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11: R2 Condensed Consolidated Statements of Earnings HTML 115K
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Income (Unaudited)
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(Exact name of Registrant as specified in its charter)
iDelaware
i13-0612970
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i130 Harbour Place Drive, Suite 300
iDavidson,
iNorth
Carolina
i28036
(Address of principal executive offices)
(Zip Code)
(i704)
i869-4600
(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
iCommon
Stock
iCW
iNew 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.
iYes☒ 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).
iYes☒ 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.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
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 i☐ 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: i38,307,674 shares as of October 31, 2022.
Foreign currency translation adjustments, net of tax (1)
$
(i50,098)
$
(i16,273)
$
(i97,259)
$
(i12,990)
Pension
and postretirement adjustments, net of tax (2)
i3,856
i4,994
i13,610
i15,036
Other
comprehensive income (loss), net of tax
(i46,242)
(i11,279)
(i83,649)
i2,046
Comprehensive
income
$
i27,526
$
i58,424
$
i101,676
$
i192,626
(1)
The tax expense included in foreign currency translation adjustments for the three months ended September 30, 2022 was immaterial. The tax expense included in foreign currency translation adjustments for the nine months ended September 30, 2022 was $i1.7 million. The tax benefit included in foreign currency
translation adjustments for the three and nine months ended September 30, 2021 was immaterial.
(2) The tax expense included in pension and postretirement adjustments for the three and nine months ended September 30, 2022 was $i1.2 million and $i3.1
million, respectively. The tax expense included in pension and postretirement adjustments for the three and nine months ended September 30, 2021 was $i2.0 million and $i5.1
million, respectively.
See notes to condensed consolidated financial statements
See
notes to condensed consolidated financial statements
(1) For the three and nine months ended September 30, 2022, the Corporation repurchased approximately ii0.1/
million and ii0.3/ million shares
of its common stock, respectively. For the three and nine months ended September 30, 2021, the Corporation repurchased approximately i0.4 million and i0.6
million shares of its common stock, respectively.
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. iBASIS
OF PRESENTATION
i
Curtiss-Wright Corporation and its subsidiaries (the "Corporation" or the "Company") is a global integrated business that provides highly engineered products, solutions, and services mainly to aerospace & defense (A&D) markets, as well as critical technologies in demanding commercial power, process, and 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 using the over-time revenue recognition accounting method, 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 months ended September 30, 2022 and 2021, 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 2021 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.
2. iREVENUE
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
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. 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. If a performance obligation does not qualify for over-time revenue recognition, revenue is then recognized at the point-in-time in which control of the distinct good or service is transferred to the customer, typically based upon the terms of delivery.
iThe following table illustrates the approximate percentage of revenue recognized for performance obligations satisfied over-time versus at a point-in-time
for the three and nine months ended September 30, 2022 and 2021:
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 $i2.6 billion as of September 30, 2022, of which the Corporation expects to recognize approximately i90%
as net sales over the next i36 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:
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 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 months ended September 30, 2022 included in the contract liabilities balance as of January 1, 2022 was approximately $i54
million and $i189 million, respectively. Revenue recognized during the three and nine months ended September 30, 2021 included in the contract liabilities balance as of January 1, 2021 was approximately $i46
million and $i188 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. iACQUISITIONS
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 numerous 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
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 months ended September 30, 2022, the Corporation acquired ione business for an aggregate purchase
price of $i247 million, which is described in more detail below. The Condensed Consolidated Statement of Earnings for the nine months ended September 30, 2022 includes $i14 million
of total net sales and $i6 million of net losses from the Corporation's 2022 acquisition. During the nine months ended September 30, 2021, the Corporation did not complete any acquisitions.
i
The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the acquisition consummated during the nine months ended September 30, 2022.
(In thousands)
2022
Accounts receivable
$
i9,970
Inventory
i22,790
Property,
plant, and equipment
i1,683
Other current and non-current assets
i1,872
Intangible
assets
i130,500
Operating lease right-of-use assets, net
i1,197
Current
and non-current liabilities
(i9,607)
Net tangible and intangible assets
i158,405
Goodwill
i88,810
Total
purchase price
$
i247,215
Goodwill deductible for tax purposes
$
i88,810
/
2022
Acquisition
Safran Aerosystems Arresting Company ("arresting systems acquisition")
On iJune 30, 2022, the Corporation completed its arresting systems acquisition for $i247 million.
The Purchase Agreement contains a purchase price adjustment mechanism and representations and warranties customary for a transaction of this type. The acquired business is a designer and manufacturer of mission-critical, fixed-wing aircraft emergency arresting system, and operates within the Naval & Power segment. The acquisition is subject to post-closing adjustments with the purchase price allocation not yet complete.
