☒ | 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 |
Incorporation)
Identification No.)
February 12, 2018
Which 26,065,195 145,446,771
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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With the acquisition of Aquasana, Inc. (Aquasana) in 2016 and Hague Quality Water International (Hague) in 2017, we entered the North American water treatment market. Sales of water treatment products in North America totaled $57 million in 2017 and $18 million in 2016.
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) | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
North America | $ | 1,904.8 | $ | 1,743.2 | $ | 1,703.0 | $ | 1,621.7 | $ | 1,520.0 | ||||||||||
Rest of World | 1,116.3 | 965.6 | 866.1 | 768.3 | 668.0 | |||||||||||||||
Inter-segment | (24.4 | ) | (22.9 | ) | (32.6 | ) | (34.0 | ) | (34.2 | ) | ||||||||||
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Total Sales | $ | 2,996.7 | $ | 2,685.9 | $ | 2,536.5 | $ | 2,356.0 | $ | 2,153.8 | ||||||||||
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Sales in our North America segment increased 9.3 percent, or $161.6 million, in 2017 compared with the prior year. The sales increase in 2017 was the result of higher volumes of water heaters and boilers, and price increases in the U.S. for residential and commercial water heaters related to steel cost increases. North America water treatment sales in 2017, comprised of recently acquired Hague as well as a full year of Aquasana, incrementally added approximately $40 million of sales compared with 2016.
distribution channel, where we sell our products primarily under the A. O. Smith and State brands, includes more than 1,300 independent wholesale plumbing distributors serving residential and commercial end markets. We also sell our residential water heaters through the retail and maintenance, repair and operations (MRO) channels. In the retail channel, our customers include four of the six largest national hardware and home center chains, including a long-standing exclusive relationship with Lowe’s where we sell A. O. Smith branded products.
firms, the remainder of our Lochinvar branded products are distributed through wholesale channels.
Our energy efficientA. O. Smith branded water treatment products are sold through Lowe’s and our wholesale distribution channels.
regional assemblers.
Sales in our Rest of World segment increased 15.6 percent, or $150.7 million, in 2017 compared with the prior year. A 15.9 percent increase in sales in China to over $1 billion was the primary source of the increase. Excluding the appreciation of the U.S. dollar, sales in China increased 17.9 percent in 2017.
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
Residential and commercial construction activity in North America has shown modest growth and activity could decline again in the future. We believe that the majority of the markets we serve are for replacement of existing products and replacement related volume growth was strong in 2017.
We sell all of our products in highly competitive markets. We compete in each of our targeted markets based on product design, reliability, quality of products and services, advanced technologies, product performance, maintenance costs and price. Some of our competitors may have greater financial, marketing, manufacturing, research and development and distribution resources than we have, and some are increasingly expanding beyond their existing manufacturing or geographic footprints. Consumer purchasing behavior may shift to new distribution channels, includinge-commerce, which is a rapidly developing area. Development of a successfule-commerce strategy involves significant time, investment and resources. We cannot assure that our products and services will continue to compete successfully with those of our competitors or that we will be able to retain our customer base or improve or maintain our profit margins on sales to our customers, all of which could materially and adversely affect our financial condition, results of operations and cash flows.
Our success may depend on our ability to adapt to technological changes in the water heating, boiler, water treatment and air purifier industries. If we are unable to timely develop and introduce new products, or enhance existing products, in response to changing market conditions or customer requirements or demands, our competitiveness could be materially and adversely affected. Our ability to develop and successfully market new products and to develop, acquire, and retain necessary intellectual property rights is essential to our continued success, but cannot reasonably be assured.
business
On December 22, 2017, the Tax Cuts and Jobs Act (U.S. Tax Reform) was enacted effective January 1, 2018 and contained substantial changes to the Internal Revenue Code, some of which could have an adverse effect on our business. U.S. Tax Reform significantly revises the U.S. corporate income tax by, among other things, lowering corporate income tax rates, implementing a territorial tax system and imposing a repatriation tax on undistributed foreign earnings of foreign subsidiaries. With the enactment of U.S. Tax Reform, our results of operations for the year ended December 31, 2017 included provisional charges for income tax expense of approximately $81.8 million resulting from the deemed repatriation tax on undistributed foreign earnings and there-measurement of our deferred tax assets and liabilities to reflect the recently enacted 21 percent U.S. federal corporate income tax rate. These provisional amounts are based on our initial analysis of U.S. Tax Reform. Given the significant complexity of U.S. Tax Reform, anticipated guidance from the Internal Revenue Service about implementing U.S. Tax Reform, and the potential for additional guidance from the Securities and Exchange Commission or the Financial Accounting Standards Board related to U.S. Tax Reform, these provisional amounts
adversely impacted by product defects
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, insurance programs, 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.
we may not successfully integrate future acquisitions or operate them profitably or achieve strategic objectives
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
2022.
EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to General Instruction of G(3) of Form10-K,
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Name (Age) | Positions Held | Period Position Was Held | ||
Patricia K. Ackerman (59) | Senior Vice President – | 2019 to Present | ||
Vice President – | 2008 to | |||
Vice President and Treasurer | 2006 to | |||
Assistant Treasurer | 1995 to | |||
Paul R. Dana (57) | Senior Vice President – Global Operations | 2019 to Present | ||
Senior Vice President – Global Manufacturing | 2016 to | |||
Vice President – Global Manufacturing | 2015 | |||
President – APCOM, a division of State Industries, LLC, a subsidiary of the Company | 2011 to 2017 | |||
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 – | 2014 to | |||
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 |
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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 | ||
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 | |||
Chairman, President and Chief Executive Officer | 2014 to 2017 | |||
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 |
2017 | ||||
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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 | |||
Senior Vice President | 2013 to 2017 | |||
President and General Manager – North America, India and Europe Water Heating | 2013 to 2017 | |||
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
2017 | 1st Qtr. | 2nd Qtr. | 3rd Qtr. | 4th Qtr. | ||||||||||||
High | $ | 52.56 | $ | 57.58 | $ | 59.72 | $ | 63.70 | ||||||||
Low | 46.44 | 49.48 | 53.23 | 58.21 | ||||||||||||
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 |
(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, 2017 | 206,000 | $ | 60.52 | 206,000 | 2,758,053 | |||||||||||
November 1 – November 30, 2017 | 204,000 | 59.64 | 204,000 | 2,554,053 | ||||||||||||
December 1 – December 31, 2017 | 181,000 | 61.70 | 181,000 | 2,373,053 |
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 | 12/31/12 | 12/31/13 | 12/31/14 | 12/31/15 | 12/31/16 | 12/31/17 | ||||||||||||||||||
A. O. Smith Corporation | 100.0 | 172.9 | 183.1 | 251.4 | 314.2 | 410.9 | ||||||||||||||||||
S&P 500 Index | 100.0 | 132.4 | 150.5 | 152.6 | 170.8 | 208.1 | ||||||||||||||||||
S&P Mid Cap 400 Index | 100.0 | 133.5 | 146.6 | 143.4 | 173.1 | 201.2 | ||||||||||||||||||
Russell 1000 Index | 100.0 | 133.1 | 150.7 | 152.1 | 170.4 | 207.0 | ||||||||||||||||||
S&P 500 Select Industrial Index | 100.0 | 140.8 | 155.9 | 149.3 | 179.3 | 222.6 |
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 |
(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 |
(dollars in millions, except per share amounts) | ||||||||||||||||||||
Years ended December 31 | ||||||||||||||||||||
2017(1) | 2016(2) | 2015 | 2014 | 2013(3) | ||||||||||||||||
Net sales | $ | 2,996.7 | $ | 2,685.9 | $ | 2,536.5 | $ | 2,356.0 | $ | 2,153.8 | ||||||||||
Net earnings(1) | $ | 296.5 | $ | 326.5 | $ | 282.9 | $ | 207.8 | $ | 169.7 | ||||||||||
Basic earnings per share of common stock(1,2,3) | ||||||||||||||||||||
Net earnings | $ | 1.72 | $ | 1.87 | $ | 1.59 | $ | 1.15 | $ | 0.92 | ||||||||||
Diluted earnings per share of common stock(1,2,3) | ||||||||||||||||||||
Net earnings | $ | 1.70 | $ | 1.85 | $ | 1.58 | $ | 1.14 | $ | 0.91 | ||||||||||
Cash dividends per common share(2,3) | $ | 0.56 | $ | 0.48 | $ | 0.38 | $ | 0.30 | $ | 0.23 | ||||||||||
December 31 | ||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
Total assets | $ | 3,197.3 | $ | 2,891.0 | $ | 2,629.2 | $ | 2,498.1 | $ | 2,351.5 | ||||||||||
Long-term debt(4) | 402.9 | 316.4 | 236.1 | 210.1 | 177.7 | |||||||||||||||
Total stockholders’ equity | 1,648.8 | 1,515.3 | 1,442.3 | 1,381.3 | 1,328.7 |
(1) | Due to the enactment of the U.S. Tax Cuts & Jobs Act in December 2017, we recorded 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. |
(3) |
Excludes the current portion of long-term debt. |
2019.
2020. Our 2020 guidance introduced on January 28, 2020, excludes the potential impact to our businesses from the coronavirus originating in China. As of the date of this filing, while not yet quantifiable, we now expect the coronavirus will 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 2020.
Vietnam and air purification products as well as range hoods and cooktops in China.
2018.
2017.
Pension income in 2017 was $9.1 million compared to $6.9 million in 2016 and $0.1 million of pension expense in 2015. As of December 31, 2015, we changed to what we believe is a more precise method to estimate the service cost and interest components of net periodic benefit cost for our pension and post-retirement plans. The change was the reason for $7.7 million and $7.1 million of decreases in 2017 and 2016, respectively, compared to 2015, in service and interest costs.
Interest expense was $10.1 million in 2017 compared to $7.3 million in 2016 and $7.4 million in 2015. The higher interest expense in 20172018 compared to 20162017 was primarily related to higher interest rates as well as higher overalla result of lower debt levels, primarily due to increasedthe repatriation of approximately $312 million of cash from outside of the U.S, which was primarily used to pay down floating rate debt, as well as to fund our share repurchasesrepurchase activity and acquisitions completeddividend payments. This decline was partially offset by higher interest rates in 2016 and 2017.
2018.
2018 and $9.1 million in 2017. The service cost component of our pension income is reflected in cost of products sold and SG&A expenses. All other components of our pension income are reflected in other income.
percent.
2018.
24.25 percent.
2017.
categories and higher water treatment product development engineering costs. Higher segment earnings and segmentexpenses. Segment margin declined in 20162018 compared to 2015 were primarily due to higher sales in China 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 in 2016. Operating earnings in 2016 were also negatively impacted by almost $8 million due to the appreciation2017 as a result of the U.S. dollar in 2016.factors above. We expect 2018our 2020 Rest of World segment margin to expand 30 to 40 basis points compared to 2017.
will be approximately five percent.
Over thetwo-year period from 2016 to 2017, we generated operating cash of approximately $773 million, which compares with $616 million of operating cash flows during 2014 to 2015. We anticipate cash provided by operating activities to be $475 to $500 million in 2018 compared to $326 million in 2017 was primarily due to higher projected earnings and lower outlays for working capital particularly inventory.
in 2018.
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.
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.
expense.
2018.
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 | $ | 410.4 | $ | 7.5 | $ | 6.8 | $ | 296.5 | $ | 99.6 | ||||||||||
Fixed rate interest | 34.1 | 4.1 | 7.7 | 6.8 | 15.5 | |||||||||||||||
Operating leases | 47.5 | 20.2 | 8.5 | 5.6 | 13.2 | |||||||||||||||
Purchase obligations | 118.5 | 118.3 | 0.1 | 0.1 | — | |||||||||||||||
Pension and post-retirement obligations | 57.2 | 0.8 | 17.0 | 2.0 | 37.4 | |||||||||||||||
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Total | $ | 667.7 | $ | 150.9 | $ | 40.1 | $ | 311.0 | $ | 165.7 | ||||||||||
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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.
respectively.
As such, we believe that the measures of adjusted earnings, adjusted EPS, and adjusted segment earnings per share provide useful information to investors about our performance and allow management and our investors withto better understand our performance between periods without regard to items we do not consider to be a useful measurecomponent of our results. We have prepared annual reconciliationscore operating performance.
Years ended December 31, | ||||||||
2017 | 2016 | |||||||
Net Earnings (GAAP) | $ | 296.5 | $ | 326.5 | ||||
U.S. Tax Reform income tax expense | 81.8 | — | ||||||
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Adjusted Earnings | $ | 378.3 | $ | 326.5 | ||||
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Diluted EPS (GAAP) | $ | 1.70 | $ | 1.85 | ||||
U.S. Tax Reform income tax expense per diluted share | 0.47 | — | ||||||
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Adjusted EPS | $ | 2.17 | $ | 1.85 | ||||
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Excluding the impact
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 |
Outlook
WeU.S. dollar terms and 2.5 percent in local currency terms. As a result, we expect our consolidated sales to grow 8.5between 4.5 to 9.55.5 percent in 2018. With our organic growth potential and our stable replacement markets, we expect2020. We plan to achieve full-year earnings of between $2.50$2.40 and $2.58$2.50 per share, which excludes the potential impactimpacts from future acquisitions. Our 2020 guidance includesabove which was introduced on January 28, 2020, excludes the estimated benefit relatedpotential impact on our businesses from the coronavirus originating in China. As of 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 lower projected income tax rate under U.S. Tax Reform.
operating results in the first quarter of 2020 and we continue to assess the financial impact for the remainder of the year.
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. |
24, 2020
December 31 (dollars in millions) | ||||||||
2017 | 2016 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 346.6 | $ | 330.4 | ||||
Marketable securities | 473.4 | 424.2 | ||||||
Receivables | 598.4 | 518.7 | ||||||
Inventories | 291.2 | 251.1 | ||||||
Other current assets | 57.2 | 37.6 | ||||||
|
|
|
| |||||
Total Current Assets | 1,766.8 | 1,562.0 | ||||||
Net property, plant and equipment | 528.9 | 461.9 | ||||||
Goodwill | 516.7 | 491.5 | ||||||
Other intangibles | 308.7 | 308.3 | ||||||
Other assets | 76.2 | 67.3 | ||||||
|
|
|
| |||||
Total Assets | $ | 3,197.3 | $ | 2,891.0 | ||||
|
|
|
| |||||
Liabilities | ||||||||
Current Liabilities | ||||||||
Trade payables | $ | 535.0 | $ | 528.6 | ||||
Accrued payroll and benefits | 90.8 | 84.3 | ||||||
Accrued liabilities | 110.7 | 101.0 | ||||||
Product warranties | 44.5 | 44.5 | ||||||
Long-term debt due within one year | 7.5 | 7.2 | ||||||
|
|
|
| |||||
Total Current Liabilities | 788.5 | 765.6 | ||||||
Long-term debt | 402.9 | 316.4 | ||||||
Product warranties | 97.9 | 96.4 | ||||||
Pension liabilities | 48.1 | 109.0 | ||||||
Other liabilities | 211.1 | 88.3 | ||||||
|
|
|
| |||||
Total Liabilities | 1,548.5 | 1,375.7 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders’ Equity | ||||||||
Preferred Stock | — | — | ||||||
Class A Common Stock (shares issued 26,239,559 and 26,313,351) | 131.2 | 131.6 | ||||||
Common Stock (shares issued 164,468,033 and 164,394,241) | 164.5 | 164.4 | ||||||
Capital in excess of par value | 486.5 | 477.6 | ||||||
Retained earnings | 1,792.6 | 1,593.0 | ||||||
Accumulated other comprehensive loss | (299.5 | ) | (363.2 | ) | ||||
Treasury stock at cost | (626.5 | ) | (488.1 | ) | ||||
|
|
|
| |||||
Total Stockholders’ Equity | 1,648.8 | 1,515.3 | ||||||
|
|
|
| |||||
Total Liabilities and Stockholders’ Equity | $ | 3,197.3 | $ | 2,891.0 | ||||
|
|
|
| |||||
See accompanying notes which are an integral part of these statements. |
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) | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net sales | $ | 2,996.7 | $ | 2,685.9 | $ | 2,536.5 | ||||||
Cost of products sold | 1,758.0 | 1,566.6 | 1,526.7 | |||||||||
|
|
|
|
|
| |||||||
Gross profit | 1,238.7 | 1,119.3 | 1,009.8 | |||||||||
Selling, general and administrative expenses | 718.2 | 658.9 | 610.7 | |||||||||
Interest expense | 10.1 | 7.3 | 7.4 | |||||||||
Other income - net | (10.4 | ) | (9.4 | ) | (10.8 | ) | ||||||
|
|
|
|
|
| |||||||
Earnings before provision for income taxes | 520.8 | 462.5 | 402.5 | |||||||||
Provision for income taxes | 224.3 | 136.0 | 119.6 | |||||||||
|
|
|
|
|
| |||||||
Net Earnings | $ | 296.5 | $ | 326.5 | $ | 282.9 | ||||||
|
|
|
|
|
| |||||||
Net Earnings Per Share of Common Stock | $ | 1.72 | $ | 1.87 | $ | 1.59 | ||||||
|
|
|
|
|
| |||||||
Diluted Net Earnings Per Share of Common Stock | $ | 1.70 | $ | 1.85 | $ | 1.58 | ||||||
|
|
|
|
|
|
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) | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net Earnings | $ | 296.5 | $ | 326.5 | $ | 282.9 | ||||||
Other comprehensive earnings (loss) | ||||||||||||
Foreign currency translation adjustments | 52.7 | (39.8 | ) | (42.7 | ) | |||||||
Unrealized net (loss) gain on cash flow derivative instruments, less related income tax benefit (provision) of $0.7 in 2017, $0.6 in 2016 and $(0.2) in 2015 | (1.1 | ) | (1.0 | ) | 0.3 | |||||||
Change in pension liability less related income tax (provision) benefit of $(7.5) in 2017, $5.7 in 2016 and $(0.5) in 2015 | 12.1 | (9.0 | ) | 1.0 | ||||||||
|
|
|
|
|
| |||||||
Comprehensive Earnings | $ | 360.2 | $ | 276.7 | $ | 241.5 | ||||||
|
|
|
|
|
| |||||||
See accompanying notes which are an integral part of these statements. |
|
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) | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Operating Activities | ||||||||||||
Net earnings | $ | 296.5 | $ | 326.5 | $ | 282.9 | ||||||
Adjustments to reconcile earnings to cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 70.1 | 65.1 | 63.0 | |||||||||
U.S. Tax Reform income tax expense | 81.8 | — | — | |||||||||
Pension (income) expense | (9.1 | ) | (6.9 | ) | 0.1 | |||||||
Stock based compensation expense | 9.9 | 9.4 | 8.8 | |||||||||
Net changes in operating assets and liabilities, net of acquisitions: | ||||||||||||
Current assets and liabilities | (127.8 | ) | 68.5 | 16.8 | ||||||||
Noncurrent assets and liabilities | 5.0 | (16.0 | ) | (19.9 | ) | |||||||
|
|
|
|
|
| |||||||
Cash Provided by Operating Activities | 326.4 | 446.6 | 351.7 | |||||||||
Investing Activities | ||||||||||||
Acquisitions of businesses | (43.1 | ) | (90.8 | ) | — | |||||||
Investments in marketable securities | (583.5 | ) | (563.8 | ) | (428.8 | ) | ||||||
Proceeds from sales of marketable securities | 562.7 | 435.1 | 315.4 | |||||||||
Capital expenditures | (94.2 | ) | (80.7 | ) | (72.7 | ) | ||||||
|
|
|
|
|
| |||||||
Cash Used in Investing Activities | (158.1 | ) | (300.2 | ) | (186.1 | ) | ||||||
Financing Activities | ||||||||||||
Long-term debt incurred | 86.5 | 74.1 | 28.1 | |||||||||
Common stock repurchases | (139.1 | ) | (135.2 | ) | (128.1 | ) | ||||||
Net (payments) proceeds from stock option activity | (0.9 | ) | 5.7 | 6.4 | ||||||||
Acquisition related contingent payment | (1.7 | ) | — | — | ||||||||
Dividends paid | (96.9 | ) | (84.2 | ) | (67.8 | ) | ||||||
|
|
|
|
|
| |||||||
Cash Used in Financing Activities | (152.1 | ) | (139.6 | ) | (161.4 | ) | ||||||
|
|
|
|
|
| |||||||
Net increase in cash and cash equivalents | 16.2 | 6.8 | 4.2 | |||||||||
Cash and cash equivalents-beginning of year | 330.4 | 323.6 | 319.4 | |||||||||
|
|
|
|
|
| |||||||
Cash and CashEquivalents-End of Year | $ | 346.6 | $ | 330.4 | $ | 323.6 | ||||||
|
|
|
|
|
| |||||||
See accompanying notes which are an integral part of these statements. |
|
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) | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Class A Common Stock | ||||||||||||
Balance at the beginning of the year | $ | 131.6 | $ | 131.8 | $ | 132.2 | ||||||
Conversion of Class A Common Stock | (0.4 | ) | (0.2 | ) | (0.4 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | 131.2 | $ | 131.6 | $ | 131.8 | ||||||
|
|
|
|
|
| |||||||
Common Stock | ||||||||||||
Balance at the beginning of the year | $ | 164.4 | $ | 164.4 | $ | 164.2 | ||||||
Conversion of Class A Common Stock | 0.1 | — | 0.2 | |||||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | 164.5 | $ | 164.4 | $ | 164.4 | ||||||
|
|
|
|
|
| |||||||
Capital in Excess of Par Value | ||||||||||||
Balance at the beginning of the year | $ | 477.6 | $ | 469.3 | $ | 451.9 | ||||||
Conversion of Class A Common Stock | 0.3 | 0.2 | 0.2 | |||||||||
Issuance of share units | (4.9 | ) | (4.6 | ) | (4.2 | ) | ||||||
Vesting of share units | (2.9 | ) | (2.0 | ) | (3.2 | ) | ||||||
Stock based compensation expense | 9.2 | 8.8 | 8.1 | |||||||||
Exercises of stock options | 1.4 | 0.3 | 1.1 | |||||||||
Tax benefit from exercises of stock options and vesting of share units | — | — | 10.4 | |||||||||
Stock incentives | 5.8 | 5.6 | 5.0 | |||||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | 486.5 | $ | 477.6 | $ | 469.3 | ||||||
|
|
|
|
|
| |||||||
Retained Earnings | ||||||||||||
Balance at the beginning of the year | $ | 1,593.0 | $ | 1,350.7 | $ | 1,135.5 | ||||||
Net earnings | 296.5 | 326.5 | 282.9 | |||||||||
Cash dividends on stock | (96.9 | ) | (84.2 | ) | (67.7 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | 1,792.6 | $ | 1,593.0 | $ | 1,350.7 | ||||||
|
|
|
|
|
| |||||||
Accumulated Other Comprehensive Loss | ||||||||||||
Balance at the beginning of the year | $ | (363.2 | ) | $ | (313.4 | ) | $ | (272.0 | ) | |||
Foreign currency translation adjustments | 52.7 | (39.8 | ) | (42.7 | ) | |||||||
Unrealized net (loss) gain on cash flow derivative instruments, less related income tax benefit (provision) of $0.7 in 2017, $0.6 in 2016 and $(0.2) in 2015 | (1.1 | ) | (1.0 | ) | 0.3 | |||||||
Change in pension liability less related income tax (provision) benefit of $(7.5) in 2017, $5.7 in 2016 and $(0.5) in 2015 | 12.1 | (9.0 | ) | 1.0 | ||||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | (299.5 | ) | $ | (363.2 | ) | $ | (313.4 | ) | |||
|
|
|
|
|
| |||||||
Treasury Stock | ||||||||||||
Balance at the beginning of the year | $ | (488.1 | ) | $ | (360.5 | ) | $ | (230.5 | ) | |||
Exercise of stock options, net of 160,856, 54,019 and 418,754 shares surrendered as proceeds and to pay taxes in 2017, 2016 and 2015, respectively | (2.4 | ) | 4.0 | (5.2 | ) | |||||||
Stock incentives and directors’ compensation | 0.2 | 0.2 | 0.1 | |||||||||
Shares repurchased | (139.1 | ) | (135.2 | ) | (128.1 | ) | ||||||
Vesting of share units | 2.9 | 3.4 | 3.2 | |||||||||
|
|
|
|
|
| |||||||
Balance at the end of the year | $ | (626.5 | ) | $ | (488.1 | ) | $ | (360.5 | ) | |||
|
|
|
|
|
| |||||||
Total Stockholders’ Equity | $ | 1,648.8 | $ | 1,515.3 | $ | 1,442.3 | ||||||
|
|
|
|
|
| |||||||
See accompanying notes which are an integral part of these statements. |
|
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 | ||||||
approximately $120.0 million as of December 31, 2018 which approximated the carrying value.
2017.
Years ended December 31 (dollars in millions) | 2017 | 2016 | ||||||
Balance at beginning of year | $ | 140.9 | $ | 139.3 | ||||
Expense | 39.7 | 42.5 | ||||||
Claims settled | (38.2 | ) | (40.9 | ) | ||||
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| |||||
Balance at end of year | $ | 142.4 | $ | 140.9 | ||||
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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, 2017 | December 31, 2016 | ||||||
Quoted prices in active markets for identical assets (Level 1) | $ | 475.1 | $ | 424.5 |
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.
2017 | 2016 | 2015 | ||||||||||
Denominator for basic earnings per share - weighted-average shares outstanding | 172,666,056 | 174,712,683 | 177,622,280 | |||||||||
Effect of dilutive stock options, restricted stock and share units | 1,939,133 | 2,112,597 | 1,386,900 | |||||||||
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Denominator for diluted earnings per share | 174,605,189 | 176,825,280 | 179,009,180 | |||||||||
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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 May 2017, the FASB amended ASC 718,Compensation – Stock Compensation (issued under ASU2017-09, “Scope of Modification Accounting”). This amendment clarifies when changes to the terms or conditions of share-based payment awards must be accounted for as a modification. Under this amendment, modification accounting must be used if three conditions are met: the fair value changes, the vesting conditions change, or the classification of the award changes due to the changes in terms or conditions. The amendment requires adoption on January 1, 2018. The Company does not expect that the adoption of ASU2017-09 will have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.
In March 2017, the FASB amended ASC 715,Compensation – Retirement Benefits (issued under ASU2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”). This amendment changes the way net periodic benefit cost associated with employer-sponsored defined benefit plans is presented in the statement of earnings. Under the amendment, the service cost component of net periodic benefit cost is included in the same lines in the statement of earnings as other employee compensation costs and the other components of net periodic benefit cost must be presented separately outside of income from operations. The amendment requires adoption on January 1, 2018. The Company does not expect the adoption of ASU2017-07 to have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.
financial statements.
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 clarified reporting for contingent consideration payments made after a business combination depending on how soon after the acquisition the payments are made. The Company adopted ASU2016-15 effective January 1, 2017.
In March 2016, the FASB amended ASC 718,Compensation—Stock Compensation (issued under ASU2016-09). This amendment simplified several aspects of the accounting for share-based payment transactions. The Company adopted this amendment effective January 1, 2016. The amendment requires the benefits or deficiencies of tax deductions in excess of or less than the recognized compensation cost to be recorded as income tax benefits or expense in the consolidated statement of earnings in the periods in which they occur. The amendment also eliminated previous guidance that required unrecognized future excess income tax benefits to be considered used to repurchase shares in the calculation of diluted shares which resulted in lower diluted shares outstanding than the calculation under the amendment. The Company applied this guidance prospectively. As such, the Company recognized $11.6 million and $5.9 million of discrete income tax benefits associated with excess tax benefits on settled stock based compensation awards during 2017 and 2016, respectively. The Company’s diluted shares outstanding for the 2017 and 2016 increased as compared to the way it was calculated under previous guidance.
In May 2014, the FASB issued ASC606-10, Refer to Note 4, Leases, for additional information.
combination of replacement of existing products and new construction.
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 | ||||||
OnIncludes the results of Water-Right and Hague Quality Water International (Hague) from the date of acquisition of April 8, 2019 and September 5, 2017, respectively.
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 | $ | |||
respectively. During 2018, the Company finalized the amount of acquisition date working capital, which resulted in a $1.3 million payment to the former owners of 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 | ||
(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 8, 2016, the Company acquired 100 percentconsolidation of the shares of Aquasana, Inc. (Aquasana), a Texas-based water treatment company. With the addition of Aquasana, the Company entered the North America water treatment market. Aquasana is included in the Company’s North America segment for reporting purposes.
The Company paid an aggregate cash purchase price of $85.1 million, net of $1.9 million of cash acquired. In addition, the Company incurred acquisition-related costs of approximately $1.2 million and recorded a holdback liabilityRenton facility to satisfy any potential obligations of the former owners of Aquasana to pay any adjustment to the purchase price. As of the acquisition date, the fair value of the holdback liabilityother U.S. facilities was $1.7 million. The Company paid the full holdback liability to the former owners of Aquasana in 2017.
complete.
(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 | ||||||||
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 | |||
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| |||
Total assets acquired | 100.4 | |||
Current liabilities | (7.1 | ) | ||
Long-term liabilities | (8.2 | ) | ||
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| |||
Total liabilities assumed | (15.3 | ) | ||
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Net assets acquired | $ | 85.1 | ||
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The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations have been included in the Company’s financial statements from August 8, 2016, the date of acquisition.
Cash Flows
Years ended December 31 (dollars in millions) | 2017 | 2016 | 2015 | |||||||||
Net change in current assets and liabilities, net of acquisitions: | ||||||||||||
Receivables | $ | (75.8 | ) | $ | (15.1 | ) | $ | (25.9 | ) | |||
Inventories | (37.5 | ) | (23.4 | ) | (14.7 | ) | ||||||
Other current assets | (9.0 | ) | (3.2 | ) | (4.6 | ) | ||||||
Trade payables | (5.1 | ) | 101.5 | 31.0 | ||||||||
Accrued liabilities, including payroll and benefits | 12.2 | 6.0 | 19.8 | |||||||||
Income taxes (refundable) payable | (12.6 | ) | 2.7 | 11.2 | ||||||||
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$ | (127.8 | ) | $ | 68.5 | $ | 16.8 | ||||||
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December 31 (dollars in millions) | 2017 | 2016 | ||||||
Finished products | $ | 134.6 | $ | 114.1 | ||||
Work in process | 18.3 | 13.0 | ||||||
Raw materials | 160.5 | 142.4 | ||||||
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Inventories, at FIFO cost | 313.4 | 269.5 | ||||||
LIFO reserve | (22.2 | ) | (18.4 | ) | ||||
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$ | 291.2 | $ | 251.1 | |||||
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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) | 2017 | 2016 | ||||||
Land | $ | 11.2 | $ | 11.0 | ||||
Buildings | 329.9 | 286.4 | ||||||
Equipment | 608.4 | 533.7 | ||||||
Software | 110.6 | 101.4 | ||||||
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1,060.1 | 932.5 | |||||||
Less accumulated depreciation and amortization | 531.2 | 470.6 | ||||||
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$ | 528.9 | $ | 461.9 | |||||
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Equipment
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, 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 | |||||||||
Acquisitions | 22.2 | — | 22.2 | |||||||||
Currency translation adjustment | 2.8 | 0.2 | 3.0 | |||||||||
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Balance at December 31, 2017 | $ | 457.2 | $ | 59.5 | $ | 516.7 | ||||||
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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 | ||||||
2017 | 2016 | |||||||||||||||||||||||
December 31 (dollars in millions) | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||
Amortizable intangible assets: | ||||||||||||||||||||||||
Patents | $ | 3.7 | $ | (2.7 | ) | $ | 1.0 | $ | 3.7 | $ | (2.2 | ) | $ | 1.5 | ||||||||||
Customer lists | 235.8 | (93.3 | ) | 142.5 | 224.0 | (80.3 | ) | 143.7 | ||||||||||||||||
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Total amortizable intangible assets | 239.5 | (96.0 | ) | 143.5 | 227.7 | (82.5 | ) | 145.2 | ||||||||||||||||
Indefinite-lived intangible assets: | ||||||||||||||||||||||||
Trade names | 165.2 | — | 165.2 | 163.1 | — | 163.1 | ||||||||||||||||||
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Total intangible assets | $ | 404.7 | $ | (96.0 | ) | $ | 308.7 | $ | 390.8 | $ | (82.5 | ) | $ | 308.3 | ||||||||||
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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) | 2017 | 2016 | ||||||
Bank credit lines, averageyear-end interest rates of 2.5% for 2017 and 2.4% for 2016 | $ | 15.9 | $ | 23.6 | ||||
Revolving credit agreement borrowings, averageyear-end interest rates of 2.5% for 2017 and 1.7% for 2016 | 190.0 | 80.0 | ||||||
Commercial paper, averageyear-end interest rates of 1.7% for 2017 and 1.1% for 2016 | 77.0 | 85.6 | ||||||
Term notes with insurance companies, expiring 2029-2034, averageyear-end interest rates of 3.4% for 2017 and 3.5% for 2016 | 122.7 | 125.5 | ||||||
Canadian term notes with insurance companies, expiring through 2018, averageyear-end interest rates of 5.3% for 2017 and 2016 | 4.8 | 8.9 | ||||||
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410.4 | 323.6 | |||||||
Less long-term debt due within one year | 7.5 | 7.2 | ||||||
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| |||||
Long-term debt | $ | 402.9 | $ | 316.4 | ||||
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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 2028 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 | |||
2018 | $ | 7.5 | ||
2019 | — | |||
2020 | 6.8 | |||
2021 | 290.0 | |||
2022 | 6.8 |
Future minimum payments undernon-cancelable operating leases relating mostly to office, manufacturing and warehouse facilities total $47.5 million and are due as follows:
Years ending December 31 (dollars in millions) | Amount | |||
2018 | $ | 20.2 | ||
2019 | 4.9 | |||
2020 | 3.6 | |||
2021 | 3.1 | |||
2022 | 2.5 | |||
Thereafter | 13.2 |
Rent expense, including payments under operating leases, was $29.4 million, $29.8 million and $28.8 million in 2017, 2016 and 2015, respectively.
Interest paid by the Company was $10.0 million, $7.2 million and $6.4 million in 2017, 2016 and 2015, respectively. The Company capitalized interest expense of $0.7 million, $0.2 million and $0.2 million in 2017, 2016 and 2015, respectively.
8.
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.
Accumulated other comprehensive loss is as follows:
December 31 (dollars in millions) | 2017 | 2016 | ||||||
Cumulative foreign currency translation adjustments | $ | (26.5 | ) | $ | (79.2 | ) | ||
Unrealized net (loss) gain on cash flow derivative instruments less related income tax benefit (provision) of $0.6 in 2017 and $(0.1) in 2016 | (0.9 | ) | 0.2 | |||||
Pension liability less related income tax benefit of $175.9 in 2017 and $183.4 in 2016 | (272.1 | ) | (284.2 | ) | ||||
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| |||||
$ | (299.5 | ) | $ | (363.2 | ) | |||
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Years ended December 31, | ||||||||
2017 | 2016 | |||||||
Cumulative foreign currency translation | ||||||||
Balance at beginning of period | $ | (79.2 | ) | $ | (39.4 | ) | ||
Other comprehensive gain (loss) before reclassifications | 52.7 | (39.8 | ) | |||||
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| |||||
Balance at end of period | (26.5 | ) | (79.2 | ) | ||||
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| |||||
Unrealized net gain on cash flow derivatives | ||||||||
Balance at beginning of period | 0.2 | 1.2 | ||||||
Other comprehensive losses before reclassifications | (0.5 | ) | (0.9 | ) | ||||
Realized gains on derivatives reclassified to cost of products sold (net of tax provision of $0.4 and $0.1 in 2017 and 2016, respectively)(1) | (0.6 | ) | (0.1 | ) | ||||
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|
| |||||
Balance at end of period | (0.9 | ) | 0.2 | |||||
|
|
|
| |||||
Pension liability | ||||||||
Balance at beginning of period | (284.2 | ) | (275.2 | ) | ||||
Other comprehensive gain (loss) before reclassifications | 1.4 | (18.8 | ) | |||||
Amounts reclassified from accumulated other comprehensive loss(1) | 10.7 | 9.8 | ||||||
|
|
|
| |||||
Balance at end of period | (272.1 | ) | (284.2 | ) | ||||
|
|
|
| |||||
Total accumulated other comprehensive loss, end of period | $ | (299.5 | ) | $ | (363.2 | ) | ||
|
|
|
| |||||
(1)Amounts reclassified from accumulated other comprehensive loss: | ||||||||
Realized gains on derivatives reclassified to cost of products sold | (1.0 | ) | (0.2 | ) | ||||
Tax provision | 0.4 | 0.1 | ||||||
|
|
|
| |||||
Reclassification net of tax | $ | (0.6 | ) | $ | (0.1 | ) | ||
|
|
|
| |||||
Amortization of pension items: | ||||||||
Actuarial losses | $ | 17.9 | (2) | $ | 17.5 | (2) | ||
Prior year service cost | (0.4 | )(2) | (1.5 | )(2) | ||||
|
|
|
| |||||
17.5 | 16.0 | |||||||
Tax benefit | (6.8 | ) | (6.2 | ) | ||||
|
|
|
| |||||
Reclassification net of tax | $ | 10.7 | $ | 9.8 | ||||
|
|
|
| |||||
(2) These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note 10 - Pensions and Other Post-retirement Benefits for additional details |
|
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) |
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 13 “Pensions and Other Post-retirement Benefits” for additional details. |
Options
Weighted-Avg. Per Share Exercise Price | Years Ended December 31 | (dollars in millions) Aggregate Intrinsic Value | ||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||
Outstanding at beginning of year | $ | 21.69 | 2,664,333 | 2,653,558 | 3,154,006 | |||||||||||||||
Granted | ||||||||||||||||||||
2017—$50.16 to $50.16 per share | 358,150 | |||||||||||||||||||
2016—$31.49 to $46.93 per share | 553,370 | |||||||||||||||||||
2015—$23.24 to $25.34 per share | 484,990 | |||||||||||||||||||
Exercised | ||||||||||||||||||||
2017—$4.75 to $31.67 per share | (752,603 | ) | $ | 12.7 | ||||||||||||||||
2016—$4.75 to $30.77 per share | (531,933 | ) | 7.5 | |||||||||||||||||
2015—$4.10 to $17.46 per share | (978,208 | ) | 10.2 | |||||||||||||||||
Forfeited | ||||||||||||||||||||
2017—$30.77 to $50.16 per share | (6,754 | ) | ||||||||||||||||||
2016—$23.24 to $46.93 per share | (10,662 | ) | ||||||||||||||||||
2015—$17.46 to $23.24 per share | (7,230 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Outstanding at end of year | ||||||||||||||||||||
(2017—$4.75 to $50.16 per share) | 27.73 | 2,263,126 | 2,664,333 | 2,653,558 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Exercisable at end of year | 20.48 | 1,387,259 | 1,602,651 | 1,544,186 | ||||||||||||||||
|
|
|
|
|
|
The aggregate intrinsic value for the outstanding and exercisable options as
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 | ||||||||||||||||||
(1) | The total intrinsic value of options exercised in 2019, 2018 and 2017 was $7.7 million, $6.8 million and $29.1 million, respectively. |
(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 | ||||||
The following table summarizes weighted-average information by range of exercise prices for stock options outstanding and exercisable at December 31, 2017:
Range of Exercise Prices | Options Outstanding at December 31, 2017 | Weighted- Average Exercise Price | Options Exercisable at December 31, 2017 | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Life | |||||||||||||||
$4.75 to $11.50 | 414,134 | $ | 9.56 | 414,134 | $ | 9.56 | 4 years | |||||||||||||
$17.46 to $25.34 | 556,847 | 20.58 | 556,847 | 20.58 | 7 years | |||||||||||||||
$26.47 to $50.16 | 1,292,145 | 36.63 | 416,278 | 31.20 | 8 years | |||||||||||||||
|
|
|
| |||||||||||||||||
2,263,126 | 1,387,259 | |||||||||||||||||||
|
|
|
|
Contents
2017 | 2016 | 2015 | ||||||||||
Expected life (years) | 5.7 | 5.8 | 5.9 | |||||||||
Risk-free interest rate | 2.4 | % | 1.7 | % | 2.0 | % | ||||||
Dividend yield | 1.0 | % | 1.3 | % | 1.0 | % | ||||||
Expected volatility | 26.5 | % | 27.7 | % | 29.3 | % |
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, 2017 | 544,055 | $ | 27.35 | |||||
Granted | 107,853 | 50.17 | ||||||
Vested | (213,863 | ) | 23.25 | |||||
Forfeited/cancelled | (4,755 | ) | 34.25 | |||||
|
| |||||||
Outstanding at December 31, 2017 | 433,290 | 34.96 | ||||||
|
|
Total compensation expense for share units not yet recognized is $2.2 million at December 31, 2017. The weighted average period over which the expense is expected to be recognized is 11 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) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Accumulated benefit obligation (ABO) at December 31 | $ | 921.8 | $ | 894.3 | N/A | N/A | ||||||||||
Change in projected benefit obligations (PBO) | ||||||||||||||||
PBO at beginning of year | $ | (895.8 | ) | $ | (892.9 | ) | $ | (6.6 | ) | $ | (6.6 | ) | ||||
Service cost | (1.8 | ) | (1.8 | ) | (0.1 | ) | (0.1 | ) | ||||||||
Interest cost | (30.0 | ) | (30.6 | ) | (0.3 | ) | (0.2 | ) | ||||||||
Participant contributions | — | — | (0.1 | ) | — | |||||||||||
Plan amendments | — | (0.7 | ) | — | — | |||||||||||
Actuarial loss including assumption changes | (54.3 | ) | (31.0 | ) | (1.1 | ) | (0.2 | ) | ||||||||
Benefits paid | 59.2 | 61.2 | 0.6 | 0.5 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
PBO at end of year | $ | (922.7 | ) | $ | (895.8 | ) | $ | (7.6 | ) | $ | (6.6 | ) | ||||
|
|
|
|
|
|
|
| |||||||||
Change in fair value of plan assets | ||||||||||||||||
Plan assets at beginning of year | $ | 787.0 | $ | 759.0 | $ | — | $ | — | ||||||||
Actual return on plan assets | 116.5 | 57.0 | — | — | ||||||||||||
Contribution by the company | 30.5 | 32.2 | 0.4 | 0.5 | ||||||||||||
Participant contributions | — | — | 0.1 | — | ||||||||||||
Benefits paid | (59.2 | ) | (61.2 | ) | (0.5 | ) | (0.5 | ) | ||||||||
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|
|
|
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| |||||||||
Plan assets at end of year | $ | 874.8 | $ | 787.0 | $ | — | $ | — | ||||||||
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|
|
| |||||||||
Funded status | $ | (47.9 | ) | $ | (108.8 | ) | $ | (7.6 | ) | $ | (6.6 | ) | ||||
Amount recognized in the balance sheet | ||||||||||||||||
Current liabilities | $ | (0.5 | ) | $ | (0.5 | ) | $ | (0.3 | ) | $ | (0.4 | ) | ||||
Non-current liabilities | (47.4 | ) | (108.3 | ) | (7.3 | ) | (6.2 | ) | ||||||||
|
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|
|
| |||||||||
Net pension liability at end of year | $ | (47.9 | )* | $ | (108.8 | )* | $ | (7.6 | ) | $ | (6.6 | ) | ||||
|
|
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|
|
|
|
| |||||||||
Amounts recognized in accumulated other comprehensive loss before tax | ||||||||||||||||
Net actuarial loss (gain) | $ | 451.8 | $ | 473.5 | $ | (0.8 | ) | $ | (2.0 | ) | ||||||
Prior service cost | (0.5 | ) | (0.9 | ) | (2.6 | ) | (2.9 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total recognized in accumulated other comprehensive loss | $ | 451.3 | $ | 472.6 | $ | (3.4 | ) | $ | (4.9 | ) | ||||||
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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) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
Net periodic benefit cost | ||||||||||||||||||||||||
Service cost | $ | 1.8 | $ | 1.8 | $ | 1.9 | $ | 0.1 | $ | 0.1 | $ | 0.1 | ||||||||||||
Interest cost | 30.0 | 30.6 | 37.6 | 0.3 | 0.2 | 0.3 | ||||||||||||||||||
Expected return on plan assets | (58.4 | ) | (55.9 | ) | (57.5 | ) | — | — | — | |||||||||||||||
Amortization of unrecognized: | ||||||||||||||||||||||||
Net actuarial loss (gain) | 17.9 | 17.7 | 19.1 | (0.1 | ) | (0.2 | ) | (0.1 | ) | |||||||||||||||
Prior service cost | (0.4 | ) | (1.1 | ) | (1.0 | ) | (0.4 | ) | (0.4 | ) | (0.4 | ) | ||||||||||||
Curtailment and otherone-time charges | — | — | — | — | — | — | ||||||||||||||||||
|
| �� |
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| ||||||||||||
Defined-benefit plan (income) cost | (9.1 | ) | (6.9 | ) | 0.1 | $ | (0.1 | ) | $ | (0.3 | ) | $ | (0.1 | ) | ||||||||||
|
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| |||||||||||||||||||
Various U.S. defined contribution plans cost | 12.0 | 11.6 | 10.8 | |||||||||||||||||||||
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| |||||||||||||||||||
$ | 2.9 | $ | 4.7 | $ | 10.9 | |||||||||||||||||||
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| |||||||||||||||||||
Other changes in plan assets and projected benefit obligation recognized in other comprehensive loss | ||||||||||||||||||||||||
Net actuarial (gain) loss | $ | (3.8 | ) | $ | 29.9 | $ | 17.2 | $ | 1.1 | $ | 0.2 | $ | — | |||||||||||
Amortization of net actuarial (loss) gain | (17.9 | ) | (17.7 | ) | (19.1 | ) | 0.1 | 0.2 | 0.1 | |||||||||||||||
Prior service cost | — | 0.6 | 2.5 | — | — | (3.7 | ) | |||||||||||||||||
Amortization of prior service cost | 0.5 | 1.1 | 1.0 | 0.4 | 0.4 | 0.4 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total recognized in other comprehensive loss | (21.2 | ) | 13.9 | 1.6 | 1.6 | 0.8 | (3.2 | ) | ||||||||||||||||
|
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|
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|
| |||||||||||||
Total recognized in net periodic (benefit) cost and other comprehensive loss | $ | (30.3 | ) | $ | 7.0 | $ | 1.7 | $ | 1.5 | $ | 0.5 | $ | (3.3 | ) | ||||||||||
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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 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Discount rate | 3.65 | % | 4.15 | % | 3.79 | % | 4.33 | % | ||||||||
Average salary increases | n/a | 4.00 | % | n/a | n/a |
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 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
Discount rate | 4.15 | % | 4.40 | % | 4.05 | % | 4.40 | % | 4.55 | % | 4.00 | % | ||||||||||||
Expected long-term return on plan assets | 7.50 | % | 7.50 | % | 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 | % |
2017 | 2016 | |||||||
Health care cost trend rate assumed for next year | 6.50 | % | 6.50 | % | ||||
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 | 2017 | 2016 | ||||||
Equity securities | 45 | % | 48 | % | ||||
Debt securities | 43 | 37 | ||||||
Real estate | 9 | 10 | ||||||
Private equity | 2 | 4 | ||||||
Other | 1 | 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, 2017 | ||||||||||||||||
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 | $ | 15.8 | $ | 2.0 | $ | 13.8 | $ | — | ||||||||
Equity securities | ||||||||||||||||
Common stocks | 220.3 | 220.3 | — | — | ||||||||||||
Commingled equity funds | 121.5 | — | 121.5 | — | ||||||||||||
Fixed income securities | ||||||||||||||||
U.S. treasury securities | 46.0 | 46.0 | — | — | ||||||||||||
Other fixed income securities | 219.9 | — | 219.9 | — | ||||||||||||
Commingled fixed income funds | 99.8 | — | 99.8 | — | ||||||||||||
Other types of investments | ||||||||||||||||
Mutual funds | 51.8 | — | 51.8 | — | ||||||||||||
Real estate funds | 77.8 | — | — | 77.8 | ||||||||||||
Private equity | 20.9 | — | — | 20.9 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fair value of plan asset investments | $ | 873.8 | $ | 268.3 | $ | 506.8 | $ | 98.7 | ||||||||
|
|
|
|
|
| |||||||||||
Non-investment plan assets | 1.0 | |||||||||||||||
|
| |||||||||||||||
Total plan assets | $ | 874.8 | ||||||||||||||
|
| |||||||||||||||
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 | ||||||||||||||
|
|
10.
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, 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 | ||||||||||||
Actual return (loss) on plan assets: | ||||||||||||||||
Relating to assets still held at the reporting date | — | 3.5 | (5.6 | ) | (2.1 | ) | ||||||||||
Relating to assets sold during the period | — | — | 7.8 | 7.8 | ||||||||||||
Purchases, sales and settlements | (19.7 | ) | — | (9.3 | ) | (29.0 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2017 | $ | — | $ | 77.8 | $ | 20.9 | $ | 98.7 | ||||||||
|
|
|
|
|
|
|
|
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 | ||||||
2018 | $ | 60.5 | $ | 0.3 | ||||
2019 | 66.6 | 0.4 | ||||||
2020 | 68.5 | 0.4 | ||||||
2021 | 59.3 | 0.4 | ||||||
2022 | 58.6 | 0.4 | ||||||
2023 – 2027 | 285.6 | 2.2 |
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), gains or losses 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.
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) | 2017 | 2016 | ||||||||||||||
Buy | Sell | Buy | Sell | |||||||||||||
British pound | $ | — | $ | 1.2 | $ | — | $ | 1.2 | ||||||||
Canadian dollar | — | 48.1 | — | 56.9 | ||||||||||||
Euro | 29.3 | — | 25.4 | 1.8 | ||||||||||||
Mexican peso | 16.3 | — | 16.9 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 45.6 | $ | 49.3 | $ | 42.3 | $ | 59.9 | ||||||||
|
|
|
|
|
|
|
|
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 | ||||||||
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 | 2017 | 2016 | |||||||
Foreign currency contracts | Other current assets | $ | 0.2 | $ | 1.9 | |||||
Accrued liabilities | (1.8 | ) | (2.0 | ) | ||||||
Commodities contracts | Other current assets | 0.2 | 0.8 | |||||||
Accrued liabilities | — | (0.3 | ) | |||||||
|
|
|
| |||||||
Total derivatives designated as hedging instruments | $ | (1.4 | ) | $ | 0.4 | |||||
|
|
|
|
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 | $ | $ | ||||||||
earnings:
Derivatives in ASC 815 cash flow hedging relationships | Amount of gain (loss) recognized in other comprehensive loss on derivative | Location of gain (loss) | Amount of gain (loss) reclassified from accumulated other comprehensive loss into earnings | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||
Foreign currency contracts | $ | (1.1 | ) | $ | (3.8 | ) | Cost of products sold | $ | 0.4 | $ | (1.4 | ) | ||||||
Commodities contracts | 0.5 | 2.4 | Cost of products sold | 0.6 | 1.6 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
$ | (0.6 | ) | $ | (1.4 | ) | $ | 1.0 | $ | 0.2 | |||||||||
|
|
|
|
|
|
|
|
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) | 2017 | 2016 | 2015 | |||||||||
Current: | ||||||||||||
Federal | $ | 148.0 | $ | 71.6 | $ | 82.9 | ||||||
State | 9.4 | 14.5 | 13.9 | |||||||||
International | 43.8 | 34.9 | 23.6 | |||||||||
Deferred: | ||||||||||||
Federal | 23.5 | 11.0 | (4.2 | ) | ||||||||
State | 5.8 | 5.2 | 2.2 | |||||||||
International | (6.2 | ) | (1.2 | ) | 1.2 | |||||||
|
|
|
|
|
| |||||||
$ | 224.3 | $ | 136.0 | $ | 119.6 | |||||||
|
|
|
|
|
|
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 | 2017 | 2016 | 2015 | |||||||||
Provision at U.S. federal statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
State taxes, net of federal benefit | 1.9 | 2.8 | 2.6 | |||||||||
International income tax rate differential - China | (6.5 | ) | (6.2 | ) | (6.8 | ) | ||||||
International income tax rate differential - other | 0.1 | 0.3 | 0.2 | |||||||||
U.S. manufacturing credit | (1.4 | ) | (1.5 | ) | (1.3 | ) | ||||||
Research tax credits | (0.3 | ) | (0.3 | ) | (0.3 | ) | ||||||
Excess tax benefit on stock compensation | (2.2 | ) | (1.1 | ) | — | |||||||
Other | 0.8 | 0.4 | 0.3 | |||||||||
|
|
|
|
|
| |||||||
27.4 | % | 29.4 | % | 29.7 | % | |||||||
U.S. Tax Cuts & Jobs Act (U.S. Tax Reform) | 15.7 | — | — | |||||||||
|
|
|
|
|
| |||||||
43.1 | % | 29.4 | % | 29.7 | % | |||||||
|
|
|
|
|
|
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 | % |
U.S. Tax Reform from accumulated other comprehensive losses to retained earnings.
Years ended December 31 (dollars in millions) | 2017 | 2016 | 2015 | |||||||||
U.S. | $ | 329.9 | $ | 300.9 | $ | 255.7 | ||||||
International | 190.9 | 161.6 | 146.8 | |||||||||
|
|
|
|
|
| |||||||
$ | 520.8 | $ | 462.5 | $ | 402.5 | |||||||
|
|
|
|
|
|
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) | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Assets | Liabilities | Assets | Liabilities | |||||||||||||
Employee benefits | $ | 30.4 | $ | — | $ | 67.5 | $ | — | ||||||||
Product liability and warranties | 43.4 | — | 67.1 | — | ||||||||||||
Inventories | — | 2.0 | — | 3.4 | ||||||||||||
Accounts receivable | 16.5 | — | 14.9 | — | ||||||||||||
Property, plant and equipment | — | 31.1 | — | 34.3 | ||||||||||||
Intangibles | — | 54.3 | — | 77.4 | ||||||||||||
Environmental liabilities | 2.4 | — | 2.9 | — | ||||||||||||
Undistributed foreign earnings | — | 38.6 | — | 42.3 | ||||||||||||
Tax loss and credit carryovers | 19.8 | — | 18.2 | — | ||||||||||||
All other | 5.5 | — | 4.3 | — | ||||||||||||
Valuation allowance | (15.0 | ) | — | (13.1 | ) | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 103.0 | $ | 126.0 | $ | 161.8 | $ | 157.4 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Net asset | $ | 23.0 | $ | 4.4 | ||||||||||||
|
|
|
|
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 | ||||||||||||
December 31 (dollars in millions) | ||||||||||||||||
Net Operating Losses and Tax Credits | Valuation Allowances | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Beginning balance | $ | 18.2 | $ | 14.6 | $ | 13.1 | $ | 11.0 | ||||||||
Additions | 1.6 | 3.7 | 1.9 | 2.1 | ||||||||||||
Reductions | — | (0.1 | ) | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Ending balance | $ | 19.8 | $ | 18.2 | $ | 15.0 | $ | 13.1 | ||||||||
|
|
|
|
|
|
|
|
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) | 2017 | 2016 | ||||||
Balance at January 1 | $ | 4.2 | $ | 2.6 | ||||
Additions for tax positions of prior years | 2.0 | 1.6 | ||||||
|
|
|
| |||||
Balance at December 31 | $ | 6.2 | $ | 4.2 | ||||
|
|
|
|
(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) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
North America | $ | 1,904.8 | $ | 1,743.2 | $ | 1,703.0 | $ | 428.6 | $ | 385.9 | $ | 339.9 | ||||||||||||
Rest of World | 1,116.3 | 965.6 | 866.1 | 149.3 | 129.1 | 113.0 | ||||||||||||||||||
Inter-segment | (24.4 | ) | (22.9 | ) | (32.6 | ) | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total segments – sales, segment earnings | $ | 2,996.7 | $ | 2,685.9 | $ | 2,536.5 | $ | 577.9 | $ | 515.0 | $ | 452.9 | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Corporate expenses | (47.0 | ) | (45.2 | ) | (43.0 | ) | ||||||||||||||||||
Interest expense | (10.1 | ) | (7.3 | ) | (7.4 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Earnings before income taxes | 520.8 | 462.5 | 402.5 | |||||||||||||||||||||
Provision for income taxes | (224.3 | ) | (136.0 | ) | (119.6 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net earnings | $ | 296.5 | $ | 326.5 | $ | 282.9 | ||||||||||||||||||
|
|
|
|
|
|
In 2017, the Company recorded provisionalone-time charges of $81.8 million associated with U.S. Tax Reform, primarily related to the repatriation of undistributed foreign earnings.
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) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||
North America | $ | 1,592.5 | $ | 1,515.9 | $ | 1,381.1 | $ | 45.1 | $ | 42.9 | $ | 41.9 | $ | 38.5 | $ | 45.9 | $ | 43.5 | ||||||||||||||||||
Rest of World | 741.4 | 584.3 | 544.2 | 23.8 | 21.0 | 19.8 | 55.2 | 34.3 | 28.4 | |||||||||||||||||||||||||||
Corporate | 863.4 | 790.8 | 703.9 | 1.2 | 1.2 | 1.3 | 0.5 | 0.5 | 0.8 | |||||||||||||||||||||||||||
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Total | $ | 3,197.3 | $ | 2,891.0 | $ | 2,629.2 | $ | 70.1 | $ | 65.1 | $ | 63.0 | $ | 94.2 | $ | 80.7 | $ | 72.7 | ||||||||||||||||||
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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) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||||
United States | $ | 303.0 | $ | 292.4 | $ | 297.8 | United States | $ | 1,698.1 | $ | 1,570.7 | $ | 1,531.4 | |||||||||||||
China | 250.8 | 184.3 | 157.3 | China | 1,034.9 | 887.1 | 787.1 | |||||||||||||||||||
Canada | 3.2 | 3.1 | 2.7 | Canada | 163.7 | 138.7 | 129.9 | |||||||||||||||||||
Other Foreign | 47.1 | 48.4 | 55.2 | Other Foreign | 100.0 | 89.4 | 88.1 | |||||||||||||||||||
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Total | $ | 604.1 | $ | 528.2 | $ | 513.0 | Total | $ | 2,996.7 | $ | 2,685.9 | $ | 2,536.5 | |||||||||||||
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(dollars in millions, except per share amounts) | ||||||||||||||||||||||||||||||||
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
Net sales | $ | 740.0 | $ | 636.9 | $ | 738.2 | $ | 667.0 | $ | 749.9 | $ | 683.9 | $ | 768.6 | $ | 698.1 | ||||||||||||||||
Gross profit | 302.3 | 262.7 | 305.9 | 283.7 | 306.7 | 283.3 | 323.8 | 289.6 | ||||||||||||||||||||||||
Net earnings | 87.7 | 73.5 | 92.4 | 87.1 | 93.7 | 83.2 | 22.7 | 82.7 | ||||||||||||||||||||||||
Basic earnings per share | 0.51 | 0.42 | 0.53 | 0.50 | 0.54 | 0.48 | 0.13 | 0.48 | ||||||||||||||||||||||||
Diluted earnings per share | 0.50 | 0.41 | 0.53 | 0.49 | 0.54 | 0.47 | 0.13 | 0.47 | ||||||||||||||||||||||||
Common dividends declared | 0.14 | 0.12 | 0.14 | 0.12 | 0.14 | 0.12 | 0.14 | 0.12 |
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 |
2020 and continues to assess the financial impact for the remainder of the
None
Water-Right, Inc.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 16, 2018
/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 | 2,943,263 | (1) | $ | 27.73 | (2) | 2,885,001 | (3) | |||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
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Total | 2,943,263 | $ | 27.73 | 2,885,001 | ||||||||
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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 INDEPENDENCE20182020 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.-– PRINCIPAL ACCOUNTANT FEES AND SERVICES20182020 Annual Meeting of Stockholders (to be filed with the SEC 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.
The following documents are filed as part of this Annual Report on Form 10-K: |
(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: | ||||||
Consolidated Balance Sheets at December 31, 2017 and 2016 | 27 | |||||
For each of the three years in the period ended December 31, 2017: | ||||||
- Consolidated Statement of Earnings | 28 | |||||
- Consolidated Statement of Comprehensive Earnings | 28 | |||||
- Consolidated Statement of Cash Flows | 29 | |||||
- Consolidated Statement of Stockholders’ Equity | 30 | |||||
Notes to Consolidated Financial Statements | 31 - 56 | |||||
2. | Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts | 66 | ||||
Schedules not included have been omitted because they are not applicable. | ||||||
3. | Exhibits - see the Index to Exhibits on pages 63 - 64 of this report. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report on Form 10-K are listed as Exhibits 10(a) through 10(m) in the Index to Exhibits. | |||||
Pursuant to the requirements of Rule 14a-3(b)(10) of the Securities Exchange Act of 1934, as amended, we will, upon request and upon payment of a reasonable fee not to exceed the rate at which such copies are available from the SEC, furnish copies to our security holders of any exhibits listed in the Index to Exhibits. |
INDEX TO EXHIBITS
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, 2019: | ||||
27 | ||||
27 | ||||
28 | ||||
29 | ||||
30 - 56 |
2. | Financial Statement Schedules |
3. | Exhibits - see the Index to Exhibits on pages 64—65 of this report. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report on Form 10-K are listed as Exhibits 10(a) through 10(m) in the Index to Exhibits. |
Exhibit Number | Description | |||||
(3)(i) | ||||||
(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 SEC, upon request, copies of these instruments. | |||||
(10) | Material Contracts | |||||
(a) | ||||||
(b) | ||||||
(c) | ||||||
(d) | ||||||
(e) | ||||||
(f) | ||||||
(g) | ||||||
(h) |
Exhibit Number | Description | |||||
(i) |
INDEX TO EXHIBITS (continued)
|
| |||||
(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 | 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 | Ajita G. Rajendra | |
KEVIN J. WHEELER | /s/ Kevin J. Wheeler | |
Director | Kevin J. Wheeler | |
President and Chief | ||
| ||
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 | |||||||||||||||
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 | |||||||||||||||
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 |
66
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 |