Nature Of Operations And Significant Accounting Policies (Policy)

12 Months Ended

Dec. 31, 2017

Use of Estimates. These accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results may differ from those estimated. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the financial statements in the period in which they are determined to be necessary. Estimates are used when accounting for such items as asset valuations, allowance for doubtful accounts, depreciation and amortization, impairment assessments, reserve for excess and obsolete inventory, reserve for warranty provision, restructuring provisions, employee benefits, taxes, asbestos liability and related insurance receivable, environmental liability and contingencies.

Currency Translation

urrency Translation. Assets and liabilities of subsidiaries that prepare financial statements in currencies other than the U.S. dollar are translated at the rate of exchange in effect on the balance sheet date; results of operations are translated at the monthly average rates of exchange prevailing during the year. The related translation adjustments are included in accumulated other comprehensive income (loss) in a separate component of equity.

Revenue Recognition

Revenue Recognition. Revenue is recorded when title (risk of loss) passes to the customer and collection of the resulting receivable is reasonably assured. Revenue on long-term, fixed-price contracts is recorded on a percentage of completion basis using units of delivery as the measurement basis for progress toward completion. Sales under cost reimbursement type contracts are recorded as costs are incurred.

Cost Of Goods Sold

Cost of Goods Sold. Cost of goods sold includes the costs of inventory sold and the related purchase and distribution costs. In addition to material, labor and direct overhead and inventoried cost, cost of goods sold include allocations of other expenses that are part of the production process, such as inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, amortization of production related intangible assets and depreciation expense. The Company also includes costs directly associated with products sold, such as warranty provisions.

Selling, General And Administrative Expenses

Selling, General and Administrative Expenses. Selling, general and administrative expenses are charged to income as incurred. Such expenses include the costs of promoting and selling products and include such items as compensation, advertising, sales commissions and travel. Also included are costs related to compensation for other operating activities such as executive office administrative and engineering functions, as well as general operating expenses such as office supplies, non-income taxes, insurance and office equipment rentals.

Income Taxes

Income Taxes. The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) Topic 740 “Income Taxes” (“ASC 740”) which requires an asset and liability approach for the financial accounting and reporting of income taxes. Under this method, deferred income taxes are recognized for the expected future tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. These balances are measured using the enacted tax rates expected to apply in the year(s) in which these temporary differences are expected to reverse. The effect of a change in tax rates on deferred income taxes is recognized in income in the period when the change is enacted.

Based on consideration of all available evidence regarding their utilization, the Company records net deferred tax assets to the extent that it is more likely than not that they will be realized. Where, based on the weight of all available evidence, it is more likely than not that some amount of a deferred tax asset will not be realized, the Company establishes a valuation allowance for the amount that, in management's judgment, is sufficient to reduce the deferred tax asset to an amount that is more likely than not to be realized. The evidence the Company considers in reaching such conclusions includes, but is not limited to, (1) future reversals of existing taxable temporary differences, (2) future taxable income exclusive of reversing taxable temporary differences, (3) taxable income in prior carryback year(s) if carryback is permitted under the tax law, (4) cumulative losses in recent years, (5) a history of tax losses or credit carryforwards expiring unused, (6) a carryback or carryforward period that is so brief it limits realization of tax benefits, and (7) a strong earnings history exclusive of the loss that created the carryforward and support showing that the loss is an aberration rather than a continuing condition.

The Company accounts for unrecognized tax benefits in accordance with ASC 740, which prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized. The minimum threshold is defined as a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation, based solely on the technical merits of the position. The tax benefit recognized is the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line of its Consolidated Statement of Operations, while accrued interest and penalties are included within the related tax liability line of its Consolidated Balance Sheets.

Earnings Per Share

Earnings Per Share. The Company’s basic earnings per share calculations are based on the weighted average number of common shares outstanding during the year. Shares of restricted stock are included in the computation of both basic and diluted earnings per share. Potentially dilutive securities include outstanding stock options, restricted share units, deferred stock units and performance-based restricted share units. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury method. Diluted earnings per share gives effect to all potential dilutive common shares outstanding during the year.

Cash And Cash Equivalents

Cash and Cash Equivalents. Cash and cash equivalents include highly liquid investments with original maturities of three months or less that are readily convertible to cash and are not subject to significant risk from fluctuations in interest rates. As a result, the carrying amount of cash and cash equivalents approximates fair value.

Accounts Receivable

Accounts Receivable. Receivables are carried at net realizable value.

A summary of allowance for doubtful accounts activity follows:



(in millions) December 31,	2017			2016			2015
Balance at beginning of year	$	7.3		$	4.7		$	4.9
Provisions	2.2			6.1			3.0
Deductions	(2.3		)	(3.5		)	(3.2		)
Balance at end of year	$	7.2		$	7.3		$	4.7

Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers and relatively small account balances within the majority of the Company’s customer base and their dispersion across different businesses. The Company periodically evaluates the financial strength of its customers and believes that its credit risk exposure is limited.

Inventories

Inventories. Inventories consist of the following:



(in millions) December 31,	2017		2016
Finished goods	$	101.1	$	97.7
Finished parts and subassemblies	46.1		38.2
Work in process	51.6		56.0
Raw materials	150.5		150.6
Total inventories	$	349.3	$	342.5

Inventories include the costs of material, labor and overhead and are stated at the lower of cost or market. Domestic inventories are stated at either the lower of cost or net realizable value using the last-in, first-out (“LIFO”) method or the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. Inventories held in foreign locations are primarily stated at the lower of cost or market using the FIFO method. The LIFO method is not being used at the Company’s foreign locations as such a method is not allowable for tax purposes. Changes in the levels of LIFO inventories have increased cost of sales by $0.4 million, reduced cost of sales by $1.8 million and reduced cost of sales by $1.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. The portion of inventories costed using the LIFO method was 32% and 34% of consolidated inventories as of December 31, 2017 and 2016, respectively. If inventories that were valued using the LIFO method had been valued under the FIFO method, they would have been higher by $13.6 million and $13.3 million as of December 31, 2017 and 2016, respectively.

Property, Plant And Equipment

Property, Plant and Equipment, net. Property, plant and equipment, net consist of the following:



(in millions) December 31,	2017		2016
Land	$	62.7	$	66.6
Buildings and improvements	183.4		193.5
Machinery and equipment	593.3		566.8
Gross property, plant and equipment	839.4		826.9
Less: accumulated depreciation	557.0		548.0
Property, plant and equipment, net	$	282.4	$	278.9

Property, plant and equipment are stated at cost and depreciation is calculated by the straight-line method over the estimated useful lives of the respective assets, which range from 10 to 25 years for buildings and improvements and three to ten years for machinery and equipment. Depreciation expense was $41.0 million, $40.2 million and $39.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Goodwill And Intangible Assets

Goodwill and Intangible Assets. The Company’s business acquisitions have typically resulted in the recognition of goodwill and other intangible assets. The Company follows the provisions under ASC Topic 350, “Intangibles – Goodwill and Other” (“ASC 350”) as it relates to the accounting for goodwill in the Consolidated Financial Statements. These provisions require that the Company, on at least an annual basis, evaluate the fair value of the reporting units to which goodwill is assigned and attributed and compare that fair value to the carrying value of the reporting unit to determine if an impairment has occurred. The Company performs its annual impairment testing during the fourth quarter. Impairment testing takes place more often than annually if events or circumstances indicate a change in status that would indicate a potential impairment. The Company believes that there have been no events or circumstances which would more likely than not reduce the fair value for its reporting units below its carrying value. A reporting unit is an operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment (a “component”), in which case the component would be the reporting unit. As of December 31, 2017, the Company had seven reporting units.

When performing its annual impairment assessment, the Company compares the fair value of each of its reporting units to its respective carrying value. Goodwill is considered to be potentially impaired when the net book value of the reporting unit exceeds its estimated fair value. Fair values are established primarily by discounting estimated future cash flows at an estimated cost of capital which varies for each reporting unit and which, as of the Company’s most recent annual impairment assessment, ranged between 10.0% and 13.0% (a weighted average of 11.0%), reflecting the respective inherent business risk of each of the reporting units tested. This methodology for valuing the Company’s reporting units (commonly referred to as the Income Method) has not changed since the adoption of the provisions under ASC 350. The determination of discounted cash flows is based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year. The revenue growth rates included in the forecasts represent best estimates based on current and forecasted market conditions. Profit margin assumptions are projected by each reporting unit based on the current cost structure and anticipated net cost increases/reductions. There are inherent uncertainties related to these assumptions, including changes in market conditions, and management judgment is necessary in applying them to the analysis of goodwill impairment. In addition to the foregoing, for each reporting unit, market multiples are used to corroborate its discounted cash flow results where fair value is estimated based on earnings multiples determined by available public information of comparable businesses. While the Company believes it has made reasonable estimates and assumptions to calculate the fair value of its reporting units, it is possible a material change could occur. If actual results are not consistent with management’s estimates and assumptions, goodwill and other intangible assets may then be determined to be overstated and a charge would need to be taken against net earnings. Furthermore, in order to evaluate the sensitivity of the fair value calculations on the goodwill impairment test performed during the fourth quarter of 2017, the Company applied a hypothetical, reasonably possible 10% decrease to the fair values of each reporting unit. The effects of this hypothetical 10% decrease would still result in the fair value calculation exceeding the carrying value for each reporting unit. No impairment charges have been required during 2017, 2016 or 2015.

Changes to goodwill are as follows:



(in millions)	Fluid Handling			Payment & Merchandising Technologies			Aerospace & Electronics			Engineered Materials			Total
Balance as of December 31, 2015	$	218.7		$	575.2		$	202.6		$	171.4		$	1,167.9
Currency translation	(6.4		)	(11.9		)	(0.3		)	(0.1		)	(18.7		)
Balance at December 31, 2016	$	212.3		$	563.3		$	202.3		$	171.3		$	1,149.2
Additions	22.6			8.9			—			—			31.5
Currency translation	10.5			15.5			0.1			0.1			26.2
Balance as of December 31, 2017	$	245.4		$	587.7		$	202.4		$	171.4		$	1,206.9

For the year ended December 31, 2017, additions to goodwill represent the purchase price allocation related to the April 2017 acquisition of Westlock and the June 2017 acquisition of Microtronic. See discussion in Note 2, "Acquisitions and Divestitures" for further details.

As of December 31, 2017, the Company had $276.8 million of net intangible assets, of which $28.7 million were intangibles with indefinite useful lives, consisting of trade names. Intangibles with indefinite useful lives are tested annually for impairment, or when events or changes in circumstances indicate the potential for impairment. If the carrying amount of an indefinite lived intangible asset exceeds its fair value, the intangible asset is written down to its fair value. Fair value is calculated using relief from royalty method. The Company amortizes the cost of definite-lived intangibles over their estimated useful lives.

In addition to annual testing for impairment of indefinite-lived intangible assets, the Company reviews all of its definite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Examples of events or changes in circumstances could include, but are not limited to, a prolonged economic downturn, current period operating or cash flow losses combined with a history of losses or a forecast of continuing losses associated with the use of an asset or asset group, or a current expectation that an asset or asset group will be sold or disposed of before the end of its previously estimated useful life. Recoverability is based upon projections of anticipated future undiscounted cash flows associated with the use and eventual disposal of the definite-lived intangible asset (or asset group), as well as specific appraisal in certain instances. Reviews occur at the lowest level for which identifiable cash flows are largely independent of cash flows associated with other long-lived assets or asset groups and include estimated future revenues, gross profit margins, operating profit margins and capital expenditures which are based on the businesses’ strategic plans and long-range planning forecasts, which change from year to year. The revenue growth rates included in the forecasts represent the Company's best estimates based on current and forecasted market conditions, and the profit margin assumptions are based on the current cost structure and anticipated net cost increases/reductions. There are inherent uncertainties related to these assumptions, including changes in market conditions, and management’s judgment in applying them to the analysis. If the future undiscounted cash flows are less than the carrying value, then the definite-lived intangible asset is considered impaired and a charge would be taken against net earnings based on the amount by which the carrying amount exceeds the estimated recoverable amount. Judgments that the Company makes which impact these assessments relate to the expected useful lives of definite-lived assets and its ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets, and are affected primarily by changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows. Since judgment is involved in determining the recoverable amount of definite-lived intangible assets, there is risk that the carrying value of the Company's definite-lived intangible assets may require adjustment in future periods. Historical results to date have generally approximated expected cash flows for the identifiable cash flow generating level. The Company believes there have been no events or circumstances which would more likely than not reduce the fair value of its indefinite-lived or definite-lived intangible assets below their carrying value.

Changes to intangible assets are as follows:



(in millions) December 31,	2017			2016			2015
Balance at beginning of period, net of accumulated amortization	$	282.2		$	317.1		$	353.5
Additions	18.2			—			—
Amortization expense	(30.9		)	(30.7		)	(31.5		)
Currency translation and other	7.3			(4.2		)	(4.9		)
Balance at end of period, net of accumulated amortization	$	276.8		$	282.2		$	317.1

For the year ended December 31, 2017, additions to intangible assets represent the purchase price allocation related to the April 2017 acquisition of Westlock and the June 2017 acquisition of Microtronic. See discussion in Note 2, "Acquisitions and Divestitures" for further details.

A summary of intangible assets follows:



(in millions)	Weighted Average Amortization Period of Finite Lived Assets (in years)	December 31, 2017						December 31, 2016
(in millions)		Gross Asset		Accumulated Amortization		Net		Gross Asset		Accumulated Amortization		Net
Intellectual property rights	15.8	$	91.7	$	54.8	$	36.9	$	86.4	$	52.1	$	34.3
Customer relationships and backlog	15.6	414.7		183.4		231.3		388.9		153.4		235.5
Drawings	37.9	11.1		10.4		0.7		11.1		10.3		0.8
Other	13.0	61.8		53.9		7.9		60.3		48.7		11.6
Total	15.8	$	579.3	$	302.5	$	276.8	$	546.7	$	264.5	$	282.2

Future amortization expense associated with intangibles is expected to be:



Year	(in millions)
2018	$	28.9
2019	26.2
2020	22.0
2021	19.6
2022 and after	151.4

Valuation of Long

Valuation Of Long-Lived Assets

Valuation of Long-Lived Assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Examples of events or changes in circumstances could include, but are not limited to, a prolonged economic downturn, current period operating or cash flow losses combined with a history of losses or a forecast of continuing losses associated with the use of an asset or asset group, or a current expectation that an asset or asset group will be sold or disposed of before the end of its previously estimated useful life. Recoverability is based upon projections of anticipated future undiscounted cash flows associated with the use and eventual disposal of the long-lived asset (or asset group), as well as specific appraisal in certain instances. Reviews occur at the lowest level for which identifiable cash flows are largely independent of cash flows associated with other long-lived assets or asset groups. If the future undiscounted cash flows are less than the carrying value, then the long-lived asset is considered impaired and a loss is recognized based on the amount by which the carrying amount exceeds the estimated recoverable amount. Judgments that the Company makes which impact these assessments relate to the expected useful lives of long-lived assets and its ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets, and are affected primarily by changes in the expected use of the assets, changes in technology or development of alternative assets, changes in economic conditions, changes in operating performance and changes in expected future cash flows. Since judgment is involved in determining the recoverable amount of long-lived assets, there is risk that the carrying value of the Company's long-lived assets may require adjustment in future periods.

Financial Instruments

Financial Instruments. The Company does not hold or issue derivative financial instruments for trading or speculative purposes. The Company periodically uses forward foreign exchange contracts as economic hedges of anticipated transactions and firm purchase and sale commitments. These contracts are marked to fair value on a current basis and the respective gains and losses are recognized in other income (expense). The Company also periodically enters into interest-rate swap agreements to moderate its exposure to interest rate changes. Interest-rate swaps are agreements to exchange fixed and variable rate payments based on the notional principal amounts. The changes in the fair value of these derivatives are recognized in other comprehensive income (loss) for qualifying cash flow hedges.

Accumulated Other Comprehensive Income (Loss)

The tables below provide the accumulated balances for each classification of accumulated other comprehensive loss, as reflected on the Consolidated Balance Sheets.



	(in millions)	Defined Benefit Pension and Other Postretirement Items*			Currency Translation Adjustment			Total

Balance as of December 31, 2016		$	(301.3	)	$	(174.8	)	$	(476.1	)
	Other comprehensive (loss) income before reclassifications	—			86.8			86.8
	Amounts reclassified from accumulated other comprehensive income (loss)	9.2			—			9.2
Net period other comprehensive (loss) income		9.2			86.8			96.0
Balance as of December 31, 2017		$	(292.1	)	$	(88.0	)	$	(380.1	)



	(in millions)	Defined Benefit Pension and Other Postretirement Items*			Currency Translation Adjustment			Total

Balance as of December 31, 2015		$	(266.2	)	$	(110.6	)	$	(376.7	)
	Other comprehensive loss before reclassifications	(42.3		)	(64.2		)	(106.5		)
	Amounts reclassified from accumulated other comprehensive income (loss)	7.1			—			7.1
Net period other comprehensive loss		(35.2		)	(64.2		)	(99.4		)
Balance as of December 31, 2016		$	(301.3	)	$	(174.8	)	$	(476.1	)

* Net of tax benefit of $115.8, $119.8 and $109.8 for 2017, 2016, and 2015, respectively.

The table below illustrates the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the years ended December 31, 2017 and 2016.



Details of Accumulated Other Comprehensive Loss Components (in millions)	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in the Statements of Operations
December 31,	2017			2016
Amortization of defined benefit pension items:
Prior-service costs	$	(0.6	)	$	(0.6	)	($0.8) has been recorded within Cost of Sales for each of the years ended December 31, 2017 and 2016 and $0.2 has been recorded within Selling, General & Administrative for each of the years ended December 31, 2017 and 2016.
Net loss	14.3			11.3			$19.4 and $15.3 have been recorded within Cost of Sales for the years ended December 31, 2017 and 2016, respectively and ($5.1) and ($4.0) have been recorded within Selling, General & Administrative for the years ended December 31, 2017 and 2016, respectively.
Amortization of other postretirement items:
Prior-service costs	(0.2		)	(0.2		)	Recorded within Selling, General & Administrative
Net gain	(0.3		)	(0.3		)	Recorded within Selling, General & Administrative

	$	13.2		$	10.2		Total before tax
	4.0			3.1			Tax benefit
Total reclassifications for the period	$	9.2		$	7.1		Net of tax

Recently Issued Accounting Standards

Recent Accounting Pronouncements - Not Yet Adopted as of December 31, 2017

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the Financial Accounting Standard Board (“FASB”) issued amended guidance to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act ("TCJA"). This amended guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating whether to adopt the amended guidance and, if so, the impact that it will have on its consolidated financial statements.

Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued amended guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amended guidance requires the disaggregation of the service cost component from the other components of net periodic benefit costs and present it with other current compensation costs for related employees in the income statement, and present the other components elsewhere in the income statement and outside of income from operations if that subtotal is presented. This amended guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted the new standard on January 1, 2018 using the retrospective method. The adoption of this standard will result in a reclassification of the non-service cost components of net benefit cost from cost of sales and selling, general and administrative expenses to other income (expense). The adoption of this standard will not impact consolidated net income, the consolidated balance sheets or consolidated statements of cash flows.

Restricted Cash

In November 2016, the FASB issued amended guidance to address diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. The amended guidance requires restricted cash and restricted cash equivalents to be classified in the statements of cash flows as cash and cash equivalents. This amended guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, using a retrospective transition method. The Company adopted the new standard on January 1, 2018. The adoption of this standard will not have a material impact to the Company’s consolidated statements of cash flows.

Income Taxes on Intra-Entity Transfers of Assets

In October 2016, the FASB issued amended guidance related to the recognition of income taxes resulting from intra-entity transfers of assets other than inventory. The guidance requires companies to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Income tax effects of intra-entity transfers of inventory will continue to be deferred until the inventory has been sold to a third party. This amended guidance is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, using a modified retrospective approach, with the cumulative effect recognized through retained earnings at the date of adoption. The Company adopted the new standard on January 1, 2018. The adoption of this standard will not have a material impact to the Company’s consolidated financial statements.

Cash Flow Simplification

In August 2016, the FASB issued amended guidance that clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. The amended guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the new standard on January 1, 2018. The adoption of this standard will not have a material impact to the Company’s consolidated statements of cash flows.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued amended guidance that changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that will replace today’s “incurred loss” model and generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except that the losses will be recognized as an allowance. This amended guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first effective reporting period. The Company does not expect that the amended guidance will have a material effect on its consolidated financial statements and related disclosures.

Leases

In February 2016, the FASB issued amended guidance on accounting for leases. The amended guidance requires the recognition of a right-of-use asset and a lease liability for all leases by lessees with the exception of short-term leases and amends disclosure requirements associated with leasing arrangements. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018 using a modified retrospective transition approach. Early adoption is permitted. The Company is currently evaluating the impact that the amended guidance will have on its consolidated financial statements and related disclosures.

Revenue Recognition

In May 2014, the FASB issued new accounting guidance related to revenue recognition. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all current industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB agreed to a one-year deferral of the effective date; the new standard is now effective for reporting periods beginning after December 15, 2017, including interim periods within that reporting period.

Effective January 1, 2018, the Company adopted the new standard using the modified retrospective transition method. A cumulative-effect adjustment to equity will be fully presented in its Quarterly Report on Form 10-Q for the three months ended March 31, 2018. The adoption of the new guidance will not have a material impact to its consolidated financial statements (the Company expects this adjustment to retained earnings to be less than $10 million). During 2017, the Company completed its evaluation of the new standard, including the impact on its business processes, systems and controls, and differences in the timing and/or method of revenue recognition for its contracts. As a result of its evaluation, the Company identified changes to and modified certain of its accounting policies and practices. The Company also designed and implemented specific controls over its evaluation of the impact of the new standard, including its calculation of the cumulative effect of adopting the new standard. Although there were no significant changes to its accounting systems or controls upon adoption of the new standard, the Company modified certain existing controls to incorporate the revisions the Company made to its accounting policies and practices.

Based on its evaluation of the new standard, the Company does not expect it to have a material impact on its consolidated financial statements in the periods after adoption. The majority of its revenues will continue to be recognized at a point in time when the customer obtains control of the product. Revenue for certain contracts previously recognized at a point in time upon product delivery will now be recognized over time based on a cost to cost measure of progress. This change generally results in an acceleration of revenue as compared with its previous revenue recognition method for those contracts.

The Company has evaluated the disclosure requirements and incorporated the collection of relevant data into its reporting process.

Recent Accounting Pronouncements - Adopted

Balance Sheet Classification of Deferred Taxes

In November 2015, the FASB issued amended guidance to simplify the presentation of deferred income taxes. The amendments require deferred tax liabilities and assets to be classified as noncurrent. The amended guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted this guidance on a prospective basis in the first quarter of 2017. Prior periods in its consolidated financial statements were not retrospectively adjusted.

Inventory

In July 2015, the FASB issued amended guidance, which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. The guidance defines net realizable value as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance must be applied on a prospective basis and is effective for fiscal years beginning after December 15, 2016, and interim periods within those years. The Company adopted the guidance in the first quarter of 2017. The adoption of the guidance did not have a material impact on its consolidated financial statements.

Share-Based Payments

In March 2016, the FASB issued amended guidance related to employee share-based payment accounting. The amended guidance simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements, forfeitures and classification on the statement of cash flows. This amended guidance was effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company elected to early adopt this guidance in the fourth quarter of 2016. The primary impact of adoption was the recognition of excess tax benefits in the provision for income taxes, rather than paid-in capital, of $0.4 million for the year ended December 31, 2016. Cash flows related to excess tax benefits for share-based payments are now included in the consolidated statements of cash flows as net operating activities rather than net financing activities. The changes have been applied prospectively and prior periods have not been adjusted. The presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to any of the periods presented on the consolidated statement of cash flows since such cash flows have historically been presented as a financing activity. Furthermore, the Company elected to continue to estimate expected forfeitures of employee equity awards to determine the amount of compensation expense to be recognized in each period.

Other Recently Issued Pronouncements

On December 22, 2017, the U.S. Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 118 (“SAB 118”) which allows registrants that do not have the necessary information available, prepared, or analyzed to complete the accounting for the TCJA to report provisional amounts in their SEC filings based on reasonable estimates. Further, it provides a one year measurement period for registrants to complete their accounting for the TCJA. If provisional amounts are recorded, SAB 118 requires registrants to include additional qualitative and quantitative disclosures in their SEC filings. Included in the Company's tax provision for the year ended December 31, 2017 are provisional amounts related to the TCJA. Further detail and disclosures are discussed in Note 3, "Income Taxes".