NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements have been prepared according to the rules and regulations of the United States (the "U.S.") Securities and Exchange Commission (“SEC”) and, in the opinion of management, reflect all adjustments necessary for a fair statement of the consolidated balance sheets, consolidated statements of (loss) income, consolidated statements of comprehensive income (loss), consolidated statements of cash flows and consolidated statements of shareholders' equity of CIRCOR International, Inc. (“CIRCOR”, the “Company”, “us”, “we” or “our”) for the periods presented. We prepare our interim financial information using the same accounting principles we use for our annual audited consolidated financial statements. Certain information and note disclosures normally included in the annual audited consolidated financial statements have been condensed or omitted in accordance with SEC rules. We believe that the disclosures made in our condensed consolidated financial statements and the accompanying notes are adequate to make the information presented not misleading.
The consolidated balance sheet as of
December 31, 2018
is as reported in our audited consolidated financial statements as of that date but does not contain all of the footnote disclosures from the annual financial statements. Our accounting policies are described in the notes to our
December 31, 2018
consolidated financial statements, which were included in our Annual Report on Form 10-K for the year ended
December 31, 2018
, as updated by Note 2 with respect to newly adopted accounting standards. We recommend that the financial statements included in our Quarterly Report on Form 10-Q be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended
December 31, 2018
.
We operate and report financial information using a fiscal year ending December 31. The data periods contained within our Quarterly Reports on Form 10-Q reflect the results of operations for the 13-week, 26-week and 39-week periods which generally end on the Sunday nearest the calendar quarter-end date. Operating results for the three months ended
March 31, 2019
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2019
or any future quarter.
Unless otherwise indicated, all financial information and statistical data included in these notes to our condensed consolidated financial statements relate to our continuing operations, with dollar amounts expressed in thousands (except per-share data).
(2) Summary of Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended
March 31, 2019
are consistent with those discussed in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended
December 31, 2018
, except as updated below with respect to newly adopted accounting standards.
New Accounting Standards - Adopted
On January 1, 2019 we adopted the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases, and all related amendments ("ASC 842"), specifically, ASU 2018-11, Leases: Targeted Improvements, under the modified retrospective approach. The amendment provides us with transition relief, as we elected not to recast the comparable periods and rather used the effective adoption date of the standard as the date of initial application. Comparable periods and the related disclosures are reflected herein under ASC 840. In addition, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.
Adoption of the new standard resulted in the recording of additional Right-of-Use ("ROU") assets and lease liabilities of
$23.8 million
and
$24.1 million
respectively, as of January 1, 2019. ROU assets represent our right to use an underlying asset for the lease term and the lease liabilities represent our obligation to make lease payments arising from the lease. The difference between the additional lease assets and lease liabilities, was recorded as an adjustment to deferred rent and prepaid rent. The standard did not materially impact our consolidated net earnings. See Note 4, Leases for further information.
(3) Revenue Recognition
Our revenue is derived from a variety of contracts. A significant portion of our revenues are from contracts associated with the design, development, manufacture or modification of highly engineered, complex and severe environment products with customers who are either in or service the energy, aerospace, defense and industrial markets. Our contracts within the defense markets are primarily with U.S. military customers. These contracts typically are subject to the Federal Acquisition Regulations (FAR). We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Contracts may be modified to account for changes in contract specifications and requirements. Contract modifications exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Contract modifications for goods or services that are not distinct from the existing contract are accounted for as if they were part of that existing contract.
Revenue is recognized from products and services transferred to customers over-time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion, known as the “cost-to-cost” method) to measure progress. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, revenues are recorded proportionally as costs are incurred. Contract costs include labor, materials and subcontractors’ costs, other direct costs and an allocation of overhead, as appropriate.
As of
March 31, 2019
, we had
$521.0 million
of revenue related to remaining unfulfilled performance obligations. We expect to recognize approximately
79
percent of our remaining performance obligations as revenue during the remainder of 2019,
18
percent in 2020, and the remaining
3
percent in 2021 and thereafter.
In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liabilities balances outstanding at the beginning of the period until the revenue exceeds that balance. If additional advances are received on those contracts in subsequent periods, we assume all revenue recognized in the reporting period first applies to the beginning contract liabilities as opposed to a portion applying to the new advances for the period.
The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating expenses or revenue. There have been no significant changes in estimates in the three months ended
March 31, 2019
.
Disaggregation of Revenue.
The following tables present our revenue disaggregated by major product line and geographical market (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
April 1, 2018
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Energy Segment
|
|
|
|
|
|
Oil & Gas - Upstream, Midstream & Other
|
$
|
45,665
|
|
|
$
|
47,885
|
|
|
|
Oil & Gas - Downstream
|
52,752
|
|
|
52,087
|
|
|
|
Total
|
98,417
|
|
|
99,972
|
|
|
Aerospace & Defense Segment
|
|
|
|
|
|
Commercial Aerospace & Other
|
28,706
|
|
|
26,657
|
|
|
|
Defense
|
32,534
|
|
|
31,820
|
|
|
|
Total
|
61,240
|
|
|
58,477
|
|
|
Industrial Segment
|
|
|
|
|
|
Valves
|
28,532
|
|
|
27,679
|
|
|
|
Pumps
|
82,206
|
|
|
89,452
|
|
|
|
Total
|
110,738
|
|
|
117,131
|
|
|
Net Revenue
|
$
|
270,395
|
|
|
$
|
275,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
April 1, 2018
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Energy Segment
|
|
|
|
|
|
EMEA
|
$
|
34,452
|
|
|
$
|
19,898
|
|
|
|
North America
|
52,957
|
|
|
64,467
|
|
|
|
Other
|
11,008
|
|
|
15,607
|
|
|
|
Total
|
98,417
|
|
|
99,972
|
|
|
Aerospace & Defense Segment
|
|
|
|
|
|
EMEA
|
$
|
17,732
|
|
|
$
|
15,396
|
|
|
|
North America
|
37,393
|
|
|
37,749
|
|
|
|
Other
|
6,115
|
|
|
5,332
|
|
|
|
Total
|
61,240
|
|
|
58,477
|
|
|
Industrial Segment
|
|
|
|
|
|
EMEA
|
$
|
54,492
|
|
|
$
|
60,679
|
|
|
|
North America
|
34,547
|
|
|
32,250
|
|
|
|
Other
|
21,699
|
|
|
24,202
|
|
|
|
Total
|
110,738
|
|
|
117,131
|
|
|
Net Revenue
|
$
|
270,395
|
|
|
$
|
275,580
|
|
Contract Balances.
The Company’s contract assets and contract liabilities balances as of December 31, 2018 and March 31, 2019, respectively, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
March 31, 2019
|
Increase/(Decrease)
|
|
Trade accounts receivables, net
|
|
$
|
183,552
|
|
|
$
|
188,500
|
|
$
|
4,948
|
|
|
Contract assets (1)
|
|
61,618
|
|
|
61,889
|
|
271
|
|
|
Contract liabilities (2) (3)
|
|
48,325
|
|
|
36,374
|
|
(11,951
|
)
|
|
|
|
|
|
|
|
|
(1) Recorded within prepaid expenses and other current assets.
|
|
(2) Recorded within accrued expenses and other current liabilities
|
|
(3) The Contract Liabilities balance as of December 31, 2018 has been adjusted by $1.4 million attributed to the Reliability Services divestiture.
|
Trade accounts receivable, net increased by $
4.9 million
as of March 31, 2019, primarily due to the timing of cash collections during the three months ended March 31, 2019.
Contract assets as of March 31, 2019 remained fairly consistent with December 31, 2018, an increase of $
0.3 million
.
Contract liabilities, excluding divestiture, decreased by $
12.0 million
, or 25%, to $
36.4 million
as of March 31, 2019, primarily driven by revenue recognized over time during the three months ended March 31, 2019 within our Refinery Valves (-9%) and U.S. Defense Business (-5%).
(4) Leases
We lease certain office spaces, warehouses, vehicles and equipment. Leases with an initial term of 12-months or less have not been capitalized on the balance sheet. We recognize lease expense associated with these short-term leases on a straight-line basis over the lease term. For lease agreements entered into after the adoption of ASC 842, we combine lease and non-lease fixed components for real estate, vehicles and equipment leases. We do not combine lease and non-lease components for information technology leases. Variable lease costs were not included within the measurement of the lease liability as they were entirely variable or the difference between the portion captured within the lease liability and the actual cost will be expensed as incurred. Variable costs are contractually obligated and relate primarily to common area maintenance and taxes, which were not material to the financial statements.
We elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward the historical lease classification, not to reassess if existing contracts are or contain leases, and not to reassess indirect costs for existing leases.
We have elected not to recast the comparable periods and rather used the effective adoption date of the standard as the date of initial application.
Leases which contain a renewal option to extend an existing lease term, or a termination option to end a lease early are exercisable at our sole discretion. We evaluate such leases to determine if we are reasonably certain to exercise the option. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Our lease agreements do not contain any material residual value guarantees.
In determining the present value of lease payments, we use the implicit borrowing rate in the lease, if available. In cases where a lease does not provide an implicit borrowing rate, we use the incremental borrowing rate based on based on available information at the commencement date. As of March 31, 2019 none of our existing leases provided an implicit borrowing rate. We give consideration to our debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rate. Additionally, we performed an entity-level financial assessment along with risk assessment by country or jurisdiction in the determination of our incremental borrowing rate. We will update our financial and risk assessments periodically. We will reassess lease classification and / or remeasure the lease liability in the event of the following: changes in assessment of renewal, termination or purchase option based on triggering events within our control, change in amounts probable of being owed under a residual guarantee, or contingency resolution.
The Balance Sheet impact at March 31, 2019 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
|
|
Assets
|
Operating
|
|
Finance
|
|
Gross ROU Assets (1)
|
$
|
25,102
|
|
|
$
|
1,165
|
|
|
Less: Accumulated Amortization
|
1,298
|
|
|
9
|
|
|
Net ROU Assets
|
$
|
23,804
|
|
|
$
|
1,156
|
|
|
|
|
|
|
|
Liabilities
|
Operating
|
|
Finance
|
|
Current (2)
|
$
|
5,327
|
|
|
$
|
178
|
|
|
Non-current (3)
|
18,560
|
|
|
1,048
|
|
|
Total Lease Liabilities
|
$
|
23,887
|
|
|
$
|
1,226
|
|
|
(1) Operating and Finance ROU Assets are included within other assets on the Balance Sheet.
|
|
(2) The current portion of operating and finance lease liabilities are recorded within accrued expenses and other current liabilities on the Balance Sheet.
|
|
(3) The non-current portion of operating and finance lease liabilities are recorded within other non-current liabilities on the Balance Sheet.
|
The components of lease costs are as follows (in thousands):
|
|
|
|
|
|
|
|
Lease Costs
|
March 31, 2019
|
|
Operating lease cost (1)
|
$
|
1,880
|
|
|
|
|
|
Finance lease cost
|
|
|
Amortization of leased assets (2)
|
$
|
3
|
|
|
Interest on lease liabilities (3)
|
—
|
|
|
Total finance lease costs
|
3
|
|
|
|
|
|
Total lease cost
|
$
|
1,883
|
|
|
(1) Operating lease costs are recorded within selling, general and administrative expenses or Cost of Revenue within the Consolidated Statement of Loss depending upon the nature of the underlying lease.
|
|
(2) Finance lease amortization costs are recorded in selling, general and administrative expenses within the Consolidated Statement of Loss.
|
|
(3) Finance lease interest costs are recorded in interest expense, net within the Consolidated Statement of Loss.
|
|
Short-term lease expense and variable lease costs were $0.1 million and $0.0 million, respectively, for the three months ended March 31, 2019.
|
The estimated future minimum lease payments only include obligations for which we are reasonably certain to exercise our renewal option. Such future payments are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity of Lease Liabilities
|
Operating Leases
|
Finance Leases
|
Total
|
|
2019
|
$
|
5,404
|
|
$
|
137
|
|
$
|
5,541
|
|
|
2020
|
4,996
|
|
163
|
|
5,159
|
|
|
2021
|
4,291
|
|
161
|
|
4,452
|
|
|
2022
|
3,539
|
|
149
|
|
3,688
|
|
|
2023
|
2,962
|
|
149
|
|
3,111
|
|
|
After 2023
|
8,225
|
|
473
|
|
8,698
|
|
|
Less: Interest
|
$
|
(5,530
|
)
|
$
|
(6
|
)
|
$
|
(5,536
|
)
|
|
Present value of lease liabilities
|
$
|
23,887
|
|
$
|
1,226
|
|
$
|
25,113
|
|
The weighted average remaining lease term and discount rates are as follows:
|
|
|
|
|
|
|
Lease Term and Discount Rate
|
March 31, 2019
|
|
|
Weighted average remaining lease term (years)
|
|
|
Operating leases
|
6.3
|
|
|
Finance leases
|
7.7
|
|
|
Weighted average discount rate (percentage)
|
|
|
Operating leases
|
5.7
|
%
|
|
Finance leases
|
2.0
|
%
|
Supplemental cash flow information related to leases are as follows (in thousands):
|
|
|
|
|
|
|
|
Other Information
|
March 31, 2019
|
|
|
Operating Activities
|
|
|
Noncash lease expense on operating ROU assets
|
$
|
(23,762
|
)
|
|
Amortization expense on finance ROU assets
|
3
|
|
|
Change in total operating lease liabilities
|
23,846
|
|
|
Principal paid on operating lease liabilities
|
(93
|
)
|
|
Total Operating Activities
|
$
|
(6
|
)
|
|
Financing Activities
|
|
|
Principal paid on finance lease liabilities
|
$
|
(8
|
)
|
|
Supplemental
|
|
|
Interest Paid on finance lease liabilities
|
—
|
|
As of March 31, 2019, we do not have any material operating or finance leases that have not yet commenced and we have not entered into any transactions with a related party.
Operating Lease Commitments Disclosure under ASC 840
Minimum rental commitments due under non-cancelable operating leases, primarily for office and warehouse facilities, were as follows at December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Minimum lease commitments
|
$
|
9,481
|
|
|
$
|
6,303
|
|
|
$
|
4,573
|
|
|
$
|
3,345
|
|
|
$
|
2,540
|
|
|
$
|
6,032
|
|
(5) Special & Restructuring (Recoveries) Charges, net
Special and Restructuring (Recoveries) Charges, net
Special and restructuring charges, net consist of restructuring costs (including costs to exit a product line or program) as well as certain special charges such as significant litigation settlements and other transactions (charges or recoveries) that are described below. All items described below are recorded in Special and restructuring (recoveries) charges, net on our consolidated statements of loss. Certain other special and restructuring charges such as inventory related items may be recorded in cost of revenues given the nature of the item.
The table below (in thousands) summarizes the amounts recorded within the special and restructuring (recoveries) charges, net line item on the condensed consolidated statements of loss for the
three
months ended
March 31, 2019
and
April 1, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Special & Restructuring Charges (Recoveries), net
|
|
|
Three Months Ended
|
|
|
March 31, 2019
|
|
April 1, 2018
|
|
Special (recoveries) charges, net
|
$
|
(8,679
|
)
|
|
$
|
2,831
|
|
|
Restructuring charges, net
|
863
|
|
|
9,615
|
|
|
Total special and restructuring (recoveries) charges, net
|
$
|
(7,816
|
)
|
|
$
|
12,446
|
|
Special (Recoveries) Charges, net
The table below (in thousands) outlines the special (recoveries) charges, net recorded for the three months ended
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special (Recoveries) Charges, net
|
|
|
For the three months ended March 31, 2019
|
|
|
Energy
|
|
Aerospace & Defense
|
|
Industrial
|
|
Corporate
|
|
Total
|
|
Reliability Services divestiture
|
$
|
(10,282
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(10,282
|
)
|
|
Reliability Services 2019 operating expenses
|
1,450
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,450
|
|
|
Rosscor divestiture related charges
|
—
|
|
|
—
|
|
|
153
|
|
|
—
|
|
|
153
|
|
|
Total special charges, net
|
$
|
(8,832
|
)
|
|
$
|
—
|
|
|
$
|
153
|
|
|
$
|
—
|
|
|
$
|
(8,679
|
)
|
Reliability Services Divestiture: In January 2019, the Company sold its Reliability Services business. The Company recorded a
$10.3 million
gain during the first quarter of 2019 in connection with the divestiture.
Reliability Services 2019 Operating Expenses: The Company classified the 2019 operating expenses of the Reliability Services business as special given the business was held for sale as of 2018 and was sold in January 2019.
Rosscor Divestiture: On November 6, 2018, we announced the divestiture of our Rosscor B.V. and SES International B.V. subsidiaries (the “Delden Business”) for a nominal amount. The Delden Business was our Netherlands-based fluid handling skids and systems business, primarily for the Oil and Gas end market. During the first quarter of 2019 we recorded a
$0.2 million
charge related to the divestiture.
The table below (in thousands) outlines the special charges (recoveries), net recorded for the three months ended
April 1, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Charges (Recoveries), net
|
|
|
For the three months ended April 1, 2018
|
|
|
Energy
|
|
Aerospace & Defense
|
|
Industrial
|
|
Corporate
|
|
Total
|
|
Acquisition related charges
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,455
|
|
|
$
|
2,455
|
|
|
Brazil closure
|
376
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
376
|
|
|
Total special charges, net
|
$
|
376
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,455
|
|
|
$
|
2,831
|
|
Acquisition related charges:
|
|
|
|
•
|
On December 11, 2017, we acquired fluid handing business of Colfax Corporation ("FH"). In connection with our acquisition, we recorded
$2.5 million
during the three months ended April 1, 2018 related to internal and external professional fee costs to integrate the FH business into our legacy framework.
|
|
|
|
|
•
|
Brazil Closure: On November 3, 2015, our Board of Directors approved the closure and exit of our Brazil manufacturing operations due to the economic realities in Brazil and the ongoing challenges with our only significant end customer, Petrobras. CIRCOR Brazil reported substantial operating losses every year since it was acquired in 2011 while the underlying market conditions and outlook deteriorated. In connection with the closure, we recorded
$0.4 million
of charges within the Energy segment during the three months ended April 1, 2018, which relates to losses incurred subsequent to our closure of manufacturing operations during the first quarter of 2016.
|
Restructuring Charges (Recoveries), net
The tables below (in thousands) outline the charges (or any recoveries) associated with restructuring actions recorded for the three months ended
March 31, 2019
and
April 1, 2018
. A description of the restructuring actions is provided in the section titled "Restructuring Programs Summary" below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Charges
|
|
|
As of and for the three months ended March 31, 2019
|
|
|
Energy
|
|
Aerospace & Defense
|
|
Industrial
|
|
Corporate
|
|
Total
|
|
Facility related expenses
|
$
|
261
|
|
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
331
|
|
|
Employee related expenses, net
|
262
|
|
|
(2
|
)
|
|
272
|
|
|
—
|
|
|
532
|
|
|
Total restructuring charges, net
|
$
|
523
|
|
|
$
|
68
|
|
|
$
|
272
|
|
|
$
|
—
|
|
|
$
|
863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges as of December 31, 2018
|
|
|
|
|
|
|
|
|
$
|
982
|
|
|
Total quarter to date charges, net (shown above)
|
|
|
|
|
|
|
|
|
863
|
|
|
Charges paid / settled, net
|
|
|
|
|
|
|
|
|
(106
|
)
|
|
Accrued restructuring charges as of March 31, 2019
|
|
|
|
|
|
|
|
|
$
|
757
|
|
We expect to make payment or settle the majority of the restructuring charges accrued as of March 31, 2019 during the second half of 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Charges, net
|
|
|
As of and for the three months ended April 1, 2018
|
|
|
Energy
|
|
Aerospace & Defense
|
|
Industrial
|
|
Corporate
|
|
Total
|
|
Facility related expenses
|
$
|
1,481
|
|
|
$
|
82
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,563
|
|
|
Employee related (recoveries) expenses
|
6,843
|
|
|
—
|
|
|
1,209
|
|
|
—
|
|
|
8,052
|
|
|
Total restructuring charges, net
|
$
|
8,324
|
|
|
$
|
82
|
|
|
$
|
1,209
|
|
|
$
|
—
|
|
|
$
|
9,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges as of December 31, 2017
|
|
|
|
|
|
|
|
|
$
|
1,586
|
|
|
Total quarter to date charges, net (shown above)
|
|
|
|
|
|
|
|
|
9,615
|
|
|
Charges paid / settled, net
|
|
|
|
|
|
|
|
|
(4,897
|
)
|
|
Accrued restructuring charges as of April 1, 2018
|
|
|
|
|
|
|
|
|
$
|
6,304
|
|
Restructuring Programs Summary
As specific restructuring programs are announced, the amounts associated with that particular action may be recorded in periods other than when announced to comply with the applicable accounting rules. For example, total cost associated with 2018 Actions (as discussed below) will be recorded in 2018 and 2019. The amounts shown below reflect the total cost for that restructuring program.
During 2018, we initiated certain restructuring activities, under which we continued to simplify our business ("2018 Actions"). Under these restructurings, we reduced expenses, primarily through reductions in force and closing a number of smaller facilities. Charges associated with the 2018 Actions were recorded during 2018 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Actions Restructuring Charges, net as of March 31, 2019
|
|
|
Energy
|
|
Aerospace & Defense
|
|
Industrial
|
|
Total
|
|
Facility related expenses - incurred to date
|
$
|
2,448
|
|
|
$
|
70
|
|
|
$
|
—
|
|
|
$
|
2,518
|
|
|
Employee related expenses - incurred to date
|
7,893
|
|
|
380
|
|
|
1,808
|
|
|
10,081
|
|
|
Total restructuring related special charges - incurred to date
|
$
|
10,341
|
|
|
$
|
450
|
|
|
$
|
1,808
|
|
|
$
|
12,599
|
|
Additional Restructuring Charges
In conjunction with the restructuring actions noted above, we incur certain costs, primarily related to inventory, that are recorded in cost of revenues instead of special and restructuring charges. These types of inventory restructuring costs typically relate to the discontinuance of a product line or manufacturing inefficiencies directly related to the restructuring action.
During the quarter ended March 31, 2019, we recorded
$2.8 million
of inventory related restructuring charges within our Energy segment for restructuring actions with our Distributed Valves business. Also during the first quarter of 2019, we recorded
$0.3 million
of inventory related restructuring charges related to the January 2019 results of the Reliability Services business. During the three months ended April 1, 2018, we recorded
$0.5 million
of inventory related restructuring charges within our Energy segment for restructuring actions with our Reliability Services business.
(6) Inventories
Inventories consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Raw materials
|
$
|
71,201
|
|
|
$
|
69,910
|
|
|
Work in process
|
115,655
|
|
|
116,088
|
|
|
Finished goods
|
31,135
|
|
|
31,380
|
|
|
Total inventories
|
$
|
217,991
|
|
|
$
|
217,378
|
|
(7) Goodwill and Intangibles, net
The following table shows goodwill by segment as of
December 31, 2018
and
March 31, 2019
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
Aerospace & Defense
|
|
Industrial
|
|
Total
|
|
Goodwill as of December 31, 2018
|
$
|
104,872
|
|
|
$
|
57,418
|
|
|
$
|
296,915
|
|
|
$
|
459,205
|
|
|
Divestiture (1)
|
110
|
|
|
—
|
|
|
—
|
|
|
110
|
|
|
Currency translation adjustments
|
(4,335
|
)
|
|
(30
|
)
|
|
6,045
|
|
|
1,680
|
|
|
Goodwill as of March 31, 2019
|
$
|
100,647
|
|
|
$
|
57,388
|
|
|
$
|
302,960
|
|
|
$
|
460,995
|
|
|
(1) As of December 31, 2018, the Energy Segment had $40.4 million of Goodwill classified as "held for sale" in connection with the divestiture of our Reliability Services business in January 2019.
|
The table below presents gross intangible assets and the related accumulated amortization as of
March 31, 2019
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net Carrying Value
|
|
Patents
|
$
|
5,399
|
|
|
$
|
(5,399
|
)
|
|
$
|
—
|
|
|
Customer relationships
|
302,728
|
|
|
(62,696
|
)
|
|
240,032
|
|
|
Backlog
|
22,889
|
|
|
(20,730
|
)
|
|
2,159
|
|
|
Acquired technology
|
131,664
|
|
|
(28,176
|
)
|
|
103,488
|
|
|
Other
|
3,783
|
|
|
(3,783
|
)
|
|
—
|
|
|
Total Amortized Assets
|
$
|
466,463
|
|
|
$
|
(120,784
|
)
|
|
$
|
345,679
|
|
|
|
|
|
|
|
|
|
Non-amortized intangibles (primarily trademarks and trade names)
|
$
|
76,623
|
|
|
$
|
—
|
|
|
$
|
76,623
|
|
|
Total Non-Amortized Intangibles
|
$
|
76,623
|
|
|
$
|
—
|
|
|
$
|
76,623
|
|
|
|
|
|
|
|
|
|
Net carrying value of intangible assets
|
$
|
422,302
|
|
|
|
|
|
The table below presents estimated remaining amortization expense for intangible assets recorded as of
March 31, 2019
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
After 2023
|
|
Estimated amortization expense
|
$
|
35,597
|
|
|
$
|
43,889
|
|
|
$
|
42,143
|
|
|
$
|
37,081
|
|
|
$
|
32,509
|
|
|
$
|
154,460
|
|
(8) Segment Information
Our Chief Operating Decision Maker evaluates segment operating performance using segment operating income. Segment operating income is defined as GAAP operating income excluding intangible amortization and amortization of fair value step-ups of inventory and fixed assets from acquisitions completed subsequent to December 31, 2011, the impact of restructuring related inventory write-offs, impairment charges and special charges or gains. The Company also refers to this measure as adjusted operating income. The Company uses this measure because it helps management understand and evaluate the segments’ core operating results and facilitate comparison of performance for determining incentive compensation achievement.
We organize our reporting structure into three segments: Energy, Aerospace & Defense and Industrial.
The following table presents certain reportable segment information (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2019
|
|
April 1, 2018
|
|
Net revenues
|
|
|
|
|
Energy
|
$
|
98,417
|
|
|
$
|
99,972
|
|
|
Aerospace & Defense
|
61,240
|
|
|
58,477
|
|
|
Industrial
|
110,738
|
|
|
117,131
|
|
|
Consolidated net revenues
|
$
|
270,395
|
|
|
$
|
275,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations before income taxes
|
|
|
|
|
Energy - Segment Operating Income
|
$
|
6,783
|
|
|
$
|
5,696
|
|
|
Aerospace & Defense - Segment Operating Income
|
9,374
|
|
|
8,931
|
|
|
Industrial - Segment Operating Income
|
10,787
|
|
|
12,948
|
|
|
Corporate expenses
|
(6,705
|
)
|
|
(7,802
|
)
|
|
Subtotal
|
20,239
|
|
|
19,773
|
|
|
Restructuring charges, net
|
863
|
|
|
9,615
|
|
|
Special (recoveries) charges, net
|
(8,679
|
)
|
|
2,831
|
|
|
Special and restructuring (recoveries) charges, net
|
(7,816
|
)
|
|
12,446
|
|
|
Restructuring related inventory charges
|
3,141
|
|
|
473
|
|
|
Amortization of inventory step-up
|
—
|
|
|
6,600
|
|
|
Acquisition amortization
|
12,079
|
|
|
11,797
|
|
|
Acquisition depreciation
|
1,123
|
|
|
1,837
|
|
|
Acquisition amortization and other costs, net
|
16,343
|
|
|
20,707
|
|
|
Consolidated Operating Income
|
11,712
|
|
|
(13,380
|
)
|
|
Interest expense, net
|
13,179
|
|
|
11,801
|
|
|
Other income, net
|
(1,913
|
)
|
|
(1,861
|
)
|
|
Income (Loss) from operations before income taxes
|
$
|
446
|
|
|
$
|
(23,320
|
)
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2019
|
|
|
April 1, 2018
|
|
|
Capital expenditures
|
|
|
|
|
Energy
|
$
|
969
|
|
|
$
|
3,345
|
|
|
Aerospace & Defense
|
788
|
|
|
944
|
|
|
Industrial
|
1,141
|
|
|
3,624
|
|
|
Corporate
|
387
|
|
|
276
|
|
|
Consolidated capital expenditures
|
$
|
3,285
|
|
|
$
|
8,189
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
Energy
|
$
|
3,325
|
|
|
$
|
4,201
|
|
|
Aerospace & Defense
|
2,673
|
|
|
2,793
|
|
|
Industrial
|
12,369
|
|
|
12,440
|
|
|
Corporate
|
142
|
|
|
229
|
|
|
Consolidated depreciation and amortization
|
$
|
18,509
|
|
|
$
|
19,663
|
|
|
|
|
|
|
|
Identifiable assets
|
March 31, 2019
|
|
April 1, 2018
|
|
Energy
|
$
|
707,813
|
|
|
$
|
976,000
|
|
|
Aerospace & Defense
|
406,064
|
|
|
348,291
|
|
|
Industrial
|
1,408,206
|
|
|
1,327,094
|
|
|
Corporate
|
(802,749
|
)
|
|
(723,278
|
)
|
|
Consolidated identifiable assets
|
$
|
1,719,334
|
|
|
$
|
1,928,107
|
|
The total assets for each reportable segment have been reported as the Identifiable Assets for that segment, including inter-segment intercompany receivables, payables and investments in other CIRCOR companies. Identifiable assets reported in Corporate include both corporate assets, such as cash, deferred taxes, prepaid and other assets, fixed assets, as well as the elimination of all inter-segment intercompany assets. The elimination of intercompany assets results in negative amounts reported in Corporate for Identifiable Assets. Corporate Identifiable Assets excluding intercompany assets were
$20.9 million
and
$17.0 million
as of
March 31, 2019
and
April 1, 2018
, respectively.
(9) Financial Instrument
Fair Value
The company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value hierarchy based on the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
|
|
|
|
•
|
Level One
: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
|
|
|
|
|
•
|
Level Two
: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
|
|
•
|
Level Three
: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The fair value measurements of the Company's financial instruments as of
March 31, 2019
are summarized in the table below:
|
|
|
|
|
|
|
|
|
Significant Other Observable Inputs
|
|
|
Level 2
|
|
Derivatives
|
$
|
(4,103
|
)
|
The carrying amounts of cash and cash equivalents, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments. Cash equivalents are carried at cost which approximates fair value at the balance sheet date and is a Level 1 financial instrument. As of
March 31, 2019
and
December 31, 2018
, the outstanding balance of the Company’s debt approximated fair value based on current rates available to the Company for debt of the same maturity and is a Level 2 financial instrument.
Effective April 12, 2018, the Company entered into an interest rate swap pursuant to an International Swaps and Derivatives Association ("ISDA") Master Agreement with Citizens Bank, National Association ("interest rate swap"). The
four
-year interest rate swap has a fixed notional value of
$400.0 million
with a
1%
LIBOR floor and a maturity date of April 12, 2022. The fixed rate of interest paid by the Company is comprised of our current credit spread of
350
basis points plus
2.6475%
for a total interest rate of
6.1475%
. The ISDA Master Agreement, together with its related schedules, contain customary representations, warranties and covenants. This hedging agreement was entered into to mitigate the interest rate risk inherent in the Company’s variable rate debt and is not for speculative trading purposes.
The Company has designated the interest rate swap as a qualifying hedging instrument and is treating it as a cash flow hedge for accounting purposes pursuant to ASC 815,
Derivatives and Hedging
. The net fair value of the interest rate swap was $
4.1 million
and is recorded in other long-term liabilities of
$3.8 million
, accrued expenses and other current liabilities of
$0.9 million
, and long-term deferred tax asset of $0.6 million on our condensed consolidated balance sheet as of
March 31, 2019
. The unrealized losses recognized in other comprehensive income (loss) were $
2.1 million
for the three months ended
March 31, 2019
. The realized loss of
$0.2 million
was reclassified from other comprehensive income (loss) to interest expense as interest expense was accrued on the swap during the three months ended
March 31, 2019
. Amounts expected to be reclassified from other comprehensive income into interest expense in the coming 12 months is a loss of
$(1.0) million
. Interest expense (including the effects of the cash flow hedges) related to the portion of the Company's term loan subject to the aforementioned interest-rate swap agreement was
$6.1 million
for the three months ended
March 31, 2019
.
(10) Guarantees and Indemnification Obligations
As permitted under Delaware law, we have agreements whereby we indemnify certain of our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The term of the
indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. However, we have directors’ and officers’ liability insurance policies that insure us with respect to certain events covered under the policies and should enable us to recover a portion of any future amounts paid under the indemnification agreements. We have
no
liabilities recorded from those agreements as of
March 31, 2019
.
We record provisions for the estimated cost of product warranties, primarily from historical information, at the time product revenue is recognized. We also record provisions with respect to any significant individual warranty issues as they arise. While we engage in extensive product quality programs and processes, our warranty obligation is affected by product failure rates, utilization levels, material usage, service delivery costs incurred in correcting a product failure, and supplier warranties on parts delivered to us. Should actual product failure rates, utilization levels, material usage, service delivery costs or supplier warranties on parts differ from our estimates, revisions to the estimated warranty liability would be required.
The following table sets forth information related to our product warranty reserves for the
three
months ended
March 31, 2019
(in thousands):
|
|
|
|
|
|
|
|
Balance beginning December 31, 2018
|
$
|
4,050
|
|
|
Provisions
|
742
|
|
|
Claims settled
|
(664
|
)
|
|
Currency translation adjustment
|
(1
|
)
|
|
Balance ending March 31, 2019
|
$
|
4,127
|
|
Warranty obligations
increased
$0.1 million
from
$4.1 million
as of December 31, 2018 to
$4.1 million
as of
March 31, 2019
, primarily driven by net claims settled and quarterly provisions within our Industrial and Energy operating segments.
(11) Commitments and Contingencies
We are subject to various legal proceedings and claims pertaining to matters such as product liability or contract disputes, including issues arising under certain customer contracts with aerospace and defense customers. We are also subject to other proceedings and governmental inquiries, inspections, audits or investigations pertaining to issues such as tax matters, patents and trademarks, pricing, business practices, governmental regulations, employment and other matters. Although the results of litigation and claims cannot be predicted with certainty, we expect that the ultimate disposition of these matters, to the extent not previously provided for, will not have a material adverse effect, individually or in the aggregate, on our business, financial condition, results of operations or liquidity.
On February 21, 2018, the Company entered into a mediated settlement regarding a wage and hour action in California by a former employee. In October 2016, the plaintiff alleged non-compliance with California State labor law, including missed or late meal breaks, for hourly employees of CIRCOR Aerospace, Inc. in Corona, California. The total settlement amount of
$2.4 million
was initially recorded as a liability as of December 31, 2017. This settlement resolves all wage/hour claims by all potentially affected employees through the settlement date and was approved by the California Superior Court during 2018. The Company expects to make payment during the third quarter of 2019.
Asbestos-related product liability claims continue to be filed against two of our subsidiaries: Spence Engineering Company, Inc. (“Spence”), the stock of which we acquired in 1984; and CIRCOR Instrumentation Technologies, Inc. (f/k/a Hoke, Inc.) (“Hoke”), the stock of which we acquired in 1998. Due to the nature of the products supplied by these entities, the markets they serve and our historical experience in resolving these claims, we do not expect that these asbestos-related claims will have a material adverse effect on the financial condition, results of operations or liquidity of the Company.
Standby Letters of Credit
We execute standby letters of credit, which include bid bonds and performance bonds, in the normal course of business to ensure our performance or payments to third parties. The aggregate notional value of these instruments was
$74.4 million
at
March 31, 2019
. We believe that the likelihood of demand for a significant payment relating to the outstanding instruments is remote. These instruments generally have expiration dates ranging from less than
1 month
to
5 years
from
March 31, 2019
.
The following table contains information related to standby letters of credit instruments outstanding as of
March 31, 2019
(in thousands):
|
|
|
|
|
|
|
|
Term Remaining
|
Maximum Potential
Future Payments
|
|
0–12 months
|
$
|
54,661
|
|
|
Greater than 12 months
|
19,750
|
|
|
Total
|
$
|
74,411
|
|
(12) Retirement Plans
The following table sets forth the components of total net periodic benefit cost (income) of the Company’s defined benefit pension plans and other post-retirement employee benefit plans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31, 2019
|
|
April 1, 2018
|
|
Pension Benefits - U.S. Plans
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
1,967
|
|
|
1,762
|
|
|
Expected return on plan assets
|
(2,742
|
)
|
|
(3,771
|
)
|
|
Amortization
|
129
|
|
|
38
|
|
|
Net periodic benefit income
|
$
|
(646
|
)
|
|
$
|
(1,971
|
)
|
|
|
|
|
|
|
Pension Benefits - Non-U.S. Plans
|
|
|
|
|
Service cost
|
$
|
695
|
|
|
$
|
774
|
|
|
Interest cost
|
555
|
|
|
552
|
|
|
Expected return on plan assets
|
(247
|
)
|
|
(258
|
)
|
|
Amortization
|
5
|
|
|
—
|
|
|
Net periodic benefit cost
|
$
|
1,008
|
|
|
$
|
1,068
|
|
|
|
|
|
|
|
Other Post-Retirement Benefits
|
|
|
|
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest cost
|
93
|
|
|
86
|
|
|
Amortization
|
—
|
|
|
—
|
|
|
Net periodic benefit cost
|
$
|
93
|
|
|
$
|
86
|
|
|
|
|
As of March 31, 2019 the Company’s plan assets included $2.2 million payable to Colfax Corporation for reimbursement of 2018 pension benefits paid, expenses and investment return.
|
The periodic benefit service costs are included in the selling, general, and administrative costs, while the remaining net periodic benefit costs are included in other (income) expense, net in our condensed consolidated statements of loss for the three months ended
March 31, 2019
and
April 1, 2018
, respectively.
There were no employer contributions to the Company's U.S. and non- U.S. based pension plans during the three months ended March 31, 2019.
(13) Income Taxes
As of
March 31, 2019
and December 31, 2018, we had
$0.6 million
and
$0.6 million
of unrecognized tax benefits, respectively, of which
$0.5 million
and
$0.5 million
, respectively, would affect our effective tax rate if recognized in any future period.
The Company files income tax returns in U.S. federal, state and local jurisdictions and in foreign jurisdictions. The Company is no longer subject to examination by the Internal Revenue Service (the "IRS") for years prior to
2015
and is no longer subject to examination by the tax authorities in foreign and state jurisdictions prior to
2006
. The Company is currently under examination for income tax filings in various foreign jurisdictions.
The Company has a net U.S. deferred tax asset and a net foreign deferred tax liability. Due to uncertainties related to our ability to utilize certain foreign deferred income tax assets, we maintained a total valuation allowance of
$17.6 million
at
March 31, 2019
and $
17.6 million
at December 31, 2018. The valuation allowance is based on estimates of income in each of the jurisdictions in which we operate and the period over which our deferred tax assets will be recoverable. If future results of operations exceed our current expectations, our existing tax valuation allowances may be adjusted, resulting in future tax benefits. Alternatively, if future results of operations are less than expected, future assessments may result in a determination that some or all of the deferred tax assets are not realizable. Consequently, we may need to establish additional tax valuation allowances for all or a portion of the deferred tax assets, which may have a material adverse effect on our business, results of operations and financial condition.
(14) Share-Based Compensation
As of
March 31, 2019
, there were
732,879
stock options and
438,479
Restricted Stock Unit Awards ("RSU Awards") and Restricted Stock Unit Management Stock Plan Awards ("RSU MSPs") outstanding. In addition, there were
69,299
shares available for grant under the 2014 Stock Option and Incentive Plan (the "2014 Plan") as of
March 31, 2019
.
During the
three
months ended
March 31, 2019
, we granted
153,726
stock options compared with
127,704
stock options granted during the
three
months ended
April 1, 2018
.
The average fair value of stock options granted during the first
three
months of
2019
and
2018
was
$11.84
and
$14.68
per share, respectively, and was estimated using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
April 1, 2018
|
|
Risk-free interest rate
|
2.6
|
%
|
|
2.5
|
%
|
|
Expected life (years)
|
4.4
|
|
|
4.4
|
|
|
Expected stock volatility
|
38.1
|
%
|
|
37.2
|
%
|
|
Expected dividend yield
|
—
|
%
|
|
—
|
%
|
For additional information regarding the historical issuance of stock options, refer to Note 12 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2018
.
During the
three
months ended
March 31, 2019
and
April 1, 2018
, we granted
154,903
and
143,198
RSU Awards with approximate fair values of
$33.07
and
$42.61
per RSU Award, respectively. During the first
three
months of
2019
and
2018
, we granted performance-based RSU Awards as part of the overall mix of RSU Awards. In 2019, these performance-based RSU Awards include metrics for achieving Adjusted Operating Margin and Adjusted Free Cash Flow with target payouts ranging from
0%
to
200%
. In 2018, the performance-based RSU Awards include metrics for achieving Return on Invested Capital and Adjusted Operating Margin with the same target payout ranges. Of the
154,903
RSU Awards granted during the
three
months ended
March 31, 2019
,
26,475
are performance-based RSU Awards. This compares to
48,080
performance-based RSU Awards granted during the
three
months ended
April 1, 2018
.
RSU MSPs totaling
56,379
and
34,937
with per unit discount amounts representing fair values of
$11.10
and
$14.06
per share were granted during the
three
months ended
March 31, 2019
and
April 1, 2018
, respectively.
Compensation expense related to our share-based plans for the
three
months ended
March 31, 2019
and
April 1, 2018
was
$1.4 million
and
$1.3 million
, respectively. Compensation expense for both periods was recorded as selling, general and administrative expenses. As of
March 31, 2019
, there was
$13.5 million
of total unrecognized compensation costs related to our
outstanding share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of
2.4
years.
The weighted average contractual term for stock options outstanding and options exercisable as of
March 31, 2019
was
4.9
years and
4.0
years, respectively. The aggregate intrinsic value of stock options exercised during the
three
months ended
March 31, 2019
was
$0.0 million
and the aggregate intrinsic value of stock options outstanding and options exercisable as of
March 31, 2019
was
$0.0 million
and
$0.0 million
, respectively.
The aggregate intrinsic value of RSU Awards settled during the
three
months ended
March 31, 2019
was
$0.6 million
and the aggregate intrinsic value of RSU Awards outstanding and RSU Awards vested and deferred as of
March 31, 2019
was
$10.6 million
and
$0.2 million
, respectively.
The aggregate intrinsic value of RSU MSPs settled during the
three
months ended
March 31, 2019
was
$0.1 million
and the aggregate intrinsic value of RSU MSPs outstanding and RSU MSPs vested and deferred as of
March 31, 2019
was
$0.7 million
and less than
$0.1 million
, respectively.
International participants are issued Cash Settled Stock Unit Awards. As of
March 31, 2019
, there were
67,109
Cash Settled Stock Unit Awards outstanding compared to
50,907
as of December 31, 2018. During the
three
months ended
March 31, 2019
, the aggregate cash used to settle Cash Settled Stock Unit Awards was
$0.5 million
. As of
March 31, 2019
, we had
$0.4 million
of accrued expenses in other non-current liabilities associated with these Cash Settled Stock Unit Awards compared with
$0.6 million
as of
December 31, 2018
. Cash Settled Stock Unit Award related compensation costs for the
three
months ended
March 31, 2019
and
April 1, 2018
was
$0.4 million
and
$0.1 million
, respectively, and was recorded as selling, general, and administrative expenses.
(15) Accumulated Other Comprehensive Loss
The following table summarizes the changes in accumulated other comprehensive loss, net of tax, which is reported as a component of shareholders' equity, for the
three
months ended
March 31, 2019
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
Pension, net
|
|
Derivative
|
|
Total
|
|
Balance as of December 31, 2018
|
$
|
(49,109
|
)
|
|
$
|
(19,114
|
)
|
|
$
|
(1,516
|
)
|
|
$
|
(69,739
|
)
|
|
Other comprehensive income
|
(8,840
|
)
|
|
—
|
|
|
(2,134
|
)
|
|
(10,974
|
)
|
|
Balance as of March 31, 2019
|
$
|
(57,949
|
)
|
|
$
|
(19,114
|
)
|
$
|
1
|
|
$
|
(3,650
|
)
|
|
$
|
(80,713
|
)
|
During the first quarter of 2019, an immaterial error was identified in the Company's calculation of currency translation adjustments related to goodwill, intangible assets and property, plant and equipment acquired in the Fluid Handling acquisition. This error impacts other comprehensive income. Specifically, other comprehensive income (loss) was overstated by $5.4 and $2.2 million, respectively, for the first quarter and fiscal 2018 and was understated by $2.2 million for first quarter of 2019. The Company has determined that these adjustments were not material to the current or prior periods, or the forecasted 2019 results. The quarterly impact (in $ millions) in 2018 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
2018
|
|
Overstated (understated) comprehensive income
|
$
|
5.4
|
|
|
$
|
(5.1
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
2.1
|
|
|
$
|
2.2
|
|
(16) Earnings (Loss) Per Common Share ("EPS")
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
Three Months Ended
|
|
|
March 31, 2019
|
|
April 1, 2018
|
|
|
Net
Income
|
|
Shares
|
|
Per Share
Amount
|
|
Net
Income
|
|
Shares
|
|
Per Share
Amount
|
|
Basic EPS
|
$
|
(4,633
|
)
|
|
19,870
|
|
|
$
|
(0.23
|
)
|
|
$
|
(17,441
|
)
|
|
19,806
|
|
|
$
|
(0.88
|
)
|
|
Dilutive securities, common stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Diluted EPS
|
$
|
(4,633
|
)
|
|
19,870
|
|
|
$
|
(0.23
|
)
|
|
$
|
(17,441
|
)
|
|
19,806
|
|
|
$
|
(0.88
|
)
|
Stock options, RSU Awards, and RSU MSPs covering
901,098
and
126,926
shares of common stock, for the
three
months ended
March 31, 2019
and
April 1, 2018
, respectively, were not included in the computation of diluted EPS because their effect would be anti-dilutive.