UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2019~~2020

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _________ to _______

Commission File Number 1-134

CURTISS-WRIGHT CORPORATION

(Exact name of Registrant as specified in its charter)


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

130 Harbour Place Drive, Suite 300

Davidson,

North Carolina

28036

(Address of principal executive offices)

(Zip Code)

(704) 869-4600

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CW	New York Stock Exchange

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

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

Yes ☐ No ☒

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

Common Stock, par value $1.00 per share: ~~42,689,253~~41,576,986 shares (as of ~~September 30, 2019)~~July 31, 2020).

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

TABLE of CONTENTS

PART I – FINANCIAL INFORMATION

PAGE

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Statements of Earnings

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Cash Flows

Condensed Consolidated Statements of Stockholders’ Equity

Notes to Condensed Consolidated Financial Statements

910

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2221

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3435

Item 3.

Defaults upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

Page 3

PART 1- FINANCIAL INFORMATION

Item 1. Financial Statements

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(UNAUDITED)


		Three Months Ended						Nine Months Ended							Three Months Ended				Six Months Ended
		September 30,						September 30,							June 30,				June 30,
(In thousands, except per share data)	(In thousands, except per share data)	2019		2018		2019		2018		(In thousands, except per share data)	2020		2019		2020		2019
Net sales	Net sales									Net sales
Product sales	Product sales	$	516,760	$	495,197	$	1,520,612	$	1,451,560	Product sales	$	466,445	$	532,253	$	964,374	$	1,003,852
Service sales	Service sales	98,120		100,196		311,578		311,653		Service sales	83,602		106,743		186,904		213,458
Total net sales	Total net sales	614,880		595,393		1,832,190		1,763,213		Total net sales	550,047		638,996		1,151,278		1,217,310
Cost of sales	Cost of sales									Cost of sales
Cost of product sales	Cost of product sales	331,793		312,702		986,475		936,197		Cost of product sales	309,152		342,726		639,965		654,682
Cost of service sales	Cost of service sales	57,011		60,173		192,722		196,807		Cost of service sales	54,869		66,226		124,708		135,711
Total cost of sales	Total cost of sales	388,804		372,875		1,179,197		1,133,004		Total cost of sales	364,021		408,952		764,673		790,393
Gross profit	Gross profit	226,076		222,518		652,993		630,209		Gross profit	186,026		230,044		386,605		426,917
Research and development expenses	Research and development expenses	18,362		14,239		54,503		45,234		Research and development expenses	18,269		18,900		36,576		36,141
Selling expenses	Selling expenses	28,133		30,361		90,303		94,546		Selling expenses	25,193		30,693		56,781		62,170
General and administrative expenses	General and administrative expenses	74,012		80,871		224,888		226,808		General and administrative expenses	76,606		74,766		153,264		150,876
Restructuring expenses										Restructuring expenses	10,609		—		12,189		—
Operating income	Operating income	105,569		97,047		283,299		263,621		Operating income	55,349		105,685		127,795		177,730
Interest expense	Interest expense	7,951		7,949		23,183		25,719		Interest expense	8,515		7,960		16,004		15,232
Other income, net		6,355		3,843		17,704		12,497
Other income (expense), net										Other income (expense), net	(4,105)		5,871		1,427		11,349
Earnings before income taxes	Earnings before income taxes	103,973		92,941		277,820		250,399		Earnings before income taxes	42,729		103,596		113,218		173,847
Provision for income taxes	Provision for income taxes	(21,463)		(18,458)		(59,645)		(57,485)		Provision for income taxes	(11,711)		(23,524)		(30,439)		(38,182)
Net earnings	Net earnings	$	82,510	$	74,483	$	218,175	$	192,914	Net earnings	$	31,018	$	80,072	$	82,779	$	135,665

Net earnings per share:	Net earnings per share:									Net earnings per share:
Basic earnings per share	Basic earnings per share	$	1.93	$	1.70	$	5.10	$	4.38	Basic earnings per share	$	0.75	$	1.87	$	1.97	$	3.17
Diluted earnings per share	Diluted earnings per share	$	1.92	$	1.68	$	5.07	$	4.33	Diluted earnings per share	$	0.74	$	1.86	$	1.95	$	3.15

Dividends per share	Dividends per share	0.17		0.15		0.49		0.45		Dividends per share	0.17		0.17		0.34		0.32

Weighted-average shares outstanding:	Weighted-average shares outstanding:									Weighted-average shares outstanding:
Basic	Basic	42,709		43,892		42,755		44,060		Basic	41,629		42,758		42,092		42,776
Diluted	Diluted	42,995		44,334		43,025		44,513		Diluted	41,855		43,024		42,362		43,038

See notes to condensed consolidated financial statements	See notes to condensed consolidated financial statements																	See notes to condensed consolidated financial statements

Page 4

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)


		Three Months Ended						Nine Months Ended							Three Months Ended				Six Months Ended
		September 30,						September 30,							June 30,				June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
Net earnings	Net earnings	$	82,510	$	74,483	$	218,175	$	192,914	Net earnings	$	31,018	$	80,072	$	82,779	$	135,665
Other comprehensive income (loss)	Other comprehensive income (loss)									Other comprehensive income (loss)
Foreign currency translation adjustments, net of tax ⁽¹⁾	Foreign currency translation adjustments, net of tax ⁽¹⁾	$	(24,734)	$	(2,230)	$	(15,952)	$	(30,590)	Foreign currency translation adjustments, net of tax ⁽¹⁾	$	24,185	$	540	$	(26,090)	$	8,782
Pension and postretirement adjustments, net of tax ⁽²⁾	Pension and postretirement adjustments, net of tax ⁽²⁾	1,311		3,458		4,743		9,142		Pension and postretirement adjustments, net of tax ⁽²⁾	4,002		1,749		8,683		3,432
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	(23,423)		1,228		(11,209)		(21,448)		Other comprehensive income (loss), net of tax	28,187		2,289		(17,407)		12,214
Comprehensive income	Comprehensive income	$	59,087	$	75,711	$	206,966	$	171,466	Comprehensive income	$	59,205	$	82,361	$	65,372	$	147,879

(1) The tax benefit included in other comprehensive ~~loss for foreign currency translation adjustments for both the three and nine months ended September 30, 2019 was $0.6 million. The tax benefit included in other comprehensive loss~~income (loss) for foreign currency translation adjustments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2020 and June 30, 2019 was ~~$0.5 million and $1.7 million, respectively.~~immaterial.

(2) The tax expense included in other comprehensive income for pension and postretirement adjustments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$0.4~~$1.3 million and ~~$1.5~~$2.7 million, respectively. The tax expense included in other comprehensive income for pension and postretirement adjustments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$1.1~~$0.6 million and ~~$2.9~~$1.1 million, respectively.

See notes to condensed consolidated financial statements

Page 5

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except per share data)


		September 30, 2019		December 31, 2018			June 30, 2020		December 31, 2019
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	297,712	$	276,066	Cash and cash equivalents	$	155,383	$	391,033
Receivables, net	Receivables, net	644,150		593,755		Receivables, net	598,340		632,194
Inventories, net	Inventories, net	430,086		423,426		Inventories, net	461,902		424,835
Other current assets	Other current assets	44,338		50,719		Other current assets	51,584		81,729
Total current assets	Total current assets	1,416,286		1,343,966		Total current assets	1,267,209		1,529,791
Property, plant, and equipment, net	Property, plant, and equipment, net	373,718		374,660		Property, plant, and equipment, net	381,226		385,593
Goodwill	Goodwill	1,104,796		1,088,032		Goodwill	1,197,194		1,166,680
Other intangible assets, net	Other intangible assets, net	420,458		429,567		Other intangible assets, net	489,208		479,907
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	134,286		—		Operating lease right-of-use assets, net	157,526		165,490
Prepaid pension asset						Prepaid pension asset	123,695		—
Other assets	Other assets	32,765		19,160		Other assets	26,613		36,800
Total assets	Total assets	$	3,482,309	$	3,255,385	Total assets	$	3,642,671	$	3,764,261
Liabilities	Liabilities					Liabilities
Current liabilities:	Current liabilities:					Current liabilities:
Current portion of long-term and short-term debt		$	80	$	243
Accounts payable	Accounts payable	169,413		232,983		Accounts payable	171,842		222,000
Accrued expenses	Accrued expenses	140,589		166,954		Accrued expenses	128,800		164,744
Income taxes payable	Income taxes payable	8,347		5,811		Income taxes payable	7,177		7,670
Deferred revenue	Deferred revenue	256,327		236,508		Deferred revenue	263,110		276,115
Other current liabilities	Other current liabilities	73,349		44,829		Other current liabilities	91,049		74,202
Total current liabilities	Total current liabilities	648,105		687,328		Total current liabilities	661,978		744,731
Long-term debt	Long-term debt	761,057		762,313		Long-term debt	834,802		760,639
Deferred tax liabilities, net	Deferred tax liabilities, net	48,809		47,121		Deferred tax liabilities, net	92,941		80,159
Accrued pension and other postretirement benefit costs	Accrued pension and other postretirement benefit costs	94,629		101,227		Accrued pension and other postretirement benefit costs	90,004		138,635
Long-term operating lease liability	Long-term operating lease liability	116,652		—		Long-term operating lease liability	137,213		145,124
Long-term portion of environmental reserves	Long-term portion of environmental reserves	15,923		15,777		Long-term portion of environmental reserves	15,271		15,026
Other liabilities	Other liabilities	95,994		110,838		Other liabilities	97,167		105,575
Total liabilities	Total liabilities	1,781,169		1,724,604		Total liabilities	1,929,376		1,989,889
Contingencies and commitments (Note 14)
Contingencies and commitments (Note 13)						Contingencies and commitments (Note 13)
Stockholders’ equity	Stockholders’ equity					Stockholders’ equity
Common stock, $1 par value,100,000,000 shares authorized as of September 30, 2019 and December 31, 2018; 49,187,378 shares issued as of September 30, 2019 and December 31, 2018; outstanding shares were 42,689,253 as of September 30, 2019 and 42,772,417 as of December 31, 2018		49,187		49,187
Common stock, $1 par value,100,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 49,187,378 shares issued as of June 30, 2020 and December 31, 2019; outstanding shares were 41,565,240 as of June 30, 2020 and 42,680,215 as of December 31, 2019						Common stock, $1 par value,100,000,000 shares authorized as of June 30, 2020 and December 31, 2019; 49,187,378 shares issued as of June 30, 2020 and December 31, 2019; outstanding shares were 41,565,240 as of June 30, 2020 and 42,680,215 as of December 31, 2019	49,187		49,187
Additional paid in capital	Additional paid in capital	120,219		118,234		Additional paid in capital	118,467		116,070
Retained earnings	Retained earnings	2,414,956		2,191,471		Retained earnings	2,565,727		2,497,111
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(325,913)		(288,447)		Accumulated other comprehensive loss	(342,681)		(325,274)
Common treasury stock, at cost (6,498,125 shares as of September 30, 2019 and 6,414,961 shares as of December 31, 2018)		(557,309)		(539,664)
Common treasury stock, at cost (7,622,138 shares as of June 30, 2020 and 6,507,163 shares as of December 31, 2019)						Common treasury stock, at cost (7,622,138 shares as of June 30, 2020 and 6,507,163 shares as of December 31, 2019)	(677,405)		(562,722)
Total stockholders’ equity	Total stockholders’ equity	1,701,140		1,530,781		Total stockholders’ equity	1,713,295		1,774,372
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	3,482,309	$	3,255,385	Total liabilities and stockholders’ equity	$	3,642,671	$	3,764,261

See notes to condensed consolidated financial statements	See notes to condensed consolidated financial statements									See notes to condensed consolidated financial statements

Page 6

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Nine Months Ended							Six Months Ended
		September 30,							June 30,
(In thousands)	(In thousands)	2019		2018		(In thousands)	2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net earnings	Net earnings	$	218,175	$	192,914	Net earnings	$	82,779	$	135,665
Adjustments to reconcile net earnings to net cash provided by operating activities
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities						Adjustments to reconcile net earnings to net cash provided by (used for) operating activities
Depreciation and amortization	Depreciation and amortization	76,998		77,146		Depreciation and amortization	56,568		51,600
Gain on divestitures		—		(2,149)
Gain on fixed asset disposals	Gain on fixed asset disposals	(6,295)		(531)		Gain on fixed asset disposals	(373)		(6,080)
Deferred income taxes	Deferred income taxes	652		4,942		Deferred income taxes	4,208		1,450
Share-based compensation	Share-based compensation	11,262		11,846		Share-based compensation	7,140		6,980
Foreign exchange loss on substantial liquidation of subsidiary						Foreign exchange loss on substantial liquidation of subsidiary	9,550		—
Inventory write-downs						Inventory write-downs	9,015		—
Change in operating assets and liabilities, net of businesses acquired and divested:	Change in operating assets and liabilities, net of businesses acquired and divested:					Change in operating assets and liabilities, net of businesses acquired and divested:
Receivables, net	Receivables, net	(44,788)		(79,372)		Receivables, net	31,898		(37,621)
Inventories, net	Inventories, net	(8,587)		(50,463)		Inventories, net	(40,691)		(11,080)
Progress payments	Progress payments	(4,955)		764		Progress payments	(470)		(356)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(86,900)		(32,389)		Accounts payable and accrued expenses	(81,848)		(87,430)
Deferred revenue	Deferred revenue	18,750		11,643		Deferred revenue	(12,622)		5,278
Income taxes payable		2,676		(7,620)
Pension and postretirement liabilities, net		(928)		(46,320)
Income taxes						Income taxes	26,042		2,872
Pension and postretirement benefits, net						Pension and postretirement benefits, net	(149,514)		311
Other current and long-term assets and liabilities	Other current and long-term assets and liabilities	(17,045)		18,564		Other current and long-term assets and liabilities	6,109		(21,203)
Net cash provided by operating activities		159,015		98,975
Net cash provided by (used for) operating activities						Net cash provided by (used for) operating activities	(52,209)		40,386
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Proceeds from sales and disposals of long lived assets	Proceeds from sales and disposals of long lived assets	10,099		5,495		Proceeds from sales and disposals of long lived assets	2,411		8,920
Consideration from divestitures		—		(268)
Acquisition of intangible assets	Acquisition of intangible assets	(157)		(1,500)		Acquisition of intangible assets	—		(147)
Additions to property, plant, and equipment	Additions to property, plant, and equipment	(49,919)		(30,287)		Additions to property, plant, and equipment	(29,324)		(33,471)
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(50,075)		(210,167)		Acquisition of businesses, net of cash acquired	(82,003)		(50,075)
Additional consideration paid on prior year acquisitions		—		(460)
Net cash used for investing activities	Net cash used for investing activities	(90,052)		(237,187)		Net cash used for investing activities	(108,916)		(74,773)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Borrowings under revolving credit facility	Borrowings under revolving credit facility	35,387		370,595		Borrowings under revolving credit facility	306,797		7,318
Payment of revolving credit facility	Payment of revolving credit facility	(35,550)		(369,721)		Payment of revolving credit facility	(231,797)		(7,561)
Repurchases of common stock	Repurchases of common stock	(37,864)		(78,898)		Repurchases of common stock	(124,613)		(25,065)
Proceeds from share-based compensation	Proceeds from share-based compensation	10,943		11,135		Proceeds from share-based compensation	5,189		5,411
Dividends paid	Dividends paid	(13,683)		(13,223)		Dividends paid	(7,089)		(6,420)
Other	Other	(600)		(557)		Other	(429)		(395)
Net cash used for financing activities	Net cash used for financing activities	(41,367)		(80,669)		Net cash used for financing activities	(51,942)		(26,712)
Effect of exchange-rate changes on cash	Effect of exchange-rate changes on cash	(5,950)		(10,322)		Effect of exchange-rate changes on cash	(22,583)		1,377
Net increase (decrease) in cash and cash equivalents		21,646		(229,203)
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(235,650)		(59,722)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	276,066		475,120		Cash and cash equivalents at beginning of period	391,033		276,066
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	297,712	$	245,917	Cash and cash equivalents at end of period	$	155,383	$	216,344
Supplemental disclosure of non-cash activities:	Supplemental disclosure of non-cash activities:					Supplemental disclosure of non-cash activities:
Capital expenditures incurred but not yet paid	Capital expenditures incurred but not yet paid	$	88	$	684	Capital expenditures incurred but not yet paid	$	152	$	85
See notes to condensed consolidated financial statements	See notes to condensed consolidated financial statements									See notes to condensed consolidated financial statements

Page 7

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)


		For the nine months ended September 30, 2019																			For the six months ended June 30, 2020
		Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
December 31, 2018		$	49,187	$	118,234	$	2,191,471	$	(288,447)	$	(539,664)
Cumulative effect from adoption of ASU 2018-02		—		—		26,257		(26,257)		—
December 31, 2019												December 31, 2019	$	49,187	$	116,070	$	2,497,111	$	(325,274)	$	(562,722)
Net earnings	Net earnings	—		—		218,175		—		—		Net earnings	—		—		82,779		—		—
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—		—		—		(11,209)		—		Other comprehensive loss, net of tax	—		—		—		(17,407)		—
Dividends declared	Dividends declared	—		—		(20,947)		—		—		Dividends declared	—		—		(14,163)		—		—
Restricted stock	Restricted stock	—		(5,491)		—		—		5,491		Restricted stock	—		(4,115)		—		—		4,115
Stock options exercised	Stock options exercised	—		(2,720)		—		—		13,662		Stock options exercised	—		106		—		—		5,081
Share-based compensation	Share-based compensation	—		10,857		—		—		405		Share-based compensation	—		6,923		—		—		217
Repurchase of common stock	Repurchase of common stock	—		—		—		—		(37,864)		Repurchase of common stock	—		—		—		—		(124,613)
Other	Other	—		(661)		—		—		661		Other	—		(517)		—		—		517
September 30, 2019		$	49,187	$	120,219	$	2,414,956	$	(325,913)	$	(557,309)
June 30, 2020												June 30, 2020	$	49,187	$	118,467	$	2,565,727	$	(342,681)	$	(677,405)


		For the three months ended September 30, 2019																			For the three months ended June 30, 2020
		Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
June 30, 2019		$	49,187	$	116,835	$	2,339,703	$	(302,490)	$	(550,939)
March 31, 2020												March 31, 2020	$	49,187	$	114,911	$	2,541,777	$	(370,868)	$	(665,170)
Net earnings	Net earnings	—		—		82,510		—		—		Net earnings	—		—		31,018		—		—
Other comprehensive loss, net of tax		—		—		—		(23,423)		—
Other comprehensive income, net of tax												Other comprehensive income, net of tax	—		—		—		28,187		—
Dividends declared	Dividends declared	—		—		(7,257)		—		—		Dividends declared	—		—		(7,068)		—		—
Stock options exercised	Stock options exercised	—		(898)		—		—		6,429		Stock options exercised	—		(244)		—		—		365
Share-based compensation	Share-based compensation	—		4,282		—		—		—		Share-based compensation	—		3,800		—		—		—
Repurchase of common stock	Repurchase of common stock	—		—		—		—		(12,799)		Repurchase of common stock	—		—		—		—		(12,600)
September 30, 2019		$	49,187	$	120,219	$	2,414,956	$	(325,913)	$	(557,309)
June 30, 2020												June 30, 2020	$	49,187	$	118,467	$	2,565,727	$	(342,681)	$	(677,405)

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

(In thousands)


		For the nine months ended September 30, 2018																			For the six months ended June 30, 2019
		Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
December 31, 2017		$	49,187	$	120,609	$	1,944,324	$	(216,840)	$	(369,480)
Cumulative effect from adoption of ASC 606		—		—		(2,274)		—		—
December 31, 2018												December 31, 2018	$	49,187	$	118,234	$	2,191,471	$	(288,447)	$	(539,664)
Cumulative effect from adoption of ASU 2018-02												Cumulative effect from adoption of ASU 2018-02	—		—		26,257		(26,257)		—
Net earnings	Net earnings	—		—		192,914		—		—		Net earnings	—		—		135,665		—		—
Other comprehensive loss, net of tax		—		—		—		(21,448)		—
Other comprehensive income, net of tax												Other comprehensive income, net of tax	—		—		—		12,214		—
Dividends declared	Dividends declared	—		—		(19,798)		—		—		Dividends declared	—		—		(13,690)		—		—
Restricted stock	Restricted stock	—		(7,159)		—		—		7,159		Restricted stock	—		(5,491)		—		—		5,491
Stock options exercised	Stock options exercised	—		(1,163)		—		—		12,298		Stock options exercised	—		(1,822)		—		—		7,233
Share-based compensation	Share-based compensation	—		11,631		—		—		215		Share-based compensation	—		6,575		—		—		405
Repurchase of common stock	Repurchase of common stock	—		—		—		—		(78,898)		Repurchase of common stock	—		—		—		—		(25,065)
Other	Other	—		(725)		—		—		725		Other	—		(661)		—		—		661
September 30, 2018		$	49,187	$	123,193	$	2,115,166	$	(238,288)	$	(427,981)
June 30, 2019												June 30, 2019	$	49,187	$	116,835	$	2,339,703	$	(302,490)	$	(550,939)


		For the three months ended September 30, 2018																			For the three months ended June 30, 2019
		Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Common Stock		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock
June 30, 2018		$	49,187	$	119,025	$	2,047,250	$	(239,516)	$	(399,850)
March 31, 2019												March 31, 2019	$	49,187	$	114,696	$	2,266,902	$	(304,779)	$	(540,426)
Net earnings	Net earnings	—		—		74,483		—		—		Net earnings	—		—		80,072		—		—
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		1,228		—		Other comprehensive income, net of tax	—		—		—		2,289		—
Dividends declared	Dividends declared	—		—		(6,567)		—		—		Dividends declared	—		—		(7,271)		—		—
Restricted stock		—		(236)		—		—		236
Stock options exercised	Stock options exercised	—		372		—		—		4,402		Stock options exercised	—		(1,303)		—		—		2,038
Share-based compensation	Share-based compensation	—		4,032		—		—		14		Share-based compensation	—		3,442		—		—		43
Repurchase of common stock	Repurchase of common stock	—		—		—		—		(32,783)		Repurchase of common stock	—		—		—		—		(12,594)
September 30, 2018		$	49,187	$	123,193	$	2,115,166	$	(238,288)	$	(427,981)
June 30, 2019												June 30, 2019	$	49,187	$	116,835	$	2,339,703	$	(302,490)	$	(550,939)

See notes to condensed consolidated financial statements	See notes to condensed consolidated financial statements																					See notes to condensed consolidated financial statements

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

Curtiss-Wright Corporation and its subsidiaries (the "Corporation" or the "Company") is a global, diversified manufacturing and service company that designs, manufactures, and overhauls precision components and provides highly engineered products and services to the aerospace, defense, power generation, and general industrial markets.

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

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

Management is required to make estimates and judgments that affect the reported amount of assets, liabilities, revenue, and expenses and disclosure of contingent assets and liabilities in the accompanying financial statements. Actual results may differ from these estimates. The most significant of these estimates includes the estimate of costs to complete on contracts using the over-time revenue recognition accounting method, ~~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, fair value estimates around assets and assumed liabilities from acquisitions, estimates for the valuation and useful lives of intangible assets, legal reserves, and the estimate of future environmental costs. Changes in estimates of contract sales, costs, and profits are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current and prior periods. Accordingly, the effect of the changes on future periods of contract performance is recognized as if the revised estimate had been the original estimate. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, there were no significant changes in estimated contract costs. ~~In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in these financial statements.~~

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s ~~2018~~2019 Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of trends or of the operating results for a full year.

On January 1, 2020, the Corporation implemented an organizational change to align its reportable segments more closely with its current business structure. This change resulted in the transfer of two business units, one from the Commercial/Industrial segment to the Defense segment and the other from the Defense segment to the Power segment. While this organizational change resulted in the recasting of previously reported amounts across all reportable segments, it did not impact the Corporation’s previously reported consolidated financial statements.

Recent accounting pronouncements adopted

~~ASU 2016-02 - Leases -~~ ASU 2016-13 -Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. On January 1, ~~2019,~~2020, the Company adopted ASU 2016-13 -Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This ASU added a current expected credit loss impairment model to U.S. GAAP based on expected losses rather than incurred losses. As the Corporation ~~adopted ASC 842,~~ ~~Leases,~~ ~~using~~is not subject to material trade credit risk, the optional transition method of adoption which permits the entity to continue presenting all periods prior to January 1, 2019 under previous lease accounting guidance. In conjunction with the adoption, the Corporation elected the package of practical expedients which permits the entity to forgo reassessment of conclusions reached regarding lease existence and lease classification under previous guidance, as well as the practical expedient to not separate non-lease components. Further, the Corporation made an accounting policy election to account for short-term leases in a manner consistent with the methodology applied under previous guidance. The adoption of this standard ~~resulted~~did not result in ~~an increase of approximately $151 million in both total assets and total liabilities in the Corporation’s Condensed Consolidated Balance Sheet~~any impact to its allowance for doubtful accounts balance as of January 1, ~~2019.~~

~~ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~ ~~- On January 1, 2019, the Corporation adopted ASU 2018-02,~~ ~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits the reclassification of tax effects stranded in accumulated other comprehensive income to retained earnings as~~2020. As a result of adoption, the ~~2017 Tax Cuts~~Corporation will utilize current and ~~Jobs Act (the Tax Act). The adoption of this standard resulted~~historical collection data as well as assess current economic conditions in order to determine expected trade credit losses on a ~~reclassification of $26 million from accumulated other comprehensive loss to retained earnings in the Corporation’s Condensed Consolidated Balance Sheet as of January 1, 2019.~~prospective basis.

2. REVENUE

The Corporation recognizes revenue when control of a promised good and/or service is transferred to a customer in an amount that reflects the consideration that the Corporation expects to be entitled to in exchange for that good and/or service.

Performance Obligations

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Corporation identifies a performance obligation for each promise in a contract to transfer a distinct good or service to the customer. As part of its assessment, the Corporation considers all goods and/or services promised in the contract, regardless of whether they are explicitly stated or implied by customary business practices. The Corporation’s contracts may contain either a single performance obligation, including the promise to transfer individual goods or services that are not separately distinct within the context of the respective contracts, or multiple performance obligations. For contracts with multiple performance obligations, the Corporation allocates the overall transaction price to each performance obligation using standalone selling prices, where available, or utilizes estimates for each distinct good or service in the contract where standalone prices are not available.

The Corporation’s performance obligations are satisfied either at a point-in-time or on an over-time basis. Revenue recognized on an over-time basis for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 accounted for approximately ~~47%~~54% and ~~48%~~53%, respectively, of total net sales. Revenue recognized on an over-time basis for both the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 accounted for approximately ~~49% and 46%, respectively,~~48% of total net sales. Typically, over-time revenue recognition is based on the utilization of an input measure used to measure progress, such as costs incurred to date relative to total estimated costs. Revenue recognized at a point-in-time for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 accounted for approximately ~~53%~~46% and ~~52%~~47%, respectively, of total net sales. Revenue recognized at a point-in-time for both the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 accounted for approximately ~~51% and 54%, respectively,~~52% of total net sales. Revenue for these types of arrangements is recognized at the point in time in which control is transferred to the customer, typically based upon the terms of delivery.

Contract backlog represents the remaining performance obligations that have not yet been recognized as revenue. Backlog includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Total backlog was approximately $2.2 billion as of ~~September~~June 30, ~~2019,~~2020, of which the Corporation expects to recognize approximately ~~92%~~89% as net sales over the next 12-36 months. The remainder will be recognized thereafter.

Disaggregation of Revenue

The following table presents the Corporation’s total net sales disaggregated by end market and customer type:


Total Net Sales by End Market and Customer Type	Total Net Sales by End Market and Customer Type	Three Months Ended						Nine Months Ended							Total Net Sales by End Market and Customer Type	Three Months Ended				Six Months Ended
		September 30,						September 30,								June 30,				June 30,
(In thousands)	(In thousands)	2019		2018		2019		2018		(In thousands)	2020		2019			2020		2019
Defense	Defense									Defense
Aerospace	Aerospace	$	110,742	$	94,002	$	293,955	$	272,809	Aerospace	$	109,305	$	104,426		$	211,133	$	183,213
Ground	Ground	22,231		25,167		69,383		68,463		Ground	20,029		26,394			42,686		47,151
Naval	Naval	143,430		116,620		424,371		352,456		Naval	164,941		149,853			330,633		280,941
Total Defense Customers	Total Defense Customers	$	276,403	$	235,789	$	787,709	$	693,728	Total Defense Customers	$	294,275	$	280,673		$	584,452	$	511,305

Commercial	Commercial									Commercial
Aerospace	Aerospace	$	109,015	$	101,872	$	320,237	$	305,893	Aerospace	$	71,084	$	108,000		$	171,765	$	211,222
Power Generation	Power Generation	88,543		106,842		278,194		307,477		Power Generation	76,202		93,171			160,550		189,652
General Industrial	General Industrial	140,919		150,890		446,050		456,115		General Industrial	108,486		157,152			234,511		305,131
Total Commercial Customers	Total Commercial Customers	$	338,477	$	359,604	$	1,044,481	$	1,069,485	Total Commercial Customers	$	255,772	$	358,323		$	566,826	$	706,005

Total	Total	$	614,880	$	595,393	$	1,832,190	$	1,763,213	Total	$	550,047	$	638,996		$	1,151,278	$	1,217,310

Note: Certain amounts in the prior year have been reclassed to conform to the current year presentation.

