Company Quick10K Filing
Quick10K
Curtiss Wright
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-02-26 Earnings, Exhibits
8-K 2018-12-12 Other Events
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-10-17 Enter Agreement, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-05-18 Other Events
8-K 2018-05-10 Shareholder Vote
ALGN Align Technology 0
EFSC Enterprise Financial Services 0
LOB Live Oak Bancshares 0
CLDX Celldex Therapeutics 0
EQR Equity Residential 0
CURR Cure Pharmaceutical Holding 0
WGTG Wings & Things 0
PSXP Phillips 66 Partners 0
ENZ Enzo Biochem 0
IDT IDT 0
CW 2018-12-31
Part I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
Part II
Item 5. Market for The Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Part III
Part IV
Item 15. Exhibits, Financial Statement Schedule.
EX-10.14 exhibit1014_20181231.htm
EX-10.15 exhibit1015_20181231.htm
EX-10.23 exhibit1023_20181231.htm
EX-10.24 exhibit1024_20181231.htm
EX-10.25 exhibit102520181231.htm
EX-21 exhibit21_20181231.htm
EX-23 exhibit23_20181231.htm
EX-31.1 exhibit311_20181231.htm
EX-31.2 exhibit312_20181231.htm
EX-32 exhibit32_20181231.htm

Curtiss Wright Earnings 2018-12-31

CW 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 a20181231-10k.htm 10-K Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______

Commission File Number 1-134
CURTISS-WRIGHT CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware
 
13-0612970
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
 
 
130 Harbour Place Drive, Suite 300, Davidson, North Carolina
 
28036
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant's telephone number, including area code: (704) 869-4600

Securities registered pursuant to Section 12(b) of the Act:

 
 
Name of each exchange
Title of each class
 
on which registered
Common stock, par value $1 per share
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý          No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

1



Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
 
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No
The aggregate market value of the voting and non-voting Common stock held by non-affiliates of the Registrant as of June 30, 2018 was approximately $4.5 billion.
The number of shares outstanding of the Registrant’s Common stock as of January 31, 2019:
Class
 
Number of shares
 
 
 
Common stock, par value $1 per share
 
42,789,265

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement of the Registrant with respect to the 2019 Annual Meeting of Stockholders to be held on May 9, 2019 are incorporated by reference into Part III of this Form 10-K.




2



INDEX TO FORM 10-K
 
 
 
 
 
PART I
 
 
Item 1.
 
Item 1A.
 
Item 1B.
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
 
 
PART II
 
 
Item 5.
 
Item 6.
 
Item 7.
 
Item 7A.
 
Item 8.
 
Item 9.
 
Item 9A.
 
Item 9B.
 
 
 
 
 
 
PART III
 
 
Item 10.
 
Item 11.
 
Item 12.
 
Item 13.
 
Item 14.
 
 
 
 
 
 
PART IV
 
 
Item 15.
 
 
 
 
 


3



PART I
FORWARD-LOOKING STATEMENTS
Except for historical information, this Annual Report on Form 10-K may be deemed to contain “forward-looking statements” within the meaning of the Private Litigation Reform Act of 1995. Examples of forward-looking statements include, but are not limited to: (a) projections of or statements regarding return on investment, future earnings, interest income, sales, volume, other income, earnings or loss per share, growth prospects, capital structure, liquidity requirements, and other financial terms, (b) statements of plans and objectives of management, (c) statements of future economic performance, (d) the effect of laws, rules, regulations, new accounting pronouncements, and outstanding litigation on our business and future performance, and (e) statements of assumptions, such as economic conditions underlying other statements. Such forward-looking statements can be identified by the use of forward-looking terminology such as “anticipates,” “believes,” “continue,” “could,” “estimate,” “expects,” “intend,” “may,” “might,” “outlook,” “potential,” “predict,” “should,” “will,” as well as the negative of any of the foregoing or variations of such terms or comparable terminology, or by discussion of strategy. No assurance may be given that the future results described by the forward-looking statements will be achieved. While we believe these forward-looking statements are reasonable, they are only predictions and are subject to known and unknown risks, uncertainties, and other factors, many of which are beyond our control, which could cause actual results, performance or achievement to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements. In addition, other risks, uncertainties, assumptions, and factors that could affect our results and prospects are described in this report, including under the heading “Item 1A. Risk Factors” and elsewhere, and may further be described in our prior and future filings with the Securities and Exchange Commission and other written and oral statements made or released by us. Such forward-looking statements in this Annual Report on Form 10-K include, without limitation, those contained in Item 1. Business, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8. Financial Statements and Supplementary Data, including, without limitation, the Notes to Consolidated Financial Statements.
Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements speak only as of the date they were made, and we assume no obligation to update forward-looking statements to reflect actual results or changes in or additions to the factors affecting such forward-looking statements.

4



Item 1. Business.

BUSINESS DESCRIPTION

Curtiss-Wright Corporation and its subsidiaries (we, the Corporation, or the Company) is a global, diversified manufacturing and service company that designs, manufactures, and overhauls precision components and provides highly engineered products and services to the aerospace, defense, general industrial, and power generation markets. We were formed in 1929 by the merger of companies founded by the Wright brothers and Glenn Curtiss, who were aviation pioneers. We are incorporated under the laws of the State of Delaware and headquartered in Davidson, North Carolina. We list our common stock on the New York Stock Exchange (NYSE) and trade under the symbol CW.

We expect that the diversification and breadth of our portfolio should mitigate the impact of business cycle volatility and allow us to drive growth in new products and markets. We seek to leverage and build upon our critical mass to expand our global manufacturing capabilities, sales channels, and customer relationships. We strive for consistent organic sales growth, operating margin expansion, and free cash flow generation, while maintaining a disciplined capital deployment strategy in order to drive long-term shareholder value.

We are well positioned on high-performance platforms and critical applications that require our technical sophistication and benefit from decades of engineering expertise. Our technologies are relied upon to improve safety, operating efficiency, and reliability, while meeting demanding performance requirements. Our ability to provide these advanced technologies on a cost-effective basis is fundamental to our strategy to drive increased value to our customers. We compete globally, primarily based on technology and pricing.

Business Segments

We manage and evaluate our operations based on the products and services we offer and the different markets we serve. Based on this approach, we operate through three segments: Commercial/Industrial, Defense, and Power.

Our principal domestic manufacturing facilities are located in Arizona, New York, North Carolina, Ohio, and Pennsylvania, and internationally in Canada, Mexico, and the United Kingdom.

Commercial / Industrial

Sales in the Commercial/Industrial segment are primarily to the general industrial and commercial aerospace markets and, to a lesser extent, the defense and power generation markets. The businesses in this segment provide a diversified offering of highly engineered products and services including: industrial vehicle products such as electronic throttle control devices, joysticks and transmission shifters; sensors, controls and electro-mechanical actuation components and utility systems used on commercial aircraft; valves to both the industrial and naval defense markets; and surface technology services such as shot peening, laser peening, coatings, and advanced analytical testing. The industrial businesses within our Commercial/Industrial segment are impacted primarily by general economic conditions which may include consumer consumption or commercial construction rates, as the nature of their products and services primarily support global industrial, oil and gas, commercial vehicles, medical, and transportation industries. The commercial aerospace business, in particular, is impacted by OEM production rates of new aircraft, while the defense business is impacted by government funding and spending on shipbuilding programs, primarily driven by the U.S. Government. As commercial industrial businesses, production and service processes rest primarily within material modification, machining, assembly, and testing and inspection at commercial grade specifications. The businesses distribute products through commercial sales and marketing channels.

Defense

Sales in the Defense segment are primarily to the defense markets and, to a lesser extent, to the commercial aerospace market. The businesses in this segment provide a diversified offering of products including: Commercial Off-the-Shelf (COTS) embedded computing board-level modules, data acquisition and flight test instrumentation equipment, integrated subsystems, instrumentation and control systems, turret aiming and stabilization products, and weapons handling systems. The businesses within our Defense segment are impacted primarily by government funding and spending, driven primarily by the U.S. Government. Our products typically support government entities in the aerospace defense, ground defense, and naval defense industries. As a result, we have varying degrees of content on most fighter jets, unmanned aerial vehicles (UAVs), helicopters, ground vehicle platforms, and naval vessels. Additionally, we provide avionics and electronics, flight test equipment, and aircraft data management solutions to the commercial aerospace market. Our defense businesses supporting government contractors typically utilize more advanced and ruggedized production and service processes compared to our commercial

5



businesses and have more stringent specifications and performance requirements. The businesses in this segment typically market and distribute products through regulated government contracting channels.

Power

Sales in the Power segment are primarily to the commercial nuclear power generation and naval defense markets. For the commercial markets, we provide a diversified offering of products for commercial nuclear power plants and nuclear equipment manufacturers, including hardware, pumps, valves, fastening systems, specialized containment doors, airlock hatches, and spent fuel management products. We also provide Reactor Coolant Pumps (RCPs) and control rod drive mechanisms for commercial nuclear power plants, most notably to support the Westinghouse AP1000 reactor design. The businesses are dependent upon the need for ongoing maintenance, repair and overhaul of existing operating power plants, typically to U.S. customers, as well as the construction of new power plants globally. The businesses distribute products through commercial sales and marketing channels and are impacted by pricing and demand for various forms of energy (e.g. coal, natural gas, oil, and nuclear) and also subject to changes in regulation which may impact demand, consumption, and underlying supply. For the defense markets, our products principally support the naval defense market, where we specifically provide naval propulsion and auxiliary equipment, including main coolant pumps, power-dense compact motors, generators, steam turbines, valves and secondary propulsion systems, primarily to the U.S. Navy. We also provide ship repair and maintenance for the U.S. Navy’s Atlantic and Pacific fleets through three service centers. The defense businesses in this segment are impacted by government funding and spending on shipbuilding programs, primarily driven by the U.S. Government.

OTHER INFORMATION

Certain Financial Information

For information regarding sales by geographic region, see Note 18 to the Consolidated Financial Statements contained in Part II, Item 8, of this Annual Report on Form 10-K.

In 2018, 2017, and 2016, our foreign operations as a percentage of pre-tax earnings were 39%, 40%, and 42%, respectively.

Government Sales

Our sales to the U.S. Government and foreign government end use represented 40%, 39%, and 38% of total net sales during 2018, 2017, and 2016, respectively.

In accordance with normal U.S. Government business practices, contracts and orders are subject to partial or complete termination at any time at the option of the customer. In the event of a termination for convenience by the government, there generally are provisions for recovery of our allowable incurred costs and a proportionate share of the profit or fee on the work completed, consistent with regulations of the U.S. Government. Fixed-price redeterminable contracts usually provide that we absorb the majority of any cost overrun. In the event that there is a cost underrun, the customer recoups a portion of the underrun based upon a formula in which the customer’s portion increases as the underrun exceeds certain established levels.

Generally, long-term contracts with the U.S. Government require us to invest in and carry significant levels of inventory. However, where allowable, we utilize progress payments and other interim billing practices on nearly all of these contracts, thus reducing working capital requirements. It is our policy to seek customary progress payments on certain contracts. Where we obtain such payments under U.S. Government prime contracts or subcontracts, the U.S. Government generally has control of the materials and work in process allocable or chargeable to the respective contracts. (See Notes 1, 5, and 6 to the Consolidated Financial Statements, contained in Part II, Item 8, of this Annual Report on Form 10-K).

Customers

We have hundreds of customers in the various industries we serve. No commercial customer accounted for more than 10% of our total sales during 2018, 2017, or 2016.

Approximately 34% of our total net sales for 2018, 33% for 2017, and 32% for 2016 were derived from contracts with agencies of, and prime contractors to, the U.S. Government. Information on our sales to the U.S. Government, including both direct sales as a prime contractor and indirect sales as a subcontractor, is as follows:


6



 
 
Year Ended December 31,
(In thousands)
 
2018
 
2017
 
2016
Commercial/Industrial
 
$
191,036

 
$
178,202

 
$
187,498

Defense
 
362,776

 
369,977

 
305,459

Power
 
261,188

 
191,733

 
181,851

Total U.S. Government sales
 
$
815,000

 
$
739,912

 
$
674,808


Patents

We own and license a number of United States and foreign patents and patent applications, which have been obtained or filed over a period of years. We also license intellectual property to and from third parties. Specifically, the U.S. Government receives licenses to our patents that are developed in performance of government contracts, and it may use or authorize others to use the technology covered by such patents for government purposes. Additionally, trade secrets, unpatented research and development, and engineering, some of which have been acquired by the company through business acquisitions, make an important contribution to our business. While our intellectual property rights in the aggregate are important to the operation of our business, we do not consider the success of our business or business segments to be materially dependent upon the timing of expiration or protection of any one or group of patents, patent applications, or patent license agreements under which we now operate.

Research and Development

Company-sponsored research and development costs are expensed when incurred. Total research and development expenses amounted to $65 million, $61 million, and $59 million in 2018, 2017, and 2016, respectively.


7



Executive Officers
Name
 
Current Position
 
Business Experience
 
Age
 
Executive
Officer Since
David C. Adams
 
Chairman and Chief Executive Officer

 
Chairman and Chief Executive Officer of the Corporation since January 2015. Prior to this, he served as President and Chief Executive Officer of the Corporation from August 2013. He also served as President and Chief Operating Officer of the Corporation from October 2012 and as Co-Chief Operating Officer of the Corporation from November 2008. He has been a Director of the Corporation since August 2013.
 
64
 
2005
Thomas P. Quinly
 
Vice President and Chief Operating Officer
 
Vice President of the Corporation since November 2010 and Chief Operating Officer of the Corporation since October 2013. He also served as President of Curtiss-Wright Controls, Inc. from November 2008.

 
60
 
2010
Glenn E. Tynan
 
Vice President and Chief Financial Officer
 
Vice President and Chief Financial Officer of the Corporation since June 2002.
 
60
 
2000
Paul J. Ferdenzi
 
Vice President, General Counsel, and Corporate Secretary

 
Vice President, General Counsel, and Corporate Secretary of the Corporation since March 2014. Prior to this, he served as Vice President-Human Resources of the Corporation from November 2011 and also served as Associate General Counsel and Assistant Secretary of the Corporation from June 1999 and May 2001, respectively.
 
51
 
2011
K. Christopher Farkas
 
Vice President of Finance and Corporate Controller
 
Vice President of Finance since December 2017. Prior to this, he served as Vice President and Corporate Controller of the Corporation from September 2014 and also served as Assistant Corporate Controller from May 2009.

 
50
 
2014
Harry S. Jakubowitz
 
Vice President and Treasurer
 
Vice President of the Corporation since May 2007 and Treasurer of the Corporation since September 2005.
 
66
 
2007

Employees

At the end of 2018, we had approximately 9,000 employees, 7% of which are represented by labor unions and covered by collective bargaining agreements.

Available information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy statements for our annual stockholders’ meetings, as well as any amendments to those reports, with the Securities and Exchange Commission (SEC). The public may read and copy any of our materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including our filings. These reports are also available free of charge through the Investor Relations section of our web site at www.curtisswright.com as soon as reasonably practicable after we electronically file.

Item 1A. Risk Factors.

We have summarized the known, material risks to our business below. Our business, financial condition, and results of operations and cash flows could be materially and adversely impacted if any of these risks materialize. Additional risk factors not currently known to us or that we believe are immaterial may also impair our business, financial condition, and results of operations and cash flows. The risk factors below should be considered together with information included elsewhere in this Annual Report on Form 10-K as well as other required filings by us to the Securities Exchange Commission, such as our Form 10-Q’s, Form 8-K’s, proxy statements for our annual shareholder meetings, and subsequent amendments, if any.

8




Intrusion on our systems could damage our business.

We store sensitive data, including intellectual property, proprietary business information, and confidential employee information on our servers and databases. Despite our implementation of firewalls, switchgear, and other network security measures, our servers, databases, and other systems may be vulnerable to computer hackers, physical or electronic break-ins, sabotage, computer viruses, worms, and similar disruptions from unauthorized tampering with our computer systems. We continue to review and enhance our computer systems as well as provide training to our employees in an attempt to prevent unauthorized and unlawful intrusions, but in the future it is possible that we may not be able to prevent all intrusions. Such intrusions could result in our network security or computer systems being compromised and possibly result in the misappropriation or corruption of sensitive information or cause disruptions in our services. We might be required to expend significant capital and resources to protect against, remediate, or alleviate problems caused by such intrusions. Any such intrusion could cause us to be non-compliant with applicable laws or regulations, subject us to legal claims or proceedings, disrupt our operations, damage our reputation, and cause a loss of confidence in our products and services, any of which could have a material adverse effect on our business, financial condition, and results of operations.

A substantial portion of our revenues and earnings depends upon the continued willingness of the U.S. Government and other customers in the defense industry to buy our products and services.

In 2018, approximately 34% of our total net sales were derived from or related to U.S. defense programs. U.S. defense spending has historically been cyclical, and defense budgets tend to rise when perceived threats to national security increase the level of concern over the country’s safety. At other times, spending by the military can decrease. In August 2011, Congress enacted the Budget Control Act of 2011 (BCA), which imposed spending caps and certain reductions in defense spending over a ten-year period through 2021. These spending caps and reductions, referred to as sequestration, went into effect in March 2013. Through a series of bipartisan agreements, Congress has been able to temporarily lift discretionary spending limits every year through 2019. However, unless a new agreement is enacted, the BCA will again become effective beginning in 2020. As a result of this uncertainty, a decrease in U.S. Government defense spending or changes in spending allocation could result in one or more of our programs being reduced, delayed, or terminated. In the event one or more of our programs are reduced, delayed, or terminated for which we provide products and services and are not offset by revenues from foreign sales, new programs, or products or services that we currently manufacture or provide, we may experience a reduction in our revenues and earnings and a material adverse effect on our business, financial condition, and results of operations and cash flows.

As a U.S. Government contractor, we are subject to a number of procurement rules and regulations.

We must comply with and are affected by laws and regulations relating to the award, administration, and performance of U.S. Government contracts. Government contract laws and regulations affect how we do business with our customers and, in some instances, impose added costs on our business. A violation of specific laws and regulations could result in the imposition of fines and penalties, the termination of our contracts, or debarment from bidding on contracts. These fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices or otherwise failing to follow cost accounting standards, receiving or paying kickbacks, or filing false claims. We have been, and expect to continue to be, subjected to audits and investigations by government agencies. The failure to comply with the terms of our government contracts could harm our business reputation. It could also result in our progress payments being withheld. In some instances, these laws and regulations impose terms or rights that are more favorable to the government than those typically available to commercial parties in negotiated transactions. For example, the U.S. Government may terminate any of our government contracts and, in general, subcontracts, at its convenience as well as for default based on performance. Upon termination for convenience of a fixed-price type contract, we normally are entitled to receive the purchase price for delivered items, reimbursement for allowable costs for work-in-process, and an allowance for profit on work actually completed on the contract or adjustment for loss if completion of performance would have resulted in a loss. Upon termination for convenience of a cost reimbursement contract, we normally are entitled to reimbursement of allowable costs plus a portion of the fee. Such allowable costs would normally include our cost to terminate agreements with our suppliers and subcontractors. The amount of the fee recovered, if any, is related to the portion of the work accomplished prior to termination and is determined by negotiation.

A termination arising out of our default could have a material adverse effect on our ability to compete for future contracts and orders. In addition, on those contracts for which we are teamed with others and are not the prime contractor, the U.S. Government could terminate a prime contract under which we are a subcontractor, irrespective of the quality of our services as a subcontractor.

Our U.S. Government contracts typically span one or more base years and multiple option years. The U.S. Government generally has the right to not exercise option periods and may not exercise an option period if the agency is not satisfied with

9



our performance on the contract or does not receive funding to continue the program. U.S. Government procurement may adversely affect our cash flow or program profitability.

Furthermore, we are subject to other risks in connection with government contracts, including without limitation:

the frequent need to bid on programs prior to completing the necessary design, which may result in unforeseen technological difficulties and/or cost overruns;
the difficulty in forecasting long-term costs and schedules and the potential obsolescence of products related to long-term, fixed price contracts;
contracts with varying fixed terms that may not be renewed or followed by follow-on contracts upon expiration;
cancellation of the follow-on production phase of contracts if program requirements are not met in the development phase; and
the fact that government contract wins can be contested by other contractors.

Our operations are subject to numerous domestic and international laws, regulations, and restrictions. Noncompliance with these laws, regulations, and restrictions could expose us to fines, penalties, suspension, or debarment, which could have a material adverse effect on our profitability and overall financial condition.

We have contracts and operations in many parts of the world subject to United States and foreign laws and regulations, including the False Claims Act, regulations relating to import-export control (including the International Traffic in Arms Regulation promulgated under the Arms Export Control Act), technology transfer restrictions, repatriation of earnings, exchange controls, the Foreign Corrupt Practices Act, the U.K. Anti-Bribery Act, and the anti-boycott provisions of the U.S. Export Administration Act. Although we have implemented policies and procedures and provided training that we believe are sufficient to address these risks, we cannot guarantee that our operations will always comply with these laws and regulations. From time to time, we may file voluntary disclosure reports with the U.S. Department of State, the Department of Energy, and the Department of Commerce regarding certain violations of U.S. export control laws and regulations discovered by us in the course of our business activities, employee training, or internal reviews and audits. To date, our voluntary disclosures have not resulted in a fine, penalty, or export privilege denial or restriction that has had a material adverse impact on our financial condition or ability to export. Our failure, or failure by our sales representatives or consultants to comply with these laws and regulations could result in administrative, civil, or criminal liabilities and could, in the extreme case, result in suspension or debarment from government contracts or suspension of our export privileges, which could have a material adverse effect on our business.

Our business, financial condition, and results of operations could be materially adversely affected if the United States were to withdraw from or materially modify certain international trade agreements, or if tariffs or other restrictions on the foreign-sourced goods that we sell were to increase.
A significant portion of our business activities are conducted in foreign countries, including Mexico and Canada. Our business benefits from free trade agreements such as the North American Free Trade Agreement (NAFTA) and we also rely on various U.S. corporate tax provisions related to international commerce as we build, market, and sell our products globally. On November 30, 2018, President Trump signed the United States-Mexico-Canada Agreement (USMCA) to replace NAFTA. The USMCA maintains duty-free access for most products and leaves most key provisions of the NAFTA agreement largely intact. The USMCA still requires approval by the U.S. Congress, Mexico’s National Assembly, and Canada’s Parliament before it enters into force. Additionally, President Trump recently announced his intention for the United States to withdraw from NAFTA. The outcome of the Congressional approval process is uncertain, but it is possible that withdrawal or revisions to NATFA or failure to secure Congressional approval of the USMCA could cause an increase in customs duties which in turn could adversely affect intercompany transactions among our operating subsidiaries in Canada, Mexico, and the U.S., as well as increase transaction costs with third party suppliers and customers. Furthermore, the current administration has threatened tougher trade terms with China and other countries, leading to the imposition of substantially higher U.S. tariffs on $250 billion of imports from China as well as higher Chinese tariffs on a large amount of U.S. exports to China. All of this could lead to increased costs and diminished sales opportunities in the U.S. and Chinese markets. Media and political reactions in the affected countries could potentially exacerbate the impact on our operations in those countries. The U.S. Administration’s assertive trade policies could result in further conflicts with U.S. trading partners, affecting our supply chains, sourcing, and markets. Foreign countries may impose additional burdens on us through the use of local regulations, tariffs or other requirements, which could increase our operating costs in those foreign jurisdictions. At this time, it remains unclear what actions, if any, President Trump will take with respect to other international trade agreements and U.S. tax provisions related to international commerce. If Congress does not pass the USMCA and if the United States were to withdraw from or materially modify NAFTA or other international trade agreements to which it is a party, or change corporate tax policy related to international commerce, or if tariffs were raised on the foreign-sourced goods that we sell, such goods may no longer be

10



available at a commercially attractive price or at all. This in turn could have a material adverse effect on our business, financial condition, and results of operations.

Unanticipated changes in our tax provisions or exposure to additional income tax liabilities could affect our profitability.

Our business operates in many locations under government jurisdictions that impose income taxes. Changes in domestic or foreign income tax laws and regulations, or their interpretation, could result in higher or lower income tax rates assessed or changes in the taxability of certain revenues or the deductibility of certain expenses, thereby affecting our income tax expense and profitability. In addition, the amount of income taxes paid by us is subject to ongoing audits by U.S. federal, state, and local tax authorities and by non-U.S. tax authorities. If these audits result in assessments different from amounts reserved, future financial results may include unfavorable adjustments to our tax liabilities, which could have a material adverse effect on our results of operations.

Global economic conditions may adversely affect our business, operating results and financial condition.

Although we currently generate significant operating cash flows, which combined with access to the credit markets provides us with significant discretionary funding capacity, global economic and financial disruptions and tightening of the credit markets could affect our ability to fund our operations. In addition, certain of our customers and suppliers could be affected directly by an economic downturn and could face credit issues or cash flow problems that could give rise to payment delays, increased credit risk, bankruptcies, and other financial hardships, which could impact customer demand for our products as well as our ability to manage normal commercial relationships with our customers and suppliers. Depending on their severity and duration, the effects and consequences of a global economic downturn could have an adverse impact on our results of operations and financial condition.

Political and economic changes in foreign countries and markets, including foreign currency fluctuations, may have a material effect on our operating results.

During 2018, approximately 33% of our total net sales were to customers outside of the United States. Additionally, we also have operating facilities located in foreign countries. Doing business in foreign countries is subject to numerous risks, including without limitation: political and economic instability, the uncertainty of the ability of non-U.S. customers to finance purchases, restrictive trade policies, changes in the local labor-relations climate, economic conditions in local markets, health concerns, and complying with foreign regulatory and tax requirements that are subject to change. While these factors or the impact of these factors are difficult to predict, any one or more of these factors could adversely affect our operations. To the extent that foreign sales are transacted in foreign currencies and we do not enter into currency hedge transactions, we are exposed to risk of losses due to fluctuations in foreign currency exchange rates, particularly for the British Pound, Euro, and Canadian dollar. Significant fluctuations in the value of the currencies of the countries in which we do business could have an adverse effect on our results of operations.

We operate in highly competitive markets.

Many of our products and services are sold in highly competitive markets and are affected by varying degrees of competition. We compete against companies that often have higher sales volumes and greater financial, technological, research and development, human, and marketing resources than we have. As a result, they may be better able to withstand the effects of periodic economic downturns. In addition, some of our largest customers could develop the capability to manufacture products or provide services similar to products that we manufacture or services that we provide. This would result in these customers supplying their own products or services and competing directly with us for sales of these products or services, all of which could significantly reduce our revenues. Furthermore, we are facing increased international competition and cross-border consolidation of competition. Our management believes that the principal points of competition in our markets are technology, product quality, product performance, price, technical expertise, timeliness of delivery, superior customer service and support, and continued certification under customer quality requirements and assurance programs. If we are unable to compete successfully with existing or new competitors in these areas, we may experience a material adverse effect on our business, financial condition, and results of operations.

Potential product liability risks exist from the products that we sell.

We may be exposed to liabilities for personal injury, death, or property damage due to the failure of a product that we have sold. We typically agree to indemnify our customers against certain liabilities resulting from the products we sell, and any third-party indemnification we seek from our suppliers and our liability insurance may not fully cover our indemnification obligations to customers. We may also not be able to maintain insurance coverage in the future at an acceptable cost. Any

11



liability for which third-party indemnification is not available that is not covered by insurance could have a material adverse effect on our business, financial condition, and results of operations.

In addition, an accident caused by one of our products could damage our reputation for selling quality products. We believe that our customers consider safety and reliability as key criteria in selecting our products and believe that our reputation for quality assurance is a significant competitive strength. If an accident were to be caused by one of our products, or if we were to otherwise fail to maintain a satisfactory record of safety and reliability, our ability to retain and attract customers may be materially adversely affected.

We are subject to liability under warranty obligations.

The majority of our contracts contain provisions which expose us to potential liability for warranty claims made by customers or third parties with respect to products that have been designed, manufactured, or serviced by us or our suppliers. Material product warranty obligations could have a material adverse effect on our business, financial condition, and results of operations. Further, our reputation may be adversely affected by such defective product claims, whether or not successful, including potential negative publicity about our products.
A downturn in the aircraft market could adversely affect our business.

Our sales to large commercial aircraft manufacturers are cyclical in nature and can be adversely affected by a number of factors, including current and future traffic levels, increasing fuel and labor costs, intense price competition, the retirement of older aircraft, regulatory changes, outbreak of infectious disease, terrorist attacks, general economic conditions, worldwide airline profits, and backlog levels, all of which can be unpredictable and are outside our control. Any decrease in demand resulting from a downturn in the aerospace market could adversely affect our business, financial condition, and results of operations.

The airline industry is heavily regulated, and if we fail to comply with applicable requirements, our results of operations could suffer.

Governmental agencies throughout the world, including the U.S. Federal Aviation Administration (FAA) and the European Aviation Safety Agency, prescribe standards and qualification requirements for aircraft components, including virtually all commercial airline and general aviation products. Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies regulatory requirements in other countries. We include documentation with our products sold to aircraft manufacturing customers certifying that each part complies with applicable regulatory requirements and meets applicable standards of airworthiness established by the FAA or the equivalent regulatory agencies in other countries. In order to sell our products, the Corporation as well as the products we manufacture must also be certified by our individual original equipment manufacturers (OEM) customers. If any of the material authorizations or approvals qualifying us to supply our products is revoked or suspended, then the sale of such product would be prohibited by law, which would have an adverse effect on our business, financial condition, and results of operations.

From time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to existing regulations, which are usually more stringent than existing regulations. If these proposed regulations are adopted and enacted, we may incur significant additional costs to achieve compliance, which could have a material adverse effect on our business, financial condition, and results of operations.

If we fail to satisfy our contractual obligations, our contracts may be terminated and we may incur significant costs or liabilities, including liquidated damages and penalties.

In general, our contracts may be terminated for our failure to satisfy our contractual obligations. In addition, some of our contracts contain substantial liquidated damages provisions and financial penalties related to our failure to satisfy our contractual obligations. For example, the terms of the Electro-Mechanical Division's AP1000 China and AP1000 U.S. contracts with Westinghouse Electric Company (WEC) include liquidated damage penalty provisions for failure to meet contractual delivery dates if we caused the delay and the delay was not excusable. On October 10, 2013, we received a letter from WEC stating entitlements to the maximum amount of liquidated damages allowable under the AP1000 China contract of approximately $25 million.  To date, we have not met certain contractual delivery dates under the AP 1000 China and U.S. contracts; however there are significant uncertainties as to which parties are responsible for the delays, and we believe we have adequate legal defenses. Consequently, as a result of the above matters, we may incur significant costs or liabilities, including penalties, which could have a material adverse effect on our financial position, results of operations, or cash flows. As of

12



December 31, 2018, the range of possible loss for liquidated damages on the WEC U.S. and China contracts is $0 to $55.5 million.

We are subject to liability under environmental laws.

Our business and facilities are subject to numerous federal, state, local, and foreign laws and regulations relating to the use, manufacture, storage, handling, and disposal of hazardous materials and other waste products. Environmental laws generally impose liability for investigation, remediation, and removal of hazardous materials and other waste products on property owners and those who dispose of materials at waste sites, whether or not the waste was disposed of legally at the time in question. We are currently addressing environmental remediation at certain current and former facilities, and we have been named as a potentially responsible party along with other organizations in a number of environmental clean-up sites and may be named in connection with future sites. We are required to contribute to the costs of the investigation and remediation and to establish reserves in our financial statements for future costs deemed probable and estimable. Although we have estimated and reserved for future environmental remediation costs, the final resolution of these liabilities may significantly vary from our estimates and could potentially have an adverse effect on our results of operations and financial position.

Our future growth and continued success is dependent upon our key personnel.

Our success is dependent upon the efforts of our senior management personnel and our ability to attract and retain other highly qualified management and technical personnel. We face competition for management and qualified technical personnel from other companies and organizations. Therefore, we may not be able to retain our existing management and technical personnel or fill new management or technical positions or vacancies created by expansion or turnover at our existing compensation levels. Although we have entered into change of control agreements with some members of senior management, we do not have employment contracts with our key executives. As some of our key executives approach retirement age, we have made a concerted effort to reduce the effect of the loss of our senior management personnel through management succession planning. However, we may be required to devote significant time and resources to identify and integrate key new personnel should key management losses occur earlier than anticipated. The loss of members of our senior management and qualified technical personnel could have a material adverse effect on our business.

We use estimates when accounting for long-term contracts. Changes in estimates could affect our profitability and overall financial position.

Long-term contract accounting requires judgment relative to assessing risks, estimating contract revenues and costs, and making assumptions for schedule and technical issues. Due to the size and nature of many of our contracts, the estimation of total revenues and costs at completion is complicated and subject to many variables. For example, assumptions have to be made regarding the length of time to complete the contract as costs also include expected increases in wages and prices for materials. Similarly, assumptions have to be made regarding the future impact of efficiency initiatives and cost reduction efforts. Incentives, awards, price escalations, liquidated damages, or penalties related to performance on contracts are considered in estimating revenue and profit rates and are recorded when there is sufficient information to assess anticipated performance. It is possible that materially different amounts could be obtained, because of the significance of the judgments and estimation processes described above, if different assumptions were used or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances, or estimates may have a material adverse effect upon future period financial reporting and performance. See “Critical Accounting Estimates and Policies” in Part II, Item 7 of this Form 10-K.

Our backlog is subject to reduction and cancellation, which could negatively impact our revenues and results of operations.

Backlog represents products or services that our customers have contractually committed to purchase from us. Total backlog includes both funded (unfilled orders for which funding is authorized, appropriated, and contractually obligated by the customer) and unfunded backlog (firm orders for which funding has not been appropriated and/or contractually obligated by the customer). We are a subcontractor to prime contractors for the vast majority of our government business; as such, substantially all amounts in backlog are funded. Backlog excludes unexercised contract options and potential orders under ordering type contracts (e.g. Indefinite Delivery / Indefinite Quantity). Backlog is adjusted for changes in foreign exchange rates and is reduced for contract cancellations and terminations in the period in which they occur. Backlog as of December 31, 2018 was $2.0 billion. Backlog is subject to fluctuations and is not necessarily indicative of future sales. The U.S. Government may unilaterally modify or cancel its contracts. In addition, under certain of our commercial contracts, our customers may unilaterally modify or terminate their orders at any time for their convenience. Accordingly, certain portions of our backlog can be cancelled or reduced at the option of the U.S. Government and commercial customers. Our failure to replace cancelled or reduced backlog could negatively impact our revenues and results of operations.


13



We may be unable to protect the value of our intellectual property.

Obtaining, maintaining, and enforcing our intellectual property rights and avoiding infringing on the intellectual property rights of others are important factors to the operation of our business. While we take precautionary steps to protect our technological advantages and intellectual property and rely in part on patent, trademark, trade secret, and copyright laws, we cannot assure that the precautionary steps we have taken will completely protect our intellectual property rights. Because patent applications in the United States are maintained in secrecy until either the patent application is published or a patent is issued, we may not be aware of third-party patents, patent applications, and other intellectual property relevant to our products that may block our use of our intellectual property or may be used in third-party products that compete with our products and processes. When others infringe on our intellectual property rights, the value of our products is diminished, and we may incur substantial litigation costs to enforce our rights. Similarly, we may incur substantial litigation costs and the obligation to pay royalties if others claim we infringed on their intellectual property rights. When we develop intellectual property and technologies with funding from U.S. Government contracts, the government has the royalty-free right to use that property.

In addition to our patent rights, we also rely on unpatented technology, trade secrets, and confidential information. Others may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our technology. We may not be able to protect our rights in unpatented technology, trade secrets, and confidential information effectively. We require each of our employees and consultants to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us. There is no guarantee that we will succeed in obtaining and retaining executed agreements from all employees or consultants. Moreover, these agreements may not provide effective protection of our information or, in the event of unauthorized use or disclosure, they may not provide adequate remedies.

Our future financial results could be adversely impacted by asset impairment charges.

As of December 31, 2018, we had goodwill and other intangible assets, net of accumulated amortization, of approximately $1,518 million, which represented approximately 47% of our total assets. Our goodwill is subject to an impairment test on an annual basis and is also tested whenever events and circumstances indicate that goodwill may be impaired. Intangible assets (other than goodwill) are generally amortized over the useful life of such assets. In addition, from time to time, we may acquire or make an investment in a business that will require us to record goodwill based on the purchase price and the value of the acquired assets. We may subsequently experience unforeseen issues with such business that adversely affect the anticipated returns of the business or value of the intangible assets and trigger an evaluation of the recoverability of the recorded goodwill and intangible assets for such business. Future determinations of significant write-offs of goodwill or intangible assets as a result of an impairment test or any accelerated amortization of other intangible assets could have a material adverse impact on our financial condition and results of operations.

Our current debt, and debt we may incur in the future, could adversely affect our business and financial position.

As of December 31, 2018, we had $763 million of debt outstanding. Our level of debt could have significant consequences for our business including: requiring us to use our cash flow to pay the principal and interest on our debt, reducing funds available for acquisitions and other investments in our business, making us vulnerable to economic downturns and increases in interest rates, limiting us from obtaining additional debt, and impacting our ability to pay dividends.

A percentage of our workforce is employed under collective bargaining agreements.

Approximately 7% of our workforce is employed under collective bargaining agreements, which from time to time are subject to renewal and negotiation. We cannot ensure that we will be successful in negotiating new collective bargaining agreements, that such negotiations will not result in significant increases in the cost of labor, or that a breakdown in such negotiations will not result in the disruption of our operations. Although we have generally enjoyed good relations with both our unionized and non-unionized employees, we may experience an adverse impact on our operating results if we are subject to labor actions.

Our earnings and margins depend in part on subcontractor performance, as well as raw material and component availability and pricing.

Our businesses depend on suppliers and subcontractors for raw materials and components. At times subcontractors perform services that we provide to our customers. We depend on these subcontractors and vendors to meet their contractual obligations in full compliance with customer requirements. Nonperformance or underperformance by subcontractors and vendors could materially impact our ability to perform obligations to our customers, which could result in a customer terminating our contract for default, expose us to liability, and substantially impair our ability to compete for future contracts and orders. Generally, raw materials and purchased components are available from a number of different suppliers, though several suppliers are our sole

14



source of certain components. If a sole-source supplier should cease or otherwise be unable to deliver such components, our operating results could be adversely impacted. In addition, our supply networks can sometimes experience price fluctuations. Our ability to perform our obligations as a prime contractor may be adversely affected if one or more of these suppliers are unable to provide the agreed-upon supplies or perform the agreed-upon services in a timely and cost-effective manner. While we have attempted to mitigate the effects of increased costs through price increases, there are no assurances that higher prices can effectively be passed through to our customers or that we will be able to fully offset the effects of higher raw materials costs through price increases on a timely basis.

Our business involves risks associated with complex manufacturing processes.

Our manufacturing processes depend on certain sophisticated and high-value equipment. Unexpected failures of this equipment may result in production delays, revenue loss, and significant repair costs. In addition, equipment failures could result in injuries to our employees. Moreover, the competitive nature of our businesses requires us to continuously implement process changes intended to achieve product improvements and manufacturing efficiencies. These process changes may at times result in production delays, quality concerns, and increased costs. Any disruption of operations at our facilities due to equipment failures or process interruptions could have a material adverse effect on our business.

Our future success will depend, in part, on our ability to develop new technologies.

Virtually all of the products produced and sold by us are highly engineered and require sophisticated manufacturing and system-integration techniques and capabilities. The commercial and government markets in which we operate are characterized by rapidly changing technologies. The product and program needs of our government and commercial customers change and evolve regularly. Accordingly, our future performance depends in part on our ability to: identify emerging technological trends in our current and target markets, develop and manufacture competitive products, systems, and services, enhance our offerings by adding technological innovations that differentiate our products, systems, and services from those of our competitors, and develop, manufacture, and bring those products, systems, and service to market quickly at cost-effective prices.

We self-insure health benefits and may be adversely impacted by unfavorable claims experience.

We are self-insured for our health benefits. If the number or severity of claims increases, or we are required to accrue or pay additional amounts because the claims prove to be more severe than our original assessment, our operating results would be adversely affected. Our future claims expense might exceed historical levels, which could reduce our earnings. We expect to periodically assess our self-insurance strategy. We are required to periodically evaluate and adjust our claims reserves to reflect our experience. However, ultimate results may differ from our estimates, which could result in losses over our reserved amounts. In addition, because we do not carry “stop loss” insurance, a significant increase in the number of claims that we must cover under our self-insurance retainage could adversely affect our profitability.

Increasing costs of certain employee and retiree benefits could adversely affect our financial position, results of operations, or cash flows.

Our earnings may be positively or negatively impacted by the amount of income or expense we record for our pension and other postretirement benefit plans. U.S. GAAP requires that we calculate income or expense for the plans using actuarial valuations. These valuations reflect assumptions relating to financial markets and other economic conditions. Changes in key economic indicators can change the assumptions. The most significant year-end assumptions used to estimate pension or other postretirement benefit expense for the following year are the discount rate, the expected long-term rate of return on plan assets, expected future medical cost inflation, and expected compensation increases. In addition, we are required to make an annual measurement of plan assets and liabilities, which may result in a significant change to equity through a reduction or increase to other comprehensive income. For a discussion regarding how our financial statements can be affected by pension and other postretirement benefit plans accounting policies, see “Management’s Discussion and Analysis—Critical Accounting Estimates and Policies—Pension and Other Postretirement Benefits” in Part II, Item 7 of this Form 10-K. Although U.S. GAAP expense and pension or other postretirement contributions are not directly related, the key economic factors that affect U.S. GAAP expense would also likely affect the amount of cash we would contribute to the pension or other postretirement plans. Potential pension contributions include both mandatory amounts required under federal law, Employee Retirement Income Security Act, and discretionary contributions to improve the plans’ funded status. An obligation to make contributions to pension plans could reduce the cash available for working capital and other corporate uses.
Implementing our acquisition strategy involves risks, and our failure to successfully implement this strategy could have a material adverse effect on our business.

15




As part of our capital allocation strategy, we aim to grow our business by selectively pursuing acquisitions to supplement our organic growth.  We are continuing to actively pursue additional acquisition opportunities, some of which may be material to our business and financial performance.  Although we have been successful with this strategy in the past, we may not be able to grow our business in the future through acquisitions for a number of reasons, including:

Encountering difficulties identifying and executing acquisitions;
Increased competition for targets, which may increase acquisition costs;
Consolidation in our industry, reducing the number of acquisition targets;
Competition laws and regulations preventing us from making certain acquisitions; and
Acquisition financing not being available on acceptable terms or at all.

In addition, there are potential risks associated with growing our business through acquisitions, including the failure to successfully integrate and realize the expected benefits of an acquisition.  For example, with any past or future acquisition, there is the possibility that:

The business culture of the acquired business may not match well with our culture;
Technological and product synergies, economies of scale, or cost reductions may not occur as expected;
Management may be distracted from overseeing existing operations by the need to integrate acquired businesses;
We may acquire or assume unexpected liabilities;
We may experience unforeseen difficulties in integrating operations and systems;
We may fail to retain or assimilate employees of the acquired business;
We may experience problems in retaining customers or integrating customer bases; and
We may encounter difficulties in entering new markets in which we may have little or no experience.
Failure to successfully implement our acquisition strategy, including successfully integrating acquired businesses, could have a material adverse effect on our business, financial condition, and results of operations.

Future terror attacks, war, natural disasters, or other events beyond our control could adversely impact our businesses.

Despite our concerted effort to minimize risk to our production capabilities and corporate information systems and to reduce the effect of unforeseen interruptions through business continuity planning and disaster recovery plans, we could be adversely impacted by terror attacks, war, natural disasters such as hurricanes, floods, tornadoes, pandemic diseases, or other events such as strikes by the workforce of a significant customer or supplier. These risks could negatively impact demand for or supply of our products and could also cause disruption to our facilities or systems, which could also interrupt operational processes and adversely impact our ability to manufacture our products and provide services and support to our customers. We operate facilities in areas of the world that are exposed to natural disasters. Financial difficulties of our customers, delays by our customers in production of their products, high fuel prices, the concern of another major terrorist attack, and the overall decreased demand for our products could adversely affect our operating results and financial condition.

Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters is located at a leased facility in Davidson, North Carolina. As of December 31, 2018, we had 169 facilities worldwide, including five corporate and shared-services facilities. Approximately 85% of our facilities operate as manufacturing and engineering, metal treatment, or aerospace overhaul plants, while the remaining 15% operate as selling and administrative office facilities. The number and type of facilities utilized by each of our reportable segments are summarized below:
Owned Facilities Location
 
Commercial/ Industrial
 
Defense
 
Power
 
Total
North America
 
15
 
1
 
3
 
19
Europe
 
11
 
 
 
11
Total
 
26
 
1
 
3
 
30

16



Leased Facilities Location
 
Commercial/ Industrial
 
Defense
 
Power
 
Total
North America
 
50
 
12
 
25
 
87
Europe
 
25
 
5
 
 
30
Asia
 
16
 
 
1
 
17
Total
 
91
 
17
 
26
 
134
The buildings on the properties referred to in this Item are well maintained, in good condition, and are suitable and adequate for current needs. Management believes that the productive capacity of our properties is adequate to meet our anticipated volume for the foreseeable future.

Item 3. Legal Proceedings.

In the ordinary course of business, the Corporation and its subsidiaries are subject to various pending claims, lawsuits, and contingent liabilities. We do not believe that the disposition of any of these matters, individually or in the aggregate, will have a material adverse effect on our consolidated financial condition, results of operations, and cash flows.

In December 2013, the Corporation, along with other unaffiliated parties, received a claim from Canadian Natural Resources Limited (CNRL), which was 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.  We maintain 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. All parties have agreed in principle to participate in a formal mediation in 2019 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 result of the fire and explosion. We are currently unable to estimate an amount, or range of potential losses, if any, from this matter. We believe that we have adequate legal defenses and intend to defend this matter vigorously. Our 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.

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

On March 29, 2017, WEC filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York, Case No. 17-10751.  The Bankruptcy Court overseeing the Bankruptcy Case approved, on an interim basis, an $800 million Debtor-in-Possession Financing Facility to help WEC finance its business operations during the reorganization process. On January 4, 2018, WEC announced that it had agreed to be acquired by Brookfield Business Partners L.P (Brookfield) for approximately $4.6 billion. The acquisition, which was completed on August 1, 2018, is not expected to have a material impact on our financial condition or results of operations as WEC plans to continue operating in the ordinary course of business under existing senior management.

On January 18, 2019, we executed an agreement to settle substantially all of our general unsecured claims with WEC, including pre-petition billings. As it relates to post-petition work, we will continue to honor our executory contracts and expect to collect all amounts due. We will continue to monitor and evaluate the status of the WEC bankruptcy for potential impacts on our business.

Item 4. Mine Safety Disclosures.
Not applicable.

17



PART II
 
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

MARKET INFORMATION

Our common stock is listed and traded on the New York Stock Exchange (NYSE) under the symbol CW.
Stock Price Range
 
2018
 
2017
 
 
High
 
Low
 
High
 
Low
Common Stock
 
 
 
 
 
 
 
 
First Quarter
 
$
140.07

 
$
115.06

 
$
100.74

 
$
89.00

Second Quarter
 
143.38

 
115.08

 
95.21

 
82.77

Third Quarter
 
141.29

 
117.53

 
106.63

 
91.18

Fourth Quarter
 
138.90

 
95.23

 
125.00

 
104.12


As of January 1, 2019, we had approximately 3,220 registered shareholders of our common stock, $1.00 par value.

DIVIDENDS

During 2018 and 2017, the Company paid quarterly dividends as follows:
 
 
2018
 
2017
Common Stock
 
 

 
 

First Quarter
 
$
0.15

 
$
0.13

Second Quarter
 
0.15

 
0.13

Third Quarter
 
0.15

 
0.15

Fourth Quarter
 
0.15

 
0.15


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth information regarding our equity compensation plans as of December 31, 2018, the end of our most recently completed fiscal year:
Plan category
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
 
 
Weighted average
exercise price of
outstanding options,
warrants, and rights
 
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
the first column)
 
Equity compensation plans approved by security holders
 
518,986
(a)
 
$65.73
 
1,834,153
(b)
Equity compensation plans not approved by security holders
 
None
 
 
Not applicable
 
Not applicable
 

(a)
Consists of 467,055 shares issuable upon exercise of outstanding options and vesting of performance share units, restricted shares, restricted stock units, and shares to non-employee directors under the 2005 and 2014 Omnibus Incentive Plan, and 51,931 shares issuable under the Employee Stock Purchase Plans.
(b)
Consists of 1,663,542 shares available for future option grants under the 2014 Omnibus Incentive Plan, and 170,611 shares remaining available for issuance under the Employee Stock Purchase Plan.

18



Issuer Purchases of Equity Securities
The following table provides information about our repurchases of equity securities that are registered by us pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended December 31, 2018.
 
 
Total Number of
shares purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of a
Publicly
Announced
Program
 
Maximum
Dollar amount of shares that may
yet be
Purchased
Under the
Program
October 1 – October 31
 
96,562
 
$123.95
 
705,013
 
$58,524,603
November 1 – November 30
 
256,384
 
108.22
 
961,397
 
30,778,525
December 1 – December 31
 
764,775
 
104.58
 
1,726,172
 
50,798,843
For the quarter ended December 31
 
1,117,721
 
$107.09
 
1,726,172
 
$50,798,843

On December 12, 2018, the Corporation authorized $100 million of share repurchases through a 10b5-1 program. Of this authorization, the Company used $50 million for additional opportunistic share repurchases in December 2018. Beginning in January 2019, the Company expects to repurchase $50 million of additional shares via a 10b5-1 program.
The following performance graph does not constitute soliciting material and should not be deemed filed or incorporated by reference into any of our other filings under the Securities Act or the Securities Exchange Act of 1934, except to the extent we specifically incorporate this information by reference therein.
PERFORMANCE GRAPH
The following graph compares the annual change in the cumulative total return on our common stock during the last five fiscal years with the annual change in the cumulative total return of the Russell 2000 Index, the S&P MidCap 400 Index, and our self-constructed proxy peer group. The proxy peer group companies are as follows:
AAR Corp
Kaman Corp
Crane Co.
Moog Inc.
Cubic Corp
Spirit Aerosystems Holdings Inc.
EnPro Industries Inc.
Teledyne Technologies Inc.
Esterline Technologies Corp
TransDigm Group Inc.
Hexcel Corp
Triumph Group Inc.
IDEX Corporation
Woodward Inc.
ITT Inc.
 
The graph assumes an investment of $100 on December 31, 2013 and the reinvestment of all dividends paid during the following five fiscal years.

19



a20161231-10_chartx41399a03.jpg
Company / Index
 
2013
 
2014
 
2015
 
2016
 
2017
 
2018
Curtiss-Wright Corp
 
100

 
114.33

 
111.77

 
161.45

 
201.11

 
169.36

S&P MidCap 400 Index
 
100

 
109.77

 
107.38

 
129.65

 
150.71

 
134.01

Russell 2000
 
100

 
104.89

 
100.26

 
121.63

 
139.44

 
124.09

Peer group
 
100

 
109.16

 
105.99

 
126.59

 
163.26

 
162.90



20



Item 6. Selected Financial Data.

The following table presents our selected financial data from continuing operations. The table should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Five-Year Financial Highlights
 
 
CONSOLIDATED SELECTED FINANCIAL DATA
(In thousands, except per share data)
 
2018
 
2017
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
2,411,835

 
$
2,271,026

 
$
2,108,931

 
$
2,205,683

 
$
2,243,126

Earnings from continuing operations
 
275,749

 
214,891

 
189,382

 
192,248

 
169,949

Total assets
 
3,255,385

 
3,236,321

 
3,037,781

 
2,989,611

 
3,382,448

Total debt, net
 
762,556

 
814,139

 
966,298

 
953,205

 
954,348

Earnings per share from continuing operations:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
6.28

 
$
4.86

 
$
4.27

 
$
4.12

 
$
3.54

Diluted
 
$
6.22

 
$
4.80

 
$
4.20

 
$
4.04

 
$
3.46

Cash dividends per share
 
$
0.60

 
$
0.56

 
$
0.52

 
$
0.52

 
$
0.52


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations begins with an overview of our company, followed by economic and industry-wide factors impacting our company and the markets we serve, a discussion of the overall results of continuing operations, and finally a more detailed discussion of those results within each of our reportable operating segments.

COMPANY ORGANIZATION

Curtiss-Wright Corporation and its subsidiaries is a global, diversified, industrial provider of highly engineered, technologically advanced, products and services to a broad range of industries which are reported through our Commercial/Industrial, Defense, and Power segments. We are positioned as a market leader across a diversified array of niche markets through engineering and technological leadership, precision manufacturing, and strong relationships with our customers. We provide products and services to a number of global markets, including the commercial aerospace, defense, general industrial, and power generation markets. Our overall strategy is to be a balanced and diversified company, less vulnerable to cycles or downturns in any one market, with a focus on establishing and expanding strong technological breadth, market positions, and financial performance.

Impacts of inflation, pricing, and volume

We have not historically been and do not expect to be significantly impacted by inflation. Increases in payroll costs and any increases in raw material costs that we have encountered are generally offset through lean manufacturing activities. We have consistently made annual investments in capital that deliver efficiencies and cost savings. The benefits of these efforts generally offset the margin impact of competitive pricing conditions in all of the markets we serve.

Analytical Definitions

Throughout management’s discussion and analysis of financial condition and results of operations, the terms “incremental” and “organic” are used to explain changes from period to period. The term “incremental” is used to highlight the impact acquisitions had on the current year results for which there was no comparable prior-year period. Therefore, the results of operations for acquisitions are incremental for the first twelve months from the date of acquisition. The remaining businesses are referred to as the “organic”. The definition of “organic” excludes the effect of foreign currency translation.

Market Analysis and Economic Factors

Economic Factors Impacting Our Markets

21




Curtiss-Wright Corporation is a global, diversified manufacturing and service company that designs, manufactures, and overhauls precision components and provides highly engineered products and services to the aerospace, defense, general industrial, and power generation markets. Many of Curtiss-Wright’s industrial businesses are driven in large part by global economic growth, primarily led by operations in the U.S., Canada, Europe, and China.

The U.S. economy, as measured by real gross domestic product (GDP), has slowly improved since 2009, aided by decreased levels of unemployment, improvements in the housing market, and a low interest rate environment. In 2018, U.S. GDP is expected to show solid growth of 3.0%, according to the most recent estimate, led by tax cuts and corporate spending increases which drove an acceleration in growth through mid-2018, ahead of GDP growth of 2.2% in 2017 and 1.6% in 2016. Looking ahead to 2019, economists have mixed views on the broader U.S. economy, with current estimates for U.S. real GDP growth indicating a rate of growth between 2% and 3%, despite the administration’s goal to raise the pace of expansion to 4% per year through increased fiscal stimulus.

Meanwhile, the global environment’s rebound in economic activity that began in mid-2016 is expected to moderate somewhat from recent peak levels, influenced by international trade tensions, tightening financial conditions, and rising geopolitical uncertainty. As a result, 2019 GDP growth in world economies is expected to grow by approximately 3.5%, below the 2018 growth rate of 3.7%, according to the International Monetary Fund. This outlook is expected to be driven by a moderation in U.S. and European economic growth rates, as well as a flattening of growth in emerging market and developing economies. Looking ahead to the next few years, we remain cautiously optimistic that our economically-sensitive commercial and industrial markets will improve based on normalized global conditions.

Defense

We have a well-diversified portfolio of products and services that supply all branches of the U.S. military, with content on many high performance programs and platforms, as well as a growing international defense business. A significant portion of our defense business operations is attributed to the United States market, and characterized by long-term programs and contracts driven primarily by the Department of Defense (DoD) budgets and funding levels.

The U.S. Defense budget serves as a leading indicator of our growth in the defense market. Following across-the-board sequestration mandated by the BCA, defense spending and related supplemental budgets bottomed in 2015. However, growth has stabilized in recent years, and in early 2018, Congress signed a bill to provide relief against the spending caps associated with the BCA. Further, a two-year budget agreement, signed in 2018, paved the way for lawmakers to fund defense at $700 billion in Fiscal Year 2018 and $716 billion in Fiscal Year 2019, both significant increases from the Fiscal Year 2017 budget. These growth rates are expected to provide the DoD with additional stability and flexibility to enter into multi-year contracts without the impact of sequestration. In addition, the Fiscal Year 2019 Defense Appropriations Bill, signed by the President in September 2018, was the first to be signed into law on time in over a decade. Looking ahead, the Fiscal Year 2020 budget is expected to range from $700 to $750 billion, with most reports indicating the likelihood of a $733 billion budget and continued growth in defense.

We derive revenue from the naval defense, aerospace defense, and ground defense markets. In the naval defense market, we expect continued solid funding for the U.S. shipbuilding program, particularly as it relates to production on the Ford class aircraft carrier, as well as the Columbia class and Virginia class submarine programs. We have a long legacy of providing products that support nuclear propulsion systems on naval vessels. In addition, through our service centers, we are a critical provider of ship repair and maintenance for the U.S. Navy’s Atlantic and Pacific fleets. In the aerospace defense market, we expect to benefit from increased funding levels on Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR), electronic warfare, unmanned systems, and communications programs. As a leading supplier of COTS and COTS+ solutions, we continue to demonstrate that electronics technology will enhance our ability to design and develop future generations of advanced systems and products for high performance applications, while also meeting the military’s Size, Weight, and Power considerations. We are also a leading designer and manufacturer of high-technology data acquisition and comprehensive flight test instrumentation systems. In the ground defense market, the modernization of the existing U.S. ground vehicle fleet is expected to recover slowly, while international demand should remain solid, particularly for our turret drive stabilization systems (TDSS).

While we monitor the budget process as it relates to programs in which we participate, we cannot predict the ultimate impact of future DoD budgets, which tend to fluctuate year-by-year and program-by-program.

Commercial Aerospace


22



Curtiss-Wright derives revenue from the global commercial aerospace market, principally to the commercial jet market, and to a lesser extent the regional jet and commercial helicopter markets. Our primary focus in this market is OEM products and services for commercial jets, which is highly dependent on new aircraft production from our primary customers - Boeing and Airbus. We provide a combination of flight control and utility actuation systems, sensors, and other sophisticated electronics, as well as shot and laser peening services utilized on highly stressed components of turbine engine fan blades, landing gear, and aircraft structures.

Steady growth in airline travel, along with the demand for and delivery of new aircraft to replace an aging fleet, continue to be key drivers in the commercial aerospace market. Fiscal 2011 marked the beginning of a multi-year production up-cycle for the commercial aerospace market. This up-cycle is expected to continue based on planned increases in production by Boeing and Airbus on both legacy and new aircraft, particularly narrow-body aircraft, and is further supported by their strong backlogs. Additionally, the steady decline in oil prices during the past few years has been a key contributor to increased passenger growth, as declining fuel prices have led to cheaper airfares for consumers. According to the International Air Transport Association, air travel continues to be strong and is likely to display passenger growth of approximately 6.0% in 2019, which is growing faster than the 20-year trend. Industry data supports a continued, steady increase in commercial aircraft deliveries to meet this growing demand.

While we closely monitor these industry metrics, our success and future growth in the commercial aerospace market is primarily tied to the growth in aircraft production rates, the timing of our order placement, and continued partnering with aerospace original equipment manufacturers.

Power Generation

We derive revenue from the commercial nuclear power generation market, where we supply a variety of highly engineered products and services, including reactor coolant pumps, control rod drive mechanisms, valves, motors, spent fuel management, containment doors, bolting solutions, enterprise resource planning, plant process controls, and coating services. We provide equipment and services to both the aftermarket and new build markets and have content on every reactor operating in the U.S. today.

According to the Nuclear Regulatory Commission (NRC), nuclear power comprises approximately 20% of all the electric power produced in the United States, with 98 reactors operating across 59 nuclear power plants in 30 states. Our growth opportunities for aftermarket products and services are driven by plant aging, plant closures, requirements for planned outages, plant life extensions (from the end of their original 40-year operating lives to 60-year and now 80-year lives), the levying of regulatory requirements, suppliers abandoning the commercial nuclear market, and plants seeking technology and innovation advances.

One of the industry’s most significant challenges is electricity market competitiveness, primarily driven by sustained low natural gas prices. As a result, the industry has been tasked with reassessing operating practices, improving efficiency, and reducing costs to help keep nuclear power competitive in a changing electricity market, which are collectively referred to as "Delivering the Nuclear Promise." Additionally, U.S. reactor operators were faced with increased security and post-Fukushima regulatory requirements over the past few years. All of these factors contributed to plant operators diverting and deferring their typical plant capital expenditure budgets significantly away from planned maintenance. However, in late 2017, as those necessary requirements abated and plant operators resumed a more normalized maintenance schedule, the industry began to turn the corner. As a result, we expect increased opportunities for our vast portfolio of advanced nuclear technologies moving forward.

Longer term, there are several factors that are expected to drive global commercial nuclear power demand. The Energy Information Administration forecasts that worldwide total energy consumption is expected to increase at an average annual rate of 1.0% through 2050. Continued growth in global demand for electricity, especially in developing countries with limited supply such as China and India, will require increased capacity. In addition, the continued supply constraints and environmental concerns attributed to the current dependence on fossil fuels have led to a greater appreciation of the value of nuclear technology as the most efficient and environmentally friendly source of energy available today. As a result, we expect growth opportunities in this market both domestically and internationally, although the timing of orders remains uncertain.

We also play an important role in the new build market for the Westinghouse AP1000 reactor design, for which we are a supplier of RCPs and also expect to supply a variety of ancillary plant products and services. Domestically, two new build reactors remain under construction in Georgia utilizing the AP1000 design. On a global basis, nuclear plant construction is active. Currently, there are approximately 57 new reactors under construction across 17 countries, with approximately 132 planned and 376 proposed over the next several decades. In particular, China intends to expand its nuclear power capabilities

23



significantly through the construction of new nuclear power plants over the next few decades, led by the successful start-up and operation of the first two AP1000 plants (four reactors) in late 2018 and early 2019, which are the first Generation III+ reactors in operation worldwide. We continue to expect to play a role in new build nuclear plant construction with our largest opportunities in China and India.

Our future success in this industry will be led by new order activity for our vast array of nuclear technologies due to ongoing maintenance and upgrade requirements on operating nuclear plants, a renewed interest in products to aid safety and extend the reliability of existing reactors, and the continued emphasis on global nuclear power construction.

General Industrial

Revenue derived from our widely diversified offering to the general industrial market consists of industrial sensors and control systems, critical-function valves and valve systems, as well as surface treatment services. We supply our products and services to OEMs and aftermarket industrial customers, including the transportation, commercial trucking, off-road equipment, agriculture, construction, automotive, chemical, and oil and gas industries. Our performance in these markets is typically sensitive to the performance of the U.S. and global economies, with changes in global GDP rates and industrial production driving our sales, particularly for our surface treatment services.

One of the key drivers within our general industrial market is our sensors and controls systems products, most notably for electronic throttle controls, shift controls, joysticks, power management systems, traction control systems, serving on-and-off highway, medical mobility and specialty vehicles markets. Increased industry demand for electronic control systems and sensors has been driven by the need for improved operational efficiency, safety, repeatability, reduced emissions, enhanced functionality, and greater fuel efficiencies to customers worldwide. Key to our future growth is expanding the human-machine interface technology portfolio and providing a complete system solution to our customers. Existing and emerging trends in commercial vehicle safety, emissions control, and improved driver efficiency are propelling commercial vehicle OEMs toward higher performance subsystems. These trends are accelerating the evolution from discrete human machine interface components towards a more integrated vehicle interface architecture. Meanwhile, our surface treatment services, including shot and laser peening, engineered coatings, and analytical testing services, which are used to increase the safety, reliability, and longevity of components, are primarily driven by demand from general industrial customers.

We also service the oil and gas, chemical, and petrochemical industries through numerous industrial valve products, where nearly all of our industrial valve sales are to the downstream markets. We maintain a global maintenance, repair, and overhaul (MRO) business for our pressure-relief valve technologies as refineries opportunistically service or upgrade equipment that has been operating at or near full capacity. We also produce severe service, operation-critical valves for the power and process industries. Earlier in the decade through mid-2014, the industry had experienced solid performance driven by new exploration and expansion of sub-segments, including offshore drilling and shale gas, which boosted end-user demand. As a result of these market initiatives and reduced global economic growth, the industry experienced an excess of oil supply globally, driving a steady decline in crude oil prices throughout 2014 and 2015, as well as reducing capital expenditures. Though oil prices rebounded in late 2016 and throughout the past two years, they remain well below the recent 2014 peak. Despite the challenges in the oil and gas market, we have seen an industrial renaissance in the U.S. chemical industry due to plentiful, affordable natural gas, which has led to further adoption of severe service valve technology. Over the long run, we believe improved economic conditions and continued global expansion will be key drivers for future growth of our severe service and operation-critical valves serving the process industry.

RESULTS OF OPERATIONS

24



 
 
Year Ended December 31,
 
Percent changes
(In thousands, except percentages)
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
 
 
 
 
 
 
 
 
 
 
 
Sales:
 
 
 
 
 
 
 
 
 
 
Commercial/Industrial
 
$
1,209,178

 
$
1,162,689

 
$
1,118,768

 
4
%
 
4
%
Defense
 
554,374

 
555,479

 
466,654

 
%
 
19
%
Power
 
648,283

 
552,858

 
523,509

 
17
%
 
6
%
Total sales
 
$
2,411,835

 
$
2,271,026

 
$
2,108,931

 
6
%
 
8
%
 
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 
 
 
Commercial/Industrial
 
$
182,669

 
$
168,146

 
$
156,084

 
9
%
 
8
%
Defense
 
128,446

 
109,338

 
98,182

 
17
%
 
11
%
Power
 
98,858

 
81,119

 
74,360

 
22
%
 
9
%
Corporate and eliminations
 
(36,347
)
 
(33,483
)
 
(32,107
)
 
(9
%)
 
(4
%)
Total operating income
 
$
373,626

 
$
325,120

 
$
296,519

 
15
%
 
10
%
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
33,983

 
41,471

 
41,248

 
(18
%)
 
1
%
Other income, net
 
16,596

 
15,970

 
12,690

 
4
%
 
26
%
 
 
 
 
 
 
 
 
 
 
 
Earnings before income taxes
 
356,239

 
299,619

 
267,961

 
19
%
 
12
%
Provision for income taxes
 
(80,490
)
 
(84,728
)
 
(78,579
)
 
(5
%)
 
8
%
Earnings from continuing operations
 
$
275,749

 
$
214,891

 
$
189,382

 
28
%
 
13
%
 
 
 
 
 
 
 
 
 
 
 
New orders
 
$
2,426,682

 
$
2,290,155

 
$
2,149,191

 
 
 
 
Backlog
 
$
2,032,451

 
$
2,011,092

 
$
1,950,750

 
 
 
 

Components of sales and operating income growth (decrease):
 
 
2018 vs. 2017
 
2017 vs. 2016
 
 
Sales
 
Operating
Income
 
Sales
 
Operating
Income
Organic
 
3
%
 
14
%
 
5
%
 
7
%
Acquisitions
 
3
%
 
%
 
3
%
 
3
%
Foreign currency
 
%
 
1
%
 
%
 
%
Total
 
6
%
 
15
%
 
8
%
 
10
%

Year ended December 31, 2018 compared to year ended December 31, 2017

Sales for the year increased $141 million, or 6%, to $2,412 million, compared with the prior year period. On a segment basis, sales from the Commercial/Industrial and Power segments increased $46 million and $95 million, respectively, with sales from the Defense segment essentially flat. Changes in sales by segment are discussed in further detail in the "Results by Business Segment" section below.

Operating income for the year increased $49 million, or 15%, to $374 million, and operating margin increased 120 basis points compared with 2017. In the Commercial/Industrial segment, operating income and operating margin increased primarily due to higher sales volumes and favorable overhead absorption for industrial vehicle and industrial valve products. Operating income and operating margin in the Defense segment benefited from higher sales and favorable overhead absorption, improved profitability due to the absence of first year purchase accounting costs from our acquisition of Teletronics Technology Corporation (TTC), and favorable contract adjustments. In the Power segment, operating income and operating margin increased primarily due to higher profitability on the AP1000 China Direct program, partially offset by first year purchase

25



accounting costs from our Dresser-Rand Government Business (DRG) acquisition. Additionally, the benefits of our ongoing margin improvement initiatives were recognized across all segments.

Non-segment operating expense for the year increased $3 million, or 9%, to $36 million, primarily due to higher environmental costs.

Interest expense for the year decreased $7 million, or 18%, to $34 million, primarily due to maturation of the $150 million 5.51% Senior Notes, which were repaid in full on December 1, 2017.

The effective tax rates from continuing operations for 2018 and 2017 were 22.6% and 28.3%, respectively. The decrease in the effective tax rate in 2018, as compared to 2017, was primarily due to the U.S. corporate income tax rate reduction under the 2017 Tax Cuts and Jobs Act (the Tax Act) as well as a deduction for foreign derived intangible income (FDII) recognized during the current period. This decrease was partially offset by additional tax expense associated with the Tax Act for foreign withholding taxes as well as the elimination of the Section 199 manufacturers’ deduction. Refer to Note 12 to the Consolidated Financial Statements for more information.

New orders increased $137 million, or 6%, from the prior year period to $2,427 million, primarily due to the DRG acquisition and the timing of customer funding in the Power segment, which contributed higher new orders of $121 million and $49 million, respectively. This increase was partially offset by a decrease of $9 million in the Commercial/Industrial segment as higher demand for aerospace defense products and surface treatment services was more than offset by the timing of commercial aerospace and naval defense orders. New orders in the Defense segment decreased $16 million primarily due to the timing of naval defense orders. Changes in new orders by segment are discussed in further detail in the "Results by Business Segment" section below.

Comprehensive income (loss)

Pension and postretirement adjustments within comprehensive income during the year ended December 31, 2018 were a $19 million loss, compared with a $3 million loss for the prior year period. The loss during the current period was primarily due to lower asset returns, partially offset by a discount rate gain. The loss in the prior period was primarily due to a discount rate loss, partially offset by higher asset returns.

Foreign currency translation adjustments during the year ended December 31, 2018 resulted in a $52 million loss, compared to a foreign currency translation gain of $78 million in the comparable prior period. The comprehensive loss during the current period was primarily attributed to decreases in the British Pound and Canadian dollar with the prior period comprehensive gain primarily impacted by increases in the British Pound, Canadian dollar, and Euro.

Year ended December 31, 2017 compared to year ended December 31, 2016

Sales for the year increased $162 million, or 8%, to $2,271 million, compared with the prior year period. On a segment basis, sales from the Commercial/Industrial, Defense, and Power segments increased $44 million, $89 million, and $29 million, respectively. Changes in sales by segment are discussed in further detail in the "Results by Business Segment" section below.

Operating income for the year increased $29 million, or 10%, to $325 million, and operating margin increased 20 basis points compared with 2016. Increases in operating income and operating margin were primarily attributable to higher production levels on the AP1000 China Direct program in our Power segment, higher volume on industrial vehicle products in the Commercial/Industrial segment, and the benefits of our ongoing margin improvement initiatives. These increases in operating income and operating margin were partially offset by first year purchase accounting costs from our TTC acquisition and an unfavorable shift in mix within our defense electronic products in the Defense segment.

Non-segment operating expense of $33 million and interest expense of $41 million were essentially flat compared to the respective prior year period.

The effective tax rates from continuing operations for 2017 and 2016 were 28.3% and 29.3%, respectively. The decrease in the effective tax rate in 2017, as compared to 2016, was primarily due to the recognition of excess tax benefits on stock-based compensation and higher research and development credits. This decrease was partially offset by the impact of the Tax Act, which increased the current year provision for income taxes by approximately $10 million. Refer to Note 12 to the Consolidated Financial Statements for more information.


26



New orders increased $141 million from the prior year period to $2,290 million, primarily due to the TTC acquisition in the Defense segment, which contributed $70 million of new orders, and higher demand of $56 million for our industrial vehicle products in the Commercial/Industrial segment. New orders in the Defense segment also benefited from higher demand for our defense electronics products and naval defense products of $18 million and $13 million, respectively. Growth in both our actuation and sensors and controls products to the aerospace defense and naval defense markets increased new orders $30 million in the Commercial/Industrial segment. These increases were partially offset by a decrease in new orders of $44 million in the Power segment and a decrease in naval new orders of $37 million in the Commercial/Industrial segment due to the timing of funding. Changes in new orders by segment are discussed in further detail in the "Results by Business Segment" section below.

Comprehensive income (loss)

Pension and postretirement adjustments within comprehensive income during the year ended December 31, 2017, were a $3 million loss compared with a $1 million loss for the prior year period. The changes were primarily due to a higher discount rate loss in 2017 compared to the prior period. The discount rate loss was partially offset by higher asset returns in the current period versus the prior period, and higher loss amortization in 2017 compared to the prior period.
 
Foreign currency translation adjustments during the year ended December 31, 2017 resulted in a $78 million gain, compared to a foreign currency translation loss of $65 million in the comparable prior period. The comprehensive gain during the current period was primarily attributed to increases in the British Pound, Canadian dollar, and Euro with the prior period comprehensive loss primarily impacted by a decrease in the British Pound.

RESULTS BY BUSINESS SEGMENT

Commercial/Industrial

Sales in the Commercial/Industrial segment are primarily generated from the general industrial and commercial aerospace markets and, to a lesser extent, the defense and power generation markets.

The following tables summarize sales, operating income and margin, and new orders within the Commercial/Industrial segment.
 
 
Year Ended December 31,
 
Percent Changes
(In thousands, except percentages)
 
2018
 
2017
 
2016
 
2018 vs 2017
 
2017 vs 2016
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
1,209,178

 
$
1,162,689

 
$
1,118,768

 
4
%
 
4
%
Operating income
 
182,669

 
168,146

 
156,084

 
9
%
 
8
%
Operating margin
 
15.1
%
 
14.5
%
 
14.0
%
 
60
 bps
 
50
 bps
New orders
 
$
1,225,407

 
$
1,234,698

 
$
1,173,563

 
(1
%)
 
5
%
Backlog
 
$
596,468

 
$
585,556

 
$
504,482

 
2
%
 
16
%

Components of sales and operating income growth (decrease):
 
 
2018 vs 2017
 
2017 vs 2016
 
 
Sales
 
Operating
Income
 
Sales
 
Operating
Income
Organic
 
3
%
 
7
%
 
4
%
 
7
%
Acquisitions
 
%
 
%
 
%
 
%
Foreign currency
 
1
%
 
2
%
 
%
 
1
%
Total
 
4
%
 
9
%
 
4
%
 
8
%

Year ended December 31, 2018 compared to year ended December 31, 2017

Sales increased $46 million, or 4%, to $1,209 million, from the comparable prior year period. In the general industrial market, we experienced higher sales of $25 million, primarily due to increased demand for our industrial vehicle, industrial controls, and industrial valve products. Sales in the naval defense market increased $9 million, primarily due to higher valve production

27



on the CVN-80 aircraft carrier program. Aerospace defense sales increased $6 million, primarily due to higher sales of actuation systems on fighter jets. Sales in the commercial aerospace market increased as higher sales of surface treatment services and sensors and controls products were partially offset by the timing of FAA directive revenues. Favorable foreign currency translation benefited sales $9 million.

Operating income increased $15 million, or 9%, to $183 million, and operating margin increased 60 basis points to 15.1%. The increases in operating income and operating margin were primarily due to higher sales volumes and favorable overhead absorption for industrial vehicle and industrial valve products as well as the benefits of our ongoing margin improvement initiatives.

New orders decreased $9 million as compared to the prior year, as higher demand for aerospace defense products and surface treatment services of $26 million and $18 million, respectively, was more than offset by the timing of commercial aerospace and naval defense orders of $33 million and $20 million, respectively.

Year ended December 31, 2017 compared to year ended December 31, 2016

Sales increased $44 million, or 4%, to $1,163 million, from the comparable prior year period. In the general industrial market, we experienced higher sales of $50 million, primarily due to increased demand for our industrial vehicle products. The commercial aerospace market benefited from higher sales of surface treatment services and actuation system products. These increases were partially offset by lower sales of $15 million in the naval defense market, primarily due to the timing of production on the Virginia-class submarine program.

Operating income increased $12 million, or 8%, to $168 million, and operating margin increased 50 basis points to 14.5%. The increases in operating income and operating margin were primarily driven by ongoing margin improvement initiatives and higher sales volumes of our industrial vehicle products and surface treatment services.

New orders increased $61 million as compared to the prior year, primarily due to growth in our industrial vehicle products of $56 million and higher demand of $30 million for both our actuation and sensors and controls products to the aerospace defense and naval defense markets. This increase was partially offset by a decline in naval valve new orders of $37 million due to the timing of funding.

Defense

Sales in the Defense segment are primarily to the defense markets and, to a lesser extent, the commercial aerospace and the general industrial markets.

The following tables summarize sales, operating income and margin, and new orders, within the Defense segment.
 
 
Year Ended December 31,
 
Percent Changes
(In thousands, except percentages)
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
 
 
 
Sales
 
$
554,374

 
$
555,479

 
$
466,654

 
%
 
19
%
Operating income
 
128,446

 
109,338

 
98,182

 
17
%
 
11
%
Operating margin
 
23.2
%
 
19.7
%
 
21.0
%
 
350
 bps

(130 bps)

New orders
 
$
553,384

 
$
569,360

 
$
445,230

 
(3
%)
 
28
%
Backlog
 
$
522,994

 
$
547,273

 
$
499,993

 
(4
%)
 
9
%

Components of sales and operating income growth (decrease):
 
 
2018 vs. 2017
 
2017 vs. 2016
 
 
Sales
 
Operating
Income
 
Sales
 
Operating
Income
Organic
 
(1
%)
 
17
%
 
5
%
 
4
%
Acquisitions
 
%
 
%
 
14
%
 
8
%
Foreign currency
 
1
%
 
%
 
%
 
(1
%)
Total
 
%
 
17
%
 
19
%
 
11
%

28




Year ended December 31, 2018 compared to year ended December 31, 2017

Sales decreased $1 million, or less than 1%, to $554 million, from the comparable prior year period, as higher sales in the aerospace defense market were more than offset by declines in the naval defense market. In the aerospace defense market, we experienced higher demand for embedded computing products and data acquisition and flight test equipment on fighter jet programs, partially offset by lower sales of embedded computing products supporting various UAV programs. Sales in the naval defense market decreased primarily due to lower submarine sales, while sales in the ground defense and commercial aerospace markets were essentially flat.

Operating income increased $19 million, or 17%, to $128 million, compared with the same period in 2017, while operating margin increased 350 basis points to 23.2%. The increases in operating income and operating margin were primarily due to improved profitability as we moved beyond first year purchase accounting costs from our TTC acquisition, favorable contract adjustments within our naval defense business, and the benefits of our ongoing margin improvement initiatives.

New orders decreased $16 million as compared to the prior year, primarily due to the timing of naval defense orders.

Year ended December 31, 2017 compared to year ended December 31, 2016

Sales increased $89 million, or 19%, to $555 million, from the comparable prior year period, primarily due to the incremental impact of our TTC acquisition, which contributed $65 million in sales. Excluding the impact of TTC, sales to the aerospace defense, ground defense, and naval defense markets increased $9 million, $6 million, and $9 million, respectively, while sales to the commercial aerospace market were essentially flat. The increase in sales to the aerospace defense market was primarily due to increased UAV production and higher foreign military sales, partially offset by declines in helicopter production. The ground defense market benefited primarily from higher TDSS demand on international ground defense platforms. Sales to the naval defense market increased primarily due to higher submarine production.

Operating income increased $11 million, or 11%, to $109 million, compared with the same period in 2016, while operating margin decreased 130 basis points to 19.7%. The increase in operating income was driven primarily by the incremental impact of our TTC acquisition, which contributed operating income of $7 million. Operating income also benefited from improved profitability in our avionics business, higher sales volumes in our defense electronics business, and ongoing margin improvement initiatives. Both operating income and operating margin were negatively impacted by first year purchase accounting costs from our TTC acquisition and an unfavorable shift in mix within our defense electronic products.

New orders increased $124 million as compared to the prior year, primarily due to the acquisition of TTC, which contributed $70 million in new orders. New orders also benefited from higher demand for our defense electronics products and naval defense products of $18 million and $13 million, respectively.

Power

Sales in the Power segment are primarily to the power generation and naval defense markets.

The following tables summarize sales, operating income and margin, and new orders, within the Power segment.
 
 
Year Ended December 31,
 
Percent Changes
(In thousands, except percentages)
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
 
 
 
 
 
 
 
 
 
 
 
Sales
 
$
648,283

 
$
552,858

 
$
523,509

 
17
%
 
6
%
Operating income
 
98,858

 
81,119

 
74,360

 
22
%
 
9
%
Operating margin
 
15.2
%
 
14.7
%
 
14.2
%
 
50
 bps
 
50
 bps
New orders
 
$
647,891

 
$
486,097

 
$
530,398

 
33
%
 
(8
%)
Backlog
 
$
912,989

 
$
878,263

 
$
946,275

 
4
%
 
(7
%)

Components of sales and operating income growth (decrease):

29



 
 
2018 vs. 2017
 
2017 vs. 2016
 
 
Sales
 
Operating
Income
 
Sales
 
Operating
Income
Organic
 
6
%
 
21
%
 
6
%
 
9
%
Acquisitions
 
11
%
 
1
%
 
%
 
%
Foreign currency
 
%
 
%
 
%
 
%
Total
 
17
%
 
22
%
 
6
%
 
9
%

Year ended December 31, 2018 compared to year ended December 31, 2017

Sales increased $95 million, or 17%, to $648 million, from the comparable prior year period, primarily due to the incremental impact from our DRG acquisition which contributed $64 million in sales. Excluding the impact of DRG, sales in the naval defense market increased $18 million primarily due to higher pump production on the CVN-80 aircraft carrier program. Within the power generation market, sales increased as higher revenues on the AP1000 China Direct program were partially offset by lower sales on the AP1000 U.S. program. Sales in the general industrial market increased $13 million, primarily due to higher sales supporting the subsea oil and gas market.

Operating income increased $18 million, or 22%, to $99 million and operating margin increased 50 basis points to 15.2%.  The increases in operating income and operating margin were primarily due to higher profitability on the AP1000 China Direct program and the benefits of our ongoing margin improvement initiatives. Both operating income and operating margin were negatively impacted by first year purchase accounting costs from our DRG acquisition.
 
New orders increased $162 million as compared to the prior year, primarily due to the acquisition of DRG, which contributed $121 million in new orders. Excluding the impact of DRG, new orders increased $49 million in the naval defense market due to the timing of customer funding. These increases were partially offset by the lower commercial orders in the power generation market.

Year ended December 31, 2017 compared to year ended December 31, 2016

Sales increased $29 million, or 6%, to $553 million, from the comparable prior year period, primarily due to higher production revenues of $52 million on the AP1000 China Direct program. This increase was partially offset by lower aftermarket sales of $20 million supporting domestic nuclear operating reactors and lower total production revenues of $13 million on the AP1000 U.S. and China programs. Within the naval defense market, sales increased $12 million primarily due to higher production levels on CVN-80 pumps and increased development on the Columbia class submarine program.

Operating income increased $7 million, or 9%, to $81 million and operating margin increased 50 basis points to 14.7%. The increases in operating income and operating margin were primarily driven by higher production levels on the AP1000 China Direct program and the benefits of our ongoing margin improvement initiatives.
 
New orders decreased $44 million as compared to the prior year, as new orders to the commercial and defense markets decreased $34 million and $10 million, respectively. These decreases were primarily due to the timing of commercial orders received as well as the timing of customer funding.
 
SUPPLEMENTARY INFORMATION

The table below depicts sales by end market. End market sales help provide an enhanced understanding of our businesses and the markets in which we operate. The table has been included to supplement the discussion of our consolidated operating results.

Net Sales by End Market

30



 
 
Year Ended December 31,
 
Percent changes
(In thousands, except percentages)
 
2018
 
2017
 
2016
 
2018 vs. 2017
 
2017 vs. 2016
 
 
 
 
 
 
 
 
 
 
 
Defense markets:
 
 
 
 
 
 
 
 
 
 
Aerospace
 
$
376,951

 
$
372,678

 
$
303,430

 
1
%
 
23
%
Ground
 
97,131

 
96,042

 
86,139

 
1
%
 
11
%
Naval
 
486,476

 
408,221

 
403,343

 
19
%
 
1
%
Total Defense
 
$
960,558

 
$
876,941

 
$
792,912

 
10
%
 
11
%
 
 
 
 
 
 
 
 
 
 
 
Commercial markets:
 
 
 
 
 
 
 
 
 
 
Aerospace
 
$
414,422

 
$
409,384

 
$
397,327

 
1
%
 
3
%
Power Generation
 
431,793

 
423,747

 
409,201

 
2
%
 
4
%
General Industrial
 
605,062

 
560,954

 
509,491

 
8
%
 
10
%
Total Commercial
 
$
1,451,277

 
$
1,394,085

 
$
1,316,019

 
4
%
 
6
%
 
 
 
 
 
 
 
 
 
 
 
Total Curtiss-Wright
 
$
2,411,835

 
$
2,271,026

 
$
2,108,931

 
6
%
 
8
%

Year ended December 31, 2018 compared to year ended December 31, 2017

Defense sales increased $84 million, or 10%, to $961 million, as compared to the prior year period, primarily due to higher sales in the naval and aerospace defense markets. Higher sales in the naval defense market were primarily due to the incremental impact from our DRG acquisition, which contributed $58 million in sales. Excluding the impact of DRG, naval defense sales also benefited from higher aircraft carrier program revenues of $22 million, partially offset by lower Columbia class submarine development revenues. The sales increase in the aerospace defense market was primarily due to higher demand for embedded computing products and data acquisition and flight test equipment on fighter jet programs, partially offset by lower sales of embedded computing products supporting various UAV programs.

Commercial sales increased $57 million, or 4%, to $1,451 million, as compared to the prior year period, primarily due to higher demand for our industrial vehicle, industrial controls, and industrial valve products in the general industrial market. Within the power generation market, higher revenues of $23 million on the AP1000 China Direct program and higher aftermarket sales of $12 million supporting international nuclear operating reactors were partially offset by lower production revenues of $22 million on the AP1000 U.S. program.

Year ended December 31, 2017 compared to year ended December 31, 2016

Defense sales increased $84 million, or 11%, to $877 million, as compared to the prior year period, primarily due to higher sales in the aerospace defense and ground defense markets. The sales increase in the aerospace defense market was primarily due to the incremental impact of our TTC acquisition, which contributed $54 million of sales. The aerospace defense market also benefited from increased demand of $7 million for UAVs and higher production of $8 million on the F-16 program, partially offset by declines in helicopter sales of $5 million. Sales in the ground defense market increased primarily due to higher demand of $8 million for our TDSS products on international ground defense platforms.

Commercial sales increased $78 million, or 6%, to $1,394 million, as compared to the prior year period, due to higher sales across all markets. In the commercial aerospace market, our TTC acquisition contributed $8 million of incremental sales. Sales also benefited from increased demand for both our actuation and sensors and controls products. Within the power generation market, we generated higher production revenues of $52 million on the AP1000 China Direct program, partially offset by lower aftermarket sales of $25 million supporting domestic nuclear operating reactors and lower total production revenues of $13 million on the AP1000 U.S. and China programs. In the general industrial market, we experienced higher demand for our industrial vehicle products which resulted in a sales increase of $52 million.

Liquidity and Capital Resources

Sources and Uses of Cash


31



We derive the majority of our operating cash inflow from receipts on the sale of goods and services and cash outflow for the procurement of materials and labor; cash flow is therefore subject to market fluctuations and conditions. Most of our long-term contracts allow for several billing points (progress or milestone) that provide us with cash receipts as costs are incurred throughout the project rather than upon contract completion, thereby reducing working capital requirements.

Consolidated Statement of Cash Flows
 
December 31,
(In thousands)
2018
 
2017
 
2016
Net cash provided by (used in):
 
 
 
 
 
Operating activities
$
336,273

 
$
388,712

 
$
423,197

Investing activities
(255,516
)
 
(272,328
)
 
(42,934
)
Financing activities
(263,639
)
 
(213,898
)
 
(96,141
)
Effect of exchange rates
(16,172
)
 
18,786

 
(18,971
)
Net increase (decrease) in cash and cash equivalents
$
(199,054
)
 
$
(78,728
)
 
$
265,151


Year ended December 31, 2018 compared to year ended December 31, 2017

Operating Activities

Cash provided by operating activities decreased $52 million to $336 million during the year ended December 31, 2018, as compared to the prior year period. The decrease in cash provided by operating activities was primarily due to a voluntary pension contribution of $50 million during the current period.

Investing Activities

Capital Expenditures

Our capital expenditures were $53 million for both 2018 and 2017. For 2019, we anticipate capital expenditures of approximately $75 million to $85 million.

Divestitures

No material divestitures took place during 2018 or 2017.

Acquisitions

In 2018, we acquired one business for a total purchase price of $210 million. In 2017, we acquired two businesses for a total purchase price of $233 million.

Future acquisitions will depend, in part, on the availability of financial resources at a cost of capital that meet our stringent criteria. As such, future acquisitions, if any, may be funded through the use of our cash and cash equivalents, through additional financing available under the credit agreement, or through new financing alternatives.
 
Financing Activities

Debt Issuances

There were no debt issuances in 2018 or 2017. In 2018, we made a discretionary $50 million prepayment on our 2013 Notes. In 2017, we fully repaid the $150 million 2005 Senior Notes that had matured.

Revolving Credit Agreement

As of December 31, 2018, the Corporation had no borrowings outstanding under the Revolving Credit Agreement (the Credit Agreement or credit facility) and $22 million in letters of credit supported by the credit facility. The unused credit available under the Credit Agreement as of December 31, 2018 was $478 million, which could be borrowed in full without violating any of our debt covenants. 

32




Repurchase of Common Stock

During 2018, the Company repurchased approximately 1,700,000 shares of its common stock for $199 million. In 2017, the Company repurchased approximately 526,000 shares of its common stock for $52 million.

Dividends

During 2018 and 2017, the Company made dividend payments of approximately $26 million and $25 million, respectively.

Year ended December 31, 2017 compared to year ended December 31, 2016

Operating Activities

Cash provided by operating activities decreased $34 million to $389 million during the year ended December 31, 2017, as compared to the prior year period. The decrease in cash provided by operating activities was primarily due to prior year collections related to the AP1000 China Direct program of $102 million and a one-time $20 million benefit in the prior year as a result of the interest rate swap termination. This was partially offset by the timing of advanced collections of $48 million and higher cash earnings of $36 million during the current period.

Investing Activities

Capital Expenditures

Our capital expenditures were $53 million in 2017 as compared to $47 million in 2016. This increase was primarily due to increased capital investment in our Defense and Power segments.

Divestitures

No material divestitures took place during 2017 or 2016.

Acquisitions

In 2017, we acquired two businesses for a total purchase price of $233 million. No material acquisitions took place in 2016.

Financing Activities

Debt Issuances

There were no debt issuances in 2017 or 2016. In 2017, we fully repaid the $150 million 2005 Senior Notes that had matured. No principal payments on outstanding notes took place in 2016.

Revolving Credit Agreement

As of December 31, 2017, the Corporation had no borrowings outstanding under the Credit Agreement and $21 million in letters of credit supported by the credit facility. The unused credit available under the Credit Agreement as of December 31, 2017 was $479 million, which could be borrowed in full without violating any of our debt covenants.

Repurchase of Common Stock

During 2017, the Company repurchased approximately 526,000 shares of its common stock for $52 million. In 2016, the Company repurchased approximately 1,300,000 shares of its common stock for $105 million.

Dividends

During 2017 and 2016, the Company made dividend payments of approximately $25 million and $23 million, respectively.

Capital Resources


33



Cash in Foreign Jurisdictions

Cash and cash equivalents as of December 31, 2018 and December 31, 2017 were $276 million and $475 million, respectively, of which $148 million and $293 million were held by foreign subsidiaries, respectively. As of December 31, 2018, our European, Canadian, and British subsidiaries held a substantial portion of the Company’s cash and cash equivalents, totaling approximately $44 million, $36 million, and $30 million, respectively, As of December 31, 2017, our British subsidiaries held a substantial portion of the Company’s cash and cash equivalents, totaling approximately $122 million. The decrease in cash held by U.S. subsidiaries during 2018 as compared to 2017 was primarily due to the acquisition of DRG as well as a voluntary pension contribution during the current period. The decrease in cash held by foreign subsidiaries during 2018 as compared to 2017 was primarily due to cash repatriation of $226 million. There are no legal or economic restrictions on the ability of any of our subsidiaries to transfer funds, absent certain regulatory approvals in China, where approximately $22 million of our foreign cash resides. Refer to Note 12 to the Consolidated Financial Statements for impacts on our foreign undistributed earnings due to the Tax Act.

Cash Utilization

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

Debt Compliance

As of December 31, 2018, we were in compliance with all debt agreements and credit facility covenants, including our most restrictive covenant, which is our debt to capitalization ratio limit of 60%. As of December 31, 2018, we had the ability to incur total additional indebtedness of $1.4 billion without violating our debt to capitalization covenant.

Future Commitments

Cash generated from operations should be adequate to meet our planned capital expenditures of approximately $75 million to $85 million and expected dividend payments of approximately $26 million in 2019. There can be no assurance, however, that we will continue to generate cash from operations at the current level, or that these projections will remain constant throughout 2019. If cash generated from operations is not sufficient to support these operating requirements and investing activities, we may be required to reduce capital expenditures, borrow from our existing credit line, refinance a portion of our existing debt, or obtain additional financing. While all companies are subject to economic risk, we believe that our cash and cash equivalents, cash flow from operations, and available borrowings are sufficient to meet both the short-term and long-term capital needs of the organization.

In February 2018, we made a discretionary pension contribution of $50 million to the Curtiss-Wright Pension Plan. For more information on our pension and other postretirement benefits plans, see Note 16 to the Consolidated Financial Statements.

The following table quantifies our significant future contractual obligations and commercial commitments as of December 31, 2018:
(In thousands)
 
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Debt Principal Repayments
 
$
750,243

 
$
243

 
$

 
$
100,000

 
$

 
$
202,500

 
$
447,500

Interest Payments on Fixed Rate Debt
 
198,531

 
29,710

 
29,710

 
29,465

 
25,870

 
23,248

 
60,528

Operating Leases
 
216,325

 
29,562

 
28,514

 
24,501

 
19,996

 
19,778

 
93,974

Tax Act - Transition Tax Payments (1)
 
8,992

 

 

 

 

 

 
8,992

Build-to-suit Lease
 
15,773

 
1,309

 
1,342

 
1,375

 
1,410

 
1,445

 
8,892

Total
 
$
1,189,864

 
$
60,824

 
$
59,566

 
$
155,341

 
$
47,276

 
$
246,971

 
$
619,886


(1) Refer to Note 12 to the Consolidated Financial Statements for more information.

34




We do not have material purchase obligations. Most of our raw material purchase commitments are made directly pursuant to specific contract requirements.

We enter into standby letters of credit agreements and guarantees with financial institutions and customers primarily relating to future performance on certain contracts to provide products and services and to secure advance payments we have received from certain international customers. As of December 31, 2018, we had contingent liabilities on outstanding letters of credit due as follows:
(In thousands)
 
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter (1)
Letters of Credit
 
$
21,727

 
$
11,383

 
$
7,276

 
$
1,273

 
$
551

 
$
286

 
$
958


(1) Amounts indicated as Thereafter are letters of credit that expire during the revolving credit agreement term but will automatically renew on the date of expiration. In addition, amounts exclude bank guarantees of approximately $11.7 million.

Critical Accounting Estimates and Policies

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and assumptions are affected by the application of our accounting policies. Critical accounting policies are those that require application of management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that affect our financial condition and results of operations:

Revenue Recognition

We account for revenues in accordance with ASC 606, Revenue from Contracts with Customers, which was adopted as of January 1, 2018 on a modified retrospective basis. Under ASC 606, revenue is recognized when control of a promised good and/or service is transferred to a customer at a transaction price that reflects the consideration that we expect to be entitled to in exchange for that good and/or service. The unit of account is a performance obligation whereby a contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when the respective performance obligation is satisfied. In certain instances, the transaction price may include estimated amounts of variable consideration including but not limited to incentives, awards, price escalations, liquidated damages, and penalties, only to the extent that it is probable that a significant reversal of cumulative revenue recognized to date around such variable consideration will not occur. We estimate variable consideration to be included in the transaction price using either the expected value method or most likely amount method, contingent upon the facts and circumstances of the specific arrangement. Variable consideration associated with our respective arrangements is not typically constrained.

Performance obligations are satisfied either at a point-in-time or on an over-time basis. Contracts that qualify for over-time revenue recognition are generally associated with the design, development, and manufacture of highly engineered industrial products used in commercial and defense applications and generally span between 2-5 years in duration. Revenue recognized on an over-time basis for the year ended December 31, 2018 accounted for approximately 46% of total net sales. Typically, over-time revenue recognition is based on the utilization of an input measure used to measure progress, such as costs incurred to date relative to total estimated costs. Application of an over-time revenue recognition method requires the use of reasonable and dependable estimates of future material, labor, and overhead costs that will be incurred as well as a disciplined cost estimating system in which all functions of the business are integrally involved. These estimates are determined based on industry knowledge and experience of our engineers, project managers, and financial staff. Changes in total estimated costs are recognized using the cumulative catch-up method of accounting which recognizes the cumulative effect of the changes on current and prior periods in the current period. During the twelve months ended December 31, 2018, 2017, and 2016, there were no significant changes in estimated contract costs.

If a performance obligation does not qualify for over-time revenue recognition, revenue is then recognized at the point-in-time in which control of the distinct good or service is transferred to the customer, typically based upon the terms of delivery. Revenue recognized at a point-in-time for the year ended December 31, 2018 accounted for approximately 54% of total net sales.


35



Timing of revenue recognition and cash collection may result in billed receivables, unbilled receivables (contract assets), and deferred revenue (contract liabilities) on the Consolidated Balance Sheet. Contract assets primarily relate to our right 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. Contract liabilities primarily consist of customer advances received prior to revenue being earned. Contract assets and contract liabilities are reported in the "Receivables, net" and "Deferred revenue" lines, respectively, within the Consolidated Balance Sheet.

As we adopted ASC 606 using a modified retrospective method, our Consolidated Financial Statements for the years ended December 31, 2017 and 2016 were not retrospectively adjusted. For the years ended December 31, 2017 and 2016, revenue was recognized when the earnings process was considered substantially complete with all of the following criteria met: 1) persuasive evidence of an arrangement existed; 2) delivery occurred or services were rendered; 3) our price to the customer was fixed or determinable; and 4) collectability was reasonably assured. We determined the appropriate revenue recognition method by analyzing the terms and conditions of each contract. Revenue was recognized on product sales as production units were shipped and title and risk of loss was transferred. Revenue was recognized on service-type contracts as services were rendered. The significant estimates made in recognizing revenue were primarily for long-term contracts, which were generally accounted for using the cost-to-cost method of percentage of completion accounting. Under the cost-to-cost percentage of completion accounting, profits were recorded pro-rata, based upon estimates of direct and indirect costs to complete such contracts. Any changes in estimates of contract sales, costs, or profits were recognized using the cumulative catch-up method of accounting.

Inventory

Inventory costs include materials, direct labor, purchasing, and manufacturing overhead costs, which are stated at the lower of cost or market, where market is limited to the net realizable value. We estimate the net realizable value of our inventories and establish reserves to reduce the carrying amount of these inventories to net realizable value, as necessary. We continually evaluate the adequacy of the inventory reserves by reviewing historical scrap rates, on-hand quantities as compared with historical and projected usage levels, and other anticipated contractual requirements. We generally hold reserved inventory for extended periods before scrapping and disposing of the reserved inventory, which contributes to a higher level of reserved inventory relative to the level of annual inventory write-offs.

We purchase materials for the manufacture of components for sale. The decision to purchase a set quantity of a particular item is influenced by several factors including: current and projected price, future estimated availability, existing and projected contracts to produce certain items, and the estimated needs for our businesses.

Pension and Other Postretirement Benefits

In consultation with our actuaries, we determine the appropriate assumptions for use in determining the liability for future pension and other postretirement benefits. The most significant of these assumptions include the discount rates used to determine plan obligations, the expected return on plan assets, and the number of employees who will receive benefits, their tenure, their salary levels, and their projected mortality. Changes in these assumptions, if significant in future years, may have an effect on our pension and postretirement expense, associated pension and postretirement assets and liabilities, and our annual cash requirements to fund these plans.

The discount rate used to determine the plan benefit obligations as of December 31, 2018, and the annual periodic costs for 2019, was increased from 3.63% to 4.28% for the Curtiss-Wright Pension Plan, and from 3.55% to 4.19% for the nonqualified benefit plan, to reflect current economic conditions. The rates reflect the hypothetical rates at which the projected benefit obligations could be effectively settled or paid out to participants on that date. We determine our discount rates for past service liabilities and service cost utilizing a select bond yield curve developed by our actuaries, by using the rates of return on high-quality, fixed-income corporate bonds available at the measurement date with maturities that match the plan’s expected cash outflows for benefit payments. Interest cost is determined by applying the spot rate from the full yield curve to each anticipated benefit payment. The discount rate changes contributed to a decrease in the benefit obligation of $55 million in the CW plans.

The rate of compensation increase for base pay in the pension plans was unchanged at a weighted average of 3.5% based upon a graded scale of 4.9% to 2.9% that decrements as pay increases, which reflects the experience over past years and the Company’s expectation of future salary increases. We also utilized the RP-2014 mortality tables published by the Society of Actuaries, and updated the projected mortality scale to MP-2018, which reflects a slower rate of future mortality improvements than the previous MP-2017 table utilized. This change contributed to a decrease in the benefit obligation of $2 million in all U.S. plans.


36



The overall expected return on assets assumption is based primarily on the 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 provided by our investment consultants. Based on a review of market trends, actual returns on plan assets, and other factors, the Company’s expected long-term rate of return on plan assets remained at 8.00% as of December 31, 2018, which will be utilized for determining 2019 pension cost. Expected long-term rates of return of 8.00%, 8.00%, and 8.25% were used for determining 2018, 2017 and 2016 pension expense, respectively.

The timing and amount of future pension income or expense to be recognized each year is dependent on the demographics and expected compensation of the plan participants, the expected interest rates in effect in future years, inflation, and the actual and expected investment returns of the assets in the pension trust.

The funded status of the Curtiss-Wright Pension Plan increased by $19 million in 2018, primarily driven by an increase in market interest rates as of December 31, 2018. This was partially offset by unfavorable asset experience due to weaker market performance in 2018.

The following table reflects the impact of changes in selected assumptions used to determine the funded status of the Company’s U.S. qualified and nonqualified pension plans as of December 31, 2018 (in thousands, except for percentage point change):
Assumption
 
Percentage
Point Change
 
Increase in
Benefit
Obligation
 
Increase in
Expense
Discount rate
 
(0.25
)%
 

$21,000

 

$2,500

Rate of compensation increase
 
0.25
 %
 

$2,000

 

$500

Expected return on assets
 
(0.25
)%
 

 

$1,700


See Note 16 to the Consolidated Financial Statements for further information on our pension and postretirement plans.

Purchase Accounting

We apply the purchase method of accounting to our acquisitions. Under this method, we allocate the cost of business acquisitions to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition, commonly referred to as the purchase price allocation. As part of the purchase price allocations for our business acquisitions, identifiable intangible assets are recognized as assets apart from goodwill if they arise from contractual or other legal rights, or if they are capable of being separated or divided from the acquired business and sold, transferred, licensed, rented, or exchanged. The purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values, with any excess recorded as goodwill. We determine the fair values of such assets and liabilities, generally in consultation with third-party valuation advisors. Such fair value assessments require significant judgments and estimates such as projected cash flows, discount rates, royalty rates, and remaining useful lives that can differ materially from actual results. The analysis, while substantially complete, is finalized no later than twelve months from the date of acquisition.

Goodwill

We have $1.1 billion in goodwill as of December 31, 2018. Generally, the largest separately identifiable asset from the businesses that we acquire is the value of their assembled workforces, which includes the additional benefit received from management, administrative, marketing, business development, engineering, and technical employees of the acquired businesses. The success of our acquisitions, including the ability to retain existing business and to successfully compete for and win new business, is based on the additional benefit received from management, administrative, marketing, and business development, scientific, engineering, and technical skills and knowledge of our employees rather than on productive capital (plant and equipment, technology, and intellectual property). Therefore, since intangible assets for assembled workforces are part of goodwill, the substantial majority of the intangible assets for our acquired business acquisitions are recognized as goodwill.

We test for goodwill impairment annually, at the reporting unit level, in the fourth quarter, which coincides with the preparation of our strategic operating plan. Additionally, goodwill is tested for impairment when an event occurs or if circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.


37



We perform either a quantitative or qualitative assessment to assess if the fair value of the respective reporting unit exceeds its carrying value. The qualitative goodwill impairment assessment requires evaluating factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. As part of our goodwill qualitative assessment process for each reporting unit, when utilized, we evaluate various factors that are specific to the reporting unit as well as industry and macroeconomic factors in order to determine whether it is reasonably likely to have a material impact on the fair value of our reporting units. Examples of the factors that are considered include the results of the most recent impairment test, current and long-range forecasts, and changes in the strategic outlook or organizational structure of the reporting units. The long-range financial forecasts of the reporting units are compared to the forecasts used in the prior year analysis to determine if management expectations for the business have changed.

Actual results may differ from those estimates. When performing the quantitative assessment to calculate the fair value of a reporting unit, we consider both comparative market multiples as well as estimated discounted cash flows for the reporting unit. The significant estimates and assumptions include, but are not limited to, revenue growth rates, operating margins, and future economic and market conditions. The discount rates are based upon the reporting unit’s weighted average cost of capital. As a supplement, we conduct additional sensitivity analysis to assess the risk for potential impairment based upon changes in the key assumptions such as the discount rate, expected long-term growth rate, and cash flow projections. Based upon the completion of our annual test, which included qualitative assessments, we determined that there was no impairment of goodwill and that all reporting units’ estimated fair values were substantially in excess of their carrying amounts.

Other Intangible Assets

Other intangible assets are generally the result of acquisitions and consist primarily of purchased technology, customer related intangibles, and trademarks. Intangible assets are recorded at their fair values as determined through purchase accounting, based on estimates and judgments regarding expectations for the estimated future after-tax earnings and cash flows arising from follow-on sales. Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, which generally range from 1 to 20 years. Customer-related intangibles primarily consist of customer relationships, which reflect the value of the benefit derived from the incremental revenue and related cash flows as a direct result of the customer relationship. We review the recoverability of all intangible assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount might not be recoverable. We would record any impairment in the reporting period in which it has been identified.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to certain market risks from changes in interest rates and foreign currency exchange rates as a result of our global operating and financing activities. We seek to minimize any material risks from foreign currency exchange rate fluctuations through our normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We used forward foreign currency contracts to manage our currency rate exposures during the year ended December 31, 2018, and, in order to manage our interest rate risk, we may, from time to time, enter into interest rate swaps to balance the ratio of fixed to floating rate debt. We do not use such instruments for trading or other speculative purposes. Information regarding our accounting policy on financial instruments is contained in Note 1 to the Consolidated Financial Statements.

Interest Rates

The market risk for a change in interest rates relates primarily to our debt obligations. Our fixed rate interest exposure was 100% as of December 31, 2018 and December 31, 2017. As of December 31, 2018, a change in interest rates of 1% would not have a material impact on consolidated interest expense. Information regarding our Senior Notes and Revolving Credit Agreement is contained in Note 13 to the Consolidated Financial Statements.

Foreign Currency Exchange Rates

Although the majority of our business is transacted in U.S. dollars, we do have market risk exposure to changes in foreign currency exchange rates, primarily as it relates to the value of the U.S. dollar versus the British Pound, Canadian dollar, and Euro. Any significant change against the U.S. dollar in the value of the currencies of those countries in which we do business could have an effect on our business, financial condition, and results of operations. If foreign exchange rates were to collectively weaken or strengthen against the U.S. dollar by 10%, net earnings would have decreased or increased, respectively, by approximately $7 million as it relates exclusively to foreign currency exchange rate exposures.


38



Financial instruments expose us to counter-party credit risk for non-performance and to market risk for changes in interest and foreign currency rates. We manage exposure to counter-party credit risk through specific minimum credit standards, diversification of counter-parties, and procedures to monitor concentrations of credit risk. We monitor the impact of market risk on the fair value and cash flows of our investments by investing primarily in investment grade interest-bearing securities, which have short-term maturities. We attempt to minimize possible changes in interest and currency exchange rates to amounts that are not material to our consolidated results of operations and cash flows.


39



Item 8. Financial Statements and Supplementary Data.
CONSOLIDATED STATEMENTS OF EARNINGS
 
 
For the years ended December 31,
(In thousands, except per share data)
 
2018
 
2017
 
2016
 
 
 
 
 
 
 
Net sales
 


 


 


Product sales
 
$
1,993,249

 
$
1,854,216

 
$
1,714,358

Service sales
 
418,586

 
416,810

 
394,573

Total net sales
 
2,411,835

 
2,271,026

 
2,108,931

 
 
 
 
 
 
 
Cost of sales
 


 


 


Cost of product sales
 
1,272,599

 
1,198,881

 
1,113,078

Cost of service sales
 
267,975

 
271,360

 
261,162

Total cost of sales
 
1,540,574

 
1,470,241

 
1,374,240

Gross profit
 
871,261

 
800,785

 
734,691

 
 
 
 
 
 
 
Research and development expenses
 
64,525

 
61,393

 
59,424

Selling expenses
 
126,641

 
121,873

 
113,164

General and administrative expenses
 
306,469

 
292,399

 
265,584

Operating income
 
373,626

 
325,120

 
296,519

Interest expense
 
33,983

 
41,471

 
41,248

Other income, net
 
16,596

 
15,970

 
12,690

Earnings before income taxes
 
356,239

 
299,619

 
267,961

Provision for income taxes
 
(80,490
)
 
(84,728
)
 
(78,579
)
Earnings from continuing operations
 
275,749

 
214,891

 
189,382

Loss from discontinued operations, net of taxes
 

 

 
(2,053
)
Net earnings
 
$
275,749

 
$
214,891

 
$
187,329

 
 
 
 
 
 
 
Basic earnings per share:
 
 

 
 

 
 

Earnings from continuing operations
 
$
6.28

 
$
4.86

 
$
4.27

Loss from discontinued operations
 

 

 
(0.05
)
Total
 
$
6.28

 
$
4.86

 
$
4.22

Diluted earnings per share:
 
 

 
 

 
 

Earnings from continuing operations
 
$
6.22

 
$
4.80

 
$
4.20

Loss from discontinued operations
 

 

 
(0.05
)
Total
 
$
6.22

 
$
4.80

 
$
4.15

Dividends per share
 
$
0.60

 
$
0.56

 
$
0.52

 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
Basic
 
43,892

 
44,182

 
44,389

Diluted
 
44,316

 
44,761

 
45,045

See notes to consolidated financial statements


40



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
 
For the years ended December 31,
(In thousands)
 
2018
 
2017
 
2016
 
 
 
 
 
 
 
Net earnings
 
$
275,749

 
$
214,891

 
$
187,329

Other comprehensive income
 
 

 
 

 
 

Foreign currency translation, net of tax (1)
 
(52,440
)
 
77,942

 
(64,840
)
Pension and postretirement adjustments, net of tax (2)
 
(19,167
)
 
(3,026
)
 
(988
)
Other comprehensive income (loss), net of tax
 
(71,607
)
 
74,916

 
(65,828
)
Comprehensive income
 
$
204,142

 
$
289,807

 
$
121,501


(1) 
The tax benefit (expense) included in other comprehensive income for foreign currency translation adjustments for 2018, 2017, and 2016 were $0.8 million, ($1.9) million, and $1.7 million, respectively.

(2) 
The tax benefit (expense) included in other comprehensive income for pension and postretirement adjustments for 2018, 2017, and 2016 were $7.0 million, $2.8 million, and ($1.7) million, respectively.
See notes to consolidated financial statements

41




CONSOLIDATED BALANCE SHEETS
 
 
As of December 31,
(In thousands, except share data)
 
2018
 
2017
 
 
 
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
276,066

 
$
475,120

Receivables, net
 
593,755

 
494,923

Inventories, net
 
423,426

 
378,866

Other current assets
 
50,719

 
52,951

Total current assets
 
1,343,966

 
1,401,860

Property, plant, and equipment, net
 
374,660

 
390,235

Goodwill
 
1,088,032

 
1,096,329

Other intangible assets, net
 
429,567

 
329,668

Other assets
 
19,160

 
18,229

Total assets
 
$
3,255,385

 
$
3,236,321

LIABILITIES
 
 
 
 
Current liabilities: