Curtiss-Wright(US:CW)2022-02-24 21:23PART I Item 1. Business Curtiss-Wright provides engineered products and solutions primarily to aerospace & defense, and commercial power, process, and industrial markets - Curtiss-Wright Corporation is a global integrated business providing highly engineered products, solutions, and services primarily to aerospace & defense markets, as well as critical technologies in demanding commercial power, process, and industrial markets17 - The company operates through three reportable segments: Aerospace & Industrial, Defense Electronics, and Naval & Power20 Business Segments The company operates through three segments: Aerospace & Industrial, Defense Electronics, and Naval & Power, each serving distinct markets - Aerospace & Industrial segment primarily serves general industrial and commercial aerospace markets, offering products like electronic throttle controls, joysticks, sensors, and surface technology services23 - Defense Electronics segment primarily serves defense markets, providing COTS embedded computing, data acquisition, flight test instrumentation, integrated subsystems, and tactical communications solutions24 - Naval & Power segment primarily serves naval defense and power & process markets, offering naval propulsion and auxiliary equipment, commercial nuclear power plant products, and severe-service valve technologies25 Other Information This section details foreign operations, government sales, customer diversification, intellectual property, and human capital strategies Foreign Operations as Percentage of Pre-Tax Earnings | Year | Percentage of Pre-Tax Earnings | | :--- | :----------------------------: | | 2021 | 27% | | 2020 | 28% | | 2019 | 31% | Government Sales as Percentage of Total Net Sales | Year | Percentage of Total Net Sales | | :--- | :----------------------------: | | 2021 | 55% | | 2020 | 53% | | 2019 | 43% | U.S. Government Sales by Segment (In thousands) | Segment | 2021 | 2020 | 2019 | | :--------------------- | :------------ | :------------ | :------------ | | Aerospace & Industrial | $155,276 | $156,981 | $142,666 | | Defense Electronics | $600,085 | $470,949 | $367,923 | | Naval & Power | $499,486 | $491,388 | $426,116 |\ | Total | $1,254,847| $1,119,318| $936,705 | - No single commercial customer accounted for more than 10% of total net sales during 2021, 2020, or 2019, indicating customer diversification32 - The company's intellectual property strategy relies on a portfolio of patents, trade secrets, and unpatented R&D, but no single patent or group of patents is considered materially dependent for business success34 - The company had approximately 7,800 employees in over 20 countries at the end of 2021, with 7% represented by labor unions39 - Key human capital strategies include competitive compensation and benefits (401(k) matching, ESPP, health insurance, tuition reimbursement), diversity and inclusion initiatives, and a strong focus on employee health and safety, with a Total Recordable Rate (TRR) of 1.49 and Days Away, Restriction and Transfer Rate (DART) of 0.99 in 2021404142 Item 1A. Risk Factors Curtiss-Wright faces material risks from COVID-19, cybersecurity, product liability, market dependence on government spending, and financial factors - The COVID-19 pandemic continues to pose risks to the business, impacting supply chains, production levels, and employee health and safety, with unpredictable duration and extent of impacts474952 - Operational risks include potential system intrusions (cybersecurity), product liability, warranty obligations, and the failure to satisfy contractual obligations, which could damage reputation and financial performance54555859 - Strategic risks involve challenges in implementing acquisition strategies, developing new technologies in rapidly changing markets, and intense competition from companies with greater resources657173 - Market risks include substantial reliance on U.S. Government defense spending (50% of net sales in 2021), potential downturns in the aircraft market, and the susceptibility of backlog to reduction or cancellation778385 - Financial risks encompass political and economic changes in foreign markets (including currency fluctuations), unanticipated changes in tax provisions, reliance on estimates for long-term contracts, potential asset impairment charges (goodwill and intangibles were ~49% of total assets in 2021), and increasing costs of employee and retiree benefits108110112114120 Item 1B. Unresolved Staff Comments There are no unresolved staff comments to report - No unresolved staff comments133 Item 2. Properties The company operates 154 facilities globally, primarily for manufacturing and engineering, with headquarters leased in North Carolina - Corporate headquarters is a leased facility in Davidson, North Carolina134 - As of December 31, 2021, the company had 154 facilities worldwide134 - Approximately 80% of facilities are for manufacturing, engineering, metal treatment, or aerospace overhaul, and 20% for selling and administrative offices134 Number of Facilities by Segment and Location (as of Dec 31, 2021) | Location | Aerospace & Industrial | Defense Electronics | Naval & Power | Total | | :------------ | :--------------------- | :------------------ | :------------ | :---- | | Owned | | | | | | North America | 8 | 1 | 9 | 18 |\ | Europe | 9 | — | 1 | 10 |\ | Total Owned | 17 | 1 | 10 | 28 |\ | Leased | | | | |\ | North America | 42 | 17 | 24 | 83 |\ | Europe | 18 | 5 | 3 | 26 |\ | Asia | 10 | 1 | 2 | 13 |\ | Total Leased | 70 | 23 | 29 | 122 | Item 3. Legal Proceedings The company is involved in various legal proceedings, including asbestos and environmental claims, but anticipates no material adverse effects - The company is involved in legal proceedings related to asbestos, environmental exposures, intellectual property, personal injury, employment, government contracts, and commercial disputes136 - Management believes the disposition of these matters will not have a material adverse effect on consolidated financial condition, results of operations, and cash flows, due to minimal asbestos use and adequate insurance coverage136137 Item 4. Mine Safety Disclosures This item is not applicable to Curtiss-Wright Corporation - Not applicable138 PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common stock trades on NYSE (CW), with quarterly dividends and active share repurchase programs - Common stock is listed and traded on the New York Stock Exchange (NYSE) under the symbol CW141 Quarterly Dividends Paid (USD per share) | Quarter | 2021 | 2020 | | :------------ | :---- | :---- | | First Quarter | $0.17 | $0.17 | | Second Quarter| $0.18 | $0.17 | | Third Quarter | $0.18 | $0.17 | | Fourth Quarter| $0.18 | $0.17 | Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Number of Securities to be Issued | Weighted-Average Fair Value | Number of Securities Remaining Available for Future Issuance | | :------------------------------------------------ | :------------------------------: | :-------------------------: | :----------------------------------------------------------: | | Equity compensation plans approved by security holders | 421,066 | $111.54 | 1,942,123 | Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Program | Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Program | | :---------------------------- | :------------------------------: | :--------------------------: | :--------------------------------------------------------------------: | :-----------------------------------------------------------------------: | | October 1 – October 31 | 1,233,989 | $131.17 | 1,882,840 | $359,177,280 |\ | November 1 – November 30 | 185,346 | $132.54 | 2,068,186 | $334,611,359 |\ | December 1 – December 31 | 584,582 | $132.75 | 2,652,768 | $257,008,939 |\ | For the quarter ended Dec 31| 2,003,917 | $131.76 | 2,652,768 | $257,008,939 | - In December 2021, the Corporation adopted two trading plans for its share repurchase program, with approximately $250 million remaining available for repurchase out of a $550 million authorization147 Item 6. Selected Financial Data This item is reserved and contains no information - This item is reserved153 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes 2021 financial results, market trends, liquidity, and critical accounting estimates, showing sales growth and increased operating income - Curtiss-Wright is a global integrated business providing highly engineered products, solutions, and services mainly to aerospace & defense markets, as well as critical technologies in demanding commercial power, process, and industrial markets154 - The company's commercial businesses are largely driven by global economic growth, with the U.S. GDP rebounding sharply by 5.7% in 2021, the fastest pace since 1984159160 - Defense spending is a key driver, with the FY22 National Defense Authorization Act (NDAA) authorizing a $25 billion increase over the President's budget proposal, reflecting strong bipartisan support for programs like Ford class aircraft carriers and Columbia/Virginia class submarines163166 - Commercial aerospace market growth is tied to aircraft production rates, with air travel demand expected to modestly recover in 2022 and fully by 2025 after the COVID-19 pandemic's impact169170 - Power & Process market opportunities are driven by plant aging, life extensions, and new plant construction globally, with a focus on Generation III+ Westinghouse AP1000 reactors and next-generation advanced/small modular reactors173176 - General Industrial market growth is aligned with U.S. and global economies, with a focus on electronification and electrification for industrial vehicles, medical mobility, and specialty vehicles, and surface treatment services178179181 Results of Operations Total sales increased 5% to $2.5 billion and operating income rose 32% to $383 million in 2021, driven by defense and power segments Consolidated Financial Performance (2021 vs. 2020, In thousands) | Metric | 2021 | 2020 | Percent Change | | :--------------------- | :---------- | :---------- | :------------- | | Total Sales | $2,505,931 | $2,391,336 | 5% | | Total Operating Income | $382,683 | $288,848 | 32% | | Net Earnings | $267,159 | $201,392 | 33% | | New Orders | $2,579,881 | $2,321,481 | 11% | | Backlog | $2,228,924 | $2,163,750 | 3% | Components of Sales and Operating Income Growth (2021 vs. 2020) | Component | Sales Growth | Operating Income Growth | | :----------------------------- | :----------- | :---------------------- | | Organic | (1)% | 11% | | Acquisitions | 5% | 5% | | Impairment of assets held for sale | —% | 5% | | Restructuring | —% | 14% | | Foreign currency | 1% | (3)% | | Total | 5% | 32% | - Operating margin increased 320 basis points in 2021 compared to 2020, driven by restructuring savings and operational excellence initiatives186 - Interest expense increased 13% to $40 million, primarily due to the issuance of $300 million Senior Notes in August 2020187 - The effective tax rate increased to 24.6% in 2021 from 23.4% in 2020, mainly due to higher non-deductible impairment losses related to the German industrial valves business held for sale189 Results by Business Segment Aerospace & Industrial sales decreased, while Defense Electronics and Naval & Power segments showed strong sales and operating income growth Aerospace & Industrial Segment Performance (2021 vs. 2020, In thousands) | Metric | 2021 | 2020 | Percent Change | | :--------------- | :--------- | :--------- | :------------- | | Sales | $786,334 | $805,673 | (2)% | | Operating Income | $121,817 | $99,714 | 22% | | Operating Margin | 15.5% | 12.4% | 310 bps | | New Orders | $853,077 | $651,187 | 31% | | Backlog | $338,581 | $277,031 | 22% | - Aerospace & Industrial sales decreased primarily due to the exit of a build-to-print product line in commercial aerospace, partially offset by higher demand in the general industrial market196 Defense Electronics Segment Performance (2021 vs. 2020, In thousands) | Metric | 2021 | 2020 | Percent Change | | :--------------- | :--------- | :--------- | :------------- | | Sales | $724,326 | $608,757 | 19% | | Operating Income | $159,089 | $118,748 | 34% | | Operating Margin | 22.0% | 19.5% | 250 bps | | New Orders | $743,199 | $704,989 | 5% | | Backlog | $667,510 | $652,957 | 2% | - Defense Electronics sales and operating income increased significantly due to the incremental impact of the PacStar acquisition and operational excellence initiatives202 Naval & Power Segment Performance (2021 vs. 2020, In thousands) | Metric | 2021 | 2020 | Percent Change | | :--------------- | :--------- | :--------- | :------------- | | Sales | $995,271 | $976,906 | 2% | | Operating Income | $141,660 | $108,151 | 31% | | Operating Margin | 14.2% | 11.1% | 310 bps | | New Orders | $983,605 | $965,305 | 2% | | Backlog | $1,222,833 | $1,233,762 | (1)% | - Naval & Power sales increased due to higher production on the CVN-81 aircraft carrier program and foreign military sales, while operating income benefited from restructuring savings and lower impairment losses on assets held for sale208 Supplementary Information Net sales disaggregation shows a 4% increase in Aerospace & Defense markets and a 6% increase in Commercial markets Net Sales by End Market and Customer Type (2021 vs. 2020, In thousands) | End Market and Customer Type | 2021 | 2020 | Percent Change | | :--------------------------- | :---------- | :---------- | :------------- | | 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: | | | | | Power & Process | $473,489 | $474,842 | —% | | General Industrial | $381,081 | $327,686 | 16% | | Total Commercial | $854,570| $802,528| 6% | | Total Curtiss-Wright | $2,505,931| $2,391,336| 5% | - Ground defense market sales increased 105% due to the PacStar acquisition, contributing $115 million in incremental sales213 - General industrial market sales increased by $50 million due to higher demand for industrial vehicle products214 Liquidity and Capital Resources Operating cash flow increased to $388 million, with debt repayments and share repurchases impacting cash and capital resources Consolidated Statement of Cash Flows (In thousands) | Cash Flow Activity | 2021 | 2020 | | :------------------------------------------------ | :---------- | :---------- | | Net cash provided by operating activities | $387,668 | $261,180 | | Net cash used in investing activities | $(42,403) | $(532,530) | | Net cash provided by (used for) financing activities | $(369,129) | $82,081 | | Net increase (decrease) in cash and cash equivalents | $(27,244) | $(192,785) | - Cash provided by operating activities increased $126 million to $388 million, mainly due to a prior year voluntary pension contribution of $150 million and timing of cash receipts218 - Capital expenditures decreased to $41 million in 2021 from $47 million in 2020, with anticipated capital expenditures of $50 million to $60 million for 2022219231 - The company repaid $100 million of 2011 Notes in 2021 and repurchased approximately 2.7 million shares of common stock for $343 million223225 Cash and Cash Equivalents by Jurisdiction (In thousands) | Location | 2021 | 2020 | | :------------------------ | :---------- | :---------- | | United States of America | $37,361 | $55,391 | | United Kingdom | $69,732 | $49,258 | | European Union | $12,154 | $21,156 | | Canada | $24,019 | $34,795 | | China | $13,403 | $20,692 | | Other foreign countries | $14,335 | $16,956 | | Total | $171,004| $198,248| - As of December 31, 2021, the company was in compliance with all debt agreements and credit facility covenants, with the ability to incur $1.6 billion in additional indebtedness230 Future Contractual Obligations and Commercial Commitments (as of Dec 31, 2021, In thousands) | Obligation Type | Total | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | | :------------------------------ | :------------ | :-------- | :-------- | :-------- | :-------- | :-------- | :--------- | | Debt Principal Repayments | $1,043,900 | $— | $296,400 | $— | $90,000 | $200,000 | $457,500 | | Operating Leases | $186,596 | $31,698 | $29,037 | $26,166 | $19,811 | $16,161 | $63,723 | | Interest Payments on Fixed Rate Debt | $200,621 | $35,320 | $32,698 | $27,828 | $26,615 | $23,821 | $54,339 | | Total | $1,431,117| $67,018| $358,135| $53,994| $136,426| $239,982| $575,562| Critical Accounting Estimates and Policies Critical accounting estimates include revenue recognition, pension benefits, goodwill impairment, and intangible asset amortization, requiring significant judgment - Revenue recognition is split approximately 50% over-time and 50% at a point-in-time for the year ended December 31, 2021237238312 - Long-term contract accounting requires significant judgment in estimating total revenues and costs, with changes recognized using the cumulative catch-up method112113237 - Pension and other postretirement benefit calculations rely on actuarial assumptions, with the discount rate for the CW Pension Plan increasing from 2.53% to 2.87% in 2021, and the expected long-term rate of return on plan assets decreasing to 5.8% for 2022243244246 - Goodwill amounted to $1.5 billion as of December 31, 2021, representing approximately 49% of total assets, and annual impairment testing in Q4 2021 concluded no impairment115250253 - Other intangible assets, primarily from acquisitions, are amortized over 1 to 20 years, with amortization expense of $60 million in 2021290344 Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company manages market risks from interest rates and foreign currency fluctuations, with a 10% FX change potentially impacting net earnings by $11 million - The company is exposed to market risks from changes in interest rates and foreign currency exchange rates257 - Fixed rate interest exposure was 91% as of December 31, 2021, and a 1% change in interest rates would not materially impact consolidated interest expense258 - A 10% collective weakening or strengthening of foreign exchange rates against the U.S. dollar would decrease or increase net earnings by approximately $11 million259 - Foreign currency risk is primarily related to the British Pound, Canadian dollar, and Euro259 Item 8. Financial Statements and Supplementary Data This section provides consolidated financial statements and extensive notes detailing accounting policies, financial position, and performance Consolidated Statements of Earnings (In thousands, except per share data) | Metric | 2021 | 2020 | 2019 | | :-------------------------- | :---------- | :---------- | :---------- | | Total Net Sales | $2,505,931 | $2,391,336 | $2,487,961 | | Gross Profit | $933,356 | $841,227 | $898,745 | | Operating Income | $382,683 | $288,848 | $403,953 | | Earnings Before Income Taxes| $354,510 | $263,051 | $396,462 | | Net Earnings | $267,159 | $201,392 | $307,583 | | Basic Earnings Per Share | $6.61 | $4.83 | $7.20 | | Diluted Earnings Per Share | $6.58 | $4.80 | $7.15 | | Dividends Per Share | $0.71 | $0.68 | $0.66 | Consolidated Statements of Comprehensive Income (In thousands) | Metric | 2021 | 2020 | 2019 | | :------------------------------------------ | :---------- | :---------- | :---------- | | Net Earnings | $267,159 | $201,392 | $307,583 | | Foreign currency translation, net of tax | $(10,829) | $41,282 | $18,447 | | Pension and postretirement adjustments, net of tax | $131,220 | $(26,864) | $(29,017) | | Other comprehensive income (loss), net of tax | $120,391 | $14,418 | $(10,570) | | Comprehensive Income | $387,550 | $215,810 | $297,013 | Consolidated Balance Sheets (In thousands) | Asset/Liability/Equity Category | 2021 | 2020 | | :------------------------------------------ | :------------ | :------------ | | ASSETS | | | | Total Current Assets | $1,307,808 | $1,300,824 | | Property, Plant, and Equipment, net | $360,031 | $378,200 | | Goodwill | $1,463,026 | $1,455,137 | | Other Intangible Assets, net | $538,077 | $609,630 | | Prepaid Pension Asset | $256,422 | $92,531 | | Total Assets | $4,103,545| $4,021,334| | LIABILITIES | | | | Total Current Liabilities | $734,867 | $810,377 | | Long-Term Debt | $1,050,610 | $958,292 | | Deferred Tax Liabilities | $147,349 | $115,007 | | Accrued Pension and Other Postretirement Benefit Costs | $91,329 | $98,345 | | Total Liabilities | $2,277,055| $2,233,760| | STOCKHOLDERS' EQUITY | | | | Total Stockholders' Equity | $1,826,490 | $1,787,574 | Consolidated Statements of Cash Flows (In thousands) | Cash Flow Activity | 2021 | 2020 | 2019 | | :------------------------------------------------ | :---------- | :---------- | :---------- | | Net cash provided by operating activities | $387,668 | $261,180 | $421,404 | | Net cash used for investing activities | $(42,403) | $(532,530) | $(240,040) | | Net cash provided by (used for) financing activities | $(369,129) | $82,081 | $(68,145) | | Net increase (decrease) in cash and cash equivalents | $(27,244) | $(192,785) | $114,967 | | Cash and cash equivalents at end of year | $171,004 | $198,248 | $391,033 | Consolidated Statements of Stockholders' Equity (In thousands) | Metric | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | | :-------------------------------------- | :----------- | :----------- | :----------- | | Common Stock | $49,187 | $49,187 | $49,187 | | Additional Paid-in Capital | $127,104 | $122,535 | $116,070 | | Retained Earnings | $2,908,827 | $2,670,328 | $2,497,111 | | Accumulated Other Comprehensive Loss | $(190,465) | $(310,856) | $(325,274) | | Common Treasury Stock, at cost | $(1,068,163) | $(743,620) | $(562,722) | | Total Stockholders' Equity | $1,826,490| $1,787,574| $1,774,382| Report of the Corporation Management affirms GAAP compliance and effective internal controls, with Deloitte & Touche LLP issuing an unqualified audit opinion - Consolidated Financial Statements are prepared in conformity with U.S. GAAP, based on management's best estimates and judgments466 - Management maintains effective accounting systems, procedures, and internal accounting controls to safeguard assets and ensure proper transaction recording467 - Deloitte & Touche LLP performed an integrated audit of the financial statements and internal controls, expressing an unqualified opinion468 Report of Independent Registered Public Accounting Firm Opinion on the Financial Statements Deloitte & Touche LLP issued an unqualified opinion on the fair presentation of consolidated financial statements in accordance with U.S. GAAP - Deloitte & Touche LLP expressed an unqualified opinion on the consolidated financial statements for the period ended December 31, 2021, confirming fair presentation in accordance with U.S. GAAP471 Opinion on Internal Control over Financial Reporting Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting - Deloitte & Touche LLP expressed an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021472483 Critical Audit Matter Revenue recognition on over-time contracts, especially with limited historical data, was a critical audit matter requiring extensive judgment - The critical audit matter relates to revenue recognition on an over-time basis, especially for highly engineered industrial products in commercial and defense applications, where 50% of 2021 revenue was recognized over-time476477 - Auditing management's estimates of total costs for contracts with limited historical data required extensive audit effort and judgment480 - Audit procedures included evaluating management's methods and assumptions for future cost estimates, corroborating inquiries with project managers and engineers, testing cost accuracy, and analyzing changes in cost estimates481 PART III Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in or disagreements with accountants on accounting and financial disclosure to report - No changes in or disagreements with accountants on accounting and financial disclosure490 Item 9A. Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective, with no material changes - The Corporation's disclosure controls and procedures were deemed effective as of December 31, 2021492 - Management assessed and believes the Corporation's internal control over financial reporting is effective as of December 31, 2021, based on the COSO framework495 - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2021497 Item 9B. Other Information There is no other information to report under this item - No other information to report498 PART IV Item 15. Exhibits, Financial Statement Schedule This section lists financial statements, supplementary data, and a comprehensive array of exhibits and schedules - Includes Consolidated Statements of Earnings, Comprehensive Income, Balance Sheets, Cash Flows, Stockholders' Equity, and Notes to Consolidated Financial Statements504 - Schedule II – Valuation and Qualifying Accounts is provided for the years ended December 31, 2021, 2020, and 2019504519 - A comprehensive list of exhibits, including organizational documents, incentive plans, debt agreements, and certifications, is provided505507508509510511512514516