Contract Balances

Timing of revenue recognition and cash collection may result in billed receivables, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the Condensed Consolidated Balance Sheet. The Corporation’s contract assets primarily relate to its rights to consideration for work completed but not billed as of the reporting date. Contract assets are

~~Page 11~~

~~CURTISS-WRIGHT CORPORATION and SUBSIDIARIES~~

~~NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

transferred to billed receivables when the rights to consideration become unconditional. This is typical in situations where amounts are billed as work progresses in accordance with agreed-upon contractual terms or upon achievement of contractual milestones. The Corporation’s contract liabilities primarily consist of customer advances received prior to revenue being earned. Revenue recognized during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019 and 2018~~2020 included in the contract liabilities balance ~~at the beginning~~ as

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

of ~~the year~~January 1, 2020 was approximately ~~$26~~$71 million and ~~$159~~$160 million, ~~respectively,~~respectively. Revenue recognized during the three and ~~$30~~six months ended June 30, 2019 included in the contract liabilities balance as of January 1, 2019 was approximately $54 million and ~~$144~~$133 million, respectively. Contract assets and contract liabilities are reported in the "Receivables, net" and "Deferred revenue" lines, respectively, within the Condensed Consolidated Balance Sheet.

3. ACQUISITIONS

The Corporation continually evaluates potential acquisitions that either strategically fit within the Corporation’s existing portfolio or expand the Corporation’s portfolio into new product lines or adjacent markets. The Corporation has completed a number of acquisitions that have been accounted for as business combinations and have resulted in the recognition of goodwill in the Corporation's financial statements. This goodwill arises because the acquisition purchase price reflects the future earnings and cash flow potential in excess of the earnings and cash flows attributable to the current product and customer set at the time of acquisition. Thus, goodwill inherently includes the know-how of the assembled workforce, the ability of the workforce to further improve the technology and product offerings, and the expected cash flows resulting from these efforts. Goodwill may also include expected synergies resulting from the complementary strategic fit these businesses bring to existing operations.

The Corporation allocates the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. In the months after closing, as the Corporation obtains additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and as the Corporation learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Corporation will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

During the ~~nine~~six months ended ~~September~~June 30, 2020, the Corporation acquired 2 businesses for an aggregate purchase price of $90 million, which are described in more detail below. During the six months ended June 30, 2019, the Corporation acquired 1 business for an aggregate purchase price of $50 million, which is described in more detail below. ~~During the nine months ended September 30, 2018, the Corporation acquired 1 business for an aggregate purchase price of $210 million, which is described in more detail below.~~

The Condensed Consolidated Statement of Earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 includes $8$7 million of total net sales and ~~immaterial~~$1 million of net ~~earnings~~losses from the Corporation's ~~2019 acquisition.~~2020 acquisitions. The Condensed Consolidated Statement of Earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 includes ~~$41~~$4 million of total net sales and $2$1 million of net losses from the Corporation's ~~2018~~2019 acquisition.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions consummated during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~2019.


(In thousands)	(In thousands)	2019		2018		(In thousands)	2020		2019
Accounts receivable	Accounts receivable	$	2,300	$	24,385	Accounts receivable	$	3,204	$	2,300
Inventory	Inventory	322		31,875		Inventory	10,233		322
Property, plant, and equipment	Property, plant, and equipment	648		3,206		Property, plant, and equipment	1,332		648
Other current and non-current assets	Other current and non-current assets	479		47		Other current and non-current assets	188		479
Intangible assets	Intangible assets	26,000		146,100		Intangible assets	39,384		26,000
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	1,393		—		Operating lease right-of-use assets, net	1,992		1,393
Current and non-current liabilities	Current and non-current liabilities	(3,252)		(5,374)		Current and non-current liabilities	(10,590)		(3,252)
Net tangible and intangible assets	Net tangible and intangible assets	27,890		200,239		Net tangible and intangible assets	45,743		27,890
Purchase price, net of cash acquired		50,075		210,167
Goodwill	Goodwill	$	22,185	$	9,928	Goodwill	43,862		22,185
Total purchase price						Total purchase price	$	89,605	$	50,075

Cash paid to date, net of cash acquired						Cash paid to date, net of cash acquired	$	82,003	$	50,075
Due to seller						Due to seller	7,602		—
Total purchase price						Total purchase price	$	89,605	$	50,075

Goodwill deductible for tax purposes	Goodwill deductible for tax purposes	$	22,635	$	15,108	Goodwill deductible for tax purposes	$	38,469	$	22,185

~~2019 Acquisition~~

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2020 Acquisitions

Integrated Air Defense System (IADS)

On April 20, 2020, the Corporation acquired the IADS product line for approximately $29 million. The Asset Purchase Agreement contains representations and warranties customary for a transaction of this type. IADS is a real-time display and post-test analysis product for flight tests. The acquired product line operates within the Defense segment.The acquisition is subject to post-closing adjustments with the purchase price allocation not yet complete.

Dyna-Flo Control Valve Services Ltd. (Dyna-Flo)

On February 26, 2020, the Corporation acquired 100% of the issued and outstanding share capital of Dyna-Flo for approximately $60 million, net of cash acquired. The Asset Purchase Agreement contains representations and warranties customary for a transaction of this type, including a portion of the purchase price held back as security for potential indemnification claims against the seller. Dyna-Flo specializes in control valves, actuators, and control systems for the chemical, petrochemical, and oil and gas markets. The acquired business operates within the Commercial/Industrial segment.The acquisition is subject to post-closing adjustments with the purchase price allocation not yet complete.

2019 Acquisition

Tactical Communications Group (TCG)

On March 15, 2019, the Corporation acquired 100% of the membership ~~interest~~interests of TCG for ~~$50.1~~$50 million, net of cash acquired. The Purchase Agreement contains a purchase price adjustment mechanism and representations and warranties customary for a transaction of this type, including a portion of the purchase price deposited in escrow as security for potential indemnification claims against the seller. TCG is a designer and manufacturer of tactical data link software solutions for critical military communications systems. The acquired business operates within the Defense segment. ~~The acquisition is subject to post-closing adjustments with the purchase price allocation not yet complete.~~

~~2018 Acquisition~~

~~Dresser-Rand Government Business (DRG)~~

On April 2, 2018, the Corporation acquired certain assets and assumed certain liabilities of DRG for $210.2 million in cash after giving effect to certain post-closing adjustments pursuant to the Asset Purchase Agreement. The Asset Purchase Agreement contains representations and warranties customary for a transaction of this type. DRG is a designer and manufacturer of mission-critical, high-speed rotating equipment solutions and also acts as the sole supplier of steam turbines and main engine guard valves on all aircraft carrier programs. The acquired business operates within the Corporation's Power segment.

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)	(In thousands)	September 30, 2019		December 31, 2018		(In thousands)	June 30, 2020		December 31, 2019
Billed receivables:	Billed receivables:					Billed receivables:
Trade and other receivables	Trade and other receivables	$	415,681	$	390,306	Trade and other receivables	$	361,749	$	418,968
Less: Allowance for doubtful accounts	Less: Allowance for doubtful accounts	(8,034)		(7,436)		Less: Allowance for doubtful accounts	(11,066)		(8,733)
Net billed receivables	Net billed receivables	407,647		382,870		Net billed receivables	350,683		410,235
Unbilled receivables (contract assets):	Unbilled receivables (contract assets):					Unbilled receivables (contract assets):
Recoverable costs and estimated earnings not billed	Recoverable costs and estimated earnings not billed	245,805		225,810		Recoverable costs and estimated earnings not billed	257,185		231,067
Less: Progress payments applied	Less: Progress payments applied	(9,302)		(14,925)		Less: Progress payments applied	(9,528)		(9,108)
Net unbilled receivables	Net unbilled receivables	236,503		210,885		Net unbilled receivables	247,657		221,959
Receivables, net	Receivables, net	$	644,150	$	593,755	Receivables, net	$	598,340	$	632,194

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.~~net realizable value.

~~The composition of inventories is as follows:~~

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(In thousands) September 30, 2019 December 31, 2018
Raw materials $ 189,296 $ 214,442
Work-in-process 91,356 74,536
Finished goods 143,773 143,016
Inventoried costs related to U.S. Government and other long-term contracts 68,666 54,195
Gross inventories 493,091 486,189
Less: Inventory reserves (55,471) (55,776)
Progress payments applied (7,534) (6,987)
Inventories, net $ 430,086 $ 423,426
The composition of inventories is as follows:


(In thousands)	June 30, 2020		December 31, 2019
Raw materials	$	177,200	$	153,876
Work-in-process	107,566		100,359
Finished goods	124,698		108,329
Inventoried costs related to U.S. Government and other long-term contracts ⁽¹⁾	59,773		70,414
Inventories, net of reserves	469,237		432,978
Less: Progress payments applied	(7,335)		(8,143)
Inventories, net	$	461,902	$	424,835

~~Inventoried costs related to long-term contracts include~~⁽¹⁾As of June 30, 2020 and December 31, 2019, this caption also includes capitalized contract development costs of $32.4 million and $39.1 million, respectively, related to certain aerospace and defense ~~programs of $41.2 million and $44.4 million as of September 30, 2019 and December 31, 2018, respectively.~~programs. These capitalized costs will be liquidated as units are ~~produced.~~produced under contract. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018, $29.1~~2019, capitalized development costs of $16.5 million and ~~$18.7~~$23.7 million, respectively, are ~~scheduled to be liquidated under~~not currently supported by existing firm orders.

6. GOODWILL

The changes in the carrying amount of goodwill for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 are as follows:


(In thousands)	(In thousands)	Commercial/Industrial		Defense		Power		Consolidated		(In thousands)	Commercial/Industrial		Defense		Power		Consolidated
December 31, 2018		$	442,015	$	448,871	$	197,146	$	1,088,032
December 31, 2019										December 31, 2019	$	431,082	$	526,955	$	208,643	$	1,166,680
Acquisitions	Acquisitions	—		22,185		—		22,185		Acquisitions	29,233		14,629		—		43,862
Adjustments	Adjustments	—		(208)		—		(208)		Adjustments	—		(1,386)		—		(1,386)
Foreign currency translation adjustment	Foreign currency translation adjustment	(3,555)		(1,746)		88		(5,213)		Foreign currency translation adjustment	(5,334)		(5,942)		(686)		(11,962)
September 30, 2019		$	438,460	$	469,102	$	197,234	$	1,104,796
June 30, 2020										June 30, 2020	$	454,981	$	534,256	$	207,957	$	1,197,194

7. OTHER INTANGIBLE ASSETS, NET

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


		September 30, 2019										December 31, 2018											June 30, 2020				December 31, 2019
(In thousands)	(In thousands)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net		(In thousands)	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Technology	Technology	$	243,782	$	(134,274)	$	109,508	$	238,212	$	(123,156)	$	115,056	Technology	$	262,861	$	(145,060)	$	117,801	$	257,676	$	(140,390)	$	117,286
Customer related intangibles	Customer related intangibles	375,218		(207,806)		167,412		358,832		(193,455)		165,377		Customer related intangibles	459,417		(229,179)		230,238		434,492		(215,855)		218,637
Programs ⁽¹⁾	Programs ⁽¹⁾	144,000		(10,800)		133,200		144,000		(5,400)		138,600		Programs ⁽¹⁾	144,000		(16,200)		127,800		144,000		(12,600)		131,400
Other intangible assets	Other intangible assets	41,274		(30,936)		10,338		40,340		(29,806)		10,534		Other intangible assets	45,902		(32,533)		13,369		43,729		(31,145)		12,584
Total	Total	$	804,274	$	(383,816)	$	420,458	$	781,384	$	(351,817)	$	429,567	Total	$	912,180	$	(422,972)	$	489,208	$	879,897	$	(399,990)	$	479,907

⁽¹⁾Programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology, and trademarks underlying the associated program.

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, the Corporation acquired intangible assets of ~~$26.0~~$39.4 million. The Corporation acquired Customer-related intangibles of ~~$18.9~~$28.9 million, Technology of ~~$6.3~~$8.1 million, and Other intangible assets of ~~$0.8~~$2.4 million, which have a weighted average amortization ~~period~~periods of ~~14.6~~19.4 years, 15.0 years, and ~~8.0~~7.5 years, respectively.

Total intangible amortization expense for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$34~~$28.7 million, as compared to ~~$33~~$22.6 million in the comparable prior year period. The estimated amortization expense for the five years ending December 31, ~~2019~~2020 through ~~2023~~2024 is ~~$45~~$58 million, ~~$43~~$48 million, $45 million, $41 million, ~~$39 million,~~ and ~~$35~~$38 million, respectively.

~~8. LEASES~~

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Corporation conducts a portion of its operations from leased facilities, which include manufacturing and service facilities, administrative offices, and warehouses. In addition, the Corporation leases vehicles, machinery, and office equipment under operating leases. Our leases have remaining lease terms of 1 year to 25 years, some of which include options for renewals, escalations, or terminations.

~~The components of lease expense were as follows:~~

Three Months Ended Nine Months Ended
(In thousands) September 30, 2019 September 30, 2019
Operating lease cost $ 9,078 $ 24,436
Finance lease cost:
Amortization of right-of-use assets $ 203 $ 599
Interest on lease liabilities 124 377
Total finance lease cost $ 327 $ 976

~~Supplemental cash flow information related to leases was as follows:~~


	~~Nine Months Ended~~
~~(In thousands)~~	~~September 30, 2019~~
~~Cash used for operating activities:~~
~~Operating cash flows used for operating leases~~	$	~~(22,721)~~
~~Operating cash flows used for finance leases~~	~~(377)~~
~~Non-cash activity:~~
~~Right-of-use assets obtained in exchange for operating lease obligations~~	$	~~3,047~~

~~Supplemental balance sheet information related to leases was as follows:~~


~~(In thousands, except lease term and discount rate)~~	~~As of September 30, 2019~~
~~Operating Leases~~
~~Operating lease right-of-use assets, net~~	$	~~134,286~~

~~Other current liabilities~~	$	~~24,199~~
~~Long-term operating lease liability~~	~~116,652~~
~~Total operating lease liabilities~~	$	~~140,851~~

~~Finance Leases~~
~~Property, plant, and equipment~~	$	~~15,561~~
~~Accumulated depreciation~~	~~(5,273)~~
~~Property, plant, and equipment, net~~	$	~~10,288~~

~~Other current liabilities~~	$	~~790~~
~~Other liabilities~~	~~11,211~~
~~Total finance lease liabilities~~	$	~~12,001~~

~~Weighted average remaining lease term~~
~~Operating leases~~	~~7.9 years~~
~~Finance leases~~	~~9.9 years~~
~~Weighted average discount rate~~
~~Operating leases~~	~~3.82~~		%
~~Finance leases~~	~~4.05~~		%

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~~NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~Maturities of lease liabilities were as follows:~~

As of September 30, 2019
(In thousands) Operating Leases Finance Leases
2019 $ 7,339 $ 333
2020 28,517 1,342
2021 25,607 1,375
2022 19,468 1,410
2023 17,625 1,445
Thereafter 65,173 8,892
Total lease payments 163,729 14,797
Less: imputed interest (22,878) (2,796)
Total $ 140,851 $ 12,001

In November 2018, the Corporation entered into a build-to-suit lease of approximately $27 million for the construction of a new facility for DRG in Charleston, South Carolina. The lease has not been reflected in the Corporation’s condensed consolidated financial statements as of September 30, 2019 as the Corporation has not yet obtained the right to control the use of the facility.

