CURTISS WRIGHT CORP (CW)

Item 7. 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 segments.

COMPANY ORGANIZATION

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 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 continuously leverage our teams’ collaborative efforts and the strength of our combined portfolio, while also seeking to build upon crossover applications that may exist across our defense and commercial market technologies.

We manage and evaluate our operations based on the products and services we offer and the different markets we serve. Based on this approach, we operate through three reportable segments: Aerospace & Industrial, Defense Electronics, and Naval & Power.

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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 pricing initiatives. However, in recent history, we have experienced heightened pressures in our costs of material, services, and especially labor, 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 aim to actively negotiate price increases. 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.

Market Analysis and Economic Factors

Economic Factors Impacting Our 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. Following the events of 2020, U.S. economic activity rebounded sharply in 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. In 2021, U.S. real gross domestic product (GDP) increased at nearly 6% and at the fastest pace since 1984, led by an acceleration in industrial activity. However, the pace of year-over-year GDP growth has slowed in recent years based on high levels of inflation and rising interest rates and, as a result, it increased 1.9% in 2022 and 2.5% in 2023. In 2024, U.S. GDP is expected to grow between 2.5% and 2.8%, according to various forecasts, driven by healthy employment and income growth, strong U.S. consumer spending and easing of prior supply chain disruptions, despite the headwind of rising inflation that has only recently lessened as a result of interest rate reductions. In 2025, based on a range of forecasts, growth in the U.S. economy is expected to be at or slightly below 2024 levels, as most economists expect the U.S. Federal Reserve to implement further easing on interest rates to control inflation.

In the global environment, which is typically influenced by international trade, economic conditions, and geopolitical uncertainty, GDP had also been greatly impacted by the pandemic in 2020, before it rebounded in 2021. In 2024, global GDP is expected to grow between 2.5% and 3.0%, according to various forecasts. Global GDP is expected to grow at a similar pace in 2025, given optimism for a continued reduction in inflation, but remain below 3% for the foreseeable future, based on uncertainty regarding the long-term impacts of potentially higher tariffs and trade uncertainty, particularly in China.

Defense

Curtiss-Wright maintains a strong presence across the naval, aerospace, and ground defense markets with vast platform and program diversity, where we support over 400 platforms and 3,000 programs worldwide. Our portfolio of products and services supplies all branches of the U.S. military, where our content is on critical high-performance programs and platforms, and also supports a growing international defense business. A significant portion of our defense business operations is comprised of long-term programs and fixed-price contracts driven primarily by U.S. DoD budgets and funding levels. The Company has historically demonstrated solid growth in our defense markets, particularly when including acquisitions, and has exceeded the average growth rate of the U.S. defense budget over the past 20 years through various cycles and administrations. In addition, the Company is well-insulated from periods of U.S. defense budget flatness or trimming due to the breadth of our portfolio, unique, sole-source positions and opportunities to capitalize on work outsourced from defense primes, while we continue to expand our potential for growth in non-U.S. military spending.

We derive a portion of our revenues from the naval defense, aerospace defense, and ground defense markets, which collectively represent approximately 57% of our annual net sales. In the naval defense market, we expect continued funding for U.S. shipbuilding programs which have received strong bipartisan support from Congress. Of note, we are recognizing significant production revenues on the Ford class aircraft carrier, along with the Columbia class and Virginia class submarines, as well as development revenues on the future generation SSN(X) submarine. 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 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

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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. 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. The modernization of the existing U.S. ground vehicle fleet is expected to recover slowly, while international demand should remain strong, particularly for our electronics stabilization systems. Through continued innovation as well as incremental research and development investments, Curtiss-Wright remains aligned with numerous high growth DoD priorities, modernization efforts and emerging technological trends, including security, cyber, hypersonics, net-centric connected battlefield and soldier survivability. In addition, Curtiss-Wright’s alignment to open systems architecture has positioned the Company to benefit from the DoD’s Modular Open Systems Approach (MOSA) mandate supporting major defense acquisition programs.

Former President Biden's FY’24 defense budget request of approximately $842 billion reflected a 3% increase over the FY’23 enacted budget. The House and Senate Appropriations committees later approved a defense budget of approximately $825 billion for FY’24. In addition, the DoD approved a $95 billion supplemental to support aid to Ukraine, Israel and Taiwan, while also providing funding to shore up the U.S. naval industrial base. Former President Biden's FY’25 Budget Request was submitted to Congress in March 2024 requesting nearly $850 billion, with an additional $58 billion expected for supplementals. The initial base budget is subject to the spending caps under the Budget Control Act (set to expire after FY25) authorizing only 1% growth from the prior year’s budget request. Key priorities in the initial request included naval shipbuilding, tactical battlefield communications, vehicle modernization, missiles and hypersonics, munitions and space, many of which provide opportunities for Curtiss-Wright. House and Senate mark-ups have been favorable thus far, and Congress has prepared the National Defense Authorization Act (NDAA) policy bill that is in-line with the aforementioned caps but includes funds for an additional Virginia-class submarine that was removed from former President Biden’s budget. In addition, 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 DoD's future year defense plan (FYDP) forecasts spending at an approximately 2% CAGR through FY29, covering longer-term spending priorities aimed at improving the defense industrial base and national security, modernization, and countering China as the “pacing challenge” in the global environment.

Beyond the U.S., we have seen a renewed, global focus on defense spending in light of Russia’s invasion of Ukraine and the continued threat from China. International markets represent a growing portion of overall sales for defense prime contractors, creating additional growth opportunities for Curtiss-Wright as NATO countries throughout Europe commit to ramping up their spending to 2% or more of annual GDP, with nearly 70% thus far announcing their intentions to meet those spending levels. As a result, and including recent acquisitions, Curtiss-Wright’s total direct foreign military sales represent approximately 9% of the Corporation’s total revenues.

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 is OEM products and services for commercial jets, which represent approximately 90% of our sales in this market, and are 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, approximately 60% of our sales in this market are linked to the narrow-body market. 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 and coatings services utilized on highly stressed components of turbine engine fan blades and aircraft structures. Curtiss-Wright’s exposure continues to grow following wins on critical Airbus platforms to expand the reach of our electromechanical actuation business and pursuits to provide high temperature engine solutions.

Passenger travel and freight logistics, along with the demand for and delivery of new aircraft to replace the existing, aging fleet, are the key drivers in the commercial aerospace market. The prolonged production up-cycle experienced in the prior decade was driven by increases in production by Boeing and Airbus on both legacy and new aircraft, particularly narrow-body aircraft.

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Additionally, sustained low oil prices contributed to declining fuel prices, which in turn led to cheaper airfares for consumers and increased passenger growth.

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. 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 reached a record high in 2024 and fully recovered to pre-pandemic levels, though high levels of inflation and higher oil prices remain watch items for the commercial aero industry going forward.

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. Overall, we expect the secular trends of electrification and decarbonization, along with tremendous customer backlog, to support a long-term ramp up in commercial aerospace production.

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. today. Additionally, we are executing initiatives to leverage our capabilities into the broader conventional power generation market, capitalizing on advances in digital instrumentation and control systems, as well as next-generation Small Modular Reactors (SMRs) and Advanced Reactor designs which have the potential to bring transformational growth to the nuclear industry.

There are a number of global forces driving a resurgence in nuclear power, as it is becoming more widely accepted as a critical source to meet rising future energy demand and decarbonization commitments, benefiting both the energy and process industries. Within the U.S., nuclear power has both strong public and bi-partisan government support, which is driving legislation to decarbonize the existing energy infrastructure and create clean, reliable, and affordable energy. In addition, following the Russian invasion of Ukraine and the disruption it has caused to European energy markets, nuclear power is being seen as a pathway towards energy independence and an opportunity to break free from Russian natural gas and oil.

