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Item 7. Management’s Discussion and Analysis

2022-02-24 compared with 2021-02-25 · 180 added, 181 removed, 262 unchanged (58% of the section changed)

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

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) begins with an overview of our company, followed by economic and industry-wide factors impacting our company and the markets we serve, a discussion of the overall results of operations, and finally a more detailed discussion of those results within each of our reportable operating segments.

COMPANY ORGANIZATION

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

We report our operations through our Commercial/Industrial, Defense, and Power segments.

We are positioned as a market leader across a diversified array of niche markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers.

Our overall strategy is to be a balanced and diversified company, less vulnerable to cycles or downturns in any one market, with a focus on establishing and expanding strong technological breadth, market positions, and financial performance.

Curtiss-Wright Corporation and its subsidiaries is a global integrated business that provides highly engineered products, solutions, and services mainly to aerospace & defense markets, as well as critical technologies in demanding commercial power, process, and industrial markets.

We report our operations through our Aerospace & Industrial, Defense Electronics, and Naval & Power segments.

We are positioned as a market leader, or hold a significant market share position, across a diversified array of niche markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers.

Impacts of inflation, pricing, and volume

We have not historically been and do not expect to be significantly impacted by inflation.

Increases in payroll costs and any increases in raw material costs that we have encountered are generally offset through lean manufacturing activities or price increases, if our terms and conditions provide for such increases.

We have consistently made annual investments in capital that deliver efficiencies and cost savings.

The benefits of these efforts generally offset the margin impact of competitive pricing conditions in all of the markets we serve.

Historically, we have not been significantly impacted by inflation.

Increases in raw material costs or payroll costs have generally been offset through lean manufacturing activities or price increases.

A portion of our contracts contain terms and conditions that enable us to pass inflationary price increases to our customers.

In those cases whereby inflationary increases are not contractually stipulated, we actively negotiate price increases.

We have consistently made annual investments in capital that

deliver efficiencies and cost savings.

While the historical benefits of these efforts have generally offset the margin impact of competitive pricing conditions in the markets that we serve, there are no assurances that higher prices can effectively be passed through to our customers or that we will be able to fully offset the effects of higher raw materials costs through price increases on a timely basis.

Analytical Definitions

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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 effects of total restructuring charges and foreign currency translation.

The definition of “organic” also excludes the effects of total restructuring charges, impairment of assets held for sale, and foreign currency translation.

Market Analysis and Economic Factors

Economic Factors Impacting Our Markets

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

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.

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.

Curtiss-Wright Corporation is a global integrated business that provides highly engineered products, solutions, and services mainly to aerospace & defense markets, as well as critical technologies in demanding commercial power, process, and industrial markets .

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

In March 2020, the World Health Organization characterized the global outbreak of COVID-19 as a pandemic, which resulted in significant disruption to travel, transportation of goods and services, and financial markets globally, and caused adverse and residual impacts to both industry supply chains and production levels.

Though the onset of COVID-19 variants continues to cause supply-chain disruptions to global economies, including our business, as well as our customers and suppliers, U.S.

economic activity rebounded quite dramatically in 2021, due in part to the availability of vaccines and increased government support to rebuild the country’s infrastructure.

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.

GDP declined 3.4% from the prior year period, principally due to the impact of the COVID-19 pandemic.

However, U.S.

GDP rebounded sharply in 2021, up 5.7% and at the fastest pace since 1984, according to the most recent estimate, led by an acceleration in industrial activity.

In 2022, economists expect growth in the broader U.S.

economy to moderate due to concerns about continued supply chain disruptions and rising inflation, with current estimates for U.S.

GDP ranging from 3.5% to 4.0% growth.

Similarly, the global environment, which is typically influenced by international trade, economic conditions, and geopolitical uncertainty, had also been greatly impacted by the pandemic in 2020 before dramatically rebounding in 2021.

According to the International Monetary Fund’s World Economic Outlook - 2021, global GDP in world economies grew 5.9% 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.

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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.

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 U.S.

Department of Defense (DoD) budgets and funding levels.

As such, the U.S.

Defense budget serves as a leading indicator of our growth in the defense market.

Following across-the-board sequestration mandated by the BCA, defense spending and related supplemental budgets bottomed in 2015.

However, growth has stabilized in recent years.

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 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.

In the naval defense market, we expect continued solid funding for U.S.

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 derive revenue from the naval defense, aerospace defense, and ground defense markets, which collectively represent more than 50% of our total net sales.

In the naval defense market, we expect continued funding for U.S.

shipbuilding programs, particularly as it relates to production on the Ford class aircraft carrier, as well as Columbia class and Virginia class submarines, which have received strong bipartisan support from Congress.

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.

Navy’s Atlantic and Pacific fleets.

In the aerospace defense market, we expect to benefit from increased funding levels on Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR), electronic warfare, unmanned systems, and communications programs.

As a leading supplier of COTS and COTS+ solutions, we continue to demonstrate that electronics technology will enhance our ability to design and develop future generations of advanced systems and products for high performance applications, while also meeting the military’s Size, Weight, and Power considerations.

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

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.

As a supplier of COTS and

COTS+ solutions, we continue to demonstrate that electronics technology will enhance our ability to design and develop future generations of advanced systems and products for high performance applications, while also meeting the military’s Size, Weight, and Power considerations.

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

In the ground defense market, we are a supplier of advanced tactical communications solutions for battlefield network management, including 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.

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

In May 2021, the President’s FY22 budget request was released, calling for $715 billion in defense spending, which represented a 1.6% increase over the FY21 enacted level of $704 billion.

In December 2021, Congress passed the National Defense Authorization Act (NDAA) for FY22, which authorizes a $25 billion increase to the President’s defense budget proposal ($740 billion vs.

$715 billion) and represents a ~5% increase over FY21 enacted levels.

As of the date of filing, the DoD is currently operating under a Continuing Resolution until the FY22 budget is approved by Congress.

Looking ahead, in conjunction with the President’s FY23 budget request, the DoD is expected to submit the Future Years Defense Program (FYDP), which outlines expectations about its key programs over the next five years.

Based on industry research, the FYDP is expected to reflect modest increases in total defense budget funding.

Through continued innovation as well as incremental research and development investments, Curtiss-Wright remains aligned with high growth DoD priorities and emerging technological trends, including security, cyber, hypersonics, net-centric connected battlefield, soldier survivability, and Modular Open Systems Approach (MOSA) capabilities.

Commercial Aerospace

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Our primary focus in this market is OEM products and services for commercial jets, which is highly dependent on new aircraft production from our primary customers, Boeing and Airbus.

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.

In 2020, we exited 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.

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.

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

We derive revenue from the commercial nuclear power generation market, where we supply a variety of highly engineered products and services, including reactor coolant pumps, control rod drive mechanisms, valves, motors, spent fuel management, containment doors, bolting solutions, enterprise resource planning, plant process controls, and coating services.

Over the prior 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 declining fuel prices, which in turn led to cheaper airfares for consumers and increased passenger growth.

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 onset of COVID variants and the availability and implementation of vaccines.

According to industry reports, air travel demand based on passenger growth is expected to continue to modestly recover in 2022, with domestic travel recovering faster than international travel, and fully recover by 2025.

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 on both the current fleet and the next-generation of single aisle programs and engines, as well as more fuel efficient and all-electric aircraft.

Power & Process

In the power market, Curtiss-Wright is a global supplier of nuclear reactor technologies.

We derive sales from the commercial nuclear power generation market, whereby we supply a variety of highly engineered products and services, including reactor coolant pumps, control rod drive mechanisms, valves, motors, spent fuel management, containment doors, bolting solutions, enterprise resource planning, plant process controls, and coating services.

We provide equipment and services to both the aftermarket and new build markets, and have content on every reactor operating in the U.S.

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

As a result, the industry has been tasked with reassessing operating practices, improving efficiency, and reducing costs to help keep nuclear power competitive in a changing electricity market, which are collectively referred to as "Delivering the Nuclear Promise." Additionally, U.S.

reactor operators were faced with increased security and post-Fukushima regulatory requirements over most of the past decade.

All of these factors contributed to plant operators diverting and deferring their typical plant capital expenditure budgets significantly away from planned maintenance.

However, in late 2017, as those necessary requirements abated and plant operators resumed a more normalized maintenance schedule, the industry began to turn the corner.

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

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, in 2016, the industry was tasked with reassessing operating practices, improving efficiency, and reducing costs to help keep nuclear power competitive in a changing electricity market, which was collectively referred to as "Delivering the Nuclear Promise." U.S.

reactor operators were also faced with increased security measures and post-Fukushima regulatory requirements over most of the past decade.

All of those factors contributed to plant operators diverting and deferring their typical plant capital expenditure budgets significantly away from planned maintenance.

However, since late 2017, as those necessary requirements abated and plant operators resumed a more normalized maintenance schedule, the industry began to turn the corner.

As a result, we have experienced and continue to expect increased opportunities for our vast portfolio of advanced nuclear technologies to aid safety, extend the reliability and ensure the ongoing viability of nuclear plants.

Longer term, global commercial nuclear power demand will be driven by the ongoing need for increased capacity especially in developing countries with growing populations but limited power supply, as well as the clean energy transition.

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 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.

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

We 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 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 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.

On a global basis, nuclear plant construction remains active.

Currently, there are 57 new reactors under construction across 19 countries, with 97 planned and 325 proposed over the next several decades according to the World Nuclear Organization.

We continue to expect to play a role in new build nuclear plant construction, with our largest opportunities in China, India and throughout eastern Europe, including Ukraine, Poland, Romania, Bulgaria and the Czech Republic.

We are also well positioned to take advantage of market opportunities to support the ongoing design and development, and future construction, of next-generation advanced and small modular reactors, driven by support from the U.S.

Department of Energy as well as internationally.

In the process market, we service the oil and gas, chemical, and petrochemical industries through numerous industrial valve products, in which the majority of our industrial valve sales are to the downstream markets.

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 have the opportunity to support the oil exploration industry’s need and desire for more reliable subsea pumping systems.

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

Over the long run, we believe improved economic conditions and continued global expansion will be key drivers for future growth of our severe service and operation-critical valves serving the process industry.

General Industrial

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.

Our performance in these markets is typically sensitive to the performance of the U.S.

Revenue derived from our widely diversified offering to the general industrial market primarily consists of electronic sensors and control systems, electro-mechanical actuation, and surface treatment services.

Our performance in these markets is typically aligned with the performance of the U.S.

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 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.

One of the key drivers within our general industrial market is our focus on electronification and electrification, where our electronic sensors and controls systems products serve 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 inverter systems, driving our ability to provide a full suite of in-cab operator control systems to our customers.

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 (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.

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 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.

Growth opportunities also exist with a range of intelligent actuators for industrial automation and robotics which help our customers quickly leverage data and utilize analytics within the Internet of Things environment.

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

Sales are primarily driven by global demand from general industrial customers.

We also service the oil and gas, chemical, and petrochemical industries through numerous industrial valve products, in which nearly all of our industrial valve sales are to the downstream markets.

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.

RESULTS OF OPERATIONS

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(In thousands, except percentages) 2021 2020 2021 vs.

Commercial/Industrial $ 949,762 $ 1,137,818 (17) %

Defense 733,856 625,940 17 %

Power 707,718 724,203 (2) %

Aerospace & Industrial $ 786,334 $ 805,673 (2) %

Defense Electronics 724,326 608,757 19 %

Naval & Power 995,271 976,906 2 %

Total sales $ 2,505,931 $ 2,391,336 5 %

Operating income:

Commercial/Industrial $ 81,581 $ 179,637 (55) %

Defense 140,406 137,286 2 %

Power 104,626 122,139 (14) %

Aerospace & Industrial $ 121,817 $ 99,714 22 %

Defense Electronics 159,089 118,748 34 %

Naval & Power 141,660 108,151 31 %

Corporate and eliminations (39,883) (37,765) (6) %

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Total 5 % 32 %

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.

Sales for the year increased $115 million, or 5%, to $2,506 million, compared with the prior year period.

On a segment basis, sales from the Defense Electronics and Naval & Power segments increased $116 million and $18 million, respectively, with sales from the Aerospace & Industrial segment decreasing $19 million.

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

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.

Operating income for the year increased $94 million, or 32%, to $383 million, and operating margin increased 320 basis points compared with 2020.

In the Aerospace & Industrial segment, increases in operating income and operating margin were primarily due to current year savings recognized as a result of our prior year restructuring initiatives, as well as favorable overhead absorption on higher general industrial sales.

Operating income in the Defense Electronics segment increased primarily due to the benefits from our ongoing operational excellence initiatives, the incremental impact of our PacStar acquisition, as well as the absence of first year purchase accounting costs from our 901D acquisition.

These increases were partially offset by higher research and development costs and unfavorable foreign currency translation.

Operating margin in the Defense Electronics segment was negatively impacted by first year purchase accounting costs from our PacStar acquisition .

In the Naval & Power segment, increases in operating income and operating margin were primarily due to current year savings recognized as a result of our prior year restructuring initiatives, as well as lower current period impairment losses on assets held for sale in our German industrial valves business compared to the prior year period.

Non-segment operating expense for the year increased $2 million, or 6%, to $40 million, primarily due to higher environmental costs.

Interest expense for the year increased $5 million, or 13% , to $40 million, primarily due to the issuance of $300 million Senior Notes in August 2020.

Other income, net for the year increased $2 million, or 24% , to $12 million, primarily due to the prior year recognition of accumulated foreign currency translation losses of $10 million related to the substantial liquidation of our Norwegian subsidiary.

This increase was partially offset by higher pension costs, including one-time pension settlement charges recognized in the current year period related to the retirement of former executives.

The effective tax rate of 24.6% for the year ended December 31, 2021, increased as compared to an effective tax rate of 23.4% 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.

This increase was primarily due to h igher current period non-deductible impairment losses related to our held for sale industrial valve business in Germany, as impairment losses recorded during the prior year period were partially offset against deferred tax liabilities.

New orders increased $258 million, or 11% , from the prior year period to $2,580 million, primarily due to an increase in new orders for industrial vehicles and sensors and actuation equipment in the Aerospace & Industrial segment, as well as the incremental impact of our PacStar acquisition in the Defense Electronics segment.

In the Naval & Power segment, higher demand for industrial valve products was partially offset by the timing of naval defense orders.

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, 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.

Pension and postretirement adjustments within comprehensive income during the year ended December 31, 2021 were a $131 million gain, compared to a $27 million loss for the prior year period.

The gain in the current period was primarily attributed to higher asset returns and increases in the discount rate.

The loss in the prior period was primarily due to decreases in the discount rate, partially offset by higher asset returns.

Foreign currency translation adjustments during the year ended December 31, 2021 resulted in a comprehensive loss of $11 million, compared to a comprehensive gain of $41 million in the comparable prior period.

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

RESULTS BY BUSINESS SEGMENT

Commercial/Industrial

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, total restructuring charges, and new orders within the Commercial/Industrial segment.

Aerospace & Industrial

Sales in the Aerospace & Industrial segment are primarily generated from the commercial aerospace and general industrial markets and, to a lesser extent, the defense and power & process markets.

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

Year Ended December 31, Percent Change

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Operating margin 15.5 % 12.4 % 310 bps

Total restructuring charges (1)

$ 22,286 $ — NM

Total restructuring charges $ — $ 16,186 NM

New orders $ 853,077 $ 651,187 31 %

Backlog $ 338,581 $ 277,031 22 %

(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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Organic (4) % 9 %

Acquisitions 1 % (1) %

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

Restructuring — % 14 %

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Total (2) % 22 %

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, total restructuring charges, and new orders, within the

Defense segment.

Sales decreased $19 million, or 2%, to $786 million, from the comparable prior year period, as lower sales in the commercial aerospace market were partially offset by sales increases in the general industrial market.

In the commercial aerospace market, sales decreased $72 million primarily due to the exit of our build-to-print product line in the fourth quarter of 2020.

These decreases were partially offset by sales increases of $50 million in the general industrial market, primarily due to higher demand for industrial vehicle products and surface treatment services.

Operating income increased $22 million, or 22%, to $122 million, and operating margin increased 310 basis points to 15.5%.

The increases in operating income and operating margin were primarily due to current year savings recognized as a result of our prior year restructuring initiatives, as well as favorable overhead absorption on higher sales in the general industrial market.

New orders increased $202 million as compared to the prior year, primarily due to an increase in new orders for industrial vehicles as well as higher demand for sensors and actuation equipment.

Defense Electronics

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

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

Year Ended December 31, Percent Change

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Total 19 % 34 %

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.

Sales increased $116 million, or 19%, to $724 million, from the comparable prior year period, primarily due to the incremental impact of our PacStar acquisition in the ground defense market, which contributed incremental sales of $115 million.

Higher sales of avionics and test equipment in the commercial aerospace market were more than offset by the timing of sales on embedded computing equipment on various programs in the aerospace defense market.

Operating income increased $40 million, or 34%, to $159 million compared with the same period in 2020, while operating margin increased 250 basis points to 22.0%.

The increase in operating income was primarily due to the benefits from our ongoing operational excellence initiatives as well as the incremental impact of our PacStar acquisition.

Operating income also benefited from the absence of first year purchase accounting costs from our 901D acquisition as well as our prior year restructuring initiatives, partially offset by higher research and development costs and unfavorable foreign currency translation.

The increase in operating margin was primarily due to our ongoing operational excellence initiatives as well as the absence of first year purchase accounting costs from our 901D acquisition, partially offset by first year purchase accounting costs from our PacStar acquisition.

New orders increased $38 million as compared to the prior year, primarily due to the incremental impact of our PacStar acquisition.

This increase was partially offset by the timing of naval defense and aerospace defense orders.

Naval & Power

Sales in the Naval & Power segment are primarily to the naval defense and power & process markets.

The following tables summarize sales, operating income and margin, impairment of assets held for sale, total restructuring charges, and new orders, within the Naval & Power segment.

Year Ended December 31, Percent Change

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Operating margin 14.2 % 11.1 % 310 bps

Impairment of assets held for sale 19,088 33,043 NM

Total restructuring charges $ — $ 23,349 NM

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Organic 1 % (3) %

Acquisitions — % — %

Impairment of assets held for sale — % 13 %

Restructuring — % 22 %

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Total 2 % 31 %

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.

Sales increased $18 million, or 2%, to $995 million, from the comparable prior year period.

In the naval defense market, sales increased $20 million primarily due to increased production on the CVN-81 aircraft carrier program, as well as higher foreign military and service center sales.

Sales in the power & process market were essentially flat, as higher demand for industrial valve products was more than offset by the timing of production on the China Direct AP1000 program.

Operating income increased $34 million, or 31%, to $142 million and operating margin increased 310 basis points to 14.2%.

The increases in operating income and operating margin were primarily due to current year savings recognized as a result of our prior year restructuring initiatives, as well as lower current period impairment losses on assets held for sale in our German industrial valves business compared to the prior year period.

New orders increased $18 million as compared to the prior year, as higher demand for industrial valve products was partially offset by the timing of naval defense orders.

SUPPLEMENTARY INFORMATION

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(In thousands, except percentages) 2021 2020 2021 vs.

Defense markets:

Aerospace $ 463,835 $ 416,841 11 %

Ground 107,287 93,432 15 %

Naval 692,168 568,776 22 %

Total Defense $ 1,263,290 $ 1,079,049 17 %

Aerospace & Defense markets:

Aerospace Defense $ 452,661 $ 463,690 (2) %

Ground Defense 220,290 107,448 105 %

Naval Defense 710,688 692,152 3 %

Commercial Aerospace $ 267,722 $ 325,518 (18) %

Total Aerospace & Defense $ 1,651,361 $ 1,588,808 4 %

Commercial markets:

Aerospace $ 325,518 $ 433,038 (25) %

Power Generation 331,983 392,173 (15) %

Power & Process 473,489 474,842 — %

General Industrial 381,081 327,686 16 %

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Total Curtiss-Wright $ 2,505,931 $ 2,391,336 5 %

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.

Aerospace & Defense Markets

Sales increased $63 million, or 4%, to $1,651 million, as compared to the prior year period, primarily due to higher sales in the ground defense and naval defense markets.

The ground defense market benefited from the impact of our PacStar acquisition, which contributed incremental sales of $115 million.

Sales in the naval defense market increased primarily due to higher sales of $27 million on the CVN-81 aircraft carrier program.

These increases were partially offset by lower sales in the commercial aerospace market, primarily due to the exit of our build-to-print product line in the fourth quarter of 2020.

Commercial Markets

Commercial sales increased $52 million, or 6%, to $855 million, primarily due to increased demand for our industrial vehicle products in the general industrial market, which contributed higher sales of $50 million.

Sales in the power & process market were essentially flat, as higher demand for our industrial valve products was more than offset by the timing of production on the China Direct AP1000 program.

Liquidity and Capital Resources

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Operating Activities

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.

Cash provided by operating activities increased $126 million to $388 million from the comparable prior year period, primarily due to a prior year voluntary pension contribution of $150 million as well as the timing of advanced cash receipts and lower disbursements in the current period.

These increases were partially offset by higher outstanding receivables during the current period.

Investing Activities

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Our capital expenditures were $41 million and $47 million for 2021 and 2020, respectively.

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.

The decrease in 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 2022, we anticipate capital expenditures of approximately $50 million to $60 million.

No material divestitures took place during 2021 or 2020.

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 2021, we did not complete any acquisitions.

In 2020, we acquired three businesses for $488 million in cash paid.

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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Financing Activities

Debt Issuances

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.

Debt Issuances and Repayments

There were no debt issuances in 2021.

In the fourth quarter of 2021, we repaid $100 million of the 2011 Notes that matured on December 1, 2021.

Revolving Credit Agreement

As of December 31, 2020, the Corporation had no borrowings outstanding under the Revolving Credit Agreement (the Credit Agreement or credit facility) and $21 million in letters of credit supported by the credit facility.

As of December 31, 2021, the Corporation had $94 million of borrowings outstanding under the Revolving Credit Agreement (the Credit Agreement or credit facility) and $21 million in letters of credit supported by the credit facility.

The unused credit available under the Credit Agreement as of December 31, 2021 was $385 million, which could be borrowed in full without violating any of our debt covenants.

As of December 31, 2020, the Corporation had no borrowings outstanding under the Credit Agreement.

Repurchase of Common Stock

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

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

The Company made dividend payments of approximately $29 million and $28 million during 2021 and 2020, respectively.

Capital Resources

Cash in Foreign Jurisdictions

and Foreign Jurisdictions

As of December 31,

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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.

subsidiaries during 2021 as compared to 2020 was primarily due to higher current period share repurchase activity, the principal payment of $100 million on the 2011 Notes that matured in December 2021, and lower foreign cash repatriation, partially offset by higher net borrowings on our credit facility during the current period.

The decrease in cash held by foreign subsidiaries during 2021 as compared to 2020 was primarily due to lower net cash receipts during the current period.

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 $13 million of our foreign cash resides.

Refer to Note 13 to the Consolidated Financial Statements for impacts on our foreign undistributed earnings due to the Tax Act.

Cash Utilization

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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, 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.

The following table quantifies our significant future contractual obligations and commercial commitments as of December 31, 2021:

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Revenue Recognition

We account for revenues in accordance with ASC 606, Revenue from Contracts with Customers , which was adopted as of January 1, 2018 on a modified retrospective basis.

We account for revenues in accordance with ASC 606, Revenue from Contracts with Customers .

Under ASC 606, revenue is recognized when control of a promised good and/or service is transferred to a customer at a transaction price that reflects the consideration that we expect to be entitled to in exchange for that good and/or service.

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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.

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, 2021, 2020, and 2019, there were no significant changes in estimated contract costs.

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Changes in these assumptions, if significant in future years, may have an effect on our pension and postretirement expense, associated pension and postretirement assets and liabilities, and our annual cash requirements to fund these plans.

The discount rate used to determine the plan benefit obligations as of December 31, 2020, and the annual periodic costs for 2021, was decreased from 3.22% to 2.53% for the Curtiss-Wright Pension Plan, and from 3.10% to 2.30% for the nonqualified benefit plan, to reflect current economic conditions.

The discount rate used to determine the plan benefit obligations as of December 31, 2021, and the annual periodic costs for 2022, was increased from 2.53% to 2.87% for the Curtiss-Wright Pension Plan, and from 2.30% to 2.70% for the nonqualified benefit plan, to reflect current economic conditions.

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

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

The discount rate changes contributed to an increase in the benefit obligation of $78 million in the CW plans.

The discount rate changes contributed to a decrease in the benefit obligation of $37 million in the CW plans.

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 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.

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 MP-2020 projected mortality scale published in October 2020.

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 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.

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 5.8% as of December 31, 2021, which will be utilized for determining 2022 pension cost.

An expected long-term rate of return of 6.5% was used for determining 2021 expense, with 7.5% used for 2020 pension expense and 8.0% used for 2019 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 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 funded status of the Curtiss-Wright Pension Plan increased by $153 million in 2021, primarily driven by favorable asset experience due to strong market performance in 2021.

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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Discount rate (0.25) % $26,059 $2,599

Rate of compensation increase 0.25 % $2,700 $600

Expected return on assets (0.25) % — $2,268

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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