CW-2015.6.30-10Q



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

FORM 10-Q

ý Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2015

or

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

Commission File Number 1-134

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

Delaware
 
13-0612970
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
13925 Ballantyne Corporate Place,
 
 
Suite 400, Charlotte, North Carolina
 
28277
(Address of principal executive offices)
 
(Zip Code)

(704) 869-4600
(Registrant’s telephone number, including area code)

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

Yes  ý                        No  o

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

Yes  ý                        No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o

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

Yes  o   No  ý

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

Common Stock, par value $1.00 per share: 46,924,807 shares (as of June 30, 2015).





CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

TABLE of CONTENTS


PART I – FINANCIAL INFORMATION
PAGE
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
Item 3.
 
 
 
 
Item 4.
 
 
 
 
 
 
 
 
PART II – OTHER INFORMATION
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
Item 1A.
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
 
Item 6.
 
 
 
 
 

Page 2







PART 1- FINANCIAL INFORMATION
Item 1. Financial Statements
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(In thousands, except per share data)
2015
 
2014
 
2015
 
2014
Net Sales
 
 
 
 
 
 
 
Product sales
$
439,871

 
$
457,873

 
$
885,558

 
$
894,100

Service sales
105,323

 
111,325

 
205,835

 
218,057

Total net sales
545,194

 
569,198

 
1,091,393

 
1,112,157

Cost of Sales
 
 
 
 
 
 
 
Cost of product sales
287,685

 
299,525

 
580,694

 
588,459

Cost of service sales
75,158

 
71,442

 
137,252

 
140,853

Total cost of sales
362,843

 
370,967

 
717,946

 
729,312

Gross profit
182,351

 
198,231

 
373,447

 
382,845

Research and development expenses
(15,321
)
 
(17,364
)
 
(30,583
)
 
(34,241
)
Selling expenses
(29,105
)
 
(32,099
)
 
(60,193
)
 
(64,730
)
General and administrative expenses
(72,483
)
 
(76,609
)
 
(144,394
)
 
(150,681
)
Operating income
65,442

 
72,159

 
138,277

 
133,193

Interest expense
(8,985
)
 
(8,986
)
 
(17,981
)
 
(18,041
)
Other income, net
(37
)
 
(23
)
 
444

 
89

Earnings from continuing operations before income taxes
56,420

 
63,150

 
120,740

 
115,241

Provision for income taxes
(16,299
)
 
(20,141
)
 
(37,396
)
 
(35,802
)
Earnings from continuing operations
40,121

 
43,009

 
83,344

 
79,439

Loss from discontinued operations, net of taxes
(14,384
)
 
(6,618
)
 
(41,616
)
 
(7,884
)
Net earnings
$
25,737

 
$
36,391

 
$
41,728

 
$
71,555

Basic earnings per share
 
 
 
 
 
 
 
Earnings from continuing operations
$
0.85

 
$
0.90

 
$
1.76

 
$
1.65

Loss from discontinued operations
(0.31
)
 
(0.14
)
 
(0.88
)
 
(0.16
)
Total
$
0.54

 
$
0.76

 
$
0.88

 
$
1.49

Diluted earnings per share
 
 
 
 
 
 
 
Earnings from continuing operations
$
0.83

 
$
0.87

 
$
1.72

 
$
1.62

Loss from discontinued operations
(0.30
)
 
(0.13
)
 
(0.86
)
 
(0.16
)
Total
$
0.53

 
$
0.74

 
$
0.86

 
$
1.46

Dividends per share
0.13

 
0.13

 
0.26

 
0.26

Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
47,224

 
48,175

 
47,466

 
48,055

Diluted
48,258

 
49,239

 
48,487

 
49,160

 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements

Page 3


CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net earnings
$
25,737

 
$
36,391

 
$
41,728

 
$
71,555

Other comprehensive income (loss)
 
 
 
 
 
 
 
Foreign currency translation, net of tax (1)
$
31,881

 
$
17,737

 
$
(24,592
)
 
$
7,820

Pension and postretirement adjustments, net of tax (2)
2,366

 
914

 
4,769

 
1,700

Other comprehensive income (loss), net of tax
34,247

 
18,651

 
(19,823
)
 
9,520

Comprehensive income
$
59,984

 
$
55,042

 
$
21,905

 
$
81,075


(1) The tax benefit included in other comprehensive income for foreign currency translation adjustments for the three and six months ended June 30, 2015 were $0.7 million and $2.9 million, respectively. The tax benefit included in other comprehensive income for foreign currency translation adjustments for the three and six months ended June 30, 2014 were and $0.4 million and $0.7 million, respectively.

(2) The tax expense included in other comprehensive income for pension and postretirement adjustments for the three and six months ended June 30, 2015 were $1.4 million and $2.7 million, respectively. The tax expense included in other comprehensive income for pension and postretirement adjustments for the three and six months ended June 30, 2014 were and $0.5 million and $0.9 million, respectively.

 
See notes to condensed consolidated financial statements

Page 4


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

 
June 30,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
244,980

 
$
450,116

Receivables, net
523,212

 
495,480

Inventories, net
400,670

 
388,670

Deferred tax assets, net
43,156

 
44,311

Assets held for sale
14,761

 
147,347

Income taxes receivable
75,894

 
5,583

Other current assets
31,974

 
39,568

Total current assets
1,334,647

 
1,571,075

Property, plant, and equipment, net
433,747

 
458,919

Goodwill
991,283

 
998,506

Other intangible assets, net
333,992

 
349,227

Other assets
18,942

 
21,784

Total assets
$
3,112,611

 
$
3,399,511

Liabilities
 

 
 

Current liabilities:
 
 
 
Current portion of long-term and short-term debt
$
1,039

 
$
1,069

Accounts payable
138,134

 
152,266

Accrued expenses
112,304

 
145,938

Income taxes payable
6,137

 
22,472

Deferred revenue
154,578

 
176,693

Liabilities held for sale
1,750

 
35,392

Other current liabilities
51,199

 
38,163

Total current liabilities
465,141

 
571,993

Long-term debt
948,957

 
953,279

Deferred tax liabilities, net
105,844

 
51,554

Accrued pension and other postretirement benefit costs
71,463

 
226,687

Long-term portion of environmental reserves
14,606

 
14,911

Other liabilities
98,000

 
102,654

Total liabilities
1,704,011

 
1,921,078

Contingencies and commitments (Note 13)


 


 
 
 
 
Common stock, $1 par value, 100,000,000 shares authorized at June 30, 2015 and December 31, 2014; 49,189,702 shares issued at June 30, 2015 and December 31, 2014; outstanding shares were 46,924,807 at June 30, 2015 and 47,904,518 at December 31, 2014
49,190

