2014.12.31-10K


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
[ ] 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
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
 
 
13925 Ballantyne Corporate Place, Suite 400, Charlotte, North Carolina
 
28277
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant's telephone number, including area code: (704) 869-4600

Securities registered pursuant to Section 12(b) of the Act:

 
 
Name of each exchange
Title of each class
 
on which registered
Common stock, par value $1 per share
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý          No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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.

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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). o Yes ý No
The aggregate market value of the voting and non-voting Common stock held by non-affiliates of the Registrant as of June 30, 2014 was approximately $3.1 billion.
The number of shares outstanding of the Registrant’s Common stock as of January 31, 2015:
 
 
 
Class
 
Number of shares
 
 
 
Common stock, par value $1 per share
 
47,783,233

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of the Registrant with respect to the 2015 Annual Meeting of Stockholders to be held on May 7, 2015 are incorporated by reference into Part III of this Form 10-K.




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INDEX TO FORM 10-K
 
 
 
 
 
PART I
 
 
Item 1.
Business
 
Item 1A.
Risk Factors
 
Item 1B.
Unresolved Staff Comments
 
Item 2.
Properties
 
Item 3.
Legal Proceedings
 
Item 4.
Mine Safety Disclosures
 
 
 
 
 
 
PART II
 
 
Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Item 6.
Selected Financial Data
 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 8.
Financial Statements and Supplementary Data
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
Item 9A.
Controls and Procedures
 
Item 9B.
Other Information
 
 
 
 
 
 
PART III
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
 
Item 11.
Executive Compensation
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence
 
Item 14.
Principal Accounting Fees and Services
 
 
 
 
 
 
PART IV
 
 
Item 15.
Exhibits, Financial Statement Schedules
 
 
Schedule II – Valuation and Qualifying Accounts
 
 
Signatures
 


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PART I
FORWARD-LOOKING STATEMENTS
Except for historical information, this Annual Report on Form 10-K may be deemed to contain “forward-looking statements” within the meaning of the Private 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. In addition, other risks, uncertainties, assumptions, and factors that could affect our results and prospects are described in this report, including under the heading “Item 1A. Risk Factors” and elsewhere, and may further be described in the our prior and future filings with the Securities and Exchange Commission and other written and oral statements made or released by us. Such forward-looking statements in this Annual Report on Form 10-K include, without limitation, those contained in Item 1. Business, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 8. Financial Statements and Supplementary Data, including, without limitation, the Notes to Consolidated Financial Statements, and Item 11. Executive Compensation.
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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Item 1. Business.

BUSINESS DESCRIPTION

Curtiss-Wright Corporation is a global company that delivers highly engineered, critical function products and services to the commercial, defense, energy, and industrial markets. The Corporation was formed in 1929 by the merger of companies founded by the Wright brothers and Glenn Curtiss, both aviation pioneers. We are incorporated under the laws of the State of Delaware and headquartered in Charlotte, North Carolina. We are listed on the New York Stock Exchange (NYSE) and trade under the symbol CW.

Our strategy is to be an integrated, global diversified industrial company. We expect that the diversification of the portfolio should mitigate the impact of the volatility of business cycles and allow us to leverage growth in new products and markets. We strive for consistent organic sales growth, operating margin expansion, and free cash flow generation, while also maintaining a disciplined and balanced capital deployment strategy.

We are positioned on high-performance platforms that require technical sophistication. Our technologies are intended to improve operating efficiency and meet demanding performance requirements. Our ability to provide high-performance, advanced technologies on a cost-effective basis is fundamental to our strategy for meeting customer demand. We compete globally, primarily based on technology and pricing. Our business challenges include price pressure, technological development, and geopolitical events, such as the war on terrorism and diplomatic accords.

Business Segments

We manage and evaluate our operations based on the products we offer and the different markets we serve. Based on this approach we operate through three segments: Commercial/Industrial, Defense, and Energy.

Our principal manufacturing facilities are located in the United States in New York, Ohio, North Carolina, and Pennsylvania, and internationally in Canada and the United Kingdom.

Commercial / Industrial

Sales in the Commercial/Industrial segment are primarily to the commercial aerospace and general industrial markets and, to a lesser extent, the defense and oil and gas markets. The businesses in this segment provide a diversified offering of products and services including: surface technology services such as shot peening, laser peening, coatings and advanced surface analytics; industrial products such as electronic throttle control devices and transmission shifters; electro-mechanical actuation control components, and utility systems used on aircraft. The businesses within our Commercial/Industrial segment are impacted primarily by the general economic conditions which may include consumer consumption or commercial construction rates, as the nature of their products and customers primarily support global commercial aerospace, commercial vehicles, process, and transportation industries. As commercial industrial businesses, production and service processes do not vary widely and rest primarily within material modification, machining, assembly, and testing and inspection at commercial grade specifications. The businesses distribute products through commercial sales and marketing channels and may be impacted by changes in the regulatory environment.

Defense

Sales in the Defense segment are primarily to the defense markets and, to a lesser extent, to the nuclear power generation market. The businesses in this segment provide a diversified offering of products including: embedded computing board level modules, integrated subsystems, turret aiming and stabilization products, and weapons handling systems. Additional products include main coolant pumps, power-dense compact motors, generators, and secondary propulsion systems, primarily to the U.S. Navy. We also have been able to leverage proven defense technology and engineering expertise to provide Reactor Coolant Pump (RCP) technology, pump seals, and control rod drive mechanisms for commercial nuclear power plants. The businesses within our Defense segment are impacted primarily by government funding and the direction of U.S. government spending. Our products typically support government entities in aerospace defense, ground defense and naval defense industries. Our defense businesses supporting government contractors typically utilize more advanced production and service processes than our commercial businesses and have stringent specifications and performance requirements. The businesses market and distribute products through regulated government contracting channels.


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Energy

Sales in the Energy segment are primarily to the nuclear power generation market and, to a lesser extent, to the oil and gas market. The businesses in this segment provide a diversified offering of products, including a wide range of hardware, pumps, valves, pressure vessels, fastening systems, specialized containment doors, airlock hatches, spent fuel management products, and fluid sealing technologies for nuclear power plants and nuclear equipment manufacturers. Additionally, we provide industrial pressure relief management systems and butterfly valves to the petrochemical and oil and gas industries.
The businesses within our Energy segment are impacted by pricing and demand for various forms of energy (e.g. coal, natural gas, oil, and nuclear). The businesses are typically dependent upon the need for new construction, maintenance, and overhaul by nuclear energy or oil and gas providers. The businesses are often subject to changes in regulation impacting demand, consumption, and underlying supply. The production and service processes are primarily material modification, machining, assembly, and testing and inspection that are typical of commercial grade or regulated specifications. The businesses distribute products through commercial sales and marketing channels and may be impacted by changes in the regulatory environment.


OTHER INFORMATION

Acquisitions

During 2014, we acquired three businesses and expect to continue to seek core acquisitions that are consistent with our long-term growth strategy.

Commercial/Industrial:

The Commercial/Industrial segment acquired Component Coating and Repair Services Limited (CCRS) for approximately £15 million ($25 million), net of cash acquired. CCRS is a provider of corrosion resistant coatings and precision airfoil repair services for aerospace and industrial turbine applications.

Energy:

The Energy segment acquired certain assets and assumed certain liabilities of Nuclear Power Services Inc. (NPSI) for approximately CAD 9 million (approximately $8 million) in cash. NPSI provides qualified nuclear component sourcing, equipment qualification, commercial grade dedication (CGD) services, and instrumentation & control component manufacturing primarily to the Canadian and International Canada Deuterium Uranium (“CANDU”)
nuclear industry.

The Energy segment acquired the valve division of Engemasa Engenharia E Materiais LTDA of Sao Carlos, Brazil
for approximately $1.8 million in cash.

Certain Financial Information

For information regarding sales by geographic region, see Note 18 to the Consolidated Financial Statements contained in Part II, Item 8, of this Annual Report on Form 10-K.

In 2014, 2013, and 2012, our foreign operations as a percentage of pre-tax earnings were essentially flat, generating 51%, 48%, and 48%, respectively, of our pre-tax earnings.

Government Sales

Our direct sales to the U.S. Government and foreign government end use represented 33%, 34%, and 41% of consolidated revenue during 2014, 2013, and 2012, respectively. The decrease in government sales in 2013, as compared to 2012, is due to our strategy to diversify our business, which has been accomplished primarily through acquisitions serving commercial markets. U.S. Government sales, both direct and indirect, are generally made under standard types of government contracts, including fixed price, fixed price-redeterminable, and cost plus fixed or award fees.

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In accordance with normal U.S. Government business practices, contracts and orders are subject to partial or complete termination at any time at the option of the customer. In the event of a termination for convenience by the government, there generally are provisions for recovery of our allowable incurred costs and a proportionate share of the profit or fee on the work completed, consistent with regulations of the U.S. Government. Fixed-price redeterminable contracts usually provide that we absorb the majority of any cost overrun. In the event that there is a cost underrun, the customer recoups a portion of the underrun based upon a formula in which the customer’s portion increases as the underrun exceeds certain established levels.

Generally, long-term contracts with the U.S. Government require us to invest in and carry significant levels of inventory. However, where allowable, we utilize progress payments and other interim billing practices on nearly all of these contracts, thus reducing the overall working capital requirements. It is our policy to seek customary progress payments on certain of our contracts. Where we obtain such payments under U.S. Government prime contracts or subcontracts, the U.S. Government has either title to or a secured interest in the materials and work in process allocable or chargeable to the respective contracts. (See Notes 1.F, 4, and 5 to the Consolidated Financial Statements, contained in Part II, Item 8, of this Annual Report on Form 10-K).

Customers

We have hundreds of customers in the various industries we serve. No commercial customer accounted for more than 10% of our total sales during 2014, 2013, or 2012.

Approximately 28%, 28%, and 34% of our total sales for 2014, 2013, and 2012, respectively, were derived from contracts with agencies of, and prime contractors to, the U.S. Government. Information on the Company’s sales to the U.S. Government, including direct sales as a prime contractor and indirect sales as a subcontractor, is as follows:

 
 
Year Ended December 31,
(In thousands)
 
2014
 
2013
 
2012
Commercial/Industrial
 
$
149,152

 
$
140,905

 
$
160,780

Defense
 
467,467

 
458,326

 
459,585

Energy
 
3,581

 
3,080

 
2,044

Total Government sales
 
$
620,200

 
$
602,311

 
$
622,409


Patents

We own and license a number of United States and foreign patents and patent applications, which have been obtained or filed over a period of years. We also license intellectual property to and from third parties. Specifically, the U.S. Government receives licenses in our patents that are developed in performance of government contracts, and it may use or authorize others to use the inventions covered by such patents for government purposes. Additionally, unpatented research, development, and engineering skills, some of which have been acquired by us through business acquisitions, make an important contribution to our business. While our intellectual property rights in the aggregate are important to the operation of our business, we do not consider the success of our business or business segments to be materially dependent upon the timing of expiration or protection of any one or group of patents, patent applications, or patent license agreements under which we now operate.


Research and Development

We conduct research and development activities under customer-sponsored contracts, shared development contracts, and our own independent research and development activities. Customer-sponsored research and development costs are charged to costs of goods sold when the associated revenue is recognized. Funds received under shared development contracts are a reduction of the total development expenditures under the shared contract and are shown net as research and development costs. Company-sponsored research and development costs are charged to expense when incurred. Customer-sponsored research and development activity amounted to $10 million, $5 million, and $19 million, in 2014, 2013, and 2012, respectively. Total research and development expenses amounted to $68 million, $64 million, and $54 million in 2014, 2013, and 2012, respectively.


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Executive Officers
Name
 
Current Position
 
Business Experience
 
Age
 
Executive
Officer Since
David C. Adams
 
Chairman and Chief Executive Officer

 
Chairman and Chief Executive Officer of the Corporation since January 2015. Prior to this, he served as President and Chief Executive Officer of the Corporation from August 2013. He also served as President and Chief Operating Officer of the Corporation from October 2012 and as Co-Chief Operating Officer of the Corporation from November 2008. He has been a Director of the Corporation since August 2013.
 
61
 
2005
Thomas P. Quinly
 
Vice President and Chief Operating Officer
 
Vice President of the Corporation since November 2010 and Chief Operating Officer of the Corporation since October 2013. He also served as President of Curtiss-Wright Controls, Inc. from November 2008.

 
56
 
2010
Glenn E. Tynan
 
Vice President of Finance and Chief Financial Officer
 
Vice President of Finance and Chief Financial Officer of the Corporation since June 2002.
 
56
 
2000
Paul J. Ferdenzi
 
Vice President, General Counsel. and Corporate Secretary

 
Vice President, General Counsel, and Corporate Secretary of the Corporation since March 2014. Prior to this, he served as Vice President-Human Resources of the Corporation from November 2011 and also served as Associate General Counsel and Assistant Secretary of the Corporation from June 1999 and May 2001, respectively.
 
47
 
2011
K. Christopher Farkas
 
Vice President and Corporate Controller
 
Vice President and Corporate Controller of the Corporation since September 2014. Prior to this, he served as Assistant Corporate Controller of the Corporation from May 2009.


 
46
 
2014
Harry S. Jakubowitz
 
Vice President and Treasurer
 
Vice President of the Corporation since May 2007 and Treasurer of the Corporation since September 2005.
 
62
 
2005
Employees

At the end of 2014, we had approximately 9,000 employees, 6% of which are represented by labor unions and covered by collective bargaining agreements.

Available information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy statements for our annual stockholders’ meetings, as well as any amendments to those reports, with the Securities and Exchange Commission (SEC). The public may read and copy any of our materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including our filings. These reports are also available free of charge through the Investor Relations section of our web site at www.curtisswright.com as soon as reasonably practicable after we electronically file.

Item 1A. Risk Factors.

We have summarized below the significant, known material risks to our business. Our business, financial condition, and results of operations and cash flows could be materially and adversely impacted if any of these risks materialize. Additional risk factors not currently known to us or that we believe are immaterial may also impair our business, financial condition, and results of operations. The risk factors below should be considered together with information included elsewhere in this Annual

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Report on Form 10-K as well as other required filings by us to the Securities Exchange Commission, such as our Form 10-Q’s, Form 8-K’s, proxy statements for our annual shareholder meetings, and subsequent amendments, if any.

A substantial portion of our revenues and earnings depends upon the continued willingness of the U.S. Government and our other customers in the defense industry to buy our products and services.

