Curtiss-Wright(CW) - 2022 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Provides unaudited financial statements, management's discussion, market risk disclosures, and controls and procedures for the period Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements and detailed notes on accounting policies, acquisitions, assets, and financial instruments Condensed Consolidated Statements of Earnings Details the company's revenues, gross profit, operating income, and net earnings for the specified periods | Metric (In thousands, except per share data) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales | | | | | | Product sales | $530,782 | $528,339 | $1,489,619 | $1,552,706 | | Service sales | $99,760 | $92,280 | $309,741 | $286,467 | | Total net sales | $630,542 | $620,619 | $1,799,360 | $1,839,173 | | Gross profit | $232,209 | $237,008 | $662,125 | $671,484 | | Operating income | $107,583 | $97,669 | $266,198 | $277,318 | | Net earnings | $73,768 | $69,703 | $185,325 | $190,580 | | Basic earnings per share | $1.92 | $1.71 | $4.82 | $4.66 | | Diluted earnings per share | $1.91 | $1.70 | $4.79 | $4.64 | | Dividends per share | $0.19 | $0.18 | $0.56 | $0.53 | Condensed Consolidated Statements of Comprehensive Income Presents net earnings and other comprehensive income components, including foreign currency and pension adjustments | Metric (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net earnings | $73,768 | $69,703 | $185,325 | $190,580 | | Foreign currency translation adjustments, net of tax | $(50,098) | $(16,273) | $(97,259) | $(12,990) | | Pension and postretirement adjustments, net of tax | $3,856 | $4,994 | $13,610 | $15,036 | | Other comprehensive income (loss), net of tax | $(46,242) | $(11,279) | $(83,649) | $2,046 | | Comprehensive income | $27,526 | $58,424 | $101,676 | $192,626 | Condensed Consolidated Balance Sheets Outlines the company's assets, liabilities, and stockholders' equity at specific reporting dates | Metric (In thousands) | September 30, 2022 | December 31, 2021 | | :--------------------------------------------------- | :----------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $113,552 | $171,004 | | Receivables, net | $713,592 | $647,148 | | Inventories, net | $503,064 | $411,567 | | Total current assets | $1,414,676 | $1,307,808 | | Property, plant, and equipment, net | $338,549 | $360,031 | | Goodwill | $1,512,231 | $1,463,026 | | Other intangible assets, net | $618,563 | $538,077 | | Total assets | $4,342,162 | $4,103,545 | | Liabilities | | | | Current portion of long-term debt | $202,500 | — | | Accounts payable | $182,621 | $211,640 | | Deferred revenue | $220,259 | $260,157 | | Total current liabilities | $840,364 | $734,867 | | Long-term debt | $1,141,211 | $1,050,610 | | Total liabilities | $2,457,919 | $2,277,055 | | Stockholders' equity | | | | Total stockholders' equity | $1,884,243 | $1,826,490 | | Total liabilities and stockholders' equity | $4,342,162 | $4,103,545 | Condensed Consolidated Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities for the nine-month periods | Metric (In thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------------------- | :----------------------------- | :----------------------------- | | Net earnings | $185,325 | $190,580 | | Net cash provided by operating activities | $2,387 | $155,761 | | Net cash used for investing activities | $(281,956) | $(29,809) | | Net cash (used for)/provided by financing activities | $244,788 | $(84,406) | | Effect of exchange-rate changes on cash | $(22,671) | $(5,378) | | Net increase (decrease) in cash and cash equivalents | $(57,452) | $36,168 | | Cash and cash equivalents at beginning of period | $171,004 | $198,248 | | Cash and cash equivalents at end of period | $113,552 | $234,416 | Condensed Consolidated Statements of Stockholders' Equity Details changes in stockholders' equity, including net earnings, comprehensive loss, and share repurchases - For the nine months ended September 30, 2022, total stockholders' equity increased from $1,826,490 thousand to $1,884,243 thousand[20] - This was primarily driven by net earnings of $185,325 thousand, partially offset by an accumulated other comprehensive loss of $83,649 thousand and common stock repurchases of $44,434 thousand[21][23] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. BASIS OF PRESENTATION Describes the company's business, financial