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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-22 · 146 added, 139 removed, 311 unchanged (48% of the section changed)

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Curtiss-Wright Corporation along with 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 hold competitive positions in a majority of our key defense and commercial end markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers.

We are also well positioned to build upon crossover applications for our defense and commercial market technologies that leverage the strength of our combined portfolio.

We hold competitive positions in a majority of our key A&D and commercial end markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers.

Through One Curtiss-Wright, we are also well positioned to build upon crossover applications for our defense and commercial market technologies that leverage our teams’ collaborative efforts and the strength of our combined portfolio.

We manage and evaluate our operations based on the products and services we offer and the different markets we serve.

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Impacts of inflation, pricing, and volume

Historically, we have not been significantly impacted by inflation, with increases in raw material costs or payroll costs generally offset through lean manufacturing activities or price increases.

During the current period, we have experienced significant increases in our costs of material, labor, and services consistent with the overall rates of inflation.

We have generally been able to offset these increases, as a portion of our contracts contain terms and conditions that enable us to pass inflationary price increases to our customers.

Historically, we have not been significantly impacted by inflation, with increases in raw material costs or payroll costs generally offset through lean manufacturing activities or pricing initiatives.

However, in recent history, we have experienced heightened pressures in our costs of material, labor, and services consistent with the overall rates of inflation in the wake of the COVID-19 pandemic.

We have consistently focused on mitigating inflation through pricing and operational excellence initiatives, and generally have been able to offset these cost increases, as 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.

We have consistently made annual investments in capital that deliver efficiencies and cost savings, while continuing to focus on negotiating better contract terms, especially on long-term agreements.

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 costs through price increases on a timely basis.

We expect these inflationary pressures to continue to persist in 2023.

Market Analysis and Economic Factors

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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 impact 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 has rebounded since 2021, due in part to the availability of vaccines, increased government support to rebuild the country’s infrastructure, and increased U.S.

consumer spending.

Though to a lesser degree today, the impact of COVID-19 variants continues to cause supply-chain disruptions to global economies, including our business, as well as our customers and suppliers.

economic activity has rebounded since 2021, due in part to the availability of vaccines, increased government support to rebuild the country’s infrastructure, increased U.S.

consumer spending and continued low levels of unemployment, though the pace of year-over-year real gross domestic product (GDP) growth has slowed.

In 2020, U.S.

real gross domestic product (GDP) declined 3.4%, principally due to the impact of the COVID-19 pandemic, before it rebounded sharply in 2021, increasing 5.7% and at the fastest pace since 1984, led by an acceleration in industrial activity.

GDP declined 3.4%, principally due to the impact of the COVID-19 pandemic, before it rebounded sharply in 2021, increasing 5.8% and at the fastest pace since 1984, led by an acceleration in industrial activity.

GDP grew 1.9% in 2022.

In 2023, U.S.

GDP is expected to grow approximately 2.5%, according to the most recent estimates, as strong U.S.

consumer spending continued to support GDP growth despite the dual headwinds of rising interest rates and high inflation.

In 2023, some economists expect growth in the broader U.S.

economy to moderate significantly due to concerns about a recession or recessionary-like conditions, continued supply chain disruptions, rising interest rates, and high yet steady inflation, with current estimates for U.S.

GDP ranging from flat to growth of approximately 1.5%.

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 it dramatically rebounded in 2021.

According to the International Monetary Fund’s World Economic Outlook, global GDP in world economies grew 6.0% in 2021 and is expected to grow 3.2% in 2022 and 2.7% in 2023, according to the most recent estimates.

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

consumer spending and easing of prior supply chain disruptions continued to support GDP growth despite the dual headwinds of rising interest rates and high inflation.

In 2024, economists expect a combination of a steady easing in headline and core inflation to prompt the U.S.

Federal Reserve to start cutting interest rates, though growth in the broader U.S.

economy is only expected to be moderate, based upon current estimates for U.S.

GDP growth ranging from approximately 1.5% to 2.5%.

According to the International Monetary Fund’s World Economic Outlook, global GDP in world economies is expected to grow 3.1% in 2023 followed by growth of approximately 3.0% in 2024, according to the most recent estimates.

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

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 are characterized by long-term programs and contracts driven primarily by U.S.

A significant portion of our defense business operations is comprised of long-term programs and contracts driven primarily by U.S.

DoD budgets and funding levels.

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In the aerospace defense market, we expect to benefit from increased funding levels on Command, Control, Computers, Communications, Cyber, Intelligence, Surveillance, and Reconnaissance (C5ISR), electronic warfare, encryption, unmanned systems, and communications programs.

As a supplier of COTS and COTS+ solutions, we continue to demonstrate that defense 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.

