CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Recent accounting pronouncements to be adopted
|
|
|
|
Standard
|
Description
|
Effect on the condensed consolidated financial statements
|
ASU 2014-09 Revenue from Contracts with Customers
|
In May 2014, the FASB issued a comprehensive new revenue recognition standard which will supersede previous existing revenue recognition guidance. The standard creates a five-step model for revenue recognition that requires companies to exercise judgment when considering contract terms and relevant facts and circumstances. The five-step model includes (1) identifying the contract, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations and (5) recognizing revenue when each performance obligation has been satisfied. The standard also requires expanded disclosures surrounding revenue recognition. The standard is effective for fiscal periods beginning after December 15, 2017 and allows for either full retrospective or modified retrospective adoption.
|
The Corporation is currently evaluating the impact of the adoption of this standard on its Condensed Consolidated Financial Statements, including the method of adoption as of January 1, 2018. While our assessment is still ongoing and not complete, we do not believe that the standard will have a material impact on our Condensed Consolidated Financial Statements based on a preliminary review of our customer contracts. However, the FASB has issued, and may issue in the future, interpretive guidance which may cause our evaluation to change.
|
Date of adoption: January 1, 2018
|
ASU 2016-02 Leases
|
In February 2016, the FASB issued final guidance that will require lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to today’s accounting. The guidance requires the use of a modified retrospective approach.
|
The Corporation is currently evaluating the impact of the adoption of this standard on its Condensed Consolidated Financial Statements.
|
Date of adoption: January 1, 2019
|
ASU 2017-01
Clarifying the Definition of a Business
|
In January 2017, the FASB issued ASU 2017-01, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output. The standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.
|
The Corporation is currently evaluating the impact of the adoption of this standard on its Condensed Consolidated Financial Statements.
|
Date of adoption: January 1, 2018
|
ASU 2017-07
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
|
In March 2017, the FASB issued final guidance that will change how the net periodic benefit cost for defined benefit pension and other postretirement benefit plans are presented in the income statement and the respective capitalization of assets on the balance sheet. The guidance requires the use of a retrospective approach for the presentation of the income statement and a prospective approach for the presentation of the balance sheet.
|
The Corporation is currently evaluating the impact of the adoption of this standard on its Condensed Consolidated Financial Statements.
|
Date of adoption: January 1, 2018
|
2
. ACQUISITIONS
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 a number of 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 purchase prices for these businesses reflect 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.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During the
three months ended March 31, 2017
, the Corporation acquired
two
businesses for an aggregate purchase price of
$239 million
, which is described in more detail below. No acquisitions were made during the
three months ended March 31, 2016
.
The Condensed Consolidated Statement of Earnings includes
$11 million
of total net sales and
$4 million
of net losses from the Corporation's
2017
acquisitions.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions consummated during the
three months ended March 31, 2017
.
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
Accounts receivable
|
|
$
|
5,020
|
|
|
$
|
—
|
|
Inventory
|
|
21,573
|
|
|
—
|
|
Property, plant, and equipment
|
|
4,598
|
|
|
—
|
|
Other current and non-current assets
|
|
2,815
|
|
|
—
|
|
Intangible assets
|
|
89,900
|
|
|
—
|
|
Current and non-current liabilities
|
|
(7,354
|
)
|
|
—
|
|
Due from seller, net
(1)
|
|
6,509
|
|
|
—
|
|
Net tangible and intangible assets
|
|
123,061
|
|
|
—
|
|
Purchase price, net of cash acquired
|
|
239,372
|
|
|
—
|
|
Goodwill
|
|
$
|
116,311
|
|
|
$
|
—
|
|
|
|
|
|
|
Goodwill deductible for tax purposes
|
|
$
|
116,311
|
|
|
$
|
—
|
|
|
|
(1)
|
Amount is primarily due to working capital adjustments.
|
2017 Acquisitions
Teletronics Technology Corporation (TTC)
On
January 3, 2017
, the Corporation acquired 100% of the issued and outstanding capital stock of TTC for
$232.8 million
, net of cash acquired. The Share Purchase Agreement contains a purchase price adjustment mechanism and representations and warranties customary for a transaction of this type, including a portion of the purchase price deposited in escrow as security for potential indemnification claims against the seller. TTC is a designer and manufacturer of high-technology data acquisition and comprehensive flight test instrumentation systems for critical aerospace and defense applications. For the year ended December 31, 2016, TTC generated sales of
$64 million
.
The acquired business will operate within the Defense segment. The acquisition is subject to post-closing adjustments as the valuation is not yet complete.
Para Tech Coating, Inc. (Para Tech)
On
February 8, 2017
, the Corporation acquired certain assets and assumed certain liabilities of Para Tech for
$6.6 million
in cash. The Asset Purchase Agreement contains a purchase price adjustment mechanism and 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. Para Tech is a provider of parylene conformal coating services for aerospace & defense electronic components as well as critical medical devices. The acquired business will operate within the Commercial/Industrial segment. The acquisition is subject to post-closing adjustments as the valuation is not yet complete.
3
. 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:
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2017
|
|
December 31, 2016
|
Billed receivables:
|
|
|
|
Trade and other receivables
|
$
|
349,756
|
|
|
$
|
340,091
|
|
Less: Allowance for doubtful accounts
|
(6,571
|
)
|
|
(4,832
|
)
|
Net billed receivables
|
343,185
|
|
|
335,259
|
|
Unbilled receivables:
|
|
|
|
Recoverable costs and estimated earnings not billed
|
156,449
|
|
|
149,847
|
|
Less: Progress payments applied
|
(23,128
|
)
|
|
(22,044
|
)
|
Net unbilled receivables
|
133,321
|
|
|
127,803
|
|
Receivables, net
|
$
|
476,506
|
|
|
$
|
463,062
|
|
4
. 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 market. The composition of inventories is as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2017
|
|
December 31, 2016
|
Raw materials
|
$
|
198,696
|
|
|
$
|
189,228
|
|
Work-in-process
|
77,048
|
|
|
73,843
|
|
Finished goods and component parts
|
129,984
|
|
|
112,478
|
|
Inventoried costs related to U.S. Government and other long-term contracts
|
54,902
|
|
|
57,516
|
|
Gross inventories
|
460,630
|
|
|
433,065
|
|
Less: Inventory reserves
|
(55,914
|
)
|
|
(54,988
|
)
|
Progress payments applied, principally related to long-term contracts
|
(9,533
|
)
|
|
(11,103
|
)
|
Inventories, net
|
$
|
395,183
|
|
|
$
|
366,974
|
|
Inventoried costs related to long-term contracts include capitalized contract development costs related to certain aerospace and defense programs of
$29.4 million
and
$28.8 million
as of
March 31, 2017
and
December 31, 2016
, respectively. These capitalized costs will be liquidated as production units are delivered to the customer. As of
March 31, 2017
and
December 31, 2016
,
$3.8 million
and
$3.9 million
, respectively, are scheduled to be liquidated under existing firm orders.
5
. GOODWILL
The changes in the carrying amount of goodwill for the
three months ended
March 31, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial/ Industrial
|
|
Defense
|
|
Power
|
|
Consolidated
|
December 31, 2016
|
$
|
436,141
|
|
|
$
|
327,655
|
|
|
$
|
187,261
|
|
|
$
|
951,057
|
|
Acquisitions
|
2,420
|
|
|
113,891
|
|
|
—
|
|
|
116,311
|
|
Foreign currency translation adjustment
|
1,599
|
|
|
2,151
|
|
|
27
|
|
|
3,777
|
|
March 31, 2017
|
$
|
440,160
|
|
|
$
|
443,697
|
|
|
$
|
187,288
|
|
|
$
|
1,071,145
|
|
6
. OTHER INTANGIBLE ASSETS, NET
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables present the cumulative composition of the Corporation’s intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Technology
|
|
$
|
239,311
|
|
|
$
|
(100,541
|
)
|
|
$
|
138,770
|
|
|
$
|
166,859
|
|
|
$
|
(98,266
|
)
|
|
$
|
68,593
|
|
Customer related intangibles
|
|
358,962
|
|
|
(161,105
|
)
|
|
197,857
|
|
|
349,742
|
|
|
(157,154
|
)
|
|
192,588
|
|
Other intangible assets
|
|
39,826
|
|
|
(23,577
|
)
|
|
16,249
|
|
|
36,709
|
|
|
(26,429
|
)
|
|
10,280
|
|
Total
|
|
$
|
638,099
|
|
|
$
|
(285,223
|
)
|
|
$
|
352,876
|
|
|
$
|
553,310
|
|
|
$
|
(281,849
|
)
|
|
$
|
271,461
|
|
During the
three months ended
March 31, 2017
, the Corporation acquired intangible assets of
$89.9 million
. The Corporation acquired Technology of
$74.0 million
, Customer related intangibles of
$12.9 million
, and Other intangible assets of
$3.0 million
, which have a weighted average amortization period of
15.0
years,
16.3
years, and
7.0
years, respectively.
Total intangible amortization expense for the
three months ended
March 31, 2017
was
$9.6 million
as compared to
$8.4 million
in the comparable prior year period. The estimated amortization expense for the five years ending
December 31, 2017
through
2021
is
$38.4 million
,
$37.4 million
,
$35.6 million
,
$33.7 million
, and
$32.0 million
, respectively.
7
. 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 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. The Corporation periodically uses interest rate swaps to manage such exposures. Under these interest rate swaps, the Corporation exchanges, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount.
The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities that the company has the ability to access.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates, and yield curves.
Level 3: Inputs are unobservable data points that are not corroborated by market data.
Based upon the fair value hierarchy, all of the forward foreign exchange contracts and interest rate swaps are valued at a Level 2.
Effects on Condensed Consolidated Balance Sheets
As of
March 31, 2017
and December 31, 2016, the fair values of the asset and liability derivative instruments are immaterial.
Effects on Condensed Consolidated Statements of Earnings
Undesignated hedges
The location and amount of losses recognized in income on forward exchange derivative contracts not designated for hedge accounting for the
three
months ended
March 31,
were as follows:
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(In thousands)
|
|
March 31,
|
Derivatives not designated as hedging instrument
|
|
2017
|
|
2016
|
Forward exchange contracts:
|
|
|
|
|
General and administrative expenses
|
|
$
|
707
|
|
|
$
|
584
|
|
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 issues as of
March 31, 2017
. Accordingly, all of the Corporation’s debt is valued at a Level 2. 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.
The carrying amount of the variable interest rate debt approximates fair value as the interest rates are reset periodically to reflect current market conditions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
5.51% Senior notes due 2017
|
$
|
150,000
|
|
|
$
|
153,520
|
|
|
$
|
150,000
|
|
|
$
|
154,509
|
|
3.84% Senior notes due 2021
|
100,000
|
|
|
104,081
|
|
|
100,000
|
|
|
102,463
|
|
3.70% Senior notes due 2023
|
225,000
|
|
|
231,626
|
|
|
225,000
|
|
|
226,946
|
|
3.85% Senior notes due 2025
|
100,000
|
|
|
102,959
|
|
|
100,000
|
|
|
100,338
|
|
4.24% Senior notes due 2026
|
200,000
|
|
|
210,066
|
|
|
200,000
|
|
|
203,592
|
|
4.05% Senior notes due 2028
|
75,000
|
|
|
77,204
|
|
|
75,000
|
|
|
74,630
|
|
4.11% Senior notes due 2028
|
100,000
|
|
|
103,430
|
|
|
100,000
|
|
|
99,876
|
|
Other debt
|
579
|
|
|
579
|
|
|
668
|
|
|
668
|
|
Total debt
|
950,579
|
|
|
983,465
|
|
|
950,668
|
|
|
963,022
|
|
Debt issuance costs, net
|
(946
|
)
|
|
(946
|
)
|
|
(984
|
)
|
|
(984
|
)
|
Unamortized interest rate swap proceeds
|
16,166
|
|
|
16,166
|
|
|
16,614
|
|
|
16,614
|
|
Total debt, net
|
$
|
965,799
|
|
|
$
|
998,685
|
|
|
$
|
966,298
|
|
|
$
|
978,652
|
|
8
. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The following table is a consolidated disclosure of all domestic and foreign defined benefit pension plans as described in the Corporation’s
2016
Annual Report on Form 10-K filed with the SEC.
Pension Plans
The components of net periodic pension cost for the
three
months ended
March 31, 2017
and
2016
are as follows:
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2017
|
|
2016
|
Service cost
|
|
$
|
6,471
|
|
|
$
|
6,237
|
|
Interest cost
|
|
6,219
|
|
|
7,703
|
|
Expected return on plan assets
|
|
(13,285
|
)
|
|
(13,581
|
)
|
Amortization of prior service cost
|
|
(25
|
)
|
|
(12
|
)
|
Amortization of unrecognized actuarial loss
|
|
3,581
|
|
|
3,093
|
|
Net periodic benefit cost
|
|
$
|
2,961
|
|
|
$
|
3,440
|
|
During the
three months ended March 31, 2017
, the Corporation made no contributions to the Curtiss-Wright Pension Plan, and does not expect to make any contributions in
2017
. Contributions to the foreign benefit plans are not expected to be material in
2017
.
Defined Contribution Retirement Plan
Effective
January 1, 2014
, all non-union employees who were not currently receiving final or career average pay benefits became eligible to receive employer contributions in the Corporation's sponsored 401(k) plan. The employer contributions include both employer match and non-elective contribution components, up to a maximum employer contribution of
6%
of eligible compensation. During the
three months ended March 31, 2017
and
2016
, the expense relating to the plan was
$3.7 million
and
$3.2 million
, respectively. The Corporation made
$8.1 million
in contributions to the plan for the
first quarter
of
2017
, and expects to make total contributions of
$11.8 million
in
2017
.
9
. EARNINGS PER SHARE
Diluted earnings per share were 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:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2017
|
|
2016
|
Basic weighted-average shares outstanding
|
|
44,246
|
|
|
44,578
|
|
Dilutive effect of stock options and deferred stock compensation
|
|
614
|
|
|
662
|
|
Diluted weighted-average shares outstanding
|
|
44,860
|
|
|
45,240
|
|
For the three months ended
March 31, 2017
, approximately
38,000
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. For the three months ended
March 31, 2016
, there were no anti-dilutive equity-based awards.
10
. SEGMENT INFORMATION
The Corporation manages and evaluates its operations based on end markets to strengthen its ability to service customers and recognize certain organizational efficiencies. Based on this approach, the Corporation has three reportable segments: Commercial/Industrial, Defense, and Power.
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:
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2017
|
|
2016
|
Net sales
|
|
|
|
|
Commercial/Industrial
|
|
$
|
279,056
|
|
|
$
|
275,205
|
|
Defense
|
|
114,837
|
|
|
105,730
|
|
Power
|
|
130,595
|
|
|
123,746
|
|
Less: Intersegment revenues
|
|
(897
|
)
|
|
(1,174
|
)
|
Total consolidated
|
|
$
|
523,591
|
|
|
$
|
503,507
|
|
|
|
|
|
|
Operating income (expense)
|
|
|
|
|
Commercial/Industrial
|
|
$
|
30,621
|
|
|
$
|
30,052
|
|
Defense
|
|
11,155
|
|
|
16,845
|
|
Power
|
|
16,540
|
|
|
14,628
|
|
Corporate and eliminations
(1)
|
|
(7,089
|
)
|
|
(4,262
|
)
|
Total consolidated
|
|
$
|
51,227
|
|
|
$
|
57,263
|
|
(1)
Corporate and eliminations 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:
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2017
|
|
2016
|
Total operating income
|
|
$
|
51,227
|
|
|
$
|
57,263
|
|
Interest expense
|
|
10,377
|
|
|
9,933
|
|
Other income, net
|
|
312
|
|
|
234
|
|
Earnings before income taxes
|
|
$
|
41,162
|
|
|
$
|
47,564
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
March 31, 2017
|
|
December 31, 2016
|
Identifiable assets
|
|
|
|
Commercial/Industrial
|
$
|
1,417,174
|
|
|
$
|
1,391,040
|
|
Defense
|
989,842
|
|
|
751,859
|
|
Power
|
507,024
|
|
|
516,321
|
|
Corporate and Other
|
103,833
|
|
|
378,561
|
|
Total consolidated
|
$
|
3,017,873
|
|
|
$
|
3,037,781
|
|
11
. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The cumulative balance of each component of accumulated other comprehensive income (loss), net of tax, is as follows:
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Foreign currency translation adjustments, net
|
|
Total pension and postretirement adjustments, net
|
|
Accumulated other comprehensive income (loss)
|
December 31, 2015
|
$
|
(107,810
|
)
|
|
$
|
(118,118
|
)
|
|
$
|
(225,928
|
)
|
Other comprehensive loss before reclassifications
(1)
|
(64,840
|
)
|
|
(7,892
|
)
|
|
(72,732
|
)
|
Amounts reclassified from accumulated other comprehensive loss
(1)
|
—
|
|
|
6,904
|
|
|
6,904
|
|
Net current period other comprehensive loss
|
(64,840
|
)
|
|
(988
|
)
|
|
(65,828
|
)
|
December 31, 2016
|
$
|
(172,650
|
)
|
|
$
|
(119,106
|
)
|
|
$
|
(291,756
|
)
|
Other comprehensive income (loss) before reclassifications
(1)
|
11,224
|
|
|
(148
|
)
|
|
11,076
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
(1)
|
—
|
|
|
2,099
|
|
|
2,099
|
|
Net current period other comprehensive income
|
11,224
|
|
|
1,951
|
|
|
13,175
|
|
March 31, 2017
|
$
|
(161,426
|
)
|
|
$
|
(117,155
|
)
|
|
$
|
(278,581
|
)
|
|
|
(1)
|
All amounts are after tax.
|
Details of amounts reclassified from accumulated other comprehensive income (loss) are below:
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Amount reclassified from Accumulated other comprehensive income (loss)
|
|
Affected line item in the statement where net earnings is presented
|
Defined benefit pension and other postretirement benefit plans
|
|
|
|
Amortization of prior service costs
|
190
|
|
|
(1)
|
Amortization of actuarial losses
|
(3,531
|
)
|
|
(1)
|
|
(3,341
|
)
|
|
Total before tax
|
|
1,242
|
|
|
Income tax
|
Total reclassifications
|
$
|
(2,099
|
)
|
|
Net of tax
|
|
|
(1)
|
These items are included in the computation of net periodic pension cost. See Note
8
, Pension and Other Postretirement Benefit Plans.
|
12
. CONTINGENCIES AND COMMITMENTS
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 case. The Corporation believes its minimal use of asbestos in its past operations and the relatively non-friable condition of asbestos in its 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 for these potential liabilities and believes adequate coverage exists to cover any unanticipated asbestos liability.
In December 2013, the Corporation, along with other unaffiliated parties, received a claim from Canadian Natural Resources Limited (CNRL) filed in the Court of Queen's Bench of Alberta, Judicial District of Calgary. The claim pertains to a January 2011 fire and explosion at a delayed coker unit at its Fort McMurray refinery that resulted in the injury of five CNRL employees, damage to property and equipment, and various forms of consequential loss, such as loss of profit, lost opportunities, and business interruption. The fire and explosion occurred when a CNRL employee bypassed certain safety controls and opened an operating coker unit. The total quantum of alleged damages arising from the incident has not been finalized, but is estimated to meet or exceed
$1 billion
. The Corporation maintains various forms of commercial, property and casualty, product liability, and other forms of insurance; however, such insurance may not be adequate to cover the costs associated with a judgment against us. The Corporation is currently unable to estimate an amount, or range of potential losses, if any, from this matter. The Corporation believes it has adequate legal defenses and
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
intends to defend this matter vigorously. The Corporation's financial condition, results of operations, and cash flows could be materially affected during a future fiscal quarter or fiscal year by unfavorable developments or outcome regarding this claim.
In addition to the CNRL litigation, the Corporation is party to a number of other legal actions and claims, none of which individually or in the aggregate, in the opinion of management, are expected to have a material effect on the Corporation’s results of operations or financial position.
Westinghouse Bankruptcy
On March 29, 2017, Westinghouse Electric Company (“WEC”) filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York, Case No. 17-10751. The Bankruptcy Court overseeing the Bankruptcy Case has approved, on an interim basis, an
$800 million
Debtor-in-Possession Financing Facility to help WEC finance its business operations during the reorganization process. The Corporation had approximately
$8 million
in pre-petition billings outstanding with WEC as of the bankruptcy filing date. The Corporation will continue, for the time being and while it monitors and evaluates the Bankruptcy Case, to honor its executory contracts and expects to collect all post-petition amounts due. At this time, the Corporation has assessed that any pre-petition amounts will be substantially recoverable and does not believe that rejection of the outstanding contracts with WEC, taken in part or combined, would have a material adverse impact on the Company’s cash flow or operations. The Corporation continues to monitor the status of the WEC bankruptcy as well as the status of the plant construction projects for potential impacts on our business.
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. At
March 31, 2017
and
December 31, 2016
, there were
$51.6 million
and
$47.2 million
of stand-by letters of credit outstanding, respectively, and
$13.7 million
and
$12.8 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
$56.0 million
surety bond.
AP1000 Program
Within the Corporation’s Power segment, our Electro-Mechanical Division is the reactor coolant pump (RCP) supplier for the WEC AP1000 nuclear power plants under construction in China and the United States. The terms of the AP1000 China and United States contracts include liquidated damage penalty provisions for failure to meet contractual delivery dates if the Corporation caused the delay and the delay was not excusable. On October 10, 2013, the Corporation received a letter from WEC stating entitlements to the maximum amount of liquidated damages allowable under the AP1000 China contract of approximately
$25 million
. The Corporation would be liable for liquidated damages under the contract if certain contractual delivery dates were not met and if the Corporation was deemed responsible for the delay. As of
March 31, 2017
, the Corporation has not met certain contractual delivery dates under its AP 1000 contracts; however there are significant uncertainties as to which parties are responsible for the delays. The Corporation believes it has adequate legal defenses and intends to vigorously defend this matter. Given the uncertainties surrounding the responsibility for the delays no accrual has been made for this matter as of
March 31, 2017
. The range of possible loss is
$0
to
$55.5 million
.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I- ITEM 2