News Details
CURTISS-WRIGHT REPORTS 2006 FINANCIAL RESULTS
February 08, 2007
Full Year and Fourth Quarter Sales up 13% and 19%, Respectively
Full Year and Fourth Quarter Net Earnings increased 6% and 7%, Respectively
Eleventh Consecutive Year of Revenue Growth
Net Cash Provided by Operating Activities increased 37%
ROSELAND, N.J., Feb. 8 /PRNewswire-FirstCall/ -- Curtiss-Wright Corporation (NYSE: CW) today reports financial results for the full year and quarter ended December 31, 2006. The highlights are as follows:
FOURTH QUARTER 2006 OPERATING HIGHLIGHTS
- Net sales for the fourth quarter of 2006 increased 19% to $378.2 million from $317.9 million in the fourth quarter of 2005.
- Operating income in the fourth quarter of 2006 increased 2% to $45.7 million from $44.9 million in the fourth quarter of 2005. Operating income was negatively impacted in the fourth quarter of 2006 by costs of $6.5 million related to an adverse legal judgment received this afternoon, costs of $1.6 million associated with the adoption of FAS 123R, and higher pension expense of $0.6 million from the Curtiss- Wright pension plans as compared to the prior year period.
- Net earnings for the fourth quarter of 2006 increased 6% to $26.8 million, or $0.60 per diluted share, from $25.3 million, or $0.58 per diluted share, in the fourth quarter of 2005 (adjusted for 2-for-1 stock split in April 2006). Net earnings for the fourth quarter of 2006 were favorably impacted by a lower effective tax rate resulting from a nonrecurring tax benefit of $1.5 million.
- New orders received in the fourth quarter of 2006 were $356.7 million, down 4% compared to the fourth quarter of 2005.
FULL YEAR 2006 OPERATING HIGHLIGHTS
- Net sales for 2006 increased 13% to $1,282.2 million from $1,130.9 million in 2005.
- Operating income in 2006 increased 2% to $140.6 million from $138.0 million in 2005. Operating income was negatively impacted in 2006 by costs of $6.5 million related to an adverse legal judgment received this afternoon, costs of $4.9 million associated with the adoption of FAS 123R, and higher pension expense of $4.2 million from the Curtiss- Wright pension plans as compared to the prior year period. Operating income in 2005 included a one-time gain of $2.8 million related to the sale of non-operating property.
- Net earnings in 2006 increased 7% to $80.6 million, or $1.82 per diluted share, from $75.3 million, or $1.72 per diluted share, in 2005 (adjusted for 2-for-1 stock split in April 2006). Net earnings in 2006 were favorably impacted by a lower effective tax rate resulting from $5.1 million of nonrecurring tax benefits.
- Net cash provided by operating activities was $143.9 million, up 37% compared to 2005.
- New orders received in 2006 were $1,333.0 million, up 6% compared to 2005. Backlog increased 9% to $875.5 million at December 31, 2006 from $805.6 million at December 31, 2005.
"We are pleased to report our eleventh year of revenue growth along with increased operating income, net earnings, and cash flow in 2006," commented Martin R. Benante, Chairman and CEO of Curtiss-Wright Corporation. "We achieved strong organic segment operating income growth, led by our Metal Treatment segment at 21%, followed by the Flow Control and Motion Control segments, which grew organically 14% and 11%, respectively, in 2006. Our commercial markets had another robust year with 14% organic sales growth, driven primarily by the oil and gas market at 34% and commercial aerospace at 19%. Our 2006 results were achieved despite absorbing the adverse legal judgment, business integration costs, increased material costs, and unfavorable foreign currency translation. We have also entered into a number of military and commercial development contracts and have recently introduced many new products that have negatively impacted margins; however, these investments should provide significant future opportunities and improved profitability. Our strong backlog is a clear indication of the success of our products and strategy and provides us with good momentum heading into 2007."
SALES
Sales growth in the fourth quarter and full year was driven by organic growth across most of our base businesses and contributions from our 2006 acquisitions. Organic sales growth was 16% and 11% in the fourth quarter and full year ended December 31, 2006, respectively, compared to the prior year periods. Organic sales growth in the fourth quarter 2006 was due to the strength of all three of our operating segments, with Flow Control at 24%, Motion Control at 11%, and Metal Treatment at 8%, as compared to the prior year period. Our 2006 acquisitions contributed $9.9 million and $27.6 million in incremental sales for the fourth quarter and full year 2006, respectively, over the comparable periods in 2005.
Organic sales growth resulted from higher sales to the oil and gas and commercial power markets from our Flow Control segment, higher commercial aerospace and ground defense revenues from our Motion Control segment, and higher sales of European shot peening and heat treating services to the commercial aerospace and general industrial markets from our Metal Treatment segment. In addition, foreign currency translation positively impacted fourth quarter and full year 2006 sales by $4.8 million and $5.0 million, respectively, as compared to the prior year periods.
OPERATING INCOME
Operating income in 2006 increased 2% for both the fourth quarter and full year over the comparable 2005 periods. 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 this afternoon against us in a lawsuit filed by a former employee. We will be appealing the verdict.
The operating income improvement was achieved by strong operating income from our business segments, which increased $9.5 million and $18.7 million for the fourth quarter and full year 2006, respectively, over the prior year periods. The increases resulted from higher sales volume and cost control initiatives. Overall organic operating income growth, which includes non- segment expenses, was 3% for both the fourth quarter and full year 2006, compared to the prior year periods. We achieved strong fourth quarter organic operating segment performance, driven by our Flow Control and Metal Treatment segments, which contributed 38% and 18% organic growth, respectively, while the Motion Control segment grew 8% organically as compared to the prior year period.
On a consolidated basis, our operating margin was 12.1% in the fourth quarter of 2006 versus 14.1% in the prior year period. Operating margins improved at our Metal Treatment and Flow Control segments, which increased 90 basis points and 60 basis points, respectively, compared to the prior year period. These improvements were offset by lower margins at our Motion Control segment during the fourth quarter, mainly due to a less favorable sales mix. Our full year consolidated operating margin was 11.0% in 2006, down 120 basis points from the prior year. Operating margins were negatively impacted in 2006 by the above mentioned legal judgment, $4.9 million of costs associated with the adoption of FAS 123R, and higher pension expense of $4.2 million from the Curtiss-Wright pension plans. In addition, 2005 margins benefited from a $2.8 million gain on the sale of non-operating property. Without the impact of these items, our operating margin increased 20 basis points in 2006 to 12.2% as compared to 12.0% in 2005. In addition, foreign currency translation minimally impacted operating income in the fourth quarter 2006; however, it adversely impacted full year operating income by $2.0 million, as compared to the prior year period.
NET EARNINGS
Net earnings increased 6% and 7% for the fourth quarter and full year 2006, respectively, over 2005. The improvement was achieved by strong operating income from our business segments, partially offset by the adverse impact of the items listed above in operating income. Net earnings for 2006 included nonrecurring tax benefits totaling $5.1 million. The tax benefits included $2.0 million primarily related to higher than expected research and development credits for 2005, an adjustment to our deferred tax accounts of $1.6 million based on new Canadian tax legislation which was enacted in late June 2006, and a tax benefit of $1.5 million for the release of a reserve associated with the sale of a former facility. These tax benefits were partially offset by higher interest expense due mainly to higher interest rates, partially reduced by lower average outstanding debt levels.
CASH FLOW
Net cash provided by operating activities for the full year 2006 was $143.9 million, an increase of 37% from $105.2 million in 2005. Our 2006 Free Cash Flow, defined as cash flow from operations less capital expenditures, was very strong at $103.7 million, a 65% increase from $62.7 million in 2005. All three operating segments experienced strong results. Overall cash conversion, defined as Free Cash Flow divided by net earnings, reached 129% in 2006 as compared to 83% in 2005. The strong cash flow resulted from higher cash collections, reduced inventories due to higher fourth quarter sales, as well as higher payables and advance payments.
SEGMENT PERFORMANCE
Flow Control -- Sales for the fourth quarter of 2006 were $167.8 million, up 28% over the comparable period last year due to solid organic growth of 24% and the contribution from the 2006 acquisitions of Enpro Systems and Swantech. The improvement in sales from our base businesses was due to higher sales to the oil and gas market, led by continued strong demand for our coker valve products, as well as higher sales to the commercial power market due mainly to the timing of refurbishment cycles and plant outages, and new product launches. Sales of this segment were favorably affected by foreign currency translation of $0.3 million in the fourth quarter of 2006, compared to the prior year period.
Operating income for this segment increased 34% in the fourth quarter of 2006 compared to the prior year period. The operating margins were up 60 basis points in the fourth quarter of 2006 as compared to the prior year period. The benefit of the higher sales volume was partially offset by less favorable commercial power sales mix, learning curve inefficiencies on new product development, and higher material costs. Operating income for this segment was favorably affected by foreign currency translation of $0.1 million in the fourth quarter of 2006, compared to the prior year period.
Motion Control -- Sales for the fourth quarter of 2006 of $153.0 million increased 11%, all organic, over the comparable period last year. This growth was primarily due to increased sales of OEM and spares products to the commercial aerospace market, and higher sales of embedded computing products to the ground defense market. This growth was partially offset by lower sales to the defense aerospace markets. Sales of this segment were favorably affected by foreign currency translation of $2.8 million in the fourth quarter of 2006 as compared to the prior year period.
Operating income for this segment increased 8% in the fourth quarter of 2006 compared to the prior year period. The operating margins were down 40 basis points in the fourth quarter of 2006 as compared to the prior year period. The operating income increase was primarily driven by higher sales volume, cost reduction efforts, and increased efficiencies as a result of our business integration initiatives. The margin erosion resulted from increased development work, higher production start-ups costs, and cost overruns on certain military contracts. Operating income of this segment was minimally affected by foreign currency translation in the fourth quarter of 2006, compared to the prior year period.
Metal Treatment -- Sales for the fourth quarter of 2006 of $57.4 million were 15% higher than the comparable period last year. The improvement was mainly due to organic sales growth of 8% and the contribution from our 2006 acquisition of Allegheny Coatings. The organic sales growth was driven by higher global shot peening revenues in the commercial aerospace market and strong demand in the heat treating business from the general industrial market. Sales of this segment were favorably affected by foreign currency translation of $1.7 million in the fourth quarter of 2006 as compared to the prior year period.
Operating income increased 21% for the fourth quarter of 2006 as compared to the prior year period. The operating margins were up 90 basis points in the fourth quarter of 2006 as compared to the prior year period, mainly as a result of the improved gross margins from the higher sales volume. Operating income of this segment was favorably affected by foreign currency translation of $0.5 million in the fourth quarter of 2006 compared to the prior year period.
2007 MANAGEMENT GUIDANCE
For the full year 2007, management expects to achieve total revenues to be in the range of $1.37 billion and $1.40 billion. We anticipate operating income in the range of $166 million to $173 million, including $6 million of Curtiss-Wright pension plan expense, and fully diluted earnings per share (EPS) to be in the range of $2.00 and $2.10. Our EPS guidance assumes an average of 45.5 million shares outstanding. In addition, we are expecting free cash flow, defined as cash flow from operations less capital expenditures, to be between $70 million and $75 million in 2007. The 2007 guidance does not include any potential impact resulting from the recently announced selection of the AP-1000 design to be used in power plants by China.
Mr. Benante concluded, "In 2006, we continued to demonstrate our ability to generate long-term shareholder value by growing our sales, earnings, and cash flow. Our strong performance demonstrates our ability to execute our growth strategy while continuing to achieve our financial targets. Our successful growth is the result of our diversification and ability to deliver the high performance, technologically advanced products for which Curtiss- Wright is world renowned. Our diversification strategy, the successful integration of our acquisitions, and our continued emphasis on providing advanced new products and technologies should continue to generate growth opportunities in each of our three business segments in 2007 and beyond."
The Company will host a conference call to discuss the 2006 results at 10:00 EST Friday, February 9, 2007. A live webcast of the call can be heard on the internet by visiting the company's website at curtisswright2014.q4web.com and clicking on the investor information page or by visiting other websites that provide links to corporate webcasts.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
2006 2005 2006 2005
Net sales $378,167 $317,893 $1,282,155 $1,130,928
Cost of sales 250,720 206,964 851,076 740,416
Gross profit 127,447 110,929 431,079 390,512
Research & development expenses 10,310 9,369 38,841 39,681
Selling expenses 19,543 18,054 76,547 69,687
General and administrative
expenses 51,014 38,467 173,734 144,982
Environmental remediation and
administrative expenses, net 481 (26) 843 818
(Gain) Loss on sale of real
estate and fixed assets 418 189 486 (2,638)
Operating income 45,681 44,876 140,628 137,982
Other (expenses) income, net (407) 720 (112) 299
Interest expense (5,791) (5,990) (22,894) (19,983)
Earnings before income taxes 39,483 39,606 117,622 118,298
Provision for income taxes 12,640 14,302 37,053 43,018
Net earnings $26,843 $25,304 $80,569 $75,280
Basic earnings per share $0.61 $0.58 $1.84 $1.74
Diluted earnings per share $0.60 $0.58 $1.82 $1.72
Dividends per share $0.06 $0.06 $0.24 $0.20
Weighted average shares
outstanding:
Basic 43,972 43,480 43,826 43,270
Diluted 44,575 43,992 44,334 43,828
Three Months Twelve Months
Change Change
$ % $ %
Net sales $60,274 18.96% $151,227 13.37%
Cost of sales 43,756 21.14% 110,660 14.95%
Gross profit 16,518 14.89% 40,567 10.39%
Research & development expenses 941 10.04% (840) -2.12%
Selling expenses 1,489 8.25% 6,860 9.84%
General and administrative
expenses 12,547 32.62% 28,752 19.83%
Environmental remediation and
administrative expenses, net 507 -1950.00% 25 3.06%
(Gain) Loss on sale of real estate
and fixed assets. 229 121.16% 3,124 118.42%
Operating income 805 1.79% 2,646 1.92%
Other (expenses) income, net (1,127) -156.53% (411) -137.46%
Interest expense 199 -3.32% (2,911) 14.57%
Earnings before income taxes (123) -0.31% (676) -0.57%
Provision for income taxes (1,662) -11.62% (5,965) -13.87%
Net earnings $1,539 6.08% $5,289 7.03%
Basic earnings per share
Diluted earnings per share
Dividends per share
Weighted average shares
outstanding:
Basic
Diluted
Certain prior year information has been reclassified to conform to current presentation.
Shares and per share amounts have been adjusted on a pro forma basis for the April 21, 2006 2-for-1 stock split.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31, Change
2006 2005 $ %
Assets
Current Assets:
Cash and cash equivalents $124,517 $59,021 $65,496 111.0%
Receivables, net 284,774 244,689 40,085 16.4%
Inventories, net 161,528 146,297 15,231 10.4%
Deferred income taxes 32,485 28,844 3,641 12.6%
Other current assets 19,341 11,615 7,726 66.5%
Total current assets 622,645 490,466 132,179 26.9%
Property, plant, and
equipment, net 296,652 274,821 21,831 7.9%
Prepaid pension costs 92,262 76,002 16,260 21.4%
Goodwill, net 411,101 388,158 22,943 5.9%
Other intangible assets, net 158,080 158,267 (187) -0.1%
Other assets 11,416 12,571 (1,155) -9.2%
Total Assets $1,592,156 $1,400,285 $191,871 13.7%
Liabilities
Current Liabilities:
Short-term debt $5,874 $885 $4,989 563.7%
Accounts payable 96,023 80,460 15,563 19.3%
Accrued expenses 81,532 74,252 7,280 9.8%
Income taxes payable 23,003 22,855 148 0.6%
Deferred revenue 57,305 21,634 35,671 164.9%
Other current liabilities 28,388 21,417 6,971 32.5%
Total current liabilities 292,125 221,503 70,622 31.9%
Long-term debt 359,000 364,017 (5,017) -1.4%
Deferred income taxes 57,055 53,570 3,485 6.5%
Accrued pension & other
postretirement benefit costs 71,006 74,999 (3,993) -5.3%
Long-term portion of
environmental reserves 21,220 22,645 (1,425) -6.3%
Other liabilities 29,676 25,331 4,345 17.2%
Total Liabilities 830,082 762,065 68,017 8.9%
Stockholders' Equity
Common stock, $1 par value 47,533 25,493 22,040 86.5%
Additional paid in capital 69,887 59,794 10,093 16.9%
Retained earnings 716,030 667,892 48,138 7.2%
Accumulated other
comprehensive income 55,806 20,655 35,151 170.2%
889,256 773,834 115,422 14.9%
Less: cost of treasury stock 127,182 135,614 (8,432) -6.2%
Total Stockholders' Equity 762,074 638,220 123,854 19.4%
Total Liabilities and
Stockholders' Equity $1,592,156 $1,400,285 $191,871 13.7%
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
SEGMENT INFORMATION
(In thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
% %
2006 2005 Change 2006 2005 Change
Sales:
Flow Control $167,844 $130,683 28.4% $548,121 $466,546 17.5%
Motion Control 152,966 137,271 11.4% 509,462 465,451 9.5%
Metal Treatment 57,357 49,939 14.9% 224,572 198,931 12.9%
Total Sales $378,167 $317,893 19.0% $1,282,155 $1,130,928 13.4%
Operating Income:
Flow Control $23,641 $17,604 34.3% $60,542 $54,509 11.1%
Motion Control 21,806 20,154 8.2% 55,242 50,485 9.4%
Metal Treatment 10,755 8,923 20.5% 42,385 34,470 23.0%
Total Segments 56,202 46,681 20.4% $158,169 $139,464 13.4%
Corporate & Other (10,521) (1,805) 482.9% (17,541) (1,482) 1083.6%
Total Operating
Income $45,681 $44,876 1.8% $140,628 $137,982 1.9%
Operating Margins:
Flow Control 14.1% 13.5% 11.0% 11.7%
Motion Control 14.3% 14.7% 10.8% 10.8%
Metal Treatment 18.8% 17.9% 18.9% 17.3%
Total Curtiss-
Wright 12.1% 14.1% 11.0% 12.2%
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NON-GAAP FINANCIAL DATA (UNAUDITED)
(In thousands)
Twelve Months Ended
December 31,
2006 2005
Net Cash Provided by Operating $143,871 $105,178
Activities
Capital Expenditures (40,202) (42,444)
Free Cash Flow(1) $103,669 $62,734
Cash Conversion(1) 129% 83%
(1) The Corporation discloses free cash flow and cash conversion because
the Corporation believes that they are measurements of cash flow that
are available for investing and financing activities. Free cash flow
is defined as net cash flow provided by operating activities less
capital expenditures. Free cash flow represents cash generated after
paying for interest on borrowings, income taxes, capital
expenditures, and working capital requirements, but before repaying
outstanding debt and investing cash or utilizing debt credit lines to
acquire businesses and make other strategic investments. Cash
conversion is defined as free cash flow divided by net earnings. Free
cash flow, as we define it, may differ from similarly named measures
used by entities and, consequently, could be misleading unless all
entities calculate and define free cash flow in the same manner.
ABOUT CURTISS-WRIGHT
Curtiss-Wright Corporation is a diversified company headquartered in Roseland, New Jersey. The Company designs, manufactures and overhauls products for motion control and flow control applications and provides a variety of metal treatment services. The firm employs approximately 6,300 people. More information on Curtiss-Wright can be found at http://curtisswright2014.q4web.com.
Certain statements made in this release, including statements about future revenue, organic revenue growth, quarterly and annual revenue, net income, organic operating income growth, future business opportunities, cost saving initiatives, and future cash flow from operations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements present management's expectations, beliefs, plans and objectives regarding future financial performance, and assumptions or judgments concerning such performance. Any discussions contained in this press release, except to the extent that they contain historical facts, are forward- looking and accordingly involve estimates, assumptions, judgments and uncertainties. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Such risks and uncertainties include, but are not limited to: a reduction in anticipated orders; an economic downturn; changes in competitive marketplace and/or customer requirements; a change in government spending; an inability to perform customer contracts at anticipated cost levels; and other factors that generally affect the business of aerospace, defense contracting, electronics, marine, and industrial companies. Such factors are detailed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and subsequent reports filed with the Securities and Exchange Commission.
This press release and additional information is available at http://curtisswright2014.q4web.com.
SOURCE Curtiss-Wright Corporation
CONTACT:
Alexandra M. Deignan of Curtiss-Wright Corporation
+1-973-597-4734
[email protected]