As a supplier of COTS and COTS+ solutions, we continue to demonstrate that defense 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, as well as critical aircraft arresting systems equipment.

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.

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.

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

In early 2022, the President’s FY23 budget request was released, calling for $773 billion in defense spending, which represented a 4% increase over the FY22 enacted funding level of $742 billion.

In December 2022, following a short Continuing Resolution, Congress passed the National Defense Authorization Act (NDAA) for FY23, which authorized an approximate $44 billion increase to the President’s defense budget proposal ($818 billion vs.

$773 billion) and represented a 10% increase over FY22 enacted levels, driven by increases in both Procurement and Research, Development, Test and Evaluation (RDT&E) investment spending.

Looking ahead, we expect the overall demand environment and global defense spending backdrop to remain favorable for the Corporation.

The President is expected to request continued U.S.

defense budget growth in FY24, while also submitting 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 FY27.

In addition, our growth in the international defense market is primarily driven by funding from North Atlantic Treaty Organization (NATO) countries, where its members have committed to spending at least 2.0% of annual GDP on defense budgets, driven in part by the Russia-Ukraine war, which is expected to drive significant growth in defense spending for the foreseeable future.

In December 2022, the DoD approved and enacted a FY’23 defense budget of $817 billion, reflecting an approximate $75 billion increase from FY’22.

In early 2023, the President’s FY24 budget request was released, calling for a 3.2% increase in defense spending.

Key priorities in the President’s initial request included naval shipbuilding, tactical battlefield communications, vehicle modernization, missiles, munitions, space, and cyber capabilities, many of which provide opportunities for Curtiss-Wright.

House and Senate mark-ups have been favorable thus far, and Congress has reached a tentative agreement establishing the topline appropriations for FY24 at $886 billion, including supplementals.

However, the U.S.

government began its October 1 fiscal year under yet another continuing resolution (CR), which has yet to be resolved.

As such, the potential remains for a shutdown at the expiration of the CR, or implementation of a sequester if not passed by April 30th, which would mandate a 1% cut to defense spending.

Looking ahead, the President’s Future Years Defense Program (FYDP), which covers longer-term spending priorities aimed at improving the defense industrial base and U.S national security, is expected to reflect modest increases in total defense budget funding through FY28.

Beyond the U.S., we have seen a renewed, global focus on defense spending in light of Russia’s invasion of Ukraine.

International markets represent a growing portion of overall sales for defense prime contractors, creating additional growth opportunities for Curtiss-Wright over the planning period as North Atlantic Treaty Organization (NATO) countries throughout Europe ramp up their spending to or above 2.0% of annual GDP.

As a result, and including recent acquisitions, Curtiss-Wright’s total direct foreign military sales represent approximately 9% of the Corporation's total net sales.

Commercial Aerospace

Curtiss-Wright derives revenue from the global commercial aerospace market, principally to the commercial jet market, and to a lesser extent the regional jet, business jet, and commercial helicopter markets.

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 maintain a strong presence on the majority of the commercial aircraft programs, including both narrow-body and wide-body aircraft.

Our primary focus is OEM products and services for commercial jets, which represents more than 80% of our sales in this market, and is highly dependent on new aircraft production from our primary customers, Boeing and Airbus.

We have significant content on the majority of the commercial aircraft programs, including both narrow-body and wide-body aircraft.

Currently, more than 50% of our sales in this market are linked to the narrow-body market.

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

We provide a combination of critical equipment, including flight controls, actuation, high-temperature and high accuracy sensors, and other sophisticated electronics, as well as shot and laser peening services utilized on highly stressed components of turbine engine fan blades and aircraft structures.

We are also focused on expanding our content, where for example, we were selected by Airbus to provide custom electric actuation technology for the main deck cargo door on the Airbus A350F freighter aircraft.

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

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In 2020, the onset of the COVID-19 pandemic abruptly halted the industry’s growth as fewer passengers traveled, and business operations were disrupted globally, stunting the production of new aircraft as well as the maintenance of existing aircraft well into 2021.

The industry experienced a strong rebound in global passenger growth in 2022, benefiting from the propensity for the general public to travel by air, decisions by most governments to lift COVID-19 travel restrictions, and the continued availability and implementation of vaccines.

According to industry reports, global travel demand is not expected to fully recover to pre-pandemic levels until at least 2024.

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 (e.g., Boeing 737 and 787, Airbus A320 and A350), the timing of our order placement, and continued partnering with aerospace OEMs on both the current fleet and the next-generation of single aisle programs and engines, as well as emerging opportunities to support more fuel efficient and all-electric aircraft.

Beginning in 2022, the industry experienced a strong rebound in global passenger growth, benefiting from the propensity for the general public to travel by air, decisions by most governments to lift COVID-19 travel restrictions, and the continued availability and implementation of vaccines.

According to industry reports, global travel demand is expected to fully recover and exceed pre-pandemic levels in 2024, though rising inflation and higher oil prices all remain watch items for the commercial aero industry going forward.

order placement, and continued partnering with aerospace OEMs on both the current fleet and the next-generation of single aisle programs and engines, as well as emerging opportunities to support more fuel efficient and all-electric aircraft.

Power & Process

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

Based upon the global drive

f or clean energy usage, n uclear is expected to play a critical role in meeting rising future energy demand and carbon-free emissions goals.

According to the Nuclear Regulatory Commission (NRC), nuclear power comprises approximately 20% of all electric power produced in the United States today, with 92 reactors operating across 54 nuclear power plants in 28 states.

Additionally, we are executing initiatives to leverage our capabilities into the broader conventional power generation market, including next-generation advanced Small Modular Reactor (SMR) designs.

Nuclear is expected to play a critical role in meeting rising future energy demand, driving energy independence and supporting global clean energy and carbon-free emissions goals, and Curtiss-Wright remains well positioned to support these objectives.

According to the Nuclear Regulatory Commission (NRC), nuclear power comprises approximately 20% of all electric power produced in the U.S.

today, with 93 reactors (includes the recently started Vogtle 3 reactor) operating across 54 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 via subsequent license renewals), the levying of regulatory requirements, suppliers abandoning the commercial nuclear market, and plants seeking technology and innovation advances, such as digitalization, that further enable plant modernization.

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Throughout the past decade, U.S.

reactor operators have faced increased security measures and post-Fukushima regulatory requirements, and were also tasked with reassessing operating practices, improving efficiency, and reducing plant costs to compete with sustained low natural gas prices.

reactor operators faced increased security measures and post-Fukushima regulatory requirements, and were also tasked with reassessing operating practices, improving efficiency, and reducing plant costs to compete with sustained low natural gas prices.

All of those factors contributed to plant operators diverting and deferring their typical plant capital expenditure budgets significantly away from normalized maintenance schedules, while also leading to numerous plant closures (down from 104 reactors in 2012).

However, in 2022, the U.S.

In recent years, we have seen sentiment shift dramatically towards nuclear power, as many countries have begun or are starting to recommit to advanced technologies, while realizing the strategic importance of energy independence.

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.

In 2023, the U.S.

market experienced strong bipartisan support for nuclear power, with significant investments through the Civil Nuclear Credit Program (part of the Infrastructure Bill) and nuclear power production tax credits (provided by the Inflation Reduction Act) focused on helping to preserve the existing U.S.

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nuclear plants.

Outside of the U.S., we have seen sentiment shift dramatically towards nuclear power, as many countries have begun or are starting to recommit to advanced technologies, while realizing the strategic importance of energy independence.

Similar to the U.S., as international plants age, we foresee opportunities to support plant safety and technology upgrades, plant life extensions, and upgrades of computer systems.

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 reactor coolant pumps, as well as a variety of ancillary plant products and services.

Similar to the U.S., as international plants age, we foresee opportunities to help solve operators’ needs to prevent obsolescence through plant safety and technology upgrades, plant life extensions, and upgrades of computer systems, and we continue to build upon our relationships throughout Canada, Europe, and South Korea, among others.

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 reactor coolant pumps, as well as a variety of ancillary plant products and services.

On a global basis, nuclear plant construction remains active.

According to the World Nuclear Organization, there are currently 58 new reactors under construction across 18 countries, with 104 planned and 341 proposed over the next several decades.

We continue to expect to play a role in new build nuclear plant construction, where we are aligned with Westinghouse to support the growing need for carbon-free emissions and energy independence in eastern Europe, including Poland, Ukraine, Romania, Bulgaria, and the Czech Republic, while also seeking opportunities in China and India.

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

Department of Energy which has allocated $3.2 billion for advanced nuclear through its Advanced Reactor Demonstration Program.

We are actively engaged and continue to pursue a foothold on numerous designs, both in the U.S.

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.

According to the World Nuclear Organization, there are currently 60 new reactors under construction across 17 countries, with 111 planned and more than 300 proposed over the next several decades.

We continue to expect to play a role in new build nuclear plant construction, where we are aligned with Westinghouse to support future construction in central and eastern Europe, including Poland, Ukraine, Bulgaria, and the Czech Republic, among others, with the potential to see approximately 25 plants begin construction in the next 5 to 10 years.

We also continue to seek additional opportunities in China and India.

Backed by strong funding and legislative support, the U.S.

Department of Energy has allocated $3.2 billion for advanced nuclear through its Advanced Reactor Demonstration Program (ARDP) to accelerate the development and demonstration of SMRs and advanced reactors through cost-shared partnerships with U.S.

We continue to grow our exposure in this market, and are actively engaged with all the major reactor designers to develop partnerships and secure content for the design and development of critical systems and equipment expected to be deployed globally.

According to a 2022 Nuclear Energy Institute (NEI) survey, its member utilities see a role for more than 90 gigawatts of nuclear power in support of their

decarbonization goals, which translates to the potential for 300 new SMRs by 2050, and represents only a fraction of the potential global demand for these technologies.

In the process market, we service the oil and gas, chemical, and petrochemical industries through severe-service pump and valve products, and surface treatment services, in which the majority of our 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 produce severe service, operation-critical valves for the power and process industries.

We are also developing advanced pump technology 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.

We are also advancing several subsea pumping development initiatives to meet the growing demand for more reliable pumping systems in deep sea drilling and off-shore production facilities.

Sales in these industries are driven by global supply and demand, crude oil prices, industry regulations, and the natural gas market, with growth rates in this market closely linked to global GDP.

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.

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We supply our products and services to numerous OEMs and aftermarket industrial customers, including the transportation, commercial trucking, off-road equipment, agriculture, construction, and automotive industries, which lowers the risk associated with any specific headwinds or economic cycles across the various markets in which we compete.

Our growth in these markets is typically aligned with the

performance of the U.S.

Our growth 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.

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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.

Notable products include electronic throttle controls, shift controls, joysticks, power management systems and power electronics, charge switching units 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.

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The term “incremental” is used to highlight the impact that acquisitions and divestitures had on the current year results.

The results of operations for acquisitions are incremental for the first twelve months from the date of acquisition, after which they are reported as organic.

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

The definition of “organic” also excludes the impairment of assets held for sale and corresponding loss from sale of our industrial valves business in Germany, as well as the effects of foreign currency translation.

The results of operations for acquisitions are incremental for the first twelve months from the date of acquisition, after which they are reported

The definition of “organic” excludes costs associated with the sale of our industrial valves business in Germany as well as the effects of foreign currency translation.

Year Ended December 31, Percent

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Net earnings $ 354,509 $ 294,348 20 %

Loss on divestiture/impairment of assets held for sale $ 4,651 $ 19,088 NM

New orders $ 3,090,029 $ 2,942,550 5 %

Backlog $ 2,873,243 $ 2,622,731 10 %

NM - Not meaningful

Components of sales and operating income growth (decrease):

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Organic 10 % 12 %

Acquisitions/divestiture — % — %

Loss on divestiture/impairment of assets held for sale — % 4 %

Acquisitions 2 % — %

Divestiture-related costs — % 1 %

Foreign currency (1) % 1 %

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Sales for the year increased $288 million, or 11%, to $2,845 million, compared with the prior year period.

On a segment basis, sales from the Aerospace & Industrial and Naval & Power segments increased $50 million and $35 million, respectively, with sales from the Defense Electronics segment decreasing $34 million.

On a segment basis, sales from the Aerospace & Industrial, Defense Electronics, and Naval & Power segments increased $51 million, $126 million, and $111 million, respectively.

Changes in sales by segment are discussed in further detail in the results by business segment section below.

Operating income for the year increased $61 million, or 14%, to $485 million, and operating margin increased 40 basis points compared with 2022.

In the Aerospace & Industrial segment, increases in operating income and operating margin were primarily due to favorable absorption on higher sales in the general industrial and commercial aerospace markets, as well as the

benefits of our ongoing operational excellence initiatives.

Both operating income and operating margin in the Naval & Power segment benefited from lower current period losses associated with our industrial valves business in Germany, which was sold in the current period, as well as the absence of charges associated with the WEC legal settlement recorded in the prior year period.

These increases were partially offset by lower operating income in the Defense Electronics segment primarily due to lower sales volumes from supply chain headwinds.

Operating margin in the Defense Electronics segment benefited from our ongoing operational excellence initiatives.

Non-segment operating expense for the year increased $6 million, or 15%, to $46 million, primarily due to costs associated with shareholder activism in the current period.

Interest expense for the year increased $7 million, or 17% , to $47 million, primarily due to higher current period borrowings under our Credit Agreement as well as the issuance of $300 million Senior Notes in October 2022.

In the Defense Electronics segment, increases in operating income and operating margin were primarily due to favorable overhead absorption on higher sales, partially offset by higher investments in research and development.

Operating income in the Naval & Power segment benefited from the absence of a prior year loss on sale of our industrial valves business in Germany as well as favorable overhead absorption on higher organic sales.

These increases were partially offset by

unfavorable product mix, unfavorable naval contract adjustments, and higher intangible amortization related to our arresting systems acquisition.

In the Aerospace & Industrial segment, favorable overhead absorption on higher sales was partially offset by unfavorable mix in actuation products.

Non-segment operating expense for the year decreased $4 million, or 9%, to $42 million, primarily due to lower pension costs in the current period.

Interest expense for the year increased $4 million, or 9% , to $51 million, primarily due to the issuance of $300 million Senior Notes in October 2022, as well as higher interest rates under our Credit Agreement in the current period.

This increase was partially offset by the repayment of our 2013 Notes in February 2023.

Other income, net for the year increased $17 million, or 135% , to $30 million, primarily due to lower overall pension costs against the comparable prior year period.

The effective tax rate of 24.4% for the year ended December 31, 2022, decreased as compared to an effective tax rate of 24.6% in the prior year period, primarily due to lower non-deductible losses related to our former industrial valve business in Germany.

This decrease was partially offset by a higher proportion of foreign income in the current period, which is taxed at a higher rate than the U.S.

New orders increased $352 million, or 14% , from the prior year period to $2,943 million, primarily due to the timing of naval defense orders and the incremental impact from our arresting systems acquisition in the Naval & Power segment, as well as an increase in new orders for ground defense and aerospace defense equipment in the Defense Electronics segment.

The Aerospace & Industrial segment benefited from an increase in new orders for commercial aerospace equipment.

The effective tax rate of 23.4% for the year ended December 31, 2023, decreased as compared to an effective tax rate of 24.4% in the prior year period, primarily due to a favorable change in the valuation allowance on foreign branch tax credit versus an unfavorable change in the prior year.

New orders increased $147 million, or 5% , from the prior year period to $3,090 million, primarily due to an increase in orders for tactical communications as well as embedded computing products in the Defense Electronics segment.

In the Naval & Power segment, an increase in orders for commercial nuclear aftermarket products was partially offset by the timing of naval defense orders.

New orders in the Aerospace & Industrial segment benefited from an increase in orders for actuation and sensors products within our A&D markets as well as surface treatment services within our commercial markets, partially offset by the timing of new orders for industrial vehicles.

Comprehensive income (loss)

Pension and postretirement adjustments within comprehensive income during the year ended December 31, 2022 were a $7 million loss, compared to a $131 million gain for the prior year period.

The loss in the current period was primarily attributed to lower asset returns, partially offset by increases in the discount rate.

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

Foreign currency translation adjustments during the year ended December 31, 2022 resulted in a comprehensive loss of $61 million, compared to a comprehensive loss of $11 million in the comparable prior period.

Comprehensive losses during both the current period and prior year period were primarily attributed to decreases in the British Pound and Canadian Dollar.

Pension and postretirement adjustments within comprehensive income during the year ended December 31, 2023 were a $8 million gain, compared to a $7 million loss for the prior year period.

The gain in the current period was primarily attributed to higher asset returns, partially offset by decreases in the discount rate.

The loss in the prior period was primarily attributed to lower asset returns, partially offset by increases in the discount rate.

Foreign currency translation adjustments during the year ended December 31, 2023 resulted in a comprehensive gain of $38 million, compared to a comprehensive loss of $61 million in the comparable prior period.

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

RESULTS BY BUSINESS SEGMENT

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

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

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

Year Ended December 31, Percent Change

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Total 6 % 6 %

Sales increased $50 million, or 6%, to $836 million, from the comparable prior year period primarily due to higher sales in the general industrial and commercial aerospace markets.

Sales in the general industrial market increased $31 million primarily due to higher demand for industrial vehicle products.

In the commercial aerospace market, sales increased $20 million primarily due to higher demand for sensors products and surface treatment services.

These increases were partially offset by lower sales in the aerospace defense market primarily due to lower sales of sensors products on various programs.

Operating income increased $15 million, or 12%, to $137 million, and operating margin increased 90 basis points to 16.4%.

The increase in operating income and operating margin were primarily due to favorable absorption on higher organic sales in the general industrial and commercial aerospace markets, as well as the benefits of our ongoing operational excellence initiatives.

New orders increased $31 million as compared to the prior year, as an increase in new orders for commercial aerospace equipment was partially offset by the timing of new orders for industrial vehicles.

Sales increased $51 million, or 6%, to $887 million, from the comparable prior year period primarily due to higher sales in the commercial aerospace and general industrial markets.

In the commercial aerospace market, sales increased $37 million primarily due to higher demand for sensors products and surface treatment services on various narrow-body and wide-body platforms.

The general industrial market benefited from sales increases of $13 million primarily due to higher demand for industrial automation products as well as higher sales of surface treatment services.

Operating income increased $8 million, or 6%, to $145 million, and operating margin of 16.4% was flat against the comparable prior year period, as favorable overhead absorption on higher sales was partially offset by unfavorable mix in actuation products.

New orders increased $11 million as compared to the prior year, primarily due to an increase in orders for actuation and sensors products within our A&D markets as well as surface treatment services within our commercial markets.

These increases were partially offset by the timing of new orders for industrial vehicles.

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, and new orders within the Defense Electronics segment.

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

Year Ended December 31, Percent Change

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Total 18 % 24 %

Sales decreased $34 million, or 5%, to $690 million, from the comparable prior year period.

In the commercial aerospace market, sales decreased $11 million primarily due to lower sales of electronic systems on domestic platforms.

Sales in the aerospace defense market decreased $8 million primarily due to ongoing supply chain headwinds, which contributed to lower sales of embedded computing equipment.

The ground defense market was also negatively impacted by ongoing supply chain headwinds, which resulted in lower sales of $9 million, primarily on embedded computing and tactical communications

Sales in the naval defense market were negatively impacted by the timing of orders on various submarine and surface combat ship programs.

Operating income decreased $5 million , or 3% , to $155 million compared with the same period in 2021, while operating margin increased 40 basis points to 22.4%.

Operating income was negatively impacted by lower sales volumes due to supply chain headwinds, while operating margin benefited from our ongoing operational excellence initiatives.

New orders increased $83 million as compared to the prior year, primarily due to an increase in new orders for ground defense and aerospace defense equipment.

Sales increased $126 million, or 18%, to $816 million, from the comparable prior year period.

In the ground defense market, sales increased $92 million primarily due to higher demand for tactical battlefield communications equipment.

Sales in the aerospace defense market increased $16 million primarily due to higher demand for embedded computing and flight test instrumentation equipment on various domestic and international programs.

Sales increases of $12 million in the commercial aerospace market were primarily due to higher demand for avionics and flight test equipment on various domestic and

international platforms.

In the naval defense market, sales increased $6 million primarily due to higher demand for our embedded computing equipment supporting various programs.

Operating income increased $37 million , or 24% , to $192 million compared with the same period in 2022, and operating margin increased 110 basis points to 23.5%, primarily due to favorable overhead absorption on higher sales, partially offset by higher investments in research and development.

New orders increased $100 million as compared to the prior year, primarily due to an increase in orders for tactical communications as well as embedded computing products.

Naval & Power

Sales in the Naval & Power segment are primarily to the naval defense and power & process markets, and, to a lesser extent, the aerospace defense market.

The following tables summarize sales, operating income and margin, loss on divestiture/impairment of assets held for sale, and new orders within the Naval & Power segment.

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

Year Ended December 31, Percent Change

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Operating margin 16.6 % 17.2 % (60 bps)

Loss on divestiture/impairment of assets held for sale 4,651 19,088 NM

New orders $ 1,258,368 $ 1,222,052 3 %

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Organic 7 % 5 %

Acquisitions/divestiture 1 % — %

Loss on divestiture/impairment of assets held for sale — % 10 %

Acquisitions 4 % — %

Divestiture-related costs — % 2 %

Foreign currency — % — %

Total 11 % 7 %

Sales increased $35 million, or 4%, to $1,031 million, from the comparable prior year period, primarily due to the impact of our arresting systems acquisition, which contributed incremental sales of $44 million.

This increase was partially offset by lower sales in the in the power & process market, as higher nuclear aftermarket sales were more than offset by the wind-down on the China Direct AP1000 program and the sale of our industrial valve business in Germany in the current period.

In the naval defense market, higher demand on the Columbia-class submarine and CVN-81 aircraft carrier programs was more than offset by the timing of sales on the CVN-80 aircraft carrier and Virginia-class submarine programs.

Operating income increased $36 million, or 25%, to $178 million and operating margin increased 300 basis points to 17.2%, primarily due to lower current period losses associated with our industrial valves business in Germany, which was sold in the current period, as well as the absence of charges associated with the WEC legal settlement recorded in the prior year period.

These increases were partially offset by first year purchase accounting costs from our arresting systems acquisition.

New orders increased $238 million as compared to the prior year, primarily due to the timing of naval defense orders, the incremental impact from our arresting systems acquisition, as well as an increase in orders within our nuclear aftermarket and process markets.

Sales increased $111 million, or 11%, to $1,142 million, from the comparable prior year period, primarily due to higher sales across our aerospace defense, naval defense, and power & process markets.

In the aerospace defense market, sales increased $59 million primarily due to the incremental impact from our arresting systems acquisition.

Sales in the naval defense market benefited $16 million primarily due to higher sales on the Columbia-class and Virginia-class submarine programs, partially offset by the timing of sales on various aircraft carrier programs.

In the power & process market, sales increased $35 million primarily due to higher demand for industrial valves in the process market and higher demand supporting the maintenance of existing operating reactors as well as increased development on advanced small modular reactors in the commercial nuclear market.

These increases were partially offset by the wind-down on the China Direct AP1000 program.

Operating income increased $12 million, or 7%, to $189 million, while operating margin decreased 60 basis points to 16.6%.

Operating income benefited from the absence of a prior year loss on sale of our industrial valves business in Germany as well as favorable overhead absorption on higher organic sales.

These increases were partially offset by unfavorable product mix, unfavorable naval contract adjustments, and higher intangible amortization related to our arresting systems acquisition.

New orders increased $36 million as compared to the prior year, primarily due to an increase in orders for commercial nuclear aftermarket and subsea pumping products.

These increases were partially offset by the timing of naval defense orders.

SUPPLEMENTARY INFORMATION

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Aerospace & Defense Markets

Sales increased $19 million, or 1%, to $1,670 million, as compared to the prior year period, primarily due to higher sales in the aerospace defense and commercial aerospace markets.

Sales in the aerospace defense market increased primarily due to the incremental impact from our arresting systems acquisition, partially offset by lower sales of embedded computing equipment due to ongoing supply chain headwinds as well as lower sales of sensors products on various programs.

In the commercial aerospace market, higher dema nd for sensors products and surface treatment services was partially offset by lower sales of electronic systems on domestic platforms.

Sales decreases in the naval defense market were primarily due to the timing of sales on the CVN-80 aircraft carrier and Virginia-class submarine programs, as well as the timing of orders on various submarine and surface combat ship programs.

These decreases were partially offset by production ramps on the Columbia-class submarine and CVN-81 aircraft carrier programs.

Sales increased $235 million, or 14%, to $1,905 million, as compared to the prior year period, primarily due to higher sales across all markets.

In the aerospace defense market, sales benefited from the incremental impact from our arresting systems acquisition as well as higher demand for embedded computing and flight test instrumentation equipment on various domestic and international programs.

Sales in the ground defense market increased primarily due to higher demand for tactical battlefield communications equipment.

Sales increases in the naval defense market were primarily due to higher sales on the Columbia-class and Virginia-class submarine programs, partially offset by lower sales on various aircraft carrier programs.

Sales in the commercial aerospace market primarily benefited from higher demand for actuation and sensors products as well as surface treatment services on narrow-body and wide-body platforms, in addition to higher demand for avionics and flight test equipment on various domestic and international platforms.

Commercial Markets

Commercial sales increased $32 million, or 4%, to $887 million, primarily due to higher demand for our industrial vehicle products in the general industrial market.

In the power & process market, higher nuclear aftermarket sales were essentially offset by the wind-down on the China Direct AP1000 program and the sale of our industrial valve business in Germany in the current period.

Commercial sales increased $54 million, or 6%, to $941 million.

In the power & process market, sales benefited from higher demand for industrial valves in the process market and higher demand supporting the maintenance of existing operating reactors as well as increased development on advanced small modular reactors in the commercial nuclear market.

These increases were partially offset by the wind-down on the China Direct AP1000 program.

Sales in the general industrial market increased primarily due to higher demand for industrial automation products as well as higher sales of surface treatment services.

Liquidity and Capital Resources

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Effect of exchange rates 10,726 (12,367)

Net increase (decrease) in cash and cash equivalents $ 85,970 $ (27,244)

Net increase in cash and cash equivalents $ 149,893 $ 85,970

Operating Activities

Cash provided by operating activities decreased $93 million to $295 million from the comparable prior year period , primarily due to higher inventory purchases, lower advanced cash receipts, and a legal settlement payment made to WEC during the current period.

Cash provided by operating activities increased $153 million to $448 million from the comparable prior year period , primarily due to higher net earnings and improved working capital.

Investing Activities

Capital Expenditures

Our capital expenditures were $38 million and $41 million for 2022 and 2021, respectively.

The decrease in capital expenditures was primarily due to lower capital spending during the current period.

In January 2022, the Corporation completed the sale of its industrial valve business in Germany, for gross cash proceeds of $3 million.

Our capital expenditures were $45 million and $38 million for 2023 and 2022, respectively, primarily due to higher capital spending in the Naval & Power segment during the current period.

No material divestitures took place during 2023.

In 2022, we acquired two businesses for $282 million.

In January 2022, the Corporation completed the sale of its industrial valve business in Germany, for gross cash proceeds of $3 million.

In 2023, we did not complete any acquisitions.

In 2022, we acquired two businesses for $282 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 and Repayments

In February 2023, we repaid $203 million of the 2013 Notes that matured on February 26, 2023.

On October 27, 2022, we issued $300 million Senior Notes, consisting of $200 million 4.49% notes that mature on October 27, 2032 and $100 million 4.64% notes that mature on October 27, 2034.

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

Revolving Credit Agreement

In May 2022, we terminated our existing credit agreement, which was set to expire in October 2023, and entered into a new Credit Agreement ("Credit Agreement") with a syndicate of financial institutions.

The Credit Agreement, which is set to expire in May 2027, increases the size of our revolving credit facility to $750 million, and expands the accordion feature to $250 million.

As of December 31, 2023, we had no borrowings outstanding under the Credit Agreement and $20 million in letters of credit supported by the credit facility.

The unused credit available under the Credit Agreement as of December 31, 2023 was $730 million, which could be borrowed in full without violating any of our debt covenants.

As of December 31, 2021, we had $94 million of borrowings outstanding under our prior Credit Agreement.

As of December 31, 2022, we had no borrowings outstanding under the Credit Agreement.

Repurchase of Common Stock

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In 2022, the Company repurchased approximately 0.4 million shares of its common stock for $57 million.

The Company made dividend payments of approximately $29 million in both 2022 and 2021.

The Company made dividend payments of $30 million and $29 million in 2023 and 2022, respectively.

Capital Resources

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Total cash and cash equivalents $ 406,867 $ 256,974

Cash and cash equivalents as of December 31, 2022 and December 31, 2021 were $257 million and $171 million, respectively.

C ash and cash equivalents as of December 31, 2023 and December 31, 2022 were $407 million and $257 million, respectively.

The increase in cash held by U.S.

subsidiaries during 2022 as compared to 2021 was primarily due to lower share repurchase activity and higher foreign cash repatriation during the current period.

The decrease in cash held by foreign subsidiaries during 2022 as compared to 2021 was primarily due to higher aforementioned foreign cash repatriation and 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 $8 million of our foreign cash resides.

subsidiaries during 2023 as compared to 2022 was primarily due to higher cash from operations in the current period as well as no acquisition activity during the current period.

The increase in cash held by foreign subsidiaries during 2023 as compared to 2022 was primarily due to lower foreign cash repatriation 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, w here approximately $19 million of our foreign cash resides.

Cash Utilization

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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, 2022, and the annual periodic costs for 2023, was increased from 2.87% to 5.04% for the Curtiss-Wright Pension Plan, and from 2.70% to 4.99% for the nonqualified benefit plan, to reflect current economic conditions.

The discount rate used to determine the plan benefit obligations as of December 31, 2023, and the annual periodic costs for 2024, was decreased from 5.04% to 4.86% for the Curtiss-Wright Pension Plan, and from 4.99% to 4.79% 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 a decrease in the benefit obliga tion of $181 million in the CW plans.

The rate of compensation increase for base pay in the pension plans decreased to a weighted average of 3.4% for the current period, based upon a graded scale of 4.1% 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 from prior year for the CW Pension plan by adopting a 50/50 blend of the Pri-2012 Aggregate and White Collar tables published by the Society of Actuaries in October 2019, while retaining the White Collar table for the nonqualified plan.

We also adopted the MP-2021 projected mortality scale published in October 2021, with no pandemic adjustments.

The discount rate changes contributed to an increase in the benefit obliga tion of $12 million in the CW plans.

The rate of compensation increase for base pay in the pension plans remained unchanged at a weighted average of 3.4% for the current period, based upon a graded scale of 4.1% 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 for the CW Pension plan by adopting a 50/50 blend of the Pri-2012 Aggregate and White Collar tables published by the Society of Actuaries in October 2019, while retaining the White Collar table for the nonqualified plan.

We also retained the MP-2021 projected mortality scale published in October 2021, with no pandemic adjustments.

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

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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 2022, primarily driven by unfavorable asset experience due to weak market performance in 2022, partially offset by a lower benefit obligation due to higher interest rates.

The funded status of the Curtiss-Wright Pension Plan increased by $34 million in 2023, primarily driven by favorable asset returns in 2023, partially offset by a higher benefit obligation due to a lower discount rate.

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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Point Change Increase in

Obligation Increase in

Obligation Increase/(Decrease) in

Discount rate (0.25) % $17,163 ($256)

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Other intangible assets are generally the result of acquisitions and consist primarily of purchased technology, customer related intangibles, and trademarks.

Intangible assets are recorded at their fair values as determined through purchase accounting, based

on estimates and judgments regarding expectations for the estimated future after-tax earnings and cash flows arising from follow-on sales.

Intangible assets are recorded at their fair values as determined through purchase accounting, based on estimates and judgments regarding expectations for the estimated future after-tax earnings and cash flows arising from

follow-on sales.

Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which generally range from 1 to 20 years.

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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