CURTISS WRIGHT CORP [CW] Filings

10-Q 1 cw-20210930.htm 10-Q cw-20210930

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, 2021

☐ 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: 39,239,706 shares as of October 31, 2021.

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		21

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		34

Item 4.	Mine Safety Disclosures		34

Item 5.	Other Information		34

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)	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

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

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,
	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

(1) The tax benefit included in foreign currency translation adjustments for the three and nine months ended September 30, 2021 and September 30, 2020 was immaterial.

(2) 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. The tax expense included in pension and postretirement adjustments for the three and nine months ended September 30, 2020 was $1.3 million and $4.0 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, 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

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)	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

Page 7

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)


	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)

Page 8

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.

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, diversified manufacturing and service company that designs, manufactures, and overhauls precision components and provides highly engineered products and services to the aerospace, defense, power & 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 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, 2021 and 2020, 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 2020 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.

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 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

Page 10

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 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, 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 two businesses for an aggregate purchase price of $90 million, which are described in more detail below. The Condensed Consolidated Statement of Earnings for the nine months ended September 30, 2020 included $12 million of total net sales and $1 million of net losses from the Corporation's 2020 acquisitions.

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

2020 Acquisitions

PacStar

On October 30, 2020, the Corporation acquired 100% of the issued and outstanding stock of PacStar for $406 million. The 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. PacStar is a provider of tactical communications solutions for battlefield network management. The

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CURTISS-WRIGHT CORPORATION and 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.

IADS

On April 20, 2020, the Corporation acquired the IADS product line for approximately $29 million. The Asset Purchase Agreement contains representations and warranties customary for a transaction 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. Dyna-Flo specializes in control valves, actuators, and control systems for the chemical, petrochemical, and oil and gas markets. The acquired business operates within the Naval & Power segment.

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:

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(In thousands)	September 30, 2021		December 31, 2020
Billed receivables:
Trade and other receivables	$	381,628	$	361,460
Unbilled receivables (contract assets):
Recoverable costs and estimated earnings not billed	296,500		238,309
Less: Progress payments applied	(734)		(3,291)
Net unbilled receivables	295,766		235,018
Less: Allowance for doubtful accounts	(6,527)		(7,760)
Receivables, net	$	670,867	$	588,718

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, 2021		December 31, 2020
Raw materials	$	194,887	$	177,828
Work-in-process	81,781		80,729
Finished goods	111,914		120,767
Inventoried costs related to U.S. Government and other long-term contracts (1)	50,086		56,599
Inventories, net of reserves	438,668		435,923
Less: Progress payments applied	(5,528)		(7,044)
Inventories, net	$	433,140	$	428,879

(1) As of September 30, 2021 and December 31, 2020, this caption also includes capitalized development costs of $26.3 million and $29.7 million, respectively, related to certain aerospace and defense programs. These capitalized costs will be liquidated as units are produced under contract. As of September 30, 2021 and December 31, 2020, capitalized development costs of $12.1 million and $13.0 million, respectively, are not currently supported by existing firm orders.

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 ended September 30, 2021 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.

8. OTHER INTANGIBLE ASSETS, NET

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


	September 30, 2021						December 31, 2020
(In thousands)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Technology	$	274,522	$	(160,020)	$	114,502	$	280,595	$	(148,064)	$	132,531
Customer related intangibles	568,566		(263,098)		305,468		573,722		(239,798)		333,924
Programs (1)	144,000		(25,200)		118,800		144,000		(19,800)		124,200
Other intangible assets	49,543		(35,799)		13,744		51,493		(32,518)		18,975
Total	$	1,036,631	$	(484,117)	$	552,514	$	1,049,810	$	(440,180)	$	609,630

(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, 2021 was $45 million, as compared to $43 million in the comparable prior year period. The estimated amortization expense for the five years ending December 31, 2021 through 2025 is $59 million, $55 million, $51 million, $48 million, and $45 million, respectively.

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, 2021 and December 31, 2020, the fair values of the asset and liability derivative instruments were immaterial.

Effects on Condensed Consolidated Statements of Earnings

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, 2021 were ($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.

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, 2021. 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.

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	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

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 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, 2021, the expense relating to the plan was $4.6 million and $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,

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

respectively. The Corporation made $16.4 million in contributions to the plan during the nine months ended September 30, 2021, and expects to make total contributions of approximately $19.0 million in 2021.

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)	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

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. There were no anti-dilutive equity-based awards for three and nine months ended September 30, 2020.

12. SEGMENT INFORMATION

Prior to the first quarter of 2021, the Corporation reported 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