NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the accounts of West after the elimination of intercompany transactions. We have no participation or other rights in variable interest entities.
In April 2019, we acquired the business of our distributor in South Korea for $18.9 million. As a result of the acquisition, we recorded inventories, property, plant and equipment, goodwill and a customer relationships intangible asset of $4.5 million, $0.6 million, $2.6 million and $11.2 million, respectively. The goodwill was recorded within our Proprietary Products reportable segment. The results of this acquisition have been included in our consolidated financial statements since the acquisition date.
As of April 1, 2017, our consolidated financial statements exclude the results of our Venezuelan subsidiary. Please refer to Note 16, Other (Income) Expense, for further discussion.
Use of Estimates: The financial statements are prepared in conformity with U.S. GAAP. These principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingencies in the financial statements. Actual amounts realized may differ from these estimates.
Cash and Cash Equivalents: Cash equivalents include time deposits, certificates of deposit and all highly liquid debt instruments with maturities of three months or less at the time of purchase.
Accounts Receivable: Our accounts receivable balance was net of an allowance for doubtful accounts of $0.5 million and $2.0 million at December 31, 2019 and 2018, respectively. We record the allowance based on a specific identification methodology.
Inventories: Inventories are valued at the lower of cost (on a first-in, first-out basis) and net realizable value. The following is a summary of inventories at December 31:
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|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
Raw materials
|
$
|
100.9
|
|
|
$
|
90.4
|
|
Work in process
|
37.4
|
|
|
42.2
|
|
Finished goods
|
97.4
|
|
|
81.9
|
|
|
$
|
235.7
|
|
|
$
|
214.5
|
|
Property, Plant and Equipment: Property, plant and equipment assets are carried at cost. Maintenance and minor repairs and renewals are charged to expense as incurred. Costs incurred for computer software developed or obtained for internal use are capitalized for application development activities and immediately expensed for preliminary project activities or post-implementation activities. Upon sale or retirement of depreciable assets, costs and related accumulated depreciation are eliminated, and gains or losses are recognized in other (income) expense. Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the assets, or the remaining term of the lease, if shorter.
Leases: Operating lease right-of-use assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. Operating lease right-of-use assets are subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Operating lease liabilities are initially measured
at the present value of the unpaid lease payments at the lease commencement date. We had no finance leases as of December 31, 2019. Please refer to Note 6, Leases, for additional information.
Impairment of Long-Lived Assets: Long-lived assets, including property, plant and equipment and operating lease right-of-use assets, are tested for impairment whenever circumstances indicate that the carrying value of these assets may not be recoverable. An asset is considered impaired if the carrying value of the asset exceeds the sum of the future expected undiscounted cash flows to be derived from the asset. Once an asset is considered impaired, an impairment loss is recorded within other (income) expense for the difference between the asset’s carrying value and its fair value. For assets held and used in the business, management determines fair value using estimated future cash flows to be derived from the asset, discounted to a net present value using an appropriate discount rate. For assets held for sale or for investment purposes, management determines fair value by estimating the proceeds to be received upon sale of the asset, less disposition costs.
Impairment of Goodwill and Other Intangible Assets: Goodwill is tested for impairment at least annually, following the completion of our annual budget and long-range planning process, or whenever circumstances indicate that the carrying value of these assets may not be recoverable. Goodwill is tested for impairment at the reporting unit level, which is the same as, or one level below, our operating segments. A goodwill impairment charge represents the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Accounting guidance also allows entities to first assess qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance, to determine whether it is necessary to perform the quantitative goodwill impairment test. We elected to follow this guidance for our 2017, 2018, and 2019 annual impairment tests. Based upon our assessment, we determined that it was not more likely than not that the fair value of each of our reporting units was less than its carrying amount and determined that it was not necessary to perform the quantitative goodwill impairment tests in 2017, 2018, and 2019.
Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives of 5 to 25 years, and reviewed for impairment whenever circumstances indicate that the carrying value of these assets may not be recoverable.
Employee Benefits: The measurement of the obligations under our defined benefit pension and postretirement medical plans are subject to a number of assumptions. These include the rate of return on plan assets (for funded plans) and the rate at which the future obligations are discounted to present value. For our funded plans, we consider the current and expected asset allocations of our plan assets, as well as historical and expected rates of return, in estimating the long-term rate of return on plan assets. U.S. GAAP requires the recognition of an asset or liability for the funded status of a defined benefit postretirement plan, as measured by the difference between the fair value of plan assets, if any, and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement plan, such as a retiree health plan, the benefit obligation is the accumulated postretirement benefit obligation. Please refer to Note 15, Benefit Plans, for a more detailed discussion of our pension and other retirement plans.
Financial Instruments: All derivatives are recognized as either assets or liabilities in the balance sheet and recorded at their fair value. For a derivative designated as hedging the exposure to variable cash flows of a forecasted transaction (referred to as a cash flow hedge), the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income (“OCI”), net of tax, and subsequently reclassified into earnings when the forecasted transaction affects earnings. For a derivative designated as hedging the exposure to changes in the fair value of a recognized asset or liability or a firm commitment (referred to as a fair value hedge), the derivative’s gain or loss is recognized in earnings in the period of change together with the offsetting loss or gain on the hedged item. For a derivative designated as hedging the foreign currency exposure of a net investment in a foreign operation, the gain or loss is reported in OCI, net of tax, as part of the cumulative translation adjustment. The ineffective portion of any derivative used in a hedging transaction is recognized immediately into earnings. Derivative financial instruments that are not designated as hedges are also recorded at fair value, with the change in fair value recognized immediately into earnings. We do not purchase or hold any derivative financial instrument for investment or trading purposes.
Foreign Currency Translation: Foreign currency transaction gains and losses are recognized in the determination of net income. Foreign currency translation adjustments of subsidiaries and affiliates operating outside of the U.S. are accumulated in other comprehensive loss, a separate component of equity.
Revenue Recognition: Our revenue results from the sale of goods or services and reflects the consideration to which we expect to be entitled in exchange for those goods or services. We record revenue based on a five-step model, in accordance with ASC 606. Following the identification of a contract with a customer, we identify the performance obligations (goods or services) in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize the revenue when (or as) we satisfy the performance obligations by transferring the promised goods or services to our customers. A good or service is transferred when (or as) the customer obtains control of that good or service. Some customers receive pricing rebates upon attaining established sales volumes. We record rebate costs when sales occur based on our assessment of the likelihood that the required volumes will be attained. We also maintain an allowance for product returns, as we believe that we are able to reasonably estimate the amount of returns based on our substantial historical experience. Please refer to Note 3, Revenue, for additional information.
Shipping and Handling Costs: Shipping and handling costs are included in cost of goods and services sold. Shipping and handling costs billed to customers in connection with the sale are included in net sales.
Research and Development: Research and development expenditures are for the creation, engineering and application of new or improved products and processes. Expenditures include primarily salaries and outside services for those directly involved in research and development activities and are expensed as incurred.
Environmental Remediation and Compliance Costs: Environmental remediation costs are accrued when such costs are probable and reasonable estimates are determinable. Cost estimates include investigation, cleanup and monitoring activities; such estimates are adjusted, if necessary, based on additional findings. Environmental compliance costs are expensed as incurred as part of normal operations.
Litigation: From time to time, we are involved in legal proceedings, investigations and claims generally incidental to our normal business activities. In accordance with U.S. GAAP, we accrue for loss contingencies when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These estimates are based on an analysis made by internal and external legal counsel considering information known at the time. Legal costs in connection with loss contingencies are expensed as incurred.
Income Taxes: Deferred income taxes are recognized by applying enacted statutory tax rates to tax loss carryforwards and temporary differences between the tax basis and financial statement carrying values of our assets and liabilities. The enacted statutory tax rate applied is based on the rate expected to be applicable at the time of the forecasted utilization of the loss carryforward or reversal of the temporary difference. Valuation allowances on deferred tax assets are established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The realizability of deferred tax assets is subject to our estimates of future taxable income, generally at the respective subsidiary company and the country level. In response to the 2017 Tax Act, we reevaluated our position regarding permanent reinvestment of foreign subsidiary earnings and profits through 2017 (with the exception of China and Mexico) and decided that those profits were no longer permanently reinvested. As of January 1, 2018, we reasserted indefinite reinvestment related to all post-2017 unremitted earnings in all of our foreign subsidiaries. Please refer to Note 17, Income Taxes, for additional information. We recognize interest costs related to income taxes in interest expense and penalties within other (income) expense. The tax law ordering approach is used for purposes of determining whether an excess tax benefit has been realized during the year.
Stock-Based Compensation: Under the fair value provisions of U.S. GAAP, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. In order to determine the fair value of stock options on the grant date, we use the Black-Scholes valuation model. Please refer to Note 14, Stock-Based Compensation, for a more detailed discussion of our stock-based compensation plans.
Net Income Per Share: Basic net income per share is computed by dividing net income attributable to common shareholders by the weighted average number of shares of common stock outstanding during each period. Net income per share assuming dilution considers the dilutive effect of outstanding stock options and other stock awards based on the treasury stock method. The treasury stock method assumes the use of exercise proceeds to repurchase common stock at the average fair market value in the period.
Note 2: New Accounting Standards
Recently Adopted Standards
In July 2019, the FASB issued guidance which clarifies or improves a variety of ASC disclosure and presentation requirements by aligning them with the SEC’s regulations, thereby eliminating redundancies and making the codification easier to apply. This guidance was effective upon issuance. The adoption did not have a material impact on our financial statements.
In June 2018, the FASB issued guidance which expands the scope of accounting for share-based payment arrangements to include share-based payment transactions for acquiring goods and services from nonemployees. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption was permitted. We adopted this guidance as of January 1, 2019, on a prospective basis. The adoption did not have a material impact on our financial statements.
In February 2018, the FASB issued guidance to address a specific consequence of the 2017 Tax Act by allowing a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the 2017 Tax Act’s reduction of the U.S. federal corporate income tax rate. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption was permitted. We adopted this guidance as of January 1, 2019, on a prospective basis, but elected to not reclassify from accumulated other comprehensive income (loss) to retained earnings the stranded tax effects resulting from the 2017 Tax Act’s reduction of the U.S. federal corporate income tax rate.
In August 2017, the FASB issued guidance which expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption was permitted. We adopted this guidance as of January 1, 2019, on a prospective basis. The adoption did not have a material impact on our financial statements.
In February 2016, the FASB issued guidance on the accounting for leases, ASC 842. This guidance requires lessees to recognize lease assets and lease liabilities on the balance sheet and to expand disclosures about leasing arrangements, both qualitative and quantitative. In terms of transition, the guidance requires adoption based upon a modified retrospective approach. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption was permitted. We adopted this guidance as of January 1, 2019, using the modified retrospective approach that allows companies to apply ASC 842 as of the effective date and on a prospective basis. Please refer to Note 6, Leases, for additional information.
Standards Issued Not Yet Adopted
In December 2019, the FASB issued guidance which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740 (“ASC 740”) and by clarifying and amending existing ASC 740 guidance. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. Early adoption is permitted. We are currently evaluating our adoption timing and the impact that this guidance may have on our financial statements.
In April 2019, the FASB issued guidance which clarifies and improves areas of guidance related to the new credit losses, hedging, and recognition and measurement standards. This guidance is effective for the same fiscal years in which the original standards are effective or, if already implemented, annual periods beginning after the issuance of
this guidance. Early adoption is permitted. We believe that the adoption of this guidance will not have a material impact on our financial statements.
In August 2018, the FASB issued guidance to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by this update. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. We believe that the adoption of this guidance will not have a material impact on our financial statements.
In August 2018, the FASB issued guidance which modifies the disclosure requirements for defined benefit pension plans and other postretirement plans. The guidance removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. This guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. We believe that the adoption of this guidance will not have a material impact on our financial statements.
In August 2018, the FASB issued guidance which modifies the disclosure requirements on fair value measurements by removing, modifying, or adding certain disclosures. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. We believe that the adoption of this guidance will not have a material impact on our financial statements.
In June 2016, the FASB issued guidance which provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments held by a reporting entity, including accounts receivable, at each reporting date. Under current guidance, an entity reflects credit losses on financial assets measured on an amortized cost basis only when it is probable that losses have been incurred, generally considering only past events and current conditions in determining incurred loss. The new guidance requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset, based not only on historical experience and current conditions, but also on reasonable and supportable forecasts. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. We believe that the adoption of this guidance will not have a material impact on our financial statements, primarily as we have not historically had a material amount of accounts receivable write-offs.
Note 3: Revenue
Adoption of ASC 606
On January 1, 2018, we adopted ASC 606, on a modified retrospective basis, applied to those contracts which were not completed as of January 1, 2018. As a result of our adoption, we recorded a cumulative-effect adjustment of $11.4 million within retained earnings in our consolidated balance sheet as of January 1, 2018, to reflect a change in the timing of revenue recognition under ASC 606, from point in time to over time, on our Contract-Manufactured Products product sales, certain Proprietary Products product sales, development and tooling agreements, as well as an acceleration on a portion of the remaining unearned income from a nonrefundable customer payment.
Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for those periods.
Revenue Recognition
Our revenue results from the sale of goods or services and reflects the consideration to which we expect to be entitled in exchange for those goods or services. We record revenue based on a five-step model, in accordance with ASC 606. Following the identification of a contract with a customer, we identify the performance obligations (goods or services) in the contract, determine the transaction price, allocate the transaction price to the performance
obligations in the contract, and recognize the revenue when (or as) we satisfy the performance obligations by transferring the promised goods or services to our customers. A good or service is transferred when (or as) the customer obtains control of that good or service.
We recognize the majority of our revenue, primarily relating to Proprietary Products product sales, at a point in time, following the transfer of control of our products to our customers, which typically occurs upon shipment or delivery, depending on the terms of the related agreements.
We recognize revenue relating to our Contract-Manufactured Products product sales and certain Proprietary Products product sales over time, as our performance does not create an asset with an alternative use to us and we have an enforceable right to payment for performance completed to date.
We recognize revenue relating to our development and tooling agreements over time, as our performance creates or enhances an asset that the customer controls as the asset is created or enhanced.
For revenue recognized over time, revenue is recognized by applying a method of measuring progress toward complete satisfaction of the related performance obligation. When selecting the method for measuring progress, we select the method that best depicts the transfer of control of goods or services promised to our customers.
Revenue for our Contract-Manufactured Products product sales, certain Proprietary Products product sales, and our development and tooling agreements is recorded under an input method, which recognizes revenue on the basis of our efforts or inputs to the satisfaction of a performance obligation (for example, resources consumed, labor hours expended, costs incurred, time elapsed, or machine hours used) relative to the total expected inputs to the satisfaction of that performance obligation. The input method that we use is based on costs incurred.
The majority of the performance obligations within our contracts are satisfied within one year or less. Performance obligations satisfied beyond one year include those relating to a nonrefundable customer payment of $20.0 million received in June 2013 in return for the exclusive use of the SmartDose technology platform within a specific therapeutic area. As of December 31, 2019, there was $5.6 million of unearned income related to this payment, of which $0.9 million was included in other current liabilities and $4.7 million was included in other long-term liabilities. The unearned income is being recognized as income on a straight-line basis over the remaining term of the agreement. The agreement does not include a future minimum purchase commitment from the customer.
Our revenue can be generated from contracts with multiple performance obligations. When a sales agreement involves multiple performance obligations, each obligation is separately identified and the transaction price is allocated based on the amount of consideration we expect to be entitled in exchange for transferring the promised good or service to the customer.
Some customers receive pricing rebates upon attaining established sales volumes. We record rebate costs when sales occur based on our assessment of the likelihood that the required volumes will be attained. We also maintain an allowance for product returns, as we believe that we are able to reasonably estimate the amount of returns based on our substantial historical experience.
The following table presents the approximate percentage of our net sales by market group:
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|
|
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|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
Biologics
|
25
|
%
|
|
21
|
%
|
|
|
|
|
Generics
|
20
|
%
|
|
21
|
%
|
|
|
|
|
Pharma
|
31
|
%
|
|
34
|
%
|
|
|
|
|
Contract-Manufactured Products
|
24
|
%
|
|
24
|
%
|
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
The following table presents the approximate percentage of our net sales by product category:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
High-Value Components
|
42
|
%
|
|
41
|
%
|
|
|
|
|
Standard Packaging
|
29
|
%
|
|
32
|
%
|
|
|
|
|
Delivery Devices
|
5
|
%
|
|
3
|
%
|
|
|
|
|
Contract-Manufactured Products
|
24
|
%
|
|
24
|
%
|
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
The following table presents the approximate percentage of our net sales by geographic location:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
Americas
|
48
|
%
|
|
48
|
%
|
|
|
|
|
Europe, Middle East, Africa
|
44
|
%
|
|
44
|
%
|
|
|
|
|
Asia Pacific
|
8
|
%
|
|
8
|
%
|
|
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
Contract Assets and Liabilities
Contract assets and liabilities result from transactions with revenue recorded over time. If the measure of remaining rights exceeds the measure of the remaining performance obligations, we record a contract asset. Contract assets are recorded on the consolidated balance sheet in accounts receivable, net, and other assets (current and noncurrent portions, respectively). Contract assets included in accounts receivable, net, relate to the unbilled amounts of our product sales for which we have recognized revenue over time. Contract assets included in other assets represent the remaining performance obligations of our development and tooling agreements. Conversely, if the measure of the remaining performance obligations exceeds the measure of the remaining rights, we record a contract liability. Contract liabilities are recorded on the consolidated balance sheet in other liabilities (current and noncurrent portions, respectively) and represent cash payments received in advance of our performance.
The following table summarizes our contract assets and liabilities, excluding contract assets included in accounts receivable, net:
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|
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|
|
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|
($ in millions)
|
Contract assets, December 31, 2018
|
$
|
9.1
|
|
Contract assets, December 31, 2019
|
9.8
|
|
Change in contract assets - increase (decrease)
|
$
|
0.7
|
|
|
|
Deferred income, December 31, 2018
|
$
|
(33.4)
|
|
Deferred income, December 31, 2019
|
(34.9)
|
|
Change in deferred income - (increase) decrease
|
$
|
(1.5)
|
|
The increase in deferred income during 2019 was primarily due to additional cash payments of $114.4 million received in advance of satisfying future performance obligations, partially offset by the recognition of revenue of $110.4 million, including $20.8 million of revenue that was included in deferred income at the beginning of the year, and $2.5 million in other adjustments.
Practical Expedients and Exemptions
We have elected to disregard the effects of a significant financing component, as we expect, at the inception of our contracts, that the period between when we transfer a promised good or service to the customer and when the customer pays for that good or service will be one year or less.
In addition, we have elected to omit the disclosure of the majority of our remaining performance obligations, which are satisfied within one year or less.
Supply Chain Financing
We have entered into supply chain financing agreements with certain banks, pursuant to which we offer for sale certain accounts receivable to such banks from time to time, subject to the terms of the applicable agreements. These transactions result in a reduction in accounts receivable, as the agreements transfer effective control over, and credit risk related to, the receivables to the banks. These agreements do not allow for recourse in the event of uncollectibility, and we do not retain any interest in the underlying accounts receivable once sold. As of December 31, 2019 and 2018, we derecognized accounts receivable of $10.1 million and $5.7 million, respectively, under these agreements. Discount fees related to the sale of such accounts receivable on our consolidated income statements for 2019 and 2018 were not material.
Voluntary Recall
On January 24, 2019, we issued a voluntary recall of our Vial2Bag product line due to reports of potential unpredictable or variable dosing under certain conditions. Our fourth quarter 2018 results included an $11.3 million provision for product returns, recorded as a reduction of sales, partially offset by a reduction in cost of goods sold reflecting our inventory balance for these devices at December 31, 2018. During 2019, we recorded a net provision of $5.4 million for inventory returns from our customers and related in-house inventory, partially offset by a reduction in our provision for product returns. We continue to work to get the products back on the market.
Note 4: Net Income Per Share
The following table reconciles the shares used in the calculation of basic net income per share to those used for diluted net income per share:
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|
|
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|
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|
|
|
|
|
|
|
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
Net income
|
$
|
241.7
|
|
|
$
|
206.9
|
|
|
$
|
150.7
|
|
Weighted average common shares outstanding
|
74.0
|
|
|
73.9
|
|
|
73.9
|
|
Dilutive effect of equity awards, based on the treasury stock method
|
1.4
|
|
|
1.5
|
|
|
1.9
|
|
|
|
|
|
|
|
Weighted average shares assuming dilution
|
75.4
|
|
|
75.4
|
|
|
75.8
|
|
During 2019, 2018 and 2017, there were 0.1 million, 0.4 million, and 0.4 million shares, respectively, from stock-based compensation plans not included in the computation of diluted net income per share because their impact was antidilutive.
In February 2019, we announced a share repurchase program for calendar-year 2019 authorizing the repurchase of up to 800,000 shares of our common stock from time to time on the open market or in privately-negotiated transactions as permitted under Exchange Act Rule 10b-18. The number of shares repurchased and the timing of such transactions depended on a variety of factors, including market conditions. During 2019, we purchased 800,000 shares of our common stock under the now-completed program at a cost of $83.1 million, or an average price of $103.89 per share.
In December 2019, we announced a share repurchase program for calendar-year 2020 authorizing the repurchase of up to 848,000 shares of our common stock from time to time on the open market or in privately-negotiated
transactions as permitted under Exchange Act Rule 10b-18. The number of shares to be repurchased and the timing of such transactions will depend on a variety of factors, including market conditions. This share repurchase program is expected to be completed by December 31, 2020.
Note 5: Property, Plant and Equipment
A summary of gross property, plant and equipment at December 31 is presented in the following table:
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|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
Expected useful lives (years)
|
|
2019
|
|
2018
|
Land
|
|
|
$
|
22.1
|
|
|
$
|
20.9
|
|
Buildings and improvements
|
15-35
|
|
572.9
|
|
|
569.1
|
|
Machinery and equipment
|
5-12
|
|
817.0
|
|
|
806.7
|
|
Molds and dies
|
4-7
|
|
123.8
|
|
|
115.8
|
|
Computer hardware and software
|
3-10
|
|
155.6
|
|
|
151.1
|
|
Construction in progress
|
|
|
128.7
|
|
|
89.1
|
|
|
|
|
$
|
1,820.1
|
|
|
$
|
1,752.7
|
|
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $100.0 million, $101.7 million and $94.3 million, respectively.
There were no capitalized leases included in buildings and improvements and machinery and equipment at December 31, 2019 and 2018.
We capitalize interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. Capitalized interest for the years ended December 31, 2019, 2018 and 2017 was $1.0 million, $0.9 million and $2.7 million, respectively.
During 2019 and 2018, as part of our 2018 restructuring plan, we recorded within other (income) expense $0.3 million and $2.2 million, respectively, for non-cash asset write-downs associated with the discontinued use of certain equipment. During 2019 and 2018, as part of our restructuring plans, we recorded within other (income) expense $1.9 million and $1.1 million, respectively, for gains on the sale of fixed assets.
Note 6: Leases
Adoption of ASC 842
On January 1, 2019, we adopted ASC 842, using the modified retrospective approach that allows companies to apply ASC 842 as of the effective date and on a prospective basis. As a result, we were not required to adjust our comparative period financial information for effects of ASC 842 or present the new required lease disclosures for periods prior to the date of adoption. As of December 31, 2019, we had operating leases primarily related to land, buildings, and machinery and equipment, with lease terms through 2047. Certain of our operating leases include options to extend the lease term for up to five years, and certain of our operating leases include options to terminate the leases within one year. We had no finance leases as of December 31, 2019.
As a result of our adoption of ASC 842, we recorded operating lease right-of-use assets of $71.0 million and operating lease liabilities of $73.1 million for operating leases where we are the lessee in our consolidated balance sheet as of January 1, 2019. The operating lease right-of-use assets are initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. The operating lease right-of-use assets are subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct
costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The operating lease liabilities are initially measured at the present value of the unpaid lease payments at the lease commencement date.
Judgments used in applying ASC 842 include determining: i) whether a contract is, or contains, a lease; ii) the discount rate to be used to discount the unpaid lease payments to present value; iii) the lease term; and iv) the lease payments. We determine if a contract is, or contains, a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: 1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment); and 2) the customer has the right to control the use of the identified asset. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As all of our operating leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. The lease term for all of our operating leases includes the noncancellable period of the lease plus any additional periods covered by either a lessee option to extend (or not to terminate) the lease that the lessee is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. Lease payments included in the measurement of the operating lease right-of-use assets and lease liabilities are comprised of fixed payments (including in-substance fixed payments), variable payments that depend on an index or rate, and the exercise price of a lessee option to purchase the underlying asset if the lessee is reasonably certain to exercise.
The components of lease expense were as follows:
|
|
|
|
|
|
($ in millions)
|
2019
|
Operating lease cost
|
$
|
12.9
|
|
Short-term lease cost
|
0.8
|
|
Variable lease cost
|
3.3
|
|
Total lease cost
|
$
|
17.0
|
|
Lease expense for 2018 and 2017 was $14.5 million and $13.3 million, respectively.
Supplemental information related to leases was as follows:
|
|
|
|
|
|
($ in millions)
|
2019
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
12.5
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
9.1
|
|
As of December 31, 2019, the weighted average remaining lease term for operating leases was 11.7 years and the weighted average discount rate was 3.76%.
Maturities of lease liabilities as of December 31, 2019 were as follows:
|
|
|
|
|
|
($ in millions)
|
Operating
|
Year
|
Leases
|
2020
|
$
|
12.1
|
|
2021
|
10.4
|
|
2022
|
8.6
|
|
2023
|
7.8
|
|
2024
|
7.3
|
|
Thereafter
|
41.8
|
|
|
88.0
|
|
Less: imputed lease interest
|
(16.0)
|
|
Total lease liabilities
|
$
|
72.0
|
|
Maturities of future minimum rental payments under non-cancelable operating leases as of December 31, 2018 were as follows:
|
|
|
|
|
|
($ in millions)
|
Operating
|
Year
|
Leases
|
2019
|
$
|
13.0
|
|
2020
|
10.5
|
|
2021
|
7.8
|
|
2022
|
6.9
|
|
2023
|
5.5
|
|
Thereafter
|
37.8
|
|
Total
|
$
|
81.5
|
|
Practical Expedients and Exemptions
We have elected to adopt the leasing package of practical expedients, which allows us to not retroactively reassess: i) any expired or existing contracts containing leases under the new definition of a lease; ii) the lease classification for any expired or existing leases; and iii) initial direct costs for any expired or existing leases. We have also elected to adopt practical expedients around land easements, the combination of lease and non-lease components, and the portfolio approach relating to discount rates. These practical expedients were applied consistently to all leases.
We have elected not to recognize operating lease right-of-use assets and operating lease liabilities for all short-term leases (leases with an initial lease term of 12 months or less). We recognize the lease payments associated with our short-term leases as an expense over the lease term.
Note 7: Affiliated Companies
At December 31, 2019, the following affiliated companies were accounted for under the equity method:
|
|
|
|
|
|
|
|
|
|
Location
|
Ownership interest
|
The West Company Mexico, S.A. de C.V.
|
Mexico
|
49%
|
|
Aluplast S.A. de C.V.
|
Mexico
|
49%
|
|
Pharma Tap S.A. de C.V.
|
Mexico
|
49%
|
|
Pharma Rubber S.A. de C.V.
|
Mexico
|
49%
|
|
I&W Pharma Group LLC
|
United States
|
49%
|
|
Daikyo
|
Japan
|
49%
|
|
On November 1, 2019, in connection with the amendment of certain commercial agreements with Daikyo, we increased our ownership interest from 25% to 49% in Daikyo in exchange for $85.1 million in cash and $4.9 million in shares of our treasury stock to certain stockholders of Daikyo. We believe that the increase in ownership interest will not have a material impact on our financial statements.
Unremitted income of affiliated companies included in consolidated retained earnings amounted to $82.4 million, $75.8 million and $69.9 million at December 31, 2019, 2018 and 2017, respectively. Dividends received from affiliated companies were $2.2 million in 2019, $1.7 million in 2018 and $2.2 million in 2017.
Our equity in net unrealized gains of Daikyo’s investment securities and derivative instruments, as well as pension adjustments, included in accumulated other comprehensive loss was $0.4 million, $0.4 million and $0.5 million at December 31, 2019, 2018 and 2017, respectively.
Our purchases from, and royalty payments made to, affiliates totaled $115.1 million, $86.3 million and $86.7 million, respectively, in 2019, 2018 and 2017, of which $20.8 million and $12.9 million was due and payable as of December 31, 2019 and 2018, respectively. The majority of these transactions related to a distributorship agreement with Daikyo that allows us to purchase and re-sell Daikyo products. Sales to affiliates were $9.2 million, $9.6 million and $8.1 million, respectively, in 2019, 2018 and 2017, of which $1.9 million and $1.6 million was receivable as of December 31, 2019 and 2018, respectively.
At December 31, 2019 and 2018, the aggregate carrying amount of our investment in affiliated companies that are accounted for under the equity method was $179.3 million and $77.8 million, respectively, and the aggregate carrying amount of our investment in affiliated companies that are not accounted for under the equity method was $13.4 million at both period-ends. We have elected to record these investments, for which fair value was not readily determinable, at cost, less impairment, adjusted for subsequent observable price changes. We test these investments for impairment whenever circumstances indicate that the carrying value of the investments may not be recoverable.
Note 8: Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by reportable segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
Proprietary Products
|
|
Contract-Manufactured Products
|
|
Total
|
Balance, December 31, 2017
|
|
$
|
77.6
|
|
|
$
|
30.1
|
|
|
$
|
107.7
|
|
|
|
|
|
|
|
Foreign currency translation
|
(1.6)
|
|
|
(0.3)
|
|
|
(1.9)
|
|
Balance, December 31, 2018
|
|
76.0
|
|
|
29.8
|
|
|
105.8
|
|
Goodwill recorded due to acquisition
|
2.6
|
|
|
—
|
|
|
2.6
|
|
Foreign currency translation
|
(0.5)
|
|
|
(0.1)
|
|
|
(0.6)
|
|
Balance, December 31, 2019
|
|
$
|
78.1
|
|
|
$
|
29.7
|
|
|
$
|
107.8
|
|
In April 2019, we acquired the business of our distributor in South Korea. As a result of the acquisition, we recorded goodwill of $2.6 million. The goodwill was recorded within our Proprietary Products reportable segment.
As of December 31, 2019, we had no accumulated goodwill impairment losses.
Intangible assets and accumulated amortization as of December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
2018
|
|
|
|
|
($ in millions)
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
Patents and licensing
|
$
|
21.5
|
|
|
$
|
(16.0)
|
|
|
$
|
5.5
|
|
|
$
|
19.6
|
|
|
$
|
(15.1)
|
|
|
$
|
4.5
|
|
Technology
|
3.3
|
|
|
(1.5)
|
|
|
1.8
|
|
|
3.3
|
|
|
(1.2)
|
|
|
2.1
|
|
Trademarks
|
2.0
|
|
|
(1.8)
|
|
|
0.2
|
|
|
2.0
|
|
|
(1.8)
|
|
|
0.2
|
|
Customer relationships
|
40.3
|
|
|
(21.6)
|
|
|
18.7
|
|
|
29.3
|
|
|
(20.0)
|
|
|
9.3
|
|
Customer contracts
|
11.0
|
|
|
(7.4)
|
|
|
3.6
|
|
|
11.0
|
|
|
(6.8)
|
|
|
4.2
|
|
|
$
|
78.1
|
|
|
$
|
(48.3)
|
|
|
$
|
29.8
|
|
|
$
|
65.2
|
|
|
$
|
(44.9)
|
|
|
$
|
20.3
|
|
In April 2019, we acquired the business of our distributor in South Korea. As a result of the acquisition, we recorded a customer relationships intangible asset of $11.2 million, which is being amortized over ten years.
The cost basis of intangible assets includes a foreign currency translation loss of $0.3 million and a foreign currency translation loss of $0.3 million for the years ended December 31, 2019 and 2018, respectively. Amortization expense for the years ended December 31, 2019, 2018 and 2017 was $3.4 million, $2.7 million and $2.4 million, respectively. Estimated annual amortization expense for the next five years is as follows: 2020 - $4.0 million, 2021 - $3.5 million, 2022 - $3.5 million, 2023 - $2.9 million and 2024 - $2.6 million.
Note 9: Other Current Liabilities
Other current liabilities as of December 31 included the following:
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
Deferred income
|
$
|
27.5
|
|
|
$
|
25.5
|
|
Dividends payable
|
11.8
|
|
|
11.3
|
|
Accrued commissions, rebates and royalties
|
9.7
|
|
|
5.7
|
|
Accrued retirement plans (excluding pension)
|
7.9
|
|
|
2.3
|
|
Accrued taxes other than income
|
6.5
|
|
|
5.5
|
|
Accrued professional services
|
5.9
|
|
|
4.9
|
|
Accrued interest
|
3.3
|
|
|
3.4
|
|
Restructuring obligations
|
1.5
|
|
|
3.3
|
|
Other
|
17.2
|
|
|
14.7
|
|
Total other current liabilities
|
$
|
91.3
|
|
|
$
|
76.6
|
|
Note 10: Debt
The following table summarizes our long-term debt obligations, net of unamortized debt issuance costs and current maturities, at December 31. The interest rates shown in parentheses are as of December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable, due December 31, 2019
|
$
|
—
|
|
|
$
|
0.1
|
|
Credit Facility, due October 15, 2020
|
—
|
|
|
28.6
|
|
|
|
|
|
Term Loan, due December 31, 2024 (2.78%)
|
90.0
|
|
|
—
|
|
Series A notes, due July 5, 2022 (3.67%)
|
42.0
|
|
|
42.0
|
|
Series B notes, due July 5, 2024 (3.82%)
|
53.0
|
|
|
53.0
|
|
Series C notes, due July 5, 2027 (4.02%)
|
73.0
|
|
|
73.0
|
|
|
258.0
|
|
|
196.7
|
|
Less: unamortized debt issuance costs
|
0.7
|
|
|
0.6
|
|
Total debt
|
257.3
|
|
|
196.1
|
|
Less: current portion of long-term debt
|
2.3
|
|
|
0.1
|
|
Long-term debt, net
|
$
|
255.0
|
|
|
$
|
196.0
|
|
Credit Agreement - Credit Facility
In March 2019, we entered into the Credit Agreement that replaced our prior revolving credit facility, which was scheduled to expire in October 2020. The Credit Agreement, which expires in March 2024, contains the Credit Facility of $300.0 million, with sublimits of up to $30.0 million for swing line loans for domestic borrowers in USD and a $20.0 million swing line loan for our German Holding Company and up to $30.0 million for the issuance of standby letters of credit, which Credit Facility may be increased from time-to-time by the greater of $350.0 million and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the preceding twelve month period in the aggregate through an increase in the Credit Facility, subject to the satisfaction of certain conditions. Borrowings under the Credit Facility bear interest at either the base rate (the per annum interest rate of the highest of the Prime Rate, the Federal Funds Rate plus 50 basis points or the daily LIBOR, plus 1.00%) or at the applicable LIBOR rate, plus a tiered margin based on the ratio of our net consolidated debt to our modified EBITDA, ranging from 0 to 37.5 basis points for base rate loans and 87.5 to 137.5 basis points for LIBOR rate loans. The Credit
Agreement contains financial covenants providing that we shall not permit the ratio of our net consolidated debt to our modified EBITDA to be greater than 3.5 to 1; provided that, no more than three times during the term of the Credit Agreement, upon the occurrence of a qualified acquisition for each of our four fiscal quarters immediately following such qualified acquisition, the ratio shall be increased to 4.0 to 1. The Credit Agreement also contains customary limitations on liens securing our indebtedness, fundamental changes (mergers, consolidations, liquidations and dissolutions), asset sales, distributions and acquisitions. As of December 31, 2019 and 2018, total unamortized debt issuance costs of $1.1 million and $0.6 million, respectively, were recorded in other noncurrent assets and are being amortized as additional interest expense over the term of the Credit Facility. A portion of these costs relate to our prior revolving credit facility.
At December 31, 2019, we had no outstanding borrowings under the Credit Facility, as we repaid the outstanding long-term borrowings denominated in Euro and Yen in November and December 2019, respectively. There was no material gain or loss on the repayment under the Credit Facility. At December 31, 2019, the borrowing capacity available under the Credit Facility, including outstanding letters of credit of $2.5 million, was $297.5 million. Please refer to Note 11, Derivative Financial Instruments, for a discussion of the foreign currency hedges that had been associated with this facility.
Credit Agreement Amendment - Term Loan
In December 2019, we entered into a First Amendment and Incremental Facility Amendment (the “First Amendment”) to the Credit Agreement. Pursuant to the First Amendment and the Credit Agreement, we established the Term Loan in the amount of $90.0 million, which is due on December 31, 2024. Borrowings under the Term Loan bear interest at the three-month LIBOR plus 87.5 basis points. As of December 31, 2019, there were unamortized debt issuance costs remaining of $0.2 million, which are being amortized as additional interest expense over the term of the Term Loan.
At December 31, 2019, we had $90.0 million in borrowings under the Term Loan, of which $2.3 million was classified as current and $87.7 million was classified as long-term. Please refer to Note 11, Derivative Financial Instruments, for a discussion of the foreign currency hedge associated with the Term Loan.
Private Placement
In 2012, we concluded a private placement issuance of $168.0 million in senior unsecured notes. The total amount of the private placement issuance was divided into three tranches - $42.0 million 3.67% Series A Notes due July 5, 2022, $53.0 million 3.82% Series B Notes due July 5, 2024, and $73.0 million 4.02% Series C Notes due July 5, 2027 (the “Notes”). The Notes rank pari passu with our other senior unsecured debt. The weighted average of the coupon interest rates on the Notes is 3.87%. As of December 31, 2019 and 2018, there were unamortized debt issuance costs remaining of $0.5 million and $0.6 million, respectively, which are being amortized as additional interest expense over the term of the Notes.
Covenants
Pursuant to the financial covenants in our debt agreements, we are required to maintain established interest coverage ratios and to not exceed established leverage ratios. In addition, the agreements contain other customary covenants, none of which we consider restrictive to our operations. At December 31, 2019, we were in compliance with all of our debt covenants, and we expect to continue to be in compliance with the terms of these agreements throughout 2020.
Interest costs incurred during 2019, 2018 and 2017 were $9.4 million, $9.3 million and $10.5 million, respectively. The aggregate annual maturities of long-term debt, excluding unamortized debt issuance costs, were as follows:
$2.3 million in 2020 and 2021, 2022 - $44.3 million, 2023 - $2.3 million, 2024 - $133.8 million, and thereafter - $73.0 million.
