form10q.htm

 
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2010

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________ to _______

Commission File Number 1-134

CURTISS-WRIGHT CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware
 
13-0612970
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

10 Waterview Boulevard
   
Parsippany, New Jersey
 
07054
(Address of principal executive offices)
 
(Zip Code)

(973) 541-3700
(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period of time that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x                        No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x                        No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o   No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, par value $1.00 per share: 46,071,619 shares (as of July 31, 2010).

 
Page 1 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

TABLE of CONTENTS




     
PAGE
       
PART I – FINANCIAL INFORMATION
 
       
       
Item 1.
Unaudited Financial Statements:
 
       
   
3
       
   
4
 
       
   
5
 
       
   
6
       
   
7 - 18
 
 
       
Item 2.
19 - 22
       
Item 3.
23
 
       
Item 4.
23
 
       
       
       
PART II – OTHER INFORMATION
 
       
       
Item 1.
24
 
       
Item 1A.
Risk Factors
24
 
       
Item 5.
Other Information
24
 
       
Item 6.
Exhibits
25
 
       
 
26
 

 
Page 2 of 26

 


PART 1- FINANCIAL INFORMATION
Item 1. Financial Statements


CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(In thousands, except per share data)

 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
 
   
 
   
 
   
 
 
 
 
2010
   
2009
   
2010
   
2009
 
 
 
 
   
 
   
 
   
 
 
Net sales
  $ 462,165     $ 447,371     $ 903,940     $ 871,163  
Cost of sales
    307,782       302,789       611,573       590,821  
Gross profit
    154,383       144,582       292,367       280,342  
 
                               
Research and development costs
    13,838       13,200       27,676       26,324  
Selling expenses
    28,520       27,415       56,340       53,278  
General and administrative expenses
    68,597       60,204       133,839       125,834  
Operating income
    43,428       43,763       74,512       74,906  
 
                               
Other income, net
    384       47       536       348  
Interest expense
    (5,700 )     (6,542 )     (11,367 )     (13,482 )
 
                               
Earnings before income taxes
    38,112       37,268       63,681       61,772  
Provision for income taxes
    12,214       12,814       21,448       21,513  
 
                               
Net earnings
  $ 25,898     $ 24,454     $ 42,233     $ 40,259  
 
                               
Basic earnings per share
  $ 0.57     $ 0.54     $ 0.92     $ 0.89  
Diluted earnings per share
  $ 0.56     $ 0.54     $ 0.91     $ 0.88  
 
                               
Dividends per share
  $ 0.08     $ 0.08     $ 0.16     $ 0.16  
 
                               
Weighted average shares outstanding:
                               
Basic
    45,743       45,127       45,691       45,063  
Diluted
    46,311       45,537       46,233       45,504  
 
                               
See notes to condensed consolidated financial statements
 

 
Page 3 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
(UNAUDITED)
(In thousands, except par value)

 
 
June 30,
   
December 31,
 
 
 
2010
   
2009
 
Assets
 
 
   
 
 
Current Assets:
 
 
   
 
 
Cash and cash equivalents
  $ 71,744     $ 65,010  
Receivables, net
    452,822       404,539  
Inventories, net
    296,116       285,608  
Deferred tax assets, net
    47,347       48,777  
Other current assets
    38,588       33,567  
Total current assets
    906,617       837,501  
Property, plant, and equipment, net
    388,053       401,149  
Goodwill
    676,022       648,452  
Other intangible assets, net
    247,902       242,506  
Deferred tax assets, net
    2,091       1,994  
Other assets
    13,316       10,439  
Total Assets
  $ 2,234,001     $ 2,142,041  
 
               
Liabilities
               
Current Liabilities:
               
Current portion of long-term debt and short-term debt
  $ 77,704     $ 80,981  
Accounts payable
    114,400       129,880  
Dividends payable
    3,678       -  
Accrued expenses
    90,625       90,855  
Income taxes payable
    4,579       4,212  
Deferred revenue
    158,025       167,683  
Other current liabilities
    38,715       50,708  
Total current liabilities
    487,726       524,319  
Long-term debt
    459,084       384,112  
Deferred tax liabilities, net
    28,284       25,549  
Accrued pension and other postretirement benefit costs
    130,912       120,930  
Long-term portion of environmental reserves
    18,186       18,804  
Other liabilities
    41,130       41,570  
Total Liabilities
    1,165,322       1,115,284  
Contingencies and Commitments (Note 14)
               
 
               
Stockholders' Equity
               
Common stock, $1 par value
    48,394       48,214  
Additional paid in capital
    118,831       111,707  
Retained earnings
    1,015,478       980,590  
Accumulated other comprehensive loss
    (23,582 )     (19,605 )
 
    1,159,121       1,120,906  
Less:  Cost of treasury stock
    (90,442 )     (94,149 )
Total Stockholders' Equity
    1,068,679       1,026,757  
Total Liabilities and Stockholders' Equity
  $ 2,234,001     $ 2,142,041  
 
               
See notes to condensed consolidated financial statements
         

 
Page 4 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
(UNAUDITED)
(In thousands)

 
 
Six Months Ended
 
 
 
June 30,
 
 
 
2010
   
2009
 
Cash flows from operating activities:
 
 
   
 
 
Net earnings
  $ 42,233     $ 40,259  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization
    39,036       38,045  
Net loss on sales and disposals of long-lived assets
    673       644  
Gain on bargain purchase
    -       (1,937 )
Deferred income taxes
    1,525       2,246  
Share-based compensation
    5,191       6,574  
Change in operating assets and liabilities, net of businesses acquired:
               
(Increase) decrease in receivables
    (59,135 )     13,148  
Increase in inventories
    (8,568 )     (13,000 )
Increase (decrease) in progress payments
    7,936       (5,302 )
Decrease in accounts payable and accrued expenses
    (13,648 )     (57,894 )
(Decrease) increase in deferred revenue
    (9,658 )     22,936  
Decrease in income taxes payable
    (4,656 )     (9,750 )
Increase in net pension and postretirement liabilities
    12,558       7,917  
Increase in other current and long-term assets
    (1,871 )     (1,287 )
Decrease in other current and long-term liabilities
    (9,030 )     (8,334 )
Total adjustments
    (39,647 )     (5,994 )
Net cash provided by operating activities
    2,586       34,265  
Cash flows from investing activities:
               
Proceeds from sales and disposals of long-lived assets
    19       2,640  
Acquisitions of intangible assets
    (1,597 )     (321 )
Additions to property, plant, and equipment
    (22,343 )     (37,528 )
Acquisition of businesses, net of cash acquired
    (42,079 )     (49,726 )
Net cash used for investing activities
    (66,000 )     (84,935 )
Cash flows from financing activities:
               
Borrowings on debt
    262,600       437,880  
Principal payments on debt
    (190,995 )     (393,218 )
Proceeds from exercise of stock options
    5,503       5,315  
Dividends paid
    (3,667 )     (3,617 )
Excess tax benefits from share-based compensation
    167       74  
Net cash provided by financing activities
    73,608       46,434  
Effect of exchange-rate changes on cash
    (3,460 )     2,740  
Net increase (decrease) in cash and cash equivalents
    6,734       (1,496 )
Cash and cash equivalents at beginning of period
    65,010       60,705  
Cash and cash equivalents at end of period
  $ 71,744     $ 59,209  
Supplemental disclosure of investing activities:
               
Fair value of assets acquired in current year acquisitions
  $ 49,098     $ 55,504  
Additional consideration paid (received) on prior year acquisitions
    1,153       (870 )
Liabilities assumed from current year acquisitions
    (7,492 )     (2,969 )
Gain on bargain purchase
    -       (1,937 )
Cash acquired
    (680 )     (2 )
Acquisition of businesses, net of cash acquired
  $ 42,079     $ 49,726  
See notes to condensed consolidated financial statements
 

 
Page 5 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
(UNAUDITED)
(In thousands)

 
 
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
Accumulated
   
 
 
 
 
 
   
Additional
   
 
   
Other
   
 
 
 
 
Common
   
Paid in
   
Retained
   
Comprehensive
   
Treasury
 
 
 
Stock
   
Capital
   
Earnings
   
Income
   
Stock
 
 
 
 
   
 
   
 
   
 
   
 
 
December 31, 2008
  $ 47,903     $ 94,500     $ 899,928     $ (72,551 )   $ (103,018 )
Net earnings
    -       -       95,221               -  
Pension and postretirement
                                       
adjustment, net
    -       -       -       16,350       -  
Foreign currency translation
                                       
adjustments, net
    -       -       -       36,596       -  
Dividends paid
    -       -       (14,559 )     -       -  
Stock options exercised, net
    311       6,085       -       -       4,727  
Share-based compensation
    -       11,431       -       -       3,833  
Other
    -       (309 )     -       -       309  
December 31, 2009
  $ 48,214     $ 111,707     $ 980,590     $ (19,605 )   $ (94,149 )
Net earnings
    -       -       42,233               -  
Pension and postretirement
                                       
adjustment, net
    -       -       -       1,262       -  
Foreign currency translation
                                       
 adjustments, net
    -       -       -       (5,239 )     -  
Dividends declared
    -       -       (7,345 )     -       -  
Stock options exercised, net
    180       4,042       -       -       1,598  
Share based compensation
    -       3,401       -       -       1,790  
Other
    -       (319 )     -       -       319  
June 30, 2010
  $ 48,394     $ 118,831     $ 1,015,478     $ (23,582 )   $ (90,442 )
 
                                       
 
                                       
See notes to condensed consolidated financial statements
 


 
Page 6 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 

1.           BASIS OF PRESENTATION

Curtiss-Wright Corporation with 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 57 manufacturing facilities and 66 metal treatment service facilities.

The unaudited condensed consolidated financial statements include the accounts of Curtiss-Wright Corporation and its majority-owned subsidiaries.  All significant transactions and accounts have been eliminated.

The unaudited condensed consolidated 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 liabilities in the accompanying financial statements. The most significant of these estimates includes 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, estimates for warranty reserves, and future environmental costs. Actual results may differ from these estimates.  In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in these financial statements.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2009 Annual Report on Form 10-K, as amended.  The results of operations for interim periods are not necessarily indicative of trends or of the operating results for a full year.

RECENTLY ISSUED ACCOUNTING STANDARDS

ADOPTION OF NEW STANDARDS

Improving Disclosures About Fair Value Measurements
In February 2010, new guidance was issued which adds new requirements for disclosures about transfers into and out of Level 1 and 2 measurements and separate disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements.  The guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.  In addition, employers’ disclosures about postretirement benefit plan assets are required to disclose classes of assets instead of major categories of assets.  The new guidance was effective for the first reporting period beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of the guidance did not have a material impact on our disclosures.  See Footnote 7 for additional information.