According to the Nuclear Regulatory Commission (NRC), nuclear power comprises approximately 20% of all electric power produced in the U.S. today, with 94 reactors (including both Vogtle 3 and 4 AP1000 reactors) 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.

The U.S. market continues to experience 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. reactor fleet. 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 U.S. nuclear plants. Outside of the U.S. market, as international plants age, we foresee numerous 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 a significant 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 Association, there are approximately 65 new reactors under construction in 15 countries, with another 85 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, and remain aligned with Westinghouse in their pursuits. Long-term growth in this market will be driven by new AP1000 orders, with the potential for 20 to 25 reactors to be

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built in Central and Eastern Europe, presenting a tremendous opportunity for long-term growth as both Poland and Bulgaria are expected to begin production before the end of the decade. We also continue to seek opportunities in the U.S., 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. industry. The industry is also benefiting from an influx of investment from major technology companies including Amazon, Microsoft and Google to support electricity production to power data centers. We continue to grow our exposure in this market, and are actively engaged with all major 300MW+ 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. We anticipate SMR development and prototypes will begin to shift to production orders by the end of this decade, before reaching a steady-state of production by the middle of the next decade, providing a tremendous long-term growth opportunity.

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. Since the pandemic, oil prices have improved and generally stabilized, spurring both increased MRO spending and turnaround activity particularly for industrial valves, and some CapEx-driven project opportunities, as oil & gas companies reinvest to meet rising demand and depleted reserves. Global supply has stabilized since the onset of the Ukrainian/Russian war, as industry worked to preserve and increase capacity for non-Russian alternatives. 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.

Aside from our traditional valves offering, the Company is also advancing several subsea pumping development initiatives, working with industry leaders, to meet the growing demand for more reliable pumping systems in deep sea drilling and off-shore production facilities. We have leveraged our legacy expertise in naval defense pump technology to crossover into this adjacent market and anticipate significant production orders to begin materializing by the middle of the next decade.

General Industrial

We derive revenue from our widely diversified offering to the general industrial market, which primarily consists of electronic sensors and control systems, electro-mechanical actuation, and surface treatment services. 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. and global economies, with changes in global GDP rates and industrial production driving our sales, particularly for our surface treatment services.

We have developed long-standing relationships with our customers, and provide technologies that promote efficiency, safety, reduced emissions, and longevity. 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 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. 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 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. 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.

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In the long term, the global drive towards electrification and electronification, new government regulations for emissions (expected to go into effect in 2027), investment in green technology, and advancements in robotics and automation, along with consistent new product introductions will provide steady growth opportunities for Curtiss-Wright’s technologies serving this market.

RESULTS OF OPERATIONS

The following MD&A is intended to help the reader understand the results of operations and financial condition of the Corporation for the year ended December 31, 2024, as compared to the year ended December 31, 2023. Discussion and analysis of our financial condition and results of operations for the year ended December 31, 2023, as compared to the year ended December 31, 2022, is contained in our 2023 Annual Report on Form 10-K, filed with the SEC on February 20, 2024.

Analytical Definitions

Throughout management’s discussion and analysis of financial condition and results of operations, the terms “incremental” and “organic” are used to explain changes from period to period. The term “incremental” is used to highlight the impact 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. The definition of “organic” excludes the effects of costs associated with our 2024 Restructuring Program and foreign currency translation.

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Components of sales and operating income growth (decrease):

Sales for the year increased $276 million, or 10%, to $3,121 million, compared with the prior year period. On a segment basis, sales from the Aerospace & Industrial, Defense Electronics, and Naval & Power segments increased $45 million, $95 million, and $136 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 $44 million, or 9%, to $529 million, while operating margin decreased 10 basis points compared with 2023. In the Defense Electronics segment, increases in operating income and operating margin were primarily due to favorable overhead absorption on higher A&D sales. In the Aerospace & Industrial segment, operating income increased while operating margin decreased, as favorable overhead absorption on higher sales was partially offset by current period restructuring costs and higher investment in research and development. Operating income in the Naval & Power segment increased while operating margin decreased, as favorable overhead absorption on higher sales as well as the absence of first year purchase accounting costs from our arresting systems acquisition were partially offset by an unfavorable naval contract adjustment and unfavorable product mix.

