UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
ý☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 20172021
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)
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Delaware | | 13-0612970 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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13925 Ballantyne Corporate 130 Harbour Place Drive, Suite 300 | | |
Suite 400, Charlotte, Davidson, | North Carolina | | 2827728036 |
(Address of principal executive offices) | | (Zip Code) |
(704) 869-4600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | CW | New York Stock Exchange |
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 ý☒ 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 ý☒ 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, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
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Large accelerated filer ý
| | Accelerated filer o
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Non-accelerated filer o
| (Do not check if a smaller reporting company) | Smaller reporting company o
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| | Emerging growth companyo
| ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.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 ý
Yes ☐ No ☒
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: 44,129,36339,239,706 shares (asas of September 30, 2017).October 31, 2021.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
TABLE of CONTENTS
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PART I – FINANCIAL INFORMATION | PAGE |
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PART I – FINANCIAL INFORMATION | PAGE | | |
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Item 1. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II – OTHER INFORMATION | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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PART 1- FINANCIAL INFORMATION
Item 1. Financial Statements
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands, except per share data) | 2021 | | 2020 | | 2021 | | 2020 |
Net sales | | | | | | | |
Product sales | $ | 528,339 | | | $ | 493,398 | | | $ | 1,552,706 | | | $ | 1,457,772 | |
Service sales | 92,280 | | | 78,216 | | | 286,467 | | | 265,120 | |
Total net sales | 620,619 | | | 571,614 | | | 1,839,173 | | | 1,722,892 | |
Cost of sales | | | | | | | |
Cost of product sales | 328,424 | | | 305,921 | | | 989,759 | | | 945,886 | |
Cost of service sales | 55,187 | | | 52,872 | | | 177,930 | | | 177,580 | |
Total cost of sales | 383,611 | | | 358,793 | | | 1,167,689 | | | 1,123,466 | |
Gross profit | 237,008 | | | 212,821 | | | 671,484 | | | 599,426 | |
Research and development expenses | 21,618 | | | 17,587 | | | 66,675 | | | 54,163 | |
Selling expenses | 30,067 | | | 24,869 | | | 89,227 | | | 81,650 | |
General and administrative expenses | 78,998 | | | 77,251 | | | 229,608 | | | 230,515 | |
Impairment of assets held for sale | 8,656 | | | — | | | 8,656 | | | — | |
Restructuring expenses | — | | | 8,541 | | | — | | | 20,730 | |
Operating income | 97,669 | | | 84,573 | | | 277,318 | | | 212,368 | |
Interest expense | 9,955 | | | 9,055 | | | 30,094 | | | 25,059 | |
Other income, net | 3,627 | | | 5,417 | | | 8,910 | | | 6,844 | |
Earnings before income taxes | 91,341 | | | 80,935 | | | 256,134 | | | 194,153 | |
Provision for income taxes | (21,638) | | | (16,315) | | | (65,554) | | | (46,754) | |
Net earnings | $ | 69,703 | | | $ | 64,620 | | | $ | 190,580 | | | $ | 147,399 | |
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Net earnings per share: | | | | | | | |
Basic earnings per share | $ | 1.71 | | | $ | 1.56 | | | $ | 4.66 | | | $ | 3.52 | |
Diluted earnings per share | $ | 1.70 | | | $ | 1.55 | | | $ | 4.64 | | | $ | 3.49 | |
| | | | | | | |
Dividends per share | 0.18 | | | 0.17 | | | 0.53 | | | 0.51 | |
| | | | | | | |
Weighted-average shares outstanding: | | | | | | | |
Basic | 40,769 | | | 41,545 | | | 40,865 | | | 41,926 | |
Diluted | 40,950 | | | 41,797 | | | 41,040 | | | 42,190 | |
See notes to condensed consolidated financial statements |
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands, except per share data) | 2017 | | 2016 | | 2017 | | 2016 |
Net sales | | | | | | | |
Product sales | $ | 468,073 |
| | $ | 413,905 |
| | $ | 1,351,076 |
| | $ | 1,244,148 |
|
Service sales | 99,828 |
| | 93,187 |
| | 308,069 |
| | 299,218 |
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Total net sales | 567,901 |
| | 507,092 |
| | 1,659,145 |
| | 1,543,366 |
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Cost of sales | | | | | | | |
Cost of product sales | 292,215 |
| | 261,488 |
| | 878,446 |
| | 806,092 |
|
Cost of service sales | 64,903 |
| | 61,128 |
| | 200,371 |
| | 195,515 |
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Total cost of sales | 357,118 |
| | 322,616 |
| | 1,078,817 |
| | 1,001,607 |
|
Gross profit | 210,783 |
| | 184,476 |
| | 580,328 |
| | 541,759 |
|
Research and development expenses | 14,575 |
| | 14,071 |
| | 45,374 |
| | 44,467 |
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Selling expenses | 28,818 |
| | 26,273 |
| | 86,331 |
| | 85,025 |
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General and administrative expenses | 70,840 |
| | 67,559 |
| | 217,575 |
| | 210,342 |
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Operating income | 96,550 |
| | 76,573 |
| | 231,048 |
| | 201,925 |
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Interest expense | 10,457 |
| | 10,488 |
| | 31,584 |
| | 30,694 |
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Other income, net | 321 |
| | 483 |
| | 823 |
| | 818 |
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Earnings before income taxes | 86,414 |
| | 66,568 |
| | 200,287 |
| | 172,049 |
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Provision for income taxes | (22,470 | ) | | (20,636 | ) | | (53,146 | ) | | (53,335 | ) |
Net earnings | $ | 63,944 |
| | $ | 45,932 |
| | $ | 147,141 |
| | $ | 118,714 |
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Net earnings per share: | | | | | | | |
Basic earnings per share | $ | 1.45 |
| | $ | 1.04 |
| | $ | 3.33 |
| | $ | 2.67 |
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Diluted earnings per share | $ | 1.43 |
| | $ | 1.02 |
| | $ | 3.29 |
| | $ | 2.63 |
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Dividends per share | 0.15 |
| | 0.13 |
| | 0.41 |
| | 0.39 |
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Weighted-average shares outstanding: | | | | | | | |
Basic | 44,137 |
| | 44,323 |
| | 44,196 |
| | 44,457 |
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Diluted | 44,686 |
| | 44,997 |
| | 44,782 |
| | 45,128 |
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See notes to condensed consolidated financial statements |
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net earnings | $ | 69,703 | | | $ | 64,620 | | | $ | 190,580 | | | $ | 147,399 | |
Other comprehensive income (loss) | | | | | | | |
Foreign currency translation adjustments, net of tax (1) | $ | (16,273) | | | $ | 28,229 | | | $ | (12,990) | | | $ | 2,139 | |
Pension and postretirement adjustments, net of tax (2) | 4,994 | | | 3,561 | | | 15,036 | | | 12,244 | |
Other comprehensive income (loss), net of tax | (11,279) | | | 31,790 | | | 2,046 | | | 14,383 | |
Comprehensive income | $ | 58,424 | | | $ | 96,410 | | | $ | 192,626 | | | $ | 161,782 | |
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net earnings | $ | 63,944 |
| | $ | 45,932 |
| | $ | 147,141 |
| | $ | 118,714 |
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Other comprehensive income (loss) | | | | | | | |
Foreign currency translation, net of tax (1) | $ | 25,393 |
| | $ | (12,366 | ) | | $ | 69,294 |
| | $ | (26,907 | ) |
Pension and postretirement adjustments, net of tax (2) | 1,280 |
| | 1,634 |
| | 4,974 |
| | 4,766 |
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Other comprehensive income (loss), net of tax | 26,673 |
| | (10,732 | ) | | 74,268 |
| | (22,141 | ) |
Comprehensive income | $ | 90,617 |
| | $ | 35,200 |
| | $ | 221,409 |
| | $ | 96,573 |
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(1) The tax expensebenefit included in other comprehensive income for foreign currency translation adjustments for the three and nine months ended September 30, 2017 were $0.4 million2021 and $1.6 million, respectively. The tax benefit included in other comprehensive loss for foreign currency translation adjustments for the three and nine months ended September 30, 2016 were $0.7 million and $1.0 million, respectively.2020 was immaterial.
(2) The tax expense included in other comprehensive income for pension and postretirement adjustments for the three and nine months ended September 30, 2017 were $0.82021 was $2.0 million and $3.3$5.1 million, respectively. The tax expense included in other comprehensive income for pension and postretirement adjustments for the three and nine months ended September 30, 2016 were $0.92020 was $1.3 million and $3.0$4.0 million, respectively.
See notes to condensed consolidated financial statements
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except per share data)
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 234,416 | | | $ | 198,248 | |
Receivables, net | 670,867 | | | 588,718 | |
Inventories, net | 433,140 | | | 428,879 | |
Assets held for sale | 20,215 | | | 27,584 | |
Other current assets | 65,171 | | | 57,395 | |
Total current assets | 1,423,809 | | | 1,300,824 | |
Property, plant, and equipment, net | 360,314 | | | 378,200 | |
Goodwill | 1,461,313 | | | 1,455,137 | |
Other intangible assets, net | 552,514 | | | 609,630 | |
Operating lease right-of-use assets, net | 140,524 | | | 150,898 | |
Prepaid pension asset | 111,906 | | | 92,531 | |
Other assets | 32,921 | | | 34,114 | |
Total assets | $ | 4,083,301 | | | $ | 4,021,334 | |
Liabilities | | | |
Current liabilities: | | | |
Current portion of long-term debt | 100,000 | | | 100,000 | |
Accounts payable | 158,196 | | | 201,237 | |
Accrued expenses | 142,169 | | | 146,833 | |
Deferred revenue | 249,671 | | | 253,411 | |
Liabilities held for sale | 13,215 | | | 10,141 | |
Other current liabilities | 101,892 | | | 98,755 | |
Total current liabilities | 765,143 | | | 810,377 | |
Long-term debt | 957,101 | | | 958,292 | |
Deferred tax liabilities, net | 121,491 | | | 115,007 | |
Accrued pension and other postretirement benefit costs | 98,122 | | | 98,345 | |
Long-term operating lease liability | 124,362 | | | 133,069 | |
Long-term portion of environmental reserves | 15,096 | | | 15,422 | |
Other liabilities | 101,926 | | | 103,248 | |
Total liabilities | 2,183,241 | | | 2,233,760 | |
Contingencies and commitments (Note 14) | | | |
Stockholders’ equity | | | |
Common stock, $1 par value, 100,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 49,187,378 shares issued as of September 30, 2021 and December 31, 2020; outstanding shares were 40,473,516 as of September 30, 2021 and 40,916,429 as of December 31, 2020 | 49,187 | | | 49,187 | |
Additional paid in capital | 124,532 | | | 122,535 | |
Retained earnings | 2,839,294 | | | 2,670,328 | |
Accumulated other comprehensive loss | (308,810) | | | (310,856) | |
Common treasury stock, at cost (8,713,862 shares as of September 30, 2021 and 8,270,949 shares as of December 31, 2020) | (804,143) | | | (743,620) | |
Total stockholders’ equity | 1,900,060 | | | 1,787,574 | |
Total liabilities and stockholders’ equity | $ | 4,083,301 | | | $ | 4,021,334 | |
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See notes to condensed consolidated financial statements |
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| September 30, 2017 | | December 31, 2016 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 432,191 |
| | $ | 553,848 |
|
Receivables, net | 515,966 |
| | 463,062 |
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Inventories, net | 397,270 |
| | 366,974 |
|
Other current assets | 43,852 |
| | 30,927 |
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Total current assets | 1,389,279 |
| | 1,414,811 |
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Property, plant, and equipment, net | 387,699 |
| | 388,903 |
|
Goodwill | 1,089,781 |
| | 951,057 |
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Other intangible assets, net | 338,957 |
| | 271,461 |
|
Other assets | 15,508 |
| | 11,549 |
|
Total assets | $ | 3,221,224 |
| | $ | 3,037,781 |
|
Liabilities | |
| | |
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Current liabilities: | | | |
Current portion of long-term and short-term debt | $ | 150,408 |
| | $ | 150,668 |
|
Accounts payable | 150,751 |
| | 177,911 |
|
Accrued expenses | 131,357 |
| | 130,239 |
|
Income taxes payable | 9,988 |
| | 18,274 |
|
Deferred revenue | 189,788 |
| | 170,143 |
|
Other current liabilities | 36,946 |
| | 28,027 |
|
Total current liabilities | 669,238 |
| | 675,262 |
|
Long-term debt | 814,400 |
| | 815,630 |
|
Deferred tax liabilities, net | 57,918 |
| | 49,722 |
|
Accrued pension and other postretirement benefit costs | 101,827 |
| | 107,151 |
|
Long-term portion of environmental reserves | 14,956 |
| | 14,024 |
|
Other liabilities | 88,409 |
| | 84,801 |
|
Total liabilities | 1,746,748 |
| | 1,746,590 |
|
Contingencies and commitments (Note 12) |
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| |
|
|
Stockholders’ equity | | | |
Common stock, $1 par value,100,000,000 shares authorized at September 30, 2017 and December 31, 2016; 49,187,378 shares issued at September 30, 2017 and December 31, 2016; outstanding shares were 44,129,363 at September 30, 2017 and 44,181,050 at December 31, 2016 | 49,187 |
| | 49,187 |
|
Additional paid in capital | 123,573 |
| | 129,483 |
|
Retained earnings | 1,883,185 |
| | 1,754,907 |
|
Accumulated other comprehensive loss | (217,488 | ) | | (291,756 | ) |
Common treasury stock, at cost (5,058,015 shares at September 30, 2017 and 5,006,328 shares at December 31, 2016) | (363,981 | ) | | (350,630 | ) |
Total stockholders’ equity | 1,474,476 |
| | 1,291,191 |
|
Total liabilities and stockholders’ equity | $ | 3,221,224 |
| | $ | 3,037,781 |
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See notes to condensed consolidated financial statements |
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) | | | | | | | | | | | |
| Nine Months Ended |
| September 30, |
(In thousands) | 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net earnings | $ | 190,580 | | | $ | 147,399 | |
Adjustments to reconcile net earnings to net cash provided by operating activities | | | |
Depreciation and amortization | 86,240 | | | 84,769 | |
Gain on sale/disposal of long-lived assets | (604) | | | (370) | |
Deferred income taxes | 4,480 | | | 4,258 | |
Share-based compensation | 10,861 | | | 11,777 | |
Impairment of assets held for sale | 8,656 | | | — | |
Foreign exchange loss on substantial liquidation of subsidiary | — | | | 9,498 | |
Non-cash restructuring charges | — | | | 10,254 | |
Change in operating assets and liabilities, net of businesses acquired: | | | |
Receivables, net | (81,498) | | | 1,987 | |
Inventories, net | (5,045) | | | (33,322) | |
Progress payments | (3,960) | | | (3,036) | |
Accounts payable and accrued expenses | (51,702) | | | (81,535) | |
Deferred revenue | 115 | | | (8,841) | |
Pension and postretirement liabilities, net | 2,406 | | | (150,674) | |
Other current and long-term assets and liabilities | (4,768) | | | 11,620 | |
Net cash provided by operating activities | 155,761 | | | 3,784 | |
Cash flows from investing activities: | | | |
Proceeds from sale/disposal of long-lived assets | 3,389 | | | 2,476 | |
Additions to property, plant, and equipment | (27,858) | | | (36,341) | |
Acquisition of businesses, net of cash acquired | — | | | (82,053) | |
Additional consideration paid on prior year acquisitions | (5,340) | | | — | |
Net cash used for investing activities | (29,809) | | | (115,918) | |
Cash flows from financing activities: | | | |
Borrowings under revolving credit facility | 166,771 | | | 389,398 | |
Payment of revolving credit facility | (166,771) | | | (389,398) | |
Borrowings on debt | — | | | 300,000 | |
Repurchases of common stock | (79,092) | | | (137,155) | |
Proceeds from share-based compensation | 9,705 | | | 9,908 | |
Dividends paid | (14,320) | | | (14,160) | |
Other | (699) | | | (648) | |
Net cash (used for)/provided by financing activities | (84,406) | | | 157,945 | |
Effect of exchange-rate changes on cash | (5,378) | | | (10,023) | |
Net increase in cash and cash equivalents | 36,168 | | | 35,788 | |
Cash and cash equivalents at beginning of period | 198,248 | | | 391,033 | |
Cash and cash equivalents at end of period | $ | 234,416 | | | $ | 426,821 | |
See notes to condensed consolidated financial statements |
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| Nine Months Ended |
| September 30, |
(In thousands) | 2017 | | 2016 |
Cash flows from operating activities: | | | |
Net earnings | $ | 147,141 |
| | $ | 118,714 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities | | | |
Depreciation and amortization | 74,815 |
| | 72,419 |
|
Gain on sale of businesses | (1,011 | ) | | (845 | ) |
Gain on fixed asset disposals | (225 | ) | | (194 | ) |
Deferred income taxes | (1,321 | ) | | (6,388 | ) |
Share-based compensation | 9,173 |
| | 7,813 |
|
Change in operating assets and liabilities, net of businesses acquired and divested: | | | |
Receivables, net | (38,204 | ) | | 95,200 |
|
Inventories, net | (892 | ) | | (18,613 | ) |
Progress payments | 325 |
| | 4,094 |
|
Accounts payable and accrued expenses | (42,662 | ) | | (58,162 | ) |
Deferred revenue | 16,772 |
| | 14,937 |
|
Income taxes payable | (11,358 | ) | | 8,936 |
|
Net pension and postretirement liabilities | 4,115 |
| | 2,723 |
|
Termination of interest rate swap | — |
| | 20,405 |
|
Other current and long-term assets and liabilities | 5,639 |
| | 6,173 |
|
Net cash provided by operating activities | 162,307 |
| | 267,212 |
|
Cash flows from investing activities: | | | |
Proceeds from sales and disposals of long lived assets | 1,790 |
| | 1,204 |
|
Proceeds from divestitures | 6,162 |
| | 1,027 |
|
Additions to property, plant, and equipment | (34,874 | ) | | (26,127 | ) |
Acquisition of businesses, net of cash acquired | (232,630 | ) | | (295 | ) |
Net cash used for investing activities | (259,552 | ) | | (24,191 | ) |
Cash flows from financing activities: | | | |
Borrowings under revolving credit facility | 4,884 |
| | 7,504 |
|
Payments of revolving credit facility | (5,144 | ) | | (7,961 | ) |
Repurchases of common stock | (38,939 | ) | | (80,296 | ) |
Proceeds from share-based compensation | 11,854 |
| | 18,359 |
|
Dividends paid | (11,497 | ) | | (11,576 | ) |
Excess tax benefits from share-based compensation plans | — |
| | 6,771 |
|
Other | (512 | ) | | (469 | ) |
Net cash used for financing activities | (39,354 | ) | | (67,668 | ) |
Effect of exchange-rate changes on cash | 14,942 |
| | (11,997 | ) |
Net increase (decrease) in cash and cash equivalents | (121,657 | ) | | 163,356 |
|
Cash and cash equivalents at beginning of period | 553,848 |
| | 288,697 |
|
Cash and cash equivalents at end of period | $ | 432,191 |
| | $ | 452,053 |
|
Supplemental disclosure of non-cash activities: | |
| | |
|
Capital expenditures incurred but not yet paid | $ | 756 |
| | $ | 688 |
|
See notes to condensed consolidated financial statements |
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the nine months ended September 30, 2021 |
| Common Stock | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock |
December 31, 2020 | $ | 49,187 | | | $ | 122,535 | | | $ | 2,670,328 | | | $ | (310,856) | | | $ | (743,620) | |
Net earnings | — | | | — | | | 190,580 | | | — | | | — | |
Other comprehensive income, net of tax | — | | | — | | | — | | | 2,046 | | | — | |
Dividends declared | — | | | — | | | (21,614) | | | — | | | — | |
Restricted stock | — | | | (9,007) | | | — | | | — | | | 9,007 | |
Employee stock purchase plan and stock options exercised | — | | | 877 | | | — | | | — | | | 8,828 | |
Share-based compensation | — | | | 10,724 | | | — | | | — | | | 137 | |
Repurchase of common stock (1) | — | | | — | | | — | | | — | | | (79,092) | |
Other | — | | | (597) | | | — | | | — | | | 597 | |
September 30, 2021 | $ | 49,187 | | | $ | 124,532 | | | $ | 2,839,294 | | | $ | (308,810) | | | $ | (804,143) | |
|
| | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock |
December 31, 2015 | $ | 49,190 |
| | $ | 144,923 |
| | $ | 1,590,645 |
| | $ | (225,928 | ) | | $ | (303,407 | ) |
Net earnings | — |
| | — |
| | 187,329 |
| | — |
| | — |
|
Other comprehensive loss, net of tax | — |
| | — |
| | — |
| | (65,828 | ) | | — |
|
Dividends paid | — |
| | — |
| | (23,067 | ) | | — |
| | — |
|
Restricted stock, net of tax | — |
| | (12,086 | ) | | — |
| | — |
| | 17,275 |
|
Stock options exercised, net of tax | — |
| | (11,271 | ) | | — |
| | — |
| | 39,483 |
|
Other | (3 | ) | | (1,104 | ) | | — |
| | — |
| | 811 |
|
Share-based compensation | — |
| | 9,021 |
| | — |
| | — |
| | 457 |
|
Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | (105,249 | ) |
December 31, 2016 | $ | 49,187 |
| | $ | 129,483 |
| | $ | 1,754,907 |
| | $ | (291,756 | ) | | $ | (350,630 | ) |
Net earnings | — |
| | — |
| | 147,141 |
| | — |
| | — |
|
Other comprehensive income, net of tax | — |
| | — |
| | — |
| | 74,268 |
| | — |
|
Dividends declared | — |
| | — |
| | (18,124 | ) | | — |
| | — |
|
Restricted stock | — |
| | (9,624 | ) | | — |
| | — |
| | 9,618 |
|
Stock options exercised | — |
| | (2,995 | ) | | — |
| | — |
| | 14,855 |
|
Other | — |
| | (2,099 | ) | | (739 | ) | | — |
| | 750 |
|
Share-based compensation | — |
| | 8,808 |
| | — |
| | — |
| | 365 |
|
Repurchase of common stock | — |
| | — |
| | — |
| | — |
| | (38,939 | ) |
September 30, 2017 | $ | 49,187 |
| | $ | 123,573 |
| | $ | 1,883,185 |
| | $ | (217,488 | ) | | $ | (363,981 | ) |
| | | | | | | | | |
See notes to condensed consolidated financial statements |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2021 |
| Common Stock | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock |
June 30, 2021 | $ | 49,187 | | | $ | 119,946 | | | $ | 2,776,884 | | | $ | (297,531) | | | $ | (753,782) | |
Net earnings | — | | | — | | | 69,703 | | | — | | | — | |
Other comprehensive income, net of tax | — | | | — | | | — | | | (11,279) | | | — | |
Dividends declared | — | | | — | | | (7,293) | | | — | | | — | |
Employee stock purchase plan | — | | | 466 | | | — | | | — | | | 4,320 | |
Share-based compensation | — | | | 4,120 | | | — | | | — | | | 16 | |
Repurchase of common stock (1) | — | | | — | | | — | | | — | | | (54,697) | |
September 30, 2021 | $ | 49,187 | | | $ | 124,532 | | | $ | 2,839,294 | | | $ | (308,810) | | | $ | (804,143) | |
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the nine months ended September 30, 2020 |
| Common Stock | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock |
December 31, 2019 | $ | 49,187 | | | $ | 116,070 | | | $ | 2,497,111 | | | $ | (325,274) | | | $ | (562,722) | |
Net earnings | — | | | — | | | 147,399 | | | — | | | — | |
Other comprehensive income, net of tax | — | | | — | | | — | | | 14,383 | | | — | |
Dividends declared | — | | | — | | | (21,221) | | | — | | | — | |
Restricted stock | — | | | (4,115) | | | — | | | — | | | 4,115 | |
Employee stock purchase plan and stock options exercised | — | | | (1,364) | | | — | | | — | | | 11,272 | |
Share-based compensation | — | | | 11,723 | | | — | | | — | | | 54 | |
Repurchase of common stock (1) | — | | | — | | | — | | | — | | | (137,155) | |
Other | — | | | (517) | | | — | | | — | | | 517 | |
September 30, 2020 | $ | 49,187 | | | $ | 121,797 | | | $ | 2,623,289 | | | $ | (310,891) | | | $ | (683,919) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2020 |
| Common Stock | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Treasury Stock |
June 30, 2020 | $ | 49,187 | | | $ | 118,467 | | | $ | 2,565,727 | | | $ | (342,681) | | | $ | (677,405) | |
Net earnings | — | | | — | | | 64,620 | | | — | | | — | |
Other comprehensive income, net of tax | — | | | — | | | — | | | 31,790 | | | — | |
Dividends declared | — | | | — | | | (7,058) | | | — | | | — | |
Employee stock purchase plan and stock options exercised | — | | | (1,470) | | | — | | | — | | | 6,191 | |
Share-based compensation | — | | | 4,800 | | | — | | | — | | | (163) | |
Repurchase of common stock (1) | — | | | — | | | — | | | — | | | (12,542) | |
September 30, 2020 | $ | 49,187 | | | $ | 121,797 | | | $ | 2,623,289 | | | $ | (310,891) | | | $ | (683,919) | |
| | | | | | | | | |
See notes to condensed consolidated financial statements |
(1) For the three and nine months ended September 30, 2021, the Corporation repurchased approximately 0.4 million and 0.6 million shares of its common stock, respectively. For the three and nine months ended September 30, 2020, the Corporation repurchased approximately 0.1 million and 1.4 million shares of its common stock, respectively.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Curtiss-Wright Corporation and its subsidiaries (the "Corporation" or the "Company") is a global, diversified multinational manufacturing and service company that designs, manufactures, and overhauls precision components and provides highly engineered products and services to the aerospace, defense, power generation,& process, and general industrial markets.
The unaudited condensed consolidated financial statements include the accounts of Curtiss-Wright and its majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated.
The unaudited condensed consolidated financial statements of the Corporation have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted as permitted by such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of these financial statements.
Management is required 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. Actual results may differ from these estimates. The most significant of these estimates includes the estimate of costs to complete long-term contracts underusing the percentage-of-completionover-time revenue recognition accounting methods, the estimate of useful lives for property, plant, and equipment, cash flow estimates used for testing the recoverability of assets,method, pension plan and postretirement obligation assumptions, estimates for inventory obsolescence, fair value estimates around assets and assumed liabilities from acquisitions, estimates for the valuation and useful lives of intangible assets, legal reserves, and the estimate of future environmental costs. Changes in estimates of contract sales, costs, and profits are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current and prior periods. Accordingly, the effect of the changes on future periods of contract performance is recognized as if the revised estimate had been the original estimate. During the three and nine months ended September 30, 20172021 and 2016,2020, there were no individual significant changes in estimated contract costs. 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 20162020 Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of trends or of the operating results for a full year.
Recent accounting pronouncements adoptedOn January 1, 2021, the Corporation implemented an organizational change to simplify its reportable segments and align its product sales with its end market structure. As a result, the Corporation now operates under the following three reportable segments: Aerospace & Industrial, Defense Electronics, and Naval & Power. This change resulted in the transfer of the Corporation's valve-related operations into the new Naval & Power segment. While this organizational change resulted in the recasting of previously reported amounts across all reportable segments, it did not impact the Corporation’s previously reported consolidated financial statements.
2. REVENUE
The Corporation recognizes revenue when control of a promised good and/or service is transferred to a customer in an amount that reflects the consideration that the Corporation expects to be entitled to in exchange for that good and/or service.
Performance Obligations
The Corporation identifies a performance obligation for each promise in a contract to transfer a distinct good or service to the customer. As part of its assessment, the Corporation considers all goods and/or services promised in the contract, regardless of whether they are explicitly stated or implied by customary business practices. The Corporation’s contracts may contain either a single performance obligation, including the promise to transfer individual goods or services that are not separately distinct within the context of the respective contracts, or multiple performance obligations. For contracts with multiple performance obligations, the Corporation allocates the overall transaction price to each performance obligation using standalone selling prices, where available, or utilizes estimates for each distinct good or service in the contract where standalone prices are not available.
The Corporation’s performance obligations are satisfied either at a point-in-time or on an over-time basis. Typically, over-time revenue recognition is based on the utilization of an input measure used to measure progress, such as costs incurred to date
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | |
Standard | Description | Effect on the condensed consolidated financial statements |
ASU 2017-04 Simplifying the Test for Goodwill Impairment | In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the measurement of goodwill impairment testing by removing step two. This guidance was early adopted effective January 1, 2017 and will be applied prospectively.relative to total estimated costs. If a performance obligation does not qualify for over-time revenue recognition, revenue is then recognized at the point-in-time in which control of the distinct good or service is transferred to the customer, typically based upon the terms of delivery.
The following table illustrates the approximate percentage of revenue recognized for performance obligations satisfied over-time versus at a point-in-time for the three and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | September 30, | | September 30, | | 2021 | | 2020 | | 2021 | | 2020 | Over-time | 48 | % | | 50 | % | | 51 | % | | 52 | % | Point-in-time | 52 | % | | 50 | % | | 49 | % | | 48 | % |
Contract backlog represents the remaining performance obligations that have not yet been recognized as revenue. Backlog includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Total backlog was approximately $2.2 billion as of September 30, 2021, of which the Corporation expects to recognize approximately 84% as net sales over the next 36 months. The remainder will be recognized thereafter.
Disaggregation of Revenue
The following table presents the Corporation’s total net sales disaggregated by end market and customer type:
| | | | | | | | | | | | | | | | | | | | | | | | Total Net Sales by End Market and Customer Type | Three Months Ended | | Nine Months Ended | | September 30, | | September 30, | (In thousands) | 2021 | | 2020 | | 2021 | | 2020 | Aerospace & Defense | | | | | | | | Aerospace Defense | $ | 116,853 | | | $ | 121,987 | | | $ | 327,846 | | | $ | 333,120 | | Ground Defense | 55,124 | | | 20,519 | | | 159,091 | | | 63,205 | | Naval Defense | 175,800 | | | 165,524 | | | 531,429 | | | 496,157 | | Commercial Aerospace | 67,461 | | | 70,943 | | | 196,285 | | | 242,708 | | Total Aerospace & Defense | $ | 415,238 | | | $ | 378,973 | | | $ | 1,214,651 | | | $ | 1,135,190 | | | | | | | | | | Commercial | | | | | | | | Power & Process | $ | 112,736 | | | $ | 113,919 | | | $ | 343,573 | | | $ | 350,632 | | General Industrial | 92,645 | | | 78,722 | | | 280,949 | | | 237,070 | | Total Commercial | $ | 205,381 | | | $ | 192,641 | | | $ | 624,522 | | | $ | 587,702 | | | | | | | | | | Total | $ | 620,619 | | | $ | 571,614 | | | $ | 1,839,173 | | | $ | 1,722,892 | |
Contract Balances
Timing of revenue recognition and cash collection may result in billed receivables, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the Condensed Consolidated Balance Sheet. The Corporation’s contract assets primarily relate to its rights to consideration for work completed but not billed as of the reporting date. Contract assets are transferred to billed receivables when the rights to consideration become unconditional. This is typical in situations where amounts are billed as work progresses in accordance with agreed-upon contractual terms or upon achievement of contractual milestones. The Corporation’s contract liabilities primarily consist of customer advances received prior to revenue being earned. Revenue recognized during the three and nine months ended September 30, 2021 included in the contract liabilities balance as of January 1, 2021 was approximately $46 million and $188 million, respectively. Revenue recognized during the three and nine months ended September 30, 2020 included in the contract liabilities balance as of January 1, 2020 was approximately $37 million and $197 million, respectively. Contract assets and contract liabilities are reported in the "Receivables, net" and "Deferred revenue" lines, respectively, within the Condensed Consolidated Balance Sheet.
| The adoption of this standard does not have a financial impact on the Condensed Consolidated Financial Statements. |
Date of adoption: January 1, 2017 |
ASU 2016-09 Improvements to Employee Share-Based Payment Accounting | In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes and forfeitures. Excess tax benefits previously reported as cash flows from financing activities in the Condensed Consolidated Financial Statements are now required to be reported as operating activities. The Company adopted this guidance effective January 1, 2017. | The Corporation recorded an income tax benefit of approximately $5 million within the provision for income taxes for the nine months ended September 30, 2017 related to the excess tax benefit on stock options and performance share units. Prior to adoption, this amount would have been recorded as an increase to additional paid-in capital.
The Corporation elected to account for forfeitures as they occur, which did not have a material impact on its Condensed Consolidated Financial Statements.
|
Date of adoption: January 1, 2017 |
Recent accounting pronouncements to be adopted |
| | |
Standard | Description | Effect on the condensed consolidated financial statements |
ASU 2014-09 Revenue from Contracts with Customers | In May 2014, the FASB issued a comprehensive new revenue recognition standard which will supersede previous existing revenue recognition guidance. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The five-step model includes (1) identifying the contract, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations and (5) recognizing revenue when each performance obligation has been satisfied. The standard also requires expanded disclosures surrounding revenue recognition. The standard is effective for fiscal periods beginning after December 15, 2017 and allows for either full retrospective or modified retrospective adoption. | The Corporation plans to apply the modified retrospective approach upon adoption and is currently evaluating the impact of adoption on its Condensed Consolidated Financial Statements as of January 1, 2018. While its assessment is ongoing and not yet complete, the Corporation anticipates certain contracts currently accounted for on a “point in time” basis will be required to transition to an “over-time” model as they meet one or more of the mandatory criteria established under the new standard. The Corporation expects the transition adjustment to primarily include the following: a) U.S. Government and commercial contracts where such promised goods do not have alternative use and the Corporation has an enforceable right to payment for performance completed to date; b) repair and overhaul services performed on customer-owned goods; and c) Defense-related contracts where the Corporation uses customer-furnished materials in production. We are in the process of implementing appropriate changes to our business processes, systems, and controls to support recognition and disclosure under the new standard. The Corporation will continue to monitor interpretative guidance issued by the FASB which may cause its evaluation to change.
|
Date of adoption: January 1, 2018 |
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | |
ASU 2016-02 Leases | In February 2016, the FASB issued final guidance that will require lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to today’s accounting. The guidance requires the use of a modified retrospective approach. | The Corporation is currently evaluating the impact of the adoption of this standard on its Condensed Consolidated Financial Statements. |
Date of adoption: January 1, 2019 |
ASU 2017-01
Clarifying the Definition of a Business
| In January 2017, the FASB issued ASU 2017-01, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
| The Corporation does not expect the adoption of this standard to have a material impact on its Condensed Consolidated Financial Statements. |
Date of adoption: January 1, 2018 |
ASU 2017-07
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
| In March 2017, the FASB issued final guidance that requires the service cost component of net periodic benefit costs from defined benefit and other postretirement benefit plans be included in the same Consolidated Statement of Earnings captions as other compensation costs arising from services rendered by the covered employees during the period. The other components of net benefit cost will be presented in the Statement of Earnings separately from service costs. This standard is effective for fiscal years beginning after December 15, 2017. Following adoption, only service costs will be eligible for capitalization into manufactured inventories. The amendments of this standard should be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit costs.
| The Corporation is currently evaluating the impact of the adoption of this standard on its Condensed Consolidated Financial Statements. |
Date of adoption: January 1, 2018 |
2.3. ACQUISITIONS
The Corporation continually evaluates potential acquisitions that either strategically fit within the Corporation’s existing portfolio or expand the Corporation’s portfolio into new product lines or adjacent markets. The Corporation has completed a number ofnumerous acquisitions that have been accounted for as business combinations and have resulted in the recognition of goodwill in the Corporation's financial statements. This goodwill arises because the acquisition purchase prices for these businesses reflectprice reflects the future earnings and cash flow potential in excess of the earnings and cash flows attributable to the current product and customer set at the time of acquisition. Thus, goodwill inherently includes the know-how of the assembled workforce, the ability of the workforce to further improve the technology and product offerings, and the expected cash flows resulting from these efforts. Goodwill may also include expected synergies resulting from the complementary strategic fit these businesses bring to existing operations.
The Corporation allocates the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. In the months after closing, as the Corporation obtains additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and as the Corporation learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Corporation will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.
During the nine months ended September 30, 2017,2021, the Corporation did not complete any acquisitions. However, the Corporation paid $5 million during the nine months ended September 30, 2021 in regard to prior period acquisitions, which included a working capital adjustment on the acquisition of Pacific Star Communications, Inc. (PacStar), as well as a portion of the purchase price on the acquisition of Dyna-Flo Control Valve Services Ltd. (Dyna-Flo), which was initially held back as security for potential indemnification claims against the seller in accordance with the terms of the Purchase Agreement.
During the nine months ended September 30, 2020, the Corporation acquired two2 businesses for an aggregate purchase price of $233$90 million, which are described in more detail below. No acquisitions were made duringThe Condensed Consolidated Statement of Earnings for the nine months ended September 30, 2016.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Condensed Consolidated Statement of Earnings includes $452020 included $12 million of total net sales and $1 million of net losses from the Corporation's 20172020 acquisitions.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for allthe acquisitions consummated during the nine months ended September 30, 2017.2020.
| | | | | | | | |
(In thousands) | | 2020 |
Accounts receivable | | $ | 3,204 | |
Inventory | | 10,233 | |
Property, plant, and equipment | | 1,332 | |
Other current and non-current assets | | 188 | |
Intangible assets | | 39,384 | |
Operating lease right-of-use assets, net | | 1,992 | |
Current and non-current liabilities | | (10,590) | |
Net tangible and intangible assets | | 45,743 | |
Goodwill | | 43,912 | |
Total purchase price | | $ | 89,655 | |
| | |
Goodwill deductible for tax purposes | | $ | 38,519 | |
|
| | | | |
(In thousands) | | 2017 |
Accounts receivable | | $ | 5,006 |
|
Inventory | | 22,702 |
|
Property, plant, and equipment | | 4,598 |
|
Other current and non-current assets | | 2,815 |
|
Intangible assets | | 88,900 |
|
Current and non-current liabilities | | (6,672 | ) |
Due to seller | | (596 | ) |
Net tangible and intangible assets | | 116,753 |
|
Purchase price, net of cash acquired | | 232,630 |
|
Goodwill | | $ | 115,877 |
|
| | |
Goodwill deductible for tax purposes | | $ | 115,877 |
|
20172020 Acquisitions
Teletronics Technology Corporation (TTC)PacStar
On January 3, 2017,October 30, 2020, the Corporation acquired 100% of the issued and outstanding capital stock of TTCPacStar for $226.0 million, net of cash acquired.$406 million. The Share Purchase Agreement contains a purchase price adjustment mechanism and representations and warranties customary for a transaction of this type, including a portion of the purchase price deposited in escrow as security for potential indemnification claims against the seller. TTCPacStar is a designerprovider of tactical communications solutions for battlefield network management. The
CURTISS-WRIGHT CORPORATION and manufacturer of high-technology data acquisition and comprehensive flight test instrumentation systems for critical aerospace and defense applications. For the year ended December 31, 2016, TTC generated sales of $64 million.The SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
acquired business operates within the Defense Electronics segment. The acquisition is subject to post-closing adjustments with the purchase price allocation not yet complete.
Para Tech Coating, Inc. (Para Tech)IADS
On February 8, 2017,April 20, 2020, the CorporationCorporation acquired certain assets and assumed certain liabilities of Para Techthe IADS product line for $6.6 million in cash.approximately $29 million. The Asset Purchase Agreement contains representations and warranties customary for a purchase price adjustment mechanismtransaction of this type. IADS is a real-time display and post-test analysis product for flight tests. The acquired product line operates within the Defense Electronics segment.
Dyna-Flo
On February 28, 2020, the Corporation acquired 100% of the issued and outstanding share capital of Dyna-Flo for $60 million, net of cash acquired. The Purchase Agreement contains representations and warranties customary for a transaction of this type, including a portion of the purchase price held back as security for potential indemnification claims against the seller. Para Tech is a provider of parylene conformal coating servicesDyna-Flo specializes in control valves, actuators, and control systems for aerospace & defense electronic components as well as critical medical devices.the chemical, petrochemical, and oil and gas markets. The acquired business operates within the Commercial/IndustrialNaval & Power segment.
3.4. ASSETS HELD FOR SALE
During the fourth quarter of 2020, the Corporation committed to a plan to sell its industrial valve business in Germany, which is reported within its Naval & Power segment. The business met the criteria to be classified as held for sale in the fourth quarter of 2020. Accordingly, the assets and liabilities of the business are presented as held for sale in the Corporation's Condensed Consolidated Balance Sheet. The aforementioned assets and liabilities classified as held for sale have been measured at the lower of carrying value or fair value less costs to sell, which resulted in an impairment loss of $33 million in the fourth quarter of 2020. An additional impairment loss of $9 million was recorded during the three and nine months ended September 30, 2021.
The aggregate components of assets and liabilities classified as held for sale are as follows:
| | | | | | | | | | | |
(In thousands) | September 30, 2021 | | December 31, 2020 |
Assets held for sale: | | | |
Receivables, net | $ | 9,632 | | | $ | 9,902 | |
Inventories, net | 18,141 | | | 16,401 | |
Other current assets | 1,663 | | | 1,798 | |
Property, plant, and equipment, net | 4,357 | | | 4,821 | |
Reserve for assets held for sale | (13,578) | | | (5,338) | |
Total assets held for sale, current | $ | 20,215 | | | $ | 27,584 | |
Liabilities held for sale: | | | |
Accounts payable | $ | (3,046) | | | $ | (2,654) | |
Accrued expenses | (1,208) | | | (1,375) | |
Other current liabilities | (3,975) | | | (748) | |
Accrued pension and other postretirement benefit costs | (4,986) | | | (5,364) | |
Total liabilities held for sale, current | $ | (13,215) | | | $ | (10,141) | |
5. RECEIVABLES
Receivables primarily include amounts billed to customers, unbilled charges on long-term contracts consisting of amounts recognized as sales but not billed, and other receivables. Substantially all amounts of unbilled receivables are expected to be billed and collected within one year. An immaterial amount of unbilled receivables are subject to retainage provisions. The amount of claims and unapproved change orders within our receivables balances are immaterial.
The composition of receivables is as follows:
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | (In thousands) | September 30, 2017 | | December 31, 2016 | (In thousands) | September 30, 2021 | | December 31, 2020 |
Billed receivables: | | | | Billed receivables: | | | |
Trade and other receivables | $ | 367,631 |
| | $ | 340,091 |
| Trade and other receivables | $ | 381,628 | | | $ | 361,460 | |
Less: Allowance for doubtful accounts | (7,306 | ) | | (4,832 | ) | |
Net billed receivables | 360,325 |
| | 335,259 |
| |
Unbilled receivables: | | | | |
Unbilled receivables (contract assets): | | Unbilled receivables (contract assets): | |
Recoverable costs and estimated earnings not billed | 178,479 |
| | 149,847 |
| Recoverable costs and estimated earnings not billed | 296,500 | | | 238,309 | |
Less: Progress payments applied | (22,838 | ) | | (22,044 | ) | Less: Progress payments applied | (734) | | | (3,291) | |
Net unbilled receivables | 155,641 |
| | 127,803 |
| Net unbilled receivables | 295,766 | | | 235,018 | |
Less: Allowance for doubtful accounts | | Less: Allowance for doubtful accounts | (6,527) | | | (7,760) | |
Receivables, net | $ | 515,966 |
| | $ | 463,062 |
| Receivables, net | $ | 670,867 | | | $ | 588,718 | |
4.6. 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. Long-term contract inventory includes an immaterial amount of claims or other similar items subject to uncertainty concerning their determination or realization. Inventories are valued at the lower of cost or market.net realizable value.
The composition of inventories is as follows:
| | (In thousands) | September 30, 2017 | | December 31, 2016 | (In thousands) | September 30, 2021 | | December 31, 2020 |
Raw materials | $ | 189,326 |
| | $ | 189,228 |
| Raw materials | $ | 194,887 | | | $ | 177,828 | |
Work-in-process | 85,636 |
| | 73,843 |
| Work-in-process | 81,781 | | | 80,729 | |
Finished goods | 127,647 |
| | 112,478 |
| Finished goods | 111,914 | | | 120,767 | |
Inventoried costs related to U.S. Government and other long-term contracts | 61,587 |
| | 57,516 |
| |
Gross inventories | 464,196 |
| | 433,065 |
| |
Less: Inventory reserves | (55,240 | ) | | (54,988 | ) | |
Progress payments applied, principally related to long-term contracts | (11,686 | ) | | (11,103 | ) | |
Inventoried costs related to U.S. Government and other long-term contracts (1) | | Inventoried costs related to U.S. Government and other long-term contracts (1) | 50,086 | | | 56,599 | |
Inventories, net of reserves | | Inventories, net of reserves | 438,668 | | | 435,923 | |
Less: Progress payments applied | | Less: Progress payments applied | (5,528) | | | (7,044) | |
Inventories, net | $ | 397,270 |
| | $ | 366,974 |
| Inventories, net | $ | 433,140 | | | $ | 428,879 | |
Inventoried costs related to long-term contracts include(1) As of September 30, 2021 and December 31, 2020, this caption also includes capitalized contract development costs of $26.3 million and $29.7 million, respectively, related to certain aerospace and defense programs of $30.4 million and $28.8 million, as of September 30, 2017 and December 31, 2016, respectively.programs. These capitalized costs will be liquidated as production units are delivered to the customers.produced under contract. As of September 30, 20172021 and December 31, 2016, $4.12020, capitalized development costs of $12.1 million and $3.9$13.0 million, respectively, are scheduled to be liquidated undernot currently supported by existing firm orders.
5.7. GOODWILL
In connection with the change in reportable segments on January 1, 2021, the Corporation recast its previously reported goodwill balances as of December 31, 2020 on a relative fair value basis. As a result, the Corporation performed an interim quantitative impairment assessment as of March 31, 2021 on each of its reporting units, and concluded that no impairment exists. Refer to Note 12 to the Condensed Consolidated Financial Statements for additional information on the Corporation’s reportable segments.
The changes in the carrying amount of goodwill for the nine months endedSeptember 30, 20172021 are as follows: | | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | Aerospace & Industrial | | Defense Electronics | | Naval & Power | | Consolidated |
December 31, 2020 | $ | 316,921 | | | $ | 703,915 | | | $ | 434,301 | | | $ | 1,455,137 | |
Adjustments (1) | — | | | 11,608 | | | — | | | 11,608 | |
Foreign currency translation adjustment | (967) | | | (3,293) | | | (1,172) | | | (5,432) | |
September 30, 2021 | $ | 315,954 | | | $ | 712,230 | | | $ | 433,129 | | | $ | 1,461,313 | |
(1) Amount primarily relates to post-closing adjustments on the Corporation's acquisition of PacStar in October 2020.
|
| | | | | | | | | | | | | | | |
(In thousands) | Commercial/Industrial | | Defense | | Power | | Consolidated |
December 31, 2016 | $ | 436,141 |
| | $ | 327,655 |
| | $ | 187,261 |
| | $ | 951,057 |
|
Acquisitions | 2,608 |
| | 113,269 |
| | — |
| | 115,877 |
|
Divestitures | (1,168 | ) | | (648 | ) | | — |
| | (1,816 | ) |
Foreign currency translation adjustment | 9,963 |
| | 14,469 |
| | 231 |
| | 24,663 |
|
September 30, 2017 | $ | 447,544 |
| | $ | 454,745 |
| | $ | 187,492 |
| | $ | 1,089,781 |
|
68. OTHER INTANGIBLE ASSETS, NET
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables present the cumulative composition of the Corporation’s intangible assets:
| | | | September 30, 2017 | | December 31, 2016 | | September 30, 2021 | | December 31, 2020 |
(In thousands) | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net | (In thousands) | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Technology | | $ | 243,216 |
| | $ | (110,441 | ) | | $ | 132,775 |
| | $ | 166,859 |
| | $ | (98,266 | ) | | $ | 68,593 |
| Technology | | $ | 274,522 | | | $ | (160,020) | | | $ | 114,502 | | | $ | 280,595 | | | $ | (148,064) | | | $ | 132,531 | |
Customer related intangibles | | 366,910 |
| | (175,251 | ) | | 191,659 |
| | 349,742 |
| | (157,154 | ) | | 192,588 |
| Customer related intangibles | | 568,566 | | | (263,098) | | | 305,468 | | | 573,722 | | | (239,798) | | | 333,924 | |
Programs (1) | | Programs (1) | | 144,000 | | | (25,200) | | | 118,800 | | | 144,000 | | | (19,800) | | | 124,200 | |
Other intangible assets | | 40,613 |
| | (26,090 | ) | | 14,523 |
| | 36,709 |
| | (26,429 | ) | | 10,280 |
| Other intangible assets | | 49,543 | | | (35,799) | | | 13,744 | | | 51,493 | | | (32,518) | | | 18,975 | |
Total | | $ | 650,739 |
| | $ | (311,782 | ) | | $ | 338,957 |
| | $ | 553,310 |
| | $ | (281,849 | ) | | $ | 271,461 |
| Total | | $ | 1,036,631 | | | $ | (484,117) | | | $ | 552,514 | | | $ | 1,049,810 | | | $ | (440,180) | | | $ | 609,630 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
During(1) Programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology, and trademarks underlying the associated program.
Total intangible amortization expense for the nine months ended September 30, 2017, the Corporation acquired intangible assets of $88.9 million. The Corporation acquired Technology of $73.0 million, Customer related intangibles of $12.9 million, and Other intangible assets of $3.0 million, which have a weighted average amortization period of 15.0 years, 16.3 years, and 7.0 years, respectively.
Total intangible amortization expense for the nine months endedSeptember 30, 20172021 was $28.8$45 million, as compared to $24.9$43 million in the comparable prior year period. The estimated amortization expense for the five years ending December 31, 20172021 through 20212025 is $38.8$59 million, $37.7$55 million, $36.0$51 million, $34.1$48 million, and $32.3$45 million, respectively.
7.9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Forward Foreign Exchange and Currency Option Contracts
The Corporation has foreign currency exposure primarily in the United Kingdom, Europe, and Canada. The Corporation uses financial instruments, such as forward and option 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. Guidance on accounting for derivative instruments and hedging activities requires companies to recognize all of the derivative financial instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets based upon quoted market prices for comparable instruments.
Interest Rate Risks and Related Strategies
The Corporation’s primary interest rate exposure results from changes in U.S. dollar interest rates. The Corporation’s policy is to manage interest cost using a mix of fixed and variable rate debt. The Corporation periodically uses interest rate swaps to manage such exposures. Under these interest rate swaps, the Corporation exchanges, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. The Corporation’s foreign exchange contracts and interest rate swaps are considered Level 2 instruments which are based on market based inputs or unobservable inputs and corroborated by market data such as quoted prices, interest rates, or yield curves.
Effects on Condensed Consolidated Balance Sheets
As of September 30, 20172021 and December 31, 2016,2020, the fair values of the asset and liability derivative instruments arewere immaterial.
Effects on Condensed Consolidated Statements of Earnings
Undesignated hedges
The locationgains and amount of losses or (gains) recognized in income on forward exchange derivative contracts not designated for hedge accounting are recognized to general and administrative expenses within the Condensed Consolidated Statements of Earnings. The (losses) for the three and nine months ended September 30, 2021 were as follows:($2.2) million and ($1.7) million, respectively. The gains and (losses) for the three and nine months ended September 30, 2020 were $1.7 million and ($5.7) million, respectively.
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(In thousands) | | September 30, | | September 30, |
Derivatives not designated as hedging instrument | | 2017 | | 2016 | | 2017 | | 2016 |
Forward exchange contracts: | | | | | | | | |
General and administrative expenses | | $ | (2,282 | ) | | $ | 3,596 |
| | $ | (1,668 | ) | | $ | 8,632 |
|
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Debt
The estimated fair value amounts were determined by the Corporation using available market information that is primarily based on quoted market prices for the same or similar issuesissuances as of September 30, 2017.2021. Accordingly, all of the Corporation’s debt is valued atas a Level 2.2 financial instrument. The fair values described below 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.
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(In thousands) | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
5.51% Senior notes due 2017 | 150,000 |
| | 150,888 |
| | 150,000 |
| | 154,509 |
|
3.84% Senior notes due 2021 | 100,000 |
| | 103,949 |
| | 100,000 |
| | 102,463 |
|
3.70% Senior notes due 2023 | 225,000 |
| | 232,186 |
| | 225,000 |
| | 226,946 |
|
3.85% Senior notes due 2025 | 100,000 |
| | 103,517 |
| | 100,000 |
| | 100,338 |
|
4.24% Senior notes due 2026 | 200,000 |
| | 211,242 |
| | 200,000 |
| | 203,592 |
|
4.05% Senior notes due 2028 | 75,000 |
| | 77,751 |
| | 75,000 |
| | 74,630 |
|
4.11% Senior notes due 2028 | 100,000 |
| | 104,235 |
| | 100,000 |
| | 99,876 |
|
Other debt | 408 |
| | 408 |
| | 668 |
| | 668 |
|
Total debt | 950,408 |
| | 984,176 |
| | 950,668 |
| | 963,022 |
|
Debt issuance costs, net | (869 | ) | | (869 | ) | | (984 | ) | | (984 | ) |
Unamortized interest rate swap proceeds | 15,269 |
| | 15,269 |
| | 16,614 |
| | 16,614 |
|
Total debt, net | $ | 964,808 |
| | $ | 998,576 |
| | $ | 966,298 |
| | $ | 978,652 |
|
8. 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 2016 Annual Report on Form 10-K.
Pension Plans
The components of net periodic pension cost for the three and nine months ended September 30, 2017 and 2016 were as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Service cost | $ | 5,874 |
| | $ | 6,347 |
| | $ | 18,819 |
| | $ | 18,832 |
|
Interest cost | 6,951 |
| | 7,503 |
| | 19,406 |
| | 22,915 |
|
Expected return on plan assets | (13,549 | ) | | (13,462 | ) | | (40,144 | ) | | (40,633 | ) |
Amortization of prior service cost | (24 | ) | | (11 | ) | | (75 | ) | | (34 | ) |
Amortization of unrecognized actuarial loss | 2,525 |
| | 2,837 |
| | 9,691 |
| | 9,023 |
|
Net periodic benefit cost | $ | 1,777 |
|
| $ | 3,214 |
|
| $ | 7,697 |
|
| $ | 10,103 |
|
During the nine months ended September 30, 2017, the Corporation made no contributions to the Curtiss-Wright Pension Plan, and does not expect to make any contributions in 2017. Contributions to the foreign benefit plans are not expected to be material in 2017.
Defined Contribution Retirement Plan
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
(In thousands) | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value |
3.84% Senior notes due 2021 | $ | 100,000 | | | $ | 100,473 | | | $ | 100,000 | | | $ | 102,173 | |
3.70% Senior notes due 2023 | 202,500 | | | 209,499 | | | 202,500 | | | 211,790 | |
3.85% Senior notes due 2025 | 90,000 | | | 96,193 | | | 90,000 | | | 97,429 | |
4.24% Senior notes due 2026 | 200,000 | | | 219,908 | | | 200,000 | | | 224,390 | |
4.05% Senior notes due 2028 | 67,500 | | | 73,903 | | | 67,500 | | | 75,440 | |
4.11% Senior notes due 2028 | 90,000 | | | 98,723 | | | 90,000 | | | 101,047 | |
3.10% Senior notes due 2030 | 150,000 | | | 153,306 | | | 150,000 | | | 155,805 | |
3.20% Senior notes due 2032 | 150,000 | | | 152,240 | | | 150,000 | | | 155,048 | |
Total debt | 1,050,000 | | | 1,104,245 | | | 1,050,000 | | | 1,123,122 | |
Debt issuance costs, net | (993) | | | (993) | | | (1,147) | | | (1,147) | |
Unamortized interest rate swap proceeds | 8,094 | | | 8,094 | | | 9,439 | | | 9,439 | |
Total debt, net | $ | 1,057,101 | | | $ | 1,111,346 | | | $ | 1,058,292 | | | $ | 1,131,414 | |
Effective January 1, 2014,
10. PENSION PLANS
Defined Benefit Pension Plans
The following table is a consolidated disclosure of all domestic and foreign defined pension plans as described in the Corporation’s 2020 Annual Report on Form 10-K.
The components of net periodic pension cost for the three and nine months ended September 30, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Service cost | $ | 6,931 | | | $ | 6,285 | | | $ | 20,921 | | | $ | 19,507 | |
Interest cost | 4,585 | | | 5,772 | | | 13,402 | | | 17,888 | |
Expected return on plan assets | (15,177) | | | (16,602) | | | (45,548) | | | (50,394) | |
Amortization of prior service cost | (216) | | | 178 | | | (648) | | | 36 | |
Amortization of unrecognized actuarial loss | 6,988 | | | 5,539 | | | 21,705 | | | 17,038 | |
Cost of settlements | 235 | | | — | | | 3,310 | | | — | |
Net periodic pension cost | $ | 3,346 | | | $ | 1,172 | | | $ | 13,142 | | | $ | 4,075 | |
The Corporation does not expect to make any contributions to the Curtiss-Wright Pension Plan in 2021. Contributions to the foreign benefit plans are not expected to be material in 2021. During the nine months ended September 30, 2020, the Corporation made a $150 million voluntary contribution to the Curtiss-Wright Pension Plan.
During the three and nine months ended September 30, 2021, the Company recognized settlement charges related to the retirement of former executives. The settlement charges represent events that are accounted for under guidance on employers’ accounting for settlements and curtailments of defined benefit pension plans.
Defined Contribution Retirement Plan
The Company also maintains a defined contribution plan for all non-union employees who are not currently receiving final or career average pay benefits became eligible to receive employer contributions in the Corporation’s sponsored 401(k) plan.for its U.S. subsidiaries. The employer contributions include both employer match and non-elective contribution components up to a maximum employer contribution of 6%7% of eligible compensation. During the three and nine months ended September 30, 2017 and 2016,2021, the expense relating to the plan was $10.0$4.6 million and $8.9$14.2 million, respectively. During the three and nine months ended September 30, 2020, the expense relating to the plan was $4.5 million and $14.8 million,
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
respectively. The Corporation made $10.9$16.4 million in contributions to the plan during the nine months ended September 30, 2017,2021, and expects to make total contributions of $11.8approximately $19.0 million in 2017.2021.
9.11. EARNINGS PER SHARE
Diluted earnings per share werewas 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:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Basic weighted-average shares outstanding | 40,769 | | | 41,545 | | | 40,865 | | | 41,926 | |
Dilutive effect of stock options and deferred stock compensation | 181 | | | 252 | | | 175 | | | 264 | |
Diluted weighted-average shares outstanding | 40,950 | | | 41,797 | | | 41,040 | | | 42,190 | |
|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Basic weighted-average shares outstanding | 44,137 |
| | 44,323 |
| | 44,196 |
| | 44,457 |
|
Dilutive effect of stock options and deferred stock compensation | 549 |
| | 674 |
| | 586 |
| | 671 |
|
Diluted weighted-average shares outstanding | 44,686 |
| | 44,997 |
| | 44,782 |
| | 45,128 |
|
ForThere were no anti-dilutive equity-based awards for the three months andended September 30, 2021. For the nine months ended September 30, 2017,2021, approximately 38,00041,000 shares issuable under equity-based awards were excluded from the calculation of diluted earnings per share as they were anti-dilutive based on the average stock price during the period. For theThere were no anti-dilutive equity-based awards for three and nine months ended September 30, 2016, there were no anti-dilutive equity-based awards.2020.
10.12. SEGMENT INFORMATION
The Corporation manages and evaluates its operations based on end marketsPrior to strengthen its ability to service customers and recognize certain organizational efficiencies. Based on this approach,the first quarter of 2021, the Corporation hasreported its results of operations through three reportable segments: Commercial/Industrial, Defense, and Power. On January 1, 2021, the Corporation implemented an organizational change to simplify its reportable segments and align its product sales with its end market structure. As a result, the Corporation now reports its results of operations through the following reportable segments: Aerospace & Industrial, Defense Electronics, and Naval & Power. While this organizational change resulted in the recasting of previously reported amounts across all reportable segments, it did not impact the Corporation’s previously reported consolidated financial statements.
The Corporation’s measure of segment profit or loss is operating income. Interest expense and income taxes are not reported on an operating segment basis as they are not considered in the segments’ performance evaluation by the Corporation’s chief operating decision-maker, its Chief Executive Officer.
Net sales and operating income by reportable segment were as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Net sales | | | | | | | |
Aerospace & Industrial | $ | 197,060 | | | $ | 189,021 | | | $ | 578,452 | | | $ | 593,654 | |
Defense Electronics | 182,314 | | | 148,674 | | | 528,080 | | | 428,912 | |
Naval & Power | 242,891 | | | 234,613 | | | 737,967 | | | 702,662 | |
Less: Intersegment revenues | (1,646) | | | (694) | | | (5,326) | | | (2,336) | |
Total consolidated | $ | 620,619 | | | $ | 571,614 | | | $ | 1,839,173 | | | $ | 1,722,892 | |
| | | | | | | |
Operating income (expense) | | | | | | | |
Aerospace & Industrial | $ | 30,872 | | | $ | 23,880 | | | $ | 81,874 | | | $ | 65,635 | |
Defense Electronics | 40,762 | | | 35,103 | | | 106,656 | | | 83,902 | |
Naval & Power | 35,483 | | | 33,367 | | | 116,635 | | | 90,623 | |
Corporate and other (1) | (9,448) | | | (7,777) | | | (27,847) | | | (27,792) | |
Total consolidated | $ | 97,669 | | | $ | 84,573 | | | $ | 277,318 | | | $ | 212,368 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net sales | | | | | | | |
Commercial/Industrial | $ | 294,158 |
| | $ | 276,179 |
| | $ | 865,070 |
| | $ | 841,812 |
|
Defense | 142,681 |
| | 114,946 |
| | 384,917 |
| | 335,553 |
|
Power | 132,102 |
| | 117,929 |
| | 412,667 |
| | 370,798 |
|
Less: Intersegment revenues | (1,040 | ) | | (1,962 | ) | | (3,509 | ) | | (4,797 | ) |
Total consolidated | $ | 567,901 |
| | $ | 507,092 |
| | $ | 1,659,145 |
| | $ | 1,543,366 |
|
| | | | | | | |
Operating income (expense) | | | | | | | |
Commercial/Industrial | $ | 46,774 |
| | $ | 39,067 |
| | $ | 121,088 |
| | $ | 108,076 |
|
Defense | 33,636 |
| | 28,822 |
| | 65,978 |
| | 64,276 |
|
Power | 19,486 |
| | 14,130 |
| | 60,896 |
| | 44,872 |
|
Corporate and eliminations (1) | (3,346 | ) | | (5,446 | ) | | (16,914 | ) | | (15,299 | ) |
Total consolidated | $ | 96,550 |
| | $ | 76,573 |
| | $ | 231,048 |
| | $ | 201,925 |
|
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Corporate and eliminations includes Includes pension and other postretirement benefit expense, certain environmental costs related to remediation at legacy sites, foreign currency transactional gains and losses, and certain other expenses.
Adjustments to reconcile operating income to earnings before income taxes are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2021 | | 2020 | | 2021 | | 2020 |
Total operating income | $ | 97,669 | | | $ | 84,573 | | | $ | 277,318 | | | $ | 212,368 | |
Interest expense | 9,955 | | | 9,055 | | | 30,094 | | | 25,059 | |
Other income, net | 3,627 | | | 5,417 | | | 8,910 | | | 6,844 | |
Earnings before income taxes | $ | 91,341 | | | $ | 80,935 | | | $ | 256,134 | | | $ | 194,153 | |
| | | | | | | | | | | |
(In thousands) | September 30, 2021 | | December 31, 2020 |
Identifiable assets | | | |
Aerospace & Industrial | $ | 1,013,184 | | | $ | 1,020,294 | |
Defense Electronics | 1,560,252 | | | 1,542,686 | |
Naval & Power | 1,281,365 | | | 1,255,325 | |
Corporate and Other | 208,285 | | | 175,445 | |
Assets held for sale | 20,215 | | | 27,584 | |
Total consolidated | $ | 4,083,301 | | | $ | 4,021,334 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Total operating income | $ | 96,550 |
| | $ | 76,573 |
| | $ | 231,048 |
| | $ | 201,925 |
|
Interest expense | 10,457 |
| | 10,488 |
| | 31,584 |
| | 30,694 |
|
Other income, net | 321 |
| | 483 |
| | 823 |
| | 818 |
|
Earnings before income taxes | $ | 86,414 |
| | $ | 66,568 |
| | $ | 200,287 |
| | $ | 172,049 |
|
|
| | | | | | | |
(In thousands) | September 30, 2017 | | December 31, 2016 |
Identifiable assets | | | |
Commercial/Industrial | $ | 1,443,206 |
| | $ | 1,391,040 |
|
Defense | 1,051,580 |
| | 751,859 |
|
Power | 502,553 |
| | 516,321 |
|
Corporate and Other | 223,885 |
| | 378,561 |
|
Total consolidated | $ | 3,221,224 |
| | $ | 3,037,781 |
|
11.13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The cumulative balance of each component of accumulated other comprehensive income (AOCI), net of tax, is as follows:
| | | | | | | | | | | | | | | | | |
(In thousands) | Foreign currency translation adjustments, net | | Total pension and postretirement adjustments, net | | Accumulated other comprehensive income (loss) |
December 31, 2019 | $ | (130,019) | | | $ | (195,255) | | | $ | (325,274) | |
Other comprehensive income (loss) before reclassifications (1) | 41,282 | | | (44,513) | | | (3,231) | |
Amounts reclassified from accumulated other comprehensive loss (1) | — | | | 17,649 | | | 17,649 | |
Net current period other comprehensive loss | 41,282 | | | (26,864) | | | 14,418 | |
December 31, 2020 | $ | (88,737) | | | $ | (222,119) | | | $ | (310,856) | |
Other comprehensive loss before reclassifications (1) | (12,990) | | | (3,442) | | | (16,432) | |
Amounts reclassified from accumulated other comprehensive loss (1) | — | | | 18,478 | | | 18,478 | |
Net current period other comprehensive income (loss) | (12,990) | | | 15,036 | | | 2,046 | |
September 30, 2021 | $ | (101,727) | | | $ | (207,083) | | | $ | (308,810) | |
(1) All amounts are after tax. |
| | | | | | | | | | | |
(In thousands) | Foreign currency translation adjustments, net | | Total pension and postretirement adjustments, net | | Accumulated other comprehensive income (loss) |
December 31, 2015 | $ | (107,810 | ) | | $ | (118,118 | ) | | $ | (225,928 | ) |
Other comprehensive income (loss) before reclassifications | (64,840 | ) | | (7,892 | ) | | (72,732 | ) |
Amounts reclassified from accumulated other comprehensive loss | — |
| | 6,904 |
| | 6,904 |
|
Net current period other comprehensive loss | (64,840 | ) | | (988 | ) | | (65,828 | ) |
December 31, 2016 | $ | (172,650 | ) | | $ | (119,106 | ) | | $ | (291,756 | ) |
Other comprehensive income (loss) before reclassifications | 69,294 |
| | (669 | ) | | 68,625 |
|
Amounts reclassified from accumulated other comprehensive income (loss) | — |
| | 5,643 |
| | 5,643 |
|
Net current period other comprehensive income | 69,294 |
| | 4,974 |
| | 74,268 |
|
September 30, 2017 | $ | (103,356 | ) | | $ | (114,132 | ) | | $ | (217,488 | ) |
Details of amounts reclassified from accumulated other comprehensive income (loss) are below:
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
| | | | | |
(In thousands) | Amount reclassified from AOCI | | Affected line item in the statement where net earnings is presented |
Defined benefit pension and other postretirement benefit plans | | | |
Amortization of prior service costs | 568 |
| | (1) |
Amortization of actuarial losses | (9,525 | ) | | (1) |
| (8,957 | ) | | Total before tax |
| 3,314 |
| | Income tax |
Total reclassifications | $ | (5,643 | ) | | Net of tax |
| | | | | | | | | | | |
(1)(In thousands) | These items are includedAmount reclassified from AOCI | | Affected line item in the computationstatement where net earnings is presented |
Defined benefit pension and other postretirement benefit plans | | | |
Amortization of net periodic benefit cost. See Note 8, Pension and prior service costs | $ | 648 | | | Other Postretirement Benefit Plans.income, net |
Amortization of actuarial losses | (21,705) | | | Other income, net |
Settlements | (3,310) | | | Other income, net |
| (24,367) | | | Earnings before income taxes |
| 5,889 | | | Provision for income taxes |
Total reclassifications | $ | (18,478) | | | Net earnings |
12.
14. CONTINGENCIES AND COMMITMENTS
From time to time, the Corporation and its subsidiaries are involved in legal proceedings that are incidental to the operation of our business. Some of these proceedings allege damages relating to asbestos and environmental exposures, intellectual property matters, copyright infringement, personal injury claims, employment and employee benefit matters, government contract issues, commercial or contractual disputes, and acquisitions or divestitures. The Corporation continues to defend vigorously against all claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including assessment of the merits of the particular claim, as well as current accruals and insurance coverage, the Corporation does not expect that such legal proceedings will have a material adverse impact on its condensed consolidated financial statements.
Legal Proceedings
The Corporation has been named in a number of lawsuits that allege injury from exposure to asbestos. To date, the Corporation has not been found liable for or paid any material sum of money in settlement in any asbestos-related case. The Corporation believes its minimal use of asbestos in its past operations as well as its acquired businesses’ operations and the relatively non-friable condition of asbestos in its historical products makes it unlikely that it will face material liability in any asbestos litigation, whether individually or in the aggregate. The Corporation maintains insurance coverage and indemnification agreements for these potential liabilities and believes adequate coverage exists to cover any unanticipated asbestos liability.
In December 2013, the Corporation, along with other unaffiliated parties, received a claim from Canadian Natural Resources Limited (CNRL) filed in the Court of Queen’s Bench of Alberta, Judicial District of Calgary. The claim pertains to a January 2011 fire and explosion at a delayed coker unit at its Fort McMurray refinery that resulted in the injury of five CNRL employees, damage to property and equipment, and various forms of consequential loss, such as loss of profit, lost opportunities, and business interruption. The fire and explosion occurred when a CNRL employee bypassed certain safety controls and opened an operating coker unit. The total quantum of alleged damages arising from the incident has not been finalized, but is estimated to meet or exceed $1 billion. The Corporation maintains various forms of commercial, property and casualty, product liability, and other forms of insurance; however, such insurance may not be adequate to cover the costs associated with a judgment against us. In October 2017, all parties agreed in principle to participate in a formal mediation in late 2018 with the intention of settling this claim.The Corporation is currently unable to estimate an amount, or range of potential losses, if any, from this matter. The Corporation believes it has adequate legal defenses and intends to defend this matter vigorously. The Corporation’s financial condition, results of operations, and cash flows, could be materially affected during a future fiscal quarter or fiscal year by unfavorable developments or outcome regarding this claim.
In addition to the CNRL litigation, the Corporation is party to a number of other legal actions and claims, none of which individually or in the aggregate, in the opinion of management, are expected to have a material effect on the Corporation’s results of operations or financial position.
Westinghouse Bankruptcy
On March 29, 2017, Westinghouse Electric Company (“WEC”) filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York, Case No. 17-10751. The Bankruptcy Court overseeing the Bankruptcy Case has approved, on an interim basis, an $800 million Debtor-in-Possession Financing Facility to help WEC finance its business operations during the reorganization process. The Corporation had approximately $6.5 million in pre-petition billings outstanding with WEC as of September 30, 2017. The Corporation will continue, for the time being and while it monitors and evaluates the Bankruptcy Case, to honor its executory contracts and expects to collect all amounts due from post-petition work. At this time, the Corporation has assessed that any pre-petition amounts will be substantially recoverable and does not believe that rejection of the outstanding contracts with WEC, taken in part or combined, would have a material adverse impact on the Company’s cash flow or operations. The Corporation continues to monitor the status of the WEC bankruptcy as well as the status of the plant construction projects for potential impacts on our business.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Letters of Credit and Other Financial Arrangements
The Corporation enters into standby letters of credit agreements and guarantees with financial institutions and customers primarily relating to guarantees of repayment, future performance on certain contracts to provide products and services, and to secure advance payments from certain international customers. As of September 30, 20172021 and December 31, 2016,2020, there were $23.4$22.3 million and $47.2$21.1 million of stand-by letters of credit outstanding, respectively, and $13.9$4.8 million and $12.8$5.6 million of bank guarantees outstanding, respectively. In addition, the Corporation is required to provide the Nuclear Regulatory Commission financial assurance demonstrating its ability to cover the cost of decommissioning its Cheswick, Pennsylvania facility upon closure, though the Corporation does not intend to close this facility. The Corporation has provided this financial assurance in the form of a $56.0$45.6 million surety bond.
AP1000 Program
TheWithin the Corporation’s Naval & Power segment, Electro-Mechanical Division which is within the Corporation’s Power segment,(EMD) is the reactor coolant pump (RCP) supplier for the Westinghouse Electric Company (WEC) AP1000 nuclear power plants under construction in China and the United States. The terms of the AP1000 ChinaU.S. and United StatesChina contracts include liquidated damage penalty provisions for failure to meet contractual delivery dates if the Corporation caused the delay and the delay was not excusable. On October 10, 2013,While the Corporation received a letter from Westinghouse stating entitlements to the maximum amount of liquidated damages allowable under the AP1000 China contract from Westinghouse of approximately $25 million. The Corporation would be liable for liquidated damages under the contract if certain contractual delivery dates weredid not met and if the Corporation was deemed responsible for the delay. As of September 30, 2017, the Corporation has not metmeet certain contractual delivery dates under its AP 1000AP1000 U.S. and China and US contracts; howevercontracts, there are significant counterclaims and uncertainties as to which parties are responsible for the delays.delay.
In June 2021, the Corporation and WEC participated in non-binding mediation in an effort to settle all open disputes under the U.S. and China contracts. The mediation efforts were ultimately unsuccessful. WEC has filed a notice of arbitration in regard to the China contract, asserting that it is entitled to liquidated damages of $25 million. Additionally, WEC has also filed claims in Georgia claiming damages on the U.S. contract. The Corporation believes that it has adequate legal defenses and intends to vigorously defend this matter. Giventhese matters. The Corporation is also aggressively pursuing a counterclaim against WEC.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As it relates to the uncertainties surrounding the responsibility for the delays, no accrual has been made for this matter as of September 30, 2017. As of September 30, 2017,U.S. contract, the range of possible loss is $0 to $31 million formillion. The Corporation believes that the AP1000 USlikelihood of any potential liability stemming from liquidated damages on the U.S. contract for a totalis remote. As it relates to the China contract, the range of possible loss ofis $0 to $55.5$25 million. As of September 30, 2021, the Corporation believes that it is adequately accrued regarding this matter, and that the ultimate resolution will not have a significant impact on its condensed consolidated financial statements.
15. RESTRUCTURING COSTS
During the year ended December 31, 2020, the Corporation executed restructuring activities across all of its segments to support its ongoing effort of improving capacity utilization and operating efficiency. These restructuring activities, which included workforce reductions and consolidation of facilities, were substantially completed as of December 31, 2020. As of September 30, 2021 and December 31, 2020, the restructuring liability associated with these restructuring activities was $1.1 million and $6.9 million, respectively, with such liability expected to be substantially settled as of December 31, 2021. These balances are reported within Other Current Liabilities on the Condensed Consolidated Balance Sheet.
******
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I- ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Except for historical information, this Quarterly Report on Form 10-Q may be deemed to contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (a) projections of or statements regarding return on investment, future earnings, interest income, sales, volume, other income, earnings or loss per share, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of management, (c) statements of future economic performance and potential impacts from COVID-19, including the impacts to supply and demand, and measures taken by governments and private industry in response, and (d) statements of assumptions, such as economic conditions underlying other statements. Such forward-looking statements can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “continue,” “could,” “estimate,” “expects,” “intend,” “may,” “might,” “outlook,” “potential,” “predict,” “should,” “will,” as well as the negative of any of the foregoing or variations of such terms or comparable terminology, or by discussion of strategy. No assurance may be given that the future results described by the forward-looking statements will be achieved. While we believe these forward-looking statements are reasonable, they are only predictions and are subject to known and unknown risks, uncertainties, and other factors, many of which are beyond our control, which could cause actual results, performance, or achievement to differ materially from anticipated future results, performance, or achievement expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those described in “Item 1A. Risk Factors” of our 20162020 Annual Report on Form 10-K, and elsewhere in that report, those described in this Quarterly Report on Form 10-Q, and those described from time to time in our future reports filed with the Securities and Exchange Commission. Such forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, those contained in Item 1. Financial Statements and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements speak only as of the date they were made, and we assume no obligation to update forward-looking statements to reflect actual results or changes in or additions to the factors affecting such forward-looking statements.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
COMPANY ORGANIZATION
Curtiss-Wright Corporation is a diversified, multinational provider of highly engineered, technologically advanced, value-added products and services to a broad range of industries thatwhich are reported through our Commercial/Aerospace & Industrial, Defense Electronics, and Naval & Power segments. We are positioned as a market leader across a diversified array of niche markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers. We provide products and services to a number of global markets and have achieved balanced growth through the successful application of our core competencies in engineering and precision manufacturing. Our overall strategy is to be a balanced and diversified company, less vulnerable to cycles or downturns in any one market, and to establish strong positions in profitable niche markets. Approximately 39%55% of our 2017 total sales2021 revenues are expected to be generated from defense-related markets.
In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic. The pandemic has adversely affected certain elements of our business, including our supply chain, transportation networks, and production levels. The extent to which COVID-19 continues to adversely impact our operations depends on future developments, including the impact of the global rollout of COVID-19 vaccines, the emergence and impact of any new COVID-19 variants, as well as the issuance of vaccine mandates by the Biden administration. However, given the diversified breadth of our company, we believe that we are well-positioned to mitigate any material risks arising as a result of COVID-19 or any of its variants. From an operational perspective, our current cash balance, coupled with expected cash flows from operating activities for the remainder of the year as well as our current borrowing capacity under the Revolving Credit Agreement, are expected to be more than sufficient to meet operating cash requirements, planned capital expenditures, interest payments on long-term debt obligations, payments on lease obligations, pension and postretirement funding requirements, and dividend payments through the current year and beyond.
RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of the Corporation for the three and nine month periods ended September 30, 2017.2021. The financial information as of September 30, 20172021 should be read in conjunction with the financial statements for the year ended December 31, 20162020 contained in our Form 10-K.
The MD&A is organized into the following sections: Condensed Consolidated Statements of Earnings, Results by Business Segment, and Liquidity and Capital Resources. Our discussion will be focused on the overall results of continuing operations followed by a more detailed discussion of those results within each of our reportable segments.
Our three reportable segments are generally concentrated in a few end markets; however, each may have sales across several end markets. An end market is defined as an area of demand for products and services. The sales for the relevant markets will be discussed throughout the MD&A.
On January 1, 2021, the Corporation implemented an organizational change to simplify its reportable segments and align its product sales with its end market structure. As a result, the Corporation operates under the following three reportable segments: Aerospace & Industrial, Defense Electronics, and Naval & Power. This change resulted in the transfer of the Corporation's valve-related operations into the Naval & Power segment. While this organizational change resulted in the recasting of previously reported amounts across all reportable segments, it did not impact the Corporation’s previously reported consolidated financial statements.
Analytical Definitions
Throughout management’s discussion and analysis of financial condition and results of operations, the terms “incremental” and “organic” are used to explain changes from period to period. The term “incremental” is used to highlight the impact acquisitions and divestitures had on the current year results. The results of operations for acquisitions are incremental for the first twelve months from the date of acquisition. Additionally, the results of operations of divested businesses are removed from the comparable prior year period for purposes of calculating “organic” orand “incremental” results. The definition of “organic” excludes the effecteffects of restructuring-related expenses, impairment of assets held for sale, and foreign currency translation.
|
| | | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Earnings | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | September 30, | | September 30, |
| 2017 | | 2016 | | % change | | 2017 | | 2016 | | % change |
Sales | | | | | | | | | | | |
Commercial/Industrial | $ | 293,939 |
| | $ | 275,649 |
| | 7 | % | | $ | 864,360 |
| | $ | 840,422 |
| | 3 | % |
Defense | 141,945 |
| | 113,949 |
| | 25 | % | | 382,968 |
| | 333,301 |
| | 15 | % |
Power | 132,017 |
| | 117,494 |
| | 12 | % | | 411,817 |
| | 369,643 |
| | 11 | % |
Total sales | $ | 567,901 |
| | $ | 507,092 |
| | 12 | % | | $ | 1,659,145 |
| | $ | 1,543,366 |
| | 8 | % |
| | | | | | | | | | | |
Operating income | |
| | |
| | |
| | |
| | |
| | |
|
Commercial/Industrial | $ | 46,774 |
| | $ | 39,067 |
| | 20 | % | | $ | 121,088 |
| | $ | 108,076 |
| | 12 | % |
Defense | 33,636 |
| | 28,822 |
| | 17 | % | | 65,978 |
| | 64,276 |
| | 3 | % |
Power | 19,486 |
| | 14,130 |
| | 38 | % | | 60,896 |
| | 44,872 |
| | 36 | % |
Corporate and eliminations | (3,346 | ) | | (5,446 | ) | | 39 | % | | (16,914 | ) | | (15,299 | ) | | (11 | )% |
Total operating income | $ | 96,550 |
| | $ | 76,573 |
| | 26 | % | | $ | 231,048 |
| | $ | 201,925 |
| | 14 | % |
| | | | | | | | | | | |
Interest expense | 10,457 |
| | 10,488 |
| | — | % | | 31,584 |
| | 30,694 |
| | 3 | % |
Other income, net | 321 |
| | 483 |
| | NM |
| | 823 |
| | 818 |
| | NM |
|
| | | | | | | | | | | |
Earnings before taxes | 86,414 |
| | 66,568 |
| | 30 | % | | 200,287 |
| | 172,049 |
| | 16 | % |
Provision for income taxes | (22,470 | ) | | (20,636 | ) | | 9 | % | | (53,146 | ) | | (53,335 | ) | | — | % |
Net earnings | $ | 63,944 |
| | $ | 45,932 |
| | |
| | $ | 147,141 |
| | $ | 118,714 |
| | |
|
| | | | | | | | | | | |
New orders | $ | 517,268 |
| | $ | 500,127 |
| | 3 | % | | $ | 1,709,745 |
| | $ | 1,652,396 |
| | 3 | % |
| | | | | | | | | | | |
NM- not a meaningful percentage | | | | | | |
Components of sales and operating income increase (decrease):
|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 vs. 2016 | | 2017 vs. 2016 |
| Sales | | Operating Income | | Sales | | Operating Income |
Organic | 8 | % | | 20 | % | | 5 | % | | 15 | % |
Acquisitions | 4 | % | | 7 | % | | 4 | % | | (1 | %) |
Foreign currency | — | % | | (1 | %) | | (1 | %) | | — | % |
Total | 12 | % | | 26 | % | | 8 | % | | 14 | % |
Sales for the third quarter of 2017 increased $61 million, or 12%, to $568 million, compared with the prior year period. On a segment basis, sales from the Commercial/Industrial segment, Defense segment, and Power segment increased $18 million, $28 million, and $15 million, respectively.
Sales during the nine months ended September 30, 2017 increased $116 million, or 8%, to $1,659 million, compared with the prior year period. On a segment basis, sales from the Commercial/Industrial, Defense and Power segments increased $24 million, $50 million, and $42 million, respectively. Changes in sales by segment are discussed in further detail in the results by business segment section below.
Operating income in the third quarter of 2017 increased $20 million, or 26%, to $97 million, and operating margin increased 190 basis points to 17.0% compared with the same period in 2016. Increases in operating income and operating margin were primarily attributable to higher production levels on the AP1000 China Direct program and higher profitability from our TTC
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
acquisition. Operating income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statements of Earnings | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Sales | | | | | | | | | | | |
Aerospace & Industrial | $ | 196,296 | | | $ | 188,768 | | | 4 | % | | $ | 576,340 | | | $ | 592,907 | | | (3 | %) |
Defense Electronics | 181,504 | | | 148,324 | | | 22 | % | | 525,067 | | | 427,518 | | | 23 | % |
Naval & Power | 242,819 | | | 234,522 | | | 4 | % | | 737,766 | | | 702,467 | | | 5 | % |
Total sales | $ | 620,619 | | | $ | 571,614 | | | 9 | % | | $ | 1,839,173 | | | $ | 1,722,892 | | | 7 | % |
| | | | | | | | | | | |
Operating income | | | | | | | | | | | |
Aerospace & Industrial | $ | 30,872 | | | $ | 23,880 | | | 29 | % | | $ | 81,874 | | | $ | 65,635 | | | 25 | % |
Defense Electronics | 40,762 | | | 35,103 | | | 16 | % | | 106,656 | | | 83,902 | | | 27 | % |
Naval & Power | 35,483 | | | 33,367 | | | 6 | % | | 116,635 | | | 90,623 | | | 29 | % |
Corporate and other | (9,448) | | | (7,777) | | | (21 | %) | | (27,847) | | | (27,792) | | | — | % |
Total operating income | $ | 97,669 | | | $ | 84,573 | | | 15 | % | | $ | 277,318 | | | $ | 212,368 | | | 31 | % |
| | | | | | | | | | | |
Interest expense | 9,955 | | | 9,055 | | | (10 | %) | | 30,094 | | | 25,059 | | | (20 | %) |
Other income, net | 3,627 | | | 5,417 | | | (33 | %) | | 8,910 | | | 6,844 | | | 30 | % |
| | | | | | | | | | | |
Earnings before income taxes | 91,341 | | | 80,935 | | | 13 | % | | 256,134 | | | 194,153 | | | 32 | % |
Provision for income taxes | (21,638) | | | (16,315) | | | (33 | %) | | (65,554) | | | (46,754) | | | (40 | %) |
Net earnings | $ | 69,703 | | | $ | 64,620 | | | | | $ | 190,580 | | | $ | 147,399 | | | |
| | | | | | | | | | | |
Restructuring-related expenses | $ | — | | | $ | 11,166 | | | NM | | $ | — | | | 28,545 | | | NM |
| | | | | | | | | | | |
New orders | $ | 627,015 | | | $ | 558,899 | | | 12 | % | | $ | 1,896,190 | | | $ | 1,748,949 | | | 8 | % |
Components of sales and operating margin also benefited from improved volume on industrial vehicle products in the Commercial/Industrial segment, and our ongoing margin improvement initiatives.income increase (decrease): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2021 vs. 2020 | | 2021 vs. 2020 |
| Sales | | Operating Income | | Sales | | Operating Income |
Organic | 1 | % | | 7 | % | | — | % | | 19 | % |
Acquisitions | 7 | % | | 9 | % | | 6 | % | | 6 | % |
Impairment of assets held for sale | — | % | | (10 | %) | | — | % | | (4 | %) |
Restructuring | — | % | | 13 | % | | — | % | | 13 | % |
Foreign currency | 1 | % | | (4 | %) | | 1 | % | | (3 | %) |
Total | 9 | % | | 15 | % | | 7 | % | | 31 | % |
Operating income during the nine months ended September 30, 2017 increased $29 million, or 14%, to $231 million and operating margin increased 80 basis points to 13.9%, compared with the same period in 2016. Increases in operating income and operating margin were primarily attributable to higher production levels in our Power segment on the AP1000 China Direct program, higher volume on industrial vehicle products in the Commercial/Industrial segment, and the benefits of our ongoing margin improvement initiatives. These increases in operating income and operating margin were partially offset by an unfavorable shift in mix for our defense electronic products in the Defense segment.
Non-segment operating expenseSales in the third quarter decreased $2increased $49 million, or 39%9%, to $3 million, from the comparable period, primarily due to lower corporate costs. Non-segment operating expense for the nine months ended September 30, 2017 increased $2 million, or 11%, to $17 million, from the comparable prior year period, primarily driven by foreign exchange losses.
Interest expense in the third quarter and nine months ended September 30, 2017 of $10 million and $32 million, respectively, was essentially flat as compared to the respective prior year periods.
The effective tax rate in the third quarter and nine months ended September 30, 2017 was 26.0% and 26.5%, respectively, as compared to an effective tax rate of 31.0% in the comparable prior year periods. The reductions in rate were principally driven by changes in valuation allowances and the adoption of ASU 2016-09 Improvements to Employee Share-Based Payment Accounting.
Comprehensive income in the third quarter of 2017 was $91$621 million, compared to comprehensive income of $35 million inwith the prior year period. The change was primarily due to the following:
Net earnings increased $18 million, primarily due to the higher operating income discussed above.
Foreign currency translation adjustments in the third quarter resulted inOn a $25 million comprehensive gain, compared to a $12 million comprehensive loss in the prior year period. The comprehensive gain during the current period was primarily attributed to increases in the British Pound and Canadian dollar.
Pension and postretirement adjustments within comprehensive income of $1 million were essentially flat against the comparable prior year period.
Comprehensive income for the nine months ended September 30, 2017 was $221 million, compared to comprehensive income of $97 million in the prior year period. The change was primarily due to the following:
Net earnings increased $28 million, primarily due to the higher operating income discussed above.
Foreign currency translation adjustments for the nine months ended September 30, 2017 resulted in a $69 million comprehensive gain, compared to a $27 million comprehensive loss in the prior period. The comprehensive gain during the current period was primarily attributed to increases in the British Pound, Euro, and Canadian dollar.
Pension and postretirement adjustments within comprehensive income of $5 million were essentially flat against the comparable prior year period.
New orders increased $17 million during the three months ended September 30, 2017segment basis, sales from the comparable prior year period, primarily due to the acquisition of TTC in theAerospace & Industrial, Defense segmentElectronics, and higher demand for our industrial vehicle products in the Commercial/Industrial segment. These increases were partially offset by the timing of naval orders in the Defense segmentNaval & Power segments increased $8 million, $33 million, and the timing of Boeing orders in the Commercial/Industrial segment. New orders increased $57$8 million, during the nine months ended September 30, 2017 from the comparable prior year period, primarily due to the acquisition of TTC and a government order for aircraft handling systems in the Defense segment. These increases were partially offset by a prior year period commercial order for pumps in the Power segment that did not reoccur.respectively.
RESULTS BY BUSINESS SEGMENT
Commercial/Industrial
The following tables summarize sales, operating income and margin, and new orders within the Commercial/Industrial segment.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | September 30, | | September 30, |
| 2017 | | 2016 | | % change | | 2017 | | 2016 | | % change |
Sales | $ | 293,939 |
| | $ | 275,649 |
| | 7 | % | | $ | 864,360 |
| | $ | 840,422 |
| | 3 | % |
Operating income | 46,774 |
| | 39,067 |
| | 20 | % | | 121,088 |
| | 108,076 |
| | 12 | % |
Operating margin | 15.9 | % | | 14.2 | % | | 170 | bps | | 14.0 | % | | 12.9 | % | | 110 | bps |
New orders | $ | 287,118 |
| | $ | 283,185 |
| | 1 | % | | $ | 930,039 |
| | $ | 920,904 |
| | 1 | % |
Components of sales and operating income increase (decrease):
|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 vs. 2016 | | 2017 vs. 2016 |
| Sales | | Operating Income | | Sales | | Operating Income |
Organic | 6 | % | | 20 | % | | 4 | % | | 12 | % |
Acquisitions | — | % | | — | % | | — | % | | — | % |
Foreign currency | 1 | % | | — | % | | (1 | %) | | — | % |
Total | 7 | % | | 20 | % | | 3 | % | | 12 | % |
Sales in the Commercial/Industrial segment are primarily generated from the commercial aerospace and general industrial markets, and to a lesser extent the defense and power generation markets.
Sales in the third quarter increased $18 million, or 7%, to $294 million from the prior year period. In the general industrial market, sales increased $18 million primarily due to higher demand for our industrial vehicle products. Higher actuation systems sales in the commercial aerospace market were offset by declines in the naval defense market primarily due to the timing of production on the Virginia-class submarine program.
Sales during the nine months ended September 30, 20172021 increased $24$116 million, or 3%7%, to $864$1,839 million, fromcompared with the prior year period. InOn a segment basis, sales from the general industrial market, we experienced higherDefense Electronics and Naval & Power segments increased $98 million and $35 million, respectively, with sales of $37 million primarily due to increased demand for our industrial vehicle products. This increase was partially offsetfrom the Aerospace & Industrial segment decreasing $17 million. Changes in sales by lower sales of $13 millionsegment are discussed in further detail in the naval defense market primarily due to the timing of production on the Virginia-class submarine program. Unfavorable foreign currency translation reduced salesresults by $7 million.business segment section below.
Operating income duringin the third quarter increased $8$13 million, or 20%15%, to $47$98 million, from the prior year period, and operating margin increased 17090 basis points to 15.9%. The15.7% compared with the same period in 2020. In the Aerospace & Industrial segment, increases in operating income and operating margin were primarily due to favorable overhead absorption on higher sales in the general industrial market, as well as the benefits from our ongoing margin improvement initiativesoperational excellence and improved profitability on industrial vehicle and sensors and controls products.
prior year restructuring initiatives. Operating income duringin the nine months ended September 30, 2017Defense Electronics segment increased $13 million, or 12%,primarily due to $121 millionthe incremental impact of our PacStar acquisition, as well as the benefits from theour ongoing operational excellence and prior year period, while operatingrestructuring initiatives, partially offset by higher research and development costs and unfavorable foreign currency translation. Operating margin increased 110 basis points to 14.0%. Thein the Defense Electronics segment was negatively impacted by first year purchase accounting costs from our PacStar acquisition.In the Naval & Power segment, increases in operating income and operating margin were primarily due to ongoing margin improvement initiatives and higher volume on industrial vehicle products.
New orders increased $4 million during the three months ended September 30, 2017 from the comparablecurrent year savings recognized as a result of prior year period, primarily due to the increased demand for our industrial vehicle products and a new order for the CVN-79 aircraft carrier.restructuring actions. These increases were partially offset by the timingan impairment loss of orders received from Boeing. New orders increased $9 million on assets held for sale in our industrial valves business in Germany, as well asunfavorable mix in the power & process market.
Operating income during the nine months ended September 30, 20172021 increased $65 million, or 31%, to $277 million and operating margin increased 280 basis points to 15.1%, compared with the same period in 2020. In the Aerospace & Industrial segment, increases in operating income and operating margin were primarily due to the benefits from our ongoing operational excellence and prior year restructuring initiatives, as well as favorable overhead absorption on higher general industrial sales. Operating income in the Defense Electronics segment increased primarily due to the benefits from our ongoing operational excellence and prior year restructuring initiatives, the incremental impact of our PacStar acquisition, as well as the absence of first year purchase accounting costs from our 901D acquisition. These increases were partially offset by higher research and development costs and unfavorable foreign currency translation. Operating margin in the Defense Electronics segment was negatively impacted by first year purchase accounting costs from our PacStar acquisition. In the Naval & Power segment, increases in operating income and operating margin were primarily due to favorable overhead absorption and current year savings recognized as a government order for the F-35 Joint Strike Fighter (JSF) and increased demand forresult of our industrial vehicle products.prior year restructuring initiatives. These increases were partially offset by an impairment loss of $9 million on assets held for sale in our industrial valves business in Germany.
Non-segment operating expense in the timingthird quarter increased $2 million, or 21%, to $9 million, primarily due to higher corporate costs in the current period. Non-segment operating expense during the nine months ended September 30, 2021 of orders received from Boeing$28 million was essentially flat compared to the prior year period.
Interest expense in the third quarter and nine months ended September 30, 2021 increased $1 million, or 10%, to $10 million, and $5 million, or 20%, to $30 million, respectively, primarily due to the timingissuance of funding from government customers.$300 million Senior Notes in August 2020.
Other income, net in the third quarter decreased $2 million, or 33%, to $4 million, primarily due to higher pension costs in the current period.
Other income, net during the nine months ended September 30, 2021 increased $2 million, or 30%, to $9 million primarily due to the prior year recognition of accumulated foreign currency translation losses of $10 million related to the substantial liquidation of our Norwegian subsidiary. This increase was partially offset by higher pension costs, including one-time pension settlement charges recognized in the current year period related to the retirement of former executives.
The effective tax rate of 23.7% in the third quarter increased compared to an effective tax rate of 20.2% in the prior year period. The effective tax rate of 25.6% for the nine months ended September 30, 2021 increased as compared to an effective tax rate of 24.1%. Increases in both of the comparable periods were primarily due to a provisional charge related to an impairment loss recognized on assets held for sale during the current year period, which is not deductible for tax purposes.
Comprehensive income in the third quarter was $58 million, compared to comprehensive income of $96 million in the prior year period. The change was primarily due to the following:
•Net earnings increased $5 million, primarily due to higher operating income.
•Foreign currency translation adjustments in the third quarter resulted in a $16 million comprehensive loss, compared to a $28 million comprehensive gain in the prior year period. The comprehensive loss during the current period was primarily attributed to decreases in the British Pound and Canadian dollar.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
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FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
Comprehensive income during the nine months ended September 30, 2021 was $193 million, compared to comprehensive income of $162 million in the prior year period. The change was primarily due to the following:
Defense•Net earnings increased $43 million, primarily due to higher operating income.
•Foreign currency translation adjustments for the nine months ended September 30, 2021 resulted in a $13 million comprehensive loss, compared to a $2 million comprehensive gain in the prior period. The comprehensive loss during the current period was primarily attributed to decreases in the Euro.
New orders in the third quarter and nine months ended September 30, 2021 increased $68 million and $147 million, respectively, from the comparable prior year periods, primarily due to an increase in new orders for industrial vehicles and sensors and actuation equipment in the Aerospace & Industrial segment, as well as the incremental impact of our PacStar acquisition in the Defense Electronics segment. These increases were partially offset by the timing of naval defense orders in the Naval & Power segment.
RESULTS BY BUSINESS SEGMENT
Aerospace & Industrial
The following tables summarize sales, operating income and margin, and new orders within the DefenseAerospace & Industrial segment.
| | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended |
| Three Months Ended | | Nine Months Ended | | September 30, | | September 30, |
(In thousands) | September 30, | | September 30, | (In thousands) | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
| 2017 | | 2016 | | % change | | 2017 | | 2016 | | % change | |
Sales | $ | 141,945 |
| | $ | 113,949 |
| | 25 | % | | $ | 382,968 |
| | $ | 333,301 |
| | 15 | % | Sales | $ | 196,296 | | | $ | 188,768 | | | 4% | | $ | 576,340 | | | $ | 592,907 | | | (3%) |
Operating income | 33,636 |
| | 28,822 |
| | 17 | % | | 65,978 |
| | 64,276 |
| | 3 | % | Operating income | 30,872 | | | 23,880 | | | 29% | | 81,874 | | | 65,635 | | | 25% |
Operating margin | 23.7 | % | | 25.3 | % | | (160 bps) |
| | 17.2 | % | | 19.3 | % | | (210 bps) |
| Operating margin | 15.7 | % | | 12.7 | % | | 300 bps | | 14.2 | % | | 11.1 | % | | 310 bps |
Restructuring-related expenses | | Restructuring-related expenses | $ | — | | | $ | 3,183 | | | NM | | $ | — | | | $ | 9,052 | | | NM |
New orders | $ | 133,107 |
| | $ | 130,055 |
| | 2 | % | | $ | 385,128 |
| | $ | 328,679 |
| | 17 | % | New orders | $ | 206,066 | | | $ | 170,038 | | | 21% | | $ | 628,006 | | | $ | 495,445 | | | 27% |
Components of sales and operating income increase (decrease): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2021 vs. 2020 | | 2021 vs. 2020 |
| Sales | | Operating Income | | Sales | | Operating Income |
Organic | 3 | % | | 19 | % | | (5 | %) | | 12 | % |
Restructuring | — | % | | 13 | % | | — | % | | 14 | % |
Foreign currency | 1 | % | | (3 | %) | | 2 | % | | (1 | %) |
Total | 4 | % | | 29 | % | | (3 | %) | | 25 | % |
|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 vs. 2016 | | 2017 vs. 2016 |
| Sales | | Operating Income | | Sales | | Operating Income |
Organic | 8 | % | | — | % | | 3 | % | | 5 | % |
Acquisitions | 16 | % | | 20 | % | | 12 | % | | (2 | %) |
Foreign currency | 1 | % | | (3 | %) | | — | % | | — | % |
Total | 25 | % | | 17 | % | | 15 | % | | 3 | % |
Salesin the DefenseAerospace & Industrial segment are primarily togenerated from the defensecommercial aerospace and general industrial markets, and to a lesser extent the commercial aerospacedefense and the general industrialpower & process markets.
Sales in the third quarter increased $28$8 million, or 25%4%, to $142$196 million from the comparable prior year period,period. Sales in the general industrial market increased $14 million, primarily due to higher industrial vehicle sales. This increase was partially offset by lower sales in the commercial aerospace market, primarily due to the incremental impactexit of our TTC acquisition which contributed $18 million in sales. Salesbuild-to-print product line in the ground defense market increased primarily due to higher demand for our missile defense systems and turret drive stabilization systems (TDSS) on international ground defense platforms. Excluding the impactfourth quarter of TTC, sales to the aerospace defense market were relatively flat as increased unmanned aerial vehicle (UAV) production was more than offset by declines in helicopter sales and lower production for certain military aircraft programs.2020.
Sales during the nine months ended September 30, 2017 increased $502021 decreased $17 million, or 15%3%, to $383$576 million from the comparable prior year period, primarily due to the incremental impact of our TTC acquisitionthe COVID-19 pandemic on the commercial aerospace market. In the commercial aerospace market, sales decreased $56 million, the majority of which contributed $40 millionoccurred in sales.the first quarter of 2021 due to lower demand for actuation and sensors equipment as well as surface treatment services. Sales in the ground defense market increased primarily due to higher TDSS demand on international ground defense platforms, partially offset by lower sales of embedded computing products on the G/ATOR program. Excluding the impact of TTC, sales to thecommercial aerospace defense market were relatively flat as increased UAV production was more than offset by declines in helicopter sales and lower production for certain military aircraft programs.also
Operating income during the third quarter increased $5 million, or 17%, to $34 million, while operating margin decreased 160 basis points from the prior year quarter to 23.7%. Excluding a $6 million benefit from our TTC acquisition, operating income and operating margin declined as ongoing margin improvement initiatives were more than offset by an unfavorable shift in mix for our defense electronics products.
Operating income during the nine months ended September 30, 2017 increased $2 million, or 3%, to $66 million, while operating margin decreased 210 basis points from the prior year period to 17.2%. Operating income benefited from improved profitability from our avionics business and ongoing margin improvement initiatives. Both operating income and operating margin were negatively impacted by first year purchase accounting costs on our TTC acquisition and an unfavorable shift in mix for our defense electronic products.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
New orders increased $3negatively impacted by the exit of our build-to-print product line in the fourth quarter of 2020. These decreases were partially offset by sales increases of $42 million duringin the three months ended September 30, 2017 from the comparable prior year period. The increase wasgeneral industrial market, primarily due to higher demand for industrial vehicle products and surface treatment services.
Operating income in the acquisition of TTC, partially offset bythird quarter increased $7 million, or 29%, to $31 million from the timing of naval ordersprior year period, and government orders for defense electronics products. New ordersoperating margin increased $56 million300 basis points to 15.7%. Operating income during the nine months ended September 30, 20172021 increased $16 million, or 25%, to $82 million from the prior year period, and operating margin increased 310 basis points to 14.2%. The increases in operating income and operating margin for each of the respective periods were primarily due to favorable overhead absorption on higher sales in the general industrial market, as well as the benefits from our ongoing operational excellence and prior year restructuring initiatives.
New orders in the third quarter and nine months ended September 30, 2021 increased $36 million and $133 million, respectively, from the comparable prior year period,periods, primarily due to the acquisition of TTCan increase in new orders for industrial vehicles as well as higher demand for sensors and a government order for aircraft handling systems. These increases were partially offset by the timing of naval orders.actuation equipment.
PowerDefense Electronics
The following tables summarize sales, operating income and margin, and new orders within the PowerDefense Electronics segment.
| | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended |
| Three Months Ended | | Nine Months Ended | | September 30, | | September 30, |
(In thousands) | September 30, | | September 30, | (In thousands) | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
| 2017 | | 2016 | | % change | | 2017 | | 2016 | | % change | |
Sales | $ | 132,017 |
| | $ | 117,494 |
| | 12 | % | | $ | 411,817 |
| | $ | 369,643 |
| | 11 | % | Sales | $ | 181,504 | | | $ | 148,324 | | | 22% | | $ | 525,067 | | | $ | 427,518 | | | 23% |
Operating income | 19,486 |
| | 14,130 |
| | 38 | % | | 60,896 |
| | 44,872 |
| | 36 | % | Operating income | 40,762 | | | 35,103 | | | 16% | | 106,656 | | | 83,902 | | | 27% |
Operating margin | 14.8 | % | | 12.0 | % | | 280 | bps | | 14.8 | % | | 12.1 | % | | 270 | bps | Operating margin | 22.5 | % | | 23.7 | % | | (120 bps) | | 20.3 | % | | 19.6 | % | | 70 bps |
Restructuring-related expenses | | Restructuring-related expenses | $ | — | | | $ | 586 | | | NM | | $ | — | | | $ | 3,056 | | | NM |
New orders | $ | 97,043 |
| | $ | 86,887 |
| | 12 | % | | $ | 394,578 |
| | $ | 402,813 |
| | (2 | %) | New orders | $ | 170,771 | | | $ | 144,883 | | | 18% | | $ | 527,862 | | | $ | 458,779 | | | 15 % |
Components of sales and operating income increase (decrease): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2021 vs. 2020 | | 2021 vs. 2020 |
| Sales | | Operating Income | | Sales | | Operating Income |
Organic | (3 | %) | | (2 | %) | | (2 | %) | | 14 | % |
Acquisitions | 25 | % | | 21 | % | | 25 | % | | 16 | % |
Restructuring | — | % | | 1 | % | | — | % | | 4 | % |
Foreign currency | — | % | | (4 | %) | | — | % | | (7 | %) |
Total | 22 | % | | 16 | % | | 23 | % | | 27 | % |
|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 vs. 2016 | | 2017 vs. 2016 |
| Sales | | Operating Income | | Sales | | Operating Income |
Organic | 12 | % | | 38 | % | | 11 | % | | 36 | % |
Acquisitions | — | % | | — | % | | — | % | | — | % |
Foreign currency | — | % | | — | % | | — | % | | — | % |
Total | 12 | % | | 38 | % | | 11 | % | | 36 | % |
Sales in the PowerDefense Electronics segment are primarily to the power generationdefense markets and, naval defense markets.to a lesser extent, the commercial aerospace market.
Sales in the third quarter increased $15$33 million, or 12%22%, to $132 million, primarily due to higher production revenues of $11 million on the AP1000 China Direct program and improved aftermarket sales supporting international nuclear operating reactors. These increases were partially offset by lower aftermarket sales supporting domestic nuclear operating reactors. The naval defense market benefited from increased production on CVN-79 and CVN-80 pumps and the timing of production on the Virginia-class submarine program.
Sales for the nine months ended September 30, 2017 increased $42 million, or 11%, to $412$182 million from the prior year period, as higher production revenuesprimarily due to the incremental impact of $45 million onour PacStar acquisition in the AP1000 China Direct program wereground defense market, which contributed sales of $37 million. This increase was partially offset by lower aftermarket sales of $9 million supporting domestic nuclear operating reactors. Within the naval defense market, sales increased primarily due to higher production levels on CVN-80 pumps.
Operating income fighter jets in the third quarter of 2017 increased $5 million, or 38%, to $19 million, and operating margin increased 280 basis points from the prior year period to 14.8%. The increases in operating income and operating margin were primarily due to higher production levels on the AP1000 China Direct program and improved profitability in the nuclear aftermarket business primarily driven by higher volume and the benefits of our ongoing margin improvement initiatives.aerospace defense market.
Operating incomeSales during the nine months ended September 30, 20172021 increased $16$98 million, or 36%23%, to $61$525 million and operating margin increased 270 basis points from the prior year period, to 14.8%. The increases in operating income and operating margin were primarily due to higher production levelsthe incremental impact of our PacStar acquisition in the ground defense market, which contributed sales of $102 million. Higher sales of avionics and test equipment in the commercial aerospace market were essentially offset by the timing of sales on embedded computing equipment on various programs in the AP1000 China Direct program and improvedaerospace defense market.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
profitability Operating income in the nuclear aftermarket businessthird quarter increased $6 million, or 16%, to $41 million compared to the prior year period, while operating margin decreased 120 basis points from the prior year period to 22.5%. The increase in operating income was primarily drivendue to the incremental impact of our PacStar acquisition as well as the benefits from our ongoing operational excellence and prior year restructuring initiatives, partially offset by higher volumeresearch and the benefits ofdevelopment costs and unfavorable foreign currency translation. Operating margin was negatively impacted by first year purchase accounting costs from our ongoing margin improvement initiatives.PacStar acquisition.
New orders increased $10 millionOperating income during the threenine months ended September 30, 20172021 increased $23 million, or 27%, to $107 million, and operating margin increased 70 basis points from the prior year period to 20.3%. The increase in operating income was primarily due to the benefits from our ongoing operational excellence and prior year restructuring initiatives, the incremental impact of our PacStar acquisition, as well as the absence of first year purchase accounting costs from our 901D acquisition. These increases were partially offset by higher research and development costs and unfavorable foreign currency translation. Operating margin was negatively impacted by first year purchase accounting costs from our PacStar acquisition.
New orders inthe third quarter and nine months ended September 30, 2021 increased $26 million and $69 million, respectively, from the comparable prior year periods, primarily due to the incremental impact of our PacStar acquisition. These increases were partially offset by the timing of naval defense and aerospace defense orders.
Naval & Power
The following tables summarize sales, operating income and margin, and new orders within the Naval & Power segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Sales | $ | 242,819 | | | $ | 234,522 | | | 4% | | $ | 737,766 | | | $ | 702,467 | | | 5% |
Operating income | 35,483 | | | 33,367 | | | 6% | | 116,635 | | | 90,623 | | | 29% |
Operating margin | 14.6 | % | | 14.2 | % | | 40 bps | | 15.8 | % | | 12.9 | % | | 290 bps |
Restructuring-related expenses | $ | — | | | $ | 7,397 | | | NM | | $ | — | | | $ | 16,437 | | | NM |
New orders | $ | 250,178 | | | $ | 243,978 | | | 3% | | $ | 740,322 | | | $ | 794,725 | | | (7%) |
Components of sales and operating income increase (decrease): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2021 vs. 2020 | | 2021 vs. 2020 |
| Sales | | Operating Income | | Sales | | Operating Income |
Organic | 3 | % | | 11 | % | | 4 | % | | 22 | % |
Impairment of assets held for sale | — | % | | (26 | %) | | — | % | | (10 | %) |
Restructuring | — | % | | 22 | % | | — | % | | 18 | % |
Foreign currency | 1 | % | | (1 | %) | | 1 | % | | (1 | %) |
Total | 4 | % | | 6 | % | | 5 | % | | 29 | % |
Sales in the Naval & Power segment are primarily to the naval defense and power & process markets.
Sales in the third quarter increased $8 million, or 4%, to $243 million from the prior year period. In the naval defense market, sales increased $11 million primarily due to higher production on the CVN-81 aircraft carrier and Virginia-class submarine programs. This increase was partially offset by the timing of production on the China Direct AP1000 program in the power & process market.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
Sales during the nine months ended September 30, 2021 increased $35 million, or 5%, to $738 million from the prior year period. In the naval defense market, sales increased $42 million primarily due to increased production on the CVN-81 aircraft carrier and Virginia-class submarine programs, as well as higher service center and foreign military sales. This increase was partially offset by the timing of production on the China Direct AP1000 program and lower nuclear aftermarket sales in the power & process market.
Operating income in the third quarter increased $2 million, or 6%, to $35 million, and operating margin increased 40 basis points from the prior year period to 14.6%, primarily due to current year savings recognized as a result of prior year restructuring actions. These increases were partially offset by an impairment loss of $9 million on assets held for sale in our industrial valves business in Germany as well as unfavorable mix in the power & process market.
Operating income during the nine months ended September 30, 2021 increased $26 million, or 29%, to $117 million, and operating margin increased 290 basis points from the prior year period to 15.8%. The increases in operating income and operating margin were primarily due to favorable overhead absorption on higher sales, current year savings recognized as a result of our prior year restructuring initiatives, and the absence of prior period transition costs associated with our DRG facility. These increases were partially offset by an impairment loss of $9 million on assets held for sale in our industrial valves business in Germany.
New orders in the third quarterincreased $6 million from the comparable prior year period, as higher demand for industrial valve products was partially offset by the timing of naval defense orders. New orders during the nine months ended September 30, 2021decreased $54 million from the comparable prior year period, primarily due to the timing of funding for pumps and generators with government customers. New orders decreased $8 million during the nine months ended September 30, 2017 from the comparable prior year period primarily due to a commercial order for pumps in the prior year period that did not reoccur, partially offset by the timing of funding with government customers.naval defense orders.
SUPPLEMENTARY INFORMATION
The table below depicts sales by end market. End market sales helpand customer type, as it helps provide an enhanced understanding of our businesses and the markets in which we operate. The table has been included to supplement the discussion of our consolidated operating results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Net Sales by End Market and Customer Type | Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
(In thousands) | 2021 | | 2020 | | % change | | 2021 | | 2020 | | % change |
Aerospace & Defense markets: | | | | | | | | | | | |
Aerospace Defense | $ | 116,853 | | | $ | 121,987 | | | (4 | %) | | $ | 327,846 | | | $ | 333,120 | | | (2 | %) |
Ground Defense | 55,124 | | | 20,519 | | | 169 | % | | 159,091 | | | 63,205 | | | 152 | % |
Naval Defense | 175,800 | | | 165,524 | | | 6 | % | | 531,429 | | | 496,157 | | | 7 | % |
Commercial Aerospace | 67,461 | | | 70,943 | | | (5 | %) | | 196,285 | | | 242,708 | | | (19 | %) |
Total Aerospace & Defense | $ | 415,238 | | | $ | 378,973 | | | 10 | % | | $ | 1,214,651 | | | $ | 1,135,190 | | | 7 | % |
| | | | | | | | | | | |
Commercial markets: | | | | | | | | | | | |
Power & Process | $ | 112,736 | | | $ | 113,919 | | | (1 | %) | | $ | 343,573 | | | $ | 350,632 | | | (2 | %) |
General Industrial | 92,645 | | | 78,722 | | | 18 | % | | 280,949 | | | 237,070 | | | 19 | % |
Total Commercial | $ | 205,381 | | | $ | 192,641 | | | 7 | % | | $ | 624,522 | | | $ | 587,702 | | | 6 | % |
| | | | | | | | | | | |
Total Curtiss-Wright | $ | 620,619 | | | $ | 571,614 | | | 9 | % | | $ | 1,839,173 | | | $ | 1,722,892 | | | 7 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
Net Sales by End Market | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(In thousands) | September 30, | | September 30, |
| 2017 | | 2016 | | % change | | 2017 | | 2016 | | % change |
Defense markets: | | | | | | | | | | | |
Aerospace | $ | 92,728 |
| | $ | 78,324 |
| | 18 | % | | $ | 247,656 |
| | $ | 216,585 |
| | 14 | % |
Ground | 27,804 |
| | 19,601 |
| | 42 | % | | 65,056 |
| | 58,661 |
| | 11 | % |
Naval | 102,616 |
| | 99,719 |
| | 3 | % | | 293,634 |
| | 296,670 |
| | (1 | %) |
Other | 5,072 |
| | 4,389 |
| | 16 | % | | 18,077 |
| | 8,023 |
| | 125 | % |
Total Defense | $ | 228,220 |
| | $ | 202,033 |
| | 13 | % | | $ | 624,423 |
| | $ | 579,939 |
| | 8 | % |
| | | | | | | | | | | |
Commercial markets: | | | | | | | | | | | |
Aerospace | $ | 105,284 |
| | $ | 94,248 |
| | 12 | % | | $ | 304,691 |
| | $ | 298,939 |
| | 2 | % |
Power Generation | 93,873 |
| | 89,643 |
| | 5 | % | | 314,197 |
| | 285,144 |
| | 10 | % |
General Industrial | 140,524 |
| | 121,168 |
| | 16 | % | | 415,834 |
| | 379,344 |
| | 10 | % |
Total Commercial | $ | 339,681 |
| | $ | 305,059 |
| | 11 | % | | $ | 1,034,722 |
| | $ | 963,427 |
| | 7 | % |
| | | | | | | | | | | |
Total Curtiss-Wright | $ | 567,901 |
| | $ | 507,092 |
| | 12 | % | | $ | 1,659,145 |
| | $ | 1,543,366 |
| | 8 | % |
| | | | | | | | | | | |
Note: Certain amountsAerospace & Defense markets
Sales in the prior year have been reclassed to conform to the current year presentation.
Defense markets
Sales during the three months ended September 30, 2017third quarter increased $26$36 million, or 13%10%, to $228$415 million against the comparable prior year period, primarily due to higher sales in the aerospaceground defense and groundnaval defense markets. The sales increase in the aerospaceground defense market was primarily due tobenefited from the incremental impact of our TTCPacStar acquisition, which contributed $13 million inincremental sales during the three months ended September 30, 2017. The aerospace defense market also benefited favorably from increased demand for UAVs, partially offset by declines in helicopter sales.of $38 million. Sales in the groundnaval defense market increased primarily due to higher demand for our missile defense systemsproduction on the CVN-81 aircraft carrier and TDSS productsVirginia-class submarine programs. These increases were partially offset by lower sales on international ground defense platforms.
Sales during the nine months ended September 30, 2017 increased $44 million, or 8%, to $624 million against the comparable prior year period, primarily due to higher salesfighter jets in the aerospace defense ground defense, and other defense markets. The sales increase in the aerospace defense market was primarily due to the incremental impact of our TTC acquisition, which contributed $28 million of sales during the nine months ended September 30, 2017. The aerospace defense market also benefited favorably from increased demand for UAVs, partially offset by declines in helicopter sales and lower production for certain military aircraft programs. Sales in the ground defense market increased primarily due to higher demand for our missile defense systems and TDSS products on international ground defense platforms, partially offset by lower sales of embedded computing products on the G/ATOR program. Other defense sales increased due to the incremental impact from our TTCmarket.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
Sales during the nine months ended September 30, 2021 increased $79 million, or 7%, to $1,215 million, primarily due to higher sales in the ground defense and naval defense markets. The ground defense market benefited from the impact of our PacStar acquisition, which contributed incremental sales of $102 million. In the naval defense market, sales benefited from higher production on the CVN-81 aircraft carrier and various projects across government entities.Virginia-class submarine programs. These increases were partially offset by lower sales in the naval defensecommercial aerospace market primarilyduring the first quarter of 2021 due to a pandemic-driven decline in demand for sensors products and surface treatment services. Sales in the timingcommercial aerospace market were also negatively impacted by the exit of production onour build-to-print product line in the Virginia-class submarine program.fourth quarter of 2020.
Commercial markets
Sales duringin the three months ended September 30, 2017third quarter increased $35$13 million, or 11%7%, to $340$205 million against the comparable prior year period, primarily due to higher sales in the commercial aerospace and generaldemand for our industrial markets. In the commercial aerospace market, we experienced higher sales of actuation and sensors and controls products. Sales increasesvehicle products in the general industrial market were primarily due to higher sales of $16 million for our industrial vehicle products. Sales also benefited favorably from increases in the power generation market due to higher production revenues of $11 million on the AP1000 China Direct program and improved aftermarket sales supporting international nuclear operating reactors. These increases were partially offset by lower aftermarket sales supporting domestic nuclear operating reactors.market.
Sales during the nine months ended September 30, 20172021 increased $71$37 million, or 7%6%, to $1,035$625 million against the comparable prior year period, primarily due to higher sales in the power generation and general industrial markets. Within the power generation market, we generated higher production revenues of $45 million on the AP1000 China Direct program, partially offset by lower aftermarket sales of $16 million supporting domestic nuclear and non-nuclear operating reactors. In the general industrial market, we experienced higher demand for our industrial vehicle products which resulted in a sales increase of $30 million. Sales also benefited favorably from increases in the commercial aerospace market primarily due to increased demand for sensorsgeneral industrial market. This increase was partially offset by the timing of production on the China Direct AP1000 program and controls products.lower nuclear aftermarket sales in the power & process market.
LIQUIDITY AND CAPITAL RESOURCES
Sources and Use of Cash
We derive the majority of our operating cash inflow from receipts on the sale of goods and services and cash outflow for the procurement of materials and labor; cash flow is therefore subject to market fluctuations and conditions. Most of our long-term contracts allow for several billing points (progress or milestone) that provide us with cash receipts as costs are incurred throughout the project rather than upon contract completion, thereby reducing working capital requirements. In some cases, these payments can exceed the costs incurred on a project. Management continually evaluates cash utilization alternatives, including share repurchases, acquisitions, increased dividends, and paying down debt, to determine the most beneficial use of available capital resources. We believe that our cash and cash equivalents, cash flow from operations, available borrowings under the credit facility, and ability to raise additional capital through the credit markets, are sufficient to meet both the short-term and long-term capital needs of the organization.
| | | | | | | | | | | |
Condensed Consolidated Statements of Cash Flows | Nine Months Ended |
(In thousands) | September 30, 2021 | | September 30, 2020 |
Cash provided by (used for): | | | |
Operating activities | $ | 155,761 | | | $ | 3,784 | |
Investing activities | (29,809) | | | (115,918) | |
Financing activities | (84,406) | | | 157,945 | |
Effect of exchange-rate changes on cash | (5,378) | | | (10,023) | |
Net increase in cash and cash equivalents | 36,168 | | | 35,788 | |
|
| | | | | | | |
Condensed Consolidated Statements of Cash Flows
| | | |
(In thousands) | September 30, 2017 | | September 30, 2016 |
Cash provided by (used): | | | |
Operating activities | $ | 162,307 |
| | $ | 267,212 |
|
Investing activities | (259,552 | ) | | (24,191 | ) |
Financing activities | (39,354 | ) | | (67,668 | ) |
Effect of exchange-rate changes on cash | 14,942 |
| | (11,997 | ) |
Net increase (decrease) in cash and cash equivalents | (121,657 | ) | | 163,356 |
|
Net cash provided by operating activities decreased $105 increased $152 million from the prior year period. The decrease in net cash provided isperiod, primarily due to a prior periodyear voluntary pension contribution of $150 million, lower inventory receipts and disbursements, as well as higher net collections of $97 million related toearnings during the AP1000 program and a one-time prior period benefit of $20 million as a result ofcurrent period. This increase was partially offset by higher outstanding receivables during the interest rate swap termination.current period.
Net cash used for investing activities increaseddecreased$23586 million from the comparable prior year period, primarily due to current yearprior period acquisitions and lower current period capital expenditures. The Corporation acquired two businesses during the nine months ended September 30, 20172020 for approximately $233$82 million net ofin cash acquired.paid. The Corporation did not acquiremake any businessesacquisitions during the nine months ended September 30, 2016. The capital2021. Capital expenditures for the nine months ended September 30, 20172021 and September 30, 20162020 were $35$28 million and $26$36 million, respectively.respectively, with the decrease primarily due to lower capital spending during the current period as well as lower current period investment related to the new DRG facility.
Financing Activities
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
Financing Activities
Debt
The Corporation’s debt outstanding had an average interest rate of 4.0%3.6% for both the three and nine months ended September 30, 2017 as compared to an average interest rates of 4.0%2021, and 3.9%3.3% and 3.4% for the comparable periods ended September 30, 2016. The Corporation’s average debt outstanding was $950 million for both the three and nine months ended September 30, 20172020, respectively. The Corporation’s average debt outstanding was $1,050 million and $1,056 million for the three and nine months ended September 30, 2016,2021, respectively, and $939 million and $875 million for the three and nine months ended September 30, 2020, respectively.
Revolving Credit Agreement
As of September 30, 2017,2021, the Corporation had no outstanding borrowings under the 20122018 Senior Unsecured Revolving Credit Agreement (the “Credit Agreement” or “credit facility”) and $23$22 million in letters of credit supported by the credit facility. The unused credit available under the Credit Agreement as of September 30, 20172021 was $477$478 million, which could be borrowed without violating any of our debt covenants.
Repurchase of common stock
During the nine months ended September 30, 2017,2021, the Corporation used $39$79 million of cash to repurchase approximately 414,0000.6 million outstanding shares under its share repurchase program. During the nine months ended September 30, 2016,2020, the Corporation used $80$137 million of cash to repurchase approximately 1,035,0001.4 million outstanding shares.shares under its share repurchase program.
Cash Utilization
Management continually evaluates cash utilization alternatives, including share repurchases, acquisitions, and increased dividends to determine the most beneficial use of available capital resources. We believe that our cash and cash equivalents, cash flow from operations, available borrowings under the credit facility, and ability to raise additional capital through the credit markets are sufficient to meet both the short-term and long-term capital needs of the organization.
Dividends
The Corporation made dividend payments of $11$14 million and $12 million forduring both the nine months ended September 30, 20172021 and September 30, 2016, respectively.2020.
Debt Compliance
As of the date of this report, we were in compliance with all debt agreements and credit facility covenants, including our most restrictive covenant, which is our debt to capitalization limit of 60%. The debt to capitalization limit is a measure of our indebtedness (as defined per the notes purchase agreement and credit facility) to capitalization, where capitalization equals debt plus equity, and is the same for and applies to all of our debt agreements and credit facility.
As of September 30, 2017,2021, we had the ability to borrow additional debt of $1,132 million$1.7 billion without violating our debt to capitalization covenant.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
CRITICAL ACCOUNTING POLICIES
Our condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by the application of our accounting policies. Critical accounting policies are those that require application of management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our 20162020 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on February 21, 2017,25, 2021, in the Notes to the
Consolidated Financial Statements, Note 1, and the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CURTISS WRIGHT CORPORATION and SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk during the nine months ended September 30, 2017.2021. Information regarding market risk and market risk management policies is more fully described in item “7A.Quantitative"Item 7A. Quantitative and Qualitative Disclosures about Market Risk”Risk" of our 20162020 Annual Report on Form 10-K.
Item 4. CONTROLS AND PROCEDURES
As of September 30, 2017,2021, our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of September 30, 20172021 insofar as they are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and they include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
During the quarter ended JuneSeptember 30, 2017, we implemented new controls as part of our efforts to adopt the new revenue recognition standard. Those efforts resulted in changes to our accounting processes and procedures related to monitoring the adoption process. There2021, there have not been anyno changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2017that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In the ordinary course of business, wethe Corporation and ourits subsidiaries are subject to various pending claims, lawsuits, and contingent liabilities. We do not believe that the disposition of any of these matters, individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations.
In December 2013, the Corporation, along with other unaffiliated parties, received a claim from Canadian Natural Resources Limited (CNRL) filed in the Court of Queen’s Bench of Alberta, Judicial District of Calgary. The claim pertains to a January 2011 fire and explosion at a delayed coker unit at its Fort McMurray refinery that resulted in the injury of five CNRL employees, damage to property and equipment, and various forms of consequential loss such as loss of profit, lost opportunities, and business interruption. The fire and explosion occurred when a CNRL employee bypassed certain safety controls and opened an operating coker unit. The total quantum of alleged damages arising from the incident has not been finalized, but is estimated to meet or exceed $1 billion. The Corporation maintains various forms of commercial, property and casualty, product liability, and other forms of insurance; however, such insurance may not be adequate to cover the costs associated with a judgment against us. In October 2017, all parties agreed in principle to participate in a formal mediation in late 2018 with the intention of settling this claim. The Corporation is currently unable to estimate an amount, or range of potential losses, if any, from this matter. The Corporation believes it has adequate legal defenses and intends to defend this matter vigorously. The Corporation’s financial condition, results of operations, and cash flows, could be materially affected during a future fiscal quarter or fiscal year by unfavorable developments or outcome regarding this claim.flows.
We or our subsidiaries have been named in a number ofpending lawsuits that allege injury from exposure to asbestos. To date, neither we nor our subsidiaries have not been found liable or paid any material sum of money in settlement in any asbestos-related case. We believe that the minimal use of asbestos in our past operations as well as our acquired businesses and the relatively non-friable condition of asbestos in our historical products makesmake it unlikely that we will face material liability in any asbestos litigation, whether individually or in the aggregate. We maintain insurance coverage and indemnification agreements for these potential liabilities and we believe adequate coverage exists to cover any unanticipated asbestos liability.
On March 29, 2017, Westinghouse Electric Company (“WEC”) filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York, Case No. 17-10751. The Bankruptcy Court overseeing the Bankruptcy Case has approved, on an interim basis, an $800 million Debtor-in-Possession Financing Facility to help WEC finance its business operations during the reorganization process. The Corporation has approximately $6.5 million in pre-petition billings outstanding with WEC as of September 30, 2017. The Corporation will continue, for the time being and while it monitors and evaluates the Bankruptcy Case, to honor its executory contracts and expects to collect all amounts due from post-petition work. At this time, the Corporation has assessed that any pre-petition amounts will be substantially recoverable and does not believe that rejection of the outstanding contracts with WEC, taken in part or combined, would have a material adverse impact on the Company’s cash flow or operations. The Corporation continues to monitor the status of the WEC bankruptcy as well as the status of the plant construction projects for potential impacts on our business.
Item 1A. RISK FACTORS
There have been no material changes in our Risk Factors during the nine months ended September 30, 2017.2021, except as set forth in the Risk Factors below. Information regarding our Risk Factors is more fully described in Item “1A."Item 1A. Risk Factors”Factors" of our 20162020 Annual Report on Form 10-K.
Our future growth and continued success is dependent upon our key personnel.
Our success is dependent upon the efforts of our senior management personnel and our ability to attract and retain other highly qualified management and technical personnel. We face competition for management and qualified technical personnel from other companies and organizations. Additionally, it is particularly difficult to hire new employees during the COVID-19 pandemic as conducting interviews remotely makes it more difficult to ensure that we are recruiting and hiring high-quality employees. Further, the uncertainty created by the COVID-19 pandemic makes it less likely that potential candidates will be willing to leave a stable job to explore a new opportunity. Therefore, we may not be able to retain our existing management and technical personnel or fill new management or technical positions or vacancies created by expansion or turnover at our existing compensation levels. Although we have entered into change of control agreements with some members of senior management, we do not have employment contracts with our key executives. As some of our key executives approach retirement age, we have made a concerted effort to reduce the effect of the loss of our senior management personnel through management succession planning. However, we may be required to devote significant time and resources to identify and integrate key new personnel should key management losses occur earlier than anticipated. The loss of members of our senior management and qualified technical personnel could have a material adverse effect on our business.
On September 9, 2021, President Biden directed the Department of Labor’s Occupational Safety and Health Administration (“OSHA”) to issue an Emergency Temporary Standard (“ETS”) requiring that all employers with at least 100 employees ensure that their employees are fully vaccinated for COVID-19, or obtain a negative COVID-19 test at least once a week. President Biden also issued an Executive Order requiring certain COVID-19 precautions for government contractors and their subcontractors, including mandatory employee vaccination, with exemptions only for medical or religious reasons. It is not currently possible to predict with any certainty the exact impact of the OSHA ETS on the Corporation, which has not yet been issued, or the requirements for government contractors and their subcontractors. Any requirement to mandate COVID-19 vaccination of our workforce or require our unvaccinated employees to be tested weekly could result in employee attrition and difficulty securing future labor needs and may have an adverse effect on future profitability. In addition, any requirement to impose obligations on our suppliers under the Executive Order covering government contractors and their subcontractors could impact the price and continuity of supply of raw materials, whereby our results of operations and financial condition could be adversely affected.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.PROCEEDS
The following table provides information about our repurchase of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended September 30, 2017.
2021.
| | | | Total Number of shares purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Program | | Maximum Dollar amount of shares that may yet be Purchased Under the Program | | | Total Number of shares purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Program | | Maximum Dollar amount of shares that may yet be Purchased Under the Program |
July 1 - July 31 | | 41,800 |
| | $ | 93.49 |
| | 326,074 |
| | $ | 19,638,576 |
| July 1 - July 31 | | 35,522 | | | 118.23 | | | 238,368 | | | $ | 171,542,074 | |
August 1 - August 31 | | 46,600 |
| | 96.10 |
| | 372,674 |
| | 15,160,510 |
| August 1 - August 31 | | 36,793 | | | 119.58 | | | 275,161 | | | 167,142,412 | |
September 1 - September 30 | | 41,089 |
| | 99.78 |
| | 413,763 |
| | 11,060,541 |
| September 1 - September 30 | | 373,690 | | | 123.36 | | | 648,851 | | | 521,045,368 | |
For the quarter ended | | 129,489 |
| | $ | 96.42 |
| | 413,763 |
| | $ | 11,060,541 |
| |
For the quarter ended September 30, 2021 | | For the quarter ended September 30, 2021 | | 446,005 | | | 122.64 | | | 648,851 | | | $ | 521,045,368 | |
On December 7, 2016,In September 2021, the Corporation authorized an additional $100 millionadopted a written trading plan in connection with its share repurchase program, which allows for future share repurchases, raising total authorized and available capital for share repurchasesthe purchase of its outstanding common stock up to $200$550 million. The Corporation plans to repurchase at least $50$250 million in shares in 2017. Underof its common stock via a 10b5-1 program during the current program, shares may be purchased on the open market, in privately negotiated transactions, and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended.2021 calendar year.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
There have been no material changes in our procedures by which our security holders may recommend nominees to our board of directors during the nine months ended September 30, 2017.2021. Information regarding security holder recommendations and nominations for directors is more fully described in the section entitled “Stockholder Recommendations and Nominations for Director” of our 20172021 Proxy Statement on Schedule 14A, which is incorporated by reference to our 20162020 Annual Report on Form 10-K.
Item 6. EXHIBITS
| | | | | | | | | | | | | | | | | |
| | | Incorporated by Reference | Filed |
Exhibit No. | | Exhibit Description | Form | Filing Date | Herewith |
| | | | | |
3.1 | | | 8-A12B/A | May 24, 2005 | |
| | | | | |
3.2 | | | Incorporated by Reference | Filed |
Exhibit No. | | Exhibit Description | Form | Filing Date | Herewith |
| | | | | |
3.1 | | | 8-A/A | May 24, 2005 | |
| | | | | |
3.2 | | | 8-K | May 18, 2015 | |
| | | | | |
31.1 | | | | | X |
| | | | | |
31.2 | | | | | X |
| | | | | |
32 | | | | | X |
| | | | | |
101.INS | | XBRL Instance Document | | | X |
| | | | | |
101.SCH | | XBRL Taxonomy Extension Schema Document | | | X |
| | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | | | X |
| | | | | |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | | | X |
| | | | | |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | | | X |
| | | | | |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | | | X |
| | | | | |
| | | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
CURTISS-WRIGHT CORPORATION
(Registrant)
By: /s/ Glenn E. TynanK. Christopher Farkas
Glenn E. TynanK. Christopher Farkas
Vice President of Finance and Chief Financial Officer
Dated: October 26, 2017November 4, 2021