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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2021

or

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _________ to _______

Commission File Number 1-134

CURTISS-WRIGHT CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware13-0612970
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

 130 Harbour Place Drive, Suite 300
Davidson,North Carolina28036
(Address of principal executive offices)(Zip Code)

(704) 869-4600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockCWNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period of time that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes                          No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes                          No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes     No  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, par value $1.00 per share: 40,938,233 shares as of April 30, 2021.



CURTISS-WRIGHT CORPORATION and SUBSIDIARIES

TABLE of CONTENTS


PART I – FINANCIAL INFORMATIONPAGE
Item 1.
Item 2.
Item 3.
Item 4.
PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



Page 3


PART 1- FINANCIAL INFORMATION
Item 1. Financial Statements

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
(In thousands, except per share data)20212020
Net sales
Product sales$508,975 $497,929 
Service sales88,084 103,302 
Total net sales597,059 601,231 
Cost of sales
Cost of product sales329,454 330,813 
Cost of service sales57,848 69,839 
Total cost of sales387,302 400,652 
Gross profit209,757 200,579 
Research and development expenses21,863 18,307 
Selling expenses29,596 31,588 
General and administrative expenses73,232 76,658 
Restructuring expenses 1,580 
Operating income85,066 72,446 
Interest expense9,959 7,489 
Other income, net4,843 5,532 
Earnings before income taxes79,950 70,489 
Provision for income taxes(20,481)(18,728)
Net earnings$59,469 $51,761 
Net earnings per share:
Basic earnings per share$1.45 $1.22 
Diluted earnings per share$1.45 $1.21 
Dividends per share0.17 0.17 
Weighted-average shares outstanding:
Basic40,933 42,456 
Diluted41,103 42,770 
See notes to condensed consolidated financial statements

Page 4


CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(In thousands)


Three Months Ended
March 31,
20212020
Net earnings$59,469 $51,761 
Other comprehensive income (loss)
Foreign currency translation adjustments, net of tax (1)
$(3,960)$(50,275)
Pension and postretirement adjustments, net of tax (2)
5,600 4,681 
Other comprehensive income (loss), net of tax1,640 (45,594)
Comprehensive income$61,109 $6,167 

(1) The tax benefit (expense) included in foreign currency translation adjustments for the three months ended March 31, 2021 and 2020 was immaterial.

(2) The tax expense included in pension and postretirement adjustments for the three months ended March 31, 2021 and 2020 was $1.7 million and $1.3 million, respectively.

 
See notes to condensed consolidated financial statements
Page 5


CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except per share data)

March 31, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$147,069 $198,248 
Receivables, net617,499 588,718 
Inventories, net446,632 428,879 
Assets held for sale27,055 27,584 
Other current assets48,484 57,395 
Total current assets1,286,739 1,300,824 
Property, plant, and equipment, net369,970 378,200 
Goodwill1,465,224 1,455,137 
Other intangible assets, net583,195 609,630 
Operating lease right-of-use assets, net143,969 150,898 
Prepaid pension asset99,087 92,531 
Other assets32,866 34,114 
Total assets$3,981,050 $4,021,334 
Liabilities  
Current liabilities:
Current portion of long-term debt$100,000 $100,000 
Accounts payable160,765 201,237 
Accrued expenses108,486 140,200 
Income taxes payable18,399 6,633 
Deferred revenue238,742 253,411 
Liabilities held for sale9,132 10,141 
Other current liabilities99,278 98,755 
Total current liabilities734,802 810,377 
Long-term debt957,907 958,292 
Deferred tax liabilities, net114,791 115,007 
Accrued pension and other postretirement benefit costs98,645 98,345 
Long-term operating lease liability126,454 133,069 
Long-term portion of environmental reserves15,305 15,422 
Other liabilities94,982 103,248 
Total liabilities2,142,886 2,233,760 
Contingencies and commitments (Note 14)
Stockholders’ equity
Common stock, $1 par value,100,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 49,187,378 shares issued as of March 31, 2021 and December 31, 2020; outstanding shares were 40,943,314 as of March 31, 2021 and 40,916,429 as of December 31, 2020
49,187 49,187 
Additional paid in capital119,172 122,535 
Retained earnings2,722,829 2,670,328 
Accumulated other comprehensive loss(309,216)(310,856)
Common treasury stock, at cost (8,244,064 shares as of March 31, 2021 and 8,270,949 shares as of December 31, 2020)
(743,808)(743,620)
Total stockholders’ equity1,838,164 1,787,574 
Total liabilities and stockholders’ equity$3,981,050 $4,021,334 
See notes to condensed consolidated financial statements

Page 6


CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
(In thousands)20212020
Cash flows from operating activities:
Net earnings$59,469 $51,761 
Adjustments to reconcile net earnings to net cash used for operating activities
Depreciation and amortization28,595 28,142 
Gain on sale/disposal of long-lived assets(349)(387)
Deferred income taxes3,629 2,809 
Share-based compensation3,327 3,340 
Inventory write-down 1,205 
Change in operating assets and liabilities, net of businesses acquired:
Receivables, net(27,593)(1,614)
Inventories, net(18,059)(24,099)
Progress payments(1,114)(1,906)
Accounts payable and accrued expenses(71,528)(98,179)
Deferred revenue(14,836)(23,298)
Income taxes payable16,247 22,783 
Pension and postretirement liabilities, net1,182 (149,468)
Other current and long-term assets and liabilities(5,573)(3,665)
Net cash used for operating activities(26,603)(192,576)
Cash flows from investing activities:
Proceeds from sale/disposal of long-lived assets1,022 2,006 
Additions to property, plant, and equipment(8,537)(18,637)
Acquisition of business, net of cash acquired (51,043)
Additional consideration paid on prior year acquisitions(5,340) 
Net cash used for investing activities(12,855)(67,674)
Cash flows from financing activities:
Borrowings under revolving credit facility65,301 188,724 
Payment of revolving credit facility(65,301)(42,297)
Repurchases of common stock(11,797)(112,013)
Proceeds from share-based compensation4,919 5,066 
Other(229)(212)
Net cash provided by (used for) financing activities(7,107)39,268 
Effect of exchange-rate changes on cash(4,614)(12,294)
Net decrease in cash and cash equivalents(51,179)(233,276)
Cash and cash equivalents at beginning of period198,248 391,033 
Cash and cash equivalents at end of period$147,069 $157,757 
See notes to condensed consolidated financial statements