4. iASSETS
HELD FOR SALE
In January 2022, the Corporation completed the sale of its industrial valve business in Germany, which was presented as held for sale in the Corporation's Consolidated Balance Sheet as of December 31, 2021, for gross cash proceeds of $i3 million. The Corporation recorded a loss of $i5 million
upon sale closing during the first quarter of 2022.
5. iRECEIVABLES
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
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
Recoverable costs and estimated earnings not billed
i314,692
i291,758
Less:
Progress payments applied
(i559)
(i1,297)
Net
unbilled receivables
i314,133
i290,461
Less:
Allowance for doubtful accounts
(i4,539)
(i5,320)
Receivables,
net
$
i713,592
$
i647,148
/
6. iINVENTORIES
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 net realizable value.
Inventoried
costs related to U.S. Government and other long-term contracts(1)
i41,764
i48,619
Inventories,
net of reserves
i507,417
i416,850
Less: Progress
payments applied
(i4,353)
(i5,283)
Inventories,
net
$
i503,064
$
i411,567
(1) This
caption includes capitalized development costs of $i18.4 million as of September 30, 2022 related to certain aerospace and defense programs. These capitalized costs will be liquidated as units are produced under contract. As of September 30, 2022, capitalized development costs of $i11.7
million are not currently supported by existing firm orders.
/
7. iGOODWILL
iThe
changes in the carrying amount of goodwill for the nine months ended September 30, 2022 are as follows:
(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 months ended September 30, 2022, the Corporation acquired intangible assets of $i130.5
million, which included Customer-related intangibles of $i94.6 million, Technology of $i31.5 million, and Other intangible
assets of $i4.4 million. The weighted average amortization periods for these aforementioned intangible assets are i15.9 years, i15.0
years, and i10.0 years, respectively.
Total intangible amortization expense for the nine months ended September 30, 2022 was $i46
million, as compared to $i45 million in the comparable prior year period. iThe
estimated future amortization expense of intangible assets over the next five years is as follows:
(In millions)
2022
$
i62
2023
$
i66
2024
$
i55
2025
$
i52
2026
$
i51
9. iFAIR
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.
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Undesignated hedges
The gains and losses on forward exchange derivative contracts not designated for hedge accounting are recognized to general and administrative expenses within the Condensed Consolidated
Statements of Earnings. The losses for the three and nine months ended September 30, 2022 were $i6 million and $i12 million,
respectively. The losses for both the three and nine months ended September 30, 2021 were $ii2/ million,
respectively.
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 30, 2022. 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 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.
In May 2022, the Corporation terminated its existing credit agreement, which was set to expire in October 2023, and entered into a new credit agreement (“Credit Agreement”) with a syndicate of financial institutions. The Credit Agreement, which is set to expire in May 2027, increases the size of the Corporation’s revolving credit facility to $i750 million, and expands the accordion feature to $i250 million.
The Corporation plans to use the Credit Agreement for general corporate purposes, which may include the funding of possible future acquisitions or supporting internal growth initiatives.
Senior Notes
On October 27, 2022, the Corporation announced that it formally closed its private placement debt offering of $i300 million for senior notes, consisting of $i200 million
i4.49% notes due 2032 and $i100 million i4.64%
notes due 2034.
10. iPENSION PLANS
Defined Benefit Pension Plans
The following table is a consolidated disclosure of all domestic and foreign defined benefit pension plans as described
in the Corporation’s 2021 Annual Report on Form 10-K.
iThe components of net periodic pension cost for the three and nine months ended September 30, 2022 and 2021 were as follows:
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended
Nine
Months Ended
September 30,
September 30,
(In thousands)
2022
2021
2022
2021
Service cost
$
i5,770
$
i6,931
$
i17,803
$
i20,921
Interest
cost
i5,442
i4,585
i16,148
i13,402
Expected
return on plan assets
(i13,525)
(i15,177)
(i41,240)
(i45,548)
Amortization
of prior service cost
i155
(i216)
(i18)
(i648)
Amortization
of unrecognized actuarial loss
i4,785
i6,988
i12,636
i21,705
Cost
of settlements
i—
i235
i1,842
i3,310
Net
periodic pension cost
$
i2,627
$
i3,346
$
i7,171
$
i13,142
The
Corporation did not make any contributions to the Curtiss-Wright Pension Plan during 2021, and does not expect to do so in 2022. Contributions to the foreign benefit plans are not expected to be material in 2022.
During the nine months ended September 30, 2022, as well as during the three and nine months ended September 30, 2021, the Company recognized settlement charges related to the retirement of former executives. The settlement charges represent events that are accounted for under guidance on employers’ accounting for settlements and curtailments of defined benefit pension plans.