Non-segment operating expense for the year increased $2 million, or 5%, to $44 million, primarily due to higher corporate costs in the current period.

Interest expense for the year decreased $7 million, or 13%, to $45 million, primarily due to lower borrowings under our revolving Credit Agreement (the “Credit Agreement” or “credit facility”) as well as the repayment of our 2013 Notes in February 2023.

Other income, net for the year increased $8 million, or 28%, to $38 million, primarily due to higher interest income in the current period.

The effective tax rate of 22.4% for the year ended December 31, 2023, decreased as compared to an effective tax rate of 23.4% in the prior year period, primarily due to the benefits of a legal entity restructuring as well as lower provisional tax expense associated with foreign withholding taxes.

New orders increased $606 million, or 20%, from the prior year period to $3,696 million, primarily due to an increase in naval defense orders supporting aircraft carrier and submarine programs in the Naval & Power segment. New orders also benefited from an increase in orders for avionics and embedded computing equipment in the Defense Electronics segment as well as increase in orders for surface treatment services within our A&D markets in the Aerospace & Industrial segment. Changes in new orders by segment are discussed in further detail in the "Results by Business Segment" section below.

Comprehensive income (loss)

Pension and postretirement adjustments within comprehensive income during the year ended December 31, 2024 were a $14 million gain, compared to a $8 million gain for the prior year period. The gain in the current period was primarily attributed to increases in the discount rate. The gain in the prior period was primarily attributed to higher asset returns, partially offset by decreases in the discount rate.

Foreign currency translation adjustments during the year ended December 31, 2024 resulted in a comprehensive loss of $44 million, compared to a comprehensive gain of $38 million in the comparable prior period. The comprehensive loss in the current period was primarily attributed to decreases in the British Pound and Canadian Dollar, while the comprehensive gain in the prior year period was primarily attributed to increases in the British Pound.

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RESULTS BY BUSINESS 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 markets.

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

Components of sales and operating income growth (decrease):

Sales increased $45 million, or 5%, to $932 million, from the comparable prior year period primarily due to higher sales in the commercial aerospace and aerospace defense markets. In the commercial aerospace market, sales increased $43 million primarily due to higher OEM sales of sensors and actuation products, as well as surface treatment services, on narrowbody and widebody platforms. The aerospace defense market benefited from sales increases of $15 million primarily due to higher actuation development and production on various fighter jet programs. These increases were partially offset by lower sales of $18 million in the general industrial market, primarily due to lower sales of industrial vehicle products to off-highway vehicle platforms.

Operating income increased $3 million, or 2%, to $148 million from the comparable prior year period, while operating margin decreased 50 basis points to 15.9%, as favorable overhead absorption on higher sales was partially offset by current period restructuring costs and higher investment in research and development.

New orders increased $87 million as compared to the prior year, primarily due to an increase in orders for surface treatment services within our A&D markets.

Defense Electronics

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

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

Components of sales and operating income growth (decrease):

Sales increased $95 million, or 12%, to $911 million, from the comparable prior year period. In the ground defense market, sales increased $47 million primarily due to higher demand for tactical battlefield communications equipment. Sales in the aerospace defense market increased $42 million primarily due to higher demand for embedded computing equipment on various helicopter and fighter jet programs. In the commercial aerospace market, sales benefited $10 million primarily from higher OEM demand for avionics and electronics on various platforms.

Operating income increased $33 million, or 17%, to $225 million compared with the same period in 2023, and operating margin increased 120 basis points to 24.7%, primarily due to favorable overhead absorption on higher A&D sales.

New orders increased $120 million as compared to the prior year, primarily due to an increase in orders for avionics and embedded computing equipment.

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, new orders, and backlog within the Naval & Power segment.

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Components of sales and operating income growth (decrease):

Sales increased $136 million, or 12%, to $1,278 million, from the comparable prior year period. In the naval defense market, sales increased $95 million primarily due to higher demand and timing of sales on various submarine programs, as well as higher foreign military sales. Sales in the power & process market increased $33 million primarily due to higher commercial nuclear aftermarket sales supporting the maintenance of operating reactors in North America, partially offset by the wind-down on the China Direct AP1000 program. In the aerospace defense market, sales increased $7 million primarily due to higher demand for arresting systems equipment supporting various domestic customers.

Operating income increased $10 million, or 6%, to $200 million, while operating margin decreased 100 basis points to 15.6%, as favorable overhead absorption on higher sales as well as the absence of first year purchase accounting costs from our arresting systems acquisition were partially offset by an unfavorable naval contract adjustment and unfavorable product mix.

New orders increased $399 million as compared to the prior year, primarily due to an increase in naval defense orders supporting aircraft carrier and submarine programs.

SUPPLEMENTARY INFORMATION

The table below depicts sales by end market and customer type, as it helps provide an enhanced understanding of our businesses and the markets in which we operate. The table has been included to supplement the discussion of our consolidated operating results.

Net Sales by End Market and Customer Type

Aerospace & Defense Markets

Sales increased $265 million, or 14%, to $2,170 million, as compared to the prior year period, primarily due to higher sales across all markets. Sales in the aerospace defense market increased primarily due to higher demand for both arresting systems equipment supporting various domestic customers as well as embedded computing equipment on various helicopter and fighter jet programs. Sales in the ground defense market increased primarily due to higher demand for tactical battlefield

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communications equipment. Sales increases in the naval defense market were primarily due to higher demand and timing of sales on various submarine programs as well as higher foreign military sales. Sales in the commercial aerospace market primarily benefited from higher demand for OEM sensors and actuation products, surface treatment services on narrowbody and widebody platforms, as well as avionics equipment on various platforms.

Commercial Markets

Commercial sales increased $11 million, or 1%, to $951 million. Sales in the power & process market primarily benefited from higher commercial nuclear aftermarket sales supporting the maintenance of operating reactors in North America, partially offset by the wind-down on the China Direct AP1000 program. The general industrial market was negatively impacted by lower sales of industrial vehicle products to off-highway vehicle platforms.

Liquidity and Capital Resources

Sources and Uses of Cash

We derive the majority of our operating cash inflow from receipts on the sale of goods and services and cash outflow for the procurement of materials and labor; cash flow is therefore subject to market fluctuations and conditions. Most of our long-term contracts allow for several billing points (progress or milestone) that provide us with cash receipts as costs are incurred throughout the project rather than upon contract completion, thereby reducing working capital requirements.

Item 7. 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 segments.

COMPANY ORGANIZATION

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 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. Based on this approach, we operate through three reportable segments: Aerospace & Industrial, Defense Electronics, and Naval & Power.

Impacts of inflation, pricing, and volume

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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, 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.

Market Analysis and Economic Factors

Economic Factors Impacting Our 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 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. 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, 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. 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. U.S. 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 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%.

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 rebounded in 2021 and 2022. 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.

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, continued easing of supply chain conditions, and lower interest rates.

Defense

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 is comprised of long-term programs and contracts driven primarily by U.S. DoD budgets and funding levels. As such, the U.S. Defense budget serves as a leading indicator of our growth in the defense market.

We derive revenue from the naval defense, aerospace defense, and ground defense markets, which collectively represent more than 55% of our annual 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 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, 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

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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. The modernization of the existing U.S. ground vehicle fleet is expected to recover slowly, while international demand should remain strong, particularly for our electronics stabilization systems. 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 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 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 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. 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.

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. 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.

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

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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

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. today. 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.

One of the industry’s most significant challenges is maintaining electricity market competitiveness. Throughout the past decade, U.S. 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). 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. reactor fleet. 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 U.S. nuclear plants. 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 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. industry. 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

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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 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.

