10-Q 1 cw-20220331.htm 10-Q cw-20220331
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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, 2022

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: 38,445,431 shares as of April 30, 2022.



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)20222021
Net sales
Product sales$453,421 $508,975 
Service sales106,040 88,084 
Total net sales559,461 597,059 
Cost of sales
Cost of product sales294,527 329,454 
Cost of service sales63,532 57,848 
Total cost of sales358,059 387,302 
Gross profit201,402 209,757 
Research and development expenses20,549 21,863 
Selling expenses28,092 29,596 
General and administrative expenses87,600 73,232 
Loss on divestiture4,651  
Operating income60,510 85,066 
Interest expense9,530 9,959 
Other income, net2,997 4,843 
Earnings before income taxes53,977 79,950 
Provision for income taxes(13,292)(20,481)
Net earnings$40,685 $59,469 
Net earnings per share:
Basic earnings per share$1.06 $1.45 
Diluted earnings per share$1.05 $1.45 
Dividends per share0.18 0.17 
Weighted-average shares outstanding:
Basic38,456 40,933 
Diluted38,668 41,103 
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,
20222021
Net earnings$40,685 $59,469 
Other comprehensive income (loss)
Foreign currency translation adjustments, net of tax (1)
$(6,825)$(3,960)
Pension and postretirement adjustments, net of tax (2)
5,766 5,600 
Other comprehensive income (loss), net of tax(1,059)1,640 
Comprehensive income$39,626 $61,109 

(1) The tax benefit included in foreign currency translation adjustments for the three months ended March 31, 2022 and 2021 was immaterial.

(2) The tax expense included in pension and postretirement adjustments for the three months ended March 31, 2022 and 2021 was $1.4 million and $1.7 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, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$136,682 $171,004 
Receivables, net661,129 647,148 
Inventories, net448,122 411,567 
Assets held for sale 10,988 
Other current assets63,942 67,101 
Total current assets1,309,875 1,307,808 
Property, plant, and equipment, net355,363 360,031 
Goodwill1,458,899 1,463,026 
Other intangible assets, net523,913 538,077 
Operating lease right-of-use assets, net147,224 143,613 
Prepaid pension asset260,238 256,422 
Other assets33,855 34,568 
Total assets$4,089,367 $4,103,545 
Liabilities  
Current liabilities:
Current portion of long-term debt$202,500 $ 
Accounts payable168,772 211,640 
Accrued expenses109,077 144,466 
Income taxes payable1,478 3,235 
Deferred revenue224,679 260,157 
Liabilities held for sale 12,655 
Other current liabilities93,745 102,714 
Total current liabilities800,251 734,867 
Long-term debt967,744 1,050,610 
Deferred tax liabilities, net150,085 147,349 
Accrued pension and other postretirement benefit costs84,610 91,329 
Long-term operating lease liability128,897 127,152 
Long-term portion of environmental reserves13,924 13,656 
Other liabilities94,436 112,092 
Total liabilities2,239,947 2,277,055 
Contingencies and commitments (Note 13)
Stockholders’ equity
Common stock, $1 par value,100,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 49,187,378 shares issued as of March 31, 2022 and December 31, 2021; outstanding shares were 38,471,738 as of March 31, 2022 and 38,469,778 as of December 31, 2021
49,187 49,187 
Additional paid in capital122,603 127,104 
Retained earnings2,942,580 2,908,827 
Accumulated other comprehensive loss(191,524)(190,465)
Common treasury stock, at cost (10,715,640 shares as of March 31, 2022 and 10,717,600 shares as of December 31, 2021)
(1,073,426)(1,068,163)
Total stockholders’ equity1,849,420 1,826,490 
Total liabilities and stockholders’ equity$4,089,367 $4,103,545 
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)20222021
Cash flows from operating activities:
Net earnings$40,685 $59,469 
Adjustments to reconcile net earnings to net cash used for operating activities:
Depreciation and amortization27,363 28,595 
Loss on divestiture4,651  
Gain on sale/disposal of long-lived assets(3,070)(349)
Deferred income taxes803 3,629 
Share-based compensation3,809 3,327 
Change in operating assets and liabilities, net of businesses acquired:
Receivables, net(13,414)(27,593)
Inventories, net(38,149)(18,059)
Progress payments(395)(1,114)
Accounts payable and accrued expenses(79,492)(71,528)
Deferred revenue(35,154)(14,836)
Income taxes payable6,927 16,247 
Pension and postretirement liabilities, net(6,034)1,182 
Other current and long-term assets and liabilities(32,845)(5,573)
Net cash used for operating activities(124,315)(26,603)
Cash flows from investing activities:
Proceeds from sale/disposal of long-lived assets5,567 1,022 
Additions to property, plant, and equipment(10,896)(8,537)
Additional consideration paid on prior year acquisitions(5,062)(5,340)
Net cash used for investing activities(10,391)(12,855)
Cash flows from financing activities:
Borrowings under revolving credit facility241,198 65,301 
Payment of revolving credit facility(121,198)(65,301)
Repurchases of common stock(18,857)(11,797)
Proceeds from share-based compensation5,284 4,919 
Other(248)(229)
Net cash provided by (used for) financing activities106,179 (7,107)
Effect of exchange-rate changes on cash(5,795)(4,614)
Net decrease in cash and cash equivalents(34,322)(51,179)
Cash and cash equivalents at beginning of period171,004 198,248 
Cash and cash equivalents at end of period$136,682 $147,069 
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, 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— 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)
For the three months ended March 31, 2022
Common StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury Stock
December 31, 2021$49,187 $127,104 $2,908,827 $(190,465)$(1,068,163)
Net earnings— — 40,685 — — 
Other comprehensive loss, net of tax— — — (1,059)— 
Dividends declared— — (6,932)— — 
Restricted stock— (8,523)— — 8,523 
Employee stock purchase plan— 814 — — 4,470 
Share-based compensation— 3,714 — — 95 
Repurchase of common stock (1)
— — — — (18,857)
Other— (506)— — 506 
March 31, 2022$49,187 $122,603 $2,942,580 $(191,524)$(1,073,426)
(1) For both the three months ended March 31, 2022 and 2021, the Corporation repurchased approximately 0.1 million shares of its common stock.
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 integrated business that provides highly engineered products, solutions, and services mainly to aerospace & defense (A&D) markets, as well as critical technologies in demanding commercial power, process, and 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, 2022 and 2021, 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 2021 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.

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 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, 2022 and 2021:
Page 9

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


Three Months Ended
March 31,
20222021
Over-time53 %52 %
Point-in-time47 %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 $2.3 billion as of March 31, 2022, of which the Corporation expects to recognize approximately 89% 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)20222021
Aerospace & Defense
Aerospace Defense$98,004 $111,016 
Ground Defense39,108 55,746 
Naval Defense162,967 177,905 
Commercial Aerospace60,892 57,269 
Total Aerospace & Defense customers$360,971 $401,936 
Commercial
Power & Process$104,788 $105,504 
General Industrial93,702 89,619 
Total Commercial customers$198,490 $195,123 
Total$559,461 $597,059 

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, 2022 and 2021 included in contract liabilities at the beginning of the respective years was approximately $79 million and $77 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. ASSETS HELD FOR SALE

In January 2022, the Corporation completed the sale of its industrial valve business in Germany, which was presented as held for sale in the Corporation's Consolidated Balance Sheet as of December 31, 2021, for gross cash proceeds of $3 million. The Corporation recorded a loss of $5 million upon sale closing during the first quarter of 2022.

4.           RECEIVABLES

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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, 2022December 31, 2021
Billed receivables:
Trade and other receivables$352,905 $362,007 
Unbilled receivables:
Recoverable costs and estimated earnings not billed314,240 291,758 
Less: Progress payments applied
(1,202)(1,297)
Net unbilled receivables313,038 290,461 
Less: Allowance for doubtful accounts
(4,814)(5,320)
Receivables, net$661,129 $647,148 

5.           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:
(In thousands)March 31, 2022December 31, 2021
Raw materials$217,900 $191,066 
Work-in-process81,618 78,221 
Finished goods106,167 98,944 
Inventoried costs related to U.S. Government and other long-term contracts (1)
47,387 48,619 
Inventories, net of reserves453,072 416,850 
Less:  Progress payments applied(4,950)(5,283)
Inventories, net$448,122 $411,567 

(1) This caption includes capitalized development costs of $24.9 million as of March 31, 2022 related to certain aerospace and defense programs. These capitalized costs will be liquidated as units are produced under contract. As of March 31, 2022, capitalized development costs of $17.1 million are not currently supported by existing firm orders.

6.           GOODWILL

The changes in the carrying amount of goodwill for the three months ended March 31, 2022 are as follows:

(In thousands)Aerospace & IndustrialDefense ElectronicsNaval & PowerConsolidated
December 31, 2021$316,147 $714,014 $432,865 $1,463,026 
Adjustments— (469)— (469)
Foreign currency translation adjustment(1,629)(1,861)(168)(3,658)
March 31, 2022$314,518 $711,684 $432,697 $1,458,899 

7.           OTHER INTANGIBLE ASSETS, NET
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The following tables present the cumulative composition of the Corporation’s intangible assets:
March 31, 2022December 31, 2021
(In thousands)GrossAccumulated AmortizationNetGrossAccumulated AmortizationNet
Technology$274,264 $(167,627)$106,637 $274,615 $(164,077)$110,538 
Customer related intangibles568,019 (277,504)290,515 568,720 (270,816)297,904 
Programs (1)
144,000 (28,800)115,200 144,000 (27,000)117,000 
Other intangible assets49,512 (37,951)11,561 49,559 (36,924)12,635 
Total$1,035,795 $(511,882)$523,913 $1,036,894 $(498,817)$538,077 
(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, 2022 was $14 million, as compared to $15 million in the comparable prior year period.  The estimated future amortization expense of intangible assets over the next five years is as follows:

(In millions)
2022$55 
2023$52 
2024$48 
2025$45 
2026$44 

8.           FAIR VALUE OF FINANCIAL INSTRUMENTS
 
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, 2022 and December 31, 2021, the fair values of the asset and liability derivative instruments were immaterial.

Effects on Condensed Consolidated Statements of Earnings

Undesignated hedges

The (losses) and gains and 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 respective (losses) and gains for the three months ended March 31, 2022 and 2021 were immaterial.

Debt
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NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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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, 2022.  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, 2022December 31, 2021
(In thousands)Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
Revolving credit agreement, due 2023$213,900 $213,900 $93,900 $93,900 
3.70% Senior notes due 2023
202,500 204,456 202,500 208,086 
3.85% Senior notes due 2025
90,000 90,363 90,000 95,246 
4.24% Senior notes due 2026
200,000 204,427 200,000 218,421 
4.05% Senior notes due 2028
67,500 68,571 67,500 73,783 
4.11% Senior notes due 2028
90,000 91,645 90,000 98,854 
3.10% Senior notes due 2030
150,000 142,137 150,000 154,832 
3.20% Senior notes due 2032
150,000 141,071 150,000 154,875 
Total debt1,163,900 1,156,570 1,043,900 1,097,997 
Debt issuance costs, net(908)(908)(949)(949)
Unamortized interest rate swap proceeds7,252 7,252 7,659 7,659 
Total debt, net$1,170,244 $1,162,914 1,050,610 1,104,707 

9.           PENSION PLANS

Defined Benefit Pension Plans

The following table is a consolidated disclosure of all domestic and foreign defined pension plans as described in the Corporation’s 2021 Annual Report on Form 10-K.  

The components of net periodic pension cost were as follows:
Three Months Ended
March 31,
(In thousands)20222021
Service cost$6,063 $6,870 
Interest cost5,288 4,306 
Expected return on plan assets(13,857)(15,180)
Amortization of prior service cost(86)(63)
Amortization of unrecognized actuarial loss4,006 7,143 
Cost of settlements1,842  
Net periodic pension cost$3,256 $3,076 

The Corporation did not make any contributions to the Curtiss-Wright Pension Plan during 2021, and does not expect to do so in 2022. Contributions to the foreign benefit plans are not expected to be material in 2022.

During the three months ended March 31, 2022, the Company recognized a settlement charge related to the retirement of a former executive. The settlement charge represents an event that is accounted for under guidance on employers’ accounting for settlements and curtailments of defined benefit pension plans.

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
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contribution components up to a maximum employer contribution of 7% of eligible compensation. During the three months ended March 31, 2022 and 2021, the expense relating to the plan was $5.7 million and $5.3 million, respectively.

10.           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)20222021
Basic weighted-average shares outstanding38,456 40,933 
Dilutive effect of deferred stock compensation212 170 
Diluted weighted-average shares outstanding38,668 41,103 

For the three months ended March 31, 2022 and 2021, approximately 26,000 and 88,000 shares, respectively, 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.

11.           SEGMENT INFORMATION
 
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)20222021
Net sales
Aerospace & Industrial$191,850 $181,138 
Defense Electronics143,938 182,298 
Naval & Power225,315 235,580 
Less: Intersegment revenues(1,642)(1,957)
Total consolidated$559,461 $597,059 
Operating income (expense)
Aerospace & Industrial$24,853 $19,025 
Defense Electronics23,290 36,623 
Naval & Power27,288 38,057 
Corporate and other (1)
(14,921)(8,639)
Total consolidated$60,510 $85,066 

(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:
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Three Months Ended
March 31,
(In thousands)20222021
Total operating income$60,510 $85,066 
Interest expense9,530 9,959 
Other income, net2,997 4,843 
Earnings before income taxes$53,977 $79,950 

(In thousands)March 31, 2022December 31, 2021
Identifiable assets
Aerospace & Industrial$1,011,295 $991,508 
Defense Electronics1,518,990 1,536,369 
Naval & Power1,266,159 1,270,099 
Corporate and Other292,923 294,581 
Assets held for sale 10,988 
Total consolidated$4,089,367 $4,103,545 

12.           ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
 
The cumulative balance of each component of accumulated other comprehensive income (AOCI), net of tax, is as follows:
 
(In thousands)Foreign currency translation adjustments, netTotal pension and postretirement adjustments, netAccumulated other comprehensive income (loss)
December 31, 2020$(88,737)$(222,119)$(310,856)
Other comprehensive income (loss) before reclassifications (1)
(10,829)107,211 96,382 
Amounts reclassified from accumulated other comprehensive loss (1)
 24,009 24,009 
Net current period other comprehensive income (loss)(10,829)131,220 120,391 
December 31, 2021$(99,566)$(90,899)$(190,465)
Other comprehensive income (loss) before reclassifications (1)
(6,825)1,393 (5,432)
Amounts reclassified from accumulated other comprehensive income (loss) (1)
 4,373 4,373 
Net current period other comprehensive income (loss)(6,825)5,766 (1,059)
March 31, 2022$(106,391)$(85,133)$(191,524)

(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$86 Other income, net
Amortization of actuarial losses(4,006)Other income, net
Settlements(1,842)Other income, net
(5,762)Earnings before income taxes
1,389 Provision for income taxes
Total reclassifications$(4,373)Net earnings
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13.           CONTINGENCIES AND COMMITMENTS

From time to time, the Corporation and its subsidiaries are involved in legal proceedings that are incidental to the operation of our business. Some of these proceedings allege damages relating to asbestos and environmental exposures, intellectual property matters, copyright infringement, personal injury claims, employment and employee benefit matters, government contract issues, commercial or contractual disputes, and acquisitions or divestitures. The Corporation continues to defend vigorously against all claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including assessment of the merits of the particular claim, as well as current accruals and insurance coverage, 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 condensed 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, 2022 and December 31, 2021, there were $19.5 million and $21.1 million of stand-by letters of credit outstanding, respectively. As of March 31, 2022 and December 31, 2021, there were $2.7 million and $4.5 million of bank guarantees outstanding, respectively. In addition, the Corporation is required to provide the Nuclear 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 $35.2 million surety bond.

AP1000 Program

In February 2022, the Corporation and Westinghouse Electric Company (WEC) executed a settlement agreement to resolve all open claims and counterclaims under the AP1000 U.S. and China contracts. Under the terms of the settlement agreement, the Corporation paid WEC $15 million in March 2022 and is required to pay WEC a final amount of $10 million in the first quarter of 2023 in exchange for the Corporation’s full release from all open claims under such contracts, whether known or unknown, as well as negotiating and executing a right of first refusal for all future AP1000 projects. As of December 31, 2021, the Corporation was adequately accrued regarding this matter.

******
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MANAGEMENT’S DISCUSSION and ANALYSIS of
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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, (d) statements of future economic performance and potential impacts due to the conflict between Russia and Ukraine, and (e) 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 2021 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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PART I - ITEM 2
MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

COMPANY ORGANIZATION
 
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. We report our operations through our Aerospace & Industrial, Defense Electronics, and Naval & Power segments. We operate across a diversified array of niche markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers. Approximately 66% of our 2022 revenues are expected to be generated from A&D-related markets.

In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic. The pandemic has adversely affected certain elements of our business, including our supply chain, transportation networks, and production levels. 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, the emergence and impact of any new COVID-19 variants, as well as the issuance of vaccine mandates by the Biden administration. 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 or any of its variants. 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, 2022. The financial information as of March 31, 2022 should be read in conjunction with the financial statements for the year ended December 31, 2021 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.

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 comparable prior year period for purposes of calculating “organic” and “incremental” results. The definition of “organic” excludes the loss from sale of our industrial valves business in Germany as well as the effects of foreign currency translation.
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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

Condensed Consolidated Statements of Earnings
 Three Months Ended
March 31,
(In thousands)20222021% change
Sales   
Aerospace & Industrial$191,112 $180,331 %
Defense Electronics143,069 181,212 (21 %)
Naval & Power225,280 235,516 (4 %)
Total sales$559,461 $597,059 (6 %)
Operating income   
Aerospace & Industrial$24,853 $19,025 31 %
Defense Electronics23,290 36,623 (36 %)
Naval & Power27,288 38,057 (28 %)
Corporate and other(14,921)(8,639)(73 %)
Total operating income$60,510 $85,066 (29 %)
Interest expense9,530 9,959 %
Other income, net2,997 4,843 (38)%
Earnings before income taxes53,977 79,950 (32 %)
Provision for income taxes(13,292)(20,481)35 %
Net earnings$40,685 $59,469 (32 %)
New orders$634,265 $579,447 %

Components of sales and operating income increase (decrease):
Three Months Ended
March 31,
2022 vs. 2021
SalesOperating Income
Organic(6 %)(22 %)
Acquisitions— %— %
Loss on divestiture— %(6 %)
Foreign currency— %(1 %)
Total(6 %)(29 %)

Sales during the three months ended March 31, 2022 decreased $38 million, or 6%, to $559 million, compared with the prior year period. On a segment basis, sales from the Defense Electronics and Naval & Power segments decreased $38 million and $11 million, respectively, with sales from the Aerospace & Industrial segment increasing $11 million. Changes in sales by segment are discussed in further detail in the results by business segment section below.

Operating income during the three months ended March 31, 2022 decreased $25 million, or 29%, to $61 million, compared with the prior year period, while operating margin decreased 340 basis points to 10.8%, compared with the same period in 2021. In the Defense Electronics segment, decreases in operating income and operating margin were primarily due to unfavorable overhead absorption on lower sales as well as unfavorable mix, which more than offset the benefits of our ongoing
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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

operational excellence initiatives. Operating income and operating margin in the Naval & Power segment decreased primarily due to a loss on sale of our industrial valves business in Germany, unfavorable overhead absorption on lower sales in the naval defense market, and unfavorable mix in the power & process market. These decreases were partially offset by increases in operating income and operating margin in the Aerospace & Industrial segment, primarily due to favorable absorption on higher sales, as well as the benefits of our ongoing operational excellence initiatives.

Non-segment operating expense during the three months ended March 31, 2022 increased $6 million, or 73%, to $15 million, primarily due to costs associated with shareholder activism in the current period.

Interest expense of $10 million was essentially flat compared to the prior year period.

Other income, net during the three months ended March 31, 2022 decreased $2 million, or 38%, to $3 million, primarily due to pension settlement charges recognized in the current period related to the retirement of a former executive.

The effective tax rate for the three months ended March 31, 2022 of 24.6% decreased as compared to an effective tax rate of 25.6% in the prior year period, primarily due to higher stock compensation benefits in the current period.

Comprehensive income for the three months ended March 31, 2022 was $40 million, compared to comprehensive income of $61 million in the prior year period. The change was primarily due to the following:

Net earnings decreased $19 million, primarily due to lower operating income.
Foreign currency translation adjustments for the three months ended March 31, 2022 resulted in a $7 million comprehensive loss, compared to a $4 million comprehensive loss in the prior period. The comprehensive loss during the current period was primarily attributed to decreases in the British Pound.

New orders increased $55 million during the three months ended March 31, 2022 from the comparable prior year period, primarily due to the timing of naval defense orders in the Naval & Power segment, as well as an increase in new orders for industrial vehicles and commercial aerospace products in the Aerospace & Industrial segment. These increases were partially offset by the timing of orders across all defense-related markets in the Defense Electronics segment due to ongoing supply chain disruption. Changes in new orders by segment are discussed in further detail in the "Results by Business Segment" section below.

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)20222021% change
Sales$191,112 $180,331 %
Operating income24,853 19,025 31 %
Operating margin13.0 %10.6 %240  bps
New orders$228,314 $199,115 15 %
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CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

Components of sales and operating income increase (decrease):
Three Months Ended
March 31,
2022 vs. 2021
SalesOperating Income
Organic%33 %
Acquisitions— %— %
Foreign currency(1 %)(2 %)
Total%31 %

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, 2022 increased $11 million, or 6%, to $191 million from the prior year period, primarily due to higher demand for actuation and sensors products as well as surface treatment services on narrow-body platforms in the commercial aerospace market. Sales also benefited from higher demand for industrial vehicle products in the general industrial market.

Operating income increased $6 million, or 31%, to $25 million during the three months ended March 31, 2022 compared to the prior year period, while operating margin increased 240 basis points to 13.0%. The increases in operating income and operating margin were primarily due to favorable overhead absorption on higher sales, as well as the benefits of our ongoing operational excellence initiatives.

New orders during the three months ended March 31, 2022 increased $29 million from the comparable prior year period, primarily due to an increase in new orders for industrial vehicles and commercial aerospace equipment.

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)20222021% change
Sales$143,069 $181,212 (21 %)
Operating income23,290 36,623 (36 %)
Operating margin16.3 %20.2 %(390  bps)
New orders$159,688 $182,300 (12 %)

Components of sales and operating income increase (decrease):
Three Months Ended
March 31,
2022 vs. 2021
SalesOperating Income
Organic(21 %)(37 %)
Acquisitions— %— %
Foreign currency— %%
Total(21 %)(36 %)

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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

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, 2022 decreased $38 million, or 21%, to $143 million from the prior year period, primarily due to timing across all defense markets. In the ground defense market, sales decreased $17 million primarily due to ongoing supply chain headwinds, which contributed to lower sales of embedded computing and tactical communications equipment on various programs. Sales in the aerospace defense market decreased $14 million primarily due to the delayed signing of the FY22 defense budget, which resulted in lower sales of embedded computing equipment on various programs. Sales in the naval defense market were negatively impacted by the timing of orders on various submarine and surface combat ship programs.

Operating income during the three months ended March 31, 2022 decreased $13 million, or 36%, to $23 million, and operating margin decreased 390 basis points from the prior year period to 16.3%. The decreases in operating income and operating margin were primarily due to unfavorable overhead absorption on lower sales and unfavorable mix.

New orders during the three months ended March 31, 2022 decreased $23 million from the comparable prior year period, primarily due to the timing of orders across all defense-related markets due to ongoing supply chain disruption.

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)20222021% change
Sales$225,280 $235,516 (4 %)
Operating income27,288 38,057 (28 %)
Operating margin12.1 %16.2 %(410  bps)
New orders$246,263 $198,032 24 %

Components of sales and operating income increase (decrease):
Three Months Ended
March 31,
2022 vs. 2021
SalesOperating Income
Organic(4 %)(14 %)
Acquisitions— %— %
Loss on divestiture— %(14 %)
Foreign currency— %— %
Total(4 %)(28 %)

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

Sales during the three months ended March 31, 2022 decreased $11 million, or 4%, to $225 million from the prior year period. In the naval defense market, sales decreased $6 million primarily due to lower sales on the CVN-80 aircraft carrier and Virginia-class submarine programs, partially offset by higher demand on the Columbia-class submarine program. In the power & process market, higher nuclear aftermarket sales were more than offset by the wind down on the China Direct AP1000 program.

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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

Operating income during the three months ended March 31, 2022 decreased $11 million, or 28%, to $27 million, and operating margin decreased 410 basis points from the prior year period to 12.1%. The decreases in operating income and operating margin were primarily due to a loss on sale of our industrial valves business in Germany, unfavorable overhead absorption on lower sales in the naval defense market, and unfavorable mix in the power & process market.

New orders increased $48 million during the three months ended March 31, 2022 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 operating results.

Net Sales by End Market and Customer TypeThree Months Ended
March 31,
(In thousands)20222021% change
Aerospace & Defense markets:
Aerospace Defense$98,004 $111,016 (12 %)
Ground Defense39,108 55,746 (30 %)
Naval Defense162,967 177,905 (8 %)
Commercial Aerospace60,892 57,269 %
Total Aerospace & Defense$360,971 $401,936 (10 %)
Commercial markets:
Power & Process104,788 105,504 (1 %)
General Industrial93,702 89,619 %
Total Commercial$198,490 $195,123 %
Total Curtiss-Wright$559,461 $597,059 (6 %)

Aerospace & Defense markets
Sales during the three months ended March 31, 2022 decreased $41 million, or 10%, to $361 million, primarily due to lower sales in the aerospace defense, ground defense, and naval defense markets. Sales in the aerospace defense and ground defense markets decreased primarily due to timing of sales of embedded computing and tactical communications equipment on various programs. Sales decreases in the naval defense market were primarily due to lower sales on the CVN-80 aircraft carrier and Virginia-class submarine programs, partially offset by higher demand on the Columbia-class submarine program.

Commercial markets
Sales during the three months ended March 31, 2022 increased $3 million, or 2%, to $198 million, primarily due to higher demand for industrial vehicle products in the general industrial market.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Use 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. In some cases, these payments can exceed the costs incurred on a project. Management continually evaluates cash utilization alternatives,
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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued

including share repurchases, acquisitions, increased dividends, and paying down debt, to determine the most beneficial use of available capital resources. We believe that our cash and cash equivalents, cash flow from operations, available borrowings under the credit facility, and ability to raise additional capital through the credit markets, are sufficient to meet both the short-term and long-term capital needs of the organization.

Condensed Consolidated Statements of Cash FlowsThree Months Ended
(In thousands)March 31, 2022March 31, 2021
Cash provided by (used in):
Operating activities
$(124,315)$(26,603)
Investing activities
(10,391)(12,855)
Financing activities
106,179 (7,107)
Effect of exchange-rate changes on cash(5,795)(4,614)
Net decrease in cash and cash equivalents(34,322)(51,179)

Net cash used in operating activities increased $98 million from the prior year period, primarily due to lower net earnings, higher inventory receipts, the timing of advanced cash receipts, and a legal settlement payment made to WEC during the current period.

Net cash used in investing activities decreased $2 million from the prior year period, primarily due to higher current period proceeds from disposal of long-lived assets.

Net cash provided by financing activities increased $113 million from the prior year period, primarily due to higher current period net borrowings of $120 million under our revolving credit facility. Refer to the "Financing Activities" section below for further details.

Financing Activities

Debt

The Corporation’s debt outstanding had an average interest rate of 3.2% and 3.5% for the three months ended March 31, 2022 and 2021, respectively. The Corporation’s average debt outstanding was $1,112 million and $1,057 million for the three months ended March 31, 2022 and 2021, respectively.

Credit Agreement

As of March 31, 2022, the Corporation had $214 million of outstanding borrowings under the 2012 Senior Unsecured Revolving Credit Agreement (the “Credit Agreement” or “credit facility”) and approximately $19 million in letters of credit supported by the credit facility. The unused credit available under the Credit Agreement as of March 31, 2022 was $267 million which could be borrowed without violating any of our debt covenants.

Repurchase of common stock

During the three months ended March 31, 2022, the Corporation used $19 million of cash to repurchase approximately 0.1 million outstanding shares under its share repurchase program. During the three months ended March 31, 2021, the Corporation used $12 million of cash to repurchase approximately 0.1 million outstanding shares under its share repurchase program.

Cash Utilization

Management continually evaluates cash utilization alternatives, including share repurchases, acquisitions, and increased dividends to determine the most beneficial use of available capital resources. We believe that our cash and cash equivalents, cash flow from operations, available borrowings under the credit facility, and ability to raise additional capital through the credit markets are sufficient to meet both the short-term and long-term capital needs of the organization.
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FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued


Debt Compliance

As of the date of this report, we were in compliance with all debt agreements and credit facility covenants, including our most restrictive covenant, which is our debt to capitalization limit of 60%. The debt to capitalization limit is a measure of our indebtedness (as defined per the notes purchase agreement and credit facility) to capitalization, where capitalization equals debt plus equity, and is the same for and applies to all of our debt agreements and credit facility.

As of March 31, 2022, we had the ability to borrow additional debt of $1.5 billion without violating our debt to capitalization covenant.

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MANAGEMENT’S DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS OF OPERATIONS, continued




CRITICAL ACCOUNTING POLICIES

Our condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by the application of our accounting policies. Critical accounting policies are those that require application of management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our 2021 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on February 24, 2022, in the Notes to the Consolidated Financial Statements, Note 1, and the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 3.                      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
There have been no material changes in our market risk during the three months ended March 31, 2022.  Information regarding market risk and market risk management policies is more fully described in "Item 7A. Quantitative and Qualitative Disclosures about Market Risk" of our 2021 Annual Report on Form 10-K.
 
Item 4.                      CONTROLS AND PROCEDURES
 
As of March 31, 2022, our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of March 31, 2022 insofar as they are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and they include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
During the quarter ended March 31, 2022, there have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION

Item 1.                     LEGAL PROCEEDINGS
 
From time to time, we are involved in legal proceedings that are incidental to the operation of our business. Some of these proceedings allege damages relating to asbestos and environmental exposures, intellectual property matters, copyright infringement, personal injury claims, employment and employee benefit matters, government contract issues, commercial or contractual disputes, and acquisitions or divestitures. We continue to defend vigorously against all claims. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information, including assessment of the merits of the particular claim, as well as current accruals and insurance coverage, we do not believe that the disposition of any of these matters, individually or in the aggregate, will have a material adverse effect on our condensed consolidated financial condition, results of operations, and cash flows.

We have been named in pending lawsuits that allege injury from exposure to asbestos. To date, we have not been found liable or paid any material sum of money in settlement in any asbestos-related case. We believe that the minimal use of asbestos in our past operations and the relatively non-friable condition of asbestos in our products make it unlikely that we will face material liability in any asbestos litigation, whether individually or in the aggregate. We maintain insurance coverage for these potential liabilities and we believe adequate coverage exists to cover any unanticipated asbestos liability.

Item 1A.          RISK FACTORS
 
There have been no material changes in our Risk Factors during the three months ended March 31, 2022. Information regarding our Risk Factors is more fully described in "Item 1A. Risk Factors" of our 2021 Annual Report on Form 10-K.

 Item 2.            UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
The following table provides information about our repurchase of equity securities that are registered by us pursuant to Secti