Defined Contribution Retirement Plan
The
Company also maintains a defined contribution plan for all non-union employees who are not currently receiving final or career average pay benefits for its U.S. subsidiaries. The employer contributions include both employer match and non-elective contribution components up to a maximum employer contribution of i7% of eligible compensation. During the three and nine months ended September 30, 2022,
the expense relating to the plan was $i5.5 million and $i15.8 million, respectively. During the three and nine months
ended September 30, 2021, the expense relating to the plan was $i4.6 million and $i14.2
million, respectively.
11. iEARNINGS PER SHARE
Diluted earnings per share was computed based on the weighted-average number of shares outstanding plus all potentially dilutive common shares. iA
reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
Three Months Ended
Nine Months Ended
September 30,
September
30,
(In thousands)
2022
2021
2022
2021
Basic weighted-average shares outstanding
i38,368
i40,769
i38,416
i40,865
Dilutive
effect of deferred stock compensation
i279
i181
i239
i175
Diluted
weighted-average shares outstanding
i38,647
i40,950
i38,655
i41,040
For
the three and nine months ended September 30, 2022, approximately i49,000 and i37,000
shares, respectively, issuable under equity-based awards were excluded from the calculation of diluted earnings per share as they were anti-dilutive based on the average stock price during the period.
There were no anti-dilutive equity-based awards for the three months ended September 30, 2021. For the nine months ended September 30, 2021, approximately i41,000
shares issuable under equity-based awards were excluded from the calculation of diluted earnings per share as they were anti-dilutive based on the average stock price during the period.
12. iSEGMENT INFORMATION
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.
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
i
Net
sales and operating income by reportable segment were as follows:
Three Months Ended
Nine Months Ended
September 30,
September 30,
(In
thousands)
2022
2021
2022
2021
Net sales
Aerospace & Industrial
$
i213,656
$
i197,060
$
i614,817
$
i578,452
Defense
Electronics
i162,233
i182,314
i456,575
i528,080
Naval
& Power
i256,277
i242,891
i732,905
i737,967
Less:
Intersegment revenues
(i1,624)
(i1,646)
(i4,937)
(i5,326)
Total
consolidated
$
i630,542
$
i620,619
$
i1,799,360
$
i1,839,173
Operating
income (expense)
Aerospace & Industrial
$
i39,080
$
i30,872
$
i96,397
$
i81,874
Defense
Electronics
i36,588
i40,762
i84,338
i106,656
Naval
& Power
i41,576
i35,483
i118,865
i116,635
Corporate
and other (1)
(i9,661)
(i9,448)
(i33,402)
(i27,847)
Total
consolidated
$
i107,583
$
i97,669
$
i266,198
$
i277,318
(1)
Includes pension and other postretirement benefit expense, certain environmental costs related to remediation at legacy sites, foreign currency transactional gains and losses, and certain other expenses.
/
i
Adjustments to reconcile operating income to earnings before income taxes are as follows:
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
$
i18
Other
income, net
Amortization of actuarial losses
(i12,636)
Other income, net
Settlements
(i1,842)
Other
income, net
(i14,460)
Earnings before income taxes
i3,053
Provision
for income taxes
Total reclassifications
$
(i11,407)
Net earnings
/
14. iCONTINGENCIES
AND COMMITMENTS
From time to time, the Corporation and its subsidiaries are involved in legal proceedings that are incidental to the operation of our business. Some of these proceedings allege damages relating to asbestos and environmental exposures, intellectual property matters, copyright infringement, personal injury claims, employment and employee benefit matters, government contract issues, commercial or contractual disputes, and acquisitions or divestitures. The Corporation continues to defend vigorously against all claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including assessment of the merits of the particular claim, as well as
current accruals and insurance coverage, the Corporation does not expect that such legal proceedings will have a material adverse impact on its condensed consolidated financial statements.
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.
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
NOTES
to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
secure advance payments from certain international customers. As of September 30, 2022 and December 31, 2021, there were $i14.7 million and $i21.1
million of stand-by letters of credit outstanding, respectively, and $i2.4 million and $i4.5 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 $i35.2 million surety bond.
AP1000 Program
In February 2022, the Corporation and Westinghouse
Electric Company (WEC) executed a settlement agreement to resolve all open claims and counterclaims under the AP1000 U.S. and China contracts. Under the terms of the settlement agreement, the Corporation paid WEC $i15 million in March 2022 and is required to pay WEC a final amount of $i10
million in the first quarter of 2023 in exchange for the Corporation’s full release from all open claims under such contracts, whether known or unknown. Under the settlement, the parties also negotiated and executed a right of first refusal for all future AP1000 projects. As of December 31, 2021, the Corporation was adequately accrued regarding this matter.