 
49,190

Additional paid in capital
154,541

 
158,043

Retained earnings
1,498,742

 
1,469,306

Accumulated other comprehensive loss
(148,234
)
 
(128,411
)
Common treasury stock, at cost (2,264,895 shares at June 30, 2015 and 1,285,184 shares at December 31, 2014)
(145,639
)
 
(69,695
)
Total stockholders’ equity
1,408,600

 
1,478,433

Total liabilities and stockholders’ equity
$
3,112,611

 
$
3,399,511

 
 
 
 
See notes to condensed consolidated financial statements

Page 5


CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Six Months Ended
 
June 30,
(In thousands)
2015
 
2014
Cash flows from operating activities:
 
 
 
Net earnings
$
41,728

 
$
71,555

Adjustments to reconcile net earnings to net cash provided by (used for) operating activities:
 
 
 
Depreciation and amortization
51,538

 
61,386

(Gain)/loss on sale of businesses
13,498

 
7,106

(Gain)/loss on fixed asset disposals
(669
)
 
389

Deferred income taxes
17,038

 
10,695

Share-based compensation
4,626

 
4,286

Impairment of assets held for sale
40,813

 

Change in operating assets and liabilities, net of businesses acquired and divested:
 
 
 
Accounts receivable, net
(29,713
)
 
(19,801
)
Inventories, net
(15,889
)
 
(29,604
)
Progress payments
(2,255
)
 
(7,164
)
Accounts payable and accrued expenses
(56,781
)
 
(26,567
)
Deferred revenue
(22,115
)
 
20,430

Income taxes
(30,962
)
 
1,924

Net pension and postretirement liabilities
(138,696
)
 
(15,545
)
Other current and long-term assets and liabilities
16,569

 
5,327

Net cash provided by (used for) operating activities
(111,270
)
 
84,417

Cash flows from investing activities:
 
 
 
Proceeds from sales and disposals of long lived assets
837

 
328

Proceeds from divestitures, net of cash sold and transaction costs
22,730

 
52,098

Additions to property, plant, and equipment
(15,689
)
 
(35,996
)
Acquisition of businesses, net of cash acquired
(13,228
)
 
(34,362
)
Additional consideration on prior period acquisitions
(436
)
 
(230
)
Net cash used for investing activities
(5,786
)
 
(18,162
)
Cash flows from financing activities:
 
 
 
Borrowings under revolving credit facility
27,394

 
362,563

Payment of revolving credit facility
(27,425
)
 
(413,203
)
Repurchases of common stock
(97,114
)
 
(23,911
)
Proceeds from share-based compensation
9,253

 
26,476

Dividends paid
(6,184
)
 
(6,277
)
Other
281

 

Excess tax benefits from share-based compensation plans
3,790

 
6,657

Net cash used for financing activities
(90,005
)
 
(47,695
)
Effect of exchange-rate changes on cash
1,925

 
286

Net increase (decrease) in cash and cash equivalents
(205,136
)
 
18,846

Cash and cash equivalents at beginning of period
450,116

 
175,294

Cash and cash equivalents at end of period
$
244,980

 
$
194,140

Supplemental disclosure of non-cash activities:
 

 
 

Capital expenditures incurred but not yet paid
$
347

 
$
1,371

Property and equipment acquired under build to suit transaction
$

 
$
12,376

See notes to condensed consolidated financial statements

Page 6




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

 
Common Stock
 
Additional Paid in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury Stock
December 31, 2013
$
49,190

 
$
150,618

 
$
1,380,981

 
$
25,259

 
$
(53,343
)
Net earnings

 

 
113,338

 

 

Other comprehensive loss, net of tax

 

 

 
(153,670
)
 

Dividends paid

 

 
(25,013
)
 

 

Restricted stock

 
(722
)
 

 

 
3,155

Stock options exercised, net of tax

 
311

 

 

 
45,049

Other

 
(430
)
 

 

 
430

Share-based compensation

 
8,266

 

 

 
234

Repurchase of common stock

 

 

 

 
(65,220
)
December 31, 2014
$
49,190

 
$
158,043

 
$
1,469,306

 
$
(128,411
)
 
$
(69,695
)
Net earnings

 

 
41,728

 

 

Other comprehensive loss, net of tax

 

 

 
(19,823
)
 

Dividends declared

 

 
(12,292
)
 

 

Restricted stock

 
(5,793
)
 

 

 
8,206

Stock options exercised, net of tax

 
(1,467
)
 

 

 
12,097

Other

 
(573
)
 

 

 
573

Share-based compensation

 
4,331

 

 

 
294

Repurchase of common stock

 

 

 

 
(97,114
)
June 30, 2015
$
49,190

 
$
154,541

 
$
1,498,742

 
$
(148,234
)
 
$
(145,639
)
 
 
 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements

Page 7

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





1.           BASIS OF PRESENTATION

Curtiss-Wright Corporation and its subsidiaries (the “Corporation” or the “Company”) is a diversified multinational manufacturing and service company that designs, manufactures, and overhauls precision components and provides highly engineered products and services to the aerospace, defense, automotive, shipbuilding, processing, oil, petrochemical, agricultural equipment, railroad, power generation, security, and metalworking industries.

The unaudited condensed consolidated financial statements include the accounts of Curtiss-Wright and its majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated.

The unaudited condensed consolidated financial statements of the Corporation have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted as permitted by such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of these financial statements.

Management is required to make estimates and judgments that affect the reported amount of assets, liabilities, revenue, and expenses and disclosure of contingent assets and liabilities in the accompanying financial statements. Actual results may differ from these estimates. The most significant of these estimates includes the estimate of costs to complete long-term contracts under the percentage-of-completion accounting methods, the estimate of useful lives for property, plant, and equipment, cash flow estimates used for testing the recoverability of assets, pension plan and postretirement obligation assumptions, estimates for inventory obsolescence, estimates for the valuation and useful lives of intangible assets, legal reserves, and the estimate of future environmental costs. Changes in estimates of contract sales, costs, and profits are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current and prior periods. Accordingly, the effect of the changes on future periods of contract performance is recognized as if the revised estimate had been the original estimate.

During the second quarter of 2015, the Corporation recorded additional costs of $11.5 million related to its long-term contract with Westinghouse to deliver reactor coolant pumps (RCPs) for the AP1000 nuclear power plants in China.  The increase in costs is due to a change in estimate related to production modifications that are the result of engineering and endurance testing. During the three and six month periods ended June 30, 2015 and 2014, there were no other individual significant changes in estimated contract costs.

In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in these financial statements.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2014 Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of trends or of the operating results for a full year.

