☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Identification No.)
February 13, 2017
Which 26,180,295 147,065,441
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
2019.
1. | Portions of the company’s definitive Proxy Statement for the |
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The following table summarizes our sales. This summary and all other information presented in this section should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, which appear in Item 8 in this document.
Years Ended December 31 (dollars in millions) | ||||||||||||||||||||
2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
North America | $ | 1,743.2 | $ | 1,703.0 | $ | 1,621.7 | $ | 1,520.0 | $ | 1,430.8 | ||||||||||
Rest of World | 965.6 | 866.1 | 768.3 | 668.0 | 542.5 | |||||||||||||||
Inter-segment | (22.9 | ) | (32.6 | ) | (34.0 | ) | (34.2 | ) | (34.0 | ) | ||||||||||
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Total Sales | $ | 2,685.9 | $ | 2,536.5 | $ | 2,356.0 | $ | 2,153.8 | $ | 1,939.3 | ||||||||||
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Sales in our North America segment increased 2.4 percent, or $40.2 million, in 2016 compared with the prior year. The sales increase in 2016 was the result of price increases in the U.S. for residential and commercial water heaters and higher volumes of commercial water heaters and boilers in the U.S. Lower volumes of U.S. residential water heaters partially offset these favorable factors. Our acquisition of Aquasana, Inc. (Aquasana) a water treatment company, in August 2016, added approximately $18 million of sales in 2016 compared with 2015.
Lowe’s where we sell A. O. Smith branded products.
Our commercial boiler distribution channel is primarily comprised of manufacturer representative firms, the remainder of our Lochinvar branded products are distributed through wholesale channels.
products are sold through Lowe’s and our wholesale distribution channels.
Ecowater as well as numerous regional assemblers.
Sales in our Rest of World segment increased 11.5 percent, or $99.5 million, in 2016 compared with the prior year. A 12.5 percent increase in sales in China to $887.9 million was the primary source of the increase. Excluding the appreciation of the U.S. dollar in 2016, sales in China increased 18.9 percent in 2016.
products as well as range hoods and cooktops in China.
2019.
All reports we file with the SEC are also available free of charge via EDGAR through the SEC’s website at www.sec.gov.
Our sales growth
business
A portion of our business could be adversely affected by a decline |
The recovery in North American new residential and commercial construction or a decline in replacement related volume
We sell all
foreign currencies
Our success may depend on
business
As of December 31, 2016, approximately $752 million of cash, cash equivalents
retaining highly qualified personnel
In the ordinary course of business, we utilize information systems forday-to-day operations, to collect and store sensitive data and information, including our proprietary and regulated business information and personally identifiable information of our customers, suppliers, employees and business partners, as well as personally identifiable information about our employees. Our information systems, like those of other companies, are susceptible to outages due to system failures, failures on the part of third-party information system providers, natural disasters, power loss, telecommunications failures, viruses, or breaches of security. We continue to take steps to maintain and improve data security and address these risks and uncertainties by implementing and improving internal controls, security technologies, network and data center resiliency and recovery processes. However, any operations failure or breach of security from increasingly sophisticated cyber threats could lead to disruptions of our business activities, the loss or disclosure of both our and our customers’ financial, product and other confidential information and could result in regulatory actionsexpected and have a material adverse effect on our financial condition, results of operations and cash flowsflows.
While we may not successfully integrate future acquisitions or operate them profitably or achieve strategic objectives
Due
Our total assets include significant goodwill and indefinite-lived intangible assets. Our goodwill results from our acquisitions, representing the excess
influence all matters requiring stockholder approval
Rest of World
In this segment we have six manufacturing plants located in fournon-U.S. countries, of which three14 are owned directly by us or our subsidiaries and three are leased from outside parties. Initial lease terms generally provide for minimum terms of one to six years and have one or more renewal options. The terms of leases in effect at December 31, 20162019 expire between 20172020 and 2020.
2025.
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Name (Age) | Positions Held | Period Position Was Held | ||
Patricia K. Ackerman (59) | Senior Vice President – | 2019 to Present | ||
Vice President – Investor Relations & Treasurer | 2008 to | |||
Vice President | 2006 to | |||
Assistant Treasurer | 1995 to 2006 | |||
Paul R. Dana (57) | Senior Vice President – | 2019 to | ||
Senior Vice President – Global Manufacturing | 2016 to | |||
Vice President – Global Manufacturing | 2015 | |||
President – APCOM, a division of State Industries, | 2011 to | |||
Vice President – Product Engineering | 2006 to 2010 | |||
Plant Manager – Productos de Agua, S. de R.L. de C.V. | 1998 to 2005 | |||
Anindadeb V. DasGupta (54) | Senior Vice President | 2018 to Present | ||
President – A. O. Smith | 2018 to Present | |||
Vice President, Global Head Strategic Marketing; Global Head e-commerce; Global GM Flex & Signage Business Lines – OSRAM GmbH, Munich and Hong Kong | 2014 to 2018 | |||
Wallace E. Goodwin (64) | Senior Vice President | 2018 to Present | ||
President and General Manager – | 2018 to Present | |||
Senior Vice President and General Manager – | 2011 to | |||
President – | 1999 to 2011 | |||
Robert J. Heideman | Senior Vice President – Chief Technology Officer | 2013 to Present | ||
Senior Vice President – Engineering & Technology | 2011 to 2012 | |||
Senior Vice President – Corporate Technology | 2010 to 2011 | |||
Vice President – Corporate Technology | 2007 to 2010 | |||
Director – Materials | 2005 to 2007 | |||
Section Manager | 2002 to 2005 | |||
D. Samuel Karge (45) | Senior Vice President | 2018 to Present | ||
President – North America Water Treatment | 2018 to Present | |||
Vice President, Sales and Marketing – Zurn Industries | 2016 to 2018 | |||
Vice President & Platform Leader – Pentair Residential Filtration | 2012 to 2016 |
Name (Age) | Positions Held | Period Position Was Held | ||
Daniel L. Kempken (47) | Senior Vice President – Strategy and Corporate Development | 2019 to Present | ||
Vice President and Controller | 2011 to 2019 | |||
Charles T. Lauber (57) | Executive Vice President and Chief Financial Officer | 2019 to Present | ||
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Senior Vice President, Strategy and Corporate Development | 2013 to | |||
Senior Vice President – Chief Financial Officer – A. O. Smith Water Products Company | 2006 to 2012 | |||
Vice President – Global Finance – A. O. Smith Electrical Products Company | 2004 to 2006 | |||
Vice President and Controller – A. O. Smith Electrical Products Company | 2001 to 2004 | |||
Director of Audit and Tax | 1999 to 2001 | |||
Peter R. Martineau | Senior Vice President – Chief Information Officer | 2016 to Present | ||
Vice President – Business Transformation | 2013 to 2015 | |||
Vice President – Customer Satisfaction | 2010 to 2012 | |||
Mark A. Petrarca | Senior Vice President – Human Resources and Public Affairs | 2006 to Present | ||
Vice President – Human Resources and Public Affairs | 2005 to 2006 | |||
Vice President – Human Resources – A. O. Smith Water Products Company | 1999 to 2004 | |||
Ajita G. Rajendra (68) | Executive Chairman | 2018 to Present | ||
Chairman and Chief Executive Officer | 2017 to 2018 | |||
Chairman, President and Chief Executive Officer | 2014 to | |||
President and Chief Executive Officer | 2013 to 2014 | |||
President and Chief Operating Officer | 2011 to 2012 | |||
Executive Vice President | 2006 to 2011 | |||
President – A. O. Smith Water Products Company | 2005 to 2011 | |||
Senior Vice President | 2005 to 2007 | |||
James F. Stern | Executive Vice President, General Counsel and Secretary | 2007 to Present | ||
Partner – Foley & Lardner LLP | 1997 to 2007 | |||
David R. Warren (56) | Senior Vice President | 2017 to Present | ||
President and General Manager – | 2017 to Present | |||
Vice President – | 2008 to | |||
Managing Director – A.O. Smith Water Products Company B.V. | 2004 to 2008 | |||
Director, Reliance Sales | 2002 to 2004 | |||
Regional Sales Manager | 1999 to 2002 | |||
District Sales Manager | 1990 to 1996 | |||
Sales Coordinator | 1989 to 1990 |
Name (Age) | Positions Held | Period Position Was Held | ||
Kevin J. Wheeler (60) | President and Chief Executive Officer | 2018 to Present | ||
President and Chief Operating Officer | 2017 to 2018 | |||
Senior Vice President | 2013 to 2017 | |||
President and General Manager – North America, India and Europe Water Heating | 2013 to | |||
Senior Vice President and General Manager – North America, India and Europe – A. O. Smith Water Products Company | 2011 to 2012 | |||
Senior Vice President and General Manager – U.S. Retail – A. O. Smith Water Products Company | 2007 to 2011 | |||
Vice President – International – A. O. Smith Water Products Company | 2004 to 2007 | |||
Managing Director – A. O. Smith Water Products Company B.V. | 1999 to 2004 |
On September 7, 2016, our Board of Directors declared atwo-for-one stock split of our Class A Common Stock and Common Stock (including treasury shares) in the form of a 100 percent stock dividend to stockholders of record on September 21, 2016 and payable on October 5, 2016. All references in this Item 5 to numbers of A. O. Smith Corporation shares or price per share have been adjusted to reflect the split.
(a) | Market |
Quarterly Common Stock Price Range
2016 | 1st Qtr. | 2nd Qtr. | 3rd Qtr. | 4th Qtr. | ||||||||||||
High | $ | 38.71 | $ | 44.06 | $ | 49.70 | $ | 51.49 | ||||||||
Low | 30.15 | 37.61 | 42.88 | 43.66 | ||||||||||||
2015 | 1st Qtr. | 2nd Qtr. | 3rd Qtr. | 4th Qtr. | ||||||||||||
High | $ | 32.99 | $ | 37.20 | $ | 38.72 | $ | 40.58 | ||||||||
Low | 26.75 | 31.76 | 25.05 | 32.12 |
(b) | Holders |
(c) | Dividends |
(d) | Stock 10b5-1 automatic trading plan and discretionary purchases in accordance with applicable securities laws. The number of shares purchased and the timing of the 10b5-1 automatic trading plan that we may then have in effect. In |
ISSUER PURCHASES OF EQUITY SECURITIES
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that may yet be Purchased Under the Plans or Programs | ||||||||||||
October 1 – October 31, 2016 | 236,150 | $ | 49.15 | 236,150 | 5,396,408 | |||||||||||
November 1 – November 30, 2016 | 249,008 | 46.37 | 249,008 | 5,147,400 | ||||||||||||
December 1 – December 31, 2016 | 240,997 | 49.24 | 240,997 | 4,906,403 |
ISSUER PURCHASES OF EQUITY SECURITIES | ||||||||||||||||
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that may yet be Purchased Under the Plans or Programs | ||||||||||||
October 1 – October 31, 2019 | 414,700 | $ | 48.17 | 414,700 | 3,739,015 | |||||||||||
November 1 – November 30, 2019 | 370,800 | 50.20 | 370,800 | 3,368,215 | ||||||||||||
December 1 – December 31, 2019 | 406,000 | 47.02 | 406,000 | 2,962,215 |
(e) | Performance 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such a filing. |
2019
Base Period | Indexed Returns | |||||||||||||||||||||||
Company/Index | 12/31/11 | 12/31/12 | 12/31/13 | 12/31/14 | 12/31/15 | 12/31/16 | ||||||||||||||||||
A. O. Smith Corporation | 100.0 | 159.5 | 275.8 | 292.0 | 401.0 | 501.4 | ||||||||||||||||||
S&P Mid Cap 400 Index | 100.0 | 117.9 | 157.4 | 172.8 | 169.0 | 204.1 | ||||||||||||||||||
Russell 1000 Index | 100.0 | 116.4 | 155.0 | 175.4 | 177.0 | 198.4 |
Base Period | Indexed Returns | |||||||||||||||||||||||
Company/Index | 12/31/14 | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | ||||||||||||||||||
A. O. Smith Corporation | 100.0 | 137.3 | 171.6 | 224.5 | 158.5 | 180.1 | ||||||||||||||||||
S&P 500 Index | 100.0 | 101.4 | 113.5 | 138.3 | 132.2 | 173.8 | ||||||||||||||||||
S&P 500 Select Industrial Index | 100.0 | 95.8 | 115.1 | 142.8 | 123.8 | 160.2 |
Net sales Earnings (loss) Continuing operations Discontinued operations Net earnings Basic earnings (loss) per share of common stock(1,2) Continuing operations Discontinued operations Net earnings Diluted earnings (loss) per share of common stock(1,2) Continuing operations Discontinued operations Net earnings Cash dividends per common share(1,2) Total assets Long-term debt(4) Total stockholders’ equity-– SELECTED FINANCIAL DATA(dollars in millions, except per share amounts) Years ended December 31 2016(1) 2015 2014 2013(2) 2012(3) $ 2,685.9 $ 2,536.5 $ 2,356.0 $ 2,153.8 $ 1,939.3 326.5 282.9 207.8 169.7 162.6 — — — — (3.9 ) $ 326.5 $ 282.9 $ 207.8 $ 169.7 $ 158.7 $ 1.87 $ 1.59 $ 1.15 $ 0.92 $ 0.88 — — — — (0.02 ) $ 1.87 $ 1.59 $ 1.15 $ 0.92 $ 0.86 $ 1.85 $ 1.58 $ 1.14 $ 0.91 $ 0.87 — — — — (0.02 ) $ 1.85 $ 1.58 $ 1.14 $ 0.91 $ 0.85 $ 0.48 $ 0.38 $ 0.30 $ 0.23 $ 0.18 December 31 2016 2015 2014 2013 2012 $ 2,891.0 $ 2,629.2 $ 2,498.1 $ 2,351.5 $ 2,245.6 316.4 236.1 210.1 177.7 225.1 1,515.3 1,442.3 1,381.3 1,328.7 1,194.1
(dollars in millions, except per share amounts) | ||||||||||||||||||||
Years ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 (1) | 2016 (2) | 2015 | ||||||||||||||||
Net sales | $ | 2,992.7 | $ | 3,187.9 | $ | 2,996.7 | $ | 2,685.9 | $ | 2,536.5 | ||||||||||
Net earnings (1) | $ | 370.0 | $ | 444.2 | $ | 296.5 | $ | 326.5 | $ | 282.9 | ||||||||||
Basic earnings per share of common stock (1,2) | ||||||||||||||||||||
Net earnings | $ | 2.24 | $ | 2.60 | $ | 1.72 | $ | 1.87 | $ | 1.59 | ||||||||||
Diluted earnings per share of common stock (1,2) | ||||||||||||||||||||
Net earnings | $ | 2.22 | $ | 2.58 | $ | 1.70 | $ | 1.85 | $ | 1.58 | ||||||||||
Cash dividends per common share (2) | $ | 0.90 | $ | 0.76 | $ | 0.56 | $ | 0.48 | $ | 0.38 |
Years ended December 31, | ||||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||||
Total assets | $ | 3,058.0 | $ | 3,071.5 | $ | 3,197.4 | $ | 2,891.0 | $ | 2,629.2 | ||||||||||
Long-term debt(3) | 277.2 | 221.4 | 402.9 | 316.4 | 236.1 | |||||||||||||||
Total stockholders’ equity | 1,666.8 | 1,717.0 | 1,644.9 | 1,511.4 | 1,442.3 |
(1) | Due to the enactment of the U.S. Tax Cuts & Jobs Act in December 2017, we recorded a one-time charge of $81.8 million in 2017, our estimate of the costs primarily associated with the repatriation of undistributed foreign earnings. These charges reduced 2017 earnings per share by $0.47. |
(2) | In September 2016, we declared a 100 percent stock dividend to holders of Common Stock and Class A Common Stock which is not included in cash dividends. Basic and diluted earnings per share are calculated using the weighted average shares outstanding which were restated for all periods presented to reflect the stock dividend. |
Excludes the current portion of long-term debt. |
2020.
Consistent with our stated strategy to expand our core product offering, we acquired Aquasana, Inc. (Aquasana) in August 2016. Aquasana designs, assembles and markets premium performance water treatment products, including whole-house treatment systems, drinking water solutions for at home andon-the-go, and shower filters.Aquasana sells products primarily directly to U.S. consumers throughe-commerce, as well as through retail outlets and distributors. With a three year compound annual revenue growth rate of 17 percent as of December 31, 2016, Aqausana fits squarely within our stated strategy to expand our core product offerings to new geographies that present growth opportunities.
RESULTS OF OPERATIONS
Our sales in 2016 were a record $2,685.9 million surpassing 2015 sales of $2,536.5 million by 5.9 percent. Excluding the impact from the appreciation of the U.S. dollar against the Chinese currency that occurred in 2016, our sales grew approximately eight percent in 2016. The increase in sales in 2016 was primarily due to higher sales in China of water heaters, residential air purification products as well as 35 percent sales growth of A. O. Smith-branded water treatment products. Salesrange hoods and cooktops in China grew 12.5 percent in 2016, and excluding the impact of the appreciation of the U.S. dollar, sales in China increased 18.9 percent in 2016. China.
China increased almost two percent in 2018.
2017.
Pension income in 2016 was $6.9 million compared to pension expense of $0.1 million in 2015 and $28.6 million in 2014. As of December 31, 2015, we changed to a more precise method to estimate the service cost and interest components of net periodic benefit cost for our pension and post-retirement plan. The change is the primary reason for the $7.1 million decrease in service and interest costs in 2016 compared to 2015. The significant decrease in pension expense in 2015 compared to 2014 was due to the sunset of our pension plan for the majority of our employees on December 31, 2014. In 2015, we began making additional Company contributions to a defined contribution plan in lieu of benefits earned in our pension plan.
Interest expense was $7.3 million in 2016 compared to $7.4 million in 2015 and $5.7 million in 2014. Theby higher interest expenserates in 2015 compared to 2014 was primarily related to interest rates on term notes in the amount of $75 million issued in January 2015 that were higher than the interest rate on the revolving credit facility that it replaced as well as higher overall debt levels related to share repurchases.
2018.
income.
The effective income tax rate in 2017 was significantly higher due to
North America operating earnings were $385.9 million in 20162018 compared to operating earnings of $339.9 million and $238.7 million in 2015 and 2014, respectively. Operating margins were 22.1 percent, 20.0 percent and 14.7 percent in 2016, 2015 and 2014, respectively. The higher operating earnings and operating margin in 2016 compared to 20152017 were primarily due to the favorable impact from higher sales of residential water heaters and boilers and pricing actions in the U.S., lower material costs in the first half of 2016 and higher boiler and commercial water heater volumes in the U.S. that were partially offset by lower U.S. residential water heater volumes. The significantly higher operating earnings and operating margin in 2015 compared to 2014 were primarily due to higher prices in the U.S. and Canada, higher sales of Lochinvar-branded products and commercial water heaters in the U.S., lower steel costs and lower pension costs which more than offset lower residential
24.25 percent.
Rest of World operating earnings were $129.1 million in 2016 compared to operating earnings of $113.0 million and $106.7 million in 2015 and 2014, respectively. Segment operating margins were 13.4 percent in 2016 compared to 13.0 percent and 13.9 percent in 2015 and 2014, respectively. Higher operating earnings and operating margin in 2016 compared to 2015 were primarily due to higher sales in China that were partially offset by increased SG&A expenses in China. Higher selling costs in China to support our sales efforts in tier 2 and tier 3 cities and higher advertising costs to support brand building were the primary drivers of higher SG&A expenses. Operating earnings in 2016 were also negatively impacted by almost $8 million due to the appreciation of the U.S. dollar in 2016. Higher operating earnings in 2015 were primarily due to higher sales in China and lower steel costs thatincluding consumables, which were partially offset by lower sales of highly profitable commercialelectric water heaters and air purifiers. The appreciation of the Chinese currency against the U.S. dollar contributed approximately $23 million to segment sales in 2018. Excluding the benefit of the Chinese currency appreciation, sales in China increased 1.9 percent in 2018. Water heater and water treatment sales in India increased $8 million, over 30 percent, in 2018 compared to 2017.
repay floating rate debt.
The improvement in cash flows in 2015 was primarily due to higher earnings from operations and lower outlays for working capital driven primarily by increases in accounts payable balances in China. We expect cash provided by operating activities in 2017 to be approximately $350 million. We expect higher earnings in 2017 to be more than offset by larger outlays for working capital due to the higher than anticipated cash flows in the fourth quarter of 2016. Over thetwo-year period from 2016 to 2017, we expect to generate operating cash of approximately $800 million, which compares with $616 million of operating cash flows during 2014 to 2015.
2018.
expense.
In November 2016, we issued $45 million of fixed rate term notes in two tranches to two insurance companies. Principal payments commence in 2023 and 2028 and the notes mature in 2029 and 2034, respectively. The notes carry interest rates of 2.87 and 3.10, respectively. We used proceeds of the notes to pay down borrowings under our revolving credit facility.
In January 2015, we issued $75 million of fixed rate term notes to an insurance company. Principal payments commence in 2020 and the notes mature in 2030. The notes carry an interest rate of 3.52 percent. We used proceeds of the notes to pay down borrowings under our revolving credit facility.
2018.
During 2016, our Board of Directors authorized the purchase of an additional 3,000,000 shares of our Common Stock.
plan and opportunistic purchases.
our dividend is approximately 25 percent.
(dollars in millions) | Payments due by period | |||||||||||||||||||
Contractual Obligations | Total | Less Than 1 year | 1 - 2 Years | 3 - 5 Years | More than 5 years | |||||||||||||||
Long-term debt | $ | 323.6 | $ | 7.2 | $ | 7.2 | $ | 202.9 | $ | 106.3 | ||||||||||
Fixed rate interest | 38.6 | 4.6 | 8.1 | 7.2 | 18.7 | |||||||||||||||
Operating leases | 37.4 | 19.5 | 7.9 | 4.2 | 5.8 | |||||||||||||||
Purchase obligations | 150.8 | 141.4 | 5.8 | 3.6 | — | |||||||||||||||
Pension and post-retirement obligations | 66.0 | 0.9 | 9.5 | 8.6 | 47.0 | |||||||||||||||
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Total | $ | 616.4 | $ | 173.6 | $ | 38.5 | $ | 226.5 | $ | 177.8 | ||||||||||
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(dollars in millions) | Payments due by period | |||||||||||||||||||
Contractual Obligations | Total | Less Than 1 year | 1 - 2 Years | 3 - 5 Years | More than 5 years | |||||||||||||||
Long-term debt | $ | 284.0 | $ | 6.8 | $ | 177.6 | $ | 20.1 | $ | 79.5 | ||||||||||
Fixed rate interest | 26.0 | 3.7 | 6.8 | 5.7 | 9.8 | |||||||||||||||
Operating leases | 64.9 | 14.0 | 19.5 | 8.6 | 22.8 | |||||||||||||||
Purchase obligations | 145.9 | 145.8 | 0.1 | — | — | |||||||||||||||
Pension and post-retirement obligations | 49.3 | 9.8 | 2.2 | 2.0 | 35.3 | |||||||||||||||
Total | $ | 570.1 | $ | 180.1 | $ | 206.2 | $ | 36.4 | $ | 147.4 | ||||||||||
2019.
$134.3 million and $139.4 million, respectively.
$33.1 million and $39.3 million, respectively.
assumption for the expected return on plan assets was 7.507.15 percent in 2016 compared to 7.75 percent in 2015.2019 and 2018. The discount rate used to determine net periodic pension costs increased to 4.404.32 percent in 20162019 from 4.053.65 percent in 2015.2018. For 2017,2020, our expected return on plan assets is 7.506.75 percent and our discount rate is 4.153.18 percent.
As of December 31, 2015, we changed the method we used to estimate the service and interest components of net periodic pension benefit cost for our pension plan and post-retirement benefit plan. The change was the primary reason for the $7.1 million decrease in the service and interest components of pension costs in 2016.
As a result, we
Years ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Net Earnings (GAAP) | $ | 370.0 | $ | 444.2 | $ | 296.5 | ||||||
Restructuring and impairment expenses, before tax (1) | — | 6.7 | — | |||||||||
Tax effect of restructuring and impairment expenses | — | (1.7 | ) | — | ||||||||
U.S. Tax Reform income tax expense (2) | — | — | 81.8 | |||||||||
Adjusted Earnings | $ | 370.0 | $ | 449.2 | $ | 378.3 | ||||||
Diluted EPS (GAAP) | $ | 2.22 | $ | 2.58 | $ | 1.70 | ||||||
Restructuring and impairment expenses per diluted share (1) | $ | — | $ | 0.4 | $ | — | ||||||
Tax effect of restructuring and impairment expenses per diluted share | — | (0.1 | ) | — | ||||||||
U.S. Tax Reform income tax expense (2) | — | — | 0.47 | |||||||||
Adjusted EPS | $ | 2.22 | $ | 2.61 | $ | 2.17 | ||||||
Years ended December 31, | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Segment Earnings (GAAP) | ||||||||||||
North America | $ | 488.9 | $ | 464.1 | $ | 428.6 | ||||||
Rest of World | 40.2 | 149.3 | 149.3 | |||||||||
Total Segment Earnings (GAAP) | $ | 529.1 | $ | 613.4 | $ | 577.9 | ||||||
Adjustments | ||||||||||||
North America (1) | $ | — | $ | 6.7 | $ | — | ||||||
Rest of World | — | — | — | |||||||||
Total Adjustments | $ | — | $ | 6.7 | $ | — | ||||||
Adjusted Segment Earnings | ||||||||||||
North America | $ | 488.9 | $ | 470.8 | $ | 428.6 | ||||||
Rest of World | 40.2 | 149.3 | 149.3 | |||||||||
Total Adjusted Segment Earnings | $ | 529.1 | $ | 620.1 | $ | 577.9 | ||||||
(1) | We recognized $6.7 million of restructuring and impairment expenses in connection with the move of manufacturing operations from our Renton, Washington facility to other U.S. facilities. For additional information, see Note 5 of Notes to Consolidated Financial Statements. |
(2) | Excluding the impact of one-time U.S. Tax Reform charges, our 2017 adjusted effective income tax rate was 27.4 percent as compared to our effective income tax rate of 43.1 percent in 2017. For additional information, see Note 15 of Notes to Consolidated Financial Statements. |
Combining all these factors, we expect sales growthachieve full-year earnings of between eight$2.40 and 9.5 percent in 2017 and sales growth of between 9.5 and 11 percent measured in local currency in 2017 and earnings to be in the range of $1.98 to $2.08$2.50 per share, for 2017. This does not includewhich excludes the potential impacts from future acquisitions. Our 2020 guidance above which was introduced on January 28, 2020, excludes the potential impact on our businesses from the coronavirus originating in China. As of future acquisitions.
the date of this filing, while not yet quantifiable, we now expect the effects of the coronavirus to have a material adverse impact on our operating results in the first quarter of 2020 and we continue to assess the financial impact for the remainder of the year.
2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
In our opinion,
critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Product Warranty Liability Valuation | ||
Description of the Matter | At December 31, 2019, the Company’s product warranty liability was $134.3 million. As discussed in Note 1 of the consolidated financial statements, the Company records a liability for the expected cost of warranty-related claims at the time of sale. The product warranty liability is estimated based upon warranty loss experience using actual historical failure rates and estimated cost of product replacement. Products generally carry warranties from one to ten years. The Company performs separate warranty calculations based on the product type and the warranty term and aggregates them. Auditing the product warranty liability was complex due to the judgmental nature of the warranty loss experience assumptions, including the estimated product failure rate and the estimated cost of product replacement. In particular, it is possible that future product failure rates may not be reflective of historical product failure rates, or that a product quality issue has not yet been identified as of the financial statement date. Additionally, the cost of product replacement could differ from estimates due to fluctuations in the replacement cost of the product. |
How We Addressed the Matter in our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s product warranty liability calculation. For example, we tested controls over management’s review of the product warranty liability calculation, including the significant assumptions and the data inputs to the calculation. To test the Company’s calculation of the product warranty liability, our audit procedures included, among others, evaluating the methodology used, and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We tested the validity and categorization of claims by product type and warranty period within the calculation and tested the completeness of the claims data against the Company’s claim log. We recalculated the historical failure rates using actual claims data. We compared the estimated cost of replacement included in the product warranty liability with the current costs to manufacture a comparable product. We also analyzed subsequent claims data to identify changes in failure trends and assessed the historical accuracy of the prior year liability. Further, we inquired of operational and quality control personnel regarding quality issues and trends. | |
Accounting for Acquisitions – Valuation of Water-Right, Inc. Intangible Assets | ||
Description of the Matter | During 2019, the Company completed its acquisition of Water-Right, Inc. for consideration of $107.0 million, net of cash acquired, as discussed in Note 3 to the consolidated financial statements. The transaction was accounted for using the purchase method of accounting. Auditing the Company’s accounting for its acquisition of Water-Right, Inc. was complex due to the significant estimation uncertainty in the Company’s determination of the fair value of identified intangible assets of $60.4 million, which principally consisted of customer relationships and trademarks. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business. The significant assumptions used to estimate the value of the intangible assets included discount rates and certain assumptions that form the basis of the forecasted results (including revenue growth rates, attrition rates and royalty rates). These significant assumptions are forward looking and could be affected by future economic and market conditions. | |
How We Addressed the Matter in our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its accounting for acquisitions. For example, we tested controls over the estimation process supporting the measurement of customer relationships and trademark intangible assets, including management’s review of the significant assumptions used in the valuation models. To test the estimated fair value of the customer relationship and trademark intangible assets, our audit procedures included, among others, evaluating the Company’s valuation methodology, and testing the significant assumptions discussed above including the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared the revenue growth rates to third-party industry projections for the water treatment and purification market and to the historical performance of the acquired business. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. For example, we evaluated the discount rates by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable peers. We also compared the customer attrition rates to historical customer retention rates and the royalty rate to relevant comparable licensing agreements. |
December 31 (dollars in millions) | ||||||||
2016 | 2015 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 330.4 | $ | 323.6 | ||||
Marketable securities | 424.2 | 321.6 | ||||||
Receivables | 518.7 | 501.4 | ||||||
Inventories | 251.1 | 222.9 | ||||||
Other current assets | 37.6 | 33.8 | ||||||
|
|
|
| |||||
Total Current Assets | 1,562.0 | 1,403.3 | ||||||
Net property, plant and equipment | 461.9 | 442.7 | ||||||
Goodwill | 491.5 | 420.9 | ||||||
Other intangibles | 308.3 | 291.0 | ||||||
Other assets | 67.3 | 71.3 | ||||||
|
|
|
| |||||
Total Assets | $ | 2,891.0 | $ | 2,629.2 | ||||
|
|
|
| |||||
Liabilities | ||||||||
Current Liabilities | ||||||||
Trade payables | $ | 528.6 | $ | 424.9 | ||||
Accrued payroll and benefits | 84.3 | 81.5 | ||||||
Accrued liabilities | 101.0 | 90.2 | ||||||
Product warranties | 44.5 | 43.7 | ||||||
Long-term debt due within one year | 7.2 | 12.9 | ||||||
|
|
|
| |||||
Total Current Liabilities | 765.6 | 653.2 | ||||||
Long-term debt | 316.4 | 236.1 | ||||||
Product warranties | 96.4 | 95.6 | ||||||
Pension liabilities | 109.0 | 134.2 | ||||||
Other liabilities | 88.3 | 67.8 | ||||||
|
|
|
| |||||
Total Liabilities | 1,375.7 | 1,186.9 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders’ Equity | ||||||||
Preferred Stock | — | — | ||||||
Class A Common Stock (shares issued 26,313,351 and 26,373,396) | 131.6 | 131.8 | ||||||
Common Stock (shares issued 164,394,241 and 164,334,196) | 164.4 | 164.4 | ||||||
Capital in excess of par value | 477.6 | 469.3 | ||||||
Retained earnings | 1,593.0 | 1,350.7 | ||||||
Accumulated other comprehensive loss | (363.2 | ) | (313.4 | ) | ||||
Treasury stock at cost | (488.1 | ) | (360.5 | ) | ||||
|
|
|
| |||||
Total Stockholders’ Equity | 1,515.3 | 1,442.3 | ||||||
|
|
|
| |||||
Total Liabilities and Stockholders’ Equity | $ | 2,891.0 | $ | 2,629.2 | ||||
|
|
|
|
December 31 (dollars in millions) | ||||||||
2019 | 2018 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 374.0 | $ | 259.7 | ||||
Marketable securities | 177.4 | 385.3 | ||||||
Receivables | 589.5 | 647.3 | ||||||
Inventories | 303.0 | 304.7 | ||||||
Other current assets | 56.5 | 41.5 | ||||||
Total Current Assets | 1,500.4 | 1,638.5 | ||||||
Net property, plant and equipment | 545.4 | 540.0 | ||||||
Goodwill | 546.0 | 513.0 | ||||||
Other intangibles | 338.4 | 293.1 | ||||||
Operating lease assets | 46.9 | — | ||||||
Other assets | 80.9 | 86.9 | ||||||
Total Assets | $ | 3,058.0 | $ | 3,071.5 | ||||
Liabilities | ||||||||
Current Liabilities | ||||||||
Trade payables | $ | 509.6 | $ | 543.8 | ||||
Accrued payroll and benefits | 64.6 | 79.4 | ||||||
Accrued liabilities | 143.7 | 120.4 | ||||||
Product warranties | 41.8 | 41.7 | ||||||
Long-term debt due within one year | 6.8 | — | ||||||
Total Current Liabilities | 766.5 | 785.3 | ||||||
Long-term debt | 277.2 | 221.4 | ||||||
Product warranties | 92.4 | 97.7 | ||||||
Pension liabilities | 27.8 | 49.4 | ||||||
Long-term operating lease liabilities | 38.7 | — | ||||||
Other liabilities | 188.6 | 200.7 | ||||||
Total Liabilities | 1,391.2 | 1,354.5 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders’ Equity | ||||||||
Preferred Stock | — | — | ||||||
Class A Common Stock (shares issued 26,180,885 and 26,191,327) | 130.9 | 131.0 | ||||||
Common Stock (shares issued 164,526,709 and 164,516,267) | 164.5 | 164.5 | ||||||
Capital in excess of par value | 509.0 | 496.7 | ||||||
Retained earnings | 2,323.4 | 2,102.8 | ||||||
Accumulated other comprehensive loss | (348.3 | ) | (350.8 | ) | ||||
Treasury stock at cost | (1,112.7 | ) | (827.2 | ) | ||||
Total Stockholders’ Equity | 1,666.8 | 1,717.0 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 3,058.0 | $ | 3,071.5 | ||||
Years ended December 31 (dollars in millions, except per share amounts) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Continuing Operations | ||||||||||||
Net sales | $ | 2,685.9 | $ | 2,536.5 | $ | 2,356.0 | ||||||
Cost of products sold | 1,566.6 | 1,526.7 | 1,496.7 | |||||||||
|
|
|
|
|
| |||||||
Gross profit | 1,119.3 | 1,009.8 | 859.3 | |||||||||
Selling, general and administrative expenses | 658.9 | 610.7 | 572.1 | |||||||||
Interest expense | 7.3 | 7.4 | 5.7 | |||||||||
Other income - net | (9.4 | ) | (10.8 | ) | (5.2 | ) | ||||||
|
|
|
|
|
| |||||||
Earnings before provision for income taxes | 462.5 | 402.5 | 286.7 | |||||||||
Provision for income taxes | 136.0 | 119.6 | 78.9 | |||||||||
|
|
|
|
|
| |||||||
Net Earnings | $ | 326.5 | $ | 282.9 | $ | 207.8 | ||||||
|
|
|
|
|
| |||||||
Net Earnings Per Share of Common Stock | $ | 1.87 | $ | 1.59 | $ | 1.15 | ||||||
|
|
|
|
|
| |||||||
Diluted Net Earnings Per Share of Common Stock | $ | 1.85 | $ | 1.58 | $ | 1.14 | ||||||
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|
|
|
|
|
Years ended December 31 (dollars in millions, except per share amounts) | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Net sales | $ | 2,992.7 | $ | 3,187.9 | $ | 2,996.7 | ||||||
Cost of products sold | 1,812.0 | 1,882.4 | 1,764.3 | |||||||||
Gross profit | 1,180.7 | 1,305.5 | 1,232.4 | |||||||||
Selling, general and administrative expenses | 715.6 | 753.8 | 722.8 | |||||||||
Restructuring and impairment expenses | — | 6.7 | — | |||||||||
Interest expense | 11.0 | 8.4 | 10.1 | |||||||||
Other income - net | (18.0 | ) | (21.2 | ) | (21.3 | ) | ||||||
Earnings before provision for income taxes | 472.1 | 557.8 | 520.8 | |||||||||
Provision for income taxes | 102.1 | 113.6 | 224.3 | |||||||||
Net Earnings | $ | 370.0 | $ | 444.2 | $ | 296.5 | ||||||
Net Earnings Per Share of Common Stock | $ | 2.24 | $ | 2.60 | $ | 1.72 | ||||||
Diluted Net Earnings Per Share of Common Stock | $ | 2.22 | $ | 2.58 | $ | 1.70 | ||||||
Years ended December 31 (dollars in millions) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Net Earnings | $ | 326.5 | $ | 282.9 | $ | 207.8 | ||||||
Other comprehensive (loss) earnings | ||||||||||||
Foreign currency translation adjustments | (39.8 | ) | (42.7 | ) | (16.6 | ) | ||||||
Unrealized net (loss) gain on cash flow derivative instruments, less related income tax benefit (provision) of $0.6 in 2016, $(0.2) in 2015 and $0.1 in 2014 | (1.0 | ) | 0.3 | (0.1 | ) | |||||||
Change in pension liability less related income tax benefit (provision) of $5.7 in 2016, $(0.5) in 2015 and $(1.0) in 2014 | (9.0 | ) | 1.0 | 3.8 | ||||||||
|
|
|
|
|
| |||||||
Comprehensive Earnings | $ | 276.7 | $ | 241.5 | $ | 194.9 | ||||||
|
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|
|
|
|
Years ended December 31 (dollars in millions) | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Net Earnings | $ | 370.0 | $ | 444.2 | $ | 296.5 | ||||||
Other comprehensive earnings (loss) | ||||||||||||
Foreign currency translation adjustments | (1.3 | ) | (38.4 | ) | 52.7 | |||||||
Unrealized net gain (loss) on cash flow derivative instruments, less related income tax (provision) benefit of ($0.3) in 2019, ($0.1) in 2018 and $0.7 in 2017 | 0.9 | 0.2 | (1.1 | ) | ||||||||
Change in pension liability less related income tax (provision) benefit of $(1.0) in 2019, $4.3 in 2018 and $(7.5) in 2017 | 2.9 | (13.1 | ) | 12.1 | ||||||||
Comprehensive Earnings | $ | 372.5 | $ | 392.9 | $ | 360.2 | ||||||
Years ended December 31 (dollars in millions) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Operating Activities | ||||||||||||
Net earnings | $ | 326.5 | $ | 282.9 | $ | 207.8 | ||||||
Adjustments to reconcile earnings from continuing operations to cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 65.1 | 63.0 | 59.8 | |||||||||
Pension (income) expense | (6.9 | ) | 0.1 | 28.6 | ||||||||
Stock based compensation expense | 9.4 | 8.8 | 10.8 | |||||||||
Net changes in operating assets and liabilities, net of acquisitions: | ||||||||||||
Current assets and liabilities | 68.8 | 16.8 | (37.6 | ) | ||||||||
Noncurrent assets and liabilities | (15.1 | ) | (18.7 | ) | (3.6 | ) | ||||||
|
|
|
|
|
| |||||||
Cash Provided by Operating Activities – continuing operations | 447.8 | 352.9 | 265.8 | |||||||||
Cash Used in Operating Activities – discontinued operations | (1.2 | ) | (1.2 | ) | (1.8 | ) | ||||||
|
|
|
|
|
| |||||||
Cash Provided by Operating Activities | 446.6 | 351.7 | 264.0 | |||||||||
Investing Activities | ||||||||||||
Acquisitions of businesses | (90.8 | ) | — | — | ||||||||
Investments in marketable securities | (563.8 | ) | (428.8 | ) | (321.9 | ) | ||||||
Proceeds from sales of marketable securities | 435.1 | 315.4 | 202.0 | |||||||||
Capital expenditures | (80.7 | ) | (72.7 | ) | (86.1 | ) | ||||||
|
|
|
|
|
| |||||||
Cash Used in Investing Activities | (300.2 | ) | (186.1 | ) | (206.0 | ) | ||||||
Financing Activities | ||||||||||||
Long-term term debt incurred (repaid) | 31.8 | 61.7 | (13.9 | ) | ||||||||
Long-term debt incurred (repaid) | 42.3 | (33.6 | ) | 48.1 | ||||||||
Common stock repurchases | (135.2 | ) | (128.1 | ) | (103.8 | ) | ||||||
Net proceeds from stock option activity | 5.7 | 6.4 | 4.7 | |||||||||
Dividends paid | (84.2 | ) | (67.8 | ) | (54.4 | ) | ||||||
|
|
|
|
|
| |||||||
Cash Used in Financing Activities | (139.6 | ) | (161.4 | ) | (119.3 | ) | ||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in cash and cash equivalents | 6.8 | 4.2 | (61.3 | ) | ||||||||
Cash and cash equivalents-beginning of year | 323.6 | 319.4 | 380.7 | |||||||||
|
|
|
|
|
| |||||||
Cash and CashEquivalents-End of Year | $ | 330.4 | $ | 323.6 | $ | 319.4 | ||||||
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|
|
|
|
|
Years ended December 31 (dollars in millions) | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Operating Activities | ||||||||||||
Net earnings | $ | 370.0 | $ | 444.2 | $ | 296.5 | ||||||
Adjustments to reconcile earnings to cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 78.3 | 71.9 | 70.1 | |||||||||
U.S. Tax Reform income tax expense | — | — | 81.8 | |||||||||
Stock based compensation expense | 13.3 | 10.1 | 9.9 | |||||||||
Net changes in operating assets and liabilities, net of acquisitions: | ||||||||||||
Current assets and liabilities | 32.6 | (40.0 | ) | (127.8 | ) | |||||||
Noncurrent assets and liabilities | (38.0 | ) | (37.3 | ) | (4.1 | ) | ||||||
Cash Provided by Operating Activities | 456.2 | 448.9 | 326.4 | |||||||||
Investing Activities | ||||||||||||
Acquisitions of businesses | (107.0 | ) | — | (43.1 | ) | |||||||
Investments in marketable securities | (272.7 | ) | (523.4 | ) | (583.5 | ) | ||||||
Proceeds from sales of marketable securities | 478.0 | 595.9 | 562.7 | |||||||||
Capital expenditures | (64.4 | ) | (85.2 | ) | (94.2 | ) | ||||||
Cash Provided by (Used in) Investing Activities | 33.9 | (12.7 | ) | (158.1 | ) | |||||||
Financing Activities | ||||||||||||
Long-term debt incurred (repaid) | 62.6 | (189.0 | ) | 86.5 | ||||||||
Common stock repurchases | (287.7 | ) | (202.6 | ) | (139.1 | ) | ||||||
Net (payments) proceeds from stock option activity | (0.5 | ) | 0.9 | (0.9 | ) | |||||||
Payment of contingent consideration | (1.0 | ) | (2.3 | ) | (1.7 | ) | ||||||
Dividends paid | (149.2 | ) | (130.1 | ) | (96.9 | ) | ||||||
Cash Used in Financing Activities | (375.8 | ) | (523.1 | ) | (152.1 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 114.3 | (86.9 | ) | 16.2 | ||||||||
Cash and cash equivalents-beginning of year | 259.7 | 346.6 | 330.4 | |||||||||
Cash and Cash Equivalents-End of Year | $ | 374.0 | $ | 259.7 | $ | 346.6 | ||||||
Years ended December 31 (dollars in millions) | ||||||||||||
2016 | 2015 | 2014 | ||||||||||
Class A Common Stock | ||||||||||||
Balance at the beginning of the year | $ | 131.8 | $ | 132.2 | $ | 132.8 | ||||||
Conversion of Class A Common Stock | (0.2 | ) | (0.4 | ) | (0.6 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | 131.6 | $ | 131.8 | $ | 132.2 | ||||||
|
|
|
|
|
| |||||||
Common Stock | ||||||||||||
Balance at the beginning of the year | $ | 164.4 | $ | 164.2 | $ | 164.2 | ||||||
Conversion of Class A Common Stock | — | 0.2 | — | |||||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | 164.4 | $ | 164.4 | $ | 164.2 | ||||||
|
|
|
|
|
| |||||||
Capital in Excess of Par Value | ||||||||||||
Balance at the beginning of the year | $ | 469.3 | $ | 451.9 | $ | 441.2 | ||||||
Conversion of Class A Common Stock | 0.2 | 0.2 | 0.6 | |||||||||
Issuance of share units | (4.6 | ) | (4.2 | ) | (5.1 | ) | ||||||
Vesting of share units | (2.0 | ) | (3.2 | ) | (3.1 | ) | ||||||
Stock based compensation expense | 8.8 | 8.1 | 10.3 | |||||||||
Exercises of stock options | 0.3 | 1.1 | (0.3 | ) | ||||||||
Tax benefit from exercises of stock options and vesting of share units | — | 10.4 | 2.4 | |||||||||
Stock incentives | 5.6 | 5.0 | 5.9 | |||||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | 477.6 | $ | 469.3 | $ | 451.9 | ||||||
|
|
|
|
|
| |||||||
Retained Earnings | ||||||||||||
Balance at the beginning of the year | $ | 1,350.7 | $ | 1,135.5 | $ | 982.2 | ||||||
Net earnings | 326.5 | 282.9 | 207.8 | |||||||||
Cash dividends on stock | (84.2 | ) | (67.7 | ) | (54.5 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | 1,593.0 | $ | 1,350.7 | $ | 1,135.5 | ||||||
|
|
|
|
|
| |||||||
Accumulated Other Comprehensive Loss | ||||||||||||
Balance at the beginning of the year | $ | (313.4 | ) | $ | (272.0 | ) | $ | (259.1 | ) | |||
Foreign currency translation adjustments | (39.8 | ) | (42.7 | ) | (16.6 | ) | ||||||
Unrealized net (loss) gain on cash flow derivative instruments, less related income tax benefit (provision) of $0.6 in 2016, $(0.2) in 2015 and $0.1 in 2014 | (1.0 | ) | 0.3 | (0.1 | ) | |||||||
Change in pension liability less related income tax benefit (provision) of $5.7 in 2016, $(0.5) in 2015 and $(1.0) in 2014 | (9.0 | ) | 1.0 | 3.8 | ||||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | (363.2 | ) | $ | (313.4 | ) | $ | (272.0 | ) | |||
|
|
|
|
|
| |||||||
Treasury Stock | ||||||||||||
Balance at the beginning of the year | $ | (360.5 | ) | $ | (230.5 | ) | $ | (132.6 | ) | |||
Exercise of stock options, net of 54,019, 418,754 and 11,692 shares surrendered as proceeds and to pay taxes in 2016, 2015 and 2014, respectively | 4.0 | (5.2 | ) | 2.6 | ||||||||
Stock incentives and directors’ compensation | 0.2 | 0.1 | 0.2 | |||||||||
Shares repurchased | (135.2 | ) | (128.1 | ) | (103.8 | ) | ||||||
Vesting of share units | 3.4 | 3.2 | 3.1 | |||||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | (488.1 | ) | $ | (360.5 | ) | $ | (230.5 | ) | |||
|
|
|
|
|
| |||||||
Total Stockholders’ Equity | $ | 1,515.3 | $ | 1,442.3 | $ | 1,381.3 | ||||||
|
|
|
|
|
|
Years ended December 31 (dollars in millions) | ||||||||||||
2019 | 2018 | 2017 | ||||||||||
Class A Common Stock | ||||||||||||
Balance at the beginning of the year | $ | 131.0 | $ | 131.2 | $ | 131.6 | ||||||
Conversion of Class A Common Stock | (0.1 | ) | (0.2 | ) | (0.4 | ) | ||||||
Balance at the end of the year | $ | 130.9 | $ | 131.0 | $ | 131.2 | ||||||
Common Stock | ||||||||||||
Balance at the beginning of the year | $ | 164.5 | $ | 164.5 | $ | 164.4 | ||||||
Conversion of Class A Common Stock | — | — | 0.1 | |||||||||
Balance at the end of the year | $ | 164.5 | $ | 164.5 | $ | 164.5 | ||||||
Capital in Excess of Par Value | ||||||||||||
Balance at the beginning of the year | $ | 496.7 | $ | 486.5 | $ | 477.6 | ||||||
Conversion of Class A Common Stock | 0.1 | 0.2 | 0.3 | |||||||||
Issuance of share units | (6.2 | ) | (6.0 | ) | (4.9 | ) | ||||||
Vesting of share units | (2.2 | ) | (2.4 | ) | (2.9 | ) | ||||||
Stock based compensation expense | 12.9 | 10.1 | 9.2 | |||||||||
Exercises of stock options | 0.7 | 1.4 | 1.4 | |||||||||
Stock incentives | 7.0 | 6.9 | 5.8 | |||||||||
Balance at the end of the year | $ | 509.0 | $ | 496.7 | $ | 486.5 | ||||||
Retained Earnings | ||||||||||||
Balance at the beginning of the year | $ | 2,102.8 | $ | 1,788.7 | $ | 1,589.1 | ||||||
Net earnings | 370.0 | 444.2 | 296.5 | |||||||||
Cash dividends on stock | (149.4 | ) | (130.1 | ) | (96.9 | ) | ||||||
Balance at the end of the year | $ | 2,323.4 | $ | 2,102.8 | $ | 1,788.7 | ||||||
Accumulated Other Comprehensive Loss | ||||||||||||
Balance at the beginning of the year | $ | (350.8 | ) | $ | (299.5 | ) | $ | (363.2 | ) | |||
Foreign currency translation adjustments | (1.3 | ) | (38.4 | ) | 52.7 | |||||||
Unrealized net gain (loss) on cash flow derivative instruments, less related income tax (provision) benefit of ($0.3) in 2019, ($0.1) in 2018 and $0.7 in 2017 | 0.9 | 0.2 | (1.1 | ) | ||||||||
Change in pension liability less related income tax benefit (provision) of $(1.0) in 2019, $4.3 in 2018 and $(7.5) in 2017 | 2.9 | (13.1 | ) | 12.1 | ||||||||
Balance at the end of the year | $ | (348.3 | ) | $ | (350.8 | ) | $ | (299.5 | ) | |||
Treasury Stock | ||||||||||||
Balance at the beginning of the year | $ | (827.2 | ) | $ | (626.5 | ) | $ | (488.1 | ) | |||
Exercise of stock options, net of 87,918, 54,180 and 160,856 shares surrendered as proceeds and to pay taxes in 2019, 2018 and 2017, respectively | (0.2 | ) | (0.7 | ) | (2.4 | ) | ||||||
Stock incentives and directors’ compensation | 0.2 | 0.1 | 0.2 | |||||||||
Shares repurchased | (287.7 | ) | (202.6 | ) | (139.1 | ) | ||||||
Vesting of share units | 2.2 | 2.5 | 2.9 | |||||||||
Balance at the end of the year | $ | (1,112.7 | ) | $ | (827.2 | ) | $ | (626.5 | ) | |||
Total Stockholders’ Equity | $ | 1,666.8 | $ | 1,717.0 | $ | 1,644.9 | ||||||
Except when otherwise indicated, amounts reflected in the financial statements or the notes thereto relate to the Company’s continuing operations.
On August 22, 2011, the Company sold its Electrical Products business (EPC). Due to the sale, EPC related items have been reflected as discontinued operations in the consolidated statement of cash flows for all periods presented.
value.
2017.
Years ended December 31 (dollars in millions) | 2016 | 2015 | ||||||
Balance at beginning of year | $ | 139.3 | $ | 136.2 | ||||
Expense | 43.2 | 50.3 | ||||||
Claims settled | (41.6 | ) | (47.2 | ) | ||||
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| |||||
Balance at end of year | $ | 140.9 | $ | 139.3 | ||||
|
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|
|
2018:
Years ended December 31 (dollars in millions) | 2019 | 2018 | ||||||
Balance at beginning of year | $ | 139.4 | $ | 141.2 | ||||
Expense | 44.3 | 40.7 | ||||||
Claims settled | (49.4 | ) | (42.5 | ) | ||||
Balance at end of year | $ | 134.3 | $ | 139.4 | ||||
Fair Value Measurement Using | December 31, 2016 | December 31, 2015 | ||||||
Quoted prices in active markets for identical assets (Level 1) | $ | 424.5 | $ | 323.9 | ||||
Significant other observable inputs (Level 2) | — | (0.3 | ) | |||||
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|
| |||||
Total assets measured at fair value | $ | 424.5 | $ | 323.6 | ||||
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|
|
Fair Value Measurement Using | December 31, 2019 | December 31, 2018 | ||||||
Quoted prices in active markets for identical assets (Level | $ | 177.4 | $ | 385.3 | ||||
Significant other observable inputs (Level 2) | 6.9 | 7.5 |
its products. Contracts and customer purchase orders are used to determine the existence of a sales arrangement.contract. Shipping documents are used to verify shipment. TheFor substantially all of its products, the Company assesses whethertransfers control of products to the selling price is fixed or determinable basedcustomer at the point in time when title and risk are passed to the customer, which generally occurs upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectability based on the creditworthinessshipment of the customer as determined by credit checks and analysis, as well asproduct. See Note
Reserves for customer returns for defective product are based on historical experience with similar types of sales. Accruals for rebates and incentives are based on pricing agreements and are tied to sales volume. Changes in such accruals may be required if future returns differ from historical experience or if actual sales volume differs from estimated sales volume. Rebates and incentives are recognized as a reduction of sales.
Shipping and handling costs billed to customers are included in net sales and the related costs are included in cost of products sold.
Company’s revenue recognition activities.
awards during 2019, 2018, and 2017 respectively.
2016 | 2015 | 2014 | ||||||||||
Denominator for basic earnings per share - weighted-average shares outstanding | 174,712,683 | 177,622,280 | 180,587,008 | |||||||||
Effect of dilutive stock options, restricted stock and share units | 2,112,597 | 1,386,900 | 1,386,954 | |||||||||
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| |||||||
Denominator for diluted earnings per share | 176,825,280 | 179,009,180 | 181,973,962 | |||||||||
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On April 11, 2016, the Company’s stockholders approved a proposal to increase the Company’s authorized shares
2019 | 2018 | 2017 | ||||||||||
Denominator for basic earnings per share - weighted-average shares outstanding | 165,450,441 | 170,589,345 | 172,666,056 | |||||||||
Effect of dilutive stock options, restricted stock and share units | 1,260,456 | 1,604,695 | 1,939,133 | |||||||||
Denominator for diluted earnings per share | 166,710,897 | 172,194,040 | 174,605,189 | |||||||||
Reclassifications.Certain amounts from prior years have been reclassified to conform with current year presentation.
Significant Accounting Policies (continued)
In August 2016, the FASB amended ASC 230,Statement of Cash Flows (issued under ASU2016-15, “Clarification of Certain Cash Receipts and Cash Payments”). This amendment clarifies reporting for contingent consideration payments made after a business combination depending on how soon after the acquisition the payments are made. The amendment requires adoption for periods beginning January 1, 2018 and permits early adoption. The Company does not expectthat the adoption of ASU2016-15
The amendment also required that cash paid by an employer to a taxing authority when shares are directly withheld for employee income tax withholding purposes be classified as financing activities in the consolidated statementstatements of cash flows. As required, the Company applied this guidance retrospectively in the presentation of the consolidated statement of cash flows for the period beginning January 1, 2014 and, as a result, reclassified $7.3 million and $0.1 million of cash used by operating activities to cash used by financing activities for the years ended December 31, 2015 and 2014, respectively.
In November 2015, the FASB amended ASC 740,Income Taxes (issued under ASU2015-17). This amendment required that deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The amendment was effective for periods beginning January 1, 2016 and allowed either prospective adoption or retrospective adoption. The Company adopted ASU2015-17 retrospectively and, as a result, classified all deferred tax assets and liabilities asnon-current on the Company’s consolidated balance sheets, for all periods presented. Current deferred taxes of $39.9 million as of December 31, 2015 were reclassified tonon-current deferred taxes on the Company’s consolidated balance sheet.
In July 2015, the FASB amended ASC 330,Inventory (issued under ASU2015-11, “Simplifying the Measurement of Inventory”). This amendment requires inventory that is recorded using thefirst-in,first-out method to be measured at the lower of cost or net realizable value. ASU2015-11 is effective prospectively for the Company beginning January 1, 2017. The Company does not expect the adoption of ASU2015-11 to have a significant impact on its consolidated balance sheets, consolidated statementstatements of earnings or consolidated statementstatements of cash flows.
In May 2014, the FASB issued ASC606-10, Refer to Note 4, Leases, for additional information.
Years ending December 31 (dollars in millions) | 2019 | 2018 | 2017 | |||||||||
North America | ||||||||||||
Water heaters and related parts | $ | 1,742.6 | $ | 1,757.0 | $ | 1,663.0 | ||||||
Boilers and related parts | 199.5 | 200.4 | 183.3 | |||||||||
Water treatment products (1) | 141.4 | 87.3 | 58.5 | |||||||||
Total North America | 2,083.5 | 2,044.7 | 1,904.8 | |||||||||
Rest of World | ||||||||||||
China | $ | 827.2 | $ | 1,070.4 | $ | 1,029.4 | ||||||
All other Rest of World | 108.6 | 103.2 | 86.9 | |||||||||
Total Rest of World | 935.8 | 1,173.6 | 1,116.3 | |||||||||
Inter-segment sales | (26.6 | ) | (30.4 | ) | (24.4 | ) | ||||||
Total Net Sales | $ | 2,992.7 | $ | 3,187.9 | $ | 2,996.7 | ||||||
April 8, 2019 (dollars in millions) | ||||
Current assets, net of cash acquired | $ | 9.7 | ||
Property, plant and equipment | 8.6 | |||
Intangible assets | 60.4 | |||
Goodwill | 31.0 | |||
Total assets acquired | 109.7 | |||
Current liabilities | (2.7 | ) | ||
Net assets acquired | $ | |||
Hague related to the aforementioned holdback. The Company also paid $2.0 million of contingent payments associated with the amount by which sales of products manufactured by Hague increase over the
September 5, 2017 (dollars in millions) | ||||
Current assets, net of cash acquired | $ | 7.8 | ||
Property, plant and equipment | 6.9 | |||
Intangible assets | 12.8 | |||
Goodwill | 22.2 | |||
Total assets acquired | 49.7 | |||
Current liabilities | (5.6 | ) | ||
Long-term liabilities | (1.0 | ) | ||
Total liabilities assumed | (6.6 | ) | ||
Net assets acquired | $ | 43.1 | ||
August 8, 2016 (dollars in millions) | ||||
Current assets, net of cash acquired | $ | 7.3 | ||
Property, plant and equipment | 2.7 | |||
Intangible assets | 30.0 | |||
Goodwill | 60.4 | |||
|
| |||
Total assets acquired | 100.4 | |||
Current liabilities | (7.1 | ) | ||
Long-term liabilities | (8.2 | ) | ||
|
| |||
Total liabilities assumed | (15.3 | ) | ||
|
| |||
Net assets acquired | $ | 85.1 | ||
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|
The acquisition was accounted for usingreasonably certain to renew or terminate, the purchase method of accounting, and accordingly, the results of operations have been includedoption is reflected in the measurement of lease asset and liability. The Company’s financial statements from August 8, 2016, the date of acquisition. Revenues andpre-tax losseslease agreements do not contain any material residual value guarantees or material restrictive covenants or material subleases. Cash flows associated with Aquasana includedleases are materially consistent with the expense recorded in the condensed consolidated statement of earnings totaled $18.4earnings.
(dollars in millions) | ||||
December 31, 2019 | ||||
Liabilities | ||||
Short term: Accrued liabilities | $ | 12.0 | ||
Long term: Operating lease liabilities | 38.7 | |||
Total operating lease liabilities | $ | 50.7 | ||
Less: Rent incentives and deferrals | (3.8 | ) | ||
Assets | ||||
Operating lease assets | $ | 46.9 | ||
Lease Term and Discount Rate | December 31, 2019 | |||
Weighted-average remaining lease term | 10 years | |||
Weighted-average discount rate | 3.93% |
(dollars in millions) | ||||||
Lease Expense | Classification | Twelve months ended December 31, 2019 | ||||
Operating lease expense (1) | Cost of products sold | $ | 3.0 | |||
Selling, general and administrative expenses | 17.6 |
(1) | Includes short-term lease expense of $2.0 million for the twelve months ended December 31, 2019. Includes variable lease cost of $2.1 million for the twelve months ended December 31, 2019. |
(dollars in millions) | ||||
December 31, 2019 | ||||
2020 | $ | 14.0 | ||
2021 | 10.5 | |||
2022 | 9.0 | |||
2023 | 4.9 | |||
2024 | 3.7 | |||
After 2024 | 22.8 | |||
Total lease payments | 64.9 | |||
Less: imputed interest | (14.2 | ) | ||
Present value of operating lease liabilities | $ | 50.7 | ||
On August 26, 2016, the Company acquired certain assets, primarily inventory, and assumed a lease of a small electric water heater manufacturer serving the North America market. The Company paid $5.7 million for the assets. Under the purchase agreement, the Company agreed to make additional contingent payments for the acquired assets if certain conditions are met over the next ten years.charges. As of December 31, 2016,2019, the Company estimated the fair valueconsolidation of the contingent payments at $5.2 million and a liabilityRenton facility to other U.S. facilities was complete.
years ended December 31, 2019 and 2018:
(dollars in millions) | ||||||||||||||||
Severance Costs | Lease Exit Costs | Fixed Assets Impairment | Total | |||||||||||||
Balance at January 1, 2018 | $ | — | $ | — | $ | — | $ | — | ||||||||
Restructuring expense recognized | 4.0 | 2.1 | 0.6 | 6.7 | ||||||||||||
Cash payments and disposals | (3.8 | ) | (0.8 | ) | (0.6 | ) | (5.2 | ) | ||||||||
Balance at December 31, 2018 | 0.2 | 1.3 | — | 1.5 | ||||||||||||
Cash payments and disposals | (0.2 | ) | (0.8 | ) | — | (1.0 | ) | |||||||||
Balance at December 31, 2019 | $ | — | $ | 0.5 | $ | — | $ | 0.5 | ||||||||
Years ended December 31 (dollars in millions) | 2016 | 2015 | 2014 | |||||||||
Net change in current assets and liabilities, net of acquisitions: | ||||||||||||
Receivables | $ | (15.1 | ) | $ | (25.9 | ) | $ | (16.8 | ) | |||
Inventories | (23.4 | ) | (14.7 | ) | (14.9 | ) | ||||||
Other current assets | (3.2 | ) | (4.6 | ) | (7.7 | ) | ||||||
Trade payables | 101.5 | 31.0 | 6.9 | |||||||||
Accrued liabilities, including payroll and benefits | 6.3 | 19.8 | 2.6 | |||||||||
Income taxes payable | 2.7 | 11.2 | (7.7 | ) | ||||||||
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$ | 68.8 | $ | 16.8 | $ | (37.6 | ) | ||||||
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December 31 (dollars in millions) | 2016 | 2015 | ||||||
Finished products | $ | 114.1 | $ | 85.7 | ||||
Work in process | 13.0 | 13.4 | ||||||
Raw materials | 142.4 | 139.6 | ||||||
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Inventories, at FIFO cost | 269.5 | 238.7 | ||||||
LIFO reserve | (18.4 | ) | (15.8 | ) | ||||
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$ | 251.1 | $ | 222.9 | |||||
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Years ended December 31 (dollars in millions) | 2019 | 2018 | 2017 | |||||||||
Net change in current assets and liabilities, net of acquisitions: | ||||||||||||
Receivables | $ | 62.4 | $ | (54.6 | ) | $ | (75.8 | ) | ||||
Inventories | 6.3 | (7.7 | ) | (37.5 | ) | |||||||
Other current assets | (4.8 | ) | 10.0 | (9.0 | ) | |||||||
Trade payables | (35.4 | ) | 8.8 | (5.1 | ) | |||||||
Accrued liabilities, including payroll and benefits | 14.2 | (3.5 | ) | 12.2 | ||||||||
Income taxes | (10.1 | ) | 7.0 | (12.6 | ) | |||||||
$ | 32.6 | $ | (40.0 | ) | $ | (127.8 | ) | |||||
December 31 (dollars in millions) | 2019 | 2018 | ||||||
Finished products | $ | 136.8 | $ | 137.6 | ||||
Work in process | 21.7 | 23.3 | ||||||
Raw materials | 168.3 | 174.4 | ||||||
Inventories, at FIFO cost | 326.8 | 335.3 | ||||||
LIFO reserve | (23.8 | ) | (30.6 | ) | ||||
$ | 303.0 | $ | 304.7 | |||||
December 31 (dollars in millions) | 2016 | 2015 | ||||||
Land | $ | 11.0 | $ | 10.8 | ||||
Buildings | 286.4 | 237.9 | ||||||
Equipment | 533.7 | 530.9 | ||||||
Software | 101.4 | 87.2 | ||||||
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932.5 | 866.8 | |||||||
Less accumulated depreciation and amortization | 470.6 | 424.1 | ||||||
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| |||||
$ | 461.9 | $ | 442.7 | |||||
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December 31 (dollars in millions) | 2019 | 2018 | ||||||
Land | $ | 11.6 | $ | 11.2 | ||||
Buildings | 334.1 | 323.3 | ||||||
Equipment | 686.9 | 643.8 | ||||||
Software | 124.3 | 118.5 | ||||||
1,156.9 | 1,096.8 | |||||||
Less accumulated depreciation and amortization | 611.5 | 556.8 | ||||||
$ | 545.4 | $ | 540.0 | |||||
(dollars in millions) | North America | Rest of World | Total | |||||||||
Balance at December 31, 2014 | $ | 368.5 | $ | 60.3 | $ | 428.8 | ||||||
Currency translation adjustment | (7.5 | ) | (0.4 | ) | (7.9 | ) | ||||||
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Balance at December 31, 2015 | 361.0 | 59.9 | 420.9 | |||||||||
Acquisitions | 70.0 | — | 70.0 | |||||||||
Currency translation adjustment | 1.2 | (0.6 | ) | 0.6 | ||||||||
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| |||||||
Balance at December 31, 2016 | $ | 432.2 | $ | 59.3 | $ | 491.5 | ||||||
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(dollars in millions) | North America | Rest of World | Total | |||||||||
Balance at December 31, 2017 | $ | 457.2 | $ | 59.5 | $ | 516.7 | ||||||
Currency translation adjustment | (3.3 | ) | (0.4 | ) | (3.7 | ) | ||||||
Balance at December 31, 2018 | 453.9 | 59.1 | 513.0 | |||||||||
Acquisition | 31.0 | — | 31.0 | |||||||||
Currency translation adjustment | 2.0 | — | 2.0 | |||||||||
Balance at December 31, 2019 | $ | 486.9 | $ | 59.1 | $ | 546.0 | ||||||
2016 | 2015 | |||||||||||||||||||||||
December 31 (dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||
Amortizable intangible assets: | ||||||||||||||||||||||||
Patents | $ | 3.7 | $ | (2.2 | ) | $ | 1.5 | $ | 3.2 | $ | (1.9 | ) | $ | 1.3 | ||||||||||
Customer lists | 224.0 | (80.3 | ) | 143.7 | 231.6 | (83.1 | ) | 148.5 | ||||||||||||||||
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| |||||||||||||
Total amortizable intangible assets | 227.7 | (82.5 | ) | 145.2 | 234.8 | (85.0 | ) | 149.8 | ||||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||||||
Trade names | 163.1 | — | 163.1 | 141.2 | — | 141.2 | ||||||||||||||||||
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| |||||||||||||
Total intangible assets | $ | 390.8 | $ | (82.5 | ) | $ | 308.3 | $ | 367.0 | $ | (85.0 | ) | $ | 291.0 | ||||||||||
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2019 | 2018 | |||||||||||||||||||||||
December 31 (dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||
Amortizable intangible assets: | ||||||||||||||||||||||||
Patents | $ | 3.7 | $ | (3.5 | ) | $ | 0.2 | $ | 3.7 | $ | (3.3 | ) | $ | 0.4 | ||||||||||
Customer lists | 278.0 | (123.6 | ) | 154.4 | 236.8 | (108.2 | ) | 128.6 | ||||||||||||||||
Total amortizable intangible assets | 281.7 | (127.1 | ) | 154.6 | 240.5 | (111.5 | ) | 129.0 | ||||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||||||
Trade names | 183.8 | — | 183.8 | 164.1 | — | 164.1 | ||||||||||||||||||
Total intangible assets | $ | 465.5 | $ | (127.1 | ) | $ | 338.4 | $ | 404.6 | $ | (111.5 | ) | $ | 293.1 | ||||||||||
December 31 (dollars in millions) | 2016 | 2015 | ||||||
Bank credit lines, averageyear-end interest rates of 2.4% for 2016 and 1.3% for 2015 | $ | 23.6 | $ | 10.2 | ||||
Revolving credit agreement borrowings, averageyear-end interest rates of 1.7% for 2016 and 1.5% for 2015 | 80.0 | 80.0 | ||||||
Commercial paper, averageyear-end interest rates of 1.1% for 2016 and 2015 | 85.6 | 56.8 | ||||||
Term notes with insurance companies, expiring through 2034, averageyear-end interest rates of 3.5% for 2016 and 3.9% for 2015 | 125.5 | 89.0 | ||||||
Canadian term notes with insurance companies, expiring through 2018, averageyear-end interest rates of 5.3% for 2016 and 2015 | 8.9 | 13.0 | ||||||
|
|
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| |||||
323.6 | 249.0 | |||||||
Less long-term debt due within one year | 7.2 | 12.9 | ||||||
|
|
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| |||||
Long-term debt | $ | 316.4 | $ | 236.1 | ||||
|
|
|
|
2017.
December 31 (dollars in millions) | 2019 | 2018 | ||||||
Bank credit lines, average year-end interest rates of 2.4% for 2019 and 3.4% for 2018 | $ | 4.7 | $ | 17.1 | ||||
Revolving credit agreement borrowings, average year-end interest rates of 2.8% for 2019 and 3.5% for 2018 | 85.0 | 10.0 | ||||||
Commercial paper, average year-end interest rates of 2.2% for 2019 and 2.7% for 2018 | 74.3 | 74.3 | ||||||
Term notes with insurance companies, expiring 2029-2034, average year-end interest rates of 3.3% for 2019 and 3.3% for 2018 | 120.0 | 120.0 | ||||||
284.0 | 221.4 | |||||||
Less long-term debt due within one year | 6.8 | — | ||||||
Long-term debt | $ | 277.2 | $ | 221.4 | ||||
On November 28, 2016, the Company issued $45 million in term notes in two tranches to two insurance companies. Principal payments commence in 2023 and the notes mature in 2029 and 2034. The notes have interest rates of 2.87 percent and 3.10 percent. Proceeds of the notes were used to pay down borrowings under the Company’s revolving credit facility.
On January 15, 2015, the Company issued $75 million in term notes to an insurance company. Principle payments commence in 2020 and the notes mature in 2030. The notes have an interest rate of 3.52 percent. Proceeds of the notes were used to pay down borrowings under the Company’s revolving credit facility.
Years ending December 31 (dollars in millions) | Amount | |||
2017 | $ | 7.2 | ||
2018 | 7.2 | |||
2019 | — | |||
2020 | 6.8 | |||
2021 | 196.1 |
Future minimum payments undernon-cancelable operating leases relating mostly to office, manufacturing and warehouse facilities total $37.4 million and are due as follows:
Years ending December 31 (dollars in millions) | Amount | |||
2017 | $ | 19.5 | ||
2018 | 4.5 | |||
2019 | 3.4 | |||
2020 | 2.3 | |||
2021 | 1.9 | |||
Thereafter | 5.8 |
Rent expense, including payments under operating leases, was $29.8 million, $28.8 million and $24.3 million in 2016, 2015 and 2014, respectively.
Interest paid by the Company was $7.2 million, $6.4 million and $5.8 million in 2016, 2015 and 2014, respectively. The Company capitalized interest expense of $0.2 million, $0.2 million and $0.4 million in 2016, 2015 and 2014, respectively.
Years ending December 31 (dollars in millions) | Amount | |||
2020 | $ | 6.8 | ||
2021 | 170.8 | |||
2022 | 6.8 | |||
2023 | 10.0 | |||
2024 | 10.0 |
The Company completed atwo-for-one stock split on October 5, 2016. Amounts have been adjusted to reflect the stock split.
repurchased 6,113,038 shares at an average price of $47.06 per share and at a total cost of $135.2$287.7 million. As of December 31, 2016,2019, there were 4,906,4032,962,215 shares remaining on the existing repurchase authorization. In 2015,2018, the Company purchased 3,816,474repurchased 3,797,800 shares at a cost of $128.1$202.6 million. In 2014,2017, the Company purchased 4,309,566repurchased 2,533,350 shares at a cost of $103.8$139.1 million.
Accumulated other comprehensive loss is as follows:
December 31 (dollars in millions) | 2016 | 2015 | ||||||
Cumulative foreign currency translation adjustments | $ | (79.2 | ) | $ | (39.4 | ) | ||
Unrealized net gain on cash flow derivative instruments less related income tax provision of $(0.1) in 2016 and $(0.8) in 2015 | 0.2 | 1.2 | ||||||
Pension liability less related income tax benefit of $183.4 in 2016 and $177.7 in 2015 | (284.2 | ) | (275.2 | ) | ||||
|
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|
| |||||
$ | (363.2 | ) | $ | (313.4 | ) | |||
|
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|
|
Year ended December 31, | ||||||||
2016 | 2015 | |||||||
Cumulative foreign currency translation | ||||||||
Balance at beginning of period | $ | (39.4 | ) | $ | 3.3 | |||
Other comprehensive loss before reclassifications | (39.8 | ) | (42.7 | ) | ||||
|
|
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| |||||
Balance at end of period | (79.2 | ) | (39.4 | ) | ||||
|
|
|
| |||||
Unrealized net gain on cash flow derivatives | ||||||||
Balance at beginning of period | 1.2 | 0.9 | ||||||
Other comprehensive earnings before reclassifications | (0.9 | ) | 3.7 | |||||
Realized gains on derivatives reclassified to cost of products sold (net of tax provision of $0.1 and $2.3 in 2016 and 2015, respectively)(1) | (0.1 | ) | (3.4 | ) | ||||
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|
|
| |||||
Balance at end of period | 0.2 | 1.2 | ||||||
|
|
|
| |||||
Pension liability | ||||||||
Balance at beginning of period | (275.2 | ) | (276.2 | ) | ||||
Other comprehensive loss before reclassifications | (18.8 | ) | (9.6 | ) | ||||
Amounts reclassified from accumulated other comprehensive loss(1) | 9.8 | 10.6 | ||||||
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|
| |||||
Balance at end of period | (284.2 | ) | (275.2 | ) | ||||
|
|
|
| |||||
Total accumulated other comprehensive loss, end of period | $ | (363.2 | ) | $ | (313.4 | ) | ||
|
|
|
| |||||
(1) Amounts reclassified from accumulated other comprehensive loss: |
| |||||||
Realized gains on derivatives reclassified to cost of products sold | (0.2 | ) | (5.7 | ) | ||||
Tax provision | 0.1 | 2.3 | ||||||
|
|
|
| |||||
Reclassification net of tax | $ | (0.1 | ) | $ | (3.4 | ) | ||
|
|
|
| |||||
Amortization of pension items: | ||||||||
Actuarial losses | $ | 17.5 | (2) | $ | 19.0 | (2) | ||
Prior year service cost | (1.5 | )(2) | (1.4 | )(2) | ||||
|
|
|
| |||||
16.0 | 17.6 | |||||||
Tax benefit | (6.2 | ) | (7.0 | ) | ||||
|
|
|
| |||||
Reclassification net of tax | $ | 9.8 | $ | 10.6 | ||||
|
|
|
|
Years ended December 31, | ||||||||
2019 | 201 8 | |||||||
Cumulative foreign currency translation | ||||||||
Balance at beginning of period | $ | (64.9 | ) | $ | (26.5 | ) | ||
Other comprehensive gain (loss) before reclassifications | (1.3 | ) | (38.4 | ) | ||||
Balance at end of period | (66.2 | ) | (64.9 | ) | ||||
Unrealized net (loss) gain on cash flow derivatives | ||||||||
Balance at beginning of period | (0.7 | ) | (0.9 | ) | ||||
Other comprehensive (loss) gain before reclassifications | (0.3 | ) | 0.6 | |||||
Realized losses (gains) on derivatives reclassified to cost of products sold (net of tax (benefit) provision of ($0.5) and $0.2 in 2019 and 2018, respectively) (1) | 1.2 | (0.4 | ) | |||||
Balance at end of period | 0.2 | (0.7 | ) | |||||
Pension liability | ||||||||
Balance at beginning of period | (285.2 | ) | (272.1 | ) | ||||
Other comprehensive (loss) gain before reclassifications | (9.5 | ) | (27.0 | ) | ||||
Amounts reclassified from accumulated other comprehensive loss (1) | 12.4 | 13.9 | ||||||
Balance at end of period | (282.3 | ) | (285.2 | ) | ||||
Total accumulated other comprehensive loss, end of period | $ | (348.3) | $ | (350.8) | ||||
(1) | Amounts reclassified from accumulated other comprehensive loss: |
Realized loss (gains) on derivatives reclassified to cost of products sold | 1.7 | (0.6 | ) | |||||
Tax (benefit) provision | (0.5 | ) | 0.2 | |||||
Reclassification net of tax | $ | 1.2 | $ | (0.4 | ) | |||
Amortization of pension items: | ||||||||
Actuarial losses | $ | 16.8 | (2) | $ | 19.0 | (2) | ||
Prior year service cost | (0.5 | ) (2) | (0.5 | ) (2) | ||||
16.3 | 18.5 | |||||||
Tax benefit | (3.9 | ) | (4.6 | ) | ||||
Reclassification net of tax | $ | 12.4 | $ | 13.9 | ||||
(2) | These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note |
Options
Weighted-Avg. Per Share Exercise Price | (dollars in millions) Aggregate Intrinsic Value | |||||||||||||||||||
Years Ended December 31 | ||||||||||||||||||||
2016 | 2015 | 2014 | ||||||||||||||||||
Outstanding at beginning of year | $ | 18.03 | 2,653,558 | 3,154,006 | 2,881,246 | |||||||||||||||
Granted | ||||||||||||||||||||
2016—$31.49 to $46.93 per share | 553,370 | |||||||||||||||||||
2015—$23.24 to $25.34 per share | 484,990 | |||||||||||||||||||
2014—$17.46 to $26.47 per share | 597,500 | |||||||||||||||||||
Exercised | ||||||||||||||||||||
2016—$4.75 to $30.77 per share | (531,933 | ) | $ | 7.5 | ||||||||||||||||
2015—$4.10 to $17.46 per share | (978,208 | ) | 10.2 | |||||||||||||||||
2014—$4.10 to $11.50 per share | (316,502 | ) | 2.6 | |||||||||||||||||
Forfeited | ||||||||||||||||||||
2016—$23.24 to $46.93 per share | (10,662 | ) | ||||||||||||||||||
2015—$17.46 to $23.24 per share | (7,230 | ) | ||||||||||||||||||
2014—$11.50 to $17.46 per share | (8,238 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Outstanding at end of year | ||||||||||||||||||||
(2016—$4.75 to $46.93 per share) | 21.69 | 2,664,333 | 2,653,558 | 3,154,006 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Exercisable at end of year | 16.12 | 1,602,651 | 1,544,186 | 1,865,278 | ||||||||||||||||
|
|
|
|
|
|
Years Ended December 31 | 2019 | 2018 | 2017 | |||||||||||||||||||||
Number of Options | Weighted Avg. Per Share Exercise Price | Number of Options | Weighted Avg. Per Share Exercise Price | Number of Options | Weighted Avg. Per Share Exercise Price | |||||||||||||||||||
Number of shares under options: | ||||||||||||||||||||||||
Outstanding at beginning of year | 2,432,689 | 33.05 | 2,263,126 | 27.73 | 2,664,333 | 21.69 | ||||||||||||||||||
Granted | 557,045 | 49.49 | 373,220 | 61.62 | 358,150 | 50.16 | ||||||||||||||||||
Exercised (1) | (249,840 | ) | 18.55 | (176,302 | ) | 22.93 | (752,603 | ) | 16.93 | |||||||||||||||
Forfeited | (11,544 | ) | 54.02 | (27,355 | ) | 47.95 | (6,754 | ) | 37.46 | |||||||||||||||
Outstanding at end of year (2) | 2,728,350 | 37.64 | 2,432,689 | 33.05 | 2,263,126 | 27.73 | ||||||||||||||||||
Exercisable at end of year (3) | 1,820,743 | 30.07 | 1,665,184 | 24.52 | 1,387,259 | 20.48 | ||||||||||||||||||
The aggregate intrinsic value for the outstanding and exercisable options as
(2) | The weighted average remaining contractual life of options outstanding was 7 years at December 31, 2019, December 31, 2018, and December 31, 2017. The aggregate intrinsic value of options outstanding at December 31, 2019 was $34.2 million. |
(3) | The weighted average remaining contractual life of options exercisable was 6 years at December 31, 2019, December 31, 2018 and, December 31, 2017. The aggregate intrinsic value of options exercisable at December 31, 2019 was $34.2 million. |
Number of Options | Weighted Avg. Per Share Exercise Price | |||||||
Nonvested options at beginning of year | 767,505 | 51.55 | ||||||
Granted | 557,045 | 49.49 | ||||||
Vested | (408,648 | ) | 45.87 | |||||
Forfeited | (8,295 | ) | 53.88 | |||||
Nonvested options at end of year | 907,607 | 52.82 | ||||||
2016 | 2015 | 2014 | ||||||||||
Expected life (years) | 5.8 | 5.9 | 6.0 | |||||||||
Risk-free interest rate | 1.7 | % | 2.0 | % | 2.7 | % | ||||||
Dividend yield | 1.3 | % | 1.0 | % | 1.1 | % | ||||||
Expected volatility | 27.7 | % | 29.3 | % | 36.6 | % |
2019 | 2018 | 2017 | ||||||||||
Expected life (years) | 5.5 | 5.7 | 5.7 | |||||||||
Risk-free interest rate | 2.7 | % | 2.9 | % | 2.4 | % | ||||||
Dividend yield | 1.6 | % | 1.0 | % | 1.0 | % | ||||||
Expected volatility | 22.8 | % | 22.1 | % | 26.5 | % |
Certain
2017.
Share Units
Unvested cash-settled awards are remeasured at each reporting period.
Number of Units | Weighted-Average Grant Date Value | |||||||
Outstanding at January 1, 2016 | 658,326 | $ | 22.15 | |||||
Granted | 160,465 | 32.21 | ||||||
Vested | (268,306 | ) | 17.39 | |||||
Forfeited/cancelled | (6,430 | ) | 31.81 | |||||
|
| |||||||
Outstanding at December 31, 2016 | 544,055 | 27.35 | ||||||
|
|
Total compensation expense for share units not yet recognized is $2.3 million at December 31, 2016. The weighted average period over which the expense is expected to be recognized is 14 months.
Number of Units | Weighted-Average Grant Date Value | |||||||
Issued and unvested at January 1, 2019 | 379,601 | $ | 42.93 | |||||
Granted | 140,102 | 49.44 | ||||||
Vested | (147,642 | ) | 31.35 | |||||
Forfeited | (5,959 | ) | 55.48 | |||||
Issued and unvested at December 31, 2019 | 366,102 | 49.92 | ||||||
As
This change did not affect the measurement of the total benefit obligations but reduced the service and interest cost for the pension plan. The Company accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly accounted for it prospectively beginning January 1, 2016.
Other Post-retirement Benefits (continued)
Pension Benefits | Post-retirement Benefits | |||||||||||||||
Years ended December 31 (dollars in millions) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Accumulated benefit obligation (ABO) at December 31 | $ | 894.3 | $ | 889.4 | N/A | N/A | ||||||||||
Change in projected benefit obligations (PBO) | ||||||||||||||||
PBO at beginning of year | $ | (892.9 | ) | $ | (956.7 | ) | $ | (6.6 | ) | $ | (10.4 | ) | ||||
Service cost | (1.8 | ) | (1.9 | ) | (0.1 | ) | (0.1 | ) | ||||||||
Interest cost | (30.6 | ) | (37.6 | ) | (0.2 | ) | (0.3 | ) | ||||||||
Participant contributions | — | — | — | (0.2 | ) | |||||||||||
Plan amendments | (0.7 | ) | (2.5 | ) | — | 3.7 | ||||||||||
Actuarial (loss) gain including assumption changes | (31.0 | ) | 45.6 | (0.2 | ) | — | ||||||||||
Benefits paid | 61.2 | 60.2 | 0.5 | 0.7 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
PBO at end of year | $ | (895.8 | ) | $ | (892.9 | ) | $ | (6.6 | ) | $ | (6.6 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Change in fair value of plan assets | ||||||||||||||||
Plan assets at beginning of year | $ | 759.0 | $ | 823.9 | $ | — | $ | — | ||||||||
Actual return on plan assets | 57.0 | (5.3 | ) | — | — | |||||||||||
Contribution by the company | 32.2 | 0.5 | 0.5 | 0.5 | ||||||||||||
Participant contributions | — | — | — | 0.2 | ||||||||||||
Benefits paid | (61.2 | ) | (60.1 | ) | (0.5 | ) | (0.7 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Plan assets at end of year | $ | 787.0 | $ | 759.0 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Funded status | $ | (108.8 | ) | $ | (133.9 | ) | $ | (6.6 | ) | $ | (6.6 | ) | ||||
Amount recognized in the balance sheet | ||||||||||||||||
Current liabilities | $ | (0.5 | ) | $ | (1.8 | ) | $ | (0.4 | ) | $ | (0.4 | ) | ||||
Non-current liabilities | (108.3 | ) | (132.1 | ) | (6.2 | ) | (6.2 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net pension liability at end of year | $ | (108.8 | )* | $ | (133.9 | )* | $ | (6.6 | ) | $ | (6.6 | ) | ||||
|
|
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|
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|
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| |||||||||
Amounts recognized in accumulated other comprehensive loss before tax | ||||||||||||||||
Net actuarial loss (gain) | $ | 473.5 | $ | 461.3 | $ | (2.0 | ) | $ | (2.4 | ) | ||||||
Prior service cost | (0.9 | ) | (2.6 | ) | (2.9 | ) | (3.3 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total recognized in accumulated other comprehensive loss | $ | 472.6 | $ | 458.7 | $ | (4.9 | ) | $ | (5.7 | ) | ||||||
|
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|
|
|
Pension Benefits | Post-retirement Benefits | |||||||||||||||
Years ended December 31 (dollars in millions) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Accumulated benefit obligation (ABO) at December 31 | $ | 868.7 | $ | 833.0 | N/A | N/A | ||||||||||
Change in projected benefit obligations (PBO) | ||||||||||||||||
PBO at beginning of year | $ | (833.8 | ) | $ | (922.7 | ) | $ | (7.0 | ) | $ | (7.6 | ) | ||||
Service cost | (1.6 | ) | (2.0 | ) | (0.1 | ) | (0.2 | ) | ||||||||
Interest cost | (31.6 | ) | (28.9 | ) | (0.3 | ) | (0.3 | ) | ||||||||
Participant contributions | — | — | (0.1 | ) | (0.1 | ) | ||||||||||
Actuarial (loss) gain including assumption changes | (98.6 | ) | 61.2 | (1.2 | ) | 0.6 | ||||||||||
Benefits paid | 96.3 | 58.6 | 0.7 | 0.6 | ||||||||||||
PBO at end of year | $ | (869.3 | ) | $ | (833.8 | ) | $ | (8.0 | ) | $ | (7.0 | ) | ||||
Change in fair value of plan assets | ||||||||||||||||
Plan assets at beginning of year | $ | 777.5 | $ | 874.8 | $ | — | $ | — | ||||||||
Actual return on plan assets | 143.4 | (39.3 | ) | — | — | |||||||||||
Contribution by the Company | 7.8 | 0.6 | 0.5 | 0.5 | ||||||||||||
Participant contributions | — | — | 0.1 | 0.1 | ||||||||||||
Benefits paid | (96.3 | ) | (58.6 | ) | (0.6 | ) | (0.6 | ) | ||||||||
Plan assets at end of year | $ | 832.4 | $ | 777.5 | $ | — | $ | — | ||||||||
Funded status | $ | (36.9 | ) | $ | (56.3 | ) | $ | (8.0 | ) | $ | (7.0 | ) | ||||
Amount recognized in the balance sheet | ||||||||||||||||
Current liabilities | $ | (9.3 | ) | $ | (7.1 | ) | $ | (0.5 | ) | $ | (0.5 | ) | ||||
Non-current liabilities | (27.6 | ) | (49.2 | ) | (7.5 | ) | (6.5 | ) | ||||||||
Net pension liability at end of year | $ | (36.9 | )* | $ | (56.3 | )* | $ | (8.0 | ) | $ | (7.0 | ) | ||||
Amounts recognized in accumulated other comprehensive loss before tax | ||||||||||||||||
Net actuarial loss (gain) | $ | 463.1 | $ | 468.9 | $ | (0.2 | ) | $ | (1.4 | ) | ||||||
Prior service cost | 0.5 | — | (1.8 | ) | (2.2 | ) | ||||||||||
Total recognized in accumulated other comprehensive loss | $ | 463.6 | $ | 468.9 | $ | (2.0 | ) | $ | (3.6 | ) | ||||||
* | In addition, the Company has a liability for a foreign pension plan of $0.2 million |
Pension Benefits | Post-retirement Benefits | |||||||||||||||||||||||
Years ended December 31 (dollars in millions) | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | ||||||||||||||||||
Net periodic benefit cost | ||||||||||||||||||||||||
Service cost | $ | 1.8 | $ | 1.9 | $ | 7.9 | $ | 0.1 | $ | 0.1 | $ | 0.1 | ||||||||||||
Interest cost | 30.6 | 37.6 | 44.7 | 0.2 | 0.3 | 0.5 | ||||||||||||||||||
Expected return on plan assets | (55.9 | ) | (57.5 | ) | (60.3 | ) | — | — | — | |||||||||||||||
Amortization of unrecognized: | ||||||||||||||||||||||||
Net actuarial loss (gain) | 17.7 | 19.1 | 35.1 | (0.2 | ) | (0.1 | ) | (0.4 | ) | |||||||||||||||
Prior service cost | (1.1 | ) | (1.0 | ) | (1.0 | ) | (0.4 | ) | (0.4 | ) | — | |||||||||||||
Curtailment and otherone-time charges | — | — | 2.2 | — | — | — | ||||||||||||||||||
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|
|
| |||||||||||||
Defined-benefit plan (income) cost | (6.9 | ) | 0.1 | 28.6 | $ | (0.3 | ) | $ | (0.1 | ) | $ | 0.2 | ||||||||||||
|
|
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|
|
| |||||||||||||||||||
Various U.S. defined contribution plans cost | 11.6 | 10.8 | 6.1 | |||||||||||||||||||||
|
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|
|
| |||||||||||||||||||
$ | 4.7 | $ | 10.9 | $ | 34.7 | |||||||||||||||||||
|
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|
| |||||||||||||||||||
Other changes in plan assets and projected benefit obligation recognized in other comprehensive loss | ||||||||||||||||||||||||
Net actuarial loss | $ | 29.9 | $ | 17.2 | $ | 33.4 | $ | 0.2 | $ | — | $ | — | ||||||||||||
Amortization of net actuarial (loss) gain | (17.7 | ) | (19.1 | ) | (37.3 | ) | 0.2 | 0.1 | 0.3 | |||||||||||||||
Prior service cost | 0.6 | 2.5 | — | — | (3.7 | ) | — | |||||||||||||||||
Amortization of prior service cost | 1.1 | 1.0 | 1.0 | 0.4 | 0.4 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total recognized in other comprehensive loss | 13.9 | 1.6 | (2.9 | ) | 0.8 | (3.2 | ) | 0.3 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total recognized in net periodic cost (benefit) and other comprehensive loss | $ | 7.0 | $ | 1.7 | $ | 25.7 | $ | 0.5 | $ | (3.3 | ) | $ | 0.5 | |||||||||||
|
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|
|
|
|
|
Pension Benefits | Post-retirement Benefits | |||||||||||||||||||||||
Years ended December 31 (dollars in millions) | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||
Net periodic benefit cost | ||||||||||||||||||||||||
Service cost | $ | 1.6 | $ | 2.0 | $ | 1.8 | $ | 0.1 | $ | 0.1 | $ | 0.1 | ||||||||||||
Interest cost | 31.6 | 28.9 | 30.0 | 0.3 | 0.3 | 0.3 | ||||||||||||||||||
Expected return on plan assets | (57.3 | ) | (58.1 | ) | (58.4 | ) | — | — | — | |||||||||||||||
Amortization of unrecognized: | ||||||||||||||||||||||||
Net actuarial loss (gain) | 16.8 | 19.0 | 17.9 | — | — | (0.1 | ) | |||||||||||||||||
Prior service cost | (0.5 | ) | (0.5 | ) | (0.4 | ) | (0.4 | ) | (0.4 | ) | (0.4 | ) | ||||||||||||
Defined-benefit plan income | (7.8 | ) | (8.7 | ) | (9.1 | ) | $ | — | $ | — | $ | (0.1 | ) | |||||||||||
Curtailment and other one-time charges | 1.6 | — | — | |||||||||||||||||||||
Various U.S. defined contribution plans cost | 13.3 | 12.2 | 12.0 | |||||||||||||||||||||
$ | 7.1 | $ | 3.5 | $ | 2.9 | |||||||||||||||||||
Other changes in plan assets and projected benefit obligation recognized in other comprehensive | ||||||||||||||||||||||||
Net actuarial loss (gain) | $ | 12.6 | $ | 36.1 | $ | (3.8 | ) | $ | 1.2 | $ | (0.6 | ) | $ | 1.1 | ||||||||||
Amortization of net actuarial (loss) gain | (18.4 | ) | (19.0 | ) | (17.9 | ) | — | — | 0.1 | |||||||||||||||
Amortization of prior service cost | 0.5 | 0.5 | 0.5 | 0.4 | 0.4 | 0.4 | ||||||||||||||||||
Total recognized in other comprehensive loss | (5.3 | ) | 17.6 | (21.2 | ) | 1.6 | (0.2 | ) | 1.6 | |||||||||||||||
Total recognized in net periodic (benefit) cost and other comprehensive loss | $ | (11.5 | ) | $ | 8.9 | $ | (30.3 | ) | $ | 1.6 | $ | (0.2 | ) | $ | 1.5 | |||||||||
Pension Benefits | Post-retirement Benefits | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Discount rate | 4.15 | % | 4.40 | % | 4.33 | % | 4.55 | % | ||||||||
Average salary increases | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % |
Pension Benefits | Post-retirement Benefits | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Discount rate | 3.18 | % | 4.32 | % | 3.40 | % | 4.46 | % |
Pension Benefits | Post-retirement Benefits | |||||||||||||||||||||||
Years ended December 31 | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | ||||||||||||||||||
Discount rate | 4.40 | % | 4.05 | % | 4.85 | % | 4.55 | % | 4.00 | % | 4.70 | % | ||||||||||||
Expected long-term return on plan assets | 7.50 | % | 7.75 | % | 7.75 | % | n/a | n/a | n/a | |||||||||||||||
Rate of compensation increase | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % |
Pension Benefits | Post-retirement Benefits | |||||||||||||||||||||||
Years ended December 31 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||
Discount rate | 4.32 | % | 3.65 | % | 4.15 | % | 4.45 | % | 3.79 | % | 4.40 | % | ||||||||||||
Expected long-term return on plan assets | 7.15 | % | 7.15 | % | 7.50 | % | n/a | n/a | n/a | |||||||||||||||
Rate of compensation increase | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % | 4.00 | % |
2016 | 2015 | |||||||
Health care cost trend rate assumed for next year | 6.50 | % | 6.75 | % | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.00 | % | 5.00 | % | ||||
Year that the rate reaches the ultimate trend rate | 2021 | 2021 |
2019 | 2018 | |||||||
Health care cost trend rate assumed for next year | 7.70 | % | 6.00 | % | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 5.00 | % | 5.00 | % | ||||
Year that the rate reaches the ultimate trend rate | 2029 | 2021 |
Asset Category | 2016 | 2015 | ||||||
Equity securities | 48 | % | 47 | % | ||||
Debt securities | 37 | 39 | ||||||
Real estate | 10 | 9 | ||||||
Private equity | 4 | 5 | ||||||
Other | 1 | — | ||||||
|
|
|
| |||||
100 | % | 100 | % | |||||
|
|
|
|
Asset Category | 2019 | 2018 | ||||||
Equity securities | 42 | % | 40 | % | ||||
Debt securities | 47 | 48 | ||||||
Real estate | 10 | 10 | ||||||
Private equity | 1 | 2 | ||||||
100 | % | 100 | % | |||||
December 31, 2016 | ||||||||||||||||
Asset Category | Total | Quoted Prices in Active Markets for Identical Contracts (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Non- observable Inputs (Level 3) | ||||||||||||
Short-term investments | $ | 28.7 | $ | 1.1 | $ | 7.9 | $ | 19.7 | ||||||||
Equity securities | ||||||||||||||||
Common stocks | 254.0 | 254.0 | — | — | ||||||||||||
Commingled equity funds | 105.6 | — | 105.6 | — | ||||||||||||
Fixed income securities | ||||||||||||||||
U.S. treasury securities | 97.6 | 97.6 | — | — | ||||||||||||
Other fixed income securities | 102.6 | — | 102.6 | — | ||||||||||||
Commingled fixed income funds | 90.3 | — | 90.3 | — | ||||||||||||
Other types of investments | ||||||||||||||||
Mutual funds | 4.5 | — | 4.5 | — | ||||||||||||
Real estate funds | 74.3 | — | — | 74.3 | ||||||||||||
Private equity | 28.0 | — | — | 28.0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fair value of plan asset investments | $ | 785.6 | $ | 352.7 | $ | 310.9 | $ | 122.0 | ||||||||
|
|
|
|
|
| |||||||||||
Non-investment plan assets | 1.4 | |||||||||||||||
|
| |||||||||||||||
Total plan assets | $ | 787.0 | ||||||||||||||
|
|
December 31, 2015 | ||||||||||||||||
Asset Category | Total | Quoted Prices in Active Markets for Identical Contracts (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Non- observable Inputs (Level 3) | ||||||||||||
Short-term investments | $ | 13.8 | $ | 1.4 | $ | — | $ | 12.4 | ||||||||
Equity securities | ||||||||||||||||
Common stocks | 238.6 | 238.6 | — | — | ||||||||||||
Commingled equity funds | 109.6 | — | 109.6 | — | ||||||||||||
Fixed income securities | ||||||||||||||||
U.S. treasury securities | 114.3 | 114.3 | — | — | ||||||||||||
Other fixed income securities | 91.6 | — | 91.6 | — | ||||||||||||
Commingled fixed income funds | 84.1 | — | 84.1 | — | ||||||||||||
Other types of investments | ||||||||||||||||
Real estate funds | 70.9 | — | — | 70.9 | ||||||||||||
Private equity | 34.3 | — | — | 34.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fair value of plan asset investments | $ | 757.2 | $ | 354.3 | $ | 285.3 | $ | 117.6 | ||||||||
|
|
|
|
|
| |||||||||||
Non-investment plan assets | 1.8 | |||||||||||||||
|
| |||||||||||||||
Total plan assets | $ | 759.0 | ||||||||||||||
|
|
December 31, 2019 | ||||||||||||||||
Asset Category | Total | Quoted Prices in Active Markets for Identical Contracts (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Non- observable Inputs (Level 3) | ||||||||||||
Short-term investments | $ | 14.6 | $ | 2.8 | $ | 11.8 | $ | — | ||||||||
Equity securities | ||||||||||||||||
Common stocks | 127.0 | 127.0 | — | — | ||||||||||||
Commingled equity funds | 113.4 | — | 113.4 | — | ||||||||||||
Fixed income securities | ||||||||||||||||
U.S. treasury securities | 49.8 | 49.8 | — | — | ||||||||||||
Other fixed income securities | 225.1 | — | 225.1 | — | ||||||||||||
Commingled fixed income funds | 114.0 | — | 114.0 | — | ||||||||||||
Options | (10.8 | ) | — | (10.8 | ) | — | ||||||||||
Other types of investments | ||||||||||||||||
Mutual funds | 104.9 | — | 104.9 | — | ||||||||||||
Real estate funds | 82.3 | — | — | 82.3 | ||||||||||||
Private equity | 8.6 | — | — | 8.6 | ||||||||||||
Total fair value of plan asset investments | $ | 828.9 | $ | 179.6 | $ | 558.4 | $ | 90.9 | ||||||||
Non-investment plan assets | 3.4 | |||||||||||||||
Total plan assets | $ | 832.3 | ||||||||||||||
December 31, 2018 | ||||||||||||||||
Asset Category | Total | Quoted Prices in Active Markets for Identical Contracts (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Non- observable Inputs (Level 3) | ||||||||||||
Short-term investments | $ | 14.4 | $ | — | $ | 14.4 | $ | — | ||||||||
Equity securities | ||||||||||||||||
Common stocks | 125.6 | 125.6 | — | — | ||||||||||||
Commingled equity funds | 104.3 | — | 104.3 | — | ||||||||||||
Fixed income securities | ||||||||||||||||
U.S. treasury securities | 86.0 | 86.0 | — | — | ||||||||||||
Other fixed income securities | 185.8 | — | 185.8 | — | ||||||||||||
Commingled fixed income funds | 92.0 | — | 92.0 | — | ||||||||||||
Other types of investments | ||||||||||||||||
Mutual funds | 73.6 | — | 73.6 | — | ||||||||||||
Real estate funds | 80.4 | — | — | 80.4 | ||||||||||||
Private equity | 13.2 | — | — | 13.2 | ||||||||||||
Total fair value of plan asset investments | $ | 775.3 | $ | 211.6 | $ | 470.1 | $ | 93.6 | ||||||||
Non-investment plan assets | 2.2 | |||||||||||||||
Total plan assets | $ | 777.5 | ||||||||||||||
Short term investments | Real estate funds | Private equity | Total | |||||||||||||
Balance at December 31, 2014 | $ | 20.7 | $ | 64.1 | $ | 34.8 | $ | 119.6 | ||||||||
Actual return (loss) on plan assets: | ||||||||||||||||
Relating to assets still held at the reporting date | — | 6.8 | (0.1 | ) | 6.7 | |||||||||||
Relating to assets sold during the period | — | — | 7.8 | 7.8 | ||||||||||||
Purchases, sales and settlements | (8.3 | ) | — | (8.2 | ) | (16.5 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2015 | 12.4 | 70.9 | 34.3 | 117.6 | ||||||||||||
Actual return (loss) on plan assets: | ||||||||||||||||
Relating to assets still held at the reporting date | — | 3.4 | (5.5 | ) | (2.1 | ) | ||||||||||
Relating to assets sold during the period | — | — | 9.3 | 9.3 | ||||||||||||
Purchases, sales and settlements | 7.3 | — | (10.1 | ) | (2.8 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2016 | $ | 19.7 | $ | 74.3 | $ | 28.0 | $ | 122.0 | ||||||||
|
|
|
|
|
|
|
|
Real estate funds | Private equity | Total | ||||||||||
Balance at December 31, 2017 | $ | 77.8 | $ | 20.9 | $ | 98.7 | ||||||
Actual return (loss) on plan assets: | ||||||||||||
Relating to assets still held at the reporting date | 2.6 | (0.3 | ) | 2.3 | ||||||||
Relating to assets sold during the period | — | (0.8 | ) | (0.8 | ) | |||||||
Purchases, sales and settlements | — | (6.6 | ) | (6.6 | ) | |||||||
Balance at December 31, 2018 | 80.4 | 13.2 | 93.6 | |||||||||
Actual return (loss) on plan assets: | ||||||||||||
Relating to assets still held at the reporting date | 1.9 | — | 1.9 | |||||||||
Relating to assets sold during the period | — | (1.4 | ) | (1.4 | ) | |||||||
Purchases, sales and settlements | — | (3.2 | ) | (3.2 | ) | |||||||
Balance at December 31, 2019 | $ | 82.3 | $ | 8.6 | $ | 90.9 | ||||||
2019.
2020.
Years ending December 31 (dollars in millions) | Pension Benefits | Post-retirement Benefits | ||||||
2017 | $ | 60.2 | $ | 0.4 | ||||
2018 | 67.6 | 0.4 | ||||||
2019 | 60.1 | 0.4 | ||||||
2020 | 66.4 | 0.4 | ||||||
2021 | 59.2 | 0.4 | ||||||
2022 – 2026 | 284.4 | 2.1 |
ASC 815Derivatives and Hedging, as amended, requires that all derivative instruments be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of the hedging relationships. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as a part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.
The Company designates that all of its hedging instruments are cash flow hedges. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive loss, net of tax, and is reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. The amount by which the cumulative change in the value of the hedge more than offsets the cumulative change in the value of the hedged item (i.e., the ineffective portion) is recorded in earnings, net of tax, in the period the ineffectiveness occurs.
Years ending December 31 (dollars in millions) | Pension Benefits | Post-retirement Benefits | ||||||
2020 | $ | 66.8 | $ | 0.5 | ||||
2021 | 57.7 | 0.5 | ||||||
2022 | 57.1 | 0.5 | ||||||
2023 | 56.2 | 0.5 | ||||||
2024 | 55.4 | 0.5 | ||||||
2025 – 2029 | 270.9 | 2.3 |
within one year.
December 31 (dollars in millions) | 2016 | 2015 | ||||||||||||||
Buy | Sell | Buy | Sell | |||||||||||||
British pound | $ | — | $ | 1.2 | $ | — | $ | 0.9 | ||||||||
Canadian dollar | — | 56.9 | — | 43.2 | ||||||||||||
Euro | 25.4 | 1.8 | 21.3 | 1.7 | ||||||||||||
Mexican peso | 16.9 | — | 12.7 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 42.3 | $ | 59.9 | $ | 34.0 | $ | 45.8 | ||||||||
|
|
|
|
|
|
|
|
contracts that are designated as cash flow hedges:
December 31 (dollars in millions) | 2019 | 2018 | ||||||||||||||
Buy | Sell | Buy | Sell | |||||||||||||
British pound | $ | — | $ | 1.3 | $ | — | $ | 1.0 | ||||||||
Canadian dollar | — | 49.7 | — | — | ||||||||||||
Euro | 36.0 | — | 32.0 | — | ||||||||||||
Mexican peso | 18.6 | — | 27.8 | — | ||||||||||||
Total | $ | 54.6 | $ | 51.0 | $ | 59.8 | $ | 1.0 | ||||||||
LME.
The impact of derivative contracts on the Company’s financial statements is as follows:
statements.
Fair Value | ||||||||||
December 31 (dollars in millions) | Balance Sheet Location | 2016 | 2015 | |||||||
Foreign currency contracts | Other current assets | $ | 1.9 | $ | 3.6 | |||||
Accrued liabilities | (2.0 | ) | (1.3 | ) | ||||||
Commodities contracts | Other current assets | 0.8 | — | |||||||
Accrued liabilities | (0.3 | ) | (0.3 | ) | ||||||
|
|
|
| |||||||
Total derivatives designated as hedging instruments | $ | 0.4 | $ | 2.0 | ||||||
|
|
|
|
Fair Value | ||||||||||
December 31 (dollars in millions) | Balance Sheet Location | 2019 | 2018 | |||||||
Foreign currency contracts | Other current assets | $ | 8.4 | $ | 3.9 | |||||
Other non-current assets | — | 5.1 | ||||||||
Accrued liabilities | (1.5 | ) | (0.6 | ) | ||||||
Commodities contracts | Accrued liabilities | — | (0.9 | ) | ||||||
Total derivatives designated as hedging instruments | $ | $ | ||||||||
Yearearnings:
Derivatives in ASC 815 cash flow hedging relationships | Amount of gain (loss) recognized in other comprehensive loss on derivative (effective portion) | Location of gain loss into earnings | Amount of gain (loss) reclassified from accumulated other comprehensive loss into earnings (effective portion) | Location of gain portion) | Amount of gain recognized in earnings on a derivative (ineffective portion) | |||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||
Foreign currency contracts | $ | (3.8 | ) | $ | 6.9 | Cost of products sold | $ | (1.4 | ) | $ | 6.2 | N/A | $ | — | $ | — | ||||||||||||
Commodities contracts | 2.4 | (0.7 | ) | Cost of products sold | 1.6 | (0.5 | ) | Cost of products sold | — | — | ||||||||||||||||||
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|
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| |||||||||||||||||
$ | (1.4 | ) | $ | 6.2 | $ | 0.2 | $ | 5.7 | $ | — | $ | — | ||||||||||||||||
|
|
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|
|
|
|
|
|
|
|
|
Derivatives in ASC 815 cash flow hedging relationships | Amount of gain (loss) recognized in other comprehensive loss on derivative s | Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings | Amount of gain (loss) reclassified from accumulated other comprehensive loss into earnings | |||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||
Foreign currency contracts | $ | 0.2 | $ | 1.8 | Cost of products sold | $ | (0.2 | ) | $ | 0.3 | ||||||||||
Commodities contracts | (0.5 | ) | (1.1 | ) | Cost of products sold | (1.5 | ) | 0.3 | ||||||||||||
$ | (0.3 | ) | $ | 0.7 | $ | (1.7 | ) | $ | 0.6 | |||||||||||
Years ended December 31 (dollars in millions) | 2016 | 2015 | 2014 | |||||||||
Current: | ||||||||||||
Federal | $ | 71.6 | $ | 82.9 | $ | 48.7 | ||||||
State | 14.5 | 13.9 | 10.4 | |||||||||
International | 34.9 | 23.6 | 22.4 | |||||||||
Deferred: | ||||||||||||
Federal | 11.0 | (4.2 | ) | (5.2 | ) | |||||||
State | 5.2 | 2.2 | (0.2 | ) | ||||||||
International | (1.2 | ) | 1.2 | 2.8 | ||||||||
|
|
|
|
|
| |||||||
$ | 136.0 | $ | 119.6 | $ | 78.9 | |||||||
|
|
|
|
|
|
Years ended December 31 (dollars in millions) | 2019 | 2018 | 2017 | |||||||||
Current: | ||||||||||||
Federal | $ | 66.4 | $ | 60.1 | $ | 148.0 | ||||||
State | 14.8 | 15.6 | 9.4 | |||||||||
International | 19.9 | 38.6 | 43.8 | |||||||||
Deferred: | ||||||||||||
Federal | 0.4 | (1.7 | ) | 23.5 | ||||||||
State | 1.8 | 1.5 | 5.8 | |||||||||
International | (1.2 | ) | (0.5 | ) | (6.2 | ) | ||||||
$ | 102.1 | $ | 113.6 | $ | 224.3 | |||||||
Years ended December 31 | 2016 | 2015 | 2014 | |||||||||
Provision at U.S. federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State taxes, net of federal benefit | 2.8 | 2.6 | 2.3 | |||||||||
International income tax rate differential - China | (6.2 | ) | (6.8 | ) | (8.2 | ) | ||||||
International income tax rate differential - other | 0.3 | 0.2 | 0.4 | |||||||||
U.S. manufacturing credit | (1.5 | ) | (1.3 | ) | (2.1 | ) | ||||||
Research tax credits | (0.3 | ) | (0.3 | ) | (0.4 | ) | ||||||
Excess tax benefit on stock compensation | (1.1 | ) | — | — | ||||||||
Other | 0.4 | 0.3 | 0.5 | |||||||||
|
|
|
|
|
| |||||||
29.4 | % | 29.7 | % | 27.5 | % | |||||||
|
|
|
|
|
|
Years ended December 31 | 2019 | 2018 | 2017 | |||||||||
Provision at U.S. federal statutory rate | 21.0 | % | 21.0 | % | 35.0 | % | ||||||
State taxes, net of federal benefit | 2.8 | 2.4 | 1.9 | |||||||||
International income tax rate differential—China | (1.3 | ) | (2.3 | ) | (6.5 | ) | ||||||
International income tax rate differential—other | 0.4 | 1.1 | 0.1 | |||||||||
U.S. manufacturing credit | — | — | (1.4 | ) | ||||||||
Research tax credits | (0.4 | ) | (0.5 | ) | (0.3 | ) | ||||||
Excess tax benefit on stock compensation | (0.5 | ) | (0.4 | ) | (2.2 | ) | ||||||
Other | (0.4 | ) | (0.9 | ) | 0.8 | |||||||
21.6 | % | 20.4 | % | 27.4 | % | |||||||
U.S. Tax Cuts & Jobs Act (U.S. Tax Reform) | — | — | 15.7 | |||||||||
21.6 | % | 20.4 | % | 43.1 | % |
Years ended December 31 (dollars in millions) | 2016 | 2015 | 2014 | |||||||||
U.S. | $ | 300.9 | $ | 255.7 | $ | 150.6 | ||||||
International | 161.6 | 146.8 | 136.1 | |||||||||
|
|
|
|
|
| |||||||
$ | 462.5 | $ | 402.5 | $ | 286.7 | |||||||
|
|
|
|
|
|
Years ended December 31 (dollars in millions) | 2019 | 2018 | 2017 | |||||||||
U.S. | $ | 400.3 | $ | 376.0 | $ | 329.9 | ||||||
International | 71.8 | 181.8 | 190.9 | |||||||||
$ | 472.1 | $ | 557.8 | $ | 520.8 | |||||||
December 31 (dollars in millions) | ||||||||||||||||
2016 | 2015 | |||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||
Employee benefits | $ | 67.5 | $ | — | $ | 75.0 | $ | — | ||||||||
Product liability and warranties | 67.1 | — | 66.8 | — | ||||||||||||
Inventories | — | 3.4 | — | 4.4 | ||||||||||||
Accounts receivable | 14.9 | — | 13.0 | — | ||||||||||||
Property, plant and equipment | — | 34.3 | — | 36.9 | ||||||||||||
Intangibles | — | 77.4 | — | 54.3 | ||||||||||||
Environmental liabilities | 2.9 | — | 2.7 | — | ||||||||||||
Undistributed foreign earnings | — | 42.3 | — | 47.9 | ||||||||||||
Tax loss and credit carryovers | 18.2 | — | 14.6 | — | ||||||||||||
All other | 4.3 | — | 3.4 | — | ||||||||||||
Valuation allowance | (13.1 | ) | — | (11.0 | ) | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 161.8 | $ | 157.4 | $ | 164.5 | $ | 143.5 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net asset | $ | 4.4 | $ | 21.0 | ||||||||||||
|
|
|
|
In November 2015, the FASB amended ASC 740,Income Taxes (issued under ASU2015-17). This amendment required that deferred tax assets and liabilities be classified asnon-current in the balance sheet. The Company adopted ASU2015-17 on January 1, 2017 retrospectively and, as a result, has classified all deferred tax assets and liabilities asnon-current in the Company’s consolidated balance sheets for all periods presented. Current deferred taxes of $39.9 million as of December 31, 2015 were reclassified tonon-current deferred taxes in the Company’s consolidated balance sheet.
December 31 (dollars in millions) | ||||||||||||||||
2019 | 2018 | |||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||
Employee benefits | $ | 27.3 | $ | — | $ | 32.5 | $ | — | ||||||||
Product liability and warranties | 39.7 | — | 42.5 | — | ||||||||||||
Inventories | — | 0.3 | — | 0.6 | ||||||||||||
Accounts receivable | 16.3 | — | 18.3 | — | ||||||||||||
Property, plant and equipment | — | 34.9 | — | 36.3 | ||||||||||||
Intangibles | — | 61.3 | — | 57.3 | ||||||||||||
Environmental liabilities | 1.9 | — | 2.1 | — | ||||||||||||
Undistributed foreign earnings | — | 20.8 | — | 28.9 | ||||||||||||
Tax loss and credit carryovers | 15.2 | — | 17.5 | — | ||||||||||||
All other | 7.7 | — | 4.0 | — | ||||||||||||
Valuation allowance | (11.9 | ) | — | (13.1 | ) | — | ||||||||||
$ | 96.2 | $ | 117.3 | $ | 103.8 | $ | 123.1 | |||||||||
Net liability | $ | 21.1 | $ | 19.3 | ||||||||||||
assets.
December 31 (dollars in millions) | ||||||||||||||||
Net Operating Losses and Tax Credits | Valuation Allowances | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Beginning balance | $ | 14.6 | $ | 14.9 | $ | 11.0 | $ | 9.8 | ||||||||
Additions | 3.7 | 1.4 | 2.1 | 1.4 | ||||||||||||
Reductions | (0.1 | ) | (1.7 | ) | — | (0.2 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Ending balance | $ | 18.2 | $ | 14.6 | $ | 13.1 | $ | 11.0 | ||||||||
|
|
|
|
|
|
|
|
December 31 (dollars in millions) | ||||||||||||||||
Net Operating Losses and Tax Credits | Valuation Allowances | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Beginning balance | $ | 17.5 | $ | 19.8 | $ | 13.1 | $ | 15.0 | ||||||||
Reductions | (2.3 | ) | (2.3 | ) | (1.2 | ) | (1.9 | ) | ||||||||
Ending balance | $ | 15.2 | $ | 17.5 | $ | 11.9 | $ | 13.1 | ||||||||
2030.
(Dollars in millions) | 2016 | 2015 | ||||||
Balance at January 1 | $ | 2.6 | $ | 1.2 | ||||
Additions for tax positions of prior years | 1.6 | 1.4 | ||||||
|
|
|
| |||||
Balance at December 31 | $ | 4.2 | $ | 2.6 | ||||
|
|
|
|
(Dollars in millions) | 2019 | 2018 | ||||||
Balance at January 1 | $ | 8.3 | $ | 6.2 | ||||
Additions for tax positions of prior years | 1.4 | 2.1 | ||||||
Balance at December 31 | $ | 9.7 | $ | 8.3 | ||||
2013-2019.
Net Sales | Earnings | |||||||||||||||||||||||
Years ended December 31 (dollars in millions) | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | ||||||||||||||||||
North America | $ | 1,743.2 | $ | 1,703.0 | $ | 1,621.7 | $ | 385.9 | $ | 339.9 | $ | 238.7 | ||||||||||||
Rest of World | 965.6 | 866.1 | 768.3 | 129.1 | 113.0 | 106.7 | ||||||||||||||||||
Inter-segment | (22.9 | ) | (32.6 | ) | (34.0 | ) | — | — | (0.1 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total segments – sales, operating earnings | $ | 2,685.9 | $ | 2,536.5 | $ | 2,356.0 | $ | 515.0 | $ | 452.9 | $ | 345.3 | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Corporate expenses | (45.2 | ) | (43.0 | ) | (52.9 | ) | ||||||||||||||||||
Interest expense | (7.3 | ) | (7.4 | ) | (5.7 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Earnings before income taxes | 462.5 | 402.5 | 286.7 | |||||||||||||||||||||
Provision for income taxes | (136.0 | ) | (119.6 | ) | (78.9 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Earnings from continuing operations | $ | 326.5 | $ | 282.9 | $ | 207.8 | ||||||||||||||||||
|
|
|
|
|
|
Net Sales | Earnings | |||||||||||||||||||||||
Years ended December 31 (dollars in millions) | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||
North America (1) | $ | 2,083.5 | $ | 2,044.7 | $ | 1,904.8 | $ | 488.9 | $ | 464.1 | $ | 428.6 | ||||||||||||
Rest of World | 935.8 | 1,173.6 | 1,116.3 | 40.2 | 149.3 | 149.3 | ||||||||||||||||||
Inter-segment | (26.6 | ) | (30.4 | ) | (24.4 | ) | — | — | — | |||||||||||||||
Total segments – sales, segment earnings | $ | 2,992.7 | $ | 3,187.9 | $ | 2,996.7 | $ | 529.1 | $ | 613.4 | $ | 577.9 | ||||||||||||
Corporate expenses | (46.0 | ) | (47.2 | ) | (47.0 | ) | ||||||||||||||||||
Interest expense | (11.0 | ) | (8.4 | ) | (10.1 | ) | ||||||||||||||||||
Earnings before income taxes | 472.1 | 557.8 | 520.8 | |||||||||||||||||||||
Provision for income taxes (2) | (102.1 | ) | (113.6 | ) | (224.3 | ) | ||||||||||||||||||
Net earnings | $ | 370.0 | $ | 444.2 | $ | 296.5 | ||||||||||||||||||
(1) | In 2018, the Company recognized $6.7 million of restructuring and impairment expenses in connection with the move of manufacturing operations from our Renton, Washington facility to other U.S. facilities. For additional information, see Note 5 “Restructuring and Impairment Expenses.” |
(2) | In 2017, the Company recorded a one-time charge of $81.8 million associated with U.S. Tax Reform, primarily related to the repatriation of undistributed foreign earnings. For additional information, see Note 15 “Income Taxes.” |
Total Assets (December 31) | Depreciation and Amortization (Years Ended December 31) | Capital Expenditures (Years Ended December 31) | ||||||||||||||||||||||||||||||||||
(dollars in millions) | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | |||||||||||||||||||||||||||
North America | $ | 1,515.9 | $ | 1,381.1 | $ | 1,358.5 | $ | 42.9 | $ | 41.9 | $ | 37.8 | $ | 45.9 | $ | 43.5 | $ | 59.4 | ||||||||||||||||||
Rest of World | 584.3 | 544.2 | 523.8 | 21.0 | 19.8 | 20.0 | 34.3 | 28.4 | 26.5 | |||||||||||||||||||||||||||
Corporate | 790.8 | 703.9 | 615.8 | 1.2 | 1.3 | 2.0 | 0.5 | 0.8 | 0.2 | |||||||||||||||||||||||||||
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Total | $ | 2,891.0 | $ | 2,629.2 | $ | 2,498.1 | $ | 65.1 | $ | 63.0 | $ | 59.8 | $ | 80.7 | $ | 72.7 | $ | 86.1 | ||||||||||||||||||
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Total Assets (December 31) | Depreciation and Amortization (Years Ended December 31) | Capital Expenditures (Years Ended December 31) | ||||||||||||||||||||||||||||||||||
(dollars in millions) | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | |||||||||||||||||||||||||||
North America | $ | 1,742.8 | $ | 1,653.6 | $ | 1,592.6 | $ | 49.3 | $ | 45.5 | $ | 45.1 | $ | 47.6 | $ | 45.8 | $ | 38.5 | ||||||||||||||||||
Rest of World | 709.1 | 721.6 | 741.4 | 27.9 | 25.2 | 23.8 | 15.9 | 32.3 | 55.2 | |||||||||||||||||||||||||||
Corporate | 606.1 | 696.3 | 863.4 | 1.1 | 1.2 | 1.2 | 0.9 | 7.1 | 0.5 | |||||||||||||||||||||||||||
Total | $ | 3,058.0 | $ | 3,071.5 | $ | 3,197.4 | $ | 78.3 | $ | 71.9 | $ | 70.1 | $ | 64.4 | $ | 85.2 | $ | 94.2 | ||||||||||||||||||
Long-lived Assets (December 31) | Net Sales (Years Ended December 31) | |||||||||||||||||||||||||
(dollars in millions) | 2016 | 2015 | 2014 | 2016 | 2015 | 2014 | ||||||||||||||||||||
United States | $ | 292.4 | $ | 297.8 | $ | 285.4 | United States | $ | 1,570.7 | $ | 1,531.4 | $ | 1,447.9 | |||||||||||||
China | 184.3 | 157.3 | 144.0 | China | 887.1 | 787.1 | 691.8 | |||||||||||||||||||
Canada | 3.1 | 2.7 | 3.5 | Canada | 138.7 | 129.9 | 128.8 | |||||||||||||||||||
Other Foreign | 48.4 | 55.2 | 58.3 | Other Foreign | 89.4 | 88.1 | 87.5 | |||||||||||||||||||
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Total | $ | 528.2 | $ | 513.0 | $ | 491.2 | Total | $ | 2,685.9 | $ | 2,536.5 | $ | 2,356.0 | |||||||||||||
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(dollars in millions, except per share amounts) | ||||||||||||||||||||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||||||
Net sales | $ | 636.9 | $ | 618.5 | $ | 667.0 | $ | 653.5 | $ | 683.9 | $ | 625.1 | $ | 698.1 | $ | 639.4 | ||||||||||||||||
Gross profit | 262.7 | 229.2 | 283.7 | 262.4 | 283.3 | 255.6 | 289.6 | 262.6 | ||||||||||||||||||||||||
Net earnings | 73.5 | 58.4 | 87.1 | 71.1 | 83.2 | 73.6 | 82.7 | 79.8 | ||||||||||||||||||||||||
Basic earnings per share | 0.42 | 0.33 | 0.50 | 0.40 | 0.48 | 0.42 | 0.48 | 0.45 | ||||||||||||||||||||||||
Diluted earnings per share | 0.41 | 0.32 | 0.49 | 0.40 | 0.47 | 0.41 | 0.47 | 0.45 | ||||||||||||||||||||||||
Common dividends declared | 0.12 | 0.095 | 0.12 | 0.095 | 0.12 | 0.095 | 0.12 | 0.095 |
Long-lived Assets (December 31) | Net Sales (Years Ended December 31) | |||||||||||||||||||||||||
(dollars in millions) | 2019 | 2018 | 2017 | 2019 | 2018 | 2017 | ||||||||||||||||||||
United States | $ | 360.2 | $ | 327.3 | $ | 303.0 | United States | $ | 1,868.7 | $ | 1,820.8 | | $ | 1,698.1 | ||||||||||||
China | 266.7 | 252.6 | 250.8 | China | 825.4 | 1,071.2 | 1,034.9 | |||||||||||||||||||
Canada | 4.2 | 3.1 | 3.2 | Canada | 168.5 | 175.0 | 163.7 | |||||||||||||||||||
Other Foreign | 42.1 | 42.9 | 47.1 | Other Foreign | 130.1 | 120.9 | 100.0 | |||||||||||||||||||
Total | $ | 673.2 | $ | 625.9 | $ | 604.1 | Total | $ | 2,992.7 | $ | 3,187.9 | $ | 2,996.7 | |||||||||||||
(dollars in millions, except per share amounts) | ||||||||||||||||||||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
Net sales | $ | 748.2 | $ | 788.0 | $ | 765.4 | $ | 833.3 | $ | 728.2 | $ | 754.1 | $ | 750.9 | $ | 812.5 | ||||||||||||||||
Gross profit | 292.8 | 321.5 | 308.7 | 341.0 | 284.2 | 306.0 | 295.0 | 337.0 | ||||||||||||||||||||||||
Net earnings | 89.3 | 98.8 | 102.1 | 114.5 | 87.3 | 104.6 | 91.3 | 126.3 | ||||||||||||||||||||||||
Basic earnings per share | 0.53 | 0.58 | 0.61 | 0.67 | 0.53 | 0.61 | 0.56 | 0.75 | ||||||||||||||||||||||||
Diluted earnings per share | 0.53 | 0.57 | 0.61 | 0.66 | 0.53 | 0.61 | 0.56 | 0.74 | ||||||||||||||||||||||||
Common dividends declared | 0.22 | 0.18 | 0.22 | 0.18 | 0.22 | 0.18 | 0.24 | 0.22 |
In 2016, we continued the implementation of a new global enterprise resource planning system. This multi-year initiative is being conducted in phases and includes modifications to the design and operation of controls over financial reporting. We are testing internal controls over financial reporting for design effectiveness prior to the implementation of each phase, and we have monitoring controls in place over the implementation of these changes.
Except as described above, there
None
Report
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
As indicated in the accompanying Management Report on Internal Control Over Financial Reporting, management’s assessment
/s/ Ernst & Young LLP |
Milwaukee, Wisconsin |
February 24, 2020 |
Plan Category | Number of securities to be issued upon the exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | |||||||||
Equity compensation plans approved by security holders | 3,469,208 | (1) | $ | 21.69 | (2) | 3,275,459 | (3) | |||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
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Total | 3,469,208 | $ | 21.69 | 3,275,459 | ||||||||
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Plan Category | Number of securities to be issued upon the exercise of outstanding options, warrants and rights | Weighted-average exerciseprice of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) | |||||||||
Equity compensation plans approved by security holders | 3,321,472 | (1) | $ | 37.64 | (2) | 1,855,560 | (3) | |||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 3,321,472 | $ | 37.64 | 1,855,560 | ||||||||
(1) | Consists of |
(2) | Represents the weighted average exercise price of outstanding options and does not take into account outstanding share units. |
(3) | Represents securities remaining available for issuance under the A. O. Smith Combined Incentive Compensation Plan. If any awards lapse, expire, terminate or are cancelled without issuance of shares, or shares are forfeited under any award, then such shares will become available for issuance under the A. O. Smith Combined Incentive Compensation Plan, hereby increasing the number of securities remaining available. |
-– CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE20172020 Annual Meeting of Stockholders (to be filed with the Securities and Exchange CommissionSEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.-– PRINCIPAL ACCOUNTANT FEES AND SERVICES20172020 Annual Meeting of Stockholders (to be filed with the Securities and Exchange CommissionSEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) required by this Item 14 is incorporated herein by reference.
(a) | The following documents are filed as part of this Annual Report on Form 10-K: |
1. | Financial Statements of the Company |
Form 10-K Page Number | |||||
The following consolidated financial statements of A. O. Smith Corporation are included in Item 8: | |||||
26 | |||||
For each of the three years in the period ended December 31, | |||||
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27 | |||||
27 | |||||
28 | |||||
29 | |||||
30 - |
2. | Financial Statement Schedules |
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65 |
3. | Exhibits - see the Index to Exhibits on pages 10-K are listed as Exhibits 10(a) through 10(m) in the Index to Exhibits. |
SIGNATURES
Pursuant to the requirements
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of February 17, 2017 by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Exhibit Number | Description | |||||
(3)(i) |
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INDEX TO EXHIBITS
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(3)(ii) | ||||||
(4) | (a) | |||||
(b) | ||||||
(c) | ||||||
(d) | The corporation has instruments that define the rights of holders of long-term debt that are not being filed with this Registration Statement in reliance upon Item 601(b)(4)(iii) of Regulation S-K. The Registrant agrees to furnish to the | |||||
(10) | Material Contracts | |||||
(a) | ||||||
(b) | ||||||
(c) | ||||||
(d) | ||||||
(e) | ||||||
(f) | ||||||
(g) | ||||||
(h) | ||||||
Exhibit Number | Description | |||||
(i) |
INDEX TO EXHIBITS (continued)
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(j) | ||||||
(k) | ||||||
(l) | ||||||
(m) | ||||||
(21) | ||||||
(23) | ||||||
(31.1) | ||||||
(31.2) | ||||||
(32.1) | ||||||
(32.2) | ||||||
(101) | The following materials from A. O. Smith Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, |
A. O. SMITH CORPORATION | ||||||
Date: February 24, 2020 | By: | /s/ Ajita G. Rajendra | ||||
Ajita G. Rajendra | ||||||
Executive Chairman of | ||||||
the Board of Directors |
Name and Title | Signature | |
AJITA G. RAJENDRA | /s/ Ajita G. Rajendra | |
Executive Chairman of the Board of Directors | Ajita G. Rajendra | |
KEVIN J. WHEELER | /s/ Kevin J. Wheeler | |
Director | Kevin J. Wheeler | |
President and Chief Executive Officer | ||
CHARLES T. LAUBER | /s/ Charles T. Lauber | |
Executive Vice President and Chief Financial Officer | Charles T. Lauber | |
HELEN E. GURHOLT | /s/ Helen E. Gurholt | |
Vice President and Controller | Helen E. Gurholt | |
RONALD D. BROWN | /s/ Ronald D. Brown | |
Director | Ronald D. Brown | |
WILLIAM P. GREUBEL | /s/ William P. Greubel | |
Director | William P. Greubel | |
PAUL W. JONES | /s/ Paul W. Jones | |
Director | Paul W. Jones | |
DR. ILHAM KADRI | /s/ Dr. Ilham Kadri | |
Director | Dr. Ilham Kadri | |
BRUCE M. SMITH | /s/ Bruce M. Smith | |
Director | Bruce M. Smith | |
MARK D. SMITH | /s/ Mark D. Smith | |
Director | Mark D. Smith | |
IDELLE K. WOLF | /s/ Idelle K. Wolf | |
Director | Idelle K. Wolf | |
GENE C. WULF | /s/ Gene C. Wulf | |
Director | Gene C. Wulf |
Description | Balance at Beginning of Year | Charged to Costs and Expenses | Acquisition of Businesses | Deductions | Balance at End of Year | |||||||||||||||
2016: | ||||||||||||||||||||
Valuation allowance for trade and notes receivable | $ | 6.0 | $ | 1.1 | $ | 0.2 | $ | (1.0 | ) | $ | 6.3 | |||||||||
Valuation allowance for deferred tax assets | 11.0 | 2.1 | — | — | 13.1 | |||||||||||||||
2015: | ||||||||||||||||||||
Valuation allowance for trade and notes receivable | $ | 3.7 | $ | 2.6 | — | $ | (0.3 | ) | $ | 6.0 | ||||||||||
Valuation allowance for deferred tax assets | 9.8 | 1.4 | — | (0.2 | ) | 11.0 | ||||||||||||||
2014: | ||||||||||||||||||||
Valuation allowance for trade and notes receivable | 2.8 | 1.4 | — | (0.5 | ) | 3.7 | ||||||||||||||
Valuation allowance for deferred tax assets | 9.6 | 1.0 | — | (0.8 | ) | 9.8 |
63
Description | Balance at Beginning of Year | Charged to Costs and Expenses | Acquisition of Businesses | Deductions | Balance at End of Year | |||||||||||||||
2019: | ||||||||||||||||||||
Valuation allowance for trade and notes receivable | $ | 6.4 | $ | 0.3 | $ | — | $ | (0.1 | ) | $ | 6.6 | |||||||||
Valuation allowance for deferred tax assets | 13.1 | — | — | (1.2 | ) | 11.9 | ||||||||||||||
2018: | ||||||||||||||||||||
Valuation allowance for trade and notes receivable | $ | 5.3 | $ | 1.5 | $ | — | $ | (0.4 | ) | $ | 6.4 | |||||||||
Valuation allowance for deferred tax assets | 15.0 | — | — | (1.9 | ) | 13.1 | ||||||||||||||
2017: | ||||||||||||||||||||
Valuation allowance for trade and notes receivable | $ | 6.3 | $ | — | $ | 0.2 | $ | (1.2 | ) | $ | 5.3 | |||||||||
Valuation allowance for deferred tax assets | 13.1 | 1.9 | — | — | 15.0 |