~~9. FAIR VALUE OF FINANCIAL INSTRUMENTS~~

Forward Foreign Exchange and Currency Option Contracts

The Corporation has foreign currency exposure primarily in the United Kingdom, Europe, and Canada. The Corporation uses financial instruments, such as forward and option contracts, to hedge a portion of existing and anticipated foreign currency denominated transactions. The purpose of the Corporation’s foreign currency risk management program is to reduce volatility in earnings caused by exchange rate fluctuations. Guidance on accounting for derivative instruments and hedging activities requires companies to recognize all of the derivative financial instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets based upon quoted market prices for comparable instruments.

Interest Rate Risks and Related Strategies

The Corporation’s primary interest rate exposure results from changes in U.S. dollar interest rates. The Corporation’s policy is to manage interest cost using a mix of fixed and variable rate debt. 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. The Corporation’s foreign exchange contracts and interest rate swaps are considered Level 2 instruments which are based on market based inputs or unobservable inputs and corroborated by market data such as quoted prices, interest rates, or yield curves.

Effects on Condensed Consolidated Balance Sheets

As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair values of the asset and liability derivative instruments were immaterial.

Effects on Condensed Consolidated Statements of Earnings

Undesignated hedges

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the gains or ~~losses~~(losses) recognized in income on forward exchange derivative contracts not designated for hedge accounting were ~~immaterial.~~as follows:


	Three Months Ended						Six Months Ended
(In thousands)	June 30,						June 30,
Derivatives not designated as hedging instrument	2020		2019		2020		2019
Forward exchange contracts:
General and administrative expenses	$	700	$	(2,158)	$	(7,432)	$	1,431

Debt

The estimated fair value amounts were determined by the Corporation using available market information that is primarily based on quoted market prices for the same or similar issuances as of ~~September~~June 30, ~~2019.~~2020. Accordingly, all of the Corporation’s debt is valued as a Level 2 financial instrument. The fair values described below may not be indicative of net

~~Page 16~~

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~~NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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

September 30, 2019 December 31, 2018
(In thousands) Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
3.84% Senior notes due 2021 $ 100,000 $ 102,547 $ 100,000 $ 100,359
3.70% Senior notes due 2023 202,500 209,491 202,500 201,813
3.85% Senior notes due 2025 90,000 95,166 90,000 89,711
4.24% Senior notes due 2026 200,000 217,580 200,000 202,288
4.05% Senior notes due 2028 67,500 72,962 67,500 66,942
4.11% Senior notes due 2028 90,000 98,065 90,000 89,647
Other debt 80 80 243 243
Total debt 750,080 795,891 750,243 751,003
Debt issuance costs, net (624) (624) (714) (714)
Unamortized interest rate swap proceeds 11,681 11,681 13,027 13,027
Total debt, net $ 761,137 $ 806,948 $ 762,556 $ 763,316

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	June 30, 2020						December 31, 2019
(In thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Revolving credit agreement, due 2024	$	75,000	$	75,000	$	—	$	—
3.84% Senior notes due 2021	100,000		102,137		100,000		102,079
3.70% Senior notes due 2023	202,500		209,416		202,500		207,882
3.85% Senior notes due 2025	90,000		95,028		90,000		93,838
4.24% Senior notes due 2026	200,000		217,026		200,000		213,126
4.05% Senior notes due 2028	67,500		72,655		67,500		71,260
4.11% Senior notes due 2028	90,000		97,159		90,000		95,607
Total debt	825,000		868,421		750,000		783,792
Debt issuance costs, net	(534)		(534)		(594)		(594)
Unamortized interest rate swap proceeds	10,336		10,336		11,233		11,233
Total debt, net	$	834,802	$	878,223	$	760,639	$	794,431

~~10.~~9. PENSION PLANS

Defined Benefit Pension Plans

The following table is a consolidated disclosure of all domestic and foreign defined pension plans as described in the Corporation’s ~~2018~~2019 Annual Report on Form 10-K.

The components of net periodic pension cost for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 were as follows:


		Three Months Ended						Nine Months Ended							Three Months Ended				Six Months Ended
		September 30,						September 30,							June 30,				June 30,
(In thousands)	(In thousands)	2019		2018		2019		2018		(In thousands)	2020		2019		2020		2019
Service cost	Service cost	$	6,096	$	7,344	$	17,747	$	20,345	Service cost	$	6,611	$	5,825	$	13,222	$	11,651
Interest cost	Interest cost	7,045		6,574		21,788		19,629		Interest cost	6,058		7,371		12,116		14,743
Expected return on plan assets	Expected return on plan assets	(14,645)		(14,598)		(44,411)		(44,009)		Expected return on plan assets	(16,896)		(14,882)		(33,792)		(29,766)
Amortization of prior service cost	Amortization of prior service cost	170		(105)		29		(230)		Amortization of prior service cost	(71)		(70)		(142)		(141)
Amortization of unrecognized actuarial loss	Amortization of unrecognized actuarial loss	1,557		4,843		6,741		12,652		Amortization of unrecognized actuarial loss	5,750		2,592		11,499		5,184
Net periodic pension cost	Net periodic pension cost	$	223	$	4,058	$	1,894	$	8,387	Net periodic pension cost	$	1,452	$	836	$	2,903	$	1,671

During the six months ended June 30, 2020, the Corporation made a $150 million voluntary contribution to the Curtiss-Wright Pension Plan. The Corporation does not expect to make any further contributions to the Curtiss-Wright Pension Plan in ~~2019.~~2020. Contributions to the foreign benefit plans are not expected to be material in ~~2019. During the nine months ended September 30, 2018, the Corporation made a $50 million voluntary contribution to the Curtiss-Wright Pension Plan.~~2020.

Defined Contribution Retirement Plan

Effective January 1, 2014, all non-union employees who were 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. Effective January 1, 2019, the Corporation increased the employer match opportunity, raising the~~components up to a maximum employer contribution ~~from 6% to~~of 7% of eligible compensation. During the three and ~~nine~~six months ended ~~September~~June 30, 2020, the expense relating to the plan was $4.3 million and $10.3 million, respectively. During the three and six months ended June 30, 2019, the expense relating to the plan was $4.2 million and ~~$13.8 million, respectively. During the three and nine months ended September 30, 2018, the expense relating to the plan was $3.5 million and $10.9~~$9.6 million, respectively. The Corporation made ~~$15.1~~$14.0 million in contributions to the plan during the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, and expects to make total contributions of ~~$17.0~~$18.3 million in ~~2019.~~2020.

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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~~11.~~10. EARNINGS PER SHARE

Diluted earnings per share was computed based on the weighted-average number of shares outstanding plus all potentially dilutive common shares. A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:


		Three Months Ended			Nine Months Ended				Three Months Ended		Six Months Ended
		September 30,			September 30,				June 30,		June 30,
(In thousands)	(In thousands)	2019	2018	2019	2018	(In thousands)	2020	2019	2020	2019
Basic weighted-average shares outstanding	Basic weighted-average shares outstanding	42,709	43,892	42,755	44,060	Basic weighted-average shares outstanding	41,629	42,758	42,092	42,776
Dilutive effect of stock options and deferred stock compensation	Dilutive effect of stock options and deferred stock compensation	286	442	270	453	Dilutive effect of stock options and deferred stock compensation	226	266	270	262
Diluted weighted-average shares outstanding	Diluted weighted-average shares outstanding	42,995	44,334	43,025	44,513	Diluted weighted-average shares outstanding	41,855	43,024	42,362	43,038

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, there were 0 anti-dilutive equity-based awards.

~~12.~~11. SEGMENT INFORMATION

The Corporation manages and evaluates its operations based on end markets to strengthen its ability to service customers and recognize certain organizational efficiencies. Based on this approach, the Corporation has three reportable segments: Commercial/Industrial, Defense, and Power.

The Corporation’s measure of segment profit or loss is operating income. Interest expense and income taxes are not reported on an operating segment basis as they are not considered in the segments’ performance evaluation by the Corporation’s chief operating decision-maker, its Chief Executive Officer.

Net sales and operating income by reportable segment were as follows:


		Three Months Ended						Nine Months Ended							Three Months Ended				Six Months Ended
		September 30,						September 30,							June 30,				June 30,
(In thousands)	(In thousands)	2019		2018		2019		2018		(In thousands)	2020		2019		2020		2019
Net sales	Net sales									Net sales
Commercial/Industrial	Commercial/Industrial	$	304,914	$	295,448	$	917,236	$	904,806	Commercial/Industrial	$	213,814	$	293,149	$	478,314	$	563,309
Defense	Defense	150,098		138,433		417,166		407,401		Defense	170,025		158,629		336,176		292,538
Power	Power	160,943		162,176		501,672		456,383		Power	166,684		188,419		337,688		363,454
Less: Intersegment revenues	Less: Intersegment revenues	(1,075)		(664)		(3,884)		(5,377)		Less: Intersegment revenues	(476)		(1,201)		(900)		(1,991)
Total consolidated	Total consolidated	$	614,880	$	595,393	$	1,832,190	$	1,763,213	Total consolidated	$	550,047	$	638,996	$	1,151,278	$	1,217,310

Operating income (expense)	Operating income (expense)									Operating income (expense)
Commercial/Industrial	Commercial/Industrial	$	48,086	$	44,786	$	143,768	$	135,747	Commercial/Industrial	$	14,366	$	51,376	$	49,353	$	86,581
Defense	Defense	38,210		33,615		85,524		91,984		Defense	27,872		32,607		56,576		53,339
Power	Power	26,362		28,249		80,650		62,792		Power	21,259		31,983		41,881		57,364
Corporate and eliminations ⁽¹⁾	Corporate and eliminations ⁽¹⁾	(7,089)		(9,603)		(26,643)		(26,902)		Corporate and eliminations ⁽¹⁾	(8,148)		(10,281)		(20,015)		(19,554)
Total consolidated	Total consolidated	$	105,569	$	97,047	$	283,299	$	263,621	Total consolidated	$	55,349	$	105,685	$	127,795	$	177,730

⁽¹⁾ Corporate and eliminations includes service costs related to pension and other postretirement ~~benefit expense,~~benefits, certain environmental costs related to remediation at legacy sites, foreign currency transactional gains and losses, and certain other expenses.

Adjustments to reconcile operating income to earnings before income taxes are as follows:

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


		Three Months Ended						Nine Months Ended							Three Months Ended				Six Months Ended
		September 30,						September 30,							June 30,				June 30,
(In thousands)	(In thousands)	2019		2018		2019		2018		(In thousands)	2020		2019		2020		2019
Total operating income	Total operating income	$	105,569	$	97,047	$	283,299	$	263,621	Total operating income	$	55,349	$	105,685	$	127,795	$	177,730
Interest expense	Interest expense	7,951		7,949		23,183		25,719		Interest expense	8,515		7,960		16,004		15,232
Other income, net		6,355		3,843		17,704		12,497
Other income (expense), net										Other income (expense), net	(4,105)		5,871		1,427		11,349
Earnings before income taxes	Earnings before income taxes	$	103,973	$	92,941	$	277,820	$	250,399	Earnings before income taxes	$	42,729	$	103,596	$	113,218	$	173,847


(In thousands)	(In thousands)	September 30, 2019		December 31, 2018		(In thousands)	June 30, 2020		December 31, 2019
Identifiable assets	Identifiable assets					Identifiable assets
Commercial/Industrial	Commercial/Industrial	$	1,462,833	$	1,398,601	Commercial/Industrial	$	1,385,177	$	1,363,592
Defense	Defense	1,080,148		961,298		Defense	1,198,054		1,209,706
Power	Power	765,630		720,073		Power	885,353		885,727
Corporate and Other	Corporate and Other	173,698		175,413		Corporate and Other	174,087		305,236
Total consolidated	Total consolidated	$	3,482,309	$	3,255,385	Total consolidated	$	3,642,671	$	3,764,261

~~13.~~12. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The cumulative balance of each component of accumulated other comprehensive income (AOCI), net of tax, is as follows:

(In thousands) Foreign currency translation adjustments, net Total pension and postretirement adjustments, net Accumulated other comprehensive income (loss)
December 31, 2017 $ (94,708) $ (122,132) $ (216,840)
Other comprehensive income (loss) before reclassifications⁽¹⁾
(52,440) (31,380) (83,820)
Amounts reclassified from accumulated other comprehensive loss ⁽¹⁾
— 12,213 12,213
Net current period other comprehensive loss (52,440) (19,167) (71,607)
December 31, 2018 $ (147,148) $ (141,299) $ (288,447)
Other comprehensive income (loss) before reclassifications ⁽¹⁾
(15,952) 117 (15,835)
Amounts reclassified from accumulated other comprehensive income (loss) ⁽¹⁾
— 4,626 4,626
Net current period other comprehensive income (loss) (15,952) 4,743 (11,209)
Cumulative effect from adoption of ASU 2018-02⁽²⁾
(1,318) (24,939) (26,257)
September 30, 2019 $ (164,418) $ (161,495) $ (325,913)

⁽¹⁾ ~~All amounts are after tax.~~

⁽²⁾ ~~Reclassification to retained earnings due to adoption of ASU No. 2018-02,~~ ~~Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. See Note 1 for additional information.~~


(In thousands)	Foreign currency translation adjustments, net		Total pension and postretirement adjustments, net		Accumulated other comprehensive income (loss)
December 31, 2018	$	(147,148)	$	(141,299)	$	(288,447)
Other comprehensive income (loss) before reclassifications	18,447		(35,212)		(16,765)
Amounts reclassified from accumulated other comprehensive loss	—		6,195		6,195
Net current period other comprehensive loss	18,447		(29,017)		(10,570)
Cumulative effect from adoption of ASU 2018-02	$	(1,318)	$	(24,939)	$	(26,257)
December 31, 2019	$	(130,019)	$	(195,255)	$	(325,274)
Other comprehensive income (loss) before reclassifications	(26,090)		316		(25,774)
Amounts reclassified from accumulated other comprehensive income (loss)	—		8,367		8,367
Net current period other comprehensive income (loss)	(26,090)		8,683		(17,407)
June 30, 2020	$	(156,109)	$	(186,572)	$	(342,681)

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	$	470	Other income (expense), net
Amortization of actuarial losses	(11,497)		Other income (expense), net
	(11,027)		Earnings before income taxes
	2,660		Provision for income taxes
Total reclassifications	$	(8,367)	Net earnings

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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(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 $ 463 (1)
Amortization of actuarial losses (6,593) (1)
(6,130) Total before tax
1,504 Income tax
Total reclassifications $ (4,626) Net of tax

⁽¹⁾~~These items are included in the computation of net periodic pension cost. See Note 10, Pension Plans.~~

~~14.~~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 asbestos-related case. The Corporation believes its minimal use of asbestos in its past operations as well as its acquired businesses’ operations and the relatively non-friable condition of asbestos in its historical 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 and indemnification agreements 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. All parties have agreed in principle to participate in a formal mediation in November 2019 with the intention of settling this claim. In an effort to induce the parties to participate in the formal mediation, CNRL agreed to reduce its claim to approximately $400 million, which reflects the monetary amount of property damage incurred as a result of the fire and explosion. The Corporation is currently unable to estimate an amount, or range of potential losses, if any, from this matter. The Corporation believes that 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.

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. As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, there were ~~$29.1~~$21.8 million and ~~$21.7~~$32.6 million of stand-by letters of credit outstanding, respectively, and ~~$10.2~~$6.4 million and ~~$11.7~~$10.8 million of bank guarantees outstanding, respectively. 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 $45.6 million surety bond.

AP1000 Program

~~Page 20~~

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~~NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

The Electro-Mechanical Division, which is within the Corporation’s Power segment, 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. The Corporation would be liable for liquidated damages under the contract if certain contractual delivery dates were not met and if the Corporation was deemed responsible for the delay. As of ~~September~~June 30, ~~2019,~~2020, the Corporation has not met certain contractual delivery dates under its AP 1000 China and U.S. 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 ~~September~~June 30, ~~2019.~~2020. As of ~~September~~June 30, ~~2019,~~2020, the range of possible loss is $0 to $31 million for the AP1000 U.S. contract, for a total range of possible loss of $0 to $55.5 million.

Earlier this year, the Corporation was notified of a RCP fault at the Sanmen 2 AP1000 nuclear reactor in China. The root cause investigation of the fault was concluded during the current period, with the matter limited to a single part on one RCP. Remediation of the fault is not expected to have a material impact on the Corporation's financial condition or results of operations.

14. RESTRUCTURING COSTS

During the three and six months ended June 30, 2020, the Corporation executed restructuring activities across all of its segments to support its ongoing effort of improving capacity utilization and operating efficiency. These restructuring activities, which include workforce reductions and consolidation of facilities, resulted in $15 million and $17 million of pre-tax charges for the three and six months ended June 30, 2020. Included in the aforementioned amounts for the three and six months ended June 30, 2020 were approximately $6 million and $7 million of non-cash charges, respectively, related to inventory write-downs and impairments of property, plant, and equipment and operating lease right-of-use assets. Inventory write-downs and asset impairments are reported in "Cost of product sales" and "Restructuring expenses," respectively, within the Condensed Consolidated Statement of Earnings. Pre-tax restructuring charges for the year ending December 31, 2020 are expected to be $35 million. The Company anticipates that these actions, which are expected to be substantially completed by the end of 2020, will result in total cost savings of approximately $40 million annually.

The following tables summarize the respective accrual balances related to these restructuring activities:

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


In thousands	Restructuring Accrual as of December 31, 2019		Provision		Cash Payments		Restructuring Accrual as of June 30, 2020
Commercial/Industrial
Severance	$	—	$	4,319	$	(1,083)	$	3,236
Facility closure and other exit costs	—		1,102		(1,102)		—
Total Commercial/Industrial	$	—	$	5,421	$	(2,185)	$	3,236

Defense
Severance	$	—	$	2,431	$	(1,896)	$	535
Facility closure and other exit costs	—		40		(40)		—
Total Defense	$	—	$	2,471	$	(1,936)	$	535

Power
Severance	$	—	$	2,553	$	(464)	$	2,089
Facility closure and other exit costs	—		156		(156)		—
Total Power	$	—	$	2,709	$	(620)	$	2,089

Consolidated
Severance	$	—	$	9,303	$	(3,443)	$	5,860
Facility closure and other exit costs	—		1,298		(1,298)		—
Total consolidated	$	—	$	10,601	$	(4,741)	$	5,860

Page 20

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 potential impacts from COVID-19, 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 ~~2018~~2019 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.

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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 ~~43%~~50% of our ~~2019~~2020 revenues are expected to be generated from defense-related markets.

COVID-19

COVID-19, which was characterized as a pandemic by the World Health Organization in March 2020, has slowed our supply chains and production levels, resulted in significant travel restrictions, and created significant disruption of the financial markets. While the pandemic negatively impacted demand in the second quarter, primarily in the commercial aerospace and general industrial end markets, it did not have a material impact on our results of operations during the first quarter. The commercial aerospace and general industrial end markets are expected to be negatively impacted for the foreseeable future, the extent of which is contingent upon future developments. These future developments, which are highly uncertain and unpredictable, include new information concerning the severity and duration of the outbreak as well as impacts to our supply chain, transportation networks, and customers.

The health and safety of our employees has remained our top priority throughout this crisis. The vast majority of our manufacturing facilities have remained operational throughout the pandemic due to the critical nature of both our operations as well as our customers’ operations, with all manufacturing facilities open and operating as of June 30, 2020. We have continued to execute safety measures at all of our facilities to protect the health and safety of our employees and visitors, including increased frequency in cleaning and disinfecting as well as implementing rigorous hygiene and social distancing practices. In addition, a significant portion of our non-manufacturing employees are currently working remotely in an effort to minimize any potential spread of COVID-19. These working conditions have been designed to allow for the continuation of key business-critical operations, including financial reporting and internal control.

Given the diversified breadth of our company, we believe that we are well-positioned to mitigate any material risks arising as a result of COVID-19. From an operational perspective, our current cash balance, coupled with expected cash flows from operating activities for the remainder of the year as well as our current borrowing capacity under the Revolving Credit Agreement, are expected to be more than sufficient to meet operating cash requirements, planned capital expenditures, interest payments on long-term debt obligations, payments on lease obligations, pension and postretirement funding requirements, and dividend payments through at least the remainder of the year. In May 2020, we took additional actions to strengthen our financial flexibility through the pricing of $300 million of senior notes. The transaction is expected to close no later than August 13, 2020, with the proceeds intended to be used for general corporate purposes. We will continue to diligently monitor business conditions and consider additional actions, as necessary. However, given the current level of uncertainty regarding potential COVID-19 economic impacts, we are unable to predict whether we will experience increased borrowing costs or other costs of capital which in turn could potentially result in future liquidity issues. See Part II, Item 1A. “Risk Factors” for a detailed description of the risks resulting from the COVID-19 pandemic.

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 the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2019.~~2020. The financial information as of ~~September~~June 30, ~~2019~~2020 should be read in conjunction with the consolidated financial statements for the year ended December 31, ~~2018~~2019 contained in our Form 10-K.

The MD&A is organized into the following sections: Condensed 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.

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PART I - ITEM 2

MANAGEMENT’S DISCUSSION and ANALYSIS of

FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

Our three reportable segments are generally concentrated in a few end markets; however, each may have sales across several end markets. An end 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” and “incremental” results. The definition of “organic” excludes the ~~effect~~effects of restructuring-related expenses and foreign currency translation.


Condensed Consolidated Statements of Earnings
	Three Months Ended										Six Months Ended
	June 30,										June 30,
(In thousands)	2020		2019		% change		2020		2019		% change
Sales
Commercial/Industrial	$	213,648	$	292,900	(27	%)	$	478,016	$	562,758	(15	%)
Defense	169,955		158,492		7	%	336,066		292,275		15	%
Power	166,444		187,604		(11	%)	337,196		362,277		(7	%)
Total sales	$	550,047	$	638,996	(14	%)	$	1,151,278	$	1,217,310	(5	%)

Operating income
Commercial/Industrial	$	14,366	$	51,376	(72	%)	$	49,353	$	86,581	(43	%)
Defense	27,872		32,607		(15	%)	56,576		53,339		6	%
Power	21,259		31,983		(34	%)	41,881		57,364		(27	%)
Corporate and eliminations	(8,148)		(10,281)		21	%	(20,015)		(19,554)		(2	%)
Total operating income	$	55,349	$	105,685	(48	%)	$	127,795	$	177,730	(28	%)

Interest expense	8,515		7,960		7	%	16,004		15,232		5	%
Other income (expense), net	(4,105)		5,871		(170	%)	1,427		11,349		(87	%)

Earnings before income taxes	42,729		103,596		(59	%)	113,218		173,847		(35	%)
Provision for income taxes	(11,711)		(23,524)		(50	%)	(30,439)		(38,182)		(20	%)
Net earnings	$	31,018	$	80,072			$	82,779	$	135,665

Restructuring-related expenses	$	14,596	$	—	NM		$	17,380	$	—	NM

New orders	$	620,249	$	600,769	3	%	$	1,190,050	$	1,347,507	(12	%)

NM - Not meaningful

Components of sales and operating income increase (decrease):

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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 Nine Months Ended
September 30, September 30,
(In thousands) 2019 2018 % change 2019 2018 % change
Sales
Commercial/Industrial $ 304,888 $ 295,239 3 % $ 916,662 $ 904,343 1 %
Defense 149,854 138,372 8 % 415,838 403,450 3 %
Power 160,138 161,782 (1 %) 499,690 455,420 10 %
Total sales $ 614,880 $ 595,393 3 % $ 1,832,190 $ 1,763,213 4 %
Operating income
Commercial/Industrial $ 48,086 $ 44,786 7 % $ 143,768 $ 135,747 6 %
Defense 38,210 33,615 14 % 85,524 91,984 (7 %)
Power 26,362 28,249 (7 %) 80,650 62,792 28 %
Corporate and eliminations (7,089) (9,603) 26 % (26,643) (26,902) 1 %
Total operating income $ 105,569 $ 97,047 9 % $ 283,299 $ 263,621 7 %
Interest expense 7,951 7,949 — % 23,183 25,719 (10 %)
Other income, net 6,355 3,843 65 % 17,704 12,497 42 %
Earnings before income taxes 103,973 92,941 12 % 277,820 250,399 11 %
Provision for income taxes (21,463) (18,458) 16 % (59,645) (57,485) 4 %
Net earnings $ 82,510 $ 74,483 $ 218,175 $ 192,914
New orders $ 646,608 $ 514,160 26 % $ 1,994,115 $ 1,819,168 10 %

~~Components of sales and operating income increase (decrease):~~


		Three Months Ended						Nine Months Ended							Three Months Ended				Six Months Ended
		September 30,						September 30,							June 30,				June 30,
		2019 vs. 2018						2019 vs. 2018							2020 vs. 2019				2020 vs. 2019
		Sales		Operating Income		Sales		Operating Income			Sales		Operating Income		Sales		Operating Income
Organic	Organic	3	%	8	%	3	%	5	%	Organic	(17	%)	(35	%)	(8	%)	(19	%)
Acquisitions	Acquisitions	1	%	—	%	2	%	1	%	Acquisitions	3	%	(1	%)	3	%	—	%
Restructuring										Restructuring	—	%	(13	%)	—	%	(10	%)
Foreign currency	Foreign currency	(1	%)	1	%	(1	%)	1	%	Foreign currency	—	%	1	%	—	%	1	%
Total	Total	3	%	9	%	4	%	7	%	Total	(14	%)	(48	%)	(5	%)	(28	%)

Sales ~~for~~in the ~~third~~second quarter ~~of 2019 increased $19~~decreased $89 million, or 3%14%, to ~~$615~~$550 million, compared with the prior year period. On a segment basis, sales from the Commercial/Industrial and ~~Defense~~Power segments ~~increased $10~~decreased $79 million and ~~$11~~$21 million, respectively, with sales from the ~~Power~~Defense segment ~~decreasing $2~~increasing $11 million.

Sales during the ~~nine~~six months ended ~~September~~June 30, ~~2019 increased $69~~2020 decreased $66 million, or 4%5%, to ~~$1,832~~$1,151 million, compared with the prior year period. On a segment basis, sales from the Commercial/Industrial ~~Defense,~~ and Power segments ~~increased $12 million, $13~~decreased $85 million and $25 million, respectively, with sales from the Defense segment increasing $44 ~~million, respectively.~~million. Changes in sales by segment are discussed in further detail in the results by business segment section below.

Operating income in the second quarter decreased $50 million, or 48%, to $55 million, and operating margin decreased 640 basis points to 10.1% compared with the same period in 2019. Operating income during the six months ended June 30, 2020 decreased $50 million, or 28%, to $128 million and operating margin decreased 350 basis points to 11.1%, compared with the same period in 2019. The decreases in operating income and operating margin for each of the respective periods were primarily due to unfavorable overhead absorption on lower sales in the Commercial/Industrial and Power segments, costs associated with our restructuring activities across all segments, and first year purchase accounting costs from our 901D acquisition in the Defense segment. These decreases were partially offset by the benefits of our ongoing margin improvement initiatives, which were recognized across all segments.

Non-segment operating expense in the second quarter decreased $2 million, or 21 %, to $8 million, primarily due to lower corporate costs. Non-segment operating expense during the six months ended June 30, 2020 of $20 million was essentially flat compared to the prior year period.

Interest expense during the second quarter and six months ended June 30, 2020 of $9 million and $16 million, respectively, was essentially flat against the comparable prior year periods.

Other income (expense), net in the second quarter and six months ended June 30, 2020 decreased $10 million to ($4) million and $1 million, respectively, primarily due to the recognition of accumulated foreign currency translation losses of $10 million related to the substantial liquidation of our Norwegian subsidiary.

The effective tax rate of 27.4% in the second quarter increased compared to an effective tax rate of 22.7% in the prior year period. This increase was primarily driven by the recognition of accumulated foreign currency translation losses related to the substantial liquidation of our Norwegian subsidiary, which are not deductible for tax purposes. The effective tax rate of 26.9% for the six months ended June 30, 2020 increased as compared to an effective tax rate of 22.0% in the prior year period. This increase was primarily due to the aforementioned foreign currency translation losses as well as additional tax expense associated with the establishment of a valuation allowance against certain foreign deferred tax assets.

Comprehensive income in the second quarter was $59 million, compared to comprehensive income of $82 million in the prior year period. The change was primarily due to the following:

•Net earnings decreased $49 million, primarily due to lower operating income and higher other expense, net.

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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 income~~ ~~in the third quarter of 2019 increased $9 million, or 9%, to $106 million, and operating margin increased 90 basis points to 17.2% compared with the same period in 2018. The increases~~ ~~in operating income and operating margin were primarily due to higher sales volume and a favorable shift in mix in our defense electronics products in the Defense segment and~~ ~~favorable overhead absorption on higher naval defense sales~~ ~~in the Commercial/Industrial segment. These increases were partially offset by~~ ~~lower sales on the AP1000 China Direct program in the Power segment.~~

~~Operating income during the nine months ended September 30, 2019~~ increased $20 million, or 7%, to $283 million and operating margin increased 50 basis points to 15.5%, compared with the same period in 2018. The increases in operating income and operating margin were primarily due to favorable overhead absorption on higher naval defense sales and the absence of first year purchase accounting costs from our DRG acquisition in the Power segment. Operating income and operating margin also benefited from the recognition of a gain on a building sale in the Commercial/Industrial segment. These increases were partially offset by decreases in the Defense segment primarily due to higher research and development expenses and favorable contract adjustments in the prior year period which did not recur.

~~Non-segment operating expense~~ in the third quarter decreased $3 million, or 26 %, to $7 million, primarily due to lower environmental costs. Non-segment operating expense for the nine months ended September 30, 2019 of $27 million was essentially flat compared to the prior year period.

~~Interest expense~~ in the third quarter of $8 million was essentially flat compared to the prior year period. During the nine months ended September 30, 2019, interest expense decreased $3 million, or 10%, to $23 million, primarily due to a discretionary $50 million prepayment on our 2013 Notes in October 2018.

~~The effective tax~~ rate for the three months ended September 30, 2019 of 20.6% increased compared to an effective tax rate of 19.9% in the prior year period. The increase in rate was primarily driven by additional withholding tax expense recognized during the current period as well as the absence of a favorable prepaid and repair method change recognized in the prior year period. These increases were partially offset by the benefit of the Foreign Derived Intangible Income ("FDII") deduction recognized during the current period. The effective tax rate for the nine months ended September 30, 2019 of 21.5% decreased as compared to an effective tax rate of 23.0% in the prior year period, primarily due to additional tax expense associated with the Tax Act for foreign withholding taxes recognized in the prior year period as well as the current period benefit of the FDII deduction. These decreases were partially offset by the absence of a favorable prepaid and repair method change recognized in the prior year period.

~~Comprehensive income~~ ~~in the third quarter of 2019 was $59 million, compared to comprehensive income of $76 million in the prior year period. The change was primarily due to the following:~~

•~~Net earnings increased $8 million, primarily due to higher operating income.~~

•Foreign currency translation adjustments in the ~~third~~second quarter resulted in a ~~$25~~$24 million comprehensive ~~loss,~~gain, compared to a $2$1 million comprehensive ~~loss~~gain in the prior year period. The comprehensive ~~loss~~gain during the current period was primarily attributed to ~~decreases~~increases in the ~~British Pound and Euro.~~Canadian dollar.

Comprehensive income for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$207~~$65 million, compared to comprehensive income of ~~$171~~$148 million in the prior year period. The change was primarily due to the following:

•Net earnings ~~increased $25~~decreased $53 million, primarily due to ~~higher~~lower operating income ~~lower interest expense,~~ and ~~higher~~lower other income, net.

•Foreign currency translation adjustments for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 resulted in a ~~$16~~$26 million comprehensive loss, compared to a ~~$31~~$9 million comprehensive ~~loss~~gain in the prior period. The comprehensive loss during the current period was primarily attributed to decreases in the British Pound and ~~Euro, partially offset by increases in the~~ Canadian dollar.

•~~Pension adjustments for the~~ ~~nine months ended September 30, 2019~~ ~~resulted in a~~ ~~$5 million~~ ~~gain, compared to a~~ ~~$9 million~~ ~~gain in the prior year period, primarily due to lower loss amortization during the current period.~~

New orders increased ~~$132~~$19 million during the ~~third~~second quarter from the comparable prior year ~~period. The increase was~~period, primarily due to ~~orders received on the 737 platform as well as~~ the timing of ~~aerospace~~naval defense orders in the ~~Commercial/Industrial~~

~~Page 25~~

~~CURTISS-WRIGHT CORPORATION~~Defense and ~~SUBSIDIARIES~~

~~PART I - ITEM 2~~

~~MANAGEMENT’S DISCUSSION and ANALYSIS of~~

~~FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued~~

~~segment.~~ ~~New orders in the~~ Power ~~segment benefited from the timing of customer funding in the naval defense market.~~segments. These increases were partially offset by ~~the timing of aerospace defense~~a decline in new orders for sensors and controls equipment as well as industrial vehicle and valve products in the ~~Defense~~Commercial/Industrial segment.

New orders ~~increased $175~~decreased $157 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 from the comparable prior year period. The ~~increase~~decrease was primarily due to a decline in new orders ~~received on the 737 platform~~for sensors and controls equipment as well as ~~the timing of naval defense~~industrial vehicle and ~~aerospace defense orders~~valve products in the Commercial/Industrial ~~segment. New~~ ~~orders also benefited from the timing of customer funding in the Power~~ segment.

RESULTS BY BUSINESS SEGMENT

Commercial/Industrial

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


		Three Months Ended														Nine Months Ended														Three Months Ended					Six Months Ended
		September 30,														September 30,														June 30,					June 30,
(In thousands)	(In thousands)	2019			2018			% change		2019			2018			% change		(In thousands)	2020			2019			% change		2020			2019			% change
Sales	Sales	$	304,888		$	295,239		3	%	$	916,662		$	904,343		1	%	Sales	$	213,648		$	292,900		(27	%)	$	478,016		$	562,758		(15	%)
Operating income	Operating income	48,086			44,786			7	%	143,768			135,747			6	%	Operating income	14,366			51,376			(72	%)	49,353			86,581			(43	%)
Operating margin	Operating margin	15.8		%	15.2		%	60 bps		15.7		%	15.0		%	70 bps		Operating margin	6.7		%	17.5		%	(1,080 bps)		10.3		%	15.4		%	(510 bps)
Restructuring-related expenses																		Restructuring-related expenses	$	6,766		$	—		NM		$	7,368		$	—		NM
New orders	New orders	$	367,042		$	275,289		33	%	$	1,026,260		$	907,104		13	%	New orders	$	152,622		$	270,670		(44	%)	$	398,624		$	546,175		(27	%)

NM - Not meaningful

Components of sales and operating income increase (decrease):


		Three Months Ended						Nine Months Ended							Three Months Ended				Six Months Ended
		September 30,						September 30,							June 30,				June 30,
		2019 vs. 2018						2019 vs. 2018							2020 vs. 2019				2020 vs. 2019
		Sales		Operating Income		Sales		Operating Income			Sales		Operating Income		Sales		Operating Income
Organic	Organic	4	%	7	%	3	%	5	%	Organic	(28	%)	(59	%)	(16	%)	(35	%)
Acquisitions	Acquisitions	—	%	—	%	—	%	—	%	Acquisitions	1	%	—	%	1	%	—	%
Restructuring										Restructuring	—	%	(14	%)	—	%	(9	%)
Foreign currency	Foreign currency	(1	%)	—	%	(2	%)	1	%	Foreign currency	—	%	1	%	—	%	1	%
Total	Total	3	%	7	%	1	%	6	%	Total	(27	%)	(72	%)	(15	%)	(43	%)

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.

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MANAGEMENT’S DISCUSSION and ANALYSIS of

FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

Sales in the ~~third~~second quarter ~~increased $10~~decreased $79 million, or 3%27%, to ~~$305~~$214 million from the prior year period, primarily due to ~~higher~~lower sales in the aerospace defense, commercial aerospace, and power generation markets. In the aerospace defense market, sales increased $7 million primarily due to higher sales of actuation systems on the F-35 fighter jet program. Sales in the commercial aerospace ~~market increased $8 million primarily due to higher demand for sensors products~~ and surface treatment services. Sales in the power generation market benefited $5 million primarily due to higher domestic and international valve production. These increases were partially offset by lower general industrial markets. In the commercial aerospace market, sales ~~of $13~~decreased $34 million, primarily due to lower demand for actuation and sensors equipment as well as surface treatment services. Sales in the general industrial ~~vehicles,~~market decreased $45 million, primarily due to lower sales of industrial ~~valves,~~vehicle products, industrial valve products, and surface treatment ~~services. Unfavorable foreign currency translation, which is reflected in the results above, reduced sales $3 million.~~services of $20 million, $11 million, and $8 million, respectively.

Sales during the ~~nine~~six months ended ~~September~~June 30, ~~2019 increased $12~~2020 decreased $85 million, or 1%15%, to ~~$917~~$478 million from the prior year period, primarily due to lower sales in the commercial aerospace and general industrial markets. In the commercial aerospace market, sales decreased $30 million, primarily due to lower demand for actuation and sensors equipment as well as surface treatment services. Sales in the general industrial market decreased $67 million, primarily due to lower sales of industrial vehicle products, industrial valve products, and surface treatment services of $32 million, $14 million, and $13 million, respectively. These decreases were partially offset by higher sales of $9 million in the aerospace defense ~~and commercial aerospace markets. In the aerospace defense~~ market, ~~sales increased $12 million~~ primarily due to higher ~~sales of~~demand for actuation systems on the F-35 fighter jet program. ~~Sales~~

Operating income in the ~~commercial aerospace market increased $12~~second quarter decreased $37 million, or 72%, to $14 million from the prior year period, and operating margin decreased 1,080 basis points to 6.7%. Operating income during the six months ended June 30, 2020 decreased $37 million, or 43%, to $49 million from the prior year period, and operating margin decreased 510 basis points to 10.3%. The decreases in operating income and operating margin for each of the respective periods were primarily due to ~~higher demand for sensors products~~unfavorable overhead absorption on lower sales in the general industrial and ~~surface treatment services.~~commercial aerospace markets as well as costs associated with our restructuring activities. These ~~increases~~decreases were partially offset by ~~lower general industrial sales~~the benefits of ~~$10~~our ongoing margin improvement initiatives.

New orders during the second quarter and six months ended June 30, 2020 decreased $118 million and $148 million, respectively, from the comparable prior year periods, primarily due to ~~lower~~a decline in new orders for sensors and controls equipment as well as industrial vehicle and valve products.

Defense

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


	Three Months Ended														Six Months Ended
	June 30,														June 30,
(In thousands)	2020			2019			% change		2020			2019			% change
Sales	$	169,955		$	158,492		7	%	$	336,066		$	292,275		15	%
Operating income	27,872			32,607			(15	%)	56,576			53,339			6	%
Operating margin	16.4		%	20.6		%	(420 bps)		16.8		%	18.2		%	(140 bps)
Restructuring-related expenses	$	1,648		$	—		NM		$	2,447		$	—		NM
New orders	$	280,194		$	174,520		61	%	$	440,330		$	391,110		13	%

NM - Not meaningful

Components of sales and operating income increase (decrease):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020 vs. 2019						2020 vs. 2019
	Sales		Operating Income		Sales		Operating Income
Organic	(2	%)	(11	%)	5	%	10	%
Acquisitions	9	%	(1	%)	10	%	(1	%)
Restructuring	—	%	(5	%)	—	%	(5	%)
Foreign currency	—	%	2	%	—	%	2	%
Total	7	%	(15	%)	15	%	6	%

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FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

~~demand for industrial vehicles, industrial valves, and surface treatment services. Unfavorable foreign currency translation, which is reflected in the results above, reduced sales $11 million.~~

~~Operating income~~ during the third quarter increased $3 million, or 7%, to $48 million from the prior year period, while operating margin increased 60 basis points to 15.8%. The increases in operating income and operating margin were primarily due to favorable overhead absorption on higher naval defense sales, partially offset by higher research and development expenses and the impact of tariffs.

Operating income during the nine months ended September 30, 2019 increased $8 million, or 6%, to $144 million from the prior year period, while operating margin increased 70 basis points to 15.7%. The increases in operating income and operating margin were primarily due to the recognition of a gain on a building sale as well as the benefits of our ongoing margin improvement initiatives. These increases were partially offset by higher research and development expenses and the impact of tariffs.

~~New orders~~ ~~increased $92 million and $119 million during the third quarter and nine months ended September 30, 2019, respectively, from the comparable prior year periods. The increases were primarily due to orders received on the 737 platform as well as the timing of naval defense and aerospace defense orders.~~

~~Defense~~

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

Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2019 2018 % change 2019 2018 % change
Sales $ 149,854 $ 138,372 8 % $ 415,838 $ 403,450 3 %
Operating income 38,210 33,615 14 % 85,524 91,984 (7 %)
Operating margin 25.5 % 24.3 % 120 bps 20.6 % 22.8 % (220 bps)
New orders $ 94,003 $ 114,794 (18 %) $ 410,624 $ 408,049 1 %

~~Components of sales and operating income increase (decrease):~~

Three Months Ended Nine Months Ended
September 30, September 30,
2019 vs. 2018 2019 vs. 2018
Sales Operating Income Sales Operating Income
Organic 6 % 12 % 2 % (9 %)
Acquisitions 3 % 1 % 2 % — %
Foreign currency (1 %) 1 % (1 %) 2 %
Total 8 % 14 % 3 % (7 %)

Sales in the Defense segment are primarily to the defense markets and, to a lesser extent, the commercial aerospace and the general industrial markets.

Sales in the ~~third~~second quarter increased $11 million, or 8%7%, to ~~$150~~$170 million from the prior year period, primarily due to higher sales in the ~~aerospace~~naval defense and ~~naval~~aerospace defense markets. Sales in the naval defense market increased $22 million, primarily due to the incremental impact of our 901D acquisition, which contributed sales of $12 million. Excluding the impact of 901D, the naval defense market benefited from higher demand for valves and embedded computing equipment on the Virginia-class submarine platform, which resulted in higher sales of $10 million. In the aerospace defense market, sales increased ~~$10~~$5 million due to higher demand for embedded computing equipment on various fighter jet and unmanned aerial vehicle (UAV) platforms. These increases were partially offset by lower sales of $7 million in the ground defense market due to lower demand on various domestic and international tank platforms.

Sales during the six months ended June 30, 2020 increased $44 million, or 15%, to $336 million from the prior year period, primarily due to higher sales in the naval defense and aerospace defense markets. Sales in the naval defense market increased $48 million, primarily due to the incremental impact of our 901D acquisition, which contributed sales of $24 million. Excluding the impact of 901D, the naval defense market benefited from higher demand for valves and embedded computing equipment on the Virginia-class submarine platform, which resulted in higher sales of $19 million. In the aerospace defense market, sales increased $19 million, primarily due to higher demand for embedded computing equipment on ~~the F-35~~various fighter jet ~~program as well as the Apache~~ and Seahawk helicopter programs. Aerospace defense sales also benefited from the incremental impact of our TCG acquisition. In the naval defense market, sales increased $7 million primarily due to higher demand for embedded computing equipment on the Virginia-class submarine program.UAV platforms. These increases were partially offset by lower sales of ~~embedded computing equipment on various international programs~~$9 million in the commercial aerospace market, primarily due to lower demand for flight test instrumentation equipment. Sales in the ground defense market were negatively impacted by lower demand on various domestic and international tank platforms.

Operating income in the second quarter decreased $5 million, or 15%, to $28 million compared to the prior year period, and operating margin decreased 420 basis points from the prior year period to 16.4%. These decreases were primarily due to costs associated with our restructuring activities as well as first year purchase accounting costs from our 901D acquisition.

Operating income during the six months ended June 30, 2020 increased $3 million, or 6%, to $57 million, while operating margin decreased 140 basis points from the prior year period to 16.8%. Favorable overhead absorption on higher sales as well as the benefits of our ongoing margin improvement initiatives were partially offset by costs associated with our restructuring activities as well as first year purchase accounting costs from our 901D acquisition.

New orders in the second quarter increased $106 million from the comparable prior year period, primarily due to the timing of naval defense orders. This increase was partially offset by the timing of aerospace defense orders.

New orders during the six months ended June 30, 2020 increased $49 million from the comparable prior year period, primarily due to the timing of naval defense orders as well as higher orders for embedded computing equipment in the commercial aerospace market.

Power

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


	Three Months Ended														Six Months Ended
	June 30,														June 30,
(In thousands)	2020			2019			% change		2020			2019			% change
Sales	$	166,444		$	187,604		(11	%)	$	337,196		$	362,277		(7	%)
Operating income	21,259			31,983			(34	%)	41,881			57,364			(27	%)
Operating margin	12.8		%	17.0		%	(420 bps)		12.4		%	15.8		%	(340 bps)
Restructuring-related expenses	$	6,182		$	—		NM		$	7,565		$	—		NM
New orders	$	187,433		$	155,579		20	%	$	351,096		$	410,222		(14	%)

NM - Not meaningful

Components of sales and operating income increase (decrease):

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FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

Sales during the nine months ended September 30, 2019 increased $13 million, or 3%, to $416 million from the prior year period. In the aerospace defense market, sales increased $9 million primarily due to higher demand for embedded computing equipment on the Apache helicopter program as well as the incremental impact of our TCG acquisition. Sales in the naval defense market benefited $6 million primarily due to higher demand for embedded computing equipment on the Virginia-class submarine program. In the ground defense market, we experienced higher production levels on the Abrams tank platform. These increases were partially offset by lower industrial controls sales in the general industrial market due to the timing of an automotive contract completed in the prior year period.

~~Operating income~~ during the third quarter increased $5 million, or 14%, to $38 million compared to the prior year period, and operating margin increased 120 basis points from the prior year quarter to 25.5%. These increases were primarily due to higher sales volume and a favorable shift in mix in our defense electronics products, partially offset by higher research and development expenses.

Operating income during the nine months ended September 30, 2019 decreased $6 million, or 7%, to $86 million, and operating margin decreased 220 basis points from the prior year period to 20.6%. The decreases in operating income and operating margin were primarily due to higher research and development expenses and favorable contract adjustments within our naval defense business in the prior year period which did not recur.

~~New orders~~ ~~decreased $21 million during the third quarter from the comparable prior year period primarily due to the timing of aerospace defense orders.~~

New orders during the nine months ended September 30, 2019 increased $3 million from the comparable prior year period primarily due to the timing of naval defense orders. This increase was partially offset by the timing of aerospace defense orders.

~~Power~~

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

Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2019 2018 % change 2019 2018 % change
Sales $ 160,138 $ 161,782 (1 %) $ 499,690 $ 455,420 10 %
Operating income 26,362 28,249 (7 %) 80,650 62,792 28 %
Operating margin 16.5 % 17.5 % (100 bps) 16.1 % 13.8 % 230 bps
New orders $ 185,563 $ 124,077 50 % $ 557,231 $ 504,015 11 %

~~Components of sales and operating income increase (decrease):~~


		Three Months Ended						Nine Months Ended							Three Months Ended				Six Months Ended
		September 30,						September 30,							June 30,				June 30,
		2019 vs. 2018						2019 vs. 2018							2020 vs. 2019				2020 vs. 2019
		Sales		Operating Income		Sales		Operating Income			Sales		Operating Income		Sales		Operating Income
Organic	Organic	(1	%)	(7	%)	5	%	22	%	Organic	(11	%)	(14	%)	(7	%)	(14	%)
Acquisitions	Acquisitions	—	%	—	%	5	%	6	%	Acquisitions	—	%	—	%	—	%	—	%
Restructuring										Restructuring	—	%	(20	%)	—	%	(13	%)
Foreign currency	Foreign currency	—	%	—	%	—	%	—	%	Foreign currency	—	%	—	%	—	%	—	%
Total	Total	(1	%)	(7	%)	10	%	28	%	Total	(11	%)	(34	%)	(7	%)	(27	%)

Sales in the Power segment are primarily to the power generation and naval defense markets.

Sales in the ~~third~~second quarter decreased $2$21 million, or 1%11%, to $160 million from the prior year period. In the naval defense market, sales increased $17 million primarily due to increased production on the Virginia-class submarine and CVN-80 aircraft carrier programs as well as higher service center sales. This increase was more than offset by lower sales of $19 million in the power

~~Page 28~~

~~CURTISS-WRIGHT CORPORATION and SUBSIDIARIES~~

~~PART I - ITEM 2~~

~~MANAGEMENT’S DISCUSSION and ANALYSIS of~~

~~FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued~~

~~generation market primarily due to the timing of production on the AP1000 China Direct program and lower domestic aftermarket sales.~~

~~Sales during the nine months ended September 30, 2019 increased $44 million, or 10%, to $500~~$166 million from the prior year period, primarily due to ~~the impact of our DRG acquisition in the second quarter of 2018, which contributed incremental sales of $42 million during the current period. Excluding the impact of DRG,~~lower sales in the naval defense and power generation markets. In the naval defense market, ~~increased $24~~sales decreased $7 million ~~primarily due to increased~~as higher production levels on the ~~Virginia-class~~Columbia class submarine ~~and CVN-80 aircraft carrier programs. These increases~~ were ~~partially~~more than offset by ~~lower sales of $25 million in the power generation market primarily due to~~ the timing of production on the ~~AP1000~~CVN-80 aircraft carrier program as well as lower service center sales. Sales in the power generation market decreased $12 million primarily due to lower domestic and international aftermarket sales.

Sales during the six months ended June 30, 2020 decreased $25 million, or 7%, to $337 million from the prior year period, primarily due to lower sales of $22 million in the power generation market. This decrease was primarily due to the lower domestic and international aftermarket sales as well as the timing of production on the China Direct AP1000 program.

Operating income in the ~~third~~second quarter ~~of 2019~~ decreased $2$11 million, or 7%34%, to ~~$26~~$21 million, and operating margin decreased ~~100~~420 basis points from the prior year period to 16.5%. These decreases were primarily due to lower sales on the AP1000 China Direct program, partially offset by favorable overhead absorption on higher naval defense sales and the benefits of our ongoing margin improvement initiatives.

~~Operating income during the nine months ended September 30, 2019 increased $18 million, or 28%, to $81 million, and operating margin increased 230 basis points from the prior year period to 16.1%~~12.8%. The ~~increases~~decreases in operating income and operating margin were primarily due to ~~favorable~~costs associated with our restructuring activities as well as unfavorable overhead absorption on ~~higher~~lower sales in the naval defense ~~sales~~ and ~~the absence of first year purchase accounting costs from our DRG acquisition,~~power generation markets. These decreases were partially offset by the benefits of our ongoing margin improvement initiatives.

Operating income during the six months ended June 30, 2020 decreased $15 million, or 27%, to $42 million, and operating margin decreased 340 basis points from the prior year period to 12.4%. The decreases in operating income and operating margin were primarily due to unfavorable overhead absorption on lower sales onin the ~~AP1000 China Direct program.~~power generation market, costs associated with our restructuring activities, and transition costs associated with our DRG facility in South Carolina. These decreases were partially offset by the benefits of our ongoing margin improvement initiatives.

New orders during the second quarter and six months ended June 30, 2020increased ~~$61~~$32 million and ~~$53~~decreased $59 million, ~~during the third quarter and nine months ended September 30, 2019~~respectively, from the comparable prior year periods, primarily due to the timing of ~~customer funding in the~~ naval defense ~~market.~~orders.

SUPPLEMENTARY INFORMATION

The table below depicts sales by end market. End market sales help provide an enhanced understanding of our businesses and the markets in which we operate. The table has been included to supplement the discussion of our consolidated operating results.

Net Sales by End Market Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2019 2018 % change 2019 2018 % change
Defense markets:
Aerospace $ 110,742 $ 94,002 18 % $ 293,955 $ 272,809 8 %
Ground 22,231 25,167 (12 %) 69,383 68,463 1 %
Naval 143,430 116,620 23 % 424,371 352,456 20 %
Total Defense $ 276,403 $ 235,789 17 % $ 787,709 $ 693,728 14 %
Commercial markets:
Aerospace $ 109,015 $ 101,872 7 % $ 320,237 $ 305,893 5 %
Power Generation 88,543 106,842 (17 %) 278,194 307,477 (10 %)
General Industrial 140,919 150,890 (7 %) 446,050 456,115 (2 %)
Total Commercial $ 338,477 $ 359,604 (6 %) $ 1,044,481 $ 1,069,485 (2 %)
Total Curtiss-Wright $ 614,880 $ 595,393 3 % $ 1,832,190 $ 1,763,213 4 %

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MANAGEMENT’S DISCUSSION and ANALYSIS of

FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

~~Note: Certain amounts in the prior year have been reclassed to conform to the current year presentation.~~


Net Sales by End Market	Three Months Ended										Six Months Ended
	June 30,										June 30,
(In thousands)	2020		2019		% change		2020		2019		% change
Defense markets:
Aerospace	$	109,305	$	104,426	5	%	$	211,133	$	183,213	15	%
Ground	20,029		26,394		(24	%)	42,686		47,151		(9	%)
Naval	164,941		149,853		10	%	330,633		280,941		18	%
Total Defense	$	294,275	$	280,673	5	%	$	584,452	$	511,305	14	%

Commercial markets:
Aerospace	$	71,084	$	108,000	(34	%)	$	171,765	$	211,222	(19	%)
Power Generation	76,202		93,171		(18	%)	160,550		189,652		(15	%)
General Industrial	108,486		157,152		(31	%)	234,511		305,131		(23	%)
Total Commercial	$	255,772	$	358,323	(29	%)	$	566,826	$	706,005	(20	%)

Total Curtiss-Wright	$	550,047	$	638,996	(14	%)	$	1,151,278	$	1,217,310	(5	%)

Defense markets

Sales ~~during~~in the ~~third~~second quarter increased ~~$41~~$14 million, or ~~17%~~5%, to ~~$276~~$294 million against the comparable prior year period, primarily due to higher sales in the naval defense and aerospace defense markets. The naval defense market primarily benefited from the impact of our 901D acquisition, which contributed incremental sales of $12 million. Higher sales of $18 million on the Virginia-class and Columbia-class submarine programs were partially offset by the timing of production on the CVN-80 aircraft carrier program as well as lower service center demand, which collectively reduced sales $13 million. Sales in the aerospace defense market increased primarily due to higher demand for embedded computing equipment on various fighter jet and UAV platforms.

Sales during the six months ended June 30, 2020 increased $73 million, or 14%, to $584 million, primarily due to higher sales in the naval defense and aerospace defense markets. The naval defense market benefited from the impact of our 901D acquisition, which contributed incremental sales of $24 million. Excluding the impact of 901D, the naval defense market benefited from higher sales of $26 million on the Virginia-class and Columbia-class submarine programs. Sales in the aerospace defense market increased primarily due to higher actuation systems sales of $11 million on the F-35 fighter jet program and higher demand for embedded computing equipment supporting UAVs, which resulted in a sales increase of $9 million.

Commercial markets

Sales in the second quarter decreased $103 million, or 29%, to $256 million due to lower sales across all segments. Lower demand for actuation and sensors equipment as well as surface treatment services in the commercial aerospace market resulted in sales decreases of $27 million and $8 million, respectively. In the power generation market, we experienced lower demand for domestic and international aftermarket products, which resulted in lower sales of $12 million. Lower demand in the general industrial market for industrial vehicle products, industrial valve products, and surface treatment services resulted in sales decreases of $20 million, $13 million, and $8 million, respectively.

Sales during the six months ended June 30, 2020 decreased $139 million, or 20%, to $567 million due to lower sales across all markets. In the commercial aerospace market, we experienced lower demand for actuation and sensors equipment as well as surface treatment services, which resulted in sales decreases of $29 million and $6 million, respectively. Sales in the power generation market decreased primarily due to lower domestic and international aftermarket sales of $20 million as well as the timing of production on the China Direct AP1000 program. Lower demand in the general industrial market for industrial vehicle products, industrial valve products, and surface treatment services resulted in sales decreases of $32 million, $15 million, and $13 million, respectively.

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MANAGEMENT’S DISCUSSION and ANALYSIS of

FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

production on the Virginia-class submarine and CVN-80 aircraft carrier programs, which contributed higher sales of $13 million and $6 million, respectively. Sales in the aerospace defense market increased primarily due to higher demand for embedded computing equipment on the Apache and Seahawk helicopter programs and higher sales of actuation systems and embedded computing equipment on the F-35 fighter jet program.

Sales during the nine months ended September 30, 2019 increased $94 million, or 14%, to $788 million, primarily due to higher sales in the naval defense and aerospace defense markets. The naval defense market benefited from the impact of our DRG acquisition in the second quarter of 2018, which contributed incremental sales of $42 million during the current period. Excluding the impact of DRG, sales in the naval defense market increased $30 million primarily due to increased production on the Virginia-class submarine program. Sales in the aerospace defense market increased primarily due to higher demand for embedded computing equipment on various helicopter programs and higher sales of actuation systems on the F-35 fighter jet program.

~~Commercial markets~~

Sales during the third quarter decreased $21 million, or 6%, to $338 million against the comparable prior year period, while sales during the nine months ended September 30, 2019 decreased $25 million, or 2%, to $1,044 million. The decreases in each of the respective periods were primarily due to lower sales in the power generation and general industrial markets, partially offset by increases in the commercial aerospace market. In the power generation market, we experienced lower sales due to the timing of production on the AP1000 China Direct program and lower domestic aftermarket sales. Sales in the general industrial market decreased primarily due to lower demand for industrial vehicles, industrial valves, and surface treatment services. Sales in the commercial aerospace market benefited from higher demand for sensors products and surface treatment services.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Use of Cash

We derive the majority of our operating cash inflow from receipts on the sale of goods and services and cash outflow for the procurement of materials and labor; cash flow is therefore subject to market fluctuations and conditions. Most of our long-term contracts allow for several billing points (progress or milestone) that provide us with cash receipts as costs are incurred throughout the project rather than upon contract completion, thereby reducing working capital requirements. In some cases, these payments can exceed the costs incurred on a project. Management continually evaluates cash utilization alternatives, including share repurchases, acquisitions, increased dividends, and paying down debt, to determine the most beneficial use of available capital resources. We believe that our cash and cash equivalents, cash flow from operations, available borrowings under the credit facility, and ability to raise additional capital through the credit markets, are sufficient to meet both the short-term and long-term capital needs of the organization.


Condensed Consolidated Statements of Cash Flows	Condensed Consolidated Statements of Cash Flows	Nine Months Ended							Condensed Consolidated Statements of Cash Flows	Six Months Ended
(In thousands)	(In thousands)	September 30, 2019		September 30, 2018		(In thousands)	June 30, 2020			June 30, 2019
Cash provided by (used in):	Cash provided by (used in):					Cash provided by (used in):
Operating activities	Operating activities	$	159,015	$	98,975	Operating activities	$	(52,209)		$	40,386
Investing activities	Investing activities	(90,052)		(237,187)		Investing activities	(108,916)			(74,773)
Financing activities	Financing activities	(41,367)		(80,669)		Financing activities	(51,942)			(26,712)
Effect of exchange-rate changes on cash	Effect of exchange-rate changes on cash	(5,950)		(10,322)		Effect of exchange-rate changes on cash	(22,583)			1,377
Net increase (decrease) in cash and cash equivalents		21,646		(229,203)
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(235,650)			(59,722)

Net cash ~~provided by~~used in operating activities increased ~~$60~~$93 million from the prior year ~~period. The increase in net cash provided is~~period, primarily due to a ~~prior year period~~ voluntary ~~pension~~pension contribution of ~~$50 million. Net cash provided~~$150 million as well as higher inventory in the current period. This increase was partially offset by a reduction in receivables during the current ~~period also benefited from higher collections of accounts receivable and lower inventory receipts, partially offset by higher disbursements.~~period.

Net cash used in investing activities increased$34 million from the comparable prior year period primarily due to higher cash used for acquisitions in the current period. The Corporation acquired two businesses during the six months ended June 30, 2020 for approximately $90 million, inclusive of $82 million cash paid plus an $8 million holdback for potential indemnification claims against the seller. The Corporation acquired one business during the six months ended June 30, 2019 for approximately $50 million.

Financing Activities

Debt

The Corporation’s debt outstanding had an average interest rate of 3.3% and 3.4% for the three and six months ended June 30, 2020, respectively, and 3.7% for both the three and six months ended June 30, 2019. The Corporation’s average debt outstanding was $890 million and $842 million for the three and six months ended June 30, 2020, respectively, and $750 million for both the three and six months ended June 30, 2019.

In May 2020, we announced the pricing of a private placement debt offering of $300 million for senior notes, consisting of $150 million 3.10% notes due in August 2030 and $150 million 3.20% notes due in August 2032. We expect to use the net proceeds from the offering for general corporate purposes, which may include reducing outstanding indebtedness under our revolving credit facility, possible future acquisitions, or funding internal growth initiatives. The offering is expected to close no later than August 13, 2020, subject to customary closing conditions.

Revolving Credit Agreement

As of June 30, 2020, the Corporation had outstanding borrowings of $75 million under the 2018 Senior Unsecured Revolving Credit Agreement (the “Credit Agreement” or “credit facility”) and $22 million in letters of credit supported by the credit

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FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

~~Net cash used for investing activities~~ ~~decreased~~$147 million from the comparable prior year period primarily due to less cash used for acquisitions in the current period, partially offset by higher capital expenditures. The Corporation acquired one business during the nine months ended September 30, 2019 for approximately $50 million. The Corporation acquired one business during the nine months ended September 30, 2018 for approximately $210 million. Capital expenditures for the nine months ended September 30, 2019 and September 30, 2018 were $50 million and $30 million, respectively. The increase in capital expenditures was primarily due to additional investment related to the new DRG facility in Charleston, South Carolina.

~~Financing Activities~~

~~Debt~~

The Corporation’s debt outstanding had an average interest rate of 3.6% and 3.7% for the three and nine months ended September 30, 2019, respectively, and 3.7% for both the three and nine months ended September 30, 2018. The Corporation’s average debt outstanding was $750 million for both the three and nine months ended September 30, 2019 and $800 million and $835 million for the three and nine months ended September 30, 2018, respectively.

~~Revolving Credit Agreement~~

As of September 30, 2019, the Corporation had no outstanding borrowings under the 2012 Senior Unsecured Revolving Credit Agreement (the “Credit Agreement” or “credit facility”) and $29 million in letters of credit supported by the credit facility. The unused credit available under the Credit Agreement as of ~~September~~June 30, ~~2019~~2020 was ~~$471~~$403 million which could be borrowed without violating any of our debt covenants.

Repurchase of common stock

During the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, the Corporation used ~~$38~~$125 million of cash to repurchase approximately ~~322,000~~1,230,000 outstanding shares under its share repurchase program. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Corporation used ~~$79~~$25 million of cash to repurchase approximately ~~608,000~~220,000 outstanding shares under its share repurchase program.

Dividends

The Corporation made dividend payments of ~~$14~~$7 million and ~~$13~~$6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~September~~June 30, ~~2018,~~2019, respectively.

Debt Compliance

As of the date of this report, we were in compliance with all debt agreements and credit facility covenants, including our most restrictive covenant, which is our debt to capitalization limit of 60%. The debt to capitalization limit is a measure of our indebtedness (as defined per the notes purchase agreement and credit facility) to capitalization, where capitalization equals debt plus equity, and is the same for and applies to all of our debt agreements and credit facility.

As of ~~September~~June 30, ~~2019,~~2020, we had the ability to borrow additional debt of ~~$1.7~~$1.6 billion without violating our debt to capitalization covenant.

Page 31

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

PART I - ITEM 2

MANAGEMENT’S DISCUSSION and ANALYSIS of

FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

CRITICAL ACCOUNTING POLICIES

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by the application of our accounting policies. Critical accounting policies are those that require application of management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our ~~2018~~2019 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on February 27, ~~2019,~~2020, in the Notes to the

Consolidated Financial Statements, Note 1, and the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Page 32

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~There~~Except for the broad effects of COVID-19 as a result of its negative impact on the financial markets, there have been no material changes in our market risk during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Information regarding market risk and market risk management policies is more fully described in item “7A.Quantitative and Qualitative Disclosures about Market Risk” of our ~~2018~~2019 Annual Report on Form 10-K.

Item 4. CONTROLS AND PROCEDURES

As of ~~September~~June 30, ~~2019,~~2020, our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of ~~September~~June 30, ~~2019~~2020 insofar as they are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and they include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended ~~September~~June 30, ~~2019,~~2020, there have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Page 33

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

In December 2013, the Corporation, along with other unaffiliated parties, received a claim from Canadian Natural Resources Limited (CNRL), which was 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. We maintain 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. All parties have agreed in principle to participate in a formal mediation in November 2019 with the intention of settling this claim. In an effort to induce the parties to participate in the formal mediation, CNRL agreed to reduce its claim to approximately $400 million, which reflects the monetary amount of property damage incurred as result of the fire and explosion. We are currently unable to estimate an amount, or range of potential losses, if any, from this matter. We believe that we have adequate legal defenses and intend to defend this matter vigorously. Our financial condition, results of operations, and cash flows could be materially affected during a future fiscal quarter or fiscal year by unfavorable developments or outcome regarding this claim.

We have been named in pending lawsuits that allege injury from exposure to asbestos. To date, we have not been found liable or paid any material sum of money in settlement in any asbestos-related case. We believe that the minimal use of asbestos in our past operations as well as our acquired businesses and the relatively non-friable condition of asbestos in our historical products make it unlikely that we will face material liability in any asbestos litigation, whether individually or in the aggregate. We maintain insurance coverage and indemnification agreements for these potential liabilities and we believe adequate coverage exists to cover any unanticipated asbestos liability.

Item 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, which could materially affect our business, financial condition, or future results. There have been no material changes in the Company’s risk factors from the aforementioned 10-K, except as set forth in the below risk factor.

The COVID-19 pandemic has adversely impacted and poses risks to our ~~Risk Factors during~~business, the ~~nine months ended September 30, 2019. Information regarding~~nature and extent of which are highly uncertain and unpredictable.

In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic. While we continue to actively monitor the pandemic and take steps to mitigate the risks posed by its spread, there is no guarantee that our ~~Risk Factors~~efforts will mitigate the adverse impacts of COVID-19 or will be effective.

The pandemic has adversely affected, and is ~~more fully described in Item “1A. Risk Factors”~~expected to continue to adversely affect, certain elements of our ~~2018 Annual Report~~business, including our supply chain and production levels. We have experienced operational interruptions as a result of COVID-19, including the temporary suspension of operations due to government imposed restrictions at our facilities in Mexico and India. As of June 30, 2020, all of our manufacturing operations have resumed, but we are unable to predict if there will be additional government imposed restrictions on ~~Form 10-K.~~our ability to operate in future periods. Additionally, certain portions of our workforce might not be able to work effectively due to quarantines, government orders and guidance, travel restrictions, and other precautionary measures and restrictions. This could have an adverse effect on the productivity and profitability of such manufacturing facilities, which could in turn adversely impact our business and operations.

We also have experienced and expect to continue to experience unpredictable volatility in demand in our commercial aerospace and general industrial end markets. Several countries, including the United States, have taken steps to restrict air travel, along with many companies, including us, adopting policies which prohibit non-essential business travel by their employees. Even in the absence of formal restrictions and prohibitions, contagious illness and fear of contagion adversely affects travel behavior. Approximately 17% of our net sales for the year ended December 31, 2019 were derived from sales to commercial aerospace customers. Current travel restrictions, as well as changes in the propensity for the general public to travel by air as a result of the COVID-19 pandemic, have caused reductions in demand for commercial aircraft, which will adversely impact our net sales and operating results and may continue to do so for an extended period of time. In addition, an overall reduction in business activity as a result of the disruption caused by COVID-19 has led to a decrease in sales to the general industrial market, which primarily includes industrial vehicle and industrial valve products. Approximately 23% of our net sales for the year ended December 31, 2019 were derived from sales to the general industrial market. While we are unable to predict the magnitude of such impact at this time, the loss of, or significant reduction in, purchases by our large commercial aircraft manufacturers and general industrial customers could have a material adverse effect on our business, financial condition, and results of operations.

If the pandemic continues and conditions worsen, we may continue to experience additional adverse impacts on our operational and commercial activities, costs, customer orders, and collections of accounts receivable, which may be material. In addition, we may also incur additional costs to remedy damages caused by business disruptions, performance delays or interruptions, or payment defaults or bankruptcy of our third-party customers and suppliers, any of which could adversely affect our financial condition and results of operations. Furthermore, the pandemic has impacted and may further impact the broader economies of

Page 34

affected countries, including negatively impacting economic growth. Due to the speed with which the situation is developing, the global breadth of its spread and the range of governmental and community reactions thereto, there is uncertainty around its duration, ultimate impact, and the timing of recovery. Therefore, the pandemic could lead to an extended disruption of economic activity whereby the impact on our consolidated results of operations, financial position and cash flows could be material.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF ~~PROCEEDS.~~PROCEEDS

The following table provides information about our repurchase of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended ~~September~~June 30, ~~2019.~~2020.

Total Number of shares purchased Average Price Paid per Share Total Number of Shares Purchased as Part of a Publicly Announced Program Maximum Dollar amount of shares that may yet be Purchased Under the Program
July 1 - July 31 34,719 $ 126.72 254,908 $ 221,332,428
August 1 - August 31 36,179 121.61 291,087 216,932,759
September 1 - September 30 31,084 128.67 322,171 212,933,029
For the quarter ended September 30, 2019 101,982 $ 125.50 322,171 $ 212,933,029


	Total Number of shares purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program	Maximum Dollar amount of shares that may yet be Purchased Under the Program
April 1 - April 30	44,825	$	93.70	1,144,284	$	83,942,976
May 1 - May 31	42,174	94.85		1,186,458	79,942,798
June 1 - June 30	45,306	97.12		1,231,764	75,542,749
For the quarter ended June 30, 2020	132,305	$	95.24	1,231,764	$	75,542,749

On December ~~12, 2018,~~2, 2019, the Corporation adopted two written trading plans in connection with its previously authorized share repurchase program, which allows for the purchase of its outstanding common stock up to $200 million. The first trading plan includes share repurchases of $50 million, to be executed equally throughout the year. The second trading plan, which was completed as of March 31, 2020, included opportunistic share repurchases of $100 million ~~of share repurchases~~executed through a 10b5-1 program. ~~Of this authorization, the~~The Corporation ~~used $50 million for opportunistic share repurchases in December 2018. On May 15, 2019, the~~

~~Page 34~~

~~Corporation authorized an additional $200 million of share repurchases. For the current year, the Corporation expects~~plans to repurchase at least ~~$50~~$150 million of ~~additional shares through a 10b5-1 program.~~its common stock during the 2020 calendar year.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

There have been no material changes in our procedures by which our security holders may recommend nominees to our board of directors during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Information regarding security holder recommendations and nominations for directors is more fully described in the section entitled “Stockholder Recommendations and Nominations for Director” of our ~~2019~~2020 Proxy Statement on Schedule 14A, which is incorporated by reference to our ~~2018~~2019 Annual Report on Form 10-K.

Page 35

Item 6. EXHIBITS

Incorporated by Reference

Filed

Exhibit No.

Exhibit Description

Form

Filing Date

Herewith

3.1

Amended and Restated Certificate of Incorporation of the Registrant

8-A12B/A

May 24, 2005

3.2

Amended and Restated Bylaws of the Registrant

8-K

May 18, 2015

~~10.1~~

Instrument of Amendment No. 10 to the Curtiss-Wright Corporation Savings and Investment Plan, as Amended and Restated effective January 1, 2015*

~~10-Q~~

~~August 1, 2019~~

~~10.2~~

Instrument of Amendment No. 11 to the Curtiss-Wright Corporation Savings and Investment Plan, as Amended and Restated effective January 1, 2015*

~~10-Q~~

~~August 1, 2019~~

31.1

Certification of David C. Adams, Chairman and CEO, Pursuant to Rules 13a – 14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended

31.2

Certification of ~~Glenn E. Tynan,~~K. Christopher Farkas , Chief Financial Officer, Pursuant to Rules 13a – 14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended

Certification of David C. Adams, Chairman and CEO, and ~~Glenn E. Tynan,~~K. Christopher Farkas , Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

~~Indicates contract or compensatory plan or arrangement~~

Page 36

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

CURTISS-WRIGHT CORPORATION

(Registrant)

By: /s/ ~~Glenn E. Tynan~~K. Christopher Farkas

~~Glenn E. Tynan~~K. Christopher Farkas

Vice President and Chief Financial Officer

Dated: ~~October 31, 2019~~August 4, 2020

Page 37


	As of September 30, 2019
(In thousands)	Operating Leases		Finance Leases
2019	$	7,339	$	333
2020	28,517		1,342
2021	25,607		1,375
2022	19,468		1,410
2023	17,625		1,445
Thereafter	65,173		8,892
Total lease payments	163,729		14,797
Less: imputed interest	(22,878)		(2,796)
Total	$	140,851	$	12,001


Consolidated Statements of Earnings
	Three Months Ended										Nine Months Ended
	September 30,										September 30,
(In thousands)	2019		2018		% change		2019		2018		% change
Sales
Commercial/Industrial	$	304,888	$	295,239	3	%	$	916,662	$	904,343	1	%
Defense	149,854		138,372		8	%	415,838		403,450		3	%
Power	160,138		161,782		(1	%)	499,690		455,420		10	%
Total sales	$	614,880	$	595,393	3	%	$	1,832,190	$	1,763,213	4	%

Operating income
Commercial/Industrial	$	48,086	$	44,786	7	%	$	143,768	$	135,747	6	%
Defense	38,210		33,615		14	%	85,524		91,984		(7	%)
Power	26,362		28,249		(7	%)	80,650		62,792		28	%
Corporate and eliminations	(7,089)		(9,603)		26	%	(26,643)		(26,902)		1	%
Total operating income	$	105,569	$	97,047	9	%	$	283,299	$	263,621	7	%

Interest expense	7,951		7,949		—	%	23,183		25,719		(10	%)
Other income, net	6,355		3,843		65	%	17,704		12,497		42	%

Earnings before income taxes	103,973		92,941		12	%	277,820		250,399		11	%
Provision for income taxes	(21,463)		(18,458)		16	%	(59,645)		(57,485)		4	%
Net earnings	$	82,510	$	74,483			$	218,175	$	192,914

New orders	$	646,608	$	514,160	26	%	$	1,994,115	$	1,819,168	10	%