CURTISS WRIGHT CORP - 10-Q Quarterly Report

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

No contributions have been made to the pension plans during the nine months ended September 30, 2004. The Corporation anticipates contributing $2.5 million to the EMD pension plan in the fourth quarter of 2004, although there is no required minimum amount for the year. No contributions are estimated to be made to the Curtiss-Wright Pension plan due to its funded status.

The components of the net postretirement benefit cost for the three months ended September 30, 2004 and 2003 were:

				(In thousands)
	Curtiss-Wright Plan						EMD Plan
	Sept 30, 2004			Sept 30, 2003			Sept 30, 2004		Sept 30, 2003
Service cost	$	—		$	—		$	219	$	176
Interest cost		7			9			643		597
Amortization of net (gain) loss		(15	)		(18	)		—		—

Net periodic benefit (income) cost	$	(8	)	$	(9	)	$	862	$	773

The components of the net postretirement benefit cost for the nine months ended September 30, 2004 and 2003 were:

				(In thousands)
	Curtiss-Wright Plan						EMD Plan
	Sept 30, 2004			Sept 30, 2003			Sept 30, 2004		Sept 30, 2003
Service cost	$	—		$	—		$	657	$	529
Interest cost		23			29			1,876		1,791
Amortization of net (gain) loss		(45	)		(55	)		—		—
Net periodic benefit (income) cost	$	(22	)	$	(26	)	$	2,533	$	2,320

During the nine months ended September 30, 2004, the Corporation has paid $0.1 and $1.6 million on the Curtiss-Wright and EMD postretirement plans, respectively. During 2004, the Corporation anticipates contributing $0.1 million and $2.2 million to the postretirement plans, respectively.

The Medicare Prescription Drug, Improvement and Modernization Act (the “Act”) was enacted in December 2003. The Act introduces a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of postretirement benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to the benefit provided by Medicare Part D. The Corporation, in consultation with its actuary, has determined that there would be no impact on the Curtiss-Wright Postretirement Benefit Plan. However, the Corporation is currently unable to conclude whether the benefits provided by its EMD Postretirement Benefit Plan are actuarially equivalent to Medicare Part D under the Act. The Corporation’s actuary is currently in the process of determining the actuarially equivalent benefit, if any, and as such, the effects of this Act have not yet been reflected in the accumulated postretirement benefit obligation or net periodic postretirement benefit cost.

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

	(In thousands, except per share data)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003

Net earnings, as reported	$	14,720		$	12,519		$	44,653		$	37,514
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(482	)		(315	)		(1,367	)		(945	)
Pro forma net earnings	$	14,238		$	12,204		$	43,286		$	36,569

Net earnings per share:
As reported:
Basic	$	0.69		$	0.61		$	2.11		$	1.82
Diluted	$	0.68		$	0.60		$	2.08		$	1.80
Pro forma:
Basic	$	0.67		$	0.59		$	2.05		$	1.77
Diluted	$	0.66		$	0.58		$	2.02		$	1.75

Employee Stock Purchase Plan

In April 2003, the Corporation’s Board of Directors and stockholders approved the 2003 Employee Stock Purchase Plan (the “ESPP”) under which eligible employees may purchase the Corporation’s common stock at a price per share equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each offering period. The first offering period of the ESPP began on January 1, 2004. Participation in the offering is limited to 10% of an employee’s compensation (not to exceed amounts allowed under Section 423 of the Internal Revenue Code), may be terminated at any time by the employee, and automatically ends on termination of employment with the Corporation. A total of 1,000,000 shares of common stock have been reserved for issuance under the ESPP. During the nine months ended September 30, 2004, 35,000 shares were purchased under the ESPP. As of September 30, 2004, there were 965,000 shares available for future offerings.

12.

ENVIRONMENTAL MATTERS

The Corporation establishes a reserve for a potential environmental liability when it concludes that a determination of legal liability is probable based upon the advice of counsel. Such amounts reflect the Corporation’s estimate of the amount of that liability. If only a range of potential liability can be estimated, a reserve will be established at the low end of that range. Such reserves represent current values of anticipated remediation not reduced by any potential recovery from insurance carriers or through contested third-party legal actions and are not discounted for the time value of money.

The Corporation has been named as a potentially responsible party (“PRP”), as have many other corporations and municipalities, in a number of environmental clean-up sites. The Corporation continues to make progress in resolving these claims through

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

settlement discussions and payments from established reserves. Significant sites remaining open at the end of the quarter are: Caldwell Trucking landfill superfund site, Fairfield, New Jersey; Sharkey landfill superfund site, Parsippany, New Jersey; Amenia landfill site, Amenia, New York; and Chemsol, Inc. superfund site, Piscataway, New Jersey. The Corporation believes that the outcome for any of these remaining sites will not have a materially adverse effect on the Corporation’s results of operations or financial condition.

In the first quarter of 2004, the Corporation signed a PRP agreement joining a number of other companies to respond to a U.S.E.P.A. Request For Information concerning the Lower Passaic River site. As of September 30, 2004, the Corporation considers itself a nominal participant and the outcome of this matter would not have a materially adverse effect on the Corporation’s results of operation or financial condition.

13.

SEGMENT INFORMATION

			(In thousands) Three Months Ended September 30, 2004
	Flow Control		Motion Control		Metal Treatment		Segment Totals		Corporate & Other⁽¹⁾			Consolidated Totals
Revenue from external customers	$	94,204	$	97,727	$	44,643	$	236,574	$	—		$	236,574
Intersegment revenues		—		—		145		145		(145	)		—
Operating income		9,845		10,399		6,817		27,061		(1,596	)		25,465


			(In thousands) Three Months Ended September 30, 2003
	Flow Control		Motion Control		Metal Treatment		Segment Totals		Corporate & Other ⁽¹⁾			Consolidated Totals
Revenue from external customers	$	84,167	$	70,157	$	35,294	$	189,618	$	—		$	189,618
Intersegment revenues		—		—		151		151		(151	)		—
Operating income		7,110		9,537		4,321		20,968		427			21,395

⁽¹⁾

^{Corporate and Other includes pension income/expense, which has been reclassified from prior year presentation.}

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

	(In thousands) Nine Months Ended September 30, 2004
	Flow Control		Motion Control		Metal Treatment		Segment Totals		Corporate & Other ⁽¹⁾			Consolidated Totals
Revenue from external customers	$	269,804	$	272,649	$	131,482	$	673,935	$	—		$	673,935
Intersegment revenues		—		—		418		418		(418	)		—
Operating income		29,122		28,700		20,971		78,793		(2,435	)		76,358

	(In thousands) Nine Months Ended September 30, 2003
	Flow Control		Motion Control		Metal Treatment		Segment Totals		Corporate & Other ⁽¹⁾			Consolidated Totals
Revenue from external customers	$	263,125	$	188,181	$	101,102	$	552,408	$	—		$	552,408
Intersegment revenues		—		—		419		419		(419	)		—
Operating income		30,176		18,734		13,102		62,012		1,218			63,230

(1)

Corporate and Other includes pension income/expense, which has been reclassified from prior year presentation.

	(In thousands) Identifiable Assets
	Flow Control		Motion Control		Metal Treatment		Segment Totals		Corporate & Other		Consolidated Totals
September 30, 2004	$	381,470	$	519,507	$	190,232	$	1,091,209	$	90,911	$	1,182,120
December 31, 2003		323,689		317,631		170,547		811,867		161,798		973,665

Adjustments to reconcile to earnings before income taxes:

	(In thousands)
	Three months ended September 30,						Nine months ended September 30,
	2004			2003			2004			2003
Total segment operating income	$	27,061		$	20,968		$	78,793		$	62,012
Corporate and administrative		(1,596	)		427			(2,435	)		1,218
Other income (expense), net		185			(91	)		(11	)		182
Interest expense		(3,135	)		(1,113	)		(8,418	)		(2,906	)
Earnings before income taxes	$	22,515		$	20,191		$	67,929		$	60,506

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

14. COMPREHENSIVE INCOME

Total comprehensive income for the three months and nine months ended September 30, 2004 and 2003 are as follows:

	(In thousands)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Net earnings	$	14,720	$	12,519	$	44,653	$	37,514
Translation adjustments, net		818		1,485		403		7,486
Total comprehensive income	$	15,538	$	14,004	$	45,056	$	45,000

The translation adjustments represent the effect of translating the assets and liabilities of the Corporation’s non-U.S. entities. This amount is impacted year-over-year by foreign currency fluctuations and by the acquisitions of foreign entities.

15. CONTINGENCIES AND COMMITMENTS

The Corporation, through its subsidiary located in Switzerland, entered into a credit agreement with UBS AG (“UBS”) for a credit facility in the amount of 6.0 million Swiss francs ($4.8 million) for the issue of performance guarantees related to long-term contracts. The Corporation receives prepayments on certain contracts, which are used as collateral against the credit facility. The customers can draw down on the line of credit for nonperformance up to the amount of pledged collateral, which is released from restriction over time as the Corporation meets its obligations under the long-term contracts. Under the terms of this credit facility, the Corporation is not permitted to borrow against the line of credit. The Corporation is charged a commitment fee on the outstanding balance of the collateralized cash. As of September 30, 2004, the amount of restricted cash under this facility was $0.5 million, $0.1 million of which is expected to be released from restriction within one year.

The Corporation has several NRC licenses necessary for the continued operation of the business. In connection with these licenses, the NRC required financial assurance from the Corporation (in the form of a parent company guarantee) representing estimated environmental decommissioning and remediation costs associated with the commercial operations covered by the licenses. The guarantee for the decommissioning costs of the refurbishment facility, which is estimated for 2017, is $3.1 million.

Consistent with other entities its size, the Corporation is party to several legal actions and claims, none of which individually or in the aggregate, in the opinion of management, are expected to have a material adverse effect on the Corporation’s results of operations or financial position.

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART 1 – ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS

COMPANY ORGANIZATION

The Corporation manages and evaluates its operations based on the products and services it offers and the different markets it serves. Based on this approach, the Corporation has three reportable segments: Flow Control, Motion Control, and Metal Treatment. The Flow Control segment primarily designs, manufactures, distributes, and services a broad range of highly engineered flow control products for severe service military and commercial applications. The Motion Control segment primarily designs, develops, and manufactures mechanical systems, drive systems, embedded computing solutions, and electronic controls and sensors for the aerospace, defense, and general industrial markets. Metal Treatment provides a variety of metallurgical services, principally shot peening, heat treating, and coatings, for various industries, including aerospace, automotive, construction equipment, oil and gas, petrochemical, and metal working.

RESULTS of OPERATIONS

Analytical definitions

Throughout management’s discussion and analysis of financial condition and results of operations, the terms “incremental” and “base” are used to explain changes from period to period. For quarterly reporting purposes, acquisitions are segregated from the results of the Corporation’s base businesses for a full year, or in the more likely event of a mid-quarter acquisition, 5 quarters. For year to date reporting purposes, acquisitions remain segregated for two years, and the remaining businesses are referred to as the “base” businesses. An acquisition is considered base when the reporting period includes fully comparable current and prior period data. Therefore, for the third quarter our organic growth excludes the fourteen acquisitions acquired since the second quarter of 2003. For the first nine months of 2004 our organic growth excludes all acquisitions since January 1, 2003.

Three months ended September 30, 2004

Sales for the third quarter of 2004 totaled $236.6 million, an increase of 25% from sales of $189.6 million for the third quarter of 2003. New orders received for the current quarter of $239.7 million were up 89% over the orders of $126.8 million for the third quarter of 2003. Acquisitions made in the second half of 2003 and in 2004 contributed $53.1 million in incremental new orders received in the third quarter of 2004. Backlog increased 13% to $570.9 million at September 30, 2004 from $505.5 million at December 31, 2003. Acquisitions made during 2004 represented $58.7 million of the backlog at September 30, 2004. Approximately 64% of the Corporation’s backlog is from military business.

Sales for the third quarter of 2004 as compared to the same period last year benefited from the acquisitions completed in the second half of 2003 and in 2004, which contributed $43.0 million in incremental sales (or 92% of the overall increase) in the third quarter of 2004. The majority of these incremental sales came from the eight acquisitions made within our Motion Control segment since August 2003. The sales for the third quarter of 2004 also benefited from overall organic growth of 2%, led by the Metal Treatment segment, which grew organically 21% over the comparable prior year period. Organic sales within our Motion Control segment decreased 5% for the third quarter of 2004 mainly due to lower military aerospace and ground defense

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

sales related to the timing of contractual revenues. The organic sales within our Flow Control segment were flat quarter over quarter.

Higher sales of metal treatment services from our global shot peening, heat treating, and laser peening services of $6.4 million, higher sales of certain flow control products to the oil and gas industry of $3.8 million and the power generation market of $3.2 million, higher sales of flow control products to the defense electronics market of $1.6 million, and higher sales of commercial aerospace aftermarket services of $1.1 million all contributed to the organic growth in the quarter as compared to the prior year period. This organic growth was offset by the lower sales of flow control products to the U.S. Navy due to timing of contractual revenues of $8.9 million, lower sales of motion control electronic products of $4.7 million for use on military ground vehicles, and lower sales of motion control products of $1.9 million to the military aerospace market. Foreign exchange translation had a favorable impact on sales for the third quarter of 2004, contributing $4.1 million to the sales increase from the prior year period.

Operating income for the third quarter of 2004 totaled $25.5 million, an increase of 19% from $21.4 million for the same period last year. The increase is primarily attributable to the higher sales volume, favorable sales mix, and previously implemented cost reduction initiatives, which resulted in higher organic operating income from our base businesses of 7%. The organic operating income growth was mainly due to increases at the Metal Treatment and Flow Control segments of 54% and 47%, respectively. In addition, acquisitions completed in the second half of 2003 and in 2004 contributed $2.8 million in incremental operating income to the third quarter of 2004. The solid segment operating income growth was achieved despite the absorption of $1.3 million in costs associated with Sarbanes-Oxley Section 404 compliance and was partially offset by $0.8 million of lower pension income for the third quarter of 2004, due to additional service costs resulting from the acquisitions and slightly lower investment returns. Foreign exchange translation had a favorable impact of $0.7 million on operating income for the third quarter of 2004 as compared to the prior year period.

Net earnings for the third quarter of 2004 totaled $14.7 million, or $0.68 per diluted share, which represents an increase of 18% over the net earnings for the third quarter of 2003 of $12.5 million, or $0.60 per diluted share (adjusted for the December 2003 2-for-1 stock split). Higher segment operating income in the third quarter of 2004 of $6.1 million more than offset the Corporation’s lower pension income and higher interest expense as compared to the third quarter of 2003. The higher interest expense for the third quarter of 2004 was due to higher debt levels associated with the funding of the Corporation’s acquisition program and higher interest rates. Net earnings for the third quarter of 2004 include a one-time tax benefit of $0.6 million resulting from the recognition of a previously unprovided for deferred tax asset.

Nine months ended September 30, 2004

Sales for the first nine months of 2004 increased 22% to $673.9 million as compared to $552.4 million for the same period last year. New orders received for the first nine months of $683.2 million, were up 32% over the orders of $517.8 million for the first nine months of 2003. Acquisitions made in 2003 and 2004 contributed $106.5 million in incremental new orders received in the first nine months of 2004.

The sales increase is mainly due to the contributions from acquisitions and organic growth in some of our base businesses. Acquisitions made in 2003 and 2004 contributed $101.4 million in incremental sales (or 83% of the total increase) for the nine months ended September 30,

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

2004. The majority of these incremental sales came from the nine acquisitions made within our Motion Control segment since January 2003. Sales for the first nine months of 2004 also benefited from overall organic growth of 4%. The organic growth was driven by our Metal Treatment and Motion Control segments, which experienced organic growth of 21% and 4%, respectively, for the first nine months of 2004 as compared to the prior year period. Organic sales for our Flow Control segment decreased 2% for the first nine months of 2004 as compared to the same period last year, mainly due to lower sales to the U.S. Navy.

In our base businesses, higher metal treatment sales of our global shot peening, laser peening, and heat treating services of $15.0 million, higher sales of certain flow control products to the power generation market of $8.9 million, the defense electronics markets of $5.4 million, and the oil and gas industry of $3.5 million, higher sales of our motion control products to the military aerospace market of $9.5 million, and to the commercial aerospace aftermarket services of $2.4 million, all contributed to the organic sales growth for the first nine months of 2004 as compared to the same period last year. This organic growth was partially offset by the lower sales of flow control products to the U.S. Navy due to timing of contractual revenues, a decrease of $26.2 million. In the first nine months of 2003, the Flow Control segment completed the shipment of two large projects to the U.S. Navy, which generated approximately $25 million in sales. In addition, lower sales of motion control electronic products of $11.8 million for use on domestic and European ground defense markets partially offset the overall organic growth. Favorable foreign exchange translation positively impacted sales for the first nine months of 2004 by $11.8 million as compared to the same period last year.

Operating income for the first nine months of 2004 increased to $76.4 million, up 21% over the $63.2 million from the same period last year. The increase is primarily due to the higher sales volume, favorable mix, and previously implemented cost reduction initiatives. Higher operating income from our base businesses, which increased 12% for the first nine months of 2004, was driven by strong organic growth in our Metal Treatment and Motion Control segments of 67% and 24%, respectively, over the prior year period. Operating income from the base businesses within our Flow Control segment decreased 2% as compared to the prior year period, mainly due to the two large high margin projects for the U.S. Navy in 2003 that did not occur in 2004. The solid segment operating income growth was achieved despite the absorption of $1.7 million in costs associated with Sarbanes-Oxley Section 404 compliance and lower pension income of $2.0 million due to additional service costs resulting from the acquisitions and slightly lower investment returns for the nine months ended September 30, 2004 over the comparable prior year period. Foreign exchange translation had a favorable impact of $1.9 million on operating income for the first nine months of 2004 as compared to the prior year period.

Net earnings for the first nine months of 2004 totaled $44.7 million, or $2.08 per diluted share, representing an increase of 19% over net earnings of $37.5 million, or $1.80 per diluted share (adjusted for the December 2003 2-for-1 stock split) for the first nine months of 2003. Net earnings for the first nine months of 2004 included two one-time tax benefits totaling $2.1 million, one resulting from a change in legal structure of one of our subsidiaries and the other from the recognition of a previously unprovided for deferred tax asset. The improvements were partially offset by higher interest expense of $5.5 million in the first nine months of 2004, which is associated with the debt incurred to fund our acquisition program and from higher interest rates.

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

Segment Operating Performance:

	Three Months Ended September 30,								Nine Months Ended September 30,
	2004			2003			% Change		2004			2003			% Change
Sales:
Flow Control	$	94,204		$	84,167		11.9	%	$	269,804		$	263,125		2.5	%
Motion Control		97,727			70,157		39.3	%		272,649			188,181		44.9	%
Metal Treatment		44,643			35,294		26.5	%		131,482			101,102		30.0	%
Total Sales	$	236,574		$	189,618		24.8	%	$	673,935		$	552,408		22.0	%
Operating Income:
Flow Control	$	9,845		$	7,110		38.5	%	$	29,122		$	30,176		-3.5	%
Motion Control		10,399			9,537		9.0	%		28,700			18,734		53.2	%
Metal Treatment		6,817			4,321		57.8	%		20,971			13,102		60.1	%
Total Segments		27,061			20,968		29.1	%		78,793			62,012		27.1	%
Pension (Expense)/Income		(295	)		527		-156.0	%		(377	)		1,580		-123.9	%
Corporate & Other		(1,301	)		(100	)	1201.0	%		(2,058	)		(362	)	468.5	%

Total Operating Income	$	25,465		$	21,395		19.0	%	$	76,358		$	63,230		20.8	%
Operating Margins:		10.5	%		8.4	%				10.8	%		11.5	%
Flow Control		10.6	%		13.6	%				10.5	%		10.0	%
Metal Treatment		15.3	%		12.2	%				15.9	%		13.0	%
Total Curtiss-Wright		10.8	%		11.3	%				11.3	%		11.4	%

Flow Control

The Corporation’s Flow Control segment posted sales of $94.2 million for the third quarter of 2004, an increase of 12% from $84.2 million in the third quarter of 2003. The sales increase was mainly due to the contributions from the 2004 acquisitions, which totaled $9.7 million in the third quarter of 2004. Organic sales growth was achieved in the power generation market, primarily due to expedited deliveries and additional orders of certain pumps, and additional orders of valves and field service work to commercial nuclear power plants, which totaled $3.2 million. This segment also experienced higher sales of coker valves to the oil and gas industry due to the increased demand for this technology, which increased $2.5 million, and increased sales of our electronic products to the U.S. Navy, due to the timing of orders, which increased $1.6 million as compared to the third quarter of 2003. This growth was offset by a decline in sales of flow control products to the U.S. Navy aircraft carrier and submarine programs due to timing of contractual revenues, a decrease of $8.9 million. Sales of this business segment also benefited from favorable foreign currency translation of $0.5 million in the third quarter of 2004 as compared to the prior year period.

Operating income for the third quarter of 2004 was $9.8 million, an increase of 39% as compared to $7.1 million for the same period last year. The increase in operating margins is mainly due to contract cost overruns on a safety relief valve project and inventory write-offs in the third quarter of 2003 totaling approximately $2.7 million that did not occur in 2004. Higher sales volume and a stronger sales mix for our power generation and oil and gas products, and higher sales volume for our electronic products to the U.S. Navy were offset by the profit impact from the lower flow control product sales to the U.S. Navy. In addition, the operating margins for the 2004 acquisitions were lower than those of the base businesses in the third quarter.

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

Sales for the first nine months of 2004 were $269.8 million, an increase of 3% over the same period last year of $263.1 million, primarily due to the 2004 acquisitions, which contributed $12.9 million in incremental sales. The organic sales decreased 2% in the first nine months of 2004 compared to the prior year period. The decrease was mainly due to lower sales of flow control products to the U.S. Navy due to the timing of contractual revenues. In the first nine months of 2003, the Flow Control segment completed the shipment of two large projects to the U.S. Navy, which generated approximately $25 million in sales. Stronger sales of certain products to the power generation market, which increased $6.9 million due to additional orders and expedited deliveries, increased demand for coker valves for the oil and gas industry, which positively impacted sales by $4.2 million, and increased sales of our electronic products to the U.S. Navy, which increased $5.4 million as compared to the first nine months of 2003. Sales benefited from favorable foreign currency translation of $1.6 million in the first nine months of 2004 as compared to the same period last year.

Operating income for the first nine months of 2004 was $29.1 million, a decrease of 3% over the same period last year of $30.2 million. The reduction in operating income was mainly due to the profit impact related to the two large higher margin contracts in the first nine months of 2003 that did not reoccur in 2004. These projects contributed approximately $9.7 million in operating income for the first nine months of 2003. The decline was partially offset by a 50% increase in operating income for this segment’s remaining businesses over the comparable prior year period. The increases were mainly due to the 2003 contract cost overruns and inventory write-offs that did not occur in 2004, higher sales volume and a stronger sales mix for our power generation and oil and gas products, and higher sales volumes for our electronic products to the U.S. Navy.

New orders received for the Flow Control segment totaled $92.0 million in the third quarter of 2004 and $278.2 million for the first nine months of 2004, representing an increase of 104% and 17%, respectively, from the same periods in 2003. Acquisitions made in 2004 contributed $17.4 million and $20.6 million in incremental new orders received in the third quarter and first nine months of 2004, respectively. Backlog increased 6% to $336.8 million at September 30, 2004 from $317.8 million at December 31, 2003. Acquisitions made during 2004 represented $18.6 million of the backlog at September 30, 2004.

Motion Control

Sales for the Corporation’s Motion Control segment improved 39% to $97.7 million in the third quarter of 2004 from $70.2 million in the third quarter of 2003, primarily due to the contribution of the acquisitions completed in 2004 and the fourth quarter of 2003, which contributed $31.4 million in incremental sales for the period. Organic sales declined 5% in the third quarter of 2004. This organic decline was mainly due to scheduled production decreases for the Abrams tank and the Bradley Fighting Vehicle, which reduced electronic military sales by $4.9 million and expedited shipments of F-16 spares, which reduced military aerospace sales by $2.7 million. Offsetting these declines were increases in electronic spares on the Bradley Fighting Vehicle of $2.0 million in support of the war effort. In addition, foreign currency translation favorably impacted sales for the third quarter of 2004 by $2.0 million as compared to the prior year period.

Operating income for this segment in the third quarter of 2004 was $10.4 million, an increase of 9% over $9.5 million during the third quarter of 2003. The improvement was driven by higher

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

sales volume from acquisitions, favorable sales mix, and implemented cost control initiatives. During the third quarter of 2004, our European integrated sensing business experienced a reduction in reserve requirements of $0.8 million that is reflected in the margins for the period. Offsetting these increases were lower organic growth, several development programs with lower margins as compared to production program, and certain annual trade show expenses incurred in the third quarter of 2004 that were incurred during the second quarter in 2003. The business segment also benefited from favorable foreign currency translation in the third quarter of 2004 as compared to the third quarter of 2003.

Sales for the first nine months of 2004 were $272.6 million, an increase of 45% from sales of $188.2 during the first nine months of 2003, primarily due to the contribution of the 2003 and 2004 acquisitions, which contributed $77.7 million in incremental sales (or 92% of the overall increase). Organic sales growth was 4% in the first nine months of 2004 as compared to 2003, mainly driven by favorable foreign currency translation of $5.8 million as compared to the prior year period. The remaining increase was driven by several factors including an increase in electronic spares on the Bradley Fighting Vehicle of $3.4 million in support of the war effort, increased F/A-22 production sales of $2.8 million due to higher ship set requirements, increased sales from our integrated sensing business of $2.2 million and an increase in commercial repair and overhaul sales of $2.1 million over the comparable period of 2003 due to the continuing recovery of the global commercial aerospace industry. The segment also benefited from $5.0 million of sales of electronic products for the 767 refueling tanker program and helicopter radar warning sensors. These new programs have no comparable revenue base in the first nine months of 2003. Offsetting these increases were scheduled production decreases for the Abrams tank and the Bradley Fighting Vehicle, which reduced sales of electronic products to the military by $10.1 million, and lower European ground defense sales of approximately $3.0 million resulting from expedited deliveries in 2003.

Operating income for the first nine months of 2004 was $28.7 million as compared to $18.7 million for the comparable period in 2003, an increase of 53%. The improvement was driven by the higher sales volume, including contributions from the new acquisitions, favorable sales mix, and implemented cost control initiatives. The segment benefited from reductions in reserve requirements at its European integrated sensing business totaling $1.4 million for the nine months ended September 30, 2004. The business segment also benefited from favorable foreign currency translation in the first nine months of 2004 as compared to the first nine months of 2003.

New orders received for the Motion Control segment totaled $103.2 million in the third quarter of 2004 and $273.2 million for the first nine months of 2004, representing an increase of 123% and 53% from the same periods in 2003, respectively. Acquisitions made in 2003 and 2004 contributed $33.4 million and $74.5 million in incremental new orders received in the third quarter and first nine months of 2004, respectively. Backlog increased 25% to $232.3 million at September 30, 2004 from $186.3 million at December 31, 2003. Acquisitions made during 2004 represented $40.1 million of the backlog at September 30, 2004.

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

Metal Treatment

Sales for the Corporation’s Metal Treatment segment totaled $44.6 million for the third quarter of 2004, up 26% when compared with $35.3 million in the third quarter of 2003. Organic sales growth of $7.5 million represented the majority of the sales increase, a 21% improvement over the third quarter of 2003. The 2004 acquisitions contributed $1.8 million in incremental sales for the third quarter of 2004. The organic growth was due to strong sales growth in our global shot peening services primarily to the aerospace and automotive markets, which contributed $4.4 million, higher sales of heat treating services of $1.2 million, and sales growth from our laser peening technology, which contributed $0.8 million in additional sales. In addition, foreign currency translation favorably impacted sales for the third quarter of 2004 by $1.6 million as compared to the prior year period.

Operating income for the third quarter of 2004 increased 58% to $6.8 million from $4.3 million for the same period last year. Overall margin improvement was due to higher sales volume, favorable sales mix in our shot peening, laser peening, and heat treating businesses, and implemented cost reduction initiatives. Offsetting the improvements were increased medical costs and higher energy costs as compared to the prior year period. This segment also benefited from favorable foreign currency translation in the third quarter of 2004 as compared to the third quarter of 2003.

Sales for the Metal Treatment segment totaled $131.5 million for the first nine months of 2004, up 30% as compared to $101.1 million for the comparable period of 2003. Organic sales growth was 21% in the first nine months of 2004, contributing $18.4 million to the increase. The organic growth was due to strong sales growth from our new laser peening technology, which contributed $4.6 million in additional sales, as well as solid growth in our global shot peening services, which contributed $8.3 million mainly in the German automotive, European commercial aerospace, and North American commercial and military aerospace markets. Sales from the heat treating division were up $2.1 million over the prior year period mainly due to overflow from a competitor and new aluminum treatment capabilities for the aerospace industry. The remaining sales increase was due to contributions from 2003 and 2004 acquisitions, which contributed $10.9 million of incremental sales in the first nine months of 2004. The main contributor to this increase was the E/M Coatings businesses, which were acquired in April 2003. In addition, foreign currency translation favorably impacted the sales for the first nine months of 2004 by $4.4 million as compared to the prior year period.

Operating income for the first nine months of 2004 increased 60% to $21.0 million from $13.1 million for the same period last year. Margin improvement was due to higher sales volume, favorable sales mix due to higher laser peening sales, and implemented cost reduction initiatives. Offsetting the improvements were increased medical costs and higher energy costs as compared to the prior year period. The business segment also benefited from favorable foreign currency translation in the first nine months of 2004 as compared to the prior year period.

New orders received for the Metal Treatment segment totaled $44.8 million in the third quarter of 2004 and $132.3 million for the first nine months of 2004, representing an increase of 26% and 30% from the same periods in 2003, respectively. Acquisitions made in 2003 and 2004 contributed $1.8 million and $10.9 million in incremental new orders received in the third quarter and first nine months of 2004, respectively. Backlog increased 28% to $1.8 million at September 30, 2004 from $1.4 million at December 31, 2003.

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

Interest Expense

Interest expense increased $2.0 million and $5.5 million for the third quarter and first nine months of 2004, respectively, versus the comparable prior year periods, due to higher debt levels associated with the funding of acquisitions and increased borrowing rates.

Corporate Administrative Expenses

Corporate administrative expenses increased $1.2 million and $1.7 million for the third quarter and first nine months of 2004, respectively, versus the comparable prior year periods, mainly due to expenses associated with Sarbanes-Oxley Section 404 compliance.

CHANGES IN FINANCIAL CONDITION

Liquidity and Capital Resources

The Corporation derives the majority of its operating cash inflow from receipts on the sale of goods and services and cash outflow for the procurement of materials and labor, and is therefore subject to market fluctuations and conditions. Approximately 50% of the Corporation’s business is in the defense sector, which is characterized by long-term contracts. Most of our long-term contracts allow for several billing points (progress or milestones) that provide the Corporation 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.

Operating Activities

The Corporation’s working capital was $223.7 million at September 30, 2004, a decrease of $14.9 million from the working capital at December 31, 2003 of $238.6 million. The ratio of current assets to current liabilities was 2.5 to 1 at September 30, 2004 versus 2.8 to 1 at December 31, 2003.

Cash and cash equivalents totaled $38.5 million in the aggregate at September 30, 2004, down from $98.7 million at December 31, 2003. The decrease is due to the use of available cash to fund the acquisition of Dy 4 Systems, Inc. on January 31, 2004. Days sales outstanding was 54 days at September 30, 2004 as compared to 56 days at December 31, 2003. Inventory turns were 5.5 at September 30, 2004 and December 31, 2003.

The remaining working capital increased $45.2 million from December 31, 2003, 50% of which is due to the acquisitions made in the first nine months of 2004. In addition to the impact of these acquisitions, working capital changes were highlighted by an increase in accounts receivable of approximately $16.1 million due primarily to the timing of billed sales, an increase in inventories of $3.1 million in anticipation of increased sales activity during the fourth quarter of 2004, and a decline in progress payments of $2.9 million due mainly to the liquidation of several large projects, offset by an increase in deferred revenue of $4.5 million due to an increase in customer funding on long-term projects.

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

Investing Activities

The Corporation acquired ten businesses in the first nine months of 2004. A combination of stock, cash resources, and funds available under the Corporation’s credit agreements were utilized for the funding of these acquisitions, which totaled $232.0 million. As indicated in Note 2 to the Consolidated Financial Statements, certain acquisition agreements contain contingent purchase price adjustments, such as potential earn-out payments. In the first nine months of 2004, the Corporation made approximately $3.0 million in such payments relative to prior period acquisitions.

During the nine months ended September 30, 2004, internally available funds were adequate to meet capital expenditures of $20.6 million. Principal capital expenditures included new and replacement machinery and equipment within the business segments and for the expansion of new product lines. The Corporation is expected to make additional capital expenditures of approximately $15 million during the remainder of 2004 on machinery and equipment for ongoing operations at the business segments, expansion of existing facilities, and investments in new product lines and facilities.

Financing Activities

At September 30, 2004, the Corporation had a $400 million credit agreement with a group of ten banks. Borrowings under the agreement bear interest at a floating rate based on market conditions. In addition, the Corporation’s interest rate and level of facility fees are dependent on maintenance of certain financial ratios, as defined in the agreement. The Corporation is subject to annual facility fees on the commitments under the Revolving Credit Agreement. In connection with the Revolving Credit Agreement, the Corporation paid customary transaction fees that have been deferred and are being amortized over the term of the agreement. The Corporation is required under the agreement to maintain certain financial ratios and meet certain other financial tests, of which the Corporation is in compliance at September 30, 2004. Cash borrowings (excluding letters of credit) under the credit agreement at September 30, 2004 were $132.0 million as compared to $8.9 million at December 31, 2003. The unused credit available under the agreement at September 30, 2004 was $249.6 million.

On July 23, 2004, the Corporation amended its existing credit facility, increasing the available line of credit from $225 million to $400 million. The Corporation plans to use the credit line for working capital purposes, internal growth initiatives, funding of future acquisitions, and other general corporate purposes. The agreement expires in 2009.

On September 25, 2003 the Corporation issued $200.0 million of Senior Notes (the “Notes”). The Notes consist of $75.0 million of 5.13% Senior Notes that mature on September 25, 2010 and $125.0 million of 5.74% Senior Notes that mature on September 25, 2013. The Notes are senior unsecured obligations and are equal in right of payment to the Corporation’s existing senior indebtedness. The Corporation, at its option, can prepay at any time all or, from time to time, any part of the Notes, subject to a make-whole amount in accordance with the terms of the Note Purchase Agreement. In connection with the Notes, the Corporation paid customary transaction fees that have been deferred and are being amortized over the term of the Notes. The Corporation is required under the Note Purchase Agreement to maintain certain financial ratios, of which the Corporation is in compliance at September 30, 2004.

On November 6, 2003 the Corporation entered into two interest rate swap agreements with notional amounts of $20 million and $60 million to effectively convert the fixed interest rates on

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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

the $75 million 5.13% Senior Notes and $125 million 5.74% Senior Notes, respectively, to variable rates based on specified spreads over six-month LIBOR. In the short-term, the swaps have, and are expected to continue to provide the Corporation with a lower level of interest expense related to the Notes.

Industrial revenue bonds, which are collateralized by real estate, machinery, and equipment, were $14.3 million at September 30, 2004 and December 31, 2003. The loans outstanding under the Senior Notes, Interest Rate Swaps, Revolving Credit Agreements, and Industrial Revenue Bonds had variable interest rates averaging 3.4% during the third quarter of 2004; 2003 loans outstanding under the Revolving Credit Agreements and Industrial Revenue Bonds had variable interest rates averaging 2.1% for the third quarter of 2003.

Cash generated from operations is considered adequate to meet the Corporation’s cash requirements for the fourth quarter of 2004 and the upcoming year, including anticipated debt repayments, planned capital expenditures, dividends, environmental obligations, and working capital requirements. Undistributed earnings from certain of the Corporation’s foreign subsidiaries are considered permanently reinvested.

CRITICAL ACCOUNTING POLICIES

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

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

The Corporation records sales and related profits on production and service type contracts as units are shipped and title and risk of loss have transferred or as services are rendered. This method is used in our Metal Treatment segment and in some of the business units within the Motion Control and Flow Control segments that serve commercial markets.