15. iSUBSEQUENT
EVENTS
On October 27, 2022, the Corporation announced that it formally closed its private placement debt offering of $i300 million for senior notes, consisting of $i200 million
i4.49% notes due 2032 and $i100 million i4.64%
notes due 2034.
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, including the impacts to supply and demand, the impact of significant inflation, higher interest rates or deflation, and measures taken by governments and private industry in response, (d) statements of future economic performance and potential
impacts due to the conflict between Russia and Ukraine, and (e) 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 2021 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.
FINANCIAL CONDITION and RESULTS
OF OPERATIONS, continued
COMPANY ORGANIZATION
Curtiss-Wright Corporation is a global integrated business that provides highly engineered products, solutions, and services mainly to aerospace & defense markets, as well as critical technologies in demanding commercial power, process, and industrial markets. We report our operations through our Aerospace & Industrial, Defense Electronics, and Naval & Power segments. We operate across a diversified array of niche markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers. Approximately 66% of our 2022 revenues are expected to be generated from A&D-related markets.
COVID-19
In
March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic. The pandemic has adversely affected certain elements of our business, including our supply chain, transportation networks, and production levels. The extent to which COVID-19 continues to adversely impact our operations depends on future developments, including the impact of the global rollout of COVID-19 vaccines, the emergence and impact of any new COVID-19 variants, as well as the issuance of vaccine mandates by the Biden administration. However, 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 or any of its variants. 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 Credit Agreement, are expected to be more than sufficient to meet operating cash requirements, planned capital expenditures, principal payments on the current portion of long-term debt obligations, interest payments on long-term debt obligations, payments on lease obligations, pension and postretirement funding requirements, and dividend payments through the current year and beyond.
Business Environment
During the current period, we have experienced supply chain challenges, including increased lead times, as well as heightened levels of inflation in material and transportation costs due to availability constraints and high demand. Certain parts of our business have been adversely affected by disruptions that have hindered our ability to timely obtain raw materials and components from our suppliers in the required quantities, or
on favorable terms. In certain instances, these disruptions have delayed our ability to convert backlog into net sales in line with historical performance. We expect inflationary and supply chain constraint trends to continue throughout at least the remainder of 2022. While the long-term impact of these factors remains uncertain, we will continue to closely monitor the extent to which these factors will impact our business, financial condition, and results of operations.
Inflation Reduction Act of 2022 (IRA)
On August 16, 2022, the IRA was enacted into law. The statute includes a 15% corporate alternative minimum tax on adjusted financial statement income which is effective for the fiscal year ended February 2, 2024. The new law also imposes a 1%
excise tax on share repurchases, effective for repurchases made after December 31, 2022. We are currently assessing the potential impact of this law as it pertains to excise taxes, which will be dependent on the extent of share repurchases made in future periods.
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 month periods ended September 30, 2022. The financial information as of September
30, 2022 should be read in conjunction with the financial statements for the year ended December 31, 2021 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 operations followed by a more detailed discussion of those results within each of our reportable segments.
Our three reportable segments are generally concentrated in a few end markets; however, each may have sales across several end markets. 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.
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
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 impairment of assets held for sale and corresponding loss from sale of our industrial valves business in Germany as well as the effects of foreign currency translation.
Loss
on divestiture/impairment of assets held for sale
—
%
9
%
—
%
2
%
Foreign currency
(1
%)
—
%
(1
%)
—
%
Total
2
%
10
%
(2
%)
(4
%)
Sales
in the third quarter increased $10 million, or 2%, to $631 million, compared with the prior year period. On a segment basis, sales from the Aerospace & Industrial and Naval & Power segments increased $17 million and $13 million, respectively, with sales from the Defense Electronics segment decreasing $20 million.
Sales during the nine months ended September 30, 2022 decreased $40 million, or 2%, to $1,799 million, compared with the prior year period. On a segment basis, sales from the Defense Electronics and Naval & Power segments decreased $71 million and $5 million, respectively, with sales from the Aerospace & Industrial segment increasing $36 million. Changes in sales by segment are discussed in further detail in the results by business segment section below.
Operating income
in the third quarter increased $10 million, or 10%, to $108 million, and operating margin increased140 basis points to 17.1% compared with the same period in 2021. In the Aerospace & Industrial segment, operating income and operating margin benefited from favorable absorption on higher sales in the general industrial and commercial aerospace markets, as well as our ongoing operational excellence initiatives. Operating income and operating margin in the Naval & Power segment increased primarily due to a prior year impairment loss on assets held for sale in our industrial valves business in Germany, favorable absorption on higher organic sales, as well as the benefits of our ongoing operational excellence initiatives. These increases were partially offset by a decrease in operating income in the
Defense Electronics segment, primarily due to unfavorable overhead absorption on lower sales.