Page 7



CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)



For the three months ended March 31, 2020
Common StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury Stock
December 31, 2019$49,187 $116,070 $2,497,111 $(325,274)$(562,722)
Net earnings— — 51,761 — — 
Other comprehensive loss, net of tax— — — (45,594)— 
Dividends declared— — (7,095)— — 
Restricted stock— (4,115)— — 4,115 
Employee stock purchase plan and stock options exercised— 350 — — 4,716 
Share-based compensation— 3,123 — — 217 
Repurchase of common stock (1)
— — — — (112,013)
Other— (517)— — 517 
March 31, 2020$49,187 $114,911 $2,541,777 $(370,868)$(665,170)

For the three months ended March 31, 2021
Common StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury Stock
December 31, 2020$49,187 $122,535 $2,670,328 $(310,856)$(743,620)
Net earnings— — 59,469 — — 
Other comprehensive income, net of tax— — — 1,640 — 
Dividends declared— — (6,968)— — 
Restricted stock— (6,407)— — 6,407 
Employee stock purchase plan and stock options exercised— 411 — — 4,508 
Share-based compensation— 3,230 — — 97 
Repurchase of common stock (1)
— — — — (11,797)
Other— (597)— — 597 
March 31, 2021$49,187 $119,172 $2,722,829 $(309,216)$(743,808)
(1) For the three months ended March 31, 2021 and 2020, the Corporation repurchased approximately 0.1 million and 1.1 million shares of its common stock, respectively.
See notes to condensed consolidated financial statements


Page 8

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



1.           BASIS OF PRESENTATION

Curtiss-Wright Corporation and its subsidiaries (the "Corporation" or the "Company") is a global, diversified manufacturing and service company that designs, manufactures, and overhauls precision components and provides highly engineered products and services to the aerospace, defense, power & process, and general industrial markets.

The unaudited condensed consolidated financial statements include the accounts of Curtiss-Wright and its majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated.

The unaudited condensed consolidated financial statements of the Corporation have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted as permitted by such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of these financial statements.

Management is required to make estimates and judgments that affect the reported amount of assets, liabilities, revenue, and expenses and disclosure of contingent assets and liabilities in the accompanying financial statements. Actual results may differ from these estimates. The most significant of these estimates includes the estimate of costs to complete using the over-time revenue recognition accounting method, pension plan and postretirement obligation assumptions, estimates for inventory obsolescence, fair value estimates around assets and assumed liabilities from acquisitions, estimates for the valuation and useful lives of intangible assets, legal reserves, and the estimate of future environmental costs. Changes in estimates of contract sales, costs, and profits are recognized using the cumulative catch-up method of accounting. This method recognizes in the current period the cumulative effect of the changes on current and prior periods. Accordingly, the effect of the changes on future periods of contract performance is recognized as if the revised estimate had been the original estimate. During the three months ended March 31, 2021 and 2020, there were no significant changes in estimated contract costs. In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in these financial statements.

The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Corporation’s 2020 Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of trends or of the operating results for a full year.

On January 1, 2021, the Corporation implemented an organizational change to simplify its reportable segments and align its product sales with its end market structure. As a result, the Corporation now operates under the following three reportable segments: Aerospace & Industrial, Defense Electronics, and Naval & Power. This change resulted in the transfer of the Corporation's valve-related operations into the new Naval & Power segment. While this organizational change resulted in the recasting of previously reported amounts across all reportable segments, it did not impact the Corporation’s previously reported consolidated financial statements.

2.           REVENUE

The Corporation recognizes revenue when control of a promised good and/or service is transferred to a customer in an amount that reflects the consideration that the Corporation expects to be entitled to in exchange for that good and/or service.

Performance Obligations

The Corporation identifies a performance obligation for each promise in a contract to transfer a distinct good or service to the customer. As part of its assessment, the Corporation considers all goods and/or services promised in the contract, regardless of whether they are explicitly stated or implied by customary business practices. The Corporation’s contracts may contain either a single performance obligation, including the promise to transfer individual goods or services that are not separately distinct within the context of the respective contracts, or multiple performance obligations. For contracts with multiple performance obligations, the Corporation allocates the overall transaction price to each performance obligation using standalone selling prices, where available, or utilizes estimates for each distinct good or service in the contract where standalone prices are not available.

The Corporation’s performance obligations are satisfied either at a point-in-time or on an over-time basis. Typically, over-time revenue recognition is based on the utilization of an input measure used to measure progress, such as costs incurred to date relative to total estimated costs. If a performance obligation does not qualify for over-time revenue recognition, revenue is then
Page 9

CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


recognized at the point-in-time in which control of the distinct good or service is transferred to the customer, typically based upon the terms of delivery.

The following table illustrates the approximate percentage of revenue recognized for performance obligations satisfied over-time versus at a point-in-time for the three months ended March 31, 2021 and 2020:

Three Months Ended
March 31,
20212020
Over-time52 %52 %
Point-in-time48 %48 %

Contract backlog represents the remaining performance obligations that have not yet been recognized as revenue. Backlog includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Total backlog was approximately $2.1 billion as of March 31, 2021, of which the Corporation expects to recognize approximately 88% as net sales over the next 36 months. The remainder will be recognized thereafter.