Amendments to Certain Recognition and Measurement Requirements
In February 2010, new guidance was issued to provide certain recognition and disclosure requirements surrounding subsequent events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued, by requiring U.S. Securities and Exchange Commission (“SEC”) filers to evaluate subsequent events through the date that the financial statements are issued and by removing the requirement for SEC filers to disclose the date through which subsequent events have been evaluated.  The new guidance was effective upon issuance.  In accordance with this guidance, the Corporation has determined no subsequent events have occurred that would require adjustment to or additional disclosure in its condensed consolidated financial statements.

 
Page 7 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 


 
STANDARDS ISSUED BUT NOT YET EFFECTIVE
 
Revenue Recognition – Milestone Method
In April 2010, new guidance was issued that provides criteria that should be met for determining whether the milestone method of revenue recognition is appropriate, as well as the associated disclosure requirements.  The new guidance clarifies that a vendor can recognize consideration that is contingent on achieving a milestone as revenue in the period in which the milestone is achieved, only if the milestone meets all criteria to be considered substantive.  The new guidance is effective for fiscal years beginning after June 15, 2010. We do not anticipate that the adoption of this guidance will have a material impact on the Corporation’s results of operations or financial condition.
 
Revenue Arrangements with Multiple Deliverables
In September 2009, new guidance was issued on revenue arrangements with multiple deliverables.  The new guidance modifies the requirements for determining whether a deliverable can be treated as a separate unit of accounting by removing the criteria that verifiable and objective evidence of fair value exists for undelivered items, establishes a selling price hierarchy to help entities allocate arrangement consideration to separate units of account, requires the relative selling price allocation method for all arrangements, and expands required disclosures.  The new guidance is effective for fiscal years beginning after June 15, 2010. We do not anticipate that the adoption of this guidance will have a material impact on the Corporation’s results of operations or financial condition.
 
Certain Revenue Arrangements That Include Software Elements
In September 2009, new guidance was issued on certain revenue arrangements that include software elements. The new guidance amended past guidance on software revenue recognition to exclude from scope all tangible products containing both software and non-software elements that function together to interdependently deliver the product’s essential functionality. The new guidance is effective for fiscal years beginning after June 15, 2010. We do not anticipate that the adoption of this guidance will have a material impact on the Corporation’s results of operations or financial condition.
 
RECENT DEVELOPMENTS
 
U.S. Health Care Legislation
In March 2010, the Patient Protection and Affordable Care Act (the “PPACA”) and the Health Care and Education Reconciliation Act of 2010 (the “HCERA” and, together with PPACA, the “Acts”) were signed into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans that provide prescription drug benefits at least as actuarially equivalent to the corresponding benefits provided under Medicare Part D.
 
The federal subsidy paid to employers was introduced as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA 2003”). The Corporation has been receiving the federal subsidy since the 2006 tax year related to certain retiree prescription drug plans that were determined to be actuarially equivalent to the benefit provided under Medicare Part D. Under the MMA 2003, the federal subsidy does not reduce an employer’s income tax deduction for the costs of providing such prescription drug plans nor is it subject to income tax to the individual.
 
Under the Acts, beginning in 2013, an employer’s income tax deduction for the costs of providing Medicare Part D-equivalent prescription drug benefits to retirees will be reduced by the amount of the federal subsidy. Under the general standards of accounting, any impact from a change in tax law must be recognized in earnings in the period enacted regardless of the effective date. As a result, management recognized a one-time non-cash charge of approximately $0.8 million in the quarter ended March 31, 2010 for the write-off of deferred tax assets to reflect the change in the tax treatment of the federal subsidy.
 
2.  ACQUISITIONS

The Corporation acquired two businesses during the six months ended June 30, 2010.  The acquisitions have been accounted for as a purchase under the guidance for business combinations, where the excess of the purchase price over the estimated fair value of the net tangible and intangible assets acquired is recorded as goodwill.  The Corporation allocates the purchase price, including the value of identifiable intangibles with a finite life, based upon analysis which includes input from third party appraisals.  The analysis, while substantially complete, is finalized no later than twelve months from the date of acquisition.  The results of the acquired businesses have been included in the consolidated financial results of the Corporation from the date of acquisition in the segment indicated. 
 
Motion Control Segment

Hybricon Corporation

On June 1, 2010, the Corporation acquired all the issued and outstanding stock of Hybricon Corporation (“Hybricon”) for $18.8 million in cash.  Under the terms of the Stock Purchase Agreement, the Corporation deposited $2.3 million into escrow as security for potential indemnification claims against the seller.  The escrow amount will be held for a period of eighteen months, provided that 50% of the escrow will be released after twelve months subject to amounts held back for pending claims.  Management funded the purchase from the Corporation’s revolving credit facility.
 
The purchase price of the acquisition has been allocated to the net tangible and intangible assets acquired with the remainder recorded as goodwill on the basis of estimated fair values, as follows:
 

 
 
 
 
(In  thousands)
 
 
 
Accounts receivable
  $ 2,273  
Inventory
    2,075  
Property, plant, and equipment
    151  
Other current assets
    68  
Intangible assets
    6,677  
Current liabilities
    (1,420 )
Deferred income taxes
    (2,223 )
Net tangible and intangible assets
    7,601  
Purchase price
    18,809  
Goodwill
  $ 11,208  
 
       

The goodwill of $11.2 million consists largely of synergies from combining the operations of Hybricon with our Electronic Systems business in Littleton, MA as well as value associated with the acquisition’s assembled workforce.  The Corporation has determined that the goodwill will not be deductible for tax purposes.
 
Hybricon designs and manufactures custom and standards-based enclosures and electronic backplanes for defense and commercial applications, and is a leading supplier for the most popular embedded commercial-off-the-shelf (COTS) system architectures.  Hybricon had 72 employees as of the date of the acquisition and is located in Ayer, MA.  Hybricon will operate in Curtiss-Wright's Motion Control segment.  Revenues of the acquired business were $16.8 million for the fiscal year ended June 30, 2009.
 
 
 

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 
Specialist Electronics Services Limited
 
On June 21, 2010, the Corporation acquired all the issued and outstanding stock of Specialist Electronics Services Ltd. (“SES”) for £15.0 million ($22.2 million), net of cash acquired.  Under the terms of the Share Purchase Agreement, the Corporation deposited £1.9 million ($2.8 million) into escrow as security for potential indemnification claims against the seller.  The escrow amount will be held for a period of twenty-four months, provided that 50% of the escrow will be released after twelve months subject to amounts held back for pending claims.  Management funded the purchase from a combination of cash generated from foreign operations and the Corporation’s revolving credit facility.
 
The purchase price of the acquisition has been allocated to the net tangible and intangible assets acquired with the remainder recorded as goodwill on the basis of estimated fair values, as follows:
 

(USD, In  thousands)
 
 
 
Accounts receivable
  $ 1,680  
Inventory
    1,593  
Property, plant, and equipment
    72  
Other current assets
    25  
Intangible assets
    7,525  
Current and non-current liabilities
    (1,705 )
Deferred income taxes
    (2,089 )
Net tangible and intangible assets
    7,101  
Purchase price
    22,172  
Goodwill
  $ 15,071  
 
       
 
       

The goodwill of £10.1 million ($15.1 million) consists largely of synergies achieved through the introduction of SES products to the Corporation’s distribution channels as well as synergies achieved from combining the operations of SES with United Kingdom based operations.  The Corporation has determined that the goodwill will not be deductible for tax purposes.
 
SES provides a range of rugged products for airborne and other severe environments, with particular expertise in solid state data recording, computing and control display units. Key platforms include fixed-wing, rotary-wing and unmanned aircraft, tactical vehicles and navy vessels.  SES is located in Camberley, United Kingdom and had 41 employees as of the date of the acquisition.  Revenues of the acquired business were £4.7 million ($7.5 million) for the fiscal year ended May 31, 2010.
 

3.     RECEIVABLES
 
Receivables at June 30, 2010 and December 31, 2009 include amounts billed to customers, claims, other receivables, and unbilled charges on long-term contracts consisting of amounts recognized as sales but not billed.  Substantially all amounts of unbilled receivables are expected to be billed and collected within one year.
 
The composition of receivables for those periods is as follows:
 

 
 
(In thousands)
 
 
 
June 30,
   
December 31,
 
 
 
2010
   
2009
 
Billed Receivables:
 
 
   
 
 
Trade and other receivables
  $ 274,327     $ 264,191  
Less: Allowance for doubtful accounts
    (3,742 )     (3,997 )
Net billed receivables
    270,585       260,194  
Unbilled Receivables:
               
Recoverable costs and estimated earnings not billed
    210,325       163,115  
Less: Progress payments applied
    (28,088 )     (18,770 )
Net unbilled receivables
    182,237       144,345  
Receivables, net
  $ 452,822     $ 404,539  

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)
 
 
 
June 30,
   
December 31,
 
 
 
2010
   
2009
 
Raw material
  $ 134,291     $ 131,108  
Work-in-process
    67,620       67,351  
Finished goods and component parts
    82,199       84,674  
Inventoried costs related to U.S. Government and other long-term contracts
    61,402       53,597  
Gross inventories
    345,512       336,730  
Less:  Inventory reserves
    (39,395 )     (39,739 )
 Progress payments applied, principally related to long-term contracts
    (10,001 )     (11,383 )
Inventories, net
  $ 296,116     $ 285,608  

 
Page 9 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 

5.   GOODWILL
 
The Corporation accounts for acquisitions by assigning 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 purchase price over the amounts assigned is recorded as goodwill.
 
The changes in the carrying amount of goodwill for the six months ended June 30, 2010 are as follows:
 

 
 
 
   
 
   
 
   
 
 
 
 
(In thousands)
 
 
 
Flow Control
   
Motion Control
   
Metal Treatment
   
Consolidated
 
December 31, 2009
  $ 308,051     $ 311,546     $ 28,855     $ 648,452  
Goodwill from 2010 acquisitions
    -       26,279       -       26,279  
Change in estimate to fair value of net
                            -  
assets acquired in prior year
    42       -       -       42  
Additional consideration of prior years’ acquisitions
    -       (1,066 )     -       (1,066 )
Other adjustments
    -       (974 )     -       (974 )
Currency translation adjustment
    (965 )     4,523       (269 )     3,289  
June 30, 2010
  $ 307,128     $ 340,308     $ 28,586     $ 676,022  

The purchase price allocations relating to the businesses acquired are initially based on estimates. The Corporation adjusts these estimates based upon final analysis including input from third party appraisals, when deemed appropriate.  The determination of fair value is finalized no later than twelve months from acquisition.
 
As of January 1, 2010, the Corporation’s Canadian entity changed its functional currency from the U.S. dollar to the Canadian dollar.  The nature of this operation’s cash flow changed from predominately U.S. dollar to the Canadian dollar, therefore requiring the change in functional currency.  In accordance with the guidance on foreign currency translation, an adjustment of $13.4 million, attributable to current-rate translation, was recorded to goodwill.  This adjustment resulted in an increase to goodwill and is reported within the “currency translation adjustment” caption above.
 
 

 
Page 10 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 

6.   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 to 20 years.
 
The following tables present the cumulative composition of the Corporation’s intangible assets and include $9.9 million of indefinite lived intangible assets within other intangible assets for both periods presented.

 
 
(In thousands)
 
June 30, 2010
Gross
 
Accumulated Amortization
 
Net
 
Technology
  $ 139,900     $ (49,126 )   $ 90,774  
Customer related intangibles
    181,301       (61,339 )     119,962  
Other intangible assets
    47,152       (9,986 )     37,166  
Total
  $ 368,353     $ (120,451 )   $ 247,902  
 
                       
 
                       
 
 
(In thousands)
 
December 31, 2009
Gross
 
Accumulated Amortization
 
Net
 
Technology
  $ 135,879     $ (44,051 )   $ 91,828  
Customer related intangibles
    174,884       (54,614 )     120,270  
Other intangible assets
    38,887       (8,479 )     30,408  
Total
  $ 349,650     $ (107,144 )   $ 242,506  

The following table presents the changes in the net balance of intangibles assets during the six months ended June 30, 2010.
 

 
 
(In thousands)
 
 
 
 
 
Customer
 
Other
   
 
 
 
 
 
 
Related
 
Intangible
   
 
 
 
Technology, net
 
Intangibles, net
 
Assets, net
 
Total
 
December 31,2009
  $ 91,828     $ 120,270     $ 30,408     $ 242,506  
Acquired during 2010
    2,610       5,561       7,545       15,716  
Amortization expense
    (4,705 )     (6,409 )     (1,600 )     (12,714 )
Change in estimate to fair value of net assets acquired in prior year
    -       -       -       -  
Net currency translation adjustment
    1,041       540       813       2,394  
June 30, 2010
  $ 90,774     $ 119,962     $ 37,166     $ 247,902  

The purchase price allocations relating to the businesses acquired are initially based on estimates. The Corporation adjusts these estimates based upon final analysis including input from third party appraisals, when deemed appropriate.  The determination of fair value is finalized no later than twelve months from acquisition.
 
As of January 1, 2010, the Corporation’s Canadian entity changed its functional currency from the U.S. dollar to the Canadian dollar.  The nature of this operations cash flow changed from predominately U.S. dollar to the Canadian dollar, therefore requiring the change in functional currency.  In accordance with the guidance on foreign currency translation, an adjustment of $5.5 million, attributable to current-rate translation, was recorded to intangible assets.  This adjustment resulted in an increase to other intangible assets and is reported within the “net currency translation adjustment” caption above.
 

 
Page 11 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 

7.   FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The Corporation uses financial instruments, such as forward foreign exchange contracts to hedge a portion of existing and anticipated foreign currency denominated transactions.  The purpose of the Corporation’s foreign currency risk management program is to reduce volatility in earnings caused by exchange rate fluctuations.  The Corporation does not elect to receive hedge accounting treatment and thus, records forward foreign exchange contracts at fair value, with the gain or loss on these transactions recorded into earnings in the period in which they occur. The Corporation does not use derivative financial instruments for trading or speculative purposes.
 
The Corporation utilizes the fair value hierarchy to measure the value of its derivative instruments.  The hierarchy establishes a framework for measuring fair value in accordance with generally accepted accounting principles:
 
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.

The Corporation values its derivative instruments by using the bid ask pricing that is common in the dealer markets.  The dealers are ready to transact at these prices which use the mid-market pricing convention and are considered to be at fair market value.  Based upon the fair value hierarchy, all of our foreign exchange derivative forwards are valued at Level 2.  In addition, no transfers have been made between the levels.
 
As of June 30, 2010, the fair value of these instruments is ($0.1) million. These instruments are classified as other current liabilities and other current assets. See the following tables for information on the location and amounts of derivative fair values in the Condensed Consolidated Balance Sheets and derivative gains and losses in the Condensed Consolidated Statements of Earnings.

 
Fair Values of Derivative Instruments
 
 
(In thousands)
 
 
Balance Sheet Location
Asset Derivatives
 
Balance Sheet Location
Liability Derivatives
 
 
 
June 30,
 
December 31,
 
 
June 30,
 
December 31,
 
 
 
2010
 
2009
 
 
2010
 
2009
 
Foreign exchange contracts:
 
 
 
   
 
 
 
 
 
   
 
 
Transactional
Other Current Assets
  $ 43     $ -  
Other Current Liabilities
  $ 94     $ 342  
Forecasted
Other Current Assets
            41  
Other Current Liabilities
    87       -  
Total
 
  $ 43     $ 41  
 
  $ 181     $ 342  
 
 
               
 
               

 
Page 12 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 


Derivatives Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in Income on Derivatives
Amount of Gain (Loss) Recognized in Income on Derivatives
 
 
 
Three months ended
 
 
 
June 30,
2010
 
June 30,
2009
 
Foreign exchange contracts:
 
 
 
   
 
 
Transactional
General and Administrative Expenses
  $ (3 )   $ 4,658  
Forecasted
General and Administrative Expenses
    (387 )     1,015  
Total
 
  $ (390 )   $ 5,673  
 
 
               

 
 
 
 
   
 
 
Derivatives Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in Income on Derivatives
Amount of Gain (Loss) Recognized in Income on Derivatives
 
 
 
Six Months Ended
 
 
 
June 30,
2010
 
June 30,
2009
 
Foreign exchange contracts:
 
 
 
   
 
 
Transactional
General and Administrative Expenses
  $ 1,876     $ 2,552  
Forecasted
General and Administrative Expenses
    (93 )     362  
Total
 
  $ 1,783     $ 2,914  

Debt
 
The estimated fair value amounts were determined by the Corporation using available market information which is primarily based on quoted market prices for the same or similar issues as of June 30, 2010.  Based upon the fair value hierarchy, all of our fixed rate debt is valued at Level 2.  The estimated fair values of the Corporation’s fixed rate debt instruments at June 30, 2010 aggregated to $380.8 million compared to a carrying value of $350.0 million.  The carrying amount of the variable interest rate debt approximates fair value because the interest rates are reset periodically to reflect current market conditions.
 
The fair values described above may not be indicative of net realizable value or reflective of future fair values.  Furthermore, the use of different methodologies to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
 

 

 
Page 13 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 

8.  WARRANTY RESERVES
 
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 quantitative historical experience.  Estimated warranty costs are reduced as these costs are incurred and as the warranty period expires or may be otherwise modified as specific product performance issues are identified and resolved.  Warranty reserves are included within other current liabilities in the Condensed Consolidated Balance Sheets.  The following table presents the changes in the Corporation’s warranty reserves:

 
 
 
(In thousands)
 
 
 
2010
   
2009
 
Warranty reserves at January 1,
  $ 13,479     $ 10,775  
Provision for current year sales
    2,800       4,634  
Current year claims
    (2,873 )     (2,004 )
Change in estimates to pre-existing warranties
    (931 )     (1,224 )
Increase due to acquisitions
    25       127  
Foreign currency translation adjustment
    (238 )     207  
Warranty reserves at June 30,
  $ 12,262     $ 12,515  

9.   FACILITIES RELOCATION AND RESTRUCTURING
 
In connection with the acquisitions of VMETRO and Mechetronics in 2008, the Corporation established a restructuring accrual of $7.6 million that was recorded against goodwill in accordance with the guidance on Business Combinations.  These acquisitions are consolidated into the Motion Control segment.  The accrual was established as of December 31, 2008 for $7.1 million, while the balance was recorded in 2009 for $0.5 million based upon further analysis of the restructuring activities.  The restructuring accrual consists of costs to exit the activities of certain facilities, including lease cancellation costs and external legal and consulting fees, as well as costs to relocate or involuntarily terminate certain employees of the acquired business.   As of June 30, 2010, the Corporation had a balance of $0.4 million remaining in the restructuring accrual.  The Corporation has substantially finalized its actions associated with the restructuring and has estimated the remaining costs noted above.  The remaining costs are associated with the finalization of the payments associated with the plan.  These activities are expected to be completed by the third quarter of 2010.
 
During 2009, the Corporation committed to a plan to restructure existing operations through a reduction in workforce and consolidation of operating locations both domestically and internationally.  The decision was based on a review of various cost saving initiatives undertaken in connection with the development of the Corporation’s budget and operating plan. This plan impacts our Flow Control, Motion Control, and Metal Treatment segments and resulted in costs incurred of $5.6 million. During the six months ended June 30, 2010, the Corporation continued to consolidate existing operations and incurred an additional $2.5 million consisting of severance costs to involuntarily terminate certain employees, relocation costs, exit activities of certain facilities, including lease cancellation costs and external legal and consulting fees.   These costs were recorded in the Condensed Consolidated Statement of Earnings with the majority of the costs affecting the general and administrative expenses, cost of sales, selling, and research and development costs for $1.4 million, $0.9 million, $0.1 million, and $0.1 million, respectively.  The liability is included in other current liabilities.  As of June 30, 2010, the Corporation has not finalized its plans associated with the restructuring and expects to complete the majority of these activities by December 31, 2010.
 

 
 
 
   
 
   
 
   
 
 
 
 
Severance and Benefits
   
Facility Closing Costs
   
Relocation Costs
   
Total
 
Flow Control
 
 
   
 
   
 
   
 
 
December 31,2009
  $ 57     $ -     $ -     $ 57  
Provisions
    734       723       377       1,834  
Payments
    (778 )     (358 )     (377 )     (1,513 )
Adjustments
    -       -       -       -  
Net currency translation adjustment
    -       -       -       -  
June 30,2010
  $ 13     $ 365     $ -     $ 378  
 
                               
Total expected and incurred to date
  $ 1,663     $ 923     $ 1,033     $ 3,619  
 
                               
Motion Control
                               
December 31,2009
  $ 1,545     $ 1,080     $ 125     $ 2,750  
Provisions
    520       71       100       691  
Payments
    (1,096 )     (339 )     (165 )     (1,600 )
Adjustments
    (358 )     (497 )     -       (855 )
Net currency translation adjustment
    (23 )     31       -       8  
June 30,2010
  $ 588     $ 346     $ 60     $ 994  
 
                               
Total expected and incurred to date
  $ 8,411     $ 2,230     $ 778     $ 11,419  
 
                               
Metal Treatment
                               
December 31,2009
  $ -     $ -     $ -     $ -  
Provisions
    -       -       -       -  
Payments
    -       -       -       -  
Adjustments
    -       -       -       -  
Net currency translation adjustment
    -       -       -       -  
June 30,2010
  $ -     $ -     $ -     $ -  
 
                               
Total expected and incurred to date
  $ 296     $ 583     $ 199     $ 1,078  
 
                               
Total Curtiss-Wright
                               
December 31,2009
  $ 1,602     $ 1,080     $ 125     $ 2,807  
Provisions
    1,254       794       477       2,525  
Payments
    (1,874 )     (697 )     (542 )     (3,113 )
Adjustments
    (358 )     (497 )     -       (855 )
Net currency translation adjustment
    (23 )     31       -       8  
June 30,2010
  $ 601     $ 711     $ 60     $ 1,372  
 
                               
Total expected and incurred to date
  $ 10,370     $ 3,736     $ 2,010     $ 16,116  
 
                               
Total expected and incurred to date through goodwill
  $ 5,168     $ 1,938     $ 628     $ 7,734  

 
Page 14 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 

10.           PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The following tables are consolidated disclosures of all domestic and foreign defined pension plans as described in the Corporation’s 2009 Annual Report on Form 10-K, as amended.  The postretirement benefits information includes the domestic Curtiss-Wright Corporation and EMD postretirement benefit plans, as there are no foreign postretirement benefit plans.

Pension Plans
The components of net periodic pension cost for the three and six months ended  June 30, 2010 and 2009 were:

 
 
(In thousands)
 
 
 
Three Months Ended
   
Six Months Ended
 
     June 30,      June 30,  
 
 
2010
   
2009
   
2010
   
2009
 
Service cost
  $ 7,021     $ 6,196     $ 14,075     $ 11,942  
Interest cost
    6,261       5,881       12,557       11,399  
Expected return on plan assets
    (6,937 )     (7,193 )     (13,907 )     (14,451 )
Amortization of:
                               
Prior service cost
    279       162       557       320  
Unrecognized actuarial loss
    766       331       1,532       459  
Net periodic benefit cost
  $ 7,390     $ 5,377     $ 14,814     $ 9,669  
Curtailment (gain)loss
    -       -       (31 )     83  
Total periodic benefit cost
  $ 7,390     $ 5,377     $ 14,783     $ 9,752  

During the six months ended June 30, 2010, the Corporation made no contributions to the Curtiss-Wright Pension Plan, and expects to make no contributions in 2010.  However, we do expect to make contributions in the range of $25 to $30 million in 2011.  In addition, contributions of $2.3 million were made to the Corporation’s foreign benefit plans during the first six months of 2010.  Contributions to the foreign benefit plans are expected to be $4.8 million in 2010.
 
Other Postretirement Benefit Plans
The components of the net postretirement benefit cost for the Curtiss-Wright and EMD postretirement benefit plans for the three and six months ended June 30, 2010 and 2009 were:
 

 
 
 
   
 
   
 
   
 
 
 
(In thousands)
 
 
Three Months Ended
 
Six Months Ended
 
   June 30,    June 30,  
 
2010
 
2009
 
2010
 
2009
 
Service cost
  $ 189     $ 155     $ 378     $ 310  
Interest cost
    434       419       868       837  
Amortization of unrecognized actuarial gain
    (156 )     (191 )     (312 )     (382 )
Net periodic postretirement benefit cost
  $ 467     $ 383     $ 934     $ 765  
 
                               

During the six months ended June 30,, 2010, the Corporation paid $0.8 million on the postretirement plans.  During 2010, the Corporation anticipates contributing $1.7 million to the postretirement plans.

 
Page 15 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 

11.   EARNINGS PER SHARE
 
Diluted earnings per share were computed based on the weighted average number of shares outstanding plus all potentially dilutive common shares.  A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
 

 
 
 
   
 
   
 
   
 
 
 
 
(In thousands)
 
 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
Basic weighted average shares outstanding
    45,743       45,127       45,691       45,063  
Dilutive effect of share-based and deferred stock compensation
    568       410       542       441  
Diluted weighted average shares outstanding
    46,311       45,537       46,233       45,504  

At June 30, 2010 and 2009 there were 672,000 and 1,058,000 stock options outstanding, respectively, that could potentially dilute earnings per share in the future, which were excluded from the computation of diluted earnings per share as they would have been anti-dilutive for those periods.

12.   SEGMENT INFORMATION
 
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 segments: Flow Control, Motion Control, and Metal Treatment.
 

 
 
 
   
 
   
 
   
 
         
 
 
 
 
(In thousands)
 
 
 
Three Months Ended June 30, 2010
 
 
 
 
   
 
   
 
   
 
         
 
 
 
Flow Control
 
Motion Control
 
Metal Treatment
 
Segment Total
 
Corporate & Other(1)
 
Consolidated
 
 Revenue from external
 
 
   
 
   
 
   
 
         
 
 
 customers
  $ 251,855     $ 155,624     $ 54,686     $ 462,165     $ -     $ 462,165  
 Intersegment revenues
    -       3,867       194       4,061       (4,061 )     -  
 Operating income(expense)
    24,855       18,343       6,457       49,655       (6,227 )     43,428  

 
Page 16 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 


 
 
(In thousands)
 
 
 
 
Three Months Ended June 30, 2009
 
 
 
 
   
 
   
 
   
 
         
 
 
 
Flow Control
 
Motion Control
 
Metal Treatment
 
Segment Total
 
Corporate & Other(1)
 
Consolidated
 
 Revenue from external
 
 
   
 
   
 
   
 
         
 
 
 customers
  $ 242,414     $ 155,748     $ 49,209     $ 447,371     $ -     $ 447,371  
 Intersegment revenues
    -       226       590       816       (816 )     -  
 Operating income (expense)
    21,728       19,513       4,458       45,699       (1,936 )     43,763  
 
                                               
 
 
(In thousands)
 
 
 
Six Months Ended June 30, 2010
 
 
                                               
 
Flow Control
 
Motion Control
 
Metal Treatment
 
Segment Total
 
Corporate & Other(1)
 
Consolidated
 
 Revenue from external
                                               
 customers
  $ 492,586     $ 302,997     $ 108,357     $ 903,940     $ -     $ 903,940  
 Intersegment revenues
    -       4,739       473       5,212       (5,212 )     -  
 Operating income (expense)
    41,524       32,296       12,497       86,317       (11,805 )     74,512  
 
                                               
 
                                               
 
 
(In thousands)
 
 
 
Six Months Ended June 30, 2009
 
 
                                               
 
Flow Control
 
Motion Control
 
Metal Treatment
 
Segment Total
 
Corporate & Other(1)
 
Consolidated
 
 Revenue from external
                                               
 customers
  $ 472,786     $ 296,457     $ 101,920     $ 871,163     $ -     $ 871,163  
 Intersegment revenues
    22       1,808       963       2,793       (2,793 )     -  
 Operating income (expense)
    35,059       33,779       11,072       79,910       (5,004 )     74,906  
 
                                               
 
 
(In thousands)
 
 
 
Identifiable Assets
 
 
                                               
 
Flow Control
 
Motion Control
 
Metal Treatment
 
Segment Total
 
Corporate & Other
 
Consolidated
 
 June 30, 2010
  $ 1,143,271     $ 828,780     $ 225,855     $ 2,197,906     $ 36,095     $ 2,234,001  
 December 31,2009
    1,099,960       771,355       232,658       2,103,973       38,068       2,142,041  
 
                                               
(1)Operating expense for Corporate and Other includes pension expense, environmental remediation and administrative expenses, legal, foreign currency transactional gains and losses, and other expenses.
       
       


 
Page 17 of 26

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)

 


Adjustments to reconcile to earnings before income taxes:
 
 
 
 
   
 
   
 
   
 
 
 
 
(In thousands)
   
(In thousands)
 
 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
2010
 
2009
 
2010
 
2009
 
Total segment operating income
  $ 49,655     $ 45,699     $ 86,317     $ 79,910  
Corporate and other
    (6,227 )     (1,936 )     (11,805 )     (5,004 )
Other income, net
    384       47       536       348  
Interest expense
    (5,700 )     (6,542 )     (11,367 )     (13,482 )
Earnings before income taxes
  $ 38,112     $ 37,268     $ 63,681     $ 61,772  

13. COMPREHENSIVE INCOME
   
 
   
 
 
 
 
 
   
 
   
 
   
 
 
Total comprehensive income for the three and six months ended June 30, 2010 and 2009 are as follows:
 
 
 
 
   
 
   
 
   
 
 
 
 
(in thousands)
   
(in thousands)
 
 
 
Three Months Ended
   
Six Months Ended
 
 
 
June 30,
   
June 30,
 
 
 
 
   
 
   
 
   
 
 
 
2010
 
2009
 
2010
 
2009
 
Net earnings
  $ 25,898     $ 24,454     $ 42,233     $ 40,259  
Equity adjustments from foreign currency translations, net
    (20,958 )     37,337       (5,239 )     24,361  
Defined benefit pension and post-retirement plans, net
    548       (324 )     1,262       (147 )
Total comprehensive income
  $ 5,488     $ 61,467     $ 38,256     $ 64,473  

The equity adjustment from foreign currency translation represents the effect of translating the assets and liabilities of the Corporation’s non-U.S. entities.  This amount is impacted period-over-period by foreign currency fluctuations and by the acquisitions of foreign entities.
 
As of January 1, 2010, the Corporation’s Canadian entity changed its functional currency from the U.S. dollar to the Canadian dollar.  The nature of this operations cash flow changed from predominately U.S. dollar to the Canadian dollar, therefore requiring the change in functional currency.  In accordance with the guidance on foreign currency translation, an adjustment of $18.6 million, attributable to current-rate translation of non-monetary assets, was recorded to the currency translation account.   This adjustment resulted in an increase to total comprehensive income and is reported within the “equity adjustment from foreign currency translations, net” caption above.
 

14.  CONTINGENCIES AND COMMITMENTS