Operating income during the nine months ended September 30, 2022 decreased $11 million, or 4%, to $266 million and operating margin decreased 30 basis points to 14.8%, compared with the same period in 2021. In the Defense Electronics segment, decreases in operating income and operating margin were primarily due to unfavorable overhead absorption on lower sales. These decreases were partially offset by increases in operating income and operating margin in the Aerospace & Industrial segment, primarily due to favorable absorption on higher sales in the general industrial and commercial aerospace markets, as well as the benefits of our ongoing operational
excellence initiatives. In the Naval & Power segment, operating income was essentially flat while operating margin improved slightly, as favorable absorption on higher organic sales as well as lower current period losses associated with our industrial valves business in Germany were partially offset by first year purchase accounting costs from our arresting systems acquisition.
Non-segment operating expense in the third quarter of $10 million was essentially flat against the comparable prior year period. Non-segment operating expense during the nine months ended September 30, 2022 increased $6 million, or 20%, to $33 million, primarily due to costs associated with shareholder activism in the current period.
Interest expense in the
third quarter and nine months ended September 30, 2022 increased $4 million, or 41%, to $14 million, and $3 million, or 11%, to $33 million, primarily due to higher current period borrowings under our Credit Agreement.
Other income, net in the third quarter of $4 million was essentially flat against the comparable prior year period. Other income, net during the nine months ended September 30, 2022 increased $2 million, or 27%, to $11 million, primarily due to lower overall pension costs against the comparable prior year period.
The
effective tax rate of 24.2% in the third quarter increased compared to an effective tax rate of 23.7% in the prior year period, primarily due to provisional tax expense in the current period to record a valuation allowance on unused foreign tax credits. The effective tax rate of 24.1% for the nine months ended September 30, 2022 decreased as compared to an effective
FINANCIAL
CONDITION and RESULTS OF OPERATIONS, continued
tax rate of 25.6%, primarily due to a favorable state rate change on deferred tax liabilities in the current year versus an unfavorable foreign rate change on deferred tax liabilities in the prior year.
Comprehensive income in the third quarter was $28 million, compared to comprehensive income of $58 million in the prior year period. The change was primarily due to the following:
•Foreign currency translation adjustments in the third quarter resulted in a $50 million comprehensive loss, compared to a $16 million comprehensive loss in the prior year period. The comprehensive loss during the current period was primarily attributed to decreases in the
British Pound and Canadian dollar.
•Net earnings increased $4 million, primarily due to higher operating income.
Comprehensive income during the nine months ended September 30, 2022 was $102 million, compared to comprehensive income of $193 million in the prior year period. The change was primarily due to the following:
•Foreign currency translation adjustments for the nine months ended September 30, 2022 resulted in a $97 million comprehensive loss, compared to a $13 million comprehensive loss in the prior period. The comprehensive
loss during the current period was primarily attributed to decreases in the British Pound and Canadian dollar.
•Net earnings decreased $5 million, primarily due to lower operating income and higher interest expense.
New orders in the third quarter and nine months ended September 30, 2022 increased $189 million and $328 million, respectively, from the comparable prior year periods, primarily due to the timing of naval defense orders and the incremental impact from our arresting systems acquisition in the Naval & Power segment, as well as an increase in new orders for ground defense and aerospace defense equipment
in the Defense Electronics segment. New orders in both periods also benefited from an increase in new orders for commercial aerospace equipment in the Aerospace & Industrial segment.
RESULTS BY BUSINESS SEGMENT
Aerospace & Industrial
The following tables summarize sales, operating income and margin, and new orders within the Aerospace & Industrial segment.
Three
Months Ended
Nine Months Ended
September 30,
September 30,
(In thousands)
2022
2021
% change
2022
2021
% change
Sales
$
213,093
$
196,296
9%
$
612,777
$
576,340
6%
Operating
income
39,080
30,872
27%
96,397
81,874
18%
Operating margin
18.3
%
15.7
%
260
bps
15.7
%
14.2
%
150 bps
New orders
$
216,997
$
206,066
5%
$
660,590
$
628,006
5%
Components
of sales and operating income increase (decrease):
Sales
in the Aerospace & Industrial segment are primarily generated from the commercial aerospace and general industrial markets, and to a lesser extent the defense and power & process markets.
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
Sales in the third quarter increased $17 million, or 9%, to $213 million from the prior year period,
primarily due to higher sales in the general industrial and commercial aerospace markets. Sales in the general industrial market increased $11 million primarily due to higher demand for industrial vehicle products. In the commercial aerospace market, sales increased $5 million due to higher demand for sensors products as well as surface treatment services on various narrowbody and widebody platforms.