statement preparation, and key management estimates - Curtiss-Wright Corporation is a global integrated business providing highly engineered products, solutions, and services primarily to aerospace & defense markets, and critical technologies to commercial power, process, and industrial markets[26] - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules, reflecting all necessary adjustments for fair presentation, and involve management estimates and judgments, particularly for revenue recognition, pension obligations, inventory obsolescence, and acquisition fair values[28][29] 2. REVENUE Explains revenue recognition policies, performance obligations, backlog, and revenue breakdown by end market - Revenue is recognized when control of a promised good or service is transferred to a customer[31] - Performance obligations are satisfied either over-time (e.g., based on costs incurred) or at a point-in-time (e.g., upon delivery)[33] | Revenue Recognition Method | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Over-time | 50% | 48% | 52% | 51% | | Point-in-time | 50% | 52% | 48% | 49% | - Total backlog was approximately $2.6 billion as of September 30, 2022, with approximately 90% expected to be recognized as net sales over the next 36 months[36] | End Market and Customer Type (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Aerospace & Defense | | | | | | Aerospace Defense | $114,431 | $116,853 | $306,980 | $327,847 | | Ground Defense | $54,890 | $55,124 | $138,391 | $159,090 | | Naval Defense | $174,844 | $175,800 | $510,597 | $531,429 | | Commercial Aerospace | $70,257 | $67,461 | $199,341 | $196,285 | | Total Aerospace & Defense | $414,422 | $415,238 | $1,155,309 | $1,214,651 | | Commercial | | | | | | Power & Process | $110,559 | $112,736 | $340,702 | $343,573 | | General Industrial | $105,561 | $92,645 | $303,349 | $280,949 | | Total Commercial | $216,120 | $205,381 | $644,051 | $624,522 | | Total | $630,542 | $620,619 | $1,799,360 | $1,839,173 | 3. ACQUISITIONS Details business acquisitions, including purchase price allocation and financial impact - During the nine months ended September 30, 2022, the Corporation acquired one business, Safran Aerosystems Arresting Company, for an aggregate purchase price of $247 million[44] - This acquisition contributed $14 million in net sales and $6 million in net losses to the Condensed Consolidated Statement of Earnings for the period[47] | Acquired Assets and Liabilities (In thousands) | 2022 Acquisition | | :--------------------------------------------- | :--------------- | | Accounts receivable | $9,970 | | Inventory | $22,790 | | Property, plant, and equipment | $1,683 | | Other current and non-current assets | $1,872 | | Intangible assets | $130,500 | | Operating lease right-of-use assets, net | $1,197 | | Current and non-current liabilities | $(9,607) | | Net tangible and intangible assets | $158,405 | | Goodwill | $88,810 | | Total purchase price | $247,215 | 4. ASSETS HELD FOR SALE Reports on the sale of the industrial valve business and the associated loss - In January 2022, the Corporation completed the sale of its industrial valve business in Germany for gross cash proceeds of $3 million, recording a $5 million loss on the sale[48] 5. RECEIVABLES Provides a breakdown of billed and unbilled receivables, net of allowances | Receivables Composition (In thousands) | September 30, 2022 | December 31, 2021 | | :------------------------------------- | :----------------- | :---------------- | | Billed receivables: | | | | Trade and other receivables | $403,998 | $362,007 | | Unbilled receivables (contract assets):| | | | Recoverable costs and estimated earnings not billed | $314,692 | $291,758 | | Less: Progress payments applied | $(559) | $(1,297) | | Net unbilled receivables | $314,133 | $290,461 | | Less: Allowance for doubtful accounts | $(4,539) | $(5,320) | | Receivables, net | $713,592 | $647,148 | 6. INVENTORIES Details inventory composition, including raw materials, work-in-process, finished goods, and capitalized development costs | Inventories Composition (In thousands) | September 30, 2022 | December 31, 2021 | | :------------------------------------- | :----------------- | :---------------- | | Raw materials | $249,272 | $191,066 | | Work-in-process | $90,288 | $78,221 | | Finished goods | $126,093 | $98,944 | | Inventoried costs related to U.S. Government and other long-term contracts | $41,764 | $48,619 | | Inventories, net of reserves | $507,417 | $416,850 | | Less: Progress payments applied | $(4,353) | $(5,283) | | Inventories, net | $503,064 | $411,567 | - Inventories include capitalized development costs of $18.4 million as of September 30, 2022, related to aerospace and defense programs, with $11.7 million not currently supported by firm orders[54] 7. GOODWILL Presents the changes in goodwill by segment, including acquisitions and foreign currency adjustments | Goodwill (In thousands) | Aerospace & Industrial | Defense Electronics | Naval & Power | Consolidated | | :---------------------------------------- | :--------------------- | :------------------ | :------------ | :----------- | | December 31, 2021 | $316,147 | $714,014 | $432,865 | $1,463,026 | | Acquisitions | — | — | $88,810 | $88,810 | | Adjustments | — | $967 | — | $967 | | Foreign currency translation adjustment | $(10,984) | $(20,047) | $(9,541) | $(40,572) | | September 30, 2022 | $305,163 | $694,934 | $512,134 | $1,512,231 | 8. OTHER INTANGIBLE ASSETS, NET Details the composition and changes in other intangible assets, including acquisitions and amortization | Intangible Assets (In thousands) | September 30, 2022 Net | December 31, 2021 Net | | :------------------------------- | :--------------------- | :-------------------- | | Technology | $129,178 | $110,538 | | Customer related intangibles | $364,197 | $297,904 | | Programs | $111,600 | $117,000 | | Other intangible assets | $13,588 | $12,635 | | Total | $618,563 | $538,077 | - During the nine months ended September 30, 2022, the Corporation acquired $130.5 million in intangible assets, including $94.6 million in customer-related intangibles, $31.5 million in technology, and $4.4 million in other intangible assets[60] - Total intangible amortization expense for the nine months ended September 30, 2022, was $46 million[61] 9. FAIR VALUE OF FINANCIAL INSTRUMENTS Discusses the use of derivative instruments for hedging and the fair value of debt - The Corporation uses forward foreign exchange and currency option contracts to hedge foreign currency exposure, primarily in the UK, Europe, and Canada, to reduce earnings volatility[62] - Gains and losses on undesignated hedges are recognized in general and administrative expenses[67] - Losses on undesignated forward exchange derivative contracts were $6 million for the three months ended September 30, 2022 (vs. $2 million in 2021) and $12 million for the nine months ended September 30, 2022 (vs. $2 million in 2021)[67] | Debt (In thousands) | September 30, 2022 Carrying Value | September 30, 2022 Estimated Fair Value | December 31, 2021 Carrying Value | December 31, 2021 Estimated Fair Value | | :-------------------------------------- | :-------------------------------- | :-------------------------------------- | :------------------------------- | :------------------------------------- | | Revolving credit agreement, due 2027 | $388,100 | $388,100 | $93,900 | $93,900 | | 3.70% Senior notes due 2023 | $202,500 | $201,714 | $202,500 | $208,086 | | 3.85% Senior notes due 2025 | $90,000 | $86,827 | $90,000 | $95,246 | | 4.24% Senior notes due 2026 | $200,000 | $190,933 | $200,000 | $218,421 | | 4.05% Senior notes due 2028 | $67,500 | $62,919 | $67,500 | $73,783 | | 4.11% Senior notes due 2028 | $90,000 | $83,520 | $90,000 | $98,854 | | 3.10% Senior notes due 2030 | $150,000 | $126,071 | $150,000 | $154,832 | | 3.20% Senior notes due 2032 | $150,000 | $121,677 | $150,000 | $154,875 | | Total debt | $1,338,100 | $1,261,761 | $1,043,900 | $1,097,997 | 10. PENSION PLANS Outlines net periodic pension costs and defined contribution retirement plan expenses | Net Periodic Pension Cost (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Service cost | $5,770 | $6,931 | $17,803 | $20,921 | | Interest cost | $5,442 | $4,585 | $16,148 | $13,402 | | Expected return on plan assets | $(13,525) | $(15,177) | $(41,240) | $(45,548) | | Amortization of prior service cost | $155 | $(216) | $(18) | $(648) | | Amortization of unrecognized actuarial loss | $4,785 | $6,988 | $12,636 | $21,705 | | Cost of settlements | — | $235 | $1,842 | $3,310 | | Net periodic pension cost | $2,627 | $3,346 | $7,171 | $13,142 | - The expense for the defined contribution retirement plan was $5.5 million for the three months ended September 30, 2022 (vs. $4.6 million in 2021) and $15.8 million for the nine months ended September 30, 2022 (vs. $14.2 million in 2021)[77] 11. EARNINGS PER SHARE Provides basic and diluted weighted-average shares outstanding for EPS calculation | Weighted-Average Shares Outstanding (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic weighted-average shares outstanding | 38,368 | 40,769 | 38,416 | 40,865 | | Dilutive effect of deferred stock compensation | 279 | 181 | 239 | 175 | | Diluted weighted-average shares outstanding | 38,647 | 40,950 | 38,655 | 41,040 | - Approximately 49,000 and 37,000 shares issuable under equity-based awards were excluded from diluted EPS calculations for the three and nine months ended September 30, 2022, respectively, as they were anti-dilutive[78] 12. SEGMENT INFORMATION Presents sales and operating income by the company's three business segments | Segment (In thousands) | Three Months Ended Sep 30, 2022 Sales | Three Months Ended Sep 30, 2021 Sales | Nine Months Ended Sep 30, 2022 Sales | Nine Months Ended Sep 30, 2021 Sales | | :--------------------- | :------------------------------------ | :------------------------------------ | :----------------------------------- | :----------------------------------- | | Aerospace & Industrial | $213,656 | $197,060 | $614,817 | $578,452 | | Defense Electronics | $162,233 | $182,314 | $456,575 | $528,080 | | Naval & Power | $256,277 | $242,891 | $732,905 | $737,967 | | Total consolidated | $630,542 | $620,619 | $1,799,360 | $1,839,173 | | | | | | | | Segment (In thousands) | Three Months Ended Sep 30, 2022 Operating Income | Three Months Ended Sep 30, 2021 Operating Income | Nine Months Ended Sep 30, 2022 Operating Income | Nine Months Ended Sep 30, 2021 Operating Income | | :--------------------- | :----------------------------------------------- | :----------------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Aerospace & Industrial | $39,080 | $30,872 | $96,397 | $81,874 | | Defense Electronics | $36,588 | $40,762 | $84,338 | $106,656 | | Naval & Power | $41,576 | $35,483 | $118,865 | $116,635 | | Corporate and other | $(9,661) | $(9,448) | $(33,402) | $(27,847) | | Total consolidated | $107,583 | $97,669 | $266,198 | $277,318 | 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Details the components of accumulated other comprehensive income, including foreign currency and pension adjustments | AOCI Components (In thousands) | December 31, 2020 | December 31, 2021 | September 30, 2022 | | :----------------------------- | :---------------- | :---------------- | :----------------- | | Foreign currency translation adjustments, net | $(88,737) | $(99,566) | $(196,825) | | Pension and postretirement adjustments, net | $(222,119) | $(90,899) | $(77,289) | | Total AOCI | $(310,856) | $(190,465) | $(274,114) | - The net current period other comprehensive loss for the nine months ended September 30, 2022, was $(83,649) thousand, primarily due to foreign currency translation adjustments of $(97,259) thousand, partially offset by pension and postretirement adjustments of $13,610 thousand[87] 14. CONTINGENCIES AND COMMITMENTS Discusses legal proceedings, letters of credit, bank guarantees, and contract settlements - The Corporation is involved in various legal proceedings, including those related to asbestos and environmental exposures, but does not expect them to have a material adverse impact on its financial statements, citing minimal past asbestos use, non-friable conditions, and adequate insurance/indemnification[88][89] - As of September 30, 2022, outstanding standby letters of credit were $14.7 million (down from $21.1 million at Dec 31, 2021) and bank guarantees were $2.4 million (down from $4.5 million at Dec 31, 2021)[92] - In February 2022, the Corporation settled all open claims under AP1000 U.S. and China contracts with Westinghouse Electric Company (WEC) for a total of $25 million ($15 million paid in March 2022, $10 million due in Q1 2023)[93] 15. SUBSEQUENT EVENTS Reports on significant events occurring after the balance sheet date, such as debt offerings - On October 27, 2022, the Corporation closed a private placement debt offering of $300 million for senior notes, comprising $200 million at 4.49% due 2032 and $100 million at 4.64% due 2034[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial performance, condition, and external factors, including consolidated and segment results, liquidity, and capital resources FORWARD-LOOKING STATEMENTS Highlights that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements regarding future financial results, management plans, economic performance, and potential impacts from COVID-19 and the Russia-Ukraine conflict[97] - These statements are subject to known and unknown risks and uncertainties, and actual results may differ materially[97] COMPANY ORGANIZATION Describes the company's global business, primary markets, and reporting segments - Curtiss-Wright Corporation is a global integrated business providing highly engineered products, solutions, and services primarily to aerospace & defense (A&D) markets, as well as commercial power, process, and industrial markets[101] - Approximately 66% of 2022 revenues are expected from A&D-related markets[101] - Operations are reported through three segments: Aerospace & Industrial, Defense Electronics, and Naval & Power[101] COVID-19 Discusses the pandemic's impact on supply chain and production, and the company's mitigation strategies - The COVID-19 pandemic has adversely affected elements of the business, including supply chain, transportation networks, and production levels[102] - However, the company believes its diversified breadth positions it well to mitigate material risks[102] - Current cash balance, expected cash flows, and borrowing capacity are deemed sufficient to meet operating cash requirements, capital expenditures, debt payments, and dividends[102] Business Environment Addresses ongoing supply chain challenges, increased lead times, and inflationary pressures - The company experienced supply chain challenges, increased lead times, and heightened inflation in material and transportation costs[103] - These disruptions have delayed converting backlog into net sales, and these trends are expected to continue through at least the remainder of 2022[103] Inflation Reduction Act of 2022 (IRA) Explains the potential impact of new corporate taxes and excise taxes on share repurchases - The Inflation Reduction Act of 2022, enacted August 16, 2022, includes a 15% corporate alternative minimum tax (effective FY2024) and a 1% excise tax on share repurchases (effective after December 31, 2022)[104] - The company is assessing the potential impact, particularly on excise taxes based on future share repurchases[104] RESULTS OF OPERATIONS Provides an overview of consolidated financial results, including sales, operating income, and new orders Analytical Definitions Defines key financial terms like 'incremental' and 'organic' used in performance analysis - The term 'incremental' refers to the impact of acquisitions and divestitures on current year results for the first twelve months[110] - 'Organic' results exclude the impact of divestitures, impairment of assets held for sale, and foreign currency translation effects[110] - Total net sales increased 2% to $631 million in Q3 2022, but decreased 2% to $1,799 million for the nine months ended September 30, 2022, compared to prior year periods[111][114][115] - Operating income increased 10% to $108 million in Q3 2022, with operating margin up 140 bps to 17.1%[111][116] - For the nine months, operating income decreased 4% to $266 million, and operating margin decreased 30 bps to 14.8%[117] - Interest expense increased 41% in Q3 and 11% for the nine months, primarily due to higher borrowings under the Credit Agreement[119] - Other income, net, increased 27% for the nine months due to lower overall pension costs[120] - New orders significantly increased by 30% in Q3 and 17% for the nine months, driven by naval defense orders, the arresting systems acquisition, and increased orders for ground defense, aerospace defense, and commercial aerospace equipment[111][125] | Metric (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | % change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | % change | | :-------------------- | :------------------------------ | :------------------------------ | :------- | :----------------------------- | :----------------------------- | :------- | | Sales | $630,542 | $620,619 | 2% | $1,799,360 | $1,839,173 | (2%) | | Operating income | $107,583 | $97,669 | 10% | $266,198 | $277,318 | (4%) | | Interest expense | $13,997 | $9,955 | (41%) | $33,315 | $30,094 | (11%) | | Other income, net | $3,746 | $3,627 | 3% | $11,298 | $8,910 | 27% | | Net earnings | $73,768 | $69,703 | 6% | $185,325 | $190,580 | (3%) | | New orders | $818,067 | $629,046 | 30% | $2,228,495 | $1,900,903 | 17% | RESULTS BY BUSINESS SEGMENT Presents a detailed breakdown of sales, operating income, and new orders for each business segment Aerospace & Industrial Analyzes sales, operating income, and new orders for the Aerospace & Industrial segment | Metric (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | % change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | % change | | :-------------------- | :------------------------------ | :------------------------------ | :------- | :----------------------------- | :----------------------------- | :------- | | Sales | $213,093 | $196,296 | 9% | $612,777 | $576,340 | 6% | | Operating income | $39,080 | $30,872 | 27% | $96,397 | $81,874 | 18% | | Operating margin | 18.3% | 15.7% | 260 bps | 15.7% | 14.2% | 150 bps | | New orders | $216,997 | $206,066 | 5% | $660,590 | $628,006 | 5% | - Sales increased by 9% in Q3 and 6% for the nine months, primarily driven by higher demand for industrial vehicle products in the general industrial market and sensors products/surface treatment services in the commercial aerospace market[130][131] - Operating income increased by 27% in Q3 and 18% for the nine months, with operating margins improving by 260 bps and 150 bps respectively, due to favorable absorption on higher sales and operational excellence initiatives[132] Defense Electronics Reviews sales, operating income, and new orders for the Defense Electronics segment | Metric (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | % change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | % change | | :-------------------- | :------------------------------ | :------------------------------ | :------- | :----------------------------- | :----------------------------- | :------- | | Sales | $161,188 | $181,504 | (11%) | $453,806 | $525,067 | (14%) | | Operating income | $36,588 | $40,762 | (10%) | $84,338 | $106,656 | (21%) | | Operating margin | 22.7% | 22.5% | 20 bps | 18.6% | 20.3% | (170 bps)| | New orders | $249,223 | $172,802 | 44% | $604,353 | $532,575 | 14% | - Sales decreased by 11% in Q3 and 14% for the nine months, primarily due to ongoing supply chain headwinds affecting embedded computing, flight test equipment, and tactical communications equipment, as well as delayed FY22 defense budget signing[136][138][139] - Operating income decreased by 10% in Q3 and 21% for the nine months, mainly due to unfavorable overhead absorption on lower sales[140] - Operating margin increased slightly in Q3 (20 bps) but decreased significantly for the nine months (170 bps)[141] - New orders increased substantially by 44% in Q3 and 14% for the nine months, driven by higher demand for ground defense and aerospace defense equipment[142] Naval & Power Examines sales, operating income, and new orders for the Naval & Power segment | Metric (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | % change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | % change | | :-------------------- | :------------------------------ | :------------------------------ | :------- | :----------------------------- | :----------------------------- | :------- | | Sales | $256,261 | $242,819 | 6% | $732,777 | $737,766 | (1%) | | Operating income | $41,576 | $35,483 | 17% | $118,865 | $116,635 | 2% | | Operating margin | 16.2% | 14.6% | 160 bps | 16.2% | 15.8% | 40 bps | | New orders | $351,847 | $250,178 | 41% | $963,552 | $740,322 | 30% | - Sales increased by 6% in Q3, primarily due to the $14 million incremental sales from the arresting systems acquisition[147] - For the nine months, sales decreased by 1%, mainly due to lower naval defense sales on CVN-80 and Virginia-class submarine programs, partially offset by the acquisition[148] - Operating income increased by 17% in Q3 and 2% for the nine months[149] - Operating margin improved by 160 bps in Q3 and 40 bps for the nine months, benefiting from the prior year impairment loss on assets held for sale, favorable absorption on higher organic sales, and operational excellence initiatives, partially offset by acquisition-related purchase accounting costs[150] - New orders surged by 41% in Q3 and 30% for the nine months, driven by the timing of naval defense orders, the arresting systems acquisition, and increased demand for nuclear aftermarket and process products[151] SUPPLEMENTARY INFORMATION Provides additional sales data categorized by end market and customer type | Customer Type (In thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | % change | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | % change | | :--------------------------- | :------------------------------ | :------------------------------ | :------- | :----------------------------- | :----------------------------- | :------- | | Aerospace & Defense markets: | | | | | | | | Aerospace Defense | $114,431 | $116,853 | (2%) | $306,980 | $327,847 | (6%) | | Ground Defense | $54,890 | $55,124 | —% | $138,391 | $159,090 | (13%) | | Naval Defense | $174,844 | $175,800 | (1%) | $510,597 | $531,429 | (4%) | | Commercial Aerospace | $70,257 | $67,461 | 4% | $199,341 | $196,285 | 2% | | Total Aerospace & Defense| $414,422 | $415,238 | —% | $1,155,309 | $1,214,651 | (5%) | | Commercial markets: | | | | | | | | Power & Process | $110,559 | $112,736 | (2%) | $340,702 | $343,573 | (1%) | | General Industrial | $105,561 | $92,645 | 14% | $303,349 | $280,949 | 8% | | Total Commercial | $216,120 | $205,381 | 5% | $644,051 | $624,522 | 3% | | Total Curtiss-Wright | $630,542 | $620,619 | 2% | $1,799,360 | $1,839,173 | (2%) | - Aerospace & Defense markets saw a slight decrease in Q3 sales (less than 1%) and a 5% decrease for the nine months, primarily due to supply chain headwinds and delayed defense budget impacting aerospace and ground defense, and lower naval defense sales[156][157] - Commercial markets experienced a 5% increase in Q3 sales and a 3% increase for the nine months, driven by higher demand for industrial vehicle products in the general industrial market[158][159] LIQUIDITY AND CAPITAL RESOURCES Discusses the company's cash management, financing activities, and capital allocation strategies Sources and Use of Cash Details the primary sources and applications of cash, including operating, investing, and financing activities - The company's operating cash inflow primarily comes from sales of goods and services, with long-term contracts often allowing for progress or milestone payments to reduce working capital needs[160] - Management continuously evaluates cash utilization for share repurchases, acquisitions, dividends, capital expenditures, and debt repayment[160] - Cash and cash equivalents, operating cash flow, available credit, and ability to raise capital are believed to be sufficient for both short-term and long-term capital needs[163] - Net cash provided by operating activities decreased by $153 million for the nine months, mainly due to lower defense revenues, higher inventory purchases, lower advanced cash receipts, and a legal settlement payment[164] - Net cash used for investing activities increased by $252 million, primarily due to the $247 million arresting systems acquisition[165] - Net cash provided by financing activities increased by $329 million, mainly due to higher net borrowings under the Credit Agreement[165] Financing Activities Describes debt outstanding, credit agreements, and share repurchase programs - Average debt outstanding was $1.4 billion for the three months and $1.2 billion for the nine months ended September 30, 2022, with average interest rates of 3.6% and 3.3% respectively[166] - In May 2022, the Corporation entered into a new Credit Agreement, expiring May 2027, increasing its revolving credit facility to $750 million with a $250 million accordion feature[168] - As of September 30, 2022, $388 million was outstanding under the Credit Agreement, with $347 million of unused credit available[169] - The Corporation repurchased approximately 0.3 million shares for $44 million during the nine months ended September 30, 2022, compared to 0.6 million shares for $79 million in the prior year period[170] Cash Utilization Explains management's evaluation of capital allocation for various corporate purposes - Management continuously evaluates cash utilization alternatives, including share repurchases, acquisitions, increased dividends, capital expenditures, and debt repayment, to determine the most beneficial use of available capital resources[173] Dividends Reports on dividend payments and recent increases in quarterly dividends - Dividend payments were $14 million for both the nine months ended September 30, 2022 and 2021[174] - The quarterly dividend was increased by 6% to $0.19 per share starting in Q2 2022[174] Debt Compliance Confirms compliance with debt covenants and available borrowing capacity - As of the report date, the Corporation was in compliance with all debt agreements and credit facility covenants, including its most restrictive debt to capitalization limit of 60%[176] - As of September 30, 2022, the company had the ability to borrow an additional $1.4 billion without violating its debt to capitalization covenant[177] CRITICAL ACCOUNTING POLICIES Refers to the company's critical accounting policies requiring significant management judgment and estimates - The company's critical accounting policies, which require significant management judgment and estimates, are detailed in its 2021 Annual Report on Form 10-K, including those related to revenue recognition, pension obligations, inventory obsolescence, and acquisition fair values[180] Item 3. Quantitative and Qualitative Disclosures about Market Risk Reports no material changes in market risk during the nine months ended September 30, 2022 - No material changes in market risk occurred during the nine months ended September 30, 2022[182] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022, ensuring timely and accurate information disclosure[183] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[184] PART II – OTHER INFORMATION Contains disclosures on legal proceedings, risk factors, equity sales, debt defaults, and other miscellaneous information Item 1. Legal Proceedings Details ongoing legal proceedings, including asbestos and environmental claims, with no expected material adverse financial impact - The Corporation is involved in legal proceedings, including asbestos and environmental exposures, but does not expect a material adverse effect on its financial condition, results of operations, and cash flows[187] - The company has not been found liable or paid material sums in asbestos-related cases, believing its minimal past use and non-friable asbestos in products make material liability unlikely, with adequate insurance coverage in place[188] Item 1A. Risk Factors States no material changes to the company's risk factors during the nine months ended September 30, 2022 - No material changes in Risk Factors occurred during the nine months ended September 30, 2022[189] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports on share repurchase activities, including shares purchased, average price, and remaining authorized amounts | Month | Total Number of shares purchased | Average Price Paid per Share | Number of Shares Purchased as Part of a Publicly Announced Program | Maximum Dollar amount of shares that may yet be Purchased Under the Program | | :------------------- | :------------------------------- | :--------------------------- | :--------------------------------------------------------------- | :-------------------------------------------------------------------------- | | July 1 - July 31 | 29,944 | $133.48 | 254,126 | $221,365,223 | | August 1 - August 31 | 31,321 | $146.74 | 285,447 | $216,769,319 | | September 1 - Sep 30 | 29,042 | $144.49 | 314,489 | $212,573,057 | | Q3 2022 Total | 90,307 | $141.62 | 314,489 | $212,573,057 | - As of September 30, 2022, $213 million remained available for repurchase under the previously authorized $550 million share repurchase program[191] Item 3. Defaults upon Senior Securities Confirms no defaults occurred upon senior securities - There were no defaults upon senior securities[192] Item 4. Mine Safety Disclosures Declares that Mine Safety Disclosures are not applicable to the registrant - Mine Safety Disclosures are not applicable to the registrant[193] Item 5. Other Information Notes no material changes in procedures for security holders to recommend board nominees - No material changes occurred in the procedures for security holders to recommend nominees to the board of directors during the nine months ended September 30, 2022[195] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - The exhibits include certifications from the CEO and CFO (31.1, 31.2, 32) and XBRL instance documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[197] Signatures Indicates the report's official signing by the Vice President and Chief Financial Officer - The report was signed by K. Christopher Farkas, Vice President and Chief Financial Officer, on November 3, 2022[200]