| Significant Accounting Policies Update | SIGNIFICANT ACCOUNTING POLICIES UPDATE The Company's significant accounting policies are detailed in "Note 1 - Summary of Significant Accounting Policies" of its Annual Report on Form 10-K for the year-ended December 31, 2017. Significant changes to the Company's accounting policies as a result of adopting new accounting standards are discussed below: Revenue Recognition Under ASC 606, the amount of revenue recognized for any goods or services reflects the consideration that the Company expects to be entitled to receive in exchange for these goods or services. To achieve this core principle, the Company applies the following five step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as a performance obligation is satisfied. 3. SIGNIFICANT ACCOUNTING POLICIES UPDATE (CONTINUED) Revenue Recognition - continued A contract is accounted for when there has been 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. Performance obligations under a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct and are distinct in the context of the contract. In certain instances, the Company has concluded distinct goods or services should be accounted for as a single performance obligation when they are a series of distinct goods or services that have the same pattern of transfer to the customer. To the extent a contract includes multiple promised goods or services, the Company must apply judgment to determine whether the customer can benefit from the goods or services either on their own or together with other resources that are readily available to the customer (the goods or services are distinct) and if the promise to transfer the goods or services to the customer is separately identifiable from other promises in the contract (the goods or services are distinct in the context of the contract). If these criteria are not met, the promised services are accounted for as a single performance obligation. The transaction price is determined based on the consideration that the Company will be entitled to in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price, generally utilizing the expected value method. Determining the transaction price requires significant judgment. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. Standalone selling price is determined by the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price by taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. Performance obligations are satisfied either over time or at a point in time as discussed in further detail below. In addition, the Company's contracts with customers generally do not include significant financing components or non-cash consideration. In certain instances, the Company has accounted for contracts using the portfolio approach, a practical expedient permissible under the standard. The determination of when the use of the portfolio approach is appropriate requires judgment from management based on consideration of all the facts and circumstances. The Company uses the portfolio approach when the effect of accounting for a group of contracts or a group of performance obligations would not differ materially from considering each contract or performance obligation separately. This determination requires the use of estimates and assumptions that reflect the size and composition of the portfolio. The Company primarily uses the portfolio approach within its over time revenue streams throughout the Distribution segment as well as for its commercial and defense bearings and structures businesses in the Aerospace segment. The Company's primary criteria considered when using the portfolio approach is the commonality of economic factors, which generally follow the product type based on consistent production costs and standard pricing for the products. Distribution segment The Distribution segment has historically recognized the majority of its revenue when the sales price was fixed, collectability was reasonably assured and the product's title and risk of loss had transferred to the customer. This method of revenue recognition remains substantially the same as revenue will be recognized at the point in time when title transfers to the customer, as this is when the performance obligations are generally controlled by the customer. A small percentage of revenue within the Distribution segment, specifically certain contracts for value-add services, engineering services and repairs, are accounted for over time under ASC 606. For the over time contracts within the Distribution segment, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the cost-to-cost measure of progress for its contracts because it best depicts the transfer of assets to the customer which occurs as cost is incurred under the contracts. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The Company performs detailed quarterly reviews of the progress and execution of its performance obligations under certain larger contracts. As part of this process, management reviews information, primarily its estimated costs at completion and costs incurred to date by its vendors as a majority of production costs at the segment are incurred by third party vendors. These estimated costs are included in the calculation of the measures of progress towards completion. 3. SIGNIFICANT ACCOUNTING POLICIES UPDATE (CONTINUED) Revenue Recognition - continued Distribution segment - continued Additionally, the Company includes freight costs charged to customers in net sales and the correlating expense as a cost of sales. Sales tax collected from customers is excluded from net sales in the Company's Condensed Consolidated Statements of Operations. Aerospace segment The majority of long-term contracts in the Aerospace segment were historically accounted for under the percentage-of-completion method using units-of-delivery as a measurement basis. Many of these contracts moved to an over time revenue model under ASC 606. For example, revenue for the Company's Joint Programmable Fuze ("JPF") program with the U.S. Government ("USG") moved from percentage-of-completion using units-of-delivery as the measurement basis to the over time revenue recognition model using input costs as the basis for recognizing progress to completion. Conversely, revenue for the K-MAX® program moved from cost-to-cost revenue recognition under percentage-of-completion accounting to the point-in-time method, with revenue on these aircraft being recognized upon delivery to the end customer. For certain programs, early-contract unit costs in excess of the average expected cost over the life of the contract and general and administrative costs were previously capitalized and amortized over the period of performance of the contract. With the adoption of this standard update, $32.5 million of previously capitalized deferred costs in excess of the contract average and previously contractually recoverable general and administrative costs were adjusted within the cumulative effect to retained earnings and will not be amortized into earnings after January 1, 2018. To determine the appropriate revenue recognition model for the Aerospace segment's long-term contracts, the Company evaluates whether a contract exists, considering whether multiple contracts should be combined as one single contract and then whether the contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment, as these decisions could change the amount of revenue and profit recorded in a given period. For certain programs, the Company may promise to provide distinct goods or services within a contract, in which case these are separated into more than one performance obligation. For certain programs in the Aerospace segment, the Company recognizes revenue over time because of continuous transfer of control to the customer. For USG contracts, this continuous transfer of control to the customer is supported by clauses in the contract that provide lien rights to the customer over the work in progress, thereby control transfers as costs are incurred. For non-USG contracts, the customer typically controls the work in progress because the Company is producing products that do not have an alternative use to the Company and where contractual termination clauses provide the Company rights to payment for work performed to date plus a reasonable profit. Revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company generally uses the cost-to-cost measure of progress for its contracts because it best depicts the transfer of assets to the customer which occurs as cost is incurred under the contracts. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. Total estimated contract costs generally include labor, materials and subcontractors’ costs, other direct costs and related overhead costs. These estimates also include the estimated cost of satisfying offset obligations, as required under certain contracts. The complexity of certain programs as well as technical risks and uncertainty as to the future availability of materials and labor resources could affect the Company’s ability to accurately estimate future contract costs. 3. SIGNIFICANT ACCOUNTING POLICIES UPDATE (CONTINUED) Revenue Recognition - continued Aerospace segment - continued For contracts that recognize revenue over time, the Company performs detailed quarterly reviews of the progress and execution of its performance obligations under these contracts. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management's judgment about the ability and cost to achieve the schedule (e.g. the number and type of milestone events), technical requirements (e.g., a newly-developed product versus a mature product) and other contract requirements. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g. to estimate increases in wages and prices for materials and related support cost allocations), execution by subcontractors, the availability and timing of funding from customers and overhead cost rates, among other variables. Based upon these reviews, the Company will record the effects of adjustments in profit estimates each period. If at any time management determines that in the case of a particular contract total costs will exceed total contract revenue, a provision for the entire anticipated contract loss is recorded at that time. The amount of revenue recognized in the three-month and nine-month fiscal periods ended September 28, 2018 from performance obligations satisfied (or partially satisfied) in previous periods was $1.8 million and $4.8 million , respectively. These amounts were primarily related to changes in the estimates of the stage of completion of Aerospace contracts, more specifically the JPF contract with the USG and the AH-1Z contract. For the three-month and nine-month fiscal periods ended September 29, 2017 , there were net increases in the Company's operating income attributable to changes in contract estimates of $1.1 million and $3.2 million , respectively. These increases were primarily a result of improved performance on the JPF USG Program, the AH-1Z program and the SH-2G program with Peru. These improvements were partially offset by cost growth on the K-MAX® and A-10 programs. Due to the nature of the work required to be performed on many of the Company's performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. From time-to-time the Company enters into long-term contracts with the USG that contain award fees, incentive fees or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. The Company estimates variable consideration at the most likely amount to which it expects to be entitled. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company's anticipated performance and all information (historical, current and forecasted) that is reasonably available. The Company does not include financing components as variable consideration if less than one year. At September 28, 2018 , the Company did not have any significant financing components. Contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract modifications to exist when the modification either creates new or makes changes to 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. In these cases, the effect of the contract modification on the transaction price and the measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis, except when such modifications relate to a performance obligation that is a series of substantially the same distinct goods or services. If the modification relates to a performance obligation for a series of substantially the same distinct goods or services, the modification is treated prospectively. Contract modifications for goods or services that are considered distinct from the existing contract are accounted for as separate contracts. The Company applied the practical expedient for any contracts that were modified prior to January 1, 2018; therefore, the contracts were not restated retrospectively for those modifications. For other contracts within the Aerospace segment, excluding the long-term contracts discussed above, the method of revenue recognition will remain substantially the same under ASC 606. For these contracts, revenue will be primarily recognized at the point in time when the title transfers to the customer, as this is when the performance obligation is controlled by the customer. Additionally, a small percentage of revenue related to certain contracts for repairs and overhauls within the Aerospace segment is accounted for over time under ASC 606. Under these contracts, revenue is generally recognized as work is performed in proportion to the actual costs incurred as compared to total estimated contract costs. 3. SIGNIFICANT ACCOUNTING POLICIES UPDATE (CONTINUED) Revenue Recognition - continued The cumulative effect of the changes made to the Company's Consolidated Balance Sheets as of January 1, 2018 as a result of the adoption of ASC 606 was as follows: Balance at Balance at in thousands December 31, 2017 Adjustments due to ASC 606 January 1, Assets Accounts receivable, net $ 313,451 $ (29,242 ) $ 284,209 Contract assets — 82,699 82,699 Contract costs, current portion — 3,022 3,022 Inventories 367,437 (73,674 ) 293,763 Other current assets 27,188 33 27,221 Deferred income taxes 27,603 4,170 31,773 Contract costs, noncurrent portion — 7,852 7,852 Liabilities Accounts payable - trade $ 127,591 $ 1,068 $ 128,659 Contract liabilities, current portion — 10,705 10,705 Advances on contracts 8,527 (8,527 ) — Other current liabilities 52,812 (1,016 ) 51,796 Income taxes payable 1,517 1,525 3,042 Contract liabilities, noncurrent portion — 689 689 Equity Retained earnings $ 587,877 $ (9,584 ) $ 578,293 The reduction to retained earnings of $9.6 million in the cumulative effect adjustment on January 1, 2018 primarily reflects the reduction of $32.5 million in costs previously capitalized in inventory, which included deferred unit costs in excess of the contract average and previously capitalized general and administrative costs, partially offset by the acceleration of net sales of $62.3 million and associated gross profit of $20.2 million for deliveries that would have occurred in 2018, but are now recognized over time as costs are incurred. 3. SIGNIFICANT ACCOUNTING POLICIES UPDATE (CONTINUED) Revenue Recognition - continued The following tables summarize the impacts of ASC 606 on the Company's condensed consolidated financial statements. September 28, 2018 As reported Adjustments Balances without adoption of ASC 606 In thousands Assets Accounts receivable, net $ 235,682 $ 20,453 $ 256,135 Contract assets 128,039 (128,039 ) — Contract costs, current portion 5,296 (5,296 ) — Inventories 303,145 118,777 421,922 Income tax refunds receivable 4,157 5,643 9,800 Other current assets 35,411 (182 ) 35,229 Deferred income taxes 21,026 (4,567 ) 16,459 Contract costs, noncurrent portion 12,124 (12,124 ) — Liabilities Accounts payable - trade $ 136,030 $ (1,563 ) $ 134,467 Contract liabilities, current portion 21,284 (21,284 ) — Advances on contracts, current portion — 19,025 19,025 Other current liabilities 59,466 561 60,027 Deferred income taxes 7,218 — 7,218 Contract liabilities, noncurrent portion 85,044 (85,044 ) — Advances on contracts, noncurrent portion — 85,044 85,044 Equity Retained earnings $ 592,103 $ (2,074 ) $ 590,029 For the nine-month fiscal period ended September 28, 2018 , the Company realized changes of asset and liability accounts as described above, with no impact to the Company's cash flows from operating activities. 3. SIGNIFICANT ACCOUNTING POLICIES UPDATE (CONTINUED) Revenue Recognition - continued For the Three Months Ended September 28, 2018 As reported Adjustments Balances without adoption of ASC 606 In thousands Net sales $ 443,058 $ (10,780 ) $ 432,278 Cost of sales 314,500 (5,856 ) 308,644 Gross profit 128,558 (4,924 ) 123,634 Selling, general and administrative expenses 110,246 (2,369 ) 107,877 Other intangible assets impairment 10,039 — 10,039 Restructuring costs 1,657 — 1,657 Net gain on sale of assets (640 ) — (640 ) Operating income 7,256 (2,555 ) 4,701 Interest expense, net 5,085 — 5,085 Non-service pension and post retirement benefit cost (income) (2,975 ) — (2,975 ) Other expense (income), net (179 ) — (179 ) Earnings before income taxes 5,325 (2,555 ) 2,770 Income tax expense 3,893 (607 ) 3,286 Net earnings $ 1,432 $ (1,948 ) $ (516 ) For the Nine Months Ended September 28, 2018 As reported Adjustments Balances without adoption of ASC 606 In thousands Net sales $ 1,374,514 $ (72,754 ) $ 1,301,760 Cost of sales 976,206 (52,484 ) 923,722 Gross profit 398,308 (20,270 ) 378,038 Selling, general and administrative expenses 336,338 (4,890 ) 331,448 Other intangible assets impairment 10,039 — 10,039 Restructuring costs 5,304 — 5,304 Net gain on sale of assets (2,228 ) — (2,228 ) Operating income 48,855 (15,380 ) 33,475 Interest expense, net 15,439 — 15,439 Non-service pension and post retirement benefit cost (income) (9,043 ) — (9,043 ) Other expense (income), net (160 ) — (160 ) Earnings before income taxes 42,619 (15,380 ) 27,239 Income tax expense 12,027 (3,721 ) 8,306 Net earnings $ 30,592 $ (11,659 ) $ 18,933 For the three-month and nine-month fiscal periods ended September 28, 2018 , the only adjustments to comprehensive income when comparing the balances with ASC 606 and the balances without ASC 606 included the adjustments to net earnings presented above. 3. SIGNIFICANT ACCOUNTING POLICIES UPDATE (CONTINUED) Accounts Receivable The Company's receivables, net, consist of amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts, which reflects management’s best estimate of probable losses inherent in the trade accounts receivable and billed contracts balance. Management determines the allowance based on known troubled accounts, historical experience and other currently available evidence. Contract Assets The Company's contract assets include unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is applied and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts do not exceed their net realizable value. Contract assets are generally classified as current as such amounts are billable and collectible within twelve months. Contract Costs Contract costs consist of costs to obtain and fulfill a contract. Costs to fulfill a contract primarily consist of nonrecurring engineering costs incurred at the start of a new program for which such costs are expected to be recovered under existing and future contracts. Such costs are amortized over the estimated revenue amount of the contract. Costs to obtain a contract consist of commissions and agent fees paid in connection with the award of a contract. If these costs are determined to have an amortization period of less than one year, the Company applies the practical expedient and the related costs are expensed as incurred. If the amortization period is determined to be greater than a year and the incremental costs to obtaining the contract qualify as an asset, then the contract costs are recorded and amortized over the estimated contract revenue. At September 28, 2018 , costs to fulfill a contract and costs to obtain a contract were $9.6 million and $7.8 million , respectively. These amounts are included in contract costs, current portion and contract costs, noncurrent portion on the Company's Condensed Consolidated Balance Sheets at September 28, 2018 . Contract Liabilities The Company's contract liabilities consist of advance payments and billings in excess of revenue recognized and deferred revenue. Advance payments and billings in excess of revenue recognized are classified as current or noncurrent based on the timing of when recognition of revenue is expected. At September 28, 2018 , the noncurrent portion of contract liabilities was $85.0 million , which is included in contract liabilities, noncurrent portion in the Company's Condensed Consolidated Balance Sheets. Unfulfilled Performance Obligations Unfulfilled performance obligations ("backlog") represents the transaction price of firm orders for which work has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts. As of September 28, 2018 , the aggregate amount of the transaction price allocated to backlog was $1.0 billion . The Company expects to recognize revenue on approximately $612.9 million of this amount over the next 12 months, with the remaining amount to be recognized thereafter. Pension The Company accounts for its defined benefit pension plan by recognizing the overfunded or underfunded status of the plan, calculated as the difference between the plan assets and the projected benefit obligation, as an asset or liability on the balance sheet, with changes in the funded status recognized in comprehensive income in the year in which they occur. Expenses and liabilities associated with the plan are determined based upon actuarial valuations. Integral to the actuarial valuations are a variety of assumptions including expected return on plan assets and discount rate. The Company regularly reviews the assumptions, which are updated at the measurement date, December 31 st . The impact of differences between actual results and the assumptions are accumulated and generally amortized over future periods, which will affect expense recognized in future periods. The service cost component of net benefit cost is recorded in cost of sales and selling, general and administrative expenses separately from the other components of net benefit cost, which are recorded to non-service pension and postretirement benefit cost (income). See Note 12, Pension Plans , for further information. 3. SIGNIFICANT ACCOUNTING POLICIES UPDATE (CONTINUED) Pension - continued The following tables summarize the impacts of the adoption of ASU 2017-07 on the Company's Condensed Statement of Operations and segment operating income. For the Three Months Ended September 29, 2017 As previously reported Adjustments As adjusted In thousands Cost of sales $ 308,111 $ 470 $ 308,581 Gross profit 138,935 (470 ) 138,465 Selling, general and administrative expenses 106,349 148 106,497 Operating income 30,298 (618 ) 29,680 Non-service pension and post retirement benefit cost (income) — (618 ) (618 ) Segment operating income Distribution $ 13,369 $ (277 ) $ 13,092 Aerospace 31,877 (559 ) 31,318 Corporate expenses (15,160 ) 218 (14,942 ) For the Nine Months Ended September 29, 2017 As previously reported Adjustments As adjusted In thousands Cost of sales $ 933,279 $ 1,410 $ 934,689 Gross profit 398,714 (1,410 ) 397,304 Selling, general and administrative expenses 324,533 793 325,326 Operating income 71,898 (2,203 ) 69,695 Non-service pension and post retirement benefit cost (income) — (2,203 ) (2,203 ) Segment operating income Distribution $ 40,997 $ (832 ) $ 40,165 Aerospace 74,736 (1,676 ) 73,060 Corporate expenses (44,052 ) 305 (43,747 ) |