Disaggregation of Revenue

The following table presents the Corporation’s total net sales disaggregated by end market and customer type:

Total Net Sales by End Market and Customer TypeThree Months Ended
March 31,
(In thousands)20212020
Aerospace & Defense
Aerospace Defense$111,016 $101,827 
Ground Defense55,746 22,657 
Naval Defense177,905 165,693 
Commercial Aerospace57,269 100,680 
Total Aerospace & Defense$401,936 $390,857 
Commercial
Power & Process105,504 123,926 
General Industrial89,619 86,448 
Total Commercial$195,123 $210,374 
Total$597,059 $601,231 

Contract Balances

Timing of revenue recognition and cash collection may result in billed receivables, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the Condensed Consolidated Balance Sheet. The Corporation’s contract assets primarily relate to its rights to consideration for work completed but not billed as of the reporting date. Contract assets are transferred to billed receivables when the rights to consideration become unconditional. This is typical in situations where amounts are billed as work progresses in accordance with agreed-upon contractual terms or upon achievement of contractual milestones. The Corporation’s contract liabilities primarily consist of customer advances received prior to revenue being earned. Revenue recognized during the three months ended March 31, 2021 and 2020 included in contract liabilities at the beginning of the respective years was approximately $77 million and $89 million, respectively. Contract assets and contract liabilities are reported in the "Receivables, net" and "Deferred revenue" lines, respectively, within the Condensed Consolidated Balance Sheet.

3.           ACQUISITIONS
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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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The Corporation continually evaluates potential acquisitions that either strategically fit within the Corporation’s existing portfolio or expand the Corporation’s portfolio into new product lines or adjacent markets.  The Corporation has completed numerous acquisitions that have been accounted for as business combinations and have resulted in the recognition of goodwill in the Corporation's financial statements.  This goodwill arises because the acquisition purchase price reflects the future earnings and cash flow potential in excess of the earnings and cash flows attributable to the current product and customer set at the time of acquisition.  Thus, goodwill inherently includes the know-how of the assembled workforce, the ability of the workforce to further improve the technology and product offerings, and the expected cash flows resulting from these efforts. Goodwill may also include expected synergies resulting from the complementary strategic fit these businesses bring to existing operations.

The Corporation allocates the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. In the months after closing, as the Corporation obtains additional information about these assets and liabilities, including through tangible and intangible asset appraisals, and as the Corporation learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment.  The Corporation will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

During the three months ended March 31, 2021, the Corporation paid $5 million in regard to prior period acquisitions, which included a working capital adjustment on the acquisition of Pacific Star Communications, Inc. (PacStar), as well as a portion of the purchase price on the acquisition of Dyna-Flo Control Valve Services Ltd. (Dyna-Flo), which was initially held back in accordance with the terms of the Purchase Agreement.

During the three months ended March 31, 2020, the Corporation acquired one business for an aggregate purchase price of $60 million, which is described in more detail below.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the acquisition consummated during the three months ended March 31, 2020.

(In thousands)2020
Accounts receivable$2,696 
Inventory10,233 
Property, plant, and equipment1,316 
Other current and non-current assets185 
Intangible assets24,734 
Operating lease right-of-use assets, net1,992 
Current and non-current liabilities(9,387)
Net tangible and intangible assets31,769 
Goodwill28,442 
Total purchase price$60,211 
Goodwill deductible for tax purposes23,800 

2020 Acquisition

Dyna-Flo

On February 28, 2020, the Corporation acquired 100% of the issued and outstanding share capital of Dyna-Flo for $60 million, net of cash acquired. The Purchase Agreement contains representations and warranties customary for a transaction of this type, including a portion of the purchase price held back as security for potential indemnification claims against the seller. Dyna-Flo specializes in control valves, actuators, and control systems for the chemical, petrochemical, and oil and gas markets. The acquired business operates within the Naval & Power segment.

4. ASSETS HELD FOR SALE
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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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During the fourth quarter of 2020, the Corporation committed to a plan to sell its industrial valve business in Germany, which is reported within its Naval & Power segment. The business met the criteria to be classified as held for sale in the fourth quarter of 2020. Accordingly, the assets and liabilities of the business are presented as held for sale in the Corporation's Condensed Consolidated Balance Sheet. The aforementioned assets and liabilities classified as held for sale have been measured at the lower of carrying value or fair value less costs to sell, which resulted in an impairment loss of $33 million in the fourth quarter of 2020. No impairment loss was recorded on the assets or liabilities held for sale during the three months ended March 31, 2021.
The aggregate components of assets and liabilities classified as held for sale are as follows:
(In thousands)March 31, 2021December 31, 2020
Assets held for sale:
Receivables, net$8,871 $9,902 
Inventories, net16,807 16,401 
Other current assets1,829 1,798 
Property, plant, and equipment, net4,673 4,821 
Reserve for assets held for sale(5,125)(5,338)
Total assets held for sale, current$27,055 $27,584 
Liabilities held for sale:
Accounts payable$(2,219)$(2,654)
Accrued expenses(1,309)(1,375)
Other current liabilities(173)(748)
Accrued pension and other postretirement benefit costs(5,431)(5,364)
Total liabilities held for sale, current$(9,132)$(10,141)

5.           RECEIVABLES

Receivables primarily include amounts billed to customers, unbilled charges on long-term contracts consisting of amounts recognized as sales but not billed, and other receivables. Substantially all amounts of unbilled receivables are expected to be billed and collected within one year. An immaterial amount of unbilled receivables are subject to retainage provisions. The amount of claims and unapproved change orders within our receivables balances are immaterial.

