NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Curtiss-Wright Corporation and its subsidiaries (the Corporation or the Company) is a global, diversified manufacturing and service company that designs, manufactures, and overhauls precision components and provides highly engineered products and services to the aerospace, defense, general industrial, and power generation markets.
Principles of Consolidation
The consolidated financial statements include the accounts of the Corporation and its majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated.
Use of Estimates
The financial statements of the Corporation have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP), which requires management 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. The most significant of these estimates includes the estimate of costs to complete long-term contracts under the percentage-of-completion accounting methods, the estimate of useful lives for property, plant, and equipment, cash flow estimates used for testing the recoverability of assets, pension plan and postretirement obligation assumptions, estimates for inventory obsolescence, estimates for the valuation and useful lives of intangible assets and legal reserves. Actual results may differ from these estimates.
Revenue Recognition
The realization of revenue refers to the timing of its recognition in the accounts of the Corporation and is generally considered realized or realizable and earned when the earnings process is substantially complete and all of the following criteria are met: 1) persuasive evidence of an arrangement exists; 2) delivery has occurred or services have been rendered; 3) the Corporation’s price to its customer is fixed or determinable; and 4) collectability is reasonably assured.
The Corporation determines the appropriate method by which it recognizes revenue by analyzing the terms and conditions of each contract or arrangement entered into with its customers. Revenue is recognized on product sales as production units are shipped and title and risk of loss have transferred. Revenue is recognized on service type contracts as services are rendered. The significant estimates made in recognizing revenue are primarily for long-term contracts generally accounted for using the cost-to-cost method of percentage of completion accounting that are associated with the design, development and manufacture of highly engineered industrial products used in commercial and defense applications. Under the cost-to-cost percentage-of-completion method of accounting, profits are recorded pro rata, based upon current estimates of direct and indirect costs to complete such contracts. 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. The effect of the changes on future periods of contract performance is recognized as if the revised estimate had been the original estimate. A significant change in an estimate on one or more contracts could have a material effect on the Corporation’s consolidated financial position, results of operations, or cash flows. In 2015, the Corporation recorded additional costs of
$11.5
million related to its long-term contract with Westinghouse Electric Company (WEC) to deliver reactor coolant pumps (RCPs) for the AP1000 nuclear power plants in China. The increase in costs is due to a change in estimate related to production modifications that are the result of engineering and endurance testing. There were no other individual significant changes in estimated contract costs at completion during
2017
,
2016
, or
2015
.
Losses on contracts are provided for in the period in which the losses become determinable and the excess of billings over cost and estimated earnings on long-term contracts is included in deferred revenue.
From time to time, the Corporation may enter into multiple-element arrangements in which a customer may purchase a combination of goods, services, or rights to intellectual property. The Corporation follows the multiple element accounting guidance within ASC 605-25 for such arrangements which require: (1) determining the separate units of accounting; (2) determining whether the separate units of accounting have stand-alone value; and (3) measuring and allocating the arrangement
consideration. Arrangement consideration is allocated in accordance with the selling price hierarchy which requires: (1) the use of vendor-specific objective evidence (VSOE), if available (2) if VSOE is not available, the use of third-party evidence (TPE), and if TPE is not available (3) our best-estimate of selling price (BESP). Approximately
1%
of the Company's 2015 net sales were the result of the sale of certain intellectual property licensing rights within a multiple-element arrangement with China for AP1000 reactor coolant pumps (China Direct order). The Company had no further performance obligations with regards to the sale of these perpetual rights. The remainder of the contract, related to the production of sixteen RCPs, is being recognized using percentage-of-completion accounting through 2021.
Cash and Cash Equivalents
Cash equivalents consist of money market funds and commercial paper that are readily convertible into cash, all with original maturity dates of three months or less.
Inventory
Inventories are stated at lower of cost or market. Production costs are comprised of direct material and labor and applicable manufacturing overhead.
Progress Payments
Certain long-term contracts provide for interim billings as costs are incurred on the respective contracts. Pursuant to contract provisions, agencies of the U.S. Government and other customers are granted title or a secured interest for materials and work-in-process included in inventory to the extent progress payments are received. Accordingly, these receipts have been reported as a reduction of unbilled receivables and inventories, as presented in Notes
4
and
5
to the Consolidated Financial Statements.
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost less accumulated depreciation. Major renewals and betterments are capitalized, while maintenance and repairs that do not improve or extend the life of the asset are expensed in the period that they are incurred. Depreciation is computed using the straight-line method based over the estimated useful lives of the respective assets.
Average useful lives for property, plant, and equipment are as follows:
|
|
|
Buildings and improvements
|
5 to 40 years
|
Machinery, equipment, and other
|
3 to 15 years
|
Intangible Assets
Intangible assets are generally the result of acquisitions and consist primarily of purchased technology, customer related intangibles, trademarks, and technology licenses. Intangible assets are amortized on a straight-line basis over their estimated useful lives, which range from
1
to
20
years. See Note
8
to the Consolidated Financial Statements for further information on other intangible assets.
Impairment of Long-Lived Assets
The Corporation reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. If required, the Corporation compares the estimated fair value determined by either the undiscounted future net cash flows or appraised value to the related asset’s carrying value to determine whether there has been an impairment. If an asset is considered impaired, the asset is written down to fair value in the period in which the impairment becomes known. The Corporation recognized no significant impairment charges on assets held in use during the years ended
December 31, 2017
,
2016
, and
2015
. For impairment charges on assets held for sale, see Note
2
to the Consolidated Financial Statements.
Goodwill
Goodwill results from business acquisitions. The Corporation accounts for business acquisitions by allocating the purchase price to the tangible and intangible assets acquired and liabilities assumed. Assets acquired and liabilities assumed are recorded
at their fair values, and the excess of the purchase price over the amounts allocated is recorded as goodwill. The recoverability of goodwill is subject to an annual impairment test or whenever an event occurs or circumstances change that would more likely than not result in an impairment. The impairment test is based on the estimated fair value of the underlying businesses. The Corporation’s goodwill impairment test is performed annually in the fourth quarter of each year. See Note
7
to the Consolidated Financial Statements for further information on goodwill.
Fair Value of Financial Instruments
Accounting guidance requires certain disclosures regarding the fair value of financial instruments. Due to the short maturities of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, the net book value of these financial instruments is deemed to approximate fair value. See Notes
9
and
12
to the Consolidated Financial Statements for further information on the Corporation's financial instruments.
Research and Development
The Corporation funds research and development programs for commercial products and independent research and development and bid and proposal work related to government contracts. Development costs include engineering and field support for new customer requirements. Corporation-sponsored research and development costs are expensed as incurred.
Research and development costs associated with customer-sponsored programs are capitalized to inventory and are recorded in cost of sales when products are delivered or services performed. Funds received under shared development contracts are a reduction of the total development expenditures under the shared contract and are shown net as research and development costs.
Accounting for Share-Based Payments
The Corporation follows the fair value based method of accounting for share-based employee compensation, which requires the Corporation to expense all share-based employee compensation. Share-based employee compensation is a non-cash expense since the Corporation settles these obligations by issuing the shares of Curtiss-Wright Corporation instead of settling such obligations with cash payments.
Compensation expense for non-qualified share options, performance shares, and time-based restricted stock is recognized over the requisite service period for the entire award based on the grant date fair value.
Income Taxes
The Corporation accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the results of operations in the period the new laws are enacted. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.
The Corporation records amounts related to uncertain income tax positions by 1) prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements and 2) the measurement of the income tax benefits recognized from such positions. The Corporation’s accounting policy is to classify uncertain income tax positions that are not expected to be resolved in one year as a non-current income tax liability and to classify interest and penalties as a component of Interest expense and General and administrative expenses, respectively. See Note
11
to the Consolidated Financial Statements for further information.
Foreign Currency
For operations outside the United States of America that prepare financial statements in currencies other than the U.S. dollar, the Corporation translates assets and liabilities at period-end exchange rates and income statement amounts using weighted-average exchange rates for the period. The cumulative effect of translation adjustments is presented as a component of
accumulated other comprehensive income (loss)
within stockholders’ equity. This balance is affected by foreign currency exchange rate fluctuations and by the acquisition of foreign entities.
(Gains) and losses
from foreign currency transactions are included in General and administrative expenses in the Consolidated Statements of Earnings, which amounted to
$5.4 million
,
$(8.9) million
, and
($8.3) million
for the years ended December 31,
2017
,
2016
, and
2015
, respectively.
Derivatives
Forward Foreign Exchange and Currency Option Contracts
The Corporation uses financial instruments, such as forward exchange and currency 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. All of the derivative financial instruments are recorded at fair value based upon quoted market prices for comparable instruments, with the gain or loss on these transactions recorded into earnings in the period in which they occur. These
(gains) and losses
are classified as General and administrative expenses in the Consolidated Statements of Earnings and amounted to
($0.3) million
,
$11.5 million
, and
$11.0 million
for the years ended December 31,
2017
,
2016
, and
2015
, respectively. The Corporation does not use derivative financial instruments for trading or speculative purposes.
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.
For interest rate swaps designated as fair value hedges (i.e., hedges against the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates.
Recently Issued Accounting Standards
Recent accounting pronouncements adopted
|
|
|
|
Standard
|
Description
|
Effect on the consolidated financial statements
|
ASU 2017-04 Simplifying the Test for Goodwill Impairment
|
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies the measurement of goodwill impairment testing by removing step two. This guidance was early adopted effective January 1, 2017 and will be applied prospectively.
|
The adoption of this standard did not have a financial impact on the Consolidated Financial Statements.
|
Date of adoption: January 1, 2017
|
ASU 2016-09 Improvements to Employee Share-Based Payment Accounting
|
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes and forfeitures. Excess tax benefits previously reported as cash flows from financing activities in the Consolidated Financial Statements are now required to be reported as operating activities. The Company adopted this guidance effective January 1, 2017.
|
The Corporation recorded an income tax benefit of approximately $8 million within the provision for income taxes for the year ended December 31, 2017, related to the excess tax benefit on stock options and performance share units. Prior to adoption, this amount would have been recorded as an increase to additional paid-in capital.
The Corporation elected to account for forfeitures as they occur, which did not have a material impact on its Consolidated Financial Statements.
|
Date of adoption: January 1, 2017
|
Recent accounting pronouncements to be adopted
|
|
|
|
Standard
|
Description
|
Effect on the 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 will apply the modified retrospective approach upon adoption as of January 1, 2018. The Corporation has completed its assessment and has identified certain contracts, primarily in the Defense and Power segments, which will be required to transition from a "point in time" model to an “over-time” model as they meet one or more of the mandatory criteria established under the new standard. The transition adjustment as of January 1, 2018 will primarily include the following: a) U.S. Government and commercial contracts where promised goods do not have alternative use and the Corporation has an enforceable right to payment for performance completed to date; b) repair and overhaul services performed on customer-owned goods; and c) Defense-related contracts where the Corporation uses customer-owned materials in production. The cumulative effect expected to be recognized upon adoption is a reduction to retained earnings of approximately $2 million, net of tax, with a corresponding increase in unbilled receivables of $18 million and decrease in inventory of $24 million.
|
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 Corporation is currently evaluating the impact of the adoption of this standard on its 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 does not expect the adoption of this standard to have a material impact on its 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 requires the service cost component of net periodic benefit costs from defined benefit and other postretirement benefit plans be included in the same Consolidated Statement of Earnings captions as other compensation costs arising from services rendered by the covered employees during the period. The other components of net benefit cost will be presented in the Statement of Earnings separately from service costs. This standard is effective for fiscal years beginning after December 15, 2017. Following adoption, only service costs will be eligible for capitalization into manufactured inventories. The amendments of this standard should be applied retrospectively for the presentation of the service cost component and the other components of net periodic benefit costs.
|
The Corporation does not expect the adoption of this standard to have a material impact on its Consolidated Financial Statements. Any decrease in operating income due to presentation of interest cost, expected return on plan assets, amortization of prior service cost, and net actuarial gain/loss components of net periodic benefit costs outside of operating income will be offset by a corresponding increase in Other income, net, in the Consolidated Statements of Earnings. Refer to Note 15 to the Consolidated Financial Statements for the components impacting net period benefit cost for the year ended December 31, 2017.
|
Date of adoption: January 1, 2018
|
2
. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
As part of a strategic portfolio review conducted in 2014, the Corporation identified certain businesses it considered non-core.
The Corporation considers businesses non-core when their products or services do not complement existing businesses and where the long-term growth and profitability prospects are below the Corporation’s expectations. As part of this initiative, the Corporation divested all
five
businesses during 2015 that were classified as held for sale as of December 31, 2014. The results of operations of these businesses are reported as discontinued operations within our Consolidated Statements of Earnings.
The aggregate financial results of all discontinued operations for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
2016
|
|
2015
|
Net sales
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
57,992
|
|
Loss from discontinued operations before income taxes
(1)
|
|
—
|
|
—
|
|
|
(40,984
|
)
|
Income tax benefit / (expense)
|
|
—
|
|
(2,053
|
)
|
(3)
|
7,926
|
|
Loss on sale of businesses
(2)
|
|
—
|
|
—
|
|
|
(13,729
|
)
|
Loss from discontinued operations
|
|
$
|
—
|
|
$
|
(2,053
|
)
|
|
$
|
(46,787
|
)
|
(1)
Loss from discontinued operations before income taxes includes approximately
$40.8 million
of held for sale impairment expense in the year ended
December 31, 2015
.
(2)
In the year ended
December 31, 2015
, the Corporation recognized aggregate after tax losses of
$13.7 million
on the sale of the Aviation Ground, Downstream Oil & Gas, Engineered Packaging and
two
surface technology businesses.
(3)
Amount represents finalization of the income tax provision related to discontinued operations for the year ended December 31, 2015.
2015 Divestitures
Surface Technologies - Domestic
In
October 2015
and
July 2015
, the Corporation sold the assets and liabilities of
two
surface technology treatment facilities for less than
$1 million
. The businesses were previously classified within assets held for sale and reported within the Commercial/Industrial segment.
Engineered Packaging
In
July 2015
, the Corporation sold the assets and liabilities of its Engineered Packaging business for approximately
$14 million
and recognized a pre-tax gain of
$2.3 million
. The businesses were previously classified as assets held for sale and reported within the Defense segment.
Downstream
In
May 2015
, the Corporation completed the divestiture of its Downstream oil and gas business for
$19 million
, net of transaction costs. During the fourth quarter of 2015, the Company paid a
$4.8 million
working capital adjustment. The business was previously classified within assets held for sale. During 2015, the Corporation recognized a pre-tax loss on divestiture, including impairment charges, of
$59.5 million
.
Aviation Ground
In
January 2015
, the Corporation sold the assets of its Aviation Ground support business for
£3 million
(
$4 million
). The business was previously classified within assets held for sale and reported within the Defense segment.
3
. 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.
During the
twelve months ended December 31, 2017
, the Corporation acquired
two
businesses for an aggregate purchase price of
$233 million
, net of cash acquired, which is described in more detail below. During the
twelve months ended December 31, 2016
, no acquisitions were made.
The Consolidated Statement of Earnings for the
twelve months ended December 31, 2017
includes
$71 million
of total net sales and
$5 million
of net earnings 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
2017
:
|
|
|
|
|
|
(In thousands)
|
|
2017
|
Accounts receivable
|
|
$
|
4,994
|
|
Inventory
|
|
22,702
|
|
Property, plant, and equipment
|
|
4,598
|
|
Intangible assets
|
|
88,900
|
|
Other current and non-current assets
|
|
2,816
|
|
Current and non-current liabilities
|
|
(6,730
|
)
|
Due to seller
|
|
(804
|
)
|
Net tangible and intangible assets
|
|
116,476
|
|
Purchase price
|
|
232,630
|
|
Goodwill
|
|
$
|
116,154
|
|
|
|
|
Goodwill deductible for tax purposes
|
|
$
|
115,532
|
|
2017 Acquisitions
Teletronics Technology Corporation (TTC)
On
January 3, 2017
, the Corporation acquired 100% of the issued and outstanding capital stock of TTC for
$226.0 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 operates within the Defense segment.
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 operates within the Commercial/Industrial segment.
4
. RECEIVABLES
Receivables include current notes, amounts billed to customers, claims, other receivables, and unbilled revenue on long-term contracts, which consists of amounts recognized as sales but not billed. Substantially all amounts of unbilled receivables are expected to be billed and collected in the subsequent 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.
Credit risk is diversified due to the large number of entities comprising the Corporation’s customer base and their geographic dispersion. The Corporation is either a prime contractor or subcontractor to various agencies of the U.S. Government. Revenues derived directly and indirectly from government sources (primarily the U.S. Government) were
39%
and
38%
of total net sales in
2017
and
2016
, respectively. Total receivables due primarily from the U.S Government were
$208.4 million
and
$183.6 million
as of
December 31, 2017
and
2016
, respectively. Government (primarily the U.S. Government) unbilled receivables, net of progress payments, were
$89.3 million
and
$83.2 million
as of
December 31, 2017
and
2016
, respectively.
The composition of receivables as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
Billed receivables:
|
|
|
|
|
Trade and other receivables
|
|
$
|
363,234
|
|
|
$
|
340,091
|
|
Less: Allowance for doubtful accounts
|
|
(7,486
|
)
|
|
(4,832
|
)
|
Net billed receivables
|
|
355,748
|
|
|
335,259
|
|
Unbilled receivables:
|
|
|
|
|
Recoverable costs and estimated earnings not billed
|
|
160,727
|
|
|
149,847
|
|
Less: Progress payments applied
|
|
(21,552
|
)
|
|
(22,044
|
)
|
Net unbilled receivables
|
|
139,175
|
|
|
127,803
|
|
Receivables, net
|
|
$
|
494,923
|
|
|
$
|
463,062
|
|
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 market.
The composition of inventories as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
Raw material
|
|
$
|
191,855
|
|
|
$
|
189,228
|
|
Work-in-process
|
|
73,937
|
|
|
73,843
|
|
Finished goods
|
|
114,307
|
|
|
112,478
|
|
Inventoried costs related to U.S. Government and other long-term contracts
|
|
65,150
|
|
|
57,516
|
|
Gross inventories
|
|
445,249
|
|
|
433,065
|
|
Less: Inventory reserves
|
|
(54,638
|
)
|
|
(54,988
|
)
|
Progress payments applied, principally related to long-term contracts
|
|
(11,745
|
)
|
|
(11,103
|
)
|
Inventories, net
|
|
$
|
378,866
|
|
|
$
|
366,974
|
|
As of December 31,
2017
and
2016
, inventory also includes capitalized contract development costs of
$35.0 million
and
$28.8 million
, respectively, related to certain aerospace and defense programs. These capitalized costs will be liquidated as production units are delivered to the customer. As of December 31,
2017
and
2016
,
$5.4 million
and
$3.9 million
, respectively, are scheduled to be liquidated under existing firm orders.
6
. PROPERTY, PLANT, AND EQUIPMENT
The composition of property, plant, and equipment as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
Land
|
|
$
|
19,947
|
|
|
$
|
19,511
|
|
Buildings and improvements
|
|
234,539
|
|
|
215,221
|
|
Machinery, equipment, and other
|
|
783,430
|
|
|
752,356
|
|
Property, plant, and equipment, at cost
|
|
1,037,916
|
|
|
987,088
|
|
Less: Accumulated depreciation
|
|
(647,681
|
)
|
|
(598,185
|
)
|
Property, plant, and equipment, net
|
|
$
|
390,235
|
|
|
$
|
388,903
|
|
Depreciation expense from continuing operations for the years ended December 31,
2017
,
2016
, and
2015
was
$61.6 million
,
$62.6 million
, and
$64.7 million
, respectively.
7
. GOODWILL
The changes in the carrying amount of goodwill for
2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial/Industrial
|
|
Defense
|
|
Power
|
|
Consolidated
|
December 31, 2015
|
|
$
|
447,828
|
|
|
$
|
337,603
|
|
|
$
|
187,175
|
|
|
$
|
972,606
|
|
Divestitures
|
|
—
|
|
|
(452
|
)
|
|
—
|
|
|
(452
|
)
|
Foreign currency translation adjustment
|
|
(11,687
|
)
|
|
(9,496
|
)
|
|
86
|
|
|
(21,097
|
)
|
December 31, 2016
|
|
$
|
436,141
|
|
|
$
|
327,655
|
|
|
$
|
187,261
|
|
|
$
|
951,057
|
|
Acquisitions
|
|
2,677
|
|
|
113,477
|
|
|
|
|
116,154
|
|
Divestitures
|
|
(1,168
|
)
|
|
(647
|
)
|
|
|
|
|
(1,815
|
)
|
Foreign currency translation adjustment
|
|
10,881
|
|
|
19,847
|
|
|
205
|
|
|
30,933
|
|
December 31, 2017
|
|
$
|
448,531
|
|
|
$
|
460,332
|
|
|
$
|
187,466
|
|
|
$
|
1,096,329
|
|
The purchase price allocations relating to the businesses acquired are initially based on estimates. The Corporation adjusts these estimates based upon final analysis, including input from third party appraisals when deemed appropriate. The determination of fair value is finalized no later than twelve months from acquisition. Goodwill adjustments represent subsequent adjustments to the purchase price allocation for acquisitions.
The Corporation completed its annual goodwill impairment testing as of October 31,
2017
,
2016
, and
2015
and concluded that there was
no
impairment of goodwill. The estimated fair value of each respective reporting unit substantially exceeded its recorded book value.
8
. OTHER INTANGIBLE ASSETS, NET
Intangible assets are generally the result of acquisitions and consist primarily of purchased technology, customer related intangibles, and trademarks. Intangible assets are amortized over useful lives that generally range between
1
and
20
years.
The following tables present the cumulative composition of the Corporation’s intangible assets as of December 31,
2017
and December 31,
2016
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
(In thousands)
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Technology
|
|
$
|
243,440
|
|
|
$
|
(114,036
|
)
|
|
$
|
129,404
|
|
|
$
|
166,859
|
|
|
$
|
(98,266
|
)
|
|
$
|
68,593
|
|
Customer related intangibles
|
|
367,230
|
|
|
(180,580
|
)
|
|
186,650
|
|
|
349,742
|
|
|
(157,154
|
)
|
|
192,588
|
|
Other intangible assets
|
|
40,640
|
|
|
(27,026
|
)
|
|
13,614
|
|
|
36,709
|
|
|
(26,429
|
)
|
|
10,280
|
|
Total
|
|
$
|
651,310
|
|
|
$
|
(321,642
|
)
|
|
$
|
329,668
|
|
|
$
|
553,310
|
|
|
$
|
(281,849
|
)
|
|
$
|
271,461
|
|
During the
year ended December 31, 2017
, the Corporation acquired intangible assets of
$88.9 million
which included Technology of
$73.0 million
, Customer-related intangibles of
$12.9 million
, and Other intangible assets of
$3.0 million
. The weighted average amortization periods for these aforementioned intangible assets are
15.0
years,
16.3
years, and
7.0
years, respectively.
Amortization expense from continuing operations for the years ended December 31,
2017
,
2016
, and
2015
was
$38.4 million
,
$33.4 million
, and
$34.8 million
, respectively. The estimated future amortization expense of intangible assets over the next five years is as follows:
|
|
|
|
|
|
(In thousands)
|
|
|
2018
|
|
$
|
38,159
|
|
2019
|
|
36,405
|
|
2020
|
|
34,440
|
|
2021
|
|
32,644
|
|
2022
|
|
30,085
|
|
9
. FAIR VALUE OF FINANCIAL INSTRUMENTS
Forward Foreign Exchange and Currency Option Contracts
The Corporation has foreign currency exposure primarily in the United Kingdom, Canada, and Europe. 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 Consolidated Balance Sheets.
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 Corporation’s foreign exchange contracts and interest rate swaps are considered Level 2 instruments which are based on market based inputs or unobservable inputs and corroborated by market data such as quoted prices, interest rates, or yield curves.
For interest rate swaps designated as fair value hedges (i.e., hedges against the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), changes in the fair value of the interest rate swaps offset changes in the fair value of the fixed rate debt due to changes in market interest rates.
In March 2013, the Corporation entered into fixed-to-floating interest rate swap agreements to convert the interest payments of (i) the
$100 million
,
3.85%
notes, due
February 26, 2025
, from a fixed rate to a floating interest rate based on 1-Month
LIBOR
plus a
1.77%
spread, and (ii) the
$75 million
,
4.05%
notes, due
February 26, 2028
, from a fixed rate to a floating interest rate based on 1-Month
LIBOR
plus a
1.73%
spread.
In January 2012, the Corporation entered into fixed-to-floating interest rate swap agreements to convert the interest payments of (i) the
$200 million
,
4.24%
notes, due
December 1, 2026
, from a fixed rate to a floating interest rate based on 1-Month
LIBOR
plus a
2.02%
spread, and (ii)
$25 million
of the
$100 million
,
3.84%
notes, due
December 1, 2021
, from a fixed rate to a floating interest rate based on 1-Month
LIBOR
plus a
1.90%
spread.
On February 5, 2016, the Corporation terminated its March 2013 and January 2012 interest rate swap agreements. As a result of the termination, the Corporation received a cash payment of
$20.4 million
, representing the fair value of the interest rate swaps on the date of termination. In connection with the termination, the Corporation and the counterparties released each other from all obligations under the interest rate swaps agreement, including, without limitation, the obligation to make periodic payments under such agreements. The gain on termination is reflected as a bond premium to our notes' carrying value and will be amortized into interest expense over the remaining terms of the Senior Notes.
Effects on Consolidated Balance Sheets
As of
December 31, 2017
and
December 31, 2016
, the fair values of the asset and liability derivative instruments are immaterial.
Effects on Consolidated Statements of Earnings
Fair value hedge
The location and amount of losses on the hedged fixed rate debt attributable to changes in the market interest rates and the offsetting gains on the related interest rate swaps for the years ended December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) on Swap
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Other income, net
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,204
|
|
Hedged fixed rate debt
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8,204
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Undesignated hedges
The location and amount of (gains) and losses recognized in income on forward exchange derivative contracts not designated for hedge accounting for the years ended December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Forward exchange contracts:
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
(346
|
)
|
|
$
|
11,510
|
|
|
$
|
11,042
|
|
Debt
The estimated fair value amounts were determined by the Corporation using available market information, which is primarily based on quoted market prices for the same or similar issues as of December 31,
2017
. The fair value of our debt instruments are characterized as a Level 2 measurement which are based on market based inputs or unobservable inputs and corroborated by market data such as quoted prices, interest rates, or yield curves. The estimated fair values of the Corporation’s fixed rate debt instruments as of December 31,
2017
, net of debt issuance costs, totaled $
822 million
compared to a carrying value, net of debt issuance costs, of $
799 million
. The estimated fair values of the Corporation’s fixed rate debt instruments as of December 31,
2016
, net of debt issuance costs, totaled $
961 million
compared to a carrying value, net of debt issuance costs, of $
949 million
.
The fair values described above 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.
Nonrecurring measurements
As discussed in Note 2 to the Consolidated Financial Statements, the Corporation classified certain businesses as held for sale during 2014. In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets guidance of FASB Codification Subtopic 360–10, the carrying amounts of the disposal groups were written down to their estimated fair value, less costs to sell, resulting in an impairment charge of
$40.8 million
, which was included in the loss from discontinued operations before income taxes for the year ended December 31, 2015.
10
. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses consist of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
Accrued compensation
|
|
$
|
108,268
|
|
|
$
|
85,970
|
|
Accrued commissions
|
|
6,296
|
|
|
5,189
|
|
Accrued interest
|
|
9,894
|
|
|
9,817
|
|
Accrued insurance
|
|
7,015
|
|
|
7,521
|
|
Other
|
|
18,933
|
|
|
21,742
|
|
Total accrued expenses
|
|
$
|
150,406
|
|
|
$
|
130,239
|
|
Other current liabilities consist of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
Warranty reserves
|
|
$
|
14,212
|
|
|
$
|
11,768
|
|
Additional amounts due to sellers on acquisitions
|
|
1,941
|
|
|
1,985
|
|
Reserves on loss contracts
|
|
1,418
|
|
|
1,662
|
|
Pension and other postretirement liabilities
|
|
5,060
|
|
|
5,331
|
|
Other
|
|
13,179
|
|
|
7,281
|
|
Total other current liabilities
|
|
$
|
35,810
|
|
|
$
|
28,027
|
|
11
. INCOME TAXES
2017 Tax Cuts and Jobs Act
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law. The new legislation contains several key tax provisions, including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the U.S. corporate income tax rate to 21% effective January 1, 2018. The Corporation will generally be eligible for a 100% dividends received exemption on its foreign earnings starting in fiscal year 2018. However, it may also be subject to the Base Erosion Anti-Abuse Tax and Global Intangible Low Taxed Income (GILTI), both of which do not impact the Corporation until fiscal year 2018. The Corporation has not yet adopted an accounting policy related to the provision of deferred taxes for inside asset basis differences that could produce additional income subject to GILTI in the future. The Corporation anticipates that future issuance of U.S. Treasury department regulations and notices will clarify significant issues dealing with the application and computation of taxes due under the GILTI provisions.
In accordance with Staff Accounting Bulletin No. 118,
Income Tax Accounting Implications of the Tax Cuts and Jobs Act
, the Corporation recognized the income tax effects of the Tax Act in its consolidated financial statements for the year ended December 31, 2017, resulting in a net increase in its provision for income taxes of approximately
$10 million
. The Corporation expects to finalize any provisional amounts associated with the Tax Act over the next 12 months based on an ongoing assessment of its tax positions and other relevant data.
The Corporation has summarized the most significant impacts from the Tax Act below:
Reduction of the U.S. Corporate Income Tax Rate
The Corporation measures deferred tax assets and liabilities using enacted tax rates that are applicable in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Corporation’s deferred tax assets and liabilities were remeasured to reflect the reduction of the U.S. corporate income tax rate from 35 percent to 21 percent, resulting in a provisional
$13.4 million
decrease in income tax expense for the year ended December 31, 2017 and a corresponding
$13.4 million
decrease in net deferred tax liabilities as of December 31, 2017. The Corporation is still analyzing certain aspects of the Tax Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.
Transition Tax on Foreign Earnings
The Corporation recorded provisional income tax expense of
$18.2 million
for the year ended December 31, 2017 related to the one-time transition tax on certain foreign earnings. Prior to assessing the impact of the Tax Act, the Corporation had a deferred tax liability of
$5.5 million
for certain foreign subsidiaries whose earnings were not considered permanently reinvested. As of December 31, 2017, the Corporation’s provisional income tax liability related to the transition tax was
$23.7 million
. The
transition tax will be paid over
eight
years, as permitted by the Tax Act, with the current balance of
$1.9 million
recorded in current income tax payable as of December 31, 2017. The determination of the transition tax requires further analysis regarding the amount and composition of the Corporation’s historical foreign earnings and tax pools. Given that all of its foreign undistributed earnings are no longer considered permanently reinvested, the Corporation also recorded provisional income tax expense of
$3.8 million
for the year ended December 31, 2017 for withholding taxes that would arise upon ultimate distribution of all the Corporation’s foreign undistributed earnings. The Corporation is considered permanently reinvested to the extent of any outside basis differences in its foreign subsidiaries in excess of the amount of undistributed earnings.
Earnings before income taxes for the years ended December 31 consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
|
$
|
179,006
|
|
|
$
|
154,571
|
|
|
$
|
135,112
|
|
Foreign
|
|
120,613
|
|
|
113,390
|
|
|
140,082
|
|
|
|
$
|
299,619
|
|
|
$
|
267,961
|
|
|
$
|
275,194
|
|
The provision for income taxes for the years ended December 31 consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
54,963
|
|
|
$
|
45,523
|
|
|
$
|
(6,741
|
)
|
State
|
|
2,648
|
|
|
8,002
|
|
|
6,175
|
|
Foreign
|
|
23,162
|
|
|
20,861
|
|
|
27,134
|
|
Total current
|
|
80,773
|
|
|
74,386
|
|
|
26,568
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
2,595
|
|
|
4,267
|
|
|
49,060
|
|
State
|
|
4,282
|
|
|
73
|
|
|
7,390
|
|
Foreign
|
|
(2,922
|
)
|
|
(147
|
)
|
|
(72
|
)
|
Total deferred
|
|
3,955
|
|
|
4,193
|
|
|
56,378
|
|
Provision for income taxes
|
|
$
|
84,728
|
|
|
$
|
78,579
|
|
|
$
|
82,946
|
|
The effective tax rate varies from the U.S. federal statutory tax rate for the years ended December 31, principally:
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
U.S. federal statutory tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Add (deduct):
|
|
|
|
|
|
|
State and local taxes, net of federal benefit
|
|
1.8
|
|
|
1.1
|
|
|
4.3
|
|
R&D tax credits
|
|
(1.3
|
)
|
|
(0.9
|
)
|
|
(1.3
|
)
|
Foreign earnings
(1)
|
|
(6.0
|
)
|
|
(5.8
|
)
|
|
(6.2
|
)
|
Stock compensation - excess tax benefits
|
|
(2.6
|
)
|
|
—
|
|
|
—
|
|
Impacts related to the Tax Act
|
|
3.4
|
|
|
—
|
|
|
—
|
|
All other, net
|
|
(2.0
|
)
|
|
(0.1
|
)
|
|
(1.7
|
)
|
Effective tax rate
|
|
28.3
|
%
|
|
29.3
|
%
|
|
30.1
|
%
|
(1)
Foreign earnings primarily include the net impact of differences between local statutory rates and the U.S. Federal statutory rate, the cost of repatriating foreign earnings, and the impact of changes to foreign valuation allowances.
The components of the Corporation’s deferred tax assets and liabilities as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
Deferred tax assets:
|
|
|
|
|
Pension plans
|
|
$
|
18,903
|
|
|
$
|
45,568
|
|
Environmental reserves
|
|
7,109
|
|
|
9,871
|
|
Inventories
|
|
15,116
|
|
|
21,758
|
|
Postretirement/postemployment benefits
|
|
8,241
|
|
|
13,542
|
|
Incentive compensation
|
|
7,721
|
|
|
9,425
|
|
Net operating loss
|
|
10,908
|
|
|
10,345
|
|
Capital loss carryover
|
|
7,047
|
|
|
11,352
|
|
Other
|
|
28,775
|
|
|
39,977
|
|
Total deferred tax assets
|
|
103,820
|
|
|
161,838
|
|
Deferred tax liabilities:
|
|
|
|
|
Depreciation
|
|
19,586
|
|
|
25,963
|
|
Goodwill amortization
|
|
67,779
|
|
|
97,667
|
|
Other intangible amortization
|
|
38,252
|
|
|
51,712
|
|
Other
|
|
12,636
|
|
|
16,225
|
|
Total deferred tax liabilities
|
|
138,253
|
|
|
191,567
|
|
Valuation allowance
|
|
12,322
|
|
|
17,776
|
|
Net deferred tax liabilities
|
|
$
|
46,755
|
|
|
$
|
47,505
|
|
Deferred tax assets and liabilities are reflected on the Corporation’s consolidated balance sheet as of December 31 as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
Net noncurrent deferred tax assets
|
|
2,605
|
|
|
2,217
|
|
Net noncurrent deferred tax liabilities
|
|
49,360
|
|
|
49,722
|
|
Net deferred tax liabilities
|
|
$
|
46,755
|
|
|
$
|
47,505
|
|
The Corporation has income tax net operating loss carryforwards related to international operations of
$24.0 million
of which
$17.9 million
have an indefinite life and
$6.1 million
expire through
2023
. The Corporation has federal and state income tax net loss carryforwards of
$104.1 million
, of which
$73.0 million
are net operating losses which expire through
2037
and
$31.1 million
are capital loss carryforwards which expire through
2020
. The Corporation has recorded a deferred tax asset of
$18 million
reflecting the benefit of the loss carryforwards.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31,
2017
in certain of the Corporation’s foreign locations. Such objective evidence limits the ability to consider other subjective evidence such as projections for future growth. The Corporation provisionally decreased its valuation allowance by
$5.5 million
to
$12.3 million
, as of December 31,
2017
, in order to measure only the portion of the deferred tax asset that more likely than not will be realized. Of the
$5.5 million
decrease in the valuation allowance,
$4.3 million
was due to the reduction of the U.S. corporate income tax rate from 35 percent to 21 percent. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as projections for growth.
Income tax payments, net of refunds, of
$92.1 million
,
$54.5 million
, and
$4.9 million
were made in
2017
,
2016
, and
2015
, respectively.
The Corporation has recognized a liability in Other liabilities for interest of
$2.6 million
and penalties of
$1.6 million
as of December 31,
2017
.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Balance as of January 1,
|
|
$
|
11,454
|
|
|
$
|
12,414
|
|
|
$
|
11,560
|
|
Additions for tax positions of prior periods
|
|
1,069
|
|
|
32
|
|
|
359
|
|
Reductions for tax positions of prior periods
|
|
(194
|
)
|
|
(1,679
|
)
|
|
—
|
|
Additions for tax positions related to the current year
|
|
1,273
|
|
|
789
|
|
|
2,026
|
|
Settlements
|
|
(428
|
)
|
|
(102
|
)
|
|
(1,414
|
)
|
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
(117
|
)
|
Balance as of December 31,
|
|
$
|
13,174
|
|
|
$
|
11,454
|
|
|
$
|
12,414
|
|
In many cases, the Corporation’s uncertain tax positions are related to tax years that remain subject to examination by tax authorities.
The following describes the open tax years, by major tax jurisdiction, as of December 31,
2017
:
|
|
|
|
|
United States (Federal)
|
2014
|
-
|
present
|
United States (Various states)
|
2006
|
-
|
present
|
United Kingdom
|
2010
|
-
|
present
|
Canada
|
2011
|
-
|
present
|
The Corporation does not expect any significant changes to the estimated amount of liability associated with its uncertain tax positions through the next twelve months. Included in the total unrecognized tax benefits as of December 31,
2017
,
2016
, and
2015
is
$10.1 million
,
$7.7 million
, and
$8.3 million
, respectively, which if recognized, would favorably affect the effective income tax rate.
12
. DEBT
Debt consists of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2017
|
|
2016
|
|
2016
|
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
5.51% Senior notes due 2017
|
|
—
|
|
—
|
|
150,000
|
|
154,509
|
3.84% Senior notes due 2021
|
|
100,000
|
|
102,472
|
|
100,000
|
|
102,463
|
3.70% Senior notes due 2023
|
|
225,000
|
|
228,783
|
|
225,000
|
|
226,946
|
3.85% Senior notes due 2025
|
|
100,000
|
|
102,164
|
|
100,000
|
|
100,338
|
4.24% Senior notes due 2026
|
|
200,000
|
|
208,873
|
|
200,000
|
|
203,592
|
4.05% Senior notes due 2028
|
|
75,000
|
|
76,997
|
|
75,000
|
|
74,630
|
4.11% Senior notes due 2028
|
|
100,000
|
|
103,226
|
|
100,000
|
|
99,876
|
Other debt
|
|
150
|
|
150
|
|
668
|
|
668
|
Total debt
|
|
800,150
|
|
822,665
|
|
950,668
|
|
963,022
|
Debt issuance costs, net
|
|
(831)
|
|
(831)
|
|
(984)
|
|
(984)
|
Unamortized interest rate swap proceeds
|
|
14,820
|
|
14,820
|
|
16,614
|
|
16,614
|
Total debt, net
|
|
814,139
|
|
836,654
|
|
966,298
|
|
978,652
|
Less: current portion of long-term debt and short-term debt
|
|
150
|
|
150
|
|
150,668
|
|
150,668
|
Total long-term debt
|
|
$813,989
|
|
$836,504
|
|
$815,630
|
|
$827,984
|
The Corporation did not have any borrowings against the Revolving Credit Agreement in
2017
and
2016
, respectively.
The debt outstanding had fixed and variable interest rates averaging
3.9%
in both
2017
and
2016
, respectively.
Aggregate maturities of debt are as follows:
|
|
|
|
|
(In thousands)
|
|
2018
|
$
|
150
|
|
2019
|
—
|
|
2020
|
—
|
|
2021
|
100,000
|
|
2022
|
—
|
|
Thereafter
|
700,000
|
|
Total
|
$
|
800,150
|
|
Interest payments of
$39 million
,
$38 million
, and
$33 million
were made in
2017
,
2016
, and
2015
, respectively.
Revolving Credit Agreement
In
August 2012
, the Corporation refinanced its existing credit facility by entering into a Third Amended and Restated Credit Agreement (Credit Agreement) with a syndicate of financial institutions, led by Bank of America N.A., Wells Fargo, N.A, and JP Morgan Chase Bank, N.A. The proceeds available under the Credit Agreement are to be used for working capital, internal growth initiatives, funding of future acquisitions, and general corporate purposes. Under the terms of the Credit Agreement, the Corporation has borrowing capacity of
$500 million
. In addition, the Credit Agreement provides an accordion feature which allows the Corporation to borrow an additional
$100 million
. As of December 31,
2017
, the Corporation had
$21 million
in letters of credit supported by the credit facility and no borrowings outstanding under the credit facility. The unused credit available under the credit facility as of December 31,
2017
was
$479 million
, which the Corporation had the ability to borrow in full without violating its debt to capitalization covenant.
In
December 2014
, the Corporation amended its existing credit facility by entering into a Second Amendment to the Third Amended and Restated Credit Agreement (Credit Agreement) with a syndicate of financial institutions, led by Bank of America N.A., Wells Fargo, N.A, and JP Morgan Chase Bank, N.A. The amendment extends the maturity date of the agreement to
November 2019
. No other material modifications were made to the 2012 Credit Agreement.
The Credit Agreement contains covenants that the Corporation considers usual and customary for an agreement of this type for comparable commercial borrowers, including a maximum consolidated debt to capitalization ratio of 60%. The Credit Agreement has customary events of default, such as non-payment of principal when due; nonpayment of interest, fees, or other amounts; cross-payment default and cross-acceleration.
Borrowings under the credit agreement will accrue interest based on (i) Libor or (ii) a base rate of the highest of (a) the federal funds rate plus 0.5%, (b) BofA’s announced prime rate, or (c) the Eurocurrency rate plus 1%, plus a margin. The interest rate and level of facility fees are dependent on certain financial ratios, as defined in the Credit Agreement. The Credit Agreement also provides customary fees, including administrative agent and commitment fees. In connection with the Credit Agreement, the Corporation paid customary transaction fees that have been deferred and are being amortized over the term of the Credit Agreement.
Senior Notes
On
February 26, 2013
, the Corporation issued
$500 million
of Senior Notes (the “2013 Notes”). The 2013 Notes consist of
$225 million
of
3.70%
Senior Notes that mature on
February 26, 2023
,
$100 million
of
3.85%
Senior Notes that mature on
February 26, 2025
, and
$75 million
of
4.05%
Senior Notes that mature on
February 26, 2028
.
$100 million
of additional
4.11%
Senior Notes were deferred and subsequently issued on
September 26, 2013
that mature on
September 26, 2028
. The 2013 Notes are senior unsecured obligations, equal in right of payment to the Corporation’s existing senior indebtedness. The Corporation, at its option, can prepay at any time all or any part of the 2013 Notes, subject to a make-whole payment in accordance with the terms of the Note Purchase Agreement. In connection with the issuance of the 2013 Notes, the Corporation paid customary fees that have been deferred and are being amortized over the term of the 2013 Notes. Under the terms of the Note Purchase Agreement, the Corporation is required to maintain certain financial ratios, the most restrictive of which is a debt to capitalization limit of
60%
. The debt to capitalization ratio (as defined per the Notes Purchase Agreement and Credit Agreement) is calculated using the same formula for all of the Corporation’s debt agreements and is a measure of the Corporation’s indebtedness to capitalization, where capitalization equals debt plus equity. As of
December 31, 2017
, the Corporation had the ability to borrow additional debt of
$1.4 billion
without violating our debt to capitalization covenant. The 2013 Notes also contain a cross default provision with respect to the Corporation’s other senior indebtedness.
On
December 8, 2011
, the Corporation issued
$300 million
of Senior Notes (the “2011 Notes”). The 2011 Notes consist of
$100 million
of
3.84%
Senior Notes that mature on
December 1, 2021
and
$200 million
of
4.24%
Senior Series Notes that
mature on
December 1, 2026
. The 2011 Notes are senior unsecured obligations, equal in right of payment to our existing senior indebtedness. The Corporation, at its option, can prepay at any time all or any part of our 2011 Notes, subject to a make-whole payment in accordance with the terms of the Note Purchase Agreement. In connection with our 2011 Notes, the Corporation paid customary fees that have been deferred and are being amortized over the term of our 2011 Notes. Under the Note Purchase Agreement, the Corporation is required to maintain certain financial ratios, the most restrictive of which is a debt to capitalization limit of
60%
. The 2011 Notes also contain a cross default provision with our other senior indebtedness.
On
December 1, 2005
, the Corporation issued
$150 million
of
5.51%
Senior Notes (the “2005 Notes”). The 2005 Notes, which matured on
December 1, 2017
and were repaid in full, were senior unsecured obligations and equal in right of payment to the Corporation’s existing senior indebtedness. In connection with the Notes, the Corporation paid customary fees that were deferred and amortized over the terms of the Notes.
13
. EARNINGS PER SHARE
The Corporation is required to report both basic earnings per share (EPS), based on the weighted-average number of common shares outstanding, and diluted earnings per share, based on the basic EPS adjusted for all potentially dilutive shares issuable.
As of December 31,
2017
,
2016
, and
2015
, there were no options outstanding that were considered anti-dilutive.
Earnings per share calculations for the years ended December 31,
2017
,
2016
, and
2015
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
Earnings from
continuing
operations
|
|
Weighted-
Average Shares
Outstanding
|
|
Earnings per share
from continuing
operations
|
2017
|
|
|
|
|
|
|
Basic earnings per share from continuing operations
|
|
$
|
214,891
|
|
|
44,182
|
|
|
$
|
4.86
|
|
Dilutive effect of stock options and deferred stock compensation
|
|
|
|
579
|
|
|
|
Diluted earnings per share from continuing operations
|
|
$
|
214,891
|
|
|
44,761
|
|
|
$
|
4.80
|
|
2016
|
|
|
|
|
|
|
Basic earnings per share from continuing operations
|
|
$
|
189,382
|
|
|
44,389
|
|
|
$
|
4.27
|
|
Dilutive effect of stock options and deferred stock compensation
|
|
|
|
656
|
|
|
|
Diluted earnings per share from continuing operations
|
|
$
|
189,382
|
|
|
45,045
|
|
|
$
|
4.20
|
|
2015
|
|
|
|
|
|
|
Basic earnings per share from continuing operations
|
|
$
|
192,248
|
|
|
46,624
|
|
|
$
|
4.12
|
|
Dilutive effect of stock options and deferred stock compensation
|
|
|
|
992
|
|
|
|
Diluted earnings per share from continuing operations
|
|
$
|
192,248
|
|
|
47,616
|
|
|
$
|
4.04
|
|
14
. SHARE-BASED COMPENSATION PLANS
In May 2014, the Corporation adopted the Curtiss Wright 2014 Omnibus Incentive Plan (the “2014 Omnibus Plan”). The plan replaced the Corporation's existing 2005 Long Term Incentive Plan and the 2005 Stock Plan for Non-Employee Directors (collectively the “2005 Stock Plans”). Beginning in May 2014, all awards were granted under the 2014 Omnibus Plan. The maximum aggregate number of shares of common stock that may be issued under the 2014 Omnibus Plan are
2,400,000
less one share of common stock for every one share of common stock granted under any prior plan after December 31, 2013 and prior to the effective date of the 2014 Omnibus Plan. In addition, any awards that were previously granted under any prior plan that terminate without issuance of shares, shall be eligible for issuance under the 2014 Omnibus Plan. Awards under the 2014 Omnibus Plan may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units (RSU), other stock-based awards, performance share units (PSU) or cash based performance units (PU).
During
2017
, the Corporation granted awards in the form of RSUs, PSUs, and restricted stock. Previous grants under the 2005 Stock Plans included non-qualified stock options. Under our employee benefit program, the Corporation also provides an Employee Stock Purchase Plan (ESPP) available to most active employees. Certain awards provide for accelerated vesting if there is a change in control.
The compensation cost for employee and non-employee director share-based compensation programs during
2017
,
2016
, and
2015
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Employee Stock Purchase Plan
|
|
1,207
|
|
|
1,184
|
|
|
1,279
|
|
Performance Share Units
|
|
4,340
|
|
|
3,910
|
|
|
4,349
|
|
Restricted Share Units
|
|
4,931
|
|
|
3,426
|
|
|
3,015
|
|
Other share-based payments
|
|
1,094
|
|
|
958
|
|
|
830
|
|
Total share-based compensation expense before income taxes
|
|
$
|
11,572
|
|
|
$
|
9,478
|
|
|
$
|
9,473
|
|
Other share-based grants include service-based restricted stock awards to non-employee directors, who are treated as employees as prescribed by the accounting guidance on share-based payments. The compensation cost recognized follows the cost of the employee, which is primarily reflected as General and administrative expenses in the Consolidated Statements of Earnings. No share-based compensation costs were capitalized during
2017
,
2016
, or
2015
.
The following table summarizes the cash received from share-based awards on share-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Cash received from share-based awards
|
|
$
|
14,179
|
|
|
$
|
22,300
|
|
|
$
|
28,706
|
|
A summary of employee stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
(000’s)
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term in
Years
|
|
Aggregate
Intrinsic
Value
(000’s)
|
Outstanding as of December 31, 2016
|
|
443
|
|
|
$
|
31.91
|
|
|
|
|
|
Exercised
|
|
(179
|
)
|
|
34.24
|
|
|
|
|
|
Outstanding as of December 31, 2017
|
264
|
|
|
$
|
30.30
|
|
|
2.2
|
|
$
|
24,093
|
|
Exercisable as of December 31, 2017
|
264
|
|
|
$
|
30.30
|
|
|
2.2
|
|
$
|
24,093
|
|
The total intrinsic value of stock options exercised during
2017
,
2016
, and
2015
was
$30.2 million
,
$43.2 million
, and
$36.8 million
, respectively.
Performance Share Units
The Corporation has granted performance share units to certain employees, whose three year cliff vesting is contingent upon the Corporation's total shareholder return over the three-year term of the awards compared to a self-constructed peer group. The non-vested shares are subject to forfeiture if established performance goals are not met or employment is terminated other than due to death, disability, or retirement. Share plans are denominated in share-based units based on the fair market value of the Corporation’s common stock on the date of grant. The performance share unit’s compensation cost is amortized to expense on a straight-line basis over the three-year requisite service period.
Restricted Share Units
Restricted share units cliff vest at the end of the awards’ vesting period. The restricted share units are service-based and thus compensation cost is amortized to expense on a straight-line basis over the requisite service period, which is typically
three
years. The non-vested restricted units are subject to forfeiture if employment is terminated other than due to death, disability, or retirement.
A summary of the Corporation’s
2017
activity related to performance share units and restricted share units are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Share Units (PSUs)
|
|
Restricted Share Units (RSUs)
|
|
|
Shares/Units
(000’s)
|
|
Weighted-
Average
Fair Value
|
|
Shares/Units
(000’s)
|
|
Weighted-
Average
Fair Value
|
Nonvested as of December 31, 2016
|
204
|
|
|
$
|
71.28
|
|
|
204
|
|
|
$
|
74.38
|
|
Granted
|
|
68
|
|
|
62.91
|
|
|
1
|
|
|
98.34
|
|
Vested
|
|
(137
|
)
|
|
62.91
|
|
|
(34
|
)
|
|
70.36
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
85.47
|
|
Nonvested as of December 31, 2017
|
135
|
|
|
$
|
75.51
|
|
|
169
|
|
|
$
|
75.19
|
|
Expected to vest as of December 31, 2017
|
135
|
|
|
$
|
75.51
|
|
|
169
|
|
|
$
|
75.19
|
|
Nonvested PSUs had an intrinsic value of $
16.5 million
and unrecognized compensation costs of
$4.7 million
as of December 31,
2017
. Nonvested RSUs had an intrinsic value of $
20.6 million
and unrecognized compensation costs of
$5.9 million
as of December 31,
2017
. Unrecognized compensation costs related to PSUs and RSUs are both expected to be recognized over a period of
1.7
years.
Employee Stock Purchase Plan
The Corporation’s ESPP enables eligible employees to purchase the Corporation’s common stock at a price per share equal to
85%
of the fair market value at the end of each offering period. Each offering period of the ESPP lasts six months, commencing on January 1st and July 1st of each year. Compensation cost is recognized on a straight-line basis over the six-month vesting period during which employees perform related services.
15
. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The Corporation maintains
ten
separate and distinct pension and other post-retirement defined benefit plans, consisting of
three
domestic plans and
seven
separate foreign pension plans. Effective May 1, 2016, the Corporation completed the merger of three frozen UK defined benefit pension schemes by merging the Metal Improvement Company Salaried Staff Pension Scheme and the Mechetronics Limited Retirement Benefits Scheme into the Curtiss-Wright Penny & Giles Pension Plan. The Penny & Giles Plan was then renamed the Curtiss-Wright UK Pension Plan.
Effective December 31, 2014, the Corporation executed the following plan mergers: the
two
Williams Controls defined benefit pension plans were merged with the CW Pension Plan, resulting in
one
surviving domestic qualified plan, and the
three
domestic post-retirement health-benefits plans (CW, EMD, and Williams Controls) were merged into
one
. Post-merger, the Corporation maintains the following domestic plans: a qualified pension plan, a non-qualified pension plan, and a postretirement health-benefits plan. The foreign plans consist of
one
defined benefit pension plan each in the United Kingdom, Canada and Switzerland,
two
in Germany, and
two
in Mexico.
Domestic Plans
Qualified Pension Plan
The Corporation maintains a defined benefit pension plan (the “CW Pension Plan”) covering certain employee populations under six benefit formulas: a non-contributory non-union and union formula for certain Curtiss-Wright (CW) employees, a contributory union and non-union benefit formula for employees at the EMD business unit, and two benefit formulas providing annuity benefits for participants in the former Williams Controls salaried and union plans.
CW non-union employees hired prior to February 1, 2010 receive a “traditional” benefit based on years of credited service, using the five highest consecutive years’ compensation during the last ten years of service. These employees became participants under the CW Pension Plan after
one
year of service and were vested after
three
years of service. CW non-union employees hired on or after the effective date were eligible for a cash balance benefit through December 31, 2013, and were transitioned to the new defined contribution plan, further described below. CW union employees who have negotiated a benefit under the CW Pension Plan are entitled to a benefit based on years of service multiplied by a monthly pension rate.
The formula for EMD employees covers both union and non-union employees and is designed to satisfy the requirements of relevant collective bargaining agreements. Employee contributions are withheld each pay period and are equal to
1.5%
of
salary. The benefits for the EMD employees are based on years of service and compensation. On December 31, 2012, the Corporation amended the CW Pension Plan to close the benefit to EMD employees hired after January 1, 2014.
Participants of the former Williams Controls Retirement Income Plan for salaried employees are either deferred vested participants or currently receiving benefits, as benefit accruals under the plan were frozen to future accruals effective January 1, 2003. Benefits in the salaried plan are based on average compensation and years of service.
Participants of the former Williams Controls UAW Local 492 Plan for union employees are entitled to a benefit based on years of service multiplied by a monthly pension rate, and may be eligible for supplemental benefits based upon attainment of certain age and service requirements.
In May 2013, the Company’s Board of Directors approved an amendment to the CW Pension Plan. Effective January 1, 2014, all active non-union employees participating in the final and career average pay formulas in the defined benefit plan will cease accruals
15 years
from the effective date of the amendment. In addition to the sunset provision, the “cash balance” benefit for non-union participants ceased as of January 1, 2014. Non-Union employees who are not currently receiving final or career average pay benefits became eligible to participate in a new defined contribution plan which provides both employer match and non-elective contribution components, up to a maximum employer contribution of
6%
. The amendment does not affect CW employees that are subject to collective bargaining agreements.
As of
December 31, 2017
and
2016
, the Corporation had a noncurrent pension liability of
$45.1 million
and
$40.4 million
, respectively. This increase was primarily driven by a decrease in the discount rate as of December 31, 2017, partially offset by favorable asset experience during 2017.
Due to discretionary pension contributions of
$50 million
and
$145 million
to the Curtiss-Wright Pension Plan in February 2018 and January 2015, respectively, the Corporation does not expect to make any required contributions through
2022
.
Nonqualified Pension Plan
The Corporation also maintains a non-qualified restoration plan (the “CW Restoration Plan”) covering those employees of CW and EMD whose compensation or benefits exceed the IRS limitation for pension benefits. Benefits under the CW Restoration Plan are not funded, and, as such, the Corporation had an accrued pension liability of
$48.7 million
and
$40.4 million
as of December 31,
2017
and
2016
, respectively. The Corporation’s contributions to the CW Restoration Plan are expected to be
$3.0 million
in
2018
.
Other Post-Employment Benefits (OPEB) Plan
Under the plan merger effective December 31, 2014, the Corporation provides post-employment benefits consisting of retiree health and life insurance to three distinct groups of employees/retirees: the CW Grandfathered plan, and plans assumed in the acquisitions of EMD and Williams Controls.
In 2002, the Corporation restructured the postemployment medical benefits for then-active CW employees, effectively freezing the plan. The plan continues to be maintained for certain retired CW employees.
The Corporation also provides retiree health and life insurance benefits for substantially all of the Curtiss-Wright EMD employees. The plan provides basic health and welfare coverage for pre-65 participants based on years of service and are subject to certain caps. Effective January 1, 2011, the Corporation modified the benefit design for post-65 retirees by introducing Retiree Reimbursement Accounts (RRA’s) to participants in lieu of the traditional benefit delivery. Participant accounts are funded a set amount annually that can be used to purchase supplemental coverage on the open market, effectively capping the benefit.
The plan also provides retiree health and life insurance benefits for certain retirees of the Williams Controls salaried and union pension plans. Benefits are available to those employees who retired prior to December 31, 1993 in the salaried plan, and prior to October 1, 2003 in the union plan. Effective August 31, 2013, the Corporation modified the benefit design for post-65 retirees by introducing Retiree Reimbursement Accounts (RRA’s) to align with the EMD delivery model.
The Corporation had an accrued postretirement benefit liability as of December 31,
2017
and
2016
of
$25.0 million
and
$24.4 million
, respectively. Pursuant to the EMD purchase agreement, the Corporation has a discounted receivable from Washington Group International to reimburse the Corporation for a portion of these post-retirement benefit costs. As of December 31,
2017
and
2016
, the discounted receivable included in other assets was
$0.1 million
and
$0.4 million
, respectively. The Corporation expects to contribute
$1.7 million
to the plan during
2018
.
Foreign Plans
The foreign plans consist of one defined benefit pension plan each in the United Kingdom, Canada, and Switzerland, two in Germany, and two in Mexico. As of
December 31, 2017
and
2016
, the total projected benefit obligation related to all foreign plans was
$97.4 million
and
$91.0 million
, respectively. As of
December 31, 2017
and
2016
, the Corporation had a net pension asset of
$1.5 million
and an accrued pension liability of
$3.3 million
, respectively. The Corporation's contributions to the foreign plans are expected to be
$2.3 million
in
2018
.
Components of net periodic benefit expense
The net pension and net postretirement benefit costs (income) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Service cost
|
|
$
|
25,093
|
|
|
$
|
25,100
|
|
|
$
|
26,873
|
|
|
$
|
435
|
|
|
$
|
338
|
|
|
$
|
286
|
|
Interest cost
|
|
25,895
|
|
|
30,495
|
|
|
30,050
|
|
|
762
|
|
|
996
|
|
|
842
|
|
Expected return on plan assets
|
|
(53,552
|
)
|
|
(54,101
|
)
|
|
(54,629
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
|
(100
|
)
|
|
(46
|
)
|
|
618
|
|
|
(656
|
)
|
|
(657
|
)
|
|
(657
|
)
|
Recognized net actuarial loss/(gain)
|
|
12,925
|
|
|
12,029
|
|
|
16,890
|
|
|
(223
|
)
|
|
(296
|
)
|
|
(551
|
)
|
Cost of settlements/curtailments
|
|
327
|
|
|
—
|
|
|
7,461
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost (income)
|
|
$
|
10,588
|
|
|
$
|
13,477
|
|
|
$
|
27,263
|
|
|
$
|
318
|
|
|
$
|
381
|
|
|
$
|
(80
|
)
|
The cost of settlements/curtailments indicated above represents events that are accounted for under guidance on employers’ accounting for settlements and curtailments of defined benefit pension plans. In 2017, there were settlement charges in both the U.K. and Switzerland. In 2015, the settlement charge was primarily a result of the retirement of the Corporation’s former Chairman and his election to receive the nonqualified portion of his pension benefit as a single lump sum payout.
The following table outlines the Corporation's consolidated disclosure of the pension benefits and postretirement benefits information described previously. The Corporation had no foreign postretirement plans. All plans were valued using a
December 31, 2017
measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(In thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
798,605
|
|
|
$
|
774,710
|
|
|
$
|
24,436
|
|
|
$
|
21,980
|
|
Service cost
|
|
25,093
|
|
|
25,100
|
|
|
435
|
|
|
338
|
|
Interest cost
|
|
25,895
|
|
|
30,495
|
|
|
762
|
|
|
996
|
|
Plan participants’ contributions
|
|
1,655
|
|
|
1,897
|
|
|
253
|
|
|
266
|
|
Amendments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Actuarial loss
|
|
56,727
|
|
|
19,640
|
|
|
2,056
|
|
|
3,372
|
|
Benefits paid
|
|
(45,384
|
)
|
|
(41,115
|
)
|
|
(2,907
|
)
|
|
(2,516
|
)
|
Actual expenses
|
|
(1,301
|
)
|
|
(1,206
|
)
|
|
—
|
|
|
—
|
|
Currency translation adjustments
|
|
7,597
|
|
|
(10,916
|
)
|
|
—
|
|
|
—
|
|
End of year
|
|
$
|
868,887
|
|
|
$
|
798,605
|
|
|
$
|
25,035
|
|
|
$
|
24,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
714,608
|
|
|
$
|
692,074
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
|
94,960
|
|
|
65,872
|
|
|
—
|
|
|
—
|
|
Employer contribution
|
|
4,561
|
|
|
8,210
|
|
|
2,654
|
|
|
2,250
|
|
Plan participants’ contributions
|
|
1,655
|
|
|
1,897
|
|
|
253
|
|
|
266
|
|
Benefits paid
|
|
(45,384
|
)
|
|
(41,115
|
)
|
|
(2,907
|
)
|
|
(2,516
|
)
|
Actual Expenses
|
|
(1,301
|
)
|
|
(1,206
|
)
|
|
—
|
|
|
—
|
|
Currency translation adjustments
|
|
7,383
|
|
|
(11,124
|
)
|
|
—
|
|
|
—
|
|
End of year
|
|
$
|
776,482
|
|
|
$
|
714,608
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(92,405
|
)
|
|
$
|
(83,997
|
)
|
|
$
|
(25,035
|
)
|
|
$
|
(24,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(In thousands)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Amounts recognized on the balance sheet
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
8,663
|
|
|
$
|
4,049
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current liabilities
|
|
(3,374
|
)
|
|
(3,498
|
)
|
|
(1,686
|
)
|
|
(1,833
|
)
|
Noncurrent liabilities
|
|
(97,694
|
)
|
|
(84,548
|
)
|
|
(23,349
|
)
|
|
(22,603
|
)
|
Total
|
|
$
|
(92,405
|
)
|
|
$
|
(83,997
|
)
|
|
$
|
(25,035
|
)
|
|
$
|
(24,436
|
)
|
Amounts recognized in accumulated other comprehensive income (AOCI)
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
201,390
|
|
|
$
|
198,630
|
|
|
$
|
(2,899
|
)
|
|
$
|
(5,178
|
)
|
Prior service cost
|
|
(1,461
|
)
|
|
(1,580
|
)
|
|
(2,718
|
)
|
|
(3,373
|
)
|
Total
|
|
$
|
199,929
|
|
|
$
|
197,050
|
|
|
$
|
(5,617
|
)
|
|
$
|
(8,551
|
)
|
Amounts in AOCI expected to be recognized in net periodic cost in the coming year:
|
|
|
|
|
|
|
|
|
Loss (gain) recognition
|
|
$
|
15,615
|
|
|
$
|
11,793
|
|
|
$
|
(29
|
)
|
|
$
|
(203
|
)
|
Prior service cost recognition
|
|
$
|
(250
|
)
|
|
$
|
(105
|
)
|
|
$
|
(657
|
)
|
|
$
|
(657
|
)
|
Accumulated benefit obligation
|
|
$
|
834,745
|
|
|
$
|
767,461
|
|
|
N/A
|
|
|
N/A
|
|
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
785,039
|
|
|
$
|
733,426
|
|
|
N/A
|
|
|
N/A
|
|
Accumulated benefit obligation
|
|
752,371
|
|
|
702,282
|
|
|
N/A
|
|
|
N/A
|
|
Fair value of plan assets
|
|
684,756
|
|
|
645,380
|
|
|
N/A
|
|
|
N/A
|
|
Plan Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Weighted-average assumptions in determination of benefit obligation:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.46
|
%
|
|
3.88
|
%
|
|
3.54
|
%
|
|
4.00
|
%
|
Rate of compensation increase
|
|
3.55
|
%
|
|
3.35
|
%
|
|
N/A
|
|
|
N/A
|
|
Health care cost trends:
|
|
|
|
|
|
|
|
|
Rate assumed for subsequent year
|
|
N/A
|
|
|
N/A
|
|
|
8.30
|
%
|
|
8.25
|
%
|
Ultimate rate reached in 2026
|
|
N/A
|
|
|
N/A
|
|
|
4.50
|
%
|
|
4.50
|
%
|
Weighted-average assumptions in determination of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.93
|
%
|
|
4.12
|
%
|
|
4.02
|
%
|
|
4.25
|
%
|
Expected return on plan assets
|
|
7.47
|
%
|
|
7.81
|
%
|
|
N/A
|
|
|
N/A
|
|
Rate of compensation increase
|
|
3.54
|
%
|
|
3.35
|
%
|
|
N/A
|
|
|
N/A
|
|
Health care cost trends:
|
|
|
|
|
|
|
|
|
Rate assumed for subsequent year
|
|
N/A
|
|
|
N/A
|
|
|
8.25
|
%
|
|
8.75
|
%
|
Ultimate rate reached in 2026
|
|
N/A
|
|
|
N/A
|
|
|
4.50
|
%
|
|
4.50
|
%
|
Effective December 31, 2016, the Corporation adopted the spot rate, or full yield curve, approach for developing discount rates. The discount rate for each plan's past service liabilities and service cost is determined by discounting the plan’s expected future benefit payments using a yield curve developed from high quality bonds that are rated Aa or better by Moody’s as of the measurement date. The yield curve calculation matches the notional cash inflows of the hypothetical bond portfolio with the expected benefit payments to arrive at one effective rate for these components. Interest cost is determined by applying the spot rate from the full yield curve to each anticipated benefit payment, based on the anticipated optional form elections.
The overall expected return on assets assumption is based on a combination of historical performance of the pension fund and expectations of future performance. Expected future performance is determined by weighting the expected returns for each
asset class by the plan’s asset allocation. The expected returns are based on long-term capital market assumptions utilizing a ten-year time horizon through consultation with investment advisors. While consideration is given to recent performance and historical returns, the assumption represents a long-term prospective return.
The effect on the Other Post-Employment Benefits plan of a 1% change in the health care cost trend is as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
1% Increase
|
|
|
1% Decrease
|
|
Total service and interest cost components
|
|
$
|
28
|
|
|
$
|
(23
|
)
|
Postretirement benefit obligation
|
|
$
|
502
|
|
|
$
|
(414
|
)
|
Pension Plan Assets
The overall objective for plan assets is to earn a rate of return over time to meet anticipated benefit payments in accordance with plan provisions. The long-term investment objective of the domestic retirement plans is to achieve a total rate of return, net of fees, which exceeds the actuarial overall expected return on asset assumptions used for funding purposes and which provides an appropriate premium over inflation. The intermediate-term objective of the domestic retirement plans, defined as three to five years, is to outperform each of the capital markets in which assets are invested, net of fees. During periods of extreme market volatility, preservation of capital takes a higher precedence than outperforming the capital markets.
The Finance Committee of the Corporation’s Board of Directors is responsible for formulating investment policies, developing investment manager guidelines and objectives, and approving and managing qualified advisors and investment managers. The guidelines established define permitted investments within each asset class and apply certain restrictions such as limits on concentrated holdings, and prohibits selling securities short, buying on margin, and the purchase of any securities issued by the Corporation.
The Corporation maintains the funds of the CW Pension Plan under a trust that is diversified across investment classes and among investment managers to achieve an optimal balance between risk and return. As a part of its diversification strategy, the Corporation has established target allocations for each of the following assets classes: domestic equity securities, international equity securities, and debt securities. Below are the Corporation’s actual and established target allocations for the CW Pension Plan, representing
87%
of consolidated assets:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Target
|
|
Expected
|
|
|
2017
|
|
2016
|
|
Exposure
|
|
Range
|
Asset class
|
|
|
|
|
|
|
|
|
Domestic equities
|
|
52%
|
|
54%
|
|
50%
|
|
40%-60%
|
International equities
|
|
15%
|
|
13%
|
|
15%
|
|
10%-20%
|
Total equity
|
|
67%
|
|
67%
|
|
65%
|
|
55%-75%
|
Fixed income
|
|
33%
|
|
33%
|
|
35%
|
|
25%-45%
|
As of
December 31, 2017
and
2016
, cash funds in the CW Pension Plan represented approximately
6%
and
3%
of portfolio assets, respectively.
Foreign plan assets represent
13%
of consolidated plan assets, with the majority of the assets supporting the U.K. plan. Generally, the foreign plans follow a similar asset allocation strategy and are more heavily weighted in fixed income resulting in a weighted expected return on assets assumption of
3.90%
for all foreign plans.
The Corporation may from time to time require the reallocation of assets in order to bring the retirement plans into conformity with these ranges. The Corporation may also authorize alterations or deviations from these ranges where appropriate for achieving the objectives of the retirement plans.
Fair Value Measurements
The following table presents consolidated plan assets (in thousands) as of
December 31, 2017
using the fair value hierarchy, as described in Note
9
to the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
|
Total
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Cash and cash equivalents
|
|
$
|
23,979
|
|
|
$
|
4,893
|
|
|
$
|
19,086
|
|
|
$
|
—
|
|
Equity securities- Mutual funds
(1)
|
|
459,002
|
|
|
418,390
|
|
|
40,612
|
|
|
—
|
|
Bond funds
(2)
|
|
219,249
|
|
|
155,120
|
|
|
64,129
|
|
|
—
|
|
Insurance Contracts
(3)
|
|
10,760
|
|
|
—
|
|
|
—
|
|
|
10,760
|
|
Other
(4)
|
|
1,618
|
|
|
—
|
|
|
—
|
|
|
1,618
|
|
December 31, 2016
|
|
$
|
714,608
|
|
|
$
|
578,403
|
|
|
$
|
123,827
|
|
|
$
|
12,378
|
|
Cash and cash equivalents
|
|
$
|
42,374
|
|
|
$
|
12,551
|
|
|
$
|
29,823
|
|
|
$
|
—
|
|
Equity securities- Mutual funds
(1)
|
|
504,633
|
|
|
455,175
|
|
|
49,458
|
|
|
—
|
|
Bond funds
(2)
|
|
216,372
|
|
|
150,265
|
|
|
66,107
|
|
|
—
|
|
Insurance Contracts
(3)
|
|
10,912
|
|
|
—
|
|
|
—
|
|
|
10,912
|
|
Other
(4)
|
|
2,191
|
|
|
—
|
|
|
—
|
|
|
2,191
|
|
December 31, 2017
|
|
$
|
776,482
|
|
|
$
|
617,991
|
|
|
$
|
145,388
|
|
|
$
|
13,103
|
|
(1)
This category consists of domestic and international equity securities. It is comprised of U.S. securities benchmarked against the S&P 500 index and Russell 2000 index, international mutual funds benchmarked against the MSCI EAFE index, global equity index mutual funds associated with our U.K. based pension plans and balanced funds associated with the U.K. and Canadian based pension plans.
(2)
This category consists of domestic and international bonds. The domestic fixed income securities are benchmarked against the Barclays Capital Aggregate Bond index, actively-managed bond mutual funds comprised of domestic investment grade debt, fixed income derivatives, and below investment-grade issues, U.S. mortgage backed securities, asset backed securities, municipal bonds, and convertible debt. International bonds consist of bond mutual funds for institutional investors associated with the CW Pension Plan, Switzerland, and U.K. based pension plans.
(3)
This category consists of a guaranteed investment contract (GIC) in Switzerland. Amounts contributed to the plan are guaranteed by a foundation for occupational benefits that in turn entered into a group insurance contract and the foundation pays a guaranteed rate of interest that is reset annually.
(4)
This category consists primarily of real estate investment trusts in Switzerland.
Valuation
Equity securities and exchange-traded equity and bond mutual funds are valued using a market approach based on the quoted market prices of identical instruments. Pooled institutional funds are valued at their net asset values and are calculated by the sponsor of the fund.
Fixed income securities are primarily valued using a market approach utilizing various underlying pricing sources and methodologies. Real estate investment trusts are priced at net asset value based on valuations of the underlying real estate holdings using inputs such as discounted cash flows, independent appraisals, and market-based comparable data.
Cash balances in the United States are held in a pooled fund and classified as a Level 2 asset. Non-U.S. cash is valued using a market approach based on quoted market prices of identical instruments.
The following table presents a reconciliation of Level 3 assets held during the years ended
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Insurance
Contracts
|
|
Other
|
|
Total
|
December 31, 2015
|
|
$
|
9,720
|
|
|
$
|
755
|
|
|
$
|
10,475
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
|
148
|
|
|
35
|
|
|
183
|
|
Purchases, sales, and settlements
|
|
1,095
|
|
|
871
|
|
|
1,966
|
|
Foreign currency translation adjustment
|
|
(203
|
)
|
|
(43
|
)
|
|
(246
|
)
|
December 31, 2016
|
|
$
|
10,760
|
|
|
$
|
1,618
|
|
|
$
|
12,378
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
|
167
|
|
|
58
|
|
|
226
|
|
Purchases, sales, and settlements
|
|
(503
|
)
|
|
436
|
|
|
(68
|
)
|
Foreign currency translation adjustment
|
|
488
|
|
|
79
|
|
|
567
|
|
December 31, 2017
|
|
$
|
10,912
|
|
|
$
|
2,191
|
|
|
$
|
13,103
|
|
Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid from the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Pension
Plans
|
|
Postretirement
Plans
|
|
Total
|
2018
|
|
$
|
45,604
|
|
|
$
|
1,686
|
|
|
$
|
47,290
|
|
2019
|
|
48,937
|
|
|
1,693
|
|
|
50,630
|
|
2020
|
|
49,859
|
|
|
1,694
|
|
|
51,553
|
|
2021
|
|
51,058
|
|
|
1,689
|
|
|
52,747
|
|
2022
|
|
50,361
|
|
|
1,678
|
|
|
52,039
|
|
2023 — 2027
|
|
266,582
|
|
|
8,030
|
|
|
274,612
|
|
Defined Contribution Retirement Plans
The Corporation offers all of its domestic employees the opportunity to participate in a defined contribution plan. Costs incurred by the Corporation in the administration and record keeping of the defined contribution plan are paid for by the Corporation and are not considered material.
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
year ended
December 31, 2017
, the expense relating to the plan was
$12.9 million
, consisting of
$5.8 million
in matching contributions to the plan in
2017
, and
$7.1 million
in non-elective contributions paid in January
2018
. Cumulative contributions of approximately
$69 million
are expected to be made from
2018
through
2022
.
In addition, the Corporation had foreign pension costs under various defined contribution plans of $
4.2 million
,
$4.2 million
, and
$4.8 million
in
2017
,
2016
, and
2015
, respectively.
16
. LEASES
The Corporation conducts a portion of its operations from leased facilities, which include manufacturing and service facilities, administrative offices, and warehouses. In addition, the Corporation leases vehicles, machinery, and office equipment under operating leases. The leases expire at various dates and may include renewals and escalations. Rental expenses for all operating leases amounted to
$37.1 million
,
$35.3 million
, and
$37.0 million
in
2017
,
2016
, and
2015
, respectively.
As of December 31,
2017
, the approximate future minimum rental commitments under operating leases that have initial or remaining non-cancelable lease terms in excess of one year are as follows:
|
|
|
|
|
(In thousands)
|
Rental
Commitments
|
2018
|
$
|
28,284
|
|
2019
|
24,378
|
|
2020
|
21,733
|
|
2021
|
17,577
|
|
2022
|
14,253
|
|
Thereafter
|
73,870
|
|
Total
|
$
|
180,095
|
|
17
. SEGMENT INFORMATION
The Corporation’s segments are composed of similar product groupings that serve the same or similar end markets. Based on this approach, the Corporation has three reportable segments: Commercial/Industrial, Defense, and Power, as described below in further detail.
The Commercial/Industrial reportable segment is comprised of businesses that provide a diversified offering of highly engineered products and services supporting critical applications primarily across the commercial aerospace and general industrial markets. The products offered include electronic throttle control devices and transmission shifters, electro-mechanical actuation control components, valves, and surface technology services such as shot peening, laser peening, coatings, and advanced testing.
The Defense reportable segment is comprised of businesses that primarily provide products to the defense markets and to a lesser extent the commercial aerospace market. The products offered include commercial off-the-shelf (COTS) embedded computing board level modules, integrated subsystems, turret aiming and stabilization products, weapons handling systems, avionics and electronics, flight test equipment, and aircraft data management solutions.
The Power segment is comprised of businesses that primarily provide products to the power generation markets and to a lesser extent the naval defense market. The products offered include main coolant pumps, power-dense compact motors, generators, secondary propulsion systems, pumps, pump seals, control rod drive mechanisms, fastening systems, specialized containment doors, airlock hatches, spent fuel management products, and fluid sealing products.
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 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Net sales
|
|
|
|
|
|
|
Commercial/Industrial
|
|
$
|
1,163,510
|
|
|
$
|
1,120,326
|
|
|
$
|
1,189,120
|
|
Defense
|
|
557,954
|
|
|
469,796
|
|
|
479,528
|
|
Power
|
|
554,048
|
|
|
524,967
|
|
|
545,013
|
|
Less: Intersegment Revenues
|
|
(4,486
|
)
|
|
(6,158
|
)
|
|
(7,978
|
)
|
Total Consolidated
|
|
$
|
2,271,026
|
|
|
$
|
2,108,931
|
|
|
$
|
2,205,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Operating income (expense)
|
|
|
|
|
|
|
Commercial/Industrial
|
|
$
|
168,328
|
|
|
$
|
156,550
|
|
|
$
|
171,525
|
|
Defense
|
|
109,355
|
|
|
98,291
|
|
|
98,895
|
|
Power
|
|
85,260
|
|
|
76,472
|
|
|
74,987
|
|
Corporate and Eliminations
(1)
|
|
(23,200
|
)
|
|
(23,215
|
)
|
|
(34,790
|
)
|
Total Consolidated
|
|
$
|
339,743
|
|
|
$
|
308,098
|
|
|
$
|
310,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
Commercial/Industrial
|
|
$
|
53,180
|
|
|
$
|
53,970
|
|
|
$
|
55,799
|
|
Defense
|
|
20,702
|
|
|
14,488
|
|
|
15,965
|
|
Power
|
|
22,019
|
|
|
23,032
|
|
|
23,419
|
|
Corporate
|
|
4,094
|
|
|
4,518
|
|
|
4,292
|
|
Total Consolidated
|
|
$
|
99,995
|
|
|
$
|
96,008
|
|
|
$
|
99,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
|
|
|
|
Commercial/Industrial
|
|
$
|
1,444,097
|
|
|
$
|
1,391,040
|
|
|
$
|
1,480,052
|
|
Defense
|
|
1,044,776
|
|
|
751,859
|
|
|
800,613
|
|
Power
|
|
482,753
|
|
|
516,321
|
|
|
629,612
|
|
Corporate
|
|
264,695
|
|
|
378,561
|
|
|
79,334
|
|
Total Consolidated
|
|
$
|
3,236,321
|
|
|
$
|
3,037,781
|
|
|
$
|
2,989,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
Commercial/Industrial
|
|
$
|
29,028
|
|
|
$
|
30,145
|
|
|
$
|
21,990
|
|
Defense
|
|
9,276
|
|
|
5,870
|
|
|
3,834
|
|
Power
|
|
10,039
|
|
|
6,653
|
|
|
6,163
|
|
Corporate
|
|
4,362
|
|
|
4,108
|
|
|
3,525
|
|
Total Consolidated
(2)
|
|
$
|
52,705
|
|
|
$
|
46,776
|
|
|
$
|
35,512
|
|
(1)
Corporate and Eliminations includes pension expense, environmental remediation and administrative expenses, legal, foreign currency transactional gains and losses, and other expenses.
(2)
Total capital expenditures included
$0.2 million
of expenditures related to discontinued operations for the year ended
2015
.
Reconciliations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Earnings before taxes:
|
|
|
|
|
|
|
Total segment operating income
|
|
$
|
362,943
|
|
|
$
|
331,313
|
|
|
$
|
345,407
|
|
Corporate and Eliminations
|
|
(23,200
|
)
|
|
(23,215
|
)
|
|
(34,790
|
)
|
Interest expense
|
|
41,471
|
|
|
41,248
|
|
|
36,038
|
|
Other income, net
|
|
1,347
|
|
|
1,111
|
|
|
615
|
|
Total consolidated earnings before tax
|
|
$
|
299,619
|
|
|
$
|
267,961
|
|
|
$
|
275,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Assets:
|
|
|
|
|
|
|
Total assets for reportable segments
|
|
$
|
2,971,626
|
|
|
$
|
2,659,220
|
|
|
$
|
2,910,277
|
|
Non-segment cash
|
|
204,664
|
|
|
357,021
|
|
|
42,164
|
|
Other assets
|
|
60,031
|
|
|
21,540
|
|
|
37,170
|
|
Total consolidated assets
|
|
$
|
3,236,321
|
|
|
$
|
3,037,781
|
|
|
$
|
2,989,611
|
|
Geographic Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Revenues
|
|
|
|
|
|
|
United States of America
|
|
$
|
1,562,180
|
|
|
$
|
1,472,241
|
|
|
$
|
1,502,363
|
|
United Kingdom
|
|
118,350
|
|
|
114,752
|
|
|
135,673
|
|
Other foreign countries
|
|
590,496
|
|
|
521,938
|
|
|
567,647
|
|
Consolidated total
|
|
$
|
2,271,026
|
|
|
$
|
2,108,931
|
|
|
$
|
2,205,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Long-Lived Assets
|
|
|
|
|
|
|
United States of America
|
|
$
|
264,829
|
|
|
$
|
272,826
|
|
|
$
|
293,612
|
|
United Kingdom
|
|
41,100
|
|
|
39,014
|
|
|
36,061
|
|
Other foreign countries
|
|
84,306
|
|
|
77,063
|
|
|
83,971
|
|
Consolidated total
|
|
$
|
390,235
|
|
|
$
|
388,903
|
|
|
$
|
413,644
|
|
Net sales by product line
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(In thousands)
|
|
2017
|
|
2016
|
|
2015
|
Net sales
|
|
|
|
|
|
|
Flow Control
|
|
$
|
899,705
|
|
|
$
|
883,735
|
|
|
$
|
949,657
|
|
Motion Control
|
|
1,075,218
|
|
|
940,162
|
|
|
947,758
|
|
Surface Technologies
|
|
296,103
|
|
|
285,034
|
|
|
308,268
|
|
Consolidated total
|
|
$
|
2,271,026
|
|
|
$
|
2,108,931
|
|
|
$
|
2,205,683
|
|
The Flow Control products include valves, pumps, motors, generators, and instrumentation that manage the flow of liquids and gases, generate power, and monitor or provide critical functions. Motion Control's products include turret aiming and stabilization products, embedded computing board level modules, electronic throttle control devices, transmission shifters, and electro-mechanical actuation control components. Surface Technologies include shot peening, laser peening, and coatings services that enhance the durability, extend the life, and prevent premature fatigue and failure on customer-supplied metal components.
18
. CONTINGENCIES AND COMMITMENTS