In 2014, approximately 33% of our revenues were derived from or related to defense programs. U.S. defense spending has historically been cyclical, and defense budgets tend to rise when perceived threats to national security increase the level of concern over the country’s safety. At other times, spending by the military can decrease. Competing demands for federal funds can put pressure on all areas of discretionary spending, which could ultimately impact the defense budget. A decrease in U.S. Government defense spending or changes in spending allocation could result in one or more of our programs being reduced, delayed, or terminated. Reductions in defense industry spending may or may not have an adverse effect on programs for which we provide products and services. In the event expenditures are reduced for products we manufacture or services we provide and are not offset by revenues from foreign sales, new programs, or products or services that we currently manufacture or provide, we may experience a reduction in our revenues and earnings and a material adverse effect on our business, financial condition, and results of operations.

If we fail to satisfy our contractual obligations, our contracts may be terminated and we may incur significant costs or liabilities, including liquidated damages and penalties.

In general, our contracts may be terminated for our failure to satisfy our contractual obligations. In addition, some of our contracts contain substantial liquidated damages provisions and financial penalties related to our failure to satisfy our contractual obligations. For example, the terms of the Electro-Mechanical Division's AP1000 China and AP1000 United States contracts with Westinghouse include liquidated damage penalty provisions for failure to meet contractual delivery dates if we caused the delay and the delay was not excusable. On October 10, 2013, we received a letter from Westinghouse stating entitlements to the maximum amount of liquidated damages allowable under the AP1000 China contract of approximately $25 million.  To date, we have not met certain contractual delivery dates under the AP 1000 China and domestic contracts; however there are significant uncertainties as to which parties are responsible for the delays, and we believe we have adequate legal defenses. Consequently, as a result of the above matters, we may incur significant costs or liabilities, including penalties, which could have a material adverse effect on our financial position, results of operations, or cash flows. As of December 31, 2014, the range of possible loss for liquidated damages is $0 to $40 million.

As a U.S. Government contractor, we are subject to a number of procurement rules and regulations.

We must comply with and are affected by laws and regulations relating to the award, administration, and performance of U.S. Government contracts. Government contract laws and regulations affect how we do business with our customers and, in some instances, impose added costs on our business. A violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts or debarment from bidding on contracts. These fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow cost accounting standards, receiving or paying kickbacks, or filing false claims. We have been, and expect to continue to be, subjected to audits and investigations by government agencies. The failure to comply with the terms of our government contracts could harm our business reputation. It could also result in our progress payments being withheld.
In some instances, these laws and regulations impose terms or rights that are more favorable to the government than those typically available to commercial parties in negotiated transactions. For example, the U.S. Government may terminate any of our government contracts and, in general, subcontracts, at its convenience as well as for default based on performance. Upon termination for convenience of a fixed-price type contract, we normally are entitled to receive the purchase price for delivered items, reimbursement for allowable costs for work-in-process, and an allowance for profit on work actually completed on the contract or adjustment for loss if completion of performance would have resulted in a loss. Upon termination for convenience of a cost reimbursement contract, we normally are entitled to reimbursement of allowable costs plus a portion of the fee. Such allowable costs would normally include our cost to terminate agreements with our suppliers and subcontractors. The amount of the fee recovered, if any, is related to the portion of the work accomplished prior to termination and is determined by negotiation.

A termination arising out of our default could expose us to liability and have a material adverse effect on our ability to compete for future contracts and orders. In addition, on those contracts for which we are teamed with others and are not the prime contractor, the U.S. Government could terminate a prime contract under which we are a subcontractor, irrespective of the quality of our services as a subcontractor.


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In addition, our U.S. Government contracts typically span one or more base years and multiple option years. The U.S. Government generally has the right to not exercise option periods and may not exercise an option period if the agency is not satisfied with our performance on the contract or does not receive funding to continue the program. U.S. Government procurement may adversely affect our cash flow or program profitability.

A significant reduction in the purchase of our products by the U.S. government could have a material adverse effect on our business. The risk that governmental purchases of our products may decline stems from the nature of our business with the U.S. government, where it may:

terminate, reduce, or modify contracts or subcontracts if its requirements or budgetary constraints change;
cancel multi-year contracts and related orders if funds become unavailable; and
shift its spending priorities.

In addition, as a defense contractor, we are subject to risks in connection with government contracts, including without limitation:

the frequent need to bid on programs prior to completing the necessary design, which may result in unforeseen technological difficulties and/or cost overruns;
the difficulty in forecasting long-term costs and schedules and the potential obsolescence of products related to long-term, fixed price contracts;
contracts with varying fixed terms that may not be renewed or followed by follow-on contracts upon expiration;
cancellation of the follow-on production phase of contracts if program requirements are not met in the development phase;
the failure of a prime contractor customer to perform on a contract;
the fact that government contract wins can be contested by other contractors; and
the inadvertent failure to comply with any the U.S. Government rules, laws, and regulations, including the False Claims Act or the Arms Export Control Act.

We use estimates when accounting for long-term contracts. Changes in estimates could affect our profitability and overall financial position.

Long-term contract accounting requires judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total revenues and costs at completion is complicated and subject to many variables. For example, assumptions have to be made regarding the length of time to complete the contract as costs also include expected increases in wages and prices for materials. Similarly, assumptions have to be made regarding the future impact of efficiency initiatives and cost reduction efforts. Incentives, awards, price escalations, liquidated damages, or penalties related to performance on contracts are considered in estimating revenue and profit rates and are recorded when there is sufficient information to assess anticipated performance. It is possible that materially different amounts could be obtained, because of the significance of the judgments and estimation processes described above, if different assumptions were used or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances, or estimates may have a material adverse effect upon future period financial reporting and performance. See “Critical Accounting Estimates and Policies” in Part II, Item 7 of this form 10-K.

Our backlog is subject to reduction and cancellation, which could negatively impact our revenues and results of operations.

Backlog represents products or services that our customers have committed by contract to purchase from us. Total backlog includes both funded (unfilled orders for which funding is authorized, appropriated, and contractually obligated by the customer) and unfunded backlog (firm orders for which funding has not been appropriated and/or contractually obligated by the customer). The Corporation is a subcontractor to prime contractors for the vast majority of our government business; as such, substantially all amounts in backlog are funded. Backlog excludes unexercised contract options and potential orders under ordering type contracts (e.g. Indefinite Delivery / Indefinite Quantity). Backlog is adjusted for changes in foreign exchange rates and is reduced for contract cancellations and terminations in the period in which they occur. Backlog as of December 31, 2014 was $1,674 million. Backlog is subject to fluctuations and is not necessarily indicative of future sales. The U.S. government may unilaterally modify or cancel its contracts. In addition, under certain of our commercial contracts, our customers may unilaterally modify or terminate their orders at any time for their convenience. Accordingly, certain portions of our backlog can be cancelled or reduced at the option of the U.S. government and commercial customers. Our failure to replace cancelled or reduced backlog could negatively impact our revenues and results of operations.

We operate in highly competitive markets.

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We compete against companies that often have greater sales volumes and financial, research, human, and marketing resources than we have. In addition, some of our largest customers could develop the capability to manufacture products or provide services similar to products that we manufacture or services that we provide. This would result in these customers supplying their own products or services and competing directly with us for sales of these products or services, all of which could significantly reduce our revenues. Furthermore, we are facing increased international competition and cross-border consolidation of competition. Our management believes that the principal points of competition in our markets are technology, product quality, performance, price, technical expertise, and timeliness of delivery. If we are unable to compete successfully with existing or new competitors in these areas, our business, financial position, results of operations, or cash flows, could be materially and adversely impacted.

Our future growth and continued success is dependent upon our key personnel.

Our success is dependent upon the efforts of our senior management personnel and our ability to attract and retain other highly qualified management and technical personnel. We face competition for management and qualified technical personnel from other companies and organizations. Therefore, we may not be able to retain our existing management and technical personnel or fill new management or technical positions or vacancies created by expansion or turnover at our existing compensation levels. Although we have entered into change of control agreements with some members of senior management, we do not have employment contracts with our key executives. We have made a concerted effort to reduce the effect of the loss of our senior management personnel through management succession planning. The loss of members of our senior management and qualified technical personnel could have a material and adverse effect on our business.

Our international operations are subject to risks and volatility.

During 2014, approximately 32% of our consolidated revenue was from customers outside of the United States, and we have operating facilities in foreign countries. Doing business in foreign countries is subject to numerous risks, including without limitation: political and economic instability; the uncertainty of the ability of non-U.S. customers to finance purchases; restrictive trade policies; and complying with foreign regulatory and tax requirements that are subject to change. While these factors or the impact of these factors are difficult to predict, any one or more of these factors could adversely affect our operations. To the extent that foreign sales are transacted in foreign currencies and we do not enter into currency hedge transactions, we are exposed to risk of losses due to fluctuations in foreign currency exchange rates, particularly for the Canadian dollar, the Euro, Swiss franc, and the British pound. Significant fluctuations in the value of the currencies of the countries in which we do business could have an adverse effect on our results of operations.

We may be unable to protect the value of our intellectual property.

Obtaining, maintaining, and enforcing our intellectual property rights and avoiding infringing on the intellectual property rights of others are important factors to the operation of our business. While we take precautionary steps to protect our technological advantages and intellectual property and rely in part on patent, trademark, trade secret, and copyright laws, we cannot assure that the precautionary steps we have taken will completely protect our intellectual property rights. Because patent applications in the United States are maintained in secrecy until either the patent application is published or a patent is issued, we may not be aware of third-party patents, patent applications, and other intellectual property relevant to our products that may block our use of our intellectual property or may be used in third-party products that compete with our products and processes. When others infringe on our intellectual property rights, the value of our products is diminished, and we may incur substantial litigation costs to enforce our rights. Similarly, we may incur substantial litigation costs and the obligation to pay royalties if others claim we infringed on their intellectual property rights. When we develop intellectual property and technologies with funding from U.S. Government contracts, the government has the royalty-free right to use that property.

In addition to our patent rights, we also rely on unpatented technology, trade secrets, and confidential information. Others may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our technology. We may not be able to protect our rights in unpatented technology, trade secrets, and confidential information effectively. We require each of our employees and consultants to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us. There is no guarantee that we will succeed in obtaining and retaining executed agreements from all employees or consultants. Moreover, these agreements may not provide effective protection of our information or, in the event of unauthorized use or disclosure, they may not provide adequate remedies.

Our future financial results could be adversely impacted by asset impairment charges.


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At December 31, 2014, we had goodwill and other intangible assets, net of accumulated amortization, of approximately $1,348 million, which represented approximately 40% of our total assets. Our goodwill is subject to an impairment test on an annual basis and is also tested whenever events and circumstances indicate that goodwill may be impaired. Any excess goodwill resulting from the impairment test must be written off in the period of determination. Intangible assets (other than goodwill) are generally amortized over the useful life of such assets. In addition, from time to time, we may acquire or make an investment in a business that will require us to record goodwill based on the purchase price and the value of the acquired assets. We may subsequently experience unforeseen issues with such business that adversely affect the anticipated returns of the business or value of the intangible assets and trigger an evaluation of the recoverability of the recorded goodwill and intangible assets for such business. Future determinations of significant write-offs of goodwill or intangible assets as a result of an impairment test or any accelerated amortization of other intangible assets could have a material adverse impact on our results of operations and financial condition.

Our operations are subject to numerous domestic and international laws, regulations, and restrictions, and noncompliance with these laws, regulations, and restrictions could expose us to fines, penalties, suspension, or debarment, which could have a material adverse effect on our profitability and overall financial condition.

We have contracts and operations in many parts of the world subject to United States and foreign laws and regulations, including the False Claims Act, regulations relating to import-export control (including the International Traffic in Arms Regulation promulgated under the Arms Export Control Act), technology transfer restrictions, repatriation of earnings, exchange controls, the Foreign Corrupt Practices Act, the U.K. Anti-Bribery Act, and the anti-boycott provisions of the U.S. Export Administration Act. Although we have implemented policies and procedures and provided training that we believe are sufficient to address these risks, we cannot guarantee that our operations will always comply with these laws and regulations. Failure by us or our sales representatives or consultants to comply with these laws and regulations could result in administrative, civil, or criminal liabilities and could, in the extreme case, result in suspension or debarment from government contracts or suspension of our export privileges, which could have a material adverse effect on our business.

We are subject to liability under environmental laws.

Our business and facilities are subject to numerous federal, state, local, and foreign laws and regulations relating to the use, manufacture, storage, handling, and disposal of hazardous materials and other waste products. Environmental laws generally impose liability for investigation, remediation, and removal of hazardous materials and other waste products on property owners and those who dispose of materials at waste sites, whether or not the waste was disposed of legally at the time in question. We are currently addressing environmental remediation at certain current and former facilities, and we have been named as a potentially responsible party along with other organizations in a number of environmental clean-up sites and may be named in connection with future sites. We are required to contribute to the costs of the investigation and remediation and to establish reserves in our financial statements for future costs deemed probable and estimable. Although we have estimated and reserved for future environmental remediation costs, the final resolution of these liabilities may significantly vary from our estimates and could potentially have an adverse effect on our results of operations and financial position.

Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our profitability.

Our business operates in many locations under government jurisdictions that impose income taxes. Changes in domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain revenues or the deductibility of certain expenses, thereby affecting our income tax expense and profitability. Corporate tax reform continues to be a priority in the U.S. and other jurisdictions. Changes to the tax system in the U.S. could have significant effects, positive or negative, on our effective tax rate and on our deferred tax assets and liabilities. In addition, audits by income tax authorities could result in unanticipated increases in our income tax expense.

Our current debt, and debt we may incur in the future, could adversely affect our business and financial position.

As of December 31, 2014, we had $954 million of debt outstanding, of which $953 million is long-term debt. Our level of debt could have significant consequences for our business including: requiring us to use our cash flow to pay the principal and interest on our debt, reducing funds available for acquisitions and other investments in our business; making us vulnerable to economic downturns and increases in interest rates; limiting us from obtaining additional debt; and impacting our ability to pay dividends.

A percentage of our workforce is employed under collective bargaining agreements.


12



Approximately 6% of our workforce is employed under collective bargaining agreements, which from time to time are subject to renewal and negotiation. We cannot ensure that we will be successful in negotiating new collective bargaining agreements, that such negotiations will not result in significant increases in the cost of labor, or that a breakdown in such negotiations will not result in the disruption of our operations. Although we have generally enjoyed good relations with both our unionized and non-unionized employees, if we are subject to labor actions, we may experience an adverse impact on our operating results.

For example, on August 24, 2012, the Electronic Mechanical Division (EMD) of Curtiss Wright’s Defense segment experienced a strike at its Cheswick, Pennsylvania facility. The financial impacts of the strike were an $18 million and$6 million shift in revenue and operating income, respectively, from 2012 to 2013, due to the temporary suspension of work, and an additional $5 million unfavorable impact to operating income as a result of unrecoverable absorption of overhead costs.

Our earnings and margins depend in part on subcontractor performance, as well as raw material and component availability and pricing.

Our businesses depend on suppliers and subcontractors for raw materials and components. At times subcontractors perform services that we provide to our customers. We depend on these subcontractors and vendors to meet their contractual obligations in full compliance with customer requirements. Generally, raw materials and purchased components are available from a number of different suppliers, though several suppliers are our sole source of certain components. If a sole-source supplier should cease or otherwise be unable to deliver such components, our operating results could be adversely impacted. In addition, our supply networks can sometimes experience price fluctuations. Our ability to perform our obligations as a prime contractor may be adversely affected if one or more of these suppliers are unable to provide the agreed-upon supplies or perform the agreed-upon services in a timely and cost-effective manner. While we have attempted to mitigate the effects of increased costs through price increases, there are no assurances that higher prices can effectively be passed through to our customers or that we will be able to offset fully or on a timely basis the effects of higher raw materials costs through price increases.

Our business involves risks associated with complex manufacturing processes.

Our manufacturing processes depend on certain sophisticated and high-value equipment. Unexpected failures of this equipment may result in production delays, revenue loss, and significant repair costs. In addition, equipment failures could result in injuries to our employees. Moreover, the competitive nature of our businesses requires us to continuously implement process changes intended to achieve product improvements and manufacturing efficiencies. These process changes may at times result in production delays, quality concerns, and increased costs. Any disruption of operations at our facilities due to equipment failures or process interruptions could have a material adverse effect on our business.

The airline industry is heavily regulated, and if we fail to comply with applicable requirements, our results of operations could suffer.

Governmental agencies throughout the world, including the U.S. Federal Aviation Administration (FAA) and the European Aviation Safety Agency, prescribe standards and qualification requirements for aircraft components, including virtually all commercial airline and general aviation products. Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies regulatory requirements in other countries. We include, with the products that we sell to our aircraft manufacturing customers, documentation certifying that each part complies with applicable regulatory requirements and meets applicable standards of airworthiness established by the FAA or the equivalent regulatory agencies in other countries. In order to sell our products, we and the products we manufacture must also be certified by our individual OEM customers. If any of the material authorizations or approvals qualifying us to supply our products is revoked or suspended, then the sale of the subject product would be prohibited by law, which would have an adverse effect on our business, financial condition, and results of operations.

From time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to existing regulations, which are usually more stringent than existing regulations. If these proposed regulations are adopted and enacted, we may incur significant additional costs to achieve compliance, which could have a material adverse effect on our business, financial condition, and results of operations.

Our future success will depend, in part, on our ability to develop new technologies.

Virtually all of the products produced and sold by us are highly engineered and require sophisticated manufacturing and system-integration techniques and capabilities. The commercial and government markets in which we operate are characterized by rapidly changing technologies. The product and program needs of our government and commercial customers change and

13



evolve regularly. Accordingly, our future performance depends in part on our ability to identify emerging technological trends, develop and manufacture competitive products, and bring those products to market quickly at cost-effective prices.

Potential product liability risks exist from the products that we sell.

We manufacture highly engineered products, and such products may contain design or manufacturing errors or defects, which may result in product liability claims against us. For example, in December 2013, we, along with other unaffiliated parties, received a claim from Canadian Natural Resources Limited (CNRL) pertaining to a fire and explosion at a delayed coker unit at CNRL’s Fort McMurray refinery which resulted in the injury of five CNRL employees, damage to property and equipment, and various forms of consequential loss such as loss of profit, lost opportunities, and business interruption. The fire and explosion occurred when a CNRL employee bypassed certain safety controls and opened an operating coker unit. The total quantum of alleged damages arising from the incident has not been finalized, but is estimated to meet or exceed $1 billion. We currently maintain what we believe to be suitable and adequate commercial, property and casualty, product liability, and other forms of insurance to cover this matter and other potential claims. The Corporation is currently unable to estimate an amount, or range of potential losses, if any, from this matter. The Corporation believes it has adequate legal defenses and intends to defend this matter vigorously. There can be no assurance, however, that we will be able to maintain our insurance on acceptable terms or that such insurance will provide adequate protection against these potential liabilities. In the event of a judgment against us on this matter or other claims against us, a lack of sufficient insurance coverage could have a material adverse effect on our business, financial condition, and results of operations. Moreover, even if we maintain adequate insurance, any successful claim could have a material adverse effect on our business, financial condition, results of operations, or cash flows, and on the ability to obtain suitable or adequate insurance.

We self-insure health benefits and may be adversely impacted by unfavorable claims experience

We are self-insured for our health benefits. If the number or severity of claims increases, or we are required to accrue or pay additional amounts because the claims prove to be more severe than our original assessment, our operating results would be adversely affected. Our future claims expense might exceed historical levels, which could reduce our earnings. We expect to periodically assess our self-insurance strategy. We are required to periodically evaluate and adjust our claims reserves to reflect our experience. However, ultimate results may differ from our estimates, which could result in losses over our reserved amounts. In addition, because we do not carry “stop loss” insurance, a significant increase in the number of claims that we must cover under our self-insurance retainage could adversely affect our profitability.

Increasing costs of certain employee and retiree benefits could adversely affect our financial position, results of operations, or cash flows.

Our earnings may be positively or negatively impacted by the amount of income or expense we record for our pension and other postretirement benefit plans. U.S. GAAP requires that we calculate income or expense for the plans using actuarial valuations. These valuations reflect assumptions relating to financial market and other economic conditions. Changes in key economic indicators can change the assumptions. The most significant year-end assumptions used to estimate pension or other postretirement benefit expense for the following year are the discount rate, the expected long-term rate of return on plan assets, expected future medical cost inflation, and expected compensation increases. In addition, we are required to make an annual measurement of plan assets and liabilities, which may result in a significant change to equity through a reduction or increase to other comprehensive income. For a discussion regarding how our financial statements can be affected by pension and other postretirement benefit plans accounting policies, see “Management’s Discussion and Analysis—Critical Accounting Estimates and Policies—Pension and Other Postretirement Benefits” in Part II, Item 7 of this Form 10-K. Although U.S. GAAP expense and pension or other postretirement contributions are not directly related, the key economic factors that affect U.S. GAAP expense would also likely affect the amount of cash the company would contribute to the pension or other postretirement plans. Potential pension contributions include both mandatory amounts required under federal law, Employee Retirement Income Security Act, and discretionary contributions to improve the plans’ funded status. An obligation to make contributions to pension plans could reduce the cash available for working capital and other corporate uses.

Our operating results and financial condition may be adversely impacted by the current worldwide economic conditions.

We currently generate significant operating cash flows, which combined with access to the credit markets provides us with significant discretionary funding capacity. However, financial markets in the United States, Europe, and Asia have been experiencing extreme disruption in recent years, including, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. While currently these conditions have not impaired our ability to operate our business, there can be no assurance that there will not be

14



a further deterioration in financial markets and confidence in major economies, which could impact customer demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers, and creditors. We are unable to predict the likely duration and severity of a disruption in financial markets and adverse economic conditions and the effects they will have on our business and financial condition.

Future terror attacks, war, natural disasters, or other events beyond our control could adversely impact our businesses.

Despite our concerted effort to minimize risk to our production capabilities and corporate information systems and to reduce the effect of unforeseen interruptions to us through business continuity planning and disaster recovery plans, terrorist attacks, war, natural disasters, such as hurricanes, floods, tornadoes, pandemic diseases, or other events, such as strikes by a significant customer’s or supplier’s workforce, could adversely impact demand for or supply of our products and could also cause disruption to our facilities or systems, which could also interrupt operational processes and adversely impact our ability to manufacture our products and provide services and support to our customers. We operate facilities in areas of the world that are exposed to natural disasters, such as but not limited to hurricanes, floods, tornados, and pandemic diseases. Financial difficulties of our customers, delays by our customers in production of their products, high fuel prices, the concern of another major terrorist attack, and the overall decreased demand for our products could adversely affect our operating results and financial position.

Intrusion on our systems could damage our business.

We store sensitive data, including intellectual property, proprietary business information, and confidential employee information, on our servers and databases. Despite our implementation of firewalls, switchgear, and other network security measures, our servers, databases, and other systems may be vulnerable to computer hackers, physical or electronic break-ins, sabotage, computer viruses, worms, and similar disruptions from unauthorized tampering with our computer systems. We continue to review and enhance our computer systems to try to prevent unauthorized and unlawful intrusions, but in the future it is possible that we may not be able to prevent all intrusions. Such intrusions could result in our network security or computer systems being compromised and possibly result in the misappropriation or corruption of sensitive information or cause disruptions in our services. We might be required to expend significant capital and resources to protect against, remediate, or alleviate problems caused by such intrusions. Any such intrusion could cause us to be non-compliant with applicable laws or regulations, subject us to legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and services, any of which could have a material adverse effect on our business, financial condition, and results of operations.

There are risks associated with owning our common stock.

Like any equity security, our common stock is subject to a number of risks that may adversely impact our share price including: there is a limited trading market in our common stock; we may not in the future be able to pay dividends on our common stock; we may issue common stock for acquisitions or other purposes that could be dilutive to current stockholders; and we have various anti-takeover defenses such as our rights plan and our ability to issue preferred stock that may discourage a potential acquirer.

Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters is located at a leased facility in Charlotte, North Carolina. As of December 31, 2014, we had 185 facilities worldwide, including 5 corporate and shared-services facilities. Approximately 68% of our facilities operate as manufacturing and engineering, metal treatment, or aerospace overhaul plants, while the remaining 32% operate as selling and administrative office facilities. The number and type of facilities utilized by each of our reportable segments are summarized below:
Owned Facilities Location
 
Commercial/ Industrial
 
Defense
 
Energy
 
Total
North America
 
12

 
3

 
8

 
23

Europe
 
15

 

 

 
15

Asia
 
2

 

 

 
2

Total
 
29

 
3

 
8

 
40


15



Leased Facilities Location
 
Commercial/ Industrial
 
Defense
 
Energy
 
Total
North America
 
50

 
13

 
31

 
94

Europe
 
24

 
9

 
1

 
34

Asia
 
9

 
1

 
2

 
12

Total
 
83

 
23

 
34

 
140

Our principal manufacturing facilities are located in the United States in New York, Ohio, North Carolina, and Pennsylvania, and internationally in Canada and the United Kingdom. The buildings on the properties referred to in this Item are well maintained, in good condition, and are suitable and adequate for the uses presently being made of them. Management believes the productive capacity of our properties is adequate to meet our anticipated volume for the foreseeable future.

Item 3. Legal Proceedings.

In the ordinary course of business, we and our subsidiaries are subject to various pending claims, lawsuits, and contingent liabilities. We do not believe that the disposition of any of these matters, individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations.

In December 2013, the Corporation, along with other unaffiliated parties, received a claim, from Canadian Natural Resources Limited (CNRL) filed in the Court of Queen's Bench of Alberta, Judicial District of Calgary. The claim pertains to a January 2011 fire and explosion at a delayed coker unit at its Fort McMurray refinery that resulted in the injury of five CNRL employees, damage to property and equipment, and various forms of consequential loss such as loss of profit, lost opportunities, and business interruption. The fire and explosion occurred when a CNRL employee bypassed certain safety controls and opened an operating coker unit. The total quantum of alleged damages arising from the incident has not been finalized, but is estimated to meet or exceed $1 billion.  The Corporation maintains various forms of commercial, property and casualty, product liability, and other forms of insurance; however, such insurance may not be adequate to cover the costs associated with a judgment against us. The Corporation is currently unable to estimate an amount or range of potential losses, if any, from this matter. The Corporation believes it has adequate legal defenses and intends to defend this matter vigorously. The Corporation's financial condition, results of operations, and cash flows, could be materially affected during a future fiscal quarter or fiscal year by unfavorable developments or outcome regarding this claim.

We have been named in approximately 211 pending lawsuits that allege injury from exposure to asbestos. To date, we have secured dismissals with prejudice and without prejudice in approximately 193 and 276 lawsuits, respectively and are currently in discussions for similar dismissal of several other lawsuits, and have not been found liable or paid any material sum of money in settlement in any case. We believe that the minimal use of asbestos in our past and current operations and the relatively non-friable condition of asbestos in our products makes it unlikely that we will face material liability in any asbestos litigation, whether individually or in the aggregate. We maintain insurance coverage for these potential liabilities and we believe adequate coverage exists to cover any unanticipated asbestos liability.
Item 4. Mine Safety Disclosures.
Not applicable.

16



PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

MARKET INFORMATION

Our common stock is listed and traded on the New York Stock Exchange (NYSE) under the symbol CW.
Stock Price Range
 
2014
 
2013
 
 
High
 
Low
 
High
 
Low
Common Stock
 
 
 
 
 
 
 
 
First Quarter
 
$
69.90

 
$
57.72

 
$
37.18

 
$
33.46

Second Quarter
 
70.33

 
59.22

 
37.48

 
30.64

Third Quarter
 
73.67

 
60.60

 
48.40

 
36.46

Fourth Quarter
 
72.99

 
63.90

 
62.92

 
44.71


As of January 1, 2015, we had approximately 4,321 registered shareholders of our common stock, $1.00 par value.

DIVIDENDS

During the first quarter of 2014, the Company increased its quarterly dividend to thirteen cents ($0.13) a share, a 30% increase over the prior quarter dividend. 

 
 
2014
 
2013
Common Stock
 
 

 
 

First Quarter
 
$
0.13

 
$
0.09

Second Quarter
 
0.13

 
0.10

Third Quarter
 
0.13

 
0.10

Fourth Quarter
 
0.13

 
0.10

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth information regarding our equity compensation plans as of December 31, 2014 the end of our most recently completed fiscal year:
Plan category
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
 
 
Weighted average
exercise price of
outstanding options,
warrants, and rights
 
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
the first column)
 
Equity compensation plans approved by security holders
 
2,162,415
(a)
 
$37.44
 
2,995,601
(b)
Equity compensation plans not approved by security holders
 
None
 
 
Not applicable
 
Not applicable
 

(a)
Consists of 2,088,486 shares issuable upon exercise of outstanding options and vesting of performance share units, restricted shares, restricted stock units, and shares to non-employee directors under the 2005 and 2014 Omnibus Incentive Plan, 73,929 shares issuable under the Employee Stock Purchase Plans.
(b)
Consists of 2,334,381 shares available for future option grants under the 2014 Omnibus Incentive Plan, 661,220 shares remaining available for issuance under the Employee Stock Purchase Plan.
Issuer Purchases of Equity Securities

17



The following table provides information about our repurchases of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended December 31, 2014.
 
 
Total Number of
shares purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of a
Publicly
Announced
Program
 
Maximum
Dollar amount of shares that may
yet be
Purchased
Under the
Program
October 1 – October 31
 
111,800

 
$
66.35

 
1,877,397

 
$
13,246,682

November 1 – November 30
 
87,200

 
70.34

 
1,964,597

 
7,113,048

December 1 – December 31
 
101,700

 
69.94

 
2,066,297

 

For the quarter ended December 31
 
300,700

 
$
68.72

 
2,066,297

 
$

During the fourth quarter of 2014, we completed the 2011 share repurchase program through the repurchase of 300,700 shares of common stock. The 2011 share repurchase program authorized the Corporation to repurchase up to 3,000,000 shares of our common stock, in addition to approximately 690,000 shares remaining under a previously authorized share repurchase program, and was subject to a $100 million repurchase limitation. The 2011 share repurchase program was completed in 2014 as a result of the $100 million repurchase limitation. In addition, on September 25, 2014, the Company received authorization from its board of directors to enter into a new share repurchase program beginning in 2015 to purchase up to approximately $300 million of its common stock. On November 4, 2014, the Corporation announced it will repurchase at least $200 million in shares under its newly authorized $300 million share repurchase program, beginning in January 2015. Under the current program, shares may be purchased on the open market, in privately negotiated transactions and under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended.
The following performance graph does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of our other filings under the Securities Act or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this information by reference therein.
PERFORMANCE GRAPH
The following graph compares the annual change in the cumulative total return on our Company’s Common Stock during the last five fiscal years with the annual change in the cumulative total return of the Russell 2000 Index, the S&P SmallCap 600 Index, and our self-constructed proxy peer group. The proxy peer group companies are as follows:
AAR Corp
EnPro Industries Inc.
Mueller Water Products Inc
Actuant Corp
Esterline Technologies Corp.
Orbital Sciences Corp
Applied Industrial Technologies Inc
Flowserve Corp.
Rockwell Collins Inc.
B/E Aerospace Inc
GenCorp Inc.
Spirit Aerosystems Holdings Inc
Barnes Group Inc
Hexcel Corp
Teledyne Technologies Inc.
CIRCOR International Inc
IDEX Corporation
Triumph Group Inc.
Crane Co.
Kaman Corp
Woodward Inc
Cubic Corp
Moog Inc.
 
The graph assumes an investment of $100 on December 31, 2009 and the reinvestment of all dividends paid during the following five fiscal years.

18



Company / Index
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
Curtiss-Wright Corp
 
100

 
107.09

 
115.12

 
108.14

 
206.91

 
236.56

S&P SmallCap 600 Index
 
100

 
126.31

 
127.59

 
148.42

 
209.74

 
221.81

Russell 2000
 
100

 
126.85

 
121.56

 
141.43

 
196.34

 
207.37

Peer group
 
100

 
127.45

 
126.90

 
146.71

 
220.67

 
218.10



19



Item 6. Selected Financial Data.

The following table presents our selected financial data from continuing operations. The table should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Five-Year Financial Highlights
 
 
CONSOLIDATED SELECTED FINANCIAL DATA
(In thousands, except per share data)
 
2014
 
2013
 
2012
 
2011
 
2010
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
2,243,126

 
$
2,118,081

 
$
1,823,307

 
$
1,732,216

 
$
1,566,719

Net earnings from continuing operations
 
169,949

 
139,404

 
104,081

 
117,123

 
83,255

Total assets
 
3,399,511

 
3,458,274

 
3,114,588

 
2,635,547

 
2,233,141

Total debt
 
954,348

 
959,938

 
880,215

 
586,430

 
396,644

Earnings per share from continuing operations:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
3.54

 
$
2.97

 
$
2.23

 
$
2.53

 
$
1.82

Diluted
 
$
3.46

 
$
2.91

 
$
2.20

 
$
2.49

 
$
1.80

Cash dividends per share
 
$
0.52

 
$
0.39

 
$
0.35

 
$
0.32

 
$
0.32



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

COMPANY ORGANIZATION

Curtiss-Wright Corporation and its subsidiaries is a diversified, multinational provider of highly engineered, technologically advanced, products and services to a broad range of industries which are reported through our Commercial/Industrial, Defense, and Energy segments. We are positioned as a market leader across a diversified array of niche markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers. We provide products and services to a number of global markets and have achieved balanced growth through the successful application of our core competencies in engineering and precision manufacturing. Our overall strategy is to be a balanced and diversified company, less vulnerable to cycles or downturns in any one market, and to establish strong positions in profitable niche markets. Approximately 32% of our 2015 revenues are expected to be generated from defense-related markets.

Beginning in the first quarter of 2014, the Corporation realigned its reportable segments with its end markets to strengthen its ability to service customers and recognize certain organizational efficiencies. As result of this realignment the Corporation has three new reportable segments: Commercial/Industrial, Defense, and Energy. Please refer to Note 18 of the Corporation's Consolidated Financial Statements for further information on the segment realignment and for further information on our products and services and the major markets served by our three segments, refer to the Business Description in Part I, Item I of this Annual Report on Form 10-K.

As discussed in Note 2, Discontinued Operations and Assets Held for Sale, during the year ended December 31, 2014, we have sold certain businesses and classified certain other businesses as held for sale. The results of operations of these businesses are reported as discontinued operations within our Consolidated Statements of Earnings. Prior year amounts have been restated to conform to the current year presentation.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations begins with an overview of our company, followed by economic and industry-wide factors impacting our company and the markets we serve, a discussion of the overall results of continuing operations, and finally a more detailed discussion of those results within each of our reportable operating segments.

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

20



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 the “organic”. The definition of “organic” excludes the effect of foreign currency translation.

Market Analysis and Economic Factors

Economic Factors Impacting Our Markets

Many of Curtiss-Wright’s industrial businesses are driven in large part by global economic growth. U.S. and world economies continue to slowly recover from the 2008-2009 global recession. In 2014, the U.S. economy, as measured by real gross domestic product (GDP), showed modest growth of 2.4%, according to the most recent estimate, compared with a 2.2% increase in 2013 and a 2.3% increase in 2012. As GDP continues to rebound modestly from the weakness tied to the global economic recession, the U.S. has also experienced decreased levels of unemployment and improvements in the housing market, aided by a low interest rate environment. However, the global environment contains pockets of instability, particularly in Europe, where we continue to be faced with lower relative levels of economic activity.

Looking ahead to 2015, the broader U.S. economy is expected to continue to recover at a moderate pace, with current estimates for U.S. real GDP growth ranging from 2.5% to 3.5%. However, world economies may continue to experience volatility due to the slower than expected rebound following the European debt crisis, a worsening of geopolitical tensions, the continued growth in crude oil production and the potential for rising U.S. interest rates. Overall, 2015 GDP growth in world economies is expected to grow by approximately 3.5% in 2015, up from 3.3% in 2014, according to the International Monetary Fund, aided by improvements in U.S and European economies, as well as in India and Brazil. We remain cautiously optimistic that our commercial and industrial markets will continue to improve in 2015.

Defense

A portion of our business operations are attributed to the defense sector, predominantly in the United States, and characterized by long-term programs and contracts driven primarily by the Department of Defense (DoD) budgets and funding levels. We have a well-diversified portfolio of products and services that supply all branches of the U.S. military, with content on many high performance programs and platforms.

The U.S. Defense budget serves as a leading indicator of our defense market, and its future outlook has been marked with improved confidence and the potential for budget stability over the next few years. In the previous decade, we experienced a period of significant growth in defense spending and related supplemental budgets. Following a recent pullback over the past few years, future defense spending, as it relates to U.S. Defense spending, is expected to see moderate growth of approximately 2% over the next five years. The proposed FY2016 Defense budget, which begins in October 2015, is expected to be $534 billion (base) or $585 billion (including base plus overseas contingency operations (OCO)), a positive for the industry as it would provide the DoD additional stability and flexibility to enter into multi-year contracts, while pushing out the across-the-board sequester cuts “sequestration” mandated by the 2011 Budget Control Act.

While we monitor the budget process as it relates to programs in which we participate, we cannot predict the ultimate impact of future DoD budgets, which tend to fluctuate year-by-year and program-by-program. As a result, some of the budget reductions and program cancellations may negatively impact programs in which we participate. We expect to benefit from increased funding levels on C4ISR, electronic warfare, unmanned systems, and communications programs within our aerospace defense market. As a leading supplier of Commercial Off-the-Shelf (COTS) and COTS+ solutions, we continue to demonstrate that electronics technology will enhance our ability to design and develop future generations of advanced systems and products for high performance applications, while also meeting the military’s Size, Weight and Power (SWaP) considerations. In our naval defense market, we expect continued solid funding for the U.S. shipbuilding program, particularly as it relates to production on the Ford class aircraft carrier and Virginia class submarine programs. In our ground defense market, U.S. growth is expected to slowly recover, while international demand should remain solid, particularly for our turret drive stabilization systems.

Commercial Aerospace

As a part of our diversified portfolio, we derive revenue from the global commercial aerospace market, including the commercial jet, regional jet, and commercial helicopter markets. Our primary focus in this market is OEM products and services for commercial jets where we provide a combination of flight control and utility actuation systems, sensors, and other sophisticated electronics, as well as shot and laser peening services, to our primary customers, Boeing and Airbus. Shot and laser peening are also utilized on highly stressed components of turbine engine fan blades, landing gear, and aircraft structures. Nearly all of our revenues service the OEM market.

21




The largest driver of our commercial aerospace business is OEM parts, which is highly dependent on new aircraft production. Industry data supports an increase in commercial aircraft deliveries over the next few years, as 2011 marked the first year in a multi-year production up-cycle for the commercial aerospace market. In the current cycle, OEM-oriented companies are expected to perform well, due to planned increases in production by Boeing and Airbus, on both legacy and new aircraft, with record-high backlogs on the latter.

In addition, according to the International Air Transport Association (IATA), air travel continues to be robust and is likely to reach almost 3.5 billion passenger miles or 7.0% growth in 2015, which is well-above the 5.5% growth trend of the past two decades. The late 2014 decline in oil prices is expected to be a key contributor to the increased passenger growth in 2015, as the fall in the price of fuel is expected to lead to cheaper airfares for consumers. As such, following a solid performance in the commercial jet market over the past four years, the industry is expected to continue its growth in 2015. Industry experts also expect a modest growth outlook for both regional and business jets.

Power Generation

As a part of our product offering, we derive revenue from the commercial nuclear power generation market, where we supply a variety of highly engineered products and services, including reactor coolant pumps, control rod drive mechanisms, valves, motors, spent fuel management, containment doors, bolting solutions, and enterprise resource planning and plant process controls.

According to the Nuclear Regulatory Commission (NRC), nuclear power comprises approximately 20% of all the electric power produced in the United States, with approximately 100 reactors operating across 62 nuclear power plants in 31 states. Our growth is driven by the U.S. plant recertification process, as nearly all of the operating U.S. nuclear power plants have applied for or will be applying for 20-year plant life extensions as they reach the end of their current 40-year operating lives. As of December 31, 2014, 74 reactors have received plant life extensions, applications from 19 additional reactors have been submitted and are pending approval, and letters of intent to apply have been submitted from 5 more reactors with expected application submittal dates from 2015 through 2021. Additionally, as assessments and analysis from the events at Fukushima continue to drive safety and reliability improvements, we have seen and continue to expect increased opportunities worldwide for our vast portfolio of advanced nuclear technologies, and we also expect increased opportunities as the nuclear industry complies with other regulatory requirements on existing plants, particularly the Tier 1 regulations proposed by the NRC.

In addition to plant re-certifications, there are several factors that are expected to drive an expansion in global commercial nuclear power demand over the next several years. The Energy Information Administration (EIA) forecasts that worldwide total energy consumption is expected to increase at an average annual rate of 0.4% between 2012 and 2040. Continued growth in global demand for electricity, especially in developing countries with limited supply such as China and India, will require increased capacity. In addition, the continued supply constraints and environmental concerns attributed to the current dependence on fossil fuels have led to a greater appreciation of the value of nuclear technology as the most efficient and environmentally friendly source of energy available today. As a result, we expect growth opportunities in this market both domestically and internationally, although the timing of orders remains uncertain.

Domestically, four new build reactors are under construction utilizing the Westinghouse AP1000 reactor design, for which we are the sole supplier of reactor coolant pumps. Applications for an additional 24 new reactors at 16 power plants have been submitted to the NRC, with the AP1000 design having been selected for 10 of the potential new reactors. Internationally, new nuclear plant construction is active. Currently, there are approximately 70 new plants under construction in 14 countries, with approximately 183 planned and 311 proposed over the next several decades. In particular, China intends to expand its nuclear power capabilities significantly through the construction of new nuclear power plants, including two AP1000 plants currently under construction that are expected to be the first Generation III design in operation.

As a result, we are positioned for solid expected new order activity and increased sales for our vast array of nuclear technologies due to ongoing maintenance and upgrade requirements on operating nuclear plants, a renewed interest in products to aid safety and extend the reliability of existing reactors, and the continued emphasis on global nuclear power construction.

General Industrial

Revenue derived from our diversified offering to the general industrial market consists of industrial sensors and control systems, critical-function valves and valve systems, as well as surface treatment services. We supply our products and services to OEMs and aftermarket industrial customers, including the transportation, commercial trucking, off-road equipment, construction, automotive, chemical, oil and gas, and medical industries. Our performance in these markets is typically sensitive

22



to the performance of the U.S. and global economies, with increases in global GDP and industrial production leading to higher sales, particularly for our surface treatment services.

A key driver within our general industrial markets is our sensors and controls systems products, most notably for electronic throttle controls, shift controls, and traction control systems, serving on- and off-highway and specialty vehicles. Increased demand for electronic control systems and sensors has been driven by the need for improved operational efficiency, safety, repeatability, reduced emissions, enhanced functionality, and greater fuel efficiencies to customers worldwide. Key to our future growth is expanding the human-machine interface technology portfolio and providing a complete system solution to our customers. Existing and emergent trends in commercial vehicle safety, emissions control, and improved driver efficiency are propelling commercial vehicle OEMs toward higher performance subsystems. These trends are accelerating the evolution from discrete human machine interface components towards a more integrated vehicle interface architecture. Meanwhile, our surface treatment services, including shot and laser peening, engineered coatings, and analytical services, have benefited from rising demand from commercial aerospace and general industrial customers.

Looking ahead, based on expectations for steadily improving global economic conditions, these businesses are likely to experience continued modest growth based on higher sales volumes and new international emissions regulations affecting several industries in which we participate.

We also service the chemical and oil and gas industries through numerous industrial valve products. We maintain a significant global maintenance, repair and overhaul (MRO) business for our pressure-relief valve technologies as refineries opportunistically service or upgrade equipment that has been operating at full capacity in recent years. We also produce severe service, operation-critical valves for the power and process industries. We have experienced increased demand driven by new exploration and expansion of sub-segments, including offshore drilling and shale gas, which is expected to boost end-user demand. We also have seen an industrial renaissance in the U.S. chemical industry due to plentiful, affordable natural gas which has led to further adoption of severe service valve technology. Looking ahead, we believe improved economic conditions and continued global expansion will be key drivers for future growth of our severe service and operationally critical valves.

RESULTS OF OPERATIONS

23



 
 
Year Ended December 31,
 
Percent changes
(In thousands, except percentages)
 
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
 
 
 
 
 
 
 
 
 
 
 
Sales:
 
 
 
 
 
 
 
 
 
 
Commercial/Industrial
 
$
1,074,772

 
$
950,698

 
$
677,722

 
13
 %
 
40
 %
Defense
 
737,566

 
767,499

 
768,101

 
(4
)%
 
 %
Energy
 
430,788

 
399,884

 
377,484

 
8
 %
 
6
 %
Total sales
 
$
2,243,126

 
$
2,118,081

 
$
1,823,307

 
6
 %
 
16
 %
 
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 
 
 
Commercial/Industrial
 
$
142,831

 
$
105,245

 
$
66,576

 
36
 %
 
58
 %
Defense
 
102,252

 
116,618

 
90,285

 
(12
)%
 
29
 %
Energy
 
67,602

 
57,204

 
55,643

 
18
 %
 
3
 %
Corporate and eliminations
 
(30,312
)
 
(41,944
)
 
(31,110
)
 
28
 %
 
(35
)%
Total operating income
 
$
282,373

 
$
237,123

 
$
181,394

 
19
 %
 
31
 %
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
(35,794
)
 
(37,053
)
 
(26,301
)
 
(3
)%
 
41
 %
Other income, net
 
365

 
980

 
128

 
(63
)%
 
NM

 
 
 
 
 
 
 
 
 
 
 
Earnings before income taxes
 
246,944

 
201,050

 
155,221

 
23
 %
 
30
 %
Provision for income taxes
 
(76,995
)
 
(61,646
)
 
(51,140
)
 
25
 %
 
21
 %
Earnings from continuing operations
 
$
169,949

 
$
139,404

 
$
104,081

 
22
 %
 
34
 %
 
 
 
 
 
 
 
 
 
 
 
New orders
 
$
2,409,200

 
$
2,161,334

 
$
1,791,150

 
 
 
 
Backlog
 
$
1,674,143

 
$
1,597,001

 
$
1,551,959

 
 
 
 
NM- not meaningful

Sales

Sales increased $125 million, or 6%, in 2014, as compared with 2013. The increase in sales in 2014 is primarily due to an increase in sales in our Commercial/Industrial and Energy segments of $124 million and $31 million, respectively. The increase in sales in our Commercial/Industrial segment was primarily due to the incremental impact of acquisitions of $63 million and increased organic sales to the commercial aerospace and oil and gas markets. Sales increased in the Energy segment primarily due to higher global demand for severe-service industrial valves and pressure relief valves.

Sales increased $295 million, or 16%, in 2013, as compared with 2012. The increase in sales was primarily due to our Commercial/Industrial segment of $273 million, which was primarily due to the impact of acquisitions, which contributed $241 million, or 25%, of incremental sales. Sales increased in the Energy segment primarily due to higher global demand for severe-service industrial valves and pressure relief valves.


Net sales by end market

24



 
 
Year Ended December 31,
 
Percent changes
(In thousands, except percentages)
 
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
 
 
 
 
 
 
 
 
 
 
 
Defense markets:
 
 
 
 
 
 
 
 
 
 
Aerospace
 
$
285,576

 
$
262,914

 
$
302,601

 
9
 %
 
(13
)%
Ground
 
74,066

 
80,064

 
93,814

 
(7
)%
 
(15
)%
Naval
 
381,336

 
370,748

 
335,406

 
3
 %
 
11
 %
Other
 
8,612

 
16,370

 
24,448

 
(47
)%
 
(33
)%
Total Defense
 
$
749,590

 
$
730,096

 
$
756,269

 
3
 %
 
(3
)%
 
 
 
 
 
 
 
 
 
 
 
Commercial markets:
 
 
 
 
 
 
 
 
 
 
Aerospace
 
$
428,083

 
$
398,870

 
$
335,073

 
7
 %
 
19
 %
Oil and Gas
 
232,360

 
186,638

 
128,409

 
24
 %
 
45
 %
Power Generation
 
427,460

 
461,574

 
433,334

 
(7
)%
 
7
 %
General Industrial
 
405,633

 
340,903

 
170,222

 
19
 %
 
100
 %
Total Commercial
 
$
1,493,536

 
$
1,387,985

 
$
1,067,038

 
8
 %
 
30
 %
 
 
 
 
 
 
 
 
 
 
 
Total Curtiss-Wright
 
$
2,243,126

 
$
2,118,081

 
$
1,823,307

 
6
 %
 
16
 %

Components of sales and operating income growth (decrease):
 
 
2014 vs. 2013
 
2013 vs. 2012
 
 
Sales
 
Operating
Income
 
Sales
 
Operating
Income
Organic
 
2
%
 
14
%
 
2
%
 
24
%
Acquisitions/divestitures
 
4
%
 
3
%
 
14
%
 
5
%
Foreign currency
 
%
 
2
%
 
%
 
2
%
Total
 
6
%
 
19
%
 
16
%
 
31
%

Year ended December 31, 2014 compared to year ended December 31, 2013

Sales

Defense sales increased $19 million, or 3%, as compared to the prior year period, primarily due to an increase in sales in the aerospace defense and naval defense markets partially offset by lower sales in the ground defense markets. Our Parvus acquisition contributed $17 million of incremental sales, primarily to the aerospace and ground defense markets. The increase in sales in the aerospace defense market is primarily due to increased demand for sensors and embedded computing products. Sales in the naval defense market increased primarily due to higher production levels on the Virginia class submarine. In the ground defense market, sales decreased primarily due to lower sales of our turret drive stabilization systems on international ground defense platforms.
 
Commercial sales increased $106 million, or 8%, to $1,494 million, as compared to the prior year period, primarily due to increased sales in the commercial aerospace, oil and gas, and general industrial markets, which were partially offset by lower sales in the power generation market. The increase in sales in the commercial aerospace market was driven primarily by increased product sales on the Boeing 787 platform. Sales increased in the oil and gas market primarily due to higher global demand for severe-service industrial valves and pressure relief valves. In addition, sales increased in the general industrial market due to the incremental contribution from our Arens acquisition and higher sales of industrial vehicle product sales. In the power generation market, sales decreased primarily due to lower levels of production on the AP1000 Domestic and China programs.

Operating income

25




During the year ended December 31, 2014, operating income increased $45 million, or 19%, to $282 million, compared with the same period in 2013, while operating margin increased 140 basis points to 12.6%. Acquisitions contributed incremental operating income of $8 million. On a segment basis, the increase in operating income in our Commercial/Industrial segment of $38 million, or 36%, to $143 million, was primarily due to the increase in sales and our cost containment efforts. In our Defense segment, operating income decreased as our continuing operating margin improvement initiatives were offset by increases in cost and lower levels of production on the AP1000 China program and lower levels of production on the AP1000 Domestic program. In our Energy segment, the increase in operating income and operating margin was primarily driven by higher sales volumes in the oil and gas market as well as the benefit of our ongoing margin improvement initiatives.

Non-segment operating expense

Non-segment operating expense decreased $12 million, to $30 million, primarily due to lower pension expense primarily as a result of the prior year's pension amendment.

Interest expense

Interest expense of $36 million, was essentially flat as compared to the prior year period.

Effective tax rate from continuing operations

Our effective tax rates for 2014 and 2013 were 31.2% and 30.7%, respectively. The increase in the effective tax rate in 2014, as compared to 2013, is primarily due to lower research and development tax credits.

Earnings from continuing operations

Earnings from continuing operations increased $31 million, to $170 million, in 2014, as compared to the prior year period, primarily due to higher operating income in our Commercial/Industrial and Energy segments and lower pension expense.

Comprehensive income (loss)

Pension and Postretirement adjustments

The $74 million loss included in other comprehensive income for the year ended December 31, 2014 for pension and postretirement adjustments is primarily due to the change in the funded status of our pensions plans in connection with the 2014 annual pension remeasurement. The primary driver of the decrease in the funded status of our pension plans was change in the CW Plan discount rate from 4.75% to 4.0% and an update in the assumption of mortality rates. The $87 million pension and postretirement gain in other comprehensive income for the year ended December 31, 2013 was mainly due to the actuarial gain resulting from the annual year-end remeasurement. The actuarial gain was driven by an increase in the CW Plan discount rate from 4.0% to 4.75% and favorable asset return performance.

Foreign Currency Translation adjustments

The increase in foreign currency translation adjustments to comprehensive income from a $7 million loss to a $79 million loss for the year ended December 31, 2014 is primarily due to strengthening of the U.S. dollar versus the British Pound, the Euro, and the Swiss Franc during the year ended December 31, 2014 as compared to relatively flat exchange rates in all three currencies versus the U.S. dollar during the year ended December 31, 2013.

Backlog and new orders

Backlog increased 5% to $1,674 million at December 31, 2014 from $1,597 million at December 31, 2013. New orders increased $248 million to $2,409 million at December 31, 2014 primarily due to the incremental impact of acquisitions of $86 million, increased orders of pumps and generators in the naval defense market, and a new contract for our turret drive stabilization systems.

Year ended December 31, 2013 compared to year ended December 31, 2012

Sales


26



Defense sales decreased 3%, as compared to the prior year period, primarily due to lower sales in the aerospace defense and ground defense markets, partially offset by an increase in sales in the naval defense market. The decrease in sales in the aerospace defense market was primarily due to lower production levels on the Black Hawk and lower sales of embedded computing and sensors and controls products supporting various helicopter programs. In the ground defense market, sales decreased primarily due to lower production levels on the Bradley platform and lower comparable sales of embedded computing products. These decreases were partially offset by an increase in naval defense sales due to increased production on the CVN-79 and the ramp up of production on the Virginia Class submarine program. This was partially offset by lower levels of production on the DDG-1000 and DDG-51 destroyer programs and completion of production on the Advanced Arresting Gear program.

Commercial sales increased by $321 million, or 30%, to $1,388 million, as compared to the prior year period, mainly due to an increase in sales to the general industrial market, and to a lesser extent increases in sales in the oil and gas and commercial aerospace markets. Sales increased in the general industrial market primarily due to the incremental sales from our acquisitions of Williams, PG Drives, and Arens. The increase in sales to the to the oil and gas market was primarily due to our Phönix acquisition. The increase in sales to the commercial aerospace market was primarily due to increased sales of our to flight control products on all major Boeing aircraft and specialty production support on Boeing's 787 aircraft.

Operating income

During the year ended December 31, 2013, operating income increased $56 million, or 31%, to $237 million, compared with the same period in 2012, while operating margin increased 130 basis points to 11.2%. Acquisitions contributed incremental operating income of $9 million; however they were 110 basis points dilutive to operating margin. Acquisitions are generally dilutive to operating margin during their first year due to purchase price accounting adjustments and higher levels of intangible amortization expense.

On a segment basis, the increase in operating income in our Commercial/Industrial segment of $39 million, or 58%, to $105 million, was due to $12 million of restructuring charges that occurred in the prior year that did not recur in the current year, as well as increased organic coating sales, primarily in the commercial aerospace market. In our Defense segment, operating income increased $26 million, or 29%, to $117 million, mainly due to improved profitability in our defense businesses as a result of prior year restructuring initiatives, as well as certain one-time charges related to a labor union strike at EMD, and additional costs incurred due to a significant change in estimate on the AP1000 contract. These charges did not recur in 2013. Operating income in the Energy segment was essentially flat.

Non-segment operating expense

Non-segment operating expense increased $11 million to $42 million, primarily due to higher pension expenses and higher foreign currency exchange losses.

Interest expense

Interest expense increased $11 million, to $37 million, primarily due to the issuance of $400 million of Senior Notes in February 2013 and $100 million of Senior Notes in September 2013. During 2013, the Corporation's average debt outstanding and average borrowing rate was $991 million and 3.4%, respectively, compared to $602 million, and 3.9%, in the prior year period.

Effective tax rate from continuing operations

Our effective tax rates for 2013 and 2012 were 30.7%, and 32.9%, respectively. The change in effective tax rate is primarily due to increased benefits realized from research and development credits and the reversal of certain valuation allowances as a result of improved profitability.

Earnings from continuing operations

Earnings from continuing operations increased $35 million to $139 million in 2013, as compared to the prior year period, primarily due to the increase in operating income in the Commercial/Industrial and Defense segments offset by the increased pension expense and interest expense discussed above.

Comprehensive income (loss)


27



Pension and Postretirement adjustments

For 2013, the $87 million pension and postretirement gain in other comprehensive income was mainly due to the actuarial gain resulting from the annual year-end remeasurement. This was driven by an increase in the CW Plan discount rate from 4.0% to 4.75% and favorable asset return performance. For 2012, the $16 million pension and postretirement loss in other comprehensive income was mainly due to the actuarial loss resulting from the annual year-end remeasurement. This was driven by a decrease in the CW Plant discount rate from 4.5% to 4.0% and was partially offset by favorable asset return performance.

Foreign Currency Translation adjustments
The decrease in foreign currency translation adjustments to comprehensive income of $33 million to a $7 million loss for the year ended December 31, 2013 is primarily due to a decrease in the Canadian exchange rate versus the U.S. dollar during the year ended December 31, 2013 as compared to an increase in the Canadian exchange rate versus the U.S. dollar during the year ended December 31, 2012.

Backlog and new orders

Backlog was essentially flat at $1,597 million at December 31, 2013 from $1,552 million at December 31, 2012. New orders increased $370 million to $2,161 million at December 31, 2013 primarily due to the incremental impact of acquisitions of $397 million.

RESULTS BY BUSINESS SEGMENT

Commercial/Industrial

Sales in the Commercial/Industrial segment are primarily to the commercial aerospace and general industrial markets, and to a lesser extent, the defense and oil and gas markets.

The following tables summarize sales, operating income and margin, and new orders, and certain items impacting comparability within the Commercial/Industrial segment.
 
 
Year Ended December 31,
 
 
 
 
(In thousands, except percentages)
 
2014
 
2013
 
2012
 
2014 vs 2013
 
2013 vs 2012
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
1,074,772

 
$
950,698

 
$
677,722

 
13
 %
 
40
%
Operating income
 
142,831

 
105,245

 
66,576

 
36
 %
 
58
%
Operating margin
 
13.3
%
 
11.1
%
 
9.8
%
 
220
 bps
 
130 bps

Restructuring charges
 

 

 
12,446

 
NM

 
NM

New orders
 
$
1,069,015

 
$
1,008,197

 
$
736,311

 
6
 %
 
37
%
Backlog
 
$
462,254

 
$
485,603

 
$
397,331

 
(5
)%
 
22
%
NM - not meaningful
 
 
 
 
 
 
 
 
 
 

Components of sales and operating income growth (decrease):
 
 
2014 vs 2013
 
2013 vs 2012
 
 
Sales
 
Operating
Income
 
Sales
 
Operating
Income
Organic
 
6
 %
 
32
 %
 
5
%
 
46
%
Acquisitions/divestitures
 
7
 %
 
5
 %
 
35
%
 
12
%
Foreign currency
 
 %
 
(1
)%
 
%
 
%
Total
 
13
 %
 
36
 %
 
40
%
 
58
%

Year ended December 31, 2014 compared to year ended December 31, 2013


28



Sales

Sales increased $124 million, or 13%, to $1,075 million, as compared to the prior year period, primarily due to the incremental impact of acquisitions and increased demand in the commercial markets. Acquisitions contributed $63 million of incremental sales, primarily due to our Arens acquisition, which contributed $43 million of incremental sales in the general industrial market. Sales in the commercial aerospace market increased primarily due to the ramp up in production rates on the Boeing 787 program and increased demand for our surface technology services.

Operating income

Operating income increased $38 million, or 36%, to $143 million, and operating margin increased 220 basis points to 13.3%. The increase in operating income is primarily due to increased profitability from our 2012 and 2013 acquisitions, increased sales of our surface technologies services and improved profitability resulting from our ongoing margin improvement initiatives. Acquisitions contributed $5 million of incremental operating income.

Backlog and new orders

Backlog decreased $23 million to $462 million as compared to the prior year period. New orders increased $61 million to $1,069 million, from the prior year period, primarily due to incremental new orders from acquisitions of $62 million.

Year ended December 31, 2013 compared to year ended December 31, 2012

Sales

Sales increased $273 million, or 40%, to $951 million, as compared to the prior year period, primarily due to the incremental impact of our acquisitions, which contributed $241 million of incremental sales.

The increase in sales in the general industrial market is mainly due to the acquisitions of Williams, PG Drives, and Arens. In the oil and gas market, the increase in sales is primarily due to the acquisition of Phönix. In the commercial aerospace market the increase in sales is due to both increased sales of our flight control products on Boeing aircraft and emergent and specialty production support on Boeing’s 787 aircraft. In addition, strong demand for sensor and control products serving the regional jet and commercial helicopter markets contributed to increased commercial aerospace sales. The decrease in sales in the defense market was primarily due to lower sales in the defense aerospace market due to lower production work on the V-22 Osprey program.

Operating income

Operating income increased $39 million, or 58%, to $105 million and operating margin increased 130 basis points to 11.1%.  Acquisitions contributed $8 million of operating income; however they were 260 basis points dilutive to current period results. Operating income increased due to increased profitability from our 2012 acquisitions, increased sales of our surface technologies services, and improved profitability resulting from our ongoing margin improvement initiatives. Current year results were favorably impacted by a nonrecurring restructuring charge of $12 million from the prior year, a curtailment gain as a result of a change in our U.K. pension plans, and certain licensing agreements that were entered into during the year.

Backlog and new orders
Backlog increased $88 million to $486 million as compared to the prior year period. New orders increased $272 million to $1,008 million, from the prior year period, primarily due to incremental new orders from acquisitions of $238 million.


Defense

Sales in the Defense segment are primarily to the defense markets and, to a lesser extent, the nuclear power generation market.

The following tables summarize sales, operating income and margin, and new orders, and certain items impacting comparability within the Defense segment.

29



 
 
Year Ended December 31,
 
Percent Changes
(In thousands, except percentages)
 
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
 
 
 
Sales
 
$
737,566

 
$
767,499

 
$
768,101

 
(4
)%
 
 %
Operating income
 
102,252

 
116,618

 
90,285

 
(12
)%
 
29
 %
Operating margin
 
13.9
%
 
15.2
%
 
11.8
%
 
(130
) bps

340
 bps
Items impacting comparability
 
 
 
 
 
 
 
 
 
 
Restructuring charges
 

 

 
6,107

 
NM

 
NM

Change in estimate:
 
 
 
 
 
 
 
 
 
 
AP1000
 

 

 
(23,684
)
 
NM

 
NM

Tech Transfer
 

 

 
14,213

 
NM

 
NM

Impacts of strike (1)
 
 
 

 
(11,348
)
 
 
 
 
New orders
 
$
952,516

 
$
750,358

 
$
658,638

 
27
 %
 
14
 %
Backlog
 
$
1,015,466

 
$
875,568

 
$
921,342

 
16
 %
 
(5
)%
NM - not meaningful
 
 
 
 
 
 
 
 
 
 

(1) - The financial impacts of the strike were an $18 million and $6 million shift in revenue and operating income,
respectively, from 2012 to 2013, due to the temporary suspension of work and an a $5 million unfavorable impact
to 2012 operating income as a result of unrecoverable absorption of overhead costs.

Components of sales and operating income growth (decrease):
 
 
2014 vs. 2013
 
2013 vs. 2012
 
 
Sales
 
Operating
Income
 
Sales
 
Operating
Income
Organic
 
(6
)%
 
(18
)%
 
(1
)%
 
26
 %
Acquisitions/divestitures
 
2
 %
 
3
 %
 
1
 %
 
 %
Foreign currency
 
 %
 
3
 %
 
 %
 
3
 %
Total
 
(4
)%
 
(12
)%
 
 %
 
29
 %

Year ended December 31, 2014 compared to year ended December 31, 2013

Sales

Sales decreased $30 million, or 4%, to $738 million, from the comparable prior year period. Our Parvus acquisition contributed $17 million of incremental sales, primarily to the ground defense and aerospace defense markets. Within the defense market, aerospace defense sales increased primarily due to the incremental contribution from Parvus and higher sales of our embedded computing products. In the ground defense market, sales decreased primarily due to lower sales of our turret drive stabilization systems on international ground defense platforms. Sales to the power generation market were lower primarily due to lower levels of production on the AP1000 domestic program.

Operating income

Operating income decreased $14 million, or 12%, to $102 million, compared with the same period in 2013, while operating margin decreased 130 basis points to 13.9%. Our Parvus acquisition contributed $3 million of incremental operating income.

The decrease in operating income is primarily due to higher costs on the AP1000 China program as well as lower levels of production on the AP1000 Domestic program. This was partially offset by our cost containment efforts in our defense businesses and the incremental impact of our Parvus acquisition.

Backlog and new orders


30



Backlog increased $140 million to $1,015 million at December 31, 2014 from $876 million at December 31, 2013. New orders increased $202 million, as compared to the prior year, primarily due to higher orders of pumps and generators in the naval defense market and a new contract for our turret drive stabilization systems.

Year ended December 31, 2013 compared to year ended December 31, 2012

Sales

Sales were essentially flat as compared to the prior year period. Sales decreased in the defense market due to lower levels of production on the DDG-1000 and DDG-51 destroyer programs, completion of production on the Advanced Arresting Gear program and lower production levels on the Black Hawk and Global Hawk. This was partially offset by an increase in sales in the naval defense market due to increased production on the CVN-79 aircraft carrier program and the ramping up of production on the Virginia Class submarine program.

Operating income

Operating income increased $26 million, or 29%, to $117 million, and operating margin increased 340 basis points to 15.2%. Excluding the items impacting comparability noted in the first table above, operating income increased primarily due to certain licensing agreements entered into in 2013 and a shift in production schedules as a result of the 2012 strike.

Backlog and new orders

Backlog decreased $46 million to $876 million as compared to the prior year period. New orders increased $92 million to $750 million, from the prior year period.

Energy

Sales in the Energy segment are primarily to the oil and gas and nuclear power generation markets.

The following tables summarize sales, operating income and margin, and new orders, within the Energy segment.
  
 
 
Year Ended December 31,
 
Percent Changes
(In thousands, except percentages)
 
2014
 
2013
 
2012
 
2014 vs. 2013
 
2013 vs. 2012
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
430,788

 
$
399,884

 
$
377,484

 
8
 %
 
6
 %
Operating income
 
67,602

 
57,204

 
55,643

 
18
 %
 
3
 %
Operating margin
 
15.7
%
 
14.3
%
 
14.7
%
 
140
 bps
 
(40) bps

Restructuring
 

 

 
$
648

 
NM

 
NM

New orders
 
$
387,669

 
$
402,779

 
$
396,201

 
(4
)%
 
2
 %
Backlog
 
$
196,423

 
$
235,830

 
$
233,286

 
(17
)%
 
1
 %

Components of sales and operating income growth (decrease):
 
 
2014 vs. 2013
 
2013 vs. 2012
 
 
Sales
 
Operating
Income
 
Sales
 
Operating
Income
Organic
 
6
 %
 
17
 %
 
1
%
 
 %
Acquisitions
 
2
 %
 
(1
)%
 
5
%
 
3
 %
Foreign currency
 
 %
 
2
 %
 
%
 
 %
Total
 
8
 %
 
18
 %
 
6
%
 
3
 %

Year ended December 31, 2014 compared to year ended December 31, 2013


31



Sales

Sales increased $31 million, or 8%, to $431 million, from the comparable prior year period, primarily due to higher sales in the oil and gas market of our pressure relief and severe-service industrial valves. In the power generation market, sales were essentially flat, as increased sales of safety products to international operating reactors were offset by lower sales of products on domestic operating reactors.

Operating income

Operating income increased $10 million, or 18%, to $68 million and operating margin increased 140 basis points to 15.7%.  The increase in operating income and operating margin was primarily driven by higher sales volumes in the oil and gas market and benefits from our ongoing margin improvement initiatives. This growth was partially offset by lower profitability in the power generation market due to the aforementioned lower sales on domestic operating reactors.

New orders

New orders decreased $15 million to $388 million, compared with the same period in 2013, primarily due to lower demand in the power generation market.

Year ended December 31, 2013 compared to year ended December 31, 2012

Sales

Sales increased $22 million, or 6%, to $400 million, as compared to the prior year period, mainly due to our AP Services acquisition which contributed $17 million of incremental sales, to the power generation market. In the power generation market, excluding the impact of our AP Services acquisition, higher sales of instrumentation and control products and deliveries of our spent fuel management NETCO SNAP-IN® product used in existing operating reactors, more than offset competitive pressure from low natural gas prices and fewer plant outages. Sales in the oil and gas market increased primarily due to increase in domestic and international MRO activity.

Operating income

Operating income increased $1.6 million, or 3%, to $57.2 million primarily due to our AP Services acquisition, which contributed $1.4 million in operating income.

Backlog and new orders

Backlog increased $3 million to $236 million as compared to the prior year period, and new orders of $403 million were essentially flat.

Liquidity and Capital Resources

Sources and Uses of Cash

We derive the majority of our operating cash inflow from receipts on the sale of goods and services and cash outflow for the procurement of materials and labor; cash flow is therefore subject to market fluctuations and conditions. A substantial portion of our business is in the defense sector, which is characterized by long-term contracts. Most of our long-term contracts allow for several billing points (progress or milestone) that provide us with cash receipts as costs are incurred throughout the project rather than upon contract completion, thereby reducing working capital requirements.

Consolidated Statement of Cash Flows

32



 
December 31,
(In thousands)
2014
 
2013
 
2012
Net cash provided by (used in):
 
 
 
 
 
Operating activities
$
331,766

 
$
237,827

 
$
152,474

Investing activities
53,448

 
(313,692
)
 
(492,998
)
Financing activities
(92,438
)
 
140,138

 
254,241

Effect of exchange rates
(17,954
)
 
(1,002
)
 
3,919

Net increase (decrease) in cash and cash equivalents
$
274,822

 
$
63,271

 
$
(82,364
)

Year ended December 31, 2014 compared to year ended December 31, 2013

Operating Activities

Cash provided by operating activities increased $94 million to $332 million during the year ended December 31, 2014, as compared to the prior year period, primarily due to higher cash earnings, improved advanced collections, and lower cash taxes.

Investing Activities

Capital Expenditures

Our capital expenditures were $67 million in 2014 as compared to $72 million in 2013. Capital expenditures were lower in 2014, as compared to 2013, primarily due to expansions in certain business within our Energy Segment in 2013.

Divestitures

During 2014, we committed to a plan to dispose of certain businesses in order to enhance our operating efficiencies and focus on our core strengths. We disposed of four businesses aggregating to cash proceeds of $153 million. No divestitures took place during 2013.

Acquisitions

During 2014 we acquired three businesses and expect to continue to seek acquisitions that are consistent with our long-term growth strategy. A combination of cash resources, including cash on hand, funds available under our credit agreement, and proceeds from our Senior Notes, were utilized to fund the acquisitions, which totaled $34 million. In 2013, we acquired five businesses with a total purchase price of $236 million.

Additional acquisitions will depend, in part, on the availability of financial resources at a cost of capital that meet our stringent criteria. As such, future acquisitions, if any, may be funded through the use of our cash and cash equivalents, through additional financing available under the credit agreement, or through new financing alternatives.

Financing Activities

Debt Issuances

There were no debt issuances or significant principal payments on outstanding notes in 2014. In 2013, the Corporation issued $500 million of Senior Notes and repaid the $125 million 2003 senior notes that had matured.

Revolving Credit Agreement

In December 2014, the Corporation amended our existing credit facility by entering into a Second Amendment to the Third Amended and Restated Credit Agreement (Credit Agreement) with a syndicate of financial institutions, led by Bank of America N.A., Wells Fargo, N.A, and JP Morgan Chase Bank, N.A. The amendment extends the maturity date of the agreement to November, 2019. There were no other material modifications made to the Credit Agreement

As of December 31, 2014, the Corporation had no borrowings outstanding under the 2012 Senior Unsecured Revolving Credit Agreement (the Credit Agreement or credit facility) and $54 million in letters of credit supported by the credit facility. The

33



unused credit available under the Credit Agreement at December 31, 2014 was $446 million, which could be borrowed in full without violating any of our debt covenants. 

Repurchase of Common Stock

On September 25, 2014, the Company received authorization from its board of directors to enter into a new share repurchase program beginning in 2015 to purchase up to approximately $300 million of its common stock. . The Company's 2011 share repurchase program was completed as of the end of 2014.

During the year ended December 31, 2014, the Company repurchased approximately 976,000 shares of our common stock for $65 million. The Company did not repurchase any shares of its common stock during 2013.

Dividends

In the first quarter of 2014, the Corporation increased its quarterly dividend to thirteen cents ($0.13) a share, an 30% increase over the prior year dividend. In the second quarter of 2013, the Corporation increased its quarterly dividend to ten cents ($0.10) a share, an 11.1% increase over the prior year dividend. Cash used to make dividend payments during the year ended December 31, 2014 and 2013 were $25 million and $18 million, respectively.

Year ended December 31, 2013 compared to year ended December 31, 2012

Operating Activities

Cash provided by operating activities increased $85 million to $238 million during the year ended December 31, 2013, as compared to the prior year period, primarily due to higher cash earnings, the timing of vendor payments in the current year, and the timing of advanced collections.

Investing Activities

Capital Expenditures

Our capital expenditures were $72 million in 2013 as compared to $83 million in 2012. Capital expenditures were lower in 2013, as compared to 2012, primarily due to our Flight Systems facility expansion in 2012.

Acquisitions

During 2013 we acquired five businesses and expect to continue to seek acquisitions that are consistent with our long-term growth strategy. A combination of cash resources, including cash on hand, funds available under our credit agreement, and proceeds from our Senior Notes, were utilized to fund the acquisitions, which totaled $236 million. In 2012, we acquired eight businesses with a total purchase price of $460 million.

Additional acquisitions will depend, in part, on the availability of financial resources at a cost of capital that meet our stringent criteria. As such, future acquisitions, if any, may be funded through the use of our cash and cash equivalents, through additional financing available under the credit agreement, or through new financing alternatives.

Financing Activities

Debt Issuances

On February 26, 2013, the Corporation issued $500 million of Senior Notes (the “2013 Notes”).  The 2013 Notes consist of $225 million of 3.70% Senior Notes that mature on February 26, 2023, $100 million of 3.85% Senior Notes that mature on February 26, 2025, and $75 million of 4.05% Senior Notes that mature on February 26, 2028.  $100 million of additional 4.11% Senior Notes were deferred and subsequently issued on September 26, 2013 that mature on September 26, 2028. The 2013 Notes are senior unsecured obligations, equal in right of payment to the Corporation’s existing senior indebtedness. The Corporation, at its option, can prepay at any time all or any part of the 2013 Notes, subject to a make-whole payment in accordance with the terms of the Note Purchase Agreement.  In connection with the issuance of the 2013 Notes, the Corporation paid customary fees that have been deferred and are being amortized over the term of the 2013 Notes.  Under the terms of the Note Purchase Agreement, the Corporation is required to maintain certain financial ratios, the most restrictive of

34



which is a debt to capitalization limit of 60%. The debt to capitalization ratio (as defined per the Notes Purchase Agreement and Credit Agreement) is calculated using the same formula for all of the Corporation’s debt agreements and is a measure of the Corporation’s indebtedness to capitalization, where capitalization equals debt plus equity. As of December 31, 2013, the Corporation had the ability to borrow additional debt of $1.3 billion without violating our debt to capitalization covenant. The 2013 Notes also contain a cross default provision with respect to the Corporation’s other senior indebtedness.  

In September 2013, we repaid the $125 million 2003 senior notes that had matured.

Revolving Credit Agreement

As of December 31, 2013 the Corporation had $50 million of borrowings under the 2012 Senior Unsecured Revolving Credit Agreement (the Credit Agreement or credit facility) and $42 million in letters of credit supported by the credit facility. The unused credit available under the Credit Agreement at December 31, 2013 was $408 million, which could be borrowed in full without violating any of our debt covenants. 

Repurchase of Common Stock

The Company did not repurchase any shares of its common stock during 2013. During the year ended December 31, 2012, the Company repurchased approximately 830,000 shares of our common stock for $26 million.

Dividends

In the second quarter of 2013, the Corporation increased its quarterly dividend to ten cents ($0.10) a share, an 11.1% increase over the prior year dividend. Cash used to make dividend payments during the years ended December 31, 2013 and 2012 were $18 million, and $16 million respectively.

Prior debt issuances

In August 2012, we amended and refinanced our existing credit facility by entering into a Third Amended and Restated Credit Agreement (Credit Agreement) with a syndicate of financial institutions, led by Bank of America N.A., Wells Fargo, N.A, and JP Morgan Chase Bank, N.A. The proceeds available under the Credit Agreement are to be used for working capital, internal growth initiatives, funding of future acquisitions, and general corporate purposes. Under the terms of the Credit Agreement, we have a borrowing capacity of $500 million. In addition, the Credit Agreement provides an accordion feature which allows us to borrow an additional $100 million.

The Credit Agreement contains covenants that we consider usual and customary for an agreement of this type for comparable commercial borrowers, including a maximum consolidated net debt-to-capitalization ratio of 60 percent. The agreement has customary events of default, such as non-payment of principal when due; nonpayment of interest, fees, or other amounts; cross-payment default and cross-acceleration with the Corporation’s other senior indebtedness.

Borrowings under the Credit Agreement will accrue interest based on (i) Libor or (ii) a base rate of the highest of (a) the federal funds rate plus 0.5%, (b) BofA’s announced prime rate or (c) the Eurocurrency rate plus 1%, plus a margin. The interest rate and level of facility fees are dependent on certain financial ratios, as defined in the Credit Agreement. The Credit Agreement also provides customary fees, including administrative agent and commitment fees. In connection with the Credit Agreement, we paid customary transaction fees that have been deferred and are being amortized over the term of the Credit Agreement.

On December 8, 2011, we issued $300 million of Senior Notes (the "2011 Notes"). The 2011 Notes consist of $100 million of 3.84% Senior Notes that mature on December 1, 2021 and $200 million of 4.24% Senior Series Notes that mature on December 1, 2026. The 2011 Notes are senior unsecured obligations, equal in right of payment to our existing senior indebtedness. We, at our option, can prepay at any time all or any part of our 2011 Notes, subject to a make-whole payment in accordance with the terms of the Note Purchase Agreement. In connection with our 2011 Notes, we paid customary fees that have been deferred and are being amortized over the term of our 2011 Notes. We are required under the Note Purchase Agreement to maintain certain financial ratios, the most restrictive of which is a debt to capitalization limit of 60%. The 2011 Notes also contain a cross default provision with our other senior indebtedness.

On December 1, 2005, we issued $150 million of 5.51% Senior Series Notes (the "2005 Notes"). Our 2005 Notes mature on December 1, 2017 and are senior unsecured obligations, equal in right of payment to our existing senior indebtedness. We, at our option, can prepay at any time all or any part of our 2005 Notes, subject to a make-whole payment in accordance with the

35



terms of the Note Purchase Agreement. In connection with our 2005 Notes, we paid customary fees that have been deferred and are being amortized over the term of our 2005 Notes. We are required under the Note Purchase Agreement to maintain certain financial ratios, the most restrictive of which is a debt to capitalization limit of 60%. The 2005 Notes also contains a cross default provision with our other senior indebtedness.

Capital Resources

Cash in Foreign Jurisdictions

Cash and cash equivalents at December 31, 2014 were $450 million, of which $195 million were held by foreign subsidiaries. Our Canadian subsidiaries held a substantial portion of the Company's cash and cash equivalents, approximately $79 million at December 31, 2014. There are no legal or economic restrictions, absent certain regulatory approvals in China, where less than $4 million of our foreign cash resides, on the ability of any of our subsidiaries to transfer funds. The Company regularly assesses its cash needs and the available sources to fund these needs. Our current assessment does not indicate the need to repatriate foreign cash and cash equivalents to fund U.S. operations; however this is subject to change based on changes in global economic conditions, changes in global tax rates, and changes in the global geopolitical environment.

Cash Utilization

Management continually evaluates cash utilization alternatives, including share repurchases, acquisitions, and increased dividends to determine the most beneficial use of available capital resources. We believe that our cash and cash equivalents, cash flow from operations, available borrowings under the credit facility, and ability to raise additional capital through the credit markets are sufficient to meet both the short-term and long-term capital needs of the organization, including the return of capital to shareholders through dividends and share repurchases and growing our business through acquisitions.

Debt Compliance

As of December 31, 2014, we were in compliance with all debt agreements and credit facility covenants, including our most restrictive covenant, which is our debt to capitalization ratio limit of 60%. As of December 31, 2014 we had the ability to incur total additional indebtedness of $1.2 billion without violating our debt to capitalization covenant.

Future Commitments

Cash generated from operations should be adequate to meet our planned capital expenditures of approximately $50 to $60 million and expected dividend payments of approximately $25 million in 2015. There can be no assurance, however, that we will continue to generate cash from operations at the current level. If cash generated from operations is not sufficient to support these operating requirements and investing activities, we may be required to reduce capital expenditures, borrow from our existing credit line, refinance a portion of our existing debt, or obtain additional financing. While all companies are subject to economic risk, we believe that our cash and cash equivalents, cash flow from operations, and available borrowings are sufficient to meet both the short-term and long-term capital needs of the organization.

In 2014, we made contributions of approximately $40 million to the Curtiss-Wright Pension Plan. In January 2015, the Corporation made a voluntary pension contribution of $145 million. For more information on our pension and other postretirement benefits plans, please see Note 16 to the Consolidated Financial Statements.

The following table quantifies our significant future contractual obligations and commercial commitments as of December 31, 2014:
(In thousands)
 
Total
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
Debt Principal Repayments
 
$
954,348

 
$
1,069

 
$

 
$
150,000

 
$

 
$

 
$
803,279

Interest Payment on Fixed Rate Debt
 
362,523

 
39,908

 
39,908

 
39,206

 
31,643

 
31,643

 
180,215

Operating Leases
 
145,808

 
27,615

 
24,039

 
20,514

 
16,058

 
11,899

 
45,683

Build-to-suit Lease
 
20,599

 
1,188

 
1,218

 
1,248

 
1,280

 
1,312

 
14,353

Total
 
$
1,483,278

 
$
69,780

 
$
65,165

 
$
210,968

 
$
48,981

 
$
44,854

 
$
1,043,530



36



We do not have material purchase obligations. Most of our raw material purchase commitments are made directly pursuant to specific contract requirements.

We enter into standby letters of credit agreements and guarantees with financial institutions and customers primarily relating to future performance on certain contracts to provide products and services and to secure advance payments we have received from certain international customers. At December 31, 2014, we had contingent liabilities on outstanding letters of credit due as follows:
(In thousands)
 
Total
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter (1)
Letters of Credit
 
$
54,262

 
$
13,476

 
$
21,915

 
$
4,142

 
$
4,626

 
$
680

 
$
9,423

(1) Amounts indicated as Thereafter are letters of credit that expire during the revolving credit agreement term but will automatically renew on the date of expiration. In addition, amounts exclude bank guarantees of approximately $20.7 million.


Critical Accounting Estimates and Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by the application of our accounting policies. Critical accounting policies are those that require application of management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that affect our financial condition and results of operations:

Revenue Recognition

The realization of revenue refers to the timing of its recognition in our accounts and is generally considered realized or realizable and earned when the earnings process is substantially complete and all of the following criteria are met: 1) persuasive evidence of an arrangement exists; 2) delivery has occurred or services have been rendered; 3) our price to our customer is fixed or determinable; and 4) collectability is reasonably assured.

We determine the appropriate method by which we recognize revenue by analyzing the terms and conditions of each contract or arrangement entered into with our customers. Revenue is recognized on certain product sales, which represents approximately 55% of our total revenue, as production units are shipped and title and risk of loss have transferred. Revenue is recognized on service type contracts, which represents approximately 19% of our total revenue, as services are rendered. The majority of our service revenues are generated within our Commercial/Industrial segment. The significant estimates we make in recognizing revenue relate primarily to long-term contracts generally accounted for using the cost-to-cost method of percentage-of-completion accounting that are associated with the design, development and manufacture of highly engineered industrial products used in commercial and defense applications.

Percentage-of-completion accounting

Revenue recognized using the cost-to-cost method of percentage-of-completion accounting represented approximately 16% of our total net sales in 2014. The typical length of our contracts that utilize the cost-to-cost method of percentage-of-completion accounting is 2-5 years. This method recognizes revenue and profit as the contracts progress towards completion. Under the cost-to-cost method of percentage-of-completion accounting, sales and profits are recorded based on the ratio of costs incurred to an estimate of costs at completion.

Application of the cost-to-cost method of percentage-of-completion accounting requires the use of reasonable and dependable estimates of the future material, labor, and overhead costs that will be incurred and a disciplined cost estimating system in which all functions of the business are integrally involved. These estimates are determined based upon industry knowledge and experience of our engineers, project managers, and financial staff. These estimates are significant and reflect changes in cost and operating performance throughout the contract and could have a significant impact on our operating performance. Adjustments to original estimates for contract revenue, estimated costs at completion, and the estimated total profit are often required as work progresses throughout the contract and more information is obtained, even though the scope of work under the contract may not change. These changes are recorded on a cumulative basis in the period they are determined to be necessary.

37




Under the cost-to-cost method of percentage-of-completion accounting, provisions for estimated losses on uncompleted contracts are recognized in the period in which the likelihood of such losses are determined to be probable. However, costs may be deferred in anticipation of future contract sales if follow-on production orders are deemed probable. Amounts representing contract change orders are included in revenue only when they can be estimated reliably and their realization is reasonably assured.

In 2014 and 2013 the aggregate net changes in estimates of contract costs were not material to the Consolidated Statement of Earnings for such annual period. In 2012, the aggregate net changes in estimates of contract costs resulted in a decrease to sales and operating income of $9 million and $13 million, respectively.

Inventory

Inventory costs include materials, direct labor, and purchasing and manufacturing overhead costs, which are stated at the lower of cost or market, where market is limited to the net realizable value. We estimate the net realizable value of our inventories and establish reserves to reduce the carrying amount of these inventories to net realizable value, as necessary. We continually evaluate the adequacy of the inventory reserves by reviewing historical scrap rates, on-hand quantities as compared with historical and projected usage levels, and other anticipated contractual requirements. We generally hold reserved inventory for extended periods, before scrapping and disposing of the reserved inventory, which contributes to a higher level of reserved inventory relative to the level of annual inventory write-offs.

We purchase materials for the manufacture of components for sale. The decision to purchase a set quantity of a particular item is influenced by several factors including: current and projected price, future estimated availability, existing and projected contracts to produce certain items, and the estimated needs for our businesses.

For certain of our long-term contracts, we utilize progress billings, which represent amounts billed to customers prior to the delivery of goods and services and are recorded as a reduction to inventory and receivables. Amounts are first applied to unbilled receivables and any remainder is then applied to inventory. Progress billings are generally based on costs incurred, including direct costs, overhead, and general and administrative costs.

Pension and Other Postretirement Benefits

In consultation with our actuaries, we determine the appropriate assumptions for use in determining the liability for future pension and other postretirement benefits. The most significant of these assumptions include the discount rates used to determine plan obligations, the expected return on plan assets, the number of employees who will receive benefits, their tenure, their salary levels, and their projected mortality. Changes in these assumptions, if significant in future years, may have an effect on our pension and postretirement expense, associated pension and postretirement assets and liabilities, and our annual cash requirements to fund these plans.

The discount rate used to determine the plan benefit obligations as of December 31, 2014, and the annual periodic costs for 2015, was decreased from 4.75% to 4.00% for the Curtiss-Wright Pension Plan, and from 4.5% to 3.75% for the nonqualified benefit plan, to reflect current economic conditions. The rates reflect the hypothetical rates at which the projected benefit obligations could be effectively settled or paid out to participants on that date. We determine our discount rates utilizing a select bond yield curve developed by our actuaries, by using the rates of return on high-quality, fixed-income corporate bonds available at the measurement date with maturities that match the plan’s expected cash outflows for benefit payments. These changes contributed to an increase in the benefit obligation of $70 million in the CW plans. The rate of compensation increase for the pension plans decreased from 4.0% to a weighted average of 3.4% based upon a graded scale of 5.0% to 3.0% that decrements as pay increases, which reflects the experience over past years and the Company’s expectation of future salary increases. We also adopted updated mortality tables published by the Society of Actuaries, to the current RP-2014 tables, which reflect greater mortality improvements into the future for the U.S. pension and postretirement benefit plans. These changes contributed to an increase in the benefit obligation of $26 million.

The overall expected return on assets assumption is based primarily on the expectations of future performance. Expected future performance is determined by weighting the expected returns for each asset class by the plan’s asset allocation. The expected returns are based on long-term capital market assumptions provided by our investment consultants. We have consistently used the 8.5% rate as a long-term overall average return, and consider this rate to be a reasonable assumption of the future long-term investment returns.


38



The timing and amount of future pension income or expense to be recognized each year is dependent on the demographics and expected compensation of the plan participants, the expected interest rates in effect in future years, inflation, and the actual and expected investment returns of the assets in the pension trust.

The funded status of the Curtiss-Wright Pension Plan decreased by $69 million in 2014, primarily due to the decrease in the discount rate and the change in the mortality tables used to value plan obligations at December 31, 2014. We contributed $40 million to the Curtiss-Wright Pension Plan in 2014, and made a voluntary contribution of $145 million in January 2015.

The following table reflects the impact of changes in selected assumptions used to determine the funded status of the Company’s U.S. qualified and nonqualified pension plans as of December 31, 2014 (in thousands, except for percentage point change):
Assumption
 
Percentage
Point Change
 
Increase in
Benefit
Obligation
 
Increase in
Expense
Discount rate
 
(0.25
)%
 
$
22,000

 
$
2,500

Rate of compensation increase
 
0.25
 %
 
3,000

 
800

Expected return on assets
 
(0.25
)%
 

 
1,500


See Note 16 to the Consolidated Financial Statements for further information on our pension and postretirement plans.

Purchase Accounting

We apply the purchase method of accounting to our acquisitions. Under this method, we allocate the cost of business acquisitions to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition, commonly referred to as the purchase price allocation. As part of the purchase price allocations for our business acquisitions, identifiable intangible assets are recognized as assets apart from goodwill if they arise from contractual or other legal rights, or if they are capable of being separated or divided from the acquired business and sold, transferred, licensed, rented, or exchanged. The purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values, with any excess recorded as goodwill. We determine the fair values of such assets and liabilities, generally in consultation with third-party valuation advisors. Such fair value assessments require significant judgments and estimates such as projected cash flows, discount rates, royalty rates, and remaining useful lives that can differ materially from actual results. The analysis, while substantially complete, is finalized no later than twelve months from the date of acquisition. The fair value of assets acquired (net of cash) and liabilities assumed of our 2014 acquisitions were estimated to be $20 million and $4 million, respectively.

Goodwill

We have $1 billion in goodwill as of December 31, 2014. Generally, the largest separately identifiable asset from the businesses that we acquire is the value of their assembled workforces, which includes the additional benefit received from management, administrative, marketing, business development, engineering, and technical employees of the acquired businesses. The success of our acquisitions, including the ability to retain existing business and to successfully compete for and win new business, is based on the additional benefit received from management, administrative, marketing, and business development, scientific, engineering, and technical skills and knowledge of our employees rather than on productive capital (plant and equipment, technology, and intellectual property). Therefore, since intangible assets for assembled workforces are part of goodwill, the substantial majority of the intangible assets for our acquired business acquisitions are recognized as goodwill.

The recoverability of goodwill is subject to an annual impairment test based on the estimated fair value of the underlying businesses. We test for goodwill impairment at the reporting unit level, which is one level below the operating segment level. The test is performed in the fourth quarter, which coincides with the preparation of our five-year strategic operating plan. Additionally, goodwill is tested for impairment when an event occurs or if circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Determining the fair value of a reporting unit is judgmental in nature and involves the use of significant estimates and assumptions that we believe are reasonable but inherently uncertain. Actual results may differ from those estimates. To calculate the fair value of a reporting unit, we consider both comparative market multiples as well as estimated discounted cash flows for the reporting unit. The significant estimates and assumptions include, but are not limited to, revenue growth rates,

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operating margins, and future economic and market conditions. The discount rates are based upon the reporting unit’s weighted average cost of capital.

The first step in the analysis is to identify any potential impairment by comparing the carrying value of the reporting unit to its fair value. As a supplement, we conduct additional sensitivity analysis to assess the risk for potential impairment based upon changes in the key assumptions such as the discount rate, expected long-term growth rate, and cash flow projections. If an impairment is identified, the second step is to measure the impairment loss by comparing the implied fair value of goodwill with the carrying value of the goodwill on the reporting unit. Based upon the completion of our annual test, we determined that there was no impairment of value and that all reporting units estimated fair values were substantially in excess of their carrying amounts. Therefore, it is not reasonably likely that significant changes in these estimates would occur that would result in an impairment charge.

Other Intangible Assets

Other intangible assets are generally the result of acquisitions and consist primarily of purchased technology, customer related intangibles, and trademarks. Intangible assets are recorded at their fair values as determined through purchase accounting, based on estimates and judgments regarding expectations for the estimated future after-tax earnings and cash flows arising from follow on sales. Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which generally range from 1 to 20 years. Customer related intangibles primarily consist of customer relationships, which reflect the value of the benefit derived from the incremental revenue and related cash flows as a direct result of the customer relationship. We review the recoverability of all intangible assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. We would record any impairment in the reporting period in which it has been identified.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to certain market risks from changes in interest rates and foreign currency exchange rates as a result of our global operating and financing activities. We seek to minimize any material risks from foreign currency exchange rate fluctuations through our normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We used forward foreign currency contracts to manage our currency rate exposures during the year ended December 31, 2014, and, in order to manage our interest rate risk, we may, from time to time, enter into interest rate swaps to balance the ratio of fixed to floating rate debt. We do not use such instruments for trading or other speculative purposes. Information regarding our accounting policy on financial instruments is contained in Note 1-L to the Consolidated Financial Statements.

Interest Rates

The market risk for a change in interest rates relates primarily to our debt obligations. Our fixed rate interest exposure, without consideration of our interest rate swap agreements was 99% and 94%, at December 31, 2014 and December 31, 2013, respectively. In order to manage our interest rate exposure, from time to time, we enter into interest rate swap agreements to manage our mix of fixed-rate and variable-rate debt. With the interest rate swap agreements that were in place as of December 31, 2014, and December 31, 2013, our fixed rate interest exposure was 57% and 55%, respectively. As of December 31, 2014, a change in interest rates of 1% would have an impact on consolidated interest expense of less than $4 million. Information regarding our 2013, 2011 and 2005 Notes, Revolving Credit Agreement, and Interest Rate Swaps is contained in Note 13 to the Consolidated Financial Statements.

Foreign Currency Exchange Rates

Although the majority of our operations are transacted in U.S. dollars, we do have market risk exposure to changes in foreign currency exchange rates, primarily as it relates to the value of the U.S. dollar versus the Canadian dollar, the British pound, the Euro, and the Swiss franc. Any significant change against the U.S. dollar in the value of the currencies of those countries in which we do business could have an effect on our business, financial condition, and results of operations. If foreign exchange rates were to collectively weaken or strengthen against the dollar by 10%, net earnings would have been reduced or increased, respectively, by approximately $19 million as it relates exclusively to foreign currency exchange rate exposures.

Financial instruments expose us to counter-party credit risk for non-performance and to market risk for changes in interest and foreign currency rates. We manage exposure to counter-party credit risk through specific minimum credit standards, diversification of counter-parties, and procedures to monitor concentrations of credit risk. We monitor the impact of market risk on the fair value and cash flows of our investments by investing primarily in investment grade interest-bearing securities, which

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have short-term maturities. We attempt to minimize possible changes in interest and currency exchange rates to amounts that are not material to our consolidated results of operations and cash flows.


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Item 8. Financial Statements and Supplementary Data.
CONSOLIDATED STATEMENTS OF EARNINGS
 
 
For the years ended December 31,
(In thousands, except per share data)
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
Net sales
 


 


 


Product sales
 
$
1,815,028

 
$
1,719,591

 
$
1,450,313

Service sales
 
428,098

 
398,490

 
372,994

Total net sales
 
2,243,126

 
2,118,081

 
1,823,307

 
 
 
 
 
 
 
Cost of sales
 


 


 


Cost of product sales
 
1,190,714

 
1,123,291

 
960,878

Cost of service sales
 
275,896

 
258,951

 
250,010

Total cost of sales
 
1,466,610

 
1,382,242

 
1,210,888

Gross profit
 
776,516

 
735,839

 
612,419

 
 
 
 
 
 
 
Research and development expenses
 
(67,842
)
 
(63,580
)
 
(54,352
)
Selling expenses
 
(128,005
)
 
(128,473
)
 
(107,618
)
General and administrative expenses
 
(298,296
)
 
(306,663
)
 
(269,055
)
Operating income
 
282,373

 
237,123

 
181,394

Interest expense
 
(35,794
)
 
(37,053
)
 
(26,301
)
Other income, net
 
365

 
980

 
128

Earnings before income taxes
 
246,944

 
201,050

 
155,221

Provision for income taxes
 
(76,995
)
 
(61,646
)
 
(51,140
)
Earnings from continuing operations
 
169,949

 
139,404

 
104,081

Gain/(loss) from discontinued operations, net of taxes
 
(56,611
)
 
(1,423
)
 
9,763

Net earnings
 
$
113,338

 
$
137,981

 
$
113,844

 
 
 
 
 
 
 
Basic earnings per share:
 
 

 
 

 
 

Earnings from continuing operations
 
$
3.54

 
$
2.97

 
$
2.23

Earnings/(loss) from discontinued operations
 
(1.18
)
 
(0.03
)
 
0.21

Total
 
$
2.36

 
$
2.94

 
$
2.44

Diluted earnings per share:
 
 

 
 

 
 

Earnings from continuing operations
 
$
3.46

 
$
2.91

 
$
2.20

Earnings/(loss) from discontinued operations
 
(1.15
)
 
(0.03
)
 
0.21

Total
 
$
2.31

 
$
2.88

 
$
2.41

Dividends per share
 
$
0.52

 
$
0.39

 
$
0.35

Weighted average shares outstanding:
 
 
 
 
 
 
Basic
 
48,019

 
46,991

 
46,743

Diluted
 
49,075

 
47,912

 
47,412

See notes to consolidated financial statements


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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
For the years ended December 31,
(In thousands)
 
2014
 
2013
 
2012
 
 
 
 
 
 
 
Net earnings
 
$
113,338

 
$
137,981

 
$
113,844

Other comprehensive income (loss)
 
 

 
 

 
 

Foreign currency translation, net of tax (1)
 
(79,386
)
 
(6,619
)
 
25,954

Pension and postretirement adjustments, net of tax (2)
 
(74,284
)
 
87,386

 
(16,331
)
Other comprehensive income (loss), net of tax
 
(153,670
)
 
80,767

 
9,623

Comprehensive income (loss)
 
$
(40,332
)
 
$
218,748

 
$
123,467


(1) 
The tax benefit (expense) included in other comprehensive income (loss) for foreign currency translation adjustments for 2014, 2013, and 2012 were $2.1 million, ($0.9) million, and $0.7 million, respectively.

(2) 
The tax benefit (expense) included in other comprehensive income (loss) for pension and postretirement adjustments for 2014, 2013, and 2012 were $41.3 million, ($49.4) million, and $9.1 million, respectively.
See notes to consolidated financial statements

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CONSOLIDATED BALANCE SHEETS
 
 
At December 31,
(In thousands, except share data)
 
2014
 
2013
 
 
 
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
450,116

 
$
175,294

Receivables, net
 
495,480

 
603,592

Inventories, net
 
388,670

 
452,087

Deferred tax assets, net
 
44,311

 
47,650

Assets held for sale
 
147,347

 

Other current assets
 
45,151

 
58,660

Total current assets
 
1,571,075

 
1,337,283

Property, plant, and equipment, net
 
458,919