Disaggregation of Revenue
The following table presents the Corporation’s total net sales disaggregated by end market and customer type:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Total Net Sales by End Market and Customer Type
(In thousands)
|
2019
|
|
2018
|
Defense
|
|
|
|
Aerospace
|
$
|
78,787
|
|
|
$
|
79,153
|
|
Ground
|
20,758
|
|
|
22,519
|
|
Naval
|
131,088
|
|
|
103,489
|
|
Total Defense Customers
|
$
|
230,633
|
|
|
$
|
205,161
|
|
|
|
|
|
Commercial
|
|
|
|
Aerospace
|
$
|
103,221
|
|
|
$
|
99,404
|
|
Power Generation
|
96,480
|
|
|
98,319
|
|
General Industrial
|
147,980
|
|
|
144,638
|
|
Total Commercial Customers
|
$
|
347,681
|
|
|
$
|
342,361
|
|
|
|
|
|
Total
|
$
|
578,314
|
|
|
$
|
547,522
|
|
|
|
|
|
|
|
|
|
Note: Certain amounts in the prior year have been reclassed to conform to the current year presentation.
|
Contract Balances
Timing of revenue recognition and cash collection may result in billed receivables, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the Condensed Consolidated Balance Sheet. The Corporation’s contract assets primarily relate to its rights to consideration for work completed but not billed as of the reporting date. Contract assets are transferred to billed receivables when the rights to consideration become unconditional. This is typical in situations where amounts are billed as work progresses in accordance with agreed-upon contractual terms or upon achievement of contractual milestones. The Corporation’s contract liabilities primarily consist of customer advances received prior to revenue being earned. Revenue recognized during the
three months ended March 31, 2019
included in the contract liabilities balance at the beginning of the year was approximately
$79 million
. Changes in contract assets and contract liabilities as of
March 31, 2019
, were not materially impacted by any other factors. Contract assets and contract liabilities are reported in the "Receivables, net" and "Deferred revenue" lines, respectively, within the Condensed Consolidated Balance Sheet.
3
. ACQUISITIONS
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
three months ended March 31, 2019
, the Corporation acquired
one
business for an aggregate purchase price of
$49 million
, which is described in more detail below.
No
acquisitions were made during the three months ended
March 31, 2018
.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the
three months ended March 31, 2019
.
|
|
|
|
|
|
(In thousands)
|
|
2019
|
Accounts receivable
|
|
$
|
2,300
|
|
Inventory
|
|
322
|
|
Property, plant, and equipment
|
|
648
|
|
Other current and non-current assets
|
|
180
|
|
Intangible assets
|
|
26,000
|
|
Operating lease right-of-use assets, net
|
|
1,410
|
|
Current and non-current liabilities
|
|
(2,970
|
)
|
Net tangible and intangible assets
|
|
27,890
|
|
Purchase price, net of cash acquired
|
|
49,037
|
|
Goodwill
|
|
$
|
21,147
|
|
|
|
|
Goodwill deductible for tax purposes
|
|
$
|
21,147
|
|
2019 Acquisitions
Tactical Communications Group (TCG)
On
March 15, 2019
, the Corporation acquired 100% of the membership interest of TCG for
$49 million
, net of cash acquired. The 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. TCG is a designer and manufacturer of tactical data link software solutions for critical military communications systems. The acquired business operates within the Defense segment.
4
. RECEIVABLES
Receivables primarily include amounts billed to customers, unbilled charges on long-term contracts consisting of amounts recognized as sales but not billed, and other receivables. Substantially all amounts of unbilled receivables are expected to be billed and collected within one year. An immaterial amount of unbilled receivables are subject to retainage provisions. The amount of claims and unapproved change orders within our receivables balances are immaterial.
The composition of receivables is as follows:
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 31, 2019
|
|
December 31, 2018
|
Billed receivables:
|
|
|
|
Trade and other receivables
|
$
|
378,350
|
|
|
$
|
390,306
|
|
Less: Allowance for doubtful accounts
|
(8,395
|
)
|
|
(7,436
|
)
|
Net billed receivables
|
369,955
|
|
|
382,870
|
|
Unbilled receivables (Contract Assets):
|
|
|
|
Recoverable costs and estimated earnings not billed
|
234,286
|
|
|
225,810
|
|
Less: Progress payments applied
|
(12,679
|
)
|
|
(14,925
|
)
|
Net unbilled receivables
|
221,607
|
|
|
210,885
|
|
Receivables, net
|
$
|
591,562
|
|
|
$
|
593,755
|
|
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 is as follows:
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 31, 2019
|
|
December 31, 2018
|
Raw materials
|
$
|
201,889
|
|
|
$
|
214,442
|
|
Work-in-process
|
90,406
|
|
|
74,536
|
|
Finished goods and component parts
|
145,923
|
|
|
143,016
|
|
Inventoried costs related to U.S. Government and other long-term contracts
|
74,343
|
|
|
54,195
|
|
Gross inventories
|
512,561
|
|
|
486,189
|
|
Less: Inventory reserves
|
(58,046
|
)
|
|
(55,776
|
)
|
Progress payments applied
|
(7,493
|
)
|
|
(6,987
|
)
|
Inventories, net
|
$
|
447,022
|
|
|
$
|
423,426
|
|
Inventoried costs related to long-term contracts include capitalized contract development costs related to certain aerospace and defense programs of
$45.0 million
and
$44.4 million
as of
March 31, 2019
and
December 31, 2018
, respectively. These capitalized costs will be liquidated as control of production units is transferred to the customer. As of
March 31, 2019
and
December 31, 2018
,
$34.3 million
and
$18.7 million
, respectively, are scheduled to be liquidated under existing firm orders.
6
. GOODWILL
The changes in the carrying amount of goodwill for the
three months ended
March 31, 2019
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Commercial/ Industrial
|
|
Defense
|
|
Power
|
|
Consolidated
|
December 31, 2018
|
$
|
442,015
|
|
|
$
|
448,871
|
|
|
$
|
197,146
|
|
|
$
|
1,088,032
|
|
Acquisitions
|
—
|
|
|
21,147
|
|
|
—
|
|
|
21,147
|
|
Adjustments
|
—
|
|
|
(208
|
)
|
|
—
|
|
|
(208
|
)
|
Foreign currency translation adjustment
|
742
|
|
|
1,567
|
|
|
62
|
|
|
2,371
|
|
March 31, 2019
|
$
|
442,757
|
|
|
$
|
471,377
|
|
|
$
|
197,208
|
|
|
$
|
1,111,342
|
|
7
. OTHER INTANGIBLE ASSETS, NET
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables present the cumulative composition of the Corporation’s intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
(In thousands)
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
Technology
|
|
$
|
245,236
|
|
|
$
|
(127,077
|
)
|
|
$
|
118,159
|
|
|
$
|
238,212
|
|
|
$
|
(123,156
|
)
|
|
$
|
115,056
|
|
Customer related intangibles
|
|
378,446
|
|
|
(199,130
|
)
|
|
179,316
|
|
|
358,832
|
|
|
(193,455
|
)
|
|
165,377
|
|
Programs
(1)
|
|
144,000
|
|
|
(7,200
|
)
|
|
136,800
|
|
|
144,000
|
|
|
(5,400
|
)
|
|
138,600
|
|
Other intangible assets
|
|
41,217
|
|
|
(30,751
|
)
|
|
10,466
|
|
|
40,340
|
|
|
(29,806
|
)
|
|
10,534
|
|
Total
|
|
$
|
808,899
|
|
|
$
|
(364,158
|
)
|
|
$
|
444,741
|
|
|
$
|
781,384
|
|
|
$
|
(351,817
|
)
|
|
$
|
429,567
|
|
(1)
Programs include values assigned to major programs of acquired businesses and represent the aggregate value associated with the customer relationships, contracts, technology, and trademarks underlying the associated program.
During the
three months ended
March 31, 2019
, the Corporation acquired intangible assets of
$26.0 million
. The Corporation acquired Customer-related intangibles of
$18.4 million
, Technology of
$6.8 million
, and Other intangible assets of
$0.8 million
, which have a weighted average amortization period of
15.0
years,
14.0
years, and
8.0
years, respectively.
Total intangible amortization expense for the
three months ended
March 31, 2019
was
$11.2 million
as compared to
$9.6 million
in the comparable prior year period. The estimated amortization expense for the five years ending
December 31, 2019
through
2023
is
$45.3 million
,
$43.4 million
,
$41.5 million
,
$39.0 million
, and
$35.3 million
, respectively.
8
. 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. Our leases have remaining lease terms of
1
year to
25
years, some of which include options for renewals, escalations, or terminations.
The components of lease expense were as follows:
|
|
|
|
|
|
Three Months Ended
|
(In thousands)
|
March 31, 2019
|
Operating lease cost
|
$
|
8,212
|
|
|
|
Finance lease cost:
|
|
Amortization of right-of-use assets
|
$
|
197
|
|
Interest on lease liabilities
|
128
|
|
Total finance lease cost
|
$
|
325
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
Three Months Ended
|
(In thousands)
|
March 31, 2019
|
Cash used for operating activities:
|
|
Operating cash flows from operating leases
|
$
|
(7,764
|
)
|
Operating cash flows from finance leases
|
(127
|
)
|
Supplemental balance sheet information related to leases was as follows:
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
(In thousands, except lease term and discount rate)
|
As of March 31, 2019
|
Operating Leases
|
|
Operating lease right-of-use assets, net
|
$
|
138,525
|
|
|
|
Other current liabilities
|
$
|
21,835
|
|
Long-term operating lease liability
|
124,014
|
|
Total operating lease liabilities
|
$
|
145,849
|
|
|
|
Finance Leases
|
|
Property, plant, and equipment
|
$
|
15,561
|
|
Accumulated depreciation
|
(4,755
|
)
|
Property, plant, and equipment, net
|
$
|
10,806
|
|
|
|
Other current liabilities
|
$
|
761
|
|
Other liabilities
|
11,646
|
|
Total finance lease liabilities
|
$
|
12,407
|
|
|
|
Weighted average remaining lease term
|
|
Operating leases
|
8.3 years
|
|
Finance leases
|
10.4 years
|
|
Weighted average discount rate
|
|
Operating leases
|
3.85
|
%
|
Finance leases
|
4.05
|
%
|
Maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
As of March 31, 2019
|
(In thousands)
|
Operating Leases
|
Finance Leases
|
2019
|
$
|
21,905
|
|
$
|
984
|
|
2020
|
27,375
|
|
1,342
|
|
2021
|
24,422
|
|
1,375
|
|
2022
|
18,215
|
|
1,410
|
|
2023
|
16,188
|
|
1,445
|
|
Thereafter
|
63,870
|
|
8,783
|
|
Total lease payments
|
$
|
171,975
|
|
$
|
15,339
|
|
Less: imputed interest
|
(26,126
|
)
|
(2,932
|
)
|
Total
|
$
|
145,849
|
|
$
|
12,407
|
|
In November 2018, the Corporation entered into a build-to-suit lease of approximately
$27 million
for the construction of a new facility for DRG in Charleston, South Carolina. The lease has not been reflected in the Corporation’s condensed consolidated financial statements as of
March 31, 2019
as the Corporation has not yet obtained the right to control the use of the facility.
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 contracts, to hedge a portion of existing and anticipated foreign currency denominated transactions. The purpose of the Corporation’s foreign currency risk management program is to reduce volatility in earnings caused by exchange rate fluctuations. Guidance on accounting for derivative instruments and hedging activities requires companies to recognize all of the derivative financial instruments as either assets or liabilities at fair value in the Condensed Consolidated Balance Sheets based upon quoted market prices for comparable instruments.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
Effects on Condensed Consolidated Balance Sheets
As of
March 31, 2019
and
December 31, 2018
, the fair values of the asset and liability derivative instruments are immaterial.
Effects on Condensed Consolidated Statements of Earnings
Undesignated hedges
The location and amount of gains recognized in income on forward exchange derivative contracts not designated for hedge accounting for the
three
months ended
March 31,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(In thousands)
|
|
March 31,
|
Derivatives not designated as hedging instrument
|
|
2019
|
|
2018
|
Forward exchange contracts:
|
|
|
|
|
General and administrative expenses
|
|
$
|
3,589
|
|
|
$
|
353
|
|
Debt
The estimated fair value amounts were determined by the Corporation using available market information that is primarily based on quoted market prices for the same or similar issuances as of
March 31, 2019
. Accordingly, all of the Corporation’s debt is valued at a Level 2. The fair values described below may not be indicative of net realizable value or reflective of future fair values. Furthermore, the use of different methodologies to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
(In thousands)
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
3.84% Senior notes due 2021
|
100,000
|
|
|
100,685
|
|
|
100,000
|
|
|
100,359
|
|
3.70% Senior notes due 2023
|
202,500
|
|
|
203,134
|
|
|
202,500
|
|
|
201,813
|
|
3.85% Senior notes due 2025
|
90,000
|
|
|
90,665
|
|
|
90,000
|
|
|
89,711
|
|
4.24% Senior notes due 2026
|
200,000
|
|
|
204,746
|
|
|
200,000
|
|
|
202,288
|
|
4.05% Senior notes due 2028
|
67,500
|
|
|
67,904
|
|
|
67,500
|
|
|
66,942
|
|
4.11% Senior notes due 2028
|
90,000
|
|
|
90,840
|
|
|
90,000
|
|
|
89,647
|
|
Other debt
|
161
|
|
|
161
|
|
|
243
|
|
|
243
|
|
Total debt
|
750,161
|
|
|
758,135
|
|
|
750,243
|
|
|
751,003
|
|
Debt issuance costs, net
|
(684
|
)
|
|
(684
|
)
|
|
(714
|
)
|
|
(714
|
)
|
Unamortized interest rate swap proceeds
|
12,578
|
|
|
12,578
|
|
|
13,027
|
|
|
13,027
|
|
Total debt, net
|
$
|
762,055
|
|
|
$
|
770,029
|
|
|
$
|
762,556
|
|
|
$
|
763,316
|
|
10
. PENSION PLANS
The following table is a consolidated disclosure of all domestic and foreign defined benefit pension plans as described in the Corporation’s
2018
Annual Report on Form 10-K filed with the SEC.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Pension Plans
The components of net periodic pension cost for the
three
months ended
March 31, 2019
and
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In thousands)
|
|
2019
|
|
2018
|
Service cost
|
|
$
|
5,826
|
|
|
$
|
6,506
|
|
Interest cost
|
|
7,372
|
|
|
6,534
|
|
Expected return on plan assets
|
|
(14,884
|
)
|
|
(14,716
|
)
|
Amortization of prior service cost
|
|
(71
|
)
|
|
(63
|
)
|
Amortization of unrecognized actuarial loss
|
|
2,592
|
|
|
3,906
|
|
Net periodic benefit cost
|
|
$
|
835
|
|
|
$
|
2,167
|
|
The Corporation does not expect to make any contributions to the Curtiss-Wright Pension Plan in
2019
. Contributions to the foreign benefit plans are not expected to be material in
2019
. During the
three months ended March 31, 2018
, the Corporation made a
$50 million
voluntary contribution to the Curtiss-Wright Pension Plan.
Defined Contribution Retirement Plan
Effective
January 1, 2014
, all non-union employees who were not currently receiving final or career average pay benefits became eligible to receive employer contributions in the Corporation's sponsored 401(k) plan. The employer contributions include both employer match and non-elective contribution components. Effective January 1, 2019, the Corporation increased the employer match opportunity, raising the maximum employer contribution from
6%
to
7%
of eligible compensation. During the
three months ended March 31, 2019
and
2018
, the expense relating to the plan was
$5.4 million
and
$4.2 million
, respectively. The Corporation made
$10.9 million
in contributions to the plan for the
first quarter
of
2019
, and expects to make total contributions of
$15.1 million
in
2019
.
11
. EARNINGS PER SHARE
Diluted earnings per share were computed based on the weighted-average number of shares outstanding plus all potentially dilutive common shares. A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In thousands)
|
|
2019
|
|
2018
|
Basic weighted-average shares outstanding
|
|
42,799
|
|
|
44,188
|
|
Dilutive effect of stock options and deferred stock compensation
|
|
259
|
|
|
490
|
|
Diluted weighted-average shares outstanding
|
|
43,058
|
|
|
44,678
|
|
For the three months ended
March 31, 2019
and
March 31, 2018
, there were
no
anti-dilutive equity-based awards.
12
. SEGMENT INFORMATION
The Corporation manages and evaluates its operations based on end markets to strengthen its ability to service customers and recognize certain organizational efficiencies. Based on this approach, the Corporation has three reportable segments: Commercial/Industrial, Defense, and Power.
The Corporation's measure of segment profit or loss is operating income. Interest expense and income taxes are not reported on an operating segment basis as they are not considered in the segments’ performance evaluation by the Corporation’s chief operating decision-maker, its Chief Executive Officer.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Net sales and operating income by reportable segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In thousands)
|
|
2019
|
|
2018
|
Net sales
|
|
|
|
|
Commercial/Industrial
|
|
$
|
293,750
|
|
|
$
|
296,753
|
|
Defense
|
|
121,497
|
|
|
120,883
|
|
Power
|
|
164,147
|
|
|
132,158
|
|
Less: Intersegment revenues
|
|
(1,080
|
)
|
|
(2,272
|
)
|
Total consolidated
|
|
$
|
578,314
|
|
|
$
|
547,522
|
|
|
|
|
|
|
Operating income (expense)
|
|
|
|
|
Commercial/Industrial
|
|
$
|
39,446
|
|
|
$
|
39,225
|
|
Defense
|
|
17,653
|
|
|
19,728
|
|
Power
|
|
24,219
|
|
|
15,342
|
|
Corporate and eliminations
(1)
|
|
(9,273
|
)
|
|
(9,797
|
)
|
Total consolidated
|
|
$
|
72,045
|
|
|
$
|
64,498
|
|
(1)
Corporate and eliminations includes pension and other postretirement benefit expense, certain environmental costs related to remediation at legacy sites, foreign currency transactional gains and losses, and certain other expenses.
Adjustments to reconcile operating income to earnings before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
(In thousands)
|
|
2019
|
|
2018
|
Total operating income
|
|
$
|
72,045
|
|
|
$
|
64,498
|
|
Interest expense
|
|
7,272
|
|
|
8,204
|
|
Other income, net
|
|
5,478
|
|
|
4,683
|
|
Earnings before income taxes
|
|
$
|
70,251
|
|
|
$
|
60,977
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
March 31, 2019
|
|
December 31, 2018
|
Identifiable assets
|
|
|
|
Commercial/Industrial
|
$
|
1,455,070
|
|
|
$
|
1,398,601
|
|
Defense
|
1,036,152
|
|
|
961,298
|
|
Power
|
762,935
|
|
|
720,073
|
|
Corporate and Other
|
74,645
|
|
|
175,413
|
|
Total consolidated
|
$
|
3,328,802
|
|
|
$
|
3,255,385
|
|
13
. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The cumulative balance of each component of accumulated other comprehensive income (loss), net of tax, is as follows:
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Foreign currency translation adjustments, net
|
|
Total pension and postretirement adjustments, net
|
|
Accumulated other comprehensive income (loss)
|
December 31, 2017
|
$
|
(94,708
|
)
|
|
$
|
(122,132
|
)
|
|
$
|
(216,840
|
)
|
Other comprehensive loss before reclassifications
(1)
|
(52,440
|
)
|
|
(31,380
|
)
|
|
(83,820
|
)
|
Amounts reclassified from accumulated other comprehensive loss
(1)
|
—
|
|
|
12,213
|
|
|
12,213
|
|
Net current period other comprehensive loss
|
(52,440
|
)
|
|
(19,167
|
)
|
|
(71,607
|
)
|
December 31, 2018
|
$
|
(147,148
|
)
|
|
$
|
(141,299
|
)
|
|
$
|
(288,447
|
)
|
Other comprehensive income (loss) before reclassifications
(1)
|
8,242
|
|
|
(61
|
)
|
|
8,181
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
(1)
|
—
|
|
|
1,744
|
|
|
1,744
|
|
Net current period other comprehensive income
|
8,242
|
|
|
1,683
|
|
|
9,925
|
|
Cumulative effect from adoption of ASU 2018-02
(2)
|
(1,318
|
)
|
|
(24,939
|
)
|
|
(26,257
|
)
|
March 31, 2019
|
$
|
(140,224
|
)
|
|
$
|
(164,555
|
)
|
|
$
|
(304,779
|
)
|
(1)
All amounts are after tax.
(2)
Reclassification to retained earnings due to adoption of ASU No. 2018-02,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. See Note 1 for additional information.
Details of amounts reclassified from accumulated other comprehensive income (loss) are below:
|
|
|
|
|
|
|
(In thousands)
|
Amount reclassified from Accumulated other comprehensive income (loss)
|
|
Affected line item in the statement where net earnings is presented
|
Defined benefit pension and other postretirement benefit plans
|
|
|
|
Amortization of prior service costs
|
235
|
|
|
(1)
|
Amortization of actuarial losses
|
(2,546
|
)
|
|
(1)
|
|
(2,311
|
)
|
|
Total before tax
|
|
567
|
|
|
Income tax
|
Total reclassifications
|
$
|
(1,744
|
)
|
|
Net of tax
|
(1)
These items are included in the computation of net periodic pension cost. See Note
10
, Pension Plans.
14
. CONTINGENCIES AND COMMITMENTS
Legal Proceedings
The Corporation has been named in a number of lawsuits that allege injury from exposure to asbestos. To date, the Corporation has not been found liable for or paid any material sum of money in settlement in any case. The Corporation believes its minimal use of asbestos in its past operations as well as its acquired businesses’ operations and the relatively non-friable condition of asbestos in its historical products makes it unlikely that it will face material liability in any asbestos litigation, whether individually or in the aggregate. The Corporation maintains insurance coverage and indemnification agreements for these potential liabilities and believes adequate coverage exists to cover any unanticipated asbestos liability.
In December 2013, the Corporation, along with other unaffiliated parties, received a claim from Canadian Natural Resources Limited (CNRL) filed in the Court of Queen's Bench of Alberta, Judicial District of Calgary. The claim pertains to a January 2011 fire and explosion at a delayed coker unit at its Fort McMurray refinery that resulted in the injury of five CNRL employees, damage to property and equipment, and various forms of consequential loss, such as loss of profit, lost opportunities, and business interruption. The fire and explosion occurred when a CNRL employee bypassed certain safety controls and opened an operating coker unit. The total quantum of alleged damages arising from the incident has not been finalized, but is estimated to meet or exceed
$1 billion
. The Corporation maintains various forms of commercial, property and casualty, product liability, and other forms of insurance; however, such insurance may not be adequate to cover the costs associated with a judgment against us. In October 2017, all parties agreed in
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
principle to participate in a formal mediation in late 2018 with the intention of settling this claim. In an effort to induce the parties to participate in the formal mediation, CNRL agreed to reduce its claim to approximately
$400 million
, which reflects the monetary amount of property damage incurred as a result of the fire and explosion. The Corporation is currently unable to estimate an amount, or range of potential losses, if any, from this matter. The Corporation believes that it has adequate legal defenses and intends to defend this matter vigorously. The Corporation's financial condition, results of operations, and cash flows could be materially affected during a future fiscal quarter or fiscal year by unfavorable developments or outcome regarding this claim.
The Corporation is party to a number of other legal actions and claims, none of which individually or in the aggregate, in the opinion of management, are expected to have a material effect on the Corporation’s results of operations or financial position.
Letters of Credit and Other Financial Arrangements
The Corporation enters into standby letters of credit agreements and guarantees with financial institutions and customers primarily relating to guarantees of repayment, future performance on certain contracts to provide products and services, and to secure advance payments from certain international customers. As of
March 31, 2019
and
December 31, 2018
, there were
$24.0 million
and
$21.7 million
of stand-by letters of credit outstanding, respectively, and
$11.1 million
and
$11.7 million
of bank guarantees outstanding, respectively. In addition, the Corporation is required to provide the Nuclear Regulatory Commission financial assurance demonstrating its ability to cover the cost of decommissioning its Cheswick, Pennsylvania facility upon closure, though the Corporation does not intend to close this facility. The Corporation has provided this financial assurance in the form of a
$45.6 million
surety bond.
AP1000 Program
Within the Corporation’s Power segment, our Electro-Mechanical Division is the reactor coolant pump (RCP) supplier for the WEC AP1000 nuclear power plants under construction in China and the United States. The terms of the AP1000 China and United States contracts include liquidated damage penalty provisions for failure to meet contractual delivery dates if the Corporation caused the delay and the delay was not excusable. On October 10, 2013, the Corporation received a letter from WEC stating entitlements to the maximum amount of liquidated damages allowable under the AP1000 China contract of approximately
$25 million
. The Corporation would be liable for liquidated damages under the contract if certain contractual delivery dates were not met and if the Corporation was deemed responsible for the delay. As of
March 31, 2019
, the Corporation has not met certain contractual delivery dates under its AP 1000 contracts; however there are significant uncertainties as to which parties are responsible for the delays. The Corporation believes it has adequate legal defenses and intends to vigorously defend this matter. Given the uncertainties surrounding the responsibility for the delays, no accrual has been made for this matter as of
March 31, 2019
. As of
March 31, 2019
, the range of possible loss is
$0 million
to
$31 million
for the AP1000 U.S. contract, for a total range of possible loss of
$0 million
to
$55.5 million
.
CURTISS-WRIGHT CORPORATION and SUBSIDIARIES
PART I- ITEM 2