Changes in Segment Presentation

In 2015, the Corporation revised its reportable segments as a result of previously announced discontinued operations to: Commercial/Industrial, Defense, and Power. Prior period financial information has been reclassified to conform to the current period presentation. See Note 11 for more information on the Corporation’s reportable segments.


Page 8

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



Recent accounting pronouncements
Standard
Description
Effect on the financial statements
ASU 2014-09 Revenue from contracts with customers

In May 2014, the FASB issued a comprehensive new revenue recognition standard which will supersede previous existing revenue recognition guidance. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The five-step model includes (1) identifying the contract, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations and (5) recognizing revenue when each performance obligation has been satisfied. The standard also requires expanded disclosures surrounding revenue recognition. The standard is effective for fiscal periods beginning after December 15, 2017 and allows for either full retrospective or modified retrospective adoption, with early adoption permitted as of January 1, 2017.

The Corporation is currently evaluating the impact of the adoption of this standard on its Consolidated Financial Statements.
Date of adoption: January 1, 2018
ASU 2015-03 Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued guidance which changes the presentation of debt issuance costs in financial statements. An entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense.
The Corporation does not expect the standard to have a significant impact on its Consolidated Financial Statements.
Date of adoption: January 1, 2016


2.           DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

As part of a strategic portfolio review conducted in 2014, the Corporation identified certain businesses it considered non-core. The Corporation considers businesses non-core when the business’ products or services do not complement its existing businesses and where the long-term growth and profitability prospects are below the Corporation’s expectations. As part of this initiative, the Corporation divested one business in the first quarter of 2015 and one business in the second quarter of 2015 that were previously classified as held for sale. The results of operations of these businesses are reported as discontinued operations within our Condensed Consolidated Statements of Earnings and prior year amounts have been restated to conform to the current year presentation.

Discontinued Operations

The aggregate financial results of all discontinued operations and assets classified as held for sale for the three and six months ended June 30, were as follows:

 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
June 30,
 
June 30,
 
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
23,025

 
$
100,363

 
$
57,284

 
$
198,816

Earnings / (loss) from discontinued operations before income taxes (1)
 
153

 
(2,961
)
 
(39,959
)
 
(4,941
)
Income tax benefit / (expense)
 
(3,759
)
 
767

 
8,956

 
1,481

Gain / (loss) on sale of businesses (2)
 
(10,778
)
 
(4,424
)
 
(10,613
)
 
(4,424
)
Earnings / (loss) from discontinued operations
 
$
(14,384
)
 
$
(6,618
)
 
$
(41,616
)
 
$
(7,884
)

(1) Loss from discontinued operations before income taxes includes approximately $41 million of Held for sale impairment expense in the six months ended June 30, 2015.

(2) Net of tax benefit for the three and six months ended June 30, 2015 of $3.1 million, respectively.

Page 9

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





Assets held for sale

During the third quarter of 2014, the Corporation committed to a plan to sell two surface technology treatment facilities and its Engineered Packaging business. In July 2015, the Corporation sold the assets and liabilities of its Engineered Packaging business for approximately $13 million. As of June 30, 2015, these businesses continue to be classified as held for sale and their results of operations are presented as discontinued operations in the Condensed Consolidated Statement of Earnings.

The following table outlines the net sales and earnings/(loss) before income taxes attributable to the assets held for sale for the three and six months ended June 30.

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
(In thousands)
 
2015
 
2014
 
2015
 
2014
Net Sales
 
 
 
 
 
 
 
 
Surface Technologies - Domestic
 
$
926

 
$
1,157

 
$
2,036

 
$
2,485

Engineered Packaging
 
3,952

 
4,299

 
8,329

 
10,447

Total included in discontinued operations
 
$
4,878

 
$
5,456

 
$
10,365

 
$
12,932

 
 
 
 
 
 
 
 
 
Earnings / (loss) before income taxes
 
 
 
 
 
 
 
 
Surface Technologies - Domestic
 
$
(434
)
 
$
(144
)
 
$
(396
)
 
$
21

Engineered Packaging
 
178

 
173

 
283

 
1,220

Total included in discontinued operations
 
$
(256
)
 
$
29

 
$
(113
)
 
$
1,241


Divestitures and facility closures

During the second quarter of 2015, the Corporation completed the divestiture of its Downstream oil and gas business for $19 million, net of transaction costs. The business had previously been classified within assets held for sale and had recorded impairment charges of $40 million during the first quarter. In connection with the second quarter sale, the Corporation realized an additional pre-tax loss on divestiture of $14 million.

On January 9, 2015, the Corporation sold the assets of its Aviation Ground support business for £3 million ($4 million).

During the year ended December 31, 2014, the Corporation disposed of four businesses aggregating to cash proceeds of $153 million. The divestitures resulted in aggregate pre-tax losses in excess of $29 million, and tax benefits of approximately $7 million. During 2014, the Corporation also closed three international manufacturing facilities in its Surface Technologies business.

Net sales and earnings/(loss) before income taxes attributable to divestitures and facility closures for the three and six months ended June 30 were as follows:

 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
(In thousands)
 
2015
 
2014
 
2015
 
2014
Net Sales
 
$
18,147

 
$
94,907

 
$
46,919

 
$
185,884

Earnings / (loss) before income taxes
 
409

 
(2,990
)
 
(39,846
)
 
(6,182
)







Page 10

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



3.           ACQUISITIONS

2015 Acquisitions

Bolt’s Metallizing, Inc.

On March 16, 2015, the Corporation acquired certain assets and assumed certain liabilities of Bolt’s Metallizing, Inc. for $13.2 million in cash. The Asset Purchase Agreement contains a purchase price adjustment mechanism and representations and warranties customary for a transaction of this type, including a portion of the purchase price held back as security for potential indemnification claims against the seller. Bolt’s Metallizing is a provider of thermal spray coatings for critical aerospace applications, including high velocity oxygen fuel (HVOF) and plasma spray coating capabilities.  The acquired business will operate within Curtiss-Wright’s Commercial/Industrial segment.

There have been no significant purchase price adjustments to our 2014 acquisitions since December 31, 2014.

4.           RECEIVABLES

Receivables primarily include amounts billed to customers, unbilled charges on long-term contracts consisting of amounts recognized as sales but not billed, and other receivables.  Substantially all amounts of unbilled receivables are expected to be billed and collected within one year. An immaterial amount of unbilled receivables are subject to retainage provisions. The amount of claims and unapproved change orders within our receivables balances are immaterial.

The composition of receivables is as follows:
(In thousands)
June 30, 2015
 
December 31, 2014
Billed receivables:
 
 
 
Trade and other receivables
$
384,528

 
$
363,241

Less: Allowance for doubtful accounts
(6,646
)
 
(5,619
)
Net billed receivables
377,882

 
357,622

Unbilled receivables:
 
 
 
Recoverable costs and estimated earnings not billed
155,674

 
150,526

Less: Progress payments applied
(10,344
)
 
(12,668
)
Net unbilled receivables
145,330

 
137,858

Receivables, net
$
523,212

 
$
495,480




Page 11

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



5.           INVENTORIES

Inventoried costs contain amounts relating to long-term contracts and programs with long production cycles, a portion of which will not be realized within one year. Long-term contract inventory includes an immaterial amount of claims or other similar items subject to uncertainty concerning their determination or realization. Inventories are valued at the lower of cost or market. The composition of inventories is as follows:

(In thousands)
June 30, 2015
 
December 31, 2014
Raw materials
$
218,262

 
$
201,998

Work-in-process
85,366

 
89,423

Finished goods and component parts
113,081

 
103,831

Inventoried costs related to long-term contracts
50,134

 
59,070

Gross inventories
466,843

 
454,322

Less:  Inventory reserves
(51,889
)
 
(51,435
)
Progress payments applied
(14,284
)
 
(14,217
)
Inventories, net
$
400,670

 
$
388,670


Inventoried costs related to long-term contracts include capitalized contract development costs related to certain aerospace and defense programs of $30.4 million and $33.9 million, as of June 30, 2015 and December 31, 2014, respectively. These capitalized costs will be liquidated as production units are delivered to the customers.  As of June 30, 2015 and December 31, 2014, $3.0 million and $7.2 million, respectively, are scheduled to be liquidated under existing firm orders.


6.           GOODWILL

The changes in the carrying amount of goodwill, revised to reflect the Corporation’s new segment structure, for the six months ended June 30, 2015 are as follows:
(In thousands)
Commercial/Industrial
 
Defense
 
Power
 
Consolidated
December 31, 2014
$
454,092

 
$
356,689

 
$
187,725

 
$
998,506

Acquisitions
4,238

 

 

 
4,238

Goodwill adjustments

 
1,131

 

 
1,131

Foreign currency translation adjustment
(3,571
)
 
(8,781
)
 
(240
)
 
(12,592
)
June 30, 2015
$
454,759

 
$
349,039

 
$
187,485

 
$
991,283




Page 12

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




 7.           OTHER INTANGIBLE ASSETS, NET
 
The following tables present the cumulative composition of the Corporation’s intangible assets:
 
 
June 30, 2015
 
December 31, 2014
(In thousands)
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Technology
 
$
174,422

 
$
(88,444
)
 
$
85,978

 
$
178,369

 
$
(84,584
)
 
$
93,785

Customer related intangibles
 
359,682

 
(132,005
)
 
227,677

 
356,844

 
(122,920
)
 
233,924

Other intangible assets
 
37,942

 
(17,605
)
 
20,337

 
38,460

 
(16,942
)
 
21,518

Total
 
$
572,046

 
$
(238,054
)
 
$
333,992

 
$
573,673

 
$
(224,446
)
 
$
349,227

 
 
 
 
 
 
 
 
 
 
 
 
 

During the first six months of 2015, the Corporation acquired Customer related intangibles of $7.7 million.
Total intangible amortization expense for the six months ended June 30, 2015 was $17.2 million as compared to $19.8 million in the prior year period.  The estimated amortization expense for the five years ending December 31, 2015 through 2019 is $34.7 million, $34.3 million, $33.8 million, $32.7 million, and $30.9 million, respectively.

8.           FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Forward Foreign Exchange and Currency Option Contracts
 
The Corporation has foreign currency exposure primarily in the United Kingdom, Europe, and Canada.  The Corporation uses financial instruments, such as forward and option contracts, to hedge a portion of existing and anticipated foreign currency denominated transactions.  The purpose of the Corporation’s foreign currency risk management program is to reduce volatility in earnings caused by exchange rate fluctuations.  Guidance on accounting for derivative instruments and hedging activities requires companies to recognize all of the derivative financial instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets based upon quoted market prices for comparable instruments.
 
Interest Rate Risks and Related Strategies
 
The Corporation’s primary interest rate exposure results from changes in U.S. dollar interest rates. The Corporation’s policy is to manage interest cost using a mix of fixed and variable rate debt. The Corporation periodically uses interest rate swaps to manage such exposures. Under these interest rate swaps, the Corporation exchanges, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.

For interest rate swaps designated as fair value hedges (i.e., hedges against the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates.

The notional amounts of the Corporation’s outstanding interest rate swaps designated as fair value hedges were $400 million at June 30, 2015.

The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities that the company has the ability to access.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates and yield curves.

Level 3: Inputs are unobservable data points that are not corroborated by market data.

Based upon the fair value hierarchy, all of the forward foreign exchange contracts and interest rate swaps are valued at a Level 2.


Page 13

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



Effects on Consolidated Balance Sheets

The location and amounts of derivative instrument fair values in the condensed consolidated balance sheet are below.
(In thousands)
June 30, 2015
 
December 31, 2014
Assets
 
 
 
Undesignated for hedge accounting
 
 
 
Forward exchange contracts
$
56

 
$
605

Total asset derivatives (A)
$
56

 
$
605

Liabilities
 
 
 
Designated for hedge accounting
 
 
 
Interest rate swaps
$
9,443

 
$
5,121

Undesignated for hedge accounting
 
 
 
Forward exchange contracts
364

 
676

Total liability derivatives (B)
$
9,807

 
$
5,797


(A)Forward exchange derivatives are included in Other current assets.
(B)Forward exchange derivatives are included in Other current liabilities and interest rate swap liabilities are included in Other liabilities.

Effects on Condensed Consolidated Statements of Earnings
 
Fair value hedge
 
The location and amount of gains or losses on the hedged fixed rate debt attributable to changes in the market interest rates and the offsetting gain (loss) on the related interest rate swaps for the three and six months ended June 30, were as follows:
 
 
Three Months Ended
 
Six Months Ended
 
(In thousands)
 
June 30,
 
June 30,
 
 
 
2015
 
2014
 
2015
 
2014
 
Other Income, net
 
 
 
 
 
 
 
 
 
Gain / (loss) on interest rate swaps
 
$
(16,232
)
 
$
12,159

 
$
(4,322
)
 
$
24,934

 
Gain / (loss) on hedged fixed rate debt
 
16,232

 
(12,159
)
 
4,322

 
(24,934
)
 
Total
 
$

 
$

 
$

 
$

 



Undesignated hedges

The location and amount of gains and losses recognized in income on forward exchange derivative contracts not designated for hedge accounting for the three and six months ended June 30, were as follows:
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
June 30,
 
June 30,
Derivatives not designated as hedging instrument
 
2015
 
2014
 
2015
 
2014
Forward exchange contracts:
 
 
 
 
 
 
 
 
General and administrative expenses
 
$
2,528

 
$
2,020

 
$
1,556

 
$
(930
)

Debt

The estimated fair value amounts were determined by the Corporation using available market information that is primarily based on quoted market prices for the same or similar issues as of June 30, 2015.  Accordingly, all of the Corporation’s debt is valued at a Level 2.  The fair values described below may not be indicative of net realizable value or reflective of future fair

Page 14

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



values.  Furthermore, the use of different methodologies to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

 
June 30, 2015
 
December 31, 2014
(In thousands)
Carrying Value
 
Estimated Fair Value
 
Carrying Value
 
Estimated Fair Value
Industrial revenue bond, due 2023
$
8,400

 
$
8,400

 
$
8,400

 
$
8,400

Revolving credit agreement, due 2019

 

 

 

5.51% Senior notes due 2017
150,000

 
161,000

 
150,000

 
162,617

3.84% Senior notes due 2021
99,988

 
99,988

 
99,934

 
99,934

3.70% Senior notes due 2023
225,000

 
224,473

 
225,000

 
225,748

3.85% Senior notes due 2025
97,721

 
97,721

 
98,360

 
98,360

4.24% Senior notes due 2026
194,733

 
194,733

 
197,237

 
197,237

4.05% Senior notes due 2028
73,116

 
73,116

 
74,348

 
74,348

4.11% Senior notes due 2028
100,000

 
99,259

 
100,000

 
100,801

Other debt
1,038

 
1,038

 
1,069

 
1,069

Total debt
$
949,996

 
$
959,728

 
$
954,348

 
$
968,514


Nonrecurring measurements
As discussed in Note 2. Discontinued Operations and Assets Held For Sale, the Corporation classified certain businesses as held for sale during 2014. In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets guidance of FASB Codification Subtopic 360–10, the carrying amount of the disposal groups were written down to their estimated fair value, less costs to sell, resulting in an impairment charge of $40.8 million, which was included in the loss from discontinued operations before income taxes for the six months ended June 30, 2015. The fair value of the disposal groups were determined primarily by using non-binding quotes. In accordance with the fair value hierarchy, the impairment charge is classified as a Level 3 measurement as it is based on significant other unobservable inputs.

9.           PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The following tables are consolidated disclosures of all domestic and foreign defined pension plans as described in the Corporation’s 2014 Annual Report on Form 10-K.  

Pension Plans

The components of net periodic pension cost for the three and six months ended June 30, 2015 and 2014 are as follows:

 
Three Months Ended
 
Six Months Ended
(In thousands)
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Service cost
$
7,137

 
$
6,372

 
$
14,273

 
$
12,742

Interest cost
7,497

 
7,552

 
14,988

 
15,096

Expected return on plan assets
(13,688
)
 
(10,425
)
 
(27,367
)
 
(20,838
)
Amortization of prior service cost
156

 
157

 
311

 
315

Amortization of unrecognized actuarial loss
3,866

 
1,483

 
7,731

 
2,966

Net periodic benefit cost
$
4,968

 
$
5,139

 
$
9,936

 
$
10,281


During the six months ended June 30, 2015, the Corporation made $145.0 million in contributions to the Curtiss-Wright Pension Plan.  In addition, contributions of $1.8 million were made to the Corporation’s foreign benefit plans during the six months ended June 30, 2015.  Contributions to the foreign benefit plans are expected to be $3.0 million in 2015.




Page 15

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



Defined Contribution Retirement Plan

Effective January 1, 2014, all non-union employees who are not currently receiving final or career average pay benefits became eligible to receive employer contributions in the Corporation’s sponsored 401(k) plan. The employer contributions include both employer match and non-elective contribution components, up to a maximum employer contribution of 6% of eligible compensation.  During the six months ended June 30, 2015 and 2014, the expense relating to the plan was $7.5 million and $7.7 million, respectively.

10.           EARNINGS PER SHARE
 
Diluted earnings per share were computed based on the weighted-average number of shares outstanding plus all potentially dilutive common shares.  A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Basic weighted-average shares outstanding
47,224

 
48,175

 
47,466

 
48,055

Dilutive effect of stock options and deferred stock compensation
1,034

 
1,064

 
1,021

 
1,105

Diluted weighted-average shares outstanding
48,258

 
49,239

 
48,487

 
49,160


As of June 30, 2015 and June 30, 2014, respectively, there were no options outstanding that were considered anti-dilutive.


11.           SEGMENT INFORMATION
 
Prior to the first quarter of 2015, the Corporation reported its results of operations through three segments: Commercial/Industrial, Defense, and Energy. Beginning in the first quarter of 2015, the Corporation realigned its reportable segments as a result of its previously announced discontinued operations. The Energy segment was renamed Power. The new Power segment includes businesses serving the nuclear naval defense and new build (AP1000) power generation markets, which had previously operated within the Defense segment. The remaining oil and gas businesses that had operated within the Energy segment have joined the Commercial/Industrial segment. As result of this realignment, the Corporation’s new reportable segments are: Commercial/Industrial, Defense, and Power.

The Commercial/Industrial reportable segment is comprised of businesses that provide a diversified offering of highly engineered products and services supporting critical applications across the aerospace, automotive and general industrial markets. The products offered include electronic throttle control devices and transmission shifters, electro-mechanical actuation control components, and pressure relief management systems.

The Defense reportable segment provides embedded computing board level modules, integrated subsystems, turret aiming and stabilization products, and weapons handling systems to defense markets.

The Power segment is comprised of businesses that manufacture and service main coolant pumps, power-dense compact motors, generators, and secondary propulsion systems. We also leveraged 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. Additional products include a wide range of hardware, pumps, 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.
The Corporation’s measure of segment profit or loss is operating income. Interest expense and income taxes are not reported on an operating segment basis because they are not considered in the segments’ performance evaluation by the Corporation’s chief operating decision-maker, its Chief Executive Officer.

Page 16

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



Net sales and operating income by reportable segment were as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Net sales
 
 
 
 
 
 
 
Commercial/Industrial
$
305,074

 
$
315,114

 
$
604,972

 
$
617,131

Defense
120,149

 
118,889

 
234,501

 
232,042

Power
121,661

 
137,320

 
256,796

 
267,595

Less: Intersegment revenues
(1,690
)
 
(2,125
)
 
(4,876
)
 
(4,611
)
Total consolidated
$
545,194

 
$
569,198

 
$
1,091,393

 
$
1,112,157

 
 
 
 
 
 
 
 
Operating income (expense)
 
 
 
 
 
 
 
Commercial/Industrial
$
45,253

 
$
45,750

 
$
88,542

 
$
84,246

Defense
24,391

 
18,002

 
42,418

 
33,786

Power
1,454

 
14,865

 
20,966

 
29,140

Corporate and eliminations (1)
(5,656
)
 
(6,458
)
 
(13,649
)
 
(13,979
)
Total consolidated
$
65,442

 
$
72,159

 
$
138,277

 
$
133,193


(1) Corporate and eliminations includes pension expense, environmental remediation and administrative expenses, legal, foreign currency transactional gains and losses, and other expenses.

Operating income by reportable segment and the reconciliation to income from continuing operations before income taxes are as follows:

 
Three Months Ended
 
Six Months Ended
(In thousands)
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
Total operating income
$
65,442

 
$
72,159

 
$
138,277

 
$
133,193

Interest expense
(8,985
)
 
(8,986
)
 
(17,981
)
 
(18,041
)
Other income, net
(37
)
 
(23
)
 
444

 
89

Earnings from continuing operations before income taxes
$
56,420

 
$
63,150

 
$
120,740

 
$
115,241


(In thousands)
June 30, 2015
 
December 31, 2014
Identifiable assets
 
 
 
Commercial/Industrial
$
1,561,489

 
$
1,534,882

Defense
806,804

 
837,891

Power
581,061

 
588,366

Corporate and Other
148,496

 
291,025

Assets held for sale
14,761

 
147,347

Total consolidated
$
3,112,611

 
$
3,399,511



12.           ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
The cumulative balance of each component of accumulated other comprehensive income (AOCI), net of tax, is as follows:
 

Page 17

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



(In thousands)
Foreign currency translation adjustments, net
 
Total pension and postretirement adjustments, net
 
Accumulated other comprehensive income (loss)
December 31, 2013
$
59,103

 
$
(33,844
)
 
$
25,259

Other comprehensive loss (OCI)
(79,386
)
 
(74,284
)
 
(153,670
)
December 31, 2014
$
(20,283
)
 
$
(108,128
)
 
$
(128,411
)
OCI before reclassifications (1)
(24,592
)
 
41

 
(24,551
)
Amounts reclassified from AOCI (1)

 
4,728

 
4,728

Net current period OCI
(24,592
)
 
4,769

 
(19,823
)
June 30, 2015
$
(44,875
)
 
$
(103,359
)
 
$
(148,234
)

(1)
All amounts are after tax.

Details of amounts reclassified from accumulated other comprehensive income (loss) are below:
 
(In thousands)
Amount reclassified from AOCI
 
Affected line item in the statement where net earnings is presented
Defined benefit pension and other postretirement benefit plans
 
 
 
Amortization of prior service costs
17

 
(1)
Amortization of actuarial losses
(7,456
)
 
(1)
 
(7,439
)
 
Total before tax
 
2,711

 
Income tax
Total reclassifications
$
(4,728
)
 
Net of tax

(1)
These items are included in the computation of net periodic pension cost.  See Note 9, Pension and Other Postretirement Benefit Plans.

13.           CONTINGENCIES AND COMMITMENTS

Legal Proceedings

The Corporation has been named in a number of lawsuits that allege injury from exposure to asbestos.  To date, the Corporation has not been found liable for or paid any material sum of money in settlement in any case.  The Corporation believes its minimal use of asbestos in its past and current operations and the relatively non-friable condition of asbestos in its products makes it unlikely that it will face material liability in any asbestos litigation, whether individually or in the aggregate.  The Corporation maintains insurance coverage for these potential liabilities and believes adequate coverage exists to cover any unanticipated asbestos liability.

In December 2013, the Corporation, along with other unaffiliated parties, received a claim from Canadian Natural Resources Limited (CNRL) filed in the Court of Queen’s Bench of Alberta, Judicial District of Calgary. The claim pertains to a January 2011 fire and explosion at a delayed coker unit at its Fort McMurray refinery that resulted in the injury of five CNRL employees, damage to property and equipment, and various forms of consequential loss, such as loss of profit, lost opportunities, and business interruption. The fire and explosion occurred when a CNRL employee bypassed certain safety controls and opened an operating coker unit. The total quantum of alleged damages arising from the incident has not been finalized, but is estimated to meet or exceed $1 billion.  The Corporation maintains various forms of commercial, property and casualty, product liability, and other forms of insurance; however, such insurance may not be adequate to cover the costs associated with a judgment against us. 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.


Page 18

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



In addition to the CNRL litigation, the Corporation is party to a number of other legal actions and claims, none of which individually or in the aggregate, in the opinion of management, are expected to have a material effect on the Corporation’s results of operations or financial position.

Letters of Credit and Other Financial Arrangements

The Corporation enters into standby letters of credit agreements and guarantees with financial institutions and customers primarily relating to guarantees of repayment, future performance on certain contracts to provide products and services, and to secure advance payments from certain international customers. At June 30, 2015 and December 31, 2014, there were $51.7 million and $54.3 million of stand-by letters of credit outstanding, respectively, and $15.6 million and $20.7 million of bank guarantees outstanding, respectively. As of June 30, 2015, letters of credit outstanding related to discontinuing operations were $7.1 million.  In addition, the Corporation is required to provide the Nuclear Regulatory Commission financial assurance demonstrating its ability to cover the cost of decommissioning its Cheswick, Pennsylvania facility upon closure, though the Corporation does not intend to close this facility.  The Corporation has provided this financial assurance in the form of a $52.9 million surety bond.

AP1000 Program

Within the Corporation’s Power segment, our Electro-Mechanical Division is the reactor coolant pump (RCP) supplier for the Westinghouse AP1000 nuclear power plants under construction in China and the United States.  The terms of the AP1000 China and United States contracts include liquidated damage penalty provisions for failure to meet contractual delivery dates if the Corporation caused the delay and the delay was not excusable. On October 10, 2013, the Corporation received a letter from Westinghouse stating entitlements to the maximum amount of liquidated damages allowable under the AP1000 China contract from Westinghouse of approximately $25 million. As of June 30, 2015, the Corporation has not met certain contractual delivery dates under its AP 1000 China and US contracts; however there are significant uncertainties as to which parties are responsible for the delays. The Corporation believes it has adequate legal defenses and intends to vigorously defend this matter. Given the uncertainties surrounding the responsibility for the delays no accrual has been made for this matter as of June 30, 2015.  As of June 30, 2015, the range of possible loss is $0 to $48 million.

14.           SUBSEQUENT EVENTS

On July 1, 2015, the Corporation made a voluntary prepayment on its Industrial Revenue Bond in the amount of $8.4 million.

In July 2015, the Corporation sold the assets and liabilities of its Engineered Packaging business for approximately $13 million. The assets and liabilities of this business were reported as held for sale as of June 30, 2015 and its results of operations have been reflected as discontinued operations.



Page 19


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


FORWARD-LOOKING STATEMENTS
 
Except for historical information, this Quarterly Report on Form 10-Q may be deemed to contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Examples of forward-looking statements include, but are not limited to: (a) projections of or statements regarding return on investment, future earnings, interest income, sales, volume, other income, earnings or loss per share, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of management, (c) statements of future economic performance, and (d) statements of assumptions, such as economic conditions underlying other statements. Such forward-looking statements can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “continue,” “could,” “estimate,” “expects,” “intend,” “may,” “might,” “outlook,” “potential,” “predict,” “should,” “will,” as well as the negative of any of the foregoing or variations of such terms or comparable terminology, or by discussion of strategy.  No assurance may be given that the future results described by the forward-looking statements will be achieved.  While we believe these forward-looking statements are reasonable, they are only predictions and are subject to known and unknown risks, uncertainties, and other factors, many of which are beyond our control, which could cause actual results, performance, or achievement to differ materially from anticipated future results, performance, or achievement expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those described in “Item 1A. Risk Factors” of our 2014 Annual Report on Form 10-K, and elsewhere in that report, those described in this Quarterly Report on Form 10-Q, and those described from time to time in our future reports filed with the Securities and Exchange Commission.  Such forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, those contained in Item 1. Financial Statements and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.  These forward-looking statements speak only as of the date they were made, and we assume no obligation to update forward-looking statements to reflect actual results or changes in or additions to the factors affecting such forward-looking statements.



Page 20


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


COMPANY ORGANIZATION
 
Curtiss-Wright Corporation is a diversified, multinational provider of highly engineered, technologically advanced, value-added products and services to a broad range of industries which are reported through our Commercial/Industrial, Defense, and Power segments. We are positioned as a market leader across a diversified array of niche markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers. We provide products and services to a number of global markets and have achieved balanced growth through the successful application of our core competencies in engineering and precision manufacturing. Our overall strategy is to be a balanced and diversified company, less vulnerable to cycles or downturns in any one market, and to establish strong positions in profitable niche markets. Approximately 34% of our 2015 revenues are expected to be generated from defense-related markets.
 
Beginning in the first quarter of 2015, the Corporation realigned its reportable segments as a result of its previously announced discontinued operations. As a result of this realignment the Corporation's reportable segments are: Commercial/Industrial, Defense, and Power. Please refer to Note 11 of the Corporation's Condensed Consolidated Financial Statements for further information. This realignment has no impact on the Corporation’s historical Condensed Consolidated Financial Statements. Prior period amounts have been reclassified to conform to current period presentation.

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


RESULTS OF OPERATIONS
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of the Corporation for three and six month periods ended June 30, 2015. The financial information as of June 30, 2015 should be read in conjunction with the financial statements for the year ended December 31, 2014 contained in our Form 10-K.

The MD&A is organized into the following sections: Consolidated Statements of Earnings, Results by Business Segment, and Liquidity and Capital Resources. Our discussion will be focused on the overall results of continuing operations followed by a more detailed discussion of those results within each of our reportable segments.

Our three reportable segments are generally concentrated in a few end markets; however, each may have sales across several end markets.  A market is defined as an area of demand for products and services.  The sales for the relevant markets will be discussed throughout the MD&A.

Analytical Definitions

Throughout management’s discussion and analysis of financial condition and results of operations, the terms “incremental” and “organic” are used to explain changes from period to period. The term “incremental” is used to highlight the impact acquisitions and divestitures had on the current year results. The results of operations for acquisitions are incremental for the first twelve months from the date of acquisition. Additionally, the results of operations of divested businesses are removed from the comparable prior year period for purposes of calculating “organic” or “incremental” results. The definition of “organic” excludes the effect of foreign currency translation.


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


Consolidated Statements of Earnings
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
(In thousands)
June 30,
 
June 30,
 
2015
 
2014
 
% change
 
2015
 
2014
 
% change
Sales
 
 
 
 
 
 
 
 
 
 
 
Commercial/Industrial
$
304,465

 
$
313,798

 
(3
)%
 
$
602,352

 
$
614,751

 
(2
)%
Defense
119,651

 
118,507

 
1
 %
 
233,151

 
230,878

 
1
 %
Power
121,078

 
136,893

 
(12
)%
 
255,890

 
266,528

 
(4
)%
Total sales
$
545,194

 
$
569,198

 
(4
)%
 
$
1,091,393

 
$
1,112,157

 
(2
)%
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 

 
 

 
 

 
 

 
 

 
 

Commercial/Industrial
$
45,253

 
$
45,750

 
(1
)%
 
$
88,542

 
$
84,246

 
5
 %
Defense
24,391

 
18,002

 
35
 %
 
42,418

 
33,786

 
26
 %
Power
1,454

 
14,865

 
(90
)%
 
20,966

 
29,140

 
(28
)%
Corporate and eliminations
(5,656
)
 
(6,458
)
 
12
 %
 
(13,649
)
 
(13,979
)
 
2
 %
Total operating income
$
65,442

 
$
72,159

 
(9
)%
 
$
138,277

 
$
133,193

 
4
 %
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
(8,985
)
 
(8,986
)
 
 %
 
(17,981
)
 
(18,041
)
 
 %
Other income, net
(37
)
 
(23
)
 
NM

 
444

 
89

 
NM

 
 
 
 
 
 
 
 
 
 
 
 
Earnings before taxes
56,420

 
63,150

 
(11
)%
 
120,740

 
115,241

 
5
 %
Provision for income taxes
(16,299
)
 
(20,141
)
 
(19
)%
 
(37,396
)
 
(35,802
)
 
4
 %
Net earnings from continuing operations
$
40,121

 
$
43,009

 
 

 
$
83,344

 
$
79,439

 
 

 
 
 
 
 
 
 
 
 
 
 
 
New orders
$
525,367

 
$
687,960

 
(24
)%
 
$
1,153,984

 
$
1,270,580

 
(9
)%
 
 
 
 
 
 
 
 
 
 
 
 
NM- not a meaningful percentage
 
 
 
 
 
 

Components of sales and operating income increase (decrease):

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015 vs. 2014
 
2015 vs. 2014
 
Sales
 
Operating Income
 
Sales
 
Operating Income
Organic
(2
%)
 
(12
%)
 
%
 
1
%
Acquisitions
1
%
 
1
%
 
1
%
 
%
Foreign currency
(3
%)
 
2
%
 
(3
%)
 
3
%
Total
(4
%)
 
(9
%)
 
(2
%)
 
4
%

Sales for the second quarter of 2015 decreased $24 million, or 4%, to $545 million, compared with the comparable prior year period. On a segment basis, sales from the Commercial/Industrial segment and Power segment decreased $10 million and $16 million, respectively, while sales in the Defense segment increased $1 million.

Sales during the six month period ended June 30, 2015 decreased $21 million, or 2%, to $1,091 million, compared with the comparable prior year period. Increases in the Defense segment were more than offset by slightly lower sales from both the Commercial/Industrial and Power segments.

Operating income in the second quarter of 2015, decreased $7 million, or 9%, to $65 million, and operating margin decreased 70 basis points to 12.0% compared with the same period in 2014. The decrease in operating income is primarily attributable to a decrease in the Power segment as a result of increased costs on the AP1000 program. These decreases were partially offset by

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


operating margin improvement in the Defense segment as a result of ongoing margin improvement initiatives and favorable foreign currency translation.

For the first six months of 2015, operating income increased $5 million as a result of operating margin improvement at the Commercial/Industrial and Defense segments. These increases were partially offset by decreases in the Power segment operating income.

Non-segment operating expense decreased $1 million, to $6 million in the current quarter primarily due to lower pension expense, partially offset by higher foreign currency losses. Non-segment operating expenses for the first six months of 2015 was flat against the comparable prior year period, as higher foreign currency losses were offset by lower pension costs.

Interest expense in the current quarter and first six months of 2015 was essentially flat as compared to the respective prior year periods.

The effective tax rates during the second quarter was 28.9% compared to an effective tax rate of 31.9% in the comparable prior year period. The decrease in the effective tax rate was driven by increased foreign research and development tax benefits and favorable adjustments to certain tax valuation allowances. The effective tax rate for the first six months of 2015 was essentially flat against the comparable prior year period.
 
Net earnings from continuing operations decreased $3 million, or 7%, to $40 million, in the current quarter due to decreases in operating income in the Power segment, primarily as a result of cost increases in the AP1000 program. These decreases were partially offset by operating margin improvement in the Defense segment as a result of ongoing margin improvement initiatives and favorable foreign currency translation.

Net earnings from continuing operations increased $4 million, or 5%, to $83 million, in the first six months of 2015, primarily due to higher operating income in our Commercial/Industrial and Defense Segments, partially offset by lower operating income in our Power segment.

Comprehensive Income

Pension and Postretirement adjustments
Pension and postretirement adjustments within comprehensive income increased for the three and six month periods ended June 30, 2015, due to an increase in the amortization of prior service costs and actuarial losses.

Foreign Currency Translation adjustments

During the second quarter, the Corporation had foreign currency translation gains of $32 million, compared to foreign currency translation gains of $18 million in the comparable prior year period. The foreign currency translation gains were primarily attributed to increases in the British Pound, Canadian Dollar, and Euro exchange rates.

During the six months ended June 30, 2015, the Corporation had foreign currency translation loss adjustments amounting to $25 million, compared to foreign currency translation gains in the comparable prior period of $8 million. The fluctuations were largely attributable to changes in the British Pound, Canadian Dollar, and Euro exchange rates.

New orders decreased $163 million and $117 million during the three and six month periods ended June 30, 2015, respectively, against the comparable prior year periods. The decrease is mostly attributable to the Power segment and the timing of the 2014 orders for pumps and generators for the Virginia class submarine program.

RESULTS BY BUSINESS SEGMENT

Commercial/Industrial

The following tables summarize sales, operating income and margin, and new orders within the Commercial/Industrial segment.


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


 
Three Months Ended
 
Six Months Ended
(In thousands)
June 30,
 
June 30,
 
2015
 
2014
 
% change
 
2015
 
2014
 
% change
Sales
$
304,465

 
$
313,798

 
(3
%)
 
$
602,352

 
$
614,751

 
(2
%)
Operating income
45,253

 
45,750

 
(1
%)
 
88,542

 
84,246

 
5
%
Operating margin
14.9
%
 
14.6
%
 
30
 bps
 
14.7
%
 
13.7
%
 
100
 bps
New orders
$
270,141

 
$
310,902

 
(13
%)
 
$
606,674

 
$
627,150

 
(3
%)

 
Components of sales and operating income increase (decrease):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015 vs. 2014
 
2015 vs. 2014
 
Sales
 
Operating Income
 
Sales
 
Operating Income
Organic
%
 
%
 
1
%
 
6
%
Acquisitions
1
%
 
1
%
 
%
 
%
Foreign currency
(4
%)
 
(2
%)
 
(3
%)
 
(1
%)
Total
(3
%)
 
(1
%)
 
(2
%)
 
5
%


Sales in the Commercial/Industrial segment are primarily generated from the commercial aerospace and general industrial markets, and to a lesser extent the defense and power generation markets.

Sales in the second quarter decreased $9 million, or 3%, from the comparable prior year period, primarily due to decreased international project sales of our severe-service industrial valves, as well as decreased sales of our industrial vehicle products. In addition, sales increases in our sensors and control products as well as increased valve sales supporting the Virginia-class submarine program, were more than offset by unfavorable effects of foreign currency translation.

Sales during the first six months of 2015 decreased $12 million, or 2%, from the comparable prior year period, primarily due to decreased international project sales of our severe-service industrial valves, as well as decreases in our surface treatment services. These decreases were partially offset by higher valve sales supporting the Virginia-class submarine program in the naval defense market.

Operating income during the second quarter was essentially flat against the comparable prior year period, while operating margin increased 30 basis points. Margin improvements were primarily a result of ongoing operational and productivity improvement initiatives.

Operating income during the first six months of 2015 increased $4 million, or 5%, from the comparable prior year period, while operating margin increased 100 basis points. The increase in organic operating income over the six month period is primarily due to increased profitability on our industrial vehicle products through continued operational margin improvement initiatives.

New orders decreased $41 million and $20 million during the three and six month periods ended June 30, 2015, respectively, against the comparable prior year periods. The decrease in new orders is primarily driven by lower demand for severe-service valves serving the energy markets as well as decreased demand for our industrial vehicle products.

Defense

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

Page 24


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


 
Three Months Ended
 
Six Months Ended
(In thousands)
June 30,
 
June 30,
 
2015
 
2014
 
% change
 
2015
 
2014
 
% change
Sales
$
119,651

 
$
118,507

 
1
%
 
$
233,151

 
$
230,878

 
1
%
Operating income
24,391

 
18,002

 
35
%
 
42,418

 
33,786

 
26
%
Operating margin
20.4
%
 
15.2
%
 
520
 bps
 
18.2
%
 
14.6
%
 
360
 bps
New orders
$
150,294

 
$
141,016

 
7
%
 
$
285,000

 
$
265,441

 
7
%

Components of sales and operating income increase (decrease):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015 vs. 2014
 
2015 vs. 2014
 
Sales
 
Operating Income
 
Sales
 
Operating Income
Organic
5
%
 
21
%
 
4
%
 
12
%
Acquisitions