CURTISS WRIGHT CORP [CW] Filings

10-Q 1 cw-20220930.htm 10-Q cw-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2022

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________ to _______

Commission File Number 1-134

CURTISS-WRIGHT CORPORATION

(Exact name of Registrant as specified in its charter)


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


130 Harbour Place Drive, Suite 300
Davidson,	North Carolina	28036
(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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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.

☐

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

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: 38,307,674 shares as of October 31, 2022.

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

TABLE of CONTENTS


PART I – FINANCIAL INFORMATION			PAGE


Item 1.	Financial Statements (Unaudited):

		Condensed Consolidated Statements of Earnings	4

		Condensed Consolidated Statements of Comprehensive Income	5

		Condensed Consolidated Balance Sheets	6

		Condensed Consolidated Statements of Cash Flows	7

		Condensed Consolidated Statements of Stockholders’ Equity	8

		Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		32

Item 4.	Controls and Procedures		32


PART II – OTHER INFORMATION


Item 1.	Legal Proceedings		33

Item 1A.	Risk Factors		33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		33

Item 3.	Defaults upon Senior Securities		33

Item 4.	Mine Safety Disclosures		33

Item 5.	Other Information		33

Item 6.	Exhibits		35

Signatures			36

Page 3

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)	2022		2021		2022		2021
Net sales
Product sales	$	530,782	$	528,339	$	1,489,619	$	1,552,706
Service sales	99,760		92,280		309,741		286,467
Total net sales	630,542		620,619		1,799,360		1,839,173
Cost of sales
Cost of product sales	338,264		328,424		949,180		989,759
Cost of service sales	60,069		55,187		188,055		177,930
Total cost of sales	398,333		383,611		1,137,235		1,167,689
Gross profit	232,209		237,008		662,125		671,484
Research and development expenses	17,387		21,618		61,804		66,675
Selling expenses	31,888		30,067		90,387		89,227
General and administrative expenses	75,351		78,998		239,085		229,608
Loss on divestiture	—		—		4,651		—
Impairment of assets held for sale	—		8,656		—		8,656
Operating income	107,583		97,669		266,198		277,318
Interest expense	13,997		9,955		33,315		30,094
Other income, net	3,746		3,627		11,298		8,910
Earnings before income taxes	97,332		91,341		244,181		256,134
Provision for income taxes	(23,564)		(21,638)		(58,856)		(65,554)
Net earnings	$	73,768	$	69,703	$	185,325	$	190,580

Net earnings per share:
Basic earnings per share	$	1.92	$	1.71	$	4.82	$	4.66
Diluted earnings per share	$	1.91	$	1.70	$	4.79	$	4.64

Dividends per share	0.19		0.18		0.56		0.53

Weighted-average shares outstanding:
Basic	38,368		40,769		38,416		40,865
Diluted	38,647		40,950		38,655		41,040
See notes to condensed consolidated financial statements

Page 4

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net earnings	$	73,768	$	69,703	$	185,325	$	190,580
Other comprehensive income (loss)
Foreign currency translation adjustments, net of tax (1)	$	(50,098)	$	(16,273)	$	(97,259)	$	(12,990)
Pension and postretirement adjustments, net of tax (2)	3,856		4,994		13,610		15,036
Other comprehensive income (loss), net of tax	(46,242)		(11,279)		(83,649)		2,046
Comprehensive income	$	27,526	$	58,424	$	101,676	$	192,626

(1) The tax expense included in foreign currency translation adjustments for the three months ended September 30, 2022 was immaterial. The tax expense included in foreign currency translation adjustments for the nine months ended September 30, 2022 was $1.7 million. The tax benefit included in foreign currency translation adjustments for the three and nine months ended September 30, 2021 was immaterial.

(2) The tax expense included in pension and postretirement adjustments for the three and nine months ended September 30, 2022 was $1.2 million and $3.1 million, respectively. The tax expense included in pension and postretirement adjustments for the three and nine months ended September 30, 2021 was $2.0 million and $5.1 million, respectively.

See notes to condensed consolidated financial statements

Page 5

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except per share data)


	September 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	113,552	$	171,004
Receivables, net	713,592		647,148
Inventories, net	503,064		411,567
Assets held for sale	—		10,988
Other current assets	84,468		67,101
Total current assets	1,414,676		1,307,808
Property, plant, and equipment, net	338,549		360,031
Goodwill	1,512,231		1,463,026
Other intangible assets, net	618,563		538,077
Operating lease right-of-use assets, net	145,252		143,613
Prepaid pension asset	267,262		256,422
Other assets	45,629		34,568
Total assets	$	4,342,162	$	4,103,545
Liabilities
Current liabilities:
Current portion of long-term debt	202,500		—
Accounts payable	182,621		211,640
Accrued expenses	139,982		147,701
Deferred revenue	220,259		260,157
Liabilities held for sale	—		12,655
Other current liabilities	95,002		102,714
Total current liabilities	840,364		734,867
Long-term debt	1,141,211		1,050,610
Deferred tax liabilities, net	150,721		147,349
Accrued pension and other postretirement benefit costs	85,865		91,329
Long-term operating lease liability	125,493		127,152
Long-term portion of environmental reserves	13,186		13,656
Other liabilities	101,079		112,092
Total liabilities	2,457,919		2,277,055
Contingencies and commitments (Note 14)
Stockholders’ equity
Common stock, $1 par value, 100,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 49,187,378 shares issued as of September 30, 2022 and December 31, 2021; outstanding shares were 38,334,223 as of September 30, 2022 and 38,469,778 as of December 31, 2021	49,187		49,187
Additional paid in capital	131,230		127,104
Retained earnings	3,072,639		2,908,827
Accumulated other comprehensive loss	(274,114)		(190,465)
Common treasury stock, at cost (10,853,155 shares as of September 30, 2022 and 10,717,600 shares as of December 31, 2021)	(1,094,699)		(1,068,163)
Total stockholders’ equity	1,884,243		1,826,490
Total liabilities and stockholders’ equity	$	4,342,162	$	4,103,545

See notes to condensed consolidated financial statements

Page 6

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended
	September 30,
(In thousands)	2022		2021
Cash flows from operating activities:
Net earnings	$	185,325	$	190,580
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	83,520		86,240
Loss on divestiture	4,651		—
Impairment of assets held for sale	—		8,656
Gain on sale/disposal of long-lived assets	(4,241)		(604)
Deferred income taxes	5,759		4,480
Share-based compensation	12,027		10,861
Change in operating assets and liabilities, net of business acquired:
Receivables, net	(70,548)		(81,498)
Inventories, net	(89,318)		(5,045)
Progress payments	(1,330)		(3,960)
Accounts payable and accrued expenses	(42,360)		(51,702)
Deferred revenue	(39,230)		115
Pension and postretirement liabilities, net	(3,913)		2,406
Other current and long-term assets and liabilities	(37,955)		(4,768)
Net cash provided by operating activities	2,387		155,761
Cash flows from investing activities:
Proceeds from sale/disposal of long-lived assets	9,110		3,389
Purchases of investments	(10,000)		—
Additions to property, plant, and equipment	(28,789)		(27,858)
Acquisition of business, net of cash acquired	(247,215)		—
Additional consideration paid on prior year acquisitions	(5,062)		(5,340)
Net cash used for investing activities	(281,956)		(29,809)
Cash flows from financing activities:
Borrowings under revolving credit facilities	1,332,219		166,771
Payments of revolving credit facilities	(1,038,019)		(166,771)
Repurchases of common stock	(44,434)		(79,092)
Proceeds from share-based compensation	9,997		9,705
Dividends paid	(14,220)		(14,320)
Other	(755)		(699)
Net cash (used for)/provided by financing activities	244,788		(84,406)
Effect of exchange-rate changes on cash	(22,671)		(5,378)
Net increase (decrease) in cash and cash equivalents	(57,452)		36,168
Cash and cash equivalents at beginning of period	171,004		198,248
Cash and cash equivalents at end of period	$	113,552	$	234,416
See notes to condensed consolidated financial statements

Page 7

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)


	For the nine months ended September 30, 2022
	Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
December 31, 2021	$	49,187	$	127,104	$	2,908,827	$	(190,465)	$	(1,068,163)
Net earnings	—		—		185,325		—		—
Other comprehensive loss, net of tax	—		—		—		(83,649)		—
Dividends declared	—		—		(21,513)		—		—
Restricted stock	—		(8,523)		—		—		8,523
Employee stock purchase plan	—		1,273		—		—		8,724
Share-based compensation	—		11,882		—		—		145
Repurchase of common stock (1)	—		—		—		—		(44,434)
Other	—		(506)		—		—		506
September 30, 2022	$	49,187	$	131,230	$	3,072,639	$	(274,114)	$	(1,094,699)


	For the three months ended September 30, 2022
	Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
June 30, 2022	$	49,187	$	126,316	$	3,006,164	$	(227,872)	$	(1,086,156)
Net earnings	—		—		73,768		—		—
Other comprehensive loss, net of tax	—		—		—		(46,242)		—
Dividends declared	—		—		(7,293)		—		—
Employee stock purchase plan	—		459		—		—		4,254
Share-based compensation	—		4,455		—		—		(8)
Repurchase of common stock (1)	—		—		—		—		(12,789)
September 30, 2022	$	49,187	$	131,230	$	3,072,639	$	(274,114)	$	(1,094,699)

Page 8

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	—		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)


	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 loss, 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)

See notes to condensed consolidated financial statements

(1) For the three and nine months ended September 30, 2022, the Corporation repurchased approximately 0.1 million and 0.3 million shares of its common stock, respectively. 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.

Page 9

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 integrated business that provides highly engineered products, solutions, and services mainly to aerospace & defense (A&D) markets, as well as critical technologies in demanding commercial power, process, and 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 using the over-time revenue recognition accounting 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, 2022 and 2021, there were no 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 2021 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.

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 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, 2022 and 2021:

Page 10

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Over-time	50	%	48	%	52	%	51	%
Point-in-time	50	%	52	%	48	%	49	%

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 $2.6 billion as of September 30, 2022, of which the Corporation expects to recognize approximately 90% 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)	2022		2021		2022		2021
Aerospace & Defense
Aerospace Defense	$	114,431	$	116,853	$	306,980	$	327,847
Ground Defense	54,890		55,124		138,391		159,090
Naval Defense	174,844		175,800		510,597		531,429
Commercial Aerospace	70,257		67,461		199,341		196,285
Total Aerospace & Defense	$	414,422	$	415,238	$	1,155,309	$	1,214,651

Commercial
Power & Process	$	110,559	$	112,736	$	340,702	$	343,573
General Industrial	105,561		92,645		303,349		280,949
Total Commercial	$	216,120	$	205,381	$	644,051	$	624,522

Total	$	630,542	$	620,619	$	1,799,360	$	1,839,173

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, 2022 included in the contract liabilities balance as of January 1, 2022 was approximately $54 million and $189 million, respectively. 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. Contract assets and contract liabilities are reported in the "Receivables, net" and "Deferred revenue" lines, respectively, within the Condensed Consolidated Balance Sheet.

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 numerous 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 price reflects the future

Page 11

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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, 2022, the Corporation acquired one business for an aggregate purchase price of $247 million, which is described in more detail below. The Condensed Consolidated Statement of Earnings for the nine months ended September 30, 2022 includes $14 million of total net sales and $6 million of net losses from the Corporation's 2022 acquisition. During the nine months ended September 30, 2021, the Corporation did not complete any acquisitions.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the acquisition consummated during the nine months ended September 30, 2022.


(In thousands)	2022
Accounts receivable	$	9,970
Inventory	22,790
Property, plant, and equipment	1,683
Other current and non-current assets	1,872
Intangible assets	130,500
Operating lease right-of-use assets, net	1,197
Current and non-current liabilities	(9,607)
Net tangible and intangible assets	158,405
Goodwill	88,810
Total purchase price	$	247,215

Goodwill deductible for tax purposes	$	88,810

2022 Acquisition

Safran Aerosystems Arresting Company ("arresting systems acquisition")

On June 30, 2022, the Corporation completed its arresting systems acquisition for $247 million. The Purchase Agreement contains a purchase price adjustment mechanism and representations and warranties customary for a transaction of this type. The acquired business is a designer and manufacturer of mission-critical, fixed-wing aircraft emergency arresting system, and operates within the Naval & Power segment. The acquisition is subject to post-closing adjustments with the purchase price allocation not yet complete.

4. ASSETS HELD FOR SALE

In January 2022, the Corporation completed the sale of its industrial valve business in Germany, which was presented as held for sale in the Corporation's Consolidated Balance Sheet as of December 31, 2021, for gross cash proceeds of $3 million. The Corporation recorded a loss of $5 million upon sale closing during the first quarter of 2022.

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

Page 12

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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:


(In thousands)	September 30, 2022		December 31, 2021
Billed receivables:
Trade and other receivables	$	403,998	$	362,007
Unbilled receivables (contract assets):
Recoverable costs and estimated earnings not billed	314,692		291,758
Less: Progress payments applied	(559)		(1,297)
Net unbilled receivables	314,133		290,461
Less: Allowance for doubtful accounts	(4,539)		(5,320)
Receivables, net	$	713,592	$	647,148

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 net realizable value.

The composition of inventories is as follows:


(In thousands)	September 30, 2022		December 31, 2021
Raw materials	$	249,272	$	191,066
Work-in-process	90,288		78,221
Finished goods	126,093		98,944
Inventoried costs related to U.S. Government and other long-term contracts (1)	41,764		48,619
Inventories, net of reserves	507,417		416,850
Less: Progress payments applied	(4,353)		(5,283)
Inventories, net	$	503,064	$	411,567

(1) This caption includes capitalized development costs of $18.4 million as of September 30, 2022 related to certain aerospace and defense programs. These capitalized costs will be liquidated as units are produced under contract. As of September 30, 2022, capitalized development costs of $11.7 million are not currently supported by existing firm orders.

7. GOODWILL

The changes in the carrying amount of goodwill for the nine months ended September 30, 2022 are as follows:


(In thousands)	Aerospace & Industrial		Defense Electronics		Naval & Power		Consolidated
December 31, 2021	$	316,147	$	714,014	$	432,865	$	1,463,026
Acquisitions	—		—		88,810		88,810
Adjustments	—		967		—		967
Foreign currency translation adjustment	(10,984)		(20,047)		(9,541)		(40,572)
September 30, 2022	$	305,163	$	694,934	$	512,134	$	1,512,231

8. OTHER INTANGIBLE ASSETS, NET

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables present the cumulative composition of the Corporation’s intangible assets:


	September 30, 2022						December 31, 2021
(In thousands)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Technology	$	299,444	$	(170,266)	$	129,178	$	274,615	$	(164,077)	$	110,538
Customer related intangibles	650,987		(286,790)		364,197		568,720		(270,816)		297,904
Programs (1)	144,000		(32,400)		111,600		144,000		(27,000)		117,000
Other intangible assets	52,875		(39,287)		13,588		49,559		(36,924)		12,635
Total	$	1,147,306	$	(528,743)	$	618,563	$	1,036,894	$	(498,817)	$	538,077

(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.

During the nine months ended September 30, 2022, the Corporation acquired intangible assets of $130.5 million, which included Customer-related intangibles of $94.6 million, Technology of $31.5 million, and Other intangible assets of $4.4 million. The weighted average amortization periods for these aforementioned intangible assets are 15.9 years, 15.0 years, and 10.0 years, respectively.

Total intangible amortization expense for the nine months ended September 30, 2022 was $46 million, as compared to $45 million in the comparable prior year period. The estimated future amortization expense of intangible assets over the next five years is as follows:


(In millions)
2022	$	62
2023	$	66
2024	$	55
2025	$	52
2026	$	51

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.

Effects on Condensed Consolidated Balance Sheets

As of September 30, 2022 and December 31, 2021, the fair values of the asset and liability derivative instruments were immaterial.

Effects on Condensed Consolidated Statements of Earnings

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Undesignated hedges

The gains and losses 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, 2022 were $6 million and $12 million, respectively. The losses for both the three and nine months ended September 30, 2021 were $2 million, respectively.

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 issuances as of September 30, 2022. Accordingly, all of the Corporation’s debt is valued as a Level 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, 2022				December 31, 2021
(In thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Revolving credit agreement, due 2027	$	388,100	$	388,100	$	93,900	$	93,900
3.70% Senior notes due 2023	202,500		201,714		202,500		208,086
3.85% Senior notes due 2025	90,000		86,827		90,000		95,246
4.24% Senior notes due 2026	200,000		190,933		200,000		218,421
4.05% Senior notes due 2028	67,500		62,919		67,500		73,783
4.11% Senior notes due 2028	90,000		83,520		90,000		98,854
3.10% Senior notes due 2030	150,000		126,071		150,000		154,832
3.20% Senior notes due 2032	150,000		121,677		150,000		154,875
Total debt	1,338,100		1,261,761		1,043,900		1,097,997
Debt issuance costs, net	(827)		(827)		(949)		(949)
Unamortized interest rate swap proceeds	6,438		6,438		7,659		7,659
Total debt, net	$	1,343,711	$	1,267,372	$	1,050,610	$	1,104,707

Revolving Credit Agreement

In May 2022, the Corporation terminated its existing credit agreement, which was set to expire in October 2023, and entered into a new credit agreement (“Credit Agreement”) with a syndicate of financial institutions. The Credit Agreement, which is set to expire in May 2027, increases the size of the Corporation’s revolving credit facility to $750 million, and expands the accordion feature to $250 million. The Corporation plans to use the Credit Agreement for general corporate purposes, which may include the funding of possible future acquisitions or supporting internal growth initiatives.

Senior Notes

On October 27, 2022, the Corporation announced that it formally closed its private placement debt offering of $300 million for senior notes, consisting of $200 million 4.49% notes due 2032 and $100 million 4.64% notes due 2034.

10. PENSION PLANS

Defined Benefit Pension Plans

The following table is a consolidated disclosure of all domestic and foreign defined benefit pension plans as described in the Corporation’s 2021 Annual Report on Form 10-K.

The components of net periodic pension cost for the three and nine months ended September 30, 2022 and 2021 were as follows:

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Service cost	$	5,770	$	6,931	$	17,803	$	20,921
Interest cost	5,442		4,585		16,148		13,402
Expected return on plan assets	(13,525)		(15,177)		(41,240)		(45,548)
Amortization of prior service cost	155		(216)		(18)		(648)
Amortization of unrecognized actuarial loss	4,785		6,988		12,636		21,705
Cost of settlements	—		235		1,842		3,310
Net periodic pension cost	$	2,627	$	3,346	$	7,171	$	13,142

The Corporation did not make any contributions to the Curtiss-Wright Pension Plan during 2021, and does not expect to do so in 2022. Contributions to the foreign benefit plans are not expected to be material in 2022.

During the nine months ended September 30, 2022, as well as 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 for its U.S. subsidiaries. The employer contributions include both employer match and non-elective contribution components up to a maximum employer contribution of 7% of eligible compensation. During the three and nine months ended September 30, 2022, the expense relating to the plan was $5.5 million and $15.8 million, respectively. During the three and nine months ended September 30, 2021, the expense relating to the plan was $4.6 million and $14.2 million, respectively.

11. EARNINGS PER SHARE

Diluted earnings per share was 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)	2022	2021	2022	2021
Basic weighted-average shares outstanding	38,368	40,769	38,416	40,865
Dilutive effect of deferred stock compensation	279	181	239	175
Diluted weighted-average shares outstanding	38,647	40,950	38,655	41,040

For the three and nine months ended September 30, 2022, approximately 49,000 and 37,000 shares, respectively, 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.

There were no anti-dilutive equity-based awards for the three months ended September 30, 2021. For the nine months ended September 30, 2021, approximately 41,000 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.

12. SEGMENT INFORMATION

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.

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Net sales and operating income by reportable segment were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021
Net sales
Aerospace & Industrial	$	213,656	$	197,060	$	614,817	$	578,452
Defense Electronics	162,233		182,314		456,575		528,080
Naval & Power	256,277		242,891		732,905		737,967
Less: Intersegment revenues	(1,624)		(1,646)		(4,937)		(5,326)
Total consolidated	$	630,542	$