Note 11: Derivative Financial Instruments
Our ongoing business operations expose us to various risks, such as fluctuating interest rates, foreign currency exchange rates and increasing commodity prices. To manage these market risks, we periodically enter into derivative financial instruments, such as interest rate swaps, options and foreign exchange contracts for periods consistent with, and for notional amounts equal to or less than, the related underlying exposures. We do not purchase or hold any derivative financial instruments for investment or trading purposes. All derivatives are recorded in our consolidated balance sheet at fair value.
Foreign Currency Exchange Rate Risk
We have entered into forward exchange contracts, designated as fair value hedges, to manage our exposure to fluctuating foreign exchange rates on cross-currency intercompany loans. As of December 31, 2019, the total amount of these forward exchange contracts was SGD 601.5 million and $13.4 million. As of December 31, 2018, the total amount of these forward exchange contracts was €10.0 million, SGD 601.5 million and $13.4 million.
In addition, we have entered into several foreign currency contracts, designated as cash flow hedges, for periods of up to eighteen months, intended to hedge the currency risk associated with a portion of our forecasted transactions denominated in foreign currencies. As of December 31, 2019, we had outstanding foreign currency contracts to purchase and sell certain pairs of currencies, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Sell
|
|
Currency
|
Purchase
|
|
USD
|
Euro
|
USD
|
38.4
|
|
|
—
|
|
33.6
|
|
Yen
|
6,550.4
|
|
|
37.8
|
|
20.6
|
|
SGD
|
29.4
|
|
|
16.5
|
|
4.6
|
|
In November and December 2019, in conjunction with the repayment of the outstanding long-term borrowings under our Credit Facility denominated in Euro and Yen, we de-designated these borrowings as hedges of our net investments in certain European subsidiaries and Daikyo. The amounts recorded as cumulative translation adjustments within accumulated other comprehensive loss related to these borrowings (prior to de-designation) will remain in accumulated other comprehensive loss indefinitely, unless certain future events occur, such as the disposition of the operations for which the net investment hedges relate.
In December 2019, in conjunction with the repayment of the outstanding long-term borrowings under our Credit Facility denominated in Yen, we entered into a forward exchange contract, designated as a cash flow hedge, to manage our exposure to fluctuating foreign exchange rates. This forward exchange contract matured on December 30, 2019.
In December 2019, we entered into the cross-currency swap for $90 million, which we designated as a hedge of our net investment in Daikyo. The notional amount of the cross-currency swap is ¥9.8 billion ($90 million) and the swap termination date is December 31, 2024. Under the cross-currency swap, we receive floating interest rate payments based on three-month USD LIBOR plus a margin, in return for paying floating interest rate payments based on three-month Yen LIBOR plus a margin.
Commodity Price Risk
Many of our proprietary products are made from synthetic elastomers, which are derived from the petroleum refining process. We purchase the majority of our elastomers via long-term supply contracts, some of which contain clauses that provide for surcharges related to fluctuations in crude oil prices. The following economic hedges did not qualify for hedge accounting treatment since they did not meet the highly effective requirement at inception.
From November 2017 through October 2019, we purchased several series of call options for a total of 352,682 barrels of crude oil to mitigate our exposure to such oil-based surcharges and protect operating cash flows with regards to a portion of our forecasted elastomer purchases.
As of December 31, 2019, we had outstanding contracts to purchase 135,967 barrels of crude oil from January 2020 to June 2021 at a weighted-average strike price of $70.71 per barrel.
Effects of Derivative Instruments on Financial Position and Results of Operations
Please refer to Note 12, Fair Value Measurements, for the balance sheet location and fair values of our derivative instruments as of December 31, 2019 and 2018.
The following table summarizes the effects of derivative instruments designated as fair value hedges in our consolidated statements of income for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain Recognized in Income
|
|
|
|
Location on Statement of Income
|
($ in millions)
|
2019
|
|
2018
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
Foreign currency hedge contracts
|
$
|
(6.9)
|
|
|
$
|
(6.3)
|
|
|
Other (income) expense
|
Total
|
$
|
(6.9)
|
|
|
$
|
(6.3)
|
|
|
|
We recognize in earnings the initial value of forward point components on a straight-line basis over the life of the fair value hedge. The amounts recognized in earnings, pre-tax, for forward point components for the years ended December 31, 2019 and 2018 were $8.7 million and $3.7 million, respectively. We expect to recognize $5.6 million in earnings, pre-tax, for forward point components in 2020.
The following table summarizes the effects of derivative instruments designated as fair value, cash flow, and net investment hedges on OCI and earnings, net of tax, for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in OCI
|
|
|
|
Amount of (Gain) Loss Reclassified from Accumulated OCI into Income
|
|
|
|
Location of (Gain) Loss Reclassified from Accumulated OCI into Income
|
($ in millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
Fair Value Hedges:
|
|
|
|
|
|
|
|
|
|
Foreign currency hedge contracts
|
$
|
4.8
|
|
|
$
|
—
|
|
|
$
|
(4.6)
|
|
|
$
|
—
|
|
|
Other (income) expense
|
Total
|
$
|
4.8
|
|
|
$
|
—
|
|
|
$
|
(4.6)
|
|
|
$
|
—
|
|
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
Foreign currency hedge contracts
|
$
|
0.8
|
|
|
$
|
0.4
|
|
|
$
|
(0.9)
|
|
|
$
|
0.6
|
|
|
Net sales
|
Foreign currency hedge contracts
|
(0.2)
|
|
|
2.2
|
|
|
(0.6)
|
|
|
0.3
|
|
|
Cost of goods and services sold
|
|
|
|
|
|
|
|
|
|
|
Forward treasury locks
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
|
Interest expense
|
Total
|
$
|
0.6
|
|
|
$
|
2.6
|
|
|
$
|
(1.2)
|
|
|
$
|
1.2
|
|
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
Foreign currency-denominated debt
|
$
|
0.6
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Other (income) expense
|
Cross-currency swap
|
(1.1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Other (income) expense
|
Total
|
$
|
(0.5)
|
|
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
The following table summarizes the effects of derivative instruments designated as fair value, cash flow, and net investment hedges by line item in our consolidated statements of income for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
Net sales
|
$
|
(0.9)
|
|
|
$
|
0.6
|
|
Cost of goods and services sold
|
(0.6)
|
|
|
0.3
|
|
Other (income) expense
|
(4.6)
|
|
|
—
|
|
Interest expense
|
0.3
|
|
|
0.3
|
|
The following table summarizes the effects of derivative instruments not designated as hedges in our consolidated statements of income for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss (Gain) Recognized in Income
|
|
|
|
Location on Statement of Income
|
($ in millions)
|
2019
|
|
2018
|
|
|
Commodity call options
|
$
|
0.4
|
|
|
$
|
(0.1)
|
|
|
Cost of goods and services sold
|
Total
|
$
|
0.4
|
|
|
$
|
(0.1)
|
|
|
|
During 2019 and 2018, there was no material ineffectiveness related to our hedges.
Note 12: Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following fair value hierarchy classifies the inputs to valuation techniques used to measure fair value into one of three levels:
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
•Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
The following tables present the assets and liabilities recorded at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Basis of Fair Value Measurements
|
|
|
|
|
($ in millions)
|
December 31,
2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation assets
|
$
|
11.3
|
|
|
$
|
11.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency contracts
|
7.7
|
|
|
—
|
|
|
7.7
|
|
|
—
|
|
Commodity call options
|
0.1
|
|
|
—
|
|
|
|
0.1
|
|
|
—
|
|
|
$
|
19.1
|
|
|
$
|
11.3
|
|
|
$
|
7.8
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
3.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3.3
|
|
Deferred compensation liabilities
|
12.8
|
|
|
12.8
|
|
|
—
|
|
|
—
|
|
Cross-currency swap
|
1.4
|
|
|
—
|
|
|
1.4
|
|
|
—
|
|
Foreign currency contracts
|
0.3
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
$
|
17.8
|
|
|
$
|
12.8
|
|
|
$
|
1.7
|
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Basis of Fair Value Measurements
|
|
|
|
|
($ in millions)
|
December 31,
2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation assets
|
$
|
8.7
|
|
|
$
|
8.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign currency contracts
|
6.5
|
|
|
—
|
|
|
6.5
|
|
|
—
|
|
|
$
|
15.2
|
|
|
$
|
8.7
|
|
|
$
|
6.5
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.7
|
|
Deferred compensation liabilities
|
9.8
|
|
|
9.8
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|
—
|
|
|
$
|
11.7
|
|
|
$
|
9.8
|
|
|
$
|
0.2
|
|
|
$
|
1.7
|
|
Deferred compensation assets are included within other noncurrent assets and are valued using a market approach based on quoted market prices in an active market. The fair value of our foreign currency contracts, included within other current and other noncurrent assets, as well as other current and other long-term liabilities, is valued using an income approach based on quoted forward foreign exchange rates and spot rates at the reporting date. The fair value of our commodity call options, included within other current and other noncurrent assets, is valued using a market approach. The fair value of our contingent consideration, included within other current and other long-term liabilities, is discussed further in the section related to Level 3 fair value measurements. The fair value of deferred compensation liabilities is based on quoted prices of the underlying employees’ investment selections and is included within other long-term liabilities. The fair value of the cross-currency swap, included within other long-term liabilities, is valued using a market approach. Please refer to Note 11, Derivative Financial Instruments, for further discussion of our derivatives.
Level 3 Fair Value Measurements
The fair value of the contingent consideration liability related to the SmartDose technology platform (the "SmartDose contingent consideration") was initially determined using a probability-weighted income approach, and is revalued at each reporting date or more frequently if circumstances dictate. Changes in the fair value of this
obligation are recorded as income or expense within other (income) expense in our consolidated statements of income. The significant unobservable inputs used in the fair value measurement of the SmartDose contingent consideration are the sales projections, the probability of success factors, and the discount rate. Significant increases or decreases in any of those inputs in isolation would result in a significantly lower or higher fair value measurement. As development and commercialization of the SmartDose technology platform progresses, we may need to update the sales projections, the probability of success factors, and the discount rate used. This could result in a material increase or decrease to the SmartDose contingent consideration.
The following table provides a summary of changes in our Level 3 fair value measurements:
|
|
|
|
|
|
|
($ in millions)
|
Balance, December 31, 2017
|
$
|
4.9
|
|
Decrease in fair value recorded in earnings
|
(2.6)
|
|
Payments
|
(0.6)
|
|
Balance, December 31, 2018
|
1.7
|
|
Increase in fair value recorded in earnings
|
2.1
|
|
Payments
|
(0.5)
|
|
Balance, December 31, 2019
|
$
|
3.3
|
|
Other Financial Instruments
We believe that the carrying amounts of our cash and cash equivalents and accounts receivable approximate their fair values due to their near-term maturities.
The estimated fair value of long-term debt is based on quoted market prices for debt issuances with similar terms and maturities and is classified as Level 2 within the fair value hierarchy. At December 31, 2019, the estimated fair value of long-term debt was $263.3 million compared to a carrying amount of $255.0 million. At December 31, 2018, the estimated fair value of long-term debt was $192.6 million and the carrying amount was $196.0 million.
Note 13: Accumulated Other Comprehensive Loss
The following table presents the changes in the components of accumulated other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
(Losses) gains on derivatives
|
|
Unrealized gains on investment securities
|
|
Defined benefit pension and other postretirement plans
|
|
Foreign currency translation
|
|
Total
|
Balance, December 31, 2017
|
|
$
|
(4.2)
|
|
|
$
|
0.5
|
|
|
$
|
(39.0)
|
|
|
$
|
(74.6)
|
|
|
$
|
(117.3)
|
|
Other comprehensive income (loss) before reclassifications
|
2.6
|
|
|
(0.1)
|
|
|
(1.0)
|
|
|
(39.2)
|
|
|
(37.7)
|
|
Amounts reclassified out
|
1.2
|
|
|
—
|
|
|
(0.4)
|
|
|
—
|
|
|
0.8
|
|
Other comprehensive income (loss), net of tax
|
3.8
|
|
|
(0.1)
|
|
|
(1.4)
|
|
|
(39.2)
|
|
|
(36.9)
|
|
Balance, December 31, 2018
|
|
(0.4)
|
|
|
0.4
|
|
|
(40.4)
|
|
|
(113.8)
|
|
|
(154.2)
|
|
Other comprehensive income (loss) before reclassifications
|
5.4
|
|
|
—
|
|
|
(1.9)
|
|
|
4.9
|
|
|
8.4
|
|
Amounts reclassified out
|
(5.8)
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
|
(3.8)
|
|
Other comprehensive (loss) income, net of tax
|
(0.4)
|
|
|
—
|
|
|
0.1
|
|
|
4.9
|
|
|
4.6
|
|
Balance, December 31, 2019
|
$
|
(0.8)
|
|
|
$
|
0.4
|
|
|
$
|
(40.3)
|
|
|
$
|
(108.9)
|
|
|
$
|
(149.6)
|
|
A summary of the reclassifications out of accumulated other comprehensive loss is presented in the following table ($ in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Detail of components
|
|
2019
|
|
2018
|
|
Location on Statement of Income
|
Gains (losses) on derivatives:
|
|
|
|
|
|
|
Foreign currency contracts
|
|
$
|
1.0
|
|
|
$
|
(0.7)
|
|
|
Net sales
|
|
Foreign currency contracts
|
|
1.0
|
|
|
(0.5)
|
|
|
Cost of goods and services sold
|
|
Foreign currency contracts
|
|
6.9
|
|
|
—
|
|
|
Other expense
|
|
Forward treasury locks
|
|
(0.5)
|
|
|
(0.4)
|
|
|
Interest expense
|
|
Total before tax
|
|
8.4
|
|
|
(1.6)
|
|
|
|
Tax expense
|
|
(2.6)
|
|
|
0.4
|
|
|
|
Net of tax
|
|
$
|
5.8
|
|
|
$
|
(1.2)
|
|
|
|
Amortization of defined benefit pension and other postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service credit
|
|
0.6
|
|
|
2.0
|
|
|
(a)
|
|
Actuarial gains (losses)
|
|
0.2
|
|
|
(1.4)
|
|
|
(a)
|
|
|
|
|
|
|
|
|
Settlements
|
|
(3.5)
|
|
|
—
|
|
|
(a)
|
|
Total before tax
|
|
(2.7)
|
|
|
0.6
|
|
|
|
Tax expense
|
|
0.7
|
|
|
(0.2)
|
|
|
|
Net of tax
|
|
$
|
(2.0)
|
|
|
$
|
0.4
|
|
|
|
Total reclassifications for the period, net of tax
|
|
$
|
3.8
|
|
|
$
|
(0.8)
|
|
|
|
(a) These components are included in the computation of net periodic benefit cost. Please refer to Note 15, Benefit Plans, for additional details.
Note 14: Stock-Based Compensation
The West Pharmaceutical Services, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Plan”) provides for the granting of stock options, stock appreciation rights, restricted stock awards and performance awards to employees and non-employee directors. A committee of the Board of Directors determines the terms and conditions of awards to be granted. Vesting requirements vary by award. At December 31, 2019, there were 3,119,314 shares remaining in the 2016 Plan for future grants.
Stock options and stock appreciation rights reduce the number of shares available by one share for each award granted. All other awards under the 2016 Plan will reduce the total number of shares available for grant by an amount equal to 2.5 times the number of shares awarded. If awards made under previous plans would entitle a plan participant to an amount of West stock in excess of the target amount, the additional shares (up to a maximum threshold amount) will be distributed under the 2016 Plan.
The following table summarizes our stock-based compensation expense recorded within selling, general and administrative expenses for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2017
|
Stock option and appreciation rights
|
$
|
9.1
|
|
|
$
|
8.6
|
|
|
$
|
7.8
|
|
Performance share units, stock-settled
|
9.5
|
|
|
2.5
|
|
|
4.1
|
|
Performance share units, cash-settled
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Performance share units, dividend equivalents
|
0.2
|
|
|
0.1
|
|
|
0.1
|
|
Employee stock purchase plan
|
0.9
|
|
|
0.9
|
|
|
0.8
|
|
Deferred compensation plans and restricted share awards
|
4.6
|
|
|
3.0
|
|
|
3.2
|
|
Total stock-based compensation expense
|
$
|
24.4
|
|
|
$
|
15.1
|
|
|
$
|
16.1
|
|
The amount of unrecognized compensation expense for all non-vested awards as of December 31, 2019 was approximately $21.2 million, which is expected to be recognized over a weighted average period of 1.6 years.
Stock Options
Stock options granted to employees vest in equal increments. All awards expire 10 years from the date of grant. Upon the exercise of stock options, shares are issued in exchange for the exercise price of the options.
The following table summarizes changes in outstanding options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share data)
|
2019
|
|
2018
|
|
2017
|
Options outstanding, January 1
|
3.0
|
|
|
3.5
|
|
|
4.5
|
|
Granted
|
0.3
|
|
|
0.5
|
|
|
0.5
|
|
Exercised
|
(0.6)
|
|
|
(1.0)
|
|
|
(1.5)
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
Options outstanding, December 31
|
2.7
|
|
|
3.0
|
|
|
3.5
|
|
Options exercisable, December 31
|
1.6
|
|
|
1.7
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Exercise Price
|
2019
|
|
2018
|
|
2017
|
Options outstanding, January 1
|
$
|
58.93
|
|
|
$
|
48.76
|
|
|
$
|
38.11
|
|
Granted
|
103.40
|
|
|
90.36
|
|
|
84.09
|
|
Exercised
|
46.42
|
|
|
35.95
|
|
|
26.15
|
|
Forfeited
|
92.71
|
|
|
75.32
|
|
|
60.92
|
|
Options outstanding, December 31
|
$
|
67.02
|
|
|
$
|
58.93
|
|
|
$
|
48.76
|
|
Options exercisable, December 31
|
$
|
53.12
|
|
|
$
|
45.32
|
|
|
$
|
35.44
|
|
As of December 31, 2019, the weighted average remaining contractual life of options outstanding and of options exercisable was 6.1 years and 5.0 years, respectively.
As of December 31, 2019, the aggregate intrinsic value of total options outstanding was $227.8 million, of which $158.6 million represented vested options.
The fair value of the options was estimated on the date of grant using a Black-Scholes option valuation model that used the following weighted average assumptions in 2019, 2018 and 2017: a risk-free interest rate of 2.3%, 2.7%, and 2.0%, respectively; stock volatility of 22.5%, 19.8%, and 19.9%, respectively; and dividend yields of 0.7%, 0.7%, and 0.7%, respectively. Stock volatility is estimated based on historical data and the impact from expected
future trends. Expected lives, which are based on prior experience, averaged 6 years for 2019, 2018 and 2017. The weighted average grant date fair value of options granted in 2019, 2018 and 2017 was $24.72, $20.16 and $18.08, respectively. Stock option expense is recognized over the vesting period, net of forfeitures.
For the years ended December 31, 2019, 2018 and 2017, the intrinsic value of options exercised was $46.9 million, $61.3 million and $91.7 million, respectively. The grant date fair value of options vested during those same periods was $7.5 million, $8.3 million and $6.7 million, respectively.
Stock Appreciation Rights
Stock appreciation rights (“SARs”) granted to eligible international employees vest in equal annual increments over 4 years of continuous service. All awards expire 10 years from the date of grant. The fair value of each cash-settled SAR is adjusted at the end of each reporting period, with the resulting change reflected in expense. As of December 31, 2019, SARs outstanding were 35,993, of which 23,833 were cash-settled and 12,160 were stock-settled. Upon exercise of a cash-settled SAR, the employee receives cash for the difference between the grant date price and the fair market value of the Company’s stock on the date of exercise. As a result of the cash settlement feature, cash-settled SARs are recorded within other long-term liabilities. Upon exercise of a stock-settled SAR, shares are issued in exchange for the exercise price of the stock-settled SAR. As a result of the stock settlement feature, stock-settled SARs are recorded within equity.
The following table summarizes changes in outstanding SARs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
SARs outstanding, January 1
|
39,819
|
|
|
51,368
|
|
|
116,087
|
|
Granted
|
3,364
|
|
|
3,480
|
|
|
2,792
|
|
Exercised
|
(6,790)
|
|
|
(14,629)
|
|
|
(67,511)
|
|
Forfeited
|
(400)
|
|
|
(400)
|
|
|
—
|
|
SARs outstanding, December 31
|
35,993
|
|
|
39,819
|
|
|
51,368
|
|
SARs exercisable, December 31
|
27,781
|
|
|
30,285
|
|
|
39,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Exercise Price
|
2019
|
|
2018
|
|
2017
|
SARs outstanding, January 1
|
$
|
46.48
|
|
|
$
|
38.55
|
|
|
$
|
31.13
|
|
Granted
|
102.51
|
|
|
89.64
|
|
|
83.47
|
|
Exercised
|
42.08
|
|
|
28.45
|
|
|
27.65
|
|
Forfeited
|
63.43
|
|
|
63.43
|
|
|
—
|
|
SARs outstanding, December 31
|
$
|
52.36
|
|
|
$
|
46.48
|
|
|
$
|
38.55
|
|
SARs exercisable, December 31
|
$
|
40.73
|
|
|
$
|
36.91
|
|
|
$
|
30.77
|
|
Performance Awards
In addition to stock options and SAR awards, we grant performance share unit (“PSU”) awards to eligible employees. These awards are earned based on the Company’s performance against pre-established targets, including annual growth rate of revenue and return on invested capital, over a specified performance period. Depending on the achievement of the targets, recipients of stock-settled PSU awards are entitled to receive a certain number of shares of common stock, whereas recipients of cash-settled PSU awards are entitled to receive a payment in cash per unit based on the fair market value of a share of our common stock at the end of the performance period.
The following table summarizes changes in our outstanding stock-settled PSU awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Non-vested stock-settled PSU awards, January 1
|
296,037
|
|
|
341,944
|
|
|
378,062
|
|
Granted at target level
|
84,309
|
|
|
102,307
|
|
|
92,045
|
|
Adjustments above/(below) target
|
(50,556)
|
|
|
(2,284)
|
|
|
(11,369)
|
|
Vested and converted
|
(48,964)
|
|
|
(121,984)
|
|
|
(116,684)
|
|
Forfeited
|
(16,204)
|
|
|
(23,946)
|
|
|
(110)
|
|
Non-vested stock-settled PSU awards, December 31
|
264,622
|
|
|
296,037
|
|
|
341,944
|
|
|
|
|
|
|
|
Weighted Average Grant Date Fair Value
|
2019
|
|
2018
|
|
2017
|
Non-vested stock-settled PSU awards, January 1
|
$
|
76.84
|
|
|
$
|
64.38
|
|
|
$
|
54.47
|
|
Granted at target level
|
103.40
|
|
|
90.45
|
|
|
84.01
|
|
Adjustments above/(below) target
|
83.89
|
|
|
33.86
|
|
|
42.85
|
|
Vested and converted
|
102.51
|
|
|
93.00
|
|
|
50.06
|
|
Forfeited
|
69.09
|
|
|
68.65
|
|
|
73.64
|
|
Non-vested stock-settled PSU awards, December 31
|
$
|
66.03
|
|
|
$
|
76.84
|
|
|
$
|
64.38
|
|
Shares earned under PSU awards may vary from 0% to 200% of an employee’s targeted award. The fair value of stock-settled PSU awards is based on the market price of our stock at the grant date and is recognized as expense over the performance period, adjusted for estimated target outcomes and net of forfeitures. The weighted average grant date fair value of stock-settled PSU awards granted during the years 2019, 2018 and 2017 was $103.40, $90.45 and $84.01, respectively. Including forfeiture and below-target achievement expectations, we expect that the stock-settled PSU awards will convert to 84,670 shares to be issued over an average remaining term of one year.
The fair value of cash-settled PSU awards is also based on the market price of our stock at the grant date. These awards are revalued at the end of each quarter based on changes in our stock price. As a result of the cash settlement feature, cash-settled PSU awards are recorded within other long-term liabilities.
The following table summarizes changes in our outstanding cash-settled PSU awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Non-vested cash-settled PSU awards, January 1
|
1,592
|
|
|
1,972
|
|
|
2,451
|
|
Granted at target level
|
806
|
|
|
560
|
|
|
598
|
|
Adjustments above/(below) target
|
(206)
|
|
|
(30)
|
|
|
(107)
|
|
Vested and converted
|
(211)
|
|
|
(910)
|
|
|
(970)
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
Non-vested cash-settled PSU awards, December 31
|
1,981
|
|
|
1,592
|
|
|
1,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Grant Date Fair Value
|
2019
|
|
2018
|
|
2017
|
Non-vested cash-settled PSU awards, January 1
|
$
|
79.48
|
|
|
$
|
92.25
|
|
|
$
|
25.28
|
|
Granted at target level
|
102.51
|
|
|
89.64
|
|
|
83.47
|
|
Adjustments above/(below) target
|
56.95
|
|
|
41.53
|
|
|
66.61
|
|
Vested and converted
|
102.51
|
|
|
93.00
|
|
|
86.93
|
|
Forfeited
|
—
|
|
|
—
|
|
|
—
|
|
Non-vested cash-settled PSU awards, December 31
|
$
|
150.33
|
|
|
$
|
79.48
|
|
|
$
|
92.25
|
|
Employee Stock Purchase Plan
We also offer an Employee Stock Purchase Plan (“ESPP”), which provides for the sale of our common stock to eligible employees at 85% of the current market price on the last trading day of each quarterly offering period. Payroll deductions are limited to 25% of the employee’s base salary, not to exceed $25,000 in any one calendar year. In addition, employees may not buy more than 2,000 shares during any offering period (8,000 shares per year). Purchases under the ESPP were 51,391 shares, 55,669 shares and 56,218 shares for the years 2019, 2018 and 2017, respectively. At December 31, 2019, there were approximately 3.8 million shares available for issuance under the ESPP.
Deferred Compensation Plans and Restricted Share Awards
Our deferred compensation plans include a Non-Qualified Deferred Compensation Plan for Non-Employee Directors, under which non-employee directors may defer all or part of their annual cash retainers. The deferred fees may be credited to a stock-equivalent account. Amounts credited to this account are converted into deferred stock units based on the fair market value of one share of our common stock on the last day of the quarter. For deferred stock units ultimately paid in cash, a liability is calculated at an amount determined by multiplying the number of units by the fair market value of our common stock at the end of each reporting period. In addition, deferred stock awards are granted on the date of our annual meeting, and are distributed in shares of common stock. In 2019, we granted 14,579 deferred stock awards, with a grant date fair value of $121.40. Similarly, a non-qualified deferred compensation plan for eligible employees provides for the conversion of compensation into deferred stock units. As of December 31, 2019, the two deferred compensation plans held a total of 366,159 deferred stock units, including 6,274 units to be paid in cash.
In addition, during 2019, we granted 13,308 restricted share awards at a weighted grant-date fair value of $116.39 per share to employees under the 2016 Plan. During 2018, we granted 15,942 restricted share awards at a weighted grant-date fair value of $96.77 per share to employees under the 2016 Plan. There were no grants of restricted share awards in 2017. The fair value of these awards is based on the market price of our stock at the grant date and is recognized as expense over the vesting period.
Annual Incentive Plan
Under our annual incentive plan, participants are paid bonuses on the attainment of certain financial goals, which they can elect to receive in either cash or shares of our common stock. If the employee elects payment in shares, they are also given a restricted incentive stock award equal to one share for each four bonus shares issued. The incentive stock awards vest at the end of four years provided that the participant has not made a disqualifying disposition of their bonus shares. Incentive stock award grants were 1,300 shares, 1,500 shares and 1,800 shares in 2019, 2018 and 2017, respectively. There were no incentive stock forfeitures in 2019. Incentive stock forfeitures of 200 shares and 800 shares occurred in 2018 and 2017, respectively. Compensation expense is recognized over the vesting period based on the fair market value of common stock on the award date: $106.14 per share granted in 2019, $93.00 per share granted in 2018 and $86.93 per share granted in 2017.
Note 15: Benefit Plans
Certain of our U.S. and international subsidiaries sponsor defined benefit pension plans. In addition, we provide minimal death benefits for certain U.S. retirees and pay a portion of healthcare costs for retired U.S. salaried employees and their dependents. Benefits for participants are coordinated with Medicare when possible. We also sponsor a defined contribution plan for certain salaried and hourly U.S. employees. Our 401(k) plan contributions were $15.6 million for 2019, $6.5 million for 2018 and $5.7 million for 2017. The increase in 401(k) plan contributions in 2019 was in response to the cessation of our U.S. qualified and non-qualified defined benefit pension plans as of January 1, 2019 (except for interest crediting).
Pension and Other Retirement Benefits
The components of net periodic benefit cost and other amounts recognized in OCI were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
|
|
Other retirement benefits
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
1.4
|
|
|
$
|
10.8
|
|
|
$
|
10.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
9.2
|
|
|
9.4
|
|
|
9.8
|
|
|
0.2
|
|
|
0.2
|
|
|
0.3
|
|
Expected return on assets
|
(12.0)
|
|
|
(15.7)
|
|
|
(13.5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service credit
|
0.1
|
|
|
(1.3)
|
|
|
(1.3)
|
|
|
(0.7)
|
|
|
(0.7)
|
|
|
(0.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial loss (gain)
|
2.1
|
|
|
3.8
|
|
|
4.9
|
|
|
(2.3)
|
|
|
(2.4)
|
|
|
(2.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement effects
|
3.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
4.3
|
|
|
$
|
7.0
|
|
|
$
|
10.3
|
|
|
$
|
(2.8)
|
|
|
$
|
(2.9)
|
|
|
$
|
(3.0)
|
|
Other changes in plan assets and benefit obligations recognized in OCI, pre-tax:
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (gain) arising during period
|
$
|
1.5
|
|
|
$
|
3.5
|
|
|
$
|
(9.0)
|
|
|
$
|
0.1
|
|
|
$
|
(1.4)
|
|
|
$
|
(1.1)
|
|
Prior service credit arising during period
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service credit
|
(0.1)
|
|
|
1.3
|
|
|
1.3
|
|
|
0.7
|
|
|
0.7
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial (loss) gain
|
(2.1)
|
|
|
(3.8)
|
|
|
(4.9)
|
|
|
2.3
|
|
|
2.4
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement effects
|
(3.5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency translation
|
0.6
|
|
|
(1.2)
|
|
|
2.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total recognized in OCI
|
$
|
(3.6)
|
|
|
$
|
0.1
|
|
|
$
|
(10.0)
|
|
|
$
|
3.1
|
|
|
$
|
1.7
|
|
|
$
|
2.2
|
|
Total recognized in net periodic benefit cost and OCI
|
$
|
0.7
|
|
|
$
|
7.1
|
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
(1.2)
|
|
|
$
|
(0.8)
|
|
Net periodic benefit cost by geographic location is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
|
|
Other retirement benefits
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
U.S. plans
|
$
|
2.4
|
|
|
$
|
4.8
|
|
|
$
|
7.3
|
|
|
$
|
(2.8)
|
|
|
$
|
(2.9)
|
|
|
$
|
(3.0)
|
|
International plans
|
1.9
|
|
|
2.2
|
|
|
3.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
4.3
|
|
|
$
|
7.0
|
|
|
$
|
10.3
|
|
|
$
|
(2.8)
|
|
|
$
|
(2.9)
|
|
|
$
|
(3.0)
|
|
During 2019, we recorded a $3.5 million pension settlement charge within other nonoperating expense (income), as we determined that normal-course lump-sum payments for each of our U.S. qualified and non-qualified defined benefit pension plans exceeded the threshold for settlement accounting under U.S. GAAP for the year. Effective January 1, 2019, except for interest crediting, benefit accruals under these defined benefit pension plans ceased.
During 2019, we contributed $2.6 million to our U.S. qualified defined benefit pension plan.
The following table presents the changes in the benefit obligation and the fair value of plan assets, as well as the funded status of the plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
Other retirement benefits
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Benefit obligation, January 1
|
$
|
(267.0)
|
|
|
$
|
(288.0)
|
|
|
$
|
(6.0)
|
|
|
$
|
(7.1)
|
|
Service cost
|
(1.4)
|
|
|
(10.8)
|
|
|
—
|
|
|
—
|
|
Interest cost
|
(9.2)
|
|
|
(9.4)
|
|
|
(0.2)
|
|
|
(0.2)
|
|
Participants’ contributions
|
(0.3)
|
|
|
(0.6)
|
|
|
(0.7)
|
|
|
(0.6)
|
|
Actuarial (loss) gain
|
(30.8)
|
|
|
20.4
|
|
|
(0.2)
|
|
|
1.4
|
|
Amendments/transfers in
|
—
|
|
|
(0.3)
|
|
|
—
|
|
|
—
|
|
Benefits/expenses paid
|
6.8
|
|
|
18.0
|
|
|
0.5
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Settlement effects
|
15.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency translation
|
(1.0)
|
|
|
3.7
|
|
|
—
|
|
|
—
|
|
Benefit obligation, December 31
|
$
|
(287.9)
|
|
|
$
|
(267.0)
|
|
|
$
|
(6.6)
|
|
|
$
|
(6.0)
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of assets, January 1
|
$
|
214.5
|
|
|
$
|
239.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on assets
|
41.3
|
|
|
(8.3)
|
|
|
—
|
|
|
—
|
|
Employer contribution
|
8.0
|
|
|
2.7
|
|
|
(0.2)
|
|
|
(0.1)
|
|
Participants’ contributions
|
0.3
|
|
|
0.6
|
|
|
0.7
|
|
|
0.6
|
|
Benefits/expenses paid
|
(6.3)
|
|
|
(18.0)
|
|
|
(0.5)
|
|
|
(0.5)
|
|
Settlement effects
|
(15.0)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency translation
|
1.3
|
|
|
(2.0)
|
|
|
—
|
|
|
—
|
|
Fair value of assets, December 31
|
$
|
244.1
|
|
|
$
|
214.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
$
|
(43.8)
|
|
|
$
|
(52.5)
|
|
|
$
|
(6.6)
|
|
|
$
|
(6.0)
|
|
International pension plan assets, at fair value, included in the preceding table were $39.4 million and $33.4 million at December 31, 2019 and 2018, respectively.
Amounts recognized in the balance sheet were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
Other retirement benefits
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Noncurrent assets
|
$
|
4.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current liabilities
|
(1.5)
|
|
|
(1.6)
|
|
|
(0.7)
|
|
|
(0.7)
|
|
Noncurrent liabilities
|
(46.6)
|
|
|
(50.9)
|
|
|
(5.9)
|
|
|
(5.3)
|
|
|
$
|
(43.8)
|
|
|
$
|
(52.5)
|
|
|
$
|
(6.6)
|
|
|
$
|
(6.0)
|
|
The amounts in accumulated other comprehensive loss, pre-tax, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
Other retirement benefits
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net actuarial loss (gain)
|
$
|
69.4
|
|
|
$
|
73.0
|
|
|
$
|
(7.0)
|
|
|
$
|
(9.4)
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
0.8
|
|
|
0.9
|
|
|
(1.0)
|
|
|
(1.7)
|
|
Total
|
$
|
70.2
|
|
|
$
|
73.9
|
|
|
$
|
(8.0)
|
|
|
$
|
(11.1)
|
|
The net actuarial loss and prior service credit for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are $1.8 million and $0.1 million, respectively. The net actuarial gain and prior service credit for the other retirement benefits plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $1.6 million and $0.7 million.
The accumulated benefit obligation for all defined benefit pension plans was $283.9 million and $263.0 million at December 31, 2019 and 2018, respectively, including $73.9 million and $64.0 million, respectively, for international pension plans.
As of December 31, 2019, our U.S. qualified defined benefit pension plan had plan assets in excess of its obligations. As of December 31, 2019, our other defined benefit pension plans had projected benefit obligations and accumulated benefit obligations in excess of plan assets.
All of the defined benefit pension plans had projected benefit obligations and accumulated benefit obligations in excess of plan assets as of December 31, 2018.
Benefit payments expected to be paid under our defined benefit pension and other retirement benefit plans in the next ten years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
Domestic
|
|
International
|
|
Total
|
2020
|
$
|
21.0
|
|
|
$
|
1.3
|
|
|
$
|
22.3
|
|
2021
|
13.5
|
|
|
1.3
|
|
|
14.8
|
|
2022
|
15.0
|
|
|
2.0
|
|
|
17.0
|
|
2023
|
13.7
|
|
|
1.5
|
|
|
15.2
|
|
2024
|
13.5
|
|
|
1.9
|
|
|
15.4
|
|
2025 to 2029
|
60.5
|
|
|
13.3
|
|
|
73.8
|
|
|
$
|
137.2
|
|
|
$
|
21.3
|
|
|
$
|
158.5
|
|
In 2020, we expect to contribute $0.7 million to pension plans, none of which is for international plans. In addition, we expect to contribute $0.7 million for other retirement benefits in 2020. We periodically consider additional, voluntary contributions depending on the investment returns generated by pension plan assets, changes in benefit obligation projections and other factors.
Weighted average assumptions used to determine net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
|
|
Other retirement benefits
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Discount rate
|
2.70
|
%
|
|
2.91
|
%
|
|
3.48
|
%
|
|
4.20
|
%
|
|
3.45
|
%
|
|
3.90
|
%
|
Rate of compensation increase
|
2.41
|
%
|
|
4.00
|
%
|
|
4.01
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
Long-term rate of return on assets
|
5.54
|
%
|
|
6.71
|
%
|
|
6.47
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average assumptions used to determine the benefit obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension benefits
|
|
|
|
Other retirement benefits
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Discount rate
|
2.79
|
%
|
|
3.76
|
%
|
|
3.20
|
%
|
|
4.20
|
%
|
Rate of compensation increase
|
2.49
|
%
|
|
4.01
|
%
|
|
—
|
|
|
—
|
|
The discount rate used to determine the benefit obligations for U.S. pension plans was 3.35% and 4.30% as of December 31, 2019 and 2018, respectively. The weighted average discount rate used to determine the benefit obligations for all international plans was 1.28% and 2.19% as of December 31, 2019 and 2018, respectively. The rate of compensation increase for U.S. plans was 4.25% for 2018, while the weighted average rate for all international plans was 2.49% for 2019 and 2.60% for 2018. Other retirement benefits were only available to U.S. employees. The expected long-term rate of return for U.S. plans, which accounts for 83.86% of global plan assets, was 5.60% for 2019, 7.00% for 2018 and 7.00% for 2017.
The assumed healthcare cost trend rate used to determine benefit obligations was 6.25% for all participants in 2019, decreasing to 5.00% by 2024. A change in the assumed healthcare cost trend rate by one percentage point would have an immaterial impact in the postretirement obligation. The assumed healthcare cost trend rate used to determine net periodic benefit cost was 6.25% for all participants in 2019, decreasing to 5.00% by 2024. The effect of a one percentage point increase or decrease in the rate would have an immaterial impact in the aggregate service and interest cost components.
The weighted average asset allocations by asset category for our pension plans, at December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Equity securities
|
33
|
%
|
|
23
|
%
|
Debt securities
|
65
|
%
|
|
74
|
%
|
Other
|
2
|
%
|
|
3
|
%
|
|
100
|
%
|
|
100
|
%
|
Our U.S. pension plan is managed as a balanced portfolio comprised of two components: equity and fixed income debt securities. Equity investments are used to maximize the long-term real growth of fund assets, while fixed income investments are used to generate current income, provide for a more stable periodic return and provide some protection against a prolonged decline in the market value of equity investments. Temporary funds may be held as cash. We maintain a long-term strategic asset allocation policy which provides guidelines for ensuring that the fund’s investments are managed with the short-term and long-term financial goals of the fund, while allowing the flexibility to react to unexpected changes in capital markets.
Diversification across and within asset classes is the primary means by which we mitigate risk. We maintain guidelines for all asset and sub-asset categories in order to avoid excessive investment concentrations. Fund assets are monitored on a regular basis. If at any time the fund asset allocation is not within the acceptable allocation range, funds will be reallocated. We also review the fund on a regular basis to ensure that the investment returns received are consistent with the short-term and long-term goals of the fund and with comparable market returns. We are prohibited from pledging fund securities and from investing pension fund assets in our own stock, securities on margin or derivative securities.
During the three months ended December 31, 2018, in anticipation of benefit accruals under our U.S. qualified and non-qualified defined benefit pension plans ceasing effective January 1, 2019, except for interest crediting, we changed the U.S. target asset allocations from 65% equity securities and 35% debt securities to 30% equity securities and 70% debt securities.
The following are the U.S. target asset allocations and acceptable allocation ranges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Target allocation
|
|
Allocation range
|
Equity securities
|
30%
|
|
|
27% - 33%
|
|
Debt securities
|
70%
|
|
|
67% - 73%
|
Other
|
—%
|
|
|
0% - 3%
|
The following tables present the fair value of our pension plan assets, utilizing the fair value hierarchy discussed in Note 12, Fair Value Measurements. In accordance with U.S. GAAP, certain pension plan assets measured at net asset value (“NAV”) have not been classified in the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
December 31,
|
|
Basis of Fair Value Measurements
|
|
|
|
|
($ in millions)
|
2019
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
Cash
|
$
|
2.2
|
|
|
$
|
2.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International mutual funds
|
15.5
|
|
|
1.3
|
|
|
14.2
|
|
|
—
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
Mutual funds
|
21.7
|
|
|
3.8
|
|
|
17.9
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan assets in the fair value hierarchy
|
$
|
39.4
|
|
|
$
|
7.3
|
|
|
$
|
32.1
|
|
|
$
|
—
|
|
Pension plan assets measured at NAV
|
204.7
|
|
|
|
|
|
|
|
Pension plan assets at fair value
|
$
|
244.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
December 31,
|
|
Basis of Fair Value Measurements
|
|
|
|
|
($ in millions)
|
2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash
|
$
|
1.7
|
|
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International mutual funds
|
17.7
|
|
|
17.7
|
|
|
—
|
|
|
—
|
|
Fixed income securities:
|
|
|
|
|
|
|
|
Mutual funds
|
13.9
|
|
|
13.9
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan assets in the fair value hierarchy
|
$
|
33.3
|
|
|
$
|
33.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Pension plan assets measured at NAV
|
181.2
|
|
|
|
|
|
|
|
Pension plan assets at fair value
|
$
|
214.5
|
|
|
|
|
|
|
|
Note 16: Other (Income) Expense
Other (income) expense consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2017
|
Restructuring and related charges:
|
|
|
|
|
|
Severance and post-employment benefits
|
$
|
2.6
|
|
|
$
|
3.1
|
|
|
$
|
—
|
|
Asset-related charges
|
0.3
|
|
|
2.2
|
|
|
—
|
|
Other charges
|
2.0
|
|
|
3.8
|
|
|
—
|
|
Total restructuring and related charges
|
$
|
4.9
|
|
|
$
|
9.1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Argentina currency devaluation
|
1.0
|
|
|
1.1
|
|
|
—
|
|
Tax recovery
|
(4.7)
|
|
|
—
|
|
|
—
|
|
Venezuela deconsolidation
|
—
|
|
|
—
|
|
|
11.1
|
|
|
|
|
|
|
|
Development and licensing income
|
(0.9)
|
|
|
(0.9)
|
|
|
(10.6)
|
|
Contingent consideration
|
2.1
|
|
|
(2.6)
|
|
|
(2.4)
|
|
Other items
|
(4.9)
|
|
|
(4.8)
|
|
|
3.9
|
|
Total other (income) expense
|
$
|
(2.5)
|
|
|
$
|
1.9
|
|
|
$
|
2.0
|
|
Restructuring and Related Charges
In February 2018, our Board of Directors approved a restructuring plan designed to realign our manufacturing capacity with demand. These changes were expected to be implemented over a period of up to twenty-four months from the date of the approval. The plan was expected to require restructuring and related charges of approximately $16.0 million. Since its approval, we recorded $13.7 million in restructuring and related charges associated with this plan. The plan is now considered complete.
During 2019, we recorded $4.9 million in restructuring and related charges associated with this plan, consisting of $2.6 million for severance charges, $0.3 million for non-cash asset write-downs associated with the discontinued use of certain equipment, and $2.0 million for other non-cash charges.
During 2018, we recorded $8.8 million in restructuring and related charges associated with this plan, consisting of $3.1 million for severance charges, $2.2 million for non-cash asset write-downs associated with the discontinued use of certain equipment, and $3.5 million for other non-cash charges.
The following table presents activity related to our restructuring obligations related to our 2018 restructuring plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
Severance and benefits
|
|
Asset-related charges
|
|
Other charges
|
|
Total
|
Balance, December 31, 2017
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Charges
|
3.1
|
|
|
2.2
|
|
|
3.5
|
|
|
8.8
|
|
Cash payments
|
(0.8)
|
|
|
—
|
|
|
—
|
|
|
(0.8)
|
|
Non-cash asset write-downs
|
—
|
|
|
(2.2)
|
|
|
(3.5)
|
|
|
(5.7)
|
|
Balance, December 31, 2018
|
$
|
2.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
Charges
|
2.6
|
|
|
0.3
|
|
|
2.0
|
|
|
4.9
|
|
Cash payments
|
(3.5)
|
|
|
—
|
|
|
—
|
|
|
(3.5)
|
|
Non-cash asset write-downs
|
—
|
|
|
(0.3)
|
|
|
(2.0)
|
|
|
(2.3)
|
|
Balance, December 31, 2019
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.4
|
|
On February 15, 2016, our Board of Directors approved a restructuring plan designed to repurpose several of our production facilities in support of growing high-value proprietary products and to realign operational and commercial activities to meet the needs of our new market-focused commercial organization. During 2018, we recorded $0.3 million in additional charges related to this restructuring plan. Our remaining restructuring obligations related to our 2016 restructuring plan as of December 31, 2019 were $0.1 million.
Other Items
During 2019, we recorded a charge of $1.0 million as a result of the continued devaluation of Argentina’s currency. During 2018, we recorded a charge of $1.1 million related to the classification of Argentina’s economy as highly inflationary under U.S. GAAP as of July 1, 2018.
During 2019, we recognized a tax recovery of $4.7 million related to previously-paid international excise taxes, following a favorable court ruling.
On February 17, 2016, the Venezuelan government announced a devaluation of the Bolivar, from the previously-prevailing official exchange rate of 6.3 Bolivars to USD to 10.0 Bolivars to USD, and streamlined the previous three-tiered currency exchange mechanism into a dual currency exchange mechanism. In 2017, as a result of the continued deterioration of conditions in Venezuela as well as our continued reduced access to USD settlement controlled by the Venezuelan government, we recorded a charge of $11.1 million related to the deconsolidation of our Venezuelan subsidiary, following our determination that we no longer met the U.S. GAAP criteria for control of that subsidiary. This charge included the derecognition of the carrying amounts of our Venezuelan subsidiary’s assets and liabilities, as well as the write-off of our investment in our Venezuelan subsidiary, related unrealized translation adjustments and the elimination of intercompany accounts. As of April 1, 2017, our consolidated financial statements exclude the results of our Venezuelan subsidiary.
During 2019, 2018 and 2017, we recorded development income of $0.9 million, $0.9 million and $1.5 million, respectively, related to a nonrefundable customer payment of $20.0 million received in June 2013 in return for the exclusive use of the SmartDose technology platform within a specific therapeutic area. Please refer to Note 3, Revenue, for additional information. In addition, during 2017, we recorded income of $9.1 million attributable to the reimbursement of certain costs related to a technology that we subsequently licensed to a third party. The license of technology to the third party may result in additional income in the future, contingent on commercialization of the related product.
Contingent consideration represents changes in the fair value of the SmartDose contingent consideration. Please refer to Note 12, Fair Value Measurements, for additional details.
Other items consist of foreign exchange transaction gains and losses, gains and losses on the sale of fixed assets, and miscellaneous income and charges. Other items primarily changed in 2019 as a result of foreign exchange transaction gains of $5.6 million in 2019 and a $1.9 million gain on the sale of fixed assets as a result of our restructuring plan, as compared to foreign exchange transaction gains of $5.5 million in 2018 and a $1.1 million gain on the sale of fixed assets as a result of our restructuring plans.
Note 17: Income Taxes
As a global organization, we and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. During 2019, the statute of limitations for the 2015 U.S. federal tax year lapsed, leaving tax years 2016 through 2019 open to examination. For U.S. state and local jurisdictions, tax years 2015 through 2019 are open to examination. We are also subject to examination in various foreign jurisdictions for tax years 2012 through 2019.
A reconciliation of the beginning and ending amount of the liability for unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
Balance at January 1
|
$
|
3.9
|
|
|
$
|
3.2
|
|
Increase due to current year position
|
1.6
|
|
|
0.8
|
|
Increase due to prior year position
|
—
|
|
|
0.4
|
|
Reduction for expiration of statute of limitations/audits
|
(0.5)
|
|
|
(0.5)
|
|
Balance at December 31
|
$
|
5.0
|
|
|
$
|
3.9
|
|
In addition, we had balances in accrued liabilities for interest and penalties of $0.2 million at both December 31, 2019 and 2018. As of December 31, 2019, we had $5.0 million of total gross unrecognized tax benefits, which, if recognized, would favorably impact the effective income tax rate. It is reasonably possible that, due to the expiration of statutes and the closing of tax audits, the amount of gross unrecognized tax benefits may be reduced by approximately $0.5 million during the next twelve months, which would favorably impact our effective tax rate.
The components of income before income taxes are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2017
|
U.S. operations
|
$
|
161.2
|
|
|
$
|
132.9
|
|
|
$
|
96.5
|
|
International operations
|
130.6
|
|
|
107.8
|
|
|
125.9
|
|
Total income before income taxes
|
$
|
291.8
|
|
|
$
|
240.7
|
|
|
$
|
222.4
|
|
The related provision for income taxes consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2017
|
Current:
|
|
|
|
|
|
Federal
|
$
|
10.8
|
|
|
$
|
2.1
|
|
|
$
|
2.1
|
|
State
|
2.4
|
|
|
3.3
|
|
|
0.1
|
|
International
|
30.5
|
|
|
35.1
|
|
|
37.0
|
|
Current income tax provision
|
43.7
|
|
|
40.5
|
|
|
39.2
|
|
Deferred:
|
|
|
|
|
|
Federal and state
|
10.3
|
|
|
1.4
|
|
|
41.8
|
|
International
|
5.0
|
|
|
(0.5)
|
|
|
(0.1)
|
|
Deferred income tax provision
|
15.3
|
|
|
0.9
|
|
|
41.7
|
|
Income tax expense
|
$
|
59.0
|
|
|
$
|
41.4
|
|
|
$
|
80.9
|
|
Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.
The significant components of our deferred tax assets and liabilities at December 31 are:
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
Deferred tax assets
|
|
|
|
Net operating loss carryforwards
|
$
|
21.9
|
|
|
$
|
18.4
|
|
Tax credit carryforwards
|
2.8
|
|
|
10.5
|
|
|
|
|
|
Pension and deferred compensation
|
25.6
|
|
|
27.2
|
|
Other
|
9.2
|
|
|
11.4
|
|
Valuation allowance
|
(15.9)
|
|
|
(16.0)
|
|
Total deferred tax assets
|
43.6
|
|
|
51.5
|
|
Deferred tax liabilities:
|
|
|
|
Accelerated depreciation
|
37.9
|
|
|
31.3
|
|
Tax on undistributed earnings of subsidiaries
|
6.3
|
|
|
6.6
|
|
Other
|
0.9
|
|
|
2.0
|
|
Total deferred tax liabilities
|
45.1
|
|
|
39.9
|
|
Net deferred tax (liability) asset
|
$
|
(1.5)
|
|
|
$
|
11.6
|
|
A reconciliation of the U.S. federal corporate tax rate to our effective consolidated tax rate on income before income taxes follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
U.S. federal corporate tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
Tax on international operations other than U.S. tax rate
|
2.7
|
|
|
4.8
|
|
|
(4.5)
|
|
|
|
|
|
|
|
Reversal of prior valuation allowance
|
—
|
|
|
—
|
|
|
(0.5)
|
|
Adjustments to reserves for unrecognized tax benefits
|
0.4
|
|
|
0.2
|
|
|
(0.2)
|
|
U.S. tax on international earnings, net of foreign tax credits
|
0.4
|
|
|
(0.2)
|
|
|
0.1
|
|
State income taxes, net of federal tax effect
|
1.4
|
|
|
2.3
|
|
|
0.2
|
|
U.S. research and development credits
|
(1.0)
|
|
|
(0.9)
|
|
|
(0.8)
|
|
Excess tax benefits on share-based payments
|
(3.5)
|
|
|
(6.0)
|
|
|
(14.1)
|
|
Impact of 2017 Tax Act
|
—
|
|
|
(2.9)
|
|
|
15.9
|
|
Tax on undistributed earnings of subsidiaries
|
(0.2)
|
|
|
(1.3)
|
|
|
4.4
|
|
Venezuela deconsolidation
|
—
|
|
|
—
|
|
|
1.7
|
|
Other business credits and Section 199 Deduction
|
—
|
|
|
—
|
|
|
(0.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
(1.0)
|
|
|
0.2
|
|
|
(0.2)
|
|
Effective tax rate
|
20.2
|
%
|
|
17.2
|
%
|
|
36.4
|
%
|
During 2019, we recorded a tax benefit of $0.3 million due to the impact of federal law changes enacted during the year, as well as a tax benefit of $10.3 million associated with stock-based compensation.
During 2018, we recorded a net tax benefit of $2.5 million for the estimated impact of the 2017 Tax Act and a tax benefit of $14.3 million associated with stock-based compensation.
During 2017, we recorded a discrete tax charge of $48.8 million related to the 2017 Tax Act and the impact of changes in enacted international tax rates on previously-recorded deferred tax asset and liability balances, as well as a tax benefit of $33.1 million associated with stock-based compensation.
The 2017 Tax Act, which was signed into law on December 22, 2017, has resulted in significant changes to the U.S. corporate income tax system. These changes include, but are not limited to, a federal statutory rate reduction from 35.0% to 21.0% effective for tax years beginning after December 31, 2017. Changes in tax rates and tax laws are accounted for in the period of enactment. As a result, during the year ended December 31, 2017, we recorded a discrete charge based upon our understanding of the 2017 Tax Act and the guidance available as of the date of that filing. A significant portion of the discrete tax liability was attributable to a one-time mandatory deemed repatriation tax of post-1986 undistributed foreign subsidiary earnings and profits (the “Transition Toll Tax”) of $27.9 million. Additionally, due to the reduction of the federal statutory rate, we revalued our deferred assets and liabilities and recorded a provisional $11.4 million federal tax expense, net of state tax impact, during the year ended December 31, 2017.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. We recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in our consolidated financial statements for the year ended December 31, 2017. As of December 31, 2018, we finalized our calculations and tax positions used in our analysis of the impact of the 2017 Tax Act in consideration of proposed regulations and other guidance issued during 2018. As a result, we recorded a $7.5 million tax benefit related to a reduction of the Transition Toll Tax and an incremental tax expense of $4.0 million related to other adjustments. The final measurement reduced the Transition Toll Tax expense to $20.4 million from $27.9 million. The net impact of these adjustments resulted in a benefit of 1.45% to the 2018 effective tax rate.
The 2017 Tax Act created a provision known as global intangible low-tax income (“GILTI”) that imposes a U.S. tax on certain earnings of controlled foreign subsidiaries. We made an accounting policy election to reflect GILTI taxes, if any, as a current income tax expense in the period incurred.
As of December 31, 2019, we have fully utilized all of our U.S. federal net operating loss carryforwards. State operating loss carryforwards of $226.9 million created a deferred tax asset of $15.5 million, while foreign operating loss carryforwards of $49.4 million created a deferred tax asset of $6.4 million. Management estimates that certain state and foreign operating loss carryforwards are unlikely to be utilized and the associated deferred tax assets have been fully reserved. State loss carryforwards expire as follows: $15.4 million in 2020 and $211.5 million thereafter. Foreign loss carryforwards will begin to expire in 2027, while $48.7 million of the total $49.4 million will not expire.
As of December 31, 2019, we have utilized all available foreign tax credit carryforwards against the Transition Toll Tax. During 2019, we utilized all of our remaining U.S. federal research and development credit carryforwards. The $2.0 million of state research and development credits expire as follows: $0.5 million expire in 2023, $0.5 million expire in 2024, and $1.0 million expire after 2024.
In response to the 2017 Tax Act, we reevaluated our position regarding permanent reinvestment of foreign subsidiary earnings and profits through 2017 (with the exception of China and Mexico) and decided that those profits were no longer permanently reinvested. As of January 1, 2018, we reasserted indefinite reinvestment related to all post-2017 unremitted earnings in all of our foreign subsidiaries. In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is de minimis, and that position has not changed subsequent to the one-time transition tax under the 2017 Tax Act, except as noted above. Accordingly, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of approximately $214.2 million of undistributed earnings from foreign subsidiaries to the U.S., as those earnings continue to be permanently reinvested. Further, it is impracticable for us to estimate any future tax costs for any unrecognized deferred tax liabilities associated with our indefinite reinvestment assertion, because the actual tax liability, if any, would be dependent on complex analysis and calculations considering various tax laws, exchange rates, circumstances existing when there is a repatriation, sale or liquidation, or other factors.
Note 18: Commitments and Contingencies
At December 31, 2019, we were obligated under various operating lease agreements. Please refer to Note 6, Leases, for additional details.
At December 31, 2019, we were obligated under various defined benefit pension plans in the U.S. and other countries that cover employees who meet eligibility requirements. Please refer to Note 15, Benefit Plans, for additional details.
At December 31, 2019, our outstanding unconditional contractual commitments, including for the purchase of raw materials and finished goods, amounted to $249.1 million, of which $61.3 million is due to be paid in 2020.
We have letters of credit totaling $2.5 million supporting the reimbursement of workers’ compensation and other claims paid on our behalf by insurance carriers. Our accrual for insurance obligations was $3.2 million at December 31, 2019, of which $0.9 million is in excess of our deductible and, therefore, is reimbursable by the insurance company.
Our SmartDose contingent consideration is payable to the selling shareholders based upon a percentage of product sales over the life of the underlying product patent, with no cap on total payments. Given the length of the earnout period and the uncertainty in forecasted product sales, we do not believe it is meaningful to estimate the upper end of the range over the entire period. However, our estimated probable range which could become payable over the next five years is between zero and $3.7 million.
Note 19: Segment Information
Our business operations are organized into two reportable segments, Proprietary Products and Contract-Manufactured Products. Our Proprietary Products reportable segment offers proprietary packaging, containment and drug delivery products, along with analytical lab services and integrated solutions, primarily to biologic, generic and pharmaceutical drug customers. Our Contract-Manufactured Products reportable segment serves as a fully integrated business, focused on the design, manufacture, and automated assembly of complex devices, primarily for pharmaceutical, diagnostic, and medical device customers.
We evaluate the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, adjustments to annual incentive plan expense for over- or under-attainment of targets, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that we consider not representative of ongoing operations. Such items are referred to as other unallocated items and generally include restructuring and related charges, certain asset impairments and other specifically-identified income or expense items.
The following table presents information about our reportable segments, reconciled to consolidated totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2017
|
Net sales:
|
|
|
|
|
|
Proprietary Products
|
$
|
1,398.6
|
|
|
$
|
1,308.6
|
|
|
$
|
1,236.9
|
|
Contract-Manufactured Products
|
441.5
|
|
|
409.1
|
|
|
362.5
|
|
Intersegment sales elimination
|
(0.2)
|
|
|
(0.3)
|
|
|
(0.3)
|
|
Consolidated net sales
|
$
|
1,839.9
|
|
|
$
|
1,717.4
|
|
|
$
|
1,599.1
|
|
The intersegment sales elimination, which is required for the presentation of consolidated net sales, represents the elimination of components sold between our segments.
We do not have any customers accounting for greater than 10% of consolidated net sales.
The following table presents net sales and property, plant and equipment, net, by the country in which the legal subsidiary is domiciled and assets are located:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
Property, Plant and Equipment, Net
|
|
|
|
|
($ in millions)
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
United States
|
$
|
814.7
|
|
|
$
|
766.1
|
|
|
$
|
734.6
|
|
|
$
|
337.1
|
|
|
$
|
315.3
|
|
|
$
|
323.8
|
|
Germany
|
236.3
|
|
|
235.9
|
|
|
226.4
|
|
|
95.4
|
|
|
99.3
|
|
|
108.8
|
|
Ireland
|
173.8
|
|
|
138.1
|
|
|
100.5
|
|
|
162.0
|
|
|
165.4
|
|
|
173.2
|
|
France
|
150.6
|
|
|
145.0
|
|
|
142.6
|
|
|
53.3
|
|
|
50.1
|
|
|
51.6
|
|
Other European countries
|
251.1
|
|
|
230.5
|
|
|
201.0
|
|
|
59.1
|
|
|
59.5
|
|
|
63.2
|
|
Other
|
213.4
|
|
|
201.8
|
|
|
194.0
|
|
|
132.4
|
|
|
132.4
|
|
|
134.4
|
|
|
$
|
1,839.9
|
|
|
$
|
1,717.4
|
|
|
$
|
1,599.1
|
|
|
$
|
839.3
|
|
|
$
|
822.0
|
|
|
$
|
855.0
|
|
The following tables provide summarized financial information for our segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
Proprietary Products
|
|
Contract-Manufactured Products
|
|
Corporate/ Elimination/ Unallocated Items
|
|
Consolidated
|
|
2019
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,398.6
|
|
|
$
|
441.5
|
|
|
$
|
(0.2)
|
|
|
$
|
1,839.9
|
|
|
Operating profit
|
$
|
313.6
|
|
|
$
|
49.1
|
|
|
$
|
(66.1)
|
|
|
$
|
296.6
|
|
|
Interest expense
|
—
|
|
|
—
|
|
|
8.5
|
|
|
8.5
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
(3.8)
|
|
|
(3.8)
|
|
|
Other nonoperating expense (income)
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
Income before income taxes
|
$
|
313.6
|
|
|
$
|
49.1
|
|
|
$
|
(70.9)
|
|
|
$
|
291.8
|
|
|
Segment assets
|
$
|
1,480.6
|
|
|
$
|
386.0
|
|
|
$
|
474.8
|
|
|
$
|
2,341.4
|
|
|
Capital expenditures
|
91.2
|
|
|
37.2
|
|
|
(2.0)
|
|
|
126.4
|
|
|
Depreciation and amortization expense
|
82.2
|
|
|
17.9
|
|
|
3.3
|
|
|
103.4
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,308.6
|
|
|
$
|
409.1
|
|
|
$
|
(0.3)
|
|
|
$
|
1,717.4
|
|
|
Operating profit
|
$
|
266.4
|
|
|
$
|
44.3
|
|
|
$
|
(70.4)
|
|
|
$
|
240.3
|
|
|
Interest expense
|
—
|
|
|
—
|
|
|
8.4
|
|
|
8.4
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
(2.1)
|
|
|
(2.1)
|
|
|
Other nonoperating income
|
—
|
|
|
—
|
|
|
(6.7)
|
|
|
(6.7)
|
|
|
Income before income taxes
|
$
|
266.4
|
|
|
$
|
44.3
|
|
|
$
|
(70.0)
|
|
|
$
|
240.7
|
|
|
Segment assets
|
$
|
1,342.3
|
|
|
$
|
301.4
|
|
|
$
|
335.2
|
|
|
$
|
1,978.9
|
|
|
Capital expenditures
|
77.0
|
|
|
20.7
|
|
|
7.0
|
|
|
104.7
|
|
|
Depreciation and amortization expense
|
83.9
|
|
|
17.2
|
|
|
3.3
|
|
|
104.4
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,236.9
|
|
|
$
|
362.5
|
|
|
$
|
(0.3)
|
|
|
$
|
1,599.1
|
|
|
Operating profit
|
$
|
243.8
|
|
|
$
|
48.3
|
|
|
$
|
(66.3)
|
|
|
$
|
225.8
|
|
|
Interest expense
|
—
|
|
|
—
|
|
|
7.8
|
|
|
7.8
|
|
|
Interest income
|
—
|
|
|
—
|
|
|
(1.3)
|
|
|
(1.3)
|
|
|
Other nonoperating income
|
—
|
|
|
—
|
|
|
(3.1)
|
|
|
(3.1)
|
|
|
Income before income taxes
|
$
|
243.8
|
|
|
$
|
48.3
|
|
|
$
|
(69.7)
|
|
|
$
|
222.4
|
|
|
Segment assets
|
$
|
1,321.3
|
|
|
$
|
286.4
|
|
|
$
|
255.1
|
|
|
$
|
1,862.8
|
|
|
Capital expenditures
|
107.2
|
|
|
18.6
|
|
|
5.0
|
|
|
130.8
|
|
|
Depreciation and amortization expense
|
77.1
|
|
|
16.4
|
|
|
3.2
|
|
|
96.7
|
|
|
Please refer to Note 16, Other (Income) Expense, for a discussion of unallocated items.