For certain contracts in our Flow Control and Motion Control segments that require performance over an extended period before deliveries begin, sales and estimated profits are recorded by applying the percentage-of-completion method of accounting. The percentage-of-completion method of accounting is used primarily for the Corporation’s defense contracts and certain long-term commercial contracts. This method recognizes revenue and profit as the contracts progress towards completion. For certain contracts that contain a significant number of performance milestones, as defined by the customer, sales are recorded based upon achievement of these performance milestones. The performance milestone method is an output

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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

measure of progress towards completion made in terms of results achieved. For certain fixed price contracts, where none or a limited number of milestones exist, the cost-to-cost method is used, which is an input measure of progress towards completion. Under the cost-to-cost input method, sales and profits are recorded based on the ratio of costs incurred to an estimate of total costs at completion.

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

Under the percentage-of-completion and completed contract methods, provisions for estimated losses on uncompleted contracts are recognized in the period in which the likelihood of such losses is determined. Certain contracts contain provisions for the redetermination of price and, as such, management defers a portion of the revenue from those contracts until such time as the price has been finalized.

Some of the Corporation’s customers withhold certain amounts from the billings they receive. These retainages are generally not due until the project has been completed and accepted by the customer.

Inventory: Inventory costs include materials, direct labor, and manufacturing overhead costs, which are stated at the lower of cost or market, where market is limited to the net realizable value. The Corporation estimates the net realizable value of its inventories and establishes reserves to reduce the carrying amount of these inventories to net realizable value, as necessary. We continually evaluate the adequacy of the inventory reserves by reviewing historical scrap rates, on-hand quantities, as compared with historical and projected usage levels and other anticipated contractual requirements. The stated inventory costs are also reflective of the estimates used in applying the percentage-of-completion revenue recognition method.

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

For certain of its long-term contracts, the Corporation utilizes progress billings, which represent amounts billed to customers prior to the delivery of goods and services and are recorded as a reduction to inventory and receivables. Progress billings are generally based on costs incurred, including direct costs, overhead, and general and administrative costs.

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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

Pension and other postretirement benefits: The Corporation, in consultation with its actuaries, determines the appropriate assumptions for use in determining the liability for future pension and other postretirement benefits. The most significant of these assumptions include the number of employees who will receive benefits along with the tenure and salary level of those employees, the expected return on plan assets, the discount rates used on plan obligations, and the trends in health care costs. Changes in these assumptions in future years will have an effect on the Corporation’s pension and postretirement costs and associated pension and postretirement assets and liabilities.

The discount rates and compensation rates increases used to determine the benefit obligations of the plans as of December 31, 2003 and the annual periodic costs for 2004 were lowered in 2003 to better reflect current economic conditions. The reduction in the discount rates increased the benefit obligation on the plans. A corresponding decrease in future compensation costs, which occurred due to the impact of lower inflationary effects, had an offsetting decrease to the benefit obligation. The changes in these two assumptions were based upon current and future economic indicators.

The overall expected return on assets assumption is based on a combination of historical performance of the pension fund and expectations of future performance. The historical returns are determined using the market–related value of assets, which is the same value used in the calculation of annual net periodic benefit cost. The market-related value of assets includes the recognition of realized and unrealized gains and losses over a five year period, which effectively averages the volatility associated with the actual performance of the plan’s assets from year to year. Although over the last ten years the market related value of assets had an average annual yield of 11.6%, the actual returns averaged 8.5% during the same period. The Corporation has consistently used the 8.5% rate as a long-term overall average return. Given the uncertainties of the current economic and geopolitical landscapes, we consider the 8.5% to be a reasonable assumption of the future long-term investment returns.

The long-term medical trend assumptions starts with a current rate that is in line with expectations for the near future, and then grade the rates down over time until it reaches an ultimate rate that is close to expectations for growth in GDP. The reasoning is that medical trends cannot continue to be higher than the rate of GDP growth in the long term. Any change in the expectation of these rates to return to a normal level will have an impact on the Corporation.

See Note 9 to the Corporation’s Consolidated Financial Statements in Item 1 of this quarterly report for further information on the Corporation’s pension and postretirement plans, including an estimate of future cash contributions.

Environmental reserves: The Corporation provides for environmental reserves when, in conjunction with internal and external legal counsel, it is determined that a liability is both probable and estimable. In many cases, the liability is not fixed or capped when the Corporation first records a liability for a particular site. In estimating the future liability and continually evaluating the sufficiency of such liabilities, the Corporation weighs certain factors including the Corporation’s participation percentage due to a settlement by or bankruptcy of other potentially responsible parties, a change in the environmental laws requiring more stringent requirements, a change in the estimate of future costs that will be incurred to remediate the site, and changes in technology related to environmental remediation.

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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS, continued

Purchase accounting: The Corporation applies the purchase method of accounting to its acquisitions. Under this method, the purchase price, including any capitalized acquisition costs, is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values, with any excess recorded as goodwill. The Corporation, usually in consultation with third-party valuation advisors, determines the fair values of such assets and liabilities.

Goodwill: The recoverability of goodwill is subject to an annual impairment test based on the estimated fair value of the underlying businesses. Additionally, goodwill is tested for impairment when an event occurs or if circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. These estimated fair values are based on estimates of future cash flows of the businesses. Factors affecting these future cash flows include the continued market acceptance of the products and services offered by the businesses, the development of new products and services by the businesses and the underlying cost of development, the future cost structure of the businesses, and future technological changes. Estimates are also used for the Corporation’s cost of capital in discounting the projected future cash flows. The Corporation utilizes an independent third party cost of capital analysis in determination of its estimates. If it has been determined that an impairment has occurred, the Corporation may be required to recognize an impairment of its asset, which would be limited to the difference between the book value of the asset and its fair value. Any such impairment would be recognized in full in the reporting period in which it has been identified.

Other intangible assets: Other intangible assets are generally the result of acquisitions and consist primarily of purchased technology, customer related intangibles, trademarks and service marks, and technology licenses. Intangible assets are recorded at their fair values as determined through purchase accounting and are amortized on a straight-line basis over their estimated useful lives, which range from 1 to 20 years. The Corporation reviews the recoverability of intangible assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. Any impairment would be recorded in the reporting period in which it has been identified.

Recently issued accounting standards: In May 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) 106-2 “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This guidance supersedes FSP 106-1 issued in January 2004 and clarifies the accounting and disclosure requirments for employers with postretirement benefit plans that have been or will be affected by the passage of the Medicare Prescription Drug improvement and Modernization Act of 2003 (“the Act”). The Act introduces two new features to Medicare that an employer needs to consider in measuring its obligation and net periodic postretirement benefit costs. The effective date for the new requirements is the first interim or annual period beginning after June 15, 2004. Additional information regarding the impact of the Act is presented in Note 9.

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Corporation’s profitability may also be adversely affected during any period of unexpected or rapid increase in interest rates. The Corporation’s market risk for a change in interest rates relates primarily to its debt obligations. The Corporation shifted its interest rate exposure from 46% variable at December 31, 2003 to 65% variable at September 30, 2004. The increase in variable interest rate exposure is due to the Corporation funding its 2004 acquisition activity through its revolving credit facility. A change in interest rates of 1% would have an impact on consolidated interest expense of approximately $2.3 million.

The Corporation is exposed to fluctuations in foreign currency exchange rates, particularly to the Canadian dollar, British pound, and the Euro. Any significant change in the value of the currencies of those countries in which the Corporation does business against the U.S. dollar could have an adverse effect on the Corporation’s business, financial condition, and results of operations. Management seeks to minimize the risk from these foreign currency fluctuations principally through invoicing the Corporation’s customers in the same currency as the source of the products. However, the Corporation’s efforts to minimize these risks may not be successful.

The acquisitions of Dy 4 and Primagraphics have increased the Corporation’s exposure to foreign currency exchange rate fluctuations related to the Canadian dollar and the British pound. The Corporation currently has a hedging program in place to mitigate the Canadian dollar foreign currency risk.

Further information regarding market risk and market risk management policies is more fully described in item “7A. Quantitative and Qualitative Disclosures about Market Risk” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2003.

Item 4.

CONTROLS AND PROCEDURES

As of September 30, 2004, the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the Corporation’s 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, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective, in all material respects, to ensure that information required to be disclosed in the reports the Corporation files and submits under the Exchange Act is recorded, processed, summarized, and reported as and when required.

There have not been any changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended September 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

FORWARD-LOOKING INFORMATION

The statements in this Quarterly Report on Form 10-Q and in oral statements that may be made by representatives of the Corporation relating to plans, strategies, economic performance and trends and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27(a) of the Securities Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934. Forward looking statements are inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors. Examples

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of forward-looking information include, but are not limited to, (a) projections of or statements regarding return on investment, future earnings, interest income, other income, earnings or loss per share, investment mix and quality, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of management, (c) statements of future economic performance, and (d) statements of assumptions, such as economic conditions underlying other statements. Such forward- looking information can be identified by the use of forward looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “anticipates,” or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy.

No assurance can be given that the future results described by the forward-looking information will be achieved. Such statements are subject to risks, uncertainties, and other factors, which are outside our control that could cause actual results to differ materially from future results expressed or implied by such forward-looking information. Readers are cautioned not to put undue reliance on such forward-looking information. Such statements include, without limitation, those contained in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated Financial Statements including, without limitation, the Environmental Matters Note. Important factors that could cause the actual results to differ materially from those in these forward-looking statements include, among other items, (i) a reduction in anticipated orders, (ii) change in governmental spending resulting from U.S. and international military budget constraints and determinations, U.S. congressional and international legislative body discretion; U.S. and international government administration policies and priorities; changing world military threats, strategies and missions; competition from foreign manufacturers of platforms and equipment; NATO country determinations regarding participation in common programs; changes in U.S. and international government procurement timing, strategies and practices, the general state of world military readiness and deployment; and the ability to obtain export licenses (iii) an economic downturn, (iv) unanticipated environmental remediation expenses or claims, (v) changes in the need for additional machinery and equipment and/or in the cost for the expansion of the Corporation’s operations, (vi) changes in the competitive marketplace and/or customer requirements, (vii) an inability to perform customer contracts at anticipated cost levels, (viii) changes in the Corporation’s future tax rates resulting from a variety of factors, including statutory changes in Federal and state tax rates, non deductibility of goodwill amortization and IPR&D acquired in a stock purchase business combination and the non deductibility of our ESPP compensation expense and (ix) other factors that generally affect the business of companies operating in the Corporation’s Segments.

The Corporation has no obligation to update any forward-looking statements

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

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. The Corporation does not believe that disposition of any of these matters will have a material adverse effect on the Corporation’s consolidated financial position or results of operations.

Curtiss-Wright Corporation or its subsidiaries have been named in approximately 100 lawsuits that allege injury from exposure to asbestos. To date, Curtiss-Wright has secured its dismissal without prejudice in approximately 15 lawsuits, and is currently in discussions for similar dismissal in several others, and has not been found liable or paid any material sum of money in settlement in any case. Curtiss-Wright believes that the minimal use of asbestos in its operations and the relatively non-friable condition of asbestos in its products makes it unlikely that it will face material liability in any asbestos litigation, whether individually or in the aggregate. Curtiss-Wright does maintain insurance coverage for these lawsuits and it believes adequate coverage exists to cover any unanticipated asbestos liability.

Item 6. EXHIBITS and REPORTS on FORM 8-K

(a)

Exhibits

Exhibit 4	Amended and Restated Credit Agreement dated July 23, 2004 between Registrant, the Issuing Banks referred to therein, the Lenders parties thereto from time to time, and Bank of America, N.A., as Administrative Agent, incorporated by reference to Exhibit 4 to Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2004.
Exhibit 10	Amendment No. 2, dated September 30, 2004, to the Amended and Restated Curtiss-Wright Corporation Retirement Plan, filed herewith.
Exhibit 31.1	Certification of Martin R. Benante, Chairman and CEO, Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
Exhibit 31.2	Certification of Glenn E. Tynan, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
Exhibit 32	Certification of Martin R. Benante, Chairman and CEO, and Glenn E. Tynan, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith

(b)

Reports on Form 8-K

None.

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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

By:

(Registrant)

/s/ Glenn E. Tynan

Glenn E. Tynan
Vice President Finance / C.F.O.
Dated: November 9, 2004

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		PAGE
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Statements of Earnings	3

	Consolidated Balance Sheets	4

	Consolidated Statements of Cash Flows	5

	Consolidated Statements of Stockholders’ Equity	6

	Notes to Consolidated Financial Statements	7 – 23

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24 – 36

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	37

Item 4.	Controls and Procedures	37

	Forward-Looking Information	37 – 38


PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 6.	Exhibits and Reports on Form 8-K	39

Signature		40

	Three Months Ended September 30,						Nine Months Ended September 30,

	2004			2003			2004			2003

Net sales	$	236,574		$	189,618		$	673,935		$	552,408
Cost of sales		154,725			132,601			444,469			379,677
Gross profit		81,849			57,017			229,466			172,731

Research and development expenses		8,443			5,417			24,409			16,494
Selling expenses		17,413			9,612			44,760			28,887
General and administrative expenses		30,033			20,740			83,071			65,320
Environmental remediation and administrative expenses		200			380			491			380
Pension expense (income), net		295			(527	)		377			(1,580	)
Operating income		25,465			21,395			76,358			63,230

Other income (expense), net		185			(91	)		(11	)		182
Interest expense		(3,135	)		(1,113	)		(8,418	)		(2,906	)

Earnings before income taxes		22,515			20,191			67,929			60,506
Provision for income taxes		7,795			7,672			23,276			22,992

Net earnings	$	14,720		$	12,519		$	44,653		$	37,514

Basic earnings per share	$	0.69		$	0.61		$	2.11		$	1.82
Diluted earnings per share	$	0.68		$	0.60		$	2.08		$	1.80

Dividends per share	$	0.09		$	0.08		$	0.27		$	0.23

Weighted average shares outstanding:
Basic		21,359			20,656			21,122			20,608
Diluted		21,715			20,936			21,476			20,856

	September 30, 2004			December 31, 2003
Assets
Current Assets:
Cash and cash equivalents	$	38,537		$	98,672
Receivables, net		184,559			143,362
Inventories, net		116,837			97,880
Deferred tax assets, net		24,307			23,630
Other current assets		13,697			10,979
Total current assets		377,937			374,523
Property, plant and equipment, net		251,086			238,139
Prepaid pension costs		77,821			77,877
Goodwill		346,367			220,058
Other intangible assets, net		110,063			48,268
Other assets		18,846			14,800
Total Assets	$	1,182,120		$	973,665

Liabilities
Current Liabilities:
Short-term debt	$	957		$	997
Accounts payable		53,787			43,776
Dividends payable		1,929			—
Accrued expenses		47,441			44,938
Income taxes payable		4,975			6,748
Other current liabilities		45,103			39,424
Total current liabilities		154,192			135,883
Long-term debt		348,226			224,151
Deferred tax liabilities, net		20,618			21,798
Accrued pension and other postretirement benefit costs		79,427			75,633
Long-term portion of environmental reserves		19,364			21,083
Other liabilities		21,183			16,236
Total Liabilities		643,010			494,784
Stockholders’ Equity
Common stock, $1 par value		16,646			16,611
Class B common stock, $1 par value		8,765			8,765
Additional paid-in capital		52,911			52,998
Retained earnings		582,579			543,670
Unearned portion of restricted stock		(39	)		(55	)
Accumulated other comprehensive income		23,037			22,634
		683,899			644,623
Less: Cost of treasury stock		(144,789	)		(165,742	)
Total Stockholders’ Equity		539,110			478,881
Total Liabilities and Stockholders’ Equity	$	1,182,120		$	973,665

	Nine Months Ended September 30,
	2004			2003
Cash flows from operating activities:
Net earnings	$	44,653		$	37,514
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		31,721			22,963
Non-cash pension expense (income)		377			(1,580	)
Deferred income taxes		(1,549	)		(811	)
Changes in operating assets and liabilities, net of businesses acquired:
(Increase) decrease in receivables		(16,094	)		3,069
(Increase) decrease in inventories		(3,078	)		4,590
Decrease in progress payments		(2,945	)		(3,428	)
(Decrease) increase in accounts payable and accrued expenses		(190	)		4,192
Increase (decrease) in deferred revenue		4,498			(12,508	)
(Decrease) increase in income taxes payable		(2,170	)		6,260
(Increase) decrease in other assets		(1,386	)		2,951
Decrease in other liabilities		(50	)		(5,031	)
Total adjustments		9,134			20,667
Net cash provided by operating activities		53,787			58,181
Cash flows from investing activities:
Proceeds from sales of non-operating assets		1,168			1,078
Acquisitions of intangible assets		(2,100	)		—
Additions to property, plant and equipment		(20,569	)		(24,540	)
Acquisition of new businesses		(218,653	)		(37,485	)
Net cash used for investing activities		(240,154	)		(60,947	)
Cash flows from financing activities:
Proceeds from issuance of debt		527,006			384,612
Principal payments on debt		(403,982	)		(314,220	)
Proceeds from exercise of stock options		6,743			2,352
Dividends paid		(3,815	)		(3,093	)
Net cash provided by financing activities		125,952			69,651
Effect of foreign currency		280			1,444
Net (decrease) increase in cash and cash equivalents		(60,135	)		68,329
Cash and cash equivalents at beginning of period		98,672			47,717
Cash and cash equivalents at end of period	$	38,537		$	116,046
Supplemental disclosure of investing activities:
Fair value of assets acquired in current year acquisitions	$	251,107		$	38,547
Earn-out payments and release of holdback funds on previous years’ acquisitions		3,003			2,226
Fair value of Common Stock issued as consideration for acquisitions		(14,000	)		—
Liabilities assumed in current year acquisitions		(19,120	)		(3,288	)
Cash acquired		(2,337	)		—
Net cash paid for acquisitions	$	218,653		$	37,485

(In thousands)
Net working capital	$	10,043
Property, plant, and equipment		7,213
Intangible assets		29,700
Net tangible and intangible assets		46,956
Purchase price, including capitalized acquisition costs		110,352
Goodwill	$	63,396

	Common Stock		Class B Common Stock		Additional Paid in Capital			Retained Earnings			Unearned Portion of Restricted Stock Awards			Accumulated Other Comprehensive Income		Treasury Stock

December 31, 2002	$	10,618	$	4,382	$	52,200		$	508,298		$	(60	)	$	6,482	$	(170,692	)

Net earnings		—		—		—			52,268			—			—		—
Translation adjustments, net		—		—		—			—			—			16,152		—
Dividends		—		—		—			(6,520	)		—			—		—
Stock options exercised, net		—		—		741			—			—			—		4,812
Other		—		—		57			—			5			—		138
Two-for-one common stock split effected in the form of a 100% stock dividend		5,993		4,383		—			(10,376	)		—			—		—
December 31, 2003		16,611		8,765		52,998			543,670			(55	)		22,634		(165,742	)

Net earnings		—		—		—			44,653			—			—		—
Translation adjustments, net		—		—		—			—			—			403		—
Dividends		—		—		—			(5,744	)		—			—		—
Stock options exercised, net		—		—		(4,681	)		—			—			—		10,071
Stock issued under employee stock purchase plan		35		—		1,318			—			—			—		—
Equity issued in connection with acquisitions		—		—		3,259			—			—			—		10,741
Other		—		—		17			—			16			—		141
September 30, 2004	$	16,646	$	8,765	$	52,911		$	582,579		$	(39	)	$	23,037	$	(144,789	)

	(In thousands)
	September 30, 2004			December 31, 2003
Billed Receivables:
Trade and other receivables	$	141,658		$	111,068
Less: Allowance for doubtful accounts		(3,888	)		(3,449	)
Net billed receivables		137,770			107,619
Unbilled Receivables:
Recoverable costs and estimated earnings not billed		63,906			56,070
Less: Progress payments applied		(17,117	)		(20,327	)
Net unbilled receivables		46,789			35,743
Receivables, net	$	184,559		$	143,362

	(In thousands)
September 30, 2004	Gross		Accumulated Amortization			Net
Developed technology	$	91,322	$	(7,117	)	$	84,205
Customer related intangibles		23,295		(2,023	)		21,272
Other intangible assets		6,418		(1,832	)		4,586
Total	$	121,035	$	(10,972	)	$	110,063



	(In thousands)
December 31, 2003	Gross		Accumulated Amortization			Net
Developed technology	$	32,892	$	(2,966	)	$	29,926
Customer related intangibles		14,469		(863	)		13,606
Other intangible assets		5,902		(1,166	)		4,736
Total	$	53,263	$	(4,995	)	$	48,268

	(In thousands)
	Developed Technology, net			Customer Related Intangibles, net			Other Intangible Assets, net			Total
December 31, 2003	$	29,926		$	13,606		$	4,736		$	48,268
Acquired during 2004		58,217			7,326			743			66,286
Amortization expense		(4,138	)		(1,160	)		(673	)		(5,971	)
Change in estimate of fair value related to purchase price allocations		—			1,500			(290	)		1,210
Net currency translation adjustment		200			—			70			270
September 30, 2004	$	84,205		$	21,272		$	4,586		$	110,063

	(In thousands)
FY 2005		$	11,165
FY 2006			10,848
FY 2007			10,848
FY 2008			10,679
FY 2009			8,718
Thereafter			57,805

	(In thousands)
	Curtiss-Wright Plans						EMD Plans
	Sept 30, 2004			Sept 30, 2003			Sept 30, 2004			Sept 30, 2003
Service cost	$	2,742		$	2,259		$	754		$	648
Interest cost		1,747			1,916			2,062			1,959
Expected return on plan assets		(4,447	)		(4,518	)		(1,666	)		(1,589	)
Amortization of prior service cost		40			20			—			—
Amortization of net loss (gain)		21			(203	)		—			—
Amortization of transition obligation		(1	)		(1	)		—			—
Cost of settlement		193			—			—			—
Net periodic benefit cost (income)	$	295		$	(527	)	$	1,150		$	1,018