Curtiss-Wright - 10-Q quarterly report FY2010 Q3

Hybricon Corporation

On June 1, 2010, the Corporation acquired all the issued and outstanding stock of Hybricon Corporation (“Hybricon”) for $19.0 million in cash.  Under the terms of the Stock Purchase Agreement, the Corporation deposited $2.3 million into escrow as security for potential indemnification claims against the seller.  The escrow amount will be held for a period of eighteen months, provided that 50% of the escrow will be released after twelve months subject to amounts held back for pending claims.  Management funded the purchase from the Corporation’s revolving credit facility.

The purchase price of the acquisition has been allocated to the net tangible and intangible assets acquired with the remainder recorded as goodwill on the basis of estimated fair values, as follows:

The goodwill of $11.4 million consists largely of synergies from combining the operations of Hybricon with the Corporation’s Electronic Systems business in Littleton, MA as well as value associated with the acquisition’s assembled workforce.  The Corporation has determined that the goodwill will not be deductible for tax purposes.

Hybricon designs and manufactures custom and standards-based enclosures and electronic backplanes for defense and commercial applications, and is a leading supplier for predominant embedded commercial-off-the-shelf system architectures.  Hybricon had 72 employees as of the date of the acquisition and is located in Ayer, MA.  Revenues of the acquired business were $16.8 million for the fiscal year ended June 30, 2009.

Specialist Electronics Services Limited

On June 21, 2010, the Corporation acquired all the issued and outstanding stock of Specialist Electronics Services Ltd. (“SES”) for £15.0 million ($22.1 million), net of cash acquired.  Under the terms of the Share Purchase Agreement, the Corporation deposited £1.9 million ($2.8 million) into escrow as security for potential indemnification claims against the seller.  The escrow amount will be held for a period of twenty-four months, provided that 50% of the escrow will be released after twelve months subject to amounts held back for pending claims.  Management funded the purchase from a combination of cash generated from foreign operations and the Corporation’s revolving credit facility.

The purchase price of the acquisition has been allocated to the net tangible and intangible assets acquired with the remainder recorded as goodwill on the basis of estimated fair values, as follows:

The goodwill of £11.0 million ($16.2 million) consists largely of synergies achieved through the introduction of SES products to the Corporation’s distribution channels as well as synergies achieved from combining the operations of SES with the Corporation’s United Kingdom based operations.  The Corporation has determined that the goodwill will not be deductible for tax purposes.

SES provides a range of rugged products for airborne and other severe environments, with particular expertise in solid state data recording, computing and control display units. Key platforms include fixed-wing, rotary-wing and unmanned aircraft, tactical vehicles and navy vessels.  SES is located in Camberley, United Kingdom and had 41 employees as of the date of the acquisition.  Revenues of the acquired business were £4.7 million ($7.5 million) for the fiscal year ended May 31, 2010.

 

Receivables at September 30, 2010 and December 31, 2009 include amounts billed to customers, claims, other receivables, and unbilled charges on long-term contracts consisting of amounts recognized as sales but not billed.  Substantially all amounts of unbilled receivables are expected to be billed and collected within one year.

The composition of receivables for those periods is as follows:

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.  Inventories are valued at the lower of cost (principally average cost) or market. The composition of inventories is as follows:

The Corporation accounts for acquisitions by assigning the purchase price to tangible and intangible assets and liabilities. Assets acquired and liabilities assumed are recorded at their fair values, and the excess of the purchase price over the amounts assigned is recorded as goodwill.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2010 are as follows:

As of January 1, 2010, one of the Corporation’s Canadian entities changed its functional currency from the U.S. dollar to the Canadian dollar.  The nature of this operation’s cash flow changed from predominately U.S. dollar to the Canadian dollar, therefore requiring the change in functional currency.  In accordance with the guidance on foreign currency translation, an adjustment of $13.4 million, attributable to current-rate translation, was recorded to goodwill.  This adjustment resulted in an increase to goodwill and is reported within the “currency translation adjustment” caption above.

Intangible assets are generally the result of acquisitions and consist primarily of purchased technology, customer related intangibles, and trademarks.  Intangible assets are amortized over useful lives that range between 1 to 20 years.

The following tables present the cumulative composition of the Corporation’s intangible assets and include $9.9 million of indefinite lived intangible assets within other intangible assets for both periods presented.

 

The following table presents the changes in the net balance of intangibles assets during the nine months ended September 30, 2010.

As of January 1, 2010, one of the Corporation’s Canadian entities changed its functional currency from the U.S. dollar to the Canadian dollar.  The nature of this operations cash flow changed from predominately U.S. dollar to the Canadian dollar, therefore requiring the change in functional currency.  In accordance with the guidance on foreign currency translation, an adjustment of $5.5 million, attributable to current-rate translation, was recorded to intangible assets.  This adjustment resulted in an increase to other intangible assets and is reported within the “net currency translation adjustment” caption above.

The Corporation uses financial instruments, such as forward foreign exchange 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.  The Corporation does not elect to receive hedge accounting treatment and thus, records forward foreign exchange contracts at fair value, with the gain or loss on these transactions recorded into earnings in the period in which they occur. The Corporation does not use derivative financial instruments for trading or speculative purposes.

The Corporation utilizes the fair value hierarchy to measure the value of its derivative instruments.  The hierarchy establishes a framework for measuring fair value in accordance with generally accepted accounting principles:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The Corporation values its derivative instruments by using the bid ask pricing that is common in the dealer markets.  The dealers are ready to transact at these prices which use the mid-market pricing convention and are considered to be at fair market value.  Based upon the fair value hierarchy, all of the Corporation’s foreign exchange derivative forwards are valued at Level 2.  In addition, no transfers have been made between the levels.

As of September 30, 2010, the fair value of these instruments is $0.1 million. These instruments are classified as other current liabilities and other current assets. See the following tables for information on the location and amounts of derivative fair values in the Condensed Consolidated Balance Sheets and derivative gains and losses in the Condensed Consolidated Statements of Earnings.

 

The estimated fair values of the Corporation’s fixed rate debt instruments at September 30, 2010 aggregated to $313.7 million compared to a carrying value of $275.0 million.  The estimated fair value amounts were determined by the Corporation using available market information which is primarily based on quoted market prices for the same or similar issues as of September 30, 2010.  All of the Corporation’s fixed rate debt is classified as Level 2 in accordance with the fair value hierarchy.

The carrying amount of the variable interest rate debt approximates fair value because the interest rates are reset periodically to reflect current market conditions.

The fair values described above 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.

The Corporation provides its customers with warranties on certain commercial and governmental products.  Estimated warranty costs are charged to expense in the period the related revenue is recognized based on quantitative historical experience.  Estimated warranty costs are reduced as these costs are incurred and as the warranty period expires or may be otherwise modified as specific product performance issues are identified and resolved.  Warranty reserves are included within other current liabilities in the Condensed Consolidated Balance Sheets.  The following table presents the changes in the Corporation’s warranty reserves:

In connection with the acquisitions of VMETRO and Mechetronics in 2008, the Corporation established a restructuring accrual of $7.6 million that was recorded against goodwill in accordance with the guidance on Business Combinations.  These acquisitions are consolidated into the Motion Control segment.  The accrual was established as of December 31, 2008 for $7.1 million. Based upon further analysis of the restructuring activities an additional $0.5 million was recorded in 2009.  The restructuring accrual consists of costs to exit the activities of certain facilities, including lease cancellation costs and external legal and consulting fees, as well as costs to relocate or involuntarily terminate certain employees of the acquired business. As of September 30, 2010, the Corporation has completed its actions under the VMETRO and Mechetronics restructuring plans.

During 2009, the Corporation committed to a plan to restructure existing operations through a reduction in workforce and consolidation of operating locations both domestically and internationally.  The decision was based on a review of various cost saving initiatives undertaken in connection with the development of the Corporation’s budget and operating plan. This plan impacted all three of the Corporation’s operating segments and resulted in costs incurred of $5.6 million. During the nine months ended September 30, 2010, the Corporation continued to consolidate existing operations and incurred an additional $2.9 million consisting of severance costs to involuntarily terminate certain employees; relocation costs; exit activities of certain facilities, including lease cancellation costs; and external legal and consulti ng fees.  These costs were recorded in the Condensed Consolidated Statement of Earnings with the majority of the costs affecting the general and administrative expenses, cost of sales, selling, and research and development costs for $1.6 million, $1.1 million, $0.1 million, and $0.1 million, respectively.  The liability is included in other current liabilities.  As of September 30, 2010, the Corporation has completed its actions under the 2009 restructuring plan.

The following tables are consolidated disclosures of all domestic and foreign defined pension plans as described in the Corporation’s 2009 Annual Report on Form 10-K, as amended.  The postretirement benefits information includes the domestic Curtiss-Wright Corporation and EMD postretirement benefit plans, as there are no foreign postretirement benefit plans.

Pension Plans

The components of net periodic pension cost for the three and nine months ended September 30, 2010 and 2009 were:

During the three months ended September 30, 2009, the Corporation recorded a $3.8 million correction to pension expense due to an actuarial calculation error, $2.0 million of which related to 2008.

During the nine months ended September 30, 2010, the Corporation made no contributions to the Curtiss-Wright Pension Plan, and expects to make no contributions in 2010.  However, we do expect to make contributions in the range of $35 to $40 million in 2011.  In addition, contributions of $3.3 million were made to the Corporation’s foreign benefit plans during the first nine months of 2010.  Contributions to the foreign benefit plans are expected to be $1.5 million in the fourth quarter of 2010.

Other Postretirement Benefit Plans

The components of the net postretirement benefit cost for the Curtiss-Wright and EMD postretirement benefit plans for the three and nine months ended September 30, 2010 and 2009 were:

During the third quarter, the Corporation revised 2010 expense related to our OPEB plans due to favorable claims and demographic experience.  This resulted in a $0.8 million reduction in expense for the three and nine month periods.

During the nine months ended September 30, 2010, the Corporation paid $1.1 million on the postretirement plans.  During the fourth quarter of 2010, the Corporation anticipates contributing $0.6 million to the postretirement plans.

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

At September 30, 2010 and 2009, there were 2,064,000 and 681,000 stock options outstanding, respectively, that had exercise prices that were in excess of the average market price of the Corporation’s common stock.  As such, the Corporation did not include these stock options in its calculation of diluted earnings per shares, as their effect would have been anti-dilutive for those periods.

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.

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

The equity adjustment from foreign currency translation represents the effect of translating the assets and liabilities of the Corporation’s non-U.S. entities.  This amount is impacted period-over-period by foreign currency fluctuations and by the acquisitions of foreign entities.

As of January 1, 2010, one of the Corporation’s Canadian entities changed its functional currency from the U.S. dollar to the Canadian dollar.  The nature of this operations cash flow changed from predominately U.S. dollar to the Canadian dollar, therefore requiring the change in functional currency.  In accordance with the guidance on foreign currency translation, an adjustment of $18.6 million, attributable to current-rate translation of non-monetary assets, was recorded in the first quarter of 2010 to the currency translation account.   This adjustment resulted in an increase to total comprehensive income and is reported within the “Equity adjustment from foreign currency translations, net” caption above.

Legal Proceedings

In January 2007, a former executive was awarded approximately $9.0 million in punitive and compensatory damages plus legal costs related to a gender bias lawsuit filed in 2003.  The Corporation recorded a $6.5 million reserve related to the lawsuit.  In August of 2009, the New Jersey Appellate Division reversed in part and affirmed in part the judgment of the trial court, resulting in the setting aside of the punitive damage award and the front pay award of the Plaintiff’s compensatory damages award.  The Plaintiff filed a Petition for Certification with the Supreme Court of New Jersey requesting review of the Appellate Division’s decision.  In November of 2009, the Supreme Court of New Jersey granted Plaintiff’s Petition for Certification.  In March 2010, both partie s presented arguments before the Supreme Court of New Jersey.  We continue to wait for a decision and formal opinion from the Supreme Court of New Jersey.

The Corporation is party to a number of 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.

Environmental Matters

The Corporation’s environmental obligations have not changed significantly from December 31, 2009.  The aggregate environmental liability was $21.0 million at September 30, 2010 and $20.9 million at December 31, 2009.  All environmental reserves exclude any potential recovery from insurance carriers or third-party legal actions.

The Corporation, through its Flow Control segment, has several Nuclear Regulatory Commission (“NRC”) licenses necessary for the continued operation of its commercial nuclear operations. In connection with these licenses, the NRC required financial assurance from the Corporation, in the form of a parent company guarantee, covering 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 $4.4 million.

Letters of Credit and Other Arrangements

The Corporation enters into standby letters of credit agreements and guarantees with financial institutions and customers primarily relating to guarantees of repayment on certain Industrial Revenue Bonds, future performance on certain contracts to provide products and services, and to secure advance payments the Corporation has received from certain international customers.  At September 30, 2010 and December 31, 2009, the Corporation had contingent liabilities on outstanding letters of credit of $46.6 million and $47.3 million, respectively.

On June 25, 2010, the Corporation entered into an agreement for the construction and lease of a new manufacturing facility.  The new facility will consist of two buildings totaling approximately 81,000 square feet situated on 12.5 acres in Baytown, Texas, and will serve as a manufacturing and fabrication facility for the Oil and Gas division in the Flow Control segment.    Under the agreement, the Corporation is obligated to pay annual fixed rent of $1.4 million for twenty years, with five years of free rent at the end of the term resulting in an initial term of 25 years.

FORWARD-LOOKING STATEMENTS

Except for historical information, this Quarterly Report on Form 10-Q may be deemed to contain "forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (a) projections of or statements regarding return on investment, future earnings, interest income, sales, volume, other income, earnings or loss per share, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of management, (c) statements of future economic performance, and (d) statements of assumptions, such as economic conditions underlying other statements. Such forward-looking statements can be identified by the use of forward-looking terminology such as "anticipates," "believes," “continue,” "cou ld," “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. Such statements in this Quarterly Report on Form 10-Q include, without limitation, those contained in Item 1. Unaudited Financial Statements and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Important factors that could cause the actual results, performance or achievement to differ materially from those in these forward-looking statements include, among other items:

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.

COMPANY ORGANIZATION

Curtiss-Wright Corporation is a diversified, multinational provider of highly engineered, technologically advanced, value-added products and services to a broad range of industries in the motion control, flow control, and metal treatment markets.  We are positioned as a market leader across a diversified array of niche markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers.  We provide products and services to a number of global markets, such as defense, commercial aerospace, commercial nuclear power generation, oil and gas, automotive, and general industrial. We have achieved balanced growth through the successful application of our core competencies in engineering and precision manufacturing, adapting these competencies to new markets through internal product development and a disciplined program of strategic acquisitions. Our overall strategy is to be a balanced and diversified company, less vulnerable to cycles or downturns in any one market, and to establish strong positions in profitable niche markets.  Approximately 40% of our revenues are generated from defense-related markets.

We manage and evaluate our operations based on the products and services we offer and the different industries and markets we serve. Based on this approach, we have three reportable segments: Flow Control, Motion Control, and Metal Treatment.  For further information on our products and services and the major markets served by our three segments, please refer to our 2009 Annual Report on Form 10-K, as amended.

RESULTS OF OPERATIONS

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 had on the current year results, for which there was no comparable prior-year period. Therefore, the results of operations for acquisitions are incremental for the first twelve months from the date of acquisition.  The remaining businesses are referred to as “organic.”  The definition of “organic” excludes the effects of foreign currency translation.

For both the three and nine months ended September 30, 2010, our organic growth calculations do not include the operating results for our December 18, 2009 acquisition of Skyquest Systems Ltd. or our 2010 acquisitions of Hybricon Corporation and Specialist Electronics Services, Ltd. as they are considered incremental.  For the nine months ended September 30, 2010, our organic growth calculations also exclude approximately one month of operating results for Nu-Torque, two months of operating results for EST Group, Inc., and five months operating results for our Eaton product line divestiture.  The Nu-Torque and EST Group, Inc. businesses were acquired on January 16, 2009 and March 5, 2009, respectively, while we sold our Eaton product line on May 6, 2009. The results of operations for this business have been removed from the comparable prior year period for purposes of calculating organic growth figures and are included as a reduction of our incremental results of operations from our acquisitions.

For the third quarter of 2010, sales for the Corporation were $466 million. This was an increase of $30 million, or 7%, from $436 million for the third quarter of 2009.  The increase in sales was largely due to an increase in organic sales of $24 million, or 5%, over the same period from the prior year.  This was driven by increases in all three segments: $11 million in our Flow Control segment, $7 million in our Motion Control segment, and $6 million in our Metal Treatment segment. Incremental sales, from our 2009 and 2010 acquisitions of Skyquest Systems Ltd., Hybricon Corporation, and Specialist Electronics Services, Ltd., were $8 million. Foreign currency translation had an unfavorable impact of less than $2 million on our sales in 2010 versus 2009.

Across the Corporation, we continued to see signs of economic recovery within our commercial markets. Organic sales within our general industrial market reached “double-digit” growth in all three segments.  This was driven by higher demand for our industrial control and embedded computing products as well as our coating and heat treating services.  We also experienced strong growth within our Motion Control and Metal Treatment segments’ commercial aerospace markets.  The growth in our Motion Control segment was driven by increased demand for our sensors and controls products used on various aircraft as well as the ramp-up of production on the Boeing 787 program.  The growth within our Metal Treatment segment was driven by higher demand for shot peening, heat treating, and coati ng services.  In contrast to our current year-over-year growth, these commercial markets were all declining in the third quarter of 2009, as compared to the same period in 2008.

While there are reasons for optimism within certain commercial markets, we continued to face challenges within our defense markets, power generation, and oil and gas markets.  We experienced modest sales growth within our defense market; however, increases within our aerospace and naval defense markets were largely offset by declines in the ground defense market.   This growth in our aerospace and naval defense markets, within our Motion Control and Flow Control segments, was driven by increased sales on the Global Hawk Unmanned Aerial Vehicle program and the Virginia class submarines, respectively. The expected decline in the ground defense market was primarily within our Motion Control segment, where we experienced lower sales of embedded computing products for tanks and light armored vehicles, such as the B radley Fighting Vehicle, as well as lower sales due to the cancellation of the Army’s Future Combat Systems (“FCS”) program.  Organic sales within our power generation market, primarily our Flow Control segment, were down slightly from the prior year period.  Lower sales of our next-generation reactor coolant pumps for the AP1000 nuclear reactors in China were largely offset by increased demand for upgrades and plant maintenance on domestic nuclear reactors. Organic sales within our oil and gas market were essentially flat from the prior year period. 

New orders increased by $40 million ($465 million versus $425 million), or 10%, for the third quarter of 2010, as compared to the same period in 2009.  This increase was primarily driven by higher orders for aerospace flight controls and integrated sensing products in our Motion Control segment, which were partially offset by the timing of new orders in our Flow Control segment for the Virginia class submarine program.  Acquisitions, net of divestitures, contributed $17 million to new orders from the comparable quarter in 2009.

For the third quarter of 2010, operating income for the Corporation was $48 million. This was an increase of $12 million, or 33%, from $36 million for the third quarter of 2009.  Organic operating income, however, increased by approximately $13 million, or 35%, but was offset by $1 million of unfavorable foreign currency translation.  Our segment organic operating margin was 11.8%, a 190 basis point improvement, as compared to 9.9% in the prior year period.  Our Metal Treatment, Motion Control, and Flow Control segments’ organic operating income increased 37%, 34%, and 17%, respectively, mainly due to both improved absorption on increased sales volumes and benefits generated from our cost reduction and restructuring programs. Non-segment operating expenses decreased $2 million for the third quarter of 2010, as lower pension costs and higher foreign exchange transaction gains were partially offset by higher unallocated medical costs and compensation expense.  Our 2009 and 2010 acquisitions had a minimal impact on operating income in the third quarter of 2010.

Net earnings for the third quarter of 2010 totaled $28 million, or $0.60 per diluted share.  This was an increase of approximately 38%, from $20 million, or $0.44 per diluted share, in the third quarter of 2009.   As compared to the prior year period, interest expense had a minimal effect on operating income. Lower average debt levels were offset by a slight increase in our average borrowing rate for the quarter.  Our effective tax rate for the third quarter of 2010 was 34.4% as compared to 34.3% in the third quarter of 2009.

For the first nine months of 2010, sales for the Corporation were $1,370 million. This was an increase of $63 million, or 5%, from $1,307 million for the first nine months of 2009.  The increase in sales was largely due to an increase in organic sales of $44 million, or 3%, over the same period from the prior year.  This was driven by increases in all three segments: $25 million in our Flow Control segment, $11 million in our Metal Treatment segment, and $7 million in our Motion Control segment. Incremental sales were $16 million, or 1%, while the remaining sales increase of $3 million was due to the favorable effects of foreign currency translation.

For the first nine months of 2010, we experienced modest organic growth across several major markets. Our general industrial, commercial aerospace, and defense markets all grew over the prior year period.  Organic sales growth within our general industrial market was strong across all three segments and was driven by higher demand for our industrial control and embedded computing products as well as our shot peening, heat treating, and coating services.  Growth in our commercial aerospace market was driven by increased demand for our sensors and controls products used on various commercial aircraft as well as the ramp-up of production on the Boeing 787 program.  The increase in our defense markets was driven by strong increases in the aerospace and naval markets within our Motion Control and Flow Control segments.  Most notably, the growth in these markets was driven by increased sales on Global Hawk Unmanned Aerial Vehicle and Virginia class submarines programs, respectively.  These increases were largely offset by expected declines in the ground defense market within our Motion Control segment.  This was due to lower sales of embedded computing products for tanks and light armored vehicles, such as the Stryker and Bradley Fighting Vehicles, as well as lower sales due to the cancellation of the FCS program.  Organic sales within our power generation market were essentially flat over the prior year period.  Overall, while we saw growth in several major markets, we continue to be challenged in the oil and gas market due to delays in new order placement for our traditional valve products.

New orders increased by $73 million ($1,359 million versus $1,286 million), or 6%, for the first nine months of 2010, as compared to the same period in 2009.  The growth in new orders was mainly due to increases for aerospace defense flight systems and integrated sensing products in our Motion Control Segment, as well as new orders for international coker products in our Flow Control Segment.  Acquisitions, net of divestitures, contributed $26 million to new orders from the comparable period in 2009. Our backlog of $1,630 million at September 30, 2010 was relatively unchanged from $1,627 million at December 31, 2009.

For the first nine months of 2010, operating income for the Corporation was $123 million. This was an increase of $11 million, or 10%, from $111 million for the first nine months of 2009.  Organic operating income increased by approximately $20 million, or 18%, but was offset by $8 million of unfavorable foreign currency translation.  Our segment organic operating margin was 11.0% for the first nine months of 2010, a 160 basis point improvement, as compared to 9.4% in the prior year period.  Our Flow Control, Motion Control and Metal Treatment segments’ organic operating income increased 21%, 20% and 19%, respectively, mainly due to both improved absorption on increased sales volumes and benefits generated from our cost reduction and restructuring programs. Non-segment operating expense increased by $5 million, mainly due to higher unallocated medical expenses.  Our 2009 and 2010 acquisitions had a minimal impact on operating income for the first nine months of 2010.