form10q.htm



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

FORM 10-Q

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

or

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

Commission File Number 1-134

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

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

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

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


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

Yes  x                        No  o

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

Yes  x                        No  o

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

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

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

Yes  o   No  x

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

Common Stock, par value $1.00 per share: 46,101,590 shares (as of October 31, 2010).

 
 
 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

TABLE of CONTENTS




       
       
PART I – FINANCIAL INFORMATION
 
PAGE
       
       
Item 1.
Unaudited Financial Statements:
 
       
   
3
       
   
4
       
   
5
       
   
6
       
   
7 - 19
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20-25
       
Item 3.
26
       
Item 4.
26
       
       
PART II – OTHER INFORMATION
 
       
       
Item 1.
27
       
Item 1A.
Risk Factors
27
       
Item 5.
Other Information
27
       
Item 6.
Exhibits
28
       
Signatures
 
29

 
 
 


PART 1- FINANCIAL INFORMATION
Item 1. Financial Statements


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

 
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
 
   
 
   
 
   
 
 
 
 
2010
   
2009
   
2010
   
2009
 
 
 
 
   
 
   
 
   
 
 
Net sales
  $ 465,813     $ 435,750     $ 1,369,753     $ 1,306,913  
Cost of sales
    310,096       293,435       921,669       884,256  
Gross profit
    155,717       142,315       448,084       422,657  
 
                               
Research and development expenses
    13,218       13,824       40,894       40,148  
Selling expenses
    27,560       25,407       83,900       78,685  
General and administrative expenses
    66,853       66,866       200,692       192,700  
Operating income
    48,086       36,218       122,598       111,124  
 
                               
Other income, net
    86       309       622       657  
Interest expense
    (5,815 )     (5,923 )     (17,182 )     (19,405 )
 
                               
Earnings before income taxes
    42,357       30,604       106,038       92,376  
Provision for income taxes
    14,573       10,489       36,021       32,002  
 
                               
Net earnings
  $ 27,784     $ 20,115     $ 70,017     $ 60,374  
 
                               
Basic earnings per share
  $ 0.61     $ 0.44     $ 1.53     $ 1.34  
Diluted earnings per share
  $ 0.60     $ 0.44     $ 1.51     $ 1.32  
 
                               
Dividends per share
  $ 0.08     $ 0.08     $ 0.24     $ 0.24  
 
                               
Weighted average shares outstanding:
                               
Basic
    45,898       45,356       45,765       45,165  
Diluted
    46,276       45,828       46,253       45,617  
 
                               
See notes to condensed consolidated financial statements
 

 
Page 3 of 29

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except par value)

 
 
September 30,
   
December 31,
 
 
 
2010
   
2009
 
Assets
 
 
   
 
 
Current Assets:
 
 
   
 
 
Cash and cash equivalents
  $ 83,913     $ 65,010  
Receivables, net
    472,680       404,539  
Inventories, net
    301,720       285,608  
Deferred tax assets, net
    47,157       48,777  
Other current assets
    39,458       33,567  
Total current assets
    944,928       837,501  
Property, plant, and equipment, net
    395,370       401,149  
Goodwill
    689,461       648,452  
Other intangible assets, net
    245,070       242,506  
Deferred tax assets, net
    1,128       1,994  
Other assets
    10,651       10,439  
Total Assets
  $ 2,286,608     $ 2,142,041  
 
               
Liabilities
               
Current Liabilities:
               
Current portion of short-term and long-term debt
  $ 2,551     $ 80,981  
Accounts payable
    111,013       129,880  
Dividends payable
    3,692       -  
Accrued expenses
    97,088       90,855  
Income taxes payable
    3,767       4,212  
Deferred revenue
    142,782       167,683  
Other current liabilities
    40,928       50,708  
Total current liabilities
    401,821       524,319  
Long-term debt
    524,071       384,112  
Deferred tax liabilities, net
    30,230       25,549  
Accrued pension and other postretirement benefit costs
    136,941       120,930  
Long-term portion of environmental reserves
    19,084       18,804  
Other liabilities
    47,015       41,570  
Total Liabilities
    1,159,162       1,115,284  
Contingencies and Commitments (Note 14)
               
 
               
Stockholders' Equity
               
Common stock, $1 par value
    48,558       48,214  
Additional paid in capital
    125,529       111,707  
Retained earnings
    1,039,563       980,590  
Accumulated other comprehensive income (loss)
    4,018       (19,605 )
 
    1,217,668       1,120,906  
Less:  Cost of treasury stock
    (90,222 )     (94,149 )
Total Stockholders' Equity
    1,127,446       1,026,757  
Total Liabilities and Stockholders' Equity
  $ 2,286,608     $ 2,142,041  
 
               
See notes to condensed consolidated financial statements
         

 
Page 4 of 29

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)

 
 
Nine Months Ended
 
 
 
September 30,
 
 
 
2010
   
2009
 
Cash flows from operating activities:
 
 
   
 
 
Net earnings
  $ 70,017     $ 60,374  
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization
    58,873       57,276  
Net loss on sales and disposals of long-lived assets
    979       882  
Gain on bargain purchase
    -       (1,937 )
Deferred income taxes
    3,194       808  
Share-based compensation
    7,920       9,334  
Change in operating assets and liabilities, net of businesses acquired:
               
(Increase) decrease in receivables
    (75,263 )     16,563  
Increase in inventories
    (9,096 )     (8,412 )
Increase (decrease) in progress payments
    6,847       (12,750 )
Decrease in accounts payable and accrued expenses
    (12,263 )     (49,087 )
(Decrease) increase in deferred revenue
    (24,901 )     23,625  
Decrease in income taxes payable
    (4,431 )     (16,409 )
Increase in net pension and postretirement liabilities
    19,024       16,245  
Increase in other current and long-term assets
    (1,084 )     (166 )
Decrease in other current and long-term liabilities
    (2,124 )     (15,307 )
 Total adjustments
    (32,325 )     20,665  
 Net cash provided by operating activities
    37,692       81,039  
Cash flows from investing activities:
               
Proceeds from sales and disposals of long-lived assets
    744       2,933  
Acquisitions of intangible assets
    (1,511 )     (321 )
Additions to property, plant, and equipment
    (38,802 )     (61,026 )
Acquisition of businesses, net of cash acquired
    (42,200 )     (50,764 )
Net cash used for investing activities
    (81,769 )     (109,178 )
Cash flows from financing activities:
               
Borrowings on debt
    386,600       585,210  
Principal payments on debt
    (325,247 )     (553,734 )
Proceeds from exercise of stock options
    9,731       10,450  
Dividends paid
    (7,352 )     (7,261 )
Excess tax benefits from share-based compensation
    222       264  
Net cash provided by financing activities
    63,954       34,929  
Effect of exchange-rate changes on cash
    (974 )     5,004  
Net increase in cash and cash equivalents
    18,903       11,794  
Cash and cash equivalents at beginning of period
    65,010       60,705  
Cash and cash equivalents at end of period
  $ 83,913     $ 72,499  
Supplemental disclosure of investing activities:
               
Fair value of assets acquired in current year acquisitions
  $ 49,766     $ 56,749  
Additional consideration paid on prior year acquisitions
    1,153       80  
Liabilities assumed from current year acquisitions
    (8,033 )     (4,125 )
Gain on bargain purchase
    -       (1,937 )
Cash acquired
    (686 )     (3 )
Acquisition of businesses, net of cash acquired
  $ 42,200     $ 50,764  
See notes to condensed consolidated financial statements
 

 
Page 5 of 29

 

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)

 
 
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
 
   
 
 
 
 
 
   
 
   
 
   
Accumulated
   
 
 
 
 
 
   
Additional
   
 
   
Other
   
 
 
 
 
Common
   
Paid in
   
Retained
   
Comprehensive
   
Treasury
 
 
 
Stock
   
Capital
   
Earnings
   
Income (Loss)
   
Stock
 
 
 
 
   
 
   
 
   
 
   
 
 
December 31, 2008
  $ 47,903     $ 94,500     $ 899,928     $ (72,551 )   $ (103,018 )
Net earnings
    -       -       95,221               -  
Pension and postretirement
                                       
adjustment, net
    -       -       -       16,350       -  
Foreign currency translation
                                       
adjustments, net
    -       -       -       36,596       -  
Dividends paid
    -       -       (14,559 )     -       -  
Stock options exercised, net
    311       6,085       -       -       4,727  
Share-based compensation
    -       11,431       -       -       3,833  
Other
    -       (309 )     -       -       309  
December 31, 2009
  $ 48,214     $ 111,707     $ 980,590     $ (19,605 )   $ (94,149 )
Net earnings
    -       -       70,017               -  
Pension and postretirement
                                       
adjustment, net
    -       -       -       1,562       -  
Foreign currency translation
                                       
 adjustments, net
    -       -       -       22,061       -  
Dividends declared
    -       -       (11,044 )     -       -  
Stock options exercised, net
    344       7,831       -       -       1,998  
Share-based compensation
    -       6,310       -       -       1,610  
Other
    -       (319 )     -       -       319  
September 30, 2010
  $ 48,558     $ 125,529     $ 1,039,563     $ 4,018     $ (90,222 )
 
                                       
 
                                       
See notes to condensed consolidated financial statements
 

 
Page 6 of 29

 

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

 

1.           BASIS OF PRESENTATION

Curtiss-Wright Corporation with its subsidiaries (the “Corporation”) is a diversified, multinational manufacturing and service company that designs, manufactures, and overhauls precision components and systems and provides highly engineered products and services to the aerospace, defense, automotive, shipbuilding, processing, oil and gas, petrochemical, agricultural equipment, railroad, power generation, security, and metalworking industries. Operations are conducted through 57 manufacturing facilities and 66 metal treatment service facilities.

The unaudited condensed consolidated financial statements include the accounts of Curtiss-Wright Corporation and its majority-owned subsidiaries.  All intercompany accounts, transactions, and profits are eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements of the Corporation have been prepared in conformity with accounting principles generally accepted in the United States of America, which requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenue, and expenses and disclosure of contingent assets and liabilities in the accompanying financial statements. The most significant of these estimates includes the estimate of costs to complete long-term contracts under the percentage-of-completion accounting methods, the estimate of useful lives for property, plant, and equipment, cash flow estimates used for testing the recoverability of assets, pension plan and postretirement obligation assumptions, estimates for inventory obsolescence, estimates for the valuation and useful lives of intangible assets, estimates for warranty reserves, and future legal and environmental costs. Actual results may differ from these estimates.  In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in these financial statements.

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

RECENTLY ISSUED ACCOUNTING STANDARDS

ADOPTION OF NEW STANDARDS

Improving Disclosures About Fair Value Measurements
In February 2010, new guidance was issued which adds new requirements for disclosures about transfers into and out of Level 1 and 2 measurements and separate disclosures about purchases, sales, issuances, and settlements related to Level 3 measurements.

Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.

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


 
Page 7 of 29

 

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

 

Amendments to Certain Recognition and Measurement Requirements
In February 2010, new guidance was issued to provide certain recognition and disclosure requirements surrounding subsequent events, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance  requires U.S. Securities and Exchange Commission (“SEC”) filers to evaluate subsequent events through the date that the financial statements are issued and by removing the requirement for SEC filers to disclose the date through which subsequent events have been evaluated.  The new guidance was effective upon issuance.  In accordance with this guidance, the Corporation has determined no subsequent events have occurred that would require adjustment to or additional disclosure in its condensed consolidated financial statements.
 
STANDARDS ISSUED BUT NOT YET EFFECTIVE
 
Revenue Recognition – Milestone Method
In April 2010, new guidance was issued that provides the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate, as well as the associated disclosure requirements.  The new guidance clarifies that a vendor can recognize consideration that is contingent on achieving a milestone as revenue in the period in which the milestone is achieved, only if the milestone meets all criteria to be considered substantive.  The new guidance is effective for fiscal years beginning after June 15, 2010. We do not anticipate that the adoption of this guidance will have a material impact on the Corporation’s results of operations or financial condition.
 
Revenue Arrangements with Multiple Deliverables
In September 2009, new guidance was issued on revenue arrangements with multiple deliverables.  The new guidance modifies the requirements for determining whether a deliverable can be treated as a separate unit of accounting by removing the criteria that verifiable and objective evidence of fair value exists for undelivered items; establishes a selling price hierarchy to help entities allocate arrangement consideration to separate units of account; requires the relative selling price allocation method for all arrangements; and expands required disclosures.  The new guidance is effective for fiscal years beginning after June 15, 2010. We do not anticipate that the adoption of this guidance will have a material impact on the Corporation’s results of operations or financial condition.
 
Certain Revenue Arrangements That Include Software Elements
In September 2009, new guidance was issued on certain revenue arrangements that include software elements. The new guidance amended past guidance on software revenue recognition to exclude from its scope all tangible products containing both software and non-software elements that function together to interdependently deliver the product’s essential functionality. The new guidance is effective for fiscal years beginning after June 15, 2010. We do not anticipate that the adoption of this guidance will have a material impact on the Corporation’s results of operations or financial condition.
 
RECENT DEVELOPMENTS
 
U.S. Health Care Legislation
In March 2010, the Patient Protection and Affordable Care Act (the “PPACA”) and the Health Care and Education Reconciliation Act of 2010 (the “HCERA” and, together with PPACA, the “Acts”) were signed into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans that provide prescription drug benefits at least as actuarially equivalent to the corresponding benefits provided under Medicare Part D.
 
The federal subsidy paid to employers was introduced as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “MMA 2003”). The Corporation has been receiving the federal subsidy since the 2006 tax year related to certain retiree prescription drug plans that were determined to be actuarially equivalent to the benefit provided under Medicare Part D. Under the MMA 2003, the federal subsidy does not reduce an employer’s income tax deduction for the costs of providing such prescription drug plans nor is it subject to income tax to the individual.
 
Under the Acts, beginning in 2013, an employer’s income tax deduction for the costs of providing Medicare Part D-equivalent prescription drug benefits to retirees will be reduced by the amount of the federal subsidy. Under the general standards of accounting, any impact from a change in tax law must be recognized in earnings in the period enacted regardless of the effective date. As a result, management recognized a one-time non-cash charge of approximately $0.8 million in the quarter ended March 31, 2010 for the write-off of deferred tax assets to reflect the change in the tax treatment of the federal subsidy.
 
 
Page 8 of 29

 

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

 
2.           ACQUISITIONS

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

Hybricon Corporation

On June 1, 2010, the Corporation acquired all the issued and outstanding stock of Hybricon Corporation (“Hybricon”) for $19.0 million in cash.  Under the terms of the Stock Purchase Agreement, the Corporation deposited $2.3 million into escrow as security for potential indemnification claims against the seller.  The escrow amount will be held for a period of eighteen months, provided that 50% of the escrow will be released after twelve months subject to amounts held back for pending claims.  Management funded the purchase from the Corporation’s revolving credit facility.
 
The purchase price of the acquisition has been allocated to the net tangible and intangible assets acquired with the remainder recorded as goodwill on the basis of estimated fair values, as follows:
 
(In  thousands)
 
 
 
 
Accounts receivable
 
$
 2,273 
 
Inventory
 
 
 2,075 
 
Property, plant, and equipment
 
 
 151 
 
Other current assets
 
 
 68 
 
Intangible assets
 
 
 6,677 
 
Current liabilities
 
 
 (1,420)
 
Deferred income taxes
 
 
 (2,223)
 
Net tangible and intangible assets
 
 
 7,601 
 
Purchase price
 
 
 18,976 
 
Goodwill
 
$
 11,375 
 
 
 
 
 
 
The goodwill of $11.4 million consists largely of synergies from combining the operations of Hybricon with the Corporation’s Electronic Systems business in Littleton, MA as well as value associated with the acquisition’s assembled workforce.  The Corporation has determined that the goodwill will not be deductible for tax purposes.
 
Hybricon designs and manufactures custom and standards-based enclosures and electronic backplanes for defense and commercial applications, and is a leading supplier for predominant embedded commercial-off-the-shelf system architectures.  Hybricon had 72 employees as of the date of the acquisition and is located in Ayer, MA.  Revenues of the acquired business were $16.8 million for the fiscal year ended June 30, 2009.
 
Specialist Electronics Services Limited
 
On June 21, 2010, the Corporation acquired all the issued and outstanding stock of Specialist Electronics Services Ltd. (“SES”) for £15.0 million ($22.1 million), net of cash acquired.  Under the terms of the Share Purchase Agreement, the Corporation deposited £1.9 million ($2.8 million) into escrow as security for potential indemnification claims against the seller.  The escrow amount will be held for a period of twenty-four months, provided that 50% of the escrow will be released after twelve months subject to amounts held back for pending claims.  Management funded the purchase from a combination of cash generated from foreign operations and the Corporation’s revolving credit facility.
 
The purchase price of the acquisition has been allocated to the net tangible and intangible assets acquired with the remainder recorded as goodwill on the basis of estimated fair values, as follows:
 
(USD, In  thousands)
 
 
 
 
Accounts receivable
 
$
 1,680 
 
Inventory
 
 
 829 
 
Property, plant, and equipment
 
 
 205 
 
Other current assets
 
 
 16 
 
Intangible assets
 
 
 7,525 
 
Current and non-current liabilities
 
 
 (2,241)
 
Deferred income taxes
 
 
 (2,089)
 
Net tangible and intangible assets
 
 
 5,925 
 
Purchase price
 
 
 22,131 
 
Goodwill
 
$
 16,206 
 
 
 
 
 
 
The goodwill of £11.0 million ($16.2 million) consists largely of synergies achieved through the introduction of SES products to the Corporation’s distribution channels as well as synergies achieved from combining the operations of SES with the Corporation’s United Kingdom based operations.  The Corporation has determined that the goodwill will not be deductible for tax purposes.
 
SES provides a range of rugged products for airborne and other severe environments, with particular expertise in solid state data recording, computing and control display units. Key platforms include fixed-wing, rotary-wing and unmanned aircraft, tactical vehicles and navy vessels.  SES is located in Camberley, United Kingdom and had 41 employees as of the date of the acquisition.  Revenues of the acquired business were £4.7 million ($7.5 million) for the fiscal year ended May 31, 2010.

 
 
Page 9 of 29

 

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

 
3.           RECEIVABLES

Receivables at September 30, 2010 and December 31, 2009 include amounts billed to customers, claims, other receivables, and unbilled charges on long-term contracts consisting of amounts recognized as sales but not billed.  Substantially all amounts of unbilled receivables are expected to be billed and collected within one year.

The composition of receivables for those periods is as follows:
 
 
 
(In thousands)
 
 
 
September 30,
   
December 31,
 
 
 
2010
   
2009
 
Billed Receivables:
 
 
   
 
 
Trade and other receivables
  $ 290,024     $ 264,191  
Less: Allowance for doubtful accounts
    (3,983 )     (3,997 )
Net billed receivables
    286,041       260,194  
Unbilled Receivables:
               
Recoverable costs and estimated earnings not billed
    216,323       163,115  
Less: Progress payments applied
    (29,684 )     (18,770 )
Net unbilled receivables
    186,639       144,345  
Receivables, net
  $ 472,680     $ 404,539  
 
               
 
4.           INVENTORIES
 
Inventoried costs contain amounts relating to long-term contracts and programs with long production cycles, a portion of which will not be realized within one year.  Inventories are valued at the lower of cost (principally average cost) or market. The composition of inventories is as follows:
 
 
 
(In thousands)
 
 
 
September 30,
   
December 31,
 
 
 
2010
   
2009
 
Raw material
  $ 152,157     $ 131,108  
Work-in-process
    72,366       67,351  
Finished goods and component parts
    78,600       84,674  
Inventoried costs related to U.S. Government and other long-term contracts
    49,147       53,597  
Gross inventories
    352,270       336,730  
Less:  Inventory reserves
    (43,234 )     (39,739 )
Progress payments applied, principally related to long-term contracts
    (7,316 )     (11,383 )
Inventories, net
  $ 301,720     $ 285,608  
 
               

5.           GOODWILL
 
The Corporation accounts for acquisitions by assigning the purchase price to tangible and intangible assets and liabilities. Assets acquired and liabilities assumed are recorded at their fair values, and the excess of the purchase price over the amounts assigned is recorded as goodwill.
 
The changes in the carrying amount of goodwill for the nine months ended September 30, 2010 are as follows:
 
 
 
(In thousands)
 
 
 
Flow Control
   
Motion Control
   
Metal Treatment
   
Consolidated
 
December 31, 2009
  $ 308,051     $ 311,546     $ 28,855     $ 648,452  
Goodwill from 2010 acquisitions
            27,581               27,581  
Change in estimate to fair value of net
                               
assets acquired in prior year
    51                       51  
Additional consideration of prior years’ acquisitions
            (1,066 )             (1,066 )
Other adjustments
            (1,264 )             (1,264 )
Currency translation adjustment
    730       14,923       54       15,707  
September 30, 2010
  $ 308,832     $ 351,720     $ 28,909     $ 689,461  
 
                               
As of January 1, 2010, one of the Corporation’s Canadian entities changed its functional currency from the U.S. dollar to the Canadian dollar.  The nature of this operation’s cash flow changed from predominately U.S. dollar to the Canadian dollar, therefore requiring the change in functional currency.  In accordance with the guidance on foreign currency translation, an adjustment of $13.4 million, attributable to current-rate translation, was recorded to goodwill.  This adjustment resulted in an increase to goodwill and is reported within the “currency translation adjustment” caption above.
 
 
Page 10 of 29

 

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

 
6.           OTHER INTANGIBLE ASSETS, NET

Intangible assets are generally the result of acquisitions and consist primarily of purchased technology, customer related intangibles, and trademarks.  Intangible assets are amortized over useful lives that range between 1 to 20 years.
 
The following tables present the cumulative composition of the Corporation’s intangible assets and include $9.9 million of indefinite lived intangible assets within other intangible assets for both periods presented.
 
 
 
(In thousands)
 
September 30, 2010
 
Gross
   
Accumulated Amortization
   
Net
 
Technology
  $ 144,706     $ (52,202 )   $ 92,504  
Customer related intangibles
    188,019       (64,741 )     123,278  
Other intangible assets
    40,161       (10,873 )     29,288  
Total
  $ 372,886     $ (127,816 )   $ 245,070  
 
                       
 
                       
 
 
 
 
 (In thousands)
 
December 31, 2009
 
Gross
   
Accumulated Amortization
   
Net
 
Technology
  $ 135,879     $ (44,051 )   $ 91,828  
Customer related intangibles
    174,884       (54,614 )     120,270  
Other intangible assets
    38,887       (8,479 )     30,408  
Total
  $ 349,650     $ (107,144 )   $ 242,506  

The following table presents the changes in the net balance of intangibles assets during the nine months ended September 30, 2010.
 
 
 
(In thousands)
 
 
 
 
 
Customer
 
 
   
 
 
 
 
 
 
Related
 
Other
   
 
 
 
Technology, net
 
Intangibles, net
 
Intangible Assets, net
 
Total
 
December 31, 2009
  $ 91,828     $ 120,270     $ 30,408     $ 242,506  
Acquired during 2010
    5,272       10,131       321       15,724  
Amortization expense
    (7,159 )     (9,769 )     (2,349 )     (19,277 )
Net currency translation adjustment
    2,563       2,646       908       6,117  
September 30, 2010
  $ 92,504     $ 123,278     $ 29,288     $ 245,070  
 
                               
As of January 1, 2010, one of the Corporation’s Canadian entities changed its functional currency from the U.S. dollar to the Canadian dollar.  The nature of this operations cash flow changed from predominately U.S. dollar to the Canadian dollar, therefore requiring the change in functional currency.  In accordance with the guidance on foreign currency translation, an adjustment of $5.5 million, attributable to current-rate translation, was recorded to intangible assets.  This adjustment resulted in an increase to other intangible assets and is reported within the “net currency translation adjustment” caption above.
 
7.           FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The Corporation uses financial instruments, such as forward foreign exchange contracts to hedge a portion of existing and anticipated foreign currency denominated transactions.  The purpose of the Corporation’s foreign currency risk management program is to reduce volatility in earnings caused by exchange rate fluctuations.  The Corporation does not elect to receive hedge accounting treatment and thus, records forward foreign exchange contracts at fair value, with the gain or loss on these transactions recorded into earnings in the period in which they occur. The Corporation does not use derivative financial instruments for trading or speculative purposes.
 
The Corporation utilizes the fair value hierarchy to measure the value of its derivative instruments.  The hierarchy establishes a framework for measuring fair value in accordance with generally accepted accounting principles:
 
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.


 
Page 11 of 29

 

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

 

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

 
 
Fair Values of Derivative Instruments
 
 
 
(In thousands)
 
   
Balance Sheet Location
 
 
 
Asset Derivatives
   
Liability Derivatives
 
 
 
September 30,
 
December 31,
   
September 30,
 
December 31,
 
 
 
2010
 
2009
   
2010
 
2009
 
Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Transactional
Other Current Assets
  $ 34     $ -  
Other Current Liabilities
  $ 61     $ 342  
Forecasted
Other Current Assets
    163       41  
Other Current Liabilities
    17       -  
Total
 
  $ 197     $ 41  
 
  $ 78     $ 342  

 
Derivatives Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in Income on Derivatives
Amount of Gain (Loss) Recognized in Income on Derivatives
 
   
 
 
Three Months Ended
 
   
 
 
September 30,
 
September 30,
 
 
   
 
 
2010
 
2009 
 
 
   
Foreign exchange contracts:
 
 
 
 
 
 
 
   
Transactional
General and Administrative Expenses
  $ (1,806 )   $ (2,232 )
Forecasted
General and Administrative Expenses
    321       925  
Total
 
  $ (1,485 )   $ (1,307 )

 
Page 12 of 29

 

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

 


Derivatives Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in Income on Derivatives
Amount of Gain (Loss) Recognized in Income on Derivatives
 
 
 
Nine Months Ended
 
 
 
September 30,
 
September 30,
 
 
 
2010
 
2009
 
Foreign exchange contracts:
 
 
 
   
 
 
Transactional
General and Administrative Expenses
  $ 71     $ 320  
Forecasted
General and Administrative Expenses
    228       1,287  
Total
 
  $ 299     $ 1,607  
 
 
               
Debt
 
The estimated fair values of the Corporation’s fixed rate debt instruments at September 30, 2010 aggregated to $313.7 million compared to a carrying value of $275.0 million.  The estimated fair value amounts were determined by the Corporation using available market information which is primarily based on quoted market prices for the same or similar issues as of September 30, 2010.  All of the Corporation’s fixed rate debt is classified as Level 2 in accordance with the fair value hierarchy.
 
The carrying amount of the variable interest rate debt approximates fair value because the interest rates are reset periodically to reflect current market conditions.
 
The fair values described above may not be indicative of net realizable value or reflective of future fair values.  Furthermore, the use of different methodologies to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
 
8.           WARRANTY RESERVES
 
The Corporation provides its customers with warranties on certain commercial and governmental products.  Estimated warranty costs are charged to expense in the period the related revenue is recognized based on quantitative historical experience.  Estimated warranty costs are reduced as these costs are incurred and as the warranty period expires or may be otherwise modified as specific product performance issues are identified and resolved.  Warranty reserves are included within other current liabilities in the Condensed Consolidated Balance Sheets.  The following table presents the changes in the Corporation’s warranty reserves:

 
 
(In thousands)
 
 
 
2010
   
2009
 
Warranty reserves at January 1,
  $ 13,479     $ 10,775  
Provision for current year sales
    5,138       5,850  
Current year claims
    (4,203 )     (2,983 )
Change in estimates to pre-existing warranties
    (1,177 )     (1,477 )
Increase due to acquisitions
    25       127  
Foreign currency translation adjustment
    44       393  
Warranty reserves at September 30,
  $ 13,306     $ 12,685  
 
               

 
Page 13 of 29

 

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

 


9.           FACILITIES RELOCATION AND RESTRUCTURING
 
In connection with the acquisitions of VMETRO and Mechetronics in 2008, the Corporation established a restructuring accrual of $7.6 million that was recorded against goodwill in accordance with the guidance on Business Combinations.  These acquisitions are consolidated into the Motion Control segment.  The accrual was established as of December 31, 2008 for $7.1 million. Based upon further analysis of the restructuring activities an additional $0.5 million was recorded in 2009.  The restructuring accrual consists of costs to exit the activities of certain facilities, including lease cancellation costs and external legal and consulting fees, as well as costs to relocate or involuntarily terminate certain employees of the acquired business. As of September 30, 2010, the Corporation has completed its actions under the VMETRO and Mechetronics restructuring plans.
 
During 2009, the Corporation committed to a plan to restructure existing operations through a reduction in workforce and consolidation of operating locations both domestically and internationally.  The decision was based on a review of various cost saving initiatives undertaken in connection with the development of the Corporation’s budget and operating plan. This plan impacted all three of the Corporation’s operating segments and resulted in costs incurred of $5.6 million. During the nine months ended September 30, 2010, the Corporation continued to consolidate existing operations and incurred an additional $2.9 million consisting of severance costs to involuntarily terminate certain employees; relocation costs; exit activities of certain facilities, including lease cancellation costs; and external legal and consulting fees.  These costs were recorded in the Condensed Consolidated Statement of Earnings with the majority of the costs affecting the general and administrative expenses, cost of sales, selling, and research and development costs for $1.6 million, $1.1 million, $0.1 million, and $0.1 million, respectively.  The liability is included in other current liabilities.  As of September 30, 2010, the Corporation has completed its actions under the 2009 restructuring plan.
 
 
 
 
   
 
   
 
   
 
 
 
 
Severance and Benefits
   
Facility Closing Costs
   
Relocation Costs
   
Total
 
Flow Control
 
 
   
 
   
 
   
 
 
December 31, 2009
  $ 57     $ -     $ -     $ 57  
Provisions
    895       735       346       1,976  
Payments
    (785 )     (378 )     (346 )     (1,509 )
Adjustments
    -       -       -       -  
Net currency translation adjustment
    -       -       -       -  
September 30, 2010
  $ 167     $ 357     $ -     $ 524  
 
                               
 
                               
Motion Control
                               
December 31, 2009
  $ 1,545     $ 1,080     $ 125     $ 2,750  
Provisions
    566       71       103       740  
Payments
    (1,511 )     (618 )     (165 )     (2,294 )
Adjustments
    (358 )     (497 )             (855 )
Net currency translation adjustment
    (23 )     (27 )             (50 )
September 30, 2010
  $ 219     $ 9     $ 63     $ 291  
 
                               

 
Page 14 of 29

 

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

 


 
 
 
   
 
   
 
   
 
 
Metal Treatment
 
 
   
 
   
 
   
 
 
December 31, 2009
  $ -     $ -     $ -     $ -  
Provisions
    -       64       105       169  
Payments
    -       (10 )     (105 )     (115 )
Adjustments
    -       -       -       -  
Net currency translation adjustment
    -       -       -       -  
September 30, 2010
  $ -     $ 54     $ -     $ 54  
 
                               
 
                               
Total Curtiss-Wright
                               
December 31, 2009
  $ 1,602     $ 1,080     $ 125     $ 2,807  
Provisions
    1,461       870       554       2,885  
Payments
    (2,296 )     (1,006 )     (616 )     (3,918 )
Adjustments
    (358 )     (497 )     -       (855 )
Net currency translation adjustment
    (23 )     (27 )     -       (50 )
September 30, 2010
  $ 386     $ 420     $ 63     $ 869  
 
                               
10.           PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

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

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

 
 
(In thousands)
 
 
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
Service cost
  $ 7,281     $ 8,510     $ 21,356     $ 20,452  
Interest cost
    7,112       6,863       19,669       18,262  
Expected return on plan assets
    (7,744 )     (7,280 )     (21,651 )     (21,731 )
Amortization of:
                               
Prior service cost
    276       164       833       484  
Unrecognized actuarial loss
    1,029       1,326       2,561       1,785  
Net periodic benefit cost
  $ 7,954     $ 9,583     $ 22,768     $ 19,252  
Curtailment loss
    106       -       75       83  
Total periodic benefit cost
  $ 8,060     $ 9,583     $ 22,843     $ 19,335  

During the three months ended September 30, 2009, the Corporation recorded a $3.8 million correction to pension expense due to an actuarial calculation error, $2.0 million of which related to 2008.
 

 
Page 15 of 29

 

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

 

During the nine months ended September 30, 2010, the Corporation made no contributions to the Curtiss-Wright Pension Plan, and expects to make no contributions in 2010.  However, we do expect to make contributions in the range of $35 to $40 million in 2011.  In addition, contributions of $3.3 million were made to the Corporation’s foreign benefit plans during the first nine months of 2010.  Contributions to the foreign benefit plans are expected to be $1.5 million in the fourth quarter of 2010.
 
Other Postretirement Benefit Plans
The components of the net postretirement benefit cost for the Curtiss-Wright and EMD postretirement benefit plans for the three and nine months ended September 30, 2010 and 2009 were:
 
 
(In thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2010
 
2009
 
2010
 
2009
 
Service cost
  $ 82     $ 178     $ 460     $ 488  
Interest cost
    188       382       1,056       1,219  
Amortization of unrecognized actuarial gain
    (564 )     (235 )     (876 )     (617 )
Net periodic postretirement benefit cost
  $ (294 )   $ 325     $ 640     $ 1,090  
 
                               
During the third quarter, the Corporation revised 2010 expense related to our OPEB plans due to favorable claims and demographic experience.  This resulted in a $0.8 million reduction in expense for the three and nine month periods.
 
During the nine months ended September 30, 2010, the Corporation paid $1.1 million on the postretirement plans.  During the fourth quarter of 2010, the Corporation anticipates contributing $0.6 million to the postretirement plans.

11.           EARNINGS PER SHARE

Diluted earnings per share were computed based on the weighted average number of shares outstanding plus all potentially dilutive common shares.  A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
September 30,
 
 
September 30,
 
 
 
2010 
 
2009 
 
 
2010 
 
2009 
 
Basic weighted average shares outstanding
 
 45,898 
 
 45,356 
 
 
 45,765 
 
 45,165 
 
Dilutive effect of share-based and deferred stock compensation
 
 378 
 
 472 
 
 
 488 
 
 452 
 
Diluted weighted average shares outstanding
 
 46,276 
 
 45,828 
 
 
 46,253 
 
 45,617 
 
 
 
 
 
 
 
 
 
 
 
 
At September 30, 2010 and 2009, there were 2,064,000 and 681,000 stock options outstanding, respectively, that had exercise prices that were in excess of the average market price of the Corporation’s common stock.  As such, the Corporation did not include these stock options in its calculation of diluted earnings per shares, as their effect would have been anti-dilutive for those periods.

 
Page 16 of 29

 

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

 


12.           SEGMENT INFORMATION
 
The Corporation manages and evaluates its operations based on the products and services it offers and the different markets it serves.  Based on this approach, the Corporation has three reportable segments: Flow Control, Motion Control, and Metal Treatment.
 
 
 
(In thousands)
 
 
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
Net sales
 
 
   
 
   
 
   
 
 
Flow Control
  $ 249,255     $ 237,938     $ 741,842     $ 710,746  
Motion Control
    162,719       149,300       470,455       447,565  
Metal Treatment
    54,437       49,709       163,266       152,592  
Less: Intersegment Revenues
    (598 )     (1,197 )     (5,810 )     (3,990 )
Total Consolidated
  $ 465,813     $ 435,750     $ 1,369,753     $ 1,306,913  
 
                               

 
 
(In thousands)
 
 
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
Operating income (expense)
 
 
   
 
   
 
   
 
 
Flow Control
  $ 26,030     $ 22,274     $ 67,554     $ 57,333  
Motion Control
    21,730       16,512       54,026       50,291  
Metal Treatment
    5,639       4,354       18,136       15,426  
Corporate and Eliminations(1)
    (5,313 )     (6,922 )     (17,118 )     (11,926 )
Total Consolidated
  $ 48,086     $ 36,218     $ 122,598     $ 111,124  
 
                               
Adjustments to reconcile operating income to earnings before income taxes:
 
 
                               
 
 
(In thousands)
 
 
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
    2010       2009       2010       2009  
Total operating income
  $ 48,086     $ 36,218     $ 122,598     $ 111,124  
Other income, net
    86       309       622       657  
Interest expense
    (5,815 )     (5,923 )     (17,182 )     (19,405 )
Earnings before income taxes
  $ 42,357     $ 30,604     $ 106,038     $ 92,376  
 
                               
(1 ) Corporate and Eliminations includes pension expense, environmental remediation and administrative expenses, legal, foreign currency transactional gains and losses, and other expenses.

 
Page 17 of 29

 

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

 


 
 
 
 
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
September 30,
 
 
December 31,
 
 
 
 
 
 
 
2010 
 
 
2009 
Identifiable Assets
 
 
 
 
 
 
 
 
 
 
Flow Control
 
 
 
 
 
$
 1,149,232 
 
$
 1,099,960 
Motion Control
 
 
 
 
 
 
 867,734 
 
 
 771,355 
Metal Treatment
 
 
 
 
 
 
 233,653 
 
 
 232,658 
Corporate and Other
 
 
 
 
 
 
35,989 
 
 
 38,068 
Total Consolidated
 
 
 
 
 
$
 2,286,608 
 
$
 2,142,041 
 
 
 
 
 
 
 
 
 
 
 

13.           COMPREHENSIVE INCOME
 
Total comprehensive income for the three and nine months ended September 30, 2010 and 2009 are as follows:
 
 
 
 
   
 
   
 
   
 
 
 
 
(In thousands)
   
(In thousands)
 
 
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
2010
 
2009
 
2010
 
2009
 
Net earnings
  $ 27,784     $ 20,115     $ 70,017     $ 60,374  
Equity adjustments from foreign currency translations, net
    27,300       9,479       22,061       33,840  
Defined benefit pension and post-retirement plans, net
    300       723       1,562       576  
Total comprehensive income
  $ 55,384     $ 30,317     $ 93,640     $ 94,790  
 
                               

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

 

 
Page 18 of 29

 

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

 

14.           CONTINGENCIES AND COMMITMENTS
 
Legal Proceedings
 
In January 2007, a former executive was awarded approximately $9.0 million in punitive and compensatory damages plus legal costs related to a gender bias lawsuit filed in 2003.  The Corporation recorded a $6.5 million reserve related to the lawsuit.  In August of 2009, the New Jersey Appellate Division reversed in part and affirmed in part the judgment of the trial court, resulting in the setting aside of the punitive damage award and the front pay award of the Plaintiff’s compensatory damages award.  The Plaintiff filed a Petition for Certification with the Supreme Court of New Jersey requesting review of the Appellate Division’s decision.  In November of 2009, the Supreme Court of New Jersey granted Plaintiff’s Petition for Certification.  In March 2010, both parties presented arguments before the Supreme Court of New Jersey.  We continue to wait for a decision and formal opinion from the Supreme Court of New Jersey.
 
The Corporation is party to a number of legal actions and claims, none of which individually or in the aggregate, in the opinion of management, are expected to have a material adverse effect on the Corporation’s results of operations or financial position.
 
Environmental Matters
 
The Corporation’s environmental obligations have not changed significantly from December 31, 2009.  The aggregate environmental liability was $21.0 million at September 30, 2010 and $20.9 million at December 31, 2009.  All environmental reserves exclude any potential recovery from insurance carriers or third-party legal actions.
 
The Corporation, through its Flow Control segment, has several Nuclear Regulatory Commission (“NRC”) licenses necessary for the continued operation of its commercial nuclear operations. In connection with these licenses, the NRC required financial assurance from the Corporation, in the form of a parent company guarantee, covering estimated environmental decommissioning and remediation costs associated with the commercial operations covered by the licenses. The guarantee for the decommissioning costs of the refurbishment facility, which is estimated for 2017, is $4.4 million.
 
Letters of Credit and Other Arrangements
 
The Corporation enters into standby letters of credit agreements and guarantees with financial institutions and customers primarily relating to guarantees of repayment on certain Industrial Revenue Bonds, future performance on certain contracts to provide products and services, and to secure advance payments the Corporation has received from certain international customers.  At September 30, 2010 and December 31, 2009, the Corporation had contingent liabilities on outstanding letters of credit of $46.6 million and $47.3 million, respectively.
 
On June 25, 2010, the Corporation entered into an agreement for the construction and lease of a new manufacturing facility.  The new facility will consist of two buildings totaling approximately 81,000 square feet situated on 12.5 acres in Baytown, Texas, and will serve as a manufacturing and fabrication facility for the Oil and Gas division in the Flow Control segment.    Under the agreement, the Corporation is obligated to pay annual fixed rent of $1.4 million for twenty years, with five years of free rent at the end of the term resulting in an initial term of 25 years.
 

 
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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 (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. Such statements in this Quarterly Report on Form 10-Q include, without limitation, those contained in Item 1. Unaudited Financial Statements and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Important factors that could cause the actual results, performance or achievement to differ materially from those in these forward-looking statements include, among other items:

·  
our successful execution of internal performance plans and performance in accordance with estimates to complete;
·  
performance issues with key suppliers, subcontractors, and business partners;
·  
the ability to negotiate financing arrangements with lenders;
·  
legal proceedings;
·  
changes in the need for additional machinery and equipment and/or in the cost for the expansion of our operations;
·  
ability of outside third parties to comply with their commitments;
·  
product demand and market acceptance risks;
·  
the effect of economic conditions;
·  
the impact of competitive products and pricing, product development, commercialization, and technological difficulties;
·  
social and economic conditions and local regulations in the countries in which we conduct our businesses;
·  
unanticipated environmental remediation expenses or claims;
·  
capacity and supply constraints or difficulties;
·  
an inability to perform customer contracts at anticipated cost levels;
·  
changing priorities or reductions in the U.S. and Foreign Government defense budgets;
·  
contract continuation and future contract awards;
·  
other factors that generally affect the business of companies operating in our markets and/or industries;
·  
the ability to successfully integrate our acquisitions; and
·  
the other factors discussed under the caption “Risk Factors” in our 2009 Annual Report on Form 10-K, as amended.

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.


 
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CURTISS WRIGHT CORPORATION and SUBSIDIARIES
PART I-ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS


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 in the motion control, flow control, and metal treatment markets.  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, such as defense, commercial aerospace, commercial nuclear power generation, oil and gas, automotive, and general industrial. We have achieved balanced growth through the successful application of our core competencies in engineering and precision manufacturing, adapting these competencies to new markets through internal product development and a disciplined program of strategic acquisitions. 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 40% of our revenues are generated from defense-related markets.
 
We manage and evaluate our operations based on the products and services we offer and the different industries and markets we serve. Based on this approach, we have three reportable segments: Flow Control, Motion Control, and Metal Treatment.  For further information on our products and services and the major markets served by our three segments, please refer to our 2009 Annual Report on Form 10-K, as amended.
 
 
RESULTS OF OPERATIONS
 
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 had on the current year results, for which there was no comparable prior-year period. Therefore, the results of operations for acquisitions are incremental for the first twelve months from the date of acquisition.  The remaining businesses are referred to as “organic.”  The definition of “organic” excludes the effects of foreign currency translation.
 
For both the three and nine months ended September 30, 2010, our organic growth calculations do not include the operating results for our December 18, 2009 acquisition of Skyquest Systems Ltd. or our 2010 acquisitions of Hybricon Corporation and Specialist Electronics Services, Ltd. as they are considered incremental.  For the nine months ended September 30, 2010, our organic growth calculations also exclude approximately one month of operating results for Nu-Torque, two months of operating results for EST Group, Inc., and five months operating results for our Eaton product line divestiture.  The Nu-Torque and EST Group, Inc. businesses were acquired on January 16, 2009 and March 5, 2009, respectively, while we sold our Eaton product line on May 6, 2009. The results of operations for this business have been removed from the comparable prior year period for purposes of calculating organic growth figures and are included as a reduction of our incremental results of operations from our acquisitions.
 
Three months ended September 30, 2010

For the third quarter of 2010, sales for the Corporation were $466 million. This was an increase of $30 million, or 7%, from $436 million for the third quarter of 2009.  The increase in sales was largely due to an increase in organic sales of $24 million, or 5%, over the same period from the prior year.  This was driven by increases in all three segments: $11 million in our Flow Control segment, $7 million in our Motion Control segment, and $6 million in our Metal Treatment segment. Incremental sales, from our 2009 and 2010 acquisitions of Skyquest Systems Ltd., Hybricon Corporation, and Specialist Electronics Services, Ltd., were $8 million. Foreign currency translation had an unfavorable impact of less than $2 million on our sales in 2010 versus 2009.
 
 
Across the Corporation, we continued to see signs of economic recovery within our commercial markets. Organic sales within our general industrial market reached “double-digit” growth in all three segments.  This was driven by higher demand for our industrial control and embedded computing products as well as our coating and heat treating services.  We also experienced strong growth within our Motion Control and Metal Treatment segments’ commercial aerospace markets.  The growth in our Motion Control segment was driven by increased demand for our sensors and controls products used on various aircraft as well as the ramp-up of production on the Boeing 787 program.  The growth within our Metal Treatment segment was driven by higher demand for shot peening, heat treating, and coating services.  In contrast to our current year-over-year growth, these commercial markets were all declining in the third quarter of 2009, as compared to the same period in 2008.
 
 
While there are reasons for optimism within certain commercial markets, we continued to face challenges within our defense markets, power generation, and oil and gas markets.  We experienced modest sales growth within our defense market; however, increases within our aerospace and naval defense markets were largely offset by declines in the ground defense market.   This growth in our aerospace and naval defense markets, within our Motion Control and Flow Control segments, was driven by increased sales on the Global Hawk Unmanned Aerial Vehicle program and the Virginia class submarines, respectively. The expected decline in the ground defense market was primarily within our Motion Control segment, where we experienced lower sales of embedded computing products for tanks and light armored vehicles, such as the Bradley Fighting Vehicle, as well as lower sales due to the cancellation of the Army’s Future Combat Systems (“FCS”) program.  Organic sales within our power generation market, primarily our Flow Control segment, were down slightly from the prior year period.  Lower sales of our next-generation reactor coolant pumps for the AP1000 nuclear reactors in China were largely offset by increased demand for upgrades and plant maintenance on domestic nuclear reactors. Organic sales within our oil and gas market were essentially flat from the prior year period. 
 
 
New orders increased by $40 million ($465 million versus $425 million), or 10%, for the third quarter of 2010, as compared to the same period in 2009.  This increase was primarily driven by higher orders for aerospace flight controls and integrated sensing products in our Motion Control segment, which were partially offset by the timing of new orders in our Flow Control segment for the Virginia class submarine program.  Acquisitions, net of divestitures, contributed $17 million to new orders from the comparable quarter in 2009.
 
For the third quarter of 2010, operating income for the Corporation was $48 million. This was an increase of $12 million, or 33%, from $36 million for the third quarter of 2009.  Organic operating income, however, increased by approximately $13 million, or 35%, but was offset by $1 million of unfavorable foreign currency translation.  Our segment organic operating margin was 11.8%, a 190 basis point improvement, as compared to 9.9% in the prior year period.  Our Metal Treatment, Motion Control, and Flow Control segments’ organic operating income increased 37%, 34%, and 17%, respectively, mainly due to both improved absorption on increased sales volumes and benefits generated from our cost reduction and restructuring programs. Non-segment operating expenses decreased $2 million for the third quarter of 2010, as lower pension costs and higher foreign exchange transaction gains were partially offset by higher unallocated medical costs and compensation expense.  Our 2009 and 2010 acquisitions had a minimal impact on operating income in the third quarter of 2010.
 
Net earnings for the third quarter of 2010 totaled $28 million, or $0.60 per diluted share.  This was an increase of approximately 38%, from $20 million, or $0.44 per diluted share, in the third quarter of 2009.   As compared to the prior year period, interest expense had a minimal effect on operating income. Lower average debt levels were offset by a slight increase in our average borrowing rate for the quarter.  Our effective tax rate for the third quarter of 2010 was 34.4% as compared to 34.3% in the third quarter of 2009.
 

 
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CURTISS WRIGHT CORPORATION and SUBSIDIARIES
PART I-ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS


Nine months ended September 30, 2010

For the first nine months of 2010, sales for the Corporation were $1,370 million. This was an increase of $63 million, or 5%, from $1,307 million for the first nine months of 2009.  The increase in sales was largely due to an increase in organic sales of $44 million, or 3%, over the same period from the prior year.  This was driven by increases in all three segments: $25 million in our Flow Control segment, $11 million in our Metal Treatment segment, and $7 million in our Motion Control segment. Incremental sales were $16 million, or 1%, while the remaining sales increase of $3 million was due to the favorable effects of foreign currency translation.
 
 
For the first nine months of 2010, we experienced modest organic growth across several major markets. Our general industrial, commercial aerospace, and defense markets all grew over the prior year period.  Organic sales growth within our general industrial market was strong across all three segments and was driven by higher demand for our industrial control and embedded computing products as well as our shot peening, heat treating, and coating services.  Growth in our commercial aerospace market was driven by increased demand for our sensors and controls products used on various commercial aircraft as well as the ramp-up of production on the Boeing 787 program.  The increase in our defense markets was driven by strong increases in the aerospace and naval markets within our Motion Control and Flow Control segments.  Most notably, the growth in these markets was driven by increased sales on Global Hawk Unmanned Aerial Vehicle and Virginia class submarines programs, respectively.  These increases were largely offset by expected declines in the ground defense market within our Motion Control segment.  This was due to lower sales of embedded computing products for tanks and light armored vehicles, such as the Stryker and Bradley Fighting Vehicles, as well as lower sales due to the cancellation of the FCS program.  Organic sales within our power generation market were essentially flat over the prior year period.  Overall, while we saw growth in several major markets, we continue to be challenged in the oil and gas market due to delays in new order placement for our traditional valve products.
 
 
New orders increased by $73 million ($1,359 million versus $1,286 million), or 6%, for the first nine months of 2010, as compared to the same period in 2009.  The growth in new orders was mainly due to increases for aerospace defense flight systems and integrated sensing products in our Motion Control Segment, as well as new orders for international coker products in our Flow Control Segment.  Acquisitions, net of divestitures, contributed $26 million to new orders from the comparable period in 2009. Our backlog of $1,630 million at September 30, 2010 was relatively unchanged from $1,627 million at December 31, 2009.
 
For the first nine months of 2010, operating income for the Corporation was $123 million. This was an increase of $11 million, or 10%, from $111 million for the first nine months of 2009.  Organic operating income increased by approximately $20 million, or 18%, but was offset by $8 million of unfavorable foreign currency translation.  Our segment organic operating margin was 11.0% for the first nine months of 2010, a 160 basis point improvement, as compared to 9.4% in the prior year period.  Our Flow Control, Motion Control and Metal Treatment segments’ organic operating income increased 21%, 20% and 19%, respectively, mainly due to both improved absorption on increased sales volumes and benefits generated from our cost reduction and restructuring programs. Non-segment operating expense increased by $5 million, mainly due to higher unallocated medical expenses.  Our 2009 and 2010 acquisitions had a minimal impact on operating income for the first nine months of 2010.
 
Net earnings for the first nine months of 2010 totaled $70 million, or $1.51 per diluted share.  This was an increase of $10 million, or 16%, from $60 million, or $1.32 per diluted share, in the first nine months of 2009.   As compared to the prior year period, the operating income of $123 million, noted above, was supplemented by a $2 million decrease in interest expense. Interest expense decreased mainly due to lower average outstanding debt.  Our effective tax rate for the first nine months of 2010 was 34.0% as compared to 34.6% in the first nine months of 2009. The lower effective tax rate was mainly driven by an increased domestic manufacturing deduction, partially offset by the elimination of a tax benefit associated with the federal subsidy for prescription drugs for retirees.
 

 
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CURTISS WRIGHT CORPORATION and SUBSIDIARIES
PART I-ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS



Segment Operating Performance:
 
 
 
(In thousands)
 
 
 
Three Months Ended
   
Nine Months Ended
 
 
 
September 30,
   
September 30,
 
 
 
 
   
 
   
Change
   
 
   
 
   
Change
 
 
 
2010
   
2009
   
%
   
2010
   
2009
   
%
 
Sales: