Curtiss-Wright
Annual Report 2016

Plain-text annual report

C U R T I S S - W R I G H T 2 0 1 6 A N N U A L R E P O R T 2016 Annual Report WE CONTINUE TO DELIVER ON THE ONE CURTISS-WRIGHT VISION. WE ARE FOCUSED ON DRIVING OPERATIONAL EXCELLENCE AND FINANCIAL DISCIPLINE IN ORDER TO ACHIEVE TOP QUARTILE PERFORMANCE, WHILE POSITIONING THE COMPANY FOR RENEWED GROWTH ACROSS OUR COMMERCIAL, INDUSTRIAL, DEFENSE AND POWER MARKETS. Curtiss-Wright Corporation is a global diversified industrial company built on long-standing customer relationships, leading market positions and advanced, highly-engineered technologies. Our legacy dates back to 1929 with the merger of companies founded by aviation pioneers Glenn Curtiss and the Wright Brothers. Headquartered in Charlotte, N.C., Curtiss-Wright employs approximately 8,000 men and women dedicated to providing outstanding service and innovative products to customers worldwide. We encourage you to read the on-line annual report at www.curtisswright.com/investors/annual-report-and-proxy 2016 FINANCIAL HIGHLIGHTS1 NET SALES ‘16 ‘15 ‘14 OPERATING INCOME ‘16 ‘15 ‘14 OPERATING MARGIN ‘16 ‘15 ‘14 DILUTED EARNINGS PER SHARE ‘16 ‘15 ‘14 FREE CASH FLOW2 ‘16 ‘15 ‘14 $2,109 $2,186 $2,243 $308 $291 $282 14.6% 13.3% 12.6% $4.20 $3.74 $3.46 $376 $272 $265 1 All figures reported on a continuing operations basis. Dollars in millions, except per share data. 2015 Pro Forma results exclude the one-time China AP1000® fee of $20 million recognized as revenue and operating income in the fourth quarter of 2015. 2 Free cash flow is defined as cash flow from operations less capital expenditures. 2015 adjusted to remove the $145 million contribution to the Company’s corporate defined benefit pension plan. *Announced Dec. 2016; closed Jan. 2017. Financials in this document do not include the results of the acquisition. NOTEWORTHY ACCOMPLISHMENTS Added to S&P MidCap 400 Index Exceeded $100 share price for first time ever Eclipsed $4 billion in market capitalization Acquired Teletronics Technology Corporation* 1 2016 ANNUAL REPORTCONTROL IS CRITICAL TO SUCCESS. Through our ‘Own the Cab’ strategy, we strive to be the leading electronic systems integrator for the heavy-duty, class 8 truck market. COMMERCIAL/INDUSTRIAL SEGMENT SALES BY END MARKET (2016) 44% GENERAL INDUSTRIAL 2 2 CURTISS-WRIGHT CORPORATION 32% COMMERCIAL AEROSPACE 9% 9% 6% AEROSPACE DEFENSE NAVAL DEFENSE POWER GENERATION CURTISS-WRIGHT CORPORATIONCOMMERCIAL / INDUSTRIAL CURTISS-WRIGHT PROVIDES VITAL CONTROL SOLUTIONS FOR A MULTITUDE OF COMMERCIAL AND INDUSTRIAL APPLICATIONS, INCLUDING INNOVATIVE HUMAN-MACHINE INTERFACE APPLICATIONS, MUST-NOT-FAIL SENSORS AND SURFACE TREATMENT SERVICES, AND CRITICAL VALVE TECHNOLOGIES. As a leading provider of joysticks, sensors, throttle controllers and power electronics to on- and off-highway vehicles, our solutions drive higher operating efficiencies and also support the global emphasis on reduced pollution and stringent emissions regulations. Further, our sophisticated control systems play a key role in the medical mobility industry’s evolution to more advanced wheelchairs. For more than 100 years, Curtiss-Wright has played a significant role in the commercial aerospace market. Today, our sensors, flight controls, actuation systems and critical surface treatment services drive increased aircraft safety, reliability and performance. We have secured content on virtually every current and next generation commercial aerospace platform and stand to benefit from the industry’s continued ramp up in the production cycle. Leveraging a vast, worldwide distribution network, we provide operationally-critical valve technologies and innovative solutions enabling us to solve our customers’ most challenging problems to support the longevity of global refineries and chemical plants. Our highly-engineered pressure relief valves ensure plant safety is safeguarded in severe service environments. From the nose to the tail, we provide critical technology that enhances the reliability and performance of commercial aircraft. 3 2016 ANNUAL REPORTWE GENERATE POWER SOLUTIONS. POWER SEGMENT SALES BY END MARKET (2016) 35% NAVAL DEFENSE 65% POWER GENERATION Commercial nuclear power plants rely on critical instrumentation and control systems. 4 4 CURTISS-WRIGHT CORPORATION CURTISS-WRIGHT CORPORATIONCURTISS-WRIGHT ENJOYS A STORIED HISTORY POWERING COMMERCIAL PLANTS FOR OVER SIX DECADES AND SUPPORTING NAVAL VESSELS FOR MORE THAN 150 YEARS WITH LEADING EDGE TECHNOLOGIES THAT ARE RELIED UPON TO ENHANCE SAFETY, RELIABILITY AND PERFORMANCE IN THE MOST DEMANDING ENVIRONMENTS. The worldwide market for nuclear power generation continues to expand as the world looks to meet rising energy demands. We are strategically aligned with the changing market landscape, and through our diversified product portfolio, we are well positioned to capitalize on growth opportunities. As a critical provider of components and replacement parts, upgrades and modifications, and outage inspection services to operating nuclear reactors globally, we maintain a long-standing commitment to supporting safe, reliable and high performance products in the commercial nuclear power industry. For new nuclear power plants, we provide critical technology to support the Generation III+ Westinghouse AP1000 reactor design and have the only fully qualified and installed AP1000 reactor coolant pumps (RCPs) in the world. Since the inception of the first U.S. nuclear submarine and aircraft carrier programs, Curtiss-Wright has been a leading provider of highly-engineered propulsion technology to power the U.S. Nuclear Navy. We are a leader in designing and manufacturing valves, pumps, motors, generators, cable and aircraft handling systems, and electronics for a wide range of markets and our technologies have passed the test of time. Looking to the future, we expect to remain a key contributor on the new Columbia class nuclear ballistic missile submarine. POWER 5 2016 ANNUAL REPORTWE SUPPORT THOSE WHO DEFEND. CURTISS-WRIGHT IS AN INDUSTRY- LEADING SUPPLIER OF SOPHISTICATED ELECTRONICS PRODUCTS, INCLUDING COMMERCIAL OFF-THE-SHELF (COTS) EMBEDDED COMPUTING SOLUTIONS, UTILIZED BY OUR NATION’S MILITARY AND INTERNATIONAL DEFENSE FORCES. We are globally recognized as one of the most innovative designers and manufacturers of highly engineered COTS solutions ruggedized to perform reliably in harsh conditions. From embedded computing to shipboard aircraft and sensor handling systems, Curtiss-Wright supports fighter jets, helicopters and Unmanned Aerial Vehicles (UAVs), as well as naval and ground defense applications. We routinely demonstrate our ability to design and develop advanced systems and products for high performance applications. As such, Curtiss- Wright is uniquely positioned to benefit from the Department of Defense’s ongoing commitment to C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance) and Electronic Warfare applications that will ensure our military maintains its technological edge on the battlefield. Our critical avionics and electronics solutions support flight control instrumentation, flight test, telemetry, ground test, system and structural monitoring, and mission recording on a wide range of defense, commercial aerospace, and space applications. Additionally, our turret drive stabilization systems deliver unmatched target location accuracy and turret stabilization functionality in harsh terrain for a multitude of international ground defense platforms. 6 CURTISS-WRIGHT CORPORATIONDEFENSE 2016 ANNUAL REPORT 7 7 DEFENSE SEGMENT SALES BY END MARKET (2016) 3% 9% 17% GENERAL INDUSTRIAL COMMERCIAL AEROSPACE GROUND DEFENSE 27% NAVAL DEFENSE 44% AEROSPACE DEFENSE Marines conducting training operations on board a M1A1 Abrams Main Battle Tank. Through the acquisition of Teletronics Technology Corporation (TTC), we significantly enhanced our position as a leading global supplier of data acquisition and flight test instrumentation systems for the aerospace and defense markets. 2016 ANNUAL REPORTSHAREHOLDERS 2016 WAS A HIGHLY SUCCESSFUL YEAR FOR CURTISS-WRIGHT. OUR TEAM IS DELIVERING ON THE VISION OF ONE CURTISS-WRIGHT, AND WE ARE ON THE PATH TOWARDS ACHIEVING TOP QUARTILE PERFORMANCE WITHIN OUR PEER GROUP FOR ALL OF OUR KEY FINANCIAL METRICS. IN FACT, THROUGH THE TEAM’S INCREASED EFFICIENCY AND COMPETITIVENESS, WE ALREADY HAVE MET OR EXCEEDED SEVERAL OF THOSE FIVE-YEAR OBJECTIVES — INITIATED IN DECEMBER 2013 — IN ONLY THREE YEARS. LOOKING TO THE FUTURE, WE ARE POSITIONING THE COMPANY FOR RENEWED GROWTH BY INCREASING OUR INVESTMENTS IN RESEARCH AND DEVELOPMENT, AND SEEKING PRUDENT AND STRATEGIC ACQUISITIONS, WHILE ALSO LOOKING TO CAPITALIZE ON THE IMPROVED ORGANIC GROWTH ENVIRONMENT EXPECTED IN THE COMING YEARS. FINANCIAL PERFORMANCE We achieved solid operational performance in 2016, led by continued margin expansion and very strong free cash flow generation, despite lower sales driven by continued headwinds in our industrial markets. We generated a 6% increase in operating income and a 130 basis point increase in operating margin compared with pro forma 2015 results (which exclude the one-time China AP1000 fee of $20 million recognized in the fourth quarter of 2015), driving an operating margin of 14.6%. This performance demonstrates the benefits of our ongoing margin improvement initiatives, including our consolidation activities, as well as strong profitability associated with the AP1000® program. As a result of our excellent performance, we achieved our objective of reaching the top quartile of our peer group for operating margin in 2016. Our diluted earnings per share of $4.20 improved 12% compared with pro forma 2015 results. In addition, we significantly exceeded expectations with $376 million in free cash flow in 2016, one of the strongest performances in the Company’s history. This equated to 199% free cash flow conversion, as we significantly reduced our working capital. Further, our balance sheet remains healthy and provides a solid base of financial flexibility to continue pursuing our growth strategies. As a sign of our continued financial success, Curtiss-Wright was added to the S&P MidCap 400 stock market index in 2016. In addition, we experienced solid share price performance this year, as the stock price exceeded $100 and our market cap eclipsed $4 Billion, both firsts in the history of our Company. We are very proud of these achievements. FOCUS ON RENEWED GROWTH Looking forward, we remain focused on exceeding the expectations of our customers, fostering solid long-term customer relationships and enhancing value for our shareholders. 8 8 CURTISS-WRIGHT CORPORATION CURTISS-WRIGHT CORPORATIONLETTER TOWhile our operational performance has been stellar, we have faced several economic and end market challenges in recent years, particularly in the industrial markets. However, as we look to the future, we believe we are well positioned for renewed top-line growth across our broad and highly diversified technology portfolio of products and services to the commercial aerospace, defense, general industrial and power generation markets. Within the commercial markets, Curtiss-Wright stands to benefit from the increased focus on human-machine interface applications, hybrid and electric commercial vehicles, powered wheelchairs, the continued production ramp up in commercial aerospace and ongoing support for operating and new build reactors in the commercial nuclear power industry. In the defense markets, we expect to benefit from increased military spending for our nuclear naval propulsion and COTS embedded computing products on leading submarine, aircraft carrier and fighter jet programs. DISCIPLINED CAPITAL ALLOCATION STRATEGY Curtiss-Wright remains committed to a disciplined and balanced capital allocation strategy that consists of reinvesting in our business (including increased R&D in 2017), complementing our organic growth with disciplined acquisitions and providing steady distributions to our shareholders in the form of share repurchases and dividends in order to maximize shareholder value. Our strong cash performance allowed us to maintain an active share repurchase program, as we repurchased $100 million in shares in 2016, as well as a steady annual dividend payout of $0.52 per share. We expect to repurchase at least $50 million in shares in 2017. To supplement our expectations for renewed growth, we will also seek strategic acquisitions that further expand our portfolio and support our long-term financial objectives. We did just that with our recent acquisition of Teletronics Technology Corporation (TTC), a leading designer and manufacturer of high-technology, comprehensive data acquisition and flight test instrumentation systems for the aerospace and defense markets. These collective actions reflect the Board of Directors’ continued confidence in our ability to deliver solid, profitable growth and strong free cash flow. 14.6% OPERATING MARGIN $376M FREE CASH FLOW IN RECOGNITION It is with sincere best wishes that we announce the retirement of our colleague John R. Myers from our Board of Directors. For 20 years, John has been an integral member of our Board, serving as a member and Chairman of the Executive Compensation Committee, the Committee on Directors and Governance and, from 2014-2015, as Lead Independent Director of the Board. I would like to personally thank John for his enduring dedication and many years of service to Curtiss-Wright and wish him well in his future endeavors. As always, I would like to thank our 8,000 global employees for their steady drive and commitment to ensuring the Company’s future success. In summary, our team remains confident and focused on enhancing Curtiss-Wright’s long-term shareholder value through continued organic investment supplemented with acquisitions, operating margin expansion, significant free cash flow generation and steady distributions to our shareholders. We will continue to deliver on the One Curtiss-Wright vision and look forward to continued successes in 2017. DAVID C. ADAMS Chairman and Chief Executive Officer 9 2016 ANNUAL REPORTS E G M E N T F N A N C A L I I I N F O R M A T O N I Year ended December 31 (Dollars in millions, except percentages; unaudited) 2016 2015 CHANGE (6%) (2%) (4%) (4%) (9%) (1%) 2% (4%) 33% (1%) SALES Commercial/Industrial $ 1,118.8 $ 1,184.8 Defense Power TOTAL SALES OPERATING INCOME (EXPENSE) 466.6 523.5 477.4 543.5 $ 2,108.9 $ 2,205.7 Commercial/Industrial $ 156.5 $ Defense Power TOTAL SEGMENTS CORPORATE & OTHER 98.3 76.5 171.5 98.9 75.0 $ 331.3 $ 345.4 (23.2) (34.8) TOTAL OPERATING INCOME $ 308.1 $ 310.6 OPERATING MARGINS Commercial/Industrial Defense Power SEGMENT MARGINS TOTAL OPERATING MARGIN Note: Amounts may not add to the total due to rounding. END MARKET SALES (2016) 14.0% 21.1% 14.6% 15.7% 14.6% 14.5% 20.7% 13.8% 15.7% 14.1% 38% DEFENSE 24% GENERAL INDUSTRIAL 19% COMMERCIAL AEROSPACE 19% POWER GENERATION 10 10 CURTISS-WRIGHT CORPORATION CURTISS-WRIGHT CORPORATION I I I H S T O R C A L F N A N C A L P E R F O R M A N C E I THREE-YEAR REVIEW Years ended December 31 (Dollars in millions, except per share data; unaudited) 2016 2015 2014 PERFORMANCE(1) Net Sales Operating income Operating margin Net earnings EARNINGS PER SHARE Basic Diluted Dividends per share YEAR-END FINANCIAL POSITION Return on invested capital(2) New orders Backlog Working capital as % of sales(3) Total assets Total debt Stockholder’s equity OTHER YEAR-END DATA Cash flow from operations Capital expenditures Free cash flow(4) EBITDA Depreciation and amortization Shares of stock outstanding at December 31 Number of registered shareholders(5) Number of employees(5) $ $ 2,108.9 308.1 14.6% $ $ 2,205.7 310.6 14.1% $ $ 2,243.1 282.4 12.6% $ 189.4 $ 192.2 $ 169.9 $ $ $ $ $ $ $ $ $ $ $ $ $ 4.27 4.20 0.52 12.0% 2,149.2 1,950.8 21.0% 3,037.8 966.3 1,291.2 423.2 46.8 376.4 404.1 96.0 44.2 3,770 7,946 $ $ $ $ $ $ $ $ $ $ $ $ $ 4.12 4.04 0.52 11.5% 2,585.0 1,928.7 25.4% 2,989.6 953.2 1,255.4 162.5 35.5 272.0 411.4 100.8 44.6 4,038 8,421 $ $ $ $ $ $ $ $ $ $ $ $ $ 3.54 3.46 0.52 10.4% 2,409.2 1,674.1 23.4% 3,382.4 953.0 1,478.4 331.8 67.1 264.7 401.3 118.9 47.9 4,321 8,911 Note: Amounts may not add due to rounding. (1) Reported on a continuing operations basis. (2) Return on invested capital is equal to net operating profit after-tax over two-year average net debt plus equity and excludes equity from discontinued operations. (3) Working capital is equal to accounts receivable plus inventory minus accounts payable, deferred income and deferred development costs. (4) Free cash flow is defined as cash flow from operations less capital expenditures. 2015 adjusted to remove the $145 million contribution to the Company’s corporate defined benefit pension plan. (5) Actual number, not in millions. 2016 ANNUAL REPORT 11 11 2016 ANNUAL REPORT DIRECTORS DAVID C. ADAMS JOHN R. MYERS Chairman and Chief Executive Officer; Former Chairman and Chief Executive Officer of Director, Snap-on Incorporated DEAN M. FLATT Tru-Circle Corporation; Management Consultant; Former Non-Executive Chairman of the Board of Garrett Aviation Services Director, Ducommun, Inc.; Former President and Chief Operating Officer of Honeywell International’s Defense and Space Business JOHN B. NATHMAN Admiral, U.S. Navy (Ret.) S. MARCE FULLER ROBERT J. RIVET Former President and Chief Executive Officer Former Executive Vice President, Chief Operations, and of Mirant Corporation, Inc. Administrative Officer of Advanced Micro Devices, Inc. (formerly known as Southern Energy, Inc.) RITA J. HEISE ALBERT E. SMITH Director, Tetra Tech, Inc. and CDI Corporation; Former Director, Fastenal Company; Former Corporate Executive Vice President of Lockheed Martin Corporation Vice President and Chief Information Officer of Cargill, Incorporated DR. ALLEN A. KOZINSKI PETER C. WALLACE Director, Applied Industrial Technologies, Inc. and Rogers Corporation; Former Chief Executive Officer and Director Former Vice President of Global Refining of Gardner Denver Inc.; Former President, Chief Executive of British Petroleum PLC Officer, and Director of Robbins & Myers, Inc OFFICERS DAVID C. ADAMS PAUL J. FERDENZI Chairman and Chief Executive Officer Vice President, General Counsel, and Corporate Secretary GLENN E. TYNAN HARRY S. JAKUBOWITZ Vice President and Chief Financial Officer Vice President and Treasurer THOMAS P. QUINLY K. CHRISTOPHER FARKAS Vice President and Chief Operating Officer Vice President and Corporate Controller 12 12 CURTISS-WRIGHT CORPORATION CURTISS-WRIGHT CORPORATION SHAREHOLDER INFORMATION CORPORATE HEADQUARTERS 13925 Ballantyne Corporate Place, Suite 400 DIRECT STOCK PURCHASE PLAN/ DIVIDEND REINVESTMENT PLAN Charlotte, NC 28277 www.curtisswright.com Tel: (704) 869-4600 ANNUAL MEETING The 2017 annual meeting of stockholders will be held on Thursday, May 11, 2017, at the Ballantyne Business Center, 13850 Ballantyne Corporate Place, Suite 500, Charlotte, NC 28277, commencing at 10:00 a.m. local time. STOCK EXCHANGE LISTING 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, Broadridge Corporate Issuer Solutions, Inc., P.O. Box 1342, Brentwood, NY 11717, toll-free at (855) 449-0995. INVESTOR INFORMATION Investors, stockbrokers, security analysts and others seeking information about Curtiss-Wright Corporation The Corporation’s common stock is listed and traded on should contact James M. Ryan, Senior Director of Investor the New York Stock Exchange under the symbol CW. Relations, at (704) 869-4600 or investor@curtisswright.com COMMON SHAREHOLDERS SHAREHOLDER COMMUNICATIONS As of December 31, 2016, the approximate number of registered Any stockholder wishing to communicate directly holders of record of common stock, par value of $1.00 per share of the Corporation, was 3,770. FORWARD-LOOKING STATEMENTS with our Board of Directors should write to Dr. Allen A. Kozinski, c/o Curtiss-Wright Corporation, 13925 Ballantyne Corporate Place, Suite 400, Charlotte, NC 28277. This brochure contains not only historical information, but also forward-looking statements regarding expectations FINANCIAL REPORTS of future performance of the Corporation. Forward-looking This brochure includes some of the periodic financial statements involve risk and uncertainty. Please refer to information required to be on file with the Securities the Corporation’s 2016 Annual Report on Form 10-K for and Exchange Commission. The Corporation also files a discussion relating to forward-looking statements 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 James M. Ryan, Senior Director of Investor Relations, at the Corporate Headquarters or through the Investor Relations section of the Corporation’s website: www.curtisswright.com. contained in this brochure and risk factors that could cause future results to differ from current expectations. STOCK TRANSFER AGENT AND REGISTRAR For services such as changes of address, replacement of lost certificates or dividend checks, and changes in registered ownership, or for inquiries as to account status, write to Broadridge Corporate Issuer Solutions, Inc., P.O. Box 1342, Brentwood, NY 11717 or overnight to 1155 Long Island Avenue, Brentwood, NY 11717. Please include your name, address and telephone number with all correspondence. Telephone inquiries may be made toll-free to (855) 449-0995, or to (720) 864-4772 internationally. Internet inquiries should be directed to http://shareholder.broadridge.com/curtisswright and by email to shareholder@broadridge.com. Hearing-impaired shareholders are invited to log on to the website and select the Live Chat option. Cover Image of F-35 Lightning II: Jelle Harberts C U R T I S S - W R I G H T 2 0 1 6 A N N U A L R E P O R T CURTISS-WRIGHT CORPORATION 13925 Ballantyne Corporate Place, Suite 400 Charlotte, NC 28277 www.curtisswright.com 

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