The composition of receivables is as follows:

(In thousands)March 31, 2021December 31, 2020
Billed receivables:
Trade and other receivables$365,874 $361,460 
Unbilled receivables (contract assets):
Recoverable costs and estimated earnings not billed261,495 238,309 
Less: Progress payments applied
(2,294)(3,291)
Net unbilled receivables259,201 235,018 
Less: Allowance for doubtful accounts
(7,576)(7,760)
Receivables, net$617,499 $588,718 

6.           INVENTORIES

Inventoried costs contain amounts relating to long-term contracts and programs with long production cycles, a portion of which will not be realized within one year. Long-term contract inventory includes an immaterial amount of claims or other similar items subject to uncertainty concerning their determination or realization. Inventories are valued at the lower of cost or net realizable value.

The composition of inventories is as follows:
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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



(In thousands)March 31, 2021December 31, 2020
Raw materials$190,874 $177,828 
Work-in-process86,760 80,729 
Finished goods120,594 120,767 
Inventoried costs related to U.S. Government and other long-term contracts (1)
55,195 56,599 
Inventories, net of reserves453,423 435,923 
Less:  Progress payments applied(6,791)(7,044)
Inventories, net$446,632 $428,879 

(1) As of March 31, 2021 and December 31, 2020, this caption also includes capitalized development costs of $28.5 million and $29.7 million, respectively, related to certain aerospace and defense programs. These capitalized costs will be liquidated as units are produced under contract. As of March 31, 2021 and December 31, 2020, capitalized development costs of $12.6 million and $13.0 million, respectively, are not currently supported by existing firm orders.

7.           GOODWILL

In connection with the change in reportable segments, the Corporation recast its previously reported goodwill balances as of December 31, 2020 on a relative fair value basis. As a result, the Corporation performed an interim quantitative impairment assessment of each of its reporting units, and concluded that no impairment existed as of March 31, 2021. Refer to Note 12 to the Condensed Consolidated Financial Statements for additional information on the Corporation’s reportable segments.

The changes in the carrying amount of goodwill for the three months ended March 31, 2021 are as follows:

(In thousands)Aerospace & IndustrialDefense ElectronicsNaval & PowerConsolidated
December 31, 2020
$316,921 $703,915 $434,301 $1,455,137 
Adjustments (1)
— 11,228 — 11,228 
Foreign currency translation adjustment432 (1,320)(253)(1,141)
March 31, 2021$317,353 $713,823 $434,048 $1,465,224 
(1) Amount relates to post-closing adjustments on the Corporation's acquisition of PacStar in October 2020. 

8.           OTHER INTANGIBLE ASSETS, NET
 
The following tables present the cumulative composition of the Corporation’s intangible assets:
March 31, 2021December 31, 2020
(In thousands)GrossAccumulated AmortizationNetGrossAccumulated AmortizationNet
Technology$275,291 $(152,570)$122,721 $280,595 $(148,064)$132,531 
Customer related intangibles569,959 (247,900)322,059 573,722 (239,798)333,924 
Programs (1)
144,000 (21,600)122,400 144,000 (19,800)124,200 
Other intangible assets49,664 (33,649)16,015 51,493 (32,518)18,975 
Total$1,038,914 $(455,719)$583,195 $1,049,810 $(440,180)$609,630 
(1) Programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology, and trademarks underlying the associated program. 

Total intangible amortization expense for the three months ended March 31, 2021 was $14.9 million as compared to $14.1 million in the comparable prior year period.  The estimated amortization expense for the five years ending December 31, 2021 through 2025 is $59.5 million, $55.3 million, $51.5 million, $48.1 million, and $45.5 million, respectively.

9.           FAIR VALUE OF FINANCIAL INSTRUMENTS
 
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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Forward Foreign Exchange and Currency Option Contracts

The Corporation has foreign currency exposure primarily in the United Kingdom, Europe, and Canada. The Corporation uses financial instruments, such as forward and option contracts, to hedge a portion of existing and anticipated foreign currency denominated transactions. The purpose of the Corporation’s foreign currency risk management program is to reduce volatility in earnings caused by exchange rate fluctuations. Guidance on accounting for derivative instruments and hedging activities requires companies to recognize all of the derivative financial instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets based upon quoted market prices for comparable instruments.
 
Interest Rate Risks and Related Strategies
 
The Corporation’s primary interest rate exposure results from changes in U.S. dollar interest rates. The Corporation’s policy is to manage interest cost using a mix of fixed and variable rate debt.

Effects on Condensed Consolidated Balance Sheets

As of March 31, 2021 and December 31, 2020, the fair values of the asset and liability derivative instruments were immaterial.

Effects on Condensed Consolidated Statements of Earnings

Undesignated hedges

The gains and losses on forward exchange derivative contracts not designated for hedge accounting are recognized to general and administrative expenses within the Condensed Consolidated Statements of Earnings. The gain for the three months ended March 31, 2021 was immaterial. The loss for the three months ended March 31, 2020 was $8.1 million.

Debt

The estimated fair value amounts were determined by the Corporation using available market information that is primarily based on quoted market prices for the same or similar issuances as of March 31, 2021.  Accordingly, all of the Corporation’s debt is valued as a Level 2 financial instrument.  The fair values described below may not be indicative of net realizable value or reflective of future fair values.  Furthermore, the use of different methodologies to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

March 31, 2021December 31, 2020
(In thousands)Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
3.84% Senior notes due 2021
$100,000 $101,796 $100,000 $102,173 
3.70% Senior notes due 2023
202,500 211,611 202,500 211,790 
3.85% Senior notes due 2025
90,000 96,673 90,000 97,429 
4.24% Senior notes due 2026
200,000 219,392 200,000 224,390 
4.05% Senior notes due 2028
67,500 72,994 67,500 75,440 
4.11% Senior notes due 2028
90,000 97,438 90,000 101,047 
3.10% Senior notes due 2030
150,000 148,971 150,000 155,805 
3.20% Senior notes due 2032
150,000 146,813 150,000 155,048 
Total debt1,050,000 1,095,688 1,050,000 1,123,122 
Debt issuance costs, net(1,084)(1,084)(1,147)(1,147)
Unamortized interest rate swap proceeds8,991 8,991 9,439 9,439 
Total debt, net$1,057,907 $1,103,595 $1,058,292 $1,131,414 

10.           PENSION PLANS

Defined Benefit Pension Plans

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following table is a consolidated disclosure of all domestic and foreign defined pension plans as described in the Corporation’s 2020 Annual Report on Form 10-K.  

The components of net periodic pension cost for the three months ended March 31, 2021 and 2020 were as follows:

Three Months Ended
March 31,
(In thousands)20212020
Service cost$6,870 $6,611 
Interest cost4,306 6,058 
Expected return on plan assets(15,180)(16,896)
Amortization of prior service cost(63)(71)
Amortization of unrecognized actuarial loss7,143 5,749 
Net periodic pension cost$3,076 $1,451 

The Corporation does not expect to make any contributions to the Curtiss-Wright Pension Plan in 2021. Contributions to the foreign benefit plans are not expected to be material in 2021. During the three months ended March 31, 2020, the Corporation made a $150 million voluntary contribution to the Curtiss-Wright Pension Plan.

Defined Contribution Retirement Plan

The Company also maintains a defined contribution plan for all non-union employees who are not currently receiving final or career average pay benefits for its U.S. subsidiaries. The employer contributions include both employer match and non-elective contribution components up to a maximum employer contribution of 7% of eligible compensation. During the three months ended March 31, 2021 and 2020, the expense relating to the plan was $5.3 million and $6.0 million, respectively. The Corporation made $11.8 million in contributions to the plan during the three months ended March 31, 2021 and expects to make total contributions of $19.0 million in 2021.

11.           EARNINGS PER SHARE
 
Diluted earnings per share was computed based on the weighted-average number of shares outstanding plus all potentially dilutive common shares.  A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
 
Three Months Ended
March 31,
(In thousands)20212020
Basic weighted-average shares outstanding40,933 42,456 
Dilutive effect of stock options and deferred stock compensation170 314 
Diluted weighted-average shares outstanding41,103 42,770 

For the three months ended March 31, 2021, approximately 88,000 shares issuable under equity-based awards were excluded from the calculation of diluted earnings per share as they were anti-dilutive based on the average stock price during the period. There were no anti-dilutive equity-based awards for three months ended March 31, 2020.

12.           SEGMENT INFORMATION
 
Prior to the first quarter of 2021, the Corporation reported its results of operations through three reportable segments: Commercial/Industrial, Defense, and Power. On January 1, 2021, the Corporation implemented an organizational change to simplify its reportable segments and align its product sales with its end market structure. As a result, the Corporation now reports its results of operations through the following reportable segments: Aerospace & Industrial, Defense Electronics, and Naval & Power. While this organizational change resulted in the recasting of previously reported amounts across all reportable segments, it did not impact the Corporation’s previously reported consolidated financial statements.

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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The Corporation’s measure of segment profit or loss is operating income. Interest expense and income taxes are not reported on an operating segment basis as they are not considered in the segments’ performance evaluation by the Corporation’s chief operating decision-maker, its Chief Executive Officer.
Net sales and operating income by reportable segment were as follows:
Three Months Ended
March 31,
(In thousands)20212020
Net sales
Aerospace & Industrial$181,138 $227,021 
Defense Electronics182,298 140,311 
Naval & Power235,580 235,014 
Less: Intersegment revenues(1,957)(1,115)
Total consolidated$597,059 $601,231 
Operating income (expense)
Aerospace & Industrial$19,025 $32,140 
Defense Electronics36,623 24,063 
Naval & Power38,057 28,110 
Corporate and other (1)
(8,639)(11,867)
Total consolidated$85,066 $72,446 

(1) Includes pension and other postretirement benefit expense, certain environmental costs related to remediation at legacy sites, foreign currency transactional gains and losses, and certain other expenses.
Adjustments to reconcile operating income to earnings before income taxes are as follows:

Three Months Ended
March 31,
(In thousands)20212020
Total operating income$85,066 $72,446 
Interest expense9,959 7,489 
Other income, net4,843 5,532 
Earnings before income taxes$79,950 $70,489 

(In thousands)March 31, 2021December 31, 2020
Identifiable assets
Aerospace & Industrial$1,017,236 $1,020,294 
Defense Electronics1,544,100 1,542,686 
Naval & Power1,256,745 1,255,325 
Corporate and Other135,914 175,445 
Assets held for sale27,055 27,584 
Total consolidated$3,981,050 $4,021,334 

13.           ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
The cumulative balance of each component of accumulated other comprehensive income (AOCI), net of tax, is as follows:
 
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(In thousands)Foreign currency translation adjustments, netTotal pension and postretirement adjustments, netAccumulated other comprehensive income (loss)
December 31, 2019$(130,019)$(195,255)$(325,274)
Other comprehensive income (loss) before reclassifications (1)
41,282 (44,513)(3,231)
Amounts reclassified from accumulated other comprehensive loss (1)
 17,649 17,649 
Net current period other comprehensive income (loss)41,282 (26,864)14,418 
December 31, 2020$(88,737)$(222,119)$(310,856)
Other comprehensive income (loss) before reclassifications (1)
(3,960)350 (3,610)
Amounts reclassified from accumulated other comprehensive income (loss) (1)
 5,250 5,250 
Net current period other comprehensive income (loss)(3,960)5,600 1,640 
March 31, 2021$(92,697)$(216,519)$(309,216)

(1) All amounts are after tax.

Details of amounts reclassified from accumulated other comprehensive income (loss) are below:
 
(In thousands)Amount reclassified from AOCIAffected line item in the statement where net earnings is presented
Defined benefit pension and other postretirement benefit plans
Amortization of prior service costs$216 Other income, net
Amortization of actuarial losses(7,143)Other income, net
(6,927)Earnings before income taxes
1,677 Provision for income taxes
Total reclassifications$(5,250)Net earnings


14.           CONTINGENCIES AND COMMITMENTS

In the ordinary course of business, the Corporation and its subsidiaries are subject to various pending claims, lawsuits, and contingent liabilities. The Corporation does not believe that the disposition of any of these matters, individually or in the aggregate, will have a material adverse effect on its consolidated financial condition, results of operations, and cash flows.

Legal Proceedings

The Corporation has been named in a number of lawsuits that allege injury from exposure to asbestos.  To date, the Corporation has not been found liable for or paid any material sum of money in settlement in any asbestos-related case.  The Corporation believes its minimal use of asbestos in its past operations as well as its acquired businesses’ operations and the relatively non-friable condition of asbestos in its historical products makes it unlikely that it will face material liability in any asbestos litigation, whether individually or in the aggregate.  The Corporation maintains insurance coverage and indemnification agreements for these potential liabilities and believes adequate coverage exists to cover any unanticipated asbestos liability.

Letters of Credit and Other Financial Arrangements

The Corporation enters into standby letters of credit agreements and guarantees with financial institutions and customers primarily relating to guarantees of repayment, future performance on certain contracts to provide products and services, and to secure advance payments from certain international customers. As of March 31, 2021 and December 31, 2020, there were $19.7 million and $21.1 million of stand-by letters of credit outstanding, respectively. As of both March 31, 2021 and December 31, 2020, there were $5.6 million of bank guarantees outstanding. In addition, the Corporation is required to provide the Nuclear
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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Regulatory Commission financial assurance demonstrating its ability to cover the cost of decommissioning its Cheswick, Pennsylvania facility upon closure, though the Corporation does not intend to close this facility.  The Corporation has provided this financial assurance in the form of a $45.6 million surety bond.

AP1000 Program

Within the Corporation’s Naval & Power segment, Electro-Mechanical Division (EMD) is the RCP supplier for the Westinghouse Electric Company (WEC) AP1000 nuclear power plants in China and the United States. The terms of the AP1000 China and U.S. contracts include liquidated damage provisions for failure to meet contractual delivery dates if the Corporation caused the delay and the delay was not excusable. The Corporation would be liable for liquidated damages if the Corporation was deemed responsible for not meeting the delivery dates. The Corporation did not meet certain contractual delivery dates under its AP1000 U.S. and China contracts; however, there are significant counterclaims and uncertainties as to which parties are responsible for the delay. In January 2021, the Corporation and WEC agreed to participate in formal non-binding mediation to settle all open disputes under both contracts. The mediation is tentatively scheduled to start late in the second quarter of 2021. As of March 31, 2021, the range of possible loss for liquidated damages on these two contracts is $0 to $55.5 million, consisting of $0 to $25 million on the China contract and $0 to $31 million on the U.S. contract. The Corporation believes that the ultimate resolution of these two matters will not have a material impact on its consolidated financial statements.

15. RESTRUCTURING COSTS

During the year ended December 31, 2020, the Corporation executed restructuring activities across all of its segments to support its ongoing effort of improving capacity utilization and operating efficiency. These restructuring activities, which included workforce reductions and consolidation of facilities, were substantially completed as of December 31, 2020. As of March 31, 2021 and December 31, 2020, the restructuring liability associated with these restructuring activities was $4.1 million and $6.9 million, respectively, with such liability expected to be substantially settled as of December 31, 2021. These balances are reported within Other Current Liabilities on the Condensed Consolidated Balance Sheet.

******

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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I- ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS


FORWARD-LOOKING STATEMENTS
 
Except for historical information, this Quarterly Report on Form 10-Q may be deemed to contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Examples of forward-looking statements include, but are not limited to: (a) projections of or statements regarding return on investment, future earnings, interest income, sales, volume, other income, earnings or loss per share, growth prospects, capital structure, and other financial terms, (b) statements of plans and objectives of management, (c) statements of future economic performance and potential impacts from COVID-19, including the impacts to supply and demand, and measures taken by governments and private industry in response, and (d) statements of assumptions, such as economic conditions underlying other statements. Such forward-looking statements can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “continue,” “could,” “estimate,” “expects,” “intend,” “may,” “might,” “outlook,” “potential,” “predict,” “should,” “will,” as well as the negative of any of the foregoing or variations of such terms or comparable terminology, or by discussion of strategy.  No assurance may be given that the future results described by the forward-looking statements will be achieved.  While we believe these forward-looking statements are reasonable, they are only predictions and are subject to known and unknown risks, uncertainties, and other factors, many of which are beyond our control, which could cause actual results, performance, or achievement to differ materially from anticipated future results, performance, or achievement expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, those described in “Item 1A. Risk Factors” of our 2020 Annual Report on Form 10-K, and elsewhere in that report, those described in this Quarterly Report on Form 10-Q, and those described from time to time in our future reports filed with the Securities and Exchange Commission.  Such forward-looking statements in this Quarterly Report on Form 10-Q include, without limitation, those contained in Item 1. Financial Statements and Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.  These forward-looking statements speak only as of the date they were made, and we assume no obligation to update forward-looking statements to reflect actual results or changes in or additions to the factors affecting such forward-looking statements.


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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

COMPANY ORGANIZATION
 
Curtiss-Wright Corporation is a diversified, multinational provider of highly engineered, technologically advanced, value-added products and services to a broad range of industries which are reported through our Aerospace & Industrial, Defense Electronics, and Naval & Power segments. We are positioned as a market leader across a diversified array of niche markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers. We provide products and services to a number of global markets and have achieved balanced growth through the successful application of our core competencies in engineering and precision manufacturing. Our overall strategy is to be a balanced and diversified company, less vulnerable to cycles or downturns in any one market, and to establish strong positions in profitable niche markets. Approximately 55% of our 2021 revenues are expected to be generated from defense-related markets.

COVID-19

In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic. Over the last twelve months, the pandemic has adversely affected certain elements of our business, including our supply chain and production levels, due to significant decreases in air traffic, temporary shutdowns of our customers’ and suppliers’ facilities, as well as decreased demand from our general industrial customers. We have experienced, and expect to continue to experience, unpredictable volatility in demand in our commercial aerospace and general industrial end markets. The extent to which COVID-19 continues to adversely impact our operations depends on future developments, including the impact of the global rollout of COVID-19 vaccines, as well as the emergence and impact of any new COVID-19 variants. However, given the diversified breadth of our company, we believe that we are well-positioned to mitigate any material risks arising as a result of COVID-19. From an operational perspective, our current cash balance, coupled with expected cash flows from operating activities for the remainder of the year as well as our current borrowing capacity under the Revolving Credit Agreement, are expected to be more than sufficient to meet operating cash requirements, planned capital expenditures, interest payments on long-term debt obligations, payments on lease obligations, pension and postretirement funding requirements, and dividend payments through the current year and beyond.

RESULTS OF OPERATIONS
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the results of operations and financial condition of the Corporation for the three months ended March 31, 2021. The financial information as of March 31, 2021 should be read in conjunction with the financial statements for the year ended December 31, 2020 contained in our Form 10-K.

The MD&A is organized into the following sections: Condensed Consolidated Statements of Earnings, Results by Business Segment, and Liquidity and Capital Resources. Our discussion will be focused on the overall results of operations followed by a more detailed discussion of those results within each of our reportable segments.

Our three reportable segments are generally concentrated in a few end markets; however, each may have sales across several end markets.  An end market is defined as an area of demand for products and services.  The sales for the relevant markets will be discussed throughout the MD&A.

On January 1, 2021, the Corporation implemented an organizational change to simplify its reportable segments and align its product sales with its end market structure. As a result, the Corporation operates under the following three reportable segments: Aerospace & Industrial, Defense Electronics, and Naval & Power. This change resulted in the transfer of the Corporation's valve-related operations into the Naval & Power segment. While this organizational change resulted in the recasting of previously reported amounts across all reportable segments, it did not impact the Corporation’s previously reported consolidated financial statements.

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 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
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I - ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

comparable prior year period for purposes of calculating “organic” and “incremental” results. The definition of “organic” excludes the effect of foreign currency translation.

Condensed Consolidated Statements of Earnings
 Three Months Ended
March 31,
(In thousands)20212020% change
Sales   
Aerospace & Industrial$180,331 $226,728 (20 %)
Defense Electronics181,212 139,581 30 %
Naval & Power235,516 234,922 — %
Total sales$597,059 $601,231 (1 %)
Operating income   
Aerospace & Industrial$19,025 $32,140 (41 %)
Defense Electronics36,623 24,063 52 %
Naval & Power38,057 28,110 35 %
Corporate and other(8,639)(11,867)27 %
Total operating income$85,066 $72,446 17 %
Interest expense9,959 7,489 (33)%
Other income, net4,843 5,532 (12)%
Earnings before income taxes79,950 70,489 13 %
Provision for income taxes(20,481)(18,728)(9 %)
Net earnings$59,469 $51,761 15 %
New orders$579,447 $569,801 %

Components of sales and operating income increase (decrease):
Three Months Ended
March 31,
2021 vs. 2020
SalesOperating Income
Organic(8 %)15 %
Acquisitions%%
Foreign currency%(3 %)
Total(1 %)17 %

Sales during the three months ended March 31, 2021 decreased $4 million, or 1%, to $597 million, compared with the prior year period. On a segment basis, a sales increase of $42 million from the Defense Electronics segment was more than offset by lower sales of $46 million from the Aerospace & Industrial segment. Sales from the Naval & Power segment were essentially flat against the prior year period. Changes in sales by segment are discussed in further detail in the results by business segment section below.

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Operating income during the three months ended March 31, 2021 increased $13 million, or 17%, to $85 million, compared with the prior year period, while operating margin increased 220 basis points to 14.2%, compared with the same period in 2020. In the Defense Electronics segment, operating income and operating margin benefited from favorable overhead absorption on higher sales, a favorable shift in mix within our defense electronics products, and the benefits of our cost containment initiatives, partially offset by higher research and development costs. Operating income and operating margin in the Naval & Power segment increased primarily due to a favorable shift in mix within our naval defense products, current year savings recognized as a result of our prior year restructuring actions, as well as the absence of prior period transition costs associated with our Dresser-Rand Government Business (DRG) facility. These increases were partially offset by lower operating income and operating margin in the Aerospace & Industrial segment primarily due to unfavorable overhead absorption on lower sales in the commercial aerospace market, partially offset by current year savings recognized as a result of our prior year restructuring actions.

Non-segment operating expense during the three months ended March 31, 2021 decreased $3 million, or 27%, to $9 million, primarily due to lower foreign currency losses.

Interest expense during the three months ended March 31, 2021 increased $2 million, or 33%, to $10 million, primarily due to the issuance of $300 million Senior Notes in August 2020.

Other income, net of $5 million was essentially flat compared to the prior year period.

The effective tax rate for the three months ended March 31, 2021 of 25.6% decreased as compared to an effective tax rate of 26.6% in the prior year period, primarily due to additional tax expense associated with the establishment of a valuation allowance against certain foreign deferred tax assets in the prior year period.

Comprehensive income for the three months ended March 31, 2021 was $61 million, compared to comprehensive income of $6 million in the prior year period. The change was primarily due to the following:

Net earnings increased $8 million, primarily due to higher operating income.
Foreign currency translation adjustments for the three months ended March 31, 2021 resulted in a $4 million comprehensive loss, compared to a $50 million comprehensive loss in the prior period. The comprehensive loss during the current period was primarily attributed to decreases in the Euro.

New orders increased $10 million during the three months ended March 31, 2021 from the comparable prior year period, primarily due to the incremental impact of our PacStar acquisition in the Defense Electronics segment. This increase was partially offset by the timing of naval defense orders in the Naval & Power segment and a decline in new orders for sensors and controls equipment as well as surface treatment services in the Aerospace & Industrial segment.

RESULTS BY BUSINESS SEGMENT

Aerospace & Industrial

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

Three Months Ended
March 31,
(In thousands)20212020% change
Sales$180,331 $226,728 (20 %)
Operating income19,025 32,140 (41 %)
Operating margin10.6 %14.2 %(360  bps)
New orders$199,115 $204,339 (3 %)
Components of sales and operating income increase (decrease):
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Three Months Ended
March 31,
2021 vs. 2020
SalesOperating Income
Organic(22 %)(41 %)
Acquisitions— %— %
Foreign currency%— %
Total(20 %)(41 %)

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.

Sales during the three months ended March 31, 2021 decreased $46 million, or 20%, to $180 million from the prior year period, primarily due to the ongoing impact of the COVID-19 pandemic on the commercial aerospace market. Sales in the commercial aerospace market decreased $44 million primarily due to lower sales of actuation and sensors equipment and surface treatment services, as well as the exit of our build-to-print actuation product line during the prior year.

Operating income decreased $13 million, or 41%, to $19 million during the three months ended March 31, 2021 compared to the prior year period, while operating margin decreased 360 basis points to 10.6%. The decreases in operating income and operating margin were primarily due to unfavorable overhead absorption on lower sales in the commercial aerospace market, partially offset by current year savings recognized as a result of our prior year restructuring actions.

New orders during the three months ended March 31, 2021 decreased $5 million from the comparable prior year period. This decrease was primarily due to a decline in new orders for sensors and controls equipment as well as surface treatment services, partially offset by higher demand for industrial vehicle products.

Defense Electronics

The following tables summarize sales, operating income and margin, and new orders within the Defense Electronics segment.
Three Months Ended
March 31,
(In thousands)20212020% change
Sales$181,212 $139,581 30 %
Operating income36,623 24,063 52 %
Operating margin20.2 %17.2 %300  bps
New orders$182,300 $147,901 23 %

Components of sales and operating income increase (decrease):
Three Months Ended
March 31,
2021 vs. 2020
SalesOperating Income
Organic%43 %
Acquisitions25 %16 %
Foreign currency%(7 %)
Total30 %52 %

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MANAGEMENT’S DISCUSSION and ANALYSIS of
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Sales in the Defense Electronics segment are primarily to the defense markets and, to a lesser extent, the commercial aerospace market.

Sales during the three months ended March 31, 2021 increased $42 million, or 30%, to $181 million from the prior year period.
Sales in the ground defense market increased $33 million primarily due to the incremental impact of our PacStar acquisition. In the aerospace defense market, sales increased $10 million primarily due to higher demand for embedded computing equipment on various helicopter and Unmanned Aerial Vehicle (UAV) platforms, including the Blackhawk and Global Hawk.

Operating income during the three months ended March 31, 2021 increased $13 million, or 52%, to $37 million, and operating margin increased 300 basis points from the prior year period to 20.2%. The increases in operating income and operating margin were primarily due to favorable overhead absorption on higher sales, a favorable shift in mix within our defense electronics products, and the benefits of our cost containment initiatives, partially offset by higher research and development costs.

New orders during the three months ended March 31, 2021 increased $34 million from the comparable prior year period, primarily due to the incremental impact of our PacStar acquisition.

Naval & Power

The following tables summarize sales, operating income and margin, and new orders within the Naval & Power segment.
Three Months Ended
March 31,
(In thousands)20212020% change
Sales$235,516 $234,922 — %
Operating income38,057 28,110 35 %
Operating margin16.2 %12.0 %420  bps
New orders$198,032 $217,561 (9 %)

Components of sales and operating income increase (decrease):
Three Months Ended
March 31,
2021 vs. 2020
SalesOperating Income
Organic(1 %)38 %
Acquisitions%(1 %)
Foreign currency— %(2 %)
Total— %35 %

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

Sales during the three months ended March 31, 2021 of $236 million were essentially flat against the comparable prior year period. In the naval defense market, sales increased $18 million primarily due to higher production on the Virginia-class submarine and CVN-81 aircraft carrier programs, as well as higher foreign military sales. This increase was essentially offset by lower sales of $17 million in the power & process market, primarily due to lower domestic aftermarket sales and lower demand for industrial valve products.

Operating income during the three months ended March 31, 2021 increased $10 million, or 35%, to $38 million, and operating margin increased 420 basis points from the prior year period to 16.2%. The increases in operating income and operating margin were primarily due to current year savings recognized as a result of our prior year restructuring actions, a favorable shift in mix within our naval defense products, and the absence of prior period transition costs associated with our DRG facility.
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New orders decreased $20 million during the three months ended March 31, 2021 from the comparable prior year period, primarily due to 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.

Net Sales by End Market and Customer TypeThree Months Ended
March 31,
(In thousands)20212020% change
Aerospace & Defense markets:
Aerospace Defense$111,016 $101,827 %
Ground Defense55,746 22,657 146 %
Naval Defense177,905 165,693 %
Commercial Aerospace57,269 100,680 (43 %)
Total Aerospace & Defense$401,936 $390,857 %
Commercial markets: