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Curtiss-Wright Reports Second Quarter 2018 Financial Results; Raises Full-Year Revenue, EPS and Free Cash Flow Guidance

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CURTISS-WRIGHT REPORTS SECOND QUARTER 2018 FINANCIAL RESULTS; RAISES FULL-YEAR REVENUE, EPS AND FREE CASH FLOW GUIDANCE

July 25, 2018

DAVIDSON, N.C.--(BUSINESS WIRE)-- Curtiss-Wright Corporation (NYSE: CW) reports financial results for the second quarter ended June 30, 2018.

Beginning this quarter, coinciding with the initial reporting of the recent acquisition of Dresser-Rand’s government business (“DRG”), the Company has elected to change the presentation of its financials and guidance to include an Adjusted (non-GAAP) view that excludes first year purchase accounting costs associated with its acquisitions. We believe this change will provide improved transparency to the investment community in order to better measure Curtiss-Wright’s core operating and financial performance and improve comparisons of our key financial metrics to our peers. Reconciliations of “Reported” GAAP amounts to “Adjusted” non-GAAP amounts are furnished within this release.

Second quarter 2018 highlights

  • Reported (GAAP) diluted earnings per share (EPS) of $1.68, with Adjusted (non-GAAP) diluted EPS of $1.80, up 49% compared with the prior year, excluding first year acquisition-related purchase accounting costs;
  • Net sales of $620 million, up 9%, including 4% organic growth (defined below);
  • Reported (GAAP) operating income of $102 million, with Adjusted (non-GAAP) operating income of $109 million, up 28%;
  • Reported (GAAP) operating margin of 16.5%, with Adjusted (non-GAAP) operating margin of 17.6%, up 260 basis points;
  • Free cash flow of $87 million, up 19%;
  • New orders of $700 million, up 28%; and
  • Share repurchases of approximately $34 million.

full-year 2018 business outlook

  • Increased Reported (GAAP) full-year 2018 diluted EPS guidance by $0.28 reflecting strong operational performance in core business;
  • Introduced Adjusted (non-GAAP) full-year 2018 diluted EPS guidance, which reflects a $0.25 adjustment for first year acquisition-related purchase accounting costs associated with the acquisition of DRG;
  • Combining these items, introduced Adjusted (non-GAAP) full-year 2018 diluted EPS guidance range of $6.00 to $6.15, up $0.53 compared to the prior Reported guidance range of $5.47 to $5.62 (see table below);
  • Full-year 2018 Adjusted guidance reflects higher sales (up 8-9%), operating income (up 11-14%), operating margin of 15.2% to 15.4% (up 50-70 bps) and diluted EPS (up 21-24%), compared with Adjusted 2017 financial results; and
  • Increased Reported free cash flow by $10 million to new range of $250 to $270 million and Adjusted free cash flow range of $300 to $320 million, which excludes a $50 million voluntary pension contribution made in the first quarter of 2018.

full-year 2018 adjusted eps guidance

                 
   

Prior

Reported

Guidance

(GAAP)

 

Updated

Reported

Guidance

(GAAP)

 

Adjustments

(Non-GAAP) (1)

 

Current

Adjusted

Guidance

(Non-GAAP)

 
Forecasted reported diluted EPS (GAAP)   $5.47 - $5.62   -   -   -  
Increase from Operational Performance   $0.28   $5.75 - $5.90   -   -  
Adjustments (1)   -   -   $0.33      
Tax impact on Adjustments (1)   -   -   ($0.08)      
Forecasted Adjusted diluted EPS (Non-GAAP)   -   -   -   $6.00 - $6.15  

(1) Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions.

“We generated strong second quarter results which exceeded our expectations, as we delivered solid 9% top-line growth led by strong defense and industrial sales, and improved profitability driven by the benefits of our ongoing margin improvement initiatives, to produce Adjusted diluted EPS of $1.80,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation.

“As a result of the strong first half results and our outlook for continued momentum through the remainder of this year, we have increased our full-year revenue, EPS and free cash flow guidance. We are projecting another solid operational performance including higher sales in all end markets, double-digit growth in operating income driving strong margin expansion and solid free cash flow generation.”

 

second quarter 2018 operating results

 
(In millions) 2Q-2018   2Q-2017   Change  
Sales $ 620.3   $ 567.7   9%  
Reported operating income (GAAP) $ 102.1   $ 79.7   28%  
Adjustments (1) 7.0   5.2   -  
Adjusted operating income (Non-GAAP) $ 109.1   $ 85.0   28%  
Adjusted operating margin (Non-GAAP) 17.6%   15.0%   260 bps  

(1) Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions, including DRG in 2018 (Power segment) and TTC in 2017 (Defense segment).

  • Sales of $620 million up $53 million, or 9%, compared with the prior year (4% organic, 4% acquisitions, 1% favorable foreign currency translation);
  • Higher organic revenues were principally driven by strong defense and industrial sales, partially offset by lower power generation revenues;
  • From an end market perspective, total sales to the defense markets increased 19%, 9% of which was organic, while total sales to the commercial markets increased 3%, 1% of which was organic, compared with the prior year. Please refer to the accompanying tables for a breakdown of sales by end market;
  • Reported operating income was $102 million, with Reported operating margin of 16.5%;
  • Adjusted operating income of $109 million, up $24 million, or 28%, compared with the prior year, reflects higher defense and industrial sales, increased profitability on defense electronics products in the Defense segment, and the benefits of our ongoing margin improvement initiatives, most notably in the Commercial/Industrial segment;
  • Adjusted operating margin of 17.6%, up 260 basis points compared with the prior year, reflects higher revenues and favorable overhead absorption, as well as the benefits of our ongoing margin improvement initiatives; and
  • Non-segment expenses of $8 million decreased by $1 million compared with the prior year, primarily due to lower corporate expenses.

net earnings and diluted eps

 
(In millions, except EPS)   2Q-2018   2Q-2017   Change  
Reported net earnings (GAAP)   $ 74.8   $ 50.7   48%  
Adjustments (1)   7.0   5.2   -  
Tax impact on Adjustments (1)  

(1.6)

 

(1.6)

 

-

 
Adjusted net earnings (Non-GAAP)   $ 80.2   $ 54.3   48%  
Reported diluted EPS (GAAP)   $1.68   $1.13   48%  
Adjustments (1)   $0.16   $0.12   -  
Tax impact on Adjustments (1)  

($0.04)

 

($0.04)

  -  
Adjusted diluted EPS (Non-GAAP)   $1.80   $1.21   49%  

(1)  Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions.

 
  • Reported net earnings of $75 million and reported diluted EPS of $1.68;
  • Adjusted net earnings of $80 million, up $26 million, or 48%, compared with the prior year, reflecting higher operating income, lower interest expense and a lower tax rate;
  • Adjusted diluted earnings per share of $1.80, up $0.59, or 49%, compared with the prior year, reflecting higher operating income, lower interest expense and a lower tax rate, as well as a slightly lower share count; and
  • The effective tax rate (ETR) for the second quarter was 22.5%, a decrease from 30.3% in the prior year quarter, primarily driven by the current period reduction of the U.S. corporate income tax rate from 35% to 21% associated with the 2017 Tax Cuts and Jobs Act (TCJA).
     

Free Cash Flow

                         
      (In millions)       2Q-2018       2Q-2017       Change  
      Net cash provided by operating activities       $ 97.9       $ 85.9       14%  
      Capital expenditures       (10.9)       (12.9)       16%  
      Free cash flow       $ 87.1       $ 73.0       19%  
      Adjusted free cash flow       $ 87.1       $ 73.0       19%  
  • Free cash flow of $87 million, defined as cash flow from operations less capital expenditures, up approximately $14 million compared with the prior year, primarily due to higher earnings partially offset by the timing of collections; and
  • Capital expenditures decreased by $2 million to $11 million compared with the prior year period, due to higher capital investments in the prior year period.

new orders and backlog

  • New orders of $700 million, up 28% compared with the prior year, primarily due to strong growth in naval defense orders and the contribution from the DRG acquisition within the Power segment; and
  • Backlog of $2.2 billion up 9% from December 31, 2017.

other items - share repurchase

  • During the second quarter, the Company repurchased 267,833 shares of its common stock for approximately $34 million. Year-to-date, the Company repurchased 361,271 shares for approximately $47 million.
     