Sales during the nine months ended September 30, 2022 increased$36 million, or 6%, to $613 million from the prior year period, primarily due to higher sales in the general industrial and commercial aerospace markets. Sales in the general industrial market increased $20 million primarily due to higher demand for industrial vehicle products. In the commercial aerospace market, sales increased $15 million primarily
due to higher demand for actuation and sensors products as well as surface treatment services.
Operating income in the third quarter increased $8 million, or 27%, to $39 million from the prior year period, and operating margin increased 260 basis points to 18.3%. Operating income during the nine months ended September 30, 2022 increased $15 million, or 18%, to $96 million from the prior year period, and operating margin increased 150 basis points to 15.7%. Increases in operating income and operating margin for each of the respective periods were primarily due to favorable absorption on higher sales in the general industrial and commercial aerospace markets, as well as the benefits of our ongoing operational excellence
initiatives.
New orders in the third quarter and nine months ended September 30, 2022 increased $11 million and $33 million, respectively, from the comparable prior year periods, as an increase in new orders for commercial aerospace equipment was partially offset by the timing of new orders for industrial vehicles.
Defense Electronics
The following tables summarize sales, operating income and margin, and new orders within the Defense Electronics segment.
Three
Months Ended
Nine Months Ended
September 30,
September 30,
(In thousands)
2022
2021
% change
2022
2021
% change
Sales
$
161,188
$
181,504
(11%)
$
453,806
$
525,067
(14%)
Operating
income
36,588
40,762
(10%)
84,338
106,656
(21%)
Operating margin
22.7
%
22.5
%
20
bps
18.6
%
20.3
%
(170 bps)
New orders
$
249,223
$
172,802
44%
$
604,353
$
532,575
13%
Components
of sales and operating income increase (decrease):
Sales
in the Defense Electronics segment are primarily to the defense markets and, to a lesser extent, the commercial aerospace market.
Sales in the third quarter decreased $20 million, or 11%, to $161 million from the prior year period. In the aerospace defense market, sales decreased $14 million primarily due to ongoing supply chain headwinds, which contributed to lower sales of
FINANCIAL
CONDITION and RESULTS OF OPERATIONS, continued
embedded computing and flight test equipment. In the ground defense market, we experienced lower sales of tactical communications equipment, primarily due to the aforementioned supply chain headwinds.
Sales during the nine months ended September 30, 2022 decreased $71 million, or 14%, to $454 million from the prior year period. In the aerospace defense market, sales decreased $30 million primarily due to ongoing supply chain headwinds as well as the delayed signing of the FY22 defense budget, which contributed to lower sales of embedded computing equipment on various programs. The ground defense market was also negatively impacted by ongoing supply chain headwinds, which resulted in lower sales of $27 million, primarily on embedded computing
and tactical communications equipment on various programs. In the commercial aerospace market, sales decreased $12 million primarily due to lower sales of electronic systems and flight test equipment on various domestic and international platforms.
Operating income in the third quarter decreased $4 million, or 10%, to $37 million compared to the prior year period, and operating margin increased 20 basis points from the prior year period to 22.7%. Operating income was negatively impacted by unfavorable overhead absorption on lower sales, while operating margin benefited from our ongoing operational excellence initiatives.
Operating income during the nine months ended September 30, 2022 decreased $22 million, or 21%, to $84 million, and operating margin decreased 170 basis
points from the prior year period to 18.6%, primarily due to unfavorable overhead absorption on lower sales.
New orders in the third quarter and nine months ended September 30, 2022 increased $76 million and $72 million, respectively, against the comparable prior year periods, primarily due to an increase in new orders for ground defense and aerospace defense equipment.
Naval & Power
The following tables summarize sales, operating income and margin, and new orders within the Naval & Power segment.
Three
Months Ended
Nine Months Ended
September 30,
September 30,
(In thousands)
2022
2021
% change
2022
2021
% change
Sales
$
256,261
$
242,819
6%
$
732,777
$
737,766
(1%)
Operating
income
41,576
35,483
17%
118,865
116,635
2%
Operating margin
16.2
%
14.6
%
160
bps
16.2
%
15.8
%
40 bps
New orders
$
351,847
$
250,178
41%
$
963,552
$
740,322
30%
Components
of sales and operating income increase (decrease):
Loss
on divestiture/impairment of assets held for sale
—
%
24
%
—
%
3
%
Foreign currency
—
%
1
%
—
%
—
%
Total
6
%
17
%
(1
%)
2
%
Sales
in the Naval & Power segment are primarily to the naval defense and power & process markets, and to a lesser extent, the aerospace defense market.
