What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-27 · 140 added, 147 removed, 303 unchanged (49% of the section changed)

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Additionally, the results of operations of divested businesses are removed from the comparable prior year period for purposes of calculating “organic” and “incremental” results.

The definition of “organic” excludes the effect of foreign currency translation.

The definition of “organic” excludes the effects of total restructuring charges and foreign currency translation.

Market Analysis and Economic Factors

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Many of Curtiss-Wright’s industrial businesses are driven in large part by global economic growth, primarily led by operations in the U.S., Canada, Europe, and China.

During January 2020, it was reported that a coronavirus outbreak originated in China, which resulted in travel in and out of China being restricted along with the temporary halting of manufacturing activities.

However, it is too premature to accurately predict the impact that such outbreak will have on business activity or our operations.

economy, as measured by real gross domestic product (GDP), has slowly improved over the last ten years, aided by decreased levels of unemployment, improvements in the housing market, and a low interest rate environment.

In 2019, U.S.

GDP is expected to show modest growth of 2.3%, compared to GDP growth of 2.9% and 2.4% in 2018 and 2017, respectively.

The projected slowing growth is primarily due to the lengthy impact of U.S./China trade tensions and ongoing concerns about global recessionary conditions.

Looking ahead to 2020, economists have mixed views on the broader U.S.

economy, with current estimates for U.S.

GDP indicating a growth rate of approximately 2.0%, despite the administration’s goal to raise the pace of expansion to at least 3.0% per year through increased fiscal stimulus.

Meanwhile, the global environment’s rebound in economic activity that began in mid-2016 has moderated from recent peak levels, influenced by international trade tensions, tightening financial conditions, and rising geopolitical uncertainty.

As a result, 2020 GDP growth in world economies is expected to grow by approximately 3.3%, up compared to the 2019 growth rate of 2.9%, but below the 2018 growth rate of 3.6%, according to the International Monetary Fund.

Looking ahead to the next few years, we remain cautiously optimistic that our economically-sensitive commercial and industrial markets will improve based on normalized global conditions.

In March 2020, the World Health Organization characterized COVID-19 as a pandemic, which resulted in significant travel restrictions and disruption of the financial markets, as well as negatively impacted our supply chains and production levels.

The pandemic has caused demand in the commercial aerospace and general industrial end markets to be negatively impacted for the foreseeable future, the extent of which is contingent upon future developments.

These future developments, which are highly uncertain and unpredictable, include new information concerning the severity and duration of the outbreak as well as impacts to our supply chain, transportation networks, and customers.

In the last decade, the U.S.

economy, as measured by real gross domestic product (GDP), has slowly improved, aided by decreased levels of unemployment, improvements in the housing market, and a low interest rate environment.

Initial expectations for 2020 implied a slight contraction from 2019’s U.S.

GDP growth rate of 2.2%, primarily due to the impact of U.S./China trade tensions and ongoing concerns about global recessionary conditions.

However, due to the impact of the COVID-19 pandemic, 2020 U.S.

GDP is now expected to show a decline of 3.5%.

Looking ahead to 2021, economists expect growth in the broader U.S.

economy to rebound, with current estimates for U.S.

GDP ranging from 4% to more than 6% growth.

Meanwhile, the global environment, which is typically influenced by international trade, economic conditions, and geopolitical uncertainty, has been greatly impacted by the pandemic.

According to the International Monetary Fund’s World Economic Outlook - 2020, global GDP in world economies, which was originally forecasted to grow approximately 3%, is now expected to decline 4.4% in 2020, but rebound and grow 5.2% in 2021.

Looking ahead to the next few years, we remain cautiously optimistic that our economically-sensitive commercial and industrial markets will improve based upon a return to normalized global growth conditions.

We have a well-diversified portfolio of products and services that supply all branches of the U.S.

military, with content on many high performance programs and platforms, as well as a growing international defense business.

military, with content on critical high-performance programs and platforms, as well as a growing international defense business.

A significant portion of our defense business operations is attributed to the United States market, and characterized by long-term programs and contracts driven primarily by the Department of Defense (DoD) budgets and funding levels.

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In early 2018, Congress signed a bill to provide relief against the spending caps associated with the BCA.

In addition, the Fiscal Year 2019 Defense Appropriations Bill, signed by the President in September 2018, was the first to be signed into law on time in over a decade.

Most recently, the two-year, Bipartisan Budget Act signed by the President in August 2019 brought an improved sense of security to federal agencies, essentially cancelling the last two years of the BCA and its sequestration caps, while setting solid topline spending figures for 2020 and 2021 in excess of $700 billion.

Looking ahead, the Fiscal Year 2021 budget request is expected to be approximately $740 billion, essentially in line with the Fiscal Year 2020 budget.

In addition, the Fiscal Year 2019 Defense Appropriations Bill, signed in September 2018, was the first to be signed into law on time in over a decade.

More recently, the two-year, Bipartisan Budget Act signed in August 2019 brought an improved sense of security to federal agencies, essentially cancelling the prior two years of the BCA and its sequestration caps, while setting solid topline spending figures for 2020 and 2021 in excess of $700 billion.

In early 2021, the Fiscal Year 2021 budget was authorized at $696 billion, slightly ahead of the Fiscal Year 2020 budget.

Looking ahead, in conjunction with the President’s budget request, the DoD submitted its plan, which is referred to as the Future Years Defense Program (FYDP).

The FYDP reflects the DoD’s expectations about its programs and costs over the next five years, which presently indicates that total budget funding would be relatively flat.

We derive revenue from the naval defense, aerospace defense, and ground defense markets.

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shipbuilding programs, particularly as it relates to production on the Ford class aircraft carrier, as well as Columbia class and Virginia class submarines.

We have a long legacy of providing products that support nuclear propulsion systems on naval vessels.

We have a long legacy of providing products that support

nuclear propulsion systems on naval vessels.

In addition, through our service centers, we are a critical provider of ship repair and maintenance for the U.S.

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We are also a leading designer and manufacturer of high-technology data acquisition and comprehensive flight test instrumentation systems.

In the ground defense market, the modernization of the existing U.S.

ground vehicle fleet is expected to recover slowly, while international demand should remain solid, particularly for our turret drive stabilization systems (TDSS).

In the ground defense market, we are a leading supplier of advanced tactical communications solutions for battlefield network management, including commercial off-the-shelf (COTS)-based rugged, small form factor communications systems, and integrated network communications management software.

The modernization of the existing U.S.

ground vehicle fleet is expected to recover slowly, while international demand should remain solid, particularly for our electronics stabilization systems.

While we monitor the budget process as it relates to programs in which we participate, we cannot predict the ultimate impact of future DoD budgets, which tend to fluctuate year-by-year and program-by-program.

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We provide a combination of flight control and utility actuation systems, sensors, and other sophisticated electronics, as well as shot and laser peening services utilized on highly stressed components of turbine engine fan blades, landing gear, and aircraft structures.

Steady growth in airline travel, along with the demand for and delivery of new aircraft to replace an aging fleet, continue to be key drivers in the commercial aerospace market.

Fiscal 2011 marked the beginning of a multi-year production up-cycle for the commercial aerospace market.

This up-cycle has been driven by increases in production by Boeing and Airbus on both legacy and new aircraft, particularly narrow-body aircraft, and is further supported by their strong backlogs.

Additionally, the steady decline in oil prices during the past few years has been a key contributor to increased passenger growth, as declining fuel prices have led to cheaper airfares for consumers.

According to the International Air Transport Association, air travel continues to be solid with passenger growth expected to be approximately 4.1% in 2020.

The projected 2020 rate of growth is essentially in-line with 2019 but slower than the 20-year trend.

Industry data supports a continued, steady increase in commercial aircraft deliveries to meet this growing demand.

Passenger travel and freight logistics, along with the demand for and delivery of new aircraft, are the key drivers in the commercial aerospace market.

Over the past decade, there was an extended production up-cycle for the commercial aerospace market, which was driven by increases in production by Boeing and Airbus on both legacy and new aircraft, particularly narrow-body aircraft.

Additionally, sustained low oil prices contributed to increased passenger growth, as declining fuel prices led to cheaper airfares for consumers.

In 2020, the onset of the COVID-19 pandemic abruptly halted the industry’s growth as fewer and fewer passengers traveled, and business operations were disrupted globally, stunting the production of new aircraft as well as the maintenance of existing aircraft.

Current travel restrictions, as well as changes in the propensity for the general public to travel by air as a result of the COVID-19 pandemic, will likely be driven by the availability and implementation of vaccines.

According to the International Air Transport Association, air travel demand based on passenger growth fell sharply in 2020, well below typical growth rates, but is expected to recover in 2021 and 2022, assuming vaccinations proceed at current projections.

Longer term, the IATA projects an average annual growth rate of passenger travel of 3.7% over the next 20 years.

While we closely monitor these industry metrics, our success and future growth in the commercial aerospace market is primarily tied to the growth in aircraft production rates, the timing of our order placement, and continued partnering with aerospace original equipment manufacturers.

In 2020, we enacted certain restructuring actions by exiting the build-to-print actuation product line supporting the Boeing 737 MAX program to ensure our long-term positioning and profitability as it applies to the Company’s commercial aerospace exposure.

Power Generation

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According to the Nuclear Regulatory Commission (NRC), nuclear power comprises approximately 20% of all electric power produced in the United States, with 94 reactors operating across 56 nuclear power plants in 28 states.

Our growth opportunities for aftermarket products and services are driven by plant aging, plant closures, requirements for planned outages, plant life extensions (from the end of their original 40-year operating lives to 60-year and now 80-year lives), the levying of regulatory requirements, suppliers abandoning the commercial nuclear market, and plants seeking technology and innovation advances.

One of the industry’s most significant challenges is electricity market competitiveness, primarily driven by sustained low natural gas prices.

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As a result, we expect increased opportunities for our vast portfolio of advanced nuclear technologies moving forward.

Longer term, there are several factors that are expected to drive global commercial nuclear power demand.

The Energy Information Administration forecasts that worldwide electricity generation is expected to increase at an average annual rate of 1.8% through 2050.

Continued growth in global demand , especially in developing countries with limited power supply such as China and India, will require increased capacity.

Longer term, there are several factors driving global commercial nuclear power demand, especially in developing countries with growing populations but limited power supply such as China and India, which will require increased capacity.

In addition, the continued supply constraints and environmental concerns attributed to the current dependence on fossil fuels have led to a greater appreciation of the value of nuclear technology as the most efficient and environmentally friendly source of energy available today.

As a result, we expect growth opportunities in this market both domestically and internationally, although the timing of orders remains uncertain.

We also play an important role in the new build market for the Westinghouse AP1000 reactor design, for which we are a supplier of RCPs and also expect to supply a variety of ancillary plant products and services.

We also play an important role in the new build market for the Generation III+ Westinghouse AP1000 reactor design, for which we are a supplier of RCPs and also expect to supply a variety of ancillary plant products and services.

Domestically, two new build reactors remain under construction in Georgia utilizing the AP1000 design.

On a global basis, nuclear plant construction is active.

Cu rrently, there are approximately 53 new reactors under construction across 18 countries, with approximately 110

planned and 330 proposed over the next several decades according to the World Nuclear Organization.

Cu rrently, there are approximately 53 new reactors under construction across 19 countries, with approximately 98 planned and 326 proposed over the next several decades according to the World Nuclear Organization.

In particular, China intends to expand its nuclear power capabilities significantly through the construction of new nuclear power plant s over the next few decades, led by the successful start-up and operation of the first two AP1000 plants (four reactors) in late 2018 and early 2019, which are the first Generation III+ reactors in operation worldwide.

We continue to expect to play a role in new build nuclear plant construction with our largest opportunities in China and India.

We continue to expect to play a role in new build nuclear plant construction with our largest opportunities for large scale reactors in China and India, and worldwide through future construction of advanced and small modular reactors.

Our future success in this industry will be led by new order activity for our vast array of nuclear technologies due to ongoing maintenance and upgrade requirements on operating nuclear plants, a renewed interest in products to aid safety and extend the reliability of existing reactors, and the continued emphasis on global nuclear power construction.

General Industrial

Revenue derived from our widely diversified offering to the general industrial market consists of industrial sensors and control systems, critical-function valves and valve systems, as well as surface treatment services.

Revenue derived from our widely diversified offering to the general industrial market consists of electronic sensors and control systems, critical-function valves and valve systems, and surface treatment services.

We supply our products and services to OEMs and aftermarket industrial customers, including the transportation, commercial trucking, off-road equipment, agriculture, construction, automotive, chemical, and oil and gas industries.

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and global economies, with changes in global GDP rates and industrial production driving our sales, particularly for our surface treatment services.

One of the key drivers within our general industrial market is our sensors and controls systems products, most notably electronic throttle controls, shift controls, joysticks, power management systems, and traction control systems.

These products serve the on-and-off highway, medical mobility, and specialty vehicles markets.

One of the key drivers within our general industrial market is our electronic sensors and controls systems products serving the on-and-off highway, medical mobility, and specialty vehicles markets.

Notable products include electronic throttle controls, shift controls, joysticks, power management systems, and traction control systems.

Increased industry demand for electronic control systems and sensors has been driven by the need for improved operational efficiency, safety, repeatability, reduced emissions, enhanced functionality, and greater fuel efficiencies to customers worldwide.

Key to our future growth is expanding the human-machine interface technology portfolio and providing a complete system solution to our customers.

Existing and emerging trends in commercial vehicle safety, emissions control, and improved driver efficiency are propelling commercial vehicle OEMs toward higher performance subsystems.

These trends are accelerating the evolution from discrete human machine interface components towards a more integrated vehicle interface architecture.

Key to our future growth is expanding the human-machine interface (HMI) technology portfolio and providing a complete system solution to our customers.

Existing and emerging trends in commercial vehicle safety, emissions control, and improved driver efficiency, as well as electrification and the industrial Internet of Things, are propelling commercial vehicle OEMs toward higher performance subsystems.

These trends are accelerating the evolution from discrete HMI components towards a more integrated vehicle interface architecture.

Meanwhile, our surface treatment services, which include shot and laser peening, engineered coatings, and analytical testing services, are used to increase the safety, reliability, and longevity of components operating in harsh environments.

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We maintain a global maintenance, repair, and overhaul (MRO) business for our pressure-relief valve technologies as refineries opportunistically service or upgrade equipment that has been operating at or near full capacity.

We also produce severe service, operation-critical valves for the power and process industries.

We also produce severe service, operation-critical valves for the power and process

Sales in these industries are driven by global supply and demand, crude oil prices, industry regulations, and the natural gas market.

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Net earnings $ 201,392 $ 307,583 (35) %

Impairment of assets held for sale $ 33,043 $ — NM

Total restructuring charges $ 42,725 $ — NM

New orders $ 2,321,481 $ 2,579,617 (10) %

Backlog $ 2,163,750 $ 2,166,764 — %

NM - Not meaningful

Components of sales and operating income growth (decrease):

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Acquisitions 4 % (1) %

Impairment of assets held for sale — % (8) %

Restructuring — % (9) %

Foreign currency — % — %

Total (4) % (28) %

Sales for the year increased $76 million, or 3%, to $2,488 million, compared with the prior year period.

On a segment basis, sales from the Commercial/Industrial, Defense, and Power segments increased $31 million, $25 million, and $20 million, respectively.

Sales for the year decreased $97 million, or 4%, to $2,391 million, compared with the prior year period.

On a segment basis, sales from the Commercial/Industrial and Power segments decreased $188 million and $17 million, respectively, with sales from the Defense segment increasing $108 million.

Changes in sales by segment are discussed in further detail in the "Results by Business Segment" section below.

Operating income for the year increased $30 million, or 8%, to $404 million, and operating margin increased 70 basis points compared with 2018.

The increases in operating income and operating margin were primarily due to favorable overhead absorption on higher naval defense sales and the absence of first year purchase accounting costs from our DRG acquisition in the Power segment.

Operating income and operating margin also benefited from gains recognized on the sales of a product line and building in the Commercial/Industrial segment.

The benefits of our ongoing margin improvement initiatives were recognized across all segments.

These increases were partially offset by an unfavorable shift in mix within our defense electronic products, higher research and development expenses, and favorable contract adjustments in the prior year period which did not recur in the Defense segment as well as the impact of tariffs in the Commercial/Industrial segment.

The timing of sales on the AP1000 China Direct program negatively impacted operating income in the Power segment.

Non-segment operating expense of $35 million was essentially flat compared to the prior year period.

Interest expense for the year decreased $3 million, or 8%, to $31 million, primarily due to a discretionary $50 million prepayment on our 2013 Notes in October 2018.

Other income, net for the year increased $7 million, or 44%, to $24 million, primarily due to higher income related to our pension and other post-retirement benefit plans.

The effective tax rates for 2019 and 2018 were 22.4% and 22.6%, respectively.

Th e decrease in the effective tax rate in 2019, as compared to 2018, was primarily due to additional tax expense associated with the Tax Act for foreign withholding taxes recognized in the prior year period as well as the current period benefit related to research and development credits and foreign-derived intangible income (FDII) deduction.

These decreases were primarily offset by reduced stock compensation benefits and the absence of a favorable prepaid and repair method change recognized in the prior year period.

Refer to Note 12 to the Consolidated Financial Statements for more information.

New orders increased $153 million, or 6%, from the prior year period to $2,580 million, primarily due to strong organic growth in naval defense orders across all segments.

New orders also benefited from higher demand for our commercial aerospace products in the Commercial/Industrial segment.

These increases were partially offset by a decline in new orders for our industrial vehicle, industrial controls, and industrial valve products in the Commercial/Industrial segment.

Operating income for the year decreased $115 million, or 28%, to $289 million, and operating margin decreased 410 basis points compared with 2019.

The decreases in operating income and operating margin were primarily due to unfavorable overhead absorption on lower sales in the Commercial/Industrial segment, an impairment loss of $33 million in the Commercial/Industrial segment due to our industrial valve business in Germany being classified as held for sale during the current period, as well as restructuring costs of $41 million recognized across all segments.

Non-segment operating expense for the year increased $3 million, or 8%, to $38 million, primarily due to higher post-retirement costs and foreign exchange losses.

Interest expense for the year increased $4 million, or 13% , to $36 million, primarily due to the issuance of $300 million Senior Notes in August 2020 as well as the impact of borrowings under our revolving credit facility.

Other income, net for the year decreased $14 million, or 59% , to $10 million, primarily due to the recognition of accumulated foreign currency translation losses of $10 million related to the substantial liquidation of our Norwegian subsidiary.

The effective tax rate of 23.4% for the year ended December 31, 2020, increased as compared to an effective tax rate of 22.4% in the prior year period.

This increase was primarily driven by the recognition of accumulated foreign currency translation losses related to the substantial liquidation of our Norwegian subsidiary, which are not deductible for tax purposes, as well as additional tax expense associated with the impairment of goodwill and establishment of a valuation allowance against certain deferred tax assets related to foreign assets that were classified as held for sale during the current period.

New orders decreased $258 million, or 10% , from the prior year period to $2,321 million, primarily due to a pandemic-driven decline in new orders for sensors and controls equipment, industrial vehicle and industrial valve products, and surface treatment services in the Commercial/Industrial segment.

In the Power segment, new orders were negatively impacted by lower commercial orders in the power generation market.

These decreases were partially offset by the timing of aerospace defense and naval defense orders in the Defense segment.

Changes in new orders by segment are discussed in further detail in the "Results by Business Segment" section below.

Comprehensive income (loss)

Pension and postretirement adjustments within comprehensive income during the year ended December 31, 2019 were a $29 million loss, compared with a $19 million loss for the pr ior year period.

The loss during the current period was primarily due to an increase in the discount rate, partially offset by higher asset returns.

The loss in the prior period was primarily due to lower asset returns, partially offset by a decrease in the discount rate.

Foreign currency translation adjustments during the year ended December 31, 2019 resulted in a gain of $18 million, compared to a foreign currency translation loss of $52 million in the comparable prior period.

The comprehensive gain during the current period was primarily attributed to increases in the British Pound and Canadian dollar with the prior period comprehensive loss primarily attributed to decreases in the British Pound and Canadian dollar.

Pension and postretirement adjustments within comprehensive income during the year ended December 31, 2020 were a $27 million loss, compared to a $29 million loss for the pr ior year period.

The losses in both periods were primarily due to increases in the discount rate, partially offset by higher asset returns.

Foreign currency translation adjustments during the year ended December 31, 2020 resulted in a comprehensive gain of $41 million, compared to a comprehensive gain of $18 million in the comparable prior period.

The comprehensive gain during the current period was primarily attributed to increases in the Euro and British Pound, with the prior period comprehensive gain primarily attributed to increases in the British Pound and Canadian dollar.

RESULTS BY BUSINESS SEGMENT

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Sales in the Commercial/Industrial segment are primarily generated from the general industrial and commercial aerospace markets and, to a lesser extent, the defense and power generation markets.

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

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

Year Ended December 31, Percent Change

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Operating margin 8.6 % 15.8 % (720 bps)

Total restructuring charges (1)

$ 22,286 $ — NM

New orders $ 794,314 $ 1,165,381 (32) %

Backlog $ 318,554 $ 466,279 (32) %

(1) For the year ended December 31, 2020, such amount includes approximately $1.8 million of non-operating restructuring charges, which have been recorded within other income, net in our Consolidated Statement of Earnings.

Components of sales and operating income growth (decrease):

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Acquisitions 1 % (1) %

Impairment of assets held for sale — % (18) %

Restructuring — % (11) %

Foreign currency — % — %

Total (17) % (55) %

Sales increased $31 million, or 3%, to $1,240 million, from the comparable prior year period, primarily due to higher sales in the aerospace defense, commercial aerospace, and naval defense markets.

In the aerospace defense market, sales increased $21 million primarily due to higher demand for actuation systems on the F-35 fighter jet program.

Sales in the commercial aerospace market increased $19 million primarily due to higher demand for sensors products.

The naval defense market benefited from higher sales of $9 million primarily due to increased production on the Virginia-class submarine program.

These increases were partially offset by lower general industrial sales of $14 million primarily due to lower demand for surface treatment services.

Unfavorable foreign currency translation, which is reflected in the results above, reduced sales $12 million.

Operating income increased $14 million, or 8%, to $196 million, and operating margin increased 70 basis points to 15.8%.

The increases in operating income and operating margin were primarily due to favorable overhead absorption on higher sales and gains recognized on the sales of a product line and building.

Operating income and operating margin also benefited from our ongoing margin improvement initiatives.

These increases were partially offset by the impact of tariffs.

New orders increased $87 million as compared to the prior year, primarily due to strong organic growth in naval defense and commercial aerospace orders of $63 million and $60 million, respectively.

These increases were partially offset by a decline in new orders of $43 million for our industrial vehicle, industrial controls, and industrial valve products.

Sales decreased $188 million, or 17%, to $950 million, from the comparable prior year period, primarily due to the ongoing impact of the COVID-19 pandemic on the commercial aerospace and general industrial markets.

In the commercial aerospace market, sales decreased $96 million, primarily due to lower sales of actuation and sensors equipment as well as surface treatment services.

Sales in the general industrial market decreased $109 million, primarily due to lower demand for industrial vehicle and industrial valve products, as well as surface treatment services.

These decreases were partially offset by higher sales of $14 million in the aerospace defense market, primarily due to higher demand for actuation systems on the F-35 fighter jet program.

Operating income decreased $98 million, or 55%, to $82 million, and operating margin decreased 720 basis points to 8.6%.

The decreases in operating income and operating margin were primarily due to unfavorable overhead absorption on lower sales in the general industrial and commercial aerospace markets, an impairment loss of $33 million due to our industrial valve business in Germany being classified as held for sale during the current period, as well as costs associated with our restructuring activities.

New orders decreased $371 million as compared to the prior year, primarily due to a pandemic-driven decline in new orders for sensors and controls equipment, industrial vehicle and industrial valve products, and surface treatment services.

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

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

The following tables summarize sales, operating income and margin, total restructuring charges, and new orders, within the

Defense segment.

Year Ended December 31, Percent Change

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Operating margin 19.1 % 21.9 % (280 bps)

Total restructuring charges $ 3,190 $ — NM

New orders $ 861,506 $ 682,648 26 %

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Acquisitions 12 % (2) %

Restructuring — % (3) %

Foreign currency — % 1 %

Total 17 % 2 %

Sales increased $25 million, or 5%, to $579 million, from the comparable prior year period, primarily due to higher sales in the aerospace defense and naval defense markets.

In the aerospace defense market, sales increased $19 million primarily due to the

incremental impact from our TCG acquisition as well as higher demand for embedded computing equipment on various UAV and helicopter programs.

Sales in the naval defense market increased $16 million primarily due to higher production on the Virginia-class submarine and DDG-51 guided missile destroyer programs.

These increases were partially offset by lower general industrial sales of $8 million due to the timing of an automotive contract completed in the prior year period.

Operating income of $130 million was essentially flat compared with the same period in 2018, while operating margin decreased 80 basis points to 22.4%.

Higher sales and favorable overhead absorption on our naval defense products as well as the benefits of our ongoing margin improvement initiatives were essentially offset by an unfavorable shift in mix within our defense electronic products, higher research and development expenses, and favorable contract adjustments within our naval defense business in the prior year period which did not recur.

New orders increased $37 million as compared to the prior year primarily due to strong organic growth in our naval defense market, which contributed $28 million in new orders.

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

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

Sales increased $108 million, or 17%, to $734 million, from the comparable prior year period, primarily due to higher sales in the naval defense and aerospace defense markets.

Sales in the naval defense market increased $87 million, primarily due to the incremental impact of our 901D acquisition, which contributed sales of $46 million.

Excluding the impact of 901D, the naval defense market benefited from higher demand for valves and embedded computing equipment on the Virginia-class submarine platform, which resulted in higher sales of $32 million.

In the aerospace defense market, sales increased $33 million, primarily due to higher demand for embedded computing equipment on various fighter jet and UAV platforms as well as higher foreign military sales.

Additionally, sales in the ground defense market increased $12 million, primarily due to the incremental impact of our PacStar acquisition.

These increases were partially offset by lower sales of $11 million in the commercial aerospace market, primarily due to lower demand for flight test instrumentation equipment.

Operating income increased $3 million, or 2%, to $140 million compared with the same period in 2019, while operating margin decreased 280 basis points to 19.1%.

Favorable overhead absorption on higher sales as well as the benefits of our ongoing margin improvement initiatives were partially offset by costs associated with our restructuring activities as well as first year purchase accounting costs from our acquisitions of 901D and PacStar.

New orders increased $179 million as compared to the prior year, primarily due to the timing of aerospace defense and naval defense orders.

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

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

Year Ended December 31, Percent Change

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Operating margin 14.8 % 16.9 % (210 bps)

Total restructuring charges $ 17,249 $ — NM

New orders $ 665,661 $ 731,588 (9) %

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Acquisitions — % — %

Restructuring — % (14) %

Foreign currency — % — %

Total (2) % (14) %

Sales increased $20 million, or 3%, to $669 million, from the comparable prior year period.

In the naval defense market, sales increased $57 million primarily due to higher production on the Virginia-class submarine and CVN-80 aircraft carrier programs, which benefited sales $20 million and $16 million, respectively.

The naval defense market also benefited from higher spares and service center sales of $17 million.

These increases were partially offset by lower sales of $38 million in the power generation market primarily due to the timing of production on the AP1000 China Direct program.

Operating income increased $14 million, or 14%, to $113 million and operating margin increased 170 basis points to 16.9%.

New orders increased $29 million as compared to the prior year primarily due to strong organic growth in the naval defense market, which contributed $33 million in new orders.

Sales decreased $17 million, or 2%, to $708 million, from the comparable prior year period.

In the power generation market, sales decreased $46 million, primarily due to COVID-related impacts on domestic and international aftermarket sales, as well as lower AP1000 program revenues.

This decrease was partially offset by higher sales of $32 million in the naval defense market, primarily due to the timing of production on the Columbia class submarine and CVN-81 aircraft carrier programs.

Operating income decreased $18 million, or 14%, to $105 million and operating margin decreased 210 basis points to 14.8%.

The decreases in operating income and operating margin were primarily due to lower sales volume as well as costs associated with our restructuring activities.

New orders decreased $66 million as compared to the prior year, primarily due to lower commercial orders in the power generation market.

SUPPLEMENTARY INFORMATION

The table below depicts sales by end market.

End market sales help provide an enhanced understanding of our businesses and the markets in which we operate.

The table below depicts sales by end market and customer type, as it helps provide an enhanced understanding of our businesses and the markets in which we operate.

The table has been included to supplement the discussion of our consolidated operating results.

Net Sales by End Market

Net Sales by End Market and Customer Type

Year Ended December 31, Percent change

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Total Curtiss-Wright $ 2,391,336 $ 2,487,961 (4) %

Defense sales increased $118 million, or 12%, to $1,079 million, as compared to the prior year period, primarily due to higher sales in the naval and aerospace defense markets.

Higher sales in the naval defense market were primarily due to increased production on the Virginia-class submarine and CVN-80 aircraft carrier programs, which benefited sales $41 million and $11 million, respectively.

The naval defense market also benefited from higher spares and service center sales of $19 million and increased production of helicopter handling systems on the DDG-51 guided missile destroyer program, which resulted in a sales increase of $8 million.

Sales in the aerospace defense market increased due to the incremental impact from our TCG acquisition, which contributed $11 million in sales.

We also experienced higher demand for actuation systems on the F-35 fighter jet program as well as embedded computing products supporting various helicopter and UAV programs, which resulted in sales increases of $9 million, $11 million, and $10 million, respectively.

Commercial sales decreased $42 million, or 3%, to $1,409 million, primarily due to lower sales in the power generation and general industrial markets.

The sales decrease in the power generation market was primarily due to the timing of production on the AP1000 China Direct program, which reduced sales $33 million.

In the general industrial market, we experienced lower demand for our surface treatment services and were negatively impacted by the timing of an automotive contract completed in the prior year period.

These decreases were partially offset by sales increases in the commercial aerospace market, primarily due to higher demand for sensors products.

Defense sales increased $184 million, or 17%, to $1,263 million, as compared to the prior year period, primarily due to higher sales in the naval defense and aerospace defense markets.

The naval defense market benefited from higher sales of $56 million on the Virginia-class and Columbia-class submarine programs, as well as the impact of our 901D acquisition, which contributed incremental sales of $46 million.

Sales in the aerospace defense market increased primarily due to higher foreign military sales of $14 million as well as higher sales of $14 million on the F-35 fighter jet program.

Commercial sales decreased $281 million, or 20%, to $1,128 million, primarily due to the ongoing impact from the COVID-19 pandemic, which resulted in lower sales across all markets.

In the commercial aerospace market, we experienced lower demand for actuation and sensors equipment as well as surface treatment services, which resulted in sales decreases of $67 million and $29 million, respectively.

Sales in the power generation market decreased primarily due to lower domestic and international aftermarket sales of $37 million.

Lower demand in the general industrial market for industrial vehicle, industrial valve, and industrial control products resulted in sales decreases of $41 million, $36 million, and $16 million, respectively.

Sales in the general industrial market were also negatively impacted by lower demand for surface treatment services, which resulted in a sales decrease of $17 million.

Liquidity and Capital Resources

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Operating Activities

Cash provided by operating activities increased $85 million to $421 million from the comparable prior year period.

The increase in net cash provided was primarily due to a prior year period voluntary pension contribution of $50 million.

Net cash provided during the current period also benefited from higher collections of accounts receivable and lower inventory receipts, partially offset by higher disbursements.

Cash provided by operating activities decreased $160 million to $261 million from the comparable prior year period, primarily due to a voluntary pension contribution of $150 million as well as the timing of advanced cash receipts in the current period.

These decreases were partially offset by a reduction in receivables during the current period.

Investing Activities

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Our capital expenditures were $47 million and $70 million for 2020 and 2019, respectively.

The increase in capital expenditures was primarily due to additional investment in the new DRG facility in South Carolina.

The decrease is capital expenditures was primarily due to lower capital spending during the current period as well as lower current period investment related to the new DRG facility.

For 2021, we anticipate capital expenditures of approximately $50 million to $60 million.

No material divestitures took place during 2020 or 2019.

In 2020, we acquired three businesses for a total purchase price of $496 million, inclusive of $488 million cash paid plus a holdback of $8 million for potential indemnification claims against the seller.

In 2019, we acquired two businesses for a total purchase price of $185 million.

In 2018, we acquired one business for a total purchase price of $210 million.

Future acquisitions will depend, in part, on the availability of financial resources at a cost of capital that meet our stringent criteria.

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Debt Issuances

There were no debt issuances in 2019 or 2018.

In 2018, we made a discretionary $50 million prepayment on our 2013 Notes.

On August 13, 2020, the Corporation issued $300 million of Senior Notes (the “2020 Notes”), consisting of $150 million of 3.10% Senior Notes that mature on August 13, 2030 and $150 million of 3.20% Senior Notes that mature on August 13, 2032.

There were no debt issuances in 2019.

Revolving Credit Agreement

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Repurchase of Common Stock

During 2019, the Company repurchased approximately 417,000 shares of its common stock for $51 million.

In 2018, the Company repurchased approximately 1,700,000 shares of its common stock for $199 million.

During 2019 and 2018, the Company made dividend payments of approximately $28 million and $26 million, respectively.

During 2020, the Company repurchased approximately 2.0 million shares of its common stock for $200 million.

In 2019, the Company repurchased approximately 0.4 million shares of its common stock for $51 million.

The Company made dividend payments of approximately $28 million during both 2020 and 2019.

Capital Resources

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Cash and cash equivalents as of December 31, 2020 and December 31, 2019 were $198 million and $391 million, respectively.

The increase in cash held by U.S.

subsidiaries during 2019 as compared to 2018 was primarily due to cash repatriation of $86 million.

The increase in cash held by foreign subsidiaries during 2019 as compared to 2018 was primarily due to increased net cash receipts in the current period.

The decrease in cash held by U.S.

subsidiaries during 2020 as compared to 2019 was primarily due to current year acquisitions, higher current period share repurchase activity, and pay down of outstanding borrowings on our credit facility, partially offset by higher foreign cash repatriation during the current period.

The decrease in cash held by foreign subsidiaries during 2020 as compared to 2019 was primarily due to higher cash repatriation to the U.S.

during the current period, partially offset by net cash receipts.

There are no legal or economic restrictions on the ability of any of our subsidiaries to transfer funds, absent certain regulatory approvals in China, where approximately $21 million of our foreign cash resides.

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While all companies are subject to economic risk, we believe that our cash and cash equivalents, cash flow from operations, and available borrowings are sufficient to meet both the short-term and long-term capital needs of the organization.

In January 2020 and February 2018, we made discretionary pension contributions of $150 million and $50 million, respectively, to the Curtiss-Wright Pension Plan.

In January 2020, the Corporation made a discretionary pension contribution of $150 million to the Curtiss-Wright Pension Plan.

For more information on our pension and other postretirement benefits plans, see Note 17 to the Consolidated Financial Statements.

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These estimates are determined based on industry knowledge and experience of our engineers, project managers, and financial staff.

Changes in total estimated costs are

recognized using the cumulative catch-up method of accounting which recognizes the cumulative effect of the changes on current and prior periods in the current period.

During the twelve months ended December 31, 2019, 2018, and 2017, there were no significant changes in estimated contract costs.

Changes in total estimated costs are recognized using the cumulative catch-up method of accounting which recognizes the cumulative effect of the changes on

current and prior periods in the current period.

During the years ended December 31, 2020, 2019, and 2018, there were no significant changes in estimated contract costs.

If a performance obligation does not qualify for over-time revenue recognition, revenue is then recognized at the point-in-time in which control of the distinct good or service is transferred to the customer, typically based upon the terms of delivery.

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Contract assets and contract liabilities are reported in the "Receivables, net" and "Deferred revenue" lines, respectively, within the Consolidated Balance Sheet.

As we adopted ASC 606 using a modified retrospective method, our Consolidated Financial Statements for the year ended December 31, 2017 were not retrospectively adjusted.

For the year ended December 31, 2017, revenue was recognized when the earnings process was considered substantially complete with all of the following criteria met:

1) persuasive evidence of an arrangement existed;

2) delivery occurred or services were rendered;

3) our price to the customer was fixed or determinable;

and 4) collectability was reasonably assured.

We determined the appropriate revenue recognition method by analyzing the terms and conditions of each contract.

Revenue was recognized on product sales as production units were shipped and title and risk of loss was transferred.

Revenue was recognized on service-type contracts as services were rendered.

The significant estimates made in recognizing revenue were primarily for long-term contracts, which were generally accounted for using the cost-to-cost method of percentage of completion accounting.

Under the cost-to-cost method, profits were recorded pro-rata, based upon estimates of direct and indirect costs to complete such contracts.

Any changes in estimates of contract sales, costs, or profits were recognized using the cumulative catch-up method of accounting.

Inventory costs include materials, direct labor, purchasing, and manufacturing overhead costs, which are stated at the lower of cost or net realizable value.

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The rates reflect the hypothetical rates at which the projected benefit obligations could be effectively settled or paid out to participants on that date.

We determine our discount rates for past service liabilities and service cost utilizing a select bond yield curve developed by our actuaries, by using the rates of return on high-quality, fixed-income corporate bonds available at the measurement date with maturities that match the plan’s expected cash outflows for benefit payments.

We determine our discount rates for past service liabilities and service cost by utilizing a select bond yield curve developed by our actuaries, which is based on the rates of return on high-quality, fixed-income corporate bonds available at the measurement date with maturities that match the plan’s expected cash outflows for benefit payments.

Interest cost is determined by applying the spot rate from the full yield curve to each anticipated benefit payment.

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The rate of compensation increase for base pay in the pension plans was unchanged at a weighted average of 3.5% based upon a graded scale of 4.9% to 2.9% that decrements as pay increases, which reflects the experience over past years and the Company’s expectation of future salary increases.

We also updated our mortality assumptions to utilize the Pri-2012 tables published by the Society of Actuaries in October 2019, and updated the projected mortality scale to MP-2019, which reflects a slower rate of future mortality improvements than the previous MP-2018 table utilized.

These changes contributed to a decrease in the benefit obligation of $3 million in all U.S.

We also retained our mortality assumptions from prior year utilizing the Pri-2012 tables published by the Society of Actuaries in October 2019, and the projected mortality scale to MP-2019, which reflects a slower rate of future mortality improvements than the previous MP-2018 table utilized.

The overall expected return on assets assumption is based primarily on the expectations of future performance.

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The expected returns are based on long-term capital market assumptions provided by our investment consultants.

Based on a review of market trends, actual returns on plan assets, and other factors, the Company’s expected long-term rate of return on plan assets was reduced to 7.50% as of December 31, 2019, which will be utilized for determining 2020 pension cost.

An expected long-term rate of return of 8.00% was used for determining 2019, 2018 and 2017 pension expense.

Based on a review of market trends, actual returns on plan assets, and other factors, the Company’s expected long-term rate of return on plan assets

was reduced to 6.5% as of December 31, 2020, which will be utilized for determining 2021 pension cost.

An expected long-term rate of return of 7.5% was used for determining 2020 expense, with 8.0% used for 2019 and 2018 pension expense.

The timing and amount of future pension income or expense to be recognized each year is dependent on the demographics and expected compensation of the plan participants, the expected interest rates in effect in future years, inflation, and the actual and expected investment returns of the assets in the pension trust.

The funded status of the Curtiss-Wright Pension Plan decreased by $24 million in 2019, primarily driven by a decrease in market interest rates as of December 31, 2019.

This was partially offset by favorable asset experience due to strong market performance in 2019.

The funded status of the Curtiss-Wright Pension Plan increased by $131 million in 2020, primarily driven by $150 million cash contribution to the plan and favorable asset experience due to strong market performance in 2020.

This was partially offset by a decrease in market interest rates as of December 31, 2020.

The following table reflects the impact of changes in selected assumptions used to determine the funded status of the Company’s U.S.

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As part of our goodwill qualitative assessment process for each reporting unit, when utilized, we evaluate various factors that are specific to the reporting unit as well as industry and macroeconomic factors in order to determine whether it is reasonably likely to have a material impact on the fair value of our reporting units.

Examples of the factors that are considered include the results of the most recent impairment test, current and long-range forecasts, and changes in the strategic outlook or organizational structure of the

reporting units.

The long-range financial forecasts of the reporting units are compared to the forecasts used in the prior year analysis to determine if management expectations for the business have changed.

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As a supplement, we conduct additional sensitivity analysis to assess the risk for potential impairment based upon changes in the key assumptions such as the discount rate, expected long-term growth rate, and cash flow projections.

Based upon the completion of our annual test, which included qualitative assessments, we determined that there was no impairment of goodwill and that all reporting units’ estimated fair values were substantially in excess of their carrying amounts.

Based upon the completion of our annual test as of October 31, 2020, we determined that there was no impairment of goodwill and that all reporting units’ estimated fair values were substantially in excess of their carrying amounts.

Other Intangible Assets

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis