He continued, “The best news, however, was bookings of $237 million, our highest level ever, leaving us at year-end with a backlog of $394 million, another record. This sets us up very well for 2018."
Consolidated Review
Fourth Quarter 2017 Results
Consolidated sales were up $17.2 million, or 11%, from the same period last year. Organic revenue was $162.8 million, up 6% compared with the same prior year period. The 2017 fourth quarter included $8.5 million in sales from Acquired Businesses. Aerospace segment sales of $139.6 million were up $11.5 million and Test Systems segment sales of $31.8 million were up $5.7 million.
Consolidated gross margin was 18.8% in the fourth quarter of 2017 compared with 23.7% in the fourth quarter of 2016. Consolidated gross margin was negatively affected by the CCC acquisition having a significantly lower margin profile at this point in its business cycle compared with the organic business. Organic Engineering & Development ("E&D") costs were $22.5 million in the quarter, compared with $22.7 million in last year’s fourth quarter. As a percent of sales, organic E&D costs were 13.8% and 14.7% in the fourth quarters of 2017 and 2016, respectively. The Acquired Businesses incurred E&D costs of $2.9 million in the fourth quarter.
Selling, general and administrative (“SG&A”) expenses were $24.0 million, or 14.0% of sales, in the fourth quarter of 2017 compared with $21.1 million, or 13.7% of sales, in the same period last year. The increase was due primarily to the incremental SG&A costs of the Acquired Businesses which totaled $2.4 million, including $1.4 million of intangible asset amortization expense.
As previously announced, the Company recorded an impairment charge of approximately $16.2 million associated to the Armstrong Aerospace reporting unit in the fourth quarter. The impairment loss was incurred in the Aerospace segment.
The effective tax rate for the quarter was 41.8%, compared with 30.9% in the fourth quarter of 2016. The 2017 fourth quarter tax rate was unfavorably impacted by the $1.3 million estimated transition tax on the deemed repatriation of foreign earnings resulting from the U.S. Tax Cuts and Jobs Act ("the Act"), enacted in December 2017. This unfavorable impact was offset by the impact of the U.S. federal R&D tax credit, a reduction in foreign taxes due to a change in foreign tax rates enacted in December 2017, and the revaluation of the deferred tax balances as a result of a reduction in the Federal tax rate from the Act ($0.9 million).
2017 Results
Consolidated sales for 2017 decreased by $8.7 million, or 1.4%, to $624.5 million. Aerospace segment sales of $534.6 million were consistent with 2016 sales of $534.0 million, while Test Systems segment sales were down 9.3% to $89.9 million. Sales from the Acquired Businesses contributed $15.5 million for 2017.
Consolidated gross margin was 22.0% in 2017 compared with 25.2% in 2016. Lower consolidated gross margin was the result of lower sales volume. E&D costs increased 6.8% to $95.0 million in 2017 primarily due to the Acquired Businesses, compared with $88.9 million in 2016. The incremental E&D costs of Acquired Businesses totaled $5.7 million. As a percent of sales, E&D was 15.2% and 14.0% in 2017 and 2016, respectively.
SG&A expenses increased $4.2 million in 2017 compared with 2016. As a percent of sales, SG&A expenses were 14.5% and 13.6% for 2017 and 2016, respectively. The increase was due primarily to the incremental SG&A costs of the Acquired Businesses which added $4.6 million, including $1.8 million of intangible asset amortization expense.
The effective tax rate for 2017 was 21.3%, compared with 29.6% in 2016. The 2017 tax rate was favorably impacted by the U.S. federal R&D tax credit, a reduction in foreign taxes due to a change in foreign tax rates enacted in December 2017, and the revaluation of the deferred tax balances as a result of the Act ($0.9 million). These favorable impacts were offset by the $1.3 million estimated transition tax on the deemed repatriation of foreign earnings resulting from the Act.
Mr. Gundermann commented, "2017 was certainly a challenging year for our
company, with organic revenue flat or down slightly in both of our
segments compared with 2016. But during this two-year period, our
employee headcount increased by approximately 160 people, in addition to
another 300 by acquisition in December. This put considerable pressure
on our margins. Nevertheless, we are building a company designed to
achieve bigger and better things, and we believe our efforts are bearing
fruit. The best of evidence for this is our consolidated bookings in
2017 of $729 million, far in excess of our $624 million in revenue."