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
Sales in the third quarter increased $13 million, or 6%, to $256 million from the prior year period, primarily due
to the impact of our arresting systems acquisition in the aerospace defense market, which contributed incremental sales of $14 million. In the power & process market, higher nuclear aftermarket sales were more than offset by the wind-down on the China Direct AP1000 program.
Sales during the nine months ended September 30, 2022 decreased $5 million, or 1%, to $733 million from the prior year period. Sales decreased $13 million in the naval defense market, as higher demand on the Columbia-class submarine and CVN-81 aircraft carrier programs was more than offset by lower sales on the CVN-80 aircraft carrier and Virginia-class submarine programs. In the power & process market, higher nuclear aftermarket sales were more than offset by the wind-down on the China Direct AP1000 program. These decreases were partially offset by the impact of our arresting systems
acquisition in the aerospace defense market, which contributed incremental sales of $14 million.
Operating income in the third quarter increased $6 million, or 17%, to $42 million, and operating margin increased 160 basis points from the prior year period to 16.2%, primarily due to a prior year impairment loss on assets held for sale related to our industrial valves business in Germany, favorable absorption on higher organic sales, as well as the benefits of our ongoing operational excellence initiatives. These increases were partially offset by unfavorable mix in the power & process market, as well as first year purchase accounting costs from our arresting systems acquisition.
Operating income during the nine months ended September
30, 2022 increased $2 million, or 2%, to $119 million, and operating margin increased 40 basis points from the prior year period to 16.2%, primarily due to favorable absorption on higher organic sales, as well as lower current period losses associated with our industrial valves business in Germany, which was sold in the current period. These increases were partially offset by first year purchase accounting costs from our arresting systems acquisition.
New orders in the third quarter and nine months ended September 30, 2022 increased $102 million and $223 million, respectively, from the comparable prior year periods, primarily due to the timing of naval defense orders, the incremental impact from our arresting systems acquisition, as
well as an increase in new orders for nuclear aftermarket and process products.
SUPPLEMENTARY INFORMATION
The table below depicts sales by end market and customer type, as it helps 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.
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
Total Net Sales by End Market and
Customer Type
Three Months Ended
Nine Months Ended
September 30,
September 30,
(In thousands)
2022
2021
% change
2022
2021
% change
Aerospace
& Defense markets:
Aerospace Defense
$
114,431
$
116,853
(2
%)
$
306,980
$
327,847
(6
%)
Ground
Defense
54,890
55,124
—
%
138,391
159,090
(13
%)
Naval Defense
174,844
175,800
(1
%)
510,597
531,429
(4
%)
Commercial
Aerospace
70,257
67,461
4
%
199,341
196,285
2
%
Total Aerospace & Defense
$
414,422
$
415,238
—
%
$
1,155,309
$
1,214,651
(5
%)
Commercial
markets:
Power & Process
$
110,559
$
112,736
(2
%)
$
340,702
$
343,573
(1
%)
General
Industrial
105,561
92,645
14
%
303,349
280,949
8
%
Total Commercial
$
216,120
$
205,381
5
%
$
644,051
$
624,522
3
%
Total
Curtiss-Wright
$
630,542
$
620,619
2
%
$
1,799,360
$
1,839,173
(2
%)
Aerospace & Defense markets
Sales
in the third quarter decreased $1 million, or less than 1%, to $414 million against the comparable prior year period. In the aerospace defense market, the incremental impact from our arresting systems acquisition was more than offset by lower sales of embedded computing and flight test equipment, primarily due to ongoing supply chain headwinds. Sales in the commercial aerospace market benefited from higher demand for sensors products as well as surface treatment services on various narrowbody and widebody platforms. Sales in the ground defense and naval defense markets were essentially flat.
Sales during the nine months ended September 30, 2022 decreased $59 million, or 5%, to $1,155 million, primarily due to lower sales in the aerospace defense, ground defense, and naval defense markets.
Sales in the aerospace defense and ground defense markets decreased primarily due to ongoing supply chain headwinds and the delayed signing of the FY22 defense budget. Sales decreases in the naval defense market were primarily due to lower sales on the CVN-80 aircraft carrier and Virginia-class submarine programs, partially offset by higher demand on the Columbia-class submarine and CVN-81 aircraft carrier programs.
Commercial markets
Sales in the third quarter increased $11 million, or 5%, to $216 million primarily due to higher demand for our industrial vehicle products in the general industrial market.
Sales during the nine months ended September 30, 2022 increased $20 million, or 3%, to $644
million primarily due to higher demand for our industrial vehicle products in the general industrial market. In the power & process market, higher nuclear aftermarket sales were offset by the wind-down on the China Direct AP1000 program.
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, capital expenditures, 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,
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
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.
Net increase (decrease) in cash and cash equivalents
(57,452)
36,168
Net cash provided by operating activities decreased $153 million from the
prior year period, primarily due to lower defense revenues, higher inventory purchases, lower advanced cash receipts, and a legal settlement payment made to WEC during the current period.
Net cash used for investing activities increased$252 million from the prior year period, primarily due to our arresting systems acquisition for $247 million.
Net cash provided by financing activities increased $329 million from the prior year period, primarily due to higher current period net borrowings under our Credit Agreement. Refer to the "Financing Activities" section below for further details.
Financing Activities
Debt
The Corporation’s debt outstanding had an average interest rate of 3.6% and 3.3% for the three and nine months ended September 30, 2022, respectively and 3.6% for both the three and nine months ended September 30, 2021, respectively. The Corporation’s average debt outstanding was $1.4 billion and $1.2 billion for the three and nine months ended September 30, 2022, and $1.1 billion for both the three and nine months ended September 30, 2021, respectively.
On October 27, 2022, the Corporation announced that it formally closed its private placement debt offering of $300 million for senior notes,
consisting of $200 million 4.49% notes due 2032 and $100 million 4.64% notes due 2034.
Revolving Credit Agreement
In May 2022, the Corporation terminated its existing credit agreement, which was set to expire in October 2023, and entered into a new Credit Agreement with a syndicate of financial institutions. The Credit Agreement, which is set to expire in May 2027, increases the size of the Corporation’s revolving credit facility to $750 million, and expands the accordion feature to $250 million.
As of September 30, 2022, the Corporation had $388 million of outstanding borrowings under the Credit Agreement, and $15 million in letters of credit supported by the Credit
Agreement. The unused credit available under the Credit Agreement as of September 30, 2022 was $347 million, which could be borrowed without violating any of our debt covenants.
Repurchase of common stock
During the nine months ended September 30, 2022, the Corporation used $44 million of cash to repurchase approximately 0.3 million outstanding shares under its share repurchase program. During the nine months ended September 30, 2021, the Corporation used $79 million of cash to repurchase approximately 0.6 million outstanding shares under its share repurchase program.
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued
Cash Utilization
Management continually evaluates cash utilization alternatives, including share repurchases, acquisitions, increased dividends, capital expenditures, and repaying 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.
Dividends
The Corporation made dividend payments of $14 million during both the nine months ended September 30, 2022 and September 30, 2021, respectively. Additionally, beginning in the second quarter, the Corporation increased its quarterly dividend 6% to $0.19 per share.
In the third quarter, the Corporation declared dividends of $7 million, which was paid to shareholders of record in October 2022.
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 30, 2022, we had the ability to borrow additional debt of $1.4 billion without violating our debt to capitalization covenant.
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 2021 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on February 24, 2022, 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.
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Item
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk during the nine months ended September 30, 2022. 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 2021 Annual Report on Form 10-K.
Item 4. CONTROLS AND PROCEDURES
As of September 30, 2022, 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 30, 2022 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 30, 2022, 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.
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PART
II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we are involved in legal proceedings that are incidental to the operation of our business. Some of these proceedings allege damages relating to asbestos and environmental exposures, intellectual property matters, copyright infringement, personal injury claims, employment and employee benefit matters, government contract issues, commercial or contractual disputes, and acquisitions or divestitures. We continue to defend vigorously against all claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including assessment of the merits of the particular claim, as
well as current accruals and insurance coverage, 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 condensed consolidated financial condition, results of operations, and cash flows.
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 and the relatively non-friable condition of asbestos in our products make it unlikely that we will face material liability in any asbestos litigation, whether individually or in the aggregate. We maintain insurance coverage for these potential liabilities and we believe adequate coverage exists to cover any unanticipated asbestos liability.
Item
1A. RISK FACTORS
There have been no material changes in our Risk Factors during the nine months ended September 30, 2022. Information regarding our Risk Factors is more fully described in "Item 1A. Risk Factors" of our 2021 Annual Report on Form 10-K.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF 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
30, 2022.
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
In
December 2021, the Corporation adopted two written trading plans in connection with its previously authorized share repurchase program, which allowed for the purchase of its outstanding common stock up to $550 million, of which $213 million remains available for repurchase as of September 30, 2022. The first trading plan includes share repurchases of $50 million, to be executed equally throughout the 2022 calendar year. The second trading plan, which included opportunistic share repurchases up to $100 million to be executed through a 10b5-1 plan, was completed as of December 31, 2021.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
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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 months ended September 30, 2022. Information regarding security holder recommendations and nominations for directors is more fully described in the section entitled “Stockholder Nominations for Directors” of our 2022 Proxy Statement on Schedule 14A, which is incorporated by reference to our 2021 Annual Report on Form 10-K.
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.