General Industrial

We derive revenue from our widely diversified offering to the general industrial market, which primarily consists of electronic sensors and control systems, electro-mechanical actuation, and surface treatment services. 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. and global economies, with changes in global GDP rates and industrial production driving our sales, particularly for our surface treatment services.

We have developed long-standing relationships with our customers, and provide technologies that promote efficiency, safety, reduced emissions, and longevity. 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 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. 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 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. 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.

In the long term, the global drive towards electrification and electronification, push for zero or low-emissions vehicles, investments in green technology, advancements in robotics and automation, and new government regulations will provide steady growth opportunities for Curtiss-Wright’s technologies serving this market.

RESULTS OF OPERATIONS

The following MD&A is intended to help the reader understand the results of operations and financial condition of the Corporation for the year ended December 31, 2023, as compared to the year ended December 31, 2022. Discussion and analysis of our financial condition and results of operations for the year ended December 31, 2022, as compared to the year ended December 31, 2021, is contained in our 2022 Annual Report on Form 10-K, filed with the SEC on February 22, 2023.

Analytical Definitions

Throughout MD&A, the terms “incremental” and “organic” are used to explain changes from period to period. 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

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as organic. 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.

Components of sales and operating income growth (decrease):

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, 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 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

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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 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, 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

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 markets.

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

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Components of sales and operating income growth (decrease):

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, new orders, and backlog within the Defense Electronics segment.

Components of sales and operating income growth (decrease):

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

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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, new orders, and backlog within the Naval & Power segment.

Components of sales and operating income growth (decrease):

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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The table below depicts sales by end market and customer type, as it helps provide an enhanced understanding of our businesses and the markets in which we operate. The table has been included to supplement the discussion of our consolidated operating results.

Net Sales by End Market and Customer Type

Aerospace & Defense Markets

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 $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

Sources and Uses of Cash

We derive the majority of our operating cash inflow from receipts on the sale of goods and services and cash outflow for the procurement of materials and labor; cash flow is therefore subject to market fluctuations and conditions. Most of our long-term contracts allow for several billing points (progress or milestone) that provide us with cash receipts as costs are incurred throughout the project rather than upon contract completion, thereby reducing working capital requirements.

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Item 7. 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 segments.

COMPANY ORGANIZATION

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 manage and evaluate our operations based on the products and services we offer and the different markets we serve. Based on this approach, we operate through three reportable segments: Aerospace & Industrial, Defense Electronics, and Naval & Power.

Impacts of inflation, pricing, and volume

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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. 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 costs through price increases on a timely basis. We expect these inflationary pressures to continue to persist in 2023.

Market Analysis and Economic Factors

Economic Factors Impacting Our 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 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.

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. In 2022, U.S. GDP is expected to grow approximately 2.0%, 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.

Defense

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. DoD budgets and funding levels. As such, the U.S. Defense budget serves as a leading indicator of our growth in the defense market.

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

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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 strong, particularly for our electronics stabilization systems. 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.

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. 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.

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 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.

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.

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. today. Based upon the global drive

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for clean energy usage, nuclear 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. 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.

One of the industry’s most significant challenges is maintaining electricity market competitiveness. 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. 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. 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. reactor fleet. 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 U.S. 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. 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. 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. 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. 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. 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

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

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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.

We have developed long-standing relationships with our customers, and provide technologies that promote efficiency, safety, reduced emissions, and longevity. 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 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. 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.

In the long term, the global drive towards electrification and electronification, push for zero or low-emissions vehicles, investments in green technology, advancements in robotics and automation, and new government regulations, will provide steady growth opportunities for Curtiss-Wright’s technologies serving this market.

RESULTS OF OPERATIONS

The following MD&A is intended to help the reader understand the results of operations and financial condition of the Corporation for the year ended December 31, 2022, as compared to the year ended December 31, 2021. Discussion and analysis of our financial condition and results of operations for the year ended December 31, 2021, as compared to the year ended December 31, 2020, is contained in our 2021 Annual Report on Form 10-K, filed with the SEC on February 24, 2022.

Analytical Definitions

Throughout MD&A, the terms “incremental” and “organic” are used to explain changes from period to period. 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.

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NM - Not meaningful

Components of sales and operating income growth (decrease):

Sales for the year increased $51 million, or 2%, to $2,557 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. Changes in sales by segment are discussed in further detail in the "Results by Business Segment" section below.

Operating income for the year increased $41 million, or 11%, to $423 million, and operating margin increased 130 basis points compared with 2021. 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

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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.

Other income, net for the year increased $1 million, or 6%, to $13 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. rate.

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.

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.

RESULTS BY BUSINESS 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 markets.

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

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Components of sales and operating income growth (decrease):

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.

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.

Components of sales and operating income growth (decrease):

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

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equipment. 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.

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.

Components of sales and operating income growth (decrease):

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.

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SUPPLEMENTARY INFORMATION

The table below depicts sales by end market and customer type, as it helps provide an enhanced understanding of our businesses and the markets in which we operate. The table has been included to supplement the discussion of our consolidated operating results.

Net Sales by End Market and Customer Type

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 demand 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.

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.

Liquidity and Capital Resources

Sources and Uses of Cash

We derive the majority of our operating cash inflow from receipts on the sale of goods and services and cash outflow for the procurement of materials and labor; cash flow is therefore subject to market fluctuations and conditions. Most of our long-term contracts allow for several billing points (progress or milestone) that provide us with cash receipts as costs are incurred throughout the project rather than upon contract completion, thereby reducing working capital requirements.

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Item 7. 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 segments.

COMPANY ORGANIZATION

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

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

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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

Throughout MD&A, the terms “incremental” and “organic” are used to explain changes from period to period. 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. 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” 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 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. 2020 U.S. 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.

Defense

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 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.

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, cyber, encryption, unmanned systems, and communications programs. As a supplier of COTS and

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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 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

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

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 well into 2021. 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. today.

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According to the Nuclear Regulatory Commission (NRC), nuclear power comprises approximately 20% of all electric power produced in the United States, with 93 reactors operating across 55 nuclear power plants in 28 states. Our growth opportunities for aftermarket products and services are driven by plant aging, plant closures, requirements for planned outages, plant life extensions (from the end of their original 40-year operating lives to 60-year and now 80-year lives), the levying of regulatory requirements, suppliers abandoning the commercial nuclear market, and plants seeking technology and innovation advances, such as digitalization, that further enable plant modernization.

One of the industry’s most significant challenges is electricity market competitiveness, primarily driven by sustained low natural gas prices. 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 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 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 primarily consists of electronic sensors and control systems, electro-mechanical actuation, 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, and automotive industries. 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 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

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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 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. 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.

RESULTS OF OPERATIONS

The following MD&A is intended to help the reader understand the results of operations and financial condition of the Corporation for the year ended December 31, 2021, as compared to the year ended December 31, 2020. Discussion and analysis of our financial condition and results of operations for the year ended December 31, 2020, as compared to the year ended December 31, 2019, is contained in our 2020 Annual Report on Form 10-K, filed with the SEC on February 25, 2021.

NM - Not meaningful

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Components of sales and operating income growth (decrease):

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 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 due to higher 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, 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.

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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

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.

Components of sales and operating income growth (decrease):

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.

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

Components of sales and operating income growth (decrease):

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.

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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.

Components of sales and operating income growth (decrease):

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

The table below depicts sales by end market and customer type, as it helps provide an enhanced understanding of our businesses and the markets in which we operate. The table has been included to supplement the discussion of our consolidated operating results.

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Net Sales by End Market and Customer Type

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

Sources and Uses of Cash

We derive the majority of our operating cash inflow from receipts on the sale of goods and services and cash outflow for the procurement of materials and labor; cash flow is therefore subject to market fluctuations and conditions. Most of our long-term contracts allow for several billing points (progress or milestone) that provide us with cash receipts as costs are incurred throughout the project rather than upon contract completion, thereby reducing working capital requirements.