Standards Issued Not Yet Adopted
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Standard
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Description
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Effect on the financial statements
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ASU 2014-09 Revenue from Contracts with Customers
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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.
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The Corporation is currently evaluating the impact of the adoption of this standard on its Consolidated Financial Statements, including the method of adoption as of January 1, 2018. Based on a preliminary review of our customer contracts, we do not believe that the standard will have a material impact on our Consolidated Financial Statements. Our assessment is still ongoing and not complete. While we anticipate some changes to revenue recognition, we do not currently believe that the standard will have a material impact on our Consolidated Financial Statements. The FASB, however, has issued, and may issue in the future, interpretive guidance which may cause our evaluation to change.
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Date of adoption: January 1, 2018
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ASU 2016-02 Leases
|
In February 2016, the FASB issued final guidance that will require lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to today’s accounting. The guidance requires the use of a modified retrospective approach.
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The Corporation is currently evaluating the impact of the adoption of this standard on its Consolidated Financial Statements.
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Date of adoption: January 1, 2019
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ASU 2016-09 Improvements to Employee Share-Based Payment Accounting
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In March 2016, the FASB issued ASU 2016-09, 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, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.
|
Upon adoption in 2017, the Corporation expects to record a tax benefit which is contingent on the number of stock options, restricted share units, and performance share units exercised or vested during the period as well as the price of the Corporation’s common stock.
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Date of adoption: January 1, 2017
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ASU 2017-04 Simplifying the Test for Goodwill Impairment
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In January 2017, the FASB issued ASU 2017-04, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The standard is effective for fiscal periods beginning after December 15, 2019. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017.
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The Corporation plans to early adopt this standard effective January 1, 2017. The standard would only impact the Corporation in the event of a goodwill impairment. Accordingly, we do not expect the adoption to have an impact on our Consolidated Financial Statements.
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Date of adoption: January 1, 2017
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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, during 2015, the Corporation divested all
five
businesses 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:
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(In thousands)
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2016
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|
2015
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|
2014
|
Net sales
|
|
$
|
—
|
|
|
$
|
57,992
|
|
|
$
|
363,869
|
|
Loss from discontinued operations before income taxes
(1)
|
|
—
|
|
|
(40,984
|
)
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|
(48,519
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)
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Income tax benefit / (expense)
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(2,053
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)
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(3)
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7,926
|
|
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14,268
|
|
Loss on sale of businesses
(2)
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—
|
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(13,729
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)
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(22,360
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)
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Loss from discontinued operations
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|
$
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(2,053
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)
|
|
$
|
(46,787
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)
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|
$
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(56,611
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)
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(1)
Loss from discontinued operations before income taxes includes approximately
$40.8 million
and
$41.4 million
of held for sale impairment expense in the year ended
December 31, 2015
and
December 31, 2014
, respectively.
(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. In
2014
, the Corporation recognized aggregate after tax losses of
$22.4 million
on the sale of the Benshaw, 3D, Upstream Oil & Gas and Vessels business.
(3)
Amount represents finalization of 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 an immaterial amount. 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 and was formerly reported in the Company's former Energy segment. During 2015, the Corporation recognized a pre-tax loss on divestiture, including impairment charges, of
$59.5 million
. During 2014, including impairment charges, the Corporation recognized a
$33.1 million
pre-tax loss on divestiture. The impairment charges were a result of the declining and volatile oil market.
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.
2014 Divestitures and facility closures
Surface Technologies - International
During the fourth quarter of 2014, the Corporation closed certain of its international surface technology manufacturing facilities located in Canada, Italy, and Austria. As a result of the facility closures, the Company incurred
$5.3 million
of pre-tax closure costs, including a
$3.2 million
impairment on fixed assets. The businesses were previously reported within the Commercial/Industrial segment.
Benshaw
On
June 30, 2014
, the Corporation sold the assets of its Benshaw business, to Regal-Beloit Corporation for
$49.7 million
in cash, net of cash sold, and final working capital adjustments. The Corporation recognized a pre-tax loss on divestiture of
$7.3 million
. The Corporation recognized a tax benefit of
$2.9 million
in connection with the sale. The business was previously reported within the Defense segment.
3D Radar
On
April 30, 2014
, the Corporation sold the assets of the 3D Radar business, to Chemring Group PLC for
$2.4 million
in cash, net of final working capital adjustments. The disposal resulted in a
$0.6 million
pre-tax gain. The business was previously reported within the Defense segment.
Upstream
On
December 17, 2014
, the Corporation completed the sale of its upstream oil and gas business, for
$98 million
in cash, net of cash sold, and final working capital adjustments. The Corporation recognized a pre-tax loss on divestiture of
$13.7 million
. The Corporation recognized a tax benefit of
$0.6 million
in connection with the sale. The business was previously reported within the former Energy segment.
Vessels
During the third quarter of 2014, the Corporation completed the sale of its Vessels business, for
$2 million
in cash, net of transaction costs. The Corporation recognized a pre-tax loss on divestiture of
$8.6 million
. The Corporation recognized a tax benefit of
$3.2 million
in connection with the sale. The business was previously reported within the former Energy 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
2016
, no acquisitions were made. In
2015
, the Corporation acquired
one
business for an aggregate purchase price of
$13.2 million
, net of cash acquired, which is described in more detail below.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for all acquisitions consummated during
2015
:
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(In thousands)
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|
2016
|
|
2015
|
Accounts receivable
|
|
$
|
—
|
|
|
$
|
996
|
|
Inventory
|
|
—
|
|
|
152
|
|
Property, plant, and equipment
|
|
—
|
|
|
1,463
|
|
Other current assets
|
|
—
|
|
|
155
|
|
Intangible assets
|
|
—
|
|
|
7,700
|
|
Current and non-current liabilities
|
|
—
|
|
|
(6
|
)
|
Due to seller
|
|
—
|
|
|
(1,470
|
)
|
Net tangible and intangible assets
|
|
—
|
|
|
8,990
|
|
Purchase price
|
|
—
|
|
|
13,228
|
|
Goodwill
|
|
$
|
—
|
|
|
$
|
4,238
|
|
2015 Acquisitions
COMMERCIAL/INDUSTRIAL
Bolt’s Metallizing, Inc.
On
March 16, 2015
, the Corporation acquired certain assets and assumed certain liabilities of Bolt’s Metallizing, Inc. for $
13.2 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. Bolt’s Metallizing is a provider of thermal spray coatings for critical aerospace applications, including high velocity oxygen fuel (HVOF) and plasma spray coating capabilities.
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
38%
and
36%
of consolidated revenues in
2016
and
2015
, respectively. Total receivables due primarily from the U.S Government were
$183.6 million
and
$165.6 million
at
December 31, 2016
and
2015
, respectively. Government (primarily the U.S. Government) unbilled receivables, net of progress payments, were
$83.2 million
and
$70.6 million
at
December 31, 2016
and
2015
, respectively.
The composition of receivables as of December 31 is as follows:
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(In thousands)
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|
2016
|
|
2015
|
Billed receivables:
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|
|
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Trade and other receivables
|
|
$
|
340,091
|
|
|
$
|
435,172
|
|
Less: Allowance for doubtful accounts
|
|
(4,832
|
)
|
|
(5,664
|
)
|
Net billed receivables
|
|
335,259
|
|
|
429,508
|
|
Unbilled receivables:
|
|
|
|
|
Recoverable costs and estimated earnings not billed
|
|
149,847
|
|
|
153,045
|
|
Less: Progress payments applied
|
|
(22,044
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)
|
|
(16,264
|
)
|
Net unbilled receivables
|
|
127,803
|
|
|
136,781
|
|
Receivables, net
|
|
$
|
463,062
|
|
|
$
|
566,289
|
|
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:
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|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
Raw material
|
|
$
|
189,228
|
|
|
$
|
196,684
|
|
Work-in-process
|
|
73,843
|
|
|
79,406
|
|
Finished goods
|
|
112,478
|
|
|
114,931
|
|
Inventoried costs related to U.S. Government and other long-term contracts
|
|
57,516
|
|
|
51,774
|
|
Gross inventories
|
|
433,065
|
|
|
442,795
|
|
Less: Inventory reserves
|
|
(54,988
|
)
|
|
(48,904
|
)
|
Progress payments applied, principally related to long-term contracts
|
|
(11,103
|
)
|
|
(14,300
|
)
|
Inventories, net
|
|
$
|
366,974
|
|
|
$
|
379,591
|
|
As of December 31,
2016
and
2015
, inventory also includes capitalized contract development costs of
$28.8 million
and
$29.7 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,
2016
and
2015
,
$3.9 million
and
$2.5 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)
|
|
2016
|
|
2015
|
Land
|
|
$
|
19,511
|
|
|
$
|
19,933
|
|
Buildings and improvements
|
|
215,221
|
|
|
218,016
|
|
Machinery, equipment, and other
|
|
752,356
|
|
|
739,965
|
|
Property, plant, and equipment, at cost
|
|
987,088
|
|
|
977,914
|
|
Less: Accumulated depreciation
|
|
(598,185
|
)
|
|
(564,270
|
)
|
Property, plant, and equipment, net
|
|
$
|
388,903
|
|
|
$
|
413,644
|
|
Depreciation expense from continuing operations for the years ended December 31,
2016
,
2015
, and
2014
was
$62.6 million
,
$64.7 million
, and
$66.6 million
, respectively.
7
. GOODWILL
The changes in the carrying amount of goodwill for
2016
and
2015
are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Commercial/Industrial
|
|
Defense
|
|
Power
|
|
Assets Held for Sale
|
|
Consolidated
|
December 31, 2014
|
|
$
|
454,092
|
|
|
$
|
356,689
|
|
|
$
|
187,725
|
|
|
$
|
42,395
|
|
|
$
|
1,040,901
|
|
Acquisitions
|
|
4,238
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,238
|
|
Divestitures
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(41,264
|
)
|
|
(41,264
|
)
|
Goodwill adjustments
|
|
21
|
|
|
1,131
|
|
|
—
|
|
|
(1,131
|
)
|
|
21
|
|
Foreign currency translation adjustment
|
|
(10,523
|
)
|
|
(20,217
|
)
|
|
(550
|
)
|
|
—
|
|
|
(31,290
|
)
|
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
|
|
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,
2016
,
2015
, and
2014
and concluded that there was
no
impairment of value. The estimated fair value of the reporting units substantially exceeded the 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,
2016
and December 31,
2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
(In thousands)
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Technology
|
|
$
|
166,859
|
|
|
$
|
(98,266
|
)
|
|
$
|
68,593
|
|
|
$
|
171,382
|
|
|
$
|
(91,430
|
)
|
|
$
|
79,952
|
|
Customer related intangibles
|
|
349,742
|
|
|
(157,154
|
)
|
|
192,588
|
|
|
357,538
|
|
|
(140,816
|
)
|
|
216,722
|
|
Other intangible assets
|
|
36,709
|
|
|
(26,429
|
)
|
|
10,280
|
|
|
37,200
|
|
|
(23,111
|
)
|
|
14,089
|
|
Total
|
|
$
|
553,310
|
|
|
$
|
(281,849
|
)
|
|
$
|
271,461
|
|
|
$
|
566,120
|
|
|
$
|
(255,357
|
)
|
|
$
|
310,763
|
|
Amortization expense from continuing operations for the years ended December 31,
2016
,
2015
, and
2014
was
$33.4 million
,
$34.8 million
, and
$38.3 million
, respectively. The estimated future amortization expense of intangible assets over the next five years is as follows:
|
|
|
|
|
|
(In thousands)
|
|
|
2017
|
|
$
|
32,178
|
|
2018
|
|
31,100
|
|
2019
|
|
29,340
|
|
2020
|
|
27,470
|
|
2021
|
|
25,759
|
|
9
. FAIR VALUE OF FINANCIAL INSTRUMENTS
Forward Foreign Exchange and Currency Option Contracts
The Corporation has foreign currency exposure primarily in the United Kingdom, Europe, and Canada. The Corporation uses financial instruments, such as forward and option contracts, to hedge a portion of existing and anticipated foreign currency denominated transactions. The purpose of the Corporation’s foreign currency risk management program is to reduce volatility in earnings caused by exchange rate fluctuations. Guidance on accounting for derivative instruments and hedging activities requires companies to recognize all of the derivative financial instruments as either assets or liabilities at fair value in the 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.
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.
The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities that the company has the ability to access.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates, and yield curves.
Level 3: Inputs are unobservable data points that are not corroborated by market data.
Based upon the fair value hierarchy, all of the forward foreign exchange contracts and interest rate swaps are based on Level 2 inputs.
Effects on Consolidated Balance Sheets
The location and amounts of derivative instrument fair values in the consolidated balance sheet are below.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2016
|
|
2015
|
Assets
|
|
|
|
|
Designated for hedge accounting
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
3,083
|
|
Undesignated for hedge accounting
|
|
|
|
|
Forward exchange contracts
|
|
$
|
142
|
|
|
$
|
223
|
|
Total asset derivatives
(1)
|
|
$
|
142
|
|
|
$
|
3,306
|
|
Liabilities
|
|
|
|
|
Undesignated for hedge accounting
|
|
|
|
|
Forward exchange contracts
|
|
$
|
419
|
|
|
$
|
673
|
|
Total liability derivatives
(2)
|
|
$
|
419
|
|
|
$
|
673
|
|
(1)
Forward exchange derivatives are included in Other current assets and interest rate swap assets are included in Other assets.
(2)
Forward exchange derivatives are included in Other current liabilities.
Effects on Consolidated Statements of Earnings
Fair value hedge
The location and amount of gains or (losses) on the hedged fixed rate debt attributable to changes in the market interest rates and the offsetting gain (loss) on the related interest rate swaps for the years ended December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) on Swap
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Other income, net
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
8,204
|
|
|
$
|
44,724
|
|
Hedged fixed rate debt
|
|
$
|
—
|
|
|
$
|
(8,204
|
)
|
|
$
|
(44,724
|
)
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Undesignated hedges
The location and amount of
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)
|
|
2016
|
|
2015
|
|
2014
|
Forward exchange contracts:
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
11,510
|
|
|
$
|
11,042
|
|
|
$
|
6,880
|
|
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,
2016
. The fair value of our debt instruments are characterized as a Level 2 measurement in accordance with the fair value hierarchy. The estimated fair values of the Corporation’s fixed rate debt instruments at December 31,
2016
, net of debt issuance costs, aggregated $
961 million
compared to a carrying value, net of debt issuance costs, of $
949 million
. The estimated fair values of the Corporation’s fixed rate debt instruments at December 31,
2015
, net of debt issuance costs, aggregated $
959 million
compared to a carrying value, net of debt issuance costs, of $
952 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. For the year ended December 31, 2014, an impairment charge of
$41.4 million
was recorded in the loss from discontinued operations before income taxes. The fair value of the disposal groups were determined primarily by using non-binding quotes. In accordance with the fair value hierarchy, the impairment charge is classified as a Level 3 measurement as it is based on significant other unobservable inputs.
10
. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses consist of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
Accrued compensation
|
|
$
|
85,970
|
|
|
$
|
86,497
|
|
Accrued commissions
|
|
5,189
|
|
|
7,250
|
|
Accrued interest
|
|
9,817
|
|
|
9,900
|
|
Accrued insurance
|
|
7,521
|
|
|
5,261
|
|
Other
|
|
21,742
|
|
|
22,955
|
|
Total accrued expenses
|
|
$
|
130,239
|
|
|
$
|
131,863
|
|
Other current liabilities consist of the following as of December 31:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
Warranty reserves
|
|
$
|
11,768
|
|
|
$
|
15,053
|
|
Additional amounts due to sellers on acquisitions
|
|
1,985
|
|
|
2,883
|
|
Reserves on loss contracts
|
|
1,662
|
|
|
2,711
|
|
Pension and other postretirement liabilities
|
|
5,331
|
|
|
4,560
|
|
Other
|
|
7,281
|
|
|
11,983
|
|
Total other current liabilities
|
|
$
|
28,027
|
|
|
$
|
37,190
|
|
11
. INCOME TAXES
Earnings before income taxes for the years ended December 31 consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Domestic
|
|
$
|
154,571
|
|
|
$
|
135,112
|
|
|
$
|
120,563
|
|
Foreign
|
|
113,390
|
|
|
140,082
|
|
|
126,381
|
|
|
|
$
|
267,961
|
|
|
$
|
275,194
|
|
|
$
|
246,944
|
|
The provision for income taxes for the years ended December 31 consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
45,523
|
|
|
$
|
(6,741
|
)
|
|
$
|
70,609
|
|
State
|
|
8,002
|
|
|
6,175
|
|
|
9,065
|
|
Foreign
|
|
20,861
|
|
|
27,134
|
|
|
33,401
|
|
Total current
|
|
74,386
|
|
|
26,568
|
|
|
113,075
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
4,267
|
|
|
49,060
|
|
|
(29,683
|
)
|
State
|
|
73
|
|
|
7,390
|
|
|
(1,247
|
)
|
Foreign
|
|
(147
|
)
|
|
(72
|
)
|
|
(5,150
|
)
|
Total deferred
|
|
4,193
|
|
|
56,378
|
|
|
(36,080
|
)
|
Provision for income taxes
|
|
$
|
78,579
|
|
|
$
|
82,946
|
|
|
$
|
76,995
|
|
The effective tax rate varies from the U.S. federal statutory tax rate for the years ended December 31, principally:
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
U.S. federal statutory tax rate
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Add (deduct):
|
|
|
|
|
|
|
State and local taxes, net of federal benefit
|
|
1.1
|
|
|
4.3
|
|
|
2.4
|
|
R&D tax credits
|
|
(0.9
|
)
|
|
(1.3
|
)
|
|
(1.3
|
)
|
Foreign earnings
(1)
|
|
(5.8
|
)
|
|
(6.2
|
)
|
|
(4.4
|
)
|
All other, net
|
|
(0.1
|
)
|
|
(1.7
|
)
|
|
(0.5
|
)
|
Effective tax rate
|
|
29.3
|
%
|
|
30.1
|
%
|
|
31.2
|
%
|
(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 at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
Pension plans
|
|
$
|
45,568
|
|
|
$
|
40,102
|
|
Environmental reserves
|
|
9,871
|
|
|
9,561
|
|
Inventories
|
|
21,758
|
|
|
20,041
|
|
Postretirement/postemployment benefits
|
|
13,542
|
|
|
13,272
|
|
Incentive compensation
|
|
9,425
|
|
|
12,369
|
|
Net operating loss
|
|
10,345
|
|
|
9,043
|
|
Capital loss carryover
|
|
11,352
|
|
|
10,141
|
|
Other
|
|
39,977
|
|
|
38,226
|
|
Total deferred tax assets
|
|
161,838
|
|
|
152,755
|
|
Deferred tax liabilities:
|
|
|
|
|
Depreciation
|
|
25,963
|
|
|
29,771
|
|
Goodwill amortization
|
|
97,667
|
|
|
89,276
|
|
Other intangible amortization
|
|
51,712
|
|
|
54,017
|
|
Other
|
|
16,225
|
|
|
12,280
|
|
Total deferred tax liabilities
|
|
191,567
|
|
|
185,344
|
|
Valuation allowance
|
|
17,776
|
|
|
17,895
|
|
Net deferred tax liabilities
|
|
$
|
47,505
|
|
|
$
|
50,484
|
|
Deferred tax assets and liabilities are reflected on the Corporation’s consolidated balance sheet at December 31 as follows:
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
Net noncurrent deferred tax assets
|
|
2,217
|
|
|
3,963
|
|
Net noncurrent deferred tax liabilities
|
|
49,722
|
|
|
54,447
|
|
Net deferred tax liabilities
|
|
$
|
47,505
|
|
|
$
|
50,484
|
|
The Corporation has income tax net operating loss carryforwards related to international operations of approximately
$24.0 million
of which
$13.0 million
have an indefinite life and
$11.0 million
expire through
2023
. The Corporation has federal and state income tax net loss carryforwards of approximately
$97.6 million
, of which
$66.5 million
are net operating losses which expire through
2036
and
$31.1 million
are capital loss carryforwards which expire in
2020
. The Corporation has recorded a deferred tax asset of
$21.7 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,
2016
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 decreased its valuation allowance by
$0.1 million
to
$17.8 million
, as of December 31,
2016
, in order to measure only the portion of the deferred tax asset that more likely than not will be realized. 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
$54.5 million
,
$4.9 million
, and
$35.0 million
were made in
2016
,
2015
, and
2014
, respectively.
The amount of undistributed foreign subsidiaries earnings considered to be permanently reinvested for which no provision has been made for U.S. federal or foreign taxes at December 31,
2016
was
$283.5 million
. It is not practicable to estimate the amount of tax that would be payable if these amounts were repatriated to the United States; however, foreign tax credits may partiality offset any tax liability.
The Corporation has recognized a liability in Other liabilities for interest of
$1.8 million
and penalties of
$1.4 million
as of December 31,
2016
.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Balance at January 1,
|
|
$
|
12,414
|
|
|
$
|
11,560
|
|
|
$
|
10,623
|
|
Additions for tax positions of prior periods
|
|
32
|
|
|
359
|
|
|
1,421
|
|
Reductions for tax positions of prior periods
|
|
(1,679
|
)
|
|
—
|
|
|
—
|
|
Additions for tax positions related to the current year
|
|
789
|
|
|
2,026
|
|
|
1,738
|
|
Settlements
|
|
(102
|
)
|
|
(1,414
|
)
|
|
(2,039
|
)
|
Lapses of statute of limitations
|
|
—
|
|
|
—
|
|
|
(41
|
)
|
Foreign currency translation
|
|
—
|
|
|
(117
|
)
|
|
(142
|
)
|
Balance at December 31,
|
|
$
|
11,454
|
|
|
$
|
12,414
|
|
|
$
|
11,560
|
|
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,
2016
:
|
|
|
|
|
United States (Federal)
|
2013
|
-
|
present
|
United States (Various states)
|
2005
|
-
|
present
|
United Kingdom
|
2009
|
-
|
present
|
Canada
|
2010
|
-
|
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 at December 31,
2016
,
2015
, and
2014
is
$7.7 million
,
$8.3 million
, and
$8.0 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)
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
5.51% Senior notes due 2017
|
|
150,000
|
|
154,509
|
|
150,000
|
|
158,024
|
3.84% Senior notes due 2021
|
|
100,000
|
|
102,463
|
|
100,307
|
|
100,307
|
3.70% Senior notes due 2023
|
|
225,000
|
|
226,946
|
|
225,000
|
|
224,322
|
3.85% Senior notes due 2025
|
|
100,000
|
|
100,338
|
|
100,450
|
|
100,450
|
4.24% Senior notes due 2026
|
|
200,000
|
|
203,592
|
|
201,422
|
|
201,422
|
4.05% Senior notes due 2028
|
|
75,000
|
|
74,630
|
|
75,904
|
|
75,904
|
4.11% Senior notes due 2028
|
|
100,000
|
|
99,876
|
|
100,000
|
|
99,720
|
Other debt
|
|
668
|
|
668
|
|
1,259
|
|
1,259
|
Total debt
|
|
950,668
|
|
963,022
|
|
954,342
|
|
961,408
|
Debt issuance costs, net
|
|
(984)
|
|
(984)
|
|
(1,137)
|
|
(1,137)
|
Unamortized interest rate swap proceeds
|
|
16,614
|
|
16,614
|
|
—
|
|
—
|
Total debt, net
|
|
966,298
|
|
978,652
|
|
953,205
|
|
960,271
|
Less: current portion of long-term debt and short-term debt
|
|
150,668
|
|
150,668
|
|
1,259
|
|
1,259
|
Total long-term debt
|
|
$815,630
|
|
$827,984
|
|
$951,946
|
|
$959,012
|
The Corporation did not have any borrowings against the Revolving Credit Agreement in
2016
. The weighted-average interest rate of the Corporation’s Revolving Credit Agreement was
3.2%
in
2015
.
The debt outstanding had fixed and variable interest rates averaging
3.9%
and
3.3%
in
2016
and
2015
, respectively.
Aggregate maturities of debt are as follows:
|
|
|
|
|
(In thousands)
|
|
2017
|
$
|
150,668
|
|
2018
|
—
|
|
2019
|
—
|
|
2020
|
—
|
|
2021
|
100,000
|
|
Thereafter
|
700,000
|
|
Total
|
$
|
950,668
|
|
Interest payments of
$38 million
,
$33 million
, and
$33 million
were made in
2016
,
2015
, and
2014
, 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,
2016
, the Corporation had
$47 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 at December 31,
2016
was
$453 million
, which we had the ability to borrow in full without violating our 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, we 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, 2016
, the Corporation had the ability to borrow additional debt of
$0.8 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 mature on
December 1, 2017
. The Notes are senior unsecured obligations and are 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 2005 Notes, subject to a make-whole amount in accordance with the terms of the Note Purchase Agreement. In connection with the Notes, the Corporation paid customary fees that have been deferred and are being amortized over the terms of the Notes. The Corporation is required under the Note Purchase Agreement to maintain certain financial ratios, the most restrictive of which is a debt to capitalization limit of
60%
. The 2005 Notes also contain a cross default provision with the Corporation’s other senior indebtedness.
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,
2016
,
2015
, and
2014
, there were no options outstanding that were considered anti-dilutive.
Earnings per share calculations for the years ended December 31,
2016
,
2015
, and
2014
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
Earnings from
continuing
operations
|
|
Weighted-
Average Shares
Outstanding
|
|
Earnings per share
from continuing
operations
|
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
|
|
2014
|
|
|
|
|
|
|
Basic earnings per share from continuing operations
|
|
$
|
169,949
|
|
|
48,019
|
|
|
$
|
3.54
|
|
Dilutive effect of stock options and deferred stock compensation
|
|
|
|
1,056
|
|
|
|
Diluted earnings per share from continuing operations
|
|
$
|
169,949
|
|
|
49,075
|
|
|
$
|
3.46
|
|
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 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 will be
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, and performance share units (PSU) or cash based performance units (PU).
During
2016
, the Corporation granted awards in the form of RSUs, PSUs, PUs, 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
2016
,
2015
, and
2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Employee Stock Purchase Plan
|
|
1,184
|
|
|
1,279
|
|
|
1,350
|
|
Performance Share Units
|
|
3,910
|
|
|
4,349
|
|
|
3,728
|
|
Restricted Share Units
|
|
3,426
|
|
|
3,015
|
|
|
2,655
|
|
Other share-based payments
|
|
958
|
|
|
830
|
|
|
767
|
|
Total share-based compensation expense before income taxes
|
|
$
|
9,478
|
|
|
$
|
9,473
|
|
|
$
|
8,500
|
|
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
2016
,
2015
, or
2014
.
The following table summarizes the cash received from share-based awards and the Corporation's tax benefit recognized on share-based compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Cash received from share-based awards
|
|
$
|
22,300
|
|
|
$
|
28,706
|
|
|
$
|
38,183
|
|
Recognized tax benefit on awards
|
|
$
|
11,101
|
|
|
$
|
9,119
|
|
|
$
|
9,610
|
|
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 at December 31, 2015
|
|
852
|
|
|
$
|
33.54
|
|
|
|
|
|
Exercised
|
|
(408
|
)
|
|
35.30
|
|
|
|
|
|
Forfeited
|
|
(1
|
)
|
|
36.73
|
|
|
|
|
|
Outstanding at December 31, 2016
|
443
|
|
|
$
|
31.91
|
|
|
2.9
|
|
$
|
29,421
|
|
Exercisable at December 31, 2016
|
443
|
|
|
$
|
31.91
|
|
|
2.9
|
|
$
|
29,421
|
|
The total intrinsic value of stock options exercised during
2016
,
2015
, and
2014
was
$43.2 million
,
$36.8 million
, and
$28.3 million
, respectively.
Performance Share Units
The Corporation has granted performance share units to certain employees, whose three year cliff vesting is contingent upon how the Corporation's total shareholder return over the three-year term of the awards compares to that of 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. As forfeiture assumptions change, compensation cost will be adjusted on a cumulative basis in the period of the assumption change.
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
2016
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 at December 31, 2015
|
286
|
|
|
$
|
52.70
|
|
|
245
|
|
|
$
|
55.98
|
|
Granted
|
|
38
|
|
|
124.83
|
|
|
63
|
|
|
98.64
|
|
Vested
|
|
(108
|
)
|
|
40.30
|
|
|
(93
|
)
|
|
43.42
|
|
Forfeited
|
|
(12
|
)
|
|
77.27
|
|
|
(11
|
)
|
|
66.48
|
|
Nonvested at December 31, 2016
|
204
|
|
|
$
|
71.28
|
|
|
204
|
|
|
$
|
74.38
|
|
Expected to vest at December 31, 2016
|
204
|
|
|
$
|
71.28
|
|
|
204
|
|
|
$
|
74.38
|
|
Nonvested PSUs had an intrinsic value of $
20.0 million
and unrecognized compensation costs of
$8.9 million
as of December 31,
2016
. Nonvested RSUs had an intrinsic value of $
20.0 million
and unrecognized compensation costs of
$10.6 million
as of December 31,
2016
. Unrecognized compensation costs related to PSUs and RSUs are expected to be recognized over periods of
2.4
-
2.5
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.
At
December 31, 2016
and
2015
, the Corporation had a noncurrent pension liability of
$40.4 million
and
$38.1 million
, respectively. This increase was primarily driven by a decrease in market interest rates as of December 31, 2016, partially offset by favorable changes to assumed mortality and favorable liability and asset experience during 2016.
Due to the large cash contribution in January 2015, the Corporation does not expect to make any further contributions through
2021
, but expects to make annual contributions to the defined contribution plan, as further described below.
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
$40.4 million
and
$39.4 million
as of December 31,
2016
and
2015
, respectively. The Corporation’s contributions to the CW Restoration Plan are expected to be
$3.2 million
in
2017
.
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 at December 31,
2016
and
2015
of
$24.4 million
and
$22.0 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. At December 31,
2016
and
2015
, the discounted receivable included in other assets was
$0.4 million
and
$1.0 million
, respectively. The Corporation expects to contribute
$1.8 million
to the plan during
2017
.
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, 2016
and
2015
, the total projected benefit obligation related to all foreign plans is
$91.0 million
and
$87.8 million
, respectively. As of
December 31, 2016
and
2015
, the Corporation had a net accrued pension liability of
$3.3 million
and
$5.1 million
, respectively. The Corporation's contributions to the foreign plans are expected to be
$2.6 million
in
2017
.
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)
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Service cost
|
|
$
|
25,100
|
|
|
$
|
26,873
|
|
|
$
|
25,262
|
|
|
$
|
338
|
|
|
$
|
286
|
|
|
$
|
246
|
|
Interest cost
|
|
30,495
|
|
|
30,050
|
|
|
30,403
|
|
|
996
|
|
|
842
|
|
|
877
|
|
Expected return on plan assets
|
|
(54,101
|
)
|
|
(54,629
|
)
|
|
(41,746
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
|
(46
|
)
|
|
618
|
|
|
662
|
|
|
(657
|
)
|
|
(657
|
)
|
|
(657
|
)
|
Recognized net actuarial loss/(gain)
|
|
12,029
|
|
|
16,890
|
|
|
6,827
|
|
|
(296
|
)
|
|
(551
|
)
|
|
(811
|
)
|
Cost of settlements/curtailments
|
|
—
|
|
|
7,461
|
|
|
377
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost (income)
|
|
$
|
13,477
|
|
|
$
|
27,263
|
|
|
$
|
21,785
|
|
|
$
|
381
|
|
|
$
|
(80
|
)
|
|
$
|
(345
|
)
|
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 2015, the settlement charge is 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. In 2014, the charge was due to a settlement in the CWAT plan in Switzerland.
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, 2016
measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
774,710
|
|
|
$
|
797,360
|
|
|
$
|
21,980
|
|
|
$
|
23,250
|
|
Service cost
|
|
25,100
|
|
|
26,873
|
|
|
338
|
|
|
286
|
|
Interest cost
|
|
30,495
|
|
|
30,050
|
|
|
996
|
|
|
842
|
|
Plan participants’ contributions
|
|
1,897
|
|
|
1,825
|
|
|
266
|
|
|
345
|
|
Amendments
|
|
—
|
|
|
(2,951
|
)
|
|
—
|
|
|
—
|
|
Actuarial loss (gain)
|
|
19,640
|
|
|
(10,803
|
)
|
|
3,372
|
|
|
(1,133
|
)
|
Benefits paid
|
|
(41,115
|
)
|
|
(60,662
|
)
|
|
(2,516
|
)
|
|
(1,610
|
)
|
Actual expenses
|
|
(1,206
|
)
|
|
(1,787
|
)
|
|
—
|
|
|
—
|
|
Currency translation adjustments
|
|
(10,916
|
)
|
|
(5,195
|
)
|
|
—
|
|
|
—
|
|
End of year
|
|
$
|
798,605
|
|
|
$
|
774,710
|
|
|
$
|
24,436
|
|
|
$
|
21,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
$
|
692,074
|
|
|
$
|
595,829
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
|
65,872
|
|
|
(4,092
|
)
|
|
—
|
|
|
—
|
|
Employer contribution
|
|
8,210
|
|
|
165,575
|
|
|
2,250
|
|
|
1,265
|
|
Plan participants’ contributions
|
|
1,897
|
|
|
1,825
|
|
|
266
|
|
|
345
|
|
Benefits paid
|
|
(41,115
|
)
|
|
(60,662
|
)
|
|
(2,516
|
)
|
|
(1,610
|
)
|
Actual Expenses
|
|
(1,206
|
)
|
|
(1,787
|
)
|
|
—
|
|
|
—
|
|
Currency translation adjustments
|
|
(11,124
|
)
|
|
(4,614
|
)
|
|
—
|
|
|
—
|
|
End of year
|
|
$
|
714,608
|
|
|
$
|
692,074
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
$
|
(83,997
|
)
|
|
$
|
(82,636
|
)
|
|
$
|
(24,436
|
)
|
|
$
|
(21,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(In thousands)
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Amounts recognized on the balance sheet
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
$
|
4,049
|
|
|
$
|
3,667
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current liabilities
|
|
(3,498
|
)
|
|
(2,998
|
)
|
|
(1,833
|
)
|
|
(1,562
|
)
|
Noncurrent liabilities
|
|
(84,548
|
)
|
|
(83,305
|
)
|
|
(22,603
|
)
|
|
(20,418
|
)
|
Total
|
|
$
|
(83,997
|
)
|
|
$
|
(82,636
|
)
|
|
$
|
(24,436
|
)
|
|
$
|
(21,980
|
)
|
Amounts recognized in accumulated other comprehensive income (AOCI)
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
|
$
|
198,630
|
|
|
$
|
203,729
|
|
|
$
|
(5,178
|
)
|
|
$
|
(8,846
|
)
|
Prior service cost
|
|
(1,580
|
)
|
|
(1,635
|
)
|
|
(3,373
|
)
|
|
(4,030
|
)
|
Total
|
|
$
|
197,050
|
|
|
$
|
202,094
|
|
|
$
|
(8,551
|
)
|
|
$
|
(12,876
|
)
|
Amounts in AOCI expected to be recognized in net periodic cost in the coming year:
|
|
|
|
|
|
|
|
|
Loss (gain) recognition
|
|
$
|
11,793
|
|
|
$
|
12,373
|
|
|
$
|
(203
|
)
|
|
$
|
(571
|
)
|
Prior service cost recognition
|
|
$
|
(105
|
)
|
|
$
|
(50
|
)
|
|
$
|
(657
|
)
|
|
$
|
(657
|
)
|
Accumulated benefit obligation
|
|
$
|
767,461
|
|
|
$
|
736,688
|
|
|
N/A
|
|
|
N/A
|
|
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
733,426
|
|
|
$
|
721,626
|
|
|
N/A
|
|
|
N/A
|
|
Accumulated benefit obligation
|
|
702,282
|
|
|
683,605
|
|
|
N/A
|
|
|
N/A
|
|
Fair value of plan assets
|
|
645,380
|
|
|
635,323
|
|
|
N/A
|
|
|
N/A
|
|
Plan Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Weighted-average assumptions in determination of benefit obligation:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.88
|
%
|
|
4.11
|
%
|
|
4.00
|
%
|
|
4.25
|
%
|
Rate of compensation increase
|
|
3.35
|
%
|
|
3.36
|
%
|
|
N/A
|
|
|
N/A
|
|
Health care cost trends:
|
|
|
|
|
|
|
|
|
Rate assumed for subsequent year
|
|
N/A
|
|
|
N/A
|
|
|
8.25
|
%
|
|
5.70
|
%
|
Ultimate rate reached in 2026
|
|
N/A
|
|
|
N/A
|
|
|
4.50
|
%
|
|
5.40
|
%
|
Weighted-average assumptions in determination of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
4.12
|
%
|
|
3.88
|
%
|
|
4.25
|
%
|
|
3.75
|
%
|
Expected return on plan assets
|
|
7.81
|
%
|
|
7.93
|
%
|
|
N/A
|
|
|
N/A
|
|
Rate of compensation increase
|
|
3.35
|
%
|
|
3.37
|
%
|
|
N/A
|
|
|
N/A
|
|
Health care cost trends:
|
|
|
|
|
|
|
|
|
Rate assumed for subsequent year
|
|
N/A
|
|
|
N/A
|
|
|
8.75
|
%
|
|
5.50
|
%
|
Ultimate rate reached in 2026
|
|
N/A
|
|
|
N/A
|
|
|
4.50
|
%
|
|
4.59
|
%
|
Effective December 31, 2016, the Corporation has 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
|
|
$
|
30
|
|
|
$
|
(24
|
)
|
Postretirement benefit obligation
|
|
$
|
444
|
|
|
$
|
(371
|
)
|
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
88%
of consolidated assets:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Target
|
|
Expected
|
|
|
2016
|
|
2015
|
|
Exposure
|
|
Range
|
Asset class
|
|
|
|
|
|
|
|
|
Domestic equities
|
|
54%
|
|
51%
|
|
50%
|
|
40%-60%
|
International equities
|
|
13%
|
|
14%
|
|
15%
|
|
10%-20%
|
Total equity
|
|
67%
|
|
65%
|
|
65%
|
|
55%-75%
|
Fixed income
|
|
33%
|
|
35%
|
|
35%
|
|
25%-45%
|
As of
December 31, 2016
and
2015
, cash funds in the CW Pension Plan represented approximately
3%
of portfolio assets.
Foreign plan assets represent
12%
of consolidated plan assets, with the majority of the assets supporting the U.K. plans. 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
3.70%
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 as of
December 31, 2016
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
|
|
$
|
26,251
|
|
|
$
|
253
|
|
|
$
|
25,998
|
|
|
$
|
—
|
|
Equity securities- Mutual funds
(1)
|
|
435,931
|
|
|
395,549
|
|
|
40,382
|
|
|
—
|
|
Bond funds
(2)
|
|
219,417
|
|
|
162,470
|
|
|
56,947
|
|
|
—
|
|
Insurance Contracts
(3)
|
|
9,720
|
|
|
—
|
|
|
—
|
|
|
9,720
|
|
Other
(4)
|
|
755
|
|
|
—
|
|
|
—
|
|
|
755
|
|
December 31, 2015
|
|
$
|
692,074
|
|
|
$
|
558,272
|
|
|
$
|
123,327
|
|
|
$
|
10,475
|
|
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
|
|
(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 year ended
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Insurance
Contracts
|
|
Other
|
|
Total
|
December 31, 2014
|
|
$
|
8,169
|
|
|
$
|
771
|
|
|
$
|
8,940
|
|
Actual return on plan assets:
|
|
|
|
|
|
|
Relating to assets still held at the reporting date
|
|
127
|
|
|
37
|
|
|
164
|
|
Relating to assets sold during the period
|
|
—
|
|
|
2
|
|
|
2
|
|
Purchases, sales, and settlements
|
|
1,554
|
|
|
(49
|
)
|
|
1,505
|
|
Foreign currency translation adjustment
|
|
(130
|
)
|
|
(6
|
)
|
|
(136
|
)
|
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
|
|
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
|
2017
|
|
$
|
49,513
|
|
|
$
|
1,833
|
|
|
$
|
51,346
|
|
2018
|
|
50,665
|
|
|
1,762
|
|
|
52,427
|
|
2019
|
|
54,154
|
|
|
1,733
|
|
|
55,887
|
|
2020
|
|
53,516
|
|
|
1,720
|
|
|
55,236
|
|
2021
|
|
52,950
|
|
|
1,711
|
|
|
54,661
|
|
2022 — 2026
|
|
273,753
|
|
|
8,211
|
|
|
281,964
|
|
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, 2016
, the expense relating to the plan was
$11.3 million
, consisting of
$4.8 million
in matching contributions to the plan in
2016
, and
$6.5 million
in non-elective contributions paid in January
2017
. Cumulative contributions of approximately
$64.0 million
are expected to be made from
2017
through
2021
.
In addition, the Corporation had foreign pension costs under various defined contribution plans of $
4.2 million
,
$4.8 million
, and
$5.7 million
in
2016
,
2015
, and
2014
, 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
$35.3 million
,
$37.0 million
, and
$38.0 million
in
2016
,
2015
, and
2014
, respectively.
At December 31,
2016
, 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
|
2017
|
$
|
27,585
|
|
2018
|
23,587
|
|
2019
|
19,578
|
|
2020
|
16,202
|
|
2021
|
13,094
|
|
Thereafter
|
69,400
|
|
Total
|
$
|
169,446
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Net sales
|
|
|
|
|
|
|
Commercial/Industrial
|
|
$
|
1,120,326
|
|
|
$
|
1,189,120
|
|
|
$
|
1,232,696
|
|
Defense
|
|
469,796
|
|
|
479,528
|
|
|
492,094
|
|
Power
|
|
524,967
|
|
|
545,013
|
|
|
527,034
|
|
Less: Intersegment Revenues
|
|
(6,158
|
)
|
|
(7,978
|
)
|
|
(8,698
|
)
|
Total Consolidated
|
|
$
|
2,108,931
|
|
|
$
|
2,205,683
|
|
|
$
|
2,243,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2016
|
|
2015
|
|
2014
|
Operating income (expense)
|
|
|
|
|
|
|
Commercial/Industrial
|
|
$
|
156,550
|
|
|
$
|
171,525
|
|
|
$
|
178,684
|
|
Defense
|
|
98,291
|
|
|
98,895
|
|
|
82,552
|
|
Power
|
|
76,472
|
|
|
74,987
|
|
|
51,449
|
|
Corporate and Eliminations
(1)
|
|
(23,215
|
)
|
|
(34,790
|
)
|
|
(30,312
|
)
|
Total Consolidated
|
|
$
|
308,098
|
|
|
$
|
310,617
|
|
|
$
|
282,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
Commercial/Industrial
|
|
$
|
53,970
|
|
|
$
|
55,799
|
|
|
$
|
58,276
|
|
Defense
|
|
14,488
|
|
|
15,965
|
|
|
19,530
|
|
Power
|
|
23,032
|
|
|
23,419
|
|
|
23,060
|
|
Corporate
|
|
4,518
|
|
|
4,292
|
|
|
4,059
|
|
Total Consolidated
|
|
$
|
96,008
|
|
|
$
|
99,475
|
|
|
$
|
104,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
|
|
|
|
Commercial/Industrial
|
|
$
|
1,391,040
|
|
|
$
|
1,480,052
|
|
|
$
|
1,543,795
|
|
Defense
|
|
751,859
|
|
|
800,613
|
|
|
845,193
|
|
Power
|
|
516,321
|
|
|
629,612
|
|
|
579,736
|
|
Corporate
|
|
378,561
|
|
|
79,334
|
|
|
266,377
|
|
Assets held for sale
|
|
—
|
|
|
—
|
|
|
147,347
|
|
Total Consolidated
|
|
$
|
3,037,781
|
|
|
$
|
2,989,611
|
|
|
$
|
3,382,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
Commercial/Industrial
|
|
$
|
30,145
|
|
|
$
|
21,990
|
|
|
$
|
37,329
|
|
Defense
|
|
5,870
|
|
|
3,834
|
|
|
5,175
|
|
Power
|
|
6,653
|
|
|
6,163
|
|
|
16,057
|
|
Corporate
|
|
4,108
|
|
|
3,525
|
|
|
8,554
|
|
Total Consolidated
(2)
|
|
$
|
46,776
|
|
|
$
|
35,512
|
|
|
$
|
67,115
|
|