares to certain employees under the 2005 LTI
Plan, whose vesting is contingent upon meeting various departmental
and company-wide performance goals, including net income targets
against budget and as a percentage of sales against a peer group and
operating income as a percentage of sales against budget. The nonvested
shares are subject to forfeiture if employment is terminated other
than due to death, disability, or retirement, and the shares are non-
transferable while subject to forfeiture. Restricted stock and restricted
stock units have also been granted to key executives during 2006.
The nonvested restricted stock and restricted stock units are subject
to forfeiture if employment is terminated other than due to death or
disability, and the units are nontransferable while subject to forfei-
ture. A summary of the Corporation’s nonvested performance share,
performance restricted share, restricted stock, and restricted stock
unit activity for 2006 is as follows:
Shares/
Units
(thousands)
Weighted- Weighted-Average Aggregate
Intrinsic
Value
Term in Years (thousands)
Average
Fair
Price
Remaining
Contractual
Nonvested at
December 31, 2005
Granted
Vested
Forfeited
Nonvested at
217
266
–
(35)
$27.92
33.66
–
29.35
December 31, 2006
448
$31.21
3.7
$16,602
Expected to vest at
December 31, 2006
290
$31.52
4.3
$10,759
The grant-date fair values of performance shares and performance
restricted shares are based on the market price of the stock on the
date of grant, and compensation cost is amortized to expense on a
straight-line basis over the three-year requisite service period and
assumes that 50% of the performance shares will be forfeited. As
forfeiture assumptions change, compensation cost will be adjusted
on a cumulative basis in the period of the assumption change. In
the fourth quarter of 2006, it was determined that 27,000 perfor-
mance restricted shares would eventually vest, and, therefore, the
Corporation expensed $0.3 million associated for such change in
forfeiture estimate for 2006. These shares will remain under restric-
tion for the next two years, and, as such, the Corporation will have
additional compensation expense associated with these grants. The
grant date fair values of the restricted stock and restricted stock
units are based on the market price of the stock at the date of grant.
The restricted stock and restricted stock units contain only a service
condition, and thus compensation cost is amortized to expense on a
straight-line basis over the requisite service period, which ranged
from 3.0 years to 10.1 years. As of December 31, 2006, there was
$7.9 million of unrecognized compensation cost related to nonvested
performance shares, performance restricted shares, restricted stock,
and restricted stock units, which is expected to be recognized over a
period of 4.3 years.
Curtiss-Wright and Subsidiaries 59
Employee Stock Purchase Plan
The Corporation’s 2003 Employee Stock Purchase Plan (the “ESPP”)
enables eligible employees to purchase 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 auto-
matically ends on termination of employment with the Corporation.
A total of 2,000,000 shares of Common stock have been reserved
for issuance under the ESPP. The Common stock to satisfy the stock
purchases under the ESPP will be newly issued shares of Common
stock. During 2006, 195,536 shares were purchased under the ESPP.
As of December 31, 2006, there were 1.6 million shares available for
future offerings and the Corporation has withheld $2.5 million from
employees, the equivalent of 93,000 shares. Compensation cost is
recognized on a straight-line basis over the six-month vesting period
during which employees perform related services. The Corporation
recognized $0.1 million of tax benefit associated with disqualifying
dispositions during 2006, all of which was credited to additional
paid in capital.
The fair value of the employee stock purchase plan options was
estimated at the date of grant using a Black-Scholes option pricing
model with the weighted-average assumptions noted in the following
table. Expected volatilities are based on historical volatility of the
Corporation’s stock. The Corporation uses historical data to estimate
the expected term of options granted. The risk-free rate for periods
within the contractual life of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.
Risk-free interest rate
Expected volatility
Expected dividend yield
Weighted-average
option life (in years)
Weighted-average grant-date
2006
4.82%
23.25%
0.42%
2005
2.86%
30.98%
0.33%
2004
1.33%
23.99%
0.35%
0.5
0.5
0.5
fair value of options
$6.52
$6.68
$5.61
1996 Stock Plan for Non-Employee Directors and 2005
Stock Plan for Non-Employee Directors
The 2005 Stock Plan for Non-Employee Directors (“2005 Stock
Plan”), approved by the stockholders in 2005, provided for 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. Under the 2005 Stock Plan, the Corporation’s
non-employee directors each receive an annual restricted stock award,
which is subject to a three-year restriction period commencing on the
date of the grant. For 2006, the value of the award granted in the
first quarter was $50,000. These restricted stock awards are subject
to forfeiture 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
60 Curtiss-Wright and Subsidiaries
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, or such shorter restriction period as deter-
mined by the removal of such restrictions. Newly elected non-employee
directors also receive a one-time restricted stock award, which during
2006 was valued at $25,000 and awarded in the second quarter. The
total number of shares of Common stock available for grant under
the 2005 Stock Plan may not exceed 100,000 shares. During 2006,
the Corporation awarded 15,320 shares of restricted stock under
the 2005 Stock Plan, of which 9,100 shares have been deferred by
certain directors.
The 1996 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. Pursuant to the terms of the 1996
Stock Plan, non-employee directors received an initial restricted stock
grant of 7,224 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 increas-
ing $13,300 at an annual rate of 2.96%, compounded monthly from
the effective date of the 1996 Stock Plan. In 2001, the amount per
director was calculated to be $15,419, representing a total additional
grant of 3,110 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 compensa-
tion 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 2005
and 1996 Stock Plans, the Corporation had provided for an aggre-
gate additional 62,988 shares, at an average price of $20.38 as of
December 31, 2006. During 2006, the Corporation issued 7,519
shares in compensation 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 2006. 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 $0.7 million in 2006, $0.8 million in 2005, and $1.5
million in 2004, all of which have been charged against the previ-
ously established reserve. The Corporation increased the remediation
reserve by $0.3 million, $0.2 million, and $0.3 million in 2006, 2005,
and 2004, respectively, based upon revised operating projections. The
reserve balance as of December 31, 2006, was $6.0 million. Even
though this property was sold in December 2001, the Corporation
retained the responsibility for this remediation in accordance 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 dis-
cussions 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
Corporation believes that the outcome for any of these remaining sites
will not have a materially adverse effect on the Corporation’s results
of operations or financial condition.
In the first quarter of 2005, the Corporation sold its Fairfield, New
Jersey, property, which was formerly an operating facility for the
Corporation’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
million. Costs for operating and maintaining this site totaled $0.7 mil-
lion in 2006 and $0.4 million in 2005. During 2006, the Corporation
increased the remediation reserve by $0.7 million based upon revised
operating projections. As of December 31, 2006, the reserve balance
was $1.1 million.
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
remediation for this site, which could span over 30 years. During
2006, the Corporation increased the remediation reserve by $0.6
million based upon revised operating projections. Through 2006, the
majority of the costs for this site have been for the soil remediation.
In 2003, the Corporation responded to a U.S. EPA Request For
Information 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. In 2006, the Corporation
withdrew from the cooperating parties group after determining that
its operations did not contribute materially to the conditions of the
Lower Passaic River site.
The Corporation maintains several Nuclear Regulatory Commission
(“NRC”) licenses necessary for the continued operation of one oper-
ating facility. In connection with these licenses, the NRC requires
financial assurance from the Corporation in the form of a parent
company guarantee representing estimated environmental decom-
missioning and remediation costs associated with the commercial
operations covered by the licenses. In addition, the Corporation has
obligations for additional environmental remediation costs at this
facility, which are ongoing. As of December 31, 2006, the balance in
this reserve is $10.7 million. The Corporation obtained partial envi-
ronmental insurance coverage specifically for this 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,
2006 was $23.7 million compared to $25.3 million at December
31, 2005. Approximately 75% of the Corporation’s environmental
reserves as of December 31, 2006 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 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, 2006, the undiscounted cash flows
associated with the discounted reserves were $9.5 million and are
anticipated to be paid over the next 30 years.
14. Pension And Other Postretirement
Benefit Plans
The Corporation maintains nine separate and distinct pension and
other postretirement benefit plans, consisting of six domestic pension
and other postretirement benefit plans and three separate foreign
pension plans. The Corporation maintains the following domestic
plans: 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 of EMD in 2002, 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 Curtiss-Wright Plans and EMD Plans were
placed under a master trust fund, from which the Corporation directs
the investment strategy for both plans.
The foreign plans consist of two defined benefit pension plans in the
United Kingdom and one plan in Canada as further described below.
In September 2006, the FASB issued SFAS No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans” (“FAS 158”). This statement requires companies to recognize a
net liability or asset to report the funded status of their defined benefit
pension and other postretirement benefit plans (“the Plans”), with the
offsetting adjustment recorded to Accumulated Other Comprehensive
Income, net of tax. The financial statements and accompanying disclo-
sures reflect the initial recognition of the funded status as of December
31, 2006, and include additional disclosures required by the statement.
The following table is a summary of the effects of the transition to
FAS 158:
Curtiss-Wright and Subsidiaries 61
Incremental Effect of Applying FAS 158 on Individual Line Items
in the Statement of Financial Position as of December 31, 2006
Before
Application of
Statement 158
71,115
$
1,571,009
19,606
After
Application of
Adjustments Statement 158
92,262
1,592,156
21,887
21,147
2,281
$ 21,147 $
75,862
48,019
(4,856)
9,036
71,006
57,055
Prepaid pension costs
Total assets
Other current liabilities
Accrued pension &
other postretirement
benefit costs
Deferred income taxes
Accumulated other
comprehensive income
Total stockholders’ equity
41,120
747,388
14,686
14,686
55,806
762,074
DOMESTIC PLANS
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 service and are vested after five years of service. At December
31, 2006, the Corporation had prepaid pension costs of $92.3
million, including the impact of FAS 158. At December 31, 2005, the
Corporation had prepaid pension costs of $76.0 million. Due to the
funded status, the Corporation does not expect to contribute funds to
the CW Pension Plan in 2007.
The Corporation also maintains a non-qualified restoration plan (the
“CW Restoration Plan”) covering those employees whose compen-
sation or benefits exceed the IRS limitation for pension benefits.
Benefits under the CW Restoration Plan are not funded, and, as such,
the Corporation had an accrued pension liability of $1.9 million as of
December 31, 2006 including the impact of FAS 158. At December
31, 2005, the Corporation had an accrued liability of $0.7 million.
The Corporation’s contributions to the CW Restoration Plan are not
expected to be material in 2007.
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
December 31, 2006, the Corporation had an accrued postretirement
benefit liability of $0.8 million including the impact of FAS 158. At
December 31, 2005, the accrued liability was $1.0 million. Benefits
62 Curtiss-Wright and Subsidiaries
under the plan are not funded. The Corporation’s contributions to the
CW Retirement Plan are not expected to be material in 2007.
$4.5 million and $4.9 million, respectively. The Corporation expects to
contribute $2.0 million to the EMD Retirement Plan during 2007.
THE EMD PLANS
The Corporation maintains the Curtiss-Wright Electro-Mechanical
Corporation Pension Plan (the “EMD Pension Plan”), a qualified
contributory 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, 2006 the
Corporation had an accrued pension liability of $32.9 million, includ-
ing the impact of FAS 158. At December 31, 2005, the accrued liability
for the EMD Pension Plan was $30.5 million. The Corporation expects
to contribute $3.2 million, the estimated minimum required amount,
to the EMD Pension Plan in 2007.
Contributions are expected to decrease in 2007 due to the anticipated
merger of the CW and EMD Pension Plans. The plan amendment
was executed in February 2007 with an effective date retroactive
to January 1, 2007. The merger has no effect on the level of plan
benefits provided to participants or the management of plan assets
since the funds for both plans were historically managed under one
master trust.
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
provides 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, 2006, the Corporation had an accrued pension liability of $2.6
million, including the impact of FAS 158. At December 31, 2005, the
accrued liability for the EMD Supplemental Plan was $2.5 million.
The Corporation’s contributions to the EMD Supplemental Plan are
not expected to be material in 2007.
The Corporation, through an administration agreement with
Westinghouse, maintains the Westinghouse Government Services
Group Welfare 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 provides basic health and welfare coverage on a non-
contributory basis. Benefits are based on years of service and are sub-
ject to certain caps. The Corporation had an accrued postretirement
benefit liability at December 31, 2006 of $28.8 million, including
the impact of FAS 158. At December 31, 2005, the accrued liability
of the EMD Retirement Plan was $39.5 million. Pursuant to the Asset
Purchase 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,
2006 and 2005, the discounted receivable included in other assets was
FOREIGN PLANS
Indal Technologies Hourly Plan (Canada)
The Pension Plan for Hourly Employees of Indal Technologies, Inc.
(“Indal Plan”) commenced on March 1, 2005 in connection with the
acquisition of Indal by the Corporation. This non-contributory defined
benefit plan provides monthly benefits to eligible members equal to a
member’s credited service multiplied by a fixed dollar amount. As of
December 31, 2006, the Corporation had an accrued pension liability
of $0.2 million (including the impact of FAS 158), while at December
31, 2005 the Corporation had a prepaid asset of $0.2 million. The
Corporation’s contributions to the Indal Plan are not expected to be
material in 2007.
Metal Improvement Company—Salaried Staff Pension
Scheme (U.K.)
The Corporation maintains the Salaried Staff Pension scheme (“MIC
Plan”) for the benefit of Metal Treatment employees in the U.K. This
contributory plan provides defined benefits to eligible members equal
to one-sixtieth of final pensionable salary for each year of pensionable
service. Members contribute at the rate of 6% of their pensionable
salary and the Corporation funds the balance of the cost to provide
benefits. Members are eligible for early retirement with reduced ben-
efits. The plan provides for early retirement at reduced benefits, and
is closed to new entrants. As of December 31, 2006, the Corporation
had an accrued pension liability of $4.7 million, including the impact
of FAS 158. At December 31, 2005, the accrued liability was $0.3
million. The Corporation’s contributions to the MIC Plan are expected
to be approximately $1.5 million in 2007.
Penny & Giles Pension Plan (U.K.)
The Penny & Giles Pension Plan (“P&G Plan”) is a contributory
plan that provides for both defined benefit and defined contribution
benefits. Defined benefit members are entitled to final salary related
benefits equal to one-sixtieth of final pensionable salary for each year
of pensionable service. The P&G Plan provides for early retirement
at reduced benefits, and is closed to new entrants. The following
disclosures include information for the Penny & Giles defined benefit
section only, which represents the majority of the P&G Plan’s costs.
As of December 31, 2006, the Corporation had an accrued pension
liability of $1.4 million, including the impact of FAS 158. At
December 31, 2005, the accrued liability for the plan was $0.3
million. The Corporation’s contributions to the P&G Plan are expected
to be approximately $1.1 million in 2007.
In the following table, the pension benefits information is a consoli-
dated disclosure of all domestic and foreign plans described above.
The postretirement benefits information includes the domestic CW
and EMD postretirement benefit plans, as there are no foreign
postretirement benefit plans.
(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
Settlements
Special termination benefits
Currency translation adjustments
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
Settlements
Currency translation adjustments
Fair value of plan assets at end of year
Funded status
Amounts recognized in the statement of financial
position consist of:
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amount recognized in statement of financial position:
Amounts recognized in accumulated other financial
comprehensive income consist of:
Net actuarial loss (gain)
Prior service cost (credit)
Net amount recognized in accumulated OCI
Amounts in AOCI expected to be recognized in net periodic
cost in the coming year:
Loss (gain) recognition
Prior service cost recognition
Accumulated benefit obligation
Information for pension plans with an accumulated
benefit obligation in excess of plan assets
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Weighted-average assumptions in determination of benefit obligation:
Discount rate
Rate of compensation increase
Health care cost trends:
Rate assumed for subsequent year
Ultimate rate reached in 2010
Measurement date
Curtiss-Wright and Subsidiaries 63
Pension Benefits
Postretirement Benefits
2006
2005
2006
2005
$ 305,599
19,408
17,714
1,595
2,086
(108)
(23,069)
(1,301)
723
3,181
325,828
352,239
32,211
9,632
1,595
(23,069)
(1,301)
2,371
373,678
47,850
$ 283,234
16,251
17,545
1,564
343
9,464
(20,669)
–
–
(2,133)
305,599
314,430
45,584
12,787
1,564
(20,669)
–
(1,457)
352,239
46,640
$ 30,680
530
1,645
340
–
(1,591)
(1,972)
–
–
–
29,632
–
–
1,632
340
(1,972)
–
–
–
(29,632)
$ 38,320
569
1,816
189
–
(8,330)
(1,884)
–
–
–
30,680
–
–
1,695
189
(1,884)
–
–
–
(30,680)
92,262
(157)
(43,494)
$ 48,611
76,202
–
(34,283)
$ 41,919
–
(2,124)
(27,508)
$ (29,632)
–
–
(40,509)
$ (40,509)
(13,431)
3,366
$ (10,065)
N/A
N/A
N/A
(10,877)
–
$ (10,877)
421
452
$ 283,005
N/A
N/A
$ 270,594
171,824
155,457
129,132
159,789
143,227
114,348
(522)
–
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
5.91%
4.00%
5.70%
3.54%
5.99%
N/A
5.74%
N/A
N/A
N/A
September 30
N/A
N/A
September 30
11.50%
5.50%
13.00%
5.50%
October 31
October 31
64 Curtiss-Wright and Subsidiaries
The following table details the components of net periodic pension
expense for all Pension Plans:
The following table details the components of net periodic expense
for the CW and EMD Retirement Plans:
2006
$ 19,408
17,714
2005
$ 16,251
17,573
2004
$ 14,419
15,755
(26,581)
(25,637)
(25,089)
(In thousands)
Service cost
Interest cost
Recognized net
actuarial gain
452
(4)
510
832
723
151
(4)
406
–
–
112
(4)
33
257
–
$ 13,054
$ 8,740
$ 5,483
Net periodic benefit expense
Weighted-average
assumptions in
determination of net
periodic benefit cost:
Discount rate
Health care cost trends:
Current year rate
Ultimate rate reached in
2010, 2010, and 2007,
respectively
2006
$ 530
1,645
2005
$ 569
1,816
2004
$ 789
2,395
(533)
$ 1,642
(397)
$ 1,988
(73)
$ 3,111
5.74%
5.98%
6.24%
13.00%
9.70%
11.40%
5.50%
5.50%
6.16%
(In thousands)
Service cost
Interest cost
Expected return on
plan assets
Amortization of prior
service cost
Amortization of
transition obligation
Recognized net
actuarial loss
Cost of settlement
Special termination
benefits
Net periodic
benefit expense
Weighted-average
assumptions in
determination of net
periodic benefit cost:
Discount rate
Expected return on
plan assets
Rate of compensation
increase
5.70%
5.98%
6.12%
8.45%
8.46%
8.49%
3.54%
3.51%
3.37%
The “Cost of settlement” and “Special termination benefits” indicated
above represent events that are accounted for under SFAS No. 88,
“Employers’ Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits” (“FAS 88”). The
settlement charge is resulting from the retirement of a key executive
and his subsequent election to receive his pension benefit as a single
lump sum payout. As a result of this single lump sum payout, special
settlement requirements under FAS 88 have been triggered. The special
termination benefits charge resulted from benefits offered for a limited
period of time to certain employees in the Motion Control segment who
were subject to a reduction in workforce with the Corporation during
2006. Consistent with the requirements of FAS 88, this liability is to be
recognized when the employees accept the offer and the amount can be
reasonably estimated.
The effect on the CW and EMD Retirement Plans of a 1% change in
the health care cost trend is as follows:
(In thousands)
Total service and interest
cost components
Postretirement benefit obligation
1% Increase
1% Decrease
$ 344
$ 3,806
$
(275)
$ (3,149)
The following benefit payments, which reflect expected future service,
as appropriate, are expected to be paid from the plans:
(In thousands)
2007
2008
2009
2010
2011
2012 – 2016
Pension Plans
$19,180
19,500
19,898
20,066
20,639
114,864
Post-
retirement
Plans
$2,275
2,317
2,248
2,314
2,337
11,522
EMD
Subsidy
Receipts
$(108)
(113)
(118)
(125)
(131)
(759)
Total
$21,347
21,704
22,028
22,255
22,845
125,627
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
retirement 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 estab-
lished 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,
2005
2006
52%
20%
72%
28%
0%
54%
15%
69%
31%
0%
Target
Exposure
50%
15%
65%
35%
0%
Expected
Range
40% - 60%
10% - 20%
55% - 75%
25% - 45%
0% - 10%
Curtiss-Wright and Subsidiaries 65
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
Corporation’s stock.
The long-term investment objective of the domestic retirement plans
is to achieve a total rate of return, net of fees, which exceeds the
actuarial overall expected return on assets assumption of 8.5% used
for funding purposes and which provides an appropriate premium over
inflation. The intermediate-term objective of the domestic retirement
plans, defined as three to five years, is to outperform each of the capi-
tal markets in which assets are invested, net of fees. During periods
of extreme market volatility, preservation of capital takes a higher
precedence than outperforming 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. Over the last
ten years the market-related value of assets had an average annual
yield of 10.2%, whereas the actual returns averaged 9.5% during
the same period. Given the uncertainties of the current economic
and geopolitical landscape, the Corporation considers 8.5% to be
a reasonable 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.
Foreign plan assets represent 6.5% of consolidated plan assets, with
the majority of the assets supporting the U.K. plans. The foreign plans
follow a similar asset allocation strategy, with a weighted expected
return on assets assumption of 7.5%.
Other Pension and Postretirement Plans
The Corporation offers all of its domestic employees the opportu-
nity to participate in a defined contribution plan. Costs incurred
by the Corporation in the administration and record keeping of the
defined contribution plan are paid for by the Corporation and are not
considered material.
In addition, the Corporation had foreign pension costs under various
defined contribution plans of $2.8 million, $2.3 million, and $1.5
million in 2006, 2005, and 2004, respectively.
15. Leases
The Corporation conducts a portion of its operations from leased
facilities, which include manufacturing and service facilities, admin-
istrative 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 esca-
lations. Rental expenses for all operating leases amounted to $21.3
million in 2006, $21.9 million in 2005, and $18.5 million in 2004.
At December 31, 2006, the approximate future minimum rental
commitments under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year are as follows:
(In thousands)
2007
2008
2009
2010
2011
Thereafter
Total
Rental Commitment
$ 16,895
15,152
12,617
9,947
7,503
17,566
$ 79,680
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 prod-
ucts for severe service military and commercial applications. The
Motion Control segment primarily designs, develops, and manufac-
tures mechanical systems, drive systems, and electronic controls and
sensors mainly 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 aero-
space, automotive, construction equipment, oil and gas, petrochemi-
cal, 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 9% of
consolidated revenues in 2006, 10% in 2005, and 13% in 2004. During
2006, 2005, and 2004, the Corporation had no commercial customer
representing more than 10% of consolidated revenue.
66 Curtiss-Wright and Subsidiaries
Consolidated Industry Segment Information:
(In thousands)
Year Ended December 31, 2006:
Revenue from external customers
Intersegment revenues
Operating income (expense)
Depreciation and amortization expense
Segment assets
Capital expenditures
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
Flow
Control
Motion
Control
Metal
Treatment
Segment
Total
Corporate Consolidated
and Other(1)
Total
$ 548,121 $ 509,462 $ 224,572 $ 1,282,155
2,110
158,169
50,670
1,412,964
39,044
14
60,542
18,367
495,000
14,017
1,282
55,242
20,298
695,219
12,333
814
42,385
12,005
222,745
12,694
$ 466,546 $ 465,451 $ 198,931 $ 1,130,928
1,093
139,464
47,715
1,287,866
42,344
–
54,509
17,307
440,550
16,459
548
50,485
19,572
653,037
12,966
545
34,470
10,836
194,279
12,919
$
– $ 1,282,155
–
140,628
50,791
1,592,156
40,202
(2,110)
(17,541)
121
179,192
1,158
$
– $ 1,130,928
–
137,982
47,851
1,400,285
42,444
(1,093)
(1,482)
136
112,419
100
$ 388,139 $ 388,576 $ 178,324 $
$
– $
–
44,451
15,884
415,504
10,420
144
44,893
14,214
576,275
10,171
555
28,111
10,381
194,706
11,728
955,039
699
117,455
40,479
1,186,485
32,319
(699)
(7,114)
263
91,955
133
955,039
–
110,341
40,742
1,278,440
32,452
(1)Operating expense for Corporate and Other includes pension expense, environmental remediation and administrative expenses, legal, 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
Total consolidated assets
2006
2005
2004
$ 1,282,155 $ 1,130,928 $ 955,039
699
(699)
$ 1,282,155 $ 1,130,928 $ 955,039
1,093
(1,093)
2,110
(2,110)
$ 158,169 $ 139,464 $ 117,455
(7,114)
443
(12,031)
98,753
(1,482)
299
(19,983)
(17,541)
(112)
(22,894)
$ 117,622 $ 118,298 $
$ 1,412,964 $ 1,287,866 $ 1,186,485
77,802
545
13,608
$ 1,592,156 $ 1,400,285 $ 1,278,440
92,021
75,068
12,103
76,002
24,995
11,422
Curtiss-Wright and Subsidiaries 67
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)
2006
2005
2004
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
$
966,296
111,678
48,995
155,186
$ 1,282,155
$ 189,331 $ 864,465
109,659
38,595
118,209
$ 296,652 $ 1,130,928
60,426
29,055
17,840
$ 182,277
49,796
26,286
16,462
$ 274,821
$ 735,356
92,541
20,675
106,467
$ 955,039
$ 181,708
52,568
14,136
16,831
$ 265,243
17. Contingencies and Commitments
18. Gain on The Sale of Real Estate
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 seg-
ment now located in Shelby, North Carolina. As a result of the sale,
the Corporation 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 Consolidated Statements of Earnings.
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 finan-
cial assurance from the Corporation in the form of a parent company
guarantee, representing estimated environmental decommissioning and
remediation costs associated with the commercial operations covered
by the licenses. The guarantee for the decommissioning costs of the
refurbishment facility, which is estimated 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 performance on
certain contracts to provide products and services, and to secure advance
payments the Corporation has received from certain international customers.
At December 31, 2006, 2005, and 2004, the Corporation had contingent
liabilities on outstanding letters of credit of $37.8 million, $32.2 million,
and $19.4 million, respectively.
In January of 2007, a former executive was awarded approximately
$9.0 million in punitive and compensatory damages plus legal costs
related to a gender bias lawsuit filed in 2003. The Corporation has
recorded a $6.5 million reserve related to the lawsuit and intends to
appeal the verdict. The Corporation has determined that it is probable
that the punitive damages verdict will be reversed on appeal, therefore
no reserve has been recorded for that portion.
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 material adverse effect on the Corporation’s results of operations
or financial position.
68 Curtiss-Wright and Subsidiaries
Corporate Information
Corporate Headquarters
Stockholder Communications
4 Becker Farm Road, 3rd Floor
Roseland, New Jersey 07068
www.curtisswright.com
Annual Meeting
The 2007 annual meeting of stockholders will be held on May 4,
2007, at 2:00 pm at the Wilshire Grand Hotel, 350 Pleasant Valley
Way, West Orange, New Jersey 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, 2006, the approximate number of holders
of record of Common stock, par value of $1.00 per share of the
Corporation was 6,762.
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 inqui-
ries 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
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 informa-
tion about Curtiss-Wright Corporation should contact Alexandra M.
Deignan, Director of Investor Relations, at the Corporate Headquarters
listed above.
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, Virginia 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
2006
2005
Common
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Class B
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$ 33.65
35.07
31.74
38.40
High
–
–
–
–
Low
$ 26.82
30.52
26.61
29.99
Low
–
–
–
–
High
$ 29.93
31.34
33.70
31.94
High
$ 29.33
31.11
–
–
Low
$ 24.41
25.07
26.18
27.08
Low
$ 24.12
26.71
–
–
Note: Class B shares were 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
2006
$ 0.06
0.06
0.06
0.06
–
–
–
–
2005
$ 0.05
0.05
0.05
0.06
$ 0.05
0.05
–
–
Note: Class B shares were converted to Common shares on May 24, 2005.
At A Glance
Flow Control:
Naval Defense
•
Nuclear propulsion system components
•
Valves (butterfly, globe, gate, control, safety,
relief, solenoid, hydraulic-operated gate)
Pumps
Motors and generators
Instrumentation and controls
•
•
•
Non-nuclear products
Smart leakless valves
•
Aircraft shuttle components
•
Sub-safe ball valves
•
Jet-fuel pumping valves
•
Steam generator control equipment
•
Air driven fluid pumps
•
Engineering, inspection and testing services
•
Aircraft carrier launch and retrieval equipment
•
Instrumentation and control systems
Advanced electromagnetic systems
•
•
•
Ground Defense
•
Electromagnetic gun pulsed power supply system
DeltaGuard coker valve
Boltless slide valves
Butterfly and triple offset butterfly valves
Pilot-operated relief valves
Pressure relief valves
Safety valves
Solenoid, gate and globe valves
Steam valves
Oil & Gas Processing
Critical process valves
•
•
•
•
•
•
•
•
•
Fluid catalytic cracking devices
Process vessels
•
•
•
Advanced valve controls and prognostics
technology
•
Cat cracker reactors and regenerators
Hydrotreators
Air grids and cyclones
Digital valve controller with redundant
technology
Signature recognition for fault and leak
detection
•
•
•
•
•
•
Web-enabled process control software
Service and repair
Nuclear Power Generation
•
Pumps
Reactor coolant and process
•
Advanced motors and generators
Control rod drive mechanisms
Valves
•
Solenoid, ball, butterfly, check, pressure
relief, safety and pilot-operated relief
valves, gate & globe
Design, fabrication of nuclear facility airlocks,
doors, hatches
Instrumentation
Diagnostic and test equipment
Fluid sealing technologies
Actuators
•
Plate heat exchangers
Separation technologies
Fasteners
Advanced bolting technologies
Pneumatic and hydraulic
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Diamond wire concrete cutting
Engineering services
Equipment qualification, commercial grade
dedication
Inventory management systems
General Industrial
•
Valves
Directional control and pneumatic
•
Critical machinery fault detection and
prognostics systems
•
Other Military and Government
•
Power conversion products
Control electronics and sensors
High performance data communication products
•
Space programs
•
Security systems
•
F AA
•
Perimeter intrusion detection equipment
Airport surface detection equipment radar
video processing
•
•
•
Motion Control:
Commercial Aerospace
Commercial jet transports
•
•
•
•
Secondary flight control actuation systems
and electromechanical trim actuators
Aircraft cargo door and utility actuation
systems
Fire detection and suppression control
systems
Position sensors
Solenoids and solenoid valves
•
•
Business/regional jets
Throttle quadrants
•
Helicopters
•
Repair and overhaul services
•
Rotor Ice Protection Systems
•
•
•
Component overhaul and logistics support
services
Military Aerospace
•
Transport and fighter aircraft
•
•
•
Weapons bay door actuation systems
Secondary flight control actuation
Rotary actuation for environmental control
systems
Weapons handling systems
•
•
•
Helicopters
Radar warning systems
•
Acoustic processing systems
•
Flight data recorders
•
Air data computers
•
Unmanned aerial vehicles
•
Integrated mission management and flight
control computers
Weapons handling systems
•
Ground Defense
•
Tanks and light armored vehicles
•
Digital electromechanical aiming and
stabilization systems
Fire control, sight head, and environmental
control processors
Single board computers for target
acquisition systems
Hydropneumatic suspension systems
Ammunition handling systems
•
•
•
•
Marine Defense
Surface ships
•
•
•
Marine Propulsion
•
Submarines
•
•
•
Helicopter handling and traverse systems
Tie-down components
Marine engine diesel valve injection systems
Cable handling systems for towed arrays
General Industrial Markets
•
Automated industrial equipment
•
•
Air, sea, and ground simulation
Fractional horsepower (HP) specialty
motors
Force transducers
Joysticks
Sensors
•
•
•
High-speed trains
•
Electromechanical tilting systems for
high-speed trains
Metal Treatment:
Commercial, Business/Regional Jets
•
Aircraft structural components
Landing gear components
Turbine engine rotating components
Turbine engine rotating components
Shot peen forming
Wing skins
•
Shot peening
•
•
•
Laser peening
•
Coatings
•
•
Heat treating
•
Fasteners
Sliding components
Aluminum structural components
Automotive
•
Shot peening
•
Heat treating
•
Engine and transmission components
Miscellaneous engine, transmission and
structural components
Coatings
•
•
•
Fasteners
Brake and suspension components
Sliding components
General Industrial
•
Shot peening
•
Highly stressed metal components
susceptible to fatigue
Welded components subject to distortion
Architectural structures
•
•
Heat treating
•
Miscellaneous aluminum and steel
components
Coatings
•
•
Fasteners
Miscellaneous components subject to
corrosion and sliding wear
•
•
•
•
•
•
•
•
•
Curtiss-Wright Corporation
4 Becker Farm Road
Roseland, New Jersey 07068
www.curtisswright.com
®