 

Second quarter 2018 segment performance

                         
     

 

Commercial/Industrial

                         
      (In millions)       2Q-2018       2Q-2017       Change  
      Sales       $ 312.5       $ 291.6       7%  
      Reported operating income (GAAP)       $ 51.7       $ 43.6       19%  
      Reported operating margin (GAAP)         16.6%         15.0%       160 bps  
  • Sales of $312 million, up $21 million, or 7%, compared with the prior year (5% organic, 2% favorable foreign currency translation);
  • Strong sales growth in the aerospace and naval defense markets, led by higher sales of actuation systems on various fighter jet programs and higher sales on the CVN-79 Ford class aircraft carrier program, respectively;
  • Commercial aerospace market sales were nearly flat, as higher sales of sensors and controls products and surface treatment services (including core OEM sales which increased more than 10%) were largely offset by lower revenues resulting from FAA directives, which are winding down;
  • General industrial market sales growth was driven by widespread, solid demand for industrial valves, controls and vehicle products, and surface treatment services;
  • Reported operating income of $52 million, up $8 million, or 19%, compared with the prior year (including 3% favorable foreign currency translation); and
  • Reported operating margin increased 160 basis points to 16.6%, reflecting higher sales and favorable overhead absorption in each of the aforementioned end markets as well as the benefits of our ongoing margin improvement initiatives.

Defense

             
(In millions)   2Q-2018   2Q-2017   Change  
Sales   $ 146.2   $ 126.4   16%  
Reported operating income (GAAP)   $ 38.6   $ 21.1   83%  
Adjustments (1)     -     5.2   -  
Adjusted operating income (Non-GAAP)   $ 38.6   $ 26.3   47%  
Adjusted operating margin (Non-GAAP)     26.4%     20.8%   560 bps  

(1)  Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions.

 
  • Sales of $146 million, up $20 million, or 16%, compared with the prior year (15% organic, 1% favorable foreign currency translation);
  • Strong organic sales growth primarily reflects higher sales of flight test equipment serving the aerospace defense market, higher aircraft carrier revenues in the naval defense market and increased sales of avionics equipment in the commercial aerospace market;
  • Reported operating income was $39 million, with Reported operating margin of 26.4%; and
  • Adjusted operating income of $39 million, up $12 million, or 47%, compared with the prior year, while Adjusted operating margin increased 560 basis points to 26.4%, reflecting higher sales and favorable overhead absorption, favorable contract adjustments within our naval defense business and the benefits of our ongoing margin improvement initiatives.

 

Power

             
(In millions)   2Q-2018   2Q-2017   Change  
Sales   $ 161.7   $ 149.7   8%  
Reported operating income (GAAP)   $ 19.2   $ 23.9   (20%)  
Adjustments (1)     7.0     -   -  
Adjusted operating income (Non-GAAP)   $ 26.2   $ 23.9   10%  
Adjusted operating margin (Non-GAAP)     16.2%     15.9%   30 bps  

(1)  Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions.

 
  • Sales of $162 million, up $12 million, or 8%, compared with the prior year (15% acquisition, (7%) organic);
  • Strong naval defense market sales were driven by higher CVN-80 aircraft carrier revenues and solid DRG service center revenues;
  • Lower power generation market sales reflect lower revenues on the domestic AP1000 program, which was substantially completed last year, as well as reduced domestic aftermarket sales supporting currently operating nuclear reactors following a seasonally strong spring outage season in the prior year period;
  • Revenues on the China Direct AP1000 program were flat year-over-year;
  • Reported operating income was $19 million, with Reported operating margin of 11.9%; and
  • Adjusted operating income of $26 million, up $2 million, or 10%, compared with the prior year, while Adjusted operating margin increased 30 basis points to 16.2%, reflecting higher naval defense market sales and improved profitability on the China Direct AP1000 program, partially offset by reduced sales and profitability in the nuclear aftermarket business and lower revenues on the domestic AP1000 program.

ful-year 2018 guidance

 

 

The Company is updating its full-year 2018 financial guidance as follows:

 
(In millions, except EPS)  

Prior

Reported

Guidance

(GAAP)

 

Increase from

Operational

Performance

 

Updated

Reported

Guidance

(GAAP)

 

Adjustments

(Non-GAAP) (1)

 

Current

Adjusted

Guidance

(Non-GAAP)

 
Total Sales   $2,415 - $2,455   $30   $2,445 - $2,485       $2,445 - $2,485  
Operating Income   $343 - $353   $13   $357 - $367   $14   $371 - $382  
Operating Margin   14.2% - 14.4%   40 bps   14.6% - 14.8%   60 bps   15.2% - 15.4%  
Interest Expense   ($36 - $37)   $1   ($35 - $36)   -   ($35 - $36)  
Effective Tax Rate   24%   -   24%   -   24%  
Diluted EPS   $5.47 - $5.62   $0.28   $5.75 - $5.90   $0.25   $6.00 - $6.15  
Diluted Shares Outstanding   44.7   (0.1)   44.6   -   44.6  
Free Cash Flow   $240 - $260   $10   $250 - $270   $50   $300 - $320  

(1) Includes one-time Inventory Step-up, Backlog Amortization and Transaction costs for current and prior year acquisitions.

 

Notes:

  • Full-year 2018 Adjusted guidance reflects higher sales (up 8-9%), operating income (up 11-14%), operating margin of 15.2% to 15.4% (up 50-70 bps) and diluted EPS (up 21-24%), compared with Adjusted 2017 financial results;
  • Increased Reported (GAAP) full-year 2018 diluted EPS guidance by $0.28, led by the benefit of strong operational performance and solid outlook in the Commercial/Industrial segment, which added $20 million to sales and $6 million to operating income, and in the Defense segment, which added $10 million to sales and $3 million to operating income, as well as increased profitability in the Power segment;
  • Introduced Adjusted (non-GAAP) full-year 2018 diluted EPS guidance, which reflects a $0.25 adjustment for first year acquisition-related purchase accounting costs associated with the acquisition of DRG;
  • Combining these items, introduced Adjusted (non-GAAP) full-year 2018 diluted EPS guidance range of $6.00 to $6.15, up $0.53 compared to the prior guidance range of $5.47 to $5.62;
  • A more detailed breakdown of the Company’s 2018 guidance by segment and by market can be found in the accompanying schedules.

non-gaap financial results

The company reports its financial performance in accordance with accounting principles generally accepted in the United States of America ("GAAP"). This press release refers to "Adjusted" amounts, which are Non-GAAP financial measures described below.

We utilize a number of different financial measures in analyzing and assessing the overall performance of our business, and in making operating decisions, forecasting and planning for future periods. We consider the use of the non-GAAP measures to be helpful in assessing the performance of the ongoing operation of our business. We believe that disclosing non-GAAP financial measures provides useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance.

Beginning with the second quarter of 2018 coinciding with the initial reporting of the DRG acquisition, the Company has elected to also present its financials and guidance on an Adjusted, non-GAAP basis for operating income, operating margin, net earnings and diluted earnings per share to exclude first year purchase accounting costs associated with its acquisitions, specifically one-time inventory step-up, backlog amortization and transaction costs for current and prior year acquisitions.

Management believes that this approach will provide improved transparency to the investment community in order to measure Curtiss-Wright’s core operating and financial performance, provide quarter-over-quarter comparisons excluding one-time items and show better comparisons among company peers.

Reconciliations of “Reported” GAAP amounts to “Adjusted” non-GAAP amounts are furnished within this release. All per share amounts are reported on a diluted basis.

conference call & webcast information

The Company will host a conference call to discuss second quarter 2018 financial results at 9:00 a.m. EDT on Thursday, July 26, 2018. A live webcast of the call and the accompanying financial presentation, as well as a replay of the call, will be made available on the internet by visiting the Investor Relations section of the Company’s website at www.curtisswright.com.

(Tables to Follow)

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
($'s in thousands, except per share data)
      Three Months Ended     Six Months Ended
      June 30,     Change     June 30,     Change
      2018     2017     $     %     2018     2017     $     %
Product sales     $ 511,676       $ 459,774       $ 51,902       11 %     $ 956,363       $ 883,003       $ 73,360       8 %
Service sales     108,622       107,879       743       1 %     211,457       208,241       3,216       2 %
Total net sales     620,298       567,653       52,645       9 %     1,167,820       1,091,244       76,576       7 %
                                                 
Cost of product sales     324,184       302,794       21,390       7 %     623,495       592,404       31,091       5 %
Cost of service sales     69,614       69,849       (235 )     0 %     136,634       136,895       (261 )     0 %
Total cost of sales     393,798       372,643       21,155       6 %     760,129       729,299       30,830       4 %
                                                 
Gross profit     226,500       195,010       31,490       16 %     407,691       361,945       45,746       13 %
                                                 
Research and development expenses     15,054       15,788       (734 )     (5 %)     30,995       31,379       (384 )     (1 %)
Selling expenses     32,665       29,055       3,610       12 %     64,185       58,513       5,672       10 %
General and administrative expenses     76,705       70,435       6,270       9 %     145,937       144,629       1,308       1 %
                                                 
Operating income     102,076       79,732       22,344       28 %     166,574       127,424       39,150       31 %
                                                 
Interest expense     9,566       10,750       (1,184 )     (11 %)     17,770       21,127       (3,357 )     (16 %)
Other income, net     3,971       3,729       242       6%     8,654       7,576       1,078       14%
                                                 
Earnings before income taxes     96,481       72,711       23,770       33 %     157,458       113,873       43,585       38 %
Provision for income taxes     (21,693 )     (22,061 )     368       (2 %)     (39,027 )     (30,676 )     (8,351 )     27 %
Net earnings     $ 74,788       $ 50,650       $ 24,138       48 %     $ 118,431       $ 83,197       $ 35,234       42 %
                                                 
Net earnings per share:                                                
Basic earnings per share     $ 1.69       $ 1.15                   $ 2.68       $ 1.88              
Diluted earnings per share     $ 1.68       $ 1.13                   $ 2.66       $ 1.86              
                                                 
Dividends per share     $ 0.15       $ 0.13                   $ 0.30       $ 0.26              
                                                 
Weighted average shares outstanding:                                                
Basic     44,124       44,213                   44,144       44,221              
Diluted     44,553       44,807                   44,604       44,825              
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
($'s in thousands, except par value)
        June 30,     December 31,     Change
        2018     2017     %
Assets                  
Current assets:                  
  Cash and cash equivalents     $ 218,898       $ 475,120       (54 %)
  Receivables, net     575,142       494,923       16 %
  Inventories, net     436,250       378,866       15 %
  Other current assets     53,953       52,951       2 %
  Total current assets     1,284,243       1,401,860       (8 %)
Property, plant, and equipment, net     374,995       390,235       (4 %)
Goodwill     1,103,562       1,096,329       1 %
Other intangible assets, net     449,096       329,668       36 %
Other assets     18,292       18,229       0 %
  Total assets     $ 3,230,188       $ 3,236,321       0 %
                     
Liabilities                  
Current liabilities:                  
  Current portion of long-term and short-term debt     $ 959       $ 150       539 %
  Accounts payable     179,566       185,176       (3 %)
  Accrued expenses     131,263       150,406       (13 %)
  Income taxes payable     4,957       4,564       9 %
  Deferred revenue     231,187       214,891       8 %
  Other current liabilities     47,752       35,810       33 %
  Total current liabilities     595,684       590,997       1 %
Long-term debt     813,150       813,989       0 %
Deferred tax liabilities, net     56,143       49,360       14 %
Accrued pension and other postretirement benefit costs     65,698       121,043       (46 %)
Long-term portion of environmental reserves     14,757       14,546       1 %
Other liabilities     108,660       118,586       (8 %)
  Total liabilities     1,654,092       1,708,521       (3 %)
                     
Stockholders' equity                  
Common stock, $1 par value     49,187       49,187       0 %
Additional paid in capital     119,025       120,609       (1 %)
Retained earnings     2,047,250       1,944,324       5 %
Accumulated other comprehensive loss     (239,516 )     (216,840 )     (10 %)
Less: cost of treasury stock     (399,850 )     (369,480 )     (8 %)
  Total stockholders' equity     1,576,096       1,527,800       3 %
                     
  Total liabilities and stockholders' equity     $ 3,230,188       $ 3,236,321       0 %
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
SEGMENT INFORMATION (UNAUDITED)
($'s in thousands)
      Three Months Ended     Six Months Ended
      June 30,     June 30,
                  Change                 Change
      2018     2017     %     2018     2017     %

Sales:

                                   
Commercial/Industrial     $ 312,463       $ 291,599       7 %     $ 609,104       $ 570,421       7 %
Defense     146,177       126,361       16 %     265,078       241,023       10 %
Power     161,658       149,693       8 %     293,638       279,800       5 %
                                     
Total sales     $ 620,298       $ 567,653       9 %     $ 1,167,820       $ 1,091,244       7 %
                                     

Operating income (expense):

                                   
Commercial/Industrial     $ 51,736       $ 43,620       19 %     $ 90,961       $ 74,172       23 %
Defense     38,641       21,128       83 %     58,369       32,225       81 %
Power     19,201       23,875       (20 %)     34,543       39,420       (12 %)
                                     
Total segments     $ 109,578       $ 88,623       24 %     $ 183,873       $ 145,817       26 %
Corporate and other     (7,502 )     (8,891 )     16 %     (17,299 )     (18,393 )     6 %
                                     
Total operating income     $ 102,076       $ 79,732       28 %     $ 166,574       $ 127,424       31 %
                                     
                                     

Operating margins:

                                   
Commercial/Industrial     16.6 %     15.0 %     160 bps     14.9 %     13.0 %     190 bps
Defense     26.4 %     16.7 %     970 bps     22.0 %     13.4 %     860 bps
Power     11.9 %     15.9 %     (400 bps)     11.8 %     14.1 %     (230 bps)
Total Curtiss-Wright     16.5 %     14.0 %    

250

bps

    14.3 %     11.7 %    

260

bps

                                     
Segment margins     17.7 %     15.6 %     210 bps     15.7 %     13.4 %     230 bps
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
SALES BY END MARKET (UNAUDITED)
($'s in thousands)
      Three Months Ended     Six Months Ended
      June 30,     June 30,
                  Change                 Change
      2018     2017     %     2018     2017     %
Defense markets:                                    
Aerospace     $ 98,268       $ 89,367       10 %     $ 174,209       $ 154,661       13 %
Ground     20,272       17,515       16 %     42,282       37,251       14 %
Naval     132,005       100,048       32 %     234,786       191,018       23 %
Other     3,422       5,964       (43 %)     8,004       13,006       (38 %)
Total Defense     $ 253,967       $ 212,894       19 %     $ 459,281       $ 395,936       16 %
                                     
Commercial markets:                                    
Aerospace     $ 104,617       $ 100,353       4 %     $ 204,021       $ 198,966       3 %
Power Generation     102,075       114,773       (11 %)     201,087       220,324       (9 %)
General Industrial     159,639       139,633       14 %     303,431       276,018       10 %
Total Commercial     $ 366,331       $ 354,759       3 %     $ 708,539       $ 695,308       2 %
                                     
Total Curtiss-Wright     $ 620,298       $ 567,653       9 %     $ 1,167,820       $ 1,091,244       7 %

Use of Non-GAAP Financial Information (Unaudited)

The Corporation supplements its financial information determined under U.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial information. Curtiss-Wright believes that these non-GAAP measures provide investors with additional insight into the Company’s ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. Curtiss-Wright encourages investors to review its financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

Beginning with the second quarter of 2018, coinciding with the initial reporting of the DRG acquisition, the Company has elected to also present its financials and guidance on an Adjusted, non-GAAP basis for operating income, operating margin, net earnings and diluted earnings per share to exclude first year purchase accounting costs associated with its acquisitions, specifically one-time inventory step-up, backlog amortization and transaction costs for current and prior year acquisitions that are included under GAAP.

Management believes that this approach will provide improved transparency to the investment community in order to measure Curtiss-Wright’s core operating and financial performance, provide quarter-over-quarter comparisons excluding one-time items and show better comparisons among company peers. Additional details and tables reconciling the GAAP to non-GAAP financial measures are included in this release.

The following definitions are provided:

Adjusted Operating Income, Operating Margin, Net Income and Diluted EPS

These Adjusted financials are defined as Reported Operating Income, Operating Margin, Net Income and Diluted EPS under GAAP excluding the impact of first year purchase accounting costs associated with acquisitions for current and prior year periods, specifically one-time inventory step-up, backlog amortization and transaction costs.

Organic Revenue and Organic Operating Income

The Corporation discloses organic revenue and organic operating income because the Corporation believes it provides investors with insight as to the Company’s ongoing business performance. Organic revenue and organic operating income are defined as revenue and operating income excluding the impact of foreign currency fluctuations and contributions from acquisitions made during the last twelve months.

      Three Months Ended
      June 30,
      2018 vs. 2017
      Commercial/Industrial     Defense     Power     Total Curtiss-Wright
      Sales     Operating income     Sales     Operating income     Sales     Operating income     Sales     Operating income
Organic     5 %     16 %     15 %     86 %     (7 %)     (3 %)     4 %     32 %
Acquisitions     0 %     0 %     0 %     0 %     15 %     (17 %)     4 %     (5 %)
Foreign Currency     2 %     3 %     1 %     (3 %)     0 %     0 %     1 %     1 %
Total     7 %     19 %     16 %     83 %     8 %     (20

%)

 

  9 %     28 %
                                                 
      Six Months Ended
      June 30,
      2018 vs. 2017
      Commercial/Industrial     Defense     Power     Total Curtiss-Wright
      Sales     Operating income     Sales     Operating income     Sales     Operating income     Sales     Operating income
Organic     5 %     21 %     9 %     86 %     (3 %)     (2 %)     4 %     34 %
Acquisitions     0 %     0 %     0 %     0 %     8 %     (10 %)     2 %     (3 %)
Foreign Currency     2 %     2 %     1 %     (5 %)     0 %     0 %     1 %     0 %
Total     7 %     23 %     10 %     81 %     5 %     (12

%)

 

  7 %     31 %
                                               

 

Free Cash Flow and Free Cash Flow Conversion

The Corporation discloses free cash flow because it measures cash flow available for investing and financing activities. Free cash flow represents cash available to repay outstanding debt, invest in the business, acquire businesses, return capital to shareholders and make other strategic investments. Free cash flow is defined as cash flow provided by operating activities less capital expenditures. The Corporation discloses free cash flow conversion because it measures the proportion of net earnings converted into free cash flow and is defined as free cash flow divided by net earnings from continuing operations.

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NON-GAAP FINANCIAL DATA (UNAUDITED)
($'s in thousands)
    Three Months Ended     Six Months Ended
    June 30,     June 30,
    2018     2017     2018     2017
                       
Net cash provided by operating activities   $ 97,947       $ 85,873       $ 26,685       $ 60,932  
Capital expenditures   (10,881 )     (12,914 )     (19,852 )     (23,288 )
Free cash flow   $ 87,066       $ 72,959       $ 6,833       $ 37,644  
Pension payment               50,000        
Adjusted free cash flow   $ 87,066       $ 72,959       $ 56,833       $ 37,644  
Free Cash Flow Conversion   116 %     144 %     48 %     45 %

 

CURTISS-WRIGHT CORPORATION
2018 Guidance (1) (2)
As of July 25, 2018
($'s in millions, except per share data)
       

2017

        Low     High    

2018 Chg vs

2017 Reported

     

Increase from

Operational

Performance

    Low     High    

2018 Chg vs

2017 Adjusted

     

Adjustments (Non-GAAP) (3)

      Low     High    

2018 Chg vs

2017

Adjusted (3)

Sales:

                                                                               
Commercial/Industrial     $ 1,163         $ 1,193       $ 1,213               $ 20       $ 1,213       $ 1,233               $ -         $ 1,213       $ 1,233        
Defense       555           565         575                 10         575         585                 -           575         585        
Power       553           657         667                 -         657         667                 -           657         667        
Total sales     $ 2,271         $ 2,415       $ 2,455       6 to 8%       $ 30       $ 2,445       $ 2,485       8 to 9%       $ -         $ 2,445       $ 2,485       8 to 9%
                                                                                 

Operating income:

                                                                               
Commercial/Industrial     $ 168         $ 177       $ 182               $ 6       $ 183       $ 188               $ -         $ 183       $ 188        
Defense       119           121         124                 3         124         127                 -           124         127        
Power       81           80         83                 4         85         87                 14           99         102        
Total segments       368           378         389                 13         391   -     402                 14           405   #     416        
Corporate and other       (34 )         (34 )       (35 )               -         (34 )       (35 )               -           (34 )       (35 )      
Total operating income     $ 335         $ 343       $ 353       6 to 9%       $ 13       $ 357       $ 367       7 to 10%       $ 14         $ 371       $ 382       11 to 14%
                                                                                 
Interest expense     $ (41 )       $ (36 )     $ (37 )             $ 1       $ (35 )     $ (36 )             $ -         $ (35 )     $ (36 )      
Other income, net       16           14         14                 1         15         15                 -           15         15        
Earnings before income taxes       309           322         331                 -         337         347                 -           352         361        
Provision for income taxes       (88 )         (77 )       (79 )               (4 )       (81 )       (83 )               (3 )         (84 )       (87 )      
Net earnings     $ 222         $ 245       $ 251               $ 12       $ 256       $ 263               $ 11         $ 267       $ 274        
                                                                                 
Diluted earnings per share     $ 4.96         $ 5.47       $